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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Western Asset Mortgage Opportunity Fund Inc | NYSE:DMO | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.0079 | 0.07% | 11.8879 | 11.9211 | 11.87 | 11.9211 | 32,417 | 20:42:27 |
Annual Report |
December 31, 2022 |
INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
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Western Asset Mortgage Opportunity Fund Inc. |
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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. |
Western Asset Mortgage Opportunity Fund Inc. |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Performance Snapshot as of December 31, 2022 |
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Price Per Share |
12-Month Total Return** |
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$12.12 (NAV) | -13.69 | %† | ||
$10.77 (Market Price) | -21.64 | %‡ |
* | For the tax character of distributions paid during the fiscal year ended December 31, 2022, please refer to page 49 of this report. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
i |
The Bloomberg U.S. Mortgage-Backed Securities Index tracks the performance of fixed-rate agency mortgage-backed pass-through securities, guaranteed by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. |
ii |
The Bloomberg Agency Commercial Mortgage-Backed Securities (“CMBS”) Index is a fixed-rate, investment-grade benchmark that tracks the market for multi-family CMBS debt issued by U.S. government agencies, Freddie Mac and Fannie Mae. |
iii |
The Bloomberg Non-Agency CMBS Index is made up of fixed-rate, publicly issued, U.S. dollar-denominated, non agency collateralized mortgage-backed securities (CMBS). The Index only holds securities with a remaining weighted average life of less than five years. |
iv |
Net asset value (“NAV”) is calculated by subtracting total liabilities, including liabilities associated with financial leverage (if any) from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) 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 Fund’s market price as determined by supply of and demand for the Fund’s shares. |
v |
The ICE BofA U.S. Floating Rate Home Equity Loan Asset Backed Securities Index tracks the performance of U.S. dollar-denominated investment grade floating-rate asset-backed securities collateralized by home equity loans publicly issued in the U.S. domestic market. Qualifying securities must have an investment grade rating, at least one year remaining to final stated maturity, a floating-rate coupon, and an original deal size for the collateral group of at least $250 million. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
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† | The bar graph above represents the composition of the Fund’s investments as of December 31, 2022 and December 31, 2021 and does not include derivatives, such as futures contracts and swap contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time. |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Net Asset Value |
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Average annual total returns 1 |
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Twelve Months Ended 12/31/22 | -13.69 | % | ||
Five Years Ended 12/31/22 | 0.19 | |||
Ten Years Ended 12/31/22 | 6.11 | |||
Cumulative total returns 1 |
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12/31/12 through 12/31/22 | 80.98 | % | ||
Market Price |
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Average annual total returns 2 |
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Twelve Months Ended 12/31/22 | -21.64 | % | ||
Five Years Ended 12/31/22 | -4.95 | |||
Ten Years Ended 12/31/22 | 4.73 | |||
Cumulative total returns 2 |
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12/31/12 through 12/31/22 | 58.75 | % |
1 |
Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. |
2 |
Assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
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† | Hypothetical illustration of $10,000 invested in Western Asset Mortgage Opportunity Fund Inc. on December 31, 2012, assuming the reinvestment of all distributions, including returns of capital, if any, at net asset value and also assuming the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan through December 31, 2022. The hypothetical illustration also assumes a $10,000 investment in the ICE BofA U.S. Floating Rate Home Equity Loan Asset Backed Securities Index. The ICE BofA U.S. Floating Rate Home Equity Loan Asset Backed Securities Index (the “Index”) is an unmanaged index composed of agency mortgage-backed pass-through securities, both fixed-rate and hybrid adjustable-rate mortgages, issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. The Index is unmanaged and is not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index. |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) —107.5% |
||||||||||||||||
Adjustable Rate Mortgage Trust, 2005-5 1A1 |
3.129 | % | 9/25/35 | $ | 84,505 | $ | 67,173 | (b) | ||||||||
Adjustable Rate Mortgage Trust, 2005-7 2A21 |
2.932 | % | 10/25/35 | 127,869 | 108,131 | (b) | ||||||||||
Adjustable Rate Mortgage Trust, 2005-12 5A1 (1 mo. USD LIBOR + 0.500%) |
4.889 | % | 3/25/36 | 190,362 | 55,661 | (b) | ||||||||||
Aegis Asset Backed Securities Trust, 2005-3 M3 (1 mo. USD LIBOR + 0.735%) |
5.124 | % | 8/25/35 | 3,460,000 | 2,799,865 | (b)(c) | ||||||||||
AFC Trust, 2000-3 1A (1 mo. USD LIBOR + 0.750%) |
5.139 | % | 10/25/30 | 591,954 | 555,551 | (b)(d) | ||||||||||
Alternative Loan Trust, 2005-11CB 3A3, IO (-1.000 x 1 mo. USD LIBOR + 5.000%) |
0.611 | % | 6/25/35 | 1,011,432 | 38,861 | (b) | ||||||||||
Alternative Loan Trust, 2005-14 3A1 |
2.890 | % | 5/25/35 | 99,696 | 72,487 | (b) | ||||||||||
Alternative Loan Trust, 2005-36 4A1 |
3.377 | % | 8/25/35 | 150,719 | 134,548 | (b) | ||||||||||
Alternative Loan Trust, 2005-J10 1A1 (1 mo. USD LIBOR + 0.500%) |
4.889 | % | 10/25/35 | 465,459 | 314,418 | (b) | ||||||||||
Alternative Loan Trust, 2006-HY10 1A1 |
2.869 | % | 5/25/36 | 134,437 | 111,740 | (b) | ||||||||||
Alternative Loan Trust, 2006-J8 A5 |
6.000 | % | 2/25/37 | 75,472 | 34,480 | |||||||||||
Alternative Loan Trust, 2007-3T1 2A1 |
6.000 | % | 3/25/27 | 22,240 | 21,932 | |||||||||||
Alternative Loan Trust, 2007-23CB A8 (-4.000 x 1 mo. USD LIBOR + 28.400%) |
10.845 | % | 9/25/37 | 385,524 | 352,170 | (b)(c) | ||||||||||
Alternative Loan Trust, 2007-OA8 1A1 (1 mo. USD LIBOR + 0.360%) |
4.749 | % | 6/25/47 | 748,159 | 600,267 | (b)(c) | ||||||||||
American Home Mortgage Assets Trust, 2005-2 2A1A |
2.808 | % | 1/25/36 | 632,449 | 423,739 | (b) | ||||||||||
American Home Mortgage Investment Trust, 2007-2 2A (1 mo. USD LIBOR + 0.800%) |
5.189 | % | 3/25/47 | 12,735,445 | 120,965 | (b) | ||||||||||
American Home Mortgage Investment Trust, 2007-A 4A (1 mo. USD LIBOR + 0.900%) |
5.289 | % | 7/25/46 | 1,739,322 | 519,749 | (b)(d) | ||||||||||
Banc of America Funding Corp., 2015-R3 2A2 |
3.184 | % | 2/27/37 | 2,678,184 | 2,315,799 | (b)(c)(d) | ||||||||||
Banc of America Funding Trust, 2004-C 3A1 |
3.857 | % | 12/20/34 | 194,059 | 175,241 | (b) | ||||||||||
Banc of America Funding Trust, 2006-D 2A1 |
3.499 | % | 5/20/36 | 31,362 | 27,061 | (b) | ||||||||||
Banc of America Funding Trust, 2006-F 1A1 |
3.309 | % | 7/20/36 | 93,420 | 85,959 | (b) | ||||||||||
Banc of America Funding Trust, 2014-R5 1A2 (6 mo. USD LIBOR + 1.500%) |
3.188 | % | 9/26/45 | 3,750,000 | 2,785,913 | (b)(c)(d) | ||||||||||
Banc of America Funding Trust, 2015-R2 9A2 |
4.007 | % | 3/27/36 | 3,316,822 | 2,775,126 | (b)(c)(d) | ||||||||||
Banc of America Funding Trust, 2015-R4 4A3 |
7.655 | % | 1/27/30 | 14,794,986 | 4,931,805 | (b)(c)(d) | ||||||||||
Bayview Financial Asset Trust, 2007-SR1A |
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M1 (1 mo. USD LIBOR + 0.800%) |
5.189 | % | 3/25/37 | 1,450,281 | 1,389,171 | (b)(d) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
9 |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
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Bayview Financial Asset Trust, 2007-SR1A M2 (1 mo. USD LIBOR + 0.900%) |
5.289 | % | 3/25/37 | $ | 1,765,659 | $ | 1,788,944 | (b)(c)(d) | ||||||||
Bayview Financial Asset Trust, 2007-SR1A M3 (1 mo. USD LIBOR + 1.150%) |
5.539 | % | 3/25/37 | 799,956 | 863,923 | (b)(d) | ||||||||||
BCAP LLC Trust, 2011-RR2 1A4 |
3.308 | % | 7/26/36 | 2,504,968 | 1,194,928 | (b)(c)(d) | ||||||||||
Bear Stearns ALT-A Trust, 2005-9 25A1 |
3.619 | % | 11/25/35 | 174,336 | 127,729 | (b) | ||||||||||
Bear Stearns Asset Backed Securities Trust, 2005-CL1 A1 (1 mo. USD LIBOR + 0.500%) |
2.906 | % | 9/25/34 | 26,826 | 25,875 | (b) | ||||||||||
Bellemeade Re Ltd., 2017-1 B1 (1 mo. USD LIBOR + 4.750%) |
9.139 | % | 10/25/27 | 1,070,000 | 1,071,024 | (b)(d) | ||||||||||
Bellemeade Re Ltd., 2018-1A M2 (1 mo. USD LIBOR + 2.900%) |
7.289 | % | 4/25/28 | 243,030 | 242,601 | (b)(d) | ||||||||||
Chase Mortgage Finance Trust, 2006-S3 2A1 |
5.500 | % | 11/25/21 | 123,665 | 37,539 | |||||||||||
ChaseFlex Trust, 2005-2 3A3, IO (-1.000 x 1 mo. USD LIBOR + 5.500%) |
1.111 | % | 6/25/35 | 5,737,757 | 623,091 | (b)(c) | ||||||||||
Chevy Chase Funding LLC Mortgage-Backed Certificates, 2006-2A A1 (1 mo. USD LIBOR + 0.130%) |
4.519 | % | 4/25/47 | 51,318 | 50,192 | (b)(d) | ||||||||||
CHL Mortgage Pass-Through Trust, 2005-2 2A1 (1 mo. USD LIBOR + 0.640%) |
5.029 | % | 3/25/35 | 42,354 | 37,694 | (b) | ||||||||||
CHL Mortgage Pass-Through Trust, 2005-11 3A3 |
2.980 | % | 4/25/35 | 210,434 | 153,690 | (b) | ||||||||||
CHL Mortgage Pass-Through Trust, 2005-11 6A1 (1 mo. USD LIBOR + 0.600%) |
4.989 | % | 3/25/35 | 37,184 | 25,762 | (b) | ||||||||||
CHL Mortgage Pass-Through Trust, 2005-18 A7 (-2.750 x 1 mo. USD LIBOR +19.525%) |
7.456 | % | 10/25/35 | 9,863 | 7,079 | (b) | ||||||||||
CHL Mortgage Pass-Through Trust, 2005- HY10 1A1 |
3.901 | % | 2/20/36 | 16,623 | 13,240 | (b) | ||||||||||
CHL Mortgage Pass-Through Trust, 2005- HYB9 1A1 (12 mo. USD LIBOR + 1.750%) |
5.512 | % | 2/20/36 | 76,378 | 65,224 | (b) | ||||||||||
Citicorp Mortgage Securities Trust, 2007-8 B1 |
5.984 | % | 9/25/37 | 2,661,216 | 1,515,550 | (b)(c) | ||||||||||
Citigroup Mortgage Loan Trust, 2006-AR5 2A1A |
2.836 | % | 7/25/36 | 175,971 | 106,430 | (b) | ||||||||||
Citigroup Mortgage Loan Trust, 2008-3 A3 |
6.100 | % | 4/25/37 | 5,369,750 | 2,238,699 | (c)(d) | ||||||||||
Citigroup Mortgage Loan Trust Inc., 2004- HYB3 1A |
3.543 | % | 9/25/34 | 27,100 | 24,044 | (b) | ||||||||||
Citigroup Mortgage Loan Trust Inc., 2004- UST1 A2 |
4.168 | % | 8/25/34 | 6,212 | 5,692 | (b) | ||||||||||
Citigroup Mortgage Loan Trust Inc., 2005-5 1A5 |
3.225 | % | 8/25/35 | 83,435 | 66,927 | (b) |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
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Countrywide Asset-Backed Certificates Trust, 2006-SD3 A1 (1 mo. USD LIBOR + 0.660%) |
5.049 | % | 7/25/36 | $ | 163,963 | $ | 159,578 | (b)(d) | ||||||||
Countrywide Asset-Backed Certificates Trust, 2007-SEA1 1A1 (1 mo. USD LIBOR + 1.100%) |
5.489 | % | 5/25/47 | 272,050 | 206,991 | (b)(d) | ||||||||||
Credit-Based Asset Servicing & Securitization LLC, 2006-SL1 A3 (1 mo. USD LIBOR + 0.440%) |
4.829 | % | 9/25/36 | 3,503,686 | 227,835 | (b)(d) | ||||||||||
CSFB Mortgage-Backed Pass-Through Certificates, 2005-10 3A3 |
5.500 | % | 11/25/35 | 190,626 | 110,893 | |||||||||||
CSMC Resecuritization Trust, 2006-1R 1A2 (-2.750 x 1 mo. USD LIBOR + 19.525%) |
7.456 | % | 7/27/36 | 167,932 | 212,578 | (b)(d) | ||||||||||
CSMC Trust, 2014-11R 9A2 (1 mo. USD LIBOR + 0.140%) |
4.296 | % | 10/27/36 | 3,007,544 | 2,211,268 | (b)(c)(d) | ||||||||||
CSMC Trust, 2015-2R 7A2 |
3.060 | % | 8/27/36 | 3,432,271 | 2,594,168 | (b)(c)(d) | ||||||||||
CSMC Trust, 2017-RPL1 B1 |
2.950 | % | 7/25/57 | 3,052,442 | 1,957,448 | (b)(c)(d) | ||||||||||
CSMC Trust, 2017-RPL1 B2 |
2.950 | % | 7/25/57 | 3,501,991 | 2,252,018 | (b)(c)(d) | ||||||||||
CSMC Trust, 2017-RPL1 B3 |
2.950 | % | 7/25/57 | 2,977,486 | 1,685,049 | (b)(c)(d) | ||||||||||
CSMC Trust, 2017-RPL1 B4 |
2.950 | % | 7/25/57 | 3,042,894 | 579,966 | (b)(d) | ||||||||||
CSMC Trust, 2021-NQM6 B2 |
4.140 | % | 7/25/66 | 1,370,000 | 694,442 | (b)(c)(d) | ||||||||||
CWABS Revolving Home Equity Loan Trust, 2004-L 2A (1 mo. USD LIBOR + 0.280%) |
4.598 | % | 2/15/34 | 26,506 | 25,056 | (b) | ||||||||||
Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 2PO, PO |
0.000 | % | 4/15/36 | 12,628 | 7,202 | (d) | ||||||||||
Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 4AS1, IO |
5.069 | % | 4/15/36 | 101,707 | 8,912 | (b)(d) | ||||||||||
Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 4AS2, IO |
7.893 | % | 4/15/36 | 97,008 | 12,837 | (b)(d) | ||||||||||
Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 5AS1, IO |
4.357 | % | 4/15/36 | 52,762 | 7,593 | (b)(d) | ||||||||||
Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 5AS3, IO |
4.059 | % | 4/15/36 | 189,606 | 25,437 | (b)(d) | ||||||||||
Ellington Financial Mortgage Trust, 2020-1 B2 |
5.113 | % | 5/25/65 | 1,550,000 | 1,257,091 | (b)(c)(d) | ||||||||||
FARM Mortgage Trust, 2021-1 B |
3.238 | % | 7/25/51 | 1,250,402 | 846,190 | (b)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Debt Notes, 2020-DNA3 B1 (1 mo. USD LIBOR + 5.100%) |
9.489 | % | 6/25/50 | 1,195,862 | 1,247,115 | (b)(c)(d) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
11 |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
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Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Debt Notes, 2020-DNA5 B1 (30 Day Average SOFR + 4.800%) |
8.728 | % | 10/25/50 | $ | 1,000,000 | $ | 1,026,044 | (b)(c)(d) | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Debt Notes, 2021-DNA5 B2 (30 Day Average SOFR + 5.500%) |
9.428 | % | 1/25/34 | 1,200,000 | 947,075 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) REMIC, Structured Agency Credit Risk Debt Notes, 2021-DNA6 B2 (30 Day Average SOFR + 7.500%) |
11.428 | % | 10/25/41 | 1,640,000 | 1,402,776 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2016-1 B, PO |
0.000 | % | 9/25/55 | 12,054,316 | 1,722,870 | (c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2016-1 BIO, IO |
1.123 | % | 9/25/55 | 21,985,374 | 2,551,143 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2016-1 XSIO, IO |
0.075 | % | 9/25/55 | 142,339,067 | 628,285 | (b)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 B, PO |
0.000 | % | 8/25/56 | 11,102,691 | 1,694,888 | (c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 BIO, IO |
1.168 | % | 8/25/56 | 18,760,273 | 2,013,855 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 XSIO, IO |
0.075 | % | 8/25/56 | 365,808,372 | 1,499,449 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2018-3 BX |
0.420 | % | 8/25/57 | 3,338,601 | 1,159,997 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2019-2 M |
4.750 | % | 8/25/58 | 681,000 | 584,021 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2020-1 BXS |
4.067 | % | 8/25/59 | 4,058,333 | 1,413,309 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2021-3 BXS |
5.370 | % | 3/25/61 | 1,698,640 | 872,321 | (b)(c)(d) |
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Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
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Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-DNA3 B2 (1 mo. USD LIBOR + 7.750%) |
12.139 | % | 9/25/48 | $ | 2,000,000 | $ | 1,991,125 | (b)(c)(d) | ||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2019-DNA3 B1 (1 mo. USD LIBOR + 3.250%) |
7.639 | % | 7/25/49 | 1,750,000 | 1,752,625 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA2 B (1 mo. USD LIBOR + 10.500%) |
14.889 | % | 10/25/28 | 493,657 | 510,099 | (b)(c) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA3 B (1 mo. USD LIBOR + 11.250%) |
15.639 | % | 12/25/28 | 1,026,137 | 1,082,777 | (b)(c) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA4 B (1 mo. USD LIBOR + 8.600%) |
12.989 | % | 3/25/29 | 1,571,969 | 1,534,863 | (b)(c) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2017-DNA2 B2 (1 mo. USD LIBOR + 11.250%) |
15.639 | % | 10/25/29 | 1,765,710 | 1,802,172 | (b)(c) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2017-SPI1 B |
4.116 | % | 9/25/47 | 747,410 | 645,904 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-HRP1 B2 (1 mo. USD LIBOR + 11.750%) |
16.139 | % | 5/25/43 | 5,472,185 | 5,706,208 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-HRP2 B2 (1 mo. USD LIBOR + 10.500%) |
14.889 | % | 2/25/47 | 3,530,000 | 3,737,500 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-SPI2 B |
3.836 | % | 5/25/48 | 1,793,912 | 1,290,496 | (b)(c)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-SPI4 B |
4.512 | % | 11/25/48 | 3,708,477 | 2,574,329 | (b)(c)(d) | ||||||||||
Federal National Mortgage Association (FNMA), 2012-134 LS, IO (-1.000 x 1 mo. USD LIBOR + 6.150%) |
1.761 | % | 12/25/42 | 1,196,464 | 129,292 | (b) | ||||||||||
Federal National Mortgage Association (FNMA)—CAS, 2016-C01 1B (1 mo. USD LIBOR + 11.750%) |
16.139 | % | 8/25/28 | 1,860,749 | 1,993,764 | (b)(c)(d) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
13 |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
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Residential Mortgage-Backed Securities (a) — continued |
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Federal National Mortgage Association (FNMA)—CAS, 2016-C02 1B (1 mo. USD LIBOR + 12.250%) |
16.639 | % | 9/25/28 | $ | 2,332,878 | $ | 2,576,183 | (b)(c)(d) | ||||||||
Federal National Mortgage Association (FNMA)—CAS, 2016-C03 1B (1 mo. USD LIBOR + 11.750%) |
16.139 | % | 10/25/28 | 1,929,962 | 2,079,543 | (b)(c)(d) | ||||||||||
Federal National Mortgage Association (FNMA)—CAS, 2016-C04 1B (1 mo. USD LIBOR + 10.250%) |
14.639 | % | 1/25/29 | 2,609,294 | 2,724,231 | (b)(c)(d) | ||||||||||
Federal National Mortgage Association (FNMA)—CAS, 2016-C06 1B (1 mo. USD LIBOR + 9.250%) |
13.639 | % | 4/25/29 | 3,508,594 | 3,544,303 | (b)(c)(d) | ||||||||||
Federal National Mortgage Association (FNMA)—CAS, 2020-R01 1B1 (1 mo. USD LIBOR + 3.250%) |
7.639 | % | 1/25/40 | 1,500,000 | 1,401,860 | (b)(c)(d) | ||||||||||
First Horizon Alternative Mortgage Securities Trust, 2005-AA6 3A1 |
3.592 | % | 8/25/35 | 222,604 | 191,586 | (b) | ||||||||||
First Horizon Alternative Mortgage Securities Trust, 2006-FA6 2A1, PAC |
6.250 | % | 11/25/36 | 66,893 | 24,937 | |||||||||||
Government National Mortgage Association (GNMA) II |
5.500 | % | 2/1/52 | 2,000,000 | 2,010,246 | (e) | ||||||||||
Government National Mortgage Association (GNMA) II |
6.000 | % | 2/1/52 | 4,000,000 | 4,056,680 | (e) | ||||||||||
GS Mortgage Securities Corp. II, 2000-1A A (1 mo. USD LIBOR + 0.350%) |
3.343 | % | 3/20/23 | 8,661 | 8,678 | (b)(d) | ||||||||||
GSAA Resecuritization Mortgage Trust, 2005-R1 1A2, IO (-1.000 x 1 mo. USD LIBOR + 5.000%) |
4.911 | % | 4/25/35 | 265,961 | 39,310 | (b) | ||||||||||
GSMPS Mortgage Loan Trust, 2005-RP1 1A4 |
8.500 | % | 1/25/35 | 39,108 | 39,298 | (d) | ||||||||||
GSMPS Mortgage Loan Trust, 2006-RP1 1A2 |
7.500 | % | 1/25/36 | 277,594 | 240,783 | (d) | ||||||||||
HarborView Mortgage Loan Trust, 2006-2 1A |
3.720 | % | 2/25/36 | 13,653 | 4,460 | (b) | ||||||||||
Home Equity Mortgage Trust, 2006-1 A3 (1 mo. USD LIBOR + 0.500%) |
4.889 | % | 5/25/36 | 3,500,000 | 3,246,329 | (b)(c) | ||||||||||
HSI Asset Loan Obligation Trust, 2007-AR1 4A1 |
3.977 | % | 1/25/37 | 66,574 | 49,702 | (b) | ||||||||||
Impac CMB Trust, 2004-8 1A (1 mo. USD LIBOR + 0.720%) |
5.109 | % | 10/25/34 | 104,769 | 95,744 | (b) | ||||||||||
IndyMac INDA Mortgage Loan Trust, 2005- AR2 1A1 |
3.388 | % | 1/25/36 | 62,029 | 48,128 | (b) | ||||||||||
IndyMac INDX Mortgage Loan Trust, 2004- AR13 1A1 |
3.175 | % | 1/25/35 | 25,429 | 24,256 | (b) |
14 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
||||||||||||||||
IndyMac INDX Mortgage Loan Trust, 2005- AR15 A2 |
3.227 | % | 9/25/35 | $ | 37,998 | $ | 31,364 | (b) | ||||||||
IndyMac INDX Mortgage Loan Trust, 2006- AR7 5A1 |
3.318 | % | 5/25/36 | 114,238 | 91,064 | (b) | ||||||||||
IndyMac INDX Mortgage Loan Trust, 2006- AR9 3A3 |
3.129 | % | 6/25/36 | 221,737 | 173,918 | (b) | ||||||||||
IndyMac INDX Mortgage Loan Trust, 2006- AR11 1A1 |
3.297 | % | 6/25/36 | 286,081 | 230,331 | (b) | ||||||||||
JPMorgan Alternative Loan Trust, 2007-A1 3A1 |
3.699 | % | 3/25/37 | 185,778 | 164,707 | (b) | ||||||||||
JPMorgan Mortgage Trust, 2005-S3 1A1 |
6.500 | % | 1/25/36 | 610,143 | 331,988 | |||||||||||
JPMorgan Mortgage Trust, 2007-S2 3A2 |
6.000 | % | 6/25/37 | 33,227 | 32,874 | |||||||||||
JPMorgan Mortgage Trust, 2007-S2 3A3 |
6.500 | % | 6/25/37 | 10,534 | 10,366 | |||||||||||
JPMorgan Mortgage Trust, 2007-S3 1A18 (1 mo. USD LIBOR + 0.500%) |
4.889 | % | 8/25/37 | 1,914,474 | 691,889 | (b) | ||||||||||
Legacy Mortgage Asset Trust, 2021-GS3 A2 |
3.250 | % | 7/25/61 | 1,640,000 | 1,353,814 | (b)(c)(d) | ||||||||||
Lehman Mortgage Trust, 2006-3 1A7, IO (-1.000 x 1 mo. USD LIBOR + 5.400%) |
1.011 | % | 7/25/36 | 3,998,835 | 445,609 | (b)(c) | ||||||||||
Lehman Mortgage Trust, 2006-7 1A3, IO (-1.000 x 1 mo. USD LIBOR + 5.350%) |
0.961 | % | 11/25/36 | 3,367,003 | 328,597 | (b) | ||||||||||
Lehman Mortgage Trust, 2006-7 1A8 (1 mo. USD LIBOR + 0.180%) |
4.569 | % | 11/25/36 | 2,493,657 | 1,200,653 | (b)(c) | ||||||||||
Lehman Mortgage Trust, 2006-7 3A2, IO (-1.000 x 1 mo. USD LIBOR + 7.150%) |
2.761 | % | 11/25/36 | 4,893,824 | 622,995 | (b)(c) | ||||||||||
Lehman Mortgage Trust, 2007-5 2A3 (1 mo. USD LIBOR + 0.330%) |
4.719 | % | 6/25/37 | 2,595,600 | 416,010 | (b) | ||||||||||
Lehman XS Trust, 2006-19 A4 (1 mo. USD LIBOR + 0.340%) |
4.729 | % | 12/25/36 | 377,809 | 317,064 | (b) | ||||||||||
LSTAR Securities Investment Ltd., 2019-4 A1 (1 mo. USD LIBOR + 3.500%) |
7.869 | % | 5/1/24 | 2,013,851 | 2,022,143 | (b)(d) | ||||||||||
MASTR Adjustable Rate Mortgages Trust, 2004-12 5A1 |
4.110 | % | 10/25/34 | 8,293 | 7,910 | (b) | ||||||||||
MASTR Adjustable Rate Mortgages Trust, 2006-OA1 1A1 (1 mo. USD LIBOR + 0.210%) |
4.599 | % | 4/25/46 | 109,736 | 94,540 | (b) | ||||||||||
MASTR Reperforming Loan Trust, 2005-1 1A4 |
7.500 | % | 8/25/34 | 44,681 | 35,943 | (d) | ||||||||||
Merrill Lynch Mortgage Investors Trust, 2006-A1 2A1 |
2.736 | % | 3/25/36 | 377,859 | 207,529 | (b) | ||||||||||
Morgan Stanley Mortgage Loan Trust, 2006- 8AR 1A2 (1 mo. USD LIBOR + 0.140%) |
4.529 | % | 6/25/36 | 193,723 | 43,750 | (b) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
15 |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
||||||||||||||||
Morgan Stanley Mortgage Loan Trust, 2007- 5AX 2A3 (1 mo. USD LIBOR + 0.460%) |
4.849 | % | 2/25/37 | $ | 1,395,385 | $ | 380,574 | (b) | ||||||||
Morgan Stanley Mortgage Loan Trust, 2007- 15AR 4A1 |
3.318 | % | 11/25/37 | 303,782 | 257,012 | (b) | ||||||||||
Morgan Stanley Re-REMIC Trust, 2015-R2 1B (Federal Reserve U.S. 12 mo. Cumulative Avg 1 Year CMT + 0.710%) |
2.399 | % | 12/27/46 | 792,224 | 683,638 | (b)(d) | ||||||||||
New Century Home Equity Loan Trust, 2004-3 M3 (1 mo. USD LIBOR + 1.065%) |
5.454 | % | 11/25/34 | 115,432 | 113,664 | (b) | ||||||||||
New Residential Mortgage Loan Trust, 2017-4A B4 |
5.286 | % | 5/25/57 | 2,076,559 | 1,864,386 | (b)(c)(d) | ||||||||||
New Residential Mortgage Loan Trust, 2019-6A A1IB, IO |
0.500 | % | 9/25/59 | 23,412,800 | 380,711 | (b)(d) | ||||||||||
NewRez Warehouse Securitization Trust, 2021-1 F (1 mo. USD LIBOR + 5.250%) |
9.639 | % | 5/25/55 | 2,460,000 | 2,350,982 | (b)(d) | ||||||||||
Nomura Resecuritization Trust, 2015-4R 4A7 |
3.393 | % | 3/26/37 | 705,372 | 676,084 | (b)(c)(d) | ||||||||||
OBX Trust, 2022-NQM9 A3, Step Bond |
6.450 | % | 9/25/62 | 1,502,748 | 1,466,468 | (d) | ||||||||||
PMT Credit Risk Transfer Trust, 2019-2R A (1 mo. USD LIBOR + 2.750%) |
7.137 | % | 5/27/23 | 1,633,500 | 1,569,277 | (b)(c)(d) | ||||||||||
Popular ABS Mortgage Pass-Through Trust, 2005-5 MV2 (1 mo. USD LIBOR + 0.945%) |
3.147 | % | 11/25/35 | 2,075,060 | 1,843,090 | (b)(c) | ||||||||||
Provident Home Equity Loan Trust, 2000-2 A1 (1 mo. USD LIBOR + 0.540%) |
4.929 | % | 8/25/31 | 577,778 | 511,326 | (b) | ||||||||||
Radnor RE Ltd., 2020-1 M2B (1 mo. USD LIBOR + 2.250%) |
6.639 | % | 1/25/30 | 2,345,000 | 2,197,049 | (b)(c)(d) | ||||||||||
Radnor RE Ltd., 2021-1 M1C (30 Day Average SOFR + 2.700%) |
6.628 | % | 12/27/33 | 1,225,000 | 1,145,310 | (b)(d) | ||||||||||
RALI Trust, 2005-QA3 CB4 |
3.432 | % | 3/25/35 | 836,325 | 368,249 | (b) | ||||||||||
RALI Trust, 2006-QA1 A11 |
4.422 | % | 1/25/36 | 254,988 | 188,997 | (b) | ||||||||||
RALI Trust, 2006-QA4 A (1 mo. USD LIBOR + 0.360%) |
4.749 | % | 5/25/36 | 132,508 | 113,260 | (b) | ||||||||||
RALI Trust, 2006-QO2 A1 (1 mo. USD LIBOR + 0.440%) |
4.829 | % | 2/25/46 | 165,246 | 35,872 | (b) | ||||||||||
RALI Trust, 2007-QA2 A1 (1 mo. USD LIBOR + 0.260%) |
4.649 | % | 2/25/37 | 3,884 | 8,932 | (b) | ||||||||||
RAMP Trust, 2004-RS4 MII2 (1 mo. USD LIBOR + 1.350%) |
4.536 | % | 4/25/34 | 925,330 | 772,765 | (b)(c) | ||||||||||
RAMP Trust, 2005-SL2 A5 |
8.000 | % | 10/25/31 | 239,965 | 121,009 | |||||||||||
RBSGC Mortgage Loan Trust, 2007-A 3A1 (1 mo. USD LIBOR + 0.350%) |
4.739 | % | 1/25/37 | 2,682,711 | 696,957 | (b) |
16 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
||||||||||||||||
Redwood Funding Trust, 2019-1 PT, Step bond (4.468% to 7/29/23 then 4.968%) |
4.468 | % | 9/27/24 | $ | 2,105,580 | $ | 2,092,630 | (b)(d) | ||||||||
Renaissance Home Equity Loan Trust, 2006-1 AF5 |
6.166 | % | 5/25/36 | 519,120 | 265,248 | (b) | ||||||||||
Renaissance Home Equity Loan Trust, 2007-2 AF2 |
5.675 | % | 6/25/37 | 445,054 | 137,327 | (b) | ||||||||||
Renaissance Home Equity Loan Trust, 2007-3 AF3 |
7.238 | % | 9/25/37 | 1,522,390 | 714,430 | (b)(c) | ||||||||||
Residential Asset Securitization Trust, 2006-A1 1A6 (1 mo. USD LIBOR + 0.500%) |
4.889 | % | 4/25/36 | 1,280,218 | 434,646 | (b) | ||||||||||
Residential Asset Securitization Trust, 2006-A1 1A7, IO (-1.000 x 1 mo. USD LIBOR + 5.500%) |
1.111 | % | 4/25/36 | 2,653,301 | 276,798 | (b) | ||||||||||
Residential Asset Securitization Trust, 2007-A2 1A1 |
6.000 | % | 4/25/37 | 175,334 | 101,412 | |||||||||||
RFMSI Trust, 2006-S8 A12, IO (-1.000 x 1 mo. USD LIBOR + 5.400%) |
1.011 | % | 9/25/36 | 2,048,889 | 115,701 | (b) | ||||||||||
RFMSI Trust, 2007-S6 1A6 (1 mo. USD LIBOR + 0.500%) |
4.889 | % | 6/25/37 | 972,919 | 652,082 | (b)(c) | ||||||||||
RFMSI Trust, 2007-S6 1A13, IO (-1.000 x 1 mo. USD LIBOR + 5.500%) |
1.111 | % | 6/25/37 | 972,919 | 62,429 | (b) | ||||||||||
Seasoned Credit Risk Transfer Trust, 2022-2 M |
5.000 | % | 4/25/62 | 1,337,000 | 1,040,831 | (b)(c)(d) | ||||||||||
Seasoned Credit Risk Transfer Trust Series, 2021-1 M |
4.250 | % | 9/25/60 | 1,500,000 | 1,291,836 | (c)(d) | ||||||||||
Structured Adjustable Rate Mortgage Loan Trust, 2004-18 1A2 |
4.099 | % | 12/25/34 | 145,598 | 127,887 | (b) | ||||||||||
Structured Adjustable Rate Mortgage Loan Trust, 2005-4 1A1 |
3.513 | % | 3/25/35 | 105,397 | 83,951 | (b) | ||||||||||
Structured Adjustable Rate Mortgage Loan Trust, 2005-7 1A3 |
3.854 | % | 4/25/35 | 38,158 | 35,396 | (b) | ||||||||||
Structured Asset Investment Loan Trust, 2004-8 M9 (1 mo. USD LIBOR + 3.750%) |
8.139 | % | 9/25/34 | 297,405 | 278,846 | (b) | ||||||||||
Structured Asset Mortgage Investments II Trust, 2006-AR5 4A1 (1 mo. USD LIBOR + 0.440%) |
4.829 | % | 5/25/46 | 416,065 | 124,555 | (b) | ||||||||||
Wachovia Mortgage Loan Trust LLC, 2005-B 2A2 |
4.160 | % | 10/20/35 | 7,442 | 7,049 | (b) | ||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2005-AR2 B1 (1 mo. USD LIBOR + 0.795%) |
5.184 | % | 1/25/45 | 1,373,826 | 1,064,346 | (b)(c) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
17 |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Residential Mortgage-Backed Securities (a) — continued |
||||||||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2005-8 1A6 (-3.667 x 1 mo. USD LIBOR + 23.283%) |
7.191 | % | 10/25/35 | $ | 107,290 | $ | 93,059 | (b) | ||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2005-9 5A4 (-7.333 x 1 mo. USD LIBOR + 35.933%) |
3.749 | % | 11/25/35 | 41,365 | 35,144 | (b) | ||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2005-10 2A3 (1 mo. USD LIBOR + 0.900%) |
5.289 | % | 11/25/35 | 73,478 | 63,170 | (b) | ||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2005-AR13 A1C3 (1 mo. USD LIBOR + 0.980%) |
5.369 | % | 10/25/45 | 88,751 | 81,695 | (b) | ||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2005-AR15 A1C4 (1 mo. USD LIBOR + 0.800%) |
5.189 | % | 11/25/45 | 504,394 | 268,549 | (b) | ||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2006-AR10 A1 (1 mo. USD LIBOR + 0.200%) |
4.589 | % | 12/25/36 | 254,606 | 126,950 | (b) | ||||||||||
WaMu Mortgage Pass-Through Certificates Trust, 2006-AR16 2A2 |
3.406 | % | 12/25/36 | 108,374 | 93,219 | (b) | ||||||||||
Wells Fargo Alternative Loan Trust, 2007- PA1 A12, IO (-1.000 x 1 mo. USD LIBOR + 5.460%) |
1.071 | % | 3/25/37 | 1,185,307 | 47,214 | (b) | ||||||||||
Total Residential Mortgage-Backed Securities (Cost — $153,149,710) |
148,423,870 |
|||||||||||||||
Commercial Mortgage-Backed Securities (a) —48.6% |
||||||||||||||||
BPR Trust, 2021-TY F (1 mo. USD LIBOR + 4.200%) |
8.518 | % | 9/15/38 | 1,000,000 | 905,568 | (b)(d) | ||||||||||
BSREP Commercial Mortgage Trust, 2021-DC HRR (1 mo. USD LIBOR + 5.500%) |
9.818 | % | 8/15/38 | 3,536,000 | 2,925,533 | (b)(d) | ||||||||||
BX Commercial Mortgage Trust, 2019-IMC F (1 mo. USD LIBOR + 2.900%) |
7.218 | % | 4/15/34 | 2,000,000 | 1,869,397 | (b)(d) | ||||||||||
BX Commercial Mortgage Trust, 2021-XL2 J (1 mo. USD LIBOR + 3.890%) |
8.208 | % | 10/15/38 | 2,316,788 | 2,110,533 | (b)(d) | ||||||||||
BX Commercial Mortgage Trust, 2022-LP2 G (1 mo. Term SOFR + 4.106%) |
8.441 | % | 2/15/39 | 1,067,649 | 983,786 | (b)(d) | ||||||||||
CSMC OA LLC, 2014-USA F |
4.373 | % | 9/15/37 | 2,720,000 | 1,382,534 | (d) | ||||||||||
CSMC Trust, 2017-CHOP F (1 mo. USD LIBOR + 4.350%) |
8.668 | % | 7/15/32 | 1,620,000 | 1,475,787 | (b)(d) | ||||||||||
CSMC Trust, 2017-CHOP H (1 mo. USD LIBOR + 7.350%) |
11.668 | % | 7/15/32 | 2,459,000 | 2,236,541 | (b)(d) |
18 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Commercial Mortgage-Backed Securities (a) — continued |
||||||||||||||||
CSMC Trust, 2019-RIO B (1 mo. USD LIBOR + 7.000%) |
11.318 | % | 2/15/23 | $ | 2,975,040 | $ | 2,967,712 | (b)(d) | ||||||||
CSMC Trust, 2021-4SZN A (1 mo. Term SOFR + 3.967%) |
8.303 | % | 11/15/23 | 1,750,000 | 1,700,196 | (b)(d) | ||||||||||
CSMC Trust, 2021-ADV G (1 mo. USD LIBOR + 6.250%) |
10.568 | % | 7/15/38 | 2,080,000 | 1,790,974 | (b)(d) | ||||||||||
Federal Home Loan Mortgage Corp. (FHLMC) Multifamily Structured Credit Risk, 2021- MN1 B1 (30 Day Average SOFR + 7.750%) |
11.678 | % | 1/25/51 | 950,000 | 895,829 | (b)(d) | ||||||||||
FREMF Mortgage Trust, 21K-F117 CS (30 Day Average SOFR + 6.400%) |
10.125 | % | 7/25/31 | 1,474,805 | 1,417,466 | (b)(d) | ||||||||||
FRESB Mortgage Trust, 2018-SB48 B |
3.735 | % | 2/25/38 | 3,512,853 | 2,880,268 | (b)(d) | ||||||||||
GS Mortgage Securities Corp. Trust, 2018- LUAU G (1 mo. USD LIBOR + 4.450%) |
8.768 | % | 11/15/32 | 2,500,000 | 2,324,699 | (b)(d) | ||||||||||
GS Mortgage Securities Corp. Trust, 2019- SMP G (1 mo. USD LIBOR + 4.250%) |
8.568 | % | 8/15/32 | 1,500,000 | 1,396,009 | (b)(d) | ||||||||||
GS Mortgage Securities Trust, 2007-GG10 AJ |
5.621 | % | 8/10/45 | 1,221,681 | 319,698 | (b) | ||||||||||
Hawaii Hotel Trust, 2019-MAUI F (1 mo. USD LIBOR + 2.750%) |
7.068 | % | 5/15/38 | 1,000,000 | 952,866 | (b)(d) | ||||||||||
Hawaii Hotel Trust, 2019-MAUI G (1 mo. USD LIBOR + 3.150%) |
7.468 | % | 5/15/38 | 1,697,000 | 1,546,020 | (b)(d) | ||||||||||
HIT Trust, 2022-HI32 G (1 mo. Term SOFR + 7.228%) |
11.563 | % | 7/15/24 | 2,000,000 | 1,960,128 | (b)(d) | ||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-NNN HFL (1 mo. USD LIBOR + 4.000%) |
8.326 | % | 1/16/37 | 174,062 | 157,613 | (b)(d) | ||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, 2007-LD12 AJ |
6.514 | % | 2/15/51 | 70,527 | 62,888 | (b) | ||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, 2018-PHMZ M (1 mo. USD LIBOR + 8.508%) |
12.826 | % | 6/15/35 | 3,000,000 | 30 | (b)(d) | ||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST G (1 mo. USD LIBOR + 4.250%) |
8.818 | % | 12/15/36 | 988,000 | 354,087 | (b)(d) | ||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, 2020-MKST H (1 mo. USD LIBOR + 6.750%) |
11.318 | % | 12/15/36 | 1,033,000 | 264,910 | (b)(d) | ||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust, 2021-NYMZ M (1 mo. USD LIBOR + 7.250%) |
11.568 | % | 6/15/26 | 1,250,000 | 1,197,986 | (b)(d) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
19 |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Commercial Mortgage-Backed Securities (a) — continued |
||||||||||||||||
KIND Trust, 2021-KIND F (1 mo. USD LIBOR + 3.950%) |
8.268 | % | 8/15/38 | $ | 1,797,012 | $ | 1,600,025 | (b)(d) | ||||||||
MBRT, 2019-MBR H1 (1 mo. USD LIBOR + 4.350%) |
8.668 | % | 11/15/36 | 2,000,000 | 1,908,329 | (b)(d) | ||||||||||
Med Trust, 2021-MDLN G (1 mo. USD LIBOR + 5.250%) |
9.568 | % | 11/15/38 | 2,100,000 | 1,907,548 | (b)(d) | ||||||||||
ML-CFC Commercial Mortgage Trust, 2007-5 AJ |
5.450 | % | 8/12/48 | 44,426 | 11,458 | (b) | ||||||||||
ML-CFC Commercial Mortgage Trust, 2007-9 AJ |
6.193 | % | 9/12/49 | 16,636 | 16,355 | (b) | ||||||||||
ML-CFC Commercial Mortgage Trust, 2007-9 AJA |
6.222 | % | 9/12/49 | 3,876 | 3,810 | (b) | ||||||||||
Morgan Stanley Capital I Trust, 2007-IQ16 AJ |
6.079 | % | 12/12/49 | 84,324 | 41,328 | (b) | ||||||||||
MRCD Mortgage Trust, 2019-PRKC A |
4.250 | % | 12/15/36 | 2,048,000 | 1,497,899 | (b)(d) | ||||||||||
Multifamily CAS Trust, 2019-1 CE (1 mo. USD LIBOR + 8.750%) |
13.139 | % | 10/25/49 | 2,500,000 | 2,335,897 | (b)(d) | ||||||||||
Multifamily CAS Trust, 2020-1 CE (1 mo. USD LIBOR + 7.500%) |
11.889 | % | 3/25/50 | 1,500,000 | 1,397,067 | (b)(d) | ||||||||||
Natixis Commercial Mortgage Securities Trust, 2019-FAME D |
4.398 | % | 8/15/36 | 1,900,000 | 1,627,622 | (b)(d) | ||||||||||
Natixis Commercial Mortgage Securities Trust, 2019-FAME E |
4.398 | % | 8/15/36 | 950,000 | 741,504 | (b)(d) | ||||||||||
Natixis Commercial Mortgage Securities Trust, 2022-JERI G (1 mo. Term SOFR + 7.458%) |
11.793 | % | 1/15/39 | 3,500,000 | 3,130,250 | (b)(d) | ||||||||||
Natixis Commercial Mortgage Securities Trust, 2022-RRI E (1 mo. Term SOFR + 5.193%) |
9.529 | % | 3/15/35 | 1,697,000 | 1,605,478 | (b)(d) | ||||||||||
NCMF Trust, 2022-MFP G (1 mo. Term SOFR + 5.128%) |
9.464 | % | 3/15/39 | 2,200,000 | 2,101,262 | (b)(d) | ||||||||||
RIAL Issuer Ltd., 2022-FL8 E (1 mo. Term SOFR + 5.500%) |
9.825 | % | 1/19/37 | 1,500,000 | 1,462,495 | (b)(d) | ||||||||||
River Haus, 2021 A-2 |
6.950 | % | 8/15/24 | 1,500,000 | 1,499,556 | (b)(e)(f)(g) | ||||||||||
SMR Mortgage Trust, 2022-IND G (1 mo. Term SOFR + 7.500%) |
11.836 | % | 2/15/39 | 1,929,181 | 1,790,529 | (b)(d) | ||||||||||
Soho Trust, 2021-SOHO D |
2.697 | % | 8/10/38 | 1,500,000 | 968,030 | (b)(d) | ||||||||||
Starwood Retail Property Trust, 2014-STAR D (1 mo. USD LIBOR + 3.500%) |
7.818 | % | 11/15/27 | 1,000,000 | 40,000 | (b)(d) | ||||||||||
Starwood Retail Property Trust, 2014-STAR E (1 mo. USD LIBOR + 4.400%) |
8.718 | % | 11/15/27 | 1,600,000 | 3,208 | (b)(d) |
20 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Security |
Rate |
Maturity Date |
Face Amount |
Value |
||||||||||||
Commercial Mortgage-Backed Securities (a) — continued |
||||||||||||||||
Tharaldson Hotel Portfolio Trust, 2018-THL E (1 mo. USD LIBOR + 3.480%) |
7.698 | % | 11/11/34 | $ | 1,012,600 | $ | 949,083 | (b)(d) | ||||||||
Tharaldson Hotel Portfolio Trust, 2018-THL F (1 mo. USD LIBOR + 4.252%) |
8.470 | % | 11/11/34 | 769,576 | 724,794 | (b)(d) | ||||||||||
UBS Commercial Mortgage Trust, 2018- NYCH G (1 mo. USD LIBOR + 4.838%) |
9.156 | % | 2/15/32 | 962,000 | 882,151 | (b)(d) | ||||||||||
Wells Fargo Commercial Mortgage Trust, 2017-C42 D |
2.800 | % | 12/15/50 | 1,000,000 | 657,525 | (b)(d) | ||||||||||
Wells Fargo Commercial Mortgage Trust, 2022-JS2 G |
3.454 | % | 12/15/39 | 2,200,000 | 1,324,590 | (b)(d) | ||||||||||
WFRBS Commercial Mortgage Trust, 2014- C19 D |
4.234 | % | 3/15/47 | 825,000 | 752,849 | (d) | ||||||||||
Total Commercial Mortgage-Backed Securities (Cost — $81,300,863) |
67,059,700 |
|||||||||||||||
Face Amount/ Units |
||||||||||||||||
Asset-Backed Securities — 9.9% |
||||||||||||||||
AccessLex Institute, 2004-A B1 (28 day Auction Rate Security) |
5.892 | % | 7/1/39 | 100,000 | 95,103 | (b) | ||||||||||
BankAmerica Manufactured Housing Contract Trust, 1996-1 B1 |
7.875 | % | 10/10/26 | 7,866,000 | 318,438 | |||||||||||
BCMSC Trust, 1998-B A |
6.530 | % | 10/15/28 | 207,614 | 201,995 | (b) | ||||||||||
BCMSC Trust, 1999-A A3 |
5.980 | % | 3/15/29 | 13,335 | 13,285 | (b) | ||||||||||
Cascade MH Asset Trust, 2019-MH1 M |
5.985 | % | 11/25/44 | 1,150,000 | 1,066,573 | (b)(d) | ||||||||||
Firstfed Corp. Manufactured Housing Contract, 1997-2 B |
8.110 | % | 5/15/24 | 121,324 | 12 | (d) | ||||||||||
Hertz Vehicle Financing LLC, 2022-4A D |
6.560 | % | 9/25/26 | 1,700,000 | 1,573,676 | (d) | ||||||||||
Loanpal Solar Loan Ltd., 2020-3GS C |
3.500 | % | 12/20/47 | 766,557 | 474,229 | (d) | ||||||||||
Loanpal Solar Loan Ltd., 2021-1GS C |
3.500 | % | 1/20/48 | 836,507 | 574,926 | (d) | ||||||||||
Lunar Structured Aircraft Portfolio Notes, 2021-1 C |
5.682 | % | 10/15/46 | 1,775,850 | 1,374,552 | (d) | ||||||||||
National Collegiate Student Loan Trust, 2006-3 B (1 mo. USD LIBOR + 0.360%) |
4.749 | % | 1/26/32 | 1,710,000 | 1,307,403 | (b) | ||||||||||
National Collegiate Class A-3L Commutation Trust, 2007-4VI O (1 mo. USD LIBOR + 0.850%) |
5.239 | % | 3/29/38 | 5,942,187 | 1,166,166 | (b)(d) | ||||||||||
Nelnet Student Loan Trust, 2021-DA D |
4.380 | % | 4/20/62 | 1,200,000 | 903,097 | (d) | ||||||||||
RBS Acceptance Inc., 1995-BA1 B2 |
9.000 | % | 8/10/20 | 2,191,561 | 66 | |||||||||||
SMB Private Education Loan Trust, 2014-A R |
0.000 | % | 9/15/45 | 6,875 | 566,615 | (d) |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
21 |
Security |
Rate |
Maturity Date |
Face Amount/ Units |
Value |
||||||||||||
Asset-Backed Securities — continued |
||||||||||||||||
SoFi Professional Loan Program LLC, 2017-F R1 |
0.000 | % | 1/25/41 | $ | 34,000 | $ | 461,744 | (d) | ||||||||
Stonepeak, 2021-1A B |
3.821 | % | 2/28/33 | 1,459,135 | 1,260,180 | (d) | ||||||||||
Sunnova Hellios II Issuer LLC, 2018-1A B |
7.710 | % | 7/20/48 | 991,287 | 822,526 | (d) | ||||||||||
Thrust Engine Leasing, 2021-1A A |
4.163 | % | 7/15/40 | 1,609,371 | 1,186,872 | (d) | ||||||||||
Voya CLO Ltd., 2017-2A D (3 mo. USD LIBOR + 6.020%) |
10.099 | % | 6/7/30 | 400,000 | 339,491 | (b)(c)(d) | ||||||||||
Total Asset-Backed Securities (Cost — $19,733,538) |
13,706,949 |
|||||||||||||||
Face Amount |
||||||||||||||||
Corporate Bonds & Notes — 1.1% |
||||||||||||||||
Consumer Staples — 0.4% |
||||||||||||||||
Food & Staples Retailing — 0.4% |
||||||||||||||||
CVS Pass-Through Trust |
9.350 | % | 1/10/23 | 479,443 | 480,068 |
(d) | ||||||||||
Industrials — 0.7% |
||||||||||||||||
Airlines — 0.7% |
||||||||||||||||
American Airlines Inc./AAdvantage Loyalty IP Ltd., Senior Secured Notes |
5.750 | % | 4/20/29 | 1,060,000 | 970,706 |
(d) | ||||||||||
Total Corporate Bonds & Notes (Cost — $1,513,895) |
1,450,774 |
|||||||||||||||
Convertible Bonds & Notes — 1.9% |
||||||||||||||||
Financials — 1.9% |
||||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) — 1.9% |
||||||||||||||||
PennyMac Corp., Senior Notes |
5.500 | % | 3/15/26 | 1,550,000 | 1,270,031 | |||||||||||
Two Harbors Investment Corp., Senior Notes |
6.250 | % | 1/15/26 | 1,615,000 | 1,394,042 | |||||||||||
Total Convertible Bonds & Notes (Cost — $2,737,226) |
2,664,073 |
|||||||||||||||
Total Investments before Short-Term Investments (Cost — $258,435,232) |
233,305,366 |
|||||||||||||||
Shares |
||||||||||||||||
Short-Term Investments — 2.4% |
||||||||||||||||
Western Asset Premier Institutional Government Reserves, Premium Shares (Cost — $3,367,941) |
4.244 | % | 3,367,941 | 3,367,941 |
(h)(i) | |||||||||||
Total Investments — 171.4% (Cost — $261,803,173) |
236,673,307 |
|||||||||||||||
Liabilities in Excess of Other Assets — (71.4)% |
(98,582,380 |
) | ||||||||||||||
Total Net Assets — 100.0% |
$ |
138,090,927 |
22 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
(a) |
Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an upper and/or lower limit. |
(b) |
Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above. |
(c) |
All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements. |
(d) |
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. |
(e) |
This security is traded on a to-be-announced (“TBA”) basis. At December 31, 2022, the Fund held TBA securities with a total cost of $7,543,906. |
(f) |
Security is valued in good faith in accordance with procedures approved by the Board of Directors (Note 1). |
(g) |
Security is valued using significant unobservable inputs (Note 1). |
(h) |
Rate shown is one-day yield as of the end of the reporting period. |
(i) |
In this instance, as defined in the Investment Company Act of 1940, an “Affiliated Company” represents Fund ownership of at least 5% of the outstanding voting securities of an issuer, or a company which is under common ownership or control with the Fund. At December 31, 2022, the total market value of investments in Affiliated Companies was $3,367,941 and the cost was $3,367,941 (Note 8). |
Counterparty |
Rate |
Effective Date |
Maturity Date |
Face Amount of Reverse Repurchase Agreements |
Asset Class of Collateral* |
Collateral Value** |
||||||||||||||||
Nomura Securities Inc. | 5.940 | % | 10/18/2022 | 10/4/2024 | $ | 86,263,000 | Residential Mortgage- Backed Securities |
$ | 103,481,154 | |||||||||||||
Nomura Securities Inc. | 6.411 | % | 11/30/2022 | 1/17/2023 | 5,000,000 | Residential Mortgage- Backed Securities |
6,757,311 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
23 |
Counterparty |
Rate |
Effective Date |
Maturity Date |
Face Amount of Reverse Repurchase Agreements |
Asset Class of Collateral* |
Collateral Value** |
||||||||||||||||||
Nomura Securities Inc. | 6.472 | % | 12/8/2022 | 1/17/2023 | $ | 1,706,000 | |
Residential Mortgage- Backed Securities |
|
$ | 2,002,240 | |||||||||||||
Nomura Securities Inc. | 6.472 | % | 12/8/2022 | 1/17/2023 | 294,000 | |
Asset-Backed Securities |
|
348,019 | |||||||||||||||
$ |
93,263,000 |
$ |
112,588,724 |
* | Refer to the Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements. |
** | Including accrued interest. |
24 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Assets: |
||||
Investments in unaffiliated securities, at value (Cost — $258,435,232) |
$ | 233,305,366 | ||
Investments in affiliated securities, at value (Cost — $3,367,941) |
3,367,941 | |||
Cash |
13,437 | |||
Receivable for securities sold |
9,944,042 | |||
Interest receivable |
1,123,433 | |||
Deposits with brokers for open futures contracts |
571,404 | |||
Dividends receivable from affiliated investments |
9,436 | |||
Receivable from brokers — net variation margin on open futures contracts |
2,516 | |||
Prepaid expenses |
280,077 | |||
Total Assets |
248,617,652 |
|||
Liabilities: |
||||
Payable for open reverse repurchase agreements (Note 3) |
93,263,000 | |||
Payable for securities purchased |
15,913,984 | |||
Interest expense payable |
1,104,643 | |||
Investment management fee payable |
187,604 | |||
Directors’ fees payable |
9,779 | |||
Accrued expenses |
47,715 | |||
Total Liabilities |
110,526,725 |
|||
Total Net Assets |
$ |
138,090,927 |
||
Net Assets: |
||||
Par value ($0.001 par value; 11,397,523 shares issued and outstanding; 100,000,000 shares authorized) |
$ | 11,398 | ||
Paid-in capital in excess of par value |
197,750,629 | |||
Total distributable earnings (loss) |
(59,671,100) | |||
Total Net Assets |
$ |
138,090,927 |
||
Shares Outstanding |
11,397,523 | |||
Net Asset Value |
$ | 12.12 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
25 |
Investment Income: |
||||
Interest |
$ | 16,571,034 | ||
Dividends from affiliated investments |
43,977 | |||
Total Investment Income |
16,615,011 |
|||
Expenses: |
||||
Interest expense (Note 3) |
3,167,588 | |||
Investment management fee (Note 2) |
2,442,879 | |||
Transfer agent fees |
78,723 | |||
Directors’ fees |
56,670 | |||
Audit and tax fees |
51,615 | |||
Legal fees |
44,112 | |||
Fund accounting fees |
26,320 | |||
Stock exchange listing fees |
19,327 | |||
Shareholder reports |
15,734 | |||
Custody fees |
1,121 | |||
Insurance |
853 | |||
Miscellaneous expenses |
5,939 | |||
Total Expenses |
5,910,881 |
|||
Less: Fee waivers and/or expense reimbursements (Note 2) |
(126,276) | |||
Net Expenses |
5,784,605 |
|||
Net Investment Income |
10,830,406 |
|||
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options and Swap Contracts (Notes 1, 3 and 4): |
||||
Net Realized Gain (Loss) From: |
||||
Investment transactions in unaffiliated securities |
(5,679,290) | |||
Futures contracts |
2,732,756 | |||
Written options |
158,425 | |||
Swap contracts |
642,993 | |||
Net Realized Loss |
(2,145,116) |
|||
Change in Net Unrealized Appreciation (Depreciation) From: |
||||
Investments in unaffiliated securities |
(32,208,572) | |||
Futures contracts |
(6,443) | |||
Swap contracts |
51,224 | |||
Change in Net Unrealized Appreciation (Depreciation) |
(32,163,791) |
|||
Net Loss on Investments, Futures Contracts, Written Options and Swap Contracts |
(34,308,907) |
|||
Decrease in Net Assets From Operations |
$ |
(23,478,501) |
26 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
For the Years Ended December 31, |
2022 |
2021 |
||||||
Operations: |
||||||||
Net investment income |
$ | 10,830,406 | $ | 9,914,643 | ||||
Net realized gain (loss) |
(2,145,116) | 2,258,835 | ||||||
Change in net unrealized appreciation (depreciation) |
(32,163,791) | 7,599,334 | ||||||
Increase (Decrease) in Net Assets From Operations |
(23,478,501) |
19,772,812 |
||||||
Distributions to Shareholders From (Note 1): |
||||||||
Total distributable earnings |
(14,051,028) | (13,027,211) | ||||||
Return of capital |
(134,372) | (2,093,548) | ||||||
Decrease in Net Assets From Distributions to Shareholders |
(14,185,400) |
(15,120,759) |
||||||
Fund Share Transactions: |
||||||||
Net proceeds from sale of shares (0 and 413,153 shares issued, respectively) |
— | 6,459,800 | † ,‡ | |||||
Reinvestment of distributions (0 and 24,984 shares issued, respectively) |
— | 382,627 | ||||||
Cost of shares repurchased (67,728 and 0 shares repurchased, respectively) (Note 6) |
(755,559) | — | ||||||
Increase (Decrease) in Net Assets From Fund Share Transactions |
(755,559) |
6,842,427 |
||||||
Increase (Decrease) in Net Assets |
(38,419,460) |
11,494,480 |
||||||
Net Assets: |
||||||||
Beginning of year |
176,510,387 | 165,015,907 | ||||||
End of year |
$ |
138,090,927 |
$ |
176,510,387 |
† | Net of sales charges of $66,933. |
‡ | Net of shelf registration offering costs of $48,310 (Note 7). |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
27 |
Increase (Decrease) in Cash: |
||||
Cash Flows from Operating Activities: |
||||
Net decrease in net assets resulting from operations |
$ | (23,478,501) | ||
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided (used) by operating activities: |
||||
Purchases of portfolio securities |
(72,116,427) | |||
Sales of portfolio securities |
59,631,546 | |||
Net purchases, sales and maturities of short-term investments |
(2,806,762) | |||
Net amortization of premium (accretion of discount) |
2,069,487 | |||
Increase in receivable for securities sold |
(9,944,042) | |||
Increase in interest receivable |
(326,905) | |||
Increase in prepaid expenses |
(72,227) | |||
Increase in dividends receivable from affiliated investments |
(9,424) | |||
Decrease in receivable from brokers — net variation margin on open futures contracts |
19,571 | |||
Decrease in net premiums paid for OTC swap contracts |
18,888 | |||
Decrease in payable to brokers — net variation margin on centrally cleared swap contracts |
(11,331) | |||
Increase in payable for securities purchased |
15,821,630 | |||
Increase in investment management fee payable |
9,443 | |||
Increase in Directors’ fees payable |
2,148 | |||
Increase in interest expense payable |
261,246 | |||
Decrease in accrued expenses |
(52,987) | |||
Net realized loss on investments |
5,679,290 | |||
Change in net unrealized appreciation (depreciation) of investments and OTC swap contracts |
32,147,422 | |||
Net Cash Provided in Operating Activities* |
6,842,065 |
|||
Cash Flows from Financing Activities: |
||||
Distributions paid on common stock (net of distributions payable) |
(14,185,400) | |||
Increase in payable for open reverse repurchase agreements |
8,344,000 | |||
Payment for Fund shares repurchased |
(755,559) | |||
Net Cash Used by Financing Activities |
(6,596,959) |
|||
Net Increase in Cash and Restricted Cash |
245,106 |
|||
Cash and restricted cash at beginning of year | 339,735 | |||
Cash and restricted cash at end of year | $ | 584,841 |
*Included | in operating expenses is $2,906,342 paid for interest and commitment fees on borrowings. |
28 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
December 31, 2022 |
||||
Cash |
$ | 13,437 | ||
Restricted cash |
571,404 | |||
Total cash and restricted cash shown in the Statement of Cash Flows |
$ |
584,841 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
29 |
For a share of capital stock outstanding throughout each year ended December 31: |
||||||||||||||||||||
2022 1 |
2021 1 |
2020 1 |
2019 1 |
2018 1 |
||||||||||||||||
Net asset value, beginning of year |
$15.40 | $14.96 | $19.48 | $19.28 | $21.27 | |||||||||||||||
Income (loss) from operations: |
||||||||||||||||||||
Net investment income |
0.95 | 0.89 | 1.23 | 1.51 | 1.65 | |||||||||||||||
Net realized and unrealized gain (loss) |
(3.00) | 0.90 | (4.20) | 0.65 | 0.22 | |||||||||||||||
Total income (loss) from operations |
(2.05) |
1.79 |
(2.97) |
2.16 |
1.87 |
|||||||||||||||
Less distributions from: |
||||||||||||||||||||
Net investment income |
(1.23) | (1.16) | (1.13) | (1.45) | (3.03) | |||||||||||||||
Net realized gains |
— | — | — | — | (0.83) | |||||||||||||||
Return of capital |
(0.01) | (0.19) | (0.42) | (0.51) | — | |||||||||||||||
Total distributions |
(1.24) |
(1.35) |
(1.55) |
(1.96) |
(3.86) |
|||||||||||||||
Anti-dilutive impact of repurchase plan |
0.01 | 2 |
— | — | — | — | ||||||||||||||
Net asset value, end of year |
$12.12 | $15.40 | $14.96 | $19.48 | $19.28 | |||||||||||||||
Market price, end of year |
$10.77 | $15.21 | $14.18 | $20.30 | $20.39 | |||||||||||||||
Total return, based on NAV 3,4 |
(13.69) |
% |
12.38 |
% |
(14.67) |
% |
11.65 |
% |
9.26 |
% | ||||||||||
Total return, based on Market Price 5 |
(21.64) |
% |
17.24 |
% |
(22.13) |
% |
9.71 |
% |
(1.16) |
% | ||||||||||
Net assets, end of year (millions) |
$138 | $177 | $165 | $205 | $202 | |||||||||||||||
Ratios to average net assets: |
||||||||||||||||||||
Gross expenses |
3.80 | % | 2.38 | % | 2.82 | % | 3.56 | % | 3.15 | % | ||||||||||
Net expenses |
3.72 | 6,7 |
2.10 | 6,7 |
2.53 | 7 |
3.56 | 3.15 | ||||||||||||
Net investment income |
6.96 | 5.82 | 8.18 | 7.73 | 7.78 | |||||||||||||||
Portfolio turnover rate |
22 |
% 8 |
14 |
% |
11 |
% |
17 |
% |
33 |
% | ||||||||||
Loan Outstanding, End of Year (000s) |
— | — | $45,000 | $98,000 | $99,250 | |||||||||||||||
Asset Coverage Ratio for Loan Outstanding 9 |
— | — | 467 | % | 309 | % | 303 | % | ||||||||||||
Asset Coverage, per $1,000 Principal Amount of Loan Outstanding 9 |
— | — | $4,667 | $3,089 | $3,035 | |||||||||||||||
Weighted Average Loan (000s) |
— | $45,000 | $62,369 | $98,072 | $101,743 | |||||||||||||||
Weighted Average Interest Rate on Loan |
— | 1.84 | % | 2.14 | % | 3.46 | % | 3.06 | % |
30 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
1 |
Per share amounts have been calculated using the average shares method. |
2 |
The repurchase plan was completed at an average repurchase price of $11.16 for 67,728 shares and $755,559 for the year ended December 31, 2022. |
3 |
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. |
4 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results. |
5 |
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. |
6 |
The manager 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. |
7 |
Reflects fee waivers and/or expense reimbursements. |
8 |
Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 24% for the year ended December 31, 2022. |
9 |
Represents value of net assets plus the loan outstanding at the end of the period divided by the loan outstanding at the end of the period. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
31 |
32 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
33 |
• |
Level 1 — unadjusted 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) |
ASSETS |
||||||||||||||||
Description |
Quoted Prices (Level 1) |
Other Significant Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Total |
||||||||||||
Long-Term Investments†: | ||||||||||||||||
Residential Mortgage-Backed Securities |
— | $ | 148,423,870 | — | $ | 148,423,870 | ||||||||||
Commercial Mortgage-Backed Securities |
— | 65,560,144 | $ | 1,499,556 | 67,059,700 | |||||||||||
Asset-Backed Securities |
— | 13,706,949 | — | 13,706,949 | ||||||||||||
Convertible Bonds & Notes |
— | 2,664,073 | — | 2,664,073 | ||||||||||||
Corporate Bonds & Notes |
— | 1,450,774 | — | 1,450,774 | ||||||||||||
Total Long-Term Investments |
— |
231,805,810 |
1,499,556 |
233,305,366 |
||||||||||||
Short-Term Investments† |
$ |
3,367,941 |
— |
— |
3,367,941 |
|||||||||||
Total Investments |
$ |
3,367,941 |
$ |
231,805,810 |
$ |
1,499,556 |
$ |
236,673,307 |
||||||||
Other Financial Instruments: | ||||||||||||||||
Futures Contracts†† |
$ | 136,922 | — | — | $ | 136,922 | ||||||||||
Total |
$ |
3,504,863 |
$ |
231,805,810 |
$ |
1,499,556 |
$ |
236,810,229 |
† | See Schedule of Investments for additional detailed categorizations. |
†† | Reflects the unrealized appreciation (depreciation) of the instruments. |
34 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Investments in Securities |
Balance as of December 31, 2021 |
Accrued premiums/ discounts |
Realized gain (loss) |
Change in unrealized appreciation (depreciation) |
Purchases |
|||||||||||||||
Commercial Mortgage-Backed Securities |
$ |
1,500,188 |
— |
— |
$ |
(632) |
— |
|||||||||||||
Total |
$ |
1,500,188 |
— |
— |
$ |
(632) |
— |
Investments in Securities (cont’d) |
Sales |
Transfers into Level 3 |
Transfers out of Level 3 |
Balance as of December 31, 2022 |
Net change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2022 |
|||||||||||||||
Commercial Mortgage-Backed Securities |
— |
— |
— |
$ |
1,499,556 |
$ |
(632) |
|||||||||||||
Total |
— |
— |
— |
$ |
1,499,556 |
$ |
(632) |
Fair Value at 12/31/22 (000’s) |
Valuation Technique(s) |
Unobservable Input(s) |
Value, Range/Weighted Average |
Impact to Valuation from an Increase in Input* |
||||||||||||||
Commercial Mortgage-Backed Securities | $ | 1,500 | Discounted Cash Flow Method |
Yield | 11.81 | % | Decrease |
* | This column represents the directional change in the fair value of the Level 3 investments that would result in an increase from the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant increases and decreases in these unobservable inputs in isolation could result in significantly higher or lower fair value measurements. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
35 |
36 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
37 |
38 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
39 |
40 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
41 |
42 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
43 |
44 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Investments |
U.S. Government & Agency Obligations |
|||||||
Purchases | $ | 31,547,114 | $ | 40,569,313 | ||||
Sales | 31,238,821 | 28,392,725 |
Net |
||||||||||||||||
Gross |
Gross |
Unrealized |
||||||||||||||
Unrealized |
Unrealized |
Appreciation |
||||||||||||||
Cost |
Appreciation |
Depreciation |
(Depreciation) |
|||||||||||||
Securities | $ | 268,323,411 | $ | 5,308,825 | $ | (36,958,929) | $ | (31,650,104) | ||||||||
Futures contracts | — | 136,922 | — | 136,922 |
Average Daily Balance* |
Weighted Average Interest Rate* |
Maximum Amount Outstanding | ||
$86,920,455 | 3.594% | $93,263,000 |
* | Averages based on the number of days that the Fund had reverse repurchase agreements outstanding. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
45 |
ASSET DERIVATIVES 1 |
||||
Interest Rate Risk |
||||
Futures contracts 2 |
$ | 136,922 |
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. |
AMOUNT OF NET REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
||||||||||||
Interest |
Credit |
|||||||||||
Rate Risk |
Risk |
Total |
||||||||||
Purchased options 1 |
— | $ | (74,504) | $ | (74,504) | |||||||
Futures contracts | $ | 2,732,756 | — | 2,732,756 | ||||||||
Written options | — | 158,425 | 158,425 | |||||||||
Swap contracts | 675,975 | (32,982) | 642,993 | |||||||||
Total |
$ |
3,408,731 |
$ |
50,939 |
$ |
3,459,670 |
1 |
Net realized gain (loss) from purchased options is reported in Net Realized Gain (Loss) From Investment transactions in unaffiliated securities in the Statement of Operations. |
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
||||||||||||
Interest |
Credit |
|||||||||||
Rate Risk |
Risk |
Total |
||||||||||
Futures contracts | $ | (6,443) | — | $ | (6,443) | |||||||
Swap contracts | (9,926) | $ | 61,150 | 51,224 | ||||||||
Total |
$ |
(16,369) |
$ |
61,150 |
$ |
44,781 |
46 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Average Market Value |
||||
Purchased options† | $ | 106,004 | ||
Written options† | 41,597 | |||
Futures contracts (to buy) | 7,618,212 | |||
Futures contracts (to sell) | 29,429,766 |
Average Notional Balance |
||||
Interest rate swap contracts† | $ | 1,907,000 | ||
Credit default swap contracts (buy protection)† | 307,692 | |||
Credit default swap contracts (sell protection)† | 307,692 |
† | At December 31, 2022, there were no open positions held in this derivative. |
Record Date |
Payable Date |
Amount |
||||
1/24/2023 | 2/1/2023 | $ | 0.1000 | |||
2/21/2023 | 3/1/2023 | $ | 0.1000 | |||
3/24/2023 | 4/3/2023 | $ | 0.1000 | |||
4/21/2023 | 5/1/2023 | $ | 0.1000 | |||
5/23/2023 | 6/1/2023 | $ | 0.1000 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
47 |
Affiliate Value at December 31, 2021 |
Purchased |
Sold |
||||||||||||||||||
Cost |
Shares |
Proceeds |
Shares |
|||||||||||||||||
Western Asset Premier Institutional Government Reserves, Premium Shares | $ | 1,385,262 | $ | 73,820,260 | 73,820,260 | $ | 71,837,581 | 71,837,581 |
Net Increase |
||||||||||||||||
(Decrease) in |
Affiliate |
|||||||||||||||
Unrealized |
Value at |
|||||||||||||||
Realized |
Dividend |
Appreciation |
December 31, |
|||||||||||||
(cont’d) |
Gain (Loss) |
Income |
(Depreciation) |
2022 |
||||||||||||
Western Asset Premier Institutional Government Reserves, Premium Shares | — | $ | 43,977 | — | $ | 3,367,941 |
48 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
2022 |
2021 |
|||||||
Distributions paid from: |
||||||||
Ordinary income | $ | 14,051,028 | $ | 13,027,211 | ||||
Tax return of capital | 134,372 | 2,093,548 | ||||||
Total distributions paid |
$ |
14,185,400 |
$ |
15,120,759 |
Deferred capital losses* | $ | (28,005,709) | ||
Other book/tax temporary differences (a) |
(152,210) | |||
Unrealized appreciation (depreciation) (b) |
(31,513,181) | |||
Total distributable earnings (loss) — net |
$ |
(59,671,100) |
* | These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains. |
(a) |
Other book/tax temporary differences are attributable to the realization for tax purposes of unrealized gains (losses) on certain futures contracts 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 to differences between the book and tax recognition of market discount and premium on mortgage backed securities and book/tax differences in the treatment of partnership investments. |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
49 |
50 |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
Western Asset Mortgage Opportunity Fund Inc. 2022 Annual Report |
51 |
Nominees |
Votes FOR |
Votes WITHHELD |
ABSTAIN |
|||||||||
Robert D. Agdern | 7,692,835 | 392,899 | 280,965 | |||||||||
Eileen A. Kamerick | 7,691,402 | 433,729 | 241,568 |
FOR |
AGAINST |
ABSTAIN |
||||||
8,158,568 | 116,116 | 92,015 |
52 |
Western Asset Mortgage Opportunity Fund Inc. |
Independent Directors† |
||
Robert D. Agdern |
||
Year of birth | 1950 | |
Position(s) held with Fund 1 |
Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, and Compliance Liaison, Class III | |
Term of office 1 and length of time served |
Since 2015 | |
Principal occupation(s) during the past five years | Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University (2002 to 2016); formerly, Deputy General Counsel responsible for western hemisphere matters for BP PLC (1999 to 2001); Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special assignments (1993 to 1998) (Amoco merged with British Petroleum in 1998 forming BP PLC) | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 19 | |
Other board memberships held by Director during the past five years | None | |
Carol L. Colman | ||
Year of birth | 1946 | |
Position(s) held with Fund 1 |
Director and Member of Nominating, Audit and Compensation Committees, and Chair of Pricing and Valuation Committee, Class I | |
Term of office 1 and length of time served |
Since 2010 | |
Principal occupation(s) during the past five years | President, Colman Consulting Company (consulting) | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 19 | |
Other board memberships held by Director during the past five years | None |
Western Asset Mortgage Opportunity Fund Inc. |
53 |
Independent Directors† (cont’d) |
||
Daniel P. Cronin |
||
Year of birth | 1946 | |
Position(s) held with Fund 1 |
Director and Member of Audit, Compensation and Pricing and Valuation Committees, and Chair of Nominating Committee, Class I | |
Term of office 1 and length of time served |
Since 2010 | |
Principal occupation(s) during the 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) | 19 | |
Other board memberships held by Director during the past five years | None | |
Paolo M. Cucchi | ||
Year of birth | 1941 | |
Position(s) held with Fund 1 |
Director and Member of Nominating, Audit, and Pricing and Valuation Committees, and Chair of Compensation Committee, Class I | |
Term of office 1 and length of time served |
Since 2007 | |
Principal occupation(s) during the past five years | Emeritus Professor of French and Italian (since 2014) and formerly, Vice President and Dean of The College of Liberal Arts (1984 to 2009) and Professor of French and Italian (2009 to 2014) at Drew University | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 19 | |
Other board memberships held by Director during the past five years | None | |
William R. Hutchinson* |
||
Year of birth | 1942 | |
Position(s) held with Fund 1 |
Formerly Lead Independent Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class II | |
Term of office 1 and length of time served |
Since 2010 | |
Principal occupation(s) during the past five years | President, W.R. Hutchinson & Associates Inc. (consulting) (since 2001) | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 19 | |
Other board memberships held by Director during the past five years | Director (1994 to 2021) and Non-Executive Chairman of the Board (December 2009 to April 2020), Associated Banc-Corp. (financial services company) |
54 |
Western Asset Mortgage Opportunity Fund Inc. |
Independent Directors† (cont’d) |
||
Eileen A. Kamerick** |
||
Year of birth | 1958 | |
Position(s) held with Fund 1 |
Lead Independent Director and Member of Nominating, Compensation, Pricing and Valuation and Audit Committees, Class III | |
Term of office 1 and length of time served |
Since 2013 | |
Principal occupation(s) during the past five years | Chief Executive Officer, The Governance Partners, LLC (consulting firm) (since 2015); National Association of Corporate Directors Board Leadership Fellow (since 2016, with Directorship Certification since 2019) and NACD 2022 Directorship 100 honoree; Adjunct Professor, Georgetown University Law Center (since 2021); Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor, University of Iowa College of Law (since 2007); formerly, Chief Financial Officer, Press Ganey Associates (health care informatics company) (2012 to 2014); Managing Director and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan Lokey Foundation (2010 to 2012) | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 19 | |
Other board memberships held by Director during the past five years | Director, VALIC Company I (since October 2022); Director of ACV Auctions Inc. (since 2021); Director of Hochschild Mining plc (precious metals company) (since 2016); Director of Associated Banc-Corp (financial services company) (since 2007); formerly Trustee of AIG Funds and Anchor Series Trust (2018 to 2021) | |
Nisha Kumar*** |
||
Year of birth | 1970 | |
Position(s) held with Fund 1 |
Director and Member of Nominating, Compensation and Pricing and Valuation Committees, and Chair of the Audit Committee, Class II | |
Term of office 1 and length of time served |
Since 2019 | |
Principal occupation(s) during the past five years | Formerly, Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (2011 to 2021); formerly, Chief Financial Officer and Chief Administrative Officer of Rent the Runway, Inc. (2011); Executive Vice President and Chief Financial Officer of AOL LLC, a subsidiary of Time Warner Inc. (2007 to 2009); Member of the Council of Foreign Relations | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 19 | |
Other board memberships held by Director during the past five years | Director of The India Fund, Inc. (since 2016); formerly, Director of Aberdeen Income Credit Strategies Fund (2017 to 2018); and Director of The Asia Tigers Fund, Inc. (2016 to 2018) |
Western Asset Mortgage Opportunity Fund Inc. |
55 |
Interested Director and Officer |
||
Jane Trust, CFA2 | ||
Year of birth | 1962 | |
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 2015 | |
Principal occupation(s) during the past five years | Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 127 funds associated with LMPFA or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg Mason & Co., LLC (“Legg Mason & Co.”); Senior Vice President of LMPFA (2015) | |
Number of portfolios in fund complex overseen by Director (including the Fund) | 127 | |
Other board memberships held by Director during the past five years | None | |
Additional Officers |
||
Fred Jensen Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 | ||
Year of birth | 1963 | |
Position(s) held with Fund 1 |
Chief Compliance Officer | |
Term of office 1 and length of time served |
Since 2020 | |
Principal occupation(s) during the past five years | Director — Global Compliance of Franklin Templeton (since 2020); Managing Director of Legg Mason & Co. (2006 to 2020); Director of Compliance, Legg Mason Office of the Chief Compliance Officer (2006 to 2020); formerly, Chief Compliance Officer of Legg Mason Global Asset Allocation (prior to 2014); Chief Compliance Officer of Legg Mason Private Portfolio Group (prior to 2013); formerly, Chief Compliance Officer of The Reserve Funds (investment adviser, funds and broker-dealer) (2004) and Ambac Financial Group (investment adviser, funds and broker-dealer) (2000 to 2003) | |
George P. Hoyt Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT 06902 | ||
Year of birth | 1965 | |
Position(s) held with Fund 1 |
Secretary and Chief Legal Officer | |
Term of office 1 and length of time served |
Since 2020 | |
Principal occupation(s) during the past five years | Associate General Counsel of Franklin Templeton (since 2020); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2020); formerly, Managing Director (2016 to 2020) and Associate General Counsel for Legg Mason & Co. and Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (2006 to 2020) |
56 |
Western Asset Mortgage Opportunity Fund Inc. |
Additional Officers (cont’d) |
||
Thomas C. Mandia Franklin Templeton 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
||
Year of birth | 1962 | |
Position(s) held with Fund 1 |
Senior Vice President | |
Term of office 1 and length of time served |
Since 2022 | |
Principal occupation(s) during the past five years | Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds associated with Legg Mason & Co. or its affiliates (since 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers); formerly, Managing Director and Deputy General Counsel of Legg Mason & Co. (2005 to 2020) and Assistant Secretary of certain funds in the fund complex (2006 to 2022) | |
Christopher Berarducci Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 |
||
Year of birth | 1974 | |
Position(s) held with Fund 1 |
Treasurer and Principal Financial Officer | |
Term of office 1 and length of time served |
Since 2019 | |
Principal occupation(s) during the past five years | Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain funds associated with Legg Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co. | |
Jeanne M. Kelly Franklin Templeton 280 Park Avenue, 8th Floor, New York, NY 10017 |
||
Year of birth | 1951 | |
Position(s) held with Fund 1 |
Senior Vice President | |
Term of office 1 and length of time served |
Since 2010 | |
Principal occupation(s) during the past five years | U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM(2013 to 2015) |
† | Directors who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”). |
* | Mr. Hutchinson served as a Director until his passing on October 28, 2022. |
** | Effective November 9, 2022, Ms. Kamerick became Lead Independent Director. |
Western Asset Mortgage Opportunity Fund Inc. |
57 |
*** | Effective November 9, 2022, Ms. Kumar became Chair of Audit Committee. |
1 |
The Fund’s 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 2023, year 2024 and year 2025, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Fund’s executive officers are chosen each year, to hold office until their successors are duly elected and qualified. |
2 |
Ms. Trust is an “interested person” of the Fund as defined in the 1940 Act because Ms. Trust is an officer of LMPFA and certain of its affiliates. |
58 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
59 |
60 |
Western Asset Mortgage Opportunity Fund Inc. |
Record Date Sales Load (as a percentage of offering price) (1) |
1.00 | % | ||
Offering Expenses (as a percentage of offering price) (2) |
0.65 | % | ||
Dividend Reinvestment Plan Fees (3) |
$ | 5.00 |
Percentage of Net Assets Attributable to Common Shares | ||
Management Fees (4) |
1.57% | |
Interest Payments on Borrowed Funds (5) |
2.04% | |
Other Expenses (6) |
0.19% | |
Total Annual Fund Operating Expenses |
3.80% |
(1) |
Represents the estimated commission with respect to the Common Stock being sold in at-the-market offerings. JonesTrading will be entitled to compensation of up to 1.00% of the gross proceeds of the sale of any Common Stock under the Sales Agreement, with the exact amount of such compensation to be mutually agreed upon in writing by the Fund and JonesTrading from time to time. |
(2) |
Costs incurred by the Fund in connection with the shelf offering are recorded as a prepaid expense. These costs are amortized on a pro-rata basis as shares are sold and are presented as a reduction to the net proceeds from sale of shares. Any deferred charges remaining at the end of the life of the shelf offering period will be expensed. |
(3) |
Common Stockholders will pay brokerage charges if they direct the Plan Agent to sell Common Stock held in a dividend reinvestment account. There are no fees charged to stockholders for participating in the Fund’s dividend reinvestment plan. However, stockholders participating in the Plan that elect to sell their shares obtained pursuant to the plan would pay $5.00 per transaction to sell shares. |
(4) |
The Investment Manager receives an annual fee, payable monthly, in an amount equal to 1.00% of the Fund’s average daily Managed Assets. “Managed Assets” means net assets plus the amount of any outstanding borrowings used for leverage and assets attributable to any preferred stock that may be outstanding. If the Fund were to use leverage, the amount of management fees paid to the Investment Manager will be higher than if the Fund does not use leverage because the fees paid are calculated on the Funds Managed Assets. |
(5) |
The Fund enters into reverse repurchase agreements. The expenses and rates associated with leverage may vary as and when Borrowings or issuances of Preferred Stock are made. “Interest Payments on Borrowed Funds” reflects an annualized interest charge based on the interest rate and borrowings in effect on December 31, 2022. |
(6) |
Expenses based on amounts incurred in the fiscal year ended December 31, 2022. |
One Year |
Three Years |
Five Years |
Ten Years | |||
$38 | $116 | $196 | $405 |
61 |
Quarterly Closing |
||||||||||||||||||||
Sale Price |
Quarter-End Closing |
|||||||||||||||||||
High |
Low |
Sale Price |
Net Asset Value Per Share of Common Stock (1) |
Premium/ (Discount) of Quarter- End Sale Price to Net Asset Value (2) |
||||||||||||||||
Fiscal Year 2021: |
||||||||||||||||||||
March 31, 2021 |
$14.96 | $14.02 | $14.64 | $14.92 | (1.88) | % | ||||||||||||||
June 30, 2021 |
$15.64 | $14.67 | $15.59 | $15.08 | 3.38 | % | ||||||||||||||
September 30, 2021 |
$16.24 | $15.33 | $15.46 | $15.43 | 0.19 | % | ||||||||||||||
December 31, 2021 |
$16.13 | $15.09 | $15.21 | $15.40 | (1.23) | % | ||||||||||||||
Fiscal Year 2022: |
||||||||||||||||||||
March 31, 2022 |
$15.52 | $13.09 | $13.37 | $14.30 | (6.50) | % | ||||||||||||||
June 30, 2022 |
$13.45 | $11.40 | $11.68 | $13.24 | (11.78) | % | ||||||||||||||
September 30, 2022 |
$12.84 | $10.95 | $11.11 | $12.75 | (12.86) | % | ||||||||||||||
December 31, 2022 |
$11.48 | $10.47 | $10.77 | $12.12 | (11.14) | % |
(1) |
NAV per share is determined as of close of business on the last day of the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low closing sales prices, which may or may not fall on the last day of the quarter. |
(2) |
Calculated as of the quarter-end closing sales price divided by the quarter-end NAV. |
62 |
Year Ended |
Total Amount Outstanding |
Asset Coverage per 1,000 |
Average Market Value Per Unit** |
|||||||||
Revolving Credit Facility: |
||||||||||||
December 31, 2022* |
N/A | N/A | N/A | |||||||||
December 31, 2021* |
N/A | N/A | N/A | |||||||||
December 31, 2020 |
$ | 45,000,000 | $ | 4,667 | N/A | |||||||
December 31, 2019 |
$ | 98,000,000 | $ | 3,089 | N/A | |||||||
December 31, 2018 |
$ | 99,250,000 | $ | 3,035 | N/A | |||||||
December 31, 2017 |
$ | 101,750,000 | $ | 3,185 | N/A | |||||||
December 31, 2016 |
$ | 101,750,000 | $ | 3,124 | N/A | |||||||
December 31, 2015* |
$ | 80,500,000 | $ | 3,946 | N/A | |||||||
December 31, 2014* |
$ | 116,700,000 | $ | 3,208 | N/A | |||||||
December 31, 2013* |
$ | 116,700,000 | $ | 3,121 | N/A | |||||||
December 31, 2012 |
$ | 30,000,000 | $ | 9,280 | N/A |
* | The Fund had open reverse repurchase agreements at December 31, 2022, 2021, 2015, 2014 and 2013. |
** | Not applicable, as these senior securities were not registered for public trading. |
63 |
64 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
65 |
66 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
67 |
68 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
69 |
70 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
71 |
72 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
73 |
74 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
75 |
76 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
77 |
78 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
79 |
80 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
81 |
82 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
83 |
84 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
85 |
86 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
87 |
88 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
89 |
90 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
91 |
92 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
93 |
94 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
95 |
96 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
97 |
98 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
99 |
100 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
101 |
102 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
103 |
104 |
Western Asset Mortgage Opportunity Fund Inc. |
Western Asset Mortgage Opportunity Fund Inc. |
105 |
106 |
Western Asset Mortgage Opportunity Fund Inc. |
Pursuant to: |
Amount Reported |
|||||
Section 163(j) Interest Earned | §163(j) | $18,067,778 |
Western Asset Mortgage Opportunity Fund Inc. |
107 |
• |
Personal information included on applications or other forms; |
• |
Account balances, transactions, and mutual fund holdings and positions; |
• |
Bank account information, legal documents, and identity verification documentation; and |
• |
Online account access user IDs, passwords, security challenge question responses. |
• |
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. |
NOT PART OF THE ANNUAL REPORT |
NOT PART OF THE ANNUAL REPORT |
NOT PART OF THE ANNUAL REPORT |
ITEM 2. | CODE OF ETHICS. |
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Directors of the registrant has determined that Eileen A. Kamerick and Nisha Kumar, are the members of the Board’s Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert”.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) Audit Fees. The aggregate fees billed in the previous fiscal years ending December 31, 2021 and December 31, 2022 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $88,615 in December 31, 2021 and $88,615 in December 31, 2022.
(b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in December 31, 2021 and $0 in December 31, 2022.
(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $10,000 in December 31, 2021 and $10,000 in December 31, 2022. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.
There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.
(d) All Other Fees. The aggregate fees for other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item for the Western Asset Mortgage Opportunity Fund Inc. were $0 in December 31, 2021 and $0 in December 31, 2022.
All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Western Asset Mortgage Opportunity Fund Inc. requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre—approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The
Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) None of the services described in paragraphs (b) through (d) of this Item were performed in reliance on paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) Non-audit fees billed by the Auditor for services rendered to Western Asset Mortgage Opportunity Fund Inc., LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Western Asset Mortgage Opportunity Fund Inc. during the reporting period were $343,489 in December 31, 2021 and $350,359 in December 31, 2022.
(h) Yes. Western Asset Mortgage Opportunity Fund Inc.’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Western Asset Mortgage Opportunity Fund Inc. or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.
(i) Not applicable.
(j) Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
a) Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)58(A) of the Exchange Act. The Audit Committee consists of the following Board members:
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
Nisha Kumar
b) Not applicable
ITEM 6. | SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLOCIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Western Asset Management Company, LLC
Proxy Voting Policies and Procedures
BACKGROUND
An investment adviser is required to adopt and implement policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). The authority to vote the proxies of our clients is established through investment management agreements or comparable documents. In addition to SEC requirements governing advisers, long-standing fiduciary standards and responsibilities have been established for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the investment manager.
POLICY
As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Franklin Resources (Franklin Resources includes Franklin Resources, Inc. and
organizations operating as Franklin Resources) or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
Procedures
Responsibility and Oversight
The Western Asset Legal and Compliance Department is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
• | Proxies are reviewed to determine accounts impacted. |
• | Impacted accounts are checked to confirm Western Asset voting authority. |
• | Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.) |
• | If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party. |
• | Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department. |
• | Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials. |
Timing
Western Asset’s Legal and Compliance Department personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted pursuant to Rule 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
a) | A copy of Western Asset’s proxy voting policies and procedures. |
b) | Copies of proxy statements received with respect to securities in client accounts. |
c) | A copy of any document created by Western Asset that was material to making a decision how to vote proxies. |
d) | Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests. |
e) | A proxy log including: |
1. | Issuer name; |
2. | Exchange ticker symbol of the issuer’s shares to be voted; |
3. | Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted; |
4. | A brief identification of the matter voted on; |
5. | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
6. | Whether a vote was cast on the matter; |
7. | A record of how the vote was cast; and |
8. | Whether the vote was cast for or against the recommendation of the issuer’s management team. |
Records are maintained in an easily accessible place for a period of not less than five years with the first two years in Western Asset’s offices.
Disclosure
Western Asset’s proxy policies and procedures are described in the firm’s Part 2A of Form ADV. Clients are provided with a copy of these policies and procedures upon request. In addition, clients may receive reports on how their proxies have been voted, upon request.
Conflicts of Interest
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
1. | Whether Western Asset (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
2. | Whether Western Asset or an officer or director of Western Asset or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
3. | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
Voting Guidelines
Western Asset’s substantive voting decisions are based on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Situations can arise in which more than one Western Asset client invests in instruments of the same issuer or in which a single client may invest in instruments of the same issuer but in multiple accounts or strategies. Multiple clients or the same client in multiple accounts or strategies may have different investment objectives, investment styles, or investment professionals involved in making decisions. While there may be differences, votes are always cast in the best interests of the client and the investment objectives agreed with Western Asset. As a result, there may be circumstances where Western Asset casts different votes on behalf of different clients or on behalf of the same client with multiple accounts or strategies.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
I. | Board Approved Proposals |
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
1. | Matters relating to the Board of Directors |
Western Asset votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
a. | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
b. | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
c. | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
d. | Votes are cast on a case-by-case basis in contested elections of directors. |
2. | Matters relating to Executive Compensation |
Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
• | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution. |
• | Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options. |
• | Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price. |
• | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
3. | Matters relating to Capitalization |
The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
a. | Western Asset votes for proposals relating to the authorization of additional common stock. |
b. | Western Asset votes for proposals to effect stock splits (excluding reverse stock splits). |
c. | Western Asset votes for proposals authorizing share repurchase programs. |
4. | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions |
Western Asset votes these issues on a case-by-case basis on board-approved transactions.
5. | Matters relating to Anti-Takeover Measures |
Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:
a. | Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans. |
b. | Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
6. | Other Business Matters |
Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
a. | Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws. |
b. | Western Asset votes against authorization to transact other unidentified, substantive business at the meeting. |
7. | Reporting of Financially Material Information |
Western Asset generally believes issuers should disclose information that is material to their business. This principle extends to Environmental, Social and Governance matters. What qualifies as “material” can vary, so votes are cast on a case by case basis but consistent with the overarching principle.
II. | Shareholder Proposals |
SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:
1. | Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
2. | Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals. |
3. | Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
Environmental or social issues that are the subject of a proxy vote will be considered on a case by case basis. Constructive proposals that seek to advance the health of the issuer and the prospect for risk-adjusted returns to Western Assets clients are viewed more favorably than proposals that advance a single issue or limit the ability of management to meet its operating objectives.
III. | Voting Shares of Investment Companies |
Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
1. | Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios. |
2. | Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
IV. | Voting Shares of Foreign Issuers |
In the event Western Asset is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
1. | Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management. |
2. | Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
3. | Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
4. | Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights. |
V. | Environmental, Social and Governance Matters |
Western Asset considers ESG matters as part of the overall investment process. The Firm seeks to identify and consider material risks to the investment thesis, including material risks presented by ESG factors. While Western Asset is primarily a fixed income manager, opportunities to vote proxies are considered on the investment merits of the instruments and strategies involved.
As a general proposition, Western Asset votes to encourage disclosure of information material to their business. This principle extends to Environmental, Social and Governance matters. What qualifies as “material” can vary, so votes are cast on a case by case basis but consistent with the overarching principle. Western Asset recognizes that objective standards and criteria may not be available or universally agreed and that there may be different views and subjective analysis regarding factors and their significance.
As a general matter, Western Asset votes to encourage management and governance practices that enhance the strength of the issuer, build value for investors, and mitigate risks that might threaten their ability to operate and navigate competitive pressures.
Targeted environmental or social issues that are the subject of a proxy vote will be considered on a case by case basis. Constructive proposals that seek to advance the health of the issuer and the prospect for risk-adjusted returns to Western Assets clients are viewed more favorably than proposals that advance a single issue or limit the ability of management to meet its operating objectives.
Western Asset’s engagement process is aligned with the principles of the United Nations Global Compact (UNGC) and engages with issuers on the principles enshrined within it. Some of these issues include, but are not restricted to, Climate Risk and Environmental Management, Diversity and Development of Talent, Human Rights and Supply Chain Management, Product Safety and Security, Transparency in Reporting and Governance and Corporate Management As such, Western Asset seeks to integrate ESG principles into investment analysis where applicable and consistent with the Firm’s fiduciary duties. Although bondholders possess very different legal rights than shareholders, Western Asset believes it can impact ESG practices given its role in determining issuers’ cost of debt capital. By reinforcing the linkage between ESG practices and the cost of capital in meetings with issues, Western Asset seeks to guide issuers to improve their behavior around material ESG issues. Proxy voting practices reflect these priorities.
Situations can arise in which different clients and strategies have explicit ESG objectives beyond generally taking into account material ESG risks. Votes may be cast for such clients with the ESG objectives in mind. Votes involving ESG proposals that are not otherwise addressed in this policy will be voted on a case-by-case basis consistent with the Firm’s fiduciary duties to its clients, the potential consequences to the investment thesis for that issuer, and the specific facts and circumstances of each proposal.
Retirement Accounts
For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (“DOL”) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.
In order to comply with the DOL’s position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.
Western Asset Management Company Limited
Proxy Voting and Corporate Actions Policy
NOTE: Below policy relating to Proxy Voting and Corporate Actions is a global policy for all Western Asset affiliates. As compliance with the Policy is monitored by Western Asset Pasadena affiliate, the Policy has been adopted from US Compliance Manual and therefore all defined terms are those defined in the US Compliance Manual rather than UK Compliance Manual.
As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
RESPONSIBILITY AND OVERSIGHT
The Western Asset Legal and Compliance Department (“Compliance Department”) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
CLIENT AUTHORITY
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
PROXY GATHERING
Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
PROXY VOTING
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
• | Proxies are reviewed to determine accounts impacted. |
• | Impacted accounts are checked to confirm Western Asset voting authority. |
• | Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.) |
• | If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party. |
• | Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department. |
• | Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials. |
TIMING
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
RECORDKEEPING
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
A copy of Western Asset’s policies and procedures.
Copies of proxy statements received regarding client securities.
A copy of any document created by Western Asset that was material to making a decision how to vote proxies.
Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests.
A proxy log including:
• | Issuer name; |
• | Exchange ticker symbol of the issuer’s shares to be voted; |
• | Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted; |
• | A brief identification of the matter voted on; |
• | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
• | Whether a vote was cast on the matter; |
• | A record of how the vote was cast; and |
• | Whether the vote was cast for or against the recommendation of the issuer’s management team. |
Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.
DISCLOSURE
Western Asset’s proxy policies are described in the firm’s Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
CONFLICT OF INTEREST
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
• | Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
• | Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
• | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
VOTING GUIDELINES
Western Asset’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
BOARD APPROVAL PROPOSALS
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
Matters relating to the Board of Directors – Western Asset votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
• | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
• | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
• | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
• | Votes are cast on a case-by-case basis in contested elections of directors. |
Matters relating to Executive Compensation – Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by- case basis on board-approved proposals relating to executive compensation, except as follows:
• | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution. |
• | Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options. |
• | Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price. |
• | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
Matters relating to Capitalization – The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board- approved
proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
• | Western Asset votes for proposals relating to the authorization of additional common stock; |
• | Western Asset votes for proposals to effect stock splits (excluding reverse stock splits); |
• | Western Asset votes for proposals authorizing share repurchase programs; |
• | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions; |
• | Western Asset votes these issues on a case-by-case basis on board-approved transactions; |
Matters relating to Anti-Takeover Measures – Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:
• | Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans; |
• | Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
Other Business Matters – Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
• | Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws; |
• | Western Asset votes against authorization to transact other unidentified, substantive business at the meeting. |
SHAREHOLDER PROPOSALS
SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:
Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans;
Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals;
Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.
VOTING SHARES OF INVESTMENT COMPANIES
Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
• | Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios; |
• | Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
VOTING SHARES OF FOREIGN ISSUERS
In the event Western Asset is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
• | Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management; |
• | Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees; |
• | Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated; |
• | Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights. |
RETIREMENT ACCOUNTS
For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (“DOL”) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary.
Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.
In order to comply with the DOL’s position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.
CORPORATE ACTIONS
Western Asset must pay strict attention to any corporate actions that are taken with respect to issuers whose securities are held in client accounts. For example, Western Asset must review any tender offers, rights offerings, etc., made in connection with securities owned by clients. Western Asset must also act in a timely manner and in the best interest of each client with respect to any such corporate actions.
Western Asset Management Company Ltd (“WAMJ”) Proxy Voting Policies and Procedures
POLICY
As a fixed income only manager, the occasion to vote proxies for WAMJ is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, WAMJ will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
PROCEDURE
Responsibility and Oversight
The WAMJ Legal and Compliance Department (“Compliance Department”) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Operations (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority, WAMJ will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if WAMJ becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If WAMJ personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
a. | Proxies are reviewed to determine accounts impacted. |
b. | Impacted accounts are checked to confirm WAMJ voting authority. |
c. | Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.) |
d. | If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and WAMJ obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by |
applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle), WAMJ seeks voting instructions from an independent third party. |
e. | Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, WAMJ may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department. |
f. | Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials. |
Timing
WAMJ personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
WAMJ maintains records of proxies. These records include:
a. | A copy of WAMJ’s policies and procedures. |
b. | Copies of proxy statements received regarding client securities. |
c. | A copy of any document created by WAMJ that was material to making a decision how to vote proxies. |
d. | Each written client request for proxy voting records and WAMJ’s written response to both verbal and written client requests. |
e. | A proxy log including: |
1. | Issuer name; |
2. | Exchange ticker symbol of the issuer’s shares to be voted; |
3. | Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted; |
4. | A brief identification of the matter voted on; |
5. | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
6. | Whether a vote was cast on the matter; |
7. | A record of how the vote was cast; and |
8. | Whether the vote was cast for or against the recommendation of the issuer’s management team. |
Records are maintained in an easily accessible place for five years, the first two in WAMJ’s offices.
Disclosure
WAMJ’s proxy policies are described in the firm’s Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
1. | Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
2. | Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
3. | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
Voting Guidelines
WAMJ’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
1b. | Board Approved Proposals |
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, WAMJ generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
1. | Matters relating to the Board of Directors |
WAMJ votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
a. | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
b. | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
c. | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
d. | Votes are cast on a case-by-case basis in contested elections of directors. |
2. | Matters relating to Executive Compensation |
WAMJ generally favors compensation programs that relate executive compensation to a company’s long- term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
a. | Except where the firm is otherwise withholding votes for the entire board of directors, WAMJ votes for stock option plans that will result in a minimal annual dilution. |
b. | WAMJ votes against stock option plans or proposals that permit replacing or repricing of underwater options. |
c. | WAMJ votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price. |
d. | Except where the firm is otherwise withholding votes for the entire board of directors, WAMJ votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
3. | Matters relating to Capitalization |
The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, WAMJ votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where WAMJ is otherwise withholding votes for the entire board of directors.
a. | WAMJ votes for proposals relating to the authorization of additional common stock. |
b. | WAMJ votes for proposals to effect stock splits (excluding reverse stock splits). |
c. | WAMJ votes for proposals authorizing share repurchase programs. |
4. | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions WAMJ votes these issues on a case-by-case basis on board-approved transactions. |
5. | Matters relating to Anti-Takeover Measures |
WAMJ votes against board-approved proposals to adopt anti-takeover measures except as follows:
a. | WAMJ votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans. |
b. | WAMJ votes on a case-by-case basis on proposals to adopt fair price provisions. |
6. | Other Business Matters |
WAMJ votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
a. | WAMJ votes on a case-by-case basis on proposals to amend a company’s charter or bylaws. |
b. | WAMJ votes against authorization to transact other unidentified, substantive business at the meeting. |
2b. | Shareholder Proposals |
SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. WAMJ votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:
a. | WAMJ votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
b. | WAMJ votes for shareholder proposals that are consistent with WAMJ’s proxy voting guidelines for board-approved proposals. |
c. | WAMJ votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
3b. | Voting Shares of Investment Companies |
WAMJ may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
• | WAMJ votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios. |
• | WAMJ votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
4b. | Voting Shares of Foreign Issuers |
In the event WAMJ is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
1. | WAMJ votes for shareholder proposals calling for a majority of the directors to be independent of management. |
2. | WAMJ votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
3. | WAMJ votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
WAMJ votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights.
Western Asset Management Company Pte. Ltd. (“WAMS”)
Compliance Policies and Procedures
Proxy Voting
WAMS has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and the applicable laws and regulations. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, WAMS will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
Procedure
Responsibility and Oversight
The Western Asset Legal and Compliance Department is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
1. | Proxies are reviewed to determine accounts impacted. |
2. | Impacted accounts are checked to confirm Western Asset voting authority. |
3. | Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. [See conflicts of interest section of these procedures for further information on determining material conflicts of interest.] |
4. | If a material conflict of interest exists, (4.1) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (4.2) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party. |
5. | Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department. |
6. | Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (4) or (5) and returns the voted proxy as indicated in the proxy materials. |
Timing
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
• | A copy of Western Asset’s policies and procedures. |
• | Copies of proxy statements received regarding client securities. |
• | A copy of any document created by Western Asset that was material to making a decision how to vote proxies. |
• | Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests. |
• | A proxy log including: |
• | Issuer name; |
• | Exchange ticker symbol of the issuer’s shares to be voted; |
• | Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted; |
• | A brief identification of the matter voted on; |
• | Whether the matter was proposed by the issuer or by a shareholder of the issuer; |
• | Whether a vote was cast on the matter; |
• | A record of how the vote was cast; and |
• | Whether the vote was cast for or against the recommendation of the issuer’s management team. |
Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.
Disclosure
Western Asset’s proxy policies are described in the firm’s Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:
• | Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company; |
• | Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and |
• | Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders. |
Voting Guidelines
Western Asset’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part 1 deals with proposals which have been approved and are recommended by a company’s board of directors; Part 2 deals with proposals submitted by shareholders for inclusion in proxy statements; Part 3 addresses issues relating to voting shares of investment companies; and Part 4 addresses unique considerations pertaining to foreign issuers.
Part 1 – Board Approved Proposals
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
• | Matters relating to the Board of Directors. Western Asset votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions: |
• | Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors. |
• | Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director. |
• | Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences. |
• | Votes are cast on a case-by-case basis in contested elections of directors. |
• | Matters relating to Executive Compensation. Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows: |
• | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution. |
• | Western Asset votes against stock option plans or proposals that permit replacing or re-pricing of underwater options. |
• | Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price. |
• | Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less. |
• | Matters relating to Capitalization. The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors. |
• | Western Asset votes for proposals relating to the authorization of additional common stock. |
• | Western Asset votes for proposals to effect stock splits (excluding reverse stock splits). |
• | Western Asset votes for proposals authorizing share repurchase programs. |
• | Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions. Western Asset votes these issues on a case-by-case basis on board-approved transactions. |
• | Matters relating to Anti-Takeover Measures. Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows: |
• | Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans. |
• | Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
• | Other Business Matters. Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting. |
• | Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws. |
• | Western Asset votes against authorization to transact other unidentified, substantive business at the meeting. |
Part 2 – Shareholder Proposals
SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:
• | Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans. |
• | Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals. |
• | Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors. |
Part 3 – Voting Shares of Investment Companies
Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts 1 and 2 above are voted in accordance with those guidelines.
• | Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios. |
• | Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g. proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided. |
Part 4 – Voting Shares of Foreign Issuers
In the event Western Asset is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
• | Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management. |
• | Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees. |
• | Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated. |
• | Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have pre-emptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have pre-emptive rights. |
Retirement Accounts
For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (“DOL”) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager. In order to comply with the DOL’s position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (1) the right to vote proxies has been reserved to a named fiduciary of the client, and (2) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.
ITEM 8. | INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
(a)(1):
NAME AND ADDRESS |
LENGTH OF TIME SERVED |
PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | ||
S. Kenneth Leech Western Asset |
Since 2014 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Chief Investment Officer of Western Asset from 1998 to 2008 and since 2014; Senior Advisor/Chief Investment Officer Emeritus of Western Asset from 2008-2013; Co- Chief Investment Officer of Western Asset from 2013-2014. | ||
Greg E. Handler Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 |
Since 2013 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; research analyst/portfolio manager at Western Asset since 2002. |
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the fund’s investment professionals for the fund. Unless noted otherwise, all information is provided as of December 31, 2022.
Other Accounts Managed by Investment Professionals
The table below identifies the number of accounts (other than the fund) for which the fund’s investment professionals have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories:
registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.
Name of PM |
Type of Account |
Number of Accounts Managed |
Total Assets Managed |
Number of Accounts Managed for which Advisory Fee is Performance- Based |
Assets Managed for which Advisory Fee is Performance- Based |
|||||||||||||
S. Kenneth Leech‡ |
Other Registered Investment Companies | 94 | $ | 146.76 billion | None | None | ||||||||||||
Other Pooled Vehicles | 316 | $ | 70.47 billion | 26 | $ | 2.74 billion | ||||||||||||
Other Accounts | 638 | $ | 177.25 billion | 26 | $ | 15.16 billion | ||||||||||||
Greg E. Handler ‡ |
Other Registered Investment Companies | 4 | $ | 3.08 billion | None | None | ||||||||||||
Other Pooled Vehicles | 16 | $ | 3.91 billion | 4 | $ | 226 million | ||||||||||||
Other Accounts | 7 | $ | 2.59 billion | 2 | $ | 899 million |
‡ | The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management Company (“Western Asset”). Mr. Leech is involved in the management of all the Firm’s portfolios, but they are not solely responsible for particular portfolios. Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. He is responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members. |
(a)(3): Investment Professional Compensation
Conflicts of Interest
The Subadviser has adopted compliance policies and procedures to address a wide range of potential conflicts of interest that could directly impact client portfolios. For example, potential conflicts of interest may arise in connection with the management of multiple portfolios (including portfolios managed in a personal capacity). These could include potential conflicts of interest related to the knowledge and timing of a portfolio’s trades, investment opportunities and broker selection. Portfolio managers are privy to the size, timing, and possible market impact of a portfolio’s trades.
It is possible that an investment opportunity may be suitable for both a portfolio and other accounts managed by a portfolio manager, but may not be available in sufficient quantities for both the portfolio and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a portfolio and another account. A conflict may arise where the portfolio manager may have an incentive to treat an account preferentially as compared to a portfolio because the account pays a performance-based fee or the portfolio manager, the Subadviser or an affiliate has an interest in the account. The Subadviser has adopted procedures for allocation of portfolio transactions and investment opportunities across multiple client accounts on a fair and equitable basis over time. Eligible accounts that can participate in a trade generally share the same price on a pro-rata allocation basis, taking into account differences based on factors such as cash availability, investment restrictions and guidelines, and portfolio composition versus strategy.
With respect to securities transactions, the Subadviser determines which broker or dealer to use to execute each order, consistent with their duty to seek best execution of the transaction. However, with respect to certain other accounts (such as pooled investment vehicles that are not registered investment companies and other accounts managed for organizations and individuals), the Subadviser may be limited by the client with respect to the selection of brokers or dealers or may be instructed to direct trades through a particular broker or dealer. In these cases, trades for a portfolio in a particular security may be placed separately from, rather than aggregated with, such other accounts. Having separate transactions with respect to a security may temporarily affect the market price of the security or the execution of the transaction, or both, to the possible detriment of a portfolio or the other account(s) involved. Additionally, the management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. The Subadviser’s team approach to portfolio management and block trading approach seeks to limit this potential risk.
The Subadviser also maintains a gift and entertainment policy to address the potential for a business contact to give gifts or host entertainment events that may influence the business judgment of an employee. Employees are permitted to retain gifts of only a nominal value and are required to make reimbursement for entertainment events above a certain value. All gifts (except those of a de minimis value) and entertainment events that are given or sponsored by a business contact are required to be reported in a gift and entertainment log which is reviewed on a regular basis for possible issues.
Employees of the Subadviser have access to transactions and holdings information regarding client accounts and the Subadviser’s overall trading activities. This information represents a potential conflict of interest because employees may take advantage of this information as they trade in their personal accounts. Accordingly, the Subadviser maintains a Code of Ethics that is compliant with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act to address personal trading. In addition, the Code of Ethics seeks to establish broader principles of good conduct and fiduciary responsibility in all aspects of the Subadviser’s business. The Code of Ethics is administered by the Legal and Compliance Department and monitored through the Subadviser’s compliance monitoring program.
The Subadviser may also face other potential conflicts of interest with respect to managing client assets, and the description above is not a complete description of every conflict of interest that could be deemed to exist. The Subadviser also maintains a compliance monitoring program and engages independent auditors to conduct a SOC1/ISAE 3402 audit on an annual basis. These steps help to ensure that potential conflicts of interest have been addressed.
Investment Professional Compensation
With respect to the compensation of the Fund’s investment professionals, the Subadviser’s compensation system assigns each employee a total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of their skills, experience and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits and a retirement plan.
In addition, the Subadviser’s employees are eligible for bonuses. These are structured to closely align the interests of employees with those of the Subadviser, and are determined by the professional’s job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary. The principal factor considered is an investment professional’s investment performance versus appropriate peer groups and benchmarks (e.g., a securities index and with respect to the Fund, the benchmark set forth in the Fund’s Prospectus to which the Fund’s average annual total returns are compared or, if none, the benchmark set forth in the Fund’s annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensation—with 3 and 5 years having a larger emphasis. The Subadviser may also measure an investment professional’s pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment professionals are generally responsible for multiple accounts (including the Fund) with similar investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when making bonus decisions include client service, business development, length of service to the Subadviser, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the Subadviser’s business.
Finally, in order to attract and retain top talent, all investment professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include long-term incentives that vest over a set period of time past the award date.
(a)(4): Investment Professional Securities Ownership
The table below identifies the dollar range of securities beneficially owned by each investment professional as of December 31, 2022.
Portfolio Manager(s) |
Dollar Range of Securities Beneficially Owned | |
S. Kenneth Leech |
A | |
Greg E. Handler |
A |
Dollar Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
(a) | (b) | (c) | (d) | |||||||||||||
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
January 1 through January 31 |
0 | 0 | 0 | 1,146,525 | ||||||||||||
February 1 through February 28 |
0 | 0 | 0 | 1,146,525 | ||||||||||||
March 1 through March 31 |
0 | 0 | 0 | 1,146,525 | ||||||||||||
April 1 through April 30 |
0 | 0 | 0 | 1,146,525 | ||||||||||||
May 1 through May 31 |
2,783 | $ | 11.98 | 2,783 | 1,143,742 | |||||||||||
June 1 through June 30 |
28,599 | $ | 11.70 | 28,599 | 1,115,143 | |||||||||||
July 1 through July 31 |
2,974 | $ | 11.62 | 2,974 | 1,112,169 | |||||||||||
August 1 through August 31 |
0 | 0 | 0 | 1,112,169 | ||||||||||||
September 1 through September 30 |
0 | 0 | 0 | 1,112,169 | ||||||||||||
October 1 through October 31 |
33,372 | $ | 10.61 | 33,372 | 1,078,797 | |||||||||||
November 1 through November 30 |
0 | 0 | 0 | 1,078,797 | ||||||||||||
December 1 through December 31 |
0 | 0 | 0 | 1,078,797 | ||||||||||||
Total |
67,728 | $ | 11.16 | 67,728 | 1,078,797 | |||||||||||
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On November 16, 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 common stock at such times and in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
ITEM 11. | CONTROLS AND PROCEDURES. |
(a) | The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934. |
(b) | There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by |
this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
ITEM 12. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable. |
ITEM 13. | EXHIBITS. |
(a) (1) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
(c) Consent of Independent Registered Public Accounting Firm
Ex99_CONSENT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
Western Asset Mortgage Opportunity Fund Inc.
By: | /s/ Jane Trust | |
Jane Trust | ||
Chief Executive Officer | ||
Date: | March 02, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Jane Trust | |
Jane Trust | ||
Chief Executive Officer | ||
Date: | March 02, 2023 | |
By: | /s/ Christopher Berarducci | |
Christopher Berarducci | ||
Principal Financial Officer | ||
Date: | March 02, 2023 |
1 Year Western Asset Mortgage O... Chart |
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