<PAGE>
[LM PHOTO APPEARS HERE] 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
Annual Report
March 31, 2000
<PAGE>
President's Letter
LM Institutional Fund Advisors I, Inc.
April 24, 2000
Dear Shareholder:
We are pleased to provide you with the financial statements for the Western
Asset Portfolios for the period ended March 31, 2000. Included are narratives
from the portfolio management team for these Portfolios detailing key
developments as they pertain to your investment.
The following table summarizes the Portfolios' Institutional Class performance
for the 1-year period ended March 31, 2000.
--------------------------------------------------------------
1 YEAR
--------------------------------------------------------------
Western Asset Core Portfolio 1.99%
Western Asset Core Plus Portfolio 1.95%
Salomon Broad Market Index 1.81%
Western Asset Intermediate Portfolio 2.49%
Lehman Intermediate Gov't/Corp Bond Index 2.08%
Western Asset Non-U.S. Fixed Income Portfolio 0.57%
Salomon World Gov't ex-U.S. Index (Hedged) 2.72%
As always, we thank you for your interest in the Portfolios. If you have any
questions, comments or suggestions please feel free to call us at
1-888-425-6432. We look forward to hearing from you.
Sincerely,
/s/ Joseph L. Orlando
- ---------------------
Joseph L. Orlando
President
LM Institutional Advisors, Inc.
1
<PAGE>
Performance Information
The returns shown on the following pages are based on historical results and are
not intended to indicate future performance. The investment return and principal
value of an investment in each of these Portfolios will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than their original
cost. No adjustment has been made for any income taxes payable by shareholders.
The following graphs compare each Portfolio's total returns against those of a
closely matched broad-based securities market index. The lines illustrate the
cumulative total return of an initial $1 million investment for the periods
indicated after deducting all Portfolio investment management and other
administrative expenses and the transaction costs of buying and selling
portfolio securities. The line representing the index does not include any
transaction costs associated with buying and selling securities in the index or
other administrative expenses. Both the Portfolios' results and the indices'
results assume reinvestment of all dividends and distributions.
Market Commentary
The past year has been unusually difficult for most fixed-income markets. Global
interest rates rose substantially, with Japan being the notable exception,
driven primarily by central banks tightening monetary policy for fear that a
global recovery would result in rising inflation pressures. Short-term rates
generally rose more than long-term rates, with yield curves flattening (and
inverting in the U.S.) as a result. Inflation fears were compounded by a
dramatic rise in energy prices. Tighter monetary policy and a flatter curve
combined to push most spreads wider, most notably those in the higher quality
ranges. The dollar rose against most currencies, supported by higher nominal and
real yields and a robust equity market riding atop a dynamic economy.
Domestically, Treasuries generally performed well, with Treasury Inflation
Protected Securities (TIPS) registering the biggest gains, thanks largely to a
rise in headline inflation. Despite the general rise in credit spreads, emerging
market debt issues generated very strong returns as their spreads generally
narrowed. With only a modest economic recovery in Europe and inflation benign,
European bond yields rose less than U.S. yields. Japanese bonds were supported
by the Bank of Japan's zero interest rate policy and strong demand from domestic
investors. Once again, our ability to add value under extremely adverse
conditions was challenged, with gains relative to market benchmarks achieved as
a result of careful issue selection, prudent risk diversification and
constraints on overall interest rate risk.
More specific information on the performance of each Portfolio can be found on
the following pages.
2
<PAGE>
Performance Information
Western Asset Core Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was generally
negative in the twelve months ended March 31, 2000, as both Treasury yields and
spreads on most non-Treasury issues rose. Despite the adverse conditions, the
Portfolio's total return of 1.99% (net of expenses) edged out that of its
benchmark, the Salomon Brothers Broad Market Index, which recorded a total
return of 1.81%. The Portfolio's yield curve strategies were rewarded as the
curve flattened. Although the Portfolio's duration was moderately longer than
the benchmark for most of the period, the negative impact of rising rates was
partially offset by defensive strategies which focused on enhancing yield at the
expense of convexity. An overweighting to the mortgage sector was rewarded as
spreads initially narrowed, and these gains were locked in by reducing exposure
to neutral in January. Corporate overweighting subtracted the most from
performance as spreads generally widened, but this was partially offset by an
aggressive exposure to TIPS, which yielded very strong returns.
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Western Asset Core Portfolio
Institutional Class Salomon Brothers
(net of expenses) Broad Market Index/1,2/
Sept 4, 1990 $1,000,000 $1,000,000
1,090,547 1,087,700
1,246,275 1,191,788
Mar 31, 1992 1,233,099 1,214,308
1,344,055 1,234,930
1,413,688 1,376,904
1,530,294 1,464,010
Mar 31, 1994 1,490,537 1,412,153
1,464,078 1,422,286
1,554,808 1,483,043
1,771,087 1,562,950
Mar 31, 1996 1,732,095 1,643,508
1,836,671 1,681,734
1,813,750 1,724,204
2,023,465 1,950,307
Mar 31, 1998 2,055,204 1,930,764
2,192,257 2,066,935
2,170,571 2,056,264
2,155,100 2,049,780
Mar 31, 2000 2,213,780 2,066,545
Average Annual Total Returns as of March 31, 2000
- -------------------------------------------------
WA Core SBBI
- -------------------------------------------------
1 Year 1.99% 1.81%
- -------------------------------------------------
3 Years 6.87% 6.68%
- -------------------------------------------------
5 Years 7.32% 7.14%
- -------------------------------------------------
Since Inception
(9/4/90) 8.65% 8.02%/1/
- -------------------------------------------------
/1/From 8/31/90 through 3/31/00
/2/The Salomon Brothers Broad Market Index is an unmanaged index that measures
the performance of the investment-grade universe of bonds issued in the
United States. The index includes institutionally traded U.S. Treasury,
government-sponsored, mortgage and corporate securities.
3
<PAGE>
Performance Information
Western Asset Core Portfolio (continued)
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Western Asset Core Portfolio
Financial Intermediary Class Salomon Brothers
(net of expenses) Broad Market Index/1,2/
Jul 22, 1999 $1,000,000 $1,000,000
Sept 30, 1999 997,194 1,012,100
Dec 31, 1999 977,706 1,010,379
Mar 31, 2000 1,019,681 1,032,709
Cumulative Total Returns as of March 31, 2000
- ---------------------------------------------
WA Core SBBI
- ---------------------------------------------
Since Inception
(7/22/99) 1.97% 3.18%/1/
- ---------------------------------------------
/1/From 7/31/99 through 3/31/00
/2/The Salomon Brothers Broad Market Index is an unmanaged index that measures
the performance of the investment-grade universe of bonds issued in the
United States. The index includes institutionally traded U.S. Treasury,
government-sponsored, mortgage and corporate securities.
4
<PAGE>
Performance Information
Western Asset Core Plus Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was generally
negative in the twelve months ended March 31, 2000, as both Treasury yields and
spreads on most non-Treasury issues rose. Despite the adverse conditions, the
Portfolio's total return of 1.95% (net of expenses) edged out that of its
benchmark, the Salomon Brothers Broad Market Index, which recorded a total
return of 1.81%. The Portfolio's yield curve strategies were rewarded as the
curve flattened. Although the Portfolio's duration was moderately longer than
the benchmark for most of the period, the negative impact of rising rates was
partially offset by defensive strategies, which focused on enhancing yield at
the expense of convexity. An overweighting to the mortgage sector was rewarded
as spreads initially narrowed, and these gains were locked in by reducing
exposure to neutral in January. Corporate overweighting and a modest exposure to
high-yield debt detracted from performance as spreads generally widened, but
this was partially offset by emerging market debt holdings and an aggressive
exposure to TIPS, which yielded very strong returns. Non-dollar exposure also
contributed to performance as foreign markets generally outperformed their
domestic counterparts.
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Western Asset
Core Plus Portfolio Salomon Brothers
(net of expenses) Broad Market Index/1,2/
Jul 8, 1998 $1,000,000 $1,000,000
Sept 30, 1998 1,036,133 1,041,400
Dec 31, 1998 1,036,133 1,045,670
Mar 31, 1999 1,010,410 1,040,860
Jun 30, 1999 1,014,321 1,031,180
Sept 30, 1999 1,023,712 1,038,604
Dec 31, 1999 1,024,241 1,036,839
Mar 31, 2000 1,045,855 1,059,753
Average Annual Total Returns as of March 31, 2000
- -------------------------------------------------
WA Core Plus SBBI
- -------------------------------------------------
1 Year 1.95% 1.81%
- -------------------------------------------------
Since Inception
(7/8/98) 2.63% 3.37%/1/
- -------------------------------------------------
/1/From 6/30/98 through 3/31/00
/2/The Salomon Brothers Broad Market Index is an unmanaged index that measures
the performance of the investment-grade universe of bonds issued in the
United States. The index includes institutionally traded U.S. Treasury,
government-sponsored, mortgage and corporate securities.
5
<PAGE>
Performance Information
Western Asset Intermediate Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the Portfolio's performance was generally
negative in the twelve months ended March 31, 2000, as both Treasury yields and
spreads on most non-Treasury issues rose. Despite the adverse conditions, the
Portfolio's total return of 2.49% (net of expenses) exceeded that of its
benchmark, the Lehman Brothers Intermediate Government/Corporate Bond Index,
which recorded a total return of 2.08%. Although the Portfolio's duration was
moderately longer than the benchmark for most of the period, the negative impact
of rising rates was partially offset by defensive strategies which focused on
enhancing yield at the expense of convexity. In addition, the Portfolio's
barbell yield curve strategy was rewarded as the curve flattened. Moderate
exposure to the mortgage sector was rewarded as spreads narrowed, and these
gains were locked in by reducing exposure in January. Corporate overweighting
subtracted the most from performance as spreads generally widened, but this was
largely offset by an aggressive exposure to TIPS, which yielded very strong
returns.
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Western Asset
Intermediate Portfolio Lehman Brothers
Institutional Class Intermediate Gov't/Corp
(net of expenses) Bond Index/1,2/
Jul 1, 1994 $1,000,000 $1,000,000
1,005,479 1,003,300
Mar 31, 1995 1,046,383 1,050,500
1,161,410 1,157,206
Mar 31, 1996 1,154,306 1,150,508
1,215,892 1,203,957
Mar 31, 1997 1,217,044 1,205,387
1,318,045 1,298,709
Mar 31, 1998 1,336,644 1,321,948
1,419,618 1,407,930
Mar 31, 1999 1,416,949 1,408,667
1,412,492
1,426,106
1,425,112 1,413,421
Mar 31, 2000 1,452,185 1,437,968
Average Annual Total Returns as of March 31, 2000
- -------------------------------------------------
WA Intm LB Intm G/C
- -------------------------------------------------
1 Year 2.49% 2.08%
- -------------------------------------------------
3 Years 6.06% 6.05%
- -------------------------------------------------
5 Years 6.77% 6.49%
- -------------------------------------------------
Since Inception
(7/1/94) 6.70% 6.53%/1/
- -------------------------------------------------
/1/From 6/30/94 through 3/31/00
/2/The Lehman Brothers Intermediate Gov't/Corp Bond Index is an unmanaged index
that measures the performance of intermediate (1-10 year) government and
corporate fixed-rate debt issues.
6
<PAGE>
Performance Information
Western Asset Non-U.S. Fixed Income Portfolio
Portfolio Manager: Western Asset Management Investment Strategy Group
The impact of market conditions on the portfolio's performance was generally
negative in the twelve months ended March 31, 2000 as European and dollar-bloc
bond yields rose over the period. With an underweighting to Japanese bonds and
modest overweight duration, the Portfolio underperformed the SalomonBrothers
World Government ex-U.S. Index (Hedged), returning 0.57% (net of expenses) vs.
2.72%. Against equivalent-duration U.S. Treasuries, the Portfolio outperformed
by 0.35% (net of expenses). The Portfolio's performance was positively impacted
by an overweight exposure to long-dated European government bonds as European
yield curves flattened, and by a significant exposure to peripheral European
markets such as Sweden and, in particular, Greece which benefited from sharply
improving fundamentals ahead of participation in the European Monetary Union.
[GRAPH APPEARS HERE -- SEE PLOT POINTS BELOW]
Western Asset
Non-U.S. Fixed Salomon Brothers
Income Portfolio World Gov't
(net of expenses) ex-U.S. Index (Hedged)/1,2/
Jul 15, 1998 $1,000,000 $1,000,000
Sept 30, 1998 1,042,000 1,042,700
Dec 31, 1998 1,065,363 1,048,435
Mar 31, 1999 1,058,087 1,066,363
Jun 30, 1999 1,054,569 1,059,538
Sept 30, 1999 1,034,980 1,059,750
Dec 31, 1999 1,046,349 1,072,149
Mar 31, 2000 1,064,103 1,095,415
Average Annual Total Returns as of March 31, 2000
- -------------------------------------------------
WA Non U.S. SB World
- -------------------------------------------------
1 Year 0.57% 2.72%
- -------------------------------------------------
Since Inception
(7/15/98) 3.69% 5.61%/1/
- -------------------------------------------------
/1/From 7/31/98 through 3/31/00
/2/The Salomon Brothers World Gov't ex-U.S. Index (Hedged) is an unmanaged index
that measures the performance of debt issues traded in 14 world government
bond markets.
7
<PAGE>
Statement of Net Assets
Western Asset Core Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds and Notes 23.7%
Aerospace/Defense 0.5%
Lockheed Martin Corporation 8.50% 12/1/29 $ 2,500 $ 2,513
Raytheon Company 7.20% 8/15/27 560 496
--------
3,009
Automotive 0.1%
Ford Motor Company 7.40% 11/1/46 400 377
Auto/Truck Parts & Equipment 0.8%
TRW Inc. 6.676% 3/25/02 5,000 4,999/F/
Banking and Finance 8.8%
Abbey National Capital Trust I 8.963% 12/29/49 1,350 1,379
BNY Capital Trust 7.97% 12/31/26 4,000 3,785
Deutsche Bank Capital Funding Trust I 7.872% 12/29/49 1,350 1,284/G/
Dresdner Funding Trust I 8.151% 6/30/31 4,055 3,866/G/
Dryden Investor Trust 7.157% 7/23/08 14,361 13,536/G/
Ford Motor Credit Company 5.75% 2/23/04 1,735 1,636
General Motors Acceptance Corporation 5.85% 1/14/09 5,000 4,436
General Motors Acceptance Corporation 0.00% 6/15/15 14,900 4,515/B/
Heller Financial, Inc. 6.32% 3/13/02 2,000 1,961/F/
J.P. Morgan & Company, Inc. 7.451% 2/15/12 2,000 1,789/F/
KBC Bank Funding Trust III 9.86% 11/29/49 1,155 1,231/G/
Key Bank, N. A. 6.27% 3/18/02 5,000 5,010/F/
Lehman Brothers Holdings Inc. 6.483% 7/8/02 6,000 6,000/F/
SB Treasury Company LLC 9.40% 12/29/49 6,290 6,297/G/
Socgen Real Estate Co. LLC 7.64% 12/29/49 500 475/G/
--------
57,200
Cable 0.9%
Continental Cablevision Inc. 9.00% 9/1/08 2,200 2,364
TCI Communications, Inc. 6.375% 5/1/03 1,430 1,401
TCI Communications, Inc. 7.875% 2/15/26 2,100 2,127
--------
5,892
Chemicals 0.1%
Dow Chemical Company 7.375% 11/1/29 1,020 978
Diversified Services 1.2%
Loews Corporation 7.625% 6/1/23 8,459 8,118
Energy 0.6%
Edison Mission Energy 6.79% 6/15/01 2,000 2,000/F,G/
System Energy Resources, Inc. 7.43% 1/15/11 2,345 2,213
--------
4,213
</TABLE>
8
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(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 1.6%
USA Waste Services Incorporated 7.125% 12/15/17 $ 6,000 $ 4,692
Waste Management, Inc. 6.875% 5/15/09 7,000 5,847
Waste Management, Inc. 7.00% 7/15/28 45 33
--------
10,572
Food, Beverage and Tobacco 2.8%
Diageo plc 8.625% 8/15/01 150 153
J. Seagram & Sons 6.40% 12/15/03 2,820 2,689
J. Seagram & Sons 6.80% 12/15/08 1,360 1,257
J. Seagram & Sons 7.50% 12/15/18 1,000 931
J. Seagram & Sons 7.60% 12/15/28 1,430 1,316
Nabisco Incorporated 6.375% 2/1/35 4,250 3,966
Philip Morris Companies, Inc. 8.75% 6/1/01 100 101
R.J. Reynolds Tobacco Holdings, Inc. 7.75% 5/15/06 4,810 4,063
R.J. Reynolds Tobacco Holdings, Inc. 7.875% 5/15/09 3,240 2,786
The Pepsi Bottling Group Incorporated 7.00% 3/1/29 900 810
--------
18,072
Gas and Pipeline Utilities 1.3%
CMS Panhandle Holding Company 6.125% 3/15/04 1,700 1,591
Enron Corp. 6.58% 9/10/01 2,000 2,002/F,G/
Occidental Petroleum Corporation 8.45% 2/15/29 4,700 4,761
--------
8,354
Insurance 0.2%
Ace Capital Trust II 9.70% 4/1/30 1,400 1,417
Media 2.6%
News America Incorporated 7.625% 11/30/28 3,000 2,732
News America Incorporated 6.75% 1/9/38 6,400 5,894
Time Warner Inc. 6.85% 1/15/26 2,000 1,944
Time Warner Inc. 6.95% 1/15/28 2,500 2,232
Time Warner Inc. 9.15% 2/1/23 3,500 3,927
--------
16,729
Medical / Drugs 0.6%
Merck & Co., Inc. 5.95% 12/1/28 4,400 3,723
Telecommunications 0.6%
AT&T Corp. 9.65% 3/31/27 1,880 2,189
Cox Communications, Inc. 7.875% 8/15/09 640 642
Sprint Capital Corporation 6.875% 11/15/28 1,140 1,022
--------
3,853
</TABLE>
9
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds and Notes (CONTINUED)
Transportation 1.0%
Consolidated Rail Corporation 7.875% 5/15/43 $ 520 $ 498
Union Pacific Corporation 6.625% 2/1/29 7,000 5,936
--------
6,434
Total Corporate Bonds and Notes
(Identified Cost $162,714) 153,940
- ------------------------------------------------------------------------------------------------------------------------------
Asset-backed Securities 4.6%
Fixed-rate Securities 2.9%
Advanta Mortgage Loan Trust 7.59% 6/25/14 600 597
ANRC Auto Owner Trust 6.54% 11/15/02 980 979
Chevy Chase 1997-A 7.65% 12/20/07 1,889 1,831
Chevy Chase RACES 1998-A 6.85% 8/1/13 4,083 3,670/G/
FMAC Loan Receivables Trust 7.35% 4/15/19 163 157/G/
Green Tree Recreational, Equipment and
Consumer Trust 1998-A 6.71% 5/15/29 2,543 2,483
Onyx Acceptance Auto Trust 6.18% 4/15/02 9,431 9,393
--------
19,110
Indexed Securities 1.7%
SLM Student Loan Trust 1998-2 5.989% 4/25/07 885 880/F/
World Omni Automobile Lease Securitization 6.135% 2/15/02 10,200 10,203/F/
--------
11,083
Total Asset-backed Securities
(Identified Cost $30,741) 30,193
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Securities 4.1%
Fixed-rate Securities 3.6%
Asset Securitization Corporation 6.92% 2/14/29 5,965 5,802
CAPCO America Securitization Corporation 6.26% 9/15/08 3,000 2,736
Crimi Mae Commercial Mortgage Trust 7.00% 3/2/11 2,720 2,358/G/
GMAC Commercial Mortgage Security Incorporated 6.70% 3/15/08 100 95
Merrill Lynch Mortgage Investors, Inc. 6.69% 11/21/28 78 77
Merrill Lynch Mortgage Investors, Inc. 6.96% 11/21/28 1,358 1,318
Nomura Asset Securities Corporation 6.28% 3/17/28 2,391 2,294
Nomura Asset Securities Corporation 7.07% 4/13/36 4,577 4,539
Nomura Asset Securities Corporation 7.12% 4/13/36 4,500 4,395
--------
23,614
Indexed Securities N.M.
Prudential Securities Financing Corp. 6.485% 4/25/26 48 48/F/
</TABLE>
10
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset-backed Securities (CONTINUED)
Stripped Securities 0.3%
FFCA Secured Lending Corporation 1.728% 5/18/18 $ 19,882 $ 1,715/D1,G/
Structured Mortgage Asset Residential Trust 2500% 8/25/22 N.M. N.M./D1/
Structured Mortgage Asset Residential Trust 0.128% 1/25/23 6,229 4/D1/
--------
1,719
Variable-rate Securities 0.2%
Resolution Trust Corporation 10.28% 8/25/21 96 96/C/
Resolution Trust Corporation 7.654% 10/25/28 82 82/C/
Resolution Trust Corporation 7.503% 9/25/29 924 904/C/
--------
1,082
Total Mortgage-backed Securities
(Identified Cost $26,552) 26,463
- ------------------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations 27.7%
Fixed-rate Securities 14.1%
Fannie Mae 6.25% 5/15/29 1,200 1,082
Fannie Mae 7.125% 1/15/30 5,260 5,326
Fannie Mae 6.21% 8/6/38 1,040 916
Freddie Mac 5.75% 4/15/08 3,090 2,817
United States Treasury Bonds 11.125% 8/15/03 530 602
United States Treasury Bonds 11.875% 11/15/03 6,320 7,383
United States Treasury Bonds 8.00% 11/15/21 19,820 24,131
United States Treasury Bonds 6.125% 8/15/29 21,000 21,404
United States Treasury Notes 6.375% 9/30/01 8,100 8,084
United States Treasury Notes 5.75% 10/31/02 4,650 4,570
United States Treasury Notes 5.75% 11/30/02 400 393
United States Treasury Notes 5.625% 12/31/02 4,300 4,209
United States Treasury Notes 6.875% 5/15/06 3,350 3,438
United States Treasury Notes 6.00% 8/15/09 7,330 7,237
--------
91,592
Indexed Securities 12.7%
United States Treasury Inflation - Indexed Security 3.625% 1/15/08 18,441 17,963/E/
United States Treasury Inflation - Indexed Security 3.625% 4/15/28 47,666 45,268/E/
United States Treasury Inflation - Indexed Security 3.875% 4/15/29 19,662 19,502/E/
--------
82,733
Stripped Securities 0.9%
United States Treasury Bonds 0.00% 11/15/21 19,410 5,369/D2/
United States Treasury Bonds 0.00% 11/15/27 2,740 558/D2/
--------
5,927
Total U.S. Government and Agency Obligations
(Identified Cost $181,136) 180,252
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(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 37.7%
Fixed-rate Securities 37.2%
Fannie Mae 7.00% 9/1/07 to 5/1/29 $ 22,282 $ 21,656
Fannie Mae 7.50% 6/1/25 to 7/1/29 20,135 19,831
Fannie Mae 6.00% 1/1/26 to 5/1/29 50,152 45,692
Fannie Mae 6.50% 7/1/28 to 8/1/29 109,976 103,178
Fannie Mae 6.50% 4/1/30 9,600 9,002/H/
Federal Housing Authority USGI #68 7.43% 3/1/21 235 229
Freddie Mac 8.25% 8/1/01 8 8
Freddie Mac 9.25% 6/1/02 45 45
Freddie Mac 6.75% 5/1/04 95 93
Freddie Mac 7.50% 4/1/06 63 62
Freddie Mac 9.75% 7/1/08 206 211
Freddie Mac 5.50% 12/1/13 to 2/1/14 3,730 3,439
Freddie Mac 9.30% 4/15/19 1,057 1,084
Freddie Mac 7.00% 4/1/24 to 5/1/29 8,700 8,389
Freddie Mac 6.00% 5/1/29 632 576
Freddie Mac 6.00% 4/1/30 19,750 17,985/H/
Freddie Mac 6.50% 4/1/30 6,510 6,109/H/
Government National Mortgage Association 9.50% 3/15/03 63 65
Government National Mortgage Association 10.25% 6/15/03 9 10
Government National Mortgage Association 10.00% 11/15/09 5 5
Government National Mortgage Association 7.50% 10/15/22 to 9/15/26 938 933
Government National Mortgage Association 7.00% 1/15/24 18 17
Government National Mortgage Association 6.00% 4/15/30 3,100 2,925/H/
Government National Mortgage Association 7.00% 4/15/30 600 582/H/
--------
242,126
Stripped Securities 0.5%
Fannie Mae 9.50% 2/1/17 125 36/D1/
Fannie Mae 1010% 2/25/20 N.M. 3/D1/
Fannie Mae 1009.25% 8/25/21 5 146/D1/
Fannie Mae 0.00% 5/25/22 1,232 968/D2/
Financing Corporation 0.00% 4/5/19 1,150 345/D2/
Freddie Mac 10.00% 3/1/21 1,088 293/D1/
Freddie Mac 0.00% 7/15/22 178 133/D2/
Resolution Funding Corporation 0.00% 10/15/19 3,000 876/D2/
Resolution Funding Corporation 0.00% 4/15/30 2,610 430/D2/
--------
3,230
Total U.S. Government Agency Mortgage-
backed Securities (Identified Cost $254,728) 245,356
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yankee Bonds/A/ 9.1%
Corporate 5.8%
Banco Nacional de Mexico SA 7.50% 10/1/06 $ 8,800 $ 8,761/G/
Hydro-Quebec 8.05% 7/7/24 4,895 5,205
HypoVereinsbank 8.741% 6/30/31 920 916/G/
Korea Electric Power Corporation 7.75% 4/1/13 2,570 2,397
PDVSA Finance Limited 1998-1 7.50% 11/15/28 2,000 1,425
Petroleos Mexicanos 9.03% 2/15/11 2,260 2,297/G/
Petrozuata Finance, Inc. 8.22% 4/1/17 6,390 5,000/G/
Royal Bank of Scotland Group plc 8.817% 3/31/49 870 888
Royal & Sun Alliance Insurance Group plc 8.95% 10/15/29 680 696/G/
Sanwa Finance Aruba AEC 8.35% 7/15/09 1,450 1,445
The Bank of Tokyo-Mitsubishi, Ltd. 8.40% 4/15/10 3,875 3,998
YPF Sociedad Anonima 7.50% 10/26/02 1,638 1,621
YPF Sociedad Anonima 7.75% 8/27/07 3,250 3,175
--------
37,824
Foreign Governments 3.3%
Quebec Province 7.50% 9/15/29 1,165 1,171
Republic of Argentina 0.00% 10/15/01 6,130 5,348/B/
Republic of Argentina 0.00% 10/15/04 2,050 1,279/B/
Republic of Poland 6.00% 10/27/14 7,750 7,043
Republic of South Korea 8.875% 4/15/08 40 41
United Mexican States 10.375% 2/17/09 5,790 6,253
--------
21,135
Total Yankee Bonds
(Identified Cost $59,660) 58,959
- ------------------------------------------------------------------------------------------------------------------------------
Preferred Stock 1.1%
Home Ownership Funding Corporation 13.331% 6 shs 4,349/G/
Home Ownership Funding Corporation II 13.338% 3 shs 2,502/G/
--------
Total Preferred Stock
(Identified Cost $7,951) 6,851
- ------------------------------------------------------------------------------------------------------------------------------
Short-term Investments 3.0%
Corporate Bonds and Notes 1.5%
GTE Corporation 6.175% 6/12/00 $ 8,000 7,998/F/
Heller Financial, Inc. 6.578% 9/25/00 2,000 2,002/F/
--------
10,000
Asset-backed Securities N.M.
Option One CTS Arm Trust 3.097% 3/25/01 3,974 52/D1/
</TABLE>
13
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term Investments (CONTINUED)
U. S. Government and Agency Obligations 0.7%
Fannie Mae 0.00% 5/11/00 $ 4,250 $ 4,224/B,I/
United States Treasury Notes 5.375% 7/31/00 700 698
--------
4,922
Repurchase Agreements 0.7%
Merrill Lynch Government Securities, Inc.
6.25% dated 3/31/00, to be repurchased at
$4,288 on 4/3/00 (Collateral: $4,485 Fannie
Mae Medium-term Notes, 5.90% due 7/9/03,
value $4,433) 4,286 4,286
Options Purchased/K/ 0.1%
Eurodollar Future Call, September 2000,
Strike Price $92.75 637/J/ 597
--------
Total Short-term Investments
(Identified Cost $20,579) 19,857
- ------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Identified Cost $744,061) 111.0% $721,871
Other Assets Less Liabilities (11.0)% (71,377)
--------
Net Assets Consisting of:
Accumulated paid-in capital applicable to
62,494 Institutional Class shares outstanding $691,061
140 Financial Intermediary Class shares outstanding 1,490
Accumulated net realized gain/(loss) on investments, options and futures (18,954)
Unrealized appreciation/(depreciation) of investments, options and futures (23,103)
--------
Net Assets 100.0% $650,494
========
Net Asset Value Per Share
Institutional Class $ 10.39
========
Financial Intermediary Class $ 10.40
========
</TABLE>
14
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
Actual Appreciation/
Expiration Contracts (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased/K/
Fannie Mae Agency Bond Futures June 00 66 $ (17)
U.S. Treasury Bond Futures June 00 305 217
U.S. Treasury Note Futures June 00 287 107
-------
$ 307
Futures Contracts Written/K/
U.S. Treasury Note Futures June 00 105 $ (151)
Options Written/K/
Eurodollar Futures Call,Strike Price $93.25 September 00 182 $ 51
Eurodollar Futures Call, Strike Price $93.50 September 00 55 9
U.S. Treasury Bond Futures Call,Strike Price $97.00 April 00 66 (48)
U.S. Treasury Bond Futures Call, Strike Price $94.00 May 00 299 (979)
U.S. Treasury Bond Futures Put, Strike Price $96.00 April 00 62 24
U.S. Treasury Bond Futures Put, Strike Price $92.00 May 00 211 181
U.S. Treasury Bond Futures Put, Strike Price $94.00 May 00 93 33
U.S. Treasury Note Futures Call, Strike Price $97.00 May 00 331 (336)
U.S. Treasury Note Futures Call, Strike Price $100.00 August 00 217 (4)
-------
$(1,069)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Yankee Bond-- A dollar denominated bond issued in the U.S. by foreign
entities.
/B/ Zero-coupon Bond -- A bond with no periodic interest payments which is sold
at such a discount as to produce a current yield to maturity.
/C/ The coupon rates shown on variable-rate securities are the rates at March
31, 2000. These rates vary with the weighted average coupon of the
underlying loans.
/D/ Stripped Security -- Security with interest-only or principal-only payment
streams, denoted by the superscript 1 or 2, respectively. For interest-only
securities, the amount shown as principal is the notional balance used to
calculate the amount of interest due.
/E/ United States Treasury Inflation-indexed Security -- U.S. Treasury security
whose principal value is adjusted daily in accordance with changes in the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
/F/ Indexed Security -- The rate of interest on these securities is tied to the
London Interbank Offer Rate (LIBOR), the Cost of Funds Index (COFI), the One
Year Treasury Constant Maturity Rate or a similar Index. The coupon rates
shown are the rates at March 31, 2000.
/G/ Rule 144a security -- A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified institutional buyers. These securities represent 9.7% of net
assets.
/H/ When-issued Security -- Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
/I/ Collateral to cover futures contracts written.
/J/ This represents the actual number of contracts.
/K/ Options and Futures are described in more detail in the notes to financial
statements.
N.M. Not meaningful
See Notes to Financial Statements
15
<PAGE>
Statement of Net Assets
Western Asset Core Plus Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds and Notes 16.4%
Aerospace/Defense 1.2%
Lockheed Martin Corporation 8.50% 12/1/29 $ 1,650 $ 1,658
Raytheon Company 6.75% 8/15/07 960 893
--------
2,551
Auto/Truck Parts &Equipment 0.9%
American Axle & Manufacturing Holdings, Inc. 9.75% 3/1/09 50 49
J. L. French Automotive Casting 11.50% 6/1/09 50 49
Lear Corporation 7.96% 5/15/05 210 195
Lear Corporation 8.11% 5/15/09 580 522
Tenneco Automotive Inc. 11.625% 10/15/09 50 49
TRW Inc. 6.676% 3/25/02 1,000 1,000/F/
--------
1,864
Banking and Finance 4.0%
Abbey National Capital Trust I 8.963% 12/29/49 340 347
Associates Corporation of North America 5.75% 11/1/03 600 573
Bear Stearns Companies Inc. 7.625% 2/1/05 1,200 1,198
BNY Capital Trust 7.97% 12/31/26 1,000 946
Dresdner Funding Trust I 8.151% 6/30/31 305 291/B/
Ford Motor Credit Company 5.75% 2/23/04 400 377
Ford Motor Credit Company 5.80% 1/12/09 20 18
General Motors Acceptance Corporation 5.85% 1/14/09 2,000 1,774
General Motors Acceptance Corporation 7.75% 1/19/10 500 505
IBJ Preferred Capital Corp. LLC 8.79% 12/29/49 500 471/B/
KBC Bank Funding Trust III 9.86% 11/29/49 165 176/B/
Lehman Brothers Holdings Inc. 6.25% 4/1/03 200 192
Lehman Brothers Holdings Inc. 7.00% 5/15/03 220 216
Lehman Brothers Holdings Inc. 7.25% 10/15/03 580 573
SB Treasury Company LLC 9.40% 12/29/49 500 501/B/
Zurich Capital Trust I 8.376% 6/1/37 500 479/B/
--------
8,637
Building Materials N.M.
American Standard Companies, Inc. 8.25% 6/1/09 28 28
American Standard Companies, Inc. 7.625% 2/15/10 19 17
Nortek, Inc. 8.875% 8/1/08 80 72
--------
117
Business Services 0.5%
Cendant Corporation 7.75% 12/1/03 1,100 1,084
</TABLE>
16
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(Amounts in Thousands)
xxx
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds and Notes (CONTINUED)
Cable 1.5%
Adelphia Communications Corporation 7.875% 5/1/09 $ 146 $ 124
Cablevision Systems Corporation 8.125% 8/15/09 170 171
Century Communications Corp. 8.875% 1/15/07 31 28
Charter Communication Holdings LLC 8.625% 4/1/09 145 128
Continental Cablevision Inc. 9.00% 9/1/08 1,000 1,075
CSC Holdings Incorporated 8.125% 7/15/09 20 20
NTL Communications, Corp. 0.00% 10/1/08 102 66/H/
TCI Communications, Inc. 7.875% 2/15/26 500 506
TCI Communications, Inc. 7.125% 2/15/28 1,180 1,095
--------
3,213
Chemicals 0.2%
Dow Chemical Company 7.375% 11/1/29 270 259
Huntsman ICI Holdings LLC 0.00% 12/31/09 500 147/B,J/
Lyondell Chemical Company 9.875% 5/1/07 30 29
--------
435
Computer Services 0.4%
Electronic Data Systems Corporation 7.45% 10/15/29 900 881
Consumer Services N.M.
Terex Corporation 8.875% 4/1/08 113 99
Electric 0.3%
Calpine Corporation 7.75% 4/15/09 38 35
CMS Energy Corporation 7.50% 1/15/09 50 44
Niagara Mohawk Power Corporation 7.75% 10/1/08 500 490
The AES Corporation 9.50% 6/1/09 108 104
--------
673
Energy N.M.
P&L Coal Holdings Corp. 9.625% 5/15/08 80 71
Environmental Services 0.5%
Allied Waste North America Incorporated 10.00% 8/1/09 150 115
Safety-Kleen Corp. 9.25% 5/15/09 86 7/L/
Waste Management, Inc. 6.65% 5/15/05 600 598
Waste Management, Inc. 7.125% 12/15/17 500 391
--------
1,111
Food, Beverage and Tobacco 1.1%
J. Seagram & Sons 6.40% 12/15/03 510 486
J. Seagram & Sons 7.50% 12/15/18 240 223
J. Seagram & Sons 7.60% 12/15/28 180 166
R.J. Reynolds Tobacco Holdings, Inc. 7.75% 5/15/06 1,010 853
R.J. Reynolds Tobacco Holdings, Inc. 7.875% 5/15/09 680 585
--------
2,313
</TABLE>
17
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(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)
Gaming 0.1%
Horseshoe Gaming Holdings, Inc. 8.625% 5/15/09 $ 73 $ 67
International Game Technology 8.375% 5/15/09 60 55
Park Place Entertainment Corporation 9.375% 2/15/07 83 81/B/
--------
203
Gas and Pipeline Utilities 0.6%
CMS Panhandle Holding Company 7.00% 7/15/29 300 258
Enron Corp. 6.58% 9/10/01 1,000 1,001/B,F/
--------
1,259
Industrial 0.1%
Blount International Inc. 13.00% 8/1/09 115 119
Insurance 0.7%
Ace Capital Trust II 9.70% 4/1/30 360 364
Conseco, Inc. 8.75% 2/9/04 1,081 1,047
--------
1,411
Media 0.7%
EchoStar Communications Corporation 9.375% 2/1/09 52 50
News America Holdings Incorporated 8.25% 10/17/96 1,100 1,041
News America Incorporated 6.75% 1/9/38 200 184
Time Warner Inc. 8.375% 3/15/23 200 208
--------
1,483
Media and Entertainment N.M.
TV Guide Incorporated 8.125% 3/1/09 80 79
Telecommunications 1.8%
Adelphia Business Solutions, Inc. 12.00% 11/1/07 151 152
AT&T Corp. 9.65% 3/31/27 1,480 1,723
Focal Communications Corporation 11.875% 1/15/10 61 61/B/
Frontier Corporation 6.00% 10/15/03 185 172
Global Crossing Holdings Limited 9.50% 11/15/09 159 154/B/
Level 3 Communications, Inc. 9.125% 5/1/08 82 70
Level 3 Communications, Inc. 0.00% 3/15/10 163 82/B,H/
Lucent Technologies Inc. 6.45% 3/15/29 500 439
McLeodUSA Incorporated 8.125% 2/15/09 50 44
Metromedia Fiber Network, Inc. 10.00% 12/15/09 106 102
NEXTLINK Communications, Inc. 10.75% 6/1/09 194 186
Primus Telecommunications Group, Incorporated 12.75% 10/15/09 108 106
PSINet Inc. 10.50% 12/1/06 93 89/B/
PSINet Inc. 11.00% 8/1/09 60 58
VoiceStream Wireless Corporation 0.00% 11/15/09 60 36/B,H/
</TABLE>
18
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(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)
VoiceStream Wireless Corporation 10.375% 11/15/09 $ 65 $ 65/B/
Williams Communications Group, Inc. 10.875% 10/1/09 140 138
Winstar Communications Incorporated 12.75% 4/15/10 56 54/B/
Worldwide Fiber, Inc. 12.00% 8/1/09 50 48
--------
3,779
Transportation 1.8%
Avis RentACar, Inc. 11.00% 5/1/09 85 85
Burlington Northern Santa Fe Corporation 6.375% 12/15/05 360 341
Consolidated Rail Corporation 7.875% 5/15/43 200 192
CSX Corporation 6.25% 10/15/08 570 515
CSX Corporation 7.90% 5/1/17 500 493
Norfolk Southern Corporation 7.80% 5/15/27 370 358
Union Pacific Corporation 7.125% 2/1/28 2,000 1,773
Worldwide Flight Services Incorporated 12.25% 8/15/07 71 69
--------
3,826
Total Corporate Bonds and Notes
(Identified Cost $37,308) 35,208
- ---------------------------------------------------------------------------------------------------------------------------------
Asset-backed Securities 3.2%
Fixed-rate Securities 1.2%
ANRC Auto Owner Trust 6.54% 11/15/02 250 250
Onyx Acceptance Auto Trust 6.18% 4/15/02 2,311 2,302
--------
2,552
Indexed Securities 2.0%
Bank of America Auto Loan Backed 6.41% 3/25/02 1,600 1,600/B,F/
SLM Student Loan Trust 1998-2 5.989% 4/25/07 230 228/F/
World Omni Automobile Lease Securitization 6.253% 2/15/02 2,500 2,501/F/
--------
4,329
Total Asset-backed Securities
(Identified Cost $6,890) 6,881
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Securities 2.7%
Fixed-rate Securities 2.7%
CAPCO America Securitization Corporation 6.26% 9/15/08 800 730
Commercial Mortgage Asset Trust 7.546% 12/17/09 300 299
Commercial Mortgage Asset Trust 6.64% 9/17/10 1,175 1,100
GMAC Commercial Mortgage Security Incorporated 6.945% 9/15/33 1,200 1,139
Nomura Asset Securities Corporation 6.59% 3/15/30 2,750 2,578
--------
Total Mortgage-backed Securities
(Identified Cost $6,051) 5,846
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(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 23.1%
Fixed-rate Securities 12.6%
Fannie Mae 6.25% 5/15/29 $ 960 $ 866
Fannie Mae 7.125% 1/15/30 4,190 4,242
Fannie Mae 6.21% 8/6/38 350 308
Freddie Mac 5.75% 4/15/08 930 848
United States Treasury Bonds 11.875% 11/15/03 730 853
United States Treasury Bonds 8.00% 11/15/21 1,630 1,984
United States Treasury Bonds 5.25% 11/15/28 11,000 9,845
United States Treasury Bonds 6.125% 8/15/29 8,000 8,154
--------
27,100
Indexed Securities 9.7%
United States Treasury Inflation - Indexed Security 4.25% 1/15/10 3,239 3,302/D/
United States Treasury Inflation - Indexed Security 3.625% 4/15/28 18,629 17,691/D/
--------
20,993
Stripped Securities 0.8%
United States Treasury Bonds 0.00% 11/15/21 5,480 1,516/G2/
United States Treasury Bonds 0.00% 11/15/27 740 151/G2/
--------
1,667
Total U.S. Government and Agency Obligations
(Identified Cost $49,682) 49,760
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Mortgage-
backed Securities 33.6%
Fixed-rate Securities 33.5%
Fannie Mae 6.50% 5/1/14 to 12/1/29 31,826 29,856
Fannie Mae 5.50% 4/1/15 100 92/C/
Fannie Mae 7.00% 4/1/15 100 98/C/
Fannie Mae 6.00% 3/1/28 to 7/1/29 12,535 11,418
Fannie Mae 7.50% 11/1/29 888 873
Fannie Mae 6.50% 4/1/30 2,700 2,532/C/
Fannie Mae 7.50% 4/1/30 2,500 2,469/C/
Freddie Mac 5.50% 12/1/13 803 741
Freddie Mac 7.00% 4/1/29 495 476
Freddie Mac 6.50% 7/1/29 10,565 9,914
Government National Mortgage Association 7.50% 3/15/23 to 7/15/28 4,107 4,077
Government National Mortgage Association 7.00% 7/15/23 to 12/15/28 9,691 9,408
--------
71,954
</TABLE>
20
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(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)
Stripped Securities 0.1%
Financing Corporation 0.00% 4/5/19 $ 300 $ 90/G2/
Resolution Funding Corporation 0.00% 4/15/30 730 121/G2/
--------
211
Total U.S. Government Agency Mortgage-
backed Securities (Identified Cost $74,479) 72,165
- ---------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds/A/ 10.5%
Corporate 4.4%
Avecia Group Plc 11.00% 7/1/09 100 99
Diageo Capital plc 6.625% 6/24/04 1,400 1,371
HypoVereinsbank 8.741% 6/30/31 100 100/B/
Korea Electric Power Corporation 7.75% 4/1/13 540 504
PDVSA Finance Limited 1998-1 7.50% 11/15/28 500 356
Petrozuata Finance, Inc. 8.22% 4/1/17 1,150 900/B/
Royal Bank of Scotland Group plc 8.817% 3/31/05 230 235
Royal & Sun Alliance Insurance Group plc 8.95% 10/15/29 170 174/B/
RSL Communications PLC 12.875% 3/1/10 100 95/B/
Sanwa Finance Aruba AEC 8.35% 7/15/09 330 329
Telefonica de Argentina S A 11.875% 11/1/04 3,000 3,225
The Bank of Tokyo-Mitsubishi, Ltd. 8.40% 4/15/10 945 975
United Pan-Europe Communications N.V. 10.875% 8/1/09 95 88
United Pan-Europe Communications N.V. 0.00% 2/1/10 130 65/B,H/
YPF Sociedad Anonima 7.75% 8/27/07 1,000 977
--------
9,493
Foreign Governments 6.1%
National Republic of Bulgaria 7.063% 7/28/11 560 446/F/
Quebec Province 7.50% 9/15/29 666 669
Republic of Argentina 0.00% 10/15/02 170 135/J/
Republic of Argentina 0.00% 10/15/04 540 336/J/
Republic of Argentina 7.375% 3/31/05 889 833/F/
Republic of Argentina 11.75% 4/7/09 120 119
Republic of Argentina 11.375% 3/15/10 800 777
Republic of Argentina 12.00% 2/1/20 530 536
Republic of Colombia 9.75% 4/23/09 350 327
Republic of Colombia 11.75% 2/25/20 840 817
Republic of Panama 7.063% 7/17/16 481 405/F/
Republic of Peru 4.50% 3/7/17 750 503/B/
Republic of Philippines 9.875% 1/15/19 630 575
Republic of Philippines 9.50% 10/21/24 470 452
Republic of Philippines 10.625% 3/16/25 190 181
Republic of Poland 6.00% 10/27/14 880 800
Republic of South Korea 8.875% 4/15/08 40 41
</TABLE>
21
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(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 (continued)
Republic of Turkey 11.875% 1/15/30 $ 370 $ 393
United Mexican States 9.875% 2/1/10 445 466
United Mexican States 10.375% 2/17/09 1,280 1,381
United Mexican States 11.50% 5/15/26 2,300 2,863
Vnesheconombank 6.906% 12/15/15 3 1/F,L/
--------
13,056
Total Yankee Bonds
(Identified Cost $22,041) 22,549
- ---------------------------------------------------------------------------------------------------------------------------------
Foreign Bonds 2.9%
Corporate 0.4%
AB Spintab 5.50% 9/17/03 3,500/N/ 401
Statens Bostadsfinansier AB 5.50% 10/15/03 3,500/N/ 400
--------
801
Foreign Governments 2.5%
Bonos Y Oblig del Estado 3.25% 1/31/05 1,070/R/ 948
Buoni del Tesoro Poliennali 5.25% 11/1/29 1,650/O/ 1,455
Government of Poland 8.50% 10/12/04 4,170/Q/ 857
Government of Poland 8.50% 2/12/05 2,400/Q/ 495
Hellenic Republic 6.30% 1/29/09 611,000/P/ 1,761
--------
5,516
Total Foreign Bonds
(Identified Cost $6,537) 6,317
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred Stock 0.6%
Home Ownership Funding Corporation 13.331% N.M. shs 234/B/
Home Ownership Funding Corporation II 13.338% 1 704/B/
News Corporation Finance Trust 5.00% 7 430
--------
Total Preferred Stock
(Identified Cost $1,426) 1,368
- ---------------------------------------------------------------------------------------------------------------------------------
Warrants N.M.%
Worldwide Flight Services Incorporated (Identified Cost N.M.) N.M. wts N.M.
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term Investments 5.4%
Corporate Bonds and Notes 1.2%
Hercules Trust VI 8.73% 12/29/00 $ 750 750/B,F/
Hughes Electronic Corporation 7.29% 10/23/00 600 599/B/
Nationsbank Commercial Loan Master Trust 6.301% 9/20/00 1,200 1,199/B,F/
--------
2,548
U. S. Government Agency Obligations 0.7%
Fannie Mae 0.00% 5/11/00 1,550 1,541/I,J/
</TABLE>
22
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term Investments (CONTINUED)
Repurchase Agreements 3.4%
Merrill Lynch Government Securities Inc.
6.25%, dated 3/31/00, to be repurchased at
$7,303 on 4/3/00 (Collateral:$7,635 Fannie
Mae Medium-term Notes, 5.90% due 7/9/03,
value $7,547) $ 7,299 $ 7,299
Options Purchased/M/ 0.1%
Eurodollar Futures Call, September 2000,
Strike Price $92.75 169/K/ 158
--------
Total Short-term Investments
(Identified Cost $11,565) 11,546
- ---------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Identified Cost $215,979) 98.4% $211,640
Other Assets Less Liabilities 1.6% 3,544
--------
Net Assets Consisting of:
Accumulated paid-in capital applicable to 22,689 shares outstanding $224,146
Under/(over) distributed net investment income 149
Accumulated net realized gain/(loss) on investments,
options, futures and foreign currency transactions (4,608)
Unrealized appreciation/(depreciation) of investments,
options, futures and foreign currency transactions (4,503)
--------
Net Assets 100.0% $215,184
========
Net Asset Value Per Share $ 9.48
========
</TABLE>
23
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Core Plus Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Actual Appreciation/
Expiration Contracts (Depreciation)
------------------------------------------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased/M/
Fannie Mae Agency Bond Futures June 00 21 $ (6)
U.S. Treasury Bond Futures June 00 113 103
-----
$ 97
Futures Contracts Written/M/
U.S. Treasury Bond Futures June 00 49 $ (86)
U.S. Treasury Bond Futures June 00 2 (3)
-----
$ (89)
Options Written/M/
Eurodollar Futures Call,Strike Price $93.50 September 00 14 $ 2
Eurodollar Futures Call, Strike Price $93.25 September 00 48 14
U.S. Treasury Bond Futures Call,Strike Price $97.00 May 00 90 (92)
U.S. Treasury Bond Futures Call, Strike Price $97.00 April 00 19 (14)
U.S. Treasury Bond Futures Put, Strike Price $92.00 May 00 57 49
U.S. Treasury Bond Futures Put, Strike Price $94.00 May 00 27 10
U.S. Treasury Bond Futures Put, Strike Price $96.00 April 00 18 7
U.S. Treasury Note Futures Call, Strike Price $94.00 May 00 66 (218)
U.S. Treasury Note Futures Call, Strike Price $100.00 August 00 64 (1)
-----
$(243)
- ---------------------------------------------------------------------------------------------------------------------------------
</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 4.9% of net
assets.
/C/ When-issued Security -- Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
/D/ United States Treasury Inflation-Indexed Security -- U.S. Treasury security
whose principal value is adjusted daily in accordance with changes to the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
/E/ Pay-In-Kind ("PIK") security -- A bond in which interest during the initial
few years is paid in additional PIK bonds rather than in cash.
/F/ Indexed Security -- The rate of interest on this type of security is tied to
the London Interbank Offer Rate (LIBOR), the Global Telecom Basket (GTB)
index or the one year Treasury Bill rate. The coupon rate is the rate as of
March 31, 2000.
/G/ 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.
/H/ Stepped coupon security -- A bond or preferred stock which amortizes to par
by a specified date at which time it begins to accrue interest or pay
dividends.
/I/ Collateral to cover futures contracts written.
/J/ 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.
/K/ Represents actual number of contracts.
/L/ Bond is in default at March 31, 2000.
/M/ Options and Futures are described in more detail in the notes to financial
statements.
/N/ Denominated in Swedish Krona.
/O/ Denominated in Italian Lira.
/P/ Denominated in Greek Drachma.
/Q/ Denominated in Polish Zloty.
/R/ Denominated in Spanish Pesetas.
N.M. Not meaningful
See Notes to Financial Statements
24
<PAGE>
Statement of Net Assets
Western Asset Intermediate Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Bonds and Notes 28.6%
Aerospace/Defense 3.3%
Lockheed Martin Corporation 8.20% 12/1/09 $ 3,690 $ 3,709
Lockheed Martin Corporation 8.50% 12/1/29 170 171
Raytheon Company 6.50% 7/15/05 950 890
Raytheon Company 6.00% 12/15/10 8,860 7,578
--------
12,348
Auto/Truck Parts & Equipment 0.8%
TRW Inc. 6.676% 3/25/02 3,000 2,999/F/
Banking and Finance 9.0%
Bank of America Corporation 6.375% 5/15/05 300 286
Bayerische Landesbank NY 5.65% 2/1/09 360 320
Chase Manhattan Corporation 6.50% 1/15/09 600 561
Chase Manhattan Corporation 6.674% 8/1/28 1,220 1,179/F/
CIT Group, Inc. 7.125% 10/15/04 5,090 5,025
Dryden Investor Trust 7.157% 7/23/08 4,488 4,230/G/
Ford Motor Credit Company 5.75% 2/23/04 2,380 2,244
General Electric Capital Corporation 8.70% 5/21/07 400 435
General Motors Acceptance Corporation 6.15% 4/5/07 600 559
Heller Financial, Inc. 7.375% 11/1/09 1,700 1,646/G/
Household Finance Corporation 5.875% 9/25/04 1,600 1,501
J.P. Morgan & Company, Inc. 7.451% 2/15/12 990 886/F/
Lehman Brothers Holdings Inc. 7.125% 7/15/02 300 296
Lehman Brothers Holdings Inc. 6.625% 4/1/04 500 481
Lehman Brothers Holdings Inc. 7.50% 9/1/06 3,120 3,060
National Westminster Bancorp 9.375% 11/15/03 290 307
NationsBank Capital Trust III 6.59% 1/15/27 1,300 1,249/F/
Norwest Financial, Inc. 6.70% 9/22/04 3,680 3,595
Salomon Incorporated 6.25% 5/15/03 300 291
Salomon Smith Barney 6.25% 1/15/05 1,800 1,718
SB Treasury Company LLC 9.40% 12/29/49 3,450 3,454/G/
United States Leasing International 8.75% 12/1/01 500 510
--------
33,833
Business Services 0.9%
Cendant Corporation 7.75% 12/1/03 3,400 3,350
Cable 1.0%
Continental Cablevision, Inc. 8.30% 5/15/06 600 618
TCI Communications, Inc. 8.00% 8/1/05 200 205
TCI Communications, Inc. 7.61% 10/4/05 3,060 3,093
--------
3,916
</TABLE>
25
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(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 0.1%
Dow Chemical Company 7.375% 11/1/29 $ 250 $ 240
Electric 0.7%
Niagara Mohawk Power Corporation 7.125% 7/1/01 2,495 2,480
Environmental Services 0.1%
Waste Management, Inc. 6.375% 12/1/03 600 539
Food, Beverage and Tobacco 1.4%
Philip Morris Companies, Inc. 6.95% 6/1/06 2,000 1,977
R.J. Reynolds Tobacco Holdings, Inc. 7.75% 5/15/06 4,020 3,396
--------
5,373
Gaming 1.0%
Mirage Resorts, Inc. 6.625% 2/1/05 500 453
Mirage Resorts, Inc. 6.75% 8/1/07 3,640 3,184
--------
3,637
Gas and Pipeline Utilities 1.5%
Enron Corp. 6.58% 9/10/01 2,000 2,002/F,G/
Panhandle Eastern Pipe Line Company 8.25% 4/1/10 3,700 3,705/G/
--------
5,707
Media 2.6%
News America Incorporated 6.703% 5/21/34 3,570 3,449/C/
Time Warner Inc. 7.75% 6/15/05 1,000 1,007
Time Warner Inc. 9.125% 1/15/13 2,000 2,223
Time Warner Inc. 7.25% 10/15/17 3,440 3,256
--------
9,935
Oil Production N.M.
Conoco Inc. 5.90% 4/15/04 190 181
Retail 0.6%
Wal-Mart Stores, Inc. 6.875% 8/10/09 1,580 1,537
Wal-Mart Stores, Inc. 7.55% 2/15/30 700 718
--------
2,255
Telecommunications 2.7%
AT&T Corp. 7.75% 3/1/07 950 967
MCI Worldcom, Inc. 6.40% 8/15/05 600 576
MCI Worldcom, Inc. 7.75% 4/1/07 6,000 6,104
Southwestern Bell Telephone Company 6.25% 7/7/05 1,410 1,348
Sprint Capital Corporation 5.70% 11/15/03 400 378
US West Communications, Inc. 7.20% 11/1/04 600 594/G/
--------
9,967
</TABLE>
26
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(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 2.9%
CSX Corporation 5.85% 12/1/03 $ 5,000 $ 4,696
CSX Corporation 6.50% 6/2/08 300 277
Norfolk Southern Corporation 6.95% 5/1/02 300 295
Norfolk Southern Corporation 7.35% 5/15/07 1,730 1,689
Union Pacific Corporation 6.70% 12/1/06 4,030 3,797
Union Pacific Corporation 7.25% 11/1/08 250 240
--------
10,994
Total Corporate Bonds and Notes
(Identified Cost $115,118) 107,754
- ---------------------------------------------------------------------------------------------------------------------------
Asset-backed Securities 6.7%
Fixed-rate Securities 6.0%
ARG Funding Corporation 6.02% 5/20/05 3,760 3,597/G/
Bridgestone/Firestone Master Trust 6.17% 7/1/03 2,867 2,864
Chevy Chase 1997 - A 7.65% 12/20/07 627 607
Chevy Chase Home Loan Trust 7.15% 5/15/15 489 487
Contimortgage Home Equity Loan Trust 6.42% 4/25/14 1,668 1,658
CPS Auto Grantor Trust 6.30% 8/15/02 322 320
CS First Boston Mortgage Securities Corporation 6.62% 9/25/09 2,174 2,158
Fleetwood Credit Corp. Grantor Trust 6.75% 3/15/10 2,222 2,197
Green Tree Home Improvement Loan Trust 6.32% 8/15/08 398 397
Guaranteed Export Certificates 6.13% 6/15/04 1,059 1,040
Lehman FHA Title 1 Loan Trust 7.71% 8/25/17 1,032 1,029
Long Beach Acceptance Auto Grantor Trust 6.85% 10/25/03 1,073 1,062/G/
Long Beach Acceptance Auto Grantor Trust 6.69% 9/25/04 263 259/G/
Mego Mortgage Home Loan Trust 7.275% 9/25/16 529 517
Mego Mortgage Home Loan Trust 7.17% 5/25/23 1,700 1,683
Merrill Lynch Mortgage Investors, Inc. 9.65% 9/15/10 1,533 1,537
Nomura Asset Securities Corporation 7.12% 4/13/36 1,000 977
--------
22,389
Indexed Securities 0.2%
Lehman Home Equity Loan Trust 6.234% 12/15/27 486 477/F/
SLM Student Loan Trust 1998-2 5.989% 4/25/07 474 471/F/
--------
948
Stripped Securities 0.2%
Bay View Auto Trust 3.15% 12/15/04 265 1/D1/
Conseco Finance Securitizations 7.00% 12/15/29 5,770 491/D1/
Delta Funding Home Equity Loan Trust 6.00% 6/15/02 4,534 271/D1/
Delta Funding Home Equity Loan Trust 6.00% 7/15/02 2,637 186/D1/
Union Acceptance Corp. 2.75% 5/10/04 4,691 13/D1/
--------
962
</TABLE>
27
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Asset-backed Securities (CONTINUED)
Variable-rate Securities 0.3%
PSC Grantor Trust 6.29% 6/8/05 $ 1,015 $ 1,007/C,G/
Total Asset-backed Securities
(Identified Cost $26,183) 25,306
- ---------------------------------------------------------------------------------------------------------------------------
Mortgage-backed Securities 3.1%
Fixed-rate Securities 2.1%
Asset Securitization Corporation 6.72% 11/12/26 1,869 1,852
Asset Securitization Corporation 6.92% 2/14/29 736 716
DLJ Mortgage Acceptance Corp. 6.86% 11/12/21 1,308 1,293/G/
Keystone Owner Trust 6.39% 1/25/13 500 493/G/
Merit Securities Corporation 7.04% 12/28/30 420 418
Merrill Lynch Mortgage Investors, Inc. 6.69% 11/21/28 1,301 1,281
Metropolitan Asset Funding, Inc. 6.95% 4/20/08 1,695 1,674
--------
7,727
Indexed Securities 0.1%
Westpac Securitisation Trust 6.310% 5/19/29 316 316/F/
Stripped Securities 0.5%
CMC Securities Corporation III 0.00% 2/25/09 413 310/D2/
Enterprise Mortgage Acceptance Company, LLC 1.244% 10/15/23 11,278 726/D1,G/
FFCA Secured Lending Corporation 1.067% 7/18/15 15,708 638/D1,G/
Securitized Asset Sales, Inc. 0.00% 12/25/10 199 146/D2/
--------
1,820
Variable-rate Securities 0.4%
Housing Securities Inc. 5.987% 11/25/26 412 412/C,G/
Resolution Trust Corporation 8.738% 3/25/21 177 176/C/
Resolution Trust Corporation 7.05% 5/25/29 163 160/C/
Resolution Trust Corporation 7.503% 9/25/29 62 60/C/
Resolution Trust Corporation 7.714% 9/25/29 429 431/C/
Resolution Trust Corporation 7.391% 12/25/29 401 399/C/
Securitized Asset Sales, Inc. 6.784% 8/25/33 40 39/C/
--------
1,677
Total Mortgage-backed Securities
(Identified Cost $11,902) 11,540
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government and Agency Obligations 24.8%
Fixed-rate Securities 18.2%
Fannie Mae 6.50% 8/15/04 880 861
Fannie Mae 6.00% 5/15/08 4,330 4,020
Fannie Mae 7.25% 1/15/10 6,250 6,292
</TABLE>
28
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(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)
Freddie Mac 5.00% 1/15/04 $ 500 $ 466
United States Treasury Bonds 11.125% 8/15/03 120 136
United States Treasury Bonds 11.875% 11/15/03 1,450 1,694
United States Treasury Bonds 8.00% 11/15/21 6,170 7,512
United States Treasury Notes 5.625% 5/15/01 7,000 6,938
United States Treasury Notes 6.25% 1/31/02 4,500 4,479
United States Treasury Notes 5.875% 9/30/02 6,920 6,825
United States Treasury Notes 4.75% 11/15/08 5,000 4,514
United States Treasury Notes 6.00% 8/15/09 25,010 24,693
--------
68,430
Indexed Securities 6.6%
United States Treasury Inflation - Indexed Security 3.625% 1/15/08 9,523 9,276/E/
United States Treasury Inflation - Indexed Security 3.875% 4/15/29 15,475 15,349/E/
United States Treasury Inflation - Indexed Security 4.25% 1/15/10 130 133/E/
--------
24,758
Total U.S. GOVERNMENT and Agency Obligations
(Identified Cost $91,202) 93,188
- ---------------------------------------------------------------------------------------------------------------------------
U.S. Government Agency Mortgage-
backed Securities 15.2%
Fixed-rate Securities 15.1%
Fannie Mae 6.50% 8/15/04 to 8/1/29 5,834 5,486
Fannie Mae 7.00% 4/1/08 to 7/1/28 11,640 11,301
Fannie Mae 6.625% 9/15/09 5,530 5,318
Fannie Mae 6.00% 7/1/13 to 7/1/28 5,107 4,656
Fannie Mae 5.50% 4/1/15 181 167/B/
Fannie Mae 7.50% 4/1/15 7,300 7,301/B/
Fannie Mae 9.50% 4/15/21 460 484
Fannie Mae 6.50% 4/1/30 4,800 4,501/B/
Freddie Mac 6.50% 3/15/05 to 11/1/15 1,409 1,368
Freddie Mac 8.50% 7/1/06 57 58
Freddie Mac 7.76% 5/1/12 189 191
Freddie Mac 7.50% 4/1/17 218 216
Freddie Mac 9.30% 4/15/19 527 540
Freddie Mac 6.50% 4/1/30 7,900 7,414/B/
Freddie Mac 7.00% 4/1/30 7,800 7,504/B/
Government National Mortgage Association 9.50% 9/15/05 157 164
Government National Mortgage Association 9.00% 6/15/06 186 191
--------
56,860
</TABLE>
29
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(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)
Stripped Securities N.M.
Fannie Mae 0.00% 5/25/22 $ 123 $ 97/D2/
Freddie Mac 10.00% 3/1/21 101 27/D1/
--------
124
Variable-rate Securities 0.1%
Fannie Mae 5.882% 3/1/18 129 125/C/
Freddie Mac 6.339% 1/1/19 72 71/C/
--------
196
Total U.S. Government Agency Mortgage-
backed Securities (Identified Cost $59,244) 57,180
- ---------------------------------------------------------------------------------------------------------------------------
Yankee Bonds/A/ 7.8%
Corporate 5.0%
Cable & Wireless Communications plc 6.375% 3/6/03 4,220 4,161
Korea Electric Power Corporation 7.75% 4/1/13 130 121
Nordbanken AB 6.62% 3/29/49 300 298/F/
Petroleos Mexicanos 9.03% 2/15/11 1,240 1,260/G/
Petrozuata Finance, Inc. 7.63% 4/1/09 3,150 2,638/G/
Petrozuata Finance, Inc. 8.22% 4/1/17 1,590 1,244/G/
Royal Bank of Scotland Group plc 8.817% 3/31/05 2,680 2,735
The Bank of Tokyo-Mitsubishi, Ltd. 8.40% 4/15/10 1,530 1,579
YPF Sociedad Anonima 7.00% 10/26/02 2,620 2,563
YPF Sociedad Anonima 7.50% 10/26/02 2,155 2,133
--------
18,732
Foreign Governments 2.8%
Republic of Argentina 0.00% 10/15/01 3,240 2,827/H/
Republic of Argentina 0.00% 10/15/04 1,030 642/H/
Republic of Poland 6.00% 10/27/14 4,010 3,644
United Mexican States 10.375% 2/17/09 3,220 3,478
--------
10,591
Total Yankee Bonds
(Identified Cost $29,860) 29,323
- ---------------------------------------------------------------------------------------------------------------------------
Preferred Stock 0.5%
Home Ownership Funding Corporation 13.331% 1 shs 468/G/
Home Ownership Funding Corporation II 13.338% 2 1,408/G/
Total Preferred Stock
(Identified Cost $1,942) 1,876
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Shares Value
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term Investments 21.6%
Corporate Bonds and Notes 6.5%
GTE Corporation 6.175% 6/12/00 $ 4,000 $ 3,999/F/
Norfolk Southern Corporation 6.12% 6/15/00 8,000 7,898
Raytheon Company 6.30% 8/15/00 4,000 3,984
TRW Inc. 6.675% 6/20/00 7,600 7,497/F,G/
Union Pacific Corporation 7.00% 6/15/00 1,000 999
--------
24,377
Asset-backed Securities N.M.
Option One CTSArmTrust 3.097% 3/25/01 459 6/D1/
U.S. Government Agency Obligations 0.7%
Fannie Mae 0.00% 5/11/00 2,500 2,485/H,J/
Repurchase Agreements 14.4%
Merrill Lynch Government Securities, Inc.
6.25%, dated 03/31/00, to be repurchased at $54,184 on
04/03/00 (Collateral: $50,000 Fannie Mae Floating-
rate Note, 5.859% due 11/13/00, value $50,382; $5,240
Federal Home Loan Bank Medium-term Note, 6.50% due
03/15/01, value $5,255)
54,156 54,156
Options Purchased/K/ N.M.
Eurodollar Futures Call, September 2000,
Strike Price $92.75 127/I/ 119
--------
Total Short-term Investments
(Identified Cost $77,159) 81,143
- ---------------------------------------------------------------------------------------------------------------------------
Total Investments
(Identified Cost $412,610) 108.3% $407,310
Other Assets Less Liabilities (8.3)% (31,254)
--------
Net Assets Consisting of:
Accumulated paid-in capital applicable to 37,276 shares outstanding $390,649
Under/(over) distributed net investment income 110
Accumulated net realized gain/(loss) on investments, options and futures (8,762)
Unrealized appreciation/(depreciation) of investments, options and futures (5,941)
--------
Net Assets 100.0% $376,056
========
Net Asset Value Per Share $ 10.09
========
</TABLE>
31
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Intermediate Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
Actual Appreciation/
Expiration Contracts (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Futures Contracts Purchased/K/
U.S. Treasury Note Futures June 00 89 $ 124
U.S. Treasury Note Futures June 00 153 476
-------
$ 600
Futures Contracts Written/K/
U.S. Treasury Note Futures June 00 37 $ (80)
Written Options/K/
U.S. Treasury Bond Future Call, Strike Price $94 May 00 262 $ (857)
U.S. Treasury Bond Future Call, Strike Price $96 May 00 205 (421)
U.S. Treasury Bond Future Put, Strike Price $90 May 00 76 60
U.S. Treasury Bond Future Put, Strike Price $92 May 00 61 57
-------
$(1,161)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ Yankee Bond -- A dollar denominated bond issued in the U.S. by foreign
entities.
/B/ When-issued Security -- Security purchased on a delayed delivery basis.
Final settlement amount and maturity date have not yet been announced.
/C/ The coupon rates shown on variable-rate securities are the rates at March
31, 2000. For mortgage-backed securities, these rates vary with the weighted
average coupon of the underlying loans.
/D/ Stripped Security -- Security with interest-only or principal-only payment
streams, denoted by superscript 1 or 2 respectively. For interest-only
securities, the amount shown as principal is the notional balance used to
calculate the amount of interest due.
/E/ United States Treasury Inflation-Indexed Security -- U.S. Treasury Security
whose principal value is adjusted daily in accordance with changes to the
Consumer Price Index. Interest is calculated on the basis of the current
adjusted principal value.
/F/ Indexed Security -- The rate of interest on this type of security is tied to
the London Interbank Offer Rate (LIBOR), the Consumer Price Index (CPI) or
the one year Treasury Bill rate. The coupon rate is the rate as of March 31,
2000.
/G/ Rule 144a security -- A security purchased pursuant to Rule 144a under the
Securities Act of 1933 which may not be resold subject to that rule except
to qualified institutional buyers. These securities represent 10.5% of net
assets.
/H/ 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.
/I/ Actual number of contracts.
/J/ Collateral to cover futures contracts written.
/K/ Options and Futures are described in more detail in the notes to financial
statements.
N.M. Not meaningful
See Notes to Financial Statements
32
<PAGE>
Statement of Net Assets
Western Asset Non-U.S. Fixed Income Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Currency Shares Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term Securities 96.0%
British Sterling 1.5%
Corporate Bonds and Notes 1.5%
Lehman Brothers Holdings plc 6.95% 6/22/04 GBP 600 $ 936
Danish Krone 5.4%
Corporate Bonds and Notes 2.9%
Nykredit 6.00% 10/1/29 DKK 11,607 1,417
Unikredit Realkredit 6.00% 10/1/29 DKK 3,409 415
-------
1,832
Government Obligations 2.5%
Kingdom of Denmark 6.00% 11/15/09 DKK 11,650 1,546
-------
Total Danish Krone 3,378
Euro 28.0%
Corporate Bonds and Notes 4.9%
DePfa Deutsche Pfandbriefbank AG 5.00% 2/3/05 EUR 3,200 3,042
Government Obligations 23.1%
Bonos Y Oblig del Estado 3.00% 1/31/03 EUR 3,000 2,716
Bundesrepublic Deutschland 5.625% 1/4/28 EUR 3,150 2,994
Buoni del Tesoro Poliennali 5.25% 11/1/29 EUR 3,400 2,999
Government of France 5.50% 4/25/29 EUR 3,100 2,892
Kingdom of Netherlands 7.75% 3/1/05 EUR 2,700 2,883
-------
14,484
-------
Total Euro 17,526
Greek Drachma 18.8%
Government Obligations 18.8%
Hellenic Republic 6.30% 1/29/09 GRD 4,086,000 11,775
Polish Zloty 19.0%
Government Obligations 19.0%
Government of Poland 8.50% 10/12/04 PLN 27,000 5,552
Government of Poland 8.50% 2/12/05 PLN 30,700 6,327
-------
Total Polish Zloty 11,879
South African Rand 4.9%
Government Obligations 4.9%
Republic of South Africa 13.00% 8/31/10 ZAR 21,350 3,074
</TABLE>
33
<PAGE>
Statement of Net Assets (CONTINUED)
Western Asset Non-U.S. Fixed Income Portfolio
March 31, 2000
(Amounts in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
% of Maturity Par/
Net Assets Rate Date Currency Shares Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Long-term Securities (CONTINUED)
Swedish Krona 9.2%
Corporate Bonds and Notes 9.2%
AB Spintab 5.50% 9/17/03 SEK 24,500 $ 2,805
Statens Bostadsfinansier AB 5.50% 10/15/03 SEK 25,400 2,907
-------
Total Swedish Krona 5,712
-------
United States Dollar 9.2%
U.S. Government and Agency Obligations 9.2%
United States Treasury Notes 4.75% 11/15/08 USD 6,370 5,751
Total Long-term Securities
(Identified Cost $61,512) 60,031
- --------------------------------------------------------------------------------------------------------------------------------
Short-term Securities 1.6%
Repurchase Agreement 1.6%
State Street Bank & Trust Company
3.50%, dated 3/31/00 to be repurchased
at $977 on 4/3/00 (Collateral: $985
Fannie Mae Medium-term Notes, 6.195%
due 12/27/00, value $1,013)
(Identified Cost $977) 977 977
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments
(Identified Cost $62,489) 97.6% $61,008
Other Assets Less Liabilities 2.4% 1,518
-------
Net Assets Consisting of:
Accumulated paid-in capital applicable to 6,520 shares outstanding $65,514
Under/(over) distributed net investment income 1,379
Accumulated net realized gain/(loss) on investments, options,
futures and foreign currency transactions (3,952)
Unrealized appreciation/(depreciation) of investments, options,
futures and foreign currency transactions (415)
-------
Net Assets 100.0% $62,526
=======
Net Asset Value Per Share $ 9.59
=======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
34
<PAGE>
Statements of Operations
(Amounts in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 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 $ 45,641 $11,360 $ 21,454 $ 3,710
Dividends 613 27 7 --
-------- ------- -------- -------
Total income 46,254 11,387 21,461 3,710
-------- ------- -------- -------
Expenses:
Advisory fee 3,054 760 1,272 306
Distribution and service fees 2 -- 6 --
Transfer agent and shareholder servicing expense 39 15 21 12
Audit and legal fees 73 35 40 35
Custodian fees 196 174 97 139
Directors' fees 28 28 28 28
Registration fees 60 75 46 28
Reports to shareholders 32 8 18 2
Other expenses 12 2 6 11
-------- ------- -------- -------
3,496 1,097 1,534 561
Less fees waived (100) (253) (95) (188)
-------- ------- -------- -------
Total expenses, net of waivers 3,396 844 1,439 373
-------- ------- -------- -------
Net Investment income 42,858 10,543 20,022 3,337
Net Realized and Unrealized Gain (Loss) on Investments:
Realized gain (loss) on:
Investments (9,541) (2,719) (7,830) (4,262)
Options 3,608 886 450 49
Futures (3,632) (1,118) (190) 376
Foreign currency transactions -- 161 -- 969
-------- ------- -------- -------
(9,565) (2,790) (7,570) (2,868)
-------- ------- -------- -------
Change in unrealized gain (loss) on:
Investments, options and futures (19,759) (3,887) (3,328) (254)
Assets and liabilities denominated in foreign currencies -- (3) -- 19
-------- ------- -------- -------
(19,759) (3,890) (3,328) (235)
-------- ------- -------- -------
Net realized and unrealized gain (loss) on investments (29,324) (6,680) (10,898) (3,103)
-------- ------- -------- -------
Change in net assets resulting from operations $ 13,534 $ 3,863 $ 9,124 $ 234
======== ======= ======== =======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
35
<PAGE>
Statements of Changes in Net Assets
(Amounts in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Western Asset
Core
Portfolio
-------------------------------------------------
Years Ended March 31,
2000 1999
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Net Assets:
Net investment income $ 42,858 $ 39,417
Net realized gain (loss) on investments, options, futures, and
foreign currency transactions (9,565) 11,754
Change in unrealized appreciation (depreciation) of investments, options,
futures, assets and liabilities denominated in foreign currecncies (19,759) (13,322)
-------- --------
Change in net assets resulting from operations 13,534 37,849
Distributions to shareholders:
From net investment income:
Institutional Class (51,083) (39,129)
Financial Intermediary Class (65) --
From net realized gain on investments:
Institutional Class (1,929) (32,711)
Change in net assets from:
Fund share transactions:
Institutional Class 3,056 101,804
Financial Intermediary Class 1,492 --
-------- --------
Change in net assets (34,995) 67,813
Net Assets:
Beginning of year 685,489 617,676
End of year $650,494 $685,489
-------- --------
Under (over) distributed net investment income $ -- $ 7,356
-------- --------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
/A/ For the period July 8, 1998 (commencement of operations) to March 31, 1999.
/B/ For the period July 15, 1998 (commencement of operations) to March 31, 1999.
See Notes to Financial Statements
36
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Western Asset Western Asset
Core Plus Intermediate
Portfolio Portfolio
------------------------- ------------------------
Years Ended March 31, Years Ended March 31,
2000 1999/A/ 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in Net Assets:
Net investment income $ 10,543 $ 3,449 $ 20,022 $ 18,769
Net realized gain (loss) on investments, options, futures, and
foreign currency transactions (2,790) (861) (7,570) 5,041
Change in unrealized appreciation (depreciation) of investments, options,
futures, assets and liabilities denominated in foreign currecncies (3,890) (613) (3,328) (3,703)
-------- -------- -------- --------
Change in net assets resulting from operations 3,863 1,975 9,124 20,107
Distributions to shareholders:
From net investment income:
Institutional Class (12,009) (1,958) (24,357) (18,139)
Financial Intermediary Class -- -- (155) --
From net realized gain on investments:
Institutional Class (58) (775) -- (9,265)
Change in net assets from:
Fund share transactions:
Institutional Class 103,742 120,389 76,785 28,298
Financial Intermediary Class -- -- (3,667) 3,794
-------- -------- -------- --------
Change in net assets 95,538 119,631 57,730 24,795
Net Assets:
Beginning of year 119,646 15 318,326 293,531
End of year $215,184 $119,646 $376,056 $318,326
-------- -------- -------- --------
Under (over) distributed net investment income $ 149 $ 1,513 $ 110 $ 4,542
-------- -------- -------- --------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Western Asset
Non-U.S. Fixed
Income Portfolio
Years Ended March 31,
------------------------------
2000 1999/B/
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Net Assets:
Net investment income $ 3,337 $ 1,747
Net realized gain (loss) on investments, options, futures, and
foreign currency transactions (2,868) 1,751
Change in unrealized appreciation (depreciation) of investments, options,
futures, assets and liabilities denominated in foreign currecncies (235) (180)
------- -------
Change in net assets resulting from operations 234 3,318
Distributions to shareholders:
From net investment income:
Institutional Class (3,371) (1,131)
Financial Intermediary Class -- --
From net realized gain on investments:
Institutional Class (897) (1,141)
Change in net assets from:
Fund share transactions:
Institutional Class 1,202 64,297
Financial Intermediary Class -- --
------- -------
Change in net assets (2,832) 65,343
Net Assets:
Beginning of year 65,358 15
End of year $62,526 $65,358
------- -------
Under (over) distributed net investment income $ 1,379 $ 386
------- -------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<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/
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
1995 10.50 0.69/I/ 0.72 1.41
Financial Intermediary Class
Year Ended March 31, 2000/E/ $10.69 $0.45/J/ $(0.25) $0.20
Western Asset Core Plus Portfolio
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/
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
1995 10.00 0.39/L/ 0.60 0.99
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
38
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions
------------------------------------------
From
From Net Net Asset
Net Realized Value,
Investment Gain on Total End of
Income Investments Distributions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Western Asset Core Portfolio
Institutional Class/A/
Years Ended March 31,
2000 $(0.80) $(0.03) $(0.83) $10.39
1999 (0.65) (0.56) (1.21) 11.01
Nine Months Ended March 31, 1998/B/ (0.53) (0.14) (0.67) 11.59
Years Ended June 30,
1997 (0.65) (0.01) (0.66) 11.28
1996 (0.66) (0.04) (0.70) 11.05
1995 (0.69) -- (0.69) 11.22
Financial Intermediary Class
Year Ended March 31, 2000/E/ $(0.49) $ -- $(0.49) $10.40
Western Asset Core Plus Portfolio
Years Ended March 31,
2000 $(0.67) $ -- $(0.67) $ 9.48
1999/F/ (0.22) (0.07) (0.22) 9.97
Western Asset Intermediate Portfolio
Institutional Class/A/
Years Ended March 31,
2000 $(0.78) $ -- $(0.78) $10.09
1999 (0.57) (0.30) (0.87) 10.62
Nine Months Ended March 31, 1998/B/ (0.46) (0.10) (0.56) 10.85
Years Ended June 30,
1997 (0.54) (0.07) (0.61) 10.72
1996 (0.54) (0.25) (0.79) 10.48
1995 (0.24) (0.01) (0.25) 10.74
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-----------------------------------------------------------------------------------------------
Net
Investment Net
Expenses Income Assets
to to End of
Average Average Portfolio Period
Total Net Net Turnover (in
Return Assets Assets Rate thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Western Asset Core Portfolio
Institutional Class/A/
Years Ended March 31,
2000 1.99%/I/ 0.50%/I/ 6.3%/I/ 260.4% $649,038
1999 5.61%/I 0.50%/I/ 5.7%/I/ 484.3% 685,489
Nine Months Ended March 31, 1998/B/ 8.91%/I,C/ 0.50%/I,D/ 6.0%/I,D/ 226.9%/D/ 617,676
Years Ended June 30,
1997 8.27%/I/ 0.50%/I/ 6.4%/I/ 384.8% 508,353
1996 4.86%/I/ 0.50%/I/ 6.3%/I/ 266.0% 453,699
1995 14.12%/I/ 0.50%/I/ 7.0%/I/ 257.9% 336,774
Financial Intermediary Class
Year Ended March 31, 2000/E/ 1.97%/J,C/ 0.75%/J,D/ 6.2%/J,D/ 260.4%/D/ $ 1,456
Western Asset Core Plus Portfolio
Years Ended March 31,
2000 1.95%/K/ 0.50%/K/ 6.2%/K/ 315.9% $215,184
1999/F/ 2.58%/K,C/ 0.50%/K,D/ 5.4%/K,D/ 565.7%/D/ 119,646
Western Asset Intermediate Portfolio
Institutional Class/A/
Years Ended March 31,
2000 2.49%/L/ 0.45%/L/ 6.3%/L/ 440.8% $376,056
1999 6.01%/L/ 0.45%/L/ 5.5%/L/ 389.6% 314,534
Nine Months Ended March 31, 1998/B/ 6.59%/L,C/ 0.45%/L,D/ 5.8%/L,D/ 401.4%/D/ 293,531
Years Ended June 30,
1997 8.32%/L/ 0.45%/L/ 6.3%/L/ 419.3% 224,497
1996 5.15%/L/ 0.50%/L/ 6.3%/L/ 841.3% 66,079
1995 10.08%/L/ 0.50%/L/ 6.1%/L/ 764.5% 20,313
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<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>
Financial Intermediary Class
Period Ended
November 30, 1999/O/ $10.61 $0.41/M/ $(0.33) $0.08
Year Ended March 31, 1999/G/ 10.60 0.12/M/ (0.11) 0.01
Western Asset Non-U.S Fixed Income Portfolio
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 7, 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 0.51%, 0.50% and 0.50% for the years ended March
31, 2000, 1999 and the nine months ended March 31, 1998, respectively, and
0.50%, 0.53% and 0.53% for the years ended June 30, 1997, 1996 and 1995,
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 period July 22, 1999 (commencement
of operations) to March 31, 2000.
/K/ Net of advisory fees waived pursuant to a voluntary expense limitation of
0.50%. In the absence of this limitation, the ratio of expenses to average
net assets would have been 0.65% for the year ended March 31, 2000 and 0.65%
for the period July 8, 1998 (commencement of operations) to March 31, 1999.
- --------------------------------------------------------------------------------
40
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions
-------------------------------------------
From Net
From Net Asset
Net Realized Value,
Investment Gain on Total End of
Income Investments Distributions Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Intermediary Class
Period Ended
November 30, 1999/O/ $(0.43) $ -- $(0.43) $10.26
Year Ended March 31, 1999/G/ -- -- -- 10.61
Western Asset Non-U.S Fixed Income Portfolio
Years Ended March 31,
2000 $(0.50) $(0.14) $(0.64) $ 9.59
1999/H/ (0.20) (0.20) (0.40) 10.21
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
-----------------------------------------------------------------------------------
Net
Investment Net
Expenses Income Assets
to to End of
Average Average Portfolio Period
Total Net Net Turnover (in
Return Assets Assets Rate thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Intermediary Class
Period Ended
November 30, 1999/O/ 0.81%/M,C/ 0.70%/M,D/ 5.9%/M,D/ 471.8%/D/ $ --
Year Ended March 31, 1999/G/ 0.09%/M,C/ 0.70%/M,D/ 5.2%/M,D/ 389.6%/D/ 3,792
Western Asset Non-U.S Fixed Income Portfolio
Years Ended March 31,
2000 0.57%/N/ 0.55%/N/ 4.9%/N/ 347.1% $62,526
1999/H/ 5.81%/N,D/ 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 years ended March 31, 2000 and 1999, respectively, 0.52% for
the nine months ended March 31, 1998, and 0.55%, 1.03% and 1.60% for the
years ended June 30, 1997, 1996 and 1995, respectively.
/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
(liquidation of Financial Intermediary Class) and 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 0.83% for the year ended ended March 31, 2000,
and 0.85% for the period July 15, 1998 (commencement of operations) to March
31, 1999.
/O/ Liquidation of Financial Intermediary Class of shares.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
41
<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
will be declared daily and paid monthly for each Fund except Non-U.S., which
will declare and pay 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 March 31, 2000 accrued dividends payable
were as follows:Core, $1,920, Core Plus $575, Intermediate $1,104 and Non-US $0.
42
<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 March 31, 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 $31,198 $97,846
Core Plus 127 14,478
Intermediate 1,931 35,515
Non-U.S. 7 933
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.
43
<PAGE>
Notes to Financial Statements (CONTINUED)
(Amounts in Thousands)
Outstanding contracts at March 31, 2000, were as follows:
<TABLE>
<CAPTION>
Core Plus
Contract to
Settlement ------------------------------------------------- Appreciation
Date Receive Deliver (Depreciation)
---------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
4/27/00 USD 1,711 GRD 599,277 $44
4/28/00 EUR 2,229 USD 2,138 (50)
4/28/00 USD 4,074 EUR 4,247 76
5/18/00 USD 796 SEK 6,850 4
------
$74
======
<CAPTION>
Non-U.S.
Contract to
Settlement ------------------------------------------------- Appreciation
Date Receive Deliver (Depreciation)
---------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
4/27/00 GRD 341,838 USD 1,000 $ (24)
4/27/00 USD 11,862 GRD 4,081,001 213
4/28/00 USD 3,986 DKK 28,827 273
4/28/00 DKK 2,340 USD 320 (19)
4/28/00 EUR 6,060 USD 5,863 (49)
4/28/00 USD 24,320 EUR 24,743 581
5/18/00 GBP 3,056 USD 4,890 (23)
5/18/00 USD 5,869 GBP 3,678 12
5/18/00 USD 5,804 SEK 49,690 28
5/18/00 USD 3,335 ZAR 21,314 91
5/18/00 ZAR 1,388 USD 212 (1)
------
$1,082
======
</TABLE>
Option Transactions
A call option gives the option holder the right to purchase the underlying
security at a specified price until a specified date. A put option gives the
option holder the right to sell the underlying security at a specified price
until a specified date. The risk in writing a covered call option is that a fund
may forgo the opportunity for profit if the market price of the underlying
security increases and the option is exercised. The risk in writing a put option
is that a fund may incur a loss if the market price of the underlying security
decreases and the option is exercised. In addition, there is a risk a fund may
not be able to enter into a closing 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, 1999 485 $ 289 30 $ 67
Options written 8,877 6,020 3,460 2,380
Options closed (5,466) (4,242) (2,579) (1,800)
Options expired (2,560) (1,253) (545) (340)
Options exercised (186) (127) -- --
------ ------- ------ -------
Options outstanding at March 31, 2000 1,150 $ 687 366 $ 307
====== ======= ====== =======
</TABLE>
44
<PAGE>
Notes to Financial Statements (CONTINUED)
(Amounts in Thousands)
<TABLE>
<CAPTION>
Calls Puts
--------------------------- ---------------------------
Core Plus Contracts Premiums Contracts Premiums
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1999 83 $ 56 5 $ 5
Options written 4,069 1,911 1,177 840
Options closed (1,857) (1,321) (844) (642)
Options expired (1,353) (361) (236) (118)
Options exercised (641) (107) -- --
------ ------- ----- -----
Options outstanding at March 31, 2000 301 $ 178 102 $ 85
====== ======= ===== =====
<CAPTION>
Calls Puts
--------------------------- ---------------------------
Intermediate Contracts Premiums Contracts Premiums
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Options outstanding at March 31, 1999 20,222 $ 157 79 $ 75
Options written 2,927 1,771 1,055 559
Options closed (2,497) (1,648) (739) (416)
Options expired (20,185) (43) (258) (90)
Options exercised -- -- -- --
------- ------- ----- -----
Options outstanding at March 31, 2000 467 $ 237 137 $ 128
======= ======= ===== =====
</TABLE>
Futures
Upon entering into a futures contract, the Funds are required to deposit with
the broker an amount of cash or cash equivalents equal to a percentage of the
contract amount. This is known as the "initial margin". Subsequent payments
("variation margin") are made or received by each Fund each day, depending on
the daily fluctuation in the value of the contract. For Non-U.S., payment is not
sent daily, but is recorded as a net payable or receivable by the Fund to or
from the futures broker, which is holding cash collateral from the Fund. The
daily changes in contract value are recorded as unrealized gains or losses and
each Fund recognizes a realized gain or loss when the contract is closed.
Futures contracts are valued daily at the settlement price established by the
board of trade or exchange on which they are traded.
Each Fund may enter into futures contracts in connection with its interest rate
management strategy. Risks arise from the possible illiquidity of the futures
market and from the possibility that a change in the value of a contract may not
correlate with changes in interest rates. The open long and short futures
positions and related appreciation or depreciation at March 31, 2000 are
described at the end of the "Statement of Net Assets" of each Fund.
3. Portfolio Transactions:
For the year ended March 31, 2000, investment transactions (excluding short-term
investments) were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------------------------ ---------------------------------
U.S. Gov't Other U.S. Gov't Other
Securities Securities Securities Securities
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Core $1,674,164 $202,700 $1,698,894 $112,077
Core Plus 496,626 102,882 455,676 52,864
Intermediate 1,204,912 172,927 1,236,892 118,857
Non-U.S. 57,970 258,750 52,211 250,572
</TABLE>
45
<PAGE>
Notes to Financial Statements (CONTINUED)
(Amounts in Thousands)
At March 31, 2000, the cost of securities, gross unrealized appreciation and
gross unrealized depreciation for federal income tax purposes were as follows:
<TABLE>
<CAPTION>
Net
Appreciation
Cost Appreciation Depreciation (Depreciation)
------------- ----------------- ---------------- -------------------
<S> <C> <C> <C> <C>
Core $744,532 $3,306 $(25,967) $(22,661)
Core Plus 216,016 1,303 (5,679) (4,376)
Intermediate 413,445 1,330 (7,465) (6,135)
Non-U.S. 63,169 138 (2,299) (2,161)
</TABLE>
Unused capital loss carryforwards for federal income tax purposes at March 31,
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 March 31, 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
Years ended March 31,
2000 6,977 $ 74,066 4,571 $48,097 (11,322) $(119,107) 226 $ 3,056
------ -------- ----- ------- ------- --------- ------ --------
1999 23,039 $247,815 6,095 $68,685 (20,160) $(214,696) 8,974 $101,804
------ -------- ----- ------- ------- --------- ------ --------
Financial Intermediary Class
July 22, 1999* to
March 31, 2000 134 $ 1,431 6 $ 61 -- $ -- 140 $ 1,492
------ -------- ----- ------- ------- --------- ------ --------
Core Plus
Years ended March 31
2000 11,868 $114,874 1,200 $11,491 (2,377) $ (22,623) 10,691 $103,742
------ -------- ----- ------- ------- --------- ------ --------
1999/A/ 12,138 $121,882 271 $ 2,733 (412) $ (4,226) 11,997 $120,389
------ -------- ----- ------- ------- --------- ------ --------
Intermediate
Institutional Class
Years ended March 31,
2000 16,358 $167,017 2,223 $22,750 (10,927) $(112,982) 7,654 $ 76,785
------ -------- ----- ------- ------- --------- ------ --------
1999 13,411 $144,994 2,531 $27,140 (13,368) $(143,836) 2,574 $ 28,298
------ -------- ----- ------- ------- --------- ------ --------
Financial Intermediary Class
Period ended
November 30, 1999/C/ -- $ -- 15 $ 155 (372) $ (3,822) (357) $ (3,667)
------ -------- ----- ------- ------- --------- ------ --------
Year ended March 31,
1999/D/ 367 $ 3,895 -- $ -- (10) $ (101) 357 $ 3,794
------ -------- ----- ------- ------- --------- ------ --------
Non-U.S.
Year ended March 31,
2000 1,029 $ 9,754 444 $ 4,268 (1,357) $ (12,820) 116 $ 1,202
------ -------- ----- ------- ------- --------- ------ --------
1999/B/ 6,181 $62,025 222 $ 2,272 -- $ -- 6,403 $ 64,297
------ -------- ----- ------- ------- --------- ------ --------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of operations.
/A/ For the period July 8, 1998 (commencement of operations) to March 31, 1999.
/B/ For the period July 15, 1998 (commencement of operations) to March 31, 1999.
/C/ Liquidation of Financial Intermediary Class of Shares.
/D/ For the period January 7, 1999 (commencement of operations) to March 31,
1999.
46
<PAGE>
Notes to Financial Statements (CONTINUED)
(Amounts in Thousands)
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 March 31, 2000, the market value of the securities on loan to broker-dealers
was $80,185 and $55,317 for Core and Intermediate, respectively. Cash collateral
received was $82,755 and $56,848 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 ("WAGM") is the investment adviser to Non-U.S. and shares advisory
responsibilities with Western Asset for Core Plus. Pursuant to their respective
agreements, LMIA provides the Funds with management and administrative services
for which each Fund pays a fee, computed daily and payable monthly, at annual
rates of each Fund's average daily net assets as follows: 0.45% for Core, Core
Plus and Non-U.S., and 0.40% for Intermediate. 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 WAGM a fee, computed daily and payable monthly, at an
annual rate of 0.40% of average daily net assets for Non-U.S. At March 31, 2000,
$156, $49, $116, and a non-meaningful amount was due to LMIA for Core, Core
Plus, Intermediate and Non-U.S., respectively. LMIA, Western Asset and WAGM have
voluntarily agreed to waive their fees and reimburse the Funds to the extent
each Fund's expenses (exclusive of taxes, interest, brokerage and extraordinary
expenses) exceed during any month annual rates of each Fund's average daily net
assets as follows for Institutional Class: 0.55% for Non-U.S.; 0.50% for Core;
0.50% for Core Plus; and 0.45% for Intermediate; and for Financial Intermediary
Class: 0.75% for Core and 0.70% for Intermediate.
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 March 31, 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 WAGM are wholly owned subsidiaries of Legg Mason, Inc.
47
<PAGE>
Report of Independent Accountants
To the Board of Directors of LM Institutional Fund Advisors I, Inc. and
Shareholders of Western Asset Core Portfolio, Western Asset Core Plus Portfolio,
Western Asset Intermediate Portfolio, and Western Asset Non-U.S. Fixed Income
Portfolio:
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Western Asset Core Portfolio, Western Asset Core Plus Portfolio, Western Asset
Intermediate Portfolio, and Western Asset Non-U.S. Fixed Income Portfolio (four
of the Funds comprising LM Institutional Fund Advisors I, Inc., hereafter
referred to as the "Funds") at March 31, 2000, and the results of each of their
operations, the changes in each of their net assets and the financial highlights
for each of the fiscal periods presented, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at March
31, 2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
May 5, 2000
48
<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
