<PAGE>
LM INSTITUTIONAL FUND ADVISORS I, INC.
Western Asset Core Portfolio
Western Asset Core Plus Portfolio
Western Asset Intermediate Portfolio
Western Asset Limited Duration Portfolio
Western Asset Non-U.S. Fixed Income Portfolio
Annual Report
March 31, 1999
<PAGE>
PRESIDENT'S LETTER
LM Institutional Fund Advisors I, Inc.
April 30, 1999
Dear Shareholder:
We are pleased to provide you with the financial statements for the LM
Institutional Fund Advisors I, Inc. Portfolios for the periods ended March 31,
1999. Attached are brief narratives from the portfolio managers of the Western
Asset Core, Core Plus, Intermediate, Limited Duration and Non-U.S. Fixed
Income Portfolios detailing key developments as they pertain to your
investment.
During 1998 and into 1999, the focus on the Year 2000 issue has increased
significantly. As you may know, the Year 2000 issue is a computer programming
problem that affects the ability of computers to correctly process dates of
January 1, 2000, and beyond. The Portfolios' Year 2000 project is well
underway, and is designed to ensure that the Year 2000 date change will have
no adverse impact on our ability to service our shareholders. The Portfolios
are committed to taking those steps necessary to protect Portfolio investors
including efforts to determine that the Year 2000 problem will not affect such
vital service functions as shareholder transaction processing and
recordkeeping. In addition, we are continuously monitoring the Year 2000
efforts of our vendors, and will perform tests with our critical vendors
throughout 1999. Although the Portfolios are taking steps to ensure that all
of their systems will function properly before, during, and after the Year
2000, the Portfolios could be adversely affected by computer related problems
associated with the Year 2000. Contingency plans are in place to ensure that
functions critical to the Portfolios' operations will continue without
interruption. We are on target to complete this important project and look
forward to continuing extensive testing (including industry-wide testing) with
our industry peers, regulators and vendors throughout 1999.
If you have any questions, please do not hesitate to contact us at 1-888-425-
6432. We look forward to hearing from you.
Sincerely,
Joseph L. Orlando
President
LM Institutional Advisors, Inc.
1
<PAGE>
PERFORMANCE INFORMATION
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was mixed in
the twelve months ended March 31, 1999, as Treasury yields generally declined
but yields on non-Treasury issues generally rose over the course of the
period. The Portfolio's total return trailed that of its benchmark, the
Salomon Brothers Broad Market Index (SBBI), returning 5.61% (net of expenses)
vs. 6.50%, as major strategies produced mixed but generally negative results.
The Portfolio benefited from a longer than market duration posture, which it
held throughout the period, and yield curve strategies generally anticipated
the periods when short- and long-term interest rates moved by greater and
lesser degrees relative to each other. However, an overweighting to the
corporate and mortgage sectors proved to be a major drag on performance since
spreads widened significantly in the wake of the Russian liquidity crisis in
late summer. A moderate exposure to inflation-indexed bonds also detracted
from performance as real yields rose.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Western Asset Salomon
Core Brothers
Portfolio* Broad Market Index/1/
<S> <C> <C>
Sept 90 1,000,000 1,000,000
Dec 90 1,055,800 1,059,800
Dec 91 1,246,266 1,229,050
Dec 92 1,344,098 1,322,335
Dec 93 1,530,390 1,453,378
Dec 94 1,464,124 1,411,957
Dec 95 1,771,151 1,673,593
Dec 96 1,836,684 1,734,177
Dec 97 2,023,475 1,901,178
Dec 98 2,192,232 2,066,961
Mar 99 2,170,571 2,057,453
</TABLE>
* Past performance is not an indicator of future results. Investment returns
and principal value will fluctuate, and shares may be worth more or less at
redemption than at original purchase. Performance figures include
reinvestment of dividends and capital gains distributions. No adjustment has
been made for any income taxes payable by shareholders. The performance
figures for the index do not include any transaction costs associated with
buying and selling securities in the index or other administrative expenses
but reflect the reinvestment of dividends and distributions. The Portfolio
currently operates under an expense limitation. Without this limitation,
total return would be lower.
Mutual fund shares are not insured by the FDIC and are not deposits,
obligations of or guaranteed by any bank. The Portfolio is subject to
investment risks, including possible loss of principal amount invested.
/1/ The Salomon Brothers Broad Market Index is an unmanaged index that measures
the performance of the investment-grade universe of bonds issued in the
United States. The index includes institutionally traded U.S. Treausry,
government-sponsored, mortgage and corporate securities.
2
<PAGE>
PERFORMANCE INFORMATION
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was mixed in
the almost nine month period from its inception through March 31, 1999, as
Treasury yields generally declined but yields on non-Treasury issues generally
rose over the course of the period. The Portfolio's total return trailed that
of its benchmark, the Salomon Brothers Broad Market Index (SBBI), returning
2.58% (net of expenses) vs. 4.09%, as major strategies produced mixed but
generally negative results. The Portfolio benefited from a longer than market
duration posture which it held throughout the period, and yield curve
strategies benefited from a decline in short rates relative to long rates.
Non-dollar bond exposure added to performance, since non-dollar bonds
generally outperformed their domestic counterparts. However, these positive
factors were more than offset by an overweighting to the corporate and
mortgage sectors, which proved to be the major drag on performance since
spreads widened significantly in the wake of the Russian liquidity crisis in
late summer. Moderate exposure to emerging market debt also proved to be a net
drag on performance since spreads ended the period substantially wider. A
moderate exposure to inflation-indexed bonds also detracted from performance
as real yields rose.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Western Asset Salomon
Core Plus Brothers
Portfolio* Broad Market Index/1/
<S> <C> <C>
Jul 98 1,000,000 1,000,000
Aug 1,001,000 1,017,400
Sep 98 1,027,026 1,041,411
Oct 1,020,042 1,036,724
Nov 1,035,139 1,042,426
Dec 98 1,036,174 1,045,658
Jan 1,044,360 1,053,396
Feb 1,017,624 1,034,961
Mar 99 1,025,844 1,040,861
</TABLE>
* Past performance is not an indicator of future results. Investment returns
and principal value will fluctuate, and shares may be worth more or less at
redemption than at original purchase. Performance figures include
reinvestment of dividends and capital gains distributions. No adjustment has
been made for any income taxes payable by shareholders. The performance
figures for the index do not include any transaction costs associated with
buying and selling securities in the index or other administrative expenses
but reflect the reinvestment of dividends and distributions. The Portfolio
currently operates under an expense limitation. Without this limitation,
total return would be lower.
Mutual fund shares are not insured by the FDIC and are not deposits,
obligations of or guaranteed by any bank. The Portfolio is subject to
investment risks, including possible loss of principal amount invested.
/1/ The Salomon Brothers Broad Market Index is an unmanaged index that measures
the performance of the investment-grade universe of bonds issued in the
United States. The index includes institutionally traded U.S. Treasury,
government-sponsored, mortgage and corporate securities.
3
<PAGE>
PERFORMANCE INFORMATION
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was mixed in
the twelve months ended March 31, 1999, as Treasury yields generally declined
but yields on non-Treasury issues generally rose over the course of the
period. The Portfolio's total return lagged that of its benchmark, the Lehman
Brothers Intermediate Government/Corporate Bond Index, returning 6.01% (net of
expenses) vs. 6.57%, as major strategies produced mixed results. The Portfolio
benefited from a longer than market duration posture, which it held throughout
the period, and yield curve strategies generally anticipated the periods when
short- and long-term interest rates moved by greater and lesser degrees
relative to each other. However, an overweighting to the corporate and
mortgage sectors proved to be a major drag on performance since spreads
widened significantly in the wake of the Russian liquidity crisis in late
summer. A moderate exposure to inflation-indexed bonds also detracted from
performance as real yields rose.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Western Asset Lehman Brothers
Intermediate Portfolio Intermediate Gov't/Corp
Portfolio* Bond Index/1/
<S> <C> <C>
Jul 94 1,000,000 1,000,000
Dec 94 1,005,500 1,007,000
Dec 95 1,161,353 1,161,373
Dec 96 1,215,820 1,208,409
Dec 97 1,317,949 1,303,390
Dec 98 1,419,563 1,413,135
Dec 99 1,416,954 1,410,450
</TABLE>
* Past performance is not an indicator of future results. Investment returns
and principal value will fluctuate, and shares may be worth more or less at
redemption than at original purchase. Performance figures include
reinvestment of dividends and capital gains distributions. No adjustment has
been made for any income taxes payable by shareholders. The performance
figures for the index do not include any transaction costs associated with
buying and selling securities in the index or other administrative expenses
but reflect the reinvestment of dividends and distributions. The Portfolio
currently operates under an expense limitation. Without this limitation,
total return would be lower.
Mutual fund shares are not insured by the FDIC and are not deposits,
obligations of or guaranteed by any bank. The Portfolio is subject to
investment risks, including possible loss of principal amount invested.
/1/ The Lehman Brothers Intermediate Gov't/Corp Bond Index is an unmanaged index
that measures the performance of intermediate (1-10 year) government and
corporate fixed-rate debt issues.
4
<PAGE>
PERFORMANCE INFORMATION
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was generally
negative in the twelve months ended March 31, 1999, as Treasury yields
generally declined but yields on non-Treasury issues generally rose over the
course of the period. The Portfolio's total return trailed that of its
benchmark, the Merrill Lynch 1-3 Year Government Index, returning 4.96% (net
of expenses) vs. 6.08%, as major strategies produced mixed but generally
negative results. The Portfolio benefited from a longer than market duration
posture, which it held throughout the period, and yield curve strategies
generally anticipated the periods when short- and long-term interest rates
moved by greater and lesser degrees relative to each other. However, an
overweighting to the corporate and mortgage sectors proved to be a major drag
on performance since spreads widened significantly in the wake of the Russian
liquidity crisis in late summer. A moderate exposure to inflation-indexed
bonds also detracted from performance as real yields rose.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Western Asset Merrill Lynch
Limited Duration 1-3 Year
Portfolio* Gov't Index/1/
<S> <C> <C>
May 96 1,000,000 1,000,000
Jun 96 1,007,600 1,009,200
Dec 96 1,050,725 1,045,430
Jun 97 1,082,247 1,075,539
Dec 97 1,124,455 1,115,011
Jun 98 1,159,200 1,148,684
Dec 98 1,188,992 1,193,023
Mar 99 1,197,600 1,200,182
</TABLE>
* Past performance is not an indicator of future results. Investment returns
and principal value will fluctuate, and shares may be worth more or less at
redemption than at original purchase. Performance figures include
reinvestment of dividends and capital gains distributions. No adjustment has
been made for any income taxes payable by shareholders. The performance
figures for the index do not include any transaction costs associated with
buying and selling securities in the index or other administrative expenses
but reflect the reinvestment of dividends and distributions. The Portfolio
currently operates under an expense limitation. Without this limitation,
total return would be lower.
Mutual fund shares are not insured by the FDIC and are not deposits,
obligations of or guaranteed by any bank. The Portfolio is subject to
investment risks, including possible loss of principal amount invested.
/1/ The Merrill Lynch 1-3 Year Government Index is an unmanaged index
that measures the performance of U.S. Treasuries with maturities between
1 and 3 years
5
<PAGE>
PERFORMANCE INFORMATION
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The Portfolio's performance was favorably impacted by market conditions in the
almost nine month period from its inception through March 31, 1999, as non-
dollar interest rates generally declined during the period. However, the
Portfolio's total return trailed that of its non-dollar benchmark, the Salomon
Brothers World Government ex-U.S. Index (Hedged), returning 5.81% (net of
expenses) vs. 6.78%/1/ , and it somewhat underperformed the broad investment
grade market (as represented by the Salomon Brothers Broad Market Index),
which returned 6.50%. The Portfolio's performance was positively impacted by
its overweight exposure to UK bonds for most of the period, as these
registered the strongest performance among bonds of industrialized countries.
These gains were more than offset, however, by the Portfolio's overweight
exposure to dollar-bloc bonds, which underperformed their European
counterparts, and more particularly by an overweight and mostly unhedged
exposure to South African bonds, as these suffered from both a depreciation of
the currency and a sharp rise in yields.
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Western Asset Salomon Brothers
Non-U.S. Fixed Income World Gov't
Portfolio* ex-U.S. Index (Hedged)/1/
<S> <C> <C>
Jul 98 1,000,000 1,000,000
Aug 1,018,000 1,019,200
Sep 98 1,042,025 1,042,642
Oct 1,034,105 1,042,120
Nov 1,051,272 1,051,916
Dec 98 1,066,464 1,048,340
Jan 1,080,061 1,061,339
Feb 1,057,163 1,055,183
Mar 99 1,058,087 1,067,750
</TABLE>
* Past performance is not an indicator of future results. Investment returns
and principal value will fluctuate, and shares may be worth more or less at
redemption than at original purchase. Performance figures include
reinvestment of dividends and capital gains distributions. No adjustment has
been made for any income taxes payable by shareholders. The performance
figures for the index do not include any transaction costs associated with
buying and selling securities in the index or other administrative expenses
but reflect the reinvestment of dividends and distributions. The Portfolio
currently operates under an expense limitation. Without this limitation,
total return would be lower.
Mutual fund shares are not insured by the FDIC and are not deposits,
obligations of or guaranteed by any bank. The Portfolio is subject to
investment risks, including possible loss of principal amount invested.
/1/ The Salomon Brothers World Gov't ex-U.S. Index (Hedged) is an unmanaged
index that measures the performance of debt issues traded in 14 world
government bond markets.
6
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES 17.8%
Automotive 0.2%
Ford Motor Company 6.625% 10/1/28 $ 920 $ 885
Ford Motor Company 7.40% 11/1/46 400 418
--------
1,303
Banking and Finance 7.3%
BNY Capital Trust 7.97% 12/31/26 4,000 4,274
Dryden Investor Trust 7.157% 7/23/08 16,000 15,668G
Ford Motor Credit Company 6.125% 4/28/03 1,735 1,748
Ford Motor Credit Company 5.75% 2/23/04 5,000 4,954
General Motors Acceptance
Corporation 5.85% 1/14/09 5,000 4,814
General Motors Acceptance
Corporation 0.00% 6/15/15 14,900 4,933B
J.P. Morgan & Company, Inc. 6.667% 2/15/12 2,000 1,771F
Key Bank, N.A. 5.13% 3/18/02 5,000 5,194F
SB Treasury Company LLC 9.40% 12/29/49 6,680 6,279G
Socgen Real Estate Co. LLC 7.64% 12/29/49 500 475G
--------
50,110
Food, Beverage and Tobacco 4.2%
Diageo plc 8.625% 8/15/01 150 160
J. Seagram & Sons 6.40% 12/15/03 2,820 2,819
J. Seagram & Sons 6.80% 12/15/08 2,000 2,001
J. Seagram & Sons 7.50% 12/15/18 2,120 2,135
J. Seagram & Sons 7.60% 12/15/28 1,430 1,450
Loews Corporation 7.625% 6/1/23 8,459 8,453
Nabisco Incorporated 6.375% 2/1/35 4,250 4,179
Pepsi Bottling Group Inc. 7.00% 3/1/29 900 898G
Philip Morris Companies, Inc. 8.75% 6/1/01 100 106
RJR Nabisco, Inc. 8.75% 8/15/05 850 909
RJR Nabisco, Inc. 8.50% 7/1/07 800 844
RJR Nabisco, Inc. 8.75% 7/15/07 4,770 5,107
--------
29,061
Gas and Pipeline Utilities 0.2%
CMS Panhandle Holding Company 6.125% 3/15/04 1,700 1,695G
Media and Entertainment 2.9%
Continental Cablevision
Incorporated 9.00% 9/1/08 2,200 2,588
News America Incorporated 7.625% 11/30/28 3,000 3,099G
News America Incorporated 6.75% 1/9/38 5,000 5,015
TCI Communications, Inc. 7.875% 2/15/26 1,500 1,712
Time Warner, Inc. 6.85% 1/15/26 2,000 2,037
Time Warner, Inc. 6.625% 5/15/29 6,000 5,720G
--------
20,171
</TABLE>
7
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES
(CONTINUED)
Medical/Drugs 0.6%
Merck & Co., Inc. 5.95% 12/1/28 $ 4,400 $ 4,078
Telecommunications 1.0%
AT&T Corp. 5.625% 3/15/04 4,200 4,177
AT&T Corp. 6.50% 3/15/29 2,640 2,581
--------
6,758
Transportation 1.0%
Union Pacific Corporation 6.625% 2/1/29 7,000 6,542
Utilities 0.4%
System Energy Resources, Inc. 7.43% 1/15/11 2,457 2,470
TOTAL CORPORATE BONDS AND
NOTES (IDENTIFIED COST
$122,970) 122,188
- ------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 2.0%
Fixed-rate Securities 1.5%
Chevy Chase 1997 - A 7.65% 12/20/07 1,626 1,617
Chevy Chase RACES 1998 - A 6.85% 8/1/13 4,900 4,757G
FMAC Loan Receivables Trust 7.35% 4/15/19 176 180
Green Tree Recreational,
Equipment and Consumer Trust
1998 - A 6.71% 5/15/29 3,596 3,641
Rural Housing Trust 1987 - 1 3.33% 10/1/28 13 13
--------
10,208
Indexed Securities 0.5%
Matterhorn One Limited Trust 5.889% 1/21/06 2,500 2,499F
Matterhorn One Limited Trust 6.089% 6/21/06 694 693F
--------
3,192
Stripped Securities N.M.
Option One CTS Arm Trust 3.07% 3/25/01 12,095 200D/1/
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $14,540) 13,600
- ------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 5.3%
Fixed-rate Securities 3.3%
Asset Securitization
Corporation 6.92% 2/14/29 6,136 6,319
Macerich SCG Funding Limited
Partnership 7.08% 3/15/06 6,000 6,231G
Merrill Lynch Mortgage
Investors, Inc. 6.69% 11/21/28 103 104
Merrill Lynch Mortgage
Investors, Inc. 6.96% 11/21/28 1,358 1,406
Nomura Asset Securities
Corporation 7.07% 4/13/36 2,655 2,721
</TABLE>
8
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
--------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES
(CONTINUED)
Fixed-rate Securities
(continued)
Nomura Asset Securities
Corporation 7.12% 4/13/36 $ 4,500 $ 4,651
Resolution Trust Corporation 9.20% 6/25/24 1,281 1,280
-------
22,712
Indexed Securities N.M.
Prudential Securities Secured
Financing Corp. 5.61% 4/25/26 75 75F
Resolution Trust Corporation 7.25% 9/25/21 57 57F
-------
132
Stripped Securities N.M.
Structured Mortgage Asset
Residential Trust 2500% 8/25/22 N.M. 2D/1/
Structured Mortgage Asset
Residential Trust 0.09% 1/25/23 9,385 8D/1/
-------
10
Variable-rate Securities 2.0%
Resolution Trust Corporation 6.48% 10/25/17 48 48C
Resolution Trust Corporation 6.87% 5/25/21 793 792C
Resolution Trust Corporation 10.30% 8/25/21 136 136C
Resolution Trust Corporation 6.95% 10/25/21 3,303 3,290C
Resolution Trust Corporation 6.88% 6/25/24 8,000 7,942C
Resolution Trust Corporation 7.10% 10/25/28 120 119C
Resolution Trust Corporation 7.58% 9/25/29 1,188 1,189C
-------
13,516
TOTAL MORTGAGE-BACKED
SECURITIES (IDENTIFIED COST
$35,203) 36,370
- -----------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 23.6%
Fixed-rate Securities 8.9%
United States Treasury Bonds 6.375% 8/15/27 910 973
United States Treasury Bonds 6.125% 11/15/27 16,800 17,435
United States Treasury Bonds 5.50% 8/15/28 1,700 1,623
United States Treasury Bonds 5.25% 11/15/28 3,150 2,938
United States Treasury Notes 5.375% 7/31/00 700 703
United States Treasury Notes 6.375% 9/30/01 8,100 8,342
United States Treasury Notes 5.75% 10/31/02 4,650 4,736
United States Treasury Notes 5.75% 11/30/02 2,600 2,648
United States Treasury Notes 5.625% 12/31/02 4,300 4,362
United States Treasury Notes 5.25% 8/15/03 11,220 11,239
United States Treasury Notes 5.75% 8/15/03 4,080 4,163
United States Treasury Notes 4.75% 2/15/04 1,600 1,575
-------
60,737
</TABLE>
9
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (CONTINUED)
Indexed Securities 14.6%
United States Treasury Inflation-
Indexed Security 3.375% 1/15/07 $24,981 $ 24,044E
United States Treasury Inflation-
Indexed Security 3.625% 1/15/08 29,167 28,493E
United States Treasury Inflation-
Indexed Security 3.875% 1/15/09 2,705 2,697E
United States Treasury Inflation-
Indexed Security 3.625% 4/15/28 46,991 44,993E
--------
100,227
Zero-Coupon BondB 0.1%
Tennessee Valley Authority 0.00% 11/1/19 3,064 778
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (IDENTIFIED COST
$164,493) 161,742
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 43.9%
Fixed-rate Securities 43.3%
Fannie Mae 7.00% 9/1/07 87 89
Fannie Mae 7.00% 12/1/07 596 607
Fannie Mae 7.00% 1/1/08 404 411
Fannie Mae 7.00% 1/1/08 329 336
Fannie Mae 7.00% 3/1/08 378 385
Fannie Mae 7.00% 5/1/09 270 276
Fannie Mae 7.00% 6/1/09 124 127
Fannie Mae 7.00% 12/1/09 66 68
Fannie Mae 7.00% 12/1/09 60 61
Fannie Mae 7.00% 6/1/10 59 61
Fannie Mae 7.00% 11/1/10 195 199
Fannie Mae 7.00% 1/1/11 49 50
Fannie Mae 7.00% 1/1/11 450 460
Fannie Mae 7.00% 5/1/11 85 87
Fannie Mae 7.00% 7/1/11 35 35
Fannie Mae 7.00% 12/1/11 262 268
Fannie Mae 7.00% 4/1/12 332 339
Fannie Mae 7.00% 4/1/12 223 228
Fannie Mae 7.00% 5/1/12 227 232
Fannie Mae 7.00% 6/1/12 367 375
Fannie Mae 7.00% 7/1/12 127 129
Fannie Mae 7.00% 7/1/12 403 411
Fannie Mae 7.00% 7/1/12 356 364
Fannie Mae 7.00% 7/1/12 81 83
Fannie Mae 7.00% 7/1/12 153 157
Fannie Mae 7.00% 7/1/12 357 365
</TABLE>
10
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(CONTINUED)
Fixed-rate Securities (continued)
Fannie Mae 7.00% 7/1/12 $ 347 $ 354
Fannie Mae 7.00% 7/1/12 376 384
Fannie Mae 7.00% 8/1/12 92 94
Fannie Mae 7.00% 8/1/12 418 427
Fannie Mae 7.00% 8/1/12 335 342
Fannie Mae 7.00% 9/1/12 422 432
Fannie Mae 7.00% 9/1/12 404 412
Fannie Mae 7.00% 9/1/12 337 344
Fannie Mae 7.00% 10/1/12 146 149
Fannie Mae 7.00% 10/1/12 406 415
Fannie Mae 7.00% 10/1/12 367 374
Fannie Mae 7.00% 11/1/12 49 50
Fannie Mae 7.00% 11/1/12 585 598
Fannie Mae 7.00% 11/1/12 372 380
Fannie Mae 7.00% 11/1/12 274 280
Fannie Mae 7.00% 12/1/12 401 410
Fannie Mae 7.00% 12/1/12 64 66
Fannie Mae 7.00% 12/1/12 63 64
Fannie Mae 7.00% 12/1/12 535 546
Fannie Mae 6.50% 4/1/14 9,200 9,283H
Fannie Mae 7.50% 6/1/25 370 380H
Fannie Mae 7.50% 6/1/25 343 352H
Fannie Mae 7.50% 7/1/25 441 453H
Fannie Mae 7.50% 8/1/25 76 78
Fannie Mae 7.50% 8/1/25 75 77
Fannie Mae 7.50% 9/1/25 496 509
Fannie Mae 7.50% 10/1/25 107 110
Fannie Mae 7.50% 10/1/25 251 258
Fannie Mae 7.50% 11/1/25 30 31
Fannie Mae 6.00% 1/1/26 1,510 1,469
Fannie Mae 7.50% 5/1/26 311 320
Fannie Mae 7.50% 5/1/26 42 43
Fannie Mae 7.50% 7/1/26 27 28
Fannie Mae 7.50% 7/1/26 19 19
Fannie Mae 7.50% 7/1/26 266 274
Fannie Mae 7.50% 8/1/26 304 313
Fannie Mae 7.50% 10/1/26 280 287
Fannie Mae 7.50% 11/1/26 395 405
Fannie Mae 7.50% 11/1/26 278 286
Fannie Mae 7.50% 12/1/26 377 387
Fannie Mae 7.00% 1/1/27 839 851
Fannie Mae 7.00% 4/1/27 2,058 2,086
</TABLE>
11
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(CONTINUED)
Fixed-rate Securities (continued)
Fannie Mae 7.50% 5/1/27 $ 355 $ 365
Fannie Mae 7.50% 5/1/27 297 305
Fannie Mae 7.50% 6/1/27 232 238
Fannie Mae 7.50% 6/1/27 227 233
Fannie Mae 7.50% 6/1/27 386 396
Fannie Mae 7.50% 6/1/27 266 274
Fannie Mae 7.50% 6/1/27 387 397
Fannie Mae 7.50% 7/1/27 232 239
Fannie Mae 7.50% 7/1/27 114 117
Fannie Mae 7.50% 7/1/27 112 115
Fannie Mae 7.50% 8/1/27 573 588
Fannie Mae 7.50% 8/1/27 367 377
Fannie Mae 7.50% 8/1/27 627 644
Fannie Mae 7.50% 9/1/27 418 429
Fannie Mae 7.50% 9/1/27 344 353
Fannie Mae 7.50% 9/1/27 320 329
Fannie Mae 7.50% 9/1/27 160 164
Fannie Mae 7.50% 9/1/27 78 80
Fannie Mae 7.50% 10/1/27 172 177
Fannie Mae 7.50% 10/1/27 501 515
Fannie Mae 7.50% 10/1/27 398 409
Fannie Mae 7.50% 10/1/27 288 296
Fannie Mae 7.50% 10/1/27 237 243
Fannie Mae 7.50% 10/1/27 331 340
Fannie Mae 7.50% 10/1/27 290 298
Fannie Mae 6.00% 11/1/27 2,854 2,774
Fannie Mae 6.00% 11/1/27 938 912
Fannie Mae 6.00% 11/1/27 489 475
Fannie Mae 7.00% 11/1/27 113 115
Fannie Mae 7.50% 11/1/27 146 150
Fannie Mae 7.50% 11/1/27 488 502
Fannie Mae 7.50% 11/1/27 516 531
Fannie Mae 7.50% 11/1/27 271 279
Fannie Mae 7.50% 11/1/27 333 342
Fannie Mae 7.50% 11/1/27 339 349
Fannie Mae 7.50% 11/1/27 278 286
Fannie Mae 7.50% 11/1/27 405 416
Fannie Mae 7.50% 11/1/27 269 276
Fannie Mae 7.50% 11/1/27 304 312
Fannie Mae 7.50% 12/1/27 381 392
Fannie Mae 7.50% 12/1/27 387 398
Fannie Mae 7.50% 12/1/27 65 66
</TABLE>
12
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(CONTINUED)
Fixed-rate Securities (continued)
Fannie Mae 7.50% 12/1/27 $ 197 $ 203
Fannie Mae 7.50% 12/1/27 528 543
Fannie Mae 7.50% 1/1/28 427 438
Fannie Mae 7.50% 2/1/28 278 286
Fannie Mae 7.50% 3/1/28 327 336
Fannie Mae 7.50% 3/1/28 221 227
Fannie Mae 7.50% 4/1/28 402 413
Fannie Mae 7.50% 4/1/28 402 413
Fannie Mae 7.50% 4/1/28 320 329
Fannie Mae 7.50% 4/1/28 347 356
Fannie Mae 7.50% 4/1/28 268 275
Fannie Mae 7.50% 4/1/28 614 631
Fannie Mae 7.50% 4/1/28 596 612
Fannie Mae 7.50% 4/1/28 371 382
Fannie Mae 7.00% 5/1/28 2,442 2,475
Fannie Mae 7.50% 5/1/28 250 257
Fannie Mae 7.50% 5/1/28 337 346
Fannie Mae 7.50% 5/1/28 330 339
Fannie Mae 7.50% 5/1/28 364 374
Fannie Mae 7.50% 5/1/28 585 601
Fannie Mae 7.00% 6/1/28 989 1,002
Fannie Mae 7.00% 6/1/28 557 565
Fannie Mae 7.50% 6/1/28 371 381
Fannie Mae 7.50% 6/1/28 153 157
Fannie Mae 6.50% 7/1/28 1,988 1,979
Fannie Mae 6.50% 7/1/28 6,854 6,822
Fannie Mae 6.50% 7/1/28 9,199 9,155
Fannie Mae 6.50% 7/1/28 15,337 15,265
Fannie Mae 6.50% 7/1/28 14,594 14,525
Fannie Mae 7.00% 7/1/28 2,242 2,273
Fannie Mae 7.50% 7/1/28 339 348
Fannie Mae 6.00% 3/1/29 1,450 1,439H
Fannie Mae 6.50% 3/1/29 8,000 7,963H
Fannie Mae 6.50% 3/1/29 39,600 39,414
Fannie Mae 6.50% 3/1/29 30,103 29,962
Fannie Mae 6.00% 4/1/29 45,250 43,977H
Fannie Mae 7.00% 4/1/29 4,900 4,968H
Federal Housing Authority USGI #68 7.43% 3/1/21 239 239
Freddie Mac 8.25% 8/1/01 14 15
Freddie Mac 9.25% 6/1/02 75 77
Freddie Mac 6.75% 5/1/04 122 123
Freddie Mac 7.50% 4/1/06 89 91
</TABLE>
13
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(CONTINUED)
Fixed-rate Securities (con-
tinued)
Freddie Mac 9.75% 7/1/08 $ 258 $ 269
Freddie Mac 5.50% 12/1/13 1,000 975
Freddie Mac 5.50% 1/1/14 2,000 1,949
Freddie Mac 5.50% 2/1/14 1,400 1,364
Freddie Mac 5.50% 2/1/14 2,000 1,950
Freddie Mac 9.30% 4/15/19 1,505 1,592
Freddie Mac 7.00% 4/1/24 2,484 2,523
Freddie Mac 7.00% 4/1/24 2,262 2,296
Freddie Mac 7.00% 1/1/27 6,405 6,502
Freddie Mac 6.00% 4/1/29 28,720 27,939H
Government National Mortgage
Association 9.50% 3/15/03 93 98
Government National Mortgage
Association 10.25% 6/15/03 19 20
Government National Mortgage
Association 10.00% 11/15/09 5 5
Government National Mortgage
Association 7.50% 10/15/22 247 255
Government National Mortgage
Association 7.50% 12/15/22 154 159
Government National Mortgage
Association 7.50% 12/15/22 63 65
Government National Mortgage
Association 7.00% 1/15/24 19 19
Government National Mortgage
Association 7.50% 9/15/26 688 709
Government National Mortgage
Association 6.00% 4/1/29 9,900 9,620H
Government National Mortgage
Association 6.50% 4/1/29 440 438H
Government National Mortgage
Association 7.00% 4/1/29 600 609H
--------
297,051
Stripped Securities 0.3%
Fannie Mae 9.50% 2/1/17 190 49D/1/
Fannie Mae 1009.50% 2/25/20 N.M. 4D/1/
Fannie Mae 1009.25% 8/25/21 9 213D/1/
Fannie Mae 0.00% 5/25/22 1,738 1,420D/2/
Freddie Mac 10.00% 3/1/21 1,627 374D/1/
Freddie Mac 0.00% 7/15/22 255 206D/2/
Freddie Mac 0.00% 9/15/22 8 8D/2/
--------
2,274
Variable-rate Securities 0.3%
Government National Mortgage
Association 6.125% 12/20/21 1,024 1,042C
Government National Mortgage
Association 6.875% 6/20/25 831 841C
--------
1,883
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $299,975) 301,208
- -------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
YANKEE BONDSA 2.7%
Fixed-rate Securities 2.7%
Hydro-Quebec 8.05% 7/7/24 $ 4,895 $ 5,663G
PDVSA Finance Limited LTD 1998-1 7.50% 11/15/28 2,000 1,480G
Province of Manitoba 9.50% 9/15/18 3,630 4,844
Quebec Province 7.22% 7/22/36 1,105 1,232
YPF Sociedad Anonima 7.50% 10/26/02 2,192 2,182G
YPF Sociedad Anonima 7.75% 8/27/07 3,250 3,104
--------
TOTAL YANKEE BONDS
(IDENTIFIED COST $19,435) 18,505
- ------------------------------------------------------------------------------------------
COMMON STOCKS AND EQUITY INTERESTS 0.7%
Black Rock Strategic Term Trust, Inc. 56 shs 518
Home Ownership Funding 4 4,251G
--------
TOTAL COMMON STOCKS AND EQUITY INTERESTS
(IDENTIFIED COST $4,962) 4,769
- ------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 18.7%
Asset-backed Security N.M.
Navistar Financial Corp. Owner Trust 6.35% 1/15/00 $ 33 33
Corporate Bonds and Notes 2.8%
Countrywide Home Loan 5.048% 1/26/00 5,000 4,998F
IBM Credit Corporation 5.68% 7/7/99 5,000 5,008
IBM Credit Corporation 5.79% 3/20/00 4,000 4,020
PHH Corporation 5.58% 2/17/00 5,000 5,000
--------
19,026
U.S. Government Agency 0.4%
Fannie Mae 4.74% 5/18/99 2,750 2,733I
Repurchase Agreement 15.5%
Lehman Brothers, Inc.
4.97% dated 3/31/99, to be repurchased
at $106,296 on 4/1/99 (Collateral:
$76,775 Fannie Mae Medium-term Notes,
5.10%-7.43% due 7/7/99-3/14/13, value
$77,281; $14,260 Freddie Mac Medium-
term Notes, 6.00% due 8/11/04, value
$14,331; $9,465 Tennessee Valley
Authority, 6.00% due 11/1/00, value
$9,817; $6,875 Federal Farm Credit Bank
Floating-rate Notes, 6.00% due 10/1/99,
value $6,889) 106,281 106,281
</TABLE>
15
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
NET ASSETS VALUE
----------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
<CAPTION>
ACTUAL
CONTRACTS
--------------
<S> <C> <C> <C>
Options Purchased N.M.
Eurodollar Future Call, June
99, Strike Price $95.00 471 $ 53
Eurodollar Future Call, June
99, Strike Price $95.25 151 4
---------
57
TOTAL SHORT-TERM INVESTMENTS (IDENTIFIED COST
$128,347) 128,130
- -------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST $789,925) 114.7 % 786,512
OTHER ASSETS LESS LIABILITIES (14.7)% (101,023)
---------
NET ASSETS CONSISTING OF:
Accumulated paid-in-capital applicable to
62,268 shares outstanding $688,945
Under/(over) distributed net investment
income 7,356
Accumulated net realized gain/(loss) on
investments (7,468)
Unrealized appreciation/(depreciation) of
investments (3,344)
--------
NET ASSETS 100.0 % $ 685,489
=========
NET ASSET VALUE PER SHARE $ 11.01
=========
- -------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
March 31, 1999
(Amounts in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTUAL APPRECIATION/
EXPIRATION CONTRACTS (DEPRECIATION)
---------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts Purchased
U.S. Treasury Bonds Futures June 99 1,295 $(116)
Futures Contracts Written
U.S. Treasury Notes Futures June 99 51 1
U.S. Treasury Notes Futures June 99 306 67
-----
68
Options Written
U.S. Treasury Bonds
Future Put, Strike Price $120.00 May 99 30 (9)
U.S. Treasury Bonds
Future Call, Strike Price $124.00 May 99 210 79
U.S. Treasury Notes
Future Call, Strike Price $112.00 May 99 93 9
U.S. Treasury Notes
Future Call, Strike Price $116.00 May 99 182 38
-----
117
- -----------------------------------------------------------------------------------
</TABLE>
A Yankee Bond - Dollar denominated bond issued in the U.S. by foreign
entities.
B 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.
C The coupon rates shown on variable-rate securities are the rates at March
31, 1999. These rates vary with the weighted average coupon of the
underlying loans.
D Stripped Security - Security with interest-only or principal-only payment
streams, denoted by the 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 Security - U.S. Treasury Security
whose principal value is adjusted daily in accordance with changes to the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
F Indexed Security - The rate of interest on this type of security is tied to
the London Interbank Offer Rate (LIBOR), the Global Telecom Basket (GTB)
index or the one year Treasury Bill rate. The coupon rate is the rate as of
March 31, 1999.
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 institutional buyers.
H When-issued Security - Security purchased on a delayed delivery basis. Final
settlement amount and maturity date have not yet been announced.
I Collateral to cover Future contracts
N.M. Not meaningful
See Notes to Financial Statements
17
<PAGE>
STATEMENT OF OPERATIONS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
MARCH 31, 1999
--------------
<S> <C>
INVESTMENT INCOME:
Interest $ 41,414
Dividends 1,467
--------
Total income 42,881
EXPENSES:
Advisory fee 3,113
Custodian fees 196
Registration fees 44
Reports to shareholders 38
Transfer agent and shareholder servicing expense 29
Legal and audit fees 28
Directors' fees 16
--------
Total expenses 3,464
--------
NET INVESTMENT INCOME 39,417
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments 10,693
Options 2,642
Futures (1,581)
--------
11,754
Change in unrealized appreciation (depreciation) on
investments, options and futures (13,322)
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (1,568)
--------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 37,849
========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE FOR THE YEAR
ENDED MONTHS ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998A JUNE 30, 1997
----------------------------------------
<S> <C> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 39,417 $ 26,485 $ 32,258
Net realized gain (loss) on
investments, options and futures 11,754 15,613 6,820
Change in unrealized appreciation
of investments, options and
futures (13,322) 7,121 2,086
-------- -------- --------
Change in net assets resulting
from operations 37,849 49,219 41,164
Distributions to shareholders
from:
Net investment income (39,129) (27,271) (29,354)
Net realized gain on investments (32,711) (6,743) (306)
Change in net assets from:
Fund share transactions 101,804 94,118 43,150
-------- -------- --------
Change in net assets 67,813 109,323 54,654
NET ASSETS:
Beginning of period 617,676 508,353 453,699
-------- -------- --------
End of period (including
undistributed net investment
income of $7,356, $6,997, and
$7,615, respectively) $685,489 $617,676 $508,353
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
A The year end for LM Institutional Fund Advisors I, Inc. -Western Asset Core
Portfolio has been changed from June 30 to March 31.
See Notes to Financial Statements
19
<PAGE>
FINANCIAL HIGHLIGHTSA
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
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
FOR THE NINE MONTHS
YEAR ENDED ENDED FOR THE
MARCH 31, MARCH 31, YEARS ENDED JUNE 30,
1999 ------------------------------------------------1998B
1997 1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE
OPERATING
PERFORMANCE:
Net asset value,
beginning of
period $ 11.59 $ 11.28 $ 11.05 $ 11.22 $ 10.50 $ 11.66
-------- -------- -------- -------- -------- --------
Net investment
incomeC 0.64 0.49 0.70 0.67 0.69 0.57
Net realized and
unrealized gain
(loss) on
investments,
options and
futures (0.01) 0.49 0.19 (0.14) 0.72 (0.63)
-------- -------- -------- -------- -------- --------
Total from
investment
operations 0.63 0.98 0.89 0.53 1.41 (0.06)
-------- -------- -------- -------- -------- --------
Distributions to shareholders from:
Net investment
income (0.65) (0.53) (0.65) (0.66) (0.69) (0.61)
Net realized
gain on
investments (0.56) (0.14) (0.01) (0.04) -- (0.49)
-------- -------- -------- -------- -------- --------
Total
distributions (1.21) (0.67) (0.66) (0.70) (0.69) (1.10)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period $ 11.01 $ 11.59 $ 11.28 $ 11.05 $ 11.22 $ 10.50
======== ======== ======== ======== ======== ========
Total returnC 5.61% 8.91%D 8.27% 4.86% 14.12% -0.89%
RATIOS/SUPPLEMENTAL DATA:
Ratios to
average net
assets:
ExpensesC 0.50% 0.50%E 0.50% 0.50% 0.50% 0.50%
Net investment
incomeC 5.7% 6.0%E 6.4% 6.3% 7.0% 6.0%
Portfolio
turnover rate 484.3% 226.9%E 384.8% 266.0% 257.9% 272.5%
Net assets, end of period (in thousands) $685,489 $617,676 $508,353 $453,699 $336,774 $205,959
</TABLE>
- --------------------------------------------------------------------------------
A All per share figures reflect the 10 for 1 stock split effective May 29,
1998.
B The year end for LM Institutional Fund Advisor's I, Inc. - Core Portfolio has
been changed from June 30 to March 31.
C 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 year ended March 31, 1999 and the
nine months ended March 31, 1998, and 0.50%, 0.53%, 0.53% and 0.58% for the
years ended June 30, 1997, 1996, 1995 and 1994, respectively.
D Not annualized
E Annualized
See Notes to Financial Statements
20
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND
NOTES 16.7%
Aerospace/Defense 0.8%
Raytheon Company 6.75% 8/15/07 $ 960 $ 984
Automotive 0.6%
Ford Motor Company 6.625% 2/15/28 200 193
Ford Motor Company 6.625% 10/1/28 80 77
General Motors
Corporation 6.75% 5/1/28 500 487
------
757
Banking and Finance 5.4%
BNY Capital Trust 7.97% 12/31/26 1,000 1,069
Ford Motor Credit
Company 6.125% 4/28/03 1,000 1,008
General Motors
Acceptance Corporation 5.85% 1/14/09 2,000 1,925
IBJ Preferred Capital
Co. LLC 8.79% 12/29/49 500 421B
Lehman Brothers Holdings
Incorporated 6.50% 9/25/00 1,000 1,007
SB Treasury Company LLC 9.40% 12/29/49 500 470B
Zurich Capital Trust I 8.376% 6/1/37 500 536B
------
6,436
Business Services 0.9%
Cendant Corporation 7.75% 12/1/03 1,100 1,129
Food, Beverage and
Tobacco 1.2%
J. Seagram & Sons 6.40% 12/15/03 510 510
J. Seagram & Sons 6.80% 12/15/08 360 360
J. Seagram & Sons 7.50% 12/15/18 340 343
J. Seagram & Sons 7.60% 12/15/28 180 182
------
1,395
Gas and Pipeline
Utilities 0.2%
CMS Panhandle Company 7.00% 7/15/29 300 298B
Media and Entertainment 3.9%
Continental Cablevision
Incorporated 9.00% 9/1/08 1,000 1,176
News America Holdings
Incorporated 8.25% 10/17/96 1,100 1,198
News America
Incorporated 6.75% 1/9/38 200 201
TCI Communications Inc. 7.875% 2/15/26 500 571
TCI Communications Inc. 7.125% 2/15/28 1,180 1,239
Time Warner, Inc. 8.375% 3/15/23 200 232
------
4,617
Telecommunications 1.5%
AT&T Corp 9.65% 3/31/27 1,480 1,771
</TABLE>
21
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES
(CONTINUED)
Transportation 1.8%
Burlington Northern Santa Fe
Corporation 6.375% 12/15/05 $ 360 $ 363
Consolidated Rail Corporation 7.875% 5/15/43 200 213
CSX Corporation 6.25% 10/15/08 570 560
CSX Corporation 7.90% 5/1/17 500 546
Norfolk Southern Corporation 7.80% 5/15/27 370 411
-------
2,093
Utilities 0.4%
Niagara Mohawk Power
Corporation 7.75% 10/1/08 500 537
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST $20,239) 20,017
- -------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 3.3%
Fixed-rate Securities 3.3%
Asset Securitization
Corporation 7.49% 4/14/29 1,050 1,117
Chase Commercial Mortgage
Securities Corp. 6.56% 5/18/30 2,750 2,795
-------
TOTAL MORTGAGE-BACKED
SECURITIES (IDENTIFIED COST
$3,932) 3,912
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 37.8%
Fixed-rate Securities 6.7%
United States Treasury Bonds 11.875% 11/15/03 2,230 2,820
United States Treasury Bonds 6.125% 11/15/27 5,000 5,189
-------
8,009
Indexed Securities 31.0%
United States Treasury
Inflation-Indexed Security 3.625% 1/15/08 7,872 7,690E
United States Treasury
Inflation-Indexed Security 3.875% 1/15/09 9,878 9,850E
United States Treasury
Inflation-Indexed Security 3.625% 4/15/28 20,418 19,550E
-------
37,090
Stripped Securities 0.1%
United States Treasury Bond 0.00% 2/15/23 620 150H/2/
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS (IDENTIFIED
COST $45,639) 45,249
- -------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
--------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 32.0%
Fixed-rate Securities 32.0%
Fannie Mae 6.50% 4/1/14 $ 400 $ 404D
Fannie Mae 6.50% 7/1/28 1,536 1,529
Fannie Mae 6.50% 3/1/29 2,900 2,886
Fannie Mae 6.50% 3/1/29 2,300 2,290
Fannie Mae 6.00% 4/1/29 13,000 12,634D
Freddie Mac 5.50% 12/1/13 900 877
Freddie Mac 5.50% 2/1/14 1,000 975
Freddie Mac 6.50% 4/1/29 200 199D
Government National Mortgage
Association 7.50% 3/15/23 340 351
Government National Mortgage
Association 7.50% 4/15/23 430 443
Government National Mortgage
Association 7.50% 5/15/23 481 497
Government National Mortgage
Association 7.50% 5/15/23 531 548
Government National Mortgage
Association 7.50% 5/15/23 382 395
Government National Mortgage
Association 7.50% 5/15/23 387 399
Government National Mortgage
Association 7.50% 6/15/23 350 361
Government National Mortgage
Association 7.00% 7/15/23 41 42
Government National Mortgage
Association 7.50% 7/15/23 474 482
Government National Mortgage
Association 7.00% 8/15/23 43 43
Government National Mortgage
Association 7.00% 9/15/23 495 504
Government National Mortgage
Association 7.00% 9/15/23 700 712
Government National Mortgage
Association 7.00% 10/15/23 2,601 2,646
Government National Mortgage
Association 7.00% 11/15/23 51 52
Government National Mortgage
Association 7.50% 7/15/28 243 251
Government National Mortgage
Association 7.50% 7/15/28 1,128 1,163
Government National Mortgage
Association 7.50% 7/15/28 165 170
Government National Mortgage
Association 7.50% 7/15/28 99 102
Government National Mortgage
Association 7.00% 4/1/29 7,200 7,310D
-------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $38,169) 38,265
- --------------------------------------------------------------------------
YANKEE BONDSA 6.2%
Fixed-rate Securities 5.5%
PDVSA Finance LTD 1998-1 7.50% 11/15/28 500 370B
Petroleos Mexicanos 8.85% 9/15/07 785 730
Province of Manitoba 9.50% 9/15/18 270 360
Quebec Province 7.22% 7/22/36 650 725
Republic of Argentina 11.00% 12/04/05 500 478
Republic of Argentina 11.75% 4/7/09 780 762
Republic of Argentina 12.125% 2/25/19 440 436
Republic of Panama 9.375% 4/1/29 100 100
</TABLE>
23
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------
<S> <C> <C> <C> <C> <C>
YANKEE BONDS (CONTINUED)
Fixed-rate Securities
(continued)
Republic of South Korea 8.875% 4/15/08 $ 580 $ 620
United Mexican States 11.50% 5/15/26 870 972
YPF Sociedad Anonima 7.75% 8/27/07 1,000 955
-------
6,508
Indexed Securities 0.7%
Republic of Argentina 5.874% 3/31/05 1,009 864G
Vnesheconombank 5.874% 12/15/20 200 13F,G
Vnesheconombank 5.874% 12/15/15 3 N.M.G
-------
877
TOTAL YANKEE BONDS
(IDENTIFIED COST $7,320) 7,385
- ------------------------------------------------------------------------------
FOREIGN BONDS 2.6%
Buoni del Tesoro Poliennali 6.50% 11/1/27 850 1,097I
New Zealand Government 7.00% 7/15/09 500 290J
United Kingdom Treasury Stock 8.00% 6/7/21 30 71K
United Kingdom Treasury Stock 6.00% 12/7/28 800 1,616K
-------
TOTAL FOREIGN BONDS
(IDENTIFIED COST $3,256) 3,074
- ------------------------------------------------------------------------------
WARRANTS N.M.
Republic of Argentina N.M. 1
TOTAL WARRANTS
(IDENTIFIED COST $12) 1
- ------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 9.4%
U.S. Government Agency 0.6%
Fannie Mae 4.74% 5/18/99 $750 741L
Repurchase Agreement 8.8%
Lehman Brothers, Inc.
4.97% dated 3/31/99 to be
repurchased at $10,515 on
4/01/99 (Collateral:$10,490
Federal Home Loan Bank
Medium-term Note 6.02%, due
4/29/04, value $10,724) 10,514 10,514
<CAPTION>
ACTUAL
CONTRACTS
--------------
<S> <C> <C> <C> <C> <C>
Options Purchased N.M.
Eurodollar Future Call, June
99, Strike Price $95.00 78 9
Eurodollar Future Call, June
99, Strike Price $95.25 9 N.M.
-------
9
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $11,298) 11,264
- ------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
March 31, 1999
(Amounts in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
NET ASSETS VALUE
--------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $129,865) 108.0% $129,167
OTHER ASSETS LESS LIABILITIES (8.0)% (9,521)
--------
NET ASSETS CONSISTING OF:
Accumulated paid-in-capital applicable
to 11,998 shares outstanding $120,404
Under/(over) distributed net investment
income 1,513
Accumulated net realized gain/(loss) on
investments (1,658)
Unrealized appreciation/(depreciation)
of investments and foreign
currency transactions (613)
--------
NET ASSETS 100.0% $119,646
========
NET ASSET VALUE PER SHARE $ 9.97
========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACTUAL APPRECIATION/
EXPIRATION CONTRACTS (DEPRECIATION)
----------------------------
<S> <C> <C> <C> <C> <C> <C>
Futures Contracts Purchased
U.S. Treasury Bonds Futures June 99 229 $(12)
Futures Contracts Written
U.S. Treasury Notes Futures June 99 72 12
U.S. Treasury Notes Futures June 99 27 1
----
13
Options Written
U.S. Treasury Bonds Future
Put, Strike Price $120.00 May 99 5 (1)
U.S. Treasury Notes Future
Call, Strike Price $112.00 May 99 15 1
U.S. Treasury Notes Future
Call, Strike Price $116.00 May 99 32 7
U.S. Treasury Notes Future
Call, Strike Price $124.00 May 99 36 13
----
20
- ----------------------------------------------------------------------------
</TABLE>
A Yankee Bond - Dollar denominated bond issued in the U.S. by foreign
entities.
B 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 institutional buyers.
C The coupon rates shown on variable-rate securities are the rates at March
31, 1999. These rates vary with the weighted average coupon of the
underlying loans.
D When-issued Security - Security purchased on a delayed delivery basis. Final
settlement amount and maturity date have not yet been announced.
E United States Treasury Inflation-Indexed Security - U.S. Treasury Security
whose principal value is adjusted daily in accordance with changes to the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
F Pay-In-Kind ("PIK") security - A bond in which interest during the initial
few years is paid in additional bonds rather than in cash.
G Indexed Security - The rate of interest on this type of security is tied to
the London Interbank Offer Rate (LIBOR), the Global Telecom Basket (GTB)
index or the one year Treasury Bill rate. The coupon rate is the rate as of
March 31, 1999.
H Stripped Security - Security with interest-only or principal-only payment
streams, denoted by the 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.
I Denominated in Italian Lira
J Denominated in New Zealand Dollars
K Denominated in British Pounds
L Collateral to cover Futures contracts
N.M. Not meaningful
See Notes to Financial Statements
25
<PAGE>
STATEMENT OF OPERATIONS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 8, 1998A
TO
MARCH 31,1999
-------------
<S> <C>
INVESTMENT INCOME:
Interest $3,765
EXPENSES:
Advisory fee 286
Custodian fees 51
Registration fees 34
Legal and audit fees 15
Directors' fees 11
Transfer agent and shareholder servicing expense 11
Reports to shareholders 3
------
411
Less fees waived (95)
------
Total expenses, net of waivers 316
------
NET INVESTMENT INCOME 3,449
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments 473
Options 351
Futures (1,708)
Foreign currency transactions 23
------
(861)
------
Change in unrealized appreciation (depreciation) on:
Investments, options and futures (677)
Assets and liabilities denominated in foreign currencies 64
------
(613)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (1,474)
------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $1,975
======
</TABLE>
- --------------------------------------------------------------------------------
ACommencement of operations
See Notes to Financial Statements
26
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 8, 1998A
TO
MARCH 31, 1999
--------------
<S> <C>
CHANGE IN NET ASSETS:
Net investment income $ 3,449
Net realized gain (loss) on investments, options, futures
and foreign currency transactions (861)
Change in unrealized appreciation (depreciation) of
investments, options, futures, assets and liabilities
denominated in foreign currencies (613)
--------
Change in net assets resulting from operations 1,975
Distributions to shareholders from:
Net investment income (1,958)
Net realized gain on investments (775)
Change in net assets from
Fund share transactions 120,389
--------
Change in net assets 119,631
NET ASSETS:
Beginning of period 15
--------
End of period (including undistributed net investment
income of $1,513) $119,646
========
</TABLE>
- --------------------------------------------------------------------------------
ACommencement of operations
See Notes to Financial Statements
27
<PAGE>
FINANCIAL HIGHLIGHTS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
Contained below is per share operating performance data for a share of common
stock outstanding through the 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>
JULY 8, 1998A
TO
MARCH 31, 1999
<S> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 10.00
--------
Net investment incomeB 0.34
Net realized and
unrealized gain (loss)
on investments,
options,
futures and foreign
currency transactions (0.08)
--------
Total from investment
operations 0.26
--------
Distributions to
shareholders from:
Net investment income (0.22)
Net realized gain on
investments (0.07)
--------
Total distributions (0.29)
--------
Net asset value, end of
period $ 9.97
========
Total returnB 2.58%C
RATIO/SUPPLEMENTAL DATA:
Ratios to average net
assets:
ExpensesB 0.50%D
Net investment incomeB 5.4%D
Portfolio turnover rate 565.7%D
Net assets, end of
period (in thousands) $119,646
</TABLE>
- --------------------------------------------------------------------------------
ACommencement of operations
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 0.65% for the period ending March 31, 1999.
CNot annualized
DAnnualized
See Notes to Financial Statements
28
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES 24.0%
Aerospace/Defense 0.9%
Raytheon Company 6.00% 12/15/10 $2,860 $ 2,753G
Banking and Finance 7.7%
Dryden Investor Trust 7.157% 7/23/08 5,000 4,896G
Ford Motor Credit Company 6.125% 4/28/03 1,580 1,592
Heller Financial, Inc. 6.66% 7/11/02 1,700 1,735
J.P. Morgan & Company, Inc. 5.75% 2/25/04 3,440 3,394
J.P. Morgan & Company, Inc. 6.667% 2/15/12 710 629F
Lehman Brothers Incorporated 7.625% 6/1/06 1,850 1,929
Lehman Brothers Incorporated 7.375% 1/15/07 1,120 1,154
National Westminster Bancorp 9.375% 11/15/03 290 329
NationsBank Capital Trust III 5.575% 1/15/27 1,300 1,234F
Salomon Smith Barney 6.25% 1/15/05 1,300 1,292
SB Treasury Company LLC 9.40% 12/29/49 4,390 4,127G
United States Leasing
International 8.75% 12/1/01 500 537
United States Leasing
International 6.625% 5/15/03 1,750 1,786
--------
24,634
Food, Beverage and Tobacco 2.6%
J. Seagram & Sons 6.40% 12/15/03 6,180 6,177
Philip Morris Companies, Inc. 7.00% 7/15/05 2,000 2,065
--------
8,242
Gaming 1.6%
Mirage Resorts Incorporated 6.625% 2/1/05 1,500 1,465
Mirage Resorts Incorporated 6.75% 8/1/07 3,640 3,534
--------
4,999
Gas and Pipeline Utilities 1.6%
CMS Panhandle Holding Company 6.50% 7/15/09 5,280 5,288G
Media and Entertainment 5.8%
Continental Cablevision, Inc. 8.30% 5/15/06 5,000 5,518
News America Incorporated 6.703% 5/21/04 3,570 3,615C
TCI Communications, Inc. 7.61% 10/4/05 3,060 3,308
Time Warner, Inc. 9.125% 1/15/13 2,000 2,444
Time Warner, Inc. 7.25% 10/15/17 3,440 3,547
--------
18,432
Telecommunications 0.3%
AT&T Corp. 5.625% 3/15/04 950 945
</TABLE>
29
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES
(CONTINUED)
Transportation 3.5%
CSX Corporation 5.85% 12/1/03 $ 5,000 $ 4,932
Norfolk Southern Corporation 7.35% 5/15/07 1,730 1,846
Union Pacific Corporation 7.60% 5/1/05 4,030 4,276
--------
11,054
TOTAL CORPORATE BONDS AND
NOTES (IDENTIFIED COST
$76,499) 76,347
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 10.3%
Fixed-rate Securities 8.8%
ARG Funding Corporation 6.02% 5/20/05 3,190 3,179G
Bridgestone/Firestone Master
Trust 6.17% 7/1/03 3,800 3,834
Chevy Chase 1997 - A 7.65% 12/20/07 892 887
Chevy Chase Home Loan Trust 7.15% 5/15/15 724 737
CPS Auto Grantor Trust 6.30% 8/15/02 704 709
CS First Boston Mortgage
Securities Corporation 6.62% 9/25/09 4,000 4,010G
Fleetwood Credit Corp. Grantor
Trust 6.75% 3/15/10 2,697 2,701
Green Tree Financial
Corporation 6.90% 2/15/04 1,992 2,008
Guaranteed Export Certificates 6.13% 6/15/04 1,294 1,311
Irwin Home Equity 6.77% 7/15/06 304 304
Lehman FHA Title 1 Loan Trust 7.71% 8/25/17 1,351 1,375
Long Beach Acceptance Auto
Grantor Trust 6.85% 10/15/03 2,069 2,081G
Mego Mortgage Home Loan Trust 7.275% 9/25/16 750 757
Mego Mortgage Home Loan Trust 7.17% 5/25/23 1,700 1,720
Merrill Lynch Mortgage
Investors, Inc. 9.70% 6/15/08 576 582
Merrill Lynch Mortgage
Investors, Inc. 9.65% 9/15/10 1,750 1,757
--------
27,952
Indexed Securities 0.7%
Lehman Home Equity Loan Trust 5.169% 12/15/27 784 782F
Matterhorn One Limited Trust 6.089% 1/21/06 1,092 1,092F,G
Matterhorn One Limited Trust 5.589% 6/21/06 429 428F,G
--------
2,302
Stripped Securities 0.3%
Bay View Auto Trust 3.15% 12/15/04 3,077 40D/1/
Delta Funding Home Equity Loan
Trust 6.00% 3/15/02 6,000 517D/1/
Option One CTS Arm Trust 3.071% 3/25/01 1,397 23D/1/
Union Acceptance Corp. 2.75% 5/10/04 26,459 357D/1/
--------
937
</TABLE>
30
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------
<S> <C> <C> <C> <C> <C>
ASSET-BACKED SECURITIES
(CONTINUED)
Variable-rate Securities 0.5%
PSC Grantor Trust 6.29% 6/8/05 $ 1,584 $ 1,597C,G
TOTAL ASSET-BACKED
SECURITIES
(IDENTIFIED COST $32,359) 32,788
- -------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 4.6%
Fixed-rate Securities 2.7%
Asset Securitization
Corporation 6.72% 11/12/26 2,286 2,309
DLJ Mortgage Acceptance
Corp. 6.86% 11/12/21 1,608 1,641G
Merrill Lynch Mortgage
Investors, Inc. 6.69% 11/21/28 1,719 1,741
Metropolitan Asset Funding,
Inc. 6.95% 4/20/08 1,919 1,922
Structured Asset Securities
Corporation 7.75% 2/25/28 1,072 1,066
--------
8,679
Stripped Securities 0.7%
CMC Securities Corporation
III 0.00% 2/25/09 475 366D/2/
Enterprise Mortgage
Acceptance Company, LLC 1.24% 10/15/23 11,600 795D/1/,G
FFCA Secured Lending
Corporation 1.08% 7/18/15 16,443 758D/1/,G
Securitized Asset Sales,
Inc. 0.00% 12/25/10 245 157D/2/
--------
2,076
Variable-rate Securities 1.2%
Housing Securities Inc. 5.988% 11/25/26 473 473C
Resolution Trust Corporation 5.939% 7/25/20 42 41C
Resolution Trust Corporation 8.744% 3/25/21 580 583C
Resolution Trust Corporation 6.783% 6/25/24 600 596C
Resolution Trust Corporation 6.035% 1/25/27 868 856C
Resolution Trust Corporation 7.513% 9/25/29 79 79C
Resolution Trust Corporation 7.991% 9/25/29 551 562C
Resolution Trust Corporation 7.388% 12/25/29 576 573C
Securitized Asset Sales,
Inc. 6.88% 8/25/33 54 54C
--------
3,817
TOTAL MORTGAGE-BACKED
SECURITIES (IDENTIFIED COST
$14,322) 14,572
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 35.6%
Fixed-rate Securities 29.3%
United States Treasury Bonds 10.00% 5/15/10 4,150 5,103
United States Treasury Notes 6.25% 1/31/02 4,500 4,631
United States Treasury Notes 5.875% 9/30/02 6,920 7,073
</TABLE>
31
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
----------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (CONTINUED)
Fixed-rate Securities
(continued)
United States Treasury Notes 5.75% 4/30/03 $30,250 $ 30,841
United States Treasury Notes 5.75% 8/15/03 3,140 3,204
United States Treasury Notes 4.25% 11/15/03 10,850 10,445
United States Treasury Notes 4.75% 2/15/04 12,300 12,112
United States Treasury Notes 7.50% 2/15/05 4,320 4,789
United States Treasury Notes 5.875% 11/15/05 11,240 11,549
United States Treasury Notes 6.50% 10/15/06 1,610 1,715
United States Treasury Notes 6.125% 8/15/07 1,740 1,821
---------
93,283
Indexed Securities 6.3%
United States Treasury
Inflation-Indexed Security 3.375% 1/15/07 11,046 10,632E
United States Treasury
Inflation-Indexed Security 3.625% 1/15/08 6,326 6,179E
United States Treasury
Inflation-Indexed Security 3.875% 1/15/09 3,396 3,387E
---------
20,198
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (IDENTIFIED COST
$115,653) 113,481
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 22.7%
Fixed-rate Securities 17.5%
Agricultural Mortgage (Farmer
Mac) 7.92% 1/25/12 1,901 2,018
Fannie Mae 7.00% 4/1/08 1,732 1,766
Fannie Mae 7.00% 1/1/11 798 815
Fannie Mae 7.00% 6/1/11 806 824
Fannie Mae 7.00% 6/1/13 852 870
Fannie Mae 6.00% 7/1/13 96 95
Fannie Mae 6.50% 4/1/14 10,000 10,091B
Fannie Mae 6.50% 6/1/14 1,260 1,258
Fannie Mae 9.50% 4/15/21 649 693
Fannie Mae 7.00% 1/1/28 1,624 1,646
Fannie Mae 6.00% 4/1/28 484 470
Fannie Mae 7.00% 5/1/28 814 825
Fannie Mae 6.00% 6/1/28 978 951
Fannie Mae 7.00% 6/1/28 3,714 3,765
Fannie Mae 6.00% 7/1/28 3,950 3,839
Fannie Mae 6.50% 7/1/28 4,258 4,238
Fannie Mae 6.50% 7/1/28 767 763
Fannie Mae 6.50% 7/1/28 12,856 12,796
</TABLE>
32
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
--------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(CONTINUED)
Fixed-rate Securities
(continued)
Fannie Mae 7.00% 7/1/28 $ 1,531 $ 1,552
Fannie Mae 6.00% 5/17/29 2,900 2,818B
Freddie Mac 8.50% 7/1/06 80 83
Freddie Mac 7.76% 5/1/12 247 261
Freddie Mac 6.50% 6/1/13 333 335
Freddie Mac 5.50% 2/1/14 500 487
Freddie Mac 6.50% 6/1/14 621 623
Freddie Mac 6.50% 11/1/15 273 273
Freddie Mac 7.50% 4/1/17 296 304
Freddie Mac 9.30% 4/15/19 760 804
Government National Mortgage
Association 9.50% 9/15/05 199 212
Government National Mortgage
Association 9.00% 6/15/06 238 250
--------
55,725
Indexed Securities 5.0%
Fannie Mae Inflation-Indexed
Security 4.31% 3/13/02 12,720 12,288F
Government National Mortgage
Association 6.625% 8/20/21 404 410F
Government National Mortgage
Association 6.875% 6/20/22 1,228 1,243F
Government National Mortgage
Association 6.875% 6/20/22 680 688F
Government National Mortgage
Association 6.625% 7/20/22 1,090 1,106F
Government National Mortgage
Association 6.625% 8/20/22 283 287F
--------
16,022
Stripped Securities 0.1%
Fannie Mae 0.00% 5/25/22 174 142D/2/
Freddie Mac 10.00% 3/1/21 169 39D/1/
--------
181
Variable-rate Securities 0.1%
Fannie Mae 6.219% 3/1/18 159 159C
Freddie Mac 6.612% 1/1/19 85 86C
--------
245
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $72,185) 72,173
- -----------------------------------------------------------------------------
</TABLE>
33
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------
<S> <C> <C> <C> <C> <C>
YANKEE BONDSA 4.1%
Fixed-rate Securities 4.1%
Cable & Wireless Communications
Plc 6.375% 3/6/03 $3,920 $ 3,948
Petrozuata Finance, Inc. 7.63% 4/1/09 3,150 2,429G
Pohang Iron & Steel Company,
Ltd. 6.625% 7/1/03 840 786
YPF Sociedad Anonima 7.50% 10/26/02 2,817 2,805G
YPF Sociedad Anonmia 7.00% 10/26/02 3,358 3,297G
--------
TOTAL YANKEE BONDS
(IDENTIFIED COST $14,151) 13,265
- -------------------------------------------------------------------------------
COMMON STOCKS AND EQUITY
INTERESTS 0.1%
Black Rock 1999 Term Trust,
Inc. 10 shs 99
Black Rock Strategic Term
Trust, Inc. 20 183
--------
TOTAL COMMON STOCKS AND EQUITY
INTERESTS (IDENTIFIED COST
$261) 282
- -------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 1.5%
Asset-backed Security 0.1%
Premier Auto Trust 6.50% 3/6/00 $ 456 456
U.S. Government Agency 0.8%
Fannie Mae 4.74% 5/18/99 2,500 2,469H
Repurchase Agreement 0.6%
Lehman Brothers, Inc.
4.97%, dated 3/31/99, to be
repurchased at $1,756 on
4/1/99 (Collateral: $1,835
Freddie Mac Medium-term Notes,
6.35% due 2/10/14, value
$1,791) 1,756 1,756
ACTUAL
Options Purchased N.M. CONTRACTS
---------
Eurodollar Future Call, June
99, Strike Price $95.00 365 41
Eurodollar Future Call, June
99, Strike Price $95.25 6 N.M.
U.S. Treasury Notes OTC Call,
April 99, Strike Price
$98.0625 11,250 2
--------
43
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $4,898) 4,724
- -------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
March 31, 1999
(Amounts in Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF
NET ASSETS VALUE
--------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL INVESTMENTS
(IDENTIFIED COST $330,328) 102.9% $327,632
OTHER ASSETS LESS LIABILITIES (2.9)% (9,306)
--------
NET ASSETS CONSISTING OF:
Accumulated paid-in-capital applicable
to:
29,622 Institutional Shares outstanding $313,737
357 Financial Intermediary Shares
outstanding 3,794
Under/(over) distributed net investment
income 4,542
Accumulated net realized gain/(loss) on
investments (1,134)
Unrealized appreciation/(depreciation)
of investments (2,613)
--------
NET ASSETS 100.0% $318,326
========
NET ASSET VALUE PER SHARE
Institutional Class $10.62
========
Financial Intermediary Class $10.61
========
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ACTUAL APPRECIATION/
EXPIRATION CONTRACTS (DEPRECIATION)
-----------------------------
<S> <C> <C> <C>
Futures Contracts Purchased
U.S. Treasury Bonds Futures June 99 138 $ 40
U.S. Treasury Notes Futures June 99 75 5
U.S. Treasury Notes Futures June 99 36 (1)
----
44
Options Written
Fannie Mae OTC Call, Strike Price $98.00 April 99 20,000 25
U.S. Treasury Notes Future Call, Strike
Price $112.00 May 99 114 6
U.S. Treasury Notes Future Put, Strike
Price $120.00 May 99 79 (27)
U.S. Treasury Notes Future Call, Strike
Price $124.00 May 99 108 35
----
39
- -----------------------------------------------------------------------------
</TABLE>
A Yankee Bond - Dollar denominated bond issued in the U.S. by foreign
entities.
B When-issued Security - Security purchased on a delayed delivery basis. Final
settlement amount and maturity date have not yet been announced.
C The coupon rates shown on variable-rate securities are the rates at March
31, 1999. For mortgage-backed securities, these rates vary with the weighted
average coupon of the underlying loans.
D Stripped Security - Security with interest-only or principal-only payment
streams, denoted by superscript 1 or 2, respectively. For interest-only
securities, the amount shown as principal is the notional balance used to
calculate the amount of interest due.
E United States Treasury Inflation-Indexed Security - U.S. Treasury Security
whose principal value is adjusted daily in accordance with changes to the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
F Indexed Security - The rate of interest on this type of security is tied to
the London Interbank Offer Rate (LIBOR), the Global Telecom Basket (GTB)
Index or the one year Treasury Bill rate. The coupon rate is the rate as of
March 31, 1999.
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 institutional buyers.
H Collateral to cover futures contract
N.M. Not meaningful
See Notes to Financial Statements
35
<PAGE>
STATEMENT OF OPERATIONS
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
MARCH 31, 1999
----
<S> <C>
INVESTMENT INCOME:
Interest $19,846
Dividends 455
-------
Total Income 20,301
EXPENSES:
Advisory fees 1,355
Distribution fees 2
Custodian fees 117
Legal and audit fees 28
Registration fees 28
Director's fees 16
Reports to shareholders 16
Organization expense 12
Transfer agent and shareholder servicing expense 11
Other expenses 48
-------
1,633
Less fees waived (101)
-------
Total expenses, net of waivers 1,532
-------
NET INVESTMENT INCOME 18,769
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments 4,594
Options 1,101
Futures (654)
-------
5,041
Change in unrealized appreciation (depreciation) on
investments, options and futures (3,703)
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,338
-------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $20,107
=======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
36
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE FOR THE YEAR
ENDED MONTHS ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998A JUNE 30, 1997
-------------- --------------- -------------
<S> <C> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 18,769 $ 10,959 $ 10,304
Net realized gain (loss) on
investments, options and futures 5,041 4,484 1,450
Change in unrealized appreciation
of investments, options and
futures (3,703) 266 1,322
-------- -------- --------
Change in net assets resulting
from operations 20,107 15,709 13,076
Distributions to shareholders
from:
Net investment income
Institutional Class (18,139) (10,136) (8,020)
Financial Intermediary Class -- -- --
Net realized gain on investments
Institutional Class (9,265) (2,146) (993)
Financial Intermediary Class -- -- --
Change in net assets from
Fund share transactions:
Institutional Class 28,298 65,607 154,355
Financial Intermediary Class 3,794 -- --
-------- -------- --------
Change in net assets 24,795 69,034 158,418
NET ASSETS:
Beginning of period 293,531 224,497 66,079
-------- -------- --------
End of period (including
undistributed net investment
income of $4,542, $3,956 and
$3,165, respectively) $318,326 $293,531 $224,497
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
A The year end for LM Institutional Fund Advisors I, Inc. - Western Asset
Intermediate Portfolio has been changed from June 30 to March 31.
See Notes to Financial Statements
37
<PAGE>
FINANCIAL HIGHLIGHTSA
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
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>
FINANCIAL
INSTITUTIONAL CLASS INTERMEDIARY CLASS
-------------------------------------------------------- ------------------
FOR THE YEAR FOR THE NINE FOR THE PERIOD
ENDED MONTHS ENDED FOR THE YEARS ENDED ENDED
MARCH 31, MARCH 31, JUNE 30, MARCH 31,
1999 19--------------------------------98F 1999G
1995 1996 1995
------------ ------------ -------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 10.85 $ 10.72 $ 10.48 $ 10.74 $ 10.00 $10.60
-------- -------- -------- ------- ------- ------
Net investment income 0.58B 0.46B 0.55B 0.54B 0.39B 0.12C
Net realized and
unrealized gain (loss)
on investments,
options and futures 0.06 0.23 0.30 (0.01) 0.60 (0.11)
-------- -------- -------- ------- ------- ------
Total from investment
operations 0.64 0.69 0.85 0.53 0.99 0.01
-------- -------- -------- ------- ------- ------
Distributions to
shareholders from:
Net investment income (0.57) (0.46) (0.54) (0.54) (0.24) --
Net realized gain on
investments (0.30) (0.10) (0.07) (0.25) (0.01) --
-------- -------- -------- ------- ------- ------
Total distributions (0.87) (0.56) (0.61) (0.79) (0.25) --
-------- -------- -------- ------- ------- ------
Net asset value, end of
period $ 10.62 $ 10.85 $ 10.72 $ 10.48 $ 10.74 $10.61
======== ======== ======== ======= ======= ======
Total return 6.01% 6.59%D 8.32% 5.15% 10.08% 0.09%D
RATIOS/SUPPLEMENTAL
DATA:
Ratios to average net
assets
Expenses 0.45%B 0.45%B,E 0.45%B 0.50%B 0.50%B 0.70%C,E
Net investment income 5.5%B 5.8%B,E 6.3%B 6.3%B 6.1%B 5.2%C,E
Portfolio turnover rate 389.6% 401.4%E 419.3% 841.3% 764.5% 389.6%E
Net assets, end of
period
(in thousands) $314,534 $293,531 $224,497 $66,079 $20,313 $3,792
</TABLE>
- -------------------------------------------------------------------------------
A All per share figures for the Institutional Class reflect the 10 for 1 stock
split effective May 29, 1998.
B Net of advisory fees waived pursuant to a voluntary expense limitation of
0.50% until August 5, 1996 and 0.45% thereafter. In the absence of this
limitation, the ratio of expenses to average net assets would have been
0.48% for the year ended March 31, 1999, 0.52% for the nine months ended
March 31, 1998, and 0.55%, 1.03% and 1.60% for the years ended June 30,
1997, 1996 and 1995, respectively.
C Net of advisory fees waived pursuant to a voluntary expense limitation of
0.70%. In the absence of this limitation, the ratio of expenses to average
net assets would have been 0.73% for the period January 7, 1999
(commencement of operations) to March 31, 1999.
D Not annualized
E Annualized
F The year end for LM Institutional Fund Advisors I, Inc.--Western Asset
Intermediate Portfolio has been changed from June 30 to March 31.
G For the period January 7, 1999 (commencement of operations) to March 31,
1999
See Notes to Financial Statements
38
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
------------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES 19.0%
Banking and Finance 8.1%
Donaldson, Lufkin & Jenrette 5.875% 4/1/02 $ 380 $ 378
Household Finance Corporation 5.875% 11/1/02 700 700
MCN Investment Corporation 6.30% 4/2/11 800 785B
SB Treasury Company LLC 9.40% 12/29/49 270 254F
-------
2,117
Business Services 3.9%
Cendant Corporation 7.50% 12/1/00 500 508
PHH Corporation 5.438% 9/18/00 500 499E
-------
1,007
Food, Beverage and Tobacco 2.4%
Philip Morris Companies, Inc. 6.95% 6/1/06 600 616
Transportation 4.6%
Norfolk Southern Corporation 6.95% 5/1/02 600 617
Union Pacific Corporation 5.78% 10/15/01 600 598
-------
1,215
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST $4,968) 4,955
- -------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 23.7%
Fixed-rate Securities 19.0%
Bridgestone/Firestone Master
Trust 6.17% 7/1/03 500 504
FASCO Auto Grantor Trust 1996-1 6.65% 11/15/01 79 80
Fleetwood Credit Corp. Grantor
Trust 6.75% 3/15/10 427 428
Green Tree Financial
Corporation 6.90% 2/15/04 316 319
Green Tree Home Improvement
Loan Trust 8.10% 10/15/14 1,091 1,070
Long Beach Acceptance Auto
Grantor Trust 6.85% 10/15/03 345 347F
Long Beach Acceptance Auto
Grantor Trust 6.69% 9/25/04 500 502F
Onyx Acceptance Auto Trust 6.35% 10/15/03 221 223
Summit Acceptance Auto
Receivables Trust 6.11% 7/15/04 745 749F
UAF Auto Grantor Trust 6.10% 6/15/04 746 746F
-------
4,968
Indexed Securities 3.5%
Global Rated Eligible Asset
Trust 6.339% 1/15/02 523 235E,F,G
Matterhorn One Limited Trust 5.589% 1/21/06 500 500E,F
Matterhorn One Limited Trust 6.089% 6/21/06 165 165E,F
-------
900
Stripped Securities 1.2%
EQCC Home Equity Loan Trust 2.50% 9/15/00 9,000 304C/1/
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST $6,663) 6,172
- -------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-------------------------------------
<S> <C> <C> <C> <C> <C>
MORTGAGE-BACKED SECURITIES 17.4%
Fixed-rate Securities 12.2%
Chevy Chase Home Loan Trust 6.55% 1/20/18 $ 463 $ 465
Headlands Mortgage Securities Inc. 7.25% 11/25/27 740 748
International Mortgage Acceptance
Corporation 12.25% 3/1/14 143 152
J.P. Morgan Commercial Mortgage
Finance Corp. 6.939% 12/26/28 361 363
Merrill Lynch Mortgage Investors,
Inc. 6.69% 11/21/28 215 218
Metropolitan Asset Funding Inc. 6.596% 12/20/10 500 503F
Morgan Stanley Capital I
Incorporated 6.85% 2/15/20 380 384
Structured Asset Securities Corp. 7.75% 2/25/28 357 355
-------
3,188
Variable-rate Securities 5.2%
Merrill Lynch Mortgage Investors,
Inc. 6.69% 9/15/17 622 645B
Resolution Trust Corporation 7.042% 5/25/29 717 717B
-------
1,362
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $4,541) 4,550
- ------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 28.9%
Fixed-rate Securities 28.9%
United States Treasury Notes 6.125% 9/30/00 5,000 5,080
United States Treasury Notes 4.75% 2/15/04 2,500 2,462
-------
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (IDENTIFIED COST
$7,562) 7,542
- ------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 0.3%
Fixed-rate Securities 0.3%
Freddie Mac 10.15% 4/15/06 42 42
Government National Mortgage
Association 9.25% 3/15/01 41 42
-------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST $86) 84
- ------------------------------------------------------------------------------
YANKEE BONDSA 4.5%
Fixed-rate Securities 1.5%
YPF Sociedad Anonima 7.50% 10/26/02 404 402
Indexed Securities 3.0%
Nordbanken AB 5.53% 3/29/49 800 782E
TOTAL YANKEE BONDS
(IDENTIFIED COST $1,208) 1,184
- ------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCKS AND EQUITY
INTERESTS 0.1%
Black Rock Strategic Term
Trust, Inc. 3 shs $ 23
TOTAL COMMON STOCKS AND EQUITY
INTERESTS (IDENTIFIED COST
$22) 23
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 5.4%
Corporate Bonds and Notes 1.9%
First National Bank of Commerce 6.50% 1/14/00 $ 500 504
U. S. Government Agency 0.8%
Fannie Mae 4.74% 5/18/99 200 199D
Repurchase Agreement 2.7%
Lehman Brothers, Inc.
4.97% dated 3/31/99, to be
repurchased at $713 on 4/1/99
(Collateral: $730 Federal Home
Loan Bank Medium-term Notes,
5.31% due 2/24/04, value $727) 713 713
<CAPTION>
ACTUAL
CONTRACTS
--------------
<S> <C> <C> <C> <C> <C>
Options Purchased N.M.
Eurodollar Future Call, June
99, Strike Price $95.00 29 3
Eurodollar Future Call, June
99, Strike Price $95.25 1 N.M.
-------
3
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $1,426) 1,419
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST $26,476) 99.3% 25,929
OTHER ASSETS LESS LIABILITIES 0.7% 172
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in-capital
applicable to 2,625 shares
outstanding $26,463
Under/(over) distributed net
investment income 380
Accumulated net realized
gain/(loss) on investments (195)
Unrealized
appreciation/(depreciation) of
investments (547)
-------
NET ASSETS 100.0% $26,101
=======
NET ASSET VALUE PER SHARE $ 9.94
=======
- --------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
actual appreciation/
expiration contracts (depreciation)
-------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased
U.S. Treasury Notes Future June 99 6 $ (1)
Options Written
U.S. Treasury Bonds Future Put, Strike
Price $120.00 May 99 5 (2)
U.S. Treasury Notes Future Call, Strike
Price $112.00 May 99 9 N.M.
U.S. Treasury Notes Future Call, Strike
Price $124.00 May 99 9 3
----
1
- ----------------------------------------------------------------------------
</TABLE>
A Yankee Bond - Dollar denominated bond issued in the U.S. by foreign entities.
B The coupon rates shown on variable rate securities are the rates at March 31,
1999. For mortgage-backed securities, these rates vary with the weighted
average coupon of the underlying securities.
C 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.
D Collateral to cover Futures contracts.
E Indexed Security - The rate of interest on this type of security is tied to
the London Interbank Offer Rate (LIBOR), the Global Telecom Basket (GTB)
index or the one year Treasury Bill rate. The coupon rate is the rate as of
March 31, 1999.
F Rule 144a Security - A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to the rule except to
qualified buyers.
G Illiquid security valued at fair value under procedures adopted by the Board
of Directors.
N.M.. Not meaningful
See Notes to Financial Statements
42
<PAGE>
STATEMENT OF OPERATIONS
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
(Amount in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
MARCH 31, 1999
---
<S> <C>
INVESTMENT INCOME:
Interest $2,480
Dividends 73
------
Total income 2,553
EXPENSES:
Advisory fees 137
Custodian fees 70
Legal and audit fees 27
Registration fees 18
Directors' fees 16
Organizational expense 16
Transfer agent and shareholder servicing expense 7
Reports to shareholders 3
------
294
Less fees waived and reimbursed (137)
------
Total expenses, net of waivers and reimbursement 157
------
NET INVESTMENT INCOME 2,396
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments 293
Options 108
Futures (117)
------
284
Change in unrealized appreciation (depreciation) of
investments, options and futures (698)
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (414)
------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $1,982
======
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Financial Statements
43
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
(Amount in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE FOR THE YEAR
ENDED MONTHS ENDED ENDED
MARCH 31, 1999 MARCH 31, 1998A JUNE 30, 1997
<S> <C> <C> <C>
-------- ------- -------
CHANGE IN NET ASSETS:
Net investment income $ 2,396 $ 1,472 $ 1,259
Net realized gain (loss) on
investments, options and futures 284 132 140
Change in unrealized appreciation
(depreciation) of investments,
options and futures (698) 138 26
-------- ------- -------
Change in net assets resulting
from operations 1,982 1,742 1,425
Distributions to shareholders
from:
Net investment income (2,498) (1,337) (1,012)
Net realized gain on investments (610) (103) (60)
Change in net assets from
Fund share transactions (23,144) 23,532 10,074
-------- ------- -------
Change in net assets (24,270) 23,834 10,427
NET ASSETS:
Beginning of period 50,371 26,537 16,110
-------- ------- -------
End of period (including
undistributed net investment
income of $380, $488, and $365,
respectively) $ 26,101 $50,371 $26,537
======== ======= =======
</TABLE>
- --------------------------------------------------------------------------------
A The year end for LM Institutional Fund Advisors I, Inc.-Western Asset Limited
Duration Portfolio has been changed from June 30 to March 31.
See Notes to Financial Statements
44
<PAGE>
FINANCIAL HIGHLIGHTSA
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
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 FOR THE FOR THE MAY 1, 1996C
YEAR ENDED NINE MONTHS ENDED YEAR ENDED TO
MARCH 31, 1999 MARCH 31, 1998B JUNE 30, 1997 JUNE 30, 1996
<S> <C> <C> <C> <C>
------- ------- ------- -------
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period $ 10.27 $ 10.24 $ 10.08 $ 10.00
------- ------- ------- -------
Net investment incomeD 0.69 0.43 0.60 0.09
Net realized and
unrealized gain (loss)
on investments, options
and futures (0.19) 0.11 0.13 (0.01)
------- ------- ------- -------
Total from investment
operations 0.50 0.54 0.73 0.08
------- ------- ------- -------
Distributions to
shareholders from:
Net investment income (0.64) (0.47) (0.53) --
Net realized gain on
investments (0.19) (0.04) (0.04) --
------- ------- ------- -------
Total distributions (0.83) (0.51) (0.57) 0.00
------- ------- ------- -------
Net asset value, end of
period $ 9.94 $ 10.27 $ 10.24 $ 10.08
======= ======= ======= =======
Total returnD 4.96% 5.42%E 7.42% 0.76%E
RATIOS/SUPPLEMENTAL
DATA:
Ratios to average net
assets:
ExpensesD 0.40% 0.40%F 0.41% 0.50%F
Net investment incomeD 6.1% 5.8%F 6.2% 5.6%F
Portfolio turnover rate 321.3% 373.0%F 435.5% 1,042%F
Net assets, end of
period (in thousands) $26,101 $50,371 $26,537 $16,110
</TABLE>
- -------------------------------------------------------------------------------
A All per share figures reflect the 10 for 1 stock split effective May 29,
1998.
B The year end for LM Institutional Fund Advisors I, Inc.-Western Asset
Limited Duration Portfolio has been changed from June 30 to March 31.
C Commencement of operations
D Net of advisory fees waived pursuant to a voluntary expense limitation of
0.50% until August 31, 1996, and 0.40% thereafter. In the absence of this
limitation, the ratio of expenses to average net assets would have been
0.75% for the year ended March 31,1999, 0.95% for the nine months ended
March 31, 1998, 1.21% for the year ended June 30, 1997, and 0.80% for the
period ended June 30, 1996.
E Not annualized
F Annualized
See Notes to Financial Statements
45
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT
SECURITIES 84.2%
Australian Dollar 3.8%
Australian Government 8.75% 1/15/01 AUD 3,700 $2,498
British Sterling 14.0%
Carlton Communications
plc 5.625% 3/2/09 GBP 820 1,292
LCR Finance PLC 4.50% 12/7/28 GBP 2,000 3,024A
National Westminster
Bank PLC 6.50% 9/7/21 GBP 760 1,301
Powergen UK PLC 6.25% 4/29/24 GBP 800 1,278
United Kingdom Treasury
Stock 6.00% 2/7/28 GBP 700 1,414
Welcome Break Finance
PLC 8.284% 9/1/17 GBP 400 804
------
9,113
Danish Krone 14.9%
Kingdom of Denmark 6.00% 11/15/02 DKK 16,000 2,516
Kingdom of Denmark 7.00% 11/15/07 DKK 30,250 5,245
Unikredit Realkredit 7.00% 10/1/29 DKK 13,531 1,994
------
9,755
Euro 33.4%
Italy 16.6%
Buoni del Tesoro
Poliennali 4.75% 5/1/03 EUR 1,956 2,223
Buoni del Tesoro
Poliennali 6.50% 11/1/27 EUR 6,650 8,591
Netherlands 3.0%
Netherlands Government 5.50% 1/15/28 EUR 1,679 1,945
Spain 3.9%
Bonos Y Oblig Del Estado 6.00% 1/31/08 EUR 2,104 2,563
United Kingdom 9.9%
Bumah Castrol PLC 4.875% 3/31/09 EUR 1,200 1,298
B.A.T. Int'l. Finance
PLC 4.875% 2/25/09 EUR 1,200 1,262
Lehman Bros. Holdings
PLC 4.75% 7/12/04 EUR 1,200 1,310
Lloyds Bank PLC 4.75% 3/18/11 EUR 1,200 1,289
North West Water Group
PLC 4.875% 3/18/09 EUR 1,200 1,311
------
21,792
New Zealand Dollar 14.3%
Government of New
Zealand 7.00% 7/15/09 NZD 16,100 9,360
------ ---
Swedish Krona 3.8%
Kingdom of Sweden 5.00% 1/28/09 SEK 20,000 2,499
TOTAL LONG-TERM DEBT
SECURITIES (IDENTIFIED
COST $56,942) 55,017
- --------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
March 31, 1999
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS 23.3%
U.S. Government Obligations 10.7%
United States Treasury Bills 4.80% 4/15/99 USD 7,000 $ 6,987
Repurchase Agreement 12.6%
State Street Bank & Trust Company
3.50% dated 3/31/99, to be repurchased at
$8,249 on 4/1/99. (Collateral: $8,570 Sallie
Mae Student Loan-backed notes, 5.13% due
10/25/10, value $8,496) USD 8,248 8,248
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST $15,235) 15,235
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST $72,177) 107.5% 70,252
OTHER ASSETS LESS LIABILITIES (7.5)% (4,894)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
6,404 shares outstanding $64,312
Under/(over) distributed net investment income 386
Accumulated net realized gain/(loss) on investments 840
Unrealized appreciation/(depreciation) of
investments and foreign currency transactions (180)
-------
NET ASSETS 100.0% $65,358
=======
NET ASSET VALUE PER SHARE $ 10.21
=======
</TABLE>
- --------------------------------------------------------------------------------
A Rule 144a Security - A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to the rule except to
qualified buyers.
See Notes to Financial Statements
47
<PAGE>
STATEMENT OF OPERATIONS
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 15, 1998A
TO
MARCH 31, 1999
--------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign taxes of $4) $1,980
EXPENSES:
Advisory fees 191
Custodian fees 94
Registration fees 20
Legal and audit fees 12
Directors' fees 11
Transfer agent and shareholder servicing expense 10
Reports to shareholders 2
Other expenses 20
------
360
Less fees waived (127)
------
Total expenses, net of waivers 233
------
NET INVESTMENT INCOME 1,747
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Investments 1,981
Futures (242)
Foreign currency transactions 12
------
1,751
------
Change in unrealized gain (loss) on:
Investments (145)
Assets and liabilities denominated in foreign currencies (35)
------
(180)
------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 1,571
------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $3,318
======
</TABLE>
- --------------------------------------------------------------------------------
A Commencement of operations
See Notes to Financial Statements
48
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 15, 1998A
TO
MARCH 31, 1999
--------------
<S> <C>
CHANGE IN NET ASSETS:
Net investment income $ 1,747
Net realized gain (loss) on investments, futures and
foreign currency transactions 1,751
Change in unrealized appreciation (depreciation) of
investments and assets and liabilities denominated in
foreign currencies (180)
-------
Change in net assets resulting from operations 3,318
Distributions to shareholders from:
Net investment income (1,131)
Net realized gain on investments (1,141)
Change in net assets from
Fund share transactions 64,297
-------
Change in net assets 65,343
NET ASSETS:
Beginning of period 15
-------
End of period (including undistributed net investment
income of $386) $65,358
=======
</TABLE>
- --------------------------------------------------------------------------------
A Commencement of operations
See Notes to Financial Statements
49
<PAGE>
FINANCIAL HIGHLIGHTS
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
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>
JULY 15, 1998A
TO
MARCH 31, 1999
--------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period $ 10.00
-------
Net investment incomeB 0.30
Net realized and unrealized gain (loss) on investments,
futures, foreign currency transactions and assets and
liabilities denominated in foreign currencies 0.31
-------
Total from investment operations 0.61
-------
Distributions to shareholders from:
Net investment income (0.20)
Net realized gain on investments (0.20)
-------
Total distributions (0.40)
-------
Net asset value, end of period $ 10.21
=======
Total returnB 5.81%C
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
ExpensesB 0.55%D
Net investment incomeB 4.1%D
Portfolio turnover rate 388.0%D
Net assets, end of period (in thousands) $65,358
</TABLE>
- -------------------------------------------------------------------------------
A Commencement of operations
B Net of advisory fees waived pursuant to a voluntary expense limit of 0.55%.
In the absence of this limitation, the ratio of expenses to average net
assets would have been 0.85% for the period ended March 31, 1999.
C Not annualized
D Annualized
See Notes to Financial Statements
50
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
1. SIGNIFICANT ACCOUNTING POLICIES:
LM Institutional Fund Advisors I, Inc. ("Corporation"), consisting of the
Western Asset Core Portfolio ("Core"), the Western Asset Core Plus Portfolio
("Core Plus"), the Western Asset Intermediate Portfolio ("Intermediate"), the
Western Asset Limited Duration Portfolio ("Limited") and the Western Asset
Non-U.S. Fixed Income Portfolio ("Non-U.S.") (each a "Fund"), is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-
end management investment company with the exception of Non-U.S., which is
non-diversified. The Corporation was organized on May 16, 1990 and had no
operations prior to September 4, 1990, other than those related to
organizational matters. Prior to May 29, 1998, the Corporation was known as
Western Asset Trust, Inc.
Each Fund offers two classes of shares: Institutional Class and Financial
Intermediary Class. Shares in the Financial Intermediary Class bear a
distribution fee. The Financial Intermediary Class of Intermediate commenced
operations on January 7, 1999.
SECURITY VALUATION
Securities owned by the Funds for which market quotations are readily
available are valued at current market value. In determining fair value, the
Board and management consider all relevant qualitative and quantitative
information available. These factors are subject to change over time and are
reviewed periodically. The values assigned to fair value investments are based
on available information and do not necessarily represent amounts that might
ultimately be realized, since such amounts depend on future developments
inherent in long-term investments. Further, because of the inherent
uncertainty of valuation, those estimated values may differ significantly from
the values that would have been used had a ready market of the investments
existed, and the differences could be material. At March 31, 1999, $235 or
0.9% of Limited's net assets, were valued by management in accordance with the
procedures adopted by the Board of Directors. Securities with remaining
maturities of 60 days or less are valued at amortized cost by each Fund.
FOREIGN CURRENCY TRANSACTIONS
The books and records of the Funds 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 unrealized security gains
or losses is reflected as a component of such unrealized gains or losses. The
effect of changes in foreign exchange rates on realized security gains or
losses is reflected separately.
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.
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. Dividend income is
recorded on the ex-dividend date. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles; accordingly, periodic reclassifications are made within
each Fund's capital accounts to reflect income and gains available for
distribution under tax regulations.
SECURITY TRANSACTIONS
Security transactions are recorded on the trade date. Realized gains and
losses from security transactions are reported on an identified cost basis for
both financial reporting and federal income tax purposes. At March 31, 1999,
receivables for securities sold and payables for securities purchased for each
Fund were as follows:
51
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
RECEIVABLE FOR PAYABLE FOR
SECURITIES SOLD SECURITIES PURCHASED
--------------- --------------------
<S> <C> <C>
Core $10,981 $116,356
Core Plus 10,385 21,201
Intermediate 3,013 16,228
Limited 1 --
Non-U.S. 652 8,251
</TABLE>
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 Funds
intend to qualify, or to continue to qualify, as regulated investment
companies and distribute all of their taxable income to their shareholders.
2. FINANCIAL INSTRUMENTS:
REPURCHASE AGREEMENTS
As part of their investment program, the Funds utilize 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 Funds' 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. The Funds' investment adviser, acting under the
supervision of the Board of Directors, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Funds enter
into repurchase agreements to evaluate potential risks.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Core Plus and Non-U.S. may enter into forward foreign currency exchange
contracts to help manage their currency exposure. These contracts are marked-
to-market daily using foreign currency exchange rates supplied by an
independent pricing service. The change in a contract's market value is
recorded by a fund as an unrealized gain or loss. When the contract is closed
or delivery is taken, the fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
value at the time it was closed.
The use of forward foreign currency exchange contracts does not eliminate
fluctuations in the underlying prices of the Funds' securities, but it does
establish a rate of exchange that can be achieved in the future. These
contracts involve market risk in excess of amounts reflected in the Financial
Statements. Although contracts used for hedging purposes limit the risk of
loss due to a decline in the value of the hedged currency, they also limit any
potential gain that might result should the value of the currency increase. In
addition, the Funds could be exposed to risks if the counterparties to the
contracts are unable to meet the terms of their contracts. Each Fund's adviser
will enter into forward foreign currency exchange contracts only with parties
approved by the Board of Directors because there is a risk of loss to the
Funds if the counterparties do not complete the transaction.
Forward foreign currency exchange contracts are valued using the forward rate.
Outstanding contracts at March 31, 1999 were as follows:
CORE PLUS
<TABLE>
<CAPTION>
SETTLEMENT CONTRACT TO APPRECIATION/
DATE <S> <C> <C> <C> (DEPRECIATION) <C> <C> <C>
----------------
<CAPTION> ------- --------
RECEIVE DELIVER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------- --------- --------------- ------------------
4/29/99 USD 1,216 EUR 1,075 $51
5/20/99 USD 1,539 GBP 946 11
5/20/99 USD 303 NZD 562 2
---
$64
===
</TABLE>
52
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
NON-U.S.
<TABLE>
<CAPTION>
SETTLEMENT CONTRACT TO APPRECIATION/
DATE <S> <C> <C> <C> (DEPRECIATION) <C> <C> <C>
----------------
<CAPTION> ------- --------
RECEIVE DELIVER
<S> <C> <C> <C> <C> <C> <C> <C> <C>
---------- --------------
4/8/99 USD 1,491 EUR 1,368 $ 11
4/29/99 AUD 53 USD 34 1
4/29/99 USD 4,473 AUD 7,085 (20)
4/29/99 USD 11,130 DKK 72,498 575
4/29/99 EUR 6,530 USD 7,601 (529)
4/29/99 USD 28,992 EUR 25,545 1,326
4/29/99 SEK 23,548 USD 2,819 52
4/29/99 USD 5,715 SEK 44,762 256
5/20/99 AUD 3,037 USD 1,920 6
5/20/99 USD 8,102 GBP 4,993 43
5/20/99 USD 9,561 NZD 17,754 60
------
$1,781
======
</TABLE>
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. The risk in writing a covered call option is that a
fund may forgo the opportunity of profit if the market price of the underlying
security increases and the option is exercised. The risk in writing a put
option is that a fund may incur a loss if the market price of the underlying
security decreases and the option is exercised. In addition, there is a risk a
fund may not be able to enter into a closing transaction because of an
illiquid secondary market or, for over-the-counter options, because of the
counterparty's inability to perform. Call and put options written by each Fund
and related premiums received during the period were as follows:
<TABLE>
<CAPTION>
CALLS PUTS
<S> <C> <C> <C> <C>
---------------- ----------------
<CAPTION>
CORE CONTRACTS PREMIUMS CONTRACTS PREMIUMS
<S> <C> <C> <C> <C>
---- ------ ------ ------ ------
Options outstanding at March 31, 1998 461 $ 279 409 $ 233
Options written 8,742 2,492 2,308 1,465
Options closed (2,979) (2,137) (1,854) (1,259)
Options expired (5,380) (167) (624) (302)
Options exercised (359) (178) (209) (70)
------ ------ ------ ------
Options outstanding at March 31, 1999 485 $ 289 30 $ 67
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
CALLS PUTS
<S> <C> <C> <C> <C>
-------------- ---------------
<CAPTION>
CORE PLUS CONTRACTS PREMIUMS CONTRACTS PREMIUMS
<S> <C> <C> <C> <C>
----- ------ ---- ---- -----
Options outstanding at March 31, 1998 -- $ -- -- $ --
Options written 1,951 233 428 266
Options closed (119) (89) (160) (141)
Options expired (1,724) (77) (223) (108)
Options exercised (25) (11) (40) (12)
------ ---- ---- -----
Options outstanding at March 31, 1999 83 $ 56 5 $ 5
====== ==== ==== =====
</TABLE>
53
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
CALLS PUTS
------------------ ------------------
INTERMEDIATE CONTRACTS PREMIUMS CONTRACTS PREMIUMS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1998 53 $ 28 -- $ --
Options written 53,864 1,342 1,818 879
Options closed (33,542) (1,174) (1,276) (634)
Options expired (98) (15) (218) (145)
Options exercised (55) (24) (245) (25)
------- ------ ------ ----
Options outstanding at March 31, 1999 20,222 $ 157 79 $ 75
======= ====== ====== ====
<CAPTION>
CALLS PUTS
------------------ ------------------
LIMITED CONTRACTS PREMIUMS CONTRACTS PREMIUMS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1998 8 $ 4 -- $ --
Options written 212 117 222 98
Options closed (168) (99) (183) (89)
Options expired (7) (1) (34) (4)
Options exercised (27) (10) -- --
------- ------ ------ ----
Options outstanding at March 31, 1999 18 $ 11 5 $ 5
======= ====== ====== ====
</TABLE>
FUTURES
Upon entering into a futures contract, the Funds are required to deposit with
the broker an amount of cash or cash equivalents equal to a percentage of the
contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by each Fund each day, depending on
the daily fluctuation in the value of the contract. For Non-U.S., payment is
not sent daily, but is recorded as a net payable or receivable by the Fund to
or from the futures broker, which is holding cash collateral from the Fund.
The daily changes in contract value are recorded as unrealized gains or losses
and each Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued daily at the settlement price established by the
board of trade or exchange on which they are traded.
Each 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,
1999 are described at the end of the "Statement of Net Assets" of each Fund.
3. PORTFOLIO TRANSACTIONS:
For the year ended March 31, 1999, investment transactions (excluding short-
term investments) were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
---------------------- ----------------------
U.S. GOV'T. OTHER U.S. GOV'T. OTHER
SECURITIES SECURITIES SECURITIES SECURITIES
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Core $2,935,368 $253,235 $2,887,198 $259,956
Core Plus 379,415 60,196 295,148 26,408
Intermediate 1,216,519 123,375 1,202,704 114,334
Limited 94,596 24,119 115,928 22,472
Non-U.S. 5,978 188,269 5,978 135,031
</TABLE>
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
At March 31, 1999, the cost of securities, gross unrealized appreciation and
gross unrealized depreciation for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
COST APPRECIATION (DEPRECIATION)
-------- ------------ --------------
<S> <C> <C> <C>
Core $793,261 $4,823 $(11,572)
Core Plus 130,485 479 (1,797)
Intermediate 331,117 1,972 (5,457)
Limited 26,504 67 (642)
Non-U.S. 72,243 162 (2,153)
</TABLE>
4. FUND SHARE TRANSACTIONS:
At March 31, 1999, there were 13.1 billion shares of common stock of the
Corporation authorized at $.001 par value. Transactions in Fund shares were as
follows (all share amounts reflect the 10 for 1 stock split effective May 29,
1998):
<TABLE>
<CAPTION>
REINVESTMENT
SOLD OF DISTRIBUTIONS REPURCHASED NET CHANGE
--------------- ------------------ ------------------ ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ -------- -------- --------- ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CORE
Year Ended March 31,
1999 23,039 $247,815 6,095 $ 68,685 (20,160) $(214,696) 8,974 $101,804
------ -------- ------- --------- ------- --------- ------ --------
Nine Months ended March
31, 1998 11,375 $130,852 2,790 $ 31,659 (5,943) $ (68,393) 8,222 $ 94,118
------ -------- ------- --------- ------- --------- ------ --------
Year ended June 30, 1997 17,647 $196,333 2,335 $ 26,038 (15,985) $(179,221) 3,997 $ 43,150
------ -------- ------- --------- ------- --------- ------ --------
CORE PLUS
July 8, 1998* to March
31, 1999 12,138 $121,882 271 $ 2,733 (412) $ (4,226) 11,997 $120,389
------ -------- ------- --------- ------- --------- ------ --------
INTERMEDIATE
Institutional Class
Year ended March 31,
1999 13,411 $144,994 2,531 $ 27,140 (13,368) $(143,836) 2,574 $ 28,298
------ -------- ------- --------- ------- --------- ------ --------
Nine Months ended March
31, 1998 7,991 $ 86,208 1,114 $ 11,927 (3,001) $ (32,528) 6,104 $ 65,607
------ -------- ------- --------- ------- --------- ------ --------
Year ended June 30, 1997 14,920 $157,504 848 $ 8,937 (1,128) $ (12,086) 14,640 $154,355
------ -------- ------- --------- ------- --------- ------ --------
Financial Intermediary
Class
January 7, 1999* to
March 31, 1999 367 $ 3,895 -- -- (10) $ (101) 357 $ 3,794
------ -------- ------- --------- ------- --------- ------ --------
LIMITED
Year ended March 31,
1999 936 $ 9,344 308 $ 3,107 (3,523) $ (35,595) (2,279) $(23,144)
------ -------- ------- --------- ------- --------- ------ --------
Nine Months ended March
31, 1998 3,815 $ 39,150 141 $ 1,440 (1,645) $ (17,058) 2,311 $ 23,532
------ -------- ------- --------- ------- --------- ------ --------
Year ended June 30, 1997 1,129 $ 11,502 106 $ 1,072 (242) $ (2,500) 993 $ 10,074
------ -------- ------- --------- ------- --------- ------ --------
NON-U.S.
July 15, 1998* to March
31, 1999 6,181 $ 62,025 222 $ 2,272 -- -- 6,403 $ 64,297
- --------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of Operations
5. SECURITIES LOANED:
Each Fund lends its securities to approved brokers to earn additional income
and receives cash and U.S. government securities as collateral against the
loans. Cash collateral received is invested in a money market pooled account
by each Fund's lending agent. Collateral is maintained over the life of the
loan in an amount not less than 100% of the value of loaned securities. This
cash collateral is recorded as an asset with a corresponding liability.
At March 31, 1999, the market value of the securities on loan to broker-
dealers was $61,499 and $71,438 for Core and Intermediate, respectively. Cash
collateral received was $64,446 and $73,779 for Core and Intermediate,
respectively. Such
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
collateral is in the possession of each Fund's custodian. As with other
extensions of credit, each 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:
Each Fund has a management agreement with LM Institutional Advisors, Inc.
("LMIA"). Western Asset Management Company ("Western Asset") is the investment
adviser to Core, Core Plus, Intermediate and Limited. Western Asset Global
Management Limited ("WAGM") is the investment adviser to Non-U.S. and shares
advisory responsibilities with Western Asset for Core Plus. Pursuant to their
respective agreements, LMIA provides the Funds with management and
administrative services for which each Fund pays a fee, computed daily and
payable monthly, at annual rates of each Fund's average daily net assets as
follows: 0.45% for Core, Core Plus and Non-U.S., 0.40% for Intermediate and
0.35% for Limited. LMIA pays Western Asset a fee, computed daily and payable
monthly, at an annual rate of 0.40% of average daily net assets for Core and
Core Plus, 0.35% of average daily net assets for Intermediate and 0.30% of
average daily net assets for Limited. LMIA pays WAGM a fee, computed daily and
payable monthly, at an annual rate of 0.40% of average daily net assets for
Non-U.S. At March 31, 1999, $263, $30, $102, and $8 was due to LMIA for Core,
Core Plus, Intermediate and Non-U.S., respectively.
LMIA, Western Asset and WAGM have voluntarily agreed to waive their fees and
reimburse the Funds to the extent each Fund's expenses (exclusive of taxes,
interest, brokerage and extraordinary expenses) exceed during any month annual
rates of each Fund's average daily net assets as follows: 0.55% for Non-U.S.,
0.50% for Core, 0.50% for Core Plus, 0.45% for Intermediate and 0.40% for
Limited. At March 31, 1999, no payments were due from LMIA as reimbursement
for expenses paid above the Funds' annual expense limits.
Legg Mason Wood Walker, Incorporated ("LMWW"), a member of the New York Stock
Exchange, and Arroyo Seco, Inc. serve as distributors of the Funds. LMWW
receives from each Fund an annual distribution fee of 0.25% of the average
daily net assets of the Financial Intermediary Class of each Fund, computed
daily and payable monthly. At March 31, 1999, $1 was due to LMWW from
Intermediate. Arroyo Seco, Inc. receives no payments from the Funds in
connection with the offer or sale of their shares.
On April 8, 1999, Western Asset purchased securities valued at $235 from
Limited.
56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of LM Institutional Fund Advisors I, Inc. and the
Shareholders of Western Asset Core Portfolio, Western Asset Core Plus
Portfolio, Western Asset Intermediate Portfolio, Western Asset Limited
Duration Portfolio, and Western Asset Non-U.S. Fixed Income Portfolio:
In our opinion, the accompanying statements 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 Core Portfolio, Western Asset Core Plus Portfolio, Western Asset
Intermediate Portfolio, Western Asset Limited Duration Portfolio, and Western
Asset Non-U.S. Fixed Income Portfolio (hereafter referred to as the "Funds")
at March 31, 1999, and the results of each of their operations, the changes in
each of their 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 Funds'
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, 1999 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
May 21, 1999
57
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LM INSTITUTIONAL FUND ADVISORS I, INC.
Investment Manager
LM Institutional Advisors, Inc.
P.O. Box 17635
Baltimore, Maryland 21297-1635
1-888-425-6432
Investment Adviser
Western Asset Management Company
117 East Colorado Boulevard
Pasadena, California 91105
This report is not to be distributed unless preceded or accompanied by a
prospectus.
Legg Mason Wood Walker, Inc., Distributor
