|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous: DREYFUS CONNECTICUT MUNICIPAL MONEY MARKET FUND INC, NSAR-B, EX-99, 2000-11-29 |
Next: FEMALE HEALTH CO, SC 13D/A, 2000-11-29 |
<PAGE>
LM Institutional Fund Advisors I, Inc.
Western Asset Core Portfolio
Western Asset Core Plus Portfolio
Western Asset Intermediate Portfolio
Western Asset Non-U.S. Fixed Income Portfolio
Semi-Annual Report
September 30, 2000
<PAGE>
Portfolio Managers' Comments
Western Asset Management Investment Strategy Group
Market Commentary, March 2000 - September 2000
The past six months have seen the partial unwinding of many of the pressures
that built up in the fixed-income markets in previous years. Treasury yields
moved substantially lower, particularly at the front end of the yield curve,
though 30-year yields ended the period roughly unchanged. The move to lower
yields was driven by mounting evidence that the Fed has tightened enough to
achieve its objective of keeping inflation pressures in check and slowing the
pace of economic growth. Whereas the market had been quite concerned that
monetary policy would be tightened significantly, conditions have changed
dramatically to the point that some possibility of an easing is now being
entertained. Outside of high energy prices, core inflation remains quite low,
and forward-looking inflation indicators such as weak gold prices and a very
strong dollar suggest that inflation will remain low for some time to come.
Problems remain, however, as reflected in the historically wide spreads built
into corporate debt yields. Spreads are wide in part because of the anticipated
buyback of Treasury debt, but also because the market fears that corporate
earnings and credit quality are at risk should the economy continue to slow.
Slowdown risks are being magnified by high energy prices, since they act as a
tax on growth. Mortgages have performed reasonably well, thanks to a general
decline in market volatility and increasing stability in Treasury yields.
Corporate bonds, however, particularly those at the lower end of the quality
scale, have suffered from rising spreads. Treasury Inflation Protected
Securities (TIPS) registered strong performance thanks to high headline
inflation and a decline in real yields. Despite the general rise in credit
spreads, emerging market debt issues also generated strong returns as spreads
generally narrowed.
Portfolio Commentary
Western Asset Core Portfolio
The impact of market conditions on the Portfolio's performance was generally
positive in the six months ended September 30, 2000, as yields declined and
spreads were mixed. Fortunately, the negative impact of widening credit spreads
was more than offset by success in other areas of portfolio strategy, with the
result that the Portfolio's total return of 5.40% (net of expenses) exceeded
that of its benchmark, the Salomon Brothers Broad Market Index, which recorded a
total return of 4.80%. Duration had a positive impact on returns, and the
Portfolio's yield curve strategies were generally rewarded as the curve
inverted. Defensive strategies which focused on enhancing yield at the expense
of convexity again made an important contribution to returns. A timely increase
in mortgage sector exposure early in the year reaped rewards as spreads narrowed
for the period. Corporate overexposure detracted from performance as spreads
generally widened, but this was partially offset by an aggressive exposure to
TIPS which yielded strong returns.
Western Asset Core Plus Portfolio
The impact of market conditions on the Portfolio's performance was generally
positive in the six months ended September 30, 2000, as yields declined and
spreads were mixed. Fortunately, the negative impact of widening credit spreads
was more than offset by success in other areas of portfolio strategy, with the
result that the Portfolio's total return of 4.77% (net of expenses) kept pace
with that of its benchmark, the Salomon Brothers Broad Market Index, which
recorded a total return of 4.80%. Duration had a positive impact on returns, and
the Portfolio's yield curve strategies were generally rewarded as the curve
inverted. Defensive strategies which focused on enhancing yield at the expense
of convexity again made an important contribution to returns. A timely increase
in mortgage sector exposure early in the year reaped rewards as spreads narrowed
for the period. Corporate overexposure and a modest exposure to high-yield debt
detracted from performance as spreads generally widened, but this was offset by
emerging market debt holdings and an aggressive exposure to TIPS which yielded
strong returns. A very modest non-dollar exposure detracted somewhat from
returns as foreign markets generally lagged the domestic market's performance.
Western Asset Intermediate Portfolio
The impact of market conditions on the Portfolio's performance was generally
positive in the six months ended September 30, 2000, as yields declined and
spreads were mixed. Fortunately, the negative impact of widening credit spreads
was more than offset by success in other areas of portfolio strategy, with the
result that the Portfolio's total return of 4.83% (net of expenses) exceeded
that of its benchmark, the Lehman Brothers Intermediate Government/Credit Index,
which recorded a total return of 4.62%. Duration had a positive impact on
returns, and the Portfolio's yield curve strategies were generally rewarded as
the curve inverted. Defensive strategies which focused on enhancing yield at the
expense of convexity again made an important contribution to returns. A timely
increase in mortgage sector exposure early in the year reaped rewards as spreads
narrowed for the period. Corporate overexposure detracted from performance as
spreads generally widened, but this was partially offset by an aggressive
exposure to TIPS which yielded strong returns.
1
<PAGE>
Portfolio Managers' Comments
Western Asset Management Investment Strategy Group (continued)
Western Asset Non-U.S. Fixed Income Portfolio
The impact of market conditions on the Portfolio's performance was generally
negative in the six months ended September 30, 2000 as tighter monetary policy
in both Europe and Japan pushed bond yields higher. Performance for the period
was disappointing. The Portfolio under-performed the Salomon Smith Barney World
Government ex-U.S. Index (Hedged), returning -1.41% (net of expenses) versus
3.48% for the Index. Investments in Poland, which suffered from higher official
rates and rising political uncertainty, and exposure to the Canadian dollar and
European currencies, which weakened sharply against the buoyant U.S. dollar,
negatively impacted returns. Performance benefited from investments in dollar
bloc bonds, an overweight exposure to long-dated European government bonds as
European yield curves flattened and a significant exposure to peripheral
European markets such as Sweden and, in particular, Greece which benefited from
falling interest rates ahead of participation in European Monetary Union in
January 2001.
2
<PAGE>
Statement of Net Assets
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-Term Securities 109.0%
Corporate Bonds and Notes 21.8%
Aerospace/Defense 0.3%
Lockheed Martin Corporation 8.500% 12/1/29 $ 1,490 $ 1,570
Raytheon Company 7.200% 8/15/27 560 491
-------
2,061
Auto Parts & Equipment 0.8%
TRW Inc. 7.090% 3/25/02 5,000 4,996/C/
-------
Automotive 0.7%
Ford Motor Company 7.450% 7/16/31 4,700 4,346
Ford Motor Company 7.400% 11/1/46 400 355
-------
4,701
Banking and Finance 8.5%
Abbey National Capital Trust I 8.963% 12/29/49 1,350 1,358/G/
BNY Capital Trust 7.970% 12/31/26 4,000 3,712
Dresdner Funding Trust I 8.151% 6/30/31 4,055 3,623/B,G/
Dryden Investor Trust 7.157% 7/23/08 16,359 15,663/B/
Ford Motor Credit Company 5.750% 2/23/04 1,735 1,663
Ford Motor Credit Company 7.875% 6/15/10 20 20
General Motors Acceptance Corporation 5.850% 1/14/09 5,000 4,459
General Motors Acceptance Corporation 0.000% 6/15/15 14,900 4,696/D/
Heller Financial, Inc. 6.840% 3/13/02 2,000 1,982/C/
J.P. Morgan & Company, Inc. 8.080% 2/15/12 2,000 1,730/C/
KBC Bank Funding Trust III 9.860% 11/29/49 725 759/B,G/
Key Bank, N. A. 6.790% 3/18/02 5,000 5,018/C/
Lehman Brothers Holdings Inc. 6.970% 7/8/02 6,000 6,006/C/
SB Treasury Company LLC 9.400% 12/29/49 6,290 6,189/B,G/
-------
56,878
Cable 0.6%
Continental Cablevision Inc. 9.000% 9/1/08 2,200 2,367
TCI Communications, Inc. 6.375% 5/1/03 1,430 1,408
-------
3,775
Chemicals 0.1%
Dow Chemical Company 7.375% 11/1/29 1,020 988
-------
Electric 0.3%
System Energy Resources, Inc. 7.430% 1/15/11 2,328 2,248
-------
</TABLE>
3
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (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 (continued)
Environmental Services 1.7%
Waste Management, Inc. 6.875% 5/15/09 $ 7,000 $ 6,353
Waste Management, Inc. 7.125% 12/15/17 6,000 5,085
Waste Management, Inc. 7.000% 7/15/28 45 37
-------
11,475
Food, Beverage and Tobacco 2.8%
J. Seagram & Sons 6.400% 12/15/03 2,820 2,763
J. Seagram & Sons 6.800% 12/15/08 1,360 1,319
J. Seagram & Sons 7.500% 12/15/18 1,000 979
J. Seagram & Sons 7.600% 12/15/28 1,430 1,427
Nabisco Incorporated 6.375% 2/1/35 4,250 3,946
R.J. Reynolds Tobacco Holdings, Inc. 7.750% 5/15/06 4,810 4,322
R.J. Reynolds Tobacco Holdings, Inc. 7.875% 5/15/09 3,240 2,882
The Pepsi Bottling Group Incorporated 7.000% 3/1/29 900 821
-------
18,459
Gas and Pipeline Utilities 0.2%
CMS Panhandle Holding Company 6.125% 3/15/04 1,700 1,629
-------
Industrial 0.1%
Scotia Pacific Company LLC 7.710% 1/20/14 1,340 878
-------
Insurance (Multi-Line) 1.1%
Loews Corporation 7.625% 6/1/23 5,459 4,922
Loews Corporation 7.000% 10/15/23 3,000 2,492
-------
7,414
Insurance (Property/Casualty) 0.2%
Ace Capital Trust II 9.700% 4/1/30 1,400 1,469
-------
Media 2.5%
News America Incorporated 7.625% 11/30/28 3,000 2,692
News America Incorporated 6.750% 1/9/38 6,400 5,967
Time Warner Inc. 9.150% 2/1/23 3,500 3,831
Time Warner Inc. 6.850% 1/15/26 2,000 1,973
Time Warner Inc. 6.950% 1/15/28 2,500 2,215
-------
16,678
Medical Supplies/Services 0.6%
Merck & Co., Inc. 5.950% 12/1/28 4,400 3,737
-------
</TABLE>
4
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (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 (continued)
Real Estate 0.1%
Socgen Real Estate Co. LLC 7.640% 12/29/49 $ 500 $ 467/B,G/
-------
Telecommunications 0.4%
AT&T Corp. 9.650% 3/31/27 1,880 2,030
Cox Communications, Inc. 7.875% 8/15/09 640 647
-------
2,677
Transportation 0.8%
Consolidated Rail Corporation 7.875% 5/15/43 520 474
Union Pacific Corporation 6.625% 2/1/29 5,460 4,545
-------
5,019
Total Corporate Bonds and Notes
(Identified Cost $152,939) 145,549
----------------------------------------------------------------------------------------------------------------------
Asset-backed Securities 7.7%
Fixed-rate Securities 5.7%
Advanta Mortgage Loan Trust 7.590% 6/25/14 600 607
Americredit Automobile Receivables Trust 6.970% 1/12/04 6,600 6,603
ANRC Auto Owner Trust 6.540% 11/15/02 557 557
Chevy Chase 1997-A 7.650% 12/20/07 1,889 1,846
Chevy Chase Spread Account Trust 6.850% 10/20/06 4,083 3,743
Conseco Finance Home Loan Trust 7.570% 5/15/22 2,700 2,705
Conseco Finance Home Loan Trust 7.960% 2/1/32 4,700 4,699
FMAC Loan Receivables Trust 7.350% 4/15/19 155 154/B/
Green Tree Home Improvement Loan Trust 7.450% 9/15/28 1,700 1,533
Green Tree Recreational, Equipment and Consumer Trust 1998-A 6.710% 5/15/29 2,194 2,162
LB-UBS Commercial Mortgage Trust 7.950% 1/15/10 8,400 8,855
Onyx Acceptance Auto Trust 6.180% 4/15/02 4,272 4,265
-------
37,729
Indexed Securities/C/ 2.0%
CDC Depositor Trust ST I 7.051% 1/15/03 1,016 1,016/B/
Korea Asset Funding Ltd. 8.891% 2/10/09 1,600 1,610/A,B/
SLM Student Loan Trust 1998-2 6.665% 4/25/07 771 769
World Omni Automobile Lease Securitization 6.871% 2/15/02 10,200 10,203
-------
13,598
Total Asset-backed Securities
(Identified Cost $51,624) 51,327
----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage-backed Securities 6.6%
Fixed-rate Securities 3.9%
Asset Securitization Corporation 6.920% 2/14/29 $ 5,892 $ 5,835
CAPCO America Securitization Corporation 6.260% 9/15/08 3,000 2,841
Criimi Mae Commercial Mortgage Trust 7.000% 3/2/11 7,838 7,236/B/
Merrill Lynch Mortgage Investors, Inc. 6.690% 11/21/28 67 66
Merrill Lynch Mortgage Investors, Inc. 6.960% 11/21/28 1,358 1,347
Nomura Asset Securities Corporation 7.070% 4/13/36 4,391 4,418
Nomura Asset Securities Corporation 7.120% 4/13/36 4,500 4,505
-------
26,248
Indexed Securities/C/ 2.4%
Bayview Financial Acquisition Trust 2000-C 7.010% 7/25/30 6,389 6,378/B/
JP Morgan Commercial Mortgage Finance Corporation 6.903% 4/15/10 2,390 2,390/B/
Medallion Trust 6.879% 12/18/31 7,000 7,002
Prudential Securities Secured Financing Corp. 7.235% 4/25/26 40 40
-------
15,810
Stripped Securities/H/ 0.2%
FFCA Secured Lending Corporation 1.788% 11/18/11 15,654 1,096/1/
Structured Mortgage Asset Residential Trust 2,500% 8/25/22 N.M. N.M./1/
Structured Mortgage Asset Residential Trust 0.132% 1/25/23 5,640 2/1/
-------
1,098
Variable-Rate Securities/K/ 0.1%
Resolution Trust Corporation 10.300% 8/25/21 83 83
Resolution Trust Corporation 8.333% 10/25/28 75 74
Resolution Trust Corporation 8.145% 9/25/29 815 811
-------
968
Total Mortgage-backed Securities
(Identified Cost $43,250) 44,124
----------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations 23.5%
Fixed-rate Securities 10.3%
Fannie Mae 7.000% 7/15/05 4,880 4,962
Fannie Mae 5.750% 2/15/08 790 745
Fannie Mae 6.625% 9/15/09 90 89
Fannie Mae 7.125% 6/15/10 4,000 4,098
Fannie Mae 6.210% 8/6/38 1,040 935
Freddie Mac 7.000% 7/15/05 430 437
Freddie Mac 5.750% 4/15/08 1,410 1,327
Freddie Mac 6.875% 9/15/10 230 232
Freddie Mac 6.750% 9/15/29 40 39
Tennessee Valley Authority 5.375% 11/13/08 1,610 1,465
Tennessee Valley Authority 6.750% 11/1/25 3,460 3,369
Tennessee Valley Authority 7.125% 5/1/30 6,030 6,174
Statement of Net Assets (continued)
Western Asset Core Portfolio
</TABLE>
6
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government and Agency
Obligations (continued)
Fixed-rate Securities (continued)
United States Treasury Bonds 11.125% 8/15/03 $ 530 $ 601
United States Treasury Bonds 5.750% 8/15/10 2,270 2,261
United States Treasury Bonds 8.000% 11/15/21 3,973 4,852
United States Treasury Bonds 6.250% 8/15/23 5,000 5,098
United States Treasury Bonds 5.250% 11/15/28 21,325 19,112
United States Treasury Bonds 5.250% 2/15/29 10,000 8,983
United States Treasury Bonds 6.125% 8/15/29 3,290 3,360
United States Treasury Bonds 6.250% 5/15/30 710 746
-------
68,885
Indexed Securities/C/ 12.2%
United States Treasury Inflation-Indexed Security 3.625% 1/15/08 18,867 18,431/F/
United States Treasury Inflation-Indexed Security 4.250% 1/15/10 1,929 1,969/F/
United States Treasury Inflation-Indexed Security 3.625% 4/15/28 49,867 47,374/F/
United States Treasury Inflation-Indexed Security 3.875% 4/15/29 13,586 13,484/F/
-------
81,258
Stripped Securities/H/ 1.0%
United States Treasury Bonds 0.000% 5/15/17 2,450 893/2/
United States Treasury Bonds 0.000% 2/15/25 25,000 5,822/2/
-------
6,715
Total U.S. Government and Agency Obligations
(Identified Cost $158,451) 156,858
-----------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Mortgage-
backed Securities 39.9%
Fixed-rate Securities 39.4%
Fannie Mae 7.000% 9/1/07 to 5/1/29 20,442 20,204
Fannie Mae 8.000% 10/1/15 400 407/E/
Fannie Mae 7.500% 6/1/25 to 7/1/29 19,068 19,066
Fannie Mae 6.000% 1/1/26 to 1/1/29 25,374 23,727
Fannie Mae 6.500% 7/1/28 to 8/1/29 62,556 60,078
Fannie Mae 6.500% 10/1/30 27,598 26,553/E/
Fannie Mae 7.500% 10/1/30 9,700 9,676/E/
Federal Housing Authority USGI #68 7.430% 3/1/21 232 226
Freddie Mac 9.250% 6/1/02 33 34
Freddie Mac 6.750% 5/1/04 75 74
Freddie Mac 7.500% 4/1/06 48 48
Freddie Mac 9.750% 7/1/08 171 175
Freddie Mac 5.500% 12/1/13 to 2/1/14 3,489 3,294
Freddie Mac 9.300% 4/15/19 966 996
Freddie Mac 7.000% 4/1/24 to 5/1/29 8,021 7,888
Freddie Mac 6.000% 5/1/29 598 559
</TABLE>
7
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Mortgage-
backed Securities (continued)
Fixed-rate Securities (continued)
Freddie Mac 6.000% 10/1/30 $ 550 $ 514/E/
Freddie Mac 8.000% 10/1/30 2,000 2,029/E/
Government National Mortgage Association 9.500% 3/15/03 54 55
Government National Mortgage Association 10.250% 6/15/03 8 8
Government National Mortgage Association 10.000% 11/15/09 5 5
Government National Mortgage Association 7.500% 10/15/22 to 3/15/29 7,360 7,387
Government National Mortgage Association 7.000% 1/15/24 to 12/15/28 2,085 2,054
Government National Mortgage Association 6.500% 8/15/28 to 9/15/28 3,362 3,238
Government National Mortgage Association 6.500% 10/1/30 52,170 50,247/E/
Government National Mortgage Association 7.000% 10/1/30 6,400 6,304/E/
Government National Mortgage Association 7.500% 10/1/30 18,200 18,251/E/
-------
263,097
Stripped Securities/H/ 0.5%
Fannie Mae 9.500% 2/1/17 112 30/1/
Fannie Mae 1,009.50% 2/25/20 1 2/1/
Fannie Mae 1,009.25% 8/25/21 4 147/1/
Fannie Mae 0.000% 5/25/22 1,093 860/2/
Financing Corporation 0.000% 4/5/19 1,150 340/2/
Freddie Mac 10.000% 3/1/21 961 239/1/
Freddie Mac 0.000% 7/15/22 158 123/2/
Resolution Funding Corporation 0.000% 10/15/19 3,000 898/2/
Resolution Funding Corporation 0.000% 4/15/30 2,610 421/2/
-------
3,060
Total U.S. Government Agency Mortgage-
backed Securities
(Identified Cost $268,773) 266,157
-----------------------------------------------------------------------------------------------------------------------------
Yankee Bonds/A/ 8.5%
Banking and Finance 3.0%
Bayerische Hypotheken-und Vereinsbank AG 8.741% 6/30/31 920 876/B/
CVRD Finance Ltd. 7.267% 10/15/07 3,300 3,300
HSBC Capital Funding LP 9.547% 12/31/49 670 710/B,G/
HSBC Capital Funding LP 10.176% 12/31/49 2,680 2,954/B,G/
Petrozuata Finance, Inc. 8.220% 4/1/17 6,390 5,288/B/
Royal Bank of Scotland Group plc 8.817% 3/31/49 870 908
Sanwa Finance Aruba AEC 8.350% 7/15/09 1,450 1,448
SBC Glacier Finance LTD 6.820% 9/10/02 807 801/C/
The Bank of Tokyo-Mitsubishi, Ltd. 8.400% 4/15/10 3,415 3,477
-------
19,762
Electric 0.8%
Hydro-Quebec 8.050% 7/7/24 4,895 5,209
-------
</TABLE>
8
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yankee Bonds (continued)
Foreign Governments 3.2%
Argentine Republic 0.000% 10/15/01 $ 2,930 $ 2,703/D/
Argentine Republic 0.000% 10/15/03 3,170 2,330/D/
Argentine Republic 0.000% 10/15/04 2,230 1,416/D/
Quebec Province 7.500% 9/15/29 1,165 1,164
Republic of Korea 8.875% 4/15/08 10 10
Republic of Poland 6.000% 10/27/14 7,310 6,803/G/
United Mexican States 11.500% 5/15/26 5,790 7,035
-------
21,461
Oil and Gas 1.0%
Petroleos Mexicanos 9.030% 2/15/11 2,260 2,348/B/
YPF Sociedad Anonima 7.500% 10/26/02 1,345 1,359
YPF Sociedad Anonima 7.750% 8/27/07 3,250 3,119
-------
6,826
Telecommunications 0.1%
Koninklijke (Royal) KPN NV 8.375% 10/1/30 860 858/B/
-------
Utilities 0.4%
Korea Electric Power Corporation 7.750% 4/1/13 2,600 2,463
-------
Total Yankee Bonds
(Identified Cost $55,893) 56,579
--------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 1.0%
Home Ownership Funding Corporation 13.331% 6 shs 4,186/B,G/
Home Ownership Funding Corporation II 13.338% 3 2,488/B,G/
-------
6,674
Total Preferred Stocks
(Identified Cost $7,951) 6,674
-------
Total Long-Term Securities
(Identified Cost $738,881) 727,268
--------------------------------------------------------------------------------------------------------------------------
Short-Term Securities 8.6%
Corporate Bonds and Notes 0.4%
Diageo plc 8.625% 8/15/01 $ 150 152
Philip Morris Companies, Inc. 8.750% 6/1/01 100 101
Enron Corp. 7.110% 9/10/01 2,000 2,000/B,C/
-------
2,253
Asset-backed Securities 0.9%
Household Automotive Trust 6.792% 9/17/01 6,000 6,003
Option One CTS Arm Trust 3.696% 3/25/01 1,575 15/H1/
-------
6,018
</TABLE>
9
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government and Agency Obligations 1.6%
Fannie Mae 0.00% 11/9/00 $ 200 $ 199/D,L/
Freddie Mac 0.00% 11/9/00 2,600 2,581/D,L/
United States Treasury Notes 6.375% 9/30/01 8,100 8,105
---------
10,885
U.S. Government Mortgage-backed Securities N.M.
Freddie Mac 8.250% 8/1/01 5 5
---------
Repurchase Agreements 5.7%
Lehman Brothers, Inc.
6.63% dated 09/29/00, to be repurchased at
$38,168 on 10/02/00 (Collateral: $20,000
Freddie Mac Medium-term Notes, 8.080%
due 08/14/07, value $20,247; $19,830
Federal Home Loan Bank Bond,
6.750% due 7/29/13, value $18,663) 38,147 38,147
---------
Options Purchased/I/ N.M.
Eurodollar Futures Put,December 2000,
Strike Price $93.50 133/J/ 25
Eurodollar Futures Put,March 2001,
Strike Price $93.50 630/J/ 110
Eurodollar Midcurve Futures Put,October
2000, Strike Price $93.25 338/J/ 5
---------
140
Total Short-Term Securities
(Identified Cost $58,123) 57,448
---------------------------------------------------------------------------------------------------------------------------
Total Investments 117.6%
(Identified Cost $797,004) $ 784,716
Other Assets Less Liabilities (17.6)% (117,324)
---------
Net Assets Consisting of:
Accumulated paid-in capital applicable to
63,044 Institutional Class shares outstanding $697,387
151 Financial Intermediary Class shares outstanding 1,599
Undistributed net investment income 17
Accumulated net realized gain/(loss) on investments, options and futures (19,579)
Unrealized appreciation/(depreciation) of investments, options and futures (12,032)
--------
Net Assets 100.0% $ 667,392
=========
Net Asset Value Per Share
Institutional Class $ 10.56
=========
Financial Intermediary Class $ 10.58
=========
</TABLE>
10
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Actual Appreciation/
Expiration Contracts (Depreciation)
--------------------------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased/I/
Fannie Mae Agency Bond Futures December 00 429 $ 204
Futures Contracts Written/I/
U.S. Treasury Bond Futures December 00 63 $ (8)
U.S. Treasury Note Futures December 00 671 (217)
U.S. Treasury Note Futures December 00 393 (68)
--------
$ (293)
Options Written/I/
U.S. Treasury Bond Futures Call, Strike Price $100 October 00 100 $ 23
U.S. Treasury Bond Futures Call, Strike Price $102 October 00 54 33
U.S. Treasury Bond Futures Call, Strke Price $102 November 00 433 143
U.S. Treasury Note Futures Call, Strke Price $100 November 00 62 (12)
U.S. Treasury Note Futures Call, Strke Price $102 November 00 150 25
U.S. Treasury Bond Futures Put, Strke Price $92 November 00 51 21
U.S. Treasury Bond Futures Put, Strke Price $94 November 00 197 132
U.S. Treasury Bond Futures Put, Strke Price $97 November 00 149 (7)
U.S. Treasury Bond Futures Put, Strke Price $98 November 00 75 (26)
U.S. Treasury Note Futures Put, Strke Price $97 November 00 25 10
U.S. Treasury Note Futures Put, Strke Price $99 November 00 75 10
U.S. Treasury Bond Futures Put, Strke Price $94 February 01 50 (7)
--------
$ 345
</TABLE>
--------------------------------------------------------------------------------
/A/ Yankee Bond -- A 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 10.1% of net
assets.
/C/ Indexed Security-The rates of interest earned on these securities are tied
to the London Interbank Offered Rate (LIBOR), Consumer Price Index (CPI),
or the One Year Treasury constant Maturity Rate.
/D/ 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.
/E/ When-issued security -- Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
/F/ U.S. Treasury Inflation-Indexed Security -- U.S. Treasury security whose
principal value is adjusted daily in accordance with the changes in the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
/G/ Stepped-coupon security -- A security with a predetermined schedule of
interest or dividend rate change.
/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/ Options and Futures are described in more detail in the notes to financial
statements.
/J/ Represents actual number of contracts.
/K/ The coupon rates shown on variable-rate securities are the rates at
September 30, 2000. These rates vary with the weighted average coupon of
the underlying loans.
/L/ Collateral to cover futures contracts.
See Notes to Financial Statements
11
<PAGE>
Statement of Net Assets
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-Term Securities 102.4%
Corporate Bonds and Notes 17.7%
Aerospace/Defense 0.5%
Lockheed Martin Corporation 8.500% 12/1/29 $ 740 $ 780
Raytheon Company 6.750% 8/15/07 960 909
Raytheon Company 7.200% 8/15/27 20 18
The Boeing Company 6.625% 2/15/38 10 9
----------
1,716
Auto Parts & Equipment 1.0%
American Axle & Manufacturing Holdings, Inc. 9.750% 3/1/09 50 50
J. L. French Automotive Casting 11.500% 6/1/09 50 37
Lear Corporation 7.960% 5/15/05 210 200
Tenneco Automotive Inc. 11.625% 10/15/09 192 123
TRW Inc. 7.090% 3/25/02 1,000 999/C/
Visteon Corporation 8.250% 8/1/10 1,880 1,877
----------
3,286
Automotive 0.4%
Ford Motor Company 7.450% 7/16/31 1,300 1,202
----------
Banking and Finance 6.1%
Abbey National Capital Trust I 8.963% 12/29/49 340 342/G/
Associates Corporation of North America 6.960% 5/8/03 600 604/C/
Bank of America Corporation 7.125% 9/15/06 2,000 2,002
Bank One Capital III 8.750% 9/1/30 1,400 1,412
BNY Capital Trust 7.970% 12/31/26 1,000 928
Dresdner Funding Trust I 8.151% 6/30/31 305 272/B/
Dryden Investor Trust 7.157% 7/23/08 1,894 1,814/B/
Ford Motor Credit Company 5.750% 2/23/04 480 460
Ford Motor Credit Company 7.875% 6/15/10 1,500 1,516
General Motors Acceptance Corporation 5.850% 1/14/09 2,100 1,873
General Motors Acceptance Corporation 7.750% 1/19/10 200 202
General Motors Acceptance Corporation 0.000% 12/1/12 2,090 822/D/
Household Finance Corporation 8.000% 5/9/05 1,400 1,446
IBJ Preferred Capital Corp. LLC 8.790% 12/29/49 1,500 1,380/B,G/
J.P. Morgan Capital Trust 7.950% 2/1/27 20 18
KBC Bank Funding Trust III 9.860% 11/29/49 105 110/B,G/
Keycorp Institutional Capital B 8.250% 12/15/26 120 111
Lehman Brothers Holdings Inc. 6.250% 4/1/03 200 197
Lehman Brothers Holdings Inc. 7.000% 5/15/03 320 319
Lehman Brothers Holdings Inc. 7.250% 10/15/03 580 583
Mellon Capital II 7.995% 1/15/27 100 93
Orion Power Holdings Inc. 12.000% 5/1/10 152 163/B/
</TABLE>
12
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (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 (continued)
Banking and Finance (continued)
SB Treasury Company LLC 9.400% 12/29/49 $ 500 $ 492/B,G/
Textron Financial Corporation 6.964% 3/18/02 2,100 2,101/C/
Tokai Preferred Capital Company LLC 9.980% 12/29/49 1,000 985/B,G/
Zurich Capital Trust I 8.376% 6/1/37 500 477/B/
--------
20,722
Building Materials N.M.
American Standard Companies, Inc. 8.250% 6/1/09 28 27
American Standard Companies, Inc. 7.625% 2/15/10 19 18
Nortek, Inc. 8.875% 8/1/08 80 74
--------
119
Business Services 0.3%
Cendant Corporation 7.750% 12/1/03 1,100 1,077
--------
Cable 1.0%
Adelphia Communications Corporation 7.875% 5/1/09 55 46
Adelphia Communications Corporation 10.875% 10/1/10 169 166
Cablevision Systems Corporation 8.125% 8/15/09 170 168
Century Communications Corp. 8.875% 1/15/07 31 28
Charter Communication Holdings LLC 8.625% 4/1/09 293 262
Classic Cable Inc. 10.500% 3/1/10 73 61
Continental Cablevision, Inc. 9.000% 9/1/08 1,060 1,141
CSC Holdings Inc. 8.125% 7/15/09 20 20
NTL Communications Corp. 0.000% 10/1/08 102 65/G/
TCI Communications, Inc. 6.375% 5/1/03 80 79
TCI Communications, Inc. 7.875% 2/15/26 280 270
TCI Communications, Inc. 7.125% 2/15/28 1,180 1,040
--------
3,346
Chemicals 0.9%
Dow Chemical Company 7.375% 11/1/29 1,280 1,239
E. I. du Pont de Nemours and Company 6.500% 1/15/28 50 44
Georgia Gulf Corporation 10.375% 11/1/07 275 275
Huntsman ICI Holdings LLC 0.000% 12/31/09 500 170/D/
Lyondell Chemical Company 9.875% 5/1/07 30 29
Rohm and Haas Company 7.850% 7/15/29 1,250 1,231
--------
2,988
Computer Services and Systems 0.3%
Electronic Data Systems Corporation 7.450% 10/15/29 900 877
--------
Construction and Machinery N.M.
Terex Corporation 8.875% 4/1/08 113 103
--------
Diversified Services 0.1%
Kansas City Southern Railway Company 9.500% 10/1/08 200 201/B/
--------
</TABLE>
13
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (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 (continued)
Electric 0.3%
Calpine Corporation 7.750% 4/15/09 $ 38 $ 36
CMS Energy Corporation 7.500% 1/15/09 327 292
Niagara Mohawk Power Corporation 7.750% 10/1/08 500 502
System Energy Resources, Inc. 7.430% 1/15/11 123 118
The AES Corporation 9.375% 9/15/10 100 101
The AES Corporation 9.500% 6/1/09 108 110
--------
1,159
Energy N.M.
P&L Coal Holdings Corp. 9.625% 5/15/08 180 176
--------
Engineering and Construction N.M.
Washington Group International, Inc. 11.000% 7/1/10 150 152/B/
--------
Entertainment N.M.
The Walt Disney Company 5.620% 12/1/08 100 90
--------
Environmental Services 0.2%
Allied Waste North America Incorporated 10.000% 8/1/09 250 217
Safety-Kleen Corp. 9.250% 5/15/09 86 2/L/
Waste Management, Inc. 7.125% 12/15/17 500 424
--------
643
Food, Beverage and Tobacco 1.1%
J. Seagram & Sons 6.400% 12/15/03 550 539
J. Seagram & Sons 6.800% 12/15/08 20 19
J. Seagram & Sons 7.500% 12/15/18 1,240 1,214
J. Seagram & Sons 7.600% 12/15/28 200 199
R.J. Reynolds Tobacco Holdings, Inc. 7.750% 5/15/06 1,080 971
R.J. Reynolds Tobacco Holdings, Inc. 7.875% 5/15/09 730 649
--------
3,591
Gaming 0.1%
Horseshoe Gaming Holdings, Inc. 8.625% 5/15/09 90 89
International Game Technology 8.375% 5/15/09 60 59
Isle of Capri Casinos Inc. 8.750% 4/15/09 193 179
Park Place Entertainment Corporation 9.375% 2/15/07 83 85
Station Casinos, Inc. 9.875% 7/1/10 74 74/B/
--------
486
Gas and Pipeline Utilities 0.1%
CMS Panhandle Holding Company 7.000% 7/15/29 300 255
Pioneer Natural Resources Company 9.625% 4/1/10 31 33
--------
288
</TABLE>
14
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (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 (continued)
Health Care 0.1%
HCA-The Healthcare Corporation 8.750% 9/1/10 $ 250 $ 255
Tenet Healthcare Corporation 8.125% 12/1/08 250 239
----------
494
Industrial N.M.
Scotia Pacific Company LLC 7.710% 1/20/14 20 13
----------
Industrial Services 0.1%
Blount International Inc. 13.000% 8/1/09 222 228
----------
Insurance (Life/Health) 0.2%
Conseco, Inc. 8.750% 2/9/04 1,081 778
----------
Insurance (Multi-Line) N.M.
Loews Corporation 7.000% 10/15/23 150 125
----------
Insurance (Property/Casualty) 0.1%
Ace Capital Trust II 9.700% 4/1/30 360 378
----------
Lodging/Hotels 0.1%
HMH Properties, Inc. 8.450% 12/1/08 268 256
----------
Media 0.9%
EchoStar Communications Corporation 9.375% 2/1/09 104 102
News America Holdings Incorporated 7.750% 2/1/24 60 55
News America Holdings Incorporated 8.250% 10/17/96 1,100 1,013
News America Incorporated 7.125% 4/8/28 100 86
News America Incorporated 7.625% 11/30/28 270 242
News America Incorporated 6.750% 1/9/38 200 186
Time Warner Inc. 8.375% 3/15/23 200 205
Time Warner Inc. 6.625% 5/15/29 1,150 975
TV Guide Incorporated 8.125% 3/1/09 80 81
----------
2,945
Retail 0.5%
Wal-Mart Stores Inc. 6.875% 8/10/09 1,800 1,785
----------
Telecommunications 1.6%
Adelphia Business Solutions Inc. 12.000% 11/1/07 151 102
AT&T Corp. 9.650% 3/31/27 1,480 1,598
EchoStar Broadband Corporation 10.375% 10/1/07 130 130/B/
Focal Communications Corporation 11.875% 1/15/10 136 103
Level 3 Communications, Inc. 9.125% 5/1/08 82 71
</TABLE>
15
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (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 (continued)
Telecommunications (continued)
Level 3 Communications, Inc. 0.000% 3/15/10 $ 163 $ 86/G/
McLeodUSA Incorporated 8.125% 2/15/09 295 257
Metromedia Fiber Network Inc. 10.000% 12/15/09 106 100
Nextel Communications 9.375% 11/15/09 250 245
NEXTLINK Communications, Inc. 10.750% 6/1/09 233 215
NTL Communications Corporation 11.875% 10/1/10 329 322/B/
Primus Telecommunications Group, Incorporated 12.750% 10/15/09 108 57
PSINet Inc. 10.500% 12/1/06 93 61
PSINet Inc. 11.000% 8/1/09 232 151
Sprint Capital Corporation 7.010% 6/10/02 1,500 1,501/C/
VoiceStream Wireless Corporation 10.375% 11/15/09 88 94
Williams Communications Group, Inc. 10.875% 10/1/09 171 156
Williams Communications Group, Inc. 11.875% 8/1/10 71 67/B/
Winstar Communications Incorporated 12.750% 4/15/10 266 193/B/
------------
5,509
Transportation 1.7%
Avis Group Holdings, Inc. 11.000% 5/1/09 85 93
Burlington Northern Santa Fe Corporation 6.375% 12/15/05 360 345
Consolidated Rail Corporation 7.875% 5/15/43 210 191
CSX Corporation 7.238% 2/11/02 2,000 1,999/C/
CSX Corporation 6.250% 10/15/08 570 517
CSX Corporation 7.900% 5/1/17 500 493
Norfolk Southern Corporation 7.800% 5/15/27 200 192
Union Pacific Corporation 7.125% 2/1/28 2,000 1,778
Worldwide Flight Services Incorporated 12.250% 8/15/07 71 41
------------
5,649
Total Corporate Bonds and Notes
(Identified Cost $62,819) 60,382
------------------------------------------------------------------------------------------------------------------------------
Asset-backed Securities 10.1%
Fixed-rate Securities 5.1%
Americredit Automobile Receivables Trust 6.410% 2/12/02 52 52
Americredit Automobile Receivables Trust 6.970% 1/12/04 2,700 2,701
ANRC Auto Owner Trust 6.540% 11/15/02 148 148
Arcadia Automobile Receivables Trust 5.715% 7/15/02 35 35
Blackrock Capital Finance L.P. 7.220% 11/25/28 88 87
Chevy Chase Home Loan Trust 7.150% 5/15/15 66 65
Commercial Mortgage Asset Trust 7.546% 12/17/09 330 334
Conseco Finance Home Loan Trust 6.980% 6/15/11 3,100 3,094
Conseco Finance Home Loan Trust 7.960% 2/1/32 1,900 1,900
FFCA Secured Lending Corporation 6.370% 10/18/08 273 263/B/
Green Tree Home Improvement Loan Trust 6.320% 8/15/08 32 32
</TABLE>
16
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset-backed Securities (continued)
Fixed-rate Securities (continued)
Green Tree Home Improvement Loan Trust 7.400% 2/15/26 $ 1,000 $ 622
LB-UBS Commercial Mortgage Trust 7.950% 1/15/10 1,600 1,680
Onyx Acceptance Auto Trust 6.180% 4/15/02 1,244 1,241
WFS Financial Owner Trust 6.411% 7/20/02 2,774 2,773
WFS Financial Owner Trust 7.010% 8/20/03 2,600 2,606
---------
17,633
Indexed Securities/C/ 4.80%
BA Master Credit Card Trust 6.751% 8/15/03 100 100
Bank of America Auto Loan Backed 6.895% 3/25/02 1,900 1,900/B/
Centex Home Equity 2000-C 6.861% 10/25/30 1,400 1,400
Chase Funding Mortgage Loan Asset-Backed 6.902% 5/25/30 98 98
Green Tree Recreational, Equipment & Consumer Trust 1997-D 6.769% 3/15/29 53 53
Greenpoint Manufactured Housing 6.720% 11/21/10 3,300 3,300
Keycorp Student Loan Trust 6.780% 7/25/08 2,800 2,794
Korea Asset Funding Ltd. 8.891% 2/10/09 900 906/A,B/
Mellon Bank Credit Card Master Trust 6.791% 4/15/03 100 100
Residential Funding Mortgage Securities II 6.730% 3/25/09 2,800 2,797
Sequoia Mortgage Trust 6.990% 4/22/25 90 90
SLM Student Loan Trust 1998-2 6.665% 4/25/07 213 212
The Money Store Home Equity Trust 6.721% 10/15/26 5 6
Washington Mutual 6.911% 6/25/24 52 52
World Omni Automobile Lease Securitization 6.871% 2/15/02 2,500 2,501
---------
16,309
Stripped Securities/H/ 0.2%
Countrywide Funding Corp 0.000% 10/25/23 77 49/2/
Diversified REIT Trust 0.772% 3/8/10 16,000 630/1/
---------
679
Total Asset-backed Securities
(Identified Cost $34,679) 34,621
------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Securities 3.0%
Fixed-rate Securities 1.9%
CAPCO America Securitization Corporation 6.260% 9/15/08 3,200 3,031
Criimi Mae Commercial Mortgage Trust 7.000% 3/2/11 30 28/B/
GMAC Commercial Mortgage Security Incorporated 6.945% 9/15/33 1,000 986
Nomura Asset Securities Corporation 6.590% 3/17/28 2,554 2,480
Nomura Asset Securities Corporation 7.120% 4/13/36 80 80
---------
6,605
Indexed Securities/C/ 1.0%
JP Morgan Commercial Mortgage Finance Corporation 6.903% 4/15/10 690 690/B/
Medallion Trust 6.879% 12/18/31 2,700 2,701
---------
3,391
</TABLE>
17
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage-backed Securities (continued)
Variable-Rate Securities/M/ 0.1%
Securitized Asset Sales, Inc. 7.194% 8/25/33 $ 166 $ 165
--------
Total Mortgage-backed Securities
(Identified Cost $10,080) 10,161
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations 24.8%
Fixed-rate Securities 13.5%
Fannie Mae 7.125% 2/15/05 80 82
Fannie Mae 5.750% 2/15/08 100 94
Fannie Mae 6.210% 8/6/38 360 324
Freddie Mac 6.625% 9/15/09 60 59
Freddie Mac 6.875% 9/15/10 120 121
Freddie Mac 6.750% 9/15/29 40 39
Tennessee Valley Authority 5.375% 11/13/08 300 273
Tennessee Valley Authority 6.750% 11/1/25 2,270 2,211
Tennessee Valley Authority 7.125% 5/1/30 840 860
United States Treasury Bonds 11.875% 11/15/03 730 849
United States Treasury Bonds 5.750% 8/15/10 160 159
United States Treasury Bonds 8.000% 11/15/21 155 189
United States Treasury Bonds 5.250% 11/15/28 20,105 18,019
United States Treasury Bonds 5.250% 2/15/29 20,000 17,966
United States Treasury Bonds 6.125% 8/15/29 4,570 4,668
--------
45,913
Indexed Securities/C/ 11.2%
United States Treasury Inflation-Indexed Security 4.250% 1/15/10 1,426 1,456/F/
United States Treasury Inflation-Indexed Security 3.625% 4/15/28 20,480 19,456/F/
United States Treasury Inflation-Indexed Security 3.875% 4/15/29 17,387 17,256/F/
--------
38,168
Stripped Securities/H/ 0.1%
United States Treasury Bonds 0.000% 5/15/17 720 262/2/
United States Treasury Bonds 0.000% 11/15/21 290 81/2/
--------
343
Total U.S. Government and Agency Obligations
(Identified Cost $84,892) 84,424
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Mortgage-
backed Securities 33.9%
Fixed-rate Securities 33.8%
Fannie Mae 6.500% 5/1/14 to 10/1/29 19,836 19,057
Fannie Mae 7.000% 10/1/15 to 10/1/30 5,800 5,682/E/
Fannie Mae 9.500% 11/1/21 13 14
Fannie Mae 6.000% 3/1/28 to 7/1/29 12,184 11,383
</TABLE>
18
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Mortgage-
backed Securities (continued)
Fixed-rate Securities (continued)
Fannie Mae 7.500% 11/1/29 $ 862 $ 861
Fannie Mae 6.000% 10/1/30 15,000 14,006/E/
Fannie Mae 6.500% 10/1/30 11,100 10,653/E/
Fannie Mae 7.500% 10/1/30 10,400 10,374/E/
Fannie Mae 8.000% 10/1/32 1,400 1,418/E/
Freddie Mac 5.500% 12/1/13 776 734
Freddie Mac 7.000% 4/1/29 492 483
Freddie Mac 6.500% 7/1/29 10,235 9,844
Government National Mortgage Association 9.500% 1/15/06 to 12/15/10 211 220
Government National Mortgage Association 7.500% 3/15/23 to 7/15/28 3,762 3,775
Government National Mortgage Association 7.000% 7/15/23 to 12/15/28 9,679 9,544
Government National Mortgage Association 6.500% 8/15/28 to 9/15/28 1,590 1,532
Government National Mortgage Association 6.500% 10/1/30 14,680 14,139/E/
Government National Mortgage Association 7.000% 10/1/30 1,500 1,477/E/
Government National Mortgage Association 8.000% 10/1/30 100 102/E/
---------
115,298
Stripped Securities/H/ 0.1%
Financing Corporation 0.000% 4/5/19 320 95/2/
Resolution Funding Corporation 0.000% 10/15/19 140 42/2/
Resolution Funding Corporation 0.000% 4/15/30 770 124/2/
---------
261
Total U.S. Government Agency
Mortgage-backed Securities
(Identified Cost $115,728) 115,559
-----------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds/A/ 9.1%
Banking and Finance 1.6%
Bayerische Hypotheken-und Vereinsbank AG 8.741% 6/30/31 100 95/B/
Diageo Capital plc 6.625% 6/24/04 1,400 1,378
HSBC Capital Funding LP 9.547% 12/31/49 400 424/B,G/
HSBC Capital Funding LP 10.176% 12/31/49 920 1,014/B,G/
PDVSA Finance Limited 1999-K 9.950% 2/15/20 60 59
Petrozuata Finance, Inc. 8.220% 4/1/17 1,150 952/B/
Royal Bank of Scotland Group plc 8.817% 3/31/49 230 240
Finance Aruba AEC 8.350% 7/15/09 330 329
The Bank of Tokyo-Mitsubishi, Ltd. 8.400% 4/15/10 875 891
---------
5,382
Cable N.M.
United Pan-Europe Communications N.V. 10.875% 8/1/09 95 81
United Pan-Europe Communications N.V. 0.000% 2/1/10 130 59/G/
---------
140
</TABLE>
19
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yankee Bonds (continued)
Chemicals N.M.
Avecia Group plc 11.000% 7/1/09 $ 100 $ 99
-------
Electronics 0.1%
Flextronics International Ltd. 9.875% 7/1/10 238 245/B/
-------
Foreign Governments 5.4%
Argentine Republic 0.000% 10/15/01 30 28/D/
Argentine Republic 0.000% 10/15/02 170 141/D/
Argentine Republic 0.000% 10/15/03 50 37/D/
Argentine Republic 0.000% 10/15/04 560 355/D/
Argentine Republic 7.375% 3/31/05 832 763/C/
Argentine Republic 11.375% 3/15/10 1,250 1,144
Federative Republic of Brazil 8.000% 4/15/14 191 146/T/
Federative Republic of Brazil 11.000% 8/17/40 3,246 2,594
Quebec Province 7.500% 9/15/29 666 665
Republic of Bulgaria 7.750% 7/28/11 685 524/C/
Republic of Colombia 11.750% 2/25/20 840 704
Republic of Korea 8.875% 4/15/08 10 10
Republic of Panama 7.750% 7/17/16 822 653/C/
Republic of Panama 10.750% 5/15/20 620 610
Republic of Peru 4.500% 3/7/17 90 55/B,G/
Republic of Peru 4.500% 3/7/17 750 470/B,G/
Republic of Poland 6.000% 10/27/14 830 773/G/
Republic of Poland 6.000% 10/27/14 81 75/G/
Republic of the Philippines 9.500% 10/21/24 620 590
Republic of the Philippines 9.875% 1/15/19 930 756
Republic of the Philippines 10.625% 3/16/25 265 224
Republic of Turkey 11.875% 1/15/30 420 418
United Mexican States 6.250% 12/31/19 550 491
United Mexican States 10.375% 2/17/09 940 1,024
United Mexican States 10.375% 2/17/09 210 229
United Mexican States 11.500% 5/15/26 4,025 4,890
-------
18,369
Oil and Gas 0.3%
Petroleos Mexicanos 9.030% 2/15/11 50 52/B/
YPF Sociedad Anonima 7.750% 8/27/07 1,000 960
-------
1,012
Telecommunications 1.6%
360networks Inc. 13.000% 5/1/08 196 179
360networks Inc. 12.000% 8/1/09 50 45
Global Crossing Holdings Limited 9.500% 11/15/09 130 129
</TABLE>
20
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yankee Bonds (continued)
Telecommunications (continued)
Koninklijke (Royal) KPN NV 8.375% 10/1/30 $ 410 $ 409/B/
Marconi Corporation PLC 8.375% 9/15/30 500 495
RSL Communications PLC 12.875% 3/1/10 100 25
Telefonica de Argentina S A 11.875% 11/1/04 3,000 3,113
Telefonica Europe BV 8.250% 9/15/30 935 954
-------
5,349
Utilities 0.1%
Korea Electric Power Corporation 7.750% 4/1/13 600 568
-------
Total Yankee Bonds
(Identified Cost $30,969) 31,164
------------------------------------------------------------------------------------------------------------------------------------
Foreign Government Obligations 3.1%
Fixed-rate Securities 3.1%
Commonwealth of Australia 7.500% 9/15/09 5,560/R/ 3,275
Federal Republic of Germany 5.625% 1/4/28 860/Q/ 758
Hellenic Republic 6.300% 1/29/09 590,000/S/ 1,562
Italian Republic 5.250% 11/1/29 2,175/O/ 1,742
Italian Republic 6.000% 5/1/31 1,350/O/ 1,207
Republic of Poland 8.500% 10/12/04 4,170/P/ 724
Republic of Poland 8.500% 2/12/05 7,750/P/ 1,346
-------
10,614
Total Foreign Government Obligations
(Identified Cost $11,015) 10,614
------------------------------------------------------------------------------------------------------------------------------------
Foreign Corporate Bonds 0.4%
Banking and Finance 0.4%
AB Spintab 5.500% 9/17/03 6,000/N/ 626
Statens Bostadsfinansier AB 5.500% 10/15/03 8,500/N/ 885
-------
1,511
Total Foreign Corporate Bonds
(Identified Cost $1,622) 1,511
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 0.3%
Home Ownership Funding Corporation 13.331% N.M. shs 225/B,G/
Home Ownership Funding Corporation II 13.338% 1 700/B,G/
-------
925
Total Preferred Stocks
(Identified Cost $971) 925
------------------------------------------------------------------------------------------------------------------------------------
Warrants N.M.
Worldwide Flight Services Incorporated (Identified Cost $N.M.) N.M. wts N.M.
Total Long-Term Securities
(Identified Cost $352,775) 349,361
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Securities 14.3%
Corporate Bonds and Notes 0.5%
Hercules Trust VI 9.11% 12/29/00 $ 750 $ 750/B,C/
Unilever Capital Corp. 6.683% 9/7/01 1,100 1,100/B,C/
-----------
1,850
U.S. Government and Agency Obligations 0.4%
Fannie Mae 0.00% 11/1/00 300 298/D,K/
Fannie Mae 0.00% 11/9/00 200 199/D,K/
Freddie Mac 0.00% 11/9/00 800 794/D,K/
Freddie Mac 0.00% 11/9/00 100 99/D,K/
-----------
1,390
Repurchase Agreements 13.4%
Lehman Brothers, Inc.
6.63% dated 09/29/00, to be repurchased at
$45,762 on 10/02/00 (Collateral: $21,500
Fannie Mae Medium-term Note, 6.15%
due 08/18/08, value $19,966; $20,000
Federal Home Loan Bank Bond, 6.70% due 7/05/13,
value $18,870; $8,030 Fannie Mae Medium-term
Note, 5.68% due 02/02/04, value $7,815) 45,737 45,737
-----------
Options Purchased/I/ N.M.
Eurodollar Futures Put,December 2000,
Strike Price $93.50 65/J/ 13
Eurodollar Futures Put,March 2000,
Strike Price $93.50 315/J/ 55
Eurodollar Midcurve Futures Put,October
2000, Strike Price $93.25 150/J/ 2
-----------
70
Total Short-Term Securities
(Identified Cost $49,074) 49,047
------------------------------------------------------------------------------------------------------------------------------------
Total Investments 116.7%
(Identified Cost $401,849) $ 398,408
Other Assets Less Liabilities (16.7)% (57,126)
-----------
Net Assets Consisting of:
Accumulated paid-in capital applicable to 35,587 shares outstanding $347,518
Undistributed net investment income 149
Accumulated net realized gain/(loss) on investments, options and futures (3,337)
Unrealized appreciation/(depreciation) of investments, options and futures (3,048)
--------
Net Assets 100.0% $ 341,282
===========
Net Asset Value Per Share $ 9.59
===========
</TABLE>
22
<PAGE>
Statement of Net Assets (continued)
Western Asset Core Plus Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Actual Appreciation/
Expiration Contracts (Depreciation)
------------------------------------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased/I/
Fannie Mae Agency Bond Futures December 00 617 $335
U.S. Treasury Bond Futures December 00 5 1
----
$336
Futures Contracts Written/I/
U.S. Treasury Bond Futures December 00 233 $ 40
U.S. Treasury Note Futures December 00 625 (56)
----
$(16)
Options Written/I/
PLN Call/EUR Put, November, 2000, Strike Price EUR 3.85 November 00 750,000 $ 2
U.S. Treasury Bond Futures Call, Strike Price $100 October 00 48 11
U.S. Treasury Bond Futures Call, Strike Price $102 October 00 23 14
U.S. Treasury Bond Futures Call, Strike Price $102 November 00 182 59
U.S. Treasury Note Futures Call, Strike Price $100 November 00 25 (5)
U.S. Treasury Note Futures Call, Strike Price $102 November 00 64 11
U.S. Treasury Bond Futures Put, Strike Price $92 November 00 17 7
U.S. Treasury Bond Futures Put, Strike Price $94 November 00 76 49
U.S. Treasury Bond Futures Put, Strike Price $97 November 00 71 (3)
U.S. Treasury Bond Futures Put, Strike Price $98 November 00 33 (12)
U.S. Treasury Note Futures Put, Strike Price $97 November 00 10 4
U.S. Treasury Note Futures Put, Strike Price $99 November 00 32 5
U.S. Treasury Bond Futures Put, Strike Price $94 February 01 20 (3)
----
$139
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Yankee Bond -- A 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. This represents 5.03% of net assets.
/C/ Indexed Security -- The rates of interest earned on these securities are
tied to the London Interbank Offered Rate (LIBOR), Consumer Price Index
(CPI),or the One Year Treasury constant Maturity Rate.
/D/ 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.
/E/ When-issued security -- Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
/F/ U.S. Treasury Inflation-Indexed Security -- U.S. Treasury security whose
principal value is adjusted daily in accordance with changes in the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
/G/ Stepped-coupon security -- A security with a predetermined schedule of
interest or dividend rate change.
/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/ Options and Futures are described in more detail in the notes to financial
statements.
/J/ Represents actual number of contracts.
/K/ Collateral to cover futures contracts.
/L/ Bond is in default at September 30, 2000.
/M/ The coupon rates shown on variable-rate securities are the rates at
September 30, 2000. These rates vary with the weighted average coupon of
the underlying loans.
/N/ Denominated in Swedish Krona.
/O/ Denominated in Italian Lira.
/P/ Denominated in Polish Zloty.
/Q/ Denominated in German Marks.
/R/ Denominated in Australian Dollars.
/S/ Denominated in Greek Drachmas.
/T/ Front Loaded Interest Reduction Bond (FLIRB) - Security pays a portion of
the coupon in cash and a portion is capitalized as an increase in par
value.
See Notes to Financial Statements
23
<PAGE>
Statement of Net Assets
Western Asset Intermediate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-Term Securities 88.4%
Corporate Bonds and Notes 28.3%
Aerospace/Defense 1.2%
Lockheed Martin Corporation 8.200% 12/1/09 $ 3,690 $ 3,864
Lockheed Martin Corporation 8.500% 12/1/29 180 190
Raytheon Company 6.500% 7/15/05 990 947
-------
5,001
Auto Parts & Equipment 0.7%
TRW Inc. 7.090% 3/25/02 3,000 2,997/C/
-------
Banking and Finance 8.7%
Bank of America Corporation 6.375% 5/15/05 300 291
Bayerische Landesbank NY 5.650% 2/1/09 360 323
Chase Manhattan Corporation 7.336% 8/1/28 1,270 1,206/C/
Dryden Investor Trust 7.157% 7/23/08 4,305 4,122/B/
Ford Motor Credit Company 5.750% 2/23/04 2,880 2,760
Ford Motor Credit Company 7.375% 10/28/09 4,000 3,908
General Motors Acceptance Corporation 6.150% 4/5/07 600 560
Heller Financial, Inc. 6.500% 11/1/01 2,900 2,876
Household Finance Corporation 5.875% 9/25/04 1,600 1,535
J.P. Morgan & Company, Inc. 8.080% 2/15/12 1,190 1,029/C/
Lehman Brothers Holdings Inc. 7.125% 7/15/02 300 300
Lehman Brothers Holdings Inc. 7.500% 9/1/06 3,120 3,114
Lehman Brothers Holdings Inc. 8.250% 6/15/07 2,360 2,444
National Westminster Bancorp 9.375% 11/15/03 290 309
NationsBank Capital Trust III 7.284% 1/15/27 1,300 1,218/C/
Norwest Financial, Inc. 6.700% 9/22/04 3,680 3,629
Salomon Incorporated 6.250% 5/15/03 300 295
Salomon Smith Barney 6.250% 1/15/05 2,150 2,079
SB Treasury Company LLC 9.400% 12/29/49 3,580 3,523/B,G/
United States Leasing International 8.750% 12/1/01 500 509
-------
36,030
Business Services 1.4%
Cendant Corporation 3.000% 2/15/02 3,000 2,753/M/
Cendant Corporation 7.750% 12/1/03 3,200 3,133
-------
5,886
Cable 0.9%
TCI Communications, Inc. 8.000% 8/1/05 700 719
TCI Communications, Inc. 7.610% 10/4/05 3,060 3,069
-------
3,788
</TABLE>
24
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (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 (continued)
Chemicals 1.3%
Dow Chemical Company 7.375% 11/1/29 $ 260 $ 252
Rohm and Haas Company 6.950% 7/15/04 4,930 4,913
---------
5,165
Environmental Services 0.8%
Waste Management, Inc. 6.375% 12/1/03 600 568
Waste Management, Inc. 7.000% 10/15/06 2,700 2,530
---------
3,098
Food, Beverage and Tobacco 2.5%
J. Seagram & Sons 6.400% 12/15/03 4,670 4,576
Philip Morris Companies, Inc. 6.950% 6/1/06 2,000 1,986
R.J. Reynolds Tobacco Holdings, Inc. 7.750% 5/15/06 4,020 3,612
---------
10,174
Gaming 1.3%
MGM Mirage, Inc. 8.500% 9/15/10 5,300 5,296
---------
Media 2.8%
News America Holdings Incorporated 8.500% 2/23/25 4,640 4,845
Time Warner Inc. 7.750% 6/15/05 1,000 1,025
Time Warner Inc. 9.125% 1/15/13 2,000 2,244
Time Warner Inc. 7.250% 10/15/17 3,440 3,250
---------
11,364
Oil and Gas 0.8%
Phillips Petroleum Company 8.750% 5/25/10 2,900 3,168
---------
Paper and Forest Products 0.6%
International Paper Company 8.125% 7/8/05 2,360 2,438/B/
---------
Retail 0.2%
Wal-Mart Stores, Inc. 7.550% 2/15/30 700 722
---------
Telecommunications 1.4%
AT&T Corp. 7.750% 3/1/07 950 975
MCI Worldcom, Inc. 6.400% 8/15/05 600 584
Southwestern Bell Telephone Company 6.250% 7/7/05 1,410 1,370
Sprint Capital Corporation 7.010% 6/10/02 2,000 2,001/C/
Sprint Capital Corporation 5.700% 11/15/03 400 383
US West Communications Incorporated 7.200% 11/1/04 600 599
---------
5,912
</TABLE>
25
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (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 (continued)
Transportation 3.7%
CSX Corporation 5.850% 12/1/03 $ 5,000 $ 4,781
Norfolk Southern Corporation 6.950% 5/1/02 300 299
Norfolk Southern Corporation 7.350% 5/15/07 1,730 1,717
TTX Co. 7.820% 7/21/03 4,400 4,510/B/
Union Pacific Corporation 6.700% 12/1/06 4,030 3,856
Union Pacific Corporation 7.250% 11/1/08 250 245
--------
15,408
Total Corporate Bonds and Notes
(Identified Cost $116,686) 116,447
------------------------------------------------------------------------------------------------------------------------------------
Asset-backed Securities 7.4%
Fixed-rate Securities 6.2%
ARG Funding Corporation 6.020% 5/20/05 3,760 3,689
Bridgestone/Firestone Master Trust 6.170% 7/1/03 717 717
Chevy Chase 1997-A 7.650% 12/20/07 627 613
Chevy Chase Home Loan Trust 7.150% 5/15/15 426 422
Contimortgage Home Equity Loan Trust 6.420% 4/25/14 968 963
CPS Auto Grantor Trust 6.300% 8/15/02 194 193
CS First Boston Mortgage Securities Corporation 6.620% 9/25/09 1,092 1,085
Fleetwood Credit Corp. Grantor Trust 6.750% 3/15/10 1,910 1,904
Green Tree Home Improvement Loan Trust 6.320% 8/15/08 193 192
Green Tree Recreational, Equipment and Consumer Trust 1998-C 6.700% 2/15/14 7,000 6,791
Guaranteed Export Certificates 6.130% 6/15/04 941 931
Household Automotive Trust V 7.210% 10/15/02 4,000 4,019
Lehman FHA Title 1 Loan Trust 7.710% 8/25/17 768 774
Long Beach Acceptance Auto Grantor Trust 6.690% 9/25/04 176 173/B/
Mego Mortgage Home Loan Trust 7.275% 9/25/16 457 457
Mego Mortgage Home Loan Trust 7.170% 5/25/23 1,118 1,114
Merrill Lynch Mortgage Investors, Inc. 9.650% 9/15/10 1,351 1,334
--------
25,371
Indexed Securities/C/ 0.2%
Lehman Home Equity Loan Trust 6.851% 12/15/27 447 447
SLM Student Loan Trust 1998-2 6.665% 4/25/07 437 436
--------
883
Stripped Securities/H/ 0.2%
Conseco Finance Securitizations 7.000% 12/15/29 5,770 344/1/
Delta Funding Home Equity Loan Trust 6.000% 3/15/02 3,187 169/1/
Delta Funding Home Equity Loan Trust 6.000% 7/15/02 3,837 287/1/
--------
800
</TABLE>
26
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset-backed Securities (continued)
Variable-Rate Securities/K/ 0.8%
Long Beach Asset Holdings Corp NIM Trust 2000-2 8.250% 9/21/07 $ 2,410 $ 2,392
PSC Grantor Trust 6.290% 6/8/05 786 786/B/
--------
3,178
Total Asset-backed Securities
(Identified Cost $31,069) 30,232
------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Securities 5.6%
Fixed-rate Securities 4.1%
Asset Securitization Corporation 6.720% 11/12/26 1,653 1,650
Asset Securitization Corporation 6.920% 2/14/29 1,133 1,122
CS First Boston Mortgage Securities Corp. 6.480% 5/17/08 6,200 5,959
DLJ Mortgage Acceptance Corp. 6.860% 11/12/21 1,239 1,237/B/
Keystone Owner Trust 6.390% 1/25/13 1,010 1,003/B/
Merit Securities Corporation 7.040% 12/28/33 459 457
Merrill Lynch Mortgage Investors, Inc. 6.310% 11/15/26 1,648 1,610
Merrill Lynch Mortgage Investors, Inc. 6.690% 11/21/28 1,110 1,104
Metropolitan Asset Funding, Inc. 6.950% 4/20/08 1,589 1,580
Nomura Asset Securities Corporation 7.120% 4/13/36 1,000 1,001
--------
16,723
Indexed Securities/C/ 1.0%
Sasco Commercial Mortgage Trust 6.854% 10/21/02 3,851 3,851/B/
Westpac Securitisation Trust 6.890% 5/19/30 268 268
--------
4,119
Stripped Securities/H/ 0.2%
CMC Securities Corporation III 0.000% 2/25/09 382 298/2/
FFCA Secured Lending Corporation 1.053% 7/18/15 15,303 595/B,1/
Securitized Asset Sales, Inc. 0.000% 12/25/10 184 139/2/
--------
1,032
Variable-Rate Securities/K/ 0.3%
Housing Securities Inc. 7.213% 11/25/26 389 389/B/
Resolution Trust Corporation 8.731% 3/25/21 58 57
Resolution Trust Corporation 7.051% 5/25/29 142 141
Resolution Trust Corporation 7.735% 9/25/29 391 389
Resolution Trust Corporation 8.145% 9/25/29 54 54
Resolution Trust Corporation 7.447% 12/25/29 214 213
Securitized Asset Sales, Inc. 7.194% 8/25/33 42 41
--------
1,284
Total Mortgage-backed Securities
(Identified Cost $23,208) 23,158
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government and Agency Obligations 23.0%
Fixed-rate Securities 16.7%
Fannie Mae 6.500% 8/15/04 $ 880 $ 878
Fannie Mae 5.750% 2/15/08 860 811
Fannie Mae 6.000% 5/15/08 40 38
Fannie Mae 6.625% 9/15/09 4,770 4,713
Freddie Mac 7.000% 7/15/05 500 508
Freddie Mac 5.125% 10/15/08 10,000 8,994
Freddie Mac 5.750% 3/15/09 6,420 5,996
Freddie Mac 6.875% 9/15/10 1,010 1,017
Overseas Private Investment Corporation 7.740% 8/15/07 3,000 2,998
Tennessee Valley Authority 6.375% 6/15/05 9,370 9,281
Tennessee Valley Authority 5.375% 11/13/08 6,350 5,776
United States Treasury Bonds 11.125% 8/15/03 120 136
United States Treasury Bonds 11.875% 11/15/03 1,450 1,687
United States Treasury Bonds 5.750% 8/15/10 4,000 3,984
United States Treasury Notes 6.250% 1/31/02 4,020 4,022
United States Treasury Notes 5.875% 9/30/02 6,920 6,902
United States Treasury Notes 6.750% 5/15/05 360 373
United States Treasury Notes 6.500% 2/15/10 10,010 10,431
-------
68,545
Indexed Securities/C/ 5.2%
United States Treasury Inflation-Indexed Security 3.375% 1/15/07 7,626 7,369/F/
United States Treasury Inflation-Indexed Security 4.250% 1/15/10 62 63/F/
United States Treasury Inflation-Indexed Security 3.625% 4/15/28 12,497 11,871/F/
United States Treasury Inflation-Indexed Security 3.875% 4/15/29 2,184 2,167/F/
-------
21,470
Stripped Securities/H/ 1.1%
United States Treasury Bonds 0.000% 11/15/21 16,830 4,697/2/
-------
Total U.S. Government and Agency Obligations
(Identified Cost $93,767) 94,712
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Mortgage-
backed Securities 13.0%
Fixed-rate Securities 13.0%
Fannie Mae 7.000% 4/1/08 to 7/1/28 10,933 10,798
Fannie Mae 6.000% 7/1/13 to 7/1/28 4,852 4,540
Fannie Mae 6.500% 6/1/14 to 8/1/29 5,665 5,454
Fannie Mae 5.500% 10/1/15 181 170/E/
Fannie Mae 9.500% 4/1/21 414 430
Fannie Mae 6.500% 10/1/30 14,440 13,858/E/
Fannie Mae 7.500% 10/1/30 6,400 6,384/E/
Fannie Mae 8.000% 10/1/30 1,300 1,324/E/
</TABLE>
28
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermidiate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Government Agency Mortgage-
backed Securities (continued)
Fixed-rate Securities (continued)
Freddie Mac 6.500% 3/15/05 to 11/1/15 $ 1,265 $ 1,246
Freddie Mac 8.500% 7/1/06 48 49
Freddie Mac 7.500% 4/1/17 197 198
Freddie Mac 7.760% 5/1/12 170 171
Freddie Mac 9.300% 4/15/19 502 517
Freddie Mac 6.500% 10/1/30 600 576/E/
Freddie Mac 8.000% 10/1/30 3,600 3,652/E/
Government National Mortgage Association 9.500% 9/15/05 147 152
Government National Mortgage Association 9.000% 6/15/06 166 171
Government National Mortgage Association 7.000% 2/15/28 to 12/15/28 854 841
Government National Mortgage Association 7.000% 10/1/30 2,900 2,857/E/
--------
53,388
Stripped Securities/H/ N.M.
Fannie Mae 0.000% 5/25/22 109 86/2/
Freddie Mac 10.000% 3/1/21 89 22/1/
--------
108
Variable-Rate Securities/K/ N.M.
Fannie Mae 6.339% 3/1/18 121 119
Freddie Mac 6.763% 1/1/19 71 70
--------
189
Total U.S. Government Agency Mortgage-
backed Securities
(Identified Cost $53,894) 53,685
----------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds/A/ 10.6%
Banking and Finance 3.5%
Nordbanken 7.315% 10/29/49 3,000 2,957/B/,/C/
Petrozuata Finance, Inc. 7.630% 4/1/09 3,150 2,721/B/
Petrozuata Finance, Inc. 8.220% 4/1/17 1,590 1,316/B/
PSA Corporation Limited 7.125% 8/1/05 3,160 3,191/B/
Royal Bank of Scotland Group plc 8.817% 3/31/49 2,830 2,955
The Bank of Tokyo-Mitsubishi, Ltd. 8.400% 4/15/10 1,430 1,456
--------
14,596
Foreign Governments 3.7%
Argentine Republic 0.000% 10/15/01 1,770 1,633/D/
Argentine Republic 0.000% 10/15/03 1,650 1,212/D/
Argentine Republic 0.000% 10/15/04 1,110 705/D/
Quebec Province 5.750% 2/15/09 4,000 3,680
Republic of Poland 6.000% 10/27/14 3,989 3,712/I/
United Mexican States 11.500% 5/15/26 3,390 4,119
--------
15,061
</TABLE>
29
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yankee Bonds (continued)
Oil and Gas 1.3%
Petroleos Mexicanos 9.030% 2/15/11 $ 1,310 $ 1,361/B/
YPF Sociedad Anonima 7.000% 10/26/02 2,432 2,415
YPF Sociedad Anonima 7.500% 10/26/02 1,770 1,788
--------
5,564
Telecommunications 1.3%
Koninklijke (Royal) KPN NV 7.500% 10/1/05 5,300 5,297/B/
--------
Utilities 0.8%
Korea Electric Power Corporation 7.750% 4/1/13 190 180
Korea Electric Power Corporation 7.000% 2/1/27 3,300 3,094
--------
3,274
Total Yankee Bonds
(Identified Cost $43,451) 43,792
-------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 0.5%
Home Ownership Funding Corporation 13.331% 1 shs 450/B/,/G/
Home Ownership Funding Corporation II 13.338% 2 1,400/B/,/G/
--------
1,850
Total Preferred Stocks
(Identified Cost $1,942) 1,850
--------
Total Long-Term Securities
(Identified Cost $364,017) 363,876
-------------------------------------------------------------------------------------------------------------------------------
Short-Term Securities 19.2%
Corporate Bonds and Notes 1.6%
Niagara Mohawk Power Corporation 7.125% 7/1/01 $ 2,495 2,487
Enron Corp. 7.110% 9/10/01 2,000 2,000/B/,/C/
ABC Incorporated 8.875% 12/15/00 2,290 2,299
--------
6,786
Asset-backed Securities N.M.
Option One CTS Arm Trust 3.696% 3/25/01 182 2/G//1/
--------
U.S. Government and Agency Obligations 0.2%
Freddie Mac 0.000% 11/9/00 900 893/D/,/L/
--------
</TABLE>
30
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Repurchase Agreements 17.4%
Lehman Brothers, Inc.
6.63%, dated 9/29/00, to be repurchased at
$71,573 on 10/02/00 (Collateral: $100,000
Federal Home Loan Bank Bonds, 0% due
2/15/19, value $22,624; $100,000 Federal
Home Loan Bank Bonds, 0% due 8/27/18,
value $23,491; $19,850 Federal Home Loan
Bank Bonds, 7.75% due 2/22/05, value $20,145;
and $6,870 Fannie Mae Medium-term Note 5.93%,
due 1/14/05, value $6,704) $ 71,533 $ 71,533
--------
Option Purchased/I/ N.M.
Eurodollar Future Put, September 2001,
Strike Price $93.00 89/J/ 7
--------
Total Short-Term Securities
(Identified Cost $79,335) 79,221
-----------------------------------------------------------------------------------------------------------------------------
Total Investments 107.6%
(Identified Cost $443,352) $443,097
Other Assets Less Liabilities (7.6)% (31,370)
--------
Net Assets Consisting of:
Accumulated paid-in capital applicable to 40,288 shares outstanding $420,051
Undistributed net investment income 110
Accumulated net realized gain/(loss) on investments, options and futures (8,172)
Unrealized appreciation/(depreciation) of investments, options and futures (262)
--------
Net Assets 100.0% $411,727
========
Net Asset Value Per Share $10.22
========
</TABLE>
31
<PAGE>
Statement of Net Assets (continued)
Western Asset Intermediate Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Actual Appreciation/
Expiration Contracts (Depreciation)
---------------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased/H/
U.S. Treasury Note Futures December 00 17 $(23)
Written Options/H/
U.S. Treasury Bond Future Call, Strike Price $100.50 October 00 111 $ 5
U.S. Treasury Bond Future Put, Strike Price $100 October 00 111 11
----
$ 16
-----------------------------------------------------------------------------------------------
</TABLE>
/A/ Yankee Bond -- A 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 11.4% of net
assets.
/C/ Indexed Security-The rates of interest earned on these securities are tied
to the London Interbank Offered Rate (LIBOR), Consumer Price Index (CPI),
or the One Year Treasury constant Maturity Rate.
/D/ 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.
/E/ When-issued security -- Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
/F/ U.S. Treasury Inflation-Indexed Security -- U.S. Treasury security whose
principal value is adjusted daily in accordance with changes in the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
/G/ Stepped Coupon Security -- A security with a predetermined schedule of
interest or dividend rate change.
/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/ Options and Futures are described in more detail in the notes to financial
statements.
/J/ Actual number of contracts.
/K/ The coupon rates shown on variable-rate securities are the rates at
September 30, 2000. These rates vary with the weighted average coupon of
the underlying loans.
/L/ Collateral to cover futures contracts.
/M/ Convertible Bond -- Bond may be converted into common stock of the company.
See Notes to Financial Statements
32
<PAGE>
Statement Of Net Assets
Western Asset Non-U.S. Fixed Income Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares/A/ Value
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-Term Securities 95.3%
Australian Dollar 18.2%
U.S. Government and Agency Obligations 4.9%
Fannie Mae 6.375% 8/15/07 5,800 $ 3,068
Government Obligations 13.3%
Commonwealth of Australia 7.50% 9/15/09 4,930 2,905
New South Wales Treasury Corp. 8.00% 3/1/08 5,000 2,930
Queensland Treasury Corp. 6.00% 6/14/11 5,000 2,593
-------
8,428
-------
Total Australian Dollar 11,496
--------------------------------------------------------------------------------------------------------------------------------
British Sterling 6.9%
Corporate Bonds and Notes 1.4%
Halifax Plc 6.375% 4/3/08 200 294
National Westminster Bank 7.125% 10/5/22 200 301
Enterprise Oil plc 7.25% 7/8/09 200 300
-------
895
Government Obligations 5.5%
United Kingdom of Great Britain and Northern Ireland 9.50% 4/18/05 100 170
United Kingdom of Great Britain and Northern Ireland 7.25% 2/7/07 1,400 2,286
United Kingdom of Great Britain and Northern Ireland 5.75% 2/7/09 370 569
United Kingdom of Great Britain and Northern Ireland 6.00% 2/7/28 200 357
United Kingdom of Great Britain and Northern Ireland 4.25% 6/7/32 50 70
-------
3,452
-------
Total British Sterling 4,347
------------------------------------------------------------------------------------------------------------------------------------
Danish Krone 2.6%
Corporate Bonds and Notes 2.6%
Nykredit 6.00% 10/1/29 11,527 1,269
Unikredit Realkredit 6.00% 7/1/29 3,385 375
-------
Total Danish Krone 1,644
------------------------------------------------------------------------------------------------------------------------------------
Euro 29.6%
Corporate Bonds and Notes 4.4%
DePfa Deutsche Pfandbriefbank AG 5.00% 2/3/05 3,200 2,770
</TABLE>
33
<PAGE>
Statement of Net Assets (continued)
Western Asset Non-U.S. Fixed Income Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares/A/ Value
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds and Notes (continued)
Euro (continued)
Government Obligations 25.2%
Federal Republic of Germany 5.625% 1/4/28 3,270 $ 2,882
French Republic 5.50% 4/25/29 3,100 2,674
Italian Republic 5.25% 11/1/29 3,950 3,163
Italian Republic 6.00% 5/1/31 2,400 2,146
Kingdom of Spain 3.00% 1/31/03 3,000 2,527
Kingdom of the Netherlands 5.50% 1/15/28 3,000 2,600
-----------
15,992
-----------
Total Euro 18,762
------------------------------------------------------------------------------------------------------------------------------------
Greek Drachma 10.0%
Government Obligations 10.0%
Hellenic Republic 6.30% 1/29/09 2,190,000 5,797
Hellenic Republic 6.50% 10/22/19 200,000 531
-----------
Total Greek Drachma 6,328
------------------------------------------------------------------------------------------------------------------------------------
Hungarian Forint 0.4%
Government Obligations 0.4%
Republic of Hungary 10.00% 4/12/03 75,000 251
------------------------------------------------------------------------------------------------------------------------------------
Polish Zloty 15.8%
Government Obligations 15.8%
Republic of Poland 8.50% 10/12/04 27,000 4,689
Republic of Poland 8.50% 2/12/05 30,700 5,330
-----------
Total Polish Zloty 10,019
-----------------------------------------------------------------------------------------------------------------------------------
Swedish Krona 11.8%
Corporate Bonds and Notes 11.8%
AB Spintab 5.50% 9/17/03 46,500 4,849
Statens Bostadsfinansier AB 5.50% 10/15/03 25,400 2,646
-----------
Total Swedish Krona 7,495
-----------
Total Long-Term Securities
(Identified Cost $65,511) 60,342
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
Statement of Net Assets (continued)
Western Asset Non-U.S. Fixed Income Portfolio
September 30, 2000 (Unaudited)
(Amounts in Thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares/A/ Value
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-Term Securities 4.7%
Repurchase Agreements 4.7%
State Street Bank & Trust Company
3.50%, dated 9/29/00 to be repurchased at
$2,998 on 10/2/00 (Collateral:$3,045 Fannie
Mae Notes, 6.50% due 8/15/04, value $3,084) $ 2,997 $ 2,997
(Identified Cost $2,997) 2,997
-------------------------------------------------------------------------------------------------------------------------------
Total Investments 100.0%
(Identified Cost $68,508) $63,339
Other Assets Less Liabilities N.M. (25)
-------
Net Assets Consisting Of:
Accumulated paid-in capital applicable to 7,078 shares outstanding $ 70,512
Under/(Over) distributed net investment income (262)
Accumulated net realized gain/(loss) on investments and currency transactions (1,889)
Unrealized appreciation/(depreciation) of investments, options and futures (5,047)
--------
Net Assets 100.0% $63,314
=======
Net Asset Value Per Share $ 8.95
=======
</TABLE>
<TABLE>
<CAPTION>
Actual Appreciation/
Expiration Contracts (Depreciation)
-------------------------------------------------------
<S> <C> <C> <C>
Options Written
PLN Call/EUR Put, Strike Price EUR 3.85 November 00 4,150,000 $12
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Securities are grouped by the currencies in which they are issued, and the
par values are also in the issuance currency.
See Notes to Financial Statements
35
<PAGE>
Statements of Operations
(Amounts in Thousands) (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Six Months Ended September 30, 2000
-------------------------------------------------------
Western
Western Asset
Western Asset Western Non-U.S.
Asset Core Asset Fixed
Core Plus Intermediate Income
Portfolio Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Income:
Interest $24,821 $ 9,233 $13,649 $ 1,903
Dividends 582 91 159 --
------- ------- ------- -------
Total income 25,403 9,324 13,808 1,903
------- ------- ------- -------
Expenses:
Advisory fee 1,489 561 756 141
Distribution and service fees 2 -- -- --
Transfer agent and shareholder servicing expense 18 12 16 6
Audit and legal fees 26 17 13 12
Custodian fees 129 117 69 76
Directors' fees 19 19 19 19
Registration fees 22 39 24 16
Reports to shareholders 17 6 5 1
Other expenses 4 2 4 1
------- ------- ------- -------
1,726 773 906 272
Less fees waived (64) (185) (57) (100)
------- ------- ------- -------
Total expenses, net of waivers 1,662 588 849 172
------- ------- ------- -------
Net Investment income 23,741 8,736 12,959 1,731
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on:
Investments 340 (97) 230 (23)
Options 855 524 (1,187) --
Futures (1,820) 840 1,547 --
Foreign currency transactions -- 4 -- 2,086
------- ------- ------- -------
(625) 1,271 590 2,063
------- ------- ------- -------
Change in unrealized gain (loss) on:
Investments, options and futures 11,071 1,468 5,679 (4,582)
Assets and liabilities denominated in foreign currencies -- (13) -- (50)
------- ------- ------- -------
11,071 1,455 5,679 (4,632)
------- ------- ------- -------
Net realized and unrealized gain (loss) on investments 10,446 2,726 6,269 (2,569)
------- ------- ------- -------
Change in net assets resulting from operations $34,187 $11,462 $19,228 $ (838)
======= ======= ======= =======
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
36
<PAGE>
[This page intentionally left blank]
37
<PAGE>
Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Western Asset
Core
Portfolio
---------------------------------------
Six Months Ended Year Ended
September 30, 2000 March 31, 2000
------------------------------------------------------------------------------------------
Change in Net Assets: (Unaudited)
<S> <C> <C>
Net investment income $ 23,741 $ 42,858
Net realized gain (loss) on investments,
options, futures, and foreign currency
transactions (625) (9,565)
Change in unrealized appreciation
(depreciation) of investments, options,
futures, assets and liabilities
denominated in foreign currencies 11,071 (19,759)
-------- --------
Change in net assets resulting from operations 34,187 13,534
Distributions to shareholders:
From net investment income:
Institutional Class (23,672) (51,083)
Financial Intermediary Class (52) (65)
From net realized gain on investments:
Institutional Class -- (1,929)
Financial Intermediary Class -- --
Change in net assets from
Fund share transactions:
Institutional Class 6,326 3,056
Financial Intermediary Class 109 1,492
-------- --------
Change in net assets 16,898 (34,995)
Net Assets:
Beginning of period 650,494 685,489
End of period $667,392 $650,494
-------- --------
Under (over) distributed net investment income $ 17 $ --
-------- --------
------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
38
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Western Asset Western Asset Western Asset
Core Plus Intermediate Non-U.S. Fixed
Portfolio Portfolio Income Portfolio
------------------------------------- ------------------------------------ -------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended Six Months Ended Year Ended
September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000 September 30, 2000 March 31, 2000
---------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
$ 8,736 $ 10,543 $ 12,959 $ 20,022 $ 1,731 $ 3,337
1,271 (2,790) 590 (7,570) 2,063 (2,868)
1,455 (3,890) 5,679 (3,328) (4,632) (235)
-------- -------- -------- -------- ------- -------
11,462 3,863 19,228 9,124 (838) 234
(8,736) (12,009) (12,959) (24,357) (3,372) (3,371)
-- -- -- (155) -- --
-- (58) -- -- -- (897)
-- -- -- -- -- --
123,372 103,742 29,402 76,785 4,998 1,202
-- -- -- (3,667) -- --
-------- -------- -------- -------- ------- -------
126,098 95,538 35,671 57,730 788 (2,832)
215,184 119,646 376,056 318,326 62,526 65,358
$341,282 $215,184 $411,727 $376,056 $63,314 $62,526
-------- -------- -------- -------- ------- -------
$ 149 $ 149 $ 110 $ 110 $ (262) $ 1,379
-------- -------- -------- -------- ------- -------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Financial Highlights
Contained below is per share operating performance data for a share of common
stock outstanding throughout each period shown, total investment return, ratios
to average net assets and other supplemental data. This information has been
derived from information in the financial statements.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Investment Operations
---------------------------------------------
Net realized
and Unrealized
Gain (loss) on
Investments,
Net Asset Options, Futures Total
Value, Net and Foreign From
Beginning Investment Currency Investment
of Period Income Transactions Operations
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Western Asset Core Portfolio
Institutional Class/A/
Six Months Ended September 30, 2000/P/ $10.39 $0.40/I/ $ 0.17 $ 0.57
Years Ended March 31,
2000 11.01 0.67/I/ (0.46) 0.21
1999 11.59 0.64/I/ (0.01) 0.63
Nine Months Ended March 31, 1998/B/ 11.28 0.49/I/ 0.49 0.98
Years Ended June 30,
1997 11.05 0.70/I/ 0.19 0.89
1996 11.22 0.67/I/ (0.14) 0.53
Financial Intermediary Class
Six Months Ended September 30, 2000/P/ $10.40 $0.39/J/ $ 0.17 $ 0.56
Year Ended March 31, 2000/E/ 10.69 0.45/J/ (0.25) 0.20
Western Asset Core Plus Portfolio
Six Months Ended September 30, 2000/P/ $ 9.48 $0.36/K/ $ 0.11 $ 0.47
Years Ended March 31,
2000 9.97 0.55/K/ (0.37) 0.18
1999/F/ 10.00 0.34/K/ (0.08) 0.26
Western Asset Intermediate Portfolio
Institutional Class/A/
Six Months Ended September 30, 2000/P/ $10.09 $0.38/L/ $ 0.13 $ 0.51
Years Ended March 31,
2000 10.62 0.63/L/ (0.38) 0.25
1999 10.85 0.58/L/ 0.06 0.64
Nine Months Ended March 31, 1998/B/ 10.72 0.46/L/ 0.23 0.69
Years Ended June 30,
1997 10.48 0.55/L/ 0.30 0.85
1996 10.74 0.54/L/ (0.01) 0.53
--------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
40
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
Distributions Ratios/Supplemental Data
------------------------------------------ -------------------------------------------------------------------
Net
Investment Net
From Net Expenses Income 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)
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.40) $ -- $(0.40) $10.56 5.40%/I,C/ 0.50%/I,D/ 7.1%/I,D/ 319.5%/D/ $665,795
(0.80) (0.03) (0.83) 10.39 1.99%/I/ 0.50%/I/ 6.3%/I/ 260.4% 649,038
(0.65) (0.56) (1.21) 11.01 5.61%/I/ 0.50%/I/ 5.7%/I/ 484.3% 685,489
(0.53) (0.14) (0.67) 11.59 8.91%/I,C/ 0.50%/I,D/ 6.0%/I,D/ 226.9%/D/ 617,676
(0.65) (0.01) (0.66) 11.28 8.27%/I/ 0.50%/I/ 6.4%/I/ 384.8% 508,353
(0.66) (0.04) (0.70) 11.05 4.86%/I/ 0.50%/I/ 6.3%/I/ 266.0% 453,699
$(0.38) $ -- $(0.38) $10.58 5.56%/J,C/ 0.75%/J,D/ 6.8%/J,D/ 319.5%/D/ $ 1,597
(0.49) -- (0.49) 10.40 1.97%/J,C/ 0.75%/J,D/ 6.2%/J,D/ 260.4%/D/ 1,456
$(0.36) $ -- $(0.36) $ 9.59 4.77%/K,C/ 0.47%/K,D/ 7.0%/K,D/ 380.3%/D/ $341,282
(0.67) -- (0.67) 9.48 1.95%/K/ 0.50%K 6.2%K 315.9% 215,184
(0.22) (0.07) (0.29) 9.97 2.58%/K,C/ 0.50%/K,D/ 5.4%/K,D/ 565.7%/D/ 119,646
$(0.38) $ -- $(0.38) $10.22 4.83%/L,C/ 0.45%/L,D/ 6.9%/L,D/ 352.8%/D/ $411,727
(0.78) -- (0.78) 10.09 2.49%/L/ 0.45%/L/ 6.3%/L/ 440.8% 376,056
(0.57) (0.30) (0.87) 10.62 6.01%/L/ 0.45%/L/ 5.5%/L/ 389.6% 314,534
(0.46) (0.10) (0.56) 10.85 6.59%/L,C/ 0.45%/L,D/ 5.8%/L,D/ 401.4%/D/ 293,531
(0.54) (0.07) (0.61) 10.72 8.32%/L/ 0.45%/L/ 6.3%/L/ 419.3% 224,497
(0.54) (0.25) (0.79) 10.48 5.15%/L/ 0.50%/L/ 6.3%/L/ 841.3% 66,079
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Financial Highlights (continued)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Investment Operations
-----------------------------------------------
Net realized
and Unrealized
Gain (loss) on
Investments,
Net Asset Options, Futures Total
Value, Net and Foreign From
Beginning Investment Currency Investment
of Period Income Transactions Operations
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Western Asset Intermediate Portfolio (continued)
Financial Intermediary Class
Period Ended November 30, 1999/O/ $10.61 $0.41/M/ $(0.33) $ 0.08
Year Ended March 31, 1999/G/ 10.62 0.12/M/ (0.13) (0.01)
Western Asset Non-U.S Fixed Income Portfolio
Six Months Ended September 30, 2000/P/ $ 9.59 $0.26/N/ $(0.39) $(0.13)
Years Ended March 31, 2000 10.21 0.49/N/ (0.47) 0.02
1999/H/ 10.00 0.30/N/ 0.31 0.61
-------------------------------------------------------------------------------------------------------------------
</TABLE>
/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/Not annualized.
/D/Annualized.
/E/For the period July 22, 1999 (commencement of operations) to March 31, 2000.
/F/For the period July 8, 1998 (commencement of operations) to March 31, 1999.
/G/For the period January 6, 1999 (commencement of operations) to March 31,
1999.
/H/For the period July 15, 1998 (commencement of operations) to March 31, 1999.
/I/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 0.52% for the six months ended September 30, 2000,
0.51%, 0.50% and 0.50% for the years ended March 31, 2000, 1999 and the nine
months ended March 31, 1998, 0.50% and 0.53% for the years ended June 30,
1997 and 1996, respectively.
/J/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 0.76% for the six months ended September 30, 2000,
and 0.76% for the period July 2, 1999 (commencement of operations) to March
31, 2000.
/K/Net of advisory fees waived pursuant to a voluntary expense limitation of
0.50% to June 30, 2000 and 0.45% thereafter. In the absence of this
limitation, the ratio of expenses to average net assets would have been 0.62%
for the six months ended September 30, 2000 and 0.65% for the year ended
March 31, 2000 and 0.65% for the period July 8, 1998 (commencement of
operations) to March 31, 1999.
--------------------------------------------------------------------------------
42
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Distributions Ratios/Supplemental Data
------------------------------------------ ---------------------------------------------------------------------
Net
Investment Net
From Net Expenses Income 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)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.43) $ -- $(0.43) $10.26 0.81%/M,C/ 0.70%/M,D/ 5.9%/M,D/ 471.8%/D/ $ --
-- -- -- 10.61 0.09%/M,C/ 0.70%/M,D/ 5.2%/M,D/ 389.6%/D/ 3,792
$(0.51) $ -- $(0.51) $ 8.95 -1.41%/N,C/ 0.55%/N,D/ 5.6%/N,D/ 263.2%/D/ $ 63,314
(0.50) (0.14) (0.64) 9.59 0.57%/N/ 0.55%/N/ 4.9%/N/ 347.1% 62,526
(0.20) (0.20) (0.40) 10.21 5.81%/N,C/ 0.55%/N,D/ 4.1%/N,D/ 388.0%/D/ 65,358
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/L/Net of advisory fees waived pursuant to a voluntary expense limitation of
0.50% until August 5, 1996 and 0.45% thereafter. In the absence of this
limitation, the ratio of expenses to average net assets would have been 0.48%
for the six months ended September 30, 2000, 0.48% for the years ended March
31, 2000 and 1999, respectively, 0.52% for the nine months ended March 31,
1998, and 0.55% and 1.03% for the years ended June 30, 1997 and 1996,
respectively.
/M/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 0.74% for the period ending November 30, 1999
(redemption of Financial Intermediary Class), 0.73% for the period January 7,
1999 (commencement of operations) to March 31, 1999.
/N/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 0.87% for the six months ended September 30, 2000,
0.83% for the year ended March 31, 2000 and 0.85% for the period July 15,
1998 (commencement of operations) to March 31, 1999.
/O/Redemption of all outstanding Financial Intermediary Class shares.
/P/Unaudited.
See Notes to Financial Statements
--------------------------------------------------------------------------------
43
<PAGE>
Notes to Financial Statements
(Amounts in Thousands)
1. Significant Accounting Policies:
LM Institutional Fund Advisors I, Inc. ("Corporation"), consisting of the
Western Asset Core Portfolio ("Core"), the Western Asset Core Plus Portfolio
("Core Plus"), the Western Asset Intermediate Portfolio ("Intermediate"), 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 22, 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. As of March 1, 2000, dividends from net investment income
are declared daily and paid monthly for each Fund except Non-U.S., which
declares and pays dividends quarterly. 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. At September 30, 2000, accrued dividends
payable were as follows:Core, $114, Core Plus $179, Intermediate $364 and Non-
US $0.
44
<PAGE>
Notes to Financial Statements (continued)
(Amounts in Thousands)
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, 2000,
receivables for securities sold and payables for securities purchased for each
Fund were as follows:
Receivable For Payable For
Securities Sold Securities Purchased
--------------- --------------------
Core $19,257 $143,898
Core Plus 3,252 64,222
Intermediate 13,617 49,393
Non-U.S. 671 3,097
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 programs, 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 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.
45
<PAGE>
Notes to Financial Statements (continued)
(Amounts in Thousands)
Outstanding contracts at September 30, 2000, were as follows:
Core Plus
Contract to
Settlement -------------------------------------- Appreciation
Date Receive Deliver (Depreciation)
---------- ------------------ -------------- -------------
10/18/00 USD 3,261 AUD 6,050 $ (17)
10/18/00 EUR 1,228 USD 1,053 33
10/18/00 USD 665 EUR 750 1
10/18/00 PLN 3,019 USD 665 (3)
10/18/00 USD 2,308 PLN 10,599 (15)
11/20/00 EUR 1,328 USD 1,202 25
11/20/00 USD 1,533 SEK 14,373 32
12/18/00 CAD 1,887 USD 1,274 (19)
12/18/00 EUR 1,128 USD 984 17
12/18/00 USD 3,460 EUR 3,986 (76)
12/18/00 GRD 615,020 USD 1,572 (29)
-----
$ (51)
=====
Non-U.S.
Contract to
Settlement -------------------------------------- Appreciation
Date Receive Deliver (Depreciation)
---------- ------------------ -------------- -------------
10/18/00 AUD 6,301 USD 3,412 $ 8
10/18/00 USD 11,880 AUD 21,962 (48)
10/18/00 DKK 1,454 USD 175 (3)
10/18/00 USD 1,889 DKK 15,661 34
10/18/00 EUR 5,112 USD 4,383 139
10/18/00 USD 3,677 EUR 4,150 6
10/18/00 GBP 202 USD 284 15
10/18/00 USD 5,391 GBP 3,593 76
10/18/00 PLN 16,706 USD 3,677 (14)
10/18/00 USD 11,228 PLN 51,405 (45)
11/20/00 USD 6,870 EUR 7,592 143
11/20/00 USD 7,896 SEK 72,512 325
12/18/00 CAD 9,153 USD 6,197 (113)
12/18/00 USD 11,786 EUR 13,564 (249)
12/18/00 USD 5,357 GRD 2,095,801 (98)
-----
$ 176
=====
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-
46
<PAGE>
Notes to Financial Statements (continued)
(Amounts in Thousands)
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>
Options outstanding at March 31, 2000 1,150 $ 687 366 $ 307
Options written 4,453 2,549 1,989 1,061
Options closed (2,841) (1,796) (472) (359)
Options expired (1,877) (958) (1,261) (616)
Options exercised (86) (43) -- --
------ ------- ------- ------
Options outstanding at September 30, 2000 799 $ 439 622 $ 393
====== ======= ======= ======
Calls Puts
------------------------ --------------------
Core Plus Contracts Premiums Contracts Premiums
--------- --------- --------- --------
Options outstanding at March 31, 2000 301 $ 178 102 $ 85
Options written 1,996 1,070 750,732 393
Options closed (919) (575) (194) (132)
Options expired (1,013) (475) (381) (182)
Options exercised (23) (12) -- --
------ ------- ------- ------
Options outstanding at September 30, 2000 342 $ 186 750,259 $ 164
====== ======= ======= ======
Calls Puts
------------------------ --------------------
Intermediate Contracts Premiums Contracts Premiums
--------- --------- --------- --------
Options outstanding at March 31, 2000 467 $ 237 137 $ 128
Options written 170 84 277 129
Options closed (526) (278) (303) (230)
Options expired -- -- -- --
Options exercised -- -- -- --
------ ------- ------- ------
Options outstanding at September 30, 2000 111 $ 43 111 $ 27
====== ======= ======= ======
</TABLE>
Futures
Upon entering into a futures contract, the Funds are required to deposit with
the broker an amount of cash or cash equivalents equal to a percentage of the
contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by each Fund each day, depending on
the daily fluctuation in the value of the contract. For Non-U.S., payment is not
sent daily, but is recorded as a net payable or receivable by the Fund to or
from the futures broker, which is holding cash collateral from the Fund. The
daily changes in contract value are recorded as unrealized gains or losses and
each Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued daily at the settlement price established by the
board of trade or exchange on which they are traded.
Each Fund may enter into futures contracts in connection with its interest rate
management strategy. Risks arise from the possible illiquidity of the futures
market and from the possibility that a change in the value of a contract may not
correlate with changes in interest rates. The open long and short futures
positions and related appreciation or depreciation at September 30, 2000, are
described at the end of the "Statement of Net Assets" of each Fund.
47
<PAGE>
Notes to Financial Statements (continued)
(Amounts in Thousands)
3. Portfolio Transactions:
For the six months ended September 30, 2000, investment transactions (excluding
short-term investments) were as follows:
Purchases Sales
---------------------- ----------------------
U.S. Gov't Other U.S. Gov't Other
Securities Securities Securities Securities
---------- ---------- ---------- ----------
Core $1,046,357 $101,025 $1,052,200 $77,285
Core Plus 508,555 115,745 432,918 43,732
Intermediate 503,743 128,668 508,659 94,098
Non-U.S. -- 83,840 5,757 71,208
At September 30, 2000, 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 $797,004 $5,892 $(18,180) $(12,288)
Core Plus 401,849 2,433 (5,874) (3,441)
Intermediate 443,352 4,555 (4,810) (255)
Non-U.S. 68,508 100 (5,269) (5,169)
Unused capital loss carryforwards for federal income tax purposes at September
30, 2000, were as follows: Core, $16,952 which expires in 2008; Core Plus,
$2,707 which expires in 2008; Intermediate $5,953 which expires in 2008; and
Non-US, $3,271 which expires in 2008.
4. Fund Share Transactions:
At September 30, 2000, there were 13.1 billion shares of common stock of the
Corporation authorized at $.001 par value. Transactions in Fund shares were as
follows (all share amounts reflect the 10 for 1 stock split effective May 29,
1998):
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net change
---------------- ---------------- -------------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ -------- ------- ------- -------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Core
Institutional Class
Six months ended September 30, 2000 9,412 $ 97,518 2,331 $24,214 (11,193) $(115,406) 550 $ 6,326
------ -------- ----- ------- ------- --------- ------ --------
Year ended March 31, 2000 6,977 74,066 4,571 48,097 (11,322) (119,107) 226 3,056
------ -------- ----- ------- ------- --------- ------ --------
Financial Intermediary Class
Six months ended September 30, 2000 6 $ 53 5 $ 56 -- $ -- 11 $ 109
------ -------- ----- ------- ------- --------- ------ --------
July 22, 1999* to March 31, 2000 134 1,431 6 61 -- -- 140 1,492
------ -------- ----- ------- ------- --------- ------ --------
Core Plus
Six months ended September 30, 2000 14,423 $137,155 895 $ 8,482 (2,420) $ (22,265) 12,898 $123,372
------ -------- ----- ------- ------- --------- ------ --------
Year ended March 31, 2000 11,868 114,874 1,200 11,491 (2,377) (22,623) 10,691 103,742
------ -------- ----- ------- ------- --------- ------ --------
</TABLE>
48
<PAGE>
Notes to Financial Statements (continued)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Reinvestment
Sold of Distributions Repurchased Net change
------------------- ------------------ ----------------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ -------- ------- ------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Intermediate
Institutional Class
Six months ended September 30, 2000 9,867 $ 98,655 1,201 $12,114 (8,056) $ (81,367) 3,012 $ 29,402
------ -------- ------- ------- ------- --------- ------ --------
Year ended March 31, 2000 16,358 167,017 2,223 22,750 (10,927) (112,982) 7,654 76,785
------ -------- ------- ------- ------- --------- ------ --------
Financial Intermediary Class
Period ended November 30, 1999/A/ -- $ -- 15 $ 155 (372) $ (3,822) (357) $ (3,667)
------ -------- ------- ------- ------- --------- ------ --------
Non-U.S.
Six months ended September 30, 2000 321 $ 2,900 377 $ 3,371 (140) $ (1,273) 558 $ 4,998
------ -------- ------- ------- ------- --------- ------ --------
Year ended March 31, 2000 1,029 9,754 444 4,268 (1,357) (12,820) 116 1,202
------ -------- ------- ------- ------- --------- ------ --------
</TABLE>
--------------------------------------------------------------------------------
/A/ Redemption of all outstanding Financial Intermediary Class Shares.
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, 2000, the market value of the securities on loan to broker-
dealers was $97,522 and $17,828 for Core and Intermediate, respectively. Cash
collateral received was $101,056 and $18,486 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 and Intermediate. Western Asset Management Company
Limited ("WAML") 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% Non-U.S., and
0.40% for Intermediate. For Core and Core Plus the Funds pay a fee, computed
daily and payable monthly at annual rates of each Fund's average daily net
assets ranging from 0.45% of the first $500 million to 0.40% over $1 billion.
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, and 0.35% of
average daily net assets for Intermediate. LMIA pays WAML 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, 2000, $238, $73, $125, and $7 was due to LMIA for
Core, Core Plus, Intermediate and Non-U.S., respectively. LMIA, Western Asset
and WAML 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 for Institutional Class: 0.55% for Non-U.S.;
0.50% for Core; 0.45% for Core Plus; and 0.45% for Intermediate; and for
Financial Intermediary Class: 0.75% for Core and 0.70% for Intermediate.
49
<PAGE>
Notes to Financial Statements (continued)
(Amounts in Thousands)
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, 2000, $1 was due to LMWW from Core. Arroyo
Seco, Inc. receives no payments from the Funds in connection with the offer or
sale of their shares.
Western Asset and WAML are wholly owned subsidiaries of Legg Mason, Inc.
50
<PAGE>
[This page intentionally left blank]
<PAGE>
[This page intentionally left blank]
<PAGE>
LM Institutional Fund Advisors I, Inc.
Investment Manager
LM Institutional Advisors, Inc.
P.O. Box 17635
Baltimore, Maryland 21297-1635
1-888-425-6432
Investment Advisers
Western Asset Management Company
117 East Colorado Boulevard
Pasadena, California 91105
Western Asset Management Company 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
|
|