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
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811-21609
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Western Asset Variable Rate Strategic Fund
Inc.
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(Exact name of registrant as
specified in charter)
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55 Water Street, New York, NY
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10041
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(Address of principal executive
offices)
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(Zip code)
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Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
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(Name and address of agent for
service)
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Registrants telephone number, including
area code:
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(888) 777-0102
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Date of fiscal year end:
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September 30
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Date of reporting period:
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September
30, 2010
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ITEM
1. REPORT TO
STOCKHOLDERS.
The
Annual
Report to Stockholders is
filed herewith.
September 30, 2010
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Annual
Report
Western
Asset Variable Rate Strategic Fund Inc.
(GFY)
INVESTMENT PRODUCTS: NOT
FDIC INSURED
·
NO BANK
GUARANTEE
·
MAY LOSE VALUE
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II
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Western Asset Variable
Rate Strategic Fund Inc.
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Fund
objective
The
Funds investment objective is to maintain a high level of current income.
Whats inside
Letter
from chairman
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II
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Investment
commentary
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III
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Fund
overview
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1
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Fund
at a glance
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4
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Spread
duration
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5
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Effective
duration
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6
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Schedule
of investments
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7
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Statement
of assets and liabilities
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20
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Statement
of operations
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21
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Statements
of changes in net assets
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22
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Financial
highlights
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23
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Notes
to financial statements
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24
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Report
of independent registered public accounting firm
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37
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Additional
information
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38
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Annual
chief executive officer and chief financial officer certifications
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43
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Important
tax information
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44
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Dividend
reinvestment plan
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45
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Letter
from the chairman
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Dear
Shareholder,
We
are pleased to provide the annual report of Western Asset Variable Rate
Strategic Fund Inc. for the twelve-month reporting period ended September 30,
2010. Please read on for a detailed look at prevailing economic and market
conditions during the Funds reporting period and to learn how those conditions
have affected Fund performance.
As
always, we remain committed to providing you with excellent service and a full
spectrum of investment choices. We also remain committed to supplementing the
support you receive from your financial advisor. One way we accomplish this is
through our website, www.leggmason.com/cef. Here you can gain immediate access
to market and investment information, including:
·
Fund
prices and performance,
·
Market
insights and commentaries from our portfolio managers, and
·
A
host of educational resources.
Special
shareholder notice
On
June 1, 2010, Western Asset Variable Rate Strategic Fund Inc. announced that,
in accordance with its tender offer for up to 1,664,686 of its issued and
outstanding shares of common stock, which expired on May 24, 2010, the Fund has
accepted that number of shares for payment at $15.87 per share. These shares
represent approximately 20% of the Funds outstanding shares.
The
offer commenced on April 26, 2010 and expired at 5:00 p.m., New York City time,
on May 24, 2010. The tender offer was made and stockholders were notified in
accordance with the terms and conditions specified in the requirements of the
Securities Exchange Act of 1934, as amended, and the Investment Company Act of
1940, as amended, either by publication or mailing or both.
A
total of 4,690,964 were properly tendered and not withdrawn by May 24, 2010,
the final date for withdrawals. Because the number of shares tendered exceeded
1,664,686 shares, the tender offer was oversubscribed. Therefore, in accordance
with the terms and conditions specified in the Offer to Purchase, the Fund
purchased shares from all tendering stockholders on a pro rata basis,
disregarding fractions. Accordingly, on a pro rata basis, 35.487% of shares for
each stockholder who properly tendered shares were accepted for payment. The
Fund transmitted payment to purchase the duly tendered and accepted shares on
May 28, 2010.
We
look forward to helping you meet your financial goals.
Sincerely,
R.
Jay Gerken, CFA
Chairman,
President and Chief Executive Officer
October
29, 2010
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Western
Asset Variable Rate Strategic Fund Inc.
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III
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Investment
commentary
Economic
review
While
the U.S. economy continued to expand over the twelve months ended September 30,
2010, overall growth moderated as the period progressed and unemployment
remained elevated. The Federal Reserve Board (Fed)
i
expressed
concerns regarding the direction of the economy and indicated that it was
prepared to take additional actions if necessary to spur growth. This, in turn,
caused investor sentiment to improve and had significant implications for the
financial markets.
In
September 2010, the National Bureau of Economic Research (NBER), the
organization charged with determining when recessions start and end, announced
that the downturn that began in December 2007 had concluded in June 2009.
However, the NBER said, In determining that a trough occurred in June 2009,
the committee did not conclude that economic conditions since that month have
been favorable or that the economy has returned to operating at normal
capacity. The NBERs point is well-taken given continued areas of weakness in
the U.S. economy.
Although
the U.S. Department of Commerce continued to report positive U.S. gross
domestic product (GDP)
ii
growth, the expansion has moderated since
peaking at 5.0% in the fourth quarter of 2009. A slower drawdown in business
inventories and renewed consumer spending were contributing factors spurring
the economys solid growth at the end of 2009. However, the economy has grown
at a more modest pace thus far in 2010. According to the Commerce Department,
GDP growth was 3.7% and 1.7% during the first and second quarters of 2010,
respectively. Its first estimate for third quarter GDP growth was 2.0%.
Turning
to the job market, after experiencing sharp job losses in 2009, the U.S.
Department of Labor reported that over one million new positions were added
during the first five months of 2010. Included in that number, however, were
700,000 temporary government jobs tied to the 2010 Census. From June through
September, more than 525,000 of these temporary positions were eliminated. This
more than offset private sector growth and resulted in a net loss of 175,000,
66,000, 57,000 and 95,000 jobs in June, July, August and September,
respectively. The unemployment rate ended the period at an elevated 9.6%.
There
was mixed news in the housing market during the period. According to the
National Association of Realtors, existing home sales increased 7.0% and 8.0%
in March and April, respectively, after sales had fallen for the period from
December 2009 through February 2010. The rebound was largely attributed to
people rushing to take advantage of the governments $8,000 tax credit for
first-time home buyers that expired at the end of April. However, with the end
of the tax credit, existing home sales then declined from May through July.
After a steep 27.0% decline in sales in July, sales then rose 7.3% and 10.0% in
August and September, respectively. In addition, the inventory of unsold homes
was a 10.7 month supply in September at the current sales level, versus a 12.0
month supply in August. Looking at home prices, the S&P/Case-Shiller Home
Price Index
iii
indicated that, after four straight increases,
month-to-month U.S. home prices fell 0.2% in August.
One
overall bright spot for the economy has been the manufacturing sector. Based on
the Institute for Supply Managements PMI
iv
, the manufacturing sector has grown fourteen
consecutive months since it began expanding in August 2009. After reaching a
six-year peak of 60.4 in April 2010, PMI data indicated somewhat more modest
growth from May through July (a reading below 50 indicates a contraction,
whereas a reading above 50 indicates an expansion). However, the manufacturing
sector then expanded at a faster pace in August, as its 56.3 reading during the
month was better than Julys 55.5. While PMI dipped back to 54.4 in September,
thirteen of the eighteen industries tracked by the Institute for Supply
Management grew during the month, whereas only eleven industries expanded in
August.
Financial
market overview
During
the majority of the reporting period, the financial markets were largely
characterized by healthy investor risk appetite and solid results by
lower-quality bonds. However, the market experienced a sharp sell-off in late
April and in May, during which risk aversion returned and investors flocked to
the relative safety of U.S. Treasury securities. Demand for riskier assets then
resumed in June and July, before another flight to quality occurred in
August. This proved to be a temporary situation, however, as risk appetite
returned in September.
IV
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Western Asset Variable
Rate Strategic Fund Inc.
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Investment
commentary (contd)
Due
to signs that economic growth was slowing toward the end of the reporting
period, the Fed took further actions to spur the economy. At its August 10
th
meeting, the Fed announced that it would begin
to use the proceeds from expiring agency debt and agency mortgage-backed securities
to purchase longer-dated Treasury securities. This led to speculation that the
Fed may again move to purchase large amounts of agency and Treasury securities
in an attempt to avoid a double-dip recession and ward off deflation.
In
addition, the Fed remained cautious throughout the reporting period given
pockets of weakness in the economy. At its meeting in September 2010, the Fed
said that the pace of recovery in output and employment has slowed in recent
months. . . . The Committee will maintain the target range for the federal
funds rate
v
at 0 to 1/4 percent and continues to
anticipate that economic conditions, including low rates of resource
utilization, subdued inflation trends, and stable inflation expectations, are
likely to warrant exceptionally low levels of the federal funds rate for an
extended period.
Fixed-income
market review
Continuing
the trend that began in the second quarter of 2009, nearly every spread sector
(non-Treasury) outperformed equal-duration
vi
Treasuries
during the first seven months of the reporting period. Over that time, investor
confidence was high given encouraging economic data, continued low interest
rates, benign inflation and rebounding corporate profits. Robust investor
appetite was then replaced with heightened risk aversion toward the end of
April and during the month of May. This was due to the escalating sovereign
debt crisis in Europe, uncertainties regarding new financial reforms in the
U.S. and some worse-than-expected economic data. Most spread sectors then
produced positive absolute returns in June and July, as investor demand for
these securities again increased. There was another bout of risk aversion in
August, given fears that the economy may slip back into a recession. However,
with the Fed indicating the possibility of another round of quantitative
easing, most spread sectors rallied in September.
Both
short- and long-term Treasury yields fluctuated but, overall, moved lower
during the twelve months ended September 30, 2010. When the period began, two-
and ten-year Treasury yields were 0.95% and 3.31%, respectively. On April 5,
2010, two- and ten-year Treasury yields peaked at 1.18% and 4.01%,
respectively. Subsequent to hitting their highs for the period, yields largely
declined during the remainder of the reporting period. When the period ended on
September 30, 2010, two- and ten-year Treasury yields were 0.42% and 2.53%,
respectively near their lows for the reporting period. For the twelve months
ended September 30, 2010, the Barclays Capital U.S. Aggregate Index
vii
returned 8.16%.
The
U.S. high-yield bond market produced strong results during the reporting
period. The asset class posted positive returns during each month, except for
May 2010 when risk aversion reached extremely elevated levels. The high-yield
market was supported by better-than-expected corporate profits and overall
strong investor demand. All told, the Barclays Capital U.S. High Yield 2%
Issuer Cap Index
viii
returned 18.24% for the twelve months ended
September 30, 2010.
Emerging
market debt prices rallied over the reporting period, also posting positive
returns each month during the period except for May 2010. This impressive
performance was triggered by strong economic growth in many emerging market
countries, solid domestic demand and generally robust investor demand for the
asset class. The JPMorgan Emerging Markets Bond Index Global (EMBI Global)
ix
returned 15.88% over the twelve months ended
September 30, 2010.
As
always, thank you for your confidence in our stewardship of your assets.
Sincerely,
R.
Jay Gerken, CFA
Chairman,
President and Chief Executive Officer
October
29, 2010
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.
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Western
Asset Variable Rate Strategic Fund Inc.
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V
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i
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The
Federal Reserve Board (Fed) is responsible for the formulation of policies
designed to promote economic growth, full employment, stable prices and a
sustainable pattern of international trade and payments.
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ii
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Gross
domestic product (GDP) is the market value of all final goods and services
produced within a country in a given period of time.
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iii
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The
S&P/Case-Shiller Home Price Index measures the residential housing
market, tracking changes in the value of the residential real estate market
in twenty metropolitan regions across the United States.
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iv
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The
Institute for Supply Managements PMI is based on a survey of purchasing
executives who buy the raw materials for manufacturing at more than 350
companies. It offers an early reading on the health of the manufacturing sector.
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v
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The
federal funds rate is the rate charged by one depository institution on an
overnight sale of immediately available funds (balances at the Federal
Reserve) to another depository institution; the rate may vary from depository
institution to depository institution and from day to day.
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vi
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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.
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vii
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The
Barclays Capital U.S. Aggregate Index is a broad-based bond index comprised
of government, corporate, mortgage- and asset-backed issues, rated investment
grade or higher, and having at least one year to maturity.
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viii
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The
Barclays Capital U.S. High Yield 2% Issuer Cap Index is an index of the 2%
Issuer Cap component of the Barclays Capital U.S. Corporate High Yield Index,
which covers the U.S. dollar-denominated, non-investment grade, fixed-rate,
taxable corporate bond market.
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ix
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The
JPMorgan Emerging Markets Bond Index Global (EMBI Global) tracks total
returns for U.S. dollar-denominated debt instruments issued by emerging
market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds
and local market instruments.
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Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
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1
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Fund
overview
Q. What
is the Funds investment strategy?
A.
The Fund seeks to maintain a high level of current
income. The Fund invests primarily in variable rate instruments of U.S. and
non-U.S. issuers, including U.S. and non-U.S. investment grade and high-yield
debt, senior loans, emerging market debt and derivatives related to these
securities.
At
Western Asset Management Company (Western Asset), the Funds 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 Assets senior portfolio managers, 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 portfolio managers responsible for
development of investment strategy, day-to-day portfolio management, oversight
and coordination of the Fund are Stephen A. Walsh, S. Kenneth Leech, Michael C.
Buchanan, Andrea A. Mack, Keith J. Gardner, Dennis J. McNamara, Julien A.
Scholnick and Michael Y. Pak.
Q. What
were the overall market conditions during the Funds reporting period?
A.
During the twelve months ended September 30,
2010, the riskier segments of the fixed-income market produced strong results
and outperformed U.S. Treasuries. This was due, in part, to improving economic
conditions following the lengthy downturn from mid-2008 through mid-2009. Also
supporting the spread sectors (non-U.S. Treasuries) was overall solid demand
from investors seeking incremental yields given the low rates available from
short-term fixed-income securities.
The
spread sectors rallied during most of the reporting period, with notable
exceptions being in late April and May 2010, as well as August 2010.
Starting toward the end of April, there was a flight to quality, triggered by
concerns regarding the escalating sovereign debt crisis in Europe. In addition,
investor sentiment was negatively impacted by uncertainties surrounding
financial reform legislation in the U.S. and signs that economic growth was
moderating. Collectively, this caused investors to flock to the relative safety
of Treasury securities, driving their yields lower and prices higher.
However,
robust investor risk appetite largely resumed during June and July, and
again in September. These turnarounds occurred as the situation in Europe
appeared to stabilize, the financial reform bill was signed into law and the
Federal Reserve Board (Fed)
i
continued to indicate that it would keep short-term rates low for an
extended period.
The
yields on two- and ten-year Treasuries began the fiscal year at 0.95% and
3.31%, respectively. Treasury yields fluctuated during the twelve-month
reporting period given changing perceptions regarding the economy, interest
rates, inflation and deflation. Yields moved sharply lower toward the end of
the fiscal year in anticipation of possible quantitative easing by the Fed.
During the period, two-year Treasury yields moved as high as 1.18% and as low
as 0.37% ending the period at 0.42%. In contrast, ten-year Treasuries rose as
high as 4.01% and fell as low as 2.47% ending the fiscal year at 2.53%.
Q. How
did we respond to these changing market conditions?
A.
A number of adjustments were made to the Funds
portfolio during the reporting period. We significantly increased the Funds
allocation to non-agency mortgage-backed securities (MBS). The combination of
the governments aggressive programs to aid the housing market and signs that
housing prices appeared to be stabilizing helped these securities generate
strong results. In addition, the sector was supported by ongoing demand from
asset managers participating in the Public-Private Investment Program (PPIP).
In contrast, we reduced the Funds exposures to agency MBS and government
agencies. We felt these sectors had become less attractive given their
significant spread narrowing, which was driven by the governments direct
purchase of agency MBS. With the government phasing out its purchasing program
at the end of March 2010, we believed that more attractive opportunities could
be found in other areas of the market.
Overall,
the use of derivatives was a significant contributor to performance during the
twelve-month period. We used Eurodollar futures and options to manage the
portfolios exposure to
2
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Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
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Fund
overview (contd)
the
short end of the yield curve
ii
and used Treasury futures to
manage exposure to the intermediate-to-long end of the curve. We utilized
interest rate swaps to help manage the Funds yield curve exposure and overall
duration
iii
during the period. We also used credit default
swaps to increase the Funds exposure to certain sectors in the corporate bond
market. We hedged the euro-denominated debt we bought with foreign currency
forwards, but we also bought Brazilian real-denominated sovereign debt
unhedged. This positioning took advantage of both high real rates in Brazil and
an appreciating currency.
Performance
review
For
the twelve months ended September 30, 2010, Western Asset Variable Rate
Strategic Fund Inc. returned 17.08% based on its net asset value (NAV)
iv
and 20.40% based on its New York Stock
Exchange (NYSE) market price per share. The Funds unmanaged benchmark, the BofA
Merrill Lynch Constant Maturity 3-Month LIBOR Index
v
, returned 0.34% for the same period. The Lipper
Loan Participation Closed-End Funds Category Average
vi
returned
12.42% over the same time frame. Please note that Lipper performance returns
are based on each funds NAV.
During
the twelve-month period, the Fund made distributions to shareholders totaling
$0.67 per share. The performance table shows the Funds twelve-month total
return based on its NAV and market price as of September 30, 2010.
Past performance is no guarantee of future results.
Performance Snapshot
as of September 30, 2010
Price
Per Share
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12-Month Total Return*
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$17.05
(NAV)
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17.08%
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$15.86 (Market Price)
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20.40%
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All figures represent past performance and are not a
guarantee of future results.
*
Total returns are based on changes in NAV or market price, respectively.
Total returns assume the reinvestment of all distributions in additional
shares.
Q. What
were the leading contributors to performance?
A.
The largest contributor to the Funds relative
performance during the reporting period was its overweight exposure to
non-agency MBS. As discussed, the sector generated strong results given robust
demand and some signs of stabilization in the housing market.
Our
investment grade bond and high-yield bond exposures also enhanced the Funds
results. In both cases, the Funds overweights to the Financials and
Industrials sectors were beneficial. Within the investment grade bond sector,
overweight positions in
General Electric
Capital Corp.
and
Citigroup Inc.
were rewarded. In the high-yield sector, the Funds overweight exposures to
Penhall International Corp.
and
GMAC Inc.
were positive for performance.
Elsewhere,
the Funds duration positioning was additive to performance. We maintained a
longer duration than that of the benchmark throughout the period. This
contributed to performance as rates moved sharply lower during the period.
Q. What
were the leading detractors from performance?
A.
The largest detractors from the Funds performance
during the reporting period were our overweight exposure to investment grade
bonds issued by
NRG Energy Inc.
and, within the high-yield sector, overweights to
Supermedia Inc.
and
Station
Casinos Inc
.
Looking
for additional information?
The
Fund is traded under the symbol GFY and its closing market price is available
in most newspapers under the NYSE listings. The daily NAV is available on-line
under the symbol XGFYX on most financial websites.
Barrons
and the
Wall
Street Journals
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.leggmason.com/cef.
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 Funds current NAV, market price and
other information.
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Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
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3
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Thank
you for your investment in Western Asset Variable Rate Strategic Fund Inc. As
always, we appreciate that you have chosen us to manage your assets and we
remain focused on achieving the Funds investment goals.
Sincerely,
Western
Asset Management Company
October 19,
2010
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. Common shares at any point in time may be
worth less than when invested, even after taking into account the reinvestment
of Fund dividends and distributions. The Fund invests in fixed-income
securities which are subject to credit risks, including the risk of nonpayment
of scheduled interest or loan payments, which could lower the Funds value. As
interest rates rise, the value of a fixed-income portfolio generally declines,
reducing the value of the Fund. However, the Fund can normally be expected to
have less significant interest rate related fluctuations in its NAV than
investment companies investing primarily in fixed-rate fixed-income securities
(other than money market funds) because the floating or variable rate
securities in which the Fund invests float in response to changes in prevailing
market interest rates. The Fund may invest in high-yield and foreign
securities, including emerging markets, which involve risks beyond those
inherent solely in higher-rated and domestic investments. High-yield bonds
involve greater credit and liquidity risks than investment grade bonds.
Investing in foreign securities is subject to certain risks typically not
associated with domestic investing, such as currency fluctuations and changes
in political conditions. These risks are magnified in emerging or developing
markets. Derivatives, such as options or futures, can be illiquid and hard to
value, especially in declining markets. A small investment in certain
derivatives may have a potentially large impact on Fund performance.
Portfolio
holdings and breakdowns are as of September 30, 2010 and are subject to
change and may not be representative of the portfolio managers current or
future investments. Please refer to pages 7 through 19 for a list and
percentage breakdown of the Funds holdings.
The
mention of sector breakdowns is for informational purposes only and should not
be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon
which to make an investment decision. Investors seeking financial advice
regarding the appropriateness of investing in any securities or investment
strategies discussed should consult their financial professional. The Funds
top five sector holdings (as a percentage of net assets) as of September 30,
2010 were: Financials (32.1%), Collateralized Mortgage Obligations (30.6%),
Energy (6.0%), Consumer Discretionary (5.8%) and Telecommunication Services
(4.5%). The Funds portfolio composition is subject to change at any time.
All
investments are subject to risk including the possible loss of principal. Past
performance is no guarantee of future results. All index performance reflects
no deduction for fees, expenses or taxes. Please note that an investor cannot
invest directly in an index.
The
information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
i
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The
Federal Reserve Board (Fed) is responsible for the formulation of policies
designed to promote economic growth, full employment, stable prices and a
sustainable pattern of international trade and payments.
|
ii
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The
yield curve is the graphical depiction of the relationship between the yield
on bonds of the same credit quality but different maturities.
|
iii
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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.
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iv
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Net
asset value (NAV) is calculated by subtracting total liabilities and
outstanding preferred stock (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 Funds market price as determined by supply of and demand
for the Funds shares.
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v
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The
Merrill Lynch BofA Constant Maturity 3-Month LIBOR Index is based on the
assumed purchase of a synthetic instrument having three months to maturity
and with a coupon equal to the closing quote for three-month LIBOR. That
issue is sold the following day (priced at a yield equal to the current day
closing three-month LIBOR rate) and is rolled into a new three-month
instrument. The Index, therefore, will always have a constant maturity equal
to exactly three months.
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vi
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Lipper, Inc.,
a wholly-owned subsidiary of Reuters, provides independent insight on global
collective investments. Returns are based on the twelve-month period ended
September 30, 2010, including the reinvestment of all distributions,
including returns of capital, if any, calculated among the 40 funds in the
Funds Lipper category.
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4
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Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
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Fund at
a glance
(unaudited)
Investment breakdown
(%) as a percent of total
investments
The bar graph
above represents the composition of the Funds investments as of September 30,
2010 and September 30, 2009 and does not include derivatives such as,
future contracts, written options, forward foreign currency contracts and swap
contracts. The Fund is actively managed. As a result, the composition of the
Funds investments is subject to change at any time.
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Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
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|
5
|
Spread
duration (unaudited)
Spread
duration is defined as the change in value for a 100 basis point change in the
spread relative to Treasuries. The spread over Treasuries is the annual
risk-premium demanded by investors to hold non-Treasury securities. This chart
highlights the market sector exposure of the Funds portfolio and the exposure
relative to the selected benchmark as of the end of the reporting period.
ABS
|
Asset Backed Securities
|
CMBS
|
Commercial Mortgage Backed Securities
|
EMD
|
Emerging Markets
|
GFY
|
Western Asset Variable Rate Strategic Fund Inc.
|
IG
Credit
|
Investment Grade Credit
|
MBS
|
Mortgage Backed Securities
|
ML
USD LIBOR
|
BofA Merrill Lynch USD LIBOR 3-Month Constant Maturity
|
6
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Effective
duration (unaudited)
Effective
duration is defined as the change in value for a 100 basis point change in
Treasury yields. This chart highlights the interest rate exposure of the Funds
portfolio relative to the selected benchmark as of the end of the reporting
period.
ABS
|
Asset Backed Securities
|
CMBS
|
Commercial Mortgage Backed Securities
|
EMD
|
Emerging Markets
|
GFY
|
Western Asset Variable Rate Strategic Fund Inc.
|
IG Credit
|
Investment Grade Credit
|
MBS
|
Mortgage Backed Securities
|
ML USD LIBOR
|
BofA Merrill Lynch USD LIBOR 3-Month Constant Maturity
|
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
7
|
Schedule
of investments
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Collateralized Mortgage
Obligations 30.6%
|
|
|
|
|
|
|
|
|
|
Adjustable Rate Mortgage Trust, 2005-11 5A1
|
|
0.526
|
%
|
2/25/36
|
|
308,390
|
|
$
|
176,675
|
(a)
|
Banc of America Funding Corp., 2003-1 A1
|
|
6.000
|
%
|
5/20/33
|
|
409,081
|
|
428,862
|
|
Banc of America Funding Corp., 2005-E 8A1
|
|
3.221
|
%
|
6/20/35
|
|
782,738
|
|
426,175
|
(a)
|
Bayview Commercial Asset Trust, 2006-1A B2
|
|
1.956
|
%
|
4/25/36
|
|
1,207,764
|
|
298,704
|
(a)(b)
|
Bear Stearns Alt-A Trust, 2004-3 A1
|
|
0.896
|
%
|
4/25/34
|
|
810,624
|
|
627,913
|
(a)
|
Bear Stearns ARM Trust, 2004-8 11A1
|
|
2.917
|
%
|
11/25/34
|
|
687,416
|
|
614,567
|
(a)
|
Bear Stearns Asset-Backed Securities Trust, 2005-AC3 1A1
|
|
0.756
|
%
|
7/25/35
|
|
881,169
|
|
612,900
|
(a)
|
Citigroup Mortgage Loan Trust Inc., 2010-7 4A1
|
|
1.264
|
%
|
9/25/37
|
|
450,458
|
|
450,458
|
(a)(b)(c)
|
Countrywide Alternative Loan Trust, 2005-24 4A1
|
|
0.488
|
%
|
7/20/35
|
|
865,980
|
|
522,434
|
(a)
|
Countrywide Home Loan, Mortgage Pass-Through Trust, 2004-29 2A1
|
|
0.586
|
%
|
2/25/35
|
|
84,532
|
|
56,037
|
(a)
|
Countrywide Home Loans, 2004-20 2A1
|
|
2.883
|
%
|
9/25/34
|
|
989,311
|
|
436,987
|
(a)
|
Countrywide Home Loans, 2004-R1 2A
|
|
6.500
|
%
|
11/25/34
|
|
178,911
|
|
179,953
|
(b)
|
Countrywide Home Loans, 2005-HYB9 3A1A
|
|
4.669
|
%
|
2/20/36
|
|
1,209,997
|
|
865,398
|
(a)
|
Countrywide Home Loans, 2005-R3 AF
|
|
0.656
|
%
|
9/25/35
|
|
760,515
|
|
645,223
|
(a)(b)
|
Deutsche Mortgage Securities Inc., 2004-4 3AR1
|
|
2.866
|
%
|
6/25/34
|
|
398,907
|
|
286,554
|
(a)
|
Downey Savings & Loan Association Mortgage Loan Trust,
2005-AR5 2A1A
|
|
0.587
|
%
|
8/19/45
|
|
821,191
|
|
516,119
|
(a)
|
Downey Savings & Loan Association Mortgage Loan Trust,
2006-AR1 1A1A
|
|
1.290
|
%
|
3/19/46
|
|
479,047
|
|
247,864
|
(a)
|
Federal Home Loan Mortgage Corp. (FHLMC), PAC IO
|
|
5.000
|
%
|
1/15/19
|
|
2,166,418
|
|
140,074
|
(d)
|
Federal Home Loan Mortgage Corp. (FHLMC), PAC IO, 2638 DI
|
|
5.000
|
%
|
5/15/23
|
|
2,399,728
|
|
216,830
|
(d)
|
Federal Home Loan Mortgage Corp. (FHLMC), PAC-1 IO
|
|
5.000
|
%
|
3/15/22
|
|
3,208,226
|
|
243,992
|
(d)
|
Federal National Mortgage Association (FNMA), STRIPS, IO
|
|
5.000
|
%
|
7/1/33
|
|
8,115,861
|
|
1,189,007
|
(d)
|
Federal National Mortgage Association (FNMA), STRIPS, IO, 339 30
|
|
5.500
|
%
|
7/1/18
|
|
2,290,035
|
|
239,069
|
(a)(d)
|
Greenwich Capital Commercial Funding Corp., 2004-GG1 A4
|
|
4.755
|
%
|
6/10/36
|
|
379,844
|
|
381,811
|
|
GS Mortgage Securities Corp. II, 2001-1285 C
|
|
6.712
|
%
|
8/15/18
|
|
950,000
|
|
976,986
|
(b)
|
GSMPS Mortgage Loan Trust, 2005-LT1 A1
|
|
0.486
|
%
|
2/25/35
|
|
271,104
|
|
225,016
|
(a)(b)(c)
|
GSMPS Mortgage Loan Trust, 2005-RP2 1AF
|
|
0.606
|
%
|
3/25/35
|
|
1,172,017
|
|
989,569
|
(a)(b)
|
GSMPS Mortgage Loan Trust, 2006-RP2 1AF1
|
|
0.656
|
%
|
4/25/36
|
|
539,643
|
|
435,884
|
(a)(b)
|
Harborview Mortgage Loan Trust, 2004-10 4A
|
|
2.716
|
%
|
1/19/35
|
|
520,795
|
|
515,646
|
(a)
|
Harborview Mortgage Loan Trust, 2004-11 3A1A
|
|
0.607
|
%
|
1/19/35
|
|
305,766
|
|
175,030
|
(a)
|
Harborview Mortgage Loan Trust, 2005-14 3A1A
|
|
3.369
|
%
|
12/19/35
|
|
300,611
|
|
227,070
|
(a)
|
IMPAC Secured Assets Corp., 2005-2 A1
|
|
0.576
|
%
|
3/25/36
|
|
2,410,617
|
|
1,296,668
|
(a)
|
Indymac Index Mortgage Loan Trust, 2004-AR12 A1
|
|
0.646
|
%
|
12/25/34
|
|
109,741
|
|
67,010
|
(a)
|
Indymac Index Mortgage Loan Trust, 2004-AR7 A2
|
|
1.116
|
%
|
9/25/34
|
|
342,945
|
|
227,362
|
(a)
|
Indymac Index Mortgage Loan Trust, 2004-AR8 2A2A
|
|
0.656
|
%
|
11/25/34
|
|
94,342
|
|
62,069
|
(a)
|
Indymac Index Mortgage Loan Trust, 2005-AR21 4A1
|
|
5.153
|
%
|
10/25/35
|
|
847,409
|
|
684,894
|
(a)
|
JPMorgan Chase Commercial Mortgage Securities Corp., 2007-CB18 A1
|
|
5.320
|
%
|
6/12/47
|
|
706,392
|
|
722,137
|
|
JPMorgan Mortgage Trust, 2005-A3 3A4
|
|
5.025
|
%
|
6/25/35
|
|
400,000
|
|
358,810
|
(a)
|
Luminent Mortgage Trust, 2006-2 A1A
|
|
0.456
|
%
|
2/25/46
|
|
1,142,197
|
|
651,127
|
(a)
|
MASTR ARM Trust, 2003-6 2A1
|
|
2.286
|
%
|
12/25/33
|
|
251,183
|
|
225,444
|
(a)
|
MASTR ARM Trust, 2004-7 6M1
|
|
0.906
|
%
|
8/25/34
|
|
550,000
|
|
435,521
|
(a)
|
MASTR Reperforming Loan Trust, 2005-2 1A1F
|
|
0.606
|
%
|
5/25/35
|
|
1,632,733
|
|
1,338,982
|
(a)(b)
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
8
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Schedule
of investments (contd)
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
MASTR Reperforming Loan Trust, 2006-2 1A1
|
|
5.635
|
%
|
5/25/36
|
|
615,155
|
|
$
|
586,915
|
(a)(b)
|
MASTR Reperforming Loan Trust, 2006-2 2A1
|
|
3.840
|
%
|
5/25/36
|
|
264,123
|
|
239,927
|
(a)(b)
|
Morgan Stanley Mortgage Loan Trust, 2006-6AR 2A
|
|
4.870
|
%
|
5/25/36
|
|
1,308,281
|
|
746,425
|
(a)
|
Residential Accredit Loans Inc., 2004-QA2 A2
|
|
0.696
|
%
|
6/25/34
|
|
839,100
|
|
586,361
|
(a)
|
Residential Accredit Loans Inc., 2005-QO4 2A1
|
|
0.536
|
%
|
12/25/45
|
|
536,752
|
|
313,420
|
(a)
|
Residential Asset Mortgage Products Inc., 2003-SL1 M1
|
|
7.310
|
%
|
4/25/31
|
|
1,062,606
|
|
559,942
|
(a)
|
Structured ARM Loan Trust, 2004-20 1A1
|
|
2.710
|
%
|
1/25/35
|
|
190,161
|
|
138,404
|
(a)
|
Structured ARM Loan Trust, 2004-9XS A
|
|
0.626
|
%
|
7/25/34
|
|
944,832
|
|
781,987
|
(a)
|
Structured Asset Mortgage Investments Inc., 2004-AR3 1A1
|
|
0.857
|
%
|
7/19/34
|
|
591,839
|
|
509,459
|
(a)
|
Structured Asset Mortgage Investments Inc., 2006-AR2 A1
|
|
0.486
|
%
|
2/25/36
|
|
1,105,616
|
|
637,991
|
(a)
|
Structured Asset Mortgage Investments Inc., 2006-AR3 11A1
|
|
0.466
|
%
|
4/25/36
|
|
509,683
|
|
290,384
|
(a)
|
Structured Asset Securities Corp., 1998-2 M1
|
|
1.356
|
%
|
2/25/28
|
|
150,033
|
|
146,337
|
(a)
|
Structured Asset Securities Corp., 1998-3 M1
|
|
1.256
|
%
|
3/25/28
|
|
121,007
|
|
107,791
|
(a)
|
Structured Asset Securities Corp., 1998-8 M1
|
|
1.196
|
%
|
8/25/28
|
|
391,607
|
|
305,079
|
(a)
|
Structured Asset Securities Corp., 2005-4XS 3A4
|
|
4.790
|
%
|
3/25/35
|
|
620,000
|
|
577,401
|
|
Structured Asset Securities Corp., 2005-RF1 A
|
|
0.606
|
%
|
3/25/35
|
|
332,441
|
|
274,780
|
(a)(b)
|
Structured Asset Securities Corp., 2005-RF2 A
|
|
0.606
|
%
|
4/25/35
|
|
352,359
|
|
293,747
|
(a)(b)
|
Structured Asset Securities Corp., 2005-RF3 1A
|
|
0.606
|
%
|
6/25/35
|
|
341,026
|
|
282,091
|
(a)(b)
|
Structured Asset Securities Corp., 2005-RF3 2A
|
|
4.493
|
%
|
6/25/35
|
|
5,238,351
|
|
4,439,991
|
(a)(b)
|
Voyager Dwnys Delaware Trust, 2009-1 UGL2
|
|
1.290
|
%
|
3/20/47
|
|
429,628
|
|
35,444
|
(a)(b)(c)(d)
|
WaMu Mortgage Pass-Through Certificates, 2007-HY3 1A1
|
|
5.438
|
%
|
3/25/37
|
|
279,526
|
|
203,927
|
(a)
|
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2003-AR8
|
|
0.616
|
%
|
10/25/45
|
|
958,355
|
|
580,672
|
(a)
|
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2004-AR13
A1A
|
|
0.735
|
%
|
11/25/34
|
|
758,061
|
|
653,061
|
(a)
|
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2006-AR11
1A
|
|
1.346
|
%
|
9/25/46
|
|
628,675
|
|
395,672
|
(a)
|
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2006-AR8
1A3
|
|
5.759
|
%
|
8/25/46
|
|
375,000
|
|
274,194
|
(a)
|
Washington Mutual Inc. Pass-Through Certificates, 2005-AR8 2AB3
|
|
0.616
|
%
|
7/25/45
|
|
632,341
|
|
471,475
|
(a)
|
Washington Mutual Inc. Pass-Through Certificates, 2006-AR2 A1A
|
|
1.326
|
%
|
4/25/46
|
|
331,695
|
|
185,880
|
(a)
|
Wells Fargo Mortgage Backed Securities Trust, 2004-DD 1A1
|
|
2.869
|
%
|
1/25/35
|
|
762,212
|
|
739,733
|
(a)
|
Total Collateralized Mortgage Obligations (Cost
$39,238,126)
|
|
|
|
|
|
|
|
34,777,321
|
|
Asset-Backed Securities 21.4%
|
|
|
|
|
|
|
|
|
|
Financials 21.4%
|
|
|
|
|
|
|
|
|
|
Automobiles
0.6%
|
|
|
|
|
|
|
|
|
|
Hertz Vehicle Financing LLC, 2009-2A A1
|
|
4.260
|
%
|
3/25/14
|
|
630,000
|
|
661,342
|
(b)
|
Honda Auto Receivables Owner Trust, 2008-1 A3
|
|
4.470
|
%
|
1/18/12
|
|
84,354
|
|
84,883
|
|
Total
Automobiles
|
|
|
|
|
|
|
|
746,225
|
|
Home Equity
19.1%
|
|
|
|
|
|
|
|
|
|
ABFS Mortgage Loan Trust, 2002-3 M1
|
|
5.902
|
%
|
9/15/33
|
|
870,000
|
|
675,766
|
|
Ameriquest Mortgage Securities Inc., 2002-AR1 M1
|
|
1.327
|
%
|
9/25/32
|
|
283,076
|
|
235,960
|
(a)
|
Ameriquest Mortgage Securities Inc., 2005-R1 M1
|
|
0.706
|
%
|
3/25/35
|
|
800,000
|
|
671,211
|
(a)
|
Asset Backed Funding Certificates, 2005-WF1 A2C
|
|
0.566
|
%
|
1/25/35
|
|
273,590
|
|
248,513
|
(a)
|
Bear Stearns Asset-Backed Securities Trust, 2001-3 A1
|
|
0.706
|
%
|
10/27/32
|
|
57,235
|
|
45,756
|
(a)
|
Bear Stearns Asset-Backed Securities Trust, 2005-SD3 1A
|
|
0.746
|
%
|
7/25/35
|
|
822,651
|
|
633,240
|
(a)
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
9
|
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Home Equity continued
|
|
|
|
|
|
|
|
|
|
Bear Stearns Asset-Backed Securities Trust, 2007-SD1 1A2A
|
|
6.000
|
%
|
10/25/36
|
|
1,324,263
|
|
$
|
1,043,307
|
|
Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-1 1A7
|
|
3.985
|
%
|
11/25/33
|
|
714,640
|
|
650,616
|
|
Citigroup Mortgage Loan Trust Inc., 2005-OPT4 M2
|
|
0.686
|
%
|
7/25/35
|
|
750,000
|
|
648,579
|
(a)
|
Countrywide Asset-Backed Certificates, 2003-5 AF5
|
|
5.739
|
%
|
2/25/34
|
|
650,446
|
|
580,359
|
|
Countrywide Asset-Backed Certificates, 2005-5 M1
|
|
0.716
|
%
|
10/25/35
|
|
600,000
|
|
558,123
|
(a)
|
Countrywide Asset-Backed Certificates, 2007-13 2A1
|
|
1.156
|
%
|
10/25/47
|
|
651,389
|
|
438,607
|
(a)
|
Countrywide Asset-Backed Certificates, 2007-SEA2 1A1
|
|
1.256
|
%
|
8/25/47
|
|
524,074
|
|
311,588
|
(a)(b)
|
Countrywide Home Equity Loan Trust, 2006-HW 2A1B
|
|
0.407
|
%
|
11/15/36
|
|
1,189,145
|
|
864,757
|
(a)
|
EMC Mortgage Loan Trust, 2004-C A1
|
|
0.806
|
%
|
3/25/31
|
|
249,340
|
|
206,572
|
(a)(b)
|
First Franklin Mortgage Loan Asset-Backed Certificates, 2005-FFH4 2A4
|
|
0.606
|
%
|
12/25/35
|
|
400,000
|
|
366,134
|
(a)
|
First Horizon ABS Trust, 2006-HE2 A
|
|
0.386
|
%
|
10/25/26
|
|
1,630,638
|
|
1,165,328
|
(a)
|
First Horizon ABS Trust, 2007-HE1 A
|
|
0.394
|
%
|
9/25/29
|
|
151,143
|
|
112,035
|
(a)
|
GMAC Mortgage Corp. Loan Trust, 2006-HE4 A1
|
|
0.436
|
%
|
12/25/36
|
|
1,214,181
|
|
651,150
|
(a)
|
Greenpoint Home Equity Loan Trust, 2004-4 A
|
|
0.817
|
%
|
8/15/30
|
|
664,165
|
|
440,132
|
(a)
|
GSAMP Trust, 2004-OPT B1
|
|
1.856
|
%
|
11/25/34
|
|
100,231
|
|
43,253
|
(a)
|
GSRPM Mortgage Loan Trust, 2007-1 A
|
|
0.656
|
%
|
10/25/46
|
|
166,589
|
|
94,175
|
(a)(b)
|
Home Equity Mortgage Trust, 2006-2 2A1
|
|
0.416
|
%
|
7/25/36
|
|
652,208
|
|
214,144
|
(a)
|
IXIS Real Estate Capital Trust, 2005-HE4 A3
|
|
0.596
|
%
|
2/25/36
|
|
233,472
|
|
209,273
|
(a)
|
Lehman XS Trust, (Structured Asset Securities Corp.), 2005-1 2A2
|
|
1.764
|
%
|
7/25/35
|
|
1,301,337
|
|
773,298
|
(a)
|
Lehman XS Trust, 2005-5N 3A1A
|
|
0.556
|
%
|
11/25/35
|
|
460,318
|
|
325,473
|
(a)
|
Long Beach Mortgage Loan Trust, 2001-3 M1
|
|
1.081
|
%
|
9/25/31
|
|
234,371
|
|
151,870
|
(a)
|
Long Beach Mortgage Loan Trust, 2002-1 2M1
|
|
1.381
|
%
|
5/25/32
|
|
716,559
|
|
563,200
|
(a)
|
MASTR Second Lien Trust, 2005-1 A
|
|
0.526
|
%
|
9/25/35
|
|
36,018
|
|
34,575
|
(a)
|
MASTR Specialized Loan Trust, 2007-1 A
|
|
0.626
|
%
|
1/25/37
|
|
558,557
|
|
251,326
|
(a)(b)
|
Merrill Lynch Mortgage Investors Trust, 2007-SD1 A1
|
|
0.706
|
%
|
2/25/47
|
|
1,228,303
|
|
598,345
|
(a)
|
Morgan Stanley ABS Capital I, 2007-NC2 M1
|
|
0.626
|
%
|
2/25/37
|
|
1,100,000
|
|
12,483
|
(a)
|
Morgan Stanley ABS Capital I, 2007-NC2 M2
|
|
0.676
|
%
|
2/25/37
|
|
1,000,000
|
|
7,357
|
(a)
|
Morgan Stanley ABS Capital I, 2007-NC2 M3
|
|
0.806
|
%
|
2/25/37
|
|
800,000
|
|
3,466
|
(a)
|
Morgan Stanley ABS Capital I, 2007-NC2 M4
|
|
1.256
|
%
|
2/25/37
|
|
500,000
|
|
1,532
|
(a)
|
Morgan Stanley ABS Capital I, 2007-NC2 M5
|
|
1.456
|
%
|
2/25/37
|
|
267,149
|
|
258
|
(a)
|
Morgan Stanley Capital Inc., 2004-HE8 A7
|
|
0.786
|
%
|
9/25/34
|
|
74,135
|
|
61,068
|
(a)
|
New Century Home Equity Loan Trust, 2004-3 M1
|
|
1.186
|
%
|
11/25/34
|
|
638,898
|
|
459,898
|
(a)
|
Option One Mortgage Loan Trust, 2005-1 A4
|
|
0.656
|
%
|
2/25/35
|
|
226,177
|
|
198,353
|
(a)
|
Park Place Securities Inc., 2004-WHQ2 M2
|
|
0.886
|
%
|
2/25/35
|
|
750,000
|
|
656,837
|
(a)
|
RAAC Series, 2006-RP2 A
|
|
0.506
|
%
|
2/25/37
|
|
363,739
|
|
237,194
|
(a)(b)
|
RAAC Series, 2006-RP3 A
|
|
0.526
|
%
|
5/25/36
|
|
1,313,674
|
|
749,165
|
(a)(b)
|
RAAC Series, 2006-RP4 A
|
|
0.546
|
%
|
1/25/46
|
|
768,152
|
|
517,342
|
(a)(b)
|
RAAC Series, 2007-RP3 M1
|
|
1.056
|
%
|
10/25/46
|
|
1,200,000
|
|
41,719
|
(a)(b)
|
RAAC Series, 2007-RP4 A
|
|
0.606
|
%
|
11/25/46
|
|
1,256,788
|
|
678,439
|
(a)(b)
|
RAAC Series, 2007-SP3 A1
|
|
1.456
|
%
|
9/25/37
|
|
345,643
|
|
265,918
|
(a)
|
Renaissance Home Equity Loan Trust, 2003-1 A
|
|
1.116
|
%
|
6/25/33
|
|
241,728
|
|
214,348
|
(a)
|
Renaissance Home Equity Loan Trust, 2003-2 A
|
|
0.696
|
%
|
8/25/33
|
|
201,707
|
|
178,433
|
(a)
|
Renaissance Net Interest
Margin Trust, 2007-2 N
|
|
8.353
|
%
|
6/25/37
|
|
128,633
|
|
161
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
10
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Schedule
of investments (contd)
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Home Equity continued
|
|
|
|
|
|
|
|
|
|
Residential Asset Mortgage Products Inc., 2003-RZ4 A7
|
|
4.790
|
%
|
6/25/33
|
|
312,474
|
|
$
|
310,515
|
|
SACO I Trust, 2005-WM3 A3
|
|
0.956
|
%
|
9/25/35
|
|
273,229
|
|
116,852
|
(a)
|
SACO I Trust, 2006-3 A3
|
|
0.716
|
%
|
4/25/36
|
|
700,903
|
|
204,558
|
(a)
|
SACO I Trust, 2006-4 A1
|
|
0.426
|
%
|
3/25/36
|
|
765,103
|
|
215,169
|
(a)
|
Sail Net Interest Margin Notes, 2004-2A A
|
|
5.500
|
%
|
3/27/34
|
|
107,070
|
|
0
|
(b)(d)(f)
|
Soundview Home Equity Loan Trust, 2005-3 M2
|
|
0.776
|
%
|
6/25/35
|
|
480,637
|
|
466,261
|
(a)
|
Structured Asset Investment Loan Trust, 2004-9 M4
|
|
1.556
|
%
|
10/25/34
|
|
177,472
|
|
50,760
|
(a)
|
Structured Asset Securities Corp., 2004-6XS A5B
|
|
5.550
|
%
|
3/25/34
|
|
663,305
|
|
652,610
|
|
Structured Asset Securities Corp., 2005-4XS 2A1A
|
|
2.062
|
%
|
3/25/35
|
|
683,564
|
|
545,844
|
(a)
|
Structured Asset Securities Corp., 2005-SC1 1A1
|
|
0.526
|
%
|
5/25/31
|
|
887,642
|
|
461,073
|
(a)(b)
|
Structured Asset Securities Corp., 2006-GEL1 A2
|
|
0.606
|
%
|
11/25/35
|
|
600,000
|
|
462,000
|
(a)(b)
|
Structured Asset Securities Corp., 2007-BC3 2A3
|
|
0.436
|
%
|
5/25/47
|
|
290,000
|
|
73,802
|
(a)
|
Washington Mutual Inc. Asset-Backed Certificates, 2007-HE3 M5
|
|
1.306
|
%
|
5/25/47
|
|
263,835
|
|
278
|
(a)
|
Total Home
Equity
|
|
|
|
|
|
|
|
21,650,358
|
|
Manufactured
Housing 0.6%
|
|
|
|
|
|
|
|
|
|
Conseco Finance Securitizations Corp., 2000-4 A6
|
|
8.310
|
%
|
5/1/32
|
|
549,489
|
|
451,350
|
(a)
|
Vanderbilt Mortgage Finance, 2000-B IB2
|
|
9.250
|
%
|
7/7/30
|
|
224,830
|
|
185,513
|
(a)
|
Total
Manufactured Housing
|
|
|
|
|
|
|
|
636,863
|
|
Student Loan
1.1%
|
|
|
|
|
|
|
|
|
|
National Collegiate Student Loan Trust, IO,
2007-2 AIO
|
|
6.700
|
%
|
7/25/12
|
|
4,500,000
|
|
494,995
|
(c)
|
SLC Student Loan Trust, 2008-1 A4A
|
|
1.892
|
%
|
12/15/32
|
|
720,000
|
|
749,820
|
(a)
|
SLC Student Loan Trust, 2008-2 A1
|
|
0.692
|
%
|
9/15/14
|
|
60,063
|
|
60,095
|
(a)
|
Total Student
Loan
|
|
|
|
|
|
|
|
1,304,910
|
|
Total Asset-Backed Securities
(Cost $32,597,885)
|
|
|
|
|
|
|
|
24,338,356
|
|
Collateralized Senior Loans
8.4%
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 2.9%
|
|
|
|
|
|
|
|
|
|
Auto Components
0.6%
|
|
|
|
|
|
|
|
|
|
Allison Transmission Inc., Term Loan B
|
|
3.010 - 3.050
|
%
|
8/7/14
|
|
719,778
|
|
677,266
|
(e)
|
Hotels,
Restaurants & Leisure 0.3%
|
|
|
|
|
|
|
|
|
|
BLB Worldwide Holdings Inc., Term Loan
|
|
6.500
|
%
|
7/18/12
|
|
750,000
|
|
17,812
|
(e)(f)
|
Harrahs Operating Co. Inc., Term Loan B2
|
|
3.498
|
%
|
1/28/15
|
|
460,941
|
|
398,136
|
(e)
|
Total Hotels,
Restaurants & Leisure
|
|
|
|
|
|
|
|
415,948
|
|
Media 1.6%
|
|
|
|
|
|
|
|
|
|
Charter Communications, Term Loan C
|
|
3.540
|
%
|
9/6/16
|
|
865,967
|
|
847,024
|
(e)
|
CSC Holdings Inc., Term Loan B-2
|
|
2.007
|
%
|
3/29/16
|
|
444,177
|
|
443,288
|
(e)
|
CSC Holdings LLC, Term Loan B-3
|
|
2.007
|
%
|
3/29/16
|
|
234,344
|
|
233,875
|
(e)
|
SuperMedia Inc., Term Loan
|
|
11.000
|
%
|
12/31/15
|
|
351,880
|
|
274,969
|
(e)
|
Total Media
|
|
|
|
|
|
|
|
1,799,156
|
|
Multiline
Retail 0.4%
|
|
|
|
|
|
|
|
|
|
Neiman Marcus Group Inc., Term Loan B
|
|
2.258 - 2.294
|
%
|
4/5/13
|
|
465,656
|
|
452,057
|
(e)
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
3,344,427
|
|
Energy 0.3%
|
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable
Fuels 0.3%
|
|
|
|
|
|
|
|
|
|
Ashmore Energy International, Synthetic Revolving Credit Facility
|
|
3.433
|
%
|
3/30/12
|
|
47,569
|
|
44,750
|
(e)
|
Ashmore Energy International, Term Loan
|
|
3.289
|
%
|
3/30/14
|
|
312,017
|
|
293,530
|
(e)
|
Total Energy
|
|
|
|
|
|
|
|
338,280
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
11
|
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Health Care 1.7%
|
|
|
|
|
|
|
|
|
|
Health Care
Providers & Services 1.7%
|
|
|
|
|
|
|
|
|
|
Community Health Systems Inc., Delayed Draw Term Loan
|
|
2.549
|
%
|
7/25/14
|
|
473,038
|
|
$
|
449,385
|
(e)
|
Community Health Systems Inc., Term Loan B
|
|
2.549
|
%
|
7/25/14
|
|
23,372
|
|
22,204
|
(e)
|
HCA Inc., Term Loan B
|
|
2.539
|
%
|
11/18/13
|
|
630,983
|
|
608,252
|
(e)
|
Health Management Associates Inc., Term Loan B
|
|
2.039
|
%
|
2/28/14
|
|
907,107
|
|
858,634
|
(e)
|
Total Health Care
|
|
|
|
|
|
|
|
1,938,475
|
|
Industrials 0.9%
|
|
|
|
|
|
|
|
|
|
Trading
Companies & Distributors 0.9%
|
|
|
|
|
|
|
|
|
|
Transdigm Inc. Term B
|
|
2.256 - 2.290
|
%
|
6/23/13
|
|
1,000,000
|
|
982,500
|
(e)
|
Information Technology 0.6%
|
|
|
|
|
|
|
|
|
|
IT Services
0.6%
|
|
|
|
|
|
|
|
|
|
First Data Corp., Term Loan B2
|
|
3.006
|
%
|
9/24/14
|
|
711,293
|
|
627,628
|
(e)
|
Materials 0.4%
|
|
|
|
|
|
|
|
|
|
Containers &
Packaging 0.4%
|
|
|
|
|
|
|
|
|
|
Berry Plastics Group Inc., Term Loan C
|
|
2.376
|
%
|
4/3/15
|
|
493,606
|
|
452,463
|
(e)
|
Telecommunication Services 0.4%
|
|
|
|
|
|
|
|
|
|
Diversified
Telecommunication Services 0.4%
|
|
|
|
|
|
|
|
|
|
Level 3 Communications Inc., Term Loan
|
|
2.507 - 2.777
|
%
|
3/13/14
|
|
500,000
|
|
458,304
|
(e)
|
Utilities 1.2%
|
|
|
|
|
|
|
|
|
|
Electric
Utilities 0.7%
|
|
|
|
|
|
|
|
|
|
TXU Corp., Term Loan B2
|
|
3.758 - 4.066
|
%
|
10/10/14
|
|
970,000
|
|
754,916
|
(e)
|
Independent
Power Producers & Energy Traders 0.5%
|
|
|
|
|
|
|
|
|
|
NRG Energy Inc., Term Loan
|
|
1.789
|
%
|
2/1/13
|
|
131,958
|
|
128,796
|
(e)
|
NRG Energy Inc., Term Loan B
|
|
3.539
|
%
|
8/31/15
|
|
495,002
|
|
495,002
|
(e)
|
Total Independent Power
Producers & Energy Traders
|
|
|
|
|
|
|
|
623,798
|
|
Total Utilities
|
|
|
|
|
|
|
|
1,378,714
|
|
Total Collateralized Senior Loans (Cost
$10,917,642)
|
|
|
|
|
|
|
|
9,520,791
|
|
Corporate Bonds & Notes
29.0%
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 2.8%
|
|
|
|
|
|
|
|
|
|
Automobiles
0.3%
|
|
|
|
|
|
|
|
|
|
Ford Motor Credit Co., LLC, Senior Notes
|
|
9.875
|
%
|
8/10/11
|
|
220,000
|
|
233,065
|
|
Motors Liquidation Co., Senior Debentures
|
|
8.250
|
%
|
7/15/23
|
|
50,000
|
|
16,375
|
(f)
|
Motors Liquidation Co., Senior Debentures
|
|
8.375
|
%
|
7/15/33
|
|
400,000
|
|
137,000
|
(f)
|
Total
Automobiles
|
|
|
|
|
|
|
|
386,440
|
|
Diversified
Consumer Services 0.0%
|
|
|
|
|
|
|
|
|
|
Service Corp. International, Senior Notes
|
|
7.625
|
%
|
10/1/18
|
|
30,000
|
|
32,250
|
|
Hotels,
Restaurants & Leisure 1.0%
|
|
|
|
|
|
|
|
|
|
CCM Merger Inc., Notes
|
|
8.000
|
%
|
8/1/13
|
|
100,000
|
|
92,000
|
(b)
|
Choctaw Resort Development Enterprise, Senior Notes
|
|
7.250
|
%
|
11/15/19
|
|
226,000
|
|
157,070
|
(b)
|
El Pollo Loco Inc., Senior Notes
|
|
11.750
|
%
|
11/15/13
|
|
120,000
|
|
87,000
|
|
El Pollo Loco Inc., Senior Secured Notes
|
|
11.750
|
%
|
12/1/12
|
|
20,000
|
|
20,400
|
|
Harrahs Operating Co. Inc., Senior Secured Notes
|
|
11.250
|
%
|
6/1/17
|
|
175,000
|
|
192,500
|
|
Inn of the Mountain Gods Resort & Casino, Senior Notes
|
|
12.000
|
%
|
11/15/10
|
|
100,000
|
|
41,500
|
(d)(f)
|
Landrys Restaurants Inc., Senior Secured Notes
|
|
11.625
|
%
|
12/1/15
|
|
40,000
|
|
42,400
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
12
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Schedule
of investments (contd)
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Hotels,
Restaurants & Leisure continued
|
|
|
|
|
|
|
|
|
|
MGM MIRAGE Inc., Senior Notes
|
|
7.625
|
%
|
1/15/17
|
|
230,000
|
|
$
|
194,925
|
|
MGM Resorts International, Senior Secured Notes
|
|
10.375
|
%
|
5/15/14
|
|
20,000
|
|
22,350
|
|
MGM Resorts International, Senior Secured Notes
|
|
11.125
|
%
|
11/15/17
|
|
55,000
|
|
62,906
|
|
Mohegan Tribal Gaming Authority, Senior Subordinated Notes
|
|
6.875
|
%
|
2/15/15
|
|
200,000
|
|
111,250
|
|
NCL Corp. Ltd., Senior Secured Notes
|
|
11.750
|
%
|
11/15/16
|
|
60,000
|
|
67,500
|
|
Sbarro Inc., Senior Notes
|
|
10.375
|
%
|
2/1/15
|
|
25,000
|
|
15,125
|
|
Snoqualmie Entertainment Authority, Senior Secured Notes
|
|
4.428
|
%
|
2/1/14
|
|
10,000
|
|
8,300
|
(a)(b)
|
Station Casinos Inc., Senior Notes
|
|
7.750
|
%
|
8/15/16
|
|
155,000
|
|
16
|
(d)(f)
|
Station Casinos Inc., Senior Subordinated Notes
|
|
6.875
|
%
|
3/1/16
|
|
15,000
|
|
24
|
(d)(f)
|
Total Hotels,
Restaurants & Leisure
|
|
|
|
|
|
|
|
1,115,266
|
|
Media 1.2%
|
|
|
|
|
|
|
|
|
|
Cablevision Systems Corp., Senior Notes
|
|
7.750
|
%
|
4/15/18
|
|
30,000
|
|
31,875
|
|
Cengage Learning Acquisitions Inc., Senior Notes
|
|
10.500
|
%
|
1/15/15
|
|
40,000
|
|
39,950
|
(b)
|
Charter Communications Operating LLC/Charter Communications Operating
Capital, Senior Secured Notes
|
|
10.875
|
%
|
9/15/14
|
|
100,000
|
|
113,750
|
(b)
|
CMP Susquehanna Corp.
|
|
3.531
|
%
|
5/15/14
|
|
2,000
|
|
1,420
|
(a)(b)
|
Comcast Corp., Senior Notes
|
|
6.500
|
%
|
1/15/17
|
|
200,000
|
|
238,233
|
|
DISH DBS Corp., Senior Notes
|
|
6.625
|
%
|
10/1/14
|
|
85,000
|
|
89,038
|
|
DISH DBS Corp., Senior Notes
|
|
7.750
|
%
|
5/31/15
|
|
290,000
|
|
310,662
|
|
DISH DBS Corp., Senior Notes
|
|
7.875
|
%
|
9/1/19
|
|
65,000
|
|
70,281
|
|
Sun Media Corp., Senior Notes
|
|
7.625
|
%
|
2/15/13
|
|
50,000
|
|
50,500
|
|
Univision Communications Inc., Senior Secured Notes
|
|
12.000
|
%
|
7/1/14
|
|
170,000
|
|
186,788
|
(b)
|
UPC Holding BV, Senior Notes
|
|
9.875
|
%
|
4/15/18
|
|
30,000
|
|
32,100
|
(b)
|
Virgin Media Finance PLC, Senior Bonds
|
|
9.500
|
%
|
8/15/16
|
|
60,000
|
|
68,100
|
|
Virgin Media Finance PLC, Senior Notes
|
|
9.125
|
%
|
8/15/16
|
|
140,000
|
|
150,500
|
|
Total Media
|
|
|
|
|
|
|
|
1,383,197
|
|
Multiline
Retail 0.1%
|
|
|
|
|
|
|
|
|
|
Neiman Marcus Group Inc., Senior Notes
|
|
9.000
|
%
|
10/15/15
|
|
64,494
|
|
67,316
|
(g)
|
Specialty
Retail 0.1%
|
|
|
|
|
|
|
|
|
|
Michaels Stores Inc., Senior Notes
|
|
10.000
|
%
|
11/1/14
|
|
45,000
|
|
47,644
|
|
Textiles,
Apparel & Luxury Goods 0.1%
|
|
|
|
|
|
|
|
|
|
Oxford Industries Inc., Senior Secured Notes
|
|
11.375
|
%
|
7/15/15
|
|
105,000
|
|
118,650
|
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
3,150,763
|
|
Consumer Staples 0.8%
|
|
|
|
|
|
|
|
|
|
Beverages
0.1%
|
|
|
|
|
|
|
|
|
|
Anheuser-Busch InBev Worldwide Inc., Senior Notes
|
|
4.125
|
%
|
1/15/15
|
|
90,000
|
|
96,976
|
|
Food &
Staples Retailing 0.4%
|
|
|
|
|
|
|
|
|
|
CVS Corp., Pass-through Certificates
|
|
6.117
|
%
|
1/10/13
|
|
387,010
|
|
412,165
|
(b)(c)
|
Kroger Co., Notes
|
|
3.900
|
%
|
10/1/15
|
|
60,000
|
|
65,192
|
|
Total
Food & Staples Retailing
|
|
|
|
|
|
|
|
477,357
|
|
Food Products
0.2%
|
|
|
|
|
|
|
|
|
|
Kraft Foods Inc., Senior Notes
|
|
2.625
|
%
|
5/8/13
|
|
260,000
|
|
269,641
|
|
Tobacco 0.1%
|
|
|
|
|
|
|
|
|
|
Alliance One International Inc., Senior Notes
|
|
10.000
|
%
|
7/15/16
|
|
70,000
|
|
76,125
|
|
Total Consumer Staples
|
|
|
|
|
|
|
|
920,099
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
13
|
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Energy 5.7%
|
|
|
|
|
|
|
|
|
|
Energy
Equipment & Services 0.2%
|
|
|
|
|
|
|
|
|
|
Complete Production Services Inc., Senior Notes
|
|
8.000
|
%
|
12/15/16
|
|
155,000
|
|
$
|
160,425
|
|
Hercules Offshore LLC, Senior Secured Notes
|
|
10.500
|
%
|
10/15/17
|
|
60,000
|
|
50,100
|
(b)
|
Total Energy
Equipment & Services
|
|
|
|
|
|
|
|
210,525
|
|
Oil, Gas & Consumable
Fuels 5.5%
|
|
|
|
|
|
|
|
|
|
Anadarko Petroleum Corp., Senior Notes
|
|
6.375
|
%
|
9/15/17
|
|
40,000
|
|
44,141
|
|
Belden & Blake Corp., Secured Notes
|
|
8.750
|
%
|
7/15/12
|
|
170,000
|
|
167,450
|
|
Berry Petroleum Co., Senior Notes
|
|
10.250
|
%
|
6/1/14
|
|
60,000
|
|
67,950
|
|
BP Capital Markets PLC, Senior Notes
|
|
3.125
|
%
|
10/1/15
|
|
230,000
|
|
231,474
|
|
Chesapeake Energy Corp., Senior Notes
|
|
7.250
|
%
|
12/15/18
|
|
285,000
|
|
308,512
|
|
Compagnie Generale de
Geophysique-Veritas, Senior Notes
|
|
7.500
|
%
|
5/15/15
|
|
210,000
|
|
214,725
|
|
CONSOL Energy Inc., Senior Notes
|
|
8.250
|
%
|
4/1/20
|
|
160,000
|
|
175,600
|
(b)
|
El Paso Corp., Medium-Term Notes
|
|
7.375
|
%
|
12/15/12
|
|
375,000
|
|
402,252
|
|
Enterprise Products Operating LLP, Junior Subordinated Notes
|
|
8.375
|
%
|
8/1/66
|
|
80,000
|
|
83,596
|
(a)
|
Enterprise Products Operating LLP, Subordinated Notes
|
|
7.034
|
%
|
1/15/68
|
|
120,000
|
|
119,568
|
(a)
|
Kinder Morgan Energy Partners LP, Senior Notes
|
|
6.000
|
%
|
2/1/17
|
|
170,000
|
|
192,017
|
|
Linn Energy LLC/Linn Energy Finance Corp., Senior Notes
|
|
8.625
|
%
|
4/15/20
|
|
60,000
|
|
63,900
|
(b)
|
LUKOIL International Finance BV, Bonds
|
|
6.356
|
%
|
6/7/17
|
|
210,000
|
|
220,237
|
(b)
|
LUKOIL International Finance BV, Senior Notes
|
|
7.250
|
%
|
11/5/19
|
|
240,000
|
|
262,116
|
(b)
|
OPTI Canada Inc., Senior Secured Notes
|
|
8.250
|
%
|
12/15/14
|
|
25,000
|
|
19,125
|
|
Petrobras International Finance Co., Senior Notes
|
|
5.750
|
%
|
1/20/20
|
|
780,000
|
|
867,395
|
|
Plains Exploration & Production Co., Senior Notes
|
|
10.000
|
%
|
3/1/16
|
|
60,000
|
|
68,700
|
|
Plains Exploration & Production Co., Senior Notes
|
|
8.625
|
%
|
10/15/19
|
|
40,000
|
|
43,900
|
|
Range Resources Corp., Senior Subordinated Notes
|
|
6.750
|
%
|
8/1/20
|
|
550,000
|
|
574,750
|
|
SandRidge Energy Inc., Senior Notes
|
|
4.158
|
%
|
4/1/14
|
|
1,000,000
|
|
927,010
|
(a)
|
Shell International Finance BV, Senior Notes
|
|
3.100
|
%
|
6/28/15
|
|
380,000
|
|
400,495
|
|
Teekay Corp., Senior Notes
|
|
8.500
|
%
|
1/15/20
|
|
110,000
|
|
120,312
|
|
TNK-BP Finance SA, Senior Notes
|
|
7.875
|
%
|
3/13/18
|
|
200,000
|
|
226,500
|
(b)
|
Williams Cos. Inc., Senior Notes
|
|
8.750
|
%
|
3/15/32
|
|
370,000
|
|
464,907
|
|
XTO Energy Inc., Senior Notes
|
|
5.500
|
%
|
6/15/18
|
|
10,000
|
|
11,999
|
|
Total Oil,
Gas & Consumable Fuels
|
|
|
|
|
|
|
|
6,278,631
|
|
Total Energy
|
|
|
|
|
|
|
|
6,489,156
|
|
Financials 9.9%
|
|
|
|
|
|
|
|
|
|
Capital Markets
1.3%
|
|
|
|
|
|
|
|
|
|
Goldman Sachs Capital III, Preferred Securities
|
|
1.067
|
%
|
9/1/12
|
|
550,000
|
|
381,563
|
(a)(h)
|
Goldman Sachs Group Inc., Notes
|
|
5.250
|
%
|
10/15/13
|
|
340,000
|
|
369,803
|
|
Morgan Stanley, Senior Notes
|
|
2.876
|
%
|
5/14/13
|
|
310,000
|
|
316,157
|
(a)
|
Morgan Stanley, Senior Notes
|
|
6.000
|
%
|
5/13/14
|
|
400,000
|
|
439,498
|
|
Total Capital
Markets
|
|
|
|
|
|
|
|
1,507,021
|
|
Commercial
Banks 3.7%
|
|
|
|
|
|
|
|
|
|
Bank of Ireland Governor & Co., Senior
Notes
|
|
2.750
|
%
|
3/2/12
|
|
680,000
|
|
667,647
|
(b)
|
Barclays Bank PLC, Senior Notes
|
|
5.000
|
%
|
9/22/16
|
|
200,000
|
|
219,110
|
|
Barclays Bank PLC, Subordinated Notes
|
|
6.050
|
%
|
12/4/17
|
|
100,000
|
|
108,607
|
(b)
|
Credit Agricole SA, Subordinated Notes
|
|
8.375
|
%
|
10/13/19
|
|
420,000
|
|
451,500
|
(a)(b)(h)
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
14
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Schedule
of investments (contd)
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Commercial
Banks continued
|
|
|
|
|
|
|
|
|
|
FIH Erhvervsbank A/S, Senior Notes
|
|
2.000
|
%
|
6/12/13
|
|
730,000
|
|
$
|
747,084
|
(b)
|
ICICI Bank Ltd., Subordinated Bonds
|
|
6.375
|
%
|
4/30/22
|
|
130,000
|
|
130,843
|
(a)(b)
|
Intesa Sanpaolo SpA, Senior Notes
|
|
3.625
|
%
|
8/12/15
|
|
140,000
|
|
141,820
|
(b)
|
Lloyds TSB Bank PLC, Bonds
|
|
4.375
|
%
|
1/12/15
|
|
330,000
|
|
338,287
|
(b)
|
Rabobank Nederland NV, Junior Subordinated Notes
|
|
11.000
|
%
|
6/30/19
|
|
260,000
|
|
339,001
|
(a)(b)(h)
|
Royal Bank of Scotland PLC, Senior Notes
|
|
4.875
|
%
|
3/16/15
|
|
270,000
|
|
284,343
|
|
Wachovia Capital Trust III, Junior Subordinated
Bonds
|
|
5.800
|
%
|
3/15/11
|
|
300,000
|
|
266,250
|
(a)(h)
|
Wells Fargo & Co., Senior Notes
|
|
3.750
|
%
|
10/1/14
|
|
450,000
|
|
477,278
|
|
Total
Commercial Banks
|
|
|
|
|
|
|
|
4,171,770
|
|
Consumer
Finance 2.4%
|
|
|
|
|
|
|
|
|
|
GMAC Inc., Senior Notes
|
|
7.250
|
%
|
3/2/11
|
|
15,000
|
|
15,337
|
|
GMAC Inc., Senior Notes
|
|
2.497
|
%
|
12/1/14
|
|
1,956,000
|
|
1,750,820
|
(a)
|
GMAC Inc., Senior Notes
|
|
6.750
|
%
|
12/1/14
|
|
307,000
|
|
322,926
|
|
SLM Corp.
|
|
0.798
|
%
|
1/27/14
|
|
700,000
|
|
605,141
|
(a)
|
Total Consumer
Finance
|
|
|
|
|
|
|
|
2,694,224
|
|
Diversified
Financial Services 2.5%
|
|
|
|
|
|
|
|
|
|
Air 2 US, Notes
|
|
8.027
|
%
|
10/1/19
|
|
114,961
|
|
112,087
|
(b)
|
Chukchansi Economic Development Authority, Senior Notes
|
|
4.123
|
%
|
11/15/12
|
|
250,000
|
|
145,000
|
(a)(b)
|
Citigroup Inc., Senior Notes
|
|
6.375
|
%
|
8/12/14
|
|
850,000
|
|
944,717
|
|
Citigroup Inc., Senior Notes
|
|
5.500
|
%
|
10/15/14
|
|
120,000
|
|
130,326
|
|
General Electric Capital Corp., Subordinated Debentures
|
|
6.375
|
%
|
11/15/67
|
|
700,000
|
|
702,625
|
(a)
|
International Lease Finance Corp., Senior Notes
|
|
8.750
|
%
|
3/15/17
|
|
490,000
|
|
526,750
|
(b)
|
TNK-BP Finance SA
|
|
6.875
|
%
|
7/18/11
|
|
190,000
|
|
196,888
|
(b)
|
Unitymedia GmbH, Senior Secured Bonds
|
|
8.125
|
%
|
12/1/17
|
|
100,000
|
|
104,500
|
(b)
|
Total
Diversified Financial Services
|
|
|
|
|
|
|
|
2,862,893
|
|
Total Financials
|
|
|
|
|
|
|
|
11,235,908
|
|
Health Care 0.8%
|
|
|
|
|
|
|
|
|
|
Health Care
Providers & Services 0.8%
|
|
|
|
|
|
|
|
|
|
Community Health Systems Inc., Senior Notes
|
|
8.875
|
%
|
7/15/15
|
|
60,000
|
|
63,900
|
|
HCA Inc., Senior Secured Notes
|
|
9.625
|
%
|
11/15/16
|
|
105,000
|
|
114,187
|
(g)
|
Tenet Healthcare Corp., Senior Secured Notes
|
|
9.000
|
%
|
5/1/15
|
|
150,000
|
|
163,875
|
(c)
|
Tenet Healthcare Corp., Senior Secured Notes
|
|
8.875
|
%
|
7/1/19
|
|
276,000
|
|
306,015
|
(c)
|
Universal Hospital Services Inc., Senior Secured
Notes
|
|
8.500
|
%
|
6/1/15
|
|
10,000
|
|
10,113
|
(g)
|
US Oncology Holdings Inc., Senior Notes
|
|
6.737
|
%
|
3/15/12
|
|
135,387
|
|
128,956
|
(a)(g)
|
Vanguard Health Holdings Co., II LLC, Senior
Notes
|
|
8.000
|
%
|
2/1/18
|
|
80,000
|
|
81,600
|
|
Total Health Care
|
|
|
|
|
|
|
|
868,646
|
|
Industrials 1.5%
|
|
|
|
|
|
|
|
|
|
Airlines 0.2%
|
|
|
|
|
|
|
|
|
|
DAE Aviation Holdings Inc., Senior Notes
|
|
11.250
|
%
|
8/1/15
|
|
160,000
|
|
162,016
|
(b)
|
Delta Air Lines Inc., Pass-Through Certificates, Secured Notes
|
|
8.021
|
%
|
8/10/22
|
|
73,279
|
|
73,646
|
|
Delta Air Lines Inc., Senior Secured Notes
|
|
9.500
|
%
|
9/15/14
|
|
27,000
|
|
29,430
|
(b)
|
Total Airlines
|
|
|
|
|
|
|
|
265,092
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
15
|
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Building
Products 0.0%
|
|
|
|
|
|
|
|
|
|
Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated
Notes, step bond
|
|
0.000
|
%
|
6/30/15
|
|
7,800
|
|
$
|
3,939
|
(b)(d)
|
Commercial
Services & Supplies 0.3%
|
|
|
|
|
|
|
|
|
|
ACCO Brands Corp., Senior Secured Notes
|
|
10.625
|
%
|
3/15/15
|
|
80,000
|
|
89,800
|
|
Altegrity Inc., Senior Subordinated Notes
|
|
10.500
|
%
|
11/1/15
|
|
120,000
|
|
119,550
|
(b)
|
RSC Equipment Rental Inc./RSC Holdings III LLC, Senior Secured Notes
|
|
10.000
|
%
|
7/15/17
|
|
80,000
|
|
89,400
|
(b)
|
Total
Commercial Services & Supplies
|
|
|
|
|
|
|
|
298,750
|
|
Construction &
Engineering 0.4%
|
|
|
|
|
|
|
|
|
|
Odebrecht Finance Ltd., Senior Notes
|
|
7.500
|
%
|
10/18/17
|
|
460,000
|
|
503,700
|
(b)
|
Industrial
Conglomerates 0.1%
|
|
|
|
|
|
|
|
|
|
Leucadia National Corp., Senior Notes
|
|
8.125
|
%
|
9/15/15
|
|
80,000
|
|
86,400
|
|
Marine 0.1%
|
|
|
|
|
|
|
|
|
|
Trico Shipping AS, Senior Secured Notes
|
|
13.875
|
%
|
11/1/14
|
|
70,000
|
|
62,825
|
(b)
|
Road &
Rail 0.3%
|
|
|
|
|
|
|
|
|
|
Kansas City Southern de Mexico, Senior Notes
|
|
12.500
|
%
|
4/1/16
|
|
163,000
|
|
196,007
|
|
RailAmerica Inc., Senior Secured Notes
|
|
9.250
|
%
|
7/1/17
|
|
88,000
|
|
96,910
|
|
Total
Road & Rail
|
|
|
|
|
|
|
|
292,917
|
|
Trading
Companies & Distributors 0.1%
|
|
|
|
|
|
|
|
|
|
Ashtead Capital Inc., Notes
|
|
9.000
|
%
|
8/15/16
|
|
50,000
|
|
52,000
|
(b)
|
H&E Equipment Services Inc., Senior Notes
|
|
8.375
|
%
|
7/15/16
|
|
95,000
|
|
95,475
|
|
Total Trading
Companies & Distributors
|
|
|
|
|
|
|
|
147,475
|
|
Total Industrials
|
|
|
|
|
|
|
|
1,661,098
|
|
Information Technology 0.5%
|
|
|
|
|
|
|
|
|
|
IT Services
0.4%
|
|
|
|
|
|
|
|
|
|
Ceridian Corp., Senior Notes
|
|
12.250
|
%
|
11/15/15
|
|
53,250
|
|
50,721
|
(g)
|
GXS Worldwide Inc., Senior Secured Notes
|
|
9.750
|
%
|
6/15/15
|
|
430,000
|
|
430,537
|
|
Total IT
Services
|
|
|
|
|
|
|
|
481,258
|
|
Semiconductors &
Semiconductor Equipment 0.1%
|
|
|
|
|
|
|
|
|
|
Freescale Semiconductor Inc., Senior Secured Notes
|
|
9.250
|
%
|
4/15/18
|
|
130,000
|
|
135,850
|
(b)
|
Total Information Technology
|
|
|
|
|
|
|
|
617,108
|
|
Materials 1.9%
|
|
|
|
|
|
|
|
|
|
Metals &
Mining 1.6%
|
|
|
|
|
|
|
|
|
|
Freeport-McMoRan Copper & Gold Inc.,
Senior Notes
|
|
8.375
|
%
|
4/1/17
|
|
170,000
|
|
190,003
|
|
Metals USA Inc., Senior Secured Notes
|
|
11.125
|
%
|
12/1/15
|
|
150,000
|
|
159,750
|
|
Steel Dynamics Inc., Senior Notes
|
|
7.375
|
%
|
11/1/12
|
|
95,000
|
|
102,006
|
|
Steel Dynamics Inc., Senior Notes
|
|
7.625
|
%
|
3/15/20
|
|
370,000
|
|
385,725
|
(b)
|
Teck Resources Ltd., Senior Secured Notes
|
|
9.750
|
%
|
5/15/14
|
|
16,000
|
|
19,742
|
|
Teck Resources Ltd., Senior Secured Notes
|
|
10.250
|
%
|
5/15/16
|
|
23,000
|
|
27,976
|
|
Teck Resources Ltd., Senior Secured Notes
|
|
10.750
|
%
|
5/15/19
|
|
37,000
|
|
46,664
|
|
Vale Overseas Ltd., Notes
|
|
6.250
|
%
|
1/23/17
|
|
338,000
|
|
387,742
|
|
Vedanta Resources PLC, Senior Notes
|
|
8.750
|
%
|
1/15/14
|
|
390,000
|
|
420,712
|
(b)
|
Vedanta Resources PLC, Senior Notes
|
|
8.750
|
%
|
1/15/14
|
|
70,000
|
|
75,600
|
(b)
|
Total
Metals & Mining
|
|
|
|
|
|
|
|
1,815,920
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
16
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Schedule
of investments (contd)
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Paper &
Forest Products 0.3%
|
|
|
|
|
|
|
|
|
|
Appleton Papers Inc., Senior Secured Notes
|
|
11.250
|
%
|
12/15/15
|
|
199,000
|
|
$
|
148,255
|
(b)
|
NewPage Corp., Senior Secured Notes
|
|
11.375
|
%
|
12/31/14
|
|
205,000
|
|
186,550
|
|
Total
Paper & Forest Products
|
|
|
|
|
|
|
|
334,805
|
|
Total Materials
|
|
|
|
|
|
|
|
2,150,725
|
|
Telecommunication Services 4.1%
|
|
|
|
|
|
|
|
|
|
Diversified Telecommunication
Services 2.4%
|
|
|
|
|
|
|
|
|
|
Axtel SAB de CV, Senior Notes
|
|
7.625
|
%
|
2/1/17
|
|
377,000
|
|
345,897
|
(b)
|
CC Holdings GS V LLC, Senior Secured Notes
|
|
7.750
|
%
|
5/1/17
|
|
150,000
|
|
166,500
|
(b)
|
Cincinnati Bell Telephone Co., Senior Debentures
|
|
6.300
|
%
|
12/1/28
|
|
45,000
|
|
34,425
|
|
Deutsche Telekom International Finance BV, Senior Notes
|
|
4.875
|
%
|
7/8/14
|
|
300,000
|
|
330,130
|
|
Deutsche Telekom International Finance BV, Senior Notes
|
|
5.750
|
%
|
3/23/16
|
|
140,000
|
|
161,704
|
|
Frontier Communications Corp., Senior Notes
|
|
8.750
|
%
|
4/15/22
|
|
34,000
|
|
37,570
|
|
Hawaiian Telcom Communications Inc., Senior Subordinated Notes
|
|
12.500
|
%
|
5/1/15
|
|
25,000
|
|
3
|
(d)(f)
|
Intelsat Jackson Holdings Ltd., Senior Notes
|
|
9.500
|
%
|
6/15/16
|
|
40,000
|
|
42,850
|
|
Intelsat Jackson Holdings Ltd., Senior Notes
|
|
8.500
|
%
|
11/1/19
|
|
140,000
|
|
152,600
|
(b)
|
Qwest Corp., Senior Notes
|
|
3.542
|
%
|
6/15/13
|
|
250,000
|
|
262,500
|
(a)
|
Telecom Italia Capital S.p.A., Senior Notes
|
|
5.250
|
%
|
10/1/15
|
|
320,000
|
|
345,704
|
|
Telefonica Emisiones SAU, Senior Notes
|
|
5.855
|
%
|
2/4/13
|
|
370,000
|
|
403,967
|
|
Verizon Florida Inc., Senior Notes
|
|
6.125
|
%
|
1/15/13
|
|
200,000
|
|
218,072
|
|
Windstream Corp., Senior Notes
|
|
8.625
|
%
|
8/1/16
|
|
190,000
|
|
201,875
|
|
Total
Diversified Telecommunication Services
|
|
|
|
|
|
|
|
2,703,797
|
|
Wireless
Telecommunication Services 1.7%
|
|
|
|
|
|
|
|
|
|
Cricket Communications Inc., Senior Secured Notes
|
|
7.750
|
%
|
5/15/16
|
|
125,000
|
|
133,281
|
|
New Cingular Wireless Services Inc., Notes
|
|
8.125
|
%
|
5/1/12
|
|
100,000
|
|
111,138
|
|
Sprint Capital Corp., Senior Notes
|
|
6.875
|
%
|
11/15/28
|
|
650,000
|
|
598,000
|
|
True Move Co., Ltd.
|
|
10.750
|
%
|
12/16/13
|
|
230,000
|
|
245,525
|
(b)
|
True Move Co., Ltd., Notes
|
|
10.750
|
%
|
12/16/13
|
|
531,000
|
|
566,842
|
(b)
|
Vodafone Group PLC, Senior Notes
|
|
5.000
|
%
|
12/16/13
|
|
266,000
|
|
292,647
|
|
Total Wireless
Telecommunication Services
|
|
|
|
|
|
|
|
1,947,433
|
|
Total Telecommunication Services
|
|
|
|
|
|
|
|
4,651,230
|
|
Utilities 1.0%
|
|
|
|
|
|
|
|
|
|
Electric
Utilities 0.4%
|
|
|
|
|
|
|
|
|
|
EEB International Ltd., Senior Bonds
|
|
8.750
|
%
|
10/31/14
|
|
192,000
|
|
210,240
|
(b)
|
FirstEnergy Solutions Corp., Senior Notes
|
|
4.800
|
%
|
2/15/15
|
|
260,000
|
|
279,738
|
|
Total Electric
Utilities
|
|
|
|
|
|
|
|
489,978
|
|
Independent Power
Producers & Energy Traders 0.6%
|
|
|
|
|
|
|
|
|
|
AES Corp., Senior Notes
|
|
8.875
|
%
|
2/15/11
|
|
15,000
|
|
15,450
|
|
Edison Mission Energy, Senior Notes
|
|
7.750
|
%
|
6/15/16
|
|
80,000
|
|
63,000
|
|
Edison Mission Energy, Senior Notes
|
|
7.625
|
%
|
5/15/27
|
|
45,000
|
|
30,488
|
|
Energy Future Holdings Corp., Senior Notes
|
|
11.250
|
%
|
11/1/17
|
|
192,633
|
|
92,945
|
(g)
|
Energy Future Intermediate Holding Co. LLC/EFIH Finance Inc., Senior
Secured Notes
|
|
10.000
|
%
|
12/1/20
|
|
459,000
|
|
457,814
|
|
NRG Energy Inc., Senior Notes
|
|
7.375
|
%
|
2/1/16
|
|
5,000
|
|
5,156
|
|
Total Independent Power
Producers & Energy Traders
|
|
|
|
|
|
|
|
664,853
|
|
Total Utilities
|
|
|
|
|
|
|
|
1,154,831
|
|
Total Corporate Bonds &
Notes (Cost $32,068,950)
|
|
|
|
|
|
|
|
$
|
32,899,564
|
|
See Notes to Financial Statements.
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
17
|
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
Maturity
Date
|
|
Face
Amount
|
|
Value
|
|
Mortgage-Backed Securities 0.6%
|
|
|
|
|
|
|
|
|
|
GNMA 0.6%
|
|
|
|
|
|
|
|
|
|
Government National Mortgage Association (GNMA)
(Cost $680,250)
|
|
6.500
|
%
|
8/15/34
|
|
600,000
|
|
$
|
677,837
|
|
Sovereign Bonds 4.2%
|
|
|
|
|
|
|
|
|
|
Brazil 2.6%
|
|
|
|
|
|
|
|
|
|
Brazil Nota do Tesouro Nacional, Notes
|
|
10.000
|
%
|
1/1/12
|
|
4,541,000
|
BRL
|
2,637,242
|
|
Brazil Nota do Tesouro Nacional, Notes
|
|
10.000
|
%
|
1/1/14
|
|
247,000
|
BRL
|
138,661
|
|
Brazil Nota do Tesouro Nacional, Notes
|
|
10.000
|
%
|
1/1/17
|
|
256,000
|
BRL
|
140,038
|
|
Total Brazil
|
|
|
|
|
|
|
|
2,915,941
|
|
Mexico 0.3%
|
|
|
|
|
|
|
|
|
|
United Mexican States, Medium-Term Notes
|
|
6.750
|
%
|
9/27/34
|
|
265,000
|
|
330,587
|
|
Russia 0.8%
|
|
|
|
|
|
|
|
|
|
Russian Agricultural Bank, Credit-Linked Notes (HSBC Bank PLC)
|
|
8.900
|
%
|
12/20/10
|
|
14,936,000
|
RUB
|
470,850
|
(a)(b)(c)
|
Russian Foreign Bond-Eurobond
|
|
12.750
|
%
|
6/24/28
|
|
254,000
|
|
463,550
|
(b)
|
Total Russia
|
|
|
|
|
|
|
|
934,400
|
|
Venezuela
0.5%
|
|
|
|
|
|
|
|
|
|
Bolivarian Republic of Venezuela
|
|
5.750
|
%
|
2/26/16
|
|
912,000
|
|
637,306
|
(b)
|
Total Sovereign Bonds (Cost
$4,746,068)
|
|
|
|
|
|
|
|
4,818,234
|
|
U.S. Government & Agency
Obligations 0.4%
|
|
|
|
|
|
|
|
|
|
U.S. Government
Obligations 0.4%
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Notes (Cost $426,910)
|
|
3.375
|
%
|
11/15/19
|
|
440,000
|
|
474,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Common Stocks 0.2%
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 0.1%
|
|
|
|
|
|
|
|
|
|
Media 0.1%
|
|
|
|
|
|
|
|
|
|
Charter Communications Inc., Class A Shares
|
|
|
|
|
|
2,966
|
|
96,395
|
*
|
Dex One Corp.
|
|
|
|
|
|
1,040
|
|
12,771
|
*
|
SuperMedia Inc.
|
|
|
|
|
|
1,864
|
|
19,704
|
*
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
128,870
|
|
Energy 0.0%
|
|
|
|
|
|
|
|
|
|
Oil,
Gas & Consumable Fuels 0.0%
|
|
|
|
|
|
|
|
|
|
SemGroup Corp., Class A Shares
|
|
|
|
|
|
116
|
|
2,707
|
*
|
Industrials 0.0%
|
|
|
|
|
|
|
|
|
|
Building
Products 0.0%
|
|
|
|
|
|
|
|
|
|
Ashton Woods USA LLC Class B Membership
|
|
|
|
|
|
2
|
|
900
|
(c)(d)
|
Nortek Inc.
|
|
|
|
|
|
44
|
|
1,725
|
*
|
Total Industrials
|
|
|
|
|
|
|
|
2,625
|
|
Materials 0.1%
|
|
|
|
|
|
|
|
|
|
Chemicals
0.1%
|
|
|
|
|
|
|
|
|
|
Georgia Gulf Corp.
|
|
|
|
|
|
3,741
|
|
61,128
|
*
|
Total Common Stocks (Cost
$742,893)
|
|
|
|
|
|
|
|
195,330
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
18
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
|
Schedule
of investments (contd)
September 30,
2010
Western Asset Variable Rate Strategic Fund Inc.
Security
|
|
Rate
|
|
|
|
Shares
|
|
Value
|
|
Convertible Preferred Stocks
0.1%
|
|
|
|
|
|
|
|
|
|
Financials 0.1%
|
|
|
|
|
|
|
|
|
|
Diversified
Financial Services 0.1%
|
|
|
|
|
|
|
|
|
|
Citigroup Inc. (Cost $60,000)
|
|
7.500
|
%
|
|
|
600
|
|
$
|
71,106
|
|
Preferred Stocks 0.3%
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 0.0%
|
|
|
|
|
|
|
|
|
|
Automobiles
0.0%
|
|
|
|
|
|
|
|
|
|
Saturns, Series F 2003-5
|
|
8.125
|
%
|
|
|
575
|
|
14,605
|
|
Media 0.0%
|
|
|
|
|
|
|
|
|
|
CMP Susquehanna Radio Holdings Corp.
|
|
0.000
|
%
|
|
|
559
|
|
0
|
*
(a)(b)(d)
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
14,605
|
|
Financials 0.3%
|
|
|
|
|
|
|
|
|
|
Diversified
Financial Services 0.3%
|
|
|
|
|
|
|
|
|
|
Citigroup Capital XII
|
|
8.500
|
%
|
|
|
11,450
|
|
302,395
|
(a)
|
Total Preferred Stocks (Cost
$310,681)
|
|
|
|
|
|
|
|
317,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration
Date
|
|
Warrants
|
|
|
|
Warrants 0.0%
|
|
|
|
|
|
|
|
Buffets Restaurant Holdings
|
|
4/28/14
|
|
30
|
|
0
|
*
(c)(d)
|
Charter Communications Inc.
|
|
11/30/14
|
|
22
|
|
141
|
*
|
CNB Capital Trust
|
|
3/23/19
|
|
639
|
|
0
|
*
(b)(c)(d)
|
Nortek Inc.
|
|
12/7/14
|
|
115
|
|
1,397
|
*
|
SemGroup Corp.
|
|
11/30/14
|
|
123
|
|
705
|
*
|
Total Warrants (Cost $1,530)
|
|
|
|
|
|
2,243
|
|
Total Investments Before Short-Term Investments
(Cost $121,790,935)
|
|
|
|
|
|
108,091,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
Date
|
|
Face
Amount
|
|
|
|
Short-Term Investments 5.0%
|
|
|
|
|
|
|
|
|
|
U.S. Government
Agencies 0.4%
|
|
|
|
|
|
|
|
|
|
Federal National Mortgage Association (FNMA), Discount Notes (Cost
$499,267)
|
|
0.240
|
%
|
5/9/11
|
|
500,000
|
|
499,450
|
(i)(j)
|
Repurchase Agreements 4.6%
|
|
|
|
|
|
|
|
|
|
Morgan Stanley tri-party repurchase agreement dated 9/30/10; Proceeds
at maturity $5,161,029; (Fully collateralized by U.S. government agency
obligations, 0.990% due 10/26/12; Market value $5,264,876) (Cost
$5,161,000)
|
|
0.200
|
%
|
10/1/10
|
|
5,161,000
|
|
5,161,000
|
|
Total Short-Term Investments (Cost $5,660,267)
|
|
|
|
|
|
|
|
5,660,450
|
|
Total Investments 100.2% (Cost $127,451,202#)
|
|
|
|
|
|
|
|
113,752,298
|
|
Liabilities in Excess of Other Assets (0.2)%
|
|
|
|
|
|
|
|
(217,137
|
)
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
$
|
113,535,161
|
|
See Notes to Financial Statements.
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
19
|
Western Asset Variable Rate Strategic Fund Inc.
|
Face
amount denominated in U.S. dollars, unless otherwise noted.
|
*
|
Non-income
producing security.
|
(a)
|
Variable
rate security. Interest rate disclosed is that which is in effect at
September 30, 2010.
|
(b)
|
Security
is exempt from registration under Rule 144A of the Securities Act of 1933.
This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. This security has
been deemed liquid pursuant to guidelines approved by the Board of Directors,
unless otherwise noted.
|
(c)
|
Security
is valued in good faith at fair value in accordance with procedures approved
by the Board of Directors (See Note 1).
|
(d)
|
Illiquid
security.
|
(e)
|
Interest
rates disclosed represent the effective rates on collateralized senior loans.
Ranges in interest rates are attributable to multiple contracts under the
same loan.
|
(f)
|
The
coupon payment on these securities is currently in default as of
September 30, 2010.
|
(g)
|
Payment-in-kind
security for which part of the income earned may be paid as additional principal.
|
(h)
|
Security
has no maturity date. The date shown represents the next call date.
|
(i)
|
Rate
shown represents yield-to-maturity.
|
(j)
|
All
or a portion of this security is held at the broker as collateral for open
futures contracts.
|
#
|
Aggregate
cost for federal income tax purposes is $127,551,891.
|
|
|
|
Abbreviations used in this schedule:
|
|
ARM
|
Adjustable Rate Mortgage
|
|
BRL
|
Brazilian Real
|
|
IO
|
Interest Only
|
|
PAC
|
Planned Amortization Class
|
|
RUB
|
Russian Ruble
|
|
STRIPS
|
Separate Trading of Registered Interest and Principal Securities
|
Schedule of Written Options
Security
|
|
Expiration
Date
|
|
Strike
Price
|
|
Contracts
|
|
Value
|
|
Eurodollar Futures, Put
|
|
12/13/10
|
|
$99.00
|
|
17
|
|
$425
|
|
Total Written Options (Premiums
received $9,720)
|
|
|
|
|
|
|
|
$425
|
|
See Notes to Financial Statements.
20
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Statement of assets and
liabilities
September 30, 2010
Assets:
|
|
|
|
Investments, at value (Cost $127,451,202)
|
|
$113,752,298
|
|
Foreign currency, at value (Cost $11,928)
|
|
12,721
|
|
Cash
|
|
1,324
|
|
Deposits with brokers for swap contracts
|
|
4,150,000
|
|
Interest receivable
|
|
958,952
|
|
Receivable for securities sold
|
|
133,199
|
|
Unrealized appreciation on swaps
|
|
95,689
|
|
Premiums paid for open swaps
|
|
83,728
|
|
Receivable for open swap contracts
|
|
64,933
|
|
Receivable from broker variation margin on open
futures contracts
|
|
18,141
|
|
Prepaid expenses
|
|
12,481
|
|
Total Assets
|
|
119,283,466
|
|
|
|
|
|
Liabilities:
|
|
|
|
Unrealized depreciation on swaps
|
|
4,841,387
|
|
Payable for open swap contracts
|
|
382,359
|
|
Payable for securities purchased
|
|
229,347
|
|
Investment management fee payable
|
|
69,297
|
|
Premiums received for open swaps
|
|
61,987
|
|
Directors fees payable
|
|
17,720
|
|
Written options, at value (premium received
$9,720)
|
|
425
|
|
Accrued expenses
|
|
145,783
|
|
Total
Liabilities
|
|
5,748,305
|
|
Total Net Assets
|
|
$113,535,161
|
|
|
|
|
|
Net Assets:
|
|
|
|
Par value ($0.001 par value; 6,658,748 shares issued and outstanding;
100,000,000 shares authorized)
|
|
$ 6,659
|
|
Paid-in capital in excess of par value
|
|
131,760,317
|
|
Undistributed net investment income
|
|
584,548
|
|
Accumulated net realized loss on investments, futures contracts,
written options, swap contracts and foreign currency transactions
|
|
(765,694)
|
|
Net unrealized depreciation on investments, futures contracts,
written options, swap contracts and foreign currencies
|
|
(18,050,669)
|
|
Total Net Assets
|
|
$113,535,161
|
|
|
|
|
|
Shares Outstanding
|
|
6,658,748
|
|
|
|
|
|
Net Asset Value
|
|
$17.05
|
|
See
Notes to Financial Statements.
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
21
|
Statement
of operations
For
the Year Ended September 30, 2010
Investment Income:
|
|
|
|
Interest
|
|
$
|
7,686,285
|
|
Dividends
|
|
|
38,686
|
|
Total
Investment Income
|
|
|
7,724,971
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fee (Note 2)
|
|
|
938,284
|
|
Legal fees
|
|
|
109,775
|
|
Shareholder reports
|
|
|
89,312
|
|
Audit and tax
|
|
|
73,434
|
|
Directors fees
|
|
|
48,363
|
|
Transfer agent fees
|
|
|
44,756
|
|
Excise tax (Note 1)
|
|
|
17,968
|
|
Stock exchange listing fees
|
|
|
16,917
|
|
Custody fees
|
|
|
7,491
|
|
Insurance
|
|
|
4,025
|
|
Miscellaneous expenses
|
|
|
9,749
|
|
Total Expenses
|
|
|
1,360,074
|
|
Less: Compensating balance arrangements (Note 1)
|
|
|
(389)
|
|
Net Expenses
|
|
|
1,359,685
|
|
Net Investment Income
|
|
|
6,365,286
|
|
|
|
|
|
|
Realized and Unrealized Gain (Loss) on Investments, Futures
Contracts, Written Options, Swap Contracts and Foreign Currency Transactions
(Notes 1, 3 and 4):
|
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
|
Investment transactions
|
|
|
(2,847,859)
|
|
Futures contracts
|
|
|
5,452,551
|
|
Written options
|
|
|
119,062
|
|
Swap contracts
|
|
|
(1,253,394)
|
|
Foreign currency transactions
|
|
|
(95,742)
|
|
Net Realized
Gain
|
|
|
1,374,618
|
|
Change in Net Unrealized Appreciation
(Depreciation) From:
|
|
|
|
|
Investments
|
|
|
13,320,138
|
|
Futures contracts
|
|
|
(755,915)
|
|
Written options
|
|
|
3,513
|
|
Swap contracts
|
|
|
(1,495,938)
|
|
Foreign currencies
|
|
|
(22,778)
|
|
Change in Net
Unrealized Appreciation (Depreciation)
|
|
|
11,049,020
|
|
Net Gain on Investments, Futures Contracts, Written
Options, Swap Contracts and Foreign Currency Transactions
|
|
|
12,423,638
|
|
Increase in Net Assets from
Operations
|
|
$
|
18,788,924
|
|
See Notes to Financial Statements.
22
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Statements
of changes in net assets
For the Years Ended
September 30,
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
6,365,286
|
|
$
|
6,213,711
|
|
Net realized gain (loss)
|
|
|
1,374,618
|
|
|
(1,423,464)
|
|
Change in net unrealized appreciation
(depreciation)
|
|
|
11,049,020
|
|
|
1,808,887
|
|
Increase in Net
Assets From Operations
|
|
|
18,788,924
|
|
|
6,599,134
|
|
|
|
|
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(5,220,458)
|
|
|
(5,670,756)
|
|
Net realized gains
|
|
|
|
|
|
(421,998)
|
|
Decrease in Net
Assets From Distributions to Shareholders
|
|
|
(5,220,458)
|
|
|
(6,092,754)
|
|
|
|
|
|
|
|
|
|
Fund Share Transactions:
|
|
|
|
|
|
|
|
Cost of shares repurchased (1,664,686 and 0 shares
repurchased, respectively) (Note 6)
|
|
|
(26,418,567)
|
|
|
|
|
Decrease in Net
Assets From Fund Share Transactions
|
|
|
(26,418,567)
|
|
|
|
|
Increase (Decrease) in Net Assets
|
|
|
(12,850,101)
|
|
|
506,380
|
|
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
126,385,262
|
|
|
125,878,882
|
|
End of year*
|
|
$113,535,161
|
|
$
|
126,385,262
|
|
* Includes undistributed net investment income of:
|
|
$584,548
|
|
$586,518
|
|
See Notes to Financial Statements.
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
23
|
Financial
highlights
For a share of capital stock outstanding throughout
each year ended September 30:
|
|
2010
1
|
|
2009
1
|
|
2008
1
|
|
2007
1
|
|
2006
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, beginning of
year
|
|
$15.18
|
|
$15.12
|
|
$18.85
|
|
$19.68
|
|
$19.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
0.82
|
|
0.75
|
|
0.96
|
|
1.07
|
|
1.04
|
|
Net realized and unrealized gain (loss)
|
|
1.66
|
|
0.04
|
|
(3.57)
|
|
(0.45)
|
|
0.36
|
|
Total income
(loss) from operations
|
|
2.48
|
|
0.79
|
|
(2.61)
|
|
0.62
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(0.67)
|
|
(0.68)
|
|
(0.96)
|
|
(1.31)
|
|
(1.07)
|
|
Net realized gains
|
|
|
|
(0.05)
|
|
(0.16)
|
|
(0.14)
|
|
(0.12)
|
|
Total
distributions
|
|
(0.67)
|
|
(0.73)
|
|
(1.12)
|
|
(1.45)
|
|
(1.19)
|
|
Increase
in net asset value due to shares repurchased in tender offer
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
$17.05
|
|
$15.18
|
|
$15.12
|
|
$18.85
|
|
$19.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price, end of year
|
|
$15.86
|
|
$13.78
|
|
$12.00
|
|
$16.91
|
|
$17.36
|
|
Total return,
based on NAV
2,3
|
|
17.08
|
%
|
5.91
|
%
|
(14.40)
|
%
4
|
3.21
|
%
|
7.45
|
%
|
Total return,
based on Market Price
3
|
|
20.40
|
%
|
22.20
|
%
|
(23.67)
|
%
4
|
5.75
|
%
|
8.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets, end of year (000s)
|
|
$113,535
|
|
$126,385
|
|
$125,879
|
|
$156,865
|
|
$163,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
1.09
|
%
|
1.16
|
%
|
1.06
|
%
|
0.97
|
%
5
|
2.35
|
%
|
Gross expenses, excluding interest expense
|
|
1.09
|
|
1.16
|
|
0.99
|
|
0.97
|
5
|
1.16
|
|
Net expenses
6
|
|
1.09
|
|
1.16
|
|
1.06
|
|
0.97
|
5,7
|
2.34
|
7
|
Net expenses, excluding interest expense
6
|
|
1.09
|
|
1.16
|
|
0.99
|
|
0.97
|
5,7
|
1.16
|
7
|
Net investment income
|
|
5.09
|
|
5.41
|
|
5.59
|
|
5.53
|
|
5.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
43
|
%
|
68
|
%
8
|
77
|
%
8
|
160
|
%
8
|
27
|
%
|
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 in
accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results.
|
4
|
The
investment manager fully reimbursed the Fund for losses incurred resulting
from an investment transaction error. Without this reimbursement, the total
return would not have changed.
|
5
|
Included
in the expense ratios are certain non-recurring restructuring (and
reorganization, if applicable) fees that were incurred by the Fund during the
period. Without these fees, the gross and net expense ratios would both have
been 0.97%.
|
6
|
The
impact of compensating balance arrangements, if any, was less than 0.01%.
|
7
|
Reflects
fee waivers and/or expense reimbursements.
|
8
|
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions had
been included, the portfolio turnover rate would have been 146%, 205% and
197% for the years ended September 30, 2009, 2008 and 2007,
respectively.
|
See Notes to Financial Statements.
24
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements
1.
Organization and significant accounting policies
Western
Asset Variable Rate Strategic Fund Inc. (the Fund) was incorporated in
Maryland on August 3, 2004 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 Board of Directors authorized 100 million
shares of $0.001 par value common stock. The Funds primary investment
objective is to maintain a high level of current income.
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.
Debt securities are valued
at the mean between the last quoted bid and asked prices provided by an
independent pricing service, which are based on transactions in debt
obligations, quotations from bond dealers, market transactions in comparable
securities and various other relationships between securities. Publicly traded
foreign government debt securities are typically traded internationally in the
over-the-counter market, and are valued at the mean between the last quoted bid
and asked prices as of the close of business of that market. 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
prices are not readily available, or are determined not to reflect fair value,
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 at fair value as determined in accordance with procedures
approved by the Funds Board of Directors. Short-term obligations with
maturities of 60 days or less are valued at amortized cost, which approximates
fair value.
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 Funds 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 Funds 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.
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
25
|
The
following is a summary of the inputs used in valuing the Funds assets and
liabilities carried at fair value:
Description
|
|
Quoted Prices
(Level 1)
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized mortgage obligations
|
|
|
|
|
$
|
34,066,403
|
|
$
|
710,918
|
|
$
|
34,777,321
|
|
Asset-backed securities
|
|
|
|
|
|
23,843,361
|
|
|
494,995
|
|
|
24,338,356
|
|
Collateralized senior loans
|
|
|
|
|
|
9,520,791
|
|
|
|
|
|
9,520,791
|
|
Corporate bonds & notes
|
|
|
|
|
|
32,487,399
|
|
|
412,165
|
|
|
32,899,564
|
|
Mortgage-backed securities
|
|
|
|
|
|
677,837
|
|
|
|
|
|
677,837
|
|
Sovereign bonds
|
|
|
|
|
|
4,818,234
|
|
|
|
|
|
4,818,234
|
|
U.S. government & agency obligations
|
|
|
|
|
|
474,066
|
|
|
|
|
|
474,066
|
|
Common stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrials
|
|
$
|
1,725
|
|
|
|
|
|
900
|
|
|
2,625
|
|
Other common stocks
|
|
|
192,705
|
|
|
|
|
|
|
|
|
192,705
|
|
Convertible preferred stocks
|
|
|
71,106
|
|
|
|
|
|
|
|
|
71,106
|
|
Preferred stocks
|
|
|
317,000
|
|
|
0
|
*
|
|
|
|
|
317,000
|
|
Warrants
|
|
|
141
|
|
|
2,102
|
|
|
0
|
*
|
|
2,243
|
|
Total long-term investments
|
|
$
|
582,677
|
|
$
|
105,890,193
|
|
$
|
1,618,978
|
|
$
|
108,091,848
|
|
Short-term investments
|
|
|
|
|
|
5,660,450
|
|
|
|
|
|
5,660,450
|
|
Total investments
|
|
$
|
582,677
|
|
$
|
111,550,643
|
|
$
|
1,618,978
|
|
$
|
113,752,298
|
|
Other financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written options
|
|
$
|
(425
|
)
|
|
|
|
|
|
|
$
|
(425
|
)
|
Futures contracts
|
|
|
381,838
|
|
|
|
|
|
|
|
|
381,838
|
|
Interest rate swaps
|
|
|
|
|
|
(4,761,984
|
)
|
|
|
|
|
(4,761,984
|
)
|
Credit default swaps on credit indices sell protection
|
|
|
|
|
|
21,728
|
|
|
|
|
|
21,728
|
|
Credit default swaps on corporate issues buy protection
|
|
|
|
|
|
16,299
|
|
|
|
|
|
16,299
|
|
Total other financial instruments
|
|
$
|
381,413
|
|
$
|
(4,723,957
|
)
|
|
|
|
$
|
(4,342,544
|
)
|
Total
|
|
$
|
964,090
|
|
$
|
106,826,686
|
|
$
|
1,618,978
|
|
$
|
109,409,754
|
|
|
See
Schedule of Investments for additional detailed categorizations.
|
|
Values
include any premiums paid or received with respect to swap contracts.
|
*
|
Value
is less than $1.
|
The
following is a reconciliation of investments in which significant unobservable
inputs (Level 3) were used in determining fair value:
Investments In Securities
|
|
Collateralized
Mortgage
Obligations
|
|
Asset-
Backed
Securities
|
|
Corporate
Bonds &
Notes
|
|
Common
Stocks
|
|
Preferred
Stocks
|
|
Warrants
|
|
Total
|
|
Balance
as of September 30, 2009
|
|
|
|
|
|
$ 3,775
|
|
|
|
$ 237
|
|
$ 18
|
|
$ 4,030
|
|
Accrued
premiums/discounts
|
|
|
|
|
|
816
|
|
|
|
|
|
|
|
816
|
|
Realized
gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized appreciation
(depreciation)
1
|
|
|
|
$ 39,730
|
|
768
|
|
$900
|
|
(237
|
)
|
(18
|
)
|
41,143
|
|
Net
purchases (sales)
|
|
$450,458
|
|
455,265
|
|
|
|
|
|
|
|
|
|
905,723
|
|
Transfers
into Level 3
|
|
260,460
|
|
|
|
412,165
|
|
|
|
|
|
|
|
672,625
|
|
Transfers
out of Level 3
|
|
|
|
|
|
(5,359
|
)
|
|
|
0
|
*
|
|
|
(5,359
|
)
|
Balance
as of September 30, 2010
|
|
$710,918
|
|
$494,995
|
|
$412,165
|
|
$900
|
|
|
|
$ 0
|
*
|
$1,618,978
|
|
Net change in unrealized appreciation (depreciation) for investments in
securities still held at September 30, 2010
1
|
|
|
|
$ 39,730
|
|
|
|
$900
|
|
|
|
$ 0
|
*
|
$ 40,630
|
|
*
|
Value
is less than $1.
|
1
|
This
amount is included in the change in net unrealized appreciation
(depreciation) in the accompanying Statement of Operations. Change in
unrealized appreciation (depreciation) includes net unrealized appreciation
(depreciation) resulting from changes in investment values during the
reporting period and the reversal of previously recorded unrealized
appreciation (depreciation) when gains or losses are realized.
|
26
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements (contd)
(b) Repurchase agreements.
The Fund may
enter into repurchase agreements with institutions that its investment adviser
has determined are creditworthy. Each repurchase agreement is recorded at cost.
Under the terms of a typical repurchase agreement, the Fund acquires a debt
security subject to an obligation of the seller to repurchase, and of the Fund
to resell, the security at an agreed-upon price and time, thereby determining
the yield during the Funds holding period. When entering into repurchase
agreements, it is the Funds policy that its custodian or a third party
custodian, acting on the Funds behalf, take possession of the underlying
collateral securities, the market value of which, at all times, at least equals
the principal amount of the repurchase transaction, including accrued interest.
To the extent that any repurchase transaction maturity exceeds one business
day, the value of the collateral is marked-to-market and measured against the
value of the agreement in an effort to ensure the adequacy of the collateral.
If the counterparty defaults, the Fund generally has the right to use the
collateral to satisfy the terms of the repurchase transaction. However, if the
market value of the collateral declines during the period in which the Fund
seeks to assert its rights or if bankruptcy proceedings are commenced with
respect to the seller of the security, realization of the collateral by the
Fund may be delayed or limited.
(c) Futures contracts.
The Fund may use futures
contracts to gain exposure to, or hedge against, changes in the value of
equities, interest rates or foreign currencies. 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. For certain futures,
including foreign denominated futures, variation margin is not settled daily,
but is recorded as a net variation margin payable or receivable. Futures
contracts are valued daily at the settlement price established by the board of
trade or exchange on which they are traded. 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 may
enter into a forward foreign currency contract to hedge against foreign
currency exchange rate risk on its non-U.S. dollar denominated securities or to
facilitate settlement of a foreign currency denominated portfolio transaction.
A forward foreign currency contract is an agreement between two parties to buy
and sell a currency at a set price with delivery and settlement at a future date.
The contract is marked-to-market daily and the change in value is recorded by
the Fund as an unrealized gain or loss. When a forward foreign currency
contract is closed, through either delivery or offset by entering into another
forward foreign currency contract, the Fund recognizes a realized gain or loss
equal to the difference between the value of the contract at the time it was
opened and the value of the contract at the time it is closed.
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) Written options.
When the Fund writes an
option, 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 option written. If the option expires, the premium received
is recorded as a realized gain. When a written call option is exercised, the
difference between the premium received plus the option exercise price and the
Funds basis in the underlying security (in the case of a covered written call
option), or the cost to purchase the underlying security (in the case of an
uncovered written call option), including brokerage commission, is recognized
as a realized gain or loss. When a
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
27
|
written
put option is exercised, the amount of the premium received is subtracted from
the cost of the security purchased by the Fund from the exercise of the written
put option to form the Funds basis in the underlying security purchased. The
writer or buyer of an option traded on an exchange can liquidate the position
before the exercise of the option by entering into a closing transaction. The
cost of a closing transaction is deducted from the original premium received
resulting in a realized gain or loss to the Fund.
The
risk in writing a covered call option is that the Fund may forego the opportunity
of profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a put option is that the Fund may
incur a loss if the market price of the underlying security decreases and the
option is exercised. The risk in writing a call option is that the Fund is
exposed to the risk of loss if the market price of the underlying security
increases. 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.
(f) Swap agreements.
The Fund may invest in
swaps for the purpose of managing its exposure to interest rate, credit or
market risk, or for other purposes. The use of swaps involves risks that are
different from those associated with ordinary portfolio transactions.
Swap
contracts are marked-to-market daily and changes in value are recorded as
unrealized appreciation (depreciation). Gains or losses are realized upon
termination of the swap agreement. Periodic payments and premiums received or
made by the Fund are recognized in the Statement of Operations as realized
gains or losses, respectively. Collateral, in the form of restricted cash or
securities, may be required to be held in segregated accounts with the Funds
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.
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.
These upfront payments are amortized over the life of the swap and are recognized
as realized gain or loss in the Statement of Operations. A liquidation payment
received or made at the termination of the swap is recognized as a 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.
As
disclosed in the Fair Values of Derivatives Statement of Assets and
Liabilities table that follows the Funds summary of open swap contracts, the
aggregate fair value of all swaps in a net liability position as of September 30,
2010 was $4,762,030. The aggregate fair value of assets posted as collateral,
net of assets received as collateral, for all swaps was $4,150,000. If a
defined credit event had occurred as of September 30, 2010, the swaps
credit-risk-related contingent features would have been triggered and the Fund
would have been required to pay up to $2,697,000 less the value of the
contracts related reference obligations.
Credit default swaps
The
Fund may enter into credit default swap (CDS) contracts for investment
purposes, to manage its credit risk or to add leverage. CDS agreements involve
one party making a stream of payments to another party in exchange for the
right to receive a specified return in the event of a default by a third party,
typically corporate or sovereign issuers, on a specified obligation, or in the
event of a write-down, principal shortfall, interest shortfall or default of
all or part of the referenced entities comprising a credit index. The Fund may
use a CDS to provide protection against defaults of the issuers (i.e., to
reduce risk where the Fund has exposure to an issuer) or to take an active long
or short position with respect to the likelihood of a particular issuers
default. As a seller of protection, the Fund generally receives an upfront
payment or a stream of payments throughout the term of the swap provided that
there is no credit event. If the Fund is a seller of protection and a credit
event occurs, as defined under the terms of that particular swap agreement, the
maximum potential
28
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements (contd)
amount
of future payments (undiscounted) that the Fund could be required to make under
a credit default swap agreement would be an amount equal to the notional amount
of the agreement. These amounts of potential payments will be partially offset
by any recovery of values from the respective referenced obligations. As a
seller of protection, the Fund effectively adds leverage to its portfolio
because, in addition to its total net assets, the Fund is subject to investment
exposure on the notional amount of the swap. As a buyer of protection, the Fund
generally receives an amount up to the notional value of the swap if a credit
event occurs.
Implied
spreads are the theoretical prices a lender receives for credit default
protection. When spreads rise, market perceived credit risk rises and when spreads
fall, market perceived credit risk falls. The implied credit spread of a
particular referenced entity reflects the cost of buying/selling protection and
may include upfront payments required to enter into the agreement. Wider credit
spreads and decreasing market values, when compared to the notional amount of
the swap, represent a deterioration of the referenced entitys credit soundness
and a greater likelihood or risk of default or other credit event occurring as
defined under the terms of the agreement. Credit spreads utilized in
determining the period end market value of credit default swap agreements on
corporate or sovereign issues are disclosed in the Notes to Financial
Statements and serve as an indicator of the current status of the payment/performance
risk and represent the likelihood or risk of default for credit derivatives.
For credit default swap agreements on asset-backed securities and credit
indices, the quoted market prices and resulting values, particularly in
relation to the notional amount of the contract as well as the annual payment
rate, serve as an indication of the current status of the payment/performance
risk.
The
Funds maximum risk of loss from counterparty risk, as the protection buyer, is
the fair value of the contract (this risk is mitigated by the posting of
collateral by the counterparty to the Fund to cover the Funds exposure to the
counterparty). As the protection seller, the Funds maximum risk is the
notional amount of the contract. Credit default swaps are considered to have
credit risk-related contingent features since they require payment by the
protection seller to the protection buyer upon the occurrence of a defined
credit event.
Entering
into a CDS agreement involves, to varying degrees, elements of credit, market
and documentation risk in excess of the related amounts recognized on the
Statement of Assets and Liabilities. Such risks involve the possibility that
there will be no liquid market for these agreements, that the counterparty to
the agreement may default on its obligation to perform or disagree as to the
meaning of the contractual terms in the agreement, and that there will be
unfavorable changes in net interest rates.
Interest rate swaps
The
Fund may enter into interest rate swap contracts. Interest rate swaps are
agreements between two parties to exchange cash flows based on a notional
principal amount. The Fund may elect to pay a fixed rate and receive a floating
rate, or, receive a fixed rate and pay a floating rate on a notional principal
amount. Interest rate swaps are marked-to-market daily based upon quotations
from market makers and the change, if any, is recorded as an unrealized gain or
loss in the Statement of Operations. When a swap contract is terminated early,
the Fund records a realized gain or loss equal to the difference between the
original cost and the settlement amount of the closing transaction.
The
risks of interest rate swaps include changes in market conditions that will
affect the value of the contract or changes in the present value of the future
cash flow streams and the possible inability of the counterparty to fulfill its
obligations under the agreement. The Funds maximum risk of loss from
counterparty credit risk is the discounted net value of the cash flows to be
received from the counterparty over the contracts remaining life, to the
extent that that amount is positive. This risk is mitigated by the posting of
collateral by the counterparty to the Fund to cover the Funds exposure to the
counterparty.
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
29
|
(g) 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 markets 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 IOs 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 IOs.
(h) Mortgage dollar rolls.
The Fund may
enter into mortgage dollar rolls in which the Fund sells mortgage-backed
securities for delivery in the current month, realizing a gain or loss, and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities to settle on a specified future date.
The
Fund executes its mortgage dollar rolls entirely in the to-be-announced (TBA)
market, whereby the Fund makes a forward commitment to purchase a security and,
instead of accepting delivery, the position is offset by a sale of the security
with a simultaneous agreement to repurchase at a future date. The Fund accounts
for mortgage dollar rolls as purchases and sales.
The
risk of entering into mortgage dollar rolls is that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a
mortgage dollar roll files for bankruptcy or becomes insolvent, the Funds use
of the proceeds of the mortgage dollar roll may be restricted pending a
determination by the counterparty, or its trustee or receiver, whether to
enforce the Funds obligation to repurchase the securities.
(i) Securities traded on a to-be-announced basis.
The Fund may
trade securities on a TBA basis. In a TBA transaction, the Fund commits to
purchasing or selling securities which have not yet been issued by the issuer
and for which specific information, such as the face amount, maturity date and
underlying pool of investments in U.S. government agency mortgage pass-through
securities, is not announced. Securities purchased on a TBA basis are not
settled until they are delivered to the Fund. Beginning on the date the Fund
enters into a TBA transaction, cash, U.S. government securities or other liquid
high-grade debt obligations are segregated in an amount equal in value to the
purchase price of the TBA security. These securities are subject to market
fluctuations and their current value is determined in the same manner as for
other securities.
(j) Foreign currency translation.
Investment
securities and other assets and liabilities denominated in foreign currencies
are translated into U.S. dollar amounts based upon prevailing exchange rates on
the date of valuation. Purchases and sales of investment securities and income
and expense items denominated in foreign currencies are translated into U.S.
dollar amounts based upon prevailing exchange rates on the respective dates of
such transactions.
The
Fund does not isolate that portion of the results of operations resulting from
fluctuations in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss on investments.
Net
realized foreign exchange gains or losses arise from sales of foreign
currencies, including gains and losses on forward foreign currency contracts,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amounts of
30
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements (contd)
dividends,
interest, and foreign withholding taxes recorded on the Funds 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.
(k) Inflation-indexed bonds.
Inflation-indexed bonds are fixed-income securities whose principal value or
interest rate is periodically adjusted according to the rate of inflation. As
the index measuring inflation changes, the principal value or interest rate of
inflation-indexed bonds will be adjusted accordingly. Inflation adjustments to
the principal amount of inflation-indexed bonds are reflected as an increase or
decrease to investment income on the Statement of Operations. Repayment of the
original bond principal upon maturity (as adjusted for inflation) is guaranteed
in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not
provide a similar guarantee, the adjusted principal value of the bond repaid at
maturity may be less than the original principal.
(l) Loan participations.
The Fund may invest in
loans arranged through private negotiation between one or more financial
institutions. The Funds investment in any such loan may be in the form of a
participation in or an assignment of the loan. In connection with purchasing
participations, the Fund generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement related to the loan, or any
rights of off-set against the borrower and the Fund may not benefit directly
from any collateral supporting the loan in which it has purchased the
participation.
The
Fund assumes the credit risk of the borrower, the lender that is selling the
participation and any other persons interpositioned between the Fund and the borrower.
In the event of the insolvency of the lender selling the participation, the
Fund may be treated as a general creditor of the lender and may not benefit
from any off-set between the lender and the borrower.
(m) Credit and market risk.
The Fund invests
in high-yield and emerging market instruments that are subject to certain
credit and market risks. The yields of high-yield and emerging market debt
obligations reflect, among other things, perceived credit and market risks. The
Funds investment in securities rated below investment grade typically involve
risks not associated with higher rated securities including, among others,
greater risk related to timely and ultimate payment of interest and principal,
greater market price volatility and less liquid secondary market trading. The
consequences of political, social, economic or diplomatic changes may have
disruptive effects on the market prices of investments held by the Fund. The
Funds investment in non-U.S. dollar denominated securities may also result in
foreign currency losses caused by devaluations and exchange rate fluctuations.
Investments
in securities that are collateralized by residential 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 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.
(n) Other risks.
Consistent with its objective
to seek high current income, the Fund may invest in instruments whose values
and interest rates are linked to foreign currencies, interest rates, indices or
some other financial indicator. The value at maturity or interest rates for
these instruments will increase or decrease according to the change in the
indicator to which they are indexed, amongst other factors. These securities
are generally more volatile in nature, and the risk of loss of principal may be
greater.
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
31
|
(o) Security transactions and investment income.
Security
transactions are accounted for on a trade date basis. Interest income, adjusted
for amortization of premium and accretion of discount, is recorded on the
accrual basis. Dividend income is recorded on the ex-dividend date. 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.
(p) Distributions to shareholders.
Distributions
from net investment income for the Fund, if any, are declared and paid on a
monthly basis. Distributions of net realized gains, if any, are declared at
least annually. Distributions are recorded on the ex-dividend date and are
determined in accordance with income tax regulations, which may differ from
GAAP.
(q) Compensating balance arrangements.
The Fund has
an arrangement with its custodian bank whereby a portion of the custodians
fees is paid indirectly by credits earned on the Funds cash on deposit with
the bank. The amount is shown as a reduction of expenses in the Statement of
Operations.
(r) Federal and other taxes.
It is the Funds 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 these
requirements imposed by the Code. Therefore, no federal or state income tax
provision is required in the Funds financial statements.
However,
due to the timing of when distributions are made, the Fund may be subject to an
excise tax of 4% of the amount by which 98% of the Funds annual taxable income
exceeds the distributions from such taxable income for the year. The Fund paid
$17,968 of federal excise taxes attributable to calendar year 2009 in March
2010. The Fund anticipates being subject to an excise tax of approximately
$25,000 for calendar year 2010.
Management
has analyzed the Funds tax positions taken on income tax returns for all open
tax years and has concluded that as of September 30, 2010, no provision for
income tax is required in the Funds financial statements. The Funds 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 Internal Revenue Service and state departments of revenue.
(s) 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 values per share. During the current year, the
following reclassifications have been made:
|
|
Undistributed Net
Investment Income
|
|
Accumulated Net
Realized Loss
|
|
Paid-in Capital
|
|
(a)
|
|
$ 17,968
|
|
|
|
$(17,968
|
)
|
(b)
|
|
(1,164,766
|
)
|
$1,164,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Reclassifications
are primarily due to a non-deductible excise tax paid by the Fund.
|
(b)
|
Reclassifications
are primarily due to foreign currency transactions treated as ordinary income
for tax purposes, differences between book and tax amortization of premium on
fixed income securities, losses from mortgage backed securities treated as
capital losses for tax purposes, and book/tax differences in the treatment of
swap contracts.
|
2.
Investment management agreement and other transactions with affiliates
Legg
Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager.
Western Asset Management Company (Western Asset), Western Asset Management
Company Limited (Western Asset Limited) and Western Asset Management Company
Pte. Ltd. (Western Singapore) are the Funds subadvisers. LMPFA, Western
Asset, Western Asset Limited and Western Singapore are wholly-owned
subsidiaries of Legg Mason, Inc. (Legg Mason).
32
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements (contd)
LMPFA
provides administrative and certain oversight services to the Fund. The Fund
pays LMPFA an investment management fee, calculated daily and paid monthly, at
an annual rate of 0.75% of the Funds average daily net assets plus the
proceeds of any outstanding borrowings.
LMPFA
delegates to Western Asset the day-to-day portfolio management of the Fund.
Western Asset Limited and Western Singapore provide certain advisory services
to the Fund relating to currency transactions and investment in non-U.S.
dollar-denominated debt securities. Western Asset Limited and Western Singapore
do not receive any compensation from the Fund. For its services, LMPFA pays
Western Asset 70% of the net management fee it receives from the Fund. In turn,
Western Asset pays Western Asset Limited and Western Singapore a subadvisory
fee of 0.30% on assets managed by Western Asset Limited and Western Singapore,
respectively.
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 September 30, 2010, 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
|
|
$48,932,267
|
|
$ 1,206,278
|
|
Sales
|
|
65,387,927
|
|
12,155,959
|
|
At
September 30, 2010, the aggregate gross unrealized appreciation and
depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation
|
|
|
|
$ 6,530,070
|
|
Gross unrealized depreciation
|
|
|
|
(20,329,663)
|
|
Net unrealized depreciation
|
|
|
|
$(13,799,593)
|
|
At
September 30, 2010, the Fund had the following open futures contracts:
|
|
Number of
Contracts
|
|
Expiration
Date
|
|
Basis
Value
|
|
Market
Value
|
|
Unrealized
Gain (Loss)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 5-Year Notes
|
|
487
|
|
12/10
|
|
$
|
58,453,411
|
|
$
|
58,862,321
|
|
$408,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 2-Year Notes
|
|
75
|
|
12/10
|
|
16,434,256
|
|
$
|
16,461,328
|
|
$ (27,072
|
)
|
Net unrealized gain on open futures contracts
|
|
|
|
|
|
|
|
|
|
$381,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During
the year ended September 30, 2010, written option transactions for the Fund
were as follows:
|
|
Number of Contracts
|
|
Premiums
|
|
Written options, outstanding September 30, 2009
|
|
123
|
|
$
|
59,800
|
|
Options written
|
|
152
|
|
68,981
|
|
Options closed
|
|
|
|
|
|
Options expired
|
|
(258)
|
|
(119,061
|
)
|
Written options, outstanding
September 30, 2010
|
|
17
|
|
$
|
9,720
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
33
|
At
September 30, 2010, the Fund held the following open swap contracts:
Swap Counterparty
|
|
Notional
Amount
|
|
Termination
Date
|
|
Payments
Made
by the
Fund
|
|
Payments
Received
by the
Fund
|
|
Upfront
Premiums
Paid
(Received)
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Barclays Capital Inc.
|
|
$
|
5,520,000
|
|
3/18/19
|
|
4.250%
|
|
3-Month LIBOR
|
|
$79,403
|
|
$ 907,795)
|
|
JPMorgan Chase Bank
|
|
10,000,000
|
|
1/7/15
|
|
4.665%
|
|
6-Month LIBOR
|
|
|
|
(1,416,783)
|
|
JPMorgan Chase Bank
|
|
18,000,000
|
|
12/7/14
|
|
4.655%
|
|
6-Month LIBOR
|
|
|
|
(2,516,809)
|
|
Total
|
|
$
|
33,520,000
|
|
|
|
|
|
|
|
$79,403
|
|
$(4,841,387)
|
|
As
of September 30, 2010, the three- and six-month London Interbank Offered Rates
were 0.29% and 0.46%, respectively.
CREDIT DEFAULT SWAPS ON CREDIT INDICESSELL PROTECTION
1
Swap
Counterparty
(Reference Entity)
|
|
Notional
Amount
2
|
|
Termination
Date
|
|
Periodic
Payments
Received
by the
Fund
|
|
Market
Value
3
|
|
Upfront
Premiums
Paid
(Received)
|
|
Unrealized
Appreciation
(Depreciation)
|
|
JPMorgan
Chase Bank
(CDX North America High Yield Index)
|
|
$2,697,000
|
|
6/20/12
|
|
2.750%
|
|
$21,728
|
|
$(60,324)
|
|
$82,052
|
|
CREDIT
DEFAULT SWAPS ON CORPORATE ISSUESBUY PROTECTION
4
Swap
Counterparty
(Reference Entity)
|
|
Notional
Amount
2
|
|
Termination
Date
|
|
Periodic
Payments
Made
by the
Fund
|
|
Market
Value
|
|
Upfront
Premiums
Paid
(Received)
|
|
Unrealized
Appreciation
(Depreciation)
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480%, due 11/15/13)
|
|
$ 90,000
|
|
3/20/11
|
|
5.000%
quarterly
|
|
$ (37)
|
|
$(1,013)
|
|
$ 976
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480% due 11/15/13)
|
|
90,000
|
|
3/20/15
|
|
5.000%
quarterly
|
|
4,660
|
|
785
|
|
3,875
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480% due 11/15/13)
|
|
120,000
|
|
3/20/20
|
|
5.000%
quarterly
|
|
8,581
|
|
2,994
|
|
5,587
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480%, due 11/15/13)
|
|
60,000
|
|
3/20/13
|
|
5.000%
quarterly
|
|
1,160
|
|
(409)
|
|
1,569
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty Municipal
Corp., 0.480%, due 11/15/13)
|
|
20,000
|
|
3/20/11
|
|
5.000%
quarterly
|
|
(9)
|
|
(200)
|
|
191
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480%, due 11/15/13)
|
|
10,000
|
|
3/20/13
|
|
5.000%
quarterly
|
|
193
|
|
(41)
|
|
234
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480%, due 11/15/13)
|
|
20,000
|
|
3/20/15
|
|
5.000%
quarterly
|
|
1,036
|
|
244
|
|
792
|
|
Goldman
Sachs Group Inc.
(Assured Guaranty
Municipal Corp., 0.480%, due 11/15/13)
|
|
10,000
|
|
3/20/20
|
|
5.000%
quarterly
|
|
715
|
|
302
|
|
413
|
|
Total
|
|
$420,000
|
|
|
|
|
|
$16,299
|
|
$ 2,662
|
|
$13,637
|
|
34
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements (contd)
1
|
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.
|
3
|
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 liability (or profit) for the credit derivative should the
notional amount of the swap agreement been closed/sold as of the period end.
Decreasing market values when compared to the notional amount of the swap,
represent a deterioration of the referenced entitys 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 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 underlying
securities comprising the referenced index.
|
|
Percentage
shown is an annual percentage rate.
|
4.
Derivative instruments and hedging activities
Financial
Accounting Standards Board Codification Topic 815 requires enhanced disclosure
about an entitys derivative and hedging activities.
Below
is a table, grouped by derivative type that provides information about the fair
value and the location of derivatives within the Statement of Assets and Liabilities
at September 30, 2010.
|
|
Interest Rate
Contracts Risk
|
|
Credit
Contracts Risk
|
|
Total
|
|
Futures contracts
2
|
|
$408,910
|
|
|
|
$408,910
|
|
Swap contracts
3
|
|
|
|
$38,073
|
|
38,073
|
|
Total
|
|
$408,910
|
|
$38,073
|
|
$446,983
|
|
|
|
Interest Rate
Contracts Risk
|
|
Credit
Contracts Risk
|
|
Total
|
|
Written options
|
|
$ 425
|
|
|
|
$ 425
|
|
Futures contracts
2
|
|
27,072
|
|
|
|
27,072
|
|
Swap contracts
3
|
|
4,761,984
|
|
$46
|
|
4,762,030
|
|
Total
|
|
$4,789,481
|
|
$46
|
|
$4,789,527
|
|
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 footnotes. Only variation margin is reported within the receivables
and/or payables of 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 Funds Statement of Operations for the year ended
September 30, 2010. 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 changes in
unrealized appreciation (depreciation) resulting from the Funds derivatives
and hedging activities during the period.
AMOUNT OF
REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
|
|
Interest Rate
Contracts Risk
|
|
Foreign Exchange
Contracts Risk
|
|
Credit
Contracts Risk
|
|
Total
|
|
Written options
|
|
$ 119,062
|
|
|
|
|
|
$ 119,062
|
|
Futures contracts
|
|
5,452,551
|
|
|
|
|
|
5,452,551
|
|
Swap contracts
|
|
(1,331,762)
|
|
|
|
$78,368
|
|
(1,253,394)
|
|
Forward foreign currency contracts
|
|
|
|
$(817)
|
|
|
|
(817)
|
|
Total
|
|
$4,239,851
|
|
$(817)
|
|
$78,368
|
|
$ 4,317,402
|
|
Western Asset Variable
Rate Strategic Fund Inc. 2010 Annual Report
|
|
35
|
CHANGE IN
UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
|
|
Interest Rate
Contracts Risk
|
|
Foreign Exchange
Contracts Risk
|
|
Credit
Contracts Risk
|
|
Total
|
|
Written options
|
|
$ 3,513
|
|
|
|
|
|
$ 3,513
|
|
Futures contracts
|
|
(755,915)
|
|
|
|
|
|
(755,915)
|
|
Swap contracts
|
|
(1,679,665)
|
|
|
|
$183,727
|
|
(1,495,938)
|
|
Forward foreign currency contracts
|
|
|
|
$(21,410)
|
|
|
|
(21,410)
|
|
Total
|
|
$(2,432,067)
|
|
$(21,410)
|
|
$183,727
|
|
$(2,269,750)
|
|
During
the year ended September 30, 2010, the volume of derivative activity for the
Fund was as follows:
|
|
Average
Market Value
|
|
Written options
|
|
$ 19,528
|
|
Forward foreign currency contracts (to buy)
|
|
840,212
|
|
Forward foreign currency contracts (to sell)
|
|
275,865
|
|
Futures contracts (to buy)
|
|
95,304,981
|
|
Futures contracts (to sell)
|
|
14,815,293
|
|
|
|
|
|
|
|
Average
Notional Balance
|
|
Interest rate swap contracts
|
|
$33,520,000
|
|
Credit default swap contracts (to buy protection)
|
|
258,462
|
|
Credit default swap contracts (to sell protection)
|
|
2,697,000
|
|
At
September 30, 2010, there were no open positions held in this derivative.
The
Fund has several credit related contingent features that if triggered would
allow its derivatives counterparties to close out and demand payment or
additional collateral to cover their exposure from the Fund. Credit related
contingent features are established between the Fund and its derivatives
counterparties to reduce the risk that the Fund will not fulfill its payment
obligations to its counterparties. These triggering features include, but are
not limited to, a percentage decrease in the Funds net assets and/or a
percentage decrease in the Funds Net Asset Value or NAV. The contingent
features are established within the Funds International Swap and Derivatives
Association, Inc. master agreements which govern positions in swaps,
over-the-counter options, and forward currency exchange contracts for each
individual counterparty.
As
of September 30, 2010, there were no swap positions with credit related
contingent features in a net liability position. The Fund posted collateral for
its swap transactions in the amount of $4,150,000.
5.
Distributions subsequent to September 30, 2010
On
October 12, 2010, the Funds Board of Directors declared a distribution in the
amount of $0.056 per share, payable on October 29, 2010 to shareholders of
record on October 22, 2010 and on November 10, 2010, the Funds Board of
Directors declared a distribution in the amount of $0.056 per share payable on
November 26, 2010 to shareholders of record on November 19, 2010. In addition,
on November 15, 2010, the Funds Board of Directors declared a distribution in
the amount of $0.056 per share payable on December 30, 2010, January 28, 2011
and February 25, 2011 to shareholders of record on December 23, 2010, January
21, 2011 and February 18, 2011, respectively.
6.
Tender offer
During
the year ended September 30, 2010, the Fund, in accordance with its tender
offer for up to 1,664,686 of its issued and outstanding shares of common stock,
accepted and made payment of these shares at $15.87 per share (98% of the net
asset value per share of $16.19 on May 24, 2010). These shares represent
approximately 20% of the Funds then outstanding shares.
36
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
Notes
to financial statements (contd)
7.
Income tax information and distributions to shareholders
The
tax character of distributions paid during the fiscal years ended September 30,
were as follows:
|
|
2010
|
|
2009
|
|
Distributions Paid From:
|
|
|
|
|
|
Ordinary income
|
|
$5,220,458
|
|
$5,913,342
|
|
Net long-term capital gains
|
|
|
|
179,412
|
|
Total distributions paid
|
|
$5,220,458
|
|
$6,092,754
|
|
As of
September 30, 2010, the components of accumulated earnings on a tax basis were
as follows:
Undistributed ordinary income net
|
|
$ 1,031,976
|
|
Other book/tax temporary differences
(a)
|
|
(1,112,433
|
)
|
Unrealized appreciation (depreciation)
(b)
|
|
(18,151,358
|
)
|
Total accumulated earnings
(losses) net
|
|
$(18,231,815
|
)
|
(a)
|
Other
book/tax temporary differences are attributable primarily to the tax deferral
of losses on straddles, the realization for tax purposes of unrealized gains
on certain futures contracts, the deferral of post-October capital losses for
tax purposes, differences between book/tax accrual of interest income on
securities in default 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 primarily to the tax deferral of losses on
wash sales and the difference between book and tax amortization methods for
premiums on fixed income securities.
|
|
|
Western
Asset Variable Rate Strategic Fund Inc. 2010 Annual Report
|
|
37
|
Report
of independent registered public accounting firm
The
Board of Directors and Shareholders
Western Asset Variable Rate Strategic Fund Inc.:
We
have audited the accompanying statement of assets and liabilities of Western
Asset Variable Rate Strategic Fund Inc., including the schedule of investments,
as of September 30, 2010, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Funds management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of September 30, 2010, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Western Asset Variable Rate Strategic Fund Inc. as of September 30, 2010,
the results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended,
in conformity with U.S. generally accepted accounting principles.
New
York, New York
November 19, 2010
38
|
|
Western Asset Variable
Rate Strategic Fund Inc.
|
|
|
Additional
information (unaudited)
Information
about Directors and Officers
The
business and affairs of Western Asset Variable Rate Strategic 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 R. Jay
Gerken, 620 Eighth Avenue, New York, New York 10018. Information pertaining to
the Directors and officers of the Fund is set forth below.
Independent Directors:
Carol L. Colman
|
|
|
Year
of birth
|
|
1946
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class III
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during 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
|
|
None
|
|
|
|
Daniel P. Cronin
|
|
|
Year
of birth
|
|
1946
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class III
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during 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
|
|
None
|
|
|
|
Paolo M. Cucchi
|
|
|
Year
of birth
|
|
1941
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class I
|
Term
of office
1
and length of time served
|
|
Since
2007
|
Principal
occupation(s) during past five years
|
|
Professor
of French and Italian at Drew University; formerly, Vice President and Dean
of College of Liberal Arts at Drew University (1984 to 2009)
|
Number
of portfolios in fund complex overseen by Director (including the Fund)
|
|
24
|
Other
board memberships held by Director
|
|
None
|
|
|
Western
Asset Variable Rate Strategic Fund Inc.
|
|
39
|
Independent Directors contd
Leslie H. Gelb
|
|
|
Year
of birth
|
|
1937
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class II
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during past five years
|
|
President
Emeritus and Senior Board Fellow (since 2003), The Council on Foreign
Relations; formerly, President, (prior to 2003), the Council on Foreign
Relations; formerly, Columnist, Deputy Editorial Page Editor and Editor,
Op-Ed Page, The New York Times
|
Number
of portfolios in fund complex overseen by Director (including the Fund)
|
|
24
|
Other
board memberships held by Director
|
|
Director
of two registered investment companies advised by Blackstone Asia Advisors
LLC: India Fund, Inc. and Asia Tigers Fund, Inc. (since 1994)
|
|
|
|
William R. Hutchinson
|
|
|
Year
of birth
|
|
1942
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class II
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during 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
|
|
Director
(Non-Executive Chairman of the Board (since December 1, 2009)),
Associated Banc Corp. (banking) (since 1994)
|
|
|
|
Riordan Roett
|
|
|
Year
of birth
|
|
1938
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class I
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during past five years
|
|
The
Sarita and Don Johnston Professor of Political Science and Director of
Western Hemisphere Studies, Paul H. Nitze School of Advanced International
Studies, The John Hopkins University (since 1973)
|
Number
of portfolios in fund complex overseen by Director (including the Fund)
|
|
24
|
Other
board memberships held by Director
|
|
None
|
40
|
|
Western Asset Variable
Rate Strategic Fund Inc.
|
|
|
Additional
information (unaudited) (contd)
Information
about Directors and Officers
Independent Directors contd
Jeswald W. Salacuse
|
|
|
Year
of birth
|
|
1938
|
Position(s) held
with Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class I
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during past five years
|
|
Henry
J. Braker Professor of Commercial Law, The Fletcher School of Law and
Diplomacy, Tufts University (since 1986); President and Member, Arbitration
Tribunal, World Bank/ICSID (since 2004)
|
Number
of portfolios in fund complex overseen by Director (including the Fund)
|
|
24
|
Other
board memberships held by Director
|
|
Director
of two registered investment companies advised by Blackstone Asia Advisors
LLC; India Fund, Inc. and Asia Tigers Fund, Inc. (since 1993)
|
Interested Director and Officer:
R. Jay Gerken, CFA
2
|
|
|
Year
of birth
|
|
1951
|
Position(s) held
with Fund
1
|
|
Director,
Chairman, President and Chief Executive Officer, Class II
|
Term
of office
1
and length of time served
|
|
Since
2004
|
Principal
occupation(s) during past five years
|
|
Managing
Director of Legg Mason & Co., LLC (Legg Mason & Co.)
(since 2005); Officer and Trustee/Director of 149 funds associated with Legg
Mason Partners Fund Advisor, LLC (LMPFA) or its affiliates (since 2006) and
Legg Mason & Co. predecessors (prior to 2006); President and Chief
Executive Officer (CEO) of LMPFA (since 2006); President and CEO of Smith
Barney Fund Management LLC (SBFM) and Citi Fund Management Inc. (CFM)
(formerly registered investment advisers) (since 2002); formerly, Chairman,
President and CEO, Travelers Investment Adviser Inc. (prior to 2005)
|
Number
of portfolios in fund complex overseen by Director (including the Fund)
|
|
136
|
Other
board memberships held by Director
|
|
Former
Trustee, Consulting Group Capital Markets Funds (11 funds) (prior to 2006)
|
Additional Officers:
Ted P. Becker
|
|
|
Legg
Mason
|
|
|
620
Eighth Avenue, New York, NY 10018
|
|
|
Year
of birth
|
|
1951
|
Position(s) held
with Fund
1
|
|
Chief
Compliance Officer
|
Term
of office
1
and length of time served
|
|
Since
2006
|
Principal
occupation(s) during past five years
|
|
Director
of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of
LMPFA (since 2006); Managing Director of Compliance of Legg Mason &
Co. (since 2005); Chief Compliance Officer of certain mutual funds associated
with Legg Mason & Co. or its affiliates (since 2006) and Legg
Mason & Co. predecessors (prior to 2006)
|
|
|
Western
Asset Variable Rate Strategic Fund Inc.
|
|
41
|
Additional Officers contd
John Chiota
|
|
|
Legg
Mason
|
|
|
100
First Stamford Place, Stamford, CT 06902
|
|
|
Year
of birth
|
|
1968
|
Position(s) with
Fund
1
|
|
Identity
Theft Prevention Officer
|
Term
of office
1
and length of time served
|
|
Since
2008
|
Principal
occupation(s) during past five years
|
|
Identity
Theft Prevention Officer of certain mutual funds associated with Legg
Mason & Co. or its affiliates (since 2008); Chief Anti-Money
Laundering Compliance Officer of certain mutual funds associated with Legg
Mason & Co. or its affiliates (since 2006); Vice President of Legg
Mason & Co. (since 2006) and Legg Mason & Co. predecessors
(prior to 2006); formerly, Chief Anti-Money Laundering Compliance Officer of
TD Waterhouse (prior to 2004)
|
|
|
|
Robert I. Frenkel
|
|
|
Legg
Mason
|
|
|
100
First Stamford Place, Stamford, CT 06902
|
|
|
Year
of birth
|
|
1954
|
Position(s) held
with Fund
1
|
|
Secretary
and Chief Legal Officer
|
Term
of office
1
and length of time served
|
|
Since
2003
|
Principal
occupation(s) during past five years
|
|
Vice
President and Deputy General Counsel of Legg Mason (since 2006); Managing Director
and General Counsel of Global 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, Stamford, CT 06902
|
|
|
Year
of birth
|
|
1962
|
Position(s) held
with Fund
1
|
|
Assistant
Secretary
|
Term
of office
1
and length of time served
|
|
Since
2006
|
Principal
occupation(s) during 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 SBFM and CFM
(since 2002)
|
|
|
|
Kaprel Ozsolak
|
|
|
Legg
Mason
|
|
|
55
Water Street, New York, NY 10041
|
|
|
Year
of birth
|
|
1965
|
Position(s) held
with Fund
1
|
|
Chief
Financial Officer
|
Term
of office
1
and length of time served
|
|
Since
2007
|
Principal
occupation(s) during past five years
|
|
Director
of Legg Mason & Co. (since 2005); Chief Financial Officer of certain
mutual funds associated with Legg Mason & Co. or its affiliates
(since 2007) and Legg Mason & Co. predecessors (prior to 2007);
formerly, Treasurer of certain mutual funds associated with Legg
Mason & Co. or its affiliates (prior to 2010) and Legg Mason &
Co. predecessors (prior to 2005); formerly, Controller of certain mutual
funds associated with Legg Mason & Co. predecessors (prior to 2004)
|
42
|
|
Western Asset Variable
Rate Strategic Fund Inc.
|
|
|
Additional
information (unaudited) (contd)
Information
about Directors and Officers
Additional Officers contd
Steven Frank
|
|
|
Legg
Mason
|
|
|
55
Water Street, New York, NY 10041
|
|
|
Year
of birth
|
|
1967
|
Position(s) held
with Fund
1
|
|
Treasurer
|
Term
of office
1
and length of time served
|
|
Since
2010
|
Principal
occupation(s) during past five years
|
|
Vice
President of Legg Mason & Co. and Legg Mason & Co.
predecessors (since 2002); Treasurer of certain mutual funds associated with
Legg Mason & Co. or its affiliates (since 2010); formerly, Controller
of certain mutual funds associated with Legg Mason & Co. or its
affiliates (prior to 2010); formerly, Assistant Controller of certain mutual
funds associated with Legg Mason & Co. predecessors (prior to 2005)
|
|
|
|
Jeanne M. Kelly
|
|
|
Legg
Mason
|
|
|
620
Eighth Avenue, New York, NY 10018
|
|
|
Year
of birth
|
|
1951
|
Position(s) with
Fund
1
|
|
Senior
Vice President
|
Term
of office
1
and length of time served
|
|
Since
2007
|
Principal
occupation(s) during 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); Managing Director of Legg Mason & Co. (since 2005) and Legg
Mason & Co. predecessors (prior to 2005)
|
Directors who are not interested persons
of the Fund within the meaning of Section 2(a)(19) of the 1940 Act.
1
The
Funds 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 2013, year
2011 and year 2012, respectively, or thereafter in each case when their
respective successors are duly elected and qualified. The Funds executive
officers are chosen each year at the first meeting of the Funds Board of
Directors following the Annual Meeting of Stockholders, to hold office until
the meeting of the Board following the next Annual Meeting of Stockholders and
until their successors are duly elected and qualified.
2
Mr. Gerken
is an interested person of the Fund as defined in the 1940 Act because Mr. Gerken
is an officer of LMPFA and certain of its affiliates.
|
|
Western
Asset Variable Rate Strategic Fund Inc.
|
|
43
|
Annual
chief executive officer and chief financial officer certifications (unaudited)
The
Funds Chief Executive Officer (CEO) has submitted to the NYSE the required
annual certification and the Fund also has included the certifications of the
Funds CEO and Chief Financial Officer required by Section 302 of the
Sarbanes-Oxley Act in the Funds Form N-CSR filed with the SEC for the
period of this report.
44
|
|
Western Asset Variable
Rate Strategic Fund Inc.
|
|
|
Important
tax information (unaudited)
The
following information is provided with respect to the distributions paid during
the taxable year ended September 30, 2010:
Record
date:
|
|
10/23/2009
|
|
11/20/2009
|
|
12/18/2009
|
|
Monthly
|
Payable
date:
|
|
10/30/2009
|
|
11/27/2009
|
|
12/28/2009
|
|
January 2010
September 2010
|
Ordinary
income:
|
|
|
|
|
|
|
|
|
Qualified dividend income for individuals
|
|
4.28%
|
|
3.42%
|
|
0.80%
|
|
0.15%
|
Dividends qualifying for the dividends received
deductions for corporations
|
|
4.28%
|
|
3.42%
|
|
0.80%
|
|
0.15%
|
Interest
from federal obligations
|
|
0.89%
|
|
0.89%
|
|
0.89%
|
|
0.25%
|
The
law varies in each state as to whether and what percentage of dividend income
attributable to Federal obligations is exempt from state income tax. We
recommend that you consult with your tax adviser to determine if any portion of
the dividends you received is exempt from state income taxes.
Please
retain this information for your records.
|
|
Western
Asset Variable Rate Strategic Fund Inc.
|
|
45
|
Dividend
reinvestment plan (unaudited)
Unless
you elect to receive distributions in cash (i.e., opt-out), all distributions,
on your common shares (the Common Shares) will be automatically reinvested by
American Stock Transfer & Trust Company (AST), as agent for the
holders of Common Shares (the Common Shareholders) (the Plan Agent), in
additional Common Shares under the 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 AST, as dividend paying agent.
If
you participate in the Plan, the number of Common Shares you will receive will
be determined as follows:
1.
If the market price of the Common Shares on the record date (or, if the record
date is not a New York Stock Exchange (the Exchange) trading day, the
immediately preceding trading day) for determining shareholders eligible to
receive the relevant dividend or distribution (the determination date) is
equal to or exceeds 98% of the net asset value per share of the Common Shares,
the Fund will issue new Common Shares at a price equal to the greater of (a) 98%
of the net asset value per share at the close of trading on the Exchange on the
determination date or (b) 95% of the market price per share of the Common
Shares on the determination date.
2.
If 98% of the net asset value per share of the Common Shares exceeds the market
price of the Common Shares on the determination date, the Plan Agent will
receive the distribution in cash and will buy Common Shares in the open market,
on the Exchange or elsewhere, for your account as soon as practicable
commencing on the trading day following the determination date and terminating
no later than the earlier of (a) 30 days after the distribution payment
date, or (b) the record date for the next succeeding distribution to be made
to the Common Shareholders; except when necessary to comply with applicable
provisions of the federal securities laws. If during this period: (i) the
market price rises so that it equals or exceeds 98% of the net asset value per
share of the Common Shares at the close of trading on the Exchange on the
determination 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 Shares in the open market and the Fund shall issue the
remaining Common Shares at a price per share equal to the greater of (a) 98%
of the net asset value per share at the close of trading on the Exchange on the
determination date or (b) 95% of the then current market price per share.
The
Plan Agent maintains all participants accounts in the Plan and gives written
confirmation of all transactions in the accounts, including information you may
need for tax records. Common Shares in your account will be held by the Plan
Agent in noncertificated form. Any proxy you receive will include all Common
Shares you have received under the Plan.
You
may withdraw from the Plan by notifying the Plan Agent in writing at 59 Maiden
Lane, New York, New York 10038 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 distribution record date;
otherwise such withdrawal will be effective as soon as practicable after the
Plan Agents investment of the most recently declared distribution on the
Common Shares. The Plan may be terminated by the Fund upon notice in writing
mailed to Common Shareholders at least 30 days prior to the record date for the
payment of any distribution by the Fund for which the termination is to be
effective. Upon any termination, you will be sent a certificate or certificates
for the full Common Shares held for you under the Plan and cash for any fractional
Common Shares. You may elect to notify the Plan Agent in advance of such
termination to have the Plan Agent sell part or all of your shares on your
behalf. You will be charged a service charge and the Plan Agent is authorized
to deduct brokerage charges actually incurred for this transaction from the
proceeds.
46
|
|
Western Asset Variable
Rate Strategic Fund Inc.
|
|
|
Dividend
reinvestment plan (unaudited) (contd)
There
is no service charge for reinvestment of your distributions in Common Shares.
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
distributions will be automatically reinvested in additional Common Shares,
this allows you to add to your investment through dollar cost averaging, which
may lower the average cost of your Common Shares over time. Dollar cost
averaging is a technique for lowering the average cost per share over time if the
Funds net asset value declines. While dollar cost averaging has definite
advantages, it cannot assure profit or protect against loss in declining
markets. Investors will be subject to income tax on amounts reinvested under
the plan.
Automatically
reinvesting distributions does not mean that you do not have to pay income
taxes due upon receiving distributions.
The
Fund reserves the right to amend or terminate the Plan if, in the judgment of
the Board of Directors, the change is warranted. There is no direct service
charge to participants in the Plan; however, the Fund reserves the right to
amend the Plan to include a service charge payable by the participants.
Additional information about the Plan and your account may be obtained from the
Plan Agent at 1-888-888-0151.
[This page intentionally left blank.]
Western
Asset
Variable
Rate Strategic Fund Inc.
Directors
Carol L. Colman
|
Western
Asset Variable Rate
Strategic Fund Inc.
|
Independent
registered public accounting firm
|
Daniel
P. Cronin
|
55
Water Street
|
KPMG
LLP
|
Paolo
M. Cucchi
|
New
York, NY 10041
|
345
Park Avenue
|
Leslie
H. Gelb
|
|
New
York, NY 10154
|
R.
Jay Gerken, CFA
|
Investment
manager
|
|
Chairman
|
Legg
Mason Partners Fund Advisor, LLC
|
Legal
counsel
|
William
R. Hutchinson
|
|
Simpson
Thacher & Bartlett LLP
|
Riordan
Roett
|
Subadvisers
|
425
Lexington Avenue
|
Jeswald
W. Salacuse
|
Western
Asset Management Company
|
New
York, NY 10017
|
|
Western
Asset Management Company Limited
|
|
|
Western
Asset Management Company Pte. Ltd.
|
New
York Stock Exchange Symbol
|
Officers
|
|
GFY
|
R.
Jay Gerken, CFA
|
Custodian
|
|
President and Chief Executive Officer
|
State
Street Bank and Trust Company
|
|
Kaprel
Ozsolak
|
1
Lincoln Street
|
|
Chief Financial Officer
|
Boston,
MA 02111
|
|
Ted
P. Becker
|
|
|
Chief Compliance Officer
|
Transfer
agent
|
|
John
Chiota
|
American
Stock Transfer & Trust Company
|
|
Identity Theft Protection Officer
|
59
Maiden Lane
|
|
Robert
I. Frenkel
|
New
York, NY 10038
|
|
Secretary and Chief Legal Officer
|
|
|
Thomas
C. Mandia
|
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Assistant Secretary
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Steven
Frank
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Treasurer
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Jeanne
M. Kelly
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Senior Vice President
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Privacy
policy
We
are committed to keeping nonpublic personal information about you secure and
confidential. This notice is intended to help you understand how we fulfill
this commitment. From time to time, we may collect a variety of personal
information about you, including:
·
Information
we receive from you on applications and forms, via the telephone, and through
our websites;
·
Information
about your transactions with us, our affiliates, or others (such as your
purchases, sales, or account balances); and
·
Information
we receive from consumer reporting agencies.
We
do not disclose nonpublic personal information about our customers or former
customers, except to our affiliates (such as broker-dealers or investment
advisers with the Legg Mason family of companies) or as is otherwise permitted
by applicable law or regulation. For example, we may share this information
with others in order to process your transactions or service an account. We may
also provide this information to companies that perform marketing services on
our behalf, such as printing and mailing, or to other financial institutions
with whom we have joint marketing agreements. When we enter into such
agreements, we will require these companies to protect the confidentiality of
this information and to use it only to perform the services for which we hired
them.
With
respect to our internal security procedures, we maintain physical, electronic,
and procedural safeguards to protect your nonpublic personal information, and
we restrict access to this information.
If
you decide at some point either to close your account(s) or become an
inactive customer, we will continue to adhere to our privacy policies and
practices with respect to your nonpublic personal information.
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NOT PART OF THE ANNUAL REPORT
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Western
Asset Variable Rate Strategic Fund Inc.
Western
Asset Variable Rate Strategic Fund Inc.
55 Water Street
New York, NY 10041
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 common stock in the open market.
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 on Form N-Q. The Funds Forms N-Q are available on the SECs website
at www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SECs
Public Reference Room in Washington, D.C., and information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. To obtain information on Form N-Q from the Fund,
shareholders can call 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) on the Funds website at www.leggmason.com/cef
and (3) on the SECs website at www.sec.gov.
This
report is transmitted to the shareholders of Western Asset Variable Rate
Strategic 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.
American
Stock
Transfer & Trust Company
59 Maiden Lane
New York, NY 10038
WASX010407 11/10 SR10-1230
ITEM
2.
CODE OF ETHICS.
The
registrant has adopted a code of ethics that applies to the registrants
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 William R. Hutchinson,
a member of the Boards 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 has designated Mr. Hutchinson
as the Audit Committees financial expert. Mr. Hutchinson is an independent
Director pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM
4.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
a)
Audit Fees
. The aggregate fees billed in the last two fiscal years
ending September 30, 2009 and September 30, 2010 (the Reporting
Periods) for professional services rendered by the Registrants principal
accountant (the Auditor) for the audit of the Registrants 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 $61,400 in 2009 and $69,700 in 2010.
b)
Audit-Related Fees
. There were no fees billed in the Reporting Periods
for assurance and related services by the Auditor that are reasonably related
to the performance of the audit of the Registrants financial statements and
are not reported under paragraph (a) of the Item 4 for Western Asset Variable
Rate Strategic Fund Inc.
In
addition, there were no Audit-Related Fees billed in the Reporting Period for
assurance and related services by the Auditor to the Registrants investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by or under common control
with the investment adviser that provides ongoing services to the Western Asset
Variable Rate Strategic Fund Inc. (service affiliates), that were reasonably
related to the performance of the annual audit of the service affiliates.
Accordingly, there were no such fees that required pre-approval by the Audit
Committee for the Reporting Periods.
(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 $3,100 in 2009 and $3,300 in 2010. 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
. There were no 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 4 for the Western
Asset Variable Rate Strategic Fund Inc.
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 Variable Rate Strategic Fund Inc. requiring pre-approval by
the Audit Committee in the Reporting Period.
(e) Audit
Committees preapproval 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 Funds
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 Variable Rate Strategic Fund Inc., the percentage of fees
that were approved by the audit committee, with respect to: Audit-Related Fees
were 100% and 100% for 2009 and 2010; Tax Fees were 100% and 100% for 2009 and
2010; and Other Fees were 100% and 100% for 2009 and 2010.
(f) N/A
(g) Non-audit
fees billed by the Auditor for services rendered to Western Asset Variable Rate
Strategic Fund Inc., LMPFA and any entity controlling, controlled by, or under
common control with LMPFA that provides ongoing services to Western Asset
Variable Rate Strategic Fund Inc. during the reporting period were $0 in 2010.
(h) Yes.
Western Asset Variable Rate Strategic 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 Accountants independence. All
services provided by the Auditor to the Western Asset Variable Rate Strategic
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:
William
R. Hutchinson
Paolo
M. Cucchi
Daniel
P. Cronin
Carol
L. Colman
Leslie
H. Gelb
Dr. Riordan
Roett
Jeswald
W. Salacuse
b)
Not applicable
ITEM 6.
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SCHEDULE
OF INVESTMENTS.
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Included
herein under Item 1.
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ITEM 7.
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DISCLOSURE
OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT
COMPANIES.
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Proxy Voting Guidelines and Procedures
Legg Mason Partners Fund
Advisor, LLC (LMPFA) delegates the responsibility for voting proxies for the
fund to the subadviser through its contracts with the subadviser. The
subadviser will use its own proxy voting policies and procedures to vote
proxies. Accordingly, LMPFA does not expect to have proxy-voting responsibility
for the fund. Should LMPFA become responsible for voting proxies for any
reason, such as the inability of the subadviser to provide investment advisory
services, LMPFA shall utilize the proxy voting guidelines established by the
most recent subadviser to vote proxies until a new subadviser is retained.
The subadvisers Proxy
Voting Policies and Procedures govern in determining how proxies relating to
the funds portfolio securities are voted and are provided below. Information regarding how each fund voted
proxies (if any) relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge (1) by
calling 888-425-6432, (2) on the funds website at http://www.leggmason.com/individualinvestors
and (3) on the SECs website at http://www.sec.gov.
Background
Western Asset Management
Company (WA), Western Asset Management Company Limited (WAML) and Western
Asset Management Company Pte. Ltd. (WAMC) (together Western Asset) have
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). Our authority to vote the proxies of our
clients is established through investment management agreements or comparable
documents, and our proxy voting guidelines have been tailored to reflect these
specific contractual obligations. 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.
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
(except that WA, WAML and WAMC may so consult and agree with each other)
regarding the voting of any securities owned by its clients.
Policy
Western Assets proxy voting
procedures are designed and implemented in a way that is reasonably expected to
ensure that proxy matters are handled in the best interest of our clients.
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 Western Assets 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 Western Asset deems
appropriate).
Procedures
Responsibility and Oversight
The Western Asset 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
Prior to August 1,
2003, all existing client investment management agreements (IMAs) will be
reviewed to determine whether Western Asset has authority to vote client proxies.
At account start-up, or upon amendment of an IMA, the applicable client IMA are
similarly reviewed. 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 Client Account Transition Team 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.
Prior to August 1, 2003, Proxy Recipients of existing clients will be
reminded of the appropriate routing to Corporate Actions for proxy materials
received and reminded of their responsibility to forward all proxy materials on
a timely basis. 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 Compliance Department
for coordination and the following actions:
a.
Proxies are reviewed to determine accounts impacted.
b.
Impacted accounts are checked to confirm Western Asset voting authority.
c.
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.)
d.
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 clients 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.
e.
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 analysts
or portfolio managers basis for their decision is documented and maintained by
the Compliance Department.
f.
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.
A copy of Western Assets policies and procedures.
b.
Copies of proxy statements received regarding client securities.
c.
A copy of any document created by Western Asset that was material to making a
decision how to vote proxies.
d.
Each written client request for proxy voting records and Western Assets
written response to both verbal and written client requests.
e.
A proxy log including:
1.
Issuer name;
2.
Exchange ticker symbol of the issuers shares to be voted;
3.
Council on Uniform Securities Identification Procedures (CUSIP) number for
the shares to be voted;
4.
A brief identification of the matter voted on;
5.
Whether the matter was proposed by the issuer or by a shareholder of the
issuer;
6.
Whether a vote was cast on the matter;
7.
A record of how the vote was cast; and
8.
Whether the vote was cast for or against the recommendation of the issuers
management team.
Records are maintained in an
easily accessible place for five years, the first two in Western Assets
offices.
Disclosure
Part II of the WA Form ADV,
the WAML Form ADV and WAMC Form ADV, each, contain a description of
Western Assets proxy policies. Prior to August 1, 2003, Western Asset
will deliver Part II of its revised Form ADV to all existing clients,
along with a letter identifying the new disclosure. 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 Compliance Department for material conflicts of interest. Issues to be
reviewed include, but are not limited to:
1.
Whether Western Asset (or, to the extent required to be considered by
applicable law, its affiliates) manages assets for the company or an employee
group of the company or otherwise has an interest in the company;
2.
Whether Western Asset or an officer or director of Western Asset or the
applicable portfolio manager or analyst responsible for recommending the proxy
vote (together, Voting Persons) is a close relative of or has a personal or
business relationship with an executive, director or person who is a candidate
for director of the company or is a participant in a proxy contest; and
3.
Whether there is any other business or personal relationship where a Voting
Person has a personal interest in the outcome of the matter before
shareholders.
Voting Guidelines
Western Assets 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 companys
board of directors; Part II deals with proposals submitted by shareholders
for inclusion in proxy statements; Part III addresses issues relating to
voting shares of investment companies; and Part IV addresses unique
considerations pertaining to foreign issuers.
I.
Board Approved Proposals
The vast majority of matters
presented to shareholders for a vote involve proposals made by a company itself
that have been approved and recommended by its board of directors. In view of
the enhanced corporate governance practices currently being implemented in
public companies, Western
Asset generally votes in support of decisions reached by independent boards of
directors. More specific guidelines related to certain board-approved proposals
are as follows:
1. Matters relating to the
Board of Directors
Western Asset votes proxies
for the election of the companys nominees for directors and for board-approved
proposals on other matters relating to the board of directors with the
following exceptions:
a.
Votes are withheld for the entire board of directors if the board does not have
a majority of independent directors or the board does not have nominating,
audit and compensation committees composed solely of independent directors.
b.
Votes are withheld for any nominee for director who is considered an
independent director by the company and who has received compensation from the
company other than for service as a director.
c.
Votes are withheld for any nominee for director who attends less than 75% of
board and committee meetings without valid reasons for absences.
d.
Votes are cast on a case-by-case basis in contested elections of directors.
2.
Matters relating to Executive Compensation
Western Asset generally
favors compensation programs that relate executive compensation to a companys
long-term performance. Votes are cast on a case-by-case basis on board-approved
proposals relating to executive compensation, except as follows:
a.
Except where the firm is otherwise withholding votes for the entire board of
directors, Western Asset votes for stock option plans that will result in a
minimal annual dilution.
b.
Western Asset votes against stock option plans or proposals that permit
replacing or repricing of underwater options.
c.
Western Asset votes against stock option plans that permit issuance of options
with an exercise price below the stocks current market price.
d.
Except where the firm is otherwise withholding votes for the entire board of
directors, Western Asset votes for employee stock purchase plans that limit the
discount for shares purchased under the plan to no more than 15% of their
market value, have an offering period of 27 months or less and result in
dilution of 10% or less.
3.
Matters relating to Capitalization
The management of a companys
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 companys capitalization except
where Western Asset is otherwise withholding votes for the entire board of
directors.
a.
Western Asset votes for proposals relating to the authorization of additional
common stock.
b.
Western Asset votes for proposals to effect stock splits (excluding reverse
stock splits).
c.
Western Asset votes for proposals authorizing share repurchase programs.
4.
Matters relating to Acquisitions, Mergers, Reorganizations and Other
Transactions
Western Asset votes these
issues on a case-by-case basis on board-approved transactions.
5.
Matters relating to Anti-Takeover Measures
Western Asset votes against
board-approved proposals to adopt anti-takeover measures except as follows:
a.
Western Asset votes on a case-by-case basis on proposals to ratify or approve
shareholder rights plans.
b.
Western Asset votes on a case-by-case basis on proposals to adopt fair price
provisions.
6.
Other Business Matters
Western Asset votes for
board-approved proposals approving such routine business matters such as
changing the companys name, ratifying the appointment of auditors and
procedural matters relating to the shareholder meeting.
a.
Western Asset votes on a case-by-case basis on proposals to amend a companys
charter or bylaws.
b.
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 companys proxy statement.
These proposals generally seek to change some aspect of a companys corporate
governance structure or to change some aspect of its business operations.
Western Asset votes in accordance with the recommendation of the companys
board of directors on all shareholder proposals, except as follows:
1. Western Asset votes for
shareholder proposals to require shareholder approval of shareholder rights
plans.
2. Western Asset votes for
shareholder proposals that are consistent with Western Assets proxy voting
guidelines for board-approved proposals.
3. Western Asset votes on a
case-by-case basis on other shareholder proposals where the firm is otherwise
withholding votes for the entire board of directors.
III.
Voting Shares of Investment Companies
Western Asset may utilize
shares of open or closed-end investment companies to implement its investment
strategies. Shareholder votes for investment companies that fall within the
categories listed in Parts I and II above are voted in accordance with those
guidelines.
1. Western Asset votes on a
case-by-case basis on proposals relating to changes in the investment
objectives of an investment company taking into account the original intent of
the fund and the role the fund plays in the clients portfolios.
2. Western Asset votes on a
case-by-case basis all proposals that would result in increases in expenses
(e.g., proposals to adopt 12b-1 plans, alter investment advisory arrangements
or approve fund mergers) taking into account comparable expenses for similar
funds and the services to be provided.
IV.
Voting Shares of Foreign Issuers
In the event Western Asset
is required to vote on securities held in foreign issuers i.e. issuers that
are incorporated under the laws of a foreign jurisdiction and that are not
listed on a U.S. securities exchange or the NASDAQ stock market, the following
guidelines are used, which are premised on the existence of a sound corporate
governance and disclosure framework. These guidelines, however, may not be
appropriate under some circumstances for foreign issuers and therefore apply
only where applicable.
1. Western Asset votes for
shareholder proposals calling for a majority of the directors to be independent
of management.
2. Western Asset votes for
shareholder proposals seeking to increase the independence of board nominating,
audit and compensation committees.
3. Western Asset votes for
shareholder proposals that implement corporate governance standards similar to
those established under U.S. federal law and the listing requirements of U.S.
stock exchanges, and that do not otherwise violate the laws of the jurisdiction
under which the company is incorporated.
4. Western Asset votes on a
case-by-case basis on proposals relating to (1) the issuance of common
stock in excess of 20% of a companys outstanding common stock where
shareholders do not have preemptive rights, or (2) the issuance of common
stock in excess of 100% of a companys outstanding common stock where
shareholders have preemptive rights.
ITEM 8.
PORTFOLIO
MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1):
NAME AND
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LENGTH OF
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PRINCIPAL OCCUPATION(S) DURING
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ADDRESS
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TIME SERVED
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PAST 5 YEARS
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S. Kenneth Leech
Western Asset
385 East
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Since 2006
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Co-portfolio manager of
the fund; Chief Investment Officer of Western Asset from 1998 to 2008; Senior
Advisor/Chief Investment Officer Emeritus of Western Asset.
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Colorado Blvd.
Pasadena, CA 91101
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Stephen
A. Walsh
Western
Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2006
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Co-portfolio
manager of the fund; Deputy Chief Investment Officer of Western Asset from
2000 to 2008; Chief Investment Officer of Western Asset since 2008.
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Keith
J. Gardner
Western
Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2006
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Co-portfolio
manager of the fund; portfolio manager and research analyst at Western Asset
since 1994.
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Michael C. Buchanan
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2006
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Co-portfolio
manager of the fund; Managing Director and head of U.S. Credit Products from
2003-2005 at Credit Suisse Asset Management
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Andrea
Mack
Western
Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2007
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Co-portfolio
manager of the fund; portfolio manager at Western Asset for the past five
years.
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Dennis
McNamara
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2010
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Co-portfolio
manager of the fund; portfolio manager at Western Asset since 2001.
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Julien A. Scholnick
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2010
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Co-portfolio
manager of the fund; portfolio manager at Western Asset since 2003.
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Michael Y. Pak
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
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Since 2010
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Co-portfolio
manager of the fund; portfolio manager at Western Asset since 2000.
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(a)(2): DATA TO
BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth
certain additional information with respect to the funds portfolio managers
for the fund. Unless noted otherwise, all information is provided as of September 30,
2010.
Other Accounts Managed by
Portfolio Managers
The table below identifies the
number of accounts (other than the fund) for which the funds portfolio
managers 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.
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Registered
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Other Pooled
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Portfolio
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Investment
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Investment
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Other
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Manager(s)
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Companies
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Vehicles
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Accounts
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S. Kenneth Leech
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105 registered investment companies
with $170.8 billion in total assets under management
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209 Other pooled investment vehicles with
$113.3 billion in assets under management*
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797 Other accounts with $185.2 on in
total assets under management**
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Stephen A. Walsh
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105 registered investment companies
with $170.8 billion in total assets under management
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209 Other pooled investment vehicles with
$113.3 billion in assets under management*
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797 Other accounts with $185.2 on in
total assets under management**
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Keith J. Gardner
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43 registered investment companies
with $27.2 billion in total assets under management
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7 Other pooled investment vehicles with
$0.9 billion in assets under management
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1 Other accounts with $0.3 billion in
total assets under management
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Michael C.
Buchanan
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51
registered investment companies with $30.1 billion in total
assets Under management
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5 Other pooled investment vehicles with
$2.9 billion in assets under management
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11 Other accounts with $1.7 billion in
total assets under management
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Andrea
Mack
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5
registered investment Companies with $1.3 billion in total
assets Under management
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1 Other pooled investment vehicles with
$25 million in assets under management
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13 Other accounts with $2.8 billion in
total assets under management
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Dennis McNamara
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None
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5 Other pooled investment vehicles with
$1.0 billion in assets under management
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27 Other accounts with $4.5 billion in
total assets under management***
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Julien A. Scholnick
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4 registered investment companies with
$1.0 billion in total assets under management
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8 Other pooled investment vehicles with
$1.1 billion in assets under management
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78 Other accounts with $11.2 billion in
total assets under management****
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Michael Y. Pak
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2 registered investment companies with
$0.6 billion in total assets under management
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1 Other pooled investment vehicles with
$0.2 billion in assets under management
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6 Other accounts with $5.3 billion in
total assets under management
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*
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Includes
7 accounts managed, totaling $1.2 billion, for which advisory fee is
performance based.
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**
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Includes 83 accounts managed,
totaling $20.1 billion, for which advisory fee is performance based.
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***
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Includes 2 accounts managed,
totaling $0.2 billion, for which advisory fee is performance based.
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****
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Includes 1 account managed,
totaling $0.5 billion, for which advisory fee is performance based.
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The numbers above reflect the overall number of
portfolios managed by employees of Western Asset Management Company (Western
Asset). Mr. Leech and Mr. Walsh
are involved in the management of all the Firms portfolios, but they are not
solely responsible for particular portfolios.
Western Assets investment discipline emphasizes a team approach that
combines the efforts of groups of specialists working in different market
sectors. They are responsible for overseeing implementation of Western Assets
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):
Portfolio Manager Compensation
With respect to the
compensation of the portfolio managers, Western Assets 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 subadvisers
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
professionals job function and pre-tax performance as measured by a formal
review process. All bonuses are completely discretionary. The principal factor
considered is a portfolio managers 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
funds Prospectus to which the funds average annual total returns are compared
or, if none, the benchmark set forth in the funds annual report). Performance
is reviewed on a 1, 3 and 5 year basis for compensationwith 3 years having the
most emphasis. The subadviser may also measure a portfolio managers pre-tax
investment performance against other benchmarks, as it determines appropriate.
Because portfolio managers 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 subadvisers
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
Conflicts of Interest
The
manager, subadvisers and portfolio managers have interests which conflict with
the interests of the fund. There is no guarantee that the policies and
procedures adopted by the manager, the subadvisers and the fund will be able to
identify or mitigate these conflicts of interest.
Some
examples of material conflicts of interest include:
Allocation of Limited Time and Attention
. A portfolio
manager who is responsible for managing multiple funds and/or accounts may
devote unequal time and attention to the management of those funds and/or
accounts. A portfolio manager may not be able to formulate as complete a
strategy or identify equally attractive investment opportunities for each of
those funds and accounts as might be the case if he or she were to devote
substantially more attention to the management of a single fund. Such a portfolio
manager may make general determinations across multiple funds, rather than
tailoring a unique approach for each fund. The effects of this conflict may be
more pronounced where funds and/or accounts overseen by a particular portfolio
manager have different investment strategies.
Allocation of Limited Investment Opportunities;
Aggregation of Orders
. If a portfolio manager identifies a limited
investment opportunity that may be suitable for multiple funds and/or accounts,
the opportunity may be allocated among these several funds or accounts, which
may limit the funds ability to take full advantage of the investment
opportunity. Additionally, a subadviser may aggregate transaction orders for
multiple accounts for purpose of execution. Such aggregation may cause the
price or brokerage costs to be less favorable to a particular client than if
similar transactions were not being executed concurrently for other accounts.
In addition, a subadvisers trade allocation policies may result in the funds
orders not being fully executed or being delayed in execution.
Pursuit of Differing Strategies
. At times, a
portfolio manager may determine that an investment opportunity may be
appropriate for only some of the funds and/or accounts for which he or she
exercises investment responsibility, or may decide that certain of the funds
and/or accounts should take differing positions with respect to a particular
security. In these cases, the portfolio manager may place separate transactions
for one or more funds or accounts which may affect the market price of the
security or the execution of the transaction, or both, to the detriment or
benefit of one or more other funds and/or accounts. For example, a portfolio
manager may determine that it would be in the interest of another account to
sell a security that the fund holds long, potentially resulting in a decrease
in the market value of the security held by the fund.
Cross Trades
. Portfolio managers may
manage funds that engage in cross trades, where one of the managers funds or
accounts sells a particular security to another fund or account managed by the
same manager. Cross trades may pose conflicts of interest because of, for
example, the possibility that one account sells a security to another account
at a higher price than an independent third party would pay or otherwise enters
into a transaction that it would not enter into with an independent party, such
as the sale of a difficult-to-obtain security.
Selection of Broker/Dealers
. Portfolio
managers may select or influence the selection of the brokers and dealers that
are used to execute securities transactions for the funds and/or accounts that
they supervise. In addition to executing trades, some brokers and dealers
provide subadvisers with brokerage and research services, These services may be
taken into account in the selection of brokers and dealers whether a broker is
being selected to effect a trade on an agency basis for a commission or (as is
normally the case for the funds) whether a dealer is being selected to effect a
trade on a principal basis. This may result in the payment of higher brokerage
fees and/or execution at a less favorable price than might have otherwise been
available. The services obtained may ultimately be more beneficial to certain
of the managers funds or accounts than to others (but not necessarily to the
funds that pay the increased commission or incur the less favorable execution).
A decision as to the selection of brokers and dealers could therefore yield
disproportionate costs and benefits among the funds and/or accounts managed.
Variation in Financial and Other
Benefits
. A conflict of interest arises where the financial
or other benefits available to a portfolio manager differ among the funds
and/or accounts that he or she manages. If the amount or structure of the
investment managers management fee and/or a portfolio managers compensation
differs among funds and/or accounts (such as where certain funds or accounts
pay higher management fees or performance-based management fees), the portfolio
manager might be motivated to help certain funds and/or accounts over others.
Similarly, the desire to maintain assets under management or to enhance the
portfolio managers performance record or to derive other rewards, financial or
otherwise, could influence the portfolio manager in affording preferential
treatment to those funds and/or accounts that could most significantly benefit
the portfolio manager. A portfolio manager may, for example, have an incentive
to allocate favorable or limited opportunity investments or structure the
timing of investments to favor such funds and/or accounts. Also, a portfolio
managers or the managers or a subadvisers desire to increase assets under
management could influence the portfolio manager to keep a fund open for new
investors without regard to potential benefits of closing the fund to new
investors. Additionally, the portfolio manager might be motivated to favor
funds and/or accounts in which he or she has an ownership interest or in which
the investment manager and/or its affiliates have ownership interests.
Conversely, if a portfolio manager does not personally hold an investment in
the fund, the portfolio managers conflicts of interest with respect to the
fund may be more acute.
Related Business Opportunities
. The
investment manager or its affiliates may provide more services (such as
distribution or recordkeeping) for some types of funds or accounts than for
others. In such cases, a portfolio manager may benefit, either directly or
indirectly, by devoting disproportionate attention to the management of funds
and/or accounts that provide greater overall returns to the investment manager
and its affiliates.
(a)(4):
Portfolio Manager Securities Ownership
The
table below identifies the dollar range of securities beneficially owned by
each portfolio managers as of September 30, 2010.
Portfolio Manager(s)
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Dollar Range of
Portfolio
Securities
Beneficially
Owned
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S. Kenneth Leech
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E
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Stephen A. Walsh
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E
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Keith J. Gardner
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A
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Michael C. Buchanan
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A
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Andrea Mack
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A
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Dennis
McNamara
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E
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Julien A. Scholnick
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A
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Michael Y. Pak
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A
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Dollar
Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
ITEM 9.
PURCHASES OF
INCOME SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED
PURCHASERS.
None.
ITEM 10.
SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11.
CONTROLS AND
PROCEDURES.
(a)
The registrants
principal executive officer and principal financial officer have concluded that
the registrants 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 registrants internal control over financial reporting (as
defined in Rule 30a-3(d) under the 1940 Act) that occurred during the
registrants last fiscal half-year (the registrants second fiscal half-year in
the case of an annual report) that have materially affected, or are likely to
materially affect the registrants internal control over financial reporting.
ITEM 12.
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 Variable Rate Strategic Fund Inc.
By:
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/s/
R. Jay Gerken
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(R. Jay Gerken)
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Chief
Executive Officer of
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Western Asset Variable Rate Strategic Fund Inc.
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Date:
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November 23,
2010
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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:
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/s/
R. Jay Gerken
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(R. Jay Gerken)
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Chief
Executive Officer of
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Western Asset Variable Rate Strategic Fund Inc.
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Date:
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November 23,
2010
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By:
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/s/
Kaprel Ozsolak
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(Kaprel Ozsolak)
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Chief
Financial Officer of
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Western Asset Variable Rate Strategic Fund Inc.
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Date:
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November 23,
2010
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