Western Asset Variable Rate Strategic Fund (NYSE: GFY) shares may see a dramatic rise in value if an activist hedge fund gets its way. Karpus Management, which owns a 9.37% stake, inteds to present a proposal aimed at eliminating the investment management agreement between the fund and Legg Masion Partners Fund Advisor.

The reason was stated in the supporting statement:

In 2005, our Fund's investment manager asked for and received approval of a new management agreement and new sub-advisory agreement in conjunction with the transfer of Citigroup's asset management business. At that point in time, shareholders trusted the Fund and allowed for the transfer of management of a fund just over 1 year old.

Since the announcement of the approval of the new agreements (12/19/2005-07/31/2008) the Fund has traded at an average daily discount to net asset value of -11.01%. The discount on GFY has consistently been among the widest of all taxable closed-end bond funds. Indeed, the discount for comparable closed-end taxable bond funds for this time period was only -5.0%, placing our Fund's discount significantly wider than the average during this time period.

The market tends to place a fair price on an asset-in this case a share of a closed-end fund. Perhaps the explanation for why GFY has traded at such a persistently wide discount is that its NAV performance has been disappointing for a long period of time. From its inception (10/27/2004) through 7/31/2008, the NAV total return on our fund was 6.81%, which places the fund squarely in the bottom quartile as compared to other taxable closed end bond funds for this time period. (as categorized by Thomas J. Herzfeld Advisors Inc). Based on market price, an investor who purchased GFY at the IPO would have experienced a loss of 6.71% through July 31, 2008. Furthermore, the fund has significantly underperformed its benchmarks as stated in its 3/31 filing. Since its inception, the Merrill Lynch Constant Maturity 3-Month LIBOR Index ("ML Benchmark") and the Lehman Brothers US Aggregate Index ("Lehman Benchmark") have returned 17.46% and 15.9%, respectively, through July 31, 2008. It seems clear that the poor performance of the Fund is directly responsible for the persistently wide discount.

In addition to historically poor performance, on a year-to-date basis, the Fund's recent net asset value and price performance have been especially poor. Specifically, GFY's total net asset value return was -7.99% through July 31, whereas the stated ML and Lehman benchmarks returned 2.25% and 1.04%, respectively. This most recent poor performance appears highly attributable to the Fund's holdings in mortgage related securities and provides further indications to us that the Fund's investment manager and sub-adviser must be terminated.

As closed-end fund shareholders, poor NAV performance combined with a wide discount to net asset value is the most harmful combination possible. To address these issues, we believe that a change to a new investment advisor and new sub-advisor is needed.

Meanwhile, a fellow shareholder made a similar recommendation to convert the fund to an open-ended fund or liquidate it. This would force the assets that are now undervalued to come to value. Meanwhile, if Legg Mason were fired, then the fund's expenses could be greatly reduced.

Here's the other investor's letter submitted to the board:

We recently received Western Asset Variable Rate Strategic Fund's ("GFY" or the "Fund") proxy statement via UPS Next Day Air. According to the UPS website, it cost roughly $21 to mail each such package. To just our firm, the Fund sent five packages totaling approximately $105. Because we do not know how many Next Day Air packages were sent to other fellow shareholders, we cannot accurately estimate how much money management has thus far wasted on mailings. Nevertheless, as shareholders, we strongly urge management to stop bleeding assets from the Fund through expensive and unnecessary steps to ensure its own objectives. It appears to us that Fund management is more concerned with retaining assets and entrenching current management than actually doing something about the poor performance of the Fund.

Before the Fund unnecessarily spends more shareholder money, it ought to also consider the sheer fact that three separate shareholders submitted proposals on their own accord. This should indicate to the Fund that something is wrong. Why is the Fund's response to these critical shareholder concerns to spend more money rather than confront and address the significant and perpetual net asset value underperformance of the Fund? If three separate shareholders have submitted proposals to ask the Fund to address performance concerns, how many other shareholders have the same concerns? Why is the Fund fighting these concerns rather than talking to all shareholders and telling them how they plan on addressing this critical issue? Moreover, why didn't they talk to shareholders prior to issuing their proxy statement, as is allowable under Rule 14a-12?

We are tired of management not doing something about the poor net asset value performance and the persistently wide discount of the Fund and now are appalled at the use of Fund (shareholder) money to dodge shareholder concerns. Should the Board continue to frivolously spend shareholder dollars to fight its owners, we intend to seek reimbursement from management. We believe that the Fund's recent actions only further indicate that a new independent manager and subadvisor are needed. The Fund management must stop spending money as if it were Dennis Kozlowski in Sardinia and do the right thing for shareholders. In our opinion, the Board is using GFY like a piggy bank in order to entrench the economic interests of Legg Mason Partners Fund Advisor, LLC and Western Asset Management Company.

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The Global Positioning System has grown in popularity among consumers, especially for navigational purposes. In fact, Garmin (NDAQ: GRMN) is a $3.4 billion public company with millions of subscribers. However, a new breed of devices is quickly revolutionizing the market – personal locators. These devices can help consumers track their children, pets and other objects worldwide using GPS systems.  So, how can investors get involved in this new trend?

Location Based Technology (OTC-BB: LBAS) a leading producer of these devices via its PocketFinder® line of products. The market for these products is expected to grow at a compounded annual growth rate of more than 104% through 2012, according to RNCOS. Meanwhile, the firm also produces software designed to take advantage of smartphone GPS systems. In fact, its iPhone application was downloaded more than 10,000 times within weeks of its release.

Location Based Technologies expects to begin selling its products in the first quarter of 2009. The Oreo-sized GPS devices can be placed almost anywhere and tracked via phone or internet. A strong network of distributors and tight cost controls should help drive value in this company over the next five years. Meanwhile, a strong patent portfolio continues to build value in its technology. For an in-depth research report on this company, including financial projections, click here.

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Hiland Holdings GP, LP (NDAQ: HPGP) shares remain little-changed despite receiving a takeover offer at a price substantially higher than the current market place. Harold Hamm proposed to acquire all of the outstanding common units of the company that are not owned by him at $9.50 for the LP and $3.20 for the common units.

Here's a copy of the letter:

I hereby propose the acquisition of all the outstanding common units of Hiland Partners, LP (the “Partnership”) not owned by Hiland Holdings GP, LP (“HPGP”) at a cash purchase price of $9.50 per common unit. As you are aware, I control the general partner of HPGP and, with my affiliates and the Hamm family trusts, own approximately 61% of the common units of HPGP, which in turn owns approximately 37% of the common units of the Partnership. My current intent is to structure the acquisition in the form of a merger of the Partnership with a new acquisition vehicle to be formed by me, one of my privately-held affiliates and the Hamm family trusts. I am concurrently delivering a letter to the board of directors of the general partner of HPGP proposing to acquire all of the outstanding common units of HPGP not owned by me, my affiliates or the Hamm family trusts at a cash purchase price of $3.20 per common unit (the “HPGP Transaction”).

The proposed price represents a premium of approximately 20% above the closing price of the Partnership’s common units on January 14, 2009. I believe that, if the adverse impact of commodity prices on gathering and processing fundamentals and the challenges presented by the global economic crisis persist, the Partnership will experience a meaningful decrease in future distributable cash flow and will need substantial new equity capital to remain in continued compliance with its debt covenants. Obtaining such equity capital in the current environment on acceptable terms does not appear feasible and would be significantly dilutive to current unitholders. Accordingly, I am of the view that a going-private transaction is the best strategic alternative currently available to the Partnership to maximize unitholder value during a time of significant market and industry turmoil.

I would continue as Chairman following the transaction, and I also expect that the Partnership’s senior management team and valuable employee base would remain in place. Furthermore, I anticipate continuing to run the Partnership’s business in accordance with current practice.

As the founder and controlling stakeholder of the Partnership, I believe that I am well-positioned to negotiate and complete the proposed transaction in an expedited manner with a high degree of closing certainty. No debt financing will be required to consummate this transaction or the HPGP Transaction, and neither closing will be conditioned on obtaining financing. Moreover, I do not anticipate that any regulatory approvals will be impediments to the closings. Execution of a definitive merger agreement for this transaction will be conditioned on execution of a definitive merger agreement providing for the HPGP Transaction, and closing of this transaction will likewise be conditioned on closing of the HPGP Transaction, as well as customary conditions for transactions of this type. We are preparing a proposed merger agreement that we intend to provide shortly.

I expect that you will ask the conflicts committee of the board of directors to evaluate my proposal and that both transactions will be subject to the approval of a majority of the public unitholders of each partnership. I and members of senior management who sit on the board of directors will support the referral of this proposal to the conflicts committee and its engagement of financial and legal advisors. I welcome the opportunity to present my proposal to the conflicts committee and its advisors as soon as possible. However, please be aware that I am interested only in acquiring common units of the Partnership and not in selling (or causing my affiliates to sell) interests in the Partnership.

I expect to make appropriate filings on Schedule 13D disclosing my proposals with respect to the Partnership and HPGP promptly after delivery of this letter.

This proposal is non-binding, and no agreement, arrangement or understanding between the parties with respect to this proposal or any other transaction shall be created until such time as mutually satisfactory definitive documentation is executed and delivered.

I, along with Wachovia Securities and the rest of my advisory team, look forward to working with the conflicts committee and its advisors to complete a mutually acceptable transaction that is attractive to the Partnership’s public unitholders. Should you have any questions, please do not hesitate to contact me.

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