WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
REPORT TO SHAREHOLDERS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
This report and the financial statements contained herein are submitted for the
general information of the shareholders of Western Asset Trust Intermediate
Portfolio. The report is not intended for distribution to prospective investors
unless preceded or accompanied by a current prospectus.
<PAGE>
May 26, 1998
Dear Shareholder:
Enclosed are financial statements for the Western Asset Trust Intermediate
Portfolio for the nine month period ending March 31, 1998.
The fund's total return modestly exceeded that of its benchmark, the Lehman G/C
Intermediate Index, returning 6.59% (net) vs. 6.54%, as major strategies
produced mostly positive but, on balance, limited incremental value. The fund
benefited from a longer than market duration posture which it held for most of
the period, and yield curve strategies correctly anticipated the periods when
short- and long-term interest rates moved by greater and lesser degrees relative
to each other. Corporate sector exposure had little impact on returns as yield
spreads were roughly unchanged, while a modest overweighting to the mortgage
sector benefited from tightening spreads, though the portfolio's emphasis on
discount coupons under-performed somewhat. A moderate exposure to
inflation-indexed bonds detracted from performance as real yields rose.
As you should be aware by now, the Western Asset Trust Portfolios are being
incorporated into a new institutional mutual fund family, LM Institutional Fund
Advisors, which is expected to become effective June 1, 1998. We greatly
appreciate your cooperation with this shift and are working actively to make it
as seamless as possible. While the format will be changing, there is, of course,
to be no change in Western Asset's advisory services for the portfolio. The
fiscal year-end has been changed to March 31 and, therefore, we have prepared an
earlier-than-usual financial statement for the Western Asset Trust Intermediate
Portfolio that reflects this change.
Should you have any questions regarding the enclosed statement or the new
institutional mutual fund family, please feel free to call.
Sincerely,
/s/ W. Curtis Livingston
__________________________
W. Curtis Livingston
President
Enclosure
<PAGE>
[Western Asset Logo Appears Here]
Western Asset Trust
Intermediate Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The fund's performance was, on balance, favorably impacted by market conditions
in the nine months ended March 31, 1998, as interest rates generally declined
for most of the period. The fund's total return modestly outperformed that of
its benchmark, the Lehman G/C Intermediate Index, returning 6.59% (net) vs.
6.54%, as major strategies produced limited incremental returns. The fund
benefited from a longer than market duration posture which it held for most of
the period, and yield curve strategies correctly anticipated the periods when
short- and long-term interest rates moved by greater and lesser degrees relative
to each other. Corporate sector exposure had little impact on returns as yield
spreads were roughly unchanged, while a modest overweighting to the mortgage
sector benefited from tightening spreads, though the portfolio's emphasis on
discount coupons underperformed somewhat. A moderate exposure to
inflation-indexed bonds detracted from performance as real yields rose.
Average Annual Total Return through March 31, 1998
WAT Intm* Leh G/C Intm
--------- ------------
9 Months 6.6% 6.5%
3 Year 8.5% 8.0%
Since Inception 8.0% 7.8%
[Graph Appears Here -- Plot Points Included Below]
WAT Intm* Lehman Brothers
--------- ----------------
7/01/94 1,000,000 1,000,000
9/30/94 1,000,600 1,008,200
12/31/94 1,005,503 1,009,309
3/31/95 1,046,729 1,053,618
6/30/95 1,100,844 1,106,193
9/30/95 1,121,540 1,124,556
12/31/95 1,161,467 1,164,140
3/31/96 1,154,382 1,154,478
6/30/96 1,157,730 1,161,751
9/30/96 1,181,463 1,182,314
12/31/96 1,215,962 1,211,281
3/31/97 1,217,056 1,209,827
6/30/97 1,253,933 1,245,517
9/30/97 1,286,786 1,279,148
12/31/97 1,317,927 1,306,520
3/31/98 1,336,647 1,326,771
Past performance is not necessarily indicative of future results. Investment
return and principal value will fluctuate, so that, when redeemed, an investor's
shares may be worth more or less than their original cost. The Fund's inception
date was July 1, 1994. The Lehman Government/Corporate Intermediate Index
includes US treasuries and agencies, publicly issued US corporate and yankee
debentures and secured notes.
*Since inception (July 1, 1994), Western Asset has voluntarily undertaken to
waive a portion of their fees. Total return for the Fund would have been lower
if a portion of the fees had not been waived.
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
CORPORATE BONDS AND NOTES 12.42%
BANKING AND FINANCE 6.82%
Ford Motor Credit 6.00% 01/04/03 $1,580 $1,568
Heller Financial, Inc. 6.66% 07/11/02 1,700 1,729
Lehman Brothers, Inc. 6.63% 02/15/08 2,890 2,883
Lehman Brothers, Inc. 8.63% 02/26/99 400 409
IBJ Preferred Capital Company LLC 8.79% 12/29/49 2,490 2,390(E,F)
J.P. Morgan & Company 6.77% 02/15/12 710 658(E)
NationsBank Capital Trust III 6.144% 01/15/27 1,300 1,255(E)
National Westminster Bancorp 9.375% 11/15/03 290 331
SB Treasury Company LLC 9.40% 12/29/49 1,560 1,546(E,F)
Travelers Group, Inc. 6.25% 01/15/05 3,300 3,264
Travelers Group, Inc. 7.30% 05/15/02 1,600 1,651
United States Leasing International 8.75% 12/01/01 500 541
United States Leasing International 6.625% 05/15/03 1,750 1,774
-----------------
19,999
MEDIA AND ENTERTAINMENT 3.16%
TCI Communications Inc. 8.00% 08/01/05 1,000 1,075
Time Warner Inc. 8.11% 08/01/06 3,200 3,482
Time Warner Inc. 7.25% 10/15/17 4,650 4,718
-----------------
9,275
FOOD, BEVERAGE AND TOBACCO 0.69%
Philip Morris Companies, Inc. 7.00% 07/15/05 2,000 2,038
HEALTHCARE 1.75%
Columbia/HCA Healthcare 8.85% 01/01/07 5,020 5,136
Total Corporate Bonds and Notes
(Identified Cost - $36,597) 36,448
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 38.77%
FIXED-RATE SECURITIES 29.45%
United States Treasury Notes 5.875% 03/31/99 $150 $150
United States Treasury Notes 5.875% 09/30/02 27,610 27,824
United States Treasury Notes 5.50% 02/28/03 26,670 26,511
United States Treasury Notes 5.50% 03/31/03 8,800 8,751
United States Treasury Notes 7.875% 11/15/04 3,300 3,687
United States Treasury Notes 7.00% 07/15/06 1,000 1,081
United States Treasury Notes 6.625% 05/15/07 17,390 18,460
-----------------
86,464
INDEXED SECURITIES 9.32%
Fannie Mae 5.343% 03/13/02 12,720 12,313(E)
United States Treasury Notes 3.625% 01/15/08 15,204 15,033(A)
-----------------
27,346
Total U.S. Government and Agency Obligations
(Identified Cost - $114,144) 113,810
- --------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED 19.32%
SECURITIES
FIXED-RATE SECURITIES 16.89%
Agricultural Mortgage (Farmer Mac) 7.92% 01/25/12 1,948 2,053
Fannie Mae 6.00% 04/01/13 5,300 5,216(G)
Fannie Mae 6.50% 06/01/14 1,554 1,544
Fannie Mae 6.00% 04/01/28 5,500 5,309(G)
Fannie Mae 6.50% 05/01/28 17,600 17,401(G)
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Freddie Mac 8.50% 07/01/06 $144 $148
Freddie Mac 7.76% 05/01/12 330 349
Freddie Mac 6.50% 06/01/13 460 460
Freddie Mac 6.50% 06/01/14 756 755
Freddie Mac 6.50% 11/01/15 412 410
Freddie Mac 7.50% 04/01/17 382 398
Freddie Mac 9.30% 04/15/19 1,134 1,208
Government National Mortgage Association 9.50% 09/15/05 283 300
Government National Mortgage Association 9.00% 06/15/06 310 324
Government National Mortgage Association 6.50% 04/01/28 6,600 6,532(G)
Government National Mortgage Association 7.00% 04/01/28 7,100 7,171(G)
-----------------
49,578
VARIABLE-RATE SECURITIES 2.34%
Fannie Mae 6.218% 03/01/18 194 195(C)
Freddie Mac 6.739% 01/01/19 111 112(C)
Government National Mortgage Association 7.00% 08/20/21 528 542(C)
Government National Mortgage Association 7.375% 05/20/22 1,359 1,397(C)
Government National Mortgage Association 7.375% 06/20/22 1,716 1,764(C)
Government National Mortgage Association 7.375% 06/20/22 941 967(C)
Government National Mortgage Association 7.00% 07/20/22 1,456 1,494(C)
Government National Mortgage Association 7.00% 08/20/22 382 392(C)
-----------------
6,863
STRIPPED SECURITIES 0.09%
Fannie Mae 0% 05/25/22 195 143(D,2)
Fannie Mae 0% 05/25/22 71 68(D,2)
</TABLE>
4
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Freddie Mac 10.00% 03/01/21 $218 $56(D,1)
-----------------
267
Total U.S. Government Agency Mortgage-backed Securities
(Identified Cost - $56,529) 56,708
- --------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 13.25%
FIXED-RATE SECURITIES 11.18%
Aesop Funding II LLC 6.40% 10/20/03 1,100 1,114
Bridgestone/Firestone Master Trust 6.17% 07/01/03 3,800 3,815
Chevy Chase Home Loan Trust 7.15% 05/15/15 1,086 1,113
Chevy Chase 1997-A 7.65% 12/20/07 2,644 2,665
Cityscape Home Equity Loan Trust 7.40% 09/25/28 2,779 2,810(F)
CS First Boston Mortgage Services 6.62% 09/25/09 4,000 4,015
Fleet Finance Home Equity Trust 6.70% 10/15/06 261 261
Fleetwood Credit Corp. Grantor Trust 6.75% 03/15/10 2,085 2,101
Guaranteed Export Certificates 6.13% 06/15/04 1,529 1,534
Irwin Home Equity Corporation 6.77% 07/15/06 1,392 1,396
Lehman FHA Title 1 Loan Trust 7.71% 08/25/17 1,804 1,838
Long Beach 97-1 A 6.85% 02/15/03 3,870 3,878(F)
Mego Mortgage FHA Title I Loan Trust 6.55% 09/25/07 300 299
Mego Mortgage FHA Title I Loan Trust 7.17% 05/25/23 1,700 1,721
Mego Mortgage FHA Title I Loan Trust 7.275% 09/25/16 1,039 1,052
Merrill Lynch Mortgage Investors, Inc. 9.65% 09/15/10 1,750 1,809
Merrill Lynch Mortgage Investors, Inc. 9.70% 06/15/08 787 814
World Omni Automobile Lease Securitization Trust 6.05% 11/25/01 571 571
-----------------
32,806
</TABLE>
5
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
INDEXED SECURITIES 1.56%
KeyCorp Student Loan 96-A CTFS 6.25% 11/27/28 $3,000 $2,978(E)
Lehman Home Equity Loan Trust 5.86% 12/15/27 1,617 1,612(E)
--------------
4,590
STRIPPED SECURITIES 0.51%
Bay View Auto Trust 3.15% 12/15/04 13,465 263(D,1)
Option One CTS Arm Trust 3.05% 03/25/01 2,632 72(D,1)
Union Acceptance Corp. 2.75% 05/10/04 50,199 1,152(D,1)
-------------
1,487
Total Asset-backed Securities
(Identified Cost - $38,534) 38,883
- --------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 7.79%
FIXED-RATE SECURITIES 4.96%
Asset Securitization Corp. 6.72% 11/12/26 2,676 2,716
Citicorp Mortgage Securities, Inc. 9.00% 07/25/02 1,408 1,404
Donaldson, Lufkin & Jenrette Mortgage Acceptance Corp. 6.86% 11/12/21 1,752 1,790
Merrill Lynch Mortgage Investors, Inc. 6.69% 11/21/28 1,873 1,899
Metropolitan Asset Funding, Inc. 6.50% 11/20/01 688 682
Metropolitan Asset Funding, Inc. 6.95% 04/20/08 2,125 2,117
Nomura Asset Securities Corporation 7.07% 04/13/36 1,789 1,848
Resolution Trust Corporation 8.40% 07/25/24 152 151
Structured Asset Securities Corp. 7.75% 08/15/02 1,910 1,930
-----------------
14,537
VARIABLE-RATE SECURITIES 2.50%
CPS Auto Grantor Trust 6.30% 08/15/02 1,241 1,244(C)
</TABLE>
6
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
Housing Securities Inc. 5.987% 11/25/26 $631 $621(C,F)
Resolution Trust Corporation 5.990% 07/25/20 60 59(C)
Resolution Trust Corporation 8.750% 03/25/21 1,444 1,472(C)
Resolution Trust Corporation 7.074% 06/25/24 600 598(C)
Resolution Trust Corporation 6.094% 01/25/27 1,616 1,590(C)
Resolution Trust Corporation 7.966% 09/25/29 107 107(C)
Resolution Trust Corporation 8.285% 09/25/29 711 733(C)
Resolution Trust Corporation 7.371% 12/25/29 851 852(C)
Securitized Asset Sales, Inc. 7.072% 08/25/33 69 69(C)
-----------------
7,345
INDEXED SECURITIES 0.12%
Resolution Trust Corporation 6.454% 09/25/21 365 363(E,F)
STRIPPED SECURITIES 0.21%
CMC Securities Corp. 0% 02/25/09 534 411(D,2)
Securitized Asset Sales, Inc. 0% 12/25/10 287 216(D,2)
-----------------
627
Total Mortgage-backed Securities
(Identified Cost - $22,556) 22,872
- --------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS 6.36%
FIXED-RATE SECURITIES
Cable and Wireless Communications 6.375% 03/06/03 3,920 3,922(B)
Petroliam Nasional Berhad 6.625% 10/18/01 2,500 2,361(B,F)
Petrozuata Finance 7.63% 04/01/09 4,760 4,858(B,F)
Province de Quebec 8.625% 01/19/05 1,000 1,145(B)
</TABLE>
7
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
YPF Sociedad Anonima 7.00% 10/26/02 $2,715 $2,741(B)
YPF Sociedad Anonima 7.50% 10/26/02 3,560 3,632(B)
Total Yankee Bonds
(Identified Cost - $18,536) 18,659
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK AND EQUITY INTERESTS 3.20%
Black Rock 1999 Term Trust, Inc. 10 shrs 94
Black Rock 2001 Term Trust, Inc. 1,070 shrs 9,294
Total Common Stocks and Equity Interests
(Identified Cost - $8,755) 9,388
- --------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 11.84%
CORPORATE 1.13%
General Motors Acceptance Corp. 6.00% 12/07/98 $210 210
Norwest Corporation 5.75% 11/16/98 100 100
USF&G Corporation 7.00% 05/15/98 3,000 3,003
-----------------
3,313
MORTGAGE-BACKED SECURITIES 0.25%
CRIIMI MAE Financial Corporation 6.77% 05/30/98 729 727
U.S. GOVERNMENT OBLIGATIONS 0.18%
United States Treasury Bills 5.12% 09/03/98 550 538
YANKEE BONDS 0.12%
Hydro Quebec 7.74% 02/26/99 350 355(B)
</TABLE>
8
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------
<S><C>
REPURCHASE AGREEMENT 10.10%
J.P. Morgan Securities, Inc.
6.00% dated 3/31/98, to be repurchased at $29,651 on 4/1/98
(Collateral: $29,115 Fannie Mae Medium-term Notes,
6.59% due 9/17/07, value $30,318) $29,646 $29,646
ACTUAL
CONTRACTS
-----------------------
OPTIONS PURCHASED 0.06%
Eurodollar Futures, June 98 Call, Strike Price $94.25 201 50
Eurodollar Futures, Dec 98 Call, Strike Price $94.00 110 81
U.S. Treasury Bond Futures, Sept 98 Call, Strike Price $124.00 53 54
-----------------
185
Total Short-Term Investments
(Identified Cost - $34,788) 34,764
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost - $330,439) 112.95% $331,532
Other Assets Less Liabilities -12.95% (38,001)
---------------------
NET ASSETS CONSISTING OF:
Accumulated paid-in-capital applicable to
2,704 shares outstanding $285,439
Undistributed net investment income 3,956
Undistributed net realized gain on investments 3,047
Unrealized appreciation of investments 1,089
-------------------
NET ASSETS 100.00% $293,531
=====================
NET ASSET VALUE PER SHARE $108.52
=====================
</TABLE>
9
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACTUAL APPRECIATION/
EXPIRATION CONTRACTS (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Options Written
U.S. Treasury Bond Future Call, Strike Price $124.00 May 98 53 $11
---------------------
Futures Purchased
U.S. Treasury Bond Future June 98 11 (7)
---------------------
Futures Sold
U.S. Treasury Note Future June 98 32 (8)
---------------------
</TABLE>
- ----------------------------------------
(A) United States Treasury Inflation-Indexed Securities - U.S. Treasury
securities whose principal value is adjusted daily in accordance with
changes in the Consumer Price Index. Interest is calculated on the basis
of the current adjusted principal value.
(B) Yankee Bond - Dollar denominated bond issued in the U.S. by foreign
entities.
(C) The coupon rates shown on variable rate securities are the rates at March
31, 1998. These rates vary with the weighted average coupon of the
underlying loans.
(D) Stripped Security - Security with interest-only or principal-only payment
streams, denoted by 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.
(E) Indexed Security - The rate of interest earned on this type of security is
tied to the London Interbank Offered Rate (LIBOR), the Global Telecom
Basket (GTB) index or the one year Treasury Bill rate. The coupon rate is
the rate as of March 31, 1998.
(F) 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.
(G) 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
10
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED ENDED
MARCH 31, 1998 (A) JUNE 30, 1997
------------------------------ ---------------------
<S><C>
INVESTMENT INCOME:
Interest $11,536 $10,923
Dividends 276 115
------------------------------ ---------------------
11,812 11,038
------------------------------ ---------------------
EXPENSES:
Advisory fee 663 569
Administrative fee 95 81
Custodian fees 82 99
Directors' fees 16 16
Legal and audit fees 41 39
Organization expenses 9 12
Registration fees 79 73
Reports to shareholders 3 0
Transfer agent and
shareholder servicing expense 2 2
Other expenses 5 2
------------------------------ ---------------------
995 893
Less fees waived (142) (158)
------------------------------ ---------------------
Total expenses, net of waivers 853 735
------------------------------ ---------------------
NET INVESTMENT INCOME 10,959 10,304
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on investments, options
and futures 4,484 1,450
Change in unrealized gain (loss) on
investments, options and futures 266 1,322
------------------------------ ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 4,750 2,772
------------------------------ ---------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $15,709 $13,075
============================== =====================
</TABLE>
(A) The year end for Western Asset Trust Inc.- Intermediate Portfolio has been
changed from June 30 to March 31.
See notes to the financial statements
11
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR FOR THE YEAR
MONTHS ENDED ENDED ENDED
MARCH 31, 1998 (A) JUNE 30, 1997 JUNE 30, 1996
------------------ --------------- --------------
<S><C>
CHANGE IN NET ASSETS:
Net investment income $10,959 $10,304 $2,180
Net realized gain (loss) on investments, options and futures 4,484 1,450 467
Change in unrealized appreciation of investments, options
and futures 266 1,322 (934)
------------------ --------------- --------------
Change in net assets resulting from operations 15,709 13,076 1,713
Distributions to shareholders from:
Net investment income (10,136) (8,020) (1,527)
Net realized gain on investments (2,146) (993) (619)
Change in net assets from
Fund share transactions 65,607 154,355 46,199
------------------ --------------- --------------
Change in net assets 69,034 158,418 45,766
NET ASSETS:
Beginning of period 224,497 66,079 20,313
------------------ --------------- --------------
End of period (including undistributed
net investment income of
$3,956, $3,165 and $916,
respectively) $293,531 $224,497 $66,079
================== =============== ==============
</TABLE>
(A) The year end for Western Asset Trust, Inc. - Intermediate Portfolio has
been changed from June 30 to March 31.
See notes to financial statements
12
<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.
<TABLE>
<CAPTION>
FOR THE FOR THE YEARS ENDED JUNE 30,
NINE MONTHS ENDED ----------------------------------------------
MARCH 31, 1998 (A) 1997 1996 1995
----------------------------- ----------------------------------------------
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $107.19 $104.83 $107.36 $100.00
Net investment income (B) 4.55 5.49 5.41 3.86
Net realized and unrealized gain (loss)
on investments, options and futures 2.34 3.00 (0.06) 6.02
-------------------- -----------------------------------------------
Total from investment operations 6.89 8.49 5.35 9.88
-------------------- -----------------------------------------------
Distributions to shareholders from:
Net investment income (4.59) (5.42) (5.35) (2.47)
Net realized gain on investments (0.97) (0.71) (2.53) (0.05)
-------------------- -----------------------------------------------
Total distributions (5.56) (6.13) (7.88) (2.52)
-------------------- -----------------------------------------------
Net asset value, end of period $108.52 $107.19 $104.83 $107.36
==================== ===============================================
Total return (B) 6.59%(C) 8.32% 5.15% 10.08%
RATIOS / SUPPLEMENTAL DATA:
Ratios to average net assets
Expenses (B) 0.45%(D) 0.45% 0.50% 0.50%
Net investment income (B) 5.78%(D) 6.33% 6.28% 6.11%
Portfolio turnover rate 401.40%(D) 419.26% 841.29% 764.45%
Net assets, end of period
(in thousands) $293,531 $224,497 $66,079 $20,313
</TABLE>
(A) The year end for Western Asset Trust Inc.- Intermediate Portfolio has been
changed from June 30 to March 31.
(B) Net of advisory fees waived pursuant to a voluntary expense limitation of
0.50% until August 5, 1996 and 0.45% thereafter. In the absence of this
limitation, the ratio of expenses to average net assets would have been
0.52% for the nine months ended March 31, 1998, 0.55%, 1.03% and 1.60% for
the years ended June 30, 1997, 1996 and 1995, respectively.
(C) Not annualized
(D) Annualized
See notes to the financial statements
13
<PAGE>
WESTERN ASSET TRUST, INC.
INTERMEDIATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
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 Trust 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 a contract's value
fluctuates, payments known as variation margin are made to or received from the
futures commission merchant.
INVESTMENT INCOME AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income for dividend purposes is recorded on the accrual basis and
consists of interest and dividend 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 realized capital gains for financial reporting purposes.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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 ORGANIZATION EXPENSE
Deferred organization expenses of $54 are being amortized on a straight-line
basis through June 1999.
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.
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.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FINANCIAL INSTRUMENTS--CONTINUED
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:
CALLS PUTS
-----------------------------------------
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ---------------------------------------------------------- --------------------
Options outstanding at June 30, 1997 -- $ -- 43 $31
Options written 1,538 802 237 116
Options closed (1,319) (765) (280) (147)
Options expired (166) (9) -- --
Options exercised -- -- -- --
- ---------------------------------------------------------- --------------------
Options outstanding at March 31, 1998 53 $ 28 -- $ --
========================================================== ====================
FUTURES
The Fund may enter 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 March 31, 1998 are
described at the end of the "Statement of Net Assets", page 10.
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 nine months ended March 31, 1998, aggregated $130,387 and $155,432,
respectively. Purchases and sales of U.S. Government securities aggregated
$713,041 and $594,405, respectively, for the same period.
At March 31, 1998, the cost of securities for federal income tax purposes was
$330,573. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $2,366 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $1,407.
4. FUND SHARE TRANSACTIONS:
At March 31, 1998, there were 5,000,000 shares of common stock of the
Corporation authorized at $.001 par value. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR FOR THE YEAR
MONTHS ENDED ENDED ENDED
MARCH 31, 1998 JUNE 30, 1997 JUNE 30, 1996
---------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
<S><C>
Sold 799 $ 86,208 1,492 $ 157,504 479 $ 50,184
Reinvestment of distributions 111 11,927 85 8,937 20 2,145
Repurchased (300) (32,528) (113) (12,086) (58) (6,130)
- ---------------------------------------------------------------------------------------------
Net increase 610 $ 65,607 1,464 $ 154,355 441 $ 46,199
=============================================================================================
</TABLE>
5. SECURITIES LOANED:
At March 31, 1998, the market value of the securities on loan to broker-dealers
was $53,015, for which the Fund received collateral of $56,674 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.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
6. 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. At March 31, 1998, $12 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 0.50% of average daily net assets of
the Fund. The Adviser has voluntarily agreed to indefinitely limit its fee to
0.35% of average daily net assets and to further waive its fees and reimburse
the Fund to the extent necessary to limit the total expenses to an annual rate
of 0.45% of the Fund's average daily net assets. Pursuant to this agreement,
advisory fees of $142 were waived for the nine months ended March 31, 1998, and
$66 was due to the Adviser at March 31, 1998.
18
<PAGE>
1306 Concourse Drive Telephone 410 412 3000
Suite 100
Linthicum, MD 21090-1020
Price Waterhouse LLP [Logo Appears Here]
Report of Independent Accountants
To the Board of Directors of Western Asset Trust, Inc. and
Shareholders of Western Asset Trust Intermediate Portfolio
In our opinion, the accompanying statement of net assets, and the related
statements of operations and of changes in net assets and the 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 March 31, 1998, and 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 March 31, 1998 by correspondence with the
custodian and brokers, and where appropriate, 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
Linthicum, Maryland
April 30, 1998
