Western Asset funds look to expand range of emerging market debt investments

By Jennifer Chiou

New York, Aug. 16 - Three funds managed by Legg Mason Partners Fund Advisor, LLC are looking to expand the range of securities they can invest in to reflect changes in emerging markets.

Western Asset Worldwide Income Fund Inc. said its board authorized a change to the fund's primary investment objective, subject to stockholder approval at the annual meeting to be held in February 2008.

At the same time, Western Asset Emerging Markets Debt Fund Inc. announced changes to non-fundamental investment policies relating to the credit ratings and types of securities in which the fund may invest.

Further, Western Asset Emerging Markets Income Fund II Inc. said it eliminated the non-fundamental investment policies imposing upper limits on the credit ratings of the securities in which the fund may invest, the clarification of non-fundamental investment policies regarding the maturities of the securities in which the fund may invest and the amendment of non-fundamental investment policies relating to the types of securities in which the fund may invest.

These changes will be effective Sept. 17.

The company went forward with the changes in order to provide Legg Mason Partners Fund Advisor, the funds' investment manager, and Western Asset Management Co., the funds' subadviser with greater flexibility in making investment decisions.

The current primary investment objective of the worldwide income fund is to maintain a high level of current income by investing primarily in a portfolio of high-yield foreign sovereign debt securities and high-yield non-U.S. and U.S. corporate debt securities.

The board approved amending the fund's non-fundamental investment policies to provide that, under normal market conditions, the fund will invest at least 65% of its total assets in securities of issuers that are, or are incorporated in or generate the majority of their revenue in, emerging market countries.

As the emerging market sector has evolved and developed since the worldwide income fund's inception in December 1993, more fixed income securities issued by governments and corporations in emerging market countries have earned investment grade ratings, the company noted in a news release.

Western Asset said that these increases in the ratings of emerging market debt have resulted from issuers benefiting from substantial increases in commodity prices and increased fiscal responsibility on the part of the governments of emerging market countries.

Currently, about 39% of the JP Morgan Emerging Markets Bond Index Global, the unmanaged benchmark against which the worldwide income fund measures its performance, is composed of emerging market debt that is rated investment grade.

Under the amended policies, the fund will also be able to invest up to 35% of its total assets in a broad range of other U.S. and non-U.S. fixed income securities, both investment-grade and high-yield securities, including but not limited to corporate bonds, loans, mortgage- and asset-backed securities, preferred stock and sovereign debt, derivative instruments of the foregoing securities and dollar rolls.

The worldwide income fund's secondary investment objective, seeking capital appreciation, remains unchanged.

The fund also announced board approval of changes to its non-fundamental investment policies, certain of which will be effective Sept. 17.

Western Asset's board also approved amended, non-fundamental investment policies relating to credit quality providing that the funds will usually attempt to maintain a portfolio with a weighted average credit rating of at least B3 by Moody's Investors Service or B- by Standard & Poor's.

Previously, the debt securities in which the funds invested generally had to be rated at the time of investment in the categories Ba or B by Moody's or BB or B by S&P.

Additionally, the board said it also approved eliminating a non-fundamental investment policy that prohibited the fund from investing in mortgage-backed securities.

Emerging Markets Debt Fund

Under the Emerging Markets Debt Fund's amended non-fundamental investment policies recommended by fund management and approved by the board, Western Asset said that the fund is no longer subject to upper limits on the credit ratings of the emerging market country debt securities in which it may invest.

Under the fund's amended non-fundamental investment policies recommended by fund management and approved by the board of directors, the fund will invest at least 80% of its managed assets in debt securities of issuers in emerging market countries.

Previously, this policy required the fund to invest at least 80% of its managed assets in securities rated below investment grade. Under the amended policy, the fund may invest in debt securities of issuers in emerging market countries rated investment grade as well.

Emerging Markets Income Fund II

The board for Emerging Markets Income Fund II said it also clarified the non-fundamental policies relating to the maturities of the securities in which the fund may invest.

Now, the fund is subject to no restrictions on the maturities of the emerging market country debt securities it holds while the fund's previous policy provided that those securities could have maturities ranging from overnight to 30 years.

The emerging markets income fund II was previously limited to investing in emerging market country debt securities rated below investment grade.

In addition, the fund is no longer prohibited from investing more than 35% of its total assets in debt securities of corporate issuers in emerging market countries.

Under the amended policies, the fund will invest a minimum of 80% of its total assets in debt securities of government and government-related issuers located in emerging market countries, of entities organized to restructure outstanding debt of such issuers, and debt of corporate issuers in emerging market countries.

Western Asset also noted that the fund's investment policies also were changed to permit the fund to invest up to 20% of its total assets in a broad range of other U.S. and non-U.S. fixed income securities, including, but not limited to: corporate bonds, loans, mortgage- and asset-backed securities, preferred stock and sovereign debt, derivative instruments of the foregoing securities and dollar rolls.

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