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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811-8338
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Western Asset Emerging Markets Floating
Rate 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
300 First Stamford Place, 4th Floor
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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(800) 451-2010
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Date of fiscal year end:
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February 28
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Date of reporting period:
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February 29,
2008
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ITEM 1.
REPORT TO STOCKHOLDERS.
The
Annual Report to Stockholders is filed herewith.
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ANNUAL REPORT
/ FEBRUARY 29, 2008
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Western Asset
Emerging Markets
Floating Rate Fund Inc.
(EFL)
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Managed by
WESTERN ASSET
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INVESTMENT PRODUCTS: NOT FDIC INSURED
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NO BANK GUARANTEE
·
MAY LOSE VALUE
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Fund objective
The
Fund seeks to maintain a high level of current income by investing at least 80%
of its net assets plus any borrowings for investment purposes in floating rate
debt securities of emerging market sovereign and corporate issuers, including
fixed-rate securities with respect to which the Fund has entered into interest
rate swaps to effectively convert the fixed-rate interest payments received
into floating-rate interest payments. As a secondary objective, the Fund seeks
capital appreciation.
Whats inside
Letter
from chairman
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I
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Fund
overview
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1
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Fund
at a glance
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7
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Schedule
of investments
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8
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Statement
of assets and liabilities
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12
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Statement
of operations
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13
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Statements
of changes in net assets
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14
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Financial
highlights
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15
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Notes
to financial statements
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16
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Report
of independent registered public accounting firm
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25
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Board
approval of management and subadvisory agreements
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26
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Additional
information
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31
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Annual
Chief Executive Officer and Chief Financial Officer Certifications
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36
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Dividend
reinvestment and cash purchase plan
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37
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Important
tax information
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41
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Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds
investment manager and Western Asset Management Company (Western Asset) is
the Funds subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of
Legg Mason, Inc.
Letter from the chairman
Dear
Shareholder,
While
the U.S. economy continued to expand during the 12-month reporting period ended
February 29, 2008, it weakened significantly toward the end of the
reporting period. After U.S. gross domestic product (GDP)
i
growth was a tepid 0.6% in the first quarter of 2007, the economy
then rebounded during the next six months. Second quarter 2007 GDP growth was a
solid 3.8% and third quarter GDP growth accelerated to 4.9%, its strongest
showing in four years. However, continued weakness in the housing market and an
ongoing credit crunch took their toll on the economy during the last three
months of 2007. During this period, GDP growth was 0.6%. Recently, there have
been additional signs of an economic slowdown, leading some to believe that the
U.S. may be headed for a recession. The U.S. Department of Labor said that
non-farm payroll employment fell 22,000 in January 2008, the first monthly
decline in more than four years. This was followed with 63,000 jobs lost in
Februarythe largest decline in five years. Elsewhere, the National Association
of Realtors reported that existing home sales fell for the sixth consecutive
month in January 2008 and the median home price was down nearly 5% versus January 2007.
Ongoing
issues related to the housing and subprime mortgage markets and an abrupt
tightening in the credit markets prompted the Federal Reserve Board (Fed)
ii
to take several actions during the reporting period. The Fed
initially responded by lowering the discount ratethe rate the Fed uses for
loans it makes directly to banksfrom 6.25% to 5.75% in mid-August 2007.
Then, at its meeting on September 18, 2007, the Fed reduced the discount
rate to 5.25% and the federal funds rate
iii
from
5.25% to 4.75%. This marked the first reduction in the federal funds rate since
June 2003. The Fed again lowered rates in October and December 2007,
bringing the federal funds rate to 4.25% at the end of 2007. In January 2008,
the Fed continued to aggressively ease monetary policy in an attempt to ward
off a recession. In a surprise move, the Fed cut the federal funds rate on January 22,
2008 by 0.75% to 3.50%. The Fed again lowered the federal funds rate during its
meeting on January 30, 2008, bringing it to 3.00%. In March 2008,
after the reporting period ended, the Fed cut the federal funds rate an
additional 0.75% to 2.25%, its lowest level since December 2004. In its
statement
Western Asset Emerging Markets Floating Rate Fund Inc.
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Letter from the chairman
continued
accompanying
the March rate cut, the Fed stated: Recent information indicates that the
outlook for economic activity has weakened further.... Financial markets remain
under considerable stress, and the tightening of credit conditions and the
deepening of the housing contraction are likely to weigh on economic growth
over the next few quarters.
During
the 12-month reporting period, both short- and long-term Treasury yields
experienced periods of volatility. This was due, in part, to mixed economic and
inflation data, the fallout from the subprime mortgage market and shifting
expectations regarding the Feds monetary policy. Within the bond market,
investors were initially focused on the subprime segment of the mortgage-backed
market. These concerns broadened, however, to include a wide range of financial
institutions and markets. As a result, other fixed-income instruments also
experienced increased price volatility. This turmoil triggered several flights
to quality, causing Treasury yields to move sharply lower (and their prices
higher), while riskier segments of the market saw their yields move higher (and
their prices lower).
Overall,
during the 12 months ended February 29, 2008, two-year Treasury yields
fell from 4.65% to 1.65%. Over the same time, 10-year Treasury yields fell from
4.56% to 3.53%. Short-term yields fell sharply in concert with the Feds rate
cuts while longer-term yields fell less dramatically due to inflationary
concerns, resulting in a steepening of the U.S. yield curve
iv
during the reporting period. Looking at the 12-month period as a
whole, the overall bond market, as measured by the Lehman Brothers U.S.
Aggregate Index
v
, returned 7.30%.
Increased
investor risk aversion during the fiscal year caused the high-yield bond market
to produce weak results over the 12-month period ended February 29, 2008.
During that period, the Citigroup High Yield Market Index
vi
returned -3.02%. While high-yield bond prices rallied several
times during the reporting period, several flights to quality dragged down the
sector, although default rates continued to be low.
Despite
increased investor risk aversion, emerging markets debt generated solid
results, as the JPMorgan Emerging Markets Bond Index Global (EMBI Global)
vii
returned 5.51% over the 12 months ended February 29, 2008.
Overall solid demand, an expanding global economy, increased domestic spending
and the Feds numerous rate cuts supported the emerging market debt asset
class.
Please
read on for a more detailed look at prevailing economic and market conditions
during the Funds fiscal year and to learn how those conditions have affected
Fund performance.
II
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Western
Asset Emerging Markets Floating Rate Fund Inc.
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Special shareholder notice
On
February 15, 2008, the Boards of Directors of the Fund and Western Asset
Emerging Markets Debt Fund Inc. approved a proposal, subject to stockholder
approval, to merge the Fund with and into Western Asset Emerging Markets Debt
Fund Inc. If approved by the Funds stockholders, the merger is anticipated to
take place during the third quarter of 2008.
In
connection with the proposal to merge the Funds, the Fund filed a proxy
statement with the Securities and Exchange Commission (SEC).
Investors and stockholders are advised to read the
proxy statement carefully, as it contains important information.
In
recommending the merger to each Board, the Funds investment manager and
subadviser, Legg Mason Partners Fund Advisor, LLC (LMPFA) and Western Asset
Management Company (Western Asset), respectively, cited the changing nature
of emerging market debt issuance which has made it increasingly difficult to
secure floating rate emerging market debt securities. LMPFA, Western Asset and
each Board believe it is in the best interests of the Funds stockholders to
merge the Fund with and into Western Asset Emerging Markets Debt Fund Inc.,
which invests in a much broader range of emerging market debt securities.
Western Asset Emerging Markets Debt Fund Inc.s primary investment objective is
total return. High current income is its secondary investment objective.
The
Fund, its directors and executive officers and other members of its management
and employees may be deemed to be participants in the Funds solicitation of
proxies from its stockholders in connection with the proposed merger.
Information concerning the interests of the participants in the solicitation is
set forth in the Funds proxy statements and stockholder reports on Form N-CSR,
previously filed with the SEC.
Western Asset Emerging Markets Floating Rate Fund Inc.
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III
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Letter from the chairman
continued
Information about your fund
Important
information with regard to recent regulatory developments that may affect the
Fund is contained in the Notes to Financial Statements included in this report.
As
always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you meet your financial goals.
Sincerely,
R. Jay Gerken, CFA
Chairman,
President and Chief Executive Officer
March 28,
2008
All
index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
i
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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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ii
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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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iii
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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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iv
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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.
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v
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The
Lehman Brothers 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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vi
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The
Citigroup High Yield Market Index is a broad-based unmanaged index of
high-yield securities.
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vii
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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. Countries covered are Algeria, Argentina,
Brazil, Bulgaria, Chile, China, Colombia, Cote dIvoire, Croatia, Ecuador,
Greece, Hungary, Lebanon, Malaysia, Mexico, Morocco, Nigeria, Panama, Peru,
the Philippines, Poland, Russia, South Africa, South Korea, Thailand, Turkey
and Venezuela.
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IV
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Western
Asset Emerging Markets Floating Rate Fund Inc.
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Fund overview
Q.
What is the Funds investment strategy?
A.
As a primary investment objective, the Fund seeks to maintain a high level of
current income by investing at least 80% of its net assets, plus any borrowings
for investment purposes, in floating rate debt securities of emerging market
sovereign and corporate issuers. As a secondary objective, the Fund seeks
capital appreciation.
The
managers believe attractive risk-adjusted returns can be achieved in the
emerging markets debt asset class through diligent country selection based on
fundamental analysis, rigorous quantitative fixed-income analysis focusing on
market inefficiencies among sectors and securities in each country and a focus
on managing risk through active management.
The
managers actively manage the portfolio which invests in various government and
corporate issuers in emerging market countries. The managers also employ a risk
aware approach and assimilate the top-down global economic views of Western
Asset with analysts fundamental and relative value views regarding emerging
market country opportunities. In allocating among different countries, the
following are some of the factors that are considered: currency, inflation and
interest rate trends, growth rate forecasts, liquidity of markets for that
countrys debt, fiscal policies, political outlook, and tax environment. The
managers then select those individual securities that appear to them to be most
undervalued and that offer attractive potential returns relative to the amount
of credit, interest rate, liquidity and other risks presented by these
securities. The managers engage in independent fundamental analysis to evaluate
the creditworthiness of corporate and governmental issuers.
Western
Asset, the Funds subadviser, utilizes 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. Although
there was under-performance for the period of this report and no assurance may
be given, Western Asset believes this team approach to management will
contribute to future positive performance.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
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1
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Fund overview
continued
Q.
What were the overall market conditions during the Funds reporting period?
A.
During the fiscal year, the U.S. bond market experienced periods of increased
volatility. Changing perceptions regarding the economy, inflation and future
Federal Reserve Board (Fed)
i
monetary policy caused bond prices to
fluctuate. Two- and 10-year Treasury yields began the reporting period at 4.65%
and 4.56%, respectively. This inversion of the yield curve
ii
with
short-term yields being higher than their long-term counterpartsoften
telegraphs weaker economic growth or a recession.
The
yield curve then moved back to a more normal slope as second quarter 2007 gross
domestic product (GDP)
iii
growth
was a solid 3.8%. This, coupled with inflationary pressures, caused short- and
long-term Treasury yields to move sharply higher. By mid-June, two- and 10-year
Treasurys were yielding 5.10% and 5.26%, respectively, and market sentiment was
that the Feds next move would be to raise interest rates.
However,
after their June peaks, Treasury yields then moved lower, as concerns
regarding the subprime mortgage market and a severe credit crunch triggered a
massive flight to quality. Investors were drawn to the relative safety of
Treasurys, causing their yields to fall and their prices to rise. At the same
time, increased investor risk aversion caused other segments of the bond market
to falter. As conditions in the credit market worsened in August 2007, central
banks around the world took action by injecting approximately $500 billion of
liquidity into the financial system. Additionally, the Fed began lowering the
discount rate
iv
and the federal funds rate
v
in August and September 2007, respectively. While this
initially helped ease the credit crunch, continued subprime mortgage write-offs
and weak economic data triggered additional flights to quality in November 2007
and in early 2008. Despite continued rate cuts by the Fed, by the end of February 2008,
many economists were predicting that the U.S. was headed toward a recession. At
the end of the fiscal year, two- and 10-year Treasury yields had fallen to
1.65% and 3.53%, respectively.
The
emerging market debt (EMD) asset class also experienced periods of volatility
and it lagged the overall U.S. bond market during the fiscal year. All told,
EMD, as measured by the JPMorgan Emerging Markets Bond Index Global (EMBI
Global)
vi
, returned 5.51% during the one-year period
ended February 29, 2008. In contrast, the overall taxable bond market, as
measured by the Lehman Brothers U.S. Aggregate Index
vii
,
gained 7.30% over the same period. While EMD prices generally weakened during
the periodic flights to quality, overall, they held up fairly well over the
fiscal year. The asset class was supported by solid local growth, strong
fundamentals and continued high energy and commodity prices.
2
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Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
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Q.
How did we respond to these changing market conditions?
A.
As the primary driver of changing market conditions emanated from countries
with advanced economies, the portfolio maintained a consistent approach within
the (ironically) more stable emerging market economies. The financial crisis
that originated in the U.S. subprime mortgage market led to a spike in risk
aversion, which in turn led to a sell-off in all risky asset classes, including
emerging market bonds. However, values remained quite attractive in the
emerging market world, and countries continued to be upgraded by the rating
agencies. We continued to move into emerging market corporate bonds given
their, we believe, compelling valuations in light of recent technical selling
pressures stemming from the financial market turmoil.
The
Fund was designed to invest in floating rate securities with limited interest
rate risk. Floating rate securities have mostly credit risk. However, due to
the ever-decreasing availability of emerging market floating rate bonds, we
have needed to simulate a floating rate portfolio by purchasing fixed rate
bonds and adding a swap overlay, thus reducing the duration
viii
of the Fund to less than one year, as is consistent with floating
rate securities.
Performance review
For
the 12 months ended February 29, 2008, Western Asset Emerging Markets
Floating Rate Fund Inc. returned -3.09% based on its net asset value (NAV)
ix
and -6.06% based on its New York Stock Exchange (NYSE) market
price per share. The Funds unmanaged benchmark, the EMBI Global, returned
5.51% for the same period. The Lipper Emerging Markets Debt Closed-End Funds
Category Average
x
increased 5.29% over the same time
frame. Please note that Lipper performance returns are based on each funds
NAV.
During
the 12-month period, the Fund made distributions to shareholders totaling $1.08
per share. The performance table shows the Funds 12-month total return based
on its NAV and market price as of February 29, 2008.
Past performance is no guarantee of future results.
PERFORMANCE SNAPSHOT
as of February 29, 2008 (unaudited)
PRICE PER SHARE
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12-MONTH
TOTAL RETURN
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$12.71 (NAV)
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-3.09%
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$11.74 (Market Price)
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-6.06%
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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.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
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3
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Fund overview
continued
Q.
What were the leading contributors to performance?
A.
The Funds portfolio includes bonds denominated in local currencies. This was
beneficial to performance, as they outperformed emerging market debt denominated
in U.S. dollars. In general, local currencies appreciated versus the U.S.
dollar. In particular, the Funds modest exposure to the Russian ruble enhanced
results as it appreciated more than 8% versus the U.S. dollar over the
reporting period. An overweight to Russia was also beneficial as its fiscal
situation continued to improve due to high oil prices.
Elsewhere,
the Fund benefited from its exposure to Turkeys local currency. A combination
of Turkeys central bank lowering interest rates and the Turkish lira
appreciating 14% versus the U.S. dollar was a key to the strong performance of
its local currency.
Q.
What were the leading detractors from performance?
A.
During the past 12 months, there was a massive rally in Treasury securities as
the Fed slashed policy rates by 300 basis points. This, along with an historic
breakdown in financial markets that induced a flight to safety, drove a strong
rally in the Treasury market. In other words, it was a good year to have as
much duration as possible and as little spread risk as possible. Because the
Fund did not have any duration but only spread risk, it missed out on the rally
completely. In contrast, the EMBI Global, with a duration of 7.25 years,
benefited substantially from the Treasury rally despite the fact that emerging
market bond spreads widened.
An
overweight to Argentina detracted from performance. Argentina is a higher risk
country and its debt sold off due to increased investor risk aversion triggered
by the fallout from the U.S. subprime mortgage crisis. Argentina also suffered
from rising capacity constraints in the Energy sector, which began to
negatively impact its economic growth, as energy rationing has begun to impede
production.
An
overweight to Venezuela also hindered the Funds performance. As was the case
in Argentina, this riskier asset class was hurt by periodic flights to quality
by investors seeking solace amid the turmoil in the global financial markets.
In addition, while Venezuela typically benefits from rising commodity prices,
it was hit particularly hard as investors fled for the relative safety of U.S.
Treasurys.
Corporate
debt underperformed its sovereign counterparts and our allocation to U.S.
dollar-denominated emerging market corporate debt detracted from results. This
was largely a result of the overall spike in risk aversion in the marketplace
following the credit crisis in the U.S.
4
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Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
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Q. Were there any significant changes to the Fund during the reporting
period?
A.
As previously discussed, we continued to increase our exposure to emerging
market corporate bonds, as we believed they represented attractive values
within the global financial markets.
Looking for additional information?
The
Fund is traded under the symbol EFL and its closing market price is available
in most newspapers under the NYSE listings. The daily NAV is available on-line
under the symbol XEFLX 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/individualinvestors.
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 6:00 p.m. Eastern Time, for the Funds current NAV, market price and
other information.
Thank
you for your investment in Western Asset Emerging Markets Floating Rate 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
March 18,
2008
Western
Asset Management Company is one of the worlds leading investment management
firms. Its primary business is managing fixed-income portfolios, an activity
the firm has pursued for over 35 years.
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.
RISKS:
The Fund may invest in high-yield and foreign securities, including emerging
markets, which involve risks beyond those inherent in higher-rated and domestic
investments. Investing in foreign securities is subject to certain risks
typically not associated with domestic investing, such as currency fluctuations,
and changes in political and economic conditions. These risks are magnified in
emerging or developing markets. Derivatives, such as options and futures, can
be illiquid and harder to value, especially in declining markets. A small
investment in certain derivatives may have a potentially large impact on the
Funds performance.
All
index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
i
|
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.
|
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
5
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Fund overview
continued
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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Gross
domestic product (GDP) is the market value of all final goods and services
produced within a country in a given period of time.
|
iv
|
The
discount rate is the interest rate charged by the U.S. Federal Reserve Bank
on short-term loans (usually overnight or weekend) to banks.
|
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.
|
vi
|
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. Countries covered are Algeria, Argentina,
Brazil, Bulgaria, Chile, China, Colombia, Cote dIvoire, Croatia, Ecuador,
Greece, Hungary, Lebanon, Malaysia, Mexico, Morocco, Nigeria, Panama, Peru,
the Philippines, Poland, Russia, South Africa, South Korea, Thailand, Turkey
and Venezuela.
|
vii
|
The
Lehman Brothers 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.
|
viii
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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.
|
ix
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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
at the Funds market price as determined by supply of and demand for the Funds
shares.
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x
|
Lipper, Inc.
is a major independent mutual-fund tracking organization. Returns are based
on the 12-month period ended February 29, 2008, including the
reinvestment of all distributions, including returns of capital, if any,
calculated among the 11 funds in the Funds Lipper category.
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6
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Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
Fund at a glance (unaudited)
INVESTMENT BREAKDOWN
(%) as a percent of total investments February 29,
2008
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
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7
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Schedule of investments
February 29, 2008
WESTERN
ASSET EMERGING MARKETS FLOATING RATE FUND INC.
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FACE
AMOUNT
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SECURITY
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VALUE
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CORPORATE
BONDS & NOTES 48.3%
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Brazil 5.8%
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410,000
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Globo
Communicacoes e Participacoes SA, Bonds, 7.250% due 4/26/22
(a)(b)
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$
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405,900
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299,000
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GTL
Trade Finance Inc., 7.250% due 10/20/17
(a)(b)
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313,629
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150,000
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GTL
Trade Finance Inc., 7.250% due 10/20/17
(a)
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155,819
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150,000
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Odebrecht
Finance Ltd., 7.500% due 10/18/17
(a)
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150,375
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|
|
|
Vale
Overseas Ltd., Notes:
|
|
|
|
471,000
|
|
|
|
8.250% due 1/17/34
(b)
|
|
519,652
|
|
1,732,000
|
|
|
|
6.875% due 11/21/36
(b)
|
|
1,682,447
|
|
|
|
|
|
Total Brazil
|
|
3,227,822
|
|
|
|
|
|
Colombia 0.2%
|
|
|
|
100,000
|
|
|
|
EEB
International Ltd., Senior Bonds, 8.750% due 10/31/14
(a)(b)
|
|
105,380
|
|
|
|
|
|
India 0.2%
|
|
|
|
114,000
|
|
|
|
ICICI
Bank Ltd., Subordinated Bonds, 6.375% due 4/30/22
(a)(b)(c)
|
|
97,975
|
|
|
|
|
|
Kazakhstan 4.1%
|
|
|
|
330,000
|
|
|
|
ATF
Capital BV, Senior Notes, 9.250% due 2/21/14
(a)
|
|
334,950
|
|
310,000
|
|
|
|
HSBK
Europe BV, 7.250% due 5/3/17
(a)(b)
|
|
272,800
|
|
|
|
|
|
TuranAlem
Finance BV, Bonds:
|
|
|
|
1,520,000
|
|
|
|
5.269% due 1/22/09
(a)(b)(c)
|
|
1,438,300
|
|
310,000
|
|
|
|
8.250% due 1/22/37
(a)(b)
|
|
259,625
|
|
|
|
|
|
Total Kazakhstan
|
|
2,305,675
|
|
|
|
|
|
Mexico 12.8%
|
|
|
|
|
|
|
|
Axtel
SAB de CV:
|
|
|
|
10,000
|
|
|
|
7.625% due 2/1/17
(a)
|
|
10,200
|
|
280,000
|
|
|
|
Senior Notes, 7.625% due 2/1/17
(a)(b)
|
|
284,900
|
|
100,000
|
|
|
|
Grupo
Transportacion Ferroviaria Mexicana SA de CV, Senior Notes, 9.375% due 5/1/12
|
|
104,500
|
|
|
|
|
|
Pemex
Project Funding Master Trust:
|
|
|
|
910,000
|
|
|
|
6.291% due 6/15/10
(a)(c)
|
|
918,190
|
|
527,000
|
|
|
|
6.291% due 6/15/10
(a)(c)
|
|
530,953
|
|
|
|
|
|
Senior Notes:
|
|
|
|
3,379,000
|
|
|
|
5.724% due 12/3/12
(a)(c)
|
|
3,307,196
|
|
2,110,000
|
|
|
|
5.724% due 12/3/12
(a)(c)
|
|
2,065,162
|
|
|
|
|
|
Total Mexico
|
|
7,221,101
|
|
|
|
|
|
Russia 10.1%
|
|
|
|
150,000
|
|
|
|
Gazprom,
Loan Participation Notes, Senior Notes, 6.510% due 3/7/22
(a)(b)
|
|
137,070
|
|
150,000
|
|
|
|
LUKOIL
International Finance BV, 6.356% due 6/7/17
(a)
|
|
142,125
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
8
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
WESTERN
ASSET EMERGING MARKETS FLOATING RATE FUND INC.
|
|
|
|
|
|
|
|
|
FACE
AMOUNT
|
|
|
|
SECURITY
|
|
VALUE
|
|
|
|
|
|
Russia 10.1%
continued
|
|
|
|
2,000,000
|
|
|
|
Morgan
Stanley Bank AG for OAO Gazprom, Loan Participation Notes, 9.625% due 3/1/13
(a)
|
|
$
|
2,298,600
|
|
|
|
|
|
TNK-BP
Finance SA:
|
|
|
|
490,000
|
|
|
|
7.500% due 7/18/16
(a)
|
|
471,037
|
|
540,000
|
|
|
|
Senior Notes, 7.875% due 3/13/18
(a)
|
|
527,202
|
|
140,000
|
|
|
|
UBS
Luxembourg SA for OJSC Vimpel Communications,
Loan Participation Notes, 8.250% due 5/23/16
(a)
|
|
139,132
|
|
2,000,000
|
|
|
|
VTB
Capital SA for Vneshtorgbank, Loan Participation Notes,
3.839% due 8/1/08
(a)(c)
|
|
1,984,490
|
|
|
|
|
|
Total Russia
|
|
5,699,656
|
|
|
|
|
|
Thailand 1.9%
|
|
|
|
|
|
|
|
True
Move Co., Ltd.:
|
|
|
|
570,000
|
|
|
|
10.750% due 12/16/13
(a)
|
|
563,958
|
|
550,000
|
|
|
|
10.750% due 12/16/13
(a)
|
|
519,750
|
|
|
|
|
|
Total Thailand
|
|
1,083,708
|
|
|
|
|
|
United Kingdom 7.6%
|
|
|
|
|
|
|
|
HSBC Bank PLC:
|
|
|
|
2,306,683
|
|
|
|
7.000% due 11/1/11
(b)
|
|
2,398,350
|
|
11,018,000
|
|
RUB
|
|
Credit-Linked Notes (Russian Agricultural Bank)
8.900% due 12/20/10
(a)
|
|
446,422
|
|
33,691,500
|
|
RUB
|
|
JPMorgan
Chase Bank, Credit-Linked
Notes (Russian Agricultural Bank) 9.500% due 2/11/11
(a)
|
|
1,407,298
|
|
|
|
|
|
Total United Kingdom
|
|
4,252,070
|
|
|
|
|
|
United States 2.2%
|
|
|
|
567,792
|
|
|
|
Credit
Suisse, Credit-Linked Notes (TuranAlem Finance BV),
8.000% due 7/21/08
(a)
|
|
569,126
|
|
610,000
|
|
|
|
Freeport-McMoRan Copper & Gold Inc., Senior
Notes, 8.375% due 4/1/17
(b)
|
|
648,125
|
|
|
|
|
|
Total United States
|
|
1,217,251
|
|
|
|
|
|
Venezuela 3.4%
|
|
|
|
1,869,000
|
|
|
|
Petrozuata Finance Inc., 8.220% due 4/1/17
(a)
|
|
1,929,743
|
|
|
|
|
|
TOTAL
CORPORATE BONDS & NOTES (Cost $27,482,523)
|
|
27,140,381
|
|
COLLATERALIZED
SENIOR LOANS 0.2%
|
|
|
|
|
|
|
|
United States 0.2%
|
|
|
|
|
|
|
|
Ashmore
Energy International:
|
|
|
|
17,403
|
|
|
|
Synthetic Revolving Credit Facility, 5.098% due
3/30/12
(c)
|
|
15,141
|
|
129,759
|
|
|
|
Term Loan, 7.830% due 3/30/14
(c)
|
|
112,890
|
|
|
|
|
|
TOTAL
COLLATERALIZED SENIOR LOANS (Cost $146,840)
|
|
128,031
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
9
|
Schedule of investments
continued
February 29, 2008
WESTERN
ASSET EMERGING MARKETS FLOATING RATE FUND INC.
|
|
|
|
|
|
|
|
|
FACE
AMOUNT
|
|
|
|
SECURITY
|
|
VALUE
|
|
SOVEREIGN BONDS 43.1%
|
|
|
|
|
|
|
|
Argentina 4.4%
|
|
|
|
|
|
|
|
Republic
of Argentina:
|
|
|
|
1,174,000
|
|
|
|
Bonds, Series VII, 7.000% due 9/12/13
|
|
$
|
1,014,173
|
|
1,660,367
|
|
|
|
Discount Notes, 8.280% due 12/31/33
(b)
|
|
1,464,028
|
|
|
|
|
|
Total Argentina
|
|
2,478,201
|
|
|
|
|
|
Brazil 4.8%
|
|
|
|
2,017,000
|
|
|
|
Federative Republic of Brazil, 11.000% due 8/17/40
|
|
2,712,865
|
|
|
|
|
|
Colombia 4.7%
|
|
|
|
|
|
|
|
Republic
of Colombia:
|
|
|
|
1,500,000
|
|
|
|
8.541% due 3/17/13
(a)(c)
|
|
1,605,000
|
|
1,010,000
|
|
|
|
4.870% due 11/16/15
(c)
|
|
1,019,848
|
|
|
|
|
|
Total Colombia
|
|
2,624,848
|
|
|
|
|
|
Ecuador 1.5%
|
|
|
|
865,000
|
|
|
|
Republic of Ecuador, 10.000% due 8/15/30
(a)(b)
|
|
849,863
|
|
|
|
|
|
Gabon 0.6%
|
|
|
|
297,000
|
|
|
|
Gabonese Republic, 8.200% due 12/12/17
(a)(b)
|
|
312,964
|
|
|
|
|
|
Indonesia 2.8%
|
|
|
|
|
|
|
|
Republic
of Indonesia:
|
|
|
|
3,745,000,000
|
|
IDR
|
|
Series FR40, 11.000% due 9/15/25
|
|
416,046
|
|
3,057,000,000
|
|
IDR
|
|
Series FR42, 10.250% due 7/15/27
|
|
317,945
|
|
4,774,000,000
|
|
IDR
|
|
Series FR43, 10.250% due 7/15/22
|
|
503,742
|
|
3,610,000,000
|
|
IDR
|
|
Series FR45, 9.750% due 5/15/37
|
|
353,441
|
|
|
|
|
|
Total Indonesia
|
|
1,591,174
|
|
|
|
|
|
Mexico 12.8%
|
|
|
|
7,200,000
|
|
|
|
United
Mexican States, Medium-Term Notes,
Series A, 5.077% due 1/13/09
(b)(c)
|
|
7,219,800
|
|
|
|
|
|
Russia 0.5%
|
|
|
|
247,233
|
|
|
|
Russian Federation, 8.250% due 3/31/10
(a)(b)
|
|
259,286
|
|
|
|
|
|
Turkey 6.2%
|
|
|
|
3,778,000
|
|
|
|
Republic of Turkey, Notes, 6.875% due 3/17/36
(b)
|
|
3,499,372
|
|
|
|
|
|
Venezuela 4.8%
|
|
|
|
|
|
|
|
Bolivarian
Republic of Venezuela:
|
|
|
|
270,000
|
|
|
|
5.750% due 2/26/16
|
|
222,750
|
|
2,780,000
|
|
|
|
Collective Action Securities, 4.894% due 4/20/11
(a)(c)
|
|
2,460,300
|
|
|
|
|
|
Total Venezuela
|
|
2,683,050
|
|
|
|
|
|
TOTAL
SOVEREIGN BONDS (Cost $24,302,621)
|
|
24,231,423
|
|
|
|
|
|
TOTAL
INVESTMENTS BEFORE SHORT-TERM INVESTMENTS
(Cost $51,931,984)
|
|
51,499,835
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
10
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
WESTERN
ASSET EMERGING MARKETS FLOATING RATE FUND INC.
|
|
|
|
|
|
|
|
|
FACE
AMOUNT
|
|
|
|
SECURITY
|
|
VALUE
|
|
|
|
|
|
SHORT-TERM INVESTMENTS 8.4%
|
|
|
|
|
|
|
|
Sovereign Bonds 8.0%
|
|
|
|
5,550,000
|
|
MYR
|
|
Bank
Negara Malaysia Islamic Notes, zero coupon bond to yield 3.352% due 7/24/08
|
|
$
|
1,714,655
|
|
|
|
|
|
Egypt Treasury Bills, Series 364:
|
|
|
|
13,375,000
|
|
EGP
|
|
Zero coupon bond to yield 8.290% due 8/26/08
|
|
2,373,918
|
|
2,150,000
|
|
EGP
|
|
Zero coupon bond to yield 7.600% due 11/25/08
|
|
374,293
|
|
|
|
|
|
Total Sovereign Bonds (Cost
$4,339,293)
|
|
4,462,866
|
|
|
|
|
|
U.S. Government Agency 0.4%
|
|
|
|
245,000
|
|
|
|
Federal
National Mortgage Association (FNMA), Discount Notes, 5.111% - 5.203% due
3/17/08
(d)(e)
(Cost
$244,456)
|
|
243,540
|
|
|
|
|
|
TOTAL
SHORT-TERM INVESTMENTS (Cost $4,583,749)
|
|
4,706,406
|
|
|
|
|
|
TOTAL
INVESTMENTS 100.0% (Cost $56,515,733#)
|
|
$
|
56,206,241
|
|
|
Face
amount denominated in U.S. dollars, unless otherwise noted.
|
(a)
|
Security
is exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers. This security has
been deemed liquid pursuant to guidelines approved by the Board of Directors,
unless otherwise noted.
|
(b)
|
All
or a portion of this security is segregated for swap contracts, open futures
contracts and foreign currency contracts.
|
(c)
|
Variable
rate security. Interest rate disclosed is that which is in effect at
February 29, 2008.
|
(d)
|
Rate
shown represents yield-to-maturity.
|
(e)
|
All
or a portion of this security is held at the broker as collateral for open
futures contracts.
|
|
Security
is valued in good faith at fair value by or under the direction of the Board
of Directors (See Note 1).
|
#
|
Aggregate
cost for federal income tax purposes is $56,769,874.
|
Abbreviations used in this
schedule:
EGP - Egyptian Pound
IDR - Indonesian Rupiah
MYR - Malaysian Ringgit
OJSC - Open Joint Stock Company
RUB - Russian Ruble
See Notes to Financial Statements.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
11
|
Statement of assets and liabilities
February 29, 2008
ASSETS:
|
|
|
|
Investments, at value (Cost $56,515,733)
|
|
$
|
56,206,241
|
|
Interest receivable
|
|
859,335
|
|
Interest receivable for open swap contracts
|
|
251,272
|
|
Receivable for securities sold
|
|
145,767
|
|
Unrealized appreciation on swaps
|
|
88
|
|
Prepaid expenses
|
|
1,284
|
|
Total Assets
|
|
57,463,987
|
|
LIABILITIES:
|
|
|
|
Unrealized depreciation on swaps
|
|
2,094,861
|
|
Interest payable for open swap contracts
|
|
274,965
|
|
Payable to broker variation margin on
open futures contracts
|
|
197,677
|
|
Investment management fee payable
|
|
46,048
|
|
Payable for open forward currency contracts
|
|
7,118
|
|
Due to custodian
|
|
2,145
|
|
Directors fees payable
|
|
787
|
|
Accrued expenses
|
|
116,940
|
|
Total Liabilities
|
|
2,740,541
|
|
TOTAL NET ASSETS
|
|
$
|
54,723,446
|
|
NET ASSETS:
|
|
|
|
Par value ($0.001 par value; 4,305,295
shares issued and outstanding; 100,000,000 shares authorized)
|
|
$
|
4,305
|
|
Paid-in capital in excess of par value
|
|
57,152,265
|
|
Undistributed net investment income
|
|
1,122,291
|
|
Accumulated net realized loss on
investments, futures contracts, swap contracts and foreign currency
transactions
|
|
(785,545
|
)
|
Net unrealized depreciation on investments,
futures contracts, swap contracts and foreign currencies
|
|
(2,769,870
|
)
|
TOTAL NET ASSETS
|
|
$
|
54,723,446
|
|
Shares Outstanding
|
|
4,305,295
|
|
Net Asset Value
|
|
$12.71
|
|
See Notes to Financial Statements.
12
|
|
Western
Asset Emerging Markets Floating Rate Fund 2008 Annual Report
|
Statement of operations
For the Year Ended February 29, 2008
INVESTMENT INCOME:
|
|
|
|
Interest
|
|
$
|
4,140,137
|
|
Less: Foreign taxes withheld
|
|
(7,353
|
)
|
Total Investment Income
|
|
4,132,784
|
|
EXPENSES:
|
|
|
|
Investment management fee (Note 2)
|
|
621,214
|
|
Audit and tax
|
|
59,552
|
|
Shareholder reports
|
|
53,401
|
|
Directors fees
|
|
25,245
|
|
Transfer agent fees
|
|
24,259
|
|
Stock exchange listing fees
|
|
21,250
|
|
Legal fees
|
|
14,612
|
|
Custody fees
|
|
7,307
|
|
Commitment fee (Note 4)
|
|
7,115
|
|
Insurance
|
|
1,745
|
|
Miscellaneous expenses
|
|
10,722
|
|
Total Expenses
|
|
846,422
|
|
Less: Fee waivers and/or expense
reimbursements (Note 2)
|
|
(2,388
|
)
|
Net Expenses
|
|
844,034
|
|
NET INVESTMENT INCOME
|
|
3,288,750
|
|
REALIZED AND
UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS, SWAP CONTRACTS AND
FOREIGN CURRENCY TRANSACTIONS (NOTES 1 AND 3):
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
Investment transactions
|
|
1,180,899
|
|
Futures contracts
|
|
(1,221,567
|
)
|
Swap contracts
|
|
(92,948
|
)
|
Foreign currency transactions
|
|
(6,336
|
)
|
Net Realized Loss
|
|
(139,952
|
)
|
Change in Net Unrealized
Appreciation/Depreciation From:
|
|
|
|
Investments
|
|
(3,032,386
|
)
|
Futures contracts
|
|
(315,122
|
)
|
Swap contracts
|
|
(1,509,608
|
)
|
Foreign currencies
|
|
(5,939
|
)
|
Change in Net Unrealized
Appreciation/Depreciation
|
|
(4,863,055
|
)
|
Net Loss on Investments, Futures Contracts,
Swap Contracts and Foreign Currency Transactions
|
|
(5,003,007
|
)
|
DECREASE IN NET ASSETS FROM OPERATIONS
|
|
$
|
(1,714,257
|
)
|
See Notes to Financial Statements.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
13
|
Statements of changes in net assets
FOR THE YEAR ENDED FEBRUARY 29, 2008 AND
THE YEAR ENDED FEBRUARY 28, 2007
|
|
2008
|
|
2007
|
|
OPERATIONS:
|
|
|
|
|
|
Net investment income
|
|
$ 3,288,750
|
|
$ 3,371,749
|
|
Net realized gain (loss)
|
|
(139,952
|
)
|
3,637,694
|
|
Change in net unrealized
appreciation/depreciation
|
|
(4,863,055
|
)
|
(3,478,635
|
)
|
Increase (Decrease) in Net Assets From
Operations
|
|
(1,714,257
|
)
|
3,530,808
|
|
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE
1):
|
|
|
|
|
|
Net investment income
|
|
(3,464,347
|
)
|
(2,724,248
|
)
|
Net realized gains
|
|
(1,194,915
|
)
|
(5,309,916
|
)
|
Decrease in Net Assets From Distributions
to Shareholders
|
|
(4,659,262
|
)
|
(8,034,164
|
)
|
FUND SHARE TRANSACTIONS:
|
|
|
|
|
|
Reinvestment of distributions (1,586 shares
reissued)
|
|
21,696
|
|
|
|
Increase in Net Assets From Fund Share
Transactions
|
|
21,696
|
|
|
|
DECREASE IN NET ASSETS
|
|
(6,351,823
|
)
|
(4,503,356
|
)
|
NET ASSETS:
|
|
|
|
|
|
Beginning of year
|
|
61,075,269
|
|
65,578,625
|
|
End of year*
|
|
$54,723,446
|
|
$61,075,269
|
|
*Includes undistributed net investment
income of:
|
|
$1,122,291
|
|
$1,171,656
|
|
See Notes to Financial Statements.
14
|
|
Western
Asset Emerging Markets Floating Rate Fund 2008 Annual Report
|
Financial highlights
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED FEBRUARY 28, 2008,
UNLESS OTHERWISE NOTED:
|
|
2008
|
1
|
2007
|
|
2006
|
|
2005
|
|
2004
|
1
|
NET ASSET VALUE, BEGINNING OF YEAR
|
|
$ 14.19
|
|
$ 15.24
|
|
$ 14.18
|
|
$ 13.28
|
|
$ 11.23
|
|
INCOME (LOSS) FROM OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
0.76
|
|
0.82
|
|
0.86
|
|
0.88
|
|
1.01
|
|
Net realized and unrealized gain (loss)
|
|
(1.16
|
)
|
(0.00
|
)
2
|
0.96
|
|
0.90
|
|
2.09
|
|
Total income (loss) from operations
|
|
(0.40
|
)
|
0.82
|
|
1.82
|
|
1.78
|
|
3.10
|
|
LESS DISTRIBUTIONS FROM:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(0.80
|
)
|
(0.63
|
)
|
(0.70
|
)
|
(0.73
|
)
|
(1.05
|
)
|
Net realized gains
|
|
(0.28
|
)
|
(1.24
|
)
|
(0.06
|
)
|
(0.15
|
)
|
|
|
Total Distributions
|
|
(1.08
|
)
|
(1.87
|
)
|
(0.76
|
)
|
(0.88
|
)
|
(1.05
|
)
|
NET ASSET VALUE, END OF YEAR
|
|
$ 12.71
|
|
$ 14.19
|
|
$ 15.24
|
|
$ 14.18
|
|
$ 13.28
|
|
Market Price, End of Year
|
|
$ 11.74
|
|
$ 13.62
|
|
$ 13.85
|
|
$ 14.02
|
|
$ 13.69
|
|
Total Return, Based on NAV
3
,
4
|
|
(3.09
|
)%
|
5.69
|
%
|
13.31
|
%
|
14.02
|
%
|
28.37
|
%
|
Total Return, Based on Market Price
4
|
|
(6.06
|
)%
|
12.61
|
%
|
4.77
|
%
|
9.50
|
%
|
31.55
|
%
|
NET ASSETS, END OF YEAR (000s)
|
|
$54,723
|
|
$61,075
|
|
$65,579
|
|
$61,025
|
|
$57,143
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
1.43
|
%
|
2.52
|
%
|
3.05
|
%
|
2.40
|
%
|
2.36
|
%
|
Gross expenses, excluding interest expense
|
|
1.43
|
|
1.68
|
|
1.57
|
|
1.67
|
|
1.70
|
|
Net expenses
|
|
1.43
|
5
|
2.52
|
|
3.05
|
5
|
2.40
|
|
2.36
|
|
Net expenses, excluding interest expense
|
|
1.43
|
5
|
1.68
|
|
1.57
|
5
|
1.67
|
|
1.70
|
|
Net investment income
|
|
5.56
|
|
5.28
|
|
5.98
|
|
6.57
|
|
7.93
|
|
PORTFOLIO TURNOVER RATE
|
|
46
|
%
|
95
|
%
|
89
|
%
|
136
|
%
|
87
|
%
|
Supplemental Data:
|
|
|
|
|
|
|
|
|
|
|
|
Loans Outstanding, End of Year (000s)
|
|
|
6
|
|
6
|
$15,000
|
|
$15,000
|
|
$15,000
|
|
Weighted Average Loan (000s)
|
|
|
6
|
$14,433
|
6
|
$15,000
|
|
$15,000
|
|
$15,000
|
|
Weighted Average Interest Rate on Loans
|
|
|
6
|
5.15
|
%
6
|
4.85
|
%
|
2.83
|
%
|
2.40
|
%
|
1
|
For
the year ended February 29.
|
2
|
Amount
represents less than $0.01 per share.
|
3
|
Performance
figures may reflect fee waivers and/or expense reimbursements. In the absence
of fee waivers and/or expense reimbursements, the total return would have
been lower. Past performance is no guarantee of future results.
|
4
|
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.
|
5
|
Reflects
fee waivers and/or expense reimbursements.
|
6
|
At
February 29, 2008 and February 28, 2007, the Fund did not have an
outstanding loan.
|
See Notes to Financial Statements.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
15
|
Notes to financial statements
1. Organization and significant accounting policies
Western
Asset Emerging Markets Floating Rate Fund Inc. (the Fund) was incorporated in
Maryland on January 21, 1994 and is registered as a non-diversified,
closed-end management investment company under the Investment Company Act of
1940, as amended (the 1940 Act). The Fund seeks to maintain a high level of
current income by investing at least 80% of its net assets plus any borrowings
for investment purposes in floating rate debt securities of emerging market
sovereign and corporate issuers, including fixed rate securities with respect
to which the Fund has entered into interest rate swaps to effectively convert
the fixed rate interest payments received into floating rate interest payments.
As a secondary objective, the Fund seeks capital appreciation.
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.
(a) Investment valuation.
Debt securities are valued at the mean
between the last quoted bid and asked prices provided by an independent pricing
service that are based on transactions in debt obligations, quotations from
bond dealers, market transactions in comparable securities and various other
relationships between securities. Equity securities for which market quotations
are available are valued at the last sale price or official closing price on
the primary market or exchange on which they trade. Publicly traded foreign
government debt securities are typically traded internationally in the
over-the-counter market, and are valued at the mean between the bid and asked
prices as of the close of business of that market. 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 may value these securities at
fair value as determined in accordance with the 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.
(b) Repurchase agreements.
When entering into repurchase agreements, it
is the Funds policy that its custodian or a third party custodian 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 exceeds one business day, the value of the collateral is
marked-to-market to ensure the adequacy of the collateral. If the seller
defaults, and the market value of the collateral declines or if bankruptcy
proceedings are commenced with respect to
16
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
the
seller of the security, realization of the collateral by the Fund may be
delayed or limited.
(c) Financial futures contracts.
The Fund may enter into financial futures
contracts typically to hedge a portion of the portfolio. Upon entering into a
financial futures contract, the Fund is required to deposit cash or securities
as initial margin, equal to a certain percentage of the contract amount
(initial margin deposit). Additional securities are also segregated up to the
current market value of the financial futures contracts. Subsequent payments,
known as variation margin, are made or received by the Fund each day,
depending on the daily fluctuations in the value of the underlying financial
instruments. For foreign denominated futures, variation margins are not settled
daily. The Fund recognizes an unrealized gain or loss equal to the fluctuation
in the value. When the financial futures contracts are closed, a realized gain
or loss is recognized equal to the difference between the proceeds from (or
cost of) the closing transactions and the Funds basis in the contracts.
The
risks associated with entering into financial futures contracts include the
possibility that a change in the value of the contract may not correlate with
the changes in the value of the underlying financial instruments. In addition,
investing in financial futures contracts involves the risk that the Fund could
lose more than the initial margin deposit and subsequent payments required for
a futures transaction. Risks may also arise upon entering into these contracts
from the potential inability of the counterparties to meet the terms of their
contracts.
(d) Swap contracts.
Swaps involve the exchange by the Fund with
another party of the respective amounts payable with respect to a notional
principal amount related to one or more indices. The Fund may enter into these
transactions to preserve a return or spread on a particular investment or
portion of its assets, as a duration management technique, or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund may also use these transactions for speculative
purposes, such as to obtain the price performance of a security without
actually purchasing the security in circumstances where, for example, the
subject security is illiquid, is unavailable for direct investment or available
only on less attractive terms.
Swaps
are marked-to-market daily based upon quotations from market makers and the
change in value, if any, is recorded as an unrealized gain or loss in the
Statement of Operations. Net receipts or payments of interest are recorded as
realized gains or losses, respectively.
Swaps
have risks associated with them, including possible default by the counterparty
to the transaction, illiquidity and, where swaps are used as hedges, the risk
that the use of a swap could result in losses greater than if the swap had not
been employed.
(e) Credit default swaps.
The Fund may enter into credit default swap (CDS)
contracts for investment purposes, to manage its credit risk or to add
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
17
|
Notes to financial statements (unaudited)
continued
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 issuers or sovereign issuers of
an emerging country, on a specified obligation. The Fund may use a CDS to
provide a measure of protection against defaults of the issuers (i.e., to
reduce risk where a fund has exposure to the sovereign 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 fixed rate of income 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
Fund will pay to the buyer of the protection an amount up to the notional value
of the swap, and in certain instances take delivery of the security. As the
seller, the Fund would effectively add leverage to its portfolio because, in
addition to its total net assets, the Fund would be 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.
Payments
received or made at the beginning of the measurement period are reflected as
such on the Statement of Assets and Liabilities. These upfront payments are
recorded as realized gain or loss on the Statement of Operations upon
termination or maturity of the swap. A liquidation payment received or made at
the termination of the swap is recorded as realized gain or loss on the
Statement of Operations. Net periodic payments received or paid by the Fund are
recorded as realized gain or loss on the Statement of Operations.
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.
(f) 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 records 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 was closed.
18
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
Forward
foreign currency contracts involve elements of market risk in excess of the
amounts reflected in 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.
(g) 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 on
an expected interest payment, the Funds policy is to generally halt any additional
interest income accruals and consider the realizability of interest accrued up
to the date of default.
(h) 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 at 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
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss on investments.
Net
realized foreign exchange gains or losses arise from sales of foreign
currencies, including gains and losses on forward foreign currency contracts,
currency gains or losses realized between the trade and settlement dates on
securities transactions, and the difference between the amounts of dividends,
interest, and foreign withholding taxes recorded on the 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 fair values of
assets and liabilities, other than investments in securities, at 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.
(i) 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
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
19
|
Notes to financial statements (unaudited)
continued
things,
perceived credit and market risks. The Funds investment in securities rated
below investment grade typically involves 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.
(j) Distributions to shareholders.
Pursuant to its Managed Distribution Policy,
the Fund intends to make regular monthly distributions to shareholders at a
fixed rate per common share, which may be adjusted from time to time by the
Funds Board of Directors. Under the Funds Managed Distribution Policy, if,
for any monthly distribution, net investment income and net realized capital
gains are less than the amount of the distribution, the difference will be
distributed from the Funds assets (and constitute a return of capital). The
Board of Directors may terminate or suspend the Managed Distribution Policy at
any time, including when certain events would make part of the return of
capital taxable to shareholders. Any such termination could have an adverse
effect on the market price for the Funds shares.
(k) 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, as amended, applicable to regulated investment companies. Accordingly,
the Fund intends to distribute substantially all of its taxable income and net
realized gains, if any, to shareholders each year. Therefore, no federal income
tax provision is required in the Funds financial statements.
Management
has analyzed the Funds tax positions taken on federal income tax returns for
all open tax years and has concluded that as of February 29, 2008, no
provision for income tax would be 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 the Internal Revenue Service and state departments of
revenue.
Under
the applicable foreign tax laws, a withholding tax may be imposed on interest,
dividends and capital gains at various rates.
20
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
(l) Reclassification.
GAAP requires that certain components of net
assets be adjusted 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
|
|
|
(a)
|
|
$126,232
|
|
$(126,232)
|
|
|
(a)
|
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, book/tax differences in the treatment of swaps.
|
2. Investment management agreement and other transactions with
affiliates
Legg
Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager and
Western Asset Management Company (Western Asset) is the Funds subadviser.
LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc.
(Legg Mason).
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 1.05% of the Funds average weekly net assets. LMPFA has
delegated to the subadviser the day-to-day portfolio management of the Fund.
For its services, LMPFA pays Western Asset 70% of the net management fee it
receives from the Fund.
During
the year ended February 29, 2008, the Fund was reimbursed for expenses
amounting to $2,388.
Certain
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 February 29, 2008, the aggregate cost of purchases and
proceeds from sales of investments (excluding short-term investments) were as
follows:
Purchases
|
|
$26,530,904
|
|
Sales
|
|
33,993,712
|
|
At
February 29, 2008, the aggregate gross unrealized appreciation and
depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation
|
|
$ 1,086,212
|
|
Gross unrealized depreciation
|
|
(1,649,845
|
)
|
Net unrealized depreciation
|
|
$ (563,633
|
)
|
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
21
|
Notes to financial statements (unaudited)
continued
At
February 29, 2008, the Fund had the following open futures contracts:
|
|
NUMBER OF
CONTRACTS
|
|
EXPIRATION
DATE
|
|
BASIS
VALUE
|
|
MARKET
VALUE
|
|
UNREALIZED
LOSS
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, 10-Year Notes
|
|
19
|
|
3/08
|
|
$ 2,163,897
|
|
$ 2,255,063
|
|
$ (91,166
|
)
|
U.S. Treasury, 10-Year Notes
|
|
111
|
|
6/08
|
|
12,749,718
|
|
13,018,218
|
|
(268,500
|
)
|
Net Unrealized Loss on Open Futures
Contracts
|
|
|
|
|
|
|
|
$(359,666
|
)
|
At
February 29, 2008, the Fund had the following open forward foreign
currency contracts:
FOREIGN CURRENCY
|
|
LOCAL
CURRENCY
|
|
MARKET
VALUE
|
|
SETTLEMENT
DATE
|
|
UNREALIZED
LOSS
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
Indian Rupee
|
|
4,305,500
|
|
$107,679
|
|
3/14/08
|
|
$(1,321
|
)
|
Indian Rupee
|
|
12,900,150
|
|
322,629
|
|
3/14/08
|
|
(4,371
|
)
|
Indian Rupee
|
|
4,260,600
|
|
106,574
|
|
3/17/08
|
|
(1,426
|
)
|
Net Unrealized Loss on Open Forward Foreign
Currency Contracts
|
|
|
|
|
|
$(7,118
|
)
|
At
February 29, 2008, the Fund held the following interest rate swap
contracts:
Swap
Counterparty:
|
|
JPMorgan
Chase Bank NA
|
Effective
Date:
|
|
12/29/04
|
Notional
Amount:
|
|
$16,000,000
|
Payments
Made by Fund:
|
|
Fixed
Rate, 6.130%
|
Payments
Received by Fund:
|
|
Floating
Rate (6-month LIBOR)
|
Termination
Date:
|
|
12/28/10
|
Unrealized
Depreciation
|
|
$(1,454,282
)
|
|
|
|
Swap
Counterparty:
|
|
JPMorgan
Chase Bank NA
|
Effective
Date:
|
|
3/3/05
|
Notional
Amount:
|
|
$4,120,000
|
Payments
Made by Fund:
|
|
Fixed
Rate, 4.805%
|
Payments
Received by Fund:
|
|
Floating
Rate (6-month LIBOR)
|
Termination
Date:
|
|
3/3/15
|
Unrealized
Depreciation
|
|
$(257,284
)
|
22
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
Swap
Counterparty:
|
|
JPMorgan
Chase Bank NA
|
Effective
Date:
|
|
8/22/07
|
Notional
Amount:
|
|
$5,000,000
|
Payments
Made by Fund:
|
|
Fixed
Rate, 5.063%
|
Payments
Received by Fund:
|
|
Floating
Rate (3-month LIBOR)
|
Termination
Date:
|
|
8/22/12
|
Unrealized
Depreciation
|
|
$(383,295
)
|
At
February 29, 2008, the Fund had total unrealized depreciation of
$2,094,861 from interest rate swaps.
At
February 29, 2008, the Fund held the following credit default swap
contract:
Swap
Counterparty:
|
|
Morgan
Stanley & Co. Inc.
|
Effective
Date:
|
|
2/21/08
|
Reference
Entity:
|
|
ATF
Bank
|
Notional
Amount:
|
|
$560,000
|
Payments
Made by Fund:
|
|
Payment
only if credit event occurs
|
Payments
Received by Fund:
|
|
Fixed
Rate, 4.250%
|
Termination
Date:
|
|
3/24/08
|
Unrealized
Appreciation
|
|
$88
|
4. Loan
At
February 29, 2008, the Fund had a $7,000,000 credit line available
pursuant to an amended and restated revolving credit and security agreement,
dated as of November 20, 2006 and amended November 16, 2007, among
the Fund, CHARTA, LLC (the Lender), as sucessor by assignment to Panterra
Funding, LLC, and Citibank N.A. (Citibank) as secondary lender, for which
Citibank also acts as administrative agent. The loan generally bears interest
at a variable rate based on the weighted average interest rates of the
commercial paper or LIBOR, plus any applicable margin. In addition, the Fund
pays a commitment fee on the total amount of the loan available, whether used
or unused. Securities held by the Fund are subject to a lien, granted to the lenders,
to the extent of the borrowing outstanding and any additional expenses. For the
year ended February 29, 2008, the Fund incurred a commitment fee in the
amount of $7,115. The Fund did not have any borrowings outstanding during the
year ended February 29, 2008,
5. Distributions subsequent to February 29, 2008
On
February 15, 2008, the Funds Board declared three distributions, each in
the amount of $0.0850 per share, payable on March 28, 2008, April 25,
2008 and May 30, 2008 to shareholders of record on March 20, 2008, April 18,
2008 and May 23, 2008, respectively.
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
23
|
Notes to financial statements (unaudited)
continued
6. Income tax information and distributions to shareholders
The
tax character of distributions paid during the fiscal years ended February 29,
2008 and February 28, 2007 was as follows:
|
|
2008
|
|
2007
|
|
|
Distributions paid from:
|
|
|
|
|
|
|
Ordinary Income
|
|
$4,098,283
|
|
$4,017,512
|
|
|
Net Long-Term Capital Gains
|
|
560,979
|
|
4,016,652
|
|
|
Total Distributions Paid
|
|
$4,659,262
|
|
$8,034,164
|
|
|
As
of February 29, 2008, the components of accumulated earnings on a tax
basis were as follows:
Undistributed ordinary income net
|
$ 1,154,818
|
|
|
Undistributed long-term capital gains net
|
168,552
|
|
|
Total Undistributed earnings
|
$ 1,323,370
|
|
|
Other book/tax temporary differences
(a)
|
(732,483
|
)
|
|
Unrealized appreciation/(depreciation)
(b)
|
(3,024,011
|
)
|
|
Total accumulated earnings/(losses) net
|
$(2,433,124
|
)
|
|
(a)
|
Other
book/tax temporary differences are attributable primarily to the realization
for tax purposes of unrealized losses on certain futures contracts, the
deferral of post-October capital losses for tax purposes and the
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 difference
between book and tax amortization methods for premiums on fixed-income
securities.
|
7. Recent accounting pronouncements
On
September 20, 2006, the Financial Accounting Standard Board (FASB)
released Statement of Financial Accounting Standards No. 157,
Fair Value Measurements
(FAS 157). FAS
157 establishes an authoritative definition of fair value, sets out a framework
for measuring fair value, and requires additional disclosures about fair value
measurements. The application of FAS 157 is required for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years.
Management has determined that there is no material impact to the Portfolios
valuation policies as a result of adopting FAS 157. The Portfolio will
implement the disclosure requirements beginning with its May 31, 2008 Form N-Q.
In
March 2008, FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities (SFAS 161).
SFAS 161 is effective for fiscal years and interim periods beginning after November 15,
2008. SFAS 161 requires enhanced disclosures about the Funds derivative and
hedging activities, including how such activities are accounted for and their
effect on the Funds financial position, performance and cash flows. Management
is currently evaluating the impact the adoption of SFAS 161 will have on the
Funds financial statements and related disclosures.
24
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual Report
|
Report of independent registered public
accounting firm
The Board of Directors and Shareholders
Western Asset Emerging Markets Floating Rate Fund Inc.:
We have audited the accompanying statement of assets
and liabilities, including the schedule of investments, of Western Asset
Emerging Markets Floating Rate Fund Inc. as of February 29, 2008, 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 February 29,
2008, by correspondence with the custodian and brokers. 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 Emerging Markets Floating
Rate Fund Inc. as of February 29, 2008, and 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
April 25, 2008
Western Asset Emerging Markets Floating Rate Fund Inc. 2008 Annual
Report
|
|
25
|
Board approval of management and subadvisory
agreements (unaudited)
Background
The
Investment Company Act of 1940 (the 1940 Act) requires that the Board of
Directors (the Board) of the Fund, including a majority of its members that
are not considered to be interested persons under the 1940 Act (the Independent
Directors) voting separately, approve the continuation of the investment
management contract (the Management Agreement) with the Funds manager, Legg
Mason Partners Fund Advisor, LLC (the Manager) and the sub-advisory agreement
(the Sub-Advisory Agreement) with the Managers affiliate, Western Asset
Management Company (the Subadviser), on an annual basis. At a meeting (the Contract
Renewal Meeting) held in-person on November 13 and 14, 2007, the Board,
including the Independent Directors, considered and approved continuation of
each of the Management and Sub-Advisory Agreements for an additional one-year
term. To assist in its consideration of the renewals of the Management and
Sub-Advisory Agreements, the Board received and considered a variety of
information about the Manager and Subadviser, as well as the management and
sub-advisory arrangements for the Fund and other funds overseen by the Board (the
Contract Renewal Information), certain portions of which are discussed below.
A presentation made by the Manager and Subadviser to the Board at the Contract
Renewal Meeting in connection with its evaluations of the Management and
Sub-Advisory Agreements encompassed the Fund and all the funds for which the
Board has responsibility. In addition to the Contract Renewal Information,
including information presented by management at the Contract Renewal Meeting,
the Board received performance and other information throughout the year
related to the respective services rendered by the Manager and the Subadviser
to the Fund. The Boards evaluation took into account the information received
throughout the year and also reflected the knowledge and familiarity gained as
Board members of the Fund and other funds in the same complex with respect to
the services provided to the Fund by each of the Manager and Subadviser.
The
discussion below covers both advisory and administrative functions being
rendered by the Manager, each such function being encompassed by the Management
Agreement, and the investment advisory function being rendered by the
Subadviser.
Board approval of management agreement and sub-advisory agreement
In
its deliberations regarding renewal of the Management Agreement and
Sub-Advisory Agreement, the Funds Board, including the Independent Directors,
considered the factors below.
26
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
Nature, extent and quality of the services under the management
agreement and sub-advisory agreement
The
Board received and considered Contract Renewal Information regarding the
nature, extent and quality of services provided to the Fund by the Manager and
the Subadviser under the Management Agreement and the Sub-Advisory Agreement,
respectively, during the past year. The Board also reviewed Contract Renewal
Information regarding the Funds compliance policies and procedures established
pursuant to Rule 38a-1 under the 1940 Act.
The
Board reviewed the qualifications, backgrounds and responsibilities of the Funds
senior personnel and the portfolio management team primarily responsible for
the day-to-day portfolio management of the Fund. The Board also considered,
based on its knowledge of the Manager and its affiliates, the Contract Renewal
Information and the Boards discussions with the Manager at the Contract
Renewal Meeting, the financial resources available to the parent organization
of the Manager and Subadviser, Legg Mason, Inc. (Legg Mason).
The
Board considered the responsibilities of the Manager and the Subadviser under
the Management Agreement and the Sub-Advisory Agreement, respectively,
including the Managers coordination and oversight of services provided to the
Fund by the Subadviser and others. The Board also considered the brokerage
policies and practices of the Manager and Subadviser, the standards applied in
seeking best execution, the policies and practices of the Manager and
Subadviser regarding soft dollars, the use of a broker affiliated with the
Manager or the Subadviser, and the existence of quality controls applicable to
brokerage allocation procedures. In addition, the Manager also reported
generally to the Board on, among other things, its business plans, recent
organizational changes, including Legg Masons plans to address the pending
retirement of its Chief Executive Officer, and the compensation plan for the
Funds portfolio managers.
The
Board concluded that, overall, the nature, extent and quality of services
provided (and expected to be provided) to the Fund under the Management
Agreement and the Sub-Advisory Agreement have been satisfactory under the
circumstances.
Fund performance
The
Board received and considered performance information and analyses (the Lipper
Performance Information) for the Fund, as well as for a group of funds (the Performance
Universe) selected by Lipper, Inc. (Lipper), an independent provider of
investment company data. The Board was provided with a description of the
methodology Lipper used to determine the similarity of the Fund with the funds
included in the Performance Universe. The Performance Universe consisted of the
Fund and all closed-end leveraged emerging markets debt funds, as classified by
Lipper, regardless of asset size or primary distribution channel. The
Performance Universe consisted of seven funds. The
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
27
|
Board approval of management and subadvisory
agreements (unaudited)
continued
Board
noted that it had received and discussed with the Manager and Subadviser
information throughout the year at periodic intervals comparing the Funds
performance against its benchmark and, at the Boards request, its peer funds
as selected by Lipper.
The
Lipper Performance Information comparing the Funds performance to that of the
Performance Universe based on net asset value per share showed, among other
things, that the Funds performance for the 1-year period ended June 30,
2007 was ranked seventh among the seven funds in the Performance Universe; the
Funds performance for each of the 3- and 5-year periods ended June 30,
2007 was ranked sixth among the funds in the Performance Universe; and the Funds
performance for the 10-year period ended June 30, 2007 was ranked fourth
among the funds in the Performance Universe. Among other things, the Manager
noted that the Subadviser assumed responsibility for management of the Funds
portfolio in December 2005 and that the Fund is required to maintain a
1-year duration while the other funds in the Performance Universe do not have a
floating rate mandate and tend to have much longer durations. The Board further
noted the small number of funds in the Performance Universe. The Board also
considered the Funds performance in relation to its benchmark and in absolute
terms.
Based
on its review, which included consideration of all of the factors noted above,
the Board concluded that, under the circumstances, the Funds performance
supported continuation of the Management and Sub-advisory Agreements for an
additional period not to exceed one year.
Management fees and expense ratios
The
Board reviewed and considered the management fee (the Management Fee) payable
by the Fund to the Manager in light of the nature, extent and quality of the
management and sub-advisory services provided by the Manager and the
Subadviser. The Board noted that the compensation paid to the Subadviser is
paid by the Manager, not the Fund, and, accordingly, that the retention of the
Subadviser does not increase the fees or expenses otherwise incurred by the
Funds shareholders.
Additionally,
the Board received and considered information and analyses prepared by Lipper
(the Lipper Expense Information) comparing the Management Fee and the Funds
overall expenses with those of funds in an expense group (the Expense Group)
selected and provided by Lipper for the 1-year period ended June 30, 2007.
The Expense Group consisted of the Fund and three other closed-end leveraged
emerging markets debt funds, as classified by Lipper, excluding certain funds
regarded by Lipper as inappropriate for comparative purposes. The Expense Group
funds had assets ranging from $33.6 million to $990.3 million.
The
Lipper Expense Information comparing the Management Fee as well as the Funds
actual total expenses to the Funds Expense Group showed that the
28
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
Management
Fee was ranked second among the funds in the Expense Group on a contractual
basis and was ranked third among the funds in the Expense Group on an actual
basis (i.e., giving in effect to a voluntary fee waiver implemented by the
Manager). The Funds actual total expenses ranked fourth among the four funds
in the Expense Group. The Manager noted that the small number of funds in the
Expense Group, which included a fund significantly larger than the Fund, made
meaningful comparisons difficult. In addition, the Manager and the Lipper
Expense Information each noted that, during a significant portion of the period
covered by the Lipper Expense Information, the Fund utilized leverage but does
not currently do so. According to the Manager, the Funds investment-related
expenses, and therefore its total expenses, have declined since the Funds
leverage was eliminated.
The
Board also reviewed Contract Renewal Information regarding fees charged by the
Manager to other U.S. clients investing primarily in an asset class similar to
that of the Fund, including, where applicable, separate accounts. The Board was
advised that the fees paid by such other clients generally are lower, and may
be significantly lower, than the Management Fee. The Contract Renewal Information
discussed the significant differences in scope of services provided to the Fund
and to these other clients, noting that the Fund is provided with
administrative services, office facilities, Fund officers (including the Funds
chief executive, chief financial and chief compliance officers), and that the
Manager coordinates and oversees the provision of services to the Fund by other
fund service providers. The Board considered the fee comparisons in light of
the differences required to manage these different types of accounts. The
Contract Renewal Information included an analysis of complex-wide management
fees provided by the Manager, which, among other things, set out a proposed
framework of fees based on asset classes.
Taking
all of the above into consideration, the Board determined that the Management
Fee and the sub-advisory fee were reasonable in light of the nature, extent and
quality of the services provided to the Fund under the Management Agreement and
the Sub-Advisory Agreement.
Manager profitability
The
Board, as part of the Contract Renewal Information, received an analysis of the
profitability to the Manager and its affiliates in providing services to the
Fund. The Board also received profitability information with respect to the
Legg Mason fund complex as a whole. In addition, the Board received Contract
Renewal Information with respect to the Managers revenue and cost allocation
methodologies used in preparing such profitability data, together with a report
from an outside consultant that had reviewed the Managers methodologies. The
profitability to the Subadviser was not considered to be a material factor in
the Boards considerations since the Subadvisers fee is paid by the Manager,
not the Fund. The profitability analysis presented to the Board as part of the
Contract Renewal Information indicated that profitability to the Manager in
providing services to the Fund had increased by 17 percent over the period
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
29
|
Board approval of management and subadvisory
agreements (unaudited)
continued
covered
by the analysis. However, the Board noted that the Manager had implemented a
new revenue and cost allocation methodology in 2007 which was used in preparing
the profitability analysis presented at the Contract Renewal Meeting and that
the methodology was subject to further review and refinement. Under the Funds
circumstances, the Board did not consider profitability to be such as to support
a determination against continuation of the Management and Sub-advisory
Agreements.
Economies of scale
The
Board received and discussed Contract Renewal Information concerning whether
the Manager realizes economies of scale if the Funds assets grow. The Board
noted that because the Fund is a closed-end fund with no current plans to seek
additional assets beyond maintaining its dividend reinvestment plan, any
significant growth in its assets generally will occur through appreciation in
the value of the Funds investment portfolio, rather than sales of additional
shares in the Fund. The Board determined that the management fee structure was
appropriate under present circumstances.
Other benefits to the manager and the subadviser
The
Board considered other benefits received by the Manager, the Subadviser and its
affiliates as a result of their relationship with the Fund, including the
opportunity to obtain research services from brokers who effect Fund portfolio
transactions.
* * * * * *
In
light of all of the foregoing, the Board determined that, under the
circumstances, continuation of the Management and Sub-Advisory Agreements would
be consistent with the interests of the Fund and its shareholders and
unanimously voted to continue each Agreement for a period of one additional
year.
No
single factor reviewed by the Board was identified by the Board as the
principal factor in determining whether to approve continuation of the
Management and Sub-Advisory Agreements, and each Board member attributed different
weights to the various factors. The Independent Directors were advised by
separate independent legal counsel throughout the process. Prior to the
Contract Renewal Meeting, the Board received a memorandum discussing its
responsibilities in connection with the proposed continuation of the Management
and Sub-Advisory Agreements from Fund counsel and the Independent Directors
separately received a memorandum discussing such responsibilities from their
independent counsel. Prior to voting, the Independent Directors also discussed
the proposed continuation of the Management Agreement and the Sub-Advisory
Agreement in private sessions with their independent legal counsel at which no
representatives of the Manager were present.
30
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
Additional information (unaudited)
Information about Directors and Officers
The
business and affairs of Western Asset Emerging Markets Floating Rate Fund Inc.
(Fund) are managed under the direction of the Board of Directors. Information
pertaining to the Directors and Officers of the Fund is set forth below:
NON-INTERESTED DIRECTORS
CAROL
L. COLMAN C/O CHAIRMAN OF THE FUND
620 Eight Avenue, New York, NY 10018
Birth year
|
|
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
2002
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
President,
Colman Consulting Co.
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
25
|
|
|
|
Other board member
ships held by Director
|
|
None
|
DANIEL P. CRONIN C/O CHAIRMAN OF THE FUND
620 Eighth Avenue, New York, NY 10018
Birth year
|
|
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
2002
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Formerly,
Associate General Counsel, Pfizer Inc.
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
25
|
|
|
|
Other board member
ships held by Director
|
|
None
|
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
31
|
Additional information (unaudited)
continued
PAOLO
M. CUCCHI
Drew University, 108 Brothers College, Madison, NJ 07940
Birth year
|
|
1941
|
|
|
|
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
2007
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Vice
President and Dean of College of Liberal Arts at Drew University
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
25
|
|
|
|
Other board member
ships held by Director
|
|
None
|
LESLIE H. GELB C/O CHAIRMAN OF THE FUND
620 Eighth Avenue, New York, NY 10018
Birth year
|
|
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
1994
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
President,
Emeritus and Senior Board Fellow, 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
|
|
25
|
|
|
|
Other board member
ships held by Director
|
|
Director
of two registered investment companies advised by Blackstone Asia Advisors,
LLC (Blackstone Advisors)
|
WILLIAM R. HUTCHINSON
535 N. Michigan Avenue, Suite 1012, Chicago, IL 60611
Birth year
|
|
1942
|
|
|
|
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
2003
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
President,
W.R. Hutchinson & Associates Inc.; Formerly, Group Vice President,
Mergers and Acquisitions, BP Amoco p.l.c.
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
25
|
|
|
|
Other board member
ships held by Director
|
|
Director
of Associated Banc-Corp.
|
32
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
RIORDAN
ROETT
The Johns Hopkins University, 1740 Massachusetts Ave. NW, Washington, DC 20036
Birth year
|
|
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
1995
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Professor
and Director, Latin America Studies Program, Paul H. Nitze School of Advanced
International Studies, The John Hopkins University
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
24
|
|
|
|
Other board member
ships held by Director
|
|
None
|
JESWALD
W. SALACUSE C/O CHAIRMAN OF THE FUND
620 Eighth Avenue, New York, NY 10018
Birth year
|
|
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
1994
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Henry
J. Braker Professor of Commercial Law and formerly Dean, The Fletcher School
of Law and Diplomacy, Tufts University
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
23
|
|
|
|
Other board member
ships held by Director
|
|
Director
of two registered investment companies advised by Blackstone Advisors
|
INTERESTED DIRECTOR
R.
JAY GERKEN, CFA
(2)
Legg Mason & Co., LLC (Legg Mason), 620 Eighth Avenue, New York, NY
10018
Birth year
|
|
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
2003
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Managing
Director, Legg Mason; Chairman of the Board and Trustee/Director of 150 funds
associated with Legg Mason Partners Fund Advisor, LLC (LMPFA) and its
affiliates; President, LMPFA (since 2006); Chairman, President and Chief
Executive Officer of certain mutual funds associated with Legg
Mason & Co. or its affiliates; formerly, Chairman and Chief Executive
Officer, Travelers Investment Advisers Inc. (from 2002 to 2005)
|
|
|
|
Number of portfolios in
fund complex overseen
by Director
|
|
137
|
|
|
|
Other board member
ships held by Director
|
|
Trustee,
Consulting Group Capital Markets Funds (from 2002 to 2006)
|
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
33
|
Additional information (unaudited)
continued
OFFICERS
KAPREL
OZSOLAK
Legg Mason, 55 Water Street, New York, NY 10041
Birth year
|
|
1965
|
|
|
|
Position(s) held
with Fund
1
|
|
Chief
Financial Officer and Treasurer
|
|
|
|
Term of office
1
and
length of time served
|
|
Since
2007
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Director
of Legg Mason; Chief Financial Officer and Treasurer of certain mutual funds
associated with Legg Mason; Formerly, Controller of certain mutual funds
associated with certain predecessor firms of Legg Mason (from 2002 to 2004)
|
TED
P. BECKER
Legg Mason, 620 Eighth Avenue, New York, NY 10018
Birth year
|
|
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 5 years
|
|
Director
of Global Compliance at Legg Mason (since 2006); Managing Director of
Compliance at Legg Mason, (since 2005); Chief Compliance Officer with certain
mutual funds associated with Legg Mason (since 2006); Formerly, Managing
Director of Compliance at Legg Mason or its predecessors (from 2002 to 2005)
|
ROBERT
I. FRENKEL
Legg Mason, 300 First Stamford Place, Stamford, CT 06902
Birth year
|
|
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 5 years
|
|
Managing
Director and General Counsel of Global Mutual Funds for Legg Mason and its
predecessor (since 1994); Secretary and Chief Legal Officer of mutual funds associated
with Legg Mason (since 2003); Formerly, Secretary of CFM (from 2001 to 2004)
|
THOMAS
C. MANDIA
Legg Mason, 300 First Stamford Place, Stamford, CT 06902
Birth year
|
|
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 5 years
|
|
Managing
Director and Deputy General Counsel of Legg Mason & Co. (since 2005);
Managing Director and Deputy General Counsel for CAM (since 1992); Assistant
Secretary of certain mutual funds associated with Legg Mason
|
34
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
STEVEN
FRANK
Legg Mason, 55 Water Street, New York, NY 10041
Birth year
|
|
1967
|
|
|
|
Position(s) held
with Fund
1
|
|
Controller
|
|
|
|
Term of office
1
and
length of time served
|
|
Since
2005
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Vice
President of Legg Mason (since 2002); Controller of certain funds associated
with Legg Mason or its predecessors (since 2005); Formerly, Assistant
Controller of certain mutual funds associated with Legg Mason predecessors
(from 2001 to 2005)
|
ALBERT
LASKAJ
Legg Mason, 55 Water Street, New York, NY 10041
Birth year
|
|
1977
|
|
|
|
Position(s) held
with Fund
1
|
|
Controller
|
|
|
|
Term of office
1
and
length of time served
|
|
Since
2007
|
|
|
|
Principal
occupation(s) during
past 5 years
|
|
Controller
of certain mutual funds associated with Legg Mason (Since 2007); Formerly,
Assistant Controller of certain mutual funds associated with Legg Mason (from
2005 to 2007); Formerly, Accounting Manager of certain mutual funds
associated with certain predecessor firms of Legg Mason
(from 2003 to 2005)
|
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 2008, year 2009 and year 2010, 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, as amended,
because Mr. Gerken is an officer of LMPFA and certain of its affiliates.
|
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
35
|
Annual chief executive officer and
chief financial officer certifications (unaudited)
The
Funds CEO has submitted to the NYSE the required annual certification and the
Fund also has included the Certifications of the Funds CEO and CFO 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.
36
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
Dividend reinvestment and cash purchase plan
(unaudited)
1.
Each shareholder initially purchasing shares of common stock (Shares) of
Western Asset Emerging Markets Floating Rate Fund Inc. (Fund), formerly known
as Salomon Brothers Emerging Markets Floating Rate Fund Inc. on or after September 6,
1996 will be deemed to have elected to be a participant in the Amended and
Restated Dividend Reinvestment and Cash Purchase Plan (Plan), unless the
shareholder specifically elects in writing (addressed to the Agent at the
address below or to any nominee who holds Shares for the shareholder in its
name) to receive all distributions in cash, paid by check, mailed directly to
the record holder by or under the direction of American Stock Transfer &
Trust Company as the Funds dividend-paying agent (Agent). A shareholder
whose Shares are held in the name of a broker or nominee who does not provide
an automatic reinvestment service may be required to take such Shares out of street
name and register such Shares in the shareholders name in order to
participate, otherwise distributions will be paid in cash to such shareholder
by the broker or nominee. Each participant in the Plan is referred to herein as
a Participant. The Agent will act as agent for each Participant, and will
open accounts for each Participant under the Plan in the same name as their
Shares are registered.
2.
Unless the Fund declares a distribution payable only in the form of cash, the
Agent will apply all distributions in the manner set forth below.
3.
If, on the determination date, the market price per Share equals or exceeds the
net asset value per Share on that date (such condition, a market premium),
the Agent will receive the distribution in newly issued Shares of the Fund on
behalf of Participants. If, on the determination date, the net asset value per
Share exceeds the market price per Share (such condition, a market discount),
the Agent will purchase Shares in the open-market. The determination date will
be the fourth New York Stock Exchange trading day (a New York Stock Exchange
trading day being referred to herein as a Trading Day) preceding the payment
date for the distribution. For purposes herein, market price will mean the
average of the highest and lowest prices at which the Shares sell on the New
York Stock Exchange on the particular date, or if there is no sale on that
date, the average of the closing bid and asked quotations.
4.
Purchases made by the Agent will be made as soon as practicable commencing on
the Trading Day following the determination date and terminating no later than
30 days after the distribution payment date except where temporary curtailment
or suspension of purchase is necessary to comply with applicable provisions of
federal securities law; provided, however, that such purchases will, in any
event, terminate on the Trading Day prior to the ex-dividend date next
succeeding the distribution payment date.
5.
If (i) the Agent has not invested the full distribution amount in
open-market purchases by the date specified in paragraph 4 above as the date on
which such purchases must terminate or (ii) a market discount shifts to a
market premium during the purchase period, then the Agent will cease making
open-market purchases and will receive the uninvested portion of the
distribution amount in
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
37
|
Dividend reinvestment and cash purchase plan
(unaudited)
continued
newly
issued Shares (x) in the case of (i) above, at the close of business
on the date the Agent is required to terminate making open-market purchases as
specified in paragraph 4 above or (y) in the case of (ii) above, at
the close of business on the date such shift occurs; but in no event prior to
the payment date for the distribution.
6.
In the event that all or part of a distribution amount is to be paid in newly
issued Shares, such Shares will be issued to Participants in accordance with
the following formula: (i) if, on the valuation date, the net asset value
per share is less than or equal to the market price per Share, then the newly
issued Shares will be valued at net asset value per Share on the valuation
date; provided, however, that if the net asset value is less than 95% of the market
price on the valuation date, then such Shares will be issued at 95% of the
market price and (ii) if, on the valuation date, the net asset value per
share is greater than the market price per Share, then the newly issued Shares
will be issued at the market price on the valuation date. The valuation date
will be the distribution payment date, except that with respect to Shares
issued pursuant to paragraph 5 above the valuation date will be the date such
Shares are issued. If a date that would otherwise be a valuation date is not a
Trading Day, the valuation date will be the next preceding Trading Day.
7.
Participants have the option of making additional cash payments to the Agent,
monthly, in a minimum amount of $250, for investment in Shares. The Agent will
use all such funds received from Participants to purchase Shares in the open
market on or about the first business day of each month. To avoid unnecessary
cash accumulations, and also to allow ample time for receipt and processing by
the Agent, Participants should send in voluntary cash payments to be received
by the Agent approximately 10 days before an applicable purchase date specified
above. A Participant may withdraw a voluntary cash payment by written notice,
if the notice is received by the Agent not less than 48 hours before such
payment is to be invested.
8.
Purchases by the Agent pursuant to paragraphs 4 and 7 above may be made on any
securities exchange on which the Shares of the Fund are traded, in the
over-the-counter market or in negotiated transactions, and may be on such terms
as to price, delivery and otherwise as the Agent shall determine. Funds held by
the Agent uninvested will not bear interest, and it is understood that, in any
event, the Agent shall have no liability in connection with any inability to
purchase Shares within the time periods herein provided, or with the timing of
any purchases effected. The Agent shall have no responsibility as to the value
of the Shares acquired for the Participants account. The Agent may commingle
amounts of all Participants to be used for open-market purchases of Shares and
the price per Share allocable to each Participant in connection with such
purchases shall be the average price (including brokerage commissions) of all
Shares purchased by the Agent.
38
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
9.
The Agent will maintain all Participants accounts in the Plan and will furnish
written confirmations of all transactions in each account, including
information needed by Participants for personal and tax records. The Agent will
hold Shares acquired pursuant to the Plan in noncertificated form in the
Participants name or that of its nominee, and each Participants proxy will
include those Shares purchased pursuant to the Plan. The Agent will forward to
Participants any proxy solicitation material and will vote any Shares so held
for Participants only in accordance with the proxy returned by Participants to
the Fund. Upon written request, the Agent will deliver to Participants, without
charge, a certificate or certificates for the full Shares.
10.
The Agent will confirm to Participants each acquisition made for their
respective accounts as soon as practicable but not later than 60 days after the
date thereof. Although Participants may from time to time have an undivided
fractional interest (computed to three decimal places) in a Share of the Fund,
no certificates for fractional shares will be issued. Distributions on
fractional shares will be credited to each Participants account. In the event
of termination of a Participants account under Plan, the Agent will adjust for
any such undivided fractional interest in cash at the market value of the Funds
Shares at the time of termination less the pro rata expense of any sale
required to make such an adjustment.
11.
Any share distributions or split shares distributed by the Fund on Shares held
by the Agent for Participants will be credited to their respective accounts. In
the event that the Fund makes available to Participants rights to purchase
additional Shares or other securities, the Shares held for Participants under
the Plan will be added to other Shares held by the Participants in calculating
the number of rights to be issued to Participants.
12.
The Agents service fee for handling capital gains distributions or income
distributions will be paid by the Fund. Participants will be charged a pro rata
share of brokerage commissions on all open-market purchases.
13.
Participants may terminate their accounts under the Plan by notifying the Agent
in writing. Such termination will be effective immediately if notice is
received by the Agent not less than 10 days prior to any distribution record
date; otherwise such termination will be effective on the first Trading Day
after the payment date for such dividend or distribution with respect to any
subsequent distribution. The Plan may be amended or terminated by the Fund as
applied to any voluntary cash payments made and any distributions paid subsequent
to written notice of the change or termination sent to Participants at least 30
days prior to the record date for the distributions. The Plan may be amended or
terminated by the Agent, with the Funds prior written consent, on at least 30
days written notice to Participants. Notwithstanding the preceding two
sentences, the Agent or the Fund may amend or supplement the Plan at any time
or times when necessary or appropriate to comply with applicable law or rules or
policies of the Securities and Exchange Commission or any other
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
39
|
Dividend reinvestment and cash purchase plan
(unaudited)
continued
regulatory
authority. Upon any termination, the Agent will cause a certificate or
certificates for the full Shares held by each Participant under the Plan and
cash adjustment for any fraction to be delivered to each Participant without
charge. If the Participant elects by notice to the Agent in writing in advance
of such termination to have the Agent sell part or all of a Participants
Shares and remit the proceeds to Participant, the Agent is authorized to deduct
a brokerage commission for this transaction from the proceeds.
14.
Any amendment or supplement shall be deemed to be accepted by each Participant
unless, prior to the effective date thereof, the Agent receives written notice
of the termination of the Participants account under the Plan. Any such
amendment may include an appointment by the Agent in its place and stead of a
successor Agent under these terms and conditions, with full power and authority
to perform all or any of the acts to be performed by the Agent under these
terms and conditions. Upon any such appointment of an Agent for the purpose of
receiving distributions, the Fund will be authorized to pay to such successor
Agent, for each Participants account, all distributions payable on Shares of
the Fund held in each Participants name or under the Plan for retention or
application by such successor Agent as provided in these terms and conditions.
15.
In the case of Participants, such as banks, broker-dealers or other nominees,
which hold Shares for others who are beneficial owners (Nominee Holders), the
Agent will administer the Plan on the basis of the number of Shares certified
from time to time by each Nominee Holder as representing the total amount
registered in the Nominee Holders name and held for the account of beneficial
owners who are to participate in the Plan.
16.
The Agent shall at all times act in good faith and use its best efforts within
reasonable limits to insure the accuracy of all services performed under this
Agreement and to comply with applicable law, but assumes no responsibility and
shall not be liable for loss or damage due to errors unless such error is
caused by its negligence, bad faith, or willful misconduct or that of its
employees.
17.
All correspondence concerning the Plan should be directed to the Agent at 59
Maiden Lane, New York, New York 10038.
40
|
|
Western
Asset Emerging Markets Floating Rate Fund Inc.
|
Important tax information (unaudited)
The
following information is provided with respect to the distributions paid during
the taxable year ended February 29, 2008:
Record Date:
|
6/22/2007
|
|
9/21/2007
|
|
10/19/2007
|
|
11/23/2007
|
|
12/21/2007
|
|
1/18/2008
|
|
2/22/2008
|
|
Payable Date:
|
6/29/2007
|
|
9/28/2007
|
|
10/26/2007
|
|
11/30/2007
|
|
12/28/2007
|
|
1/25/2008
|
|
2/29/2008
|
|
Long-Term
Capital Gain
Dividend
|
$0.050100
|
|
$0.014600
|
|
$0.014600
|
|
$0.014600
|
|
$0.014600
|
|
$0.010900
|
|
$0.010900
|
|
Please
retain this information for your records.
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
41
|
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Western
Asset Emerging Markets Floating
Rate Fund Inc.
Directors
|
Western Asset Emerging Markets
|
Carol
L. Colman
|
Floating Rate Fund Inc.
|
Daniel
P. Cronin
|
55 Water Street
|
Paolo
M. Cucchi
|
New York, New York 10041
|
Leslie
H. Gelb
|
|
R.
Jay Gerken, CFA
|
Investment manager
|
Chairman
|
Legg Mason Partners
|
William
R. Hutchinson
|
Fund Advisor, LLC
|
Riordan
Roett
|
|
Jeswald
W. Salacuse
|
Subadviser
|
|
Western
Asset Management
|
Officers
|
Company
|
R.
Jay Gerken, CFA
|
|
President and Chief Executive
|
Custodian
|
Officer
|
State
Street Bank and Trust Company
|
|
225
Franklin Street
|
Kaprel
Ozsolak
|
Boston,
Massachusetts 02110
|
Chief Financial Officer and
Treasurer
|
|
|
Transfer
agent
|
Ted
P. Becker
|
American
Stock Transfer & Trust
|
Chief Compliance Officer
|
Company
|
|
59
Maiden Lane
|
Robert I. Frenkel
|
New
York, New York 10038
|
Secretary and Chief Legal
Officer
|
|
|
Independent
registered public
|
Thomas Mandia
|
accounting
firm
|
Assistant Secretary
|
KPMG
LLP
|
|
345
Park Avenue
|
Steven Frank
|
New
York, New York 10154
|
Controller
|
|
|
Legal
counsel
|
Albert Laskaj
|
Simpson
Thacher & Bartlett LLP
|
Controller
|
425
Lexington Avenue
|
|
New
York, New York 10017
|
|
|
|
New
York Stock Exchange Symbol
|
|
EFL
|
|
|
Western Asset Emerging Markets Floating Rate
Fund Inc.
WESTERN
ASSET EMERGING MARKETS FLOATING RATE FUND INC.
55
Water Street
New
York, New York 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 1-800-451-2010.
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 1-800-451-2010, (2) on the Funds
website at www.leggmason.com/individualinvestors and (3) on the SECs
website at www.sec.gov.
This
report is transmitted to the shareholders of Western Asset Emerging Markets
Floating Rate 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, New York 10038
WAS04032 4/08 SR08-549
|
|
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
the chairman of the Boards Audit Committee, possess the technical attributes
identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify
as audit committee financial expert, and have 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.
Western
Asset Emerging Markets Floating Rate Fund Inc.
a)
Audit Fees
. The
aggregate fees billed in the last two fiscal years ending February 28,
2007 and February 29, 2008 (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 $51,000 in
2007 and $54,000 in 2008.
b)
Audit-Related Fees
.
The aggregate 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 were $12,000 in 2007 and $0 in 2008. These
services in 2007 consisted of procedures performed in connection with the
Agreed Upon Procedures for the calculations pursuant to the Funds Revolving
Credit and Security Agreement, dated November 20, 2001 with CSC
incorporated, Citicorp North America, Inc. and other Secondary lenders,
for Western Asset Emerging Markets Floating Rate Fund Inc. as of November 30,
2005, December 31, 2005 and February 28, 2006.
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 Emerging Markets Floating
Rate 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 (prior to July 6, 2003 services provided by the Auditor
were not required to be pre-approved).
(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 $573 in 2007 and $2,650 in 2008. 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 for the Western Asset
Emerging Markets Floating Rate Fund Inc.
All Other Fees. There
were no other non-audit services rendered by the Auditor to Legg Mason
Partners Fund Advisor, LLC(LMPFA), and
any entity controlling, controlled by or under common control with LMPFA that
provided ongoing services to Western Asset Emerging Markets Floating Rate 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 July 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 July 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 July 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 Emerging Markets Floating Rate Fund Inc., the percentage of fees that
were approved by the audit committee, with respect to: Audit-Related Fees were
100% and 0% for 2007 and 2008; Tax Fees were 100% and 0% for 2007 and 2008; and
Other Fees were 100% and 0% for 2007 and 2008.
(f) N/A
(g) Non-audit fees
billed by the Auditor for services rendered to Western Asset Emerging Markets
Floating Rate Fund Inc., LMPFA and any entity controlling, controlled by, or
under common control with LMPFA that provides ongoing services to Western Asset
Emerging Markets Floating Rate Fund Inc. during the reporting period were $0 in
2008.
(h) Yes. Western Asset Emerging Markets Floating Rate
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 Emerging Markets Floating Rate 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.
SCHEDULE OF
INVESTMENTS.
Included
herein under Item 1.
ITEM 7.
DISCLOSURE
OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT
COMPANIES.
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) and Western Asset Management Company Limited (WAML) (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 and WAML 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 both the WA Form ADV
and the WAML Form ADV 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 ADDRESS
|
|
LENGTH OF
|
|
PRINCIPAL OCCUPATION(S) DURING
|
ADDRESS
|
|
TIME SERVED
|
|
PAST 5 YEARS
|
|
|
|
|
|
Matthew C. Duda
|
|
Since
2006
|
|
Co-portfolio manager of the
fund; employee of SBAM since 2006 and Research Analyst at Western Asset
Management since 2001; Vice President and Investment Strategist from
1997-2001 at Credit Suisse First Boston Corporation.
|
|
|
|
|
|
Keith
J. Gardner
Western Asset
385 East Colorado
Blvd. Pasadena, CA
91101
|
|
Since 2006
|
|
Co-portfolio
manager of the fund; employee of SBAM since 2006 and portfolio manager and
research analyst at Western Asset since 1994.
|
|
|
|
|
|
S.
Kenneth Leech
Western Asset
385 East Colorado
Blvd. Pasadena, CA
91101
|
|
Since 2006
|
|
Co-portfolio
manager of the fund; employee of SBAM since 2006 and Chief Investment Officer
of Western Asset since 1998.
|
|
|
|
|
|
Stephen
A. Walsh
Western Asset
385 East Colorado
Blvd. Pasadena, CA
91101
|
|
Since 2006
|
|
Co-portfolio
manager of the fund; employee of SBAM since 2006 and Deputy Chief Investment
Officer of Western Asset since 2000.
|
|
|
|
|
|
Michael C.
Buchanan
Western Asset
385 East
Colorado Blvd.
Pasadena, CA
91101
|
|
Since 2007
|
|
Co-portfolio manager of the
fund; Managing Director and head of U.S. Credit Products from 2003-2005 at
Credit Suisse Asset Management; Executive Vice President and portfolio
manager for Janus Capital in 2003; Managing Director and head of High Yield
Trading from 1998-2003 at Blackrock Financial Management.
|
(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 February 29, 2008.
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.
|
|
Registered
|
|
Other Pooled
|
|
|
|
Portfolio
|
|
Investment
|
|
Investment
|
|
Other
|
|
Manager(s)
|
|
Companies
|
|
Vehicles
|
|
Accounts
|
|
|
|
|
|
|
|
|
|
S. Kenneth Leech
|
|
116 registered investment
|
|
245 Other pooled
|
|
1,061 Other accounts with
|
|
|
|
companies with $125.9
|
|
investment vehicles
|
|
$296.3 billion in total
|
|
|
|
billion in total assets
|
|
with $220.7 billion in assets
|
|
assets under
|
|
|
|
under management
|
|
under management
|
|
management*
|
|
|
|
|
|
|
|
|
|
Stephen A. Walsh
|
|
116 registered investment
|
|
245 Other pooled
|
|
1,061 Other accounts with
|
|
|
|
companies with $125.9
|
|
investment vehicles
|
|
$296.3 billion in total
|
|
|
|
billion in total assets
|
|
with $220.7 billion in assets
|
|
assets under
|
|
|
|
under management
|
|
under management
|
|
management*
|
|
|
|
|
|
|
|
|
|
Keith J. Gardner
|
|
6 registered investment
|
|
6 Other pooled
|
|
1 Other accounts with
|
|
|
|
companies with $1.3
|
|
investment vehicles
|
|
$14.7 million in total
|
|
|
|
billion in total assets
|
|
with $1.7 billion in assets
|
|
assets under
|
|
|
|
under management
|
|
under management
|
|
management**
|
|
|
|
|
|
|
|
|
|
Matthew C. Duda
|
|
7
registered investment
|
|
6 Other pooled
|
|
1 Other accounts
|
|
|
|
Companies with $1.3
|
|
investment vehicles
|
|
with $14.7 billion
|
|
|
|
billion in total assets
|
|
with $1.7 billion in
|
|
in total assets under
|
|
|
|
Under management
|
|
assets under management
|
|
management**
|
|
|
|
|
|
|
|
|
|
Michael Buchanan
|
|
14
registered investment
|
|
8 Other pooled
|
|
14 Other accounts
|
|
|
|
Companies with $7.08
|
|
investment vehicles
|
|
with $1 billion
|
|
|
|
billion in total assets
|
|
with $5.2 billion in
|
|
in total assets under management
|
|
|
|
Under management
|
|
assets under management
|
|
|
|
*
|
|
Includes 93 accounts
managed, totaling $31.7 billion, for which advisory fee is performance based.
|
**
|
|
Includes 1 account
managed, totaling $14.7 million, for which advisory fee is performance based.
|
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, the
Advisers compensation system assigns each employee a total compensation target
and a respective cap, which are derived from annual market surveys that
benchmark each role with their 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,
employees are eligible for bonuses.
These are structured to closely align the interests of employees with
those of the Advisers, and are determined by the professionals job function
and performance as measured by a formal review process. All bonuses are completely
discretionary. One of the principal
factors considered is a portfolio managers investment performance versus
appropriate peer groups and benchmarks.
Performance is reviewed on a 1, 3 and 5 year basis for compensation with
3 years having the most emphasis. Because portfolio managers are generally
responsible for multiple accounts (including the Portfolio) with similar
investment strategies, they are compensated on the performance of the aggregate
group of similar accounts, rather than a specific account, though relative
performance against the stated benchmark and its applicable Lipper peer group
is also considered. A smaller portion of
a bonus payment is derived from factors that include client service, business
development, length of service to the Adviser, management or supervisory
responsibilities, contributions to developing business strategy and overall
contributions to the Advisers 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, Inc.
stock options and long-term incentives that vest over a set period of time past
the award date.
Potential
Conflicts of Interest
Potential conflicts of interest may arise in connection with the
management of multiple accounts (including accounts managed in a personal
capacity). These could include potential conflicts of interest related to
the knowledge and timing of a Portfolios trades, investment opportunities and
broker selection. Portfolio managers may be privy to the size, timing and
possible market impact of a Portfolios trades.
It is possible that an investment opportunity may be suitable for
both a Portfolio and other accounts managed by a portfolio manager, but may not
be available in sufficient quantities for both the Portfolio and the other
accounts to participate fully. Similarly, there may be limited
opportunity to sell an investment held by a Portfolio and another
account. A conflict may arise where the portfolio manager may have an
incentive to treat an account preferentially as compared to a Portfolio because
the account pays a performance-based fee or the portfolio manager, the Advisers
or an affiliate has an interest in the account. The Advisers have adopted
procedures for allocation of portfolio transactions and investment
opportunities across multiple client accounts on a fair and equitable basis
over time. All eligible accounts that can participate in a trade share
the same price on a pro-rata allocation basis in an attempt to mitigate any
conflict of interest. Trades are allocated among similarly managed
accounts to maintain consistency of portfolio strategy, taking into account
cash availability, investment restrictions and guidelines, and portfolio
composition versus strategy.
With respect to securities transactions for the Portfolios, the
Advisers determine which broker or dealer to use to execute each order,
consistent with their duty to seek best execution of the transaction.
However, with respect to certain other accounts (such as pooled investment
vehicles that are not registered investment companies and other accounts
managed for organizations and individuals), the Advisers may be limited by the
client with respect to the selection of brokers or dealers or may be instructed
to direct trades through a particular broker or dealer. In these cases,
trades for a Portfolio in a particular security may be placed separately from,
rather than aggregated with, such other accounts. Having separate
transactions with respect to a security may temporarily affect the market price
of the security or the execution of the transaction, or both, to the possible
detriment of a Portfolio or the other account(s) involved.
Additionally, the management of multiple Portfolios and/or other accounts may
result in a portfolio manager devoting unequal time and attention to the
management of each Portfolio and/or other account.
It is theoretically possible that portfolio managers could use
information to the advantage of other accounts they manage and to the possible
detriment of a Portfolio. For example, a portfolio manager could short
sell a security for an account immediately prior to a Portfolios sale of that
security. To address this conflict, the Advisers have adopted procedures
for reviewing and comparing selected trades of alternative investment accounts
(which may make directional trades such as short sales) with long only accounts
(which include the Portfolios) for timing and pattern related issues.
Trading decisions for alternative investment and long only accounts may not be
identical even though the same Portfolio Manager may manage both types of
accounts. Whether the Adviser allocates a particular investment
opportunity to only alternative investment accounts or to alternative
investment and long only accounts will depend on the investment strategy being
implemented. If, under the circumstances, an investment opportunity is
appropriate for both its alternative investment and long only accounts, then it
will be allocated to both on a pro-rata basis.
A portfolio
manager may also face other potential conflicts of interest in managing a
Portfolio, and the description above is not a complete description of every
conflict of interest that could be deemed to exist in managing both a Portfolio
and the other accounts listed above.
(a)(4):
Portfolio Manager Securities Ownership
The
table below identifies the dollar range of securities beneficially owned by
each portfolio managers as of February 29, 2008.
Portfolio Manager(s)
|
|
|
Dollar Range of
Portfolio Securities
Beneficially Owned
|
S. Kenneth Leech
|
|
A
|
Stephen A. Walsh
|
|
A
|
Michael Buchanan
|
|
A
|
Keith J. Gardner
|
|
A
|
Matthew C. Duda
|
|
A
|
Dollar Range ownership is as follows:
A: none
B: $1 $10,000
C: 10,001 $50,000
D: $50,001 $100,000
E: $100,001 $500,000
F:
$500,001 $1 million
G: over $1 million
ITEM 9.
PURCHASES OF
EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED
PURCHASERS.
None.
ITEM 10.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not
applicable.
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 Emerging Markets Floating Rate Fund Inc.
By:
|
|
/s/
R. Jay Gerken
|
|
|
|
(R.
Jay Gerken)
|
|
|
Chief
Executive Officer of
|
|
|
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
|
|
Date:
|
|
May 5,
2008
|
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
By:
|
|
/s/
R. Jay Gerken
|
|
|
|
(R.
Jay Gerken)
|
|
|
Chief
Executive Officer of
|
|
|
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
|
|
Date:
|
|
May 5,
2008
|
By:
|
|
/s/
Kaprel Ozsolak
|
|
|
|
(Kaprel
Ozsolak)
|
|
|
Chief
Financial Officer of
|
|
|
Western Asset Emerging Markets Floating Rate Fund Inc.
|
|
|
|
Date:
|
|
May 5,
2008
|
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