WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES 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 International
Securities 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 International
Securities Portfolio for the nine month period ending March 31, 1998.
The fund produced positive returns but at levels below its non-dollar and
domestic market benchmarks for this period, returning 6.24% (net) versus the
Salomon Brothers World Ex-US (hedged) return of 9.37% and the Salomon Brothers
Broad Investment Grade Index return of 8.08%. We continue to work on improving
results here.
The fund's general strategies added value but two factors detracted
meaningfully: 1) the fund was not invested in the Japanese bond market, which
experienced a substantial decline in yields, and 2) exposure to Czech and
Indonesian bonds was negatively impacted by declining currency values.
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 International
Securities 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
International Securities 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 non-dollar interest rates declined substantially
during the period. However, the fund's total return trailed that of its
non-dollar benchmark, the Salomon Brothers Non-U.S. Government Index (Hedged),
returning 6.24% (net) vs. 9.37%, and it underperformed the broad investment
grade market, which returned 8.08%. Several factors contributed to
underperformance for the period: The Fund has virtually no exposure to the
Japanese bond market, given the very low level of yields there, but Japanese
bonds continued to post impressive gains on a hedged basis as interest rates
fell to levels never seen before. The fund's exposure to Czech Republic bonds
suffered as the koruna declined in value, and a modest exposure to Indonesian
bonds was impacted by the devaluation of the rupiah. With these two exceptions,
currency exposure was substantially hedged throughout the period, thus avoiding
the adverse impact of a strongly rising dollar.
Average Annual Total Return through March 31, 1998
WAT Intl* SB N-US Govt
--------- -------------
9 Months 6.2% 9.4%
3 Years 10.5% 13.0%
Since Inception 7.6% 9.9%
[Graph Appears Here -- Plot Points Included Below]
Western Asset Trust Salomon Brothers
International Securities Portfolio Non-U.S. Govt. Index
(net) (Hedged)
---------------------------------- --------------------
1,000,000 1,000,000
3/31/93 1,022,200 1,028,000
6/30/93 1,058,284 1,054,934
9/30/93 1,117,865 1,093,650
12/31/93 1,164,480 1,139,364
3/31/94 1,100,317 1,098,119
6/30/94 1,046,402 1,067,262
9/30/94 1,037,298 1,064,914
12/31/94 1,051,094 1,087,597
3/31/95 1,086,936 1,137,626
6/30/95 1,109,653 1,190,981
9/30/95 1,141,167 1,233,499
12/31/95 1,196,742 1,282,469
3/31/96 1,199,734 1,294,652
6/30/96 1,224,689 1,328,184
9/30/96 1,280,779 1,383,038
12/31/96 1,331,114 1,434,210
3/31/97 1,333,510 1,455,436
6/30/97 1,381,383 1,500,992
9/30/97 1,413,293 1,552,326
12/31/97 1,459,790 1,592,841
3/31/98 1,467,375 1,641,423
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 January 1, 1993. The Salomon Brothers Non-US Government Index (hedged)
includes world government bonds hedged into US dollar using a rolling one-month
forward exchange contract as the hedging instrument.
*Since inception (January 1, 1993), 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.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
LONG-TERM DEBT SECURITIES (A) 63.42%
BRITISH STERLING 8.85%
Fannie Mae 6.875% 06/07/02 GBP 1,900 $3,221
United Kingdom Treasury Stock 7.00% 06/07/02 2,600 4,482
Welcome Break Finance, PLC 8.284% 09/01/17 600 1,118
----------
8,821
CANADIAN DOLLAR 15.25%
Government of Canada 7.25% 06/01/07 CAD 19,000 15,200
DANISH KRONE 8.88%
Kingdom of Denmark 9.00% 11/15/00 DKK 26,500 4,167
Kingdom of Denmark 7.00% 11/15/07 29,000 4,681
----------
8,848
ITALIAN LIRA 12.77%
Buoni del Tesoro Poliennali 10.00% 08/01/03 ITL 12,200,000 8,275
Buoni del Tesoro Poliennali 6.50% 11/01/27 7,200,000 4,446
----------
12,721
NEW ZEALAND DOLLAR 3.36%
Government of New Zealand 8.00% 02/15/01 NZD 6,000 3,340
SOUTH AFRICAN RAND 3.49%
Republic of South Africa 13.00% 08/31/10 ZAR 17,700 3,482
SWEDISH KRONA 10.82%
Kingdom of Sweden 13.00% 06/15/01 SEK 70,000 10,784
Total Long-Term Debt Securities
(Identified Cost-$63,317) 63,196
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
SHORT-TERM INVESTMENTS (A) 13.38%
REPURCHASE AGREEMENTS 13.36%
Goldman Sachs & Co.
5.70% dated 3/31/98, to be repurchased at
$4,001 on 4/1/98 (Collateral: $3,810 United
States Treasury Bond, 7.625% due 2/15/07,
value $4,120) USD 4,000 $4,000
J.P. Morgan Securities, Inc.
6.00% dated 3/31/98, to be repurchased at
$5,001 on 4/1/98 (Collateral: $5,010 Fannie
Mae Medium-term note, 6.55% due 7/15/02,
value $5,173) 5,000 5,000
Merrill Lynch Securities, Inc.
5.85% dated 3/31/98, to be repurchased at
$4,311 on 4/1/98 (Collateral: $4,325 Fannie
Mae Medium-term note, 7.20% due 12/20/12,
value $4,481) 4,310 4,310
----------
13,310
ACTUAL
OPTIONS PURCHASED 0.02% CONTRACTS
Government of Japan #202 Euro Call ---------
May 98, Strike Price $102.806 JPY 5,000 22
----------
Total Short-Term Investments
(Identified Cost-$13,380) 13,332
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Identified Cost-$76,697) 76.80% $76,528
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
% OF ACTUAL APPRECIATION/
NET ASSETS EXPIRATION CURRENCY CONTRACTS (DEPRECIATION)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
OPTIONS WRITTEN
Republic of South Africa R153 Euro Call
Strike Price $13.00 May 98 ZAR 18 $2
Republic of South Africa R153 Euro Call
Strike Price $12.58 May 98 ZAR 18 N.M.
----
2
FUTURES CONTRACTS PURCHASED
German 5-Year Government Bond Futures June 98 DEM 47 5
UK Long Gilt Government Bond Futures June 98 GBP 275 83
----
88
</TABLE>
- ------------------------------------------------------
(A) Listed by currency denomination.
N.M. Not Meaningful
See notes to financial statements
4
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments at value (Identified Cost - $76,697) $76,528
Receivable for:
Investments sold 25,825
Futures collateral and variation margin 688
Interest receivable 1,970
Unrealized appreciation of forward currency contracts 1,815
Collateral received on securities lending 7,428
Other assets 33
-------
Total assets 114,287
LIABILITIES
Payable for:
Fund shares repurchased 5,400
Variation margin 75
Unrealized depreciation of forward currency contracts 1,644
Payable for collateral on securities lending 7,428
Liability for option premium (Premium Received - $14) 12
Due to adviser and administrator 7
Accrued expenses 78
-------
Total liabilities 14,644
-------
Net assets $99,643
=======
ANALYSIS OF NET ASSETS
Common stock at par value $.001 per share, authorized
100,000,000 shares: issued and outstanding 1,032 shares $1
Accumulated paid-in capital 99,460
Undistributed net investment income 2,309
Accumulated net realized loss on investments, forward currency contracts and currency transactions (2,115)
Unrealized depreciation of investments, forward currency contracts and currency translations (12)
-------
Net assets $99,643
=======
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $96.55
=======
</TABLE>
- ---------------------------------------------
See notes to financial statements
5
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES 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 $8,609 $16,858
------------------------ -------------------
EXPENSES:
Advisory fee 718 1,252
Custodian fees 216 429
Directors' fees 16 16
Legal and audit fees 29 19
Organization expense 2 4
Registration fees 23 46
Reports to shareholders 3 4
Transfer agent and shareholder servicing expense 5 6
Other expenses 8 16
------------------------ -------------------
1,020 1,792
Less fees waived (605) (1,055)
------------------------ -------------------
Total expenses, net of waivers 415 737
------------------------ -------------------
NET INVESTMENT INCOME 8,194 16,121
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments (8,877) (1,328)
Foreign currency transactions 10,748 14,200
Unrealized gain (loss) on:
Investments 1,048 1,983
Assets and liabilities denominated in foreign currencies (52) (26)
------------------------ -------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 2,867 14,829
------------------------ -------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $11,061 $30,950
------------------------ -------------------
</TABLE>
(A) The year end for Western Asset Trust, Inc. - International Securities
Portfolio has been changed from June 30 to March 31.
See notes to financial statements
6
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES 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 $8,194 $16,121 $14,600
Net realized gain on investments, foreign currency transactions 1,871 12,872 17,454
Change in unrealized appreciation of investments and assets
and liabilities denominated in foreign currencies 996 1,957 (8,488)
------------------ ------------- -------------
Change in net assets resulting from operations 11,061 30,950 23,566
Distributions to shareholders from net investment income (19,141) (23,883) (15,747)
Change in net assets from
Fund share transactions (195,975) 76,535 33,943
------------------ ------------- -------------
Change in net assets (204,055) 83,602 41,762
NET ASSETS:
Beginning of period 303,698 220,096 178,334
------------------ ------------- -------------
End of period (including undistributed
net investment income of
$2,309, $11,227 and $4,150
respectively) $99,643 $303,698 $220,096
------------------ ------------- -------------
</TABLE>
(A) The year end for Western Asset Trust, Inc. - International Securities
Portfolio has been changed from June 30 to March 31.
See notes to financial statements
7
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
common stock outstanding throughout each period shown, total investment return,
ratios to average net assets and other supplemental data.
<TABLE>
<CAPTION>
FOR THE FOR THE YEARS ENDED JUNE 30,
NINE MONTHS ENDED ----------------------------------------------------------------
MARCH 31, 1998 (A) 1997 1996 1995 1994 1993 (B)
------------------ ----------------------------------------------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $97.61 $95.16 $92.10 $93.76 $105.53 $100.00
------------------ ----------------------------------------------------------------
Net investment income (C) 3.43 5.29 5.78 6.29 6.94 3.21
Net realized and unrealized gain (loss)
on investments, forward currency
contracts, options, futures and
foreign currency contracts 2.28 6.27 3.56 (1.04) (7.36) 2.59
------------------ ----------------------------------------------------------------
Total from investment operations 5.71 11.56 9.34 5.25 (0.42) 5.80
------------------ ----------------------------------------------------------------
Distributions to shareholders from:
Net investment income (6.77) (9.11) (6.28) (0.63) (8.64) (0.27)
Net realized gain on investments - - - - (2.71) -
Tax return of capital - - - (6.28) - -
------------------ ----------------------------------------------------------------
Total distributions (6.77) (9.11) (6.28) (6.91) (11.35) (0.27)
------------------ ----------------------------------------------------------------
Net asset value, end of period $96.55 $97.61 $95.16 $92.10 $93.76 $105.53
================== ================================================================
Total return (C) 6.24(D) 12.83% 10.36% 6.03% -1.14% 5.81%(D)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses (C) 0.27(E) 0.28% 0.26% 0.28% 0.30% 0.45%(E)
Net investment income (C) 5.42(E) 6.11% 6.02% 5.67% 5.53% 6.08%(E)
Portfolio turnover rate 435.56(E) 290.56% 348.40% 355.03% 571.18% 249.94%(E)
Net assets, end of period
(in thousands) $99,643 $303,698 $220,096 $178,334 $106,806 $93,288
</TABLE>
- ----------------------------------------------
(A) The year end for Western Asset Trust, Inc. - International Securities
Portfolio has been changed from June 30 to March 31.
(B) For the period January 7, 1993 (commencement of operations) to June 30,
1993.
(C) Net of voluntary waiver of investment advisory fees. In the absence of this
voluntary waiver, the ratio of expenses to average net assets would have
been 0.67% for the nine months ended March 31, 1998, and 0.68%, 0.66% ,
0.68%, 0.66% and 0.70% for the years ended June 30, 1997,1996 1995,and 1994,
respectively, and 0.85% for the period ended June 30, 1993.
(D) Not Annualized
(E) Annualized
See notes to financial statements
8
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES 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 International
Securities Portfolio ("Fund"), a non-diversified, open-end management investment
company, is one of the portfolios established by the Corporation. The Fund was
organized on May 16, 1990 and had no operations prior to January 7, 1993, other
than those related to organizational matters.
SECURITY VALUATION
Portfolio securities are valued based upon market quotations. When market
quotations are not readily available, securities are valued based on prices
received from recognized broker-dealers in the same or similar securities. The
amortized cost method of valuation is used for debt obligations with 60 days or
less remaining to maturity.
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.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FOREIGN CURRENCY TRANSACTIONS
The books and records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at the
closing daily rate of exchange, and
(ii) purchases and sales of investment securities, interest income and
expenses at the rate of exchange prevailing on the
respective date of such transactions.
The effect of changes in foreign exchange rates on realized and unrealized
security gains or losses are reflected as a component of such gains and losses.
INVESTMENT INCOME AND DISTRIBUTIONS TO SHAREHOLDERS
Net investment income for dividend purposes is recorded on the accrual basis and
consists of interest income less expenses. Bond premium and original issue
discount are amortized for financial reporting and tax purposes using the
effective interest method over the period to maturity of the security and serve
to reduce or increase interest income.
Distributions are determined on a tax basis and may differ from net investment
income and capital gains for financial reporting purposes.
SECURITY TRANSACTIONS
Security transactions are recorded on the trade date. Realized gains and losses
from security transactions are reported on an identified cost basis.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FEDERAL INCOME TAXES
No provision for federal income or excise taxes is required since the Fund
intends to continue to qualify as a regulated investment company and distribute
all of its taxable income to its shareholders.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
2. FINANCIAL INSTRUMENTS:
As part of its investment program, the Fund utilizes repurchase agreements,
options, futures and forward currency exchange contracts. The nature and risk of
these financial instruments and the reasons for using them are set forth more
fully in the Corporation's Prospectus and Statement of Additional Information.
REPURCHASE AGREEMENTS
All repurchase agreements are fully collateralized by obligations issued by the
U.S. Government or its agencies and such collateral is in the possession of the
Fund's custodian. Risks arise from the possible delay in recovery or potential
loss of rights in the collateral should the issuer of the repurchase agreement
fail financially.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward currency exchange contracts to help manage its
currency exposure. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in currency values.
Forward currency contracts are valued using the forward rate. Outstanding
contracts at March 31, 1998 are as follows:
<TABLE>
<CAPTION>
CONTRACT TO
SETTLEMENT ------------------------------------------------------------ APPRECIATION/
DATE RECEIVE DELIVER (DEPRECIATION)
------------- ------------------------ --------------------------- --------------
<S> <C>
4/29/98 USD 15,226 CAD 21,700 $ (101)
4/29/98 USD 14,255 DEM 25,800 280
4/29/98 DEM 25,800 USD 14,036 (61)
4/29/98 USD 24,386 GBP 14,600 (15)
4/29/98 GBP 9,220 USD 15,456 (46)
4/29/98 USD 13,079 ITL 23,600,000 133
4/29/98 USD 3,571 NZD 6,142 188
4/29/98 USD 11,408 SEK 92,600 (185)
4/29/98 USD 8,790 ZAR 43,719 167
4/29/98 ZAR 30,219 USD 6,014 (54)
5/04/98 USD 9,091 GRD 2,700,000 692
5/04/98 GRD 2,700,000 USD 9,477 (1,078)
5/29/98 USD 17,054 DKK 117,500 340
5/29/98 DKK 54,200 USD 7,799 (89)
--------
$ 171
========
</TABLE>
12
<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:
<TABLE>
<CAPTION>
CALLS
-----------------------------------
ACTUAL PREMIUMS
CONTRACTS $
- ---------------------------------------------------------------------------------------------
<S> <C>
Options outstanding at June 30, 1997 - -
Options Written: South African Rand 54 $23
Options Closed: South African Rand (18) (9)
- ---------------------------------------------------------------------------------------------
Options outstanding at March 31, 1998 36 $14
=============================================================================================
</TABLE>
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 "Portfolio of Investments", page 4.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
3. PORTFOLIO TRANSACTIONS:
Purchases and sales of portfolio securities (excluding short-term and U.S.
Government securities) for the nine months ended March 31, 1998, aggregated
$511,464 and $624,743, respectively. There were no purchases or sales of U.S.
Government securities during the nine months ended March 31, 1998.
At March 31, 1998, the cost of securities for federal income tax purposes was
$76,804. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $691 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $967. The fund has unused capital loss carryforwards for
federal income tax purposes of $1,966 which expire in 2006.
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 MONTHS
ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
MARCH 31, 1998 JUNE 30, 1997 JUNE 30, 1996
-------------------------------- ------------------------------- -------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------- ------------------------------- -------------------------------
<S> <C>
Sold 31 $ 2,855 696 $ 67,238 2,384 $ 224,198
Reinvestment of
distributions 205 19,141 251 23,796 168 15,747
Repurchased (2,315) (217,971) (149) (14,499) (2,175) (206,002)
- -------------------------------------------------------- ------------------------------- --------------------------------
Net change (2,079) $ (195,975) 798 $ 76,535 377 $ 33,943
======================================================== =============================== ===============================
</TABLE>
14
<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 $7,108, for which the Fund received collateral of $7,428 in cash. Such
collateral is in the possession of the Fund's custodian. As with other
extensions of credit, the Fund may bear the risk of delay in recovery or even
loss of rights to the collateral should the borrower of the securities fail
financially.
6. TRANSACTIONS WITH AFFILIATES:
The Fund has a management agreement with Western Asset Management Company
("Adviser"), a corporate affiliate of Legg Mason Fund Adviser, Inc.
("Administrator"), and Legg Mason Wood Walker, Incorporated ("Legg Mason"), a
member of the New York Stock Exchange and the distributor for the Fund. The
Adviser is responsible for the actual investment activity of the Fund, for which
the Fund pays a fee at an annual rate of 0.475% of average daily net assets of
the Fund. The Adviser has voluntarily agreed to waive its fees and reimburse the
Fund to the extent necessary to limit total expenses to 0.85% of average daily
net assets. The Adviser has further voluntarily waived its fee for services to
the Fund other than the portion of the fee equal to the fee paid by the Adviser
to the Administrator. Pursuant to this agreement, advisory fees of $605 were
waived for the nine months ended March 31, 1998.
The Adviser has an administration agreement with the Administrator. Under this
agreement, the Administrator provides the Fund with administrative services for
which the Adviser pays a fee at an annual rate of 0.075% of average daily net
assets of the Fund.
15
<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 International Securities Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, 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 International
Securities Portfolio (the "Fund"), (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
