WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED
JUNE 30, 1997
<PAGE>
August 20, 1997
Dear Shareholder:
Enclosed are financial statements for the Western Asset Trust International
Securities Portfolio for the year ending June 30, 1997.
I am pleased to report that the fund produced exceptionally positive investment
results relative to the returns available in the domestic market for this
period, returning 12.8% (net) versus the Salomon Brothers Broad Market Index
return of 8.2%. Relative to the universe of non-dollar bonds represented by the
Salomon Brothers Non-U.S. Government Index (hedged), the fund nearly matched the
index return of 13.0%.
The fund's size now totals roughly $250 million, and it is used by more than 40
of our clients as a vehicle to provide domestic investors opportunistic exposure
to non-dollar fixed-income securities.
Please feel free to call if you have any questions.
Sincerely,
W. Curtis Livingston
President
Enclosure
<PAGE>
WESTERN ASSET TRUST
INTERNATIONAL SECURITIES PORTFOLIO
Portfolio Manager: Western Asset Management Investment Strategy Group
The fund's performance was favorably impacted by market conditions in the 12
months ended June 30, 1997. Non-dollar interest rates declined substantially
during the period, alongside relatively volatile conditions and only a moderate
decline in yields in the U.S. fixed-income market. The fund's total return was
only marginally behind that of its non-dollar hedged benchmark, the Salomon
Brothers Non-U.S. Government Index (Hedged), returning 12.8% (net) vs. 13.0%,
while it substantially outperformed the broad investment grade market, which
returned 8.2%. Though major strategies produced market results on average, the
fund had virtually no exposure to the Japanese bond market, concentrating
instead on select core European countries and peripheral European markets to
benefit from an expected continuation of convergence forces. Currency exposure
was substantially hedged throughout the period, thus avoiding the adverse impact
of a strongly rising dollar.
[Graphic Appears Here; See Plots Points Below]
Average Annual Total Return
WAT Intl SB N-US Govt
1 Year 12.8% 13.0%
3 Years 9.7% 12.0%
Since Inception 7.4% 9.4%
Western Asset Trust Salomon Brothers
International Securities Non-U.S. Govt. Index
Portfolio (net) (Hedged)
10,000 10,000
3/31/93 10,222 10,280
6/30/93 10,583 10,549
9/30/93 11,179 10,936
12/31/93 11,645 11,394
3/31/94 11,003 10,981
6/30/94 10,464 10,673
9/30/94 10,373 10,649
12/31/94 10,511 10,876
3/31/95 10,869 11,376
6/30/95 11,097 11,910
9/30/95 11,412 12,335
12/31/95 11,967 12,825
3/31/96 11,997 12,947
6/30/96 12,247 13,282
9/30/96 12,808 13,830
12/31/96 13,311 14,342
3/31/97 13,335 14,554
6/30/97 13,812 15,010
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
June 30, 1997
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----
<S><C>
LONG-TERM DEBT SECURITIES(A) - 57.7%
Australian Dollar - 3.0%
Commonwealth of Australia
10.00% 2/15/06 AUD 10,000 $ 9,006
--------
British Sterling - 10.2%
Federal National Mortgage Association
6.875% 6/7/02 GBP 4,500 7,398
United Kingdom Treasury Stock
8.50% 12/7/05 2,500 4,533
7.50% 12/7/06 2,000 3,322
8.00% 6/7/21 8,500 15,593
--------
30,846
--------
Canadian Dollar - 2.5%
Government of Canada
7.00% 12/1/06 CAD 10,000 7,596
--------
Danish Krone - 12.0%
Kingdom of Denmark
8.00% 11/15/01 DKK 65,000 10,991
8.00% 3/15/06 150,000 25,424
--------
36,415
--------
Greek Drachma - 1.8%
Hellenic Republic
11.00% 11/26/99 GRD 1,500,000 5,617
--------
Italian Lira - 8.8%
Buoni del Tesoro Poliennali
7.75% 9/15/01 ITL 30,000,000 18,596
9.50% 2/1/06 12,000,000 8,247
--------
26,843
--------
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----
<S><C>
LONG-TERM DEBT SECURITIES(A) - Continued
New Zealand Dollar - 3.7%
Fannie Mae
7.25% 6/20/02 NZD 6,400 $ 4,337
Government of New Zealand
8.00% 2/15/01 2,600 1,837
8.00% 11/15/06 7,000 5,090
--------
11,264
--------
Portugese Escudo - 2.4%
Obrig Do Tes Medio Prazo
11.875% 2/23/00 PTE 1,090,000 7,167
--------
Spanish Peseta - 2.6%
Bonos Y Oblig Del Estado
7.40% 7/30/99 ESP 1,100,000 7,799
--------
Swedish Krona - 9.1%
Kingdom of Sweden #1030
13.00% 6/15/01 SEK 170,000 27,712
--------
United States Dollar - 1.6%
Standard Chartered Bank Indonesia
Rupiah - Linked Note
14.00% 11/21/01 USD 5,000 4,951
--------
Total Long-Term Investments
(Identified Cost - $176,411) 175,216
- --------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 29.1%
Czech Koruna - 3.0%
ABN-Amro Bank N.V.
11.00% 12/15/97 CZK 189,000 5,538
BV Finance Prague
11.00% 10/2/97 115,000 3,486
--------
9,024
--------
</TABLE>
4
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
<TABLE>
<CAPTION>
Principal
Amount Value
--------- -----
<S><C>
SHORT-TERM INVESTMENTS - Continued
U. S. Government and Agency Obligations - 13.3%
Federal Home Loan Bank
5.38% 7/1/97 USD 5,000 $ 5,000
5.45% 7/1/97 35,000 35,000
United States Treasury Bills
5.16% 8/21/97 550 546
--------
40,546
--------
Repurchase Agreements - 12.8%
Goldman Sachs & Co.
5.80% dated 6/30/97, to be repurchased at
$15,002 on 7/1/97 (Collateral: $10,285 U.S.
Treasury Bond, 13.875% due 5/15/11,
value $15,491) 15,000 15,000
--------
J.P. Morgan Securities, Inc.
6.05% dated 6/30/97, to be repurchased at
$8,820 on 7/1/97 (Collateral: $9,215
Federal National Mortgage Association
Medium-term note, 6.22% due 3/13/06,
value $9,214) 8,819 8,819
--------
Merrill Lynch Government Securities, Inc.
5.75% dated 6/30/97, to be repurchased at
$15,002 on 7/1/97 (Collateral: $15,435
Federal Home Loan Bank Discount note,
5.75% due 8/22/97, value $15,300) 15,000 15,000
--------
Total Short-Term Investments
(Identified Cost - $90,617) 88,389
- --------------------------------------------------------------------------------------------------------------
Total Investments - 86.8%
(Identified Cost - $267,028) 263,605
- --------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
Net
Actual Appreciation/
Date Contracts (Depreciation)
---- --------- --------------
FUTURES CONTRACTS PURCHASED
German 10-Year Government Bond Futures September 97 247 $ (44)
----------
===============================================================================
(A) Listed by currency denomination.
- -------------
See notes to financial statements.
6
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<S><C>
Assets
Investments at value (Identified Cost - $267,028,078) $ 263,604,737
Foreign currency at value (Identified Cost - $12,269,301) 12,170,425
Receivable for investments sold 46,526,730
Interest receivable 4,218,958
Unrealized appreciation of forward currency contracts 3,486,665
Other assets 16,538
-----------------
Total assets 330,024,053
Liabilities
Payable for:
Investments purchased 21,361,018
Fund shares repurchased 3,900,000
Unrealized depreciation of forward currency contracts 876,737
Payable for variation margin 44,469
Due to adviser 18,812
Accrued expenses 125,179
-----------------
Total liabilities 26,326,215
-----------------
Net assets $ 303,697,838
=================
Analysis of Net Assets
Common stock at par value $.001 per share, authorized
100,000,000 shares: issued and outstanding 3,111,396 shares $ 3,111
Accumulated paid-in capital 295,432,652
Undistributed net investment income 11,226,939
Undistributed net realized gain on investments, forward currency
contracts and currency translations (1,956,428)
Unrealized depreciation of investments, forward currency
contracts, futures and currency translations (1,008,436)
-----------------
Net assets $ 303,697,838
=================
Net asset value, offering price, and redemption price per share $97.61
======
</TABLE>
- ------------
See notes to financial statements.
7
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
<TABLE>
<S><C>
Investment Income:
Interest $ 16,857,542
Expenses:
Advisory fee $ 1,252,466
Custodian fee 428,565
Registration fees 45,810
Legal and audit fees 19,530
Directors' fees 15,774
Transfer agent and shareholder servicing expense 6,127
Organization expense 3,622
Reports to shareholders 3,610
Other expenses 15,906
---------------
1,791,410
Less fees waived (1,054,708)
---------------
Total expenses, net of waivers 736,702
---------------
Net Investment Income 16,120,840
Net Realized and Unrealized Gain (Loss):
Realized gain (loss) on:
Investments, options and futures (1,327,276)
Foreign currency transactions 14,200,018
Unrealized gain (loss) on:
Investments 1,982,848
Assets and liabilities denominated in
foreign currencies (25,774)
---------------
Net Realized and Unrealized Gain 14,829,816
---------------
Increase in Net Assets Resulting from Operations $ 30,950,656
===============
</TABLE>
- ------------
See notes to financial statements.
8
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Years Ended June 30,
--------------------------------------------------
1997 1996
---------------------- ----------------------
<S><C>
Change in Net Assets:
Net investment income $ 16,120,840 $ 14,600,463
Net realized gain on investments, options,
futures and foreign currency transactions 12,872,742 17,453,811
Change in unrealized appreciation of investments
and assets and liabilities denominated in
foreign currencies 1,957,074 (8,488,519)
----------------- ------------------
Increase in net assets resulting from operations 30,950,656 23,565,755
Distributions to shareholders from net
investment income (23,883,131) (15,747,339)
Increase in net assets from Fund share
transactions 76,534,604 33,943,271
----------------- ------------------
Increase in net assets 83,602,129 41,761,687
Net Assets:
Beginning of year 220,095,709 178,334,022
----------------- ------------------
End of year (including undistributed
net investment income of $4,150,339
and $0, respectively) $ 303,697,838 $ 220,095,709
================= ==================
</TABLE>
- ------------
See notes to financial statements.
9
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES 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,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993(A)
-----------------------------------------------------------------------
<S><C>
Per Share Operating Performance:
Net asset value, beginning of year $ 95.16 $ 92.10 $ 93.76 $ 105.53 $100.00
--------------------------------------------------------------------
Net investment income(B) 5.29 5.78 6.29 6.94 3.21
Net realized and unrealized gain (loss)
on investments, forward currency
contracts, options, futures and foreign
currency transactions 6.27 3.56 (1.04) (7.36) 2.59
--------------------------------------------------------------------
Total from investment operations 11.56 9.34 5.25 (0.42) 5.80
--------------------------------------------------------------------
Distributions to shareholders from:
Net investment income (9.11) (6.28) (0.63) (8.64) (0.27)
Net realized gain on investments - - - (2.71) -
Tax return of capital - - (6.28) - -
--------------------------------------------------------------------
Total distributions (9.11) (6.28) (6.91) (11.35) (0.27)
--------------------------------------------------------------------
Net asset value, end of year $ 97.61 $ 95.16 $ 92.10 $ 93.76 $105.53
====================================================================
Total return(B) 12.83% 10.36% 6.03% (1.14)% 5.81%(C)
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses(B) .28% 0.26% 0.28% 0.30% 0.45%(D)
Net investment income(B) 6.11% 6.02% 5.67% 5.53% 6.08%(D)
Portfolio turnover rate 290.56% 348.40% 355.03% 571.18% 249.94%(D)
Net assets, end of year (in thousands) $303,698 $220,096 $178,334 $106,806 $93,288
</TABLE>
- ------------
(A) For the period January 7, 1993 (commencement of operations) to June 30,
1993.
(B) Net of voluntary waiver of investment advisory fees.In absence of this
limitation, the ratio of expenses to average net assets would have been,
0.68% for the year ended June 30, 1997, 0.66% for the year ended June 30,
1996, 0.68% for the year ended June 30, 1995, 0.70% for the year ended June
30, 1994 and 0.85% for the period ended June 30, 1993
(C) Not annualized
(D) Annualized
See notes to financial statements.
10
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES 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 International
Securities Portfolio ("Fund"), a non-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 January 7, 1993, 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. The difference between cost and market value is
reflected separately as unrealized appreciation or depreciation on investments.
Foreign Currency Transactions
The books and records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at the
closing daily rate of exchange, and
(ii) purchases and sales of investment securities, interest income and
expenses at the rate of exchange prevailing on the respective date of
such transactions.
Distributions 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.
Distributions are determined on a tax basis and may differ from net investment
income and capital gains for financial reporting purposes.
Security Transactions
Security transactions are recorded on the trade date. Realized gains and losses
from security transactions are reported on an identified cost basis.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
1. Significant Accounting Policies - Continued
Deferred Organizational Expense
Deferred organizational expenses of $18,110 are being amortized on a
straight-line basis through December 1997.
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.
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 its investment program, the Fund utilizes repurchase agreements and
forward currency exchange 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.
Forward Currency Exchange Contracts
The Fund may enter into forward currency exchange contracts to help manage its
currency exposure. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in currency values.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
2. Financial Instruments - Continued
Forward Currency Exchange Contracts - Continued
Forward currency contracts are valued using the forward rate. Outstanding
contracts at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Contract to
Settlement ------------------------------------------------------------ Appreciation/
Date Receive Deliver (Depreciation)
------------- ------------------------ --------------------------- ---------------
<S><C>
08/29/97 USD 7,207,863 CAD 9,900,000 $ 12,076
08/29/97 USD 54,306,121 DEM 92,000,000 1,325,134
08/29/97 USD 37,887,508 DKK 245,000,000 860,154
08/29/97 USD 8,691,420 ESP 1,250,000,000 203,138
08/29/97 USD 40,770,000 GBP 25,000,000 (787,509)
08/29/97 GBP 6,000,000 USD 9,840,000 133,802
08/29/97 USD 41,831,570 ITL 70,500,000,000 428,150
08/29/97 ITL 10,000,000,000 USD 5,889,628 (16,803)
08/29/97 USD 11,437,400 NZD 16,600,000 181,125
08/29/97 NZD 700,000 USD 480,186 (5,524)
08/29/97 USD 20,764,353 SEK 160,000,000 31,190
08/29/97 SEK 6,500,000 USD 844,703 (2,418)
08/29/97 USD 15,186,600 XEU 13,200,000 267,941
08/29/97 XEU 7,900,000 USD 8,949,120 (20,528)
-------------
$ 2,609,928
=============
</TABLE>
3. Portfolio Transactions:
Purchases and sales of portfolio securities (excluding short-term and U.S.
Government securities) for the year ended June 30, 1997 aggregated $648,788,422
and $622,803,466, respectively. There were no purchases or sales of U.S.
Government securities during the year ended June 30, 1997.
At June 30, 1997 the cost of securities for federal income tax purposes was
$267,028,078. Aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost was $2,486,228 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value was $5,909,569.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
4. Fund Share Transactions:
At June 30, 1997, 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,
------------------------------------------------------------------
1997 1996
------------------------------- ------------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------- ------------------------------
<S><C>
Sold 696,192 $ 67,237,515 2,384,011 $ 224,197,934
Reinvestment of distributions 251,448 23,796,266 167,906 15,747,337
Repurchased (149,249) (14,499,177) (2,175,306) (206,002,000)
- --------------------------------------------------------------------------- ------------------------------
Net increase 798,391 $ 76,534,604 376,611 $ 33,943,271
=========================================================================== ==============================
</TABLE>
5. Securities Loaned:
At June 30, 1997, the market value of the securities on loan to broker-dealers
was $37,767,869, for which the Fund received collateral of $39,210,448 in cash.
Such collateral is in the possession of the Fund's custodian. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights to the collateral should the borrower of the securities fail
financially.
6. Transactions with Affiliates:
The Fund has a management agreement with Western Asset Management Company
("Adviser"), a corporate affiliate of Legg Mason Fund Adviser, Inc.
("Administrator"), and Legg Mason Wood Walker, Incorporated ("Legg Mason"), a
member of the New York Stock Exchange and the distributor for 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 0.475% of average daily net assets of
the Fund. WLO Global Management, a partnership of Western Asset Management
International and Lombard Odier International Fixed Income Management
("LOIFIM"), served as subadviser to the Fund until December 31, 1994 and was
paid by the Adviser. The Adviser has voluntarily agreed to waive its fees and
reimburse the Fund to the extent necessary to limit total expenses to 0.85% of
average daily net assets. The Adviser has further voluntarily waived its fee for
services to the Fund other than the portion of the fee equal to the fee paid by
the Adviser to the Administrator. Pursuant to this agreement, advisory fees of
$1,054,708 were waived for the year ended June 30, 1997.
The Adviser has an administration agreement with the Administrator. Under this
agreement, the Administrator provides the Fund with administrative services for
which the Adviser pays a fee at an annual rate of 0.075% of average daily net
assets of the Fund.
14
