UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-22265

 

Western Asset Municipal Defined Opportunity Trust Inc.

(Exact name of registrant as specified in charter)

 

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

 

10018

(Address of principal executive offices)

 

(Zip code)

 

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(888)777-0102

 

 

Date of fiscal year end:

November 30

 

 

Date of reporting period:

February 29, 2012

 

 



 

ITEM 1.                                                     SCHEDULE OF INVESTMENTS

 



 

WESTERN ASSET MUNICIPAL DEFINED OPPORTUNITY TRUST INC.

 

FORM N-Q

FEBRUARY 29, 2012


 

WESTERN ASSET MUNICIPAL DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited)

February 29, 2012

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

MUNICIPAL BONDS — 97.8%

 

 

 

 

 

 

 

 

 

Arizona — 3.3%

 

 

 

 

 

 

 

 

 

Salt Verde, AZ, Financial Corp. Gas Revenue

 

5.000%

 

12/1/32

 

$

8,610,000

 

$

8,799,764

 

California — 1.6%

 

 

 

 

 

 

 

 

 

Lower Tule River, CA, Irrigation District Revenue, COP

 

5.000%

 

8/1/40

 

2,110,000

 

2,103,543

 

M-S-R Energy Authority, CA, Gas Revenue

 

6.125%

 

11/1/29

 

2,000,000

 

2,328,680

 

Total California

 

 

 

 

 

 

 

4,432,223

 

Colorado — 2.6%

 

 

 

 

 

 

 

 

 

Public Authority for Colorado Energy, Natural Gas Purchase Revenue

 

6.125%

 

11/15/23

 

6,000,000

 

6,925,920

 

Florida — 3.4%

 

 

 

 

 

 

 

 

 

Citizens Property Insurance Corp., FL, Senior Secured High Act

 

6.000%

 

6/1/17

 

6,900,000

 

8,097,150

 

Florida State Municipal Power Agency Revenue, All Requirements Power

 

6.250%

 

10/1/31

 

1,000,000

 

1,175,690

 

Total Florida

 

 

 

 

 

 

 

9,272,840

 

Georgia — 7.9%

 

 

 

 

 

 

 

 

 

Atlanta, GA, Water & Wastewater Revenue

 

6.000%

 

11/1/23

 

5,000,000

 

6,114,700

 

Atlanta, GA, Water & Wastewater Revenue

 

6.250%

 

11/1/34

 

3,260,000

 

3,840,541

 

DeKalb, Newton & Gwinnett Counties, GA, Joint Development Authority Revenue, GGC Foundation LLC Project

 

6.125%

 

7/1/40

 

10,000,000

 

11,275,800

 

Total Georgia

 

 

 

 

 

 

 

21,231,041

 

Illinois — 1.2%

 

 

 

 

 

 

 

 

 

Metropolitan Pier & Exposition Authority, IL, Dedicated State Tax Revenue, McCormick Project

 

5.250%

 

6/15/50

 

3,000,000

 

3,185,790

 

Indiana — 7.5%

 

 

 

 

 

 

 

 

 

Indiana Municipal Power Agency, Power Supply System Revenue

 

6.000%

 

1/1/39

 

10,000,000

 

11,233,900

 

Richmond, IN, Hospital Authority Revenue, Reid Hospital & Health Care Services Inc. Project

 

6.500%

 

1/1/29

 

8,000,000

 

9,070,960

 

Total Indiana

 

 

 

 

 

 

 

20,304,860

 

Louisiana — 4.3%

 

 

 

 

 

 

 

 

 

Louisiana State Citizens Property Insurance Corp., Assessment Revenue, AGC

 

6.125%

 

6/1/25

 

10,000,000

 

11,513,600

 

Maryland — 3.5%

 

 

 

 

 

 

 

 

 

Maryland State Health & Higher EFA Revenue Bonds, Washington County Hospital Issue

 

5.750%

 

1/1/38

 

9,000,000

 

9,336,600

 

Michigan — 13.8%

 

 

 

 

 

 

 

 

 

Detroit, MI, Water Supply System Revenue:

 

 

 

 

 

 

 

 

 

AGM

 

5.000%

 

7/1/34

 

7,000,000

 

7,152,180

 

AGM

 

6.250%

 

7/1/36

 

3,000,000

 

3,443,040

 

Michigan Finance Authority Revenue, Detroit School District

 

5.500%

 

6/1/21

 

6,000,000

 

6,611,100

 

Michigan State Hospital Finance Authority Revenue, McLaren Health Care Corp.

 

5.750%

 

5/15/38

 

9,000,000

 

9,738,000

 

Royal Oak, MI, Hospital Finance Authority Revenue, William Beaumont Hospital

 

8.250%

 

9/1/39

 

8,000,000

 

10,077,520

 

Total Michigan

 

 

 

 

 

 

 

37,021,840

 

 

See Notes to Schedule of Investments.

 

1


 

WESTERN ASSET MUNICIPAL DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)

February 29, 2012

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

Missouri — 4.6%

 

 

 

 

 

 

 

 

 

Missouri State Development Finance Board, Infrastructure Facilities Revenue, Independence Events Center

 

6.250%

 

4/1/34

 

$

11,940,000

 

$

12,239,217

 

New Jersey — 4.5%

 

 

 

 

 

 

 

 

 

New Jersey State EFA Revenue, University of Medicine and Dentistry

 

7.500%

 

12/1/32

 

10,000,000

 

12,047,500

 

New York — 4.2%

 

 

 

 

 

 

 

 

 

Liberty, NY, Development Corporation Revenue, Goldman Sachs Headquarters

 

5.250%

 

10/1/35

 

2,500,000

 

2,766,750

 

Port Authority of New York & New Jersey, Special Obligation Revenue, JFK International Air Terminal LLC

 

5.500%

 

12/1/31

 

7,925,000

 

8,641,262

 

Total New York

 

 

 

 

 

 

 

11,408,012

 

Ohio — 5.3%

 

 

 

 

 

 

 

 

 

Ohio State Air Quality Development Authority Revenue:

 

 

 

 

 

 

 

 

 

FirstEnergy Generation Corp.

 

5.700%

 

8/1/20

 

2,500,000

 

2,827,425

 

FirstEnergy Nuclear Generation Corp.

 

5.750%

 

6/1/16

 

10,000,000

 

11,333,500

(a)

Total Ohio

 

 

 

 

 

 

 

14,160,925

 

Pennsylvania — 4.3%

 

 

 

 

 

 

 

 

 

Pennsylvania Economic Development Financing Authority, Water Facility Revenue, American Water Co. Project

 

6.200%

 

4/1/39

 

10,000,000

 

11,623,900

 

Rhode Island — 4.3%

 

 

 

 

 

 

 

 

 

Rhode Island State Health & Educational Building Corp., Revenue, Hospital Financing

 

7.000%

 

5/15/39

 

10,000,000

 

11,614,500

 

Tennessee — 3.2%

 

 

 

 

 

 

 

 

 

Tennessee Energy Acquisition Corp., Gas Revenue

 

5.000%

 

9/1/16

 

8,000,000

 

8,684,800

 

Texas — 12.0%

 

 

 

 

 

 

 

 

 

Brazos River, TX, Harbor Navigation District, Brazoria County Environmental, Dow Chemical Co. Project

 

5.950%

 

5/15/33

 

10,000,000

 

10,747,000

(b)(c)

Love Field Airport Modernization Corp, TX, Special Facilities Revenue, Southwest Airlines Co. Project

 

5.250%

 

11/1/40

 

3,000,000

 

3,111,720

 

North Texas Tollway Authority Revenue

 

5.750%

 

1/1/33

 

10,200,000

 

11,052,210

 

Texas Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue

 

5.250%

 

12/15/18

 

3,325,000

 

3,629,171

 

Texas Municipal Gas Acquisition & Supply Corp. I, Gas Supply Revenue

 

6.250%

 

12/15/26

 

1,310,000

 

1,560,105

 

Texas Private Activity Bond Surface Transportation Corp. Revenue, LBJ Infrastructure Group LLC

 

7.000%

 

6/30/40

 

2,000,000

 

2,273,720

 

Total Texas

 

 

 

 

 

 

 

32,373,926

 

U.S. Virgin Islands — 2.1%

 

 

 

 

 

 

 

 

 

Virgin Islands Public Finance Authority Revenue, Matching Fund Loan

 

6.625%

 

10/1/29

 

5,000,000

 

5,713,100

 

Wisconsin — 4.2%

 

 

 

 

 

 

 

 

 

Wisconsin State HEFA Revenue, Prohealth Care Inc. Obligation Group

 

6.625%

 

2/15/39

 

10,000,000

 

11,408,500

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $220,844,808)

 

263,298,858

 

 

See Notes to Schedule of Investments.

 

2

 


 

WESTERN ASSET MUNICIPAL DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)

February 29, 2012

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

SHORT-TERM INVESTMENTS — 0.8%

 

 

 

 

 

 

 

 

 

Indiana — 0.1%

 

 

 

 

 

 

 

 

 

Indiana State Finance Authority Revenue, Lease Appropriation, SPA-JPMorgan Chase

 

0.110%

 

2/1/39

 

$

200,000

 

$

200,000

(d)(e)

Maryland — 0.7%

 

 

 

 

 

 

 

 

 

Maryland State Health & Higher EFA Revenue, University of Maryland Medical System, LOC-SunTrust Bank

 

0.100%

 

7/1/41

 

2,000,000

 

2,000,000

(d)(e)

TOTAL SHORT-TERM INVESTMENTS (Cost — $2,200,000)

 

 

2,200,000

 

TOTAL INVESTMENTS — 98.6% (Cost — $223,044,808#)

 

 

265,498,858

 

Other Assets in Excess of Liabilities — 1.4%

 

 

 

 

 

 

 

3,693,935

 

TOTAL NET ASSETS — 100.0%

 

 

 

 

 

 

 

$

269,192,793

 

 

(a)

Maturity date shown represents the mandatory tender date.

(b)

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

(c)

Income from this issue is considered a preference item for purposes of calculating the alternative minimum tax (“AMT”).

(d)

Variable rate demand obligations have a demand feature under which the Fund can tender them back to the issuer or liquidity provider on no more than 7 days notice.

(e)

Maturity date shown is the final maturity date. The security may be sold back to the issuer before final maturity.

#

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

 

 

 

Abbreviations used in this schedule:

 

AGC

- Assured Guaranty Corporation - Insured Bonds

 

AGM

- Assured Guaranty Municipal Corporation - Insured Bonds

 

COP

- Certificates of Participation

 

EFA

- Educational Facilities Authority

 

HEFA

- Health & Educational Facilities Authority

 

LOC

- Letter of Credit

 

SPA

- Standby Bond Purchase Agreement - Insured Bonds

 

Summary of Investments by Industry *

 

Industrial Revenue

 

29.3

%

Health Care

 

23.1

 

Education

 

11.3

 

Special Tax Obligation

 

8.6

 

Transportation

 

8.3

 

Water & Sewer

 

7.7

 

Power

 

5.5

 

Other

 

4.6

 

Leasing

 

0.8

 

Short-Term Investments

 

0.8

 

 

 

100.0

%

 

*As a percentage of total investments. Please note that Fund holdings are as of February 29, 2012 and are subject to change.

 

See Notes to Schedule of Investments.

 

3


 

WESTERN ASSET MUNICIPAL DEFINED OPPORTUNITY TRUST INC.

 

Schedule of investments (unaudited) (cont’d)

February 29, 2012

 

Ratings Table*

 

Standard & Poor’s/Moody’s/Fitch**

 

 

 

AAA/Aaa

 

1.2

%

AA/Aa

 

12.0

 

A

 

65.7

 

BBB/Baa

 

20.3

 

A-1/VMIG 1

 

0.8

 

 

 

100.0

%

 

* As a percentage of total investments.

** The ratings shown are based on each portfolio security’s rating as determined by Standard & Poor’s, Moody’s or Fitch, each a Nationally Recognized Statistical Rating Organization (“NRSRO”).  These ratings are the opinions of the NRSRO and are not measures of quality or guarantees of performance.  Securities may be rated by other NRSROs, and these ratings may be higher or lower. In the event that a security is rated by multiple NRSROs and receives different ratings, the Fund will treat the security as being rated in the highest rating category received from a NRSRO.

 

See pages 5 through 7 for definitions of ratings.

 

See Notes to Schedule of Investments.

 

4

 


 

Bond ratings

 

The definitions of the applicable rating symbols are set forth below:

 

Long-term security ratings (unaudited)

 

Standard & Poor’s Ratings Service (“Standard & Poor’s”) Long-term Issue Credit Ratings — Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

 

AAA

An obligation rated “AAA” has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.

AA

An obligation rated “AA” differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.

A

An obligation rated “A” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.

BBB

An obligation rated “BBB” exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB

An obligation rated “BB” is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.

B

An obligation rated “B” is more vulnerable to nonpayment than obligations rated “BB”, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.

CCC

An obligation rated “CCC” is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC

An obligation rated “CC” is currently highly vulnerable to nonpayment.

C

The “C” rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued.

D

An obligation rated “D” is in payment default. The “D” rating category is used when payments on an obligation are not made on the date due, even if the applicable grace period has not expired, unless Standard & Poor’s believes that such payments will be made during such grace period. The “D” rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments of an obligation are jeopardized.

 

Moody’s Investors Service (“Moody’s”) Long-term Obligation Ratings — Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” where 1 is the highest and 3 the lowest ranking within its generic category.

 

Aaa

Obligations rated “Aaa” are judged to be of the highest quality, with minimal credit risk.

Aa

Obligations rated “Aa” are judged to be of high quality and are subject to very low credit risk.

A

Obligations rated “A” are considered upper-medium grade and are subject to low credit risk.

Baa

Obligations rated “Baa” are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics.

Ba

Obligations rated “Ba” are judged to have speculative elements and are subject to substantial credit risk.

B

Obligations rated “B” are considered speculative and are subject to high credit risk.

 

5


 

Long-term security ratings (unaudited) (cont’d)

 

Caa

Obligations rated “Caa” are judged to be of poor standing and are subject to very high credit risk.

Ca

Obligations rated “Ca” are highly speculative and are likely in, or very near, default, with some prospect of recovery for principal and interest.

C

Obligations rated “C” are the lowest rated class and are typically in default, with little prospect of recovery for principal and interest.

 

Fitch Ratings Service (“Fitch”) Structured, Project & Public Finance Obligations — Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

 

AAA

Obligations rated “AAA” by Fitch denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA

Obligations rated “AA” denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A

Obligations rated “A” denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.

BBB

Obligations rated “BBB” indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

BB

Obligations rated “BB” indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.

B

Obligations rated “B” indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment.

CCC

Default is a real possibility.

CC

Default of some kind appears probable.

C

Default is imminent or inevitable, or the issuer is in standstill.

 

 

 

NR

Indicates that the obligation is not rated by Standard & Poor’s, Moody’s or Fitch.

 

Short-term security ratings (unaudited)

 

Standard & Poor’s Municipal Short-Term Notes Ratings

 

SP-1

A short-term obligation rated “SP-1” is rated in the highest category by Standard & Poor’s. Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.

SP-2

A short-term obligation rated “SP-2” is a Standard & Poor’s rating indicating satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.

SP-3

A short-term obligation rated “SP-3” is a Standard & Poor’s rating indicating speculative capacity to pay principal and interest.

 

Standard & Poor’s Short-Term Issues Credit Ratings

 

A-1

A short-term obligation rated “A-1” is rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.

 

6


 

Short-term security ratings (unaudited) (cont’d)

 

A-2

A short-term obligation rated “A-2” by Standard & Poor’s is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.

A-3

A short-term obligation rated “A-3” by Standard & Poor’s exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

B

A short-term obligation rated “B” by Standard & Poor’s is regarded as having significant speculative characteristics. Ratings of “B-1”, “B-2” and “B-3” may be assigned to indicate finer distinctions within the “B” category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.

 

Moody’s Variable Rate Demand Obligations (VRDO) Ratings

 

VMIG 1

Moody’s highest rating for issues having a variable rate demand feature — VRDO. This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price on demand.

VMIG 2

This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price on demand.

VMIG 3

This designation denotes acceptable credit quality. Adequate protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price on demand.

SG

This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short term rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.

 

Moody’s Short-Term Municipal Obligations Ratings

 

MIG 1

Moody’s highest rating for short-term municipal obligations. This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.

MIG 2

This designation denotes strong credit quality. Margins of protection are ample, although not as large as the preceding group.

MIG 3

This designation denotes acceptable credit quality. Liquidity and cash flow protection may be narrow, and market access for refinancing is likely to be less well-established.

SG

This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.

 

Moody’s Short-Term Obligations Ratings

 

P-1

Moody’s highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating. Have a superior ability to repay short-term debt obligations.

P-2

Have a strong ability to repay short-term debt obligations.

P-3

Have an acceptable ability to repay short-term debt obligations.

NP

Issuers do not fall within any of the Prime rating categories.

 

Fitch’s Short-Term Issuer or Obligations Ratings

 

F1

Fitch’s highest rating indicating the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.

F2

Fitch rating indicating good intrinsic capacity for timely payment of financial commitments.

F3

Fitch rating indicating intrinsic capacity for timely payment of financial commitments is adequate.

B

Fitch rating indicating minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term changes in financial and economic conditions.

C

Fitch rating indicating default is a real possibility.

 

 

 

NR

Indicates that the obligation is not rated by Standard & Poor’s, Moody’s or Fitch.

 

7

 


 

Notes to schedule of investments (unaudited)

 

1. Organization and significant accounting policies

 

Western Asset Municipal Defined Opportunity Trust Inc. (the “Fund”) was incorporated in Maryland on January 15, 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 high current income exempt from federal income tax and then to liquidate on or about April 30, 2021 and distribute all of the Fund’s net assets to shareholders. As a secondary investment objective, the Fund will seek total return.

 

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

 

(a) Investment valuation.  The valuations for fixed income securities 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 fair valuation techniques and methodologies. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers. 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 Fund has adopted Financial Accounting Standards Board Codification Topic 820 (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized 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 methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

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.

 

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

 

ASSETS

DESCRIPTION

 

QUOTED
PRICES
(LEVEL 1)

 

OTHER
SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 2)

 

SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

 

TOTAL

 

Municipal bonds†

 

 

$

263,298,858

 

 

$

263,298,858

 

Short-term investments†

 

 

2,200,000

 

 

2,200,000

 

Total investments

 

 

$

265,498,858

 

 

$

265,498,858

 

 

8


 

Notes to schedule of investments (unaudited) (continued)

 

†See Schedule of Investments for additional detailed categorizations.

 

(b) Futures Contracts. The Fund may use 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 cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin” and subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract.

 

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

 

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

 

2.  Investments

 

At February 29, 2012, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

 

$

42,454,050

 

Gross unrealized depreciation

 

 

Net unrealized appreciation

 

$

42,454,050

 

 

3. Derivative Instruments and Hedging Activities

 

Financial Accounting Standards Board Codification Topic 815 requires enhanced disclosure about an entity’s derivative and hedging activities.

 

At February 29, 2012, the Fund did not have any derivative instruments outstanding.

 

During the period ended February 29, 2012, the volume of derivative activity for the Fund was as follows:

 

 

 

Average market
value

 

Futures contracts (to sell) †

 

$

5,566,250

 

 

†At February 29, 2012, there were no open positions held in this derivative.

 

4. Recent accounting pronouncement

 

In May 2011, the Financial Accounting Standards Board issued Accounting Standard Update No. 2011-04, Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”).  ASU No. 2011-04 establishes common requirements for measuring fair value and for disclosing information about fair value measurements. ASU No. 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact the adoption of ASU No. 2011-04 will have on the Fund’s financial statements and related disclosures.

 

9


 

ITEM 2.                  CONTROLS AND PROCEDURES.

 

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

 

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

 

ITEM 3.                  EXHIBITS.

 

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

 



 

SIGNATURES

 

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

 

Western Asset Municipal Defined Opportunity Trust Inc.

 

 

By

/s/ R. Jay Gerken

 

 

R. Jay Gerken

 

 

Chief Executive Officer

 

 

 

 

Date: April 25, 2012

 

 

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/ R. Jay Gerken

 

 

R. Jay Gerken

 

 

Chief Executive Officer

 

 

 

 

Date: April 25, 2012

 

 

 

 

By

/s/ Richard F. Sennett

 

 

Richard F. Sennett

 

 

Principal Financial Officer

 

 

 

 

Date: April 25, 2012