Western Asset Investment Grade Defined Opportunity Trust Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-22294

Western Asset Investment Grade Defined Opportunity Trust Inc.

(Exact name of registrant as specified in charter)

620 Eighth Avenue, 49th Floor, New York, NY 10018

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-888-777-0102

Date of fiscal year end: November 30

Date of reporting period: August 31, 2014

 

 

 


 

ITEM 1. SCHEDULE OF INVESTMENTS.

 


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

FORM N-Q

AUGUST 31, 2014


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  
CORPORATE BONDS & NOTES - 91.3%           
CONSUMER DISCRETIONARY - 10.9%           

Auto Components - 0.3%

          

Johnson Controls Inc., Senior Notes

     3.625     7/2/24       $ 660,000       $ 672,043   
          

 

 

 

Automobiles - 1.6%

          

Ford Motor Co., Senior Bonds

     9.215     9/15/21         1,140,000         1,538,844   

Ford Motor Credit Co., LLC, Senior Notes

     12.000     5/15/15         1,000,000         1,078,919   

Ford Motor Credit Co., LLC, Senior Notes

     8.125     1/15/20         640,000         813,429   

Ford Motor Credit Co., LLC, Senior Notes

     4.250     9/20/22         380,000         406,709   
          

 

 

 

Total Automobiles

             3,837,901   
          

 

 

 

Hotels, Restaurants & Leisure - 0.7%

          

Caesars Entertainment Operating Co. Inc., Senior Secured Notes

     11.250     6/1/17         1,250,000         1,034,375   

Hilton Worldwide Finance LLC/Hilton Worldwide Finance Corp., Senior Notes

     5.625     10/15/21         170,000         180,519 (a) 

Wynn Macau Ltd., Senior Notes

     5.250     10/15/21         480,000         489,600 (a) 
          

 

 

 

Total Hotels, Restaurants & Leisure

             1,704,494   
          

 

 

 

Household Durables - 0.6%

          

Toll Brothers Finance Corp., Senior Notes

     4.000     12/31/18         1,140,000         1,162,800   

Toll Brothers Finance Corp., Senior Notes

     6.750     11/1/19         160,000         183,600   
          

 

 

 

Total Household Durables

             1,346,400   
          

 

 

 

Media - 7.0%

          

21st Century Fox America Inc., Senior Notes

     6.650     11/15/37         2,400,000         3,082,188   

Comcast Corp., Bonds

     6.400     5/15/38         2,500,000         3,285,822   

Comcast Corp., Senior Notes

     5.700     7/1/19         1,500,000         1,753,020   

DISH DBS Corp., Senior Notes

     7.875     9/1/19         1,250,000         1,453,125   

Time Warner Cable Inc., Senior Bonds

     6.550     5/1/37         110,000         141,393   

Time Warner Cable Inc., Senior Bonds

     4.500     9/15/42         120,000         121,958   

Time Warner Cable Inc., Senior Notes

     8.750     2/14/19         1,390,000         1,772,896   

Time Warner Entertainment Co., LP, Senior Notes

     8.375     7/15/33         370,000         557,905   

Time Warner Inc., Senior Notes

     4.900     6/15/42         250,000         262,767   

UBM PLC, Notes

     5.750     11/3/20         740,000         796,509 (a) 

Virgin Media Finance PLC, Senior Notes

     6.375     4/15/23         2,000,000         2,140,000 (a) 

WPP Finance 2010, Senior Notes

     5.625     11/15/43         260,000         291,456   

WPP Finance UK, Senior Notes

     8.000     9/15/14         1,000,000         1,002,271   
          

 

 

 

Total Media

             16,661,310   
          

 

 

 

Specialty Retail - 0.7%

          

American Greetings Corp., Senior Notes

     7.375     12/1/21         280,000         298,900   

Gap Inc., Senior Notes

     5.950     4/12/21         1,240,000         1,439,153   
          

 

 

 

Total Specialty Retail

             1,738,053   
          

 

 

 

TOTAL CONSUMER DISCRETIONARY

             25,960,201   
          

 

 

 
CONSUMER STAPLES - 4.2%           

Beverages - 1.1%

          

Anheuser-Busch InBev Worldwide Inc., Senior Notes

     7.750     1/15/19         450,000         555,829   

Constellation Brands Inc., Senior Notes

     4.250     5/1/23         140,000         141,750   

PepsiCo Inc., Senior Notes

     3.600     3/1/24         210,000         219,076   

Pernod-Ricard SA, Senior Bonds

     5.750     4/7/21         590,000         682,935 (a) 

Pernod-Ricard SA, Senior Notes

     5.500     1/15/42         960,000         1,109,639 (a) 
          

 

 

 

Total Beverages

             2,709,229   
          

 

 

 

Food Products - 0.7%

          

Kraft Foods Group Inc., Senior Notes

     5.000     6/4/42         540,000         589,480   

Mondelez International Inc., Senior Notes

     5.375     2/10/20         491,000         562,340   

Mondelez International Inc., Senior Notes

     4.000     2/1/24         410,000         431,869   
          

 

 

 

Total Food Products

             1,583,689   
          

 

 

 

 

See Notes to Schedule of Investments.

 

1


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Tobacco - 2.4%

          

Altria Group Inc., Senior Notes

     9.250     8/6/19       $ 1,000,000       $ 1,316,839   

Altria Group Inc., Senior Notes

     9.950     11/10/38         430,000         732,673   

Altria Group Inc., Senior Notes

     10.200     2/6/39         280,000         486,199   

Lorillard Tobacco Co., Senior Notes

     8.125     6/23/19         540,000         671,970   

Lorillard Tobacco Co., Senior Notes

     8.125     5/1/40         470,000         652,658   

Lorillard Tobacco Co., Senior Notes

     7.000     8/4/41         510,000         646,287   

Reynolds American Inc., Senior Notes

     4.750     11/1/42         1,220,000         1,195,225   
          

 

 

 

Total Tobacco

             5,701,851   
          

 

 

 

TOTAL CONSUMER STAPLES

             9,994,769   
          

 

 

 
ENERGY - 11.7%           

Oil, Gas & Consumable Fuels - 11.7%

          

Anadarko Petroleum Corp., Senior Notes

     5.950     9/15/16         340,000         373,483   

Apache Corp., Senior Notes

     5.100     9/1/40         140,000         155,015   

Apache Corp., Senior Notes

     5.250     2/1/42         160,000         180,249   

Apache Corp., Senior Notes

     4.750     4/15/43         840,000         895,150   

ConocoPhillips, Notes

     6.500     2/1/39         1,500,000         2,042,468   

Devon Financing Corp. LLC, Debentures

     7.875     9/30/31         1,080,000         1,548,000   

Ecopetrol SA, Senior Notes

     5.875     5/28/45         284,000         307,703   

Energy Transfer Equity LP, Senior Notes

     7.500     10/15/20         420,000         488,250   

EOG Resources Inc., Senior Notes

     6.875     10/1/18         800,000         953,667   

Hess Corp., Notes

     8.125     2/15/19         1,400,000         1,746,993   

Hess Corp., Notes

     7.875     10/1/29         440,000         617,444   

Hess Corp., Senior Bonds

     6.000     1/15/40         520,000         644,858   

Kerr-McGee Corp., Notes

     6.950     7/1/24         1,320,000         1,692,009   

Kerr-McGee Corp., Notes

     7.875     9/15/31         710,000         1,014,652   

Kinder Morgan Energy Partners LP, Senior Notes

     5.950     2/15/18         800,000         902,230   

LUKOIL International Finance BV, Senior Notes

     3.416     4/24/18         260,000         246,402 (a) 

LUKOIL International Finance BV, Senior Notes

     6.125     11/9/20         240,000         241,238 (a) 

LUKOIL International Finance BV, Senior Notes

     4.563     4/24/23         940,000         847,410 (a) 

MEG Energy Corp., Senior Notes

     6.375     1/30/23         900,000         958,500 (a) 

Murray Energy Corp., Senior Secured Notes

     8.625     6/15/21         650,000         692,250 (a) 

Noble Energy Inc., Senior Notes

     6.000     3/1/41         660,000         800,302   

Noble Energy Inc., Senior Notes

     5.250     11/15/43         240,000         269,367   

Pemex Project Funding Master Trust, Senior Bonds

     6.625     6/15/35         1,000,000         1,237,500   

Petrobras Global Finance BV, Senior Notes

     7.250     3/17/44         440,000         518,852   

Petrobras International Finance Co., Senior Notes

     5.750     1/20/20         1,109,000         1,198,219   

Petrobras International Finance Co., Senior Notes

     6.750     1/27/41         872,000         977,631   

Petroleos Mexicanos, Notes

     6.375     1/23/45         390,000         472,875 (a) 

Petroleos Mexicanos, Senior Notes

     5.500     1/21/21         250,000         282,500   

Plains Exploration & Production Co., Senior Notes

     6.500     11/15/20         32,000         35,520   

Plains Exploration & Production Co., Senior Notes

     6.875     2/15/23         410,000         477,138   

Transcontinental Gas Pipe Line Co. LLC, Senior Notes

     5.400     8/15/41         10,000         11,546   

Transcontinental Gas Pipe Line Co. LLC, Senior Notes

     4.450     8/1/42         860,000         852,759   

Valero Energy Corp., Senior Notes

     9.375     3/15/19         700,000         908,646   

Williams Cos. Inc., Notes

     7.875     9/1/21         952,000         1,174,431   

Williams Cos. Inc., Senior Notes

     4.550     6/24/24         1,130,000         1,140,189   

Williams Cos. Inc., Senior Notes

     7.750     6/15/31         62,000         75,104   

Williams Cos. Inc., Senior Notes

     8.750     3/15/32         148,000         192,569   

Williams Partners LP, Senior Notes

     5.250     3/15/20         460,000         515,285   
          

 

 

 

TOTAL ENERGY

             27,688,404   
          

 

 

 
FINANCIALS - 34.8%           

Banks - 15.4%

          

Bank of America Corp., Senior Notes

     7.625     6/1/19         2,760,000         3,381,938   

Bank of America Corp., Senior Notes

     5.625     7/1/20         180,000         206,541   

Bank of America Corp., Senior Notes

     5.875     2/7/42         1,340,000         1,649,766   

Bank of America Corp., Subordinated Notes

     4.200     8/26/24         1,010,000         1,026,489   

Barclays Bank PLC, Subordinated Notes

     7.625     11/21/22         360,000         405,000   

CIT Group Inc., Secured Notes

     6.625     4/1/18         480,000         537,000 (a) 

 

See Notes to Schedule of Investments.

 

2


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Banks - 15.4% (continued)

          

CIT Group Inc., Senior Notes

     5.000     8/1/23       $ 350,000       $ 366,275   

Citigroup Inc., Junior Subordinated Bonds

     5.350     5/15/23         330,000         316,566 (b)(c) 

Citigroup Inc., Junior Subordinated Bonds

     6.300     5/15/24         470,000         480,277 (b)(c) 

Citigroup Inc., Senior Notes

     6.000     8/15/17         2,250,000         2,531,529   

Citigroup Inc., Senior Notes

     8.500     5/22/19         500,000         633,985   

Citigroup Inc., Senior Notes

     8.125     7/15/39         1,350,000         2,078,251   

Citigroup Inc., Subordinated Notes

     5.500     9/13/25         850,000         954,304   

Citigroup Inc., Subordinated Notes

     6.675     9/13/43         630,000         804,184   

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, Subordinated Notes

     5.750     12/1/43         750,000         891,511   

Credit Agricole SA, Subordinated Notes

     8.375     10/13/19         500,000         583,125 (a)(b)(c) 

JPMorgan Chase & Co., Junior Subordinated Bonds

     6.000     8/1/23         700,000         721,350 (b)(c) 

JPMorgan Chase & Co., Junior Subordinated Bonds

     6.125     4/30/24         470,000         482,925 (b)(c) 

JPMorgan Chase & Co., Senior Notes

     6.400     5/15/38         1,500,000         1,951,001   

JPMorgan Chase & Co., Subordinated Notes

     5.625     8/16/43         760,000         888,942   

M&T Bank Corp., Junior Subordinated Bonds

     6.875     6/15/16         1,060,000         1,087,504 (c) 

Royal Bank of Scotland Group PLC, Junior Subordinated Bonds

     7.648     9/30/31         710,000         841,350 (b)(c) 

Royal Bank of Scotland Group PLC, Senior Notes

     6.400     10/21/19         1,170,000         1,377,398   

Royal Bank of Scotland Group PLC, Subordinated Notes

     6.100     6/10/23         1,540,000         1,684,078   

Royal Bank of Scotland Group PLC, Subordinated Notes

     6.000     12/19/23         150,000         163,355   

Royal Bank of Scotland NV, Subordinated Notes

     7.750     5/15/23         820,000         955,764   

Societe Generale SA, Junior Subordinated Notes

     6.000     1/27/20         1,580,000         1,512,850 (a)(b)(c) 

Standard Chartered PLC, Subordinated Notes

     5.700     3/26/44         760,000         841,410 (a) 

Wachovia Capital Trust III, Junior Subordinated Bonds

     5.570     10/20/14         410,000         403,850 (b)(c) 

Wachovia Corp., Senior Notes

     5.750     2/1/18         4,400,000         5,005,123   

Wells Fargo & Co., Junior Subordinated Bonds

     5.900     6/15/24         610,000         638,213 (b)(c) 

Wells Fargo & Co., Subordinated Notes

     4.100     6/3/26         500,000         512,182   

Wells Fargo & Co., Subordinated Notes

     5.606     1/15/44         500,000         589,312   
          

 

 

 

Total Banks

             36,503,348   
          

 

 

 

Capital Markets - 8.4%

          

Bear Stearns Cos. LLC, Senior Notes

     7.250     2/1/18         1,570,000         1,850,777   

Credit Suisse Group AG, Junior Subordinated Notes

     6.250     12/18/24         1,540,000         1,536,920 (a)(b)(c) 

Goldman Sachs Group Inc., Senior Notes

     5.950     1/18/18         4,250,000         4,799,410   

Goldman Sachs Group Inc., Senior Notes

     7.500     2/15/19         500,000         604,871   

Goldman Sachs Group Inc., Senior Notes

     6.250     2/1/41         2,550,000         3,206,217   

KKR Group Finance Co. III LLC, Senior Bonds

     5.125     6/1/44         960,000         1,023,245 (a) 

Merrill Lynch & Co. Inc., Notes

     6.875     4/25/18         990,000         1,155,311   

Merrill Lynch & Co. Inc., Subordinated Notes

     7.750     5/14/38         670,000         941,470   

Morgan Stanley, Medium-Term Notes

     6.625     4/1/18         1,750,000         2,027,991   

Morgan Stanley, Senior Notes

     5.500     1/26/20         1,950,000         2,218,316   

Morgan Stanley, Senior Notes

     6.375     7/24/42         140,000         182,898   

UBS AG Stamford CT, Subordinated Notes

     7.625     8/17/22         330,000         392,082   
          

 

 

 

Total Capital Markets

             19,939,508   
          

 

 

 

Consumer Finance - 1.7%

          

HSBC Finance Corp., Senior Notes

     6.676     1/15/21         1,620,000         1,947,007   

SLM Corp., Senior Notes

     7.250     1/25/22         1,430,000         1,599,812   

SLM Corp., Senior Notes

     6.125     3/25/24         480,000         495,000   
          

 

 

 

Total Consumer Finance

             4,041,819   
          

 

 

 

Diversified Financial Services - 5.7%

          

Carlyle Holdings II Finance LLC, Senior Secured Notes

     5.625     3/30/43         360,000         420,555 (a) 

CME Group Inc., Senior Notes

     5.300     9/15/43         750,000         883,198   

General Electric Capital Corp., Junior Subordinated Bonds

     7.125     6/15/22         100,000         118,055 (b)(c) 

 

See Notes to Schedule of Investments.

 

3


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Diversified Financial Services - 5.7% (continued)

          

General Electric Capital Corp., Junior Subordinated Bonds

     6.250     12/15/22       $ 1,000,000       $ 1,118,079 (b)(c) 

General Electric Capital Corp., Notes

     5.300     2/11/21         130,000         149,266   

General Electric Capital Corp., Senior Notes

     6.875     1/10/39         2,820,000         3,918,252   

General Electric Capital Corp., Subordinated Debentures

     6.375     11/15/67         420,000         466,788 (b) 

ILFC E-Capital Trust I, Junior Subordinated Notes

     5.020     12/21/65         800,000         776,000 (a)(b) 

International Lease Finance Corp., Senior Notes

     8.875     9/1/17         810,000         943,650   

International Lease Finance Corp., Senior Notes

     6.250     5/15/19         220,000         244,464   

International Lease Finance Corp., Senior Notes

     8.250     12/15/20         330,000         404,250   

International Lease Finance Corp., Senior Secured Notes

     6.750     9/1/16         670,000         734,487 (a) 

International Lease Finance Corp., Senior Secured Notes

     7.125     9/1/18         1,200,000         1,380,000 (a) 

Voya Financial Inc., Senior Notes

     5.500     7/15/22         1,260,000         1,445,883   

ZFS Finance USA Trust II, Bonds

     6.450     12/15/65         500,000         538,750 (a)(b) 
          

 

 

 

Total Diversified Financial Services

             13,541,677   
          

 

 

 

Insurance - 3.3%

          

American Equity Investment Life Holding Co., Senior Notes

     6.625     7/15/21         90,000         97,313   

American International Group Inc., Senior Notes

     6.400     12/15/20         1,000,000         1,206,794   

Delphi Financial Group Inc., Senior Notes

     7.875     1/31/20         290,000         350,569   

Fidelity & Guaranty Life Holdings Inc., Senior Notes

     6.375     4/1/21         330,000         354,750 (a) 

Liberty Mutual Group Inc., Junior Subordinated Bonds

     7.800     3/15/37         330,000         391,050 (a) 

Liberty Mutual Insurance Co., Subordinated Notes

     7.875     10/15/26         840,000         1,103,931 (a) 

MetLife Inc., Senior Notes

     6.817     8/15/18         1,300,000         1,544,781   

Nationwide Mutual Insurance Co., Notes

     9.375     8/15/39         520,000         826,791 (a) 

Teachers Insurance & Annuity Association of America - College Retirement Equity Fund, Notes

     6.850     12/16/39         1,050,000         1,419,642 (a) 

Travelers Cos. Inc., Senior Notes

     6.250     6/15/37         400,000         524,876   
          

 

 

 

Total Insurance

             7,820,497   
          

 

 

 

Real Estate Management & Development - 0.3%

          

Security Capital Group Inc., Senior Notes

     7.700     6/15/28         460,000         623,046   
          

 

 

 

TOTAL FINANCIALS

             82,469,895   
          

 

 

 
HEALTH CARE - 3.4%           

Biotechnology - 0.7%

          

Amgen Inc., Senior Notes

     3.625     5/22/24         50,000         50,945   

Amgen Inc., Senior Notes

     5.150     11/15/41         700,000         777,458   

Celgene Corp., Senior Notes

     3.625     5/15/24         560,000         572,055   

Gilead Sciences Inc., Senior Notes

     5.650     12/1/41         100,000         122,119   
          

 

 

 

Total Biotechnology

             1,522,577   
          

 

 

 

Health Care Providers & Services - 1.5%

          

Catholic Health Initiatives, Secured Bonds

     4.350     11/1/42         60,000         59,842   

Humana Inc., Senior Notes

     6.450     6/1/16         1,000,000         1,094,056   

Humana Inc., Senior Notes

     7.200     6/15/18         1,000,000         1,187,658   

WellPoint Inc., Notes

     5.250     1/15/16         1,200,000         1,276,588   
          

 

 

 

Total Health Care Providers & Services

             3,618,144   
          

 

 

 

Pharmaceuticals - 1.2%

          

AbbVie Inc., Senior Notes

     4.400     11/6/42         450,000         454,483   

Pfizer Inc., Senior Notes

     7.200     3/15/39         560,000         809,810   

Wyeth, Notes

     5.950     4/1/37         1,100,000         1,383,982   

Zoetis Inc., Senior Notes

     4.700     2/1/43         270,000         281,909   
          

 

 

 

Total Pharmaceuticals

             2,930,184   
          

 

 

 

TOTAL HEALTH CARE

             8,070,905   
          

 

 

 

 

See Notes to Schedule of Investments.

 

4


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  
INDUSTRIALS - 4.5%           

Aerospace & Defense - 0.6%

          

Exelis Inc., Senior Notes

     5.550     10/1/21       $ 885,000       $ 971,078   

Textron Inc., Senior Notes

     4.300     3/1/24         400,000         419,627   
          

 

 

 

Total Aerospace & Defense

             1,390,705   
          

 

 

 

Air Freight & Logistics - 0.4%

          

United Parcel Service Inc., Senior Notes

     6.200     1/15/38         700,000         931,530   
          

 

 

 

Airlines - 1.9%

          

Air Canada, Pass-Through Trust, Secured Notes

     6.625     5/15/18         480,000         501,864 (a) 

American Airlines, Pass-Through Trust, Senior Secured Bonds

     5.600     7/15/20         506,675         525,675   

Delta Air Lines Inc., Pass-Through Certificates, Secured Notes

     8.021     8/10/22         149,098         173,520   

Delta Air Lines Inc., Pass-Through Certificates, Senior Secured Notes

     7.750     12/17/19         508,987         596,151   

United Airlines Inc., Pass-Through Certificates

     6.545     2/2/19         181,719         202,162   

United Airlines Inc., Pass-Through Certificates, Secured Notes

     9.750     1/15/17         134,908         152,784   

United Airlines Inc., Pass-Through Certificates, Secured Notes

     9.250     5/10/17         242,430         269,097   

United Airlines Inc., Pass-Through Certificates, Secured Notes

     6.250     4/11/20         260,608         280,153   

United Airlines Inc., Pass-Through Certificates, Senior Secured Notes

     10.400     11/1/16         86,572         96,528   

United Airlines Inc., Pass-Through Certificates, Senior Secured Notes

     6.125     4/29/18         240,000         254,400   

United Airlines Inc., Pass-Through Certificates, Senior Secured Notes

     7.250     11/10/19         648,558         759,623   

US Airways, Pass-Through Trust, Senior Secured Bonds

     5.900     10/1/24         565,530         639,049   
          

 

 

 

Total Airlines

             4,451,006   
          

 

 

 

Commercial Services & Supplies - 0.8%

          

Republic Services Inc., Senior Notes

     5.500     9/15/19         220,000         252,717   

Taylor Morrison Communities Inc./Monarch Communities Inc., Senior

Notes

     5.250     4/15/21         900,000         913,500 (a) 

Waste Management Inc., Senior Notes

     7.750     5/15/32         500,000         726,981   
          

 

 

 

Total Commercial Services & Supplies

             1,893,198   
          

 

 

 

Machinery - 0.2%

          

Caterpillar Inc., Senior Notes

     4.750     5/15/64         360,000         390,022   

Valmont Industries Inc., Senior Notes

     6.625     4/20/20         180,000         214,175   
          

 

 

 

Total Machinery

             604,197   
          

 

 

 

Marine - 0.2%

          

Horizon Lines LLC, Senior Secured Notes

     11.000     10/15/16         492,000         494,460   
          

 

 

 

Road & Rail - 0.4%

          

Burlington Northern Santa Fe LLC, Senior Notes

     4.900     4/1/44         760,000         830,922   

Florida East Coast Holdings Corp., Senior Notes

     9.750     5/1/20         70,000         74,375 (a) 
          

 

 

 

Total Road & Rail

             905,297   
          

 

 

 

TOTAL INDUSTRIALS

             10,670,393   
          

 

 

 
INFORMATION TECHNOLOGY - 0.4%           

Electronic Equipment, Instruments & Components - 0.2%

          

Interface Security Systems Holdings Inc./Interface Security Systems

LLC, Senior Secured Notes

     9.250     1/15/18         340,000         351,900   
          

 

 

 

IT Services - 0.0%

          

First Data Corp., Senior Secured Notes

     6.750     11/1/20         91,000         98,735 (a) 
          

 

 

 

Semiconductors & Semiconductor Equipment - 0.2%

          

National Semiconductor Corp., Senior Notes

     6.600     6/15/17         360,000         413,305   
          

 

 

 

TOTAL INFORMATION TECHNOLOGY

             863,940   
          

 

 

 

 

 

See Notes to Schedule of Investments.

 

5


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  
MATERIALS - 4.8%           

Chemicals - 0.4%

          

Ecolab Inc., Senior Notes

     5.500     12/8/41       $ 260,000       $ 306,229   

LYB International Finance BV, Senior Bonds

     4.875     3/15/44         160,000         172,964   

Potash Corp. of Saskatchewan Inc., Senior Notes

     5.625     12/1/40         250,000         306,623   
          

 

 

 

Total Chemicals

             785,816   
          

 

 

 

Containers & Packaging - 0.3%

          

Rock-Tenn Co., Senior Notes

     4.900     3/1/22         710,000         775,502   
          

 

 

 

Metals & Mining - 4.0%

          

Barrick Gold Corp., Senior Notes

     5.250     4/1/42         1,200,000         1,209,905   

Cliffs Natural Resources Inc., Senior Notes

     4.800     10/1/20         190,000         180,675   

Cliffs Natural Resources Inc., Senior Notes

     4.875     4/1/21         460,000         437,478   

Freeport-McMoRan Inc., Senior Notes

     5.450     3/15/43         210,000         227,733   

Rio Tinto Finance USA Ltd., Senior Notes

     9.000     5/1/19         2,000,000         2,605,304   

Southern Copper Corp., Senior Notes

     5.375     4/16/20         260,000         291,429   

Steel Dynamics Inc., Senior Notes

     6.125     8/15/19         240,000         258,000   

Vale Overseas Ltd., Notes

     6.875     11/21/36         2,100,000         2,486,085   

Vedanta Resources PLC, Senior Notes

     6.000     1/31/19         500,000         522,500 (a) 

Xstrata Finance Canada Ltd., Senior Bonds

     5.800     11/15/16         1,200,000         1,312,727 (a) 
          

 

 

 

Total Metals & Mining

             9,531,836   
          

 

 

 

Paper & Forest Products - 0.1%

          

Fibria Overseas Finance Ltd., Senior Notes

     5.250     5/12/24         200,000         200,000   
          

 

 

 

TOTAL MATERIALS

             11,293,154   
          

 

 

 
TELECOMMUNICATION SERVICES - 9.4%           

Diversified Telecommunication Services - 7.9%

          

AT&T Inc., Global Notes

     5.600     5/15/18         1,500,000         1,706,518   

AT&T Inc., Senior Notes

     5.550     8/15/41         440,000         505,441   

British Telecommunications PLC, Bonds

     9.625     12/15/30         2,000,000         3,236,488   

Embarq Corp., Notes

     7.995     6/1/36         1,500,000         1,691,085   

Intelsat Jackson Holdings SA, Senior Bonds

     5.500     8/1/23         1,250,000         1,250,000   

Koninklijke KPN NV, Senior Notes

     8.375     10/1/30         330,000         475,361   

Telecom Italia Capital SA, Senior Notes

     7.175     6/18/19         610,000         697,688   

Telecom Italia SpA, Senior Notes

     5.303     5/30/24         830,000         847,638 (a) 

Telefonica Emisiones SAU, Senior Notes

     7.045     6/20/36         140,000         184,389   

Turk Telekomunikasyon AS, Senior Notes

     4.875     6/19/24         400,000         397,000 (a) 

TW Telecom Holdings Inc., Senior Notes

     5.375     10/1/22         1,250,000         1,364,062   

Verizon Communications Inc., Senior Notes

     5.150     9/15/23         2,460,000         2,787,229   

Verizon Communications Inc., Senior Notes

     6.550     9/15/43         1,503,000         1,938,691   

Verizon Communications Inc., Senior Notes

     5.012     8/21/54         1,508,000         1,580,342 (a) 
          

 

 

 

Total Diversified Telecommunication Services

             18,661,932   
          

 

 

 

Wireless Telecommunication Services - 1.5%

          

America Movil SAB de CV, Senior Notes

     4.375     7/16/42         800,000         784,152   

Rogers Communications Inc., Senior Notes

     6.800     8/15/18         1,000,000         1,182,204   

Sprint Communications Inc., Senior Notes

     9.000     11/15/18         280,000         333,550 (a) 

Sprint Corp., Senior Notes

     7.875     9/15/23         700,000         752,500 (a) 

Telefonica Europe BV, Senior Notes

     8.250     9/15/30         390,000         544,597   
          

 

 

 

Total Wireless Telecommunication Services

             3,597,003   
          

 

 

 

TOTAL TELECOMMUNICATION SERVICES

             22,258,935   
          

 

 

 
UTILITIES - 7.2%           

Electric Utilities - 5.5%

          

Berkshire Hathaway Energy, Senior Notes

     5.750     4/1/18         1,000,000         1,138,830   

Berkshire Hathaway Energy Co., Bonds

     6.125     4/1/36         1,000,000         1,279,174   

CenterPoint Energy Houston Electric LLC, Senior Secured Bonds

     4.500     4/1/44         530,000         576,370   

Commonwealth Edison Co., First Mortgage Bonds

     5.800     3/15/18         600,000         683,322   

Commonwealth Edison Co., First Mortgage Bonds

     6.450     1/15/38         600,000         830,714   

 

See Notes to Schedule of Investments.

 

6


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE     MATURITY
DATE
     FACE
AMOUNT
     VALUE  

Electric Utilities - 5.5% (continued)

          

FirstEnergy Corp., Notes

     7.375     11/15/31       $ 3,040,000       $ 3,701,723   

GenOn REMA LLC, Pass-Through Certificates

     9.681     7/2/26         2,000,000         2,180,000   

IPALCO Enterprises Inc., Senior Secured Notes

     7.250     4/1/16         1,030,000         1,114,975 (a) 

Pacific Gas & Electric Co., Senior Notes

     8.250     10/15/18         600,000         745,027   

Virginia Electric and Power Co., Senior Notes

     8.875     11/15/38         500,000         854,780   
          

 

 

 

Total Electric Utilities

             13,104,915   
          

 

 

 

Gas Utilities - 0.8%

          

Southern Natural Gas Co., Senior Notes

     8.000     3/1/32         1,500,000         2,001,081   
          

 

 

 

Independent Power and Renewable Electricity
Producers - 0.6%

   

       

AES Corp., Senior Notes

     8.000     6/1/20         1,100,000         1,309,000   
          

 

 

 

Multi-Utilities - 0.3%

          

Dominion Resources Inc., Senior Notes

     8.875     1/15/19         500,000         638,407   
          

 

 

 

TOTAL UTILITIES

             17,053,403   
          

 

 

 

TOTAL CORPORATE BONDS & NOTES

(Cost - $187,700,968)

             216,323,999   
          

 

 

 
MUNICIPAL BONDS - 0.5%           

Alabama - 0.1%

          

Jefferson County, AL, Sewer Revenue

     6.000     10/1/42         310,000         346,434   
          

 

 

 

California - 0.1%

          

University of California Revenue

     4.062     5/15/33         220,000         222,238   
          

 

 

 

Illinois - 0.3%

          

Chicago, IL, GO, Taxable Project

     7.781     1/1/35         20,000         24,352   

Illinois State, GO, Build America Bonds - Taxable

     6.725     4/1/35         530,000         596,181   
          

 

 

 

Total Illinois

             620,533   
          

 

 

 

TOTAL MUNICIPAL BONDS

(Cost - $1,145,297)

             1,189,205   
          

 

 

 
SENIOR LOANS - 0.3%           
INDUSTRIALS - 0.3%           

Commercial Services & Supplies - 0.3%

          

Nielsen Finance LLC, USD Term Loan B2 (Cost - $641,626)

     3.157     4/15/21         641,626         643,511 (d)(e) 
          

 

 

 
SOVEREIGN BONDS - 1.1%           

Colombia - 0.5%

          

Republic of Colombia, Senior Bonds

     5.625     2/26/44         941,000         1,096,265   
          

 

 

 

Russia - 0.3%

          

Russian Foreign Bond - Eurobond, Senior Bonds

     7.500     3/31/30         685,000         763,775 (f) 
          

 

 

 

Turkey - 0.3%

          

Republic of Turkey, Notes

     4.875     4/16/43         840,000         819,000   
          

 

 

 

TOTAL SOVEREIGN BONDS

(Cost - $2,373,359)

             2,679,040   
          

 

 

 
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 0.2%           

U.S. Government Obligations - 0.2%

          

U.S. Treasury Bonds (Cost - $393,802)

     3.625     2/15/44         370,000         409,630   
          

 

 

 
                  SHARES         
COMMON STOCKS - 0.6%           
FINANCIALS - 0.6%           

Banks - 0.6%

          

Citigroup Inc. (Cost - $1,474,006)

          29,728         1,535,451   
          

 

 

 

 

See Notes to Schedule of Investments.

 

7


WESTERN ASSET INVESTMENT GRADE DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)    August 31, 2014

 

SECURITY

   RATE            SHARES      VALUE  
PREFERRED STOCKS - 2.1%           
FINANCIALS - 2.1%           

Banks - 0.5%

          

M&T Bank Corp.

     6.375        1,000       $ 1,074,660   

U.S. Bancorp

     5.150        3,585         82,813   
          

 

 

 

Total Banks

             1,157,473   
          

 

 

 

Capital Markets - 0.2%

          

State Street Corp.

     5.900        16,755         437,306 (b) 
          

 

 

 

Consumer Finance - 1.2%

          

GMAC Capital Trust I

     8.125        105,800         2,843,904 (b) 
          

 

 

 

Diversified Financial Services - 0.2%

          

Citigroup Capital XIII

     7.875        17,525         477,381 (b) 
          

 

 

 

TOTAL PREFERRED STOCKS
(Cost - $4,501,533)

             4,916,064   
          

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS
(Cost - $198,230,591)

             227,696,900   
          

 

 

 
           MATURITY
DATE
     FACE
AMOUNT
        
SHORT-TERM INVESTMENTS - 2.0%           

Repurchase Agreements - 2.0%
Goldman Sachs & Co. repurchase agreement dated 8/29/14; Proceeds at maturity - $4,700,021; (Fully collateralized by U.S. government agency obligations, 1.660% due 12/10/18; Market value - $4,797,925) (Cost - $4,700,000)

     0.040     9/2/14       $ 4,700,000         4,700,000   
          

 

 

 

TOTAL INVESTMENTS - 98.1%
(Cost - $202,930,591#)

             232,396,900   

Other Assets in Excess of Liabilities - 1.9%

             4,420,544   
          

 

 

 

TOTAL NET ASSETS - 100.0%

           $ 236,817,444   
          

 

 

 

 

(a) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

 

(b) Variable rate security. Interest rate disclosed is as of the most recent information available.

 

(c) Security has no maturity date. The date shown represents the next call date.

 

(d) Interest rates disclosed represent the effective rates on senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.

 

(e) Senior loans may be considered restricted in that the Fund ordinarily is contractually obligated to receive approval from the agent bank and/or borrower prior to the disposition of a senior loan.

 

(f) Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

 

# Aggregate cost for federal income tax purposes is substantially the same.

Abbreviation used in this schedule:

GO   

— General Obligation

 

See Notes to Schedule of Investments.

 

8


Notes to Schedule of Investments (unaudited)

 

1. Organization and significant accounting policies

Western Asset Investment Grade Defined Opportunity Trust Inc. (the “Fund”) was incorporated in Maryland on April 24, 2009 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s primary investment objective is to provide current income and then to liquidate and distribute substantially all of the Fund’s net assets to stockholders on or about December 2, 2024. As a secondary investment objective, the Fund will seek capital appreciation. There can be no assurance the Fund will achieve its investment objectives.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

 

9


Notes to Schedule of Investments (unaudited) (continued)

 

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

 

   

Level 1 – quoted prices in active markets for identical investments

 

   

Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

   

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:

 

ASSETS

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
     TOTAL  

Long-term investments†:

           

Corporate bonds & notes

     —         $ 216,323,999         —         $ 216,323,999   

Municipal bonds

     —           1,189,205         —           1,189,205   

Senior loans

     —           643,511         —           643,511   

Sovereign bonds

     —           2,679,040         —           2,679,040   

U.S. government & agency obligations

     —           409,630         —           409,630   

Common stocks

   $ 1,535,451         —           —           1,535,451   

Preferred stocks

     4,916,064         —           —           4,916,064   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 6,451,515       $ 221,245,385         —         $ 227,696,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Short-term investments†

     —           4,700,000         —           4,700,000   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total investments

   $ 6,451,515       $ 225,945,385         —         $ 232,396,900   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other financial instruments:

           

Futures contracts

   $ 7,250         —           —         $ 7,250   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,458,765       $ 225,945,385         —         $ 232,404,150   
  

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES

 

DESCRIPTION

   QUOTED PRICES
(LEVEL 1)
     OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)
     SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)
     TOTAL  

Other financial instruments:

           

Futures contracts

   $ 170,149         —           —         $ 170,149   

Forward foreign currency contracts

     —         $ 49,793         —           49,793   

OTC credit default swaps on corporate issues - buy protection‡

     —           74,865         —           74,865   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 170,149       $ 124,658       $ —         $ 294,807   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

See Schedule of Investments for additional detailed categorizations.

 

Values include any premiums paid or received with respect to swap contracts.

(b) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

(c) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

 

10


Notes to Schedule of Investments (unaudited) (continued)

 

Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin” and subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded.

Futures contracts involve, to varying degrees, risk of loss. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

(d) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge against, or manage exposure to, foreign issuers or markets. The Fund may also enter into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.

When entering into a forward foreign currency contract, the Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(e) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

(f) Swap agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes, including to increase the Fund’s return. The use of swaps involves risks that are different from those associated with other portfolio transactions. Swap agreements are privately negotiated in the over-the-counter market (“OTC Swaps”) or may be executed on a registered exchange (“Centrally Cleared Swaps”). Unlike Centrally Cleared Swaps, the Fund has credit exposure to the counterparties of OTC Swaps.

Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a receivable or payable for variation margin. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments.

The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of August 31, 2014, the Fund did not hold any credit default swaps to sell protection.

For average notional amounts of swaps held during the period ended August 31, 2014, see Note 3.

Credit default swaps

The Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts

 

11


Notes to Schedule of Investments (unaudited) (continued)

 

of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.

Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Notes to the Schedule of Investments and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.

The Fund’s maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.

Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.

(g) Loan participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.

(h) Credit and market risk. The Fund invests in high-yield instruments that are subject to certain credit and market risks. The yields of high-yield obligations reflect, among other things, perceived credit and market risks. The Fund’s investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading.

(i) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.

(j) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Fund’s investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.

 

12


Notes to Schedule of Investments (unaudited) (continued)

 

The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.

Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Securities pledged as collateral, if any, to cover the obligations of the Fund under derivative contracts, are noted in the Schedule of Investments.

As of August 31, 2014, the Fund held forward foreign currency contracts and OTC credit default swaps with credit related contingent features which had a liability position of $124,658. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.

(k) Security transactions. Security transactions are accounted for on a trade date basis.

2. Investments

At August 31, 2014, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

   $ 29,935,280   

Gross unrealized depreciation

     (468,971
  

 

 

 

Net unrealized appreciation

   $ 29,466,309   
  

 

 

 

At August 31, 2014, the Fund had the following open futures contracts:

 

    Number of
Contracts
    Expiration
Date
    Basis
Value
    Market
Value
    Unrealized
Appreciation
(Depreciation)
 
Contracts to Buy:          

U.S. Treasury 5-Year Notes

    43        12/14      $ 5,102,694      $ 5,109,944      $ 7,250   
         

 

 

 
Contracts to Sell:          

U.S. Treasury 10-Year Notes

    275        12/14        34,481,442        34,589,843        (108,401

U.S. Treasury Long-Term Bonds

    27        12/14        3,741,217        3,782,531        (41,314

U.S. Treasury Ultra Long-Term Bonds

    6        12/14        912,566        933,000        (20,434
         

 

 

 
          $ (170,149
         

 

 

 
Net unrealized depreciation on open futures contracts           $ (162,899
         

 

 

 

At August 31, 2014, the Fund had the following open forward foreign currency contracts:

 

Foreign Currency

  

Counterparty

   Local
Currency
     Market
Value
     Settlement
Date
     Unrealized
Depreciation
 
Contracts to Buy:               

Japanese Yen

  

Citibank N.A.

     235,378,000       $ 2,263,004         10/16/14       $ (49,793

At August 31, 2014, the Fund held the following open swap contracts:

 

OTC CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - BUY PROTECTION1

 

SWAP COUNTERPARTY
(REFERENCE ENTITY)

  NOTIONAL
AMOUNT2
    TERMINATION
DATE
    IMPLIED
CREDIT
SPREAD AT
AUGUST
31, 20143
    PERIODIC
PAYMENTS
MADE BY THE
FUND
    MARKET
VALUE
    UPFRONT
PREMIUMS PAID
(RECEIVED)
    UNREALIZED
DEPRECIATION
 
Goldman Sachs (Energy Transfer Partners LP, 5.950%, due 2/1/15)   $ 550,000        12/20/18        0.677%        1.000% quarterly      $ (7,467   $ 2,223      $ (9,690
Goldman Sachs Group Inc. (E.I. du Pont de Nemours & Co., 5.250%, due 12/15/16)     780,000        3/20/19        0.344%        1.000% quarterly        (22,806     (20,223     (2,583
Goldman Sachs Group Inc. (Kinder Morgan Energy Partners LP, 3.950%, due 9/1/22)     1,100,000        12/20/18        0.599%        1.000% quarterly        (18,538     (8,544     (9,994
Goldman Sachs Group Inc. (PPG Industries Inc., 6.650%, due 3/15/18)     856,423        3/20/19        0.318%        1.000% quarterly        (26,054     (20,696     (5,358
 

 

 

         

 

 

   

 

 

   

 

 

 

Total

  $ 3,286,423            $ (74,865   $ (47,240   $ (27,625
 

 

 

         

 

 

   

 

 

   

 

 

 

 

13


Notes to Schedule of Investments (unaudited) (continued)

 

 

(1) If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or the underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or the underlying securities comprising the referenced index.

 

(2) The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

(3) Implied credit spreads, utilized in determining the market value of credit default swap agreements on corporate issues or sovereign issues of an emerging country as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation.

 

Percentage shown is an annual percentage rate.

3. Derivative instruments and hedging activities

GAAP requires enhanced disclosure about an entity’s derivative and hedging activities.

The following is a summary of the Fund’s derivative instruments categorized by risk exposure at August 31, 2014.

 

     Futures Contracts     Forward Foreign Currency
Contracts
             

Primary Underlying Risk

   Unrealized
Appreciation
     Unrealized
Depreciation
    Unrealized
Depreciation
    OTC Swap Contracts,
at value
    Total  

Interest Rate Risk

   $ 7,250       $ (170,149     —          —        $ (162,899

Foreign Exchange Risk

     —           —        $ (49,793     —          (49,793

Credit Risk

     —           —          —        $ (74,865     (74,865
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 7,250       $ (170,149   $ (49,793   $ (74,865   $ (287,557
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

During the period ended August 31, 2014, the volume of derivative activity for the Fund was as follows:

 

     Average Market Value  

Futures contracts (to buy)

   $ 7,879,489   

Futures contracts (to sell)

     34,588,997   

Forward foreign currency contracts (to buy)

     2,165,997   

Forward foreign currency contracts (to sell)†

     1,331,100   
     Average Notional Balance  

Credit default swap contracts (to buy protection)

   $ 2,959,138   

Credit default swap contracts (to sell protection)†

     180,000   

 

At August 31, 2014, there were no open positions held in this derivative.

 

14


ITEM 2. 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 registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.


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, thereunto duly authorized.

Western Asset Investment Grade Defined Opportunity Trust Inc.

 

By   /s/    KENNETH D. FULLER        
  Kenneth D. Fuller
  Chief Executive Officer

Date:

 

October 22, 2014

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/    KENNETH D. FULLER        
  Kenneth D. Fuller
  Chief Executive Officer

Date:

 

October 22, 2014

By   /s/    RICHARD F. SENNETT        
  Richard F. Sennett
  Principal Financial Officer

Date:

 

October 22, 2014