UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number
811-22444
Western Asset High Yield Defined Opportunity Fund
Inc.
(Exact name of registrant as specified in charter)
620 Eighth Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Marc A. De Oliveira.
Franklin Templeton
100 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant’s telephone number, including area
code:
1-888-777-0102
Date of fiscal year end: May 31
Date of reporting period: May 31, 2024
| ITEM
1. | REPORT
TO STOCKHOLDERS. |
The Annual Report to Stockholders is filed
herewith.
Annual Report
May 31, 2024
WESTERN ASSET
HIGH YIELD DEFINED OPPORTUNITY FUND INC. (HYI)
Fund objectives
The Fund’s primary investment objective is to provide high income. As a secondary investment objective, the Fund will seek capital appreciation.
The Fund seeks to achieve its investment objectives by investing, under normal market
conditions, at least 80% of its net assets in a portfolio of high-yield corporate
fixed-income securities with varying maturities. Corporate securities include those securities
that are issued or originated by U.S. or foreign public or private corporations and other business
entities.
The Fund has a limited term and as a fundamental policy intends to liquidate and distribute
substantially all of its net assets to stockholders after making appropriate provisions
for any liabilities of the Fund on or about September 30, 2025.
Western Asset High Yield Defined Opportunity Fund Inc.
Dear Shareholder,
We are pleased to provide the annual report of Western Asset High Yield Defined Opportunity Fund Inc. for the twelve-month reporting period ended May 31, 2024. 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.
Special Shareholder Notice
Effective March 1, 2024, the named portfolio management team responsible for the day-to-day oversight of the Fund became as follows: Michael C. Buchanan, Walter Kilcullen and
Christopher F. Kilpatrick.
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:
•
Fund prices and performance,
•
Market insights and commentaries from our portfolio managers, and
•
A host of educational resources.
We look forward to helping you meet your financial goals.
Jane Trust, CFA
Chairman, President and Chief Executive Officer
Western Asset High Yield Defined Opportunity Fund Inc.
(This page intentionally left blank.)
Q. What is the Fund’s investment strategy?
A. The Fund’s primary investment objective is to provide high income. As a secondary investment objective, the Fund will seek capital appreciation. We believe the extensive
credit research and security selection expertise of Western Asset Management Company,
LLC (Western Asset), the Fund’s subadviser, will be key factors in driving Fund performance.
The Fund seeks to achieve its investment objectives by investing, under normal market
conditions, at least 80% of its net assets in a portfolio of high-yield corporate
fixed income securities with varying maturities. Currently, the Fund focuses on lower-quality and
higher-yielding opportunities in the below investment grade corporate debt markets. Under normal
market conditions, the Fund may also invest up to 20% of its net assets in fixed income
securities issued by U.S. or foreign governments, agencies and instrumentalities and/or
fixed income securities that are of investment grade quality. The Fund has a limited
term and as a fundamental policy intends to liquidate and distribute substantially all
of its net assets to stockholders after making appropriate provisions for any liabilities of
the Fund on or about September 30, 2025.
In purchasing securities and other investments for the Fund, Western Asset may take
full advantage of the entire range of maturities offered by fixed income securities and
may adjust the average maturity or duration of the Fund’s portfolio from time to time, depending on its assessment of the relative yields available on securities of different durations
and its expectations of future changes in interest rates. The Fund is also permitted purchases
of equity securities (including but not limited to common stock, preferred stock, convertible
securities, warrants of U.S. and non-U.S. issuers). The Fund may utilize a variety
of derivative instruments primarily for hedging and risk management purposes, although
the Fund may also use derivative instruments for investment purposes.
At Western Asset, 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 Michael C. Buchanan, Walter Kilcullen and Christopher F. Kilpatrick.
Q. What were the overall market conditions during the Fund’s reporting period?
A. The fixed income market experienced periods of elevated volatility but modestly rose
during the twelve months ended May 31, 2024. The market was impacted by several factors, including initial fears of an economic recession, persistent inflation, and
shifting expectations for U.S. Federal Reserve (Fed) monetary policy. The market ended 2023
on a positive note, as the Fed indicated it would likely pivot from raising rates to cutting
rates in 2024. However, since July 2023, the Fed has kept rates at a 22-year high and has
taken a
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
measured approach, which has pushed back expectations for the timing of rate cuts.
At the same time, there were signs that the central bank would orchestrate a “soft landing” for the economy.
Both short- and longer-term U.S. Treasury yields rose during the reporting period.
Two-year yields began the reporting period at 4.40% and ended at 4.89%. Their low of 4.14%
was on January 12, 2024, and their peak of 5.19% occurred on October 17 and 18, 2023. Ten-year
yields began the reporting period at 3.64%, the lowest for the reporting period, and
ended the reporting period at 4.51%. Their peak of 4.98% occurred on October 19, 2023.
For the twelve months ended May 31, 2024, the Bloomberg U.S. Aggregate Indexi returned 1.31%. Riskier fixed-income securities, including high-yield bonds and emerging market
debt, produced significantly better results. For the reporting period, the Bloomberg
U.S. Corporate High Yield — 2% Issuer Cap Indexii and the JPMorgan Emerging Markets Bond Index Global (EMBI Global)iii returned 11.23% and 9.71%, respectively.
Q. How did we respond to these changing market conditions?
A. A number of changes were made to the portfolio during the reporting period. We increased our opportunistic allocation to senior secured bank loans given their relatively
high carry, or yield, compared with fixed-rate assets. In addition, we added more
secured exposure while reducing unsecured fixed-rate exposure. We also trimmed our allocations
to several emerging market overweight positions that had performed well.
From a sector perspective, we marginally reduced the Fund’s overweight to energy issuers. We increased our exposure to health care, given improving valuations, in our view.
From a quality ratings perspective, we maintained our higher quality bias. We are approaching
the end of the term trust period for the Fund, and higher-quality issuers tend to be more
liquid. We maintained an overweight in BB and investment-grade-rated bonds and an underweight
to bonds rated CCC and below.
For the twelve months ended May 31, 2024, Western Asset High Yield Defined Opportunity
Fund Inc. returned 8.91% based on its net asset value (NAV)iv and 10.24% based on its New York Stock Exchange (NYSE) market price per share. The Fund’s unmanaged benchmarks, the Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index B Componentv, the Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index Caa Componentvi and the Composite Indexvii, returned 11.30%, 14.81% and 12.72%, respectively, for the same period.
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.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
During the twelve-month period, the Fund made distributions to shareholders totaling
$1.14 per share of which $0.14 will be treated as 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 May 31, 2024. Past performance is no guarantee of future results.
Performance Snapshot as of May 31, 2024
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All figures represent past performance and are not a guarantee of future results.
** Total returns are based on changes in NAV or market price, respectively. 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. Within our developed market, high-yield allocation, several positions were rewarded
during the reporting period. The Fund’s front-end positioning (securities with a near-term maturity) in a stressed communications company, EchoStar Corp., helped results. EchoStar
is pursuing a liability management exercise (LME), which is a strategy for managing
debt. We felt the company had liquidity, as well as other options to satisfy the bond’s near-term maturity. We had an overweight allocation to the maturity of a March 2024 Dish Network
Corp. (owned by EchoStar) bond, which was paid at par plus accrued interest during
the reporting period. Issuers in the transportation space also posted positive fundamental results. At the same time, rating agency actions shifted to generally
positive during the reporting period.
Examples of the Fund’s top-performing, overweight positions included: Norwegian Cruise Lines (NCL Corp. Ltd.), aircraft leasing company Global Aircraft Leasing Co., and
Carnival Corp. Consumer-facing issuer overweight positions that outperformed for the Fund included
private prison operator CoreCivic Inc. (CXW) and the European parking lot operator
Apcoa Parking Holdings Gmbh. Both posted positive fundamental performance. In addition,
CXW was able to access the capital markets to further extend their maturity profile.
The Fund’s allocation to emerging markets also was beneficial. An overweight to Brazilian sovereign province Povincia De Cordoba was rewarded as the bond’s spread tightened during the reporting period. In the emerging market energy sector, commodity prices
*
For the tax character of distributions paid during the fiscal year ended May 31, 2023,
please refer to page 43 of this report.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
remained elevated due to geopolitical concerns and supply and demand dynamics. The
Fund’s overweight positions that performed well were Argentina’s YPF SA., Brazil’s Petrobras Global Finance BV, and Columbian energy company Ecopetrol. Additionally,
in emerging markets, the Fund’s overweight exposure to Mexican local sovereign debt performed well. Given heightened geopolitical uncertainty, manufacturing may shift
away from China, which could benefit Mexico over the longer term, in our view.
The Fund’s overweight to secured bank loans also outperformed during the reporting period. Examples of positive contributors were technology company Redstone Holdco 2 LP, transportation company United Airlines, Inc. and gaming operator Caesars Entertainment,
Inc.
Among the Fund’s allocation to investment-grade rated corporate debt, a handful of overweight positions were additive to returns. Outperformers included energy issuers
Western Midstream Operating LP and Energy Transfer LP. Additionally, food and beverage
issuer Pilgrim’s Pride performed well and its rating was upgraded by Moody’s Investor Services in September 2023.
Q. What were the leading detractors from performance?
A. The largest detractor from the Fund’s relative performance was our higher quality bias relative to the Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index. While the Fund posted a gross positive return of about 10%, we were not able to keep up with the
material CCC and below rated allocation of the custom benchmark. As a result, an overweight
allocation in investment-grade and BB rated credits detracted from results. During
the reporting period, issuers that were higher levered and had higher beta (risk) performed
better. As previously mentioned, we are nearing the end of the Fund’s term trust and are scheduled to liquidate in 2025. Given the upcoming potential liquidation, we felt
it was prudent to favor more liquid issuers.
Except for Dish Network Corp., which outperformed, issuers that either engaged in
or were rumored to be contemplating an LME generally underperformed over the reporting period.
Overweight allocations to global packaging company Ardagh and French wireless and
cable service provider SFR (Altice France SA) were examples of such underperformers.
Within the Fund’s bank loan allocation, two issuer overweight positions were marginal detractors from Fund performance. An overweight allocation to secured debt of radio
station operator iHeart Communications, Inc. detracted from returns. The company posted
fundamental results that were roughly in-line with expectations, but management gave
a downbeat outlook for the second half of 2024, which caught the market off guard. However,
we believed iHeart Communications was positioned to benefit from the upcoming political
advertising season. An overweight allocation to Weight Watchers International, Inc.
secured loans was a small detractor. The company’s lead shareholder, Oprah Winfrey, stepped down as a member of the board of directors citing a “conflict of interest.” Weight Watchers also posted disappointing fundamental results during the reporting period.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Overall, our emerging market positions performed very well during the reporting period.
We avoided dozens of Chinese property companies that have defaulted over the past several
years. However, we had a small overweight in a formerly higher quality Chinese property
operator called Country Garden Holdings Co. that detracted from returns.
Looking for additional information?
The Fund is traded under the symbol “HYI” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol
“XHYIX” 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 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 the Western Asset High Yield Defined 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.
Western Asset Management Company, LLC
RISKS: The Fund is a non-diversified, limited term, 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 objective.
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. Because the Fund is non-diversified, it may be more susceptible to
economic, political or regulatory events than a diversified fund. The Fund’s investments are subject to a number of risks, including credit risk, inflation risk and interest rate risk. As
interest rates rise, bond prices fall, reducing the value of the Fund’s share price. The Fund may invest in lower-rated high yield bonds, commonly known as “junk bonds,” which are subject to greater liquidity and credit risk (risk of default) than higher-rated obligations. The Fund is also permitted
purchases of equity securities. Equity securities generally have greater price volatility than
fixed income securities. Investments in foreign securities involve risks, including the possibility
of losses due to changes in currency exchange rates and negative developments in the political,
economic, or regulatory structure of specific countries or regions. These risks are greater 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
make
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
significant investments in derivative instruments. Derivative instruments can be illiquid,
may disproportionately increase losses, and may have a potentially large impact on Fund
performance. The Fund may invest in securities or engage in transactions that have
the economic effects of leverage which can increase the risk and volatility of the Fund. 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, armed
conflicts, economic sanctions and countermeasures in response to sanctions, major cybersecurity
events, 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. 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 May 31, 2024, and are subject to change
and may not be representative of the portfolio managers’ current or future investments. Please refer to pages 11 through 27 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 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 May 31, 2024, were: consumer discretionary (24.6%), energy (13.1%), communication services (12.9%),
industrials (12.0%) and financials (10.2%). 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.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
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 Barclays 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 (EMBI 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
The Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index B Component is an index of the 2% Issuer Cap component of the Bloomberg U.S. Corporate High Yield Index and is comprised of B-rated
securities included in this index.
vi
The Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index Caa Component is an index of the 2% Issuer Cap component of the Bloomberg U.S. Corporate High Yield Index and is comprised of Caa-rated
securities included in this index.
vii
The Composite Index reflects the blended rate of return of the following underlying
and unmanaged indices: 60% the Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index B Component and 40% the Bloomberg U.S. Corporate High Yield—2% Issuer Cap Index Caa Component.
Important data provider notices and terms available at www.franklintempletondatasources.com.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 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 May 31, 2024 and May 31, 2023 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.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Fund performance (unaudited)
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Average annual total returns1
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Twelve Months Ended 5/31/24
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Cumulative total returns1
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Average annual total returns2
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Twelve Months Ended 5/31/24
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Cumulative total returns2
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All figures represent past performance and are not a guarantee of future results.
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.
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Assumes the reinvestment of all distributions, including returns of capital, if any,
at net asset value.
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Assumes the reinvestment of all distributions, including returns of capital, if any,
in additional shares in
accordance with the Fund’s Dividend Reinvestment Plan.
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Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Fund performance (unaudited) (cont’d)
Value of $10,000 invested in
Western Asset High Yield Defined Opportunity Fund Inc. vs. Benchmark Indices† — May 2014 - May 2024
All figures represent past performance and are not a guarantee of future results.
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.
†
Hypothetical illustration of $10,000 invested in Western Asset High Yield Defined
Opportunity Fund Inc. on May 31, 2014, assuming the reinvestment of all distributions, including returns of
capital, if any, at net asset value and also assuming the reinvestment of all distributions, including returns of
capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan through May 31, 2024. The hypothetical illustration also assumes a $10,000 investment in the Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index B Component, the Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index Caa Component and the Composite Index (each an Index and together, the “Indices”). The Bloomberg Corporate U.S. High Yield — 2% Issuer Cap Index B Component is an index of the 2% Issuer Cap component of the broader
Bloomberg U.S. Corporate High Yield Index and is comprised of B-rated securities included in this
index. The Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index Caa Component is an index of the 2% Issuer Cap component of the broader Bloomberg U.S. Corporate High Yield Index and is comprised of Caa-rated
securities included in this index. The Composite Index reflects the blended rate of return of the following underlying
indices: 60% Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index B Component and 40% Bloomberg U.S. Corporate High Yield — 2% Issuer Cap Index Caa Component. The Indices are unmanaged. Please note that an investor cannot invest directly in an index.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
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Corporate Bonds & Notes — 85.7%
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Communication Services — 10.6%
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Diversified Telecommunication Services — 2.2%
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Altice Financing SA, Senior Secured Notes
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Altice Financing SA, Senior Secured Notes
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Altice France Holding SA, Senior Secured
Notes
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Altice France Holding SA, Senior Secured
Notes
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Altice France SA, Senior Secured Notes
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Altice France SA, Senior Secured Notes
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Total Diversified Telecommunication Services
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Allen Media LLC/Allen Media
Co-Issuer Inc., Senior Notes
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Banijay Entertainment SASU, Senior
Secured Notes
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CCO Holdings LLC/CCO Holdings Capital
Corp., Senior Notes
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Charter Communications Operating LLC/
Charter Communications Operating Capital
Corp., Senior Secured Notes
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Clear Channel Outdoor Holdings Inc., Senior
Notes
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Clear Channel Outdoor Holdings Inc., Senior
Notes
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DISH DBS Corp., Senior Notes
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DISH DBS Corp., Senior Notes
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DISH DBS Corp., Senior Notes
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iHeartCommunications Inc., Senior Secured
Notes
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Sirius XM Radio Inc., Senior Notes
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Univision Communications Inc., Senior
Secured Notes
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Wireless Telecommunication Services — 4.3%
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CSC Holdings LLC, Senior Notes
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CSC Holdings LLC, Senior Notes
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CSC Holdings LLC, Senior Notes
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See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
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Wireless Telecommunication Services — continued
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CSC Holdings LLC, Senior Notes
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CSC Holdings LLC, Senior Notes
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CSC Holdings LLC, Senior Notes
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Sprint Capital Corp., Senior Notes
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Sprint Capital Corp., Senior Notes
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Vmed O2 UK Financing I PLC, Senior
Secured Notes
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Total Wireless Telecommunication Services
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Total Communication Services
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Consumer Discretionary — 22.9%
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Automobile Components — 4.6%
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Adient Global Holdings Ltd., Senior Notes
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American Axle & Manufacturing Inc.,
Senior Notes
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American Axle & Manufacturing Inc.,
Senior Notes
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Dornoch Debt Merger Sub Inc., Senior
Notes
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Garrett Motion Holdings Inc./Garrett LX I
Sarl, Senior Notes
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JB Poindexter & Co. Inc., Senior Notes
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ZF North America Capital Inc., Senior Notes
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ZF North America Capital Inc., Senior Notes
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Total Automobile Components
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Ford Motor Co., Senior Notes
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Mclaren Finance PLC, Senior Secured Notes
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PM General Purchaser LLC, Senior Secured
Notes
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Marks & Spencer PLC, Senior Notes
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Ritchie Bros Holdings Inc., Senior Notes
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Diversified Consumer Services — 1.5%
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APCOA Parking Holdings GmbH, Senior
Secured Notes
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APCOA Parking Holdings GmbH, Senior
Secured Notes
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See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
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Diversified Consumer Services — continued
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Carriage Services Inc., Senior Notes
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Service Corp. International, Senior Notes
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WW International Inc., Senior Secured
Notes
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Total Diversified Consumer Services
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Hotels, Restaurants & Leisure — 13.4%
|
888 Acquisitions Ltd., Senior Secured Notes
|
|
|
|
|
Caesars Entertainment Inc., Senior Notes
|
|
|
|
|
Carnival Corp., Senior Notes
|
|
|
|
|
Carnival Holdings Bermuda Ltd., Senior
Notes
|
|
|
|
|
Carnival PLC, Senior Notes
|
|
|
|
|
Carrols Restaurant Group Inc., Senior Notes
|
|
|
|
|
Full House Resorts Inc., Senior Secured
Notes
|
|
|
|
|
Hilton Domestic Operating Co. Inc., Senior
Notes
|
|
|
|
|
IRB Holding Corp., Senior Secured Notes
|
|
|
|
|
Las Vegas Sands Corp., Senior Notes
|
|
|
|
|
Light & Wonder International Inc., Senior
Notes
|
|
|
|
|
Melco Resorts Finance Ltd., Senior Notes
|
|
|
|
|
NCL Corp. Ltd., Senior Notes
|
|
|
|
|
NCL Corp. Ltd., Senior Notes
|
|
|
|
|
NCL Corp. Ltd., Senior Notes
|
|
|
|
|
NCL Corp. Ltd., Senior Secured Notes
|
|
|
|
|
NCL Finance Ltd., Senior Notes
|
|
|
|
|
Pinnacle Bidco PLC, Senior Secured Notes
|
|
|
|
|
Royal Caribbean Cruises Ltd., Senior Notes
|
|
|
|
|
Royal Caribbean Cruises Ltd., Senior Notes
|
|
|
|
|
|
|
|
|
|
|
Sands China Ltd., Senior Notes
|
|
|
|
|
Sizzling Platter LLC/Sizzling Platter Finance
Corp., Senior Secured Notes
|
|
|
|
|
Viking Cruises Ltd., Senior Notes
|
|
|
|
|
Viking Ocean Cruises Ship VII Ltd., Senior
Secured Notes
|
|
|
|
|
Wheel Bidco Ltd., Senior Secured Notes
|
|
|
|
|
Wynn Macau Ltd., Senior Notes
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure — continued
|
Wynn Macau Ltd., Senior Notes
|
|
|
|
|
Wynn Resorts Finance LLC/Wynn Resorts
Capital Corp., Senior Notes
|
|
|
|
|
Total Hotels, Restaurants & Leisure
|
|
|
|
Global Auto Holdings Ltd./AAG FH UK Ltd.,
Senior Notes
|
|
|
|
|
Michaels Cos. Inc., Senior Secured Notes
|
|
|
|
|
NMG Holding Co. Inc./Neiman Marcus
Group LLC, Senior Secured Notes
|
|
|
|
|
Sally Holdings LLC/Sally Capital Inc., Senior
Notes
|
|
|
|
|
|
|
|
|
|
Total Consumer Discretionary
|
|
|
|
|
|
FAGE International SA/FAGE USA Dairy
Industry Inc., Senior Notes
|
|
|
|
|
|
|
|
|
Energy Equipment & Services — 0.5%
|
Noble Finance II LLC, Senior Notes
|
|
|
|
|
Sunnova Energy Corp., Senior Notes
|
|
|
|
|
Total Energy Equipment & Services
|
|
Oil, Gas & Consumable Fuels — 12.6%
|
Apache Corp., Senior Notes
|
|
|
|
|
Berry Petroleum Co. LLC, Senior Notes
|
|
|
|
|
Continental Resources Inc., Senior Notes
|
|
|
|
|
Continental Resources Inc., Senior Notes
|
|
|
|
|
Continental Resources Inc., Senior Notes
|
|
|
|
|
Crescent Energy Finance LLC, Senior Notes
|
|
|
|
|
Crescent Energy Finance LLC, Senior Notes
|
|
|
|
|
Ecopetrol SA, Senior Notes
|
|
|
|
|
Ecopetrol SA, Senior Notes
|
|
|
|
|
Energy Transfer LP, Junior Subordinated
Notes (6.625% to 2/15/28 then 3 mo. USD
LIBOR + 4.155%)
|
|
|
|
|
EQM Midstream Partners LP, Senior Notes
|
|
|
|
|
EQM Midstream Partners LP, Senior Notes
|
|
|
|
|
EQM Midstream Partners LP, Senior Notes
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels — continued
|
|
|
|
|
|
|
Hilcorp Energy I LP/Hilcorp Finance Co.,
Senior Notes
|
|
|
|
|
Kinder Morgan Inc., Senior Notes
|
|
|
|
|
MEG Energy Corp., Senior Notes
|
|
|
|
|
NGPL PipeCo LLC, Senior Notes
|
|
|
|
|
Northern Oil & Gas Inc., Senior Notes
|
|
|
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
|
|
Occidental Petroleum Corp., Senior Notes
|
|
|
|
|
Pan American Energy LLC, Senior Notes
|
|
|
|
|
Petrobras Global Finance BV, Senior Notes
|
|
|
|
|
Petroleos del Peru SA, Senior Notes
|
|
|
|
|
Puma International Financing SA, Senior
Notes
|
|
|
|
|
Range Resources Corp., Senior Notes
|
|
|
|
|
Range Resources Corp., Senior Notes
|
|
|
|
|
Rockies Express Pipeline LLC, Senior Notes
|
|
|
|
|
Rockies Express Pipeline LLC, Senior Notes
|
|
|
|
|
SilverBow Resources Inc., Secured Notes (3
mo. Term SOFR + 7.750%)
|
|
|
|
|
Summit Midstream Holdings LLC/Summit
Midstream Finance Corp., Secured Notes
|
|
|
|
|
Targa Resources Partners LP/Targa
Resources Partners Finance Corp., Senior
Notes
|
|
|
|
|
Venture Global LNG Inc., Senior Secured
Notes
|
|
|
|
|
Vital Energy Inc., Senior Notes
|
|
|
|
|
Western Midstream Operating LP, Senior
Notes
|
|
|
|
|
Western Midstream Operating LP, Senior
Notes
|
|
|
|
|
Western Midstream Operating LP, Senior
Notes
|
|
|
|
|
Williams Cos. Inc., Senior Notes
|
|
|
|
|
Williams Cos. Inc., Senior Notes
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels — continued
|
Williams Cos. Inc., Senior Notes
|
|
|
|
|
|
|
|
|
|
|
Total Oil, Gas & Consumable Fuels
|
|
|
|
|
|
|
|
|
|
|
Banco Mercantil del Norte SA, Junior
Subordinated Notes (6.625% to 1/24/32
then 10 year Treasury Constant Maturity
Rate + 5.034%)
|
|
|
|
|
Barclays PLC, Junior Subordinated Notes
(8.000% to 6/15/24 then 5 year Treasury
Constant Maturity Rate + 5.672%)
|
|
|
|
|
BBVA Bancomer SA, Subordinated Notes
(5.125% to 1/17/28 then 5 year Treasury
Constant Maturity Rate + 2.650%)
|
|
|
|
|
BNP Paribas SA, Junior Subordinated Notes
(7.750% to 8/16/29 then 5 year Treasury
Constant Maturity Rate + 4.899%)
|
|
|
|
|
Citigroup Inc., Junior Subordinated Notes (3
mo. Term SOFR + 3.685%)
|
|
|
|
|
Comerica Bank, Senior Notes
|
|
|
|
|
Credit Agricole SA, Junior Subordinated
Notes (8.125% to 12/23/25 then USD 5
year ICE Swap Rate + 6.185%)
|
|
|
|
|
HSBC Holdings PLC, Subordinated Notes
(8.113% to 11/3/32 then SOFR + 4.250%)
|
|
|
|
|
Intesa Sanpaolo SpA, Subordinated Notes
|
|
|
|
|
Intesa Sanpaolo SpA, Subordinated Notes
|
|
|
|
|
Lloyds Banking Group PLC, Junior
Subordinated Notes (7.500% to 9/27/25
then USD 5 year ICE Swap Rate + 4.496%)
|
|
|
|
|
Lloyds Banking Group PLC, Junior
Subordinated Notes (8.000% to 3/27/30
then 5 year Treasury Constant Maturity
Rate + 3.913%)
|
|
|
|
|
UniCredit SpA, Subordinated Notes
(7.296% to 4/2/29 then USD 5 year ICE
Swap Rate + 4.914%)
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
Credit Suisse AG AT1 Claim
|
|
|
|
|
StoneX Group Inc., Senior Secured Notes
|
|
|
|
|
UBS Group AG, Junior Subordinated Notes
(6.875% to 8/7/25 then USD 5 year ICE
Swap Rate + 4.590%)
|
|
|
|
|
UBS Group AG, Junior Subordinated Notes
(9.250% to 11/13/28 then 5 year Treasury
Constant Maturity Rate + 4.745%)
|
|
|
|
|
|
|
|
|
|
Navient Corp., Senior Notes
|
|
|
|
|
Navient Corp., Senior Notes
|
|
|
|
|
|
|
|
Financial Services — 1.7%
|
Boost Newco Borrower LLC, Senior Secured
Notes
|
|
|
|
|
Boost Newco Borrower LLC/GTCR W Dutch
Finance Sub BV, Senior Secured Notes
|
|
|
|
|
Global Aircraft Leasing Co. Ltd., Senior
Notes (6.500% Cash or 7.250% PIK)
|
|
|
|
|
Jane Street Group/JSG Finance Inc., Senior
Secured Notes
|
|
|
|
|
VistaJet Malta Finance PLC/Vista
Management Holding Inc., Senior Notes
|
|
|
|
|
VistaJet Malta Finance PLC/Vista
Management Holding Inc., Senior Notes
|
|
|
|
|
|
|
|
Mortgage Real Estate Investment Trusts (REITs) — 0.2%
|
Starwood Property Trust Inc., Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Providers & Services — 4.3%
|
CHS/Community Health Systems Inc.,
Senior Secured Notes
|
|
|
|
|
CHS/Community Health Systems Inc.,
Senior Secured Notes
|
|
|
|
|
CHS/Community Health Systems Inc.,
Senior Secured Notes
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Health Care Providers & Services — continued
|
Legacy LifePoint Health LLC, Senior
Secured Notes
|
|
|
|
|
LifePoint Health Inc., Senior Secured Notes
|
|
|
|
|
Sotera Health Holdings LLC, Senior Secured
Notes
|
|
|
|
|
Tenet Healthcare Corp., Secured Notes
|
|
|
|
|
Tenet Healthcare Corp., Senior Notes
|
|
|
|
|
Tenet Healthcare Corp., Senior Notes
|
|
|
|
|
U.S. Renal Care Inc., Senior Secured Notes
|
|
|
|
|
Total Health Care Providers & Services
|
|
|
|
Bausch Health Cos. Inc., Senior Secured
Notes
|
|
|
|
|
Cidron Aida Finco Sarl, Senior Secured
Notes
|
|
|
|
|
Endo Finance Holdings Inc., Senior Secured
Notes
|
|
|
|
|
Par Pharmaceutical Inc., Escrow
|
|
|
|
|
Teva Pharmaceutical Finance Netherlands
III BV, Senior Notes
|
|
|
|
|
Teva Pharmaceutical Finance Netherlands
III BV, Senior Notes
|
|
|
|
|
Teva Pharmaceutical Finance Netherlands
III BV, Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aerospace & Defense — 1.5%
|
Bombardier Inc., Senior Notes
|
|
|
|
|
Bombardier Inc., Senior Notes
|
|
|
|
|
TransDigm Inc., Senior Secured Notes
|
|
|
|
|
Total Aerospace & Defense
|
|
Commercial Services & Supplies — 2.6%
|
Allied Universal Holdco LLC/Allied
Universal Finance Corp., Senior Secured
Notes
|
|
|
|
|
CoreCivic Inc., Senior Notes
|
|
|
|
|
CoreCivic Inc., Senior Notes
|
|
|
|
|
Garda World Security Corp., Senior Notes
|
|
|
|
|
GEO Group Inc., Senior Notes
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Commercial Services & Supplies — continued
|
GEO Group Inc., Senior Secured Notes
|
|
|
|
|
GFL Environmental Inc., Senior Secured
Notes
|
|
|
|
|
Madison IAQ LLC, Senior Notes
|
|
|
|
|
Total Commercial Services & Supplies
|
|
Construction & Engineering — 0.8%
|
Brundage-Bone Concrete Pumping
Holdings Inc., Secured Notes
|
|
|
|
|
Tutor Perini Corp., Senior Notes
|
|
|
|
|
Total Construction & Engineering
|
|
|
|
Titan International Inc., Senior Secured
Notes
|
|
|
|
|
TK Elevator Holdco GmbH, Senior Notes
|
|
|
|
|
|
|
|
Passenger Airlines — 4.0%
|
American Airlines Group Inc., Senior Notes
|
|
|
|
|
American Airlines Inc., Senior Secured
Notes
|
|
|
|
|
Delta Air Lines Inc., Senior Notes
|
|
|
|
|
Delta Air Lines Inc., Senior Notes
|
|
|
|
|
Delta Air Lines Inc., Senior Secured Notes
|
|
|
|
|
Spirit Loyalty Cayman Ltd./Spirit IP Cayman
Ltd., Senior Secured Notes
|
|
|
|
|
Spirit Loyalty Cayman Ltd./Spirit IP Cayman
Ltd., Senior Secured Notes
|
|
|
|
|
|
|
|
Trading Companies & Distributors — 0.5%
|
H&E Equipment Services Inc., Senior Notes
|
|
|
|
|
United Rentals North America Inc., Senior
Notes
|
|
|
|
|
United Rentals North America Inc., Senior
Notes
|
|
|
|
|
Total Trading Companies & Distributors
|
|
|
|
|
|
|
Information Technology — 4.1%
|
Communications Equipment — 1.2%
|
CommScope Inc., Senior Secured Notes
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Communications Equipment — continued
|
CommScope Technologies LLC, Senior
Notes
|
|
|
|
|
Viasat Inc., Senior Notes
|
|
|
|
|
Total Communications Equipment
|
|
Electronic Equipment, Instruments & Components — 0.1%
|
EquipmentShare.com Inc., Secured Notes
|
|
|
|
|
Semiconductors & Semiconductor Equipment — 0.3%
|
Amkor Technology Inc., Senior Notes
|
|
|
|
|
|
|
Cloud Software Group Inc., Senior Secured
Notes
|
|
|
|
|
Technology Hardware, Storage & Peripherals — 1.2%
|
Seagate HDD Cayman, Senior Notes
|
|
|
|
|
Seagate HDD Cayman, Senior Notes
|
|
|
|
|
Vericast Corp., Senior Secured Notes
|
|
|
|
|
Total Technology Hardware, Storage & Peripherals
|
|
|
|
Total Information Technology
|
|
|
|
|
|
Anagram Holdings LLC/Anagram
International Inc., Secured Notes
|
|
|
|
|
Sasol Financing USA LLC, Senior Notes
|
|
|
|
|
|
|
|
Construction Materials — 0.5%
|
Smyrna Ready Mix Concrete LLC, Senior
Secured Notes
|
|
|
|
|
Containers & Packaging — 2.3%
|
ARD Finance SA, Senior Secured Notes
(6.500% Cash or 7.250% PIK)
|
|
|
|
|
Ardagh Metal Packaging Finance USA LLC/
Ardagh Metal Packaging Finance PLC,
Senior Notes
|
|
|
|
|
Ardagh Packaging Finance PLC/Ardagh
Holdings USA Inc., Senior Notes
|
|
|
|
|
Ardagh Packaging Finance PLC/Ardagh
Holdings USA Inc., Senior Notes
|
|
|
|
|
Mauser Packaging Solutions Holding Co.,
Senior Secured Notes
|
|
|
|
|
|
|
|
|
|
|
Total Containers & Packaging
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
ArcelorMittal SA, Senior Notes
|
|
|
|
|
First Quantum Minerals Ltd., Secured Notes
|
|
|
|
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
|
|
Freeport-McMoRan Inc., Senior Notes
|
|
|
|
|
Teck Resources Ltd., Senior Notes
|
|
|
|
|
Vale Overseas Ltd., Senior Notes
|
|
|
|
|
Vale Overseas Ltd., Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Healthcare Trust, Senior Notes
|
|
|
|
|
Hotel & Resort REITs — 1.1%
|
Service Properties Trust, Senior Notes
|
|
|
|
|
Service Properties Trust, Senior Notes
|
|
|
|
|
Service Properties Trust, Senior Notes
|
|
|
|
|
Total Hotel & Resort REITs
|
|
Real Estate Management & Development — 0.2%
|
Add Hero Holdings Ltd., Senior Secured
Notes (7.500% Cash or 8.500% PIK)
|
|
|
|
|
Add Hero Holdings Ltd., Senior Secured
Notes (8.000% Cash or 9.000% PIK)
|
|
|
|
|
Add Hero Holdings Ltd., Senior Secured
Notes (8.800% Cash or 9.800% PIK)
|
|
|
|
|
China Aoyuan Group Ltd., Senior Notes,
Step bond (0.000% to 9/30/31 then
1.000%)
|
|
|
|
|
China Aoyuan Group Ltd., Senior Secured
Notes (5.500% PIK)
|
|
|
|
|
Country Garden Holdings Co. Ltd., Senior
Secured Notes
|
|
|
|
|
Cushman & Wakefield US Borrower LLC,
Senior Secured Notes
|
|
|
|
|
Total Real Estate Management & Development
|
|
|
|
Iron Mountain Inc., Senior Notes
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
Electric Utilities — 0.2%
|
Vistra Operations Co. LLC, Senior Notes
|
|
|
|
|
|
|
Suburban Propane Partners LP/Suburban
Energy Finance Corp., Senior Notes
|
|
|
|
|
|
|
|
|
|
Total Corporate Bonds & Notes (Cost — $232,174,230)
|
|
|
|
Communication Services — 0.6%
|
|
|
iHeartCommunications Inc., New Term Loan
(1 mo. Term SOFR + 3.114%)
|
|
|
|
|
|
|
Consumer Discretionary — 1.7%
|
Automobile Components — 0.3%
|
First Brands Group LLC, 2022 Incremental
Term Loan (3 mo. Term SOFR + 5.262%)
|
|
|
|
|
Diversified Consumer Services — 0.3%
|
WW International Inc., Initial Term Loan (1
mo. Term SOFR + 3.614%)
|
|
|
|
|
Hotels, Restaurants & Leisure — 1.1%
|
Caesars Entertainment Inc., Incremental
Term Loan B1 (3 mo. Term SOFR + 2.750%)
|
|
|
|
|
Fertitta Entertainment LLC, Initial Term Loan
B (1 mo. Term SOFR + 3.750%)
|
|
|
|
|
Total Hotels, Restaurants & Leisure
|
|
|
|
Total Consumer Discretionary
|
|
|
|
|
|
Triton Water Holdings Inc., First Lien Initial
Term Loan (3 mo. Term SOFR + 3.512%)
|
|
|
|
|
|
|
|
|
|
|
Mercury Borrower Inc., First Lien Initial
Term Loan (1 mo. Term SOFR + 3.614%)
|
|
|
|
|
|
|
Blackhawk Network Holdings Inc., Term
Loan B (1 mo. Term SOFR + 5.000%)
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
Financial Services — 0.2%
|
Boost Newco Borrower LLC, Initial USD
Term Loan (3 mo. Term SOFR + 3.000%)
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Equipment & Supplies — 1.0%
|
Medline Borrower LP, Term Loan B (1 mo.
Term SOFR + 2.750%)
|
|
|
|
|
|
|
|
|
Aerospace & Defense — 0.4%
|
Transdigm Inc., Term Loan J (3 mo. Term
SOFR + 3.250%)
|
|
|
|
|
|
|
ACProducts Holdings Inc., Initial Term Loan
(3 mo. Term SOFR + 4.512%)
|
|
|
|
|
Commercial Services & Supplies — 0.7%
|
Allied Universal Holdco LLC, USD Term
Loan
|
|
|
|
|
|
|
TK Elevator Midco GmbH, USD Term Loan
Facility B2
|
|
|
|
|
Passenger Airlines — 0.2%
|
United Airlines Inc., Term Loan B (1 mo.
Term SOFR + 2.750%)
|
|
|
|
|
|
|
|
|
|
Information Technology — 0.7%
|
|
|
Redstone Holdco 2 LP, First Lien Initial Term
Loan (1 mo. Term SOFR + 4.864%)
|
|
|
|
|
|
|
DCert Buyer Inc., Second Lien Initial Term
Loan (1 mo. Term SOFR + 7.000%)
|
|
|
|
|
Modena Buyer LLC, Term Loan
|
|
|
|
|
|
|
|
|
|
Total Information Technology
|
|
|
|
|
|
Arctic Canadian Diamond Co. Ltd., Second
Lien Term Loan
|
|
|
|
|
|
|
Total Senior Loans (Cost — $19,365,938)
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
Angolan Government International Bond,
Senior Notes
|
|
|
|
|
|
|
Provincia de Buenos Aires, Senior Notes,
Step bond (6.375% to 9/1/24 then 6.625%)
|
|
|
|
|
Provincia de Cordoba, Senior Notes
|
|
|
|
|
Provincia de Cordoba, Senior Notes
|
|
|
|
|
|
|
|
|
|
Bahamas Government International Bond,
Senior Notes
|
|
|
|
|
Dominican Republic — 0.8%
|
Dominican Republic International Bond,
Senior Notes
|
|
|
|
|
Dominican Republic International Bond,
Senior Notes
|
|
|
|
|
Dominican Republic International Bond,
Senior Notes
|
|
|
|
|
Dominican Republic International Bond,
Senior Notes
|
|
|
|
|
|
|
|
|
|
Jordan Government International Bond,
Senior Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sovereign Bonds (Cost — $10,915,328)
|
|
Convertible Bonds & Notes — 1.7%
|
Communication Services — 1.7%
|
|
|
DISH Network Corp., Senior Notes
|
|
|
|
|
DISH Network Corp., Senior Notes
|
|
|
|
|
|
|
Total Communication Services
|
|
|
|
Real Estate Management & Development — 0.0%††
|
China Aoyuan Group Ltd., Senior Notes
|
|
|
|
|
|
|
Total Convertible Bonds & Notes (Cost — $4,992,413)
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
(Percentages shown based on Fund net assets)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arctic Canadian Diamond Co. Ltd.
|
|
|
|
|
|
|
|
Real Estate Management & Development — 0.0%††
|
|
|
|
|
|
|
|
Total Common Stocks (Cost — $47,958)
|
|
|
|
|
|
|
|
|
|
|
|
|
Passenger Airlines — 0.0%††
|
flyExclusive Inc. (Cost — $12,469)
|
|
|
|
|
Total Investments before Short-Term Investments (Cost — $267,508,336)
|
|
|
|
|
|
|
|
|
Short-Term Investments — 2.3%
|
U.S. Treasury Bills — 1.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Treasury Bills (Cost — $3,747,778)
|
|
|
|
|
|
|
|
|
Money Market Funds — 0.9%
|
Western Asset Premier Institutional
Government Reserves, Premium Shares
(Cost — $2,543,966)
|
|
|
|
|
|
|
Total Short-Term Investments (Cost — $6,291,744)
|
|
Total Investments — 101.1% (Cost — $273,800,080)
|
|
Liabilities in Excess of Other Assets — (1.1)%
|
|
Total Net Assets — 100.0%
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Schedule of investments (cont’d)
May 31, 2024
Western Asset High Yield Defined Opportunity Fund Inc.
|
|
Face amount denominated in U.S. dollars, unless otherwise noted.
|
|
|
Represents less than 0.1%.
|
|
|
Non-income producing security.
|
|
|
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.
|
|
|
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.
|
|
|
Security has no maturity date. The date shown represents the next call date.
|
|
|
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.
|
|
|
Security is fair valued in accordance with procedures approved by the Board of Directors (Note 1).
|
|
|
Security is valued using significant unobservable inputs (Note 1).
|
|
|
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.
|
|
|
Securities traded on a when-issued or delayed delivery basis.
|
|
|
|
|
|
The coupon payment on this security is currently in default as of May 31, 2024.
|
|
|
The maturity principal is currently in default as of May 31, 2024.
|
|
|
Interest rates disclosed represent the effective rates on senior loans. Ranges in
interest rates are attributable to
multiple contracts under the same loan.
|
|
|
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.
|
|
|
All or a portion of this loan has not settled as of May 31, 2024. Interest rates are
not effective until settlement
date. Interest rates shown, if any, are for the settled portion of the loan.
|
|
|
Rate shown represents yield-to-maturity.
|
|
|
Rate shown is one-day yield as of the end of the reporting period.
|
|
|
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 May 31, 2024, the total market value of investments
in Affiliated
Companies was $2,543,966 and the cost was $2,543,966 (Note 7).
|
Abbreviation(s) used in this schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercontinental Exchange
|
|
|
|
London Interbank Offered Rate
|
|
|
|
|
|
|
|
|
|
|
|
Secured Overnight Financing Rate
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Western Asset High Yield Defined Opportunity Fund Inc.
At May 31, 2024, the Fund had the following open forward foreign currency contracts:
|
|
|
|
|
Unrealized
Appreciation
(Depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized depreciation on open forward foreign currency contracts
|
|
Abbreviation(s) used in this table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Statement of assets and liabilities
May 31, 2024
|
|
|
Investments in unaffiliated securities, at value (Cost — $271,256,114)
|
|
Investments in affiliated securities, at value (Cost — $2,543,966)
|
|
Foreign currency, at value (Cost — $233,017)
|
|
|
|
|
|
|
|
Receivable for securities sold
|
|
Unrealized appreciation on forward foreign currency contracts
|
|
Dividends receivable from affiliated investments
|
|
|
|
|
|
|
|
|
|
|
Payable for securities purchased
|
|
|
|
|
Investment management fee payable
|
|
Unrealized depreciation on forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Par value ($0.001 par value; 22,660,581 shares issued and outstanding; 100,000,000
common shares authorized)
|
|
Paid-in capital in excess of par value
|
|
Total distributable earnings (loss)
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Statement of operations
For the Year Ended May 31, 2024
|
|
|
|
|
|
Dividends from affiliated investments
|
|
Less: Foreign taxes withheld
|
|
|
|
|
|
|
|
Investment management fee (Note 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock exchange listing fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Fee waivers and/or expense reimbursements (Note 2)
|
|
|
|
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Forward Foreign Currency Contracts
and
Foreign Currency Transactions (Notes 1, 3 and 4):
|
Net Realized Gain (Loss) From:
|
|
Investment transactions in unaffiliated securities
|
|
Forward foreign currency contracts
|
|
Foreign currency transactions
|
|
|
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
Investments in unaffiliated securities
|
|
Forward foreign currency contracts
|
|
|
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
|
Net Loss on Investments, Forward Foreign Currency Contracts and Foreign Currency
Transactions
|
|
Increase in Net Assets From Operations
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Statements of changes in net assets
For the Years Ended May 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
Increase (Decrease) in Net Assets From Operations
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
Total distributable earnings
|
|
|
|
|
|
|
Decrease in Net Assets From Distributions to Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
For a share of capital stock outstanding throughout each year ended May 31:
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total income (loss) from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive impact of repurchase plan
|
|
|
|
|
|
Net asset value, end of year
|
|
|
|
|
|
Market price, end of year
|
|
|
|
|
|
Total return, based on NAV4,5
|
|
|
|
|
|
Total return, based on Market Price6
|
|
|
|
|
|
Net assets, end of year (millions)
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amounts have been calculated using the average shares method.
|
|
|
Amount represents less than $0.005 or greater than $(0.005) per share.
|
|
|
The repurchase plan was completed at an average repurchase price of $11.07 for 98,024
shares and $1,040,253 for
the year ended May 31, 2020.
|
|
|
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.
|
|
|
The total return calculation assumes that distributions are reinvested at NAV. Past
performance is no guarantee of
future results.
|
|
|
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.
|
|
|
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.
|
|
|
Reflects fee waivers and/or expense reimbursements.
|
See Notes to Financial Statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Notes to financial statements
1. Organization and significant accounting policies
Western Asset High Yield Defined Opportunity Fund Inc. (the “Fund”) was incorporated in Maryland on July 20, 2010 and is registered as a non-diversified, limited-term, closed-end
management investment company under the Investment Company Act of 1940, as amended
(the “1940 Act”). The Fund’s primary investment objective is to provide high income. As a secondary investment objective, the Fund will seek capital appreciation. The Fund
seeks to achieve its investment objectives by investing, under normal market conditions, at
least 80% of its net assets in a portfolio of high-yield corporate fixed income securities
with varying maturities. Corporate securities include those securities that are issued
or originated by U.S. or foreign public or private corporations and other business entities.
The Fund intends to liquidate on or about September 30, 2025 and distribute substantially
all of its net assets to stockholders, after making appropriate provisions for any liabilities
of the Fund.
The Fund follows the accounting and reporting guidance in Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (“ASC 946”). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted
accounting principles (“GAAP”), including, but not limited to, ASC 946. 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
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
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.
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 Yield Defined Opportunity Fund Inc. 2024 Annual Report
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:
|
|
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Corporate Bonds &
Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Bonds & Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Short-Term Investments
|
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments:
|
|
|
|
|
Forward Foreign Currency
Contracts††
|
|
|
|
|
|
|
|
|
|
|
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
|
|
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Other Financial Instruments:
|
|
|
|
|
Forward Foreign Currency
Contracts††
|
|
|
|
|
|
|
See Schedule of Investments for additional detailed categorizations.
|
|
|
Amount represents less than $1.
|
|
|
Reflects the unrealized appreciation (depreciation) of the instruments.
|
(b) 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
contract. Risks may also arise upon entering into these contracts from the potential
inability of the counterparties to meet the terms of their contracts.
(c) 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
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Notes to financial statements (cont’d)
the values of assets and liabilities, other than investments in securities, on the
date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and
risks not typically associated with those of U.S. dollar denominated transactions as a result
of, among other factors, the possibility of lower levels of governmental supervision and
regulation of foreign securities markets and the possibility of political or economic
instability.
(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 offset 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 offset between the lender and
the borrower.
(e) 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.
(f) 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.
(g) 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
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
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 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 May 31, 2024, the Fund held forward foreign currency contracts with credit related
contingent features which had a liability position of $169,607. If a contingent feature
in the
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Notes to financial statements (cont’d)
master agreements would have been triggered, the Fund would have been required to
pay this amount to its derivatives counterparties.
(h) 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) is recorded on the accrual basis. Amortization of premiums and accretion
of discounts on debt securities are recorded to interest income over the lives of the
respective securities, except for premiums on certain callable debt securities, which are amortized
to the earliest call date. 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 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.
(i) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. Shareholders will be informed
of the tax characteristics of the distributions after the close of the fiscal year. Distributions
of net realized gains, if any, are declared at least annually. Distributions to shareholders
of the Fund are recorded on the ex-dividend date and are determined in accordance with income
tax regulations, which may differ from GAAP.
(j) 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.
(k) 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 May 31, 2024, 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.
(l) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
reclassifications have no effect on net assets or net asset value per share. During
the current year, the following reclassifications have been made:
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Total Distributable
Earnings (Loss)
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(a)
Reclassifications are due to prior year adjustment regarding return of capital distribution.
2. Investment management agreement and other transactions with affiliates
Franklin Templeton Fund Adviser, LLC (“FTFA”) (formerly known as Legg Mason Partners Fund Advisor, LLC prior to November 30, 2023) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western Asset”) is the Fund’s subadviser. Western Asset Management Company Pte. Ltd. (“Western Asset Singapore”), Western Asset Management Company Ltd (“Western Asset Japan”) and Western Asset Management Company Limited (“Western Asset London”) serve as additional subadvisers to the Fund, under additional subadvisory agreements with Western Asset. FTFA, Western Asset, Western Asset Singapore, Western Asset Japan and Western Asset London are indirect,
wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).
FTFA provides administrative and certain oversight services to the Fund. The Fund
pays FTFA an investment management fee, calculated daily and paid monthly, at an annual rate
of 0.80% of the Fund’s average daily net assets.
FTFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Asset Singapore, Western Asset Japan and Western Asset London provide certain
subadvisory services to the Fund relating to currency transactions and investments
in non-U.S. dollar denominated debt securities. For its services, FTFA 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 Singapore, Western Asset Japan and
Western Asset London 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
each such non-U.S. subadviser to manage.
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 (the “affiliated money market fund waiver”).
During the year ended May 31, 2024, fees waived and/or expenses reimbursed amounted
to $2,471, all of which was an affiliated money market fund waiver.
All officers and one Director of the Fund are employees of Franklin Resources or its
affiliates and do not receive compensation from the Fund.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Notes to financial statements (cont’d)
3. Investments
During the year ended May 31, 2024, the aggregate cost of purchases and proceeds from
sales of investments (excluding short-term investments) and U.S. Government & Agency
Obligations were as follows:
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U.S. Government &
Agency Obligations
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At May 31, 2024, the aggregate cost of investments and the aggregate gross unrealized
appreciation and depreciation of investments for federal income tax purposes were
as follows:
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Gross
Unrealized
Appreciation
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Gross
Unrealized
Depreciation
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Net
Unrealized
Depreciation
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Forward foreign currency contracts
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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
May 31, 2024.
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Forward foreign currency contracts
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Forward foreign currency contracts
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Generally, the balance sheet location for asset derivatives is receivables/net unrealized
appreciation and for
liability derivatives is payables/net unrealized depreciation.
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The following tables provide information about the effect of derivatives and hedging
activities on the Fund’s Statement of Operations for the year ended May 31, 2024. 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
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Forward foreign currency contracts
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Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
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Forward foreign currency contracts
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During the year ended May 31, 2024, the volume of derivative activity for the Fund
was as follows:
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Forward foreign currency contracts (to buy)
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Forward foreign currency contracts (to sell)
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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 May 31, 2024.
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Gross Assets
Subject to
Master
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Gross
Liabilities
Subject to
Master
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Net Assets
(Liabilities)
Subject to
Master
Agreements
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Collateral
Pledged
(Received)
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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.
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Represents the net amount receivable (payable) from (to) the counterparty in the event
of default.
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5. Distributions subsequent to May 31, 2024
The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:
6. 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
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Notes to financial statements (cont’d)
specific discount levels or in any specific amounts. During the years ended May 31,
2024 and May 31, 2023, the Fund did not repurchase any shares.
Since the commencement of the stock repurchase program through May 31, 2024, the Fund
repurchased 131,926 shares or 0.58% of its common shares outstanding for a total amount
of $1,485,604.
7. Transactions with affiliated company
As defined by the 1940 Act, an affiliated company is one in which the Fund owns 5%
or more of the outstanding voting securities, or a company which is under common ownership
or control with the Fund. The following company was considered an affiliated company
for all or some portion of the year ended May 31, 2024. The following transactions were
effected in such company for the year ended May 31, 2024.
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Affiliate
Value at
May 31,
2023
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Western Asset
Premier
Institutional
Government
Reserves, Premium
Shares
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Net Increase
(Decrease) in
Unrealized
Appreciation
(Depreciation)
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Affiliate
Value at
May 31,
2024
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Western Asset
Premier
Institutional
Government
Reserves, Premium
Shares
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8. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended May 31, was
as follows:
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
As of May 31, 2024, the components of distributable earnings (loss) on a tax basis
were as follows:
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Other book/tax temporary differences(a)
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Unrealized appreciation (depreciation)(b)
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Total distributable earnings (loss) — net
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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.
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Other book/tax temporary differences are attributable to the tax deferral of losses
on straddles, the realization
for tax purposes of unrealized gains (losses) on 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.
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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.
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9. Recent accounting pronouncement
In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021 and December 2022, the FASB issued ASU No. 2021-01 and ASU No. 2022-06, 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 London Interbank
Offered Rate (LIBOR) and other interbank-offered based reference rates as of the end of 2021
for certain LIBOR settings and 2023 for the remainder. The ASUs are effective for certain
reference rate-related contract modifications that occur during the period March 12,
2020 through December 31, 2024. Management has reviewed the requirements and believes the
adoption of these ASUs will not have a material impact on the financial statements.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Western Asset High Yield Defined 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 Yield Defined Opportunity Fund Inc. (the “Fund”) as of May 31, 2024, the related statement of operations for the year ended May 31, 2024, the statement
of changes in net assets for each of the two years in the period ended May 31, 2024, including the related
notes, and the financial highlights for each of the five years in the period ended May 31, 2024 (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 May 31, 2024, 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
May 31, 2024 and the financial highlights for each of the five years in the period ended May 31, 2024 in
conformity with accounting principles generally accepted in the United States of America.
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 May 31,
2024 by correspondence with the custodian, agent banks 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
July 19, 2024
We have served as the auditor of one or more investment companies in the Franklin
Templeton Group of Funds since 1948.
Western Asset High Yield Defined Opportunity Fund Inc. 2024 Annual Report
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 Yield Defined 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, Franklin Templeton Fund Adviser, LLC (formerly known as 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”), Western Asset Management Company Limited (“Western Asset London”), Western Asset Management Company Pte. Ltd. (“Western Asset Singapore”) and Western Asset Management Company Ltd (“Western Asset Japan,” and with Western Asset, Western Asset London and Western Asset Singapore, collectively, the “Sub-Advisers”), with respect to the Fund.
At an in-person meeting (the “Contract Renewal Meeting”) held on May 20-21, 2024, 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 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 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 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 both 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.
Western Asset High Yield Defined Opportunity Fund Inc.
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
At a meeting held on April 26, 2024, the Independent Directors, in preparation for
the Contract Renewal Meeting, met in a private session with their independent legal counsel
to review the Contract Renewal Information regarding the Franklin Templeton 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 26, 2024 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 stockholders and approved the continuation of each such agreement for an additional one-year period.
Western Asset High Yield Defined Opportunity Fund Inc.
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,
Western Asset Singapore and Western Asset Japan. 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
Western Asset High Yield Defined Opportunity Fund Inc.
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
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.
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 1-year period ended December 31, 2023, was equal to the median for the 3- and 10-year periods ended December 31, 2023, and was below the median for the 5-year period ended December 31,
2023. 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 took into account 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.
Western Asset High Yield Defined Opportunity Fund Inc.
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”) 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 Fees payable to Western Asset London, Western Asset Singapore and Western Asset Japan under their Sub-Advisory Agreements with Western Asset are paid
by Western Asset, not the Fund, and, accordingly, that the retention of Western Asset
London, Western Asset Singapore and Western Asset Japan 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 universe (the “Expense Universe”) 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 equal to the median. The Board took into account management’s discussion of the Fund’s expenses and noted the limited size of the Expense Universe.
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
Western Asset High Yield Defined Opportunity Fund Inc.
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
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.
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.
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, 2023 and September 30, 2022. The Board also received profitability information with respect to the Franklin Templeton 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, Western Asset Singapore and Western Asset Japan, 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.
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.
Western Asset High Yield Defined Opportunity Fund Inc.
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 additional products and services to the Fund’s stockholders. 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.
Western Asset High Yield Defined Opportunity Fund Inc.
Additional information (unaudited)
Information about Directors and Officers
The business and affairs of Western Asset High Yield Defined 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, 280 Park Avenue, 8th Floor, New York, New York 10017.
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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Position(s) held with Fund1
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Director and Member of Nominating, Audit, Compensation and
Pricing and Valuation Committees, and Compliance Liaison,
Class III
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Term of office1 and length of time served
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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)
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Number of portfolios in fund complex overseen by Director
(including the Fund)
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Other board memberships held by Director during the past five
years
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Position(s) held with Fund1
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Director and Member of Nominating, Audit and Compensation
Committees, and Chair of Pricing and Valuation Committee,
Class I
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
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President, Colman Consulting Company (consulting)
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Number of portfolios in fund complex overseen by Director
(including the Fund)
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Other board memberships held by Director during the past five
years
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Western Asset High Yield Defined Opportunity Fund Inc.
Independent Directors† (cont’d)
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Position(s) held with Fund1
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Director and Member of Audit, Compensation and Pricing and
Valuation Committees, and Chair of Nominating Committee,
Class I
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
|
Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to
and including 2004)
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Number of portfolios in fund complex overseen by Director
(including the Fund)
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Other board memberships held by Director during the past five
years
|
|
|
|
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Position(s) held with Fund1
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Director and Member of Nominating, Audit, and Pricing and
Valuation Committees, and Chair of Compensation Committee,
Class I
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
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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
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Number of portfolios in fund complex overseen by Director
(including the Fund)
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|
Other board memberships held by Director during the past five
years
|
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Western Asset High Yield Defined Opportunity Fund Inc.
Additional information (unaudited) (cont’d)
Information about Directors and Officers
Independent Directors† (cont’d)
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Position(s) held with Fund1
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Lead Independent Director and Member of Nominating,
Compensation, Pricing and Valuation and Audit Committees,
Class III
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
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Chief Executive Officer, The Governance Partners, LLC
(consulting firm) (since 2015); National Association of Corporate
Directors Board Leadership Fellow (since 2016, with Directorship
Certification since 2019) and NACD 2022 Directorship 100
honoree; Adjunct Professor, Georgetown University Law Center
(since 2021); Adjunct Professor, The University of Chicago Law
School (since 2018); Adjunct Professor, University of Iowa
College of Law (since 2007); formerly, Chief Financial Officer,
Press Ganey Associates (health care informatics company) (2012
to 2014); Managing Director and Chief Financial Officer,
Houlihan Lokey (international investment bank) and President,
Houlihan Lokey Foundation (2010 to 2012)
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Number of portfolios in fund complex overseen by Director
(including the Fund)
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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 Associated Banc-Corp
(financial services company) (since 2007); formerly, Director of
Hochschild Mining plc (precious metals company) (2016
to 2023); formerly Trustee of AIG Funds and Anchor Series Trust
(2018 to 2021)
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Position(s) held with Fund1
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Director and Member of Nominating, Compensation and Pricing
and Valuation Committees, and Chair of the Audit Committee,
Class II
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
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Formerly, Managing Director and the Chief Financial Officer and
Chief Compliance Officer of Greenbriar Equity Group, LP (2011
to 2021); formerly, Chief Financial Officer and Chief
Administrative Officer of Rent the Runway, Inc. (2011); Executive
Vice President and Chief Financial Officer of AOL LLC, a
subsidiary of Time Warner Inc. (2007 to 2009); Member of the
Council of Foreign Relations
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Number of portfolios in fund complex overseen by Director
(including the Fund)
|
|
Other board memberships held by Director during the past five
years
|
Director of Birkenstock Holding plc (since 2023); Director of The
India Fund, Inc. (since 2016); formerly, Director of Aberdeen
Income Credit Strategies Fund (2017 to 2018); and Director of
The Asia Tigers Fund, Inc. (2016 to 2018)
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Western Asset High Yield Defined Opportunity Fund Inc.
Interested Director and Officer
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Position(s) held with Fund1
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Director, Chairman, President and Chief Executive Officer, Class II
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
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Senior Vice President, Fund Board Management, Franklin
Templeton (since 2020); Officer and/or Trustee/Director of 121
funds associated with FTFA or its affiliates (since 2015);
President and Chief Executive Officer of FTFA (since 2015);
formerly, Senior Managing Director (2018 to 2020) and
Managing Director (2016 to 2018) of Legg Mason & Co., LLC
(“Legg Mason & Co.”); and Senior Vice President of FTFA (2015)
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Number of portfolios in fund complex overseen by Director
(including the Fund)
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Trustee/Director of Franklin Templeton funds consisting of 121
portfolios; Trustee of Putnam Family of Funds consisting of 105
portfolios
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Other board memberships held by Director during the past five
years
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Franklin Templeton
280 Park Avenue, 8th Floor, New York, NY 10017
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Position(s) held with Fund1
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
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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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Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
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Position(s) held with Fund1
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Secretary and Chief Legal Officer
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
|
Associate General Counsel of Franklin Templeton (since 2020);
Secretary and Chief Legal Officer of certain funds associated
with Legg Mason & Co. or its affiliates since 2020); Assistant
Secretary of certain funds associated with Legg Mason & Co. or
its affiliates (since 2006); formerly, Managing Director (2016
to 2020) and Associate General Counsel of Legg Mason & Co.
(2005 to 2020)
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Western Asset High Yield Defined Opportunity Fund Inc.
Additional information (unaudited) (cont’d)
Information about Directors and Officers
Additional Officers (cont’d)
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Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
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Position(s) held with Fund1
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Term of office1 and length of time served
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Principal occupation(s) during the past five years
|
Senior Associate General Counsel of Franklin Templeton
(since 2020); Secretary of FTFA (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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Franklin Templeton
280 Park Avenue, 8th Floor, New York, NY 10017
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Position(s) held with Fund1
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Treasurer and Principal Financial Officer
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Term of office1 and length of time served
|
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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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Franklin Templeton
280 Park Avenue, 8th Floor, New York, NY 10017
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Position(s) held with Fund1
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Term of office1 and length of time served
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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 FTFA (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)
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FTFA, referenced above, was formerly known as LMPFA prior to November 30, 2023.
†
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”).
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 2024, year 2025 and year 2026, respectively, or thereafter in each case when their respective successors
are duly elected and
Western Asset High Yield Defined Opportunity Fund Inc.
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 FTFA and certain of its affiliates.
Western Asset High Yield Defined 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.
Western Asset High Yield Defined Opportunity Fund Inc.
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.
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited)
Investment Objectives
The Fund’s primary investment objective is to provide high income. As a secondary investment objective, the Fund will seek capital appreciation. There can be no assurance
the Fund will achieve its investment objectives.
Principal Investment Policies and Strategies
The Fund seeks to achieve its investment objectives by investing, under normal market
conditions, at least 80% of its net assets in a portfolio of high-yield corporate
fixed income securities with varying maturities. “High-yield” refers to below investment grade quality (also commonly referred to as “junk bonds”). High-yield fixed income securities of below investment grade quality are regarded as having predominately speculative characteristics
with respect to the issuer’s capacity to pay interest and repay principal. “Fixed income securities” include bonds, debentures, notes, commercial paper and other similar types of debt instruments, as well as preferred stock, convertible securities, Senior Loans,
Second Lien Loans, loan participations, payment-in-kind securities, zero-coupon bonds, mortgage-backed securities, asset-backed securities, bank certificates of deposit, fixed time deposits
and bankers’ acceptances. Corporate securities are those securities that are issued or originated by U.S. or foreign public or private corporations and other business entities,
and do not include securities issued by governments, agencies or supranational entities.
Certain fixed income instruments, such as convertible securities, may also include the right
to participate in equity appreciation, and Western Asset will generally evaluate those
instruments based primarily on their debt characteristics.
The Fund may invest in derivative instruments primarily for hedging and risk management
purposes, although the Fund may also use derivative instruments for investment purposes.
Investing in derivative instruments is not a principal investment strategy of the
Fund. Derivative instruments include options contracts, futures contracts, options on futures
contracts, indexed securities, currency forwards, credit linked notes, credit default
swaps and other swap agreements. The Fund may use derivative instruments to gain exposure
to or hedge its exposure to high-yield securities primarily through the use of credit
default swaps, but may also use other derivative instruments, provided that the Fund’s exposure to credit derivative instruments, as measured by the total notional amount of all such
instruments, will not exceed 20% of its net assets. With respect to this limitation,
the Fund may net derivatives with opposite exposure to the same underlying instrument. Notwithstanding the foregoing limitation, the Fund may invest without limit in derivative
instruments related to currencies and interest rates, subject to the requirements
of the 1940 Act provided that such currency and interest rate derivatives are used for hedging
purposes only. To the extent that the security or index underlying the derivative or synthetic
instrument is or is composed of corporate high-yield fixed income securities, the
Fund will include such derivative and synthetic instruments for the purposes of the Fund’s policy to invest at least 80% of its net assets in a portfolio of high-yield corporate fixed
income
Western Asset High Yield Defined Opportunity Fund Inc.
securities. Credit derivatives, by their design, have a high correlation to the underlying
securities. The Fund may not change its policy to invest, under normal market conditions,
at least 80% of its net assets in a portfolio of high-yield corporate fixed income securities
with varying maturities unless it provides shareholders with at least 60 days’ written notice of such change.
Below investment grade fixed income securities are rated below “BBB-” by S&P or Fitch, below “Baa3” by Moody’s or comparably rated by another NRSRO or, if unrated, determined by Western Asset to be of comparable quality. Below investment grade fixed income
securities are commonly referred to as “high-yield” or “junk” bonds and are regarded as having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. In the event that a security receives different ratings
from different NRSROs, the Fund will treat the security as being rated in the lowest rating
category received from an NRSRO.
Under normal market conditions, the Fund may also invest up to 20% of its net assets
in fixed income securities issued by U.S. or foreign governments, agencies and instrumentalities and/or fixed income securities that are investment grade quality.
The Fund may invest up to 20% of its net assets in securities that, at the time of
investment, are considered Illiquid Securities.
The Fund may invest up to 20% of its net assets in government debt securities, including
those of emerging market issuers or of other non-US issuers.
No more than 10% of the Fund’s net assets may be invested in any issuer, except securities issued by the U.S. government and its agencies.
The Fund may purchase equity securities (including but not limited to common stock,
preferred stock, convertible securities, and warrants of U.S. and non-U.S. issuers)
directly. The Fund may sell certain equities or fixed income securities short including, but
not limited to, U.S. Treasuries, for investment and/or hedging purposes.
The Fund may lend portfolio securities so long as the terms and the structure of such
loans are not inconsistent with the requirements of the Investment Company Act of 1940,
as amended (the “1940 Act”). The Fund does not currently intend to make loans of portfolio securities with a value in excess of 33 1/3% of the value of its net assets (including
such loans).
Temporary Defensive Strategies. At times Western Asset may judge that conditions in the markets for fixed income securities make pursuing the Fund’s primary investment strategy inconsistent with the best interests of its shareholders. At such times Western Asset
may, temporarily, use alternative strategies, primarily designed to reduce fluctuations
in the value of the Fund’s assets. If the Fund takes a temporary defensive position, it may be
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
unable to achieve its investment objectives. In implementing these “defensive” strategies, the Fund may 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. It is impossible to predict
if, when or for how long the Fund will use these alternative strategies. There can be no assurance
that such strategies will be successful.
Other Investment Companies. The Fund may invest in securities of other closed-end or open-end investment companies, including exchange traded funds (“ETFs”), that invest primarily in bonds or other securities and instruments of the types in which the Fund
may invest directly to the extent permitted by the 1940 Act. The Fund will not consider
an investment in securities of other closed-end or open-end investment companies toward
meeting its policy of investing at least 80% of its net assets in high-yield securities
unless such closed-end or open-end investment company has a policy of investing at least
80% of its net assets in high-yield securities.
The Fund may invest in other investment companies during periods when it has large
amounts of uninvested cash, such as during periods when there is a shortage of attractive
bonds available in the market, or when Western Asset believes share prices of other
investment companies offer attractive values. The Fund may invest in investment companies, including money market funds, that are advised by Western Asset or its
affiliates to the extent permitted by applicable law and/or pursuant to exemptive
relief from the SEC. As a shareholder in an investment company, the Fund will bear its ratable
share of that investment company’s expenses, and would remain subject to payment of the Fund’s management fees and other expenses with respect to assets so invested. Shareholders
would therefore be subject to duplicative expenses to the extent the Fund invests
in other investment companies. Western Asset will take expenses into account when evaluating
the investment merits of an investment in an investment company relative to available
bond investments. In addition, the securities of other investment companies may also be
leveraged and will therefore be subject to the same leverage risks described herein.
The net asset value and market value of leveraged shares will be more volatile and the yield
to shareholders will tend to fluctuate more than the yield generated by unleveraged shares.
Other investment companies may have investment policies that differ from those of
the Fund. In addition, to the extent the Fund invests in other investment companies, the
Fund will be dependent upon the investment and research abilities of persons other than
Western Asset.
Western Asset High Yield Defined Opportunity Fund Inc.
The Fund has a limited term and as a fundamental policy intends to liquidate and distribute
substantially all of its net assets to shareholders after making appropriate provisions
for any liabilities of the Fund on or about September 30, 2025.
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.
The following section includes a summary of the principal risks of investing in the
Fund.
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 Common Stock represents an indirect investment in the fixed income securities and other assets
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. The
Fund intends to take advantage of that Western Assets believes to be current market dislocations
by buying debt and other securities at depressed prices, but if such dislocations
do not persist during the period when the Fund is investing the net proceeds of this offering,
the Fund’s returns may be adversely affected. In addition, if the current global economic downturn continues or deteriorates further, the ability of issuers to service their
obligations could be materially and adversely affected. At any point in time, your Common Stock
may be worth less than your original investment, even after taking into account the reinvestment
of Fund dividends and distributions.
Below Investment Grade (High-Yield or Junk Bond) Securities Risk. High yield bonds, often called “junk” bonds, have a higher risk of issuer default or may be in default and are considered speculative. Changes in economic conditions or developments regarding the
individual issuer are more likely to cause price volatility and weaken the capacity
of such securities to make principal and interest payments than is the case for higher grade
debt securities. The value of lower-quality debt securities often fluctuates in response
to company, political, or economic developments and can decline significantly over short
as well as long periods of time or during periods of general or regional economic difficulty.
High yield bonds may also have lower liquidity as compared to higher-rated securities,
which means the Fund may have difficulty selling them at times, and it may have to
apply a greater degree of judgment in establishing a price for purposes of valuing Fund shares.
High yield bonds generally are issued by less creditworthy issuers. Issuers of high yield
bonds may have a larger amount of outstanding debt relative to their assets than issuers
of
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
investment grade bonds. In the event of an issuer’s bankruptcy, claims of other creditors may have priority over the claims of high yield bond holders, leaving few or no assets
available to repay high yield bond holders. The Fund may incur expenses to the extent
necessary to seek recovery upon default or to negotiate new terms with a defaulting
issuer. High yield bonds frequently have redemption features that permit an issuer to repurchase
the security from the Fund before it matures. If the issuer redeems high yield bonds,
the Fund may have to invest the proceeds in bonds with lower yields and may lose income.
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 shareholders. 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 (“call protection”). 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.
Senior Loans and Second Lien Loans typically do not have call protection. For premium bonds
(bonds acquired at prices that exceed their par or principal value) purchased by the
Fund, prepayment risk may be enhanced.
Western Asset High Yield Defined Opportunity Fund Inc.
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 Stock price or its overall return.
Credit Risk. Credit risk is the risk that one or more fixed income securities in the Fund’s portfolio will decline in price or fail to pay interest or principal when due because
the issuer of the security experiences a decline in its financial status. If the recent adverse
conditions in the credit markets continue to adversely affect the broader global economy, the
credit quality of issuers of fixed income securities in which the Fund may invest would be
more likely to decline, all other things being equal. Changes by an NRSRO in its rating
of securities and in the ability of an issuer to make scheduled payments may also affect
the value of the Fund’s investments. To the extent the Fund invests in below investment grade securities, it will be exposed to a greater amount of credit risk than a fund which
invests solely in investment grade securities. The prices of lower grade securities are generally
more sensitive to negative developments, such as a decline in the issuer’s revenues or a general economic downturn, than are the prices of higher grade securities. Fixed income
securities of below investment grade quality are predominantly speculative with respect
to the issuer’s capacity to pay interest and repay principal when due and therefore involve a greater risk of default.
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.
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
The risks of foreign investment are greater for investments in emerging markets. “Emerging market country” is defined as any country which is, at the time of investment, it is (i) represented in the J.P. Morgan Emerging Markets Bond Index Global Diversified or the
J.P. Morgan Corporate Emerging Market Bond Index Broad or (ii) 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.
Foreign Currency Risk. The value of investments 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.
Repurchase Agreements Risk. Subject to its investment objective and policies, the Fund may invest in repurchase agreements for leverage or investment purposes. Repurchase
agreements typically involve the acquisition by the Fund of debt securities from a
selling financial institution such as a bank, savings and loan association or broker-dealer.
The agreement provides that the Fund will sell the securities back to the institution
at a fixed time in the future. The Fund does not bear the risk of a decline in the value of the
underlying security unless the seller defaults under its repurchase obligation. In the event
of the bankruptcy or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and losses, including
(1) possible decline in the value of the underlying security during the period in which
the Fund seeks to enforce its rights thereto; (2) possible lack of access to income on the
underlying security during this period; and (3) expenses of enforcing its rights. While repurchase
agreements involve certain risks not associated with direct investments in debt securities,
the Fund follows procedures approved by the Fund’s Board of Directors that are designed to minimize such risks. These procedures include effecting repurchase transactions only
with large, well-capitalized and well-established financial institutions whose financial
condition will be continually monitored by Western Asset. In addition, as described above, the
value of the collateral underlying the repurchase agreement will be at least equal to the
repurchase price, including any accrued interest earned on the repurchase agreement.
In the event of a default or bankruptcy by a selling financial institution, the Fund
generally will seek to liquidate such collateral. However, the exercise of the Fund’s right to liquidate such
Western Asset High Yield Defined Opportunity Fund Inc.
collateral could involve certain costs or delays and, to the extent that proceeds
from any sale upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss.
Derivatives Risk. The Fund may utilize a variety of derivative instruments, primarily for hedging and risk management purposes although the Fund may also use derivative instruments for investment purposes. Derivative instruments include options contracts,
derivative instruments related to currencies, forward contracts, futures contracts,
options on futures contracts, indexed securities, credit linked notes, credit default swaps
and other swap agreements. A derivative is a financial contract whose value depends on changes
in the value of one or more underlying assets or reference rates. Derivatives are subject
to a number of risks described elsewhere in this prospectus, such as liquidity risk, interest
rate risk, credit risk and management risk. Derivatives are also subject to counterparty
risk, which is the risk that the other party in the transaction will not fulfill its contractual
obligation. Changes in the credit quality of the companies that serve as the Fund’s counterparties with respect to its derivative transactions will affect the value of
those instruments. By using derivatives that expose the Fund to counterparties, the Fund
assumes the risk that its counterparties could experience financial hardships that could call
into question their continued ability to perform their obligations. In addition, in the
event of the insolvency of a counterparty to a derivative transaction, the derivative transaction
would typically be terminated at its fair market value. If the Fund is owed this fair market
value in the termination of the derivative transaction and its claim is unsecured, the Fund
will be treated as a general creditor of such counterparty, and will not have any claim with
respect to the underlying security. As a result, concentrations of such derivatives in any
one counterparty would subject the Fund to an additional degree of risk with respect to
defaults by such counterparty. Derivatives also involve the risk of mispricing or improper
valuation and the risk that changes in the value of a derivative may not correlate perfectly
with an underlying asset, interest rate or index. Suitable derivative transactions may not
be available in all circumstances and there can be no assurance that the Fund will engage
in these transactions to reduce exposure to other risks when that would be beneficial.
If the Fund invests in a derivative instrument, it could lose more than the principal amount
invested. Derivative instruments can be illiquid, may disproportionately increase
losses, and may have a potentially large impact on Fund performance.
Registered investment companies are subject to regulatory limitations on their use
of derivative investments and certain financing transactions (e.g. reverse repurchase agreements) by registered investment companies. Among other things, Rule 18f-4 requires funds that invest in derivative instruments beyond a specified
limited amount to apply a value at risk (VaR) based limit to their use of certain derivative
instruments and financing transactions and to adopt and implement a derivatives risk
management program. A fund that uses derivative instruments in a limited amount is
not
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
subject to the full requirements of Rule 18f-4. Compliance with Rule 18f-4 by the
Fund could, among other things, make derivatives more costly, limit their availability
or utility, or otherwise adversely affect their performance. Rule 18f-4 may limit the Fund’s ability to use derivatives as part of its investment strategy and may not work as intended to limit
losses from derivatives.
Leverage Risk. As a fundamental policy, the Fund will not leverage its capital structure by issuing senior securities such as preferred shares or debt instruments. However, the
Fund may borrow for temporary or emergency purposes as permitted by the 1940 Act. The Fund
may take on leveraging risk by, among other things, purchasing securities on a when-issued
or delayed delivery basis, entering into credit default swaps or futures contracts,
engaging in short sales or writing options on portfolio securities. When the Fund engages in
transactions that have a leveraging effect on the Fund’s portfolio, the value of the Fund will be more volatile and all other risks will tend to be compounded. This is because leverage
generally magnifies the effect of any increase or decrease in the value of the Fund’s underlying asset or creates investment risk with respect to a larger pool of assets
than the Fund would otherwise have. Engaging in such transactions may cause the Fund to liquidate
positions when it may not be advantageous to do so to satisfy its obligations or meet
segregation requirements.
Liquidity Risk. 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.
Management Risk. The Fund is subject to management risk because it is an actively managed investment portfolio. Western Asset, the Non-U.S. Subadvisers and each individual portfolio manager may not be successful in selecting the best performing
securities or investment techniques, and the Fund’s performance may lag behind that of similar funds.
Government Intervention in Financial Markets Risk. U.S. federal and state governments and foreign governments, their regulatory agencies or self-regulatory organizations may
take additional actions that affect the regulation of the securities in which the Fund
invests, or the issuers of such securities, in ways that are unforeseeable. Legislation or regulation
may also change the way in which the Fund itself is regulated. Such legislation or regulation
could limit or preclude the Fund’s ability to achieve its investment objectives. Western Asset will monitor developments and seek to manage the Fund’s portfolio in a manner consistent with achieving the Fund’s investment objectives, but there can be no assurance that it will be successful in doing so.
Western Asset High Yield Defined Opportunity Fund Inc.
Limited Term Risk. Unless the termination date is amended by shareholders in accordance with the Articles, the Fund will be terminated on or about September 30, 2025. As
the assets of the Fund will be liquidated in connection with its termination, the Fund
may be required to sell portfolio securities when it otherwise would not, including at times
when market conditions are not favorable, which may cause the Fund to lose money. As the
Fund approaches its termination date, the portfolio composition of the Fund may change,
which may cause the Fund’s returns to decrease and the market price of the Common Stock to fall. Rather than reinvesting the proceeds of its securities, the Fund may distribute the
proceeds in one or more liquidating distributions prior to the final liquidation, which may
cause the Fund’s fixed expenses to increase when expressed as a percentage of net assets attributable to Common Stock, or the Fund may invest the proceeds in lower yielding
securities or hold the proceeds in cash or cash equivalents, which may adversely affect
the performance of the Fund. Upon its termination, the Fund will distribute substantially
all of its net assets to shareholders which may be more than, equal to or less than $20 per
share. In addition, other provisions of the Articles may permit the Fund (with shareholder
approval) to take certain actions that could have the effect of changing the termination date,
such as through merger, consolidation or liquidation.
Asset-Backed, Mortgage-Backed or Mortgage-Related Securities Risk. To the extent the Fund invests in asset-backed, mortgage-backed or mortgage-related securities, its
exposure to prepayment and extension risks may be greater than other investments in fixed income
securities. Mortgage derivatives held by the Fund may have especially volatile prices
and may have a disproportionate effect on the Fund’s share price. Rising interest rates tend to extend the duration of mortgage-related securities, making them more sensitive to
changes in interest rates. In addition, mortgage-related securities are subject to prepayment
risk—the risk that borrowers may pay off their mortgages sooner than expected, particularly when interest rates decline. This can reduce the Fund’s returns because the Fund may have to reinvest that money at lower prevailing interest rates. The Fund’s investments in other asset-backed securities are subject to risks similar to those
associated with mortgage-backed securities.
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 Stock in a relatively short period following completion of this offering. Whether
investors will realize gains or losses upon the sale of the Common Stock will depend not upon
the Fund’s net asset value but upon whether the market price of the Common Stock at the time of sale is above or below the investor’s purchase price for the Common Stock. Because the market price of the Common Stock will be determined by factors such as relative supply
of and demand for the Common Stock in the market, general market and economic conditions
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
and other factors beyond the control of the Fund, the Fund cannot predict whether
the Common Stock will trade at, above or below net asset value or at, above or below the
initial public offering price. The Fund’s Common Stock is designed primarily for long-term investors and you should not view the Fund as a vehicle for trading purposes.
Non-Diversification Risk. The Fund is classified as “non-diversified” under the 1940 Act. As a result, it can invest a greater portion of its assets in obligations of a single
issuer than a “diversified” fund. The Fund may therefore be more susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory
occurrence. The Fund intends to qualify for the special tax treatment available to “regulated investment companies” under Subchapter M of the Code, and thus intends to satisfy the diversification requirements of Subchapter M, including the less stringent diversification
requirement that applies to the percent of its total assets that are represented by
cash and cash items (including receivables), U.S. government securities, the securities of
other regulated investment companies and certain other securities.
Anti-Takeover Provisions. 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. The Fund’s Bylaws also contains a provision providing that the Fund is subject to the provisions of the Maryland Control Share Acquisition Act. There
can be no assurance, however, that such provisions will be sufficient to deter professional
arbitrageurs that seek to cause the Fund to take actions that may not be consistent
with its investment objective or aligned with the interests of long-term shareholders, such
as liquidating debt investments prior to maturity, triggering taxable events for shareholders
and decreasing the size of the Fund. 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.
U.S. Government Debt Securities Risk. U.S. government debt securities generally do not involve the credit risks associated with investments in other types of debt securities,
although, as a result, the yields available from U.S. government debt securities are
generally lower than the yields available from other securities. Like other debt securities,
however, the values of U.S. government securities change as interest rates fluctuate.
Fluctuations in the value of portfolio securities will not affect interest income
on existing portfolio securities but will be reflected in the Fund’s net asset value. Since the magnitude of these fluctuations will generally be greater at times when the Fund’s average maturity is longer, under certain market conditions the Fund may, for temporary defensive purposes,
Western Asset High Yield Defined Opportunity Fund Inc.
accept lower current income from short-term investments rather than investing in higher
yielding long-term securities.
Non-U.S. Government Debt Securities Risk. The Fund intends to invest in non-U.S. government debt securities. The ability of a government issuer, especially in an emerging
market country, to make timely and complete payments on its debt obligations will
be strongly influenced by the government issuer’s balance of payments, including export performance, its access to international credits and investments, fluctuations of
interest rates and the extent of its foreign reserves. A country whose exports are concentrated
in a few commodities or whose economy depends on certain strategic imports could be vulnerable to fluctuations in international prices of these commodities or imports.
To the extent that a country receives payment for its exports in currencies other than U.S.
dollars, its ability to make debt payments denominated in U.S. dollars could be adversely affected.
If a government issuer cannot generate sufficient earnings from foreign trade to service
its external debt, it may need to depend on continuing loans and aid from foreign governments,
commercial banks, and multinational organizations. There are no bankruptcy proceedings
similar to those in the United States by which defaulted non-U.S. government debt
may be collected. Additional factors that may influence a government issuer’s ability or willingness to service debt include, but are not limited to, a country’s cash flow situation, the availability of sufficient foreign exchange on the date a payment is due, the relative
size of its debt service burden to the economy as a whole, and the issuer’s policy towards the International Monetary Fund, the International Bank for Reconstruction and Development
and other international agencies to which a government debtor may be subject.
Senior Loans Risk. The Fund may invest in Senior Loans issued by banks, other financial institutions, and other investors to corporations, partnerships, limited liability
companies and other entities to finance leveraged buyouts, recapitalizations, mergers, acquisitions,
stock repurchases, debt refinancings and, to a lesser extent, for general operating
and other purposes. An investment in Senior Loans involves risk that the borrowers under Senior
Loans may default on their obligations to pay principal or interest when due. In the
event a borrower fails to pay scheduled interest or principal payments on a Senior Loan held
by the Fund, the Fund will experience a reduction in its income and a decline in the market
value of the Senior Loan, which will likely reduce dividends and lead to a decline in the net
asset value of the Fund. If the Fund acquires a Senior Loan from another lender, for example,
by acquiring a participation, the Fund may also be subject to credit risks with respect
to that lender.
The Fund will generally invest in Senior Loans that are secured with specific collateral.
However, there can be no assurance that liquidation of collateral would satisfy the
borrower’s obligation in the event of non-payment or that such collateral could be readily liquidated. In the event of the bankruptcy of a borrower, the Fund could experience
delays
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
and limitations on its ability to realize the benefits of the collateral securing
the Senior Loan. Senior Loans are typically structured as floating rate instruments in which
the interest rate payable on the obligation fluctuates with interest rate changes. As a result,
the yield on Senior Loans will generally decline in a falling interest rate environment causing
the Fund to experience a reduction in the income it receives from a Senior Loan. Senior
Loans are generally of below investment grade quality and may be unrated at the time of
investment; are generally not registered with the SEC or state securities commissions;
and are generally not listed on any securities exchange. In addition, the amount of public
information available on Senior Loans is generally less extensive than that available
for other types of assets.
Second Lien Loans Risk. Second Lien Loans generally are subject to similar risks as those associated with investments in Senior Loans. Because Second Lien Loans are subordinated
or unsecured and thus lower in priority of payment to Senior Loans, they are subject
to the additional risk that the cash flow of the borrower and property securing the loan
or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior
secured obligations of the borrower. This risk is generally higher for subordinated
unsecured loans or debt, which are not backed by a security interest in any specific collateral.
Second Lien Loans generally have greater price volatility than Senior Loans and may be less
liquid. There is also a possibility that originators will not be able to sell participations
in Second Lien Loans, which would create greater credit risk exposure for the holders of such
loans. Second Lien Loans share the same risks as other below investment grade securities.
Loan Participations and Assignments Risk. The Fund may invest in participations in loans or assignments of all or a portion of loans from third parties. 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 relating to the loan, nor any rights of set-off
against the borrower, and the Fund may not directly benefit from any collateral supporting
the loan in which it has purchased the participation. As a result, the Fund may be subject
to the credit risk of both the borrower and the lender that is selling the participation.
In the event of the insolvency of the lender selling a participation, the Fund may be treated as
a general creditor of the lender and may not benefit from any set-off between the lender and
the borrower. Certain participations may be structured in a manner designed to avoid purchasers of participations being subject to the credit risk of the lender with respect
to the participation, but even under such a structure, in the event of the lender’s insolvency, the lender’s servicing of the participation may be delayed and the assignability of the participation impaired. The Fund will acquire participations only if the lender interpositioned
between the Fund and the borrower is determined by Western Asset to be creditworthy.
Common Stock Risk. The Fund may purchase equity securities (including but not limited to common stock, preferred stock, convertible securities, and warrants of U.S. and non-U.S.
Western Asset High Yield Defined Opportunity Fund Inc.
issuers) directly. An adverse event, such as an unfavorable earnings report, may depress
the value of a particular common stock held by the Fund. In addition, the prices of common
stocks are sensitive to general movements in the stock market, and a drop in the stock
market may depress the prices of common stocks to which the Fund has exposure. Common
stock prices fluctuate for several reasons including changes in investors’ perceptions of the financial condition of an issuer or the general condition of the relevant stock market,
or when political or economic events affecting an issuer occur. In addition, common stock
prices may be particularly sensitive to rising interest rates, as the cost of capital
rises and borrowing costs increase. The value of the common stocks in which the Fund may invest
will be affected by changes in the stock markets generally, which may be the result
of domestic or international political or economic news, changes in interest rates or
changing investor sentiment. At times, stock markets can be volatile and stock prices can change
substantially. The common stocks of smaller companies are more sensitive to these
changes than those of larger companies. Common stock risk will affect the Fund’s net asset value per share, which will fluctuate as the value of the securities held by the Fund
change.
Preferred Stock Risk. The Fund may invest in preferred stock. Preferred stocks are unique securities that combine some of the characteristics of both common stocks and bonds.
Preferred stocks generally pay a fixed rate of return and are sold on the basis of
current yield, like bonds. However, because they are equity securities, preferred stock provides
equity ownership of a company, and the income is paid in the form of dividends. Preferred
stocks typically have a yield advantage over common stocks as well as comparably-rated
fixed income investments. Preferred stocks are typically subordinated to bonds and
other debt instruments in a company’s capital structure, in terms of priority to corporate income, and therefore will be subject to greater credit risk than those debt instruments.
Unlike interest payments on debt securities, preferred stock dividends are payable only if
declared by the issuer’s board of directors. Preferred stocks also may be subject to optional or mandatory redemption provisions. Certain of the preferred stocks in which the Fund
may invest may be convertible preferred stocks, which have risks similar to convertible
securities as described below in “—Convertible Securities Risk.”
Convertible Securities Risk. The Fund may invest in convertible securities. A convertible security is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock or other equity security
of the same or a different issuer within a particular period of time at a specified price
or formula. Before conversion, convertible securities have characteristics similar to nonconvertible
income securities in that they ordinarily provide a stable stream of income with generally
higher yields than those of common stocks of the same or similar issuers, but lower
yields than comparable nonconvertible securities. Similar to traditional fixed income securities,
the market values of convertible securities tend to decline as interest rates increase
and, conversely, to increase as interest rates decline. However, when the market price
of the
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
common stock underlying a convertible security exceeds the conversion price, the convertible security tends to reflect the market price of the underlying common stock.
As the market price of the underlying common stock declines, the convertible security
tends to trade increasingly on a yield basis and thus may not decline in price to the same
extent as the underlying common stock. The credit standing of the issuer and other factors also
may have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to redemption
at the option of the issuer at a price established in the convertible security’s governing instrument.
Short Sales Risk. To the extent the Fund makes use of short sales for investment and/or risk management purposes, the Fund may be subject to risks associated with selling short.
Short sales are transactions in which the Fund sells securities or other instruments that
the Fund does not own. Short sales expose the Fund to the risk that it will be required to
cover its short position at a time when the securities have appreciated in value, thus resulting
in a loss to the Fund. The Fund may engage in short sales where it does not own or have
the right to acquire the security sold short at no additional cost. The Fund’s loss on a short sale theoretically could be unlimited in a case where the Fund is unable, for whatever
reason, to close out its short position. In addition, the Fund’s short selling strategies may limit its ability to benefit from increases in the markets. If the Fund engages in short sales,
it will segregate liquid assets, enter into offsetting transactions, own positions covering
its obligations or otherwise cover such obligations; however, such segregation and cover
requirements will not limit or offset losses on related positions. Short selling also
involves a form of financial leverage that may exaggerate any losses realized by the Fund. Also,
there is the risk that the counterparty to a short sale may fail to honor its contractual
terms, causing a loss to the Fund.
Risk of Short Economic Exposure Through Derivatives. The use by the Fund of derivatives such as options, forwards or futures contracts for investment and/or risk management
purposes may subject the Fund to risks associated with short economic exposure through
such derivatives. Taking a short economic position through derivatives exposes the
Fund to the risk that it will be obligated to make payments to its counterparty if the underlying
asset appreciates in value, thus resulting in a loss to the Fund. The Fund’s loss on a short position using derivatives theoretically could be unlimited.
Counterparty Risk. Changes in the credit quality of the companies that serve as the Fund’s counterparties with respect to derivatives or other transactions supported by another party’s credit will affect the value of those instruments. Certain entities that have served
as counterparties in the markets for these transactions have recently incurred significant
financial hardships including bankruptcy and losses as a result of exposure to sub-prime
Western Asset High Yield Defined Opportunity Fund Inc.
mortgages and other lower quality credit investments that have experienced recent
defaults or otherwise suffered extreme credit deterioration. If a counterparty becomes bankrupt
or otherwise fails to perform its obligations under a derivative contract due to financial
difficulties, the Fund may experience significant delays in obtaining any recovery
under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund may
obtain only a limited recovery or may obtain no recovery in such circumstances.
Credit Default Swap Risk. The Fund may invest in credit default swap transactions for hedging or investment purposes. Credit default swap agreements involve greater risks
than if the Fund had invested in the reference obligation directly since, in addition to
general market risks, credit default swaps are subject to illiquidity risk, counterparty risk
and credit risk. The “buyer” in a credit default contract is obligated to pay the “seller” a periodic stream of payments over the term of the contract, provided that no event of default
on an underlying reference obligation has occurred. If an event of default occurs, the seller
must pay the buyer the full notional value, or “par value,” of the reference obligation through either physical settlement or cash settlement. The Fund may be either the buyer or
seller in a credit default swap transaction. If the Fund is a buyer and no event of default
occurs, the Fund will have made a series of periodic payments and recover nothing of monetary
value. However, if an event of default occurs, the Fund (if the buyer) will receive the full
notional value of the reference obligation either through a cash payment in exchange for the
asset or a cash payment in addition to owning the reference assets. As a seller, the Fund receives
a fixed rate of income throughout the term of the contract, which typically is between
six months and five years, provided that there is no event of default. The sale of a credit
default swap is a form of leverage. The Fund currently intends to segregate assets
on the Fund’s records in the form of cash, cash equivalents or liquid securities in an amount equal to the notional value of the credit default swaps of which it is the seller or otherwise
cover such obligations. If such assets are not fully segregated or otherwise covered by
the Fund, the use of credit default swap transactions could then be considered senior securities
for purposes of the 1940 Act.
Structured Notes and Related Instruments Risk. The Fund may invest in “structured” notes and other related instruments, which are privately negotiated debt obligations where
the principal and/or interest is determined by reference to the performance of a benchmark
asset, market or interest rate (an “embedded index”), such as selected securities, an index of securities or specified interest rates, or the differential performance of two
assets or markets, such as indexes reflecting bonds. Structured instruments may be issued by
corporations, including banks, as well as by governmental agencies. Structured instruments
frequently are assembled in the form of medium-term notes, but a variety of forms
are available and may be used in particular circumstances. The terms of such structured
instruments normally provide that their principal and/or interest payments are to
be adjusted upwards or downwards (but ordinarily not below zero) to reflect changes in
the
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
embedded index while the structured instruments are outstanding. As a result, the
interest and/or principal payments that may be made on a structured product may vary widely,
depending on a variety of factors, including the volatility of the embedded index
and the effect of changes in the embedded index on principal and/or interest payments. The
rate of return on structured notes may be determined by applying a multiplier to the performance
or differential performance of the referenced index(es) or other asset(s). Application
of a multiplier involves leverage that will serve to magnify the potential for gain and
the risk of loss.
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 Common Stock and distributions
on the Common Stock can decline. In addition, during any periods of rising inflation,
the dividend rates or borrowing costs associated with the Fund’s use of leverage would likely increase, which would tend to further reduce returns to shareholders. 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.
Risks of Futures and Options on Futures. The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves special considerations
and risks, as described below.
• Successful use of hedging transactions depends upon Western Asset’s ability to correctly predict the direction of changes in interest rates. There can be no assurance that
any particular hedging strategy will succeed.
• There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates
being hedged. Such a lack of correlation might occur due to factors unrelated to the interest
rates being hedged, such as market liquidity and speculative or other pressures on
the markets in which the hedging instrument is traded.
• Hedging strategies, if successful, can reduce risk of loss by wholly or partially
offsetting the negative effect of unfavorable movements in the interest rates being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the
positive effect of favorable movements in the hedged interest rates.
• There is no assurance that a liquid secondary market will exist for any particular
futures contract or option thereon at any particular time. If the Fund were unable to liquidate
a futures contract or an option on a futures contract position due to the absence of
a liquid secondary market or the imposition of price limits, it could incur substantial losses.
The Fund would continue to be subject to market risk with respect to the position.
Western Asset High Yield Defined Opportunity Fund Inc.
• There is no assurance that the Fund will use hedging transactions. For example, if
the Fund determines that the cost of hedging will exceed the potential benefit to the
Fund, the Fund will not enter into such transactions.
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.
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 shareholders, 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 shareholders. 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
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.
Rating Agency Risk. Credit ratings are issued by rating agencies which are private services that provide ratings of the credit quality of debt obligations, including convertible
securities. Ratings assigned by a rating agency are not absolute standards of credit quality and
do not evaluate market risks or the liquidity of securities. Rating agencies may fail to
make timely changes in credit ratings and an issuer’s current financial condition may be better or worse than a rating indicates. In addition, in recent years there have been instances in
which the
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
initial rating assigned by a rating agency to a security failed to take account of
adverse economic developments which subsequently occurred, leading to losses that were not
anticipated based on the initial rating. To the extent that the issuer of a security
pays a rating agency for the analysis of its security, an inherent conflict of interest may
exist that could affect the reliability of the rating. The ratings of a debt security may change
over time. As a result, debt instruments held by the Fund could receive a higher rating
or a lower rating during the period in which they are held. The Fund will not necessarily sell
a security when its rating is reduced below its rating at the time of purchase.
Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to factors such as economic events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or
foreign central banks, market disruptions caused by trade disputes, labor strikes or other
factors, political developments, armed conflicts, economic sanctions and countermeasures in
response to sanctions, major cybersecurity events, the global and domestic effects
of widespread or local health, weather or climate events, 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, public health events, terrorism, wars, 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 or markets directly
affected, the value and liquidity of the fund’s investments may be negatively affected. Following Russia’s invasion of Ukraine in 2022, Russian stocks lost all, or nearly all, of their market value. Other securities or markets could be similarly affected by past or future geopolitical
or other events or conditions. Furthermore, events involving limited liquidity, defaults,
non-performance or other adverse developments that affect one industry, such as the financial services industry, or concerns or rumors about any events of these kinds, have in
the past and may in the future lead to market-wide liquidity problems, may spread to other
industries, and could negatively affect the value and liquidity of the fund’s investments.
The long-term impact of the COVID-19 pandemic and its subsequent variants on economies,
markets, industries and individual issuers is not known. Some sectors of the economy
and individual issuers have experienced or may experience particularly large losses. Periods
of extreme volatility in the financial markets, reduced liquidity of many instruments,
increased government debt, inflation, and disruptions to supply chains, consumer demand and
employee availability, may continue for some time. The U.S. government and the Federal
Reserve, as well as certain foreign governments and central banks, took extraordinary
actions to support local and global economies and the financial markets in response
to the COVID-19 pandemic. This and other government intervention into the economy and financial
markets may not work as intended, and have resulted in a large expansion of government
Western Asset High Yield Defined Opportunity Fund Inc.
deficits and debt, the long term consequences of which are not known. In addition,
the COVID-19 pandemic, and measures taken to mitigate its effects, could result in disruptions
to the services provided to the fund by its service providers.
Raising the ceiling on U.S. government debt has become increasingly politicized. Any
failure to increase the total amount that the U.S. government is authorized to borrow could
lead to a default on U.S. government obligations, with unpredictable consequences for economies
and markets in the U.S. and elsewhere. Recently, inflation and interest rates have
increased and may rise further. These circumstances could adversely affect the value and liquidity
of the fund’s investments, impair the fund’s ability to satisfy redemption requests, and negatively impact the fund’s performance.
The United States and other countries are periodically involved in disputes over trade
and other matters, which may result in tariffs, investment restrictions and adverse impacts
on affected companies and securities. For example, the United States has imposed tariffs
and other trade barriers on Chinese exports, has restricted sales of certain categories
of goods to China, and has established barriers to investments in China. Trade disputes may
adversely affect the economies of the United States and its trading partners, as well
as companies directly or indirectly affected and financial markets generally. The United
States government has prohibited U.S. persons from investing in Chinese companies designated
as related to the Chinese military. These and possible future restrictions could limit the fund’s opportunities for investment and require the sale of securities at a loss or make
them illiquid. Moreover, the Chinese government is involved in a longstanding dispute with
Taiwan that has included threats of invasion. If the political climate between the
United States and China does not improve or continues to deteriorate, if China were
to attempt unification of Taiwan by force, or if other geopolitical conflicts develop
or get worse, economies, markets and individual securities may be severely affected both
regionally and globally, and the value of the fund’s assets may go down.
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.
Valuation Risk. The sales price the Fund could receive for any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair value methodology. These
differences may increase significantly and affect Fund investments more broadly during
Western Asset High Yield Defined Opportunity Fund Inc.
Summary of information regarding the Fund (unaudited) (cont’d)
periods of market volatility. The Fund’s ability to value its investments may be impacted by technological issues and/or errors by pricing services or other third party service
providers. The valuation of the Fund’s investments involves subjective judgment.
Cybersecurity Risk. Like other funds and business enterprises, the fund, the manager, the subadvisers, Authorized Participants, the relevant listing exchange and their service
providers are subject to the risk of cyber incidents occurring from time to time.
Cybersecurity incidents, whether intentionally caused by third parties or otherwise,
may allow an unauthorized party to gain access to fund assets, fund or customer data (including
private shareholder information) or proprietary information, cause the fund, the manager,
the subadvisers, Authorized Participants, the relevant listing exchange and/or their
service providers (including, but not limited to, fund accountants, custodians, sub-custodians,
transfer agents and financial intermediaries) to suffer data breaches, data corruption
or loss of operational functionality, or prevent fund investors from purchasing, redeeming
or exchanging shares, receiving distributions or receiving timely information regarding
the fund or their investment in the fund. The fund, the manager, 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, the manager, and/or the subadvisers. Cybersecurity incidents
may result in financial losses to the fund and its shareholders, and substantial costs
may be incurred in order to prevent or mitigate any 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.
New ways to carry out cyber attacks continue to develop. There is a chance that some
risks have not been identified or prepared for, or that an attack may not be detected, which
puts limitations on the fund’s ability to plan for or respond to a cyber attack.
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-2 that was declared effective by the SEC on October
26, 2010. 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.
Western Asset High Yield Defined Opportunity Fund Inc.
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 stock-
holders (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 P.O. Box 43006, Providence, RI 02940-3078 or by calling the Plan Agent at 1-888-888-0151.
Such withdrawal will be effective immediately if notice is received by the Plan Agent
not less than ten business days prior to any dividend or distribution record date; otherwise
such
Western Asset High Yield Defined Opportunity Fund Inc.
Dividend reinvestment plan (unaudited) (cont’d)
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 P.O. Box 43006, Providence, RI 02940-3078 or by
calling the Plan Agent at 1-888-888-0151.
Western Asset High Yield Defined Opportunity Fund Inc.
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 May 31, 2024:
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Qualified Net Interest Income (QII)
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Section 163(j) Interest Earned
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Interest Earned from Federal Obligations
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Note (1) - The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. Shareholders
are advised to consult with their tax advisors to determine if any portion of the
dividends received is exempt from state income taxes.
Western Asset High Yield Defined Opportunity Fund Inc.
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Western Asset
High Yield Defined Opportunity Fund Inc.
Directors
Jane Trust
Chairman
Jane Trust
President and Chief Executive
Officer
Christopher Berarducci
Treasurer and Principal Financial
Officer
Fred Jensen
Chief Compliance Officer
Marc A. De Oliveira*
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Western Asset High Yield Defined Opportunity Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Franklin Templeton Fund Adviser, LLC**
Western Asset Management Company, LLC
Western Asset Management Company Limited
Western Asset Management Company Ltd
Western Asset Management Company Pte. Ltd.
The Bank of New York Mellon
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Simpson Thacher & Bartlett LLP
900 G Street NW
Washington, DC 20001
New York Stock
Exchange Symbol
*
Effective September 7, 2023, Mr. De Oliveira became Secretary and Chief Legal Officer.
**
Formerly known as Legg Mason Partners Fund Advisor, LLC.
Franklin Templeton Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to Us
This Privacy and Security Notice (the “Privacy Notice”) addresses the Funds’ privacy and data protection practices with respect to nonpublic personal information the Fund receives.
The Legg Mason Funds include the Western Asset Money Market Funds (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:
•
Personal information included on applications or other forms;
•
Account balances, transactions, and mutual fund holdings and positions;
•
Bank account information, legal documents, and identity verification documentation;
and
•
Online account access user IDs, passwords, security challenge question responses.
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:
•
Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or to comply with obligations to government regulators;
•
Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or
servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services
solely for the Funds;
•
Permit access to transfer, whether in the United States or countries outside of the
United States to such Funds’ employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
•
The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
•
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or
trustee of a grantor trust.
NOT PART OF THE ANNUAL REPORT
Franklin Templeton 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. For additional information related to certain state privacy rights, please
visit https://www.franklintempleton.com/help/privacy-policy.
NOT PART OF THE ANNUAL REPORT
Western Asset High Yield Defined Opportunity Fund Inc.
Western Asset High Yield Defined 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 Yield Defined 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.
P.O. Box 43006
Providence, RI 02940-3078
The registrant has adopted a code of ethics that applies to the
registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
| ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Directors of the registrant has determined that
Eileen A. Kamerick and Nisha Kumar, are the members of the Board’s Audit Committee, possesses the technical attributes identified
in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial experts”.
| Item
4. | Principal
Accountant Fees and Services. |
(a) Audit Fees. The aggregate fees billed in the previous
fiscal years ending May 31, 2023 and May 31, 2024 (the “Reporting Periods”) for professional services rendered by the Registrant’s
principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that
are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods,
were $47,206 in May 31, 2023 and $47,206 in May 31, 2024.
(b) Audit-Related Fees. The aggregate fees billed in the
Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s
financial statements were $0 in May 31, 2023 and $0 in May 31, 2024.
(c) Tax Fees. The aggregate fees billed in the Reporting
Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”)
were $10,000 in May 31, 2023 and $10,000 in May 31, 2024. These services consisted of (i) review or preparation of U.S. federal, state,
local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory
or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments
held or proposed to be acquired or held.
There were no fees billed for tax services by the Auditors to
service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.
(d) All Other Fees. The aggregate fees for other fees billed
in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through
(c) of this Item for the Western Asset High Yield Defined Opportunity Fund Inc. were $0 in May 31, 2023 and $0 in May 31, 2024.
All Other Fees. There were no other non-audit services rendered
by the Auditor to Franklin Templeton Fund Advisor, LLC (“FTFA”), and any entity controlling, controlled by or under common
control with FTFA that provided ongoing services to Western Asset High Yield Defined Opportunity Fund Inc. requiring pre-approval by
the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre-approval policies and procedures
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”)
of the Board of each registered investment company (the “Fund”) advised by FTFA or one of their affiliates (each, an “Adviser”)
requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible
non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement
relates directly to the operations and financial reporting of the Fund. The Committee may
implement policies and procedures by which such services are approved
other than by the full Committee.
The Committee shall not approve non-audit services that the Committee
believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit
services include any professional services (including tax services), that are not prohibited services as described below, provided to
the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial
statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records
or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services,
fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management
functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert
services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation,
is impermissible.
Pre-approval by the Committee of any permissible non-audit services
is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and
any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered
Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal
year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled
by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are
provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at
the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and
approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) None of the services described in paragraphs (b) through (d)
of this Item were performed in reliance on paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) N/A
(g) Non-audit fees billed by the Auditor for services rendered
to Western Asset High Yield Defined Opportunity Fund Inc., FTFA and any entity controlling, controlled by, or under common control with
FTFA that provides ongoing services to Western Asset High Yield Defined Opportunity Fund Inc. during the reporting period were $350,359
in May 31, 2023 and $342,635 in May 31, 2024.
(h) Yes. Western Asset High Yield Defined Opportunity Fund Inc.’s
Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved
(not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor
to the Western Asset High Yield Defined Opportunity Fund Inc. or to Service Affiliates, which were required to be pre-approved, were
pre-approved as required.
(i) Not applicable.
(j) Not applicable.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
| a) | Registrant has a separately-designated standing Audit Committee established in accordance
with Section 3(a)58(A) of the Exchange Act. The Audit Committee consists of the following Board members: |
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
Nisha Kumar
| ITEM 6. |
SCHEDULE OF INVESTMENTS. |
Included herein under Item 1.
|
ITEM 7. |
FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 8. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 9. |
PROXY DISCLOSURES FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 10. |
REMUNERATION PAID TO DIRECTORS, OFFICERS, AND OTHERS OF OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
|
ITEM 11. |
STATEMENT REGARDING BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACT. |
Not applicable.
|
ITEM 12. |
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Western Asset Management Company, LLC
Proxy Voting Policies and Procedures
NOTE
The policy below relating to proxy voting and
corporate actions is a global policy for Western Asset Management Company, LLC (“Western Asset” or the “Firm”)
and all Western Asset affiliates, including Western Asset Management Company Limited (“Western Asset Limited”), Western Asset
Management Company Ltd (“Western Asset Japan”) and Western Asset Management Company Pte. Ltd. (“Western Asset Singapore”),
as applicable. As compliance with the policy is monitored by Western Asset, the policy has been adopted from the US Compliance Manual
and all defined terms are those defined in the US Compliance Manual rather than the compliance manual of any other Western Asset affiliate.
BACKGROUND
An investment adviser is required to adopt and
implement policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients,
in accordance with fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). The authority
to vote the proxies of our clients is established through investment management agreements or comparable documents. In addition to SEC
requirements governing advisers, long-standing fiduciary standards and responsibilities have been established for ERISA accounts. Unless
a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility
for these votes lies with the investment manager.
POLICY
As a fixed income only manager, the occasion
to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed
to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and Rule 206(4)-6 under the
Advisers Act. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards
and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department
of Labor has determined that the responsibility for these votes lies with the investment manager.
While the guidelines included in the
procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into
consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the
vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western Asset
will not consult or enter into agreements with officers, directors or employees of Franklin Resources (Franklin Resources includes Franklin
Resources, Inc. and organizations operating as Franklin Resources) or any of its affiliates (other than Western Asset affiliated companies)
regarding the voting of any securities owned by its clients.
PROCEDURES
Responsibility and Oversight
The Regulatory Affairs Group is responsible for
administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of
Investment Operations Group (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining
appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client
is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation
of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting.
The Regulatory Affairs Group maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians,
client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate
Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client
has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy
materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel
other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate
Actions, they are forwarded to the Regulatory Affairs Group for coordination and the following actions:
| • | Proxies
are reviewed to determine accounts impacted. |
| • | Impacted
accounts are checked to confirm Western Asset voting authority. |
| • | The
Regulatory Affairs Group reviews proxy issues to determine any material conflicts of interest.
(See Conflicts of Interest section of these procedures for further information on determining
material conflicts of interest.) |
| • | If
a material conflict of interest exists, (i) to the extent reasonably practicable and permitted
by applicable law, the client is promptly notified, the conflict is disclosed and Western
Asset obtains the client’s proxy voting instructions, and (ii) to the extent that it
is not reasonably practicable or permitted by applicable law to notify the client and obtain
such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an
ERISA plan client), Western Asset seeks voting instructions from an independent third party. |
| • | The
Regulatory Affairs Group provides proxy material to the appropriate research analyst or portfolio
manager to obtain their recommended vote. Research analysts and portfolio managers determine
votes on a case-by-case basis taking into account the voting guidelines contained in these
procedures. For avoidance of doubt, depending on the best interest of each individual client,
Western Asset may vote the same proxy differently for different clients. The analyst’s
or portfolio manager’s basis for their decision is documented and maintained by the
Regulatory Affairs Group. |
| • | Portfolio
Compliance Group votes the proxy pursuant to the instructions received in (d) or (e) and
returns the voted proxy as indicated in the proxy materials. |
Timing
Western Asset’s Legal and Compliance Department
personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can
be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted
pursuant to Rule 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:
| • | A
copy of Western Asset’s proxy voting policies and procedures. |
| • | Copies
of proxy statements received with respect to securities in client accounts. |
| • | A
copy of any document created by Western Asset that was material to making a decision how
to vote proxies. |
| • | Each
written client request for proxy voting records and Western Asset’s written response
to both verbal and written client requests. |
| 2. | Exchange
ticker symbol of the issuer’s shares to be voted; |
| 3. | Committee
on Uniform Securities Identification Procedures (“CUSIP”) number for the shares
to be voted; |
| 4. | A
brief identification of the matter voted on; |
| 5. | Whether
the matter was proposed by the issuer or by a shareholder of the issuer; |
| 6. | Whether
a vote was cast on the matter; |
| 7. | A
record of how the vote was cast; and |
| 8. | Whether
the vote was cast for or against the recommendation of the issuer’s management team. |
Records are maintained in an easily accessible
place for a period of not less than five (5) years with the first two (2) years in Western Asset’s offices.
Disclosure
Western Asset’s proxy policies and procedures
are described in the Firm’s Form ADV Part 2A. Clients are provided with a copy of these policies and procedures upon request. In
addition, clients may receive reports on how their proxies have been voted, upon request.
Conflicts of Interest
All proxies are reviewed by the Regulatory Affairs
Group for material conflicts of interest. Issues to be reviewed include, but are not limited to:
| 1. | Whether
Western Asset (or, to the extent required to be considered by applicable law, its affiliates)
manages assets for the company or an employee group of the company or otherwise has an interest
in the company; |
| 2. | Whether
Western Asset or an officer or director of Western Asset or the applicable portfolio manager
or analyst responsible for recommending the proxy vote (together, “Voting Persons”)
is a close relative of or has a personal or business relationship with an executive, director
or person who is a candidate for director of the company or is a participant in a proxy contest;
and |
| 3. | Whether
there is any other business or personal relationship where a Voting Person has a personal
interest in the outcome of the matter before shareholders. |
Voting Guidelines
Western Asset’s substantive voting decisions
are based on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio
manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Situations can arise in which more
than one Western Asset client invests in instruments of the same issuer or in which a single client may invest in instruments of the
same issuer but in multiple accounts or strategies. Multiple clients or the same client in multiple accounts or strategies may have different
investment objectives, investment styles, or investment professionals involved in making decisions. While there may be differences, votes
are always cast in the best interests of the client and the investment objectives agreed with Western Asset. As a result, there may be
circumstances where Western Asset casts different votes on behalf of different clients or on behalf of the same client with multiple
accounts or strategies.
Guidelines are grouped according to the types of proposals generally presented
to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part
II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares
of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
| I. | Board
Approved Proposals |
The vast majority of matters presented to shareholders
for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the
enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of
decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:
| 1. | Matters
relating to the Board of Directors |
Western Asset votes proxies for the election of the company’s
nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
| a. | Votes
are withheld for the entire board of directors if the board does not have a majority of independent
directors or the board does not have nominating, audit and compensation committees composed
solely of independent directors. |
| b. | Votes
are withheld for any nominee for director who is considered an independent director by the
company and who has received compensation from the company other than for service as a director. |
| c. | Votes
are withheld for any nominee for director who attends less than 75% of board and committee
meetings without valid reasons for absences. |
| d. | Votes
are cast on a case-by-case basis in contested elections of directors. |
| 2. | Matters
relating to Executive Compensation |
Western Asset generally favors compensation programs that relate
executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals
relating to executive compensation, except as follows:
| a. | Except
where the firm is otherwise withholding votes for the entire board of directors, Western
Asset votes for stock option plans that will result in a minimal annual dilution. |
| b. | Western
Asset votes against stock option plans or proposals that permit replacing or repricing of
underwater options. |
| c. | Western
Asset votes against stock option plans that permit issuance of options with an exercise price
below the stock’s current market price. |
| d. | Except
where the firm is otherwise withholding votes for the entire board of directors, Western
Asset votes for employee stock purchase plans that limit the discount for shares purchased
under the plan to no more than 15% of their market value, have an offering period of 27 months
or less and result in dilution of 10% or less. |
| 3. | Matters
relating to Capitalization |
The Management of a company’s capital structure involves
a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each
company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s
capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
| a. | Western
Asset votes for proposals relating to the authorization of additional common stock. |
| b. | Western
Asset votes for proposals to effect stock splits (excluding reverse stock splits). |
| c. | Western
Asset votes for proposals authorizing share repurchase programs. |
| 4. | Matters
relating to Acquisitions, Mergers, Reorganizations and Other Transactions |
Western Asset votes these issues on a case-by-case
basis on board-approved transactions.
| 5. | Matters
relating to Anti-Takeover Measures |
Western Asset votes against board-approved proposals
to adopt anti-takeover measures except as follows:
| a. | Western
Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights
plans. |
| b. | Western
Asset votes on a case-by-case basis on proposals to adopt fair price provisions. |
Western Asset votes for board-approved proposals approving such
routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating
to the shareholder meeting.
| a. | Western
Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws. |
| b. | Western
Asset votes against authorization to transact other unidentified, substantive business at
the meeting. |
| 7. | Reporting
of Financially Material Information |
Western Asset generally believes issuers should disclose information
that is material to their business. This principle extends to Environmental, Social and Governance matters. What qualifies as “material”
can vary, so votes are cast on a case by case basis but consistent with the overarching principle.
SEC regulations permit shareholders to submit
proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s
corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation
of the company’s board of directors on all shareholder proposals, except as follows:
| 1. | Western
Asset votes for shareholder proposals to require shareholder approval of shareholder rights
plans. |
| 2. | Western
Asset votes for shareholder proposals that are consistent with Western Asset’s proxy
voting guidelines for board-approved proposals. |
| 3. | Western
Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise
withholding votes for the entire board of directors. |
Environmental or social issues that are the subject
of a proxy vote will be considered on a case by case basis. Constructive proposals that seek to advance the health of the issuer and
the prospect for risk-adjusted returns to Western Assets clients are viewed more favorably than proposals that advance a single issue
or limit the ability of management to meet its operating objectives.
| III. | Voting
Shares of Investment Companies |
Western Asset may utilize shares of open or closed-end
investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories
listed in Parts I and II above are voted in accordance with those guidelines.
| 1. | Western
Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives
of an investment company taking into account the original intent of the fund and the role
the fund plays in the clients’ portfolios. |
| 2. | Western
Asset votes on a case-by-case basis all proposals that would result in increases in expenses
(e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve
fund mergers) taking into account comparable expenses for similar funds and the services
to be provided. |
| IV. | Voting
Shares of Foreign Issuers |
In the event Western Asset is required to vote
on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are
not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence
of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances
for foreign issuers and therefore apply only where applicable.
| 1. | Western
Asset votes for shareholder proposals calling for a majority of the directors to be independent
of management. |
| 2. | Western
Asset votes for shareholder proposals seeking to increase the independence of board nominating,
audit and compensation committees. |
| 3. | Western
Asset votes for shareholder proposals that implement corporate governance standards similar
to those established under U.S. federal law and the listing requirements of U.S. stock exchanges,
and that do not otherwise violate the laws of the jurisdiction under which the company is
incorporated. |
| 4. | Western
Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock
in excess of 20% of a company’s outstanding common stock where shareholders do not
have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s
outstanding common stock where shareholders have preemptive rights. |
| V. | Environmental,
Social and Governance Matters |
Western Asset considers ESG matters as part of
the overall investment process where appropriate. The Firm seeks to identify and consider material risks to the investment thesis, including
material risks presented by ESG factors. While Western Asset is primarily a fixed income manager, opportunities to vote proxies are considered
on the investment merits of the instruments and strategies involved.
As a general proposition, Western Asset votes
to encourage disclosure of information material to their business. This principle extends to ESG matters. What qualifies as “material”
can vary, so votes are cast on a case by case basis but consistent with the overarching principle. Western Asset recognizes that objective
standards and criteria may not be available or universally agreed and that there may be different views and subjective analysis regarding
factors and their significance.
As a general matter, Western Asset votes to encourage
management and governance practices that enhance the strength of the issuer, build value for investors, and mitigate risks that might
threaten their ability to operate and navigate competitive pressures.
Targeted environmental or social issues that are
the subject of a proxy vote will be considered on a case by case basis. Constructive proposals that seek to advance the health of the
issuer and the prospect for risk-adjusted returns to Western Assets clients are viewed more favorably than proposals that advance a single
issue or limit the ability of management to meet its operating objectives.
Situations can arise in which different clients
and strategies have explicit ESG objectives beyond generally taking into account material ESG risks. Votes may be cast for such clients
with the ESG objectives in mind. Votes involving ESG proposals that are not otherwise addressed in this policy will be voted on a case-by-case
basis consistent with the Firm’s fiduciary duties to its clients, the potential consequences to the investment thesis for that
issuer, and the specific facts and circumstances of each proposal.
Retirement Accounts
For accounts subject to ERISA, as well as other retirement accounts,
Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor has issued a bulletin that
states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote
proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting
the proxies, the Department of Labor has determined that the responsibility remains with the investment manager.
In order to comply with the Department of Labor’s position,
Western Asset will be presumed to have the obligation to vote proxies for its retirement accounts unless Western Asset has obtained a
specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and
(b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western
Asset will be responsible for voting proxies in the best interests of the retirement account client and in accordance with any proxy
voting guidelines provided by the client.
| ITEM
13. | INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
(a)(1): As of the date of filing this report:
NAME AND
ADDRESS |
LENGTH OF
TIME SERVED |
PRINCIPAL
OCCUPATION(S) DURING
PAST
5 YEARS |
Michael C. Buchanan
Western Asset
385 East
Colorado Blvd.
Pasadena,
CA 91101 |
Since 2010 |
Responsible for the day-to-day management with other members of the
Fund’s portfolio management team; Became Co-Chief Investment Officer of Western Asset in September 2023 with S. Kenneth Leech,
with whom he leads the Global and US Strategy Committees; employed by Western Asset Management as an investment professional for
at least the past five years; Managing Director and head of U.S. Credit Products from 2003-2005 at Credit Suisse Asset Management |
Christopher F. Kilpatrick
Western Asset
385 East
Colorado Blvd.
Pasadena,
CA 91101 |
Since 2012 |
Responsible for the day-to-day management with other members of the Fund’s
portfolio management team; employed by Western Asset Management as an investment professional for at least the past five years. |
Walter Kilcullen
Western Asset
385 East
Colorado Blvd.
Pasadena,
CA 91101 |
Since March 1, 2024 |
Responsible for the day-to-day management with other members of the
Fund’s portfolio management team; employed by Western Asset Management as an investment professional since 2002 |
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect
to the fund’s investment professionals for the fund. Unless noted otherwise, all information is provided as of May 31, 2024.
Other Accounts Managed by Investment Professionals
The table below identifies the number of accounts (other than the fund)
for which the fund’s investment professionals have day-to-day management responsibilities and the total assets in such accounts,
within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each
category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.
| Name
of PM |
Type
of Account |
Number
of Accounts Managed |
Total
Assets Managed |
Number
of Accounts Managed for which Advisory Fee is Performance-Based |
Assets
Managed for which Advisory Fee is Performance-Based |
| Michael
C. Buchanan ‡ |
Other
Registered Investment Companies |
75 |
$111.63
billion |
None |
None |
| Other
Pooled Vehicles |
286 |
$68.00
billion |
22 |
$2.56
billion |
| Other
Accounts |
574 |
$173.55
billion |
20 |
$11.26
billion |
| Christopher
Kilpatrick ‡ |
Other
Registered Investment Companies |
8 |
$3.03
billion |
None |
None |
| Other
Pooled Vehicles |
6 |
$483
million |
3 |
$326
million |
| Other
Accounts |
None |
None |
None |
None |
| Walter Kilcullen‡
|
Other
Registered Investment Companies |
10 |
$4.86
billion |
None |
None |
| Other
Pooled Vehicles |
18 |
$7.60
billion |
3 |
$326
million |
| Other
Accounts |
21 |
$3.43
billion |
None |
None |
‡ The numbers above reflect the overall number
of portfolios managed by employees of Western Asset Management Company (“Western Asset”). They are involved in the management
of all the Firm’s portfolios, but they are not solely responsible for particular portfolios. Western Asset’s investment discipline
emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. They are responsible
for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams.
This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.
(a)(3): As of May 31, 2024: Investment Professional Compensation
Conflicts of Interest
The Subadviser has adopted compliance policies
and procedures to address a wide range of potential conflicts of interest that could directly impact client portfolios. For example,
potential conflicts of interest may arise in connection with the management of multiple portfolios (including portfolios managed in a
personal capacity). These could include potential conflicts of interest related to the knowledge and timing of a portfolio’s trades,
investment opportunities and broker selection. Portfolio managers are privy to the size, timing, and possible market impact of a portfolio’s
trades.
It is possible that an investment opportunity
may be suitable for both a portfolio and other accounts managed by a portfolio manager, but may not be available in sufficient quantities
for both the portfolio and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment
held by a portfolio and another account. A conflict may arise where the portfolio manager may have an incentive to treat an account preferentially
as compared to a portfolio because the account pays a performance-based fee or the portfolio manager, the Subadviser or an affiliate
has an interest in the account. The Subadviser has adopted procedures for allocation of portfolio transactions and investment opportunities
across multiple client accounts on a fair and equitable basis over time. Eligible accounts that can participate in a trade generally
share the same price on a pro-rata allocation basis, taking into account differences based on factors such as cash availability, investment
restrictions and guidelines, and portfolio composition versus strategy.
With respect to securities transactions, the Subadviser
determines which broker or dealer to use to execute each order, consistent with their duty to seek best execution of the transaction.
However, with respect to certain other accounts (such as pooled investment vehicles that are not registered investment companies and
other accounts managed for organizations and individuals), the Subadviser may be limited by the client with respect to the selection
of brokers or dealers or may be instructed to direct trades through a particular broker or dealer. In these cases, trades for a portfolio
in a particular security may be placed separately from, rather than aggregated with, such other accounts. Having separate transactions
with respect to a security may temporarily affect the market price of the security or the execution of the transaction, or both, to the
possible detriment of a portfolio or the other account(s) involved. Additionally, the management of multiple portfolios and/or other
accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account.
The Subadviser’s team approach to portfolio management and block trading approach seeks to limit this potential risk.
The Subadviser also maintains a gift and entertainment
policy to address the potential for a business contact to give gifts or host entertainment events that may influence the business judgment
of an employee. Employees are permitted to retain gifts of only a nominal value and are required to make reimbursement for entertainment
events above a certain value. All gifts (except those of a de minimis value) and entertainment events that are given or sponsored by
a business contact are required to be reported in a gift and entertainment log which is reviewed on a regular basis for possible issues.
Employees of the Subadviser have access to transactions
and holdings information regarding client accounts and the Subadviser’s overall trading activities. This information represents
a potential conflict of interest because employees may take advantage of this information as they trade in their personal accounts. Accordingly,
the Subadviser maintains a Code of Ethics that is compliant with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act
to address personal trading. In addition, the Code of Ethics seeks to establish broader principles of good conduct and fiduciary responsibility
in all aspects of the Subadviser’s business. The Code of Ethics is administered by the Legal and Compliance Department and monitored
through the Subadviser’s compliance monitoring program.
The Subadviser may also face other potential conflicts
of interest with respect to managing client assets, and the description above is not a complete description of every conflict of interest
that could be deemed to exist. The Subadviser also maintains a compliance monitoring program and engages independent auditors to conduct
a SOC1/ISAE 3402 audit on an annual basis. These steps help to ensure that potential conflicts of interest have been addressed.
Investment Professional Compensation
With respect to the compensation of the Fund’s
investment professionals, the Subadviser’s compensation system assigns each employee a total compensation range, which is derived
from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees
with total compensation reflective of the external market value of their skills, experience and ability to produce desired results. Standard
compensation includes competitive base salaries, generous employee benefits and a retirement plan.
In addition, the Subadviser’s employees
are eligible for bonuses. These are structured to closely align the interests of employees with those of the Subadviser, and are determined
by the professional’s job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary.
The principal factor considered is an investment professional’s investment performance versus appropriate peer groups and benchmarks
(e.g., a securities index and with respect to the Fund, the benchmark set forth in the Fund’s Prospectus to which the Fund’s
average annual total returns are compared or, if none, the benchmark set forth in the Fund’s annual report). Performance is reviewed
on a 1, 3 and 5 year basis for compensation—with 3 and 5 years having a larger emphasis. The Subadviser may also measure an investment
professional’s pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment professionals
are generally responsible for multiple accounts (including the Fund) with similar investment strategies, they are generally compensated
on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when
making bonus decisions include client service, business development, length of service to the Subadviser, management or supervisory responsibilities,
contributions to developing business strategy and overall contributions to the Subadviser’s business.
Finally, in order to attract and retain top talent,
all investment professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based
upon the factors described above and include long-term incentives that vest over a set period of time past the award date.
(a)(4): Investment Professional Securities Ownership
The table below identifies the dollar range of securities
beneficially owned by each investment professional as of May 31, 2024:
Investment Professional(s)
| |
Dollar Range of
Portfolio
Securities
Beneficially
Owned
|
| Michael C. Buchanan |
|
A |
| Christopher F. Kilpatrick |
|
A |
| Walter Kilcullen |
|
A |
Dollar Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
| ITEM
14. | PURCHASES
OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
Not applicable.
| ITEM
15. | SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
| ITEM
16. | CONTROLS
AND PROCEDURES. |
| (a) | The
registrant’s principal executive officer and principal financial officer have concluded
that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c)
under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective
as of a date within 90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the disclosure controls and procedures
required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange
Act of 1934. |
| (b) | There
were no changes in the registrant’s internal control over financial reporting (as defined
in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report
that have materially affected, or are likely to materially affect the registrant’s
internal control over financial reporting. |
| ITEM
17. | DISCLOSURE
OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable
| ITEM
18. | RECOVERY
OF ERRONEOUSLY AWARDED COMPENSATION. |
(a) (1) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto
duly authorized.
Western Asset High Yield Defined Opportunity Fund Inc.
| By: |
/s/ Jane Trust |
|
| |
Jane Trust |
|
| |
Chief Executive Officer |
|
| |
|
|
| Date: |
July 25, 2024 |
|
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
| By: |
/s/ Jane Trust |
|
| |
Jane Trust |
|
| |
Chief Executive Officer |
|
| |
|
|
| Date: |
July 25, 2024 |
|
| By: |
/s/ Christopher Berarducci |
|
| |
Christopher Berarducci |
|
| |
Principal Financial Officer |
|
| |
|
|
| Date: |
July 25, 2024 |
|
Code of Conduct
for Principal Executive and Financial Officers (SOX)
Covered Officers and Purpose of the Code
The Funds’ code of ethics (the “Code”)
for investment companies within the Legg Mason family of mutual funds (each a “Fund,” and collectively, the “Funds”)
applies to each Fund’s Principal Executive Officer, Principal Financial Officer, and Controller (the “Covered Officers”)
for the purpose of promoting:
| • | honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between
personal and professional relationships; |
| • | full, fair, accurate, timely and understandable disclosure in reports and documents a registrant files
with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by the Funds; |
| • | compliance with applicable laws and governmental rules and regulations; |
| • | prompt internal reporting of Code violations to appropriate persons identified in the Code; and |
| • | accountability for adherence to the Code. |
Each Covered Officer should adhere to a high standard
of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
Covered Officers Should Ethically Handle Actual
and Apparent Conflicts of Interest
A “conflict of interest” occurs when a
Covered Officer’s private interest interferes with the interests of, or his or her service to, a Fund. For example, a conflict of
interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or
her position with a Fund.
Certain conflicts of interest arise out of the relationships
between Covered Officers and a Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment
Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). For example, Covered Officers may
not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Fund because of
their status as “affiliated persons” of the Fund. The Funds’ and the investment advisers’ compliance programs
and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended
to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for
improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Fund and an investment adviser
of which Covered Officers are also officers or employees. As a result, this Code recognizes Covered Officers will, in the normal course
of their duties (whether formally for a Fund or for the adviser, or for both), be involved in establishing policies and
implementing decisions that will have different effects
on the adviser and the Funds. The participation of Covered Officers in such activities is inherent in the contractual relationship between
a Fund and an adviser and is consistent with the performance by Covered Officers of their duties as officers of the Funds. Thus, if performed
in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have
been handled ethically. In addition, it is recognized by the Funds’ Boards of Directors/Trustees (“Boards”) that Covered
Officers may also be officers or employees of one or more other investment companies covered by this or other codes and that such service,
by itself does not give rise to a conflict of interest.
Other conflicts of interest are covered by the Code,
even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following
list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind these examples are not exhaustive.
The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of a
Fund.
Each Covered Officer must:
| • | not use his or her personal influence or personal relationships improperly to influence investment decisions
or financial reporting by a Fund; |
| • | not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered
Officer rather than the benefit the Fund; and, |
| • | not use material non-public knowledge of portfolio transactions made or contemplated for the Trust to
trade personally or cause others to trade personally in contemplation of the market effect of such transactions. |
There are some actual or potential conflict of interest
situations that, if material, should always be discussed with the Chief Compliance Officer (“CCO”) or designate that has been
appointed by the Board of the Funds. Examples of these include:
| • | service as a director on the board of any public company (other than the Funds or their investment advisers
or any affiliated person thereof); |
| • | the receipt of any non-nominal gifts (i.e., in excess of $100); |
| • | the receipt of any entertainment from any company with which a Fund has current or prospective business
dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to
raise any question of impropriety; |
| • | any ownership interest in, or any consulting or employment relationship with, any of the Funds’
service providers (other than their investment advisers, or principal underwriter, or any affiliated person thereof); |
| • | a direct or indirect financial interest in commissions, transaction charges or spreads paid by a Fund
for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s
employment, such as compensation or equity ownership. |
Disclosure and Compliance
Each Covered Officer should:
| • | familiarize him or herself with the disclosure requirements generally applicable to the Funds; |
| • | not knowingly misrepresent, or cause others to misrepresent, facts about a Fund to others, whether within
or outside the Fund, including to the Fund’s Directors/Trustees and auditors, and to governmental regulators and self-regulatory
organizations; and |
| • | to the extent appropriate within his or her area of responsibility, consult with other officers and employees
of the Funds and the advisers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and
documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds. |
It is the responsibility of each Covered Officer to
promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.
Reporting and Accountability
Each Covered Officer must:
| • | upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing
to the Board that he or she has received, read, and understands the Code; |
| • | annually thereafter affirm to the Board that he or she has complied with the requirements of the Code; |
| • | not retaliate against any other Covered Officer or any employee of the Funds or their advisers or any
affiliated persons thereof or service providers of the Funds for reports of potential violations that are made in good faith; |
| • | notify the CCO promptly if he or she knows of any violation of this Code, of which failure to do so is
itself a violation; and |
| • | report at least annually, if necessary, any employment position, including officer or directorships, held
by the Covered Officer or any immediate family member of a Covered Officer with affiliated persons of or Service Providers to the Funds. |
The CCO is responsible for applying this Code to specific
situations in which questions are presented and has the authority to interpret this Code in any particular situation. However, approvals
or waivers sought by a Covered Officer will be considered by the Compliance Committee or Audit Committee, (the “Committee”)
responsible for oversight of the Fund’s code of ethics under Rule 17j-1 under the Investment Company Act. If a Covered Officer seeking
an approval or waiver sits on the Committee, the Covered Person shall recuse him or herself from any such deliberations. Any approval
or waiver granted by the Committee will be reported promptly to the Chair of the Audit Committees of the Funds.
The Funds will follow these procedures in investigating
and enforcing this Code:
| • | the CCO will take all appropriate action to investigate any potential violations reported to him, which
actions may include the use of internal or external counsel, accountants or other personnel; |
| • | if, after such investigation, the CCO believes that no violation has occurred, the CCO is not required
to take any further action; |
| • | any matter that the CCO believes is a violation will be reported to the Committee; |
| • | if the Committee concurs that a violation has occurred, it will inform the Board, which will consider
appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to
appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; |
| • | the Committee will be responsible for granting waivers, as appropriate; and, |
| • | any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. |
Other Policies and Procedures
This Code shall be the sole code of ethics
adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered
investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds’ advisers, principal
underwriter, or other service providers govern or purport to govern the behavior or activities of Covered Officers subject to this
Code, they are superseded by this Code to the extent they overlap or conflict with the provisions of this Code. The Funds’ and
their investment advisers’ and principal underwriter’s codes of ethics under Rule 17j-1 under the Investment Company Act
are separate requirements applying to Covered Officers and others, and are not part of this Code.
Confidentiality
All reports and records prepared or maintained pursuant
to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or
this Code, such matters shall not be disclosed to anyone other than the appropriate Board and Fund counsel, and the board of Directors/Trustees
and fund counsel of any other investment company for whom a Covered Officer serves in a similar capacity.
Annual Report
No less than annually, the CCO shall provide the Board
with a written report describing any issues having arisen since the prior year’s report.
Internal Use
This Code is intended solely for the internal use by
the Funds and does not constitute an admission by or on behalf of any Fund, as to any fact, circumstance or legal consideration.
CERTIFICATIONS PURSUANT TO SECTION 302
EX-99.CERT
CERTIFICATIONS
I, Jane Trust certify that:
| 1. | I
have reviewed this report on Form N-CSR of Western Asset
High Yield Defined Opportunity Fund Inc.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered
by this report; |
| 3. | Based
on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations,
changes in net assets, and cash flows (if the financial statements are required to include
a statement of cash flows) of the registrant as of, and for, the periods presented in this
report; |
| 4. | The
registrant’s other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under
the Investment Company Act of 1940) for the registrant and have: |
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared; |
| b) | Designed
such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures,
as of a date within 90 days prior to the filing date of this report based on such evaluation;
and |
| d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The
registrant’s other certifying officers and I have disclosed to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions): |
| a) | All
significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize, and report financial information; and |
| b) | Any
fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
| Date: |
July 25, 2024 |
/s/ Jane Trust |
| |
|
Jane Trust |
| |
|
Chief Executive Officer |
CERTIFICATIONS
I, Christopher Berarducci, certify that:
| 1. | I
have reviewed this report on Form N-CSR of Western Asset High Yield Defined Opportunity Fund
Inc.; |
| 2. | Based
on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered
by this report; |
| 3. | Based
on my knowledge, the financial information included in this report, and the financial statements
on which the financial information is based, fairly present in all material respects the
financial condition, results of operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash flows) of the registrant
as of, and for, the periods presented in this report; |
| 4. | The
registrant’s other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under
the Investment Company Act of 1940) for the registrant and have: |
| a) | Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being prepared; |
| b) | Designed
such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90
days prior to the filing date of this report based on such evaluation; and |
| d) | Disclosed
in this report any change in the registrant’s internal control over financial reporting
that occurred during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and |
| 5. | The
registrant’s other certifying officers and I have disclosed to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize,
and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting. |
| Date: |
July 25, 2024 |
/s/ Christopher
Berarducci |
| |
|
Christopher Berarducci |
| |
|
Principal Financial Officer |
CERTIFICATIONS PURSUANT TO SECTION 906
EX-99.906CERT
CERTIFICATION
Jane Trust, Chief Executive Officer, and Christopher Berarducci,
Principal Financial Officer of Western Asset High Yield Defined Opportunity Fund Inc. (the “Registrant”), each certify to
the best of their knowledge that:
1. The Registrant’s
periodic report on Form N-CSR for the period ended May 31, 2024 the “Form N-CSR”) fully complies with the requirements
of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. The information
contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Chief Executive Officer |
Principal Financial Officer |
| Western Asset High Yield Defined Opportunity |
Western Asset High Yield Defined Opportunity |
| Fund Inc. |
Fund Inc. |
| |
|
| /s/ Jane
Trust |
|
/s/ Christopher
Berarducci |
| Jane Trust |
|
Christopher Berarducci |
| Date: July 25, 2024 |
|
Date: July 25, 2024 |
This certification is being furnished to the Securities and Exchange Commission
solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.
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