|
| INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE |
Fund objectives
The Fund seeks high current income. Capital appreciation is a secondary objective.
In seeking to fulfill its investment objectives, the Fund invests, under normal market conditions, at least 80% of its net assets in high-yield securities and up to 20%
in common stock equivalents, including options, warrants and rights.
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| II |
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Western Asset High Income Opportunity Fund Inc. |
Letter from the chairman
Dear Shareholder,
We are pleased to provide the annual report of Western Asset High Income Opportunity Fund Inc. for the twelve-month reporting period ended September 30, 2022.
Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support
you receive from your financial advisor. One way we accomplish this is through our website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:
| • |
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Fund prices and performance, |
| • |
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Market insights and commentaries from our portfolio managers, and |
| • |
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A host of educational resources. |
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
October 31, 2022
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| Western Asset High Income Opportunity Fund Inc. |
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III |
Fund overview
Q. What is the Fund’s investment strategy?
A. The Fund seeks high current income. Capital appreciation is a secondary objective. In seeking to fulfill its investment objectives, the Fund invests, under
normal market conditions, at least 80% of its net assets in high-yield securities and up to 20% in common stock equivalents, including options, warrants and rights.
We employ an actively managed approach that is risk-aware and incorporates top-down macroeconomic views with industry sector insights and bottom-up credit research to
derive the general framework for the Fund’s predominantly non-investment grade credit mandate. This framework provides the foundation for how the portfolio is positioned with respect to risk (aggressive, neutral, conservative), as well as
sector overweights and underweights.
Risk and weightings are reviewed on a regular basis. Our bottom-up process provides the basis for populating the targeted
industry weightings through individual credit selection. Analysts work closely with investment professionals to determine which securities provide the best risk/reward relationship within their respective sectors. The research team focuses on key
fundamental measures such as leverage, cash flow adequacy, liquidity, amortization schedule, underlying asset value and management integrity/track record.
At
Western Asset Management Company, LLC (“Western Asset”), the Fund’s subadviser, we utilize a fixed income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams
are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed income portfolios will reflect a consensus of interdisciplinary views
within the Western Asset organization. The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are S. Kenneth Leech, Michael C. Buchanan and Christopher F.
Kilpatrick.
Q. What were the overall market conditions during the Fund’s reporting period?
A. Fixed income markets experienced periods of volatility and, overall, declined over the twelve-month reporting period ended September 30, 2022. The
market’s decline was driven by a number of factors, including rising inflation and interest rates, aggressive Federal Reserve Board (the “Fed”) monetary policy tightening, the repercussions from the COVID-19 pandemic and its variants,
the weakening global economy, and the war in Ukraine.
Short-term U.S. Treasury yields moved sharply higher as the Fed aggressively raised interest rates in March
2022. Over the next six months the central bank hiked rates an additional four times, bringing the federal funds rate to a range between 3.00% and 3.25% the highest level since 2008. The yield for the two-year Treasury note began the reporting
period at 0.28% and ended the reporting period at 4.22%. The low of 0.27% occurred on October 1 and 4, 2021, and the high of 4.30% took place on September 27, 2022. The yield for the ten-year Treasury note began the reporting period at
1.52% and ended the reporting
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| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
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1 |
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Fund overview (cont’d)
period at 3.83%. The low of 1.35% took place on December 3, 2021, and the high of 3.97%
occurred on September 27, 2022.
All told, the Bloomberg U.S. Aggregate Indexi returned -14.60% for the
twelve months ended September 30, 2022. For comparison purposes, riskier fixed income securities, including high-yield bond and emerging market debt, also produced weak results. Over the fiscal year, the Bloomberg U.S. Corporate High Yield 2%
Issuer Cap Indexii and the JPMorgan Emerging Markets Bond Index Globaliii returned -14.15% and -22.23%, respectively.
Q. How did we respond to these changing market conditions?
A. A number of adjustments were made to the Fund’s portfolio during the reporting period. We reduced the Fund’s allocation to outperforming bank loans
and increased its exposures to investment-grade corporate bonds and below investment-grade corporate bonds. From a sector perspective, we increased the Fund’s allocation to financials, communication services and consumer cyclicals1 (mainly in
reopening sectors such as gaming), while reducing the Fund’s exposure to more cyclical sectors that have outperformed, such as energy and metals and mining. From a quality ratings perspective, we’ve been adding mainly single B and BB rated
opportunities globally to increase the income available to shareholders given the increase in yields. We ended the reporting period with the portfolio over 85% concentrated among investment-grade, BB and single B rated fixed income securities.
In terms of duration, we ended the period with a small overweight as valuations have improved given the increase in rates globally. Additionally, toward the end of the
reporting period we added some U.S. government bonds given the improved valuations and the potential for Treasury securities to outperform if we get a more material global risk-off environment.
Performance review
For the twelve months ended
September 30, 2022, Western Asset High Income Opportunity Fund Inc. returned -16.60% based on its net asset value (“NAV”)iv and -23.16% based on its New York Stock Exchange
(“NYSE”) market price per share. The Fund’s unmanaged benchmark, the Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index, returned -14.15% for the same period. The Lipper High Yield Closed-End Funds Category Averagev returned -12.10% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.
The Fund has a practice of seeking to maintain a relatively stable level of distributions to shareholders. This practice has no impact on the Fund’s investment
strategy and may reduce the Fund’s NAV. The Fund’s manager believes the practice helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV.
| 1 |
Cyclicals consists of the following industries: automotive, entertainment, gaming, home construction, lodging, retailers,
restaurants, textiles and other consumer services. |
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| 2 |
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
During the twelve-month period, the Fund made distributions to shareholders totaling $0.36 per share of which $0.03 will be
treated as a return of capital for tax purposes.*The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of September 30, 2022. Past performance is no guarantee of future results.
|
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| Performance Snapshot as of September 30, 2022 |
|
| Price Per Share |
|
12-Month
Total Return** |
|
| $4.22 (NAV) |
|
|
-16.60 |
%† |
| $3.68 (Market Price) |
|
|
-23.16 |
%‡ |
All figures represent past performance and are not a guarantee of future results.
** Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses, including management fees, operating
expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
† Total return assumes the reinvestment of all distributions, including returns of capital, at NAV.
‡ Total return assumes the reinvestment of all distributions, including returns of capital, in additional shares in accordance with the Fund’s Dividend
Reinvestment Plan.
Q. What were the leading contributors to performance?
A. The largest contributor to the Fund’s absolute performance during the reporting period was our issuer selection. In particular, our issuer selection in
the automobiles and health care industries were rewarded.
In the automobiles space, we managed the Fund’s Ford Motor Credit and Ford Motor positioning well.
The company tapped the financial markets during the reporting period to refinance some of their high coupon debt which we were overweight. The company ended up paying an attractive price to reduce this debt, sending the Fund’s bonds higher. The
Fund’s underweight to used car dealer Carvana was rewarded given the company recently increased their leverage to complete an acquisition. Carvana bonds have been under pressure in 2022.
In the health care space, underweight positions in Community Health Systems and Centene were additive to results. We also managed the Fund’s Bausch Health exposure
well. Rural hospital operator Community Health bonds performed poorly given they entered this period of heightened volatility with a highly levered balance sheet. Centene’s bonds have been out of favor with investors and they have traded poorly
in the rising interest rate environment. Bausch Health embarked on some financial engineering that was poorly received by bond holders. We managed the Fund’s positions well, including moving to an underweight position.
| * |
For the tax character of distributions paid during the fiscal year ended September 30, 2022, please refer to page 42 of
this report. |
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Fund overview (cont’d)
We choose to hedge the Fund’s euro and sterling bonds back to U.S. dollars during the
reporting period. These hedges proved valuable, as both currencies have recently come under pressure.
Q. What were the leading detractors
from performance?
A. A majority of the Fund’s underperformance came during the first half of the reporting period. The largest detractor was
an overweight to emerging markets. In our view, the sector would respond well to the global economy reopening, rising commodity prices, and improved vaccine availability. We also believed that emerging market valuations were attractive. However,
geopolitical risks and higher interest rates globally pushed their spreads wider during the reporting period. In particular, the Fund’s overweight to investment-grade rated Russian sovereign debt performed poorly, due to the invasion of Ukraine
and the punitive sanctions that followed from developed nations. Despite posting stable fundamental performance, the Fund’s positioning in Brazilian energy company Petrobras Global Finance BV underperformed the market given increased political
and regulatory uncertainty. Additionally, the Fund owns some of the Petrobras longer-dated bonds we purchased back during the energy crisis of 2015 and 2016. These securities were more negatively impacted by the move higher in interest rates.
Lastly, small overweight positions in Chinese corporate bonds issued by Yuzhou Group and China Aoyuan Group as well as an overweight to Wynn Macau detracted from performance. Chinese corporates have underperformed, with the market pricing in
concerns of government regulatory overreach, slowing growth, and questionable COVID-19 policies and vaccines. We did not have any exposure to one of China’s largest high-yield issuers Evergrande Group, but the well-publicized restructuring has
negatively impacted debt prices for other companies operating out of China.
Within our high-yield allocation, overweight positions in DISH Communications, Western
Midstream Partners and HCA detracted from results. DISH Communications posted slightly weaker results versus expectations. Investors questioned the company’s liquidity position versus their wireless buildout aspirations, which caused DISH
Communications’ debt to perform poorly. The Fund’s overweight positions in Energy company Western Midstream Partners and hospital operator HCA underperformed despite posting stable fundamental results. The Fund held concentrated positions
in longer dated issues that the Fund purchased previously at very attractive yields. Finally, the Fund would have benefited had we hedged some duration risk associated with certain of the Fund’s higher-quality longer dated bonds.
Looking for additional information?
The Fund is
traded under the symbol “HIO” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol “XHIOX” on most financial websites. Barron’s and
The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
issues a quarterly press release that can be found on most major financial websites as well as www.franklintempleton.com.
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30
p.m. Eastern Time, for the Fund’s current NAV, market price and other information.
Thank you for your investment in Western Asset High Income Opportunity Fund
Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.
Sincerely,
Western Asset Management Company, LLC
October 13,
2022
RISKS: The Fund is a diversified closed-end management investment company designed primarily as a
long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment objectives.
The Fund’s common stock is traded on the New York Stock Exchange. Similar to stocks, the Fund’s share price will fluctuate with market conditions and, at the time of sale, may be worth more or less than the original investment. Shares of
closed-end funds often trade at a discount to their net asset value. Diversification does not assure against market loss. The Fund’s investments are subject to a number of risks, such as credit risk, inflation risk and interest rate risk. The
Fund may invest in lower-rated high-yield bonds, commonly known as “junk bonds,” which are subject to greater credit risk (risk of default) and liquidity risk than higher-rated obligations. The Fund is also permitted purchases of equity
securities. Equity securities generally have greater price volatility than fixed income securities. As interest rates rise, bond prices fall, reducing the value of the Fund’s holdings. The Fund may use derivatives, such as options and futures,
which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. In addition, the Fund may invest in foreign securities, which are subject to certain risks of overseas investing, including
currency fluctuations and changes in political, social and economic conditions, which could result in significant fluctuations. These risks are magnified in emerging markets. Emerging market countries tend to have economic, political and legal
systems that are less developed and are less stable than those of more developed countries. The Fund may also invest in money market funds, including funds affiliated with the Fund’s manager and subadvisers. For more information on Fund risks,
see Summary of information regarding the Fund - Principal Risk Factors in this report
Portfolio holdings and breakdowns are as of September 30, 2022 and
are subject to change and may not be representative of the portfolio managers’ current or future investments. Please refer to pages 10 through 24 for a list and percentage breakdown of the Fund’s holdings.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information
provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice
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5 |
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Fund overview (cont’d)
regarding the appropriateness of investing in any securities or investment strategies discussed
should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of September 30, 2022 were: energy (17.6%), consumer discretionary (16.0%), communication services (16.0%), financials
(13.4%) and industrials (10.4%). The Fund’s portfolio composition is subject to change at any time.
All investments are subject to risk including the
possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of
the firm as a whole.
| i |
The Bloomberg U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage-and
asset-backed issues, rated investment grade or higher, and having at least one year to maturity. |
| ii |
The Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index is an index of the 2% Issuer Cap component of the
Bloomberg U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market. |
| iii |
The JPMorgan Emerging Markets Bond Index Global tracks total returns for U.S. dollar-denominated debt instruments issued
by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments. |
| 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 |
Lipper, Inc., a wholly-owned subsidiary of Refinitiv, provides independent insight on global collective investments.
Returns are based on the twelve-month period ended September 30, 2022, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 8 funds in the Fund’s Lipper category. |
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| 6 |
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Fund at a glance† (unaudited)
Investment breakdown (%) as a percent of total investments
| † |
The bar graph above represents the composition of the Fund’s investments as of September 30, 2022 and
September 30, 2021 and does not include derivatives, such as forward foreign currency 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 High Income Opportunity Fund Inc. 2022 Annual Report |
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13 |
|
Schedule of investments (cont’d)
September 30, 2022
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
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|
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|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Oil, Gas & Consumable Fuels —
continued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes |
|
|
6.500 |
% |
|
|
7/15/27 |
|
|
|
670,000 |
|
|
$ |
663,721 |
|
| Targa Resources Partners LP/Targa Resources Partners Finance Corp., Senior Notes |
|
|
6.875 |
% |
|
|
1/15/29 |
|
|
|
450,000 |
|
|
|
443,068 |
|
| Transportadora de Gas del Sur SA, Senior Notes |
|
|
6.750 |
% |
|
|
5/2/25 |
|
|
|
1,620,000 |
|
|
|
1,392,624 |
(a) |
| Western Midstream Operating LP, Senior Notes |
|
|
4.300 |
% |
|
|
2/1/30 |
|
|
|
2,900,000 |
|
|
|
2,486,750 |
|
| Western Midstream Operating LP, Senior Notes |
|
|
5.300 |
% |
|
|
3/1/48 |
|
|
|
1,070,000 |
|
|
|
882,285 |
|
| Western Midstream Operating LP, Senior Notes |
|
|
5.500 |
% |
|
|
2/1/50 |
|
|
|
9,585,000 |
|
|
|
7,752,971 |
|
| Williams Cos. Inc., Senior Notes |
|
|
3.700 |
% |
|
|
1/15/23 |
|
|
|
530,000 |
|
|
|
529,625 |
|
| Williams Cos. Inc., Senior Notes |
|
|
4.550 |
% |
|
|
6/24/24 |
|
|
|
1,030,000 |
|
|
|
1,020,656 |
|
| Williams Cos. Inc., Senior Notes |
|
|
7.500 |
% |
|
|
1/15/31 |
|
|
|
620,000 |
|
|
|
666,492 |
|
| Williams Cos. Inc., Senior Notes |
|
|
5.750 |
% |
|
|
6/24/44 |
|
|
|
3,190,000 |
|
|
|
2,913,489 |
|
| YPF SA, Senior Notes |
|
|
8.500 |
% |
|
|
7/28/25 |
|
|
|
1,600,000 |
|
|
|
1,132,544 |
(a) |
| YPF SA, Senior Notes |
|
|
6.950 |
% |
|
|
7/21/27 |
|
|
|
1,530,000 |
|
|
|
897,903 |
(a) |
| Total Oil, Gas & Consumable
Fuels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,676,377 |
|
| Total Energy |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,465,952 |
|
| Financials — 13.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Banks — 6.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Banco Mercantil del Norte SA, Junior Subordinated Notes (6.625% to 1/24/32 then 10 year
Treasury Constant Maturity Rate + 5.034%) |
|
|
6.625 |
% |
|
|
1/24/32 |
|
|
|
5,040,000 |
|
|
|
3,964,780 |
(a)(c)(d) |
| Barclays Bank PLC, Subordinated Notes |
|
|
7.625 |
% |
|
|
11/21/22 |
|
|
|
488,000 |
|
|
|
488,038 |
|
| Barclays PLC, Junior Subordinated Notes (7.750% to 9/15/23 then USD 5 year ICE Swap Rate +
4.842%) |
|
|
7.750 |
% |
|
|
9/15/23 |
|
|
|
1,130,000 |
|
|
|
1,046,662 |
(c)(d) |
| Barclays PLC, Junior Subordinated Notes (8.000% to 6/15/24 then 5 year Treasury Constant
Maturity Rate + 5.672%) |
|
|
8.000 |
% |
|
|
6/15/24 |
|
|
|
1,540,000 |
|
|
|
1,432,431 |
(c)(d) |
| BBVA Bancomer SA, Subordinated Notes (5.125% to 1/17/28 then 5 year Treasury Constant
Maturity Rate + 2.650%) |
|
|
5.125 |
% |
|
|
1/18/33 |
|
|
|
960,000 |
|
|
|
795,848 |
(a)(d) |
| BNP Paribas SA, Junior Subordinated Notes (7.375% to 8/19/25 then USD 5 year ICE Swap Rate
+ 5.150%) |
|
|
7.375 |
% |
|
|
8/19/25 |
|
|
|
1,470,000 |
|
|
|
1,391,470 |
(a)(c)(d) |
See Notes to Financial
Statements.
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| 14 |
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Banks — continued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Agricole SA, Junior Subordinated Notes (8.125% to 12/23/25 then USD 5 year ICE Swap
Rate + 6.185%) |
|
|
8.125 |
% |
|
|
12/23/25 |
|
|
|
2,290,000 |
|
|
$ |
2,212,770 |
(a)(c)(d) |
| Intesa Sanpaolo SpA, Subordinated Notes |
|
|
5.017 |
% |
|
|
6/26/24 |
|
|
|
3,120,000 |
|
|
|
2,911,431 |
(a) |
| Intesa Sanpaolo SpA, Subordinated Notes |
|
|
5.710 |
% |
|
|
1/15/26 |
|
|
|
4,610,000 |
|
|
|
4,197,666 |
(a) |
| Intesa Sanpaolo SpA, Subordinated Notes (4.198% to 6/1/31 then 1 year Treasury Constant
Maturity Rate + 2.600%) |
|
|
4.198 |
% |
|
|
6/1/32 |
|
|
|
750,000 |
|
|
|
506,462 |
(a)(d) |
| Lloyds Banking Group PLC, Junior Subordinated Notes (6.750% to 6/27/26 then 5 year
Treasury Constant Maturity Rate + 4.815%) |
|
|
6.750 |
% |
|
|
6/27/26 |
|
|
|
3,900,000 |
|
|
|
3,502,468 |
(c)(d) |
| TC Ziraat Bankasi AS, Senior Notes |
|
|
5.125 |
% |
|
|
9/29/23 |
|
|
|
2,040,000 |
|
|
|
1,995,324 |
(a) |
| UniCredit SpA, Subordinated Notes (5.459% to 6/30/30 then 5 year Treasury Constant
Maturity Rate + 4.750%) |
|
|
5.459 |
% |
|
|
6/30/35 |
|
|
|
2,710,000 |
|
|
|
2,018,209 |
(a)(d) |
| Total Banks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,463,559 |
|
| Capital Markets —
3.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit Suisse Group AG, Junior Subordinated Notes (5.250% to 8/11/27then 5 year Treasury
Constant Maturity Rate + 4.889%) |
|
|
5.250 |
% |
|
|
2/11/27 |
|
|
|
7,450,000 |
|
|
|
5,250,132 |
(a)(c)(d) |
| Credit Suisse Group AG, Junior Subordinated Notes (9.750% to 12/23/27 then 5 year Treasury
Constant Maturity Rate + 6.383%) |
|
|
9.750 |
% |
|
|
6/23/27 |
|
|
|
2,840,000 |
|
|
|
2,792,797 |
(a)(c)(d) |
| Credit Suisse Group AG, Senior Notes (6.537% to 8/12/32 then SOFR + 3.920%) |
|
|
6.537 |
% |
|
|
8/12/33 |
|
|
|
1,150,000 |
|
|
|
1,035,021 |
(a)(d) |
| Goldman Sachs Group Inc., Subordinated Notes |
|
|
6.750 |
% |
|
|
10/1/37 |
|
|
|
1,880,000 |
|
|
|
1,877,624 |
|
| UBS Group AG, Junior Subordinated Notes (6.875% to 8/7/25 then USD 5 year ICE Swap Rate +
4.590%) |
|
|
6.875 |
% |
|
|
8/7/25 |
|
|
|
1,220,000 |
|
|
|
1,139,562 |
(b)(c)(d) |
| UBS Group AG, Junior Subordinated Notes (7.000% to 1/31/24 then USD 5 year ICE Swap Rate +
4.344%) |
|
|
7.000 |
% |
|
|
1/31/24 |
|
|
|
1,470,000 |
|
|
|
1,394,589 |
(a)(c)(d) |
| Total Capital Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,489,725 |
|
| Consumer Finance —
0.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Navient Corp., Senior Notes |
|
|
5.875 |
% |
|
|
10/25/24 |
|
|
|
1,080,000 |
|
|
|
1,024,735 |
|
| Navient Corp., Senior Notes |
|
|
6.750 |
% |
|
|
6/15/26 |
|
|
|
1,400,000 |
|
|
|
1,272,628 |
|
| Total Consumer Finance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,297,363 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
15 |
|
Schedule of investments (cont’d)
September 30, 2022
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Diversified Financial Services —
2.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| GE Capital International Funding Co. Unlimited Co., Senior Notes |
|
|
3.373 |
% |
|
|
11/15/25 |
|
|
|
600,000 |
|
|
$ |
572,383 |
|
| Global Aircraft Leasing Co. Ltd., Senior Notes (6.500% Cash or 7.250% PIK) |
|
|
6.500 |
% |
|
|
9/15/24 |
|
|
|
7,666,102 |
|
|
|
5,781,621 |
(a)(e) |
| Huarong Finance 2017 Co. Ltd., Senior Notes (3 mo. USD LIBOR + 1.325%) |
|
|
5.068 |
% |
|
|
7/3/23 |
|
|
|
880,000 |
|
|
|
851,400 |
(b)(d) |
| Huarong Finance 2019 Co. Ltd., Senior Notes |
|
|
2.500 |
% |
|
|
2/24/23 |
|
|
|
1,220,000 |
|
|
|
1,198,650 |
(b) |
| Huarong Finance 2019 Co. Ltd., Senior Notes |
|
|
2.125 |
% |
|
|
9/30/23 |
|
|
|
1,090,000 |
|
|
|
1,027,325 |
(b) |
| Huarong Finance II Co. Ltd., Senior Notes |
|
|
4.625 |
% |
|
|
6/3/26 |
|
|
|
700,000 |
|
|
|
588,875 |
(b) |
| Huarong Finance II Co. Ltd., Senior Notes |
|
|
4.875 |
% |
|
|
11/22/26 |
|
|
|
650,000 |
|
|
|
530,563 |
(b) |
| Total Diversified Financial
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,550,817 |
|
| Insurance — 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| MetLife Capital Trust IV, Junior Subordinated Notes |
|
|
7.875 |
% |
|
|
12/15/37 |
|
|
|
1,010,000 |
|
|
|
1,080,700 |
(a) |
| Total Financials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,882,164 |
|
| Health Care — 7.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Health Care Providers & Services
— 3.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CHS/Community Health Systems Inc., Senior Secured Notes |
|
|
8.000 |
% |
|
|
12/15/27 |
|
|
|
440,000 |
|
|
|
349,125 |
(a) |
| CHS/Community Health Systems Inc., Senior Secured Notes |
|
|
5.250 |
% |
|
|
5/15/30 |
|
|
|
1,000,000 |
|
|
|
698,525 |
(a) |
| HCA Inc., Senior Notes |
|
|
7.690 |
% |
|
|
6/15/25 |
|
|
|
490,000 |
|
|
|
507,999 |
|
| HCA Inc., Senior Notes |
|
|
7.500 |
% |
|
|
11/15/95 |
|
|
|
6,265,000 |
|
|
|
6,315,656 |
|
| Tenet Healthcare Corp., Secured Notes |
|
|
6.250 |
% |
|
|
2/1/27 |
|
|
|
3,910,000 |
|
|
|
3,657,746 |
(a) |
| Tenet Healthcare Corp., Senior Notes |
|
|
6.125 |
% |
|
|
10/1/28 |
|
|
|
2,140,000 |
|
|
|
1,878,286 |
(a) |
| Total Health Care Providers &
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,407,337 |
|
| Pharmaceuticals —
4.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bausch Health Cos. Inc., Senior Notes |
|
|
5.250 |
% |
|
|
1/30/30 |
|
|
|
3,890,000 |
|
|
|
1,460,913 |
(a) |
| Bausch Health Cos. Inc., Senior Notes |
|
|
5.250 |
% |
|
|
2/15/31 |
|
|
|
490,000 |
|
|
|
185,210 |
(a) |
| Bausch Health Cos. Inc., Senior Secured Notes |
|
|
4.875 |
% |
|
|
6/1/28 |
|
|
|
1,020,000 |
|
|
|
659,308 |
(a) |
| Cidron Aida Finco Sarl, Senior Secured Notes |
|
|
5.000 |
% |
|
|
4/1/28 |
|
|
|
637,000 |
EUR |
|
|
514,254 |
(a) |
| Cidron Aida Finco Sarl, Senior Secured Notes |
|
|
6.250 |
% |
|
|
4/1/28 |
|
|
|
113,000 |
GBP |
|
|
99,927 |
(a) |
| Par Pharmaceutical Inc., Senior Secured Notes |
|
|
7.500 |
% |
|
|
4/1/27 |
|
|
|
70,000 |
|
|
|
55,466 |
*(a)(f) |
See Notes to Financial
Statements.
|
|
|
|
|
| 16 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Pharmaceuticals —
continued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Teva Pharmaceutical Finance Co. BV, Senior Notes |
|
|
2.950 |
% |
|
|
12/18/22 |
|
|
|
3,980,000 |
|
|
$ |
3,950,269 |
|
| Teva Pharmaceutical Finance Netherlands III BV, Senior Notes |
|
|
6.000 |
% |
|
|
4/15/24 |
|
|
|
3,510,000 |
|
|
|
3,412,633 |
|
| Teva Pharmaceutical Finance Netherlands III BV, Senior Notes |
|
|
3.150 |
% |
|
|
10/1/26 |
|
|
|
1,150,000 |
|
|
|
945,122 |
|
| Teva Pharmaceutical Finance Netherlands III BV, Senior Notes |
|
|
5.125 |
% |
|
|
5/9/29 |
|
|
|
6,200,000 |
|
|
|
5,129,663 |
|
| Total Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,412,765 |
|
| Total Health Care |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,820,102 |
|
| Industrials — 10.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Aerospace & Defense —
0.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| TransDigm Inc., Senior Secured Notes |
|
|
8.000 |
% |
|
|
12/15/25 |
|
|
|
2,660,000 |
|
|
|
2,701,869 |
(a) |
| Airlines — 6.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| American Airlines Group Inc., Senior Notes |
|
|
3.750 |
% |
|
|
3/1/25 |
|
|
|
4,720,000 |
|
|
|
3,865,586 |
(a) |
| American Airlines Inc./AAdvantage Loyalty IP Ltd., Senior Secured Notes |
|
|
5.500 |
% |
|
|
4/20/26 |
|
|
|
430,000 |
|
|
|
404,559 |
(a) |
| American Airlines Inc./AAdvantage Loyalty IP Ltd., Senior Secured Notes |
|
|
5.750 |
% |
|
|
4/20/29 |
|
|
|
450,000 |
|
|
|
393,424 |
(a) |
| Delta Air Lines Inc., Senior Notes |
|
|
3.800 |
% |
|
|
4/19/23 |
|
|
|
4,660,000 |
|
|
|
4,619,365 |
|
| Delta Air Lines Inc., Senior Notes |
|
|
2.900 |
% |
|
|
10/28/24 |
|
|
|
2,580,000 |
|
|
|
2,393,193 |
|
| Delta Air Lines Inc., Senior Notes |
|
|
7.375 |
% |
|
|
1/15/26 |
|
|
|
720,000 |
|
|
|
729,000 |
|
| Delta Air Lines Inc., Senior Secured Notes |
|
|
7.000 |
% |
|
|
5/1/25 |
|
|
|
6,330,000 |
|
|
|
6,377,576 |
(a) |
| Hawaiian Brand Intellectual Property Ltd./ HawaiianMiles Loyalty Ltd., Senior Secured
Notes |
|
|
5.750 |
% |
|
|
1/20/26 |
|
|
|
500,000 |
|
|
|
441,748 |
(a) |
| Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd., Senior Secured
Notes |
|
|
6.500 |
% |
|
|
6/20/27 |
|
|
|
2,489,000 |
|
|
|
2,440,813 |
(a) |
| Spirit Loyalty Cayman Ltd./Spirit IP Cayman Ltd., Senior Secured Notes |
|
|
8.000 |
% |
|
|
9/20/25 |
|
|
|
3,965,999 |
|
|
|
3,994,316 |
(a) |
| United Airlines Holdings Inc., Senior Notes |
|
|
5.000 |
% |
|
|
2/1/24 |
|
|
|
800,000 |
|
|
|
765,681 |
|
| Total Airlines |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,425,261 |
|
| Building Products —
0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Standard Industries Inc., Senior Notes |
|
|
5.000 |
% |
|
|
2/15/27 |
|
|
|
1,241,000 |
|
|
|
1,101,102 |
(a) |
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
17 |
|
Schedule of investments (cont’d)
September 30, 2022
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Commercial Services & Supplies
— 1.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CoreCivic Inc., Senior Notes |
|
|
8.250 |
% |
|
|
4/15/26 |
|
|
|
3,530,000 |
|
|
$ |
3,519,410 |
|
| CoreCivic Inc., Senior Notes |
|
|
4.750 |
% |
|
|
10/15/27 |
|
|
|
3,160,000 |
|
|
|
2,555,007 |
|
| Total Commercial Services &
Supplies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,074,417 |
|
| Machinery — 0.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Titan International Inc., Senior Secured Notes |
|
|
7.000 |
% |
|
|
4/30/28 |
|
|
|
2,580,000 |
|
|
|
2,346,200 |
|
| Trading Companies & Distributors
— 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| H&E Equipment Services Inc., Senior Notes |
|
|
3.875 |
% |
|
|
12/15/28 |
|
|
|
1,420,000 |
|
|
|
1,117,689 |
(a) |
| United Rentals North America Inc., Senior Notes |
|
|
5.500 |
% |
|
|
5/15/27 |
|
|
|
376,000 |
|
|
|
364,156 |
|
| Total Trading Companies &
Distributors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,481,845 |
|
| Total Industrials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,130,694 |
|
| Information Technology — 1.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communications Equipment —
0.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CommScope Inc., Senior Notes |
|
|
7.125 |
% |
|
|
7/1/28 |
|
|
|
4,760,000 |
|
|
|
3,684,717 |
(a) |
| CommScope Technologies LLC, Senior Notes |
|
|
6.000 |
% |
|
|
6/15/25 |
|
|
|
60,000 |
|
|
|
53,396 |
(a) |
| Total Communications
Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,738,113 |
|
| Software —
0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interface Special Holdings Inc., Senior Notes (19.000% PIK) |
|
|
19.000 |
% |
|
|
11/1/23 |
|
|
|
2,734,286 |
|
|
|
0 |
*(e)(f)(g)(h)(i) |
| Technology Hardware, Storage &
Peripherals — 0.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Seagate HDD Cayman, Senior Notes |
|
|
4.750 |
% |
|
|
6/1/23 |
|
|
|
1,370,000 |
|
|
|
1,352,833 |
|
| Seagate HDD Cayman, Senior Notes |
|
|
4.750 |
% |
|
|
1/1/25 |
|
|
|
670,000 |
|
|
|
638,904 |
|
| Seagate HDD Cayman, Senior Notes |
|
|
4.875 |
% |
|
|
6/1/27 |
|
|
|
400,000 |
|
|
|
361,564 |
|
| Vericast Corp., Senior Secured Notes |
|
|
11.000 |
% |
|
|
9/15/26 |
|
|
|
650,000 |
|
|
|
641,062 |
(a) |
| Total Technology Hardware,
Storage & Peripherals |
|
|
|
|
|
|
|
2,994,363 |
|
| Total Information Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,732,476 |
|
| Materials — 4.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Containers & Packaging —
1.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ARD Finance SA, Senior Secured Notes (6.500% Cash or 7.250% PIK) |
|
|
6.500 |
% |
|
|
6/30/27 |
|
|
|
1,780,000 |
|
|
|
1,222,379 |
(a)(e) |
| Ardagh Packaging Finance PLC/Ardagh Holdings USA Inc., Senior Notes |
|
|
5.250 |
% |
|
|
8/15/27 |
|
|
|
1,548,000 |
|
|
|
971,935 |
(a) |
| Ardagh Packaging Finance PLC/Ardagh Holdings USA Inc., Senior Notes |
|
|
5.250 |
% |
|
|
8/15/27 |
|
|
|
1,510,000 |
|
|
|
948,076 |
(a) |
See Notes to Financial
Statements.
|
|
|
|
|
| 18 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Containers & Packaging —
continued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pactiv LLC, Senior Notes |
|
|
8.375 |
% |
|
|
4/15/27 |
|
|
|
750,000 |
|
|
$ |
674,565 |
|
| Trivium Packaging Finance BV, Senior Notes |
|
|
8.500 |
% |
|
|
8/15/27 |
|
|
|
980,000 |
|
|
|
867,190 |
(a) |
| Total Containers &
Packaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,684,145 |
|
| Metals & Mining —
2.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ArcelorMittal SA, Senior Notes |
|
|
7.000 |
% |
|
|
10/15/39 |
|
|
|
2,960,000 |
|
|
|
2,788,957 |
|
| Freeport-McMoRan Inc., Senior Notes |
|
|
3.875 |
% |
|
|
3/15/23 |
|
|
|
730,000 |
|
|
|
726,485 |
|
| Freeport-McMoRan Inc., Senior Notes |
|
|
5.450 |
% |
|
|
3/15/43 |
|
|
|
4,280,000 |
|
|
|
3,578,358 |
|
| Teck Resources Ltd., Senior Notes |
|
|
6.000 |
% |
|
|
8/15/40 |
|
|
|
1,050,000 |
|
|
|
928,409 |
|
| Vale Overseas Ltd., Senior Notes |
|
|
6.875 |
% |
|
|
11/21/36 |
|
|
|
2,320,000 |
|
|
|
2,206,066 |
|
| Vale Overseas Ltd., Senior Notes |
|
|
6.875 |
% |
|
|
11/10/39 |
|
|
|
1,500,000 |
|
|
|
1,411,761 |
|
| Total Metals &
Mining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,640,036 |
|
| Total Materials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,324,181 |
|
| Real Estate — 1.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity Real Estate Investment Trusts (REITs)
— 1.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diversified Healthcare Trust, Senior Notes |
|
|
9.750 |
% |
|
|
6/15/25 |
|
|
|
350,000 |
|
|
|
317,338 |
|
| GEO Group Inc., Secured Notes |
|
|
10.500 |
% |
|
|
6/30/28 |
|
|
|
690,000 |
|
|
|
683,148 |
|
| Service Properties Trust, Senior Notes |
|
|
5.500 |
% |
|
|
12/15/27 |
|
|
|
2,160,000 |
|
|
|
1,757,200 |
|
| Service Properties Trust, Senior Notes |
|
|
3.950 |
% |
|
|
1/15/28 |
|
|
|
526,000 |
|
|
|
358,637 |
|
| Service Properties Trust, Senior Notes |
|
|
4.950 |
% |
|
|
10/1/29 |
|
|
|
600,000 |
|
|
|
412,068 |
|
| Service Properties Trust, Senior Notes |
|
|
4.375 |
% |
|
|
2/15/30 |
|
|
|
2,120,000 |
|
|
|
1,395,177 |
|
| Total Equity Real Estate
Investment Trusts (REITs) |
|
|
|
|
|
|
|
4,923,568 |
|
| Real Estate Management &
Development — 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| China Aoyuan Group Ltd., Senior Secured Notes |
|
|
7.950 |
% |
|
|
2/19/23 |
|
|
|
770,000 |
|
|
|
54,338 |
*(b)(f) |
| China Aoyuan Group Ltd., Senior Secured Notes |
|
|
7.950 |
% |
|
|
6/21/24 |
|
|
|
1,000,000 |
|
|
|
72,500 |
*(b)(f) |
| Country Garden Holdings Co. Ltd., Senior Secured Notes |
|
|
8.000 |
% |
|
|
1/27/24 |
|
|
|
2,016,000 |
|
|
|
791,192 |
(b) |
| Times China Holdings Ltd., Senior Secured Notes |
|
|
6.750 |
% |
|
|
7/8/25 |
|
|
|
1,230,000 |
|
|
|
163,344 |
(b) |
| Yuzhou Group Holdings Co. Ltd., Senior Secured Notes |
|
|
6.000 |
% |
|
|
10/25/23 |
|
|
|
650,000 |
|
|
|
45,935 |
*(b)(f) |
| Yuzhou Group Holdings Co. Ltd., Senior Secured Notes |
|
|
8.500 |
% |
|
|
2/26/24 |
|
|
|
750,000 |
|
|
|
52,795 |
*(b)(f) |
| Yuzhou Group Holdings Co. Ltd., Senior Secured Notes |
|
|
8.375 |
% |
|
|
10/30/24 |
|
|
|
1,250,000 |
|
|
|
85,900 |
*(b)(f) |
| Total Real Estate
Management & Development |
|
|
|
|
|
|
|
1,266,004 |
|
| Total Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,189,572 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
19 |
|
Schedule of investments (cont’d)
September 30, 2022
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Utilities — 1.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Electric Utilities —
0.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| InterGen NV, Senior Secured Notes |
|
|
7.000 |
% |
|
|
6/30/23 |
|
|
|
420,000 |
|
|
$ |
408,870 |
(a) |
| Pampa Energia SA, Senior Notes |
|
|
7.500 |
% |
|
|
1/24/27 |
|
|
|
340,000 |
|
|
|
292,441 |
(a) |
| Total Electric Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
701,311 |
|
| Gas Utilities —
0.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Suburban Propane Partners LP/Suburban Energy Finance Corp., Senior Notes |
|
|
5.875 |
% |
|
|
3/1/27 |
|
|
|
3,290,000 |
|
|
|
3,121,538 |
|
| Total Utilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,822,849 |
|
| Total Corporate Bonds & Notes (Cost —
$377,349,732) |
|
|
|
360,161,140 |
|
| Sovereign Bonds — 4.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Angola — 0.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Angolan Government International Bond, Senior Notes |
|
|
8.000 |
% |
|
|
11/26/29 |
|
|
|
1,600,000 |
|
|
|
1,208,168 |
(a) |
| Argentina — 0.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Argentine Republic Government International Bond, Senior Notes |
|
|
1.000 |
% |
|
|
7/9/29 |
|
|
|
280,362 |
|
|
|
54,268 |
|
| Provincia de Buenos Aires, Senior Notes, Step bond (5.250% to 9/1/23 then 6.375%) |
|
|
5.250 |
% |
|
|
9/1/37 |
|
|
|
926,221 |
|
|
|
290,602 |
(a) |
| Provincia de Cordoba, Senior Notes |
|
|
6.875 |
% |
|
|
12/10/25 |
|
|
|
910,000 |
|
|
|
694,330 |
(b) |
| Provincia de Cordoba, Senior Notes |
|
|
6.875 |
% |
|
|
12/10/25 |
|
|
|
500,000 |
|
|
|
381,500 |
(a) |
| Provincia de Cordoba, Senior Notes |
|
|
6.990 |
% |
|
|
6/1/27 |
|
|
|
2,660,000 |
|
|
|
1,706,390 |
(a) |
| Total Argentina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,127,090 |
|
| Bahamas — 0.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bahamas Government International Bond, Senior Notes |
|
|
6.950 |
% |
|
|
11/20/29 |
|
|
|
1,630,000 |
|
|
|
929,100 |
(a) |
| Dominican Republic —
0.2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dominican Republic International Bond, Senior Notes |
|
|
4.875 |
% |
|
|
9/23/32 |
|
|
|
1,090,000 |
|
|
|
823,562 |
(a) |
| Ecuador —
0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ecuador Government International Bond, Senior Notes, Step bond (2.500% to 7/31/23 then
3.500%) |
|
|
2.500 |
% |
|
|
7/31/35 |
|
|
|
400,000 |
|
|
|
132,641 |
(a) |
| Ghana — 0.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ghana Government International Bond, Senior Notes |
|
|
7.875 |
% |
|
|
2/11/35 |
|
|
|
1,000,000 |
|
|
|
375,260 |
(a) |
| Mexico — 1.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mexican Bonos, Bonds |
|
|
5.750 |
% |
|
|
3/5/26 |
|
|
|
149,470,000 |
MXN |
|
|
6,520,067 |
|
| Russia — 0.9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Russian Federal Bond — OFZ |
|
|
7.750 |
% |
|
|
9/16/26 |
|
|
|
315,370,000 |
RUB |
|
|
1,728,772 |
*(f) |
See Notes to Financial
Statements.
|
|
|
|
|
| 20 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
Rate |
|
|
Maturity
Date |
|
|
Face
Amount† |
|
|
Value |
|
| Russia — continued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Russian Federal Bond — OFZ |
|
|
7.050 |
% |
|
|
1/19/28 |
|
|
|
198,450,000 |
RUB |
|
$ |
1,087,849 |
*(f) |
| Russian Federal Bond — OFZ |
|
|
6.900 |
% |
|
|
5/23/29 |
|
|
|
121,280,000 |
RUB |
|
|
664,824 |
*(f) |
| Total Russia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,481,445 |
|
| Total Sovereign Bonds (Cost —
$22,779,427) |
|
|
|
|
|
|
|
16,597,333 |
|
| U.S. Government & Agency Obligations — 1.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Government Obligations —
1.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury Notes |
|
|
1.750 |
% |
|
|
6/30/24 |
|
|
|
1,500,000 |
|
|
|
1,436,426 |
|
| U.S. Treasury Notes |
|
|
3.500 |
% |
|
|
9/15/25 |
|
|
|
2,500,000 |
|
|
|
2,449,219 |
|
| U.S. Treasury Notes |
|
|
1.875 |
% |
|
|
2/28/27 |
|
|
|
3,000,000 |
|
|
|
2,732,813 |
|
| U.S. Treasury Notes |
|
|
2.750 |
% |
|
|
7/31/27 |
|
|
|
500,000 |
|
|
|
470,898 |
|
| Total U.S. Government & Agency Obligations
(Cost — $7,106,249) |
|
|
|
7,089,356 |
|
| Convertible Bonds & Notes — 1.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services — 1.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Media — 1.1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| DISH Network Corp., Senior Notes |
|
|
2.375 |
% |
|
|
3/15/24 |
|
|
|
540,000 |
|
|
|
483,705 |
|
| DISH Network Corp., Senior Notes |
|
|
3.375 |
% |
|
|
8/15/26 |
|
|
|
5,350,000 |
|
|
|
3,694,175 |
|
| Total Communication Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,177,880 |
|
| Industrials — 0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Airlines — 0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Spirit Airlines Inc., Senior Notes |
|
|
1.000 |
% |
|
|
5/15/26 |
|
|
|
1,920,000 |
|
|
|
1,644,480 |
|
| Total Convertible Bonds & Notes (Cost
— $6,666,680) |
|
|
|
5,822,360 |
|
| Asset-Backed Securities — 0.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Magnetite Ltd., 2015-12A ER (3 mo. USD LIBOR + 5.680%) (Cost — $3,358,809) |
|
|
8.192 |
% |
|
|
10/15/31 |
|
|
|
3,400,000 |
|
|
|
2,842,313 |
(a)(d) |
| Senior Loans — 0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer Discretionary — 0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Diversified Consumer Services —
0.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| WW International Inc., Initial Term Loan (1 mo. USD LIBOR + 3.500%) (Cost —
$1,593,717) |
|
|
6.620 |
% |
|
|
4/13/28 |
|
|
|
2,150,000 |
|
|
|
1,526,511 |
(d)(j)(k)(l) |
|
|
|
|
|
| |
|
|
|
|
Expiration
Date |
|
|
Warrants |
|
|
|
|
| Warrants — 0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financials — 0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital Markets —
0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| EG Acquisition Corp., Class A Shares
(Cost — $20,515) |
|
|
|
|
|
|
5/28/28 |
|
|
|
21,426 |
|
|
|
2,678 |
* |
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
21 |
|
Schedule of investments (cont’d)
September 30, 2022
Western Asset High Income Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Security |
|
|
|
|
|
|
|
Shares |
|
|
Value |
|
| Common Stocks — 0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Energy — 0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Energy Equipment & Services —
0.0%†† |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| KCAD Holdings I Ltd. (Cost — $3,494,813) |
|
|
|
|
|
|
|
|
|
|
427,421,041 |
|
|
$ |
0 |
*(g)(h)(i) |
| Total Investments before Short-Term Investments
(Cost — $422,369,942) |
|
|
|
394,041,691 |
|
|
|
|
|
|
| |
|
Rate |
|
|
|
|
|
|
|
|
|
|
| Short-Term Investments — 0.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Western Asset Premier Institutional Government Reserves, Premium Shares (Cost —
$2,535,492) |
|
|
2.799 |
% |
|
|
|
|
|
|
2,535,492 |
|
|
|
2,535,492 |
(m) |
| Total Investments — 98.8% (Cost —
$424,905,434) |
|
|
|
396,577,183 |
|
| Other Assets in Excess of Liabilities —
1.2% |
|
|
|
4,884,536 |
|
| Total Net Assets — 100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
401,461,719 |
|
See Notes to Financial
Statements.
|
|
|
|
|
| 22 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Western Asset High Income Opportunity Fund Inc.
| † |
Face amount denominated in U.S. dollars, unless otherwise noted. |
| †† |
Represents less than 0.1%. |
| * |
Non-income producing security. |
| (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. |
| (b) |
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. |
| (c) |
Security has no maturity date. The date shown represents the next call date. |
| (d) |
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.
|
| (e) |
Payment-in-kind security for which the issuer has the option at each interest payment date of making interest payments in
cash or additional securities. |
| (f) |
The coupon payment on this security is currently in default as of September 30, 2022. |
| (g) |
Security is valued in good faith in accordance with procedures approved by the Board of Directors (Note 1).
|
| (h) |
Security is valued using significant unobservable inputs (Note 1). |
| (i) |
Value is less than $1. |
| (j) |
Interest rates disclosed represent the effective rates on senior loans. Ranges in interest rates are attributable to
multiple contracts under the same loan. |
| (k) |
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. |
| (l) |
All or a portion of this loan is unfunded as of September 30, 2022. The interest rate for fully unfunded term loans
is to be determined. |
| (m) |
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 September 30, 2022, the total market value of investments in Affiliated Companies was
$2,535,492 and the cost was $2,535,492 (Note 8). |
|
|
|
| Abbreviation(s) used in this
schedule: |
|
|
| EUR |
|
— Euro |
|
|
| GBP |
|
— British Pound |
|
|
| ICE |
|
— Intercontinental Exchange |
|
|
| LIBOR |
|
— London Interbank Offered Rate |
|
|
| MXN |
|
— Mexican Peso |
|
|
| OFZ |
|
— Obligatsyi Federal’novo Zaima (Russian Federal Loan Obligation) |
|
|
| PIK |
|
— Payment-In-Kind |
|
|
| RUB |
|
— Russian Ruble |
|
|
| SOFR |
|
— Secured Overnight Financing Rate |
|
|
| USD |
|
— United States Dollar |
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
23 |
|
Schedule of investments (cont’d)
September 30, 2022
Western Asset High Income Opportunity Fund Inc.
At September 30, 2022, the Fund had the following open forward foreign currency contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency
Purchased |
|
|
Currency
Sold |
|
|
Counterparty |
|
Settlement
Date |
|
|
Unrealized
Appreciation
(Depreciation) |
|
| USD |
|
|
740,585 |
|
|
EUR |
|
|
720,000 |
|
|
BNP Paribas SA |
|
|
10/18/22 |
|
|
$ |
34,078 |
|
| USD |
|
|
1,267,525 |
|
|
EUR |
|
|
1,250,000 |
|
|
BNP Paribas SA |
|
|
10/18/22 |
|
|
|
40,950 |
|
| USD |
|
|
2,007,727 |
|
|
EUR |
|
|
1,980,537 |
|
|
BNP Paribas SA |
|
|
10/18/22 |
|
|
|
64,306 |
|
| CAD |
|
|
470 |
|
|
USD |
|
|
363 |
|
|
Citibank N.A. |
|
|
10/18/22 |
|
|
|
(23) |
|
| USD |
|
|
8,046,124 |
|
|
GBP |
|
|
6,674,622 |
|
|
Goldman Sachs Group Inc. |
|
|
10/18/22 |
|
|
|
590,676 |
|
| USD |
|
|
952,316 |
|
|
EUR |
|
|
950,000 |
|
|
JPMorgan Chase & Co. |
|
|
10/18/22 |
|
|
|
20,119 |
|
| Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
750,106 |
|
|
|
|
| Abbreviation(s) used in this
table: |
|
|
| CAD |
|
— Canadian Dollar |
|
|
| EUR |
|
— Euro |
|
|
| GBP |
|
— British Pound |
|
|
| USD |
|
— United States Dollar |
See Notes to Financial
Statements.
|
|
|
|
|
| 24 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Statement of assets and liabilities
September 30, 2022
|
|
|
|
|
|
|
| Assets: |
|
|
|
|
| Investments in unaffiliated securities, at value (Cost — $422,369,942) |
|
$ |
394,041,691 |
|
| Investments in affiliated securities, at value (Cost — $2,535,492) |
|
|
2,535,492 |
|
| Foreign currency, at value (Cost — $2,045,455) |
|
|
2,056,522 |
|
| Cash |
|
|
1,110,080 |
|
| Interest receivable |
|
|
7,080,890 |
|
| Receivable for securities sold |
|
|
1,118,529 |
|
| Unrealized appreciation on forward foreign currency contracts |
|
|
750,129 |
|
| Dividends receivable from affiliated investments |
|
|
7,790 |
|
| Total Assets |
|
|
408,701,123 |
|
|
|
| Liabilities: |
|
|
|
|
| Payable for securities purchased |
|
|
3,892,386 |
|
| Distributions payable |
|
|
2,852,976 |
|
| Investment management fee payable |
|
|
274,993 |
|
| Directors’ fees payable |
|
|
23,795 |
|
| Unrealized depreciation on forward foreign currency contracts |
|
|
23 |
|
| Accrued expenses |
|
|
195,231 |
|
| Total Liabilities |
|
|
7,239,404 |
|
| Total Net Assets |
|
$ |
401,461,719 |
|
|
|
| Net Assets: |
|
|
|
|
| Par value ($0.001 par value; 95,099,215 shares issued and outstanding; 500,000,000 shares
authorized) |
|
$ |
95,099 |
|
| Paid-in capital in excess of par value |
|
|
596,564,623 |
|
| Total distributable earnings (loss) |
|
|
(195,198,003) |
|
| Total Net Assets |
|
$ |
401,461,719 |
|
|
|
| Shares Outstanding |
|
|
95,099,215 |
|
|
|
| Net Asset Value |
|
|
$4.22 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
25 |
|
Statement of operations
For the Year Ended September 30, 2022
|
|
|
|
|
|
|
| Investment Income: |
|
|
|
|
| Interest |
|
$ |
35,315,929 |
|
| Dividends from unaffiliated investments |
|
|
77,152 |
|
| Dividends from affiliated investments |
|
|
17,618 |
|
| Less: Foreign taxes withheld |
|
|
(50,620) |
|
| Total Investment
Income |
|
|
35,360,079 |
|
|
|
| Expenses: |
|
|
|
|
| Investment management fee (Note 2) |
|
|
3,729,567 |
|
| Transfer agent fees |
|
|
220,337 |
|
| Directors’ fees |
|
|
150,758 |
|
| Audit and tax fees |
|
|
53,603 |
|
| Stock exchange listing fees |
|
|
48,738 |
|
| Legal fees |
|
|
48,085 |
|
| Shareholder reports |
|
|
32,998 |
|
| Custody fees |
|
|
17,122 |
|
| Fund accounting fees |
|
|
8,000 |
|
| Interest expense |
|
|
2,573 |
|
| Insurance |
|
|
2,223 |
|
| Miscellaneous expenses |
|
|
7,684 |
|
| Total Expenses |
|
|
4,321,688 |
|
| Less: Fee waivers and/or expense reimbursements (Note 2) |
|
|
(1,967) |
|
| Net Expenses |
|
|
4,319,721 |
|
| Net Investment Income |
|
|
31,040,358 |
|
|
|
| Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3 and
4): |
|
|
|
|
| Net Realized Gain (Loss) From: |
|
|
|
|
| Investment transactions in unaffiliated securities |
|
|
(20,653,377) |
|
| Futures contracts |
|
|
(39,489) |
|
| Forward foreign currency contracts |
|
|
1,455,110 |
|
| Foreign currency transactions |
|
|
(124,972) |
|
| Net Realized Loss |
|
|
(19,362,728) |
|
| Change in Net Unrealized Appreciation (Depreciation) From: |
|
|
|
|
| Investments in unaffiliated securities |
|
|
(94,537,229) |
|
| Forward foreign currency contracts |
|
|
557,926 |
|
| Foreign currencies |
|
|
32,449 |
|
| Change in Net Unrealized Appreciation
(Depreciation) |
|
|
(93,946,854) |
|
| Net Loss on Investments, Futures Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions |
|
|
(113,309,582) |
|
| Decrease in Net Assets From Operations |
|
$ |
(82,269,224) |
|
See Notes to Financial
Statements.
|
|
|
|
|
| 26 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
| For the Years Ended September 30, |
|
2022 |
|
|
2021 |
|
|
|
|
| Operations: |
|
|
|
|
|
|
|
|
| Net investment income |
|
$ |
31,040,358 |
|
|
$ |
31,490,321 |
|
| Net realized gain (loss) |
|
|
(19,362,728) |
|
|
|
13,036,540 |
|
| Change in net unrealized appreciation (depreciation) |
|
|
(93,946,854) |
|
|
|
11,899,904 |
|
| Increase (Decrease) in Net Assets From
Operations |
|
|
(82,269,224) |
|
|
|
56,426,765 |
|
|
|
|
| Distributions to Shareholders From (Note 1): |
|
|
|
|
|
|
|
|
| Total distributable earnings |
|
|
(31,321,298) |
|
|
|
(30,044,235) |
|
| Return of capital |
|
|
(2,914,419) |
|
|
|
(6,410,464) |
|
| Decrease in Net Assets From Distributions
to Shareholders |
|
|
(34,235,717) |
|
|
|
(36,454,699) |
|
|
|
|
| Fund Share Transactions: |
|
|
|
|
|
|
|
|
| Cost of shares repurchased through tender offer (0 and 31,699,738 shares repurchased,
respectively) (Note 5) |
|
|
— |
|
|
|
(170,227,593) |
|
| Decrease in Net Assets From Fund Share
Transactions |
|
|
— |
|
|
|
(170,227,593) |
|
| Decrease in Net
Assets |
|
|
(116,504,941) |
|
|
|
(150,255,527) |
|
|
|
|
| Net Assets: |
|
|
|
|
|
|
|
|
| Beginning of year |
|
|
517,966,660 |
|
|
|
668,222,187 |
|
| End of year |
|
$ |
401,461,719 |
|
|
$ |
517,966,660 |
|
See Notes to Financial
Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
27 |
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For a share of capital stock outstanding throughout each year ended September 30: |
|
| |
|
20221 |
|
|
20211 |
|
|
20201 |
|
|
20191 |
|
|
20181 |
|
|
|
|
|
|
|
| Net asset value, beginning of year |
|
|
$5.45 |
|
|
|
$5.27 |
|
|
|
$5.50 |
|
|
|
$5.44 |
|
|
|
$5.65 |
|
|
|
|
|
|
|
| Income (loss) from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
0.33 |
|
|
|
0.32 |
|
|
|
0.34 |
|
|
|
0.35 |
|
|
|
0.33 |
|
| Net realized and unrealized gain (loss) |
|
|
(1.20) |
|
|
|
0.22 |
|
|
|
(0.20) |
|
|
|
0.04 |
|
|
|
(0.21) |
|
| Total income (loss) from
operations |
|
|
(0.87) |
|
|
|
0.54 |
|
|
|
0.14 |
|
|
|
0.39 |
|
|
|
0.12 |
|
|
|
|
|
|
|
| Less distributions from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net investment income |
|
|
(0.33) |
|
|
|
(0.30) |
|
|
|
(0.31) |
|
|
|
(0.34) |
|
|
|
(0.33) |
|
| Return of capital |
|
|
(0.03) |
|
|
|
(0.07) |
|
|
|
(0.07) |
|
|
|
— |
|
|
|
— |
|
| Total
distributions |
|
|
(0.36) |
|
|
|
(0.37) |
|
|
|
(0.38) |
|
|
|
(0.34) |
|
|
|
(0.33) |
|
| Anti-dilutive impact of repurchase plan |
|
|
— |
|
|
|
— |
|
|
|
0.01 |
2 |
|
|
0.01 |
2 |
|
|
0.00 |
2,3 |
| Anti-dilutive impact of tender offer |
|
|
— |
|
|
|
0.01 |
4 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Capital contributions |
|
|
— |
|
|
|
— |
|
|
|
0.00 |
3 |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
| Net asset value, end of year |
|
|
$4.22 |
|
|
|
$5.45 |
|
|
|
$5.27 |
|
|
|
$5.50 |
|
|
|
$5.44 |
|
| Market price, end of year |
|
|
$3.68 |
|
|
|
$5.19 |
|
|
|
$4.90 |
|
|
|
$5.05 |
|
|
|
$4.76 |
|
| Total return, based on NAV5,6 |
|
|
(16.60) |
% |
|
|
10.73 |
% |
|
|
3.13 |
%7 |
|
|
7.63 |
% |
|
|
2.15 |
% |
| Total return, based on Market Price8 |
|
|
(23.16) |
% |
|
|
13.92 |
% |
|
|
5.05 |
% |
|
|
13.72 |
% |
|
|
(0.84) |
% |
|
|
|
|
|
|
| Net assets, end of year (millions) |
|
|
$401 |
|
|
|
$518 |
|
|
|
$668 |
|
|
|
$703 |
|
|
|
$703 |
|
|
|
|
|
|
|
| Ratios to average net assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross expenses |
|
|
0.93 |
% |
|
|
0.91 |
% |
|
|
1.01 |
%9 |
|
|
0.88 |
% |
|
|
0.89 |
% |
| Net expenses10 |
|
|
0.93 |
11 |
|
|
0.89 |
11 |
|
|
0.99 |
9,11 |
|
|
0.86 |
11 |
|
|
0.89 |
|
| Net investment income |
|
|
6.66 |
|
|
|
5.82 |
|
|
|
6.35 |
|
|
|
6.46 |
|
|
|
6.00 |
|
|
|
|
|
|
|
| Portfolio turnover rate |
|
|
79 |
% |
|
|
46 |
% |
|
|
63 |
% |
|
|
83 |
% |
|
|
104 |
% |
See Notes to Financial
Statements.
|
|
|
|
|
| 28 |
|
|
|
Western Asset High Income 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 $3.67 for 1,150,582 shares and $4,227,008 for the year
ended September 30, 2020, an average repurchase price of $4.53 for 1,186,747 shares and $5,381,207 for the year ended September 30, 2019 and an average repurchase price of $4.82 for 95,929 shares and $462,283 for the year ended
September 30, 2018. |
| 3 |
Amount represents less than $0.005 per share. |
| 4 |
The tender offer was completed at a price of $5.37 for 31,699,738 shares and $170,227,593 for the year ended
September 30, 2021. |
| 5 |
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. |
| 6 |
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future
results. |
| 7 |
Includes the effect of a capital contribution. Absent the capital contribution, the total return would have been
unchanged. |
| 8 |
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. |
| 9 |
Included in the expense ratios are certain non-recurring legal and transfer agent fees that were incurred by the Fund
during the period. Without these fees, the gross and net expense ratios would have been 0.92% and 0.90%, respectively. |
| 10 |
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. |
| 11 |
Reflects fee waivers and/or expense reimbursements. |
See Notes to Financial Statements.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
29 |
|
Notes to financial statements
1. Organization and significant accounting policies
Western Asset High Income Opportunity Fund Inc. (the “Fund”) was incorporated in Maryland and is registered as a diversified, closed-end management investment
company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund seeks high current income. Capital appreciation is a secondary objective. In seeking to fulfill its investment objectives, the Fund invests, under
normal market conditions, at least 80% of its net assets in high-yield securities and up to 20% in common stock equivalents, including options, warrants and rights.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles
(“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. The valuations for fixed income securities (which
may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party
pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services typically use inputs that are observable such as issuer details, interest
rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value per share of each fund on the day of valuation. Futures
contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing
price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If
independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or
more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a
security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in
accordance with procedures approved by the Fund’s Board of Directors.
|
|
|
|
|
| 30 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Pursuant to policies adopted by the Board of
Directors, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily valuation process. The Fund’s manager is assisted by the Global Fund Valuation Committee (the “Valuation
Committee”). The Valuation Committee is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Fund’s manager and the Board of Directors. When determining
the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among
market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples
of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to
maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of
security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial
institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or
comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the
policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are
reported to the Board of Directors quarterly.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income
approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses
valuation techniques to discount estimated future cash flows to present value.
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
31 |
|
Notes to financial statements (cont’d)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used
to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
| • |
|
Level 1 — 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) |
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Information Technology |
|
|
— |
|
|
$ |
6,732,476 |
|
|
$ |
0 |
* |
|
$ |
6,732,476 |
|
| Other Corporate Bonds & Notes |
|
|
— |
|
|
|
353,428,664 |
|
|
|
— |
|
|
|
353,428,664 |
|
| Sovereign Bonds |
|
|
— |
|
|
|
16,597,333 |
|
|
|
— |
|
|
|
16,597,333 |
|
| U.S. Government & Agency Obligations |
|
|
— |
|
|
|
7,089,356 |
|
|
|
— |
|
|
|
7,089,356 |
|
| Convertible Bonds & Notes |
|
|
— |
|
|
|
5,822,360 |
|
|
|
— |
|
|
|
5,822,360 |
|
| Asset-Backed Securities |
|
|
— |
|
|
|
2,842,313 |
|
|
|
— |
|
|
|
2,842,313 |
|
| Senior Loans |
|
|
— |
|
|
|
1,526,511 |
|
|
|
— |
|
|
|
1,526,511 |
|
| Warrants |
|
$ |
2,678 |
|
|
|
— |
|
|
|
— |
|
|
|
2,678 |
|
| Common Stocks |
|
|
— |
|
|
|
— |
|
|
|
0 |
* |
|
|
0 |
* |
| Total Long-Term Investments |
|
|
2,678 |
|
|
|
394,039,013 |
|
|
|
0 |
* |
|
|
394,041,691 |
|
| Short-Term Investments† |
|
|
2,535,492 |
|
|
|
— |
|
|
|
— |
|
|
|
2,535,492 |
|
| Total Investments |
|
$ |
2,538,170 |
|
|
$ |
394,039,013 |
|
|
$ |
0 |
* |
|
$ |
396,577,183 |
|
| Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Forward Foreign Currency Contracts†† |
|
|
— |
|
|
$ |
750,129 |
|
|
|
— |
|
|
$ |
750,129 |
|
| Total |
|
$ |
2,538,170 |
|
|
$ |
394,789,142 |
|
|
$ |
0 |
* |
|
$ |
397,327,312 |
|
|
|
|
|
|
| 32 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES |
|
| Description |
|
Quoted Prices
(Level 1) |
|
|
Other Significant
Observable Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
|
| Other Financial Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Forward Foreign Currency Contracts†† |
|
|
— |
|
|
$ |
23 |
|
|
|
— |
|
|
$ |
23 |
|
| † |
See Schedule of Investments for additional detailed categorizations. |
| * |
Amount represents less than $1. |
| †† |
Reflects the unrealized appreciation (depreciation) of the instruments. |
(b) Futures contracts. The Fund uses futures contracts generally to gain
exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a
specified date.
Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain
percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the
value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized
appreciation or depreciation in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve,
to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(c) Forward foreign currency contracts. The Fund enters into a forward
foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is
an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a
forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the
time it was opened and the value of the contract at the time it is closed.
Forward foreign currency contracts involve elements of market risk in excess of
the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
33 |
|
Notes to financial statements (cont’d)
contract. Risks may also arise upon entering into these contracts from the potential inability of
the counterparties to meet the terms of their contracts.
(d) 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.
(e) Unfunded loan commitments.
The Fund may enter into certain credit agreements where all or a portion of the total amount committed may be unfunded. The Fund is obligated to fund these commitments at the borrower’s discretion. The
commitments are disclosed in the accompanying Schedule of Investments. At September 30, 2022, the Fund had sufficient cash and/or securities to cover these commitments.
(f) Foreign currency translation. Investment securities and other assets
and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign
currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not
isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and
losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded
on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on
the date of valuation, resulting from changes in exchange rates.
|
|
|
|
|
| 34 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
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.
(g) Credit and market risk.
The Fund invests in high-yield and emerging market instruments that are subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things,
perceived credit and market risks. The Fund’s investments in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate
payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held
by the Fund. The Fund’s investments in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(h) Foreign investment risks. The Fund’s investments in foreign
securities may involve risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or may pay interest or dividends in foreign currencies, changes in the
relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation,
taxation or other political, social or economic developments, all of which affect the market and/or credit risk of the investments.
(i) 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 subadviser 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 subadviser. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.
With exchange traded and centrally cleared derivatives, there is less counterparty risk to the Fund since the exchange or clearinghouse, as counterparty to such
instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
35 |
|
Notes to financial statements (cont’d)
seller of the contract; therefore, the credit risk is limited to failure of the clearinghouse.
While offset rights may exist under applicable law, the Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default of the clearing broker or clearinghouse.
The Fund has entered into master agreements, such as an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or
similar agreement, with certain of its derivative counterparties that govern over-the-counter (“OTC”) derivatives and provide for general obligations, representations, agreements, collateral posting terms, netting provisions in the event
of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or net asset value per share over a specified period of
time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.
Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative financial instruments’ payables and/or
receivables with collateral held and/or posted and create one single net payment. However, absent an event of default by the counterparty or a termination of the agreement, the terms of the ISDA Master Agreements do not result in an offset of
reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities across transactions between the Fund and the applicable counterparty. The enforceability of the right to offset may vary by jurisdiction.
Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives
while collateral terms are contract specific for OTC traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under derivative contracts, if any, will be reported separately in the Statement of Assets and
Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Schedule of Investments.
As of September 30, 2022, the Fund held
forward foreign currency contracts with credit related contingent features which had a liability position of $23. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its
derivative counterparties.
(j) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the
accrual basis. Paydown gains and losses on mortgage- and asset-backed securities are recorded as adjustments to interest income. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend
income is recorded on the ex-dividend date or as soon as practicable after the Fund determines the existence of
|
|
|
|
|
| 36 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
a dividend declaration after exercising reasonable
due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and
consider the realizability of interest accrued up to the date of default or credit event.
(k) Distributions to
shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually.
Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(l) Compensating balance arrangements. The Fund has an arrangement with its
custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.
(m) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the
“Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code.
Therefore, no federal or state income tax provision is required in the Fund’s financial statements.
Management has analyzed the Fund’s tax
positions taken on income tax returns for all open tax years and has concluded that as of September 30, 2022, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal
excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(n) Reclassification. GAAP requires that certain components of net assets
be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:
|
|
|
|
|
|
|
|
|
| |
|
Total Distributable
Earnings (Loss) |
|
|
Paid-in
Capital |
|
| (a) |
|
$ |
(11,295) |
|
|
$ |
11,295 |
|
| (a) |
Reclassifications are due to differences between actual and estimated information for the prior year related to the
Fund’s return of capital. |
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
37 |
|
Notes to financial statements (cont’d)
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western
Asset”) and Western Asset Management Company Limited (“Western Asset Limited”) are the Fund’s subadvisers. LMPFA, Western Asset and Western Asset Limited are indirect, wholly-owned subsidiaries of Franklin Resources, Inc.
(“Franklin Resources”).
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management fee,
calculated daily and paid monthly, at an annual rate of 0.80% of the Fund’s average daily net assets.
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.
During the
year ended September 30, 2022, fees waived and/or expenses reimbursed amounted to $1,967, all of which was an affiliated money market fund waiver.
LMPFA
delegates to Western Asset the day-to-day portfolio management of the Fund. Western Asset Limited provides certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated debt securities.
Western Asset Limited does not receive any compensation from the Fund and is paid by Western Asset for its services to the Fund. For its services, LMPFA pays Western Asset a fee monthly, at an annual rate equal to 70% of the net management fee it
receives from the Fund. In turn, Western Asset pays Western Asset Limited a monthly subadvisory fee in an amount equal to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to Western Asset Limited to manage.
All officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund.
3. Investments
During the year ended
September 30, 2022, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:
|
|
|
|
|
|
|
|
|
| |
|
Investments |
|
|
U.S. Government &
Agency Obligations |
|
| Purchases |
|
$ |
342,040,631 |
|
|
$ |
15,503,311 |
|
| Sales |
|
|
358,542,069 |
|
|
|
8,368,301 |
|
|
|
|
|
|
| 38 |
|
|
|
Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
At September 30, 2022, the aggregate cost of
investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cost |
|
|
Gross
Unrealized
Appreciation |
|
|
Gross
Unrealized
Depreciation |
|
|
Net
Unrealized
Appreciation
(Depreciation) |
|
| Securities |
|
$ |
430,305,970 |
|
|
$ |
6,554,159 |
|
|
$ |
(40,282,946) |
|
|
$ |
(33,728,787) |
|
| Forward foreign currency contracts |
|
|
— |
|
|
|
750,129 |
|
|
|
(23) |
|
|
|
750,106 |
|
4. Derivative instruments and hedging activities
Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and
Liabilities at September 30, 2022.
|
|
|
|
|
| ASSET DERIVATIVES1 |
|
| |
|
Foreign
Exchange Risk |
|
| Forward foreign currency contracts |
|
$ |
750,129 |
|
| LIABILITY DERIVATIVES1 |
|
| |
|
Foreign
Exchange Risk |
|
| Forward foreign currency contracts |
|
$ |
23 |
|
| 1 |
Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation and for liability
derivatives is payables/net unrealized depreciation. |
The following tables provide information about the effect of derivatives and hedging
activities on the Fund’s Statement of Operations for the year ended September 30, 2022. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table
provides additional information about the change in net unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.
|
|
|
|
|
|
|
|
|
|
|
| AMOUNT OF NET REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED |
| |
|
Interest
Rate Risk |
|
|
Foreign
Exchange Risk |
|
|
Total |
| Futures contracts |
|
$ |
(39,489) |
|
|
|
— |
|
|
$(39,489) |
| Forward foreign currency contracts |
|
|
— |
|
|
$ |
1,455,110 |
|
|
1,455,110 |
| Total |
|
$ |
(39,489) |
|
|
$ |
1,455,110 |
|
|
$1,415,621 |
|
|
|
|
|
| CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED |
|
| |
|
Foreign
Exchange Risk |
|
| Forward foreign currency contracts |
|
$ |
557,926 |
|
|
|
|
|
|
|
|
| Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
|
|
|
|
39 |
|
Notes to financial statements (cont’d)
During the year ended September 30, 2022, the volume of derivative activity for the Fund was
as follows:
|
|
|
|
|
| |
|
Average Market
Value |
|
| Futures contracts (to buy)† |
|
$ |
2,837,506 |
|
| Forward foreign currency contracts (to buy) |
|
|
494,648 |
|
| Forward foreign currency contracts (to sell) |
|
|
10,994,163 |
|
| † |
At September 30, 2022, there were no open positions held in this derivative. |
The following table presents the Fund’s OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and
net of the related collateral pledged (received) by the Fund as of September 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Counterparty |
|
Gross Assets
Subject to
Master
Agreements1 |
|
|
Gross
Liabilities
Subject to
Master
Agreements1 |
|
|
Net Assets
(Liabilities)
Subject
to
Master Agreements |
|
Collateral
Pledged
(Received) |
|
|
Net
Amount2 |
|
| BNP Paribas SA |
|
$ |
139,334 |
|
|
|
— |
|
|
$139,334 |
|
|
— |
|
|
$ |
139,334 |
|
| Citibank N.A. |
|
|
— |
|
|
$ |
(23) |
|
|
(23) |
|
|
— |
|
|
|
(23) |
|
| Goldman Sachs Group Inc. |
|
|
590,676 |
|
|
|
— |
|
|
590,676 |
|
|
— |
|
|
|
590,676 |
|
| JPMorgan Chase & Co. |
|
|
20,119 |
|
|
|
— |
|
|
20,119 |
|
|
— |
|
|
|
20,119 |
|
| Total |
|
$ |
750,129 |
|
|
$ |
(23) |
|
|
$750,106 |
|
|
— |
|
|
$ |
750,106 |
|
| 1 |
Absent an event of default or early termination, derivative assets and liabilities are presented gross and not offset in
the Statement of Assets and Liabilities. |
| 2 |
Represents the net amount receivable (payable) from (to) the counterparty in the event of default. |
5. Tender offer
On June 22, 2020, the
Fund’s Board of Directors authorized (subject to certain conditions) a cash tender offer for up to 25% of the Fund’s outstanding shares at a price per share equal to 99.5% of the Fund’s net asset value per share as of the business day
immediately following the expiration date of the tender offer. On October 19, 2020, the Fund commenced its tender offer, which expired on November 16, 2020. On November 19, 2020, the Fund announced the final results of the tender
offer. A total of 60,615,942 shares were duly tendered and not withdrawn. Because the number of shares tendered exceeded 31,699,738 shares, the tender offer was oversubscribed. Therefore, in accordance with the terms and conditions specified in the
tender offer, the Fund purchased shares from all tendering stockholders on a pro rata basis, disregarding fractions. Accordingly, on a pro rata basis approximately 52.30% of shares for each stockholder who properly tendered shares were accepted for
payment. The shares accepted for tender were repurchased at a price of $5.37 equal to 99.5% of the per share net asset value, $5.40, as of the close of the regular trading session of the New York Stock Exchange on November 17, 2020. Payment for
such shares was made on November 19, 2020. Shares that were not tendered remain outstanding.
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
6. Distributions subsequent
to September 30, 2022
The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period
end of this report:
|
|
|
|
|
|
|
|
|
| Record Date |
|
Payable Date |
|
|
Amount |
|
| 9/23/2022 |
|
|
10/3/2022 |
|
|
$ |
0.0300 |
|
| 10/24/2022 |
|
|
11/1/2022 |
|
|
$ |
0.0300 |
|
| 11/22/2022 |
|
|
12/1/2022 |
|
|
$ |
0.0300 |
|
| 12/22/2022 |
|
|
12/30/2022 |
|
|
$ |
0.0300 |
|
| 1/24/2023 |
|
|
2/1/2023 |
|
|
$ |
0.0300 |
|
| 2/21/2023 |
|
|
3/1/2023 |
|
|
$ |
0.0300 |
|
7. Stock repurchase program
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. During the years ended September 30, 2022 and
September 30, 2021, the Fund did not repurchase any shares.
Since the commencement of the stock repurchase program through September 30, 2022, the Fund
repurchased 2,433,258 shares or 1.88% of its common shares outstanding for a total amount of $10,070,498.
8. Transactions with affiliated
company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5% or more of the outstanding voting securities, or a company
which is under common ownership or control with the Fund. The following company was considered an affiliated company for all or some portion of the year ended September 30, 2022. The following transactions were effected in such company for the
year ended September 30, 2022.
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
Affiliate
Value at September 30, |
|
|
Purchased |
|
|
Sold |
|
| |
|
2021 |
|
|
Cost |
|
|
Shares |
|
|
Cost |
|
|
Shares |
|
| Western Asset Premier Institutional Government Reserves, Premium Shares |
|
$ |
702,057 |
|
|
$ |
111,751,308 |
|
|
|
111,751,308 |
|
|
$ |
109,917,873 |
|
|
|
109,917,873 |
|
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41 |
|
Notes to financial statements (cont’d)
|
|
|
|
|
|
|
|
|
|
|
|
|
| (cont’d) |
|
Realized
Gain (Loss) |
|
Dividend
Income |
|
|
Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation) |
|
Affiliate
Value at
September 30,
2022 |
|
| Western Asset Premier Institutional Government Reserves, Premium Shares |
|
— |
|
$ |
17,618 |
|
|
— |
|
$ |
2,535,492 |
|
9. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended September 30, was as follows:
|
|
|
|
|
|
|
|
|
| |
|
2022 |
|
|
2021 |
|
| Distributions paid from: |
|
|
|
|
|
|
|
|
| Ordinary income |
|
$ |
31,321,298 |
|
|
$ |
30,044,235 |
|
| Tax return of capital |
|
|
2,914,419 |
|
|
|
6,410,464 |
|
| Total distributions paid |
|
$ |
34,235,717 |
|
|
$ |
36,454,699 |
|
As of September 30, 2022, the components of distributable earnings (loss) on a tax basis were as follows:
|
|
|
|
|
| Deferred capital losses* |
|
$ |
(158,562,051) |
|
| Other book/tax temporary differences(a) |
|
|
(3,671,945) |
|
| Unrealized appreciation (depreciation)(b) |
|
|
(32,964,007) |
|
| Total distributable earnings (loss) — net |
|
$ |
(195,198,003) |
|
| * |
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 foreign currency contracts, the difference between cash and accrual basis distributions paid 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 the tax deferral
of losses on wash sales, the difference between book and tax amortization methods for premium on fixed income securities, book/tax differences in the accrual of interest income on securities in default and other book/tax basis adjustments.
|
10. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) –
Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU No. 2021-01, with further amendments to Topic 848. The amendments in the ASUs provide optional temporary accounting
recognition and financial reporting relief from the effect of certain types of contract modifications due to the planned discontinuation of the LIBOR and other interbank-offered based reference rates as of the end of 2021 and 2023. The ASUs are
effective for certain reference rate-related contract modifications that occur during the period March 12, 2020 through December 31, 2022. Management has
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
reviewed the requirements and believes the adoption
of these ASUs will not have a material impact on the financial statements.
11. Other matters
The outbreak of the respiratory illness COVID-19 (commonly referred to as “coronavirus”) has continued to rapidly spread around the world, causing considerable
uncertainty for the global economy and financial markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect
the value and liquidity of the Fund’s investments and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the
Fund by its service providers.
* * *
The Fund’s investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate, or “LIBOR,”
which is the offered rate for short-term Eurodollar deposits between major international banks. On March 5, 2021, the ICE Benchmark Administration, the administrator of LIBOR, stated that it will cease the publication of the overnight and one-,
three-, six- and twelve-month USD LIBOR settings immediately following the LIBOR publication on Friday, June 30, 2023. All other LIBOR settings, including the one-week and two-month USD LIBOR settings, have ceased publication as of
January 1, 2022. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally. As such, the potential effect of a
transition away from LIBOR on the Fund or the Fund’s investments cannot yet be determined.
* * *
Russia’s military invasion of Ukraine in February 2022, the resulting responses by the United States and other countries, and the potential for wider conflict could
increase volatility and uncertainty in the financial markets and adversely affect regional and global economies. The United States and other countries have imposed broad-ranging economic sanctions on Russia and certain Russian individuals, banking
entities and corporations as a response to its invasion of Ukraine. The United States and other countries have also imposed economic sanctions on Belarus and may impose sanctions on other countries that support Russia’s military invasion. These
sanctions, as well as any other economic consequences related to the invasion, such as additional sanctions, boycotts or changes in consumer or purchaser preferences or cyberattacks on governments, companies or individuals, may further decrease the
value and liquidity of certain Russian securities and securities of issuers in other countries that are subject to economic sanctions related to the invasion. To the extent that the Fund has exposure to Russian investments or investments in
countries affected by the invasion, the Fund’s ability to price, buy, sell, receive or deliver such investments was impaired. The Fund could determine at any time that certain of the
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43 |
|
Notes to financial statements (cont’d)
most affected securities have little or no value. In addition, any exposure that the Fund may have
to counterparties in Russia or in countries affected by the invasion could negatively impact the Fund’s portfolio. The extent and duration of Russia’s military actions and the repercussions of such actions (including any retaliatory
actions or countermeasures that may be taken by those subject to sanctions) are impossible to predict, but could result in significant market disruptions, including in the oil and natural gas markets, and may negatively affect global supply chains,
inflation and global growth. These and any related events could significantly impact the Fund’s performance and the value of an investment in the Fund, even beyond any direct exposure the Fund may have to Russian issuers or issuers in other
countries affected by the invasion. At September 30, 2022, the Fund had 0.87% of its net assets invested in securities with significant economic risk or exposure to Russia.
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Western Asset High Income Opportunity Fund Inc. 2022 Annual Report |
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Western Asset High Income
Opportunity Fund Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Western Asset High Income Opportunity Fund Inc. (the
“Fund”) as of September 30, 2022, the related statement of operations for the year ended September 30, 2022, the statement of changes in net assets for each of the two years in the period ended September 30, 2022, including
the related notes, and the financial highlights for each of the five years in the period ended September 30, 2022 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Fund as of September 30, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended September 30, 2022 and
the financial highlights for each of the five years in the period ended September 30, 2022 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are
the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our
procedures included confirmation of securities owned as of September 30, 2022 by correspondence with the custodian, agent bank and brokers; when replies were not received, we performed other auditing procedures. We believe that our audits
provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
November 17, 2022
We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.
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Board approval of management and subadvisory agreements (unaudited)
Background
The Investment Company Act of 1940,
as amended (the “1940 Act”), requires that the Board of Directors (the “Board”) of Western Asset High Income Opportunity Fund Inc. (the “Fund”), including a majority of its members who are not considered to be
“interested persons” under the 1940 Act (the “Independent Directors”) voting separately, approve on an annual basis the continuation of the investment management agreement (the “Management Agreement”) between the Fund
and the Fund’s manager, Legg Mason Partners Fund Advisor, LLC (the “Manager”), and the sub-advisory agreements (individually, a “Sub-Advisory Agreement,” and collectively, the “Sub-Advisory Agreements”) with the
Manager’s affiliates, Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited (“Western Asset London,” and together with Western Asset, the “Sub-Advisers”), with respect
to the Fund.
At an in-person meeting (the “Contract Renewal Meeting”) held on May 10-11, 2022, the Board, including the Independent Directors,
considered and approved the continuation of each of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period. To assist in its consideration of the renewal of each of the Management Agreement and the Sub-Advisory
Agreements, the Board received and considered extensive information (together with the information provided at the Contract Renewal Meeting, the “Contract Renewal Information”) about the Manager and the Sub-Advisers, as well as the
management and sub-advisory arrangements for the Fund and the other closed-end funds in the same complex under the Board’s purview (the “Franklin Templeton/Legg Mason Closed-end Funds”), certain portions of which are discussed below.
A presentation made by the Manager and the Sub-Advisers to the Board at the Contract Renewal Meeting in connection with the Board’s evaluation of each of the
Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Franklin Templeton/Legg Mason Closed-end Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the
year related to the respective services rendered by the Manager and the Sub-Advisers to the Fund. The Board’s evaluation took into account the information received throughout the year and also reflected the knowledge and experience gained as
members of the Boards of the Fund and other Franklin Templeton/Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Advisers. The information received and considered by the Board (including its
various committees) in conjunction with the Contract Renewal Meeting and throughout the year was both written and oral. The contractual arrangements discussed below are the product of multiple years of review and negotiation and information received
and considered by the Board during each of those years.
At a meeting held by videoconference on April 19, 2022, the Independent Directors, in preparation for
the Contract Renewal Meeting, met in a private session with their
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Western Asset High Income Opportunity Fund Inc. |
independent legal counsel to review the Contract
Renewal Information regarding the Franklin Templeton/Legg Mason Closed-end Funds, including the Fund, received to date. No representatives of the Manager or the Sub-Advisers participated in this meeting. Following the April 19, 2022 meeting,
the Independent Directors submitted certain questions and requests for additional information to Fund management. The Independent Directors also met in private sessions with their independent legal counsel to consider the Contract Renewal
Information and Fund management’s responses to the Independent Directors’ questions and requests for additional information in advance of and during the Contract Renewal Meeting. The discussion below reflects all of these reviews.
The Manager provides the Fund with investment advisory and administrative services pursuant to the Management Agreement and the Sub-Advisers together provide the Fund
with investment sub-advisory services pursuant to the Sub-Advisory Agreements. The discussion below covers both the advisory and administrative functions being rendered by the Manager, each such function being encompassed by the Management
Agreement, and the investment sub-advisory functions being rendered by the Sub-Advisers pursuant to the Sub-Advisory Agreements.
Board
Approval of Management Agreement and Sub-Advisory Agreements
The Independent Directors were advised by separate independent legal counsel throughout the
process. Prior to voting, the Independent Directors received a memorandum discussing the legal standards for their consideration of the proposed continuation of the Management Agreement and the Sub-Advisory Agreements. The Independent Directors
considered the Management Agreement and each Sub-Advisory Agreement separately during the course of their review. In doing so, they noted the respective roles of the Manager and the Sub-Advisers in providing services to the Fund.
In approving the continuation of the Management Agreement and Sub-Advisory Agreements, the Board, including the Independent Directors, considered a variety of factors,
including those factors discussed below. No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve the continuation of the Management Agreement and the Sub-Advisory Agreements. Each
Director may have attributed different weight to the various factors in evaluating the Management Agreement and the Sub-Advisory Agreements.
After considering all
relevant factors and information, the Board, exercising its reasonable business judgment, determined that the continuation of the Management Agreement and Sub-Advisory Agreements were in the best interests of the Fund’s shareholders and
approved the continuation of each such agreement for an additional one-year period.
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47 |
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Board approval of management and subadvisory agreements (unaudited) (cont’d)
Nature, Extent and Quality of the Services under the Management Agreement and Sub-Advisory Agreements
The Board received and considered Contract Renewal Information regarding the nature, extent, and quality of services provided to the Fund by the Manager and the
Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, during the past year. The Board noted information received at regular meetings throughout the year related to the services provided by the Manager in its
management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Sub-Advisers and the Fund’s other service providers. The Board observed that the scope of services provided by the Manager and the
Sub-Advisers, and of the undertakings required of the Manager and Sub-Advisers in connection with those services, including maintaining and monitoring their respective compliance programs as well as the Fund’s compliance programs, had expanded
over time as a result of regulatory, market and other developments. The Board also noted that on a regular basis it received and reviewed information from the Manager and the Sub-Advisers regarding the Fund’s compliance policies and procedures
established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the risks borne by the Manager, the Sub-Advisers and their respective affiliates on behalf of the Fund, including entrepreneurial, operational, reputational, litigation
and regulatory risks, as well as the Manager’s and the Sub-Advisers’ risk management processes.
The Board reviewed the qualifications, backgrounds, and
responsibilities of the Manager’s senior personnel and the Sub-Advisers’ portfolio management teams primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered, based on its knowledge of the Manager
and its affiliates, the financial resources of Franklin Resources, Inc., the parent organization of the Manager and the Sub-Advisers. The Board recognized the importance of having a fund manager with significant resources.
The Board considered the division of responsibilities between the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements,
respectively, including the Manager’s coordination and oversight of the services provided to the Fund by the Sub-Advisers and other fund service providers and Western Asset’s coordination and oversight of the services provided to the Fund
by Western Asset London. The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the
delegee.
In reaching its determinations regarding continuation of the Management Agreement and the Sub-Advisory Agreements, the Board took into account that Fund
stockholders, in pursuing their investment goals and objectives, may have purchased their shares of the
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Western Asset High Income Opportunity Fund Inc. |
Fund based upon the reputation and the investment style, philosophy and strategy of the Manager and the Sub-Advisers, as
well as the resources available to the Manager and the Sub-Advisers.
The Board concluded that, overall, the nature, extent, and quality of the management and other
services provided (and expected to be provided) to the Fund, under the Management Agreement and the Sub-Advisory Agreements were satisfactory.
Fund Performance
The Board received and
considered information regarding Fund performance, including information and analyses (the “Broadridge Performance Information”) for the Fund, as well as for a group of comparable funds (the “Performance Universe”) selected by
Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third-party provider of investment company data. The Board was provided with a description of the methodology Broadridge used to determine the similarity of the Fund with
the funds included in the Performance Universe. It was noted that while the Board found the Broadridge Performance Information generally useful, they recognized its limitations, including that the data may vary depending on the end date selected,
and that the results of the performance comparisons may vary depending on the selection of the peer group and its composition over time. The Board also noted that Board members had received and discussed with the Manager and the Sub-Advisers
information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Board considered the Fund’s performance in view of overall financial market
conditions.
The Broadridge Performance Information comparing the Fund’s performance to that of its Performance Universe, consisting of the Fund and all
non-leveraged closed-end high yield funds, regardless of asset size, showed, among other data, that based on net asset value per share, the Fund’s performance was above the median for the 3-year period ended December 31, 2021, and was
below the median for the 1-, 5- and 10-year periods ended December 31, 2021. The Board noted the explanations from the Manager and the Sub-Advisers regarding the Fund’s relative performance versus the Performance Universe for the various
periods. The Board also noted the limited size of the Performance Universe.
Based on the reviews and discussions of Fund performance and considering other relevant
factors, including those noted above, the Board concluded, under the circumstances, that continuation of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period would be consistent with the interests of the Fund
and its stockholders.
Management and Sub-Advisory Fees and Expense Ratios
The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) and the actual management fee (the “Actual Management
Fee”)
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Board approval of management and subadvisory agreements (unaudited) (cont’d)
payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the “Sub-Advisory Fees”) payable by the Manager to the
Sub-Advisers under the Sub-Advisory Agreements in view of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Advisers, respectively. The Board noted that the
Sub-Advisory Fee payable to Western Asset under its Sub-Advisory Agreement with the Manager is paid by the Manager, not the Fund, and, accordingly, that the retention of Western Asset does not increase the fees or expenses otherwise incurred by the
Fund’s stockholders. Similarly, the Board noted that the Sub-Advisory Fee payable to Western Asset London under its Sub-Advisory Agreement with Western Asset is paid by Western Asset, not the Fund, and, accordingly, that the retention of
Western Asset London does not increase the fees or expenses otherwise incurred by the Fund’s stockholders.
In addition, the Board received and considered
information and analyses prepared by Broadridge (the “Broadridge Expense Information”) comparing the Contractual Management Fee and the Actual Management Fee and the Fund’s total actual expenses with those of funds in an expense group
(the “Expense Group”), as well as a broader group of funds, each selected and provided by Broadridge. The comparison was based upon the constituent funds’ latest fiscal years. It was noted that while the Board found the Broadridge
Expense Information generally useful, they recognized its limitations, including that the data may vary depending on the selection of the peer group.
The Broadridge
Expense Information showed that the Fund’s Contractual Management Fee was equal to the median. The Broadridge Expense Information also showed that the Fund’s Actual Management Fee was below the median. The Broadridge Expense Information
also showed that the Fund’s actual total expenses were below the median. The Board took into account management’s discussion of the Fund’s expenses and noted the limited size of the Expense Group.
The Board also reviewed Contract Renewal Information regarding fees charged by the Manager and/or the Sub-Advisers to other U.S. clients investing primarily in an asset
class similar to that of the Fund, including, where applicable, institutional and separate accounts. The Manager reviewed with the Board the differences in services provided to these different types of accounts, noting that the Fund is provided with
certain administrative services, office facilities, and Fund officers, and that the Fund is subject not only to heightened regulatory requirements relative to institutional clients but also to requirements for listing on the New York Stock Exchange,
and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Board considered the fee comparisons in view of the different services provided in managing these other types of clients and
funds.
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Western Asset High Income Opportunity Fund Inc. |
The Board considered the overall management fee, the
fees of the Sub-Advisers and the amount of the management fee retained by the Manager after payment of the subadvisory fees in each case in view of the services rendered for those amounts. The Board also received an analysis of complex-wide
management fees provided by the Manager, which, among other things, set out a framework of fees based on asset classes.
Taking all of the above into consideration,
as well as the factors identified below, the Board determined that the management fee and the Sub-Advisory Fees were reasonable in view of the nature, extent and overall quality of the management, investment advisory and other services provided by
the Manager and the Sub-Advisers to the Fund under the Management Agreement and the Sub-Advisory Agreements, respectively.
Manager
Profitability
The Board, as part of the Contract Renewal Information, received an analysis of the profitability to the Manager and its affiliates in
providing services to the Fund for the Manager’s fiscal years ended September 30, 2021 and September 30, 2020. The Board also received profitability information with respect to the Franklin Templeton/Legg Mason fund complex as a
whole. In addition, the Board received Contract Renewal Information with respect to the Manager’s revenue and cost allocation methodologies used in preparing such profitability data. It was noted that the allocation methodologies had been
reviewed by an outside consultant. The profitability to each of the Sub-Advisers was not considered to be a material factor in the Board’s considerations since the Sub-Advisory Fee is paid by the Manager in the case of Western Asset and by
Western Asset in the case of Western Asset London, not the Fund, although the Board noted the affiliation of the Manager with the Sub-Advisers. The profitability of the Manager and its affiliates was considered by the Board to be reasonable in view
of the nature, extent and quality of services provided to the Fund.
Economies of Scale
The Board received and discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Fund’s assets grow. The Board noted
that because the Fund is a closed-end fund it has limited ability to increase its assets. The Board determined that the management fee structure was appropriate under the circumstances. For similar reasons as stated above with respect to the
Sub-Advisers’ profitability and the costs of the Sub-Advisers’ provision of services, the Board did not consider the potential for economies of scale in the Sub-Advisers’ management of the Fund to be a material factor in the
Board’s consideration of the Sub-Advisory Agreements.
Other Benefits to the Manager and the Sub-Advisers
The Board considered other benefits received by the Manager, the Sub-Advisers and their affiliates as a result of their relationship with the Fund, including the
opportunity to offer
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Board approval of management and subadvisory agreements (unaudited) (cont’d)
additional products and services to the Fund’s shareholders. In view of the costs of providing investment management and other services to the Fund and the ongoing
commitment of the Manager and the Sub-Advisers to the Fund, the Board considered that the ancillary benefits that the Manager and its affiliates, including the Sub-Advisers, were reasonable.
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Western Asset High Income Opportunity Fund Inc. |
Additional information (unaudited)
Information about Directors and Officers
The business and
affairs of Western Asset High Income Opportunity Fund Inc. (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Directors. The business address of each Director is c/o Jane Trust,
Franklin Templeton, 100 International Drive, 11th Floor, Baltimore, Maryland 21202.
Information pertaining to the Directors and officers of the Fund is set forth
below. The Fund’s annual proxy statement includes additional information about Directors and is available, without charge, upon request by calling the Fund at 1-888-777-0102.
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| Independent Directors† |
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| Robert D. Agdern |
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| Year of birth |
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1950 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, and Compliance Liaison, Class I |
| Term of office1 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) |
|
20 |
| Other board memberships held by Director during the past five years |
|
None |
|
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| Carol L. Colman |
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| Year of birth |
|
1946 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit and Compensation Committees, and Chair of Pricing and Valuation Committee, Class I |
| Term of office1 and length of time served |
|
Since 2007 |
| 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) |
|
20 |
| Other board memberships held by Director during the past five years |
|
None |
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| Western Asset High Income Opportunity Fund Inc. |
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53 |
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Additional information
(unaudited) (cont’d)
Information about Directors and Officers
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| Independent Directors† (cont’d) |
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| Daniel P. Cronin |
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| Year of birth |
|
1946 |
| Position(s) held with Fund1 |
|
Director and Member of Audit, Compensation and Pricing and Valuation Committees, and Chair of Nominating Committee, Class I |
| Term of office1 and length of time served |
|
Since 2007 |
| 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) |
|
20 |
| Other board memberships held by Director during the past five years |
|
None |
|
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| Paolo M. Cucchi |
|
|
|
|
| Year of birth |
|
1941 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit, and Pricing and Valuation Committees, and Chair of Compensation Committee, Class II |
| Term of office1 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) |
|
20 |
| Other board memberships held by Director during the past five years |
|
None |
|
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| William R. Hutchinson* |
|
|
|
|
| Year of birth |
|
1942 |
| Position(s) held with Fund1 |
|
Lead Independent Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class III |
| Term of office1 and length of time served |
|
Since 2007 |
| 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) |
|
20 |
| 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) |
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| 54 |
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Western Asset High Income Opportunity Fund Inc. |
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| Independent Directors† (cont’d) |
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| Eileen A. Kamerick** |
|
|
|
|
| Year of birth |
|
1958 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Compensation and Pricing and Valuation Committees, and Chair of Audit Committee, Class II |
| Term of office1 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) and financial expert; Adjunct Professor, Georgetown University Law Center (since 2021); Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor,
Washington University in St. Louis and University of Iowa law schools (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) |
|
20 |
| 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) |
|
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| Nisha Kumar*** |
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| Year of birth |
|
1970 |
| Position(s) held with Fund1 |
|
Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class III |
| Term of office1 and length of time served |
|
Since 2019 |
| Principal occupation(s) during the past five years |
|
Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (since 2011); 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) |
|
20 |
| 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 (2017-2018); and Director of The Asia Tigers Fund, Inc. (2016 to 2018) |
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| Western Asset High Income Opportunity Fund Inc. |
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55 |
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Additional information
(unaudited) (cont’d)
Information about Directors and Officers
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| Interested Director and Officer |
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| Jane Trust, CFA2 |
|
|
|
|
| Year of birth |
|
1962 |
| Position(s) held with Fund1 |
|
Director, Chairman, President and Chief Executive Officer, Class II |
| Term of office1 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 130 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) |
|
130 |
| Other board memberships held by Director during the past five years |
|
None |
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| Additional Officers |
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| Fred Jensen |
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| Franklin Templeton |
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| 280 Park Avenue, 8th Floor, New York, NY 10017 |
|
|
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| Year of birth |
|
1963 |
| Position(s) held with Fund1 |
|
Chief Compliance Officer |
| Term of office1 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) |
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| George P. Hoyt |
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| Franklin Templeton |
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| 100 First Stamford Place, 6th Floor, Stamford, CT 06902 |
|
|
|
|
| Year of birth |
|
1965 |
| Position(s) held with Fund1 |
|
Secretary and Chief Legal Officer |
| Term of office1 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) |
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Western Asset High Income Opportunity Fund Inc. |
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| Additional Officers (cont’d) |
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| Thomas C. Mandia**** |
|
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| Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT
06902 |
|
|
|
|
| Year of birth |
|
1962 |
| Position(s) held with Fund1 |
|
Senior Vice President |
| Term of office1 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) |
|
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| Christopher Berarducci |
|
|
|
|
| Franklin Templeton
280 Park Avenue, 8th Floor, New York, NY
10017 |
|
|
|
|
| Year of birth |
|
1974 |
| Position(s) held with Fund1 |
|
Treasurer and Principal Financial Officer |
| Term of office1 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. |
|
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| Jeanne M. Kelly |
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| Franklin Templeton
280 Park Avenue, 8th Floor, New York, NY
10017 |
|
|
|
|
| Year of birth |
|
1951 |
| Position(s) held with Fund1 |
|
Senior Vice President |
| Term of office1 and length of time served |
|
Since 2007 |
| 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. |
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| Western Asset High Income Opportunity Fund Inc. |
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57 |
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Additional information
(unaudited) (cont’d)
Information about Directors and Officers
| *** |
Effective November 9, 2022, Ms. Kumar became Chair of Audit Committee. |
| **** |
Effective February 10, 2022, Mr. Mandia became a Senior Vice President. |
| 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. |
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| 58 |
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Western Asset High Income Opportunity Fund Inc. |
Annual chief executive officer and principal financial officer
certifications (unaudited)
The Fund’s Chief Executive Officer (“CEO”) has submitted to the NYSE the required
annual certification and the Fund also has included the Certifications of the Fund’s CEO and Principal Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of
this report.
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| Western Asset High Income Opportunity Fund Inc. |
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59 |
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Other shareholder communications regarding accounting matters (unaudited)
The Fund’s Audit Committee has established guidelines and procedures regarding the receipt,
retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, “Accounting Matters”). Persons with complaints or concerns regarding Accounting Matters may submit their complaints
to the Chief Compliance Officer (“CCO”). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit complaints directly to the Fund’s Audit Committee Chair. Complaints may be
submitted on an anonymous basis.
The CCO may be contacted at:
Franklin
Resources Inc.
Compliance Department
280 Park Ave, 8th Floor
New York, NY 10017
Complaints may also be submitted by telephone at 1-800-742-5274.
Complaints submitted through this number will be received by the CCO.
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| 60 |
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Western Asset High Income Opportunity Fund Inc. |
Summary of information regarding the Fund (unaudited)
Investment Objectives
The Fund’s primary
investment objective is high current income and its secondary investment objective is capital appreciation.
Principal Investment Policies
and Strategies
Under normal market conditions, the Fund will invest at least 80% of its net assets plus any borrowings for investment purposes in
high-yield corporate debt securities and preferred stocks and up to 20% in common stock equivalents, including options, warrants and rights. The Fund may invest up to 15% of its assets in corporate loans.
The Fund may invest up to 20% of its total assets in the securities of foreign issuers that are denominated in currencies other than the U.S. dollar and may invest
without limitation in securities of foreign issuers that are denominated in U.S. dollars.
The Fund may use a variety of derivative instruments for investment
purposes as well as for hedging or risk management purposes. These derivative instruments may include futures contracts, forward contracts, credit default swaps, credit default swap index securities, swap agreements and options on such instruments.
As part of its strategies, the Fund may invest in futures contracts; purchase and sell (or write) exchange-listed and over-the-counter put and call options on securities, financial indices and futures contracts; enter into interest rate and currency
transactions; and enter into other similar transactions which may be developed in the future to the extent Western Asset determines that they are consistent with the investment objectives and policies and applicable regulatory requirements. The Fund
may engage in currency exchange transactions and purchase exchange-traded put and call options on foreign currencies. The Fund will conduct its currency exchange transactions either on a spot (i.e., cash) basis at the rate prevailing in the currency
exchange market or by entering into forward contracts to purchase or sell currencies.
The Fund may invest up to 15% of its assets in illiquid securities.
The Fund may make short sales of securities in order to reduce market exposure and/or to increase its income if, at all times when a short position is open, the Fund
owns an equal or greater amount of such securities or owns preferred stock, debt or warrants convertible or exchangeable into an equal or greater number of the shares of the securities sold short. Short sales of this kind are referred to as short
sales “against the box.” The Fund will segregate the securities against which short sales against the box have been made in a special account with its custodian. Not more than 10% of the Fund’s total assets (taken at current value)
may be held as collateral for such sales at any one time.
The Fund may enter into repurchase agreement transactions with certain member banks of the Federal Reserve
System or with certain dealers listed on the Federal Reserve Bank of New York’s list of reporting dealers. The Fund may purchase securities on a when-issued
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61 |
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Summary of information regarding the Fund (unaudited) (cont’d)
basis or for delayed delivery in accordance with applicable law. The Fund will not accrue income with respect to a when-issued or delayed delivery security prior to its
stated delivery date. The Fund may invest in dollar rolls, asset-backed securities and mortgage-backed securities.
The Fund may invest in zero coupon, pay-in-kind
and delayed interest securities as well as custodial receipts or certificates underwritten by securities dealers or banks that evidence ownership of future interest payments, principal payments or both on certain U.S. government securities.
The Fund is authorized to lend securities it holds to brokers, dealers and other financial organizations in accordance with applicable law. The amount of such loans, if
and when made, may not exceed 20% of the value of the Fund’s assets.
Money market instruments that the Fund may acquire will be securities rated in the two
highest short-term rating categories by Moody’s Investors Service, Inc. (“Moody’s”) or Standard & Poor’s Ratings Service (“S&P”) or the equivalent of such rating categories by another major rating
service, or comparable unrated securities. If, in Western Asset’s judgment, conditions in the securities markets would make pursuing the basic investment strategy inconsistent with the stockholders’ best interests, the investment manager
may employ alternative strategies, including investment of all of the Fund’s assets in securities rated investment grade by any nationally recognized statistical rating organization.
Principal Risk Factors
There is no assurance
that the Fund will meet its investment objectives. You may lose money on your investment in the Fund. The value of the Fund’s shares may go up or down, sometimes rapidly and unpredictably. Market conditions, financial conditions of issuers
represented in the Fund’s portfolio, investment strategies, portfolio management, and other factors affect the volatility of the Fund’s shares. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency.
Investment and Market Risk. An investment in the Fund is subject to investment risk,
including the possible loss of the entire amount that you invest. Your investment in the common shares of beneficial interest, par value $0.001 per share (the “Common Shares”) represents an indirect investment in the fixed income
securities and other investments owned by the Fund, most of which could be purchased directly. The value of the Fund’s portfolio securities may move up or down, sometimes rapidly and unpredictably. At any point in time, your Common Shares may
be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
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| 62 |
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Western Asset High Income Opportunity Fund Inc. |
Fixed Income Securities Risk. In addition to
the risks described elsewhere in this section with respect to valuations and liquidity, fixed income securities, including high-yield securities, are also subject to certain risks, including:
· Issuer Risk. The value of
fixed income securities may decline for a number of reasons that directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods and services.
· Interest Rate Risk. The
market price of the Fund’s investments will change in response to changes in interest rates and other factors. During periods of declining interest rates, the market price of fixed income securities generally rises. Conversely, during periods
of rising interest rates, the market price of such securities generally declines. The magnitude of these fluctuations in the market price of fixed income securities is generally greater for securities with longer maturities. Fluctuations in the
market price of the Fund’s securities will not affect interest income derived from securities already owned by the Fund, but will be reflected in the Fund’s net asset value. The Fund may utilize certain strategies, including investments in
structured notes or interest rate swap or cap transactions, for the purpose of reducing the interest rate sensitivity of the portfolio and decreasing the Fund’s exposure to interest rate risk, although there is no assurance that it will do so
or that such strategies will be successful.
· Prepayment Risk. During
periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the Fund to reinvest the proceeds from such prepayment in lower yielding securities, which may result in a
decline in the Fund’s income and distributions to stockholders. This is known as prepayment or “call” risk. Debt securities frequently have call features that allow the issuer to redeem the security at dates prior to its stated
maturity at a specified price (typically greater than par) only if certain prescribed conditions are met. An issuer may choose to redeem a debt security if, for example, the issuer can refinance the debt at a lower cost due to declining interest
rates or an improvement in the credit standing of the issuer.
· Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called fixed income
securities at market interest rates that are below the portfolio’s current earnings rate. A decline in income could affect the Fund’s Common Shares price or its overall return.
· Credit risk. If an issuer
or guarantor of a security held by the Fund or a counterparty to a financial contract with the Fund defaults or its credit is downgraded, or is perceived to be less creditworthy, or if the value of the assets underlying a security declines, the
value of your investment will typically decline. Changes in actual or perceived creditworthiness may occur quickly. The Fund could be delayed or hindered in its enforcement of rights against an issuer, guarantor or counterparty. Subordinated
securities are more likely to suffer a credit
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Summary of information regarding the Fund (unaudited) (cont’d)
loss than non-subordinated securities of the same issuer and will be disproportionately affected by a default, downgrade or perceived decline in creditworthiness.
Liquidity Risk. The Fund may invest in illiquid securities. Illiquid securities are securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the value at which the Fund has valued the securities. Liquidity risk exists when particular investments are difficult to sell. Securities may become illiquid after purchase by the Fund, particularly during periods of
market turmoil. When the Fund holds illiquid investments, the portfolio may be harder to value, especially in changing markets, and if the Fund is forced to sell these investments in order to segregate assets or for other cash needs, the Fund may
suffer a loss.
Below Investment Grade (High-Yield or Junk) Securities Risk. The Fund may invest in high-yield debt securities. High yield debt securities are
generally subject to greater credit risks than higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt securities are considered speculative, typically have lower liquidity and are more
difficult to value than higher grade bonds. High yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative sentiments and may be difficult to sell at a desired price, or at all, during periods
of uncertainty or market turmoil.
Foreign Securities and Emerging Markets Risk. A fund that invests in foreign (non-U.S.) securities may experience more
rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively small, with a limited number of companies representing a small number of
industries. Investments in foreign securities (including those denominated in U.S. dollars) are subject to economic and political developments in the countries and regions where the issuers operate or are domiciled, or where the securities are
traded, such as changes in economic or monetary policies. Values may also be affected by restrictions on receiving the investment proceeds from a foreign country. Less information may be publicly available about foreign companies than about U.S.
companies. Foreign companies are generally not subject to the same accounting, auditing and financial reporting standards as are U.S. companies. In addition, the Fund’s investments in foreign securities may be subject to the risk of
nationalization or expropriation of assets, imposition of currency exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial instability and adverse diplomatic developments. In addition,
there may be difficulty in obtaining or enforcing a court judgment abroad. Dividends or interest on, or proceeds from the sale of, foreign securities may be subject to non-U.S. withholding taxes, and special U.S. tax considerations may apply.
The risks of foreign investment are greater for investments in emerging markets. The Fund considers a country to be an emerging market country if, at the time of
investment, it is
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Western Asset High Income Opportunity Fund Inc. |
represented in the J.P. Morgan Emerging Markets Bond
Index Global or categorized by the World Bank in its annual categorization as middle or low-income. Emerging market countries typically have economic and political systems that are less fully developed, and that can be expected to be less stable,
than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in price volatility. Emerging market countries may have policies that restrict investment by foreigners, that require governmental approval prior to
investments by foreign persons, or that prevent foreign investors from withdrawing their money at will. An investment in emerging market securities should be considered speculative.
Non-U.S. Government, or Sovereign, Debt Securities Risk. The Fund invests in non-U.S. government, or sovereign, debt securities. Non-U.S. government, or
sovereign, debt securities involve many of the risks of foreign and emerging markets investments as well as the risk of debt moratorium, repudiation or renegotiation, and the Fund may be unable to enforce its rights against the issuers. Sovereign
debt risk is increased for emerging market issuers.
Currency Risk. The value of investments in securities denominated in foreign currencies increases or
decreases as the rates of exchange between those currencies and the U.S. dollar change. Currency conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and are
affected by factors such as general economic conditions, the actions of the U.S. and foreign governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge its foreign currency
exposure.
U.S. Government Debt Securities Risk. Although the U.S. government guarantees principal and interest payments on securities issued by the U.S.
government and some of its agencies, such as securities issued by the Government National Mortgage Association, this guarantee does not apply to losses resulting from declines in the market value of these securities.
Derivatives Risk. The Fund may utilize a variety of derivative instruments such as options, floors, caps and collars, futures contracts, forward contracts,
options on futures contracts and indexed securities. Using derivatives can increase Fund losses and reduce opportunities for gains when market prices, interest rates, currencies, or the derivatives themselves behave in a way not anticipated by the
Fund. Using derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment. Derivatives may not be available at the time or
price desired, may be difficult to sell, unwind or value, and the counterparty may default on its obligations to the Fund. Derivatives are generally subject to the risks applicable to the assets, rates, indices or other indicators underlying the
derivative. The value of a derivative may fluctuate more than the underlying assets, rates, indices or other indicators to which it
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| Western Asset High Income Opportunity Fund Inc. |
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Summary of information regarding the Fund (unaudited) (cont’d)
relates. Use of derivatives may have different tax consequences for the Fund than an investment in the underlying security, and those differences may affect the amount,
timing and character of income distributed to shareholders. The U.S. government and foreign governments are in the process of adopting and implementing regulations governing derivatives markets, including mandatory clearing of certain derivatives,
margin and reporting requirements. The ultimate impact of the regulations remains unclear. Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or
disrupt markets.
Credit default swap contracts involve heightened risks and may result in losses to the Fund. Credit default swaps may be illiquid and difficult to
value. When the Fund sells credit protection via a credit default swap, credit risk increases since the Fund has exposure to both the issuer whose credit is the subject of the swap and the counterparty to the swap.
Inflation/Deflation Risk. Inflation risk is the risk that the value of certain assets or income from the Fund’s investments will be worth less in the future
as inflation decreases the value of money. As inflation increases, the real value of the Fund’s Common Shares and distributions on the Fund’s Common Shares can decline. Deflation risk is the risk that prices throughout the economy decline
over time—the opposite of inflation. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer defaults more likely, which may result in a decline in the value of the Fund’s portfolio.
When-Issued and Delayed-Delivery Transactions Risk. The Fund may purchase fixed income securities on a when-issued basis, and may purchase or sell those
securities for delayed delivery. When-issued and delayed-delivery transactions occur when securities are purchased or sold by the Fund with payment and delivery taking place in the future to secure an advantageous yield or price. Securities
purchased on a when-issued or delayed-delivery basis may expose the Fund to counterparty risk of default as well as the risk that securities may experience fluctuations in value prior to their actual delivery. The Fund will not accrue income with
respect to a when-issued or delayed-delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed-delivery basis can involve the additional risk that the price or yield available in the market when the
delivery takes place may not be as favorable as that obtained in the transaction itself.
Market Events Risk. The market values of securities or other assets
will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market
disruptions caused by trade disputes or other factors, political developments, investor sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security or other asset.
Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements,
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Western Asset High Income Opportunity Fund Inc. |
public health events, terrorism, natural disasters
and other circumstances in one country or region could have profound impacts on global economies or markets. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to the countries directly
affected, the value and liquidity of the Fund’s investments may be negatively affected.
The rapid and global spread of a highly contagious novel coronavirus
respiratory disease, designated COVID-19, first detected in China in December 2019, has resulted in extreme volatility in the financial markets and severe losses; reduced liquidity of many instruments; restrictions on international and, in some
cases, local travel, significant disruptions to business operations (including business closures); strained healthcare systems; disruptions to supply chains, consumer demand and employee availability; and widespread uncertainty regarding the
duration and long-term effects of this pandemic. Some sectors of the economy and individual issuers have experienced particularly large losses. In addition, the COVID-19 pandemic may result in a sustained economic downturn or a global recession,
domestic and foreign political and social instability, damage to diplomatic and international trade relations and increased volatility and/or decreased liquidity in the securities markets. The ultimate economic fallout from the pandemic, and the
long-term impact on economies, markets, industries and individual issuers, are not known. Certain risks, such as interest rate risk, credit risk, liquidity risk and counterparty risk, may be heightened as a result of such market events. The U.S.
government and the Federal Reserve, as well as certain foreign governments and central banks, are taking extraordinary actions to support local and global economies and the financial markets in response to the COVID-19 pandemic, including by pushing
interest rates to very low levels. This and other government intervention into the economy and financial markets to address the COVID-19 pandemic may not work as intended, particularly if the efforts are perceived by investors as being unlikely to
achieve the desired results. The COVID-19 pandemic could adversely affect the value and liquidity of the Fund’s investments and negatively impact the Fund’s performance. In addition, the outbreak of COVID-19, and measures taken to mitigate
its effects, could result in disruptions to the services provided to the Fund by its service providers.
Credit Crisis Liquidity and Volatility Risk. The
markets for credit instruments, including fixed income securities, have experienced periods of extreme illiquidity and volatility. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in
turn have also resulted in significant valuation uncertainties in a variety of debt securities, including certain fixed income securities. These conditions resulted, and in many cases continue to result in greater volatility, less liquidity,
widening credit spreads and a lack of price transparency, with many debt securities remaining illiquid and of uncertain value. During times of reduced market liquidity, the Fund may not be able to sell securities readily at prices reflecting the
values at which the securities are carried on the Fund’s books. Sales of large blocks of securities by market participants, such as the
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Summary of information regarding the Fund (unaudited) (cont’d)
Fund, that are seeking liquidity can further reduce security prices in an illiquid market. These market conditions may make valuation of some of the Fund’s
securities uncertain and/or result in sudden and significant valuation increases or decreases in its holdings. Illiquidity and volatility in the credit markets may directly and adversely affect the setting of dividend rates on the Common Shares.
LIBOR Risk. The Fund’s investments, payment obligations, and financing terms may be based on floating rates, such as the London Interbank Offered Rate,
or “LIBOR,” which is the offered rate for short-term Eurodollar deposits between major international banks. In 2017, the U.K. Financial Conduct Authority (“FCA”) announced its intention to cease compelling banks to provide the
quotations needed to sustain LIBOR after 2021. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of most LIBOR settings on a representative basis at the end of 2021 and is expected to cease publication of a majority of
U.S. dollar LIBOR settings on a representative basis after June 30, 2023. In addition, global regulators have announced that, with limited exceptions, no new LIBOR-based contracts should be entered into beginning in 2022. Actions by regulators
have resulted in the establishment of alternative reference rates to LIBOR in most major currencies. Various financial industry groups have been planning for the transition away from LIBOR, but there remains uncertainty regarding the nature of any
replacement rate and the impact of the transition from LIBOR on the Fund’s transactions and the financial markets generally. The transition away from LIBOR may lead to increased volatility and illiquidity in markets that rely on LIBOR and may
adversely affect the Fund’s performance. The transition may also result in a reduction in the value of certain LIBOR-based investments held by the Fund or reduce the effectiveness of related transactions such as hedges. Any such effects of the
transition away from LIBOR, as well as other unforeseen effects, could result in losses for the Fund. Since the usefulness of LIBOR as a benchmark could also deteriorate during the transition period, effects could occur at any time.
Portfolio Turnover Risk. Changes to the investments of the Fund may be made regardless of the length of time particular investments have been held. A high
portfolio turnover rate may result in increased transaction costs for the Fund in the form of increased dealer spreads and other transactional costs, which may have an adverse impact on the Fund’s performance. In addition, high portfolio
turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to stockholders, will be taxable as ordinary income. A high portfolio turnover may increase the Fund’s current and accumulated earnings
and profits, resulting in a greater portion of the Fund’s distributions being treated as a dividend to the Fund’s stockholders. The portfolio turnover rate of the Fund will vary from year to year, as well as within a given year.
Temporary Defensive Strategies Risk. When Western Asset anticipates unusual market or other conditions, the Fund may temporarily depart from its principal
investment strategies
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Western Asset High Income Opportunity Fund Inc. |
as a defensive measure and invest all or a portion
of its assets in obligations of the U.S. government, its agencies or instrumentalities; other investment grade debt securities; investment grade commercial paper; certificates of deposit and bankers’ acceptances; repurchase agreements with
respect to any of the foregoing investments or any other fixed income securities that Western Asset considers consistent with this strategy. To the extent that the Fund invests defensively, it may not achieve its investment objectives.
Market Price Discount from Net Asset Value Risk. Shares of closed-end investment companies frequently trade at a discount from their net asset value. This risk is
separate and distinct from the risk that the Fund’s net asset value could decrease as a result of its investment activities and may be a greater risk to investors expecting to sell their Common Shares in a relatively short period. Whether
investors will realize gains or losses upon the sale of Common Shares will depend not upon the Fund’s net asset value but upon whether the market price of Common Shares at the time of sale is above or below the investor’s purchase price
for Common Shares. Because the market price of Common Shares will be determined by factors such as relative supply of and demand for Common Shares in the market, general market and economic conditions and other factors beyond the control of the
Fund, the Fund cannot predict whether the Common Shares will trade at, above or below net asset value. The Common Shares are designed primarily for long-term investors and you should not view the Fund as a vehicle for trading purposes.
Anti-Takeover Provisions Risk. The Fund’s Charter and Bylaws include provisions that are designed to limit the ability of other entities or persons to
acquire control of the Fund for short-term objectives, including by converting the Fund to open-end status or changing the composition of the Board, that may be detrimental to the Fund’s ability to achieve its primary investment objective of
seeking high current income. Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Fund. There can be no assurance,
however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term shareholders.
Potential Conflicts of Interest Risk. LMPFA, Western Asset, Western Asset Management Company Limited (“Western Asset Limited” and together with LMPFA
and Western Asset, the “Managers”) and the Fund’s investment professionals have interests which may conflict with the interests of the Fund. In particular, the Managers also manage other closed-end funds listed on the NYSE that have
investment objectives and investment strategies that are substantially similar to the Fund. Further, the Managers may at some time in the future manage and/or advise other investment funds or accounts with the same investment objective and
strategies as the Fund. As a result, the Managers and the Fund’s investment professionals may devote unequal time and attention to the management of the Fund and
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Summary of information regarding the Fund (unaudited) (cont’d)
those other funds and accounts, and may not be able to formulate as complete a strategy or identify equally attractive investment opportunities as might be the case if
they were to devote substantially more attention to the management of the Fund. The Managers and the Fund’s investment professionals may identify a limited investment opportunity that may be suitable for multiple funds and accounts, and the
opportunity may be allocated among these several funds and accounts, which may limit the Fund’s ability to take full advantage of the investment opportunity. Additionally, transaction orders may be aggregated for multiple accounts for purpose
of execution, which may cause the price or brokerage costs to be less favorable to the Fund than if similar transactions were not being executed concurrently for other accounts. At times, an investment professional may determine that an investment
opportunity may be appropriate for only some accounts for which he or she exercises investment responsibility, or may decide that certain accounts should take differing positions with respect to a particular security. In these cases, the investment
professional may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and accounts. For
example, an investment professional may determine that it would be in the interest of another account to sell a security that the Fund holds, potentially resulting in a decrease in the market value of the security held by the Fund.
Operational Risk. The valuation of the Fund’s investments may be negatively impacted because of the operational risks arising from factors such as processing
errors and human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel, and errors caused by third party service providers or trading counterparties. It is not possible to identify all
of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate or mitigate the occurrence of such failures. The Fund and its shareholders could be negatively impacted as a result.
Cybersecurity Risk. Cybersecurity incidents, both intentional and unintentional, may allow an unauthorized party to gain access to Fund assets, Fund or
proprietary information, cause the Fund, LMPFA or the subadvisers and/or their service providers to suffer data breaches, data corruption or loss of operational functionality or prevent Fund investors from purchasing, redeeming or exchanging shares
or receiving distributions. The Fund, LMPFA, and the subadvisers have limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such third party service providers may have limited indemnification
obligations to the Fund or LMPFA. Cybersecurity incidents may result in financial losses to the Fund and its shareholders, and substantial costs may be incurred in an effort to prevent or mitigate future cybersecurity incidents. Issuers of
securities in which the Fund invests are also subject to cybersecurity risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
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More Information
For a complete list of the Fund’s fundamental investment restrictions and more detailed descriptions of the Fund’s investment policies,
strategies and risks, see the Fund’s registration statement on Form N-14 that was declared effective by the SEC on May 24, 2016. The Fund’s fundamental investment restrictions may not be changed without the approval of the holders of
a majority of the outstanding voting securities, as defined in the 1940 Act.
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71 |
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Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and return of capital distributions, on your
Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the “Plan Agent”), in additional shares of Common Stock under the Fund’s Dividend Reinvestment Plan (the
“Plan”). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare Trust Company, N.A., as dividend
paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date is not a NYSE trading
day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal to the greater of
(a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close of
trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day
following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders;
except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the
Common Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases,
the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the
day prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Stock in your account will be held by the
Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite
1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date;
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Western Asset High Income Opportunity Fund Inc. |
otherwise such withdrawal will be effective as soon
as practicable after the Plan Agent’s investment of the most recently declared dividend or distribution on the Common Stock.
Plan participants who sell their
shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is authorized to deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for
reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions
will be automatically reinvested in additional shares of Common Stock, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for
lowering the average cost per share over time if the Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors
will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of
Directors, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund
for which the termination or amendment is to be effective. Upon any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan
Agent sell part or all of your Common Stock on your behalf. Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at
1-888-888-0151.
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Important tax information (unaudited)
By mid-February, tax information related to a shareholder’s proportionate share of distributions paid during the preceding calendar year will be received, if
applicable. Please also refer to www.franklintempleton.com for per share tax information related to any distributions paid during the preceding calendar year. Shareholders are advised to consult with their tax advisors for further information on the
treatment of these amounts on their tax returns.
The following tax information for the Fund is required to be furnished to shareholders with respect to income
earned and distributions paid during its fiscal year.
The Fund hereby reports the following amounts, or if subsequently determined to be different, the maximum
allowable amounts, for the fiscal year ended September 30, 2022:
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Pursuant to: |
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Amount Reported |
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| Income Eligible for Dividends Received Deduction (DRD) |
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§854(b)(1)(A) |
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$81,902 |
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| Qualified Dividend Income Earned (QDI) |
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§854(b)(1)(B) |
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$81,902 |
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| Qualified Net Interest Income (QII) |
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§871(k)(1)(C) |
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$18,909,148 |
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| Section 163(j) Interest Earned |
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§163(j) |
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$35,318,442 |
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Western Asset High Income Opportunity Fund Inc. |
Western Asset
High Income Opportunity Fund Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson*
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Fred Jensen
Chief Compliance Officer
George P. Hoyt
Secretary and Chief Legal Officer
Thomas C. Mandia**
Senior Vice President
Jeanne M. Kelly
Senior Vice President
| * |
Mr. Hutchinson served as a Director until his passing on October 28, 2022. |
| ** |
Effective February 10, 2022, Mr. Mandia became a Senior Vice President. |
Western Asset High Income Opportunity Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadvisers
Western Asset Management Company, LLC
Western Asset Management Company
Limited
Custodian
The Bank of New York
Mellon
Transfer agent
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
Independent registered public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett
LLP
900 G Street NW
Washington, DC 20001
New York Stock Exchange Symbol
HIO
Legg Mason Funds Privacy and Security Notice
Legg Your Privacy Mason Funds and the Security of Your Personal
Information is Very Important to the
This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and
data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include the Western Asset Money Market Funds sold by the Funds’ distributor, Franklin Distributors, LLC, as well as Legg
Mason-sponsored closed-end funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your
shareholder account. Such information may include, but is not limited to:
| • |
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Personal information included on applications or other forms; |
| • |
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Account balances, transactions, and mutual fund holdings and positions; |
| • |
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Bank account information, legal documents, and identity verification documentation; and |
| • |
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Online account access user IDs, passwords, security challenge question responses. |
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, unless you have authorized the
Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you
to:
| • |
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Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or
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; |
| • |
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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; |
| • |
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Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
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| NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf,
including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to
perform.
The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or
required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to
disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain
unchanged.
Keeping You Informed of the Funds’ Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time, they will
notify you promptly if this privacy policy changes.
The Funds’ Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds’ internal data
security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them,
and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented
to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is
incomplete, not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by
clicking on the Contact Us section of the Funds’ website at www.franklintempleton.com, or contact the Funds at 1-877-721-1926 for the Western Asset Money Market Funds or 1-888-777-0102 for the Legg Mason-sponsored closed-end funds.
Revised October 2022
|
| NOT PART OF THE ANNUAL REPORT |
Legg Mason Funds Privacy and Security Notice (cont’d)
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is “nonpublic personal information” subject to federal law, residents of California may, in certain
circumstances, have additional rights under the California Consumer Privacy Act (“CCPA”). For example, if you are a broker, dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the account of any other person(s)
or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your personal information (as defined
by the CCPA).
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces
of personal information we have collected about you.
You also have the right to request the deletion of the personal information collected or maintained by the
Funds.
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth
below. The rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described
below. We do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a request
on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or other
applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an agent if
suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this Privacy Policy, the Legg Mason Funds have not sold any of your
personal information; nor do we have any plans to do so in the future.
Contact Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone:
1-800-396-4748
Revised October 2022
|
| NOT PART OF THE ANNUAL REPORT |
Western Asset High Income Opportunity Fund Inc.
Western Asset High Income Opportunity Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market
prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first
and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at
1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a
description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.franklintempleton.com
and (3) on the SEC’s website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding
the Fund may be found on Franklin Templeton’s website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s website in this report is intended to allow investors public access to information regarding
the Fund and does not, and is not intended to, incorporate Franklin Templeton’s website in this report.
This report is transmitted to the shareholders of
Western Asset High Income Opportunity Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
WASX010408 11/22 SR22-4524