Western Asset Mortgage Opportunity Fund Inc. (Form: N-CSR, Received: 03/03/2020 09:01:45)

Date: March 2, 2020

/s/ Jane Trust

Jane Trust

Chief Executive Officer

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 811-22369

Western Asset Mortgage Opportunity Fund Inc.

(Exact name of registrant as specified in charter)

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

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

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

Date of fiscal year end: December 31

Date of reporting period: December 31, 2019

ITEM 1. REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

LOGO


Annual Report		December 31, 2019

WESTERN ASSET

MORTGAGE OPPORTUNITY FUND INC.

(DMO)

Beginning in January 2021, as permitted by regulations adopted by the Securities and Exchange Commission, the Fund intends to no longer mail paper copies of the Fund’s shareholder reports like this one, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-dealer or bank). Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you invest through a financial intermediary and you already elected to receive shareholder reports electronically (“e-delivery”), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive shareholder reports and other communications from the Fund electronically by contacting your financial intermediary.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account at that financial intermediary. If you are a direct shareholder with the Fund, you can call the Fund at 1-888-888-0151, or write to the Fund by regular mail at P.O. Box 505000, Louisville, KY 40233 or by overnight delivery to Computershare, 462 South 4th Street, Suite 1600, Louisville, KY 40202 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account held directly with the fund complex.

LOGO

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE


What’s inside
Letter from the chairman			II
Fund overview			1
Fund at a glance			7
Schedule of investments			8
Statement of assets and liabilities			25
Statement of operations			26
Statements of changes in net assets			27
Statement of cash flows			28
Financial highlights			30
Notes to financial statements			32
Report of independent registered public accounting firm			50
Board approval of management and subadvisory agreements			51
Additional shareholder information			58
Additional information			59
Annual chief executive officer and principal financial officer certifications			65
Other shareholder communications regarding accounting matters			66
Dividend reinvestment plan			67
Important tax information			69

Fund objectives

The Fund’s primary investment objective is to provide current income. As a secondary investment objective, the Fund will seek capital appreciation.

The Fund seeks to achieve its investment objectives by investing primarily in a diverse portfolio of mortgage-backed securities and mortgage whole loans. Investments in mortgage-backed securities consist primarily of non-agency residential mortgage-backed securities and commercial mortgage-backed securities.

Fund name change

On January 2, 2020, the Fund’s name changed from Western Asset Mortgage Defined Opportunity Fund Inc. to Western Asset Mortgage Opportunity Fund Inc. There was no change to the Fund’s ticker symbol or CUSIP number as a result of this name change.


Western Asset Mortgage Opportunity Fund Inc.		I

Letter from the chairman

LOGO

Dear Shareholder,

We are pleased to provide the annual report of Western Asset Mortgage Opportunity Fund Inc. (formerly known as Western Asset Mortgage Defined Opportunity Fund Inc.) for the twelve-month reporting period ended December 31, 2019. 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

On December 16, 2019, the Fund, which is traded on the New York State Exchange under the symbol “DMO” announced the results of the votes cast at the Fund’s special meeting of stockholders held on December 13, 2019. Stockholders approved the proposal to convert the Fund to a perpetual fund by eliminating the Fund’s term, which was scheduled to end at the close of business on March 1, 2022.

As a result of the proposal’s approval, the following changes took effect on January 2, 2020:

•

The Fund’s name changed from Western Asset Mortgage Defined Opportunity Fund Inc. to Western Asset Mortgage Opportunity Fund Inc. The Fund’s ticker symbol remains “DMO” and the Fund’s CUSIP, 95790B109, did not change.

•

Investments in mortgage whole loans will be included within the Fund’s 80% policy as follows: “Under normal circumstances, the Fund will invest at least 80% of its Managed Assets (as defined in the Fund’s prospectus) in mortgage-backed securities and mortgage whole loans.” Investments in mortgage whole loans will be subject to a cap of 20% of the Fund’s Managed Assets.

•

The Fund’s investment manager has agreed to waive 20 basis points of its annual management fee (the “Fee Waiver”) for a period of two years. The Fee Waiver will terminate on January 2, 2022.

For more information, please contact the Fund at 1-888-777-0102 or consult the Fund’s web site at www.leggmason.com/cef.

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.lmcef.com. Here you can gain immediate access to market and investment information, including:


II		Western Asset Mortgage Opportunity Fund Inc.

Letter from the chairman

•

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.

Sincerely,

LOGO

Jane Trust, CFA

Chairman, President and Chief Executive Officer

January 31, 2020


Western Asset Mortgage Opportunity Fund Inc.		III

Fund overview

Q. What is the Fund’s investment strategy?

A. The Fund’s primary investment objective is to provide current income. As a secondary investment objective, the Fund will seek capital appreciation. The Fund seeks to achieve its investment objectives by investing primarily in a diverse portfolio of mortgage-backed securities (“MBS”), consisting primarily of non-agency residential mortgage-backed securities (“RMBS”)ⁱ and commercial mortgage-backed securities (“CMBS”)ⁱⁱ. Effective January 2, 2020, the Fund seeks to achieve its investment objectives by investing primarily in a diverse portfolio of MBS and mortgage whole loans. Investments in MBS consist primarily of RMBS and CMBS. The Fund’s investments in mortgage whole loans under normal circumstances will not exceed 20% of its managed assets.

The Fund also may invest, to a lesser degree, in other permitted investments, including cash and cash equivalents; Treasury securities; non-mortgage related asset-backed securities (“ABS”) backed by various asset classes including, but not limited to, small balance commercial mortgages, aircrafts, automobiles, credit cards, equipment, manufactured housing, franchises, recreational vehicles and student loans; and investment grade and below investment grade fixed income securities including bonds, debentures, notes, commercial paper and other similar types of debt instruments including hybrid securities. The Fund also may invest in any newly developed mortgage-related derivatives that may hereafter become available for mortgage investing.

The Fund may invest in derivative instruments, such as options contracts, futures contracts, options on futures contracts, indexed securities, credit linked notes, credit default swaps and other swap agreements for investment, hedging and risk management purposes with certain limitations. Notwithstanding the foregoing, the Fund may invest without limitation in Treasury futures, Eurodollar futures, interest rate swaps, swaptions or similar instruments and combinations thereof.

The Fund is not limited in its ability to invest in below investment grade (commonly referred to as “high yield” or “junk” securities) or illiquid securities. Below investment grade securities are securities rated below the Baa3 or BBB- categories at the time of purchase by one or more nationally recognized statistical rating organizations or unrated securities that we determined to be of comparable credit quality.

At Western Asset Management Company, LLC (“Western Asset”), the Fund’s subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio management personnel, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization. The individuals responsible for development of investment strategy, day-to-day portfolio management, oversight and coordination of the Fund are S. Kenneth Leech, Greg E. Handler and Harris A. Trifon.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		1

Fund overview (cont’d)

Q. What were the overall market conditions during the Fund’s reporting period?

A. Fixed income markets generally posted strong results over the twelve-month reporting period ended December 31, 2019. Spread sectors (non-Treasuries) largely outperformed Treasuries, but experienced periods of volatility. This was due to a number of factors, including moderating global growth, a “dovish pivot” by the Federal Reserve Board (the “Fed”)ⁱⁱⁱ, the trade conflict between the U.S. and China, uncertainties surrounding Brexit and numerous other geopolitical issues.

Both short- and long-term U.S. Treasury yields declined during the reporting period. The yield for the two-year Treasury note began the reporting period at 2.48% and ended the period at 1.58%. The low for the period was 1.39% on October 3, 2019 and the high for the period of 2.62% occurred on January 18, 2019. The yield for the ten-year Treasury began the reporting period at 2.69% and ended the period at 1.92%. The low for the period was 1.47% on August 28, September 3 and September 4, 2019, and the high for the period of 2.79% occurred on January 18, 2019.

The overall agency RMBS market posted a modest gain but lagged equal duration^iv Treasuries during the reporting period. This relative underperformance was partially driven by the Fed unwinding its balance sheet and paring its holdings of agency MBS. Interest rate volatility, especially during the fourth quarter of 2019, also negatively impacted the agency MBS market. In contrast, structured product, including non-agency RMBS, CMBS and ABS generated solid results and outperformed equal duration Treasuries during the reporting period. Structured products in general were supported by overall positive fundamentals, solid consumer balance sheets and lending conditions that remained constrained.

During the twelve months ended December 31, 2019, the overall agency MBS market, as measured by the Bloomberg Barclays U.S. Mortgage-Backed Securities Index (the “Index”)^v, gained 6.35%. Looking at the period more closely, within the Index, MBS Ginnie Mae 30-year returned 5.86%, MBS Conventional 30-year returned 6.78%, MBS Ginnie Mae 15-year returned 5.44% and MBS Index Conventional 15-year returned 5.42%. Meanwhile, structured products typically outperformed agency MBS during the reporting period.

Q. How did we respond to these changing market conditions?

A. A number of adjustments were made to the Fund’s portfolio during the reporting period. Within the non-agency RMBS market, we instituted a number of relative value trades by reducing the Fund’s exposure to holdings that performed well and exceeded our expectations, while investing in securities that we felt offered more attractive relative values. We also modestly added to the Fund’s position in credit risk transfer (“CRT”) securities issued by Freddie Mac and Fannie Mae.

In terms of the Fund’s position in CMBS, we increased the Fund’s exposure to shorter term floating rate new-issue single asset/single borrower commercial loans, while reducing the Fund’s allocation to conduit (pooled) non-agency CMBS at the beginning of the fourth quarter of 2018, as spreads had tightened. We have reduced the overall exposure to ABS


2		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

sub-sector. More specifically, we increased the Fund’s positions in consumer loan ABS, while paring its allocation to rental car and student loan ABS.

During the reporting period, we utilized U.S. Treasury futures to manage the Fund’s duration and yield curve^vi exposure. Overall, the use of these derivatives detracted from performance. CMBS index swaps (“CDS”), which were used to manage the Fund’s exposure to CMBS, contributed modestly to performance results. Finally, the Fund used foreign exchange forwards to manage currency risk. The use of these derivatives did not meaningfully impact performance during the reporting period.

Finally, we actively utilized leverage in the Fund. When the reporting period began, the Fund’s leverage as a percentage of gross assets was roughly 31%. At the end of the period, approximately 32% of the Fund’s gross assets were levered. Overall, leverage contributed to results given the positive total return of the assets of the Fund in 2019.

Performance review

For the twelve months ended December 31, 2019, Western Asset Mortgage Opportunity Fund Inc. (formerly known as Western Asset Mortgage Defined Opportunity Fund Inc.) returned 11.65% based on its net asset value (“NAV”)^vii and 9.71% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmark, the ICE BofAML U.S. Floating Rate Home Equity Loan Asset Backed Securities Index^viii, returned 3.06% for the same period. The Lipper U.S. Mortgage Closed-End Funds Category Average^ix returned 8.34% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.

During the twelve-month period, the Fund made distributions to shareholders totaling $1.96 per share, which included a return of capital of $0.04 per share.* The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of December 31, 2019. Past performance is no guarantee of future results.


Performance Snapshot as of December 31, 2019
Price Per Share	12-Month Total Return**
$19.48 (NAV)		11.65	%†
$20.30 (Market Price)		9.71	%‡

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.

*	For the tax character of distributions paid during the fiscal year ended December 31, 2019, please refer to page 48 of this report.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		3

Fund overview (cont’d)

‡ 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. On an absolute basis, the leading contributor to the Fund’s performance during the reporting period was its allocation to legacy non-agency RMBS (issued pre-2007). This sub-sector continues to benefit from favorable technical backdrop as the outstanding amount continues to run down. The Fund’s exposure to credit risk transfer securities issued by Fannie Mae and Freddie Mac also generated solid results. Elsewhere, within the CMBS market, new issue single asset/single borrower securities were the most additive for returns. Finally, the Fund’s allocation to ABS modestly contributed to performance.

Q. What were the leading detractors from performance?

A. The Fund generated a strong absolute return during the reporting period. Modestly detracting from the Fund’s absolute performance was the Fund’s cash position. While cash remained a small portion of the Fund’s portfolio, it was a drag on relative performance given the upward trend in the marketplace during the reporting period. Certain legacy CMBS positions were also a modest headwind for returns.

Looking for additional information?

The Fund is traded under the symbol “DMO” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol “XDMOX” 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.lmcef.com (click on the name of the Fund).

In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Fund’s current NAV, market price and other information.

Thank you for your investment in Western Asset Mortgage Opportunity Fund Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Western Asset Management Company, LLC

January 21, 2019

RISKS: The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent in all investments, there can be no assurance that the Fund will achieve its investment 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


4		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

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 fixed-income holdings. The Fund may invest in lower-rated high-yield bonds (commonly known as “junk bonds”), which are subject to greater liquidity risk and credit risk (risk of default) than higher-rated obligations. MBS are subject to additional risks, including: (1) credit risk associated with the performance of the underlying mortgage properties and of the borrowers owning these properties; (2) adverse changes in economic conditions and circumstances, which are more likely to have an adverse impact on MBS secured by loans on certain types of commercial properties than on those secured by loans on residential properties; (3) prepayment risk, which can lead to significant fluctuations in value of the MBS and can limit the potential grains in a declining interest rate environment; (4) loss of all or part of the premium, if any, paid; and (5) decline in the market value of the security, whether resulting from changes in interest rates, prepayments on the underlying mortgage collateral or perceptions of the credit risk associated with the underlying mortgage collateral. To the extent the fund invests in mortgage whole loans, certain of these risks may be magnified. In addition, risks associated with investments in whole loans include geographic concentration risk and risks relating to the reliance on third-party servicers to service and manage the mortgage whole loan. The Fund may invest in securities backed by subprime or distressed mortgages which involve a higher degree of risk and chance of loss. Leverage may result in greater volatility of NAV and the market price of common shares and increases a shareholder’s risk of loss. The Fund may make significant investments in derivative instruments. Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The Fund is not guaranteed by the U.S. government, the U.S. Treasury or any government agency. The Fund may also invest in money market funds, including funds affiliated with the Fund’s manager and subadviser.

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 Mortgage Opportunity Fund Inc. 2019 Annual Report		5

Fund overview (cont’d)

ⁱ	Non-agency residential mortgage-backed securities are securities issued by non-governmental issuers, such as trusts and other special purpose entities.

ⁱⁱ	Commercial mortgage-backed securities (CMBS) are a type of mortgage-backed securites that are secured by loans on commercial property. A CMBS can provide liquidity to real estate investors and to commercial lenders.

ⁱⁱⁱ	The Federal Reserve Board (the “Fed”) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

^iv	Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

The Bloomberg Barclays U.S. Mortgage-Backed Securities Index is an unmanaged index composed of agency mortgage-backed pass-through securities, both fixed-rate and hybrid adjustable rate mortgages, issued by the Government National Mortgage Association, Federal National Mortgage Association and Federal Home Loan Mortgage Corporation.

^vi	The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

^vii

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.

^viii

The ICE BofAML U.S. Floating Rate Home Equity Loan Asset Backed Securities Index tracks the performance of U.S. dollar-denominated investment grade floating-rate asset-backed securities collateralized by home equity loans publicly issued in the U.S. domestic market. Qualifying securities must have an investment grade rating, at least one year remaining to final stated maturity, a floating-rate coupon, and an original deal size for the collateral group of at least $250 million.

^xi

Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period ended December 31, 2019, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 9 funds in the Fund’s Lipper category.


6		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Fund at a glance^† (unaudited)

Investment breakdown (%) as a percent of total investments

LOGO

†

The bar graph above represents the composition of the Fund’s investments as of December 31, 2019 and December 31, 2018 and does not include derivatives, such as futures contracts, forward foreign currency contracts and swap contracts. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		7

Schedule of investments

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — 107.9%
ACE Securities Corp. Home Equity Loan Trust, 2005-RM1 M4 (1 mo. USD LIBOR + 1.020%)		2.812	%		3/25/35	$	3,154,600	$	3,137,712	^(b)

Adjustable Rate Mortgage Trust, 2005-5 1A1		3.738	%		9/25/35		130,586		109,511	^(b)
Adjustable Rate Mortgage Trust, 2005-7 2A21		4.215	%		10/25/35		303,024		280,629	^(b)
Adjustable Rate Mortgage Trust, 2005-12 5A1 (1 mo. USD LIBOR + 0.500%)		2.292	%		3/25/36		239,820		107,101	^(b)

Aegis Asset Backed Securities Trust, 2005-3 M3 (1 mo. USD LIBOR + 0.490%)		2.282	%		8/25/35		3,460,000		2,992,005	^(b)

AFC Trust, 2000-3 1A (1 mo. USD LIBOR + 0.750%)		2.542	%		10/25/30		893,531		836,131	^(b)(c)

Alternative Loan Trust, 2005-11CB 3A3, IO (-1.000 x 1 mo. USD LIBOR + 5.000%)		3.208	%		6/25/35		1,688,418		198,571	^(b)

Alternative Loan Trust, 2005-14 3A1		2.765	%		5/25/35		188,218		136,107	^(b)
Alternative Loan Trust, 2005-36 4A1		4.104	%		8/25/35		338,884		325,160	^(b)
Alternative Loan Trust, 2005-61 1A2 (1 mo. USD LIBOR + 0.740%)		2.532	%		12/25/35		1,133,934		1,089,461	^(b)

Alternative Loan Trust, 2005-J10 1A1 (1 mo. USD LIBOR + 0.500%)		2.292	%		10/25/35		895,239		712,820	^(b)

Alternative Loan Trust, 2006-HY10 1A1		3.476	%		5/25/36		299,834		263,016	^(b)
Alternative Loan Trust, 2006-J8 A5		6.000	%		2/25/37		99,301		68,408
Alternative Loan Trust, 2007-3T1 2A1		6.000	%		3/25/27		136,278		141,673
Alternative Loan Trust, 2007-23CB A8 (-4.000 x 1 mo. USD LIBOR + 28.400%)		21.232	%		9/25/37		528,375		685,434	^(b)

Alternative Loan Trust, 2007-OA8 1A1 (1 mo. USD LIBOR + 0.180%)		1.972	%		6/25/47		1,226,112		1,082,301	^(b)

American Home Mortgage Assets Trust, 2005-2 2A1A		3.537	%		1/25/36		879,083		727,181	^(b)

American Home Mortgage Investment Trust, 2007-2 2A (1 mo. USD LIBOR + 0.800%)		2.592	%		3/25/47		12,735,445		653,728	^(b)

American Home Mortgage Investment Trust, 2007-A 4A (1 mo. USD LIBOR + 0.900%)		2.692	%		7/25/46		1,883,025		881,274	^(b)(c)

Argent Securities Trust, 2006-M2 A2C (1 mo. USD LIBOR + 0.150%)		1.942	%		9/25/36		2,125,693		929,819	^(b)
Argent Securities Trust, 2006-M2 A2D (1 mo. USD LIBOR + 0.240%)		2.032	%		9/25/36		561,033		249,462	^(b)

Banc of America Alternative Loan Trust, 2005-9 1CB5, IO (-1.000 x 1 mo. USD LIBOR + 5.100%)		3.308	%		10/25/35		2,595,797		322,676	^(b)

Banc of America Funding Corp., 2015-R3 2A2		1.838	%		2/27/37		2,607,024		2,242,789	^(b)(c)
Banc of America Funding Trust, 2004-B 6A1		2.490	%		12/20/34		368,112		308,049	^(b)
Banc of America Funding Trust, 2004-C 3A1		4.005	%		12/20/34		346,033		339,297	^(b)
Banc of America Funding Trust, 2006-D 2A1		3.537	%		5/20/36		37,460		34,885	^(b)

See Notes to Financial Statements.


8		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
Banc of America Funding Trust, 2006-F 1A1		4.826	%		7/20/36	$	165,782	$	169,290	^(b)
Banc of America Funding Trust, 2014-R5 1A2 (6 mo. USD LIBOR + 1.500%)		3.394	%		9/26/45		3,750,000		3,048,997	^(b)(c)
Banc of America Funding Trust, 2015-R2 3A3		2.819	%		4/29/37		980,385		797,090	^(b)(c)
Banc of America Funding Trust, 2015-R4 4A3		9.775	%		1/27/30		11,470,567		5,409,726	^(b)(c)
Banc of America Funding Trust, 2015-R2 9A2		2.258	%		3/27/36		4,465,214		4,068,322	^(b)(c)
Bayview Financial Asset Trust, 2007-SR1A M1 (1 mo. USD LIBOR + 0.800%)		2.818	%		3/25/37		2,220,031		2,172,205	^(b)(c)
Bayview Financial Asset Trust, 2007-SR1A M2 (1 mo. USD LIBOR + 0.900%)		2.918	%		3/25/37		2,702,800		2,663,996	^(b)(c)
Bayview Financial Asset Trust, 2007-SR1A M3 (1 mo. USD LIBOR + 1.150%)		3.627	%		3/25/37		1,224,541		1,218,493	^(b)(c)
Bayview Financial Asset Trust, 2007-SR1A M4 (1 mo. USD LIBOR + 1.500%)		3.977	%		3/25/37		528,579		529,654	^(b)(c)
BCAP LLC Trust, 2011-RR2 1A4		4.161	%		7/26/36		3,682,055		2,649,806	^(b)(c)
Bear Stearns ALT-A Trust, 2005-9 25A1		4.130	%		11/25/35		288,128		248,604	^(b)
Bear Stearns Asset Backed Securities I Trust, 2004-BO1 M9B (1 mo. USD LIBOR + 4.000%)		5.792	%		10/25/34		617,000		612,719	^(b)
Bear Stearns Asset Backed Securities I Trust, 2005-CL1 A1		1.664	%		9/25/34		56,970		55,610	^(b)
Bellemeade Re Ltd., 2017-1 B1 (1 mo. USD LIBOR + 4.750%)		6.542	%		10/25/27		1,070,000		1,123,352	^(b)(c)
Bellemeade Re Ltd., 2018-1A M2 (1 mo. USD LIBOR + 2.900%)		4.692	%		4/25/28		2,510,000		2,530,596	^(b)(c)
Centex Home Equity Loan Trust, 2004-D MV1 (1 mo. USD LIBOR + 0.620%)		2.412	%		9/25/34		823,600		827,639	^(b)
Chase Mortgage Finance Trust, 2006-S3 2A1		5.500	%		11/25/21		160,154		107,918
ChaseFlex Trust, 2005-2 3A3, IO (-1.000 x 1 mo. USD LIBOR + 5.500%)		3.708	%		6/25/35		8,616,420		1,576,343	^(b)
Chevy Chase Funding LLC Mortgage-Backed Certificates, 2006-2A A1 (1 mo. USD LIBOR + 0.130%)		1.922	%		4/25/47		113,231		113,958	^(b)(c)
CHL Mortgage Pass-Through Trust, 2005-2 2A1 (1 mo. USD LIBOR + 0.640%)		2.432	%		3/25/35		68,771		67,351	^(b)
CHL Mortgage Pass-Through Trust, 2005-9 1A1 (1 mo. USD LIBOR + 0.600%)		2.392	%		5/25/35		88,977		78,950	^(b)
CHL Mortgage Pass-Through Trust, 2005-11 3A3		2.912	%		4/25/35		402,904		337,831	^(b)
CHL Mortgage Pass-Through Trust, 2005-11 6A1 (1 mo. USD LIBOR + 0.600%)		2.392	%		3/25/35		56,159		50,571	^(b)

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		9

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
CHL Mortgage Pass-Through Trust, 2005-18 A7 (-2.750 x 1 mo. USD LIBOR + 19.525%)		14.597	%		10/25/35	$	16,455	$	20,820	^(b)

CHL Mortgage Pass-Through Trust, 2005-HY10 1A1		4.072	%		2/20/36		105,490		99,533	^(b)

CHL Mortgage Pass-Through Trust, 2005-HYB9 1A1 (12 mo. USD LIBOR + 1.750%)		3.939	%		2/20/36		129,332		122,452	^(b)

Citicorp Mortgage Securities Trust, 2007-8 B1		5.975	%		9/25/37		2,874,085		1,794,943	^(b)
Citigroup Mortgage Loan Trust, 2006-AR5 2A1A		3.438	%		7/25/36		274,410		211,342	^(b)
Citigroup Mortgage Loan Trust, 2008-3 A3		6.100	%		4/25/37		5,923,768		3,246,450	^(c)
Citigroup Mortgage Loan Trust Inc., 2004-HYB3 1A		4.678	%		9/25/34		52,371		53,412	^(b)

Citigroup Mortgage Loan Trust Inc., 2004-UST1 A2		3.237	%		8/25/34		22,075		21,662	^(b)

Citigroup Mortgage Loan Trust Inc., 2005-5 1A5		3.219	%		8/25/35		134,645		118,224	^(b)
Countrywide Asset-Backed Certificates, 2006- SD3 A1 (1 mo. USD LIBOR + 0.330%)		2.122	%		7/25/36		512,445		484,549	^(b)(c)

Countrywide Asset-Backed Certificates, 2007- SEA1 1A1 (1 mo. USD LIBOR + 0.550%)		2.342	%		5/25/47		451,731		379,703	^(b)(c)

Credit-Based Asset Servicing & Securitization LLC, 2006-SL1 A3 (1 mo. USD LIBOR + 0.440%)		2.232	%		9/25/36		3,882,372		487,530	^(b)(c)

CSFB Mortgage-Backed Pass-Through Certificates, 2005-10 3A3		5.500	%		11/25/35		309,265		256,557

CSMC Resecuritization Trust, 2006-1R 1A2 (-2.750 x 1 mo. USD LIBOR + 19.525%)		14.562	%		7/27/36		527,675		682,272	^(b)(c)

CSMC Trust, 2015-2R 7A2		3.876	%		8/27/36		3,720,760		3,181,930	^(b)(c)
CSMC Trust, 2010-18R 6A5		4.104	%		9/28/36		2,133,000		2,099,860	^(b)(c)
CSMC Trust, 2014-11R 9A2 (1 mo. USD LIBOR + 0.140%)		1.848	%		10/27/36		4,453,765		3,572,999	^(b)(c)

CSMC Trust, 2017-RPL1 B1		3.079	%		7/25/57		3,052,442		2,364,525	^(b)(c)
CSMC Trust, 2017-RPL1 B2		3.079	%		7/25/57		3,501,991		2,246,310	^(b)(c)
CSMC Trust, 2017-RPL1 B3		3.079	%		7/25/57		2,977,486		1,844,011	^(b)(c)
CSMC Trust, 2017-RPL1 B4		3.079	%		7/25/57		3,369,526		510,803	^(b)(c)
CWABS Asset-Backed Certificates Trust, 2005-11 MF1		5.348	%		2/25/36		2,000,000		1,978,040	^(b)

CWABS Revolving Home Equity Loan Trust, 2004-L 2A (1 mo. USD LIBOR + 0.280%)		2.020	%		2/15/34		62,383		60,233	^(b)

Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 2PO, PO		0.000	%		4/15/36		25,069		16,774	^(c)

Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 4AS1, IO		7.396	%		4/15/36		261,526		44,457	^(b)(c)

See Notes to Financial Statements.


10		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 4AS2, IO		12.480	%		4/15/36	$	249,072	$	70,360	^(b)(c)

Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 5AS1, IO		7.939	%		4/15/36		78,374		21,702	^(b)(c)

Deutsche Mortgage Securities Inc. Mortgage Loan Trust, 2006-PR1 5AS3, IO		5.901	%		4/15/36		285,259		58,700	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2016-1 B, PO		0.000	%		9/25/55		12,456,016		1,172,171	^(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2016-1 BIO, IO		0.915	%		9/25/55		29,691,087		3,428,460	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2016-1 XSIO, IO		0.075	%		9/25/55		214,295,730		978,689	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 B, PO		0.000	%		8/25/56		11,631,493		1,367,012	^(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 BIO, IO		0.927	%		8/25/56		19,638,717		2,290,247	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 M1		4.000	%		8/25/56		1,170,000		1,185,645	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2017-2 XSIO, IO		0.075	%		8/25/56		512,630,692		2,343,748	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Seasoned Credit Risk Transfer Trust, 2019-2 M		4.750	%		8/25/58		681,000		706,345	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2019-DNA1 B2 (1 mo. USD LIBOR + 10.750%)		12.542	%		1/25/49		1,500,000		1,984,605	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA2 B (1 mo. USD LIBOR + 10.500%)		12.292	%		10/25/28		495,706		683,614	^(b)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2017-DNA1 B2 (1 mo. USD LIBOR + 10.000%)		11.792	%		7/25/29		2,659,770		3,132,253	^(b)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2017-DNA2 B2 (1 mo. USD LIBOR + 11.250%)		13.042	%		10/25/29		1,781,348		2,230,131	^(b)

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		11

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-HQA2 B2 (1 mo. USD LIBOR + 11.000%)		12.792	%		10/25/48	$	3,000,000	$	3,930,076	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-HRP1 B2 (1 mo. USD LIBOR + 11.750%)		13.542	%		4/25/43		5,657,082		6,997,423	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-HRP2 B2 (1 mo. USD LIBOR + 10.500%)		12.292	%		2/25/47		3,530,000		4,051,698	^(b)(c)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA3 B (1 mo. USD LIBOR + 11.250%)		13.042	%		12/25/28		1,032,796		1,440,788	^(b)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2016-DNA4 B (1 mo. USD LIBOR + 8.600%)		10.392	%		3/25/29		1,583,839		1,978,490	^(b)

Federal Home Loan Mortgage Corp. (FHLMC) Structured Agency Credit Risk Debt Notes, 2018-SPI4 B		4.459	%		11/25/48		4,880,000		3,700,261	^(b)(c)

Federal National Mortgage Association (FNMA), 2012-134 LS, IO (-1.000 x 1 mo. USD LIBOR + 6.150%)		4.358	%		12/25/42		2,849,499		588,525	^(b)

Federal National Mortgage Association (FNMA) — CAS, 2016-C01 1B (1 mo. USD LIBOR + 11.750%)		13.542	%		8/25/28		1,874,561		2,652,097	^(b)(c)

Federal National Mortgage Association (FNMA) — CAS, 2016-C04 1B (1 mo. USD LIBOR + 10.250%)		12.042	%		1/25/29		2,629,616		3,520,663	^(b)(c)

Federal National Mortgage Association (FNMA) — CAS, 2016-C06 1B (1 mo. USD LIBOR + 9.250%)		11.042	%		4/25/29		3,531,264		4,540,304	^(b)(c)

Federal National Mortgage Association (FNMA) — CAS, 2017-C05 1B1 (1 mo. USD LIBOR + 3.600%)		5.392	%		1/25/30		1,320,000		1,400,806	^(b)(c)

Federal National Mortgage Association (FNMA) — CAS, 2016-C02 1B (1 mo. USD LIBOR + 12.250%)		14.042	%		9/25/28		2,345,641		3,392,649	^(b)(c)

Federal National Mortgage Association (FNMA) — CAS, 2016-C03 1B (1 mo. USD LIBOR + 11.750%)		13.542	%		10/25/28		1,659,932		2,356,059	^(b)(c)

Federal National Mortgage Association (FNMA) — CAS, 2018-R07 1B1 (1 mo. USD LIBOR + 4.350%)		6.142	%		4/25/31		3,210,000		3,480,704	^(b)(c)

See Notes to Financial Statements.


12		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
First Horizon Alternative Mortgage Securities Trust, 2005-AA6 3A1		3.836	%		8/25/35	$	583,764	$	534,686	^(b)
First Horizon Alternative Mortgage Securities Trust, 2006-FA6 2A1, PAC		6.250	%		11/25/36		93,492		62,403
GS Mortgage Securities Corp II, 2000-1A A (1 mo. USD LIBOR + 0.350%)		2.465	%		3/20/23		32,830		32,920	^(b)(c)
GSAA Resecuritization Mortgage Trust, 2005-R1 1A2, IO (-1.000 x 1 mo. USD LIBOR + 5.000%)		3.208	%		4/25/35		2,281,304		255,597	^(b)(c)
GSMPS Mortgage Loan Trust, 2005-RP1 1A4		8.500	%		1/25/35		56,379		64,788	^(c)
GSMPS Mortgage Loan Trust, 2006-RP1 1A2		7.500	%		1/25/36		371,267		397,264	^(c)
GSRPM Mortgage Loan Trust, 2007-1 A (1 mo. USD LIBOR + 0.400%)		2.192	%		10/25/46		1,387,347		1,324,938	^(b)(c)
HarborView Mortgage Loan Trust, 2006-2 1A		4.694	%		2/25/36		21,320		13,638	^(b)
Home Equity Mortgage Trust, 2006-1 A3 (1 mo. USD LIBOR + 0.500%)		2.292	%		5/25/36		3,500,000		1,414,645	^(b)
HSI Asset Loan Obligation Trust, 2007-AR1 4A1		4.708	%		1/25/37		130,747		112,117	^(b)
Impac CMB Trust, 2004-8 1A (1 mo. USD LIBOR + 0.720%)		2.512	%		10/25/34		291,327		292,430	^(b)
IndyMac INDA Mortgage Loan Trust, 2005-AR2 1A1		3.248	%		1/25/36		71,671		66,535	^(b)
IndyMac INDX Mortgage Loan Trust, 2004- AR13 1A1		3.090	%		1/25/35		61,466		59,243	^(b)
IndyMac INDX Mortgage Loan Trust, 2005- AR15 A2		3.794	%		9/25/35		62,718		58,872	^(b)
IndyMac INDX Mortgage Loan Trust, 2006-AR7 5A1		3.849	%		5/25/36		247,344		217,327	^(b)
IndyMac INDX Mortgage Loan Trust, 2006-AR9 3A3		3.689	%		6/25/36		325,270		318,605	^(b)
IndyMac INDX Mortgage Loan Trust, 2006- AR11 1A1		4.211	%		6/25/36		377,152		348,139	^(b)
JPMorgan Alternative Loan Trust, 2007-A1 3A1		3.825	%		3/25/37		321,787		317,956	^(b)
JPMorgan Mortgage Trust, 2005-S3 1A1		6.500	%		1/25/36		792,611		652,630
JPMorgan Mortgage Trust, 2007-S2 3A2		6.000	%		6/25/37		56,599		58,584
JPMorgan Mortgage Trust, 2007-S2 3A3		6.500	%		6/25/37		24,296		25,217
JPMorgan Mortgage Trust, 2007-S3 1A18 (1 mo. USD LIBOR + 0.500%)		2.292	%		8/25/37		2,482,673		1,237,963	^(b)
Legacy Mortgage Asset Trust, 2019-GS2 A2		4.250	%		1/25/59		4,520,000		4,521,849	^(b)(c)
Lehman Mortgage Trust, 2006-3 1A7, IO (-1.000 x 1 mo. USD LIBOR + 5.400%)		3.608	%		7/25/36		5,832,815		1,412,446	^(b)

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		13

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
Lehman Mortgage Trust, 2006-7 1A3, IO (-1.000 x 1 mo. USD LIBOR + 5.350%)		3.558	%		11/25/36	$	5,287,163	$	1,041,684	^(b)

Lehman Mortgage Trust, 2006-7 1A8 (1 mo. USD LIBOR + 0.180%)		1.972	%		11/25/36		3,865,004		2,324,864	^(b)

Lehman Mortgage Trust, 2006-7 3A2, IO (-1.000 x 1 mo. USD LIBOR + 7.150%)		5.358	%		11/25/36		5,427,454		1,704,896	^(b)

Lehman Mortgage Trust, 2007-5 2A3 (1 mo. USD LIBOR + 0.330%)		2.122	%		6/25/37		2,975,305		638,196	^(b)

Lehman XS Trust, 2005-9N 1A1 (1 mo. USD LIBOR + 0.270%)		2.062	%		2/25/36		812,175		791,916	^(b)

Lehman XS Trust, 2006-14N 3A2 (1 mo. USD LIBOR + 0.240%)		2.032	%		8/25/36		822,758		807,521	^(b)

Lehman XS Trust, 2006-19 A4 (1 mo. USD LIBOR + 0.170%)		1.962	%		12/25/36		610,977		547,700	^(b)

Magnolia Finance XI DAC, 2019-2 A (1 mo. USD LIBOR + 2.750%)		4.542	%		7/31/21		2,084,538		2,099,545	^(b)(c)

MASTR Adjustable Rate Mortgages Trust, 2004-12 5A1		4.582	%		10/25/34		60,511		63,618	^(b)

MASTR Adjustable Rate Mortgages Trust, 2006-2 4A1		4.469	%		2/25/36		10,961		10,854	^(b)

MASTR Adjustable Rate Mortgages Trust, 2006-OA1 1A1 (1 mo. USD LIBOR + 0.210%)		2.002	%		4/25/46		229,087		210,755	^(b)

MASTR Asset Backed Securities Trust, 2005- AB1 A5A		5.712	%		11/25/35		3,360,000		3,059,233	^(b)

MASTR Reperforming Loan Trust, 2005-1 1A2		6.500	%		8/25/34		733,815		702,294	^(c)
MASTR Reperforming Loan Trust, 2005-1 1A3		7.000	%		8/25/34		1,330,041		1,363,294	^(c)
MASTR Reperforming Loan Trust, 2005-1 1A4		7.500	%		8/25/34		61,787		62,867	^(c)
Merrill Lynch Mortgage Investors Trust, 2006-A1 2A1		4.227	%		3/25/36		563,109		401,266	^(b)

Morgan Stanley ABS Capital I Trust Inc., 2003- NC10 M2 (1 mo. USD LIBOR + 2.700%)		4.492	%		10/25/33		16,850		16,529	^(b)

Morgan Stanley Mortgage Loan Trust, 2004- 7AR B1		4.367	%		9/25/34		2,570,121		2,065,584	^(b)

Morgan Stanley Mortgage Loan Trust, 2004- 11AR 1B1 (1 mo. USD LIBOR + 0.600%)		2.392	%		1/25/35		2,672,800		2,453,447	^(b)

Morgan Stanley Mortgage Loan Trust, 2006- 8AR 1A2 (1 mo. USD LIBOR + 0.140%)		1.932	%		6/25/36		239,458		89,555	^(b)

Morgan Stanley Mortgage Loan Trust, 2007- 5AX 2A3 (1 mo. USD LIBOR + 0.230%)		2.022	%		2/25/37		1,833,183		825,852	^(b)

Morgan Stanley Mortgage Loan Trust, 2007- 15AR 4A1		3.461	%		11/25/37		529,285		492,794	^(b)

See Notes to Financial Statements.


14		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities^(a) — continued
Morgan Stanley Re-REMIC Trust, 2015-R2 1B (Federal Reserve U.S. 12 mo. Cumulative Avg 1 Year CMT + 0.710%)		3.036	%		12/27/46	$	926,980	$	748,484	^(b)(c)

New Century Home Equity Loan Trust, 2004-3 M3 (1 mo. USD LIBOR + 1.065%)		2.857	%		11/25/34		518,626		517,371	^(b)
New Residential Mortgage Loan Trust, 2019-6A A1IB, IO		0.500	%		9/25/59		46,094,419		702,202	^(b)(c)

Nomura Resecuritization Trust, 2014-5R 1A9		7.204	%		6/26/35		1,766,346		1,806,096	^(b)(c)
PMT Credit Risk Transfer Trust, 2019-2R A (1 mo. USD LIBOR + 2.750%)		4.450	%		5/27/23		2,930,648		2,956,246	^(b)(c)

Popular ABS Mortgage Pass-Through Trust, 2005-5 MV2 (1 mo. USD LIBOR + 0.630%)		2.422	%		11/25/35		2,124,862		1,820,977	^(b)

Prime Mortgage Trust, 2006-DR1 2A1		5.500	%		5/25/35		2,159,434		1,896,785	^(c)
Provident Home Equity Loan Trust, 2000-2 A1 (1 mo. USD LIBOR + 0.540%)		2.332	%		8/25/31		796,675		702,652	^(b)

RAAC Trust, 2006-RP3 A (1 mo. USD LIBOR + 0.270%)		2.062	%		5/25/36		308,080		305,117	^(b)(c)

RALI Trust, 2005-QA3 CB4		4.176	%		3/25/35		1,594,930		1,022,482	^(b)
RALI Trust, 2006-QA1 A11		4.541	%		1/25/36		384,502		329,165	^(b)
RALI Trust, 2006-QA4 A (1 mo. USD LIBOR + 0.180%)		1.972	%		5/25/36		264,582		253,107	^(b)

RALI Trust, 2006-QO2 A1 (1 mo. USD LIBOR + 0.220%)		2.012	%		2/25/46		196,295		71,360	^(b)

RALI Trust, 2006-QO2 A2 (1 mo. USD LIBOR + 0.270%)		2.062	%		2/25/46		3,900,681		1,449,312	^(b)

RALI Trust, 2006-QO7 1A1 (Federal Reserve US 12 mo. Cumulative Avg 1 Year CMT + 0.800%)		3.039	%		9/25/46		1,762,322		1,681,034	^(b)

RALI Trust, 2007-QA2 A1 (1 mo. USD LIBOR + 0.130%)		1.922	%		2/25/37		150,798		150,103	^(b)

RAMP Trust, 2004-RS4 MII2 (1 mo. USD LIBOR + 2.025%)		3.817	%		4/25/34		961,062		848,853	^(b)

RAMP Trust, 2004-SL3 A3		7.500	%		12/25/31		393,246		395,772
RAMP Trust, 2005-SL2 A5		8.000	%		10/25/31		395,862		296,052
RBSGC Mortgage Loan Trust, 2007-A 3A1 (1 mo. USD LIBOR + 0.350%)		2.142	%		1/25/37		2,918,939		945,813	^(b)

Redwood Funding Trust, 2019-1 PT		4.213	%		9/27/24		2,981,647		2,969,461	^(b)(c)
Renaissance Home Equity Loan Trust, 2006-1 AF5		6.166	%		5/25/36		544,058		384,843	^(b)

Renaissance Home Equity Loan Trust, 2007-1 AF3		5.612	%		4/25/37		3,080,193		1,369,040	^(b)

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		15

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities ^(a) — continued
Renaissance Home Equity Loan Trust, 2007-2 AF1		5.893	%		6/25/37	$	2,582,571	$	1,125,152	^(b)
Renaissance Home Equity Loan Trust, 2007-2 AF2		5.675	%		6/25/37		445,054		186,618	^(b)
Renaissance Home Equity Loan Trust, 2007-2 AF5		6.203	%		6/25/37		1,914,212		886,183	^(b)
Renaissance Home Equity Loan Trust, 2007-2 AF6		5.879	%		6/25/37		3,219,894		1,399,427	^(b)
Renaissance Home Equity Loan Trust, 2007-3 AF3		7.238	%		9/25/37		1,728,682		993,550	^(b)
Residential Asset Securitization Trust, 2005-A7 A2, IO (-1.000 x 1 mo. USD LIBOR + 7.250%)		5.458	%		6/25/35		1,784,571		540,984	^(b)
Residential Asset Securitization Trust, 2005- A13 1A3 (1 mo. USD LIBOR + 0.470%)		2.262	%		10/25/35		110,665		92,362	^(b)
Residential Asset Securitization Trust, 2006-A1 1A6 (1 mo. USD LIBOR + 0.500%)		2.292	%		4/25/36		1,571,207		718,801	^(b)
Residential Asset Securitization Trust, 2006-A1 1A7, IO (-1.000 x 1 mo. USD LIBOR + 5.500%)		3.708	%		4/25/36		3,256,387		664,896	^(b)
Residential Asset Securitization Trust, 2007-A2 1A1		6.000	%		4/25/37		254,421		221,181
RFMSI Trust, 2005-SA3 1A		4.179	%		8/25/35		1,070,379		797,683	^(b)
RFMSI Trust, 2006-S8 A12, IO (-1.000 x 1 mo. USD LIBOR + 5.400%)		3.608	%		9/25/36		4,208,479		505,978	^(b)
RFMSI Trust, 2006-SA2 4A1		5.433	%		8/25/36		156,237		135,871	^(b)
RFMSI Trust, 2007-S6 1A6 (1 mo. USD LIBOR + 0.500%)		2.292	%		6/25/37		1,707,090		1,403,540	^(b)
RFMSI Trust, 2007-S6 1A13, IO (-1.000 x 1 mo. USD LIBOR + 5.500%)		3.708	%		6/25/37		1,707,090		218,890	^(b)
Soundview Home Loan Trust, 2005-1 M6 (1 mo. USD LIBOR + 1.950%)		3.742	%		4/25/35		1,330,819		1,274,532	^(b)
Structured Adjustable Rate Mortgage Loan Trust, 2004-18 1A2		3.832	%		12/25/34		284,868		279,563	^(b)
Structured Adjustable Rate Mortgage Loan Trust, 2005-4 1A1		3.892	%		3/25/35		135,582		129,156	^(b)
Structured Adjustable Rate Mortgage Loan Trust, 2005-4 5A		4.353	%		3/25/35		65,644		66,075	^(b)
Structured Adjustable Rate Mortgage Loan Trust, 2005-6XS M2 (1 mo. USD LIBOR + 1.155%)		2.947	%		3/25/35		915,410		890,248	^(b)
Structured Adjustable Rate Mortgage Loan Trust, 2005-7 1A3		3.942	%		4/25/35		63,007		63,026	^(b)

See Notes to Financial Statements.


16		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Residential Mortgage-Backed Securities ^(a) — continued
Structured Asset Investment Loan Trust, 2004-8 M9 (1 mo. USD LIBOR + 3.750%)		5.542	%		9/25/34	$	297,405	$	293,263	^(b)
Structured Asset Mortgage Investments II Trust, 2006-AR5 4A1 (1 mo. USD LIBOR + 0.220%)		2.012	%		5/25/46		594,269		327,657	^(b)
Structured Asset Securities Corp. Mortgage Loan Trust, 2006-RF3 1A1, PAC		6.000	%		10/25/36		1,051,727		1,063,683	^(c)
Structured Asset Securities Corp. Mortgage Loan Trust, 2007-BC1 M1 (1 mo. USD LIBOR + 0.230%)		2.022	%		2/25/37		3,904,681		3,241,905	^(b)
Wachovia Mortgage Loan Trust LLC, 2005-B 2A2		4.229	%		10/20/35		20,266		20,133	^(b)
WaMu Mortgage Pass-Through Certificates Trust, 2005-AR2 B1 (1 mo. USD LIBOR + 0.530%)		2.322	%		1/25/45		1,701,724		1,162,757	^(b)
WaMu Mortgage Pass-Through Certificates Trust, 2005-AR13 A1C3 (1 mo. USD LIBOR + 0.490%)		2.282	%		10/25/45		206,146		206,082	^(b)
WaMu Mortgage Pass-Through Certificates Trust, 2005-AR15 A1C4 (1 mo. USD LIBOR + 0.400%)		2.192	%		11/25/45		902,989		593,653	^(b)
WaMu Mortgage Pass-Through Certificates Trust, 2006-AR16 2A2		3.342	%		12/25/36		202,810		191,299	^(b)
Washington Mutual Mortgage Pass-Through Certificates Trust, 2005-8 1A6 (-3.667 x 1 mo. USD LIBOR + 23.283%)		16.713	%		10/25/35		203,464		263,985	^(b)
Washington Mutual Mortgage Pass-Through Certificates Trust, 2005-9 5A4 (-7.333 x 1 mo. USD LIBOR + 35.933%)		22.792	%		11/25/35		65,159		114,689	^(b)
Washington Mutual Mortgage Pass-Through Certificates Trust, 2005-10 2A3 (1 mo. USD LIBOR + 0.900%)		2.692	%		11/25/35		127,214		109,269	^(b)
Washington Mutual Mortgage Pass-Through Certificates Trust, 2006-AR10 A1 (1 mo. USD LIBOR + 0.100%)		1.892	%		12/25/36		401,273		286,846	^(b)
Wells Fargo Alternative Loan Trust, 2007-PA1 A12, IO (-1.000 x 1 mo. USD LIBOR + 5.460%)		3.668	%		3/25/37		2,698,061		272,196	^(b)
Total Residential Mortgage-Backed Securities (Cost — $191,953,377)									220,836,353
Commercial Mortgage-Backed Securities ^(a) — 24.8%
BBCMS Trust, 2018-CBM D (1 mo. USD LIBOR + 2.391%)		4.131	%		7/15/37		1,500,000		1,500,870	^(b)(c)

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		17

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Commercial Mortgage-Backed Securities ^(a) — continued
BX Commercial Mortgage Trust, 2019-IMC F (1 mo. USD LIBOR + 2.900%)		4.640	%		4/15/34	$	2,000,000	$	2,014,789	^(b)(c)
Citigroup Commercial Mortgage Trust, 2015- SHP2 F (1 mo. USD LIBOR + 5.200%)		6.940	%		7/15/27		804,179		805,973	^(b)(c)
Credit Suisse Commercial Mortgage Trust, 2006-C5 AJ		5.373	%		12/15/39		923,651		501,081
Credit Suisse Commercial Mortgage Trust, 2007-C5 AM		5.869	%		9/15/40		709,306		453,956	^(b)
CSMC Trust, 2014-USA F		4.373	%		9/15/37		1,620,000		1,468,953	^(c)
CSMC Trust, 2015-LHMZ MZ		8.928	%		7/20/20		2,885,788		2,890,423	^(c)
CSMC Trust, 2017-CHOP H (1 mo. USD LIBOR + 7.620%)		9.360	%		7/15/32		3,300,000		3,305,433	^(b)(c)
CSMC Trust, 2018-PLUM B (1 mo. USD LIBOR + 5.000%)		6.740	%		8/15/20		496,539		498,148	^(b)(c)
CSMC Trust, 2019-RIO B		8.740	%		12/15/21		3,000,000		3,003,720	^(c)
CSMC Trust, 2017-CHOP F (1 mo. USD LIBOR + 4.350%)		6.090	%		7/15/32		1,620,000		1,627,349	^(b)(c)
DBUBS Mortgage Trust, 2011-LC3A G		3.750	%		8/10/44		2,600,000		1,990,916	^(c)
FREMF Mortgage Trust, 2019-KG01 B		4.165	%		4/25/29		2,239,000		2,266,127	^(b)(c)
FRESB Mortgage Trust, 2018-SB48 B (3.670% to 9/25/26 then 6 mo. LIBOR + 7.500%)		3.670	%		2/25/38		3,853,232		2,812,736	^(b)(c)
GE Business Loan Trust, 2006-1A C (1 mo. USD LIBOR + 0.420%)		2.160	%		5/15/34		77,006		72,447	^(b)(c)
GMAC Commercial Mortgage Securities Inc., 2006-C1 AJ		5.349	%		11/10/45		938,393		605,263	^(b)
Government National Mortgage Association (GNMA), 2019-28 AB		3.150	%		6/16/60		249,521		253,642
GS Mortgage Securities Trust, 2006-GG8 AJ		5.622	%		11/10/39		81,190		63,596
GS Mortgage Securities Trust, 2007-GG10 AJ		5.808	%		8/10/45		2,413,123		1,135,058	^(b)
JPMorgan Chase Commercial Mortgage Securities Trust, 2006-LDP7 AJ		6.071	%		4/17/45		296,675		162,707	^(b)
JPMorgan Chase Commercial Mortgage Securities Trust, 2007-CB19 AJ		5.812	%		2/12/49		1,321,205		858,094	^(b)
JPMorgan Chase Commercial Mortgage Securities Trust, 2007-LD12 AJ		6.436	%		2/15/51		83,316		79,545	^(b)
JPMorgan Chase Commercial Mortgage Securities Trust, 2018-PHMZ M (1 mo. USD LIBOR + 8.208%)		9.947	%		6/15/35		3,000,000		2,997,804	^(b)(c)
JPMorgan Chase Commercial Mortgage Securities Trust, 2019-BOLT C (1 mo. USD LIBOR + 3.800%)		5.540	%		7/15/34		1,814,912		1,817,341	^(b)(c)

See Notes to Financial Statements.


18		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount		Value
Commercial Mortgage-Backed Securities^(a) — continued
JPMorgan Chase Commercial Mortgage Securities Trust, 2019-BOLT D (1 mo. USD LIBOR + 6.550%)		8.290	%		7/15/34	$	907,456	$	909,707	^(b)(c)
JPMorgan Chase Commercial Mortgage Securities Trust, 2019-BOLT XCP, IO		2.052	%		7/15/34		13,611,838		421,533	^(b)(c)
ML-CFC Commercial Mortgage Trust, 2007-5 AJ		5.450	%		8/12/48		106,315		66,691	^(b)
ML-CFC Commercial Mortgage Trust, 2007-9 AJ		6.025	%		9/12/49		223,650		96,129	^(b)
ML-CFC Commercial Mortgage Trust, 2007-9 AJA		6.025	%		9/12/49		52,112		22,393	^(b)
Morgan Stanley Capital I Trust, 2007-IQ13 AJ		5.438	%		3/15/44		6,928		6,921
Morgan Stanley Capital I Trust, 2007-IQ16 AJ		6.251	%		12/12/49		168,389		107,088	^(b)
Motel 6 Trust, 2017-MTL6 F (1 mo. USD LIBOR + 4.250%)		5.990	%		8/15/34		1,203,672		1,213,263	^(b)(c)
Multifamily Connecticut Avenue Securities Trust, 2019-01 CE (1 mo. USD LIBOR + 8.750%)		10.542	%		10/15/49		2,500,000		2,618,442	^(b)(c)
Natixis Commercial Mortgage Securities Trust, 2019-FAME D		4.398	%		8/15/34		1,900,000		1,862,283	^(b)(c)
Natixis Commercial Mortgage Securities Trust, 2019-FAME E		4.398	%		8/15/34		950,000		864,052	^(b)(c)
Natixis Commercial Mortgage Securities Trust, 2019-TRUE A (1 mo. USD LIBOR + 2.011%)		3.755	%		4/18/24		1,280,000		1,283,171	^(b)(c)
Starwood Retail Property Trust, 2014-STAR D (1 mo. USD LIBOR + 3.250%)		5.240	%		11/15/27		1,000,000		857,278	^(b)(c)
Starwood Retail Property Trust, 2014-STAR E (1 mo. USD LIBOR + 4.150%)		6.140	%		11/15/27		1,600,000		742,772	^(b)(c)
Tharaldson Hotel Portfolio Trust, 2018-THL E (1 mo. USD LIBOR + 3.180%)		4.890	%		11/11/34		405,040		406,836	^(b)(c)
Tharaldson Hotel Portfolio Trust, 2018-THL G (1 mo. USD LIBOR + 6.350%)		8.060	%		11/11/34		2,430,241		2,440,359	^(b)(c)
Tharaldson Hotel Portfolio Trust, 2018-THL H (1 mo. USD LIBOR + 9.800%)		11.510	%		11/11/34		1,620,161		1,630,456	^(b)(c)
UBS-Barclays Commercial Mortgage Trust, 2012-C2 G		4.890	%		5/10/63		3,130,000		1,006,608	^(b)(c)
UBS-Barclays Commercial Mortgage Trust, 2012-C2 H		4.890	%		5/10/63		3,150,000		707,229	^(b)(c)
Wachovia Bank Commercial Mortgage Trust, 2007-C33 AJ		5.655	%		2/15/51		369,419		292,334	^(b)
Total Commercial Mortgage-Backed Securities (Cost — $55,161,815)									50,741,516

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		19

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Security‡	Rate			Maturity Date		Face Amount/ Units		Value
Asset-Backed Securities — 10.6%
AccessLex Institute, 2004-A B1 (28 day Auction Rate Security)		0.000	%		7/1/39	$	1,400,000	$	1,360,440	^(b)
Applebee’s Funding LLC/IHOP Funding LLC, 2019-1A A2II		4.723	%		6/7/49		2,000,000		2,053,480	^(c)
BankAmerica Manufactured Housing Contract Trust, 1996-1 B1		7.875	%		10/10/26		7,866,000		1,703,739
BCMSC Trust, 1998-B A		6.530	%		10/15/28		479,375		498,447	^(b)
BCMSC Trust, 1999-A A3		5.980	%		3/15/29		198,083		201,593	^(b)
Cascade MH Asset Trust, 2019-MH1 M		5.985	%		11/25/44		1,150,000		1,159,277	^(b)(c)
Catskill Park CLO Ltd., 2017-1A D (3 mo. USD LIBOR + 6.000%)		7.966	%		4/20/29		1,700,000		1,668,264	^(b)(c)
Conseco Finance Corp., 1997-4 M1		7.220	%		2/15/29		1,335,650		1,364,185	^(b)
Credit Suisse European Mortgage Capital Ltd., 2019-1OTF A (3 mo. USD LIBOR + 2.900%)		4.999	%		8/9/24		2,500,000		2,498,357	^(b)(c)
Firstfed Corp. Manufactured Housing Contract, 1997-2 B		8.110	%		5/15/24		189,284		84,096	^(c)
Origen Manufactured Housing Contract Trust, 2006-A A2		3.490	%		10/15/37		956,554		920,067	^(b)
Origen Manufactured Housing Contract Trust, 2007-A A2		4.210	%		4/15/37		1,162,851		1,141,015	^(b)
Origen Manufactured Housing Contract Trust, 2007-B A1 (1 mo. USD LIBOR + 1.200%)		2.940	%		10/15/37		1,966,151		1,941,676	^(b)(c)
Ratchet Trading Ltd., 2018-1 A		15.190	%		1/26/27		103,949		101,009	^(b)(c)
RBS Acceptance Inc., 1995-BA1 B2		9.000	%		8/10/20		2,191,561		111,347
SMB Private Education Loan Trust, 2014-A R		0.000	%		9/15/45		6,875		1,497,244	^(c)
TES LLC, 2017-1A B		7.740	%		10/20/47		1,500,000		1,495,777	^(c)
Treman Park CLO Ltd., 2015-1A DRR (3 mo. USD LIBOR + 2.650%)		4.616	%		10/20/28		500,000		493,654	^(b)(c)
Upgrade Pass-Through Trust I, 2017-1 CERT		14.960	%		12/27/27		117,645		114,979	^(b)(c)
Upgrade Pass-Through Trust I, 2018-2 A		16.537	%		5/15/24		131,554		129,351	^(c)
Upgrade Pass-Through Trust I, 2018-5 A		12.075	%		9/15/24		182,470		179,359	^(c)
Upgrade Pass-Through Trust I, 2018-6 A		5.339	%		10/15/24		164,042		160,003	^(c)
Upgrade Pass-Through Trust IV, 2018-4 A		15.308	%		8/15/24		193,446		187,899	^(c)
Upgrade Pass-Through Trust VII, 2018-7 A		14.784	%		1/15/25		296,407		283,693	^(c)
VOYA CLO, 2017-2A D (3 mo. USD LIBOR + 6.020%)		8.021	%		6/7/30		400,000		383,261	^(b)(c)
Total Asset-Backed Securities (Cost — $23,463,367)									21,732,212

See Notes to Financial Statements.


20		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.

Security‡

Rate

Maturity

Date

Face

Amount

Value

Corporate Bonds & Notes — 0.3%

Consumer Staples — 0.3%

Food & Staples Retailing — 0.3%

CVS Pass-Through Trust (Cost — $488,209)

9.350

1/10/23

479,444

534,150

^(c)

Total Corporate Bonds & Notes (Cost — $488,209)

534,150

Total Investments before Short-Term Investments (Cost — $271,066,768)

293,844,231

Short-Term Investments — 3.9%

Repurchase Agreements — 2.4%

Bank of America N.A. repurchase agreement dated 12/31/19; Proceeds at maturity — $5,000,431, (Fully collateralized by U.S. government agency obligations, 1.625% due 12/15/22; Market value — $5,101,996) (Cost — $5,000,000)

1.550

1/2/20

5,000,000

5,000,000

Money Market Funds — 1.5%

Dreyfus Government Cash Management, Institutional Shares (Cost — $3,068,153)

1.522

3,068,153

3,068,153

Total Short-Term Investments (Cost — $8,068,153)

8,068,153

Total Investments — 147.5% (Cost — $279,134,921)

301,912,384

Liabilities in Excess of Other Assets — (47.5)%

(97,202,494

)

Total Net Assets — 100.0%

204,709,890

‡	Securities held by the Fund are subject to a lien, granted to the lender, to the extent of the borrowing outstanding and any additional expenses.

^(a)

Collateralized mortgage obligations are secured by an underlying pool of mortgages or mortgage pass-through certificates that are structured to direct payments on underlying collateral to different series or classes of the obligations. The interest rate may change positively or inversely in relation to one or more interest rates, financial indices or other financial indicators and may be subject to an upper and/or lower limit.

^(b)

Variable rate security. Interest rate disclosed is as of the most recent information available. Certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and are based on current market conditions. These securities do not indicate a reference rate and spread in their description above.

^(c)

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.

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		21

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.


Abbreviations used in this schedule:

CAS		— Connecticut Avenue Securities

CLO		— Collateralized Loan Obligation

CMT		— Constant Maturity Treasury

IO		— Interest Only

LIBOR		— London Interbank Offered Rate

PAC		— Planned Amortization Class

PO		— Principal Only

REMIC		— Real Estate Mortgage Investment Conduit

Re-REMIC		— Resecuritization of Real Estate Mortgage Investment Conduit

USD		— United States Dollar

At December 31, 2019, the Fund had the following open futures contracts:


	Number of Contracts		Expiration Date		Notional Amount		Market Value		Unrealized Appreciation
Contracts to Sell:
U.S. Treasury 2-Year Notes		8		3/20	$	1,725,549	$	1,724,000	$	1,549
U.S. Treasury 5-Year Notes		36		3/20		4,287,741		4,269,938		17,803
U.S. Treasury 10-Year Notes		116		3/20		15,029,094		14,896,938		132,156
U.S. Treasury Ultra 10-Year
Notes		44		3/20		6,279,300		6,190,938		88,362
Net unrealized appreciation on open futures contracts									$	239,870

At December 31, 2019, the Fund had the following open forward foreign currency contract:

Currency
Purchased

Currency

Sold

Counterparty

Settlement

Date

Unrealized

Appreciation

EUR

55,341

USD

61,302

Barclays Bank PLC

1/17/20

$839


Abbreviations used in this table:

EUR		— Euro

USD		— United States Dollar

At December 31, 2019, the Fund had the following open swap contracts:


OTC CREDIT DEFAULT SWAPS ON CREDIT INDICES — SELL PROTECTION¹
Swap Counterparty (Reference Entity)	Notional Amount²		Termination Date		Periodic Payments Received by the Fund^†	Market Value³		Upfront Premiums Paid (Received)		Unrealized Appreciation
Barclays Bank PLC (Markit CMBX.NA.BBB-.6 Index)	$	100,000		5/11/63	3.000% Monthly	$	(5,109)	$	(9,784)	$	4,675
Barclays Bank PLC (Markit CMBX.NA.BBB-.6 Index)		400,000		5/11/63	3.000% Monthly		(20,437)		(38,905)		18,468

See Notes to Financial Statements.


22		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Western Asset Mortgage Opportunity Fund Inc.


OTC CREDIT DEFAULT SWAPS ON CREDIT INDICES — SELL PROTECTION¹ (cont’d)
Swap Counterparty (Reference Entity)	Notional Amount²		Termination Date		Periodic Payments Received by the Fund^†	Market Value³		Upfront Premiums Paid (Received)		Unrealized Appreciation
Barclays Bank PLC (Markit CMBX.NA.BBB-.6 Index)	$	700,000		5/11/63	3.000% Monthly	$	(35,765)	$	(68,085)	$	32,320
Barclays Bank PLC (Markit CMBX.NA.BBB-.6 Index)		1,000,000		5/11/63	3.000% Monthly		(51,093)		(96,938)		45,845
Barclays Bank PLC (Markit CMBX.NA.BBB-.8 Index)		100,000		10/17/57	3.000% Monthly		(2,159)		(4,765)		2,606
Barclays Bank PLC (Markit CMBX.NA.BBB-.8 Index)		700,000		10/17/57	3.000% Monthly		(15,111)		(31,460)		16,349
Morgan Stanley & Co. Inc. (Markit CMBX.NA.BBB-.6 Index)		2,000,000		5/11/63	3.000% Monthly		(102,186)		(197,073)		94,887
Morgan Stanley & Co. Inc. (Markit CMBX.NA.BBB-.8 Index)		2,300,000		10/17/57	3.000% Monthly		(49,651)		(104,332)		54,681
Total	$	7,300,000				$	(281,511)	$	(551,342)	$	269,831


OTC CREDIT DEFAULT SWAPS ON CREDIT INDICES — BUY PROTECTION⁴
Swap Counterparty (Reference Entity)	Notional Amount²		Termination Date		Periodic Payments Made by the Fund^†	Market Value³		Upfront Premiums Paid (Received)		Unrealized Depreciation
Barclays Bank PLC (Markit CMBX.NA.BBB-.11 Index)	$	100,000		11/18/54	3.000% Monthly	$	1,457	$	4,762	$	(3,305)
Credit Suisse (Markit CMBX.NA.BBB-.11 Index)		1,100,000		11/18/54	3.000% Monthly		16,029		49,590		(33,561)
Morgan Stanley & Co. Inc. (Markit CMBX.NA.BBB-.12 Index)		1,500,000		8/17/61	3.000% Monthly		34,893		127,222		(92,329)
Morgan Stanley & Co. Inc. (Markit CMBX.NA.BBB-.12 Index)		2,300,000		8/17/61	3.000% Monthly		53,503		127,397		(73,894)
Total	$	5,000,000				$	105,882	$	308,971	$	(203,089)

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		23

Schedule of investments (cont’d)

December 31, 2019

Western Asset Mortgage Opportunity Fund Inc.

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

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

The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected loss (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values (sell protection) or increasing market values (buy protection) when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

⁴

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

^†	Percentage shown is an annual percentage rate.

See Notes to Financial Statements.


24		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Statement of assets and liabilities

December 31, 2019



Assets:
Investments, at value (Cost — $279,134,921)	$	301,912,384
Foreign currency, at value (Cost — $25,232)		25,612
Interest receivable		1,090,054
Deposits with brokers for OTC derivatives		270,000
Deposits with brokers for open futures contracts		262,060
OTC swaps, at value (premiums paid — $308,971)		105,882
Receivable from broker — variation margin on open futures contracts		20,718
Receivable for open OTC swap contracts		3,650
Unrealized appreciation on forward foreign currency contracts		839
Other receivables		53,500
Prepaid expenses		4,563
*Total Assets*		*303,749,262*

Liabilities:
Loan payable (Note 5)		98,000,000
OTC swaps, at value (premiums received — $551,342)		281,511
Investment management fee payable		257,775
Interest payable		232,750
Directors’ fees payable		7,320
Payable for open OTC swap contracts		2,500
Accrued expenses		257,516
*Total Liabilities*		*99,039,372*
Total Net Assets	$	204,709,890

Net Assets:
Par value ($0.001 par value; 10,507,923 shares issued and outstanding; 100,000,000 shares authorized)	$	10,508
Paid-in capital in excess of par value		196,925,417
Total distributable earnings (loss)		7,773,965
Total Net Assets	$	204,709,890

Shares Outstanding		10,507,923

Net Asset Value		$19.48

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		25

Statement of operations

For the Year Ended December 31, 2019



Investment Income:
*Interest*	$	*23,207,768*

Expenses:
Interest expense (Note 5)		3,397,575
Investment management fee (Note 2)		3,036,599
Transfer agent fees		202,951
Legal fees		200,759
Excise tax (Note 1)		185,448
Audit and tax fees		114,325
Directors’ fees		55,173
Fund accounting fees		33,156
Custody fees		23,378
Shareholder reports		14,074
Commitment fees (Note 5)		14,048
Stock exchange listing fees		12,560
Insurance		3,999
Miscellaneous expenses		21,229
*Total Expenses*		*7,315,274*
Net Investment Income		15,892,494

Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
Net Realized Gain (Loss) From:
Investment transactions		(638,342)
Futures contracts		(940,943)
Swap contracts		32,256
Forward foreign currency contracts		(5,235)
Foreign currency transactions		(1,040)
*Net Realized Loss*		*(1,553,304)*
Change in Net Unrealized Appreciation (Depreciation) From:
Investments		7,607,430
Futures contracts		541,223
Swap contracts		66,742
Forward foreign currency contracts		2,045
Foreign currencies		491
*Change in Net Unrealized Appreciation (Depreciation)*		*8,217,931*
Net Gain on Investments, Futures Contracts, Swap Contracts, Forward Foreign Currency Contracts and Foreign Currency Transactions		6,664,627
Increase in Net Assets From Operations		$22,557,121

See Notes to Financial Statements.


26		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

Statements of changes in net assets


For the Years Ended December 31,	2019		2018

Operations:
Net investment income	$	15,892,494	$	17,229,604
Net realized gain (loss)		(1,553,304)		3,097,510
Change in net unrealized appreciation (depreciation)		8,217,931		(696,539)
*Increase in Net Assets From Operations*		*22,557,121*		*19,630,575*

Distributions to Shareholders From (Note 1):
Total distributable earnings		(20,068,443)		(40,408,500)
Return of capital		(441,518)		—
*Decrease in Net Assets From Distributions to Shareholders*		*(20,509,961)*		*(40,408,500)*

Fund Share Transactions:
Reinvestment of distributions (35,526 and 17,517 shares issued, respectively)		713,330		394,234
*Increase in Net Assets From Fund Share Transactions*		*713,330*		*394,234*
*Increase (Decrease) in Net Assets*		*2,760,490*		*(20,383,691)*

Net Assets:
Beginning of year		201,949,400		222,333,091
End of year	$	204,709,890	$	201,949,400

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		27

Statement of cash flows

For the Year Ended December 31, 2019



Increase (Decrease) in Cash:
Cash Provided (Used) by Operating Activities:
Net increase in net assets resulting from operations	$	22,557,121
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided (used) by operating activities:
Purchases of portfolio securities		(49,720,353)
Sales of portfolio securities		74,301,551
Net purchases, sales and maturities of short-term investments		(6,044,145)
Net amortization of premium (accretion of discount)		2,487,165
Decrease in interest receivable		175,941
Decrease in prepaid expenses		176
Increase in other receivables		(53,500)
Increase in receivable for open OTC swap contracts		(3,650)
Increase in net premiums received for OTC swap contracts		242,371
Increase in receivable from broker — variation margin on open futures contracts		(20,718)
Decrease in investment management fee payable		(13,896)
Decrease in Directors’ fees payable		(2,005)
Decrease in interest payable		(51,838)
Increase in accrued expenses		138,672
Decrease in payable to broker — variation margin on open futures contracts		(40,235)
Increase in payable for open OTC swap contracts		2,500
Net realized loss on investments		638,342
Change in net unrealized appreciation (depreciation) of investments, OTC swap contracts and forward foreign currency contracts		(7,676,217)
Net Cash Provided by Operating Activities*		*36,917,282*

Cash Flows From Financing Activities:
Distributions paid on common stock		(35,280,048)
Repayment of loan facility borrowings		(1,250,000)
*Net Cash Used in Financing Activities*		*(36,530,048)*
Net Increase in Cash and Restricted Cash		387,234
Cash and restricted cash at beginning of year		170,438
Cash and restricted cash at end of year	$	557,672

*	Included in operating expenses is cash of $3,461,626 paid for interest and commitment fees on borrowings.

The following table provides a reconciliation of cash and restricted cash reported within the Statement of Assets and Liabilities that sums to the total of such amounts shown on the Statement of Cash Flows.


	December 31, 2019
Cash	$	25,612
Restricted cash		532,060
Total cash and restricted cash shown in the Statement of Cash Flows	$	557,672

Restricted cash consists of cash that has been segregated to cover the Fund’s collateral or margin obligations under derivative contracts. It is separately reported on the Statement of Assets and Liabilities as Deposits with brokers.

See Notes to Financial Statements.


28		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report



Non-Cash Financing Activities:
Proceeds from reinvestment of distributions	$	713,330

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		29

Financial highlights


For a share of capital stock outstanding throughout each year ended December 31:
	2019¹			2018¹			2017¹			2016¹			2015¹

Net asset value, beginning of year		$19.28			$21.27			$20.70			$22.76			$24.75

Income (loss) from operations:
Net investment income		1.51			1.65			1.57			1.47			2.13
Net realized and unrealized gain (loss)		0.65			0.22			2.28			(0.53)			(0.80)
*Total income from operations*		*2.16*			*1.87*			*3.85*			*0.94*			*1.33*

Less distributions from:
Net investment income		(1.92)			(3.03)			(2.69)			(2.95)			(2.33)
Net realized gains		—			(0.83)			(0.59)			(0.05)			(0.99)
Return of capital		(0.04)			—			—			—			—
*Total distributions*		*(1.96)*			*(3.86)*			*(3.28)*			*(3.00)*			*(3.32)*

Net asset value, end of year		$19.48			$19.28			$21.27			$20.70			$22.76

Market price, end of year		$20.30			$20.39			$24.67			$22.79			$23.55
*Total return, based on NAV^2,3*		*11.65*	%		*9.26*	%		*19.70*	%		*4.47*	%		*5.44*	%
*Total return, based on Market Price⁴*		*9.71*	%		*(1.16)*	%		*24.20*	%		*10.80*	%		*13.56*	%

Net assets, end of year (millions)		$205			$202			$222			$216			$237

Ratios to average net assets:
Gross expenses		3.56	%		3.15	%		2.68	%		2.97	%		2.39	%
Net expenses		3.56			3.15			2.68			2.97			2.39
Net investment income		7.73			7.78			7.29			6.78			8.65

Portfolio turnover rate		17	%		33	%		35	%		23	%⁵		24	%

Supplemental data:
Loan Outstanding, End of Year (000s)		$98,000			$99,250			$101,750			$101,750			$80,500
Asset Coverage Ratio for Loan Outstanding⁶		309	%		303	%		319	%		312	%		395	%
Asset Coverage, per $1,000 Principal Amount of Loan Outstanding⁶		$3,089			$3,035			$3,185			$3,124			$3,946
Weighted Average Loan (000s)		$98,072			$101,743			$101,750			$90,984			$99,544
Weighted Average Interest Rate on Loan		3.46	%		3.06	%		2.06	%		1.50	%		1.06	%

See Notes to Financial Statements.


30		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

¹	Per share amounts have been calculated using the average shares method.

²	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.

³	The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results.

⁴	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.

⁵	Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 24%.

⁶	Represents value of net assets plus the loan outstanding at the end of the period divided by the loan outstanding at the end of the period.

See Notes to Financial Statements.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		31

Notes to financial statements

1. Organization and significant accounting policies

Western Asset Mortgage Opportunity Fund Inc. (formerly Western Asset Mortgage Defined Opportunity Fund Inc.) (the “Fund”) was incorporated in Maryland on December 11, 2009 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Fund’s primary investment objective is to provide current income. As a secondary investment objective, the Fund will seek capital appreciation. The Fund seeks to achieve its investment objectives by investing primarily in a diverse portfolio of mortgage-backed securities (“MBS) and mortgage whole loans. Investments in MBS consist primarily of non-agency residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”). At the Fund’s Special Meeting of Stockholders held on December 13, 2019, stockholders approved the proposal to convert the Fund to a perpetual fund by eliminating the Fund’s term, which was scheduled to end at the close on business on March 1, 2022. The conversion became effective on January 2, 2020. On October 31, 2019, the Board of Directors of the Fund approved amendments to the Fund’s bylaws. The amended and restated bylaws were subsequently filed on Form 8-K and are available on the Securities and Exchange Commission’s website at www.sec.gov.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services 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


32		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

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

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

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

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


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		33

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 — quoted prices in active markets for identical investments

•

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

•

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

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

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


ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Long-Term Investments†:
Residential Mortgage-Backed Securities		—	$	220,836,353		—	$	220,836,353
Commercial Mortgage-Backed Securities		—		50,741,516		—		50,741,516
Asset-Backed Securities		—		21,732,212		—		21,732,212
Corporate Bonds & Notes		—		534,150		—		534,150
Total Long-Term Investments		—		293,844,231		—		293,844,231
Short-Term Investments†:
Repurchase Agreements		—		5,000,000		—		5,000,000
Money Market Funds	$	3,068,153		—		—		3,068,153
Total Short-Term Investments		3,068,153		5,000,000		—		8,068,153
Total Investments	$	3,068,153	$	298,844,231		—	$	301,912,384
Other Financial Instruments:
Futures Contracts	$	239,870		—		—	$	239,870
Forward Foreign Currency Contracts		—	$	839		—		839
OTC Credit Default Swaps on Credit Indices — Buy Protection‡		—		105,882		—		105,882
Total Other Financial Instruments	$	239,870	$	106,721		—	$	346,591
Total	$	3,308,023	$	298,950,952		—	$	302,258,975


34		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report


LIABILITIES
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Other Financial Instruments:
OTC Credit Default Swaps on Credit Indices — Sell Protection‡		—	$	281,511		—	$	281,511

†	See Schedule of Investments for additional detailed categorizations.

‡	Value includes any premium paid or received with respect to swap contracts.

(b) Purchased options. When the Fund purchases an option, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities, the value of which is marked-to-market to reflect the current market value of the option purchased. If the purchased option expires, the Fund realizes a loss equal to the amount of premium paid. When an instrument is purchased or sold through the exercise of an option, the related premium paid is added to the basis of the instrument acquired or deducted from the proceeds of the instrument sold. The risk associated with purchasing put and call options is limited to the premium paid.

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

Upon entering into a futures contract, the Fund is required to deposit cash or securities with a broker in an amount equal to a certain percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.

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

(d) Forward foreign currency contracts. The Fund enters into a forward foreign currency contract to hedge against, or manage exposure to, foreign issuers or markets. The Fund may also enter into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		35

Notes to financial statements (cont’d)

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.

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

In a Centrally Cleared Swap, immediately following execution of the swap, the swap agreement is submitted to a clearinghouse or central counterparty (the “CCP”) and the CCP becomes the ultimate counterparty of the swap agreement. The Fund is required to interface with the CCP through a broker, acting in an agency capacity. All payments are settled with the CCP through the broker. Upon entering into a Centrally Cleared Swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities.

Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of Centrally Cleared Swaps, if any, is recorded as a receivable or payable for variation margin on the Statement of Assets and Liabilities. Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.

OTC swap payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities.


36		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.

The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of December 31, 2019, the total notional value of all credit default swaps to sell protection was $7,300,000. This amount would be offset by the value of the swap’s reference entity, upfront premiums received on the swap and any amounts received from the settlement of a credit default swap where the Fund bought protection for the same referenced security/entity.

For average notional amounts of swaps held during the year ended December 31, 2019, see Note 4.

(f) Swaptions. The Fund may purchase or write swaption contracts to manage exposure to fluctuations in interest rates or to enhance yield. The Fund may also purchase and write swaption contracts to manage exposure to an underlying instrument. Swaption contracts written by the Fund represent an option that gives the purchaser the right, but not the obligation, to enter into a previously agreed upon swap contract at a future date. Swaption contracts purchased by the Fund represent an option that gives the Fund the right, but not the obligation, to enter into a previously agreed upon swap contract at a future date.

When the Fund writes a swaption, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the swaption written. If the swaption expires, the Fund realizes a gain equal to the amount of the premium received.

When the Fund purchases a swaption, an amount equal to the premium paid by the Fund is recorded as an investment on the Statement of Assets and Liabilities, the value of which is marked-to-market daily to reflect the current market value of the swaption purchased. If the swaption expires, the Fund realizes a loss equal to the amount of the premium paid.

Swaptions are marked-to-market daily based upon quotations from market makers. Changes in the value of the swaption are reported as unrealized gains or losses in the Statement of Operations.

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

The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		37

Notes to financial statements (cont’d)

the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any off-set between the lender and the borrower.

(h) Stripped securities. The Fund may invest in ‘‘Stripped Securities,’’ a term used collectively for components, or strips, of fixed income securities. Stripped Securities can be principal only securities (“PO”), which are debt obligations that have been stripped of unmatured interest coupons, or interest only securities (“IO”), which are unmatured interest coupons that have been stripped from debt obligations. The market value of Stripped Securities will fluctuate in response to changes in economic conditions, rates of pre-payment, interest rates and the market’s perception of the securities. However, fluctuations in response to interest rates may be greater in Stripped Securities than for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation may increase with a longer period of maturity.

The yield to maturity on IO’s is sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IO’s.

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

(j) Mortgage-backed securities. Mortgage-Backed Securities (“MBS”) include CMBS and RMBS. These securities depend on payments (except for rights or other assets designed to assure the servicing or timely distribution of proceeds to holders of such securities) primarily from the cash flow from secured commercial or residential mortgage loans made to borrowers. Such loans are secured (on a first priority basis or second priority basis,


38		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

subject to permitted liens, easements and other encumbrances) by commercial or residential real estate, the proceeds of which are used to purchase and or to construct commercial or residential real estate. The value of some mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although certain mortgage-related securities are supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.

(k) Leverage. The Fund may seek to enhance the level of its current distributions to holders of common stock through the use of leverage. The Fund may use leverage directly at the Fund level through borrowings, including loans from certain financial institutions or through a qualified government sponsored program, the use of reverse repurchase agreements and/or the issuance of debt securities (collectively, “Borrowings”), and possibly through the issuance of preferred stock (“Preferred Stock”), in an aggregate amount of up to approximately 33 1/3% of the Fund’s Total Assets immediately after such Borrowings and/or issuances of Preferred Stock. “Total Assets” means net assets of the Fund plus the amount of any Borrowings and assets attributable to Preferred Stock that may be outstanding. Currently, the Fund has no intention to issue notes or debt securities, or Preferred Stock. In addition, the Fund may enter into additional reverse repurchase agreements and/or use similar investment management techniques that may provide leverage, but which are not subject to the foregoing 33 1/3% limitation so long as the Fund has covered its commitment with respect to such techniques by segregating liquid assets, entering into offsetting transactions or owning positions covering related obligations.

(l) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash payments are presented in the Statement of Cash Flows.

(m) 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.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		39

Notes to financial statements (cont’d)

Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.

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.

(n) Credit and market risk. Investments in securities that are collateralized by real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.

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

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


40		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

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 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 NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.

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 over-the-counter 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 December 31, 2019, the Fund held OTC credit default swaps with credit related contingent features which had a liability position of $281,511. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties. As of December 31, 2019, the Fund had posted with its counterparties cash and/or securities as collateral to cover the net liability of these derivatives amounting to $270,000, which could be used to reduce the required payment.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		41

Notes to financial statements (cont’d)

At December 31, 2019, the Fund held non-cash collateral from Credit Suisse in the amount of $19,923. This amount could be used to reduce the Fund’s exposure to the counterparty in the event of default.

(q) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. The Fund accretes market discounts and amortizes market premiums on debt securities using the effective yield method. Accretion of market discounts and amortization of market premiums requires the application of several assumptions including, but not limited to, prepayment assumptions and default rate assumptions, which are reevaluated not less than semi-annually and require the use of a significant amount of judgment. Principal write-offs are generally treated as realized losses. The Fund’s accretion of discounts and amortization of premiums for U.S. federal and other tax purposes is likely to differ from the financial accounting treatment under GAAP of these items as described above. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(r) Partnership accounting policy. The Fund records its pro rata share of the income (loss) and capital gains (losses), to the extent of distributions it has received, allocated from the underlying partnerships and accordingly adjusts the cost basis of the underlying partnerships for return of capital. These amounts are included in the Fund’s Statement of Operations.

(s) Distributions to shareholders. Distributions from net investment income of the Fund, if any, are declared quarterly and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

(t) 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.

(u) 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


42		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Fund’s financial statements.

However, due to the timing of when distributions are made by the Fund, the Fund may be subject to an excise tax of 4% of the amount by which 98% of the Fund’s annual taxable income and 98.2% of net realized gains exceed the distributions from such taxable income and realized gains for the calendar year. The Fund accrued and paid $185,448 of federal excise tax attributable to the calendar year 2018 during the year ended December 31, 2019.

Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2019, 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.

(v) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:

Total Distributable

Earnings (Loss)

Paid-in

Capital

^(a)

185,448

(185,448)

^(a)	Reclassifications are due to a non-deductible excise tax paid by the Fund.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited (“Western Asset Limited”) are the Fund’s subadvisers. LMPFA, Western Asset and Western Asset Limited are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 1.00% of the Fund’s average daily net assets managed assets. Managed assets are net assets plus the proceeds of any outstanding borrowings used for leverage and assets attributable to preferred stock that may be outstanding.

LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to Western Asset the day-to-day portfolio management of the Fund. Western Asset Limited provides certain subadvisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated debt securities. For its services, LMPFA pays Western Asset monthly 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset Limited a monthly subadvisory fee in an amount equal


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		43

Notes to financial statements (cont’d)

to 100% of the management fee paid to Western Asset on the assets that Western Asset allocates to Western Asset Limited to manage.

During periods in which the Fund utilizes financial leverage, the fees paid to LMPFA will be higher than if the Fund did not utilize leverage because the fees are calculated as a percentage of the Fund’s assets, including those investments purchased with leverage.

All officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.

3. Investments

During the year ended December 31, 2019, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S. Government & Agency Obligations were as follows:


	Investments		U.S. Government & Agency Obligations
Purchases	$	42,981,367	$	6,738,986
Sales		65,349,800		8,951,751

At December 31, 2019, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:


	Cost/Premiums Paid (Received)		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Net Unrealized Appreciation
Securities	$	290,908,717	$	22,968,421	$	(11,964,754)	$	11,003,667
Swap contracts		(242,371)		269,831		(203,089)		66,742
Futures contracts		—		239,870		—		239,870
Forward foreign currency contracts		—		839		—		839

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 December 31, 2019.


ASSET DERIVATIVES¹
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Total
Futures contracts²	$	239,870		—		—	$	239,870
OTC swap contracts³		—		—	$	105,882		105,882
Forward foreign currency contracts		—	$	839		—		839
Total	$	239,870	$	839	$	105,882	$	346,591


44		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report


LIABILITY DERIVATIVES¹
	Credit Risk
OTC swap contracts³	$	281,511

¹	Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation (depreciation) and for liability derivatives is payables/net unrealized appreciation (depreciation).

²	Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only variation margin is reported within the receivables and/or payables on the Statement of Assets and Liabilities.

³	Values include premiums paid (received) on swap contracts which are shown separately in the Statement of Assets and Liabilities.

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended December 31, 2019. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.


AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Total
Purchased options¹		—		—	$	(19,823)	$	(19,823)
Futures contracts	$	(940,943)		—		—		(940,943)
Swap contracts		—		—		32,256		32,256
Forward foreign currency contracts		—	$	(5,235)		—		(5,235)
Total	$	(940,943)	$	(5,235)	$	12,433	$	(933,745)

¹	Net realized gain (loss) from purchased options is reported in net realized gain (loss) from investment transactions in the Statement of Operations.


CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk		Foreign Exchange Risk		Credit Risk		Total
Futures contracts	$	541,223		—		—	$	541,223
Swap contracts		—		—	$	66,742		66,742
Forward foreign currency contracts		—	$	2,045		—		2,045
Total	$	541,223	$	2,045	$	66,742	$	610,010


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		45

Notes to financial statements (cont’d)

During the year ended December 31, 2019, the volume of derivative activity for the Fund was as follows:


	Average Market Value
Purchased options†	$	1,209
Futures contracts (to sell)		20,578,325
Forward foreign currency contracts (to buy)		62,212

	Average Notional Balance
Credit default swap contracts (to buy protection)	$	2,192,308
Credit default swap contracts (to sell protection)		3,215,385

^† At December 31, 2019, there were no open positions held in this derivative.

The following table presents the Fund’s OTC derivative assets and liabilities by counterparty net of amounts available for offset under an ISDA Master Agreement and net of the related collateral pledged (received) by the Fund as of December 31, 2019.


Counterparty	Gross Assets Subject to Master Agreements¹		Gross Liabilities Subject to Master Agreements¹		Net Assets (Liabilities) Subject to Master Agreements		Collateral Pledged (Received)^2,3		Net Amount^4,5
Barclays Bank PLC	$	2,296	$	(129,674)	$	(127,378)	$	129,674	$	2,296
Credit Suisse		16,029		—		16,029		(16,029)		—
Morgan Stanley & Co. Inc.		88,396		(151,837)		(63,441)		20,000		(43,441)
Total	$	106,721	$	(281,511)	$	(174,790)	$	133,645	$	(41,145)

¹	Absent an event of default or early termination, derivative assets and liabilities are presented gross and not off-set in the Statement of Assets and Liabilities.

²	Gross amounts are not offset in the Statement of Assets and Liabilities.

³	In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.

⁴	Net amount may also include forward foreign currency exchange contracts that are not required to be collateralized.

⁵	Represents the net amount receivable (payable) from (to) the counterparty in the event of default.

5. Loan

The Fund has a revolving credit agreement with Societe Generale (“Credit Agreement”) that allows the Fund to borrow up to an aggregate amount of $105,000,000. The Credit Agreement renews daily for a 150-day term unless notice to the contrary is given to the Fund, and has a scheduled maturity date of July 13, 2020. The Fund pays a commitment fee on the unutilized portion of the loan commitment amount at an annual rate of 0.60%, except that the commitment fee is 0.20% in the event that the aggregate outstanding principal balance of the loan is greater than 80% of $105,000,000. The interest on the loan is calculated at a variable rate based on the LIBOR, plus any applicable margin. Securities held by the Fund


46		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

are subject to a lien, granted to Societe Generale, to the extent of the borrowing outstanding and any additional expenses. The Fund’s Credit Agreement contains customary covenants that, among other things, may limit the Fund’s ability to pay distributions in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in addition to those required by the 1940 Act. In addition, the Credit Agreement may be subject to early termination under certain conditions and may contain other provisions that could limit the Fund’s ability to utilize borrowing under the agreement. Interest expense related to the loan for the year ended December 31, 2019 was $3,397,279. For the year ended December 31, 2019, the Fund incurred commitment fees in the amount of $14,048. At December 31, 2019, the Fund had $98,000,000 of borrowings outstanding per this Credit Agreement. For the year ended December 31, 2019, the Fund had an average loan balance outstanding of $98,071,918 and the weighted average interest rate was 3.46%.

6. Distributions subsequent to December 31, 2019

The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:


Record Date	Payable Date	Amount
1/24/2020	2/3/2020	$	0.1500
2/21/2020	3/2/2020	$	0.1500
3/24/2020	4/1/2020	$	0.1400
4/23/2020	5/1/2020	$	0.1400
5/21/2020	6/1/2020	$	0.1400

7. Stock repurchase program

On November 16, 2015, the Fund announced that the Fund’s Board of Directors (the “Board”) had authorized the Fund to repurchase in the open market up to approximately 10% of the Fund’s outstanding common stock when the Fund’s shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of common stock at such times and in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels or in any specific amounts. During the year ended December 31, 2019, the Fund did not repurchase any shares.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		47

Notes to financial statements (cont’d)

8. Income tax information and distributions to shareholders

The tax character of distributions paid during the fiscal years ended December 31, was as follows:


	2019		2018
Distributions paid from:
Ordinary income	$	20,068,443	$	35,284,856
Net long-term capital gains		—		5,123,644
Total taxable distributions	$	20,068,443	$	40,408,500
Tax return of capital		441,518		—
Total distributions paid	$	20,509,961	$	40,408,500

As of December 31, 2019, the components of distributable earnings (loss) on a tax basis were as follows:


Deferred capital losses*	$	(3,236,039)
Other book/tax temporary differences^(a)		(301,495)
Unrealized appreciation (depreciation)^(b)		11,311,499
Total distributable earnings (loss) — net	$	7,773,965

^* These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains.

^(a)	Other book/tax temporary differences are attributable to the realization for tax purposes of unrealized gains (losses) on certain futures and foreign currency contracts and book/tax differences in the timing of the deductibility of various expenses.

^(b)	The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to differences between the book and tax recognition of market discount and premiums on mortgage backed securities and book/tax differences in the treatment of partnership investments.

9. Recent accounting pronouncement

The Fund has adopted the disclosure provisions of the Financial Accounting Standards Board Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820) — Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”) which introduces new fair value disclosure requirements as well as eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 would be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years; however, management has elected to early adopt ASU 2018-13. The impact of the Fund’s adoption was limited to changes in the Fund’s financial statement disclosures regarding fair value, primarily those disclosures related to transfers between levels of the fair value hierarchy.

10. Subsequent events

Effective January 2, 2020, LMPFA implemented a voluntary investment management fee waiver of 0.20% that will terminate on January 2, 2022.

* * *


48		Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report

On February 18, 2020, Franklin Resources, Inc. (“Franklin Resources”) and Legg Mason, Inc. (“Legg Mason”) announced that they have entered into a definitive agreement for Franklin Resources to acquire Legg Mason in an all-cash transaction. As part of this transaction, the Fund’s investment adviser (the “Manager”), currently an indirect wholly owned subsidiary of Legg Mason, would become an indirect wholly owned subsidiary of Franklin Resources. The transaction is subject to approval by Legg Mason’s shareholders and customary closing conditions, including receipt of applicable regulatory approvals. Subject to such approvals and the satisfaction of the other conditions, the transaction is expected to be consummated later this year.

Under the Investment Company Act of 1940, consummation of the transaction will result in the automatic termination of the Fund’s investment management contract with the Manager, and any related sub-advisory contract(s), where applicable. Therefore, the Fund’s Board is expected to be asked to approve a new investment management contract between the Fund and the Manager (and a new sub-advisory contract(s), if applicable). If approved by the Board, the new investment management contract (and the new sub-advisory contract(s), if applicable) is expected to be presented to the shareholders of the Fund for their approval.


Western Asset Mortgage Opportunity Fund Inc. 2019 Annual Report		49

Report of independent registered public accounting firm

To the Board of Directors and Shareholders of Western Asset Mortgage 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 Mortgage Opportunity Fund Inc. (formerly known as Western Asset Mortgage Defined Opportunity Fund Inc.) (the “Fund”) as of December 31, 2019, the related statements of operations and cash flows for the year ended December 31, 2019, the statement of changes in net assets for each of the two years in the period ended December 31, 2019, including the related notes, and the financial highlights for each of the three years in the period ended December 31, 2019 (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 December 31, 2019, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended December 31, 2019 and the financial highlights for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Fund as of and for the year ended December 31, 2016 and the financial highlights for each of the periods ended on or prior to December 31, 2016 (not presented herein, other than the financial highlights) were audited by other auditors whose report dated February 24, 2017 expressed an unqualified opinion on those financial statements and financial highlights.

Basis for Opinion

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019 by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers LLP

Baltimore, Maryland

February 24, 2020

We have served as the auditor of one or more investment companies in Legg Mason investment company group since at least 1973. We have not been able to determine the specific year we began serving as auditor.


50		Western Asset Mortgage Opportunity Fund Inc. 2019 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 Mortgage Opportunity Fund Inc. (formerly Western Asset Mortgage 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 contract (the “Management Agreement”) with the Fund’s manager, Legg Mason Partners Fund Advisor, LLC (the “Manager”), and the sub-advisory agreements (individually, a “Sub-Advisory Agreement,” and collectively, the “Sub-Advisory Agreements”) with the Manager’s affiliates, Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited in London (“Western Asset London,” and together with Western Asset, the “Sub-Advisers”). At a meeting (the “Contract Renewal Meeting”) held in-person on November 13 and 14, 2019, 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 a variety of 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 “Legg Mason Closed-end Funds”), certain portions of which are discussed below. A presentation made by the Manager and Western Asset 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 Legg Mason Closed-end Funds. In addition to the Contract Renewal Information, the Board received performance and other information throughout the year related to the respective services rendered by the Manager and the Sub-Advisers to the Fund. The Board’s evaluation took into account the information received throughout the year and also reflected the knowledge and familiarity gained as members of the Boards of the Fund and other Legg Mason Closed-end Funds with respect to the services provided to the Fund by the Manager and the Sub-Advisers.

At a meeting held by conference call on October 10, 2019, 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 concerning the Legg Mason Closed-end Funds, including the Fund, received to date. No representatives of the Manager or the Sub-Advisers participated in this 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


Western Asset Mortgage Opportunity Fund Inc.		51

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

certain 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.

Board Approval of Management Agreement and Sub-Advisory Agreements

In its deliberations regarding the renewal of each of the Management Agreement and the Sub-Advisory Agreements, the Board, including the Independent Directors, considered various factors, including those described below.

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 also reviewed Contract Renewal Information regarding the Fund’s compliance policies and procedures established pursuant to the 1940 Act.

The Board reviewed the qualifications, backgrounds, and responsibilities of the Fund’s senior personnel and the portfolio management team 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 Contract Renewal Information and the Board’s discussions with the Manager and Western Asset at the Contract Renewal Meeting, the general reputation and investment performance records of the Manager, Western Asset and their affiliates and the financial resources available to the corporate parent of the Manager and the Sub-Advisers, Legg Mason, Inc. (“Legg Mason”), to support their activities in respect of the Fund and the other Legg Mason Closed-end Funds.

The Board considered the responsibilities of the Manager and the Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Manager’s coordination and oversight of the services provided to the Fund by the Sub-Advisers and other fund service providers and Western Asset’s coordination and oversight of the services provided to the Fund by Western Asset London. The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that the Manager, in each case, will supervise the activities of the delegee. Pursuant to this provision of the Management Agreement, the Manager does not provide day-to-day portfolio management services to the Fund. Rather, portfolio management services for the Fund are provided by Western Asset pursuant to the Sub-Advisory Agreement (the “Western Asset Sub-Advisory Agreement”) between the Manager and Western Asset. The Western Asset Sub-Advisory Agreement permits Western Asset to delegate certain of its responsibilities, including its investment sub-advisory duties thereunder, provided that Western Asset, in each case, will supervise the activities of the


52		Western Asset Mortgage Opportunity Fund Inc.

delegee. Pursuant to this provision of the Western Asset Sub-Advisory Agreement, Western Asset London helps Western Asset to provide portfolio management services to the Fund pursuant to a separate Sub-Advisory Agreement between Western Asset and Western Asset London.

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, likely purchased their shares of the Fund based upon the reputation and the investment style, philosophy and strategy of the Manager and Western Asset, 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 to the Fund under the Management Agreement and the Sub-Advisory Agreements have been satisfactory under the circumstances.

Fund Performance

The Board received and considered information regarding Fund performance, including information and analyses (the “Broadridge Performance Information”) for the Fund, as well as for a group of comparable funds (the “Performance Universe”) selected by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent 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. The Performance Universe included the Fund and all other leveraged U.S. mortgage closed-end funds, as classified by Broadridge, regardless of asset size. The Performance Universe consisted of seven funds, including the Fund, for the 1-year period ended June 30, 2019 and five funds, including the Fund, for each of the 3- and 5-year periods ended on such date. The Board noted that it had received and discussed with the Manager and Western Asset information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and its peer funds as selected by Broadridge.

The Broadridge Performance Information comparing the Fund’s performance to that of the Performance Universe based on net asset value per share showed, among other things, that among the funds in the Performance Universe, the Fund’s performance was ranked second (first being best in these performance rankings) for the 1-year period ended June 30, 2019, and was ranked first for each of the 3- and 5-year periods ended on such date. The Fund’s performance was above the Performance Universe median for each of those periods. In reviewing the Fund’s performance relative to the Performance Universe, the Board noted that the small number of funds comprising the Performance Universe made meaningful performance comparisons difficult. In addition to the Fund’s performance relative to the Performance Universe, the Board considered the Fund’s performance in absolute terms and the Fund’s performance relative to its benchmark. On a net asset value basis, the Fund out-performed its benchmark for each of the 1-, 3-, and 5-year periods ended June 30, 2019.


Western Asset Mortgage Opportunity Fund Inc.		53

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

Based on the reviews and discussions of Fund performance and considering other relevant factors, including those noted above, the Board concluded, under the circumstances, that continuation of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period would be consistent with the interests of the Fund and its stockholders.

Management and Sub-Advisory Fees and Expense Ratios

The Board reviewed and considered the management fee (the “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 and Western Asset, as applicable, 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. The Board noted that the Sub-Advisory Fee payable to Western Asset under the Western Asset Sub-Advisory Agreement is paid by the Manager, not the Fund, and, accordingly, that the retention of Western Asset does not increase the fees or expenses otherwise incurred by the Fund’s stockholders. Similarly, the Board noted that the Sub-Advisory Fee payable to Western Asset London under its Sub-Advisory Agreement with Western Asset is paid by Western Asset, not the Fund, and, accordingly, that the retention of Western Asset London does not increase the fees or expenses otherwise incurred by the Fund’s stockholders.

Additionally, the Board received and considered information and analyses prepared by Broadridge (the “Broadridge Expense Information”) comparing the Management Fee and the Fund’s overall 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. The Expense Universe consisted of the Fund and six other leveraged U.S. mortgage closed-end funds, as classified by Broadridge. The seven funds in the Expense Universe had average net common share assets ranging from $76.6 million to $413.8 million. Three of the other Expense Universe funds were larger than the Fund and three were smaller.

The Broadridge Expense Information, comparing the Management Fee as well as the Fund’s actual total expenses to the Fund’s Expense Universe, showed, among other things, that the Management Fee on a contractual basis was ranked fifth (first being lowest and, therefore, best in these expense component rankings) among the seven funds in the Expense Universe and was above the Expense Universe median for that expense component. Among the Expense Universe funds, the Fund’s actual Management Fee (i.e., giving effect to any voluntary fee waivers implemented by the Manager with respect to the Fund and by the managers of the other Expense Universe funds) was ranked fifth whether compared on the basis of common share assets only or on the basis of common share and leveraged assets and, in


54		Western Asset Mortgage Opportunity Fund Inc.

each case, was above the Expense Universe median for that expense component. The Broadridge Expense Information further showed that the Fund’s actual total expenses ranked sixth among the Expense Universe funds whether compared on the basis of common share assets only or on the basis of common share and leveraged assets for that expense component and, in each case, were above the Expense Universe median for that expense component. With respect to the Fund’s actual total expenses, the Manager noted, among other things, that the Fund’s investment-related expenses were higher than those of the other Expense Universe funds whether compared on the basis of common share assets only or on the basis of common share and leveraged assets, and that the total expenses for the Fund also were increased by its election to pay an excise tax on undistributed earnings rather than make a special distribution. The Manager noted further that the small number, varying sizes and differing investment strategies of funds comprising the Expense Universe made meaningful expense comparisons difficult, noting that two of the other Expense Universe funds invest only in agency mortgage-backed securities. Three of the six other Expense Universe funds were managed by the same manager, and two of the six other Expense Universe funds were also managed by the same manager.

The Board also reviewed Contract Renewal Information regarding fees charged by the Manager 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 Board was advised that the fees paid by such institutional, separate account and other clients (collectively, “institutional clients”) generally are lower, and may be significantly lower, than the Management Fee. The Contract Renewal Information generally attributed the fee differential to differences in the scope of services provided to the Fund and to institutional clients. Among other things, institutional clients have fewer compliance, administration and other needs than the Fund and 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. The Contract Renewal Information noted further that the Fund is provided with administrative services, office facilities, Fund officers (including the Fund’s chief executive, chief financial and chief compliance officers), and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The Contract Renewal Information included information regarding management fees paid by open-end mutual funds in the same complex (the “Legg Mason Open-end Funds”) and such information indicated that the management fees paid by the Legg Mason Closed-end Funds generally were higher than those paid by the Legg Mason Open-end Funds. The Contract Renewal Information noted that the Legg Mason Closed-end Funds typically incur expenses that usually are not incurred by the Legg Mason Open-end Funds such as those related to the annual stockholder meeting, compliance with securities exchange listing requirements and the management and monitoring of leverage. The Board considered the fee comparisons in view of the different services provided in managing these other types of clients and funds.


Western Asset Mortgage Opportunity Fund Inc.		55

Board approval of management and

subadvisory agreements (unaudited) (cont’d)

Taking all of the above into consideration and subject to concerns discussed below regarding the profitability to the Manager in providing services to the Fund, the Board determined that the Management Fee and the Sub-Advisory Fees were reasonable in view of the nature, extent and overall quality of the management, investment advisory and other services provided by the Manager and the Sub-Advisers to the Fund under the Management Agreement and the Sub-Advisory Agreements, respectively.

Manager Profitability

The Board, as part of the Contract Renewal Information, received an analysis of the profit-ability to the Manager and its affiliates in providing services to the Fund for the Manager’s fiscal years ended March 31, 2018 and March 31, 2019. The Board also received profitability information with respect to the Legg Mason fund complex as a whole. In addition, the Board received Contract Renewal Information with respect to the Manager’s revenue and cost allocation methodologies used in preparing such profitability data. The profitability to each of the Sub-Advisers was not considered to be a material factor in the Board’s considerations since Western Asset’s Sub-Advisory Fee is paid by the Manager, not the Fund, and the Sub-Advisory Fee for Western Asset London is paid by Western Asset, not the Fund. The profitability analysis presented to the Board as part of the Contract Renewal Information indicated that the pre-tax profitability of the Fund to the Manager had decreased in fiscal year 2019 from the level in fiscal year 2018 and remained at a level that the Board did not consider to be excessive in view of judicial guidance and the nature, extent and overall quality of the investment advisory and other services provided to the Fund. However, the Board determined that profitability to the Manager in providing services to the Fund continued to merit continuing monitoring at its current level.

Economies of Scale

The Board received and discussed Contract Renewal Information concerning whether the Manager realizes economies of scale if the Fund’s assets grow. The Board noted that because the Fund is a closed-end fund with no current plans to seek additional assets beyond maintaining its dividend reinvestment plan, any significant growth in its assets generally will occur through appreciation in the value of the Fund’s investment portfolio, rather than sales of additional shares in the Fund. The Board determined that the Management Fee structure, which incorporates no breakpoints reducing the Management Fee at specified increased asset levels, was appropriate under the circumstances.

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 and did not regard such benefits as excessive.

* * * * * *


56		Western Asset Mortgage Opportunity Fund Inc.

In view of all of the foregoing and other relevant factors, the Board determined, under the circumstances, that continuation of the Management Agreement and the Sub-Advisory Agreements would be consistent with the interests of the Fund and its stockholders and unanimously voted to continue each Agreement for an additional one-year period. No single factor reviewed by the Board was identified by the Board as the principal factor in determining whether to approve continuation of the Management Agreement and the Sub-Advisory Agreements, and each Board member may have attributed different weights to the various factors. The Independent Directors were advised by separate independent legal counsel throughout the process. Prior to the Contract Renewal Meeting, the Board received a memorandum prepared by the Manager discussing its responsibilities in connection with its consideration of the continuation of the Management Agreement and the Sub-Advisory Agreements as part of the Contract Renewal Information and the Independent Directors separately received a memorandum discussing such responsibilities from their independent legal counsel. Prior to voting, the Independent Directors also discussed the proposed continuation of the Management Agreement and the Sub-Advisory Agreements in private sessions with their independent legal counsel at which no representatives of the Manager or any Sub-Adviser were present.


Western Asset Mortgage Opportunity Fund Inc.		57

Additional shareholder information (unaudited)

Results of special stockholder meeting

A special stockholder meeting of Western Asset Mortgage Opportunity Fund Inc. was held on December 13, 2019, for the purpose of considering and voting upon a proposal to convert to a perpetual fund. The following table provides information concerning the matter voted upon at the Meeting:


Votes For	Votes Withheld
5,440,398		540,165


58		Western Asset Mortgage Opportunity Fund Inc.

Additional information (unaudited)

Information about Directors and Officers

The business and affairs of Western Asset Mortgage 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, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Directors and officers of the Fund is set forth below.

The Fund’s annual proxy statement includes additional information about Directors and is available, without charge, upon request by calling the Fund at 1-888-777-0102.


Independent Directors†

Robert D. Agdern

Year of birth		1950
Position(s) held with Fund¹		Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, and Compliance Liaison, Class III
Term of office¹ and length of time served		Since 2015
Principal occupation(s) during the past five years		Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University (2002 to 2016); formerly, Deputy General Counsel responsible for western hemisphere matters for BP PLC (1999 to 2001); Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special assignments (1993 to 1998) (Amoco merged with British Petroleum in 1998 forming BP PLC)
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		None

Carol L. Colman

Year of birth		1946
Position(s) held with Fund¹		Director and Member of Nominating, Audit and Compensation Committees, and Chair of Pricing and Valuation Committee, Class I
Term of office¹ and length of time served		Since 2010
Principal occupation(s) during the past five years		President, Colman Consulting Company (consulting)
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		None


Western Asset Mortgage Opportunity Fund Inc.		59

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Independent Directors† (cont’d)

Daniel P. Cronin

Year of birth		1946
Position(s) held with Fund¹		Director and Member of Audit, Compensation and Pricing and Valuation Committees, and Chair of Nominating Committee, Class I
Term of office¹ and length of time served		Since 2010
Principal occupation(s) during the past five years		Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004)
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		None

Paolo M. Cucchi

Year of birth		1941
Position(s) held with Fund¹		Director and Member of Nominating, Audit, and Pricing and Valuation Committees, and Chair of Compensation Committee, Class I
Term of office¹ and length of time served		Since 2007
Principal occupation(s) during the past five years		Emeritus Professor of French and Italian (since 2014) and formerly, Vice President and Dean of The College of Liberal Arts (1984 to 2009) and Professor of French and Italian (2009 to 2014) at Drew University
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		None

William R. Hutchinson

Year of birth		1942
Position(s) held with Fund¹		Lead Independent Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class II
Term of office¹ and length of time served		Since 2010
Principal occupation(s) during the past five years		President, W.R. Hutchinson & Associates Inc. (consulting) (since 2001)
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		Director (Non-Executive Chairman of the Board (since December 1, 2009)), Associated Banc Corp. (banking) (since 1994)


60		Western Asset Mortgage Opportunity Fund Inc.


Independent Directors† (cont’d)

Eileen A. Kamerick

Year of birth		1958
Position(s) held with Fund¹		Director and Member of Nominating, Compensation and Pricing and Valuation Committees, and Chair of Audit Committee, Class III
Term of office¹ and length of time served		Since 2013
Principal occupation(s) during the past five years		National Association of Corporate Directors Board Leadership Fellow (since 2016) and financial expert; Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor, Washington University in St. Louis and University of Iowa law schools (since 2007); formerly, Senior Advisor to the Chief Executive Officer and Executive Vice President and Chief Financial Officer of ConnectWise, Inc. (software and services company) (2015 to 2016); Chief Financial Officer, Press Ganey Associates (health care informatics company) (2012 to 2014); Managing Director and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan Lokey Foundation (2010 to 2012)
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		Trustee of AIG Funds and Anchor Series Trust (since 2018); Hochschild Mining plc (precious metals company) (since 2016); Director of Associated BancCorp (financial services company) (since 2007); Westell Technologies, Inc. (technology company) (2003 to 2016)



Nisha Kumar

Year of birth		1970
Position(s) held with Fund¹		Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class II
Term of office¹ and length of time served		Since 2019
Principal occupation(s) during the past five years		Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (since 2011); formerly, Chief Financial Officer and Chief Administrative Officer of Rent the Runway, Inc. (2011); Executive Vice President and Chief Financial Officer of AOL LLC, a subsidiary of Time Warner Inc. (2007 to 2009), Member of the Council of Foreign Relations
Number of portfolios in fund complex overseen by Director (including the Fund)		24
Other board memberships held by Director during the past five years		Director of the India Fund, Inc. (since 2016); GB Flow Investment LLC; EDAC Technologies Corp.; Nordco Holdings, LLC; and SEKO Global Logistics Network, LLC; formerly, Director of Aberdeen Income Credit Strategies Fund (2017 to 2018); Director of The Asia Tigers Fund, Inc. (2016 to 2018)


Western Asset Mortgage Opportunity Fund Inc.		61

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Interested Director and Officer

Jane Trust, CFA²

Year of birth		1962
Position(s) held with Fund¹		Director, Chairman, President and Chief Executive Officer, Class II
Term of office¹ and length of time served		Since 2015
Principal occupation(s) during the past five years		Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2016); Officer and/or Trustee/ Director of 145 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Vice President of LMPFA (2015); Director of ClearBridge, LLC (formerly, Legg Mason Capital Management, LLC) (2007 to 2014); Managing Director of Legg Mason Investment Counsel & Trust Co. (2000 to 2007)
Number of portfolios in fund complex overseen by Director (including the Fund)		142
Other board memberships held by Director during the past five years		None

Additional Officers

Todd F. Kuehl Legg Mason 100 International Drive, 9th Floor, Baltimore, MD 21202

Year of birth		1969
Position(s) held with Fund¹		Chief Compliance Officer
Term of office¹ and length of time served		Since 2017
Principal occupation(s) during the past five years		Managing Director of Legg Mason & Co. (since 2011); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006); formerly, Chief Compliance Officer of Legg Mason Private Portfolio Group (prior to 2010); formerly, Branch Chief, Division of Investment Management, U.S. Securities and Exchange Commission (2002 to 2006)

Jenna Bailey Legg Mason 100 First Stamford Place, 5th Floor, Stamford, CT 06902

Year of birth		1978
Position(s) held with Fund¹		Identity Theft Prevention Officer
Term of office¹ and length of time served		Since 2015
Principal occupation(s) during the past five years		Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2015); Compliance Officer of Legg Mason & Co. (since 2013); Assistant Vice President of Legg Mason & Co. (since 2011); formerly, Associate Compliance Officer of Legg Mason & Co. (2011 to 2013)


62		Western Asset Mortgage Opportunity Fund Inc.


Additional Officers (cont’d)

Robert I. Frenkel Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902

Year of birth		1954
Position(s) held with Fund¹		Secretary and Chief Legal Officer
Term of office¹ and length of time served		Since 2010
Principal occupation(s) during the past five years		Vice President and Deputy General Counsel of Legg Mason, Inc. (since 2006); Managing Director and General Counsel — U.S. Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)

Thomas C. Mandia Legg Mason 100 First Stamford Place, 6th Floor, Stamford, CT 06902
Year of birth		1962
Position(s) held with Fund¹		Assistant Secretary
Term of office¹ and length of time served		Since 2010
Principal occupation(s) during the past five years		Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary of LM Asset Services, LLC (“LMAS”) (since 2002) and Legg Mason Fund Asset Management, Inc. (“LMFAM”) (since 2013) (formerly registered investment advisers)

Christopher Berarducci* Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018

Year of birth		1974
Position(s) held with Fund¹		Treasurer and Principal Financial Officer
Term of office¹ and length of time served		Since 2019
Principal occupation(s) during the past five years		Treasurer (since 2010) and Principal Financial Officer (since 2019) of certain mutual funds associated with Legg Mason & Co. or its affiliates; Director of Legg Mason & Co. (since 2015); formerly, Vice President of Legg Mason & Co. (2011 to 2015); Assistant Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010)


Western Asset Mortgage Opportunity Fund Inc.		63

Additional information (unaudited) (cont’d)

Information about Directors and Officers


Additional Officers (cont’d)

Jeanne M. Kelly Legg Mason 620 Eighth Avenue, 49th Floor, New York, NY 10018

Year of birth		1951
Position(s) held with Fund¹		Senior Vice President
Term of office¹ and length of time served		Since 2010
Principal occupation(s) during the past five years		Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); formerly, Senior Vice President of LMFAM (2013 to 2015)

^†	Directors who are not “interested persons” of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as amended (the “1940 Act”).

*	Effective September 27, 2019, Mr. Berarducci became Treasurer and Principal Financial Officer.

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 2020, year 2021 and year 2022, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Fund’s executive officers are chosen each year, to hold office until their successors are duly elected and qualified.

²	Ms. Trust is an “interested person” of the Fund as defined in the 1940 Act because Ms. Trust is an officer of LMPFA and certain of its affiliates.


64		Western Asset Mortgage 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 Mortgage Opportunity Fund Inc.		65

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:

Legg Mason & Co., LLC

Compliance Department

620 Eighth Avenue, 49th Floor

New York, New York 10018

Complaints may also be submitted by telephone at 1-800-742-5274. Complaints submitted through this number will be received by the CCO.


66		Western Asset Mortgage 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 stockholders (the “Plan Agent”), in additional shares of Common Stock under the Fund’s Dividend Reinvestment Plan (the “Plan”). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare Trust Company, N.A., as dividend paying agent.

If you participate in the Plan, the number of shares of Common Stock you will receive will be determined as follows:

(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.

(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the day prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.

Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date;


Western Asset Mortgage Opportunity Fund Inc.		67

Dividend reinvestment plan (unaudited) (cont’d)

otherwise such withdrawal will be effective as soon as practicable after the Plan Agent’s investment of the most recently declared dividend or distribution on the Common Stock.

Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is authorized to deduct brokerage charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.

Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.

The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective. Upon any termination, you will be sent cash for any fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on your behalf. Additional information about the Plan and your account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151.


68		Western Asset Mortgage Opportunity Fund Inc.

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended December 31, 2019:


Record date:		Monthly
Payable date:		January 2019 through December 2019
Tax Return of Capital		2.15%
Interest-related Dividends*		72.00%

^*	The following percentage of the ordinary income distributions paid monthly by the Fund represents Interest-related dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.


Western Asset Mortgage Opportunity Fund Inc.		69

Western Asset

Mortgage Opportunity Fund Inc.

Directors

Robert D. Agdern

Carol L. Colman

Daniel P. Cronin

Paolo M. Cucchi

William R. Hutchinson

Eileen A. Kamerick

Nisha Kumar

Jane Trust

Chairman

Officers

Jane Trust

President and Chief Executive Officer

Christopher Berarducci*

Treasurer and Principal Financial Officer

Todd F. Kuehl

Chief Compliance Officer

Jenna Bailey

Identity Theft Prevention Officer

Robert I. Frenkel

Secretary and Chief Legal Officer

Thomas C. Mandia

Assistant Secretary

Jeanne M. Kelly

Senior Vice President

*	Effective September 27, 2019, Mr. Berarducci became Treasurer and Principal Financial Officer.

Western Asset Mortgage Opportunity Fund Inc.

620 Eighth Avenue

49th Floor

New York, NY 10018

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadvisers

Western Asset Management Company, LLC

Western Asset Management Company Limited

Custodian

The Bank of New York Mellon

Transfer agent

Computershare Inc.

462 South 4th Street, Suite 1600

Louisville, KY 40202

Independent registered public accounting firm

PricewaterhouseCoopers LLP

Baltimore, MD

Legal counsel

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

New York Stock Exchange Symbol

DMO

Legg Mason Funds Privacy and Security Notice

Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds

This Privacy and Security Notice (the “Privacy Notice”) addresses the Legg Mason Funds’ privacy and data protection practices with respect to nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds’ distributor, Legg Mason Investor Services, 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;

•

Online account access user IDs, passwords, security challenge question responses; and

•

Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individual’s total debt, payment history, etc.).

How the Funds Use Nonpublic Personal Information About You

The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have authorized or as permitted or required by law. The Funds may disclose information about you to:

•

Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or to comply with obligations to government regulators;

•

Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;

•

Permit access to transfer, whether in the United States or countries outside of the United States to such Funds’ employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

•

The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;

•

Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.

NOT PART OF THE ANNUAL REPORT

Legg Mason Funds Privacy and Security Notice (cont’d)

Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them to perform.

The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.

Keeping You Informed of the Funds’ Privacy and Security Practices

The Funds will notify you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.

The Funds’ Security Practices

The Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use your nonpublic personal information for Fund business purposes only.

Although the Funds strive to protect your nonpublic personal information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds will attempt to notify you as necessary so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the most current email address you have on record with them.

In order for the Funds to provide effective service to you, keeping your account information accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.leggmason.com, or contact the Funds at 1-888-777-0102.

Revised April 2018

NOT PART OF THE ANNUAL REPORT

Western Asset Mortgage Opportunity Fund Inc.

620 Eighth Avenue

49th 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 available on the SEC’s website at www.sec.gov. To obtain information on Forms 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.lmcef.com and (3) on the SEC’s website at www.sec.gov.

This report is transmitted to the shareholders of Western Asset Mortgage Opportunity Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.

Computershare Inc.

462 South 4th Street, Suite 1600

Louisville, KY 40202

WASX013171 2/20 SR20-3828



ITEM 2.		CODE OF ETHICS.

		The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.

ITEM 3.		AUDIT COMMITTEE FINANCIAL EXPERT.

		The Board of Directors of the registrant has determined that Eileen A. Kamerick, a member of the Board’s Audit Committee, possesses the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert” and that she is independent for purposes of this item.

ITEM 4.		PRINCIPAL ACCOUNTANT FEES AND SERVICES.

		(a) Audit Fees. The aggregate fees billed in the previous fiscal years ending December 31, 2018 and December 31, 2019 (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 $154,148 in December 31, 2018 and $79,574 in December 31, 2019.

		(b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $0 in December 31, 2018 and $0 in December 31, 2019.

		(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 $0 in December 31, 2018 and $0 in December 31, 2019. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.

		There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.

		(d) All Other Fees. The aggregate fees for other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item for the Western Asset Mortgage Opportunity Fund Inc. were $3,000 in December 31, 2018 and $0 in December 31, 2019.

		All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Western Asset Mortgage Opportunity Fund Inc. requiring pre-approval by the Audit Committee in the Reporting Period.

		(e) Audit Committee’s pre—approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.



		(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.

		The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

		Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.

		(2) For the Western Asset Mortgage Opportunity Fund Inc., the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for December 31, 2018 and December 31, 2019; Tax Fees were 100% and 100% for December 31, 2018 and December 31, 2019; and Other Fees were 100% and 100% for December 31, 2018 and December 31, 2019.

		(f) N/A

		(g) Non-audit fees billed by the Auditor for services rendered to Western Asset Mortgage Opportunity Fund Inc., LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Western Asset Mortgage Opportunity Fund Inc. during the reporting period were $678,000 in December 31, 2018 and $938,841 in December 31, 2019.


		(h) Yes. Western Asset Mortgage Opportunity Fund Inc.’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Western Asset Mortgage Opportunity Fund Inc. or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.

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
		William R. Hutchinson
		Eileen A. Kamerick
		Nisha Kumar *

* Effective January 1, 2019, Ms. Kumar became a Director and Audit Committee member.

		b) Not applicable

ITEM 6.		SCHEDULE OF INVESTMENTS.

		Included herein under Item 1.

ITEM 7.		DISCLOSURE OF PROXY VOTING POLOCIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Western Asset Management Company, LLC

Proxy Voting Policies and Procedures

BACKGROUND

An investment adviser is required to adopt and implement policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). The authority to vote the proxies of our clients is established through investment management agreements or comparable documents. In addition to SEC requirements governing advisers, long-standing fiduciary standards and responsibilities have been established for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the investment manager.

POLICY

As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)- 6 under the Investment Advisers Act of 1940 (“Advisers Act”). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.

While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firm’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent the Firm deems appropriate).

In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.

PROCEDURE

Responsibility and Oversight

The Western Asset Legal and Compliance Department (“Compliance Department”) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.

Client Authority

The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.

Proxy Gathering

Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.

Proxy Voting

Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:

Proxies are reviewed to determine accounts impacted.

Impacted accounts are checked to confirm Western Asset voting authority.

Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.)

permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.

Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into the account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department.

Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.

Timing

Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering, and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.

Recordkeeping

Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:

A copy of Western Asset’s policies and procedures.

Copies of proxy statements received regarding client securities.

A copy of any document created by Western Asset that was material to making a decision how to vote proxies.

Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests.

A proxy log including:

Issuer name;

Exchange ticker symbol of the issuer’s shares to be voted;

Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted;

A brief identification of the matter voted on;

Whether the matter was proposed by the issuer or by a shareholder of the issuer;

Whether a vote was cast on the matter;

A record of how the vote was cast; and

Whether the vote was cast for or against the recommendation of the issuer’s management team.

Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.

Disclosure

Western Asset’s proxy policies are described in the firm’s Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.

Conflicts of Interest

All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest.

Issues to be reviewed include, but are not limited to:

Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets for the company or an employee group of the company or otherwise has an interest in the company;

Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible for recommending the proxy vote (together, “Voting Persons”) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a proxy contest; and

Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders.

Voting Guidelines

Western Asset’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.

Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.

Board Approved Proposals

The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:

Matters relating to the Board of Directors

Western Asset votes proxies for the election of the company’s nominees for directors and for board- approved proposals on other matters relating to the board of directors with the following exceptions:

Votes are withheld for the entire board of directors if the board does not have a majority of independent directors or the board does not have nominating, audit and compensation committees composed solely of independent directors.

Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director.

Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences.

Votes are cast on a case-by-case basis in contested elections of directors.

Matters relating to Executive Compensation

Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:

Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution.

Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options.

Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price.

Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.

Matters relating to Capitalization

The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.

Western Asset votes for proposals relating to the authorization of additional common stock.

Western Asset votes for proposals to effect stock splits (excluding reverse stock splits).

Western Asset votes for proposals authorizing share repurchase programs.

Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions

Western Asset votes these issues on a case-by-case basis on board-approved transactions.

Matters relating to Anti-Takeover Measures

Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:

Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans.

Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions.

Other Business Matters

Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.

Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws.

Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.

II.

Shareholder Proposals

SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:

Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans.

Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals.

Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.

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.

Western Asset votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios.

Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.

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.

Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management.

Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees.

Western Asset votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated.

Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights.

RETIREMENT ACCOUNTS

In order to comply with the DOL’s position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.

Western Asset Management Company Limited

Proxy Voting and Corporate Actions Policy

NOTE: Below policy relating to Proxy Voting and Corporate Actions is a global policy for all Western Asset affiliates. As compliance with the Policy is monitored by Western Asset Pasadena affiliate, the Policy has been adopted from US Compliance Manual and therefore all defined terms are those defined in the US Compliance Manual rather than UK Compliance Manual.

As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.

RESPONSIBILITY AND OVERSIGHT

CLIENT AUTHORITY

PROXY GATHERING

PROXY VOTING

Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:

•

Proxies are reviewed to determine accounts impacted.

•

Impacted accounts are checked to confirm Western Asset voting authority.

•

If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.

•

Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department.

•

Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.

TIMING

Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.

RECORDKEEPING

Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:

•

A copy of Western Asset’s policies and procedures.

•

Copies of proxy statements received regarding client securities.

•

A copy of any document created by Western Asset that was material to making a decision how to vote proxies.

•

Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests.

•

A proxy log including:

•

Issuer name;

•

Exchange ticker symbol of the issuer’s shares to be voted;

•

Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted;

•

A brief identification of the matter voted on;

•

Whether the matter was proposed by the issuer or by a shareholder of the issuer;

•

Whether a vote was cast on the matter;

•

A record of how the vote was cast; and

•

Whether the vote was cast for or against the recommendation of the issuer’s management team.

Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.

DISCLOSURE

CONFLICT OF INTEREST

All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:

•

Whether 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

BOARD APPROVAL PROPOSALS

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:

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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.

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Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences.

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Votes are cast on a case-by-case basis in contested elections of directors.

Matters relating to Executive Compensation – Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by- case basis on board-approved proposals relating to executive compensation, except as follows:

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Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution.

•

Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater options.

•

Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price.

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than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.

Matters relating to Capitalization – The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board- approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.

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Western Asset votes for proposals relating to the authorization of additional common stock;

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Western Asset votes for proposals to effect stock splits (excluding reverse stock splits);

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Western Asset votes for proposals authorizing share repurchase programs;

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Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions;

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Western Asset votes these issues on a case-by-case basis on board-approved transactions;

Matters relating to Anti-Takeover Measures – Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:

•

Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans;

•

Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions.

Other Business Matters – Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.

•

Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws;

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Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.

SHAREHOLDER PROPOSALS

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Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans;

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Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals;

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Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.

VOTING SHARES OF INVESTMENT COMPANIES

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VOTING SHARES OF FOREIGN ISSUERS

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Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management;

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Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees;

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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;

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RETIREMENT ACCOUNTS

Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager.

CORPORATE ACTIONS

Western Asset must pay strict attention to any corporate actions that are taken with respect to issuers whose securities are held in client accounts. For example, Western Asset must review any tender offers, rights offerings, etc., made in connection with securities owned by clients. Western Asset must also act in a timely manner and in the best interest of each client with respect to any such corporate actions.

Western Asset Management Company Ltd (“WAMJ”) Proxy Voting Policies and Procedures

POLICY

As a fixed income only manager, the occasion to vote proxies for WAMJ is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients.

In exercising its voting authority, WAMJ will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.

PROCEDURE

Responsibility and Oversight

The WAMJ Legal and Compliance Department (“Compliance Department”) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Operations (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.

Client Authority

The Investment Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority, WAMJ will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.

Proxy Gathering

Registered owners of record, client custodians, client banks and trustees (“Proxy Recipients”) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if WAMJ becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If WAMJ personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.

Proxy Voting

Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:

Proxies are reviewed to determine accounts impacted.

Impacted accounts are checked to confirm WAMJ voting authority.

If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and WAMJ obtains the client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a

mutual fund or other commingled vehicle), WAMJ seeks voting instructions from an independent third party.

Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, WAMJ may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department.

Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.

Timing

WAMJ personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted above can be completed before the applicable deadline for returning proxy votes.

Recordkeeping

WAMJ maintains records of proxies. These records include:

A copy of WAMJ’s policies and procedures.

Copies of proxy statements received regarding client securities.

A copy of any document created by WAMJ that was material to making a decision how to vote proxies.

Each written client request for proxy voting records and WAMJ’s written response to both verbal and written client requests.

A proxy log including:

Issuer name;

Exchange ticker symbol of the issuer’s shares to be voted;

Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted;

A brief identification of the matter voted on;

Whether the matter was proposed by the issuer or by a shareholder of the issuer;

Whether a vote was cast on the matter;

A record of how the vote was cast; and

Whether the vote was cast for or against the recommendation of the issuer’s management team.

Records are maintained in an easily accessible place for five years, the first two in WAMJ’s offices.

Disclosure

WAMJ’s proxy policies are described in the firm’s Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.

Conflicts of Interest

All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:

Whether there is any other business or personal relationship where a Voting Person has a personal interest in the outcome of the matter before shareholders.

Voting Guidelines

WAMJ’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.

1b.

Board Approved Proposals

The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, WAMJ generally votes in support of decisions reached by independent boards of directors. More specific guidelines related to certain board-approved proposals are as follows:

Matters relating to the Board of Directors

WAMJ votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:

Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director.

Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences.

Votes are cast on a case-by-case basis in contested elections of directors.

Matters relating to Executive Compensation

WAMJ generally favors compensation programs that relate executive compensation to a company’s long- term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:

Except where the firm is otherwise withholding votes for the entire board of directors, WAMJ votes for stock option plans that will result in a minimal annual dilution.

WAMJ votes against stock option plans or proposals that permit replacing or repricing of underwater options.

WAMJ votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price.

Except where the firm is otherwise withholding votes for the entire board of directors, WAMJ votes for employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.

Matters relating to Capitalization

The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, WAMJ votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where WAMJ is otherwise withholding votes for the entire board of directors.

WAMJ votes for proposals relating to the authorization of additional common stock.

WAMJ votes for proposals to effect stock splits (excluding reverse stock splits).

WAMJ votes for proposals authorizing share repurchase programs.

Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions WAMJ votes these issues on a case-by-case basis on board-approved transactions.

Matters relating to Anti-Takeover Measures

WAMJ votes against board-approved proposals to adopt anti-takeover measures except as follows:

WAMJ votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans.

WAMJ votes on a case-by-case basis on proposals to adopt fair price provisions.

Other Business Matters

WAMJ votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.

WAMJ votes on a case-by-case basis on proposals to amend a company’s charter or bylaws.

WAMJ votes against authorization to transact other unidentified, substantive business at the meeting.

2b.

Shareholder Proposals

SEC regulations permit shareholders to submit proposals for inclusion in a company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. WAMJ votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:

WAMJ votes for shareholder proposals to require shareholder approval of shareholder rights plans.

WAMJ votes for shareholder proposals that are consistent with WAMJ’s proxy voting guidelines for board-approved proposals.

WAMJ votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.

3b.

Voting Shares of Investment Companies

WAMJ may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.

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WAMJ votes on a case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the role the fund plays in the clients’ portfolios.

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WAMJ votes on a case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.

4b.

Voting Shares of Foreign Issuers

In the event WAMJ is required to vote on securities held in non-U.S. issuers – i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.

WAMJ votes for shareholder proposals calling for a majority of the directors to be independent of management.

WAMJ votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees.

WAMJ votes for shareholder proposals that implement corporate governance standards similar to those established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated.

WAMJ votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights.

Western Asset Management Company Pte. Ltd. (“WAMS”)

Compliance Policies and Procedures

Proxy Voting

WAMS has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and the applicable laws and regulations. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts.

In exercising its voting authority, WAMS will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.

Procedure

Responsibility and Oversight

The Western Asset Legal and Compliance Department is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (“Corporate Actions”). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.

Client Authority

Proxy Gathering

Proxy Voting

Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:

Proxies are reviewed to determine accounts impacted.

Impacted accounts are checked to confirm Western Asset voting authority.

Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest. [See conflicts of interest section of these procedures for further information on determining material conflicts of interest.]

If a material conflict of interest exists, (4.1) to the extent reasonably practicable and permitted by applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the client’s proxy voting instructions, and (4.2) to the extent that it is not reasonably

practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.

Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department.

Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (4) or (5) and returns the voted proxy as indicated in the proxy materials.

Timing

Recordkeeping

Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and ERISA DOL Bulletin 94-2. These records include:

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A copy of Western Asset’s policies and procedures.

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Copies of proxy statements received regarding client securities.

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A copy of any document created by Western Asset that was material to making a decision how to vote proxies.

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Each written client request for proxy voting records and Western Asset’s written response to both verbal and written client requests.

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A proxy log including:

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Issuer name;

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Exchange ticker symbol of the issuer’s shares to be voted;

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Committee on Uniform Securities Identification Procedures (“CUSIP”) number for the shares to be voted;

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A brief identification of the matter voted on;

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Whether the matter was proposed by the issuer or by a shareholder of the issuer;

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Whether a vote was cast on the matter;

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A record of how the vote was cast; and

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Whether the vote was cast for or against the recommendation of the issuer’s management team.

Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.

Disclosure

Conflicts of Interest

All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:

•

Whether 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

Guidelines are grouped according to the types of proposals generally presented to shareholders. Part 1 deals with proposals which have been approved and are recommended by a company’s board of directors; Part 2 deals with proposals submitted by shareholders for inclusion in proxy statements; Part 3 addresses issues relating to voting shares of investment companies; and Part 4 addresses unique considerations pertaining to foreign issuers

Part 1 - Board Approved Proposals

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Matters relating to the Board of Directors. Western Asset votes proxies for the election of the company’s nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:

•

Votes are withheld for any nominee for director who is considered an independent director by the company and who has received compensation from the company other than for service as a director.

•

Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without valid reasons for absences.

•

Votes are cast on a case-by-case basis in contested elections of directors.

•

Matters relating to Executive Compensation. Western Asset generally favors compensation programs that relate executive compensation to a company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:

•

Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for stock option plans that will result in a minimal annual dilution.

•

Western Asset votes against stock option plans or proposals that permit replacing or re-pricing of underwater options.

•

Western Asset votes against stock option plans that permit issuance of options with an exercise price below the stock’s current market price.

•

Matters relating to Capitalization. The management of a company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case

basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.

•

Western Asset votes for proposals relating to the authorization of additional common stock.

•

Western Asset votes for proposals to effect stock splits (excluding reverse stock splits).

•

Western Asset votes for proposals authorizing share repurchase programs.

•

Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions. Western Asset votes these issues on a case-by-case basis on board-approved transactions.

•

Matters relating to Anti-Takeover Measures. Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:

•

Western Asset votes on a case-by-case basis on proposals to ratify or approve shareholder rights plans.

•

Western Asset votes on a case-by-case basis on proposals to adopt fair price provisions.

•

Other Business Matters. Western Asset votes for board-approved proposals approving such routine business matters such as changing the company’s name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.

•

Western Asset votes on a case-by-case basis on proposals to amend a company’s charter or bylaws.

•

Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.

Part 2 - Shareholder Proposals

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Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans.

•

Western Asset votes for shareholder proposals that are consistent with Western Asset’s proxy voting guidelines for board-approved proposals.

•

Western Asset votes on a case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.

Part 3 – Voting Shares of Investment Companies

Western Asset may utilize shares of open or closed-end investment companies to implement its investment strategies. Shareholder votes for investment companies that fall within the categories listed in Parts 1 and 2 above are voted in accordance with those guidelines.

•

Western Asset votes on a case-by-case basis all proposals that would result in increases in expenses (e.g. proposals to adopt 12b-1 plans, alter investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.

Part 4 – Voting Shares of Foreign Issuers

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Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of management.

•

Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and compensation committees.

•

Western Asset votes on a case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a company’s outstanding common stock where shareholders do not have pre-emptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have pre-emptive rights.

Retirement Accounts

For accounts subject to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (“DOL”) has issued a bulletin that states that investment managers have the responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment manager. In order to comply with the DOL’s position, Western Asset will be presumed to have the obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (1) the right to vote proxies has been reserved to a named fiduciary of the client, and (2) Western Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines provided by the client.

ITEM 8.

INVESTMENT PROFESSIONALS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

(a)(1):


NAME AND ADDRESS	LENGTH OF TIME SERVED	PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
S. Kenneth Leech Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2014	Responsible for the day-to-day management with other members of the Fund’s portfolio management team; Chief Investment Officer of Western Asset from 1998 to 2008 and since 2014; Senior Advisor/Chief Investment Officer Emeritus of Western Asset from 2008-2013; Co- Chief Investment Officer of Western Asset from 2013-2014.

Greg E. Handler Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2013	Responsible for the day-to-day management with other members of the Fund’s portfolio management team; research analyst/portfolio manager at Western Asset since 2002.

Harris Trifon Western Asset 385 East Colorado Blvd. Pasadena, CA 91101	Since 2019	Responsible for the day-to-day management with other members of the Fund’s portfolio management team; employed by Western Asset as an investment professional since 2014; formerly, Director, Fixed Income Research at Deutsche Bank from 2009 to 2014.

(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL

The following tables set forth certain additional information with respect to the fund’s investment professionals for the fund. Unless noted otherwise, all information is provided as of December 31, 2019.

Other Accounts Managed by Investment Professionals

The table below identifies the number of accounts (other than the fund) for which the fund’s investment professionals have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories:

registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.


Name of PM	Type of Account	Number of Accounts Managed	Total Assets Managed		Number of Accounts Managed for which Advisory Fee is Performance -Based	Assets Managed for which Advisory Fee is Performance- Based
S. Kenneth Leech‡	Other Registered Investment Companies	94	$	150.1 billion	None		None
	Other Pooled Vehicles	227	$	81.0 billion	11	$	2.2 billion
	Other Accounts	627	$	228.8 billion	21	$	12.1 billion
Harris Trifon‡	Other Registered Investment Companies	1	$	1.1 billion	None		None
	Other Pooled Vehicles	11	$	4.0 billion	2	$	125 million
	Other Accounts	16	$	544 million	2	$	146 million
Greg E. Handler ‡	Other Registered Investment Companies	1	$	1.1 billion	None		None
	Other Pooled Vehicles	11	$	4.0 billion	2	$	125 million
	Other Accounts	16	$	544 million	2	$	146 million

‡

The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management Company (“Western Asset”). Mr. Leech is involved in the management of all the Firm’s portfolios, but they are not solely responsible for particular portfolios. Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. He is responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.

(a)(3): Investment Professional Compensation

With respect to the compensation of the investment professionals, Western Asset’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 a 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 years having the most 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 funds) 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 professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include Legg Mason stock options and long-term incentives that vest over a set period of time past the award date.

Potential 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 Investment Company Act of 1940, as amended, and Rule 204A-1 under the Investment Advisers Act of 1940, 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.

(a)(4): Investment Professional Securities Ownership

The table below identifies the dollar range of securities beneficially owned by each investment professional as of December 31, 2019.


Portfolio Manager(s)		Dollar Range of Portfolio Securities Beneficially Owned
S. Kenneth Leech		A
Harris Trifon		C
Greg E. Handler		A

Dollar Range ownership is as follows:

A: none

B: $1 - $10,000

C: 10,001 - $50,000

D: $50,001 - $100,000

E: $100,001 - $500,000

F: $500,001 - $1 million


ITEM 9.		PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

		Not applicable.

ITEM 10.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

		Not applicable.

ITEM 11.		CONTROLS AND PROCEDURES.

		(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

		(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting



ITEM 12.		DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

		Not applicable.

ITEM 13.		EXHIBITS.

		(a) (1) Code of Ethics attached hereto.
		Exhibit 99.CODE ETH

		(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
		Exhibit 99.CERT

		(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
		Exhibit 99.906CERT

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.


Western Asset Mortgage Opportunity Fund Inc.

By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer

Date:		March 2, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


By:		/s/ Jane Trust
		Jane Trust
		Chief Executive Officer

Date:		March 2, 2020

By:		/s/ Christopher Berarducci
		Christopher Berarducci
		Principal Financial Officer

Date:		March 2, 2020

CODE OF ETHICS

I. Introduction

A. Individuals Covered by the Code

This Code applies to all employees of Legg Mason & Co., LLC and interested directors of the Proprietary Funds who are not otherwise subject to another code of ethics adopted pursuant to either Rule 17j-1 under the Investment Company Act or Rule 204A-1 under the Investment Advisers Act (“Covered Persons”).

1.	Without limiting the generality of the foregoing, this Code covers all employees of Legg Mason & Co., LLC who perform services on behalf of the Proprietary Funds as part of the following regulated entities:

a.	Legg Mason Investor Services, LLC (“LMIS”).

b.	Legg Mason Partners Fund Advisor, LLC (“LMPFA”).

For the avoidance of doubt, each of the Legg Mason Registered Advisers (other than LMPFA) have adopted their own codes of ethics, and employees of the Legg Mason Registered Advisers who are subject to the requirements of those codes of ethics (including any who may be registered representatives of LMIS) are not subject to the requirements of this Code.

B. Standards of Business Conduct

This Code is based on the principle that Legg Mason and its affiliates owe a fiduciary duty to Legg Mason’s clients, and that all Covered Persons must therefore avoid activities, interests and relationships that might (i) present a conflict of interest or the appearance of a conflict of interest, or (ii) otherwise interfere with Legg Mason’s ability to make decisions in the best interests of any of its clients. In particular, Covered Persons must at all times comply with the following standards of business conduct:

1.	Compliance with Applicable Law. All Covered Persons must comply with the Federal Securities Laws that apply to the business of Legg Mason.

Clients Come First. Covered Persons must scrupulously avoid serving their personal interests ahead of the interests of clients. For example, a Covered Person may not induce or cause a client to take action, or not to take action, for the Covered Person’s personal benefit at the expense of the client’s best interests.

3.	Avoid Taking Advantage. Covered Persons may not use their knowledge of the Legg Mason Registered Advisers’ investment activities or client portfolio holdings to profit by the market effect of such activities or to engage in short-term or other abusive trading in Reportable Funds.

Avoid Other Inappropriate Relationships or Activities. Covered Persons should avoid relationships or activities that could call into question the Covered Person’s ability to exercise independent judgment in the best interests of Legg Mason’s clients. In particular, Covered Persons should take note of the provisions of the Legg Mason Code of Conduct and the Legg Mason Employee Handbook that pertain to confidentiality, corporate opportunities, gifts and entertainment, insider trading and outside business activities. In addition, Covered Persons who are registered representatives of LMIS should also take note of LMIS’s policies and procedures pertaining to these activities.

Observe the Spirit of the Code. Doubtful situations should be resolved in favor of Legg Mason’s clients. Technical compliance with the Code’s procedures will not automatically insulate from scrutiny any personal Securities Transactions or other course of conduct that might indicate an abuse of these governing principles.

C. Duty to Report Violations

Covered Persons must promptly report all violations of this Code to the Compliance Department.

D. Fiduciary Duty / Political Contributions

Covered Persons are prohibited from making political contributions for the purpose of obtaining or retaining any Legg Mason Registered Adviser or its affiliates as investment advisers. Covered Persons are specifically prohibited from making political contributions to any person for the purpose of influencing the selection or retention of an investment adviser by a government entity. Covered Persons will be required to certify annually that they have and will comply with this provision.

II. Personal Securities Transactions

A. Prohibited Transactions in Individual Securities

Covered Persons are subject to the following restrictions on their personal trading activities in individual securities:

Fraudulent Transactions. In connection with the purchase or sale, directly or indirectly, by a Covered Person of (A) a Reportable Security which, within the most recent fifteen (15) calendar days, (i) is or has been held by a Legg Mason client, or (ii) is being or has been considered by a Legg Mason Registered Adviser for purchase by a client, or (B) an Equivalent Security thereof, Covered Persons are prohibited from:

a.	Employing any device, scheme or artifice to defraud Legg Mason’s clients;

b.	Making any untrue statement of a material fact or omitting to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading;

c.	Engaging in any act, practice or course of business that operates or would operate as a fraud or deceit on Legg Mason’s clients; or

d.	Engaging in any manipulative practice with respect to Legg Mason’s clients.

2.	Inside Information. Covered Persons are prohibited from engaging in any transaction in a Security (or Equivalent Security) at a time when the Covered Person is in possession of material non-public information regarding the Security or the issuer of the Security.

3.	Market Manipulation. Covered Persons are prohibited from engaging in any transactions in a Security (or Equivalent Security) intended to raise, lower or maintain the price of that Security or to create a false appearance of active trading in that Security.

Trading on the Knowledge of Client Transactions. Covered Persons are prohibited from engaging in any transactions in a Security (or an Equivalent Security) on the basis of any information they may be in possession of to the effect that (i) a Legg Mason Registered Adviser is or may be considering an investment in or sale of such Security on behalf of its clients or (ii) has or may have an open order in such Security on behalf of its clients.

Legg Mason, Inc. Stock. Covered Persons are prohibited from engaging in any transaction in Legg Mason securities that is not in compliance with the “Legg Mason, Inc. Policies and Procedures Regarding Acquisitions and Dispositions of Legg Mason Securities,” as the same may be amended from time to time. A copy of this policy is available on the Legg Mason Legal and Compliance Website.

B. Prohibited Transactions in Reportable Funds

Market Timing in Reportable Funds. No Covered Person may use his or her knowledge of the portfolio holdings or investment activities of a Reportable Fund to engage in any short-term or other abusive trading strategy involving such Fund that may conflict with the best interests of the Fund and its shareholders.

60-Day Holding Period for Investments in Proprietary Funds. Subject to the exemptions set forth below, no Covered Person may sell (or exchange out of) shares of a Proprietary Fund in which the Covered Person has a Beneficial Interest if the Covered Person has not held the shares of the same Proprietary Fund for sixty (60) calendar days, including any individual retirement account or 401(k) participant account.

Additionally, Proprietary Funds that are sold in the LM 401(k) account are also subject to a 60-day minimum waiting period. No Covered Person may buy (or exchange into) shares of a Proprietary Fund within sixty (60) calendar days of a sell of (or exchange out of) shares of the same Proprietary Fund within the same LM 401(k) account.

The following Securities Transactions involving Proprietary Funds are exempt from the 60-day minimum holding period requirement set forth in this Section II.B.2 and II.B.3:

a.	Money Market Funds and Other Short-Term Trading Vehicles. Purchases or redemptions of Proprietary Funds that are money market funds or that hold themselves out as short-term trading vehicles.

Managed Accounts. Transactions in Proprietary Funds held in a Managed Account in connection with which the Covered Person has no direct or indirect influence or control over the account, is neither consulted nor advised of the trade before it is executed, and has no knowledge of specific management actions taken by a trustee or investment manager.

Systematic Investment. Purchases or redemptions of Proprietary Funds pursuant to an Automatic Investment Plan where a prescribed purchase or sale is made automatically on a regular predetermined basis without affirmative action by the Covered Person or pursuant to a similar arrangement approved by the Compliance Department (for example, automated payroll deduction investments by 401(k) participants or automatic dividend reinvestment).

C. Pre-Approval of Investments in Initial Public Offerings and Private Placements

Covered Persons are prohibited from acquiring a Beneficial Interest in a Reportable Security through an initial public offering (other than a new offering of securities issued by a registered open-end investment company) or Private Placement without the prior written approval of the Compliance Department. Requests for such approval shall be submitted to the Compliance Department through Fidelity National Information Services, Inc. (“FIS”)/PTA using substantially the form of “Request for Approval to Invest in an Initial Public Offering or Private Placement” attached hereto as Appendix A.

D. Reporting and Trading Requirements

1.	Acknowledgement of Receipt; Initial and Periodic Disclosure of Personal Holdings; Annual Certification.

a.	Within ten (10) calendar days of being identified as a Covered Person under this Code, each Covered Person must acknowledge that he or she has received and reviewed a copy of the Code, and has disclosed all Securities holdings in which such Covered Person has a Beneficial Interest..

b.	Thereafter, on an annual basis, each Covered Person shall give the same acknowledgements and, in addition, shall certify that he or she has complied with all applicable provisions of the Code.

c.	Such acknowledgments and certifications shall be provided through FIS/PTA using substantially the form of the “Acknowledgement of Receipt of Code of Ethics, Personal Holdings Report and Annual Certification” attached hereto as Appendix B.

2.	Execution of Personal Securities Transactions.

Approved Accounts. Unless one of the following exceptions applies, Covered Persons must execute their personal securities transactions involving any Reportable Securities or Reportable Funds in which they have or acquire a Beneficial Interest through one of the following two types of accounts (“Approved Accounts”):

i.	Approved Securities Accounts. Securities accounts (including IRA accounts) with financial intermediaries that have been approved by the Compliance Department (an “Approved Securities Account”); or

ii.

Approved Retirement Accounts. Participant accounts in retirement plans approved by the Compliance Department on the grounds that either (i) automated feeds into FIS/PTA have been established, or (ii) sufficient policies and procedures are in place to protect any Reportable Funds that may be in the plan from the types of activities prohibited by Sections A and B above (an “Approved Retirement Account”).1

b.	Exceptions. The following types of accounts are exempt from the requirements of section 2.a above, subject to compliance with the conditions set forth below:

Mutual Fund-Only and Managed Accounts. Covered Persons may have or acquire a Beneficial Interest in Mutual Fund-Only and Managed Accounts that are not Approved Securities Accounts, provided that the requirement set forth in this Code relating to a Managed Account or Mutual Fund-Only Account, as the case may be, are satisfied. To qualify for this exemption, a Covered Person must deliver to the Compliance Department through FIS/PTA a certification in substantially the form of the “Certificate for Managed Accounts or Mutual Fund-Only Accounts” attached hereto as Appendix D.

ii.

Outside Retirement Accounts. Covered Persons may have or acquire a Beneficial Interest in a retirement account other than an Approved Retirement Account (an “Outside Retirement Account”), provided that the Covered Person complies with the certification or reporting requirements set forth in Section 3.c below, and provided further that, for purposes of this Code, an IRA account shall be treated as a securities account and not as a retirement account.

1	A list of the approved financial intermediaries and retirement plans may by found on the Legal and Compliance home page on LMEX.

iii.

Dividend Reinvestment Plans. Covered Person may have or acquire a Beneficial Interest in securities held in a dividend reinvestment plan account directly with the issuer of the securities or its transfer agent (a “Dividend Reinvestment Plan”), subject to compliance with the requirements of Section 3.a below.

Outside Securities Accounts. Covered Persons that have or acquire a Beneficial Interest in a securities account (including an IRA account) other than an Approved Account, Mutual Fund-Only Account, Managed Account or Outside Retirement Account (an “Outside Securities Account”) must obtain the prior written approval to maintain such account from the Compliance Department.

i.	A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of “Request for Approval for an Outside Securities Account” attached hereto as Appendix C. Such approvals will only be granted in extraordinary circumstances.

ii.	If the Compliance Department does not approve such request, the Covered Person must arrange to transfer or convert such account into an Approved Account, Managed Account, Mutual Fund-Only Account or Outside Retirement Account as promptly as practicable.

6.	Transaction Reporting Requirements. Covered Persons shall report all Securities Transactions in which they have a Beneficial Interest to the Compliance Department in accordance with the following provisions:

Approved Accounts, Managed Accounts, Mutual Fund Only and Dividend Reinvestment Plan Accounts. Covered Persons will not be required to arrange for the delivery of duplicate copies of confirmations or periodic statements for any Approved Accounts, Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans in which they have or acquire a Beneficial Interest. However, the existence of all such accounts must be disclosed to the Compliance Department pursuant to either Section II.D.1 above or II.D.4 below. In addition, copies of any statements for any Managed Accounts, Mutual Fund Only Accounts or Dividend Reinvestment Plans must be made available for review at the specific request of the Compliance Department.

Outside Securities Accounts. For any Outside Securities Account approved by the Compliance Department, a Covered Person must arrange for the Compliance Department to receive, directly from the applicable broker-dealer, bank or other financial intermediary, duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Securities Account.

i.	Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter. Confirmations must be delivered to the Compliance Department contemporaneously with delivery to the applicable Covered Person.

ii.

A form of letter that may be used to request duplicate confirmations and periodic statements from financial intermediaries is attached as Appendix E. If a Covered Person is not able to arrange for duplicate confirmations and periodic statements to be sent, the Covered Person must immediately cease trading in such account and notify the Compliance Department.

iii.

It shall be the Covered Person’s responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Securities Account. and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

d.	Outside Retirement Accounts. For any Outside Retirement Account in which a Covered Person has a Beneficial Interest, such Covered Person must either:

Certify that such account does not hold any shares of a Reportable Fund or Reportable Security and that no Securities Transactions involving a Reportable Fund or Reportable Security have been executed in such account (such certifications shall be provided to the Compliance Department through FIS/PTA using substantially the form of the “Certificate for Outside Retirement Accounts” attached hereto as Appendix F); or.

ii.

If a Covered Person is unable to provide such certification with respect to an Outside Retirement Account, the Covered Person must notify the Compliance Department and provide the Compliance Department with duplicate copies of each confirmation and periodic statement issued by such financial intermediary in respect of such Outside Retirement Account.

(a)	Periodic statements must be received by the Compliance Department no later than thirty (30) calendar days after the close of each calendar quarter.

(b)

It shall be the Covered Person’s responsibility to promptly input into FIS/PTA all initially required information relating to any holdings in an Outside Retirement Account and to notify the Compliance Department on the same day of any subsequent Securities Transactions in such Outside Retirement Account.

New Reportable Accounts. If a Covered Person opens a new reportable account that has not previously been disclosed, the Covered Person must notify the Compliance Department in writing within ten (10) calendar days of the existence of the account and make arrangements to comply with the requirements set forth in Sections II.D.2 & 3 above.

Disclaimers. Any report of a Securities Transaction for the benefit of a person other than the individual in whose account the transaction is placed may contain a statement that the report should not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the Security to which the report relates.

Availability of Reports. All information supplied pursuant to this Code may be made available for inspection to the CCO of any affected Legg Mason Registered Adviser or Reportable Fund, the board of directors of each company employing the Covered Person, the board of directors of any affected Reportable Fund, the Compliance Department, the Covered Person’s department manager (or designee), any party to which any investigation is referred by any of the foregoing, the Securities and Exchange Commission, any self-regulatory organization of which Legg Mason is a member, any state securities commission, and any attorney or agent of the foregoing or of the Reportable Funds.

10.

Outside Business Activities. No Covered Person may engage in outside business activities or serve on the board of directors of a publicly-held company absent prior written authorization of (i) the Compliance Department, and (ii) in the case of service on the board of directors of a publicly-held company, the General Counsel of Legg Mason, Inc.

a.	A request for such approval must be submitted to the Compliance Department through FIS/PTA using substantially the form of “Request for Approval of Outside Business Activities” attached hereto as Appendix G.

b.	Requests for approval to serve as a director of a publicly held company will rarely be approved.

III. Personal Securities Transactions

A. Surveillance

The Compliance Department shall be responsible for maintaining a surveillance program reasonably designed to monitor the personal trading activities of all Covered Persons for compliance with the provisions of this Code and for investigating any suspected violation of the Code. Upon reaching the conclusion that a violation of the Code has occurred, the Compliance Department shall report the results of such investigation to the applicable Covered Person, the Covered Person’s department manager and to the CCOs of any affected Legg Mason Registered Adviser or Reportable Fund.

B. Remedies

Authority. The Compliance Department has authority to determine the remedy for any violation of the Code, including appropriate disposition of any monies forfeited pursuant to this provision. Failure to promptly comply with any sanction directive may result in the imposition of additional sanctions..

Sanctions. If the Compliance Department determines that a Covered Person has committed a violation of the Code, the Compliance Department may, in consultation with the Human Resources Department and the Covered Person’s supervisor, as appropriate, impose sanctions and take other actions as it deems appropriate, including a verbal warning, a letter of caution or warning, suspension of personal trading rights, suspension of employment (with or without compensation), fine, civil referral to the Securities and Exchange Commission, criminal referral, and termination of employment of the violator for cause. The Compliance Department may also require the Covered Person to reverse the transaction in question and forfeit any profit or absorb any loss associated or derived as a result. The amount of profit shall be calculated by the Compliance Department. No member of the Compliance Department may review his or her own transaction or those of his or her supervisors. If necessary, the General Counsel of Legg Mason or the CCO of the relevant Legg Mason Registered Adviser shall review these transactions..

C. Exceptions to the Code

Although exceptions to the Code will rarely be granted, the Compliance Department may grant exceptions to the requirements of the Code if the Compliance Department finds that the proposed conduct involves negligible opportunity for abuse. All such exceptions must be in writing..

IV. Definitions

When used in the Code, the following terms have the meanings set forth below:

A. General Defined Terms

“CCO” means the Chief Compliance Officer of any Reportable Fund, Legg Mason Registered Adviser or Legg Mason entity that is a principal underwriter of a Reportable Fund.

“Code” means this Code of Ethics, as the same may be amended from time to time.

“Compliance Department” means the Legal and Compliance Department of Legg Mason.

“Covered Person” means any employee of Legg Mason & Co., LLC who is covered by this Code in accordance with the provisions of Section I.A above.

“Federal Securities Laws” means the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act of 2002, the Investment Company Act, the Investment Advisers Act, Title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities and Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to Legg Mason and any Reportable Funds, and any rule adopted thereunder by the Securities and Exchange Commission or the Department of the Treasury.

“Investment Advisers Act” means the Investment Advisers Act of 1940, as amended.

“Investment Company Act” means the Investment Company Act of 1940, as amended.

“Legg Mason” means Legg Mason, Inc. and its subsidiaries and affiliates.

“Legg Mason Registered Advisers” means those subsidiaries of Legg Mason that are registered as investment advisers under the Investment Advisers Act.

“FIS/PTA” means FIS Personal Trading Assistant, a web browser-based automated personal trading compliance platform used by the Compliance Department to administer this Code.

B. Terms Defining the Scope of a Beneficial Interest in a Security

“Beneficial Interest” means the opportunity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, to profit, or share in any profit derived from, a transaction in the subject Securities.

A Covered Person is deemed to have a Beneficial Interest in the following:

1.	Any Security owned individually by the Covered Person.

2.	Any Security owned jointly by the Covered Person with others (for example, joint accounts, spousal accounts, partnerships, trusts and controlling interests in corporations).

3.	Any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if:

a.	The Security is held in an account over which the Covered Person has decision making authority (for example, the Covered Person acts as trustee, executor, or guardian); or

b.	The Security is held in an account for which the Covered Person acts as a broker or investment adviser representative.

A Covered Person is presumed to have a Beneficial Interest in any Security in which a member of the Covered Person’s Immediate Family has a Beneficial Interest if the Immediate Family member resides in the same household as the Covered Person.

Any uncertainty as to whether a Covered Person has a Beneficial Interest in a Security should be brought to the attention of the Compliance Department. Such questions will be resolved in accordance with, and this definition shall be subject to, the definition of “beneficial owner” found in Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of 1934, as amended.

“Immediate Family” of a Covered Person means any of the following persons:


child	grandparent	son-in-law
stepchild	spouse	daughter-in-law
grandchild	sibling	brother-in-law
parent	mother-in-law	sister-in-law
stepparent	father-in-law

Immediate Family includes adoptive relationships, domestic partner relationships and other relationships (whether or not recognized by law) that the Compliance Department determines could lead to the possible conflicts of interest, diversions of corporate opportunity, or appearances of impropriety, which this Code is intended to prevent.

C. Terms Defining the Scope of a Reportable Transaction

“Automatic Investment Plan” means a program in which regular periodic purchases (or withdrawals) are made automatically in or from investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.

“Equivalent Security” means any Security issued by the same entity as the issuer of a subject Security, including options, rights, stock appreciation rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and other obligations of that company or Security otherwise convertible into that Security. Options on Securities are included even if, technically, they are issued by the Options Clearing Corporation or a similar entity.

“Managed Account” means an account where a Covered Person has no:

•

Direct or indirect influence or control over the account (for example, the trustee or investment manager simply summarizes, describes, or explains account activity without the Covered Person providing directions or suggestions);

•

Knowledge of the transaction before it is completed (for example, transactions effected for a Covered Person by a trustee of a blind trust, or discretionary trades made by an investment manager retained by the Covered Person, in connection with which the Covered Person is neither consulted nor advised of the trade before it is executed); and

•

Knowledge of the specific management actions taken by a trustee or investment manager and no right to intervene in the trustee’s or investment manager’s management (for example, the Covered Person is not consulted as to the allocation of investments for the account).

“Mutual Fund-Only Account” means a Securities account or account held directly with a mutual fund that holds only non-Reportable Funds and in which no other type of Securities may be held. For purposes of this Code, a Mutual Fund-Only Account includes a 529 plan or variable annuity life insurance account that holds only non-Reportable Funds and in which no other type of Securities may be held.

“Private Placement” means a Securities offering that is exempt from registration pursuant to Section 4(2) or Section 4(6) of the Securities Act of 1933, as amended (the “Securities Act”), or pursuant to Rules 504, 505 or 506 of Regulation D under the Securities Act.

“Proprietary Fund” means an open-end investment company registered under the Investment Company Act (or any portfolio or series thereof, as the case may be) that is part of one of the fund families sponsored by Legg Mason or its affiliates.

“Reportable Fund” means (a) any fund registered under the Investment Company Act for which a Legg Mason Registered Adviser serves as an investment adviser, or (b) any fund registered under the Investment Company Act whose investment adviser or principal underwriter is controlled by or under common control with Legg Mason. For purposes of this definition, “investment adviser” has the same meaning as it does in section 2(a)(20) of the Investment Company Act, and “control” has the same meaning as it does in Section 2(a)(9) of the Investment Company Act.

“Reportable Security” means any Security (as defined herein) other than the following types of Securities:

1.	Direct obligations of the Government of the United States;

2.	Bankers acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and

3.	Shares of open-end mutual funds that are not Reportable Funds.

“Securities Transaction” means a purchase or sale of Securities in which a Covered Person has or acquires a Beneficial Interest.

“Security” includes stock, notes, bonds, debentures, and other evidences of indebtedness (including loan participations and assignments), limited partnership interests, investment contracts, closed-end investment companies, and all derivative instruments of the foregoing, such as options and warrants. “Security” does not include futures or options on futures, but the purchase and sale of such instruments are nevertheless subject to the reporting requirements of the Code.

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 Mortgage 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;

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;

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:

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;

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;

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

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of 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):

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

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.

CERTIFICATIONS

I, Christopher Berarducci, certify that:

1.	I have reviewed this report on Form N-CSR of Western Asset Mortgage 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;

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;

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):

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.

CERTIFICATIONS PURSUANT TO SECTION 906

EX-99.906CERT

CERTIFICATION

Jane Trust, Chief Executive Officer, and Christopher Berarducci, Principal Financial Officer of Western Asset Mortgage 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 December 31, 2019 (the “Form N-CSR”) fully complies with the requirements of section 15(d) 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 Mortgage Opportunity Fund Inc.				Western Asset Mortgage Opportunity Fund Inc.

/s/ Jane Trust				/s/ Christopher Berarducci
Jane Trust				Christopher Berarducci
Date: March 2, 2020				Date: March 2, 2020

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.