UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-21533 | |||||||
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Western Asset Inflation Management Fund Inc. | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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55 Water Street, New York, NY |
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(Address of principal executive offices) |
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Robert I. Frenkel, Esq. Legg Mason & Co., LLC 100 First Stamford Place Stamford, CT 06902 | ||||||||
(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: | (888)777-0102 |
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Date of fiscal year end: | October 31 |
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Date of reporting period: | October 31, 2009 |
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ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
ANNUAL REPORT / OCTOBER 31, 2009
Western Asset Inflation Management Fund Inc.
(IMF)
Managed by WESTERN ASSET
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| INVESTMENT PRODUCTS: NOT FDIC INSURED · NO BANK GUARANTEE · MAY LOSE VALUE |
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Fund objective
The Fund’s primary investment objective is total return. Current income is a secondary investment objective.
What’s inside
Letter from the chairman | I |
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Fund overview | 1 |
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Fund at a glance | 6 |
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Schedule of investments | 7 |
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Statement of assets and liabilities | 12 |
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Statement of operations | 13 |
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Statements of changes in net assets | 14 |
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Statement of cash flows | 15 |
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Financial highlights | 16 |
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Notes to financial statements | 17 |
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Report of independent registered public accounting firm | 34 |
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Additional information | 35 |
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Annual chief executive officer and chief financial officer certifications | 41 |
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Dividend reinvestment plan | 42 |
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Important tax information | 44 |
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company (“Western Asset”), Western Asset Management Company Limited (“Western Asset Limited”) and Western Asset Management Company Pte. Ltd. in Singapore (“Western Singapore”) are the Fund’s subadvisers. LMPFA, Western Asset, Western Asset Limited and Western Singapore are wholly-owned subsidiaries of Legg Mason, Inc.
Letter from the chairman
Dear Shareholder,
While the U.S. economy remained weak during much of the twelve-month reporting period ended October 31, 2009, the lengthiest recession since the Great Depression finally appeared to have ended during the third quarter of 2009.
Looking back, the U.S. Department of Commerce reported that fourth quarter 2008 U.S. gross domestic product (“GDP”)i contracted 5.4%. Economic weakness accelerated during the first quarter of 2009, as GDP fell 6.4%. However, the economic environment started to get relatively better during the second quarter, as GDP fell 0.7%. The economy’s more modest contraction was due, in part, to smaller declines in both exports and business spending. After contracting four consecutive quarters, the Commerce Department’s preliminary estimate for third quarter 2009 GDP growth was 2.8%. A variety of factors helped the economy to expand, including the government’s $787 billion stimulus program and its “Cash for Clunkers” car rebate program, which helped spur an increase in car sales.
Even before GDP advanced in the third quarter, there were signs that the economy was starting to regain its footing. The manufacturing sector, as measured by the Institute for Supply Management’s PMIii, rose to 52.9 in August 2009, the first time it surpassed 50 since January 2008 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). While the PMI dipped to 52.6 in September, it rose to 55.7 in October, its best reading since April 2006.
The housing market also saw some improvement during the reporting period. According to its most recent data, the S&P/Case-Shiller Home Price Indexiii indicated that home prices rose 1.2% in August 2009 versus the prior month. This marked the fourth straight monthly gain. In addition, the National Association of Realtors’ Pending Home Sales Indexiv rose 6.1% in September, the eighth consecutive monthly increase.
One area that remained weak—and could hamper the magnitude of economic recovery—was the labor market. While monthly job losses have moderated compared to earlier in the year, the unemployment rate rose to
Western Asset Inflation Management Fund Inc. |
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Letter from the chairman continued
10.2% in October 2009, its highest level in more than twenty-six years. Since December 2007, the number of unemployed has risen by approximately 8.2 million and there have been twenty-two consecutive months of job losses.
The Federal Reserve Board (“Fed”)v continued to pursue an accommodative monetary policy during the reporting period. After reducing the federal funds ratevi from 5.25% in August 2007 to a range of 0 to 1/4 percent in December 2008—a historic low—the Fed has maintained this stance thus far in 2009. In conjunction with its November 2009 meeting, the Fed said that it “will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
During the fiscal year, there was a shift in terms of expectations for inflation. While the rate of inflation, as measured by the Consumer Price Index for All Urban Consumers (“CPI-U”)vii, was -0.2% as of October 31, 2009, fears of deflation were, at times, replaced by concerns of higher inflation in the future. This was partially due to the government’s stimulus program and its accommodative monetary policy. Against this backdrop, inflation-protected securities generated positive results, with the Barclays Capital Global Real Index: U.S. TIPSviii gaining 17.15% during the twelve months ended October 31, 2009.
During the twelve months ended October 31, 2009, both short- and long-term Treasury yields experienced periods of heightened volatility. When the period began, two- and ten-year Treasury yields were 1.56% and 4.01%, respectively. The ongoing fallout from the issues related to the subprime mortgage market, the credit crisis, forced selling by leveraged investors and a lack of liquidity triggered several “flights to quality.” During these periods, Treasury yields moved lower (and their prices higher), while riskier segments of the market saw their yields move higher (and their prices lower). This was particularly true toward the end of 2008, as the turmoil in the financial markets and sharply falling stock prices caused investors to flee securities that were perceived to be risky, even high-quality corporate bonds and high-grade municipal bonds. When the first half of the reporting period ended on April 30, 2009, two- and ten-year Treasury yields were 0.91% and 3.16%, respectively.
During the second half of the period, Treasury yields generally moved higher (and their prices lower) until early June. Two- and ten-year yields peaked at 1.42% and 3.98%, respectively, before falling and ending the reporting period
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at 0.90% and 3.41%, respectively. In a reversal from 2008, investor risk aversion faded as the twelve-month reporting period progressed, driving spread sector (non-Treasury) prices higher. For the twelve-month period ended October 31, 2009, the Barclays Capital U.S. Aggregate Indexix returned 13.79%.
The high-yield bond market produced very strong results for the twelve months ended October 31, 2009. After generating extremely poor results in November 2008, the asset class posted positive returns during ten of the last eleven months of the reporting period. This strong rally was due to a variety of factors, including the unfreezing of the credit markets, improving economic data and strong investor demand. All told, over the twelve months ended October 31, 2009, the Citigroup High Yield Market Indexx returned 45.26%.
After falling sharply in the fall of 2008 (prior to the beginning of the reporting period), emerging market debt prices rallied sharply—posting positive returns during eleven of the twelve months of the reporting period. This was triggered by rising commodity prices, optimism that the worst of the global recession was over and increased investor risk appetite. Over the twelve months ended October 31, 2009, the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)xi returned 39.64%.
A special note regarding increased market volatility
Dramatically higher volatility in the financial markets has been very challenging for many investors. Market movements have been rapid—sometimes in reaction to economic news, and sometimes creating the news. In the midst of this evolving market environment, we at Legg Mason want to do everything we can to help you reach your financial goals. Now, as always, we remain committed to providing you with excellent service and a full spectrum of investment choices. Rest assured, we will continue to work hard to ensure that our investment managers make every effort to deliver strong long-term results.
We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our enhanced website, www.leggmason.com/cef. Here you can gain immediate access to many special features to help guide you through difficult times, including:
· Fund prices and performance,
· Market insights and commentaries from our portfolio managers, and
· A host of educational resources.
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Letter from the chairman continued
During periods of market unrest, it is especially important to work closely with your financial advisor and remember that reaching one’s investment goals unfolds over time and through multiple market cycles. Time and again, history has shown that, over the long run, the markets have eventually recovered and grown.
Information about your fund
Please read on for a more detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.
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
November 27, 2009
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All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.
ii The Institute for Supply Management’s PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector.
iii The S&P/Case-Shiller Home Price Index measures the residential housing market, tracking changes in the value of the residential real estate market in twenty metropolitan regions across the United States.
iv The Pending Home Sales Index is an index created by the National Association of Realtors that tracks home sales in which a contract is signed but the sale has not yet closed. The Index is a leading indicator of future existing home sales as it typically takes four to six weeks to close a sale after a contract has been signed.
v 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.
vi 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.
vii The Consumer Price Index for All Urban Consumers (“CPI-U”) is a measure of the average change in prices over time of goods and services purchased by households, which covers approximately 87% of the total population and includes, in addition to wage earners and clerical worker households, groups such as professional, managerial and technical workers, the self-employed, short-term workers, the unemployed and retirees and others not in the labor force.
viii The Barclays Capital Global Real Index: U.S. TIPS represents an unmanaged market index made up of U.S. Treasury Inflation-Linked Index securities.
ix The Barclays Capital U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.
x The Citigroup High Yield Market Index is a broad-based unmanaged index of high-yield securities.
xi The JPMorgan Emerging Markets Bond Index Global (“EMBI Global”) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments.
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Fund overview
Q. What is the Fund’s investment strategy?
A. The Fund’s primary investment objective is total return. Current income is a secondary objective. The Fund invests the majority of its assets in inflation-protected securities issued by U.S. and non-U.S. governments, their agencies or instrumentalities, and corporate securities that are structured to provide protection against inflation. We also have the flexibility to invest in certain other fixed-income securities that we believe will provide protection against inflation. Inflation-protected securities will include U.S. Treasury Inflation-Protected Securities (“TIPS”)i, as well as other bonds issued by U.S. and non-U.S. government agencies or instrumentalities or corporations and derivatives related to these securities.
At Western Asset Management Company (“Western Asset”), the Fund’s subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio 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.
Q. What were the overall market conditions during the Fund’s reporting period?
A. During the fiscal year, the fixed-income market was impacted by the fallout from the financial crisis in 2008 and the subsequent return to more normal conditions given the aggressive actions taken by the Federal Reserve Board (“Fed”)ii, the U.S. Department of the Treasury and other government entities.
The yields on two- and ten-year Treasuries began the fiscal year at 1.56% and 4.01%, respectively. As the reporting period began, we were in the midst of a “flight to quality,” triggered by the seizing credit markets and a sharp drop in Treasury yields. The ten-year Treasury yield bottomed at 2.08% on December 18, 2008. At the epicenter of the turmoil were the continued repercussions from the September 2008 bankruptcy of Lehman Brothers. During this time, investors were drawn to the relative safety of shorter-term Treasuries, while riskier portions of the bond market performed poorly.
However, as the fiscal year progressed, conditions in the credit markets improved, there were signs that the economy was stabilizing and investor risk aversion abated. This led to falling demand (and higher yields) for Treasuries and a strong sharp rally in the spread sectors (non-U.S. Treasuries). Also supporting the spread sectors was strong demand from
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
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Fund overview continued
investors seeking incremental yields given the low rates available from short-term fixed-income securities.
Toward the end of the reporting period, Treasury yields continued to move higher, especially on the long end of the yield curveiii. This was due to concerns regarding the massive amount of new Treasury issuance that would be needed to fund the economic stimulus package. At the conclusion of the fiscal year, two- and ten-year Treasury yields were 0.90% and 3.41%, respectively.
During the fiscal year, there was a shift in terms of expectations for inflation. Fears of inflation had increased in mid-2008 (before the reporting period began). This was, in part, due to sharply rising oil prices, which peaked at $145 a barrel in July 2008. Fears of inflation were then replaced with fears of deflation, as global economic conditions weakened and the financial crisis took hold in the fall of 2008. By the end of 2008, oil prices had fallen to $45 a barrel as demand waned and oil reserves moved higher. While inflation, as measured by the Consumer Price Index for All Urban Consumers (“CPI-U”)iv, fell 0.2% during the twelve-month period ended October 31, 2009, there were fears of higher inflation in the future. This was due to central banks’ accommodative monetary policies, signs that the global economy was recovering and rising oil prices, which hit $77 a barrel in October 2009. Inflation expectations led to increased demand for TIPS, and the Barclays Capital Global Real Index: U.S. TIPSv gained 17.15% during the twelve months ended October 31, 2009.
Q. How did we respond to these changing market conditions?
A. We proactively managed the Fund’s portfolio using our fundamental, value-oriented investment philosophy. We reduced our exposure to agency mortgage-backed securities (“MBS”). This change was implemented because we felt that these securities were not as attractively valued, as they had sharply rallied due to the Fed’s direct purchase of agency MBS. We also reduced the Fund’s non-agency MBS exposure. The sector rallied somewhat during the latter part of the fiscal year and we found more compelling opportunities elsewhere in the market.
During the fiscal year, we employed the use of Treasury futures and options, Eurodollar futures and interest rate swaps to manage the Fund’s yield curve strategy and durationvi. Our yield curve strategy benefited performance as the Fund was correctly positioned to take advantage of the steepening curve. Our duration posture modestly detracted from performance as rates fell across the curve. Credit default swaps were also used during the fiscal year to increase the Fund’s corporate exposure. This strategy was beneficial, as
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corporate bond prices rose during the period. The foreign exchange contracts we held during the period slightly detracted from overall performance because the U.S. dollar depreciated against most major currencies during the period. We also used reverse repos to provide leverage for the Fund. This contributed to performance as the market rose and the use of leverage served to magnify these positive results.
Performance review
For the twelve months ended October 31, 2009, Western Asset Inflation Management Fund Inc. returned 21.09% based on its net asset value (“NAV”)vii and 24.67% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmark, the Barclays Capital Global Real Index: U.S. TIPS, returned 17.15% for the same period. The Lipper Corporate Debt BBB-Rated Closed-End Funds Category Averageviii returned 31.95% over the same time frame. Please note that Lipper performance returns are based on each fund’s NAV.
During the twelve-month period, the Fund made distributions to shareholders totaling $0.76 per share. The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of October 31, 2009. Past performance is no guarantee of future results.
PERFORMANCE SNAPSHOT as of October 31, 2009 (unaudited)
PRICE PER SHARE |
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$17.68 (NAV) |
| 21.09% |
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$15.99 (Market Price) |
| 24.67% |
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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 in accordance with the Fund’s Dividend Reinvestment Plan.
Q. What were the leading contributors to performance?
A. The largest contributor to the Fund’s relative performance for the period was our selection of inflation-linked bonds, as they generated strong results during the fiscal year. The Fund’s investments in both investment grade and high-yield corporate bonds also significantly contributed to performance. While these sectors were weak during the first part of the reporting period, we felt that the securities remained attractive from a risk/reward perspective. We were rewarded for maintaining our disciplined long-term investment approach, as these holdings generated strong results from March 2009 through the remainder of the fiscal year. Within the investment
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Fund overview continued
grade market, the Fund’s Financials holdings produced the strongest returns. Within the high-yield market, the Fund’s Industrials holdings were standouts.
Q. What were the leading detractors from performance?
A. The largest detractor from the Fund’s relative performance for the period was our exposure to select subordinated bank credits. Several of our holdings languished while the rest of the credit markets rallied. Specifically, our Citigroup preferred equity holdings significantly detracted from performance. These holdings were liquidated in February 2009. The Fund’s Fannie Mae and Freddie Mac agency preferred bonds modestly detracted from performance, as investors favored riskier assets as the reporting period progressed.
Looking for additional information?
The Fund is traded under the symbol “IMF” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol “XIMFX” on most financial websites. Barron’s and The Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites, as well as www.leggmason.com/cef.
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Standard Time, for the Fund’s current NAV, market price and other information.
Thank you for your investment in Western Asset Inflation Management Fund Inc. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.
Sincerely,
Western Asset Management Company
November 17, 2009
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| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
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.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the portfolio managers’ current or future investments. The Fund’s top five sector holdings (as a percentage of total investments) as of October 31, 2009 were: U.S. Treasury Inflation-Protected Securities (87.3%), Corporate Bonds & Notes (4.3%), Non-U.S. Treasury Inflation-Protected Securities (3.1%), Mortgage-Backed Securities (1.6%) and Collateralized Mortgage Obligations (0.6%). The Fund’s portfolio composition is subject to change at any time.
RISKS: The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. If interest rates rise, but the rate of inflation does not, the Fund’s performance will be adversely affected. The Fund is subject to the risks associated with inflation-protected securities (“IPS”). Risks associated with IPS investments include liquidity risk, interest rate risk, prepayment risk, extension risk and deflation risk. Income distributions of the Fund are likely to fluctuate more than those of a conventional bond fund. As interest rates rise, bond prices fall, reducing the value of the Fund’s holdings. The Fund is not diversified, which means that it is permitted to invest a higher percentage of its assets in any one issuer than a diversified fund. This may magnify the Fund’s losses from events affecting a particular issuer. Foreign securities are subject to certain risks of overseas investing, including currency fluctuations and changes in political and economic conditions. High-yield bonds involve greater credit and liquidity risks than investment grade bonds. Leverage may result in greater volatility of NAV and the market price of common shares and increases a shareholder’s risk of loss. There is no assurance that the Fund’s leveraging strategy will be successful.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i U.S. Treasury Inflation-Protected Securities (“TIPS”) are inflation-indexed securities issued by the U.S. Treasury in five-year, ten-year and twenty-year maturities. The principal is adjusted to the Consumer Price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal.
ii 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.
iii The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.
iv The Consumer Price Index for All Urban Consumers (“CPI-U”) is a measure of the average change in prices over time of goods and services purchased by households, which covers approximately 87% of the total population and includes, in addition to wage earners and clerical worker households, groups such as professional, managerial and technical workers, the self-employed, short-term workers, the unemployed and retirees and others not in the labor force.
v The Barclays Capital Global Real Index: U.S. TIPS represents an unmanaged market index made up of U.S. Treasury Inflation-Linked Index securities.
vi 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.
vii Net asset value (“NAV”) is calculated by subtracting total liabilities and outstanding preferred stock (if any) from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Fund’s market price as determined by supply of and demand for the Fund’s shares.
viii Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period ended October 31, 2009, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 21 funds in the Fund’s Lipper category.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
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Fund at a glance† (unaudited)
INVESTMENT BREAKDOWN (%) As a percent of total investments
† The bar graphs above represent the composition of the Fund’s investments as of October 31, 2009 and October 31, 2008 and do not include derivatives. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.
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Schedule of investments
October 31, 2009
WESTERN ASSET INFLATION MANAGEMENT FUND INC.
FACE |
| SECURITY |
| VALUE |
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U.S. TREASURY INFLATION PROTECTED SECURITIES — 87.3% |
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| U.S. Treasury Bonds, Inflation Indexed: |
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194,470 |
| 3.375% due 1/15/12 |
| $ | 208,327 |
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12,231,261 |
| 3.000% due 7/15/12 |
| 13,147,651 |
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5,793,095 |
| 1.875% due 7/15/13 |
| 6,071,888 |
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13,607,612 |
| 2.375% due 1/15/25 |
| 14,493,168 |
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15,364,538 |
| 2.000% due 1/15/26 |
| 15,534,992 |
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5,130,296 |
| 1.750% due 1/15/28 |
| 4,949,936 |
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2,412,504 |
| 2.500% due 1/15/29 |
| 2,602,112 |
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4,437,332 |
| 3.875% due 4/15/29(a) |
| 5,732,824 |
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| U.S. Treasury Notes, Inflation Indexed: |
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4,784,682 |
| 0.875% due 4/15/10 |
| 4,802,251 |
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5,860,655 |
| 2.375% due 4/15/11 |
| 6,068,069 |
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2,522,902 |
| 2.000% due 1/15/14 |
| 2,651,610 |
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9,347,250 |
| 1.625% due 1/15/15(b) |
| 9,676,591 |
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11,569,617 |
| 2.000% due 1/15/16(b) |
| 12,184,253 |
| |
2,489,978 |
| 2.500% due 7/15/16 |
| 2,708,825 |
| |
2,987,522 |
| 1.625% due 1/15/18 |
| 3,064,077 |
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9,507,885 |
| 1.375% due 7/15/18 |
| 9,565,085 |
| |
904,689 |
| 2.125% due 1/15/19 |
| 964,413 |
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2,526,925 |
| 1.875% due 7/15/19 |
| 2,643,795 |
| |
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| TOTAL U.S. TREASURY INFLATION PROTECTED SECURITIES |
| 117,069,867 |
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ASSET-BACKED SECURITIES — 0.2% |
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FINANCIALS — 0.2% |
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| Home Equity — 0.2% |
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363,322 |
| Asset-Backed Funding Certificates, 2.419% due 1/25/34(c) |
| 148,562 |
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73,417 |
| Finance America Net Interest Margin Trust, 5.250% due 6/27/34(d)(e)(f) |
| 37 |
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131,396 |
| GSAMP Trust, 1.394% due 11/25/34(c)(e) |
| 10,453 |
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352,967 |
| Renaissance Home Equity Loan Trust, 2.144% due 3/25/34(c) |
| 123,520 |
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8,853 |
| SACO I Trust, 0.444% due 4/25/35(c)(d) |
| 3,532 |
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71,380 |
| Sail Net Interest Margin Notes, 5.500% due 3/27/34(d)(f) |
| 0 |
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| TOTAL ASSET-BACKED SECURITIES |
| 286,104 |
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COLLATERALIZED MORTGAGE OBLIGATIONS — 0.6% |
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120,000 |
| American Home Mortgage Investment Trust, 1.044% due 11/25/45(c) |
| 476 |
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3,431,352 |
| Federal National Mortgage Association (FNMA), STRIPS, IO, 5.500% due 7/1/18(f)(g) |
| 424,828 |
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213,507 |
| Merit Securities Corp., 1.746% due 9/28/32(c)(d) |
| 143,401 |
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See Notes to Financial Statements.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
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Schedule of investments continued
October 31, 2009
WESTERN ASSET INFLATION MANAGEMENT FUND INC.
FACE |
| SECURITY |
| VALUE |
| |
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| Structured Asset Securities Corp.: |
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52,685 |
| 1.344% due 2/25/28(c) |
| $ | 42,678 |
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183,512 |
| 1.244% due 3/25/28(c) |
| 159,534 |
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| TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS |
| 770,917 |
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CORPORATE BONDS & NOTES — 4.3% |
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ENERGY — 0.0% |
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| Oil, Gas & Consumable Fuels — 0.0% |
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| |
29,000 |
| Pemex Project Funding Master Trust, Senior Bonds, 6.625% due 6/15/35 |
| 28,367 |
| |
FINANCIALS — 3.7% |
|
|
| |||
|
| Capital Markets — 0.0% |
|
|
| |
1,050,000 |
| Kaupthing Bank HF, Subordinated Notes, 7.125% due 5/19/16(d)(f)(h) |
| 630 |
| |
|
| Commercial Banks — 0.1% |
|
|
| |
550,000 |
| Glitnir Banki HF, Subordinated Notes, 6.693% due 6/15/16(d)(f)(h) |
| 330 |
| |
160,000 |
| RSHB Capital, Loan Participation Notes, Senior Secured Notes, 6.299% due 5/15/17(d) |
| 158,400 |
| |
|
| Total Commercial Banks |
| 158,730 |
| |
|
| Consumer Finance — 3.0% |
|
|
| |
1,500,000 |
| Ford Motor Credit Co., Senior Notes, 1.854% due 1/15/10(c) |
| 1,494,375 |
| |
|
| GMAC LLC: |
|
|
| |
921,000 |
| 2.561% due 12/1/14(c)(d) |
| 710,321 |
| |
92,000 |
| Senior Notes, 7.500% due 12/31/13(d) |
| 86,020 |
| |
111,000 |
| Subordinated Notes, 8.000% due 12/31/18(d) |
| 92,130 |
| |
|
| SLM Corp., Medium-Term Notes: |
|
|
| |
1,000,000 |
| 0.000% due 2/1/10(c) |
| 981,580 |
| |
540,000 |
| 5.375% due 1/15/13 |
| 479,661 |
| |
270,000 |
| 5.375% due 5/15/14 |
| 223,101 |
| |
|
| Total Consumer Finance |
| 4,067,188 |
| |
|
| Diversified Financial Services — 0.6% |
|
|
| |
685,000 |
| JPMorgan Chase & Co., Junior Subordinated Notes, 7.900% due 4/30/18(c)(i) |
| 690,985 |
| |
100,000 |
| TNK-BP Finance SA, Senior Notes, 7.875% due 3/13/18(d) |
| 101,750 |
| |
|
| Total Diversified Financial Services |
| 792,735 |
| |
|
| TOTAL FINANCIALS |
| 5,019,283 |
| |
UTILITIES — 0.6% |
|
|
| |||
|
| Electric Utilities — 0.2% |
|
|
| |
250,000 |
| EEB International Ltd., Senior Bonds, 8.750% due 10/31/14(d) |
| 268,750 |
| |
See Notes to Financial Statements.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
WESTERN ASSET INFLATION MANAGEMENT FUND INC.
FACE |
|
| SECURITY |
| VALUE |
| |
|
|
| Independent Power Producers & Energy Traders — 0.4% |
|
|
| |
|
|
| Energy Future Holdings Corp., Senior Notes: |
|
|
| |
12,000 |
|
| 10.875% due 11/1/17 |
| $ | 8,400 |
|
368,880 |
|
| 11.250% due 11/1/17(j) |
| 241,616 |
| |
500,000 |
|
| TXU Corp., Senior Notes, 6.550% due 11/15/34 |
| 233,446 |
| |
|
|
| Total Independent Power Producers & Energy Traders |
| 483,462 |
| |
|
|
| TOTAL UTILITIES |
| 752,212 |
| |
|
| TOTAL CORPORATE BONDS & NOTES |
| 5,799,862 |
| ||
MORTGAGE-BACKED SECURITIES — 1.6% |
|
|
| ||||
FHLMC — 1.3% |
|
|
| ||||
|
|
| Federal Home Loan Mortgage Corp. (FHLMC), Gold: |
|
|
| |
73,524 |
|
| 7.000% due 6/1/17(g) |
| 77,569 |
| |
1,449,846 |
|
| 8.500% due 9/1/24(g) |
| 1,631,027 |
| |
|
|
| Total FHLMC |
| 1,708,596 |
| |
FNMA — 0.3% |
|
|
|
| |||
|
|
| Federal National Mortgage Association (FNMA): |
|
|
| |
40,939 |
|
| 5.500% due 1/1/14(g) |
| 43,887 |
| |
296,045 |
|
| 7.000% due 10/1/18-6/1/32(g) |
| 328,600 |
| |
|
|
| Total FNMA |
| 372,487 |
| |
|
|
| TOTAL MORTGAGE-BACKED SECURITIES |
| 2,081,083 |
| |
NON-U.S. TREASURY INFLATION PROTECTED SECURITIES — 3.1% |
|
|
| ||||
|
|
| Australia — 1.1% |
|
|
| |
1,050,000 | AUD |
| Australia Government, Bonds, 4.000% due 8/20/20 |
| 1,458,627 |
| |
|
|
| Canada — 2.0% |
|
|
| |
2,236,637 | CAD |
| Government of Canada, Bonds, 4.250% due 12/1/21 |
| 2,689,798 |
| |
|
|
| TOTAL NON-U.S. TREASURY INFLATION PROTECTED SECURITIES |
| 4,148,425 |
| |
SOVEREIGN BONDS — 0.5% |
|
|
| ||||
|
|
| Argentina — 0.2% |
|
|
| |
|
|
| Republic of Argentina: |
|
|
| |
75,000 | EUR |
| 9.750% due 11/26/03(h) |
| 40,896 |
| |
150,000 | EUR |
| 8.500% due 7/1/04(h) |
| 84,601 |
| |
100,000 | EUR |
| 10.250% due 1/26/07(h) |
| 59,134 |
| |
225,000 | EUR |
| Medium-Term Notes, 9.000% due 5/24/05(d)(h) |
| 128,078 |
| |
|
|
| Total Argentina |
| 312,709 |
| |
|
|
| Mexico — 0.3% |
|
|
| |
306,000 |
|
| United Mexican States, Medium-Term Notes, 6.750% due 9/27/34 |
| 333,540 |
| |
See Notes to Financial Statements.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Schedule of investments continued
October 31, 2009
WESTERN ASSET INFLATION MANAGEMENT FUND INC.
SHARES |
| SECURITY |
| VALUE |
| ||
|
| Russia — 0.0% |
|
|
| ||
556 |
| Russian Federation, 8.250% due 3/31/10(d) |
| $ | 572 |
| |
|
| TOTAL SOVEREIGN BONDS (Cost — $495,653) |
| 646,821 |
| ||
PREFERRED STOCKS — 0.5% |
|
|
| ||||
CONSUMER DISCRETIONARY — 0.1% |
|
|
| ||||
|
| Automobiles — 0.1% |
|
|
| ||
7,600 |
| Corts-Ford Motor Co., 7.400% |
| 126,160 |
| ||
2,100 |
| Corts-Ford Motor Co., 8.000% |
| 37,275 |
| ||
300 |
| Ford Motor Co., Series F, 7.550% |
| 5,085 |
| ||
|
| TOTAL CONSUMER DISCRETIONARY |
| 168,520 |
| ||
FINANCIALS — 0.4% |
|
|
| ||||
|
| Consumer Finance — 0.1% |
|
|
| ||
230 |
| Preferred Blocker Inc., 7.000%(d) |
| 140,465 |
| ||
|
| Diversified Financial Services — 0.1% |
|
|
| ||
1,000 |
| Preferred Plus, Trust, Series FRD-1, 7.400% |
| 16,440 |
| ||
6,800 |
| Saturns, Series F 2003-5, 8.125% |
| 122,196 |
| ||
|
| Total Diversified Financial Services |
| 138,636 |
| ||
|
| Thrifts & Mortgage Finance — 0.2% |
|
|
| ||
109,225 |
| Federal Home Loan Mortgage Corp. (FHLMC), 8.375%(c)(g)* |
| 120,148 |
| ||
98,300 |
| Federal National Mortgage Association (FNMA), 8.250%(c)(g)* |
| 113,045 |
| ||
|
| Total Thrifts & Mortgage Finance |
| 233,193 |
| ||
|
| TOTAL FINANCIALS |
| 512,294 |
| ||
|
| TOTAL PREFERRED STOCKS (Cost — $5,600,057) |
| 680,814 |
| ||
|
| TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENT (Cost — $131,503,183) |
| 131,483,893 |
| ||
|
|
|
|
|
| ||
FACE |
|
|
|
|
| ||
SHORT-TERM INVESTMENT — 1.9% |
|
|
| ||||
|
| Repurchase Agreement — 1.9% |
|
|
| ||
$ | 2,562,000 |
| Morgan Stanley tri-party repurchase agreement dated 10/30/09, 0.050% due 11/2/09; Proceeds at maturity — $2,562,011; (Fully collateralized by U.S. government agency obligation, 1.200% due 6/17/11; Market value — $2,627,125) (Cost — $2,562,000) |
| 2,562,000 |
| |
|
| TOTAL INVESTMENTS — 100.0% (Cost — $134,065,183#) |
| $ | 134,045,893 |
| |
See Notes to Financial Statements.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
WESTERN ASSET INFLATION MANAGEMENT FUND INC.
* | Non-income producing security. | |
† | Face amount denominated in U.S. dollars, unless otherwise noted. | |
(a) | All or a portion of this security is held at the broker as collateral for open futures contracts. | |
(b) | All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements. | |
(c) | Variable rate security. Interest rate disclosed is that which is in effect at October 31, 2009. | |
(d) | 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. | |
(e) | Security is valued in good faith at fair value by or under the direction of the Board of Directors (See Note 1). | |
(f) | Illiquid security. | |
(g) | On September 7, 2008, the Federal Housing Finance Agency placed Fannie Mae (FNMA) and Freddie Mac (FHLMC) into conservatorship. | |
(h) | The coupon payment on these securities is currently in default as of October 31, 2009. | |
(i) | Security has no maturity date. The date shown represents the next call date. | |
(j) | Payment-in-kind security for which part of the income earned may be paid as additional principal. | |
# | Aggregate cost for federal income tax purposes is $134,603,165. | |
|
| |
Abbreviations used in this schedule: | ||
AUD | – Australian Dollar | |
CAD | – Canadian Dollar | |
EUR | – Euro | |
GMAC | – General Motors Acceptance Corp. | |
GSAMP | – Goldman Sachs Alternative Mortgage Products | |
IO | – Interest Only | |
STRIPS | – Separate Trading of Registered Interest and Principal Securities | |
See Notes to Financial Statements.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Statement of assets and liabilities
October 31, 2009
|
|
|
| |
ASSETS: |
|
|
| |
Investments, at value (Cost — $134,065,183) |
| $ | 134,045,893 |
|
Foreign currency, at value (Cost — $73,496) |
| 79,790 |
| |
Cash |
| 573 |
| |
Dividends and interest receivable |
| 781,792 |
| |
Unrealized appreciation on swaps |
| 721,228 |
| |
Deposits with brokers for open futures contracts |
| 48,263 |
| |
Receivable from broker — variation margin on open futures contracts |
| 24,073 |
| |
Receivable for open forward currency contracts |
| 21,093 |
| |
Receivable for open swap contracts |
| 3,694 |
| |
Prepaid expenses |
| 10,299 |
| |
Total Assets |
| 135,736,698 |
| |
LIABILITIES: |
|
|
| |
Payable for open reverse repurchase agreement |
| 9,651,600 |
| |
Premiums received for open swaps |
| 817,218 |
| |
Unrealized depreciation on swaps |
| 157,724 |
| |
Payable for open forward currency contracts |
| 96,499 |
| |
Investment management fee payable |
| 67,581 |
| |
Payable for open swap contracts |
| 13,960 |
| |
Interest payable |
| 870 |
| |
Directors’ fees payable |
| 825 |
| |
Accrued expenses |
| 117,074 |
| |
Total Liabilities |
| 10,923,351 |
| |
TOTAL NET ASSETS |
| $ | 124,813,347 |
|
NET ASSETS: |
|
|
| |
Par value ($0.001 par value; 7,061,160 shares issued and outstanding; 100,000,000 shares authorized) |
| $ | 7,061 |
|
Paid-in capital in excess of par value |
| 137,784,165 |
| |
Undistributed net investment income |
| 325,978 |
| |
Accumulated net realized loss on investments, futures contracts, written options, swap contracts and foreign currency transactions |
| (13,799,282 | ) | |
Net unrealized appreciation on investments, futures contracts, swap contracts and foreign currencies |
| 495,425 |
| |
TOTAL NET ASSETS |
| $ | 124,813,347 |
|
Shares Outstanding |
| 7,061,160 |
| |
Net Asset Value |
| $17.68 |
|
See Notes to Financial Statements.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
Statement of operations
For the Year Ended October 31, 2009
|
|
|
| |
INVESTMENT INCOME: |
|
|
| |
Interest |
| $ | 2,291,971 |
|
Dividends |
| 104,686 |
| |
Total Investment Income |
| 2,396,657 |
| |
EXPENSES: |
|
|
| |
Investment management fee (Note 2) |
| 863,078 |
| |
Interest expense (Note 3) |
| 111,046 |
| |
Shareholder reports |
| 72,941 |
| |
Audit and tax |
| 63,855 |
| |
Legal fees |
| 58,886 |
| |
Directors’ fees |
| 33,449 |
| |
Stock exchange listing fees |
| 20,320 |
| |
Transfer agent fees |
| 19,103 |
| |
Excise tax (Note 1) |
| 12,389 |
| |
Insurance |
| 4,361 |
| |
Custody fees |
| 1,743 |
| |
Miscellaneous expenses |
| 6,124 |
| |
Total Expenses |
| 1,267,295 |
| |
Less: Fees paid indirectly (Note 1) |
| (124 | ) | |
Net Expenses |
| 1,267,171 |
| |
NET INVESTMENT INCOME |
| 1,129,486 |
| |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FUTURES CONTRACTS, WRITTEN OPTIONS, SWAP CONTRACTS AND FOREIGN CURRENCY TRANSACTIONS (NOTES 1, 3 AND 4): |
|
|
| |
Net Realized Gain (Loss) From: |
|
|
| |
Investment transactions |
| (2,178,788 | ) | |
Futures contracts |
| (893,191 | ) | |
Written options |
| 171,961 |
| |
Swap contracts |
| 2,708 |
| |
Foreign currency transactions |
| 263,666 |
| |
Net Realized Loss |
| (2,633,644 | ) | |
Change in Net Unrealized Appreciation/Depreciation From: |
|
|
| |
Investments |
| 23,202,356 |
| |
Futures contracts |
| 19,716 |
| |
Written options |
| (2,781 | ) | |
Swap contracts |
| 944,943 |
| |
Foreign currencies |
| (428,175 | ) | |
Change in Net Unrealized Appreciation/Depreciation |
| 23,736,059 |
| |
Net Gain on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions |
| 21,102,415 |
| |
INCREASE IN NET ASSETS FROM OPERATIONS |
| $ | 22,231,901 |
|
See Notes to Financial Statements.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Statements of changes in net assets
FOR THE YEARS ENDED OCTOBER 31, |
| 2009 |
| 2008 |
| ||
OPERATIONS: |
|
|
|
|
| ||
Net investment income |
| $ | 1,129,486 |
| $ | 9,801,229 |
|
Net realized gain (loss) |
| (2,633,644 | ) | 2,656,108 |
| ||
Change in net unrealized appreciation/depreciation |
| 23,736,059 |
| (26,246,351 | ) | ||
Increase (Decrease) in Net Assets From Operations |
| 22,231,901 |
| (13,789,014 | ) | ||
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1): |
|
|
|
|
| ||
Net investment income |
| (5,366,481 | ) | (6,169,419 | ) | ||
Decrease in Net Assets From Distributions to Shareholders |
| (5,366,481 | ) | (6,169,419 | ) | ||
FUND SHARE TRANSACTIONS: |
|
|
|
|
| ||
Cost of tendered shares (0 and 762,841 tendered shares, respectively) (Note 6) |
| — |
| (14,096,519 | ) | ||
Decrease in Net Assets From Fund Share Transactions |
| — |
| (14,096,519 | ) | ||
INCREASE (DECREASE) IN NET ASSETS |
| 16,865,420 |
| (34,054,952 | ) | ||
NET ASSETS: |
|
|
|
|
| ||
Beginning of year |
| 107,947,927 |
| 142,002,879 |
| ||
End of year* |
| $ | 124,813,347 |
| $ | 107,947,927 |
|
* Includes undistributed net investment income of: |
| $325,978 |
| $3,845,289 |
|
See Notes to Financial Statements.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
Statement of cash flows
For the Year Ended October 31, 2009
|
|
|
| |
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: |
|
|
| |
Interest and dividends received |
| $ | 3,545,932 |
|
Operating expenses paid |
| (1,261,617 | ) | |
Interest paid |
| (112,371 | ) | |
Net purchases of short-term investments |
| (722,000 | ) | |
Realized loss on futures contracts |
| (893,191 | ) | |
Realized gain on options |
| 171,961 |
| |
Realized gain on swap contracts |
| 2,708 |
| |
Realized gain on foreign currency transactions |
| 263,666 |
| |
Net change in unrealized appreciation on futures contracts |
| 19,716 |
| |
Net change in unrealized depreciation on foreign currencies |
| (428,175 | ) | |
Purchases of long-term investments |
| (82,641,443 | ) | |
Proceeds from disposition of long-term investments |
| 100,002,407 |
| |
Cash deposits with brokers for futures contracts |
| (48,263 | ) | |
Change in premium for swap contracts |
| (760,390 | ) | |
Change in receivable from broker — variation margin |
| 134,844 |
| |
Change in receivable/payable for open forward currency contracts |
| 435,076 |
| |
Change in payable on swap contracts |
| (10,116 | ) | |
Net Cash Provided by Operating Activities |
| 17,698,744 |
| |
CASH FLOWS USED BY FINANCING ACTIVITIES: |
|
|
| |
Cash distributions paid on Common Stock |
| (5,366,481 | ) | |
Cash paid on reverse repurchase agreements |
| (12,252,708 | ) | |
Net Cash Used by Financing Activities |
| (17,619,189 | ) | |
NET INCREASE IN CASH |
| 79,555 |
| |
Cash, beginning of year |
| 808 |
| |
Cash, end of year |
| $ | 80,363 |
|
RECONCILIATION OF INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES: |
|
|
| |
Increase in Net Assets From Operations |
| $ | 22,231,901 |
|
Accretion of discount on investments |
| 624,742 |
| |
Amortization of premium on investments |
| 483,216 |
| |
Increase in investments, at value |
| (419,374 | ) | |
Decrease in payable for securities purchased |
| (6,412,266 | ) | |
Decrease in interest and dividends receivable |
| 41,317 |
| |
Decrease in premium for written options |
| (15,906 | ) | |
Increase in premium for written swaps |
| 760,390 |
| |
Decrease in swap contracts payable |
| (10,116 | ) | |
Increase in deposits with brokers for futures contracts |
| (48,263 | ) | |
Increase in payable for open forward currency contracts |
| 435,076 |
| |
Increase in payable to broker — variation margin |
| 134,844 |
| |
Increase in prepaid expenses |
| (682 | ) | |
Decrease in interest payable |
| (1,325 | ) | |
Decrease in accrued expenses |
| (104,810 | ) | |
Total Adjustments |
| (4,533,157 | ) | |
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES |
| $ | 17,698,744 |
|
See Notes to Financial Statements.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Financial highlights
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED OCTOBER 31:
|
| 20091 |
| 20081 |
| 20071 |
| 20061 |
| 20051 |
|
NET ASSET VALUE, BEGINNING OF YEAR |
| $15.29 |
| $18.15 |
| $17.89 |
| $19.22 |
| $19.74 |
|
INCOME (LOSS) FROM OPERATIONS: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
| 0.16 |
| 1.32 |
| 0.66 |
| 0.86 |
| 1.00 |
|
Net realized and unrealized gain (loss) |
| 2.99 |
| (3.39 | ) | 0.28 |
| (0.55 | ) | (0.34 | ) |
Total income (loss) from operations |
| 3.15 |
| (2.07 | ) | 0.94 |
| 0.31 |
| 0.66 |
|
LESS DISTRIBUTIONS FROM: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
| (0.76 | ) | (0.83 | ) | (0.72 | ) | (1.26 | ) | (1.18 | ) |
Net realized gains |
| — |
| — |
| — |
| (0.38 | ) | — |
|
Return of capital |
| — |
| — |
| — |
| (0.04 | ) | — |
|
Total distributions |
| (0.76 | ) | (0.83 | ) | (0.72 | ) | (1.68 | ) | (1.18 | ) |
Increase in Net Asset Value due to shares repurchased in tender offer |
| — |
| 0.04 |
| 0.04 |
| 0.04 |
| — |
|
NET ASSET VALUE, END OF YEAR |
| $17.68 |
| $15.29 |
| $18.15 |
| $17.89 |
| $19.22 |
|
MARKET PRICE, END OF YEAR |
| $15.99 |
| $13.49 |
| $16.16 |
| $15.87 |
| $17.02 |
|
Total return, based on NAV2,3 |
| 21.09 | % | (11.87 | )% | 5.65 | % | 1.98 | % | 3.42 | % |
Total return, based on Market Price3 |
| 24.67 | % | (12.15 | )% | 6.51 | % | 2.96 | % | (2.32 | )% |
NET ASSETS, END OF YEAR (000s) |
| $124,813 |
| $107,948 |
| $142,003 |
| $155,075 |
| $185,105 |
|
RATIOS TO AVERAGE NET ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
Gross expenses |
| 1.09 | % | 1.40 | % | 1.45 | %4 | 3.64 | % | 2.42 | % |
Gross expenses, excluding interest expense |
| 0.99 |
| 1.03 |
| 0.95 | 4 | 1.17 |
| 1.04 |
|
Net expenses |
| 1.09 | 5 | 1.40 | 5 | 1.45 | 4,6 | 3.64 | 6 | 2.42 |
|
Net expenses, excluding interest expense |
| 0.99 | 5 | 1.03 | 5 | 0.94 | 4,6 | 1.17 | 6 | 1.04 |
|
Net investment income |
| 0.97 |
| 7.16 |
| 3.69 |
| 4.75 |
| 5.10 |
|
PORTFOLIO TURNOVER RATE |
| 45 | %7 | 70 | %7 | 39 | %7 | 33 | % | 42 | % |
1 | Per share amounts have been calculated using the average shares method. |
2 | 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. |
3 | The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend reinvestment plan. Past performance is no guarantee of future results. |
4 | Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios including and excluding interest expense would not have changed. |
5 | The impact to the expense ratio was less than 0.01% as a result of fees paid indirectly. |
6 | Reflects fee waivers and/or expense reimbursements. |
7 | Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 55%, 122% and 55% for the years ended October 31, 2009, 2008 and 2007, respectively. |
See Notes to Financial Statements.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
Notes to financial statements
1. Organization and significant accounting policies
Western Asset Inflation Management Fund Inc. (the “Fund”) was incorporated in Maryland on March 16, 2004 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Fund’s primary investment objective is total return. Current income is a secondary objective.
The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through December 21, 2009, the issuance date of the financial statements.
(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. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the last quoted bid and asked prices as of the close of business of that market. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities at fair value as determined in accordance with the procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.
The Fund has adopted Financial Accounting Standards Board Codification Topic 820 (formerly Statement of Financial Accounting Standards No. 157) (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.
· | Level 1 — quoted prices in active markets for identical investments |
· | Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
· | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The Fund uses valuation techniques to measure fair value that are consistent with the market approach, income approach and/or cost approach, depending on the type of the security and the particular circumstance.
The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:
DESCRIPTION |
| QUOTED PRICES |
| OTHER |
| SIGNIFICANT |
| TOTAL |
| ||||
Long-term investments†: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury inflation protected securities |
|
| — |
|
| $117,069,867 |
|
| — |
| $117,069,867 |
|
|
Asset-backed securities |
|
| — |
|
| 286,104 |
|
| — |
| 286,104 |
|
|
Collateralized mortgage obligations |
|
| — |
|
| 770,917 |
|
| — |
| 770,917 |
|
|
Corporate bonds & notes |
|
| — |
|
| 5,799,862 |
|
| — |
| 5,799,862 |
|
|
Mortgage-backed securities |
|
| — |
|
| 2,081,083 |
|
| — |
| 2,081,083 |
|
|
Sovereign bonds |
|
| — |
|
| 4,795,246 |
|
| — |
| 4,795,246 |
|
|
Preferred stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer discretionary |
| $ | 168,520 |
|
| — |
|
| — |
| 168,520 |
|
|
Financials |
|
| 371,829 |
|
| 140,465 |
|
| — |
| 512,294 |
|
|
Total long-term investments |
| $ | 540,349 |
|
| $130,943,544 |
|
| — |
| $131,483,893 |
|
|
Short-term investment† |
|
| — |
|
| 2,562,000 |
|
| — |
| 2,562,000 |
|
|
Total investments |
| $ | 540,349 |
|
| $133,505,544 |
|
| — |
| $134,045,893 |
|
|
Other financial instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts |
|
| 19,716 |
|
| — |
|
| — |
| 19,716 |
|
|
Forward foreign currency contracts |
|
| — |
|
| (75,406 | ) |
| — |
| (75,406 | ) |
|
Interest rate swaps‡ |
|
| — |
|
| (54,737 | ) |
| — |
| (54,737 | ) |
|
Credit default swaps on credit indices - sell‡ |
|
| — |
|
| (198,977 | ) |
| — |
| (198,977 | ) |
|
Total other financial instruments |
| $ | 19,716 |
|
| $ (329,120 | ) |
| — |
| $ (309,404 | ) |
|
Total |
| $ | 560,065 |
|
| $133,176,424 |
|
| — |
| $133,736,489 |
|
|
† See Schedule of Investments for additional detailed categorizations.
‡ Values include any premiums paid or received with respect to swap contracts.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
Following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
INVESTMENTS IN SECURITIES |
| SOVEREIGN |
| ASSET-BACKED |
| TOTAL |
| ||||||
Balance as of October 31, 2008 |
| $ | 207,099 |
|
| $ | 7 |
|
| $ | 207,106 |
|
|
Accrued premiums/discounts |
|
| — |
|
|
| — |
|
|
| — |
|
|
Realized gain/(loss)1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
Change in unrealized appreciation (depreciation)2 |
|
| 105,610 |
|
|
| 29 |
|
|
| 105,639 |
|
|
Net purchases (sales) |
|
| — |
|
|
| — |
|
|
| — |
|
|
Net transfers in and/or out of Level 3 |
|
| (312,709 | ) |
|
| (36 | ) |
|
| (312,745 | ) |
|
Balance as of October 31, 2009 |
|
| — |
|
|
| — |
|
|
| — |
|
|
Net unrealized appreciation (depreciation) for investments in securities still held at October 31, 2009 |
|
| — |
|
|
| — |
|
|
| — |
|
|
1 This amount is included in net realized gain (loss) from investment transactions in the accompanying Statement of Operations.
2 This amount is included in the change in net unrealized appreciation (depreciation) in the accompanying Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.
(b) Repurchase agreements. When entering into repurchase agreements, it is the Fund’s 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 daily 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 the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Reverse repurchase agreements. The Fund may enter into a reverse repurchase agreement in which the Fund sells a portfolio security at a specified price with an agreement to purchase the same or substantially the same security from the same counterparty at a fixed or determinable price at a future date. When entering into reverse repurchase agreements, the Fund’s custodian delivers to the counterparty liquid assets, the market value of which, at the inception of the transaction, at least equals the repurchase price (including accrued interest). The Fund pays interest on amounts obtained pursuant to reverse repurchase agreements. Reverse repurchase agreements are considered to be borrowings, which may create leverage risk to the Fund.
(d) Futures contracts. The Fund may use futures contracts to gain exposure to, or hedge against, changes in the value of interest rates or foreign currencies. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
Upon entering into a futures contract, the Fund is required to deposit with a broker cash or cash equivalents in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(e) Written options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the Fund realizes a gain from investments equal to the amount of the premium received. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is treated as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.
The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing a call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.
(f) Mortgage dollar rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
specified future date. During the roll period, the Fund forgoes interest paid on the securities. The Fund maintains a segregated account, the dollar value of which is at least equal to its obligations with respect to dollar rolls.
The Fund executes its mortgage dollar rolls entirely in the to-be-announced (“TBA”) market, where the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date. The Fund accounts for mortgage dollar rolls as purchases and sales.
The risk of entering into a mortgage dollar roll is that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund’s use of proceeds of the dollar roll may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities.
(g) Securities traded on a to-be-announced basis. The Fund may trade securities on a TBA basis. In a TBA transaction, the Fund commits to purchasing or selling securities which have not yet been issued by the issuer and for which specific information is not known, such as the face amount and maturity date and the underlying pool of investments in U.S. government agency mortgage pass-through securities. Securities purchased on a TBA basis are not settled until they are delivered to the Fund, normally 15 to 45 days after purchase. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.
(h) Stripped securities. The Fund invests in “Stripped Securities,” a term used collectively for stripped fixed income securities. Stripped securities can be principal only securities (“PO”), which are debt obligations that have been stripped of unmatured interest coupons or, interest only securities (“IO”), which are unmatured interest coupons that have been stripped from debt obligations. As is the case with all securities, the market value of Stripped Securities will fluctuate in response to changes in economic conditions, interest rates and the market’s perception of the securities. However, fluctuations in response to interest rates may be greater in Stripped Securities than for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation increases with a longer period of maturity.
The yield to maturity on IO’s is sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IO’s.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
(i) 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.
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.
(j) Swap agreements. The Fund may invest in swaps for the purpose of managing their exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those associated with ordinary portfolio transactions.
Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation/(depreciation). Gains or losses are realized upon termination of the swap agreement. Periodic payments and premiums received or made by a Fund are recorded as realized gains or losses, respectively. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities held as collateral for swap contracts are identified in the Schedule of Investments. The risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.
Credit default swaps
The Fund may enter into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where a Fund has exposure to a sovereign issuer) or to take an active long or
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
short position with respect to the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the Fund 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.
Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Notes to Financial Statements and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.
Payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. A liquidation payment received or made at the termination of the swap is recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as realized gain or loss at the time of receipt of payment on the Statement of Operations.
The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty). Credit default swaps are
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.
Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized in 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.
As disclosed in the Fair Values of Derivatives – Balance Sheet table that follows each Fund’s summary of open swap contracts, the aggregate fair value of credit default swaps in a net liability position as of October 31, 2009 was $157,724. The Fund did not post collateral for these swaps as of October 31, 2009. If a defined credit event had occurred as of October 31, 2009, the swaps’ credit-risk-related contingent features would have been triggered and the Fund would have been required to pay up to $6,832,000 less the value of the contracts’ related reference obligations.
Interest rate swaps
The Fund may enter into interest rate swap contracts. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional principal amount. The net periodic payments received or paid on interest rate swap agreements are recognized as realized gains or losses in the Statement of Operations. Interest rate swaps are marked to market daily based upon quotations from the market makers and the change, if any, is recorded as an unrealized gain or loss in the Statement of Operations. A liquidation payment received or made at the termination of the swap is recognized as a realized gain or loss in the Statement of Operations. The risks of interest rate swaps include changes in market conditions that will affect the value of the contract or changes in the present value of the future cash flow streams and the possible inability of the counterparty to fulfill its obligations under the agreement. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life, to the extent that that amount is positive. This risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
As of October 31, 2009, the three-month London Interbank Offered Rates (“LIBOR”) was 0.28%.
(k) Inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value or interest rate is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value or
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
interest rate of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount or lower interest rate) will be reduced. Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as an increase or decrease to investment income on the Statement of Operations. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
(l) 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 Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the 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.
(m) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash payments are presented in the Statement of Cash Flows.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
(n) Credit and market risk. The Fund invests in high yield and emerging market instruments that are subject to certain credit and market risks. The yields of high yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s 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 Fund’s investment in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(o) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults on an expected interest payment, the Fund’s policy is to generally halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default.
(p) Distributions to shareholders. Distributions from net investment income for the Fund, if any, are declared and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(q) Fees paid indirectly. The Fund’s custody fees are reduced according to a fee arrangement, which provides for a reduction based on the level of cash deposited with the custodian by the Fund.
(r) Federal and other taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal income tax provision is required in the Fund’s financial statements. However, due to the timing of when distributions are made, the Fund may be subject to an excise tax of 4% of the amount by which 98% of the Fund’s annual taxable income exceeds the distributions from such taxable income for the year. The fund paid $74,323 of Federal excise taxes attributable to calendar year 2008 in March 2009.
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years and has concluded that as of October 31, 2009, no provision for income tax would be required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
for which the applicable statutes of limitations have not expired are subject to examination by Internal Revenue Service and state departments of revenue.
(s) Reclassification. GAAP requires that certain components of net assets be 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 |
| ACCUMULATED NET |
| PAID-IN CAPITAL |
| |||
(a) |
| $ 12,389 |
|
| — |
| $(12,389 | ) |
| |
(b) |
| 705,295 |
|
| $(705,295 | ) |
| — |
|
|
(a) Reclassifications are primarily due to a non-deductible excise tax paid by the Fund.
(b) Reclassifications are primarily due to foreign currency transactions treated as ordinary income for tax purposes, differences between book and tax amortization of premium on fixed income securities, losses from mortgage backed securities treated as capital losses for tax purposes, book/tax differences in the treatment of swap contracts and book/tax differences in the treatment of Treasury Inflation-Protected Securities.
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager. Western Asset Management Company (“Western Asset”) and Western Asset Management Company Limited (“Western Asset Limited”) are the Fund’s subadvisers. Effective February 3, 2009, Western Asset Management Company Pte. Ltd. in Singapore (“Western Singapore”) serves as additional subadviser to the Fund, under an additional subadvisory agreement with Western Asset. LMPFA, Western Asset, Western Asset Limited and Western Singapore are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.60% of the Fund’s average daily net assets plus the proceeds of any outstanding borrowings, used for leverage.
LMPFA has delegated to Western Asset the day-to-day portfolio management of the Fund. Western Asset Limited and Western Singapore provide certain advisory services to the Fund relating to currency transactions and investment in non-U.S. dollar denominated securities. Western Asset Limited and Western Singapore do not receive any compensation from the Fund. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset Limited a subadvisory fee of 0.30% on the assets managed by Western Asset Limited. In addition, effective February 3, 2009, Western Asset also pays Western Singapore a subadvisory fee of 0.30% on assets managed by Western Singapore.
Certain officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
3. Investments
During the year ended October 31, 2009, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S Government & Agency Obligations were as follows:
|
| INVESTMENTS |
| U.S. GOVERNMENT & |
| ||
Purchases |
| $4,342,043 |
|
| $71,887,134 |
|
|
Sales |
| 4,299,994 |
|
| 94,181,967 |
|
|
At October 31, 2009, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation |
| $ 7,337,155 |
|
Gross unrealized depreciation |
| (7,894,427 | ) |
Net unrealized depreciation |
| $ (557,272 | ) |
At October 31, 2009, the Fund had the following open futures contracts:
|
| NUMBER OF |
| EXPIRATION |
| BASIS |
| MARKET |
| UNREALIZED |
| |||
Contracts to Buy: |
|
|
|
|
|
|
|
|
|
|
| |||
Euro Bundes Obligationer |
| 17 |
| 12/09 |
| $2,886,966 |
|
| $2,896,715 |
|
| $ 9,749 |
|
|
U.S. Treasury 10-Year Notes |
| 10 |
| 12/09 |
| 1,176,126 |
|
| 1,186,093 |
|
| 9,967 |
|
|
Net unrealized gain on open futures contracts |
|
|
|
|
|
|
| $19,716 |
|
|
Transactions in reverse repurchase agreements for the Fund during the year ended October 31, 2009 were as follows:
AVERAGE DAILY |
| WEIGHTED AVERAGE |
| MAXIMUM AMOUNT |
|
$26,865,933 |
| 0.408% |
| $46,070,600 |
|
* Average based on the number of days that the Fund had reverse repurchase agreements outstanding.
Interest rates on reverse repurchase agreements ranged from 0.100% to 1.300% during the year ended October 31, 2009. Interest expense incurred on reverse repurchase agreements totaled $111,046.
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
At October 31, 2009, the Fund had the following open reverse repurchase agreements:
FACE AMOUNT |
| SECURITY |
| VALUE |
|
$7,795,200 |
| Reverse Repurchase Agreement with Deutsche Bank, dated 10/15/09 bearing 0.23% to be repurchased at $7,796,146 on 11/3/09, collateralized by: $7,000,000 U.S. Treasury Inflation Indexed Note, 1.625% due 1/15/15; Market value (including accrued interest) $7,280,330 |
| $7,795,200 |
|
1,856,400 |
| Reverse Repurchase Agreement with Deutsche Bank, dated 10/15/09 bearing 0.23% to be repurchased at $1,856,625 on 11/3/09, collateralized by: $1,700,000 U.S. Treasury Inflation Indexed Note, 2.000% due 1/15/16; Market value (including accrued interest) $1,800,383 |
| 1,856,400 |
|
|
| Total reverse repurchase agreements (Proceeds — $9,651,600) |
| $9,651,600 |
|
During the year ended October 31, 2009, written option transactions for the Fund were as follows:
|
| NUMBER OF |
| PREMIUMS |
| ||
Written options, outstanding October 31, 2008 |
| 14 |
|
| $ 15,906 |
|
|
Options written |
| 192 |
|
| 156,054 |
|
|
Options closed |
| — |
|
| — |
|
|
Options exercised |
| (72 | ) |
| (78,082 | ) |
|
Options expired |
| (134 | ) |
| (93,878 | ) |
|
Written options, outstanding October 31, 2009 |
| — |
|
| — |
|
|
At October 31, 2009, the Fund had the following open forward foreign currency contracts:
FOREIGN CURRENCY |
| LOCAL |
| MARKET |
| SETTLEMENT |
| UNREALIZED |
| |||
Contracts to sell: |
|
|
|
|
|
|
|
|
| |||
Australian Dollar |
| 527,730 |
|
| $ 473,778 |
|
| 11/19/09 |
| $(35,788 | ) |
|
Australian Dollar |
| 524,860 |
|
| 471,201 |
|
| 11/19/09 |
| (31,788 | ) |
|
Australian Dollar |
| 538,332 |
|
| 483,296 |
|
| 11/19/09 |
| (24,879 | ) |
|
Canadian Dollar |
| 1,600,000 |
|
| 1,479,845 |
|
| 11/19/09 |
| 21,093 |
|
|
Euro |
| 120,000 |
|
| 176,842 |
|
| 11/19/09 |
| (4,044 | ) |
|
Net unrealized loss on open forward foreign currency contracts |
|
|
|
|
|
| $(75,406 | ) |
|
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
At October 31, 2009, the Fund had the following open swap contracts:
SWAP COUNTERPARTY |
| NOTIONAL |
| TERMINATION |
| PERIODIC |
| PERIODIC PAYMENTS RECEIVED BY |
| UPFRONT |
| UNREALIZED |
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3-Month |
|
|
|
|
|
Barclay’s Capital Inc. |
| $2,750,000 |
| 3/18/39 |
| 4.250% |
| LIBOR |
| $(775,965) |
| $721,228 |
|
‡ Percentage shown is an annual percentage rate.
CREDIT DEFAULT SWAP ON CREDIT INDICES — SELL PROTECTION1
SWAP COUNTERPARTY |
| NOTIONAL AMOUNT2 |
| TERMINATION |
| PERIODIC |
| MARKET VALUE3 |
| UPFRONT |
| UNREALIZED |
|
Barclay’s Capital Inc. |
|
|
|
|
| 0.350% |
|
|
|
|
|
|
|
(CDX NA IG.8) |
| $6,832,000 |
| 6/20/12 |
| quarterly |
| $(198,977) |
| $(41,253) |
| $(157,724) |
|
1 If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index.
2 The maximum potential amount the Fund could be required to make as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.
3 The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
‡ Percentage shown is an annual percentage rate.
4. Derivative instruments and hedging activities
Financial Accounting Standards Board Codification Topic 815 (formerly Statement of Financial Accounting Standards No. 161) (“ASC Topic 815”) requires enhanced disclosure about an entity’s derivative and hedging activities.
Below is a table, grouped by derivative type that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at October 31, 2009.
ASSET DERIVATIVES1 | ||||||||||||
|
| INTEREST |
| FOREIGN |
| OTHER |
| TOTAL |
| |||
Futures contracts2 |
| $19,716 |
|
| — |
|
| — |
| $19,716 |
|
|
Forward foreign currency contracts |
| — |
|
| $21,093 |
|
| — |
| 21,093 |
|
|
Total |
| $19,716 |
|
| $21,093 |
|
| — |
| $40,809 |
|
|
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
LIABILITY DERIVATIVES1 |
| ||||||||||||||
|
| INTEREST |
| FOREIGN |
| CREDIT |
| OTHER |
| TOTAL |
| ||||
Swap contracts3 |
| $54,737 |
|
| — |
|
| $198,977 |
|
| — |
| $253,714 |
|
|
Forward foreign currency contracts |
| — |
|
| $96,499 |
|
| — |
|
| — |
| 96,499 |
|
|
Total |
| $54,737 |
|
| $96,499 |
|
| $198,977 |
|
| — |
| $350,213 |
|
|
1 Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation(depreciation) and for liability derivatives is payables/net unrealized appreciation(depreciation).
2 Includes cumulative appreciation/depreciation of futures contracts as reported in the footnotes. Only current day’s variation margin is reported within the receivables and/or payables of the Statement of Assets and Liabilities.
3 Values include premiums paid/(received) on swap contracts which are shown separately in the Statement of Assets and Liabilities.
The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the six months ended October 31, 2009. The first table provides additional detail about the amounts and sources of gains/(losses) realized on derivatives during the period. The second table provides additional information about the changes in unrealized appreciation/(depreciation) resulting from the Fund’s derivatives and hedging activities during the period.
AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED |
| ||||||||||||||
|
| INTEREST |
| FOREIGN |
| CREDIT |
| OTHER |
| TOTAL |
| ||||
Written options |
| $116,796 |
|
| — |
|
| — |
|
| — |
| $116,796 |
|
|
Futures contracts |
| 39,721 |
|
| — |
|
| — |
|
| — |
| 39,721 |
|
|
Swap contracts |
| (35,149 | ) |
| — |
|
| $20,324 |
|
| — |
| (14,825 | ) |
|
Forward foreign currency contracts |
| — |
|
| $2,264 |
|
| — |
|
| — |
| 2,264 |
|
|
Total |
| $121,368 |
|
| $2,264 |
|
| $20,324 |
|
| — |
| $143,956 |
|
|
CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON DERIVATIVES RECOGNIZED |
| ||||||||||||||
|
| INTEREST |
| FOREIGN |
| CREDIT |
| OTHER |
| TOTAL |
| ||||
Written options |
| $ (8,464 | ) |
| — |
|
| — |
|
| — |
| $ (8,464 | ) |
|
Futures contracts |
| 4,154 |
|
| — |
|
| — |
|
| — |
| 4,154 |
|
|
Swap contracts |
| 243,606 |
|
| — |
|
| $177,216 |
|
| — |
| 420,822 |
|
|
Forward foreign currency contracts |
| — |
|
| $(70,238 | ) |
| — |
|
| — |
| (70,238 | ) |
|
Total |
| $239,296 |
|
| $(70,238 | ) |
| $177,216 |
|
| — |
| $346,274 |
|
|
For the year ended October 31, 2009 the Fund had average market values of $9,632, $198,198, $1,172,300, $2,946,560 and $1,773,653 in written options, forward foreign currency contracts (to buy), forward foreign currency contracts (to sell), futures contracts (to buy) and futures contracts (to sell), respectively, average notional balances in interest rate swap contracts of $2,115,385 and
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Notes to financial statements continued
average notional balances of $6,832,000 in credit default swap contracts (to sell protection).
5. Distributions subsequent to October 31, 2009
On August 13, 2009, the Board of Directors (“Board”) of the Fund declared a dividend distribution in the amount of $0.05 per share payable on November 27, 2009 to shareholders of record on November 20, 2009.
On November 16, 2009, the Fund’s Board declared three dividends, each in the amount of $0.05 per share, payable on December 28, 2009, January 29, 2010 and February 26, 2010, to shareholders of record on December 18, 2009, January 22, 2010 and February 19, 2010.
6. Tender offers
During the year ended October 31, 2008, the Fund, in accordance with its tender offer for up to 391,201 and 371,640 of its issued and outstanding shares of common stock, accepted and made payment of these shares at $18.63 and $18.32 per share (98% of the net asset value per share of $19.01 on January 15, 2008 and $18.69 on July 15, 2008). These shares represent 5% of the Fund’s then outstanding shares.
7. Income tax information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended October 31, were as follows:
|
| 2009 |
| 2008 |
|
Distributions Paid From: |
|
|
|
|
|
Ordinary income |
| $5,366,481 |
| $6,169,419 |
|
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
As of October 31, 2009, the components of accumulated earnings on a tax basis were as follows:
Undistributed ordinary income — net |
| $ | 474,919 |
|
Capital loss carryforward* |
|
| (12,486,626 | ) |
Other book/tax temporary differences(a) |
|
| (923,615 | ) |
Unrealized appreciation/(depreciation)(b) |
|
| (42,557 | ) |
Total accumulated earnings / (losses) — net |
| $ | (12,977,879 | ) |
* As of October 31, 2009, the Fund had the following net capital loss carryforward remaining:
Year of Expiration |
| Amount |
| |
10/31/2014 |
| $ (4,141,611 | ) |
|
10/31/2015 |
| (5,900,240 | ) |
|
10/31/2017 |
| (2,444,775 | ) |
|
|
| $(12,486,626 | ) |
|
These amounts will be available to offset any future taxable capital gains.
(a) Other book/tax temporary differences are attributable primarily to the tax deferral of losses on straddles, the realization for tax purposes of unrealized gains/(losses) on certain futures and foreign currency contracts, differences between book/tax accrual of interest income on securities in default and book/tax differences in the timing of the deductibility of various expenses.
(b) The difference between book-basis and tax-basis unrealized appreciation / (depreciation) is attributable primarily to the difference between book and tax amortization methods for premiums on fixed income securities.
8. Other shareholder information
At the May 2009 meeting, the Board of Directors approved changing the Fund’s fiscal year end from October 31st to December 31st. This change will result in a “stub period” annual report being produced for the two-month period ending December 31, 2009.
Western Asset Inflation Management Fund Inc. 2009 Annual Report |
|
|
Report of independent registered public accounting firm
The Board of Directors and Shareholders
Western Asset Inflation Management Fund Inc.:
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Western Asset Inflation Management Fund Inc. as of October 31, 2009, 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, the statement of cash flows for the year 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 Fund’s 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 October 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Western Asset Inflation Management Fund Inc. as of October 31, 2009, 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, its cash flows for the year 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
December 21, 2009
|
| Western Asset Inflation Management Fund Inc. 2009 Annual Report |
Additional information (unaudited)
Information about Directors and Officers
The business and affairs of Western Asset Inflation Management Fund Inc. (the “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, Legg Mason & Co., LLC (“Legg Mason”) | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1946 |
Position(s) held with Fund1 |
| Director and Member of the Nominating and Audit Committees, Class I |
Term of office1 |
| Since 2003 |
Principal |
| President, Colman Consulting Company (consulting) |
Number of portfolios in |
| 21 |
Other board member |
| None |
|
|
|
DANIEL P. CRONIN |
|
|
c/o Chairman of the Fund, Legg Mason | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1946 |
Position(s) held |
| Director and Member of the Nominating and Audit Committees, Class I |
Term of office1 |
| Since 2003 |
Principal |
| Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004) |
Number of portfolios in |
| 21 |
Other board member |
| None |
|
|
|
Western Asset Inflation Management Fund Inc. |
|
Additional information (unaudited) continued
Information about Directors and Officers
PAOLO M. CUCCHI | ||
c/o Chairman of the Fund, Legg Mason | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1941 |
Position(s) held |
| Director and Member of the Nominating and Audit Committees, Class I |
Term of office1 |
| Since 2007 |
Principal |
| Professor of French and Italian at Drew University; formerly, Vice President and Dean of College of Liberal Arts at Drew University (1984 to 2009) |
Number of portfolios in |
| 21 |
Other board member |
| None |
|
|
|
LESLIE H. GELB | ||
c/o Chairman of the Fund, Legg Mason | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1937 |
Position(s) held |
| Director and Member of the Nominating and Audit Committees, Class II |
Term of office1 |
| Since 2003 |
Principal |
| President Emeritus and Senior Board Fellow (since 2003), the Council on Foreign Relations; formerly (prior to 2003), President, the Council on Foreign Relations; formerly, Columnist, Deputy Editorial Page Editor and Editor, Op-Ed Page, The New York Times |
Number of portfolios in |
| 21 |
Other board member |
| Director of two registered investment companies advised by Blackstone Asia Advisors L.L.C.: India Fund, Inc. and Asia Tigers Fund, Inc. (since 1994) |
|
|
|
|
| Western Asset Inflation Management Fund Inc. |
WILLIAM R. HUTCHINSON |
|
|
c/o Chairman of the Fund, Legg Mason | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1942 |
Position(s) held |
| Director and Member of the Nominating and Audit Committees, Class II |
Term of office1 |
| Since 2003 |
Principal |
| President, W.R. Hutchinson & Associates Inc. (consulting) (since 2001) |
Number of portfolios in |
| 21 |
Other board member |
| Director, Associated Banc Corp. (banking) (since 1994) and Non-Executive Chairman of the Board (since December 1, 2009) |
|
|
|
RIORDAN ROETT |
|
|
c/o Chairman of the Fund, Legg Mason | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1938 |
Position(s) held |
| Director and Member of the Nominating and Audit Committees, Class III |
Term of office1 |
| Since 2003 |
Principal |
| The Sarita and Don Johnston Professor of Political Science and Director of Western Hemisphere Studies, Paul H. Nitze School of Avanced International Studies, The Johns Hopkins University (since 1973) |
Number of portfolios in |
| 21 |
Other board member |
| None |
|
|
|
Western Asset Inflation Management Fund Inc. |
|
Additional information (unaudited) continued
Information about Directors and Officers
JESWALD W. SALACUSE |
|
|
c/o Chairman of the Fund, Legg Mason | ||
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1938 |
Position(s) held |
| Director and Member of the Nominating and Audit Committees, Class III |
Term of office1 |
| Since 2003 |
Principal |
| Henry J. Braker Professor of Commercial Law, The Fletcher School of Law and Diplomacy, Tufts University (since 1986); President and Member, Arbitration Tribunal, World Bank/ICSID (since 2004) |
Number of portfolios in |
| 21 |
Other board member |
| Director of two registered investment companies advised by Blackstone Asia Advisors L.L.C.: India Fund, Inc. and Asia Tigers Fund, Inc. (since 1993) |
|
|
|
INTERESTED DIRECTOR |
|
|
|
|
|
R. JAY GERKEN, CFA2 |
|
|
Legg Mason |
|
|
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1951 |
Position(s) held |
| Chairman, President and Chief Executive Officer, Class II |
Term of office1 |
| Since 2003 |
Principal |
| Managing Director, Legg Mason & Co., LLC; Chairman of the Board and Trustee/Director of 148 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) and its affiliates; President of LMPFA (since 2006); Chairman, President and Chief Executive Officer (“CEO”) of certain mutual funds associated with Legg Mason, Inc. or its affiliates; President and CEO, Smith Barney Fund Management LLC and Chairman, President and CEO, Citi Fund Management, Inc. (formerly registered investment advisers) (since 2002); formerly, Managing Director of Citigroup Global Markets Inc. (“CFM”) (1989 to 2006); formerly, Chairman, President and CEO, Travelers Investment Adviser Inc. (2002 to 2005) |
Number of portfolios in |
| 135 |
Other board member |
| Former Trustee, Consulting Group Capital Group Capital Markets Funds (2002 to 2006) |
|
|
|
|
| Western Asset Inflation Management Fund Inc. |
OFFICERS |
|
|
|
|
|
KAPREL OZSOLAK |
|
|
Legg Mason |
|
|
55 Water Street, New York, NY 10041 | ||
Birth year |
| 1965 |
Position(s) held |
| Chief Financial Officer and Treasurer |
Term of office1 |
| Since 2007 |
Principal |
| Director of Legg Mason; Chief Financial Officer and Treasurer of certain funds associated with Legg Mason; formerly, Controller of certain funds associated with certain predecessor firms of Legg Mason (2002 to 2004) |
|
|
|
TED P. BECKER |
|
|
Legg Mason |
|
|
620 Eighth Avenue, New York, NY 10018 | ||
Birth year |
| 1951 |
Position(s) held |
| Chief Compliance Officer |
Term of office1 |
| Since 2006 |
Principal |
| Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance at Legg Mason, (since 2005); Chief Compliance Officer with certain mutual funds associated with Legg Mason, LMPFA and certain affiliates (since 2006); formerly, Managing Director of Compliance at Citigroup Asset Management (“CAM”) or its predecessors (2002 to 2005) |
|
|
|
ROBERT I. FRENKEL |
|
|
Legg Mason |
|
|
100 First Stamford Place, Stamford, CT 06902 | ||
Birth year |
| 1954 |
Position(s) held |
| Secretary and Chief Legal Officer |
Term of office1 |
| Since 2003 |
Principal |
| 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 (2001 to 2004) |
|
|
|
Western Asset Inflation Management Fund Inc. |
|
Additional information (unaudited) continued
Information about Directors and Officers
THOMAS C. MANDIA |
|
|
Legg Mason |
|
|
100 First Stamford Place, Stamford, CT 06902 | ||
Birth year |
| 1962 |
Position(s) held |
| Assistant Secretary |
Term of office1 |
| Since 2006 |
Principal |
| Managing Director and Deputy General Counsel of Legg Mason (since 2005); Managing Director and Deputy General Counsel for CAM (1992 to 2005) |
|
|
|
STEVEN FRANK |
|
|
Legg Mason |
|
|
55 Water Street, New York, NY 10041 | ||
Birth year |
| 1967 |
Position(s) held |
| Controller |
Term of office1 |
| Since 2007 |
Principal |
| 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 (2001 to 2005) |
|
|
|
ALBERT LASKAJ |
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Legg Mason |
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55 Water Street, New York, NY 10041 | ||
Birth year |
| 1977 |
Position(s) held |
| Controller |
Term of office1 |
| Since 2007 |
Principal |
| Vice President of Legg Mason (since 2008); Controller of certain funds associated with Legg Mason (since 2007); formerly, Assistant Controller of certain mutual funds associated with Legg Mason (2005 to 2007); formerly, Accounting Manager of certain mutual funds associated with certain predecessor firms of Legg Mason (2003 to 2005) |
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1 | The Fund’s Board of Directors is divided into three classes: Class I, Class II and Class III. The terms of office of the Class I, II and III Directors expire at the Annual Meetings of Stockholders in the year 2012, year 2010 and year 2011, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Fund’s executive officers are chosen each year at the first meeting of the Fund’s 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. |
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2 | Mr. Gerken is an “interested person” of the Fund as defined in the 1940 Act because Mr. Gerken is an officer of LMPFA and certain of its affiliates. |
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| Western Asset Inflation Management Fund Inc. |
Annual chief executive officer and chief financial officer certifications (unaudited)
The Fund’s Chief Executive Officer (“CEO”) has submitted to the NYSE the required annual certification, and the Fund also has included the certifications of the Fund’s CEO and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act in the Fund’s Form N-CSR filed with the SEC for the period of this report.
Western Asset Inflation Management Fund Inc. |
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Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all distributions on your Common Shares will be automatically reinvested by American Stock Transfer and Trust Company, as agent for the Common Shareholders (the “Plan Agent”), in additional Common Shares under the Dividend Reinvestment Plan (the “Plan”). You may elect not to participate in the Plan by contacting the Plan Agent.
If you do not participate, you will receive all cash distributions paid by check mailed directly to you by American Stock Transfer and Trust Company, as dividend paying agent.
If you participate in the Plan, the number of Common Shares you will receive will be determined as follows:
(1) If the market price of the Common Shares on the record date (or, if the record date is not a New York Stock Exchange trading day, the immediately preceding trading day) for determining shareholders eligible to receive the relevant distribution (the “determination date”) is equal to or exceeds 98% of the net asset value per share of the Common Shares, the Fund will issue new Common Shares at a price equal to the greater of (a) 98% of the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the market price per share of the Common Shares on the determination date.
(2) If 98% of the net asset value per share of the Common Shares exceeds the market price of the Common Shares on the determination date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Shares in the open market, on the Exchange or elsewhere, for your account as soon as practicable commencing on the trading day following the determination date and terminating no later than the earlier of (a) 30 days after the distribution payment date, or (b) the record date for the next succeeding distribution to be made to the Common Shareholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price rises so that it equals or exceeds 98% of the net asset value per share of the Common Shares at the close of trading on the Exchange on the determination date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Shares in the open market and the Fund shall issue the remaining Common Shares at a price per share equal to the greater of (a) 98% of the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the then current market price per share.
The Plan Agent maintains all participants’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all Common Shares you have received under the Plan.
| Western Asset Inflation Management Fund Inc. |
You may withdraw from the Plan by notifying the Plan Agent in writing at 59 Maiden Lane, New York, New York 10038 or by calling the Plan Agent at 1-888-888-0151 or by accessing the Plan Agent’s website at www.amstock.com. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agent’s investment of the most recently declared distribution on the Common Shares. The Plan may be terminated by the Fund upon notice in writing mailed to Common Shareholders at least 30 days prior to the record date for the payment of any distribution by the Fund for which the termination is to be effective. Upon any termination, you will be sent a certificate or certificates for the full Common Shares held for you under the Plan and cash for any fractional Common Shares. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your shares on your behalf. You will be charged a service charge and the Plan Agent is authorized to deduct brokerage charges actually incurred for this transaction from the proceeds.
There is no service charge for reinvestment of your distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional Common Shares, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Shares over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets. Investors will be subject to income tax on amounts reinvested under the plan.
Automatically reinvesting distributions does not mean that you do not have to pay income taxes due upon receiving distributions.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan and your account may be obtained from the Plan Agent at 1-888-888-0151.
Western Asset Inflation Management Fund Inc. |
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Important tax information (unaudited)
The following information is provided with respect to the distributions paid during the taxable year ended October 31, 2009:
Record date: |
| Monthly |
| Monthly |
Payable date: |
| November 2008 through |
| January 2009 through |
Ordinary income: |
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Qualified dividend income for individuals |
| 2.92% |
| 3.86% |
Dividends qualifying for the dividends received deduction for corporations |
| 2.92% |
| 3.86% |
Interest from federal obligations * |
| 81.60% |
| 75.11% |
* | This Fund has met the quarterly asset requirements for California, Connecticut and New York Resident Shareholders. |
The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult with your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes.
Please retain this information for your records.
| Western Asset Inflation Management Fund Inc. |
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Western Asset Inflation Management Fund Inc.
Directors | Investment manager |
Carol L. Colman | Legg Mason Partners Fund Advisor, LLC |
Daniel P. Cronin |
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Paolo M. Cucchi | Subadvisers |
Leslie H. Gelb | Western Asset Management Company |
R. Jay Gerken, CFA |
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Chairman | Western Asset Management Company Limited |
William R. Hutchinson |
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Riordan Roett | Western Asset Management Company Pte. Ltd. in Singapore |
Jeswald W. Salacuse |
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| Custodian |
Officers | State Street Bank and Trust Company |
R. Jay Gerken, CFA | 1 Lincoln Street |
President and Chief Executive Officer | Boston, Massachusetts 02111 |
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Kaprel Ozsolak | Transfer agent |
Chief Financial Officer and Treasurer | American Stock Transfer & Trust Company |
| 59 Maiden Lane |
Ted P. Becker | New York, New York 10038 |
Chief Compliance Officer |
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| Independent registered public accounting firm |
Robert I. Frenkel | KPMG LLP |
Secretary and Chief Legal Officer | 345 Park Avenue |
| New York, New York 10154 |
Thomas C. Mandia |
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Assistant Secretary | Legal counsel |
| Simpson Thacher & Bartlett LLP |
Albert Laskaj | 425 Lexington Avenue |
Controller | New York, New York 10017 |
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Steven Frank | New York Stock Exchange Symbol |
Controller | IMF |
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Western Asset Inflation Management Fund Inc. |
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55 Water Street |
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New York, New York 10041 |
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Privacy policy
We are committed to keeping nonpublic personal information about you secure and confidential. This notice is intended to help you understand how we fulfill this commitment. From time to time, we may collect a variety of personal information about you, including:
· | Information we receive from you on applications and forms, via the telephone, and through our websites; |
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· | Information about your transactions with us, our affiliates, or others (such as your purchases, sales, or account balances); and |
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· | Information we receive from consumer reporting agencies. |
We do not disclose nonpublic personal information about our customers or former customers, except to our affiliates (such as broker-dealers or investment advisers within the Legg Mason family of companies) or as is otherwise permitted by applicable law or regulation. For example, we may share this information with others in order to process your transactions or service an account. We may also provide this information to companies that perform marketing services on our behalf, such as printing and mailing, or to other financial institutions with whom we have joint marketing agreements. When we enter into such agreements, we will require these companies to protect the confidentiality of this information and to use it only to perform the services for which we hired them.
With respect to our internal security procedures, we maintain physical, electronic, and procedural safeguards to protect your nonpublic personal information, and we restrict access to this information.
If you decide at some point either to close your account(s) or become an inactive customer, we will continue to adhere to our privacy policies and practices with respect to your nonpublic personal information.
NOT PART OF THE ANNUAL REPORT |
Western Asset Inflation Management Fund Inc.
WESTERN ASSET INFLATION MANAGEMENT FUND INC.
55 Water Street
New York, NY 10041
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time, the Fund may purchase, at market prices, shares of its common stock in the open market.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) on the Fund’s website at www.leggmason.com/cef and (3) on the SEC’s website at www.sec.gov.
This report is transmitted to the shareholders of Western Asset Inflation Management Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or any securities mentioned in the report.
American Stock
Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
WAS0021 12/09 SR09-979
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the registrant has determined that William R. Hutchinson, the chairman of the Board’s Audit Committee, possesses the attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Mr. Hutchinson as the audit committee financial expert. Mr. Hutchinson is an “independent” Director pursuant to paragraph (a)2) of Item 3 to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
a) Audit Fees. The aggregate fees billed in the last two fiscal years ending October 31, 2008 and October 31, 2009 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $55,500 in 2008 and $57,900 in 2009.
b) Audit-Related Fees. There 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 Registrant’s financial statements were $0 in 2008 and $19 in 2009.
In addition, there were no Audit-Related Fees billed in the Reporting Period for assurance and related services by the Auditor to the Registrant’s 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 Inflation Management 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 August 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 $2,650 in 2008 and $3,100 in 2009. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.
There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.
d) All Other Fees. There were no other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item 4 for the Western Asset Inflation Management Fund Inc.
All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”) and any entity controlling, controlled by or under common
control with LMPFA that provided ongoing services to Western Asset Inflation Management Fund Inc. requiring pre-approval by the Audit Committee in the Reporting Period.
(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.
The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.
(2) For the Western Asset Inflation Management Fund Inc., the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for 2008 and 2009; Tax Fees were 100% and 100% for 2008 and 2009; and Other Fees were 100% and 100% for 2008 and 2009.
(f) N/A
(g) Non-audit fees billed by the Auditor for services rendered to Western Asset Inflation Management Fund Inc., LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Western Asset Inflation Management Fund Inc. during the reporting period were $0 in 2009.
(h) Yes. Western Asset Inflation Management Fund Inc.’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor
to the Western Asset Inflation Management 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) The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) 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
Riordan Roett
Jeswald W. Salacuse
b) Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included herein under Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING PLICIES AND PROCDURES FOR CLOSE-END MANAGEMENT INVESTMENT COMPANIES.
Proxy Voting Guidelines and Procedures
Legg Mason Partners Fund Advisor, LLC (“LMPFA”) delegates the responsibility for voting proxies for the fund to the subadviser through its contracts with the subadviser. The subadviser will use its own proxy voting policies and procedures to vote proxies. Accordingly, LMPFA does not expect to have proxy-voting responsibility for the fund. Should LMPFA become responsible for voting proxies for any reason, such as the inability of the subadviser to provide investment advisory services, LMPFA shall utilize the proxy voting guidelines established by the most recent subadviser to vote proxies until a new subadviser is retained.
The subadviser’s Proxy Voting Policies and Procedures govern in determining how proxies relating to the fund’s 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 fund’s website at http://www.leggmason.com/individualinvestors and (3) on the SEC’s website at http://www.sec.gov.
Background
Western Asset Management Company (“WA”), Western Asset Management Company Limited (“WAML”) and Western Asset Management Company Pte. Ltd. (“WAMC”) (together “Western Asset”) have adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). Our authority to vote the proxies of our clients is established through investment management agreements or comparable documents, and our proxy voting guidelines have been tailored to reflect these specific contractual obligations. In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and
responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
In exercising its voting authority, Western Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (except that WA, WAML and WAMC may so consult and agree with each other) regarding the voting of any securities owned by its clients.
Policy
Western Asset’s 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 Asset’s contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote (such that these guidelines may be overridden to the extent 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 client’s proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.
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 analyst’s or portfolio manager’s 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 Asset’s 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 Asset’s written response to both verbal and written client requests.
e. A proxy log including:
1. Issuer name;
2. Exchange ticker symbol of the issuer’s 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 issuer’s management team.
Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.
Disclosure
Part II of the WA Form ADV, the WAML Form ADV and WAMC Form ADV, each, contain a description of Western Asset’s 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 Asset’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been approved and are recommended by a company’s board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV addresses unique considerations pertaining to foreign issuers.
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 company’s 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 company’s long-term performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
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 stock’s 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 company’s capital structure involves a number of important issues, including cash flows, financing needs and market conditions that are unique to the
circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals involving changes to a company’s capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
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 company’s 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 company’s 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 company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s board of directors on all shareholder proposals, except as follows:
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 Asset’s 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 company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1):
NAME AND |
| LENGTH OF |
| PRINCIPAL OCCUPATION(S) DURING |
|
|
|
|
|
S. Kenneth Leech
Western Asset |
| Since 2006 |
| Co-portfolio manager of the fund; Chief Investment Officer of Western Asset since 1998. |
|
|
|
|
|
Stephen A. Walsh
Western Asset |
| Since 2006 |
| Co-portfolio manager of the fund; Deputy Chief Investment Officer of Western Asset since 2000. |
|
|
|
|
|
Keith J. Gardner
Western Asset |
| Since 2007 |
| Co-portfolio manager of the fund; portfolio manager and research analyst at Western Asset since 1994. |
|
|
|
|
|
Michael C. Buchanan
Western Asset |
| 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 |
Peter H. Stutz
Western Asset |
| Since 2006 |
| Co-portfolio manager of the fund; portfolio manager at Western Asset since 1997. |
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the fund’s portfolio managers for the fund. Unless noted otherwise, all information is provided as of October 31, 2009.
Other Accounts Managed by Portfolio Managers
The table below identifies the number of accounts (other than the fund) for which the fund’s 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.
Portfolio |
| Registered |
| Other Pooled |
| Other |
|
S. Kenneth Leech‡ |
| 110 registered investment companies with $188.3 billion in total assets under management |
| 231 Other pooled investment vehicles with $111.4 billion in assets under management* |
| 853 Other accounts with $203.7 on in total assets under management** |
|
|
|
|
|
|
|
|
|
Stephen A. Walsh‡ |
| 110 registered investment companies with $188.3 billion in total assets under management |
| 231 Other pooled investment vehicles with $111.4 billion in assets under management* |
| 853 Other accounts with $203.7 billion in total assets under management** |
|
|
|
|
|
|
|
|
|
Keith J. Gardner‡ |
| 5 registered investment companies with $1.2 billion in total assets under management |
| 7 Other pooled investment vehicles with $0.6 billion in assets under management*** |
| 0 Other accounts with $0 billion in total assets under management |
|
|
|
|
|
|
|
|
|
Michael C. Buchanan‡ |
| 17 registered investment Companies with $9.6 billion in total assets Under management |
| 8 Other pooled investment vehicles with $4.0 billion in assets under management |
| 14 Other accounts with $2.0 billion in total assets under management |
|
Peter H. Stutz‡ |
| 3 registered investment Companies with $1.6 billion in total assets Under management |
| 1 Other pooled investment vehicles with $4.2 million in assets under management |
| 14 Other accounts with $2.4 billion in total assets under management**** |
|
* | Includes 7 accounts managed, totaling $1.1 billion, for which advisory fee is performance based. |
** | Includes 97 accounts managed, totaling $25.0 billion, for which advisory fee is performance based. |
*** | Includes 1 account managed, totaling less than $1 million, for which advisory fee is performance based. |
|
|
**** | Includes 3 accounts managed, totaling $0.5 billion, 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 Firm’s portfolios, but they are not solely responsible for particular portfolios. Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. They are responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.
(a)(3): Portfolio Manager Compensation
With respect to the compensation of the portfolio managers, Western Asset’s compensation system assigns each employee a total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of their skills, experience, and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits, and a retirement plan.
In addition, the subadviser’s employees are eligible for bonuses. These are structured to closely align the interests of employees with those of the subadviser, and are determined by the professional’s job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary. The principal factor considered is a portfolio manager’s investment performance versus appropriate peer groups and benchmarks (e.g., a securities index and with respect to a fund, the benchmark set forth in the fund’s Prospectus to which the fund’s average annual total returns are compared or, if none, the benchmark set forth in the fund’s annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensation—with 3 years having the most emphasis. The subadviser may also measure a portfolio manager’s pre-tax investment performance against other benchmarks, as it determines appropriate. Because portfolio managers are generally responsible for multiple accounts (including the funds) with similar investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when making bonus decisions include client service, business development, length of service to the subadviser, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the subadviser’s business.
Finally, in order to attract and retain top talent, all professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include Legg Mason stock options and long-term incentives that vest over a set period of time past the award date.
Potential Conflicts of Interest
Conflicts of Interest
The manager, subadvisers and portfolio managers have interests which conflict with the interests of the fund. There is no guarantee that the policies and procedures adopted by the manager, the subadvisers and the fund will be able to identify or mitigate these conflicts of interest.
Some examples of material conflicts of interest include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. A portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those funds and accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. Such a portfolio manager may make general determinations across multiple funds, rather than tailoring a unique approach for each fund. The effects of this conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
Allocation of Limited Investment Opportunities; Aggregation of Orders. If a portfolio manager identifies a limited investment opportunity that may be suitable for multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit the fund’s ability to take full advantage of the investment opportunity. Additionally, a subadviser may aggregate transaction orders for multiple accounts for purpose of execution. Such aggregation may cause the price or brokerage costs to be less favorable to a particular client than if similar transactions were not being executed concurrently for other accounts. In addition, a subadviser’s trade allocation policies may result in the fund’s orders not being fully executed or being delayed in execution.
Pursuit of Differing Strategies. At times, a portfolio manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both, to the detriment or benefit of one or more other funds and/or accounts. For example, a portfolio manager may determine that it would be in the interest of another account to sell a security that the fund holds long, potentially resulting in a decrease in the market value of the security held by the fund.
Cross Trades. Portfolio managers may manage funds that engage in cross trades, where one of the manager’s funds or accounts sells a particular security to another fund or account managed by the same manager. Cross trades may pose conflicts of interest because of, for example, the possibility that one account sells a security to another account at a higher price than an independent third party would pay or otherwise enters into a transaction that it would not enter into with an independent party, such as the sale of a difficult-to-obtain security.
Selection of Broker/Dealers. Portfolio managers may select or influence the selection of the brokers and dealers that are used to execute securities transactions for the funds and/or accounts that they supervise. In addition to executing trades, some brokers and dealers provide subadvisers with brokerage and research services, These services may be taken into account in the selection of brokers and dealers whether a broker is being selected to effect a trade on an agency basis for a commission or (as is normally the case for the funds) whether a dealer is being selected to effect a trade on a principal basis. This may result in the payment of higher brokerage fees and/or execution at a less favorable price than might have otherwise been available. The services obtained may ultimately be more beneficial to certain of the manager’s funds or accounts than to others (but not necessarily to the funds that pay the increased commission or incur the less
favorable execution). A decision as to the selection of brokers and dealers could therefore yield disproportionate costs and benefits among the funds and/or accounts managed.
Variation in Financial and Other Benefits. A conflict of interest arises where the financial or other benefits available to a portfolio manager differ among the funds and/or accounts that he or she manages. If the amount or structure of the investment manager’s management fee and/or a portfolio manager’s compensation differs among funds and/or accounts (such as where certain funds or accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others. Similarly, the desire to maintain assets under management or to enhance the portfolio manager’s performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager in affording preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager. A portfolio manager may, for example, have an incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor such funds and/or accounts. Also, a portfolio manager’s or the manager’s or a subadviser’s desire to increase assets under management could influence the portfolio manager to keep a fund open for new investors without regard to potential benefits of closing the fund to new investors. Additionally, the portfolio manager might be motivated to favor funds and/or accounts in which he or she has an ownership interest or in which the investment manager and/or its affiliates have ownership interests. Conversely, if a portfolio manager does not personally hold an investment in the fund, the portfolio manager’s conflicts of interest with respect to the fund may be more acute.
Related Business Opportunities. The investment manager or its affiliates may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of funds and/or accounts that provide greater overall returns to the investment manager and its affiliates.
(a)(4): Portfolio Manager Securities Ownership
The table below identifies the dollar range of securities beneficially owned by each portfolio managers as of October 31, 2009.
Portfolio Manager(s) |
| Dollar Range of |
|
S. Kenneth Leech |
| A |
|
Stephen A. Walsh |
| A |
|
Keith J. Gardner |
| A |
|
Michael C. Buchanan |
| A |
|
Peter H. Stutz |
| 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.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the
filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s 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 Inflation Management Fund Inc. | ||
| ||
| ||
By: | /s/ R. Jay Gerken |
|
| (R. Jay Gerken) |
|
| Chief Executive Officer of |
|
| Western Asset Inflation Management Fund Inc. |
|
|
|
|
Date: | December 30, 2009 |
|
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 Inflation Management Fund Inc. |
|
|
| |
Date: | December 30, 2009 |
By: | /s/ Kaprel Ozsolak |
|
| (Kaprel Ozsolak) | |
| Chief Financial Officer of | |
| Western Asset Inflation Management Fund Inc. | |
| ||
Date: | December 30, 2009 |