Western Asset Funds N-CSRS Certified semi-annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-06110

Western Asset Funds, Inc.

Name of Fund:

385 East Colorado Boulevard

Pasadena, CA 91101

Address of Principal Executive Offices:

Richard M. Wachterman, Esq.

Legg Mason Wood Walker, Incorporated

100 Light Street

Baltimore, MD 21202

Name and address of agent for service:

Registrant’s telephone number, including area code: (410) 539-0000

Date of fiscal year end: March 31, 2005

Date of reporting period: September 30, 2004

Item 1 – Report to Shareholders

Western Asset Funds, Inc.

Western Asset Limited Duration Bond Portfolio

Western Asset Intermediate Bond Portfolio

Western Asset Intermediate Plus Bond Portfolio

Western Asset Core Bond Portfolio

Western Asset Core Plus Bond Portfolio

Western Asset Inflation Indexed Plus Bond Portfolio

Western Asset High Yield Portfolio

Western Asset Non-U.S. Opportunity Bond Portfolio

Semi-Annual Report to Shareholders

September 30, 2004

Semi-Annual Report to Shareholders

EXPENSE EXAMPLES

As a shareholder of any of the Funds, you incur ongoing costs, including management fees, service (12b-1) fees on Financial Intermediary Class shares, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The examples are based on an investment of $1,000 invested on April 1, 2004, and held through September 30, 2004.

Actual Expenses

The first line for each Fund in the accompanying table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line for each Fund in the accompanying table provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the actual return of any of the Funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in a Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

	Beginning Account Value 4/1/04		Ending Account Value 9/30/04		Expenses PaidA During the Period 4/1/04 to 9/30/04		Annualized Expense Ratio
Limited Duration Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,002.60	$	2.01	0.40%
Hypothetical (5% return before expenses)		1,000.00		1,023.06		2.03
Intermediate Bond Portfolio Institutional Class:
Actual		1,000.00		1,011.20		2.27	0.45%
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28
Intermediate Plus Bond Portfolio Institutional Class:
Actual		1,000.00		1,012.40		2.22	0.45%
Hypothetical (5% return before expenses)		1,000.00		1,022.31		2.23
Core Bond Portfolio Institutional Class:
Actual		1,000.00		1,012.80		2.32	0.46%
Hypothetical (5% return before expenses)		1,000.00		1,022.76		2.33
Financial Intermediary Class:
Actual		1,000.00		1,012.40		3.68	0.73%
Hypothetical (5% return before expenses)		1,000.00		1,021.41		3.70

^A These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (183), and divided by 365.

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Semi-Annual Report to Shareholders

EXPENSE EXAMPLE—Continued

	Beginning Account Value 4/1/04		Ending Account Value 9/30/04		Expenses PaidA During the Period 4/1/04 to 9/30/04		Annualized Expense Ratio
Core Plus Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,021.50	$	2.28	0.45%
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28
Financial Intermediary Class:
Actual		1,000.00		1,020.30		3.55	0.70%
Hypothetical (5% return before expenses)		1,000.00		1,021.56		3.55
Inflation Indexed Plus Bond Portfolio Institutional Class:
Actual		1,000.00		1,007.20		1.26	0.25%
Hypothetical (5% return before expenses)		1,000.00		1,023.82		1.27
High Yield Portfolio Institutional Class:
Actual		1,000.00		1,047.00		3.28	0.64%
Hypothetical (5% return before expenses)		1,000.00		1,021.86		3.24
Non-U.S. Opportunity Bond Portfolio Institutional Class:
Actual		1,000.00		1,016.20		2.78	0.55%
Hypothetical (5% return before expenses)		1,000.00		1,022.31		2.79

^A These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (183), and divided by 365.

2

Semi-Annual Report to Shareholders

PORTFOLIO COMPOSITION

The following tables show the portfolio composition (as a percentage of the portfolio) for each of the Funds:

Debt RatingsA	Limited Duration		Intermediate		Intermediate Plus		Core		Core Plus		Inflation Indexed Plus		High Yield		Non-U.S.
AAA	73.55	%	55.51	%	55.45	%	78.22	%	77.60	%	96.49	%	—		74.15	%
AA	2.04	%	3.23	%	2.47	%	0.53	%	0.42	%	—		—		13.59	%
A	8.68	%	14.81	%	14.49	%	3.91	%	3.17	%	0.73	%	0.25	%	0.82	%
BBB	15.19	%	22.92	%	22.82	%	12.74	%	9.45	%	—		2.81	%	—
BB	0.47	%	1.87	%	2.67	%	1.74	%	3.52	%	—		26.85	%	—
B	—		0.37	%	1.55	%	0.90	%	3.55	%	—		53.77	%	—
Below B	—		—		0.27	%	0.38	%	0.26	%	—		15.02	%	—
Not Rated	0.07	%	1.29	%	0.28	%	1.58	%	2.03	%	2.78	%	1.30	%	11.44	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%
Maturity Schedule	Limited Duration		Intermediate		Intermediate Plus		Core		Core Plus		Inflation Indexed Plus		High Yield		Non-U.S.
Less Than 1 Year	25.30	%	9.06	%	14.63	%	32.53	%	35.20	%	0.41	%	0.57	%	13.22	%
1 to 3 Years	20.05	%	17.49	%	25.08	%	10.48	%	8.17	%	6.49	%	4.25	%	22.31	%
3 to 5 Years	20.82	%	29.97	%	25.30	%	13.64	%	15.05	%	12.77	%	10.69	%	6.69	%
5 to 10 Years	8.66	%	25.45	%	28.61	%	9.74	%	11.85	%	47.76	%	77.16	%	36.02	%
10 to 20 Years	2.78	%	3.99	%	0.81	%	6.10	%	2.73	%	—		5.01	%	4.32	%
20 to 30 Years	15.97	%	13.47	%	5.57	%	17.77	%	15.00	%	31.02	%	2.05	%	16.95	%
More Than 30 Years	6.42	%	0.57	%	—		9.74	%	12.00	%	1.55	%	0.27	%	0.49	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

^A Source: Standard & Poor's.

3

Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION

The following graphs and tables compare each Fund’s total returns against that of an appropriate broad-based securities market index. The lines illustrate the cumulative total return of an initial $1,000,000 investment for the periods indicated. The line for each Fund represents the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The line representing the securities market index does not include any transaction costs associated with buying and selling securities in the index or other investment management or administrative expenses.

Due to the limited operating history of the Western Asset Limited Duration Bond Portfolio and the Western Asset Intermediate Plus Bond Portfolio, performance graphs are not presented. The Funds, which began operations on October 1, 2003, and April 1, 2004, respectively, had total returns of 1.97% and 1.24%, respectively, for the period ended September 30, 2004.

Total return measures investment performance in terms of appreciation or depreciation in net asset value per share, plus dividends and any capital gain distributions. It assumes that dividends and distributions were reinvested at the time they were paid. Returns do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Average annual returns tend to smooth out variations in a fund’s return, so that they differ from actual year-to-year results.

The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information, please visit www.westernassetfunds.com. The investment return and principal value of the Funds will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods.

4

Semi-Annual Report to Shareholders

Western Asset Intermediate Bond Portfolio

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

^A A total return index consisting of investment grade corporate debt issues as well as debt issues of U.S. government agencies and the U.S. Treasury. The debt issues all maintain maturities within a range of 1 to 10 years. It is not possible to invest in an index.

5

Semi-Annual Report to Shareholders

^B A market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $100 million par amount outstanding and with at least one year to final maturity. It is not possible to invest in an index.

PERFORMANCE INFORMATION—Continued

Western Asset Core Bond Portfolio

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

6

Semi-Annual Report to Shareholders

Western Asset Core Bond Portfolio—Continued

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

^C The Fund’s Financial Intermediary Class inception date is July 22, 1999. Index returns are for periods beginning July 31, 1999.

7

Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION—Continued

Western Asset Core Plus Bond Portfolio

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

^D The Fund’s Institutional Class inception date is July 8, 1998. Index returns are for periods beginning June 30, 1998.

8

Semi-Annual Report to Shareholders

Western Asset Core Plus Bond Portfolio—Continued

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

^E The Fund’s Financial Intermediary Class inception date is January 8, 2002. Index returns are for periods beginning December 31, 2001.

9

Semi-Annual Report to Shareholders

^F An unmanaged index that measures the performance of intermediate (1 to 10 year) U.S. Treasury inflation-protected securities. It is not possible to invest in an index.

^G The Fund’s Institutional Class inception date is March 1, 2001. Index returns are for periods beginning February 28, 2001.

PERFORMANCE INFORMATION—Continued

Western Asset Inflation Indexed Plus Bond Portfolio

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

10

Semi-Annual Report to Shareholders

Western Asset High Yield Portfolio

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

^H A market value-weighted index that tracks the daily price-only, coupon, and total return performance of non-investment grade, fixed rate, publicly placed, dollar-denominated, and non-convertible debt registered with the U.S. Securities and Exchange Commission. It is not possible to invest in an index.

^I The Fund’s Institutional Class inception date is September 28, 2001. Index returns are for periods beginning September 30, 2001.

11

Semi-Annual Report to Shareholders

^J An index encompassing an all-inclusive universe of institutionally traded bonds, including all fixed rate bonds with remaining maturities of one year or longer and with amounts outstanding of at least the equivalent of $25 million USD. This Index excludes the U.S. and is currency-hedged as a means of achieving low-risk interest rate diversification. It is not possible to invest in an index.

^K The Fund’s Institutional Class inception date is July 15, 1998. Index returns are for periods beginning July 31, 1998.

PERFORMANCE INFORMATION—Continued

Western Asset Non-U.S. Opportunity Bond Portfolio

The graph and table do not reflect the deduction of taxes that a shareholder

would pay on Fund distributions or the redemption of Fund shares.

Past performance does not predict future performance.

12

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Limited Duration Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	87.1%
Corporate Bonds and Notes	21.2%
Aerospace/Defense	0.2%
Northrop Grumman Corporation		4.079%	11/16/06	$	70	$	71
Banking and Finance	2.0%
Ford Motor Credit Company		2.790%	9/28/07		390		389	A
General Motors Acceptance Corporation		4.150%	2/7/05		60		61
General Motors Acceptance Corporation		5.250%	5/16/05		70		71
General Motors Acceptance Corporation		7.500%	7/15/05		110		114
Household Finance Corporation		6.500%	1/24/06		120		126
John Deere Capital Corporation		3.900%	1/15/08		120		122
							883
Banks	0.8%
Bank of America Corporation		1.913%	10/22/04		70		70	A
FleetBoston Financial Corporation		4.875%	12/1/06		140		145
Wachovia Corporation		6.800%	6/1/05		120		124
							339
Cable	0.5%
Tele-Communications, Inc.		7.250%	8/1/05		200		210
Chemicals	0.3%
The Dow Chemical Company		7.000%	8/15/05		140		145
Computer Services and Systems	0.2%
Electronic Data Systems Corporation		7.125%	10/15/09		90		97
Consumer Products	0.3%
The Procter & Gamble Company		4.750%	6/15/07		120		125
Diversified Financial Services	0.8%
Citigroup Inc.		3.625%	2/9/09		115		115
U.S. Bancorp		3.125%	3/15/08		130		128
Wells Fargo & Company		1.900%	3/3/06		100		100	A
							343
Drug and Grocery Store Chains	0.1%
Safeway Inc.		2.164%	11/1/05		30		30	A

13

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Electric	2.4%
American Electric Power Company, Inc.		6.125%	5/15/06	$	160	$	168
DTE Energy Company		2.740%	6/1/07		215		215	A
FirstEnergy Corp.		5.500%	11/15/06		400		416
Southern California Edison Company		1.890%	1/13/06		60		60	A
Virginia Electric and Power Company		5.750%	3/31/06		150		156
							1,015
Energy	1.0%
Pacific Gas and Electric Company		3.600%	3/1/09		90		89
Progress Energy, Inc.		6.750%	3/1/06		150		158
Sempra Energy		2.210%	5/21/08		90		90	A
TXU Energy Co.		2.380%	1/17/06		100		100	A,B
							437
Environmental Services	0.4%
Waste Management, Inc.		7.000%	10/15/06		175		188
Food, Beverage and Tobacco	1.3%
Altria Group, Inc.		7.000%	7/15/05		140		143
Altria Group, Inc.		5.625%	11/4/08		95		97
Kellogg Company		6.000%	4/1/06		130		136
Kraft Foods Inc.		5.625%	11/1/11		40		42
Sara Lee Corporation		1.950%	6/15/06		160		158
							576
Investment Banking/Brokerage	2.3%
J.P. Morgan Chase & Co.		2.000%	5/20/05		100		100	A
J.P. Morgan Chase & Co.		2.160%	10/2/09		160		160	A
Lehman Brothers Holdings Inc.		1.750%	4/20/07		180		180	A
Merrill Lynch & Co., Inc.		7.375%	5/15/06		140		151
The Bear Stearns Companies Inc.		2.130%	9/9/09		200		200	A
The Goldman Sachs Group, Inc.		2.100%	2/25/05		110		110	A
The Goldman Sachs Group, Inc.		1.980%	7/23/09		100		100	A
							1,001
Media	1.9%
America Online Inc.		0.000%	12/6/19		295		188	C,D
Clear Channel Communications, Inc.		3.125%	2/1/07		80		79
Liberty Media Corporation		3.380%	9/17/06		160		162	A
News America Incorporated		6.625%	1/9/08		140		152
Viacom Inc.		5.625%	5/1/07		220		233
							814

14

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Limited Duration Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Medical Care Facilities	0.1%
HCA Inc.		6.910%	6/15/05	$	30	$	31
Oil and Gas	2.0%
Amerada Hess Corporation		7.375%	10/1/09		120		135
Apache Corporation		6.250%	4/15/12		90		101
Devon Energy Corporation		2.750%	8/1/06		150		149
Occidental Petroleum Corporation		7.650%	2/15/06		110		117
Pemex Project Funding Master Trust		8.500%	2/15/08	��	50		56
Pemex Project Funding Master Trust		3.180%	6/15/10		190		192	A,B
Tosco Corporation		7.625%	5/15/06		115		123
							873
Paper and Forest Products	0.4%
MeadWestvaco Corporation		8.400%	6/1/07		130		145
Weyerhaeuser Company		5.500%	3/15/05		45		45
							190
Pharmaceuticals	0.3%
Bristol-Myers Squibb Company		4.750%	10/1/06		120		124
Retail	0.4%
Target Corporation		5.400%	10/1/08		150		159
Special Purpose	2.2%
American Honda Finance Corporation		3.850%	11/6/08		34		34	B
ChevronTexaco Capital Company		3.500%	9/17/07		120		121
DaimlerChrysler NA Holding Corporation		2.343%	9/10/07		340		341	A
Sprint Capital Corporation		7.900%	3/15/05		240		246
Sprint Capital Corporation		4.780%	8/17/06		40		41
Toyota Motor Credit Corporation		1.751%	2/15/05		125		125	A
Verizon Wireless Capital LLC		1.810%	5/23/05		50		50	A,B
							958
Telecommunications	0.3%
BellSouth Corporation		4.200%	9/15/09		110		110
Telecommunications (Cellular/Wireless)	0.6%
AT&T Wireless Services Inc.		7.350%	3/1/06		160		170
Motorola, Inc.		4.608%	11/16/07		80		82
							252

15

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Telecommunications Equipment	0.4%
New York Telephone		6.000%	4/15/08	$	160	$	170
Total Corporate Bonds and Notes (Identified Cost—$9,137)							9,141
Asset-Backed Securities	24.2%
Fixed Rate Securities	5.0%
ACE Security Corp. 2003-MH1		2.200%	8/15/30		183		181	B
Aesop Funding II LLC 1998-1		6.140%	5/20/06		250		254	B
Capital One Auto Finance Trust 2001-B A4		4.880%	9/15/08		250		256
Capital One Auto Finance Trust 2002-B		2.710%	10/16/06		159		160
Hyundai Auto Receivables Trust 2002-A		2.800%	2/15/07		175		175	B
Onyx Acceptance Owner Trust 2002-D		3.100%	7/15/09		138		139
Structured Asset Securities Corporation 2004-SC1 A		8.809%	12/25/29		284		302	B
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		140		145
UPFC Auto Receivables Trust 2004-A		3.270%	9/15/10		500		500
Vanderbilt Mortgage Finance 2001-C		4.235%	8/7/14		42		42
							2,154
Indexed SecuritiesA	19.2%
AmeriCredit Automobile Loan Trust 2003-BX		1.920%	1/6/10		30		30
AmeriCredit Automobile Receivables Trust 2003-AM		1.956%	10/6/06		44		44
AQ Finance Nim Trust 2003-N13		2.070%	12/25/08		126		126	B
Bayview Financial Acquisition Trust 2004-C A1		2.035%	5/28/44		414		415
Capital Auto Receivables Asset Trust 2003-1		1.810%	6/15/05		67		67
Centex Home Equity 2002-D		2.280%	12/25/32		112		112
Chase Credit Card Master Trust 2002-2		2.660%	7/16/07		100		100
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		2.210%	10/25/32		118		118
Chase USA Master Trust 2000-1		2.320%	8/17/09		200		199
Chesapeake Funding LLC 2003-1		1.946%	8/7/08		300		300
Citibank Credit Card Issuance Trust 2000-C2		2.250%	10/15/07		90		90
Citibank Credit Card Issuance Trust 2002-C3		3.020%	12/15/09		160		164
Countrywide Asset-Backed Certificates 2000-4		2.080%	12/25/31		125		125
Countrywide Asset-Backed Certificates 2001-4		2.180%	4/25/32		59		60
Countrywide Asset-Backed Certificates 2002-3		2.210%	5/25/32		79		79
Countrywide Asset-Backed Certificates 2002-C		2.000%	5/15/28		94		94
Countrywide Home Equity Loan Trust 2002-G		2.130%	12/15/28		957		959
Countrywide Home Equity Loan Trust 2004-J		2.160%	3/25/32		800		800
Countrywide Home Equity Loan Trust 2004-O		2.160%	2/15/34		390		390
DSLA Mortgage Loan Trust 2004-ARI		2.070%	9/19/44		560		560

16

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Limited Duration Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Indexed Securities—Continued
EQCC Trust 2002-1		2.140%	11/25/31	$	111	$	111
First North American National Bank 2003-A		2.240%	5/16/11		220		221
Irwin Home Equity Trust 2003-A		2.340%	10/25/27		90		90
Metris Master Trust 2002-3A		2.111%	5/20/09		490		489
Navistar Financial 2003-B Owner Trust		1.960%	4/15/08		200		200
New Century Home Equity Loan Trust 2001-NC1		2.101%	6/20/31		71		71
Providian Gateway Master Trust 2002-B		2.460%	6/15/09		500		501	B
Rental Car Finance Corporation 2003-1A		2.240%	5/25/08		500		503	B
Rental Car Finance Corporation 2004-1A		2.040%	6/25/09		500		501	B
Residential Asset Securities Corporation 1999-KS1		2.115%	3/25/29		148		148
Structured Asset Securities Corporation 2002-BC1 A1		2.340%	8/25/32		83		83
Superior Wholesale Inventory Financing Trust 2004-A10		1.879%	9/15/11		500		499
							8,249
Total Asset-Backed Securities (Identified Cost—$10,417)							10,403
Mortgage-Backed Securities	12.6%
Fixed Rate Securities	1.6%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		135		141
Bank of America Mortgage Securities 2003-D		4.569%	5/25/33		314		314	E
Countrywide Alternative Loan Trust 2004-J1		6.000%	2/25/34		126		128
Residential Asset Mortgage Products, Inc. 2004-SL2		8.500%	10/25/31		87		92
							675
Indexed SecuritiesA	11.0%
Bear Stearns Commercial Mortgage Securities Incorporated 2004-ESA A1		1.978%	5/14/16		250		250	B
Crusade Global Trust 2003-2		2.100%	9/18/34		159		159
Granite Mortgages PLC 2003-1		1.820%	1/20/20		339		339
Holmes Financing plc Series 6		1.770%	4/15/08		300		300
Impac CMB Trust 2002-8		2.300%	3/25/33		121		121
Impac CMB Trust 2003-12		2.220%	12/25/33		416		416
Impac Secured Assets Corp. 2004-3		2.040%	11/25/34		496		495
J.P. Morgan Chase Commercial Mortgage Securities Corp. 2003-FL2A		2.010%	11/15/16		177		177	B
Mall America Capital Company LLC 2000-1		2.050%	3/12/10		250		250	B
Medallion Trust 2000-2G		2.110%	12/18/31		163		163
Medallion Trust 2003-1G		2.100%	12/21/33		146		146
Merrill Lynch Mortgage Investor, Inc. 2004-SL1		2.100%	4/25/35		205		205

17

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Limited Duration Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Indexed Securities—Continued
MLCC Mortgage Investors, Inc. 2003-H		2.865%	1/25/29	$	145	$	153
Morgan Stanley Dean Witter Capital I Trust 2001-XLF		2.236%	10/7/13		103		103	B
Residential Asset Mortgage Products, Inc. 2002-RS6		2.290%	11/25/32		163		164
Sequoia Mortgage Trust 2003-2 A2		1.620%	6/20/33		184		184
Sequoia Mortgage Trust 2003-8 A1		2.131%	1/20/34		446		446
Torrens Trust 2000-1GA		2.020%	7/15/31		75		75	B
Washington Mutual 2004-AR8		2.260%	6/25/44		590		590
							4,736
Total Mortgage-Backed Securities (Identified Cost—$5,419)							5,411
U.S. Government and Agency Obligations	22.9%
Fixed Rate Securities	17.2%
Fannie Mae		3.125%	7/15/06		860		866
Fannie Mae		3.250%	2/15/09		440		434
Fannie Mae		2.800%	3/1/19		260		259
Federal Home Loan Bank		2.500%	3/30/06		870		869
Federal Home Loan Bank		2.625%	10/16/06		450		448
Freddie Mac		3.625%	11/14/08		430		432
Freddie Mac		5.750%	3/15/09		400		434
United States Treasury Notes		1.625%	9/30/05		2,600		2,586
United States Treasury Notes		3.375%	9/15/09		1,060		1,060
							7,388
Indexed SecuritiesF	5.7%
United States Treasury Inflation-Protected Security		3.625%	1/15/08		1,114		1,221
United States Treasury Inflation-Protected Security		3.000%	7/15/12		748		828
United States Treasury Inflation-Protected Security		3.875%	4/15/29		311		413
							2,462
Total U.S. Government and Agency Obligations (Identified Cost—$9,818)							9,850
U.S. Government Agency Mortgage-Backed Securities	2.0%
Fixed Rate Securities	2.0%
Fannie Mae		5.500%	10/1/34		700		709	G
Government National Mortgage Association		5.000%	10/1/34		130		129	G
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$838)							838

18

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee BondsH	4.2%
Banks	0.2%
The Korea Development Bank		4.750%	7/20/09	$	70	$	72
Foreign Governments	0.6%
Republic of Chile		2.062%	1/28/08		40		40	A
Russian Federation		8.250%	3/31/10		60		65
Russian Federation		8.250%	3/31/10		130		142	B
							247
Manufacturing (Diversified)	0.7%
Tyco International Group SA		4.436%	6/15/07		300		306	B
Retail	0.3%
Wal-Mart Stores Canada, Inc.		5.580%	5/1/06		140		146	B
Special Purpose	1.0%
BP Capital Markets Plc		2.750%	12/29/06		140		139
Deutsche Telekom International Finance BV		8.250%	6/15/05		200		208
Diageo Capital Plc		3.375%	3/20/08		100		100
							447
Telecommunications	1.4%
British Telecommunications plc		7.875%	12/15/05		110		116
Telecom Italia Capital		4.000%	1/15/10		220		218	B
Telefonos de Mexico SA de CV (Telmex)		8.250%	1/26/06		250		267
							601
Total Yankee Bonds (Identified Cost—$1,815)							1,819
Total Long-Term Securities (Identified Cost—$37,444)							37,462

19

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Limited Duration Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Short-Term Securities	15.2%
U.S. Government and Agency Obligations	0.1%
Fannie Mae		0.000%	4/1/05	$	30	$	30	C,I
Repurchase Agreements	15.1%
Goldman, Sachs & Company 1.85%, dated 9/30/04, to be repurchased at $6,525 on 10/1/04 (Collateral: $6,185 Fannie Mae notes, 5.5%, due 3/15/11, value $6,671)					6,525		6,525
Total Short-Term Securities (Identified Cost—$6,555)							6,555
Total Investments (Identified Cost—$43,999)	102.3%						44,017
Other Assets Less Liabilities	(2.3)%						(971	)
Net Assets	100.0%					$	43,046

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedJ
U.S. Treasury Note Futures	December 2004	45	$	(4	)
Futures Contracts WrittenI
U.S. Treasury Note Futures	December 2004	17	$	4

^A Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^B Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 10.65% of net assets.

^C Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^D Convertible security – Security may be converted into the issuer’s common stock.

^E Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.

^F Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

^G When-issued security – Security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

^H Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^I All or a portion of this security is collateral to cover futures contracts.

^J Futures are described in more detail in the notes to financial statements.

See notes to financial statements.

20

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Intermediate Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Long-Term Securities	91.4%
Corporate Bonds and Notes	37.9%
Aerospace/Defense	1.0%
Northrop Grumman Corporation		4.079%	11/16/06	$	1,270	$	1,290
Raytheon Company		6.750%	8/15/07		1,510		1,652
Systems 2001 Asset Trust		6.664%	9/15/13		1,709		1,898	A
United Technologies Corporation		6.350%	3/1/11		1,280		1,421	B
							6,261
Banking and Finance	3.9%
Boeing Capital Corporation		6.350%	11/15/07		1,530		1,656	B
Countrywide Home Loans, Inc.		2.875%	2/15/07		1,250		1,236
Ford Motor Credit Company		2.790%	9/28/07		11,730		11,716	C
General Motors Acceptance Corporation		2.595%	5/18/06		1,500		1,504	B,C
General Motors Acceptance Corporation		2.510%	1/16/07		1,950		1,953	C
General Motors Acceptance Corporation		6.125%	8/28/07		805		848	B
General Motors Acceptance Corporation		3.080%	9/23/08		4,270		4,268	C
							23,181
Banks	1.3%
Bank of America Corporation		5.250%	2/1/07		1,100		1,153
Bank of America Corporation		2.260%	9/15/14		2,170		2,166	C
BankBoston NA		6.375%	3/25/08		1,270		1,384
U.S. Bank NA		2.870%	2/1/07		1,410		1,401
Wachovia Corporation		3.625%	2/17/09		1,900		1,885
							7,989
Cable	0.9%
Comcast Corporation		6.500%	1/15/15		530		572
Continental Cablevision, Inc.		8.875%	9/15/05		3,096		3,267
Cox Communications, Inc.		3.875%	10/1/08		1,110		1,070	B
Cox Communications, Inc.		4.625%	6/1/13		210		194
TCI Communications, Inc.		8.000%	8/1/05		220		232
							5,335
Chemicals	0.2%
E.I. du Pont de Nemours and Company		4.125%	4/30/10		1,270		1,281
Computer Services and Systems	0.4%
Electronic Data Systems Corporation		7.125%	10/15/09		2,360		2,535	B

21

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Corporate Bonds and Notes—Continued
Diversified Financial Services	2.2%
CIT Group Inc.		1.940%	5/18/07	$	150	$	150	C
CIT Group Inc.		4.000%	5/8/08		1,410		1,424
CIT Group Inc.		3.375%	4/1/09		150		146
Citigroup Inc.		1.880%	6/4/07		1,220		1,219	C
Citigroup Inc.		5.625%	8/27/12		2,470		2,640
General Electric Capital Corporation		1.762%	7/28/08		2,650		2,646	C
General Electric Capital Corporation		2.148%	9/15/14		1,530		1,527
U.S. Bancorp		3.125%	3/15/08		1,500		1,477
Wells Fargo & Company		1.980%	9/15/09		1,570		1,568	C
Wells Fargo & Company		5.000%	11/15/14		350		355
							13,152
Drug and Grocery Store Chains	0.3%
Safeway Inc.		2.164%	11/1/05		740		741C
The Kroger Co.		6.200%	6/15/12		1,090		1,184
							1,925
Electric	3.0%
American Electric Power Company, Inc.		6.125%	5/15/06		1,830		1,918	B
Carolina Power & Light Company		5.950%	3/1/09		1,175		1,258
Commonwealth Edison Company		6.150%	3/15/12		325		362
Dominion Resources, Inc.		5.700%	9/17/12		2,220		2,334
DTE Energy Company		2.740%	6/1/07		1,480		1,480	C
FirstEnergy Corp.		6.450%	11/15/11		2,420		2,640
General Electric Company		5.000%	2/1/13		3,110		3,198
Niagara Mohawk Power Corporation		7.750%	10/1/08		2,150		2,447
The Cleveland Electric Illuminating Company		5.650%	12/15/13		2,115		2,189
							17,826
Energy	2.5%
Duke Energy Corporation		6.250%	1/15/12		1,330		1,448
Exelon Corporation		6.750%	5/1/11		2,200		2,456
MidAmerican Energy Holdings Company		5.875%	10/1/12		1,020		1,077
Pacific Gas and Electric Company		3.600%	3/1/09		2,850		2,817	B
Progress Energy, Inc.		5.850%	10/30/08		1,250		1,330	B
Progress Energy, Inc.		7.100%	3/1/11		1,650		1,863	B
Sempra Energy		2.210%	5/21/08		1,930		1,928	C
TXU Energy Co.		2.380%	1/17/06		1,900		1,905	A,C
							14,824

22

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Corporate Bonds and Notes—Continued
Environmental Services	0.6%
Waste Management, Inc.		7.000%	10/15/06	$	2,900	$	3,110
Waste Management, Inc.		7.375%	8/1/10		200		231
							3,341
Food, Beverage and Tobacco	2.7%
Altria Group, Inc.		7.000%	7/15/05		2,000		2,049
Altria Group, Inc.		6.375%	2/1/06		460		475
Altria Group, Inc.		5.625%	11/4/08		1,970		2,012	B
Kraft Foods Inc.		4.000%	10/1/08		3,740		3,763	B
Kraft Foods Inc.		5.625%	11/1/11		900		951
Pepsi Bottling Holdings Inc.		5.625%	2/17/09		2,441		2,628	A
Philip Morris Companies, Inc.		7.125%	10/1/04		730		730
Philip Morris Companies, Inc.		6.950%	6/1/06		1,390		1,458	B
Sara Lee Corporation		2.750%	6/15/08		2,050		2,006
							16,072
Gas and Pipeline Utilities	0.4%
The Williams Companies, Inc.		8.125%	3/15/12		1,900		2,190	B
Insurance	0.5%
ACE INA Holdings Inc.		8.300%	8/15/06		1,610		1,757
Loews Corporation		3.125%	9/15/07		1,240		1,214	D
							2,971
Investment Banking/Brokerage	4.6%
Credit Suisse First Boston USA		6.125%	11/15/11		2,220		2,419
J.P. Morgan & Co. Incorporated		4.560%	2/15/12		2,190		2,365	C
J.P. Morgan Chase & Co.		2.160%	10/2/09		6,080		6,079	C
J.P. Morgan Chase Capital XIII		2.880%	9/30/34		1,500		1,485	C
Lehman Brothers Holdings Inc.		7.000%	2/1/08		495		546
Lehman Brothers Holdings Inc.		3.500%	8/7/08		1,550		1,538	B
Merrill Lynch & Co., Inc.		4.125%	1/15/09		3,130		3,155
Morgan Stanley		3.625%	4/1/08		250		251
Salomon Smith Barney Holdings Inc.		6.250%	1/15/05		2,150		2,176
The Bear Stearns Companies Inc.		2.875%	7/2/08		1,380		1,340
The Bear Stearns Companies Inc.		5.700%	11/15/14		500		526
The Goldman Sachs Group, Inc.		1.980%	7/23/09		1,880		1,882	C
The Goldman Sachs Group, Inc.		2.570%	9/29/14		3,980		3,980	B,C
							27,742

23

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Corporate Bonds and Notes—Continued
Investment Management	0.5%
Dryden Investor Trust		7.157%	7/23/08	$	2,584	$	2,766
Media	1.5%
America Online Inc.		0.000%	12/6/19		2,240		1,428	D,E
AOL Time Warner Inc.		6.875%	5/1/12		1,740		1,941
Cox Enterprises, Inc.		8.000%	2/15/07		1,150		1,234A
Liberty Media Corporation		3.380%	9/17/06		1,365		1,380	C
Turner Broadcasting System, Inc.		8.375%	7/1/13		1,830		2,207
Viacom Inc.		5.625%	8/15/12		730		765	B
							8,955
Medical Care Facilities	0.6%
HCA Inc.		8.750%	9/1/10		3,075		3,604
Oil and Gas	3.4%
Amerada Hess Corporation		7.375%	10/1/09		2,440		2,742	B
Anadarko Petroleum Corporation		3.250%	5/1/08		1,720		1,700
Apache Corporation		6.250%	4/15/12		2,280		2,555	B
ConocoPhillips		4.750%	10/15/12		1,620		1,643
Panhandle Eastern Pipe Line Company		4.800%	8/15/08		315		323
Pemex Project Funding Master Trust		8.500%	2/15/08		1,000		1,124
Pemex Project Funding Master Trust		3.180%	6/15/10		5,080		5,133	A,C
Sonat Inc.		7.625%	7/15/11		4,880		4,807
XTO Energy, Inc.		7.500%	4/15/12		560		658
							20,685
Paper and Forest Products	0.8%
MeadWestvaco Corporation		6.850%	4/1/12		2,063		2,298
Willamette Industries, Inc.		7.125%	7/22/13		2,270		2,569
							4,867
Pharmaceuticals	0.2%
Bristol-Myers Squibb Company		5.750%	10/1/11		1,200		1,287	B
Retail	0.5%
Target Corporation		5.875%	3/1/12		1,320		1,437
Wal-Mart Stores, Inc.		3.375%	10/1/08		600		596	B
Wal-Mart Stores, Inc.		4.125%	2/15/11		850		851
							2,884

24

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Corporate Bonds and Notes—Continued
Special Purpose	3.4%
DaimlerChrysler NA Holding Corporation		2.343%	9/10/07	$	4,710	$	4,715	C
DaimlerChrysler NA Holding Corporation		7.300%	1/15/12		2,170		2,465
Devon Financing Corporation ULC		6.875%	9/30/11		2,500		2,821
Sprint Capital Corporation		4.780%	8/17/06		1,970		2,025
Sprint Capital Corporation		8.375%	3/15/12		4,540		5,499	B
Verizon Global Funding Corp.		7.250%	12/1/10		2,500		2,882
							20,407
Telecommunications	0.7%
BellSouth Corporation		4.200%	9/15/09		2,300		2,313
Pacific Bell		6.125%	2/15/08		1,800		1,939	B
							4,252
Telecommunications (Cellular/Wireless)	0.8%
AT&T Wireless Services Inc.		7.350%	3/1/06		500		531
AT&T Wireless Services Inc.		8.125%	5/1/12		2,304		2,784
Motorola, Inc.		4.608%	11/16/07		1,570		1,613
							4,928
Transportation	1.0%
Continental Airlines, Inc.		6.545%	2/2/19		1,349		1,302
Delta Air Lines, Inc.		6.619%	3/18/11		561		510
Delta Air Lines, Inc.		6.718%	7/2/24		2,556		2,627
U.S. Airways		6.850%	7/30/19		1,371		1,253
Union Pacific Corporation		7.250%	11/1/08		250		280
							5,972
Total Corporate Bonds and Notes (Identified Cost—$222,977)							227,232
Asset-Backed Securities	9.2%
Fixed Rate Securities	2.0%
ABFS Mortgage Loan Trust 2002-3		4.263%	9/15/33		3,189		3,226	F
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		800		689
Ford Credit Auto Owner Trust 2002-B		4.140%	12/15/05		1,135		1,139
Green Tree Financial Corporation 1994-6		8.900%	1/15/20		3,800		4,113
Mego Mortgage Home Loan Trust 1996-2		7.275%	8/25/17		59		59
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		790		817
WFS Financial Owner Trust 2002-2		3.810%	2/20/07		1,982		1,990
							12,033

25

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Asset-Backed Securities—Continued
Indexed SecuritiesC	6.9%
AFC Home Equity Loan Trust 2003-3		2.190%	10/25/30	$	2,957	$	2,945	A
AmeriCredit Automobile Receivables Trust 2003-BX		1.876%	11/6/06		1,273		1,273
Amresco Residential Securities Mortgage Loan Trust 1998-2		2.390%	6/25/28		522		521
Asset Backed Securities Corp. Home Equity Loan Trust 2002-HE2		2.060%	8/15/32		909		909
Capital One Auto Finance Trust 2003-A		1.920%	10/15/07		5,500		5,505
CNH Equipment Trust 2003-A		1.940%	7/16/07		5,500		5,501
Countrywide Asset-Backed Certificates 2002-BC1		2.170%	4/25/32		2,376		2,379
Household Home Equity Loan Trust 2002-3		2.261%	7/20/32		2,370		2,373
IndyMac Home Equity Loan Asset-Backed Trust 2001-A		2.100%	3/25/31		1,695		1,693
MMCA Automobile Trust 2002-1		2.040%	1/15/10		942		941
Morgan Stanley ABS Capital I 2003-NC8 A2		2.200%	9/25/33		3,341		3,350
MSDWCC HELOC Trust 2003-1		2.110%	11/25/15		3,879		3,880
Paragon Hotel Finance Company 2003-CTF		3.260%	11/15/13		100		101	A
Residential Asset Securities Corporation 2003-KS1		2.210%	1/25/33		3,888		3,896
Saxon Asset Securities Trust 2003-3		1.980%	12/25/33		553		553
Sovereign Dealer Floor Plan Master LLC 2000-1A		2.010%	10/15/07		5,500		5,508	A
							41,328
Stripped Securities	0.3%
ACA CDS 2002-1, Ltd.		5.484%	7/15/08		7,600		646	G1
Oakwood Mortgage Investors Inc. 2001-C		6.000%	5/15/08		5,320		800	G1
							1,446
Total Asset-Backed Securities (Identified Cost—$54,972)							54,807
Mortgage-Backed Securities	5.9%
Fixed Rate Securities	1.6%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		842		879
GMAC Commercial Mortgage Securities Inc. 1998-C1		6.700%	5/15/30		1,000		1,091
GMAC Commercial Mortgage Securities Inc. 1998-C2		6.150%	5/15/35		1,079		1,096
Merrill Lynch Mortgage Investors, Inc. 1998-C1		6.310%	11/15/26		590		607
Morgan Stanley Capital I 1995-GAL1		7.950%	8/15/27		2,650		2,738	A
Nomura Asset Securities Corporation 1996-MD5		7.120%	4/13/39		1,500		1,589
Ocwen Residential MBS Corporation 1998-R1		7.000%	10/25/40		649		662	A,F
Wells Fargo Mortgage Backed Securities Trust 2002-18		5.500%	12/25/32		648		655
							9,317

26

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Mortgage-Backed Securities—Continued
Indexed SecuritiesC	4.3%
Commerce 2002-Fl7		2.110%	11/15/14	$	3,093	$	3,093A
Countrywide Home Loans 2004-20		3.626%	9/25/34		3,558		3,664
Countrywide Home Loans 2003-49		3.697%	12/19/33		1,000		988
Credit Suisse First Boston Mortgage Securities Corp. 2003-TFLA1		2.030%	4/15/13		5,420		5,421A
Impac CMB Trust 2001-3		2.210%	10/25/31		1,700		1,701
Impac CMB Trust 2002-5		2.210%	7/25/32		1,995		1,999
Impac CMB Trust 2003-12		2.220%	12/25/33		4,828		4,826
Wells Fargo Mortgage Backed Securities Trust 2004-S		3.542%	9/25/34		4,350		4,258
							25,950
Stripped Securities	N.M.
FFCA Secured Lending Corporation 1997-1		0.434%	2/18/22		1,449		17A,G1
Total Mortgage-Backed Securities (Identified Cost—$35,698)							35,284
U.S. Government and Agency Obligations	31.2%
Fixed Rate Securities	29.2%
Fannie Mae		5.500%	5/2/06		3,900		4,072
Fannie Mae		6.250%	2/1/11		2,900		3,202B
Fannie Mae		6.125%	3/15/12		3,160		3,521
Fannie Mae		4.375%	3/15/13		3,540		3,520B
Federal Home Loan Bank		2.625%	10/16/06		6,000		5,973B
Freddie Mac		3.625%	11/14/08		6,320		6,347B
Freddie Mac		5.800%	3/30/09		600		655
Freddie Mac		3.000%	4/15/09		4,410		4,295B
Freddie Mac		4.500%	1/15/13		2,450		2,461B
Overseas Private Investment Corporation		7.740%	8/15/07		3,000		3,253
Tennessee Valley Authority		5.625%	1/18/11		460		499
United States Treasury Bonds		2.375%	1/15/25		18,881		19,670
United States Treasury Notes		1.500%	3/31/06		9,410		9,287B
United States Treasury Notes		2.750%	6/30/06		8,820		8,856B
United States Treasury Notes		2.375%	8/15/06		30		30B
United States Treasury Notes		2.250%	2/15/07		2,370		2,345B
United States Treasury Notes		3.125%	5/15/07		3,860		3,893B
United States Treasury Notes		4.375%	5/15/07		980		1,019B
United States Treasury Notes		6.625%	5/15/07		2,290		2,511B
United States Treasury Notes		2.750%	8/15/07		520		519B
United States Treasury Notes		3.000%	2/15/08		680		680B
United States Treasury Notes		2.625%	5/15/08		26,610		26,220B

27

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
U.S. Government and Agency Obligations—Continued
Fixed Rate Securities—Continued
United States Treasury Notes		4.000%	6/15/09	$	47,210	$	48,586B
United States Treasury Notes		3.500%	8/15/09		7,990		8,038B
United States Treasury Notes		3.375%	9/15/09		60		60
United States Treasury Notes		4.000%	11/15/12		1,205		1,211B
United States Treasury Notes		4.250%	8/15/14		4,305		4,350B
							175,073
Indexed SecuritiesH	1.3%
United States Treasury Inflation-Protected Security		3.000%	7/15/12		1,485		1,645B
United States Treasury Inflation-Protected Security		1.875%	7/15/13		722		734B
United States Treasury Inflation-Protected Security		2.000%	7/15/14		322		329B
United States Treasury Inflation-Protected Security		3.625%	4/15/28		3,783		4,799
							7,507
Stripped Securities	0.7%
United States Treasury Bonds		0.000%	2/15/23		7,080		2,752B,G2
United States Treasury Notes		0.000%	5/15/30		6,490		1,729B,G2
							4,481
Total U.S. Government and Agency Obligations (Identified Cost—$184,047)							187,061
U.S. Government Agency Mortgage- Backed Securities	0.5%
Fixed Rate Securities	0.5%
Fannie Mae		7.250%	1/15/10		200		232
Fannie Mae		5.125%	1/2/14		1,300		1,324B
Fannie Mae		6.500%	6/1/14		508		538
Fannie Mae		8.000%	9/1/15		136		145
Fannie Mae		9.500%	4/1/21		88		100
Freddie Mac		8.500%	7/1/06		1		1
Freddie Mac		6.500%	6/1/13 to 11/1/15		135		143
Freddie Mac		7.500%	4/1/17		7		8
Freddie Mac		9.300%	4/15/19		132		132
Freddie Mac		6.000%	12/15/28		504		506

28

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
U.S. Government Agency Mortgage-Backed Securities—Continued
Fixed Rate Securities—Continued
Government National Mortgage Association		9.500%	9/15/05	$	13	$	14
Government National Mortgage Association		9.000%	6/15/06		37		38
							3,181
Stripped Securities	N.M.
Fannie Mae		0.000%	5/25/22		22		19G2
Freddie Mac		10.000%	3/1/21		18		4G1
							23
Variable Rate SecuritiesI	N.M.
Fannie Mae		3.191%	3/1/18		50		51
Freddie Mac		3.612%	1/1/19		19		19
							70
Total U.S. Government Agency Mortgage- Backed Securities (Identified Cost—$3,252)							3,274
Yankee BondsJ	6.5%
Banking and Finance	0.3%
HBOS Treasury Services plc		4.000%	9/15/09		1,530		1,534A
Banks	1.6%
HSBC Holdings plc		7.500%	7/15/09		5,700		6,564
The Korea Development Bank		4.250%	11/13/07		60		61
The Korea Development Bank		5.750%	9/10/13		2,770		2,920
							9,545
Diversified Financial Services	0.5%
Pemex Finance LTD.		7.800%	2/15/13		2,400		2,830
Electric	0.3%
SP PowerAssets Limited		5.000%	10/22/13		1,965		1,991A
Foreign Governments	0.9%
Russian Federation		5.000%	3/31/30		4,640		4,463
United Mexican States		8.375%	1/14/11		850		997
							5,460
Insurance	0.1%
XL Capital plc		6.500%	1/15/12		700		768

29

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE
Yankee Bonds—Continued
Manufacturing (Diversified)	1.1%
Tyco International Group SA		5.875%	11/1/04	$	1,000		$	1,003
Tyco International Group SA		6.375%	6/15/05		1,000			1,026
Tyco International Group SA		4.436%	6/15/07		3,350			3,423A
Tyco International Group SA		6.375%	10/15/11		180			199
Tyco International Group SA		6.000%	11/15/13		1,020			1,101
								6,752
Special Purpose	0.8%
Deutsche Telekom International Finance BV		8.500%	6/15/10		1,300			1,558
Diageo Capital Plc		3.375%	3/20/08		2,090			2,082
Petrozuata Finance, Inc.		8.220%	4/1/17		1,090			1,074A
								4,714
Telecommunications	0.9%
Koninklijke KPN NV		8.000%	10/1/10		1,600			1,903
Telecom Italia Capital		4.000%	1/15/10		3,550			3,523A
								5,426
Total Yankee Bonds (Identified Cost—$37,816)								39,020
Preferred Stocks	0.2%
Home Ownership Funding Corporation		13.331%			6	shs		247A,F
Home Ownership Funding Corporation II		13.338%			18			740A,F
Total Preferred Stocks (Identified Cost—$1,942)								987
Total Long-Term Securities (Identified Cost—$540,704)								547,665
Investment of Proceeds From Securities Lending	25.1%
State Street Navigator Securities Lending Prime Portfolio					150,568			150,568
Total Investment of Proceeds From Securities Lending (Identified Cost—$150,568)								150,568
Short-Term Securities	7.2%
U.S. Government and Agency Obligations	0.1%
Fannie Mae		0.000%	4/1/05	$	470			465E,K
Options PurchasedL	N.M.
Eurodollar Futures Call, January 2005, Strike Price $98					40M			0.4

30

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Short-Term Securities—Continued
Repurchase Agreements	7.1%
Deutsche Bank AG 1.85%, dated 9/30/04, to be repurchased at $21,478 on 10/1/04 (Collateral: $21,512 Fannie Mae notes, 4.61%, due 10/10/13, value $22,379)				$	21,477	$	21,477
Goldman, Sachs & Company 1.85%, dated 9/30/04, to be repurchased at $21,001 on 10/1/04 (Collateral: $21,235 Fannie Mae notes, 3.125%, due 5/4/07, value $21,690)					21,000		21,000
							42,477
Total Short-Term Securities (Identified Cost—$42,958)							42,942
Total Investments (Identified Cost—$734,230)	123.7%						741,175
Obligation to Return Collateral for Securities Loaned	(25.1)%						(150,568	)
Other Assets Less Liabilities	1.4%						8,351
Net Assets	100.0%					$	598,958

31

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedL
Eurodollar Futures	December 2004	19	$	22
Eurodollar Futures	March 2005	238		300
U.S. Treasury Note Futures	December 2004	16		5
			$	327
Futures Contracts WrittenL
U.S. Treasury Note Futures	December 2004	153	$	(49	)
Options WrittenL
U.S. Treasury Note Futures Put, Strike Price $102.00	March 2004	104	$	65

^A Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 7.65% of net assets.

^B All or a portion of this security is on loan. See Note 4 to the financial statements.

^C Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^D Convertible bond – Security may be converted into the issuer’s common stock.

^E Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^F Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.

^G Stripped security – Security with interest-only or principal-only payment streams, denoted by a 1 or 2, respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due.

^H Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

^I The coupon rates shown on variable rate securities are the rates at September 30, 2004. These rates vary with the weighted average coupon of the underlying loans.

^J Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^K All or a portion of this security is collateral to cover futures and option contracts.

^L Options and futures are described in more detail in the notes to financial statements.

^M Represents actual number of contracts.

N.M. – Not meaningful.

See notes to financial statements.

32

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Intermediate Plus Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	89.4%
Corporate Bonds and Notes	38.9%
Aerospace/Defense	0.5%
Northrop Grumman Corporation		4.079%	11/16/06	$	20	$	20
Raytheon Company		6.750%	8/15/07		40		44
							64
Banking and Finance	4.0%
Boeing Capital Corporation		5.750%	2/15/07		50		53
Countrywide Home Loans, Inc.		2.875%	2/15/07		60		59
Ford Motor Credit Company		2.790%	9/28/07		210		210	A
General Motors Acceptance Corporation		2.510%	1/16/07		50		50	A
General Motors Acceptance Corporation		3.080%	9/23/08		120		120	A
John Deere Capital Corporation		3.900%	1/15/08		50		51
							543
Banks	1.2%
Bank of America Corporation		2.260%	9/15/14		70		70	A
U.S. Bank NA		2.870%	2/1/07		50		50
Wachovia Corporation		3.625%	2/17/09		50		49
							169
Cable	0.7%
Comcast Cable Communications, Inc.		6.375%	1/30/06		70		73
Cox Communications, Inc.		3.875%	10/1/08		20		19
							92
Chemicals	0.5%
E.I. du Pont de Nemours and Company		4.125%	4/30/10		30		30
The Dow Chemical Company		5.750%	12/15/08		40		43
							73
Computer Services and Systems	0.4%
Electronic Data Systems Corporation		7.125%	10/15/09		50		54
Diversified Financial Services	3.2%
CIT Group Inc.		4.000%	5/8/08		50		51
Citigroup Inc.		1.880%	6/4/07		100		100	A
Citigroup Inc.		5.625%	8/27/12		50		53
General Electric Capital Corporation		1.762%	7/28/08		20		20	A
General Electric Capital Corporation		2.148%	9/15/14		150		150	A
Wells Fargo & Company		1.980%	9/15/09		60		60	A
Wells Fargo & Company		5.000%	11/15/14		10		10
							444

33

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Electric	3.5%
American Electric Power Company, Inc.		6.125%	5/15/06	$	50	$	52
Dominion Resources, Inc.		5.700%	9/17/12		50		53
DTE Energy Company		2.740%	6/1/07		30		30	A
FirstEnergy Corp.		5.500%	11/15/06		50		52
FirstEnergy Corp.		6.450%	11/15/11		50		55
General Electric Company		5.000%	2/1/13		50		51
GPU, Inc.		7.700%	12/1/05		30		32
Niagara Mohawk Power Corporation		7.750%	10/1/08		50		57
The AES Corporation		9.500%	6/1/09		50		56
The Cleveland Electric Illuminating Company		5.650%	12/15/13		40		41
							479
Energy	2.5%
Exelon Corporation		6.750%	5/1/11		60		67
Pacific Gas and Electric Company		3.600%	3/1/09		50		50
Progress Energy, Inc.		7.100%	3/1/11		70		79
Sempra Energy		2.210%	5/21/08		40		40	A
TXU Energy Co.		2.380%	1/17/06		100		100	A,B
							336
Environmental Services	0.6%
Waste Management, Inc.		6.375%	11/15/12		70		77
Food, Beverage and Tobacco	3.7%
Altria Group, Inc.		7.000%	7/15/05		90		92
Altria Group, Inc.		5.625%	11/4/08		150		153
General Mills, Inc.		5.125%	2/15/07		40		41
Kraft Foods Inc.		4.000%	10/1/08		90		91
Kraft Foods Inc.		5.625%	11/1/11		20		21
Pepsi Bottling Holdings Inc.		5.625%	2/17/09		50		54	B
Sara Lee Corporation		2.750%	6/15/08		50		49
							501
Insurance	0.5%
ACE INA Holdings Inc		8.300%	8/15/06		60		66
Investment Banking/Brokerage	4.8%
Credit Suisse First Boston USA		6.125%	11/15/11		50		54
J.P. Morgan Chase & Co.		2.160%	10/2/09		130		130	A
J.P. Morgan Chase Capital XIII		2.880%	9/30/34		30		30	A
Lehman Brothers Holdings Inc.		3.500%	8/7/08		50		50

34

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Investment Banking/Brokerage—Continued
Merrill Lynch & Co., Inc.		4.125%	1/15/09	$	70	$	70
Morgan Stanley		5.800%	4/1/07		100		106
The Bear Stearns Companies Inc.		2.875%	7/2/08		50		49
The Goldman Sachs Group, Inc.		1.980%	7/23/09		60		60	A
The Goldman Sachs Group, Inc.		2.570%	9/29/14		100		100	A
							649
Media	2.1%
AOL Time Warner Inc.		6.150%	5/1/07		50		53
AOL Time Warner Inc.		6.875%	5/1/12		20		22
Cox Enterprises, Inc.		4.375%	5/1/08		40		39	B
Liberty Media Corporation		3.380%	9/17/06		80		81	A
Turner Broadcasting System, Inc.		8.375%	7/1/13		30		36
Viacom Inc.		5.625%	5/1/07		50		53
							284
Medical Care Facilities	0.4%
HCA Inc.		8.750%	9/1/10		50		59
Oil and Gas	2.3%
Amerada Hess Corporation		7.375%	10/1/09		43		48
Anadarko Petroleum Corporation		3.250%	5/1/08		30		30
Apache Corporation		6.250%	4/15/12		50		56
ConocoPhillips		4.750%	10/15/12		50		51
Occidental Petroleum Corporation		7.650%	2/15/06		30		32
Texas Eastern Transmission Corporation		5.250%	7/15/07		50		52
XTO Energy, Inc.		7.500%	4/15/12		40		47
							316
Paper and Forest Products	0.8%
MeadWestvaco Corporation		6.850%	4/1/12		50		56
Weyerhaeuser Company		6.750%	3/15/12		50		56
							112
Pharmaceuticals	0.3%
Bristol-Myers Squibb Company		4.750%	10/1/06		40		41
Real Estate	0.4%
EOP Operating Limited Partnership		6.750%	2/15/12		50		55

35

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Retail	0.4%
Target Corporation		5.400%	10/1/08	$	50	$	53
Special Purpose	4.1%
DaimlerChrysler NA Holding Corporation		2.343%	9/10/07		70		70	A
DaimlerChrysler NA Holding Corporation		7.300%	1/15/12		90		102
Devon Financing Corporation ULC		6.875%	9/30/11		60		68
National Rural Utilities Cooperative Finance Corporation		6.000%	5/15/06		50		53
Sprint Capital Corporation		4.780%	8/17/06		50		51	C
Sprint Capital Corporation		8.375%	3/15/12		70		85
The Williams Companies, Inc. Credit-Linked Certificates		4.944%	5/1/09		55		57	A,B
Verizon Global Funding Corp.		6.875%	6/15/12		60		68
							554
Telecommunications	1.1%
BellSouth Corporation		4.200%	9/15/09		30		30
GTE Hawaiian Telephone Company, Inc.		7.000%	2/1/06		16		17
GTE Hawaiian Telephone Company, Inc.		7.375%	9/1/06		10		10
Pacific Bell		6.125%	2/15/08		50		54
Qwest Communications International Inc.		5.211%	2/15/09		40		38	A,B
							149
Telecommunications (Cellular/Wireless)	0.9%
AT&T Wireless Services Inc.		7.500%	5/1/07		30		33
AT&T Wireless Services Inc.		8.125%	5/1/12		50		60
Motorola, Inc.		4.608%	11/16/07		30		31
							124
Total Corporate Bonds and Notes (Identified Cost—$5,286)							5,294
Asset-Backed Securities	5.4%
Fixed Rate Securities	2.9%
AmeriCredit Automobile Recreation Trust 2002-B		3.780%	2/12/07		70		70
Capital Auto Receivables Asset Trust 2002-1		4.160%	7/16/07		122		123
Nissan Auto Receivables Owner Trust 2002-B		4.600%	9/17/07		200		203
							396
Indexed SecuritiesA	2.5%
Chase Credit Card Master Trust 2001-5		2.760%	2/15/07		30		30	B
Metris Master Trust 2004-1		2.091%	4/20/11		100		100

36

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Indexed Securities—Continued
Morgan Stanley ABS Capital I 2003-NC8 A2		2.200%	9/25/33	$	115	$	115
Residential Asset Securities Corporation 2002-KS7		2.210%	11/25/32		93		93
							338
Total Asset-Backed Securities (Identified Cost—$738)							734
Mortgage-Backed Securities	1.8%
Fixed Rate Securities	0.5%
Washington Mutual Mortgage Securities Corporation 2004-RA1		7.000%	3/25/34		65		67
Indexed SecuritiesA	1.3%
Countrywide Home Loans 2004-20		3.626%	9/25/34		69		71
Merrill Lynch Mortgage Investors, Inc. 2004-B		2.899%	6/25/29		96		99
							170
Total Mortgage-Backed Securities (Identified Cost—$238)							237
U.S. Government and Agency Obligations	28.2%
Fixed Rate Securities	23.2%
Fannie Mae		6.250%	2/1/11		30		33
Federal Home Loan Bank		2.625%	10/16/06		100		99
Tennessee Valley Authority		5.625%	1/18/11		10		11
United States Treasury Bonds		2.375%	1/15/25		60		63
United States Treasury Notes		2.250%	2/15/07		475		470
United States Treasury Notes		2.750%	8/15/07		700		698
United States Treasury Notes		3.375%	9/15/09		1,070		1,070
United States Treasury Notes		6.500%	2/15/10		40		46
United States Treasury Notes		4.750%	5/15/14		247		260
United States Treasury Notes		4.250%	8/15/14		400		404
							3,154
Indexed SecuritiesD	5.0%
United States Treasury Inflation-Protected Security		2.000%	1/15/14		666		682
Total U.S. Government and Agency Obligations (Identified Cost—$3,848)							3,836
U.S. Government Agency Mortgage-Backed Securities	0.4%
Fixed Rate Securities	0.4%
Freddie Mac		5.000%	10/15/32		60		60
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$60)							60

37

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee BondsE	9.1%
Banks	1.6%
HSBC Holdings plc		7.500%	7/15/09	$	100	$	115
KFW Kreditanstalt fuer Wiederaufbau		3.375%	1/23/08		70		70
The Korea Development Bank		4.250%	11/13/07		30		31
							216
Foreign Governments	3.6%
Federative Republic of Brazil		14.500%	10/15/09		40		52
Federative Republic of Brazil		10.125%	5/15/27		50		53
Republic of Bulgaria		8.250%	1/15/15		25		31	B
Republic of Bulgaria		8.250%	1/15/15		30		37
Republic of Colombia		11.750%	2/25/20		15		18
Republic of Panama		10.750%	5/15/20		15		18
Russian Federation		5.000%	3/31/30		140		135	C
United Mexican States		8.375%	1/14/11		130		152
							496
Manufacturing (Diversified)	0.8%
Tyco International Group SA		4.436%	6/15/07		50		51	B
Tyco International Group SA		6.000%	11/15/13		50		54
							105
Special Purpose	0.8%
Deutsche Telekom International Finance BV		8.250%	6/15/05		50		52
Diageo Capital Plc		3.375%	3/20/08		50		50
							102
Telecommunications	2.0%
British Telecommunications plc		7.625%	12/15/05		50		53
France Telecom SA		7.950%	3/1/06		40		43
Telecom Italia Capital		4.000%	1/15/10		80		79	B
Telefonos de Mexico SA de CV		4.500%	11/19/08		100		100
							275
Telecommunications (Cellular/Wireless)	0.3%
Vodafone Group Plc		3.950%	1/30/08		40		41
Total Yankee Bonds (Identified Cost—$1,220)							1,235

38

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Foreign Government Obligations	5.6%
Fixed Rate Securities	5.6%
Federal Republic of Germany		3.250%	4/17/09		450F	$	560
Federal Republic of Germany		4.250%	1/4/14		160F		203
Total Foreign Government Obligations (Identified Cost—$727)							763
Total Long-Term Securities (Identified Cost—$12,117)							12,159
Short-Term Securities	14.1%
U.S. Government and Agency Obligations	N.M.
Fannie Mae		0.000%	4/1/05	$	10		10	G,H
Repurchase Agreements	14.1%
Lehman Brothers, Inc. 1.86%, dated 9/30/04, to be repurchased at $1,917 on 10/1/04 (Collateral: $1,905 Federal Home Loan Bank bonds, 6%, due 4/30/19, value $2,003)					1,917		1,917
Total Short-Term Securities (Identified Cost—$1,927)							1,927
Total Investments (Identified Cost—$14,044)	103.5%						14,086
Other Assets Less Liabilities	(3.5)%						(481	)
Net Assets	100.0%					$	13,605

39

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedI
Eurodollar Futures	March 2005	2	$	3
U.S. Treasury Note Futures	December 2004	1		1
			$	4
Futures Contracts WrittenI
U.S. Treasury Note Futures	December 2004	2	$	(0.1	)
Options WrittenI
U.S. Treasury Note Futures Put, Strike Price $102.00	March 2004	2	$	1

^A Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^B Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 3.52% of net assets.

^C Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.

^D Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

^E Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^F Denominated in euro currency.

^G Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^H All or a portion of this security is collateral to cover futures and option contracts.

^I Options and futures are described in more detail in the notes to financial statements.

N.M.—Not meaningful.

See notes to financial statements.

40

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Core Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	74.0%
Corporate Bonds and Notes	17.3%
Aerospace/Defense	0.3%
Lockheed Martin Corporation		7.650%	5/1/16	$	225	$	273
Northrop Grumman Corporation		4.079%	11/16/06		2,600		2,641
Raytheon Company		6.000%	12/15/10		125		137
Raytheon Company		5.500%	11/15/12		65		68	A
Raytheon Company		5.375%	4/1/13		705		733
Systems 2001 Asset Trust		6.664%	9/15/13		3,146		3,495	B
							7,347
Banking and Finance	3.2%
Boeing Capital Corporation		7.375%	9/27/10		3,240		3,764
Ford Motor Credit Company		6.875%	2/1/06		11,410		11,940
Ford Motor Credit Company		7.375%	10/28/09		20,525		22,482
Ford Motor Credit Company		7.875%	6/15/10		7,450		8,309
Ford Motor Credit Company		7.375%	2/1/11		1,825		1,985
Ford Motor Credit Company		7.250%	10/25/11		360		389	A
General Motors Acceptance Corporation		6.125%	9/15/06		8,090		8,458
General Motors Acceptance Corporation		6.125%	2/1/07		4,800		5,043
General Motors Acceptance Corporation		7.250%	3/2/11		2,220		2,370
General Motors Acceptance Corporation		0.000%	6/15/15		13,910		6,961	C
Household Finance Corporation		7.875%	3/1/07		2,800		3,099
Household Finance Corporation		8.000%	7/15/10		690		816
Household Finance Corporation		7.000%	5/15/12		700		801
Household Finance Corporation		6.375%	11/27/12		440		487
SB Treasury Company LLC		9.400%	12/29/49		2,930		3,448	B
SLM Corporation		4.120%	4/1/09		7,620		7,649	D
							88,001
Banks	0.5%
Bank of America Corporation		5.250%	2/1/07		3,200		3,354
Bank of America Corporation		7.400%	1/15/11		1,500		1,748	A
Bank One Corporation		7.875%	8/1/10		4,500		5,311
Bank One Corporation		5.900%	11/15/11		2,000		2,141
Firstar Bank NA		7.125%	12/1/09		450		517
Wells Fargo Bank NA, San Francisco		6.450%	2/1/11		510		572
							13,643

41

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Cable	0.4%
Comcast Cable Communications, Inc.		6.375%	1/30/06	$	2,790	$	2,905
Comcast Corporation		6.500%	1/15/15		1,800		1,944
Comcast Corporation		7.050%	3/15/33		3,130		3,434
Continental Cablevision, Inc.		9.000%	9/1/08		2,200		2,579
Cox Communications, Inc.		7.875%	8/15/09		640		714
Cox Communications, Inc.		7.125%	10/1/12		10		11
Cox Communications, Inc.		4.625%	6/1/13		10		9
Cox Communications, Inc.		5.500%	10/1/15		230		219
							11,815
Computer Services and Systems	0.2%
Electronic Data Systems Corporation		7.125%	10/15/09		4,255		4,570	A
Diversified Financial Services	0.1%
U.S. Bancorp		3.125%	3/15/08		1,300		1,280
Wells Fargo & Company		5.000%	11/15/14		180		182
							1,462
Electric	0.7%
Dominion Resources, Inc.		4.125%	2/15/08		950		962
Dominion Resources, Inc.		5.125%	12/15/09		50		52	A
Dominion Resources, Inc.		5.700%	9/17/12		2,350		2,471	A
FirstEnergy Corp.		5.500%	11/15/06		6,290		6,547
FirstEnergy Corp.		6.450%	11/15/11		340		371
FirstEnergy Corp.		7.375%	11/15/31		6,650		7,469
The Cleveland Electric Illuminating Company		5.650%	12/15/13		280		290
The Detroit Edison Company		6.125%	10/1/10		920		1,009
							19,171
Energy	0.7%
Duke Energy Corporation		5.625%	11/30/12		1,880		1,971	A
Pacific Gas and Electric Company		6.050%	3/1/34		3,090		3,145
Progress Energy, Inc.		7.100%	3/1/11		3,170		3,579
TXU Corp.		6.375%	6/15/06		8,380		8,810
TXU Energy Co.		2.380%	1/17/06		1,640		1,644	B,D
							19,149
Environmental Services	0.5%
Waste Management, Inc.		7.000%	10/1/04		290		290
Waste Management, Inc.		7.125%	10/1/07		1,330		1,467
Waste Management, Inc.		6.875%	5/15/09		2,000		2,234

42

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Environmental Services—Continued
Waste Management, Inc.		6.375%	11/15/12	$	2,530	$	2,797
Waste Management, Inc.		7.125%	12/15/17		6,000		6,893
Waste Management, Inc.		7.375%	5/15/29		1,220		1,401
							15,082
Food, Beverage and Tobacco	0.6%
Altria Group, Inc.		7.000%	11/4/13		4,655		4,857
Altria Group, Inc.		7.750%	1/15/27		2,500		2,641
Nabisco Incorporated		6.375%	2/1/05		4,250		4,294
R.J. Reynolds Tobacco Holdings, Inc.		7.875%	5/15/09		3,240		3,353
							15,145
Gas and Pipeline Utilities	1.2%
Dynegy Holdings Inc.		8.750%	2/15/12		11,260		11,710	A
Southern Natural Gas Company		8.000%	3/1/32		7,390		7,630
Tennessee Gas Pipeline Company		8.375%	6/15/32		1,110		1,188
The Williams Companies, Inc.		8.125%	3/15/12		3,730		4,299	A
The Williams Companies, Inc.		7.500%	1/15/31		5,000		5,025	A
The Williams Companies, Inc.		8.750%	3/15/32		3,240		3,621
							33,473
Health Care	0.4%
Tenet Healthcare Corporation		6.375%	12/1/11		2,500		2,244
Tenet Healthcare Corporation		7.375%	2/1/13		9,462		8,894	A
							11,138
Insurance	0.1%
Loews Corporation		7.000%	10/15/23		3,000		3,045
Investment Banking/Brokerage	0.8%
Credit Suisse First Boston USA		4.625%	1/15/08		1,650		1,704
J.P. Morgan & Co. Incorporated		4.560%	2/15/12		2,000		2,160	D
J.P. Morgan Chase & Co.		5.750%	1/2/13		3,270		3,482	A
Lehman Brothers Holdings Inc.		1.750%	4/20/07		5,470		5,470	D
Merrill Lynch & Co., Inc.		3.375%	9/14/07		2,120		2,119
Morgan Stanley		5.300%	3/1/13		3,380		3,464
The Goldman Sachs Group, Inc.		4.750%	7/15/13		4,370		4,288	A
							22,687
Investment Management	0.4%
Dryden Investor Trust		7.157%	7/23/08		10,697		11,453

43

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Media	2.0%
AOL Time Warner Inc.		6.875%	5/1/12	$	8,270	$	9,227
AOL Time Warner Inc.		7.625%	4/15/31		1,350		1,554
AOL Time Warner Inc.		7.700%	5/1/32		13,960		16,232
Liberty Media Corporation		3.380%	9/17/06		24,060		24,318	A,D
Liberty Media Corporation		3.750%	2/15/30		290		192	E
Time Warner Inc.		6.950%	1/15/28		2,500		2,668
Viacom Inc.		5.625%	8/15/12		1,240		1,300	A
							55,491
Medical Care Facilities	0.8%
HCA Inc.		5.750%	3/15/14		21,360		21,175
Oil and Gas	1.1%
Apache Corporation		6.250%	4/15/12		1,170		1,311
Conoco Inc.		6.950%	4/15/29		8,320		9,600
ConocoPhillips		4.750%	10/15/12		2,170		2,200
Devon Energy Corporation		7.950%	4/15/32		3,605		4,472	A
El Paso Corporation		0.000%	2/28/21		4,950		2,524	C,E
El Paso Corporation		7.800%	8/1/31		140		123
El Paso Natural Gas Company		8.375%	6/15/32		3,610		3,809
Sonat Inc.		7.625%	7/15/11		5,000		4,925	A
XTO Energy, Inc.		7.500%	4/15/12		2,090		2,455
							31,419
Paper and Forest Products	N.M.
International Paper Company		5.500%	1/15/14		675		691
Pharmaceuticals	0.2%
Bristol-Myers Squibb Company		5.750%	10/1/11		3,790		4,064
Merck & Co., Inc.		6.750%	9/19/05		1,000		1,042
							5,106
Photo Equipment and Supplies	0.5%
Eastman Kodak Company		3.625%	5/15/08		13,000		12,733
Eastman Kodak Company		7.250%	11/15/13		710		783	A
							13,516
Real Estate	N.M.
Socgen Real Estate Co. LLC		7.640%	12/29/49		260		289	B

44

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Retail	0.2%
Target Corporation		4.000%	6/15/13	$	4,445	$	4,251	A
Wal-Mart Stores, Inc.		5.450%	8/1/06		150		157
Wal-Mart Stores, Inc.		4.125%	2/15/11		2,210		2,213
							6,621
Special Purpose	1.8%
Anadarko Finance Company		6.750%	5/1/11		1,590		1,801	A
DaimlerChrysler NA Holding Corporation		4.050%	6/4/08		3,490		3,521	A
Devon Financing Corporation ULC		6.875%	9/30/11		1,330		1,501
Patrons’ Legacy 2003 IV		5.775%	1/23/17		5,100		5,182	B
Sprint Capital Corporation		6.000%	1/15/07		22,760		24,092
Sprint Capital Corporation		8.375%	3/15/12		5,445		6,594
Texaco Capital Inc.		5.500%	1/15/09		1,000		1,070
Unilever Capital Corporation		7.125%	11/1/10		1,730		2,003
Verizon Global Funding Corp.		7.250%	12/1/10		1,720		1,983
Verizon Global Funding Corp.		6.875%	6/15/12		1,290		1,462	A
Verizon Global Funding Corp.		7.375%	9/1/12		1,275		1,489	A
							50,698
Telecommunications	N.M.
GTE Hawaiian Telephone Company, Inc.		7.375%	9/1/06		700		729
Transportation	0.6%
Continental Airlines, Inc.		6.545%	2/2/19		1,012		976
Delta Air Lines, Inc.		6.619%	3/18/11		499		454
Delta Air Lines, Inc.		7.111%	9/18/11		500		449	A
Delta Air Lines, Inc.		6.718%	1/2/23		4,526		4,652
Southwest Airlines Co.		5.496%	11/1/06		9,000		9,306
United Airlines, Inc.		7.783%	1/1/14		2,539		2,085
							17,922
Total Corporate Bonds and Notes (Identified Cost—$461,701)							480,838
Asset-Backed Securities	3.5%
Fixed Rate Securities	0.8%
Advanta Mortgage Loan Trust 1999-3		7.590%	6/25/14		405		429
Conseco Finance Securitizations Corp. 2000-5		7.960%	2/1/32		4,700		4,232
Equity One ABS, Inc. 2003-3		4.995%	12/25/33		8,200		8,246
Green Tree Financial Corporation 1996-5		8.100%	7/15/27		1,072		268

45

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Fixed Rate Securities—Continued
Green Tree Home Improvement Loan Trust 1997-D		7.450%	9/15/28	$	1,700	$	1,703
Irwin Home Equity Loan Trust 2001-1		7.100%	9/25/31		6,537		6,697	G
							21,575
Indexed SecuritiesD	2.7%
ACE Securities Corp. Home Equity Loan Trust, 2001-AQ1		2.100%	4/25/31		69		69
Aesop Funding II LLC 2003-4A		2.041%	8/20/07		13,900		13,907	B
Amortizing Residential Collateral Trust 2002-BC1M		2.120%	1/1/32		735		735
Argent NIM Trust 2003-N1		2.110%	8/25/08		1,803		1,803	B
Asset Backed Funding Certificates 2002-SB1		2.270%	12/25/30		3,422		3,432
Bayview Financial Aquisition Trust 2001-DA		2.220%	11/25/31		2,345		2,346	B
Bayview Financial Aquisition Trust 2002-CA		2.170%	5/25/32		2,969		2,965	B
CDC Mortgage Capital Trust 2002-HE1		2.150%	1/25/33		2,716		2,719
Centex Home Equity 2000-C		2.080%	10/25/30		194		194
Centex Home Equity 2002-D		2.280%	12/25/32		2,843		2,849
Chase Funding Mortgage Loan Asset-Backed Certificates 2000-2		2.120%	5/25/30		56		56
CIT Group Home Equity Loan Trust 2002-1		2.130%	3/25/33		2,593		2,594
Countrywide Asset-Backed Certificates 2001-BC2		2.090%	7/25/31		253		254
Countrywide Asset-Backed Certificates 2003-BC3		2.150%	9/25/33		11,779		11,793
Fleet Home Equity Loan Trust 2003-1		2.061%	1/20/33		8,620		8,620
Household Home Equity Loan Trust 2002-4A		2.361%	10/20/32		1,976		1,980
Long Beach Mortgage Loan Trust 2000-1		2.080%	1/21/31		769		771
New Century Home Equity Loan Trust 2001-NC1		2.101%	6/20/31		2,212		2,213
Option One Mortgage Securities Corp. NIM Trust 2003-1		2.230%	1/26/10		707		707	B
Provident Bank Home Equity Loan Trust 1999-3		2.230%	1/25/31		2,357		2,358
Residential Asset Mortgage Products, Inc. 2000-RS3		2.130%	9/25/30		78		78
Residential Asset Mortgage Products, Inc. 2003-RS2		2.180%	3/25/33		1,683		1,686
Residential Asset Securities Corporation 2001-KS2		2.070%	6/25/31		1,617		1,620
Residential Asset Securities Corporation 2001-KS3		2.070%	9/25/31		743		743
Structured Asset Investment Loan Trust 2003-BC5		1.960%	6/25/33		263		263
William Street Funding Corporation 2003-1		1.950%	4/23/06		7,400		7,408	B
							74,163

46

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Stripped Securities	N.M.
Bayview Financial Acquisition Trust 2002-FA		7.000%	6/25/05	$	178	$	5	B,G1
Diversified REIT Trust 1999-1A		0.535%	3/18/11		98,304		1,843	G1
							1,848
Total Asset-Backed Securities (Identified Cost—$95,687)							97,586
Mortgage-Backed Securities	6.3%
Fixed Rate Securities	4.2%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		5,464		5,702
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		7,838		8,387	B
Deutsche Mortgage and Asset Receiving Corporation 1998-C1		6.538%	6/15/31		13,085		14,106
Merrill Lynch Mortgage Investors, Inc. 1996-C2		6.960%	11/21/28		734		775
Nomura Asset Securities Corporation 1996-MD5		7.120%	4/13/39		5,500		5,825
Nomura Asset Securities Corporation 1996-MD5A		7.070%	4/13/39		1,012		1,046
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		80,302		80,167
Washington Mutual 2002-S8		5.750%	1/25/33		1,590		1,592
							117,600
Indexed SecuritiesD	2.0%
Chevy Chase Mortgage Funding Corporation 2003-2A		2.220%	5/25/34		12,154		12,173	B
Credit Suisse First Boston Mortgage 2003-NP6		2.740%	8/25/32		767		767	B
Credit-Based Asset Servicing and Securitization 2001-CB2		2.130%	8/25/33		2,150		2,153
Granite Mortgages PLC 2003-1		1.820%	1/20/20		7,550		7,552
Impac Mortgage Trust 2003-7 A		2.160%	8/25/33		6,990		7,001
Medallion Trust 2000-1G		1.820%	7/12/31		299		300
Medallion Trust 2000-2G		2.110%	12/18/31		2,116		2,117
Medallion Trust 2003-1G		2.100%	12/21/33		5,127		5,132
MLCC Mortgage Investors, Inc. 2003-B		2.180%	4/25/28		12,226		12,268
Morgan Stanley Capital I 2003 XLF A-1		1.940%	7/15/17		5,977		5,977	B
							55,440
Stripped Securities	0.1%
FFCA Secured Lending Corporation 1999-1A		1.680%	9/18/25		11,846		524	B,G1
LB-UBS Commercial Mortgage Trust 2001-C3		1.208%	6/15/36		19,420		992	B,G1
Structured Mortgage Asset Residential Trust 1991-8		0.070%	1/25/23		993		1	G1
							1,517
Total Mortgage-Backed Securities (Identified Cost—$174,191)							174,557

47

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government and Agency Obligations	24.5%
Fixed Rate Securities	14.9%
Freddie Mac		7.250%	2/15/07	$	100	$	110
Tennessee Valley Authority		6.750%	11/1/25		2,560		3,031
Tennessee Valley Authority		7.125%	5/1/30		2,450		3,032	A
United States Treasury Bonds		7.500%	11/15/16		1,490		1,915	A
United States Treasury Bonds		8.000%	11/15/21		13,860		19,051	A
United States Treasury Bonds		7.250%	8/15/22		13,010		16,751	A
United States Treasury Bonds		6.250%	8/15/23		1,980		2,312	A
United States Treasury Bonds		2.375%	1/15/25		5,788		6,030	A
United States Treasury Bonds		5.250%	11/15/28		7,760		8,071	A
United States Treasury Bonds		5.375%	2/15/31		11,640		12,469	A
United States Treasury Notes		1.250%	5/31/05		480		477	A
United States Treasury Notes		1.500%	7/31/05		5,430		5,402	A
United States Treasury Notes		1.500%	3/31/06		3,940		3,889	A
United States Treasury Notes		2.750%	6/30/06		10,360		10,403	A
United States Treasury Notes		2.250%	2/15/07		6,480		6,411	A
United States Treasury Notes		3.125%	5/15/07		8,480		8,552	A
United States Treasury Notes		2.750%	8/15/07		2,530		2,523	A
United States Treasury Notes		3.250%	8/15/08		12,000		12,057	A
United States Treasury Notes		3.125%	10/15/08		12,680		12,661	A
United States Treasury Notes		3.375%	11/15/08		3,330		3,353	A
United States Treasury Notes		3.000%	2/15/09		7,070		6,999	A
United States Treasury Notes		2.625%	3/15/09		10,510		10,231	A
United States Treasury Notes		4.000%	6/15/09		72,160		74,263	A
United States Treasury Notes		3.625%	7/15/09		41,010		41,507	A
United States Treasury Notes		3.500%	8/15/09		99,230		99,831	A
United States Treasury Notes		3.375%	9/15/09		12,390		12,392	A
United States Treasury Notes		4.250%	11/15/13		17,090		17,310	A
United States Treasury Notes		4.250%	8/15/14		13,215		13,353	A
							414,386
Indexed SecuritiesH	9.6%
United States Treasury Inflation-Protected Security		3.375%	1/15/07		104,427		111,569	A
United States Treasury Inflation-Protected Security		3.875%	1/15/09		20,974		23,611	A
United States Treasury Inflation-Protected Security		4.250%	1/15/10		73,245		85,006	A
United States Treasury Inflation-Protected Security		3.375%	1/15/12		7,467		8,461	A
United States Treasury Inflation-Protected Security		1.875%	7/15/13		14,263		14,505	A
United States Treasury Inflation-Protected Security		2.000%	1/15/14		4,541		4,650	A
United States Treasury Inflation-Protected Security		3.625%	4/15/28		13,901		17,638	A

48

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government and Agency Obligations—Continued
Indexed Securities—Continued
United States Treasury Inflation-Protected Security		3.875%	4/15/29	$	841	$	1,116
							266,556
Stripped Securities	N.M.
United States Treasury Bonds		0.000%	8/15/27		1,630		496	A,G2
Total U.S. Government and Agency Obligations (Identified Cost—$675,020)							681,438
U.S. Government Agency Mortgage-Backed Securities	17.2%
Fixed Rate Securities	17.2%
Fannie Mae		7.000%	9/1/07 to 2/1/33		19,599		20,795
Fannie Mae		8.000%	5/1/15		78		84
Fannie Mae		6.000%	11/1/16 to 2/1/32		4,244		4,435
Fannie Mae		5.500%	4/1/18		2,558		2,650
Fannie Mae		4.500%	7/1/18		6,074		6,071
Fannie Mae		7.500%	6/1/25 to 7/1/29		1,537		1,651
Fannie Mae		6.500%	7/1/28 to 5/1/32		10,380		10,905
Freddie Mac		7.500%	4/1/06		2		2
Freddie Mac		9.750%	7/1/08		41		44
Freddie Mac		5.500%	12/1/13 to 6/1/33		12,163		12,376
Freddie Mac		9.300%	4/15/19		254		255
Freddie Mac		6.000%	10/1/19		1,700		1,780	I
Freddie Mac		7.000%	4/1/24 to 5/1/32		7,451		7,915
Freddie Mac		6.000%	2/1/29 to 5/1/29		309		320
Freddie Mac		6.500%	6/1/32		172		181
Freddie Mac		5.000%	6/1/33 to 8/1/33		55,006		54,641
Government National Mortgage Association		10.000%	11/15/09		1		1
Government National Mortgage Association		8.000%	10/15/16 to 7/15/17		364		401
Government National Mortgage Association		7.500%	10/15/22 to 8/15/32		866		934
Government National Mortgage Association		7.000%	6/15/23 to 5/15/32		945		1,008
Government National Mortgage Association		6.500%	10/15/23 to 3/15/33		49,971		52,793

49

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government Agency Mortgage- Backed Securities—Continued
Fixed Rate Securities—Continued
Government National Mortgage Association		6.000%	11/15/28 to 5/15/33	$	22,486	$	23,348
Government National Mortgage Association		5.500%	1/15/33		410		418
Government National Mortgage Association		5.000%	10/1/34		46,865		46,601	I
Government National Mortgage Association		5.500%	10/1/34		108,800		110,636	I
Government National Mortgage Association		6.000%	10/1/34		113,890		118,019	J
							478,264
Stripped Securities	N.M.
Fannie Mae		9.500%	2/1/17		26		5	G1
Fannie Mae		1,009.250%	8/25/21		1		20	G1
Fannie Mae		0.000%	5/25/22		261		236	G2
Financing Corporation		0.000%	4/5/19		1,150		536	G2
Freddie Mac		10.000%	3/1/21		199		43	G1
Freddie Mac		0.000%	7/15/22		31		31	G2
							871
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$478,149)							479,135
Yankee BondsJ	5.0%
Banks	0.1%
Royal Bank of Scotland Group plc		8.817%	3/31/49		870		897
The Korea Development Bank		4.250%	11/13/07		1,545		1,573
							2,470
Cable	0.2%
Rogers Cable Inc.		5.500%	3/15/14		4,340		3,993	A
Electric	N.M.
Hydro-Quebec		6.300%	5/11/11		570		639	A
Energy	N.M.
Korea Electric Power Corporation		8.250%	3/15/05		1,050		1,077

50

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee BondsK—Continued
Foreign Governments	2.1%
Quebec Province		5.500%	4/11/06	$	200	$	209
Russian Federation		5.000%	3/31/30		27,610		26,558	F
United Mexican States		8.375%	1/14/11		4,590		5,382
United Mexican States		7.500%	4/8/33		25,127		26,408
							58,557
Insurance	0.1%
Atlas Reinsurance PLC		3.953%	1/7/05		250		251	B,D
Korea Deposit Insurance Corp.		2.500%	12/11/05		2,400		2,655	E
							2,906
Manufacturing (Diversified)	1.8%
Tyco International Group SA		5.875%	11/1/04		900		902
Tyco International Group SA		6.375%	2/15/06		16,600		17,354
Tyco International Group SA		5.800%	8/1/06		10,250		10,734
Tyco International Group SA		6.750%	2/15/11		430		484
Tyco International Group SA		6.375%	10/15/11		1,230		1,360
Tyco International Group SA		7.000%	6/15/28		3,070		3,464
Tyco International Group SA		6.875%	1/15/29		14,780		16,563	A
							50,861
Oil and Gas	0.1%
YPF Sociedad Anonima		7.750%	8/27/07		3,250		3,486
Special Purpose	0.4%
Conoco Funding Company		7.250%	10/15/31		350		419
CVRD Finance LTD.		2.250%	10/15/07		2,282		2,273	B,D
HSBC Capital Funding LP		4.610%	12/29/49		1,630		1,566	B
Petronas Capital Ltd.		7.875%	5/22/22		1,340		1,604	B
Petrozuata Finance, Inc.		8.220%	4/1/17		3,950		3,891	B
							9,753
Telecommunications	0.2%
British Telecommunications plc		8.375%	12/15/10		1,755		2,116
Telecom Italia S.p.A.		5.250%	11/15/13		965		983	B
Telecom Italia S.p.A.		4.950%	9/30/14		2,570		2,539	B
							5,638
Total Yankee Bonds (Identified Cost—$131,890)							139,380

51

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Preferred Stocks	0.2%
Home Ownership Funding Corporation		13.331%			56	shs	$	2,292	B,F
Home Ownership Funding Corporation II		13.338%			50			2,057	B,F
Total Preferred Stocks (Identified Cost—$9,045)								4,349
Total Long-Term Securities (Identified Cost—$2,025,683)								2,057,283
Investment of Proceeds From Securities Lending	24.2%
State Street Navigator Securities Lending Prime Portfolio					673,075			673,075
Total Investment of Proceeds From Securities Lending (Identified Cost—$673,075)								673,075
Short-Term Securities	35.2%
Corporate Bonds and Notes	0.3%
Altria Group, Inc.		2.362%	10/22/04	$	6,600			6,600	D
U.S. Government and Agency Obligations	11.3%
Fannie Mae		0.000%	11/10/04		27,760			27,706	C
Fannie Mae		0.000%	11/12/04		27,760			27,703	C
Fannie Mae		0.000%	11/17/04		27,760			27,695	C
Fannie Mae		0.000%	11/24/04		27,760			27,685	C
Fannie Mae		0.000%	11/29/04		27,760			27,678	C
Fannie Mae		0.000%	11/30/04		27,760			27,676	C
Fannie Mae		0.000%	4/1/05		10,090			9,988	C,L
Federal Home Loan Bank		0.000%	10/22/04		27,760			27,732	C
Federal Home Loan Bank		0.000%	10/27/04		27,760			27,725	C
Freddie Mac		0.000%	10/26/04		27,760			27,726	C
Freddie Mac		0.000%	11/7/04		27,760			27,668	C
Freddie Mac		0.000%	11/30/04		27,760			27,678	C
								314,660
Options PurchasedL	N.M.
Eurodollar Futures Call, January 2005, Strike Price $96.50					67	M		66
Eurodollar Futures Put, April 2005, Strike Price $97.50					188	M		89
Eurodollar Futures Put, April 2005, Strike Price $97.75					847	M		746
								901

52

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Short-Term Securities—Continued
Repurchase Agreements	23.6%
Deutsche Bank AG 1.85%, dated 9/30/04, to be repurchased at $363,050 on 10/1/04 (Collateral: $118,596 Fannie Mae notes, 4.61%, due 10/10/13, value $123,380; $250,000 Federal Home Loan Bank bonds, 2.50%, due 4/11/06, value $249,619)				$	363,031	$	363,031
Goldman, Sachs & Company 1.85%, dated 9/30/04, to be repurchased at $292,320 on 10/1/04 (Collateral: $299,280 Federal Home Loan Bank bonds, 2.375%, due 4/5/06, value $298,177)					292,305		292,305
							655,336
Total Short-Term Securities (Identified Cost—$977,308)							977,497
Total Investments (Identified Cost—$3,676,066)	133.4%						3,707,855
Obligation to Return Collateral for Securities Loaned	(24.2)%						(673,075	)
Other Assets Less Liabilities	(9.2)%						(255,127	)
Net Assets	100.0%					$	2,779,653

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedL
Eurodollar Futures	March 2005	311	$	(2	)
Eurodollar Futures	September 2005	1,170		(98	)
U.S. Treasury Note Futures	December 2004	1,781		(746	)
U.S. Treasury Note Futures	December 2004	1,293		(134	)
U.S. Treasury Note Futures	December 2004	1,696		(786	)
			$	(1,766	)
Options WrittenL
Eurodollar Futures Call, Strike Price $96.75	October 2004	82	$	(40	)
Eurodollar Futures Put, Strike Price $96.50	January 2005	63		(3	)
Goldman Sachs Swaption Call, Strike Price $4.935	January 2005	30,300,000		428
U.S. Treasury Note Futures Call, Strike Price $112.00	December 2004	844		(457	)
U.S. Treasury Note Futures Call, Strike Price $113.00	December 2004	800		(183	)
U.S. Treasury Note Futures Call, Strike Price $114.00	December 2004	741		57

53

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options WrittenL—Continued
U.S. Treasury Note Futures Call, Strike Price $114.00	March 2005	315	$	14
U.S. Treasury Note Futures Call, Strike Price $116.00	March 2005	251		67
U.S. Treasury Note Futures Put, Strike Price $110.50	November 2004	6		(1	)
U.S. Treasury Note Futures Put, Strike Price $106.00	December 2004	561		391
U.S. Treasury Note Futures Put, Strike Price $108.00	December 2004	122		53
U.S. Treasury Note Futures Put, Strike Price $109.00	December 2004	579		298
U.S. Treasury Note Futures Put, Strike Price $109.00	December 2004	124		42
U.S. Treasury Bond Futures Put, Strike Price $109.00	December 2004	867		52
U.S. Treasury Note Futures Put, Strike Price $110.00	December 2004	220		(22	)
U.S. Treasury Note Futures Put, Strike Price $112.00	December 2004	356		(90	)
U.S. Treasury Note Futures Put, Strike Price $102.00	March 2005	184		99
U.S. Treasury Note Futures Put, Strike Price $109.00	March 2005	379		(58	)
			$	647

^A All or a portion of this security is on loan. See Note 4 to the financial statements.

^B Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 7.14% of net assets.

^C Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^D Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^E Convertible security – Security may be converted into the issuer’s common stock.

^F Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.

^G Stripped security – Security with interest-only or principal-only payment streams, denoted by a 1 or 2, respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due.

^H Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

^I When-issued security – Security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

^J Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^K All or a portion of this security is collateral to cover futures and options contracts.

^L Options and futures are described in more detail in the notes to financial statements.

^M Represents actual number of contracts.

N.M.—Not meaningful.

See notes to financial statements.

54

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Core Plus Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	73.0%
Corporate Bonds and Notes	15.1%
Aerospace/Defense	0.3%
L-3 Communications Corp.		7.625%	6/15/12	$	912	$	1,003	A
Lockheed Martin Corporation		7.650%	5/1/16		1,575		1,912
Lockheed Martin Corporation		8.500%	12/1/29		20		26	A
Northrop Grumman Corporation		4.079%	11/16/06		3,580		3,637
Raytheon Company		6.750%	8/15/07		25		27
Raytheon Company		6.000%	12/15/10		160		175
Raytheon Company		5.500%	11/15/12		75		79	A
Raytheon Company		5.375%	4/1/13		875		910
Systems 2001 Asset Trust		6.664%	9/15/13		3,034		3,371	B
							11,140
Auto and Automotive Parts	N.M.
Cummins Inc.		7.125%	3/1/28		545		545
Banking and Finance	1.9%
Boeing Capital Corporation		5.800%	1/15/13		2,030		2,178
Ford Motor Credit Company		6.875%	2/1/06		800		837	A
Ford Motor Credit Company		7.375%	10/28/09		26,330		28,840
Ford Motor Credit Company		7.875%	6/15/10		4,200		4,685
Ford Motor Credit Company		7.375%	2/1/11		7,985		8,684
Ford Motor Credit Company		7.250%	10/25/11		5,760		6,233
Ford Motor Credit Company		7.000%	10/1/13		70		74	A
General Motors Acceptance Corporation		6.750%	1/15/06		3,730		3,891
General Motors Acceptance Corporation		6.125%	9/15/06		10		10
General Motors Acceptance Corporation		4.375%	12/10/07		20		20
General Motors Acceptance Corporation		7.750%	1/19/10		110		121
General Motors Acceptance Corporation		7.250%	3/2/11		1,400		1,495	A
Household Finance Corporation		7.200%	7/15/06		3,750		4,019
Household Finance Corporation		6.400%	6/17/08		20		22	A
Household Finance Corporation		6.500%	11/15/08		40		44
Household Finance Corporation		8.000%	7/15/10		70		83
Household Finance Corporation		6.375%	8/1/10		1,000		1,099
Household Finance Corporation		7.000%	5/15/12		160		183
Household Finance Corporation		6.375%	11/27/12		520		576
John Deere Capital Corporation		7.000%	3/15/12		80		92
SB Treasury Company LLC		9.400%	12/29/49		360		424	B
SLM Corporation		4.120%	4/1/09		10,680		10,720	C
Toyota Motor Credit Corporation		2.800%	1/18/06		150		150
							74,480

55

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Banks	0.3%
Bank of America Corporation		5.250%	2/1/07	$	400	$	419
Bank of America Corporation		7.400%	1/15/11		3,090		3,601
Bank One Corporation		4.125%	9/1/07		2,780		2,841
Bank One Corporation		6.000%	8/1/08		150		162
Bank One Corporation		5.900%	11/15/11		2,000		2,141
Firstar Bank NA		7.125%	12/1/09		350		402
Wells Fargo Bank NA, San Francisco		6.450%	2/1/11		1,600		1,794
							11,360
Cable	0.5%
Comcast Cable Communications, Inc.		6.375%	1/30/06		3,550		3,697
Comcast Cable Communications, Inc.		6.750%	1/30/11		680		754
Comcast Corporation		6.500%	1/15/15		1,970		2,128
Comcast Corporation		7.050%	3/15/33		6,530		7,163
Continental Cablevision, Inc.		9.000%	9/1/08		1,060		1,243
Cox Communications, Inc.		7.125%	10/1/12		1,750		1,899
Cox Communications, Inc.		4.625%	6/1/13		710		654
CSC Holdings Inc.		7.625%	4/1/11		280		295
CSC Holdings Inc.		6.750%	4/15/12		500		501	B
CSC Holdings Inc.		7.875%	2/15/18		260		269
							18,603
Casino Resorts	0.1%
MGM MIRAGE		9.750%	6/1/07		795		883
MGM MIRAGE		8.500%	9/15/10		289		328	A
MGM MIRAGE		6.750%	9/1/12		1,190		1,232	B
Park Place Entertainment Corporation		8.125%	5/15/11		1,065		1,230	A
Station Casinos, Inc.		6.000%	4/1/12		1,420		1,456	A
							5,129
Chemicals	0.1%
FMC Corporation		10.250%	11/1/09		295		344
IMC Global Inc.		10.875%	6/1/08		615		745
IMC Global Inc.		11.250%	6/1/11		132		156
IMC Global Inc.		10.875%	8/1/13		460		581	A
MacDermid, Incorporated		9.125%	7/15/11		1,067		1,190
Millennium America Inc.		7.000%	11/15/06		880		913
Westlake Chemical Corporation		8.750%	7/15/11		232		261
							4,190

56

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Computer Services and Systems	0.2%
Electronic Data Systems Corporation		7.125%	10/15/09	$	8,255	$	8,867	A
International Business Machines Corporation		4.750%	11/29/12		40		41
							8,908
Containers and Packaging	N.M.
Ball Corporation		6.875%	12/15/12		1,109		1,181
Diversified Financial Services	0.6%
CIT Group Inc.		6.500%	2/7/06		40		42
CIT Group Inc.		5.750%	9/25/07		80		85
Citigroup Inc.		5.000%	3/6/07		500		522
Citigroup Inc.		4.250%	7/29/09		2,850		2,898
Citigroup Inc.		6.000%	2/21/12		150		165
General Electric Capital Corporation		5.450%	1/15/13		11,915		12,623	A
IBJ Preferred Capital Corp. LLC		8.790%	12/29/49		3,380		3,864	B
Philip Morris Capital Corporation		7.500%	7/16/09		190		200
U.S. Bancorp		3.125%	3/15/08		1,610		1,585	A
Wells Fargo & Company		1.960%	6/12/06		50		50	A,C
Wells Fargo & Company		5.000%	11/15/14		1,150		1,168	A
							23,202
Diversified Services	N.M.
SPX Corporation		7.500%	1/1/13		954		970	A
Electric	1.6%
Dominion Resources, Inc.		4.125%	2/15/08		460		466
Dominion Resources, Inc.		5.125%	12/15/09		1,260		1,305
Dominion Resources, Inc.		5.700%	9/17/12		3,810		4,006
FirstEnergy Corp.		5.500%	11/15/06		6,840		7,120
FirstEnergy Corp.		6.450%	11/15/11		1,640		1,789	A
FirstEnergy Corp.		7.375%	11/15/31		11,345		12,741
General Electric Company		5.000%	2/1/13		920		946
Nevada Power Company		6.500%	4/15/12		1,060		1,095	B
Niagara Mohawk Power Corporation		7.750%	10/1/08		500		569
Oncor Electric Delivery Company		6.375%	1/15/15		685		756	A
Orion Power Holdings, Inc.		12.000%	5/1/10		1,047		1,309
The AES Corporation		10.000%	7/15/05		476		484	B
The AES Corporation		9.500%	6/1/09		2,736		3,058
The AES Corporation		9.375%	9/15/10		2,494		2,809
The AES Corporation		8.750%	5/15/13		15,838		17,857	B

57

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Electric—Continued
The AES Corporation		9.000%	5/15/15	$	4,700	$	5,299	B
The Cleveland Electric Illuminating Company		5.650%	12/15/13		1,495		1,547
The Detroit Edison Company		5.200%	10/15/12		10		10
							63,166
Energy	0.8%
Calpine Corporation		7.625%	4/15/06		490		453
Calpine Corporation		7.750%	4/15/09		38		24
Calpine Corporation		8.625%	8/15/10		180		117
Calpine Corporation		8.500%	2/15/11		8,429		5,395
Calpine Corporation		8.750%	7/15/13		3,430		2,590	B
Calpine Generating Co. LLC		11.500%	4/1/11		960		840	B
Duke Energy Corporation		5.625%	11/30/12		2,010		2,107
MidAmerican Energy Holdings Company		5.875%	10/1/12		30		32
Pacific Gas and Electric Company		6.050%	3/1/34		4,300		4,376
Peabody Energy Corporation		5.875%	4/15/16		880		869	A
Peabody Energy Corporation		6.875%	3/15/13		860		929	A
PG&E Corporation		6.875%	7/15/08		1,910		2,068
Progress Energy, Inc.		7.100%	3/1/11		110		124	A
TXU Corp.		6.375%	6/15/06		9,795		10,298
TXU Energy Co.		2.380%	1/17/06		2,570		2,576	B,C
TXU Energy Co.		7.000%	3/15/13		10		11
							32,809
Environmental Services	0.7%
Allied Waste North America Incorporated		8.875%	4/1/08		882		957
Allied Waste North America Incorporated		8.500%	12/1/08		375		407
Safety-Kleen Corp.		9.250%	5/15/09		85		5	D
Waste Management, Inc.		7.000%	10/1/04		120		120
Waste Management, Inc.		7.000%	10/15/06		2,545		2,729
Waste Management, Inc.		7.125%	10/1/07		1,060		1,169
Waste Management, Inc.		6.875%	5/15/09		8,000		8,934
Waste Management, Inc.		7.375%	8/1/10		6,055		6,989
Waste Management, Inc.		7.125%	12/15/17		500		575
Waste Management, Inc.		7.000%	7/15/28		3,010		3,331
Waste Management, Inc.		7.375%	5/15/29		80		92
Waste Management, Inc.		7.750%	5/15/32		750		910
							26,218
Food, Beverage and Tobacco	0.5%
Altria Group, Inc.		7.000%	11/4/13		5,985		6,245
Altria Group, Inc.		7.750%	1/15/27		5,000		5,281

58

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Food, Beverage and Tobacco—Continued
Constellation Brands, Inc.		8.000%	2/15/08	$	502	$	553
Constellation Brands, Inc.		8.125%	1/15/12		130		142
Nabisco Incorporated		7.550%	6/15/15		3,570		4,271
R.J. Reynolds Tobacco Holdings, Inc.		7.750%	5/15/06		1,080		1,123	A
R.J. Reynolds Tobacco Holdings, Inc.		6.500%	6/1/07		590		599	A
R.J. Reynolds Tobacco Holdings, Inc.		7.875%	5/15/09		730		756	A
Sara Lee Corporation		6.250%	9/15/11		30		33
Sara Lee Corporation		3.875%	6/15/13		20		19
Smithfield Foods, Inc.		8.000%	10/15/09		471		519	A
Smithfield Foods, Inc.		7.000%	8/1/11		370		387	B
							19,928
Gaming	N.M.
Mohegan Tribal Gaming Authority		6.375%	7/15/09		88		91
Mohegan Tribal Gaming Authority		8.000%	4/1/12		245		271
							362
Gas and Pipeline Utilities	1.0%
Dynegy Holdings Inc.		8.750%	2/15/12		5,890		6,126
Southern Natural Gas Company		8.875%	3/15/10		1,220		1,372	A
Southern Natural Gas Company		8.000%	3/1/32		11,940		12,328
The Williams Companies, Inc.		7.500%	1/15/31		4,113		4,133
The Williams Companies, Inc.		7.750%	6/15/31		530		538
The Williams Companies, Inc.		8.750%	3/15/32		15,130		16,908
							41,405
Health Care	0.9%
Tenet Healthcare Corporation		6.375%	12/1/11		2,500		2,244	A
Tenet Healthcare Corporation		7.375%	2/1/13		15,939		14,983	A
Tenet Healthcare Corporation		9.875%	7/1/14		16,720		17,472	A,B
							34,699
Homebuilding	N.M.
Beazer Homes USA, Inc.		8.375%	4/15/12		210		232
Lennar Corporation		9.950%	5/1/10		286		311
							543
Insurance	0.4%
Loews Corporation		3.125%	9/15/07		12,000		11,745	E
Loews Corporation		8.875%	4/15/11		90		107
Loews Corporation		7.000%	10/15/23		3,300		3,350
							15,202

59

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Investment Banking/Brokerage	0.6%
Credit Suisse First Boston USA		4.625%	1/15/08	$	2,730	$	2,820
Credit Suisse First Boston USA		7.125%	7/15/32		60		71
J.P. Morgan Capital Trust II		7.950%	2/1/27		20		22
J.P. Morgan Chase & Co.		5.250%	5/30/07		30		31	A
J.P. Morgan Chase & Co.		6.000%	2/15/09		10		11
J.P. Morgan Chase & Co.		4.500%	11/15/10		140		142	A
J.P. Morgan Chase & Co.		5.750%	1/2/13		4,430		4,717	A
Lehman Brothers Holdings Inc.		4.000%	1/22/08		1,740		1,767
Lehman Brothers Holdings Inc.		7.000%	2/1/08		160		177
Merrill Lynch & Co., Inc.		3.375%	9/14/07		3,130		3,128
Morgan Stanley		3.625%	4/1/08		90		90
Morgan Stanley		5.300%	3/1/13		4,090		4,192
The Goldman Sachs Group, Inc.		6.600%	1/15/12		2,810		3,138
The Goldman Sachs Group, Inc.		4.750%	7/15/13		1,420		1,393
							21,699
Investment Management	N.M.
Dryden Investor Trust		7.157%	7/23/08		1,433		1,534	B
Lodging/Hotels	N.M.
Host Marriott Corporation		7.875%	8/1/08		187		192
ITT Corporation		6.750%	11/15/05		80		83
Starwood Hotels & Resorts Worldwide, Inc.		7.375%	5/1/07		890		959
							1,234
Machinery	N.M.
AGCO Corporation		9.500%	5/1/08		179		194
Grant Prideco, Inc.		9.000%	12/15/09		147		164
Terex Corporation		10.375%	4/1/11		185		209	A
							567
Manufacturing (Diversified)	N.M.
Procter & Gamble Company		8.500%	8/10/09		90		108
The Gillette Company		2.500%	6/1/08		160		156
							264
Media	1.1%
AOL Time Warner Inc.		6.875%	5/1/12		5,850		6,527
AOL Time Warner Inc.		7.625%	4/15/31		440		506
AOL Time Warner Inc.		7.700%	5/1/32		15,480		18,000
EchoStar DBS Corporation		4.850%	10/1/08		833		864	C
EchoStar DBS Corporation		6.625%	10/1/14		690		686	B
Lamar Media Corporation		7.250%	1/1/13		989		1,063	A

60

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Media—Continued
Liberty Media Corporation		3.380%	9/17/06	$	12,260	$	12,391	C
Liberty Media Corporation		5.700%	5/15/13		565		558
Liberty Media Corporation		3.750%	2/15/30		170		113	E
News America Incorporated		6.750%	1/9/38		200		223
Viacom Inc.		5.625%	8/15/12		1,710		1,793	A
							42,724
Medical Care Facilities	0.2%
HCA Inc.		6.910%	6/15/05		353		361
HCA Inc.		7.125%	6/1/06		540		570
HCA Inc.		7.250%	5/20/08		314		339
HCA Inc.		8.750%	9/1/10		256		300
HCA Inc.		6.300%	10/1/12		3		3
HCA Inc.		5.750%	3/15/14		5,880		5,829
Health Care REIT, Inc.		8.000%	9/12/12		128		148
Manor Care, Inc.		7.500%	6/15/06		527		564
Manor Care, Inc.		8.000%	3/1/08		58		66
							8,180
Medical Products	N.M.
Fresenius Medical Care Capital Trust II		7.875%	2/1/08		719		785	F
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		681		756
							1,541
Oil and Gas	1.0%
Amerada Hess Corporation		7.300%	8/15/31		6,870		7,489
Amerigas Partners LP		8.875%	5/20/11		30		33
Apache Corporation		6.250%	4/15/12		1,265		1,418
Chesapeake Energy Corporation		9.000%	8/15/12		517		591
Chesapeake Energy Corporation		7.500%	9/15/13		670		733
Conoco Inc.		6.950%	4/15/29		2,155		2,486
ConocoPhillips		8.750%	5/25/10		3,100		3,814	A
ConocoPhillips		4.750%	10/15/12		3,180		3,225
ConocoPhillips		5.900%	10/15/32		10		10
Devon Energy Corporation		7.950%	4/15/32		4,085		5,068
El Paso Corporation		0.000%	2/28/21		3,150		1,607	E,G
El Paso Natural Gas Company		8.375%	6/15/32		1,310		1,382
Pacific Energy Partners		7.125%	6/15/14		730		790	B
Pemex Project Funding Master Trust		8.500%	2/15/08		110		124
Plains Exploration & Production Company		7.125%	6/15/14		1,010		1,083	B
Pride International, Inc.		7.375%	7/15/14		1,440		1,598	B
Seariver Maritime Inc.		0.000%	9/1/12		70		49	G

61

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Oil and Gas—Continued
Sonat Inc.		7.625%	7/15/11	$	3,000	$	2,955
Vintage Petroleum, Inc.		7.875%	5/15/11		340		364	A
Vintage Petroleum, Inc.		8.250%	5/1/12		661		735	A
XTO Energy, Inc.		7.500%	4/15/12		1,221		1,435
XTO Energy, Inc.		6.250%	4/15/13		1,787		1,957	A
							38,946
Paper and Forest Products	0.1%
Georgia-Pacific Corp.		7.500%	5/15/06		200		211
Georgia-Pacific Corp.		8.875%	2/1/10		245		287
Georgia-Pacific Corp.		8.125%	5/15/11		9		10
Georgia-Pacific Corp.		9.500%	12/1/11		588		728	A
Georgia-Pacific Corp.		9.375%	2/1/13		12		14
Georgia-Pacific Corp.		7.700%	6/15/15		176		201
International Paper Company		5.500%	1/15/14		1,205		1,234
MeadWestvaco Corporation		6.850%	4/1/12		2,235		2,490
							5,175
Pharmaceuticals	0.3%
AmerisourceBergen Corporation		8.125%	9/1/08		946		1,050
Bristol-Myers Squibb Company		5.750%	10/1/11		8,840		9,480
Omnicare, Inc.		8.125%	3/15/11		709		771	A
							11,301
Photo Equipment and Supplies	N.M.
Eastman Kodak Company		7.250%	11/15/13		755		832
Real Estate	N.M.
La Quinta Properties, Inc.		7.000%	8/15/12		350		369	B
Ventas Realty, Limited Partnership		8.750%	5/1/09		770		859
Ventas Realty, Limited Partnership		9.000%	5/1/12		180		205
							1,433
Retail	0.2%
Target Corporation		5.875%	3/1/12		80		87
Target Corporation		4.000%	6/15/13		5,340		5,106	A
Wal-Mart Stores, Inc.		4.125%	2/15/11		3,160		3,165
							8,358
Special Purpose	1.2%
Air 2 US Series A		8.027%	10/1/19		190		159	B
Anadarko Finance Company		6.750%	5/1/11		240		272
ChevronTexaco Capital Company		3.500%	9/17/07		20		20

62

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Special Purpose—Continued
DaimlerChrysler NA Holding Corporation		7.400%	1/20/05	$	190	$	193
DaimlerChrysler NA Holding Corporation		4.050%	6/4/08		1,750		1,766
DaimlerChrysler NA Holding Corporation		7.300%	1/15/12		3,315		3,765
DaimlerChrysler NA Holding Corporation		6.500%	11/15/13		1,290		1,400
Devon Financing Corporation ULC		6.875%	9/30/11		2,220		2,505
Entercom Capital Inc.		7.625%	3/1/14		565		607
Patrons’ Legacy 2003 IV		5.775%	1/23/17		6,600		6,706	B
Sprint Capital Corporation		4.780%	8/17/06		4,725		4,858
Sprint Capital Corporation		6.000%	1/15/07		9,220		9,759
Sprint Capital Corporation		6.125%	11/15/08		130		140
Sprint Capital Corporation		8.375%	3/15/12		3,295		3,991	A
TCI Communications Financing III		9.650%	3/31/27		1,480		1,733
Texaco Capital Inc.		5.500%	1/15/09		1,600		1,711
Unilever Capital Corporation		7.125%	11/1/10		1,450		1,679
Verizon Global Funding Corp.		6.875%	6/15/12		2,130		2,414	A
Verizon Global Funding Corp.		7.375%	9/1/12		2,645		3,089	A
							46,767
Telecommunications	0.2%
Cincinnati Bell Inc.		7.250%	7/15/13		1,450		1,396
PanAmSat Corporation		6.375%	1/15/08		346		351
Qwest Communications International Inc.		5.211%	2/15/09		1,745		1,662	B,C
Qwest Corporation		5.625%	11/15/08		3,860		3,783	A
Qwest Corporation		9.125%	3/15/12		1,260		1,386	B
							8,578
Telecommunications (Cellular/Wireless)	0.1%
AT&T Wireless Services Inc.		7.350%	3/1/06		3,000		3,186
Nextel Communications, Inc.		7.375%	8/1/15		1,140		1,225	A
							4,411
Transportation	0.2%
Continental Airlines, Inc.		6.545%	2/2/19		1,265		1,220
Delta Air Lines, Inc.		6.619%	3/18/11		1,996		1,816
Delta Air Lines, Inc.		6.417%	7/2/12		40		41
Delta Air Lines, Inc.		6.718%	1/2/23		2,583		2,654
Kansas City Southern Railway		9.500%	10/1/08		558		611
Norfolk Southern Corporation		6.200%	4/15/09		20		22
							6,364
Total Corporate Bonds and Notes (Identified Cost—$574,045)							603,948

63

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities	3.5%
Fixed Rate Securities	0.6%
Bay View Auto Trust 2003-LJ1		3.440%	4/25/12	$	300	$	300
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		2,200		1,894
Conseco Finance Securitizations Corp. 2000-6		6.770%	9/1/32		2,397		2,454
Contimortgage Home Equity Loan Trust 1997-4		7.330%	10/15/28		1,434		1,147
Green Tree Financial Corporation 1992-2		9.150%	1/15/18		481		434
Green Tree Financial Corporation 1993-2		8.000%	7/15/18		1,300		1,231
Green Tree Financial Corporation 1996-5		8.100%	7/15/27		6,135		1,534
Green Tree Home Improvement Loan Trust 1996-A		7.400%	2/15/26		998		958
Green Tree Home Improvement Loan Trust 1997-D		7.450%	9/15/28		1,500		1,503
Lehman ABS Manufactured Housing Contract 2001-B A3		4.350%	5/15/14		4,355		4,341
Lehman ABS Manufactured Housing Contract 2001-B A6		6.467%	8/15/28		4,270		4,518
Pegasus Aviation Lease Securitization 2000-1		8.370%	3/25/30		2,500		1,593	B
UCFC Home Equity Loan Trust 1998-C		5.935%	1/15/30		57		58
Vanderbilt Mortgage Finance 1996-A		8.150%	4/7/26		477		481
Vanderbilt Mortgage Finance 1997-B		8.155%	10/7/26		250		251
Vanderbilt Mortgage Finance 1997-C		7.830%	8/7/27		500		520
							23,217
Indexed SecuritiesC	2.8%
Advanta Revolving Home Equity Loan Trust 2000-A		2.090%	8/25/24		1,172		1,173
AFC Home Equity Loan Trust 2002-2		2.140%	6/25/30		1,782		1,782
AmeriCredit Automobile Receivables Trust 2003-BX		1.876%	11/6/06		50		50
Argent NIM Trust 2003-N1		2.110%	8/25/08		4,165		4,166	B
Asset Backed Funding Certificates 2002-WF1		2.130%	12/25/32		681		682
Asset Backed Securities Corp. Home Equity Loan Trust 2001 HE3		2.030%	11/15/31		1,068		1,069
Bayview Financial Aquisition Trust 2001-DA		2.220%	11/25/31		343		343	B
Capital Auto Receivables Asset Trust 2003-1		1.810%	6/15/05		19		19
CDC Mortgage Capital Trust 2002-HE1		2.150%	1/25/33		2,589		2,592
CDC Mortgage Capital Trust 2003-HE1		2.170%	8/25/33		1,132		1,133
Centex Home Equity 2000-C		2.080%	10/25/30		417		417
Centex Home Equity 2002-D		2.280%	12/25/32		2,932		2,938
Chase Funding Mortgage Loan Asset-Backed Certificates 2000-2		2.120%	5/25/30		5		5

64

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Indexed Securities—Continued
Chase USA Master Trust 2000-2 A		1.930%	4/15/09	$	110	$	110
Citibank Credit Card Issuance Trust 2002-C1		2.700%	2/9/09		2,040		2,067
Conseco Finance 2000-C		2.130%	12/15/29		138		138
Countrywide Asset-Backed Certificates 2001-BC2		2.090%	7/25/31		243		243
Countrywide Asset-Backed Certificates 2002-BC1		2.170%	4/25/32		824		826
Countrywide Asset-Backed Certificates 2003-1		2.180%	6/25/33		4,754		4,759
Countrywide Asset-Backed Certificates 2003-BC3		2.150%	9/25/33		16,062		16,080
Countrywide Home Equity Loan Trust 2002-F		2.110%	11/15/28		3,474		3,506
DaimlerChrysler Master Owner Trust 2002-A		1.820%	5/15/07		60		60
Fannie Mae Grantor Trust 2002-T15		2.040%	11/26/32		5,247		5,228
Fleet Home Equity Loan Trust 2003-1		2.061%	1/20/33		14,424		14,423
Ford Credit Auto Owner Trust 2003-A		1.810%	8/15/05		13		13
Household Home Equity Loan Trust 2001-1		2.101%	1/20/31		37		37
Household Home Equity Loan Trust 2002-3		2.261%	7/20/32		410		411
Irwin Home Equity Loan Trust 2003-1		2.340%	2/25/28		48		48
Korea Asset Funding Ltd. 2000-1A		3.941%	2/10/09		237		236	B
Option One Mortgage Loan Trust 2000-2		2.130%	6/25/30		213		213
Option One Mortgage Loan Trust 2003-1		2.260%	2/25/33		101		102
Option One Mortgage Securities Corp. NIM Trust 2003-1		2.230%	1/26/10		23		23	B
Pass-Through Amortizing Credit Card Trust 2002-1A		2.538%	6/18/12		42		42	B
Provident Bank Home Equity Loan Trust 2000-2		2.110%	8/25/31		985		985
Providian Gateway Master Trust 2002-B		2.460%	6/15/09		14,970		15,004	B
Residential Asset Mortgage Products, Inc. 2003-RS4		2.170%	5/25/33		9,363		9,373
Residential Funding Mortgage Secs II 2003-HS3		2.130%	8/25/33		168		168
Salomon Brothers Mortgage Securities VII 2002-CIT1		2.140%	3/25/32		3,794		3,795
Southern Pacific Secured Assets Corporation 1998-2		2.010%	7/25/29		73		73
Vanderbilt Mortgage Finance 1999-D		4.946%	1/7/30		4,100		4,133
Wachovia Asset Securitization, Inc. 2002-HE1		2.210%	9/27/32		3,832		3,856
Wachovia Asset Securitization, Inc. 2002-HE2		2.270%	12/25/32		366		367
Wachovia Asset Securitization, Inc. 2003-HE1		2.130%	3/25/33		136		136
William Street Funding Corporation 2003-1		1.950%	4/23/06		10,100		10,111	B
							112,935
Stripped Securities	0.1%
Diversified REIT Trust 2001-1		0.772%	3/8/10		16,000		445	B,H1
Oakwood Mortgage Investors Inc. 2001-E		6.000%	11/15/09		7,399		1,353	H1
							1,798
Total Asset-Backed Securities (Identified Cost—$137,177)							137,950

65

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities	2.2%
Fixed Rate Securities	1.1%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29	$	7,278	$	7,597
Banc of America Funding Corporation 2003-1		6.000%	5/20/33		1,370		1,386
Blackrock Capital Finance L.P. 1997-R3		7.220%	11/25/28		144		146	B
Commercial Capital Access One, Inc. 2I		12.000%	11/15/27		3,085		1,604
Commercial Mortgage Asset Trust 1999-C2		7.546%	11/17/32		330		378
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		680		728	B
Enterprise Mortgage Acceptance Company 1998-1		6.110%	1/15/25		439		435	B
FFCA Secured Lending Corporation 1999-1A		6.370%	9/18/25		135		135	B
GMAC Commercial Mortgage Securities Inc. 1998-C1		6.700%	5/15/30		10,800		11,781
GMAC Commercial Mortgage Securities Inc. 1999-C2		6.945%	9/15/33		340		380
GS Mortgage Securities Corporation II 1998-C1		6.620%	10/18/30		5,500		6,020
J.P. Morgan Commercial Mortgage Finance Corporation 1999-C8		7.400%	7/15/31		2,000		2,261
Nomura Asset Securities Corporation 1996-MD5		7.120%	4/13/39		2,000		2,118
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		4,645		4,637
Structured Asset Securities Corporation 1996-CFL		7.750%	2/25/28		4,531		4,894
							44,500
Indexed SecuritiesC	1.1%
Chase Commercial Mortgage Securities Corporation 2000-FL1A		2.030%	12/12/13		3,385		3,380	B
Credit Suisse First Boston Mortgage Securities Corp. 2003-TFLA1		2.030%	4/15/13		1,350		1,350	B
Government National Mortgage Association 2001-36		2.211%	8/20/31		9		9
Impac CMB Trust 2002-1		2.160%	3/25/32		2,499		2,503
Impac CMB Trust 2002-5		2.210%	7/25/32		1,527		1,530
Impac CMB Trust 2003-4 1A1		2.160%	10/25/33		2,428		2,432
Impac CMB Trust 2003-5 A1		2.170%	8/25/33		2,558		2,561
Impac Mortgage Trust 2003-7 A		2.160%	8/25/33		7,154		7,164
J.P. Morgan Chase Commercial Mortgage Security 2003-FL1A		2.028%	2/17/15		20		20	B
Medallion Trust 2000-2G		2.110%	12/18/31		732		733
MLCC Mortgage Investors, Inc. 2003-B		2.180%	4/25/28		16,958		17,017
Morgan Stanley Capital I 2003 XLF A-1		1.940%	7/15/17		6,140		6,140	B
Sequoia Mortgage Trust 4		2.188%	11/22/24		41		40
Westpac Securitisation Trust 1999-1G		1.930%	5/19/30		149		149
							45,028

66

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Stripped Securities	N.M.
FFCA Secured Lending Corporation 1999-1A		1.680%	9/18/25	$	722	$	32	B,H1
GMAC Commercial Mortgage Securities Inc. 1999-CTL1		0.893%	12/15/16		1,888		28	B,H1
LB-UBS Commercial Mortgage Trust 2001-C3		1.208%	6/15/36		5,438		278	B,H1
							338
Total Mortgage-Backed Securities (Identified Cost—$89,224)							89,866
U.S. Government and Agency Obligations	23.6%
Fixed Rate Securities	12.4%
Fannie Mae		4.625%	10/15/14		20		20	A
Freddie Mac		4.875%	11/15/06		100		104
Freddie Mac		3.500%	11/15/07		100		101
Freddie Mac		5.875%	11/15/07		750		808
Tennessee Valley Authority		6.250%	12/15/17		40		45
Tennessee Valley Authority		6.750%	11/1/25		1,670		1,977
Tennessee Valley Authority		7.125%	5/1/30		840		1,039	A
United States Treasury Bonds		6.250%	8/15/23		520		607	A
United States Treasury Bonds		2.375%	1/15/25		14,781		15,399	A
United States Treasury Bonds		6.750%	8/15/26		1,600		1,987	A
United States Treasury Bonds		5.250%	2/15/29		5,920		6,163	A
United States Treasury Bonds		5.375%	2/15/31		140		150	A
United States Treasury Notes		1.625%	1/31/05		360		360	A
United States Treasury Notes		1.500%	7/31/05		7,590		7,551	A
United States Treasury Notes		1.500%	3/31/06		5,370		5,300	A
United States Treasury Notes		2.750%	6/30/06		15,090		15,153	A
United States Treasury Notes		2.250%	2/15/07		8,820		8,726	A
United States Treasury Notes		3.125%	5/15/07		12,070		12,172	A
United States Treasury Notes		2.750%	8/15/07		2,920		2,912	A
United States Treasury Notes		6.125%	8/15/07		60		65	A
United States Treasury Notes		3.000%	11/15/07		60		60	A
United States Treasury Notes		3.250%	8/15/08		1,310		1,316	A
United States Treasury Notes		3.375%	11/15/08		9,900		9,970	A
United States Treasury Notes		3.000%	2/15/09		28,970		28,679	A
United States Treasury Notes		2.625%	3/15/09		6,940		6,756	A
United States Treasury Notes		4.000%	6/15/09		104,955		108,014	A
United States Treasury Notes		3.625%	7/15/09		155,085		156,963	A
United States Treasury Notes		3.500%	8/15/09		25,380		25,534	A
United States Treasury Notes		3.375%	9/15/09		17,790		17,793	A
United States Treasury Notes		4.250%	8/15/13		140		142	A

67

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government and Agency Obligations—Continued
Fixed Rate Securities—Continued
United States Treasury Notes		4.250%	11/15/13	$	41,500	$	42,035	A
United States Treasury Notes		4.250%	8/15/14		19,410		19,613	A
							497,514
Indexed Securities	10.7%
Fannie Mae		1.755%	1/28/05		49,120		49,117	C
United States Treasury Inflation-Protected Security		3.375%	1/15/07		175,021		186,992	A,I
United States Treasury Inflation-Protected Security		3.875%	1/15/09		31,103		35,013	A,I
United States Treasury Inflation-Protected Security		4.250%	1/15/10		20,816		24,159	A,I
United States Treasury Inflation-Protected Security		3.375%	1/15/12		11,542		13,078	A,I
United States Treasury Inflation-Protected Security		1.875%	7/15/13		19,966		20,305	A,I
United States Treasury Inflation-Protected Security		2.000%	1/15/14		8,826		9,037	A,I
United States Treasury Inflation-Protected Security		2.000%	7/15/14		15,042		15,376	A,I
United States Treasury Inflation-Protected Security		3.625%	4/15/28		25,916		32,883	A,I
United States Treasury Inflation-Protected Security		3.875%	4/15/29		30,164		40,010	A,I
							425,970
Stripped Securities	0.5%
United States Treasury Bonds		0.000%	11/15/21		45,460		19,002	A,H2
United States Treasury Bonds		0.000%	2/15/23		1,420		552	A,H2
United States Treasury Bonds		0.000%	8/15/27		1,520		462	H2
							20,016
Total U.S. Government and Agency Obligations (Identified Cost—$926,870)							943,500
U.S. Government Agency Mortgage- Backed Securities	17.0%
Fixed Rate Securities	17.0%
Fannie Mae		6.500%	5/1/14 to 6/1/32		8,614		9,069
Fannie Mae		6.000%	5/1/16 to 7/1/32		5,600		5,833
Fannie Mae		5.500%	1/1/17 to 4/1/18		12,010		12,437
Fannie Mae		9.500%	11/1/21		3		3
Fannie Mae		7.000%	8/1/29 to 7/1/32		11,475		12,181
Fannie Mae		7.500%	11/1/29		57		61
Fannie Mae		6.000%	10/1/34		7,400		7,652	J
Fannie Mae		7.000%	10/1/34		500		530	J
Freddie Mac		5.500%	12/1/13		179		186
Freddie Mac		7.000%	10/1/16 to 4/1/32		3,982		4,227
Freddie Mac		6.500%	7/1/29		872		916
Freddie Mac		5.500%	10/1/34		27,200		27,565	J
Freddie Mac		6.000%	10/1/34		12,200		12,776	J

68

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government Agency Mortgage- Backed Securities—Continued
Fixed Rate Securities—Continued
Government National Mortgage Association		9.500%	1/15/06	$	24	$	25
Government National Mortgage Association		7.500%	3/15/23 to 9/15/31		601		648
Government National Mortgage Association		7.000%	7/15/23 to 7/15/31		2,116		2,258
Government National Mortgage Association		6.500%	4/15/28 to 4/15/33		48,490		51,222
Government National Mortgage Association		6.000%	1/15/29 to 7/15/33		58,162		60,393
Government National Mortgage Association		8.000%	12/15/30 to 1/15/31		75		83
Government National Mortgage Association		5.500%	7/15/33		11,232		11,450
Government National Mortgage Association		5.000%	10/1/34		144,300		143,488	J
Government National Mortgage Association		5.500%	10/1/34		88,200		89,689	J
Government National Mortgage Association		6.000%	10/1/34		219,290		227,239	J
							679,931
Stripped Securities	N.M.
Financing Corporation		0.000%	11/30/17		1,250		639	H2
Financing Corporation		0.000%	4/5/19		320		149	H2
							788
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$680,050)							680,719
Yankee BondsK	7.8%
Banks	N.M.
KFW Kreditanstalt fuer Wiederaufbau		2.375%	9/25/06		240		239	A
KFW Kreditanstalt fuer Wiederaufbau		3.375%	1/23/08		100		101	A
Royal Bank of Scotland Group plc		8.817%	3/31/49		230		237
The Korea Development Bank		4.250%	11/13/07		200		204
The Korea Development Bank		5.500%	11/13/12		60		62	A
							843
Cable	N.M.
Rogers Cable Inc.		7.875%	5/1/12		687		747
Chemicals	N.M.
Rhodia SA		10.250%	6/1/10		450		466
Containers and Packaging	0.1%
Cascades Inc.		7.250%	2/15/13		1,416		1,483
Norampac Inc.		6.750%	6/1/13		572		597
							2,080

69

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee Bonds—Continued
Diversified Financial Services	N.M.
Pemex Finance LTD.		9.030%	2/15/11	$	10	$	12
Electric	0.1%
Hydro-Quebec		6.300%	5/11/11		1,720		1,927	A
Foreign Governments	5.0%
Federative Republic of Brazil		14.500%	10/15/09		14,720		18,989
Federative Republic of Brazil		12.000%	4/15/10		3,240		3,860
Federative Republic of Brazil		2.125%	4/15/12		5,816		5,388	C
Federative Republic of Brazil		8.000%	4/15/14		18,166		17,963	A
Federative Republic of Brazil		11.000%	8/17/40		4,036		4,524
Province of British Columbia		4.300%	5/30/13		180		182
Province of Ontario		3.500%	9/17/07		110		111
Republic of Bulgaria		8.250%	1/15/15		6,820		8,406	B
Republic of Bulgaria		8.250%	1/15/15		6,090		7,520
Republic of Colombia		10.500%	7/9/10		2,230		2,570
Republic of Colombia		11.750%	2/25/20		3,185		3,894
Republic of Panama		9.625%	2/8/11		2,733		3,136
Republic of Panama		9.375%	7/23/12		660		747
Republic of Panama		10.750%	5/15/20		1,527		1,832
Republic of Panama		9.375%	1/16/23		930		1,014
Republic of Peru		5.000%	3/7/17		6,325		5,819	B,L
Republic of Peru		5.000%	3/7/17		44		40	B,L
Republic of Peru		8.750%	11/21/33		3,670		3,642	A
Republic of Poland		6.000%	5/24/09		69,200		18,843
Russian Federation		8.250%	3/31/10		510		555
Russian Federation		5.000%	3/31/30		38,760		37,283	L
United Mexican States		8.375%	1/14/11		8,050		9,439
United Mexican States		11.500%	5/15/26		29,240		44,006	A
							199,763
Insurance	0.1%
Atlas Reinsurance PLC		3.953%	1/7/05		250		251	B,C
Korea Deposit Insurance Corp.		2.500%	12/11/05		2,500		2,766	B,E
Oil Insurance Ltd		5.150%	8/15/33		35		36
Residential Reinsurance LTD		6.690%	6/1/05		850		825	B,C
							3,878
Manufacturing (Diversified)	1.5%
Tyco International Group SA		6.375%	2/15/06		10,250		10,716
Tyco International Group SA		5.800%	8/1/06		10,250		10,733	A
Tyco International Group SA		6.125%	11/1/08		100		108

70

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee Bonds—Continued
Manufacturing (Diversified)—Continued
Tyco International Group SA		6.750%	2/15/11	$	460	$	517
Tyco International Group SA		6.375%	10/15/11		5,580		6,171	A
Tyco International Group SA		7.000%	6/15/28		145		164
Tyco International Group SA		6.875%	1/15/29		28,820		32,298	A
							60,707
Media	N.M.
Shaw Communications Inc.		8.250%	4/11/10		27		30
Shaw Communications Inc.		7.250%	4/6/11		630		685	A
Shaw Communications Inc.		7.200%	12/15/11		395		430	A
							1,145
Oil and Gas	0.1%
Gazprom		9.625%	3/1/13		330		367
Western Oil Sands Inc.		8.375%	5/1/12		1,198		1,381	A
YPF Sociedad Anonima		7.750%	8/27/07		1,000		1,072	A
							2,820
Paper and Forest Products	N.M.
Abitibi-Consolidated Inc.		8.550%	8/1/10		919		986
Publishing	N.M.
Sun Media Corporation		7.625%	2/15/13		565		605
Services	N.M.
Compagnie Generale de Geophysique S.A.		10.625%	11/15/07		636		674
Special Purpose	0.7%
Arcel Finance		5.984%	2/1/09		8,929		9,339	B
Aries Vermogensverwaltungs		9.600%	10/25/14		5,250		5,893	B
Conoco Funding Company		7.250%	10/15/31		810		971
Eircom Funding		8.250%	8/15/13		900		985	A
Gaz Capital S.A.		8.625%	4/28/34		1,000		1,062	B
General Motors Nova Scotia Finance Company		6.850%	10/15/08		1,550		1,644
HSBC Capital Funding LP		4.610%	12/29/49		2,090		2,008	A,B
Petrozuata Finance, Inc.		8.220%	4/1/17		5,220		5,142	B
							27,044
Telecommunications	0.2%
British Telecommunications plc		8.375%	12/15/10		1,145		1,381
INTELSAT		6.500%	11/1/13		1,208		990
Telecom Italia S.p.A.		5.250%	11/15/13		1,260		1,284	A,B
Telecom Italia S.p.A.		4.950%	9/30/14		3,730		3,684	B
							7,339

71

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Yankee Bonds—Continued
Telecommunications (Cellular/Wireless)	N.M.
Rogers Wireless Communications Inc.		6.375%	3/1/14	$	900		$	828	A
Transportation	N.M.
Teekay Shipping Corporation		8.875%	7/15/11		1,219			1,379
Total Yankee Bonds (Identified Cost—$283,224)								313,243
Foreign Government Obligations	3.8%
Fixed Rate Securities	3.8%
Federal Republic of Germany		3.750%	1/4/09		57,340	M		72,849
Federal Republic of Germany		5.000%	1/4/12		17,775	M		23,871
Federal Republic of Germany		5.500%	1/4/31		11,240	M		15,801
Government of Canada		5.250%	6/1/12		45,000	N		37,493
Total Foreign Government Obligations (Identified Cost $129,159)								150,014
Foreign Corporate Bonds	N.M
Banking and Finance	N.M.
Stadshypotek AB		6.000%	3/18/09		9,000	O		1,337
Total Foreign Corporate Bonds (Identified Cost—$1,276)								1,337
Preferred Stocks	N.M
Home Ownership Funding Corporation		13.331%			15	shs		617	B,L
Home Ownership Funding Corporation II		13.338%			13			534	B,L
Total Preferred Stocks (Identified Cost—$1,794)								1,151
Options PurchasedP	N.M
BellSouth Telecommunications Inc. Call, July 2006, Strike Price $97.72					500	Q		15
International Business Machines Corporation Call, July 2006, Strike Price $99.90					500	Q		40
Total Options Purchased (Identified Cost—$18)								55
Total Long-Term Securities (Identified Cost—$2,822,837)								2,921,783
Investment of Proceeds From Securities Lending	23.6%
State Street Navigator Securities Lending Prime Portfolio					943,250	shs		943,250
Total Investment of Proceeds From Securities Lending (Identified Cost—$943,250)								943,250

72

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Short-Term Securities	37.3%
Corporate Bonds and Notes	0.4%
Altria Group, Inc.		2.362%	10/22/04	$	7,780		$	7,780	C
Hertz Corporation		2.140%	3/24/05		8,160			8,160
								15,940
U.S. Government and Agency Obligations	11.3%
Fannie Mae		0.000%	11/10/04		39,840			39,762	G
Fannie Mae		0.000%	11/12/04		39,840			39,758	G
Fannie Mae		0.000%	11/17/04		39,840			39,747	G
Fannie Mae		0.000%	11/24/04		39,840			39,732	G
Fannie Mae		0.000%	11/29/04		39,840			39,722	G
Fannie Mae		0.000%	4/1/05		15,535			15,380	C,R
Fannie Mae		0.000%	11/30/04		39,840			39,720	G
Federal Home Loan Bank		0.000%	10/22/04		39,840			39,800	G
Federal Home Loan Bank		0.000%	10/27/04		39,840			39,790	G
Freddie Mac		0.000%	10/26/04		39,840			39,792	G
Freddie Mac		0.000%	11/30/04		39,840			39,722	G
Freddie Mac		0.000%	11/7/04		39,840			39,707	G
								452,632
Options PurchasedP	0.3%
Eurodollar Futures Call, January 2005, Strike Price $96.50					94	Q		93
Eurodollar Futures Put, April 2005, Strike Price $97.50					258	Q		123
Eurodollar Futures Put, April 2005, Strike Price $97.75					1,226	Q		1,080
JPY Call / USD Put, December 2004, Strike Price $115.00					320,000	Q		1,603
LIBOR Futures Call, December 2004, Strike Price EUR 94.25					1,447	Q		2,556
LIBOR Futures Call, September 2005, Strike Price EUR 93.25					1,410	Q		5,508
								10,963
Repurchase Agreements	25.3%
Goldman, Sachs & Company 1.85%, dated 9/30/04, to be repurchased at $410,021 on 10/1/04 (Collateral: $419,785 Federal Home Loan Bank bonds, 2.375%, due 4/5/06, value $418,239)					410,000			410,000

73

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

	% OF NET ASSETS	PAR/ SHARES		VALUE
Short-Term Securities—Continued
Repurchase Agreements—Continued
Merrill Lynch Government Securities, Inc. 1.86%, dated 9/30/04, to be repurchased at $605,741 on 10/1/04 (Collateral: $200,000 Fannie Mae variable rate notes, 1.726%, due 1/9/06, value $200,079; $50,000 Fannie Mae notes, 8.50%, due 5/26/05, value $51,495; $69,780 Federal Home Loan Bank bonds, 3.70% to 6%, due 7/28/09 to 4/30/19, value $70,989; $50,000 Freddie Mac notes, 5.55%, due 9/12/17, value $50,076; $570,105 Resolution Funding Corp. principal-only securities, due 1/15/07 to 4/15/30, value $247,676.)		$	605,710	$	605,710
					1,015,710
Total Short-Term Securities (Identified Cost—$1,493,327)					1,495,245
Total Investments (Identified Cost—$5,259,414)	133.9%				5,360,278
Obligation to Return Collateral for Securities Loaned	(23.6)%				(943,250	)
Other Assets Less Liabilities	(10.3)%				(412,856	)
Net Assets	100.0%			$	4,004,172

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedP
Australian Dollar Futures	December 2004	100	$	373
Canadian Dollar Futures	December 2004	300		490
Euribor Futures	October 2004	218		405
Euribor Futures	December 2004	512		1,124
Euribor Futures	June 2005	888		2,048
Euro Currency Futures	December 2004	526		2,366
Eurodollar Futures	October 2004	1,634		(261	)
German Government Bond Futures	December 2004	3,637		1,494
German Government Bond Futures	December 2004	550		673
Japanese Yen Futures	December 2004	725		(540	)
LIBOR Futures	October 2004	1,620		554
U.S. Treasury Bond Futures	December 2004	100		193
U.S. Treasury Bond Futures	December 2004	157		(186	)
U.S. Treasury Note Futures	December 2004	1,687		(1,312	)
			$	7,421
Futures Contracts WrittenP
Eurodollar Futures	March 2005	704	$	224
U.S. Treasury Note Futures	December 2004	1,871		189
			$	413

74

Semi-Annual Report to Shareholders

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options WrittenP
Eurodollar Futures Call, Strike Price $96.75	October 2005	104	$	(51	)
Eurodollar Futures Put, Strike Price $96.50	January 2005	92		(5	)
Goldman Sachs Swaption Call, Strike Price $98.00	January 2005	39,300,000		553
Merrill Lynch Swaption Call, Strike Price $100.00	October 2005	45,400,000		253
U.S. Treasury Bond Futures Put, Strike Price $109.00	December 2004	967		111
U.S. Treasury Note Futures Call, Strike Price $112.00	December 2004	1,171		(635	)
U.S. Treasury Note Futures Call, Strike Price $113.00	December 2004	1,119		(255	)
U.S. Treasury Note Futures Call, Strike Price $114.00	December 2004	1,073		82
U.S. Treasury Note Futures Call, Strike Price $114.00	March 2005	447		20
U.S. Treasury Note Futures Call, Strike Price $116.00	March 2005	361		97
U.S. Treasury Note Futures Put, Strike Price $110.50	November 2004	22		(3	)
U.S. Treasury Note Futures Put, Strike Price $106.00	December 2004	783		546
U.S. Treasury Note Futures Put, Strike Price $108.00	December 2004	168		70
U.S. Treasury Note Futures Put, Strike Price $109.00	December 2004	178		60
U.S. Treasury Note Futures Put, Strike Price $109.00	December 2004	834		426
U.S. Treasury Note Futures Put, Strike Price $110.00	December 2004	731		(80	)
U.S. Treasury Note Futures Put, Strike Price $112.00	December 2004	512		(130	)
U.S. Treasury Note Futures Put, Strike Price $102.00	March 2005	259		139
U.S. Treasury Note Futures Put, Strike Price $109.00	March 2005	544		(83	)
			$	1,115

^A All or a portion of this security is on loan. See Note 4 to the financial statements.

^B Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 4.15% of net assets.

^C Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^D Bond is in default at September 30, 2004.

^E Convertible security – Security may be converted into the issuer’s common stock.

^F Unit - A security which consists of a bond and warrants to purchase the common stock of the issuer.

^G Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^H Stripped security – Security with interest-only or principal-only payment streams, denoted by a 1 or 2, respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due.

^I Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

^J When-issued security – Security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

^K Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^L Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.

^M Denominated in euro currency.

^N Denominated in Canadian dollars.

^O Denominated in Swedish krona.

^P Options and futures are described in more detail in the notes to financial statements.

^Q Represents actual number of contracts.

^R All or a portion of this security is collateral to cover futures and option contracts.

N.M.—Not meaningful.

See notes to financial statements.

75

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Inflation Indexed Plus Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	100.3%
Corporate Bonds and Notes	0.7%
Investment Banking/Brokerage	0.7%
J.P. Morgan & Co. Incorporated		4.560%	2/15/12	$	2,690	$	2,905	A
Total Corporate Bonds and Notes (Identified Cost—$2,628)							2,905
Asset-Backed Securities	3.0%
Indexed SecuritiesA	3.0%
ACE Securities Corp. Home Equity Loan Trust 2003-HS1		2.210%	6/25/33		1,823		1,827
Ameriquest Mortgage Securities, Inc. 2002-5		2.310%	2/25/33		1,263		1,265
Ameriquest Mortgage Securities, Inc. 2002-AR3		2.210%	10/25/33		595		597
Bear Stearns Asset Backed Securities, Inc. 2003-ABF1		2.210%	1/25/34		1,664		1,666
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		2.210%	10/25/32		1,053		1,057
Countrywide Asset-Backed Certificates 2002-1		2.120%	8/25/32		171		171
EMC Mortgage Loan Trust ABS Security 2002-B		2.390%	11/25/41		2,480		2,487	B
EQCC Trust 2002-1		2.140%	11/25/31		673		674
Home Equity Mortgage Trust 2003-5		2.260%	1/15/34		1,186		1,189
Structured Asset Investment Loan Trust 2003-BC7		1.970%	7/25/33		246		246
Structured Asset Investment Loan Trust 2003-BC8		1.980%	8/25/10		789		789
Total Asset-Backed Securities (Identified Cost—$11,950)							11,968
Mortgage-Backed Securities	2.2%
Indexed SecuritiesA	2.2%
Credit Suisse First Boston Mortgage Securities Corp. 2003-TFLA1		2.030%	4/15/13		500		500	B
Crusade Global Trust 2003-2		2.100%	9/18/34		2,188		2,185	C
CS First Boston Mortgage Securities Corp. 2001-28		2.490%	11/25/31		1,758		1,764
GSRPM Mortgage Loan Trust Series 2003-2		2.540%	6/25/33		2,146		2,153
Merrill Lynch Mortgage Investors, Inc. 2003-F		2.904%	10/25/28		1,427		1,452
Residential Asset Mortgage Products, Inc. 2003-RS2		2.180%	3/25/33		597		598
Total Mortgage-Backed Securities (Identified Cost—$8,663)							8,652

76

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
U.S. Government and Agency Obligations	90.6%
Fixed Rate Securities	3.4%
Tennessee Valley Authority		3.375%	1/15/07	$	7,651		$	8,143
United States Treasury Bonds		2.375%	1/15/25		5,074			5,286
								13,429
Indexed SecuritiesD	87.2%
United States Treasury Inflation-Protected Security		3.375%	1/15/07		16,522			17,652
United States Treasury Inflation-Protected Security		3.625%	1/15/08		19,163			21,016
United States Treasury Inflation-Protected Security		3.875%	1/15/09		26,380			29,697
United States Treasury Inflation-Protected Security		4.250%	1/15/10		26,355			30,587
United States Treasury Inflation-Protected Security		3.500%	1/15/11		31,625			35,795
United States Treasury Inflation-Protected Security		3.375%	1/15/12		15,873			17,985
United States Treasury Inflation-Protected Security		3.000%	7/15/12		25,736			28,498
United States Treasury Inflation-Protected Security		1.875%	7/15/13		24,462			24,878	E
United States Treasury Inflation-Protected Security		2.000%	1/15/14		29,205			29,904
United States Treasury Inflation-Protected Security		2.000%	7/15/14		9,044			9,244	E
United States Treasury Inflation-Protected Security		3.625%	4/15/28		33,247			42,185
United States Treasury Inflation-Protected Security		3.875%	4/15/29		42,538			56,423
								343,864
Total U.S. Government and Agency Obligations (Identified Cost—$343,198)								357,293
Foreign Government Obligations	3.8%
Fixed Rate Securities	2.2%
French Republic		1.600%	7/25/11		1,325	F		1,660
Indexed SecuritiesD	1.6%
Canadian Real Return Bond		3.000%	12/1/36		4,039	G		3,665
French Republic		2.500%	7/25/13		5,281	F		6,973
Kingdom of Sweden		3.500%	12/1/28		13,580	H		2,457
								13,095
Total Foreign Government Obligations (Identified Cost—$13,764)								14,755
Total Long-Term Securities (Identified Cost—$380,203)								395,573

77

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Investment of Proceeds From Securities Lending	2.7%
State Street Navigator Securities Lending Prime Portfolio					10,497	shs	$	10,497
Total Investment of Proceeds From Securities Lending (Identified Cost—$10,497)								10,497
Short-Term Securities	0.4%
U.S. Government and Agency Obligations	N.M.
Fannie Mae		0.000%	4/1/05	$	60			60	I,,J
Repurchase Agreements	0.4%
Deutsche Bank AG 1.85%, dated 9/30/04, to be repurchased at $802 on 10/1/04 (Collateral: $820 Federal Home Loan Bank bonds, 2.5%, due 4/11/06, value $818)					802			802
Goldman, Sachs & Company 1.85%, dated 9/30/04, to be repurchased at $770 on 10/1/04 (Collateral: $790 Fannie Mae notes, 1.875%, due 9/15/05, value $788)					770			770
								1,572
Total Short-Term Securities (Identified Cost—$1,631)								1,632
Total Investments (Identified Cost—$392,331)	103.4%							407,702
Obligation to Return Collateral for Securities Loaned	(2.7)%							(10,497	)
Other Assets Less Liabilities	(0.7)%							(2,914	)
Net Assets	100.0%						$	394,291

78

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Inflation Indexed Plus Bond Portfolio—Continued

Semi-Annual Report to Shareholders

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedK
Eurodollar Futures	March 2005	76	$	(31	)
Futures Contracts WrittenK
U.S. Treasury Bond Futures	December 2004	8	$	1
Options WrittenK
J.P. Morgan Swaption Call, Strike Price $100.00	October 2004	4,800,000	$	27

^A Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^B Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 0.76% of net assets.

^C Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^D Treasury Inflation-Protected Security – Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

^E All or a portion of this security is on loan. See Note 4 to the financial statements.

^F Denominated in euro currency.

^G Denominated in Canadian dollar.

^H Denominated in Swedish krona.

^I Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^J Collateral to cover futures and options contracts.

^K Options and futures are described in more detail in the notes to financial statements.

N.M—Not meaningful.

See notes to financial statements.

79

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset High Yield Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	97.2%
Corporate Bonds and Notes	89.8%
Advertising	0.7%
Vertis Inc.		10.875%	6/15/09	$	2,422	$	2,604
Aerospace/Defense	1.5%
Armor Holdings, Inc.		8.250%	8/15/13		2,510		2,767
Esterline Technologies Corporation		7.750%	6/15/13		1,605		1,717
Hexcel Corporation		9.875%	10/1/08		736		824
Hexcel Corporation		9.750%	1/15/09		290		305
							5,613
Animal Hospitals	0.2%
Vicar Operating, Inc.		9.875%	12/1/09		580		641
Apparel	1.1%
Oxford Industries, Inc.		8.875%	6/1/11		1,484		1,610	A
Russell Corporation		9.250%	5/1/10		1,666		1,807
The William Carter Company		10.875%	8/15/11		585		657
							4,074
Auto and Automotive Parts	1.5%
Keystone Automotive Operations Inc.		9.750%	11/1/13		2,520		2,709
TRW Automotive		9.375%	2/15/13		1,899		2,170
TRW Automotive		11.000%	2/15/13		417		496
							5,375
Automotive Retailer	0.8%
Asbury Automotive Group Inc.		9.000%	6/15/12		2,827		2,983
Building Materials	3.7%
American Standard, Inc.		7.375%	2/1/08		31		34
Associated Materials Incorporated		11.250%	3/1/14		3,440		2,503	A,B
Atrium Companies, Inc.		10.500%	5/1/09		3,318		3,484
Interface, Inc.		7.300%	4/1/08		411		413
Interface, Inc.		10.375%	2/1/10		2,897		3,288
Nortek Holdings, Inc.		8.500%	9/1/14		3,570		3,739	A
							13,461

80

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Cable	3.4%
Charter Communications Holdings, LLC		9.625%	11/15/09	$	2,220	$	1,748
Charter Communications Holdings, LLC		10.250%	9/15/10		4,459		4,554
CSC Holdings Inc.		7.625%	4/1/11		2,450		2,582
CSC Holdings Inc.		7.875%	2/15/18		720		743
CSC Holdings Inc.		7.625%	7/15/18		1,138		1,161
LodgeNet Entertainment Corporation		9.500%	6/15/13		1,662		1,811
							12,599
Casino Resorts	2.9%
Inn of The Mountain Gods Resort and Casino		12.000%	11/15/10		2,840		3,252
Mandalay Resort Group		9.375%	2/15/10		200		230
MGM MIRAGE		8.500%	9/15/10		1,340		1,522
Mirage Resorts, Incorporated		7.250%	10/15/06		328		348
Premier Entertainment Biloxi Llc		10.750%	2/1/12		1,284		1,355
River Rock Entertainment		9.750%	11/1/11		1,750		1,842
Station Casinos, Inc.		6.000%	4/1/12		1,360		1,394
Station Casinos, Inc.		6.875%	3/1/16		360		370
Wynn Las Vegas LLC		12.000%	11/1/10		411		514
							10,827
Chemicals	4.5%
FMC Corporation		10.250%	11/1/09		1,896		2,213
Georgia Gulf Corporation		7.625%	11/15/05		17		18
Huntsman International LLC		10.125%	7/1/09		2,262		2,375
Lyondell Chemical Company		9.625%	5/1/07		3,537		3,851
MacDermid, Incorporated		9.125%	7/15/11		1,991		2,220
Millennium America Inc.		7.000%	11/15/06		121		125
Millennium America Inc.		9.250%	6/15/08		1,968		2,170
Nalco Co.		7.750%	11/15/11		1,060		1,124
Nalco Co.		8.875%	11/15/13		1,000		1,075
Westlake Chemical Corporation		8.750%	7/15/11		1,202		1,349
							16,520
Coal	0.8%
Alpha Natural Resources LLC		10.000%	6/1/12		2,560		2,822	A
Containers and Packaging	3.1%
Graham Packaging Company Lp		9.875%	10/15/14		1,620		1,659	A
Graphic Packaging International Corp.		9.500%	8/15/13		1,840		2,102
Owens Brockway Glass Containers		8.750%	11/15/12		2,330		2,586
Owens-Illinois, Inc.		7.500%	5/15/10		730		746

81

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Containers and Packaging—Continued
Smurfit-Stone Container Corporation		8.250%	10/1/12	$	1,380	$	1,522
Solo Cup Company		8.500%	2/15/14		2,880		2,837
							11,452
Diversified Services	0.8%
SPX Corporation		7.500%	1/1/13		3,020		3,069
Electric	3.1%
Midwest Generation Llc		8.750%	5/1/34		1,840		2,006
Nevada Power Company		6.500%	4/15/12		1,700		1,755	A
Orion Power Holdings, Inc.		12.000%	5/1/10		2,383		2,979
The AES Corporation		10.000%	7/15/05		148		150	A
The AES Corporation		8.750%	5/15/13		150		169	A
The AES Corporation		9.000%	5/15/15		3,905		4,403	A
							11,462
Electronics	1.0%
BRL Universal Equipment 2001 A., L.P.		8.875%	2/15/08		1,010		1,076
Rayovac Corporation		8.500%	10/1/13		1,180		1,280
Viasystems Inc.		10.500%	1/15/11		1,540		1,463
							3,819
Energy	3.0%
Calpine Corporation		7.625%	4/15/06		2,090		1,933
Calpine Corporation		8.625%	8/15/10		592		385
Calpine Corporation		9.875%	12/1/11		930		730	A
Calpine Corporation		8.750%	7/15/13		2,050		1,548	A
Calpine Generating Co. LLC		11.500%	4/1/11		1,780		1,557	A
Calpine Generating Co. LLC		10.250%	4/1/11		1,220		1,098	A,C
Midwest Generation LLC		8.560%	1/2/16		1,260		1,323
NRG Energy, Inc.		8.000%	12/15/13		2,442		2,616	A
							11,190
Entertainment	1.2%
Cinemark, Inc.		0.000%	3/15/14		2,710		1,863	D
Loews Cineplex Entertainment Corporation		9.000%	8/1/14		1,160		1,198	A
Six Flags, Inc.		9.750%	4/15/13		1,445		1,365
							4,426

82

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Environmental Services	1.4%
Allied Waste North America Incorporated		8.875%	4/1/08	$	951	$	1,032
Allied Waste North America Incorporated		8.500%	12/1/08		1,125		1,220
Capital Environment Resource, Inc.		9.500%	4/15/14		3,030		2,879	A
Safety-Kleen Corp.		9.250%	5/15/09		1,418		78	E
							5,209
Food, Beverage and Tobacco	0.9%
Cott Beverages Incorporated		8.000%	12/15/11		1,296		1,416
Domino’s, Inc.		8.250%	7/1/11		1,778		1,925
							3,341
Gaming	1.5%
Argosy Gaming Company		9.000%	9/1/11		1,408		1,581
Isle of Capri Casinos, Inc.		9.000%	3/15/12		1,030		1,143
Mohegan Tribal Gaming Authority		8.000%	4/1/12		1,000		1,105
Pinnacle Entertainment, Inc.		9.250%	2/15/07		1,597		1,637
							5,466
Gas and Pipeline Utilities	3.7%
ANR Pipeline, Inc.		8.875%	3/15/10		243		273
ANR Pipeline, Inc.		9.625%	11/1/21		1,604		1,909
Colorado Interstate Gas Company		10.000%	6/15/05		400		420
Dynegy Holdings Inc.		10.125%	7/15/13		3,995		4,594	A
GulfTerra Energy Partners, L.P.		10.625%	12/1/12		331		416
Northwest Pipelines Corporation		8.125%	3/1/10		851		954
Sonat Inc.		6.875%	6/1/05		430		435
Southern Natural Gas Company		8.875%	3/15/10		1,775		1,997
The Williams Companies, Inc.		8.750%	3/15/32		1,554		1,737
Transcontinental Gas Pipeline Corporation		8.875%	7/15/12		698		849
							13,584
Health Care	2.1%
Ardent Health Services		10.000%	8/15/13		2,350		2,374
Equinox Holdings Inc		9.000%	12/15/09		1,620		1,669
Tenet Healthcare Corporation		9.875%	7/1/14		3,519		3,677	A
							7,720
Homebuilding	0.6%
Beazer Homes USA, Inc.		8.625%	5/15/11		500		552
D.R. Horton Inc.		8.500%	4/15/12		470		531
Schuler Homes, Inc.		9.375%	7/15/09		418		458
Schuler Homes, Inc.		10.500%	7/15/11		430		494
							2,035

83

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Investment Banking/Brokerage	0.5%
Refco Finance Inc		9.000%	8/1/12	$	1,740	$	1,857	A
Lodging/Hotels	1.2%
Host Marriott Corporation		9.250%	10/1/07		135		151
Host Marriott LP		9.500%	1/15/07		2,190		2,425
La Quinta Inns, Inc.		7.000%	8/15/07		375		396
La Quinta Inns, Inc.		8.875%	3/15/11		1,130		1,266
							4,238
Machinery	2.1%
Case New Holland Incorporated		9.250%	8/1/11		1,600		1,792	A
Case New Holland Incorporated		9.250%	8/1/11		1,640		1,837	A
Grant Prideco, Inc.		9.000%	12/15/09		922		1,030
Hanover Compressor Company		8.625%	12/15/10		687		746
Joy Global Inc.		8.750%	3/15/12		1,340		1,514
Terex Corporation		9.250%	7/15/11		750		840
							7,759
Manufacturing (Diversified)	3.1%
Ames True Temper		10.000%	7/15/12		1,720		1,756	A
Jacuzzi Brands Incorporated		9.625%	7/1/10		3,351		3,703
Koppers Inc.		9.875%	10/15/13		2,300		2,541
MMI Products, Inc.		11.250%	4/15/07		1,780		1,798
Samsonite Corporation		8.875%	6/1/11		1,660		1,735	A
							11,533
Media	2.6%
EchoStar DBS Corporation		4.850%	10/1/08		1,880		1,951	C
EchoStar DBS Corporation		6.625%	10/1/14		1,870		1,858	A
Lamar Media Corporation		7.250%	1/1/13		1,560		1,677
Paxson Communications Corporation		10.750%	7/15/08		320		322
Paxson Communications Corporation		0.000%	1/15/09		237		203	D
PRIMEDIA Inc.		7.086%	5/15/10		900		904	A
Sinclair Broadcast Group, Inc.		8.750%	12/15/11		730		792
Warner Music Group		7.375%	4/15/14		1,800		1,863	A
							9,570
Medical Care Facilities	1.2%
Extendicare Health Services, Inc.		9.500%	7/1/10		981		1,101
HCA Inc.		8.750%	9/1/10		1,330		1,559
HCA Inc.		7.875%	2/1/11		546		618
HCA Inc.		9.000%	12/15/14		818		996
							4,274

84

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Medical Products	0.5%
Fresenius Medical Care Capital Trust II		7.875%	2/1/08	$	1,667	$	1,821	F
Medical Supplies and Services	0.2%
AmeriPath Inc.		10.500%	4/1/13		796		812
Metals	0.5%
Century Aluminum Company		7.500%	8/15/14		1,680		1,768	A
Oil and Gas	7.3%
Amerigas Partners LP		8.875%	5/20/11		602		664
Belden Blake Corporation		8.750%	7/15/12		2,000		2,130	A
Chesapeake Energy Corporation		8.375%	11/1/08		614		669
Chesapeake Energy Corporation		9.000%	8/15/12		1,346		1,538
El Paso CGP Co.		7.750%	6/15/10		2,068		2,068
El Paso Corporation		6.950%	12/15/07		465		467
El Paso Corporation		7.875%	6/15/12		1,270		1,261
El Paso Corporation		7.800%	8/1/31		1,020		895
El Paso Corporation		7.750%	1/15/32		1,050		916
El Paso Energy Partners		8.500%	6/1/11		143		161
El Paso Production Holding Company		7.750%	6/1/13		590		591
Evergreen Resources, Inc.		5.875%	3/15/12		695		716
Ferrellgas Partners, L.P.		8.750%	6/15/12		80		88
Ferrellgas, L.P.		6.750%	5/1/14		1,070		1,091
KCS Energy, Inc.		7.125%	4/1/12		1,150		1,202
Pacific Energy Partners		7.125%	6/15/14		870		942	A
Parker Drilling Company		10.125%	11/15/09		511		542
Parker Drilling Company		6.540%	9/1/10		1,630		1,634	A,C
Plains Exploration & Production Company		7.125%	6/15/14		1,340		1,437	A
Pride International, Inc.		7.375%	7/15/14		1,610		1,787	A
SESI, LLC		8.875%	5/15/11		1,375		1,502
Suburban Propane Partners LP		6.875%	12/15/13		1,720		1,772
Vintage Petroleum, Inc.		7.875%	5/15/11		522		559
Vintage Petroleum, Inc.		8.250%	5/1/12		1,860		2,069
							26,701
Paper and Forest Products	1.8%
Georgia-Pacific Corp		9.500%	12/1/11		1,803		2,231
Georgia-Pacific Corp.		9.375%	2/1/13		3,117		3,670
Georgia-Pacific Corp.		7.700%	6/15/15		46		53

85

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Paper and Forest Products—Continued
Georgia-Pacific Corp.		7.750%	11/15/29	$	67	$	72
Georgia-Pacific Corp.		8.875%	5/15/31		540		655
							6,681
Pharmaceuticals	0.4%
Leiner Health Products Inc.		11.000%	6/1/12		1,320		1,403	A
Publishing	0.4%
Dex Media East LLC		12.125%	11/15/12		1,167		1,453
Real Estate	0.6%
Forest City Enterprises, Inc.		7.625%	6/1/15		255		268
Ventas Realty, Limited Partnership		8.750%	5/1/09		1,156		1,289
Ventas Realty, Limited Partnership		9.000%	5/1/12		412		469
							2,026
Rental and Lease Services (Commercial)	0.7%
NationsRent Inc.		9.500%	10/15/10		2,430		2,637
Retail	1.8%
American Achievement Corp.		8.250%	4/1/12		630		662	A
Hollywood Entertainment Corporation		9.625%	3/15/11		349		373
Norcraft Companies		9.000%	11/1/11		2,570		2,801	A
Stater Bros. Holdings Inc.		5.380%	6/15/10		1,040		1,056	A,C
Toys “R” Us, Inc.		7.875%	4/15/13		1,690		1,686
							6,578
Special Purpose	7.5%
Alamosa Incorporated		11.000%	7/31/10		1,673		1,895
Dennys Holdings, Inc.		10.000%	10/1/12		1,750		1,757	A
H & E Equipment Services LLC		11.125%	6/15/12		1,910		1,967
Huntsman Advanced Materials LLC		11.000%	7/15/10		340		394	A
Jostens IH Corporation		7.625%	10/1/12		2,680		2,693
Midland Funding II		11.750%	7/23/05		423		448
Milacron Escrow Corporation		11.500%	5/15/11		2,104		2,230	A
Norcraft Holdings LP		0.000%	9/1/12		1,150		834	A,D
Qwest Capital Funding, Inc.		7.000%	8/3/09		936		857
Rainbow National Services Llc		8.750%	9/1/12		930		965	A
Rainbow National Services Llc		10.375%	9/1/14		1,720		1,802	A
Sensus Metering Systems Inc.		8.625%	12/15/13		2,599		2,651

86

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Special Purpose—Continued
The Williams Companies, Inc. Credit-Linked Certificates		6.750%	4/15/09	$	1,590	$	1,658	A
Transdigm Funding Corp.		8.375%	7/15/11		1,480		1,584
UCAR Finance Inc.		10.250%	2/15/12		2,251		2,577
UGS Corporation		10.000%	6/1/12		1,460		1,591	A
WII Components, Inc.		10.000%	2/15/12		1,730		1,678
							27,581
Steel Producers	1.0%
AK Steel Corporation		7.750%	6/15/12		1,010		987
Ispat Inland Ulc		9.750%	4/1/14		2,380		2,624
							3,611
Steel Products	0.3%
Allegheny Technologies, Inc.		8.375%	12/15/11		1,160		1,235
Storage Facilities	0.6%
Mobile Mini, Inc.		9.500%	7/1/13		1,937		2,150
Telecommunications	6.2%
AT&T Corp.		8.050%	11/15/11		1,260		1,410
AT&T Corp.		8.750%	11/15/31		1,210		1,319
Cincinnati Bell Inc.		7.250%	7/15/13		657		632
Cincinnati Bell Inc.		8.375%	1/15/14		3,295		3,007
Crown Castle International Corp.		9.375%	8/1/11		1,490		1,713
Crown Castle International Corp.		10.750%	8/1/11		370		412
GTE Hawaiian Telephone Company, Inc.		7.000%	2/1/06		520		536
GTE Hawaiian Telephone Company, Inc.		7.375%	9/1/06		390		406
Insight Midwest, L.P.		10.500%	11/1/10		1,040		1,139
MCI Inc.		5.908%	5/1/07		274		272
MCI Inc.		6.688%	5/1/09		1,974		1,903
MCI Inc.		7.735%	5/1/14		235		223
Qwest Communications International Inc.		7.250%	2/15/11		1,820		1,724	A
Qwest Corporation		7.875%	9/1/11		2,730		2,832	A
Qwest Services Corporation		14.000%	12/15/10		4,540		5,300	A
							22,828
Telecommunications (Cellular/Wireless)	2.7%
Centennial Communications Corporation		8.625%	2/1/14		2,220		2,117	A
Nextel Communications, Inc.		5.250%	1/15/10		843		840	G

87

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Telecommunications (Cellular/Wireless)—Continued
Nextel Communications, Inc.		7.375%	8/1/15	$	2,285	$	2,456
Rural Cellular Corporation		8.250%	3/15/12		1,380		1,404	A
SBA Communications Corporation		0.000%	12/15/11		2,210		1,790	D
US Unwired Inc.		10.000%	6/15/12		1,320		1,370
							9,977
Transportation	2.4%
Continental Airlines, Inc.		7.373%	6/15/17		794		623
Gulfmark Offshore, Inc.		7.750%	7/15/14		1,890		1,914	A
Horizon Lines, LLC		9.000%	11/1/12		1,340		1,414	A
Kansas City Southern Railway		9.500%	10/1/08		3,339		3,656
OMI Corporation		7.625%	12/1/13		1,319		1,353
							8,960
Water Utilities	0.7%
National Waterworks, Inc.		10.500%	12/1/12		2,130		2,418
Total Corporate Bonds and Notes (Identified Cost—$319,533)							330,163
Yankee BondsH	6.9%
Building Materials	0.2%
North American Energy Partners		8.750%	12/1/11		710		692	A
Chemicals	1.4%
Rhodia SA		10.250%	6/1/10		2,360		2,442
Rhodia SA		8.875%	6/1/11		3,093		2,691
							5,133
Foreign Governments	0.3%
Federative Republic of Brazil		14.500%	10/15/09		800		1,032
Manufacturing (Diversified)	0.1%
Tyco International Group SA		6.375%	10/15/11		325		359
Media	0.8%
Kabel Deutschland GmbH		10.625%	7/1/14		2,685		2,927	A
Oil and Gas	0.7%
Western Oil Sands Inc.		8.375%	5/1/12		2,335		2,691

88

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Yankee Bonds—Continued
Paper and Forest Products	1.0%
Abitibi Consolidated Inc.		5.380%	6/15/11	$	1,560		$	1,576	C
Abitibi-Consolidated Inc.		8.550%	8/1/10		1,090			1,169
Smurfit Capital Funding PLC		6.750%	11/20/05		1,000			1,030
								3,775
Services	0.4%
Compagnie Generale de Geophysique S.A.		10.625%	11/15/07		1,454			1,540
Special Purpose	0.4%
Calpine Canada Energy Finance		8.500%	5/1/08		569			393
Gemstone Investors Limited		7.710%	10/31/04		420			420	A
Yell Finance BV		10.750%	8/1/11		371			430
								1,243
Telecommunications	0.9%
Inmarsat Finance PLC		7.625%	6/30/12		2,320			2,303	A
Nortel Networks Ltd.		6.125%	2/15/06		950			969
								3,272
Telecommunications (Cellular/Wireless)	0.4%
Rogers Wireless Communications Inc.		9.625%	5/1/11		1,416			1,579
Transportation	0.3%
Teekay Shipping Corporation		8.875%	7/15/11		1,195			1,352
Total Yankee Bonds (Identified Cost—$24,898)								25,595
Common Stocks	0.1%
Engineering and Construction	0.1%
Washington Group International, Inc.					8	shs		277	I
Total Common Stocks (Identified Cost—$51)								277
Preferred Stocks	0.3%
Industrial Conglomerates	N.M.
High Voltage Engineering Corporation					0.2			2	J
Media	0.2%
Paxson Communications Corporation					0.1			750	J
Telecommunications (Cellular/Wireless)	0.1%
Rural Cellular Corporation					3			268	J
Total Preferred Stocks (Identified Cost—$1,312)								1,020

89

Semi-Annual Report to Shareholders

	% OF NET ASSETS	PAR/ SHARES		VALUE
Warrants	0.1%
American Tower Corporation		1	wts	$	139	A,I
Horizon PCS, Inc.		1			0	A,I
Next Generation Network, Inc.		3			0	I
Washington Group International, Series A		5			42	I
Washington Group International, Series B		6			33	I
Washington Group International, Series C		3			17	I
Total Warrants (Identified Cost—$75)					231
Total Long-Term Securities (Identified Cost—$345,869)					357,286
Total Investments (Identified Cost—$345,869)	97.2%				357,286
Other Assets Less Liabilities	2.8%				10,107
Net Assets	100.0%				$367,393

^A Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 27.85% of net assets.

^B Zero coupon bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^C Indexed security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2004.

^D Stepped coupon security – A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.

^E Bond is in default at September 30, 2004.

^F Unit – A security which consists of a bond and warrants to purchase the common stock of the issuer.

^G Convertible bond – Bond may be converted into the issuer’s common stock.

^H Yankee Bond – A dollar-denominated bond issued in the U.S. by foreign entities.

^I Non-income producing.

^J Pay-in-Kind (“PIK”) security – A bond in which interest or dividends during the initial few years is paid in additional PIK securities rather than in cash.

See notes to financial statements.

90

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Non-U.S. Opportunity Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PARA	VALUE
Long-Term Securities	85.0%
British Sterling	2.3%
Corporate Bonds and Notes	0.7%
Halifax plc		6.375%	4/3/08	200	$	375
Landesbank Hessen-Thueringen Girozentrale		5.375%	3/7/12	200		363
						738
Government Obligations	1.6%
United Kingdom Treasury Stock		5.000%	3/7/12	840		1,540
Total British Sterling						2,278
Danish Krone	5.2%
Corporate Bonds and Notes	0.5%
Realkredit Danmark A/S		5.000%	10/1/35	2,849		469
Government Obligations	4.7%
Kingdom of Denmark		5.000%	11/15/13	26,000		4,633
Total Danish Krone						5,102
Euro	67.6%
Corporate Bonds and Notes	9.2%
Bank Nederlandse Gemeenten NV		5.625%	10/25/10	1,850		2,550
Bank of Scotland		5.125%	12/5/13	545		721
Caisse de Refinancement L’ Habitat		4.200%	4/25/11	2,000		2,545
CAM International		5.750%	4/3/12	400		528
Kreditanstalt fuer Wiederaufbau		5.250%	1/4/10	1,800		2,439
ING Verzekeringen NV		6.250%	6/21/21	190		263
						9,046
U.S. Government and Agency Obligations	1.2%
Freddie Mac		5.750%	9/15/10	900		1,240
Government Obligations	57.2%
Federal Republic of Germany		5.000%	2/17/06	9,500		12,210
Federal Republic of Germany		4.250%	1/4/14	4,400		5,594
Federal Republic of Germany		5.500%	1/4/31	3,350		4,710
Finland Republic		5.375%	7/4/13	3,250		4,471
French Republic		5.750%	10/25/32	2,600		3,782
Hellenic Republic		6.500%	10/22/19	2,600		3,914
Kingdom of Spain		5.750%	7/30/32	2,600		3,771
Kingdom of the Netherlands		5.500%	1/15/28	2,950		4,123

91

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PARA		VALUE
Euro—Continued
Government Obligations—Continued
Republic of Austria		3.800%	10/20/13		3,650	$	4,481	B
Republic of Italy		2.750%	2/1/06		7,510		9,366
							56,422
Total Euro							66,708
Swedish Krona	9.9%
Corporate Bonds and Notes	6.1%
AB Spintab		6.000%	4/20/09		18,000		2,676
Stadshypotek AB		6.000%	3/18/09		23,000		3,418
							6,094
Government Obligations	3.8%
Kingdom of Sweden		5.500%	10/8/12		25,000		3,731
Total Swedish Krona							9,825
Total Long-Term Securities (Identified Cost—$72,408)							83,913
Short-Term Securities	13.0%
Repurchase Agreements	13.0%
Deutsch Bank AG 1.85%, dated 9/30/04, to be repurchased at $7,100 on 10/1/04 (Collateral: $7,112 Fannie Mae notes, 4.61%, due 10/10/13, value $7,398)				$	7,100		7,100
Nomura Securities Co. Ltd. 1.89%, dated 9/30/04, to be repurchased at $5,683 on 10/1/04 (Collateral: $5,815 Federal Home Loan Bank bonds, 2.379%, due 7/16/18, value $5,806)					5,683		5,683
Total Short-Term Securities (Identified Cost—$12,783)							12,783
Total Investments (Identified Cost—$85,191)	98.0%						96,696
Other Assets Less Liabilities	2.0%						2,014
Net Assets	100.0%					$	98,710

^A Securities are grouped by the currencies in which they were issued, and the par amounts are also in the issuance currency of the security.

^B Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. This security represents 4.53% of net assets.

See notes to financial statements.

92

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Non-U.S. Opportunity Bond Portfolio—Continued

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES

September 30, 2004 (Unaudited)

(Amounts in Thousands)

Western Asset Limited Duration Bond Portfolio

Assets:
Investment securities at market value (identified cost—$37,444)	$	37,462
Short-term securities at value (identified cost—$6,555)		6,555
Total investments				$	44,017
Cash					1
Receivable for:
Securities sold					352
Interest income					176
					44,546
Liabilities:
Payable for:
Securities purchased		1,474
Income distribution		3
Futures variation margin		1
Due to manager		4
Accrued expenses		18
					1,500
Net Assets				$	43,046
Net assets consist of:
Accumulated paid-in-capital applicable to:
4,305 Institutional Class shares outstanding	$	42,984
Under/(Over) distributed net investment income		(9	)
Accumulated net realized gain/(loss) on investments, options and futures		53
Unrealized appreciation/(depreciation) of investments, options and futures		18
Net Assets				$	43,046
Net Asset Value Per Share:
Institutional Class					$10.00

See notes to financial statements.

93

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset Intermediate Bond Portfolio

Assets:
Investment securities at market value (identified cost—$691,272)	$	698,233
Short-term securities at value (identified cost—$42,958)		42,942
Total investments			$	741,175
Cash				116
Swap contracts				28
Receivable for:
Securities sold				14,877
Fund shares sold				1,561
Dividend and interest income				5,567
Futures variation margin				24
				763,348
Liabilities:
Obligation to return collateral for securities loaned		150,568
Options written (proceeds—$71)		6
Payable for:
Securities purchased		13,444
Fund shares repurchased		4
Income distribution		67
Due to manager		195
Accrued expenses		106
				164,390
Net Assets			$	598,958
Net assets consist of:
Accumulated paid-in-capital applicable to:
56,274 Institutional Class shares outstanding	$	589,691
Under/(Over) distributed net investment income		43
Accumulated net realized gain/(loss) on investments, options, futures and swaps		1,908
Unrealized appreciation/(depreciation) of investments, options, futures and swaps		7,316
Net Assets			$	598,958
Net Asset Value Per Share:
Institutional Class				$10.64

See notes to financial statements.

94

Semi-Annual Report to Shareholders

Western Asset Intermediate Plus Bond Portfolio

Assets:
Investment securities at market value (identified cost—$12,117)	$	12,159
Short-term securities at value (identified cost—$1,927)		1,927
Total investments				$	14,086
Cash					35
Swap contracts					5
Receivable for:
Securities sold					5,315
Interest income					116
					19,557
Liabilities:
Options written (proceeds—$1)		—A
Payable for securities purchased		5,893
Depreciation of forward contracts		19
Accrued expenses		40
					5,952
Net Assets				$	13,605
Net assets consist of:
Accumulated paid-in-capital applicable to:
1,366 Institutional Class shares outstanding	$	13,714
Under/(Over) distributed net investment income		(6	)
Accumulated net realized gain/(loss) on investments, options, futures, swaps and foreign currency transactions		(132	)
Unrealized appreciation/(depreciation) of investments, options, futures, swaps and foreign currency translations		29
Net Assets				$	13,605
Net Asset Value Per Share:
Institutional Class					$9.96

^A Amount less than $1.

See notes to financial statements.

95

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset Core Bond Portfolio

Assets:
Investment securities at market value (identified cost—$2,698,758)	$	2,730,358
Short-term securities at value (identified cost—$977,308)		977,497
Total investments				$	3,707,855
Swap contracts					1,346
Receivable for:
Securities sold					30,928
Fund shares sold					9,880
Dividend and interest income					17,210
					3,767,219
Liabilities:
Obligation to return collateral for securities loaned		673,075
Options written (proceeds—$5,077)		4,430
Payable for:
Securities purchased		305,758
Fund shares repurchased		1,109
Income distribution		524
Interest expense		714
Futures variation margin		550
Due to manager and distributor		956
Accrued expenses		450
					987,566
Net Assets				$	2,779,653
Net assets consist of:
Accumulated paid-in-capital applicable to:
228,665 Institutional Class shares outstanding	$	2,582,736
13,356 Financial Intermediary Class shares outstanding		152,204
Under/(Over) distributed net investment income		(1,917	)
Accumulated net realized gain/(loss) on investments, options, futures and swaps		14,180
Unrealized appreciation/(depreciation) of investments, options, futures and swaps		32,450
Net Assets				$	2,779,653
Net Asset Value Per Share:
Institutional Class					$11.49
Financial Intermediary Class					$11.49

See notes to financial statements.

96

Semi-Annual Report to Shareholders

Western Asset Core Plus Bond Portfolio

Assets:
Investment securities at market value (identified cost—$3,716,969)	$	3,815,916
Short-term securities at value (identified cost—$1,542,445)		1,544,362
Total investments				$	5,360,278
Cash and foreign currencies					83,417
Swap contracts					3,561
Receivable for:
Securities sold					562
Fund shares sold					21,775
Dividend and interest income					29,666
Futures variation margin					2,127
					5,501,386
Liabilities:
Obligation to return collateral for securities loaned		943,250
Options written (proceeds—$7,504)		6,389
Payable for:
Securities purchased		533,531
Fund shares repurchased		5,054
Interest expense		1,045
Income distribution		1,520
Due to manager and distributor		1,284
Depreciation of forward contracts		4,585
Accrued expenses		556
					1,497,214
Net Assets				$	4,004,172
Net assets consist of:
Accumulated paid-in-capital applicable to:
370,059 Institutional Class shares outstanding	$	3,800,870
7,695 Financial Intermediary Class shares outstanding		81,283
Under/(Over) distributed net investment income		(19,067	)
Accumulated net realized gain/(loss) on investments, options, futures, swaps and foreign currency transactions		29,949
Unrealized appreciation/(depreciation) of investments, options, futures, swaps and foreign currency translations		111,137
Net Assets				$	4,004,172
Net Asset Value Per Share:
Institutional Class					$10.60
Financial Intermediary Class					$10.60

See notes to financial statements.

97

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset Inflation Indexed Plus Bond Portfolio

Assets:
Investment securities at market value (identified cost—$390,700)	$	406,070
Short-term securities at value (identified cost—$1,631)		1,632
Total investments				$	407,702
Cash					646
Receivable for:
Fund shares sold					400
Interest income					2,945
Futures variation margin					3
					411,696
Liabilities:
Obligation to return collateral for securities loaned		10,497
Options written (proceeds—$31)		4
Payable for:
Securities purchased		6,537
Fund shares repurchased		4
Income distribution		13
Due to manager		63
Depreciation of forward contracts		220
Accrued expenses		67
					17,405
Net Assets				$	394,291
Net assets consist of:
Accumulated paid-in-capital applicable to: 37,135 Institutional Class shares outstanding	$	384,154
Under/(Over) distributed net investment income		(8	)
Accumulated net realized gain/(loss) on investments, options, futures, swaps and foreign currency transactions		(5,014	)
Unrealized appreciation/(depreciation) of investments, options, futures, swaps and foreign currency translations		15,159
Net Assets				$	394,291
Net Asset Value Per Share:
Institutional Class					$10.62

See notes to financial statements.

98

Semi-Annual Report to Shareholders

Western Asset High Yield Portfolio

Assets:
Investment securities at market value (identified cost—$345,869)				$	357,286
Cash					475
Receivable for:
Securities sold					16,215
Dividend and interest income					8,299
					382,275
Liabilities:
Payable for securities purchased	$	14,614
Due to manager		173
Accrued expenses		95
					14,882
Net Assets				$	367,393
Net assets consist of:
Accumulated paid-in-capital applicable to:
34,964 Institutional Class shares outstanding	$	352,909
Under/(Over) distributed net investment income		5,704
Accumulated net realized gain/(loss) on investments		(2,637	)
Unrealized appreciation/(depreciation) of investments		11,417
Net Assets				$	367,393
Net Asset Value Per Share:
Institutional Class					$10.51

See notes to financial statements.

99

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset Non U.S. Opportunity Bond Portfolio

Assets:
Investment securities at market value (identified cost—$72,408)	$	83,913
Short-term securities at value (identified cost—$12,783)		12,783
Total investments				$	96,696
Cash and foreign currencies					923
Receivable for:
Securities sold					2
Dividend and interest income					2,435
					100,056
Liabilities:
Due to manager		68
Depreciation of forward contracts		1,253
Accrued expenses		25
					1,346
Net Assets				$	98,710
Net assets consist of:
Accumulated paid-in-capital applicable to:
9,508 Institutional Class shares outstanding	$	96,840
Under/(Over) distributed net investment income		(11,850	)
Accumulated net realized gain/(loss) on investments, options, futures and foreign currency transactions		3,402
Unrealized appreciation/(depreciation) of investments, options, futures and foreign currency translations		10,318
Net Assets				$	98,710
Net Asset Value Per Share:
Institutional Class					$10.38

See notes to financial statements.

100

[This Page Intentionally Left Blank]

101

Semi-Annual Report to Shareholders

STATEMENT OF OPERATIONS

(Amounts in Thousands) (Unaudited)

	SIX MONTHS ENDED SEPTEMBER 30, 2004
	WESTERN ASSET LIMITED DURATION BOND PORTFOLIO			WESTERN ASSET INTERMEDIATE BOND PORTFOLIO			WESTERN ASSET INTERMEDIATE PLUS BOND PORTFOLIO
Investment Income:
Interest	$	434		$	11,824		$	196
Dividends		—			160			—
Total income		434			11,984			196
Expenses:
Advisory fee		57			1,166			21
Distribution and service fees:
Financial Intermediary Class		N/A			N/A			N/A
Audit and legal fees		16			37			28
Custodian fees		36			71			21
Directors’ fees and expenses		1			26			1
Registration fees		3			12			2
Reports to shareholders		—			8			2
Transfer agent and shareholder servicing expense:
Institutional Class		6			17			8
Financial Intermediary Class		N/A			N/A			N/A
Other expenses		1			10			1
		120			1,347			84
Less:    Fees waived		(54	)		(34	)		(59	)
Compensating balance credits		—			(1	)		(1	)
Total expenses, net of waivers and compensating balance credits		66			1,312			24
Net Investment Income		368			10,672			172
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		57			644			(151	)
Options		2			1,338			2
Futures		—			147			29
Foreign currency transactions		N/A			N/A			(15	)
Swaps		—			50			3
		59			2,179			(132	)
Change in unrealized gain/(loss) on:
Investments		(232	)		(6,284	)		28
Assets and liabilities denominated in foreign currency		N/A			N/A			1
		(232	)		(6,284	)		29
Net Realized and Unrealized Gain/(Loss) on Investments		(173	)		(4,105	)		(103	)
Change in Net Assets Resulting From Operations	$	195		$	6,567		$	69

N/A—Not applicable.

See notes to financial statements.

102

Semi-Annual Report to Shareholders

SIX MONTHS ENDED SEPTEMBER 30, 2004
WESTERN ASSET CORE BOND PORTFOLIO			WESTERN ASSET CORE PLUS BOND PORTFOLIO			WESTERN ASSET INFLATION INDEXED PLUS BOND PORTFOLIO			WESTERN ASSET HIGH YIELD PORTFOLIO			WESTERN ASSET NON-U.S. OPPORTUNITY BOND PORTFOLIO
$	48,004		$	66,675		$	9,361		$	12,330		$	1,751
	705			187			—			60			—
	48,709			66,862			9,361			12,390			1,751
	5,103			7,143			356			893			217
	160			19			N/A			N/A			N/A
	60			95			29			29			17
	229			408			53			55			58
	81			107			16			9			4
	94			101			9			27			5
	22			15			3			3			2
	13			56			11			9			7
	49			—			N/A			N/A			N/A
	46			68			6			6			2
	5,857			8,012			483			1,031			312
	—			(153	)		(37	)		—			(46	)
	(3	)		(15	)		(1	)		(6	)		(1	)
	5,854			7,844			445			1,025			265
	42,855			59,018			8,916			11,365			1,486
	8,621			15,115			(3,533	)		1,547			201
	(2,226	)		6,212			66			—			(554	)
	3,484			8			(446	)		—			795
	N/A			3,960			(22	)		—			2,959
	7,763			11,109			4			—			—
	17,642			36,404			(3,931	)		1,547			3,401
	(19,221	)		(6,472	)		(1,713	)		4,166			(972	)
	N/A			(2,346	)		4			—			(2,214	)
	(19,221	)		(8,818	)		(1,709	)		4,166			(3,186	)
	(1,579	)		27,586			(5,640	)		5,713			215
$	41,276		$	86,604		$	3,276		$	17,078		$	1,701

103

Semi-Annual Report to Shareholders

STATEMENT OF CHANGES IN NET ASSETS

(Amounts in Thousands) (Unaudited)

	WESTERN ASSET LIMITED DURATION BOND PORTFOLIO						WESTERN ASSET INTERMEDIATE BOND PORTFOLIO						WESTERN ASSET INTERMEDIATE PLUS BOND PORTFOLIO
	SIX MONTHS ENDED 9/30/04			PERIOD ENDED 3/31/04A			SIX MONTHS ENDED 9/30/04			YEAR ENDED 3/31/04			PERIOD ENDED 9/30/04B
Change in Net Assets:
Net investment income	$	368		$	206		$	10,672		$	22,550		$	172
Net realized gain/(loss) on investments, options, futures, swaps and foreign currency transactions		59			(6	)		2,179			16,937			(132	)
Change in unrealized appreciation/ (depreciation) of investments, options, futures, swaps and assets and liabilities denominated in foreign currencies		(232	)		250			(6,284	)		2,068			29
Change in net assets resulting from operations		195			450			6,567			41,555			69
Distributions to Shareholders:
From net investment income:
Institutional Class		(377	)		(206	)		(10,711	)		(22,411	)		(178	)
Financial Intermediary Class		N/A			N/A			N/A			N/A			N/A
From net realized gain on investments:
Institutional Class		—			—			(15,309	)		(13,489	)		—
Financial Intermediary Class		N/A			N/A			N/A			N/A			N/A
Change in net assets from:
Fund share transactions:
Institutional Class		17,046			25,938			31,182			41,700			13,714
Financial Intermediary Class		N/A			N/A			N/A			N/A			N/A
Change in net assets		16,864			26,182			11,729			47,355			13,605
Net Assets:
Beginning of period		26,182			—			587,229			539,874			—
End of period	$	43,046		$	26,182		$	598,958		$	587,229		$	13,605
Under/(Over) distributed net investment income	$	(9	)	$	—		$	43		$	82		$	(6	)

^A For the period October 1, 2003 (commencement of operations) to March 31, 2004.

^B For the period April 1, 2004 (commencement of operations) to September 30, 2004

N/A—Not applicable.

See notes to financial statements.

104

Semi-Annual Report to Shareholders

WESTERN ASSET CORE BOND PORTFOLIO						WESTERN ASSET CORE PLUS BOND PORTFOLIO						WESTERN ASSET INFLATION INDEXED PLUS BOND PORTFOLIO						WESTERN ASSET HIGH YIELD PORTFOLIO						WESTERN ASSET NON-U.S. OPPORTUNITY BOND PORTFOLIO
SIX MONTHS ENDED 9/30/04			YEAR ENDED 3/31/04			SIX MONTHS ENDED 9/30/04			YEAR ENDED 3/31/04			SIX MONTHS ENDED 9/30/04			YEAR ENDED 3/31/04			SIX MONTHS ENDED 9/30/04			YEAR ENDED 3/31/04			SIX MONTHS ENDED 9/30/04			YEAR ENDED 3/31/04
$	42,855		$	65,432		$	59,018		$	87,230		$	8,916		$	11,494		$	11,365		$	12,730		$	1,486		$	2,498
	17,642			55,766			36,404			61,576			(3,931	)		23,127			1,547			6,041			3,401			(2,553	)
	(19,221	)		18,124			(8,818	)		67,117			(1,709	)		(2,556	)		4,166			7,912			(3,186	)		5,428
	41,276			139,322			86,604			215,923			3,276			32,065			17,078			26,683			1,701			5,373
															��
	(42,065	)		(65,545	)		(61,865	)		(95,872	)		(8,988	)		(11,494	)		(8,269	)		(15,028	)		(2,732	)		(5,476	)
	(2,140	)		(3,395	)		(227	)		(107	)		N/A			N/A			N/A			N/A			N/A			N/A
	(49,163	)		(23,668	)		(44,219	)		(43,348	)		(12,719	)		(12,824	)		—			—			(136	)		(1,794	)
	(2,570	)		(1,371	)		(111	)		(45	)		N/A			N/A			N/A			N/A			N/A			N/A
	491,116			743,572			655,961			1,343,566			66,343			48,326			169,126			27,866			2,850			39,898
	34,373			40,360			74,339			6,585			N/A			N/A			N/A			N/A			N/A			N/A
	470,827			829,275			710,482			1,426,702			47,912			56,073			177,935			39,521			1,683			38,001
	2,308,826			1,479,551			3,293,690			1,866,988			346,379			290,306			189,458			149,937			97,027			59,026
$	2,779,653		$	2,308,826		$	4,004,172		$	3,293,690		$	394,291		$	346,379		$	367,393		$	189,458		$	98,710		$	97,027
$	(1,916	)	$	(566	)	$	(19,066	)	$	(15,992	)	$	(8	)	$	64		$	5,704		$	2,608		$	(11,850	)	$	(10,604	)

105

Semi-Annual Report to Shareholders

FINANCIAL HIGHLIGHTS

Contained below is per share operating performance data for a share of common stock outstanding throughout each period shown, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information in the financial statements.

			INVESTMENT OPERATIONS
	NET ASSET VALUE, BEGINNING OF PERIOD		NET INVESTMENT INCOME			NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, OPTIONS, FUTURES, SWAPS, AND FOREIGN CURRENCY TRANSACTIONS			TOTAL FROM INVESTMENT OPERATIONS
Western Asset Limited Duration Bond Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	10.09	$	.12	B	$	(.09	)	$	.03
Period Ended March 31, 2004E		10.00		.08	B		.09			.17
Western Asset Intermediate Bond Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	11.01	$	.19	F	$	(.09	)	$	.10
Years Ended March 31,
2004		10.92		.44	F		.36			.80
2003		10.39		.53			.62			1.15
2002		10.65		.57	F		(.13	)		.44
2001		10.09		.68	F		.56			1.24
2000		10.62		.63	F		(.38	)		.25
—Financial Intermediary Class
Period Ended November 30, 1999G	$	10.61	$	.41	H	$	(.33	)	$	.08
Western Asset Intermediate Plus Bond Portfolio
—Institutional Class
Period Ended September 30, 2004A,I	$	10.00	$	.16	J	$	(.04	)	$	.12
Western Asset Core Bond Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	11.81	$	.21		$	(.06	)	$	.15
Years Ended March 31,
2004		11.57		.41			.45			.86
2003		11.01		.55			.65			1.20
2002		11.09		.62	K		.05			.67
2001		10.39		.73	K		.70			1.43
2000		11.01		.67	K		(.46	)		.21
—Financial Intermediary Class
Six Months Ended September 30, 2004A	$	11.81	$	.20		$	(.07	)	$	.13
Years Ended March 31,
2004		11.57		.40	L		.43			.83
2003		11.02		.53			.63			1.16
2002		11.10		.59	L		.06			.65
2001		10.40		.70	L		.70			1.40
2000M		10.69		.45	L		(.25	)		.20

106

Semi-Annual Report to Shareholders

DISTRIBUTIONS											RATIOS/SUPPLEMENTAL DATA
FROM NET INVESTMENT INCOME			FROM NET REALIZED GAIN ON INVESTMENTS			TOTAL DISTRIBUTIONS			NET ASSET VALUE, END OF PERIOD		TOTAL RETURN		EXPENSES TO AVERAGE NET ASSETS		NET INVESTMENT INCOME TO AVERAGE NET ASSETS		PORTFOLIO TURNOVER RATE		NET ASSETS, END OF PERIOD (IN THOUSANDS)
$	(.12	)	$	—		$	(.12	)	$	10.00	.26	%C	.40	%B,D	2.2	%B,D	150.4	%C	$	43,046
	(.08	)		—			(.08	)		10.09	1.69	%C	.40	%B,D	1.6	%B,D	125.5	%C		26,182
$	(.19	)	$	(.28	)	$	(.47	)	$	10.64	1.12	%C	.45	%D,F	3.7	%D,F	102.5	%C	$	598,958
	(.44	)		(.27	)		(.71	)		11.01	7.58	%	.45	%F	4.0	%F	255.1	%	$	587,229
	(.53	)		(.09	)		(.62	)		10.92	11.37	%	.45	%	5.0	%	238.5	%		539,874
	(.57	)		(.13	)		(.70	)		10.39	4.20	%	.45	%F	5.3	%F	274.8	%		628,196
	(.68	)		—			(.68	)		10.65	12.79	%	.45	%F	6.6	%F	328.4	%		457,822
	(.78	)		—			(.78	)		10.09	2.49	%	.45	%F	6.3	%F	440.8	%		376,056
$	(.43	)	$	—		$	(.43	)	$	10.26	.81	%C	.70	%D,H	5.9	%D,H	440.8	%	$	—
$	(.16	)	$	—		$	(.16	)	$	9.96	1.24	%C	.45	%D,J	3.3	%D,J	385.1	%C	$	13,605
$	(.21	)	$	(.26	)	$	(.47	)	$	11.49	1.28	%C	.46	%D	3.5	%D	179.3	%C	$	2,626,228
	(.44	)		(.18	)		(.62	)		11.81	7.64	%	.49	%	3.5	%	464.6	%		2,187,219
	(.55	)		(.09	)		(.64	)		11.57	11.19	%	.49	%	4.9	%	438.6	%		1,400,431
	(.62	)		(.13	)		(.75	)		11.01	6.14	%	.50	%K	5.6	%K	595.2	%		971,544
	(.73	)		—			(.73	)		11.09	14.37	%	.50	%K	6.8	%K	387.2	%		826,459
	(.80	)		(.03	)		(.83	)		10.39	1.99	%	.50	%K	6.3	%K	260.4	%		649,038
$	(.19	)	$	(.26	)	$	(.45	)	$	11.49	1.24	%C	.73	%D	3.2	%D	179.3	%C	$	153,425
	(.41	)		(.18	)		(.59	)		11.81	7.36	%	.75	%L	3.2	%L	464.6	%		121,607
	(.52	)		(.09	)		(.61	)		11.57	10.80	%	.75	%	4.1	%	438.6	%		79,120
	(.60	)		(.13	)		(.73	)		11.02	5.88	%	.75	%L	5.3	%L	595.2	%		1,885
	(.70	)		—			(.70	)		11.10	13.96	%	.75	%L	6.6	%L	387.2	%		1,883
	(.49	)		—			(.49	)		10.40	1.97	%C	.75	%D,L	6.2	%D,L	260.4	%		1,456

107

Semi-Annual Report to Shareholders

FINANCIAL HIGHLIGHTS—Continued

			INVESTMENT OPERATIONS
	NET ASSET VALUE, BEGINNING OF PERIOD		NET INVESTMENT INCOME			NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, OPTIONS, FUTURES, SWAPS, AND FOREIGN CURRENCY TRANSACTIONS			TOTAL FROM INVESTMENT OPERATIONS
Western Asset Core Plus Bond Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	10.71	$	.19	N	$	.03		$	.22
Years Ended March 31,
2004		10.40		.37	N		.55			.92
2003		9.88		.51	N		.62			1.13
2002		10.07		.56	N,O		.06	O		.62
2001		9.48		.66	N		.59			1.25
2000		9.97		.55	N		(.37	)		.18
—Financial Intermediary Class
Six Months Ended September 30, 2004A	$	10.71	$	.19	P	$	.01		$	.20
Years Ended March 31,
2004		10.40		.36	P		.54			.90
2003		9.87		.48	P		.63			1.11
2002Q		10.04		.11	O,P		(.17	)O		(.06	)
Western Asset Inflation Indexed Plus Bond Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	11.24	$	.27	R	$	(.22	)	$	.05
Years Ended March 31,
2004		10.96		.37	R		.71			1.08
2003		9.92		.51	R		1.19			1.70
2002		9.98		.41	R		.01			.42
2001S		10.00		.08	R		(.02	)		.06
Western Asset High Yield Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	10.28	$	.26	T	$	.21		$	.47
Years Ended March 31,
2004		9.56		.78	T		.89			1.67
2003		10.36		.96	T		(.82	)		.14
2002U		10.00		.53	T		.07			.60

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Semi-Annual Report to Shareholders

DISTRIBUTIONS											RATIOS/SUPPLEMENTAL DATA
FROM NET INVESTMENT INCOME			FROM NET REALIZED GAIN ON INVESTMENTS			TOTAL DISTRIBUTIONS			NET ASSET VALUE, END OF PERIOD		TOTAL RETURN		EXPENSES TO AVERAGE NET ASSETS		NET INVESTMENT INCOME TO AVERAGE NET ASSETS		PORTFOLIO TURNOVER RATE		NET ASSETS, END OF PERIOD (IN THOUSANDS)
$	(.19	)	$	(.14	)	$	(.33	)	$	10.60	2.15	%C	.45	%D,N	3.4	%D,N	280.3	%C	$	3,922,584
	(.41	)		(.20	)		(.61	)		10.71	9.12	%	.45	%N	3.6	%N	463.8	%		3,286,650
	(.51	)		(.10	)		(.61	)		10.40	11.78	%	.45	%N	5.0	%N	422.6	%		1,866,619
	(.54	)		(.27	)		(.81	)		9.88	6.34	%	.45	%N	5.3	%N	590.7	%		991,673
	(.66	)		—			(.66	)		10.07	13.73	%	.46	%N	6.8	%N	432.8	%		444,451
	(.67	)		—			(.67	)		9.48	1.95	%	.50	%N	6.2	%N	315.9	%		215,184
$	(.17	)	$	(.14	)	$	(.31	)	$	10.60	2.03	%C	.70	%D,P	2.2	%D,P	280.3	%C	$	81,588
	(.39	)		(.20	)		(.59	)		10.71	8.82	%	.70	%P	3.2	%P	463.8	%		7,040
	(.48	)		(.10	)		(.58	)		10.40	11.57	%	.70	%P	4.8	%P	422.6	%		369
	(.11	)		—			(.11	)		9.87	(.57	)%C	.70	%D,P	5.3	%D,P	590.7	%		235
$	(.27	)	$	(.40	)	$	(.67	)	$	10.62	.72	%C	.25	%D,R	5.0	%D,R	185.9	%C	$	394,291
	(.37	)		(.43	)		(.80	)		11.24	10.33	%	.25	%R	3.4	%R	281.8	%		346,379
	(.51	)		(.15	)		(.66	)		10.96	17.62	%	.25	%R	4.8	%R	75.4	%		290,306
	(.41	)		(.07	)		(.48	)		9.92	4.28	%	.25	%R	5.0	%R	79.5	%		210,635
	(.08	)		—			(.08	)		9.98	.55	%C	.25	%D,R	8.9	%D,R	—			11,978
$	(.24	)	$	—		$	(.24	)	$	10.51	4.70	%C	.64	%D	7.0	%D	55.5	%C	$	367,393
	(.95	)		—			(.95	)		10.28	18.27	%	.58	%T	7.9	%T	116.0	%		189,458
	(.94	)		—			(.94	)		9.56	2.22	%	.55	%T	10.2	%T	110.1	%		149,937
	(.24	)		—			(.24	)		10.36	6.02	%C	.55	%D,T	10.4	%D,T	51.8	%C		152,729

109

Semi-Annual Report to Shareholders

FINANCIAL HIGHLIGHTS—Continued

			INVESTMENT OPERATIONS
	NET ASSET VALUE, BEGINNING OF PERIOD		NET INVESTMENT INCOME			NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS, OPTIONS, FUTURES, SWAPS, AND FOREIGN CURRENCY TRANSACTIONS			TOTAL FROM INVESTMENT OPERATIONS
Western Asset Non-U.S. Opportunity Bond Portfolio
—Institutional Class
Six Months Ended September 30, 2004A	$	10.52	$	.20	V	$	(.04	)	$	.16
Years Ended March 31,
2004		10.91		.97	V		(.01	)		.96
2003		9.25		.25	V		1.52			1.77
2002		9.25		—	O,V		.46	O		.46
2001		9.59		.59	V		(.05	)		.54

^A Unaudited.

^B Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.40%. If no fees had been waived by the adviser, the annualized ratio of expenses to average net assets would have been as follows: for the six months ended September 30, 2004, 0.73%; and for the period October 1, 2003 (commencement of operations) to March 31, 2004, 0.68%.

^C Not annualized.

^D Annualized.

^E For the period October 1, 2003 (commencement of operations) to March 31, 2004.

^F Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.45%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been: for the six months ended September 30, 2004, 0.46%; and for the years ended March 31,2004, 0.47%; 2002, 0.47%; 2001, 0.47%; and 2000, 0.48%.

^G Liquidation of Financial Intermediary Class shares.

^H Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.70%. If no fees had been waived by the adviser, the annualized ratio of expenses to average net assets would have been as follows: for the period ending November 30, 1999 (liquidation of Financial Intermediary Class shares), 0.74%.

^I For the period April 1, 2004 (commencement of operations) to September 30, 2004.

^J Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.45%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the period ended September 30, 2004, 1.57%.

^K Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.50%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the years ended March 31, 2002, 0.52%; 2001, 0.53%; and 2000, 0.51%.

^L Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.75%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the years ended March 31, 2004, 0.76% ; 2002, 0.77%; and 2001, 0.78%. For the period July 22, 1999 (commencement of operations) to March 31, 2000, the annualized ratio of expenses to average net assets would have been 0.76%.

^M For the period July 22, 1999 (commencement of operations) to March 31, 2000.

^N Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.50% to June 30, 2000, and 0.45% thereafter. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the six months ended September 30, 2004, 0.46%; and for the years ended March 31, 2004, 0.48%; 2003, 0.50%; 2002, 0.54%; 2001, 0.57%; and 2000, 0.65%.

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Semi-Annual Report to Shareholders

DISTRIBUTIONS											RATIOS/SUPPLEMENTAL DATA
FROM NET INVESTMENT INCOME			FROM NET REALIZED GAIN ON INVESTMENTS			TOTAL DISTRIBUTIONS			NET ASSET VALUE, END OF PERIOD		TOTAL RETURN		EXPENSES TO AVERAGE NET ASSETS		NET INVESTMENT INCOME TO AVERAGE NET ASSETS		PORTFOLIO TURNOVER RATE		NET ASSETS, END OF PERIOD (IN THOUSANDS)
$	(.29	)	$	(.01	)	$	(.30	)	$	10.38	1.62	%C	.55	%D,V	3.1	%D,V	6.9	%C	$	98,710
	(1.01	)		(.34	)		(1.35	)		10.52	9.06	%	.55	%V	4.0	%V	42.8	%		97,027
	(.11	)		—			(.11	)		10.91	19.26	%	.55	%V	4.4	%V	187.5	%		59,026
	(.46	)		—			(.46	)		9.25	5.21	%	.55	%V	4.5	%V	307.6	%		47,487
	(.88	)		—			(.88	)		9.25	6.31	%	.55	%V	5.6	%V	263.4	%		93,385

^O The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. This amount is inconsistent with the Fund’s aggregate gains and losses because of the timing of sales and redemptions of Fund shares in relation to fluctuating market values for the investment portfolio.

^P Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.70%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the six months ended September 30, 2004, 0.71%; and for the years ended March 31, 2004, 0.73% and 2003, 0.75%. For the period January 8, 2002 (commencement of operations) to March 31, 2002, the annualized ratio of expenses to average net assets would have been 0.75%.

^Q For the period January 8, 2002 (commencement of operations) to March 31, 2002.

^R Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.25%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the six months ended September 30, 2004, 0.27%; and for the years ended March 31, 2004, 0.27%; 2003, 0.27%; and 2002, 0.67%. For the period March 1, 2001 (commencement of operations) to March 31, 2001, the annualized ratio of expenses to average net assets would have been 2.03%.

^S For the period March 1, 2001 (commencement of operations) to March 31, 2001.

^T Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.55% to December 31, 2003, and 0.65% thereafter. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the years ended March 31, 2004, 0.67% and 2003, 0.67%. For the period September 28, 2001 (commencement of operations) to March 31, 2002, the annualized ratio of expenses to average net assets would have been 0.75%.

^U For the period September 28, 2001 (commencement of operations) to March 31, 2002.

^V Net of advisory fees waived by the adviser pursuant to a voluntary expense limitation of 0.55%. If no fees had been waived by the adviser, the ratio of expenses to average net assets would have been as follows: for the six months ended September 30, 2004, 0.67%; and for the years ended March 31, 2004, 0.80%; 2003, 0.82%; 2002, 0.82%; 2001, 0.85; and 2000, 0.83%.

See notes to financial statements.

111

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS

(Amounts in Thousands) (Unaudited)

1. Significant Accounting Policies:

Western Asset Funds, Inc. (“Corporation”), consisting of Western Asset Limited Duration Bond Portfolio (“Limited Duration”), Western Asset Intermediate Bond Portfolio (“Intermediate”), Western Asset Intermediate Plus Bond Portfolio (“Intermediate Plus”), Western Asset Core Bond Portfolio (“Core”), Western Asset Core Plus Bond Portfolio (“Core Plus”), Western Asset Inflation Indexed Plus Bond Portfolio (“Inflation Indexed”), Western Asset High Yield Portfolio (“High Yield”), and Western Asset Non-U.S. Opportunity Bond Portfolio (“Non-U.S.”) (individually a “Fund,” collectively the “Funds”), is registered under the Investment Company Act of 1940, as amended (“1940 Act”), as a diversified, open-end management investment company with the exception of Non-U.S., which is non-diversified.

Each Fund offers two classes of shares: Institutional Class and Financial Intermediary Class. Shares in the Financial Intermediary Class bear a distribution fee. The Financial Intermediary Class shares of Limited Duration, Intermediate Plus, Inflation Indexed, High Yield, and Non-U.S. are not active. All outstanding Financial Intermediary Class shares of Intermediate were redeemed on November 30, 1999. The income and expenses of each of the Funds are allocated proportionately to the two classes of shares based on daily net assets, except for Rule 12b-1 distribution fees, which are charged only on the Financial Intermediary Class shares, and transfer agent and shareholder servicing expenses, which are determined separately for each class.

Preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from these estimates. The following is a summary of significant accounting policies followed by the funds in the preparation of their financial statements:

Security Valuation

Securities owned by the Funds for which market quotations are readily available are valued at current market value. Securities for which market quotations are not readily available are fair valued by the Board of Directors or the Funds’ Valuation Committee pursuant to procedures adopted by the Board. In determining fair value, the Board of Directors or the Funds’ Valuation Committee consider all relevant qualitative and quantitative factors available. These factors are subject to change over time and are reviewed periodically. The values assigned to fair value investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Further, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market of the investments existed, and the differences could be material.

With respect to Intermediate Plus, Core Plus, Inflation Indexed, High Yield and Non-U.S., where a security is traded on more than one market, which may include foreign markets, the securities are generally valued on the market considered by the Funds’ adviser to be the primary market. The Funds will value their foreign securities in U.S. dollars on the basis of the then-prevailing exchange rates.

Security Transactions

Security transactions are recorded on the trade date. Realized gains and losses from security transactions are reported on an identified cost basis for both financial reporting and federal income tax purposes.

For the six months ended September 30, 2004, investment transactions (excluding short-term investments) were:

	Purchases				Proceeds From Sales
	U.S. Gov’t Securities		Other		U.S. Gov’t Securities		Other
Limited Duration	$	43,345	$	14,170	$	37,802	$	6,383
Intermediate		374,836		197,735		413,801		147,073
Intermediate Plus		40,844		11,169		36,921		2,950
Core		3,913,951		145,517		4,281,579		178,067
Core Plus		6,527,704		2,211,749		6,770,447		2,192,357
Inflation Indexed		719,391		2,309		680,037		21,087
High Yield		—		361,803		—		164,465
Non-U.S.		—		5,837		—		5,646

112

Semi-Annual Report to Shareholders

Foreign Currency Translation

Assets and liabilities initially expressed in non-U.S. currencies are translated into U.S. dollars using currency exchange rates determined prior to the close of the Exchange, usually 2:00 p.m. Eastern time. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are included with the net realized and unrealized gain or loss on investment securities.

Repurchase Agreements

The Funds may engage in repurchase agreement transactions. Under the terms of a typical repurchase agreement, a fund takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and a fund to resell, the obligation at an agreed-upon price and time, thereby determining the yield during a fund’s holding period. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the fund’s holding period. The value of the collateral is at all times at least equal to the total amount of the repurchase obligation, including interest. In the event of counterparty default, a fund has the right to use the collateral to satisfy the terms of the repurchase agreement. However, there could be potential loss to the fund in the event the fund is delayed or prevented from exercising its right to dispose of the collateral securities, including the risk of a possible decline in the value of the collateral securities during the period in which the fund seeks to assert its rights. The Funds’ investment advisers review the value of the collateral and the creditworthiness of those banks and dealers with which the Funds enter into repurchase agreements to evaluate potential risks.

Options, Futures and Swap Agreements

The current market value of a traded option is the last sale price or, in the absence of a sale, the mean between the closing bid and asked price. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Futures contracts are marked-to-market on a daily basis. As a contract’s value fluctuates, payments known as variation margin are made or received by a Fund each day, depending on the daily fluctuation in the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses, and the Fund recognizes a gain or loss when the contract is closed. Swap agreements are priced daily based upon quotations from brokers and the change, if any, is recorded as unrealized appreciation or depreciation.

Investment Income and Distributions to Shareholders

Dividend income and distributions to shareholders are allocated at the class level and are recorded on the ex-dividend date. Dividends from net investment income are declared daily and paid monthly for each Fund except High Yield and Non-U.S., which declare and pay dividends quarterly. Net capital gains distributions, which are calculated at the Fund level, are declared and paid annually in June. An additional distribution may be made in November to the extent necessary in order to comply with federal excise tax requirements. Distributions are determined in accordance with federal income tax regulations, which may differ from those determined in accordance with accounting principles generally accepted in the United States of America; accordingly, periodic reclassifications are made within the Funds’ capital accounts to reflect income and gains available for distribution under federal income tax regulations. Interest income and expenses are recorded on the accrual basis. Bond discounts and premiums are amortized and included in interest income for financial reporting and federal income tax purposes.

2. Federal Income Taxes:

No provision for federal income or excise taxes is required since each Fund intends to continue to qualify as a regulated investment company and distribute substantially all of its taxable income and capital gains to its shareholders. Because federal income tax regulations differ from accounting principles generally accepted in the United States of America, income and capital gains distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of the distributions and composition of net assets for tax purposes differ from those reflected in the accompanying financial statements. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of September 30, 2004.

The Funds intend to retain realized capital gains that may be offset against available capital loss carryforwards for federal income tax purposes. As of March 31, 2004, Limited Duration and High Yield had capital loss carryforwards of $6 (expiring in 2012) and $4,078 (expiring in 2011), respectively. There were no capital loss carryforwards for any of the other Funds.

113

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

3. Financial Instruments:

Forward Currency Exchange Contracts

As part of their investment programs, the Funds may utilize forward currency exchange contracts. The nature and risks of these financial instruments and the reasons for using them are set forth more fully in the Corporation’s prospectus and statement of additional information.

Forward foreign currency contracts are marked-to-market daily using forward foreign currency exchange rates supplied by an independent pricing service. The change in a contract’s market value is recorded by the Funds as an unrealized gain or loss. When the contract is closed or delivery is taken, the Funds record a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

The use of forward foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the Funds’ securities, but it does establish a rate of exchange that can be achieved in the future. These forward foreign currency contracts involve market risk in excess of amounts reflected in the financial statements. Although forward foreign currency contracts used for hedging purposes limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Funds could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts.

At September 30, 2004 open forward currency exchange contracts were as follows:

Intermediate Plus

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/10/04	USD	746	EUR	615	$	(19	)
					$	(19	)

Core Plus

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/10/04	USD	38,659	CAD	51,481	$	(2,146	)
11/10/04	USD	111,909	EUR	92,018		(2,439	)
					$	(4,585	)

Inflation Indexed

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/10/04	USD	3,400	CAD	4,425	$	(108	)
11/10/04	USD	3,551	EUR	2,923		(82	)
11/10/04	USD	757	SEK	5,739		(30	)
					$	(220	)

Non-U.S.

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/10/04	CAD	10,545	USD	7,912	$	447
11/10/04	USD	1,592	DKK	9,740		(35	)
11/10/04	EUR	2,891	NOK	24,541		83
11/10/04	EUR	6,488	USD	7,874		188
11/10/04	USD	65,386	EUR	53,855		(1,538	)
11/10/04	NOK	20,438	EUR	2,411		(98	)
11/10/04	NOK	14,792	USD	2,118		83
11/10/04	NOK	20,438	EUR	2,411		144
11/10/04	EUR	2,891	NOK	24,541		(143	)
11/10/04	USD	1,866	NOK	13,030		(73	)
11/10/04	GBP	550	USD	1,003		(10	)
11/10/04	USD	3,345	GBP	1,833		35
11/10/04	USD	9,094	SEK	68,733		(336	)
					$	(1,253	)

114

Semi-Annual Report to Shareholders

Options and Futures

As part of their investment programs, the Funds may utilize options and futures. Options may be written (sold) or purchased by the Funds. When a Fund purchases a put or call option, the premium paid is recorded as an investment and its value is marked-to-market daily. When a Fund writes a put or call option, an amount equal to the premium received by the Fund is recorded as a liability and its value is marked-to-market daily.

When options, whether written or purchased, expire, are exercised or are closed (by entering into a closing purchase or sale transaction), the Fund realizes a gain or loss as described in the chart below:

Purchased option:	Impact on the Fund:
The option expires	Realize a loss in the amount of the cost of the option.
The option is closed through a closing sale transaction	Realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option.
The Fund exercises a call option	The cost of the security purchased through the exercise of the option will be increased by the premium originally paid to purchase the option.
The Fund exercises a put option	Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be reduced by the premium originally paid to purchase the put option.
Written option:	Impact on the Fund:
The option expires	Realize a gain equal to the amount of the premium received.
The option is closed through a closing purchase transaction	Realize a gain or loss without regard to any unrealized gain or loss on the underlying security and eliminate the option liability. The Fund will realize a loss in this transaction if the cost of the closing purchase exceeds the premium received when the option was written.
A written call option is exercised by the option purchaser	Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be increased by the premium originally received when the option was written.
A written put option is exercised by the option purchaser	The amount of the premium originally received will reduce the cost of the security that the Fund purchased when the option was exercised.

The risk associated with purchasing options is limited to the premium originally paid. Options written by a Fund involve, to varying degrees, risk of loss in excess of the option value reflected in the statement of net assets. The risk in writing a covered call option is that a Fund may forgo the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is the risk a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability or unwillingness to perform. The nature and risks of these financial instruments and the reasons for using them are set forth more fully in the Corporation’s prospectus and statement of additional information.

^A Definitions of currency abbreviations:

CAD—Canadian dollar

DKK—Danish krona

EUR—Euro

GBP—British pound

NOK—Norwegian krone

SEK—Swedish Krona

USD—United States dollar

115

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

Activity in written call and put options during the six months ended September 30, 2004, was as follows:

	Calls					Puts
Intermediate	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2004	752		$	991		13,400,557		$	736
Options written	634			821		548			460
Options closed	(1,386	)		(1,812	)	(13,401,001	)		(1,125	)
Options expired	—			—
Options exercised	—			—
Options outstanding at September 30, 2004	—		$	—		104		$	71

	Calls					Puts
Intermediate Plus	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2004	—		$	—		—		$	—
Options written	2			1		4			2
Options closed	(2	)		(1	)	(2	)		(1	)
Options expired	—			—		—			—
Options exercised	—			—		—			—
Options outstanding at September 30, 2004	—		$	—		2		$	1

	Calls					Puts
Core	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2004	30,302,820		$	2,962		92,706,826		$	6,470
Options written	11,030			8,535		147,597,101			5,062
Options closed	(5,956	)		(4,934	)	(147,596,866	)		(6,356	)
Options expired	(3,281	)		(2,910	)	(92,702,422	)		(2,293	)
Options exercised	(1,580	)		(784	)	(1,178	)		(675	)
Options outstanding at September 30, 2004	30,303,033		$	2,869		3,461		$	2,208

	Calls					Puts
Core Plus	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2004	39,303,534		$	3,803		129,705,061		$	5,517
Options written	45,416,385			13,055		214,960,296			7,293
Options closed	(9,100	)		(7,605	)	(214,955,018	)		(5,124	)
Options expired	(4,411	)		(3,906	)	(129,703,224	)		(3,113	)
Options exercised	(2,133	)		(1,063	)	(2,025	)		(1,353	)
Options outstanding at September 30, 2004	84,704,275		$	4,284		5,090		$	3,220

	Calls					Puts
Inflation Indexed	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2004	4,600,283 4,800,033 (4,600,188 (95 (33	) ) )	$	305		25,600,387		$	403
Options written				53		110			80
Options closed				(218	)	(403	)		(185	)
Options expired				(87	)	(25,600,000	)		(266	)
Options exercised				(22	)	(94	)		(32	)
Options outstanding at September 30, 2004	4,800,000		$	31		—		$	—

116

Semi-Annual Report to Shareholders

Upon entering into a futures contract, the Funds are required to deposit with the broker cash or cash equivalents in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For Non-U.S. and foreign denominated futures held in Intermediate Plus, Core Plus and Inflation Indexed, payment is not sent daily, but is recorded as a net payable or receivable by the Fund to or from the futures broker, which holds cash collateral from the Fund. The daily changes in contract value are recorded as unrealized gains or losses, and each Fund recognizes a realized gain or loss when the contract is closed. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded.

The Funds enter into futures contracts for various reasons, including in connection with their interest rate management strategy. Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. The change in value of the futures contracts primarily corresponds with the value of the underlying instruments, which may not correlate with changes in interest rates, if applicable. In addition, there is a risk that a Fund may not be able to enter into a closing transaction because of an illiquid secondary market. The nature and risks of these financial instruments and other reasons for using them are set forth more fully in the Corporation’s prospectus and statement of additional information.

The open futures positions and related appreciation or depreciation at September 30, 2004 are listed at the end of each Fund’s portfolio of investments.

Swap Agreements

The use of swaps involves risks that are different from those associated with ordinary portfolio securities transactions. Swap agreements may be considered to be illiquid. Although a Fund will not enter into any swap agreement unless the adviser believes that the other party to the transaction is creditworthy, a Fund does bear the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of the agreement counterparty. The nature and risks of these financial instruments and the reasons for using them are set forth more fully in the Corporation’s prospectus and statement of additional information.

The Funds may invest in different types of swap agreements. Currently, the Funds hold credit default and interest rate swap contracts (denoted in the table below by a superscript 1 or 2, respectively). Credit default swap contracts represent the exchange of commitments to provide a level of credit protection for a commitment to receive interest at a fixed rate based on the potential risk of default of the relevant underlying issuer. The relevant underlying issuer for credit default swap contracts is listed in a parenthetical reference following the agreement counterparty. Interest rate swap contracts involve the exchange of commitments to pay and receive interest based on a notional principal amount.

117

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

The following is a summary of open swap contracts outstanding at September 30, 2004.

Intermediate:
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Lehman Brothers (Dynergy Holdings, 8.75%, due 2/15/12)1	April 23, 2007	Specified amount upon credit event noticeB	3.00% Quarterly	$	2,200	$	(56)
J.P. Morgan Chase & Co., Inc (Telecom Italia SPA, 6.25%, due 2/1/12)1	March 20, 2009	Specified amount upon credit event noticeB	1.00% Quarterly		3,010		67
J.P. Morgan Chase & Co., Inc (Fannie Mae, 6.25%, due 2/15/11)1	September 24, 2009	Specified amount upon credit event noticeB	0.55% Quarterly		5,180		17
						$	28
Intermediate Plus:
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	4.30% Quarterly	$	250		N.M.
J.P. Morgan Chase & Co., Inc (Fannie Mae, 6.25%, due 2/15/11)1	September 24, 2009	Specified amount upon credit event noticeC	0.55% Quarterly		90		N.M.
							N.M.
Core:
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank (Dynegy Holdings, 8.75%, due 2/15/12)1	May 1, 2007	Specified amount upon credit event noticeB	5.25% Quarterly	$	3,340	$	117
Credit Suisse First Boston USA2	September 14, 2007	3.228% Semi-annually	3-month LIBORD		132,510		159
Credit Suisse First Boston USA2	September 14, 2007	3.206% Semi-annually	3-month LIBORD		132,510		241
The Goldman Sachs Group, Inc.2	September 14, 2007	3-month LIBORD	3.215% Semi-annually		26,500		(41)

^B Upon bankruptcy or failure to make a scheduled interest payment, the Fund will pay $1,000; upon default, the Fund will pay $10,000.

^C Upon bankruptcy or failure to make a scheduled interest payment, the Fund will pay $1,000.

^D London Interbank Offered Rate.

^E Upon bankruptcy or failure to make a scheduled interest payment, the Fund will receive $1,000.

118

Semi-Annual Report to Shareholders

Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA2	September 21, 2007	3.222% Semi-annually	3-month LIBORD	$	58,700	$	91
Credit Suisse First Boston USA2	September 21, 2007	3.237% Semi-annually	3-month LIBORD		88,000		99
The Goldman Sachs Group, Inc.2	September 22, 2007	3.1985% Semi-annually	3-month LIBORD		96,800		233
Deutsche Bank AG (iBoxx IG TMT)1	March 20, 2009	0.60% Quarterly	Specified amount upon credit event noticeE		7,400		43
Deutsche Bank AG (iBoxx 30 Hi-Vol)1	March 20, 2009	1.25% Quarterly	Specified amount upon credit event noticeE		7,400		23
Deutsche Bank AG (iBoxx IG Hi-Vol)1	March 20, 2009	Specified amount upon credit event noticeC	1.25% Quarterly		9,740		35
Merrill Lynch & Co., Inc. (Pacific Gas & Electric, 4.80%, due 3/1/14)1	June 20, 2009	Specified amount upon credit event noticeC	0.42% Quarterly		2,100		(3)
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	1.15% Quarterly	Specified amount upon credit event noticeE		25,000		160
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		7,510		36
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		25,000		(40)
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		4,310		29
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		4,160		(23)
Deutsche Bank AG2	September 24, 2014	4.432% Semi-annually	3-month LIBORD		63,300		628
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		25,000		(3)
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		16,100		76

119

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
J.P. Morgan Chase & Co. (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly	$	26,000	$	24
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		12,500		43
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2014	Specified amount upon credit event noticeC	1.30% Quarterly		8,320		(100)
Deutsche Bank AG (iBoxx IG2)1	September 20, 2014	0.80% Quarterly	Specified amount upon credit event noticeE		7,400		(47)
						$	1,780
Core Plus:
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (Dynergy Holdings, 8.75%, due 2/15/12)1	April 23, 2007	Specified amount upon credit event noticeC	2.95% Quarterly	$	2,250	$	(63)
Deutsche Bank AG (Dynergy Holdings, 8.75%, due 2/15/12)1	May 1, 2007	Specified amount upon credit event noticeC	5.25% Quarterly		3,460		121
Credit Suisse First Boston USA2	September 14, 2007	3.206% Semi-annually	3-month LIBORD		186,350		338
Credit Suisse First Boston USA2	September 14, 2007	3.228% Semi-annually	3-month LIBORD		186,350		224
The Goldman Sachs Group, Inc.2	September 14, 2007	3-month LIBORD	3.215% Semi-annually		37,270		(58)
Credit Suisse First Boston USA2	September 21, 2007	3.24% Semi-annually	3-month LIBORD		92,500		104
Credit Suisse First Boston USA2	September 21, 2007	3.22% Semi-annually	3-month LIBORD		61,700		96
The Goldman Sachs Group, Inc.2	September 22, 2007	3.1985% Semi-annually	3-month LIBORD		138,700		333
Credit Suisse First Boston USA (iBoxx IG Hi-Vol)1	March 20, 2009	Specified amount upon credit event noticeC	1.25% Quarterly		50,000		220
Deutsche Bank AG (iBoxx IG TMT)1	March 20, 2009	0.60% Quarterly	Specified amount upon credit event noticeE		6,450		37
Deutsche Bank AG (iBoxx 30 Hi-Vol)1	March 20, 2009	1.25% Quarterly	Specified amount upon credit event noticeE		9,500		30

120

Semi-Annual Report to Shareholders

Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (iBoxx IG TMT)1	March 20, 2009	0.60% Quarterly	Specified amount upon credit event noticeE	$	9,500	$	55
Deutsche Bank AG (iBoxx 100 HY)1	March 20, 2009	4.25% Quarterly	Specified amount upon credit event noticeE		1,900		4
Deutsche Bank AG (iBoxx 100 HY)1	March 20, 2009	Specified amount upon credit event noticeC	4.25% Quarterly		10,000		(31)
Deutsche Bank AG (iBoxx 100 IG)1	March 20, 2009	4.25% Quarterly	Specified amount upon credit event noticeE		3,710		216
Deutsche Bank AG (iBoxx HY B)1	March 20, 2009	Specified amount upon credit event noticeC	5.00% Quarterly		5,000		(28)
Deutsche Bank AG (iBoxx HY B)1	March 20, 2009	Specified amount upon credit event noticeC	5.00% Quarterly		10,000		(94)
Deutsche Bank AG (iBoxx IG Hi-Vol)1	March 20, 2009	Specified amount upon credit event noticeC	1.25% Quarterly		13,760		50
Lehman Brothers (iBoxx IG TMT)1	March 20, 2009	0.60% Quarterly	Specified amount upon credit event noticeD		9,000		62
Merrill Lynch & Co., Inc. (Pacific Gas & Electric, 4.80%, due 3/1/14)1	June 20, 2009	Specified amount upon credit event noticeC	0.42% Quarterly		2,980		(4)
Credit Suisse First Boston USA (iBoxx HY 2 B)1	September 20, 2009	Specified amount upon credit event noticeC	4.30% Quarterly		5,000		152
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	1.15% Quarterly	Specified amount upon credit event noticeD		25,000		160
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		17,490		85
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		12,500		42
Deutsche Bank AG (iBoxx IG 2)1	September 20, 2009	Specified amount upon credit event noticeC	4.30% Quarterly		15,000		267
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		5,830		(33)

121

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (iBoxx HY 2)1	September 20, 2009	Specified amount upon credit event noticeC	4.30% Quarterly	$	2,620	$	153
Deutsche Bank AG (iBoxx HY 2 B)1	September 20, 2009	Specified amount upon credit event noticeC	4.80% Quarterly		2,620		121
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		37,580		178
Deutsche Bank AG (iBoxx HY 2)1	September 20, 2009	Specified amount upon credit event noticeC	4.30% Quarterly		3,260		131
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol 2)1	September 20, 2009	Specified amount upon credit event noticeC	1.15% Quarterly		6,160		42
The Goldman Sachs Group, Inc.2	September 24, 2009	3.7135% Semi-annually	3-month LIBORD		100,000		389
Credit Suisse First Boston USA (iBoxx HY 3 B)1	December 20, 2009	Specified amount upon credit event noticeC	4.00% Quarterly		3,150		80
Credit Suisse First Boston USA (iBoxx HY 3 B)1	December 20, 2009	Specified amount upon credit event noticeC	4.00% Quarterly		3,150		80
The Goldman Sachs Group, Inc. (iBoxx HY 3 B)1	December 20, 2009	Specified amount upon credit event noticeC	4.00% Quarterly		3,000		79
The Goldman Sachs Group, Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeC	3.75% Quarterly		3,000		63
The Goldman Sachs Group, Inc. (iBoxx HY 3 B)1	December 20, 2009	Specified amount upon credit event noticeC	4.00% Quarterly		2,980		29
Deutsche Bank AG (iBoxx IG 2)1	September 20, 2014	0.80% Quarterly	Specified amount upon credit event noticeE		24,500		(155)
Deutsche Bank AG (iBoxx IG Hi-Vol 2)1	September 20, 2014	Specified amount upon credit event noticeC	1.30% Quarterly		11,560		(139)
Deutsche Bank AG2	September 24, 2014	4.4318% Semi-annually	3-month LIBORD		89,700		890
						$	4,226

122

Semi-Annual Report to Shareholders

4. Securities Loaned:

Each Fund may lend its securities to approved brokers to earn additional income and will receive cash and U.S. government securities as collateral against the loans. Cash collateral received is invested in a money market pooled account by each Fund’s lending agent. Collateral is maintained over the life of the loan in an amount not less than 100% of the value of the loaned securities.

At September 30, 2004, the market value of securities on loan to broker-dealers was $147,542 for Intermediate, $659,669 for Core, $924,315 for Core Plus, and $10,283 for Inflation Indexed. Cash collateral received was $150,568 for Intermediate, $673,075 for Core, $943,250 for Core Plus, and $10,497 for Inflation Indexed.

5. Transactions With Affiliates:

Each Fund has a management agreement with Legg Mason Fund Adviser, Inc. (“LMFA”). Western Asset Management Company (“Western Asset”) is the investment adviser to Limited Duration, Intermediate, Intermediate Plus, Core, Core Plus, Inflation Indexed, and High Yield. Western Asset Management Company Limited (“WAML”) is the investment adviser to Non-U.S. and shares advisory responsibilities with Western Asset for Intermediate Plus, Core Plus and Inflation Indexed. Pursuant to their respective agreements, LMFA provides the Funds with management and administrative services for which each Fund pays a fee, computed daily and payable monthly, at annual rates of each Fund’s average daily net assets. LMFA, Western Asset and WAML have voluntarily agreed to waive their fees and reimburse the Funds to the extent each Fund’s expenses (exclusive of taxes, interest, brokerage and extraordinary expenses) exceed during any month certain annual rates of each Fund’s average daily net assets. Western Asset and WAML have also agreed to waive their advisory fees (which are paid by LMFA, and not the Funds) in corresponding amounts. The following chart shows annual rates of management fees, expense limits, management fees waived, and management fees payable for each Fund:

Fund	Asset Breakpoint	Management Fee		Expense Limitation		Management Fees Waived		Management Fees Payable
Limited Duration	All asset levels	0.350	%	0.40	%	$	54	$	4
Intermediate	All asset levels	0.400	%	0.45	%		34		195
Intermediate Plus	All asset levels	0.400	%	0.45	%		21		—
Core
Institutional Class	Up to $500 million	0.450	%	0.50	%		—		874
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Financial Intermediary Class	Up to $500 million	0.450	%	0.75	%		—		51
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Core Plus
Institutional Class	Up to $500 million	0.450	%	0.45	%		152		1,260
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Financial Intermediary Class	Up to $500 million	0.450	%	0.70	%		1		15
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Inflation Indexed	All asset levels	0.200	%	0.25	%		37		63
High Yield	All asset levels	0.550	%	0.65	%		—		173
Non-U.S.	All asset levels	0.450	%	0.55	%		46		68

123

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

Legg Mason Wood Walker, Incorporated (“LMWW”), a member of the New York Stock Exchange, serves as distributor of the Funds’ shares. LMWW receives from each Fund an annual distribution fee of 0.25% of the average daily net assets of the Financial Intermediary Class of each Fund, computed daily and payable monthly. At September 30, 2004, $31 was due to LMWW from Core and $9 from Core Plus.

LMFA, Western Asset, WAML and LMWW are wholly owned subsidiaries of Legg Mason, Inc.

6. Fund Share Transactions:

At September 30, 2004, there were 13.1 billion shares of common stock of the Corporation authorized at $.001 par value. Transactions in Fund shares were as follows:

	Sold			Reinvestment of Dividends			Repurchased					Net Change
	Shares	Amount		Shares	Amount		Shares		Amount			Shares	Amount
Limited Duration
—Institutional Class
Six Months Ended Sept. 30, 2004	1,816	$	18,100	37	$	375	(143	)	$	(1,429	)	1,710	$	17,046
Period Ended Mar. 31, 2004F	3,108		31,078	17		171	(530	)		(5,311	)	2,595		25,938
Intermediate
—Institutional Class
Six Months Ended Sept. 30, 2004	5,087	$	53,879	2,417	$	25,229	(4,561	)	$	(47,926	)	2,943	$	31,182
Year Ended Mar. 31, 2004	15,529		168,930	3,173		34,520	(14,808	)		(161,750	)	3,894		41,700
Intermediate Plus
—Institutional Class
Period Ended Sept. 30, 2004G	1,644	$	16,419	18	$	178	(296	)	$	(2,883	)	1,366	$	13,714
Core
—Institutional Class
Six Months Ended Sept. 30, 2004	53,482	$	606,951	7,604	$	85,074	(17,697	)	$	(200,909	)	43,389	$	491,116
Year Ended Mar. 31, 2004	102,574		1,186,661	7,133		82,880	(45,456	)		(525,969	)	64,251		743,572
—Financial Intermediary Class
Six Months Ended Sept. 30, 2004	4,829	$	54,673	421	$	4,711	(2,193	)	$	(25,011	)	3,057	$	34,373
Year Ended Mar. 31, 2004	6,137		71,299	410		4,766	(3,084	)		(35,705	)	3,463		40,360
Core Plus
—Institutional Class
Six Months Ended Sept. 30, 2004	84,710	$	882,256	8,813	$	90,883	(30,432	)	$	(317,178	)	63,091	$	655,961
Year Ended Mar. 31, 2004	149,832		1,577,617	11,320		118,968	(33,656	)		(353,019	)	127,496		1,343,566
—Financial Intermediary Class
Six Months Ended Sept. 30, 2004	7,163	$	75,651	33	$	338	(158	)	$	(1,650	)	7,038	$	74,339
Year Ended Mar. 31, 2004	669		7,091	14		153	(62	)		(659	)	621		6,585
Inflation Indexed
—Institutional Class
Six Months Ended Sept. 30, 2004	4,416	$	46,602	1,983	$	20,543	(74	)	$	(802	)	6,325	$	66,343
Year Ended Mar. 31, 2004	8,298		91,034	2,059		22,404	(6,028	)		(65,112	)	4,329		48,326
High Yield
—Institutional Class
Six Months Ended Sept. 30, 2004	17,042	$	174,512	821	$	8,269	(1,323	)	$	(13,655	)	16,540	$	169,126
Year Ended Mar. 31, 2004	17,347		178,219	1,518		15,029	(16,128	)		(165,382	)	2,737		27,866
Non-U.S.
—Institutional Class
Six Months Ended Sept. 30, 2004	1	$	5	285	$	2,868	(3	)	$	(23	)	283	$	2,850
Year Ended Mar. 31, 2004	3,740		39,475	704		7,271	(630	)		(6,848	)	3,814		39,898

^F For the period from October 1, 2003 (commencement of operations) to March 31, 2004.

^G For the period from April 1, 2004 (commencement of operations) to September 30, 2004

124

Western Asset Funds, Inc.

Investment Manager

Legg Mason Fund Adviser, Inc.

P.O. Box 17635

Baltimore, Maryland 21297-1635

Investment Advisers

Western Asset Management Company

385 East Colorado Boulevard

Pasadena, California 91101

Western Asset Management Company Limited

155 Bishopgate

London, England EC2M3XG

Transfer and Shareholder Servicing Agent

Boston Financial Data Services

66 Brooks Drive

Braintree, Massachusetts 02184

Custodian

State Street Bank & Trust Company

P.O Box 1031

Boston, Massachusetts 02103

Counsel

Ropes & Gray LLP

45 Rockefeller Plaza

New York, New York 10111

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

250 West Pratt Street

Baltimore, Maryland 21201

Information about the policies and procedures that the Funds use to determine how to vote proxies relating to each Fund’s portfolio securities is contained in the Statement of Additional Information, available upon request without charge by calling 1-888-425-6432 or on the Securities and Exchange Commission (“SEC”) website (http://www.sec.gov). Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is also available on the SEC’s website or without charge through www.westernassetfunds.com.

The Funds will file a complete schedule of portfolio holdings with the SEC for the third quarter of the current fiscal year and the first and third quarters of each fiscal year thereafter on Form N-Q. The Funds’ Form N-Q will be available on the SEC’s website or viewed and copied at the SEC’s Public Reference Room in Washington DC when available. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Monthly portfolio holdings are available upon request

by calling 1-888-425-6432.

This report is not to be distributed unless preceded or accompanied by a prospectus.

Legg Mason Wood Walker, Inc., Distributor

Item 2 – Code of Ethics

Not applicable for semi-annual reports.

Item 3 – Audit Committee Financial Expert

Not applicable for semi-annual reports.

Item 4 – Principal Accountant Fees and Services

Not applicable for semi-annual reports.

Item 5 – Audit Committee of Listed Registrants

Not applicable.

Item 6 – Schedule of Investments

The schedule of investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the semi-annual report to shareholders filed under Item 1 hereto.

Item 7 – Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not applicable.

Item 8 – Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers

Not applicable.

Item 9 – Submission of Matters to a Vote of Security Holders

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors that have been implemented since the Registrant last provided disclosure in response to the requirements of this Item 9.

Item 10 – Controls and Procedures

(a) The registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant’s disclosure controls and procedures are reasonably designed to

ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods in the Securities and Exchange Commission’s rule and forms and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) There were no changes in the Registrant’s internal control over financial reporting during the registrant’s last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 11 – Exhibits

(a)	File the exhibits listed below as part of this Form.
(a)(1)	Not applicable for semi-annual reports.
(a)(2)	Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 are attached hereto.
(a)(3)	Not applicable.
(b)	Certifications pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Western Asset Funds, Inc.

By:	/s/ James W. Hirschmann
	James W. Hirschmann
	President
	Western Asset Funds, Inc.

Date: 11/29/04

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:	/s/ James W. Hirschmann
	James W. Hirschmann
	President
	Western Asset Funds, Inc.

Date: 11/29/04

By:	/s/ Marie K. Karpinski
	Marie K. Karpinski
	Treasurer and Principal Financial and Accounting Officer
	Western Asset Funds, Inc.

Date: 11/29/04