Investment Commentary and Annual Report to ... - Western Asset

Annual Report to ShareholdersBoard Consideration of the Investment Advisory and Subadvisory Agreements —ContinuedFinally, the Trustees considered, in light of the profitability information provided by the Advisers, the extent to which economiesof scale would be realized by the Advisers as the assets of the Fund grow. The Trustees concluded that, because the Fund isa closed-end fund and does not make a continuous offer of its securities, the Fund’s size was relatively fixed and it would be unlikelythat the Advisers would realize economies of scale from the Fund’s growth.In their deliberations with respect to these matters, the Independent Trustees were advised by their independent counsel,who are independent of the Advisers within the meaning of the SEC rules regarding the independence of counsel. The IndependentTrustees weighed the foregoing matters in light of the advice given to them by their independent counsel as to the lawapplicable to the review of investment advisory contracts. In arriving at a decision, the Trustees, including the Independent Trustees,did not identify any single matter as all-important or controlling, and the foregoing summary does not detail all the mattersconsidered. The Trustees judged the terms and conditions of the Agreements, including the investment advisory fees, in light of allof the surrounding circumstances.Based upon their review, the Trustees, including all of the Independent Trustees, determined, in the exercise of their businessjudgment, that they were generally satisfied with the quality of investment advisory services being provided by the Advisers, butwould continue to closely monitor the Advisers’ performance in light of the Fund’s recent relative underperformance; that the feesto be paid to the Advisers under the Agreements were fair and reasonable, given the scope and quality of the services renderedby the Advisers; and that approval of the Agreements was in the best interest of the Fund and its shareholders.Approval of Additional SubadvisersAt their September 9, 2008 meeting, the Trustees, including the Independent Trustees, approved the addition of the followingtwo non-U.S. affiliates of Western Asset as additional investment subadvisers of the Fund: Western Asset Management CompanyPte. Ltd. in Singapore (“Western Asset Singapore”) and Western Asset Management Company Ltd in Japan (“Western Asset Japan”and together with Western Asset Singapore, the “New Subadvisers”). In approving the addition of the New Subadvisers, the Trusteesdrew on their knowledge of and experience with Western Asset, its personnel, the quality of the services it has provided tothe Fund and its investment philosophy and performance, as well as additional information relating to the New Subadvisers. TheTrustees noted that the Fund is permitted to invest in non-U.S. dollar denominated securities and related foreign currency instrumentsand that the addition of the New Subadvisers will provide the Fund with greater global investment management and tradingresources. The Trustees also noted that although the New Subadvisers are separate legal entities from Western Asset, seniorinvestment personnel at Western Asset have supervisory oversight responsibility over the investment decisions made by the NewSubadvisers. Finally, the Trustees noted that the management fees paid by the Fund would not change as a result of the additionof the New Subadvisers since the Fund would not be paying the fees of the New Subadvisers.50