LM INSTITUTIONAL FUND ADVISORS I INC, 485APOS, 2000-05-18

LM INSTITUTIONAL FUND ADVISORS I INC
485APOS, 2000-05-18

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As filed with the Securities and Exchange Commission on May 18, 2000
Registration Nos. 33-34929 and 811-06110

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM N-1A

REGISTRATION STATEMENT UNDER [X]
THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 21 [X]

REGISTRATION STATEMENT UNDER [X]
THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 23 [X]
(Check appropriate box or boxes)

LM Institutional Fund Advisors I, Inc.
(Exact name of registrant as specified in charter)

100 Light Street
Baltimore, Maryland 21202
(Address of principal executive offices)

Registrant's Telephone Number, Including Area Code: (410) 539-0000

Name and address
of agent for service: Copy to:
--------------------- --------
Charles A. Bacigalupo Bryan Chegwidden, Esq.
100 Light Street Ropes & Gray
Baltimore, Maryland 21202 One International Place
Boston, MA 02110

It is proposed that this filing will become effective (check appropriate box):

[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] On _____________ pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] On _____________ pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] On _____________ pursuant to paragraph (a)(2)

If appropriate, check the following box:

[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Prospectus

August 1, 2000

This Prospectus describes the shares of a family of institutional mutual funds
managed by LM Institutional Advisors, Inc.

LM Institutional Fund Advisors I
Western Asset Government Money Market Portfolio

Western Asset Money Market Portfolio
Western Asset Intermediate Portfolio
Western Asset Intermediate Plus Portfolio
Western Asset Core Portfolio
Western Asset Core Plus Portfolio

Western Asset Inflation Indexed Bond Portfolio

Western Asset High Yield Portfolio
Western Asset Non-U.S. Fixed Income Portfolio
Western Asset Global Strategic Income Portfolio
Western Asset Enhanced Equity Portfolio

LM Institutional Fund Advisors II
LM Value Institutional Portfolio
LM Special Investment Institutional Portfolio
LM Total Return Institutional Portfolio
LM Balanced Institutional Portfolio
Batterymarch U.S. MidCapitalization Equity Portfolio
Batterymarch U.S. Small Capitalization Equity Portfolio
Batterymarch International Equity Portfolio
Batterymarch Emerging Markets Portfolio

These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.

LM Institutional
Advisors Incorporated

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Table of Contents

<TABLE>
<S> <C>
Prospectus Summary 3

Description of Each Portfolio, Its Investment Objective and Principal Investment Strategies 3

Principal Risks 15

Performance Information 19

Fees and Expenses 22

Management of the Portfolios 31

Purchase of Shares 33

Distribution Plans 35

Redemption of Shares 35

Exchange Privilege 36

Net Asset Value 36

Dividends and Distributions to Shareholders 37

Tax Information 38

Financial Highlights 38

Appendix A -- Prior Performance of LMIFA II Advisers' Other Accounts 39
</TABLE>

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Prospectus Summary

General

LM Institutional Fund Advisors I, Inc. ("LMIFA I") consists of the following
portfolios: Western Asset Government Money Market Portfolio, Western Asset Money
Market Portfolio, Western Asset Intermediate Portfolio, Western Asset
Intermediate Plus Portfolio, Western Asset Core Portfolio, Western Asset Core
Plus Portfolio, Western Asset Inflation Indexed Bond Portfolio, Western Asset
High Yield Portfolio, Western Asset Non-U.S. Fixed Income Portfolio, Western
Asset Global Strategic Income Portfolio and Western Asset Enhanced Equity
Portfolio. LM Institutional Fund Advisors II, Inc. ("LMIFA II") consists of the
following portfolios: LM Value Institutional Portfolio, LM Special Investment
Institutional Portfolio, LM Total Return Institutional Portfolio, LM Balanced
Institutional Portfolio, Batterymarch U.S. MidCapitalization Equity Portfolio,
Batterymarch U.S. Small Capitalization Equity Portfolio, Batterymarch
International Equity Portfolio and Batterymarch Emerging Markets Portfolio.

Manager and Advisers

LM Institutional Advisors, Inc. (the "Manager") serves as the investment manager
to each Portfolio. Legg Mason Fund Adviser, Inc. ("LMFA"), Batterymarch
Financial Management, Inc. ("Batterymarch"), Western Asset Management Company
("Western Asset") and Western Asset Management Company Limited ("WAML") serve as
the investment advisers to the various Portfolios as noted below. LMFA,
Batterymarch, Western Asset and WAML are referred to as "Advisers."

Description of Each Portfolio, Its Investment Objective and Principal Investment
Strategies

The investment objective and policies for each Portfolio are stated below. There
is no assurance a Portfolio will meet its objectives.

Western Asset Government Money Market Portfolio
Adviser: Western Asset
Objective: High current income consistent with liquidity and conservation of
principal

The Portfolio is a money market fund that seeks to maintain a net asset value of
$1.00 per share by investing in government money market instruments. To achieve
its objective, the Portfolio generally adheres to the following practices:

. It invests only in obligations of the U.S. Government and its agencies and
instrumentalities, repurchase agreements secured by such instruments and in
U.S. dollar-denominated debt obligations of "supranational organizations."
"Supranational organizations" are non-governmental entities designated or
supported by a government or governmental entity to promote economic
development, such as the European Community, the International Monetary Fund,
the United Nations and the World Bank.
. It generally buys instruments maturing in 397 days or less. It can also buy
certain variable and floating rate securities.
. It maintains a dollar-weighted average portfolio maturity of 90 days or less.
. It may purchase or sell securities on a forward commitment basis.
. It may engage in reverse repurchase agreements and other borrowings as
permitted by applicable law.

Among the principal risks of investing in the Portfolio are Interest Rate Risk
and Credit Risk. Please see "Principal Risks" for a discussion of these and
other risks.

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Western Asset Money Market Portfolio
Adviser: Western Asset
Objective: High current income consistent with liquidity and conservation of
principal

The Portfolio is a money market fund that seeks to maintain a net asset value of
$1.00 per share. To achieve its objective, the Portfolio generally adheres to
the following practices:

. It generally invests in money market instruments, such as:
(i) U.S. government obligations
(ii) municipal obligations
(iii) instruments such as certificates of deposit, demand and time
deposits, savings shares and bankers' acceptances issued by domestic
and foreign banks and savings and loan institutions that have over
$1 billion in total assets or where the principal amount is insured
by the Federal Deposit Insurance Corporation
(iv) repurchase agreements
(v) commercial paper and other short-term investments

. It invests only in "high quality" money market instruments. "High quality"
money market instruments are those that: (i) have received one of the two
highest ratings by two or more Nationally Recognized Statistical Rating
Organizations ("NRSRO"); (ii) receive one of the two highest ratings by one
NRSRO if only one has rated the security; or (iii) if unrated, are determined
by Western Asset to be of comparable quality.

. It may not invest more than 5% of its total assets in the "first tier"
securities of any one issuer (except for U.S. government obligations). "First
tier" securities are those that: (i) have been rated in the highest rating
category by two NRSROs; (ii) receive the highest rating by one NRSRO if only
one has rated the security; or (iii) if unrated, are determined by Western
Asset to be of comparable quality.

. It may not invest more than 1% of its total assets or $1 million (whichever is
greater) in the "second tier" securities of any one issuer. "Second tier"
securities are all "high quality" securities that are not "first tier"
securities.

. It may not invest more than 5% of its total assets in "second tier"
securities.

. It may invest only in U.S. dollar-denominated securities. These include
foreign investments denominated in U.S. dollars.

. It may engage in reverse repurchase agreements and make other borrowings.

. It generally buys money market securities maturing in 397 days or less. It can
also buy certain variable and floating rate securities.

. It may purchase or sell securities on a forward commitment basis.

. It maintains a dollar-weighted average portfolio maturity of 90 days or less.

Among the principal risks of investing in the Portfolio are Interest Rate Risk
and Credit Risk. Please see "Principal Risks" for a discussion of these and
other risks.

Western Asset Intermediate Portfolio, Western Asset Intermediate Plus Portfolio,
Western Asset Core Portfolio, Western Asset Core Plus Portfolio

Advisers: Western Asset and WAML (non-U.S. portions of Intermediate Plus and
Core Plus Portfolios)

Objective: Maximize total return, consistent with prudent investment management
and liquidity needs, by investing to obtain the average duration specified for
each Portfolio

Each of these Portfolios invests in a portfolio of fixed income securities of
various maturities. To achieve their objectives, the Portfolios invest primarily
in:

. U.S. Government obligations
. mortgage- and other asset-backed securities

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. U.S. dollar-denominated obligations of foreign governments, international
agencies or supranational organizations
. U.S. dollar-denominated fixed income securities of non-governmental domestic
or foreign issuers

In addition to the foregoing principal investment strategies, the Portfolios are
also permitted to:
. purchase other securities and instruments, including:
(i) preferred stocks
(ii) structured notes
(iii) municipal obligations
(iv) convertible securities
(v) pay-in-kind securities and zero coupon bonds
(vi) certificates of deposit, time deposits and bankers' acceptances
issued by domestic and foreign banks
(vii) commercial paper and other short-term investments
. invest up to 25% of their total assets in the securities of foreign issuers
. buy or sell futures contracts and options for both hedging and non-hedging
purposes, including for purposes of enhancing returns
. buy or sell securities on a forward commitment basis
. lend its portfolio securities
. engage in foreign currency exchange transactions
. engage in repurchase agreements and reverse repurchase agreements
. borrow money for temporary or emergency purposes

Each of the Portfolios may buy and sell investments relatively often, which
involves higher brokerage commissions and other expenses, and may increase taxes
payable by shareholders.

Each Portfolio in this group differs from the others in terms of its investment
policies regarding its target dollar weighted average duration, and the two
"Plus" Portfolios, the Intermediate Plus and Core Plus, differ from the other
Portfolios in terms of their policies with respect to U.S. dollar-denominated
securities and the credit quality of their investments. These differences are
summarized in the following table. "Duration" refers to the range within which
the dollar weighted average duration of a Portfolio is expected to fluctuate.
With respect to the Core and Core Plus Portfolios, the average duration is
expected to range within 20% of the duration of the domestic bond market as a
whole (normally four to six years, although this may vary) as measured by
Western Asset. "Foreign Currency Exposure" refers to whether a Portfolio
presently intends to limit its investments to U.S. dollar-denominated
securities. "Credit Quality" refers to the percentage of a Portfolio's net
assets that may be invested in debt securities that are rated, at the time of
purchase, below investment grade, but at least B or higher by an NRSRO or, if
unrated, determined by the Adviser to be of comparable quality. The continued
holding of securities downgraded below investment grade or, if unrated,
determined by the Adviser to be of comparable quality, will be evaluated by the
Adviser on a case by case basis.

<TABLE>
<CAPTION>
Portfolio Duration Foreign Currency Exposure Credit Quality
<S> <C> <C> <C>

Intermediate 2-4 Years U.S. Dollar-Denominated Only Currently Anticipates No
Securities Below
Investment Grade
- -------------------------------------------------------------------------------------------------------------------------
Intermediate Plus 2-4 Years The Portfolio may invest up to Up to 15%
20% of its total assets in non-U.S. Below Investment Grade
dollar denominated securities.
- -------------------------------------------------------------------------------------------------------------------------
Core Generally U.S. Dollar-Denominated Only Currently Anticipates
4-6 Years No Securities Below
Investment Grade
- -------------------------------------------------------------------------------------------------------------------------
Core Plus Generally The Portfolio may invest up to Up to 15%
4-6 Years 20% of its total assets in non-U.S. Below Investment Grade
dollar-denominated securities.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

Among the principal risks of investing in these Portfolios are Interest Rate
Risk, Credit Risk, Call Risk, Special Risks of Mortgage-Backed and Asset-Backed
Securities, Foreign Securities Risk, Borrowing Risk, Derivatives Risk and
Hedging Risk. In addition to those risks, Special Risks of High Yield
Securities, Liquidity Risk and Currency Risk are among the principal risks of
investing in the Intermediate Plus and Core Plus Portfolios. Please see
"Principal Risks" for a discussion of these and other risks.

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Western Asset Inflation Indexed Bond Portfolio
Adviser: Western Asset
Objective: Maximize total return, consistent with preservation of capital

Under normal market conditions, the Portfolio invests at least 65% of its total
assets in inflation-indexed fixed income securities issued in the United States.
Inflation-indexed bonds are fixed income securities that are structured to
provide protection against inflation. The principal or interest components of an
inflation-indexed bond are adjusted periodically according to the general
movements of inflation in the country of issue. The U.S. Treasury uses the
Consumer Price Index for Urban Consumers, non-seasonally adjusted, as its
inflation measure.

The Adviser uses fundamental investment techniques to select issues. The
average modified duration of the Portfolio is expected to range within 3 years
of that of its benchmark, the Lehman Brothers Treasury Inflation Notes Index.
Although the Portfolio is expected to maintain an average credit quality of
AAA/Aaa, it may invest up to 35% of its net assets in securities rated below
AAA/Aaa but above BBB/Baa at the time of purchase or unrated securities of
comparable quality at the time of purchase. Consistent with its investment
objective, the Portfolio may invest in fixed income securities of any maturity.

To achieve its objective, the Portfolio may also invest in other securities or
instruments, including:

. U.S. Government obligations
. corporate obligations
. foreign inflation-indexed securities
. preferred stocks
. non-U.S. debt issued in U.S. dollars or foreign currencies
. mortgage- and other asset-backed securities
. municipal obligations
. variable and floating rate debt securities
. commercial paper and other short-term investments
. certificates of deposit, fixed time deposits and bankers' acceptances
. loan participations and assignments
. structured notes
. repurchase agreements
. pay-in-kind securities and zero coupon bonds

The Portfolio may also:

. engage in reverse repurchase agreements
. borrow money for temporary or emergency purposes
. buy or sell futures contracts and options for both hedging and non-hedging
purposes, including for purposes of enhancing returns
. buy or sell foreign currencies, foreign currency options, or foreign currency
futures contracts and related options
. enter into foreign currency forward contracts for hedging and non-hedging
purposes, including for purposes of enhancing returns
. loan its portfolio securities
. buy or sell securities on a forward commitment basis

Among the principal risks of investing in the Portfolio are Interest Rate Risk,
Credit Risk, Market Risk, Derivatives Risk, Liquidity Risk, Foreign Securities
Risk, Currency Risk, Call Risk, Borrowing Risk, Special Risks of Mortgage-Backed
and Asset-Backed Securities and Hedging Risk.

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Western Asset High Yield Portfolio
Adviser: Western Asset
Objective: Maximize total return, consistent with prudent investment management

Under normal market conditions, the Portfolio will invest at least 75% of its
total assets in U.S. dollar-denominated debt or fixed income securities that are
rated below investment grade at the time of purchase by one or more NRSROs or
are of a comparable quality as determined by Western Asset. These securities are
commonly known as "junk bonds" or "high yield bonds."

Western Asset expects that, under normal market conditions, all or substantially
all of the Portfolio's assets will be invested in such securities. To achieve
its objective, the Portfolio may also make other investments, including:

. mortgage- and other asset-backed securities
. municipal obligations
. variable and floating rate debt securities
. commercial paper and other short-term investments
. corporate obligations ("Corporate obligations" include preferred stock,
convertible securities, zero coupon securities and pay-in-kind securities.)
. common stocks and warrants
. certificates of deposit, fixed time deposits and bankers' acceptances issued
by domestic banks

The Portfolio is also permitted to:
. invest up to 25% of its total assets in foreign currency-denominated foreign
securities
. buy or sell futures contracts and options for both hedging and non-hedging
purposes, including for purposes of enhancing returns
. engage in foreign currency exchange transactions
. lend its portfolio securities
. borrow money for temporary or emergency purposes
. buy or sell securities on a forward commitment basis
. engage in repurchase agreements and reverse repurchase agreements

The Portfolio may buy and sell investments relatively often, which involves
higher brokerage commissions and other expenses, and may increase taxes payable
by shareholders.

Among the principal risks of investing in the Portfolio are Interest Rate Risk,
Credit Risk, Call Risk, Special Risks of High Yield Securities, Special Risks of
Mortgage-Backed and Asset-Backed Securities, Market Risk, Foreign Securities
Risk, Liquidity Risk, Borrowing Risk, Emerging Markets Risk, Currency Risk,
Derivatives Risk and Hedging Risk. Please see "Principal Risks" for a discussion
of these and other risks.

Western Asset Non-U.S. Fixed Income Portfolio

Adviser: WAML

Objective: Maximize total return, consistent with prudent investment management

Under normal market conditions, the Portfolio invests at least 75% of its total
assets in debt and fixed income securities denominated in major foreign
currencies. WAML anticipates that, under normal market conditions, all or
substantially all of the Portfolio's assets will be invested in securities of
foreign issuers and that these foreign issuers will represent at least three
foreign countries. Under current market conditions, the Portfolio expects that
substantially all of its currency risk will be hedged to U.S. dollars.

To achieve its objective, the Portfolio may invest in a variety of securities,
including:

. U.S. dollar-denominated or foreign currency-denominated obligations of foreign
governments, international agencies or supranational entities
. foreign currency exchange-related securities, including foreign currency
warrants
. U.S. Government obligations
. mortgage- and other asset-backed securities
. variable and floating rate debt securities
. commercial paper and other short-term investments

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. corporate obligations
. certificates of deposit, fixed time deposits and bankers' acceptances
. loan participations and assignments
. indexed securities and structured notes
. repurchase agreements

The Portfolio may also:
. engage in reverse repurchase agreements
. borrow money for temporary or emergency purposes
. buy or sell futures contracts and options for both hedging and non-hedging
purposes, including for purposes of enhancing returns
. buy or sell foreign currencies, foreign currency options, or foreign currency
futures contracts and related options
. enter into foreign currency forward contracts for hedging and non-hedging
purposes, including for purposes of enhancing returns
. loan its portfolio securities

The Portfolio does not currently intend to invest in securities that are rated
at the time of purchase below investment grade, although it may do so if market
conditions are favorable. The Portfolio is "non-diversified" within the meaning
of the Investment Company Act. See "Principal Risks--Non-Diversification." WAML
anticipates that from time to time over 25% of the Portfolio's assets may be
invested in securities of issuers located in a single country. Because the
Portfolio may concentrate a significant portion of its investments in a single
country or currency, it will be more susceptible to factors adversely affecting
such currency or issuers within that country than would a more diversified
portfolio of securities. The Portfolio may buy and sell investments relatively
often, which involves higher brokerage commissions and other expenses, and may
increase taxes payable by shareholders.

Among the principal risks of investing in the Portfolio are Interest Rate Risk,
Credit Risk, Call Risk, Special Risks of High Yield Securities, Special Risks of
Mortgage-Backed and Asset-Backed Securities, Market Risk, Foreign Securities
Risk, Emerging Markets Risk, Currency Risk, Borrowing Risk, Derivatives Risk,
Liquidity Risk and Hedging Risk. Please see "Principal Risks" for a discussion
of these and other risks.

Western Asset Global Strategic Income Portfolio

Advisers: WAML (non-U.S. portion) and Western Asset (U.S. portion)

Objective: Income and capital appreciation

To achieve its investment objective, the Portfolio invests primarily in various
types of U.S. dollar-denominated and foreign currency-denominated fixed income
securities, including:

. U.S. and foreign corporate fixed income securities
. Debt obligations of corporate and governmental issuers in emerging market
countries (These include "Brady Bonds"; bonds issued as a result of a debt
restructuring plan; Eurobonds; domestic and international bonds issued under
the laws of a developing country; and emerging market loans.)
. sovereign debt obligations of developed nations, including those of the United
States
. debt obligations of "supranational organizations"
. mortgage- and other asset-backed securities

The Portfolio may invest in a variety of other securities, including:
. foreign currency exchange-related securities, including foreign currency
warrants
. variable and floating rate debt securities
. commercial paper and other short-term investments
. municipal obligations
. certificates of deposit, fixed time deposits and bankers' acceptances
. loan participations and assignments
. indexed securities and structured notes
. repurchase agreements

The Portfolio may invest up to 60% of its net assets in securities that are
rated at the time of purchase below investment grade or are of comparable
quality at the time of purchase as determined by WAML or Western Asset. These
securities

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are commonly known as "junk bonds" or "high yield bonds." The Portfolio may buy
and sell investments relatively often, which involves higher brokerage
commissions and other expenses, and may increase taxes payable by shareholders.

The Portfolio may also:
. engage in reverse repurchase agreements
. borrow money for temporary or emergency purposes
. loan its portfolio securities
. buy or sell futures contracts and options for both hedging and non-hedging
purposes, including for purposes of enhancing returns
. buy or sell foreign currencies, foreign currency options, or foreign currency
futures contracts and related options
. enter into foreign currency forward contracts for hedging and non-hedging
purposes, including for purposes of enhancing returns

Under normal market conditions, the Portfolio will invest at least 80% of its
total assets in securities of issuers representing at least three countries (one
of which may be the U.S.) and at least 65% of its total assets in income
producing securities. Because the Portfolio may concentrate a significant
portion of its investments in a single country or currency, it will be more
susceptible to factors adversely affecting issuers within that country or
currency than would a more diversified portfolio of securities.

The Portfolio is "non-diversified" within the meaning of the Investment Company
Act. See "Principal Risks--Non-Diversification."

Among the principal risks of investing in the Portfolio are Interest Rate Risk,
Credit Risk, Call Risk, Special Risks of High Yield Securities, Special Risks of
Mortgage-Backed and Asset-Backed Securities, Foreign Securities Risk, Emerging
Markets Risk, Currency Risk, Borrowing Risk, Derivatives Risk, Liquidity Risk
and Hedging Risk. Please see "Principal Risks" for a discussion of these and
other risks.

Western Asset Enhanced Equity Portfolio
Adviser: Western Asset
Objective: Long-term total return

The Portfolio's assets will be comprised of two components: an equity component
and a fixed income component.

. The equity component will generally maintain full exposure to the U.S. equity
market as represented by the S&P 500 Index (the "Index").
. The fixed income component will try to generate interest and gains in excess
of the Portfolio's expenses, including transaction costs related to its
investments.

The Portfolio expects that its performance will approximate that of the Index,
with the extent to which the Portfolio outperforms or underperforms the Index
depending largely, but not exclusively, on whether the fixed income component
has earned sufficient amounts to offset the Portfolio's expenses. Up to 10% of
the Portfolio's net assets may be invested in securities rated below investment
grade at the time of purchase or unrated securities of comparable quality at the
time of purchase (commonly known as "junk bonds" or "high yield bonds") and up
to 20% of its net assets may be invested in foreign securities. The Portfolio
may buy and sell investments relatively often, which involves higher brokerage
commissions and other expenses, and may increase taxes payable by shareholders.
The following information summarizes the investment practices of the Portfolio's
two components.

Equity Component

The Portfolio's equity component invests primarily in: (i) common stocks that
are represented in the Index ("S&P stocks") and (ii) stock index futures,
options on stock indexes, options on stock index futures and other derivative
instruments that are based on the Index ("S&P derivatives").

The Equity Component of the Portfolio adheres to the following practices:

. It may invest in any combination of S&P stocks and S&P derivatives.
. It currently plans to invest predominantly, and likely exclusively, in S&P
derivatives.
. It will not be limited to purchasing S&P stocks in the same proportion as
such stocks are weighted in the Index.
. It will seek to remain invested in S&P stocks and S&P derivatives even when
the Index is declining.

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The Index is composed of 500 selected common stocks, most of which are listed on
the New York Stock Exchange. Standard and Poor's ("S&P") chooses the stocks to
be included in the Index solely on a statistical basis. The weightings of stocks
in the Index are based on each stock's relative total market value, that is, its
market price per share times the number of shares out-standing. The Portfolio is
neither sponsored by nor affiliated with S&P.

Fixed Income Component

The fixed income component will invest primarily in the following types of fixed
income securities:

. U.S. Government obligations
. securities of non-governmental domestic or foreign issuers
. municipal securities
. mortgage- and other asset-backed securities
. preferred stocks
. obligations of foreign governments, international agencies or supranational
entities

The fixed income component may also take other actions, including:

. investing in certificates of deposit, time deposits and bankers' acceptances
issued by domestic and foreign banks
. investing in commercial paper and other short-term investments
. engaging in repurchase agreements, reverse repurchase agreements and other
borrowings
. purchasing or selling futures contracts and options
. engaging in foreign currency exchange transactions

Among the principal risks of investing in the Portfolio are Market Risk,
Interest Rate Risk, Credit Risk, Call Risk, Special Risks of High Yield
Securities, Special Risks of Mortgage-Backed and Asset-Backed Securities,
Foreign Securities Risk, Emerging Markets Risk, Currency Risk, Borrowing Risk,
Derivatives Risk and Hedging Risk. Please see "Principal Risks" for a discussion
of these and other risks.

LM Value Institutional Portfolio
Adviser: LMFA
Objective: Long-term growth of capital

The Portfolio invests primarily in equity securities (including common and
preferred stocks), and securities convertible into equity securities, that, in
the Adviser's opinion, offer the potential for capital growth. The Adviser
follows a value discipline in selecting securities, and therefore seeks to
purchase securities at large discounts to the Adviser's assessment of their
intrinsic value. Intrinsic value, according to the Adviser, is the value of the
company measured, to different extents depending on the type of company, on
factors such as, but not limited to, the discounted value of its projected
future free cash flows, the company's ability to earn returns on capital in
excess of its cost of capital, private market values of similar companies, the
value of its assets, and the costs to replicate its business. Qualitative
factors, such as an assessment of the company's products, competitive
positioning, strategy, industry economics and dynamics, regulatory frameworks
and more, are also important. Securities may be undervalued due to uncertainty
arising from the availability of accurate information, economic growth and
change, changes in competitive conditions, technological change, changes in
government policy or geo-political dynamics, and more. The Adviser takes a
long-term approach to investing, generally characterized by long holding
periods and low portfolio turnover. The Portfolio generally invests in companies
with market capitalizations greater than $5 billion, but may invest in companies
of any size.

The Adviser typically sells a security when, in the Adviser's assessment, the
security no longer appears to offer a long-term above average risk-adjusted rate
of return, when a more compelling investment opportunity is found, or when the
investment basis no longer applies.

The Portfolio may also invest in debt securities of companies having one or more
of the above characteristics. The Portfolio may invest up to 25% of its net
assets in long-term debt securities. Up to 10% of its total assets may be
invested in convertible and/or debt securities rated below investment grade,
i.e., not rated at least BBB by Standard & Poor's or Baa by Moody's Investors
Service, Inc. or, if unrated by those entities, deemed by the Adviser to be of
comparable quality. These bonds are commonly referred to as junk bonds.

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For temporary purposes, or when cash is temporarily available, the Portfolio may
invest without limit in investment grade, short-term debt instruments, including
government, corporate and money market securities. The Portfolio may not achieve
its investment objective when so invested.

Among the principal risks of investing in the Portfolio are Market Risk,
Interest Rate Risk, Credit Risk, Call Risk, Special Risks of High Yield
Securities, Foreign Securities Risk, Borrowing Risk and Hedging Risk. Please see
"Principal Risks" for a discussion of these and other risks.

LM Special Investment Institutional Portfolio
Adviser: LMFA
Objective: Capital appreciation

The Portfolio invests primarily in equity securities, and securities convertible
into equity securities, of companies whose market capitalizations are typically
classified as small to mid-sized. The Adviser defines small to mid-sized
companies as those below the top 500 U.S. companies in terms of market
capitalization. It also invests in "special situations" without regard to market
capitalization. Special situations are companies undergoing unusual or possibly
one-time developments that, in the opinion of the Adviser, make them attractive
for investment. Such developments may include actual or anticipated: sale or
termination of an unprofitable part of the company's business; change in the
company's management or in management's philosophy; change in the industry in
which the company operates; introduction of new products or technologies; or the
prospect or effect of acquisition or merger activities.

The Adviser follows a value discipline in selecting securities, and therefore
seeks to purchase securities at large discounts to the Adviser's assessment of
their intrinsic value. Intrinsic value, according to the Adviser, is the value
of the company measured, to different extents depending on the type of company,
on factors such as, but not limited to, the discounted value of its projected
future free cash flows, the company's ability to earn returns on capital in
excess of its cost of capital, private market values of similar companies, the
value of its assets, and the costs to replicate its business. Qualitative
factors, such as an assessment of the company's products, competitive
positioning, strategy, industry economics and dynamics, regulatory frameworks
and more, are also important. Securities may be undervalued due to uncertainty
arising from the availability of accurate information, economic growth and
change, changes in competitive conditions, technological change, changes in
government policy or geo-political dynamics, and more.

The Portfolio also invests in debt securities of companies having one or more of
the above characteristics. The Portfolio may invest up to 35% of its net assets
in debt securities rated below investment grade, i.e., rated below BBB/Baa (or,
if unrated, determined by the Adviser to be of comparable quality). These bonds
are commonly referred to as junk bonds. The Portfolio may invest up to 20% of
its total assets in securities of companies involved in actual or anticipated
reorganizations or restructurings.

For temporary defensive purposes, or when cash is temporarily available, the
Portfolio may invest without limit in investment grade, short-term debt
instruments, including government, corporate and money market securities. The
Portfolio may not achieve its investment objective when so invested.

LM Total Return Institutional Portfolio
Adviser: LMFA
Objective: Capital appreciation and current income in order to achieve an
attractive total investment return consistent with reasonable risk

The Portfolio invests primarily in securities that, in the Adviser's opinion,
offer the potential for long-term capital growth and attractive current income.
The Portfolio invests primarily in common stocks, debt securities, and
securities convertible into common stocks, but is not limited to these types of
securities. The Portfolio may invest in securities that do not pay current
income but do, in the Adviser's opinion, offer prospects for capital
appreciation and/or future income. The Adviser follows a value discipline in
selecting securities, and therefore seeks to purchase securities at large
discounts

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to the Adviser's assessment of their intrinsic value. Intrinsic value, according
to the Adviser, is the value of the company measured, to different extents
depending on the type of company, on factors such as, but not limited to, the
discounted value of its projected future free cash flows, the company's ability
to earn returns on capital in excess of its costs of capital, private market
values of similar companies, the value of its assets, and the costs to replicate
its business. Qualitative factors, such as an assessment of the company's
products, competitive positioning, strategy, industry economics and dynamics,
regulatory frameworks and more, are also important. Securities may be
undervalued due to uncertainty arising from the availability of accurate
information, economic growth and change, changes in competitive conditions,
technological change, changes in government policy or geo-political dynamics,
and more. The Portfolio may invest in companies of any size.

The Adviser typically sells a security when, in the Adviser's assessment, the
security no longer appears to offer long-term attractive total returns at
reasonable risk, when a more compelling investment opportunity is found, or when
the investment basis no longer applies. The Portfolio may invest in money market
securities for temporary defensive purposes or when cash is temporarily
available. The Portfolio may not achieve its investment objective when so
invested. Consistent with the investment objective, the Portfolio may also
invest in debt securities when the Adviser believes the return on such
securities may equal or exceed the return on equity securities. The Portfolio
may invest in debt securities of any maturity of both foreign and domestic
issuers without regard to rating, and may invest its assets in debt securities
without regard to a percentage limit. The Adviser currently anticipates that
under normal market conditions the Portfolio will invest no more than 50% of its
total assets in intermediate-term and long-term debt securities and no more than
5% of its total assets in debt securities that are not investment grade quality
(commonly referred to as junk bonds).

Among the principal risks of investing in the Portfolio are Market Risk,
Interest Rate Risk, Credit Risk, Call Risk, Special Risks of High Yield
Securities, Liquidity Risk, Borrowing Risk, Foreign Securities Risk, Currency
Risk and Hedging Risk. Please see "Principal Risks" for a discussion of these
and other risks.

LM Balanced Institutional Portfolio
Adviser: LMFA
Objective: Long-term capital appreciation and current income

The Portfolio is a "fund of funds" which is comprised of two separate investment
components: an equity component and a fixed income component. The equity
component will consist solely of Institutional Class shares of the LM Value
Institutional Portfolio ("Value Institutional Portfolio"), a series of LM
Institutional Fund Advisors II, Inc., while the fixed income component will
consist solely of Institutional Class shares of the Western Asset Core Portfolio
("Core Portfolio"), a series of LM Institutional Fund Advisors I, Inc. The
investment objectives, principal investment strategies and related risks of the
Core Portfolio and the Value Institutional Portfolio are described elsewhere in
this Prospectus.

LMFA, the Portfolio's Adviser, will be responsible for allocating assets between
the two components. LMFA currently anticipates that under normal market
conditions approximately 60% of the Portfolio's total assets will be allocated
to the equity component and approximately 40% will be allocated to the fixed
income component. However, LMFA reserves the right to vary these percentages, as
it deems appropriate and market opportunities arise, subject to the limitation
that, under normal market conditions, at least 25% of the Portfolio's total
assets will be allocated to the fixed income component. The Portfolio may also
hold cash or other short-term investments and may not achieve its investment
objective when so invested.

Batterymarch U.S. MidCapitalization Equity Portfolio
Adviser: Batterymarch
Objective: Long-term capital appreciation

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of companies with medium market
capitalizations domiciled, or having their principal activities, in the United
States. The Adviser defines medium market capitalization companies as those with
market capitalizations similar, in its judgment, to the market capitalization of
companies in the Standard & Poor's MidCap 400 Index, determined at the time of
the Portfolio's investment. The S&P MidCap 400 Index is a market weighted
composite index of 400 stocks in the middle capitalization sector of the U.S.
equities market. A company that was a medium market capitalization company at
the time of the Portfolio's investment will continue to be treated as such for
purposes of the 65% test, even if its market capitalization is no longer similar
to that of companies in the S&P MidCap 400 Index.

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<PAGE>

Portfolio may also invest in securities of companies in the form of American
Depository Receipts, which are typically dollar-denominated instruments traded
on an exchange in the United States.

The Adviser uses a bottom-up, quantitative stock selection process. The
cornerstone of this process is a proprietary stock selection model that ranks
the stocks in the Portfolio's investable universe by relative attractiveness.
The quantitative factors within this model reflect a style neutral investment
philosophy and are intended to measure growth, value, fundamental expectations
and technical indicators.

In addition to its principal investment strategies, the Portfolio may engage in
other transactions. For example, although the Portfolio expects to remain
substantially fully invested in equity securities, the Portfolio may invest in
debt or fixed income securities, cash and money market instruments, including
repurchase agreements. Under normal market conditions, up to 5% of the
Portfolio's total assets may be invested in fixed income securities rated below
investment grade or, if unrated, determined by the Adviser to be of comparable
quality. The Portfolio may also engage in reverse repurchase agreement
transactions and other borrowings, purchase restricted and illiquid securities,
lend its portfolio securities, invest in securities of other investment
companies, engage in foreign currency exchange transactions and engage in
futures and options transactions.

Among the principal risks of investing in the Portfolio are Market Risk,
Interest Rate Risk, Credit Risk, Borrowing Risk, Liquidity Risk, Derivatives
Risk, Foreign Securities Risk, Currency Risk, Special Risks of High Yield
Securities and Hedging Risk. Please see "Principal Risks" for a discussion of
these and other risks.

Batterymarch U.S. Small Capitalization Equity Portfolio
Adviser: Batterymarch
Objective: Long-term capital appreciation

Under normal market conditions, the Portfolio will invest at least 65% of its
total assets in equity securities of companies with small market capitalizations
domiciled, or having their principal activities, in the United States. The
Adviser defines small market capitalization companies as those whose market
capitalizations are similar, in its judgment, to the market capitalization of
companies in the Russell 2000 Index, determined at the time of the Portfolio's
investment. The Russell 2000 Index is a capitalization-weighted broad-based
index of 2000 small capitalization U.S. companies. A company that was a small
market capitalization company at the time of the Portfolio's investment will
continue to be treated as such for purposes of the 65% test, even if its market
capitalization is no longer similar to that of companies in the Russell 2000
Index.

Equity securities include common stock, preferred stock, securities convertible
into or exchangeable for common stock, rights and warrants to acquire such
securities and substantially similar forms of equity with comparable risk. The
Portfolio may also invest in securities of companies in the form of American
Depository Receipts, which are typically dollar-denominated instruments traded
on an exchange in the United States.

The Adviser uses a bottom-up, quantitative stock selection process. The
cornerstone of this process is a proprietary stock selection model that ranks
the stocks in the Portfolio's investable universe by relative attractiveness on
a daily basis. The quantitative factors within this model reflect a style
neutral investment philosophy and are intended to measure growth, value,
fundamental expectations and technical indicators.

Among the principal risks of investing in the Portfolio are Market Risk,
Interest Rate Risk, Credit Risk, Borrowing Risk, Liquidity Risk, Derivatives
Risk, Special Risks of High Yield Securities and Hedging Risk. Please see
"Principal Risks" for a discussion of these and other risks.

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<PAGE>

Batterymarch International Equity Portfolio
Adviser: Batterymarch
Objective: Long-term total return

Under normal market conditions, the Portfolio will invest substantially all of
its assets, but in any event at least 65% of its total assets, in non-U.S.
equity securities.

The primary focus of the Adviser is stock selection, with a secondary focus on
country allocation. The Adviser uses a bottom-up, quantitative stock selection
process for the developed markets portion of the Portfolio's portfolio. The
cornerstone of this process is a proprietary stock selection model that ranks
the 2,800 stocks in the Portfolio's investable universe by relative
attractiveness on a daily basis. The quantitative factors within this model are
intended to measure growth, value, fundamental expectations and technical
indicators (i.e., supply and demand).

Country allocation for the developed markets portion of the Portfolio is based
on rankings generated by the Adviser's proprietary country model. The Adviser
examines securities from over 20 international stock markets, with emphasis on
several of the largest: Japan, United Kingdom, France, Canada and Germany.

The Portfolio may invest up to 35% of its total assets in emerging market equity
securities. The Adviser's investment strategy for the emerging markets portion
of the Portfolio represents a distinctive combination of quantitative
methodology and traditional fundamental analysis. The emerging markets
allocation focuses on what the Adviser believes are higher-quality, dominant
companies, which the Adviser believes to have strong growth prospects and
reasonable valuations. Country allocation for the emerging markets portion of
the Portfolio also combines quantitative and fundamental approaches.

The Portfolio will normally be invested across a broad range of industries and
across a number of countries, consistent with the objective of maximum total
return. However, more than 25% of the Portfolio's total assets may be invested
in securities of issuers located in a single country, which is currently
expected to be the case with respect to both Japan and the United Kingdom.
Because the Portfolio may concentrate a significant portion of its investments
in a single country or currency, it will be more susceptible to factors
adversely affecting such currency or issuers within that country than would a
more diversified portfolio of securities.

The Portfolio may invest without limit in cash and money market instruments,
including repurchase agreements, in circumstances when cash is temporarily
available, or for temporary defensive purposes when the Adviser believes such
action is war-ranted by abnormal market or economic situations. The Portfolio
may not achieve its investment objectives when so invested. Up to 5% of the
Portfolio's total assets may be invested in fixed income securities rated below
investment grade or, if unrated, determined by the Adviser to be below
investment grade. The Adviser may also seek to enhance portfolio returns through
active currency hedging strategies, although there can be no assurances that
such strategies will be pursued or, if pursued, will be successful.

Among the principal risks of investing in the Portfolio are Market Risk, Foreign
Securities Risk, Emerging Markets Risk, Currency Risk, Interest Rate Risk,
Credit Risk, Call Risk, Special Risks of High Yield Securities, Borrowing Risk,
Derivatives Risk and Hedging Risk. Please see "Principal Risks" for a discussion
of these and other risks.

Batterymarch Emerging Markets Portfolio
Adviser: Batterymarch
Objective: Long-term capital appreciation

Under normal market conditions, the Portfolio will invest substantially all of
its assets, but in any event at least 65% of its total assets, in equity
securities and convertible securities of emerging market issuers. Emerging
market countries are those countries having less fully developed economic and
political systems and include any country: (i) having an "emerging stock market"
or considered a "frontier market" as defined by the International Finance
Corporation; (ii) with low- to middle-income economies according to the
International Bank for Reconstruction and Development ("World Bank"); (iii)
listed in World Bank publications as developing; or (iv) included in the Morgan
Stanley Capital International (MSCI) Emerging Markets published index. Emerging
market equity securities include common stock, preferred stock, securities
convertible into common stock, rights and warrants to acquire such securities
and substantially similar forms of equity with comparable risk characteristics
that are: (1) publicly traded on emerging market stock exchanges, or whose
principal trading market is over-the-counter (i.e., off-exchange) in an emerging
market country; (2)

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<PAGE>

securities denominated in any currency if issued by companies to finance
operations in an emerging market country; (3) securities of companies that
derive a substantial portion (i.e., in excess of 50%) of their total revenues
from goods or services produced in, or sales made in, emerging market countries;
(4) securities of companies organized under the laws of an emerging market
country or region, which are publicly traded in securities markets elsewhere; or
(5) American depositary receipts ("ADRs") (or similar instruments) with respect
to the foregoing.

The Portfolio intends to invest in Asia, Latin America, the Indian Subcontinent,
Southern and Eastern Europe, the Middle East and Africa, although it may not
invest in all these markets at all times and may not invest in any particular
market when it deems investment in that country or region to be inadvisable.

More than 25% of the Portfolio's total assets may be invested in securities of
issuers located in a single country. Because the Portfolio may concentrate a
significant portion of its investments in a single country or currency, it will
be more susceptible to factors adversely affecting such currency or issuers
within that country than would a more diversified portfolio of securities.

The Adviser focuses on what the Adviser believes are higher-quality, dominant
emerging markets companies which the Adviser believes to have strong growth
prospects and reasonable valuations, selected from an investable universe of
approximately 1,000 stocks. The Adviser's emerging markets investment strategy
represents a distinctive combination of quantitative methodology and traditional
fundamental analysis. Traditional "on-the-ground" fundamental research is
combined by the Adviser with quantitative valuation disciplines in those markets
where reliable data is available. In determining country allocation, the Adviser
also merges quantitative and fundamental approaches.

The Portfolio may invest without limit in cash and money market instruments,
including repurchase agreements, in circumstances when cash is temporarily
available, or for temporary defensive purposes when the Adviser believes such
action is warranted by abnormal market or economic situations. The Portfolio may
not achieve its investment objective when so invested. Up to 10% of the
Portfolio's total assets may be invested in fixed income securities rated below
investment grade or, if unrated, determined by the Adviser to be below
investment grade (i.e., rated below BBB/Baa and commonly referred to as junk
bonds).

Principal Risks

In General

At any time, your investment in a mutual fund may be worth more or less than the
price you originally paid for it. You may lose money by investing in any of
these Portfolios because: (1) the value of the investments it owns changes,
sometimes rapidly and unpredictably; (2) the Portfolio is not successful in
reaching its goal because of its strategy or because it did not implement its
strategy properly; or (3) unforeseen occurrences in the securities markets
negatively affect the Portfolio.

An investment in the Western Asset Government Money Market and Western Asset
Money Market Portfolios is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although these Portfolios seek to reserve the value of your investment
at $1.00 per share, it is possible to lose money by investing in these
Portfolios.

The following risks apply to the Portfolios. You should read this section
carefully before you invest in order to learn more about the Portfolio in which
you will invest.

Market Risk

Certain of the Portfolios may invest, directly or indirectly, their assets in
equity securities. Prices of equity securities generally fluctuate more than
those of other securities. A Portfolio may experience a substantial or complete
loss on an individual stock. Market risk may affect a single issuer, industry or
section of the economy or may affect the market as a whole. The Batterymarch
International Equity Portfolio and the Batterymarch Emerging Markets Portfolio
invest

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<PAGE>

primarily in foreign equity securities. Foreign securities have additional
risks, see "Foreign Securities Risk" and "Currency Risk" below.

Securities of "small cap" companies, such as those in which the Batterymarch
U.S. Small Capitalization Equity Portfolio may invest, entail special risks.
Such companies often have limited operating histories and may have more
restricted product lines or more limited financial resources than larger, more
established companies. For these and other reasons, they may be more severely
affected by economic downturns or other adverse developments than are larger,
more established companies. Securities of "small cap" companies may be traded
"over-the-counter" and often trade less frequently and in more limited volume,
may be subject to greater volatility and may be more difficult to value than
securities of larger, more established companies. "Small cap" companies are
often involved in actual or anticipated reorganizations or restructurings, which
involve special risks, including difficulty in obtaining information as to the
financial condition of such companies. Market prices of such companies'
securities may be subject to sudden and erratic price volatility. The securities
of "mid-sized" companies, such as those in which the Batterymarch U.S.
MidCapitalization Equity Portfolio and the LM Special Investment Institutional
Portfolio may invest, share many of these same risks.

Foreign Securities Risk

Investments in foreign securities (including those denominated in U.S. dollars)
involve certain risks not typically associated with investments in domestic
issuers. The values of foreign securities are subject to economic and political
developments in the countries and regions where the companies operate or are
domiciled, or where the securities are traded, such as changes in economic or
monetary policies, and to changes in exchange rates. Values may also be affected
by restrictions on receiving the investment proceeds from a foreign country.

In general, less information is publicly available about foreign companies than
about U.S. companies. Foreign companies are generally not subject to the same
accounting, auditing and financial reporting standards as are U.S. companies.

Some securities issued by foreign governments or their subdivisions, agencies
and instrumentalities may not be backed by the full faith and credit of the
foreign government. Even where a security is backed by the full faith and credit
of a foreign government, it may be difficult for a Portfolio to pursue its
rights against a foreign government in that country's courts. Some foreign
governments have defaulted on principal and interest payments.

In addition, a Portfolio's investments in foreign securities may be subject to
the risk of nationalization or expropriation of assets, imposition of currency
exchange controls or restrictions on the repatriation of foreign currency,
confiscatory taxation, political or financial instability and adverse diplomatic
developments. Dividends or interest on, or proceeds from the sale of, foreign
securities may be subject to foreign withholding taxes, and special U.S. tax
considerations may apply.

Emerging Markets Risk

The risks of foreign investment are greater for investments in emerging markets.
Among others, these types of investments can include not only equity securities,
but also "Brady Bonds," bonds issued as a result of a debt restructuring plan,
Eurobonds, domestic and international bonds issued under the laws of a
developing country, emerging market loans and other debt instruments. Emerging
market countries typically have economic and political systems that are less
fully developed, and can be expected to be less stable than those of more
advanced countries. For example, the economies of such countries can be subject
to rapid and unpredictable rates of inflation or deflation. Low trading volumes
may result in a lack of liquidity and in price volatility. Emerging market
countries may have policies that restrict investment by foreigners, or that
prevent foreign investors from withdrawing their money at will.

Because some of the Portfolios may invest a significant amount of their total
assets in emerging market securities, investors should be able to tolerate
sudden and sometimes substantial fluctuations in the value of their investments.
An investment in any Portfolio that invests in emerging market securities, which
includes the Batterymarch Emerging Markets Portfolio, the Batterymarch
International Equity Portfolio, the Western Asset High Yield Portfolio, the
Western Asset Non-U.S. Fixed Income Portfolio and the Western Asset Global
Strategic Income Portfolio, should be considered speculative.

Currency Risk

Because certain Portfolios may invest in securities denominated in foreign
currencies, their value can be affected by changes in the rates of exchange
between those currencies and the U.S. dollar. Currency exchange rates can be
volatile and

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<PAGE>

affected by, among other factors, the general economics of a country, the
actions of the U.S. and foreign governments or central banks, the imposition of
currency controls, and speculation. A security may be denominated in a currency
that is different from the currency where the issuer is domiciled.

In addition to the policies described elsewhere in this Prospectus, the
Portfolios may from time to time attempt to hedge a portion of their currency
risk, using a variety of techniques, including currency futures, forwards, or
options. However, these instruments may not always work as intended, and in
certain cases a Portfolio may be worse off than if it had not used a hedging
instrument. For most emerging market currencies, there are not suitable hedging
instruments available. See "Hedging Risk" below for more information.

Interest Rate Risk

Each Portfolio may be subject to interest rate risk, which is the possibility
that the market prices of the Portfolios' fixed income investments may decline
due to an increase in market interest rates. Generally, the longer the maturity
of a fixed-income security, the greater is the effect on its value when rates
increase.

Certain securities pay interest at variable or floating rates. Variable rate
securities reset at specified intervals, while floating rate securities reset
whenever there is a change in a specified index rate. In most cases, these reset
provisions reduce the effect of market interest rates on the value of the
security. However, some securities do not track the underlying index directly,
but reset based on formulas that can produce an effect similar to leveraging;
others may also provide for interest payments that vary inversely with market
rates. The market prices of these securities may fluctuate significantly when
interest rates change.

Credit Risk

A Portfolio is also subject to credit risk, i.e., the risk that an issuer of
securities will be unable to pay principal and interest when due, or that the
value of the security will suffer because investors believe the issuer is less
able to pay. This is broadly gauged by the credit ratings of the securities in
which a Portfolio invests. However, ratings are only the opinions of the
agencies issuing them and are not absolute guarantees as to quality. Not all
securities are rated.

Moody's Investors Service considers debt securities rated Baa to have
speculative characteristics. Debt securities rated below investment grade (i.e.,
securities rated below Baa/BBB) are deemed by the rating agencies to be
speculative and may involve major risk of exposure to adverse conditions. These
ratings may indicate that the securities are highly speculative and may be in
default or in danger of default as to principal and interest. Unrated securities
of comparable quality share these risks.

Not all U.S. government securities are backed by the full faith and credit of
the United States. Some are backed only by the credit of the issuing agency or
instrumentality. Accordingly, there is a risk of default on these securities.

Call Risk

Many fixed income securities, especially those issued at high interest rates,
provide that the issuer may repay them early. Issuers often exercise this right
when interest rates are low. Accordingly, holders of callable securities may not
benefit fully from the increase in value that other fixed income securities
experience when rates decline. Furthermore, a Portfolio reinvests the proceeds
of the payoff at current yields, which are lower than those paid by the security
that was paid off.

Special Risks of High Yield Securities

Securities rated below Baa/BBB, commonly known as junk bonds or high yield
securities, have speculative characteristics. Accordingly, there is a greater
possibility that the issuers of these securities may be unable to make timely
payments of interest and principal and thus default. If this happens, or is
perceived as likely to happen, the values of these investments will usually be
more volatile. These securities may be less liquid than higher-rated securities,
which means a Portfolio may have difficulty selling them at times, and may have
to apply a greater degree of judgment in establishing a price. When a Portfolio
buys lower rated debt, the achievement of its goals depends more on the
Advisers' ability than would be the case if a Portfolio were buying investment
grade debt. Unrated securities of comparable quality share these risks.

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<PAGE>

Borrowing Risk

When a Portfolio is borrowing money or otherwise leveraging its portfolio, the
value of an investment in that Portfolio will be more volatile and all other
risks will tend to be compounded. This is because leverage tends to exaggerate
the effect of any increase or decrease in the value of a Portfolio's holdings.
Portfolios may take on borrowing risk or similar risks by using reverse
repurchase agreements, dollar rolls and other borrowings, by investing
collateral from loans of portfolio securities, through the use of when-issued,
delayed-delivery or forward commitment transactions or by using other
derivatives. The use of leverage may also cause a Portfolio to liquidate
positions when it may not be advantageous to do so to satisfy its obligations or
meet segregation requirements.

Liquidity Risk

Liquidity risk exists when particular investments are difficult to sell. A
Portfolio may not be able to sell these illiquid investments at the best prices.
Investments in derivatives, foreign investments, restricted securities,
securities having small market capitalization, and securities having substantial
market and/or credit risk tend to involve greater liquidity risk.

Special Risks of Mortgage-Backed and Asset-Backed Securities

Mortgage-backed securities represent an interest in a pool of mortgages. When
market interest rates decline, many mortgages are refinanced, and mortgage-
backed securities are paid off earlier than expected. Prepayments may also occur
on a scheduled basis or due to foreclosure. The effect on a Portfolio's return
is similar to that discussed above for call risk.

When market interest rates increase, the market values of mortgage-backed
securities decline. At the same time, however, mortgage refinancings and
prepayments slow, which lengthens the effective maturities of these securities.
As a result, the negative effect of the rate increase on the market value of
mortgage-backed securities is usually more pronounced than it is for other types
of fixed income securities, potentially increasing the volatility of a
Portfolio.

Asset-backed securities are structured like mortgage-backed securities, but
instead of mortgage loans or interests in mortgage loans, the underlying assets
may include such items as motor vehicle installment sales or installment loan
contracts, leases of various types of real and personal property, and
receivables from credit card agreements. The ability of an issuer of asset-
backed securities to enforce its security interest in the underlying assets may
be limited. Asset-backed securities are subject to many of the same risks as
mortgage-backed securities.

Prepayments may cause losses on securities purchased at a premium. At times,
some of the mortgage-backed and asset-backed securities in which a Portfolio may
invest will have higher than market interest rates and therefore will be
purchased at a premium above their par value. Unscheduled prepayments, which are
made at par, will cause a Portfolio to experience a loss equal to any
unamortized premium.

Non-Diversification

The Western Asset Non-U.S. Fixed Income Portfolio and the Western Asset Global
Strategic Income Portfolio are non-diversified, meaning each may invest a
greater percentage of its total assets in securities of any one issuer, or may
invest in a smaller number of different issuers, than it could if it were a
"diversified" company under the Investment Company Act. When a Portfolio's
assets are invested in the securities of a limited number of issuers, or in a
limited number of countries or currencies, the value of its shares will be more
susceptible to any single economic, political or regulatory event than shares of
a more diversified fund.

Derivatives Risk

A Portfolio may engage in a variety of transactions using "derivatives," such as
futures, options, warrants and swaps. Derivatives are financial instruments
whose value depends upon, or is derived from, the value of something else, such
as one or more underlying investments, indexes or currencies. Derivatives may be
traded on organized exchanges, or in individually negotiated transactions with
other parties (these are known as "over the counter"). A Portfolio may use
derivatives both for hedging and non-hedging purposes, including for purposes of
enhancing returns. Although the Advisers have the flexibility to make use of
derivatives, they may choose not to for a variety of reasons, even under very
volatile market conditions.

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<PAGE>

Derivatives involve special risks and costs and may result in losses to a
Portfolio. The successful use of derivatives requires sophisticated management,
and a Portfolio will depend on the Adviser's ability to analyze and manage
derivatives transactions. The prices of derivatives may move in unexpected ways,
especially in abnormal market conditions. Some derivatives are "leveraged" and
therefore may magnify or otherwise increase investment losses to a Portfolio. A
Portfolio's use of derivatives may also increase the amount of taxes payable by
shareholders.

Other risks arise from the potential inability to terminate or sell derivatives
positions. A liquid secondary market may not always exist for a Portfolio's
derivatives positions at any time. In fact, many over-the-counter instruments
will not be liquid. Over-the-counter instruments also involve the risk that the
other party will not meet its obligations to a Portfolio.

Hedging Risk

The decision as to whether and to what extent a Portfolio will engage in hedging
transactions to hedge against such risks as credit risk, currency risk and
market risk will depend on a number of factors, including prevailing market
conditions, the composition of the Portfolio and the availability of suitable
transactions. Accordingly, there can be no assurance that a Portfolio will
engage in hedging transactions at any given time or from time to time or that
any such strategies will be successful. Hedging transactions involve costs and
may result in losses.

Turnover

The length of time a Portfolio has held a particular security is not generally a
consideration in investment decisions. A change in the securities held by a
Portfolio is known as "portfolio turnover." As a result of a Portfolio's
investment policies, under certain market conditions a Portfolio's turnover rate
may be higher than that of other mutual funds. Portfolio turnover generally
involves some expense to a Portfolio, including brokerage commissions or dealer
mark-ups and other transaction costs on the sale of securities and reinvestment
in other securities. These transactions may result in realization of taxable
capital gains. Higher portfolio turnover rates, such as those above 100%, are
likely to result in higher brokerage commissions or other transactions costs and
could give rise to a greater amount of taxable capital gains.

Risks Associated with Other Policies the Portfolios May Pursue

In addition to the investment strategies described above, a Portfolio may also
make other types of investments, and therefore may be subject to other risks.
Some of these risks are described in each Portfolio's Statement of Additional
Information ("SAI"). The terms "debt" and "fixed income securities" are used in
this Prospectus interchangeably, and, where used, are not intended to be
limiting.

At times the Advisers may judge that market conditions make pursuing a
Portfolio's investment strategies inconsistent with the best interests of its
shareholders. The Advisers then may temporarily use alternative strategies that
are mainly designed to limit a Portfolio's losses. Although the Advisers have
the flexibility to use these strategies, they may choose not to for a variety of
reasons, even in very volatile market conditions. These strategies may cause a
Portfolio to miss out on investment opportunities, and may prevent a Portfolio
from achieving its goal. In addition, an Adviser may also keep a portion of a
Portfolio's assets in cash for temporary or defensive purposes, in order to meet
redemption requests or for investment purposes.

Except for the investment objective of each of the Western Asset Core, Western
Asset Intermediate and Western Asset Money Market Portfolios, the Directors may
change a Portfolio's investment objective, investment strategies and other
policies without shareholder approval.

Performance Information

The following information provides some indication of a Portfolio's risks. The
charts and tables show year-to-year changes in the performance of the
Institutional Class shares for the Western Asset Core, Western Asset
Intermediate, Western Asset Core Plus, Western Asset Non-U.S. Fixed Income, and
LM Value Institutional Portfolios. The tables following the charts compare each
Portfolio's performance to that of a broad measure of market performance. SEC
Rules do not require charts and tables for the other Portfolios or for the
Financial Intermediary Class shares. However, the performance for the Financial
Intermediary Class would be lower for each Portfolio since this Class has higher
expenses. Of course, a Portfolio's past performance is not an indication of
future performance.

19
<PAGE>

Western Asset Core Portfolio

Calendar-Year Total Returns

Best quarter: Second quarter 1995: +6.91%
Worst quarter: First quarter 1994: -2.60%
More recent return information: January 1, 2000 - June 30, 2000: ____%

Performance Chart:

1991: 18.02%
1992: 7.85%
1993: 13.86%
1994: -4.33%
1995: 20.97%
1996: 3.70%
1997: 10.17%
1998: 8.34%
1999: -1.69%

Average Annual Total Returns for periods ended December 31, 1999

1 Year 5 Years Portfolio Inception
(September 4, 1990)

Core Portfolio -1.69% 8.04% 8.58%
Salomon Broad Market Index* -0.83% 7.73% 7.99%**

*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. The Index does not incur fees and
expenses and cannot be purchased directly by investors.
**The average annual total return since inception shown for the Index is from
August 31, 1990.

Western Asset Intermediate Portfolio

Calendar-Year Total Returns

Best quarter: Second quarter 1995: +5.17%
Worst quarter: First quarter 1996: -0.61%
More recent return information: January 1, 2000 - June 30, 2000: ____%

Performance Chart:

1995: 15.51%
1996: 4.69%
1997: 8.40%
1998: 7.71%
1999: 0.39%

Average Annual Total Returns for periods ended December 31, 1999

1 Year 5 Years Portfolio Inception
(July 1, 1994)

Intermediate Portfolio 0.39% 7.22% 6.65%
Lehman Intermediate
Gov't/Corp Bond Index* 0.39% 7.10% 6.57%**

*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. The Index does not incur fees and expenses and
cannot be purchased directly by investors.

**The average annual total return since inception shown for the Index is from
June 30, 1994.

20
<PAGE>

Western Asset Core Plus Portfolio

Calendar-Year Total Returns

Best quarter: Third quarter 1999: +0.93%
Worst quarter: Second quarter 1999: -1.12%
More recent return information: January 1, 2000 - June 30, 2000: ____%

Performance Chart:

1999: -1.15%

Average Annual Total Returns for periods ended December 31, 1999

1 Year Portfolio Inception
(July 8, 1998)

Core Plus Portfolio -1.15% 1.63%
Salomon Broad Market Index* -0.83% 2.45%**

Western Asset Non-U.S. Fixed Income Portfolio

Calendar-Year Total Returns

Best quarter: Fourth quarter 1999: 1.10%
Worst quarter: Third quarter 1999: -1.15%
More recent return information: January 1, 2000 - June 30, 2000: ____%

Performance Chart:

1999: -1.78%

Average Annual Total Returns for periods ended December 31, 1999

1 Year Portfolio Inception
(July 15, 1998)

Non-U.S. Portfolio -1.78% 3.14%
Salomon World Gov't ex-U.S.
Index (Hedged)* 2.88% 5.47%**

*The Salomon Brothers World Government ex-U.S. Index (Hedged) is an unmanaged
index that tracks debt issues traded in 14 world government bond markets. The
Index does not incur fees and expenses and cannot be purchased directly by
investors.
**The average annual total return since inception shown for the Index is from
July 31, 1998.

LM Value Institutional Portfolio

Calendar-Year Total Returns

Best quarter: Fourth quarter 1998: 36.14%
Worst quarter: Third quarter 1999: -9.45%
More recent return information: January 1, 2000 - June 30, 2000: ____%

Performance Chart:

1999: 27.27%

21
<PAGE>

Average Annual Total Returns for periods ended December 31, 1999

1 Year Portfolio Inception
(September 22, 1998)

Value Institutional Portfolio 27.27% 52.02%
S&P 500 Index* 21.04% 35.97%**

*The S&P 500 Index is an unmanaged of 500 common stocks and is considered to be
a broad indicator of general market performance. The Index does not incur fees
and expenses and cannot be purchased directly by investors.
**The average annual total return since inception shown for the Index is from
September 30, 1998.

Fees and Expenses

The following tables describe the fees and expenses that you may pay if you buy
and hold shares of a Portfolio.

Expenses are based on annualized actual expenses for the fiscal year ended March
31, 2000 for the Western Asset Intermediate Portfolio, Western Asset Core
Portfolio, Western Asset Core Plus Portfolio, Western Asset Non-U.S. Fixed
Income Portfolio and LM Value Institutional Portfolio. Expenses for the other
Portfolios are based on estimated amounts for the current fiscal year.

The examples below the tables are intended to help you compare the cost of
investing in a Portfolio with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a Portfolio for the time periods
indicated and then redeem all of your shares at the end of those periods. The
examples also assume that your investment has a 5% return each year and that the
Portfolio's operating expenses remain the same. Your actual costs may be higher
or lower.

Western Asset Government Money Market Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.20% 0.20%
Distribution (12b-1) Fees* None 0.10%
Other Expenses 0.15% 0.15%
----- -----
Total Annual Fund Operating Expenses 0.35% 0.45%
===== =====

Expense Reimbursement/Waiver (0.05%) (0.05%)
------- -------

Net Expenses** 0.30% 0.40%
===== =====

Examples
1 Year $36 $46
3 Years $113 $144
</TABLE>

22
<PAGE>

Western Asset Money Market Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.20% 0.20%
Distribution (12b-1) Fees* None 0.10%
Other Expenses 0.15% 0.15%
----- -----
Total Annual Fund Operating Expenses 0.35% 0.45%
===== =====

Expense Reimbursement/Waiver (0.05%) (0.05%)
------- -------

Net Expenses** 0.30% 0.40%
===== =====

Examples
1 Year $36 $46
3 Years $113 $144
</TABLE>

Western Asset Intermediate Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.40% 0.40%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.08% 0.08%
----- -----
Total Annual Fund Operating Expenses 0.48% 0.73%
===== =====

Expense Reimbursement/Waiver (0.03%) (0.03%)
------- -------

Net Expenses** 0.45% 0.70%
===== =====

Examples
1 Year $49 $75
3 Years $154 $233
5 Years $269 $406
10 Years $604 $906
</TABLE>

23
<PAGE>

Western Asset Intermediate Plus Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.40% 0.40%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.15% 0.15%
----- -----
Total Annual Fund Operating Expenses 0.55% 0.80%
===== =====

Expense Reimbursement/Waiver (0.10%) (0.10%)
------- -------

Net Expenses** 0.45% 0.70%
===== =====

Examples
1 Year $56 $82
3 Years $176 $255
</TABLE>

Western Asset Core Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.45% 0.45%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.06% 0.06%
----- -----
Total Annual Fund Operating Expenses** 0.51% 0.76%
===== =====

Expense Reimbursement/Waiver (0.01%) (0.01%)
------- -------

Net Expenses** 0.50% 0.75%
===== =====

Examples
1 Year $52 $78
3 Years $164 $245
5 Years $285 $422
10 Years $640 $942
</TABLE>

24
<PAGE>

Western Asset Core Plus Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.45% 0.45%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.20% 0.20%
----- -----
Total Annual Fund Operating Expenses 0.65% 0.90%
===== =====

Expense Reimbursement/Waiver (0.15%) (0.15%)
------- -------

Net Expenses** 0.50% 0.75%
===== =====

Examples
1 Year $66 $92
3 Years $208 $287
5 Years $362 $498
10 Years $810 $1,108
</TABLE>

Western Asset Inflation Indexed Bond Portfolio
<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.20% 0.20%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.15% 0.15%
----- -----
Total Annual Fund Operating Expenses 0.35% 0.60%
===== =====

Expense Reimbursement/Waiver (0.10%) (0.10%)
------- -------

Net Expenses** 0.25% 0.50%
===== =====

Examples
1 Year $36 $61
3 Years $113 $192
</TABLE>

25
<PAGE>

Western Asset High Yield Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.55% 0.55%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.15% 0.15%
----- -----
Total Annual Fund Operating Expenses 0.70% 0.95%
===== =====

Expense Reimbursement/Waiver (0.15%) (0.15%)
------- -------

Net Expenses** 0.55% 0.80%
===== =====

Examples
1 Year $72 $97
3 Years $224 $303
</TABLE>

Western Asset Non-U.S. Fixed Income Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.45% 0.45%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.38% 0.38%
----- -----
Total Annual Fund Operating Expenses 0.83% 1.08%
===== =====

Expense Reimbursement/Waiver (0.28%) (0.28%)
------- -------

Net Expenses** 0.55% 0.80%
===== =====

Examples
1 Year $85 $110
3 Years $265 $343
5 Years $460 $595
10 Years $1,025 $1,317
</TABLE>

26
<PAGE>

Western Asset Global Strategic Income Portfolio
<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.45% 0.45%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.40% 0.40%
----- -----
Total Annual Fund Operating Expenses 0.85% 1.10%
===== =====

Expense Reimbursement/Waiver (0.05%) (0.05%)
------- -------

Net Expenses** 0.80% 1.05%
===== =====

Examples
1 Year $87 $112
3 Years $271 $350
</TABLE>

Western Asset Enhanced Equity Portfolio
<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.55% 0.55%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.20% 0.20%
----- -----
Total Annual Fund Operating Expenses 0.75% 1.00%
===== =====

Expense Reimbursement/Waiver (0.10%) (0.10%)
------- -------

Net Expenses** 0.65% 0.90%
===== =====

Examples
1 Year $77 $102
3 Years $240 $318
</TABLE>

LM Value Institutional Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) 0.01% 0.02%

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.60% 0.60%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.14% 0.14%
----- -----
Total Annual Fund Operating Expenses 0.75% 1.01%
===== =====

Expense Reimbursement/Waiver None (0.01%)
-------

Net Expenses** 0.75% 1.00%
===== =====
Examples
1 Year $77 $102
3 Years $240 $318
5 Years $417 $552
10 Years $930 $1,225
</TABLE>

27
<PAGE>

LM Special Investment Institutional Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.60% 0.60%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.25% 0.25%
----- -----
Total Annual Fund Operating Expenses 0.85% 1.10%
===== =====

Expense Reimbursement/Waiver (0.10%) (0.10%)
------- -------

Net Expenses** 0.75% 1.00%
===== =====

Examples
1 Year $87 $112
3 Years $271 $350
</TABLE>

LM Total Return Institutional Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.60% 0.60%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.25% 0.25%
----- -----
Total Annual Fund Operating Expenses 0.85% 1.10%
===== =====

Expense Reimbursement/Waiver (0.10%) (0.10%)
------- -------

Net Expenses** 0.75% 1.00%
===== =====

Examples
1 Year $87 $112
3 Years $271 $350
</TABLE>

28
<PAGE>

LM Balanced Institutional Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.05% 0.05%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.25% 0.25%
----- -----
Total Annual Fund Operating Expenses** 0.30% 0.55%
===== =====

Total Annual Expenses of Underlying Portfolios+ 0.65% 0.65%
----- -----

Total Expenses of Balanced Portfolio and
Underlying Portfolios 0.95% 1.20%
===== =====

Examples
1 Year $97 $122
3 Years $303 $381
</TABLE>

Batterymarch U.S. MidCapitalization Equity Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.50% 0.50%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.25% 0.25%
----- -----
Total Annual Fund Operating Expenses** 0.75% 1.00%
===== =====

Examples
1 Year $77 $102
3 Years $240 $318
</TABLE>

Batterymarch U.S. Small Capitalization Equity Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.70% 0.70%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.25% 0.25%
----- -----
Total Annual Fund Operating Expenses** 0.95% 1.20%
===== =====

Examples
1 Year $97 $122
3 Years $303 $381
</TABLE>

29
<PAGE>

Batterymarch International Equity Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.65% 0.65%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.40% 0.40%
----- -----
Total Annual Fund Operating Expenses 1.05% 1.30%
===== =====

Expense Reimbursement/Waiver (0.05%) (0.05%)
------- -------

Net Expenses** 1.00% 1.25%
===== =====

Examples
1 Year $107 $132
3 Years $334 $412
</TABLE>

Batterymarch Emerging Markets Portfolio

<TABLE>
<CAPTION>
Institutional Class Financial Intermediary Class
------------------- ----------------------------
<S> <C> <C>
Shareholder Fees
(Fees paid directly from your investment) None None

Annual Fund Operating Expenses
(Expenses deducted from Portfolio assets)

Management Fees 0.65% 0.65%
Distribution (12b-1) Fees* None 0.25%
Other Expenses 0.85% 0.85%
----- -----
Total Annual Fund Operating Expenses 1.50% 1.75%
===== =====

Expense Reimbursement/Waiver (0.05%) (0.05%)
------- -------

Net Expenses** 1.45% 1.70%
===== =====

Examples
1 Year $153 $178
3 Years $474 $551
</TABLE>

*The 12b-1 fees shown in the tables reflect the amount to which the Directors
have currently limited payments under the Portfolios' Distribution Plans.
Pursuant to each Portfolio's Distribution Plan, the Directors may increase the
12b-1 fees to 0.40% of average net assets without shareholder approval.

**The Manager is contractually obligated to limit Portfolio expenses to the
level shown through August 1, 2001.

+Shareholders of the LM Balanced Institutional Portfolio ("Balanced Portfolio")
will indirectly bear the Balanced Portfolio's pro rata share of the operating
expenses incurred by the underlying Portfolios in which the Balanced Portfolio
invests. Consequently, the fees and corresponding examples for the Balanced
Portfolio include both the estimated fees of the Balanced Portfolio and a
composite of the fees of the Core Portfolio and the Value Institutional
Portfolio actually incurred in the last fiscal year. The Manager is
contractually obligated to limit the expenses of the underlying Portfolios
through August 1, 2001. For the purposes of calculating the effect of the fees
of the underlying Portfolios on Balanced Portfolio shareholders, it has been
assumed that LMFA will allocate 60% of the Balanced Portfolio's assets to the
Value Institutional Portfolio and 40% to the Core Portfolio. LMFA reserves the
right to vary the allocation of the Balanced Portfolio's assets, as it deems
appropriate, subject to certain limitations discussed earlier in this
Prospectus. The actual fees and expenses incurred directly and indirectly by
shareholders of the Balanced Portfolio may be higher or lower than those shown
above.

30
<PAGE>

Management of the Portfolios

General

LMIFA I and LMIFA II are open-end management investment companies comprised of a
variety of separate investment portfolios. LMIFA I was incorporated in Maryland
on May 16, 1990. LMIFA II was incorporated in Maryland on January 13, 1998.

Board of Directors

The business affairs of LMIFA I and LMIFA II are managed under the direction of
a Board of Directors for each corporation, and the Directors of each corporation
are responsible for generally overseeing the conduct of the relevant Portfolio's
business. Information about the Directors and executive officers may be found in
the relevant SAI.

Each Board of Directors has retained the Manager and the Advisers to manage the
Portfolios' affairs, furnish a continuing investment program for the Portfolios
and make investment decisions on their behalf, subject to such policies as the
Directors may determine.

Manager, Advisers and Portfolio Managers

The Portfolios are managed by the Manager. Each Portfolio pays the Manager a
monthly fee based on the average net assets of the Portfolio at the following
annual rates (shown prior to any waivers or reimbursements):

Annual Percentage of
Portfolio Average Net Assets
--------- ------------------

Western Asset Money Market Portfolio 0.20%
Western Asset Government Money Market Portfolio 0.20%
Western Asset Intermediate Portfolio 0.40%
Western Asset Intermediate Plus Portfolio 0.40%
Western Asset Core Portfolio 0.45%
Western Asset Core Plus Portfolio 0.45%

Western Asset Inflation Indexed Bond Portfolio 0.20%

Western Asset High Yield Portfolio 0.55%
Western Asset Non-U.S. Fixed Income Portfolio 0.45%
Western Asset Global Strategic Income Portfolio 0.45%
Western Asset Enhanced Equity Portfolio 0.55%

LM Value Institutional Portfolio 0.60%
LM Special Investment Institutional Portfolio 0.60%
LM Total Return Institutional Portfolio 0.60%
LM Balanced Institutional Portfolio 0.05%*
Batterymarch U.S. MidCapitalization Equity Portfolio 0.50%
Batterymarch U.S. Small Capitalization Equity Portfolio 0.70%
Batterymarch International Equity Portfolio 0.65%
Batterymarch Emerging Markets Portfolio 0.65%

*Does not include management fees attributable to the Portfolio's
investment in the Value Institutional and Core Portfolios. See "Fees
and Expenses--LM Balanced Institutional Portfolio" and the related
notes for a description of these fees.

The Manager is a Maryland corporation formed on February 20, 1998 and is a
wholly owned subsidiary of Legg Mason, Inc., a financial services holding
company. The Manager acts as investment manager of only these investment company
portfolios. Total assets under management by the Manager were approximately
$____ as of June 30, 2000. The Manager's address is 100 Light Street,
Baltimore, Maryland 21202.

In order to assist in carrying out its investment advisory responsibilities, the
Manager has retained the Advisers to render advisory services to the Portfolios.
The Manager pays the fees of the Advisers.

31
<PAGE>

To the extent the Manager receives a management fee after taking into account
its contractual obligation to limit expenses as discussed in "Fees and Expenses"
above, the Manager will pay a Portfolio's Adviser the entire management fee it
receives from the Portfolio.

LMFA. LMFA, founded in 1982, acts as adviser or manager to ____ investment
company portfolios which had aggregate assets under management of approximately
$____ billion as of June 30, 2000. LMFA's address is 100 Light Street,
Baltimore, Maryland 21202. LMFA is a subsidiary of Legg Mason, Inc.

Batterymarch. Batterymarch, founded in 1969 and now a wholly owned subsidiary of
Legg Mason, Inc., acts as investment adviser to institutional accounts, such as
corporate pension plans, mutual funds and endowment funds, as well as to
individual investors. Total assets under management by Batterymarch were
approximately $____ billion as of June 30, 2000. The address of Batterymarch is
200 Clarendon Street, Boston, Massachusetts 02116.

Western Asset. Western Asset, established in 1971 and now a wholly owned
subsidiary of Legg Mason, Inc., acts as investment adviser to institutional
accounts, such as corporate pension plans, mutual funds and endowment funds.
Total assets under management by Western Asset were approximately $____ billion
as of June 30, 2000. The address of Western Asset is 117 East Colorado
Boulevard, Pasadena, CA 91105.

WAML. WAML, a wholly owned subsidiary of Legg Mason, Inc., acts as investment
adviser to institutional accounts, such as corporate pension plans, mutual funds
and endowment funds. Total assets under management by WAML were approximately
$____ billion as of June 30, 2000. The address of WAML is 155 Bishopsgate,
London, England.

Expense Limitations

The Manager has, until August 1, 2001, contractually agreed to waive its fees
and/or reimburse each Portfolio to the extent a Portfolio's expenses (exclusive
of taxes, interest, deferred organization expenses, 12b-1 fees, brokerage and
extraordinary expenses) for any class exceed during that month the annual rate
set forth in the Fees and Expenses section. Any amounts waived or reimbursed in
a particular fiscal year will be subject to repayment by a Portfolio to the
Manager to the extent that from time to time during the next three fiscal years
the repayment will not cause a Portfolio's expenses to exceed the limit, if any,
agreed to by the Manager at that time.

Portfolio Managers

The names and business experience for each portfolio manager for the past five
years are set forth in the following chart.

Manager and Business
Portfolio Experience (past 5 years)

LM Value Institutional Portfolio Bill Miller is a portfolio
manager and President of
LMFA. Mr. Miller has been
employed by LMFA as a
portfolio manager since
1982.

LM Special Investment Institutional Portfolio Bill Miller (see above)

LM Total Return Institutional Portfolio Nancy T. Dennin is a
portfolio manager and Senior
Vice President of LMFA. Ms.
Dennin has been employed by
LMFA since 1985 and has
served as a portfolio
manager or co-manager for
over seven years.

LM Balanced Institutional Portfolio Bill Miller (see above)

Neither Western Asset, WAML nor Batterymarch employs individual portfolio
managers to determine the investments of a Portfolio. Instead, the day-to-day
management of the various Portfolios' investments will be the responsibility of
the Western Asset Investment Strategy Group, the WAML Investment Strategy Group,
the Batterymarch Developed Markets (U.S.) team, the Batterymarch Developed
Markets (EAFE) team or the Batterymarch Emerging Markets team, as the case may
be.

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Expenses

Each Portfolio pays its share of all expenses that are not assumed by the
Manager, the Adviser or other parties, including Directors', auditing, legal,
custodial, transfer agency and distribution fees (which are in turn allocated to
the Financial Intermediary Class of shares).

Purchase of Shares

The Portfolios offer two classes of shares: Institutional Class and Financial
Intermediary Class. Shares in the Financial Intermediary Class bear a 12b-1 fee.
See "Distribution Plans" below for more information.

Initial Investment

Prior to or concurrent with the initial purchase of shares in any Portfolio,
each investor must open an account for that Portfolio by completing and signing
an Application and mailing it to LM Institutional Advisors, Inc. at the
following address: P.O. Box 17635, Baltimore, Maryland 21297-1635. The
Portfolios have established minimum investment criteria that vary depending upon
which class of shares you wish to purchase. For Institutional Class shares,
investors must have at least $50 million in investable assets and invest in the
aggregate at least $1 million in the Portfolios. For Financial Intermediary
Class shares, investors must have at least $30 million in investable assets and
invest in the aggregate at least $1 million in the Portfolios. The Portfolios
reserve the right to revise the minimum investment requirement and may waive it
at their sole discretion.

A purchase order, together with payment in one of the forms described in the
following paragraphs, received by Boston Financial Data Services (the "Transfer
Agent" or "BFDS") prior to the close of regular trading on the New York Stock
Exchange (ordinarily 4:00 p.m., Eastern time) ("close of the Exchange") will be
effected at that day's net asset value. An order received after the close of the
Exchange will generally be effected at the net asset value determined on the
next business day. However, orders received by certain retirement plans and
other financial intermediaries by the close of the Exchange and communicated to
the Transfer Agent by 9:00 a.m., Eastern time, on the following business day
will be effected at the net asset value determined on the prior business day.
----------

Purchases of shares can be made by wiring federal funds to State Street Bank and
Trust Company. Purchases of shares of the Western Asset Money Market Portfolio
or the Western Asset Government Money Market Portfolio may ONLY be made by
federal funds wire. Before wiring federal funds, the investor must first
telephone the Portfolio at 1-888-425-6432 to receive instructions for wire
transfer. On the telephone, the following information will be required:
shareholder name; name of the per-son authorizing the transaction; shareholder
account number; name of the Portfolio and class of shares to be purchased;
amount being wired; and name of the wiring bank.

Funds should be wired through the Federal Reserve System to:
State Street Bank and Trust Company
ABA #011-000-028
DDA #99046096
LM Institutional Fund Advisors [insert name of Portfolio]
[Insert your account name and number]

The wire should state that the funds are for the purchase of shares of a
specific Portfolio and share class and include the account name and number.

With respect to the Western Asset Government Money Market Portfolio and Western
Asset Money Market Portfolio, if a purchase order for shares is received prior
to 12:00 noon, Eastern time, and payment in federal funds is received by the
Transfer Agent by the close of the federal funds wire on the day the purchase
order is received, dividends will accrue starting that day. If a purchase order
is received after 12:00 noon, Eastern time, and payment in federal funds is
received by the Transfer Agent by the close of the federal funds wire on the day
the purchase order is received, or as otherwise agreed to by the relevant
Portfolio, the order will be effected at that day's net asset value, but
dividends will not begin to accrue until the following business day.

With respect to the Western Asset Intermediate Portfolio, Western Asset
Intermediate Plus Portfolio, Western Asset Core Portfolio, Western Asset Core
Plus Portfolio and Western Asset Inflation Indexed Bond Portfolio, dividends
will begin to accrue on the first business day following the day payment in
federal funds is received by the Transfer Agent.

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<PAGE>

Shares may also be purchased and paid for by the contribution of eligible
portfolio securities, subject in each case to approval by the Manager. Approval
will depend on, among other things, the nature and quality of the securities
offered and the current needs of the Portfolio in question. Securities offered
in payment for shares will be valued in the same way and at the same time the
Portfolio values its portfolio securities for purposes of determining net asset
value. (See "Net Asset Value" below.) Investors who wish to purchase Portfolio
shares through the contribution of securities should contact the Portfolio at 1-
888-425-6432 for instructions. Investors should also realize that at the time of
contribution they may be required to recognize a gain or loss for tax purposes
on securities contributed.

The Portfolio has full discretion to reject any securities offered as payment
for shares. As described below, each Portfolio may offer Financial Intermediary
Class shares that are offered primarily through financial intermediaries. Each
Portfolio may pay financial intermediaries for their services out of that class'
assets pursuant to the class' distribution plan or otherwise. Legg Mason and its
affiliates (including the Manager and the Advisers) may also from time to time,
at their own expense, make payments to financial intermediaries that sell shares
of the Portfolios or to other parties in connection with the sale of shares. If
investors effect transactions through a broker or agent, investors may be
charged a fee by that broker or agent.

Any shares purchased or received as a distribution will be credited directly to
the investor's account.

Additional Investments

Additional investments may be made at any time at the relevant net asset value
for that class by following the procedures outlined above. Investors should
always furnish a shareholder account number when making additional purchases.

Other Purchase Information

Purchases will be made in full and fractional shares. In the interest of economy
and convenience, certificates for shares will not be issued.

Each Portfolio and Legg Mason Wood Walker, Incorporated, the Portfolios'
Distributor ("LMWW"), reserves the right, in its sole discretion, to suspend the
offering of shares or to reject any purchase order, in whole or in part, when,
in the judgment of management, such suspension or rejection is in the best
interests of the Portfolio; to waive the minimum initial investment for certain
investors; and to redeem shares if information provided in the Application
should prove to be incorrect in any manner judged by a Portfolio to be material
(e.g., in a manner such as to render the shareholder ineligible to purchase
shares of a Portfolio). A Portfolio may suspend the offering of shares at any
time and resume it at any time thereafter.

Shares of the Portfolios may not be qualified or registered for sale in all
States. Prospective investors should inquire as to whether shares of a
particular Portfolio are available for offer and sale in their State of
residence. Shares of the Portfolio may not be offered or sold in any State
unless registered or qualified in that jurisdiction or unless an exemption from
registration or qualification is available.

Purchases and sales of Portfolio shares should be made for long-term investment
purposes only. Each Portfolio reserves the right to restrict purchases of shares
(including exchanges) when it determines that a pattern of frequent purchases
and sales made in response to short-term fluctuations in share price appears
evident.

Retirement Plans

Shares of the Portfolios are available for purchase by retirement plans,
including 401(k) plans, 403(b) plans and Individual Retirement Accounts
("IRAs"). The administrator of a plan or employee benefits office can provide
participants or employees with detailed information on how to participate in the
plan and how to elect a Portfolio as an investment option. Participants in a
retirement or savings plan may be permitted to elect different investment
options, alter the amounts contributed to the plan, or change how contributions
are allocated among investment options in accordance with the plan's specific
provisions. The plan administrator or employee benefits office should be
consulted for details. For questions about participant accounts, participants
should contact their employee benefits office, the plan administrator, or the
organization that provides recordkeeping services for the plan. Investors who
purchase shares through retirement plans should be aware that the plan
administrator may aggregate purchase and redemption orders of participants in
the plan. Therefore, there may be a delay between the time the investor places
an order with the plan administrator and the time the order is forwarded to the
Transfer Agent for execution.

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<PAGE>

Account Registration Changes

Changes in registration or account privileges may be made in writing to the
Portfolio. Signature guarantees may be required. See "Signature Guarantee"
below. All correspondence must include the account number and must be sent to:

LM Institutional Advisors, Inc.
P.O. Box 17635
Baltimore, Maryland 21297-1635

Distribution Plans

The Board of Directors has adopted Distribution Plans pursuant to Rule 12b-1
under the 1940 Act with respect to shares of the Financial Intermediary Class of
each Portfolio. Under the terms of each Plan, a Portfolio is permitted to pay,
out of the assets of the Financial Intermediary Class of the Portfolio, in an
amount up to 0.40% on an annual basis of the average daily net assets of that
class, LMWW, financial intermediaries and other parties that provide services in
connection with or are otherwise involved in the distribution of shares or
administration of plans or programs that use Portfolio shares as their funding
medium, and to reimburse certain other expenses and payments. Payments under the
Plans are currently limited to 0.25% (or 0.10% in the case of the Western Asset
Government Money Market Portfolio and the Western Asset Money Market Portfolio)
of average daily net assets. Because the fees are paid out of a Portfolio's
assets on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges. For
more information regarding the Plans and their terms, see the relevant SAI.

Redemption of Shares

Portfolio shares may be redeemed through three methods: (1) by sending a written
request for redemption to LM Institutional Advisors, Inc. at P.O. Box 17635,
Baltimore, Maryland 21297-1635; (2) by calling the Portfolio at 1-888-425-6432;
or (3) by wire communication with the Transfer Agent. In each case, the investor
should first notify the Portfolio at 1-888-425-6432 of the intention to redeem.
No charge is made for redemptions. Shareholders who wish to be able to redeem by
telephone or wire communication must complete an authorization form in advance.
Redemptions over $10,000,000 may be initiated by telephone, but must be
confirmed in writing prior to processing.

Upon receipt of a request for redemption as described below (a request "in good
order") before the close of the Exchange on any day when the Exchange is open,
the Transfer Agent will redeem Portfolio shares at that day's net asset value
per share. Requests for redemption received by the Transfer Agent after the
close of the Exchange will be executed at the net asset value next determined.
However, orders received by certain retirement plans and other financial
intermediaries by the close of the Exchange and communicated to the Transfer
Agent by 9:00 a.m., Eastern time, on the following business day will be effected
at the net asset value determined on the prior business day. The Portfolios may
refuse to effect redemption requests during periods permitted by federal
securities laws.

Requests for redemption should indicate:
1) The number of shares or dollar amount to be redeemed and the investor's
shareholder account number;
2) The investor's name and the names of any co-owner of the account, using
exactly the same name or names used in establishing the account;
3) Proof of authorization to request redemption on behalf of any co-owner of
the account (please contact the Portfolio for further details); and
4) The name, address, and account number to which the redemption payment should
be sent.

Payment of the redemption price normally will be made by wire one business day
after receipt of a redemption request in good order. However, each Portfolio
reserves the right to postpone the payment date when the Exchange is closed,
when trading is restricted, or during other periods as permitted by federal
securities laws, or to take up to seven days to make payment upon redemption if
the Portfolio involved could be adversely affected by immediate payment.
Redemption proceeds may also be paid in kind at the discretion of the Portfolio.
Shareholders who receive a redemption in kind may incur costs to dispose of such
securities.

Other supporting legal documents, such as copies of the trust instrument or
power of attorney, may be required from corporations or other organizations,
fiduciaries or persons other than the shareholder of record making the request
for redemption or repurchase. If you have a question concerning the sale or
redemption of shares, please contact the Portfolio by calling 1-888-425-6432.

35
<PAGE>

Any Portfolio may elect to close any shareholder account when the current value
of the account is less than $1 million due to redemptions or exchanges by the
shareholder by redeeming all of the shares in the account and mailing the
proceeds to the investor. If a Portfolio elects to redeem the shares in an
account, the shareholder will be notified that the account is below $1 million
and will be allowed 30 days in which to make an additional investment in order
to avoid having the account closed. Shares will be redeemed at the net asset
value calculated on the day of redemption. Any Portfolio may change the $1
million minimum account balance from time to time without notice to
shareholders.

Signature Guarantee

When a signature guarantee is called for, the shareholder should have "Signature
Guaranteed" stamped under his or her signature and guaranteed by any of the
following entities: U.S. banks, foreign banks having a U.S. correspondent bank,
credit unions, savings associations, U.S. registered dealers and brokers,
municipal securities dealers and brokers, government securities dealers and
brokers, national securities exchanges, registered securities associations and
clearing agencies (each an "Eligible Guarantor Institution"). Each Portfolio and
its agents reserve the right to reject any signature guarantee pursuant to
written signature guarantee standards or procedures, which may be revised in the
future to permit them to reject signature guarantees from Eligible Guarantor
Institutions that do not, based on credit guidelines, satisfy such written
standards or procedures. Any Portfolio may change the signature guarantee
requirements from time to time without prior notice to shareholders.

Exchange Privilege

Shareholders in any Portfolio may exchange their shares for shares of the same
class of any of the other Portfolios, provided that the shares of that class are
being offered at the time of the proposed exchange. Investments by exchange
among any of the Portfolios are made at the per share net asset values next
determined after the order for exchange is received in good order.

The exchange privilege is not intended as a vehicle for short-term trading.
Excessive exchange activity may interfere with portfolio management and have an
adverse effect on all shareholders. In order to limit excessive exchange
activity and in other circumstances where a Portfolio believes doing so would be
in its best interest, the Portfolio reserves the right to revise or terminate
the exchange privilege without notice to the extent permitted by applicable law,
limit the amount or number of exchanges or reject any exchange. For further
information concerning the exchange privilege, or to make an exchange, please
contact the Portfolio at 1-888-425-6432.

Net Asset Value

Net asset value per share of each class of shares is determined daily for each
Portfolio as of the close of regular trading on the Exchange (normally 4:00
p.m., Eastern time), on every day that the Exchange is open, by subtracting the
Portfolio's liabilities attributable to a given class of shares from its total
assets attributable to the class and dividing the result by the number of shares
of that class outstanding. Net asset value will not be determined on days on
which the Exchange is closed for trading.

Except for the Western Asset Money Market Portfolio and the Western Asset
Government Money Market Portfolio, portfolio securities and other assets for
which market quotations are readily available are valued at current market
value. Current market value means the last sale price of the day for a
comparable position, or, in the absence of any such sales, the mean between
representative bid and asked prices obtained from a quotation reporting system.
Securities with remaining maturities of 60 days or less are generally valued at
amortized cost. Fixed income securities, including those to be purchased under
firm commitment agreements, are normally valued on the basis of quotations
obtained from brokers and dealers or pricing services which take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Certain fixed income securities for
which daily market quotations are not readily available may be valued with
reference to fixed income securities whose prices are more readily available and
whose durations are comparable to those of the securities being valued.

Other assets and securities for which no quotations are readily available are
valued at fair value as determined in good faith by the Directors or persons
acting at their direction. The values of foreign securities quoted in foreign
currencies are translated into U.S. dollars at current exchange rates or at such
other rates as the Directors or persons acting at their direction may determine
in computing net asset value.

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<PAGE>

Because of time zone differences, foreign exchanges and securities markets will
usually be closed prior to the time of the closing of the Exchange and values of
foreign investments will be determined as of the earlier closing of such
exchanges and securities markets. However, events affecting the values of such
foreign securities may occasionally occur between the earlier closings of such
exchanges and securities market and the closings of the Exchange which will not
be reflected in the computation of the net asset value. If an event materially
affecting the value of such foreign securities occurs during such period, then
such securities will be valued at fair value as determined in food faith by the
Directors or persons acting at their direction. In addition, if a Portfolio
holds securities that are primarily listed on foreign exchanges that trade on
days when the Exchange is not open, the net asset value of the Portfolio's
shares may be subject to change on days when shareholders will not be able to
purchase or redeem the Portfolio's shares.

The Western Asset Money Market Portfolio and the Western Asset Government Money
Market Portfolio each attempts to maintain a per share net asset value of $1.00
by using the amortized cost method of valuation as permitted by SEC Rule 2a-7.
Neither Portfolio can guarantee that the net asset value will always remain at
$1.00 per share.

Dividends and Distributions to Shareholders

The Western Asset High Yield Portfolio, Western Asset Non-U.S. Fixed Income
Portfolio, Western Asset Global Strategic Income Portfolio, Western Asset
Enhanced Equity Portfolio, LM Value Institutional Portfolio and LM Total Return
Institutional Portfolio declare and pay dividends quarterly out of their net
investment income, if available, for that quarter.

The Western Asset Money Market Portfolio and Western Asset Government Money
Market Portfolio declare as a dividend at the close of regular trading on the
Exchange each business day, to shareholders of record as of 12:00 noon, Eastern
Time, that day, substantially all of their net investment income since the prior
business day's dividend.

The Western Asset Intermediate Portfolio, Western Asset Intermediate Plus
Portfolio, Western Asset Core Portfolio, Western Asset Core Plus Portfolio and
Western Asset Inflation Indexed Bond Portfolio declare as a dividend at the
close of regular trading on the Exchange each business day, to shareholders of
record as of the close of the Exchange that day, substantially all of their net
investment income since the prior business day's dividend.

The Western Asset Money Market Portfolio, Western Asset Government Money Market
Portfolio, Western Asset Intermediate Portfolio, Western Asset Intermediate Plus
Portfolio, Western Asset Core Portfolio, Western Asset Core Plus Portfolio and
Western Asset Inflation Indexed Bond Portfolio pay dividends monthly. All other
Portfolios declare and pay dividends annually out of their net investment
income, if available, for that year. Distributions of net realized capital gains
are made annually.

Shareholders may elect to receive dividends and distributions in one of four
ways:
1) Receive both dividends and other distributions in shares of the same class
of the distributing Portfolio;
2) Receive dividends in cash and other distributions in shares of the same
class of the distributing Portfolio;
3) Receive dividends in shares of the same class of the distributing Portfolio
and other distributions in cash; or
4) Receive both dividends and other distributions in cash.

If no election is made, both dividends and other distributions are credited to a
shareholder's Portfolio account in shares (of the same class as the shares
already held) at the net asset value of the shares determined as of the close of
the Exchange on the reinvestment date.

For the Western Money Market Portfolio, Western Asset Government Money Market
Portfolio, Western Asset Intermediate Portfolio, Western Asset Intermediate Plus
Portfolio, Western Asset Core Portfolio, Western Asset Core Plus Portfolio and
Western Asset Inflation Indexed Bond Portfolio, reinvestment of dividends and
other distributions occurs on the payment date. A shareholder who redeems all
shares in the Western Asset Money Market Portfolio, Western Asset Government
Money Market Portfolio, Western Asset Intermediate Portfolio, Western Asset
Intermediate Plus Portfolio, Western Asset Core Portfolio, Western Asset Core
Plus Portfolio or Western Asset Inflation Indexed Bond Portfolio will receive
all dividends and other distributions declared for that monthly cycle prior to
the redemption date (i.e., all dividends and other distributions from the first
day of that monthly cycle, if invested on that first day, to the date of the
redemption). For the other Portfolios, reinvestment occurs on the ex-dividend
date. An election to receive dividends or other distributions in cash rather
than additional shares may be made by notifying the Portfolio in writing.

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<PAGE>

The Directors reserve the right to revise the dividend policy or postpone the
payment of dividends if warranted in their judgment due to unusual
circumstances, such as an unexpected large expense, loss or fluctuation in net
asset value.

Tax Information

Each Portfolio intends to qualify or continue to qualify as a "regulated
investment company" for federal income tax purposes and to meet all other
requirements necessary for it to be relieved of federal taxes on income and
gains it distributes to shareholders. Each Portfolio will distribute
substantially all its net investment income and net realized capital gains to
its shareholders on a current basis.

Distributions from a Portfolio (whether paid in cash or reinvested in shares of
the Portfolio) will be taxable to shareholders (other than IRAs, other qualified
retirement plans and other tax-exempt investors) as ordinary income to the
extent derived from the Portfolio's investment income and net short-term gains.
Portfolio distributions of net capital gains (that is, the excess of net gains
from capital assets held for more than one year over net losses from capital
assets held for not more than one year) will be taxable as long-term capital
gain (generally at a 20% rate for non-corporate shareholders).

Distributions of income and capital gains are taxable whether received in cash
or reinvested in additional shares. If a dividend or distribution is made
shortly after a shareholder purchases shares in a Portfolio, while in effect a
return of capital to the Shareholder, the dividend or distribution is taxable as
described above.

Special tax rules apply to investments through defined contributions plans and
other tax-qualified plans. Shareholders should consult their tax adviser to
determine the suitability of shares of a Portfolio as an investment through such
plans and the precise effect of an investment on their particular tax situation.

A Portfolio's investments in foreign securities may be subject to withholding
taxes at the source on dividend or interest payments. In that case, a
Portfolio's yield on those securities would be decreased. Shareholders may be
entitled to claim a credit or deduction with respect to foreign taxes. In
addition, a Portfolio's investments in foreign securities or foreign currencies
may increase or accelerate the Portfolio's recognition of ordinary income and
may affect the timing or amount of the Portfolio's distributions.

Early each year, each Portfolio will notify its shareholders of the amount and
tax status of distributions paid during that year.

In addition to income tax on a Portfolio's distributions, any gain that results
if a shareholder (other than an IRA or other tax-exempt investor) sells or
exchanges its shares generally is subject to income tax.

The LM Balanced Institutional Portfolio's use of a "fund of funds" structure
could adversely affect the character, timing and amount of distributions to
shareholders. Investments in certain debt obligations, including obligations
issued at a discount and inflation-indexed investments made by the Western Asset
Inflation Indexed Bond Portfolio, may cause the Portfolio to recognize taxable
income in excess of the cash generated by such obligations. Thus a Portfolio
could be required at times to liquidate other investments, including when it is
not advantageous to do so, in order to satisfy its distribution requirements.

The foregoing is a summary of certain federal income tax consequences of
investing in a Portfolio. Shareholders are urged to consult their tax advisers
with respect to the effects of this investment on their particular tax situation
(including possible liability for state and local taxes).

Financial Highlights

The financial highlights tables are intended to help you understand each
Portfolio's recent financial performance for the past five years or, if shorter,
since the inception of the Portfolio's operations. Certain information reflects
financial results for a single Portfolio share. The total returns represent the
rate that an investor would have earned or lost on an investment in the
Portfolios, assuming reinvestment of all dividends and distributions. This
information has been derived from the financial statements of LMIFA I and LMIFA
II, which have been audited by PricewaterhouseCoopers LLP and Ernst & Young LLP,
respectively. Their reports and the Portfolios' financial statements are
included in the Portfolios' annual reports to shareholders, which are available
upon request.

(Financial Highlights to be supplied in a post-effective amendment)

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<PAGE>

Appendix A: Prior Performance of LMIFA II Advisers' Other Accounts

The LM Value Institutional Portfolio has performance results only for the period
from September 22, 1998 to June 30, 2000. The Batterymarch U.S. Small
Capitalization Equity Portfolio has performance results only for the period from
March 13, 2000 to June 30, 2000. The other six Portfolios of LMIFA II have not
yet commenced operations and have no performance record of their own. However,
other than in the case of the LM Balanced Institutional Portfolio, the Advisers
of LMIFA II have managed other client accounts that have investment objectives,
policies and strategies that are similar, but not necessarily identical, to
those of the Portfolios that they manage. In the case of the LM Balanced
Institutional Portfolio, each of the Portfolios in which that Portfolio invests
has prior performance. Representative investment performance for these accounts
is stated below. The investment performance is shown on an annual total return
basis, with returns for periods of less than one year not annualized, and on an
average annual total return basis. The performance information is provided
through June 30, 2000.

The prior performance information shown is in two categories and reflects the
performance of either: (1) composites of certain of the Adviser's separately
managed accounts and (2) SEC-registered, open-end investment companies. In each
case, the account or accounts have investment objectives, policies and
strategies substantially similar (although not necessarily identical) to those
of the relevant Portfolio and were managed throughout the periods shown using
investment styles and strategies substantially similar (although not necessarily
identical) to those of the relevant Portfolio, except in the case of the LM
Balanced Institutional Portfolio, where information is provided for each of the
equity and fixed income components. To the extent a composite of accounts is
shown, the composite includes all of the fully-discretionary, fee-paying
accounts managed by such Adviser during the periods shown using investment
objectives, policies and strategies substantially similar (although not
necessarily identical) to those of the relevant Portfolio.

The performance information for composites has been adjusted to give effect to
the Portfolios' estimated fees and expenses, before waivers and reimbursements,
for the Financial Intermediary Class shares as shown in the tables beginning on
page 42. The performance information for composites assumes reinvestment of all
dividends and proceeds from capital transactions and has been prepared in
accordance with the Performance Presentation Standards established by the
Association for Investment Management and Research ("AIMR standards"), except
for the deduction of estimated fees and expenses listed in the Fees and Expenses
tables as noted above. The performance results would be more favorable if they
had been adjusted for estimated fees and expenses of the Institutional Class
shares of the Portfolios. Accounts included in composites are generally not
subject to the diversification requirements, specific tax restrictions and
investment limitations imposed on each of the Portfolios by the Investment
Company Act of 1940 (the "1940 Act") or the Code. The performance results for
these accounts might have been adversely affected had the accounts been subject
to these requirements, restrictions and limitations.

Performance for SEC-registered, open-end investment companies is calculated
using the SEC's standardized total return formula, which is based upon the
change in value of an assumed initial investment of $10,000 from the beginning
through the end of a period and assumes reinvestment of all dividends and other
distributions. For periods of more than one year, the result is then annualized
and expressed as a percentage of the initial investment, and includes the effect
of operating expenses, including advisory fees. Information about the investment
objectives, policies, expenses and net assets of each of the investment
companies follows the performance information.

The method for calculating performance for the composites produces a different
result than if the performance were calculated using the SEC's method for
calculating the total return of an open-end investment company.

A Portfolio's expenses, timing of purchases and sales of portfolio securities,
timing and availability of cash flows, cash positions (which are typically
greater for open-end investment companies than for separate accounts), and
brokerage commissions are some of the factors that might cause performance
results of the Portfolio to vary from that of the composites and/or investment
companies shown. In particular, the large infusions of cash that are typically
associated with the commencement of operations of new mutual funds such as the
Portfolios, as well as differences in the amount of assets held by the
Portfolios as opposed to the accounts and/or investment companies shown below,
can affect the ability and the manner in which security positions are
accumulated or liquidated, and thus may cause a Portfolio's performance to vary
from that of the composites and/or investment companies shown below.

As noted above, the investment objectives, policies, styles and strategies of
each Portfolio are not necessarily identical to those of the relevant composites
and/or investment companies shown below. Again, for these and other reasons, the
performance of the Portfolios will vary from that of the composites and/or
investment companies.

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<PAGE>

Prior Performance of Accounts Similar to the LM Value Institutional Portfolio.

The investment performance for the period from July 1, 1990 to June 30, 2000 of
all accounts managed by LMFA and Legg Mason Capital Management, Inc. ("LMCM"),
an affiliate of LMFA that shares investment personnel with LMFA, that have
investment objectives, policies and strategies that are substantially similar to
those of the Portfolio is shown below. The benchmark index to which the accounts
are compared is the S&P 500 Index. The S&P 500 Index is an unmanaged index
representing the performance of 500 companies selected by S&P. Although used as
a benchmark, the Index's performance may not be comparable to the accounts'
performance because, unlike the performance of the accounts, the Index's
performance has not been adjusted for any fees or expenses.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 42.41% 22.77%
1998 39.39% 30.16%
1997 53.32% 34.71%
1996 29.69% 26.00%
1995 28.64% 26.07%
1994 5.72% 1.41%
1993 14.94% 13.63%
1992 19.53% 13.41%
1991 -4.32% 7.39%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
10 Year ____% ____%

The number of accounts included in the composite has ranged from ____ to ____
over the relevant period and the aggregate assets of the accounts has ranged
from ____ to ____ over the period. One of the accounts included in the composite
is a registered investment company. In addition, all of the fully discretionary
accounts of LMCM with assets greater than $25 million are included in the
composite after a period of three months and after the account becomes fully
invested. Accounts included in the composite are generally not subject to the
diversification requirements, specific tax restrictions and investment
limitations imposed on the Portfolio by the 1940 Act or the Code. The
performance results for these accounts might have been adversely affected had
the accounts been subject to these requirements, restrictions and limitations.
These potential differences do not adversely affect the determination that the
accounts included in this composite are managed in a substantially similar
manner to the Portfolio.

The investment performance for the period from July 1, 1990 to June 30, 2000 for
the Primary Class shares of the Legg Mason Value Trust ("Value Trust"), which
has been advised by LMFA since its inception, is shown below.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 41.65% 22.77%
1998 38.48% 30.16%
1997 52.16% 34.71%
1996 28.64% 26.00%
1995 27.59% 26.07%
1994 4.86% 1.41%
1993 13.95% 13.63%
1992 18.48% 13.41%
1991 -5.20% 7.39%

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<PAGE>

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
10 Year ____% ____%

Value Trust, which commenced operations on April 16, 1982, is a diversified
open-end investment company. Value Trust's investment objective is long-term
growth of capital. Value Trust invests primarily in equity securities that, in
the Adviser's opinion, offer the potential for capital growth. The Adviser
follows a value discipline in selecting securities, and therefore seeks to
purchase securities at large discounts to the Adviser's assessment of their
intrinsic value. Intrinsic value, according to the Adviser, is the value of the
company measured, to different extents depending on the type of company, on
factors such as, but not limited to, the discounted value of its projected
future free cash flows, the company's ability to earn returns on capital in
excess of its cost of capital, private market values of similar companies, the
value of its assets, and the costs to replicate the business. Qualitative
factors, such as an assessment of the company's products, competitive
positioning, strategy, industry economics and dynamics, regulatory frameworks
and more, are also important. Securities may be undervalued due to uncertainty
arising from the availability of accurate information, economic growth and
change, changes in competitive conditions, technological change, changes in
government policy or geo-political dynamics, and more. The Adviser takes a long-
term approach to investing, generally characterized by long holding periods and
low portfolio turnover. Value Trust generally invests in companies with market
capitalizations greater than $5 billion, but may invest in companies of any
size.

Value Trust may also invest in debt securities of companies having one or more
of the above characteristics. Value Trust may invest up to 25% of its net assets
in long-term debt securities. Up to 10% of its total assets may be invested in
debt securities rated below investment grade.

For temporary purposes, or when cash is temporarily available, Value Trust may
invest without limit in investment grade, short-term debt instruments, including
government, corporate and money market securities.

As of June 30, 2000, Value Trust had approximately $____ billion in assets. For
its fiscal year ended March 31, 2000, the Primary Class shares of Value Trust
had a total expense ratio of ____%.

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS BEEN IN OPERATION ONLY SINCE SEPTEMBER 22, 1998. THE PERFORMANCE
INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE PERFORMANCE OF THE
PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER OR LOWER THAN THAT
SHOWN.

The investment performance for the period September 22, 1998 (inception) to June
30, 2000 for the Institutional Class shares of the LM Value Institutional
Portfolio ("Value Institutional"), which has been advised by LMFA since its
inception, is shown below.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 (9/22/98) 57.31% 36.33%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
Inception (9/22/98) ____% ____%

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<PAGE>

The investment performance for the period October 22, 1998 (inception) to June
30, 2000 for the Financial Intermediary Class shares of Value Institutional is
shown below.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 (10/22/98) 46.85% 28.45%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
Inception (10/22/98) ____% ____%

Prior Performance of a Registered Investment Company Similar to the LM Special
Investment Institutional Portfolio.

The investment performance for the period from July 1, 1990 to June 30, 2000 for
the Primary Class shares the Legg Mason Special Investment Trust ("Special
Investment Trust") is shown below. LMFA has served as the Adviser of the Special
Investment Trust since its inception. The benchmark index to which Special
Investment Trust is compared is the S&P 500 Index. The S&P 500 Index is an
unmanaged index representing the performance of 500 companies selected by S&P.
Although used as a benchmark, the Index's performance may not be comparable to
Special Investment Trust's performance since, unlike the performance of Special
Investment Trust, the Index's performance has not been adjusted for any fees or
expenses.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 27.18% 22.77%
1998 22.29% 30.16%
1997 22.52% 34.17%
1996 25.89% 26.00%
1995 8.85% 26.07%
1994 4.97% 1.41%
1993 25.72% 13.63%
1992 12.34% 13.41%
1991 14.37% 7.39%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
10 Year ____% ____%

Special Investment Trust, which commenced operations on December 30, 1985, is a
diversified open-end investment company. Special Investment Trust's investment
objective is capital appreciation. Special Investment Trust invests primarily in
equity securities, and securities convertible into equity securities, of
companies whose market capitalizations are typically classified as small to mid-
sized. The Adviser defines small to mid-sized companies as those below the top
500 U.S. companies in terms of market capitalization. It also invests in
"special situations" without regard to market capitalization. Special situations
are securities undergoing unusual or possibly one-time developments that, in the
opinion of the Adviser, make them attractive for investment. Such developments
may include actual or anticipated: sale or termination of an unprofitable part
of the company's business; change in the company's management or in management's
philosophy; a basic change in the industry in which the company operates;
introduction of new products or technologies; or the prospect or effect of
acquisition or merger activities.

Special Investment Trust's Adviser follows a value discipline in selecting
securities, and therefore seeks to purchase securities at large discounts to the
Adviser's assessment of their intrinsic value. Intrinsic value, according to the
Adviser, is the value of the company measured, to different extents depending on
the type of company, on factors such as, but not

42
<PAGE>

limited to, the discounted value of its projected future free cash flows, the
company's ability to earn returns on capital in excess of its cost of capital,
private market values of similar companies, the value of its assets, and the
costs to replicate the business. Qualitative factors, such as an assessment of
the company's products, competitive positioning, strategy, industry economics
and dynamics, regulatory frameworks and more, are also important. Securities may
be undervalued due to uncertainty arising from the availability of accurate
information, economic growth and change, changes in competitive conditions,
technological change, changes in government policy or geo-political dynamics,
and more.

Special Investment Trust also invests in debt securities of companies having one
or more of the above characteristics. Special Investment Trust may invest up to
35% of its net assets in debt securities rated below investment grade. Special
Investment Trust may invest up to 20% of its total assets in securities of
companies involved in actual or anticipated reorganizations or restructurings.

For temporary defensive purposes, or when cash is temporarily available, Special
Investment Trust may invest without limit in investment grade, short-term debt
instruments, including government, corporate and money market securities.

As of June 30, 2000, Special Investment Trust had approximately $____ billion in
assets. For its fiscal year ended March 31, 2000, the Primary Class shares of
Special Investment Trust had a total expense ratio of ____%.

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS NOT YET COMMENCED OPERATIONS AND HAS NO PERFORMANCE RECORD OF ITS OWN.
THE PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE PER-
FORMANCE OF THE PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER OR
LOWER THAN THAT SHOWN.

Prior Performance of a Registered Investment Company Similar to the LM Total
Return Institutional Portfolio.

The investment performance for the period from July 1, 1990 to June 30, 2000 for
the Primary Class shares the Legg Mason Total Return Trust, Inc. ("Total Return
Trust") is shown below. LMFA serves as Adviser to the Total Return Trust. The
benchmark index to which Total Return Trust is compared is the S&P 500 Index.
The S&P 500 Index is an unmanaged index representing the performance of 500
companies selected by S&P. Although used as a benchmark, the Index's performance
may not be comparable to Total Return Trust's performance since, unlike the
performance of Total Return Trust, the Index's performance has not been adjusted
for any fees or expenses.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 3.45% 22.77%
1998 23.31% 30.16%
1997 38.14% 34.71%
1996 23.28% 26.00%
1995 11.83% 26.07%
1994 4.69% 1.41%
1993 14.66% 13.63%
1992 25.09% 13.41%
1991 2.45% 7.39%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
10 Year ____% ____%

Total Return Trust, which commenced operations on November 21, 1985, is a
diversified open-end investment company. Total Return Trust's investment
objective is to obtain capital appreciation and current income in order to
achieve an attractive total investment return consistent with reasonable risk.
Total Return Trust invests primarily in securities that, in the Adviser's
opinion, offer the potential for long-term capital growth and attractive current
income. Total Return Trust invests primarily in common stocks, debt securities,
and securities convertible into common stocks, but is not limited to these types
of securities. Total Return Trust may invest in securities that do not pay
current income but do, in

43
<PAGE>

the Adviser's opinion, offer prospects for capital appreciation and/or future
income. The Adviser follows a value discipline in selecting securities, and
therefore seeks to purchase securities at large discounts to the Adviser's
assessment of their intrinsic value. Intrinsic value, according to the Adviser,
is the value of the company measured, to different extents depending on the type
of company, on factors such as, but not limited to, the discounted value of its
projected future free cash flows, the company's ability to earn returns on
capital in excess of its cost of capital, private market values of similar
companies, the value of its assets, and the costs to replicate the business.
Qualitative factors, such as an assessment of the company's products,
competitive positioning, strategy, industry economics and dynamics, regulatory
frameworks and more, are also important. Securities may be undervalued due to
uncertainty arising from the availability of accurate information, economic
growth and change, changes in competitive conditions, technological change,
changes in government policy or geo-political dynamics, and more. The Total
Return Trust may invest in companies of any size.

Total Return Trust may invest in money market securities for temporary defensive
purposes or when cash is temporarily available. Consistent with the investment
objective, Total Return Trust may also invest in debt securities when the
Adviser believes the return on certain debt securities may equal or exceed the
return on equity securities. Total Return Trust may invest in debt securities of
any maturity of both foreign and domestic issuers without regard to rating, and
may invest its assets in such securities without regard to a percentage limit.
The Adviser currently anticipates that under normal market conditions, the fund
will invest no more than 50% of its total assets in intermediate-term and long-
term debt securities and no more than 5% of its total assets in debt securities
not rated investment grade.

As of June 30, 2000 Total Return Trust had approximately $____ million in
assets. For its fiscal year ended March 31, 2000, the Primary Class shares of
Total Return Trust had a total expense ratio of ____%.

Prior Performance of the Underlying Portfolios of the LM Balanced Institutional
Portfolio.

The LM Balanced Institutional Portfolio is a Portfolio that invests its assets
in shares of Value Institutional and the Western Asset Core Portfolio ("Core").
The prior performance shown below is not that of the LM Balanced Institutional
Portfolio, but for Value Institutional and Core. The prior performance
information for Value Institutional and Core should not be considered a
substitute for the performance of the LM Balanced Institutional Portfolio. As
described elsewhere in the Prospectus, the LM Balanced Institutional Portfolio's
Adviser will allocate the assets of the Portfolio between Value Institutional
and Core in its discretion, and there can be no assurance that any particular
allocation will be achieved or maintained. The Balanced Portfolio will bear its
own expenses, which are not reflected in the prior performance shown in the
Prospectus. As the Balanced Portfolio may only invest in the Institutional Class
shares of the underlying Portfolios, the returns below do not reflect any 12b-1
fees.

The investment performance for the period September 22, 1998 (inception) to June
30, 2000 for the Institutional Class shares of Value Institutional, which has
been advised by LMFA since its inception, is shown below.

Yearly Total Return
Year Ended June 30, Account Performance S&P 500 Performance
2000 ____% ____%
1999 (9/22/98) 57.31% 36.33%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P 500 Performance
1 Year ____% ____%
Inception (9/22/98) ____% ____%

For a description of Value Institutional, please see page 10 of the Prospectus.

As of June 30, 2000, Value Institutional had approximately $____ million in
assets. For its fiscal year ended March 31, 2000, the Institutional Class shares
of Value Institutional had a total expense ratio of 0.75% (after fee waivers;
____% in the absence of such waivers).

44
<PAGE>

The investment performance for the period September 4, 1990 (inception) to June
30, 2000 for the Institutional Class shares of Core, which has been advised by
Western Asset since its inception, is shown below.

Yearly Total Return

Year Ended June 30, Account Performance Salomon Broad Market Performance

2000 ____% ____%
1999 1.99% 3.12%
1998 11.64% 10.59%
1997 8.27% 8.17%
1996 4.86% 4.95%
1995 14.10% 12.55%
1994 -0.88% -1.17%
1993 14.52% 11.98%
1992 15.61% 14.12%
1991 (9/4/90) 11.01% 10.72%

Average Annual Total Return

Period Ended June 30, 2000, Account Performance Salomon Broad Market Performance

1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
Inception (9/4/90) ____% ____%

For a description of Core, see page 4 of the Prospectus.

As of June 30, 2000, Core had approximately $____ million in assets. For its
fiscal year ended March 31, 2000, the Institutional Class shares of Core had a
total expense ratio of 0.50%.

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS NOT YET COMMENCED OPERATIONS AND HAS NO PERFORMANCE RECORD OF ITS OWN.
THE PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER
OR LOWER THAN THAT SHOWN.

Prior Performance of Accounts Similar to the Batterymarch U.S. MidCapitalization
Equity Portfolio.

The investment performance for the period from November 6, 1998 to June 30, 2000
of all accounts managed by Batterymarch that have investment objectives,
policies and strategies that are substantially similar to those of the Portfolio
is shown below. November 6, 1998 represents the commencement of investment
activities for the initial account included in the Composite. The benchmark
index to which the accounts are compared is the S&P MidCap 400 Index ("S&P
400"). The S&P 400 is an unmanaged, market-weighted composite index of 400
stocks in the middle capitalization sector of the U.S. equities market. Although
used as a benchmark, the Index's performance may not be comparable to the
accounts' performance since, unlike the performance of the accounts, the Index's
performance has not been adjusted for any fees or expenses.

Yearly Total Return
Year Ended June 30, Account Performance S&P Mid Cap 400 Performance
2000 ____% ____%
1999 (11/6/98) ____% ____%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance S&P Mid Cap 400 Performance
1 Year ____% ____%
Inception (11/6/98) ____% ____%

The number of accounts included in the composite has ranged from ____ to ____
over the relevant period and the aggregate assets of the accounts has ranged
from ____ to ____ over the period. Accounts included in the composite are
generally not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed

45
<PAGE>

on the Portfolio by the 1940 Act or the Code. The performance results for these
accounts might have been adversely affected had the accounts been subject to
these requirements, restrictions and limitations. These potential differences do
not adversely affect the determination that the accounts included in this
composite are managed in a substantially similar manner to the Portfolio.

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS NOT YET COMMENCED OPERATIONS AND HAS NO PERFORMANCE RECORD OF ITS OWN.
THE PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER
OR LOWER THAN THAT SHOWN.

Prior Performance of Accounts Similar to the Batterymarch U.S. Small
Capitalization Equity Portfolio.

The investment performance for the period from October 1, 1993 to June 30, 2000
of all accounts managed by Batterymarch that have investment objectives,
policies and strategies that are substantially similar to those of the Portfolio
is shown below. October 1, 1993 represents the commencement of investment
activities for the initial account included in the composite. The benchmark
index to which the accounts are compared is the Russell 2000 Index ("Russell
2000"). The Russell 2000 is an unmanaged, capitalization-weighted, broad-based
index of 2,000 small capitalization U.S. companies. Although used as a
benchmark, the Index's performance may not be comparable to the accounts'
performance since, unlike the performance of the accounts, the Index's
performance has not been adjusted for any fees or expenses.

Yearly Total Return

Year Ended June 30, Account Performance Russell 2000 Performance
2000 ____% ____%
1999 ____% ____%
1998 ____% ____%
1997 ____% ____%
1996 ____% ____%
1995 ____% ____%
1994 (10/1/93) ____% ____%

Average Annual Total Return

Period Ended June 30, 2000 Account Performance Russell 2000 Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
Inception (10/1/93) ____% ____%

The number of accounts included in the composite has ranged from ____ to ____
over the relevant period and the aggregate assets of the accounts has ranged
from ____ to ____ over the period. Accounts included in the composite are
generally not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Portfolio by the 1940 Act
or the Code. The performance results for these accounts might have been
adversely affected had the accounts been subject to these requirements,
restrictions and limitations. These potential differences do not adversely
affect the determination that the accounts included in this composite are
managed in a substantially similar manner to the Portfolio.

The investment performance for the period March 13, 1999 (inception) to June 30,
2000 for the Institutional Class shares of the Batterymarch U.S. Small
Capitalization Equity Portfolio ("Batterymarch U.S. Small Cap"), which has been
advised by Batterymarch since its inception, is shown below.

Yearly Total Return

Year Ended June 30, Account Performance Russell 2000 Performance
2000 (3/13/00) ____% ____%

Average Annual Total Return

Period Ended June 30, 2000 Account Performance Russell 2000 Performance
Inception (3/13/00) ____% ____%

46
<PAGE>

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS NOT YET COMMENCED OPERATIONS AND HAS NO PERFORMANCE RECORD OF ITS OWN.
THE PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER
OR LOWER THAN THAT SHOWN.

Prior Performance of Accounts Similar to the Batterymarch International Equity
Portfolio.

The investment performance for the period from July 1, 1990 to June 30, 2000 of
all accounts managed by Batterymarch that have investment objectives, policies
and strategies that are substantially similar to those of the Portfolio is shown
below. The benchmark index to which the accounts are compared is the MSCI Europe
Australia & Far East Index ("MSCI EAFE"). The MSCI EAFE is an unmanaged index
representing the performance of share prices of approximately 1100 companies
listed on stock exchanges around the world. Twenty countries are included in the
Index. Although used as a benchmark, the Index's performance may not be
comparable to the accounts' performance since, unlike the performance of the
accounts, the Index's performance has not been adjusted for any fees or
expenses.

Yearly Total Return
Year Ended June 30, Account Performance MSCI EAFE Performance
2000 ____% ____%
1999 -5.93% 7.92%
1998 11.72% 6.38%
1997 18.51% 13.16%
1996 14.24% 13.62%
1995 1.20% 1.95%
1994 17.32% 17.30%
1993 6.60% 20.70%
1992 8.26% -0.31%
1991 -15.96% -11.23%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance MSCI EAFE Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
10 Year ____% ____%

The number of accounts included in the composite has ranged from ____ to ____
over the relevant period and the aggregate assets of the accounts has ranged
from ____ to ____ over the period. One of the accounts included in the composite
is a registered investment company. Accounts included in the composite are
generally not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Portfolio by the 1940 Act
or the Code. The performance results for these accounts might have been
adversely affected had the accounts been subject to these requirements,
restrictions and limitations. These potential differences do not adversely
affect the determination that the accounts included in this composite are
managed in a substantially similar manner to the Portfolio.

The investment performance for the period from February 17, 1995 (inception) to
June 30, 2000 for the Primary Class shares the Legg Mason International Equity
Trust ("International Equity Trust"), which has been advised by Batterymarch
since its inception, is shown below.

Yearly Total Return
Year Ended June 30, Account Performance MSCI EAFE Performance
2000 ____% ____%
1999 -7.03% 7.92%
1998 5.73% 6.38%
1997 18.74% 13.16%
1996 15.90% 13.62%
1995 (Inception 2/17/95) 4.00% 6.08%

47
<PAGE>

Average Annual Total Return
Period Ended June 30, 2000 Account Performance MSCI EAFE Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
Since Inception (2/17/95) ____% ____%

International Equity Trust, which commenced operations on February 17, 1995, is
a diversified open-end investment company. International Equity Trust's
investment objective is maximum long-term total return. International Equity
Trust's Adviser currently intends to invest substantially all of the fund's
assets in non-U.S. equity securities. The primary focus of the Adviser is stock
selection, with a secondary focus on country allocation. The Adviser uses a
bottom-up, quantitative stock selection process for the developed markets
portion of the fund's portfolio. The cornerstone of this process is a
proprietary stock selection model that ranks the 2,800 stocks in the fund's
principal investable universe by relative attractiveness on a daily basis. The
quantitative factors within this model are intended to measure growth, value,
fundamental expectations and technical indicators (i.e., supply and demand).
Because the same quantitative factors are not effective across all markets due
to individual market characteristics, the adviser adjusts the stock selection
model to include factors that its research indicates are effective, eliminating
factors that are not valid in a particular market. The Adviser runs the stock
selection model and re-balances the portfolio daily, purchasing all stocks
ranked "buys" by the model and selling all stocks ranked "sells." Stocks are
sold when the original reason for purchase no longer pertains, the fundamentals
have deteriorated or portfolio re-balancing warrants.

Country allocation for the developed markets portion of the fund is based on
rankings generated by the Adviser's proprietary country model. The Adviser
examines securities from over 20 international stock markets, with emphasis on
several of the largest: Japan, United Kingdom, France, Canada and Germany.
International Equity Trust may invest up to 35% of its total assets in emerging
market securities. The Adviser's investment strategy for the emerging markets
portion of the fund represents a distinctive combination of tested quantitative
methodology and traditional fundamental analysis. The emerging markets
allocation focuses on higher-quality, dominant companies that the adviser
believes to have strong growth prospects and reasonable evaluations. Country
allocation for the emerging markets portion of the portfolio also combines
quantitative and fundamental approaches.

International Equity Trust's investment portfolio will normally be diversified
across a broad range of industries and across a number of countries, consistent
with the objective of maximum total return. The adviser may also seek to enhance
portfolio returns through active currency hedging strategies. More than 25% of
International Equity Trust's total assets may be denominated in a single
currency or invested in securities of issuers located in a single country.

When cash is temporarily available, or for temporary defensive purposes, when
the adviser believes such action is warranted by abnormal market or economic
situations, International Equity Trust may invest without limit in cash and U.S.
dollar-denominated money market instruments, including repurchase agreements of
domestic issuers. Such securities will be rated investment grade or, if unrated,
will be determined by the fund's adviser to be investment grade.

As of June 30, 2000, International Equity Trust had approximately $____ million
in assets. For its fiscal year ended December 31, 1999, the Primary Class shares
of International Equity Trust had a total expense ratio of ____%.

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS NOT YET COMMENCED OPERATIONS AND HAS NO PERFORMANCE RECORD OF ITS OWN.
THE PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER
OR LOWER THAN THAT SHOWN.

Prior Performance of Accounts Similar to the Batterymarch Emerging Markets
Portfolio.

The investment performance for the period from January 1, 1994 to June 30, 2000
of all accounts managed by Batterymarch that have investment objectives,
policies and strategies that are substantially similar to those of the Portfolio
is shown below. January 1, 1994 represents the commencement of investment
activities for the initial account included in the composite. The benchmark
index to which the accounts are compared is the MSCI Emerging Markets Free Index
with Gross Dividends ("MSCI EMF"). The MSCI EMF is an unmanaged index
representing the performance of a market-weighted aggregate of 26 individual
emerging country indexes and takes into account local and market

48
<PAGE>

restrictions on share ownership by foreigners. Although used as a benchmark, the
Index's performance may not be comparable to the accounts' performance since,
unlike the performance of the accounts, the Index's performance has not been
adjusted for any fees or expenses.

Yearly Total Return
Year Ended June 30, Account Performance MSCI EMF Performance
2000 ____% ____%
1999 25.56% 28.71%
1998 -34.01% -39.08%
1997 19.99% 12.82%
1996 10.61% 8.47%
1995 -7.51% 0.01%
1994 (Inception 1/1/94) -10.82% -9.04%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance MSCI EMF Performance
1 Year ____% ____%
3 Year ____% ____%
5 Year ____% ____%
Since Inception (1/1/94) ____% ____%

The number of accounts included in the composite has ranged from ____ to ____
over the relevant period and the aggregate assets of the accounts has ranged
from ____ to ____ over the period. One of the accounts included in the composite
is a registered investment company. Accounts included in the composite are
generally not subject to the diversification requirements, specific tax
restrictions and investment limitations imposed on the Portfolio by the 1940 Act
or the Code. The performance results for these accounts might have been
adversely affected had the accounts been subject to these requirements,
restrictions and limitations. These potential differences do not adversely
affect the determination that the accounts included in this composite are
managed in a substantially similar manner to the Portfolio.

The investment performance for the period from May 28, 1996 (inception) to June
30, 2000 for the Primary Class shares of the Legg Mason Emerging Markets Trust
("Emerging Markets Trust"), which has been advised by Batterymarch since its
inception, is shown below.

Yearly Total Return
Year Ended June 30, Account Performance MSCI EMF Performance
2000 ____% ____%
1999 24.82% 28.71%
1998 -34.42% -39.08%
1997 27.41% 12.82%
1996 (Inception 5/28/96) 0.20% -0.45%

Average Annual Total Return
Period Ended June 30, 2000 Account Performance MSCI EMF Performance
1 Year ____% ____%
3 Year ____% ____%
Since Inception (5/28/96) ____% ____%

Emerging Markets Trust, which commenced operations on May 28, 1996, is a
diversified open-end investment company. Emerging Markets Trust's investment
objective is long-term capital appreciation. Emerging Markets Trust's Adviser
intends to invest substantially all of the fund's assets in equity securities
and convertible securities of emerging market issuers.

Emerging Markets Trust intends to invest in Asia, Latin America, the Indian
Subcontinent, Southern and Eastern Europe, the Middle East and Africa, although
it may not invest in all these markets at all times and may not invest in any
particular market when it deems investment in that country or region to be
inadvisable.

More than 25% of Emerging Markets Trust's total assets may be denominated in a
single currency or invested in securities of issuers located in a single
country.

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<PAGE>

The Adviser focuses on higher-quality, dominant emerging markets companies which
the Adviser believes to have strong growth prospects and reasonable valuations,
selected from a principal investable universe of approximately 1,000 stocks. The
Adviser's emerging markets investment strategy represents a distinctive
combination of quantitative methodology and traditional fundamental analysis.
Traditional "on-the-ground" fundamental research is combined by the Adviser with
tested quantitative valuation disciplines in those markets where reliable data
is available. In determining country allocation, the Adviser also merges
quantitative and fundamental approaches. In markets with reliable historical
data, buy and sell decisions are driven by a combination of quantitative
valuations and the Adviser's fundamental opinions. Stocks are sold when the
original reason for purchase no longer pertains, the fundamentals have
deteriorated or portfolio re-balancing warrants.

When cash is temporarily available, or for temporary defensive purposes, when
the Adviser believes such action is warranted by abnormal market or economic
situations, the fund may invest without limit in cash and U.S. dollar-
denominated money market instruments, including repurchase agreements of
domestic issuers. Such securities will be rated investment grade or, if unrated,
will be determined by the adviser to be investment grade.

As of June 30, 2000, Emerging Markets Trust had approximately $____ million in
assets. For its fiscal year ended December 31, 1999, the Primary Class shares of
Emerging Markets Trust had a total expense ratio of 2.50% (after fee waivers;
____% in the absence of such waivers).

THE PERFORMANCE INFORMATION DOES NOT REPRESENT THE PERFORMANCE OF THE PORTFOLIO,
WHICH HAS NOT YET COMMENCED OPERATIONS AND HAS NO PERFORMANCE RECORD OF ITS OWN.
THE PERFORMANCE INFORMATION SHOULD NOT BE CONSIDERED A PREDICTION OF FUTURE
PERFORMANCE OF THE PORTFOLIO. THE PORTFOLIO'S FUTURE PERFORMANCE MAY BE HIGHER
OR LOWER THAN THAT SHOWN.

50
<PAGE>

LM Institutional Fund Advisors I
LM Institutional Fund Advisors II

Investment Manager
LM Institutional Advisors, Inc.
P.O. Box 17635
Baltimore, Maryland 21297-1635

1-888-425-6432

Custodian
State Street Bank and Trust Co.
P.O. Box 1713
Boston, Massachusetts 02105

Transfer Agent
Boston Financial Data Services
P.O. Box 953
Boston, Massachusetts 02103

Counsel
Ropes & Gray
One International Place
Boston, Massachusetts 02110

Independent Auditors
PricewaterhouseCoopers LLP Ernst & Young LLP
250 W. Pratt Street 2001 Market Street
Baltimore, Maryland 21201 Philadelphia, PA 19103

Distributors

For all Portfolios: For LMIFA I Portfolios:

Legg Mason Wood Walker, Incorporated Arroyo Seco, Inc.
100 Light Street P.O. Box 1476 117 East Colorado Boulevard
Baltimore, Maryland 21203-1476 Pasadena, California 91105

For investors who want more information about LM Institutional Fund Advisors I,
Inc. ("LMIFA I") and LM Institutional Fund Advisors II, Inc. ("LMIFA II"), the
following documents are available upon request.

Annual Reports
Annual and semi-annual reports provide additional information about the
Portfolios' investments. In the annual report, you will also find a discussion
of the market conditions and investment strategies that significantly affected
the performance of a Portfolio during the last fiscal year.

Statement of Additional Information
The SAI of each of LMIFA I and LMIFA II contains additional detailed information
about LMIFA I and LMIFA II and is incorporated by reference into (legally part
of) this prospectus.

Investors can receive free copies of these materials, request other information
about the Portfolios and make shareholder inquiries by calling 1-888-425-6432.

Information about the Portfolios, including the SAI, can be reviewed and copied
at the SEC's public reference room in Washington, D.C. Information on the
operation of the public reference room may be obtained by calling the SEC at 1-
202-942-8090. Reports and other information about the Portfolios are available
on the EDGAR database on the SEC's Internet site at http://www.sec.gov.
Investors may also make an electronic request at: [email protected] or write
to: SEC, Public Reference Section, Washington, D.C. 20549-0102. A fee will be
charged for making copies.

The Investment Company Act of 1940 file numbers for LMIFA I and LMIFA II are
811-06110 and 811-8611, respectively.

<PAGE>

LM INSTITUTIONAL FUND ADVISORS I, INC

Statement of Additional Information

August 1, 2000

LM Institutional Fund Advisors I, Inc. (the "Fund") is a no-load, open-end
management investment company. LM Institutional Fund Advisors I, Inc. currently
consists of eleven separate professionally managed investment portfolios. These
eleven portfolios are described in this Statement of Additional Information
("SAI"). Each of these portfolios is referred to herein as a "Portfolio."

This SAI is not a prospectus and should be read in conjunction with the
Prospectus for the Portfolios, dated August 1, 2000, which has been filed with
the Securities and Exchange Commission ("SEC"). Copies of the Portfolios'
Prospectus are available without charge from LM Institutional Advisors, Inc. at
1-888-425-6432.

<PAGE>

Table of Contents

<TABLE>
<S> <C>
Definitions 1

Additional Information About Investment Limitations and Policies 1

Additional Information About Securities, Investment Techniques and Related Risks 4

Valuation of Portfolio Shares 18

Management of the Portfolios 19

Purchases and Redemptions 24

Exchange Privilege 24

Portfolio Transactions and Brokerage 24

Additional Tax Information 25

Other Information 26

Principal Holders of Securities 26

Financial Statements and Report of Independent Accountants 30
</TABLE>

[To be updated]
<PAGE>

Definitions

"Adviser" means the investment advisory firm that manages a Portfolio's assets.
Western Asset and WAML are each Advisers.

"Code" means the Internal Revenue Code of 1986, as amended.

"Distributor" means the party that is responsible for the distribution or sale
of the Fund's shares. Legg Mason is the Fund's Distributor. Arroyo Seco, Inc.
also serves as a Distributor to the Fund.

"Exchange" means the New York Stock Exchange.

"Fundamental Investment Limitation" means an investment limitation of a
Portfolio that may be changed only with the affirmative vote of the lesser of
(a) more than 50% of the outstanding shares of the relevant Portfolio or (b) 67%
or more of the shares of the relevant Portfolio present at a shareholders'
meeting if more than 50% of the outstanding shares of that Portfolio are
represented at the meeting in person or by proxy. Only those policies or
limitations expressly designated as such are fundamental investment limitations.
All other policies and restrictions may be changed without shareholder approval.

"Independent Director" means a Director of the Fund who is not an "interested
person" (as defined in the 1940 Act) of the Fund.

"Legg Mason" means Legg Mason Wood Walker, Incorporated.

"Manager" means LM Institutional Advisors, Inc., 100 Light Street, Baltimore, MD
21202.

"1940 Act" means the Investment Company Act of 1940, as amended.

"NRSROs" means nationally recognized (or foreign) statistical rating
organizations, including Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's ("S&P").

"Plans" mean the Fund's Distribution and Shareholder Services Plans.

"SEC" means the Securities and Exchange Commission.

"12b-1 Director" means a Director of the Fund who is an Independent Director and
who has no direct or indirect financial interest in the operation of the Fund's
Plans or the Fund's Underwriting Agreement.

"WAML" means Western Asset Management Company Limited, 155 Bishopsgate, London,
England. WAML is the Adviser to the Western Asset Non-U.S. Fixed Income
Portfolio and to the non-U.S. portion of the Western Asset Intermediate Plus
Portfolio, the Western Asset Core Plus Portfolio, and the Western Asset Global
Strategic Income Portfolio.

"Western Asset" means Western Asset Management Company, 117 East Colorado
Boulevard, Pasadena, CA 91105. Western Asset is the Adviser to each Portfolio
other than the Western Asset Non-U.S. Fixed Income Portfolio.

Additional Information About Investment Limitations and Policies

Each Portfolio has adopted certain fundamental investment limitations that are
set forth below.

The Western Asset Core Portfolio may not:

(1) Mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Portfolio, except as
may be necessary in connection with permitted borrowings, provided that
this limitation does not prohibit escrow, collateral or margin
arrangements in connection with the Portfolio's use of options, futures
contracts, options on futures contracts, forward foreign currency
contracts, when-issued securities or reverse repurchase agreements;

(2) Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, or buy 10% or more of all the securities of
any one issuer, except that up to 25% of the Portfolio's total assets may
be invested without regard to this limitation, and provided that this
limitation does not apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities;

(3) Purchase securities on margin, except for short-term credits
necessary for clearance of portfolio transactions and except that the
Portfolio may make margin deposits in connection with its use of options,
futures contracts, options on futures contracts and forward foreign
currency contracts;

(4) Invest 25% or more of its total assets (taken at market value) in any
one industry, provided that this limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or repurchase agreements

1
<PAGE>

thereon; and provided further that, for purposes of this limitation, U.S.
branches of foreign banks are considered U.S. banks if they are subject to
substantially the same regulation as domestic banks, and foreign branches
of U.S. banks are considered U.S. banks if the domestic parent would be
unconditionally liable in the event that the foreign branch failed to pay
on the instruments for any reason;

(5) Purchase or sell commodities or commodity contracts, except that the
Portfolio may purchase or sell futures on fixed income instruments and
foreign currencies and options thereon, may engage in transactions in
foreign currencies and may purchase or sell options on securities and on
foreign currencies and forward foreign currency contracts;

(6) Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may
be deemed an underwriter under federal securities laws;

(7) Purchase or sell real estate, provided that the Portfolio may invest
in securities secured by, or issued by companies that invest in, real
estate or interests therein, including real estate investment trusts; or

(8) Invest in oil, gas or mineral-related programs or leases, provided
that the Portfolio may invest in securities issued by companies that
engage in such activities.

In addition, the Western Asset Core Portfolio may:

(9) Lend or borrow money or issue senior securities to the fullest extent
permitted by the 1940 Act, the rules or regulations thereunder or
applicable orders of the SEC, as such statute, rules, regulations or
orders may be amended from time to time.

Other than the Western Asset Core Portfolio, each Portfolio may (except as noted
below):

(1) Lend or borrow money or issue senior securities to the fullest extent
permitted by the 1940 Act, the rules or regulations thereunder or
applicable orders of the SEC, as such statute, rules, regulations or
orders may be amended from time to time.

(2) Not concentrate investments in a particular industry or group of
industries as concentration is defined under the 1940 Act, the rules or
regulations thereunder or applicable orders of the SEC, as such statute,
rules, regulations or orders may be amended from time to time. Securities
issued or guaranteed by the U.S. Government, or its agencies or
instrumentalities will not be considered to represent an industry. (This
does not apply to the Western Asset Money Market and Western Asset
Intermediate Portfolios.)

(3) Underwrite securities to the fullest extent permitted by the 1940 Act,
the rules or regulations thereunder or applicable orders of the SEC, as
such statute, rules, regulations or orders may be amended from time to
time. (This does not apply to the Western Asset Money Market and Western
Asset Intermediate Portfolios.)

(4) Purchase or sell commodities, commodities contracts, futures
contracts, options, forward contracts or real estate to the fullest extent
permitted by the 1940 Act, the rules or regulations thereunder or
applicable orders of the SEC, as such statute, rules, regulations or
orders may be amended from time to time.

In addition, the Western Asset Money Market Portfolio and the Western Asset
Intermediate Portfolio may not:

(5) Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, or buy 10% or more of all the securities of
any one issuer, except that up to 25% of the Portfolio's total assets may
be invested without regard to this limitation, and provided that this
limitation does not apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities;

(6) Invest 25% or more of its total assets (taken at market value) in any
one industry, provided that this limitation does not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or repurchase agreements thereon; and provided further
that investments by the Western Asset Money Market Portfolio in U.S. bank
instruments (such as bankers' acceptances, certificates of deposits and
time or demand deposits) shall not be considered investments in any one
industry for purposes of this policy; and provided further that, for
purposes of this limitation, U.S. branches of foreign banks are considered
U.S. banks if they are subject to substantially the same regulation as
domestic banks, and foreign branches of U.S. banks are considered U.S.
banks if the domestic parent would be unconditionally liable in the event
that the foreign branch failed to pay on the instruments for any reason;

(7) Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may
be deemed an underwriter under federal securities laws.

Additional Information

With respect to fundamental investment limitations numbered (1) through (4) of
each Portfolio, other than the Western Asset Core

2
<PAGE>

Portfolio, and fundamental investment limitation numbered (9) of the Western
Asset Core Portfolio, the fundamental investment limitations set forth above
limit a Portfolio's ability to engage in certain investment practices and
purchase securities to the extent permitted by, or consistent with, the 1940
Act. Relevant limitations of the 1940 Act are described below, which are based
either on the 1940 Act itself, the rules or regulations thereunder, or
interpretations promulgated by the SEC. As such, these limitations of the 1940
Act are not "fundamental," that is, the limitations will change as the statute,
rules, regulations or interpretations change, and no shareholder vote will be
required or sought.

Fundamental Investment Restriction (1). Under the 1940 Act, a Portfolio may only
borrow up to one-third of the value of its total assets. Borrowing by a
Portfolio allows it to leverage its portfolio, which exposes it to certain
risks. Leveraging increases the effect of any increase or decrease in the value
of portfolio securities on a Portfolio's net asset value, and money borrowed
will be subject to interest costs (which may include commitment fees and/or the
cost of maintaining minimum average balances) which may or may not exceed the
return from the securities purchased with borrowed funds. A Portfolio may use
borrowed money for any purpose permitted by the 1940 Act.

The 1940 Act also restricts the ability of any mutual fund to lend. Under the
1940 Act, a Portfolio may only make loans if expressly permitted to do so by the
Portfolio's investment policies, and a Portfolio may not make loans to persons
who control or are under common control with the Portfolio. Thus, the 1940 Act
effectively prohibits a Portfolio from making loans to certain persons when
conflicts of interest or undue influence are most likely present. The Portfolios
may, however, make other loans which if made would expose shareholders to
additional risks, such as the failure of the other party to repay the loan.

The ability of a mutual fund to issue senior securities is severely
circumscribed by complex regulatory constraints under the 1940 Act that
restrict, for instance, the amount, timing, and form of senior securities that
may be issued. Certain portfolio management techniques such as the purchase of
securities on margin, short sales, or the writing of puts on portfolio
securities, may be considered senior securities unless appropriate steps are
taken to segregate a Portfolio's assets or otherwise cover its obligations.

Fundamental Investment Restriction (2). "Concentration" is interpreted under the
1940 Act to mean investment of 25% or more of a Portfolio's total assets in a
single industry. If a Portfolio were to "concentrate" its investments in a
particular industry, investors would be exposed to greater risks because the
Portfolio's performance would be largely dependent on that industry's
performance. None of the Portfolios has reserved the right to concentrate in
any industry. For purposes of this limitation, the Portfolios do not consider
certificates of deposit or banker's acceptances issued by domestic branches of
U.S. or foreign banks to be in a single industry. If, in the future, these
instruments are considered to be in the same industry, the Portfolios reserve
the freedom of action to concentrate in such an industry.

Fundamental Investment Restriction (3). The 1940 Act prohibits a diversified
mutual fund from underwriting securities in excess of 25% of its total assets.

Fundamental Investment Restriction (4). This restriction would permit investment
in commodities, commodities contracts (e.g., futures contracts or options),
forward contracts or real estate to the extent permitted under the 1940 Act.
However, it is unlikely that the Portfolios would make such investments, other
than the use of futures contracts, options, forward contracts and certain real
estate-related instruments as explained in the Prospectus and this Statement of
Additional Information. Each Portfolio, however, would like the ability to
consider using these investment techniques in the future. Commodities, as
opposed to commodity futures, represent the actual underlying bulk goods, such
as grains, metals and food stuffs. Real estate-related instruments include real
estate investment trusts, commercial and residential mortgage-backed securities,
and real estate financings, and such instruments are generally sensitive to
factors such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and the
management skill and creditworthiness of the issuer.

Additional Information about Securities, Investment Techniques and Related Risks

Foreign Securities

Investing in the securities of issuers in any foreign country, or in securities
denominated in a foreign currency, involves special risks and considerations not
typically associated with investing in U.S. issuers or U.S. dollar-denominated
securities. These include risks resulting from differences in accounting,
auditing and financial reporting standards; lower liquidity than U.S.
securities; the possibility of nationalization, expropriation or confiscatory
taxation; adverse changes in investment or exchange control regulations (which
may include suspension of the ability to transfer currency out of a country);
and political instability. In many cases, there is less publicly available
information concerning foreign issuers than is available concerning U.S.
issuers. Additionally, purchases and sales of foreign securities and dividends
and interest payable on those securities may be subject to foreign taxes and tax
withholding. Foreign securities generally exhibit greater price volatility and a
greater risk of illiquidity.

To the extent a Portfolio purchases securities denominated in a foreign
currency, a change in the value of any such currency against the U.S. dollar
will result in a change in the U.S. dollar value of the Portfolio's assets and
the Portfolio's income available for distribution. In addition, a Portfolio is
required to compute and distribute its income in U.S. dollars. Therefore, if the
exchange rate for a foreign currency declines after a Portfolio's income has
been earned and translated into U.S. dollars (but before payment), the Portfolio
could be required to liquidate portfolio securities to make such distributions.
Similarly, if an exchange rate declines between the time a Portfolio incurs
expenses in U.S. dollars and the time such expenses are paid, the amount of such
currency required to be converted into U.S. dollars in order to pay such
expenses in U.S. dollars will be greater than the equivalent amount in any such
currency of such expenses at the time they were

3
<PAGE>

incurred.

The relative performance of various countries' securities markets historically
has reflected wide variations relating to the unique characteristics of each
country's economy. Individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Bank deposit insurance, if any, may be subject to
widely varying regulations and limits in foreign countries.

Foreign securities purchased by a Portfolio may be listed on foreign exchanges,
traded over-the-counter or purchased in private transactions. Transactions on
foreign exchanges are usually subject to mark-ups or commissions higher than
negotiated commissions on U.S. transactions. There is less government
supervision and regulation of exchanges and brokers in many foreign countries
than in the United States. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to domestic
custodial arrangements and transaction costs of foreign currency conversions.

Certain of the foregoing risks may also apply to some extent to securities of
U.S. issuers that are denominated in foreign currencies or that are traded in
foreign markets, or to securities of U.S. issuers having significant foreign
operations.

Emerging Market Issuers. The risks of foreign investment, described above, are
greater for investments in emerging market issuers, and such investments should
therefore be considered speculative. Debt securities of governmental and other
issuers in emerging market countries will typically be rated below investment
grade or be of comparable quality. For more information about lower-rated
securities, see "Debt and Fixed Income Securities -- Lower-Rated Securities"
below.

Investors are strongly advised to consider carefully the special risks involved
in emerging markets, which are in addition to the usual risks of investing in
developed markets around the world. Emerging market countries may experience
substantial rates of inflation or deflation. Inflation, deflation and rapid
fluctuations in such rates have had, and may continue to have, very negative
effects on the economies and securities markets of certain emerging market
countries. While some emerging market countries have sought to develop a number
of corrective mechanisms to reduce inflation or deflation or mitigate their
effects, inflation and deflation may continue to have significant effects both
on emerging market countries and their securities markets. In addition, many of
the currencies of emerging market countries have experienced steady devaluations
relative to the U.S. dollar, and major devaluations have occurred in certain
countries.

Economies in emerging market countries generally are dependent heavily upon
international trade and, accordingly, have been and may continue to be affected
adversely by economic conditions, trade barriers, exchange controls, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade.

Because of the high levels of foreign-denominated debt owed by many emerging
market countries, fluctuating exchange rates can significantly affect the debt
service obligations of those countries. This could, in turn, affect local
interest rates, profit margins and exports, which are a major source of foreign
exchange earnings. Hedging instruments are not typically available with respect
to investments in emerging market countries and, to the extent they are
available, the ongoing and indeterminate nature of the foregoing risks (and the
costs associated with hedging transactions) would make it virtually impossible
to hedge effectively against such risks.

To the extent an emerging market country faces a liquidity crisis with respect
to its foreign exchange reserves, it may increase restrictions on the outflow of
any foreign exchange. Repatriation is ultimately dependent on the ability of a
Portfolio to liquidate its investments and convert the local currency proceeds
obtained from such liquidation into U.S. dollars. Where this conversion must be
done through official channels (usually the central bank or certain authorized
commercial banks), the ability to obtain U.S. dollars is dependent on the supply
of such U.S. dollars through those channels and, if available, upon the
willingness of those channels to allocate those U.S. dollars to the Portfolio.
In such a case, a Portfolio's ability to obtain U.S. dollars may be adversely
affected by any increased restrictions imposed on the outflow of foreign
exchange. If the Portfolio is unable to repatriate any amounts due to exchange
controls, it may be required to accept an obligation payable at some future date
by the central bank or other governmental entity of the jurisdiction involved.
If such conversion can legally be done outside official channels, either
directly or indirectly, a Portfolio's ability to obtain U.S. dollars may not be
affected as much by any increased restrictions except to the extent of the price
which may be required to be paid for the U.S. dollars.

Many emerging market countries have little experience with the corporate form of
business organization, and may not have well developed corporation and business
laws or concepts of fiduciary duty in the business context. The securities
markets of emerging market countries are substantially smaller, less developed,
less liquid and more volatile than the securities markets of the U.S. and other
more developed countries. Disclosure and regulatory standards in many respects
are less stringent than in the U.S. and other major markets. There also may be a
lower level of monitoring and regulation of an emerging market country's
securities markets and the activities of investors in such markets; enforcement
of existing regulations has been extremely limited.

Some emerging markets have different settlement and clearance procedures, which,
for example, may not call for delivery of a security to a Portfolio until well
after the Portfolio has paid for such security. In certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, making it difficult to conduct such transactions. The
inability of a Portfolio to make intended securities purchases due to settlement
problems could cause that Portfolio to miss attractive investment opportunities.
Inability to dispose of a portfolio security caused by settlement problems could
result either in losses to the Portfolio due to subsequent declines in value of
the portfolio security or, if the Portfolio has entered into a contract to sell
the security, in possible liability to the purchaser.

4
<PAGE>

The risk also exists that an emergency situation may arise in one or more
emerging market countries as a result of which trading of securities may cease
or may be substantially curtailed and prices for a Portfolio's portfolio
securities in such markets may not be readily available.

Sovereign Debt Securities. Sovereign debt is subject to risks in addition to
those relating to foreign investments generally. As a sovereign entity, the
issuing government may be immune from lawsuits in the event of its failure or
refusal to pay the obligations when due. The debtor's willingness or ability to
repay in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign reserves, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of the debt
service burden to the economy as a whole, the sovereign debtor's policy toward
principal international lenders and the political constraints to which the
sovereign debtor may be subject. Sovereign debtors also may be dependent on
expected disbursements from foreign governments or multinational agencies, the
country's access to trade and other international credits, and the country's
balance of trade. Some emerging market sovereign debtors have in the past
rescheduled their debt payments or declared moratoria on payments, and similar
occurrences may happen in the future.

Depositary Receipts. American Depositary Receipts, or "ADRs," are securities
issued by a U.S. depositary (usually a bank) and represent a specified quantity
of underlying non-U.S. securities on deposit with a custodian bank as
collateral. A foreign issuer of the security underlying an ADR is generally not
subject to the same reporting requirements in the United States as a domestic
issuer. Accordingly, the information available to a U.S. investor will be
limited to the information the foreign issuer is required to disclose in its own
country and the market value of an ADR may not reflect undisclosed material
information concerning the issuer or the underlying security. ADRs may also be
subject to exchange rate risks if the underlying securities are denominated in
foreign currency. The Portfolios may also invest in similar non-U.S. instruments
issued by foreign banks or trust companies such as "GDRs" and "EDRs." For
purposes of its investment policies, each Portfolio will treat ADRs and similar
instruments as equivalent to investment in the underlying securities.

Options on Securities

Under an option contract, one party generally has the right to require the other
to buy or sell a specified amount of securities, units of an index, currencies
or futures contracts, and may exercise that right if the market price of the
underlying instrument moves in a direction advantageous to the holder of the
option. Options with respect to securities indices typically call for cash
settlement instead of delivery of the securities that comprise the index.

A Portfolio may purchase call options on securities for any purpose. For
example, a call option may be purchased by a Portfolio on a security that its
Adviser intends to include in the Portfolio's investment portfolio in order to
fix the cost of a future purchase. Call options also may be used as a means of
participating in an anticipated price increase of a security on a more limited
risk basis than would be possible if the security itself were purchased. In the
event of a decline in the price of the underlying security, use of this strategy
would serve to limit the Portfolio's potential loss to the option premium paid;
conversely, if the market price of the underlying security increases above the
exercise price and the Portfolio either sells or exercises the option, any
profit realized would be reduced by the premium.

A Portfolio may purchase put options on securities for any purpose. For example,
a put option may be purchased by a Portfolio in order to hedge against a decline
in the market value of securities held in its portfolio. The put option enables
a Portfolio to sell the underlying security at the predetermined exercise price;
thus the potential for loss to the Portfolio below the exercise price is limited
to the option premium paid. If the market price of the underlying security is
higher than the exercise price of the put option, any profit the Portfolio
realizes on the sale of the security would be reduced by the premium paid for
the put option less any amount for which the put option may be sold.

A Portfolio may also write call and put options.

Futures Contracts and Options on Futures Contracts

A futures contract is an agreement between the parties to buy or sell a
specified amount of one or more securities, units of an index or currencies at a
specified price and date; futures contracts are generally closed out by the
parties in advance of that date for a cash settlement.

Each Portfolio will limit its use of futures contracts and futures options to
hedging transactions or other circumstances permitted to registered investment
companies by regulatory authorities. For example, a Portfolio might use futures
contracts to attempt to hedge against anticipated changes in interest rates that
might adversely affect either the value of the Portfolio's securities or the
price of the securities which the Portfolio intends to purchase. A Portfolio's
hedging may include sales of futures contracts as an offset against the effect
of expected increases in interest rates, and purchases of futures contracts as
an offset against the effect of expected declines in interest rates. Although
other techniques could be used to reduce exposure to interest rate fluctuations,
a Portfolio may be able to hedge its exposure more effectively and perhaps at a
lower cost by using futures contracts and options on futures contracts.

Futures contracts may also be used for non-hedging purposes, such as to simulate
full investment in underlying securities while retaining a cash balance for
Portfolio management purposes, as a substitute for direct investment in a
security, to facilitate trading, to reduce transaction costs, or to seek higher
investment returns when a futures contract or option is priced more attractively
than the underlying security or index.

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A futures contract on a security or foreign currency is a bilateral agreement
pursuant to which one party agrees to make, and the other party agrees to
accept, delivery of the specified type of security or foreign currency called
for in the contract at a specified future time and at a specified price. A
Portfolio may, for example, purchase a futures contract on a security or foreign
currency when it intends to purchase securities or foreign currency but has not
yet done so. This strategy may minimize the effect of all or part of an increase
in the market price of the security or the relative value of the foreign
currency that a Portfolio intends to purchase in the future. A rise in the price
of the security or foreign currency prior to its purchase may either be offset
by an increase in the value of the futures contract purchased by a Portfolio or
avoided by taking delivery of the security or foreign currency under the futures
contract. Conversely, a fall in the market price of the underlying security or
foreign currency may result in a corresponding decrease in the value of the
futures position. A Portfolio may sell a futures contract on a security or
foreign currency, for example, in order to continue to receive the income from a
security or foreign currency, while endeavoring to avoid part or all of the
decline in the market value of that security that would accompany an increase in
interest rates.

A Portfolio may also purchase a call option on a futures contract to hedge
against a market advance in securities or foreign currency which the Portfolio
plans to acquire at a future date. The purchase of a call option on a futures
contract is analogous to the purchase of a call option on an individual security
or foreign currency which can be used as a temporary substitute for a position
in the security itself. A Portfolio also may write covered call options on
futures contracts as a partial hedge against a decline in the price of
securities or foreign currency held in the Portfolio's investment portfolio, or
purchase put options on futures contracts in order to hedge against a decline in
the value of securities or foreign currency held in the Portfolio's investment
portfolio. A Portfolio may write a covered put option as a partial anticipatory
hedge.

When a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its custodian (or a broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Under certain circumstances, such as during periods of high
volatility, a Portfolio may be required by an exchange to increase the level of
its initial margin payment. Additionally, initial margin requirements may be
increased generally in the future by regulatory action. Each Portfolio expects
to earn interest income on its initial margin deposits. A futures contract held
by a Portfolio is valued daily at the official settlement price of the exchange
on which it is traded. Each day the Portfolio pays or receives cash, called
"variation margin," equal to the daily change in value of the futures contract.
This process is known as "marking to market." Variation margin does not
represent a borrowing or loan by a Portfolio but is instead settlement between
the Portfolio and the broker of the amount one would owe the other if the
futures contract expired. In computing daily net asset value, each Portfolio
will mark to market its open futures positions.

A Portfolio is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements) and the current market value of the option and
other futures positions held by the Portfolio.

Although some futures contracts call for making or taking delivery of the
underlying securities or currencies, generally those contracts are closed out
prior to delivery by offsetting purchases or sales of matching futures contracts
(involving the same currency or underlying security and delivery month). If an
offsetting purchase price is less than the original sale price, the Portfolio
realizes a gain, or if it is more, the Portfolio realizes a loss. If an
offsetting sale price is more than the original purchase price, the Portfolio
realizes a gain, or if it is less, the Portfolio realizes a loss. The Portfolio
will also bear transaction costs for each contract which will be included in
these calculations.

A Portfolio will not enter into futures contracts or option positions if,
immediately thereafter, the initial margin deposits plus premiums paid by it,
less the amount by which any such options positions are "in-the-money" at the
time of purchase, would exceed 5% of the fair market value of the Portfolio's
total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the futures
contract that is the subject of the option.

The requirements for qualification as a regulated investment company also may
limit the extent to which a Portfolio may enter into futures or options on
futures. See "Additional Tax Information."

Risks Associated with Futures and Options

In considering the Portfolios' use of futures contracts and options, particular
note should be taken of the following:

(1) Positions in futures contracts and options may be closed out only on
an exchange or board of trade which provides a secondary market for such
futures contracts or options. Futures exchanges may limit the amount of
fluctuation permitted in certain futures contract and option prices
during a single trading day. The daily limit establishes the maximum
amount that the price of a futures contract or option may vary either up
or down from the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a futures
contract or option subject to the limit, no more trades may be made on
that day at a price beyond that limit. The daily limit governs only
price movements during a particular trading day and therefore does not
limit potential losses because the limit may work to prevent the
liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of
positions and subjecting some holders of futures contracts to
substantial losses.

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(2) The ability to establish and close out positions in either futures
contracts or exchange-listed options is also subject to the maintenance of
a liquid secondary market. Consequently, it may not be possible for a
Portfolio to close a position and, in the event of adverse price
movements, the Portfolio would have to make daily cash payments of
variation margin (except in the case of purchased options). However, in
the event futures contracts or options have been used to hedge portfolio
securities, such securities generally will not be sold until the contracts
can be terminated. In such circumstances, an increase in the price of the
securities, if any, may partially or completely offset losses on the
futures contract. However, there is no guarantee that the price of the
securities will, in fact, correlate with the price movements in the
contracts and thus provide an offset to losses on the contracts. The
inability to close out a futures or option position may also restrict the
Portfolio's ability to sell the underlying security or currency at a time
when the Adviser might otherwise do so.

(3) Successful use by a Portfolio of futures contracts and options will
depend upon its Adviser's ability to predict market movements, which may
require different skills and techniques than predicting changes in the
prices of individual securities. Moreover, futures contracts relate not
to the current level of the underlying instrument but to anticipated
levels at some point in the future. There is, in addition, the risk that
movements in the price of the futures contract or option will not
correlate with movements in the prices of the securities or currencies
being hedged. If the price of the securities or currencies being hedged
has moved in a favorable direction, this advantage may be partially offset
by losses in the futures or option position. In addition, if the Portfolio
has insufficient cash, it may have to sell assets from its investment
portfolio to meet daily variation margin requirements. Any such sale of
assets may or may not be made at prices that reflect the rising market;
consequently, a Portfolio may need to sell assets at a time when such
sales are disadvantageous to the Portfolio. If the price of the futures or
option contract moves more than the price of the underlying securities or
currencies, the Portfolio will experience either a loss or a gain on the
futures contract or option that may or may not be completely offset by
movements in the price of the securities or currencies that are the
subject of the hedge.

(4) The value of an option position will reflect, among other things, the
current market price of the underlying security, currency or futures
contract, the time remaining until expiration, the relationship of the
exercise price to the market price, the historical price volatility of
the underlying security, currency or futures contract and general market
conditions. For this reason, the successful use of options as a hedging
strategy depends upon the Adviser's ability to forecast the direction of
price fluctuations in the underlying market.

(5) In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between price movements in the
futures and options position and the securities or currencies being
hedged, movements in the prices of futures and options contracts may not
correlate perfectly with movements in the prices of the hedged securities
or currencies due to price distortions in the futures and options markets.
There may be several reasons unrelated to the value of the underlying
securities or currencies which cause this situation to occur. First, as
noted above, all participants in the futures market are subject to
initial and variation margin requirements. If, to avoid meeting additional
margin deposit requirements or for other reasons, investors choose to
close a significant number of futures contracts through offsetting
transactions, distortions in the normal price relationship between the
securities or currencies and the futures markets may occur. Second,
because the margin deposit requirements in the futures market are less
onerous than margin requirements in the securities market, there may be
increased participation by speculators in the futures market; such
speculative activity in the futures market also may cause temporary price
distortions. Third, participants could make or take delivery of the
underlying securities or currencies instead of closing out their
contracts. As a result, a correct forecast of general market trends may
not result in successful hedging through the use of futures or options
contracts over the short term. In addition, activities of large traders
involving arbitrage and other investment strategies may result in
temporary price distortions.

(6) Options normally have expiration dates of up to nine months. The
exercise price of the options may be below, equal to or above the
current market value of the underlying security, currency or futures
contract. Options that expire unexercised have no value, and the
Portfolio will realize a loss in the amount paid and any transaction
costs.

(7) Like options on securities, options on futures contracts have a
limited life. The ability to establish and close out options on futures
will be subject to the development and maintenance of liquid secondary
markets on the relevant exchanges or boards of trade. There can be no
certainty that liquid secondary markets for all options on futures
contracts will develop.

(8) Purchasers of options on futures contracts pay a premium in cash at
the time of purchase. This amount and the transaction costs are all that
is at risk. Sellers of options on futures contracts, however, must post an
initial margin and are subject to additional margin calls which could be
substantial in the event of adverse price movements. In addition,
although the maximum amount at risk when the Portfolio purchases an option
is the premium paid for the option and the transaction costs, there may be
circumstances when the purchase of an option on a futures contract would
result in a loss to the Portfolio when the use of a futures contract would
not, such as when there is no movement in the value of the securities or
currencies being hedged.

(9) A Portfolio's activities in the futures and options markets may result
in a higher portfolio turnover rate and additional transaction costs in
the form of added brokerage commissions; however, a Portfolio also may
save on commissions by using such contracts as a hedge rather than buying
or selling individual securities in anticipation or as a result of market
movements.

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(10) A Portfolio may purchase and write both exchange-traded options and
options traded on the OTC market. Exchange markets for options on debt
securities exist but are relatively new, and the ability to establish and
close out positions on the exchanges is subject to the maintenance of a
liquid secondary market. Although the Portfolios intend to purchase
or write only those exchange-traded options for which there appears to be
an active secondary market, there is no assurance that a liquid
secondary market will exist for any particular option at any specific
time. Closing transactions may be effected with respect to options traded
in the OTC markets only by negotiating directly with the other party to
the option contract, or in a secondary market for the option if such
market exists. Although the Portfolios will enter into OTC options only
with dealers which agree to enter into, and which are expected to be
capable of entering into, closing transactions with the Portfolios,
there can be no assurance that a Portfolio will be able to liquidate an
OTC option at a favorable price at any time prior to expiration. In the
event of insolvency of the counterparty, a Portfolio may be unable to
liquidate an OTC option. Accordingly, it may not be possible to effect
closing transactions with respect to certain options, with the result that
the Portfolio would have to exercise those options which it has purchased
in order to realize any profit. With respect to options written by a
Portfolio, the inability to enter into a closing transaction may result in
material losses to the Portfolio. For example, because a Portfolio must
maintain a covered position with respect to any call option it writes on a
security or futures contract, the Portfolio may not sell the underlying
security or futures contract or invest any cash, U.S. Government
securities or short-term debt securities used as cover during the period
it is obligated under such option. This requirement may impair a
Portfolio's ability to sell a portfolio security or make an investment at
a time when such a sale or investment might be advantageous.

Additional Risks of Options on Securities, Futures Contracts and Options on
Futures Contracts Traded on Foreign Exchanges

Options on securities, options on currencies, futures contracts and options on
futures contracts may be traded on foreign exchanges. Such transactions may not
be regulated as effectively as similar transactions in the United States, may
not involve a clearing mechanism and related guarantees and are subject to the
risk of governmental actions affecting trading in, or the price of, foreign
securities. The value of such positions also could be adversely affected by (1)
other complex foreign political, legal and economic factors, (2) lesser
availability than in the United States of data on which to make trading
decisions, (3) delays in the Portfolios' ability to act upon economic events
occurring in foreign markets during non-business hours in the United States, (4)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States and (5) lesser trading
volume.

Cover for Hedging Strategies

Each Portfolio will comply with guidelines established by the SEC with respect
to coverage of hedging strategies by mutual funds, and, if the guidelines so
require, will set aside cash or liquid securities in a segregated account with
its custodian in the amount prescribed, as marked to market daily. Securities,
options or futures positions used for cover and securities held in a segregated
account cannot be sold or closed out while the hedging strategy is outstanding,
unless they are replaced with similar assets. As a result, there is a
possibility that the use of cover or segregation involving a large percentage of
a Portfolio's assets could impede portfolio management or a Portfolio's ability
to meet redemption requests or other current obligations.

Foreign Currency Exchange Transactions

Each Portfolio that may invest in securities that are denominated in foreign
currencies may engage in a variety of foreign currency exchange transactions to
protect against uncertainty in the level of future exchange rates. These
transactions may be engaged in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect the value of
specific portfolio positions ("position hedging").

A Portfolio may engage in transaction hedging to protect against a change in the
foreign currency exchange rates between the date on which the Portfolio
contracts to purchase or sell the security and the settlement date, or to "lock
in" the U.S. dollar equivalent of a dividend or interest payment in a foreign
currency. A Portfolio may purchase or sell a foreign currency on a spot (or
cash) basis at the prevailing spot rate. If conditions warrant, for transaction
hedging purposes, a Portfolio may also enter into contracts to purchase or sell
foreign currencies at a future date ("forward contracts") and may purchase and
sell foreign currency futures contracts. A foreign currency forward contract is
a negotiated agreement to exchange currency at a future time at a rate or rates
that may be higher or lower than the spot rate. Foreign currency futures
contracts are standardized exchange-traded contracts and have margin
requirements. Each Portfolio may also purchase, sell and write exchange-listed
and over-the-counter call and put options on foreign currency futures contracts
and on foreign currencies.

A Portfolio may engage in "position hedging" to protect against a decline in the
value relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of the
currency in which securities the Portfolio intends to buy are denominated).

For position hedging purposes, each Portfolio may purchase, sell or write
foreign currency futures contracts, foreign currency forward contracts, and
options on exchanges or over-the-counter markets. In connection with position
hedging, a Portfolio may also purchase or sell foreign currency on a spot basis.

A Portfolio's currency hedging transactions may call for the delivery of one
foreign currency in exchange for another foreign currency and may at times
involve currencies other than those in which its portfolio securities are then
denominated. "Cross hedging" activities will be used when a Portfolio's Adviser
believes that such transactions provide significant hedging opportunities for
the Portfolio. Cross hedging

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transactions by a Portfolio involve the further risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the values of such currencies and of the currency or other
asset or liability which is the subject of the hedge.

The decision as to whether and to what extent a Portfolio will engage in foreign
currency exchange transactions will depend on a number of factors, including
prevailing market conditions, the composition of a Portfolio's investments and
the availability of suitable transactions. Accordingly, there can be no
assurance that a Portfolio will engage in foreign currency exchange transactions
at any given time or from time to time.

For a further discussion of the risks associated with purchasing and selling
futures contracts and options, see "Risks Associated with Futures and Options"
above. A Portfolio may also use other foreign currency exchange instruments and
techniques when available and deemed appropriate by its Adviser.

Preferred Stocks and Convertible Securities

A preferred stock pays dividends at a specified rate and has preference over
common stock in the payment of dividends and the liquidation of an issuer's
assets but is junior to the debt securities of the issuer in those same
respects. The market prices of preferred stocks are subject to changes in
interest rates and are more sensitive to changes in an issuer's creditworthiness
than are the prices of debt securities. Shareholders of preferred stock may
suffer a loss of value if dividends are not paid. Under ordinary circumstances,
preferred stock does not carry voting rights.

A convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock (or another equity security) of the same or a different issuer
within a particular period of time at a specified price or formula. A
convertible security entitles the holder to receive interest paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Before conversion, convertible
securities have characteristics similar to nonconvertible debt securities in
that they ordinarily provide a stream of income with generally higher yields
than those of common stocks of the same or similar issuers. Convertible
securities are usually subordinated to comparable-tier nonconvertible securities
but rank senior to common stock in a corporation's capital structure.

The value of a convertible security is a function of (1) its yield in comparison
with the yields of other securities of comparable maturity and quality that do
not have a conversion privilege and (2) its worth, at market value, if converted
into the underlying common stock. A convertible security may be subject to
redemption at the option of the issuer at a price established in the convertible
security's governing instrument. If a convertible security held by a Portfolio
is called for redemption, the Portfolio will be required to (1) permit the
issuer to redeem the security, (2) convert it into the underlying common stock
or (3) sell it to a third party. Any of these actions could have an adverse
effect on a Portfolio's ability to achieve its investment objective.

Debt and Fixed Income Securities

The Portfolios may invest in a variety of debt and fixed income securities.
These securities share one principal risk: their values fluctuate with changes
in interest rates. Thus, a decrease in interest rates will generally result in
an increase in the value of a Portfolio's fixed income investments. Conversely,
during periods of rising interest rates, the value of a Portfolio's fixed income
investments will generally decline. The magnitude of these fluctuations will
generally be greater when a Portfolio's duration or average maturity is longer.
Changes in the value of portfolio securities will not affect interest income
from those securities, but will be reflected in a Portfolio's net asset value.
The most common types of these instruments, and the associated risks, are
described below. Subject to its investment policies and applicable law, each of
the Portfolios may invest in these and other instruments.

U.S. Government Obligations. U.S. Government securities include (1) U.S.
Treasury bills (maturity of one year or less), U.S. Treasury notes (maturity of
one to ten years) and U.S. Treasury bonds (maturities generally greater than ten
years) and (2) obligations issued or guaranteed by U.S. Government agencies or
instrumentalities which are supported by any of the following: (a) the full
faith and credit of the U.S. Government (such as GNMA certificates); (b) the
right of the issuer to borrow an amount limited to a specific line of credit
from the U.S. Government (such as obligations of the Federal Home Loan Banks);
(c) the discretionary authority of the U.S. Government to purchase certain
obligations of agencies or instrumentalities (such as securities issued by
Fannie Mae); or (d) only the credit of the instrumentality (such as securities
issued by Freddie Mac). In the case of obligations not backed by the full faith
and credit of the United States, a Portfolio must look principally to the agency
or instrumentality issuing or guaranteeing the obligation for ultimate repayment
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitments. Neither the
U.S. Government nor any of its agencies or instrumentalities guarantees the
market value of the securities they issue. Therefore, the market value of such
securities will fluctuate in response to changes in interest rates.

Inflation-Indexed Securities. The Western Asset Inflation Indexed Bond
Portfolio presently intends to invest in, and the other Portfolios may invest
in, inflation indexed bonds. Inflation indexed bonds are fixed income
securities whose principal value is periodically adjusted according to the rate
of inflation. Two structures are common. The U.S. Treasury and some other
issuers use a structure that accrues inflation into the principal value of the
bond. Most other issuers pay out the CPI accruals as part of a semiannual
coupon.

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Inflation indexed securities issued by the U.S. Treasury have maturities of
five, ten or thirty years, although it is possible that securities with other
maturities will be issued in the future. The U.S. Treasury securities pay
interest on a semi-annual basis, equal to a fixed percentage of the inflation-
adjusted principal amount. The interest rate on these bonds is fixed at
issuance, but over the life of the bond this interest may be paid on an
increasing or decreasing principal value which has been adjusted for inflation.

Repayment of the original bond principal upon maturity (as adjusted for
inflation) is guaranteed in the case of U.S. Treasury inflation indexed bonds,
even during a period of deflation. However, the current market value of the
bonds is not guaranteed, and will fluctuate.

The value of inflation indexed bonds is expected to fluctuate in response to
changes in real interest rates, which are in turn tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if
inflation were to rise at a faster rate than nominal interest rates, real
interest rates might decline, leading to an increase in value of inflation
indexed bonds. In contrast, if nominal interest rates increased at a faster
rate than inflation, real interest rates might rise, leading to a decrease in
value of inflation indexed bonds. Although the principal value of these
securities declines in periods of deflation, holders at maturity receive no less
than par. If inflation is lower than expected during the period a Portfolio
holds the security, the Portfolio may earn less on the security than on a
conventional bond. Any increase in principal value is taxable in the year the
increase occurs, even though holders do not receive cash representing the
increase at that time.

While these securities are expected to be protected from long-term inflationary
trends, short-term increases in inflation may lead to a decline in value. If
interest rates rise due to reasons other than inflation (for example, due to
changes in currency exchange rates), investors in these securities may not be
protected to the extent that the increase is not reflected in the bond's
inflation measure.

The U.S. Treasury has only recently begun issuing inflation indexed bonds. As
such, there is no trading history of these securities, and there can be no
assurance that a liquid market in these instruments will develop. Certain
foreign governments, such as the United Kingdom, Canada and Australia, have a
longer history of issuing inflation indexed bonds, and there may be a more
liquid market in certain of these countries for these securities.

The periodic adjustment of U.S. inflation indexed bonds is tied to the Consumer
Price Index for Urban Consumers ("CPI-U"), which is calculated monthly by the
U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the
cost of living, made up of components such as housing, food, transportation and
energy. Inflation indexed bonds issued by a foreign government are generally
adjusted to reflect a comparable inflation index, calculated by that government.
There can no assurance that the CPI-U or any foreign inflation index will
accurately measure the real rate of inflation in the prices of goods and
services. In addition, there can be no assurance that the rate of inflation in
a foreign country will be correlated to the rate of inflation in the United
States.

Mortgage-Related Securities. Mortgage-related securities represent an interest
in a pool of mortgages made by lenders such as commercial banks, savings and
loan institutions, mortgage bankers and others. Mortgage-related securities may
be issued by governmental, government-related or non-governmental entities, and
provide regular payments which consist of interest and, in most cases,
principal. In contrast, other forms of debt securities normally provide for
periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. In effect, payments on mortgage-related
securities are a "pass-through" of the payments made by the individual borrowers
on their mortgage loans, net of any fees paid to the issuer or guarantor of such
securities. Additional payments to holders of mortgage-related securities are
caused by repayments resulting from the sale of the underlying property,
refinancing or foreclosure, net of fees or costs which may be incurred.

As prepayment rates of individual pools of mortgage loans vary widely, it is not
possible to predict accurately the average life of a particular security.
Although mortgage-related securities are issued with stated maturities of up to
forty years, unscheduled or early payments of principal and interest on the
underlying mortgages may shorten considerably the securities' effective
maturities. The volume of prepayments of principal on a pool of mortgages
underlying a particular mortgage-related security will influence the yield of
that security, and the principal returned to a Portfolio may be reinvested in
instruments whose yield may be higher or lower than that which might have been
obtained had such prepayments not occurred. When interest rates are declining,
such prepayments usually increase, and reinvestments of such principal
prepayments will be at a lower rate than that on the original mortgage-related
security. An increase in mortgage prepayments could cause the Portfolio to incur
a loss on a mortgage-related security that was purchased at a premium. On the
other hand, a decrease in the rate of prepayments, resulting from an increase in
market interest rates or other causes, may extend the effective maturities of
mortgage-related securities, increasing their sensitivity to changes in market
interest rates and potentially increasing the volatility of a Portfolio's
shares. The rate of prepayment may also be affected by general economic
conditions, the location and age of the mortgages, and other social and
demographic conditions. In determining the average maturity or duration of a
mortgage-related security, a Portfolio's Adviser must apply certain assumptions
and projections about the maturity and prepayment of such security; actual
prepayment rates may differ. Because of prepayments, mortgage-related securities
may have less potential for capital appreciation during periods of declining
interest rates than other securities of comparable maturities, although they may
have a similar risk of decline in market value during periods of rising interest
rates.

Most issuers or poolers provide guarantees of payments, regardless of whether
the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are often backed by various forms of credit, insurance and collateral,
although these may be in amounts less than the full obligation of the pool to
its shareholders.

Pools often consist of whole mortgage loans or participations in loans. The
majority of these loans are made to purchasers of one- to four-

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family homes. The terms and characteristics of the mortgage instruments are
generally uniform within a pool but may vary among pools. For example, in
addition to fixed-rate, fixed-term mortgages, the Portfolios may purchase pools
of variable-rate mortgages, growing-equity mortgages, graduated-payment
mortgages and other types.

All poolers apply standards for qualification to lending institutions which
originate mortgages for the pools. Poolers also establish credit standards and
underwriting criteria for individual mortgages included in the pools. In
addition, many mortgages included in pools are insured through private mortgage
insurance companies.

The average life of mortgage-related securities varies with the maturities and
the nature of the underlying mortgage instruments. For example, securities
issued by the Government National Mortgage Association ("GNMA") tend to have a
longer average life than participation certificates ("PCs") issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") because there is a tendency for
the conventional and privately-insured mortgages underlying FHLMC PCs to repay
at faster rates than the Federal Housing Administration and Veterans
Administration loans underlying GNMAs. In addition, the term of a security may
be shortened by unscheduled or early payments of principal and interest on the
underlying mortgages. The occurrence of mortgage prepayments is affected by
factors including the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.

In determining the dollar-weighted average maturity of a Portfolio, the
Portfolio's Adviser will follow industry practice in assigning an average life
to the mortgage-related securities held by each Portfolio unless the interest
rate on the mortgages underlying the securities is such that a different
prepayment rate is likely. For example, if a GNMA has a high interest rate
relative to the market, that GNMA is likely to have a shorter overall maturity
than a GNMA with a market rate coupon. Moreover, Western Asset may deem it
appropriate to change the projected average life for a Portfolio's mortgage-
related securities as a result of fluctuations in market interest rates and
other factors.

Yields on mortgage-related securities are typically quoted based on the maturity
of the underlying instruments and the associated average life assumption. Actual
prepayment experience may cause the yield to differ from the yield expected on
the basis of average life. Reinvestment of the prepayments may occur at higher
or lower interest rates than the original investment, thus affecting the yield
of the Portfolio. The compounding effect from reinvestments of monthly payments
received by each Portfolio will increase the yield to shareholders compared to
bonds that pay interest semi-annually.

Government Mortgage-Related Securities. GNMA is the principal federal government
guarantor of mortgage-related securities. GNMA is a wholly owned U.S. Government
corporation within the Department of Housing and Urban Development. GNMA pass-
through securities are considered to have a relatively low risk of default in
that (1) the underlying mortgage loan portfolio is comprised entirely of
government-backed loans and (2) the timely payment of both principal and
interest on the securities is guaranteed by the full faith and credit of the
U.S. Government, regardless of whether they have been collected. GNMA pass-
through securities are, however, subject to the same market risk as comparable
debt securities. Therefore, the effective maturity and market value of a
Portfolio's GNMA securities can be expected to fluctuate in response to changes
in interest rate levels.

Residential mortgage loans are also pooled by Freddie Mac, a corporate
instrumentality of the U.S. Government. The mortgage loans in Freddie Mac's
portfolio are not government backed; Freddie Mac, not the U.S. Government,
guarantees the timely payment of interest and ultimate collection of principal
on Freddie Mac securities. Freddie Mac also issues guaranteed mortgage
certificates, on which it guarantees semiannual interest payments and a
specified minimum annual payment of principal.

Fannie Mae is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. Fannie Mae purchases residential mortgages from a list of
approved seller/servicers, which include savings and loan associations, savings
banks, commercial banks, credit unions and mortgage bankers. Pass-through
securities issued by Fannie Mae are guaranteed as to timely payment of principal
and interest only by Fannie Mae, not the U.S. Government.

Privately Issued Mortgage-Related Securities. Mortgage-related securities
offered by private issuers include pass-through securities comprised of pools of
residential mortgage loans; mortgage-backed bonds which are considered to be
debt obligations of the institution issuing the bonds and are collateralized by
mortgage loans; and bonds and collateralized mortgage obligations ("CMOs") which
are collateralized by mortgage-related securities issued by Freddie Mac, Fannie
Mae or GNMA or by pools of mortgages.

CMOs are typically structured with classes or series which have different
maturities and are generally retired in sequence. Each class of obligations
receives periodic interest payments according to the coupon rate on the
obligations. However, all monthly principal payments and any prepayments from
the collateral pool are generally paid first to the "Class 1" holders.
Thereafter, all payments of principal are generally allocated to the next most
senior class of obligations until that class of obligations has been fully
repaid. Although full payoff of each class of obligations is contractually
required by a certain date, any or all classes of obligations may be paid off
sooner than expected because of an increase in the payoff speed of the pool.
Other allocation methods may be used. Payment of interest or principal on some
classes or series of a CMO may be subject to contingencies or some classes or
series may bear some or all of the risk of default on the underlying mortgages.

Mortgage-related securities created by non-governmental issuers generally offer
a higher rate of interest than government and government-related securities
because there are no direct or indirect government guarantees of payment in the
former securities, resulting in higher risks. Where privately issued securities
are collateralized by securities issued by Freddie Mac, Fannie Mae or GNMA, the
timely payment of interest and principal is supported by the government-related
securities collateralizing such obligations. The market for conventional pools

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is smaller and less liquid than the market for the government and government-
related mortgage pools.

Certain private mortgage pools are organized in such a way that the SEC staff
considers them to be closed-end investment companies. Each Portfolio's
investment in such pools is constrained by federal statute, which restricts
investments in the shares of other investment companies.

The private mortgage-related securities in which the Portfolios may invest
include foreign mortgage pass-through securities ("Foreign Pass-Throughs"),
which are structurally similar to the pass-through instruments described above.
Such securities are issued by originators of and investors in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers, specialized financial institutions and special purpose
subsidiaries of the foregoing. Foreign Pass-Throughs usually are backed by a
pool of fixed rate or adjustable-rate mortgage loans. Certain Foreign Pass-
Throughs in which the Portfolios invest typically are not guaranteed by an
entity having the credit status of GNMA, but generally utilize various types of
credit enhancement.

Asset-Backed Securities. Asset-backed securities refer to securities that
directly or indirectly represent a participation in, or are secured by and
payable from, assets such as motor vehicle installment sales, installment loan
contracts, leases of various types of real and personal property and receivables
from revolving credit (credit card) agreements.

Such assets are securitized through the use of trusts or special purpose
corporations. Asset-backed securities are backed by a pool of assets
representing the obligations often of a number of different parties. Certain of
such securities may be illiquid.

The principal on asset-backed securities, like that on mortgage-backed
securities, may be prepaid at any time. As a result, if such securities are
purchased at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is slower than expected
will have the opposite effect. Conversely, if the securities are purchased at a
discount, prepayments faster than expected will increase yield to maturity and
prepayments slower than expected will decrease it. Accelerated prepayments also
reduce the certainty of the yield because the Portfolio must reinvest the assets
at the then-current rates. Accelerated prepayments on securities purchased at a
premium also impose a risk of loss of principal. On the other hand, a decrease
in the rate of prepayments may extend the effective maturities of the
securities, increasing their sensitivity to changes in market interest rates and
potentially increasing the volatility of a Portfolio's shares. The rate of
prepayment may also be affected by general economic conditions and other social
and demographic conditions.

Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively burdensome
to perfect the interest in the underlying collateral, and the underlying
collateral may become damaged or stolen.

Most issuers of automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities. Because asset-backed securities are
relatively new, the market experience in these securities is limited and the
market's ability to sustain liquidity through all phases of the market cycle is
not certain.

Municipal Obligations. Municipal obligations include obligations issued to
obtain funds for various public purposes, including constructing a wide range of
public facilities, such as bridges, highways, housing, hospitals, mass
transportation, schools and streets. Other public purposes for which municipal
obligations may be issued include the refunding of outstanding obligations, the
obtaining of funds for general operating expenses and the making of loans to
other public institutions and facilities. In addition, certain types of
industrial development bonds ("IDBs") and private activity bonds ("PABs") are
issued by or on behalf of public authorities to finance various privately
operated facilities, including certain pollution control facilities, convention
or trade show facilities, and airport, mass transit, port or parking facilities.

Municipal obligations also include short-term tax anticipation notes, bond
anticipation notes, revenue anticipation notes and other forms of short-term
debt obligations. Such notes may be issued with a short-term maturity in
anticipation of the receipt of tax payments, the proceeds of bond placements or
other revenues. Municipal obligations also include municipal lease obligations
and certificates of participation. Municipal lease obligations, which are issued
by state and local governments to acquire land, equipment and facilities,
typically are not fully backed by the municipality's credit, and, if funds are
not appropriated for the following year's lease payments, a lease may terminate,
with the possibility of default on the lease obligation and significant loss to
the Portfolio. Certificates of participation are participations in municipal
lease obligations or installment sales contracts. Each certificate represents a
proportionate interest in or right to the payments made.

The two principal classifications of municipal obligations are "general
obligation" and "revenue" bonds. "General obligation" bonds are secured by the
issuer's pledge of its faith, credit and taxing power. "Revenue" bonds are
payable only from the revenues derived from a

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particular facility or class of facilities or from the proceeds of a special
excise tax or other specific revenue source such as the corporate user of the
facility being financed. IDBs and PABs are usually revenue bonds and are not
payable from the unrestricted revenues of the issuer. The credit quality of IDBs
and PABs is usually directly related to the credit standing of the corporate
user of the facilities.

The ability of state, county or local governments to meet their obligations will
depend primarily on the availability of tax and other revenues to those
governments and on their fiscal conditions generally. The amounts of tax and
other revenues available to governmental issuers may be affected from time to
time by economic, political and demographic conditions within or outside of the
particular state. In addition, constitutional or statutory restrictions may
limit a government's power to raise revenues or increase taxes. The availability
of federal, state and local aid to issuers of municipal securities may also
affect their ability to meet their obligations. Payments of principal and
interest on revenue bonds will depend on the economic condition of the facility
or specific revenue source from whose revenues the payments will be made. The
facility's economic status, in turn, could be affected by economic, political
and demographic conditions affecting the particular state.

Corporate Debt Securities. A Portfolio may invest in debt securities (i.e.,
bonds, debentures, notes and other similar debt instruments) of domestic or
foreign non-governmental issuers which meet the minimum credit quality criteria,
if any, set forth for the Portfolio. Corporate debt securities may pay fixed or
variable rates of interest, or interest at a rate contingent upon some other
factor, such as the price of some commodity. These securities may include
warrants, may be convertible into preferred or common equity, or may be bought
as part of a unit containing common stock.

Lower-Rated Securities. Non-investment grade securities, i.e., securities rated
below Baa by Moody's or BBB by S&P or comparable ratings of other NRSROs or
unrated securities of comparable quality, are described as "speculative" by
Moody's and S&P and may be subject to greater market fluctuations and greater
risk of loss of income or principal, including a greater possibility of default
or bankruptcy of the issuer of such securities, than are more highly rated debt
securities. Such securities are commonly referred to as "junk bonds." A
Portfolio's Adviser seeks to minimize the risks of investing in all securities
through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions and will monitor the
ratings of securities held by the Portfolios and the creditworthiness of their
issuers. If the rating of a security in which a Portfolio has invested falls
below the minimum rating in which the Portfolio is permitted to invest, the
Portfolio will either dispose of that security within a reasonable time or hold
the security for so long as the Portfolio's Adviser determines appropriate for
that Portfolio, having due regard for market conditions, tax implications and
other applicable factors.

A debt security may be callable, i.e., subject to redemption at the option of
the issuer at a price established in the security's governing instrument. If a
debt security held by a Portfolio is called for redemption, the Portfolio will
be required to permit the issuer to redeem the security or sell it to a third
party. Either of these actions could have an adverse effect on a Portfolio's
ability to achieve its investment objective because, for example, the Portfolio
may be able to reinvest the proceeds only in securities with lower yields or may
receive a price upon sale that is lower than it would have received in the
absence of the redemption.

The market for lower-rated securities has expanded rapidly in recent years. This
growth has paralleled a long economic expansion. At certain times in the past,
the prices of many lower-rated securities declined, indicating concerns that
issuers of such securities might experience financial difficulties. At those
times, the yields on lower-rated securities rose dramatically, reflecting the
risk that holders of such securities could lose a substantial portion of their
value as a result of the issuers' financial restructuring or default. There can
be no assurance that such declines will not recur.

The ratings of Moody's and S&P represent the opinions of those agencies as to
the quality of the debt securities which they rate. Such ratings are relative
and subjective, and are not absolute standards of quality. Unrated debt
securities are not necessarily of lower quality than rated securities, but they
may not be attractive to as many buyers. If securities are rated investment
grade by one rating organization and below investment grade by the other, a
Portfolio's investment adviser may rely on the rating that it believes is more
accurate. Each Portfolio's Adviser will consider a security's quality and credit
rating when determining whether such security is an appropriate investment.
Subject to its investment objective, policies and applicable law, a Portfolio
may purchase a security with the lowest rating.

Where one of the NRSROs has assigned an investment grade rating to an instrument
and others have given it a lower rating, the Portfolios may consider the
instrument to be investment grade. The market for lower-rated securities may be
thinner and less active than that for higher-rated securities, which can
adversely affect the prices at which these securities can be sold, and may make
it difficult for a Portfolio to obtain market quotations daily. If market
quotations are not available, these securities will be valued by a method that
the Portfolios' Boards of Directors believe accurately reflects fair market
value. Judgment may play a greater role in valuing lower-rated debt securities
than is the case with respect to securities for which a broader range of dealer
quotations and last-sale information is available. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may also
decrease the values and liquidity of lower-rated securities, especially in a
thinly traded market.

Although the prices of lower-rated bonds are generally less sensitive to
interest rate changes than are higher-rated bonds, the prices of lower-rated
bonds may be more sensitive to adverse economic changes and developments
regarding the individual issuer. Although the market for lower-rated debt
securities is not new, and the market has previously weathered economic
downturns, there has been in recent years a substantial increase in the use of
such securities to fund corporate acquisitions and restructurings. Accordingly,
the past performance of the market for such securities may not be an accurate
indication of its performance during future economic downturns or periods of
rising interest rates. When economic conditions appear to be deteriorating,
medium- to lower-rated securities may decline in value due to

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heightened concern over credit quality, regardless of the prevailing interest
rates. Investors should carefully consider the relative risks of investing in
high yield securities and understand that such securities are not generally
meant for short-term investing.

Adverse economic developments can disrupt the market for lower-rated securities,
and severely affect the ability of issuers, especially highly leveraged issuers,
to service their debt obligations or to repay their obligations upon maturity
which may lead to a higher incidence of default on such securities. Lower-rated
securities are especially affected by adverse changes in the industries in which
the issuers are engaged and by changes in the financial condition of the
issuers. Highly leveraged issuers may also experience financial stress during
periods of rising interest rates. In addition, the secondary market for lower-
rated securities, which is concentrated in relatively few market makers, may not
be as liquid as the secondary market for more highly rated securities. As a
result, a Portfolio could find it more difficult to sell these securities or may
be able to sell the securities only at prices lower than if such securities were
widely traded. Therefore, prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating a Portfolio's net asset value.

Lower-rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls an obligation for redemption, the Portfolio may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Portfolio experiences unexpected net
redemptions, it may be forced to sell its higher-rated securities, resulting in
a decline in the overall credit quality of the Portfolio's investment portfolio
and increasing the exposure of the Portfolio to the risks of lower-rated
securities.

Stripped Securities. Stripped securities are created by separating bonds into
their principal and interest components and selling each piece separately
(commonly referred to as IOs and POs). The yield to maturity on an IO or PO
class of stripped mortgage-backed securities is extremely sensitive not only to
changes in prevailing interest rates but also to the rate of principal payments
(including prepayments) on the underlying assets. A rapid rate of principal
prepayments may have a measurably adverse effect on a Portfolio's yield to
maturity to the extent it invests in IOs. If the assets underlying the IOs
experience greater than anticipated prepayments of principal, the Portfolio may
fail to recoup fully its initial investment in these securities. Conversely, POs
tend to increase in value if prepayments are greater than anticipated and
decline if prepayments are slower than anticipated. The secondary market for
stripped mortgage-backed securities may be more volatile and less liquid than
that for other mortgage-backed securities, potentially limiting a Portfolio's
ability to buy or sell those securities at any particular time.

Zero Coupon and Pay-In-Kind Securities. A zero coupon bond is a security that
makes no fixed interest payments but instead is sold at a discount from its face
value. The bond is redeemed at its face value on the specified maturity date.
Zero coupon bonds may be issued as such, or they may be created by a broker who
strips the coupons from a bond and separately sells the rights to receive
principal and interest. The prices of zero coupon bonds tend to fluctuate more
in response to changes in market interest rates than do the prices of interest-
paying debt securities with similar maturities. A Portfolio investing in zero
coupon bonds generally accrues income on such securities prior to the receipt of
cash payments. Since each Portfolio must distribute substantially all of its
income to shareholders to qualify as a regulated investment company under
federal income tax law, a Portfolio investing in zero coupon bonds may have to
dispose of other securities, including at times when it may be disadvantageous
to do so, to generate the cash necessary for the distribution of income
attributable to its zero coupon bonds. Pay-in-kind securities have
characteristics similar to those of zero coupon securities, but interest on such
securities may be paid in the form of obligations of the same type rather than
cash.

Commercial Paper and Other Short-term Investments

Each of the Portfolios may invest or hold cash or other short-term investments,
including commercial paper. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. The Portfolios may purchase commercial paper
issued pursuant to the private placement exemption in Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is restricted as to disposition under
federal securities laws in that any resale must similarly be made in an exempt
transaction. The Portfolios may or may not regard such securities as illiquid,
depending on the circumstances of each case.

Any Portfolio may also invest in obligations (including certificates of deposit,
demand and time deposits and bankers' acceptances) of U.S. banks and savings and
loan institutions. While domestic bank deposits are insured by an agency of the
U.S. Government, the Portfolios will generally assume positions considerably in
excess of the insurance limits.

Loan Participations and Assignments

The purchase of loan participations and assignments entails special risks. A
Portfolio's ability to receive payments of principal and interest and other
amounts in connection with loan participations and assignments will depend
primarily on the financial condition of the borrower. The failure by the
Portfolio to receive scheduled interest or principal payments on a loan
participation or assignment would adversely affect the income of the Portfolio
and would likely reduce the value of its assets. Because loan participations are
not generally rated by independent credit rating agencies, a decision by a
Portfolio to invest in a particular loan participation will depend almost
exclusively on its Adviser's credit analysis of the borrower. In addition to the
other risks associated with investments in debt securities, participations and
assignments involve the additional risk that the insolvency of any financial
institution interposed between the Portfolio and the borrower could delay or
prevent the flow of payments from the borrower on the underlying loan. A
Portfolio may have limited rights to enforce the terms of the underlying loan,
and the liquidity of loan participations and assignments may be limited.

The borrower of a loan in which a Portfolio holds a participation interest may,
either at its own election or pursuant to terms of the loan

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documentation, prepay amounts of the loan from time to time. There is no
assurance that the Portfolio will be able to reinvest the proceeds of any loan
prepayment at the same interest rate or on the same terms as those of the
original loan participation.

Corporate loans in which a Portfolio may purchase a loan participation or
assignment are made generally to finance internal growth, mergers, acquisitions,
stock repurchases, leveraged buy-outs, and other corporate activities. The
highly leveraged capital structure of the borrowers in certain of these
transactions may make such loans especially vulnerable to adverse changes in
economic or market conditions.

Certain of the loan participations or assignments acquired by a Portfolio may
involve unfunded commitments of the lenders or revolving credit facilities under
which a borrower may from time to time borrow and repay amounts up to the
maximum amount of the facility. In such cases, the Portfolio would have an
obligation to advance its portion of such additional borrowings upon the terms
specified in the loan documentation.

Indexed Securities and Structured Notes

The values of indexed securities and structured notes are linked to currencies,
other securities, interest rates, commodities, indices or other financial
indicators ("reference instruments"). These instruments differ from other types
of debt securities in several respects. The interest rate or principal amount
payable at maturity may vary based on changes in one or more specified reference
instruments, such as a floating interest rate compared with a fixed interest
rate or the currency exchange rates between two currencies (neither of which
need be the currency in which the instrument is denominated). An indexed
security or structured note may be positively or negatively indexed; that is,
its value or interest rate may increase or decrease if the value of the
reference instrument increases. Further, the change in the principal amount
payable with respect to, or the interest rate of, an indexed security or
structured note may be a multiple of the percentage change (positive or
negative) in the value of the underlying reference instrument(s).

Investment in indexed securities and structured notes involves certain risks,
including the credit risk of the issuer and the normal risks of price changes in
response to changes in interest rates. Further, in the case of certain indexed
securities or structured notes, a decline in the reference instrument may cause
the interest rate to be reduced to zero, and any further declines in the
reference instrument may then reduce the principal amount payable on maturity.
Finally, these securities may be less liquid than other types of securities, and
may be more volatile than their underlying reference instruments.

Forward Commitments

Each Portfolio may enter into commitments to purchase securities on a "forward
commitment" basis, including purchases on a "when-issued" basis or a "to be
announced" basis. When such transactions are negotiated, certain terms may be
fixed at the time the commitment is made, but delivery and payment for the
securities takes place at a later date. Such securities are often the most
efficiently priced and have the best liquidity in the bond market. During the
period between a commitment and settlement, no payment is made by the purchaser
for the securities purchased and, thus, no interest accrues to the purchaser
from the transaction. In a "to be announced" transaction, a Portfolio commits to
purchase securities for which all specific information is not yet known at the
time of the trade, particularly the exact face amount in forward commitment
mortgage-backed securities transactions.

A Portfolio may sell the securities subject to a forward commitment purchase,
which may result in a gain or loss. When a Portfolio purchases securities on a
forward commitment basis, it assumes the risks of ownership, including the risk
of price fluctuation, at the time of purchase, not at the time of receipt.
Purchases of forward commitment securities also involve a risk of loss if the
seller fails to deliver after the value of the securities has risen. Depending
on market conditions, a Portfolio's forward commitment purchases could cause its
net asset value to be more volatile.

Each Portfolio may also enter into a forward commitment to sell securities it
owns and will generally do so only with the intention of actually delivering the
securities. The use of forward commitments enables a Portfolio to hedge against
anticipated changes in interest rates and prices. In a forward sale, a Portfolio
does not participate in gains or losses on the security occurring after the
commitment date. Forward commitments to sell securities also involve a risk of
loss if the seller fails to take delivery after the value of the securities has
declined.

Forward commitment transactions involve additional risks similar to those
associated with investments in options and futures contracts. See "Risks
Associated with Futures and Options Contracts." It is not expected that any
Portfolio's purchases of forward commitments will at any time exceed, in the
aggregate, 20% of that Portfolio's total assets.

Restricted and Illiquid Securities

Restricted securities are securities subject to legal or contractual
restrictions on their resale, such as private placements. Such restrictions
might prevent the sale of restricted securities at a time when the sale would
otherwise be desirable. No securities for which there is not a readily available
market ("illiquid securities") will be acquired by any Portfolio if such
acquisition would cause the aggregate value of illiquid securities to exceed 15%
of the Portfolio's net assets (10% of net assets for the Western Asset Money
Market Portfolio and the Western Asset Government Money Market Portfolio).

Under SEC regulations, certain securities acquired through private placements
can be traded freely among qualified purchasers. The SEC has stated that an
investment company's board of directors, or its investment adviser acting under
authority delegated by the board, may

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determine that a security eligible for trading under this rule is "liquid." The
Portfolios intend to rely on this rule, to the extent appropriate, to deem
specific securities acquired through private placement as "liquid." The Boards
have delegated to a Portfolio's Adviser the responsibility for determining
whether a particular security eligible for trading under this rule is "liquid."
Investing in these restricted securities could have the effect of increasing a
Portfolio's illiquidity if qualified purchasers become, for a time, uninterested
in buying these securities.

Restricted securities may be sold only (1) pursuant to SEC Rule 144A or other
exemption, (2) in privately negotiated transactions or (3) in public offerings
with respect to which a registration statement is in effect under the Securities
Act of 1933, as amended. Rule 144A securities, although not registered in the
U.S., may be sold to qualified institutional buyers in accordance with Rule 144A
under the Securities Act of 1933, as amended. Each Portfolio's Adviser, acting
pursuant to guidelines established by its Board of Directors, may determine that
some Rule 144A securities are liquid for purposes of limitations on the amount
of illiquid investments a Portfolio may own. Where registration is required, a
Portfolio may be obligated to pay all or part of the registration expenses and a
considerable period may elapse between the time of the decision to sell and the
time the Portfolio may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Portfolio might obtain a less favorable price than prevailed
when it decided to sell.

Illiquid securities may be difficult to value, and a Portfolio may have
difficulty disposing of such securities promptly. The Portfolios do not consider
foreign securities to be restricted if they can be freely sold in the principal
markets in which they are traded, even if they are not registered for sale in
the U.S.

Securities of Other Investment Companies

Investments in other investment companies may involve the payment of substantial
premiums above the net asset value of such issuers' portfolio securities, and
the total return on such investments will be reduced by the operating expenses
and fees of such investment companies, including advisory fees. The Portfolios
may invest in both closed-end and open-end investment companies.

Repurchase Agreements

A repurchase agreement is an agreement under which securities are acquired from
a securities dealer or bank subject to resale at an agreed upon price and date.
The securities are held by a Portfolio as collateral until retransferred and
will be supplemented by additional collateral if necessary to maintain a total
market value equal to or in excess of the value of the repurchase agreement. The
Portfolio bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Portfolio is delayed or prevented
from exercising its rights to dispose of the collateral securities. A Portfolio
also bears the risk that the proceeds from any sale of collateral will be less
than the repurchase price. Repurchase Agreements may be viewed as a loan by a
Portfolio.

Reverse Repurchase Agreements and Other Borrowing

A reverse repurchase agreement is a portfolio management technique in which a
Portfolio temporarily transfers possession of a portfolio instrument to another
person, such as a financial institution or broker-dealer, in return for cash. At
the same time, the Portfolio agrees to repurchase the instrument at an agreed
upon time (normally within seven days) and price, including an interest payment.
While engaging in reverse repurchase agreements, each Portfolio will maintain
cash or securities in a segregated account at its custodian bank with a value at
least equal to the Portfolio's obligation under the agreements, adjusted daily.
Reverse repurchase agreements may expose a Portfolio to greater fluctuations in
the value of its assets and renders the segregated assets unavailable for sale
or other disposition. Reverse repurchase agreements may be viewed as a borrowing
by a Portfolio.

The Portfolios may also enter into dollar roll transactions in which a Portfolio
sells a fixed income security for delivery in the current month and
simultaneously contracts to purchase substantially similar (same type, coupon
and maturity) securities at an agreed upon future time. By engaging in the
dollar roll transaction the Portfolio forgoes principal and interest paid on the
security that is sold, but receives the difference between the current sales
price and the forward price for the future purchase. The Portfolio would also be
able to earn interest on the income that is received from the initial sale.

The obligation to purchase securities on a specified future date involves the
risk that the market value of the securities that a Portfolio is obligated to
purchase may decline below the purchase price. In addition, in the event the
other party to the transaction files for bankruptcy, becomes insolvent or
defaults on its obligation, a Portfolio may be adversely affected.

Each Portfolio will limit its investments in reverse repurchase agreements and
other borrowing (including dollar roll transactions) to no more than one-third
of its total assets. To avoid potential leveraging effects of such borrowing, a
Portfolio will not make investments while its borrowing (including reverse
repurchase agreements but excluding dollar rolls) is in excess of 5% of its
total assets. To avoid potential leveraging effects of dollar rolls, each
Portfolio will segregate assets as required by the 1940 Act.

The 1940 Act requires a Portfolio to maintain continuous asset coverage (that
is, total assets including borrowings, less liabilities exclusive of borrowings)
of at least 300% of the amount borrowed. If the asset coverage should decline
below 300% as a result of market fluctuations or for other reasons, a Portfolio
may be required to sell some of its holdings within three days to reduce the
debt and restore the 300% asset coverage, even though it may be disadvantageous
from an investment standpoint to sell securities at that time. Borrowing may
increase the

16
<PAGE>

effect on net asset value of any increase or decrease in the market value of the
Portfolio.

Money borrowed will be subject to interest costs which may or may not be
recovered by appreciation of the securities purchased. A Portfolio also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate. The Portfolios may enter into reverse repurchase agreements and dollar
roll transactions as a method of borrowing.

Loans of Portfolio Securities

A Portfolio may lend its portfolio securities, provided that cash or equivalent
collateral, equal to at least 100% of the market value of the securities loaned,
is continuously maintained by the borrower with the Portfolio. During the time
securities are on loan, the borrower will pay the Portfolio an amount equivalent
to any dividends or interest paid on such securities, and the Portfolio may
invest the cash collateral and earn additional income, or it may receive an
agreed upon amount of interest income from the borrower who has delivered
equivalent collateral. These loans are subject to termination at the option of
the Portfolio or the borrower. A Portfolio may pay administrative and custodial
fees in connection with a loan and may pay a negotiated portion of the interest
earned on the cash or equivalent collateral to the borrower or placing broker.
No Portfolio presently expects to have on loan at any given time securities
totaling more than one-third of its net assets. A Portfolio runs the risk that
the counterparty to a loan transaction will default on its obligation and that
the value of the collateral received may decline before the Portfolio can
dispose of it.

Duration

Duration is a measure of the expected life of a fixed income security on a cash
flow basis. Duration takes the time intervals over which the interest and
principal payments are scheduled and weights each by the present values of the
cash to be received at the corresponding future point in time. For any fixed
income security with interest payments occurring prior to the payment of
principal, duration is always less than maturity. For example, a current coupon
bond with a maturity of 3.5 years will have a duration of approximately three
years. In general, the lower the stated or coupon rate of interest of a fixed
income security, the longer its duration; conversely, the higher the stated or
coupon rate of interest of a fixed income security, the shorter its duration.

There may be circumstances under which even duration calculations do not
properly reflect the interest rate exposure of a security. For example, floating
variable rate securities may have final maturities of ten or more years;
however, their interest exposure corresponds to the frequency of the coupon
reset. Similarly, many mortgage pass-through securities may have stated final
maturities of 30 years, but current prepayment rates are more critical in
determining the security's interest rate exposure. In these situations, the
Adviser may consider other analytical techniques that incorporate the economic
life of a security into its determination of interest rate exposure.

Diversification

Each Portfolio, other than the Western Asset Non-U.S. Fixed Income Portfolio and
the Western Asset Global Strategic Income Portfolio, intends to remain
diversified, as "diversified" is defined under the 1940 Act.

Portfolio Turnover

The length of time a Portfolio has held a particular security is not generally a
consideration in investment decisions. A change in the securities held by a
Portfolio is known as "portfolio turnover." As a result of a Portfolio's
investment policies, under certain market conditions a Portfolio's portfolio
turnover rate may be higher than that of other mutual funds. Portfolio turnover
generally involves some expense to a Portfolio, including brokerage commissions
or dealer mark-ups and other transaction costs on the sale of securities and
reinvestment in other securities. These transactions may result in realization
of taxable capital gains. Higher portfolio turnover rates, such as those above
100%, are likely to result in higher brokerage commissions or other transactions
costs and could give rise to a greater amount of taxable capital gains.

Alternative Investment Strategies

At times a Portfolio's Adviser may judge that conditions in the securities
markets make pursuing the Portfolio's typical investment strategy inconsistent
with the best interests of its shareholders. At such times, the Adviser may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Portfolio's assets. In implementing these
defensive strategies, a Portfolio may invest without limit in securities that
the Adviser believes present less risk to a Portfolio, including equity
securities, debt and fixed income securities, preferred stocks, U.S. Government
and agency obligations, cash or money market instruments, or in other securities
the Adviser considers consistent with such defensive strategies, such as, but
not limited to, options, futures, warrants or swaps. As a result of these
strategies, the Portfolios may invest up to 100% of their assets in securities
of U.S. issuers. It is impossible to predict when, or for how long, a Portfolio
will use these alternative strategies. As a result of using these alternative
strategies, a Portfolio may not achieve its investment objective.

New Investment Products

New types of mortgage-backed and asset-backed securities, derivative instruments
and hedging instruments are developed and marketed

17
<PAGE>

from time to time. Consistent with its investment limitations, each Portfolio
expects to invest in those new types of securities and instruments that its
Adviser believes may assist the Portfolio in achieving its investment objective.

Investment Policies

The investment objective of each of the Western Asset Core, the Western Asset
Intermediate and the Western Asset Money Market Portfolio are "fundamental."
Except for investment policies designated as fundamental in this Prospectus or
the SAI, the investment policies described in this Prospectus and in the SAI are
not fundamental policies. Changes to fundamental investment policies require
shareholder approval; the Directors may change any non-fundamental investment
policy without shareholder approval.

Ratings of Debt Obligations

Moody's, S&P and NRSROs are private organizations that provide ratings of the
credit quality of debt obligations. A Portfolio may consider these ratings in
determining whether to purchase, sell or hold a security. Ratings are not
absolute assurances of quality. Consequently, securities with the same maturity,
interest rate and rating may have different market prices. Credit rating
agencies attempt to evaluate the safety of principal and interest payments and
do not evaluate the risks of fluctuations in market value. Also, rating agencies
may fail to make timely changes in credit ratings in response to subsequent
events, so that an issuer's current financial condition may be better or worse
than the rating indicates.

Valuation of Portfolio Shares

Net asset value of a Portfolio share is determined daily for each class as of
the close of the Exchange, on every day the Exchange is open, by subtracting
liabilities attributable to that class, from total assets attributable to that
class, and dividing the result by the number of shares of that class
outstanding. Pricing will not be done on days when the Exchange is closed. The
Exchange currently observes the following holidays: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.

When market quotations for institutional size positions are readily available
portfolio securities are valued based upon market quotations. Where such market
quotations are not readily available, securities are valued based upon
appraisals received from a pricing service using a computerized matrix system or
based upon appraisals derived from information concerning the security or
similar securities received from recognized dealers in those securities. The
methods used by the pricing service and the quality of the valuations so
established are reviewed by the Adviser under the general supervision of the
Corporation's Board of Directors. The amortized cost method of valuation is
used with respect to obligations with 60 days or less remaining to maturity
unless the Adviser determines that this does not represent fair value. All
other assets are valued at fair value as determined in good faith, by or under
the direction of the Corporation's Board of Directors. Premiums received on the
sale of put and call options are included in net asset value of each class, and
the current market value of options sold by the fund will be subtracted from net
assets of each class.

Use of the Amortized Cost Method by the Money Market Portfolios

Western Asset Government Money Market Portfolio and Western Asset Money Market
Portfolio attempt to stabilize the value of a share at $1.00. Net asset value
will not be calculated on days when the Exchange is closed.

Use of the Amortized Cost Method. The directors have determined that the
- ---------------------------------
interests of shareholders are best served by using the amortized cost method for
determining the value of portfolio instruments. Under this method, portfolio
instruments are valued at the acquisition cost, as adjusted for amortization of
premium or accumulation of discount, rather than at current market value. The
Board of Directors continually assesses the appropriateness of this method of
valuation.

The Portfolios' use of the amortized cost method of valuing portfolio
instruments depends on its compliance with Rule 2a-7 under the 1940 Act. Under
that Rule, the Directors must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and each Portfolio's investment objective.

Monitoring Procedures. The Portfolios' procedures include monitoring the
- ----------------------
relationship between the amortized cost value per share and the net asset value
per share based upon available indications of market value. If there is a
difference of more than 0.50% between the two, the Directors will take any steps
they consider appropriate (such as shortening the dollar-weighted average
portfolio maturity) to minimize any material dilution or other unfair results
arising from differences between the two methods of determining net asset value.

Investment Restrictions. Rule 2a-7 requires the Portfolios to limit investments
- ------------------------
to instruments that, (i) in the opinion of the Adviser, present minimal credit
risk and (ii) (a) are rated in one of the two highest rating categories by at
least two NRSROs (or one, if only one NRSRO has rated the security) or, (b) if
unrated, are determined to be of comparable quality by the Adviser, all pursuant
to procedures determined by the Board of Directors ("Eligible Securities"). The
Portfolios may invest no more than 5% of total assets in securities that are
Eligible Securities but have not been rated in the highest short-term ratings
category by at least two NRSROs (or by one NRSRO, if only one NRSRO has assigned
the obligation a short-term rating) or, if the obligations are unrated,
determined by the Adviser to be of comparable quality ("Second Tier
Securities"). In addition, the Portfolios will not invest more than 1% of total
assets or $1 million

18
<PAGE>

(whichever is greater) in the Second Tier Securities of a single issuer. The
Rule requires the Portfolios to maintain a dollar-weighted average portfolio
maturity appropriate to the objective of maintaining a stable net asset value of
$1.00 per share and in any event not more than 90 days. In addition, under the
Rule, no instrument with a remaining maturity (as defined in the Rule) of more
than 397 days can be purchased by the Portfolios; except that the Portfolios may
hold securities with remaining maturities greater than 397 days as collateral
for repurchase agreements and other collateralized transactions of short
duration. SEC rules permit the Portfolios to treat certain long-term variable or
floating rate instruments as having a maturity equal to the time remaining until
the next reset of the interest rate or until the principal can be recovered
through a demand.

Should the disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Portfolios will invest
available cash to reduce the average maturity to 90 days or less as soon as
possible.

It is the Portfolios' usual practice to hold portfolio securities to maturity
and realize par, unless the Adviser determines that sale or other disposition is
appropriate in light of a Portfolio's investment objective. Under the amortized
cost method of valuation, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio.

In periods of declining interest rates, the indicated daily yield on shares of
the Portfolios, computed by dividing the annualized daily income on a
Portfolio's investment portfolio by the net asset value computed as above, may
tend to be higher than a similar computation made by using a method of valuation
based upon market prices and estimates.

In periods of rising interest rates, the indicated daily yield on shares of the
Portfolios computed the same way may tend to be lower than a similar computation
made by using a method of calculation based upon market prices and
estimates.

Management of the Portfolios

Directors and Officers

The Fund's officers are responsible for the operation of the Fund under the
direction of its Board of Directors. The officers and Directors of the Fund and
their principal occupations during the past five years are set forth below. An
asterisk (*) indicates Interested Directors.

Directors and Officers: LM Institutional Fund Advisors I, Inc.

The address of each officer and Director of LM Institutional Fund Advisors I,
Inc. is 117 East Colorado Blvd., Pasadena, CA 91105.

William G. McGagh, 70 (1,4), Chairman of the Board and Director; Consultant,
McGagh Associates (corporate financial consulting), January 1989-present;
Director of Pacific American Income Shares, Inc. (closed-end investment
company). Formerly: Senior Vice-President, Chief Financial Officer and Director
of Northrop Grumman Corporation (military aircraft).

*Ronald L. Olson, 58 (5), Director; Senior Partner, Munger, Tolles & Olson (a
law partnership); Director of Pacific American Income Shares, Inc., Edison
International, Rand Corporation and Berkshire Hathaway, Inc.

Louis A. Simpson, 63 (1,2,3,4), Director; President and CEO Capital Operations
of Government Employees Insurance Company (GEICO Corporation) since May 1993;
Vice Chairman of GEICO (1985- 1993); Senior Vice President and Chief Investment
Officer of GEICO (1979-1985). Director of Pacific American Income Shares, Inc.,
Potomac Electric Power Company, MediaOne Group, Inc. and Science Applications
International Corporation (SAIC). Formerly: President and CEO of Western Asset.

Ronald J. Arnault; 56 (1,2), Director; President of RJA Consultants (energy
industry financial consulting); member, Board of Governors of The Music Center
of Los Angeles, the Center Theatre Group and Occidental College; Director of
Pacific American Income Shares, Inc. Formerly: Executive Vice President, Chief
Financial Officer and Director of ARCO.

William E. B. Siart, 53 (2,3,4), Director; Chairman of the Board, Walt Disney
Concert Hall I, Inc. (since 1998); President and Chief Executive Officer of EXED
LLC (1998 - 2000); Member of the Board of Trustees of the University of Southern
California; Board of Directors of the Performing Arts Center of Los Angeles
County; Director of the Los Angeles Philharmonic; Director of Pacific American
Income Shares, Inc. Formerly: Chairman (1995-1996), Chief Executive Officer
(1995-1996), President (1990- 1996) of First Interstate Bancorp.

John E. Bryson, 56 (3,4), Director; Chairman and Chief Executive Officer of
Edison International (since October 1990); Director of Pacific American Income
Shares, Inc., The Boeing Company, The Times Mirror Company, the W.M. Keck
Foundation, and a trustee of Stanford University. Formerly: Chairman and Chief
Executive Officer of Southern California Edison Company (1990 - 1999).

Anita L. DeFrantz, 47 (2), Director; President of the Amateur Athletic
Foundation of Los Angeles, since, 1987; President of Kids in Sports, since 1994;
Vice President of the International Olympic Committee, since 1997. Also, a
director of Pacific American Income Shares, Inc., and a board member of the
Amateur Athletic Foundation of Los Angeles, since 1987, International Olympic
Committee, since 1986, and the United States Olympic Committee Executive Board,
since 1977.

19
<PAGE>

*Edward A. Taber III, 56 (1), Director; Senior Executive Vice President and Head
of Asset Management, Legg Mason, Inc.; Senior Executive Vice President of Legg
Mason Wood Walker, Inc; Chairman and Director of Legg Mason Fund Adviser, Inc.;
Director of Western Asset Management Company, WAML, Bartlett & Co., Batterymarch
Financial Management, Inc., Gray, Seifert & Co., Inc., and GSH & Co., Inc.
President and/or Director/Trustee of all Legg Mason retail funds except Legg
Mason Tax Exempt Trust. Formerly: Director and Head of Taxable Fixed Income
Division, T. Rowe Price Associates (1973-1992).

James W. Hirschmann, III, 39, President; Director, President and Chief Executive
Officer, Western Asset, March 1999-present; Director of Marketing, Western
Asset, April 1989-March 1999; Director and Director of Marketing, Arroyo Seco,
Inc. Formerly: Vice-President and Director of Marketing, Financial Trust
Corporation (bank holding company), January 1988 - April 1989; Vice-President
of Marketing, Atlanta/Sosnoff Capital (investment management company), January
1986 - January 1988.

Carl L. Eichstaedt, 40, Vice-President; Portfolio Manager of Western Asset since
1994. Formerly: Senior Partner, Portfolio Manager of Harris Investment
Management, 1993-1994; Portfolio Manager of Pacific Investment Management
Company, 1992-1993; Director Fixed Income of Security Pacific Investment
Managers, 1990-1992; and Vice President of Chemical Securities, Inc., 1986-1990.

Keith J. Gardner, 43, Vice-President; Portfolio Manager of Western Asset since
1994. Formerly: Senior Portfolio Manager of Legg Mason, Inc., 1992-1994;
Portfolio Manager of T. Rowe Price Associates, Inc., 1985-1992.

Scott F. Grannis, 51, Vice-President; Director, Economist, Western Asset, 1989 -
present; Director, Supershares Services Corp. (investment company services).
Formerly: Vice-President, Leland O'Brien Rubinstein (investment advisory firm),
1986-89.

Ilene S. Harker, 45, Vice-President; Director, Compliance and Controls, Western
Asset, 1978-present; Vice President, Pacific American Income Shares, Inc., since
April 1996; Director, Chief Executive Officer, Secretary and Director of
Training & Compliance, Arroyo Seco, Inc. Formerly: Assistant Secretary of the
Fund and Secretary of Pacific American Income Shares, Inc., 1993-1996.

Randolph L. Kohn, 53, Vice-President; Director, Client Services, Western
Asset, 1984-present; Director and Director of Client Services, Arroyo Seco, Inc.

S. Kenneth Leech, 46, Vice-President; Director and Chief Investment Officer,
Western Asset, May 1990-present. Formerly: Senior Trader of Greenwich Capital,
1988-1990; Fixed Income Manager of The First Boston Corporation (holding
company; stock and bond dealers), 1985-1987.

Edward A. Moody, 50, Vice-President; Director, Portfolio Manager, Western Asset.

Marie K. Karpinski, 51, Vice President and Treasurer; Vice President and
Treasurer of all Legg Mason retail funds (open-end investment companies), 1986-
present: Vice President and Treasurer of LM Institutional Fund Advisors I, Inc.
and LM Institutional Fund Advisors II, Inc.; Assistant Treasurer of Pacific
American Income Shares, Inc. (closed-end investment company), 1988-present;
Treasurer of Legg Mason Fund Adviser, Inc., March 1986-present; Vice-President
of Legg Mason Wood Walker, Incorporated, 1992-present; Assistant Vice-President
of Legg Mason Wood Walker, Incorporated, 1989-1992.

Steven T. Saruwatari, 34, Assistant Treasurer; Senior Financial Officer, Western
Asset, Chief Financial Officer, Arroyo Seco, Inc. Formerly: Controller-Finance
for LaSalle Paper Company/Spicers Paper, Inc. (distributor of fine printing
papers), June 1991-November 1994; and Senior Auditor for Coopers and Lybrand
(international public accounting firm), September 1988 - May 1991.

Stephen A. Walsh, 41, Vice-President; Director of Portfolio Management, Western
Asset; formerly: Portfolio Manager and Trader of Security Pacific Investment
Managers, Inc. (investment management company), 1989-1991.

(1) Member of the Executive Committee of the Board. When the full Board is
not in session, the Executive Committee may exercise all the powers held
by the Board in the management of the business and affairs of the Fund
that may be lawfully exercised by the full Board, except the power to
declare a dividend, to authorize the issuance of stock, to recommend to
stockholders any matter requiring stockholders' approval, to amend the
By-Laws, or to approve any merger or share exchange which does not require
shareholder approval.

(2) Member of the Audit Committee of the Board. The Audit Committee meets
with the Fund's independent accountants to review the financial statements
of the Fund, the arrangements for special and annual audits, the adequacy
of internal controls, the Fund's periodic reporting process, material
contracts entered into by the Fund, the services provided by the
accountants, any proposed changes in accounting practices or principles,
the independence of the accountants; and to report on such matters to the
Board.

(3) Member of the Nominating Committee of the Board. The Nominating
Committee is responsible for the selection and nomination of Disinterested
Directors.

(4) Member of the Compensation Committee of the Board. The Compensation
Committee is responsible for determining the compensation of the
Disinterested Directors.

20
<PAGE>

(5) Mr. Olson may be deemed an interested person because the law firm in
which he is a partner has provided certain services to the Fund and
Western Asset.

Officers and Directors of the Fund who are affiliated persons of the Manager,
the Advisers or Legg Mason receive no salary or fees from the Fund. Each
Independent Director of the Fund receives a fee of $12,000 annually for serving
as a Director, and a fee of $500 and related expenses per Portfolio for each
meeting of the Board of Directors attended by them. The Chairman of the Board
receives an additional $5,000 per year for serving in that capacity.

The following table provides certain information relating to the compensation of
the Fund's Directors and senior executive officers for the fiscal year ended
March 31, 2000.

Aggregate Compensation
Total Compensation From the Fund and Complex
Name of Person and Position From the Fund* Paid to Directors**
- ------------------------------------- ------------------ -------------------------
<S> <C> <C>

William G. McGagh -
Chairman of the Board and Director $18,000 $25,600

Ronald J. Arnault - Director $15,000 $21,300

Ronald L. Olson - Director $15,500 $21,800

Louis A. Simpson - Director $16,000 $23,000

William E. B. Siart - Director $16,000 $22,300

John E. Bryson - Director $15,000 $22,100

Anita L. DeFrantz - Director $16,000 $21,800
</TABLE>

*Represents fees paid to each person during the fiscal year ended March 31,
2000.

**Represents aggregate compensation paid to each person during the calendar year
ended December 31, 1999 for serving as a Director of the Company and of a
closed-end investment company advised by Western Asset. LM Institutional Fund
Advisors II, Inc., an open-end investment company which offers eight separate
Portfolios, is also part of the Fund Complex.

Manager and Advisers

The Manager. The Manager, a wholly owned subsidiary of Legg Mason, Inc., a
financial services holding company, serves as investment manager to the
Portfolios of the Fund under separate Investment Management Agreements dated May
26, 1998 between the Manager and the Fund (the "Management Agreement"), (other
than the Western Asset Inflation Indexed Bond Portfolio, which is dated _______
___, 2000).

Under the Management Agreement, the Manager is responsible, subject to the
general supervision of the Fund's Board of Directors, for the actual management
of the Fund's assets, including the responsibility for making decisions and
placing orders to buy, sell or hold a particular security, consistent with the
investment objectives and policies described in the Prospectus and this
Statement of Additional Information. The Manager also is responsible for the
compensation of Directors and officers of the Fund who are employees of the
Manager or its affiliates. The Manager receives for its services a fee as
described in the Prospectus. As noted below, the Manager has delegated
responsibility for the selection of the Fund's investments to the Advisers.

Each Portfolio pays all of its other expenses which are not assumed by the
Manager. These expenses include, among others, expenses of preparing and
printing prospectuses, statements of additional information, proxy statements
and reports and of distributing them to existing shareholders, custodian
charges, transfer agency fees, organizational expenses, compensation of the
Directors who are not "interested persons" of the Manager, or its affiliates, as
that term is defined in the 1940 Act, legal and audit expenses, insurance
expenses, expenses of registering and qualifying shares of the Portfolios for
sale under federal and state law, Rule 12b-1 fees, governmental fees, expenses
incurred in connection with membership in investment company organizations,
interest expense, taxes and brokerage fees and commissions. The Portfolios also
are liable for such nonrecurring expenses as may arise, including litigation to
which a Portfolio or the Fund may be a party. The Fund may also have an
obligation to indemnify its Directors and officers with respect to litigation.

Under the Management Agreement, the Manager will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolios in
connection with the performance of the Management Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations or duties thereunder.

The Management Agreement terminates automatically upon assignment and is
terminable with respect to any Portfolio at any time without penalty by vote of
the Fund's Board of Directors, by vote of a majority of that Portfolio's
outstanding voting securities, or by the Manager, on not less than 60 days'
notice to the Fund, and may be terminated immediately upon the mutual written
consent of the Manager and the Fund.

21
<PAGE>

For the Western Asset Core Portfolio, the Manager received $3,054,000, (prior to
fees waived of $100,000), $3,113,000, $1,769,000 (prior to fees waived of
$30,000), and $2,007,000 (prior to fees waived of $22,000) for the fiscal years
ended March 31, 2000 and 1999, the nine month period ended March 31, 1998, and
the fiscal year ended June 30, 1997, respectively. For the Western Asset
Intermediate Portfolio, the Manager received $1,272,000 (prior to fees waived of
$95,000), $1,355,000 (prior to fees waived of $101,000), $663,000 (prior to fees
waived of $142,000) and $569,000 (prior to fees waived of $158,000) for the
fiscal years ended March 31, 2000 and 1999, the nine month period ended March
31, 1998, and the fiscal year ended June 30, 1997, respectively. For the Western
Asset Core Plus Portfolio, the Manager received $760,000 (prior to fees waived
of $253,000) and $286,000 (prior to fees waived of $95,000), for the fiscal year
ended March 31, 2000 and the initial period ended March 31, 1999, respectively.
For the Western Asset Non-U.S. Fixed Income Portfolio, the Manager received
$306,000 (prior to fees waived of $188,000) and $191,000 (prior to fees waived
of $127,000) for the fiscal year ended March 31, 2000 and the initial period
ended March 31, 1999, respectively.

Advisers

Western Asset. Western Asset, a wholly owned subsidiary of Legg Mason, Inc.,
serves as Adviser to the Western Asset Enhanced Equity Portfolio, the Western
Asset Money Market Portfolio, the Western Asset Government Money Market
Portfolio, the Western Asset Inflation Indexed Bond Portfolio, the Western Asset
Intermediate Portfolio, the Western Asset Intermediate Plus Portfolio, the
Western Asset Core Portfolio, the Western Asset Core Plus Portfolio, the Western
Asset High Yield Portfolio and the Western Asset Global Strategic Income
Portfolio (U.S. portion) under separate Investment Advisory Agreements dated
December 29, 1999 between Western Asset and the Manager (the "Western Asset
Advisory Agreement") (except for the Western Asset Inflation Indexed Bond
Portfolio, which is dated _______ ___, 2000).

Under the Western Asset Advisory Agreement, Western Asset is responsible,
subject to the general supervision of the Fund's Board of Directors and the
Manager, for the actual management of the Portfolios' assets, including the
responsibility for making decisions and placing orders to buy, sell or hold a
particular security, consistent with the investment objectives and policies
described in the Prospectus and this Statement of Additional Information.
Western Asset receives from the Manager for its services an advisory fee as
described in the Prospectus.

Under the Western Asset Advisory Agreement, Western will not be liable for any
error of judgment or mistake of law or for any loss suffered by the Portfolios
in connection with the performance of the Western Asset Advisory Agreement,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
its obligations or duties thereunder.

The Western Asset Advisory Agreement terminates automatically upon assignment
and is terminable with respect to any Portfolio at any time without penalty by
vote of the Fund's Board of Directors, by vote of a majority of that Portfolio's
outstanding voting securities, or by Western Asset, on not less than 60 days'
notice, and may be terminated immediately upon the mutual written consent of the
parties.

WAML. WAML, a wholly owned subsidiary of Legg Mason, Inc., serves as Adviser
to the Western Asset Non-U.S. Fixed Income Portfolio, and to the non-U.S.
portion of the Western Asset Intermediate Plus Portfolio, the Western Asset Core
Plus Portfolio and the Western Asset Global Strategic Income Portfolio under
separate Investment Advisory Agreements dated December 29, 1999 between the
Manager and WAML (the "WAML Advisory Agreement").

Under the WAML Advisory Agreement, WAML is responsible, subject to the general
supervision of the Fund's Board of Directors and the Manager, for the actual
management of the Portfolio's assets, including the responsibility for making
decisions and placing orders to buy, sell or hold a particular security,
consistent with the investment objective and policies described in the
Prospectus and this Statement of Additional Information. WAML also is
responsible for the compensation of Directors and officers of the Fund who are
employees of WAML or its affiliates. WAML receives from the Manager for its
services to the Portfolio an advisory fee as described in the Prospectus.

Under the WAML Advisory Agreement, WAML will not be liable for any error of
judgment or mistake of law or for any loss suffered by the Portfolio in
connection with the performance of the WAML Advisory Agreement, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of its
obligations or duties thereunder.

The WAML Advisory Agreement terminates automatically upon assignment and is
terminable at any time without penalty by vote of the Fund's Board of Directors,
by vote of a majority of the Portfolio's outstanding voting securities, or by
WAML, on not less than 60 days' notice, and may be terminated immediately upon
the mutual written consent of the parties.

Distributors

Legg Mason, 100 Light Street, P.O. Box 1476, Baltimore, MD 21203-1476, acts as a
distributor of the shares of LM Institutional Fund Advisors I, Inc. pursuant to
an Underwriting Agreement with the Fund dated August 24, 1990 and amended May
26, 1998 (the "Underwriting Agreement").

Legg Mason is not obligated to sell any specific amount of Fund shares and
receives no compensation pursuant to the Underwriting Agreement. Except as
noted in the Prospectus, the Fund's shares are distributed in a continuous
offering. The Underwriting Agreement is terminable with respect to any Portfolio
without penalty, at any time, by vote of a majority of the Fund's Independent
Directors, or by vote of the holders of a majority of the shares of that
Portfolio, or by Legg Mason upon 60 days' notice to the Fund.

22
<PAGE>

Legg Mason pays certain expenses in connection with the offering of shares of
each Portfolio, including any compensation to its financial advisors, the
printing and distribution of prospectuses, SAIs and periodic reports used in
connection with the offering to prospective investors, and expenses relating to
any supplementary sales literature or advertising. The Portfolios bear the
expenses of preparing, setting in type and mailing the prospectuses, SAIs and
periodic reports to existing shareholders.

The Fund has adopted a Plan for each Portfolio which, among other things,
permits the Fund to pay Legg Mason fees for its services related to sales and
distribution of Financial Intermediary Class shares and the provision of ongoing
services to Financial Intermediary Class shareholders. Payments are made only
from assets attributable to Financial Intermediary Class shares. Under the Plan,
the aggregate fees may not exceed an annual rate of 0.40% (currently limited to
0.25%) of each Portfolio's average daily net assets attributable to Financial
Intermediary Class shares. Fees for the Western Asset Money Market Portfolio and
the Western Asset Government Money Market Portfolio are additionally currently
limited to the annual rate of 0.10% of average daily net assets attributable to
Financial Intermediary Class shares. Distribution activities for which such
payments may be made include, but are not limited to, compensation to persons
who engage in or support distribution and redemption of shares, printing of
prospectuses and reports for persons other than existing shareholders,
advertising, preparation and distribution of sales literature, overhead, travel
and telephone expenses, all with respect to Financial Intermediary Class shares
only. Legg Mason may pay all or a portion of the fee to its investment
executives.

The Plan will continue in effect only so long as it is approved at least
annually by the vote of a majority of the Board of Directors, including a
majority of the 12b-1 Directors, cast in person at a meeting called for the
purpose of voting on the Plan. The Plan may be terminated by a vote of a
majority of the 12b-1 Directors or by a vote of a majority of the outstanding
voting securities of the Financial Intermediary Class shares. Any change in the
Plan that would materially increase the distribution cost to a Portfolio
requires shareholder approval; otherwise the Plan may be amended by the
Directors, including a majority of the 12b-1 Directors, as previously described.

In accordance with Rule 12b-1, the Plan provides that Legg Mason will submit to
the Fund's Board of Directors, and the Directors will review, at least
quarterly, a written report of any amounts expended pursuant to the Plan and the
purposes for which expenditures were made. In addition, as long as the Plan is
in effect, the selection and nomination of the Independent Directors will be
committed to the discretion of such Independent Directors.

There are certain anticipated benefits to shareholders of the Fund that may
result from the Plan. For example, the payment of commissions and service fees
to Legg Mason and its investment executives could motivate them to improve their
sales efforts with respect to each Portfolio's Financial Intermediary shares and
to maintain and enhance the level of services they provide to each Portfolio's
Financial Intermediary shareholders. These efforts, in turn, could lead to
increased sales and reduced redemptions, eventually enabling each Portfolio to
achieve economies of scale and lower per share operating expenses. Any
reduction in such expenses would serve to offset, at least in part, the
additional expenses incurred by each Portfolio in connection with its Plan.
Furthermore, the investment management of each Fund could be enhanced, as net
inflows of cash from new sales might enable its portfolio manager to take
advantage of attractive investment opportunities, and reduced redemptions could
eliminate the potential need to liquidate attractive securities positions in
order to raise the funds necessary to meet the redemption requests.

Those persons listed in "Management of the Portfolios -- Directors and Officers"
as holding positions with Legg Mason may be deemed to have an interest in the
operation of the Plan. No director of the Fund who is not an interested person
of the Fund has an interest in the operation of the Plan.

For the fiscal year ended March 31, 2000, the Western Asset Intermediate
Portfolio, Western Asset Core Portfolio, Western Asset Core Plus Portfolio and
Western Asset Non-U.S. Fixed Income Portfolio paid Legg Mason $6,000, $2,000, $0
and $0, respectively, in distribution and service fees under the Plan from
assets attributable to Financial Intermediary Class shares. The Plan pays a
fixed fee rate to Legg Mason each month. Legg Mason, in turn, generally uses the
entire amount of this compensation to pay distribution expenses.

[During the year ended March 31, 2000, Legg Mason incurred the following
expenses with respect to Financial Intermediary Class shares: ]

<TABLE>
<CAPTION>
Expense Intermediate Core Core Plus Non-U.S. Fixed Income
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advertising
- ----------------------------------------------------------------------------------
Printing and mailing
prospectuses to
prospective
shareholders
- ----------------------------------------------------------------------------------
Compensation to
underwriters
- ----------------------------------------------------------------------------------
Compensation to
broker-dealers
- ----------------------------------------------------------------------------------
Compensation to sales
personnel
- ----------------------------------------------------------------------------------
Interest, carrying or
other
financial charges
- ----------------------------------------------------------------------------------
Other
- ----------------------------------------------------------------------------------
Total Expenses
- ----------------------------------------------------------------------------------
</TABLE>

Arroyo Seco, Inc. ("Arroyo Seco"), 117 East Colorado Boulevard, Pasadena, CA
91105, a wholly owned subsidiary of Western Asset, is also

23
<PAGE>

authorized to offer the shares of LM Institutional Fund Advisors I, Inc. for
sale to its customers pursuant to an Agreement dated May 26, 1998.

LM Institutional Fund Advisors I, Inc. makes no payments to Arroyo Seco in
connection with the offer or sale of the Fund's shares, and Arroyo Seco does not
collect any commissions or other fees from customers in connection with the
offer or sale of the Fund's shares. Arroyo Seco is not obligated to sell any
specific amount of Fund shares. The Agreement is terminable without penalty, at
any time, by vote of a majority of the Fund's Directors, a majority of the
Fund's Independent Directors, or a majority of the Fund's outstanding shares, or
by Arroyo Seco upon 60 days' notice to the Fund.

Purchases and Redemptions

The Fund reserves the right to modify the mail, telephone or wire redemption
services or to terminate the telephone or wire redemption services described in
the Prospectus at any time without prior notice to shareholders. The Fund also
reserves the right to suspend or postpone redemptions (1) for any period during
which the Exchange is closed (other than for customary weekend and holiday
closings), (2) when trading in markets the Fund normally utilizes is restricted
or an emergency, as defined by rules and regulations of the SEC, exists, making
disposal of the Fund's investments or determination of its net asset value not
reasonably practicable, or (3) for such other periods as the SEC by regulation
or order may permit for the protection of the Fund's shareholders. In the case
of any such suspension, an investor may either withdraw the request for
redemption or receive payment based upon the net asset value next determined
after the suspension is lifted.

The Fund agrees to redeem shares of each Portfolio solely in cash up to the
lesser of $250,000 or 1% of the relevant Portfolio's net assets during any 90-
day period for any one shareholder. In consideration of the best interests of
the remaining shareholders, the Fund reserves the right to pay any redemption
price exceeding this amount in whole or in part by a distribution in kind of
readily marketable securities held by a Portfolio in lieu of cash. It is highly
unlikely that shares would ever be redeemed in kind. If shares are redeemed in
kind, however, the redeeming shareholder should expect to incur transaction
costs upon the disposition of the securities received in the distribution.

Exchange Privilege

Shareholders in any of the Portfolios are entitled to exchange their shares for
shares of the other Portfolios of the Fund or of the portfolios of LM
Institutional Fund Advisors II, Inc., provided that such shares are eligible for
sale in the shareholder's state of residence, and are being offered at the time.

When a shareholder decides to exchange shares of a Portfolio, the Fund's
transfer agent will redeem shares of the Portfolio and invest the proceeds in
shares of the Portfolio selected. Redemptions of shares of the Portfolio will be
made at their net asset value determined on the same day that the request is
received in proper order, if received before the close of regular trading on the
Exchange. If the request is received by the transfer agent after such close of
regular trading, shares will be redeemed at their net asset value determined as
of the close of the Exchange on the next day the Exchange is open.

There is no charge for the exchange privilege and no sales charge imposed on an
exchange, but the Portfolios reserve the right to modify or terminate the
exchange privilege at any time. For more information concerning the exchange
privilege, or to make an exchange, please contact the Portfolios.

Portfolio Transactions and Brokerage

Under the various Management Agreements and Advisory Agreements, the Manager and
the Advisers are responsible for the execution of the Portfolios' transactions.
Each Portfolio's Adviser places all orders for the purchase and the sale of
portfolio investments with brokers or dealers selected by it in its discretion.
Transactions on stock exchanges and other agency transactions involve the
payment by the Portfolio of brokerage commissions. There is generally no stated
commission in the case of securities, such as U.S. Government securities, traded
in the over-the-counter markets, but the price paid by the Fund usually includes
an undisclosed dealer commission or markup. In selecting brokers or dealers, the
Advisers must seek the most favorable price (including the applicable dealer
spread) and execution for such transactions, subject to the possible payment as
described below of higher brokerage commissions or spreads to brokers or dealers
who provide research and analysis. The Portfolios may not always pay the lowest
commission or spread available. Rather, in placing orders on behalf of the
Portfolios, the Advisers will also take into account such factors as size of the
order, difficulty of execution, efficiency of the executing broker's or dealer's
facilities (including the services described below) and any risk assumed by the
executing broker or dealer.

Consistent with the policy of obtaining most favorable price and execution, an
Adviser may give consideration to research, statistical and other services
furnished by brokers or dealers to the Adviser for its use, may place orders
with brokers or dealers who provide supplemental investment and market research
and securities and economic analysis, and may pay to those brokers or dealers a
higher brokerage commission or spread than may be charged by other brokers or
dealers. Such research, analysis and other services may be useful to an Adviser
in connection with services to clients other than the Portfolios. An Adviser's
fee is not reduced by reason of its receiving such brokerage and research
services.

The Adviser may also consider sales of shares of the Portfolio (or other
portfolios or other funds managed by it or its affiliates, to the extent
permitted by applicable law) in selecting broker-dealers to execute Portfolio
transactions. The Portfolios may use Legg Mason, among others, as broker for
agency transactions in listed and over-the-counter securities at commission
rates and under circumstances consistent

24
<PAGE>

with the policy of best execution. In the prior three fiscal years, the
Portfolios did not use Legg Mason as a broker.

Some securities considered by an Adviser for purchase by a Portfolio may also be
appropriate for other clients served by the Adviser. To the extent the
Portfolio and such other clients purchase the same security, transactions in
such security will be allocated among the Portfolio and such other clients in a
manner considered fair and reasonable by the Adviser.

The Portfolios may not buy securities from, or sell securities to, an Adviser or
its affiliated persons as principal, except as permitted by the rules and
regulations of the SEC. Subject to certain conditions, the Portfolios may
purchase securities that are offered in underwritings in which an affiliate of
an Adviser is a participant, although the Portfolios may not make such purchases
directly from such affiliate.

The Advisers will select brokers to execute portfolio transactions. In the over-
the-counter market, the Portfolios generally will deal with responsible primary
market-makers unless a more favorable execution can otherwise be obtained.

Investment decisions for the Portfolios are made independently from those of
other funds and accounts advised by the Advisers. However, the same security may
be held in the portfolios of more than one fund or account. When two or more
accounts simultaneously engage in the purchase or sale of the same security, the
prices and amounts will be equitably allocated to each account. In some cases,
this procedure may adversely affect the price or quantity of the security
available to a particular account. In other cases, however, an account's ability
to participate in larger volume transactions may produce better executions and
prices. Brokerage commissions paid on transactions were as follows: for the
fiscal years ended March 31, 2000 and 1999, the nine month period ended March
31, 1998, and the year ended June 30, 1997, the Western Asset Core Plus
Portfolio paid $111,558 and $33,953, respectively; the Western Asset Core
Portfolio paid $329,139, $514,272, $11,473 and $150,548, respectively; the
Western Asset Intermediate Portfolio paid $89,558, $154,935, $59,910 and
$50,835, respectively; and the Western Asset Non-U.S. Fixed Income Portfolio
paid $1,890 and $1,717, respectively. No brokerage commissions were paid by any
Portfolio to affiliated persons.

Codes of Ethics

The Fund, the Manager, Legg Mason, Arroyo Seco, Western Asset and WAML have
adopted codes of ethics under Rule 17j-1 of the 1940 Act. These codes of ethics
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Fund.

Additional Tax Information

General Requirements for "Pass-through" Treatment

In order to qualify or continue to qualify for treatment as a regulated
investment company ("RIC") under the Subchapter M of the Code, each Portfolio
must distribute annually to its shareholders at least 90% of its investment
company taxable income (consisting generally of net investment income and net
short-term capital gain, if any) and must meet several additional requirements.
With respect to each Portfolio, these requirements include the following: (1)
the Portfolio must derive at least 90% of its gross income each taxable year
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of securities or other income (including but
not limited to gains from options or futures) derived with respect to its
business of investing in securities; (2) at the close of each quarter of the
Portfolio's taxable year, at least 50% of the value of its total assets must be
represented by cash and cash items, U.S. Government securities, securities of
other regulated investment companies and other securities, with those other
securities limited, in respect of any one issuer, to an amount that does not
exceed 5% of the value of the Portfolio's total assets and not more than 10% of
the outstanding voting securities of such issuer; and (3) at the close of each
quarter of the Portfolio's taxable year, not more than 25% of its total assets
may be invested in securities (other than U.S. Government securities and
securities of other regulated investment companies) of any one issuer and two or
more issuers which the Portfolio controls and which are engaged in the same,
similar or related trades or businesses. By so qualifying, each Portfolio will
not be subject to federal income taxes to the extent that its net investment
income, net realized short-term capital gains and net realized long-term capital
gains are distributed to shareholders.

If a Portfolio failed to qualify as a regulated investment company accorded
special tax treatment in any taxable year, the Portfolio would be subject to tax
on its taxable income at corporate rates, and all distributions from earnings
and profits, including any distributions of net long-term capital gains, would
be taxable to shareholders as ordinary income. In addition, the Portfolio could
be required to recognize unrealized gains, pay substantial taxes and interest
and make substantial distributions before re-qualifying as a regulated
investment company that is accorded special tax treatment.

If a Portfolio fails to distribute in a calendar year substantially all of its
ordinary income for such year and substantially all of its capital gain net
income for the one-year period ending October 31 (or later if the Portfolio is
permitted or so elects), plus any retained amount from the prior year, the
Portfolio will be subject to a 4% excise tax on undistributed amounts.

A distribution declared by a Portfolio in October, November or December of any
year and payable to shareholders of record on a date in such months will be
deemed to have been paid by the Portfolio and received by the shareholders on
December 31 if the distribution is paid by the Portfolio during the following
January. Such a distribution, therefore, will be taxable to shareholders for the
year in which that

25
<PAGE>

December 31 falls. Each Portfolio intends generally to make distributions
sufficient to avoid imposition of the 4% excise tax.

Original Issue Discount

A Portfolio may purchase debt securities issued with original issue discount.
Original issue discount that accrues in a taxable year will be treated as income
earned by the Portfolio and therefore an equivalent amount must be distributed
to satisfy the distribution requirement and avoid imposition of the 4% excise
tax. Periodic adjustments for inflation in the principal value of inflation-
indexed bonds also may give rise to original issue discount which is includible
in the Portfolio's gross income on a current basis. Because the original issue
discount earned by a Portfolio in a taxable year may not be represented by cash
income, the Portfolio may have to dispose of other securities and use the
proceeds thereof to make distributions in amounts necessary to satisfy those
distribution requirements. A Portfolio may realize capital gains or losses from
such dispositions, which would increase or decrease the Portfolio's investment
company taxable income and/or net capital gain.

Miscellaneous

Dividends and distributions on a Portfolio's shares are generally subject to
federal income tax as described in the Prospectus to the extent they do not
exceed the Portfolio's realized income and gains, even though such dividends and
distributions may economically represent a return of a particular shareholder's
investment. Such distribution are likely to occur in respect of shares purchased
at a time when a Portfolio's net asset value reflects gains that are either
unrealized, or realized but not distributed. Such realized gains may be required
to be distributed even when a Portfolio's net asset value also reflects
unrealized losses.

If a Portfolio invests in shares of preferred stock or otherwise holds dividend-
paying securities as a result of exercising a conversion privilege, a portion of
the dividends from the Portfolio's investment company taxable income (whether
paid in cash or reinvested in additional shares) may be eligible for the
dividends-received deduction allowed to corporations that meet certain holding
period requirements. The eligible portion may not exceed the aggregate dividends
received by the Portfolio from U.S. corporations. However, dividends received by
a corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.

If shares of any Portfolio are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.

Dividends and interest received by a Portfolio, and gains realized by a
Portfolio on foreign securities, may be subject to income, withholding or other
taxes imposed by foreign countries and U.S. possessions that would reduce the
yield on the Portfolio's securities. Tax conventions between certain countries
and the United States may reduce or eliminate these foreign taxes, however, and
foreign countries generally do not impose taxes on capital gains in respect of
investments by foreign investors.

To the extent distributions consist of interest from securities of the U.S.
Government and certain of its agencies and instrumentalities, they may be exempt
from state and local income taxes. Interest from obligations that are merely
guaranteed by the U.S. Government of one of its agencies, such as mortgage
participation certificates guaranteed by GNMA, generally is not entitled to this
exemption. Although there is no assurance that any such state and local
exemptions will be available, shareholders will be advised of the portion of
Portfolio distributions that might qualify for such an exemption.

If at the end of a Portfolio's fiscal year, more than 50% of the value of its
total assets represents securities of foreign corporations, the Portfolio may
make an election to treat any foreign taxes paid by it as paid by its
shareholders. In this case, shareholders who are U.S. citizens, U.S.
corporations and, in some cases, U.S. residents generally will be required to
include in U.S. taxable income their pro rata share of such taxes, but may then
generally be entitled to claim a foreign tax credit or deduction (but not both)
for their share of such taxes. A shareholder's ability to claim a foreign tax
credit or deduction in respect of foreign taxes paid by a Portfolio may be
subject to certain limitations (including a holding period requirement,
applicable to both a Portfolio and its shareholders, imposed by the Code).

A Portfolio's transactions in foreign currencies and hedging activities may give
rise to ordinary income or loss to the extent such income or loss results from
fluctuations in value of the foreign currency concerned. In addition, such
activities will likely produce a difference between book income and taxable
income. This difference may cause a portion of a Portfolio's income
distributions to constitute a return of capital for tax purposes or require a
Portfolio to make distribution exceeding book income to qualify as a regulated
investment company for tax purposes.

Investment in an entity that qualifies as a "passive foreign investment company"
under the Code could subject a Portfolio to a U.S. federal income tax or other
charge on certain "excess distributions" with respect to the investment, and on
the proceeds from disposition of the investment. A Portfolio may make an
election to mark the gains (and to a limited extent losses) in such investments
"to the market" as through it had sold and repurchased its holdings in those
passive foreign investment companies on the last day of the Portfolio's taxable
year.

Other Information

26
<PAGE>

LMIFA I was incorporated in Maryland on May 16, 1990. Prior to May 29, 1998,
LMIFA I was known as "Western Asset Trust, Inc." Each Portfolio is an open-end,
diversified investment management company, except for Western Asset Non-U.S.
Fixed Income Portfolio and Western Asset Global Strategic Income Portfolio,
which are non-diversified companies. The Directors of LMIFA I may, without
shareholder approval, create, in addition to the Portfolios, other series of
shares representing separate investment portfolios. Any such series may be
divided without shareholder approval into two or more classes of shares having
such terms as the Directors may determine. Establishment and offering of
additional portfolios or classes of shares of a portfolio will not alter the
rights of the Fund's shareholders. The rights of the Fund's shareholders cannot
be modified by other than a majority vote.

LMIFA I has a total of 13.1 billion shares of common stock at par value $0.001.
Each share has one vote, with fractional shares voting proportionally. Voting on
matters pertinent only to a particular Portfolio, such as the adoption of an
investment advisory contract for that Portfolio, is limited to that Portfolio's
shareholders. Shares of all classes of a Portfolio will vote together as a
single class except when otherwise required by law or as determined by the
Directors. Shares are freely transferable, are entitled to dividends as declared
by the Directors, and, if a Portfolio were liquidated, would receive the net
assets of that Portfolio. Voting rights are not cumulative, and all shares of
the Portfolios are fully paid and nonassessable and have no conversion rights.

Although no Portfolio intends to hold annual shareholder meetings, it will hold
a special meeting of shareholders when the Investment Company Act of 1940 (the
"1940 Act") requires a shareholder vote on certain matters (including the
election of Directors in certain cases or approval of an advisory contract).

When issued, shares are fully paid, non-assessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of a Portfolio, each shareholder is entitled to receive his or her
pro rata share of the net assets of that Portfolio.

Prior to May 21, 1998, the Western Asset Core Portfolio was known as the Core
Portfolio; the Western Asset Intermediate Portfolio was known as the
Intermediate Portfolio; and the Western Asset Money Market Portfolio was known
as the Money Market Portfolio.

Principal Holders of Securities

Set forth below is a table which contains the name, address and percentage of
ownership of each person who is known by the Fund to own beneficially and of
record five percent or more of the outstanding shares of the Western Asset Core
Portfolio as of June 30, 2000:

% of Ownership as of

Name and Address June 30, 2000
- ---------------- -------------

Institutional Class

First National Bank of Omaha TTEE ___%
One First National Center
Omaha, NE 68102-1596

Newspaper and Mail Deliverers' Publishers' Pension Fund ___%
41-18 27th Street
Long Island City, NY 11101-3825

The following chart contains the name, address and percentage of ownership of
each person who is known by the Fund to own beneficially and of record five
percent or more of the outstanding shares of the Western Asset Core Plus
Portfolio as of June 30, 2000:

% of Ownership as

Name and Address of June 30, 2000
- ---------------- ----------------

Institutional Class

Thomson Consumer Electronics _____%
Pension Plan for Employees
Post Office Box 1992
Boston, MA 02105-1992

Appleton Papers Inc. _____%
Post Office Box 92956
Chicago, IL 60675-2956

Howard County Community _____%
Health Foundation I
10440 Little Patuxent Parkway, Suite 90
Columbia, MD 21044-3629

Blanchard Valley Health _____%
Association Pension Plan
Post Office Box 160
Westerville, OH 43086-0160

W E Upjohn Unemployment _____%
Trustee Corp
Post Office Box 4042
Kalamazoo, MI 49003-4042

27
<PAGE>

% of Ownership as of

Name and Address June 30, 2000
- ---------------- -------------

Financial Intermediary Class

Link & Co. as Trustee for Various ______%
401-K Expediter Plans
Post Office Box 630074
Cincinnati, OH 45263-0001

Institutional Class

M A Hanna Master Trust _______%
30 South LaSalle Street
Chicago, IL 60603-1006

Anne Arundel County _______%
Maryland Master Trust
Post Office Box 1992, Mailstop B2
Boston, MA 02105-1992

Northern Trust Company _______%
50 La Salle St.
Chicago, IL 60675

Sun Microsystems Savings Trust _______%
209 W. Jackson Boulevard, Suite 700
Chicago, IL 60606-6936

Mt. Sinai Health Care Foundation
Post Office Box 94870
Cleveland, OH 44101-4870 _______%

% of Ownership as of

Name and Address June 30, 2000
- ---------------- -------------

Institutional Class

Treasurer of the State of Connecticut _______%
One Enterprise Drive
North Quincy, MA 02171-2126

Booth & Co./Annuity Board of _______%
Southern Baptist Convention
Post Office Box 92923 C-IN
Chicago, IL 60675-2923

United Airline Pilots _______%
50 South LaSalle Street
Chicago, IL 60603-1006

[____________________, [form of organization], and ____________, [form of
organization], may be deemed to control the ________ Portfolio because each owns
more than 25% of the outstanding voting securities of such Portfolio. [______
may be deemed to control _____________.] The Officers and Directors of the
Portfolios own in the aggregate less than 1% of the outstanding shares of each
Portfolio. ]

The Manager owns 100% of the Western Asset Government Money Market, Money
Market, Intermediate Plus, High Yield, Global Strategic Income, Enhanced Equity
and Inflation Indexed Bond Portfolio. The Manager may be deemed to control each
such Portfolio because it owns more than 25% of the outstanding voting
securities of such Portfolio.

Performance Information

Each Portfolio may, from time to time, include its total return in marketing
materials or reports to shareholders or prospective investors.

28
<PAGE>

Quotations of average annual total return for a class of shares of a Portfolio
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in that class of shares over periods of one, five and
ten years (up to the life of the class), calculated pursuant to the following
formula: P (1 + T)(exponent n) = ERV (where P = a hypothetical initial payment
of $1,000, T = the average annual total return, n = number of years, and ERV =
the ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the period). All total return figures reflect the deduction of a
proportional share of Portfolio expenses on an annual basis and assume that all
dividends and other distributions are reinvested when paid. The performance of
each class of a Portfolio will differ because each class is subject to different
expenses. The performance figures for the Portfolios shown below represent
performance of the only classes of shares in existence throughout the relevant
periods for each Portfolio.

The Western Asset Core Portfolio's Institutional Class total returns and current
yield as of March 31, 2000 were as follows:

<TABLE>
<CAPTION>
Average
Current Annual
Yield: 6.31% Total Return
<S> <C> <C>

One Year 1.99%
Five Years 7.32%
Life of Portfolio(A) 8.65%

(A) Portfolio's inception - September 4, 1990.

The Western Asset Core Portfolio's Financial Intermediary Class total return and
current yield as of March 31, 2000 were as follows:

Current Cumulative
Yield: 6.48% Total Return

Life of Portfolio(A) 1.97%

(A) Portfolio's inception - July 21, 1999.

The Western Asset Intermediate Portfolio's total returns and current yield as of
March 31, 2000 were as follows:

Average
Current Annual
Yield: 6.36% Total Return

One Year 2.49%
Five Years 6.77%
Life of Portfolio(A) 6.70%

(A) Portfolio's inception - July 1, 1994.

The Western Asset Core Plus Portfolio's total returns and current yield as of
March 31, 2000 were as follows:

Average
Current Annual
Yield: 6.83% Total Return

One Year 1.95%
Life of Portfolio(A) 2.63%

(A) Portfolio's inception - July 8, 1998.

The Western Asset Non-U.S. Fixed Income Portfolio's total returns and current
yield as of March 31, 2000 were as follows:

Average
Current Annual
Yield: 6.54% Total Return

One Year 0.57%
Life of Portfolio(A) 3.69%

(A) Portfolio's inception - July 15, 1998.
</TABLE>

The yield shown for the Portfolios is the 30-day current yield as of March 31,
2000. The current annualized yield for the Money Market Portfolios is based
upon a specified seven-day period and is computed by determining the net change
in the value of a hypothetical account in the Portfolio. The net change in the
value of the account includes the value of dividends and of additional shares
purchased with dividends, but does not include realized gains and losses or
unrealized appreciation and depreciation. In addition, the Money Market
Portfolios may use a compound effective annualized yield quotation which is
calculated as prescribed by SEC regulations, by adding one to the base period
return (calculated as prescribed above), raising the sum to a power equal to 365
divided by 7, and subtracting one.

Each Portfolio's performance may fluctuate daily depending upon such factors as
the average maturity of its securities, changes in investments, changes in
interest rates and variations in operating expenses. Therefore, current
performance does not provide a basis for

29
<PAGE>

determining future performance. The fact that a Portfolio's performance will
fluctuate and that shareholders' principal is not guaranteed or insured should
be considered in comparing the Portfolio's performance with the performance of
fixed-income investments. In comparing the performance of a Portfolio to other
investment vehicles, consideration should be given to the investment policies of
each, including the types of investments owned, lengths of maturities of the
portfolio, the method used to compute the performance and whether there are any
special charges that may reduce the yield.

From time to time each Portfolio may compare the performance of a class of
shares in advertising and sales literature to the performance of other
investment companies, groups of investment companies or various market indices.
One such market index is the S&P 500, a widely recognized, unmanaged index
composed of the capitalization-weighted average of the prices of 500 of the
largest publicly traded stocks in the U.S. The S&P 500 includes reinvestment of
all dividends. It does not take into account of the costs of investing or the
tax consequences of distributions. The Portfolios invest in many securities that
are not included in the S&P 500.

Each Portfolio may also cite rankings and ratings, and compare the return of a
class of shares with data published by Lipper Analytical Services, Inc., CDA
Investment Technologies, Inc., Wiesenberger Investment Company Services, Value
Line, Morningstar, and other services or publications that monitor, compare
and/or rank the performance of investment companies. Each Portfolio may also
refer in such materials to mutual fund performance rankings, ratings,
comparisons with funds having similar investment objectives, and other mutual
funds reported in independent periodicals, including, but not limited to,
FINANCIAL WORLD, MONEY MAGAZINE, FORBES, BUSINESS WEEK, BARRON'S, FORTUNE, THE
KIPLINGER LETTERS, THE WALL STREET JOURNAL, and THE NEW YORK TIMES.

Each Portfolio may compare the investment return of a class of shares to the
return on certificates of deposit and other forms of bank deposits, and may
quote from organizations that track the rates offered on such deposits. Bank
deposits are insured by an agency of the federal government up to specified
limits. In contrast, Portfolio shares are not insured, the value of Portfolio
shares may fluctuate, and an investor's shares, when redeemed, may be worth more
or less than the investor originally paid for them. Unlike the interest paid on
many certificates of deposit, which remains at a specified rate for a specified
period of time, the return of each class of shares will vary.

Portfolio advertisements may reference the history of Legg Mason, Inc. and its
affiliates, the education and experience of the portfolio manager, and the fact
that the portfolio manager engages in a particular style of investing (e.g.,
growth or value).

In advertising, each Portfolio may illustrate hypothetical investment plans
designed to help investors meet long-term financial goals, such as saving for a
child's college education or for retirement. Sources such as the Internal
Revenue Service, the Social Security Administration, the Consumer Price Index
and Chase Global Data and Research may supply data concerning interest rates,
college tuitions, the rate of inflation, Social Security benefits, mortality
statistics and other relevant information. Each Portfolio may use other
recognized sources as they become available.

Each Portfolio may use data prepared by Ibbotson Associates of Chicago, Illinois
("Ibbotson") to compare the returns of various capital markets and to show the
value of a hypothetical investment in a capital market. Ibbotson relies on
different indices to calculate the performance of common stocks, corporate and
government bonds and Treasury bills.

Each Portfolio may illustrate and compare the historical volatility of different
portfolio compositions where the performance of stocks is represented by the
performance of an appropriate market index, such as the S&P 500, and the
performance of bonds is represented by a nationally recognized bond index, such
as the Lehman Brothers Long-Term Government Bond Index or the Lehman Brothers
Aggregate Bond Index.

Each Portfolio may also include in advertising biographical information on key
investment and managerial personnel.

Each Portfolio may advertise examples of the potential benefits of periodic
investment plans, such as dollar cost averaging, a long-term investment
technique designed to lower average cost per share. Under such a plan, an
investor invests in a mutual fund at regular intervals a fixed dollar amount
thereby purchasing more shares when prices are low and fewer shares when prices
are high. Although such a plan does not guarantee profit or guard against loss
in declining markets, the average cost per share could be lower than if a fixed
number of shares were purchased at the same intervals. Investors should consider
their ability to purchase shares through low price levels.

Each Portfolio may discuss Legg Mason, Inc.'s tradition of service. Since 1899,
Legg Mason, Inc. and its affiliated companies have helped investors meet their
specific investment goals and have provided a full spectrum of financial
services. Legg Mason, Inc. affiliates serve as investment advisers for private
accounts and mutual funds with assets of more than $110 billion as of March 31,
2000.

In advertising, each Portfolio may discuss the advantages of saving through tax-
deferred retirement plans or accounts, including the advantages and
disadvantages of "rolling over" a distribution from a retirement plan into an
IRA, factors to consider in determining whether you qualify for such a rollover,
and the other options available. These discussions may include graphs or other
illustrations that compare the growth of a hypothetical tax-deferred investment
to the after-tax growth of a taxable investment.

Custodian, Transfer Agent and Dividend-Disbursing Agent

30
<PAGE>

State Street Bank and Trust Company ("State Street"), P.O. Box 1790, Boston,
Massachusetts 02105, serves as custodian of the Fund's assets. As such, State
Street holds in safekeeping certificated securities and cash belonging to the
Fund and, in such capacity, is the registered owner of securities in book-entry
form belonging to the Fund. Upon instruction, State Street receives and
delivers cash and securities of the Fund in connection with Portfolio
transactions and collects all dividends and other distributions made with
respect to Portfolio portfolio securities. State Street also maintains certain
accounts and records of the Fund. State Street also calculates the total net
asset value, total net income and net asset value per share of each Portfolio on
a daily basis (and as otherwise may be required by the 1940 Act) and performs
certain accounting services for all Portfolios of the Fund.

Boston Financial Data Services, Inc., P.O. Box 953, Boston, Massachusetts 02103,
serves as transfer and dividend-disbursing agent and administrator of various
shareholder services. Shareholders who request an historical transcript of their
account will be charged a fee based upon the number of years researched. The
Fund reserves the right, upon 60 days' written notice, to make other charges to
investors to cover administrative costs.

Independent Accountants

PricewaterhouseCoopers LLP have been selected to serve as the Fund's independent
accountants. PricewaterhouseCoopers LLP conducts an annual audit of the Fund,
assists in the preparation of each Portfolio's federal and state income tax
returns and consults with the Fund as to matters of accounting and federal and
state income taxation. The financial highlights included in the Prospectus and
incorporated by reference into this Statement of Additional Information and the
financial statements incorporated by reference into the Prospectus and this
Statement of Additional Information have been so included and incorporated in
reliance upon the report of PricewaterhouseCoopers LLP, given on their authority
as experts in auditing and accounting.

Legal Counsel

Ropes & Gray, Boston, MA, serves as legal counsel to the Fund.

Financial Statements

The report of independent accountants, financial statements and financial
highlights for the fiscal year ended March 31, 2000 for each of the Western
Asset Intermediate Portfolio, the Western Asset Core Portfolio, the Western
Asset Core Plus Portfolio and the Western Asset Non-U.S. Fixed Income Portfolio
included in the Portfolios' Annual Reports are hereby incorporated by reference
into this Statement of Additional Information.

The audited Statement of Assets and Liabilities as of March 31, 2000 for the
______________ Portfolio and the Report of Independent Accountants related
thereto, are shown on the following pages.

LM Institutional Fund Advisors I, Inc.
Statement of Assets and Liabilities
March 31, 2000

[To be Supplied]

Report of Independent Accountants
[To be Supplied]

31
<PAGE>

Appendix A

Ratings of Securities

Description of Moody's Investors Service, Inc. ("Moody's") corporate bond
- --------------------------------------------------------------------------
ratings:
- ---------

Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large or exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.

A-Bonds which are rated A possess many favorable investment attributes and are
to be considered upper- medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa-Bonds which are rated Baa are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.

Description of Standard & Poor's corporate bond ratings:

AAA-This is the highest rating assigned by Standard & Poor's to an obligation
and indicates an extremely strong capacity to pay principal and interest.

AA-Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.

A-Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB-Bonds rated BBB are regarded as having an adequate capacity to pay principal
and interest. Whereas they normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

BB, B, CCC, CC-Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and CC the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposure to adverse
conditions.

Description of Moody's preferred stock ratings:
- ------------------------------------------------

aaa-An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stock.

aa-An issue which is rated "aa" is considered a high-grade preferred stock. This
rating indicates that there is a reasonable assurance that earnings and asset
protection will remain relatively well maintained in the foreseeable future.

a-An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater

1
<PAGE>

than in the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.

baa-An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.

ba-An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods. Uncertainty of
position characterizes preferred stocks in this class.

Description of Moody's Short-Term Debt Ratings
- -----------------------------------------------

Prime-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured sources of
alternate liquidity.

Prime-2. Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Description of Standard & Poor's Commercial Paper Ratings
- ----------------------------------------------------------

A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety.

A-1. This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.

A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for the issues
designated "A-1".

2
<PAGE>

PART C. OTHER INFORMATION

Item 23. Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
(a) (1) Articles of Incorporation -- (1)
(2) Articles of Amendment and Restatement -- filed herewith
(3) Articles Supplementary -- filed herewith
(4) Articles Supplementary -- (4)

(b) Bylaws - filed herewith

(d) (1) Investment Management Agreement -- (2), except as noted below
(i) Western Asset Government Money Market Portfolio
(ii) Western Asset Money Market Portfolio
(iii) Western Asset Core Portfolio
(iv) Western Asset Core Plus Portfolio
(v) Western Asset Intermediate Portfolio
(vi) Western Asset Intermediate Plus Portfolio
(vii) Western Asset High Yield Portfolio
(viii) Western Asset Non-U.S. Fixed Income Portfolio
(ix) Western Asset Global Strategic Income Portfolio
(x) Western Asset Enhanced Equity Portfolio
(xi) Western Asset Inflation Indexed Bond Portfolio -- (4)

(2) Investment Advisory Agreement -- filed herewith, except as noted below
(i) Western Asset Government Money Market Portfolio
(ii) Western Asset Money Market Portfolio
(iii) Western Asset Core Portfolio
(iv) Western Asset Core Plus Portfolio
(v) Western Asset Intermediate Portfolio
(vi) Western Asset Intermediate Plus Portfolio
(vii) Western Asset High Yield Portfolio
(viii) Western Asset Non-U.S. Fixed Income Portfolio
(ix) Western Asset Global Strategic Income Portfolio
(x) Western Asset Enhanced Equity Portfolio
(xi) Western Asset Core Plus Portfolio
(xii) Western Asset Intermediate Plus Portfolio
(xiii) Western Asset Global Strategic Income Portfolio
(xiv) Western Asset Inflation Indexed Bond Portfolio -- (4)

(e) (1) (i) Underwriting Agreement -- (2)
(ii) Amendment to Underwriting Agreement -- (4)

(2) (i) Broker Agreement -- filed herewith
(ii) Amendment to Broker Agreement - (4)

(f) Bonus or profit sharing contracts -- none

(g) (1) Custodian Agreement -- (1)
(2) Amendment to Custodian Agreement -- (1)
(3) Amendment to Custodian Agreement -- (1)
(4) Amendment to Custodian Agreement -- (4)

(h) (1) Transfer Agent Agreement -- (1)
(2) Amendment to Transfer Agent Agreement -- (4)
</TABLE>
<PAGE>

(i) Opinion of counsel -- (1), (2) and (4)

(j) Other opinions, appraisal, rulings and related consents - (4)

(k) Financial statements omitted from Item 22 -- not applicable

(l) Agreement for providing initial capital -- (1)

(m) Plan pursuant to Rule 12b-1 -- (2), except as noted below
(1) Western Asset Government Money Market Portfolio
(2) Western Asset Money Market Portfolio
(3) Western Asset Core Portfolio
(4) Western Asset Core Plus Portfolio
(5) Western Asset Intermediate Portfolio
(6) Western Asset Intermediate Plus Portfolio
(7) Western Asset High Yield Portfolio
(8) Western Asset Non-U.S. Fixed Income Portfolio
(9) Western Asset Global Strategic Income Portfolio
(10) Western Asset Enhanced Equity Portfolio
(11) Western Asset Inflation Indexed Bond Portfolio -- (4)

(n) (1) Rule 18f-3 Plan -- (3)
(2) Amendment to Rule 18f-3 Plan -- (4)

(o) Power of Attorney -- (3), and filed herewith

(p) Code of Ethics
(1) The Fund, Manager and LMWW -- filed herewith
(2) Western Asset and Arroyo Seco -- filed herewith
(3) WAML -- (4)
- ---------------------------------------------------------
(1) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 15 to the Registration Statement, SEC File No. 33-34929 filed
October 30, 1997.

(2) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 18 to the Registration Statement, SEC File No. 33-34929 filed May
29, 1998.

(3) Incorporated herein by reference to corresponding Exhibit of Post-Effective
Amendment No. 19 to the Registration Statement, SEC File No. 33-34929 filed June
2, 1999.

(4) To be filed by amendment.

Item 24. Persons Controlled by or under Common Control with Registrant

None

Item 25. Indemnification

This Item is incorporated by reference to Item 25 of Part C of Post-Effective
Amendment No. 20 to the Registration Statement, SEC File No. 33-34929 filed July
30, 1999.

Item 26. Business and Other Connections of Investment Adviser
<PAGE>

I. LM Institutional Advisors, Inc. ("LMIA") is the manager for all Portfolios
in LMIFA I. LMIA's business is summarized under the caption "Manager,
Advisers and Portfolio Managers" in the Prospectus constituting Part A of
this Registration Statement, which summary is incorporated herein by
reference. Other business, profession, vocation or employment of a
substantial nature in which each director or officer of LMIA is or has been,
at any time during the past two fiscal years, engaged for his own account or
in the capacity of director, officer, employee, partner or trustee is as
follows:

<TABLE>
<CAPTION>
Name Position with LMIA Business and Other Connections
<S> <C> <C>
Andrew J. Bowden Vice President, Secretary and None
Director
W. Curtis Livingston, III Director None
Joseph L. Orlando President None
Marie K. Karpinski Vice President and Treasurer None
William H. Miller, III Director None
Edward A. Taber, III Chairman and Director None
</TABLE>

II. Western Asset Management Company ("Western") is the investment adviser for
the Western Asset Inflation Indexed Bond Portfolio, Western Asset Core
Portfolio, Western Asset Core Plus Portfolio, Western Asset Intermediate
Portfolio, Western Asset Intermediate Plus Portfolio, Western Asset
Enhanced Equity Portfolio, Western Asset Money Market Portfolio, Western
Asset Government Money Market Portfolio, Western Asset High Yield Portfolio
and Western Asset Global Strategic Income Portfolio. Western's business is
summarized under the caption "Manager, Advisers and Portfolio Managers" in
the Prospectus constituting Part A of this Registration Statement, which
summary is incorporated herein by reference. Other business, profession,
vocation or employment of a substantial nature in which each director or
officer of Western is or has been, at any time during the past two fiscal
years, engaged for his own account or in the capacity of director, officer,
employee, partner or trustee is as follows:

<TABLE>
<CAPTION>
Name Position with Western Business and Other Connections
<S> <C> <C>
James W. Hirschmann, III Director, President and Chief None
Executive Officer
S. Kenneth Leech Director and Managing Director, None
Chief Investment Officer
W. Curtis Livingston, III Director and Chairman None
Raymond A. Mason Director None
Timothy C. Scheve Director None
Elisabeth N. Spector Director None
Edward A. Taber, III Director None
Ilene S. Harker Secretary and Managing Director,
Administration & Controls None
Randolph L. Kohn Managing Director, Client Services None
Stephen A. Walsh Managing Director, Senior Portfolio None
Manager
Steven T. Saruwatari Senior Accounting Officer None
</TABLE>

III. Western Asset Management Company Limited ("WAML") is investment adviser to
the Western Asset Non-U.S. Fixed Income Portfolio and to the non-U.S.
portion of the Western Asset Core Plus Portfolio, the Western Asset
Intermediate Plus Portfolio and the Western Asset Global Strategic Income
Portfolio. WAML's business is summarized under the caption "Manager,
Advisers and Portfolio Managers" in the Prospectus constituting Part A of
this Registration Statement, which summary is incorporated herein by
reference. Other business, profession, vocation or employment of a
substantial nature in which each director or officer of WAML is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee is as follows:
<PAGE>

Name Position with WAML Business and Other Connections
<S> <C> <C>
James W. Hirschmann, III Managing Director and Director None
Gavin L. James Director and Senior Executive Officer None
Michael B. Zelouf Executive Director of Fixed Income None
S. Kenneth Leech Director None
Raymond A. Mason Director None
Timothy C. Scheve Director None
Elisabeth A. Spector Director None
Edward A. Taber, III Director None
Trever K. Owens Director Global Investment Support None
Suzanne Taylor-King Finance Officer None
Mary Ann Cleary Compliance Officer and Company None
Secretary
</TABLE>

Item 27. Principal Underwriters
----------------------

(a) Legg Mason Cash Reserve Trust
Legg Mason Income Trust, Inc.
Legg Mason Tax-Free Income Fund
Legg Mason Value Trust, Inc.
Legg Mason Total Return Trust, Inc.
Legg Mason Special Investment Trust, Inc.
Legg Mason Focus Trust, Inc.
Legg Mason Global Trust, Inc.
Legg Mason Investors Trust, Inc.
Legg Mason Light Street Trust, Inc.
Legg Mason Investment Trust, Inc.
LM Institutional Fund Advisors I, Inc.
LM Institutional Fund Advisors II, Inc.

(b) The following table sets forth information concerning each director and
officer of the Registrant's principal underwriter, Legg Mason Wood Walker,
Incorporated ("LMWW").

<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Positions and Offices with
Address* Underwriter - LMWW Registrant
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raymond A. Mason Chairman of the Board and Director None

James W. Brinkley President, Chief Operating Officer None
and Director
Edmund J. Cashman, Jr. Senior Executive Vice President and None
Director
Richard J. Himelfarb Senior Executive Vice President and None
Director
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Positions and Offices with
Address* Underwriter - LMWW Registrant
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Edward A. Taber III Senior Executive Vice President Director

Robert G. Donovan Executive Vice President None

Robert A. Frank Executive Vice President None

Robert G. Sabelhaus Executive Vice President None

Timothy C. Scheve Executive Vice President and None
Treasurer and Director
Manoochehr Abbaei Senior Vice President None

Charles A. Bacigalupo Senior Vice President and Secretary None

F. Barry Bilson Senior Vice President None

D. Stuart Bowers Senior Vice President None

W. William Brab Senior Vice President None

Deepak Chowdhury Senior Vice President None

Thomas M. Daly, Jr. Senior Vice President None

Jeffrey W. Durkee Senior Vice President None

Harry M. Ford, Jr. Senior Vice President None

Dennis A. Green Senior Vice President None

Thomas E. Hill Senior Vice President None
218 N. Washington Street
Suite 31
Easton, MD 21601

Arnold S. Hoffman Senior Vice President None
1735 Market Street
Philadelphia, PA 19103

Carl Hohnbaum Senior Vice President None
2500 CNG Tower
625 Liberty Avenue
Pittsburgh, PA 15222
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Positions and Offices with
Address* Underwriter - LMWW Registrant
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
William B. Jones, Jr. Senior Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Theodore S. Kaplan Senior Vice President None

Laura L. Lange Senior Vice President None

Horace M. Lowman, Jr. Senior Vice President and Asst. None
Secretary
Marvin H. McIntyre Senior Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Thomas P. Mulroy Senior Vice President None

Jonathan M. Pearl Senior Vice President None

Mark I. Preston Senior Vice President None

Robert F. Price Senior Vice President and General None
Counsel

Thomas L. Souders Senior Vice President and Chief None
Financial Officer

Elisabeth N. Spector Senior Vice President None

Joseph A. Sullivan Senior Vice President None

Richard L. Baker Vice President None

William H. Bass, Jr. Vice President None

Nathan S. Betnun Vice President None

John C. Boblitz Vice President None

Andrew J. Bowden Vice President and Deputy General None
Counsel

Edwin J. Bradley, Jr. Vice President None

Carol A. Brown Vice President None

Scott R. Cousino Vice President None

Thomas W. Cullen Vice President None

Charles J. Daley, Jr. Vice President and Controller None
</TABLE>
<PAGE>

James E. Furletti Vice President None

John R. Gilner Vice President None

Daniel R. Greller Vice President None

Richard A. Jacobs Vice President None

C. Gregory Kallmyer Vice President None
56 West Main Street
Newark, DE 19702

Kurt A. Lalomia Vice President None

Edward W. Lister, Jr. Vice President None

Theresa McGuire Vice President None

Julia A. McNeal Vice President None

Gregory B. McShea Vice President None

Edward P. Meehan Vice President None
12021 Sunset Hills Road
Suite 100
Reston, VA 20190

Thomas C. Merchant Vice President and Assistant None
General Counsel
Paul Metzger Vice President None

Mark C. Micklem Vice President None
1747 Pennsylvania Ave., N.W.
Washington, DC 20006

John A. Moag, Jr. Vice President None

Hance V. Myers, III Vice President None
1100 Poydras St.
New Orleans, LA 70163

Ann O'Shea Vice President None

Robert E. Patterson Vice President and Deputy General None
Counsel

Gerard F. Petrik, Jr. Vice President None
</TABLE>
<PAGE>

Judith L. Ritchie Vice President None

Thomas E. Robinson Vice President None

Theresa M. Romano Vice President None

James A. Rowan Vice President None
1747 Pennsylvania Avenue, N.W.
Washington, D.C. 20006

Douglas M. Schmidt Vice President None

B. Andrew Schmucker Vice President None
1735 Market Street
Philadelphia, PA 19103

Robert W. Schnakenberg Vice President None

Henry V. Sciortino Vice President None
1735 Market St.
Philadelphia, PA 19103

Chris A. Scitti Vice President None

Eugene B. Shephard Vice President None
1111 Bagby St.
Houston, TX 77002-2510

Lawrence D. Shubnell Vice President None

Jane Soybelman Vice President None

Alexsander M. Stewart Vice President None

L. Kay Strohecker Vice President None

Joseph E. Timmins III Vice President None

Joyce Ulrich Vice President None

William A. Verch Vice President None

Sheila M. Vidmar Vice President and Deputy General None
Counsel

Lewis T. Yeager Vice President None

Carol Converso-Burton Assistant Vice President None
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Positions and Offices with
Address* Underwriter - LMWW Registrant
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diana L. Deems Assistant Vice President and None
Assistant Controller

Ronald N. McKenna Assistant Vice President None

Suzanne E. Peluso Assistant Vice President None

Lauri F. Smith Assistant Vice President None

Janet B. Straver Assistant Vice President None

Leslee Stahl Assistant Secretary None
</TABLE>

*All addresses are 100 Light Street, Baltimore, Maryland 21202, unless otherwise
indicated.

The following table sets forth information concerning each director and officer
of Arroyo Seco, Inc.

<TABLE>
<CAPTION>
Name and Principal Business Position and Offices with Position and Offices with
Address** Underwriter - Registrant
Arroyo Seco, Inc.
<S> <C> <C>
Ilene S. Harker Director, Chief Executive Officer, Vice President
Secretary and Director of Training
& Compliance

James W. Hirschmann Director and Director of Marketing President

Randolph L. Kohn Director and Director of Client Vice President
Services

Steven T. Saruwatari Chief Financial Officer Assistant Treasurer

W. Curtis Livingston, III Director None
</TABLE>

**All addresses are 117 East Colorado Boulevard, Pasadena, California 91105,
unless otherwise indicated.

(c) The Registrant has no principal underwriter who is not an affiliated person
of the Registrant or an affiliated person of such an affiliated person.

Item 28. Location of Accounts and Records

State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105

Item 29. Management Services -- none

Item 30. Undertakings -- none
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, LM Institutional Fund Advisors I, Inc., has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Pasadena and State of
California, on the 15th day of May, 2000.

LM INSTITUTIONAL FUND ADVISORS I, INC.

By: /s/ James W. Hirschman
----------------------------
James W. Hirschman*
President

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>

Signature Title Date
- --------- ----- ----
<S> <C> <C>

/s/James W. Hirschman President May 15, 2000
- ------------------------
James W. Hirschman*

/s/ Edward A. Taber, III Director May 15, 2000
- ------------------------
Edward A. Taber, III*

/s/ John E. Bryson Director May 15, 2000
- -----------------------
John E. Bryson*

/s/ Ronald J. Arnault Director May 15, 2000
- ------------------------
Ronald J. Arnault*

/s/ William G. McGagh Director May 15, 2000
- -----------------------
William G. McGagh*

/s/ Ronald L. Olson Director May 15, 2000
- -----------------------
Ronald L. Olson*

/s/ Louis A. Simpson Director May 15, 2000
- -----------------------
Louis A. Simpson*

/s/ William E. B. Siart Director May 15, 2000
- ------------------------
/s/ William E. B. Siart*
</TABLE>
<PAGE>

<S> <C> <C>
/s/ Anita L. DeFrantz Director May 15, 2000
- -----------------------
Anita L. DeFrantz*

/s/ Marie K. Karpinski Treasurer May 15, 2000
- -----------------------
Marie K. Karpinski*

* By: /s/ Ilene Harker
------------------
Ilene Harker
Attorney-in-Fact Pursuant to Powers of Attorney previously filed and for
Herself
</TABLE>
<PAGE>

Exhibit Index
- -------------
Exhibit 23(a)(2) - Articles of Amendment and Restatement
Exhibit 23(a)(3) -- Articles Supplementary

Exhibit 23(b) -- Bylaws

Exhibit 23(d)(2) -- Investment Advisory Agreements
Exhibit 23(d)(2)(i) Western Asset Government Money Market Portfolio
Exhibit 23(d)(2) (ii) Western Asset Money Market Portfolio
Exhibit 23(d)(2) (iii) Western Asset Core Portfolio
Exhibit 23(d)(2) (iv) Western Asset Core Plus Portfolio
Exhibit 23(d)(2) (v) Western Asset Intermediate Portfolio
Exhibit 23(d)(2) (vi) Western Asset Intermediate Plus Portfolio
Exhibit 23(d)(2) (vii) Western Asset High Yield Portfolio
Exhibit 23(d)(2) (viii) Western Asset Non-U.S. Fixed Income Portfolio
Exhibit 23(d)(2) (ix) Western Asset Global Strategic Income Portfolio
Exhibit 23(d)(2) (x) Western Asset Enhanced Equity Portfolio
Exhibit 23(d)(2) (xi) Western Asset Core Plus Portfolio
Exhibit 23(d)(2) (xii) Western Asset Intermediate Plus Portfolio
Exhibit 23(d)(2) (xiii) Western Asset Global Strategic Income Portfolio

Exhibit 23(e)(2)(i) -- Broker Agreement

Exhibit 23(o) -- Power of Attorney

Exhibit 23(p) -- Code of Ethics
Exhibit 23(p)(1) - The Fund, Manager and LMWW
Exhibit 23(p)(2) - Western Asset and Arroyo Seco

<PAGE>

Exhibit 23(a)(2)
----------------

WESTERN ASSET TRUST, INC.
-------------------------

ARTICLES OF AMENDMENT AND RESTATEMENT

FIRST: Western Asset Trust, Inc., a Maryland corporation (the
-----
"Corporation"), desires to amend and restate its charter as currently in effect
and as hereinafter amended.

SECOND: The following provisions are all the provisions of the
------
charter currently in effect and as hereinafter amended:

ARTICLE I

INCORPORATOR

The undersigned, Arthur C. Delibert, whose address is South
Lobby - Ninth Floor, 1800 M Street, N.W., Washington, D.C. 20036, being at least
18 years of age, does hereby form a corporation under the general laws of the
State of Maryland.

ARTICLE II

NAME

The name of the corporation (the "Corporation") is:
LM Institutional Fund Advisors I, Inc.
<PAGE>

ARTICLE III

PURPOSE

The Corporation is formed for the purpose of carrying on any
lawful business, which may include acting as an open-end management investment
company registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"), and exercising and
generally enjoying all of the powers, rights and privileges granted to, or
conferred upon, corporations by the general laws of the State of Maryland now or
hereafter in force.

ARTICLE IV

PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT

The address of the principal office of the Corporation in the
State of Maryland is c/o Legg Mason Wood Walker, Incorporated, 100 Light Street,
Baltimore, Maryland 21202. The name of the resident agent of the Corporation in
the State of Maryland is Charles A. Bacigalupo, whose address is c/o Legg Mason
Wood Walker, Incorporated, 23rd Floor, 100 Light Street, Baltimore, Maryland
21202. The resident agent is a citizen of and resides in the State of Maryland.

-2-
<PAGE>

ARTICLE V

PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS

Section 5.1 Number of Directors. The business and affairs of
-------------------
the Corporation shall be managed under the direction of the Board of Directors.
The number of directors of the Corporation shall be ten, which number may be
increased or decreased pursuant to the Bylaws, but shall never be less than the
minimum number required by the Maryland General Corporation Law. The names of
the directors who are currently in office and who shall serve until the next
meeting of stockholders and until their successors are duly elected and
qualified are:

Ronald J. Arnault

John E. Bryson

Anita L. DeFrantz

Richard C. Gilman

W. Curtis Livingston

William G. McGagh

Ronald L. Olson

Louis A. Simpson

William E.B. Siart

Edward A. Taber, III

Section 5.2 Removal of Directors. Any director, or the entire
--------------------
Board of Directors, may be removed from office at any

-3-
<PAGE>

time, but, to the extent not otherwise prohibited by the 1940 Act, only for
cause and then only by the affirmative vote of the holders of at least a
majority of the votes entitled to be cast in the election of directors. For the
purpose of this paragraph, "cause" shall mean with respect to any particular
director (a) conviction of a felony, (b) a final judgment of a court of
competent jurisdiction holding that such director caused demonstrable, material
harm to the Corporation through bad faith or active and deliberate dishonesty,
or (c) the barring or prohibition of such director from serving as a director of
a registered investment company under Section 9 of the 1940 Act.

Section 5.3 Voting Requirements. Any action which would
-------------------
otherwise require the affirmative vote of the holders of shares entitled to cast
greater than a majority of all the votes entitled to be cast on the matter
pursuant to the Corporations and Associations Article of the Annotated Code of
Maryland shall be effective and valid if taken or approved by the affirmative
vote of holders of shares entitled to cast a majority of all the votes entitled
to be cast on the matter.

Section 5.4 Quorum. At any meeting of stockholders, holders
------
of thirty percent (30%) of all the votes entitled to be cast at such meeting,
present in person or represented by proxy,

-4-
<PAGE>

shall constitute a quorum. If any matter is to be voted on by an individual
series or class of stock, then holders of thirty percent (30%) of all the votes
entitled to be cast by such series or class at such meeting, present in person
or represented by proxy, shall constitute a quorum as to each such series or
class.

Section 5.5 Authorization by Board of Stock Issuance. The
----------------------------------------
Board of Directors may authorize the issuance from time to time of shares of
stock of the Corporation of any series or class, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of any
series or class, whether now or hereafter authorized, for such consideration as
the Board of Directors may deem advisable (or without consideration in the case
of a stock split or stock dividend), subject to such restrictions or
limitations, if any, as may be set forth in the charter or the Bylaws.

Section 5.6 Preemptive Rights. Except as may be provided by
-----------------
the Board of Directors in setting the terms of classified or reclassified shares
of stock pursuant to Section 6.5 or as may otherwise be provided by contract, no
holder of shares of stock of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any additional shares of stock of
the Corporation or any other

-5-
<PAGE>

security of the Corporation which it may issue or sell.

Section 5.7 Determinations by Board. The determination as to
-----------------------
any of the following matters, made in good faith by or pursuant to the direction
of the Board of Directors consistent with the charter and in the absence of
actual receipt of an improper benefit in money, property or services or active
and deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its
stock: (a) the amount of the net income of the Corporation for any period and
the amount of assets at any time legally available for the payment of dividends,
the redemption of its stock or the payment of other distributions on its stock;
(b) the amount of paid-in surplus, net assets, other surplus, annual or other
net profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; (c) the amount, purpose, time of
creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been paid
or discharged); (d) the value, or any sale, bid or asked price to be applied in
determining the value, of any security or other asset owned or

-6-
<PAGE>

held by the Corporation; (e) any matter relating to the sale, purchase and/or
other acquisition or disposition of securities or other assets of the
Corporation; and (f) any other matter relating to the business and affairs of
the Corporation. Shares of stock of the Corporation are issued and sold on the
condition and understanding that any and all determinations shall be binding as
aforesaid.

Section 5.8 Management or Investment Advisory Agreements.
--------------------------------------------
Except to the extent otherwise prohibited by applicable law, the Corporation may
enter into any management or investment advisory contract or underwriting
contract or any other type of contract with, and may otherwise engage in any
transaction or do business with, any person, firm or corporation or any
subsidiary or other affiliate of any such person, firm or corporation, and may
authorize such person, firm or corporation or such subsidiary or other affiliate
to enter into any other contracts or arrangements with any other person, firm or
corporation which relate to the Corporation or the conduct of its business,
notwithstanding that any directors or officers of the Corporation are or may
subsequently become partners, directors, officers, stockholders or employees of
such person, firm or corporation or of such subsidiary or other affiliate or may
have

-7-
<PAGE>

a material financial interest in any such contract, transaction or business; and
except to the extent otherwise provided by applicable law, no such contract,
transaction or business shall be invalidated or voidable, or in any way affected
thereby, nor shall any of such directors or officers of the Corporation be
liable to the Corporation or to any stockholder or creditor thereof or to any
other person for any loss incurred solely because of the entering into and
performance of such contract or the engaging in such transaction or business or
the existence of such material financial interest therein, provided that such
relationship to such person, firm or corporation or such subsidiary or affiliate
or such material financial interest was disclosed or otherwise known to the
Board of Directors prior to the Corporation's entering into such contract or
engaging in such transaction or business, and in the case of directors of the
Corporation, that Section 2-419 of the Maryland General Corporation Law has been
satisfied.

Section 5.9 Independent and Disinterested Directors. A
---------------------------------------
director of the Corporation who with respect to the Corporation is not an
interested person, as defined by the 1940 Act, shall be deemed to be independent
and disinterested when making any determination or taking any action as a
director of the Corporation.

-8-
<PAGE>

ARTICLE VI

STOCK

Section 6.1 Authorized Shares. The Corporation has authority
-----------------
to issue 13,100,000,000 shares of Common Stock, $.001 par value per share
("Common Stock"), which shares shall be classified in the following series
(portfolios): 1,000,000,000 are designated as shares of the Western Asset
Enhanced Equity Portfolio (of which 500,000,000 are designated as shares of the
Institutional Class and 500,000,000 are designated as shares of the Financial
Intermediary Class), 2,000,000,000 are designated as shares of the Western Asset
Money Market Portfolio (of which 1,000,000,000 are designated as shares of the
Institutional Class and 1,000,000,000 are designated as shares of the Financial
Intermediary Class), 2,000,000,000 are designated as shares of the Western Asset
Government Money Market Portfolio (of which 1,000,000,000 are designated as
shares of the Institutional Class and 1,000,000,000 are designated as shares of
the Financial Intermediary Class), 1,000,000,000 are designated as shares of the
Western Asset Limited Duration Portfolio (of which 500,000,000 are designated as
shares of the Institutional Class and 500,000,000 are designated as shares of
the Financial Intermediary Class), 1,000,000,000 are designated as shares of the
Western Asset Intermediate Portfolio (of which 500,000,000 are designated as
shares of the Institutional Class and

-9-
<PAGE>

500,000,000 are designated as shares of the Financial Intermediary Class),
1,000,000,000 are designated as shares of the Western Asset Intermediate Plus
Portfolio (of which 500,000,000 are designated as shares of the Institutional
Class and 500,000,000 are designated as shares of the Financial Intermediary
Class), 1,000,000,000 are designated as shares of the Western Asset Core
Portfolio (of which 500,000,000 are designated as shares of the Institutional
Class and 500,000,000 are designated as shares of the Financial Intermediary
Class), 1,000,000,000 are designated as shares of the Western Asset Core Plus
Portfolio (of which 500,000,000 are designated as shares of the Institutional
Class and 500,000,000 are designated as shares of the Financial Intermediary
Class), 1,000,000,000 are designated as shares of the Western Asset High Yield
Portfolio (of which 500,000,000 are designated as shares of the Institutional
Class and 500,000,000 are designated as shares of the Financial Intermediary
Class), 1,000,000,000 are designated as shares of the Western Asset Non-U.S.
Fixed Income Portfolio (of which 500,000,000 are designated as shares of the
Institutional Class and 500,000,000 are designated as shares of the Financial
Intermediary Class), 1,000,000,000 are designated as shares of the Western Asset
Global Strategic Income Portfolio

-10-
<PAGE>

(of which 500,000,000 are designated as shares of the Institutional Class and
500,000,000 are designated as shares of the Financial Intermediary Class),
50,000,000 are designated as shares of the International Securities Portfolio,
10,000,000 are designated as shares of the Corporate Securities Portfolio,
10,000,000 are designated as shares of the Mortgage Securities Securities
Portfolio, 10,000,000 are designated as shares of the Short Duration Portfolio
and 10,000,000 are designated as shares of the Long Duration Portfolio. The
aggregate par value of all authorized shares of stock having par value is
$13,100,000. The Board of Directors may classify any unissued shares of Common
Stock from time to time in one or more series or classes of stock. The Board of
Directors may reclassify any previously classified but unissued shares of any
series or class of stock from time to time in one or more series or classes of
stock.

Section 6.2 Voting Rights. Each holder of a whole share of
-------------
stock of the Corporation shall be entitled to one vote as to any matter on which
such share of stock is entitled to vote and each fractional share of stock of
the Corporation shall be entitled to a proportionate fractional vote. On any
matter submitted to a vote of stockholders, all stockholders of the Corporation
then entitled to vote shall, except as otherwise

-11-
<PAGE>

provided in the Bylaws, vote together as a single class without regard to series
or classes of shares of stock, except (a) when required by the 1940 Act or when
the Board of Directors shall have determined that the matter affects one or more
series or classes of shares of stock materially differently, such shares of
stock shall be voted by individual series or class in addition to any other vote
that may be required by law; and (b) when the Board of Directors has determined
that the matter affects only the interests of one or more series or classes of
shares of stock, then only holders of shares of stock of such series or classes
shall be entitled to vote thereon in addition to any other vote that may be
required by law.

Section 6.3 Fractional Shares; Issuance of Units. The Board
------------------------------------
of Directors may, but is not obligated to, issue fractional shares of stock of
the Corporation, whether now or hereafter authorized, and any fractional shares
so issued shall entitle the holder thereof to exercise voting rights, receive
dividends and participate in the distribution of assets of the Corporation in
the event of liquidation or dissolution to the extent of the proportionate
interest represented by such fractional shares. The Corporation is not obligated
to issue stock certificates evidencing fractional shares. Notwithstanding

-12-
<PAGE>

any other provision of the charter or the Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.

Section 6.4 Assets Belonging to Each Series; Allocations.
--------------------------------------------

6.4.1 All consideration received by the
Corporation for the issuance or sale of shares of a particular series, together
with all income, earnings, profits and proceeds thereon, shall irrevocably
belong to such series for all purposes, subject only to the rights of creditors,
and are herein referred to as "assets belonging to" such series.

6.4.2 The assets belonging to each series
shall be charged with the liabilities of the Corporation in respect of such
series, and with such series' respective share of the general liabilities of the
Corporation, in the latter case in the proportion that the net asset value of
such series bears to the net asset value of all series. The determination of the

-13-
<PAGE>

Board of Directors shall be conclusive as to the allocation of liabilities,
including accrued expenses and reserves, to each series.

6.4.3 Dividends or distributions on shares
of any series, whether payable in stock, cash or other property, shall be paid
only out of earnings, surplus or other assets belonging to such series and may
vary among the classes of a series.

6.4.4 In the event of the liquidation or
dissolution of any series of stock of the Corporation, stockholders of such
series shall be entitled to receive out of the assets of such series available
for distribution to stockholders the assets belonging to such series; and the
assets so distributable to the stockholders of such series shall be distributed
among such stockholders based on relative net asset value or such other fair and
equitable method as the Board of Directors may determine.

6.4.5 The assets of a series or class of
stock of the Corporation may be invested together with the assets belonging to
another currently existing or hereafter created series or class of stock of the
Corporation. The Board of Directors shall have the authority to allocate, or
cause to be

-14-
<PAGE>

allocated, a series' assets, liabilities, income or expenses to one or more
classes of such series, in such amounts and at such times as the Board of
Directors (or their designees) shall determine. Any such allocation shall be
final and conclusive and shall be binding upon the Corporation and every holder
of shares of its stock.

Section 6.5 Classified or Reclassified Shares. Prior to
---------------------------------
issuance of classified or reclassified shares of any series or class, the Board
of Directors by resolution shall: (a) designate that series or class to
distinguish it from all other series and classes of stock of the Corporation;
(b) specify the number of shares to be included in the series or class; (c) set
or change, subject to the provisions of Article VII and subject to the express
terms of any series or class of stock of the Corporation outstanding at the
time, the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms and
conditions of redemption for each series or class; and (d) cause the Corporation
to file articles supplementary with the State Department of Assessments and
Taxation of Maryland (the "SDAT"). Any of the terms of any series or class of
stock set or changed pursuant to clause (c) of this Section 6.5 may be made
dependent

-15-
<PAGE>

upon facts or events ascertainable outside the charter (including determinations
by the Board of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner in
which such facts, events or variations shall operate upon the terms of such
series or class of stock is clearly and expressly set forth in the articles
supplementary filed with the SDAT.

Section 6.6 Dividends and Distributions. The holders of the
---------------------------
Corporation's stock of record as of a date determined by the Board of Directors
from time to time shall be entitled, from funds or other assets legally
available therefor, to dividends and distributions, including distributions of
capital gains, in such amounts and at such times as may be determined by the
Board of Directors. Any such dividends or distributions may be declared payable
in cash, property or shares of the Corporation's stock, as determined by the
Board of Directors or pursuant to a standing resolution or program adopted or
approved by the Board of Directors. Dividends and distributions may be declared
with such frequency, including daily, as the Board of Directors may determine
and in any reasonable manner, including by standing resolution, by resolutions
adopted only once or with such frequency as the Board

-16-
<PAGE>

of Directors may determine, or by formula or other similar method of
determination, whether or not the amount of the dividend or distribution so
declared can be calculated at the time of such declaration. The Board of
Directors may establish payment dates for such dividends and distributions on
any basis, including payment that is less frequent than the effectiveness of
such declarations. The Board of Directors shall have the sole discretion to
designate for such dividends and distributions amounts sufficient to enable the
Corporation to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, or any successor or comparable statute, and
the regulations promulgated thereunder, and to avoid liability of the
Corporation for federal income tax in respect of a given year and to make other
appropriate adjustments in connection therewith. Nothing in the foregoing
sentence shall limit the authority of the Board of Directors to designate
greater or lesser amounts for such dividends or distributions.

Section 6.7 Redemptions.
-----------

6.7.1 The Board of Directors shall
authorize the Corporation, to the extent it has funds or other property legally
available therefor and subject to such reasonable conditions as the directors
may determine, to permit each holder

-17-
<PAGE>

of shares of stock of the Corporation to require the Corporation to redeem all
or any number of the shares of stock outstanding in the name of such holder on
the books of the Corporation, at the net asset value of such shares, less any
fees or charges as the Board of Directors may establish from time to time.
Notwithstanding the foregoing, the Board of Directors may suspend the right of
holders of shares of stock of the Corporation to require the Corporation to
redeem such shares or to receive payment for redeemed shares for such periods
and to the extent permitted by, or in accordance with, the 1940 Act or any rule
or regulation of the Securities and Exchange Commission promulgated thereunder.
The Board of Directors may, in the absence of a ruling by a responsible
regulatory official, terminate such suspension at such time as the Board of
Directors, in its sole discretion, shall deem reasonable, such determination to
be conclusive.

6.7.2 Without limiting the generality of
the foregoing, the Board of Directors may authorize the Corporation, at its
option, to redeem shares of stock of the Corporation owned by any stockholder
under circumstances deemed appropriate by the Board of Directors in its sole
discretion from time to time, such circumstances including but not limited to
(a) failure to provide

-18-
<PAGE>

the Corporation with a tax identification number, (b) failure to maintain
ownership of a specified minimum number or value of shares of any series or
class of stock of the Corporation, and (c) failure to maintain the
characteristics or qualifications established by the Board of Directors for a
particular series or class of stock of the Corporation, such redemption to be
effected at such price, at such time and subject to such conditions as may be
required or permitted by applicable law.

6.7.3 Payment for redeemed shares of stock
of the Corporation shall be made in cash unless, in the opinion of the Board of
Directors, which shall be conclusive, conditions exist which make it necessary
or desirable for the Corporation to make payment wholly or partially in
securities or other property or assets of the Corporation. Payment made wholly
or partially in securities or other property or assets may be delayed to such
reasonable extent, not inconsistent with applicable law, as is reasonably
necessary under the circumstances. No stockholder shall have the right, except
as determined by the Board of Directors, to have his shares redeemed in such
securities, property or other assets.

6.7.4 All rights of a stockholder with
respect to a share redeemed, including the right to receive

-19-
<PAGE>

dividends and distributions with respect to such share, shall cease as of the
date on which the redemption price to be paid for such shares is fixed in
accordance with applicable law, except the right of such stockholder to receive
payment for such shares as provided herein.

6.7.5 Shares of stock of the Corporation
which have been redeemed shall constitute authorized but unissued shares of
stock of such series or class so redeemed.

Section 6.8 Charter and Bylaws. All persons who shall acquire
------------------
stock in the Corporation shall acquire the same subject to the provisions of the
charter and the Bylaws. Except as may be otherwise provided herein, all
provisions of the charter relating to shares of stock of the Corporation shall
apply to shares of and to the holders of shares of all series or classes of
stock of the Corporation, whether now or hereafter classified or reclassified.

ARTICLE VII

AMENDMENTS

The Corporation reserves the right from time to time to make
any amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
charter, of any shares of

-20-
<PAGE>

outstanding stock. All rights and powers conferred by the charter on
stockholders, directors and officers are granted subject to this reservation.

ARTICLE VIII

LIMITATION OF LIABILITY

To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
corporation, but subject to the limits contained in the 1940 Act and the Bylaws,
no director or officer of the Corporation shall be liable to the Corporation or
its stockholders for money damages. Neither the amendment nor repeal of this
Article VIII, nor the adoption or amendment of any other provision of the
charter or Bylaws inconsistent with this Article VIII, shall apply to or affect
in any respect the applicability of the preceding sentence with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption.

ARTICLE IX

INDEMNIFICATION AND ADVANCE OF EXPENSES

Section 9.1 Directors. To the maximum extent permitted by
---------
Maryland law in effect from time to time, but subject to the limits on
indemnification contained in the 1940

-21-
<PAGE>

Act and the Bylaws, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director of the
Corporation or (b) any individual who, while a director of the Corporation and
at the request of the Corporation, serves or has served another corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or any other enterprise as a director, officer, partner or trustee
of such corporation, real estate investment trust, partnership, joint venture,
trust, employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his status as a present or former director of the Corporation. The
Corporation may, with the approval of its Board of Directors, provide such
indemnification and advance for expenses to a person who served a predecessor of
the Corporation in any of the capacities described in (a) or (b) above.

Section 9.2 Officers. The Corporation shall have the power,
--------
to the maximum extent permitted by Maryland law in effect from time to time, but
subject to the limits on

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<PAGE>

indemnification contained in the 1940 Act and the Bylaws, to obligate itself to
indemnify, and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any individual who is a present or former
officer of the Corporation or (b) any individual who, while an officer of the
Corporation and at the request of the Corporation, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise from and against any claim or liability to which such
person may become subject or which such person may incur by reason of his status
as a present or former officer of the Corporation. The Corporation shall have
the power, with the approval of the Board of Directors, to provide such
indemnification and advancement of expenses to a person who served a predecessor
of the Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the Corporation.

Section 9.3 Amendment. Neither the amendment nor repeal of
---------
this Article, nor the adoption or amendment of any other provision of the
charter or Bylaws of the Corporation inconsistent with this Article, shall apply
to or affect in any

-23-
<PAGE>

respect the applicability of the preceding sections with respect to any act or
failure to act which occurred prior to such amendment, repeal or adoption.

THIRD: The amendment to and restatement of the charter as
-----
hereinabove set forth have been duly advised by the Board of Directors and
approved by the stockholders of the Corporation as required by law.

FOURTH: The current address of the principal office of the
------
Corporation is as set forth in Article IV of the foregoing amendment and
restatement of the charter.

FIFTH: The name and address of the Corporation's current
-----
resident agent is as set forth in Article IV of the foregoing amendment and
restatement of the charter.

SIXTH: The number of directors of the Corporation and the
-----
names of those currently in office are as set forth in Article V of the
foregoing amendment and restatement of the charter.

SEVENTH: The total number of shares of stock which the
-------
Corporation had authority to issue immediately prior to this amendment and
restatement of the charter was 5,000,000,000 shares, $.001 par value per share.
The aggregate par value of all authorized shares of stock having par value was
$5,000,000.

-24-
<PAGE>

EIGHTH: The total number of shares of stock which the
------
Corporation has authority to issue pursuant to the foregoing amendment and
restatement of the charter is 13,100,000,000 shares of Common Stock, $.001 par
value per share. The aggregate par value of all authorized shares of stock
having par value is $13,100,000.

NINTH: The undersigned Vice President acknowledges these
-----
Articles of Amendment and Restatement to be the corporate act of the Corporation
and as to all matters or facts required to be verified under oath, the
undersigned Vice President acknowledges that to the best of her knowledge,
information and belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles
of Amendment and Restatement to be signed in its name and on its behalf by its
Vice President and attested to by its Secretary on this 28th day of May, 1998.

ATTEST: WESTERN ASSET TRUST, INC.

By: (SEAL)
- -------------------------- ---------------------
Donna Barnes, Secretary Ilene S. Harker,
Vice President

-25-

<PAGE>

Exhibit 23(a)(3)
----------------

LM INSTITUTIONAL FUND ADVISORS I, INC.

ARTICLES SUPPLEMENTARY

LM Institutional Fund Advisors I, Inc., a Maryland corporation (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:

FIRST: Pursuant to Sections 2-105(a)(9) and 2-208 of the Maryland General
-----
Corporation Law (the "MGCL"), the Board of Directors of the Corporation (the
"Board"), by resolutions duly adopted at a meeting held on February 16, 2000,
reclassified (a) 1,000,000,000 authorized but unissued shares of the Western
Asset Limited Duration Portfolio, (b) 50,000,000 authorized but unissued shares
of the International Securities Portfolio, (c) 10,000,000 authorized but
unissued shares of the Corporate Securities Portfolio, (d) 10,000,000 authorized
but unissued shares of the Mortgage Securities Portfolio, (e) 10,000,000
authorized but unissued shares of the Short Duration Portfolio and (f)
10,000,000 authorized but unissued shares of the Long Duration Portfolio as
shares of Common Stock, $.001 par value per share, with the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of shares of
Common Stock, $.001 par value per share, of the Corporation, as set forth in
ARTICLE VI of the charter of the Corporation (the "Charter") and in any other
provisions of the Charter relating to stock of the Corporation generally.

SECOND: As of the filing of these Articles Supplementary, the Corporation
------
shall have authority to issue 13,100,000,000 shares of Common Stock, $.001 par
value per share, having an aggregate par value of $13,100,000. These shares are
classified as follows:

Class Number
- ----- ------
Western Asset Enhanced Equity Portfolio
Institutional Class 500,000,000
Western Asset Enhanced Equity Portfolio
Financial Intermediary Class 500,000,000

Western Asset Money Market Portfolio
Institutional Class 1,000,000,000
Western Asset Money Market Portfolio
Financial Intermediary Class 1,000,000,000
<PAGE>

Class Number
- ----- ------

Western Asset Government Money Market Portfolio
Institutional Class 1,000,000,000
Western Asset Government Money Market Portfolio
Financial Intermediary Class 1,000,000,000

Western Asset Intermediate Portfolio
Institutional Class 500,000,000
Western Asset Intermediate Portfolio
Financial Intermediary Class 500,000,000

Western Asset Intermediate Plus Portfolio
Institutional Class 500,000,000
Western Asset Intermediate Plus Portfolio
Financial Intermediary Class 500,000,000

Western Asset Core Portfolio
Institutional Class 500,000,000
Western Asset Core Portfolio
Financial Intermediary Class 500,000,000

Western Asset Core Plus Portfolio
Institutional Class 500,000,000
Western Asset Core Plus Portfolio
Financial Intermediary Class 500,000,000

Western Asset High Yield Portfolio
Institutional Class 500,000,000
Western Asset High Yield Portfolio
Financial Intermediary Class 500,000,000

Western Asset Non-U.S. Fixed Income Portfolio
Institutional Class 500,000,000
Western Asset Non-U.S. Fixed Income Portfolio
Financial Intermediary Class 500,000,000

Western Asset Global Strategic Income Portfolio
Institutional Class 500,000,000
Western Asset Global Strategic Income Portfolio
Financial Intermediary Class 500,000,000

Common Stock (without further classification) 1,100,000,000

2
<PAGE>

THIRD: The shares of the Western Asset Limited Duration Portfolio, the
-----
International Securities Portfolio, the Corporate Securities Portfolio, the
Mortgage Securities Portfolio, the Short Duration Portfolio and the Long
Duration Portfolio have been reclassified by the Board under the authority
granted to it in the Charter.

FOURTH: The undersigned President of the Corporation acknowledges these
------
Articles Supplementary to be the corporate act of the Corporation and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.

IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be executed under seal in its name and on its behalf by its President and
attested to by its Secretary on March 10, 2000.

ATTEST: LM INSTITUTIONAL FUND
ADVISORS I, INC.

By: (SEAL)
- ------------------------- --------------------
Secretary President

<PAGE>

Exhibit 23(b)
-------------

LM INSTITUTIONAL FUND ADVISORS I, INC.
--------------------------------------

BYLAWS

ARTICLE I

OFFICES

Section 1. PRINCIPAL OFFICE. The principal office of the
----------------
Corporation shall be located at such place or places as the Board of Directors
may designate.

Section 2. ADDITIONAL OFFICES. The Corporation may have
------------------
additional offices at such places as the Board of Directors may from time to
time determine or the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. PLACE. All meetings of stockholders shall be held
-----
at the principal office of the Corporation or at such other place within the
United States as shall be stated in the notice of the meeting.

Section 2. ANNUAL MEETING. Subject to this Article II, an
--------------
annual meeting of stockholders for the election of directors and the transaction
of such other business as may properly come before the meeting shall be held at
such time and place as the Board of Directors shall select. The Corporation
shall not be required to hold an annual meeting of its stockholders in any year
in which the election of directors is not required to be acted upon under the
Investment Company Act of 1940, as amended (the "1940 Act").

Section 3. SPECIAL MEETINGS. The president, chief executive
----------------
officer or Board of Directors may call special meetings of the stockholders.
Special meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than ten percent (10%) of all the votes entitled to be cast at such
meeting. Such
<PAGE>

request shall state the purpose of such meeting and the matters proposed to be
acted on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting. Unless requested by the stockholders entitled to cast a majority of all
the votes entitled to be cast at such meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding twelve
months.

Section 4. NOTICE. Not less than ten nor more than 90 days
------
before each meeting of stockholders, the secretary shall give to each
stockholder entitled to vote at such meeting and to each stockholder not
entitled to vote who is entitled to notice of the meeting written or printed
notice stating the time and place of the meeting and, in the case of a special
meeting or as otherwise may be required by any statute, the purpose for which
the meeting is called, either by mail or by presenting it to such stockholder
personally or by leaving it at his residence or usual place of business. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the stockholder at his post office address as it
appears on the records of the Corporation, with postage thereon prepaid.

Section 5. SCOPE OF NOTICE. Any business of the Corporation may
---------------
be transacted at an annual meeting of stockholders without being specifically
designated in the notice, except such business as is required by any statute to
be stated in such notice. No business shall be transacted at a special meeting
of stockholders except as specifically designated in the notice.

Section 6. ORGANIZATION. At every meeting of stockholders, the
------------
chairman of the board, if there be one, shall conduct the meeting or, in the
case of vacancy in office or absence of the chairman of the board, one of the
following officers present shall conduct the meeting in the order stated: the
vice chairman of the board, if there be one, the president, the vice presidents
in their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in his absence, an

-2-
<PAGE>

assistant secretary, or in the absence of both the secretary and assistant
secretaries, a person appointed by the chairman shall act as secretary.

Section 7. QUORUM. At any meeting of stockholders, the presence
------
in person or by proxy of stockholders entitled to cast thirty percent (30%) of
all the votes entitled to be cast at such meeting shall constitute a quorum; but
this section shall not affect any requirement under any statute or the charter
of the Corporation for the vote necessary for the adoption of any measure. If,
however, such quorum shall not be present at any meeting of the stockholders,
the stockholders entitled to vote at such meeting, present in person or by
proxy, shall have the power to adjourn the meeting from time to time to a date
not more than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.

Section 8. VOTING. Unless otherwise provided in the charter,
------
each holder of record of shares of stock of the Corporation having voting power
shall be entitled at each meeting of the stockholders to one vote for each share
of stock outstanding (and fractional votes for fractional shares of stock
outstanding) in such holder's name on the record of stockholders of the
Corporation as of the record date or if such record date shall not have been so
fixed, then at the later of (i) the close of business on the day on which notice
of the meeting is mailed or (ii) the thirtieth day before the meeting. A
plurality of all the votes cast at a meeting of stockholders duly called and at
which a quorum is present shall be sufficient to elect a director. Each share
may be voted for as many individuals as there are directors to be elected and
for whose election the share is entitled to be voted. A majority of the votes
cast at a meeting of stockholders duly called and at which a quorum is present
shall be sufficient to approve any other matter which may properly come before
the meeting, unless more than a majority of the votes cast is required by
statute or by the charter of the Corporation.

Section 9. PROXIES. A stockholder may cast the votes entitled to
-------
be cast by the shares of the stock owned of record by him either in person or by
proxy executed in writing by the stockholder or by his duly authorized agent.
Such proxy shall be

-3-
<PAGE>

filed with the secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.

Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
----------------------------------
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his name as such fiduciary, either in
person or by proxy.

Shares of stock of the Corporation directly or indirectly owned
by it shall not be voted at any meeting and shall not be counted in determining
the total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.

The Board of Directors may adopt by resolution a procedure by
which a stockholder may certify in writing to the Corporation that any shares of
stock registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.

-4-
<PAGE>

Section 11. INSPECTORS. At any meeting of stockholders, the
----------
chairman of the meeting may appoint one or more persons as inspectors for such
meeting. Such inspectors shall ascertain and report the number of shares
represented at the meeting based upon their determination of the validity and
effect of proxies, count all votes, report the results and perform such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the stockholders.

Each report of an inspector shall be in writing and signed by
him or by a majority of them if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
-----------

Section 12. VOTING BY BALLOT. Voting on any question or
----------------
in any election may be viva voce unless the presiding officer shall order or
---------
any stockholder shall demand that voting be by ballot.

Section 13. TELEPHONE MEETINGS. Stockholders may participate in
------------------
a meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.

-5-
<PAGE>

Section 14. INFORMAL ACTION BY STOCKHOLDERS. Except to the
-------------------------------
extent otherwise specifically prohibited by applicable law, any action required
or permitted to be taken at a meeting of stockholders may be taken without a
meeting if the following are filed with the records of stockholders meetings:
(a) a written consent which sets forth such action and is signed by each
stockholder entitled to vote on the matter; and (b) a written waiver of any
right to dissent signed by each stockholder entitled to notice of the meeting
but not entitled to vote at it.

ARTICLE III

DIRECTORS

Section 1. GENERAL POWERS. The business and affairs of the
--------------
Corporation shall be managed under the direction of its Board of Directors.

Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular
---------------------------------
meeting or at any special meeting called for that purpose, a majority of the
entire Board of Directors may establish, increase or decrease the number of
directors, provided that the number thereof shall never be less than the minimum
number required by the Maryland General Corporation Law, nor more than 15, and
further provided that the tenure of office of a director shall not be affected
by any decrease in the number of directors. Directors shall be elected annually,
by written ballot at the annual meeting of stockholders of the Corporation or a
special meeting held for that purpose; provided, however, that if no annual
meeting of the stockholders is required to be held pursuant to Section 2 of
Article II of these Bylaws, directors shall be elected at the next annual
meeting held. The term of office of each director shall be from the time of his
election and qualification until the election of directors next succeeding his
election and until his successor shall have been elected and shall have
qualified.

Section 3. ANNUAL AND REGULAR MEETINGS. The Board of
---------------------------
Directors may provide, by resolution, the time and place, either within or
without the State of Maryland, for the holding of annual or regular meetings of
the Board of Directors without other notice than such resolution.

-6-
<PAGE>

Section 4. SPECIAL MEETINGS. Special meetings of the Board of
----------------
Directors may be called by or at the request of the chairman of the board,
president or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Maryland, as the place for
holding any special meeting of the Board of Directors called by them.

Section 5. NOTICE. Notice of any special meeting of the Board of
------
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.

Section 6. QUORUM. A majority of the directors shall constitute
------
a quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.

The directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.

-7-
<PAGE>

Section 7. VOTING. The action of the majority of the directors
------
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute or the charter.

Section 8. TELEPHONE MEETINGS. Directors may participate in a
------------------
meeting by means of a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each other at the same
time. Participation in a meeting by these means shall constitute presence in
person at the meeting.

Section 9. INFORMAL ACTION BY DIRECTORS. Except to the
----------------------------
extent otherwise specifically prohibited by applicable law, any action required
or permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.

Section 10. VACANCIES. If for any reason any or all the
---------
directors cease to be directors, such event shall not terminate the Corporation
or affect these Bylaws or the powers of the remaining directors hereunder (even
if fewer than three directors remain). Any vacancy on the Board of Directors for
any cause other than an increase in the number of directors shall be filled by a
majority of the remaining directors, even if such majority is less than a
quorum. Any vacancy in the number of directors created by an increase in the
number of directors may be filled by a majority vote of the entire Board of
Directors. Any individual so elected as director shall hold office until the
next annual meeting of stockholders and until his successor is elected and
qualified.

Section 11. COMPENSATION. Directors shall not receive any stated
------------
salary for their services as directors but, by resolution of the Board of
Directors, may receive compensation per year and/or per meeting and/or per visit
to real property or other facilities owned or leased by the Corporation and for
any service or activity they performed or engaged in as directors. Directors may
be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be

-8-
<PAGE>

construed to preclude any directors from serving the Corporation in any other
capacity and receiving compensation therefor.

Section 12. LOSS OF DEPOSITS. No director shall be liable for
----------------
any loss which may occur by reason of the failure of the bank, trust company,
savings and loan association, or other institution with whom moneys or stock
have been deposited.

Section 13. SURETY BONDS. The Board of Directors may require any
------------
officer or agent of the Corporation to execute a bond (including, without
limitation, any bond required by the 1940 Act and the rules and regulations of
the Securities and Exchange Commission) to the Corporation in such sum and with
such surety or sureties as the Board of Directors may determine, conditioned
upon the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting of any of the Corporation's
property, funds or securities that may come into his hands.

Section 14. RELIANCE. Each director, officer, employee and agent
--------
of the Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.

Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
----------------------------------------------------
AGENTS. The directors shall have no responsibility to devote their full time to
- ------
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.

-9-
<PAGE>

ARTICLE IV

COMMITTEES

Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of
---------------------------------
Directors may appoint from among its members an Executive Committee, an Audit
Committee and other committees, composed of one or more directors, to serve at
the pleasure of the Board of Directors.

Section 2. POWERS. The Board of Directors may delegate to
------
committees appointed under Section 1 of this Article any of the powers of the
Board of Directors, except as prohibited by law.

Section 3. MEETINGS. Notice of committee meetings shall be given
--------
in the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two members of any committee may fix the time and place of
its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.

Section 4. TELEPHONE MEETINGS. Members of a committee of the
------------------
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means shall constitute presence in person at the meeting.

Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
-----------------------------
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.

Section 6. VACANCIES. Subject to the provisions hereof, the
---------
Board of Directors shall have the power at any time to change the membership of
any committee, to fill all vacancies, to designate alternate members to replace
any absent or disqualified member or to dissolve any such committee.

-10-
<PAGE>

ARTICLE V

OFFICERS

Section 1. GENERAL PROVISIONS. The officers of the Corporation
------------------
shall include a president, a secretary and a treasurer and may include a chief
executive officer, a chairman of the board, a vice chairman of the board, one or
more vice presidents, a chief operating officer, a chief financial officer, one
or more assistant secretaries and one or more assistant treasurers. In addition,
the Board of Directors may from time to time appoint such other officers with
such powers and duties as they shall deem necessary or desirable. The officers
of the Corporation shall be elected annually by the Board of Directors, except
that the chief executive officer may appoint one or more vice presidents,
assistant secretaries and assistant treasurers. Each officer shall hold office
until his successor is elected and qualifies or until his death, resignation or
removal in the manner hereinafter provided. Any two or more offices except
president and vice president may be held by the same person. In its discretion,
the Board of Directors may leave unfilled any office except that of president,
treasurer and secretary. Election of an officer or agent shall not of itself
create contract rights between the Corporation and such officer or agent.

Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
-----------------------
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the Corporation may resign at any time by giving written notice of
his resignation to the Board of Directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at any time
subsequent to the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. The acceptance
of a resignation shall not be necessary to make it effective unless otherwise
stated in the resignation. Such resignation shall be without prejudice to the
contract rights, if any, of the Corporation.

-11-
<PAGE>

Section 3. VACANCIES. A vacancy in any office may be filled
---------
by the Board of Directors for the balance of the term.

Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
-----------------------
designate a chief executive officer. In the absence of such designation, the
president shall be the chief executive officer of the Corporation. The president
shall have general responsibility for implementation of the policies of the
Corporation, as determined by the Board of Directors, and for the management of
the business and affairs of the Corporation.

Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
-----------------------
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.

Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
-----------------------
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.

Section 7. CHAIRMAN OF THE BOARD. The Board of Directors may
---------------------
designate a chairman of the board. The chairman of the board shall preside over
the meetings of the Board of Directors and of the stockholders at which he shall
be present. The chairman of the board shall perform such other duties as may be
assigned to him by the Board of Directors.

Section 8. PRESIDENT. The president or chief executive officer,
---------
as the case may be, shall in general supervise and control all of the business
and affairs of the Corporation. In the absence of a designation of a chief
executive officer by the Board of Directors, the president shall be the chief
executive officer. He may execute any deed, mortgage, bond, contract or other
instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the Board of Directors from time to
time.

Section 9. VICE PRESIDENTS. In the absence of the president or
---------------
in the event of a vacancy in such office, the vice

-12-
<PAGE>

president (or in the event there be more than one vice president, the vice
presidents in the order designated at the time of their election or, in the
absence of any designation, then in the order of their election) shall perform
the duties of the president and when so acting shall have all the powers of and
be subject to all the restrictions upon the president; and shall perform such
other duties as from time to time may be assigned to him by the president or by
the Board of Directors. The Board of Directors may designate one or more vice
presidents as executive vice president or as vice president for particular areas
of responsibility.

Section 10. SECRETARY. The secretary shall (a) keep the minutes
---------
of the proceedings of the stockholders, the Board of Directors and committees of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; and (c) in general perform such other duties as
from time to time may be assigned to him by the chief executive officer, the
president or by the Board of Directors.

Section 11. TREASURER. The treasurer shall have the custody of
---------
the funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer
and/or a principal accounting officer by the Board of Directors, the treasurer
shall be the chief financial officer and/or the principal accounting officer of
the Corporation.

Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
----------------------------------------------
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors.

Section 13. SALARIES. The salaries and other compensation of the
--------
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.

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<PAGE>

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 1. CONTRACTS. The Board of Directors may authorize any
---------
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances.

Section 2. CHECKS AND DRAFTS. All checks, drafts or other
-----------------
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.

ARTICLE VII

STOCK

Section 1. CERTIFICATES. Stock certificates shall not be issued
------------
unless authorized by the Board of Directors. At the time of issue or transfer of
uncertificated shares of stock of the Corporation, the Corporation shall send to
the stockholder thereof a written statement of the information required on
certificates by Section 2-211 of the Maryland General Corporation Law.

Section 2. TRANSFERS. Transfers of shares of stock of the
---------
Corporation shall be made on the books of the Corporation by the holder of
record thereof (in person or by his attorney thereunto duly authorized by a
power of attorney duly executed in writing and filed with the secretary of the
Corporation) (a) if a stock certificate has been issued, upon surrender to the
Corporation or the transfer agent of the Corporation of the stock certificate
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, or (b) if a stock certificate has not been issued, upon
the receipt of all necessary documentation as determined by the appropriate
officer(s) of the Corporation.

The Corporation shall be entitled to treat the holder of record
of any share of stock as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
or on the part of any other

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<PAGE>

person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Maryland.

Notwithstanding the foregoing, transfers of shares of any series
or class of stock will be subject in all respects to the charter of the
Corporation and all of the terms and conditions contained therein.

Section 3. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
--------------------------------------------------
The Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.

In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.

If no record date is fixed and the stock transfer books are not
closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.

When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof,

-15-
<PAGE>

except when (i) the determination has been made through the closing of the
transfer books and the stated period of closing has expired or (ii) the meeting
is adjourned to a date more than 120 days after the record date fixed for the
original meeting, in either of which case a new record date shall be determined
as set forth herein.

Section 4. STOCK LEDGER. The Corporation shall maintain at its
------------
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each series or class held by such
stockholder.

Section 5. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
-----------------------------------
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.

-16-
<PAGE>

ARTICLE VIII

ACCOUNTING YEAR

The Board of Directors shall have the power, from time to time,
to fix the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE IX

DISTRIBUTIONS

Section 1. AUTHORIZATION. Dividends and other distributions upon
-------------
the stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.

Section 2. CONTINGENCIES. Before payment of any dividends or
-------------
other distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.

ARTICLE X

INVESTMENT POLICY

Subject to the provisions of the charter of the Corporation, the
Board of Directors may from time to time adopt, amend, revise or terminate any
policy or policies with respect to investments by the Corporation as it shall
deem appropriate in its sole discretion.

-17-
<PAGE>

ARTICLE XI

SEAL

Section 1. SEAL. The Board of Directors may authorize the
----
adoption of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.

Section 2. AFFIXING SEAL. Whenever the Corporation is permitted
-------------
or required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.

ARTICLE XII

INDEMNIFICATION AND ADVANCE OF EXPENSES

Section 1. INDEMNIFICATION PROCEDURE. The Corporation shall
-------------------------
indemnify its directors, officers, employees and agents as permitted by, and
pursuant to, Article IX of the charter of the Corporation and the Maryland
General Corporation Law. With respect to any person potentially entitled to or
claiming indemnification under this Article, the Board of Directors shall
determine, or shall cause to be determined, in a manner consistent with the
Maryland General Corporation Law, whether the standards required by Article IX
have been met. If it is determined that the standards required by Article IX
have been met, indemnification shall be made only following: (a) a final
decision on the merits by a court or other body before whom a proceeding was
brought that the person to be indemnified ("indemnitee") was not liable by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of duties as described in Section 17(h) of the 1940 Act ("disabling conduct"),
or (b) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the indemnitee was not liable by reason of disabling
conduct by (i) the vote of a majority of a quorum of directors who are neither
"interested persons" of the Corporation as defined in Section 2(a)(19) of the
1940 Act nor parties to the proceeding ("disinterested, non-party directors"),
or (ii) an independent legal counsel in a written opinion.

-18-
<PAGE>

Section 2. ADVANCES. As permitted by, and pursuant to,
--------
Article IX of the charter of the Corporation and the Maryland General
Corporation Law, reasonable expenses incurred by a director, officer, employee
or agent of the Corporation who is a party to a proceeding may be paid or
reimbursed by the Corporation in advance of the final disposition of the
proceeding but only upon receipt by the Corporation of (a) a written affirmation
by the person requesting the advance or reimbursement of his good faith belief
that the standard of conduct necessary for indemnification by the Corporation
has been met; and (b) a written undertaking by or on behalf of such person to
repay the amount if it shall ultimately be determined that the standard of
conduct has not been met. In addition, at least one of the following conditions
must be met: (x) the person requesting the advance or reimbursement shall
provide a security for his undertaking, (y) the Corporation shall be insured
against losses arising by reason of any lawful advances, or (z) a majority of a
quorum of the disinterested, non-party directors of the Corporation, or an
independent legal counsel in a written opinion, shall determine, based on a
review of facts readily available to the Corporation at the time the advance or
reimbursement is proposed to be made, that there is reason to believe that the
person requesting the advance or reimbursement ultimately will be found entitled
to indemnification.

ARTICLE XIII

WAIVER OF NOTICE

Whenever any notice is required to be given pursuant to the
charter of the Corporation or these Bylaws or pursuant to applicable law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where such
person attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.

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<PAGE>

ARTICLE XIV

AMENDMENT OF BYLAWS

Section 1. GENERAL. Except as provided in Section 2 of this
-------
Article XIV, all Bylaws of the Corporation, whether adopted by the Board of
Directors or the stockholders, shall be subject to amendment, alteration or
repeal, and new Bylaws may be made, by the affirmative vote of a majority of
either:

(a) the holders of record of the outstanding shares of stock of
the Corporation entitled to vote, at any meeting, the notice or waiver of notice
of which shall have specified or summarized the proposed amendment, alteration,
repeal or new Bylaw; or

(b) the directors, at any regular or special meeting, the notice
or waiver of notice of which shall have specified or summarized the proposed
amendment, alteration, repeal or new Bylaw.

Section 2. BY STOCKHOLDERS ONLY.
--------------------

(a) No amendment of any Section of these Bylaws shall be made
except by the stockholders of the Corporation if the Bylaws provide that such
Section may not be amended, altered or repealed except by the stockholders.

(b) From and after the issuance of any shares of capital stock
of the Corporation, no amendment of this Article XIV shall be made except by the
stockholders of the Corporation.

-20-

<PAGE>

Exhibit 23(d)(2)(i)
-------------------

ADVISORY AGREEMENT

AGREEMENT made this 29th day of December, 1999, by and between LM
Institutional Advisors, Inc. ("Manager"), a Maryland corporation, and Western
Asset Management Company ("Western"), a California corporation, each of which is
registered as an investment adviser under the Investment Advisers Act of 1940,
as amended.

WHEREAS, the Manager is the manager of certain of the series of LM
Institutional Fund Advisors I, Inc. (the "Corporation"), an open-end, management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Government Money Market Portfolio ("Fund"), a series of the
Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

1. Appointment. The Manager hereby appoints Western as investment
-----------
adviser for the Fund for the period and on the terms set forth in this
Agreement. Western accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(a) The Corporation's Articles of Incorporation and all amendments
thereto (such Articles of Incorporation, as presently in effect and as they
shall from time to time be amended, are herein called the "Articles");

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

(c) Resolutions of the Corporation's Board of Directors (the
"Directors") authorizing the appointment of the Manager as the manager and
Western as investment adviser and approving the Investment Management Agreement
between the Manager and the Corporation
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(d) The Corporation's most recently filed Post-Effective Amendment to
its Registration Statement on Form N-1A under the Securities Act of 1933, as
amended, and the 1940 Act, including all exhibits thereto, relating to shares of
common stock of the Fund, par value $.001 per share;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

(f) The Fund's most recent statement of additional information (such
statement of additional information, as presently in effect, and all amendments
and supplements thereto are herein called the "Statement of Additional
Information").

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

3. Investment Advisory Services. (a) Subject to the supervision of the
----------------------------
Directors and the Manager, Western shall as requested by the Manager regularly
provide the Fund with investment research, advice, management and supervision
and shall furnish a continuous investment program for the Fund consistent with
the Fund's investment objectives, policies, and restrictions as stated in the
Fund's current Prospectus and Statement of Additional Information. Western shall
as requested by the Manager determine from time to time what securities or other
property will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the applicable rules and regulations of
the Securities and Exchange Commission, and other applicable federal and state
law, as well as the investment objectives, policies, and restrictions of the
Fund, as each of the foregoing may be amended from time to time. Western will as
requested by the Manager place orders pursuant to its investment determinations
for the Fund either directly with the issuer or with any broker, dealer or
futures commission merchant (collectively, a "broker"). In the selection of
brokers and the placing of orders for the purchase and sale of portfolio
investments for the Fund, Western shall seek to obtain for the Fund the most
favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and research
services as described below. In using its best efforts to obtain for the Fund
the most favorable price and execution available, Western, bearing in mind the
Fund's best interests at all times, shall consider all factors it deems
relevant, including, by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into consideration market prices and trends,
the reputation, experience and financial stability of the broker involved and
the quality of service rendered by the broker in other transactions. Subject to
such policies as the Directors may determine and communicate to Western in
writing, Western shall not be

-2-
<PAGE>

deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker that provides brokerage and research services to Western or any
affiliated person of Western an amount of commission for effecting a portfolio
investment transaction in excess of the amount of commission another broker
would have charged for effecting that transaction, if Western determines in good
faith that such amount of commission was reasonable in relation to the value of
the brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or Western's overall responsibilities with
respect to the Fund and to other clients of Western and any affiliated person of
Western as to which Western or any affiliated person of Western exercises
investment discretion. Western shall also perform such other functions of
management and supervision as may be requested by the Manager and agreed to by
Western.

(b) Western will as requested by the Manager oversee the maintenance of
all books and records with respect to the investment transactions of the Fund in
accordance with all applicable federal and state laws and regulations, and will
furnish the Directors with such periodic and special reports as the Directors or
the Manager reasonably may request.

(c) The Corporation hereby agrees that any entity or person associated
with Western (or with any affiliated person of Western) which is a member of a
national securities exchange is authorized to effect any transaction on such
exchange for the account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934, as amended, and Rule 11a2-2(T) thereunder, and
the Corporation hereby consents to the retention of compensation for such
transactions in accordance with Rule 11a2-2(T)(a)(2)(iv) or otherwise.

4. Services Not Exclusive. Western's services hereunder are not deemed
----------------------
to be exclusive, and Western shall be free to render similar services to others.
It is understood that persons employed by Western to assist in the performance
of its duties hereunder might not devote their full time to such service.
Nothing herein contained shall be deemed to limit or restrict the right of
Western or any affiliate of Western to engage in and devote time and attention
to other businesses or to render services of whatever kind or nature.

5. Books and Records. In compliance with the requirements of Rule 31a-3
-----------------
under the 1940 Act, Western hereby agrees that all books and records which it
maintains for the Fund are property of the Fund and further agrees to surrender
promptly to the Fund or its agents any of such records upon the Fund's request.
Western further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any such records required to be maintained by Rule 31a-1
under the 1940 Act.

6. Expenses. During the term of this Agreement, Western will pay all
--------
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities and other property (including brokerage
commissions, if any) purchased for the Fund.

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.20% of the average daily
net assets of the Fund. The average daily net assets of the Fund shall in all
cases be based only on business days and be computed as of the time of the
regular close of business of the New York Stock Exchange, or such other time as
may be determined by the Board of Directors of the Corporation. Fees due to
Western hereunder shall be paid promptly to Western by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

8. Limitation of Liability. In the absence of willful misfeasance, bad
-----------------------
faith or gross negligence on the part of Western, or reckless disregard of its
obligations and duties hereunder, Western shall not be subject to any liability
to the Manager, the Fund or any shareholder of the Fund, for any act or omission
in the course of, or connected with, rendering services hereunder.

9. Definitions. As used in this Agreement, the terms "assignment,"
-----------
"interested person," "affiliated person," and "majority of the outstanding
voting securities" shall have the meanings given to them by Section 2(a) of the
1940 Act, subject to such exemptions and interpretations as may be granted by
the Securities and Exchange Commission by any rule, regulation or order; the
term "specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act and the rules and regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.

10. Term. This Agreement shall become effective upon its execution,
----
and shall remain in full force and effect continuously thereafter (unless
terminated automatically as set forth in Section 12) until terminated as
follows:

a. The Corporation may at any time terminate this Agreement by
not more than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to the Manager and Western, or

b. If (i) the Directors or the shareholders of the Fund by
vote of a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors who are not interested persons of
the Corporation, the Manager or Western, by vote cast in person at a
meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the

-4-
<PAGE>

continuance of this Agreement is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Agreement as provided herein, Western may continue
to serve hereunder in a manner consistent with the 1940 Act and the
rules and regulations thereunder, or

c. The Manager may at any time terminate this Agreement by not
less than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to Western, and Western may at any time
terminate this Agreement by not less than 60 days' written notice
delivered or mailed by registered mail, postage prepaid, to the
Manager.

Action by the Corporation under paragraph (a) of this Section 10 may be
taken either (i) by vote of a majority of the Directors, or (ii) by the vote of
a majority of the outstanding voting securities of the Fund.

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

12. No Assignment; Amendments. This Agreement shall terminate
-------------------------
automatically in the event of its assignment or in the event that the Management
Agreement shall have terminated for any reason. Any termination of this
Agreement pursuant to Section 10 shall be without the payment of any penalty.
This Agreement shall not be amended unless such amendment is approved by the
vote of a majority of the outstanding voting securities of the Fund (provided
that such shareholder approval is required by the 1940 Act and the rules and
regulations thereunder, giving effect to any interpretations of the Securities
and Exchange Commission and its staff) and by the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
Directors who are not interested persons of the Corporation, the Manager or
Western.

13. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors.

14. Non-Exclusive Right. In the event this Agreement is terminated or
-------------------
upon written notice from Western at any time, the Corporation hereby agrees that
it will eliminate from the Fund's name any reference to the name of "Western."
The Corporation, on behalf of the Fund, shall have the non-exclusive use of the
name "Western" in whole or in part only so long as this Agreement is effective
or until such notice is given.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- -----------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- -----------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- -----------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(ii)
--------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Money Market Portfolio ("Fund"), a series of the Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

a. The Corporation may at any time terminate this Agreement by
not more than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
--------------------- ------------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
--------------------- ------------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
--------------------- ------------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(iii)
---------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Core Portfolio ("Fund"), a series of the Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.45% of the average daily
net assets of the Fund. The average daily net assets of the Fund shall in all
cases be based only on business days and be computed as of the time of the
regular close of business of the New York Stock Exchange, or such other time as
may be determined by the Board of Directors of the Corporation. Fees due to
Western hereunder shall be paid promptly to Western by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement by
not more than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

Fund for their approval and such shareholders fail to approve such
continuance of this Agreement as provided herein, Western may continue
to serve hereunder in a manner consistent with the 1940 Act and the
rules and regulations thereunder, or

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- ------------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- ------------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- ------------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(iv)
--------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Core Plus Portfolio ("Fund"), a series of the Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.45% of the average daily
net assets of the Fund that Western manages. The average daily net assets of the
Fund shall in all cases be based only on business days and be computed as of the
time of the regular close of business of the New York Stock Exchange, or such
other time as may be determined by the Board of Directors of the Corporation.
Fees due to Western hereunder shall be paid promptly to Western by the Manager
following its receipt of fees from the Fund. If this Agreement is terminated as
of any date not the last day of a calendar month, a final fee shall be paid
promptly after the date of termination and shall be based on the percentage of
days of the month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein,
Western may continue to serve hereunder in a manner consistent with the
1940 Act and the rules and regulations thereunder, or

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(v)
-------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Intermediate Portfolio ("Fund"), a series of the Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.40% of the average daily
net assets of the Fund. The average daily net assets of the Fund shall in all
cases be based only on business days and be computed as of the time of the
regular close of business of the New York Stock Exchange, or such other time as
may be determined by the Board of Directors of the Corporation. Fees due to
Western hereunder shall be paid promptly to Western by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(vi)
--------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Intermediate Plus Portfolio ("Fund"), a series of the Corporation;
and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.40% of the average daily
net assets of the Fund that Western manages. The average daily net assets of the
Fund shall in all cases be based only on business days and be computed as of the
time of the regular close of business of the New York Stock Exchange, or such
other time as may be determined by the Board of Directors of the Corporation.
Fees due to Western hereunder shall be paid promptly to Western by the Manager
following its receipt of fees from the Fund. If this Agreement is terminated as
of any date not the last day of a calendar month, a final fee shall be paid
promptly after the date of termination and shall be based on the percentage of
days of the month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(vii)
---------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset High Yield Portfolio ("Fund"), a series of the Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.55% of the average daily
net assets of the Fund. The average daily net assets of the Fund shall in all
cases be based only on business days and be computed as of the time of the
regular close of business of the New York Stock Exchange, or such other time as
may be determined by the Board of Directors of the Corporation. Fees due to
Western hereunder shall be paid promptly to Western by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(viii)
----------------------

ADVISORY AGREEMENT

AGREEMENT made this 29th day of December, 1999, by and between LM
Institutional Advisors, Inc. ("Manager"), a Maryland corporation, and Western
Asset Global Management Limited ("WAGM"), a corporation organized under the laws
of the United Kingdom, each of which is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended.

WHEREAS, the Manager wishes to retain WAGM to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Non-U.S. Fixed Income Portfolio ("Fund"), a series of the
Corporation; and

WHEREAS, WAGM is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

1. Appointment. The Manager hereby appoints WAGM as investment
-----------
adviser for the Fund for the period and on the terms set forth in this
Agreement. WAGM accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.

2. Delivery of Documents. The Manager has furnished WAGM with copies
---------------------
of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

(c) Resolutions of the Corporation's Board of Directors (the
"Directors") authorizing the appointment of the Manager as the manager and WAGM
as investment adviser and approving the Investment Management Agreement between
the Manager and the Corporation

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish WAGM from time to time with copies of all amendments of
or supplements to the foregoing.

3. Investment Advisory Services. (a) Subject to the supervision of the
----------------------------
Directors and the Manager, WAGM shall as requested by the Manager regularly
provide the Fund with investment research, advice, management and supervision
and shall furnish a continuous investment program for the Fund consistent with
the Fund's investment objectives, policies, and restrictions as stated in the
Fund's current Prospectus and Statement of Additional Information. WAGM shall as
requested by the Manager determine from time to time what securities or other
property will be purchased, retained or sold by the Fund, and shall implement
those decisions, all subject to the provisions of the Corporation's Articles of
Incorporation and By-Laws, the 1940 Act, the applicable rules and regulations of
the Securities and Exchange Commission, and other applicable federal and state
law, as well as the investment objectives, policies, and restrictions of the
Fund, as each of the foregoing may be amended from time to time. WAGM will as
requested by the Manager place orders pursuant to its investment determinations
for the Fund either directly with the issuer or with any broker, dealer or
futures commission merchant (collectively, a "broker"). In the selection of
brokers and the placing of orders for the purchase and sale of portfolio
investments for the Fund, WAGM shall seek to obtain for the Fund the most
favorable price and execution available, except to the extent it may be
permitted to pay higher brokerage commissions for brokerage and research
services as described below. In using its best efforts to obtain for the Fund
the most favorable price and execution available, WAGM, bearing in mind the
Fund's best interests at all times, shall consider all factors it deems
relevant, including, by way of illustration, price, the size of the transaction,
the nature of the market for the security, the amount of the commission, the
timing of the transaction taking into consideration market prices and trends,
the reputation, experience and financial stability of the broker involved and
the quality of service rendered by the broker in other transactions. Subject to
such policies as the Directors may determine and communicate to WAGM in writing,
WAGM shall not be

-2-
<PAGE>

deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker that provides brokerage and research services to WAGM or any affiliated
person of WAGM an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker would have
charged for effecting that transaction, if WAGM determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or WAGM's overall responsibilities with
respect to the Fund and to other clients of WAGM and any affiliated person of
WAGM as to which WAGM or any affiliated person of WAGM exercises investment
discretion. WAGM shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by WAGM.

(b) WAGM will as requested by the Manager oversee the maintenance of
all books and records with respect to the investment transactions of the Fund in
accordance with all applicable federal and state laws and regulations, and will
furnish the Directors with such periodic and special reports as the Directors or
the Manager reasonably may request.

(c) The Corporation hereby agrees that any entity or person associated
with WAGM (or with any affiliated person of WAGM) which is a member of a
national securities exchange is authorized to effect any transaction on such
exchange for the account of the Fund which is permitted by Section 11(a) of the
Securities Exchange Act of 1934, as amended, and Rule 11a2-2(T) thereunder, and
the Corporation hereby consents to the retention of compensation for such
transactions in accordance with Rule 11a2-2(T)(a)(2)(iv) or otherwise.

4. Services Not Exclusive. WAGM's services hereunder are not deemed to
----------------------
be exclusive, and WAGM shall be free to render similar services to others. It is
understood that persons employed by WAGM to assist in the performance of its
duties hereunder might not devote their full time to such service. Nothing
herein contained shall be deemed to limit or restrict the right of WAGM or any
affiliate of WAGM to engage in and devote time and attention to other businesses
or to render services of whatever kind or nature.

5. Books and Records. In compliance with the requirements of Rule 31a-3
-----------------
under the 1940 Act, WAGM hereby agrees that all books and records which it
maintains for the Fund are property of the Fund and further agrees to surrender
promptly to the Fund or its agents any of such records upon the Fund's request.
WAGM further agrees to preserve for the periods prescribed by Rule 31a-2 under
the 1940 Act any such records required to be maintained by Rule 31a-1 under the
1940 Act.

6. Expenses. During the term of this Agreement, WAGM will pay all
--------
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities and other property (including brokerage
commissions, if any) purchased for the Fund.

-3-
<PAGE>

7. Compensation. For the services which WAGM will render to the Manager
------------
and the Fund under this Agreement, the Manager will pay WAGM a fee, computed
daily and paid monthly, at an annual rate of 0.45% of the average daily net
assets of the Fund. The average daily net assets of the Fund shall in all cases
be based only on business days and be computed as of the time of the regular
close of business of the New York Stock Exchange, or such other time as may be
determined by the Board of Directors of the Corporation. Fees due to WAGM
hereunder shall be paid promptly to WAGM by the Manager following its receipt of
fees from the Fund. If this Agreement is terminated as of any date not the last
day of a calendar month, a final fee shall be paid promptly after the date of
termination and shall be based on the percentage of days of the month during
which the contract was still in effect.

8. Limitation of Liability. In the absence of willful misfeasance, bad
-----------------------
faith or gross negligence on the part of WAGM, or reckless disregard of its
obligations and duties hereunder, WAGM shall not be subject to any liability to
the Manager, the Fund or any shareholder of the Fund, for any act or omission in
the course of, or connected with, rendering services hereunder.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and WAGM, or

b. If (i) the Directors or the shareholders of the Fund by
vote of a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors who are not interested persons of
the Corporation, the Manager or WAGM, by vote cast in person at a
meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date of the last such
continuance, whichever is later; provided, however, that if the

-4-
<PAGE>

continuance of this Agreement is submitted to the shareholders of the
Fund for their approval and such shareholders fail to approve such
continuance of this Agreement as provided herein, WAGM may continue to
serve hereunder in a manner consistent with the 1940 Act and the rules
and regulations thereunder, or

c. The Manager may at any time terminate this Agreement by not
less than 60 days' written notice delivered or mailed by registered
mail, postage prepaid, to WAGM, and WAGM may at any time terminate this
Agreement by not less than 60 days' written notice delivered or mailed
by registered mail, postage prepaid, to the Manager.

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

14. Non-Exclusive Right. In the event this Agreement is terminated or
-------------------
upon written notice from WAGM at any time, the Corporation hereby agrees that it
will eliminate from the Fund's name any reference to the name of "WAGM." The
Corporation, on behalf of the Fund, shall have the non-exclusive use of the name
"WAGM" in whole or in part only so long as this Agreement is effective or until
such notice is given.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET GLOBAL MANAGEMENT LIMITED

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(ix)
--------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Global Strategic Income Portfolio ("Fund"), a series of the
Corporation; and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.45% of the average daily
net assets of the Fund that Western manages. The average daily net assets of the
Fund shall in all cases be based only on business days and be computed as of the
time of the regular close of business of the New York Stock Exchange, or such
other time as may be determined by the Board of Directors of the Corporation.
Fees due to Western hereunder shall be paid promptly to Western by the Manager
following its receipt of fees from the Fund. If this Agreement is terminated as
of any date not the last day of a calendar month, a final fee shall be paid
promptly after the date of termination and shall be based on the percentage of
days of the month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(x)
-------------------

ADVISORY AGREEMENT

WHEREAS, the Manager wishes to retain Western to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Enhanced Equity Portfolio ("Fund"), a series of the Corporation;
and

WHEREAS, Western is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished Western with
---------------------
copies of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish Western from time to time with copies of all amendments
of or supplements to the foregoing.

-2-
<PAGE>

-3-
<PAGE>

7. Compensation. For the services which Western will render to the
------------
Manager and the Fund under this Agreement, the Manager will pay Western a fee,
computed daily and paid monthly, at an annual rate of 0.55% of the average daily
net assets of the Fund. The average daily net assets of the Fund shall in all
cases be based only on business days and be computed as of the time of the
regular close of business of the New York Stock Exchange, or such other time as
may be determined by the Board of Directors of the Corporation. Fees due to
Western hereunder shall be paid promptly to Western by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and Western, or

-4-
<PAGE>

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET MANAGEMENT COMPANY

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(xi)
--------------------

ADVISORY AGREEMENT

AGREEMENT made this 29th day of December, 1999, by and between LM
Institutional Advisors, Inc. ("Manager"), a Maryland corporation, and Western
Asset Global Management Limited ("WAGM"), a United Kingdom corporation, each of
which is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended.

WHEREAS, the Manager wishes to retain WAGM to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Core Plus Portfolio ("Fund"), a series of the Corporation; and

WHEREAS, WAGM is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished WAGM with copies
---------------------
of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish WAGM from time to time with copies of all amendments of
or supplements to the foregoing.

-2-
<PAGE>

deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker that provides brokerage and research services to WAGM or any affiliated
person of WAGM an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker would have
charged for effecting that transaction, if WAGM determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or WAGM's overall responsibilities with
respect to the Fund and to other clients of WAGM and any affiliated person of
WAGM as to which WAGM or any affiliated person of WAGM exercises investment
discretion. WAGM shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by WAGM.

-3-
<PAGE>

7. Compensation. For the services which WAGM will render to the Manager
------------
and the Fund under this Agreement, the Manager will pay WAGM a fee, computed
daily and paid monthly, at an annual rate of 0.45% of the average daily net
assets of the Fund that WAGM manages. The average daily net assets of the Fund
shall in all cases be based only on business days and be computed as of the time
of the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Board of Directors of the Corporation. Fees due
to WAGM hereunder shall be paid promptly to WAGM by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and WAGM, or

b. If (i) the Directors or the shareholders of the Fund by
vote of a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors who are not interested persons of
the Corporation, the Manager or WAGM, by vote cast in person at a
meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date

-4-
<PAGE>

of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, WAGM
may continue to serve hereunder in a manner consistent with the 1940
Act and the rules and regulations thereunder, or

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET GLOBAL MANAGEMENT LIMITED

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(xii)
---------------------

ADVISORY AGREEMENT

AGREEMENT made this 29th day of December, 1999, by and between LM
Institutional Advisors, Inc. ("Manager"), a Maryland corporation, and Western
Asset Global Management Limited ("WAGM"), a United Kingdom corporation, each of
which is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended.

WHEREAS, the Manager wishes to retain WAGM to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Intermediate Plus Portfolio ("Fund"), a series of the Corporation;
and

WHEREAS, WAGM is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

2. Delivery of Documents. The Manager has furnished WAGM with copies
---------------------
of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish WAGM from time to time with copies of all amendments of
or supplements to the foregoing.

-2-
<PAGE>

deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker that provides brokerage and research services to WAGM or any affiliated
person of WAGM an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker would have
charged for effecting that transaction, if WAGM determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or WAGM's overall responsibilities with
respect to the Fund and to other clients of WAGM and any affiliated person of
WAGM as to which WAGM or any affiliated person of WAGM exercises investment
discretion. WAGM shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by WAGM.

-3-
<PAGE>

7. Compensation. For the services which WAGM will render to the Manager
------------
and the Fund under this Agreement, the Manager will pay WAGM a fee, computed
daily and paid monthly, at an annual rate of 0.40% of the average daily net
assets of the Fund that WAGM manages. The average daily net assets of the Fund
shall in all cases be based only on business days and be computed as of the time
of the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Board of Directors of the Corporation. Fees due
to WAGM hereunder shall be paid promptly to WAGM by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and WAGM, or

b. If (i) the Directors or the shareholders of the Fund by
vote of a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors who are not interested persons of
the Corporation, the Manager or WAGM, by vote cast in person at a
meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date

-4-
<PAGE>

of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, WAGM
may continue to serve hereunder in a manner consistent with the 1940
Act and the rules and regulations thereunder, or

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET GLOBAL MANAGEMENT LIMITED

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(d)(2)(xiii)
----------------------

ADVISORY AGREEMENT

AGREEMENT made this 29th day of December, 1999, by and between LM
Institutional Advisors, Inc. ("Manager"), a Maryland corporation, and Western
Asset Global Management Limited ("WAGM"), a United Kingdom corporation, each of
which is registered as an investment adviser under the Investment Advisers Act
of 1940, as amended.

WHEREAS, the Manager wishes to retain WAGM to provide certain
investment advisory services in connection with the Manager's management of
Western Asset Global Strategic Income Portfolio ("Fund"), a series of the
Corporation; and

WHEREAS, WAGM is willing to furnish such services on the terms and
conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

1. Appointment. The Manager hereby appoints WAGM as investment adviser
-----------
for the Fund for the period and on the terms set forth in this Agreement. WAGM
accepts such appointment and agrees to furnish the services herein set forth for
the compensation herein provided.

2. Delivery of Documents. The Manager has furnished WAGM with copies
---------------------
of each of the following:

(b) The Corporation's By-Laws and all amendments thereto (such By-Laws,
as presently in effect and as they shall from time to time be amended, are
herein called the "By-Laws");

-1-
<PAGE>

with respect to the Fund dated May 26, 1998 (the "Management Agreement") and
this Agreement;

(e) The Fund's most recent prospectus (such prospectus, as presently in
effect, and all amendments and supplements thereto are herein called the
"Prospectus"); and

The Manager will furnish WAGM from time to time with copies of all amendments of
or supplements to the foregoing.

-2-
<PAGE>

deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Fund to pay a
broker that provides brokerage and research services to WAGM or any affiliated
person of WAGM an amount of commission for effecting a portfolio investment
transaction in excess of the amount of commission another broker would have
charged for effecting that transaction, if WAGM determines in good faith that
such amount of commission was reasonable in relation to the value of the
brokerage and research services provided by such broker, viewed in terms of
either that particular transaction or WAGM's overall responsibilities with
respect to the Fund and to other clients of WAGM and any affiliated person of
WAGM as to which WAGM or any affiliated person of WAGM exercises investment
discretion. WAGM shall also perform such other functions of management and
supervision as may be requested by the Manager and agreed to by WAGM.

-3-
<PAGE>

7. Compensation. For the services which WAGM will render to the Manager
------------
and the Fund under this Agreement, the Manager will pay WAGM a fee, computed
daily and paid monthly, at an annual rate of 0.45% of the average daily net
assets of the Fund that WAGM manages. The average daily net assets of the Fund
shall in all cases be based only on business days and be computed as of the time
of the regular close of business of the New York Stock Exchange, or such other
time as may be determined by the Board of Directors of the Corporation. Fees due
to WAGM hereunder shall be paid promptly to WAGM by the Manager following its
receipt of fees from the Fund. If this Agreement is terminated as of any date
not the last day of a calendar month, a final fee shall be paid promptly after
the date of termination and shall be based on the percentage of days of the
month during which the contract was still in effect.

a. The Corporation may at any time terminate this Agreement
by not more than 60 days' written notice delivered or mailed by
registered mail, postage prepaid, to the Manager and WAGM, or

b. If (i) the Directors or the shareholders of the Fund by
vote of a majority of the outstanding voting securities of the Fund,
and (ii) a majority of the Directors who are not interested persons of
the Corporation, the Manager or WAGM, by vote cast in person at a
meeting called for the purpose of voting on such approval, do not
specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on the second anniversary of its execution, or upon
the expiration of one year from the effective date

-4-
<PAGE>

of the last such continuance, whichever is later; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Fund for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, WAGM
may continue to serve hereunder in a manner consistent with the 1940
Act and the rules and regulations thereunder, or

11. Further Actions. Each party agrees to perform such further acts
---------------
and execute such further documents as are necessary to effectuate the purposes
hereof.

-5-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.

LM INSTITUTIONAL ADVISORS, INC.

Attest:

By: By:
-------------------- --------------------------------
WESTERN ASSET GLOBAL MANAGEMENT LIMITED

Attest:

By: By:
-------------------- --------------------------------

The foregoing is accepted by:

LM INSTITUTIONAL FUND ADVISORS I, INC.

Attest:

By: By:
-------------------- --------------------------------

-6-

<PAGE>

Exhibit 23(e)(2)(i)
-------------------

AGREEMENT

This AGREEMENT is made as of the 26th day of May, 1998, by and between LM
Institutional Fund Advisors I, Inc., a Maryland corporation (the "Corporation"),
and Arroyo Seco, Inc., a California corporation (the "Broker").

WHEREAS, the Corporation has filed a registration statement with the
Securities and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), and the Securities Act of 1933, as amended (the "1933
Act"), and has registered certain of its securities under the provisions of
various state securities laws; and

WHEREAS, the Corporation offers for public sale securities in each series
listed on Schedule A hereto (each a "Series"), may offer securities of other
series for public sale from time to time, and may offer each Series in one or
more classes of shares; and

WHEREAS, the Broker, a wholly-owned subsidiary of Western Asset Management
Company, the investment adviser to certain of the Series, wishes to offer the
Corporation's securities for sale to its customers; and

WHEREAS, the Corporation desires to authorize the Broker to offer the
Corporation's securities for sale, subject to certain terms and conditions set
forth in this Agreement, and without any payment by the Corporation;

NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:

1. The Broker is hereby authorized to offer to its customers the securities
of the Corporation (the "Shares") for sale. Any such offer or sale shall comply
in full with the terms set forth in the then effective Prospectus or Statement
of Additional Information of the Corporation or the applicable Series. The
Broker shall comply with all applicable federal and state laws, and rules
promulgated by self-regulatory organizations. The Corporation shall not make any
payment to the Broker in connection with the offer or sale of Shares or any
other service provided hereunder.

2. The public offering price of the Shares shall be the net asset value per
share (as determined by the Corporation) of the outstanding Shares of the
relevant class of the Series. The Broker shall not collect any commission or
other fee in connection with the offer or sale of the Shares.

3. The Broker shall transmit any funds received from the Broker's customers
to the Corporation's transfer agent by wire transfer no later than the next
business day following placement of an order to purchase Shares.
<PAGE>

4. In connection with sales and offers of Shares, the Broker shall give
only such information and make only such statements or representations as are
contained in the Prospectus, Statement of Additional Information, or in
information furnished in writing to the Broker by the Corporation, and the
Corporation shall not be responsible in any way for any other information,
statements or representations given or made by the Broker or its representatives
or agent. As used in this Agreement, the terms "Prospectus" and "Statement of
Additional Information" shall mean, respectively, the form of prospectus and
statement of additional information filed by the Corporation with the Securities
and Exchange Commission as part of its registration statement or otherwise under
the 1940 Act and the 1933 Act, as amended from time to time ("Registration
Statement").

5. The Broker will only place purchase orders for Shares registered under
the 1940 Act and the 1933 Act, and qualified (or exempt from qualification
requirements) for sale in the state where the customer resides. The Corporation
shall advise the Broker immediately if any such registration or qualification is
terminated or suspended.

6. The Corporation reserves the right at any time to withdraw all offerings
of the Shares or any or all Series by written notice to the Broker at its
principal office.

7. The Broker agrees to act as agent for the Corporation to receive and
transmit promptly to the Corporation's transfer agent requests for redemption of
Shares.

8. The Corporation agrees to set forth in its Prospectus the name of the
Broker and a telephone number provided by the Broker, and therein to indicate
that the Broker will sell Shares of the Corporation at no additional cost to the
prospective shareholder.

9. The Corporation shall at its own expense provide all customers of the
Broker who become shareholders in the Corporation all materials provided to all
shareholders of record in the Corporation, including without limitation annual
reports and updated Prospectuses.

10. The Broker shall maintain records of expenditures separate and apart
from those of Western Asset Management Company. The Corporation shall be
entitled to examine such records at any time, or from time to time, for the
purpose of excluding such expenditures from any determination of the fees to be
paid by the Corporation to Western Asset Management Company for investment
advisory services.

11. The Broker is an independent contractor and shall be an agent for the
Corporation only in respect to the sale and redemption of the Shares.

12. The services of the Broker to the Corporation under this Agreement are
not to be deemed exclusive. The Broker shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby. The Corporation shall be free, in its sole discretion, to distribute
its own Shares to prospective investors, to make agreements with other broker-
dealers with respect to distribution of Shares, and to repurchase its Shares
from investors, without utilizing or notifying the Broker.

-2-
<PAGE>

13. The Corporation is responsible for (i) the compliance of each
Prospectus, or other material provided by the Corporation to the Broker for
distribution to its customers, will all applicable laws, rules and regulations,
(ii) the registration or qualification of all Shares under all applicable
federal and state laws, except to the extent the failure to so comply by the
Corporation is caused by the Broker's failure to comply with applicable laws,
rules and regulations or its failure to satisfy applicable terms of this
Agreement.

14. Subject to paragraphs 15, 16 and 17 below, this Agreement shall remain
in effect for one year from the date of its execution and from year to year
thereafter.

15. This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time with respect to some or all of the
Series without the payment of any penalty by the Corporation or by the Broker on
sixty (60) days' written notice to the other party. The Corporation may effect
such termination by action of its executive officers or by a vote of (i) a
majority of its directors, (ii) a majority of its directors who are not
interested persons of the Corporation and who have no direct or indirect
financial interest in the operation of this Agreement or any agreement between
the Corporation and Western Asset Management Company (the "Disinterested
Directors"), or (iii) a majority of the outstanding voting securities of the
Corporation or the relevant Series, as the case may be.

16. This Agreement shall be submitted for approval to the Corporation's
Board of Directors at least annually and shall continue in effect only so long
as specifically approved at least annually (i) by a majority vote of the
Corporation's Board of Directors, and (ii) by a vote of the majority of the
Disinterested Directors, cast in person at a meeting called for the purpose of
voting on such approval.

17. The effectiveness of this Agreement is specifically conditioned on the
Broker: (i) being accepted for Membership into the National Association of
Securities Dealers, Inc. ("NASD"), and (ii) registering as a broker or dealer in
no less than twenty (20) states or territories. In the event that the Broker's
membership in the NASD is suspended or terminated, or if the Broker shall be
registered at any time in fewer than twenty (20) states or territories, this
Agreement shall automatically terminate upon the occurrence of such event.

18. As used in this Agreement, the terms "assignment", "interested persons",
and "majority of the outstanding voting securities" shall have the meanings
given to them by Section 2(a) of the 1940 Act, subject to such exemptions as may
be granted by the Securities and Exchange Commission by any rule, regulation or
order.

-3-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers thereunder duly authorized as of the date first set
forth above.

Attest: LM INSTITUTIONAL FUND ADVISOR I, INC.

By: By:
--------------------- ------------------------------------

Attest: ARROYO SECO, INC.

By: By:
--------------------- ------------------------------------

-4-
<PAGE>

SCHEDULE A

Series of LM INSTITUTIONAL FUND ADVISORS I, INC.
to which Agreement Applies

<TABLE>
<CAPTION>
Portfolio and Class* Date Subject to Agreement
- -------------------- -------------------------
<S> <C>
Western Asset Core Portfolio May 26, 1998
Western Asset Core Plus Portfolio May 26, 1998
Western Asset Non-U.S. Fixed Income Portfolio May 26, 1998
Western Asset Intermediate Portfolio May 26, 1998
Western Asset Intermediate Plus Portfolio May 26, 1998
Western Asset Limited Duration Portfolio May 26, 1998
Western Asset Enhanced Equity Portfolio May 26, 1998
Western Asset Money Market Portfolio May 26, 1998
Western Asset U.S. Government Money Market Portfolio May 26, 1998
Western Asset High Yield Portfolio May 26, 1998
Western Asset Global Strategic Income Portfolio May 26, 1998
International Securities Portfolio May 26, 1998
</TABLE>

*Unless otherwise indicated, each Portfolio listed includes all Classes offered
by that Portfolio. Each Portfolio, other than the International Securities
Portfolio, is authorized to be issued in two classes, the Institutional Class
and the Financial Intermediary Class.

<PAGE>

Exhibit 23(o)
-------------

LM INSTITUTIONAL FUND ADVISORS I, INC.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that James W. Hirschman constitutes and
appoints Lisa G. Hathaway and Ilene S. Harker, as his true and lawful attorneys-
in-fact and agents, each acting alone, with full powers of substitution, for him
in his name, place and stead, in any and all capacities, to sign any or all
post-effective amendments to this Registration Statement of LM Institutional
Fund Advisors I, Inc., and to file the same, with all exhibits thereto, and all
other documents in connection therewith (File Nos. 33-34929 and 811-06110)
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or her substitute may lawfully do or
cause to be done by virtue hereof.

Signature Title Date
- --------- ----- ----

/s/ James W. Hirschman President April 12, 2000
- ----------------------
James W. Hirschman

<PAGE>

Exhibit 23(p)(1)
----------------

[LEGG MASON LOGO]

LEGG MASON
FUNDS
CODE OF ETHICS

Dated: April 1, 2000
<PAGE>

TABLE OF CONTENTS

Topic Page
----- ----

I. Introduction 1

A. Individuals and Entities Covered by the Code 1

B. Fiduciary Duty 1

1. The Funds Come First 1
2. Avoid Taking Advantage 1
3. Comply with the Code 1

C. Application of the Code to Independent Fund Directors 1

II. Personal Securities Transactions 2

A. Preclearance Requirements for Access Persons 2

1. General Requirement 2
2. Trade Authorization Request Forms 2
3. Review of Form 2
4. Length of Trade Authorization Approval 3
5. No Explanation Required for Refusals 3

B. Execution of Personal Securities Transactions 3

C. Prohibited Transactions 3

1. Always Prohibited Securities Transactions 3

a. Inside Information 3
b. Market Manipulation 4
c. Others 4

2. Generally Prohibited Securities Transactions 4

a. Initial Public Offerings
(Investment Personnel only) 4
b. One Day Blackout
(all Access Persons) 4
<PAGE>

c. Seven-Day Blackout
(Portfolio Managers only) 4
d. 60-Day Blackout (Investment
Personnel only) 4
e. Private Placements (Investment
Personnel only) 5

D. Exemptions 5

1. Exemptions from Preclearance and Treatment as
a Prohibited Transaction 5

a. Mutual Funds 5
b. No Knowledge 5
c. Legg Mason, Inc. Stock 6
d. Certain Corporate Actions 6
e. Systematic Investment Plans 6
f. Option-Related Activity 6
g. Commodities, Futures, and Options
on Futures 6
h. Rights 6
i. Miscellaneous 6

2. Exemption from Treatment as a Prohibited Transaction 7

a. Employer of Access Person Does
Not Make Investment Decisions
For the Relevant Fund 7

b. De Minimis Transactions 7

i. Equity Securities 7
ii. Fixed Income Securities 7

c. Options on Broad-Based Indices 7

E. Reporting Requirements 8

1. Initial and Periodic Disclosure of Personal Holdings
by Access Persons 8
2. Transaction and Periodic Statement Reporting
Requirements 8
3. Independent Fund Directors 8
<PAGE>

4. Disclaimers 9
5. Availability of Reports 9

III. Fiduciary Duties 9

A. Confidentiality 9

B. Gifts 9

1. Accepting Gifts 9
2. Solicitation of Gifts 10
3. Giving Gifts 10

C. Corporate Opportunities 10

D. Undue Influence 10

E. Service as a Director 10

IV. Compliance with the Code of Ethics 11

A. Code of Ethics Review Committee 11

1. Membership, Voting and Quorum 11
2. Investigating Violations of the Code 11
3. Annual Reports 11

B. Remedies 12

1. Sanctions 12
2. Sole Authority 12
3. Review 12

C. Exceptions to the Code 12

D. Inquiries Regarding the Code 13

V. Definitions 13

"Access Person" 13
"Appropriate Compliance Department" 13
"Batterymarch" 14
"Beneficial Interest" 14
"Brandywine" 14
<PAGE>

"Code" 15
"Equivalent Security" 15
"Fund Adviser" 15
"Gray Seifert" 15
"Immediate Family" 15
"Independent Fund Director" 15
"Investment Personnel" and "Investment Person" 15
"Legal and Compliance Department" 15
"Legg Mason Fund" and "Fund" 16
"Lombard Odier" 16
"Portfolio Manager" 16
"Preclearance Officer" 16
"Securities Transaction" 16
"Security" 16
"Western Asset" 16
"Western Asset Limited" 16

VI. Appendices to the Code 16

Appendix 1 - Contact Persons and List of Legg Mason Funds i
Appendix 2 - Acknowledgement of Receipt of Code of Ethics
and Personal Holdings Report iii
Appendix 3 - Trade Authorization Request for Access Persons v
Appendix 4 - Certification of Access Person's Designee vi
Appendix 5 - Acknowledgement of Receipt of Code of Ethics
(Independent Fund Directors) vii
Appendix 6 - Form Letter to Broker, Dealer or Bank viii
Appendix 7 - Certification of No Beneficial Interest ix
<PAGE>

I. INTRODUCTION
------------

A. Individuals and Entities Covered by the Code. Unless the use of
--------------------------------------------
another Code of Ethics has been approved in writing by the Legal and Compliance
Department, all Access Persons/1/ are subject to the provisions of this Code.
(See Section I.C. for information regarding the application of the Code to
---
Independent Fund Directors).

B. Fiduciary Duty. The Code is based on the principle that Access Persons
--------------
owe a fiduciary duty to the Legg Mason Funds and must avoid activities,
interests and relationships that might interfere with making decisions in the
best interests of any of the Funds.

As fiduciaries, Access Persons must at all times comply with the following
principles:

1. The Funds Come First. Access Persons must scrupulously avoid
--------------------
serving their personal interests ahead of the interests of the
Legg Mason Funds. An Access Person may not induce or cause a
Fund to take action, or not to take action, for the Access
Person's personal benefit, rather than for the benefit of the
Fund. For example, an Access Person would violate this Code by
causing a Fund to purchase a Security the Access Person owned for
the purpose of increasing the price of that Security.

2. Avoid Taking Advantage. Access Persons may not use their
----------------------
knowledge of open, executed, or pending portfolio transactions to
profit by the market effect of such transactions. Receipt of
investment opportunities, perquisites, or gifts from persons
seeking business with a Legg Mason Fund or a Fund Adviser could
call into question the exercise of an Access Person's independent
judgment.

3. Comply With the Code. Doubtful situations should be resolved in
--------------------
favor of the Legg Mason Funds. Technical compliance with the
Code's procedures will not automatically insulate from scrutiny
any Securities Transactions that indicate an abuse of fiduciary
duties.

C. Application of the Code to Independent Fund Directors. This Code
-----------------------------------------------------
applies to Independent Fund Directors and requires Independent Fund Directors to
report certain Securities Transactions in which they have a Beneficial Interest
to the Legal and Compliance Department in accordance with Section II.E.4.
However, provisions of the Code requiring preclearance of trades (Section
II.A.), execution of personal trades through Legg Mason (Section II.B.),
prohibited transactions (Section II.C.), disclosure of personal holdings,

- ----------------
/1/ Capitalized words are defined in Section V (Definitions).

1
<PAGE>

transactions and accounts (Sections II.E.1, and 2), receipt of gifts (Section
III.B.), and restrictions on serving as a director of a publicly-traded company
(Section III.E.) do not apply to Independent Fund Directors.

II. PERSONAL SECURITIES TRANSACTIONS
--------------------------------

A. Preclearance Requirements for Access Persons.
---------------------------------------------

1. General Requirement. Except for the transactions specified in
-------------------
Section II.D.1, any Securities Transaction in which an Access
Person has or acquires a Beneficial Interest must be precleared
with a Preclearance Officer.

2. Trade Authorization Request Forms. Prior to entering an order
---------------------------------
for a Securities Transaction that requires preclearance, the
Access Person must complete a Trade Authorization Request form
(Appendix 3) and submit the completed form to a Preclearance
Officer. The form requires Access Persons to provide certain
information and to make certain representations.

In the event an Access Person is unable to complete a Trade
Authorization Request form, the Access Person may designate
another individual to complete the form on his or her behalf.
The Access Person's designee should complete the Trade
Authorization Request form and the Certification of Access
---
Person's Designee (Appendix 4) and submit both forms to a
Preclearance Officer.

Proposed Securities Transactions of a Preclearance Officer that
require preclearance must be submitted to another Preclearance
Officer.

3. Review of Form. After receiving a completed Trade Authorization
--------------
Request form, a Preclearance Officer will (a) review the
information set forth in the form, (b) review information
regarding past, pending, and contemplated transactions by any
relevant Fund, as necessary, and (c) as soon as reasonably
practicable, determine whether to authorize the proposed
Securities Transaction. The granting of authorization, and the
date and time that authorization was granted, must be reflected
on the form. The Preclearance Officer should keep one copy of
the completed form for the Appropriate Compliance Department and
provide one copy to the Access Person seeking authorization.

2
<PAGE>

No order for a securities transaction for which preclearance
authorization is required may be placed prior to the receipt of
written authorization of the transaction by a preclearance
-------
officer. Verbal approvals are not permitted.

4. Length of Trade Authorization Approval. The authorization
--------------------------------------
provided by a Preclearance Officer is effective until the earlier
of (1) its revocation, (2) the close of business on the trading
day after the authorization is granted (for example, if
authorization is provided on a Monday, it is effective until the
close of business on Tuesday), or (3) the moment the Access
Person learns that the information in the Trade Authorization
Request form is not accurate. If the order for the Securities
Transaction is not placed within that period, a new authorization
must be obtained before the Securities Transaction is placed. If
the Securities Transaction is placed but has not been executed
before the authorization expires (as, for example, in the case of
a limit order), no new authorization is necessary unless the
person placing the original order for the Securities Transaction
amends it in any way, or learns that the information in the Trade
Authorization Request form is not accurate.

5. No Explanation Required for Refusals. In some cases, a
------------------------------------
Preclearance Officer may refuse to authorize a Securities
Transaction for a reason that is confidential. Preclearance
Officers are not required to give an explanation for refusing to
authorize any Securities Transaction.

B. Execution of Personal Securities Transactions. Unless an exception is
---------------------------------------------
provided in writing by the Legal and Compliance Department, all transactions in
Securities subject to the preclearance requirements shall be executed through
Legg Mason Wood Walker, Incorporated. Notwithstanding the foregoing,
transactions in Securities subject to the preclearance requirements effected by
employees of Batterymarch, Brandywine, Gray Seifert, Lombard Odier, Western
Asset, and Western Asset Limited may be executed through any broker, dealer,
bank, or mutual fund so long as the requirements of Section II.E.2. (Transaction
Reporting Requirements) are met.

C. Prohibited Transactions.
-----------------------

1. Always Prohibited Securities Transactions. The following
-----------------------------------------
Securities Transactions are prohibited and will not be authorized
under any circumstances:

a. Inside Information. Any transaction in a Security by an
------------------
individual who possesses material nonpublic information
regarding the Security or the issuer of the Security;

3
<PAGE>

b. Market Manipulation. Transactions intended to raise, lower,
-------------------
or maintain the price of any Security or to create a false
appearance of active trading;

c. Others. Any other transaction deemed by the Preclearance
------
Officer to involve a conflict of interest, possible
diversions of corporate opportunity, or an appearance of
impropriety.

2. Generally Prohibited Securities Transactions. Unless exempted by
--------------------------------------------
Section II.D, the following Securities Transactions are
prohibited and will not be authorized by a Preclearance Officer
absent exceptional circumstances. The prohibitions apply only to
the categories of Access Persons specified.

a. Initial Public Offerings (Investment Personnel only). Any
-----------------------------------------------------
purchase of a Security by Investment Personnel in an initial
public offering (other than a new offering of a registered
open-end investment company);

b. One Day Blackout (all Access Persons). Any purchase or sale
-------------------------------------
of a Security by an Access Person on any day during which
any Fund has a pending buy or sell order, or has effected a
buy or sell transaction, in the same Security (or Equivalent
Security);

c. Seven-Day Blackout (Portfolio Managers only). Any purchase
--------------------------------------------
or sale of a Security by a Portfolio Manager within seven
calendar days of a purchase or sale of the same Security (or
Equivalent Security) by a Fund managed by that Portfolio
Manager. For example, if a Fund trades a Security on day
one, day eight is the first day the Portfolio Manager may
trade that Security for an account in which he or she has a
Beneficial Interest;

d. 60-Day Blackout (Investment Personnel only). (1) Purchase
--------------------------------------------
of a Security in which an Investment Person thereby acquires
a Beneficial Interest within 60 days of a sale of the
Security (or an Equivalent Security) in which such
Investment Person had a Beneficial Interest, and (2) sale of
a Security in which an Investment Person has a Beneficial
Interest within 60 days of a purchase of the Security (or an
Equivalent Security) in which such Investment Person had a
Beneficial Interest, if, in either case, a Fund held the
same Security at any time during the 60 days; unless the
Investment Person agrees to give up all profits

4
<PAGE>

on the transaction to a charitable organization specified in
accordance with Section IV.B.I. Of course, Investment
Personnel must place the interests of the Funds first; they
may not avoid or delay purchasing or selling a security for
a Fund in order to profit personally; and

e. Private Placements (Investment Personnel only). Acquisition
----------------------------------------------
of a Beneficial Interest in Securities in a private
placement by Investment Personnel is strongly discouraged. A
Preclearance Officer will give permission only after
considering, among other facts, whether the investment
opportunity should be reserved for a Fund and whether the
opportunity is being offered to the person by virtue of the
person's position as an Investment Person. Investment
Personnel who have acquired a Beneficial Interest in
Securities in a private placement are required to disclose
their Beneficial Interest to the Appropriate Compliance
Department. If the Investment Person is subsequently
involved in a decision to buy or sell a Security (or an
Equivalent Security) from the same issuer for a Fund, then
the decision to purchase or sell the Security (or an
Equivalent Security) must be independently authorized by a
Portfolio Manager with no personal interest in the issuer.

D. Exemptions.
----------

1. Exemptions from Preclearance and Treatment as a Prohibited
----------------------------------------------------------
Transaction. The following Securities Transactions are exempt
-----------
from the preclearance requirements set forth in Section II.A. and
the prohibited transaction restrictions set forth in Section
II.C.:

a. Mutual Funds. Any purchase or sale of a Security issued by
------------
any registered open-end investment companies (including but
not limited to the Legg Mason Funds);

b. No Knowledge. Securities Transactions where the Access
------------
Person has no knowledge of the transaction before it is
completed (for example, Securities Transactions effected for
an Access Person by a trustee of a blind trust, or
discretionary trades involving an investment partnership or
investment club, in connection with which the Access Person
is neither consulted nor advised of the trade before it is
executed);

5
<PAGE>

c. Legg Mason, Inc. Stock. Any purchase or sale of Legg Mason,
----------------------
Inc. stock.

d. Certain Corporate Actions. Any acquisition of Securities
-------------------------
through stock dividends, dividend reinvestments, stock
splits, reverse stock splits, mergers, consolidations, spin-
offs, or other similar corporate reorganizations or
distributions generally applicable to all holders of the
same class of Securities;

e. Systematic Investment Plans. Any acquisition of a security
---------------------------
pursuant to a systematic investment plan that has previously
been approved pursuant to the Code. A systematic investment
plan is one pursuant to which a prescribed investment will
be made automatically on a regular, predetermined basis
without affirmative action by the Access Person.

f. Options-Related Activity. Any acquisition or disposition of
------------------------
a security in connection with an option-related Securities
Transaction that has been previously approved pursuant to
the Code. For example, if an Access Person receives approval
to write a covered call, and the call is later exercised,
the provisions of Sections II.A. and II.C. are not
applicable to the sale of the underlying security.

g. Commodities, Futures, and Options on Futures. Any Securities
--------------------------------------------
Transaction involving commodities, futures (including
currency futures and futures on securities comprising part
of a broad-based, publicly traded market based index of
stocks) and options on futures.

h. Rights. Any acquisition of Securities through the exercise
------
of rights issued by an issuer pro rata to all holders of a
--- ----
class of its Securities, to the extent the rights were
acquired in the issue; and

i. Miscellaneous. Any transaction in the following:
-------------
(1) bankers acceptances, (2) bank certificates of deposit,
(3) commercial paper, (4) repurchase agreements,
(5) Securities that are direct obligations of the U.S.
Government, and (6) other Securities as may from time to
time be designated in writing by the Code of Ethics Review
Committee on the ground that the risk of abuse is minimal or
non-existent.

6
<PAGE>

2. Exemption from Treatment as a Prohibited Transaction. The
----------------------------------------------------
following Securities Transactions are exempt from the prohibited
transaction restrictions that are set forth in Section II.C. They
are not exempt from the preclearance requirements set forth in
Section II.A:

a. Employer of Access Person Does Not Make Investment Decisions
------------------------------------------------------------
For the Relevant Fund. The prohibitions in Sections
---------------------
II.C.2.b, c, and d are not applicable to any Securities
Transaction effected by an Access Person if the employer of
the Access Person is not the Fund Adviser that makes
investment decisions for the relevant Fund. For example, an
employee of Western Asset may effect a Securities
Transaction without regard to transactions that are open,
executed, or pending for a Fund managed by Batterymarch so
long as the Western Asset employee does not have actual
knowledge of any open, executed, or pending transactions for
the Fund managed by Batterymarch. A Security Transaction
effected by an Access Person who has actual knowledge of an
open, executed, or pending portfolio transaction by any Fund
is not exempt from the prohibitions of Sections II.C.2.b, c,
and d. Employees of more than one Fund Adviser must take
into account the transactions of Funds managed by each of
their employers.

b. De Minimis Transactions. The prohibitions in Section
-----------------------
II.C.2.b and c are not applicable to the following
transactions:

i. Equity Securities. Any equity Security Transaction, or
-----------------
series of related transactions, effected over a thirty
(30) calendar day period, involving 1000 shares or less
in the aggregate if the issuer of the Security is
listed on the New York Stock Exchange or has a market
capitalization in excess of $1 billion.

ii. Fixed-Income Securities. Any fixed income Security
-----------------------
Transaction, or series of related transactions,
effected over a thirty (30) calendar day period,
involving $100,000 principal amount or less in the
aggregate.

c. Options on Broad-Based Indices. The prohibitions in Section
------------------------------
II.C.2. b, c, and d are not applicable to any Securities
Transaction involving options on certain broad-based indices
designated by the Legal and Compliance Department. The

7
<PAGE>

broad-based indices designated by the Legal and Compliance
Department may be changed from time to time and presently
consist of the S&P 500, the S&P 100, NASDAQ 100, Nikkei 300,
NYSE Composite, and Wilshire Small Cap indices.

E. Reporting Requirements
----------------------

1. Initial and Periodic Disclosure of Personal Holdings by Access
--------------------------------------------------------------
Persons. Within ten (10) days of being designated as an Access
-------
Person and thereafter on an annual basis (during the month of
April), an Access Person (except an Independent Fund Director)
must acknowledge receipt and review of the Code and disclose all
Securities in which such Access Person has a Beneficial Interest
on the Acknowledgement of Receipt of Code of Ethics and Personal
Holdings Report (Appendix 2).

2. Transaction and Periodic Statement Reporting Requirements. An
---------------------------------------------------------
Access Person (except an Independent Fund Director) must arrange
for the Appropriate Compliance Department to receive directly
from any broker, dealer, or bank that effects any Securities
Transaction in which the Access Person has or acquires a
Beneficial Interest, duplicate copies of each confirmation for
each such transaction and periodic statements for each account in
which such Access Person has a Beneficial Interest. Unless a
written exception is granted by a Preclearance Officer, an Access
Person must also arrange for the Appropriate Compliance
Department to receive directly from any mutual fund that effects
any Securities Transaction in which the Access Person has or
acquires a Beneficial Interest duplicate copies of periodic
statements for each account in which such Access Person has a
Beneficial Interest. Attached as Appendix 6 is a form of letter
that may be used to request such documents from such entities.

If an Access Person opens an account at a broker, dealer, bank,
or mutual fund that has not previously been disclosed, the Access
Person must immediately notify the Appropriate Compliance
Department in writing of the existence of the account and make
arrangements to comply with the requirements set forth herein.

If an Access Person is not able to arrange for duplicate
confirmations and periodic statements to be sent, the Access
Person must immediately notify the Appropriate Compliance
Department.

3. Independent Fund Directors. Within ten (10) days of being
--------------------------
designated

8
<PAGE>

an Independent Fund Director and thereafter on an annual basis,
an Independent Fund Director must acknowledge receipt and review
of the Code of Ethics on the Acknowledgement of Receipt of Code
of Ethics (Appendix 5). Each Independent Fund Director must also
report to the Appropriate Compliance Department any Securities
Transaction in which the Independent Fund Director has or
acquires a Beneficial Interest if the Independent Fund Director
knew, or in the ordinary course of fulfilling his or her duty as
a director of a Fund should have known, that during the 15-day
period immediately preceding or after the date of the transaction
such Security (or an Equivalent Security) was or would be
purchased or sold by the Fund, or such purchase or sale was or
would be considered by the Fund.

4. Disclaimers. Any report of a Securities Transaction for the
-----------
benefit of a person other than the individual in whose account
the transaction is placed may contain a statement that the report
should not be construed as an admission by the person making the
report that he or she has any direct or indirect beneficial
ownership in the Security to which the report relates.

5. Availability of Reports. All information supplied pursuant to
-----------------------
this Code may be made available for inspection to the Board of
Directors of each Fund Adviser employing the Access Person, the
Board of Directors of each Legg Mason Fund, the Chairman of the
Board and the Vice Chairman of Legg Mason, Inc., the Code of
Ethics Review Committee, the Legal and Compliance Department,
Preclearance Officers, the Access Person's department manager (or
designee), any party to which any investigation is referred by
any of the foregoing, the Securities Exchange Commission, any
self-regulatory organization of which Legg Mason Wood Walker,
Incorporated is a member, any state securities commission, and
any attorney or agent of the foregoing or of the Legg Mason
Funds.

III. FIDUCIARY DUTIES
----------------

A. Confidentiality. Access Persons are prohibited from revealing
---------------
information relating to the investment intentions, activities or portfolios of
the Funds, except to persons whose responsibilities require knowledge of the
information.

B. Gifts. The following provisions on gifts apply to all Investment
-----
Personnel.

1. Accepting Gifts. On occasion, because of their position with the
---------------
Legg

9
<PAGE>

Mason Funds, Investment Personnel may be offered, or may receive
without notice, gifts from clients, brokers, vendors, or other
persons not affiliated with such entities. Acceptance of
extraordinary or extravagant gifts is not permissible. Any such
gifts must be declined or returned in order to protect the
reputation and integrity of the Legg Mason Funds and the Fund
Advisers. Gifts of a nominal value (i.e., gifts whose reasonable
----
value is no more than $100 a year), and customary business meals,
entertainment (e.g., sporting events), and promotional items
----
(e.g., pens, mugs, T-shirts) may be accepted.
----

If an Investment Person receives any gift that might be
prohibited under this Code, the Investment Person must
immediately inform the Appropriate Compliance Department.

2. Solicitation of Gifts. Investment Personnel may not solicit
---------------------
gifts or gratuities.

3. Giving Gifts. Investment Personnel may not personally give gifts
------------
with an aggregate value in excess of $100 per year to persons
associated with securities or financial organizations, including
exchanges, other member organizations, commodity firms, news
media, or clients of the firm.

C. Corporate Opportunities. Access Persons may not take personal
-----------------------
advantage of any opportunity properly belonging to any Fund or Fund Adviser.
For example, an Investment Person should not acquire a Beneficial Interest in a
Security of limited availability without first offering the opportunity to
purchase such Security to the Fund Adviser for the relevant Fund.

D. Undue Influence. Access Persons may not cause or attempt to cause any
---------------
Fund to purchase, sell or hold any Security in a manner calculated to create any
personal benefit to the Access Person. If an Access Person stands to benefit
materially from an investment decision for a Fund, and the Access Person is
making or participating in the investment decision, then the Access Person must
disclose the potential benefit to those persons with authority to make
investment decisions for the Fund (or, if the Access Person in question is a
person with authority to make investment decisions for the Fund, to the
Appropriate Compliance Department). The person to whom the Access Person reports
the interest, in consultation with the Appropriate Compliance Department, must
determine whether or not the Access Person will be restricted in making or
participating in the investment decision.

E. Service as a Director. No Investment Person may serve on the board of
---------------------
directors of a publicly-held company (other than the Fund Advisers, their
affiliates, and the Funds) absent prior written authorization by the Code of
Ethics Review Committee. This

10
<PAGE>

authorization will rarely, if ever, be granted and, if granted, will normally
require that the affected Investment Person be isolated, through a Chinese Wall
or other procedures, from those making investment decisions related to the
issuer on whose board the Investment Person sits.

IV. COMPLIANCE WITH THE CODE OF ETHICS
----------------------------------

A. Code of Ethics Review Committee
-------------------------------

1. Membership, Voting and Quorum. The Code of Ethics Review
-----------------------------
Committee is comprised of the individuals identified in Appendix
1. The Committee shall vote by majority vote with two members
serving as a quorum. Vacancies may be filled and, in the case of
extended absences or periods of unavailability, alternates may be
selected, by a majority vote of the remaining members of the
Committee; provided, however, that at least one member of the
-------- -------
Committee shall also be a member of the Legal and Compliance
Department.

2. Investigating Violations of the Code. The Appropriate Compliance
------------------------------------
Department is responsible for investigating any suspected
violation of the Code and shall report the results of each
investigation to the Code of Ethics Review Committee. The Code
of Ethics Review Committee is responsible for reviewing the
results of any investigation of any reported or suspected
violation of the Code. Any violation of the Code by an Access
Person will be reported to the Boards of Directors of the
relevant Legg Mason Funds no less frequently than each quarterly
meeting.

3. Annual Reports. The Code of Ethics Review Committee will review
--------------
the Code at least once a year, in light of legal and business
developments and experience in implementing the Code, and will
report to the Board of Directors of each Legg Mason Fund:

a. Summarizing existing procedures concerning personal
investing and any changes in the procedures made during the
past year;

b. Identifying any violation requiring significant remedial
action during the past year; and

c. Identifying any recommended changes in existing restrictions
or procedures based on its experience under the Code,
evolving
11
<PAGE>

industry practices, or developments in applicable laws or
regulations.

B. Remedies
--------

1. Sanctions. If the Code of Ethics Review Committee determines
---------
that an Access Person has committed a violation of the Code, the
Committee may impose sanctions and take other actions as it deems
appropriate, including a letter of caution or warning, suspension
of personal trading rights, suspension of employment (with or
without compensation), fine, civil referral to the Securities and
Exchange Commission, criminal referral, and termination of the
employment of the violator for cause. The Code of Ethics Review
Committee may also require the Access Person to reverse the
transaction in question and forfeit any profit or absorb any loss
associated or derived as a result. The amount of profit shall be
calculated by the Code of Ethics Review Committee and shall be
forwarded to a charitable organization selected by the Code of
Ethics Review Committee. No member of the Code of Ethics Review
Committee may review his or her own transaction.

2. Sole Authority. The Code of Ethics Review Committee has sole
--------------
authority, subject to the review set forth in Section IV.B.3
below, to determine the remedy for any violation of the Code,
including appropriate disposition of any monies forfeited
pursuant to this provision. Failure to promptly abide by a
directive to reverse a trade or forfeit profits may result in the
imposition of additional sanctions.

3. Review. Whenever the Code of Ethics Review Committee determines
------
that an Access Person has committed a violation of this Code that
merits remedial action, it will report no less frequently than
quarterly to the Boards of Directors of the applicable Legg Mason
Funds, information relating to the investigation of the
violation, including any sanctions imposed. The Boards of
Directors of the relevant Legg Mason Funds may modify such
sanctions as they deem appropriate. Such Boards shall have
access to all information considered by the Code of Ethics Review
Committee in relation to the case. The Code of Ethics Review
Committee may determine whether or not to delay the imposition of
any sanctions pending review by the applicable Board of
Directors.

C. Exceptions to the Code. Although exceptions to the Code will rarely,
----------------------
if ever, be granted, the Appropriate Compliance Department may grant exceptions
to the requirements of the Code on a case by case basis if the Appropriate
Compliance Department finds that the proposed conduct involves negligible
opportunity for abuse. All such exceptions must be in

12
<PAGE>

writing and must be reported as soon as practicable to the Code of Ethics Review
Committee and to any relevant Funds' Board of Directors at their next regularly
scheduled meeting after the exception is granted.

D. Inquiries Regarding the Code. The Appropriate Compliance Department
----------------------------
will answer any questions about this Code or any other compliance-related
matters.

V. DEFINITIONS
------------

When used in the Code, the following terms have the meanings set forth
below:

"Access Person" means:
-------------

(1) every director or officer of a Legg Mason Fund or a Fund Adviser;

(2) every employee of a Fund Adviser (or employee of a company in a
control relationship with any of the foregoing), who in connection
with his or her regular functions, makes, participates in, or obtains
information regarding the purchase or sale of a Security by a Fund;

(3) every natural person in a control relationship with a Legg Mason Fund
or a Fund Adviser who obtains information concerning recommendations
made to a Fund with regard to the purchase or sale of a Security,
prior to its dissemination or prior to the execution of all resulting
trades;

(4) any director, officer or employee of Legg Mason Wood Walker,
Incorporated who in the ordinary course of his or her business makes,
participates in or obtains information regarding the purchase or sale
of Securities for any of the Legg Mason Funds, or whose functions or
duties as a part of the ordinary course of his or her business relate
to the making of any recommendation to such investment company
concerning the purchase or sale of Securities; and

(5) such other persons as the Legal and Compliance Department shall
designate.

Any uncertainty as to whether an individual is an Access Person should be
brought to the attention of the Legal and Compliance Department. Such questions
will be resolved in accordance with, and this definition shall be subject to,
the definition of "Access Person" found in Rule 17j-1(e) (1) promulgated under
the Investment Company Act of 1940, as amended.

"Appropriate Compliance Department" for an employee means the compliance
---------------------------------
department of that employee's immediate employer. For dual employees, the
compliance

13
<PAGE>

department of one employer will be designated as the Appropriate Compliance
Department.

"Batterymarch" means Batterymarch Financial Management, Inc.
------------

"Beneficial Interest" means the opportunity, directly or indirectly,
-------------------
through any contract, arrangement, understanding, relationship or otherwise, to
profit, or share in any profit derived from, a transaction in the subject
Securities.

An Access Person is deemed to have a Beneficial Interest in the following:

(1) any Security owned individually by the Access Person;

(2) any Security owned jointly by the Access Person with others (for
example, joint accounts, spousal accounts, UTMA accounts,
partnerships, trusts and controlling interests in corporations);
and

(3) any Security in which a member of the Access Person's Immediate
Family has a Beneficial Interest if:

a. the Security is held in an account over which the Access
Person has decision making authority (for example, the
Access Person acts as trustee, executor, or guardian); or

b. the Security is held in an account for which the Access
Person acts as a broker or investment adviser
representative.

In addition, an Access Person is presumed to have a Beneficial Interest in
any Security in which a member of the Access Person's Immediate Family has a
Beneficial Interest if the Immediate Family member resides in the same household
as the Access Person. This presumption may be rebutted if the Access Person is
able to provide the Legal and Compliance Department with satisfactory assurances
that the Access Person has no material Beneficial Interest in the Security and
exercises no control over investment decisions made regarding the Security.
Access Persons may use the form attached as Appendix 7 (Certification of No
Beneficial Interest) in connection with such requests.

Any uncertainty as to whether an Access Person has a Beneficial Interest in
a Security should be brought to the attention of the Legal and Compliance
Department. Such questions will be resolved in accordance with, and this
definition shall be subject to, the definition of "beneficial owner" found in
Rules 16a-1(a) (2) and (5) promulgated under the Securities Exchange Act of
1934, as amended.

"Brandywine" means Brandywine Asset Management, Inc.
----------

14
<PAGE>

"Code" means this Code of Ethics, as amended.
----

"Equivalent Security" means any Security issued by the same entity as the
-------------------
issuer of a subject Security, including options, rights, stock appreciation
rights, warrants, preferred stock, restricted stock, phantom stock, bonds, and
other obligations of that company or security otherwise convertible into that
security. Options on securities are included even if, technically, they are
issued by the Options Clearing Corporation or a similar entity.

"Fund Adviser" means any entity that acts as a manager, adviser or sub-
------------
adviser to a Legg Mason Fund, including, but not limited to, Bartlett & Co.,
Batterymarch Financial Management, Inc., Brandywine Asset Management, Inc.,
Gray, Seifert & Co., Inc., Legg Mason Capital Management, Inc., Legg Mason Fund
Adviser, Inc., LM Institutional Advisors, Inc., LMM LLC, Lombard Odier
International Portfolio Management Limited, Western Asset Management Company,
and Western Asset Management Company Limited.

"Gray Seifert" means Gray, Seifert & Co., Inc.
------------

"Immediate Family" of an Access Person means any of the following persons:
----------------

child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law

Immediate Family includes adoptive relationships and other relationships
(whether or not recognized by law) that the Legal and Compliance Department
determines could lead to the possible conflicts of interest, diversions of
corporate opportunity, or appearances of impropriety which this Code is intended
to prevent.

"Independent Fund Director" means an independent director of a Legg Mason
-------------------------
Fund.

"Investment Personnel" and "Investment Person" mean each Portfolio Manager
-------------------- -----------------
and any Access Person who, in connection with his or her regular functions or
duties, provides information and advice to a Portfolio Manager or who helps
execute a Portfolio Manager's decisions.

"Legal and Compliance Department" means the Legal and Compliance Department
-------------------------------
of Legg Mason Wood Walker, Incorporated and the persons designated in Appendix
1, as such Appendix shall be amended from time to time. See also "Appropriate
Compliance Department."

15
<PAGE>

"Legg Mason Fund" and "Fund" mean an investment company registered under
--------------- ----
the Investment Company Act of 1940 (or a portfolio or series thereof, as the
case may be) that is sponsored by Legg Mason, including, but not limited to, the
funds listed in Appendix 1.

"Lombard Odier" means Lombard Odier International Portfolio Management
-------------
Limited.

"Portfolio Manager" means a person who has or shares principal day-to-day
-----------------
responsibility for managing the portfolio of a Fund.

"Preclearance Officer" means the person designated as a Preclearance
--------------------
Officer in Appendix 1 hereof or such person's designee.

"Securities Transaction" means a purchase or sale of Securities in which an
----------------------
Access Person has or acquires a Beneficial Interest.

"Security" includes stock, notes, bonds, debentures, and other evidences of
--------
indebtedness (including loan participations and assignments), limited
partnership interests, investment contracts, and all derivative instruments of
the foregoing, such as options and warrants. "Security" does not include
futures or options on futures, but the purchase and sale of such instruments are
nevertheless subject to the reporting requirements of the Code.

"Western Asset" means Western Asset Management Company.
-------------

"Western Asset Limited" means Western Asset Management Company Limited.
---------------------

VI. APPENDICES TO THE CODE
----------------------

The following appendices are attached to and are a part of the Code:

Appendix 1. Contact Persons and List of Legg Mason Funds;
--------------------------------------------

Appendix 2. Acknowledgement of Receipt of Code of Ethics and Personal
---------------------------------------------------------
Holdings Report;
---------------

Appendix 3. Trade Authorization Request for Access Persons;
----------------------------------------------

Appendix 4. Certification of Access Person's Designee;
-----------------------------------------

Appendix 5. Acknowledgement of Receipt of Code of Ethics (Independent Fund
--------------------------------------------------------------
Directors);
----------

Appendix 6. Form Letter to Broker, Dealer, Bank, or Mutual Fund.
---------------------------------------------------

Appendix 7. Certification of No Beneficial Interest.
----------------------------------------
<PAGE>

Appendix 1

CONTACT PERSONS AND LIST OF LEGG MASON FUNDS

PRECLEARANCE OFFICERS

Andrew J. Bowden
Neil P. O'Callaghan
Suzanne E. Peluso
Jennifer W. Murphy (Legg Mason Fund Adviser, Inc.)
Philip E. Sachs (Legg Mason Capital Management, Inc.)
Ilene S. Harker (Western Asset Management Company)
Francis X. Tracy (Batterymarch Financial Management, Inc.)
Thomas A. Steele (Bartlett & Co.)
Denise Justice (Bartlett & Co.)

DESIGNEES OF PRECLEARANCE OFFICER

Nancy E. McColgan (Legg Mason Capital Management, Inc.)
Nancy Dennin (Legg Mason Fund Adviser, Inc.)
Jean C. Collins (Bartlett & Co.)
Donna Preishoff (Bartlett & Co.)

LEGAL AND COMPLIANCE DEPARTMENT

Andrew J. Bowden
Neil P. O'Callaghan
Frank R. Walker Jr.

CODE OF ETHICS REVIEW COMMITTEE

Andrew J. Bowden
Edward A. Taber, III
Neil P. O'Callaghan
Philip E. Sachs
Jennifer W. Murphy

LEGG MASON FUNDS

Bartlett Basic Value Fund
Bartlett Value International Fund
Batterymarch Emerging Markets Portfolio

i
<PAGE>

Batterymarch International Equity Portfolio
Batterymarch U.S. MidCapitalization Equity Portfolio
Batterymarch U.S. Small Capitalization Equity Portfolio
Legg Mason American Leading Companies Trust
Legg Mason Balanced Trust
Legg Mason Cash Reserve Trust
Legg Mason Classic Valuation Fund
Legg Mason Emerging Markets Trust
Legg Mason Europe Fund
Legg Mason Financial Services Fund
Legg Mason Focus Trust
Legg Mason Global Income Trust
Legg Mason High Yield Portfolio
Legg Mason International Equity Trust
Legg Mason Investment Grade Income Portfolio
Legg Mason Market Neutral Trust
Legg Mason Maryland Tax-Free Income Trust
Legg Mason Opportunity Trust
Legg Mason Pennsylvania Tax-Free Income Trust
Legg Mason Special Investment Trust, Inc.
Legg Mason Tax Exempt Trust, Inc.
Legg Mason Tax-Free Intermediate-Term Income Trust
Legg Mason Total Return Trust, Inc.
Legg Mason U.S. Government Intermediate-Term Portfolio
Legg Mason U.S. Government Money Market Portfolio
Legg Mason U.S. Small-Cap Value Trust
Legg Mason Value Trust, Inc.
LM Balanced Institutional Portfolio
LM Value Institutional Portfolio
LM Special Investment Institutional Portfolio
LM Total Return Institutional Portfolio
Western Asset Core Portfolio
Western Asset Core Plus Portfolio
Western Asset Enhanced Equity Portfolio
Western Asset Global Strategic Income Portfolio
Western Asset Government Money Market Portfolio
Western Asset High Yield Portfolio
Western Asset Intermediate Portfolio
Western Asset Intermediate Plus Portfolio
Western Asset Money Market Portfolio
Western Asset Non-U.S. Fixed Income Portfolio

ii
<PAGE>

Appendix 2

ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS AND
PERSONAL HOLDINGS REPORT

I acknowledge that I have received the Code of Ethics dated April 1, 2000 and
represent that:

1. I have read the Code of Ethics and I understand that it applies to me and to
all Securities in which I have or acquire any Beneficial Interest. I have
read the definition of "Beneficial Interest" and understand that I may be
deemed to have a Beneficial Interest in Securities owned by members of my
Immediate Family and that Securities Transactions effected by members of my
Immediate Family may therefore be subject to this Code.

2. In accordance with Section II.A. of the Code, I will obtain prior written
authorization for all Securities Transactions in which I have or acquire a
Beneficial Interest, except for transactions exempt from preclearance under
Section II.D.1 of the Code.

3. In accordance with Section II.E.2. of the Code of Ethics, I will report all
non-exempt Securities Transactions in which I have or acquire a Beneficial
Interest.

4. I agree to disgorge and forfeit any profits on prohibited transactions in
accordance with the requirements of the Code.

5. I will comply with the Code of Ethics in all other respects.

6. In accordance with Section II.E.1. of the Code, the following is a list of
all Securities in which I have a Beneficial Interest:

/1/ Provide the information requested below for each account that you
maintain with a broker, dealer, bank, or mutual fund. Indicate "None"
if appropriate.
<TABLE>
<CAPTION>
NAME OF BROKER, DEALER,
BANK, OR MUTUAL FUND ACCOUNT TITLE ACCOUNT NUMBER
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>

- ------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Attach a separate sheet if necessary)

/2/ Attach the most recent account statement for each account identified
above that is not maintained at Legg Mason Wood Walker, Incorporated.
---

(4/1/00)

iii
<PAGE>

/3/ If you own Beneficial Interests in Securities that are not listed on an
---
attached account statement or in an account maintained at Legg Mason
Wood Walker, Incorporated, list them below. Include private equity
investments. Indicate "None" if appropriate.
<TABLE>
<CAPTION>
NAME OF ACCOUNT ACCOUNT NAME OF SECURITY NUMBER OF
BROKER, DEALER, TITLE NUMBER SHARES/PRINCIPAL
BANK, OR AMOUNT
MUTUAL FUND
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

- ----------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(Attach separate sheet if necessary)

7. (Investment Personnel Only) In accordance with Section III.E. of the Code,
the following is a list of publicly-held companies (other than Fund
Advisers, their affiliates, and the Funds) on which I serve as a member of
the board of directors. Indicate "NA" or "None" if appropriate.

<TABLE>
<CAPTION>
NAME OF COMPANY BOARD MEMBER SINCE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------

- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

8. I certify that the information on this form is accurate and complete.

- ----------------------------------
Access Person's Name

- ---------------------------------- ------------------------------
Access Person's Signature Date

(4/1/00)

iv
<PAGE>

Appendix 3

TRADE AUTHORIZATION REQUEST FOR ACCESS PERSONS

1. Name of Access Person:
-----------------------------------

2. Account Title:
-----------------------------------

3. Account Number:
-----------------------------------

4. Name of Security:
-----------------------------------

5. Maximum number of shares or units to
be purchased or sold or amount of bond:
-----------------------------------

6. Name and phone number of broker to
effect transaction:
-----------------------------------
<TABLE>
<CAPTION>
<S> <C>
7. Check applicable boxes: Purchase [ ] Sale [ ] Market Order [ ] Limit Order [ ]
</TABLE>
9. In connection with the foregoing transaction, I hereby make the following
representations and warranties:

(a) I do not possess any material nonpublic information regarding the
Security or the issuer of the Security.

(b) I am not aware that any Legg Mason Fund has an open order to buy or sell
the Security or an Equivalent Security.

(c) By entering this order, I am not using knowledge of any open, executed,
or pending transaction by a Legg Mason Fund to profit by the market
effect of such Fund transaction.

(d) (Investment Personnel Only). The Security is not being acquired in an
initial public offering.

(e) (Investment Personnel Only). The Security is not being acquired in a
private placement or, if it is, I have reviewed Section II.C.3. of the
Code and have attached hereto a written explanation of such
transaction.

(f) (Investment Personnel Only). If I am purchasing the Security, and if
the same or an Equivalent Security has been held within the past 60
days by any Fund managed by my immediate employer, I have not directly
or indirectly (through any member of my Immediate Family, any account
in which I have a Beneficial Interest or otherwise) sold the Security
or an Equivalent Security in the prior 60 days.

(g) (Investment Personnel Only). If I am selling the Security, and if the
same or an Equivalent Security has been held within the past 60 days
by any Fund managed by my immediate employer, I have not directly or
indirectly (through any member of my Immediate Family, any account in
which I have a Beneficial Interest or otherwise) purchased the
Security or an Equivalent Security in the prior 60 days.

(h) I believe that the proposed trade fully complies with the requirements
of the Code.

- ----------------------------------------- ------------------ ----------------
Access Person's Signature Date Time

TRADE AUTHORIZATION
(to be completed by Preclearance Officer)

- ----------------------------------------- ------------------ ----------------
Authorized By Date Time

v
<PAGE>

Appendix 4

CERTIFICATION OF ACCESS PERSON'S DESIGNEE

The undersigned hereby certifies that the Access Person named on the attached
Trade Authorization Request for Access Persons (a) directly instructed me to
complete the attached form on his or her behalf, (b) to the best of my
knowledge, was out of the office at the time of such instruction and has not
returned, and (c) confirmed to me that the representations and warranties
contained in the attached Form are accurate.

--------------------------------
Access Person's Designee

--------------------------------
Print Name

--------------------------------
Date

(4/1/00)

vi
<PAGE>

Appendix 5

ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS
(Independent Fund Directors)

I acknowledge that I have received the Code of Ethics dated April 1, 2000 and
represent that:

1. I have read the Code of Ethics and I understand that it applies to me
and to all Securities in which I have or acquire any Beneficial
Interest. I have read the definition of "Beneficial Interest" and
understand that I may be deemed to have a Beneficial Interest in
Securities owned by members of my Immediate Family and that Securities
Transactions effected by members of my Immediate Family may therefore
be subject to this Code.

2. I will report all Securities Transactions required to be reported
under Section II.E.3 of the Code in which I have or acquire a
Beneficial Interest.

3. I will comply with applicable provisions of the Code of Ethics in
all other respects.

------------------------------------
Director's Signature

------------------------------------
Print Name

------------------------------------
Dated

(4/1/00)

vii
<PAGE>

Appendix 6

FORM OF LETTER TO BROKER, DEALER, BANK, OR MUTUAL FUND

(Date)

(Name
and Address)

Subject: Account #
-----------------------

Dear :
-------------------

My employer, , is an investment adviser
-----------------------------------
to, or principal underwriter of, an investment company. Pursuant to my
employer's Code of Ethics and Rule 17j-1 under the Investment Company Act of
1940, please send duplicate confirmations of individual transactions as well as
duplicate periodic statements for the referenced account directly to:

(Name and Address of Individual Responsible
for Reviewing Periodic Holdings and Transaction Reports)

Thank you for your cooperation. If you have any questions, please contact
me or (Name of Individual Responsible for Reviewing Periodic Holdings and
Transaction Reports) at .
-------------------------------

Sincerely,

(Name of Access Person)

(4/1/00)

viii
<PAGE>

Appendix 7

CERTIFICATION OF NO BENEFICIAL INTEREST

I have read the Code of Ethics and I understand that it applies to me and to all
Securities in which I have or acquire any Beneficial Interest. I have read the
definition of "Beneficial Interest" and understand that I may be deemed to have
a Beneficial Interest in Securities owned by members of my Immediate Family and
that Securities Transactions effected by members of my Immediate Family may
therefore be subject to this Code.

The following accounts are maintained by one or more members of my Immediate
Family who reside in my household:
<TABLE>
<CAPTION>
Brokerage Firm
Relationship of Immediate (Include Legg Mason
Account Name Family Member Account Number Accounts)
- ------------ ------------------------- -------------- --------------------
<S> <C> <C> <C>
</TABLE>

I certify that with respect to each of the accounts listed above (initial
appropriate boxes):

[ ] I do not own individually or jointly with others any of the securities
held in the account.

[ ] I do not possess or exercise decision making authority over the account.

[ ] I do not act as a broker or investment adviser representative for the
account.

I agree that I will notify the Legal and Compliance Department immediately if
any of the information I have provided in this certification becomes inaccurate
or incomplete.

--------------------------------
Access Person's Designee

--------------------------------
Print Name

--------------------------------
Date

(4/1/00)

<PAGE>

Exhibit 23(p)(2)
----------------

CODE OF ETHICS

ARROYO SECO, INC.
PACIFIC AMERICAN INCOME SHARES
WESTERN ASSET MANAGEMENT COMPANY
LM INSTITUTIONAL FUND ADVISORS I

A. STATEMENT OF GENERAL PRINCIPLES
-------------------------------

1. All Access Persons that are affiliated with Western Asset are fiduciaries to
the Accounts and Funds managed by the Companies. All such Access Persons are
also fiduciaries to Fund shareholders. Accordingly, Access Persons shall
place the interests of the Accounts and Funds first.

2. Access Persons must scrupulously avoid serving their personal interests
ahead of the interests of the Accounts and Funds. Each Access Person shall
handle his or her activities and personal securities transactions in such a
manner as to avoid any actual or potential conflict of interest or any abuse
of his or her position of trust and responsibility. No Access Person shall
take inappropriate advantage of his or her position.

3. All Access Persons shall act in accordance with both the letter and the
spirit of this Code. Technical compliance with the Code's procedures will
not automatically insulate from scrutiny activity that may indicate an abuse
of fiduciary duties.

4. It will be considered a violation of this Code to do indirectly that which
is prohibited directly. For example, it will be considered a violation of
this Code to do indirectly through options, futures or other derivatives
that which is prohibited directly through transactions in securities
themselves.

5. This Code is to be interpreted consistent with the Securities and Exchange
Commission's rules governing codes of ethics.

6. Directors of the Funds (who are not employees of Western Asset) will only be
subject to the Reporting requirements outlined in Section E.5., but will not
be subject to the Pre-Clearance requirements of Section B, the Prohibited
Transaction requirements of Section C or the provisions of Section F.

7. Notwithstanding any other provision of this Code to the contrary, Access
Persons of the Companies who are also employed principally by affiliates of
Western Asset Management Company and Arroyo Seco, Inc. and who are subject
to the Legg
<PAGE>

Mason, Inc. Code of Ethics (the "Legg Mason Code") shall not be subject to
this Code (other than as provided in the following sentence), but rather
shall be subject to the provisions of the Legg Mason Code. The Legg Mason
Code is hereby incorporated by reference into, and made a part of, this
Code.

B. PRE-CLEARANCE
-------------

1. Except for the transactions set forth in Section D below, any Securities
Transaction which an Access Person has a direct or indirect Beneficial
Interest must be pre-cleared with a Pre-Clearance Officer.

2. Pre-Clearance Procedures - Prior to entering an order for a Securities
------------------------
Transaction that requires pre-clearance, the Access Person must complete, in
writing, a Trade Authorization Request form and submit the completed form to
a Pre-Clearance Officer. Proposed Securities Transactions of a Pre-
Clearance Officer that require pre-clearance must be submitted to another
Pre-Clearance Officer. In the event an Access Person is unable to complete
a Trade Authorization Request form, the Access Person requesting Pre-
Clearance may designate someone else to complete the Form on his or her
behalf in order to obtain proper authorization.

3. Length of Trade Authorization Approval - The authorization provided by the
--------------------------------------
Pre-Clearance Officer is effective until the earlier of (1) its revocation,
(2) the close of business on the trading day after the authorization is
granted, or (3) the Access Person learns that the information in the Trade
Authorization Request Form is not accurate. If the order for the Securities
Transaction is not placed within that period, a new authorization must be
obtained before the Securities Transaction is placed. If a Securities
Transaction is placed but has not been executed before the authorization
expires (e.g. a limit order), no new authorization is necessary unless the
person placing the order amends it in any way.

C. PROHIBITED TRANSACTIONS
-----------------------

1. Always Prohibited Securities Transactions - The following Securities
-----------------------------------------
Transactions are prohibited and will not be authorized under any
circumstances:

a. Inside Information - Any transaction in a Security by an individual who
------------------
possesses material nonpublic information regarding the Security or the
issuer of the Security;

b. Market Manipulation - Transactions intended to raise, lower, or maintain
-------------------
the price of any Security or to create a false appearance of active
trading;
<PAGE>

c. Others - Any other transaction deemed by the Pre-Clearance Officer to
------
involve a conflict of interest, possible diversions of corporate
opportunity, or an appearance of impropriety.

2. Generally Prohibited Securities Transactions - Unless exempted by Section D,
--------------------------------------------
the following Securities Transactions are prohibited and will not be
authorized by the Pre-Clearance Officer absent exceptional circumstances.
The prohibitions apply only to the categories of Access Persons specified.

a. Initial Public Offerings (Investment Persons Only) - Investment Persons
--------------------------------------------------
shall not acquire any Securities in an Initial Public Offering.

b. Limited Offerings (Investment Persons Only) - Investment Persons shall
-------------------------------------------
not acquire any Securities in a Limited Offering without written prior
approval from the Code of Ethics Committee. This prior approval shall
take into account among other factors, whether the investment
opportunity should be reserved for the Funds or Accounts, and whether
the opportunity is being offered to the Investment Person by virtue of
his or relationship with the Companies. An Investment Person who has
been authorized to acquire securities in a limited offering shall
disclose that investment when he or she plays a part in any subsequent
consideration by the Fund, Accounts or the Companies of an investment in
the issuer. In such circumstances, the decision to purchase Securities
of the issuer shall be subject to an independent review by persons with
no personal interest in the issuer.

c. One-Day Blackout Period - No Access Person shall execute a
-----------------------
Securities Transaction in a Security on any day during which an
Account or Fund has placed or executed a purchase or sell order on
the same Security.

d. Seven-Day Blackout Period (Portfolio Managers Only) - Portfolio
---------------------------------------------------
Managers may not purchase or sell Securities for their own account
within seven calendar days of a purchase or sale of the same
Securities (or Equivalent Securities) by an Account or Fund managed
by that Portfolio Manager.

e. 60-Day Blackout Period (Investment Persons Only) - Investment
-------------------------------------------------
Persons may not (for their own beneficial interest) purchase a
Security within 60 days of the sale of the same Security; nor may an
Investment Person sell a Security within 60 days of a purchase of
the same Security if, in either case, at any time during the 60 days
the Security was held by an Account or Fund managed by the
Companies.

D. EXEMPTIONS
----------
<PAGE>

1. Exemption from Pre-Clearance and Treatment as a Prohibited Transaction -
----------------------------------------------------------------------
The following Securities Transactions are exempt from the pre-clearance
requirements of Section B and the prohibited transaction restrictions of
Section C.

a. Mutual Funds - Any purchase or sale of a Security issued by any
------------
registered open-end investment company;

b. No Knowledge - Securities Transactions where the Access Person has no
------------
knowledge of the transaction before it is completed (for example a
transaction effected by a Trustee of a blind trust or discretionary
trades involving an investment partnership or investment club, in
connection with which the Access Person is neither consulted nor advised
of the trade before it is executed);

c. Certain Corporate Actions - Any acquisition of Securities, through stock
-------------------------
dividends, dividend reinvestments, stock splits, reverse stock splits,
mergers, consolidations, spin-offs, exercise of rights or other similar
corporate reorganizations or distributions generally applicable to all
holders of the same class of Securities;

d. Options-Related Activity - Any acquisition or disposition of a Security
------------------------
in connection with an option-related Securities Transaction that has
been previously approved. For example, if an Access Person receives
approval to write a covered call, and the call is later exercised, the
provisions of Section B and C are not applicable to the sale of the
underlying Security.

e. Commodities, Futures and Options on Futures - Any Securities Transaction
-------------------------------------------
involving commodities, futures (including currency futures and futures
on securities comprising part of a broad-based, publicly traded market
based index of stocks) and options on futures.

f. Miscellaneous - Any transaction in the following:
-------------

. Bankers Acceptances,
. Bank Certificates of Deposit,
. Commercial Paper,
. Repurchase Agreements,
. Securities that are direct obligations of the U.S. Government,
. Other securities as may from time to time be designated in writing by
the Code of Ethics Committee on the grounds that the risk of abuse is
minimal or non-existent.
<PAGE>

The Securities listed above are not exempt from the reporting requirements
set forth in Section E.

2. Exemption from Treatment as a Prohibited Transaction - The following
----------------------------------------------------
Securities Transactions are exempt from the prohibited transaction
restrictions of Section C.

a. Options on Broad-Based Indices - The prohibitions in Section C are not
------------------------------
applicable to any Securities Transaction involving options on certain
broad-based indices designated by the Code of Ethics Committee. The
broad-based indices designated may be changed from time-to-time and
presently consist of the S&P 500, the S&P 100, NASDAQ 100, Nikkei 300,
NYSE Composite and Wilshire Small Cap indices.

b. Sovereign debt of Non-U.S. Governments - The prohibitions in Section C
--------------------------------------
are not applicable to any Securities Transactions involving Sovereign
debt of Non-U.S. governments with an issue size greater than $1 billion
and issued in either the home currency or U.S. dollars.
<PAGE>

E. REPORTING
---------

1. Initial Reports - All Access Persons (except Disinterested Fund Directors),
---------------
within ten (10) days of being designated an Access Person, must disclose
all Covered Securities in which they have a direct or indirect Beneficial
Interest. Such report must include the title, number of shares and
principal amount of each Covered Security. Access Persons must also report
all brokerage accounts in which they have a direct or indirect Beneficial
Interest. Initial reports must be signed and dated by the Access Person.

2. Monthly Reports - All employees of the Companies shall submit to the
---------------
Compliance Department, within 10 days after month end, a report of all
Securities Transactions during the previous month. The report shall state
the title and number of shares, the principal amount of the security
involved, the interest rate and maturity date if applicable, the date and
nature of the transaction, the price at which the transaction was effected
and the name of the broker, dealer or bank with or through whom the
transaction was effected. The report shall also include the date it was
submitted by the employee. Access Persons who have reported Securities
Transactions through duplicate copies of broker confirmations and
statements are not required to file a monthly report. In addition, all
employees of the Companies shall submit a report of any Securities account
established during the month for the direct or indirect benefit of the
employee. The report shall include the name of the broker, dealer or bank
with whom the employee established the account, the date the account was
established and the date the report was submitted to the Compliance
Department.

3. Annual Reports - All Access Persons shall provide annually a list of all
--------------
Covered Securities in which they have a direct or indirect Beneficial
Interest. The list shall include the title, number of shares and principal
amount of each Covered Security. In addition, each Access Person must
report to the Compliance Department the account number, account name and
brokerage firm of each Securities account in which the Access Person has a
direct or indirect Beneficial Interest. The information in the annual
report must be current as of a date no more than 30 days before the report
is submitted and the annual report must include the date it was submitted
to the Compliance Department. Annually all Access Persons shall certify
that they have complied with the requirements of this Code and that they
have disclosed or reported all Securities Transactions required to be
disclosed or reported pursuant to the requirements of this Code.

4. Confirmations and Statements - All Access Persons must arrange for the
----------------------------
Compliance Department to receive directly from any broker, dealer or bank
duplicate copies of confirmations for Securities Transactions and periodic
statements for each brokerage account in which the Access Person has a
direct or
<PAGE>

indirect Beneficial Interest. The foregoing does not apply to transactions
and holdings in registered open-end investment companies.

5. Directors Reports (for Directors of Pacific American Income Shares and LM
-----------------
Institutional Fund Advisors I):

a. Disinterested Directors - Access Persons who are Disinterested
-----------------------
Directors are not required to make a report regarding Securities
Transactions except where such director knew or, in the ordinary
course of fulfilling his or her official duties as a director of
Pacific American Income Shares or LM Institutional Fund Advisors I,
should have known that during the 15-day period immediately preceding
or after the date of the transaction in a Security by the director,
such Security is or was purchased or sold by the relevant Fund or such
purchase or sale is or was considered by the relevant Fund or its
Advisers.

b. Interested Directors - Access Persons who are Interested Directors are
--------------------
required to make the following reports:
i. Initial Reports (See Paragraph E.1.)
ii. Quarterly Reports: No later than 10 days after the end of each
calendar quarter the following information must be reported:

- Transaction Report for Covered Securities including: Date of
------------------
each transaction, full security description (including
interest rate and maturity), number of shares and principal
amount, nature of transaction, price at which transaction
effected, broker, dealer or bank through which transaction
affected and date report is submitted.

- Account Report including: Any new account established by the
--------------
Director in which any Securities were held during the quarter
for the direct or indirect benefit of the Director. Such
report to also include the name of the broker, dealer or bank
with whom the Director established the account, the date the
account was established and the date the report is submitted.

iii. Annual Reports (See Paragraph E.3.)

F. FIDUCIARY DUTIES
----------------

1. Confidentiality - Access Persons are prohibited from revealing information
---------------
relating to the investment intentions, activities or portfolios of the
Accounts or Funds, except to persons whose responsibilities require
knowledge of the information.

2. Gifts: On occasion, because of their position with Western Asset, Access
-----
Persons may be offered, or may receive without notice, gifts from clients,
vendors or other persons not affiliated with the firm. Acceptance of
extraordinary or extravagant
<PAGE>

gifts is not permissible. Any such gifts must be declined or returned in
order to protect the reputation of the firm. Gifts of nominal value (i.e.,
gifts whose reasonable value is no more than $100 per year), and customary
business meals, entertainment (e.g. sporting events), and promotional items
(e.g. pens, mugs, T-shirts) may be accepted. If an Access Person receives
any gift that might be prohibited under this Code, the Access Person must
immediately inform the Compliance Department. An Access Person may not
personally give any gift with a value in excess of $100 per year to persons
associated with securities or financial organizations, including clients of
the firm.

3. Service as a Director: No Investment Person may serve on the board of
----------------------
directors of any publicly traded company without prior written
authorization from the Code of Ethics Committee. If the Committee
authorizes board service, it shall do so subject to appropriate safeguards,
including in most cases "Chinese Walls" or other procedures to isolate the
Investment Person from the making of investment decisions related to the
company on whose board the Investment Person serves.

3. Remedies and Sanctions: If the Code of Ethics Committee determines that
-----------------------
an employee of the Companies or an Access Person has committed a violation
of the Code, the Committee may impose sanctions and take other actions as
it deems appropriate.

G. DEFINITIONS
-----------

1. "Access Persons" means (a) all officers of the Companies, all directors of
---------------
Arroyo Seco, Inc. and Western Asset Management Company, and all directors of
Pacific American Income Shares and LM InstitutionalFund Advisors I who are
not interested persons of such company as that term is defined in the
Investment company Act of 1940; (b) all employees of the Companies who, in
connection with their regular functions or duties, make, participate in, or
obtain information, regarding the purchase or sale of a Security by an
Account or Fund or whose functions relate to the making of any
recommendations with respect to the purchases or sales; (c) any natural
person in a control relationship to the Companies who obtains information
concerning recommendations made to an Account or Fund with regard to the
purchase or sale of a security and (d) such other persons as the Compliance
Department shall designate.

2. "Account" means any portfolio managed by Western Asset Management Company.
---------

3. "Beneficial Interest" shall have the meaning given to it for purposes of
---------------------
Rule 17j-1 and shall include the opportunity, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise,
to profit, or share in any
<PAGE>

profit derived from, a transaction in the subject Securities. An Access
Person is deemed to have a Beneficial Interest in the following:

a. any Security owned individually by the Access Person;
b. any Security owned jointly by the Access Person with others (for
example, joint accounts, spousal accounts, UTMA accounts, partnerships,
trusts and controlling interests in corporations); and
c. any Security in which a member of the Access Person's Immediate Family
has a Beneficial Interest if the Security is held in an account over
which the Access Person has decision making authority (for example, the
Access Person acts as trustee, executor, or guardian). In addition, an
Access Person is presumed to have a Beneficial Interest in any Security
in which a member of the Access Person's Immediate Family has a
Beneficial Interest if the Immediate Family member resides in the same
household as the Access Person. This presumption may be rebutted if the
Access Person is able to provide the Compliance Department with
satisfactory assurances that the Access Person has no material
Beneficial Interest in the Security and exercises no control over
investment decisions made regarding the Security. Access Persons may use
the form attached (Certification of No Beneficial Interest) in
connection with such requests

4. "Companies" means Arroyo Seco Inc., Pacific American Income Shares, Western
-----------
Asset Management Company and LM Institutional Fund Advisors I.

5. "Covered Security" means any security defined below except covered security
------------------
does not include direct obligations of the U.S. Government, bankers
acceptances, bank certificates of deposit, commercial paper and high
quality short-term debt instruments including repurchase agreements and
shares issued by open-end Funds.

6. "Equivalent Security" means any Security issued by the same entity as the
---------------------
issuer of a subject Security that may be convertible into that Security.
(e.g. options, rights, stock appreciation rights, warrants, preferred
stock, restricted stock, phantom stock, convertible bonds)

7. "Fund" means any investment company registered under the Investment Company
------
Act of 1940 managed by Western Asset Management Company.

8. "Immediate Family" of an Access Person means any of the following persons
------------------
who reside in the same household as the Access Person:

<TABLE>
<S> <C> <C>
child grandparent son-in-law
stepchild spouse daughter-in-law
grandchild sibling brother-in-law
parent mother-in-law sister-in-law
stepparent father-in-law
</TABLE>
<PAGE>

9. "Initial Public Offering" means an offering of securities registered under
-------------------------
the Securities Act of 1933, the issuer of which immediately before
registration was not subject to the reporting requirements of sections 13 or
15(d) of the Securities Exchange act of 1934.

10. "Director" means a director of Pacific American Income Shares or LM
----------
Institutional Fund Advisors I.

11. "Investment Person" means any employee of the Companies who, in connection
-------------------
with his or her regular functions or duties, makes or participates in making
recommendations regarding the purchase or sale of Securities for an Account
or Fund.

12. "Limited Offering" means an offering that is exempt from registration
------------------
under the securities Act of 1933 pursuant to section 4(2) or 4(6) or 77d(6)
or pursuant to rule 504, rule 505, or rule 506 under the Securities Act of
1933.

13. "Portfolio Manager" means a person who has or shares principal day-to-day
-------------------
responsibility for managing an Account or Fund.

14. "Pre-Clearance Officer" means the persons designated as Pre-Clearance
-----------------------
Officers by the Code of Ethics Committee.

15. "Security" means any security (as that term is defined under the Investment
----------
Company Act of 1940) and any financial instrument related to a security,
including options on securities, futures contracts, options on futures
contracts and any other derivative.

16. "Securities Transaction" means a purchase or sale of Securities in which an
------------------------
Access Person or a member of his or her Immediate Family has or acquires a
Beneficial Interest, including the writing of an option to purchase or sell
the Security.

17. "Western Asset Code of Ethics Committee" ("Code of Ethics Committee")
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Members of the Western Asset Code of Ethics Committee shall be designated by
the Western Asset Executive Committee.
<PAGE>