[WESTERN ASSET MANAGEMENT COMPANY LOGO]
August 26, 1996
Dear Shareholder
Enclosed are the fiscal year-end financial statements for the Western
Asset Trust Core Portfolio.
As the fund approaches the end of its sixth year of operation, I am pleased
to report that assets now total over $450 million, participants number
31 and longer run investment results continue to meet our expectations.
In light of extraordinary volatile market conditions during the last
year, it is a testament to the fund's diversified strategies and
conservative approach to risk that net returns were only slightly
behind those of the broad market, at 4.9% vs. 5.0%
Please give us a call if you have an questions on the enclosed.
Sincerely,
/s/ W. CURTIS LIVINGSTON
W. Curtis Livingston
President
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED
JUNE 30, 1996
<PAGE>
WESTERN ASSET TRUST
CORE PORTFOLIO
PORTFOLIO MANAGER: Western Asset Management Investment Strategy Group
The Fund's performance was mixed in the 12 months ended June 30, 1996. Interest
rates were unusually volatile, and on balance rose somewhat for the period. As a
result the portfolio's longer than market interest rate exposure was a net drag
on returns. Other strategies, however, helped offset this negative. An
overweighting to the corporate sector was rewarded as yield spreads narrowed,
and shifts in mortgage sector exposure were well-timed to benefit from weak
performance in the first half of the period and strong performance in the second
half. The fund's "barbell" exposure to the yield curve throughout the period
also contributed somewhat to returns, since the yield curve experienced a
modest flattening. The fund produced a total return (net) of 4.9% vs.
5.0% for its benchmark, the Salomon Brothers Broad Investment Grade Index.
Comparison of $10,000 investment in WAT Core
Portfolio on September 4, 1990
[graph]
Average Annual Total Return
1 Year 4.9%
5 Year 9.4%
Since Inception 10.0%
Salomon Brothers\ Western Asset Trust\
Broad Investment Grade Index* Core Portfolio
9/30/90 10000 10000
12/31/90 10507 10510
3/31/91 10783 10855
6/30/91 10977 11049
9/30/91 11602 11710
12/31/91 12184 12405
3/31/92 12043 12274
6/30/92 12532 12774
9/30/92 13072 13374
12/31/92 13109 13378
3/31/93 13654 14010
6/30/93 14032 14629
9/30/93 14403 15191
12/30/93 14406 15232
3/31/94 14002 14837
6/30/94 13867 14500
9/30/94 13941 14583
12/31/94 13997 14573
3/31/95 14705 15548
6/30/95 15605 16622
9/30/95 15903 16958
12/31/95 16594 17710
3/31/96 16305 17320
6/30/96 16385 17429
* The Salomon Brothers Broad Investment-Grade Bond Index is a market-weighted
index that contains approximately 4,700 individually priced investment grade
bonds rated BBB or better. The index includes U.S. Treasury/agency issues,
mortgage pass-through securities and corporate issues.
The returns shown above are based on historical results and are not intended to
indicate future performance. The investment return and principal value of an
investment in the fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. No adjustment has
been made for any income taxes payable by shareholders.
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
CORPORATE BONDS AND NOTES - 16.7%
Banking and Finance - 3.8%
Equitable Companies, Inc.
9.00% 12/15/04 $ 4,260 $ 4,688
Hanson America Incorporated(G)
2.39% 3/1/01 5,000 4,274
Lehman Brothers Holdings, Inc.
8.50% 8/1/15 4,500 4,625
Paine Webber Group, Inc.
6.50% 11/1/05 2,300 2,116
7.625% 2/15/14 1,490 1,401
-------
17,104
-------
Entertainment - 3.1%
News America Holdings Incorporated
7.75% 12/1/45 6,500 5,816
Time Warner Entertainment Company, L.P.
8.375% 7/15/33 6,070 5,829
Time Warner Incorporated
9.15% 2/1/23 440 455
6.85% 1/15/26 2,000 1,916
-------
14,016
-------
Food and Beverage - 1.5%
RJR Nabisco, Inc
7.625% 9/15/03 350 333
8.75% 8/15/05 to 7/15/07 6,430 6,317
-----------
6,650
-----------
Industrials - 7.5%
BP America Inc.
7.89% 2/15/02 1,000 1,044
Disney, Walt Co.(G)
2.00% 3/1/00 2,700 3,051
Lockheed Martin Corporation
6.625% 6/15/98 5,410 5,429
7.45% 6/15/04 3,240 3,285
Loews Corporation
8.25% 1/15/07 2,100 2,134
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
CORPORATE BONDS AND NOTES - Continued
Industrials - Continued
Loews Corporation - Continued
7.625% 6/1/23 $ 7,209 $ 6,828
Rockwell International
8.375% 2/15/01 1,000 1,059
TCI Communications Incorporated
8.75% 8/1/15 11,620 11,421
-----------
34,251
-----------
Oil and Gas - 0.2%
Phillips Petroleum Company
8.49% 1/1/23 1,000 1,014
-----------
Utilities - 0.6%
System Energy Resources, Inc
7.43% 1/15/11 2,808 2,673
-----------
Total Corporate Bonds and Notes
(Identified Cost - $75,924) 75,708
- --------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 3.5%
Fixed-rate Securities - 1.5%
Midstate Trust II Class A-4
9.625% 4/1/03 700 760
Northwest Airlines
7.67% 1/2/15 6,000 6,006
Rural Housing Trust 1987 - 1
3.33% 4/1/26 69 63
-----------
6,829
-----------
Stripped Security (C)- 0.5%
Option One CTS Arm Trust
3.039%(1) 3/25/01 43,135 2,319
-----------
</TABLE>
4
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
ASSET-BACKED SECURITIES - Continued
Indexed Security(B) - 1.5%
Matterhorn One Limited Trust Certificates(G)
5.946% 6/21/06 $6,700 $ 6,690
--------
Total Asset-backed Securities
(Identified Cost - $16,057) 15,838
- --------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 8.4%
Fixed-rate Securities - 5.0%
Asset Securitization Corporation
6.92% 2/14/29 8,454 8,171
Nomura Asset Securities Corporation
7.07% 4/13/36 3,066 3,049
7.12% 4/13/36 4,500 4,395
Resolution Trust Corporation
8.15% 1/25/21 677 679
9.20% 6/25/24 6,193 6,324
-----------
22,618
-----------
Variable-rate Securities(A) - 3.4%
Resolution Trust Corporation
6.983% 5/25/21 1,793 1,745
7.158% 10/25/21 3,303 3,202
6.995% 6/25/24 8,000 7,897
7.219% 10/25/28 279 269
8.002% 9/25/29 2,304 2,313
-------
15,426
-------
Stripped Security(C) - N.M.
Structured Mortgage Asset Residential Trust
0.147%(1) 1/25/23 34,314 123
-----------
Total Mortgage-backed Securities
(Identified Cost - $38,117) 38,167
- --------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 27.0%
Fixed-rate Securities - 26.2%
Federal Home Loan Bank
8.23% 7/19/04 $ 750 $ 748
7.50% 12/6/10 500 483
7.30% 12/27/10 750 718
7.10% 2/28/11 500 474
-----------
2,423
-----------
Federal Home Loan Mortgage Corporation
8.44% 10/27/04 500 510
-----------
Federal National Mortgage Association
0%(D)(E) 3/9/02 1,100 1,047
-----------
United States Treasury Bonds
9.00% 11/15/18 1,000 1,219
8.00% 11/15/21 1,000 1,112
7.125% 2/15/23 21,920 22,156
6.25% 8/15/23 9,247 8,383
6.00% 2/15/26 11,000 9,754
-----------
42,624
-----------
United States Treasury Notes
8.125% 2/15/98 600 619
8.25% 7/15/98 1,000 1,039
6.375% 5/15/99 12,010 12,036
6.875% 3/31/00 39,960 40,541
6.50% 5/31/01 4,800 4,802
6.625% 6/30/01 10,200 10,267
6.375% 8/15/02 1,000 992
5.75% 8/15/03 1,895 1,805
-----------
72,101
-----------
</TABLE>
6
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - Continued
Stripped Securities(C) - 0.7%
Resolution Funding Corporation
0%(1) 1/15/17 $ 3,222 $ 729
0%(1) 4/15/17 2,426 539
0%(2) 10/15/19 7,260 1,339
-----------
2,607
-----------
Tennessee Valley Authority
0%(1) 11/1/19 3,064 589
-----------
Indexed Security(B)- 0.1%
Student Loan Marketing Association
5.59% 11/20/97 250 250
-----------
Total U.S. Government and Agency Obligations
(Identified Cost - $121,682) 122,151
- ---------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - 31.5%
Fixed-rate Securities - 26.0%
Federal Home Loan Mortgage Corporation
8.25% 8/1/01 88 90
8.40% 1/15/05 151 152
7.00% 3/15/05 2,100 2,114
6.75% 10/15/05 1,000 1,008
9.30% 4/15/19 3,015 3,143
7.00% 4/1/24 to 7/1/26 44,579 42,967
6.50% 3/1/26 to 5/1/26 22,263 20,850
7.00% 7/1/26(I) 21,100 20,315
-----------
90,639
-----------
Federal Housing Authority USGI #68
7.43% 3/1/21 327 313
-----------
</TABLE>
7
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - Continued
Fixed-rate Securities -Continued
Federal National Mortgage Association
9.00% 9/25/04 $ 4,610 $ 4,814
7.00% 4/25/05 1,430 1,437
6.00% 12/25/08 5,190 4,557
9.50% 7/25/20 3,571 3,821
8.80% 1/25/19 2,000 2,076
-----------
16,705
-----------
Government National Mortgage Association
10.00% 11/15/09 11 12
8.00% 7/1/26(I) 9,800 10,047
-----------
10,059
-----------
Variable-rate Securities(A) - 3.4%
Government National Mortgage Association
7.00% 4/20/25 to 5/20/25 15,116 15,368
-----------
Indexed Securities(B) - 0.5%
Federal National Mortgage Association
5.941% 10/25/23 1,881 1,763
7.494% 10/25/23 1,073 722
-----------
2,485
-----------
Stripped Securities(C) - 1.6%
Federal Home Loan Mortgage Corporation
10.00%(1) 3/1/21 3,513 1,028
0%(2) 7/15/22 585 432
0%(2) 9/15/22 2,376 2,101
-----------
3,561
-----------
Federal National Mortgage Association
1009.25%(1) 8/25/21 19 567
</TABLE>
8
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED
SECURITIES - Continued
Stripped Securities(C) - Continued
Federal National Mortgage Association - Continued
9.50%(1) 2/1/17 $ 402 $ 129
0%(2) 5/25/22 4,182 3,157
-----------
3,853
-----------
Total U.S. Government Agency Mortgage-backed
Securities
(Identified Cost - $143,024) 142,983
- ---------------------------------------------------------------------------------------------------
YANKEE BONDS(F) - 3.7%
Banque Paribas
8.35% 6/15/07 5,000 5,165
6.875% 3/1/09 2,100 1,935
Bell Telephone Co.
9.50% 10/15/10 4,850 5,682
Hydro-Quebec
8.875% 3/1/26 700 773
YPF Sociedad Anonima
7.50% 10/26/02 3,425 3,397
-----------
Total Yankee Bonds
(Identified Cost - $16,976) 16,952
- --------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 17.3%
Corporate - 7.1%
Fixed-rate Securities - 4.2%
Ford Motor Credit Company
8.00% 10/1/96 3,000 3,015
---------
Lockheed Martin Corporation
5.50% 7/12/96 11,000 10,982
---------
</TABLE>
9
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
SHORT-TERM INVESTMENTS - Continued
Corporate - Continued
Transcontinental Gas Pipe Line
9.00% 11/15/96 $ 5,000 $ 5,051
----------
Indexed Securities(B) - 2.9%
Ford Motor Credit Company
5.52% 3/14/97 12,995 13,005
-----------
U. S. Government Obligations - 0.4%
United States Treasury Bill
0%(D) 7/11/96 1,250 1,248(H)
4.77% 7/11/96 500 499
-----------
1,747
Repurchase Agreement - 9.8%
J.P. Morgan Securities, Inc.
5.47% dated 6/28/96, to be repurchased at $44,536
on 7/1/96 (Collateral: $35,000 Federal Home Loan
Mortgage Corporation, 7.395% due 6/27/01, value
$35,007 and $10,425 Federal Home Loan Mortgage
Corporation, 7.193% due 5/28/03, value $10,470) 44,516 44,516
-----------
Actual
Contracts
Options Purchased - N.M.
Eurodollar Future Calls
September 96 Strike Price $94.50 623 47
December 96 Strike Price $93.75 268 268
-----------
315
Total Short-term Investments
(Identified Cost - $78,563) 78,631
- --------------------------------------------------------------------------------------------------
Total Investments - 108.1%
(Identified Cost - $490,343) $ 490,430
- ---------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Expiration Actual Appreciation/
Date Contracts (Depreciation)
<S> <C>
OPTIONS WRITTEN
Treasury Bond Call
Strike Price $105.00 August 96 206 $(140)
Strike Price $112.00 August 96 206 21
-----
(119)
FUTURES CONTRACTS PURCHASED
Five-year Treasury Note Future Sept. 96 710 946
Treasury Bond Future Sept. 96 6 21
----------
967
FUTURES CONTRACTS SOLD
Ten-year Treasury Note Future Sept. 96 1 0
Treasury Bond Future Sept. 96 64 (164)
---------
(164)
=================================================================================================
</TABLE>
(A) The coupon rates shown on variable rate securities are the rates at June
30, 1996. These rates vary with the weighted average coupon of the
underlying loans.
(B) Indexed Security - The rate of interest earned on these securities is tied
to an index such as the Cost of Funds Index (COFI), three month Treasury
Bill rate or London Interbank Offered Rate (LIBOR). The coupon rate shown
is the rate at June 30, 1996.
(C) Stripped Security - A security with interest-only or principal-only
payment streams, denoted by the superscript 1 and 2, respectively. For
interest-only securities, the amount shown as principal is the notional
balance used to calculate the amount of interest due.
(D) Zero-coupon Bond - A bond with no periodic interest which is sold at such
a discount as to produce a current yield-to-maturity.
(E) This particular zero-coupon bond is callable on March 9, 1997. If not
called, interest will accrue at 7.89% until maturity.
(F) Yankee Bond - Dollar denominated bond issued in the U.S by foreign
entities.
(G) Rule 144a Security - A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified institutional buyers.
(H) Collateral to cover futures sold.
(I) When-issued Security - Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
N.M. Not meaningful.
See notes to financial statements.
11
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
Assets
Investments at value (Identified Cost - $490,342,705) $ 490,430,061
Receivable for:
Investments sold 3,806,868
Fund shares sold 10,436,875
Futures variation margin 299,239
Interest receivable 5,095,386
Other assets 30,170
------------
Total assets 510,098,599
------------
Liabilities
Payable for:
Investments purchased 55,661,078
Fund shares repurchased 87,374
Options written, at market (premiums received $302,692) 421,656
Due to adviser and administrator 153,935
Accrued expenses 75,088
--------------
Total liabilities 56,399,131
--------------
Net assets $ 453,699,468
==============
Analysis of Net Assets
Common stock at par value $.001 per share, authorized
1,000,000,000 shares; issued and outstanding 4,107,369
shares $ 4,108
Accumulated paid-in capital 449,868,956
Undistributed net investment income 7,058,516
Accumulated net realized loss on investments, options and
futures (4,003,239)
Unrealized appreciation of investments, options and futures 771,127
--------------
Net assets $ 453,699,468
==============
Net asset value, offering price, and redemption price per share $110.46
=======
See notes to financial statements.
12
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996
<TABLE>
<S> <C>
Investment Income:
Interest $ 26,492,560
Expenses:
Advisory fee $ 1,548,346
Administrative fee 193,547
Custodian fee 100,730
Registration fees 83,130
Legal and audit fees 64,615
Directors' fees 21,568
Reports to shareholders 14,665
Transfer agent and shareholder servicing expense 3,348
Other expenses 16,913
-------------
2,046,862
Less fees waived (111,421)
-------------
Total expenses, net of waivers 1,935,441
-------------
Net Investment Income 24,557,119
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain on investments, options and futures 2,279,243
Unrealized depreciation of investments, options and futures (9,811,628)
-------------
Net Realized and Unrealized Loss on Investments (7,532,385)
-------------
Increase in Net Assets Resulting from Operations $ 17,024,734
=============
</TABLE>
See notes to financial statements.
13
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended June 30,
1996 1995
------------------ -------------------
<S> <C>
Change in Net Assets:
Net investment income $ 24,557,119 $ 16,815,006
Net realized gain on investments,
options and futures 2,279,243 1,242,701
Change in unrealized appreciation of
investments, options and futures (9,811,628) 16,617,288
-------------- -------------------
Increase in net assets resulting from operations 17,024,734 34,674,995
Distributions to shareholders from:
Net investment income (22,394,910) (15,198,153)
Net realized gain on investments (1,507,661) -
Increase in net assets from Fund share
transactions 123,803,625 111,337,423
-------------- --------------------
Increase in net assets 116,925,788 130,814,265
Net Assets:
Beginning of year 336,773,680 205,959,415
-------------- --------------------
End of year (including undistributed net
investment income of $7,058,516
and $4,896,307, respectively) $ 453,699,468 $ 336,773,680
============== ====================
</TABLE>
See notes to financial statements.
14
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
common stock outstanding, total investment return, ratios to average net assets
and other supplemental data. This information has been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
For the Years Ended June 30,
1996 1995 1994 1993 1992
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of year $ 112.17 $ 105.02 $ 116.64 $ 112.04 $ 106.28
------------------------------------------------------------------
Net investment income(A) 6.70 6.82 5.64 6.57 6.90
Net realized and unrealized gain (loss)
on investments, options and futures (1.36) 7.19 (6.28) 8.71 8.72
------------------------------------------------------------------
Total from investment operations 5.34 14.01 (0.64) 15.28 15.62
------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (6.61) (6.86) (6.11) (6.72) (7.11)
Net realized gain on investments (.44) - (4.87) (3.96) (2.75)
------------------------------------------------------------------
Total distributions (7.05) (6.86) (10.98) (10.68) (9.86)
------------------------------------------------------------------
Net asset value, end of year $ 110.46 $ 112.17 $ 105.02 $ 116.64 $ 112.04
==================================================================
Total return(A) 4.86% 14.12% -0.89% 14.52% 15.61%
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses(A) 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income(A) 6.3% 7.0 % 6.0 % 6.0 % 6.8 %
Portfolio turnover rate 266.0% 257.9 % 272.5 % 313.1 % 299.7 %
Net assets, end of year
(in thousands) $ 453,699 $ 336,774 $205,959 $ 135,886 $ 92,892
</TABLE>
(A) Net of investment advisory fees waived pursuant to a voluntary expense
limitation of 0.50%, including a voluntary administrative fee limitation of
0.05%.
See notes to financial statements.
15
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
The Western Asset Trust, Inc. ("Corporation") is registered under the Investment
Company Act of 1940, as amended. The Western Asset Trust Core Portfolio
("Fund"), formerly known as Western Asset Full Range Duration Portfolio, a
diversified, open-end management investment company, is one of the portfolios
established by the Corporation. The Fund was organized on May 16, 1990 and had
no operations prior to September 4, 1990, other than those related to
organizational matters.
Security Valuation
Portfolio securities are valued based upon market quotations. When market
quotations are not readily available, securities are valued based on prices
received from recognized broker-dealers in the same or similar securities. The
amortized cost method of valuation is used for debt obligations with 60 days or
less remaining to maturity.
Options and Futures
The current market value of a traded option is the last sale price or, in the
absence of a sale, the mean between the closing bid and asked price. Futures
contracts are marked-to-market on a daily basis. As a contract's value
fluctuates, payments known as variation margin are made to or received from the
futures commission merchant.
Dividends to Shareholders
Net investment income for dividend purposes is recorded on the accrual basis and
consists of interest income less expenses. Bond premium and original issue
discount are amortized for financial reporting and tax purposes using the
effective interest method over the period to maturity of the security and serve
to reduce or increase interest income.
Security Transactions
Security transactions are recorded on the trade date. Realized gains and losses
from security transactions are reported on an identified cost basis.
Use of Estimates
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
1. Significant Accounting Policies - Continued
Federal Income Taxes
No provision for federal income or excise taxes is required since the Fund
intends to continue to qualify as a regulated investment company and distribute
all of its taxable income to its shareholders.
2. Financial Instruments:
As part of the Fund's investment program, the Fund utilizes repurchase
agreements, options and futures contracts. The nature and risk of these
financial instruments and the reasons for using them are set forth more fully in
the Corporation's Prospectus and Statement of Additional Information.
Repurchase Agreements
All repurchase agreements are fully collateralized by obligations issued by the
U.S. Government or its agencies and such collateral is in the possession of the
Fund's custodian. Risks arise from the possible delay in recovery or potential
loss of rights in the collateral should the issuer of the repurchase agreement
fail financially.
Option Transactions
A call option gives the option holder the right to purchase the underlying
security at a specified price until a specified date. A put option gives the
option holder the right to sell the underlying security at a specified price
until a specified date. Risks arise from the possible illiquidity of the options
market and from movements in security values. Call and put options written by
the Fund and related premiums received during the period were as follows:
<TABLE>
<CAPTION>
Calls Puts
--------------------------------------------------
Contracts Premiums Contracts Premiums
==================================================
<S> <C>
Options outstanding at July 1, 1995 - - - -
Options written 1,090 $ 954,489 409 $ 425,908
Options exercised - - - -
Options expired - - - -
Options closed (678) (651,796) (409) (425,908)
- --------------------------------------------------------------------------------------------
Options outstanding at June 30, 1996 412 $ 302,693 - $ -
- --------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
2. Financial Instruments - Continued
Futures
The Fund has entered into futures contracts in connection with its interest rate
management strategy. Risks arise from the possible illiquidity of the futures
market and from the possibility that a change in the value of a contract may not
correlate with changes in interest rates. The open long and short futures
positions and related appreciation or depreciation at June 30, 1996 are
described at the end of the "Portfolio of Investments", page 11.
3. Portfolio Transactions:
Purchases and sales of portfolio securities (excluding short-term, U.S.
Government securities, written and purchased options and futures contracts) for
the year ended June 30, 1996, aggregated $543,708,988 and $407,944,790,
respectively. Purchases and sales of U.S. Government securities aggregated
$594,164,738 and $585,468,857, respectively for the same period.
At June 30, 1996, the cost of securities for federal income tax purposes was
$490,342,705. Aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost was $4,255,595 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value was $4,168,239.
4. Fund Share Transactions:
At June 30, 1996, there were 100,000,000 Fund shares authorized at $.001 par
value. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the Years Ended June 30,
1996 1995
----------------------------- ------------------------
Shares Amount Shares Amount
<S> <C>
Sold 1,015,043 $113,947,873 1,016,478 $ 109,120,297
Reinvestment of distributions 205,591 22,867,433 147,507 15,198,150
Repurchased (115,482) (13,011,681) (122,879) (12,981,024)
- ------------------------------------------------------------------------------------------
Net increase 1,105,152 $123,803,625 1,041,106 $ 111,337,423
==========================================================================================
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
5. Transactions with Affiliates:
The Fund has an administration agreement with Legg Mason Fund Adviser, Inc.
("Administrator"), a corporate affiliate of Legg Mason Wood Walker,
Incorporated, ("Legg Mason") a member of the New York Stock Exchange and the
distributor for the Fund. Under this agreement, the Administrator provides the
Fund with administrative services for which the Fund pays a fee at an annual
rate of 0.10% of average daily net assets of the Fund. The Administrator has
voluntarily agreed to indefinitely limit its annual fee to 0.05% of the Fund's
average daily net assets. At June 30, 1996, $17,949 was due to the
Administrator.
Western Asset Management Company ("Adviser"), a corporate affiliate of the
Administrator and Legg Mason, serves as investment adviser to the Fund. The
Adviser is responsible for the actual investment activity of the Fund, for which
the Fund pays a fee at an annual rate of 0.40% of average daily net assets of
the Fund. The Adviser has voluntarily agreed to indefinitely waive its fees and
reimburse the Fund to the extent necessary to limit the total expenses to an
annual rate of 0.50% of the Fund's average daily net assets. Pursuant to this
agreement, advisory fees of $111,421 were waived for the fiscal year ended June
30, 1996, and $135,986 was due to the Adviser at June 30, 1996.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Western Asset Trust Core Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and financial highlights present fairly, in all material
respects, the financial position of Western Asset Trust Core Portfolio (the
"Fund"), formerly known as the Western Asset Trust Full Range Duration
Portfolio, (one of the portfolios constituting Western Asset Trust, Inc.) at
June 30, 1996, the results of its operations, the changes in its net assets and
the financial highlights for each of the fiscal periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1996 by
correspondence with the custodian and the application of alternative auditing
procedures for unsettled security transactions, provide a reasonable basis for
the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
July 31, 1996
