WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
REPORT TO SHAREHOLDERS
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1996
<PAGE>
February 25, 1997
Dear Shareholder:
Enclosed are the mid-year financial statements for the Western Asset
Trust International Securities Portfolio, covering the period July 1 - December
31, 1996.
Now in its fifth year of operation, the fund produced positive
investment results relative to both the non-dollar and the domestic market for
this period, returning 8.7% (net) versus the Salomon Brothers World Ex-US
(hedged) return of 8.0%, and the Salomon Brothers Broad Investment Grade Index
return of 4.9%. More than 20 of our clients now participate in this fund, whose
primary purpose is to provide domestic investors opportunistic exposure to non-
dollar fixed-income securities.
The principal factors behind the fund's good performance this period
were its overweightings to dollar-bloc bond markets such as Canada and
Australia, which performed very well, and its emphasis on the peripheral markets
in Europe, such as Italy and Spain, which benefited from convergence to the core
markets of Germany and France. Additionally, the fund had no net currency
exposure, so it was not adversely impacted by the dollar's sustained rise
against most major currencies.
Please feel free to call if you have any questions.
Sincerely,
/s/ W. Curtis Livingston
------------------------
W. Curtis Livingston
President
Enclosure
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
December 31, 1996
(Amounts in Thousands)
(Unaudited)
Principal
Amount Value
--------- -----
LONG-TERM DEBT SECURITIES(A) - 81.3%
Australian Dollar - 5.0%
Commonwealth of Australia
10.00% 10/15/07 AUD 14,000 $ 13,182
--------
British Sterling - 11.3%
United Kingdom Treasury Stock
8.00% 12/7/00 GBP 10,000 17,603
8.50% 12/7/05 2,500 4,563
7.50% 12/7/06 2,000 3,428
8.00% 6/7/21 2,300 4,107
--------
29,701
--------
Canadian Dollar - 4.9%
Government of Canada
8.00% 6/1/23 CAD 16,000 13,011
--------
Czech Koruna - 8.6%
ABN-Amro Bank N.V.
11.00% 12/15/97 CZK 189,000 6,908
BV Finance Prague
11.00% 10/2/97 115,000 4,202
Ceska Sporitelna A/S
14.375% 1/27/01 300,000 11,406
--------
22,516
--------
Danish Krone - 10.6%
Kingdom of Denmark
8.00% 3/15/06 DKK 150,000 28,010
--------
German Deutschmark - 14.0%
Deutsche Bundesrepublik
6.25% 4/26/06 DEM 55,000 36,943
--------
2
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
Principal
Amount Value
--------- -----
LONG-TERM DEBT SECURITIES(A) - Continued
Greek Drachma - 5.7%
Hellenic Republic
11.00% 11/26/99 GRD 1,500,000 $ 6,123
Hellenic Republic Floating Rate Bond(B)
14.95% 9/30/03 1,200,000 4,922
14.00% 10/23/03 500,000 2,055
13.45% 12/31/03 500,000 2,049
---------
15,149
---------
Italian Lira - 8.3%
Buoni del Tesoro Poliennali
9.50% 2/1/01 ITL 30,000,000 21,716
---------
Japanese Yen - 1.5%
Government of Japan #177
4.60% 3/21/05 JPY 400,000 3,985
---------
Spanish Peseta - 4.8%
Bonos Y Oblig Del Estado
8.40% 4/30/01 ESP 1,500,000 12,641
---------
Swedish Krona - 4.7%
Kingdom of Sweden #1030
13.00% 6/15/01 SEK 66,000 12,477
---------
United States Dollar - 1.9%
Standard Chartered Bank Indonesia
Rupiah - Linked Note
14.00% 11/21/01 USD 5,000 4,966
---------
Total Long-term Debt Securities
(Identified Cost - $211,342) 214,297
- --------------------------------------------------------------------------------
3
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS - Continued
(Amounts in Thousands)
Principal
Amount Value
--------- -----
SHORT-TERM INVESTMENTS - 6.9 %
U. S. Government Obligation - 0.2%
United States Treasury Bill
5.015% 1/9/97 USD 550 $ 549
----------
Repurchase Agreement - 6.7%
J.P. Morgan Securities, Inc.
6.80% dated 12/31/96, to be repurchased
at $10,004 on 1/2/97 (Collateral: $10,540
Federal National Mortgage Association
Medium-term note, 6.20% due 11/12/03,
value $10,341) 10,000 10,000
---------
Merrill Lynch Government Securities, Inc.
6.00% dated 12/31/96, to be repurchased
at $7,551 on 1/2/97 (Collateral: $7,360
U.S. Treasury Note, 7.125% due 9/30/99,
value $7,836) 7,548 7,548
---------
Total Short-term Investments
(Identified Cost - $18,097) 18,097
- -------------------------------------------------------------------------------
Total Investments - 88.2%
(Identified Cost - $229,439) $ 232,394
===============================================================================
Net
Actual Appreciation/
Date Contracts (Depreciation)
---- --------- --------------
FUTURES CONTRACTS PURCHASED
German 5-Year Government Bond Futures March 97 120 $ 90
-----------
(A) Listed by currency denomination.
(B) Indexed Security - The rate of interest earned on these securities is tied
to the Global Telecom Basket (GTB). The rate for these securities is the
rate at December 31, 1996.
See notes to financial statements.
4
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(Unaudited)
Assets
Investments at value (Identified Cost -$229,439,484) $ 232,394,083
Foreign currency at value (Identified Cost - $10,830,430) 10,920,901
Receivable for:
Investments sold 10,482,091
Foreign income taxes recoverable 281,791
Interest receivable 8,026,981
Unrealized appreciation of forward currency contracts 2,511,015
Other assets 11,761
-------------
Total assets 264,628,623
Liabilities
Unrealized depreciation of forward currency contracts 1,172,950
Due to adviser 18,251
Accrued expenses 74,151
-------------
Total liabilities 1,265,352
-------------
Net assets $ 263,363,271
=============
Analysis of Net Assets
Common stock at par value $.001 per share, authorized
100,000,000 shares: issued and outstanding 2,713,252 share $ 2,713
Accumulated paid-in capital 257,109,560
Undistributed net investment income 4,434,498
Accumulated net realized loss on investments, forward currency
contracts and currency translations (2,636,769)
Unrealized appreciation of investments, forward currency
contracts and currency translations 4,453,269
-------------
Net assets $ 263,363,271
=============
Net asset value, offering price, and redemption price per share $97.07
======
See notes to financial statements.
5
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S><C>
Investment Income:
Interest $ 8,458,861
Expenses:
Advisory fee $ 597,211
Custodian fee 181,205
Registration fees 11,430
Legal and audit fees 10,705
Directors' fees 7,970
Reports to shareholders 2,420
Organization expense 1,811
Transfer agent and shareholder servicing expense 785
Other expenses 3,278
------------
816,815
Less fees waived (501,962)
------------
Total expenses, net of waivers 314,853
------------
Net Investment Income 8,144,008
Net Realized and Unrealized Gain (Loss):
Realized gain (loss) on:
Investments, options and futures 7,025,762
Foreign currency transactions (1,909,963)
Unrealized gain on:
Investments 7,412,244
Assets and liabilities denominated in
foreign currencies 6,536
------------
Net Realized and Unrealized Gain 12,534,579
------------
Increase in Net Assets Resulting from Operations $ 20,678,587
============
</TABLE>
See notes to financial statements.
6
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Six For the Year
Months Ended Ended
December 31, 1996 June 30, 1996
----------------- -------------
(Unaudited)
<S><C>
Change in Net Assets:
Net investment income $ 8,144,008 $ 14,600,463
Net realized gain on investments, options,
futures and foreign currency transactions 5,115,799 17,453,811
Change in unrealized appreciation of investments
and assets and liabilities denominated in
foreign currencies 7,418,780 (8,488,519)
------------- -------------
Increase in net assets resulting from operations 20,678,587 23,565,755
Distributions to shareholders from net
investment income (15,622,139) (15,747,339)
Increase in net assets from Fund share
transactions 38,211,114 33,943,271
------------- -------------
Increase in net assets 43,267,562 41,761,687
Net Assets:
Beginning of period 220,095,709 178,334,022
------------- -------------
End of period $ 263,363,271 $ 220,095,709
============= =============
</TABLE>
See notes to financial statements.
7
<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
Six Months Ended
December 31, For the Years Ended June 30,
---------------- ---------------------------------------------
1996 1996 1995 1994 1993(A)
-----------------------------------------------------------------
(Unaudited)
<S><C>
Per Share Operating Performance:
Net asset value, beginning of period $ 95.16 $ 92.10 $ 93.76 $ 105.53 $ 100.00
-----------------------------------------------------------------
Net investment income(B) 2.59 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 5.43 3.56 (1.04) (7.36) 2.59
-----------------------------------------------------------------
Total from investment operations 8.02 9.34 5.25 (0.42) 5.80
-----------------------------------------------------------------
Distributions to shareholders from:
Net investment income (6.11) (6.28) (0.63) (8.64) (0.27)
Net realized gain on investments - - - (2.71) -
Tax return of capital - - (6.28) - -
-----------------------------------------------------------------
Total distributions (6.11) (6.28) (6.91) (11.35) (0.27)
-----------------------------------------------------------------
Net asset value, end of period $ 97.07 $ 95.16 $ 92.10 $ 93.76 $ 105.53
=================================================================
Total return(B) 8.70%(C) 10.36% 6.03% (1.14)% 5.81%(C)
Ratios/Supplemental Data:
Ratios to average net assets:
Expenses(B) .25%(D) 0.26% 0.28% 0.30% 0.45%(D)
Net investment income(B) 6.48%(D) 6.02% 5.67% 5.53% 6.08%(D)
Portfolio turnover rate 300.31%(D) 348.40% 355.03% 571.18% 249.94%(D)
Net assets, end of period (in thousands) $ 263,363 $ 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.
(C)Not annualized
(D)Annualized
See notes to financial statements.
8
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - 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.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
Forward Currency Exchange Contracts - continued
Forward currency contracts are valued using the forward rate. Outstanding
contracts at December 31, 1996 are as follows:
Contract to
Settlement -------------------------------------------- Appreciation/
Date Receive Deliver (Depreciation)
- ------------ ------------------- --------------------- --------------
2/28/97 USD 15,785,250 AUD 19,500,000 $ 296,607
2/28/97 AUD 2,900,000 USD 2,301,000 2,439
2/28/97 USD 18,145,894 CAD 24,200,000 404,609
2/28/97 CAD 6,600,000 USD 4,850,717 (12,185)
1/2/97 USD 760,002 CZK 20,806,584 (5,030)
2/28/97 USD 67,794,379 DEM 103,000,000 600,162
2/28/97 DEM 8,000,000 USD 5,177,658 41,310
2/28/97 USD 27,901,404 DKK 163,000,000 143,966
2/28/97 USD 12,538,563 ESP 1,625,000,000 40,005
2/28/97 USD 39,464,055 GBP 23,700,000 (1,082,173)
2/28/97 GBP 6,500,000 USD 10,775,550 344,724
2/28/97 USD 13,147,083 GRD 3,200,000,000 312,944
2/28/97 USD 31,855,501 ITL 48,500,000,000 (19,889)
2/28/97 USD 5,118,994 JPY 570,000,000 155,740
2/28/97 USD 12,552,263 SEK 84,600,000 114,836
------------
$ 1,338,065
============
3. Portfolio Transactions:
Purchases and sales of portfolio securities (excluding short-term and U.S.
Government securities) for the six months ended December 31, 1996 aggregated
$354,665,483 and $316,777,982, respectively. There were no purchases or sales of
U.S. Government securities during the six months ended December 31, 1996.
At December 31, 1996 the cost of securities for federal income tax purposes was
$229,439,484. Aggregate gross unrealized appreciation for all securities in
which there was an excess of value over tax cost was $4,111,519 and aggregate
gross unrealized depreciation for all securities in which there was an excess of
tax cost over value was $1,066,449.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
4. Fund Share Transactions:
At December 31, 1996, there were 100,000,000 Fund shares authorized at $.001 par
value. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
For the For the
Six Months Ended Year Ended
December 31, June 30,
1996 1996
----------------------------------------------------------
Shares Amount Shares Amount
----------------------------------------------------------
<S><C>
Sold 344,993 $ 33,236,865 2,384,011 $ 224,197,934
Reinvestment of distributions 164,168 15,535,276 167,906 15,747,337
Repurchased (108,915) (10,561,027) (2,175,306) (206,002,000)
----------------------------------------------------------
Net increase 400,246 $ 38,211,114 376,611 $ 33,943,271
==========================================================
</TABLE>
5. 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
$501,962 were waived for the six months ended December 31, 1996.
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.
12
