WESTERN ASSET TRUST INC, PRES14A, 1998-03-20

WESTERN ASSET TRUST INC
PRES14A, 1998-03-20

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SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted
[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule
14a-11(c) or Rule 14a-12

Western Asset Trust, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement,
if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No Fee Required

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total Fee Paid:

[ ] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:

<PAGE>

WESTERN ASSET TRUST, INC.
117 East Colorado Boulevard
Pasadena, California 91105

May ___, 1998
DEAR SHAREHOLDER:

You are cordially invited to attend a Special Meeting of Shareholders
of Western Asset Trust, Inc. (the "WAT Funds" or the "Company") to be held on
Friday, May ___, 1998, at 9:00 a.m., Pacific time, at the offices of the
Company, 117 East Colorado Boulevard, Pasadena, California.

At the meeting you will be asked to approve two proposals in connection
with the participation by certain of the Company's portfolios in a new
institutional fund family sponsored by Legg Mason Wood Walker, Incorporated.
Specifically, shareholders of certain of the Company's portfolios will be asked
to approve an investment management agreement between the Company and LM
Institutional Advisors, Inc. ("LMIA") and an investment advisory agreement
between LMIA and Western Asset Management Company ("Western Asset"), the current
investment adviser to the portfolios. The new agreements call for the same
contractual advisory fee and administrative fee currently paid by these
portfolios to be paid in the aggregate to LMIA, which in turn will pay Western
Asset; the new agreements do not, in the aggregate, result in a fee increase to
the portfolios.

Shareholders will also be asked to approve changes to the Company's
charter which will, among other things, permit the Company to issue multiple
classes of shares. Additionally, you will be asked to vote on the election of
three Directors to the Company's Board of Directors and to ratify the selection
of the Company's auditors.

Finally, you will be asked to amend or eliminate certain of the
portfolios' fundamental investment restrictions that have heretofore limited the
scope of the portfolios' activities. Some of these restrictions were previously
required by certain state securities laws which are no longer applicable to the
portfolios due to recent federal legislation that effectively eliminated the
ability of states to impose investment limitations on registered investment
companies. Approval of these proposals will provide the Company with the maximum
investment flexibility permitted under current law.

Whether or not you plan to be present at the Meeting, your vote is
needed. PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD PROMPTLY. A
POSTAGE-PAID ENVELOPE IS ENCLOSED FOR THIS PURPOSE.

If you return your proxy card promptly you can help the Company avoid
the expense of follow-up mailings to achieve a quorum so that the meeting can be
held. If you decide between now and the meeting that you can attend the meeting
in person, you can revoke your proxy at that time and vote your shares at the
meeting.

Sincerely,

W. Curtis Livingston, III
President

SHAREHOLDERS ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE SO THEY CAN BE REPRESENTED AT THE MEETING.

<PAGE>

WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
INTERMEDIATE PORTFOLIO
LIMITED DURATION PORTFOLIO
MONEY MARKET PORTFOLIO
INTERNATIONAL SECURITIES PORTFOLIO
117 East Colorado Boulevard
Pasadena, California 91105

-----------------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

-----------------------------------

A special meeting (the "Meeting") of the shareholders of the Core Portfolio,
Intermediate Portfolio, Limited Duration Portfolio, Money Market Portfolio and
International Securities Portfolio (each a "Portfolio" and collectively the
"Portfolios") of Western Asset Trust, Inc. (the "Company") will be held on
, May , 1998, at 9:00 a.m., Pacific time, at the offices of the Company,
117 East Colorado Boulevard, Pasadena, California 91105 for the following
purposes:

ALL SHAREHOLDERS WILL VOTE:

1. To approve or disapprove a new charter for the Company;

2. To elect three new directors of the Company;

3. To ratify the Board of Directors' selection of independent auditors;

SHAREHOLDERS OF THE CORE, INTERMEDIATE, LIMITED DURATION AND MONEY MARKET
PORTFOLIOS WILL VOTE:

4a. To approve or disapprove a new Investment Management Agreement
between the Company on behalf of the relevant Portfolio and LM
Institutional Advisors, Inc. ("LMIA"), as described in the
attached Proxy Statement;

<PAGE>

4b. To approve or disapprove a new Investment Advisory Agreement
with respect to the relevant Portfolio between LMIA and
Western Asset Management Company, as described in the attached
Proxy Statement;

5a. To approve or disapprove an amendment to the relevant
Portfolio's fundamental investment restriction with respect to
investments in real estate;

5b. To approve or disapprove an amendment to the relevant Portfolio's
fundamental investment restriction with respect to investments in
commodities;

5c. To approve or disapprove an amendment to the relevant Portfolio's
fundamental investment restriction with respect to making loans;

5d. To approve or disapprove an amendment to the relevant Portfolio's
fundamental investment restriction with respect to borrowing and senior
securities;

5e. To approve or disapprove elimination of the relevant Portfolio's
fundamental investment restriction with respect to margin transactions;

5f. To approve or disapprove elimination of the relevant Portfolio's
fundamental investment restriction with respect to pledging assets;

5g. To approve or disapprove elimination of the relevant
Portfolio's fundamental investment restriction with respect to
investments in certain oil, gas or other mineral interests;
and

SHAREHOLDERS OF EACH PORTFOLIO WILL VOTE AS APPROPRIATE:

6. To consider and act upon such other matters as may properly
come before the Meeting or any adjournment thereof.

Shareholders of record as of the close of business on April ___, 1998 are
entitled to notice of and to vote at the Meeting or any adjournment thereof.

By order of the Board of Directors
of the Company,

W. Curtis Livingston, III
President
May ___, 1998

<PAGE>

-----------------------------------

PROXY STATEMENT

-----------------------------------

This proxy statement is furnished to the holders of shares in the Core
Portfolio, Intermediate Portfolio, Limited Duration Portfolio, Money Market
Portfolio or International Securities Portfolio (each a "Portfolio" and
collectively the "Portfolios") of Western Asset Trust, Inc. (the "Company") in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of the Company to be used at a special meeting of such holders to be
held at 9:00 a.m., Pacific time, on ______, May ___, 1998, or any adjournment
thereof (the "Meeting"), at the offices of the Company, 117 East Colorado
Boulevard, Pasadena, California. Shareholders of record at the close of business
on April __, 1998 are entitled to be present and vote at the Meeting. These
proxy materials are first being made available to shareholders on or about May
___, 1998.

Shares represented by duly executed proxies will be voted in accordance
with the specification made. If no specification is made, shares will be voted
in accordance with the recommendation of the Board of Directors and in the
judgment of the proxyholders as to any other business that properly comes before
the Meeting. You may revoke a proxy at any time before it is exercised by
sending or delivering a written revocation to the Secretary of the Company
(which will be effective when it is received by the Secretary), by properly
executing a later-dated proxy or by attending the Meeting, requesting return of
your proxy, and voting in person.

COPIES OF EACH PORTFOLIO'S MOST RECENT ANNUAL AND SEMI-ANNUAL REPORT
MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO THE COMPANY AT 117 EAST COLORADO
BOULEVARD, PASADENA, CALIFORNIA 91105, ATTENTION: DONNA BARNES, OR BY CALLING AT
1-800-822-5544.

On the record date, April ___, 1998, there were: [__________] shares of
capital stock, $.001 par value per share, outstanding in the Core Portfolio,
[_________] shares of capital stock, $.001 par value per share, outstanding in
the Intermediate Portfolio, [_________] shares of capital stock, $.001 par value
per share, outstanding in the Limited Duration Portfolio, [__________] shares

-1-

<PAGE>

of capital stock, $.001 par value per share, outstanding in the Money Market
Portfolio and [__________] shares of capital stock, $.001 par value per share,
outstanding in the International Securities Portfolio, for a total of
[_________] shares of capital stock, $.001 par value per share, outstanding in
the Company. Each whole share is entitled to one vote and each fractional share
is entitled to a proportionate fractional vote.

GENERAL

Beginning on or about June 1, 1998, the Company is expected to become
part of a new institutional fund family, called LM Institutional Fund Advisors,
sponsored by Legg Mason Wood Walker, Incorporated ("Legg Mason"). Each of the
Core, Intermediate, Money Market and Limited Duration Portfolios will
participate in this new fund family, as well as eight other Portfolios of the
Company that have not yet commenced the public offering of their shares. The new
fund family will also consist of six portfolios of LM Institutional Fund
Advisors II, Inc., a recently formed Maryland corporation.

The new fund family will offer institutional investors a broad array of
equity and fixed income portfolios managed by LM Institutional Advisors, Inc.
(the "Manager"), an affiliate of Legg Mason, and advised by Western Asset
Management Company ("Western Asset") or its affiliates. Shares of each Portfolio
are currently expected to be offered in two classes: the Institutional Class and
the Financial Intermediary Class (which will bear a distribution or "12b-1"
fee). CURRENT SHAREHOLDERS WILL HOLD INSTITUTIONAL CLASS SHARES AND WILL NOT
BEAR A 12B-1 FEE.

With the proposed new fund family, the Company's Portfolios may be more
attractive to a greater number of investors who desire a unified investment
product with more investment choices offered through a variety of distribution
channels. As a result, the Directors believe that the Company's participation in
LM Institutional Fund Advisors may lead to increased sales of shares, resulting
in greater investment flexibility for the Portfolios and, to the extent of any
increase in the size of the Portfolios, possible reductions in operating expense
ratios due to economies of scale -- thus benefiting both existing and future
shareholders.

At the Meeting, you will be asked to vote on a number of proposals.
Specifically, in Proposal 1, shareholders will be asked to approve certain
changes to the Company's charter which would, among other things, permit the
issuance of multiple classes of shares. In Proposal 2, you will be asked to
elect three new Directors of the Company which, as described below in more
detail, may eliminate the cost and expense of future elections. In Proposal 3,
you will be asked to ratify the Board of Directors' selection of independent
auditors. In Proposal 4, you are being asked to approve new advisory
arrangements for the Core, Intermediate, Money Market and Limited Duration
Portfolios. Finally, in Proposal 5 you will be asked to approve the amendment or
elimination of certain of the Portfolios' fundamental investment restrictions,
which is expected to benefit the Portfolios by giving them greater investment
flexibility.

-2-

<PAGE>

1. APPROVAL OF AMENDMENTS TO THE COMPANY'S CHARTER

The Directors have approved, and are recommending that shareholders
approve, certain amendments to the Company's Articles of Incorporation (the
"Current Articles"). The proposed revised Articles of Incorporation ("Proposed
Articles") are attached as Appendix A to this Proxy Statement, and the
description of the Proposed Articles contained herein is qualified in its
entirety by reference to Appendix A. If the Proposed Articles are approved, the
Company will continue to be governed by Maryland corporate law, and the
Company's operations will remain subject to the provisions of the 1940 Act.

Although the Proposed Articles contain many changes from the Current
Articles, the principal reason for revising the Company's charter at this time
is to permit the Company's Portfolios to issue multiple classes of shares. The
Current Articles provide for the issuance of an unlimited number of Portfolios,
but only one class of shares of each Portfolio, with each share in that class
representing an equal proportionate interest in the relevant Portfolio. The
creation of one or more separate classes of shares of a Portfolio would permit
the Directors to allocate costs of a class (such as distribution costs) to
those investors who purchase the shares of such class. For example, as noted
above, it is currently expected that the Portfolios of LM Institutional Fund
Advisors -- including Portfolios of the Company -- will offer two classes of
shares: the Institutional Class and the Financial Intermediary Class. The
principal economic difference between the classes is expected to be that the
Financial Intermediary Class will bear a distribution fee (sometimes referred to
as a "12b-1 fee"), while the Institutional Class will not. The creation of an
additional class of shares will permit the distribution fee to be properly
allocated to those shareholders who purchase the Financial Intermediary Class.
CURRENT SHAREHOLDERS WILL HOLD INSTITUTIONAL CLASS SHARES AND WILL NOT PAY A
12B-1 FEE. In the future the Directors could determine that other costs should
be specially allocated to a particular class of shares or may make other changes
to the terms of the classes.

The two classes of shares of a Portfolio would participate in all other
respects on an equal proportionate basis, including as to investment income,
realized and unrealized gains and losses on portfolio investments and all other
operating expenses of the Portfolio. The classes of shares will vote together as
a single class at meetings of shareholders, except that shares of a class which
is affected by any matter materially different from shares of the other class
will vote as a separate class and that holders of shares of a class not affected
by a matter will not vote on that matter.

The Company has no present intention of creating additional classes of
shares of any Portfolio other than the Institutional Class and the Financial
Intermediary Class, although under the Proposed Articles the Directors may do so
in the future in their sole discretion and without shareholder approval. Any
such additional class or classes of shares would have such different rights,
preferences, privileges and obligations as the Directors may determine,
consistent with Maryland law and the 1940 Act.

-3-

<PAGE>

The Proposed Articles also contain other changes from the Current
Articles, the most significant of which are summarized below.

QUORUM OF SHAREHOLDERS. The Current Articles define a quorum as
one-third of the shareholders of the Company (unless a larger number is required
by law on a specific matter). The Proposed Articles, however, would define a
quorum as thirty percent (30%) of the DOLLAR VALUE of the outstanding shares of
the Company. The change from 33-1/3% to 30% will make a quorum easier to
achieve. The change which would base the presence of a quorum on the percentage
of the dollar value of outstanding shares of the Company is intended to more
accurately reflect the extent of shareholder participation in the Company,
especially in light of the fact that two of the Company's Portfolios -- the
Western Asset Money Market Portfolio and the Western Asset Government Money
Market Portfolio -- will have a net asset value per share of $1.00, and thus,
absent this change, shares of such Portfolios would count disproportionately
high in determining the presence of a quorum. The proposed changes will not
affect voting rights; each share (or fraction thereof), regardless of net asset
value, would continue to be entitled to one vote (or fraction thereof).

STANDARDS IN RESPECT OF ADVISORY AND DISTRIBUTION CONTRACTS. The
Current Articles provide that all advisory and distribution contracts entered
into with certain interested persons of the Company must, INTER ALIA, be
"reasonable and fair" when entered into. While there is no comparable provision
in the Proposed Articles, if the Proposed Articles are approved, all advisory
and distribution contracts entered into by the Company would remain subject to
the requirements of the 1940 Act and the rules and regulations thereunder, which
impose certain fiduciary standards. For example, Section 36 of the 1940 Act
imposes a fiduciary duty on advisers and their affiliates with respect to the
compensation that they receive from registered investment companies such as the
Company for services to such companies. Applicable state laws may also impose
fiduciary standards.

INDEMNIFICATION OF TRUSTEES AND OFFICERS. The Current Articles provide
that the Directors and officers of the Company may be indemnified by the Company
to the limits of federal and Maryland law. The Proposed Articles add additional
specifications that the Company may indemnify and advance expenses to Directors
and officers of the Company or persons who serve in certain capacities for other
firms at the request of the Company. Under the Proposed Articles, the Company
could also indemnify and advance expenses for such persons who served in similar
capacities for a predecessor of the Company.

REMOVAL OF DIRECTORS. The Current Articles do not specifically provide
for the removal of Directors. The current By-Laws of the Company, which may be
changed by vote of the Directors, provide that a Director may be removed with or
without cause by a majority vote of shareholders at a meeting where a quorum of
shareholders is present. The Proposed Articles, which may be changed only by an
affirmative vote of shareholders, would require a Director's removal if (i)
two-thirds of shareholders entitled to vote approved the Directors removal, and
(ii) there was "cause" to remove the Director. The Proposed Articles would
define "cause" as "(a) a final judgment of a court of competent jurisdiction
holding that such director caused

-4-

<PAGE>

demonstrable, material harm to the [Company] through bad faith or active and
deliberate dishonesty, or (b) the barring or prohibition of such director from
serving as a director of a registered investment company under Section 9 of the
1940 Act." This provision, when coupled with the provision in the Bylaws
authorizing the Board of Directors to fill vacant directorships, precludes
shareholders from removing the incumbent Directors except upon the existence of
cause for removal together with a substantial affirmative vote and filling the
vacancies created by such removal with their own nominees.

REQUIRED VOTE. Approval of the Proposed Articles will require the
affirmative vote of a majority of the shares Company.

THE DIRECTORS UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE TO APPROVE
THE PROPOSED ARTICLES.

2. ELECTION OF DIRECTORS

The Directors of the Company are proposing that shareholders elect John
E. Bryson, Anita L. DeFrantz and Edward A. Taber, III as Directors. Although the
election of these Directors is not required by law, the Directors have
determined that it is in the best interests of the Company to ask the Company's
shareholders to vote on the election of Messrs. Bryson and Taber and Ms.
DeFrantz at the Meeting. The Directors believe that by having shareholders elect
the proposed new Directors now, the Company may delay the time at which another
shareholder meeting is required under the 1940 Act for the purpose of electing
Directors, thereby saving the expense associated with holding such a meeting.
Under the 1940 Act the Company will be required to hold a shareholders' meeting
for the election of Directors (i) at such time as less than a majority of the
Directors holding office has been elected by the shareholders and (ii) if, as a
result of a vacancy in the Board of Directors, less than two-thirds of the
Directors holding office have been elected by the shareholders, that vacancy may
only be filled by a vote of the shareholders.

If elected, Mssrs. Bryson and Taber and Ms. DeFrantz have agreed to
serve as Directors of the Company, and shall hold office until his or her
successor is elected and qualified or until his or her earlier death,
resignation or removal.

If any of the nominees should be unavailable for election at the time
of the meeting (which is not presently anticipated), the shareholders may vote
for other persons in their discretion.

Certain information about Mssrs. Bryson and Taber and Ms. DeFrantz is
set forth in the following table. An asterisk (*) indicates an individual who
will be an interested person of the Portfolios as defined in the 1940 Act.

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<PAGE>

<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- --- -------------------
<S><C>
John E. Bryson 54 Chairman and Chief Executive Officer of Edison
International and its principal subsidiary, Southern
California Edison; Director of Pacific American
Income Shares, Inc.; Director of The Boeing
Company, The Times Mirror Company, H.F. Ahmanson &
Co., and the W.M. Keck Foundation; Trustee of
Stanford University.

Anita L. DeFrantz 45 President of the Amateur Athletic Foundation of
Los Angeles; President of Kids in Sports; Vice
President of the International Olympic Committee;
Director of Pacific American Income Shares, Inc.;
Board Member of the Amateur Athletic Foundation
of Los Angeles, the International Olympic Committee,
and the United States Olympic Committee Executive
Board.

Edward A. Taber, III (1)* 54 Senior Executive Vice President of Legg Mason,
Inc.; Director of the Legg Mason Value Trust,
Inc., the Legg Mason Total Return Trust, Inc. and
the Legg Mason Special Investment Trust, Inc.;
Trustee of the Legg Mason Tax-Free Income Fund
and the Legg Mason Cash Reserve Trust;
President and a Director of the Legg Mason
Income Trust, Inc., the Legg Mason Global Trust,
Inc., and the Legg Mason Investors Trust, Inc.;
Director of Western Asset Global Management
Limited, Bartlett & Co., Batterymarch Financial
Management, Inc., Gray, Seifert & Co., Inc.,
GSH & Co. Inc., Fairfield Group, Inc., LM
Institutional Fund Advisors II, Inc. and Legg
Mason Fund Advisers, Inc.; Formerly, director of
Taxable Fixed Income Division of T. Rowe Price
Associates, Inc.
</TABLE>

(1) Mr. Taber is an interested person because of his positions with
Legg Mason, Inc. and its affiliates. Legg Mason, Inc. is the parent of the
Manager.

In addition to Mssrs. Bryson and Taber and Ms. DeFrantz, the Company
currently has seven Directors and six executive officers. You are not being
asked to vote on the other Directors and Officers. We have provided information
as to their experience and compensation below, so that you may have an accurate
picture of the Company's Management Structure.

DIRECTORS. Certain information about the seven persons currently
serving as Directors of the Company is set forth in the following table. An
asterisk (*) indicates directors who are interested persons of the Portfolios as
defined in the 1940 Act.

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<PAGE>

<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- --- -------------------
<S><C>
Ronald J. Arnault [54] President of RJA Consultants (energy industry
financial consulting); member, Board of
Governors of The Music Center of Los
Angeles and the Center Theatre Group;
formerly Executive Vice President, Chief
Financial Officer and Director of ARCO;
Director of Vastar Resources, Inc., ARCO
Chemical Company, SunAmerica, Inc. and
Brookings Institution. Elected as a Director
in 1997.

Dr. Richard C. Gilman(2) [74] President Emeritus of Occidental College,
1988-present; Director of Pacific American
Income Shares, Inc.; formerly President and
Chief Executive Officer of Occidental College.
Elected as a Director in 1990.

W. Curtis Livingston, III*(1) [54] President, Director and Chief Executive
Officer of Western Asset Management
Company (investment management firm and
the current investment adviser to the Portfolios),
December 1980-present; President, Pacific
American Income Shares, Inc. Director of
Legg Mason, Inc. and LM Institutional Fund Advisors,
II, Inc. Elected as a Director in 1993. Mr.
Livingston also serves as President of the Company.

William G. McGagh(1)(2) [68] Consultant, McGagh Associates (corporate
financial consulting), January 1989-present;
Director of Pacific American Income Shares, Inc.;
formerly Senior Vice-President, Chief
Financial Officer and Director of Northrop
Corporation (military aircraft). Elected as a
Director in 1990. Mr. McGagh also serves as
Chairman of the Board.

Ronald L. Olson* (2)(3) [56] Senior Partner, Munger, Tolles & Olson LLP
(a law partnership); Director of Pacific
American Income Shares, Inc. Elected as a
Director in 1990.

Louis A. Simpson(1) [60] President and Chief Executive Officer Capital
Operations of Government Employees Insurance Company
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ---- --- -------------------
<S><C>
(GEICO Corporation), May 1993 - present; Director of
Pacific American Income Shares, Inc., Potomac
Electric Power Company, Potomac Capital Investment
Corporation, Thompson PBE, and COHR, Inc.; formerly
Vice Chairman of GEICO (1985-1993); Senior Vice
President and Chief Investment Officer of GEICO
(1979-1985); President and Chief Executive Officer of
Western Asset Management Company. Elected as a Director
in 1994.

William E.B. Siart [50] Director of Pacific American Income Shares,
Inc.; Formerly Chairman (1995-1996), Chief
Executive Officer (1995-1996), President
(1990-1996) of First Interstate Bancorp.
Member of the Board of Trustees of the
University of Southern California. Elected as a
Director in 1997.
</TABLE>

(1) Member of the Executive Committee of the Board. When the full Board
is not in session, the Executive Committee may exercise all the powers held by
the Board in the management of the business and affairs of the Portfolios that
may be lawfully exercised by the full Board, except the power to declare a
dividend, authorize the issuance of stock, recommend to stockholders any matter
requiring stockholders' approval, amend the By-Laws, or approve any merger or
share exchange which does not require shareholder approval. There was one
meeting of the Executive Committee during the fiscal period ended March 31,
1998.

(2) Member of the Audit Committee of the Board. The Audit Committee
meets with the Portfolios' independent accountants to review the financial
statements of each of the Portfolios, the arrangements for special and annual
audits, the adequacy of internal controls, each of the Portfolios' periodic
reporting process, material contracts entered into by each of the Portfolios,
the services provided by the accountants, any proposed changes in accounting
practices or principles and the independence of the accountants and reports on
such matters to the Board. There was one meeting of the Audit Committee during
the fiscal year ended March 31, 1998.

(3) Mr. Olson is an interested person because the law firm in which he
is a partner has provided certain services to the Company and the Adviser.

During the fiscal year ended June 30, 1997, there were four meetings of
the Board of Directors.

The Company has no compensation committee.

-8-

<PAGE>

The Nominating Committee is solely responsible for the nomination of
candidates to serve on the Board of Directors who are not "interested persons"
of the Company. There were no meetings of the Nominating Committee during the
fiscal period March 31, 1998. The Nominating Committee will not consider
recommendations for Board of Directors candidates from shareholders.

EXECUTIVE OFFICERS. Certain information with respect to the executive
officers of the Company who are not also Directors is set forth in the following
table:

<TABLE>
<CAPTION>
NAME, POSITION IN
COMPANY, AND AGE OFFICER SINCE BUSINESS EXPERIENCE
- ----------------- ------------- -------------------
<S><C>
Kent E. Engel, Vice 1990 Director and Chief Investment Officer
President, 50 of Western Asset Management
Company, 1969-present; Vice
President and Portfolio Manager of
Pacific American Home Shares, Inc.

Scott F. Grannis, Vice 1990 Director and Economist, Western
President, 48 Asset Management Company, 1989-
present; Vice President of Pacific
American Income Shares, Inc.;
formerly: Vice President, Leland-
O'Brien Rubinstein (investment firm),
1986-1989.

Ilene S. Harker, Vice 1990 Director of Administration and
President, 43 Controls, Western Asset Management
Company, 1978-present; Vice
President, Pacific American Income
Shares, Inc., since April 1996;
Formerly: Secretary of the Company
and Secretary, Pacific American
Income Shares, Inc., 1993-1996.

S. Kenneth Leech, Vice 1990 Director of Portfolio Management,
President, 43 Western Asset Management Company,
1990-present; formerly: Senior
Trader of Greenwich Capital, 1988-1990;
Fixed Income Manager of The First
Boston Corporation (holding company;
stock and bond dealers), 1985-1987.
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
NAME, POSITION IN
COMPANY, AND AGE OFFICER SINCE BUSINESS EXPERIENCE
- ----------------- ------------- -------------------
<S><C>
Steven T. Saruwatari, [ ] Senior Financial Officer, Western
Treasurer, 32 Asset Management Company.
Formerly: Controller-Finance for
LaSalle Paper Company/Spicers
Paper, Inc. (distributor of fine printing
papers) and Senior Auditor for
Coopers and Lybrand LLP (international
public accounting firm).

Stephen A. Walsh, Vice 1991 Director and Portfolio Manager,
President, 39 Western Asset Management
Company, 1991-present; formerly:
Portfolio Manager and Trader of
Security Pacific Investment Managers,
Inc. (investment management
company), 1989-1991.
</TABLE>

Each executive officer holds office until his or her successor is
chosen by the Board and qualified, or until his or her earlier death,
resignation or removal.

Legg Mason Fund Adviser, Inc. (the "Administrator") currently serves as
the administrator for the Company. Legg Mason Wood Walker, Incorporated
("LMWW") and Arroyo Seco, Inc. ("Arroyo Seco") (the "Distributors") act as
distributors of the shares of the Portfolios. The Administrator, LMWW and
Western Asset are wholly owned subsidiaries of Legg Mason, Inc., a financial
services holding company. Arroyo Seco is a wholly owned subsidiary of Western
Asset. The address of the Company, Western Asset and Arroyo Seco are located at
117 East Colorado Boulevard, Pasadena, California 91105. The address of the
Administrator and LMWW is 100 Light Street, Baltimore, Maryland 21202.

COMPENSATION. Officers and Directors of the Company who are affiliated
persons of the Adviser, Administrator or Distributors receive no salary or fees
from the Company. Independent Directors of the Company receive a fee of $2,000
annually for service as a Director, and a fee of $500 per Portfolio for each
meeting of the Board of Directors attended by him or her. Mr. McGagh, the
Chairman of the Board, receives an additional $1,000 per year for serving in
that capacity.

The following table provides certain information relating to the
compensation of the Company's Directors and senior executive officers for the
fiscal period ended March 31, 1998.

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<PAGE>

TOTAL
AGGREGATE COMPENSATION FROM
COMPENSATION PORTFOLIOS AND FUND
FROM COMPLEX PAID TO
NAME OF PERSON AND POSITION PORTFOLIOS* DIRECTORS**

William G. McGagh-
Chairman of the Board
and Director $12,000.00 $20,400.00

Dr. Richard C. Gilman - Director $10,500.00 $18,500.00

Ronald L. Olson - Director $10,500.00 $18,600.00

W. Curtis Livingston, III -
President and Director None None

Louis A. Simpson - Director $10,500.00 $18,600.00

Kent E. Engel - Vice President and
Portfolio Manager None None

Scott F. Grannis - Vice President None None

Ilene S. Harker - Vice President None None

Steven Saruwatari
Treasurer None None

S. Kenneth Leech - Vice President None None

Stephen A. Walsh - Vice President None None

* Represents fees paid to each Director during the fiscal period ended
March 31, 1998.
** Represents aggregate compensation paid to each Director during
the calendar year ended December 31, 1997.

The Directors and executive officers of the Company own no shares in
any Portfolio.

REQUIRED VOTE. The Directors receiving the affirmative vote of a
plurality of the votes cast at the meeting, if a quorum is present, shall be
elected. Shares of all Portfolios shall vote as a single class for the
Directors.

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<PAGE>

THE DIRECTORS RECOMMEND THAT SHAREHOLDERS ELECT EACH OF THE APPOINTED
DIRECTORS.

3. SELECTION OF INDEPENDENT AUDITORS

The Board of Directors, including the Directors who are not interested
persons of the Company, have selected, by means of an unanimous written consent,
Price Waterhouse LLP as independent auditors for the Company for the fiscal year
ending March 31, 1999. The Directors expect to approve the appointment of Price
Waterhouse, LLP in person at their upcoming meeting on April 17, 1998. A
representative of Price Waterhouse, LLP will be present at the Meeting and will
have an opportunity to make a statement if he or she desires to do so and to
respond to appropriate questions.

REQUIRED VOTE. The affirmative vote of a plurality of the votes cast
at the meeting, if a quorum is present, is required to ratify the Directors'
selection of independent auditors. Shares of all Portfolios shall vote together
as a single class.

THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE TO RATIFY THE SELECTION
OF INDEPENDENT AUDITORS.

4. APPROVAL OR DISAPPROVAL OF NEW INVESTMENT
MANAGEMENT AND INVESTMENT ADVISORY AGREEMENTS
(CORE, INTERMEDIATE, LIMITED DURATION
AND MONEY MARKET PORTFOLIOS ONLY)

The Board of Directors is recommending that shareholders of each of the
Core, Intermediate, Limited Duration and Money Market Portfolios approve a new
Investment Management Agreement (the "Management Agreement") between the Company
and LM Institutional Advisors, Inc. (the "Manager") and a new Investment
Advisory Agreement between the Manager and Western Asset (the "Advisory
Agreement"; together with the Management Agreement, the "New Agreements"). Your
approval of the New Agreements is being sought because, under the 1940 Act, all
advisory agreements -- such as each Management Agreement and each Advisory
Agreement -- must initially be approved by shareholders of a registered
investment company such as the Company. You are being asked to vote on each New
Agreement separately for each Portfolio.

CURRENT ADVISORY AGREEMENT STRUCTURE. Western Asset currently serves as
investment adviser to each Portfolio under an Investment Advisory Agreement
dated August 24, 1990, and as amended on February 8, 1996, between Western Asset
and the Company covering the Core, Limited Duration and Money Market Portfolios;
and an Investment Advisory Agreement dated February 10, 1994, and as amended on
February 8, 1996, between Western Asset and the Company covering the
Intermediate Portfolio. These agreements were most recently approved

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<PAGE>

by the Board of Directors, including a majority of the Directors who are not
"interested persons" (as defined in the 1940 Act) of the Company, Western Asset
or its affiliates (the "Independent Directors"), on March 6, 1998 and by
shareholders of the Core and Limited Duration Portfolios on ______________, of
the Money Market Portfolio on _________ and of the Intermediate Portfolio on
_______________.

Under the current advisory agreements, Western Asset is responsible,
subject to the general supervision of the Board of Directors, for the actual
management of each Portfolio's assets, including the responsibility for making
decisions and placing orders to buy, sell or hold a particular security,
consistent with the investment objectives and policies described in the
Portfolios' Prospectus and Statement of Additional Information. Western Asset
also is responsible for the compensation of Directors and officers of the
Company who are employees of Western Asset or its affiliates. Western Asset
receives for its services to each Portfolio an advisory fee, calculated daily
and payable monthly, at an annual rate equal to 0.40% of the Core Portfolio's
average daily net assets; 0.35% of the Intermediate Portfolio's average daily
net assets; 0.30% of the Limited Duration Portfolio's average daily net assets;
and 0.30% of the Money Market Portfolio's average daily net assets.

[INFORMATION WILL BE UPDATED TO MARCH 31, 1998 PRIOR TO MAILING.] For
the Core Portfolio, Western Asset received $[2,006,880] (prior to fees waived of
$[22,402]) for the fiscal period ended March 31, 1998. For the Intermediate
Portfolio, Western Asset received $[568,685] (prior to fees waived of
$[158,505]) for the fiscal period ended March 31, 1998. For the Limited Duration
Portfolio, Western Asset waived all advisory fees for the fiscal period ended
March 31, 1998. The Money Market Portfolio, which has not yet offered shares to
the public, paid no advisory fees for the fiscal period ended March 31, 1998.

Each Portfolio pays all of its other expenses which are not assumed by
Western Asset or the Administrator. These expenses include, among others,
expenses of preparing and printing prospectuses, statements of additional
information, proxy statements and reports and of distributing them to existing
shareholders, custodian charges, transfer agency fees, organizational expenses,
compensation of the Directors who are not "interested persons" of Western Asset,
the Administrator or the Company's principal underwriters, as that term is
defined in the 1940 Act, legal and audit expenses, insurance expenses, expenses
of registering and qualifying shares of the Portfolio's for sale under federal
and state law, distribution fees, governmental fees, expenses incurred in
connection with membership in investment company organizations, interest
expense, taxes and brokerage fees and commissions. The Portfolios also are
liable for such nonrecurring expenses as may arise, including litigation to
which a Portfolio or the Company may be a party. The Company may also have an
obligation to indemnify its directors and officers with respect to litigation.

Under the current advisory agreements, Western Asset will not be liable
for any error of judgment or mistake of law or for any loss suffered by a
Portfolio in connection with the

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<PAGE>

performance of the agreement, except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services or a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations or duties thereunder.

Each of the current advisory agreements provide that they will continue
in effect for an initial term of two years from its effective date and
thereafter only so long as the agreement is approved at least annually by (i)
the vote, cast in person at a meeting called for such purpose, of a majority of
the Independent Directors and (ii) the majority vote of either the Board of
Directors or the vote of a majority of the outstanding shares of the Portfolio.

The current advisory agreements terminate automatically upon assignment
and are terminable with respect to any Portfolio at any time without penalty by
vote of the Company's Board of Directors, by vote of a majority of that
Portfolio's outstanding voting securities, or by Western Asset, on not less than
60 days' notice to the Company, and may be terminated immediately upon the
mutual written consent of Western Asset and the Company.

CURRENT ADMINISTRATION AGREEMENT STRUCTURE. LMFA, an affiliate of the
Manager and Western Asset, also serves as the Portfolios' administrator under an
Administration Agreement between the Company and LMFA dated as of August 24,
1990 covering the Core, Limited Duration and Money Market Portfolios, and an
Administration Agreement dated February 10, 1994 covering the Intermediate
Portfolio (together, the "Administration Agreement"). Pursuant to the
Administration Agreement, LMFA is paid a monthly fee (calculated daily) at the
annual rate of 0.10% of the Core, Limited Duration and Money Market Portfolios'
average daily net assets and 0.05% of the Intermediate Portfolio's average daily
net assets. Under the Administration Agreement, LMFA, among other services,
manages the non-investment affairs of the Portfolios, directs matters related to
the operation of the Portfolios and provides office space and administrative
staff for the Portfolios, oversees accounting and recordkeeping services
provided by the Portfolios' custodian and transfer and dividend-disbursing
agent, and provides certain shareholder services not provided by the Portfolios'
transfer and dividend- disbursing agent. The Administration Agreement provides
that it shall continue indefinitely, but that it may be terminated by either
party upon 60 days' notice. The Administration Agreement further provides that
LMFA will only be liable to the Company for loss or damage incurred by the
Company resulting from LMFA's lack of good faith, negligence or willful
misconduct and also provides that the Company will indemnify LMFA against, among
other things, loss or damage incurred by LMFA on account of any claim, demand,
action or suit arising out of, or in connection with, its duties under the
Administration Agreement, provided that LMFA has acted in good faith and without
negligence or willful misconduct.

PROPOSED MANAGEMENT, ADVISORY AND ADMINISTRATION STRUCTURE. If approved
by shareholders, the Company, with respect to each Portfolio, will enter into
the Management Agreement with the Manager and the Manager will enter into the
Advisory Agreement with Western Asset. The Manager and Western Asset have
informed the Directors that they

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<PAGE>

anticipate that there will be no changes in the day-to-day management and
operations relating to investment management of the Portfolios, including in the
personnel managing the Portfolios. Neither the Manager nor Western Asset
anticipates that the New Agreements will cause any reduction in the quality of
services now provided to the Portfolios, or have any adverse effect on Western
Asset's ability to fulfill its obligations to the Portfolios.

As explained in more detail below, the Management Agreement and the
Advisory Agreement provide that the Portfolios will receive the same level of
advisory and administrative services for the same total fee currently paid by
the Company for advisory and administrative services.

MANAGEMENT AGREEMENT. The Management Agreement is materially identical
to the current advisory agreements with respect to the advisory services
provided to each Portfolio. The Management Agreement provides that, subject to
such policies as the Directors may determine, the Manager will select and review
the Portfolios' investments and provide office space and pay all salaries, fees
and expenses of officers and Directors of the Company who are affiliated with
the Manager. The Company will pay the Manager a management fee, calculated daily
and payable monthly, as described below for its services under the Management
Agreement.

The Management Agreement, like the current advisory agreements,
provides that the Manager may subcontract all or a portion of its investment
advisory duties to another party, subject to the appropriate approvals by the
Board of Directors and shareholders. Subject to receiving shareholder approval,
the Board of Directors has approved the subcontracting of the investment
advisory duties to Western Asset pursuant to the Advisory Agreements, the terms
of which are discussed below.

The Management Agreement provides that it shall continue in full force
and effect (unless terminated automatically upon assignment) until terminated by
the Company or the Manager by not more than sixty days' written notice. The
Management Agreement will also automatically terminate if (i) the Directors or
the shareholders of the relevant Portfolio by the affirmative vote of a majority
of the outstanding voting securities of the Portfolio and (ii) a majority of the
Directors who are not interested persons of the Company or of the Manager, by
vote cast in person at a meeting called for the purpose of voting on such
approval, do not specifically approve at least annually the Management
Agreement's continuance. This automatic termination will occur at the close of
business on the second anniversary of its execution, or upon the expiration of
one year from the effective date of the last such continuance, whichever is
later; PROVIDED, HOWEVER, that if such continuance is submitted to the
shareholders of the relevant Portfolio for their approval and such shareholders
fail to approve such continuance, the Manager may continue to serve in a manner
consistent with the 1940 Act and the rules and regulations thereunder.

The Management Agreement provides that the Portfolios will receive
administrative services similar to those provided under the current
administration agreement. For example, under the

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<PAGE>

Management Agreement, the Manager will also manage the non-investment affairs of
the Portfolios, direct matters related to the operation of the Portfolios,
provide office space and administrative staff for the Portfolios, and oversee
accounting and recordkeeping services provided by a Portfolio's custodian and
transfer and dividend-disbursing agent.

A form of the Management Agreement is attached to this Proxy Statement
as Appendix B.

MANAGEMENT FEES. Pursuant to the Management Agreement, the Company will
pay the Manager a fee, calculated daily and payable monthly, at an annual rate
equal to 0.45% of the Core Portfolio's average daily net assets; 0.40% of the
Intermediate Portfolio's average daily net assets; 0.20% of the Money Market
Portfolio's average daily net assets; and 0.35% of the Limited Duration
Portfolio's average daily net assets. This Management Fee is for both advisory
services and administrative services owed under the Management Agreement.

The proposed management fee IS EQUAL to the current contractual
advisory fees and administrative fee. In other words, the contractual level of
the management fee paid to the Manager by each Portfolio IS EQUAL to the total
paid by the Portfolio of (a) the contractual advisory fee under the current
advisory agreement with Western Asset, plus (b) the contractual administrative
fee under the current administration agreement with LMFA.

ADVISORY AGREEMENT. The Advisory Agreements provide that the Portfolios
will receive investment advisory services similar to those provided under the
current advisory agreements. Western Asset will continue to provide the same
investment advisory services to the Portfolios under the Advisory Agreement as
it does under the current advisory agreements. The Advisory Agreement provides
that, subject to such policies as the Directors may determine and the
supervision of the Manager, Western Asset will select and review the Portfolios'
investments and provide office space and pay all salaries, fees and expenses of
officers and Directors of the Company who are affiliated with Western Asset but
not the Manager. The Manager will pay Western Asset an advisory fee out of the
Manager's fee paid to it by the Company, calculated daily and payable monthly,
at an annual rate equal to 0.40% of the Core Portfolio's average daily net
assets; 0.35% of the Intermediate Portfolio's average daily net assets; 0.15% of
the Money Market Portfolio's average daily net assets; and 0.30% of the Limited
Duration Portfolio's average daily net assets.

The Advisory Agreement provides that it shall continue in full force
and effect (unless terminated automatically upon assignment) until terminated by
the Manager, Western Asset, or the Company by not more than sixty days' written
notice. The Advisory Agreement will also automatically terminate if (i) the
Directors or the shareholders of the relevant Portfolio by the affirmative vote
of a majority of the outstanding voting securities of the Portfolio and (ii) a
majority of the Directors who are not interested persons of the Company, the
Manager, or Western Asset by vote cast in person at a meeting called for the
purpose of voting on such approval do not specifically approve at least annually
the Advisory Agreement's continuance.

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<PAGE>

This automatic termination will occur at the close of business on the second
anniversary of its execution, or upon the expiration of one year from the
effective date of the last such continuance, whichever is later; PROVIDED,
HOWEVER, that if such continuance is submitted to the shareholders of the
relevant Portfolio for their approval and such shareholders fail to approve such
continuance, Western Asset may continue to serve in a manner consistent with the
1940 Act and the rules and regulations thereunder.

A form of the Advisory Agreement is attached to this Proxy Statement as
Appendix C.

OFFICER AND DIRECTOR INFORMATION. The following tables provide certain
information concerning the principal executive officers and Directors of the
Manager and Western Asset. Each person listed would be considered an "interested
person" (as defined in the 1940 Act) of the Company and either the Manager or
Western Asset, as appropriate. Each person's address, for those persons
associated with the Manager, is 100 Light Street, Baltimore Maryland, 21202,
and, for those persons associated with Western Asset, is 117 East Colorado
Boulevard, Pasadena, California, 91105.

THE MANAGER

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH COMPANY PRINCIPAL OCCUPATION
(IF ANY)
---------------- --------------------- --------------------
<S><C>

- --------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------------------------
</TABLE>

WESTERN ASSET

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH COMPANY PRINCIPAL OCCUPATION
(IF ANY)
---------------- --------------------- --------------------
<S><C>
W. CURTIS LIVINGSTON, III PRESIDENT CHAIRMAN AND CEO, WESTERN ASSET
KENT S. ENGEL VICE PRESIDENT MANAGING DIRECTOR, CIO, WESTERN ASSET
SCOTT F. GRANNIS VICE PRESIDENT DIRECTOR, ECONOMIST, WESTERN ASSET
</TABLE>

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<PAGE>

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH COMPANY PRINCIPAL OCCUPATION
(IF ANY)
---------------- --------------------- --------------------
<S><C>
ILENE S. HARKER VICE PRESIDENT MANAGING DIRECTOR, ADMINISTRATION AND
CONTROLS
JAMES W. HIRSCHMANN, III VICE PRESIDENT MANAGING DIRECTOR, MARKETING, WESTERN
ASSET
RANDOLPH L. KOHN VICE PRESIDENT MANAGING DIRECTOR, CLIENT SERVICES,
WESTERN ASSET
S. KENNETH LEECH VICE PRESIDENT MANAGING DIRECTOR, PORTFOLIO MANAGER,
WESTERN ASSET
RAYMOND A. MASON [NON-EMPLOYEE DIRECTOR]
EDWARD A. MOODY VICE PRESIDENT DIRECTOR, PORTFOLIO MANAGER, WESTERN
ASSET
JAMES V. NELSON [DIRECTOR OF INVESTMENT
RESEARCH]
ELISABETH N. SPECTOR [NON-EMPLOYEE DIRECTOR]
EDWARD A. TABER, III [NON-EMPLOYEE DIRECTOR]
JEFFREY D. VAN SCHALCK [DIRECTOR AND RESEARCH
ANALYST]
STEPHEN A. WALSH VICE PRESIDENT MANAGING DIRECTOR, PORTFOLIO MANAGER,
WESTERN ASSET
</TABLE>

THE FOLLOWING TABLE PROVIDES INFORMATION REGARDING CERTAIN OFFICERS OF
THE MANAGER AND WESTERN ASSET WHO ALSO HOLD POSITIONS WITH THE COMPANY. SIMILAR
INFORMATION REGARDING W. CURTIS LIVINGSTON, III, KENT S. ENGEL, SCOTT F.
GRANNIS, ILENE S. HARKER, JAMES W. HIRSCHMANN, III, RANDOLPH L. KOHN, S. KENNETH
LEECH, EDWARD A. MOODY, STEPHEN A. WALSH, _______________________________
[MANAGER ADDITIONS] IS PROVIDED IN THE PRECEDING TABLE.

<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION WITH THE COMPANY POSITION WITH THE MANAGER
OR WESTERN ASSET
---------------- ------------------------- -------------------------
<S><C>
CARL L. EICHSTAEDT VICE PRESIDENT PORTFOLIO MANAGER, WESTERN ASSET
KEITH J. GARDNER VICE PRESIDENT PORTFOLIO MANAGER, WESTERN ASSET
JOSEPH L. ORLANDO VICE PRESIDENT MARKETING EXECUTIVE, WESTERN ASSET
DONNA E. BARNES SECRETARY ASSISTANT SECRETARY AND COMPLIANCE
OFFICER, WESTERN ASSET
STEVEN T. SARUWATARI TREASURER SENIOR FINANCIAL OFFICER, WESTERN
ASSET
</TABLE>

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<PAGE>

CORPORATE AFFILIATIONS OF THE MANAGER, WESTERN ASSET AND LMFA. Each of
the Manager, Western Asset and LMFA are wholly owned subsidiaries of Legg Mason,
Inc., a financial services holding company [IF THERE ARE ANY INTERMEDIATE
PARENTS/SUBS BETWEEN LEGG MASON AND THE MANAGER, LMFA OR WESTERN ASSET, THEY
WILL ALSO NEED TO BE LISTED.] The address of LM Institutional Advisors, Inc. is
100 Light Street, P.O. Box 1476, Baltimore, Maryland 21203-1476. The address of
Western Asset is 117 East Colorado Boulevard, Pasadena, California 91105.

DIRECTOR ACTION. The Directors, including the Independent Directors,
met on two separate occasions -- February 12, 1998 and March 6, 1998 -- to
review various materials prepared by LMIA and Western Asset in connection with
the New Agreements and to discuss these matters with representatives of LMIA and
Western Asset and among themselves. The Directors approved the New Agreements at
their March 6, 1998 meeting.

A primary consideration of the Independent Directors were the
representations of the Manager and Western Asset that (i) they anticipate that
there will be no changes in the day-to-day management and operations relating to
the investment advisory services provided to the Company, including in the
personnel managing the Portfolios and (ii) they do not anticipate that the New
Agreements will cause any reduction in the quality of services now provided to
the Company, or have any adverse effect on the Manager's or Western Asset's
ability to fulfill its obligations to the Company. The Directors also considered
the performance of Western Asset to date in providing services to the Company.
In addition, as explained more fully above, the Board of Directors considered
the opportunities and advantages presented by the Company's participation in a
new institutional fund family, the attendant restructuring of the advisory
relationship between the Manager and Western Asset, and the potential
efficiencies and asset growth resulting therefrom.

Having considered these factors and their impact on the Portfolios, the
Directors, including the Independent Directors, voted to approve the New
Agreements at their March 6, 1998 meeting and to recommend to shareholders that
they approve the New Agreements.

REQUIRED VOTE. As provided in the 1940 Act, approval of a New Agreement
with respect to a Portfolio requires the affirmative vote of a "majority of the
outstanding voting securities" of that Portfolio, which for this purpose means
the affirmative vote of the lesser of (i) more than 50% of the outstanding
shares of that Portfolio or (ii) 67% or more of the shares

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<PAGE>

of that Portfolio present at the Meeting if more than 50% of the outstanding
shares are present at the Meeting in person or by proxy.

THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE TO APPROVE EACH NEW
AGREEMENT.

If the shareholders do not approve a New Agreement, the Directors will
take such further action as they may deem to be in the interests of the
shareholders of the Company.

5. PROPOSED CHANGES TO
FUNDAMENTAL INVESTMENT RESTRICTIONS
(CORE, INTERMEDIATE, LIMITED DURATION AND MONEY MARKET
PORTFOLIOS ONLY)

As described in the following proposals, the Directors are recommending
that shareholders approve a number of changes to the fundamental investment
restrictions of the Core, Intermediate, Limited Duration and Money Market
Portfolios, including the elimination of certain of these restrictions. The
purpose of these changes is to increase the Portfolios' investment flexibility
consistent with the Portfolios' current investment objectives and policies. The
Directors believe that by changing the fundamental investment restrictions, as
described below, the Portfolios will avoid future situations where a fundamental
restriction will prevent a Portfolio, absent another shareholder vote, from
taking advantage of new opportunities that appear to be both legally permissible
and advantageous to shareholders. Under the proposed restrictions, each
Portfolio would have the ability in the future, if the regulatory or market
environments change, to avail themselves of such opportunities. The adoption of
any of these proposals is not contingent on the adoption of any other proposal.

REQUIRED VOTE FOR ITEMS 5.a. - 5.g. As provided in the 1940 Act,
approval of amendments to or elimination of any of the fundamental investment
restrictions with respect to a Portfolio requires the affirmative vote of a
"majority of the outstanding voting securities" of such Portfolio, which for
this purpose means the affirmative vote of the lesser of (i) more than 50% of
the outstanding shares of the Portfolio or (ii) 67% or more of the shares of the
Portfolio present at the Meeting if more than 50% of the outstanding shares are
present at the Meeting in person or by proxy.

THE DIRECTORS RECOMMEND THAT SHAREHOLDERS VOTE TO AMEND EACH
PORTFOLIO'S FUNDAMENTAL INVESTMENT RESTRICTIONS AS DESCRIBED BELOW.

5.a. APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO
THE FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO INVESTMENTS IN REAL ESTATE

The Directors are recommending that the Portfolios' fundamental
investment restriction with respect to investments in real estate be amended in
order to permit the Portfolios the

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<PAGE>

maximum flexibility to invest in real estate and a range of real estate-related
instruments. The current restriction states that the Portfolios may not:

"Purchase or sell real estate, provided that a Portfolio may invest in
securities secured by, or issued by companies that invest in, real
estate or interests therein, including real estate investment trusts."

The proposed amended fundamental investment restriction is set forth
below:

"The Portfolio may purchase or sell commodities, commodities contracts,
futures contracts, options, forward contracts or real estate to the
fullest extent permitted by the 1940 Act, the rules or regulations
thereunder or applicable orders of the SEC, as such statute, rules,
regulations or orders may be amended from time to time."

Although the 1940 Act requires registered investment companies to have
a fundamental policy on investing in real estate, it does not require a
registered investment company to restrict its investments in real estate. The
Portfolios currently have no plans to invest directly in real estate, especially
in light of current tax laws applicable to the Portfolios which limit the amount
of income they can earn from real estate in order to continue to qualify as
"regulated investment companies" accorded special tax treatment under the
Internal Revenue Code. This proposal is therefore anticipated to have little
current practical effect on the Portfolios. However, if this proposal is
approved, a Portfolio may at some future time determine that direct investments
in real estate are in its best interests. If this proposal is approved, each
Portfolio may also, consistent with its investment objectives and policies and
applicable law, invest in various real estate-related instruments, such as real
estate investment trusts, commercial and residential mortgage-backed securities,
and real estate financings.

Investments in real estate and real estate-related instruments entail
certain risks due to a variety of factors. Factors affecting the performance of
real estate ventures may include satisfactory completion of construction, excess
supply of real estate in certain markets, prudent management of insurance risks,
sufficient level of occupancy, adequacy of financing available in capital
markets, competent management, adequate rent to cover operating expenses, local
and regional markets for competing assets, changes in applicable laws and
government regulations (including taxes), and social and economic trends. In
addition, real estate-related instruments are generally sensitive to factors
such as changes in real estate values and property taxes, interest rates, cash
flow of underlying real estate assets, overbuilding, and the management skill
and creditworthiness of the issuer.

Certain assets in which each Portfolio may invest following the
amendment of this restriction may not be readily marketable. Investments in real
estate and real estate-related instruments that are not readily marketable
entail additional risks, such as difficulty in pricing the real estate or
instrument for purposes of determining a Portfolio's net asset value and the

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<PAGE>

possibility that a Portfolio would be unable to sell the real estate or
instrument at a price approximating its market value when it decides to sell it.

5.b. APPROVAL OR DISAPPROVAL OF AN AMENDMENT TO THE
FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO INVESTMENTS IN COMMODITIES

The Directors are recommending that the Portfolios' fundamental
investment restriction with respect to investments in commodities and commodity
contracts be amended in order to permit the Portfolios the maximum flexibility
to invest in a range of commodities, commodity contracts or investments which
might for certain technical reasons be considered to be commodities or commodity
contracts. The current restriction states that the Portfolios may not:

"Purchase or sell commodities or commodity contracts, except that a
Portfolio may purchase or sell futures on fixed income instruments and
foreign currencies and options thereon, may engage in transactions in
foreign currencies and may purchase or sell options on securities and
on foreign currencies and forward foreign currency contracts."

The proposed fundamental investment restriction is set forth below:

Although the 1940 Act requires registered investment companies to
maintain a policy regarding their investments in commodities, it does not
require a registered investment company to restrict its investments in
commodities. If approved, the amended restriction would permit the Portfolios to
use financial futures contracts, options (including options on financial futures
contracts) and forward contracts to a greater extent than they may currently
(e.g., a Portfolio would be able to purchase or sell futures contracts and
related options on bond indices). The restriction would also permit the
Portfolios to invest in other commodities and commodity contracts, such as
direct investments in gold and other precious metals. However, no Portfolio
currently expects to invest in commodities or commodity contracts other than
financial futures contracts, options and forward contracts, including any such
transactions relating to foreign currencies. Each Portfolio, however, would like
the ability to consider using these investment techniques in the future.

Certain risks could arise from the use of futures, options and forward
contracts by a Portfolio, including the possibility of imperfect correlations
among movements in the prices of futures, options and forward contracts
purchased or sold by the Portfolio, of the underlying

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<PAGE>

commodity, security, index or currency and, in the case of hedging transactions,
of the liability or securities that are the subject of the hedge. The successful
use of these strategies further depends on the ability to forecast market
movements correctly. Other risks arise from the potential inability to close out
futures, options or forward positions. There can be no assurance that a liquid
secondary market will exist for any future, option or forward contract at any
particular time. A Portfolio's ability to terminate option positions established
in the over-the-counter market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers participating in
such transactions would fail to meet their obligations to the Portfolio.
Futures, options and forward contracts typically entail leverage, involve costs
and may result in losses.

Investing in commodities and commodity contracts may also entail
certain other risks, including the effects on the future value of the commodity
of the activities of market participants who invest mainly for purposes of
hedging or speculating. Other factors impacting the value of investments in
commodities include changes in the costs associated with the actual storage of a
commodity; risks associated with market changes and their impact on the
reinvestment of proceeds; variables such as drought, floods, weather, livestock
disease, embargoes, and tariffs; and the decreased liquidity and increased
liability which may result from swap agreements or other non-exchange traded
instruments that facilitate indirect investment in commodities.

5.c. APPROVAL OR DISAPPROVAL OF AN AMENDMENT
TO THE FUNDAMENTAL INVESTMENT
RESTRICTION WITH RESPECT TO MAKING LOANS

The Directors are recommending that the Portfolios' fundamental
investment restriction with respect to making loans be revised to, among other
things, permit the Portfolios to purchase securities that are not publicly
distributed, which could be considered loans for these purposes. The current
restriction states that the Portfolios may not:

"Make loans, except loans of portfolio securities and except to the
extent that the purchase of a portion of an issue of publicly
distributed notes, bonds or other evidences of indebtedness or deposits
with banks and other financial institutions may be considered loans."

The proposed amended fundamental investment restriction is set forth below:

"The Portfolio may lend or borrow money and issue senior securities to
the fullest extent permitted by the 1940 Act, the rules or regulations
thereunder or applicable orders of the SEC, as such statute, rules,
regulations or orders may be amended from time to time."

-23-

<PAGE>

If this proposal is approved, each Portfolio may, consistent with its
investment objectives and policies and applicable law, make loans, including
purchasing securities that are not publicly distributed. The 1940 Act permits a
Portfolio to make loans only if expressly permitted by the Portfolio's
investment policies, but never to persons who control or are under common
control with the Portfolio. Thus, the 1940 Act effectively prohibits a Portfolio
from making loans to certain persons when conflicts of interest or undue
influence are most likely present. The Portfolio may, however, make other loans
which if made would expose shareholders to certain additional risks, such as the
failure of the other party to repay the loan.

Securities that are not publicly distributed are generally restricted
as to resale under federal securities laws or by contract. Such securities are
often less liquid and more difficult to value than securities that are publicly
distributed, and a Portfolio may find it more difficult to sell such securities
at a price that approximates fair market value.

5.d. APPROVAL OR DISAPPROVAL OF AN AMENDMENT
TO THE FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO BORROWING AND SENIOR SECURITIES

The Directors are recommending that the Portfolios' fundamental
investment restriction with respect to borrowing and senior securities be
amended to grant the Portfolios the maximum flexibility permitted by the 1940
Act. The Portfolios' current restriction states that the Portfolios may not:

"Borrow money or issue senior securities, except that a Portfolio may
borrow from banks or enter into reverse repurchase agreements, provided
that, immediately after such borrowing, the total amount borrowed by
the Portfolio, including reverse repurchase agreements, does not exceed
33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than the borrowings); and provided further that any
Portfolio may enter into transactions in options, futures, options on
futures and forward foreign currency contracts as described in the
Prospectus and this Statement of Additional Information."

The proposed fundamental investment restriction is set forth below:

If the amendment to this restriction is approved, each Portfolio will
also adhere to the following non-fundamental limitation on borrowing:

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<PAGE>

"Each Portfolio will limit its investments in reverse repurchase
agreements and other borrowing (including dollar roll transactions) to
no more than one-third of its total assets. To avoid potential
leveraging effects of such borrowing (including reverse repurchase
agreements and dollar roll transactions), a Portfolio will not make
investments while its borrowing is in excess of 5% of its total
assets."

Because this limitation is nonfundamental, the Directors will have the
ability to modify or eliminate the limitation without the need for shareholder
approval if a Portfolio determines that such modification or elimination would
be appropriate.

The 1940 Act currently limits borrowings by registered open-end
investment companies to the same extent as the Portfolios' current restriction
(i.e., to no more than 33 1/3% of total assets). However, the revised
restriction would permit the Portfolios to, among other things, engage in dollar
roll transactions, which could be considered borrowings, and to borrow from
parties other than banks. A dollar roll is a transaction in which a Portfolio
sells a fixed income security for delivery in the current month and
simultaneously contracts to purchase substantially similar (same type, coupon
and maturity) securities at an agreed upon future time. By engaging in the
dollar roll transaction the Portfolio foregoes principal and interest paid on
the security that is sold, but receives the difference between the current sales
price and the forward price for the future purchase. The Portfolio would also be
able to earn interest on the income that is received from the initial sale.

Borrowing by a Portfolio allows it to leverage its assets, which
exposes it to certain risks. Leveraging exaggerates the effect of any increase
or decrease in the value of securities owned by a Portfolio on the Portfolio's
net asset value, and money borrowed will be subject to interest costs (which may
include commitment fees and/or the cost of maintaining minimum average balances)
which may or may not exceed the interest or dividends received from the
securities purchased with borrowed funds.

Generally, a "senior security" is a security which has priority over
any other security as to distribution of assets or dividends, and technically
includes all indebtedness over 5% of a Portfolios' assets. The 1940 Act
prohibits the issuance of senior securities by registered investment companies,
except for permitted borrowings. Thus, given the proposed changes to the
Portfolios' restriction on borrowing described above, which permit the
Portfolios the maximum flexibility to borrow money, the proposed change with
respect to senior securities will have no current impact on the Portfolios.

-25-

<PAGE>

5.e. APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF
THE FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO MARGIN TRANSACTIONS

The Directors are recommending that the Portfolios' fundamental
investment restriction which limits the Portfolio's ability to purchase
securities on margin be eliminated. Margin transactions involve the purchase of
securities with money borrowed from a broker, with cash or eligible securities
being used as collateral against the loan. The current restriction states that
the Portfolios may not:

"Purchase securities on margin, except for short-term credits necessary
for clearance of portfolio transactions and except that a Portfolio may
make margin deposits in connection with its use of options, futures
contracts, options on futures contracts and forward foreign currency
contracts."

The Portfolios originally adopted this fundamental restriction to
comply with certain state securities law requirements which are no longer
applicable to the Portfolios.

The Portfolios' potential use of margin transactions beyond
transactions in futures, options (including options on futures) and forward
contracts and for the clearance of purchases and sales of securities, including
the use of margin in ordinary securities transactions, is limited by the current
position of the staff of the SEC which prohibits margin transactions because
they create senior securities. The SEC staff's position does not apply to
transactions in futures, options and forward contracts.

5.f. APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF
THE FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO PLEDGING ASSETS

The Directors are recommending that the Portfolios' fundamental
investment restriction which limits the Portfolios' ability to pledge its assets
be eliminated. The current restriction states that the Portfolios may not:

"Mortgage, pledge, hypothecate or in any manner transfer, as security for
indebtedness, any securities owned or held by the Portfolio, except as may be
necessary in connection with permitted borrowings, provided that this limitation
does not prohibit escrow, collateral or margin arrangements in connection with
the Portfolio's use of options, futures contracts, options on futures contracts,
forward foreign currency contracts, when-issued securities or reverse repurchase
agreements."

The Portfolios originally adopted this fundamental restriction to
comply with certain state securities law requirements which are no longer
applicable to the Portfolios.

-26-

<PAGE>

Pledging assets entails certain risks. To the extent that a Portfolio
pledges its assets, the Portfolio may have less flexibility in liquidating its
assets. If a large portion of the Portfolio's assets were involved, the
Portfolio's ability to meet redemption requests or other obligations could be
delayed.

5.g. APPROVAL OR DISAPPROVAL OF THE ELIMINATION
OF THE FUNDAMENTAL INVESTMENT RESTRICTION
WITH RESPECT TO INVESTMENTS IN CERTAIN
OIL, GAS AND OTHER MINERAL INTERESTS

The Directors are recommending that the Portfolios' fundamental
investment restriction with respect to investments in oil, gas and other
mineral-related programs and leases be eliminated. The current restriction
states that the Portfolios may not:

"Invest in oil, gas or mineral-related programs or leases, provided that a
Portfolio may invest in securities issued by companies that engage in such
activities."

The Portfolios originally adopted this restriction to comply with
certain state securities law requirements which are no longer applicable to the
Portfolios. The Portfolios currently have no intention to invest directly in
oil, gas or other mineral interests, and this proposal is therefore anticipated
to have little current practical effect on the Portfolios. However, if this
proposal is approved, each Portfolio may, at some future time, determine that
investments in oil, gas and other mineral interests are in its best interests.

If the proposal is approved, each Portfolio will be able to invest
directly in oil, gas and other mineral interests. These investments entail
certain risks. The prices of these investments are subject to substantial
fluctuations, and may be affected by unpredictable economic and political
circumstances such as social, political or military disturbances, the taxation
and regulatory policies of various governments, the activities and policies of
OPEC (an organization of major oil producing companies), the existence of
cartels in such industries, the discovery of new reserves and the development of
new techniques for producing, refining and transporting such materials and
related products, the development of new technology, energy conservation
practices and the development of alternative energy sources and alternative uses
for such materials and related products.

6. MISCELLANEOUS

OTHER BUSINESS. The Directors know of no other business to be brought
before the Meeting. However, if any other matters properly come before the
Meeting, it is the Directors' intention that proxies which do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.

-27-

<PAGE>

QUORUM. One-third of the shares entitled to vote -- present in person
or represented by proxy -- constitutes a quorum for the transaction of business
with respect to any proposal at the meeting (unless otherwise noted in the Proxy
Statement).

SOLICITATION OF PROXIES. In addition to the solicitation of proxies by
mail, Directors of the Company and employees of LMIA and/or Western Asset and
their affiliates may solicit proxies in person or by telephone. The cost of the
solicitation will be borne by the Company.

TABULATION OF VOTES. Votes cast by proxy or in person at the Meeting
will be counted by persons appointed by the Company to act as tellers for the
Meeting. The tellers will count the total number of votes cast "for" approval of
each proposal for purposes of determining whether sufficient affirmative votes
have been cast. As stated above, shares represented by duly executed proxies
will be voted in accordance with the specification made. If no specification is
made, shares will be voted in accordance with the recommendation of the Board of
Directors. The tellers will count shares represented by proxies that withhold
authority to vote or that reflect abstentions or "broker non-votes" (i.e.,
shares held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have the discretionary voting power on a particular
matter) as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum. Shares represented by proxies
that withhold authority to vote, abstentions and broker non-votes will have the
effect of negative votes on each of the proposals other than the election of
Directors (Proposals 2) and the ratification of the selection of independent
auditors (Proposal 3).

DATE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS FOR SUBSEQUENT MEETINGS OF
SHAREHOLDERS. As allowed by Maryland law, the Portfolios do not intend to hold
annual shareholders' meetings except where the 1940 Act requires a shareholder
vote on certain matters. Under the 1940 Act, holders of 10% or more of the
outstanding shares of the Company have the right to call a special meeting of
holders of shares in the Company for the purpose of removing directors of the
Company. In addition, holders of 25% or more of the shares in the Company
entitled to vote at a meeting have the right under the By-Laws of the Company to
call a special meeting of holders of shares by submitting a written request to
the Portfolios at 117 East Colorado Boulevard, Pasadena, California 91105,
stating the purpose of the proposed meeting and the matters to be acted upon.

Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholders' meeting should send their written
proposals to the attention of the Secretary of the Company at the above address.
A shareholder may include with the proposal a supporting statement which
(together with the proposal) should not exceed 500 words in length. Proposals
should be received by the Company a reasonable time before the proxy statement
for the meeting is mailed to shareholders.

-28-

<PAGE>

ADJOURNMENT. In the event that sufficient votes in favor of any of the
proposals set forth in the Notice of the Meeting are not received by the time
scheduled for the Meeting, the persons named as proxies may propose one or more
adjournments of the Meeting for a reasonable time after the date set for the
original Meeting to permit further solicitation of proxies with respect to any
of such proposals. In addition, if, in the judgment of the persons named as
proxies, subsequent developments make it advisable to defer action on one or
more proposals, but not all proposals, the persons named as proxies may propose
one or more adjournments of the Meeting for a reasonable time in order to defer
action on such proposals as they deem advisable. Any such adjournments will
require the affirmative vote of a majority of the votes cast on the question in
person or by proxy at the session of the Meeting to be adjourned, as required by
the Company's By-Laws. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of such
proposals in respect of which such adjournment is proposed. They will vote
against any such adjournment all other proxies. The costs of any such additional
solicitation and of any adjourned session will be borne by the Company.

PRINCIPAL HOLDERS OF SECURITIES. Set forth below is a table which
contains the name, address and percentage of ownership of each person who is
known by the Company to own beneficially five percent or more of the outstanding
shares of the Core Portfolio as of March ___, 1998 [TO BE UPDATED IN DEFINITIVE
FILING.]:

% of Ownership As of
Name and Address March , 1998
---------------- --------------------
BHP Copper-Group [6.58]%
7400 N. Oracle Road, Suite 200
Tucson, AZ 85704

Newspaper and Mail Delivers' Publishers' [7.24]%
Pension Fund
41-18 27th Street
Long Island City, NY 11101-3825

Houghton Mifflin Co. Pension Plan [5.39]%
222 Berkeley Street
Boston, MA 02116-3764

Thompson Consumer Electronics, Inc. [7.24]%
600 North Sherman Drive
Indianapolis, IN 46201-2598

Northern Trust Company [11.31]%
50 S. LaSalle Street
Chicago, IL 60675

-29-

<PAGE>

State Street Bank & Trust Company [16.86]%
Solomon Willard Bldg.
Enterprise Drive
North Quincy, MA 02171

Bankers Trust [9.55]%
648 Grassmere Park Road, 2nd Floor
Nashville, TN 37211

-30-

<PAGE>

Set forth below is a table which contains the name, address and
percentage of ownership of each person who is known by the Company to own
beneficially five percent or more of the outstanding shares of the Intermediate
Portfolio as of March ___, 1998:

% of Ownership As of
Name and Address March , 1998
---------------- --------------------
Harvard Industries Inc. [7.22]%
2502 N. Rocky Point Drive
Tampa, FL 33607

Allergan Inc. [7.63]%
2525 Dupont Drive
P.O. Box 19534
Irvine, CA 92713-9354

Anne Arundel County MD Master Trust [10.88]%
44 Calvert Street
Annapolis, MD 21404

Harn Industries [15.75]%
P.O. Box 554
Milwaukee, WI 53201

MA Hanna Master Trust [13.67]%
200 Public Square
Cleveland, OH 44114-2301

Marshall & Ilsley Trust Co. [15.75]%
1000 N. Water Street
Milwaukee, WI 53202

First Union National Bank [7.94]%
401 S. Tryon Street
Charlotte, NC 28202

Northern Trust Company [13.67]%
50 LaSalle Street
Chicago, IL 60675

Key Trust [10.66]%
P.O. Box 94870
Cleveland, OH 44101

State Street Bank & Trust Company [10.88]%
P.O. Box 1992
Boston, MA 02105

-31-

<PAGE>

Mac & Co. [7.63]%
Mellon Bank NA
Pittsburgh, PA 15230

% of Ownership As of
Name and Address March , 1998
---------------- --------------------
Western Michigan University [42.75]%
Investment & Endowment Mgmt.
1083 Seibert Admin. Bldg.
Kalamazoo, MI 49008

University Athletic Assoc. [25.35]%
P.O. Box 14485
Gainesville, FL 32604

Good Shephard Medical [23.92]%
P.O. Box 160
Westerville, OH 43086

Northwestern Trust Co. [7.97]%
600HFA Bldg.
914 S. 8th Street
Minneapolis, NH 55404

% of Ownership As of
Name and Address March , 1998
---------------- --------------------

- --------------------------------------------------------------------------------

-32-

<PAGE>

APPENDIX A

PROPOSED ARTICLES

A-1

<PAGE>

APPENDIX B

FORM OF MANAGEMENT AGREEMENT

B-1

<PAGE>

APPENDIX C

FORM OF ADVISORY AGREEMENT

C-1

<PAGE>

WESTERN ASSET TRUST, INC.

CORE PORTFOLIO
INTERMEDIATE PORTFOLIO
LIMITED DURATION PORTFOLIO
MONEY MARKET PORTFOLIO
INTERNATIONAL SECURITIES PORTFOLIO

PROXIES SOLICITED BY THE BOARD OF DIRECTORS

The undersigned, revoking any previous proxies, hereby appoint(s) Donna E.
Barnes, Ilene S. Harker, and W. Curtis Livingston, III, and each of them
separately, as proxies, with full power of substitution to each, and hereby
authorizes them to represent and to vote all shares of the Core Portfolio,
Intermediate Portfolio, Limited Duration Portfolio, Money Market Portfolio and
International Securities Portfolio of Western Asset Trust, Inc. (the "Company")
which the undersigned would be entitled to vote if personally present, as
designated below, at the Meeting of Shareholders of the Company to be held at
the offices of the Company at 117 East Colorado Boulevard, Pasadena, California,
91105 on March [ ], 1998 at [9:00] a.m., Pacific time, and at any adjournments
thereof. All powers may be exercised by a majority of said proxyholders or
substitutes voting or acting or, if only one votes and acts, then by that one.
Receipt of the Notice of Special Meeting and the accompanying Proxy Statement is
hereby acknowledged.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH OF THE PROPOSALS BELOW.

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING. THE BOARD OF DIRECTORS RECOMMENDS A
VOTE FOR EACH PROPOSAL.

<PAGE>

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK.

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED

<TABLE>
<CAPTION>
ALL SHAREHOLDERS PLEASE VOTE: FOR AGAINST ABSTAIN
<S><C>
1. Proposal to approve a new Charter for the Company. [ ] [ ] [ ]

2a. Proposal to elect John E. Bryson as a Director of the Company. [ ] [ ] [ ]

2b. Proposal to elect Anita L. DeFrantz as a Director of the Company. [ ] [ ] [ ]

2c. Proposal to elect Edward A. Taber, III as a Director of the Company. [ ] [ ] [ ]

3. Proposal to ratify selection of independent auditors. [ ] [ ] [ ]

ALL SHAREHOLDERS OF THE CORE, INTERMEDIATE, MONEY MARKET AND LIMITED DURATION
PORTFOLIOS PLEASE VOTE:

4a. Proposal to approve a new Investment Management Agreement between the [ ] [ ] [ ]
Company on behalf of the relevant Portfolio and LM Institutional
Advisors, Inc.

4b. Proposal to approve a new Investment Advisory Agreement with respect to the [ ] [ ] [ ]
relevant Portfolio between LM Institutional Advisors, Inc. and Western
Asset Management Company.

5a. Proposal to amend the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to investments in real estate.

5b. Proposal to amend the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to investments in commodities.

5c. Proposal to amend the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to making loans.

5d. Proposal to amend the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to borrowing and senior securities.

5e. Proposal to eliminate the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to margin transactions.

5f. Proposal to eliminate the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to pledging assets.

5g. Proposal to eliminate the relevant Portfolio's fundamental investment [ ] [ ] [ ]
restriction with respect to investments in certain oil, gas and other
mineral interests.

Please sign your name exactly as it appears on this card. If you are signing for
a corporation, please sign the full corporate name and indicate the signer's
office. If you are a partner, sign in the partnership name. If you are a joint
owner, each owner should sign. When signing as executor, administrator,
attorney, trustee, or guardian, or as custodian for a minor, please give your
full title as such when signing.

- ------------------------- --------------- ----------------------------- ------------------
Signature Date Signature (Joint Owners) Date
</TABLE>