Western Asset Variable Rate Strategic Fund Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-21609

Western Asset Variable Rate Strategic Fund Inc.

(Exact name of registrant as specified in charter)

620 Eighth Avenue, 49th Floor, New York, N.Y. 10018

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: (888) 777-0102

Date of fiscal year end: September 30

Date of reporting period: December 31, 2014

 

 

 

 

ITEM 1. SCHEDULE OF INVESTMENTS.

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

FORM N-Q

DECEMBER 31, 2014

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  
COLLATERALIZED MORTGAGE OBLIGATIONS - 36.8%   

Adjustable Rate Mortgage Trust, 2005-11 5A1

      0.440 %      2/25/36         198,421       $ 165,293 (a) 

Banc of America Funding Corp., 2003-1 A1

      6.000 %      5/20/33         92,284         96,919   

Banc of America Funding Corp., 2004-B 6A1

      3.728 %      12/20/34         448,346         325,192 (a) 

Banc of America Funding Corp., 2005-E 8A1

      2.093 %      6/20/35         478,439         317,189 (a) 

Bayview Commercial Asset Trust, 2006-1A B2

      1.870 %      4/25/36         663,558         479,830 (a)(b) 

Bear Stearns Alt-A Trust, 2004-03 A1

      0.810 %      4/25/34         508,039         496,828 (a) 

Bear Stearns Alt-A Trust, 2004-10 1A3

      1.170 %      9/25/34         67,059         67,095 (a) 

Bear Stearns ARM Trust, 2004-08 11A1

      2.660 %      11/25/34         334,961         336,978 (a) 

Bear Stearns Asset-Backed Securities Trust, 2005-AC3 1A1

      0.670 %      7/25/35         588,336         527,638 (a) 

Commercial Mortgage Trust, 2014-BBG A

      0.961 %      3/15/29         260,000         259,146 (a)(b) 

Connecticut Avenue Securities, 2013-C01 M2

      5.420 %      10/25/23         300,000         325,197 (a) 

Countrywide Alternative Loan Trust, 2004-36CB 2A1

      5.500 %      2/25/35         468,446         462,775   

Countrywide Alternative Loan Trust, 2004-6CB A

      0.460 %      5/25/34         574,451         560,048 (a) 

Countrywide Alternative Loan Trust, 2005-24 4A1

      0.396 %      7/20/35         1,021,167         896,653 (a) 

Countrywide Alternative Loan Trust, 2007-23CB A7

      0.570 %      9/25/37         764,090         512,287 (a) 

Countrywide Alternative Loan Trust, 2008-2R 3A1

      6.000 %      8/25/37         657,812         526,054   

Countrywide Home Loan, Mortgage Pass-Through Trust, 2004-29 2A1

      0.500 %      2/25/35         55,113         50,306 (a) 

Countrywide Home Loans, 2004-20 2A1

      2.484 %      9/25/34         542,022         412,369 (a) 

Countrywide Home Loans, 2004-R1 2A

      6.500 %      11/25/34         81,833         86,212 (b) 

Countrywide Home Loans, 2005-HYB9 3A1A

      2.313 %      2/20/36         621,611         574,571 (a) 

Countrywide Home Loans, 2005-R2 2A1

      7.000 %      6/25/35         198,208         200,842 (b) 

Countrywide Home Loans, 2005-R3 AF

      0.570 %      9/25/35         334,281         302,937 (a)(b) 

Countrywide Home Loans, 2006-R2 AF1

      0.590 %      7/25/36         169,862         155,914 (a)(b) 

Countrywide Home Loans Mortgage Pass-Through Trust,
2005-R1 1AF1

      0.530 %      3/25/35         280,728         252,608 (a)(b) 

Deutsche Mortgage Securities Inc., 2004-4 3AR1

      2.718 %      6/25/34         279,681         264,586 (a) 

Downey Savings & Loan Association Mortgage Loan Trust,
2005-AR5 2A1A

      0.494 %      9/19/45         625,212         459,817 (a) 

Downey Savings & Loan Association Mortgage Loan Trust,
2006-AR1 1A1A

      1.033 %      3/19/46         288,230         222,537 (a) 

Federal Home Loan Mortgage Corp. (FHLMC), 2638 DI, IO, PAC

      5.000 %      5/15/23         333,444         16,752   

Federal National Mortgage Association (FNMA), 2013-25 BI, IO

      3.000 %      3/25/33         13,953,324         1,801,575   

Federal National Mortgage Association (FNMA), 2013-62 AI, IO

      3.000 %      6/25/33         8,465,301         1,377,673   

Federal National Mortgage Association (FNMA), STRIPS, 347 2, IO

      5.000 %      1/25/34         1,581,623         277,352   

Federal National Mortgage Association (FNMA), STRIPS, IO, 339 30

      5.500 %      8/25/18         467,562         31,104 (a) 

Government National Mortgage Association (GNMA), 2010-H03 FA

      0.706 %      3/20/60         160,040         159,959 (a)(c) 

Government National Mortgage Association (GNMA), 2010-H10 FC

      1.156 %      5/20/60         138,949         141,587 (a)(c) 

Government National Mortgage Association (GNMA), 2010-H11 FA

      1.156 %      6/20/60         738,412         751,404 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H01 AF

      0.606 %      11/20/60         1,353,090         1,347,753 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H03 FA

      0.656 %      1/20/61         155,469         155,212 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H05 FA

      0.656 %      12/20/60         305,526         305,043 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H05 FB

      0.656 %      12/20/60         284,054         283,330 (a)(c) 

 

See Notes to Schedule of Investments.

 

1

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  
COLLATERALIZED MORTGAGE OBLIGATIONS - (continued)   

Government National Mortgage Association (GNMA), 2011-H06 FA

      0.606 %      2/20/61         680,002       $ 677,396 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H07 FA

      0.656 %      2/20/61         453,288         452,068 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H08 FD

      0.656 %      2/20/61         460,672         459,931 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H09 AF

      0.656 %      3/20/61         815,575         814,135 (a)(c) 

Government National Mortgage Association (GNMA), 2011-H11 FB

      0.656 %      4/20/61         164,023         163,723 (a)(c) 

Government National Mortgage Association (GNMA), 2012-H18 NA

      0.676 %      8/20/62         740,178         740,434 (a)(c) 

Government National Mortgage Association (GNMA), 2012-H23 SA

      0.682 %      10/20/62         604,314         604,193 (a)(c)(d) 

Government National Mortgage Association (GNMA),
2012-H23 WA

      0.676 %      10/20/62         803,333         801,357 (a)(c) 

Government National Mortgage Association (GNMA),
2013-082 IT, IO, PAC

      3.500 %      5/20/43         2,811,934         538,495   

Granite Mortgages PLC, 2003-2 1A3

      0.731 %      7/20/43         24,307         24,205 (a)(e) 

Granite Mortgages PLC, 2004-1 2A1

      0.567 %      3/20/44         43,096         42,937 (a) 

Granite Mortgages PLC, 2004-3 2A1

      0.527 %      9/20/44         15,001         14,940 (a) 

GSMPS Mortgage Loan Trust, 2005-LT1 A1

      0.630 %      2/25/35         108,158         101,636 (a)(b) 

GSMPS Mortgage Loan Trust, 2005-RP2 1AF

      0.520 %      3/25/35         722,769         637,221 (a)(b) 

GSMPS Mortgage Loan Trust, 2006-RP2 1AF1

      0.570 %      4/25/36         358,257         304,694 (a)(b) 

GSMSC Resecuritization Trust, 2014

      0.295 %      4/26/37         1,230,000         1,030,125 (a)(b)(d) 

HarborView Mortgage Loan Trust, 2004-10 4A

      2.556 %      1/19/35         274,998         275,195 (a) 

HarborView Mortgage Loan Trust, 2005-14 3A1A

      2.649 %      12/19/35         156,035         138,820 (a) 

IMPAC Secured Assets Corp., 2005-2 A1

      0.490 %      3/25/36         1,665,970         1,220,165 (a) 

Indymac Index Mortgage Loan Trust, 2004-AR07 A2

      1.030 %      9/25/34         220,225         199,288 (a) 

Indymac Index Mortgage Loan Trust, 2004-AR08 2A2A

      0.970 %      11/25/34         61,286         56,395 (a) 

Indymac Index Mortgage Loan Trust, 2004-AR12 A1

      0.950 %      12/25/34         253,135         215,025 (a) 

Indymac Index Mortgage Loan Trust, 2005-AR21 4A1

      2.667 %      10/25/35         414,251         360,047 (a) 

JPMorgan Chase Commercial Mortgage Securities Trust,
2006-LDP9 AJ

      5.411 %      5/15/47         1,210,000         1,031,828   

JPMorgan Chase Commercial Mortgage Securities Trust,
2007-CB18 AJ

      5.502 %      6/12/47         690,000         689,932 (a) 

JPMorgan Mortgage Trust, 2005-A3 3A4

      2.253 %      6/25/35         318,745         319,652 (a) 

Luminent Mortgage Trust, 2006-2 A1A

      0.370 %      2/25/46         748,535         569,602 (a) 

MASTR ARM Trust, 2003-6 2A1

      2.165 %      12/25/33         95,568         96,184 (a) 

MASTR Asset Securitization Trust, 2003-11 6A16

      5.250 %      12/25/33         117,640         121,006   

MASTR Reperforming Loan Trust, 2005-2 1A1F

      0.520 %      5/25/35         1,090,151         907,407 (a)(b) 

MASTR Reperforming Loan Trust, 2006-2 1A1

      4.765 %      5/25/36         396,586         376,652 (a)(b) 

MASTR Reperforming Loan Trust, 2006-2 2A1

      2.991 %      5/25/36         153,120         135,875 (a)(b) 

Morgan Stanley Capital I Trust, 2007-HQ11 AJ

      5.508 %      2/12/44         660,000         683,604 (a) 

Morgan Stanley Mortgage Loan Trust, 2006-3AR 1A3

      0.430 %      3/25/36         273,050         210,406 (a) 

Morgan Stanley Mortgage Loan Trust, 2006-6AR 2A

      2.664 %      5/25/36         790,614         635,962 (a) 

Mortgage IT Trust, 2005-3 A1

      0.470 %      8/25/35         521,605         500,304 (a) 

Prime Mortgage Trust, 2006-DR1 2A2

      6.000 %      5/25/35         574,691         579,775 (b) 

Residential Accredit Loans Inc., 2004-QA2 A2

      0.610 %      6/25/34         375,859         371,395 (a) 

Residential Accredit Loans Inc., 2005-QO4 2A1

      0.450 %      12/25/45         357,973         261,891 (a) 

Residential Asset Mortgage Products Inc., 2003-SL1 M1

      7.356 %      4/25/31         624,320         559,825 (a) 

Sequoia Mortgage Trust, 2004-12 A2

      0.634 %      1/20/35         891,835         825,058 (a) 

 

See Notes to Schedule of Investments.

 

2

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  
COLLATERALIZED MORTGAGE OBLIGATIONS - (continued)   

Structured Agency Credit Risk Debt Notes, 2013-DN1 M2

      7.320 %      7/25/23         420,000       $ 504,391 (a) 

Structured ARM Loan Trust, 2004-09XS A

      0.540 %      7/25/34         582,123         562,214 (a) 

Structured ARM Loan Trust, 2004-20 1A1

      2.469 %      1/25/35         203,480         189,244 (a) 

Structured Asset Mortgage Investments Inc., 2004-AR3 1A1

      0.764 %      7/19/34         427,794         413,297 (a) 

Structured Asset Mortgage Investments Inc., 2006-AR2 A1

      0.400 %      2/25/36         765,258         616,427 (a) 

Structured Asset Mortgage Investments Inc., 2006-AR3 11A1

      0.380 %      4/25/36         324,984         241,330 (a) 

Structured Asset Securities Corp., 1998-02 M1

      1.270 %      2/25/28         22,777         23,535 (a) 

Structured Asset Securities Corp., 1998-03 M1

      1.170 %      3/25/28         58,938         57,652 (a) 

Structured Asset Securities Corp., 1998-08 M1

      1.110 %      8/25/28         133,829         132,609 (a) 

Structured Asset Securities Corp., 2005-RF1 A

      0.520 %      3/25/35         208,897         176,836 (a)(b) 

Structured Asset Securities Corp., 2005-RF2 A

      0.520 %      4/25/35         228,640         189,742 (a)(b) 

Structured Asset Securities Corp., 2005-RF3 2A

      3.385 %      6/25/35         3,221,411         2,905,861 (a)(b) 

WaMu Mortgage Pass-Through Certificates, 2005-AR13 A1C3

      0.660 %      10/25/45         258,006         217,650 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2003-AR8

      0.530 %      10/25/45         604,973         542,544 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2004-AR11

      2.426 %      10/25/34         195,764         195,331 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2004-AR12 A2A

      0.578 %      10/25/44         163,393         158,482 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2005-10 4CB3

      0.770 %      12/25/35         689,643         548,249 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2005-4 CB9

      0.570 %      6/25/35         819,780         628,517 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2005-AR01 A2A3

      0.570 %      1/25/45         131,217         125,902 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2005-AR08 2AB3

      0.530 %      7/25/45         964,604         892,568 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2006-AR02 A1A

      1.053 %      4/25/46         246,256         196,124 (a) 

Washington Mutual Inc. Mortgage Pass-Through Certificates,
2006-AR11 1A

      1.073 %      9/25/46         407,120         350,792 (a) 

Wells Fargo Mortgage Backed Securities Trust, 2004-DD 1A1

      2.615 %      1/25/35         462,058         462,780 (a) 
          

 

 

  

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS

(Cost - $44,412,480)

              45,067,425   
          

 

 

  
ASSET-BACKED SECURITIES - 29.4%           

ABFS Mortgage Loan Trust, 2002-3 M1

      5.902 %      9/15/33         734,982         593,214   

Academic Loan Funding Trust, 2013-1A A

      0.969 %      12/26/44         512,812         512,067 (a)(b) 

Access Financial Manufactured Housing Contract Trust, 1995-1 B1

      7.650 %      5/15/21         248,851         195,538   

Access Group Inc., 2005-B A2

      0.464 %      7/25/22         110,783         110,225 (a) 

ALM Loan Funding, 2013-10A B

      2.831 %      1/15/25         250,000         237,332 (a)(b) 

Ameriquest Mortgage Securities Inc., 2002-AR1 M1

      1.226 %      9/25/32         160,823         147,571 (a) 

Ameriquest Mortgage Securities Inc., 2005-R1 M1

      0.620 %      3/25/35         405,070         405,217 (a) 

Apidos CDO, 2013-16A B

      3.031 %      1/19/25         400,000         383,750 (a)(b) 

Argent Securities Inc., 2003-W3 M1

      1.280 %      9/25/33         38,317         37,416 (a) 

Argent Securities Inc., 2003-W8 M1

      1.205 %      12/25/33         514,123         500,374 (a) 

Bear Stearns Asset-Backed Securities Trust, 2001-3 A1

      1.070 %      10/27/32         32,608         31,394 (a) 

Bear Stearns Asset-Backed Securities Trust, 2007-SD1 1A2A

      6.000 %      10/25/36         720,828         590,673   

Carlyle Global Market Strategies, 2013-4A C

      3.031 %      10/15/25         250,000         242,284 (a)(b) 

Chase Funding Mortgage Loan Asset-Backed Certificates, 2004-1 1A7

      3.985 %      11/25/33         367,398         378,122   

 

See Notes to Schedule of Investments.

 

3

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

   RATE     MATURITY
DATE		     FACE
AMOUNT†		     VALUE  
ASSET-BACKED SECURITIES - (continued)        

Citibank Credit Card Issuance Trust, 2014-A3 A3

     0.358 %      5/9/18        760,000      $ 760,218 (a) 

Citigroup Mortgage Loan Trust Inc., 2005-OPT1 M1

     0.800 %      2/25/35        244,419        236,520 (a) 

Citigroup Mortgage Loan Trust Inc., 2005-OPT4 M2

     0.600 %      7/25/35        483,911        480,707 (a) 

Countrywide Asset-Backed Certificates, 2003-5 AF5

     5.616 %      2/25/34        631,145        671,404   

Countrywide Asset-Backed Certificates, 2004-6 1A1

     0.710 %      12/25/34        1,096,850        1,045,711 (a) 

Countrywide Asset-Backed Certificates, 2004-BC1 M1

     0.920 %      2/25/34        117,525        112,953 (a) 

Countrywide Asset-Backed Certificates, 2007-13 2A1

     1.070 %      10/25/47        1,042,076        919,131 (a) 

Countrywide Home Equity Loan Trust, 2006-HW 2A1B

     0.305 %      11/15/36        688,392        605,785 (a) 

Credit-Based Asset Servicing and Securitization LLC, 2007-SP1 A4

     6.020 %      12/25/37        594,721        626,277 (b) 

Dryden Senior Loan Fund, 2014-31A C

     3.081 %      4/18/26        500,000        485,188 (a)(b) 

EMC Mortgage Loan Trust, 2004-C A1

     0.720 %      3/25/31        59,547        58,720 (a)(b) 

First Franklin Mortgage Loan Asset-Backed Certificates,
2005-FFH4 2A4

     0.505 %      12/25/35        76,935        77,078 (a) 

Flatiron CLO Ltd., 2013-1A B

     2.978 %      1/17/26        500,000        480,057 (a)(b) 

Greenpoint Home Equity Loan Trust, 2004-4 A

     0.721 %      8/15/30        224,809        210,365 (a) 

Greenpoint Manufactured Housing, 1999-3 1A7

     7.270 %      6/15/29        186,006        187,810   

GSAA Trust, 2006-5 2A3

     0.440 %      3/25/36        1,265,898        879,369 (a) 

GSAMP Trust, 2004-OPT B1

     2.555 %      11/25/34        67,022        43,216 (a) 

GSAMP Trust, 2004-SEA2 M2

     1.420 %      3/25/34        1,000,000        912,621 (a) 

GSRPM Mortgage Loan Trust, 2007-1 A

     0.570 %      10/25/46        104,580        87,673 (a)(b) 

Hertz Vehicle Financing LLC, 2013-1A A1

     1.120 %      8/25/17        580,000        578,882 (b) 

Home Equity Mortgage Trust, 2006-2 2A1

     0.330 %      7/25/36        422,968        191,170 (a) 

Indymac Seconds Asset Backed Trust, 2006-A A

     0.430 %      6/25/36        2,376,303        564,660 (a) 

IXIS Real Estate Capital Trust, 2005-HE4 A3

     0.510 %      2/25/36        67,472        66,486 (a) 

Lehman XS Trust, (Structured Asset Securities Corp.), 2005-1 2A2

     1.655 %      7/25/35        760,428        736,180 (a) 

Lehman XS Trust, 2005-5N 3A1A

     0.470 %      11/25/35        281,374        250,896 (a) 

Lehman XS Trust, 2006-8 2A4A

     0.415 %      6/25/36        1,909,219        1,141,688 (a) 

Long Beach Mortgage Loan Trust, 2001-3 M1

     0.995 %      9/25/31        196,799        180,066 (a) 

Long Beach Mortgage Loan Trust, 2002-1 2M1

     1.295 %      5/25/32        206,745        199,777 (a) 

Madison Park Funding Ltd., 2013-11A C

     2.981 %      10/23/25        250,000        239,331 (a)(b) 

MASTR Asset-Backed Securities Trust, 2005-AB1 A5A

     5.712 %      11/25/35        720,000        450,793   

MASTR Specialized Loan Trust, 2007-1 A

     0.540 %      1/25/37        432,846        280,128 (a)(b) 

Morgan Stanley Capital Inc., 2003-NC9 M

     1.295 %      9/25/33        773,182        752,390 (a) 

Morgan Stanley Capital Inc., 2004-HE8 A7

     1.230 %      9/25/34        74,135        70,026 (a) 

Morgan Stanley Capital Inc., 2004-HES M2

     2.045 %      6/25/34        1,206,137        1,070,285 (a) 

National Collegiate Student Loan Trust, 2006-1 A3

     0.360 %      5/25/26        309,541        307,856 (a) 

Neuberger Berman CLO Ltd., 2013-15A C

     3.081 %      10/15/25        400,000        384,315 (a)(b) 

New Century Home Equity Loan Trust, 2004-3 M1

     1.100 %      11/25/34        638,898        594,830 (a) 

Nissan Master Owner Trust Receivables, 2013-A A

     0.461 %      2/15/18        565,000        564,501 (a) 

Novastar Home Equity Loan, 2004-1 M3

     0.995 %      6/25/34        690,000        658,748 (a) 

Novastar Home Equity Loan, 2004-4 M3

     1.250 %      3/25/35        403,552        404,769 (a) 

Option One Mortgage Loan Trust, 2005-1 A4

     0.970 %      2/25/35        116,005        114,109 (a) 

Origen Manufactured Housing, 2007-A A2

     2.497 %      4/15/37        601,529        537,303 (a) 

Palmer Square CLO Ltd., 2013-2A B

     3.278 %      10/17/25        250,000        243,722 (a)(b) 

Park Place Securities Inc., 2004-WHQ2 M2

     1.115 %      2/25/35        415,367        415,761 (a) 

Park Place Securities Inc., 2005-WHQ2 M2

     0.630 %      5/25/35        1,110,000        1,042,801 (a) 

Pennsylvania Higher Education Assistance Agency, 2013-3A A

     0.920 %      11/25/42        469,363        472,017 (a)(b) 

People’s Choice Home Loan Securities Trust, 2004-2 M1

     1.070 %      10/25/34        170,104        167,943 (a) 

 

See Notes to Schedule of Investments.

 

4

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		     VALUE  
ASSET-BACKED SECURITIES - (continued)          

RAAC Series, 2006-RP2 A

      0.420 %      2/25/37         357,143      $ 353,881 (a)(b) 

RAAC Series, 2006-RP3 A

      0.440 %      5/25/36         690,047        618,284 (a)(b) 

RAAC Series, 2007-RP3 M1

      0.970 %      10/25/46         1,200,000        519,279 (a)(b) 

Renaissance Home Equity Loan Trust, 2003-1 A

      1.030 %      6/25/33         681,955        648,493 (a) 

Renaissance Home Equity Loan Trust, 2003-2 A

      1.035 %      8/25/33         99,417        94,094 (a) 

Renaissance Net Interest Margin Trust, 2007-2 N

      8.353 %      6/25/37         128,633        1 (b)(f)(g) 

Residential Asset Mortgage Products Inc.,
2003-RS7 MII1

      1.280 %      8/25/33         38,189        34,109 (a) 

Residential Asset Mortgage Products Inc.,
2003-RZ4 A7

      4.790 %      6/25/33         34,341        35,299   

Residential Asset Mortgage Products Inc.,
2004-RZ3 MII2

      1.820 %      9/25/34         259,895        244,560 (a) 

Residential Funding Mortgage Securities Trust,
2006-HSA3 A

      0.300 %      5/25/36         1,046,820        929,610 (a) 

SACO I Trust, 2006-3 A3

      0.630 %      4/25/36         271,568        420,625 (a) 

SACO I Trust, 2006-4 A1

      0.510 %      3/25/36         283,807        385,278 (a) 

Security National Mortgage Loan Trust, 2007-1A 2A

      0.520 %      4/25/37         1,697,854        1,506,462 (a)(b) 

Shackleton CLO Ltd., 2013-4A B1

      2.230 %      1/13/25         300,000        291,503 (a)(b) 

SLM Student Loan Trust, 2003-01 A5C

      0.991 %      12/15/32         377,150        376,216 (a)(b) 

SLM Student Loan Trust, 2003-04 A5A

      0.991 %      3/15/33         158,026        157,809 (a)(b) 

SLM Student Loan Trust, 2003-04 A5E

      0.991 %      3/15/33         419,538        418,963 (a)(b) 

SLM Student Loan Trust, 2004-3 A5

      0.404 %      7/25/23         115,195        114,746 (a) 

SLM Student Loan Trust, 2012-E A1

      0.905 %      10/16/23         204,534        205,169 (a)(b) 

SMB Private Education Loan Trust, 2014-A A1

      0.661 %      9/15/21         177,635        177,843 (a)(b) 

Soundview Home Equity Loan Trust, 2005-3 M2

      0.950 %      6/25/35         67,525        67,277 (a) 

Structured Asset Investment Loan Trust, 2004-9 M4

      2.120 %      10/25/34         117,619        71,222 (a) 

Structured Asset Securities Corp., 2003-AL1 A

      3.357 %      4/25/31         82,820        81,666 (b) 

Structured Asset Securities Corp., 2004-6XS A5B

      5.550 %      3/25/34         389,252        406,981   

Structured Asset Securities Corp., 2005-4XS 2A1A

      1.906 %      3/25/35         424,578        424,228 (a) 

Structured Asset Securities Corp., 2005-SC1 1A1

      0.440 %      5/25/31         568,858        332,861 (a)(b) 

Structured Asset Securities Corp., 2005-WF1 A3

      0.830 %      2/25/35         155,938        155,547 (a) 

Structured Asset Securities Corp., 2006-GEL1 A2

      0.520 %      11/25/35         124,890        123,675 (a)(b) 

Structured Asset Securities Corp., 2007-BC3 2A3

      0.350 %      5/25/47         290,000        188,798 (a) 

Venture CDO Ltd., 2014-16A A3L

      2.981 %      4/15/26         500,000        485,000 (a)(b) 

Whitehorse Ltd., 2013-1A A3L

      3.233 %      11/24/25         200,000        194,465 (a)(b) 
         

 

 

  

TOTAL ASSET-BACKED SECURITIES

(Cost - $34,751,927)

             35,991,357   
         

 

 

  
CONVERTIBLE BONDS & NOTES - 0.0%          
TELECOMMUNICATION SERVICES - 0.0%          

Diversified Telecommunication Services - 0.0%

          

Axtel SAB de CV, Senior Secured Notes, Step Bond

(Cost - $30,500)

      8.000 %      1/31/20         214,800 MXN      20,383 (b) 
         

 

 

  
CORPORATE BONDS & NOTES - 32.1%          
CONSUMER DISCRETIONARY - 3.8%          

Automobiles - 2.2%

          

Ford Motor Credit Co., LLC, Senior Notes

      2.750 %      5/15/15         590,000        594,001 (c) 

Ford Motor Credit Co., LLC, Senior Notes

      5.875 %      8/2/21         250,000        289,849   

General Motors Co., Senior Notes

      3.500 %      10/2/18         400,000        410,000   

General Motors Financial Co. Inc., Senior Notes

      4.375 %      9/25/21         400,000        418,000   

 

See Notes to Schedule of Investments.

 

5

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  

Automobiles - (continued)

           

General Motors Financial Co. Inc., Senior Notes

      4.250 %      5/15/23         1,000,000       $ 1,022,390   
          

 

 

  

Total Automobiles

              2,734,240   
          

 

 

  

Diversified Consumer Services - 0.0%

           

Service Corp. International, Senior Notes

      7.625 %      10/1/18         30,000         33,612   
          

 

 

  

Hotels, Restaurants & Leisure - 0.4%

           

Choctaw Resort Development Enterprise, Senior Notes

      7.250 %      11/15/19         209,000         207,955 (b) 

MGM Resorts International, Senior Notes

      7.625 %      1/15/17         230,000         248,400   
          

 

 

  

Total Hotels, Restaurants & Leisure

              456,355   
          

 

 

  

Media - 1.2%

           

Comcast Corp., Senior Notes

      6.500 %      1/15/17         400,000         441,895 (c) 

DISH DBS Corp., Senior Notes

      6.750 %      6/1/21         400,000         431,000   

DISH DBS Corp., Senior Notes

      5.875 %      11/15/24         190,000         191,425 (b) 

Time Warner Cable Inc., Senior Notes

      4.125 %      2/15/21         400,000         428,656   
          

 

 

  

Total Media

              1,492,976   
          

 

 

  

TOTAL CONSUMER DISCRETIONARY

              4,717,183   
          

 

 

  
CONSUMER STAPLES - 1.9%           

Beverages - 0.7%

           

Anheuser-Busch InBev Worldwide Inc., Senior Notes

      4.125 %      1/15/15         90,000         90,085   

Suntory Holdings Ltd., Notes

      1.650 %      9/29/17         770,000         768,183 (b) 
          

 

 

  

Total Beverages

              858,268   
          

 

 

  

Food & Staples Retailing - 0.6%

           

Sysco Corp., Senior Notes

      1.450 %      10/2/17         450,000         449,806   

Wal-Mart Stores Inc., Senior Notes

      2.800 %      4/15/16         300,000         307,954   
          

 

 

  

Total Food & Staples Retailing

              757,760   
          

 

 

  

Food Products - 0.2%

           

Kraft Foods Group Inc., Senior Notes

      5.375 %      2/10/20         104,000         118,164   

Mondelez International Inc., Senior Notes

      5.375 %      2/10/20         96,000         108,872   
          

 

 

  

Total Food Products

              227,036   
          

 

 

  

Tobacco - 0.4%

           

Altria Group Inc., Senior Notes

      9.250 %      8/6/19         350,000         450,272   
          

 

 

  

TOTAL CONSUMER STAPLES

              2,293,336   
          

 

 

  
ENERGY - 6.1%           

Energy Equipment & Services - 0.2%

           

Key Energy Services Inc., Senior Notes

      6.750 %      3/1/21         350,000         220,500   

Parker Drilling Co., Senior Notes

      6.750 %      7/15/22         60,000         45,600   
          

 

 

  

Total Energy Equipment & Services

              266,100   
          

 

 

  

Oil, Gas & Consumable Fuels - 5.9%

           

Anadarko Petroleum Corp., Senior Notes

      6.375 %      9/15/17         380,000         422,749   

BP Capital Markets PLC, Senior Notes

      3.125 %      10/1/15         530,000         539,603 (c) 

Chesapeake Energy Corp., Senior Notes

      7.250 %      12/15/18         285,000         313,500   

Chesapeake Energy Corp., Senior Notes

      6.125 %      2/15/21         150,000         158,250   

CONSOL Energy Inc., Senior Notes

      8.250 %      4/1/20         160,000         166,600   

Continental Resources Inc., Senior Notes

      5.000 %      9/15/22         500,000         484,375   

Ecopetrol SA, Senior Notes

      4.250 %      9/18/18         240,000         250,200   

Enterprise Products Operating LLC, Junior Subordinated Notes

      8.375 %      8/1/66         80,000         85,932 (a) 

Enterprise Products Operating LLP, Subordinated Notes

      7.034 %      1/15/68         120,000         131,715 (a) 

Kodiak Oil & Gas Corp., Senior Notes

      8.125 %      12/1/19         400,000         409,000   

LUKOIL International Finance BV, Bonds

      6.356 %      6/7/17         210,000         199,624 (e) 

LUKOIL International Finance BV, Senior Notes

      7.250 %      11/5/19         240,000         228,229 (e) 

MarkWest Energy Partners LP/MarkWest Energy Finance Corp., Senior Notes

      6.250 %      6/15/22         500,000         520,000   

 

See Notes to Schedule of Investments.

 

6

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  

Oil, Gas & Consumable Fuels - (continued)

           

Petrobras Global Finance BV, Senior Notes

      3.123 %      3/17/20         190,000       $ 172,045 (a) 

Petrobras International Finance Co., Senior Notes

      3.875 %      1/27/16         250,000         245,950   

Petrobras International Finance Co., Senior Notes

      5.750 %      1/20/20         780,000         755,204   

Petroleos Mexicanos, Senior Notes

      3.125 %      1/23/19         120,000         120,600   

Range Resources Corp., Senior Subordinated Notes

      6.750 %      8/1/20         550,000         574,750   

Rosneft Finance SA, Senior Notes

      7.875 %      3/13/18         200,000         185,352 (e) 

Shell International Finance BV, Senior Notes

      3.100 %      6/28/15         280,000         283,580   

Sinopec Group Overseas Development 2014 Ltd., Senior Notes

      1.149 %      4/10/19         650,000         651,214 (a)(b) 

Williams Cos. Inc., Senior Notes

      8.750 %      3/15/32         229,000         267,891   
          

 

 

  

Total Oil, Gas & Consumable Fuels

              7,166,363   
          

 

 

  

TOTAL ENERGY

              7,432,463   
          

 

 

  
FINANCIALS - 13.7%           

Banks - 8.6%

           

Bank of America Corp., Junior Subordinated

      6.250 %      9/5/24         650,000         645,734 (a)(h) 

Bank of America Corp., Senior Notes

      3.750 %      7/12/16         600,000         621,685 (c) 

Bank of America Corp., Senior Notes

      1.317 %      3/22/18         660,000         665,345 (a) 

Barclays Bank PLC, Senior Notes

      5.000 %      9/22/16         200,000         213,208   

BBVA US Senior SAU, Senior Notes

      4.664 %      10/9/15         200,000         205,391   

Citigroup Inc., Senior Notes

      6.125 %      11/21/17         800,000         892,661 (c) 

Commonwealth Bank of Australia, Senior Notes

      1.950 %      3/16/15         370,000         371,142   

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, Junior Subordinated Notes

      11.000 %      6/30/19         260,000         335,270 (a)(b)(h) 

Cooperatieve Centrale Raiffeisen-Boerenleenbank BA, Senior Notes

      3.375 %      1/19/17         190,000         198,303   

Credit Agricole SA, Subordinated Notes

      8.375 %      10/13/19         620,000         717,650 (a)(b)(h) 

Intesa Sanpaolo SpA, Senior Notes

      3.625 %      8/12/15         140,000         141,912 (b) 

JPMorgan Chase & Co., Junior Subordinated Bonds

      5.150 %      5/1/23         1,320,000         1,246,740 (a)(h) 

M&T Bank Corp., Junior Subordinated Stock

      6.450 %      2/15/24         1,190,000         1,268,837 (a)(h) 

PNC Financial Services Group Inc., Junior Subordinated

      4.850 %      6/1/23         990,000         936,870 (a)(h) 

Wachovia Capital Trust III, Junior Subordinated Bonds

      5.570 %      2/23/15         1,420,000         1,378,110 (a)(h) 

Wells Fargo & Co., Senior Notes

      3.676 %      6/15/16         250,000         259,416   

Wells Fargo & Co., Senior Notes

      2.100 %      5/8/17         460,000         468,064 (c) 
          

 

 

  

Total Banks

              10,566,338   
          

 

 

  

Capital Markets - 1.9%

           

Bank of New York Mellon Corp., Junior Subordinated Notes

      4.500 %      6/20/23         1,340,000         1,238,662 (a)(h) 

Goldman Sachs Capital III, Preferred Securities

      4.000 %      2/23/15         950,000         714,875 (a)(h) 

Goldman Sachs Group Inc., Senior Notes

      6.250 %      9/1/17         300,000         334,002   
          

 

 

  

Total Capital Markets

              2,287,539   
          

 

 

  

Consumer Finance - 1.1%

           

Ally Financial Inc., Senior Notes

      8.000 %      3/15/20         225,000         266,063   

American Express Co., Senior Notes

      2.650 %      12/2/22         517,000         507,602   

HSBC Finance Corp., Senior Notes

      6.676 %      1/15/21         500,000         593,980   
          

 

 

  

Total Consumer Finance

              1,367,645   
          

 

 

  

Diversified Financial Services - 1.9%

           

General Electric Capital Corp., Junior Subordinated Bonds

      5.250 %      6/15/23         1,200,000         1,204,124 (a)(h) 

General Electric Capital Corp., Senior Notes

      2.950 %      5/9/16         550,000         566,236 (c) 

 

See Notes to Schedule of Investments.

 

7

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  

Diversified Financial Services - (continued)

           

International Lease Finance Corp., Senior Notes

      8.750 %      3/15/17         490,000       $ 543,900   
          

 

 

  

Total Diversified Financial Services

              2,314,260   
          

 

 

  

Thrifts & Mortgage Finance - 0.2%

           

Santander Holdings USA Inc., Senior Notes

      4.625 %      4/19/16         240,000         250,087   
          

 

 

  

TOTAL FINANCIALS

              16,785,869   
          

 

 

  
INDUSTRIALS - 1.0%           

Airlines - 0.1%

           

Air 2 US, Notes

      8.027 %      10/1/19         42,966         45,973 (b) 

Delta Air Lines Inc., Pass-Through Certificates, Secured Notes

      8.021 %      8/10/22         47,924         55,353   
          

 

 

  

Total Airlines

              101,326   
          

 

 

  

Commercial Services & Supplies - 0.2%

           

Waste Management Inc., Senior Notes

      2.600 %      9/1/16         300,000         307,017   
          

 

 

  

Construction & Engineering - 0.6%

           

Brundage-Bone Concrete Pumping Inc., Senior Secured Notes

      10.375 %      9/1/21         200,000         205,250 (b) 

Odebrecht Finance Ltd., Senior Notes

      4.375 %      4/25/25         700,000         602,000 (b) 
          

 

 

  

Total Construction & Engineering

              807,250   
          

 

 

  

Industrial Conglomerates - 0.1%

           

Leucadia National Corp., Senior Notes

      8.125 %      9/15/15         80,000         83,765   
          

 

 

  

TOTAL INDUSTRIALS

              1,299,358   
          

 

 

  
INFORMATION TECHNOLOGY - 0.3%           

Electronic Equipment, Instruments & Components - 0.2%

           

Interface Security Systems Holdings Inc./Interface Security Systems LLC, Senior Secured Notes

      9.250 %      1/15/18         260,000         263,900   
          

 

 

  

IT Services - 0.1%

           

First Data Corp., Senior Secured Notes

      6.750 %      11/1/20         65,000         69,550 (b) 
          

 

 

  

TOTAL INFORMATION TECHNOLOGY

              333,450   
          

 

 

  
MATERIALS - 2.1%           

Chemicals - 0.1%

           

Jac Holding Corp., Senior Secured Notes

      11.500 %      10/1/19         150,000         153,750 (b) 
          

 

 

  

Construction Materials - 0.6%

           

Cemex SAB de CV, Senior Secured Notes

      4.981 %      10/15/18         650,000         670,085 (a)(b) 
          

 

 

  

Containers & Packaging - 0.2%

           

Reynolds Group Issuer Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer (Luxembourg) SA, Senior Secured Notes

      7.125 %      4/15/19         250,000         259,063   
          

 

 

  

Metals & Mining - 1.2%

           

ArcelorMittal, Senior Notes

      4.250 %      8/5/15         50,000         50,813   

Cliffs Natural Resources Inc., Senior Notes

      4.875 %      4/1/21         90,000         48,825   

Rio Tinto Finance USA Ltd., Senior Notes

      2.500 %      5/20/16         500,000         509,599 (c) 

Steel Dynamics Inc., Senior Notes

      7.625 %      3/15/20         370,000         387,575   

Thompson Creek Metals Co. Inc., Senior Notes

      12.500 %      5/1/19         150,000         149,625   

Vale Overseas Ltd., Notes

      6.250 %      1/23/17         338,000         360,862   
          

 

 

  

Total Metals & Mining

              1,507,299   
          

 

 

  

TOTAL MATERIALS

              2,590,197   
          

 

 

  
TELECOMMUNICATION SERVICES - 2.6%           

Diversified Telecommunication Services - 1.7%

           

Axtel SAB de CV, Senior Secured Notes, Step Bond

      8.000 %      1/31/20         188,000         182,595 (b) 

Cincinnati Bell Telephone Co., Senior Debentures

      6.300 %      12/1/28         45,000         42,637   

Deutsche Telekom International Finance BV, Senior Notes

      5.750 %      3/23/16         140,000         147,883   

 

See Notes to Schedule of Investments.

 

8

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  

Diversified Telecommunication Services - (continued)

           

Telecom Italia Capital, Senior Notes

      5.250 %      10/1/15         320,000       $ 327,600   

Telefonica Emisiones SAU, Senior Notes

      3.992 %      2/16/16         230,000         236,618   

Verizon Communications Inc., Senior Notes

      1.993 %      9/14/18         760,000         791,300 (a)(c) 

Verizon Communications Inc., Senior Notes

      4.600 %      4/1/21         300,000         326,056   
          

 

 

  

Total Diversified Telecommunication Services

              2,054,689   
          

 

 

  

Wireless Telecommunication Services - 0.9%

           

Sprint Capital Corp., Senior Notes

      6.875 %      11/15/28         650,000         575,250   

Sprint Corp., Senior Notes

      7.875 %      9/15/23         620,000         615,164   
          

 

 

  

Total Wireless Telecommunication Services

              1,190,414   
          

 

 

  

TOTAL TELECOMMUNICATION SERVICES

              3,245,103   
          

 

 

  
UTILITIES - 0.6%           

Electric Utilities - 0.3%

           

Edison International, Senior Notes

      3.750 %      9/15/17         300,000         316,833   
          

 

 

  

Multi-Utilities - 0.3%

           

Dominion Resources Inc., Senior Notes

      1.950 %      8/15/16         400,000         404,457   
          

 

 

  

TOTAL UTILITIES

              721,290   
          

 

 

  

TOTAL CORPORATE BONDS & NOTES

(Cost - $38,851,886)

              39,418,249   
          

 

 

  
MORTGAGE-BACKED SECURITIES - 2.2%           

GNMA - 2.2%

           

Government National Mortgage Association (GNMA)

      6.500 %      8/15/34         238,735         275,226 (c) 

Government National Mortgage Association (GNMA) II

      1.198 %      8/20/58         152,973         155,709 (a)(c) 

Government National Mortgage Association (GNMA) II

      1.540 %      10/20/59-1/20/60         851,072         875,727 (a)(c) 

Government National Mortgage Association (GNMA) II

      3.140 %      10/20/59         36,162         38,405 (a)(c) 

Government National Mortgage Association (GNMA) II

      1.509 %      12/20/59         184,714         189,668 (a)(c) 

Government National Mortgage Association (GNMA) II

      1.510 %      12/20/59         740,161         759,492 (a)(c) 

Government National Mortgage Association (GNMA) II

      1.333 %      7/20/60         169,332         172,493 (a)(c) 

Government National Mortgage Association (GNMA) II

      1.363 %      7/20/60         177,857         181,521 (a)(c) 
          

 

 

  

TOTAL MORTGAGE-BACKED SECURITIES

(Cost - $2,629,123)

              2,648,241   
          

 

 

  
MUNICIPAL BONDS - 0.3%           

North Carolina - 0.3%

           

North Carolina State Education Assistance Authority Revenue, Student Loan Backed Notes

(Cost - $378,020)

      1.166 %      10/25/41         400,000         402,608 (a) 
          

 

 

  
SENIOR LOANS - 3.6%           
CONSUMER DISCRETIONARY - 1.2%           

Media - 1.0%

           

CSC Holdings Inc., New Term Loan B

      2.669 %      4/17/20         146,633         143,811 (i)(j) 

Univision Communications Inc., Term Loan C4

      4.000 %      3/1/20         785,449         769,740 (i)(j) 

 

See Notes to Schedule of Investments.

 

9

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		     VALUE  

Media - (continued)

          

Virgin Media Bristol LLC, USD Term Loan B

      3.500 %      6/7/20         250,000      $ 246,250 (i)(j) 
         

 

 

  

Total Media

             1,159,801   
         

 

 

  

Specialty Retail - 0.2%

          

Michaels Stores Inc., Term Loan B

      3.750 %      1/28/20         246,867        242,701 (i)(j) 
         

 

 

  

TOTAL CONSUMER DISCRETIONARY

             1,402,502   
         

 

 

  
CONSUMER STAPLES - 0.8%          

Food Products - 0.8%

          

Big Heart Pet Brands, New Term Loan

      3.500 %      3/8/20         786,353        756,865 (i)(j) 

H.J. Heinz Co., Term Loan B2

      3.500 %      6/5/20         257,172        256,114 (i)(j) 
         

 

 

  

TOTAL CONSUMER STAPLES

             1,012,979   
         

 

 

  
HEALTH CARE - 0.2%          

Health Care Providers & Services - 0.2%

          

Envision Healthcare Corp., Term Loan

      4.000 %      5/25/18         238,663        236,500 (i)(j) 
         

 

 

  
INDUSTRIALS - 0.2%          

Airlines - 0.2%

          

American Airlines Inc., Exit Term Loan

      3.750 %      6/27/19         296,992        294,245 (i)(j) 
         

 

 

  
INFORMATION TECHNOLOGY - 0.2%          

IT Services - 0.2%

          

First Data Corp., New 2018 Extended Term Loan

      3.667 %      3/23/18         301,701        296,044 (i)(j) 
         

 

 

  
TELECOMMUNICATION SERVICES - 0.8%          

Diversified Telecommunication Services - 0.8%

          

Intelsat Jackson Holdings SA, Term Loan B2

      3.750 %      6/30/19         711,984        703,381 (i)(j) 

Windstream Corp., Term Loan B4

      3.500 %      1/23/20         247,481        245,084 (i)(j) 
         

 

 

  

TOTAL TELECOMMUNICATION SERVICES

             948,465   
         

 

 

  
UTILITIES - 0.2%          

Electric Utilities - 0.2%

          

Equipower Resources Holdings LLC, First Lien Term Loan

      4.250 %      12/21/18         248,096        247,270 (i)(j) 
         

 

 

  

TOTAL SENIOR LOANS

(Cost - $4,394,545)

             4,438,005   
         

 

 

  
SOVEREIGN BONDS - 3.9%          

Brazil - 2.5%

          

Banco Nacional de Desenvolvimento Economico e Social, Senior Notes

      3.375 %      9/26/16         420,000        422,478 (b) 

Federative Republic of Brazil, Notes

      10.000 %      1/1/17         7,279,000 BRL      2,615,147   
         

 

 

  

Total Brazil

             3,037,625   
         

 

 

  

Mexico - 1.1%

          

United Mexican States, Bonds

      6.500 %      6/9/22         15,090,000 MXN      1,074,929   

United Mexican States, Medium-Term Notes

      6.750 %      9/27/34         85,000        111,435   

United Mexican States, Senior Notes

      5.550 %      1/21/45         210,000        244,650   
         

 

 

  

Total Mexico

             1,431,014   
         

 

 

  

Russia - 0.3%

          

Russian Foreign Bond - Eurobond, Senior Bonds

      12.750 %      6/24/28         254,000        365,840 (e) 
         

 

 

  

TOTAL SOVEREIGN BONDS

(Cost - $6,216,396)

             4,834,479   
         

 

 

  

 

See Notes to Schedule of Investments.

 

10

WESTERN ASSET VARIABLE RATE STRATEGIC FUND INC.

 

Schedule of investments (unaudited) (cont’d)    December 31, 2014

 

 

SECURITY

    RATE     MATURITY
DATE		      FACE
AMOUNT†		      VALUE  
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 0.0%           

U.S. Government Obligations - 0.0%

           

U.S. Treasury Notes

(Cost - $10,036)

      2.750 %      11/15/23         10,000       $ 10,528   
          

 

 

  
                  SHARES         
COMMON STOCKS - 0.1%           
INDUSTRIALS - 0.1%           

Marine - 0.1%

           

DeepOcean Group Holding AS

(Cost - $72,490)

           3,101         75,939 (d)(g) 
          

 

 

  
          
PREFERRED STOCKS - 1.6%           
FINANCIALS - 1.6%           

Capital Markets - 1.6%

           

Northern Trust Corp.

      5.850 %         28,000         701,400   

State Street Corp.

      5.900 %         49,000         1,267,140 (a) 
          

 

 

  

TOTAL PREFERRED STOCKS

(Cost - $1,975,960)

              1,968,540   
          

 

 

  

TOTAL INVESTMENTS BEFORE SHORT-TERM

INVESTMENTS

(Cost - $133,723,363)

              134,875,754   
          

 

 

  
           MATURITY
DATE		      FACE
AMOUNT†		         
SHORT-TERM INVESTMENTS - 1.0%           

Repurchase Agreements - 1.0%

           

State Street Bank & Trust Co. repurchase agreement dated 12/31/14; Proceeds at maturity - $1,229,000; (Fully collateralized by U.S. government agency obligations, 2.000% due 1/30/23;

Market value - $1,255,403) (Cost - $1,229,000)

      0.000 %      1/2/15         1,229,000         1,229,000   
          

 

 

  

TOTAL INVESTMENTS - 111.0%

(Cost - $134,952,363#)

              136,104,754   

Liabilities in Excess of Other Assets - (11.0)%

              (13,500,309 ) 
          

 

 

  

TOTAL NET ASSETS - 100.0%

            $ 122,604,445   
          

 

 

  

 

† Face amount denominated in U.S. dollars, unless otherwise noted.

 

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

 

(b) Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

 

(c) All or a portion of this security is held by the counterparty as collateral for open reverse repurchase agreements.

 

(d) Security is valued in good faith in accordance with procedures approved by the Board of Directors (See Note 1).

 

(e) Security is exempt from registration under Regulation S of the Securities Act of 1933. Regulation S applies to securities offerings that are made outside of the United States and do not involve direct selling efforts in the United States. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

 

(f) The coupon payment on these securities is currently in default as of December 31, 2014.

 

(g) Illiquid security.

 

(h) Security has no maturity date. The date shown represents the next call date.

 

(i) Interest rates disclosed represent the effective rates on senior loans. Ranges in interest rates are attributable to multiple contracts under the same loan.

 

(j) Senior loans may be considered restricted in that the Fund ordinarily is contractually obligated to receive approval from the agent bank and/or borrower prior to the disposition of a senior loan.

 

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

Abbreviations used in this schedule:

ARM   

— Adjustable Rate Mortgage

BRL   

— Brazilian Real

CDO   

— Collateralized Debt Obligation

CLO   

— Collateral Loan Obligation

IO   

— Interest Only

MXN   

— Mexican Peso

PAC   

— Planned Amortization Class

STRIPS   

— Separate Trading of Registered Interest and Principal Securities

This Schedule of Investments is unaudited and is intended to provide information about the Fund’s portfolio holdings as of the date of the schedule. Other information regarding the Fund is available in the Fund’s most recent annual or semi-annual shareholder report.

 

See Notes to Schedule of Investments.

 

11

Notes to Schedule of Investments (unaudited)

 

1. Organization and significant accounting policies

Western Asset Variable Rate Strategic Fund Inc. (the “Fund”) was incorporated in Maryland on August 3, 2004 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Fund’s primary investment objective is to maintain a high level of current income.

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

(a) Investment valuation. The valuations for fixed income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors.

The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North American Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices and reviews transactions among market participants.

The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof; risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors include, but are not limited to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.

For each portfolio security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

 

12

Notes to Schedule of Investments (unaudited) (continued)

 

GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:

 

  •  

Level 1 – quoted prices in active markets for identical investments

 

  •  

Level 2 – other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

 

  •  

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.

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

 

ASSETS

  

DESCRIPTION

    QUOTED PRICES
(LEVEL 1)		      OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)		      SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)		      TOTAL  

Long-term investments†:

  

Collateralized mortgage obligations

      —         $ 44,463,232       $ 604,193       $ 45,067,425   

Asset-backed securities

      —           35,991,357         —           35,991,357   

Convertible bonds & notes

      —           20,383         —           20,383   

Corporate bonds & notes

      —           39,418,249         —           39,418,249   

Mortgage-backed securities

      —           2,648,241         —           2,648,241   

Municipal bonds

      —           402,608         —           402,608   

Senior loans

      —           4,438,005         —           4,438,005   

Sovereign bonds

      —           4,834,479         —           4,834,479   

U.S. government & agency obligations

      —           10,528         —           10,528   

Common stocks:

            

Industrials

      —           —           75,939         75,939   

Preferred stocks

    $ 1,968,540         —           —           1,968,540   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total long-term investments

    $ 1,968,540       $ 132,227,082       $ 680,132       $ 134,875,754   
  

 

 

     

 

 

     

 

 

     

 

 

  

Short-term investments†

      —           1,229,000         —           1,229,000   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total investments

    $ 1,968,540       $ 133,456,082       $ 680,132       $ 136,104,754   
  

 

 

     

 

 

     

 

 

     

 

 

  

Other financial instruments:

            

Futures contracts

    $ 2,221         —           —         $ 2,221   

OTC interest rate swaps‡

      —         $ 110,554         —           110,554   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total other financial instruments

    $ 2,221       $ 110,554         —         $ 112,775   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 1,970,761       $ 133,566,636       $ 680,132       $ 136,217,529   
  

 

 

     

 

 

     

 

 

     

 

 

  

LIABILITIES

  

DESCRIPTION

    QUOTED PRICES
(LEVEL 1)		      OTHER SIGNIFICANT
OBSERVABLE INPUTS
(LEVEL 2)		      SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)		      TOTAL  

Other financial instruments:

  

Futures contracts

    $ 66,419         —           —         $ 66,419   

OTC credit default swaps on corporate issues - buy protection‡

      —         $ 11,072         —           11,072   

Centrally cleared interest rate swaps

      —           74,782         —           74,782   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 66,419       $ 85,854         —         $ 152,273   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

† See Schedule of Investments for additional detailed categorizations.

 

‡ Values include any premiums paid or received with respect to swap contracts.

 

13

Notes to Schedule of Investments (unaudited) (continued)

 

2. Investments

At December 31, 2014, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

    $ 7,219,834   

Gross unrealized depreciation

      (6,067,443 ) 
  

 

 

  

Net unrealized appreciation

    $ 1,152,391   
  

 

 

  

At December 31, 2014, the Fund had the following open reverse repurchase agreements:

 

Counterparty

    Rate     Effective
Date		      Maturity
Date		      Face Amount of
Reverse Repurchase
Agreements		  

Barclays Capital Inc.

      0.70 %      12/8/14         1/8/15       $ 2,100,350   

Barclays Capital Inc.

      0.70 %      12/15/14         1/15/15         2,828,862   

Deutsche Bank AG

      0.40 %      12/17/14         3/17/15         10,046,890   
          

 

 

  
           $ 14,976,102   
          

 

 

  

On December 31, 2014, the total market value of underlying collateral (refer to the Schedule of Investments for positions held at the counterparty as collateral for reverse repurchase agreements) for open reverse repurchase agreements was $15,930,810.

At December 31, 2014, the Fund had the following open futures contracts:

 

 

    Number of
Contracts		      Expiration
Date		      Basis
Value		      Market
Value		      Unrealized
Appreciation
(Depreciation)		  
Contracts to Sell:   

U.S. Treasury 2-Year Notes

      9         3/15       $ 1,969,565       $ 1,967,344       $ 2,221   

U.S. Treasury 5-Year Notes

      13         3/15         1,544,348         1,546,086         (1,738 ) 

U.S. Treasury 10-Year Notes

      63         3/15         7,923,522         7,988,203         (64,681 ) 
              

 

 

  

Net unrealized depreciation on open futures contracts

  

    $ (64,198 ) 
              

 

 

  

At December 31, 2014, the Fund had the following open swap contracts:

 

OTC INTEREST RATE SWAPS

  

SWAP COUNTERPARTY

   NOTIONAL
AMOUNT		     TERMINATION
DATE		    

PERIODIC

PAYMENTS
MADE BY

THE FUND†

  

PAYMENTS
RECEIVED BY
THE FUND†

   UPFRONT
PREMIUMS PAID
(RECEIVED)		     UNREALIZED
APPRECIATION		  
Barclays Capital Inc.   $ 2,500,000        9/7/22      1.670% semi-annually   3-Month LIBOR     —        $ 79,288   
Credit Suisse     5,000,000        5/10/22      1.985% semi-annually   3-Month LIBOR     —          31,266   
 

 

 

          

 

 

    

 

 

  

Total

   $ 7,500,000              —        $ 110,554   
 

 

 

          

 

 

    

 

 

  

CENTRALLY CLEARED INTEREST RATE SWAPS

  

SWAP COUNTERPARTY

   NOTIONAL
AMOUNT		     TERMINATION
DATE		    

PAYMENTS
MADE BY

THE FUND†

  

PAYMENTS
RECEIVED BY
THE FUND†

   UPFRONT
PREMIUMS PAID
(RECEIVED)		     UNREALIZED
DEPRECIATION		  

Credit Suisse

   $ 10,000,000        10/18/18      1.580% semi-annually   3-Month LIBOR     —        $ (24,962 ) 

Credit Suisse

     10,000,000        8/18/20      1.961% semi-annually   3-Month LIBOR     —          (49,820 ) 
 

 

 

          

 

 

    

 

 

  

Total

   $ 20,000,000              —        $ (74,782 ) 
 

 

 

          

 

 

    

 

 

  

 

14

Notes to Schedule of Investments (unaudited) (continued)

 

 

OTC CREDIT DEFAULT SWAPS ON CORPORATE ISSUES - BUY PROTECTION1

  

SWAP COUNTERPARTY

(REFERENCE ENTITY)

   NOTIONAL
AMOUNT2		     TERMINATION
DATE		     IMPLIED
CREDIT
SPREAD AT
DECEMBER 31,
20143		   PERIODIC
PAYMENTS
MADE BY
THE FUND†		   MARKET
VALUE		     UPFRONT
PREMIUMS PAID
(RECEIVED)		     UNREALIZED
DEPRECIATION		  
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480% due 3/20/2020)     $90,000        3/20/15      0.66%   5.000% quarterly   $ (855 )    $ 38      $ (893 ) 
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480% due 3/20/2020)     120,000        3/20/20      3.31%   5.000% quarterly     (9,256 )      1,647        (10,903 ) 
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480%, due 3/20/2020)     20,000        3/20/15      0.66%   5.000% quarterly     (190 )      11        (201 ) 
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480%, due 3/20/2020)     10,000        3/20/20      3.31%   5.000% quarterly     (771 )      166        (937 ) 
 

 

 

          

 

 

    

 

 

    

 

 

  

Total

   $ 240,000        $ (11,072 )    $ 1,862      $ (12,934 ) 
 

 

 

          

 

 

    

 

 

    

 

 

  

 

1 

If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or the underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or the underlying securities comprising the referenced index.

 

2 

The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

 

3 

Implied credit spreads, utilized in determining the market value of credit default swap agreements on corporate issues or sovereign issues of an emerging country as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads 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. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation.

 

† Percentage shown is an annual percentage rate.

 

15

 

ITEM 2. CONTROLS AND PROCEDURES.

 

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

 

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

 

ITEM 3. EXHIBITS.

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

SIGNATURES

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

Western Asset Variable Rate Strategic Fund Inc.

 

By   /S/    KENNETH D. FULLER        
  Kenneth D. Fuller
  Chief Executive Officer

Date:

  

February 25, 2015

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/    KENNETH D. FULLER        
  Kenneth D. Fuller
  Chief Executive Officer

Date:

  

February 25, 2015

By   /S/    RICHARD F. SENNETT        
  Richard F. Sennett
  Principal Financial Officer

Date:

  

February 25, 2015