February 25, 1998
Dear Shareholder:
Enclosed are the mid-year financial statements for the Western Asset Trust
International Securities Portfolio, covering the period July 1 - December 31,
1997.
Now in its sixth year of operation, the fund produced positive but somewhat
disappointing investment results relative to both the non-dollar and the
domestic market for this period, returning 3.7% (net) versus the Salomon
Brothers World Ex-US (hedged) return of 6.1%, and the Salomon Brothers Broad
Investment Grade Index return of 6.4%.
The fund's below benchmark performance during this period is due to two
principal factors: 1) the fund was not invested in the Japanese bond market
which experienced a substantial decline in yields, and 2) non-dollar markets
(ex-Japan) generally lagged the strong performance of the U.S. market. It
should be noted, however, that the primary purpose of this fund is to provide
domestic investors with opportunistic exposure to non-dollar fixed-income
securities. In this capacity it detracted only marginally from overall returns,
since our allocation to the non-dollar sector was reduced to modest levels just
prior to the beginning of the period.
As you know, we will be repositioning this fund in the next few months and are
optimistic that these changes will further enhance the funds' future return
prospects.
Please feel free to call if you have any questions.
Sincerely,
/s/ W. Curtis Livingston
________________________
W. Curtis Livingston
President
Enclosure
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
REPORT TO SHAREHOLDERS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
LONG-TERM DEBT SECURITIES (A) 62.36%
BRITISH STERLING 1.78%
Daimler-Benz UK, PLC 7.00% 02/25/00 GBP 500 $815
Bayerische Hypotheken Bank 7.00% 02/20/00 1,000 1,634
Fannie Mae 6.875% 06/07/02 1,900 3,126
Welcome Break Finance, PLC 8.284% 09/01/17 1,000 1,819
--------------
7,394
CANADIAN DOLLAR 3.64%
Government of Canada 8.00% 06/01/23 CAD 4,200 3,721
DANISH KRONE 16.20%
Kingdom of Denmark 9.00% 11/15/00 DKK 45,000 7,285
Kingdom of Denmark 8.00% 03/15/06 45,000 7,608
Kingdom of Denmark 7.00% 11/15/07 10,500 1,682
--------------
16,576
GERMAN DEUTSCHMARK 3.48%
Deutsche Bundesrepublik 6.25% 04/26/06 DEM 6,000 3,557
ITALIAN LIRA 12.13%
Buoni del Tesoro Poliennali 10.00% 08/01/03 ITL 18,000,000 12,414
SOUTH AFRICAN RAND 3.39%
Republic of South Africa 13.00% 08/31/10 ZAR 17,700 3,465
SWEDISH KRONA 14.36%
Kingdom of Sweden 13.00% 06/15/01 SEK 95,000 14,696
</TABLE>
2
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
LONG-TERM DEBT SECURITIES -CONTINUED
UNITED STATES DOLLAR 1.94%
Standard Chartered Bank
Indonesia Rupiah-Linked Note 14.00% 11/21/01 USD 5,000 $1,986
Total Long-Term Investments
(Identified Cost - $67,879) 63,808
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (A) 29.48%
COMMERCIAL PAPER 15.19% USD
Conagra Inc. 6.40% 01/02/98 7,000 6,998
GATX Capital Corporation 7.00% 01/02/98 1,550 1,549
BP America, Inc. 6.90% 01/02/98 7,000 6,997
-------------
15,544
REPURCHASE AGREEMENTS 14.06%
J.P. Morgan Securities, Inc.
6.60% dated 12/31/97, to be repurchased at
$8,003 on 1/2/98 (Collateral: $7,720 Fannie
Mae Medium-term note, 6.85% due 4/5/04,
value $8,290) 8,000 8,000
Merrill Lynch Securities, Inc.
6.6% dated 12/31/97, to be repurchased at
$6,391 on 1/2/98 (Collateral: $6,335 Fannie
Mae Medium-term note, 6.45% due 2/14/02,
value $6,673) 6,389 6,389
-------------
14,389
</TABLE>
3
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
% OF MATURITY ACTUAL
NET ASSETS RATE DATE CURRENCY CONTRACT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
SHORT-TERM INVESTMENTS - CONTINUED
OPTIONS PURCHASED 0.12%
Kingdom of Denmark 7% 11/07 Euro Call
January 98, Strike Price $109.50 DKK 296 $63
United Kingdom Treasury Stock 8/21 Euro Put
January 98, Strike Price $121.406 GBP 15 61
Government of Japan #190 Euro Call
January 98, Strike Price $108.426 JPY 9,400 110
--------------
124
Total Short-Term Investments
(Identified Cost - $30,146) 30,167
- ----------------------------------------------------------------------------------------------------------------------------------
Total Investments 91.84%
(Identified Cost - $90,025) 93,975
- ----------------------------------------------------------------------------------------------------------------------------------
APPRECIATION/
EXPIRATION (DEPRECIATION)
---------- --------------
FUTURES CONTRACTS PURCHASED
German 5-Year Government Bond Futures March 98 30 ($1)
UK Long Gilt Government Bond Futures March 98 194 (59)
--------------
(60)
</TABLE>
- ----------------
(A) Listed by currency denomination.
See notes to financial statements
4
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S><C>
ASSETS
Investments at value (Identified Cost - $98,025) $ 93,975
Receivable for investments sold 74,347
Interest receivable 2,268
Unrealized appreciation of forward currency contracts 6,138
Other assets 21
--------
Total assets 176,749
LIABILITIES
Payable for fund shares repurchased 72,383
Unrealized depreciation of forward currency contracts 1,848
Payable for variation margin 60
Due to adviser 32
Accrued expenses 103
--------
Total liabilities 74,426
--------
Net assets $102,323
========
ANALYSIS OF NET ASSETS
Common stock at par value $.001 per share, authorized
100,000,000 shares: issued and outstanding 1,088 shares $ 1
Accumulated paid-in capital 104,860
Overdistributions of net investment income (651)
Accumulated net realized loss on investments, forward currency
contracts and currency translations (1,611)
Unrealized depreciation of investments, forward currency
contracts and currency translations (276)
--------
Net assets $102,323
========
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE $ 94.05
========
</TABLE>
- ---------
See notes to financial statements
5
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
INVESTMENT INCOME:
Interest $7,625
EXPENSES:
Advisory fee $ 593
Custodian fees 209
Legal and audit fees 13
Directors' fees 9
Registration fees 5
Organization expense 2
Transfer agent and
shareholder servicing expense 4
Reports to shareholders 1
Other expenses 7
-------
843
Less fees waived (481)
-------
Total expenses, net of waivers 362
------
7,263
NET INVESTMENT INCOME
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments, options and futures (5,425)
Foreign currency transactions 5,771
Unrealized gain (loss) on:
Investments 1,136
Assets and liabilities denominated
in foreign currencies (404)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,078
------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $8,341
======
================================================================================
STATEMENT OF CHANGES IN NET ASSETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, 1997 JUNE 30, 1997
----------------- -------------
(UNAUDITED)
<S><C>
CHANGE IN NET ASSETS:
Net investment income $ 7,263 $ 16,121
Net realized gain on investments,
options, futures and foreign
currency translations 346 12,872
Change in unrealized appreciation
of investments and assets
and liabilities denominated
in foreign currencies 732 1,957
--------- --------
Change in net assets resulting
from operations 8,341 30,950
Distributions to shareholders from net
investment income (19,141) (23,883)
Change in net assets from:
Fund share transactions: (190,575) 76,535
--------- --------
Change in net assets (201,375) 83,602
NET ASSETS:
Beginning of period 303,698 220,096
--------- --------
End of period (including
(over)/under distributed net
investment income of $(651)
and $11,227 respectively $102,323 $303,698
======== ========
</TABLE>
See notes to financial statements
6
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of
common stock outstanding throughout each period shown, total investment return,
ratios to average net assets and other supplemental data. This information has
been derived from information in the financial statements.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
SIX MONTHS ENDED -------------------------------------------------------------------
DECEMBER 31, 1997 1997 1996 1995 1994 1993 (A)
----------------- -------------------------------------------------------------------
(UNAUDITED)
<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 (B) 2.56 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 0.65 6.27 3.56 (1.04) (7.36) 2.59
-------------- -------------------------------------------------------------------
Total from investment operations 3.21 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 $94.05 $97.61 $95.16 $92.10 $93.76 $105.53
============== ===================================================================
Total return (B) 3.73%(C) 12.83% 10.36% 6.03% -1.14% 5.81%(C)
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses (B) 0.29%(D) 0.28% 0.26% 0.28% 0.30% 0.45%(D)
Net investment income (B) 5.82%(D) 6.11% 6.02% 5.67% 5.53% 6.08%(D)
Portfolio turnover rate 448.85%(D) 290.56% 348.40% 355.03% 571.18% 249.94%(D)
Net assets, end of period
(in thousands) $102,323 $303,698 $220,096 $178,334 $106,806 $93,288
</TABLE>
- ------------
(A) For the period January 7, 1993 (commencement of operations) to June 30,
1993.
(B) Net of voluntary waiver of investment advisory fees. In the absence of this
voluntary waiver, the ratio of expenses to average net assets would have
been 0.69% for the six months ended December 31, 1997, 0.68% for the year
ended June 30, 1997, 0.66% for the year ended June 30, 1996, 0.68% for the
year ended June 30, 1995, 0.70% for the year ended June 30, 1994 and 0.85%
for the period ended June 30, 1993.
(C) Not annualized.
(D) Annualized.
See notes to financial statements
7
<PAGE>
WESTERN ASSET TRUST, INC.
INTERNATIONAL SECURITIES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Western Asset Trust, Inc. ("Corporation") is registered under the Investment
Company Act of 1940, as amended. The Western Asset Trust International
Securities Portfolio ("Fund"), a non-diversified, open-end management investment
company, is one of the portfolios established by the Corporation. The Fund was
organized on May 16, 1990 and had no operations prior to January 7, 1993, other
than those related to organizational matters.
SECURITY VALUATION
Portfolio securities are valued based upon market quotations. When market
quotations are not readily available, securities are valued based on prices
received from recognized broker-dealers in the same or similar securities. The
amortized cost method of valuation is used for debt obligations with 60 days or
less remaining to maturity. The difference between cost and market value is
reflected separately as unrealized appreciation or depreciation on investments.
FOREIGN CURRENCY TRANSACTIONS
The books and records of the Fund are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at the
closing daily rate of exchange, and
(ii) purchases and sales of investment securities, interest income and
expenses at the rate of exchange prevailing on the respective date of
such transactions.
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.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED
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.
DEFERRED ORGANIZATIONAL EXPENSE
Deferred organizational expenses of $18 were amortized on a straight-line basis
through December 1997.
FEDERAL INCOME TAXES
No provision for federal income or excise taxes is required since the Fund
intends to continue to qualify as a regulated investment company and distribute
all of its taxable income to its shareholders.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the financial
statements. Actual results could differ from these estimates.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
2. FINANCIAL INSTRUMENTS:
As part of its investment program, the Fund utilizes repurchase agreements and
forward currency exchange contracts. The nature and risk of these financial
instruments and the reasons for using them are set forth more fully in the
Corporation's Prospectus and Statement of Additional Information.
REPURCHASE AGREEMENTS
All repurchase agreements are fully collateralized by obligations issued by the
U.S. Government or its agencies and such collateral is in the possession of the
Fund's custodian. Risks arise from the possible delay in recovery or potential
loss of rights in the collateral should the issuer of the repurchase agreement
fail financially.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund may enter into forward currency exchange contracts to help manage its
currency exposure. Risks arise from the possible inability of counterparties to
meet the terms of their contracts and from movements in currency values.
Forward currency contracts are valued using the forward rate. Outstanding
contracts at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CONTRACT TO
SETTLEMENT ------------------------------------------------------------ APPRECIATION/
DATE RECEIVE DELIVER (DEPRECIATION)
------------- ------------------------ --------------------------- --------------
<S><C>
1/16/98 USD 9,132 AUD 12,630 $ 897
1/16/98 AUD 12,630 USD 8,766 (531)
2/17/98 USD 14,721 CAD 20,800 143
2/17/98 CAD 15,462 USD 10,868 (32)
2/17/98 USD 18,171 DEM 32,100 278
2/17/98 DEM 25,600 USD 14,326 (56)
2/17/98 USD 29,869 DKK 196,300 1,150
2/17/98 DKK 80,500 USD 11,824 (47)
2/17/98 USD 45,431 GBP 27,116 995
</TABLE>
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FINANCIAL INSTRUMENTS - CONTINUED
FORWARD CURRENCY EXCHANGE CONTRACTS - CONTINUED
<TABLE>
<CAPTION>
CONTRACT TO
SETTLEMENT ------------------------------------------------------------ APPRECIATION/
DATE RECEIVE DELIVER (DEPRECIATION)
------------- ------------------------ --------------------------- --------------
<S><C>
2/17/98 GBP 22,626 USD 37,511 $ (432)
5/04/98 USD 9,091 GRD 2,700,000 (146)
5/04/98 GRD 2,700,000 USD 9,477 (240)
2/17/98 USD 22,043 ITL 37,500,000 851
2/17/98 ITL 14,785,000 USD 8,392 (37)
1/29/98 USD 4,369 NLG 8,655 93
1/29/98 NLG 8,655 USD 4,420 (144)
1/21/98 USD 11,982 PTE 2,170,000 188
1/21/98 PTE 2,170,000 USD 11,877 (83)
2/17/98 USD 27,403 SEK 205,800 1,449
2/17/98 SEK 84,600 USD 10,695 (26)
2/17/98 USD 5,780 ZAR 28,780 (64)
2/17/98 ZAR 11,000 USD 2,235 (2)
4/19/98 USD 6,100 ZAR 30,219 68
4/19/98 ZAR 30,219 USD 6,014 18
------
$4,290
======
</TABLE>
3. PORTFOLIO TRANSACTIONS:
Purchases and sales of portfolio securities (excluding short-term and U.S.
Government securities) for the six months ended December 31, 1997 aggregated
$436,224 and $548,791, respectively. There were no purchases or sales of U.S.
Government securities during the six months ended December 31, 1997.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
PORTFOLIO TRANSACTIONS - CONTINUED
At December 31, 1997, the cost of securities for federal income tax purposes was
$98,025. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $274 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $4,324.
4. FUND SHARE TRANSACTIONS:
At December 31, 1997, 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 SIX MONTHS ENDED FOR THE YEAR ENDED
-------------------------------------- -------------------------------------------
DECEMBER 31, 1997 JUNE 30, 1997
-------------------------------------- -------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------- -------------------------------------------
<S><C>
Sold 31 $ 2,855 696 $ 67,238
Reinvestment of distributions 205 19,141 251 23,796
Repurchased (2,259) (212,571) (149) (14,499)
- ------------------------------------------------------------------------------- -------------------------------------------
Net change (2,023) $(190,575) 798 $ 76,535
=============================================================================== ===========================================
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
5. SECURITIES LOANED:
At December 31, 1997, the market value of the securities on loan to
broker-dealers was $7,804, for which the Fund received collateral of $8,231 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 $481 were
waived for the six months ended December 31, 1997.
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.
13
