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
Semi-Annual Report
September 30, 1999
<PAGE>
PRESIDENT'S LETTER
LM Institutional Fund Advisors I, Inc.
October 15, 1999
Dear Shareholder:
We are pleased to provide you with the Semi-Annual Report for LM Institutional
Fund Advisors I covering the six months ended September 30, 1999.
The following table summarizes the Portfolios' Institutional Class performance
for the six-month period ended September 30, 1999. Detailed comments on the
performance of each Portfolio appear in the Portfolio Managers' comments on the
following page.
Cumulative Total Returns
Six months ended 9/30/99
-----------------------
Western Asset Core Portfolio -0.27%
Western Asset Core Plus Portfolio -0.21%
Salomon Brothers Broad Market Index -0.22%
Western Asset Intermediate Portfolio 0.65%
Lehman Brothers Intm Gov't/Corp Bond Index 0.52%
Western Asset Limited Duration Portfolio 1.36%
Merrill Lynch 1-3 Yr Gov't Index 1.84%
Western Asset Non-U.S. Fixed Income Portfolio -2.18%
Salomon World Gov't ex-U.S. Index (hedged) -0.15%
With less than three months to go until the end of the year, attention has
increasingly focused on the Year 2000 issue. As you 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. Legg Mason's Year 2000
Committee has developed and is implementing a plan designed to ensure that the
Year 2000 date change will have no adverse impact on our ability to service our
shareholders. We are on target to complete this important project. Industry-wide
testing sponsored by the Securities Industry Association ("SIA") was conducted
in March and April of 1999, with Legg Mason, its brokerage subsidiaries and
primary vendors actively participating and achieving positive results.
Legg Mason's Year 2000 Project has four phases. The Inventory Phase and the
Assessment Phase are already complete. The Remediation Phase and the Testing
Phase are currently underway and on target. Renovation and replacement of
existing internal systems, where necessary, is also complete, and all of our
critical vendors have certified their Year 2000 compliance. Most non-critical
vendors have also certified their Year 2000 compliance, and we expect the
remaining vendors to certify their compliance in the next few weeks. Although
individual customer testing will not be available, we have successfully tested
models representing all forms of accounts maintained at Legg Mason, including
the Portfolios' shareholder accounts.
As always, we appreciate your support and welcome your comments and suggestions.
Sincerely,
/s/ Joseph L. Orlando
- ------------------------------
Joseph L. Orlando
President
LM Institutional Advisors, Inc.
1
<PAGE>
PORTFOLIO MANAGERS' COMMENTS
LM Institutional Fund Advisors I, Inc.
MARKET COMMENTARY, MARCH - SEPTEMBER 1999
As we approach the most-dreaded end of the year in history, the U.S.
fixed-income market has come under attack from several directions. Despite few
signs of rising inflation, the Federal Reserve moved to tighten monetary policy
in order to slow down the robust U.S. economy, resulting in higher yields and a
flatter yield curve. Meanwhile, fears of Y2K disruptions have translated into a
frenzy of hedging activity, causing spreads on virtually all non-treasury
sectors--particularly high-quality securities--to rise to unusually high levels.
Global yields have risen as well, more so in most cases than U.S. yields. These
adverse conditions have resulted in dreary performance for the fixed income
market generally, and have truly challenged our ability as a manager to add
value that emphasizes active sector and issue selection, while constraining
overall interest rate risk.
WESTERN ASSET CORE PORTFOLIO
The Portfolio's performance roughly equaled that of its benchmark for the
period, as strategies produced mixed results. The Portfolio's barbelled exposure
to the yield curve was rewarded with a flatter curve, and this helped offset
some of the losses from its long duration position. Our decision to reduce
convexity as a defensive measure through the sale of call options was rewarded
as prices declined. Mortgage overweighting added substantially to performance as
spreads stabilized at high levels, but this was largely offset by wider
corporate spreads.
WESTERN ASSET CORE PLUS PORTFOLIO
The Portfolio's performance roughly equaled that of its benchmark for the
period, as strategies produced mixed results. The Portfolio's barbelled exposure
to the yield curve was rewarded with a flatter curve, and this helped offset
some of the losses from its long duration position. Our decision to reduce
convexity as a defensive measure through the sale of call options was rewarded
as prices declined. Mortgage overweighting added to performance as spreads
stabilized at high levels, but this was offset by wider corporate spreads.
Emerging market exposure contributed to performance as spreads narrowed, but
this was offset by a modest exposure to non-dollar bonds as foreign yields rose.
WESTERN ASSET INTERMEDIATE PORTFOLIO
The Portfolio's performance exceeded that of its benchmark for the period, as
strategies produced mixed but generally positive results. The Portfolio's
barbelled exposure to the yield curve was rewarded with a flatter curve, and
this helped offset some of the losses from its long duration position. Our
decision to reduce convexity as a defensive measure through the sale of call
options was rewarded as prices declined. Mortgage overweighting added
substantially to performance as spreads stabilized at high levels, but this was
partially offset by wider corporate spreads.
WESTERN ASSET LIMITED DURATION PORTFOLIO
The Portfolio's performance trailed that of its benchmark for the period, as
strategies produced mixed but generally negative results. The Portfolio's
barbelled exposure to the yield curve suffered from a steepening in the front
part of the yield curve, and its long duration position suffered from rising
yields. Our decision to reduce convexity as a defensive measure through the sale
of call options was rewarded as prices declined. Mortgage overweighting added to
performance as spreads stabilized at high levels, but this was partially offset
by wider corporate spreads.
WESTERN ASSET NON-U.S. FIXED INCOME PORTFOLIO
The Portfolio's performance substantially trailed that of its benchmark, due
primarily to a severe underweighting to Japanese bonds, which significantly
outperformed almost every other market. Performance also trailed that of the
domestic market, since most European bond yields rose by proportionately more
than U.S. yields
2
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES 17.6%
Automotive 0.2%
Ford Motor Company 6.625% 10/1/28 $ 920 $ 818
Ford Motor Company 7.40% 11/1/46 400 383
-------
1,201
Banking and Finance 6.6%
BNY Capital Trust 7.97% 12/31/26 4,000 3,887
Deutsche Bank Capital Funding Trust I 7.872% 12/29/49 2,000 1,913(C,G)
Dresdner Funding Trust I 8.151% 6/30/31 1,510 1,420(G)
Dryden Investor Trust 7.157% 7/23/08 14,927 14,330(G)
Ford Motor Credit Company 5.75% 2/23/04 1,735 1,666
General Motors Acceptance Corporation 5.85% 1/14/09 5,000 4,611
General Motors Acceptance Corporation 0.00% 6/15/15 14,900 4,470(B)
J.P. Morgan & Company, Inc. 3.356% 2/15/12 2,000 1,753(F)
Key Bank, N.A. 6.209% 3/18/02 5,000 5,001(C)
SB Treasury Company LLC 9.40% 12/29/49 4,980 5,011(G)
Socgen Real Estate Co. LLC 7.64% 12/29/49 500 454(G)
-------
44,516
Cable 0.9%
Continental Cablevision, Inc. 9.00% 9/1/08 2,200 2,410
TCI Communications, Inc. 6.375% 5/1/03 1,430 1,415
TCI Communications, Inc. 7.875% 2/15/26 2,100 2,172
-------
5,997
Diversified Services 1.1%
Loews Corporation 7.625% 6/1/23 8,459 7,619
Energy 0.3%
System Energy Resources, Inc. 7.43% 1/15/11 2,437 2,354
Environmental Services 0.7%
Waste Management Inc. 7.125% 12/15/17 6,000 4,963
Food, Beverage and Tobacco 3.1%
Archer-Daniels-Midland Company 6.625% 5/1/29 320 281
Diageo plc 8.625% 8/15/01 150 156
J. Seagram & Sons 6.40% 12/15/03 2,820 2,737
J. Seagram & Sons 6.80% 12/15/08 1,360 1,287
J. Seagram & Sons 7.50% 12/15/18 2,120 2,030
J. Seagram & Sons 7.60% 12/15/28 1,430 1,360
Nabisco Incorporated 6.375% 2/1/35 4,250 4,025
Philip Morris Companies, Inc. 8.75% 6/1/01 100 103
R.J. Reynolds Tobacco Holdings Inc. 7.75% 5/15/06 4,810 4,545
R.J. Reynolds Tobacco Holdings Inc. 7.875% 5/15/09 3,240 3,131
The Pepsi Bottling Group Incorporated 7.00% 3/1/29 900 820
-------
20,475
3
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
Gas and Pipeline Utilities 0.2%
CMS Panhandle Holding Company 6.125% 3/15/04 $ 1,700 $ 1,635
Media 2.3%
News America Incorporated 7.625% 11/30/28 3,000 2,784
News America Incorporated 6.75% 1/9/38 5,000 4,586
Time Warner, Inc. 9.15% 2/1/23 3,500 3,991
Time Warner, Inc. 6.85% 1/15/26 2,000 1,988
Time Warner, Inc. 6.625% 5/15/29 2,500 2,180(G)
-------
15,529
Medical / Drugs 0.6%
Merck & Co., Inc. 5.95% 12/1/28 4,400 3,740
Telecommunications 0.6%
AT&T Corporation 9.65% 3/31/27 1,880 2,133
Cox Communications, Inc. 7.875% 8/15/09 640 658
Sprint Capital Corp. 6.875% 11/15/28 1,140 1,034
-------
3,825
Transportation 1.0%
Consolidated Rail Corporation 7.875% 5/15/43 520 504
Union Pacific Corporation 6.625% 2/1/29 7,000 5,965
-------
6,469
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST - $125,650) 118,323
- ------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 3.3%
Fixed-rate Securities 1.4%
Advanta Mortgage Loan Trust 7.59% 6/25/14 600 606
Chevy Chase 1997-A 7.65% 12/20/07 1,889 1,853
Chevy Chase RACES 1998-A 6.85% 8/1/13 4,083 3,822(G)
FMAC Loan Receivables Trust 7.35% 4/15/19 170 169
Green Tree Recreational, Equipment and
Consumer Trust 1998-A 6.71% 5/15/29 3,003 2,986
Rural Housing Trust 1987-1 3.33% 10/1/28 4 4
-------
9,440
Indexed Securities 1.9%
Matterhorn One Limited Trust 6.05% 1/21/06 2,500 2,498(F)
Matterhorn One Limited Trust 6.55% 1/21/06 98 98(F)
World Omni Automobile Lease Securitization 5.63% 2/15/02 10,200 10,199(F)
-------
12,795
Stripped Securities N.M.
Option One CTS Arm Trust 3.067% 3/25/01 7,879 114(D1)
4
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------------------------------
ASSET-BACKED SECURITIES (CONTINUED)
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST -- $23,313) $ 22,349
- ------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 4.3%
Fixed-rate Securities 4.0%
Asset Securitization Corporation 6.92% 2/14/29 $ 6,037 6,010
Merrill Lynch Mortgage Investors, Inc. 6.69% 11/21/28 97 97(G)
Merrill Lynch Mortgage Investors, Inc. 6.96% 11/21/28 1,358 1,334
Nomura Asset Securities Corporation 6.28% 3/17/28 2,503 2,456
Nomura Asset Securities Corporation 7.07% 4/13/36 2,564 2,590
Nomura Asset Securities Corporation 7.12% 4/13/36 4,500 4,471
Onyx Acceptance Auto Trust 6.18% 4/15/02 10,200 10,168
-------
27,126
Indexed Securities N.M.
Prudential Securities Secured Financing Corp. 6.048% 4/25/26 57 57(F)
Resolution Trust Corporation 6.61% 9/25/21 2 2(F)
-------
59
Stripped Securities N.M.
Structured Mortgage Asset Residential Trust 2500% 8/25/22 N.M. 1(D1)
Structured Mortgage Asset Residential Trust 0.143% 1/25/23 7,181 7(D1)
-------
8
Variable-rate Securities 0.3%
Resolution Trust Corporation 6.703% 5/25/21 547 546(C)
Resolution Trust Corporation 10.296% 8/25/21 106 106(C)
Resolution Trust Corporation 6.845% 10/25/28 99 98(C)
Resolution Trust Corporation 7.256% 9/25/29 1,028 1,019(C)
-------
1,769
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST - $28,648) 28,962
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 25.2%
Fixed-rate Securities 12.8%
Tennessee Valley Authority 0.00% 11/1/19 3,064 735(B)
United States Treasury Bonds 11.125% 8/15/03 530 623
United States Treasury Bonds 11.875% 11/15/03 9,400 11,402
United States Treasury Bonds 8.00% 11/15/21 15,180 17,931
United States Treasury Bonds 6.375% 8/15/27 2,280 2,284
United States Treasury Bonds 5.50% 8/15/28 12,700 11,367
United States Treasury Bonds 5.25% 11/15/28 7,410 6,422
United States Treasury Notes 6.375% 9/30/01 8,100 8,208
United States Treasury Notes 5.75% 10/31/02 4,650 4,651
United States Treasury Notes 5.75% 11/30/02 2,600 2,598
5
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (CONTINUED)
Fixed-rate Securities (continued)
United States Treasury Notes 5.625% 12/31/02 $ 4,300 $ 4,282
United States Treasury Notes 6.00% 8/15/04 3,750 3,786
United States Treasury Notes 7.50% 2/15/05 2,120 2,266
United States Treasury Notes 6.875% 5/15/06 4,970 5,186
United States Treasury Notes 7.00% 7/15/06 1,800 1,891
United States Treasury Notes 6.50% 10/15/06 2,160 2,209
-------
85,841
Indexed Securities 12.4%
United States Treasury Inflation - Indexed Security 3.625% 1/15/08 18,227 17,635(E)
United States Treasury Inflation - Indexed Security 3.625% 4/15/28 47,681 44,105(E)
United States Treasury Inflation - Indexed Security 3.875% 4/15/29 22,435 21,671(E)
-------
83,411
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (IDENTIFIED COST - $173,224) 169,252
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 49.0%
Fixed-rate Securities 48.5%
Fannie Mae 7.00% 9/1/07 to 5/1/29 23,668 23,444
Fannie Mae 6.50% 10/1/14 15,720 15,425(H)
Fannie Mae 7.50% 6/1/25 to 7/1/29 21,724 21,787
Fannie Mae 6.00% 1/1/26 to 5/1/29 51,378 47,924
Fannie Mae 6.25% 5/15/29 6,460 5,942
Fannie Mae 6.50% 7/1/28 to 8/1/29 113,233 108,563
Fannie Mae 6.00% 10/1/29 3,420 3,190(H)
Fannie Mae 6.50% 10/1/29 8,100 7,767(H)
Fannie Mae 7.50% 10/1/29 2,040 2,046(H)
Fannie Mae 6.21% 8/6/38 1,040 924
Federal Housing Authority USGI #68 7.43% 3/1/21 237 232
Freddie Mac 8.25% 8/1/01 10 10
Freddie Mac 9.25% 6/1/02 57 58
Freddie Mac 6.75% 5/1/04 109 108
Freddie Mac 7.50% 4/1/06 74 74
Freddie Mac 9.75% 7/1/08 235 245
Freddie Mac 5.50% 12/1/13 to 2/1/14 3,865 3,641
Freddie Mac 6.00% 10/1/14 19,750 18,435(H)
Freddie Mac 9.30% 4/15/19 1,260 1,306
Freddie Mac 7.00% 4/1/24 to 5/1/29 9,360 9,221
Freddie Mac 6.00% 5/1/29 637 594
6
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-------------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES (CONTINUED)
Fixed-rate Securities (continued)
Freddie Mac 6.50% 10/1/29 $29,910 $ 28,699(H)
Freddie Mac 7.00% 10/1/29 15,027 14,776(H)
Government National Mortgage Association 9.50% 3/15/03 73 77
Government National Mortgage Association 10.25% 6/15/03 14 15
Government National Mortgage Association 10.00% 11/15/09 5 5
Government National Mortgage Association 6.00% 10/1/14 3,100 2,989(H)
Government National Mortgage Association 7.50% 10/15/22 to 9/15/26 1,012 1,017
Government National Mortgage Association 7.00% 1/15/24 18 18
Government National Mortgage Association 6.00% 12/15/28 6,800 6,312(H)
Government National Mortgage Association 7.00% 10/1/29 600 589(H)
-------
325,433
Stripped Securities 0.3%
Fannie Mae 9.50% 2/1/17 150 44(D1)
Fannie Mae 1009.50% 2/25/20 N.M. 3(D1)
Fannie Mae 1009.25% 8/25/21 7 176(D1)
Fannie Mae 0.00% 5/25/22 1,391 1,132(D2)
Freddie Mac 10.00% 3/1/21 1,270 346(D1)
Freddie Mac 10.00% 7/15/22 197 150(D2)
-------
1,851
Variable-rate Securities 0.2%
Government National Mortgage Association 6.125% 12/20/21 914 927(C)
Government National Mortgage Association 6.375% 6/20/25 690 698(C)
-------
1,625
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST - $333,762) 328,909
- --------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS(A) 3.2%
Corporate Bonds and Notes 2.6%
Hydro-Quebec 8.05% 7/7/24 4,895 5,256(G)
PDVSA Finance Limited LTD 1998-1 7.50% 11/15/28 2,000 1,408(G)
Royal & Sun Alliance Insurance Group plc 8.95% 10/15/29 1,830 1,830(G)
Sanwa Finance Aruba AEC 8.35% 7/15/09 2,200 2,257
Sumitomo Bank International Finance NV 8.50% 6/15/09 1,700 1,728
YPF Sociedad Anonima 7.50% 10/26/02 1,920 1,931(G)
YPF Sociedad Anonima 7.75% 8/27/07 3,250 3,098
-------
17,508
7
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
YANKEE BONDS (CONTINUED)
Foreign Governments 0.6%
Quebec Province 7.22% 7/22/36 $ 1,105 $ 1,143
Republic of Korea 8.875% 4/15/08 2,610 2,688
-------
3,831
TOTAL YANKEE BONDS
(IDENTIFIED COST - $22,666) 21,339
- ------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK 0.6%
Home Ownership Funding 4 shs 3,781(G)
-------
TOTAL PREFERRED STOCK
(IDENTIFIED COST - $4,472) 3,781
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 11.0%
Corporate Bonds and Notes 4.7%
Countrywide Home Loan 5.368% 1/26/00 $ 5,000 4,996(F)
GTE Corporation 5.546% 6/12/00 8,000 7,995(F)
IBM Credit Corporation 5.79% 3/20/00 4,000 3,996
Lockheed Martin Corporation 6.15% 2/18/00 1,500 1,464
PHH Corporation 5.58% 2/17/00 5,000 5,000
TRW Incorporated 6.22% 2/15/00 3,600 3,515
US West Capital Funding Incorporated 5.96% 6/15/00 4,300 4,294(F,G)
-------
31,260
U.S. Government and Agency Obligations 0.7%
Freddie Mac 4.79% 11/12/99 4,250 4,226(I)
United States Treasury Notes 5.375% 7/31/00 700 700
-------
4,926
Options Purchased N.M.
Eurodollar Future Call, January 99, Strike Price $94.25 462(J) 52
Repurchase Agreements 5.6%
J.P. Morgan Securities, Inc.
5.38% dated 9/30/99, to be repurchased at
$36,140 on 10/1/99 (Collateral: $38,595
Fannie Mae Medium-term notes, 6.20% due
8/12/08, value $37,177) 36,135 36,135
8
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
SHORT-TERM INVESTMENTS (CONTINUED)
Repurchase Agreements (continued)
State Street Corporation
3.50% dated 9/30/99, to be repurchased at
$1,247 on 10/1/99 (Collateral: $1,270 Fannie
Mae Medium-term notes, 5.30% due 1/8/01,
value $1,290) $ 1,247 $ 1,247
-------
37,382
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST - $73,689) 73,620
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST - $785,424) 114.2% $766,535
OTHER ASSETS LESS LIABILITIES (14.2)% (95,550)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
62,785 Institutional Shares outstanding $694,623
126 Financial Intermediary Shares outstanding 1,346
Under/(over) distributed net investment income 10,436
Accumulated net realized gain/(loss) on investments (16,582)
Unrealized appreciation/(depreciation) of investments (18,838)
---------
NET ASSETS 100.0% $670,985
========
NET ASSET VALUE PER SHARE
Institutional Class $ 10.67
========
Financial Intermediary Class $ 10.66
========
9
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- -------------------------------------------------------------------------------------------------------------------------------
Actual Appreciation
Expiration Contracts (Depreciation)
=============== =============== ===============
Futures Contracts Purchased
Municipal Bond Index Futures December 99 42 $ (26)
U.S. Treasury Bond Futures December 99 449 117
U.S. Treasury Bond Futures December 99 183 43
U.S. Treasury Bond Futures March 00 113 (245)
--------
$(111)
--------
Futures Contracts Written
U.S. Treasury Bond Futures December 99 63 $ (33)
--------
Options Written
U.S. Treasury Bond Futures Call, Strike Price $114.00 October 99 475 $ (33)
U.S. Treasury Bond Futures Call, Strike Price $116.00 October 99 122 30
U.S. Treasury Bond Futures Call, Strike Price $109.00 November 99 91 21
U.S. Treasury Bond Futures Call, Strike Price $116.00 November 99 209 124
U.S. Treasury Bond Futures Call, Strike Price $118.00 November 99 99 53
--------
$ 195
--------
- -------------------------------------------------------------------------------------------------------------------
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 September 30, 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 Consumer Price (CPI) index or the one year Treasury Bill rate. The coupon rate is the rate as of
September 30, 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. These securities represent 7.1% of net
assets.
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 futures contracts.
J This represents actual number of contracts.
N.M. Not Meaningful
See Notes to Financial Statements
10
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
CORPORATE BONDS AND NOTES 13.9%
Aerospace/Defense 0.5%
Raytheon Company 6.75% 8/15/07 $ 960 $ 925
Automotive 0.9%
American Axle & Manufacturing Holdings, Inc. 9.75% 3/1/09 50 47
Ford Motor Company 6.625% 2/15/28 200 178
Ford Motor Company 6.625% 10/1/28 80 71
General Motors Corporation 6.75% 5/1/28 500 453
J. L. French Automotive Castings 11.50% 6/1/09 50 50(B)
Lear Corporation 7.96% 5/15/05 210 206(B)
Lear Corporation 8.11% 5/15/09 580 562(B)
-------
1,567
Banking and Finance 3.3%
BNY Capital Trust 7.97% 12/31/26 1,000 972
Dresdner Funding Trust I 8.151% 6/30/31 330 303
Ford Motor Credit Company 6.125% 4/28/03 600 588
Ford Motor Credit Company 5.75% 2/23/04 400 384
General Motors Acceptance Corporation 5.85% 1/14/09 2,000 1,845
IBJ Preferred Capital Corp. LLC 8.79% 12/29/49 500 477(B)
Lehman Brothers Holdings Incorporated 6.25% 4/1/03 200 194
Lehman Brothers Holdings Incorporated 7.00% 5/15/03 220 219
SB Treasury Company LLC 9.40% 12/29/49 500 503(B)
Zurich Capital Trust I 8.376% 6/1/37 500 486(B)
-------
5,971
Building Materials 0.1%
American Standard Companies, Inc. 8.25% 6/1/09 28 27
American Standard Companies, Inc. 7.625% 2/15/10 19 17
Nortek Inc. 8.875% 8/1/08 80 76
-------
120
Business Services 0.6%
Cendant Corporation 7.75% 12/1/03 1,100 1,099
Cable 1.6%
Century Communications Corp. 8.875% 1/15/07 31 30
Charter Communications Holdings LLC 8.625% 4/1/09 67 62
Continental Cablevision, Inc. 9.00% 9/1/08 1,000 1,095
CSC Holdings Inc. 8.125% 7/15/09 20 20(B)
NTL Incorporated 0.00% 10/1/08 40 27(I)
TCI Communications, Inc. 7.875% 2/15/26 500 517
Tele-Communications, Inc. 7.125% 2/15/28 1,180 1,119
-------
2,870
11
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
Chemicals 0.1%
Huntsman ICI Chemicals LLC 0.00% 12/31/09 $ 500 $ 135(B,K)
Lyondell Chemical Company 9.875% 5/1/07 30 30
-------
165
Construction Machinery 0.1%
Terex Corporation 8.875% 4/1/08 113 108(B)
Electric 0.4%
Calpine Corporation 7.75% 4/15/09 38 36
CMS Energy Corporation 7.50% 1/15/09 133 124
Niagara Mohawk Power Corporation 7.75% 10/1/08 500 508
The AES Corporation 9.50% 6/1/09 69 69
-------
737
Energy N.M.
P&L Coal Holdings Corp. 9.625% 5/15/08 80 78
Environmental Services 0.1%
Allied Waste North America Inc. 10.00% 8/1/09 150 138(B)
Safety Kleen Corp. 9.25% 5/15/09 86 83(B)
-------
221
Food, Beverage and Tobacco 1.6%
J. Seagram & Sons 6.40% 12/15/03 510 495
J. Seagram & Sons 6.80% 12/15/08 240 227
J. Seagram & Sons 7.50% 12/15/18 340 326
J. Seagram & Sons 7.60% 12/15/28 180 171
R.J. Reynolds Tobacco Holdings Inc. 7.75% 5/15/06 1,010 954(B)
R.J. Reynolds Tobacco Holdings Inc. 7.875% 5/15/09 680 657(B)
-------
2,830
Gaming 0.1%
Horseshoe Gaming Holdings, Inc. 8.625% 5/15/09 73 69(B)
International Game Technology 8.375% 5/15/09 60 57
-------
126
Gas and Pipeline Utilities 0.1%
CMS Panhandle Holding Company 7.00% 7/15/29 300 267
Industrial 0.1%
Blount International Inc. 13.00% 8/1/09 115 119(B)
Media 0.9%
AMFM Inc. 8.00% 11/1/08 91 89
EchoStar Communications Corporation 9.375% 2/1/09 52 51
News America Holdings Incorporated 8.25% 10/17/96 1,100 1,028
12
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
Media (continued)
News America Incorporated 6.75% 1/9/38 $ 200 $ 183
Time Warner, Inc. 8.375% 3/15/23 200 213
TV Guide, Inc. 8.125% 3/1/09 80 75
-------
1,639
Telecommunications 2.2%
AT&T Corporation 9.65% 3/31/27 1,480 1,679
Cox Communications Inc. 7.875% 8/15/09 120 123
Crown Castle International Corp. 0.00% 5/15/11 65 37(I)
Crown Castle International Corp. 9.00% 5/15/11 17 16
Crown Castle International Corp. 9.50% 8/1/11 100 96(B)
Frontier Corporation 6.00% 10/15/13 185 173
Hyperion Telecommunications Inc. 12.00% 11/1/07 34 34
Level 3 Communications Incorporated 9.125% 5/1/08 253 229
Lucent Technologies Incorporated 6.45% 3/15/29 1,400 1,259
McleodUSA Incorporated 8.125% 2/15/09 50 47
NEXTLINK Communications Inc. 10.75% 6/1/09 194 196
Omnipoint Corporation 11.50% 9/15/09 30 31(B)
PSINet Inc. 11.00% 8/1/09 53 53(B)
Williams Communications Group, Inc. 10.875% 10/1/09 86 85
-------
4,058
Transportation 1.2%
Avis Rent A Car, Inc. 11.00% 5/1/09 85 88(B)
Burlington Northern Santa Fe Corporation 6.375% 12/15/05 360 345
Consolidated Rail Corporation 7.875% 5/15/43 200 194
CSX Corporation 6.25% 10/15/08 570 526
CSX Corporation 7.90% 5/1/17 500 503
Norfolk Southern Corporation 7.80% 5/15/27 370 369
Worldwide Flight Services 12.25% 8/15/07 71 70(B)
-------
2,095
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST - $26,569) 24,995
-------
ASSET-BACKED SECURITIES 2.8%
Fixed-rate Securities 1.4%
Onyx Acceptance Auto Trust 6.18% 4/15/02 2,500 2,492
Indexed Securities 1.4%
World Omni Automobile Lease Securitization 5.63% 2/15/02 2,500 2,500(G)
-------
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST - $5,000) 4,992
- ------------------------------------------------------------------------------------------------------------------------
13
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
Mortgage-Backed Securities 2.1%
Fixed-rate Securities 2.1%
Asset Securitization Corporation 7.49% 4/14/29 $ 1,050 $ 1,073
Nomura Asset Securitization Corporation 6.59% 3/17/28 2,750 2,648
-------
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST - $3,889) 3,721
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS 27.1%
Fixed-rate Securities 16.3%
United States Treasury Bonds 11.875% 11/15/03 2,230 2,705
United States Treasury Bonds 5.50% 8/15/28 5,000 4,475
United States Treasury Bonds 5.25% 11/15/28 18,570 16,095
United States Treasury Notes 6.00% 8/15/04 3,000 3,029
United States Treasury Notes 6.50% 10/15/06 360 368
United States Treasury Notes 6.125% 8/15/07 2,620 2,623
-------
29,295
Indexed Securities 10.8%
United States Treasury Inflation - Indexed Security 3.625% 4/15/28 20,716 19,163(E)
United States Treasury Inflation - Indexed Security 3.875% 4/15/29 345 333(E)
-------
19,496
TOTAL U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (IDENTIFIED COST - $49,747) 48,791
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 34.4%
Fixed-rate Securities 34.4%
Fannie Mae 6.50% 5/1/14 to 8/1/29 6,843 6,569
Fannie Mae 6.00% 3/1/28 to 5/1/29 12,189 11,368
Fannie Mae 6.25% 5/15/29 2,150 1,978
Fannie Mae 6.00% 10/1/29 670 625(D)
Fannie Mae 6.50% 10/1/29 13,780 13,214(D)
Fannie Mae 7.50% 10/1/29 900 902(D)
Fannie Mae 6.21% 8/6/38 350 311
Freddie Mac 5.50% 12/1/13 to 2/1/14 1,799 1,695
Freddie Mac 7.00% 4/1/29 498 490
Freddie Mac 6.50% 10/1/29 10,700 10,267(D)
14
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- --------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
-----------------------------------------------------------------
U.S. GOVERNMENT AGENCY MORTGAGE- BACKED SECURITIES (CONTINUED)
Fixed-rate Securities (continued)
Government National Mortgage Association 7.50% 3/15/23 to 7/15/28 $ 4,356 $ 4,371
Government National Mortgage Association 7.00% 7/15/23 to 12/15/28 10,407 10,230
-------
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST - $63,083) 62,020
- ------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS(A) 7.4%
Corporate Bonds and Notes 3.7%
Diageo Capital plc 6.625% 6/24/04 1,400 1,395
HSBC Holdings plc 7.50% 7/15/09 1,400 1,401
PDVSA Finance LTD 1998-1 7.50% 11/15/28 500 352(B)
Petroleos Mexicanos 8.85% 9/15/07 555 503
Petroleos Mexicanos 9.50% 9/15/27 870 835
Royal & Sun Alliance Insurance Group plc 8.95% 10/15/29 470 470(B)
Sanwa Finance Aruba AEC 8.35% 7/15/09 500 513
United Pan-Europe Communications NV 10.875% 8/1/09 95 97(B)
Versatel Telecom International NV 11.875% 7/15/09 70 66
Worldwide Fiber Inc. 12.00% 8/1/09 50 49
YPF Sociedad Anonima 7.75% 8/27/07 1,000 953
ZSC Specialty Chemicals plc 11.00% 7/1/09 100 101(B)
-------
6,735
Foreign Governments 3.7%
Quebec Province 7.22% 7/22/36 650 672
Republic of Argentina 6.813% 3/31/05 2,044 1,796(G)
Republic of Argentina 11.75% 4/7/09 1,190 1,154
Republic of Argentina 9.75% 9/19/27 292 246
Republic of Brazil 5.938% 4/15/09 120 85(G)
Republic of Panama 9.375% 4/1/29 200 189
Republic of South Korea 8.875% 4/15/08 580 597
United Mexican States 10.375% 2/17/09 280 284
United Mexican States 11.50% 5/15/26 1,500 1,657
Vnesheconombank 6.063% 12/15/15 3 1(G)
Vnesheconombank 6.063% 12/15/20 200 18(F,G)
-------
6,699
TOTAL YANKEE BONDS
(IDENTIFIED COST - $13,407) 13,434
- ------------------------------------------------------------------------------------------------------------------------
15
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
PREFERRED STOCK 0.2%
News Corporation Finance Trust 7 shs $ 413
TOTAL PREFERRED STOCK
(IDENTIFIED COST - $455) 413
- ------------------------------------------------------------------------------------------------------------------------
FOREIGN BONDS 4.7%
Australian Dollar 0.9%
Australian Government 8.75% 8/15/08 2,270 1,727(M)
Euro 1.4%
Buoni del Tesoro Poliennali 6.50% 11/1/27 2,250 2,531(N)
Greek Drachma 1.5%
Hellenic Republic 8.60% 3/26/08 550,000 1,983(O)
Hellenic Republic 6.30% 1/29/09 200,000 631(O)
-------
2,614
New Zealand Dollar 0.5%
New Zealand Government 7.00% 7/15/09 1,630 850(P)
Swedish Krona 0.4%
AB Spintab 5.50% 9/17/03 3,500 420(Q)
Statens Bostadsfinansier AB 5.50% 10/15/03 3,500 419(Q)
-------
839
TOTAL FOREIGN BONDS
(IDENTIFIED COST - $8,627) 8,561
- ------------------------------------------------------------------------------------------------------------------------
WARRANTS N.M.
Republic of Argentina, 12.125% due 2/25/19 N.M. N.M.
TOTAL WARRANTS
(IDENTIFIED COST - $12) N.M.
- ------------------------------------------------------------------------------------------------------------------------
16
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
SHORT-TERM INVESTMENTS 19.9%
Corporate Bonds and Notes 1.8%
Lehman Brothers Holdings Incorporated 6.50% 9/25/00 $ 580 $ 580
Lockheed Martin Corporation 6.15% 2/18/00 1,000 976
TRW Incorporated 6.22% 2/15/00 900 875
US West Capital Funding Incorporated 5.96% 6/15/00 900 899(B,G)
-------
3,330
U.S. Government Agency 0.9%
Freddie Mac 4.72% 11/12/99 1,550 1,541(J)
Mortgage-backed Securities 1.2%
GS Mortgage Securities Corporation II 5.76% 2/13/00 2,100 2,095(B,G)
Options Purchased N.M.
Eurodollar Future Call, January 99, Strike Price $94.25 117(L) 13
Repurchase Agreements 16.0%
J.P. Morgan Securities, Inc.
5.38%, dated 9/30/99, to be repurchased at $28,813
on 10/1/99 (Collateral: $29,950 Fannie Mae
Medium-term Notes, 6.50% due 4/29/09, value
$30,202) 28,809 28,809
-------
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST - $35,799) 35,788
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST - $206,588) 112.5% $202,715
OTHER ASSETS LESS LIABILITIES (12.5)% (22,536)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
18,561 shares outstanding $184,844
Under/(over) distributed net investment income 2,347
Accumulated net realized gain/(loss) on investments
and foreign currency transactions (3,021)
Unrealized appreciation/(depreciation) of investments
and foreign currency transactions (3,991)
---------
NET ASSETS 100.0% $180,179
========
NET ASSET VALUE PER SHARE $ 9.71
========
17
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Core Plus Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
ACTUAL APPRECIATION
EXPIRATION CONTRACTS (DEPRECIATION)
--------------------------------------------------------
Futures Contracts Purchased
Municipal Bond Futures December 99 10 $ (6)
U.S. Treasury Bond Futures December 99 146 48
U.S. Treasury Bond Futures December 99 51 2
U.S. Treasury Bond Futures March 00 21 (55)
------
$(11)
Futures Contracts Written ------
U.S. Treasury Bond Futures December 99 121 $(74)
------
Options Written
Argentina Federal Republic Bond OTC Call, Strike Price $86.125 October 99 500 $ (3)
Argentina Federal Republic Bond OTC Call, Strike Price $112.00 October 99 466 0
U.S. Treasury Bond Futures Call, Strike Price $114.00 October 99 125 (9)
U.S. Treasury Bond Futures Call, Strike Price $116.00 October 99 32 8
U.S. Treasury Bond Futures Call, Strike Price $109.00 November 99 24 6
U.S. Treasury Bond Futures Call, Strike Price $116.00 November 99 51 29
U.S. Treasury Bond Futures Call, Strike Price $118.00 November 99 25 13
U.S. Treasury Bond Futures Put, Strike Price $112.00 November 99 75 25
------
$ 69
------
- ------------------------------------------------------------------------------------------------------------------------
(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. These securities represent 5.0% of net assets.
(C)The coupon rates shown on variable-rate securities are the rates at September 30, 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 PIK 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 Consumer Price Index (CPI) or the one year Treasury Bill rate. The coupon rate is the rate as of September 30,
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)Stepped coupon security - A bond or preferred stock which amortizes to par by a specified date at which time it
begins to accrue interest or pay dividends.
(J)Collateral to cover futures contracts.
(K)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.
(L)This represents actual number of contracts.
(M)Denominated in Australian Dollars.
(N)Denominated in Euro.
(O)Denominated in Greek Drachma.
(P)Denominated in New Zealand Dollars.
(Q)Denominated in Swedish Krona. N.M. Not Meaningful
See Notes to Financial Statements
18
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
CORPORATE BONDS AND NOTES 26.8%
Aerospace/Defense 3.8%
Raytheon Company 6.30% 8/15/00 $ 4,000 $ 4,003
Raytheon Company 6.15% 11/1/08 6,000 5,514
Raytheon Company 6.00% 12/15/10 2,860 2,566
-------
12,083
Banking and Finance 9.3%
CIT Group Incorporated 7.125% 10/15/04 5,000 4,996
Countrywide Home Loans, Inc. 6.85% 6/15/04 1,600 1,583
Dryden Investor Trust 7.157% 7/23/08 4,665 4,478(G)
Ford Motor Credit Company 5.75% 2/23/04 1,580 1,517
General Motors Acceptance Corporation 6.85% 6/17/04 1,100 1,099
Heller Financial, Inc. 7.125% 9/28/04 1,700 1,705
J.P. Morgan & Company, Inc. 5.603% 2/15/12 710 622(F)
Lehman Brothers Holdings Incorporated 7.50% 9/1/06 3,120 3,107
National Westminster Bancorp 9.375% 11/15/03 290 314
NationsBank Capital Trust III 6.728% 1/15/27 1,300 1,241(F)
Norwest Financial Inc. 6.70% 9/22/04 3,440 3,430
Salomon Smith Barney 6.25% 1/15/05 1,300 1,265
SB Treasury Company LLC 9.40% 12/29/49 3,340 3,361(G)
United States Leasing International 8.75% 12/1/01 500 520
-------
29,238
Cable 1.0%
TCI Communications, Inc. 7.61% 10/4/05 3,060 3,145
Consumer Products 0.3%
Procter & Gamble Company 6.875% 9/15/09 1,000 1,004
Food, Beverage and Tobacco 1.8%
Philip Morris Companies, Inc. 6.95% 6/1/06 2,000 2,008
R.J. Reynolds Tobacco Holdings, Inc. 7.75% 5/15/06 4,020 3,798(G)
-------
5,806
Gaming 1.5%
Mirage Resorts Incorporated 6.625% 2/1/05 1,500 1,382
Mirage Resorts Incorporated 6.75% 8/1/07 3,640 3,254
-------
4,636
Media 2.9%
News America Incorporated 6.703% 5/21/04 3,570 3,457(C)
Time Warner, Inc. 9.125% 1/15/13 2,000 2,245
Time Warner, Inc. 7.25% 10/15/17 3,440 3,297
-------
8,999
Retail 0.6%
Wal-Mart Stores Incorporated 6.875% 8/10/09 2,030 2,034
19
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
CORPORATE BONDS AND NOTES (CONTINUED)
Telecommunications 2.3%
AT&T Corporation 7.75% 3/1/07 $ 950 $ 997
MCI Worldcom, Inc. 7.75% 4/1/07 6,000 6,264
-------
7,261
Transportation 3.3%
CSX Corporation 5.85% 12/1/03 5,000 4,779
Norfolk Southern Corporation 7.35% 5/15/07 1,730 1,727
Union Pacific Corporation 6.70% 12/1/06 4,030 3,859
-------
10,365
TOTAL CORPORATE BONDS AND NOTES
(IDENTIFIED COST - $86,760) 84,571
- ------------------------------------------------------------------------------------------------------------------------
ASSET-BACKED SECURITIES 10.3%
Fixed-rate Securities 8.8%
ARG Funding Corporation 6.02% 5/20/05 3,190 3,088(G)
Bridgestone/Firestone Master Trust 6.17% 7/1/03 4,300 4,317
Chevy Chase 1997-A 7.65% 12/20/07 627 615
Chevy Chase Home Loan Trust 7.15% 5/15/15 569 573
Contimortgage Home Equity Loan 6.42% 4/25/14 2,236 2,232
CPS Auto Grantor Trust 6.30% 8/15/02 486 485
CS First Boston Mortgage Securities Corporation 6.62% 9/25/09 3,621 3,619(G)
Fleetwood Credit Corp. Grantor Trust 6.75% 3/15/10 2,574 2,571
Green Tree Financial Corporation 6.90% 2/15/04 1,426 1,419
Guaranteed Export Certificates 6.13% 6/15/04 1,176 1,175
Lehman FHA Title 1 Loan Trust 7.71% 8/25/17 1,168 1,174
Long Beach Acceptance Auto Grantor Trust 6.85% 10/25/03 1,640 1,637(G)
Long Beach Acceptance Auto Grantor Trust 6.69% 9/25/04 366 365(G)
Mego Mortgage Home Loan Trust 7.275% 9/25/16 622 619
Mego Mortgage Home Loan Trust 7.17% 5/25/23 1,700 1,697
Merrill Lynch Mortgage Investors, Inc. 9.70% 6/15/08 487 488
Merrill Lynch Mortgage Investors, Inc. 9.65% 9/15/10 1,750 1,765
-------
27,839
Indexed Securities 0.8%
Lehman Home Equity Loan Trust 5.61% 12/15/27 648 645(F)
Matterhorn One Limited Trust 6.05% 1/21/06 1,592 1,591(F,G)
Matterhorn One Limited Trust 6.55% 1/21/06 141 141(F,G)
-------
2,377
Stripped Securities 0.3%
Bay View Auto Trust 3.15% 12/15/04 975 10(D1)
Delta Funding Home Equity Loan Trust 6.00% 3/15/02 6,000 416(D1)
20
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
ASSET-BACKED SECURITIES (CONTINUED)
Stripped Securities (continued)
Delta Funding Home Equity Loan Trust 6.00 % 6/15/02 $ 3,300 $ 268(D1)
Option One CTS Arm Trust 3.067% 3/25/01 910 13(D1)
Union Acceptance Corp. 2.75 % 5/10/04 15,312 118(D1)
-------
825
Variable-rate Securities 0.4%
PSC Grantor Trust 6.29 % 6/8/05 1,276 1,271(C,G)
TOTAL ASSET-BACKED SECURITIES
(IDENTIFIED COST - $32,549) 32,312
- ------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 3.5%
Fixed-rate Securities 2.3%
Asset Securitization Corporation 6.72% 11/12/26 2,088 2,080
DLJ Mortgage Acceptance Corp. 6.86% 11/12/21 1,561 1,558(G)
Merrill Lynch Mortgage Investors, Inc. 6.69% 11/21/28 1,619 1,619
Metropolitan Asset Funding, Inc. 6.95% 4/20/08 1,813 1,799
-------
7,056
Stripped Securities 0.6%
CMC Securities Corporation III 0.00% 2/25/09 440 342(D2)
Enterprise Mortgage Acceptance Company, LLC 1.24% 10/15/23 11,600 756(D1,G)
FFCA Secured Lending Corporation 1.072% 7/18/15 16,443 726(D1,G)
Securitized Asset Sales, Inc. 0.00% 12/25/10 215 162(D2)
-------
1,986
Variable-rate Securities 0.6%
Housing Securities Inc. 5.925% 11/25/26 427 427(C,G)
Resolution Trust Corporation 8.739% 3/25/21 331 331(C)
Resolution Trust Corporation 7.256% 9/25/29 69 68(C)
Resolution Trust Corporation 7.771% 9/25/29 474 481(C)
Resolution Trust Corporation 7.387% 12/25/29 481 478(C)
Securitized Asset Sales, Inc. 6.609% 8/25/33 46 44(C)
-------
1,829
TOTAL MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST - $11,078) 10,871
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 24.7%
Fixed-rate Securities 18.6%
United States Treasury Bonds 11.875% 11/15/03 1,150 1,395
United States Treasury Bonds 5.25% 11/15/28 700 607
United States Treasury Notes 5.625% 5/15/01 7,000 6,999
United States Treasury Notes 6.25% 1/31/02 4,500 4,553
21
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (CONTINUED)
Fixed-rate Securities (continued)
United States Treasury Notes 5.875% 9/30/02 $ 6,920 $ 6,945
United States Treasury Notes 4.75% 2/15/04 10,000 9,592
United States Treasury Notes 6.00% 8/15/04 17,530 17,700
United States Treasury Notes 7.50% 2/15/05 4,320 4,617
United States Treasury Notes 6.125% 8/15/07 6,150 6,157
-------
58,565
Indexed Securities 6.1%
United States Treasury Inflation - Indexed Security 3.625% 1/15/08 8,166 7,900(E)
United States Treasury Inflation - Indexed Security 3.875% 4/15/29 11,762 11,361(E)
-------
19,261
TOTAL OF U.S. GOVERNMENT AND AGENCY
OBLIGATIONS (IDENTIFIED COST - $78,832) 77,826
- ------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES 23.9%
Fixed-rate Securities 22.8%
Agricultural Mortgage (Farmer Mac) 7.92% 1/25/12 1,901 1,927
Fannie Mae 7.00% 4/1/08 to 7/1/28 10,692 10,570
Fannie Mae 6.625% 9/15/09 1,700 1,695
Fannie Mae 6.00% 7/1/13 to 7/1/28 5,399 5,037
Fannie Mae 6.50% 6/1/14 to 8/1/29 6,048 5,814
Fannie Mae 9.50% 4/15/21 525 555
Fannie Mae 6.50% 10/1/29 11,600 11,123(B)
Fannie Mae 7.50% 10/1/29 16,600 16,647(B)
Freddie Mac 8.50% 7/1/06 68 69
Freddie Mac 7.76% 5/1/12 217 224
Freddie Mac 5.50% 10/1/14 500 471(B)
Freddie Mac 6.50% 6/1/13 to 11/1/15 1,129 1,102
Freddie Mac 7.50% 4/1/17 234 236
Freddie Mac 9.30% 4/15/19 632 656
Freddie Mac 6.50% 10/1/29 7,900 7,580(B)
Freddie Mac 7.00% 10/1/29 7,800 7,670(B)
Government National Mortgage Association 9.00% 6/15/06 214 223
Government National Mortgage Association 9.50% 9/15/05 188 200
-------
71,799
22
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES (CONTINUED)
Indexed Securities 1.0%
Government National Mortgage Association 6.625% 8/20/21 $ 356 $ 363(F)
Government National Mortgage Association 6.375% 6/20/22 1,663 1,684(F)
Government National Mortgage Association 6.625% 7/20/22 966 982(F)
Government National Mortgage Association 6.625% 8/20/22 243 247(F)
-------
3,276
Stripped Securities N.M.
Fannie Mae 0.00% 5/25/22 142 116(D2)
Freddie Mac 10.00% 3/1/21 118 32(D1)
-------
148
Variable-rate Securities 0.1%
Fannie Mae 5.916% 3/1/18 139 136(C)
Freddie Mac 6.294% 1/1/19 73 72(C)
-------
208
TOTAL U.S. GOVERNMENT AGENCY
MORTGAGE-BACKED SECURITIES
(IDENTIFIED COST - $75,708) 75,431
-------
YANKEE BONDSA 4.9%
Corporate Bonds and Notes 4.6%
Cable & Wireless Communications plc 6.375% 3/6/03 3,920 3,918
Diageo Capital plc 6.625% 6/24/04 2,610 2,600
Petrozuata Finance, Inc. 7.63% 4/1/09 3,150 2,521(G)
YPF Sociedad Anonima 7.50% 10/26/02 2,459 2,473(G)
YPF Sociedad Anonima 7.00% 10/26/02 2,947 2,935(G)
-------
14,447
Foreign Governments 0.3%
Republic of Korea 8.875% 4/15/08 1,100 1,133
TOTAL YANKEE BONDS
(IDENTIFIED COST - $16,347) 15,580
- ------------------------------------------------------------------------------------------------------------------------
23
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
SHORT-TERM INVESTMENTS 16.7%
Corporate Bonds and Notes 2.5%
GTE Corporation 5.546% 6/12/00 $ 4,000 $ 3,998(F)
Union Pacific Corporation 7.00% 6/15/00 1,000 1,005
US West Capital Funding Incorporated 6.20% 3/24/00 1,300 1,261
US West Capital Funding Incorporated 5.96% 6/15/00 1,700 1,697(F,G)
-------
7,961
U.S. Government Agency 0.8%
Freddie Mac 4.72% 11/12/99 2,500 2,486(H)
Repurchase Agreements 13.4%
J.P. Morgan Securities, Inc.
5.38%, dated 9/30/99, to be repurchased at $42,241
on 10/01/99 (Collateral: $43,190 Fannie Mae
Medium-term Notes, 6.375% due 6/15/09,
value $44,303) 42,235 42,235
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST - $52,686) 52,682
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST - $353,960) 110.8% $349,273
OTHER ASSETS LESS LIABILITIES (10.8)% (33,955)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
30,013 Institutional Shares outstanding $317,555
356 Financial Intermediary Shares outstanding 3,785
Under/(over) distributed net investment income 4,651
Accumulated net realized gain/(loss) on investments (6,033)
Unrealized appreciation/(depreciation) of investments (4,640)
---------
NET ASSETS 100.0% $315,318
========
NET ASSET VALUE PER SHARE
Institutional Class $ 10.38
========
Financial Intermediary Class $ 10.38
========
24
<PAGE>
Statement of Net Assets (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Intermediate Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
Actual Appreciation
Expiration Contracts (Depreciation)
=============== =============== ===============
Futures Contracts Purchased
Municipal Bond Index Futures December 99 19 $ (12)
U.S. Treasury Bond Futures December 99 48 2
U.S. Treasury Bond Futures December 99 25 7
U.S. Treasury Bond Futures March 00 4 (12)
-------
$ (15)
Futures Contracts Written -------
U.S. Treasury Bond Futures December 99 9 $ (2)
-------
Options Written
U.S. Treasury Bond Futures Call, Strike Price $118.00 November 99 121 $ 62
U.S. Treasury Bond Futures Put, Strike Price $112.00 November 99 95 2
-------
$ 64
-------
- ------------------------------------------------------------------------------------------------------------------------
(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 September 30, 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 Consumer Price Index (CPI) or the one year Treasury Bill rate. The coupon rate is the rate as of September 30,
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. These securities represent 11.6% of net assets.
(H)Collateral to cover futures contracts.
(N.M.) Not Meaningful
See Notes to Financial Statements
25
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Limited Duration Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
% OF MATURITY PAR/
NET ASSETS RATE DATE SHARES VALUE
---------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS 41.7%
Fixed-rate Securities 41.7%
United States Treasury Notes 5.75% 6/30/01 $1,000 $1,001
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(IDENTIFIED COST - $1,001) 1,001
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 308.9%
U.S. Government and Agency Obligations 174.7%
Federal Farm Credit Bank 5.20% 10/1/99 2,000 2,000
Freddie Mac 5.20% 10/1/99 2,200 2,200
-------
4,200
Repurchase Agreements 134.2%
J.P. Morgan Securities, Inc.
5.38% dated 09/30/99, to be repurchased at
$1,367 on 10/01/99 (Collateral: $1,385 Freddie
Mac Note, 6% due 07/20/01, value $1,410) 1,367 1,367
State Street Corporation
3.50% dated 09/30/99, to be repurchased at
$1,860 on 10/01/99 (Collateral: $1,995 Fannie Mae
Discount Note due 08/11/00, value $1,898) 1,860 1,860
-------
3,227
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST - $7,427) 7,427
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST - $8,428) 350.6% $8,428
OTHER ASSETS LESS LIABILITIES (250.6)% (6,024)
-------
NET ASSETS CONSISTING OF:
Accumulated paid-in capital applicable to
252 shares outstanding $3,385
Under/(over) distributed net investment income 113
Accumulated net realized gain/(loss) on investments (1,094)
---------
NET ASSETS 100.0% $2,404
=======
NET ASSET VALUE PER SHARE $9.55
=======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
26
<PAGE>
STATEMENT OF NET ASSETS
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
<TABLE>
<CAPTION>
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- --------------------------------------------------------------------------------------------------------------------------
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT SECURITIES 89.3%
AUSTRALIAN DOLLAR 14.7%
Government of Australia 8.75% 8/15/08 AUD 4,570 $ 3,476
New South Wales Treasury Corp. 8.00% 3/1/08 AUD 4,950 3,514
Queensland Treasury Corp. 6.00% 7/14/09 AUD 5,625 3,510
-------
10,500
BRITISH STERLING 4.9%
United Kingdom Treasury Stock 5.00% 6/7/04 GBP 2,250 3,541
DANISH KRONE 5.0%
Kingdom of Denmark 6.00% 11/15/09 DKK 9,000 1,327
Nykredit 6.00% 10/1/29 DKK 4,562 595
Nykredit 7.00% 10/1/29 DKK 8,817 1,223
Unikredit Realkredit 6.00% 10/1/29 DKK 3,432 448
-------
3,593
EURO 25.9%
Buoni del Tesoro Poliennali 6.50% 11/1/27 EUR 15,500 17,433
B.A.T. Intl Finance PLC 4.875% 2/25/09 EUR 1,200 1,146
-------
18,579
GREEK DRACHMA 21.1%
Hellenic Republic 8.60% 3/26/08 GRD 4,200,000 15,122
NEW ZEALAND DOLLAR 4.6%
Government of New Zealand 7.00% 7/15/09 NZD 6,300 3,285
SWEDISH KRONA 13.1%
AB Spintab 5.50% 9/17/03 SEK 24,500 2,943
Kindom of Sweden 5.00% 1/15/04 SEK 28,000 3,377
Statens Bostadsfinansier AB 5.50% 10/15/03 SEK 25,400 3,042
-------
9,362
TOTAL LONG-TERM DEBT SECURITIES
(IDENTIFIED COST - $64,974) 63,982
- --------------------------------------------------------------------------------------------------------------------------
27
<PAGE>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
Western Asset Non-U.S. Fixed Income Portfolio
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- --------------------------------------------------------------------------------------------------------------------------
% OF MATURITY
NET ASSETS RATE DATE CURRENCY PAR VALUE
----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS 1.9%
Repurchase Agreements 1.9%
State Street Corporation
3.50% dated 9/30/99, to be repurchased at
$1,333 on 10/1/99. (Collateral: $1,355
Fannie Mae Medium-term Notes, 5.30%
due 1/08/01, value $1,376) USD 1,333 $1,333
TOTAL SHORT-TERM INVESTMENTS
(IDENTIFIED COST - $1,333) 1,333
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS
(IDENTIFIED COST - $66,307) 91.2% $65,315
Other Assets Less Liabilities 8.8% 6,282
--------
Net assets consisting of:
Accumulated paid-in-capital applicable to
7,580 shares outstanding $75,550
Under/(over) distributed net investment income (457)
Accumulated net realized gain/(loss) on investments
and foreign currency transactions (870)
Unrealized appreciation/(depreciation) of investments
and foreign currency transactions (2,626)
--------
NET ASSETS 100.0% $71,597
========
NET ASSET VALUE PER SHARE $ 9.45
========
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
28
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
September 30, 1999 (Unaudited)
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED 9/30/99
-----------------------------------------------------------------------
WESTERN
WESTERN WESTERN ASSET
WESTERN ASSET ASSET NON-U.S
ASSET CORE WESTERN LIMITED FIXED
CORE PLUS INTERMEDIATE DURATION INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $22,073 $4,915 $9,982 $516 $1,798
Dividends 312 9 6 1 --
------- ------- ------- ------- -------
Total income 22,385 4,924 9,988 517 1,798
------- ------- ------- ------- -------
EXPENSES:
Advisory Fee 1,537 345 607 28 148
Distribution fee and service fees 1 -- 5 -- --
Transfer agent and shareholder
servicing expense 17 8 11 7 7
Audit and legal fees 15 12 12 18 18
Custodian fees 110 80 69 29 71
Directors' fees 9 9 9 20 8
Registration fees 36 39 27 20 13
Reports to shareholders 17 4 3 -- 1
Other expenses 7 1 -- -- --
------- ------- ------- ------- -------
1,749 498 743 122 266
Less fees waived (40) (115) (54) (90) (86)
------- ------- ------- ------- -------
Total expenses, net of waivers 1,709 383 689 32 180
------- ------- ------- ------- -------
NET INVESTMENT INCOME 20,676 4,541 9,299 485 1,618
NET RELIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain (loss) on:
Investments (6,522) (1,396) (4,962) (844) (2,406)
Options 2,360 413 249 (2) 49
Futures (3,022) (426) (186) 10 318
Foreign currency transactions -- 46 -- -- 1,226
------- ------- ------- ------- -------
(7,184) (1,363) (4,899) (836) (813)
------- ------- ------- ------- -------
Change in unrealized gain (loss) on:
Investments (15,494) (3,380) (2,027) 547 (2,496)
Assets and liabilities denominated in
foreign currency -- 2 -- -- 50
------- ------- ------- ------- -------
(15,494) (3,378) (2,027) 547 (2,446)
------- ------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (22,678) (4,741) (6,926) (289) (3,259)
------- ------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $(2,002) $ (200) $2,373 $ 196 $(1,641)
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
29
<PAGE>
STATMENT OF CHANGES IN NET ASSETS
LM Instituional Fund Advisors I, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
WESTERN ASSET WESTERN ASSET
CORE CORE PLUS
PORTFOLIO PORTFOLIO
------------------------- ---------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED JULY 8,1998(A)
09/30/99 ENDED 09/30/99 TO
(UNAUDITED) 03/31/99 (UNAUDITED) MARCH 31,1999
- -----------------------------------------------------------------------------------------------------
CHANGE IN NET ASSETS:
<S> <C> <C> <C> <C>
Net investment income $ 20,676 $ 39,417 $ 4,541 $ 3,449
Net realized gain (loss) on investments,
options, futures, and foreign
currency transactions (7,184) 11,754 (1,363) (861)
Change in unrealized appreciation
(depreciation) of investments,
options, futures, assets and liabilities
denominated in foreign currencies (15,494) (13,322) (3,378) (613)
--------- --------- --------- ---------
Change in net assets resulting from
operations (2,002) 37,849 (200) 1,975
Distributions to shareholders:
From net investment income:
Institutional Class (17,596) (39,129) (3,707) (1,958)
Financial Intermediary Class -- -- -- --
From net realized gain on investments (1,930) (32,711) -- (775)
Change in net assets from:
Fund share transactions:
Institutional Class 5,678 101,804 64,440 120,389
Financial Intermediary Class 1,346 -- -- --
--------- --------- --------- ---------
Change in net assets (14,504) 67,813 60,533 119,631
NET ASSETS:
Beginning of period 685,489 617,676 119,646 15
End of period $ 670,985 $ 685,489 $ 180,179 $ 119,646
--------- --------- --------- ---------
Undistributed net investment income $ 10,436 $ 7,356 $ 2,347 $ 1,513
========= ========= ========= =========
- -----------------------------------------------------------------------------------------------------
(A) Commencement of operatons.
</TABLE>
See Notes to Financial Statements
30
<PAGE>
- --------------------------------------------------------------------------------
WESTERN ASSET WESTERN ASSET WESTERN ASSET
INTERMEDIATE LIMITED DURATION NON-U.S FIXED
PORTFOLIO PORTFOLIO INCOME PORTFOLIO
- ---------------------- ------------------------ ------------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED YEAR ENDED JULY 15, 1998(A)
09/30/99 ENDED 09/30/99 ENDED 09/30/99 TO
(UNAUDITED) 03/31/99 (UNAUDITED) 03/31/99 (UNAUDITED) MARCH 31, 1999
- --------------------------------------------------------------------------------
$ 9,299 $ 18,769 $ 485 $ 2,396 $ 1,618 $ 1,747
(4,899) 5,041 (836) 284 (813) 1,751
(2,027) (3,703) 547 (698) (2,446) (180)
- --------- --------- --------- --------- --------- ---------
2,373 20,107 196 1,982 (1,641) 3,318
(9,086) (18,139) (752) (2,498) (2,461) (1,131)
(104) -- -- -- -- --
-- (9,265) (63) (610) (897) (1,141)
3,818 28,298 (23,078) (23,144) 11,238 64,297
(9) 3,794 -- -- -- --
- --------- --------- --------- --------- --------- ---------
(3,008) 24,795 (23,697) (24,270) 6,239 65,343
318,326 293,531 26,101 50,371 65,358 15
$ 315,318 $ 318,326 $ 2,404 $ 26,101 $ 71,597 $ 65,358
- --------- --------- --------- --------- --------- ---------
$ 4,651 $ 4,542 $ 113 $ 380 $ (457) $ 616
========= ========= ========= ========= ========= =========
- --------------------------------------------------------------------------------
31
<PAGE>
FINANCIAL HIGHLIGHTS
LM Institutional Fund Advisors I, Inc.
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>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
---------------------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS,
NET ASSET NET OPTIONS, FUTURES TOTAL
VALUE, INVESTMENT AND FOREIGN FROM
BEGINNING INCOME CURRENCY INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Western Asset Core Portfolio
Institutional Class(A)
Six Months Ended September 30, 1999(Q) $11.01 $0.33(H) $(0.36) $(0.03)
Year Ended March 31, 1999 11.59 0.64(H) (0.01) 0.63
Nine Months Ended March 31, 1998(B) 11.28 0.49(H) 0.49 0.98
Years Ended June 30,
1997 11.05 0.70(H) 0.19 0.89
1996 11.22 0.67(H) (0.14) 0.53
1995 10.50 0.69(H) 0.72 1.41
Financial Intermediary Class
July 21, 1999 to September 30, 1999(C,Q) $10.69 $0.11(I) $(0.14) $(0.03)
Western Asset Core Plus Portfolio
Six Months Ended September 30, 1999(Q) $ 9.97 $0.24(L) $(0.26) $(0.02)
Year Ended March 31, 1999(D) 10.00 0.34(L) (0.08) 0.26
Western Asset Intermediate Portfolio
Institutional Class(A)
Six Months Ended September 30, 1999(Q) $10.62 $0.31(N) $(0.24) $ 0.07
Year Ended March 31, 1999 10.85 0.58(N) 0.06 0.64
Nine Months Ended March 31, 1998(B) 10.72 0.46(N) 0.23 0.69
Years Ended June 30,
1997 10.48 0.55(N) 0.30 0.85
1996 10.74 0.54(N) (0.01) 0.53
1995 10.00 0.39(N) 0.60 0.99
Financial Intermediary Class
Six Months Ended September 30, 1999(Q) $10.61 $0.31(O) $(0.25) $ 0.06
Year Ended March 31, 1999(F) 10.60 0.12(O) (0.11) 0.01
Western Asset Limited Duration Portfolio(A)
Six Months Ended September 30, 1999(Q) $ 9.94 $0.85(M) $(0.71) $ 0.14
Year Ended March 31, 1999 10.27 0.69(M) (0.19) 0.50
Nine Months Ended March 31, 1998(B) 10.24 0.43(M) 0.11 0.54
Years Ended June 30,
1997 10.08 0.60(M) 0.13 0.73
1996(E) 10.00 0.09(M) (0.01) 0.08
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
32
<PAGE>
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS RATIOS/SUPPLEMENTAL DATA
----------------------------------------- ---------------------------------------------------------------
NET
INVESTMENT
INCOME NET
FROM NET EXPENSES (LOSS) ASSETS
FROM NET ASSET TO TO END OF
NET REALIZED VALUE, AVERAGE AVERAGE PORTFOLIO PERIOD
INVESTMENT GAIN ON TOTAL END OF TOTAL NET NET TURNOVER (IN
INCOME INVESTMENTS DISTRIBUTIONS PERIOD RETURN ASSETS ASSETS RATE THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
$(0.28) $(0.03) $(0.31) $10.67 (0.27)%(H,J) 0.50%(H,K) 6.1%(H,K) 290.5%(K) $669,642
(0.65) (0.56) (1.21) 11.01 5.61%(H) 0.50%(H) 5.7%(H) 484.3% 685,489
(0.53) (0.14) (0.67) 11.59 8.91%(H,J) 0.50%(H,K) 6.0%(H,K) 226.9%(K) 617,676
(0.65) (0.01) (0.66) 11.28 8.27%(H) 0.50%(H) 6.4%(H) 384.8% 508,353
(0.66) (0.04) (0.70) 11.05 4.86%(H) 0.50%(H) 6.3%(H) 266.0% 453,699
(0.69) -- (0.69) 11.22 14.12%(H) 0.50%(H) 7.0%(H) 257.9% 336,774
$ -- $ -- $ -- $10.66 (0.28)%(I,J) 0.75%(I,K) 5.7%(I,K) 290.5%(K) $ 1,343
$(0.24) $ -- $(0.24) 9.71 (0.21)%(L,J) 0.50%(L,K) 5.9%(L,K) 333.3%(K) $180,179
(0.22) (0.07) (0.29) 9.97 2.58%(L,J) 0.50%(L,K) 5.4%(L,K) 565.7%(K) 119,646
$(0.31) $ -- $(0.31) $10.38 0.65%(N,J) 0.45%(N,K) 6.1%(N,K) 481.9%(K) $311,619
(0.57) (0.30) (0.87) 10.62 6.01%(N) 0.45%(N) 5.5%(N) 389.6% 314,534
(0.46) (0.10) (0.56) 10.85 6.59%(N,J) 0.45%(N,K) 5.8%(N,K) 401.4%(K) 293,531
(0.54) (0.07) (0.61) 10.72 8.32%(N) 0.45%(N) 6.3%(N) 419.3% 224,497
(0.54) (0.25) (0.79) 10.48 5.15%(N) 0.50%(N) 6.3%(N) 841.3% 66,079
(0.24) (0.01) (0.25) 10.74 10.08%(N) 0.50%(N) 6.1%(N) 764.5% 20,313
$(0.29) $ -- $(0.29) $10.38 0.58%(O,J) 0.70%(O,K) 5.9%(O,K) 481.9%(K) $ 3,699
-- -- -- 10.61 0.09%(O,J) 0.70%(O,K) 5.2%(O,K) 389.6%(K) 3,792
$(0.50) $(0.03) $(0.53) $ 9.55 1.36%(M,J) 0.40%(M,K) 6.0%(M,K) 300.1%(K) $ 2,404
(0.64) (0.19) (0.83) 9.94 4.96%(M) 0.40%(M) 6.1%(M) 321.3% 26,101
(0.47) (0.04) (0.51) 10.27 5.42%(M,J) 0.40%(M,K) 5.8%(M,K) 373.0%(K) 50,371
(0.53) (0.04) (0.57) 10.24 7.42%(M) 0.41%(M) 6.2%(M) 435.5% 26,537
-- -- -- 10.08 0.76%(M,J) 0.50%(M,K) 5.6%(M,K) 1042.0%(K) 16,110
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
FINANCIAL HIGHLIGHTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
---------------------------------------------
NET REALIZED
AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS,
NET ASSET NET OPTIONS, FUTURES TOTAL
VALUE, INVESTMENT AND FOREIGN FROM
BEGINNING INCOME CURRENCY INVESTMENT
OF PERIOD (LOSS) TRANSACTIONS OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WESTERN ASSET NON-U.S FIXED
INCOME PORTFOLIO
Six Months Ended September 30, 1999(Q) $10.21 $0.26(P) $(0.50) $(0.24)
Year Ended March 31, 1999(G) 10.00 0.30(P) 0.31 0.61
- ----------------------------------------------------------------------------------------------------------------------
(A) All per share figures for the Institutional Class reflect the 10 for 1 stock split effective May 29, 1998.
(B) The Fund's year end changed from June 30 to March 31.
(C) Commencement of Operations
(D) For the period July 8, 1998 (commencement of operations) to March 31, 1999.
(E) For the period May 1, 1996 (commencement of operations) to June 30, 1996.
(F) For the period January 7, 1999 (commencement of operations) to March 31, 1999.
(G) For the period July 15, 1998 (commencement of operations) to March 31, 1999.
(H) 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 0.51% for the six months ended September
30, 1999, 0.50% for the year ended March 31, 1999 and the nine months ended March 31, 1998, and 0.50%, 0.53% and
0.53% for the years ended June 30, 1997, 1996 and 1995, respectively.
(I) Net of advisory fees waived pursuant to a voluntary expense limitation of 0.75%. In the absence of this
limitation, the ratio of expenses to average net assets would have been 0.78% for the period July 21, 1999
(commencement of operations) to September 30, 1999.
(J) Not annualized
(K) Annualized
(L) 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 six months ended September
30, 1999 and 0.65% for the period July 8, 1998 (commencement of operations) to March 31, 1999.
(M) 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 1.53%
for the six months ended September 30, 1999, 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 May 1, 1996 (commencement
of operations) to June 30, 1996.
(N) 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 0.47%
for the six months ended September 30, 1999, 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.
(O) 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 0.72% for the six months ended September
30, 1999 and 0.73% for the period January 7, 1999 (commencement of operations) to March 31, 1999.
(P) Net of advisory fees waived pursuant to a voluntary expense limitation of 0.55%. In the absence of this limitation,
the ratio of expenses to average net assets would have been 0.81% for the six months ended September 30, 1999
and 0.85% for the period July 15, 1998 (commencement of operations) to March 31, 1999.
(Q) Unaudited
- -----------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements
34
<PAGE>
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS RATIOS/SUPPLEMENTAL DATA
----------------------------------------- ---------------------------------------------------------------
NET
INVESTMENT
INCOME NET
FROM NET EXPENSES (LOSS) ASSETS
FROM NET ASSET TO TO END OF
NET REALIZED VALUE, AVERAGE AVERAGE PORTFOLIO PERIOD
INVESTMENT GAIN ON TOTAL END OF TOTAL NET NET TURNOVER (IN
INCOME INVESTMENTS DISTRIBUTIONS PERIOD RETURN ASSETS ASSETS RATE THOUSANDS)
- -------------------------------------------------------------------------------------------------------------------
$(0.38) $(0.14) $(0.52) $ 9.45 (2.18)%(P,J) 0.55%(P,K) 4.9%(P,K) 231.3%(K) $71,597
(0.20) (0.20) (0.40) 10.21 5.81%(P,J) 0.55%(P,K) 4.1%(P,K) 388.0%(K) 65,358
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
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 and Core
commenced operations on January 7, 1999 and July 21, 1999, respectively.
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. 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.
36
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
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 September 30, 1999,
receivables for securities sold and payables for securities purchased for each
Fund were as follows:
<TABLE>
<CAPTION>
RECEIVABLE FOR PAYABLE FOR
SECURITIES SOLD SECURITIES PURCHASED
------------------------ -----------------------------
<S> <C> <C>
Core $ 2,297 $103,890
Core Plus 1,360 26,738
Intermediate 14,935 58,033
Limited -- --
Non-U.S. 1,177 --
</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 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 forward 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.
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
Forward foreign currency exchange contracts are valued using the forward rate.
Outstanding contracts at September 30, 1999 were as follows:
<TABLE>
<CAPTION>
CORE PLUS
Contact to
Settlement ------------------------------------------------- Appreciation
Date RECEIVE Deliver (Depreciation)
---------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C>
10/21/99 AUD 3,429 USD 2,253 $ (14)
10/21/99 USD 6,081 AUD 3,969 (2)
10/21/99 USD 642,804 GRD 2,005 (70)
11/22/99 USD 2,466 EUR 2,630 (5)
11/22/99 USD 214,084 GRD 675 (14)
11/22/99 USD 1,650 NZD 857 3
11/22/99 SEK 193 USD 23 --
11/22/99 USD 7,235 SEK 886 --
------
$(102)
======
NON-U.S.
Contact to
Settlement ------------------------------------------------- Appreciation
Date RECEIVE Deliver (Depreciation)
---------------- ------------------ ------------------ ------------------
10/21/99 AUD 27,087 USD 17,687 $ (47)
10/21/99 USD 28,406 AUD 43,503 (84)
10/21/99 CAD 4,477 USD 3,049 64
10/21/99 USD 3,049 CAD 4,477 (77)
10/21/99 DKK 12,108 USD 1,736 (10)
10/21/99 USD 5,800 DKK 40,451 (253)
10/21/99 EUR 4,970 USD 5,297 148
10/21/99 USD 12,306 EUR 11,546 (204)
10/21/99 GBP 6,386 USD 10,514 232
10/21/99 USD 14,313 GBP 8,694 (718)
10/21/99 GRD 99,300 USD 321 6
10/21/99 USD 16,152 GRD 5,000,560 (669)
11/22/99 EUR 1,574 USD 1,682 24
11/22/99 USD 15,732 EUR 14,723 (84)
11/22/99 NZD 1,432 USD 741 (17)
11/22/99 USD 4,042 NZD 7,807 10
11/22/99 USD 9,528 SEK 77,807 (43)
--------
$(1,722)
========
</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 for 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 clos-
38
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
ing transaction because of an illiquid secondary market or, for over-the-counter
options, because of the counterparty's inability to perform. Activity in call
and put options during the period was as follows:
<TABLE>
<CAPTION>
CALLS PUTS
--------------------------- ---------------------------
CORE CONTRACTS PREMIUMS CONTRACTS PREMIUMS
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at March 31, 1999 485 $ 289 30 $ 67
Options written 5,114 3,447 1,398 970
Options closed (3,219) (2,348) (1,005) (756)
Options expired (1,384) (554) (423) (281)
Options exercised -- -- -- --
----- ------- ------ -----
Options outstanding at September 30, 1999 996 $ 834 -- $--
===== ======= ====== =====
CALLS PUTS
--------------------------- ---------------------------
CORE Plus CONTRACTS PREMIUMS CONTRACTS PREMIUMS
------------- ------------ ------------- ------------
Options outstanding at March 31, 1999 83 $ 56 5 $ 5
Options written 2,715 974 621 497
Options closed (1,086) (681) (397) (324)
Options expired (489) (125) (154) (96)
Options exercised -- -- -- --
----- ------- ------ -----
Options outstanding at September 30, 1999 1,223 $ 224 75 $ 82
===== ======= ====== =====
CALLS PUTS
--------------------------- ---------------------------
Intermediate CONTRACTS PREMIUMS CONTRACTS PREMIUMS
------------- ------------ ------------- ------------
Options outstanding at March 31, 1999 20,222 $ 157 79 $ 75
Options written 1,138 778 522 327
Options closed (1,151) (804) (468) (308)
Options expired (20,088) (34) (38) (20)
Options exercised -- -- -- --
------ ------- ------ -----
Options outstanding at September 30, 1999 121 $ 97 95 $ 74
====== ======= ====== =====
CALLS PUTS
--------------------------- ---------------------------
LIMITED CONTRACTS PREMIUMS CONTRACTS PREMIUMS
------------- ------------ ------------- ------------
Options outstanding at March 31, 1999 18 $ 11 5 $ 5
Options written 51 28 6 3
Options closed (53) (28) (11) (8)
Options expired (16) (11) -- --
Options exercised -- -- -- --
----- ------- ------ -----
Options outstanding at September 30, 1999 -- $-- -- $--
===== ======= ====== =====
</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.
39
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
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 September 30, 1999 are
described at the end of the "Statement of Net Assets" of each Fund.
3. PORTFOLIO TRANSACTIONS:
For the six months ended September 30, 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 $978,243 $ 88,763 $935,366 $ 68,541
Core Plus 249,255 43,268 220,422 15,145
Intermediate 638,900 90,282 669,593 72,645
Limited 20,784 624 27,293 17,810
Non-U.S. 35,755 138,301 35,513 125,944
At September 30, 1999, the cost of securities, gross unrealized appreciation and
gross unrealized depreciation for federal income tax purposes were as follows:
Net
Appreciation
Cost Appreciation Depreciation (Depreciation)
------------- ----------------- ---------------- -------------------
Core $785,424 $2,540 $(21,429) $(18,889)
Core Plus 206,588 778 (4,651) (3,873)
Intermediate 353,960 925 (5,612) (4,687)
Limited 8,428 -- -- --
Non-U.S. 66,307 349 (1,341) (992)
</TABLE>
4. FUND SHARE TRANSACTIONS:
At September 30, 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
--------- --------- --------- --------- --------- --------- --------- ---------
CORE
INSTITUTIONAL CLASS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Six Months ended
September 30, 1999 2,790 $ 30,219 1,707 $18,411 (3,980) $ (42,952) 517 $ 5,678
-------- --------- -------- -------- --------- ---------- -------- ---------
Year Ended March 31, 1999 23,039 $247,815 6,095 $68,685 (20,160) $(214,696) 8,974 $101,804
-------- --------- -------- -------- --------- ---------- -------- ---------
FINANCIAL INTERMEDIARY CLASS
July 21, 1999* to
September 30, 1999 126 $ 1,346 -- $-- -- $-- 126 $ 1,346
-------- --------- -------- -------- --------- ---------- -------- ---------
CORE PLUS
Six Months ended
September 30, 1999 6,903 $ 67,698 379 $ 3,707 (719) $ (6,965) 6,563 $ 64,440
-------- --------- -------- -------- --------- ---------- -------- ---------
July 8, 1998(*) to
March 31, 1999 12,138 $121,882 271 $ 2,733 (412) $ (4,226) 11,997 $120,389
-------- --------- -------- -------- --------- ---------- -------- ---------
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
REINVESTMENT
SOLD OF DISTRIBUTIONS REPURCHASED NET CHANGE
---------------------- --------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- --------- --------- --------- ---------
INTERMEDIATE
INSTITUTIONAL CLASS
Six Months ended
September 30, 1999 6,797 $70,750 863 $ 9,003 (7,269) $ (75,935) 391 $ 3,818
-------- --------- -------- -------- --------- ---------- -------- ---------
Year ended March 31, 1999 13,411 $144,994 2,531 $27,140 (13,368) $(143,836) 2,574 $ 28,298
-------- --------- -------- -------- --------- ---------- -------- ---------
FINANCIAL INTERMEDIARY CLASS
Six Months ended
September 30, 1999 -- $-- 10 $ 104 (11) $ (113) (1) $ (9)
-------- --------- -------- -------- --------- ---------- -------- ---------
January 7, 1999* to
March 31, 1999 367 $ 3,895 -- $-- (10) $ (101) 357 $ 3,794
-------- --------- -------- -------- --------- ---------- -------- ---------
LIMITED
Six Months ended
September 30, 1999 -- $-- 85 $ 815 (2,458) $ (23,893) 2,373 $(23,078)
-------- --------- -------- -------- --------- ---------- -------- ---------
Year ended March 31, 1999 936 $ 9,344 308 $ 3,107 (3,523) $ (35,595) (2,279) $(23,144)
-------- --------- -------- -------- --------- ---------- -------- ---------
NON-U.S.
Six Months ended
September 30, 1999 832 $ 7,880 344 $ 3,358 -- $-- 1,176 $ 11,238
-------- --------- -------- -------- --------- ---------- -------- ---------
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 may lend its securities to approved brokers to earn additional income
and will receive 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 September 30, 1999, the market value of the securities on loan to
broker-dealers was $144,668 and $64,040 for Core and Intermediate, respectively.
Cash collateral received was $149,813 and $66,032 for Core and Intermediate,
respectively. Such 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 September 30, 1999, $210, $44, $107, and $11 was due to LMIA for
Core, Core Plus, Intermediate and Non-U.S., respectively.
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LM Institutional Fund Advisors I, Inc.
(Amounts in Thousands) (Unaudited)
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 September 30, 1999, $8 is due from LMIA as reimbursement for
expenses paid above Limited's annual expense limit.
Legg Mason Wood Walker, Incorporated ("LMWW"), a member of the New York Stock
Exchange, and Arroyo Seco, Inc. serve as distributors of the Funds' shares. 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 September 30, 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.
Western Asset and WAGMare wholly owned subsidiaries of LeggMason, Inc.
On April 8, 1999, Western Asset purchased securities valued at $235 from
Limited.
42
<PAGE>
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
LM INSTITUTIONAL FUND ADVISORS I, INC.
Investment Manager
LMInstitutional Advisors, Inc.
P.O. Box 17635
Baltimore,Maryland 21297-1635
1-888-425-6432
Investment Advisers
Western Asset Management Company
117 East Colorado Boulevard
Pasadena, California 91105
Western Asset Global Limited
155 Bishopgate
London, England EC2N3TY
This report is not to be distributed unless preceded or accompanied by a
prospectus.
Legg Mason Wood Walker, Inc., Distributor
