WESTERN ASSET TRUST, INC.
CORE 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, Inc.-Core
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 Core Portfolio for
the nine month period ending March 31, 1998.
Now in its eighth year of operation, the fund once again enjoyed positive
investment results relative to its benchmark, producing a total return of 8.91%
(net) versus the Salomon Brothers Broad Bond Market Index return of 8.08% for
the period. Total assets are just over $600 million, with more than 60
participants.
Several strategies contributed most to the fund's added value: 1) a longer than
market duration posture was rewarded by declining interest rates, 2) a series of
shifts in yield curve exposure correctly anticipated changes in the shape of the
yield curve, and 3) an overweighting to the mortgage sector benefited from a
narrowing of spreads. On the minus side of the ledger, a moderate exposure to
inflation-indexed securities detracted from performance, as real interest rates
rose while nominal yields fell.
Also, 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 Core
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
Core Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The fund's performance was 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 exceeded that of its benchmark, the Salomon
Brothers Broad Market Index, returning 8.91% (net) vs. 8.08%, as major
strategies produced generally positive results. The fund benefited from a longer
than market duration posture which it held throughout 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. A
moderate overweighting to the mortgage sector benefited from tightening spreads
as well. A moderate exposure to inflation-indexed bonds detracted from
performance, however, as real yields rose.
Average Annual Total Return through March 31, 1998
WAT Code* SBBI
--------- ----
9 Months 8.9% 8.1%
3 Years 9.8% 9.2%
5 Years 7.8% 7.0%
Since Inception 10.0% 9.1%
[Graph Appears Here -- Plot Points Included Below]
Western Asset Trust Salomon Brothers
Core Portfolio (net) Broad Market Index
-------------------- ------------------
9/30/90 1,000,000 1,000,000
12/31/90 1,051,000 1,050,700
3/31/91 1,085,578 1,078,333
6/30/91 1,105,010 1,097,743
9/30/91 1,171,080 1,160,205
12/31/91 1,240,535 1,218,447
3/31/92 1,227,385 1,204,313
6/30/92 1,277,463 1,253,208
9/30/92 1,337,503 1,307,222
12/31/92 1,337,905 1,310,882
3/31/93 1,410,151 1,365,546
6/30/93 1,462,891 1,403,371
9/30/93 1,519,068 1,440,420
12/31/93 1,523,168 1,440,997
3/31/94 1,483,718 1,400,649
6/30/94 1,450,037 1,387,062
9/30/94 1,458,302 1,394,552
12/31/94 1,457,282 1,400,131
3/31/95 1,547,633 1,470,977
6/30/95 1,654,574 1,561,001
9/30/95 1,687,997 1,590,504
12/31/95 1,762,944 1,659,532
3/31/96 1,724,512 1,630,490
6/30/96 1,735,031 1,638,479
9/30/96 1,768,691 1,669,119
12/31/96 1,828,826 1,719,526
3/31/97 1,805,966 1,710,585
6/30/97 1,878,746 1,772,337
9/30/97 1,948,072 1,831,179
12/31/97 2,014,501 1,885,198
3/31/98 2,055,204 1,915,550
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 September 4, 1990. The Salomon Brothers Broad Market Index
includes US treasury/agency issues, mortgage passthrough securities and
corporate issues.
*Since inception (September 4, 1990), Western Asset and the Fund's administrator
have 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.
CORE 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 12.43%
BANKING AND FINANCE 3.25%
BNY Capital Trust 7.97% 12/31/26 $5,000 $5,317
Ford Motor Credit 6.00% 01/14/03 2,735 2,714
General Motors Acceptance Corp. 0% 06/15/15 14,900 4,775(A)
Grand Metro Investment 8.625% 08/15/01 150 161
IBJ Preferred Capital Co. LLC 8.79% 12/29/49 800 768(G)
IBM Credit Corporation 5.79% 03/20/00 4,000 3,991
J.P. Morgan - Inflation Linked Notes 6.772% 02/15/12 2,000 1,853(F)
Socgen Real Estate LLC 7.64% 12/29/49 500 498(G)
-----------
20,077
FOOD, BEVERAGE AND TOBACCO 2.39%
Nabisco, Inc. 6.125% 02/01/33 4,250 4,174
Phillip Morris Companies, Inc. 8.75% 06/01/01 100 107
Phillip Morris Companies, Inc. 7.00% 07/15/05 2,000 2,038
RJR Nabisco, Inc. 8.75% 04/15/04 320 338
RJR Nabisco, Inc. 8.50% 07/01/07 800 835
RJR Nabisco, Inc. 8.75% 07/15/07 4,770 5,075
RJR Nabisco, Inc. 8.75% 08/15/05 2,100 2,226
-----------
14,793
MEDIA AND ENTERTAINMENT 4.03%
Continental Cablevision 9.00% 09/01/08 3,200 3,716
News America Holdings Incorporated 8.25% 10/17/96 4,100 4,484
News America Incorporated 6.75% 01/09/38 5,000 4,975(G)
TCI Communications Incorporated 8.75% 08/01/15 8,360 9,701
Time Warner Entertainment Incorporated 6.85% 01/15/26 2,000 2,043
-----------
24,919
</TABLE>
2
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
RETAIL SALES 1.41%
Loews Corporation 7.625% 06/01/23 $8,459 $8,683
TELEPHONE 0.93%
U.S. West Capital Funding, Inc. 7.900% 02/01/27 5,120 5,734
UTILITIES 0.00%
System Energy Resources, Inc. 7.43% 01/15/11 2,560 2,577
Total Corporate Bonds and Notes
(Identified Cost - $72,866) 76,783
- -------------------------------------------------------------------------------------------------------------------------
U. S. GOVERNMENT AND AGENCY OBLIGATIONS 33.40%
FIXED-RATE SECURITIES 21.34%
United States Treasury Bonds 6.625% 02/15/27 20,880 22,655
United States Treasury Bonds 6.125% 11/15/27 89,585 91,867
United States Treasury Notes 5.625% 11/30/00 30 30
United States Treasury Notes 6.625% 07/31/01 50 51
United States Treasury Notes 6.375% 09/30/01 8,100 8,278
United States Treasury Notes 6.625% 03/31/02 1,280 1,323
United States Treasury Notes 5.75% 10/31/02 4,650 4,663
United States Treasury Notes 5.75% 11/30/02 2,600 2,608
United States Treasury Notes 5.75% 08/15/03 200 201
United States Treasury Notes 6.875% 05/15/06 180 193
-----------
131,869
INDEXED SECURITIES 11.51%
United States Treasury Notes 3.375% 01/15/07 24,571 23,822(E)
United States Treasury Notes 3.625% 01/15/08 47,783 47,245(E)
-----------
71,067
STRIPPED SECURITIES 0.55%
Resolution Funding Corporation 0.00% 10/15/19 10,000 2,632(D,2)
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Tennessee Valley Authority 0.00% 11/01/19 $3,064 $747(D,2)
-----------
3,379
Total U.S. Government and Agency Obligations
(Identified Cost - $205,765) 206,315
- -------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE- BACKED
SECURITIES 29.55%
FIXED-RATE SECURITIES 28.60%
Fannie Mae 7.00% 12/01/27 867 876
Fannie Mae 6.00% 01/01/26 1,929 1,864
Fannie Mae 6.00% 03/01/26 11,621 11,225
Fannie Mae 7.00% 01/01/27 1,951 1,970
Fannie Mae 7.00% 01/01/27 1,150 1,161
Fannie Mae 7.00% 01/01/27 967 977
Fannie Mae 7.00% 03/01/27 3,849 3,886
Fannie Mae 7.00% 03/01/27 2,358 2,381
Fannie Mae 7.00% 03/01/27 1,985 2,005
Fannie Mae 7.50% 07/01/27 185 189
Fannie Mae 7.50% 07/01/27 194 199
Fannie Mae 6.00% 11/01/27 2,973 2,870
Fannie Mae 6.00% 11/01/27 496 478
Fannie Mae 6.00% 11/01/27 991 957
Fannie Mae 7.00% 11/01/27 150 151
Fannie Mae 7.00% 12/01/27 121 122
Fannie Mae 6.00% 01/01/13 12,700 12,498(H)
Fannie Mae 7.00% 03/01/27 2,273 2,295
Fannie Mae 7.00% 04/01/27 2,684 2,710
Fannie Mae 6.50% 01/01/28 989 978
Fannie Mae 6.50% 01/01/28 992 981
Fannie Mae 6.50% 01/01/28 13,200 13,052(H)
Fannie Mae 6.50% 01/01/28 694 687
</TABLE>
4
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Fannie Mae 6.50% 01/01/28 $3,972 $3,927
Fannie Mae 6.50% 01/01/28 2,980 2,946
Fannie Mae 7.00% 01/01/28 1,687 1,703
Fannie Mae 7.00% 01/01/28 600 606
Fannie Mae 7.00% 01/01/28 1,981 2,000
Fannie Mae 7.00% 01/01/28 1,482 1,496
Fannie Mae 6.50% 06/01/28 2,966 2,933
Federal Housing Authority USGI #68 7.43% 03/01/21 294 299
Freddie Mac 8.25% 08/01/01 23 23
Freddie Mac 9.25% 06/01/02 122 128
Freddie Mac 6.75% 05/01/04 164 165
Freddie Mac 6.75% 10/15/05 302 303
Freddie Mac 7.50% 04/01/06 130 133
Freddie Mac 9.75% 07/01/08 358 380
Freddie Mac 9.30% 04/15/19 2,184 2,325
Freddie Mac 7.00% 04/01/24 3,217 3,255
Freddie Mac 7.00% 04/01/24 3,681 3,730
Freddie Mac 7.00% 09/01/25 7,954 8,043
Freddie Mac 7.00% 03/01/26 2,446 2,474
Freddie Mac 7.00% 04/01/26 2,770 2,801
Freddie Mac 7.00% 04/01/26 715 723
Freddie Mac 7.00% 04/01/26 3,537 3,577
Freddie Mac 7.00% 01/01/27 9,453 9,556
Government National Mortgage Association 9.50% 03/15/03 118 123
Government National Mortgage Association 10.25% 06/15/03 24 25
Government National Mortgage Association 10.00% 11/15/09 8 9
Government National Mortgage Association 6.875% 12/20/21 829 850
Government National Mortgage Association 7.00% 02/20/22 1,328 1,364
Government National Mortgage Association 7.00% 01/15/24 22 22
Government National Mortgage Association 8.00% 10/15/26 897 928
Government National Mortgage Association 8.00% 11/15/26 8,673 8,980
</TABLE>
5
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Government National Mortgage Association 8.00% 01/15/27 $851 $881
Government National Mortgage Association 8.00% 02/15/27 3,555 3,680
Government National Mortgage Association 6.50% 04/01/28 14,100 13,954(H)
Government National Mortgage Association 7.00% 04/01/28 8,600 8,686(H)
Government National Mortgage Association 7.50% 04/01/28 18,700 19,173(H)
-----------
176,713
VARIABLE-RATE SECURITIES 0.24%
Government National Mortgage Association 7.375% 06/20/25 1,433 1,471(C)
STRIPPED SECURITIES 0.71%
Fannie Mae 1009.5% 02/25/20 1 6(D,1)
Fannie Mae 9.50% 02/01/17 280 74(D,1)
Fannie Mae 1009.3% 08/25/21 13 438(D,1)
Fannie Mae 0.00% 05/25/22 714 683(D,2)
Fannie Mae 0.00% 05/25/22 1,948 1,429(D,2)
Freddie Mac 10.00% 03/01/21 2,349 605(D,1)
Freddie Mac 0.00% 07/15/22 381 303(D,2)
Freddie Mac 0.00% 09/15/22 888 851(D,2)
-----------
4,389
Total U.S. Government Agency Mortgage-backed Securities
(Identified Cost - $179,598) 182,573
- -------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 11.27%
FIXED-RATE SECURITIES 2.61%
Automobile Information Receivable 6.53% 10/30/01 967 968(G)
Chevy Chase 1997 - A 7.65% 12/20/07 7,965 8,027
Fleet Finance Home Equity Trust 6.70% 10/15/06 19 19
Greentree Recreational Equipment & Consumer Trust 1998-A 6.71% 05/15/29 4,550 4,549
Midstate Trust II Class A-4 9.625% 04/01/03 700 749
Navistar Financial Corp. Owner Trust 6.35% 01/15/00 1,732 1,732
</TABLE>
6
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Rural Housing Trust 1987-1 3.33% 04/01/26 $34 $32
Tyron Mortgage Funding, Inc. 6.35% 05/20/01 24 24
-----------
16,100
VARIABLE-RATE SECURITIES 4.30%
Empire Funding Home Loan Owner Trust 1997-4 A1 5.775% 01/25/08 2,424 2,421(C)
Empire Funding Home Loan Owner Trust 1998-1 A1 5.775% 09/25/06 13,310 13,306(C)
First USA Credit Card Master Trust 1997-2 C 5.818% 01/15/07 7,923 7,844(C)
Saks Master Trust 1996-1 A 5.91% 03/20/02 3,000 3,005(C)
-----------
26,576
INDEXED SECURITIES 4.26%
Discover Card Master Trust 5.818% 04/17/07 2,500 2,496(F)
GE Capital Corporation Commercial Mortgage 5.946% 06/21/06 103 103(F)
KeyCorp Student Loan Trust 6.249% 11/27/28 6,191 6,147(F)
Student Loan Marketing Association 5.745% 10/25/04 3,558 3,527(F)
Student Loan Marketing Association 5.794% 04/25/06 5,456 5,445(F)
Student Loan Marketing Association 5.965% 07/27/09 3,700 3,677(F)
Student Loan Marketing Association 6.085% 10/25/12 5,000 4,931(F)
-----------
26,326
STRIPPED SECURITIES 0.10%
Option One CTS Arm Trust 3.050% 03/25/01 22,788 623(D,1)
Total Asset-backed Securities
(Identified Cost - $70,814) 69,625
- -------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 9.96%
FIXED-RATE SECURITIES 7.56%
Asset Securitization Corp. 6.92% 02/14/29 8,192 8,445
FMAC Loan Receivables Trust 7.35% 04/15/19 191 198(G)
GMAC Commercial Mortgage Securities 6.869% 07/15/29 5,700 5,867
Macerich SCG Funding Limited Partnership 7.08% 03/15/06 6,000 6,101(G)
Merrill Lynch Mortgage Investors, Inc. 6.69% 11/21/28 112 114
</TABLE>
7
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Merrill Lynch Mortgage Investors, Inc. 6.96% 11/21/28 $15,010 $15,470
Nomura Asset Securities Corporation 7.07% 04/13/36 2,835 2,928
Nomura Asset Securities Corporation 7.12% 04/13/36 4,500 4,701
Resolution Trust Corporation 9.20% 06/25/24 2,876 2,901
-----------
46,725
VARIABLE-RATE SECURITIES 2.36%
Resolution Trust Corporation 6.486% 10/25/17 81 80(C)
Resolution Trust Corporation 6.828% 05/25/21 1,214 1,215(C)
Resolution Trust Corporation 10.334% 08/25/21 213 213(C)
Resolution Trust Corporation 6.97% 10/25/21 3,303 3,295(C)
Resolution Trust Corporation 7.074% 06/25/24 8,000 7,975(C)
Resolution Trust Corporation 7.334% 10/25/28 190 188(C)
Resolution Trust Corporation 7.966% 09/25/29 1,610 1,607(C)
-----------
14,573
INDEXED SECURITIES 0.03%
Prudential Securities Financing Corp. 6.298% 04/25/26 115 116(F)
Resolution Trust Corporation 7.94% 09/25/21 82 83(F)
-----------
199
STRIPPED SECURITIES 0.01%
Structured Mortgage Asset Residential Trust 2500% 08/25/22 1 14(D,1)
Structured Mortgage Asset Residential Trust 0.136% 01/25/23 22,634 38(D,1)
-----------
52
Total Mortgage-backed Securities
(Identified Cost - $59,792) 61,549
- -------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS 1.19%
FIXED-RATE SECURITIES
Hydro Quebec 8.05% 07/07/24 200 232(B)
YPF Sociedad Anonima 7.50% 10/26/02 2,706 2,761(B)
YPF Sociedad Anonima 7.75% 08/27/07 4,250 4,373(B)
</TABLE>
8
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C>
Total Yankee Bonds
(Identified Cost - $7,220) $7,366
- -------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND EQUITY INTERESTS 4.40%
Black Rock 2001 Term Trust, Inc. 2,614 shrs 22,709
Home Ownership Funding 4 4,440(G)
Total Common Stocks and Equity Interests
(Identified Cost - $25,720) 27,149
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 7.86%
COMMERCIAL PAPER 0.81%
Levi Strauss & Company 5.73% 04/17/98 $3,000 2,992
Lockheed Martin Corporation 5.68% 04/03/98 2,000 1,999
-----------
4,991
CORPORATE 0.02%
Coca-Cola Company 7.875% 09/15/98 100 101
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES 0.03%
Fannie Mae 8.00% 11/01/98 76 76
Fannie Mae 8.00% 11/01/98 108 108
-----------
184
U.S. GOVERNMENT OBLIGATIONS 0.44%
United States Treasury Bills 5.12% 09/03/98 2,750 2,689
REPURCHASE SECURITIES AGREEMENT 6.52%
J. P. Morgan Securities, Inc.
6.00% dated 3/31/98, to be repurchased at $40,253 on
4/1/98 (Collateral: $40,545 Federal Farm Credit Bank
Notes, 6.51% due 1/7/08, value $41,668) 40,246 40,246
</TABLE>
9
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF NET ASSETS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S><C> ACTUAL
CONTRACTS
OPTIONS PURCHASED 0.04% --------------
Eurodollar Futures, Oct 98 Call, Strike Price $94.50 174 $28
Eurodollar Futures, June 98 Call, Strike Price $94.25 302 75
Eurodollar Futures, Apr 98 Call, Strike Price $94.50 123 2
U.S. Treasury Bond Futures, Sept 98 Call, Strike Price $124.00 114 116
---------
221
Total Short-Term Investments
(Identified Cost - $48,509) 48,432
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments (Identified Cost - $670,284) 110.06% $679,792
Other Assets Less Liabilities -10.06% (62,116)
----------
NET ASSETS CONSISTING OF:
Accumulated paid-in-capital applicable to
5,329 shares outstanding $587,141
Undistributed net investment income 6,997
Undistributed net realized gain on investments 13,560
Unrealized appreciation of investments 9,978
-------------
NET ASSETS 100.00% $617,676
===========
NET ASSET VALUE PER SHARE $115.90
===========
</TABLE>
10
<PAGE>
WESTERN ASSET TRUST, INC.
CORE 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 Put, Strike Price $120.00 January 98 48 $24
U.S. Treasury Bond Future Put, Strike Price $118.00 February 98 109 53
U.S. Treasury Bond Future Put, Strike Price $120.00 February 98 193 99
U.S. Treasury Bond Future Put, Strike Price $120.00 March 98 59 51
U.S. Treasury Bond Future Call, Strike Price $123.00 Apr 98 174 63
U.S. Treasury Bond Future Call, Strike Price $124.00 May 98 114 24
U.S. Treasury Bond Future Call, Strike Price $128.00 Aug 98 173 72
-----------------------
386
FUTURES CONTRACTS PURCHASED
U.S. Treasury Bond Future June 98 2 1
FUTURES CONTRACTS WRITTEN
U.S. Treasury Note Future June 98 356 114
U.S. Treasury Note Future June 98 49 (31)
-----------------------
83
</TABLE>
- ---------
(A) Zero-Coupon Bond - A bond with no periodic interest payments which is sold
at such a discount as to produce a current yield to maturity.
(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 securities.
(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) 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.
(F) Indexed Security - The rate of interest earned on this type of security is
tied to the London Interbank Offered Rate (LIBOR), the Consumer Price Index
(CPI), the Global Telecom Basket (GTB) index or the one year Treasury Bill
rate. The coupon rate is the rate as of March 31, 1998.
(G) 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.
(H) When-issued Security - Security purchased on a delayed delivery basis. Final
settlement amount and maturity date have not yet been announced.
See notes to financial statements
11
<PAGE>
WESTERN ASSET TRUST, INC.
CORE PORTFOLIO
STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
MARCH 31, 1998 (A) JUNE 30, 1997
------------------------ ---------------------
<S><C>
INVESTMENT INCOME:
Interest $27,615 $33,756
Dividends 1,081 1,011
------------------------ ---------------------
28,696 34,767
EXPENSES:
Advisory fee 1,769 2,007
Administration fee 221 251
Custodian fees 120 138
Directors' fees 16 17
Legal and audit fees 32 28
Registration fees 54 60
Reports to shareholders 3 4
Transfer agent and shareholder servicing expense 13 9
Other expenses 13 17
------------------------ ---------------------
2,241 2,531
Less fees waived (30) (22)
------------------------ ---------------------
Total expenses, net of waivers 2,211 2,509
------------------------ ---------------------
NET INVESTMENT INCOME 26,485 32,258
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on
investments, options and futures 15,613 6,820
Change in Unrealized gain (loss) on
investments, options and futures 7,121 2,086
------------------------ ---------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 22,734 8,906
------------------------ ---------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $49,219 $41,164
======================== =====================
</TABLE>
(A) The year end for Western Asset Trust, Inc. - Core Portfolio has been
changed from June 30 to March 31.
See notes to financial statements
12
<PAGE>
WESTERN ASSET TRUST, INC.
CORE 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 $26,485 $32,258 $24,557
Net realized gain (loss) on investments, options and futures 15,613 6,820 2,279
Change in unrealized appreciation of investments, options
and futures 7,121 2,086 (9,811)
------------------ ---------------- ------------------
Change in net assets resulting from operations 49,219 41,164 17,025
Distributions to shareholders from:
Net investment income (27,271) (29,354) (22,395)
Net realized gain on investments (6,743) (306) (1,508)
Change in net assets from
Fund share transactions 94,118 43,150 123,804
------------------ ---------------- ------------------
Change in net assets 109,323 54,654 116,926
NET ASSETS:
Beginning of period 508,353 453,699 336,773
------------------ ---------------- ------------------
End of period (including undistributed
net investment income of
$6,997, $7,615 and $7,059,
respectively) $617,676 $508,353 $453,699
------------------ ---------------- ------------------
</TABLE>
(A) The year end for Western Asset Trust, Inc. - Core Portfolio has been
changed from June 30 to March 31.
See notes to financial statements
13
<PAGE>
WESTERN ASSET TRUST, INC.
CORE 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 1994 1993
------------------ -------------------------------------------------------------
<S><C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $112.79 $110.46 $112.17 $105.02 $116.64 $112.04
-------------- -------------------------------------------------------------
Net investment income (B) 4.87 7.05 6.70 6.82 5.64 6.57
Net realized and unrealized gain (loss)
on investments, options and futures 4.89 1.86 (1.36) 7.19 (6.28) 8.71
-------------- -------------------------------------------------------------
Total from investment operations 9.76 8.91 5.34 14.01 (0.64) 15.28
-------------- -------------------------------------------------------------
Distributions to shareholders from:
Net investment income (5.28) (6.51) (6.61) (6.86) (6.11) (6.72)
Net realized gain on investments (1.37) (0.07) (0.44) - (4.87) (3.96)
-------------- -------------------------------------------------------------
Total distributions (6.65) (6.58) (7.05) (6.86) (10.98) (10.68)
-------------- -------------------------------------------------------------
Net asset value, end of period $115.90 $112.79 $110.46 $112.17 $105.02 $116.64
============== =============================================================
Total return (B) 8.91(C) 8.27% 4.86% 14.12% (0.89)% 14.52%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses (B) 0.50(D) 0.50% 0.50% 0.50% 0.50% 0.50%
Net investment income (B) 6.0(D) 6.4% 6.3% 7.0% 6.0% 6.0%
Portfolio turnover rate 226.9(D) 384.8% 266.0% 257.9% 272.5% 313.1%
Net assets, end of period
(in thousands) $617,676 $508,353 $453,699 $336,774 $205,959 $135,886
</TABLE>
- ----------------------------------------------
(A) The year end for Western Asset Trust, Inc. - Core 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%. In the absence of this limitation, the ratio of expenses to average
net assets would have been 0.50% for the nine months ended March 31, 1998,
and 0.50%, 0.53%, 0.53%, 0.58% and 0.57% for the years ended June 30, 1997,
1996, 1995, 1994, and 1993, respectively.
(C) Not annualized
(D) Annualized
See notes to financial statements
14
<PAGE>
WESTERN ASSET TRUST, INC.
CORE 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 Core Portfolio
("Fund"), formerly known as Western Asset Trust Full Range 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 September 4, 1990, 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.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - 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.
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.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - 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
-----------------------------------------
ACTUAL ACTUAL
CONTRACTS PREMIUMS CONTRACTS PREMIUMS
- ---------------------------------------------------------- --------------------
Options outstanding at June 30, 1997 -- -- -- --
Options written 2,624 $ 1,576 2,095 $ 1,459
Options closed (1,822) (1,101) (1,566) (1,186)
Options expired (341) (196) -- --
Options exercised -- -- (120) (40)
- ---------------------------------------------------------- --------------------
Options outstanding at March 31, 1998 461 $ 279 409 $ 233
========================================================== ====================
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.
17
<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 $283,847 and $234,942,
respectively. Purchases and sales of U.S. Government securities aggregated
$793,583 and $695,911, respectively, for the same period.
At March 31, 1998, the cost of securities for federal income tax purposes was
$671,277. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $11,750 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $3,235.
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 1,137 $ 130,852 1,765 $ 196,333 1,015 $ 113,948
Reinvestment of distributions 279 31,659 234 26,038 205 22,867
Repurchased (594) (68,393) (1,599) (179,221) (115) (13,011)
- ---------------------------------------------------------------------------------------------
Net increase 822 $ 94,118 400 $ 43,150 1,105 $ 123,804
=============================================================================================
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. SECURITIES LOANED:
At March 31, 1998, the market value of the securities on loan to broker-dealers
was $148,905 for which the Fund received collateral of $152,819 in cash. Such
collateral is in the possession of the Fund's custodian. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights to the collateral should the borrower of the securities fail
financially.
6. TRANSACTIONS WITH AFFILIATES:
The Fund has 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 0.10%
of average daily net assets of the Fund. The Administrator has voluntarily
agreed to indefinitely limit its annual fee to 0.05% of the Fund's average daily
net assets. At March 31, 1998, $26 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
0.40% 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 0.50% of the Fund's average daily net assets. Advisory fees of $30 were
waived for the nine months ended March 31, 1998, and $177 as due to the Adviser
at March 31, 1998.
19
<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 Core 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 Core Portfolio (the "Fund"), formerly known as the Western
Asset Trust Full Range 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
