Date Shares Price Per Share
6/24/2008 16,500 $14.97
6/27/2008 3 $15.06
7/9/2008 (1,750) $14.70
7/15/2008 3,200 $14.22
7/17/2008 85 $14.33
7/21/2008 2,300 $14.36
7/22/2008 2,300 $14.40
7/23/2008 (1,400) $14.41
7/24/2008 385 $14.37
7/25/2008 2,703 $14.38
The Accounts have the right to receive all dividends from, and any proceeds from the sale of the Shares. None of the Accounts has an interest in Shares constituting more than 5% of the Shares outstanding.
Item 6. Contracts, Arrangements, Understandings, or Relationships with Respect to Securities of the Issuer.
Except as described above, there are no contracts, arrangements, understandings or relationships of any kind among the Principals and KIM and between any of them and any other person with respect to any of the GFY securities.
Item 7. Materials to be Filed as Exhibits.
As is indicated in Item 4, above, KIM has purchased Shares of GFY for the Accounts for investment purposes. However, KIM has reserved the right to contact management with regard to concerns that they have with respect to the Fund, including letters to the Board and/or other communications with fund management. Accordingly, KIM sent a proposal to the Fund on August 18, 2008, a copy of which is attached as Exhibit 1. Additionally, on July 28, 2008, KIM received an e-mail from a fellow shareholder of the Fund, stating his intention to file a shareholder proposal. We are filing Exhibit 2 in order to publicly disseminate our knowledge of this information. Karpus has no agreement, contract, arrangement, or understanding with this shareholder. The sole purpose of this Exhibit 2 is to disclose our knowledge of his proposal.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete, and correct.
Karpus Management, Inc.
By: /s/
Name: Cody B. Bartlett Jr., CFA
Title: Managing Director of Investments
Date: August 27, 2008
EXHIBIT 1
Letter to the Fund
Transmitted August 18, 2008
August 18, 2008
Robert I. Frenkel, Secretary and Chief Legal Officer
Western Asset Variable Rate Strategic Fund Inc.
c/o Legg Mason
300 First Stamford Place, 2nd Floor
Stamford, Connecticut 06902
Re: Western Asset Variable Rate Strategic Fund Inc.
Mr. Frenkel:
Karpus Management, Inc., d/b/a Karpus Investment Management ("Karpus") represents beneficial ownership of 779,626 shares or 9.37% of the outstanding common shares of the Western Asset Variable Rate Strategic Fund Inc. ("GFY" or the "Fund").
Karpus intends to present the following proposal at the 2009 annual meeting, anticipated to be held in January 2009:
PROPOSAL
The investment management agreement between the Fund and Legg Mason Partners Fund Advisor, LLC and the sub-advisory agreement between the Fund and Western Asset Management Company shall be terminated.
SUPPORTING STATEMENT
In 2005, our Fund's investment manager asked for and received approval of a new management agreement and new sub-advisory agreement in conjunction with the transfer of Citigroup's asset management business. At that point in time, shareholders trusted the Fund and allowed for the transfer of management of a fund just over 1 year old.
Since the announcement of the approval of the new agreements (12/19/2005-07/31/2008) the Fund has traded at an average daily discount to net asset value of -11.01%. The discount on GFY has consistently been among the widest of all taxable closed-end bond funds. Indeed, the discount for comparable closed-end taxable bond funds for this time period was only -5.0%, placing our Fund's discount significantly wider than the average during this time period.
The market tends to place a fair price on an asset-in this case a share of a closed-end fund. Perhaps the explanation for why GFY has traded at such a persistently wide discount is that its NAV performance has been disappointing for a long period of time. From its inception (10/27/2004) through 7/31/2008, the NAV total return on our fund was 6.81%, which places the fund squarely in the bottom quartile as compared to other taxable closed end bond funds for this time period. (as categorized by Thomas J. Herzfeld Advisors Inc). Based on market price, an investor who purchased GFY at the IPO would have experienced a loss of 6.71% through July 31, 2008. Furthermore, the fund has significantly underperformed its benchmarks as stated in its 3/31 filing. Since its inception, the Merrill Lynch Constant Maturity 3-Month LIBOR Index ("ML Benchmark") and the Lehman Brothers US Aggregate Index ("Lehman Benchmark") have returned 17.46% and 15.9%, respectively, through July 31, 2008. It seems clear th
at the poor performance of the Fund is directly responsible for the persistently wide discount.
In addition to historically poor performance, on a year-to-date basis, the Fund's recent net asset value and price performance have been especially poor. Specifically, GFY's total net asset value return was -7.99% through July 31, whereas the stated ML and Lehman benchmarks returned 2.25% and 1.04%, respectively. This most recent poor performance appears highly attributable to the Fund's holdings in mortgage related securities and provides further indications to us that the Fund's investment manager and sub-adviser must be terminated.
As closed-end fund shareholders, poor NAV performance combined with a wide discount to net asset value is the most harmful combination possible. To address these issues, we believe that a change to a new investment advisor and new sub-advisor is needed.
END OF PROPOSAL
As is required by Rule 14a-8, KIM has attached a letter from U. S. Bank N.A., as well as a written statement from the "record" holder of the referenced shares, verifying that the referenced shares were continuously and beneficially owned, and had a market value of $2,000 or more, for at least a one year period prior to the date of the submittal of this Proposal. KIM intends to hold the shares referenced in the enclosed attachments through the date of the Meeting.
Please advise us immediately if this notice is deficient in any way or any additional information is required so that we may promptly provide it in order to cure any deficiency.
Sincerely,
/s/
Cody B. Bartlett Jr., CFA
Managing Director of Investments
EXHIBIT 2
Disclosure of Karpus' Knowledge of Fellow Shareholder Proposal
Karpus received an e-mail from a fellow GFY shareholder. We are unsure whether this proposal was actually submitted to the Fund but want to disclose our knowledge of his intention to do so. Below is the proposal, verbatim, as we received it:
"Resolved: The shareholders ask the Board of Directors to take the steps necessary to open-end or liquidate the Western Asset Variable Rate Strategic Fund, Inc. (GFY).
Supporting Statement: Shares of GFY have traded at an average discount of more than 10% below net asset value since Legg Mason acquired the fund in 2005. Moreover, GFY's performance has significantly lagged both its closed-end peers and its own benchmarks. Lipper ranks GFY dead last among its peer group over the past one-year and three-year periods.
Since other efforts to reduce the discount have not been effective, open-ending or liquidating GFY is the most direct way to give shareholders the opportunity to realize the full value of their investment."
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