WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED
JUNE 30, 1996
<PAGE>
[WESTERN ASSET MANAGEMENT COMPANY LETTERHEAD]
August 26, 1996
Dear Shareholder:
Enclosed are the fiscal year-end financial statements for the Western Asset
Trust Intermediate Portfolio.
This marks the end of the fund's second year of operation, a period in which
interest rates and market conditions were unusually volatile. Assets stood
at $66 million on June 30 and, with new subscriptions pending, will total at
least $120 million by the end of the current quarter. The portfolio's total
return for the June 30 year was slightly behind the fund's benchmark for the
year, at 5.1% (net) vs. 5.3% for the Salomon Brothers Medium-Term Index.
Please give us a call if you have any questions on the enclosed.
Sincerely,
W. Curtis Livingston
President
<PAGE>
WESTERN ASSET TRUST
Intermediate 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 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 the portfolio's overweighting to the mortgage sector contributed
significantly to returns in the first half of 1996, since reduced prepayment
risk propelled the mortgage sector to substantial relative gains. Yield curve
exposure was generally "barbelled" during the period, and this contributed
modestly to performance since the yield curve experienced a modest flattening.
The fund produced a total return (net) of 5.1%, vs. 5.3% for its benchmark, the
Salomon Brothers Medium-Term Bond Index.
Comparison of $10,000 investment in WAT Intermediate
Portfolio on July 1, 1994
[GRAPH]
Salomon Brothers\ Western Asset Trust\
Medium-Term Bond Index* Intermediate Portfolio
7/01/94 10000 10000
9/30/94 10078 9883
12/31/94 10088 9947
3/31/95 10562 10466
6/30/95 11097 11008
9/30/95 11290.86 11201
12/31/95 11664.91 11612
3/31/96 11609 11541
6/30/96 11683 11575
Average Annual Total Return
1 Year 5.1%
Since Inception 7.6%
*The Salomon Brothers Medium-Term Bond Index is a market-weighted index that
contains investment grade bonds from 1 to 10 years in maturity. 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.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1996
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
CORPORATE BONDS AND NOTES - 20.5%
Banking and Finance - 8.9%
Associates Corporation, North America
8.125% 1/15/98 $ 340 $ 349
Dean Witter Discover & Company
6.30% 1/15/06 2,000 1,846
Donaldson Lufkin & Jenrette
5.625% 2/15/16 500 472
Ford Motor Credit Company
6.42% 2/4/98 300 301
5.86% 8/14/98 250 247
6.125% 1/9/06 235 215
General Electric Capital Corporation
7.65% 2/23/98 240 246
General Motors Acceptance Corp.
6.00% 12/7/98 210 208
8.375% 2/3/99 300 313
Lehman Brothers Holdings, Inc.
8.63% 2/26/99 400 417
National Westminster Bancorp
9.375% 11/15/03 290 327
Norwest Corporation
5.75% 11/16/98 100 98
7.65% 3/15/05 280 288
United States Leasing International
8.75% 12/1/01 500 536
-----------
5,863
-----------
Food, Beverage and Tobacco - 4.6%
Philip Morris Companies, Inc.
7.125% 10/1/04 1,000 980
6.95% 6/1/06 1,350 1,360
RJR Nabisco, Inc.
8.75% 8/15/05 700 693
-----------
3,033
-----------
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
CORPORATE BONDS AND NOTES - Continued
Industrials - 1.7%
CSR America, Inc.
6.875% 7/21/05 $ 300 $ 290
TCI Communications, Inc.
6.82% 9/15/10 830 826
-----------
1,116
-----------
Media and Entertainment - 2.2%
Time Warner Inc.
7.75% 6/15/05 1,500 1,464
-----------
Oil and Gas - 3.1%
Texas Gas Transmission Corporation
9.625% 7/15/97 2,000 2,064
-----------
Total Corporate Bonds and Notes
(Identified Cost - $13,676) 13,540
- ------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES - 24.4%
Fixed-rate Securities - 21.0%
Chevy Chase Home Loan Trust
7.15% 5/15/15 1,300 1,297
ContiMortgage Home Equity Loan Trust
5.90% 7/15/97 1,000 1,001
Fleet Financial Home Equity Trust
6.70% 10/16/06 133 133
Fleetwood Credit Corp. Grantor Trust
8.75% 10/15/04 214 214
Ford Credit Auto Loan Master Trust
7.375% 4/15/99 220 222
Guaranteed Export Certificates
6.13% 6/15/04 1,882 1,844
Lehman Home Improvement Loan Trust
8.65% 7/25/17 80 81
Mego Mortgage FHA Title I Loan Trust
6.55% 9/25/07 946 942
</TABLE>
4
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
ASSET-BACKED SECURITIES - Continued
Fixed-rate Securities - Continued
Merrill Lynch Mortgage Investors Inc.
9.70%(A) 6/15/08 $ 1,000 $ 1,036
9.65% 9/15/10 1,750 1,868
Olympic Automobile Receivables Trust
7.875% 7/15/01 395 401
Sears Credit Account Master Trust
6.25% 1/15/03 350 349
Security Pacific Home Equity Loan
8.10% 6/15/20 230 232
Standard Credit Card Master Trust
5.50% 2/7/00 150 146
5.90% 2/7/01 190 187
6.55% 10/7/07 2,000 1,906
World Financial Network Credit Card Master Trust
6.95% 4/15/06 2,050 2,044
-----------
13,903
-----------
Variable-rate Securities(B) - 1.6%
U.S. Home Equity Loan Certificates
9.125% 4/15/21 1,000 1,018
-----------
Stripped Securities(C) - 1.8%
Option One CTS Arm Trust
3.039%(1) 3/25/01 4,982 268
Citibank Credit Card Master Trust I
0%(2) 2/7/03 1,300 941
-----------
1,209
-----------
Total Asset-backed Securities
(Identified Cost - $16,294) 16,130
- -------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
MORTGAGE-BACKED SECURITIES - 15.1%
Fixed-rate Securities - 7.1%
Resolution Trust Corporation
7.75% 12/25/18 $ 280 $ 280
8.40% 7/25/24 1,614 1,611
-----------
1,891
-----------
Structured Asset Securities Corp.
6.60% 10/25/24 2,798 2,781
-----------
Variable-rate Securities(B) - 6.8%
Housing Securities, Inc.(A)
5.988% 11/25/26 936 937
-----------
Resolution Trust Corporation
6.156% 7/25/20 94 92
8.756% 3/25/21 190 194
6.995% 6/25/24 600 592
11.091% 1/25/25 635 654
6.238% 1/25/27 809 787
8.210% 9/25/29 1,005 1,024
8.002% 9/25/29 154 154
-----------
3,497
-----------
Securitized Asset Sales, Inc.
7.145% 8/25/33 85 85
-----------
Indexed Security(D) - 0.8%
Resolution Trust Corporation
6.525% 9/25/21 573 553
-----------
</TABLE>
6
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
MORTGAGE-BACKED SECURITIES - Continued
Stripped Security(C) - 0.4%
Securitized Asset Sales, Inc.
0%(2) 12/25/10 $ 383 $ 257
-----------
Total Mortgage-backed Securities
(Identified Cost - $9,997) 10,001
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS - 18.8%
United States Treasury Bonds
10.75% 8/15/05 700 889
-----------
United States Treasury Notes
5.125% 11/30/98 935 912
5.875% 3/31/99 150 149
6.375% 5/15/99 800 802
6.625% 6/30/01 500 503
6.50% 4/30/99 to 8/15/05 6,000 5,963
6.875% 3/31/00 to 5/15/06 3,180 3,224
-----------
11,553
-----------
Total U.S. Government Obligations
(Identified Cost - $12,520) 12,442
- -------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES - 21.4%
Fixed-rate Securities - 15.7%
Federal Home Loan Mortgage Corporation
7.76% 5/1/12 477 486
9.30% 4/15/19 1,566 1,632
6.50% 5/1/11(G) 6,700 6,416
-----------
8,534
-----------
</TABLE>
7
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE 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
7.00% 1/1/26 $ 916 $ 881
-----------
Government National Mortgage Association
9.50% 9/15/05 428 448
9.00% 6/15/06 472 488
-----------
936
-----------
Variable-rate Securities(B) - 5.1%
Federal Home Loan Mortgage Corporation
6.914% 1/1/19 129 127
-----------
Federal National Mortgage Association
6.444% 3/1/18 239 233
-----------
Government National Mortgage Association
6.50% 1/20/25 2,786 2,808
7.00% 6/20/25 227 231
-----------
3,039
-----------
Stripped Securities(C) - 0.6%
Federal National Mortgage Association
0%(2) 5/25/22 418 316
-----------
Federal Home Loan Mortgage Corporation
10.00%(1) 3/1/21 334 98
-----------
Total U.S. Government Agency
Mortgage-backed Securities
(Identified Cost - $14,254) 14,164
- -----------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
<S> <C>
YANKEE BONDS(E) - 2.9%
Hydro-Quebec
7.74% 2/26/99 $ 350 $ 358
Province de Quebec
5.67%(H) 2/27/26 1,100 1,060
YPF Sociedad Anonima
7.50% 10/26/02 463 459
-----------
Total Yankee Bonds
(Identified Cost - $1,918) 1,877
- ----------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 6.2%
Corporate Bonds and Notes - 0.5%
General Motors Acceptance Corp.
7.45% 6/5/97 340 344
-----------
U. S. Government Obligations - 1.6%
United States Treasury Bill
0%(F) 7/11/96 250 250
0%(F) 3/6/97 820 790
-----------
1,040
-----------
Repurchase Agreement - 4.1%
J.P. Morgan Securities, Inc.
5.47% dated 6/28/96, to be repurchased at $2,701
on 7/1/96 (Collateral: $2,675 Federal National
Mortgage Association, 8.625% due 9/10/96,
value $2,828) 2,700 2,700
-----------
</TABLE>
9
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Actual
Contracts Value
<S> <C>
SHORT-TERM INVESTMENTS - Continued
Option Purchased - N.M.
Eurodollar Future Call
December 96 Strike Price $93.75 20 $ 20
-----------
Total Short-term Investments
(Identified Cost - $4,097) 4,104
- --------------------------------------------------------------------------------
Total Investments - 109.3%
(Identified Cost - $72,756) $ 72,258
================================================================================
</TABLE>
(A) 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 buyers.
(B) The coupon rate shown on variable rate securities are the rates at June
30, 1996. These rates vary with the weighted average coupon of the
underlying loans.
(C) Stripped Security - A security with interest-only or principal-only
payment streams, denoted by the superscript 1 or 2, respectively. For
interest-only securities, the amount shown as principal is the notional
balance used to calculate the amount of interest due.
(D) Indexed Security - The rate of interest earned on this security is tied
to the Cost of Funds Index (COFI). The coupon rate shown is the rate at
June 30, 1996.
(E) Yankee Bond - Dollar denominated bond issued in the U.S. by foreign
entities.
(F) Zero-coupon Bond - A bond with no periodic interest which is sold at such
a discount as to produce a current yield-to-maturity.
(G) When-issued Security - Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
(H) The rate of interest earned on this security is fixed at 5.67% until
February 2001 and is 7.14% thereafter.
N.M. Not Meaningful
See notes to financial statements.
10
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
Assets
Investments at value (Identified Cost - $72,756,393) $ 72,257,580
Receivable for:
Investments sold 998,640
Fund shares sold 29,790
Interest receivable 775,525
Due from Adviser 10,529
Other assets 38,646
-----------
Total assets 74,110,710
-----------
Liabilities
Payable for investments purchased 7,990,719
Accrued expenses 40,928
-----------
Total liabilities 8,031,647
-----------
Net assets $ 66,079,063
===========
Analysis of Net Assets
Common stock at par value $.001 per share, authorized
100,000,000 shares: issued and outstanding 630,357 shares $ 631
Accumulated paid-in capital 65,479,683
Undistributed net investment income 916,017
Accumulated net realized gain
on investments, options and futures 181,545
Unrealized depreciation of investments,
options and futures (498,813)
------------
Net assets $ 66,079,063
============
Net asset value, offering price, and redemption price
per share $104.83
=======
See notes to financial statements.
11
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1996
<TABLE>
<S> <C>
Investment Income:
Interest $ 2,353,086
Expenses:
Advisory fee $ 130,938
Administrative fee 17,341
Legal and audit fees 58,400
Custodian fee 57,415
Registration fees 49,030
Directors' fees 17,537
Organizational expense 12,444
Reports to shareholders 12,362
Transfer agent and shareholder servicing expense 1,229
Other expenses 349
------------
357,045
Less fees waived and reimbursements (183,637)
------------
Total expenses, net of waivers and
reimbursements 173,408
---------
Net Investment Income 2,179,678
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain on investments, options and futures 466,746
Unrealized depreciation of investments, options and futures (933,446)
------------
Net Realized and Unrealized Loss on Investments (466,700)
-------------
Increase in Net Assets Resulting from Operations $ 1,712,978
=============
</TABLE>
See notes to financial statements.
12
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended June 30,
1996 1995
------------------ ----------------
<S> <C>
Increase in Net Assets:
Net investment income $ 2,179,678 $ 451,376
Net realized gain on investments, options and futures 466,746 337,201
Change in unrealized appreciation of investments (933,446) 434,633
---------------- ----------------
Increase in net assets resulting from operations 1,712,978 1,223,210
Distributions to shareholders from:
Net investment income (1,526,827) (188,210)
Net realized gain on investments (619,788) (2,614)
Increase in net assets from Fund share transactions 46,199,309 19,280,005
---------------- ----------------
Increase in net assets 45,765,672 20,312,391
Net Assets:
Beginning of year 20,313,391 1,000
---------------- ----------------
End of year (including undistributed
net investment income of $916,017
and $263,166, respectively) $ 66,079,063 $ 20,313,391
================ ================
</TABLE>
See notes to financial statements.
13
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
common stock outstanding throughout each period shown, total investment return,
ratios to average net assets and other supplemental data. This information has
been derived from information in the financial statements.
<TABLE>
<CAPTION>
For the Years Ended June 30,
1996 1995
--------------- -------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $ 107.36 $ 100.00
----------- -----------
Net investment income(A) 5.41 3.86
Net realized and unrealized gain (loss) on investments (0.06) 6.02
----------- -----------
Total from investment operations 5.35 9.88
----------- -----------
Distributions to shareholders from:
Net investment income (5.35) (2.47)
Net realized gain on investments (2.53) (.05)
----------- -----------
(7.88) (2.52)
----------- -----------
Net asset value, end of year $ 104.83 $ 107.36
----------- -----------
Total return(A) 5.15% 10.08%
RATIOS/SUPPLEMENTAL DATA:
RATIOS TO AVERAGE NET ASSETS:
Expenses(A) .50% .50%
Net investment income(A) 6.28% 6.11%
Portfolio turnover rate 841.89% 764.45%
Net assets, end of year (in thousands) $ 66,079 $ 20,313
</TABLE>
(A) Net of investment advisory and administrative fees waived pursuant to a
voluntary expense limitation of 0.50%.
See notes to financial statements.
14
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE 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 Intermediate Portfolio
("Fund"), formerly known as Western Asset Intermediate 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 July 1, 1994, 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 the 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.
Deferred Organizational Expense
Deferred organizational expenses of $53,920 are being amortized on a
straight-line basis through June 1999.
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.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
1. Significant Accounting Policies - continued
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.
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 year are as follows:
<TABLE>
<CAPTION>
Calls Puts
Contracts Premiums Contracts Premiums
<S> <C>
Options outstanding at June 30, 1995 - - - -
Options written 2,032 $ 128,495 1,950 $ 67,322
Options exercised (8) (3,315) - -
Options expired (1,810) (11,300) (1,820) (9,006)
Options closed (214) (113,880) (130) (58,316)
- ------------------------------------------------------------------------- ------------------------
Options outstanding at June 30, 1996 - $ - - $ -
====================== =======================
</TABLE>
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. There were no open future contracts at
June 30, 1996.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
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 $91,300,476 and $42,369,066,
respectively. Purchases and sales of U.S. Government securities aggregated
$256,205,792 and $252,169,415, respectively for the same period.
At June 30, 1996, the cost of securities for federal income tax purposes was
$72,756,393. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $225,347 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $724,160.
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 478,708 $50,184,057 191,760 $19,549,656
Reinvestment of distributions 20,430 2,145,317 1,875 190,824
Repurchased (57,990) (6,130,066) (4,436) (460,475)
- ----------------------------------------------------------------------------- ----------------------------------
Net increase 441,148 $46,199,308 189,199 $19,280,005
=================================== ==================================
</TABLE>
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 0.05%
of average daily net assets of the Fund. The Administrator has voluntarily
agreed to temporarily waive its fees to the extent necessary to limit total
expenses to an annual rate of 0.50% of the Fund's average daily net assets.
Pursuant to this agreement, administration fees of $17,341 were waived for the
year ended June 30, 1996.
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 0.35% 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 $130,938 were waived and reimbursements of $35,358
were made for the year ended June 30, 1996. At June 30, 1996, $10,529 was due
from the Adviser as reimbursement for expenses paid in excess of the 0.50%
annual limit.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Western Asset Trust Intermediate 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 Intermediate Portfolio
(the "Fund"), formerly known as the Western Asset Trust Intermediate 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 audit. We conducted our audit 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 audit, 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, provides a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Baltimore, Maryland
July 31, 1996
