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

Name of Fund: Western Asset Funds, Inc.

Address of Principal Executive Offices:

385 East Colorado Boulevard

Pasadena, CA 91101

Name and address of agent for service:

Richard M. Wachterman, Esq.

Legg Mason Wood Walker, Incorporated

100 Light Street

Baltimore, MD 21202

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

Date of fiscal year end: March 31, 2006

Date of reporting period: September 30, 2005

Item 1– Report to Shareholders

Investment Commentary

and Semi-Annual Report to

Shareholders

September 30, 2005

Western Asset Funds, Inc.

Institutional and Financial Intermediary Classes

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

Contents

Commentary
Investment Commentary	ii
Semi-Annual Report to Shareholders
Expense Examples	1
Portfolio Composition	3
Performance Information	4
Financial Statements	15
Notes to Financial Statements	128
Shareholder Meeting Results	161

For more information, visit us on the web

at www.westernassetfunds.com.

Investment Commentary

Market Commentary, April 2005-September 2005

Led by four 25 basis point^A hikes in the Fed funds rate, short-term interest rates rose substantially higher during the period, while longer-maturity bond yields fell, resulting in a significant, and quite unusual, flattening of the yield curve. The economy remained healthy, as suggested by a 14% surge in federal tax receipts, 2.5% growth in real personal incomes, ongoing double-digit growth in capital spending, and a record-setting level of corporate profits relative to GDP. The dollar rose against most currencies, as higher short-term interest rates bolstered the market’s confidence in the Fed’s ability to keep inflation contained, while the faltering European and Japanese economies weakened demand for their currencies and allowed interest rates to fall. Commodity prices were mixed, but crude oil surged from $55 to as high as $70 per barrel and prices in the energy sector in general moved significantly higher. Credit markets were surprised by news that GM and Ford debt was downgraded to junk, and the ripple effects were felt throughout the investment grade, high yield and emerging markets sectors as spreads generally widened, particularly on lower-quality and longer-maturity issues. Wider spreads finally lured buyers from out of the woodwork, however, with the result that spreads tightened toward the end of the period. Mortgage-backed spreads widened marginally, as the pace of refinancings increased and rising short-term interest rates raised the specter of extension risk. Treasury Inflation-Protected Securities (“TIPS”) outperformed Treasuries, as actual inflation proved higher than what the market had assumed at the beginning of the period.

Performance Information

The performance data quoted represents past performance and does not guarantee future results. 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 fund 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 gains distributions. Performance would have been lower if fees had not been waived in various periods.

Western Asset Limited Duration Bond Portfolio

		Average Annual Total Return
	Third Quarter 2005	One Year	Since InceptionB
Western Asset Limited Duration Bond Portfolio
Institutional Class	0.32%	2.13%	2.05%
Merril Lynch 1-3 Year Treasury IndexC	0.09%	0.98%	1.01%

The impact of market conditions on the Fund’s performance was mixed for the 6-month period ended September 30, 2005, since short-term interest rates and lower quality credit spreads rose. With strategies producing mixed but generally positive results, however, the Portfolio’s total return of 1.70% (net of expenses) exceeded that of its benchmark, the Merrill Lynch 1-3 year Treasury Index, which recorded a total return of 1.23%. Mortgage-backed sector exposure was underweight for the first part of the period, and this benefited from a gradual widening of spreads. Overweight exposure to TIPS made a positive contribution to returns since inflation came in somewhat higher than expectations. A modest barbelled exposure to maturities contributed to performance since the curve continued to flatten, and our tactical duration shifts within a neutral to underweight range benefited as rates moved irregularly higher. An overweighting to intermediate BBB corporate securities detracted somewhat from performance, since spreads rose.

^A 100 bps = 1%.

^B The Fund’s Institutional Class inception date is October 1, 2003. Index returns are for periods beginning September 30, 2003.

^C A subset of the Merrill Lynch Treasury Master Index, consisting of bonds with an outstanding par that is greater than or equal to $25 million and fixed rate coupons greater than 4.25%. The maturity range on these securities is from 1 to 3 years. The index does not incur fees and expenses and cannot be purchased directly by investors.

The Investment Commentary is not a part of the Semi-Annual Report to Shareholders.

ii

Investment Commentary

Western Asset Intermediate Bond Portfolio

		Average Annual Total Returns
	Third Quarter 2005	One Year	Five Years	Ten Years
Western Asset Intermediate Bond Portfolio
Institutional Class	-0.12%	2.74%	6.89%	6.60%
Lehman Intermediate U.S. Government/Credit Bond IndexD	-0.52%	1.50%	6.16%	6.12%

The impact of market conditions on the Fund’s performance was mixed for the 6-month period ended September 30, 2005, since short-term interest rates and lower quality credit spreads rose. With strategies producing mixed but generally positive results, however, the Portfolio’s total return of 2.19% (net of expenses) exceeded that of its benchmark, the Lehman Intermediate U.S. Government/Credit Bond Index, which recorded a total return of 1.95%. Mortgage-backed sector exposure was underweight for the first part of the period, and this benefited from a gradual widening of spreads. Overweight exposure to TIPS made a positive contribution to returns since inflation came in somewhat higher than expectations. A modest barbelled exposure to maturities contributed to performance since the curve continued to flatten, and our tactical duration shifts within a neutral to underweight range benefited as rates moved irregularly higher. An overweighting to intermediate BBB corporate securities detracted somewhat from performance, since spreads rose.

Western Asset Intermediate Plus Bond Portfolio

		Average Annual Total Return
	Third Quarter 2005	One Year	Since InceptionE
Western Asset Intermediate Plus Bond Portfolio
Institutional Class	0.05%	3.26%	3.01%
Lehman Intermediate U.S. Government/Credit Bond IndexD	-0.52%	1.50%	1.08%

The impact of market conditions on the Fund’s performance was mixed for the 6-month period ended September 30, 2005, since short-term interest rates and lower quality credit spreads rose. With strategies producing mixed but generally positive results, however, the Portfolio’s total return of 2.69% (net of expenses) exceeded that of its benchmark, the Lehman Intermediate U.S. Government/Credit Bond Index, which recorded a total return of 1.95%. Mortgage-backed sector exposure was underweight for the first part of the period, and this benefited from a gradual widening of spreads. Overweight exposure to TIPS made a positive contribution to returns since inflation came in somewhat higher than expectations. A modest barbelled exposure to maturities contributed to performance since the curve continued to flatten, and our tactical duration shifts within a neutral to underweight range benefited as rates moved irregularly higher. An overweighting to intermediate BBB corporate securities detracted somewhat from performance, since spreads rose. Modest nondollar bond exposure added to returns since foreign yields fell. Modest exposure to high-yield and emerging-market debt also added to returns as spreads tightened.

^D A market value-weighted index that tracks the daily price, coupon and total return performance of fixed-rate, publicly placed, dollar-denominated obligations. Issuers include the U.S. Treasury, U.S. Government agencies, quasi-federal corporations and corporations whose debt is guaranteed by the U.S. Government and has at least $100 million par amount outstanding and at least one year to maturity. The index does not incur fees and expenses and cannot be purchased directly by investors.

^E The Fund’s Institutional Class inception date is April 1, 2004. Index returns are for periods beginning March 31, 2004.

The Investment Commentary is not a part of the Semi-Annual Report to Shareholders.

iii

Investment Commentary

Western Asset Core Bond Portfolio

		Average Annual Total Returns
	Third Quarter 2005	One Year	Five Years	Ten Years	SinceF Inception
Western Asset Core Bond Portfolio
Institutional Class	-0.34%	3.31%	7.60%	7.09%	8.39%
Financial Intermediary Class	-0.40%	2.95%	7.28%	N/A	7.06%
Lehman Aggregate Bond IndexG	-0.67%	2.80%	6.62%	6.55%	7.58%

The impact of market conditions on the Fund’s performance was mixed for the 6-month period ended September 30, 2005, since short-term interest rates and lower quality credit spreads rose. With strategies producing mixed but generally positive results, the Portfolio’s Institutional Class total return of 2.90% (net of expenses) exceeded that of its benchmark, the Lehman Aggregate Bond Index, which recorded a total return of 2.31%. Mortgage-backed sector exposure was underweight for the first part of the period, and this benefited from a gradual widening of spreads. Overweight exposure to TIPS made a positive contribution to returns since inflation came in somewhat higher than expectations. A modest barbelled exposure to maturities contributed to performance since the curve continued to flatten, and our tactical duration shifts within a neutral to underweight range benefited as rates moved irregularly higher. An overweighting to intermediate BBB corporate securities detracted somewhat from performance, since spreads rose.

Western Asset Core Plus Bond Portfolio

		Average Annual Total Returns
	Third Quarter 2005	One Year	Three Years	Five Years	SinceH Inception
Western Asset Core Plus Bond Portfolio
Institutional Class	-0.08%	5.05%	7.81%	8.60%	7.22%
Financial Intermediary Class	-0.14%	4.90%	7.57%	N/A	7.11%
Lehman Aggregate Bond IndexG	-0.67%	2.80%	3.96%	6.62%	6.05%

The impact of market conditions on the Fund’s performance was mixed for the 6-month period ended September 30, 2005, since short-term interest rates and lower quality credit spreads rose. With strategies producing generally positive results, the Portfolio’s Institutional Class total return of 3.16% (net of expenses) exceeded that of its benchmark, the Lehman Aggregate Bond Index, which recorded a total return of 2.31%. Mortgage-backed sector exposure was underweight for the first part of the period, and this benefited from a gradual widening of spreads. Overweight exposure to TIPS made a positive contribution to returns since inflation came in somewhat higher than expectations. A modest barbelled exposure to maturities contributed to performance since the curve continued to flatten, and our tactical duration shifts within a neutral to underweight range benefited as rates moved irregularly higher. Moderate nondollar exposure benefited as foreign bonds outperformed their domestic counterparts. Moderate exposure to high-yield and emerging market debt benefited from tighter spreads. An overweighting to intermediate BBB corporate securities detracted somewhat from performance, since spreads rose.

^F The Fund’s Institutional Class inception date is September 4, 1990. The Financial Intermediary Class inception date is July 22, 1999. Index returns are for periods beginning August 31, 1990, for the Institutional Class.

^G 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. The index does not incur fees and expenses and cannot be purchased directly by investors.

^H The Fund’s Institutional Class inception date is July 8, 1998. The Financial Intermediary Class inception date is January 8, 2002. Index returns are for periods beginning June 30, 1998, for the Institutional Class.

The Investment Commentary is not a part of the Semi-Annual Report to Shareholders.

iv

Portfolio Manager Commentary

Western Asset Inflation Indexed Bond Portfolio

		Average Annual Total Returns
	Third Quarter 2005	One Year	Three Years	SinceI Inception
Western Asset Inflation Indexed Plus Bond Portfolio
Institutional Class	0.23%	5.81%	6.63%	8.45%
Lehman U.S. Treasury Inflation Notes IndexJ	0.08%	5.31%	6.68%	8.66%

Rising real yields were negative for the Fund’s performance (nominal performance). In a sense it was an unfriendly environment. But on a relative basis our strategies added value and we beat the benchmark. With strategies producing mixed but generally positive results, the Fund’s total return of 3.20% (net of expenses) exceeded that of its benchmark, the Lehman U.S. Treasury Inflation Notes Index, which recorded a total return of 3.07%. Underweight duration exposure contributed to performance as yields rose, and our expectation that the yield curve would flatten was rewarded as short- and intermediate-term yields rose more than longer-term yields. Modest exposure to nondollar inflation-linked bonds added to returns since foreign real yields rose by less than their domestic counterparts. Modest exposure to lower-quality corporate bonds and emerging-market debt also added to returns thanks to their higher yields and a tightening of spreads.

Western Asset High Yield Bond Portfolio

		Average Annual Total Returns
	Third Quarter 2005	One Year	Three Years	SinceK Inception
Western Asset High Yield Bond Portfolio
Institutional Class	1.51%	6.54%	14.72%	9.33%
Lehman High Yield IndexL	0.93%	6.71%	16.01%	11.13%

For the six-month period ending September 30, 2005, the Fund returned 3.46%, (net of expenses) versus 3.61% for the 2% Issuer Constrained Lehman High Yield Index. The primary reason for the underperformance was due to the Fund’s overweighted position to lower rated issues. BB rated issues returned 4.28% for the period versus CCC’s which returned 2.77%. Additionally, our somewhat shorter duration position detracted from performance as longer duration securities experienced markedly better performance. During the period, short-term interest rates rose while long-term interest rates dropped. Industry positioning had little impact on relative performance. The Fund’s underweight to Basic Industry and overweight to Energy credits aided performance. Overweights to Capital Goods and underweight to Media Non-Cable hurt relative performance. Issue selection added to performance. The Fund was overweight a number of top performers, including GM (+4.87%), El Paso (+6.62%), and Charter (+6.94%) and underweight poor performers including Calpine (-7.38%). Fundamentals and technicals remain, on balance, favorable. However, historically tight valuations as well as increasing LBO risks and other shareholder friendly activities necessitate a more cautious approach to the market going forward.

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

^J An unmanaged index that measures the performance of intermediate (1 to 10 year) U.S. Treasury inflation-protected securities. The index does not incur fees and expenses and cannot be purchased directly by investors.

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

^L 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. The index does not incur fees and expenses and cannot be purchased directly by investors.

The Portfolio Manager Commentary is not a part of the Xxxxx Report to Shareholders.

v

Western Asset Non-U.S. Opportunity Bond Portfolio

		Average Annual Total Returns
	Third Quarter 2005	One Year	Three Years	Five Years	SinceM Inception
Western Asset Non-U.S. Opportunity Bond Portfolio
Institutional Class	0.53%	10.75%	9.09%	10.79%	8.08%
Citigroup World Government
ex-U.S. Bond Index (Hedged)N	0.33%	7.04%	4.47%	5.71%	5.88%

For the six-month period ending September 30, 2005, the Fund returned 4.70%, (net of expenses), which exceeded that of its reference index, Citigroup World Government ex-U.S. Bond Index (Hedged), which recorded a total return of 3.51% for the six-months period ending September 30, 2005. The Fund was initially short duration compared to its index, which detracted from performance. We then added to duration in late April, which contributed positively to performance. Throughout the period, the Fund was underweight to Japan, which contributed to performance. Throughout the period, the Fund held a changing allocation to inflation-linked bonds (TIPS, French Linkers), which had a mixed contribution to performance as real yields initially rose but fell later in the period. In general, positions in peripheral markets were rewarded. Also, the Fund’s currency positions had a positive impact following the “no” votes in France and the Netherlands, which led to a decline of the euro.

INVESTMENT COMMENTS

The Katrina disaster has seriously disrupted a portion of the U.S. economy and the lives of millions of people, but it’s not likely a major hit to the economy as a whole. There are good things and bad things going on in the world, and while caution is in order, we don’t have reason to expect any dramatic changes in current conditions in the near term.

Energy prices have subsided in the wake of the tragedy, but are still elevated. However, in real terms, today’s oil prices are less than they were in the early 1980s, and the U.S. economy (and most industrialized economies) now requires about half as much oil per unit of output as it did back then, thanks to conservation, substitution, and the expansion of the service sector. Higher prices have already resulted in a significant increase in oil exploration, and together with a marginal decline in demand for oil, this likely precludes a “we’re running out of oil” scenario from developing.

U.S. fiscal policy remains stimulative, thanks to relatively low tax burdens and low levels of taxation on capital. Given that federal revenues have increased $100 billion more than expected just a year ago, Katrina-related spending—which is unlikely to exceed $50-100 billion in the next year—should not significantly impact the deficit, the bond market, or the economy. Meanwhile, corporate profits continue to be robust, giving corporations the wherewithal to boost capital spending at double-digit rates for the foreseeable future.

While many fret that rising interest rates and prices of real estate and energy pose a serious threat to the economy in the future, they are better thought of as the result of strong demand. Rising oil prices are an expense to many but a boon to producers, who recycle their profits in part into new exploration and in part back into the financial markets. Easy money boosts demand for oil inventories, and also makes it easier for higher energy costs to be passed through to other prices. As for the broader issue of the U.S. current account deficit, should foreigners tire of spending their trade surplus on our bonds, their demand for our exports will surge, and this shift could well make headlines in coming years. Housing prices seem extravagant, but according to the Federal Reserve, U.S. households are spending roughly the same fraction of their disposable income on housing as they have for the past few decades. Rising prices thus reflect not only strong demand and strong growth in incomes, but also relatively low interest rates. Higher interest rates could actually benefit the household sector, since consumers have more floating rate assets than floating rate debts.

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

^N 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. The index does not incur fees and expenses and cannot be purchased directly by investors.

vi

The bigger picture is one in which prices of most tangible assets are rising, led by gold. Gold is the “canary in the coal mine” that signals whether monetary policy is too easy or too tight, and $475 gold suggests that monetary policy has not yet restored an equilibrium between the supply and demand for money. Relatively slow growth in U.S. monetary aggregates is also a part of this picture, since it reflects declining dollar demand and rising velocity, another inflation symptom.

The inflation signal from sensitive asset prices cannot be dismissed just because interest rates are low and breakeven spreads on inflation-linked bonds are also relatively low. The bond market has rarely been a good predictor of inflation pressures, as evidenced by low real interest rates in the rising inflation period of the 1970s and the high real rates that prevailed during the disinflationary 1980s and 90s. The bond market will probably continue to underestimate inflation risks for some time, as it has for the past several years, and the Fed is unlikely to do more than raise rates by 25 basis points at each of its next several meetings. So this leaves us with the conundrum of expecting inflation and interest rates to drift irregularly higher over the long haul, but to not go vertical anytime soon. With a dearth of obvious investment opportunities, we will need to be cautious overall and somewhat more tactical and opportunistic in our approach to adding value.

As yields have risen over the past month we increased our duration exposure, but we remain reluctant to take on extra interest rate risk that is not tied to Fed policy or connected to inflation-linked bonds. Credit spreads are fairly tight, but we don’t see a reason to be overly concerned for now. Looking out over the next few years, we need to be prepared for the time when the profits picture deteriorates. We think this calls for a modestly overweight exposure to intermediate BBB and high-yield bonds, while remaining broadly neutral to the corporate sector. Emerging market debt is losing its appeal as spreads reach ever-lower levels, so reduced exposure is prudent even while recognizing that fundamentals—global growth, low interest rates, strong commodity markets—remain supportive of those with larger debt burdens. Mortgage spreads are now at levels that warrant a broadly neutral exposure. Bond yields in most industrialized countries are now substantially lower than in the U.S., dictating reduced exposure to the nondollar sector.

Western Asset Management Company

October 28, 2005

The views expressed in this commentary reflect those of the portfolio manager as of the date of this commentary. Any such views are subject to change at any time based on market or other conditions and Western Asset Funds, Inc. and Western Asset Management Company disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for the Western Asset Funds are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any Western Asset Fund.

vii

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, 2005

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, 2005, and held through September 30, 2005.

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 ratio 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 other funds.

	Beginning Account Value 4/1/05		Ending Account Value 9/30/05		Expenses PaidA During the Period 4/1/05 to 9/30/05		Annualized Expense Ratio
Limited Duration Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,017.00	$	2.02	0.40%
Hypothetical (5% return before expenses)		1,000.00		1,023.06		2.03
Intermediate Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,021.90	$	2.28	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	$	1,026.90	$	2.29	0.45%
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28
Core Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,029.00	$	2.29	0.45%
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28
Financial Intermediary Class:
Actual	$	1,000.00	$	1,027.60	$	3.61	0.71%
Hypothetical (5% return before expenses)		1,000.00		1,021.51		3.60

^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 (to reflect the one-half year period).

1

Semi-Annual Report to Shareholders

	Beginning Account Value 4/1/05		Ending Account Value 9/30/05		Expenses PaidA During the Period 4/1/05 to 9/30/05		Annualized Expense Ratio
Core Plus Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,031.60	$	2.29	0.45%
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28
Financial Intermediary Class:
Actual	$	1,000.00	$	1,031.40	$	3.56	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	$	1,032.00	$	1.27	0.25%
Hypothetical (5% return before expenses)		1,000.00		1,023.82		1.27
High Yield Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,034.60	$	3.21	0.62%
Hypothetical (5% return before expenses)		1,000.00		1,021.91		3.19
Non-U.S. Opportunity Bond Portfolio Institutional Class:
Actual	$	1,000.00	$	1,047.00	$	2.82	0.55%
Hypothetical (5% return before expenses)		1,000.00		1,022.31		2.79

2

Semi-Annual Report to Shareholders

PORTFOLIO COMPOSITION

The Funds file a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available on the Securities and Exchange Commission (“SEC”) website (http://www.sec.gov) and may be viewed and copied at the SEC’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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	68.44	%	56.30	%	49.45	%	80.26	%	79.65	%	91.38	%	4.52	%	86.87	%
AA	2.83	%	3.00	%	2.66	%	0.55	%	1.24	%	0.94	%	—		0.53	%
A	7.91	%	13.16	%	12.27	%	3.53	%	2.68	%	1.51	%	0.65	%	1.64	%
BBB	13.88	%	17.73	%	22.65	%	8.33	%	6.75	%	2.44	%	0.72	%	—
BB	5.48	%	6.22	%	8.77	%	4.49	%	5.75	%	2.03	%	21.79	%	—
B	0.01	%	1.44	%	3.09	%	1.74	%	3.34	%	0.46	%	54.96	%	—
Below B	—		0.09	%	—		0.29	%	0.21	%	—		16.47	%	—
Not Rated	1.45	%	2.06	%	1.11	%	0.81	%	0.38	%	1.24	%	0.89	%	10.96	%
	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	2.71	%	13.05	%	7.89	%	12.51	%	16.25	%	1.05	%	5.16	%	3.24	%
1 to 3 Years	48.78	%	27.42	%	32.57	%	6.24	%	6.85	%	11.35	%	3.51	%	0.52	%
3 to 5 Years	10.32	%	18.02	%	17.69	%	13.91	%	13.75	%	12.62	%	12.61	%	37.63	%
5 to 10 Years	4.16	%	21.61	%	20.08	%	7.06	%	9.00	%	42.17	%	67.89	%	43.65	%
10 to 20 Years	2.35	%	4.08	%	3.49	%	3.88	%	1.96	%	5.06	%	5.36	%	5.18	%
20 to 30 Years	24.77	%	15.06	%	11.72	%	23.30	%	17.23	%	26.46	%	4.87	%	8.28	%
More Than 30 Years	6.91	%	0.76	%	6.56	%	33.10	%	34.96	%	1.29	%	0.60	%	1.50	%
	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

^A Source: Standard & Poor's.

The Funds are actively managed. As a result, the composition of their portfolio holdings and sectors are subject to change at any time.

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Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION

The graphs and tables on the following pages 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 lines representing the securities market indices do not include any transaction costs associated with buying and selling securities in the index or other investment management or administrative expenses.

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.

Bonds are subject to a variety of risks, including interest rate, credit and inflation risk.

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

PERFORMANCE INFORMATION—Continued

Western Asset Limited Duration 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 Index returns are for periods beginning September 30, 2003.

^B A subset of the Merrill Lynch Treasury Master Index, consisting of bonds with an outstanding par that is greater than or equal to $25 million and fixed-rate coupons greater than 4.25%. The maturity range on these securities is from 1 to 3 years. The index does not incur fees and expenses and cannot be purchased directly by investors.

5

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.

^C A market value-weighted index that tracks the daily price, coupon and total return performance of fixed-rate, publicly placed, dollar-denominated obligations. Issuers include the U.S. Treasury, U.S. Government agencies, quasi-federal corporations and corporations whose debt is guaranteed by the U.S. Government and has at least $100 million par amount outstanding and at least one year to maturity. The index does not incur fees and expenses and cannot be purchased directly by investors.

6

Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION—Continued

Western Asset Intermediate 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 Index returns are for periods beginning March 31, 2004.

7

Semi-Annual Report to Shareholders

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.

^E 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. The index does not incur fees and expenses and cannot be purchased directly by investors.

8

Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION—Continued

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.

^F Index returns are for periods beginning July 31, 1999.

9

Semi-Annual Report to Shareholders

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.

^G Index returns are for periods beginning June 30, 1998.

10

Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION—Continued

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.

^H Index returns are for periods beginning December 31, 2001.

11

Semi-Annual Report to Shareholders

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.

^I Index returns are for periods beginning February 28, 2001.

^J An unmanaged index that measures the performance of intermediate (1 to 10 year) U.S. Treasury inflation-protected securities. The index does not incur fees and expenses and cannot be purchased directly by investors.

12

Semi-Annual Report to Shareholders

PERFORMANCE INFORMATION—Continued

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.

^K Index returns are for periods beginning September 30, 2001.

^L 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. The index does not incur fees and expenses and cannot be purchased directly by investors.

13

Semi-Annual Report to Shareholders

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.

^M Index returns are for periods beginning July 31, 1998.

^N 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. The index does not incur fees and expenses and cannot be purchased directly by investors.

14

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Limited Duration Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	100.6%
Corporate Bonds and Notes	25.3%
Aerospace/Defense	0.1%
Northrop Grumman Corporation		4.079%	11/16/06	$	110	$	109
Banking and Finance	7.3%
American General Finance Corporation (AGFC)		3.729%	1/18/08		30		30A
Aspetuck Trust 2004-1		3.899%	10/17/05		290		290A
Boeing Capital Corporation		5.750%	2/15/07		320		325
Caterpillar Financial Services		3.450%	1/15/09		160		154
Countrywide Financial Corporation		3.983%	5/5/08		260		261A
Ford Motor Credit Company		4.830%	9/28/07		420		409A
Ford Motor Credit Company		6.625%	6/16/08		1,510		1,476
General Motors Acceptance Corporation		5.100%	7/16/07		120		117A
General Motors Acceptance Corporation		5.110%	9/23/08		1,790		1,659A
HSBC Finance Corporation		4.010%	5/10/10		210		210A
John Deere Capital Corporation		3.900%	1/15/08		360		354
Nissan Motor Acceptance Corporation		4.625%	3/8/10		90		88B
Residential Capital Corporation		5.385%	6/29/07		200		202A,B
SLM Corporation		4.340%	7/27/09		350		350A
							5,924
Banks	0.1%
U.S. Bank		4.400%	8/15/08		70		70
Cable	0.9%
Comcast Cable Communications, Inc.		8.375%	5/1/07		330		348
Cox Communications, Inc.		4.407%	12/14/07		370		373A
							721
Chemicals	0.3%
The Dow Chemical Company		5.000%	11/15/07		160		161
The Dow Chemical Company		5.970%	1/15/09		100		104
							265
Computer Services and Systems	0.4%
Electronic Data Systems Corporation		7.125%	10/15/09		290		311
Diversified Consumer Services	0.3%
Honeywell International Incorporated		5.125%	11/1/06		240		241

15

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
Corporate Bonds and Notes—Continued
Diversified Financial Services	1.2%
Capital One Financial Corporation		4.738%	5/17/07	$	90	$	90
CIT Group Inc.		4.033%	5/23/08		80		80A
Citigroup Inc.		3.625%	2/9/09		320		310
General Electric Capital Corporation		3.970%	6/15/09		160		160A
iStar Financial Inc.		4.245%	3/3/08		360		360
							1,001
Electric	1.3%
Appalachian Power Company		3.600%	5/15/08		390		379
Dominion Resources, Inc.		4.125%	2/15/08		160		158
FirstEnergy Corp.		5.500%	11/15/06		430		434
Southern California Edison Co.		4.430%	1/13/06		60		60A
							1,031
Energy	0.9%
Alabama Power Company		4.026%	8/25/09		50		50A
CenterPoint Energy, Inc.		5.875%	6/1/08		150		153
Duke Energy Corporation		3.750%	3/5/08		60		59
Pacific Gas and Electric Co.		3.600%	3/1/09		90		87
Sempra Energy		4.621%	5/17/07		270		269
Sempra Energy		4.290%	5/21/08		90		90A
TXU Energy Co.		4.920%	1/17/06		50		50A
							759
Environmental Services	0.7%
Waste Management, Inc.		7.000%	10/15/06		135		138
Waste Management, Inc.		6.500%	11/15/08		200		209
Waste Management, Inc.		7.375%	8/1/10		170		187
							534
Food, Beverage and Tobacco	1.3%
Altria Group, Inc.		7.650%	7/1/08		30		32
Altria Group, Inc.		7.200%	2/1/07		110		113
Altria Group, Inc.		5.625%	11/4/08		380		390
General Mills, Inc.		6.449%	10/15/06		200		203
Kraft Foods Inc.		5.250%	6/1/07		240		242
Sara Lee Corporation		1.950%	6/15/06		120		118
							1,098

16

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Investment Banking/Brokerage	0.5%
Lehman Brothers Holdings Inc.		4.010%	11/10/09	$	130	$	131A
Morgan Stanley		4.430%	1/15/10		100		100A
The Bear Stearns Companies Inc.		4.068%	9/9/09		150		151A
							381
Media	2.2%
Clear Channel Communications, Inc.		3.125%	2/1/07		80		78
Clear Channel Communications, Inc.		6.625%	6/15/08		60		62
Clear Channel Communications, Inc.		4.250%	5/15/09		290		280
Clear Channel Communications, Inc.		7.650%	9/15/10		20		22
Liberty Media Corporation		7.875%	7/15/09		460		484
News America Incorporated		6.625%	1/9/08		400		416
Time Warner Inc.		6.150%	5/1/07		320		327
Viacom Inc.		5.625%	5/1/07		160		162
							1,830
Oil and Gas	1.2%		��
Amerada Hess Corporation		7.375%	10/1/09		280		304
Anadarko Petroleum Corporation		3.250%	5/1/08		330		319
Occidental Petroleum Corporation		7.375%	11/15/08		90		97
Texas Eastern Transmission Corporation		5.250%	7/15/07		160		161
Tosco Corporation		7.625%	5/15/06		115		117
							998
Paper and Forest Products	1.0%
International Paper Company		3.800%	4/1/08		290		283
Union Camp Corporation		6.500%	11/15/07		200		206
Weyerhaeuser Company		6.125%	3/15/07		320		326
							815
Pharmaceuticals	0.3%
Bristol-Myers Squibb Company		4.000%	8/15/08		240		237
Photo Equipment and Supplies	N.M.
Eastman Kodak Company		7.250%	11/15/13		10		9
Special Purpose	4.2%
American Honda Finance Corporation		3.860%	5/12/08		70		70A,B
American Honda Finance Corporation		3.850%	11/6/08		34		33B
BAE Systems Holdings Inc.		4.050%	8/15/08		200		200A,B

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
Corporate Bonds and Notes—Continued
Special Purpose—Continued
DaimlerChrysler NA Holding Corporation		4.026%	3/7/07	$	210	$	210A
DaimlerChrysler NA Holding Corporation		4.314%	9/10/07		940		942A
International Lease Finance Corporation		4.625%	6/2/08		240		239
International Lease Finance Corporation		5.000%	4/15/10		60		60
National Rural Utilities Cooperative Finance Corporation		3.875%	2/15/08		160		157
Sprint Capital Corporation		4.780%	8/17/06		410		411C
Sprint Capital Corporation		6.125%	11/15/08		610		633
Tyco International Group SA		4.436%	6/15/07		200		199B
Verizon Global Funding Corp.		6.125%	6/15/07		240		246
							3,401
Telecommunications (Cellular/Wireless)	1.0%
ALLTEL Corporation		4.656%	5/17/07		310		310
Motorola, Inc.		4.608%	11/16/07		170		170
New Cingular Wireless Services Inc.		7.500%	5/1/07		300		313
							793
Telecommunciations Equipment	0.1%
New York Telephone Co.		6.000%	4/15/08		120		123
Total Corporate Bonds and Notes (Identified Cost—$20,821)							20,651
Asset-Backed Securities	8.2%
Fixed Rate Securities	2.7%
ACE Securities Corp. 2003-MH1		2.200%	8/15/30		52		52B
AmeriCredit Automobile Receivables Trust 2001-C		5.010%	7/14/08		257		257
AmeriCredit Automobile Receivables Trust 2003-BX A4A		2.720%	1/6/10		400		394
Capital One Auto Finance Trust 2001-B A4		4.880%	9/15/08		186		187
Hyundai Auto Receivables Trust 2002-A		2.800%	2/15/07		34		33B
MBNA Practice Solutions Owners Trust 2005-2		4.100%	5/15/09		400		395B
Onyx Acceptance Owner Trust 2002-D		3.100%	7/15/09		92		92
Prestige Auto Receivables Trust 2005-1A		4.370%	6/15/12		200		198B
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		124		125
UPFC Auto Receivables Trust 2004-A		3.270%	9/15/10		500		491
							2,224
Indexed SecuritiesA	5.5%
AmeriCredit Automobile Receivables Trust 2003-BX A4B		4.270%	1/6/10		30		30

18

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Indexed Securities—Continued
AQ Finance Nim Trust 2003-N13		4.268%	12/25/08	$	29	$	29B
Bayview Financial Acquisition Trust 2004-C		4.490%	5/28/44		255		256
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		4.408%	10/25/32		39		39
Chesapeake Funding LLC 2003-1		4.140%	8/7/08		120		120
Citibank Credit Card Issuance Trust 2000-C2		4.249%	10/15/07		90		90
Citibank Credit Card Issuance Trust 2002-C3		5.010%	12/15/09		160		163
Countrywide Asset-Backed Certificates 2002-3		4.408%	5/25/32		7		7
Countrywide Home Equity Loan Trust 2002-C		4.210%	5/15/28		55		55
Countrywide Home Equity Loan Trust 2004-J		4.260%	12/15/33		223		223
Countrywide Home Equity Loan Trust 2004-O		4.250%	2/15/34		252		253
CS First Boston Mortgage Securities Corporation 2004-HC1A		4.370%	12/15/21		579		579B
EQCC Trust 2002-1		4.338%	11/25/31		54		54
First North American National Bank 2003-A		4.450%	5/16/11		220		221
Fremont Home Loan Trust 2004-C		4.308%	1/25/32		190		190
GSAA Home Equity Trust 2004-9		4.418%	9/25/34		276		276
Navistar Financial 2003-B Owner Trust		4.170%	4/15/08		184		184
New Century Home Equity Loan Trust 2001-NC1		4.290%	6/20/31		4		4
Providian Gateway Master Trust 2002-B		4.670%	6/15/09		500		501B
Rental Car Finance Corp. 2004-1A		4.238%	6/25/09		500		500B
Residential Asset Mortgage Products, Inc. 2002-RS6		4.488%	11/25/32		79		79
Residential Asset Securities Corporation 1999-KS1		4.588%	3/25/29		100		100
Superior Wholesale Inventory Financing Trust 2004-A10		4.070%	9/15/11		500		500
							4,453
Total Asset-Backed Securities (Identified Cost—$6,712)							6,677
Mortgage-Backed Securities	13.3%
Fixed Rate Securities	2.2%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		116		117
Countrywide Alternative Loan Trust 2004-J1 1A1		6.000%	2/25/34		67		68
Countrywide Home Loans 2005-R3		4.438%	9/25/35		900		900B
Prime Mortgage Trust 2005-2		7.596%	10/25/32		290		302
Residential Asset Mortgage Products, Inc. 2004-SL2 A4		8.500%	10/25/31		53		54
Residential Asset Mortgage Products, Inc. 2005-SL1 A7		8.000%	5/25/32		325		340
							1,781

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
Mortgage-Backed Securities—Continued
Indexed SecuritiesA	8.6%
Banc of America Mortgage Securities 2003-D		4.569%	5/25/33	$	225	$	223
Bear Stearns Arm Trust 2004-10		4.618%	1/25/35		137		136
CBA Commercial Small Balance Commercial Mortgage 2005-1A		4.358%	8/25/35		667		667B
Countrywide Alternative Loan Trust 2005-38		4.388%	9/25/35		780		779
Countrywide Asset-backed Certificates 2005-Im1		4.318%	7/25/35		1,000		999
Crusade Global Trust 2003-2		4.076%	9/18/34		109		110D
Granite Mortgages PLC 2003-1		4.364%	1/20/20		228		228D
Impac CMB Trust 2002-8		4.498%	3/25/33		56		56
J.P. Morgan Chase Commercial Mortgage Securities Corp. 2003-FL2A		4.220%	11/15/16		93		93B
J.P. Morgan Mortgage Trust 2003-A1		4.377%	10/25/33		314		307
MASTR Adjustable Rate Mortgages Trust 2004-13		3.787%	11/21/34		350		336
Medallion Trust 2000-2G		4.086%	12/18/31		118		118D
Medallion Trust 2003-1G		4.110%	12/21/33		106		106D
Merrill Lynch Mortgage Investor, Inc. 2004-SL1		4.298%	4/25/35		35		35
MLCC Mortgage Investors, Inc. 2003-H		4.949%	1/25/29		96		97
Provident Funding Mortgage Loan Trust 2005-1 1A1		4.189%	5/25/35		355		353
Sequoia Mortgage Trust 2003-2 A2		4.700%	6/20/33		119		119
Structured Adjustable Rate Mortgage Loan Trust 2005-16xs		4.377%	8/25/35		748		744
Structured Adjustable Rate Mortgage Loan Trust 2005-19Xs		4.338%	9/25/35		775		772
Torrens Trust 2000-1GA		4.230%	7/15/31		52		52B,D
Wachovia Mortgage Loan Trust, LLC		4.838%	8/20/35		485		485
WaMu Mortgage Pass-Through Certificates, Series 2003-AR10		4.072%	10/25/33		200		198
							7,013
Variable Rate SecuritiesE	2.5%
Banc of America Funding Corporation 2004-B		4.224%	12/20/34		269		269
Banc of America Funding Corporation 2005-F		5.500%	9/20/35		382		384
Countrywide Alternative Loan Trust 2004-33		4.953%	12/25/34		71		71
Countrywide Alternative Loan Trust 2004-33		5.057%	12/25/34		149		149
Countrywide Alternative Loan Trust 2005-14		3.300%	5/25/35		232		228
Residential Funding Mortgage Securities I, Inc., Series 2005-Sa3		4.968%	8/25/35		756		755
Structured Asset Securities Corporation 2004-SC1 A		9.144%	12/25/29		176		186
							2,042
Total Mortgage-Backed Securities (Identified Cost—$10,896)							10,836

20

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Municipal Bonds	0.1%
Liberty New York Development Corporation Revenue		5.250%	10/1/35	$	70	$	78
Total Municipal Bonds (Identified Cost—$77)							78
U.S. Government and Agency Obligations	33.6%
Fixed Rate Securities	30.4%
Fannie Mae		2.800%	3/1/19		260		258
Freddie Mac		3.125%	9/15/06		950		939
Freddie Mac		3.800%	12/27/06		1,820		1,808
Freddie Mac		3.625%	11/14/08		375		366
United States Treasury Notes		3.500%	5/31/07		2,160		2,137
United States Treasury Notes		3.625%	6/30/07		18,630		18,452
United States Treasury Notes		3.000%	11/15/07		110		107
United States Treasury Notes		3.750%	5/15/08		790		782
United States Treasury Notes		4.000%	3/15/10		2		2
United States Treasury Notes		4.250%	11/15/14		10		10
							24,861
Indexed SecuritiesF	3.2%
United States Treasury Inflation-Protected Security		3.000%	7/15/12		1,684		1,833
United States Treasury Inflation-Protected Security		2.375%	1/15/25		726		776
							2,609
Total U.S. Government and Agency Obligations (Identified Cost—$27,613)							27,470
U.S. Government Agency Mortgage-Backed Securities	15.1%
Fixed Rate Securities	4.8%
Fannie Mae		5.000%	12/1/35		2,500		2,447G
Fannie Mae		6.000%	12/1/35		1,150		1,169G
Freddie Mac		5.000%	12/1/35		100		98G
Government National Mortgage Association		5.000%	12/1/35		230		228G
							3,942
Indexed SecuritiesA	10.3%
Fannie Mae		4.218%	12/1/34		184		181
Fannie Mae		4.262%	12/1/34		178		176
Fannie Mae		4.330%	1/1/35		187		184

21

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
U.S. Government Agency Mortgage-Backed Securities—Continued
Indexed Securities—Continued
Fannie Mae		4.877%	1/1/35	$	369	$	369
Fannie Mae		4.818%	2/1/35		900		900
Fannie Mae		4.551%	3/1/35		392		389
Fannie Mae		5.116%	3/1/35		685		687
Fannie Mae		4.738%	7/1/35		4,893		4,905
Freddie Mac		4.354%	12/1/34		91		90
Freddie Mac		4.089%	1/1/35		61		60
Freddie Mac		4.096%	1/1/35		110		108
Freddie Mac		4.516%	1/1/35		336		333
							8,382
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$12,388)							12,324
Yankee BondsD	3.3%
Banks	0.1%
The Korea Development Bank		4.750%	7/20/09		70		70
Foreign Governments	0.2%
Russian Federation		3.000%	5/14/08		70		67
Russian Federation		8.250%	3/31/10		130		140B
							207
Oil and Gas	1.1%
Ocean Energy Inc.		4.375%	10/1/07		160		159
Pemex Project Funding Master Trust		8.500%	2/15/08		50		54
Pemex Project Funding Master Trust		6.125%	8/15/08		490		504
Pemex Project Funding Master Trust		5.170%	6/15/10		140		146A,B
							863
Special Purpose	0.5%
BP Capital Markets Plc		2.750%	12/29/06		100		98
ChevronTexaco Capital Company		3.500%	9/17/07		20		20
Deutsche Telekom International Finance BV		3.875%	7/22/08		160		156
Diageo Capital Plc		3.375%	3/20/08		100		97
							371
Telecommunications	1.3%
British Telecommunications PLC		8.375%	12/15/10		450		521
Koninklijke (Royal) KPN NV		8.000%	10/1/10		40		45

22

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Yankee Bonds—Continued
Telecommunications—Continued
Telecom Italia Capital		4.000%	11/15/08	$	260		$	254
Telecom Italia Capital		4.480%	2/1/11		80			80A
Telefonos de Mexico SA de CV (Telmex)		8.250%	1/26/06		190			192
								1,092
Telecommunications (Cellular/Wireless)	0.1%
Vodafone Group Plc		3.950%	1/30/08		80			80
Total Yankee Bonds (Identified Cost—$2,694)								2,683
Preferred Stocks	1.7%
Fannie Mae		7.000%			26	shs		1,403A
Total Preferred Stocks (Identified Cost—$1,423)								1,403
Total Long-Term Securities (Identified Cost—$82,624)								82,122
Short-Term Securities	N.M.
U.S. Government and Agency Obligations	N.M.
Fannie Mae		0.000%	12/5/05	$	50			50H,I
Total Short-Term Securities (Identified Cost—$50)								50
Total Investments (Identified Cost—$82,674)	100.6%						$	82,172
Other Assets Less Liabilities	(0.6)%							(513	)
Net Assets	100.0%						$	81,659

23

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Limited Duration Bond Portfolio—Continued

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedJ
U.S. Treasury Note Futures	December 2005	10	$	(9	)
Futures Contracts WrittenJ
Eurodollar Futures	March 2006	26	$	27
U.S. Treasury Note Futures	December 2005	17		15
U.S. Treasury Note Futures	December 2005	9		14
			$	56

^A Indexed security – The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”). The coupon rate is the rate as of September 30, 2005.

^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 6.2% of net assets.

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

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

^E The coupon rates shown on variable rate securities are the rates at September 30, 2005. These rates vary with the weighted average coupon of the underlying loans.

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

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

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

N.M.—Not meaningful.

See notes to financial statements.

24

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Intermediate Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	91.5%
Corporate Bonds and Notes	35.5%
Aerospace/Defense	0.4%
Systems 2001 Asset Trust		6.664%	9/15/13	$	1,526	$	1,635
United Technologies Corporation		6.350%	3/1/11		1,280		1,376
							3,011
Automotive	0.6%
Ford Motor Company		7.450%	7/16/31		1,430		1,115A
General Motors Corporation		8.375%	7/15/33		4,440		3,463A
							4,578
Banking and Finance	7.3%
Aspetuck Trust 2004-1		3.899%	10/17/05		4,000		3,999B
Caterpillar Financial Services Corporation		3.450%	1/15/09		1,700		1,638
Countrywide Financial Corporation		3.983%	5/5/08		5,150		5,161B
Ford Motor Credit Company		4.830%	9/28/07		8,600		8,381B
Ford Motor Credit Company		6.625%	6/16/08		11,160		10,908A
General Motors Acceptance Corporation		6.125%	8/28/07		4,680		4,607
General Motors Acceptance Corporation		5.110%	9/23/08		5,768		5,344
General Motors Acceptance Corporation		6.750%	12/1/14		2,420		2,105A
HSBC Finance Corporation		4.010%	5/10/10		1,570		1,570
Nissan Motor Acceptance Corporation		4.625%	3/8/10		1,540		1,512C
Residential Capital Corporation		5.385%	6/29/07		4,100		4,134A,C
U.S. Bank National Association		4.400%	8/15/08		2,600		2,586
							51,945
Cable	0.4%
Cox Communications, Inc.		4.407%	12/14/07		2,860		2,880B
Casino Resorts	0.2%
Harrah’s Operating Company, Inc.		5.625%	6/1/15		1,700		1,681C
Chemicals	0.4%
Rohm and Haas Company		7.400%	7/15/09		342		373
The Dow Chemical Company		5.750%	12/15/08		760		786
The Dow Chemical Company		5.970%	1/15/09		880		916
The Dow Chemical Company		6.000%	10/1/12		1,000		1,059
							3,134

25

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Computer Services and Systems	0.4%
Electronic Data Systems Corporation		7.125%	10/15/09	$	2,740	$	2,935A
Diversified Financial Services	1.3%
Capital One Bank		4.250%	12/1/08		2,030		1,994
CIT Group Inc.		4.033%	5/23/08		3,600		3,609B
iStar Financial Inc.		4.245%	3/3/08		1,280		1,281B
iStar Financial Inc.		4.875%	1/15/09		620		614A
iStar Financial Inc.		5.375%	4/15/10		1,510		1,512
							9,010
Drug and Grocery Store Chains	0.2%
The Kroger Co.		6.200%	6/15/12		1,090		1,135
Electric	2.1%
Appalachian Power Company		3.600%	5/15/08		3,350		3,258A
Carolina Power & Light Company		5.950%	3/1/09		1,175		1,216
Commonwealth Edison Company		6.150%	3/15/12		325		338
Dominion Resources, Inc.		4.750%	12/15/10		540		534
Dominion Resources, Inc.		5.700%	9/17/12		1,970		2,033
FirstEnergy Corp.		6.450%	11/15/11		2,600		2,768
Niagara Mohawk Power Corporation		7.750%	10/1/08		2,150		2,326
The Cleveland Electric Illuminating Company		5.650%	12/15/13		2,115		2,167
							14,640
Energy	2.1%
Alabama Power Company		4.026%	8/25/09		1,400		1,404B
CenterPoint Energy Inc.		5.875%	6/1/08		1,635		1,669
Duke Energy Corporation		6.250%	1/15/12		1,330		1,415
Exelon Corporation		6.750%	5/1/11		2,200		2,358
MidAmerican Energy Holdings Company		5.875%	10/1/12		1,020		1,064
Pacific Gas and Electric Company		3.600%	3/1/09		2,850		2,753A
Progress Energy, Inc.		5.850%	10/30/08		1,250		1,283
Progress Energy, Inc.		7.100%	3/1/11		1,650		1,794
TXU Energy Co.		4.920%	1/17/06		890		890B
							14,630
Environmental Services	0.8%
Waste Management, Inc.		6.875%	5/15/09		2,820		3,000
Waste Management, Inc.		7.375%	8/1/10		2,480		2,727
							5,727

26

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Food, Beverage and Tobacco	1.6%
Altria Group, Inc.		6.950%	6/1/06	$	1,390	$	1,411
Altria Group, Inc.		7.200%	2/1/07		4,130		4,248
Altria Group, Inc.		7.650%	7/1/08		100		107
Kraft Foods Inc.		5.625%	11/1/11		780		806
Pepsi Bottling Holdings Inc.		5.625%	2/17/09		2,441		2,520C
Sara Lee Corporation		2.750%	6/15/08		2,050		1,941
Sara Lee Corporation		6.250%	9/15/11		670		701
							11,734
Gas and Pipeline Utilities	0.5%
Kinder Morgan Energy Partners, L.P.		7.500%	11/1/10		1,630		1,808
The Williams Companies, Inc.		8.125%	3/15/12		1,900		2,076
							3,884
Health Care	0.2%
WellPoint Inc.		3.750%	12/14/07		1,800		1,763
Insurance	0.2%
ACE INA Holdings Inc.		8.300%	8/15/06		1,610		1,660
Investment Banking/Brokerage	3.3%
Goldman Sachs Group, L.P.		4.300%	6/28/10		6,780		6,796B
J.P. Morgan & Co. Incorporated		8.094%	2/15/12		2,190		2,312B
J.P. Morgan Chase Capital XIII		4.970%	9/30/34		150		149A,B
J.P. Morgan Chase & Co.		4.094%	1/17/11		4,130		4,129B
Merrill Lynch & Co. Inc.		3.953%	2/5/10		2,880		2,884B
Morgan Stanley		3.879%	1/15/10		5,600		5,621B
The Bear Stearns Companies Inc.		4.550%	6/23/10		1,380		1,365
							23,256
Investment Management	0.3%
Dryden Investor Trust		7.157%	7/23/08		2,114		2,183C
Media	2.4%
Clear Channel Communications, Inc.		6.000%	11/1/06		2,730		2,769
Clear Channel Communications, Inc.		4.625%	1/15/08		2,820		2,791A
Clear Channel Communications, Inc.		4.250%	5/15/09		350		338
Liberty Media Corporation		7.875%	7/15/09		3,800		3,999
News America Incorporated		6.625%	1/9/08		3,124		3,246A

27

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Media—Continued
Time Warner Inc.		6.875%	5/1/12	$	1,740	$	1,902
Turner Broadcasting System, Inc.		8.375%	7/1/13		1,830		2,157
							17,202
Medical Care Facilities	0.3%
HCA, Inc.		8.750%	9/1/10		1,705		1,883
Oil and Gas	1.6%
Amerada Hess Corporation		7.375%	10/1/09		2,440		2,649
Occidental Petroleum Corporation		7.375%	11/15/08		2,370		2,561
Sonat Inc.		7.625%	7/15/11		4,880		4,953
XTO Energy, Inc.		7.500%	4/15/12		1,060		1,194
							11,357
Paper and Forest Products	0.9%
International Paper Company		3.800%	4/1/08		2,310		2,251
International Paper Company		6.750%	9/1/11		1,000		1,072A
Weyerhaeuser Company		5.250%	12/15/09		290		292A
Willamette Industries, Inc.		7.125%	7/22/13		2,270		2,501
							6,116
Photo Equipment and Supplies	0.3%
Eastman Kodak Company		7.250%	11/15/13		2,470		2,343
Special Purpose	6.2%
BAE Systems Holdings Inc.		4.050%	8/15/08		1,740		1,739B,C
DaimlerChrysler NA Holding Corporation		4.026%	3/7/07		2,790		2,786B,C
DaimlerChrysler NA Holding Corporation		4.314%	9/10/07		7,670		7,688A,B
DaimlerChrysler NA Holding Corporation		4.875%	6/15/10		1,800		1,764
Devon Financing Corporation ULC		6.875%	9/30/11		2,500		2,748
International Lease Finance Corporation		4.625%	6/2/08		950		944
International Lease Finance Corporation		5.000%	4/15/10		5,160		5,178A
National Rural Utilities Cooperative Finance Corporation		3.875%	2/15/08		1,160		1,142A
National Rural Utilities Cooperative Finance Corporation		5.750%	12/1/08		690		712
Sprint Capital Corporation		4.780%	8/17/06		1,970		1,973D
Sprint Capital Corporation		6.125%	11/15/08		3,270		3,396
Sprint Capital Corporation		8.375%	3/15/12		4,280		5,037
Tyco International Group SA		4.436%	6/15/07		3,350		3,334C
Verizon Global Funding Corp.		7.250%	12/1/10		5,000		5,526
							43,967

28

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Telecommunications (Cellular/Wireless)	0.6%
ALLTEL Corporation		4.656%	5/17/07	$	1,530	$	1,529
New Cingular Wireless Services Inc.		8.125%	5/1/12		2,304		2,702
							4,231
Transportation	0.9%
Continental Airlines, Inc.		6.545%	2/2/19		1,317		1,291
Delta Air Lines, Inc.		6.619%	3/18/11		503		470
Delta Air Lines, Inc.		6.718%	7/2/24		2,393		2,450
U.S. Airways		6.850%	1/30/18		1,277		1,271
Union Pacific Corporation		6.650%	1/15/11		1,000		1,078
							6,560
Total Corporate Bonds and Notes (Identified Cost—$254,827)							253,445
Asset-Backed Securities	3.7%
Fixed Rate Securities	0.9%
ABFS Mortgage Loan Trust 2002-3		4.263%	9/15/33		1,368		1,357
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		800		653
Green Tree Financial Corporation 1994-6		8.900%	1/15/20		3,402		3,544
Mego Mortgage Home Loan Trust 1996-2		7.275%	8/25/17		31		31
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		698		704
							6,289
Indexed SecuritiesB	2.7%
AFC Home Equity Loan Trust 2003-3		4.180%	10/25/30		1,901		1,904A
AMRESCO Residential Securites Mortgage Loan Trust 1998-2		4.863%	6/25/28		371		371
Capital One Auto Finance Trust 2003-A		4.130%	10/15/07		1,391		1,391
CNH Equipment Trust 2003-A		4.150%	7/16/07		1,564		1,564
Countrywide Asset-Backed Certificates 2002-BC1		4.368%	4/25/32		1,161		1,161
Household Home Equity Loan Trust 2002-3		4.450%	7/20/32		1,646		1,647
IndyMac Home Equity Loan Asset-Backed Trust 2001-A		4.298%	3/25/31		944		944
MMCA Automobile Trust 2002-1		4.250%	1/15/10		195		195
Morgan Stanley ABS Capital I 2003-NC8 A2		4.398%	9/25/33		832		832
MSDWCC HELOC Trust 2003-1		4.308%	11/25/15		2,405		2,410

29

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Indexed Securities—Continued
Residential Asset Securities Corporation 2003-KS1		4.408%	1/25/33	$	1,237	$	1,241
Sovereign Dealer Floor Plan Master LLC 2000-1A		4.220%	10/15/07		5,500		5,500A
							19,160
Stripped Securities	0.1%
ACA CDS 2002-1, Ltd.		2.742%	7/15/08		7,600		369E1
Oakwood Mortgage Investors Inc. 2001-C		6.000%	5/15/08		4,433		515E1
							884
Total Asset-Backed Securities (Identified Cost—$26,795)							26,333
Mortgage-Backed Securities	5.7%
Fixed Rate Securities	1.7%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		728		732
Fannie Mae Grantor Trust 2002-T3		5.763%	12/25/11		3,830		4,041
GMAC Commercial Mortgage Securities Inc. 1998-C1		6.700%	5/15/30		873		907
Merrill Lynch Mortgage Investors, Inc. 1998-C1		6.310%	11/15/26		454		456
MLCC Mortgage Investors, Inc. 2005-1 2A2		4.970%	4/25/35		3,990		3,918
Nomura Asset Securities Corporation 1996-MD5		7.120%	4/13/39		1,500		1,518
Ocwen Residential MBS Corporation 1998-R1		7.000%	10/25/40		155		155
							11,727
Indexed SecuritiesB	2.0%
Countrywide Home Loans 2003-49		3.697%	12/19/33		1,000		972
Impac CMB Trust 2003-12		4.210%	12/25/33		2,540		2,543
MASTR Adjustable Rate Mortgages Trust 2004-13		3.787%	11/21/34		7,300		7,004
Wells Fargo Mortgage Backed Securities Trust 2004-S		3.540%	9/25/34		4,350		4,191
							14,710
Stripped Securities	N.M.
FFCA Secured Lending Corporation 1997-1		0.370%	2/18/22		65		0.157A,E1
Variable Rate SecuritiesG	2.0%
Banc of America Funding Corporation 2005-B		5.139%	4/25/35		3,639		3,624
Bear Stearns ALT-A Trust 2005-2		4.740%	4/25/35		3,567		3,541
Countrywide Home Loans 2004-20		5.261%	9/25/34		2,823		2,874

30

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Variable Rate Securities—Continued
Merrill Lynch Mortgage Investors, Inc. 2005-A2		4.500%	2/25/35	$	2,487	$	2,455
MLCC Mortgage Investors, Inc. 2005-1 2A1		4.970%	4/25/35		1,282		1,273
WaMu Mortgage Pass-Through Certificates 2004-AR11		4.604%	10/25/34		601		592
							14,359
Total Mortgage-Backed Securities (Identified Cost—$41,719)							40,796
Municipal Bonds	0.1%
Liberty New York Development Corporation Revenue		5.250%	10/1/35		540		602
Total Municipal Bonds (Identified Cost—$598)							602
U.S. Government and Agency Obligations	29.6%
Fixed Rate Securities	25.6%
Fannie Mae		7.250%	1/15/10		200		221
Fannie Mae		4.375%	3/15/13		3,540		3,494
Fannie Mae		4.625%	5/1/13		290		285A
Fannie Mae		5.125%	1/2/14		1,300		1,320
Farmer Mac		4.250%	7/29/08		1,240		1,233
Federal Farm Credit Bank		4.875%	4/4/12		3,160		3,213
Federal Home Loan Bank		3.125%	9/15/06		6,000		5,932
Federal Home Loan Bank		4.125%	4/18/08		2,460		2,445
Federal Home Loan Bank		5.800%	3/30/09		600		625
Tennessee Valley Authority		5.625%	1/18/11		460		483
Tennessee Valley Authority		6.790%	5/23/12		3,390		3,805
Tennessee Valley Authority		5.880%	4/1/36		220		250
United States Treasury Bonds		8.000%	11/15/21		3,430		4,748A
United States Treasury Bonds		6.250%	5/15/30		170		211A
United States Treasury Bonds		5.375%	2/15/31		2,060		2,308A
United States Treasury Notes		2.375%	8/15/06		30		30A
United States Treasury Notes		2.250%	2/15/07		2,370		2,310A
United States Treasury Notes		3.125%	5/15/07		3,860		3,797A
United States Treasury Notes		4.375%	5/15/07		980		983A
United States Treasury Notes		6.625%	5/15/07		2,290		2,379A
United States Treasury Notes		2.750%	8/15/07		520		507A
United States Treasury Notes		4.000%	8/31/07		44,690		44,538A

31

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government and Agency Obligations—Continued
Fixed Rate Securities—Continued
United States Treasury Notes		3.750%	5/15/08	$	24,240	$	23,981A
United States Treasury Notes		3.875%	5/15/09		4,870		4,817A
United States Treasury Notes		4.000%	6/15/09		5,240		5,204A
United States Treasury Notes		3.625%	1/15/10		6,760		6,604A
United States Treasury Notes		3.500%	2/15/10		11,550		11,219A
United States Treasury Notes		4.000%	4/15/10		6,515		6,456A
United States Treasury Notes		4.125%	8/15/10		2,850		2,837A
United States Treasury Notes		4.250%	11/15/14		2,520		2,502A
United States Treasury Notes		4.125%	5/15/15		34,730		34,132A
United States Treasury Notes		4.250%	8/15/15		20		20A
							182,889
Indexed SecuritiesH	3.8%
United States Treasury Inflation-Protected Security		0.875%	4/15/10		2,929		2,854A
United States Treasury Inflation-Protected Security		3.000%	7/15/12		1,532		1,667A
United States Treasury Inflation-Protected Security		1.875%	7/15/13		745		755A
United States Treasury Inflation-Protected Security		2.000%	1/15/14		6,820		6,962A
United States Treasury Inflation-Protected Security		2.000%	7/15/14		2,612		2,668A
United States Treasury Inflation-Protected Security		2.375%	1/15/25		11,283		12,071A
							26,977
Stripped Securities	0.2%
United States Treasury Notes		0.000%	5/15/30		3,790		1,234A,E2
Total U.S. Government and Agency Obligations (Identified Cost— $212,649)							211,100

32

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government Agency Mortgage-Backed Securities	8.6%
Fixed Rate Securities	5.5%
Fannie Mae		6.500%	6/1/14	$	229	$	238
Fannie Mae		8.000%	9/1/15		97		104
Fannie Mae		9.500%	4/15/21		67		74
Fannie Mae		5.000%	12/1/35		23,900		23,392I
Fannie Mae		5.500%	12/1/35		600		600I
Freddie Mac		4.250%	2/28/07		5,060		5,052
Freddie Mac		4.500%	1/15/13		2,450		2,432
Freddie Mac		6.500%	6/1/13		25		26
Freddie Mac		6.500%	6/1/14		63		66
Freddie Mac		5.000%	7/15/14		6,270		6,428
Freddie Mac		6.500%	11/1/15		12		13
Freddie Mac		7.500%	4/1/17		6		6
Freddie Mac		9.300%	4/15/19		107		107
Freddie Mac		5.000%	12/1/35		1,100		1,076I
Government National Mortgage Association		9.000%	6/15/06		12		12
							39,626
Indexed SecuritiesB	3.1%
Fannie Mae		3.546%	3/1/18		41		41
Fannie Mae		4.325%	11/1/34		1,183		1,167
Fannie Mae		4.205%	12/1/34		1,282		1,262
Fannie Mae		4.878%	1/1/35		4,336		4,333
Fannie Mae		3.777%	3/1/35		2,170		2,111
Fannie Mae		4.785%	4/1/35		1,576		1,576
Freddie Mac		4.022%	1/1/19		18		18
Freddie Mac		4.366%	12/1/34		549		541
Freddie Mac		4.485%	12/1/34		2,645		2,618
Freddie Mac		4.088%	1/1/35		516		506
Freddie Mac		4.097%	1/1/35		935		917
Freddie Mac		4.595%	7/1/35		7,100		7,079
							22,169

33

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government Agency Mortgage-Backed Securities—Continued
Stripped Securities	N.M.
Fannie Mae		0.000%	5/25/22	$	15	$	13E2
Freddie Mac		10.000%	3/1/21		13		3E1
							16
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$62,425)							61,811
Yankee BondsF	6.9%
Banking and Finance	1.4%
AIFUL CORPORATION		5.000%	8/10/10		2,590		2,573C
HBOS Treasury Services plc		4.000%	9/15/09		1,530		1,496C
HSBC Holdings plc		7.500%	7/15/09		5,700		6,238
							10,307
Banks	0.8%
Banco Santiago SA		4.148%	12/9/09		290		289B,C
Royal Bank of Scotland Group plc		9.118%	3/31/49		3,000		3,488
The Korea Development Bank		4.750%	7/20/09		60		60
The Korea Development Bank		4.574%	10/20/09		1,980		1,981B,C
							5,818
Electric	0.3%
SP PowerAssets Limited		5.000%	10/22/13		1,965		1,981C
Foreign Governments	0.8%
Russian Federation		5.000%	3/31/30		4,640		5,331D
Manufacturing (Diversified)	0.2%
Tyco International Group SA		6.375%	10/15/11		180		192
Tyco International Group SA		6.000%	11/15/13		1,020		1,078
							1,270
Oil and Gas	1.1%
Pemex Project Funding Master Trust		8.500%	2/15/08		1,000		1,080
Pemex Project Funding Master Trust		6.125%	8/15/08		660		680
Pemex Project Funding Master Trust		5.170%	6/15/10		5,680		5,910B,C
Pemex Project Funding Master Trust		7.375%	12/15/14		220		244
							7,914

34

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Yankee BondsF—Continued
Special Purpose	0.4%
Deutsche Telekom International Finance BV		8.500%	6/15/10	$	1,300		$	1,474
Petrozuata Finance, Inc.		8.220%	4/1/17		1,090			1,041C
								2,515
Telecommunications	1.5%
British Telecommunications plc		8.375%	12/15/10		4,610			5,338
Koninklijke (Royal) KPN NV		8.000%	10/1/10		1,600			1,815
Telecom Italia Capital		4.000%	11/15/08		990			966
Telecom Italia Capital		4.480%	2/1/11		2,690			2,690A,B
								10,809
Utilities	0.4%
United Utilities plc		6.450%	4/1/08		2,960			3,071
Total Yankee Bonds (Identified Cost—$47,666)								49,016
Preferred Stocks	1.4%
Fannie Mae		7.000%			175	shs		9,576B
Home Ownership Funding Corporation		13.331%			1			180C,D
Home Ownership Funding Corporation II		13.338%			2			541C,D
Total Preferred Stocks (Identified Cost—$11,705)								10,297
Total Long-Term Securities (Identified Cost—$658,384)								653,400
Investment of Collateral From Securities Lending	25.2%
State Street Navigator Securities Lending Prime Portfolio					179,860			179,860
Total Investments of Collateral From Securities Lending (Identified Cost—179,860 )								179,860
Short-Term Securities	10.8%
U.S. Government and Agency Obligations	0.2%
Fannie Mae		0.000%	12/5/05	$	1,343			1,335J,K
Options PurchasedL	N.M.
Federal Funds Futures Call, November 2005, Strike Price $96.31					35M			0.365

35

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Intermediate Bond Portfolio—Continued

	% OF NET ASSETS	PAR/ SHARES		VALUE
Short-Term Securities—Continued
Repurchase Agreements	10.6%
Goldman, Sachs & Company 3.8%, dated 9/30/05, to be repurchased at $75,967 on 10/3/05 (Collateral: $79,250 Freddie Mac notes, 2.375%, due 2/15/07, value $77,467)		$	75,943	$	75,943
Total Short Term Securities (Identified Cost—$77,281)					77,278
Total Investments (Identified Cost—$915,525)	127.5%			$	910,538
Obligation to Return Collateral for Securities Loaned	(25.2)%				(179,860	)
Other Assets Less Liabilities	(2.3)%				(16,214	)
Net Assets	100.0%			$	714,464

36

Semi-Annual Report to Shareholders

	EXPIRATION		ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedL
Eurodollar Futures	March 2006		239	$	(89	)
Eurodollar Futures	December 2005		127		(136	)
U.S. Treasury Note Futures	December 2005		431		(448	)
U.S. Treasury Note Futures	December 2005		31		2
U.S. Treasury Note Futures	December 2005		36		(0.180	)
				$	(671	)
Futures Contracts WrittenL
U.S. Treasury Note Futures	December 2005		215	$	328
U.S. Treasury Note Futures	December 2005		164		(247	)
				$	81
Options WrittenL
U.S. Treasury Bond Futures Put, Strike Price $113.00	November 2005	��	153	$	14
U.S. Treasury Note Futures Put, Strike Price $109.00	November 2005		206		(11	)
				$	3

^A All or a portion of these securities is on loan.

^B Indexed security – The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”) or the one-year Treasury Bill rate. The coupon rate is the rate as of September 30, 2005.

^C Rule 144a Security – A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 5% of net assets.

^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 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.

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

^G The coupon rates shown on variable rate securities are the rates at September 30, 2005. These rates vary with the weighted average coupon of the underlying loans.

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

^K 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 Par represents actual number of contracts.

N.M.—Not meaningful.

37

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005

(Amounts in Thousands) (Unaudited)

Western Asset Intermediate Plus Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	91.9%
Corporate Bonds and Notes	37.2%
Automotive	0.5%
Ford Motor Company		7.450%	7/16/31	$	110	$	86
General Motors Corporation		8.375%	7/15/33		210		164
							250
Banking and Finance	7.4%
Aspetuck Trust 2004-1		3.899%	10/17/05		90		90A
Caterpillar Financial Services Corporation		3.450%	1/15/09		120		116
Countrywide Financial Corporation		3.983%	5/5/08		130		130A
Ford Motor Credit Company		4.830%	9/28/07		650		634A
Ford Motor Credit Company		6.625%	6/16/08		830		811
General Motors Acceptance Corporation		6.125%	8/28/07		370		364
General Motors Acceptance Corporation		6.311%	11/30/07		30		29
General Motors Acceptance Corporation		5.110%	9/23/08		490		454A
General Motors Acceptance Corporation		6.750%	12/1/14		120		104
HSBC Finance Corporation		4.010%	5/10/10		454		454A
Nissan Motor Acceptance Corporation		4.625%	3/8/10		100		98B
Residential Capital Corporation		5.385%	6/29/07		300		303A,B
U.S. Bank National Association		4.400%	8/15/08		190		189
							3,776
Cable	0.6%
Cox Communications, Inc.		4.407%	12/14/07		280		282A
Casino Resorts	0.3%
Harrah’s Operating Company, Inc.		5.625%	6/1/15		130		128B
Chemicals	0.6%
Rohm and Haas Company		7.400%	7/15/09		20		22
The Dow Chemical Company		5.750%	12/15/08		100		103
The Dow Chemical Company		5.970%	1/15/09		70		73
The Dow Chemical Company		6.000%	10/1/12		100		106
							304
Computer Services and Systems	0.5%
Electronic Data Systems Corporation		7.125%	10/15/09		230		246

38

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Diversified Financial Services	1.4%
Capital One Bank		4.250%	12/1/08	$	210	$	206
CIT Group Inc.		4.033%	5/23/08		240		241A
iStar Financial Inc.		4.250%	3/3/08		100		100A
iStar Financial Inc.		4.875%	1/15/09		70		69
iStar Financial Inc.		5.375%	4/15/10		90		90
							706
Electric	2.7%
Alabama Power Company		4.026%	8/25/09		120		120A
Appalachian Power Company		3.600%	5/15/08		277		269
Dominion Resources, Inc.		4.750%	12/15/10		20		20
Dominion Resources, Inc.		5.700%	9/17/12		80		83
FirstEnergy Corp.		6.450%	11/15/11		500		532
Niagara Mohawk Power Corporation		7.750%	10/1/08		50		54
The AES Corporation		9.500%	6/1/09		150		164
The Cleveland Electric Illuminating Company		5.650%	12/15/13		110		113
							1,355
Energy	1.7%
CenterPoint Energy, Inc.		5.875%	6/1/08		120		122
Exelon Corporation		6.750%	5/1/11		150		161
Pacific Gas and Electric Company		3.600%	3/1/09		120		116
Progress Energy, Inc.		5.850%	10/30/08		100		103
Progress Energy, Inc.		7.100%	3/1/11		170		185
TXU Corp.		6.375%	6/15/06		60		61
TXU Corp.		6.375%	1/1/08		90		92
TXU Energy Co.		4.920%	1/17/06		50		50A
							890
Environmental Services	0.8%
Waste Management, Inc.		6.875%	5/15/09		250		266
Waste Management, Inc.		7.375%	8/1/10		150		165
							431
Food, Beverage and Tobacco	1.5%
Altria Group, Inc.		7.650%	7/1/08		10		11
Altria Group, Inc.		5.625%	11/4/08		350		359
Kraft Foods Inc.		5.625%	11/1/11		40		41
Pepsi Bottling Holdings Inc.		5.625%	2/17/09		120		124B
Sara Lee Corporation		2.750%	6/15/08		150		142
Sara Lee Corporation		6.250%	9/15/11		60		63
							740

39

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
Corporate Bonds and Notes—Continued
Gas and Pipeline Utilities	0.8%
ANR Pipeline, Inc.		8.875%	3/15/10	$	65	$	70
Kinder Morgan Energy Partners, L.P.		7.500%	11/1/10		90		100
Southern Natural Gas Company		8.875%	3/15/10		85		92
The Williams Companies, Inc.		5.890%	10/1/10		150		149A,B
							411
Health Care	0.2%
WellPoint Inc.		3.750%	12/14/07		130		127
Insurance	0.3%
ACE INA Holdings Inc.		8.300%	8/15/06		150		155
Investment Banking/Brokerage	3.2%
Goldman Sachs Group, L.P.		4.300%	6/28/10		530		531A
J.P. Morgan Chase & Co.		4.320%	1/17/11		500		500A
J.P. Morgan Chase Capital XIII		4.970%	9/30/34		20		20A
Lehman Brothers Holdings Inc.		4.500%	7/26/10		40		39
Merrill Lynch & Co., Inc.		3.953%	2/5/10		160		160A
Morgan Stanley		4.430%	1/15/10		330		331A
The Bear Stearns Companies Inc.		4.550%	6/23/10		50		50
							1,631
Media	2.9%
Clear Channel Communications, Inc.		6.000%	11/1/06		180		183
Clear Channel Communications, Inc.		4.625%	1/15/08		180		178
Clear Channel Communications, Inc.		4.250%	5/15/09		20		19
Clear Channel Communications, Inc.		7.650%	9/15/10		10		11
Clear Channel Communications, Inc.		5.500%	9/15/14		40		39
Liberty Media Corporation		7.875%	7/15/09		360		379
News America, Inc.		6.625%	1/9/08		270		281
Time Warner Inc.		6.875%	5/1/12		120		131
Turner Broadcasting System, Inc.		8.375%	7/1/13		130		153
Viacom Inc.		5.625%	5/1/07		120		121
							1,495
Medical Care Facilities	0.2%
HCA, Inc.		6.750%	7/15/13		70		71
HCA, Inc.		8.750%	9/1/10		50		55
							126

40

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Medical Products	0.2%
Bristol-Myers Squibb Company		5.750%	10/1/11	$	110	$	115
Oil and Gas	2.2%
Amerada Hess Corporation		7.375%	10/1/09		153		166
El Paso Corporation		6.950%	12/15/07		300		304
Kerr-McGee Corporation		5.875%	9/15/06		115		116
Kerr-McGee Corporation		6.625%	10/15/07		60		62
Occidental Petroleum Corporation		7.375%	11/15/08		140		151
Occidental Petroleum Corporation		6.750%	1/15/12		200		222
XTO Energy, Inc.		7.500%	4/15/12		100		113
							1,134
Paper and Forest Products	0.9%
International Paper Company		3.800%	4/1/08		230		224
International Paper Company		6.750%	9/1/11		50		54
Weyerhaeuser Company		5.250%	12/15/09		20		20
Weyerhaeuser Company		6.750%	3/15/12		130		140
							438
Photo Equipment and Supplies	0.3%
Eastman Kodak Company		7.250%	11/15/13		150		142
Special Purpose	6.4%
BAE Systems Holdings Inc.		4.050%	8/15/08		130		130A,B
DaimlerChrysler NA Holding Corporation		4.026%	3/7/07		190		190A
DaimlerChrysler NA Holding Corporation		4.314%	9/10/07		580		581
DaimlerChrysler NA Holding Corporation		4.875%	6/15/10		160		157
Devon Financing Corporation ULC		6.875%	9/30/11		250		275
International Lease Finance Corporation		4.625%	6/2/08		90		89
International Lease Finance Corporation		5.000%	4/15/10		320		321
Sprint Capital Corporation		4.780%	8/17/06		360		361
Sprint Capital Corporation		6.125%	11/15/08		280		291
Sprint Capital Corporation		8.375%	3/15/12		110		129
The Williams Companies, Inc. Credit-Linked Certificates		6.750%	4/15/09		170		173B
The Williams Companies, Inc. Credit-Linked Certificates		6.960%	5/1/09		255		265A,B
Tyco International Group SA		4.436%	6/15/07		280		279B
							3,241

41

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
Corporate Bonds and Notes—Continued
Telecommunications	0.6%
BellSouth Corporation		3.915%	11/15/07	$	140	$	140A
GTE Hawaiian Telephone Company, Inc.		7.000%	2/1/06		16		16
GTE Hawaiian Telephone Company, Inc.		7.375%	9/1/06		10		10
Qwest Communications International Incorporated		7.290%	2/15/09		160		158A
							324
Telecommunications (Cellular/Wireless)	0.9%
ALLTEL Corporation		4.656%	5/17/07		110		110
AT&T Wireless Services Inc.		8.125%	5/1/12		200		235
SBC Communications Inc.		6.250%	3/15/11		100		106
							451
Transportation	0.1%
Union Pacific Corporation		6.650%	1/15/11		70		75
Total Corporate Bonds and Notes (Identified Cost—$19,182)							18,973
Asset-Backed Securities	0.3%
Indexed SecuritiesA	0.3%
Metris Master Trust 2004-1		4.280%	4/20/11		100		100
Morgan Stanley ABS Capital I 2003-NC8 A2		4.400%	9/25/33		29		29
Residential Asset Securities Corporation 2002-KS7		4.410%	11/25/32		42		42
Total Asset-Backed Securities (Identified Cost—$171)							171
Mortgage-Backed Securities	4.9%
Fixed Rate Securities	0.1%
Washington Mutual MSC Mortgage Pass-Through Certificates, Series 2004-RA1		7.000%	3/25/34		37		38
Indexed SecuritiesA	1.0%
MASTR Adjustable Rate Mortgages Trust 2004-13		3.787%	11/21/34		450		432
Merrill Lynch Mortgage Investors, Inc. 2004-B		4.854%	6/25/29		61		62
							494
Variable Rate SecuritiesC	3.8%
Banc of America Funding Corporation 2005-B		5.139%	4/25/35		240		239
Bear Stearns ALT-A Trust 2005-2		4.740%	4/25/35		218		217
Countrywide Home Loans 2004-20		5.260%	9/25/34		51		52
J.P. Morgan Mortgage Trust 2004-A3		4.329%	7/25/34		387		382

42

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Variable Rate Securities—Continued
MLCC Mortgage Investors, Inc. 2005-1 2A1		4.970%	4/25/35	$	77	$	76
MLCC Mortgage Investors, Inc. 2005-1 2A2		4.970%	4/25/35		249		244
Structured Adjustable Rate Mortgage Loan Trust 2004-6 3A2		4.739%	6/25/34		271		267
WaMu Mortgage Pass-Through Certificates, Series 2005-AR12		4.846%	10/25/35		197		197
WaMu Mortgage Pass-Through Certificates, Series 2005-AR4		4.680%	4/25/35		300		300
							1,974
Total Mortgage-Backed Securities (Identified Cost—$2,530)							2,506
Municipal Bonds	0.1%
Liberty New York Development Corporation Revenue		5.250%	10/1/35		40		45
Total Municipal Bonds (Identified Cost—$44)
U.S. Government and Agency Obligations	29.1%
Fixed Rate Securities	24.2%
Farmer Mac		4.250%	7/29/08		80		79
Federal Home Loan Bank		3.125%	9/15/06		100		99
Federal Home Loan Bank		4.125%	4/18/08		140		139
Tennessee Valley Authority		5.625%	1/18/11		10		10
Tennessee Valley Authority		6.790%	5/23/12		210		236
Tennessee Valley Authority		5.880%	4/1/36		20		23
United States Treasury Bonds		8.000%	11/15/21		410		567
United States Treasury Bonds		5.375%	2/15/31		130		146
United States Treasury Notes		4.000%	8/31/07		1,290		1,286
United States Treasury Notes		3.000%	11/15/07		3,600		3,516
United States Treasury Notes		3.750%	5/15/08		3,000		2,968
United States Treasury Notes		3.375%	9/15/09		770		747
United States Treasury Notes		3.375%	10/15/09		10		10
United States Treasury Notes		6.500%	2/15/10		40		44
United States Treasury Notes		4.000%	4/15/10		270		267
United States Treasury Notes		4.125%	8/15/10		250		249
United States Treasury Notes		4.250%	11/15/14		275		273
United States Treasury Notes		4.125%	5/15/15		1,730		1,700
							12,359

43

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
U.S. Government and Agency Obligations—Continued
Indexed SecuritiesD	4.7%
United States Treasury Inflation-Protected Security		0.875%	4/15/10	$	217	$	211
United States Treasury Inflation-Protected Security		2.000%	1/15/14		1,110		1,133
United States Treasury Inflation-Protected Security		2.000%	7/15/14		166		169
United States Treasury Inflation-Protected Security		2.375%	1/15/25		818		876
							2,389
Stripped Securities	0.2%
United States Treasury Notes		0.000%	5/15/30		410		134E2
Total U.S. Government and Agency Obligations (Identified Cost—$15,053)							14,882
U.S. Government Agency Mortgage-Backed Securities	8.1%
Fixed Rate Securities	8.1%
Fannie Mae		4.590%	9/1/35		500		498
Fannie Mae		4.317%	12/1/34		940		927
Fannie Mae		5.000%	12/1/35		1,800		1,762F
Freddie Mac		4.250%	2/28/07		370		369
Freddie Mac		5.000%	7/15/14		390		400
Freddie Mac		4.088%	1/1/35		30		30A
Freddie Mac		4.097%	1/1/35		55		54A
Freddie Mac		5.000%	12/1/35		100		98F
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$4,174)							4,138
Yankee BondsG	9.8%
Banking and Finance	1.1%
AIFUL CORPORATION		5.000%	8/10/10		190		189B
HSBC Holdings plc		7.500%	7/15/09		120		131
Royal Bank of Scotland Group plc		9.118%	3/31/49		180		209
							529
Banks	0.5%
Banco Santiago SA		4.148%	12/9/09		200		199A,B
The Korea Development Bank		4.750%	7/20/09		70		70
							269

44

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee Bonds—Continued
Energy	1.6%
Pemex Project Funding Master Trust		6.125%	8/15/08	$	540	$	556
Pemex Project Funding Master Trust		7.375%	12/15/14		230		256
							812
Foreign Governments	3.7%
Federative Republic of Brazil		14.500%	10/15/09		130		169
Federative Republic of Brazil		5.250%	4/15/12		39		38A,B
Federative Republic of Brazil		8.875%	4/15/24		30		32
Federative Republic of Brazil		8.875%	4/15/24		20		21
Federative Republic of Brazil		12.250%	3/6/30		50		69
Federative Republic of Brazil		11.000%	8/17/40		175		215
Republic of Bulgaria		8.250%	1/15/15		30		37
Republic of Colombia		11.750%	2/25/20		78		108
Republic of Panama		10.750%	5/15/20		68		95
Republic of Peru		5.000%	3/7/17		41		40H
Republic of Peru		8.750%	11/21/33		50		60
Russian Federation		5.000%	3/31/30		220		253B,H
Russian Federation		5.000%	3/31/30		210		241H
United Mexican States		8.375%	1/14/11		25		29
United Mexican States		8.300%	8/15/31		10		13
United Mexican States		7.500%	4/8/33		420		487
							1,907
Manufacturing (Diversified)	0.9%
Tyco International Group SA		6.375%	10/15/11		180		192
Tyco International Group SA		6.000%	11/15/13		250		264
							456
Telecommunications	1.6%
British Telecommunications plc		8.375%	12/15/10		350		405
Koninklijke (Royal) KPN NV		8.000%	10/1/10		50		57
Telecom Italia Capital		4.000%	11/15/08		40		39
Telecom Italia Capital		4.480%	2/1/11		230		230A
Telefonos de Mexico SA de CV		4.500%	11/19/08		100		99
							830
Utilities	0.4%
United Utilities plc		6.450%	4/1/08		170		176
Total Yankee Bonds (Identified Cost—$4,889)							4,979

45

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
Foreign Government Obligations	0.9%
Fixed Rate Securities	0.9%
Canadian Real Return Bond		4.000%	12/1/31	$	188I	$	244D
Queensland Treasury Corp		6.000%	6/14/11		270J		211D
Total Foreign Government Obligations (Identified Cost—$420)							455
Foreign Corporate Bonds	0.1%
General Motors Corporation		8.375%	7/5/33		50J		47
Total Foreign Corporate Bonds (Identified Cost—$65)
Preferred Stocks	1.4%
Fannie Mae		7.000%			13 shs		726A
Total Preferred Stocks (Identified Cost—$740)
Total Long-Term Securities (Identified Cost—$47,268)							46,922
Short-Term Securities	5.8%
U.S. Government and Agency Obligations	0.3%
Fannie Mae		0.000%	12/5/05	$	147		146K,M
Options PurchasedN	N.M.
Federal Funds Futures Call, November 2005, Strike Price $96.31					3L		0.031
Repurchase Agreements	5.5%
Merrill Lynch Government Securities, Inc. 3.85%, dated 9/30/05, to be repurchased at $2,681 on 10/3/05 (Collateral: $2,735 Fannie Mae discount notes, 4.375%, due 9/7/07, value $2,735)				$	2,680		2,680
Goldman, Sachs & Company 3.8%, dated 9/30/05, to be repurchased at $156 on 10/3/05 (Collateral: $165 Fannie Mae discount notes, 3.25%, due 2/15/09, value $160)					156		156
							2,836
Total Short-Term Securities (Identified Cost—$2,982)							2,982
Total Investments (Identified Cost—$50,250)	97.7%					$	49,904
Other Assets Less Liabilities	2.3%						1,158
Net Assets	100.0%					$	51,062

46

Semi-Annual Report to Shareholders

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedN
Eurodollar Futures	March 2006	18	$	(7	)
Eurodollar Futures	December 2005	9		(9	)
U.S. Treasury Note Futures	September 2005	5		0.100
U.S. Treasury Note Futures	December 2005	53		(62	)
				$(78)
Futures Contracts WrittenN
U.S. Treasury Note Futures	December 2005	22	$	34
Options WrittenN
U.S. Treasury Bond Futures Put, Strike $113.00	November 2005	11	$	1
U.S. Treasury Note Futures Put, Strike $109.00	November 2005	15		(1	)
			$	—

^A Indexed security – The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”) or the one-year Treasury Bill rate. The coupon rate is the rate as of September 30, 2005.

^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 4.6% of net assets.

^C The coupon rates shown on variable rate securities are the rates at September 30, 2005. These rates vary with the weighted average coupon of the underlying loans.

^D Inflation-Protected Security – A security whose principal value is adjusted daily or monthly in accordance with changes to the relevant country’s Consumer Price Index or its equivalent used as an inflation proxy. Interest is calculated on the basis of the current adjusted principal value.

^E Securities 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.

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

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

^H 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.

^I Denominated in canadian dollars.

^J Denominated in euro currency.

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

^L Par represents actual number of contracts.

^M 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.

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

N.M.—Not meaningful.

47

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Core Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	121.9%
Corporate Bonds and Notes	19.2%
Aerospace/Defense	0.2%
Lockheed Martin Corporation		7.650%	5/1/16	$	135	$	163	A
Northrop Grumman Corporation		4.079%	11/16/06		2,600		2,586
Raytheon Company		6.000%	12/15/10		32		33
Raytheon Company		5.500%	11/15/12		65		67
Raytheon Company		5.375%	4/1/13		705		720
Systems 2001 Asset Trust		6.664%	9/15/13		2,808		3,010	B
United Technologies Corporation		5.400%	5/1/35		1,460		1,459	A
							8,038
Automotive	0.5%
Ford Motor Company		7.450%	7/16/31		15,410		12,020	A
General Motors Corporation		8.375%	7/15/33		11,020		8,596	A
							20,616
Banking and Finance	3.1%
Boeing Capital Corporation		7.375%	9/27/10		3,240		3,615
Ford Motor Credit Company		6.625%	6/16/08		8,900		8,699	A
Ford Motor Credit Company		7.375%	10/28/09		49,035		47,365
Ford Motor Credit Company		7.875%	6/15/10		7,450		7,250	A
Ford Motor Credit Company		7.375%	2/1/11		6,435		6,155
Ford Motor Credit Company		7.250%	10/25/11		360		342	A
General Motors Acceptance Corporation		6.125%	2/1/07		5,210		5,179	A
General Motors Acceptance Corporation		6.150%	4/5/07		4,150		4,118
General Motors Acceptance Corporation		6.125%	8/28/07		8,620		8,486	A
General Motors Acceptance Corporation		5.625%	5/15/09		9,550		8,755
General Motors Acceptance Corporation		7.750%	1/19/10		5,355		5,191	A
General Motors Acceptance Corporation		7.250%	3/2/11		820		763
General Motors Acceptance Corporation		0.000%	6/15/15		13,910		6,093	C
HSBC Finance Corporation		7.875%	3/1/07		2,800		2,923
HSBC Finance Corporation		8.000%	7/15/10		690		779
HSBC Finance Corporation		7.000%	5/15/12		700		775
HSBC Finance Corporation		6.375%	11/27/12		440		473	A
SB Treasury Company LLC		9.400%	12/29/49		2,930		3,233	B
SLM Corporation		4.300%	4/1/09		7,620		7,505	D
							127,699
Banks	0.2%
Bank of America Corporation		7.400%	1/15/11		2,000		2,234
Bank One Corporation		7.875%	8/1/10		4,500		5,083

48

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Banks—Continued
Bank One Corporation		5.900%	11/15/11	$	2,000	$	2,096
Firstar Bank NA		7.125%	12/1/09		450		492
							9,905
Cable	0.9%
Comcast Cable Communications, Inc.		6.375%	1/30/06		17,490		17,604
Comcast Corporation		6.500%	1/15/15		1,800		1,944
Comcast Corporation		7.050%	3/15/33		3,130		3,484	A
Comcast MO of Delaware Inc.		9.000%	9/1/08		2,200		2,441
Cox Communications, Inc.		7.875%	8/15/09		9,640		10,576
							36,049
Computer Services and Systems	0.2%
Electronic Data Systems Corporation		7.125%	10/15/09		7,685		8,231	A
Diversified Financial Services	1.2%
Marsh & McLennan Companies, Inc.		5.150%	9/15/10		38,220		37,972
U.S. Bancorp		3.125%	3/15/08		10,300		9,956
Wells Fargo & Company		5.000%	11/15/14		690		692
							48,620
Electric	1.0%
Dominion Resources, Inc.		4.125%	2/15/08		10,850		10,700
Dominion Resources, Inc.		5.125%	12/15/09		50		50
Dominion Resources, Inc.		4.750%	12/15/10		570		564
Dominion Resources, Inc.		5.700%	9/17/12		2,050		2,115	A
FirstEnergy Corp.		5.500%	11/15/06		15,290		15,419
FirstEnergy Corp.		6.450%	11/15/11		340		362
FirstEnergy Corp.		7.375%	11/15/31		10,850		12,726	A
The Cleveland Electric Illuminating Company		5.650%	12/15/13		280		287
The Detroit Edison Company		6.125%	10/1/10		920		972
							43,195
Energy	1.6%
Duke Energy Corporation		6.250%	1/15/12		590		628
Duke Energy Corporation		5.625%	11/30/12		1,330		1,373
Pacific Gas and Electric Company		6.050%	3/1/34		5,500		5,722
Progress Energy, Inc.		7.100%	3/1/11		3,170		3,446
TXU Corp.		6.375%	6/15/06		8,380		8,471
TXU Corp.		4.800%	11/15/09		9,000		8,672
TXU Corp.		6.550%	11/15/34		11,020		10,228	A

49

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
Energy—Continued
TXU Energy Co.		4.920%	1/17/06	$	510	$	510	D
TXU Energy Co.		7.000%	3/15/13		25,800		28,009
							67,059
Environmental Services	0.6%
Waste Management, Inc.		7.125%	10/1/07		10,330		10,770
Waste Management, Inc.		6.875%	5/15/09		2,000		2,128	A
Waste Management, Inc.		6.375%	11/15/12		2,530		2,712
Waste Management, Inc.		7.125%	12/15/17		6,000		6,789
Waste Management, Inc.		7.375%	5/15/29		1,220		1,418
							23,817
Food, Beverage and Tobacco	0.3%
Altria Group, Inc.		7.000%	11/4/13		3,815		4,176
Altria Group, Inc.		7.750%	1/15/27		2,500		2,915
R.J. Reynolds Tobacco Holdings, Inc.		7.875%	5/15/09		3,240		3,402
							10,493
Gas and Pipeline Utilities	0.9%
Dynegy Holdings Inc.		8.750%	2/15/12		11,260		12,217	A
Southern Natural Gas Company		8.000%	3/1/32		7,390		8,160
Tennessee Gas Pipeline Company		8.375%	6/15/32		1,110		1,268
The Williams Companies, Inc.		8.125%	3/15/12		3,730		4,075
The Williams Companies, Inc.		7.500%	1/15/31		5,000		5,313	A
The Williams Companies, Inc.		8.750%	3/15/32		3,240		3,823
							34,856
Health Care	0.3%
Tenet Healthcare Corporation		6.375%	12/1/11		2,500		2,331	A
Tenet Healthcare Corporation		7.375%	2/1/13		9,462		8,965	A
							11,296
Investment Banking/Brokerage	0.9%
J.P. Morgan & Co. Incorporated		8.019%	2/15/12		2,000		2,111	D
J.P. Morgan Chase & Co.		5.750%	1/2/13		3,770		3,921
Lehman Brothers Holdings Inc.		4.294%	4/20/07		5,470		5,477	D
Merrill Lynch & Co., Inc.		3.970%	3/12/07		5,210		5,195	D
Merrill Lynch & Co., Inc.		3.375%	9/14/07		11,120		10,926
Morgan Stanley		5.300%	3/1/13		3,380		3,414
The Goldman Sachs Group, Inc.		4.750%	7/15/13		4,370		4,270
							35,314

50

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Investment Management	0.2%
Dryden Investor Trust		7.157%	7/23/08	$	8,828	$	9,118	B
Media	1.2%
Clear Channel Communications, Inc.		4.625%	1/15/08		1,430		1,416	A
Clear Channel Communications, Inc.		4.250%	5/15/09		2,130		2,054	A
Clear Channel Communications, Inc.		5.500%	9/15/14		2,850		2,747	A
Liberty Media Corporation		5.370%	9/17/06		10,573		10,650D
Liberty Media Corporation		7.875%	7/15/09		9,000		9,471	A
Liberty Media Corporation		3.750%	2/15/30		290		161	E
News America, Inc.		6.200%	12/15/34		605		606
Time Warner Inc.		6.875%	5/1/12		8,270		9,038	A
Time Warner Inc.		6.950%	1/15/28		2,000		2,167
Time Warner Inc.		7.625%	4/15/31		1,350		1,582
Time Warner Inc.		7.700%	5/1/32		8,565		10,140
Viacom Inc.		5.625%	8/15/12		970		986
							51,018
Medical Care Facilities	0.9%
HCA, Inc.		5.750%	3/15/14		40,360		38,470	A
Oil and Gas	1.5%
Amerada Hess Corporation		7.300%	8/15/31		12,535		14,624
Conoco Inc.		6.950%	4/15/29		9,950		12,112
ConocoPhillips		4.750%	10/15/12		1,770		1,777	A
Devon Energy Corporation		7.950%	4/15/32		4,145		5,284
El Paso Corporation		0.000%	2/28/21		330		178	C,E
El Paso Corporation		7.800%	8/1/31		140		140	A
El Paso Natural Gas Company		8.375%	6/15/32		3,610		4,100
Kerr-McGee Corporation		6.875%	9/15/11		17,000		18,173	A
Sonat Inc.		7.625%	7/15/11		5,000		5,075	A
XTO Energy, Inc.		7.500%	4/15/12		1,110		1,250
XTO Energy, Inc.		6.250%	4/15/13		980		1,046
							63,759
Paper and Forest Products	0.1%
International Paper Company		5.500%	1/15/14		2,110		2,101
Weyerhaeuser Company		6.750%	3/15/12		3,445		3,723
							5,824

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
Corporate Bonds and Notes—Continued
Pharmaceuticals	N.M.
Bristol-Myers Squibb Company		5.750%	10/1/11	$	830	$	871
Photo Equipment and Supplies	1.2%
Eastman Kodak Company		3.625%	5/15/08		17,500		16,377	A
Eastman Kodak Company		7.250%	11/15/13		34,680		32,893	A
							49,270
Real Estate	N.M.
Socgen Real Estate Co. LLC		7.640%	12/29/49		260		274	B
Retail	0.1%
Target Corporation		4.000%	6/15/13		4,445		4,203	A
Wal-Mart Stores, Inc.		5.450%	8/1/06		150		151
							4,354
Special Purpose	1.6%
ASIF Global Financing XIX		4.900%	1/17/13		2,010		1,973	B
DaimlerChrysler NA Holding Corporation		4.050%	6/4/08		2,250		2,197	A
DaimlerChrysler NA Holding Corporation		7.200%	9/1/09		1,240		1,323	A
Patrons’ Legacy 2003 IV		5.775%	1/23/17		5,100		5,153	B
Rabobank Capital Funding Trust II		5.260%	12/31/49		470		471	B
Rabobank Capital Funding Trust III		5.254%	12/29/49		3,030		3,019	B
Sprint Capital Corporation		6.000%	1/15/07		31,760		32,289
Sprint Capital Corporation		8.375%	3/15/12		7,935		9,338
Texaco Capital Inc.		5.500%	1/15/09		1,000		1,038
Unilever Capital Corporation		7.125%	11/1/10		1,730		1,914
Verizon Global Funding Corp.		7.250%	12/1/10		2,220		2,453
Verizon Global Funding Corp.		6.875%	6/15/12		1,290		1,423
Verizon Global Funding Corp.		7.375%	9/1/12		1,275		1,447
							64,038
Telecommunications	N.M.
GTE Hawaiian Telephone Company, Inc.		7.375%	9/1/06		700		702
Transportation	0.5%
Continental Airlines, Inc.		6.900%	1/2/18		321		314
Continental Airlines, Inc.		6.545%	2/2/19		2,634		2,582
Delta Air Lines, Inc.		7.111%	9/18/11		500		484	A
Delta Air Lines, Inc.		6.718%	1/2/23		4,237		4,339

52

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Transportation—Continued
Southwest Airlines Co.		5.496%	11/1/06	$	9,000	$	9,097
United Airlines, Inc.		7.783%	1/1/14		2,539		2,420
							19,236
Total Corporate Bonds and Notes (Identified Cost—$791,372)							792,122
Asset-Backed Securities	3.6%
Fixed Rate Securities	0.3%
Advanta Mortgage Loan Trust 1999-3		7.590%	6/25/14		287		292
Conseco Finance Securitizations Corp. 2000-5		7.960%	2/1/32		4,700		3,886
Equity One ABS, Inc. 2003-3		4.995%	12/25/33		8,200		8,191
Green Tree Financial Corporation 1996-5		8.100%	7/15/26		336		151
Green Tree Home Improvement Loan Trust 1997-D		7.450%	9/15/28		922		923
							13,443
Indexed SecuritiesD	3.3%
AAA Trust 2005-2		3.930%	11/26/35		15,853		15,845	B
Aegis Asset Backed Securities Trust 2005-2		4.138%	6/25/35		26,921		26,925
Aesop Funding II LLC 2003-4A		4.230%	8/20/07		13,900		13,922	B
Amortizing Residential Collateral Trust 2002-BC1M		4.318%	1/1/32		415		438
Asset Backed Funding Certificates 2002-SB1		4.468%	12/25/30		2,323		2,331
Bayview Financial Aquisition Trust 2002-CA		4.368%	5/25/32		2,245		2,245	B
CDC Mortgage Capital Trust 2002-HE1		4.348%	1/25/33		1,394		1,396
CIT Group Home Equity Loan Trust 2002-1		4.328%	3/25/33		942		944
Countrywide Asset-Backed Certificates 2003-BC3		4.348%	9/25/33		2,772		2,776
Countrywide Asset-Backed Certificates 2005-AB1		4.138%	8/25/35		20,607		20,612
Fleet Home Equity Loan Trust 2003-1		4.250%	1/20/33		6,182		6,188
Household Home Equity Loan Trust 2002-4A		4.550%	10/20/32		1,322		1,323
Long Beach Mortgage Loan Trust 2000-1		4.263%	1/21/31		472		472
New Century Home Equity Loan Trust 2001-NC1		4.290%	6/20/31		137		137
Provident Bank Home Equity Loan Trust 1999-3		4.428%	1/25/31		1,494		1,495
Providian Gateway Master Trust 2002-B		4.670%	6/15/09		8,800		8,813	B

53

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
Indexed Securities—Continued
Residential Asset Mortgage Products, Inc. 2000-RS3		4.328%	9/25/30	$	52	$	52
Residential Asset Mortgage Products, Inc. 2003-RS2		4.378%	3/25/33		650		652
Residential Asset Securities Corporation 2001-KS2		4.268%	6/25/31		949		950
Residential Asset Securities Corporation 2001-KS3		4.268%	9/25/31		383		383
Structured Asset Investment Loan Trust 2005-3		4.168%	4/25/35		27,272		27,271
							135,170
Stripped Securities	N.M.
Diversified REIT Trust 1999-1A		0.532%	3/18/11		121,096		1,816	F1
Total Asset-Backed Securities (Identified Cost—$151,478)							150,429
Mortgage-Backed Securities	19.6%
Fixed Rate Securities	5.1%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		4,719		4,750
Banc of America Commercial Mortgage Inc. 2005-5		5.115%	9/10/15		9,200		9,247
Bear Stearns Commercial Mortgage Securities Trust 2005-PWR9		4.871%	9/11/42		6,570		6,524
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		7,838		8,112	B
Deutsche Mortgage and Asset Receiving Corporation 1998-C1		6.538%	6/15/31		10,471		10,816
GS Mortgage Securities Corporation II 2005-GG4		4.680%	7/10/39		12,900		12,715
J.P. Morgan Chase Commercial Mortgage Pass-Through Certificates, Series 2005-CIBC12		4.895%	9/12/37		1,610		1,593
LB-UBS Commercial Mortgage Trust 2005-C3A5		4.739%	7/15/30		8,590		8,423
LB-UBS Commercial Mortgage Trust 2005-C3AAB		4.664%	7/15/30		15,000		14,721
LB-UBS Commercial Mortgage Trust 2005-C5		4.954%	9/15/40		10,800		10,763
MASTR Reperforming Loan Trust 2005-1		7.000%	8/25/34		15,140		15,801	B
MASTR Specialized Loan Trust 2005-1		6.500%	8/25/34		1,847		1,860	B

54

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Fixed Rate Securities—Continued
Merrill Lynch Mortgage Investors, Inc. 1996-C2		6.960%	11/21/28	$	412	$	418
Morgan Stanley Capital I 2005-HQ6		4.989%	8/13/42		25,900		25,853
Nomura Asset Securities Corporation 1996-MD5		7.120%	4/13/39		5,500		5,566
Nomura Asset Securities Corporation 1996-MD5A		7.070%	4/13/39		375		378
Residential Asset Mortgage Products, Inc. 2005-SL2		7.500%	3/25/32		7,277		7,474
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		66,479		65,191
							210,205
Indexed SecuritiesD	14.5%
Banc of America Funding Corporation 2005-E		4.300%	6/20/35		36,209		36,013
Chevy Chase Mortgage Funding Corporation 2003-2A		4.418%	5/25/34		6,802		6,824	B
Countrywide Alternative Loan Trust 2005-14		4.248%	5/25/35		22,931		22,850
Countrywide Alternative Loan Trust 2005-17 1A1		4.298%	7/25/35		28,104		28,059
Countrywide Alternative Loan Trust 2005-17 2A1		4.278%	7/25/35		34,141		34,071
Countrywide Alternative Loan Trust 2005-38		4.388%	9/25/35		878		878
Countrywide Asset-Backed Certificates 2005-3		4.328%	4/25/35		30,032		30,003
Countrywide Home Loans 2005-9 1A1		4.338%	5/25/35		31,366		31,326
Countrywide Home Loans 2005-9 2A1		4.258%	5/25/35		27,589		27,566
Credit-Based Asset Servicing and Securitization 2001-CB2		4.328%	8/25/33		1,439		1,440
Granite Mortgages PLC 2003-1		4.364%	1/20/20		5,073		5,074	G
Greenpoint Mortgage Funding Trust 2005-AR1		4.258%	6/25/45		27,398		27,332
Greenpoint Mortgage Funding Trust 2005-AR4		4.298%	10/25/45		10,680		10,678
GSMPS Mortgage Loan Trust 2005-RP2		4.388%	3/25/35		28,205		28,175
Harborview Mortgage Loan Trust 2005-7		4.607%	6/19/45		37,660		38,037
Impac CMB Trust 2003-7		4.358%	8/25/33		2,843		2,845
Medallion Trust 2000-1G		4.345%	7/12/31		214		214	G
Medallion Trust 2000-2G		4.086%	12/18/31		1,537		1,537	G
Medallion Trust 2003-1G		4.110%	12/21/33		3,714		3,722	G
MLCC Mortgage Investors, Inc. 2003-B		4.378%	4/25/28		8,129		8,175

55

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Indexed Securities—Continued
MSDWCC Heloc Trust 2005-1		4.228%	7/25/17	$	4,251	$	4,251
People’s Choice Home Loan Securities Trust 2005-2		4.148%	5/25/35		23,508		23,512
Thornburg Mortgage Securities Trust 2005-2A1		4.258%	7/25/45		18,251		18,148
Thornburg Mortgage Securities Trust 2005-2A2		4.268%	7/25/45		19,151		19,043
WaMu Mortgage Pass-Through Certificates, Series 2005-AR6		4.268%	4/25/45		30,395		30,290
WaMu Mortgage Pass-Through Certificates, Series 2005-AR8		4.308%	7/25/45		40,128		40,127
WaMu Mortgage Pass-Through Certificates, Series 2005-AR11		4.358%	8/25/45		79,764		79,754
WaMu Mortgage Pass-Through Certificates, Series 2005-AR13		4.328%	10/25/45		34,010		34,003
							593,947
Stripped Securities	N.M.
FFCA Secured Lending Corporation 1999-1A		1.558%	9/18/25		9,386		383	F1
LB-UBS Commercial Mortgage Trust 2001-C3		0.978%	6/15/36		19,097		821	F1
Structured Mortgage Asset Residential Trust 1991-8		0.013%	1/25/23		636		0.079	F1
							1,204
Total Mortgage-Backed Securities (Identified Cost—$809,720)							805,356
Municipal Bonds	1.1%
Brazos Higher Education Authority, Inc. 2005-1		3.991%	9/26/16		18,300		18,300	D
Liberty New York Development Corporation Revenue Bonds		5.250%	10/1/35		24,060		26,844
Total Municipal Bonds (Identified Cost—$45,225)							45,144
U.S. Government and Agency Obligations	25.4%
Fixed Rate Securities	17.7%
Federal Home Loan Bank		7.250%	2/15/07		100		104
Tennessee Valley Authority		6.750%	11/1/25		2,560		3,161
Tennessee Valley Authority		7.125%	5/1/30		2,450		3,211
United States Treasury Bonds		7.500%	11/15/16		1,490		1,886	A

56

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 Bonds		7.250%	8/15/22	$	13,010	$	16,998	A
United States Treasury Bonds		6.250%	8/15/23		1,980		2,368	A
United States Treasury Bonds		5.250%	11/15/28		5,630		6,133	A
United States Treasury Bonds		5.250%	2/15/29		12,700		13,845	A
United States Treasury Bonds		6.250%	5/15/30		85,755		106,480	A
United States Treasury Bonds		5.375%	2/15/31		11,930		13,365	A
United States Treasury Notes		1.875%	12/31/05		3,340		3,326	A
United States Treasury Notes		1.500%	3/31/06		3,940		3,894	A
United States Treasury Notes		2.750%	6/30/06		10,360		10,262	A
United States Treasury Notes		2.500%	9/30/06		44,470		43,775	A
United States Treasury Notes		3.125%	1/31/07		370		365	A
United States Treasury Notes		3.125%	5/15/07		480		472	A
United States Treasury Notes		3.000%	2/15/08		12,760		12,422	A
United States Treasury Notes		3.375%	2/15/08		31,310		30,745	A
United States Treasury Notes		3.750%	5/15/08		3,770		3,730	A
United States Treasury Notes		3.125%	10/15/08		12,680		12,296	A
United States Treasury Notes		2.625%	3/15/09		10,510		9,981	A
United States Treasury Notes		4.000%	6/15/09		72,160		71,664	A
United States Treasury Notes		3.500%	8/15/09		104,700		102,054	A
United States Treasury Notes		3.375%	10/15/09		750		727	A
United States Treasury Notes		3.500%	12/15/09		18,492		17,988	A
United States Treasury Notes		3.625%	1/15/10		2,900		2,833	A
United States Treasury Notes		3.500%	2/15/10		114,720		111,435	A
United States Treasury Notes		4.000%	4/15/10		45,360		44,947	A
United States Treasury Notes		3.875%	5/15/10		25,190		24,825	A
United States Treasury Notes		3.875%	7/15/10		25,000		24,620	A
United States Treasury Notes		4.125%	8/15/10		28,390		28,262	A
United States Treasury Notes		5.000%	2/15/11		2,100		2,177	A
United States Treasury Notes		4.250%	8/15/15		40		40	A
							730,391
Indexed SecuritiesH	7.6%
United States Treasury Inflation-Protected Security		3.375%	1/15/07		95,949		99,229
United States Treasury Inflation-Protected Security		3.625%	1/15/08		3,725		3,943
United States Treasury Inflation-Protected Security		3.875%	1/15/09		23,468		25,459

57

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	% 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		4.250%	1/15/10	$	75,549	$	84,506
United States Treasury Inflation-Protected Security		0.875%	4/15/10		39,632		38,619
United States Treasury Inflation-Protected Security		3.375%	1/15/12		7,702		8,529
United States Treasury Inflation-Protected Security		1.875%	7/15/13		14,711		14,909
United States Treasury Inflation-Protected Security		2.000%	1/15/14		624		637
United States Treasury Inflation-Protected Security		1.875%	7/15/15		3,988		4,023
United States Treasury Inflation-Protected Security		2.375%	1/15/25		11,919		12,752
United States Treasury Inflation-Protected Security		3.625%	4/15/28		12,152		15,899
United States Treasury Inflation-Protected Security		3.875%	4/15/29		3,803		5,206
United States Treasury Inflation-Protected Security		2.000%	7/15/14		31		32
							313,743
Stripped Securities	0.1%
United States Treasury Bonds		0.000%	8/15/27		1,630		592	A,F2
United States Treasury Notes		0.000%	5/15/30		10,800		3,517	A,F2
							4,109
Total U.S. Government and Agency Obligations (Identified Cost—$1,054,215)							1,048,243
U.S. Government Agency Mortgage- Backed Securities	46.7%
Fixed Rate Securities	46.2%
Fannie Mae		7.000%	9/1/07 to 2/1/33		13,768		14,410
Fannie Mae		4.610%	10/10/13		30,420		29,799
Fannie Mae		8.000%	5/1/15		49		52
Fannie Mae		6.000%	11/1/16 to 10/1/35		28,588		29,096
Fannie Mae		5.500%	4/1/18 to 10/1/35		70,118		70,165
Fannie Mae		4.500%	7/1/18 to 9/1/35		14,463		13,929

58

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
Fannie Mae		4.000%	8/1/20 to 9/1/20	$	6,499	$	6,256
Fannie Mae		5.000%	8/1/20 to 9/1/20		20,700		20,653
Fannie Mae		7.500%	6/1/25 to 7/1/29		1,035		1,095
Fannie Mae		6.500%	7/1/28 to 7/1/35		40,119		41,333
Fannie Mae		5.500%	12/1/35		405,300		405,046	I
Fannie Mae		6.000%	12/1/35		289,450		294,243	I
Fannie Mae		6.500%	12/1/35		83,550		85,977	I
Freddie Mac		9.750%	7/1/08		30		31
Freddie Mac		6.000%	3/1/09 to 5/1/29		1,944		1,996
Freddie Mac		4.125%	10/18/10		2,490		2,445
Freddie Mac		4.650%	10/10/13		34,390		33,635
Freddie Mac		5.500%	12/1/13 to 8/1/35		42,056		42,095
Freddie Mac		9.300%	4/15/19		205		205
Freddie Mac		5.000%	9/1/20 to 8/1/33		70,132		69,181
Freddie Mac		7.000%	4/1/24 to 5/1/32		4,703		4,915
Freddie Mac		6.500%	6/1/32		92		94
Government National Mortgage Association		10.000%	11/15/09		0.286		0.306
Government National Mortgage Association		8.000%	10/15/16 to 7/15/17		255		273
Government National Mortgage Association		7.500%	10/15/22 to 8/15/32		615		653
Government National Mortgage Association		7.000%	6/15/23 to 5/15/32		582		613
Government National Mortgage Association		6.500%	10/15/23 to 3/15/33		28,579		29,747
Government National Mortgage Association		6.000%	3/15/26 to 8/15/35		50,052		51,278
Government National Mortgage Association		5.500%	1/15/33		276		278
Government National Mortgage Association		5.000%	6/15/35 to 9/15/35		77,865		77,099
Government National Mortgage Association		5.000%	12/1/35		591,450		578,841	I
							1,905,433
Indexed SecuritiesD	0.5%
Fannie Mae		3.035%	10/1/35		20,800		21,366

59

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government Agency Mortgage- Backed Securities—Continued
Stripped Securities	N.M.
Fannie Mae		9.500%	2/1/17	$	20	$	4	F1
Fannie Mae		1009.500%	2/25/20		0.001		0.238	F1
Fannie Mae		1009.250%	8/25/21		1		16	F1
Fannie Mae		0.000%	5/25/22		177		152	F2
Financing Corporation		0.000%	4/5/19		1,150		598	F2
Freddie Mac		10.000%	3/1/21		141		32	F1
Freddie Mac		0.000%	7/15/22		23		20	F2
							822
Total U.S. Government Agency Mortgage- Backed Securities (Identified Cost—$1,940,174)							1,927,621
Yankee BondsG	5.7%
Banking and Finance	0.1%
AIFUL CORPORATION		4.450%	2/16/10		800		779	B
AIFUL CORPORATION		5.000%	8/10/10		3,230		3,209
							3,988
Banks	0.1%
The Korea Development Bank		4.250%	11/13/07		6,045		5,985
Cable	0.1%
Rogers Cable Inc.		5.500%	3/15/14		4,340		4,004
Electric	N.M.
Hydro-Quebec		6.300%	5/11/11		570		616
Foreign Governments	2.7%
Quebec Province		5.500%	4/11/06		200		201
Russian Federation		5.000%	3/31/30		51,110		58,725	J
United Mexican States		8.375%	1/14/11		8,970		10,316
United Mexican States		8.300%	8/15/31		6,100		7,625
United Mexican States		7.500%	4/8/33		29,407		34,112
							110,979
Insurance	0.1%
Korea Deposit Insurance Corp.		2.500%	12/11/05		2,400		2,654	E

60

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee Bonds—Continued
Manufacturing (Diversified)	1.6%
Tyco International Group SA		6.375%	2/15/06	$	16,600	$	16,711
Tyco International Group SA		5.800%	8/1/06		10,250		10,346
Tyco International Group SA		6.750%	2/15/11		430		464
Tyco International Group SA		6.375%	10/15/11		1,230		1,311
Tyco International Group SA		6.000%	11/15/13		2,300		2,430	A
Tyco International Group SA		7.000%	6/15/28		3,070		3,548
Tyco International Group SA		6.875%	1/15/29		27,780		31,877
							66,687
Mining	N.M.
Corporacion Nacional del Cobre—Codelco		4.750%	10/15/14		1,750		1,698	B
Oil And Gas	0.1%
YPF Sociedad Anonima		7.750%	8/27/07		3,250		3,426
Special Purpose	0.7%
Anadarko Finance Company		6.750%	5/1/11		1,590		1,728
Conoco Funding Company		6.350%	10/15/11		400		434	A
Conoco Funding Company		7.250%	10/15/31		350		442
CVRD Finance Ltd.		4.800%	10/15/07		3,376		3,376	B,D
HSBC Capital Funding LP		4.610%	12/29/49		1,630		1,559	A,B,K
Petronas Capital Ltd.		7.875%	5/22/22		1,340		1,659
Petrozuata Finance, Inc.		8.220%	4/1/17		3,950		3,772
Resona Preferred Global Securities (Cayman) Ltd.		7.191%	12/29/49		13,670		14,152	B,K
							27,122
Telecommunications	0.2%
British Telecommunications plc		8.375%	12/15/10		1,755		2,032
Telecom Italia Capital S.p.A.		5.250%	11/15/13		965		958
Telecom Italia Capital S.p.A.		4.950%	9/30/14		2,570		2,487
Telecom Italia Capital S.p.A.		5.250%	10/1/15		2,060		2,024	A,B
							7,501
Total Yankee Bonds (Identified Cost—$215,977)							234,660

61

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	0.6%
Fannie Mae		7.000%			141	shs	$	7,715	D
Fannie Mae		5.375%			0.111			7,420	E
General Motors Corporation		5.250%			368			6,363	E
Home Ownership Funding Corporation		13.331%			6			1,675	B,J
Home Ownership Funding Corporation II		13.338%			5			1,503	B,J
Total Preferred Stocks (Identified Cost—$30,779)								24,676
Total Long-Term Securities (Identified Cost—$5,038,940)								5,028,251
Investment of Collateral From Securities Lending	24.2%
State Street Navigator Securities Lending Prime Portfolio					998,356			998,356
Total Investments of Collateral From Securities Lending (Identified Cost—$998,356)								998,356
Short-Term Securities	13.8%
U.S. Government and Agency Obligations	10.4%
Fannie Mae		0.000%	12/5/05	$	19,396			19,277	C,L
Fannie Mae		0.000%	10/3/05		80,000			79,986	C
Freddie Mac		0.000%	12/12/05		10,000			9,926	A,C,L
Freddie Mac		0.000%	10/3/05		180,000			179,969	C
Freddie Mac		0.000%	10/3/05		140,000			139,975	C
								429,133
Options PurchasedM	0.3%
Deutsche Bank Swaption Call, July 2006, Strike Price $4.61					76,000,000N			1,043
Deutsche Bank Swaption Put, July 2006, Strike Price $4.61					76,000,000N			1,206
Eurodollar Futures Call, April 2006, Strike Price $95.00					5,755N			7,266
Eurodollar Futures Call, January 2006, Strike Price $95.00					291N			447
Eurodollar Futures Call, July 2006, Strike Price $95.00					485N			555

62

Semi-Annual Report to Shareholders

	% OF NET ASSETS	PAR/ SHARES		VALUE
Short-Term Securities—Continued
Options Purchased—Continued
Eurodollar Futures Call, November 2005, Strike Price $96.00			720N	$	5
Eurodollar Futures Put, July 2005, Strike Price $94.00			215N		1
Goldman Sachs Swaption Call, March 2006, Strike Price $4.43			33,300,000N		243
Goldman Sachs Swaption Put, March 2006, Strike Price $4.43			33,300,000N		501
Goldman Sachs Swaption Put, November 2005, Strike Price $4.12			61,184,000N		468
U.S. Treasury Bond Futures Call, December 2005, Strike Price $115.00			429N		442
U.S. Treasury Bond Futures Call, December 2005, Strike Price $119.00			651N		92
U.S. Treasury Note Futures Call, December 2005, Strike Price $104.50			177N		420
U.S. Treasury Note Futures Call, December 2005, Strike Price $106.50			394N		283
U.S. Treasury Note Futures Call, December 2005, Strike Price $108.50			498N		39
					13,011
Repurchase Agreements	3.1%
Goldman, Sachs & Company 3.8%, dated 9/30/05, to be repurchased at $128,331 on 10/3/05 (Collateral: $98,115 Tennessee Valley Authority bonds, 7.125%, due 5/1/30, value $133,754)		$	128,290		128,290
Total Short-Term Securities (Identified Cost—$573,557)					570,434
Total Investments (Identified Cost—$6,610,853)	159.9%			$	6,597,041
Other Assets Less Liabilities	(35.7)%				(1,472,219	)
Obligations to Return Collateral for Securities Loaned	(24.2)%				(998,356	)
Net Assets	100.0%			$	4,126,466

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedL
Eurodollar Futures	June 2006	3,048	$	(2,146	)
Eurodollar Futures	March 2006	49		(14	)
Eurodollar Futures	September 2006	220		(133	)
U.S. Treasury Bond Futures	December 2005	520		(166	)
			$	(2,459	)
Futures Contracts WrittenK
U.S. Treasury Bond Futures	December 2005	5	$	1,130
U.S. Treasury Note Futures	December 2005	1,022		5
			$	1,135

63

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Bond Portfolio—Continued

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options WrittenL
Deutsche Bank Swaption Call, Strike Price $4.745	July 2006	45,600,000	$	229
Deutsche Bank Swaption Put, Strike Price $4.745	July 2006	45,600,000		8
Eurodollar Futures Put, Strike Price $95.625	October 2005	720		(332	)
Eurodollar Futures Put, Strike Price $95.75	March 2006	482		(266	)
Eurodollar Futures Put, Strike Price $95.75	June 2006	643		(407	)
Goldman Sachs Swaption Call, Strike Price $4.36	March 2006	54,100,000		(143	)
Goldman Sachs Swaption Put, Strike Price $4.48	November 2005	15,675,000		(158	)
Goldman Sachs Swaption Put, Strike Price $4.36	March 2006	54,100,000		167
U.S. Treasury Bond Futures Call, Strike Price $117.00	November 2005	903		555
U.S. Treasury Bond Futures Call, Strike Price $118.00	November 2005	432		331
U.S. Treasury Bond Futures Call, Strike Price $120.00	November 2005	160		130
U.S. Treasury Bond Futures Call, Strike Price $122.00	November 2005	122		77
U.S. Treasury Bond Futures Put, Strike Price $113.00	November 2005	2,170		16
U.S. Treasury Bond Futures Put, Strike Price $115.00	November 2005	231		(217	)
U.S. Treasury Note Futures Call, Strike Price $108.00	November 2005	307		63
U.S. Treasury Note Futures Call, Strike Price $111.00	November 2005	1,027		234
U.S. Treasury Note Futures Call, Strike Price $112.00	November 2005	1,232		426
U.S. Treasury Note Futures Call, Strike Price $113.00	November 2005	1,946		924
U.S. Treasury Note Futures Call, Strike Price $113.00	October 2005	161		70
U.S. Treasury Note Futures Call, Strike Price $113.00	February 2006	299		30
U.S. Treasury Note Futures Call, Strike Price $114.00	November 2005	658		387
U.S. Treasury Note Futures Put, Strike Price $106.50	November 2005	80		(4	)
U.S. Treasury Note Futures Put, Strike Price $107.00	February 2006	216		(5	)
U.S. Treasury Note Futures Put, Strike Price $107.00	November 2005	182		(3	)
U.S. Treasury Note Futures Put, Strike Price $107.50	November 2005	1,198		(372	)
U.S. Treasury Note Futures Put, Strike Price $109.00	November 2005	2,667		408
U.S. Treasury Note Futures Put, Strike Price $110.00	November 2005	327		(141	)
U.S. Treasury Note Futures Put, Strike Price $111.00	November 2005	503		(233	)
			$	1,774

^A All or a portion of these securities 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 3.1% 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 rate of interest earned on this security is tied to the London Interbank Offered Rate ("LIBOR"), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rate is the rate as of September 30, 2005.

^E Convertible Security – Security may be converted into issuer's common stock.

^F Securities 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.

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

^H Inflation-Protected Security – A 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 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.

^K The coupon rates shown on variable rate securities are the rates at September 30, 2005. These rates vary with the weighted average coupon of the underlying loans.

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

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

^N Par represents actual number of contracts.

N.M.—Not meaningful.

See notes to financial statements.

64

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Core Plus Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	113.6%
Corporate Bonds and Notes	18.3%
Aerospace/Defense	0.2%
L-3 Communications Corp.		7.625%	6/15/12	$	852	$	895
Lockheed Martin Corporation		7.650%	5/1/16		945		1,144
Lockheed Martin Corporation		8.500%	12/1/29		20		28
Northrop Grumman Corporation		4.079%	11/16/06		3,580		3,561
Raytheon Company		6.750%	8/15/07		15		16A
Raytheon Company		6.000%	12/15/10		41		43
Raytheon Company		5.500%	11/15/12		75		77
Raytheon Company		5.375%	4/1/13		875		894A
Systems 2001 Asset Trust		6.664%	9/15/13		2,709		2,903
							9,561
Apparel	N.M.
Oxford Industries, Inc.		8.875%	6/1/11		800		832
Russell Corporation		9.250%	5/1/10		130		131
							963
Auto Trucks and Parts	N.M.
Visteon Corporation		8.250%	8/1/10		2,050		1,948A
Automotive	1.5%
Ford Motor Company		7.450%	7/16/31		42,400		33,072A
General Motors Corporation		8.250%	7/15/23		8,000		6,220A
General Motors Corporation		8.375%	7/15/33		64,530		50,333A
							89,625
Banking and Finance	1.7%
Boeing Capital Corporation		5.800%	1/15/13		2,030		2,145
Ford Motor Credit Company		6.625%	6/16/08		7,040		6,881
Ford Motor Credit Company		7.375%	10/28/09		45,280		43,738
Ford Motor Credit Company		7.875%	6/15/10		4,200		4,087
Ford Motor Credit Company		7.375%	2/1/11		14,135		13,520
Ford Motor Credit Company		7.250%	10/25/11		5,760		5,467A
General Motors Acceptance Corporation		6.311%	11/30/07		4,570		4,417
General Motors Acceptance Corporation		8.000%	11/1/31		3,800		3,318
HSBC Finance Corporation		7.200%	7/15/06		3,750		3,826
HSBC Finance Corporation		6.400%	6/17/08		20		21
HSBC Finance Corporation		6.500%	11/15/08		40		42
HSBC Finance Corporation		8.000%	7/15/10		70		79
HSBC Finance Corporation		6.375%	8/1/10		1,000		1,062

65

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
Corporate Bonds and Notes—Continued
Banking and Finance—Continued
HSBC Finance Corporation		7.000%	5/15/12	$	160	$	177A
HSBC Finance Corporation		6.375%	11/27/12		520		559
SB Treasury Company LLC		9.400%	12/29/49		360		397B
SLM Corporation		4.300%	4/1/09		10,680		10,518C
							100,254
Banks	0.9%
Bank of America Corporation		3.805%	12/9/05		23,100		23,102C
Bank of America Corporation		7.400%	1/15/11		3,090		3,451
Bank One Corporation		4.125%	9/1/07		2,780		2,763
Bank One Corporation		6.000%	8/1/08		150		155
Bank One Corporation		5.900%	11/15/11		2,000		2,096
Firstar Bank NA		7.125%	12/1/09		350		383
Royal Bank of Scotland/ New York		3.800%	7/5/06		21,900		21,891C
							53,841
Cable	0.7%
Comcast Cable Communications, Inc.		6.375%	1/30/06		12,650		12,733
Comcast Cable Communications, Inc.		6.750%	1/30/11		680		731A
Comcast Corporation		6.500%	1/15/15		1,690		1,826A
Comcast Corporation		7.050%	3/15/33		6,530		7,267A
Comcast MO of Delaware Inc.		9.000%	9/1/08		1,060		1,176
Cox Communications, Inc.		7.875%	8/15/09		7,680		8,425
CSC Holdings Inc.		7.625%	4/1/11		1,620		1,592
CSC Holdings Inc.		7.000%	4/15/12		500		472B
CSC Holdings Inc.		7.875%	2/15/18		260		248
CSC Holdings Inc.		7.625%	7/15/18		650		608
DirectTV Holdings		6.375%	6/15/15		2,450		2,432B
EchoStar DBS Corporation		6.754%	10/1/08		833		848C
EchoStar DBS Corporation		6.625%	10/1/14		805		797
							39,155
Casino Resorts	0.2%
Caesars Entertainment Inc.		8.125%	5/15/11		733		816
Inn of The Mountain Gods Resort and Casino		12.000%	11/15/10		1,070		1,209A
Mandalay Resort Group		9.500%	8/1/08		80		87A
MGM MIRAGE		9.750%	6/1/07		795		847
MGM MIRAGE		8.500%	9/15/10		2,079		2,261
MGM MIRAGE		6.750%	9/1/12		815		828
MGM MIRAGE		6.625%	7/15/15		2,240		2,215B

66

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Casino Resorts—Continued
Premier Entertainment Biloxi LLC		10.750%	2/1/12	$	810	$	730
Station Casinos, Inc.		6.000%	4/1/12		1,390		1,388A
Station Casinos, Inc.		6.875%	3/1/16		1,050		1,065B
							11,446
Chemicals	0.1%
IMC Global Inc.		10.875%	6/1/08		685		774A
IMC Global Inc.		11.250%	6/1/11		132		145
IMC Global Inc.		10.875%	8/1/13		460		543
Lyondell Chemical Company		9.625%	5/1/07		836		878
MacDermid, Incorporated		9.125%	7/15/11		1,067		1,142
Westlake Chemical Corporation		8.750%	7/15/11		702		756
							4,238
Computer Services and Systems	0.4%
Electronic Data Systems Corporation		7.125%	10/15/09		19,905		21,318A
International Business Machines Corporation		4.750%	11/29/12		40		40
Sungard Data Systems Incorporated		9.125%	8/15/13		1,640		1,700B
							23,058
Containers and Packaging	N.M.
Horizon Lines, LLC		9.000%	11/1/12		1,085		1,162
Solo Cup Company		8.500%	2/15/14		880		779A
							1,941
Diversified Financial Services	0.9%
American General Finance Corporation (AGFC)		4.100%	6/27/08		18,300		18,317C
CIT Group Inc.		6.500%	2/7/06		40		40
CIT Group Inc.		5.750%	9/25/07		80		82
Citigroup Global Markets Holdings Inc.		3.884%	12/12/05		12,600		12,598C
Citigroup Inc.		5.000%	3/6/07		500		504
Citigroup Inc.		4.125%	2/22/10		2,790		2,724
Citigroup Inc.		5.000%	9/15/14		150		149
General Electric Capital Corporation		5.450%	1/15/13		2,555		2,645
Mizuho Preferred Capital Corp. LLC		8.790%	12/29/49		3,380		3,679B
U.S. Bancorp		3.125%	3/15/08		8,290		8,013
Wells Fargo & Company		3.924%	6/12/06		50		50C
Wells Fargo & Company		5.000%	11/15/14		2,750		2,756A
							51,557

67

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
Corporate Bonds and Notes—Continued
Electric	2.5%
Dominion Resources, Inc.		4.125%	2/15/08	$	2,000	$	1,972
Dominion Resources, Inc.		5.125%	12/15/09		1,260		1,271
Dominion Resources, Inc.		4.750%	12/15/10		1,010		999A
Dominion Resources, Inc.		5.700%	9/17/12		3,335		3,441
FirstEnergy Corp.		5.500%	11/15/06		15,580		15,712
FirstEnergy Corp.		6.450%	11/15/11		1,640		1,746A
FirstEnergy Corp.		7.375%	11/15/31		15,140		17,757A
General Electric Company		5.000%	2/1/13		8,980		9,055
Niagara Mohawk Power Corporation		7.750%	10/1/08		500		541A
The AES Corporation		9.500%	6/1/09		736		802A
The AES Corporation		9.375%	9/15/10		1,494		1,647A
The AES Corporation		8.750%	5/15/13		18,838		20,628B
The AES Corporation		7.750%	3/1/14		60,985		64,644A
The AES Corporation		9.000%	5/15/15		7,700		8,451B
The Cleveland Electric Illuminating Company		5.650%	12/15/13		1,495		1,531
The Detroit Edison Company		5.200%	10/15/12		10		10
							150,207
Energy	0.8%
Duke Energy Corporation		6.250%	1/15/12		620		660
Duke Energy Corporation		5.625%	11/30/12		1,420		1,466A
MidAmerican Energy Holdings Company		5.875%	10/1/12		30		31
Pacific Gas and Electric Company		6.050%	3/1/34		7,730		8,042
Peabody Energy Corporation		6.875%	3/15/13		860		899
Peabody Energy Corporation		5.875%	4/15/16		880		875A
Progress Energy, Inc.		7.100%	3/1/11		110		120
Reliant Energy Inc.		6.750%	12/15/14		1,475		1,449A
TXU Corp.		6.375%	6/15/06		9,795		9,901
TXU Corp.		4.800%	11/15/09		7,760		7,477
TXU Corp.		6.550%	11/15/34		13,325		12,367A
TXU Electric Delivery Company		6.375%	1/15/15		685		740
TXU Energy Co.		4.920%	1/17/06		875		875C
TXU Energy Co.		7.000%	3/15/13		10		11
							44,913
Environmental Services	0.5%
Waste Management, Inc.		7.000%	10/15/06		5,565		5,686
Waste Management, Inc.		7.125%	10/1/07		1,060		1,105
Waste Management, Inc.		6.500%	11/15/08		4,340		4,538A

68

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.		6.875%	5/15/09	$	8,000	$	8,512A
Waste Management, Inc.		7.375%	8/1/10		6,055		6,658A
Waste Management, Inc.		7.125%	12/15/17		500		566
Waste Management, Inc.		7.000%	7/15/28		3,010		3,389
Waste Management, Inc.		7.375%	5/15/29		80		93
Waste Management, Inc.		7.750%	5/15/32		750		922A
							31,469
Food, Beverage and Tobacco	0.2%
Altria Group, Inc.		7.000%	11/4/13		4,905		5,369
Altria Group, Inc.		7.750%	1/15/27		5,000		5,830A
R.J. Reynolds Tobacco Holdings, Inc.		7.750%	5/15/06		1,080		1,099
R.J. Reynolds Tobacco Holdings, Inc.		6.500%	6/1/07		590		599
R.J. Reynolds Tobacco Holdings, Inc.		7.875%	5/15/09		730		767
Sara Lee Corporation		6.250%	9/15/11		30		31
Sara Lee Corporation		3.875%	6/15/13		20		18A
							13,713
Funeral Parlors and Cemeteries	N.M.
Service Corporation International		7.000%	6/15/17		1,510		1,525B
Gaming	N.M.
Mohegan Tribal Gaming Authority		8.000%	4/1/12		245		259
River Rock Entertainment Authority		9.750%	11/1/11		220		244
							503
Gas and Pipeline Utilities	0.7%
Dynegy Holdings Inc.		8.750%	2/15/12		5,890		6,391A
Southern Natural Gas Company		8.875%	3/15/10		1,220		1,319
Southern Natural Gas Company		8.000%	3/1/32		11,940		13,183
The Williams Companies, Inc.		7.500%	1/15/31		4,113		4,370
The Williams Companies, Inc.		7.750%	6/15/31		530		574A
The Williams Companies, Inc.		8.750%	3/15/32		15,130		17,853
							43,690
Health Care	0.8%
Tenet Healthcare Corporation		6.375%	12/1/11		2,500		2,331A
Tenet Healthcare Corporation		7.375%	2/1/13		6,222		5,895A
Tenet Healthcare Corporation		9.875%	7/1/14		27,435		28,670
Tenet Healthcare Corporation		9.250%	2/1/15		12,430		12,554B
							49,450

69

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
Corporate Bonds and Notes—Continued
Homebuilding	N.M.
Beazer Homes USA, Inc.		8.375%	4/15/12	$	210	$	223
Insurance	N.M.
Loews Corporation		8.875%	4/15/11		90		105
Investment Banking/Brokerage	0.5%
E*Trade Financial Corporation		7.375%	9/15/13		590		596B
J.P. Morgan Capital Trust II		7.950%	2/1/27		20		21
J.P. Morgan Chase & Co.		6.000%	2/15/09		10		10
J.P. Morgan Chase & Co.		4.500%	11/15/10		140		138
J.P. Morgan Chase & Co.		5.750%	1/2/13		4,430		4,607
Lehman Brothers Holdings Inc.		4.000%	1/22/08		6,840		6,748A
Lehman Brothers Holdings Inc.		7.000%	2/1/08		160		168
Merrill Lynch & Co., Inc.		3.375%	9/14/07		3,130		3,075
Merrill Lynch & Co., Inc.		3.125%	7/15/08		3,115		2,992A
Merrill Lynch & Co., Inc.		6.375%	10/15/08		2,670		2,801
Morgan Stanley		3.625%	4/1/08		90		88A
Morgan Stanley		5.300%	3/1/13		4,090		4,131
The Goldman Sachs Group, Inc.		6.600%	1/15/12		2,810		3,046
The Goldman Sachs Group, Inc.		4.750%	7/15/13		1,420		1,388
							29,809
Investment Management	N.M.
Dryden Investor Trust		7.157%	7/23/08		1,156		1,194B
Lodging/Hotels	N.M.
Host Marriott Corporation		7.875%	8/1/08		83		84
Starwood Hotels & Resorts Worldwide, Inc.		7.375%	5/1/07		890		918
							1,002
Machinery	N.M.
Case New Holland Incorporated		9.250%	8/1/11		782		827
Terex Corporation		7.375%	1/15/14		114		115
							942
Manufacturing (Diversified)	N.M.
American Achievement Corp.		8.250%	4/1/12		250		253A
Jacuzzi Brands Incorporated		9.625%	7/1/10		200		212A
Procter & Gamble Company		8.500%	8/10/09		90		102
The Gillette Company		2.500%	6/1/08		160		152
							719

70

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Media	1.1%
AMC Entertainment Inc.		8.000%	3/1/14	$	580	$	510A
Clear Channel Communications, Inc.		4.625%	1/15/08		165		163
Clear Channel Communications, Inc.		4.250%	5/15/09		2,760		2,662
Clear Channel Communications, Inc.		5.500%	9/15/14		14,250		13,735A
Lamar Media Corporation		7.250%	1/1/13		1,459		1,525A
Liberty Media Corporation		5.370%	9/17/06		5,387		5,426C
Liberty Media Corporation		7.875%	7/15/09		8,730		9,186A
Liberty Media Corporation		5.700%	5/15/13		4,295		3,909A
Liberty Media Corporation		3.750%	2/15/30		170		95
News America, Inc.		6.200%	12/15/34		1,300		1,302
News America, Inc.		6.750%	1/9/38		200		218
Readers Digest Association, Inc.		6.500%	3/1/11		460		467
Sinclair Broadcast Group, Inc.		8.000%	3/15/12		360		369
Time Warner Inc.		6.875%	5/1/12		5,850		6,393
Time Warner Inc.		7.625%	4/15/31		440		515
Time Warner Inc.		7.700%	5/1/32		14,180		16,788A
Viacom Inc.		5.625%	8/15/12		1,350		1,372
							64,635
Medical Care Facilities	0.3%
DaVita, Inc.		7.250%	3/15/15		900		912
HCA, Inc.		7.250%	5/20/08		314		325
HCA, Inc.		8.750%	9/1/10		256		283
HCA, Inc.		6.300%	10/1/12		3		3
HCA, Inc.		6.250%	2/15/13		2,230		2,204
HCA, Inc.		5.750%	3/15/14		150		143
HCA, Inc.		7.690%	6/15/25		723		727
HCA, Inc.		7.500%	11/6/33		13,540		13,509
Health Care REIT, Inc.		8.000%	9/12/12		128		145
Manor Care, Inc.		8.000%	3/1/08		58		62
							18,313
Medical Products	0.1%
Fresenius Medical Care Capital Trust II		7.875%	2/1/08		900		936D
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		681		732
Mylan Laboratories Inc.		6.375%	8/15/15		1,510		1,512B
							3,180
Oil and Gas	1.5%
Amerada Hess Corporation		7.300%	8/15/31		16,795		19,594A
AmeriGas Partners, L.P.		7.250%	5/20/15		990		1,035B

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
Corporate Bonds and Notes—Continued
Oil and Gas—Continued
Chesapeake Energy Corporation		7.500%	9/15/13	$	670	$	714
Chesapeake Energy Corporation		6.250%	1/15/18		1,580		1,548
Conoco Inc.		6.950%	4/15/29		245		298
ConocoPhillips		8.750%	5/25/10		3,100		3,625
ConocoPhillips		4.750%	10/15/12		2,590		2,600A
ConocoPhillips		5.900%	10/15/32		10		11
Devon Energy Corporation		7.950%	4/15/32		5,035		6,418
El Paso Corporation		0.000%	2/28/21		210		113E,F
El Paso Corporation		7.800%	8/1/31		10,220		10,245
El Paso Corporation		7.750%	1/15/32		9,560		9,632A
El Paso Natural Gas Company		8.375%	6/15/32		1,310		1,488
Kerr-McGee Corporation		6.875%	9/15/11		800		855
Kerr-McGee Corporation		7.875%	9/15/31		14,920		17,269A
Pacific Energy Partners		7.125%	6/15/14		630		654
Plains Exploration & Production Company		7.125%	6/15/14		1,010		1,063A
Pogo Producing Company		6.875%	10/1/17		850		862
Pride International, Inc.		7.375%	7/15/14		1,440		1,564A
Seariver Maritime Inc.		0.000%	9/1/12		70		50F
Sonat Inc.		7.625%	7/15/11		3,000		3,045A
Suburban Propane Partners LP		6.875%	12/15/13		1,120		1,019B
Suburban Propane Partners LP		6.875%	12/15/13		870		792
Vintage Petroleum, Inc.		7.875%	5/15/11		1,150		1,202
Vintage Petroleum, Inc.		8.250%	5/1/12		661		707
XTO Energy, Inc.		7.500%	4/15/12		691		778
XTO Energy, Inc.		6.250%	4/15/13		2,317		2,473
							89,654
Paper and Forest Products	0.1%
Georgia-Pacific Corp.		7.500%	5/15/06		200		202
Georgia-Pacific Corp.		8.875%	2/1/10		245		273
Georgia-Pacific Corp.		8.125%	5/15/11		9		10
Georgia-Pacific Corp.		9.500%	12/1/11		191		226
Georgia-Pacific Corp.		9.375%	2/1/13		12		13
Georgia-Pacific Corp.		7.700%	6/15/15		176		194A
International Paper Company		5.500%	1/15/14		2,870		2,859
Weyerhaeuser Company		6.750%	3/15/12		4,635		5,008A
							8,785

72

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Pharmaceuticals	0.2%
AmerisourceBergen Corporation		5.875%	9/15/15	$	1,720	$	1,698B
Bristol-Myers Squibb Company		5.750%	10/1/11		8,840		9,273
Omnicare, Inc.		8.125%	3/15/11		709		741
							11,712
Photo Equipment and Supplies	0.3%
Eastman Kodak Company		6.375%	6/15/06		5,920		5,940A
Eastman Kodak Company		3.625%	5/15/08		1,430		1,338A
Eastman Kodak Company		7.250%	11/15/13		11,704		11,101A
							18,379
Real Estate	0.1%
Forest City Enterprises, Inc.		7.625%	6/1/15		360		382
Forest City Enterprises, Inc.		6.500%	2/1/17		597		591
La Quinta Properties, Inc.		7.000%	8/15/12		220		226A
Ventas Realty, Limited Partnership		8.750%	5/1/09		770		824
Ventas Realty, Limited Partnership		6.750%	6/1/10		800		812B
Ventas Realty, Limited Partnership		9.000%	5/1/12		440		499
Ventas Realty, Limited Partnership		6.625%	10/15/14		50		50
Ventas Realty, Limited Partnership		7.125%	6/1/15		800		828
							4,212
Retail	0.2%
J.C. Penney Company, Inc.		7.400%	4/1/37		690		746
Target Corporation		4.000%	6/15/13		5,340		5,050A
Toys “R” Us, Inc.		7.375%	10/15/18		2,082		1,665A
Wal-Mart Stores, Inc.		4.125%	2/15/11		3,160		3,074A
							10,535
Special Purpose	1.3%
AAC Group Holding Corporation		0.000%	10/1/12		980		706B,G
Air 2 US Series A		8.027%	10/1/19		168		157B
ASIF Global Financing XIX		4.900%	1/17/13		3,980		3,907
Cascadia Ltd		6.915%	6/13/08		1,400		1,403B,C
DaimlerChrysler NA Holding Corporation		4.050%	6/4/08		1,130		1,103
DaimlerChrysler NA Holding Corporation		7.200%	9/1/09		620		661
DaimlerChrysler NA Holding Corporation		7.300%	1/15/12		3,315		3,600
DaimlerChrysler NA Holding Corporation		6.500%	11/15/13		1,290		1,364A
Di Finance Corporation		9.500%	2/15/13		1,100		1,149B
Entercom Capital Inc.		7.625%	3/1/14		565		583
John Deere Capital Corporation		7.000%	3/15/12		80		89A

73

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
Corporate Bonds and Notes—Continued
Special Purpose—Continued
Patrons’ Legacy 2003 IV		5.775%	1/23/17	$	6,600	$	6,669B
Philip Morris Capital Corporation		7.500%	7/16/09		190		203
Rabobank Capital Funding Trust II		5.260%	12/31/49		590		592B
Rabobank Capital Funding Trust III		5.254%	12/29/49		4,140		4,125B
Sprint Capital Corporation		4.780%	8/17/06		4,725		4,732G
Sprint Capital Corporation		6.000%	1/15/07		16,370		16,643
Sprint Capital Corporation		6.125%	11/15/08		130		135
Sprint Capital Corporation		8.375%	3/15/12		13,945		16,411
TCI Communications Financing III		9.650%	3/31/27		1,480		1,621
Texaco Capital Inc.		5.500%	1/15/09		1,600		1,661
UGS Corporation		10.000%	6/1/12		400		438
Unilever Capital Corporation		7.125%	11/1/10		1,450		1,604A
Verizon Global Funding Corp.		6.875%	6/15/12		2,130		2,350
Verizon Global Funding Corp.		7.375%	9/1/12		2,645		3,002A
							74,908
Telecommunications	0.2%
Cincinnati Bell Inc.		7.000%	2/15/15		3,277		3,162
Citizens Communications Company		9.250%	5/15/11		530		582
Qwest Communications International Incorporated		7.290%	2/15/09		1,745		1,723C
Qwest Corporation		5.625%	11/15/08		3,860		3,802
Qwest Corporation		8.875%	3/15/12		1,260		1,377
TCI Communications Inc.		6.875%	2/15/06		3,382		3,408
Valor Telecommunications Enterprises LLC		7.750%	2/15/15		360		349
							14,403
Telecommunications (Cellular/Wireless)	0.1%
New Cingular Wireless Services Inc.		7.350%	3/1/06		3,000		3,035
Nextel Communications, Inc.		5.950%	3/15/14		493		504
Nextel Communications, Inc.		7.375%	8/1/15		1,980		2,120
							5,659
Transportation	0.2%
Continental Airlines, Inc.		6.545%	2/2/19		4,362		4,277
Delta Air Lines, Inc.		6.619%	3/18/11		1,788		1,672
Delta Air Lines, Inc.		6.417%	7/2/12		40		40
Delta Air Lines, Inc.		6.718%	7/2/24		2,418		2,476
Kansas City Southern Railway		9.500%	10/1/08		558		612
Norfolk Southern Corporation		6.200%	4/15/09		20		21A
							9,098
Total Corporate Bonds and Notes (Identified Cost—$1,077,121)							1,090,524

74

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities	3.1%
Fixed Rate Securities	0.4%
Bay View Auto Trust 2003-LJ1		3.440%	4/25/12	$	300	$	294
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		2,200		1,795
Conseco Finance Securitizations Corp. 2000-6		6.770%	9/1/32		911		917
Contimortgage Home Equity Loan Trust 1997-4		7.330%	10/15/28		1,389		1,133
Green Tree Financial Corporation 1992-2		9.150%	1/15/18		365		325
Green Tree Financial Corporation 1993-2		8.000%	7/15/18		1,002		989
Green Tree Financial Corporation 1996-5		8.100%	7/15/26		5,235		862
Green Tree Home Improvement Loan Trust 1996-A		7.400%	2/15/26		629		543
Green Tree Home Improvement Loan Trust 1997-D		7.450%	9/15/28		659		659
Lehman ABS Manufactured Housing Contract 2001-B A3		4.350%	5/15/14		4,757		4,609
Lehman ABS Manufactured Housing Contract 2001-B A6		6.467%	8/15/28		3,576		3,698
Pegasus Aviation Lease Securitization 2000-1		8.370%	3/25/30		2,500		1,588B
Residential Asset Mortgage Products, Inc. 2004-SL4		7.500%	7/25/32		3,215		3,352
UCFC Home Equity Loan Trust 1998-C		5.935%	1/15/30		44		44
Vanderbilt Mortgage Finance 1996-A		8.150%	5/7/26		567		582
Vanderbilt Mortgage Finance 1997-B		8.155%	10/7/26		250		263
Vanderbilt Mortgage Finance 1997-C		7.830%	8/7/27		500		520
							22,173
Indexed SecuritiesC	2.7%
AAA Trust 2005-2		4.151%	11/26/35		21,323		21,313B
Advanta Revolving Home Equity Loan Trust 2000-A		4.538%	8/25/24		690		691
AFC Home Equity Loan Trust 2002-2		4.130%	6/25/30		1,133		1,136
Asset Backed Securities Corporation Home Equity Loan Trust 2001 HE3		4.240%	11/15/31		785		785
CDC Mortgage Capital Trust 2002-HE1		4.348%	1/25/33		1,329		1,331
Citibank Credit Card Issuance Trust 2002-C1		4.737%	2/9/09		2,040		2,060
Conseco Finance 2000-C		4.340%	12/15/29		93		93
Countrywide Asset-Backed Certificates 2002-BC1		4.367%	4/25/32		403		403

75

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
Asset-Backed Securities—Continued
Indexed Securities—Continued
Countrywide Asset-Backed Certificates 2003-1		4.377%	6/25/33	$	1,006	$	1,007
Countrywide Asset-Backed Certificates 2003-BC3		4.348%	9/25/33		3,780		3,785
Countrywide Asset-Backed Certificates 2005-BC2		3.920%	5/25/35		19,580		19,582
Countrywide Home Equity Loan Trust 2002-F		4.320%	11/15/28		1,936		1,947
Credit Suisse First Boston Mortgage Securities Corp. 2005-AGE1		4.177%	2/25/32		26,694		26,696
Fannie Mae Grantor Trust 2002-T15		4.238%	11/26/32		2,521		2,520
Fannie Mae Grantor Trust 2005-T2		3.651%	11/28/35		30,807		30,778
Fleet Home Equity Loan Trust 2003-1		4.250%	1/20/33		10,344		10,355
Greenpoint Mortgage Funding Trust 2005-HE1		4.437%	9/25/34		1,200		1,199
Household Home Equity Loan Trust 2002-3		4.450%	7/20/32		285		285
IndyMac Home Equity Loan Asset-Backed Trust 2001-A		4.297%	3/25/31		227		227
Option One Mortgage Loan Trust 2000-2		4.617%	6/25/30		88		88
Option One Mortgage Loan Trust 2003-1		4.457%	2/25/33		29		29
Popular ABA Mortgage Pass-Through Trust 2005-A		4.138%	6/25/35		7,135		7,135
Provident Bank Home Equity Loan Trust 2000-2		4.307%	8/25/31		630		631
Providian Gateway Master Trust 2002-B		4.670%	6/15/09		14,970		14,991B
Residential Asset Mortgage Products, Inc. 2003-RS4		4.367%	5/25/33		3,418		3,427
Residential Funding Mortgage Secs II 2003-HS3		4.328%	8/25/33		93		93
Salomon Brothers Mortgage Securities VII 2002-CIT1		4.337%	3/25/32		1,695		1,699
Southern Pacific Secured Assets Corporation 1998-2		4.377%	7/25/29		47		47
Vanderbilt Mortgage Finance 1999-D		7.140%	1/7/30		4,100		4,265
Wachovia Asset Securitization, Inc. 2002-HE1		4.200%	9/27/32		2,661		2,665
Wachovia Asset Securitization, Inc. 2002-HE2		4.260%	12/25/32		250		251
Wachovia Asset Securitization, Inc. 2003-HE1		4.328%	3/25/33		97		97
							161,611

76

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Asset-Backed Securities—Continued
Stripped Securities	N.M.
Diversified REIT Trust 2001-1		0.656%	3/8/10	$	15,164	$	379B,H1
Oakwood Mortgage Investors Inc. 2001-E		6.000%	11/15/09		6,209		990H1
							1,369
Total Asset-Backed Securities (Identified Cost—$185,682)							185,153
Mortgage-Backed Securities	15.3%
Fixed Rate Securities	2.7%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		7,334		7,382
Banc of America Commercial Mortgage Inc. 2005-5		5.115%	9/10/15		10,900		10,955
Banc of America Funding Corporation 2003-1		6.000%	5/20/33		803		803
Blackrock Capital Finance L.P. 1997-R3		7.220%	11/25/28		90		91B
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		680		704B
FFCA Secured Lending Corporation 1999-1A		6.370%	9/18/25		46		46B
GMAC Commercial Mortgage Securities Inc. 1998-C1		6.700%	5/15/30		9,427		9,797
GMAC Commercial Mortgage Securities Inc. 1999-C2		6.945%	9/15/33		340		362
GS Mortgage Securities Corporation II 1998-C1		6.620%	10/18/30		5,500		5,734
GS Mortgage Securities Corporation II 2005-GG4		4.680%	7/10/39		18,650		18,383
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12		4.895%	9/12/37		3,000		2,968
J.P. Morgan Commercial Mortgage Finance Corporation 1999-C8		7.400%	7/15/31		2,000		2,150
LB-UBS Commercial Mortgage Trust 2005-C3 AAB		4.664%	7/15/30		4,100		4,024
MASTR Reperforming Loan Trust 2005-1		6.000%	8/25/34		8,811		8,952B
MASTR Reperforming Loan Trust 2005-1		7.000%	8/25/34		13,343		13,925B
Morgan Stanley Capital I 2005-HQ6		4.989%	8/13/42		40,690		40,616
Nomura Asset Securities Corporation 1996-MD5		7.120%	4/13/39		2,000		2,024
Residential Asset Mortgage Products, Inc. 2005-SL2		7.500%	2/25/32		22,741		23,356
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		3,845		3,771
Structured Asset Securities Corporation 1996-CFL		7.750%	2/25/28		1,993		2,057
							158,100

77

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
Mortgage-Backed Securities—Continued
Indexed SecuritiesC	12.3%
American Home Mortgage Investment Trust 2005-4		4.328%	10/25/35	$	59,000	$	58,981
Chase Commercial Mortgage Securities Corporation 2000-FL1A		4.008%	12/12/13		946		946B
Citigroup Mortgage Loan Trust 2005-HE2		4.437%	5/25/35		34,046		34,046B
Countrywide Alternative Loan Trust		4.387%	9/25/35		44,770		44,770
Countrywide Alternative Loan Trust 2005-44 1A1		4.368%	10/25/35		54,527		54,527
Countrywide Alternative Loan Trust 2005-44 2A1		4.348%	10/25/35		46,987		46,987
Countrywide Alternative Loan Trust 2005-56 3A1		4.128%	11/25/35		55,308		55,303
Countrywide Alternative Loan Trust 2005-56 4A1		4.160%	11/25/35		13,269		13,268
Countrywide Alternative Loan Trust 2005-H 2A		4.070%	12/15/35		7,150		7,150
Countrywide Home Loans 2005-9 1A1		4.337%	5/25/35		26,419		26,385
Government National Mortgage Association 2001-36		4.400%	8/20/31		5		5
GSMPS Mortgage Loan Trust 2005-RP2		4.387%	3/25/35		37,574		37,533B
GSMPS Mortgage Loan Trust 2005-RP3		4.387%	9/25/35		54,744		54,684
Harborview Mortgage Loan Trust 2005-3		4.236%	6/19/35		47,492		47,395
Impac CMB Trust 2003-4 1A1		4.357%	10/25/33		1,095		1,096
Impac CMB Trust 2003-5 A1		4.590%	8/25/33		1,217		1,217
Impac CMB Trust 2003-7		4.357%	8/25/33		2,909		2,911
Medallion Trust 2000-2G		4.086%	12/18/31		532		532I
MLCC Mortgage Investors, Inc. 2003-B		4.377%	4/25/28		11,276		11,340
MSDWCC Heloc Trust 2005-1		4.227%	7/25/17		5,965		5,965
Sequoia Mortgage Trust 4		4.390%	11/22/24		32		32
WaMu Mortgage Pass-Through Certificates, Series 2005-AR6		4.267%	4/25/45		43,341		43,192
WaMu Mortgage Pass-Through Certificates, Series 2005-AR8		4.307%	6/25/45		25,227		25,226
WaMu Mortgage Pass-Through Certificates, Series 2005-AR11		4.150%	8/25/45		108,639		108,625
WaMu Mortgage Pass-Through Certificates, Series 2005-AR13		4.550%	11/25/45		51,460		51,450
Westpac Securitization Trust 1999-1G		4.010%	5/19/30		105		106J
							733,672

78

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities—Continued
Stripped Securities	N.M.
Commercial Capital Access One, Inc. 2		1200.00%	11/15/27	$	2,594	$	971H1
FFCA Secured Lending Corporation 1999-1A		1.593%	9/18/25		572		23B
GMAC Commercial Mortgage Securities Inc. 1999-CTL1		0.840%	12/15/16		1,438		15B
LB-UBS Commercial Mortgage Trust 2001-C3		0.978%	6/15/36		5,347		230B
							1,239
Variable Rate SecuritiesC	0.3%
Commercial Mortgage Asset Trust 1999-C2		7.546%	11/17/32		330		359
Countrywide Alternative Loan Trust Series 2005-J12		4.340%	11/25/35		2,010		2,010
Merrill Lynch Mortgage Trust 2005-MCP1		4.747%	6/12/43		15,240		14,907
							17,276
Total Mortgage-Backed Securities (Identified Cost—$913,953)							910,287
Municipal Bonds	0.6%
Liberty New York Development Corporation Revenue		5.250%	10/1/35		34,480		38,469
Total Municipal Bonds (Identified Cost—$38,585)							38,469
U.S. Government and Agency Obligations	26.1%
Fixed Rate Securities	18.6%
Fannie Mae		3.125%	12/15/07		35,000		34,055A
Fannie Mae		4.610%	10/10/13		40,690		39,860
Federal Home Loan Bank		4.875%	11/15/06		100		101
Federal Home Loan Bank		3.500%	11/15/07		100		98
Federal Home Loan Bank		5.875%	11/15/07		750		772
Tennessee Valley Authority		6.250%	12/15/17		40		45
Tennessee Valley Authority		6.750%	11/1/25		1,670		2,062
Tennessee Valley Authority		7.125%	5/1/30		840		1,101
United States Treasury Bonds		6.250%	8/15/23		510		610A
United States Treasury Bonds		5.250%	2/15/29		35,550		38,754A
United States Treasury Bonds		6.250%	5/15/30		55,455		68,857A
United States Treasury Bonds		5.375%	2/15/31		10,425		11,679A
United States Treasury Notes		1.875%	12/31/05		4,840		4,819A
United States Treasury Notes		3.000%	12/31/06		11,784		11,617A

79

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
U.S. Government and Agency Obligations—Continued
Fixed Rate Securities—Continued
United States Treasury Notes		3.125%	1/31/07	$	26,140	$	25,791A
United States Treasury Notes		2.250%	2/15/07		66,440		64,756A
United States Treasury Notes		3.625%	4/30/07		10,070		9,985A
United States Treasury Notes		3.125%	5/15/07		12,070		11,872A
United States Treasury Notes		3.000%	2/15/08		26,210		25,517A
United States Treasury Notes		3.375%	2/15/08		82,220		80,736A
United States Treasury Notes		3.750%	5/15/08		4,350		4,303A
United States Treasury Notes		2.625%	3/15/09		6,940		6,591A
United States Treasury Notes		4.000%	6/15/09		103,495		102,783A
United States Treasury Notes		3.500%	8/15/09		36,100		35,188A
United States Treasury Notes		3.375%	10/15/09		5,910		5,727
United States Treasury Notes		3.500%	12/15/09		177,775		172,928A
United States Treasury Notes		3.625%	1/15/10		20,320		19,851A
United States Treasury Notes		3.500%	2/15/10		81,960		79,613A
United States Treasury Notes		4.000%	4/15/10		89,270		88,457A
United States Treasury Notes		3.875%	5/15/10		32,950		32,472A
United States Treasury Notes		3.875%	7/15/10		35,000		34,468A
United States Treasury Notes		4.125%	8/15/10		64,620		64,330A
United States Treasury Notes		4.250%	8/15/13		140		140A
United States Treasury Notes		4.250%	8/15/15		29,163		28,981A
							1,108,919
Indexed SecuritiesJ	7.1%
United States Treasury Inflation-Protected Security		3.375%	1/15/07		151,550		156,730A
United States Treasury Inflation-Protected Security		3.625%	1/15/08		5,514		5,837A
United States Treasury Inflation-Protected Security		3.875%	1/15/09		34,225		37,129A
United States Treasury Inflation-Protected Security		4.250%	1/15/10		21,471		24,017A
United States Treasury Inflation-Protected Security		0.875%	4/15/10		72,014		70,174
United States Treasury Inflation-Protected Security		3.375%	1/15/12		11,905		13,184A
United States Treasury Inflation-Protected Security		1.875%	7/15/13		20,594		20,871A
United States Treasury Inflation-Protected Security		2.000%	1/15/14		1,205		1,231A

80

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		2.000%	7/15/14	$	41	$	42A
United States Treasury Inflation-Protected Security		1.875%	7/15/15		5,615		5,664A
United States Treasury Inflation-Protected Security		2.375%	1/15/25		26,513		28,364A
United States Treasury Inflation-Protected Security		3.625%	4/15/28		22,673		29,665A
United States Treasury Inflation-Protected Security		3.875%	4/15/29		22,010		30,129A
							423,037
Stripped Securities	0.4%
United States Treasury Bonds		0.000%	11/15/21		37,190		17,562A,H2
United States Treasury Bonds		0.000%	8/15/27		1,520		552A,H2
United States Treasury Notes		0.000%	5/15/30		11,650		3,794A,H2
							21,908
Total U.S. Government and Agency Obligations (Identified Cost—$1,557,638)							1,553,864
U.S. Government Agency Mortgage-Backed Securities	39.4%
Fixed Rate Securities	38.2%
Fannie Mae		6.500%	5/1/14 to 7/1/35		33,070		34,075
Fannie Mae		6.000%	5/1/16 to 10/1/35		8,702		8,867
Fannie Mae		5.500%	1/1/17 to 10/1/35		55,904		56,044
Fannie Mae		9.500%	11/1/21		2		2
Fannie Mae		7.000%	8/1/29 to 7/1/32		7,337		7,681
Fannie Mae		7.500%	11/1/29		37		39
Fannie Mae		1.000%	12/1/35		49,300		50,641K
Fannie Mae		4.500%	12/1/35		26,400		25,163K
Fannie Mae		5.000%	12/1/35		952,300		932,064K
Fannie Mae		5.500%	12/1/35		345,000		344,784K
Fannie Mae		6.000%	12/1/35		200,475		203,795K
Fannie Mae		6.500%	12/1/35		60,800		62,567K
Freddie Mac		4.125%	10/18/10		3,720		3,652
Freddie Mac		4.650%	10/10/13		47,200		46,163
Freddie Mac		5.500%	12/1/13 to 5/1/35		16,254		16,291

81

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
U.S. Government Agency Mortgage-Backed Securities—Continued
Fixed Rate Securities—Continued
Freddie Mac		7.000%	10/1/16 to 4/1/32	$	2,513	$	2,626
Freddie Mac		6.500%	7/1/29		579		597
Freddie Mac		6.000%	12/1/15		12,200		12,528K
Freddie Mac		5.000%	12/1/35		35,000		34,245K
Government National Mortgage Association		9.500%	1/15/06		5		5
Government National Mortgage Association		7.500%	3/15/23 to 9/15/31		357		378
Government National Mortgage Association		7.000%	7/15/23 to 7/15/31		1,284		1,353
Government National Mortgage Association		6.500%	4/15/28 to 4/15/33		27,541		28,662
Government National Mortgage Association		6.000%	1/15/29 to 7/15/33		35,655		36,528
Government National Mortgage Association		8.000%	12/15/30 to 1/15/31		44		47
Government National Mortgage Association		5.500%	7/15/33 to 6/15/35		32,451		32,778
Government National Mortgage Association		5.000%	12/1/35		239,000		236,461K
Government National Mortgage Association		6.000%	12/1/35		92,690		94,920K
							2,272,956
Indexed SecuritiesD	1.2%
Fannie Mae		1.246%	10/1/35		8,200		8,422
Fannie Mae		3.035%	10/1/35		57,503		59,067
							67,489
Stripped Securities	N.M.
Financing Corporation		0.000%	11/30/17		1,250		700H2
Financing Corporation		0.000%	4/5/19		320		166H2
							866
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$2,358,004)							2,341,311

82

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee BondsI	7.2%
Banking and Finance	0.1%
AIFUL CORPORATION		4.450%	2/16/10	$	1,000	$	974A
AIFUL CORPORATION		5.000%	8/10/10		4,680		4,649A
							5,623
Banks	N.M.
KFW Kreditanstalt fuer Wiederaufbau		2.375%	9/25/06		240		235A
The Korea Development Bank		4.250%	11/13/07		200		198
The Korea Development Bank		5.500%	11/13/12		60		62
							495
Cable	N.M.
Kabel Deutschland GmbH		10.625%	7/1/14		680		752B
Rogers Cable Inc.		7.875%	5/1/12		687		730
Rogers Cable Inc.		5.500%	3/15/14		860		793
Rogers Cable Inc.		6.750%	3/15/15		130		130
							2,405
Chemicals	N.M.
Rhodia SA		10.250%	6/1/10		780		825A
Diversified Financial Services	N.M.
Pemex Finance LTD.		9.030%	2/15/11		10		11
Electric	0.1%
Empresa Nacional de Electricidad S.A.		8.350%	8/1/13		1,700		1,935
Hydro-Quebec		6.300%	5/11/11		1,720		1,858
							3,793
Electronics	N.M.
Flextronics International Limited		6.250%	11/15/14		270		269A
Foreign Governments	4.8%
Federative Republic of Brazil		14.500%	10/15/09		14,720		19,143A
Federative Republic of Brazil		12.000%	4/15/10		3,240		3,967A
Federative Republic of Brazil		5.250%	4/15/12		5,089		5,007C
Federative Republic of Brazil		8.875%	4/15/24		3,830		4,087
Federative Republic of Brazil		8.875%	4/15/24		888		948
Federative Republic of Brazil		12.250%	3/6/30		6,570		9,040
Federative Republic of Brazil		11.000%	8/17/40		17,926		21,977A
Province of British Columbia		4.300%	5/30/13		180		176
Province of Ontario		3.500%	9/17/07		110		108
Republic of Bulgaria		8.250%	1/15/15		6,090		7,514
Republic of Colombia		11.750%	2/25/20		3,515		4,889A

83

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
Foreign Governments—Continued
Republic of Colombia		8.125%	5/21/24	$	8,560	$	9,181
Republic of Panama		9.625%	2/8/11		1,203		1,438
Republic of Panama		10.750%	5/15/20		2,587		3,602
Republic of Panama		9.375%	1/16/23		1,210		1,528A
Republic of Panama		8.875%	9/30/27		690		840
Republic of Peru		5.000%	3/7/17		3,819		3,771G
Republic of Peru		5.000%	3/7/17		41		40B,G
Republic of Peru		8.750%	11/21/33		5,480		6,617A
Russian Federation		5.000%	3/31/30		81,700		93,873G
United Mexican States		8.375%	1/14/11		14,550		16,733
United Mexican States		11.500%	5/15/26		9,330		14,975
United Mexican States		8.300%	8/15/31		8,250		10,313
United Mexican States		7.500%	4/8/33		39,755		46,116A
							285,883
Insurance	0.1%
Foundation Re Ltd		7.897%	11/24/08		2,150		2,107B,C
Korea Deposit Insurance Corp.		2.500%	12/11/05		2,500		2,764E
Oil Insurance Ltd		5.150%	8/15/33		35		35B,L
							4,906
Manufacturing (Diversified)	1.2%
Tyco International Group SA		6.375%	2/15/06		10,250		10,318
Tyco International Group SA		5.800%	8/1/06		10,250		10,346
Tyco International Group SA		6.125%	11/1/08		100		104
Tyco International Group SA		6.750%	2/15/11		460		497A
Tyco International Group SA		6.375%	10/15/11		5,580		5,948
Tyco International Group SA		7.000%	6/15/28		145		168
Tyco International Group SA		6.875%	1/15/29		37,200		42,686A
							70,067
Media	N.M.
Shaw Communications Inc.		8.250%	4/11/10		27		29
Shaw Communications Inc.		7.250%	4/6/11		630		665A
Shaw Communications Inc.		7.200%	12/15/11		395		417A
							1,111
Mining	N.M.
Corporacion Nacional del Cobre—Codelco		4.750%	10/15/14		2,590		2,513B

84

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Yankee Bonds—Continued
Oil and Gas	0.1%
Gazprom		9.625%	3/1/13	$	990	$	1,229B
Gazprom		9.625%	3/1/13		330		408
Pemex Project Funding Master Trust		8.500%	2/15/08		110		119
Western Oil Sands Inc.		8.375%	5/1/12		2,738		3,145
YPF Sociedad Anonima		7.750%	8/27/07		1,000		1,054
							5,955
Paper and Forest Products	N.M.
Abitibi-Consolidated Inc.		7.750%	6/15/11		2,350		2,315A
Publishing	N.M.
Sun Media Corporation		7.625%	2/15/13		565		591
Special Purpose	0.5%
Anadarko Finance Company		6.750%	5/1/11		240		261
Arcel Finance		5.984%	2/1/09		6,907		7,017B
ChevronTexaco Capital Company		3.500%	9/17/07		20		20
Conoco Funding Company		6.350%	10/15/11		590		640
Conoco Funding Company		7.250%	10/15/31		810		1,022
Eircom Funding		8.250%	8/15/13		900		976A
European Investment Bank		4.000%	3/3/10		100		99
General Motors Nova Scotia Finance Company		6.850%	10/15/08		1,550		1,452
HSBC Capital Funding LP		4.610%	12/29/49		2,090		1,999B
Petrozuata Finance, Inc.		8.220%	4/1/17		5,220		4,985B
Resona Preferred Global Securities Limited		7.191%	12/29/49		8,970		9,286
							27,757
Telecommunications	0.2%
British Telecommunications plc		8.375%	12/15/10		1,145		1,326
Intelsat(Bermuda), Ltd.		8.625%	1/15/15		540		551B
Telecom Italia Capital S.p.A		5.250%	10/1/15		2,950		2,899
Telecom Italia Capital S.p.A.		5.250%	11/15/13		1,260		1,251
Telecom Italia Capital S.p.A.		4.950%	9/30/14		3,730		3,609B
							9,636
Telecommunications (Cellular/Wireless)	N.M.
Rogers Wireless Communications Inc.		6.375%	3/1/14		1,850		1,859A
Rogers Wireless Communications Inc.		7.500%	3/15/15		420		453
							2,312

85

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
Transportation	0.1%
OMI Corporation		7.625%	12/1/13	$	1,450		$	1,501
Teekay Shipping Corporation		8.875%	7/15/11		1,729			1,971
								3,472
Total Yankee Bonds (Identified Cost—$386,612)								429,939
Foreign Government Obligations	2.9%
Fixed Rate Securities	2.9%
Canadian Real Return Bond		4.000%	12/1/31		11,360M			14,748J
Government of Canada		5.250%	6/1/12		45,000M			42,082
Queensland Treasury Corp.		6.000%	6/14/11		31,020N			24,277J
Republic of France		3.000%	7/25/09		67,924O			89,513J
Total Foreign Government Obligations (Identified Cost—$168,503)								170,620
Foreign Corporate Bonds	0.2%
General Motors Corporation		8.375%	7/5/33		9,520O			8,984A
Total Foreign Corporate Bonds (Identified Cost—$12,355)								8,984
Preferred Stocks	0.5%
Fannie Mae		7.000%			211			11,590C
Fannie Mae		5.375%			0.053	shs		4,855E
General Motors Corporation		5.250%			813			14,046E
Home Ownership Funding Corporation		13.331%			2			450B,E
Home Ownership Funding Corporation II		13.338%			1			391B,E
Total Preferred Stocks (Identified Cost—$32,466)								31,332
Options PurchasedQ	N.M.
BellSouth Telecommunications Inc. Call, July 2006, Strike Price $97.72					500R			64
International Business Machines Corporation Call, July 2006, Strike Price $99.90					500R			87
Total Options Purchased (Identified Cost—$18)								151
Total Long-Term Securities (Identified Cost—$6,730,937)								6,760,634

86

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Investment of Collateral From Securities Lending	25.2%
State Street Navigator Securities Leading Prime Portfolio					1,500,496	shs	$	1,500,496
Total Investments of Collateral From Securities Lending (Identified Cost—$1,500,496)								1,500,496
Short-Term Securities	19.3%
U.S. Government and Agency Obligations	13.0%
Fannie Mae		0.000%	10/3/05	$	240,000			239,958F,P
Fannie Mae		0.000%	12/5/05		25,412			25,256F
Freddie Mac		0.000%	10/3/05		240,000			239,958F,P
Freddie Mac		0.000%	10/3/05		270,000			269,953F,P
								775,125
Options PurchasedQ	0.3%
Eurodollar Futures Call, November 2005, Strike Price $96.00					996R			6
Eurodollar Futures Call, January 2006, Strike Price $95.00					411R			632
Eurodollar Futures Call, April 2006, Strike Price $95.00					8,159R			10,301
Eurodollar Futures Call, April 2006, Strike Price $95.50					19R			7
Eurodollar Future Call, July 2006, Strike Price $95.00					685R			783
Eurodollar Futures Put, July 2006, Strike Price $93.75					1,000R			0
Eurodollar Futures Put, July 2006, Strike Price $94.00					284R			2
Japanese Yen Future Call, January 2006, Strike Price $90.00					25R			24
Deutsche Bank Swaption Futures Call, July 2006, Strike Price $4.61					103,200,000R			1,416
Deutsche Bank Swaption Futures Call, March 2006, Strike Price $4.43					45,800,000R			334
Deutsche Bank Swaption Futures Put, July 2006, Strike Price $4.61					103,200,000R			1,638
Goldman Sachs Swaption Futures Put, March 2006, Strike Price $4.43					45,800,000R			689

87

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
Options PurchasedQ—Continued	6.0%
Goldman Sachs Swaption Futures Put, November 2005, Strike Price $4.12			83,046,988R	$	635
U.S. Treasury Bond Futures Call, December 2005, Strike Price $115.00			626R		646
U.S. Treasury Bond Futures Call, December 2005, Strike Price $119.00			916R		129
U.S. Treasury Note Futures Call, December 2005, Strike Price $104.50			963R		2,287
U.S. Treasury Note Futures Call, December 2005, Strike Price $106.50			550R		395
U.S. Treasury Note Futures Call, December 2005, Strike Price $108.50			691R		54
					19,978
Repurchase Agreements	6.0%
Deutsche Bank AG 3.7%, dated 9/30/05, to be repurchased at $112,900 on 10/3/05 (Collateral: $114,701 Freddie Mac notes, 3.8%, due 12/27/06, value $116,271)		$	112,865		112,865
Goldman, Sachs & Company 3.8%, dated 9/30/05, to be repurchased at $240,742 on 10/3/05 (Collateral: $246,735 Freddie Mac notes, 4.25%, due 9/22/10, value $245,762)			240,666		240,666
					353,531
Total Short-Term Securities (Identified Cost—$1,153,841)					1,148,634
Total Investments (Identified Cost—$9,385,274)	158.1%			$	9,409,764
Obligation to Return Collateral for Securities Loaned	(25.2)%				(1,500,496	)
Other Assets Less Liabilities	(32.9)%				(1,958,647	)
Net Assets	100.0%			$	5,950,621

	EXPIRATION DATE	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedQ
Australian Dollar Futures	December 2005	61	$	(32	)
Australian Treasury Bond Futures	December 2005	50		(118	)
British Pound Futures	December 2005	25		(45	)
Canadian Dollar Futures	December 2005	172		224
Euro Currency Futures	December 2005	250		(657	)

88

Semi-Annual Report to Shareholders

	EXPIRATION DATE	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedQ—Continued
Eurodollar Futures	March 2006	57	$	(16	)
Eurodollar Futures	June 2006	3,208		(2,012	)
Eurodollar Futures	September 2006	221		(134	)
Japanese Yen Futures	December 2005	1,140		(3,625	)
LIBOR Futures	June 2006	300		27
U.S. Treasury Note Futures	December 2005	3,661		(2,485	)
			$	(8,873	)
Futures Contracts WrittenQ
Bundesobligation Futures	December 2005	200	$	307
U.S. Treasury Bond Futures	December 2005	697		523
U.S. Treasury Note Futures	December 2005	599		662
			$	1,492
Options WrittenQ
Euro Currency Futures Call, Strike Price $1.24	January 2006	50	$	56
Euro Currency Futures Call, Strike Price $1.26	January 2006	75		57
Euro Currency Futures Call, Strike Price $1.28	January 2006	100		104
Euro Currency Futures Put, Strike Price $1.22	December 2005	40		(86	)
Eurodollar Futures Put, Strike Price $95.625	November 2005	996		(460	)
Eurodollar Futures Put, Strike Price $95.75	April 2006	672		(370	)
Eurodollar Futures Put, Strike Price $95.75	July 2006	904		(576	)
Japanese Yen Futures Call, Strike Price $92.00	January 2006	20		30
Japanese Yen Futures Call, Strike Price $92.50	January 2006	225		274
Japanese Yen Futures Call, Strike Price $93.00	January 2006	300		407
Deutsche Bank Swaption Futures Call, Strike Price $4.745	July 2006	62,100,000		312
Goldman Sachs Swaption Futures Call, Strike Price $4.30	October 2005	50,000,000		330
Goldman Sachs Swaption Futures Call, Strike Price $4.36	March 2006	74,400,000		(197	)
Deutsche Bank Swaption Futures Put, Strike Price $4.745	July 2006	62,100,000		11
Goldman Sachs Swaption Futures Put, Strike Price $4.80	September 2006	50,000,000		258
Goldman Sachs Swaption Futures Put, Strike Price $7.00	December 2005	42,500,000		(852	)
Goldman Sachs Swaption Futures Put, Strike Price $4.36	March 2006	74,400,000		229
Goldman Sachs Swaption Futures Put, Strike Price $4.48	November 2005	21,230,000		(214	)
U.S. Treasury Bond Futures Call, Strike Price $117.00	December 2005	1,278		785
U.S. Treasury Bond Futures Call, Strike Price $118.00	December 2005	592		453
U.S. Treasury Bond Futures Call, Strike Price $120.00	November 2005	216		176
U.S. Treasury Bond Futures Call, Strike Price $122.00	December 2005	160		102
U.S. Treasury Bond Futures Put, Strike Price $113.00	December 2005	3,397		51
U.S. Treasury Bond Futures Put, Strike Price $115.00	December 2005	290		(272	)
U.S. Treasury Note Futures Call, Strike Price $108.00	December 2005	440		91
U.S. Treasury Note Futures Call, Strike Price $111.00	December 2005	1,468		335

89

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Core Plus Bond Portfolio—Continued

	EXPIRATION DATE	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options WrittenQ—Continued
U.S. Treasury Note Futures Call, Strike Price $112.00	December 2005	2,008	$	701
U.S. Treasury Note Futures Call, Strike Price $113.00	December 2005	2,674		1,269
U.S. Treasury Note Futures Call, Strike Price $113.00	November 2005	227		98
U.S. Treasury Note Futures Call, Strike Price $113.00	March 2006	432		44
U.S. Treasury Note Futures Call, Strike Price $114.00	December 2005	896		526
U.S. Treasury Note Futures Put, Strike Price $106.50	December 2005	108		(6	)
U.S. Treasury Note Futures Put, Strike Price $107.00	December 2005	264		(4	)
U.S. Treasury Note Futures Put, Strike Price $107.00	March 2006	309		(6	)
U.S. Treasury Note Futures Put, Strike Price $107.50	December 2005	1,628		(510	)
U.S. Treasury Note Futures Put, Strike Price $109.00	December 2005	3,487		470
U.S. Treasury Note Futures Put, Strike Price $110.00	December 2005	449		(193	)
U.S. Treasury Note Futures Put, Strike Price $111.00	December 2005	691		(321	)
			$	3,102

^A All or a portion of these securities 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% of net assets.

^C Indexed security – The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”) or the one-year Treasury Bill rate. The coupon rate is the rate as of September 30, 2005.

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

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

^F 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.

^G 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.

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

^J Inflation-Protected Security – A security whose principal value is adjusted daily or monthly in accordance with changes to the relevant country’s Consumer Price Index or its equivalent used as an inflation proxy. Interest is calculated on the basis of the current adjusted principal value.

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

^L The coupon rates shown on variable rate securities are the rates at September 30, 2005. These rates vary with the weighted average coupon of the underlying loans.

^M Denominated in Canadian dollars.

^N Denominated in Australian dollars.

^O Denominated in Euro currency.

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

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

^R Par represents actual number of contracts.

N.M.—Not meaningful.

See notes to financial statements.

90

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Inflation Indexed Plus Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	103.6%
Corporate Bonds and Notes	3.0%
Gas and Pipeline Utilities
The Williams Companies, Inc.		8.750%	3/15/32	$	1,900	$	2,242
Investment Banking/Brokerage
J.P. Morgan & Co. Incorporated		8.094%	2/15/12		2,690		2,840A
Merrill Lynch & Co., Inc.		3.970%	3/12/07		4,600		4,587A
							7,427
Special Purpose
Allstate Life Global Funding Trust		4.500%	4/2/07		4,600		4,588A
Total Corporate Bonds and Notes (Identified Cost—$14,110)							14,257
Asset-Backed Securities	0.8%
Indexed SecuritiesA	0.8%
ACE Securities Corp. Home Equity Loan Trust 2003-HS1		4.408%	6/25/33		393		394
Ameriquest Mortgage Securities, Inc. 2002-5		4.508%	2/25/33		54		54
Ameriquest Mortgage Securities, Inc. 2003-AR3		4.408%	10/25/33		118		118
Bear Stearns Asset Backed Securities, Inc. 2003-ABF1		4.408%	1/25/34		666		668
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		4.408%	10/25/32		348		350
Countrywide Asset-Backed Certificates 2002-1		4.318%	8/25/32		88		88
EMC Mortgage Loan Trust ABS Security 2002-B		4.588%	11/25/41		1,504		1,508B
EQCC Trust 2002-1		4.338%	11/25/31		330		331
Residential Asset Mortgage Products, Inc. 2003-RS2		4.378%	3/25/33		231		231
Total Asset-Backed Securities (Identified Cost—$3,733)							3,742
Mortgage-Backed Securities	0.8%
Indexed SecuritiesA	0.8%
Crusade Global Trust 2003-2		4.100%	9/18/34		1,503		1,506C
CS First Boston Mortgage Securities Corp. 2001-28		4.688%	11/25/31		1,077		1,081
GSRPM Mortgage Loan Trust Series 2003-2		4.530%	6/25/33		946		949
Total Mortgage-Backed Securities (Identified Cost—$3,529)							3,536

91

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Inflation Indexed Plus Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
U.S. Government and Agency Obligations	92.2%
Indexed SecuritiesD	92.2%
Tennessee Valley Authority		3.375%	1/15/07	$	7,892	$	8,157
United States Treasury Inflation-Protected Security		3.375%	1/15/07		11,302		11,688E
United States Treasury Inflation-Protected Security		3.625%	1/15/08		25,196		26,670E
United States Treasury Inflation-Protected Security		3.875%	1/15/09		17,679		19,178
United States Treasury Inflation-Protected Security		4.250%	1/15/10		14,817		16,574E
United States Treasury Inflation-Protected Security		0.875%	4/15/10		20,477		19,953
United States Treasury Inflation-Protected Security		3.500%	1/15/11		21,176		23,323E
United States Treasury Inflation-Protected Security		3.375%	1/15/12		17,252		19,106E
United States Treasury Inflation-Protected Security		3.000%	7/15/12		40,682		44,271E
United States Treasury Inflation-Protected Security		1.875%	7/15/13		31,348		31,769E
United States Treasury Inflation-Protected Security		2.000%	1/15/14		31,498		32,154E
United States Treasury Inflation-Protected Security		2.000%	7/15/14		17,392		17,766E
United States Treasury Inflation-Protected Security		1.625%	1/15/15		21,456		21,201E
United States Treasury Inflation-Protected Security		1.875%	7/15/15		13,841		13,963E
United States Treasury Inflation-Protected Security		2.375%	1/15/25		20,008		21,406E
United States Treasury Inflation-Protected Security		3.625%	4/15/28		36,951		48,346E
United States Treasury Inflation-Protected Security		3.875%	4/15/29		41,857		57,298E
Total U.S. Government and Agency Obligations (Identified Cost—$422,724)							432,823

92

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Yankee Bonds	4.7%
Foreign Governments	4.7%
Federative Republic of Brazil		8.875%	4/15/24	$	86		$	92
Federative Republic of Brazil		14.500%	10/15/09		1,600			2,081
Federative Republic of Brazil		5.250%	4/15/12		494			486A
Federative Republic of Brazil		8.875%	4/15/24		350			373
Federative Republic of Brazil		12.250%	3/6/30		560			771
Federative Republic of Brazil		11.000%	8/17/40		2,040			2,501
Republic of Colombia		11.750%	2/25/20		900			1,252
Republic of Panama		10.750%	5/15/20		850			1,184
Republic of Peru		5.000%	3/7/17		492			486F
Republic of Peru		8.750%	11/21/33		600			724
Russian Federation		5.000%	3/31/30		5,200			5,975F
United Mexican States		8.300%	8/15/31		880			1,100
United Mexican States		7.500%	4/8/33		4,240			4,918
Total Yankee Bonds (Identified Cost—$20,791)								21,943
Foreign Government Obligations	2.1%
Indexed SecuritiesD	2.1%
Canadian Real Return Bond		3.000%	12/1/36		2,049G			2,324
Kingdom of Sweden Inflation-Protected Notes		3.500%	12/1/28		10,600H			2,097
Republic of France		3.000%	7/25/09		3,738I			4,926
Republic of France		0.000%	10/25/32		1,305I			577J2
Total Foreign Government Obligations (Identified Cost—$9,235)								9,924
Total Long-Term Securities (Identified Cost—$474,122)								486,225
Investment of Collateral From Securities Lending	25.3%
State Street Navigator Securities Lending Prime Portfolio					118,493	shs		118,493
Total Investments of Collateral From Securities Lending (Identified Cost—$118,493)								118,493

93

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset Inflation Indexed Plus Bond Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Short-Term Securities	1.1%
U.S. Government and Agency Obligations	0.4%
Freddie Mac		0.000%	12/12/05	$	2,000	$	1,985K,L
Options PurchasedN	N.M.
Eurodollar Futures Call, April 2005, Strike Price $96.25					72M		3
Eurodollar Futures Call, November 2005, Strike Price $96.00					537M		3
Eurodollar Futures Put, April 2005, Strike Price $96.00					72M		99
							105
Repurchase Agreements	0.7%
Goldman, Sachs & Company 3.8%, dated 9/30/05, to be repurchased at $3,073 on 10/3/05 (Collateral: $3,195 Freddie Mac zero coupon bonds, due 3/14/06, value $3,135)				$	3,072		3,072
Total Short-Term Securities (Identified Cost—$5,171)							5,162
Total Investments (Identified Cost—$597,786)	130.0%					$	609,880
Obligation to Return Collateral for Securities Loaned	(25.3)%						(118,493	)
Other Assets Less Liabilities	(4.7)%						(22,123	)
Net Assets	100.0%					$	469,264

94

Semi-Annual Report to Shareholders

	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedN
Eurodollar Futures	September 2006	76	$	(86	)
U.S. Treasury Bond Futures	December 2005	28		(11	)
U.S. Treasury Note Futures	December 2005	235		(41	)
U.S. Treasury Note Futures	December 2005	130		(259	)
			$	(397	)
Options WrittenN
Eurodollar Futures Put, Strike Price $95.50	October 2005	1,077	$	(295	)
U.S. Treasury Bond Futures Put, Strike Price $114.00	November 2005	81		(13	)
			$	(308	)

^A Indexed security – The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”) or the Consumer Price Index (“CPI”). The coupon rate is the rate as of September 30, 2005.

^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 0.3% of net assets.

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

^D Inflation-Protected Security – A security whose principal value is adjusted daily or monthly in accordance with changes to the relevant country’s Consumer Price Index or its equivalent used as an inflation proxy. Interest is calculated on the basis of the current adjusted principal value.

^E All or a portion of these securities is on loan.

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

^G Denominated in Canadian dollars.

^H Denominated in Swedish krona.

^I Denominated in Euro currency.

^J 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.

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

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

^M Par represents actual number of contracts.

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

See notes to financial statements.

95

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset High Yield Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Long-Term Securities	94.1%
Corporate Bonds and Notes	84.0%
Advertising	0.6%
WDAC Subsidiary Corp.		8.375%	12/1/14	$	3,020	$	2,922	A
Apparel	1.4%
Levi Strauss & Co.		9.750%	1/15/15		3,210		3,274
Oxford Industries, Inc.		8.875%	6/1/11		1,484		1,543
Russell Corporation		9.250%	5/1/10		1,666		1,683
							6,500
Auto and Automotive Parts	2.1%
Commercial Vehicle Group, Inc.		8.000%	7/1/13		2,120		2,131	A
Delphi Corporation		6.550%	6/15/06		4,950		3,638	B
Delphi Corporation		6.500%	8/15/13		110		74	B
Keystone Automotive Operations Inc.		9.750%	11/1/13		3,900		3,880
							9,723
Auto Parts and Equipment	1.5%
Visteon Corporation		8.250%	8/1/10		7,382		7,013
Automotive Retailer	0.7%
Asbury Automotive Group Inc.		9.000%	6/15/12		3,132		3,148
Banking and Finance	2.9%
Ford Motor Credit Company		7.375%	2/1/11		1,470		1,406
General Motors Acceptance Corporation		6.875%	8/28/12		6,190		5,540
General Motors Acceptance Corporation		8.000%	11/1/31		4,580		3,999
Refco Finance Holdings		9.000%	8/1/12		2,431		2,644
							13,589
Building Materials	2.2%
American Standard, Inc.		7.375%	2/1/08		31		33
Associated Materials Incorporated		0.000%	3/1/14		5,260		2,630	C
Interface, Inc.		7.300%	4/1/08		411		411
Interface, Inc.		10.375%	2/1/10		3,182		3,437
K Hovnanian Enterprises Inc.		6.250%	1/15/16		270		251	A
Nortek, Inc.		8.500%	9/1/14		2,120		1,950
NTK Holdings, Inc.		0.000%	3/1/14		3,090		1,730	C
							10,442

96

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Cable	3.8%
Charter Communications Holdings, LLC		10.250%	9/15/10	$	5,799	$	5,944
Charter Communications Holdings, LLC		0.000%	5/15/11		2,550		1,823	C
CSC Holdings Inc.		8.125%	8/15/09		970		977
CSC Holdings Inc.		7.625%	4/1/11		2,450		2,407
CSC Holdings Inc.		7.000%	4/15/12		360		340	A
CSC Holdings Inc.		7.625%	7/15/18		888		830
EchoStar DBS Corporation		6.754%	10/1/08		610		621	D
EchoStar DBS Corporation		6.625%	10/1/14		2,830		2,802
LodgeNet Entertainment Corporation		9.500%	6/15/13		2,052		2,247
							17,991
Casino Resorts	2.0%
Inn of The Mountain Gods Resort and Casino		12.000%	11/15/10		4,420		4,994
Mandalay Resort Group		9.375%	2/15/10		58		64
Mirage Resorts, Incorporated		7.250%	10/15/06		328		334
Premier Entertainment Biloxi LLC		10.750%	2/1/12		4,434		3,996
							9,388
Chemicals	1.1%
Georgia Gulf Corporation		7.625%	11/15/05		17		17
Huntsman International LLC		10.125%	7/1/09		791		814
Lyondell Chemical Company		10.500%	6/1/13		2,140		2,418
Westlake Chemical Corporation		8.750%	7/15/11		1,943		2,094
							5,343
Coal	2.0%
Alpha Natural Resources LLC		10.000%	6/1/12		3,265		3,624
Sungard Data Systems Inc.		10.250%	8/15/15		5,640		5,711	A
							9,335
Computer Services and Systems	0.6%
Activant Solutions, Inc.		9.504%	4/1/10		2,700		2,754	A,D
Containers and Packaging	1.5%
Graham Packaging Company Inc.		9.875%	10/15/14		1,650		1,584
Graphic Packaging International Corp.		9.500%	8/15/13		1,740		1,636
Owens Brockway Glass Containers		8.750%	11/15/12		1,790		1,933
Solo Cup Company		8.500%	2/15/14		1,940		1,717
							6,870

97

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
Drug and Grocery Store Chains	0.6%
Delhaize America, Inc.		8.125%	4/15/11		$	2,468	$	2,675
Electric	1.4%
Mission Energy Holding Company		13.500%	7/15/08			1,200		1,413
The AES Corporation		8.750%	5/15/13			1,400		1,533	A
The AES Corporation		7.750%	3/1/14			1,650		1,749
The AES Corporation		9.000%	5/15/15			1,665		1,827	A
								6,522
Electronics	1.6%
L 3 Communications Corporation		6.375%	10/15/15			4,750		4,786	A
Rayovac Corporation		8.500%	10/1/13			1,740		1,679
Spectrum Brands Inc.		7.375%	2/1/15			990		891
				��
								7,356
Energy	2.4%
Elwood Energy LLC		8.159%	7/5/26			3,572		3,965
Midwest Generation LLC		8.560%	1/2/16			1,277		1,405
Reliant Energy Inc.		6.750%	12/15/14			3,540		3,478
Sierra Pacific Resources		6.750%	8/15/17			2,360		2,366	A
								11,214
Entertainment	0.5%
Cinemark USA, Inc.		9.000%	2/1/13			1,505		1,554
Warner Music Group		7.375%	4/15/14			1,000		1,002
								2,556
Environmental Services	1.1%
Allied Waste North America Incorporated		8.875%	4/1/08			1,522		1,586
Allied Waste North America Incorporated		8.500%	12/1/08			1,125		1,173
Waste Services Inc.		9.500%	4/15/14			2,250		2,239	A
								4,998
Food, Beverage and Tobacco	1.0%
Dole Food Company, Inc.		8.875%	3/15/11			21		22
Domino’s, Inc.		8.250%	7/1/11			1,924		2,020
R.J. Reynolds Tobacco Holdings Incorporated		6.500%	7/15/10			1,330		1,326	A
Stater Bros. Holdings Inc.		7.370%	6/15/10			1,280		1,261	D
								4,629

98

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Gaming	0.7%
River Rock Entertainment Authority		9.750%	11/1/11	$	3,060	$	3,397
Gas and Pipeline Utilities	3.8%
ANR Pipeline, Inc.		9.625%	11/1/21		1,604		1,976
Dynegy Holdings Inc.		9.875%	7/15/10		1,820		1,984	A
Dynegy Holdings Inc.		8.750%	2/15/12		2,480		2,691
Dynegy Holdings Inc.		10.125%	7/15/13		2,235		2,492	A
Southern Natural Gas Company		8.875%	3/15/10		2,015		2,178
The Williams Companies, Inc.		7.500%	1/15/31		800		850
The Williams Companies, Inc.		8.750%	3/15/32		4,674		5,515
							17,686
Health Care	1.8%
Tenet Healthcare Corporation		9.875%	7/1/14		5,959		6,227
Tenet Healthcare Corporation		9.250%	2/1/15		2,250		2,273
							8,500
Homebuilding	N.M.
Schuler Homes, Inc.		10.500%	7/15/11		69		75
Investment Banking/Brokerage	0.3%
E*Trade Financial Corporation		7.375%	9/15/13		1,610		1,626	A
Lodging/Hotels	N.M.
Host Marriott LP		9.250%	10/1/07		135		142
Machinery	0.9%
Case New Holland Incorporated		9.250%	8/1/11		2,520		2,665
Terex Corporation		7.375%	1/15/14		1,755		1,772
							4,437
Manufacturing (Diversified)	2.4%
American Achievement Corp.		8.250%	4/1/12		530		535
Jacuzzi Brands Incorporated		9.625%	7/1/10		5,086		5,391
Ki Holdings Inc.		0.000%	11/15/14		4,986		3,403	C
Koppers Inc.		9.875%	10/15/13		909		1,005
Samsonite Corporation		8.875%	6/1/11		1,035		1,100
							11,434

99

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
Media	2.8%
AMC Entertainment Incorporated		8.000%	3/1/14	$	1,220	$	1,074
Emmis Operating Company		6.875%	5/15/12		990		986
Lamar Media Corporation		7.250%	1/1/13		1,560		1,630
Lamar Media Corporation		6.625%	8/15/15		450		458	A
LIN Television Corporation		6.500%	5/15/13		1,370		1,298	A
Paxson Communications Corporation		10.750%	7/15/08		26		25
Paxson Communications Corporation		0.000%	1/15/09		701		680	C
PRIMEDIA Inc.		9.165%	5/15/10		1,630		1,720	D
PRIMEDIA Inc.		8.875%	5/15/11		1,000		1,047
Readers Digest Association, Inc.		6.500%	3/1/11		945		959
Sinclair Broadcast Group, Inc.		8.750%	12/15/11		1,480		1,554
Sinclair Broadcast Group, Inc.		8.000%	3/15/12		1,540		1,577
							13,008
Medical Care Facilities	2.3%
Community Health Systems Inc.		6.500%	12/15/12		1,060		1,063
DaVita, Inc.		7.250%	3/15/15		1,950		1,977
Extendicare Health Services, Inc.		9.500%	7/1/10		981		1,045
HCA, Inc.		9.000%	12/15/14		56		65
HCA, Inc.		7.690%	6/15/25		2,130		2,141
HCA, Inc.		7.500%	11/6/33		190		189
HEALTHSOUTH Corporation		8.500%	2/1/08		423		412
HEALTHSOUTH Corporation		10.750%	10/1/08		2,350		2,297
Select Medical Corporation		7.625%	2/1/15		1,730		1,656
							10,845
Medical Products	0.4%
Fresenius Medical Care Capital Trust II		7.875%	2/1/08		1,667		1,734	E
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		150		161
							1,895
Office Equipment and Supplies	0.4%
Acco Brands Corporation		7.625%	8/15/15		1,910		1,891	A
Oil and Gas	9.3%
AmeriGas Partners, L.P.		7.625%	8/15/15		2,090		2,184	A
Belden & Blake Corporation		8.750%	7/15/12		6,715		7,017
Chesapeake Energy Corporation		7.250%	5/20/15		100		107
Chesapeake Energy Corporation		8.750%	7/15/12		500		503
Chesapeake Energy Corporation		7.500%	9/15/13		1,760		1,725
El Paso CGP Co.		6.375%	6/15/15		1,818		1,854

100

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Oil and Gas—Continued
El Paso Corporation		7.625%	8/16/07	$	2,790	$	2,839	A
El Paso Corporation		7.800%	8/1/31		570		571
El Paso Corporation		7.750%	1/15/32		2,410		2,428
El Paso Production Holding Company		7.750%	6/1/13		2,130		2,226
Encore Acquisition Company		6.250%	4/15/14		310		309
Encore Acquisition Company		6.000%	7/15/15		1,030		1,004	A
KCS Energy, Inc.		7.125%	4/1/12		730		748
KCS Energy, Inc.		7.125%	4/1/12		860		882	A
Kerr-McGee Corporation		7.875%	9/15/31		1,970		2,280
Pacific Energy Partners		7.125%	6/15/14		510		529
Pacific Energy Partners		6.250%	9/15/15		1,530		1,534	A
Parker Drilling Company		9.625%	10/1/13		3,520		4,004
Plains Exploration & Production Company		7.125%	6/15/14		1,340		1,410
Pogo Producing Company		6.875%	10/1/17		2,280		2,311	A
Pride International, Inc.		7.375%	7/15/14		1,890		2,053
SESI, LLC		8.875%	5/15/11		710		749
Suburban Propane Partners LP		6.875%	12/15/13		220		200	A
Suburban Propane Partners LP		6.875%	12/15/13		3,140		2,857
Whiting Petroleum Corporation		7.000%	2/1/14		1,520		1,541	A
							43,865
Paper and Forest Products	1.5%
Georgia-Pacific Corp.		9.500%	12/1/11		1,593		1,880
Georgia-Pacific Corp.		7.700%	6/15/15		46		51
NewPage Corporation		12.000%	5/1/13		6,065		5,276
							7,207
Pharmaceuticals	0.4%
Leiner Health Products Inc.		11.000%	6/1/12		2,300		1,967
Real Estate	0.9%
Forest City Enterprises, Inc.		7.625%	6/1/15		255		270
Forest City Enterprises, Inc.		6.500%	2/1/17		1,700		1,683
Ventas Realty, Limited Partnership		8.750%	5/1/09		1,256		1,344
Ventas Realty, Limited Partnership		9.000%	5/1/12		412		468
Ventas Realty, Limited Partnership		6.625%	10/15/14		290		291
							4,056

101

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
Rental and Lease Services (Commercial)	1.0%
NationsRent Inc.		9.500%	10/15/10	$	2,430	$	2,649
NationsRent Inc.		9.500%	5/1/15		1,840		1,913
							4,562
Retail	3.8%
Ames True Temper		7.599%	1/15/12		2,010		1,869	D
Brookstone Company Inc.		12.000%	10/15/12		2,030		2,010	A
J.C. Penney Company, Inc.		6.875%	10/15/15		1,760		1,890
J.C. Penney Company, Inc.		7.400%	4/1/37		2,480		2,681
Neiman Marcus Group, Inc.		10.375%	10/15/15		3,150		3,134	A
Norcraft Companies		9.000%	11/1/11		2,400		2,484
Pantry Inc.		7.750%	2/15/14		875		875
Toys “R” Us, Inc.		7.875%	4/15/13		3,110		2,776
Toys “R” Us, Inc.		7.375%	10/15/18		130		104
							17,823
Special Purpose	7.9%
AAC Group Holding Corporation		0.000%	10/1/12		5,450		3,924	A,C
Alamosa Incorporated		11.000%	7/31/10		923		1,041
Alamosa Incorporated		8.500%	1/31/12		1,020		1,089
Di Finance Corporation		9.500%	2/15/13		4,920		5,141	A
Goodman Global Holding Company, Inc.		6.410%	6/15/12		700		684	A
H & E Equipment Services LLC		11.125%	6/15/12		3,460		3,875
H Lines Finance Holding Corporation		0.000%	4/1/13		2,570		2,133A,C
Milacron Escrow Corporation		11.500%	5/15/11		5,464		5,355
Norcraft Holdings LP		0.000%	9/1/12		1,150		805	C
Qwest Capital Funding, Inc.		7.900%	8/15/10		1,332		1,322
Rainbow National Services LLC		8.750%	9/1/12		930		992	A
Rainbow National Services LLC		10.375%	9/1/14		1,120		1,265	A
Texas Genco LLC		6.875%	12/15/14		1,313		1,336	A
The Williams Companies, Inc. Credit Certificate Trust		6.750%	4/15/09		1,590		1,618	A
UCAR Finance Inc.		10.250%	2/15/12		3,176		3,406
UGS Corporation		10.000%	6/1/12		1,640		1,796
Vanguard Health Holding Company II		9.000%	10/1/14		1,310		1,395
							37,177

102

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Corporate Bonds and Notes—Continued
Steel Products	1.7%
Allegheny Technologies, Inc.		8.375%	12/15/11	$	2,570	$	2,763
Chaparrel Steel Company		10.000%	7/15/13		2,240		2,363	A
Citisteel USA, Inc.		11.553%	9/1/10		3,070		3,024	A,D
							8,150
Storage Facilities	0.2%
Mobile Mini, Inc.		9.500%	7/1/13		987		1,091
Telecommunications	4.9%
AT&T Corp.		9.050%	11/15/11		668		752
Cincinnati Bell Inc.		7.000%	2/15/15		4,332		4,180
Hawaiian Telcom Communications, Inc.		12.500%	5/1/15		4,280		4,323	A
Qwest Communications International Inc.		7.250%	2/15/11		1,320		1,285
Qwest Communications International Inc.		7.500%	2/15/14		932		886	A
Qwest Corporation		7.875%	9/1/11		2,180		2,273
Qwest Corporation		7.120%	6/15/13		840		874	A,D
Qwest Services Corporation		13.500%	12/15/10		5,270		6,034
Telcordia Technologies Inc.		10.000%	3/15/13		400		378	A
Valor Telecommunications Enterprises		7.750%	2/15/15		2,170		2,105
							23,090
Telecommunications (Cellular/Wireless)	1.3%
Citizens Communications Company		9.250%	5/15/11		778		854
Nextel Communications, Inc.		5.950%	3/15/14		1,562		1,599
Nextel Communications, Inc.		7.375%	8/1/15		1,295		1,386
Ubiquitel Operating Company		9.875%	3/1/11		1,250		1,388
US Unwired Inc.		10.000%	6/15/12		780		897
							6,124
Transportation	4.3%
American Airlines, Inc.		7.800%	10/1/06		2,590		2,480
American Commercial Lines LLC		9.500%	2/15/15		1,790		1,933
Continental Airlines, Inc.		7.568%	12/1/06		5,084		4,719
Continental Airlines, Inc.		7.033%	6/15/11		2,486		2,227
Gulfmark Offshore, Inc.		7.750%	7/15/14		2,250		2,391
Horizon Lines, LLC		9.000%	11/1/12		3,370		3,610
Kansas City Southern Railway		9.500%	10/1/08		779		854
Progress Rail Corp.		7.750%	4/1/12		1,830		1,864	A
							20,078
Total Corporate Bonds and Notes (Identified Cost—$397,344)							395,094

103

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE
Mortgage-Backed Securities	0.2%
Fixed Rate Securities
Blackrock Capital Finance L.P. 1996-R1		9.489%	9/25/26	$	1,286	$	823
Ocwen Residential Mortgage Corporation 1998-R1		7.000	10/25/40		410		65
Total Mortgage-Backed Securities (Identified Cost—$997)							888
Yankee BondsH	9.2%
Cable	0.3%
Rogers Cable Inc.		5.500%	3/15/14		1,650		1,522
Chemicals	1.5%
Montell Finance Co. BV		8.100%	3/15/27		1,790		1,727	A
Nell AF SARL		8.375%	8/15/15		1,360		1,330	A
Rhodia SA		10.250%	6/1/10		3,790		4,008
							7,065
Electronics	0.4%
Flextronics International Ltd.		6.500%	5/15/13		1,600		1,632
Media	0.6%
Kabel Deutschland GmbH		10.625%	7/1/14		2,565		2,834	A
Oil and Gas	1.7%
Ocean Rig Norway AS		8.375%	7/1/13		3,140		3,399	A
UtiliCorp Canada Finance Corporation		7.750%	6/15/11		940		989
Western Oil Sands Inc.		8.375%	5/1/12		3,285		3,774
							8,162
Paper and Forest Products	1.0%
Abitibi-Consolidated Inc.		7.370%	6/15/11		987		987	D
Abitibi-Consolidated Inc.		8.375%	4/1/15		950		933
Abitibi-Consolidated Inc.		7.750%	6/15/11		430		423
Ainsworth Lumber Co. Ltd.		7.250%	10/1/12		1,220		1,147
Domtar Inc.		7.875%	10/15/11		1,030		1,020
							4,510

104

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE
Yankee Bonds—Continued
Services	0.4%
Compagnie Generale de Geophysique SA		7.500%	5/15/15	$	1,870		$	1,945	A
Special Purpose	0.3%
JSG Funding PLC		9.625%	10/1/12		1,350			1,357
Steel (Producers)	0.5%
Ispat Inland ULC		9.750%	4/1/14		2,070			2,401
Telecommunications	1.1%
Intelsat, Ltd.		8.625%	1/15/15		360			367	A
Intelsat, Ltd.		5.250%	11/1/08		500			460
Intelsat, Ltd.		7.625%	4/15/12		4,910			4,112
								4,939
Telecommunications (Cellular/Wireless)	0.6%
Rogers Wireless Communications Inc.		9.625%	5/1/11		1,876			2,167
Rogers Wireless Communications Inc.		8.000%	12/15/12		670			708
Rogers Wireless Communications Inc.		7.500%	3/15/15		130			140
								3,015
Transportation	0.8%
OMI Corporation		7.625%	12/1/13		2,279			2,359
Teekay Shipping Corporation		8.875%	7/15/11		1,195			1,362
								3,721
Total Yankee Bonds (Identified Cost—$42,528)								43,103
Common Stocks	0.1%
Construction and Engineering	0.1%
Washington Group International, Inc.					8	shs		488	G,I
Total Common Stocks (Identified Cost—$51)

105

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

Western Asset High Yield Portfolio—Continued

	% OF NET ASSETS	PAR/ SHARES		VALUE
Preferred Stocks	0.5%
Banking and Finance	0.3%
General Motors Corporation		68	shs	$	1,180
Media	0.2%
Paxson Communications Corporation		0.155			1,054	G
Total Preferred Stocks (Identified Cost—$2,463)					2,234
Warrants	0.1%
American Tower Corporation		1	wts		259	A,H
Next Generation Network, Inc.		3			0.028	A,H
Washington Group International, Series A		6			143	H
Washington Group International, Series B		6			143	H
Washington Group International, Series C		3			71	H
Total Warrants (Identified Cost—$48)					616
Total Long-Term Securities (Identified Cost—$443,431)					442,423
Short-Term Securities	4.3%
Repurchase Agreements	4.3%
Deutsche Bank 3.7%, dated 9/30/05, to be repurchased $20,043 on 10/3/05 (Collateral: $20,363 Freddie Mac notes, 2.8%, due 12/27/06, value $20,442)		$20,037			20,037
Total Short-Term Securities (Identified Cost—$20,037)					20,037
Total Investments (Identified Cost—$463,468)	98.4%			$	462,460
Other Assets Less Liabilities	1.6%				7,733
Net Assets	100.0%			$	470,193

^ARule 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 20.8% of net assets.

^B Bond is in default at September 30, 2005.

^CStepped 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.

^DIndexed security ^– The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”). The coupon rate is the rate as of September 30, 2005.

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

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

^GPay-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.

^HNon-income producing.

N.M.—Not meaningful.

See notes to financial statements.

106

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Non-U.S. Opportunity Bond Portfolio

	% OF NET ASSETS	RATE	MATURITY DATE	PARA	VALUE
Long-Term Securities	97.2%
Australian Dollar	14.3%
Government Obligations	14.3%
Commonwealth of Australia		5.250%	8/15/10	4,030	$	3,064
Queensland Treasury Corp		6.000%	6/14/11	9,100		7,122B
Total Australian Dollar						10,186
British Sterling	31.3%
Corporate Bonds and Notes	8.5%
Banking and Finance	0.5%
Landesbank Hessen-Thueringen Girozentrale		5.375%	3/7/12	200		368
Diversified Financial Services	8.0%
Irish Nationwide Building Society		5.875%	12/15/08	200		364
Network Rail MTN Finance PLC		4.875%	3/6/09	3,000		5,369
						5,733
Government Obligations	22.8%
United Kingdom Treasury Bond		4.750%	9/7/15	230		421
United Kingdom of Great Britain and Northern Ireland		8.000%	6/7/21	960		2,396
United Kingdom Treasury Stock		4.750%	6/7/10	4,440		8,004
United Kingdom Treasury Stock		5.000%	3/7/12	2,980		5,478
						16,299
Total British Sterling						22,400
Canadian Dollar	0.7%
Government Obligations	0.7%
Canadian Real Return Bond		4.000%	12/1/31	422		548	B
Danish Krone	6.0%
Corporate Bonds and Notes	1.5%
Nordea Kredit Realkreditaktieselskab		4.000%	10/1/35	6,560		1,042
Government Obligations	4.5%
Kingdom of Denmark		5.000%	11/15/13	17,460		3,230
Total Danish Krone						4,272

107

Semi-Annual Report to Shareholders

PORTFOLIO OF INVESTMENTS—Continued

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

	% OF NET ASSETS	RATE	MATURITY DATE	PARA	VALUE
Euro	31.3%
Corporate Bonds and Notes	11.5%
Banks	3.5%
Bank Nederlandse Gemeenten NV		5.625%	10/25/10	1,850	$	2,529
Diversified Financial Services	3.4%
Kreditanstalt fuer Wiederaufbau		5.250%	1/4/10	1,800		2,391
Investment Banking/Brokerage	4.6%
Caisse de Refinancement L’ Habitat		4.200%	4/25/11	2,000		2,577
Morgan Stanley		2.423%	7/20/12	600		720	C
						3,297
U.S. Government and Agency Obligations	1.7%
Freddie Mac		5.750%	9/15/10	900		1,228
Government Obligations	18.1%
Federal Republic of Germany		2.500%	9/22/06	1,740		2,097
Kingdom of Spain		5.750%	7/30/32	1,970		3,235
Kingdom of the Netherlands		5.500%	1/15/28	1,270		1,978
Republic of France		3.000%	7/25/09	2,174		2,865	B
Republic of France		3.000%	7/25/12	1,968		2,721	B
						12,896
Total Euro						22,341
Norwegian Krone	2.8%
Government Obligations	2.8%
Kingdom of Norway		6.500%	5/15/13	8,370		1,540
Kingdom of Norway		5.000%	5/15/15	2,820		481
Total Norwegian Krone						2,021
Polish Zloty	2.3%
Government Obligations	2.3%
Republic of Poland		6.000%	5/24/09	1,310		420
Republic of Poland		6.250%	10/24/15	3,510		1,207
Total Polish Zloty						1,627

108

Semi-Annual Report to Shareholders

	% OF NET ASSETS	RATE	MATURITY DATE	PARA		VALUE
Swedish Krona	8.5%
Corporate Bonds and Notes	4.0%
Banking and Finance	4.0%
Stadshypotek AB		6.000%	3/18/09		20,000	$	2,859
Government Obligations	4.5%
Kingdom of Sweden		5.500%	10/8/12		21,370		3,203
Total Swedish Krona							6,062
Total Long-Term Securities (Identified Cost—$64,934)							69,457
Short-Term Securities	0.2%
Repurchase Agreements
Goldman, Sachs & Company 3.8%, dated 9/30/05, to be repurchased at $161 on 10/3/05 (Collateral: $125 Tennessee Valley Authority bonds, 7.125%, due 5/1/30, value $167)				$	161		161
Total Short-Term Securities (Identified Cost—$161)
Total Investments (Identified Cost—$65,095)	97.4%					$	69,618
Other Assets Less Liabilities	2.6%						1,828
Net Assets	100.0%					$	71,446

	EXPIRATION	ACTUAL CONTRACT	APPRECIATION/ (DEPRECIATION)
Futures Contracts PurchasedD
Bundesobligation Futures	December 2005	31	$	24
Bundesobligation Futures	December 2005	55		42
			$	66

^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 Inflation-Protected Security – A security whose principal value is adjusted daily or monthly in accordance with changes to the relevant country’s Consumer Price Index or its equivalent used as an inflation proxy. Interest is calculated on the basis of the current adjusted principal value.

^C Indexed security – The rate of interest earned on this security is tied to the London Interbank Offered Rate (“LIBOR”). The coupon rate is the rate as of September 30, 2005.

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

109

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES

September 30, 2005 (Unaudited)

(Amounts in Thousands)

Western Asset Limited Duration Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$82,624)			$	82,122
Short-term securities at value (Identified Cost—$50)				50
Cash				2,434
Receivable for fund shares sold				500
Receivable for futures variation margin				10
Interest and dividends receivable				626
Total assets				85,742
Liabilities:
Payable for securities purchased	$	4,048
Accrued management fee		3
Accrued expenses		32
Total liabilities				4,083
Net Assets			$	81,659
Net assets consist of:
Accumulated paid-in-capital applicable to:
8,269 Institutional Class shares outstanding			$	82,299
Undistributed net investment income				7
Accumulated net realized loss on investments and futures				(192	)
Unrealized depreciation of investments and futures				(455	)
Net Assets			$	81,659
Net Asset Value Per Share:
Institutional Class				$9.88

See notes to financial statements.

110

Semi-Annual Report to Shareholders

Western Asset Intermediate Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$838,244)A			$	833,260
Short-term securities at value (Identified Cost—$77,281)				77,278
Receivable for securities sold				59,394
Receivable for fund shares sold				2,350
Interest and dividends receivable				6,680
Total assets				978,962
Liabilities:
Obligation to return collateral for securities loaned	$	179,860
Payable for securities purchased		83,840
Payable for fund shares repurchased		3
Income distribution payable		134
Accrued management fee		208
Accrued expenses		86
Interest payable		16
Options written (Proceeds—$221)		218
Swap contracts at value		16
Futures variation margin		117
Total liabilities				264,498
Net Assets			$	714,464
Net assets consist of:
Accumulated paid-in-capital applicable to:
68,590 Institutional Class shares outstanding			$	719,809
Undistributed net investment income				253
Accumulated net realized loss on investments, options, futures and swaps				(90	)
Unrealized depreciation of investments, options, futures and swaps				(5,508	)
Net Assets			$	714,464
Net Asset Value Per Share:
Institutional Class				$10.42

^A Market value of securities on loan is $176,243.

See notes to financial statements.

111

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset Intermediate Plus Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$47,268)			$	46,922
Short-term securities at value (Identified Cost—$2,982)				2,982
Cash and foreign currencies				1,994
Swap contracts at value				20
Receivable for fund shares repurchased				821
Receivable for securities sold				4,927
Interest and dividends receivable				509
Total assets				58,175
Liabilities:
Payable for securities purchased	$	6,977
Options written (Proceeds—$16)		16
Income distribution payable		46
Futures variation margin		11
Unrealized depreciation of forward foreign currency contracts		16
Accrued expenses		47
Total liabilities				7,113
Net Assets			$	51,062
Net assets consist of:
Accumulated paid-in-capital applicable to:
5,144 Institutional Class shares outstanding			$	51,407
Undistributed net investment income				8
Undistributed net realized gain on investments, options, futures, swaps and foreign currency transactions				38
Unrealized depreciation of investments, options, futures, swaps and foreign currency translations				(391	)
Net Assets			$	51,062
Net Asset Value Per Share:
Institutional Class				$9.93

See notes to financial statements.

112

Semi-Annual Report to Shareholders

Western Asset Core Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$6,037,296)A			$	6,026,607
Short-term securities at value (Identified Cost—$573,557)				570,434
Cash				1,260
Receivable for securities sold				8,541
Receivable for fund shares sold				92,336
Interest and dividends receivable				33,031
Other assets				1
Total assets				6,732,210
Liabilities:
Obligation to return collateral for securities loaned	$	998,356
Payable for securities purchased		1,570,502
Payable for fund shares repurchased		11,442
Accrued management fee		1,401
Accrued distribution fee		66
Income distribution payable		1,060
Interest expense payable		3,749
Options written (Proceeds—$13,721)		11,947
Futures variation margin		456
Swap contracts at value		6,385
Accrued expenses		380
Total liabilities				2,605,744
Net Assets			$	4,126,466
Net assets consist of:
Accumulated paid-in-capital applicable to:
335,221 Institutional Class shares outstanding			$	3,799,973
28,121 Financial Intermediary Class shares outstanding				321,340
Overdistributed net investment income				(5,768	)
Undistributed net realized gain on investments, options, futures and swaps				23,411
Unrealized depreciation of investments, options, futures and swaps				(12,490	)
Net Assets			$	4,126,466
Net Asset Value Per Share:
Institutional Class				$11.36
Financial Intermediary Class				$11.36

^A Market value of securities on loan is $978,251.

See notes to financial statements.

113

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset Core Plus Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$8,231,433)A			$	8,261,130
Short-term securities at value (Identified Cost—$1,153,841)				1,148,634
Cash and foreign currencies				194,103
Receivable for securities sold				92,085
Receivable for fund shares sold				17,871
Interest and dividends receivable				52,933
Total Assets				9,766,756
Liabilities:
Obligation to return collateral for securities loaned	$	1,500,496
Payable for securities purchased		2,274,740
Payable for fund shares repurchased		838
Accrued management fee		1,948
Accrued distribution fee		60
Income distribution payable		1,900
Interest expense payable		8,231
Options written (Proceeds—$22,669)		19,567
Swap contracts at value		3,027
Futures variation margin		1,632
Unrealized depreciation of forward foreign currency contracts		3,131
Accrued expenses		565
Total liabilities				3,816,135
Net Assets			$	5,950,621
Net assets consist of:
Accumulated paid-in-capital applicable to:
532,397 Institutional Class shares outstanding			$	5,531,228
29,892 Financial Intermediary Class shares outstanding				317,934
Undistributed net investment income				8,713
Undistributed net realized gain on investments, options, futures, swaps and foreign currency transactions				69,939
Unrealized appreciation of investments, options, futures, swaps and foreign currency translations				22,807
Net Assets			$	5,950,621
Net Asset Value Per Share:
Institutional Class				$10.58
Financial Intermediary Class				$10.59

^A Market value of securities on loan is $1,470,363.

See notes to financial statements.

114

Semi-Annual Report to Shareholders

Western Asset Inflation Indexed Plus Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$592,615)A			$	604,718
Short-term securities at value (Identified Cost—$5,171)				5,162
Cash and foreign currencies				842
Receivable for fund shares sold				22
Receivable for securities sold				642
Interest and dividends receivable				3,753
Unrealized appreciation of forward foreign currency contracts				435
Total assets				615,574
Liabilities:
Obligation to return collateral for securities loaned	$	118,493
Payable for securities purchased		26,138
Income distribution payable		187
Accrued management fee		61
Options written (Proceeds—$146)		454
Swap contracts at value		791
Futures variation margin		127
Accrued expenses		59
Total liabilities				146,310
Net Assets			$	469,264
Net assets consist of:
Accumulated paid-in-capital applicable to:
43,701 Institutional Class shares outstanding			$	454,840
Overdistributions net investment income				(15	)
Undistributed net realized gain on investments, options, futures, swaps and foreign currency transactions				2,986
Unrealized appreciation of investments, options, futures, swaps and foreign currency translations				11,453
Net Assets			$	469,264
Net Asset Value Per Share:
Institutional Class				$10.74

^A Market value of securities on loan is $116,150.

See notes to financial statements.

115

Semi-Annual Report to Shareholders

STATEMENTS OF ASSETS AND LIABILITIES—Continued

Western Asset High Yield Portfolio

Assets:
Investment securities at market value (Identified Cost—$443,431)			$	442,423
Short-term securities at value (Identified Cost—$20,037)				20,037
Cash				1,855
Receivable for securities sold				4,370
Interest and dividends receivable				9,715
Total assets				478,400
Liabilities:
Payable for securities purchased	$	7,928
Accrued management fee		214
Accrued expenses		65
Total liabilities				8,207
Net Assets			$	470,193
Net assets consist of:
Accumulated paid-in-capital applicable to:
45,536 Institutional Class shares outstanding			$	462,715
Undistributed net investment income				8,010
Undistributed net realized gain on investments				476
Unrealized depreciation of investments				(1,008	)
Net Assets			$	470,193
Net Asset Value Per Share:
Institutional Class				$10.33

See notes to financial statements.

116

Semi-Annual Report to Shareholders

Western Asset Non U.S. Opportunity Bond Portfolio

Assets:
Investment securities at market value (Identified Cost—$64,934)			$	69,457
Short-term securities at value (Identified Cost—$161)				161
Cash and foreign currencies				401
Futures variation margin				66
Receivable for fund shares sold				240
Interest and dividends receivable				1,348
Total assets				71,673
Liabilities:
Unrealized depreciation of forward foreign currency contracts	$	189
Accrued management fee		3
Accrued expenses		35
Total liabilities				227
Net Assets			$	71,446
Net assets consist of:
Accumulated paid-in-capital applicable to:
6,268 Institutional Class shares outstanding			$	56,617
Overdistributions of net investment income				(686	)
Undistributed net realized gain on investments, options, futures and foreign currency transactions				11,167
Unrealized appreciation of investments, options, futures and foreign currency translations				4,348
Net Assets			$	71,446
Net Asset Value Per Share:
Institutional Class				$11.40

See notes to financial statements.

117

Semi-Annual Report to Shareholders

STATEMENTS OF OPERATIONS

(Amounts in Thousands) (Unaudited)

	SIX MONTHS ENDED SEPTEMBER 30, 2005
	WESTERN ASSET LIMITED DURATION BOND PORTFOLIO			WESTERN ASSET INTERMEDIATE BOND PORTFOLIO			WESTERN ASSET INTERMEDIATE PLUS BOND PORTFOLIO
Investment Income:
Interest	$	1,138		$	15,375		$	1,008
Dividends		35			458			22
Total income		1,173			15,833			1,030
Expenses:
Advisory fee		102			1,377			96
Distribution fee:
Financial Intermediary Class		N/A			N/A			N/A
Audit and legal fees		45			61			53
Custodian fees		23			94			34
Directors’ fees and expenses		1			25			1
Registration fees		25			23			2
Reports to shareholders		3			15			8
Transfer agent and shareholder servicing expense:
Institutional Class		7			19			7
Financial Intermediary Class		N/A			N/A			N/A
Other expenses		5			24			4
		211			1,638			205
Less: Fees waived		(94	)		(80	)		(96	)
Compensating balance creditsA		(1	)		(8	)		(1	)
Total expenses, net of waivers and compensating balance credits		116			1,550			108
Net Investment Income		1,057			14,283			922
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(126	)		(573	)		34
Options		—			647			58
Futures		(37	)		(331	)		78
Foreign currency transactions		N/A			N/A			2
Swaps		—			31			4
		(163	)		(226	)		176
Change in unrealized gain/(loss) on:
Investments		(153	)		358			54
Assets and liabilities denominated in foreign currencies		N/A			N/A			1
		(153	)		358			55
Net Realized and Unrealized Gain/(Loss) on Investments		(316	)		133			231
Change in Net Assets Resulting From Operations	$	741		$	14,415		$	1,153

^A See note 1, compensating balance credits, in the notes to financial statements.

^B Amounts less than $1.

N/A—Not applicable.

See notes to financial statements.

118

Semi-Annual Report to Shareholders

SIX MONTHS ENDED SEPTEMBER 30, 2005
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
$	88,309		$	118,147		$	13,765		$	18,458		$	1,621
	1,437			1,165			—			99			—
	89,746			119,312			13,765			18,557			1,621
	8,016			10,777			465			1,226			191
	370			288			N/A			N/A			N/A
	120			171			46			45			44
	359			501			68			64			40
	105			141			16			13			3
	103			173			4			11			11
	30			55			9			9			3
	62			48			11			9			8
	15			6			N/A			N/A			N/A
	38			38			15			17			10
	9,218			12,198			634			1,394			310
	—			(5	)		(47	)		—			(77	)
	(11	)		(11	)		(6	)		(5	)		—B
	9,207			12,182			581			1,389			233
	80,539			107,130			13,184			17,168			1,388
	1,972			24,009			4,116			791			2,431
	4,779			(5,581	)		20			—			—
	665			24,619			(819	)		—			2
	N/A			(975	)		(63	)		—			8,739
	12,366			19,995			607			—			—
	19,782			62,067			3,861			791			11,172
	4,155			(14,078	)		(2,625	)		(2,471	)		(8,617	)
	—			210			(1	)		—			(33	)
	4,155			(13,868	)		(2,626	)		(2,471	)		(8,650	)
	23,937			48,199			1,235			(1,679	)		2,522
$	104,476		$	155,329		$	14,419		$	15,488		$	3,910

119

Semi-Annual Report to Shareholders

STATEMENTS OF CHANGES IN NET ASSETS

(Amounts in Thousands)

	WESTERN ASSET LIMITED DURATION BOND PORTFOLIO						WESTERN ASSET INTERMEDIATE BOND PORTFOLIO						WESTERN ASSET INTERMEDIATE PLUS BOND PORTFOLIO
	SIX MONTHS ENDED 9/30/05			YEARS ENDED 3/31/05			SIX MONTHS ENDED 9/30/05			YEARS ENDED 3/31/05			SIX MONTHS ENDED 9/30/05			YEAR ENDED 3/31/05
Change in Net Assets:	(UNAUDITED)						(UNAUDITED)						(UNAUDITED)
Net investment income	$	1,057		$	855		$	14,283		$	21,360		$	922		$	530
Net realized gain/(loss) on investments, options, futures, swaps and foreign currency transactions		(163	)		66			(226	)		7,190			176			(107	)
Change in unrealized appreciation/(depreciation) of investments, options, futures, swaps and assets and liabilities denominated in foreign currencies		(153	)		(552	)		358			(19,466	)		55			(446	)
Change in net assets resulting from operations		741			369			14,415			9,084			1,153			(23	)
Distributions to Shareholders:
From net investment income:
Institutional Class		(1,050	)		(882	)		(14,109	)		(21,565	)		(932	)		(543	)
Financial Intermediary Class		N/A			N/A			N/A			N/A			N/A			N/A
From net realized gain on investments:
Institutional Class		—			(62	)		(6,581	)		(15,309	)		—			—
Financial Intermediary Class		N/A			N/A			N/A			N/A			N/A			N/A
Change in net assets from
Fund share transactions:
Institutional Class		44,542			11,819			60,259			101,041			10,204			41,203
Financial Intermediary Class		N/A			N/A			N/A			N/A			N/A			N/A
Change in net assets		44,233			11,244			53,984			73,251			10,425			40,637
Net Assets:
Beginning of period		37,426			26,182			660,480			587,229			40,637			—
End of period	$	81,659		$	37,426		$	714,464		$	660,480		$	51,062		$	40,637
Under/(Over) distributed net investment income	$	7		$	—		$	253		$	79		$	8		$	18

N/A—Not applicable.

See notes to financial statements.

120

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 9/30/05			YEAR ENDED 3/31/05			SIX MONTHS ENDED 9/30/05			YEAR ENDED 3/31/05			SIX MONTHS ENDED 9/30/05			YEARS ENDED 3/31/05			SIX MONTHS ENDED 9/30/05			YEARS ENDED 3/31/05			SIX MONTHS ENDED 9/30/05			YEARS ENDED 3/31/05
(UNAUDITED)						(UNAUDITED)						(UNAUDITED)						(UNAUDITED)						(UNAUDITED)
$	80,539		$	94,566		$	107,130		$	130,635		$	13,184		$	14,553		$	17,168		$	25,540		$	1,388		$	3,166
	19,782			21,564			62,067			109,589			3,861			1,791			791			9,217			11,172			5,065
	4,155			(68,316	)		(13,868	)		(83,280	)		(2,626	)		(2,789	)		(2,471	)		(5,788	)		(8,650	)		(506	)
	104,476			47,814			155,329			156,944			14,419			13,555			15,488			28,969			3,910			7,725
	(79,688	)		(88,562	)		(113,387	)		(129,075	)		(13,797	)		(14,661	)		(16,111	)		(21,159	)		(167	)		(2,732	)
	(6,137	)		(5,081	)		(4,863	)		(2,045	)		N/A			N/A			N/A			N/A			N/A			N/A
	(1,163	)		(62,444	)		(14,478	)		(86,844	)		(942	)		(12,719	)		(5,384	)		—			(611	)		(137	)
	(94	)		(3,343	)		(622	)		(995	)		N/A			N/A			N/A			N/A			N/A			N/A
	513,084			1,195,269			1,047,306			1,338,685			7,838			129,192			61,783			217,149			(20,856	)		(12,713	)
	52,688			150,821			125,197			185,779			N/A			N/A			N/A			N/A			N/A			N/A
	583,166			1,234,474			1,194,482			1,462,449			7,518			115,367			55,776			224,959			(17,724	)		(7,857	)
	3,543,300			2,308,826			4,756,139			3,293,690			461,746			346,379			414,417			189,458			89,170			97,027
$	4,126,466		$	3,543,300		$	5,950,621		$	4,756,139		$	469,264		$	461,746		$	470,193		$	414,417		$	71,446		$	89,170
$	(5,768	)	$	(482	)	$	8,713		$	19,833		$	(15	)	$	598		$	8,010		$	6,953		$	(686	)	$	(1,907	)

121

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, 2005C	$	9.89	$	.18D		$	(.01	)	$	.17
Years Ended March 31,
2005		10.09		.24	D		(.17	)		.07
2004E		10.00		.08	D		.09			.17
Western Asset Intermediate Bond Portfolio
—Institutional Class
Six Months Ended, September 30, 2005C	$	10.51	$	.22	H	$	.01		$	.23
Years Ended March 31,
2005		11.01		.38	H		(.22	)		.16
2004		10.92		.44	H		.36			.80
2003		10.39		.53			.62			1.15
2002		10.65		.57	H		(.13	)		.44
2001		10.09		.68	H		.56			1.24
Western Asset Intermediate Plus Bond Portfolio
—Institutional Class
Six Months Ended, September 30, 2005C	$	9.86	$	.19	I	$	.07		$	.26
Year Ended March 31, 2005		10.00		.32	I		(.14	)		.18
Western Asset Core Bond Portfolio
—Institutional Class
Six Months Ended, September 30, 2005C	$	11.29	$	.24		$	.08		$	.32
Years Ended March 31,
2005		11.81		.39			(.21	)		.18
2004		11.57		.41			.45			.86
2003		11.01		.55			.65			1.20
2002		11.09		.62	J		.05			.67
2001		10.39		.73	J		.70			1.43
—Financial Intermediary Class
Six Months Ended, September 30, 2005C	$	11.29	$	.22		$	.09		$	.31
Years Ended March 31,
2005		11.81		.38			(.23	)		.15
2004		11.57		.40	K		.43			.83
2003		11.02		.53			.63			1.16
2002		11.10		.59	K		.06			.65
2001		10.40		.70	K		.70			1.40

122

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 ASSETSA		NET EXPENSES TO AVERAGE NET ASSETSB		NET INVESTMENT INCOME TO AVERAGE NET ASSETS		PORTFOLIO TURNOVER RATE		NET ASSETS, END OF PERIOD (IN THOUSANDS)
$	(.18	)	$	—		$	(.18	)	$	9.88	1.70	%F	.40	%D,G	0.40	%D,G	3.7	%D,G	83.5	%F	$	81,659
	(.25	)		(.02	)		(.27	)		9.89	.69	%	.40	%D	0.40	%D	2.4	%D	231.5	%		37,426
	(.08	)		—			(.08	)		10.09	1.69	%F	.40	%D,G	0.40	%D,G	1.6	%D,G	125.5	%F		26,182
$	(.22	)	$	(.10	)	$	(.32	)	$	10.42	2.19	%F	.45	%G,H	0.45	%G,H	4.10	%G,H	116.37	%F	$	714,464
	(.38	)		(.28	)		(.66	)		10.51	1.66	%	.45	%H	0.45	%H	3.6	%H	215.7	%		660,480
	(.44	)		(.27	)		(.71	)		11.01	7.58	%	.45	%H	0.45	%H	4.0	%H	255.1	%		587,229
	(.53	)		(.09	)		(.62	)		10.92	11.37	%	.45	%	0.45	%	5.0	%	238.5	%		539,874
	(.57	)		(.13	)		(.70	)		10.39	4.20	%	.45	%H	0.45	%H	5.3	%H	274.8	%		628,196
	(.68	)		—			(.68	)		10.65	12.79	%	.45	%H	0.45	%H	6.6	%H	328.4	%		457,822
$	(.19	)	$	—		$	(.19	)	$	9.93	2.69	%F	.45	%G,I	0.45	%G,I	3.8	%G,I	184.2	%F	$	51,062
	(.32	)		—			(.32	)		9.86	1.81	%F	.45	%G,I	0.45	%G,I	3.1	%G,I	463.5	%F		40,637
$	(.25	)	$	N.M.		$	(.25	)	$	11.36	2.90	%F	.45	%G	0.45	%G	4.1	%G	299.23	%F	$	3,807,056
	(.39	)		(.31	)		(.70	)		11.29	1.68	%	.46	%	0.46	%	3.4	%	407.2	%		3,277,782
	(.44	)		(.18	)		(.62	)		11.81	7.64	%	.49	%	0.49	%	3.5	%	464.6	%		2,187,219
	(.55	)		(.09	)		(.64	)		11.57	11.19	%	.49	%	0.49	%	4.9	%	438.6	%		1,400,431
	(.62	)		(.13	)		(.75	)		11.01	6.14	%	.50	%J	0.50	%J	5.6	%J	595.2	%		971,544
	(.73	)		—			(.73	)		11.09	14.37	%	.50	%J	0.50	%J	6.8	%J	387.2	%		826,459
$	(.24	)	$	N.M.		$	(.24	)	$	11.36	2.76	%F	.71	%G	0.71	%G	3.9	%G	299.23	%F	$	319,410
	(.36	)		(.31	)		(.67	)		11.29	1.42	%	.72	%	0.72	%	4.2	%	407.2	%		265,518
	(.41	)		(.18	)		(.59	)		11.81	7.36	%	.75	%K	0.75	%K	3.3	%K	464.6	%		121,607
	(.52	)		(.09	)		(.61	)		11.57	10.80	%	.75	%	0.75	%	4.1	%	438.6	%		79,120
	(.60	)		(.13	)		(.73	)		11.02	5.88	%	.75	%K	0.75	%K	5.3	%K	595.2	%		1,885
	(.70	)		—			(.70	)		11.10	13.96	%	.75	%K	0.75	%K	6.6	%K	387.2	%		1,883

123

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, 2005C	$	10.52	$	.21		$	.12		$	.33
Years Ended March 31,
2005		10.71		.37	L		.04			.41
2004		10.40		.37	L		.55			.92
2003		9.88		.51	L		.62			1.13
2002		10.07		.56	L,M		.06	M		.62
2001		9.48		.66	L		.59			1.25
—Financial Intermediary Class
Six Months Ended, September 30, 2005C	$	10.52	$	.17	N	$	.16		$	.33
Years Ended March 31,
2005		10.71		.35	N		.04			.39
2004		10.40		.36	N		.54			.90
2003		9.87		.48	N		.63			1.11
2002O		10.04		.11	M,N		(.17	)M		(.06	)
Western Asset Inflation Indexed Plus Bond Portfolio
—Institutional Class
Six Months Ended, September 30, 2005C	$	10.74	$	.31P		$	.03		$	.34
Years Ended March 31,
2005		11.24		.42	P		(.10	)		.32
2004		10.96		.37	P		.71			1.08
2003		9.92		.51	P		1.19			1.70
2002		9.98		.41	P		.01			.42
2001Q		10.00		.08	P		(.02	)		.06
Western Asset High Yield Portfolio
—Institutional Class
Six Months Ended September, 2005C	$	10.49	$	.38		$	(.03	)	$	.35
Years Ended March 31,
2005		10.28		.61			.17			.78
2004		9.56		.78	R		.89			1.67
2003		10.36		.96	R		(.82	)		.14
2002S		10.00		.53	R		.07			.60

124

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 EXPENSES TO AVERAGE NET ASSETSB		NET INVESTMENT INCOME TO AVERAGE NET ASSETS		PORTFOLIO TURNOVER RATE		NET ASSETS, END OF PERIOD (IN THOUSANDS)
$	(.24	)	$	(.03	)	$	(.27	)	$	10.58	3.16	%F	.45	%G	.45	%G	4.1	%G	239.02	%F	$	5,634,151
	(.35	)		(.25	)		(.60	)		10.52	4.01	%	.45	%L	.45	%L	3.3	%L	586.1	%		4,565,054
	(.41	)		(.20	)		(.61	)		10.71	9.12	%	.45	%L	.45	%L	3.6	%L	463.8	%		3,286,650
	(.51	)		(.10	)		(.61	)		10.40	11.78	%	.45	%L	.45	%L	5.0	%L	422.6	%		1,866,619
	(.54	)		(.27	)		(.81	)		9.88	6.34	%	.45	%L	.45	%L	5.3	%L	590.7	%		991,673
	(.66	)		—			(.66	)		10.07	13.73	%	.46	%L	.46	%L	6.8	%L	432.8	%		444,451
$	(.23	)	$	(.03	)	$	(.26	)	$	10.59	3.14	%F	.70	%G,N	.70	%G,N	3.7	%G,N	239.02	%F	$	316,470
	(.33	)		(.25	)		(.58	)		10.52	3.77	%	.70	%N	.70	%N	2.9	%N	586.1	%		191,085
	(.39	)		(.20	)		(.59	)		10.71	8.82	%	.70	%N	.70	%N	3.2	%N	463.8	%		7,040
	(.48	)		(.10	)		(.58	)		10.40	11.57	%	.70	%M	.70	%N	4.8	%N	422.6	%		369
	(.11	)		—			(.11	)		9.87	(.57	)%F	.70	%G,N	.70	%G,N	5.3	%G,N	590.7	%G		235
$	(.32	)	$	(.02	)	$	(.34	)	$	10.74	3.20	%F	.25	%G,P	.25	%G,P	5.7	%G,P	103.2	%F	$	469,264
	(.42	)		(.40	)		(.82	)		10.74	3.27	%	.25	%P	.25	%P	3.8	%P	255.5	%		461,746
	(.37	)		(.43	)		(.80	)		11.24	10.33	%	.25	%P	.25	%P	3.4	%P	281.8	%		346,379
	(.51	)		(.15	)		(.66	)		10.96	17.62	%	.25	%P	.25	%P	4.8	%P	75.4	%		290,306
	(.41	)		(.07	)		(.48	)		9.92	4.28	%	.25	%P	.25	%P	5.0	%P	79.5	%		210,635
	(.08	)		—			(.08	)		9.98	.55	%F	.25	%G,P	.25	%G,P	8.9	%G,P	—			11,978
$	(.38	)	$	(.13	)	$	(.51	)	$	10.33	3.46	%F	.63	%G	.63	%G	7.7	%G	72.6	%F	$	470,193
	(.57	)		—			(.57	)		10.49	7.81	%	.62	%	.62	%	7.0	%	121.0	%		414,417
	(.95	)		—			(.95	)		10.28	18.27	%	.58	%R	.58	%R	7.9	%R	116.0	%		189,458
	(.94	)		—			(.94	)		9.56	2.22	%	.55	%R	.55	%R	10.2	%R	110.1	%		149,937
	(.24	)		—			(.24	)		10.36	6.02	%F	.55	%G,R	.55	%G,R	10.4	%G,R	51.8	%G		152,729

125

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, 2005	$	10.98	$	.15T		$	.36		$	.51
Years Ended March 31,
2005		10.52		.19T			.57			.76
2004		10.91		.97T			(.01	)		.96
2003		9.25		.25	T		1.52			1.77
2002		9.25		—	M,T		.46	M		.46
2001		9.59		.59	T		(.05	)		.54

^A This ratio reflects expenses before compensating balance credits, but any of the voluntary expense waiver.

^B This ratio reflects expenses net of compensating balance credits and voluntary expense waivers.

^C Unaudited.

^D 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, 2005, 0.73%; and for the year ended March 31, 2005, 0.73%; and for the period October 1, 2003 (commencement of operations) to March 31, 2004, 0.68%.

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

^F Not annualized.

^G Annualized.

^H 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, 2005, 0.47%; and for the years ended March 31, 2005, 0.46%; 2004, 0.47%; 2002, 0.47%; and 2001, 0.47%.

^I 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 six months ended September 30, 2005, 0.85%; and for the period ended March 31, 2005, 1.22%.

^J 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% and 2001, 0.53%.

^K 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%.

^L 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 years ended March 31, 2005, 0.45%; 2004, 0.48%; 2003, 0.50%; 2002, 0.54%; and 2001, 0.57%.

126

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 EXPENSES TO AVERAGE NET ASSETSB		NET INVESTMENT INCOME TO AVERAGE NET ASSETS		PORTFOLIO TURNOVER RATE		NET ASSETS, END OF PERIOD (IN THOUSANDS)
$	(.02	)	$	(.07	)	$	(.09	)	$	11.40	4.70	%F	.55	%G,T	.55	%G,T	3.3	%G,T	106.9	%F	$	71,446
	(.29	)		(.01	)		(.30	)		10.98	7.60	%	.55	%T	.55	%T	3.2	%T	40.8	%		89,170
	(1.01	)		(.34	)		(1.35	)		10.52	9.06	%	.55	%T	.55	%T	4.0	%T	42.8	%		97,027
	(.11	)		—			(.11	)		10.91	19.26	%	.55	%T	.55	%T	4.4	%T	187.5	%		59,026
	(.46	)		—			(.46	)		9.25	5.21	%	.55	%T	.55	%T	4.5	%T	307.6	%		47,487
	(.88	)		—			(.88	)		9.25	6.31	%	.55	%T	.55	%T	5.6	%T	263.4	%		93,385

^M 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.

^N 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, 2005, 0.71%; and for the years ended March 31, 2005, 0.71%; 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%.

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

^P 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, 2005, 0.27%; and for the years ended March 31, 2005, 0.27%; 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%.

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

^R 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%.

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

^T 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, 2005, 0.73%; and for the years ended March 31, 2005, 0.68%; 2004, 0.80%; 2003, 0.82%; 2002, 0.82%; and 2001, 0.85%.

See notes to financial statements.

127

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, Intermediate Plus, Inflation Indexed, High Yield, and Non-U.S. are not active. 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 of Directors. In determining fair value, the Board of Directors or the Funds’ Valuation Committee considers 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, 2005, 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	$	64,919	$	27,367	$	38,922	$	7,944
Intermediate		446,842		306,587		423,433		331,640
Intermediate Plus		58,600		35,043		53,410		29,070
Core		12,538,650		2,286,628		11,968,005		1,345,721
Core Plus		11,026,009		4,661,712		9,650,892		3,487,307
Inflation Indexed		432,587		60,148		439,279		54,710
High Yield		—		352,584		—		309,988
Non-U.S.		—		78,761		—		85,843

128

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 trading on the Exchange, usually at 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 gain 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.

Compensating Balance Credits

The Funds have an arrangement with their custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on the Funds’ cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments. For the period ended September 30, 2005, the Funds earned compensating balance credits of $1 for Limited Duration, $8 for Intermediate, $1 for Intermediate Plus, $11 for Core, $11 for Core Plus, $6 for Inflation Indexed, and $5 for High Yield. Non-U.S. earned compensating balance credits of less than $1.

Other

In the normal course of business, each Fund enters into contracts that provide general indemnifications. Each Fund’s maximum exposure under these arrangements is dependent upon claims that may be made against the Fund in the future and, therefore, cannot be estimated; however, based on experience, the risk of material loss from such claims in considered remote.

129

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

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 gain 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 distributions and composition of net assets for tax purposes may 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, 2005.

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, 2005, Intermediate Plus had capital loss carryforwards of $113, expiring in 2013. There were no capital loss carryforwards for any of the other Funds.

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, 2005, open forward currency exchange contracts were as follows:

Intermediate Plus

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/8/05	USD	205	AUD	272	$	(2	)
11/8/05	USD	410	CAD	498		(20	)
11/8/05	USD	1,394	EUR	1,153		6
					$	(16	)

Core Plus

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/8/05	EUR	28,857	USD	34,912	$	(154	)
11/8/05	USD	200,043	EUR	165,560		795
11/8/05	JPY	3,680,000	USD	33,153		(622	)
11/8/05	USD	23,850	AUD	31,627		(238	)
11/8/05	USD	59,513	CAD	72,410		(2,912	)
					$	(3,131	)

130

Semi-Annual Report to Shareholders

Inflation Indexed

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/8/05	CAD	10,340	USD	8,559	$	356
11/8/05	USD	1,468	CAD	1,796		(80	)
11/8/05	EUR	2,834	USD	3,430		(17	)
11/8/05	USD	10,882	EUR	8,904		157
11/8/05	EUR	2,730	SEK	25,700		(16	)
11/8/05	JPY	1,548,862	USD	14,045		(352	)
11/8/05	USD	9,857	JPY	1,052,090		387
					$	435

Non-U.S.

Settlement Date	Contract to				Unrealized Gain/(Loss)
	ReceiveA		DeliverA
11/8/05	CAD	548	USD	450	$	22
11/8/05	USD	905	CAD	1,100		(44	)
11/8/05	EUR	2,864	AUD	8,023		(37	)
11/8/05	EUR	3,108	NOK	57,272		(2	)
11/8/05	NOK	40,876	EUR	6,176		7
11/8/05	EUR	665	PLN	5,524		(47	)
11/8/05	EUR	18,966	USD	23,344		(499	)
11/8/05	USD	54,215	EUR	44,825		226
11/8/05	HUF	148,156	USD	751		(40	)
11/8/05	USD	720	HUF	148,156		8
11/8/05	NOK	17,115	USD	2,614		1
11/8/05	USD	3,383	NOK	22,119		2
11/8/05	PLN	1,220	USD	1,216		(4	)
11/8/05	USD	1,740	PLN	5,956		(87	)
11/8/05	SEK	17,178	USD	2,220		18
11/8/05	USD	8,431	SEK	65,546		(40	)
11/8/05	USD	6,767	AUD	8,800		4
11/8/05	USD	4,227	DKK	26,146		7
11/8/05	USD	22,972	GBP	12,859		316
					$	(189	)

^A Definitions of currency abbreviations:

AUD—Australian dollar

CAD—Canadian dollar

DKK—Danish krona

EUR—Euro

GBP—British pound

HUF—Hungarian forint

JPY—Japanese yen

NOK—Norwegian krone

PLN—Polish zlotych

SEK—Swedish krona

USD—United States dollar

131

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

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 call 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.

132

Semi-Annual Report to Shareholders

Activity in written call and put options during the six months ended September 30, 2005, was as follows:

	Calls					Puts
Intermediate	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2005	330		$	109		406		$	106
Options written	15,401,010			474		1,130			476
Options closed	(1,340	)		(549	)	(1,177	)		(362	)
Options expired	(15,400,000	)		(34	)	—			—
Options exercised	—			—
Options outstanding at September 30, 2005	—		$	—		359		$	220

	Calls					Puts
Intermediate Plus	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2005	18		$	4		26		$	7
Options written	3,200,064			40		2,200,073			45
Options closed	(82	)		(31	)	(73	)		(22	)
Options expired	(3,200,000	)		(13	)	(2,200,000	)		(14	)
Options exercised	—			—		—			—
Options outstanding at September 30, 2005	—		$	—		26		$	16

	Calls					Puts
Core	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2005	6,504,873		$	3,162		136,603,194		$	2,866
Options written	250,019,011			16,648		236,919,682			15,501
Options closed	(62,207,621	)		(5,730	)	(142,930,925	)		(5,092	)
Options expired	(94,606,529	)		(6,051	)	(115,206,290	)		(5,097	)
Options exercised	(2,487	)		(1,730	)	(1,242	)		(756	)
Options outstanding at September 30, 2005	99,707,247		$	6,299		115,384,419		$	7,422

	Calls					Puts
Core Plus	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2005	9,008,669		$	6,366		191,104,704		$	4,321
Options written	434,028,097			25,944		512,627,431			25,428
Options closed	(26,710,891	)		(8,170	)	(199,478,458	)		(7,640	)
Options expired	(229,807,363	)		(7,869	)	(254,006,969	)		(7,228	)
Options exercised	(7,351	)		(5,856	)	(3,473	)		(2,629	)
Options outstanding at September 30, 2005	186,511,161		$	10,415		250,243,235		$	12,254

	Calls					Puts
Inflation Indexed	Actual Contracts		Premiums			Actual Contracts	Premiums
Options outstanding at March 31, 2005	38		$	24		—	$	—
Options written	320			156		1,197		146
Options closed	(282	)		(130	)	—		—
Options expired	(76	)		(50	)	—		—
Options exercised	—			—		—		—
Options outstanding at September 30, 2005	—		$	—		1,197	$	146

133

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NOTES TO FINANCIAL STATEMENTS—Continued

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, 2005, are listed at the end of each Fund’s portfolio of investments.

Swap Agreements

The Funds may invest in swaps for the purpose of managing their exposure to interest rate, credit or market risk.

Total return swaps are agreements to exchange the return generated by one instrument for the return generated by another instrument, for example, the agreement to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the index exceeds the offsetting interest obligation, the Funds will receive a payment from the counterparty. To the extent it is less, the Funds will make a payment to the counterparty. Periodic payments received or made by the Funds are recorded in the accompanying statements of operations as realized gains or losses, respectively.

Credit default swaps (denoted in the table on the following pages by a superscript 1) involve the exchange of a fixed-rate premium for protection against the loss in value of an underlying debt instrument in the event of a defined credit event (such as payment default or bankruptcy). Under the terms of the swap, one party acts as a “guarantor,” receiving a periodic payment that is a fixed percentage applied to a notional principal amount. In return, the party agrees to purchase the notional amount of the underlying instrument, at par, if a credit event occurs during the term of the swap. The Funds may enter into credit default swaps in which a Fund or its counterparty act as guarantors. By acting as the guarantor of a swap, a Fund assumes the market and credit risk of the underlying instrument, including liquidity and loss of value. Interest rate swap contracts (denoted in the table on the following pages by a superscript 2) involve the exchange of commitments to pay and receive interest based on a notional principal amount.

Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation/(depreciation). Gains or losses are realized upon termination of the swap agreement. Periodic payments and premiums received or made by a Fund are recorded in the accompanying statements of operations as realized gains or losses, respectively. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with the Funds’ custodian in compliance with swap contracts. Risks may exceed amounts recognized on the statements of assets and liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.

134

Semi-Annual Report to Shareholders

WESTERN ASSET INTERMEDIATE BOND PORTFOLIO
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (Apache Corporation, 6.25%, due 4/15/12)1	March 20, 2010	Specified amount upon credit event noticeB	0.36% Quarterly	$	2,275	$	5
Deutsche Bank AG (Freddie Mac, 5.00%, due 7/15/14)1	March 20, 2015	Specified amount upon credit event noticeB	0.29% Quarterly		2,400		20
Lehman Brothers Holdings Inc. (Dynegy Holdings, 8.75%, due 2/15/12)1	April 23, 2007	Specified amount upon credit event noticeC	3-month LIBORE Quarterly		2,200		33
Merrill Lynch & Co., Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.90% Quarterly		6,500		8
				$	13,375	$	66
WESTERN ASSET INTERMEDIATE PLUS BOND PORTFOLIO
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (Apache Corporation, 6.25%, due 4/15/12)1	March 20, 2015	Specified amount upon credit event noticeB	0.36% Quarterly	$	100	$	N.M.
JP Morgan Chase & Co. (Countrywide Home Loans, 5.625%, due 7/15/09)1	June 20, 2010	Specified amount upon credit event noticeB	0.58% Quarterly		200		1
Merrill Lynch & Co., Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.90% Quarterly		400		0.4
Merrill Lynch & Co., Inc. (iBoxx HY3)1	December 20, 2009	Specified amount upon credit event noticeB	3.75% Quarterly		396		5
The Goldman Sachs Group, Inc. (iBoxx HY2)1	September 20, 2009	Specified amount upon credit event noticeB	4.30% Quarterly		248		8
				$	1,344	$	14
WESTERN ASSET CORE BOND PORTFOLIO
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Bear Stearns, Inc. (Ford Motor Credit Company, 7.00%, due 10/1/13)1	June 20, 2010	Specified amount upon credit event noticeB	4.830% Quarterly	$	12,500	$	281

135

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M8 1-Month LIBORE + 160 bpF, due 6/25/35)1	April 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD	$	784	$	2
Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M9 1-Month LIBORE + 250 bpF, due 6/25/35)1	April 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		784		(5)
Credit Suisse First Boston USA (ACE Securities Corp. 2005-HE1 M8 1-Month LIBORE + 138 bpF, due 2/25/35)1	February 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (ACE Securities Corp. 2005-HE1 M9 1-Month LIBORE + 220 bpF, due 2/25/35)1	February 25, 2035	2.060% Monthly	Specified amount upon credit event noticeD		784		(6)
Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2004-4 B2 1-Month LIBORE +190 bpF, due 10/25/34)1	October 25, 2034	1.370% Monthly	Specified amount upon credit event noticeD		1,046		(0.4)
Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2005 B2 1Month LIBORE + 130 bpF, due 3/25/35)1	March 25, 2035	1.310% Quarterly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2005 B3 1-Month LIBORE + 200 bpF, due 3/25/35)1	March 25, 2035	2.180% Quarterly	Specified amount upon credit event noticeD		784		(10)
Credit Suisse First Boston USA (Argent Securities Inc. 2004-W4 M3 1-Month LIBORE + 300 bpF, due 3/25/34)1	March 25, 2034	2.200% Monthly	Specified amount upon credit event noticeD		1,046		(10)
Credit Suisse First Boston USA (Argent Securities Inc, 2004-W11 M9 1-Month LIBORE + 225 bpF, due 11/25/34)1	November 25, 2034	1.330% Monthly	Specified amount upon credit event noticeD		784		1

136

Semi-Annual Report to Shareholders

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Argent Securities Inc, 2004-W11 M10 1-Month LIBORE + 350 bpF, due 11/25/34)1	November 25, 2034	2.150% Monthly	Specified amount upon credit event noticeD	$	784	$	(7)
Credit Suisse First Boston USA (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2010	Specified amount upon credit event noticeB	1.400% Quarterly		6,500		(288)
Credit Suisse First Boston USA (Finance America Mortgage Loan Trust 2004-3 M8 1-Month LIBORE + 180 bpF, due 11/25/34)1	November 25, 2034	1.310% Monthly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (Finance America Mortgage Loan Trust 2004-3 M9 1-Month LIBORE + 315 bpF, due 11/25/34)1	November 25, 2034	2.180% Monthly	Specified amount upon credit event noticeD		784		(8)
Credit Suisse First Boston USA (Fremont Home Loan Trust 2005-A, 1-Month LIBORE + 135 bpF, due 1/25/35)1	January 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (Fremont Home Loan Trust 2005-A, 1-Month LIBORE + 100 bpF, due 1/25/35)1	January 25, 2035	2.080% Monthly	Specified amount upon credit event noticeD		784		(7)
Credit Suisse First Boston USA (IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M8, 1-Month LIBORE + 190 bpF, due 3/25/35)1	March 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		784		2
Credit Suisse First Boston USA (IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M9, 1-Month LIBORE + 325 bpF, due 3/25/35)1	March 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		784		(5)

137

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2004-1 M9 1-Month LIBORE + 350 bpF, due 2/25/34)1	February 25, 2034	2.150% Monthly	Specified amount upon credit event noticeD	$	1,046	$	(5)
Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2005-1 M8 1-Month LIBORE + 170 bpF, due 2/25/35)1	February 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		784		2
Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2005-1 M9 1-Month LIBORE + 275 bpF, due 2/25/35)1	February 25, 2035	2.080% Monthly	Specified amount upon credit event noticeD		784		(8)
Credit Suisse First Boston USA (MASTR Asset Backed Securities Trust 2005-NC1 M8 1-Month LIBORE + 153 bpF, due 12/25/34)1	December 25, 2034	1.310% Monthly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (MASTR Asset Backed Securities Trust 2005-NC1 M9 1-Month LIBORE + 240 bpF, due 12/25/34)1	December 25, 2034	2.080% Monthly	Specified amount upon credit event noticeD		784		(6)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2004-WMC4 B3 1-Month LIBORE + 375 bpF, due 4/25/35)1	April 25, 2035	2.150% Monthly	Specified amount upon credit event noticeD		1,046		(7)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B2 1-Month LIBORE + 135 bpF, due 9/25/35)1	September 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		784		2
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B3 1-Month LIBORE + 225 bpF, due 9/25/35)1	September 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		784		(5)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-NC1 B2 1-Month LIBORE + 130 bpF, due 10/25/35)1	October 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		784		2

138

Semi-Annual Report to Shareholders

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-NC1 B3 1-Month LIBORE + 205 bpF, due 10/25/35)1	October 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD	$	784	$	(5)
Credit Suisse First Boston USA (Morgan Stanley ABS Capital I 2005-WMC1 B2 1-Month LIBORE + 130 bpF, due 1/25/35)1	January 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (Morgan Stanley ABS Capital I 2005-WMC1 B3 1-Month LIBORE + 215 bpF, due 1/25/35)1	January 25, 2035	2.180% Monthly	Specified amount upon credit event noticeD		784		(9)
Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2004-2 M9 1-Month LIBORE + 325 bpF, due 8/25/34)1	August 25, 2034	2.150% Monthly	Specified amount upon credit event noticeD		1,046		(6)
Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2005-1 M8 1-Month LIBORE + 140 bpF, due 3/25/35)1	March 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		784		1
Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2005-1 M9 1-Month LIBORE + 205 bpF, due 3/25/35)1	March 25, 2035	2.180% Monthly	Specified amount upon credit event noticeD		784		(10)
Credit Suisse First Boston USA (Novastar Home Equity Loan 2005-1 B2 1-Month LIBORE + 135 bpF, due 6/25/35)1	June 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		784		2
Credit Suisse First Boston USA (Novastar Home Equity Loan 2005-4 B3 1-Month LIBORE + 195 bpF, due 6/25/35)1	June 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		784		(7)
Credit Suisse First Boston USA (Park Place Securities Inc. 2005-WCH1 M8 1-Month LIBORE + 155 bpF, due 1/25/36)1	January 25, 2036	1.360% Monthly	Specified amount upon credit event noticeD		784		1

139

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Park Place Securities Inc. 2005-WCH1 M9 1-Month LIBORE + 250 bpF, due 1/25/36)1	January 25, 2036	2.180% Monthly	Specified amount upon credit event noticeD	$	784	$	(9)
Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2004-1 M6 1-Month LIBORE + 230 bpF, due 6/25/34)1	June 25, 2034	1.370% Quarterly	Specified amount upon credit event noticeD		1,046		0
Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2005-1, 1-Month LIBORE + 165 bpF, due 1/25/35)1	January 25, 2035	1.258% Monthly	Specified amount upon credit event noticeD		784		2
Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2005-1 B3 1-Month LIBORE + 260 bpF, due 1/25/35)1	January 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		784		(8)
Deutsche Bank AG (Apache Corporation, 6.25%, due 4/15/12)1	March 20, 2015	Specified amount upon credit event noticeB	0.360% Quarterly		1,170		2
Deutsche Bank AG (Dynegy Holdings, 8.75%, due 2/15/12)1	May 1, 2007	Specified amount upon credit event noticeC	5.250% Quarterly		3,340		154
Deutsche Bank AG (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2010	Specified amount upon credit event noticeB	1.250% Quarterly		1,100		(54)
Deutsche Bank AG (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2015	Specified amount upon credit event noticeB	1.670% Quarterly		1,300		(148)
Deutsche Bank AG (Fannie Mae, 6.00%, due 5/15/11)1	December 20, 2009	Specified amount upon credit event noticeB	0.215% Quarterly		11,700		(56)
Deutsche Bank AG (Ford Motor Company, 7.45%, due 7/16/31)1	March 20, 2015	Specified amount upon credit event noticeB	2.930% Quarterly		1,700		(285)
Deutsche Bank AG (Freddie Mac, 5.00%, due 7/15/14)1	March 20, 2015	Specified amount upon credit event noticeB	0.290% Quarterly		15,600		133

140

Semi-Annual Report to Shareholders

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	March 20, 2007	Specified amount upon credit event noticeB	2.280% Quarterly	$	5,000	$	(33)
Deutsche Bank AG (General Motors Acceptance Corporation, 8.375%, due 7/15/33)1	March 20, 2015	Specified amount upon credit event noticeB	3.510% Quarterly		1,700		(369)
Deutsche Bank AG (iBoxx IG TMT)1	March 20, 2009	0.60% Quarterly	Specified amount upon credit event noticeD		7,400		(46)
Deutsche Bank AG (iBoxx 30 Hi-Vol)1	March 20, 2009	1.25% Quarterly	Specified amount upon credit event noticeD		7,400		103
Deutsche Bank AG (iBoxx IG Hi-Vol)1	March 20, 2009	Specified amount upon credit event noticeB	1.25% Quarterly		9,740		(70)
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2009	1.15% Quarterly	Specified amount upon credit event noticeD		25,000		322
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2014	Specified amount upon credit event noticeB	1.30% Quarterly		8,320		(230)
Deutsche Bank AG2	January 14, 2007	3-month LIBORE	3.571% Semi-annually		150,920		(1,746)
Deutsche Bank AG2	June 17, 2010	3-month LIBORE	4.3132% Semi-annually		31,430		(434)
JP Morgan Chase & Co. (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	6.000% Quarterly		10,500		(653)
JP Morgan Chase & Co. (DJCDX IG4)1	June 20, 2015	0.260% Quarterly	Specified amount upon credit event noticeD		6,000		(30)
Lehman Brothers Holdings Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	May 1, 2007	Specified amount upon credit event noticeB	5.250% Quarterly		10,000		(434)
Lehman Brothers Holdings Inc. (iBoxx IG Fin 3)1	March 20, 2010	Specified amount upon credit event noticeB	0.50% Quarterly		13,900		101

141

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol2)1	September 20, 2009	1.150% Quarterly	Specified amount upon credit event noticeD	$	8,800	$	157
Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol3)1	March 20, 2010	1.050% Quarterly	Specified amount upon credit event noticeD		800		14
Lehman Brothers Holdings Inc.2	October 28, 2014	4.378% Semi-annually	3-month LIBORE		87,400		2,461
Merrill Lynch & Co., Inc. (Pacific Gas & Electric Co., 4.80%, due 3/1/14)1	June 20, 2009	Specified amount upon credit event noticeB	0.420% Quarterly		2,100		9
Merrill Lynch & Co., Inc. (DJCDX IG4)1	June 20, 2015	0.264% Quarterly	Specified amount upon credit event noticeD		15,000		60
RBS Greenwich (Ford Motor Credit Company, 7.00%, due 10/1/13)1	December 20, 2010	Specified amount upon credit event noticeB	4.260% Quarterly		25,000		(106)
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/12/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.300% Quarterly		1,730		(45)
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/12/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.530% Quarterly		25,000		(442)
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.900% Quarterly		2,400		(10)
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	5.750% Quarterly		7,500		184
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	6.800% Quarterly		5,900		(157)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	7.100% Quarterly		5,800		(95)

142

Semi-Annual Report to Shareholders

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	7.700% Quarterly	$	12,500	$	0.1
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	8.400% Quarterly		12,500		350
RBS Greenwich (Time Warner Inc 6.875%, due 5/1/12)1	September 20, 2010	Specified amount upon credit event noticeB	0.470% Quarterly		5,000		(16)
RBS Greenwich (Time Warner Inc., 6.875%, due 5/1/12)1	December 20, 2010	Specified amount upon credit event noticeB	0.500% Quarterly		12,500		(36)
RBS Greenwich (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.900% Quarterly		36,300		(11)
RBS Greenwich (iBoxx IG Hi-Vol3)1	March 20, 2010	1.050% Quarterly	Specified amount upon credit event noticeD		17,900		(178)
The Goldman Sachs Group, Inc. (Ford Motor Credit Company, 7.00%, due 10/1/13)1	June 20, 2010	Specified amount upon credit event noticeB	4.750% Quarterly		1,900		36
The Goldman Sachs Group, Inc. (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2015	Specified amount upon credit event noticeB	1.670% Quarterly		1,400		(159)
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.680% Quarterly		25,000		(304)
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	6.000% Quarterly		5,000		179
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	8.950% Quarterly		5,000		247
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 8.375%, due 7/15/33)1	September 20, 2010	Specified amount upon credit event noticeB	6.000% Quarterly		18,500		(1,043)

143

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	0.255% Quarterly	Specified amount upon credit event noticeB	$	4,700	$	4
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	0.2625% Quarterly	Specified amount upon credit event noticeB		4,700		3
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	Specified amount upon credit event noticeB	0.40% Quarterly		17,600		149
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	Specified amount upon credit event noticeB	0.40% Quarterly		45,500		461
The Goldman Sachs Group, Inc. (iBoxx IG Fin 3)1	March 20, 2010	Specified amount upon credit event noticeB	0.50% Quarterly		5,200		38
The Goldman Sachs Group, Inc. (iBoxx IG Fin 3)1	March 20, 2015	Specified amount upon credit event noticeB	0.70% Quarterly		5,300		60
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.900% Quarterly		50,000		908
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.900% Quarterly		100,000		2,485
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)1	March 20, 2010	Specified amount upon credit event noticeB	1.05% Quarterly		50,000		(601)
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)1	March 20, 2010	Specified amount upon credit event noticeB	1.050% Quarterly		17,000		(129)
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)1	March 20, 2010	Specified amount upon credit event noticeB	1.050% Quarterly		33,200		184
The Goldman Sachs Group, Inc.2	September 14, 2007	3-month LIBORE	3.215% Semi-annually		26,500		(657)
The Goldman Sachs Group, Inc.2	October 18, 2014	4.492% Semi-annually	3-month LIBORE		39,000		773
				$	1,113,214	$	872

144

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Bear Stearns, Inc. (Ford Motor Credit Company 7.00%, due 10/1/13)1	June 20, 2010	Specified amount upon credit event noticeB	4.830% Quarterly	$	12,500	$	281
Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M8 1-Month LIBORE + 160 bpF, due 6/25/35)1	April 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		1,122		3
Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M9 1-Month LIBORE + 250 bpF, due 6/25/35)1	April 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		1,122		(7)
Credit Suisse First Boston USA (ACE Securities Corp. 2005-HE1 M8, 1-Month LIBORE + 138 bpF, due 2/25/35)1	February 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (ACE Securities Corp. 2005-HE1 M9, 1-Month LIBORE + 220 bpF, due 2/25/35)1	February 25, 2035	2.060% Monthly	Specified amount upon credit event noticeD		1,122		(9)
Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2004-4 B2 1-Month LIBORE +190 bpF, due 10/25/34)1	October 25, 2034	1.370% Monthly	Specified amount upon credit event noticeD		1,494		(1)
Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2005 B2, 1Month LIBORE + 130 bpF, due 3/25/35)1	March 25, 2035	1.310% Quarterly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2005 B3, 1-Month LIBORE + 200 bpF, due 3/25/35)1	March 25, 2035	2.180% Quarterly	Specified amount upon credit event noticeD		1,122		(14)
Credit Suisse First Boston USA (Argent Securities Inc. 2004-W4 M3 1-Month LIBORE + 300 bpF, due 3/25/34)1	March 25, 2034	2.200% Monthly	Specified amount upon credit event noticeD		1,494		(15)

145

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Argent Securities Inc, 2004-W11 M9, 1-Month LIBORE + 225 bpF, due 11/25/34)1	November 25, 2034	1.330% Monthly	Specified amount upon credit event noticeD	$	1,122	$	1
Credit Suisse First Boston USA (Argent Securities Inc, 2004-W11 M10, 1-Month LIBORE + 350 bpF, due 11/25/34)1	November 25, 2034	2.150% Monthly	Specified amount upon credit event noticeD		1,122		(11)
Credit Suisse First Boston USA (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2010	Specified amount upon credit event noticeB	1.400% Quarterly		9,000		(399)
Credit Suisse First Boston USA (Eastman Kodak Company, 7.25%, due 11/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	2.320% Quarterly		2,400		(39)
Credit Suisse First Boston USA (Finance America Mortgage Loan Trust 2004-3 M8, 1-Month LIBORE + 180 bpF, due 11/25/34)1	November 25, 2034	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (Finance America Mortgage Loan Trust 2004-3 M9, 1-Month LIBORE + 315 bpF, due 11/25/34)1	November 25, 2034	2.180% Monthly	Specified amount upon credit event noticeD		1,122		(11)
Credit Suisse First Boston USA (Fremont Home Loan Trust 2005-A M8, 1-Month LIBORE + 135 bpF, due 1/25/35)1	January 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (Fremont Home Loan Trust 2005-A, 1-Month LIBORE + 100 bpF, due 1/25/35)1	January 25, 2035	2.080% Monthly	Specified amount upon credit event noticeD		1,122		(10)
Credit Suisse First Boston USA (IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M8, 1-Month LIBORE + 190 bpF, due 3/25/35)1	March 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		1,122		3

146

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M9, 1-Month LIBORE + 325 bpF, due 3/25/35)1	March 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD	$	1,122	$	(8)
Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2004-1 M9, 1-Month LIBORE + 350 bpF, due 2/25/34)1	February 25, 2034	2.150% Monthly	Specified amount upon credit event noticeD		1,494		(8)
Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2005-1 M8, 1-Month LIBORE + 170 bpF, due 2/25/35)1	February 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2005-1 M9, 1-Month LIBORE + 275 bpF, due 2/25/35)1	February 25, 2035	2.080% Monthly	Specified amount upon credit event noticeD		1,122		(12)
Credit Suisse First Boston USA (MASTR Asset Backed Securities Trust 2005-NC1 M8, 1-Month LIBORE + 153 bpF, due 12/25/34)1	December 25, 2034	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (MASTR Asset Backed Securities Trust 2005-NC1 M9, 1-Month LIBORE + 240 bpF, due 12/25/34)1	December 25, 2034	2.080% Monthly	Specified amount upon credit event noticeD		1,122		(8)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2004-WMC4 B3, 1-Month LIBORE + 375 bpF, due 4/25/35)1	April 25, 2035	2.150% Monthly	Specified amount upon credit event noticeD		1,494		(10)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-NC1 B2, 1-Month LIBORE + 130 bpF, due 10/25/35)1	October 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		1,122		3

147

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-NC1 B3, 1-Month LIBORE + 205 bpF, due 10/25/35)1	October 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD	$	1,122	$	(7)
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B2, 1-Month LIBORE + 135 bpF, due 9/25/35)1	September 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD		1,122		3
Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B3, 1-Month LIBORE + 225 bpF, due 9/25/35)1	September 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		1,122		(7)
Credit Suisse First Boston USA (Morgan Stanley ABS Capital I 2005-WMC1 B2, 1-Month LIBORE + 130 bpF, due 1/25/35)1	January 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (Morgan Stanley ABS Capital I 2005-WMC1 B3, 1-Month LIBORE + 215 bpF, due 1/25/35)1	January 25, 2035	2.180% Monthly	Specified amount upon credit event noticeD		1,122		(13)
Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2004-2 M9, 1-Month LIBORE + 325 bpF, due 8/25/34)1	August 25, 2034	2.150% Monthly	Specified amount upon credit event noticeD		1,494		(9)
Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2005-1 M8, 1-Month LIBORE + 140 bpF, due 3/25/35)1	March 25, 2035	1.310% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2005-1 M9, 1-Month LIBORE + 205 bpF, due 3/25/35)1	March 25, 2035	2.180% Monthly	Specified amount upon credit event noticeD		1,122		(14)

148

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (Novastar Home Equity Loan 2005-1 B2, 1-Month LIBORE + 135 bpF, due 6/25/35)1	June 25, 2035	1.280% Monthly	Specified amount upon credit event noticeD	$	1,122	$	3
Credit Suisse First Boston USA (Novastar Home Equity Loan 2005-4 B3, 1-Month LIBORE + 195 bpF, due 6/25/35)1	June 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		1,122		(10)
Credit Suisse First Boston USA (Park Place Securities Inc. 2005-WCH1 M8, 1-Month LIBORE + 155 bpF, due 1/25/36)1	January 25, 2036	1.360% Monthly	Specified amount upon credit event noticeD		1,122		2
Credit Suisse First Boston USA (Park Place Securities Inc. 2005-WCH1 M9, 1-Month LIBORE + 250 bpF, due 1/25/36)1	January 25, 2036	2.180% Monthly	Specified amount upon credit event noticeD		1,122		(12)
Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2004-1 M6, 1-Month LIBORE + 230 bpF, due 6/25/34)1	June 25, 2034	1.370% Quarterly	Specified amount upon credit event noticeD		1,494		0
Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2005-1, 1-Month LIBORE + 165 bpF, due 1/25/35)1	January 25, 2035	1.258% Monthly	Specified amount upon credit event noticeD		1,122		3
Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2005-1 B3, 1-Month LIBORE + 260 bpF, due 1/25/35)1	January 25, 2035	2.050% Monthly	Specified amount upon credit event noticeD		1,122		(12)
Credit Suisse First Boston USA (iBoxx IG Hi-Vol)1	March 20, 2009	Specified amount upon credit event noticeB	1.2500% Quarterly		50,000		(318)
Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)1	September 20, 2009	1.1500% Quarterly	Specified amount upon credit event noticeD		25,000		322

149

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Credit Suisse First Boston USA (iBoxx HY 2B)1	September 20, 2009	Specified amount upon credit event noticeB	4.3000% Quarterly	$	4,950	$	314
Credit Suisse First Boston USA (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		3,078		195
Credit Suisse First Boston USA (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		3,078		195
Credit Suisse First Boston USA (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		15,539		441
Credit Suisse First Boston USA (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		11,532		240
Deutsche Bank AG (Apache Corporation, 6.25%, due 4/15/12)1	March 20, 2015	Specified amount upon credit event noticeB	0.360% Quarterly		1,265		3
Deutsche Bank AG (Dynegy Holdings, 8.75%, due 2/15/12)1	April 23, 2007	Specified amount upon credit event noticeB	2.9500% Quarterly		2,250		26
Deutsche Bank AG (Dynegy Holdings, 8.75%, due 2/15/12)1	May 1, 2007	Specified amount upon credit event noticeB	5.2500% Quarterly		3,460		160
Deutsche Bank AG (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2010	Specified amount upon credit event noticeB	1.250% Quarterly		1,600		(78)
Deutsche Bank AG (Eastman Kodak Company, 7.25%, due 11/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	2.300% Quarterly		3,020		(57)
Deutsche Bank AG (Eastman Kodak Company, 7.25%, due 11/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	2.300% Quarterly		5,430		(103)
Deutsche Bank AG (Eastman Kodak Company, 7.25%, due 11/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	2.320% Quarterly		3,200		(58)
Deutsche Bank AG (Fannie Mae, 6%, due 5/15/11)1	December 20, 2009	Specified amount upon credit event noticeB	0.2150% Quarterly		17,000		(82)

150

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (Ford Motor Company 7.45%, due 7/16/31)1	March 20, 2015	Specified amount upon credit event noticeB	2.930% Quarterly	$	2,600	$	(437)
Deutsche Bank AG (Freddie Mac 5.00%, due 7/15/14)1	March 20, 2015	Specified amount upon credit event noticeB	0.290% Quarterly		25,100		214
Deutsche Bank AG (General Motors Acceptance Corporation, 6.75%, due 12/1/14)1	December 20, 2005	Specified amount upon credit event noticeB	1.750% Quarterly		8,400		(4)
Deutsche Bank AG (General Motors Acceptance Corporation, 6.875%, due 8/12/12)1	March 20, 2010	Specified amount upon credit event noticeB	2.280% Quarterly		5,500		(36)
Deutsche Bank AG (General Motors Acceptance Corporation, 8.375%, due 7/15/33)1	March 20, 2015	Specified amount upon credit event noticeB	3.510% Quarterly		2,600		(564)
Deutsche Bank AG (iBoxx 100 HY)1	March 20, 2009	Specified amount upon credit event noticeB	4.2500% Quarterly		9,800		527
Deutsche Bank AG (iBoxx 100 IG)1	March 20, 2009	4.2500% Quarterly	Specified amount upon credit event noticeD		3,636		4
Deutsche Bank AG (iBoxx IG Hi-Vol)1	March 20, 2009	Specified amount upon credit event noticeB	1.2500% Quarterly		13,760		(98)
Deutsche Bank AG (iBoxx IG Hi-Vol2)1	September 20, 2014	Specified amount upon credit event noticeB	1.3000% Quarterly		11,560		(319)
Deutsche Bank AG (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	3.6000% Quarterly		5,356		147
Deutsche Bank AG (iBoxx IG TMT)1	March 20, 2009	0.6000% Quarterly	Specified amount upon credit event noticeD		6,450		(40)
Deutsche Bank AG (iBoxx IG TMT)1	March 20, 2009	0.6000% Quarterly	Specified amount upon credit event noticeD		9,500		(59)

151

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
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	1.2500% Quarterly	Specified amount upon credit event noticeD	$	9,500	$	132
Deutsche Bank AG (iBoxx 100 HY)1	March 20, 2009	4.2500% Quarterly	Specified amount upon credit event noticeD		1,862		(102)
Deutsche Bank AG (iBoxx HY 2)1	September 20, 2009	Specified amount upon credit event noticeB	4.8000% Quarterly		2,559		213
Deutsche Bank AG (iBoxx HY B)1	March 20, 2009	Specified amount upon credit event noticeB	5.0000% Quarterly		4,884		188
Deutsche Bank AG (iBoxx HY B)1	March 20, 2009	Specified amount upon credit event noticeB	5.0000% Quarterly		9,767		339
Deutsche Bank AG2	January 14, 2007	3-month LIBORE	3.571% Quarterly		199,990		(2,313)
Deutsche Bank AG2	January 10, 2008	3-month LIBORE	3.7538% Semi-annually		143,500		(2,565)
Deutsche Bank AG2	June 17, 2010	3-month LIBORE	4.3132% Semi-annually		41,570		(574)
JP Morgan Chase & Co. (DJCDX IG4)1	June 20, 2015	0.260% Quarterly	Specified amount upon credit event noticeD		7,100		(36)
JP Morgan Chase & Co. (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	6.000% Quarterly		14,300		(889)
JP Morgan Chase & Co.2	October 18, 2014	4.4926% Semi-annually	3-month LIBORE		51,300		1,012
Lehman Brothers Holdings Inc. (General Motors Acceptance Corporation, 6.875%, due 8/12/12)1	March 20, 2010	Specified amount upon credit event noticeB	3.650% Quarterly		25,000		(1,086)
Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol2)1	September 20, 2009	1.1500% Quarterly	Specified amount upon credit event noticeD		1,500		26
Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol2)1	September 20, 2009	1.1500% Quarterly	Specified amount upon credit event noticeD		12,600		225

152

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Lehman Brothers Holdings Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly	$	3,225	$	116
Lehman Brothers Holdings Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		3,323		40
Lehman Brothers Holdings Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		3,323		40
Lehman Brothers Holdings Inc. (iBoxx IG FIN 3)1	March 20, 2010	Specified amount upon credit event noticeB	0.5000% Quarterly		19,700		143
Lehman Brothers Holdings Inc. (iBoxx IG TMT)1	March 20, 2009	0.6000% Quarterly	Specified amount upon credit event noticeD		9,000		(89)
Lehman Brothers Holdings Inc.2	October 28, 2014	4.3780% Semi-annually	3-month LIBORE		124,400		3,503
Merrill Lynch & Co., Inc. (DJCDX IG4)1	June 20, 2015	0.264% Quarterly	Specified amount upon credit event noticeD		22,000		88
Merrill Lynch & Co., Inc. (Eastman Kodak Company, 7.25%, due 11/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	2.300% Quarterly		1,610		(33)
Merrill Lynch & Co., Inc. (Pacific Gas & Electric Co., 4.80%, due 3/1/14)1	June 20, 2009	Specified amount upon credit event noticeC	0.4200% Quarterly		2,980		12
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	March 20, 2010	Specified amount upon credit event noticeB	4.300% Quarterly		5,000		(131)
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.900% Quarterly		5,440		(22)
RBS Greenwich (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	5.750% Quarterly		7,500		184
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	6.800% Quarterly		7,500		(200)

153

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	7.100% Quarterly	$	8,000	$	(131)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	7.700% Quarterly		12,500		0
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	8.400% Quarterly		12,500		350
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	6.100% Quarterly		8,000		(417)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	6.630% Quarterly		19,600		(658)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	September 20, 2010	Specified amount upon credit event noticeB	6.900% Quarterly		10,000		(252)
RBS Greenwich (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	September 20, 2005	Specified amount upon credit event noticeB	7.200% Quarterly		7,820		(154)
RBS Greenwich (iBoxx CDX5)1	December 20, 2010	Specified amount upon credit event noticeB	2.0000% Quarterly		30,900		53
RBS Greenwich (iBoxx Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.9000% Quarterly		50,000		(16)
RBS Greenwich (Tenet Healthcare Corporation, 6.375%, due 12/1/11)1	September 20, 2010	Specified amount upon credit event noticeB	3.550% Quarterly		1,600		3
RBS Greenwich (Tenet Healthcare Corporation, 6.375%, due 12/1/11)1	September 20, 2010	Specified amount upon credit event noticeB	3.550% Quarterly		3,900		1

154

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
RBS Greenwich (Tenet Healthcare Corporation, 6.375%, due 12/1/11)1	September 20, 2010	Specified amount upon credit event noticeB	3.500% Quarterly	$	3,920	$	0
RBS Greenwich (Tenet Healthcare Corporation, 6.375%, due 12/1/11)1	September 20, 2010	Specified amount upon credit event noticeB	3.670% Quarterly		5,000		26
RBS Greenwich (Time Warner Inc., 6.875%, due 5/1/12)1	September 20, 2010	Specified amount upon credit event noticeB	0.470% Quarterly		5,000		(16)
RBS Greenwich (Time Warner Inc., 6.875%, due 5/1/12)1	December 20, 2010	Specified amount upon credit event noticeB	0.500% Quarterly		12,500		(36)
The Goldman Sachs Group, Inc. (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2015	Specified amount upon credit event noticeB	1.670% Quarterly		1,900		(216)
The Goldman Sachs Group, Inc. (Eastman Kodak Company, 7.25%, due 11/15/13)1	March 20, 2015	Specified amount upon credit event noticeB	1.670% Quarterly		1,900		(216)
The Goldman Sachs Group, Inc. (Ford Motor Credit Company, 7.00%, due 10/1/13)1	June 20, 2010	Specified amount upon credit event noticeB	4.750% Quarterly		2,500		48
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.900% Quarterly		10,000		332
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	5.750% Quarterly		10,000		270
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	5.950% Quarterly		500		17
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	6.000% Quarterly		5,000		179
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 7.125%, due 7/15/13)1	June 20, 2010	Specified amount upon credit event noticeB	8.950% Quarterly		5,000		247

155

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 8.375%, due 7/15/33)1	September 20, 2010	Specified amount upon credit event noticeB	6.000% Quarterly	$	25,100	$	(1,415)
The Goldman Sachs Group, Inc. (iBoxx CDX5)1	December 20, 2010	Specified amount upon credit event noticeB	2.000% Quarterly		16,400		18
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	0.255% Quarterly	Specified amount upon credit event noticeB		6,500		6
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	0.2625% Quarterly	Specified amount upon credit event noticeB		6,500		3
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	Specified amount upon credit event noticeB	0.40% Quarterly		23,300		197
The Goldman Sachs Group, Inc. (DJCDX IG 4)1	June 20, 2010	Specified amount upon credit event noticeB	0.40% Quarterly		61,600		625
The Goldman Sachs Group, Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		13,095		388
The Goldman Sachs Group, Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		2,912		139
The Goldman Sachs Group, Inc. (iBoxx HY 3)1	December 20, 2009	Specified amount upon credit event noticeB	4.0000% Quarterly		3,714		138
The Goldman Sachs Group, Inc. (iBoxx HY 3)1	December 20, 2009	4.0000% Quarterly	Specified amount upon credit event noticeD		5,922		131
The Goldman Sachs Group, Inc. (iBoxx HY 4)1	June 20, 2010	Specified amount upon credit event noticeB	3.600% Quarterly		3,168		135
The Goldman Sachs Group, Inc. (iBoxx HY 4)1	June 20, 2010	Specified amount upon credit event noticeB	3.400% Quarterly		2,200		65
The Goldman Sachs Group, Inc. (iBoxx IG FIN 3)1	March 20, 2010	Specified amount upon credit event noticeB	0.5000% Quarterly		7,500		54
The Goldman Sachs Group, Inc. (iBoxx IG FIN 3)1	March 20, 2015	Specified amount upon credit event noticeB	0.7000% Quarterly		7,600		86

156

Semi-Annual Report to Shareholders

WESTERN ASSET CORE PLUS BOND PORTFOLIO—Continued
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-Vol3)1	March 20, 2010	Specified amount upon credit event noticeB	1.050% Quarterly	$	22,600	$	(172)
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)1	March 20, 2010	Specified amount upon credit event noticeB	1.050% Quarterly		44,300		245
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.900% Quarterly		31,200		579
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.900% Quarterly		100,000		2,237
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.900% Quarterly		50,000		673
The Goldman Sachs Group, Inc.2	July 14, 2007	3-month LIBORE	4.1650% Semi-annually		45,000		(299)
The Goldman Sachs Group, Inc.2	September 14, 2007	3-month LIBORE	3.2150% Semi-annually		37,270		(924)
The Goldman Sachs Group, Inc.2	September 24, 2009	3.7135% Semi-annually	3-month LIBORE		100,000		3,271
The Goldman Sachs Group, Inc.2	July 14, 2010	4.3250% Semi-annually	3-month LIBORE		35,000		442
The Goldman Sachs Group, Inc.2	October 18, 2014	4.4915% Semi-annually	3-month LIBORE		54,000		1,070
The Goldman Sachs Group, Inc2	July 14, 2015	3-month LIBORE	4.5500% Semi-annually		10,000		(182)
				$	2,006,786	$	5,352
WESTERN ASSET INFLATION INDEXED BOND PLUS PORTFOLIO
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)
Deutsche Bank AG (iBoxx HY4)1	June 20, 2010	Specified amount upon credit event noticeB	3.60% Quarterly	$	9,900	$	81
J.P. Morgan Chase & Co. (Ford Motor Company, 7.00%, due 8/15/12)1	June 20, 2010	Specified amount upon credit event noticeB	2.90% Quarterly		5,000		(250)

157

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

WESTERN ASSET INFLATION INDEXED BOND PLUS PORTFOLIO—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-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.90% Quarterly	$	11,700	$	85
Merrill Lynch & Co., Inc. (El Paso Corporation, 7%, due 5/15/11)1	June 20, 2010	Specified amount upon credit event noticeB	3.625% Quarterly		2,500		66
Merrill Lynch & Co., Inc. (Ford Motor Company, 7.375%, due 10/28/09)1	June 20, 2010	Specified amount upon credit event noticeB	5.50% Quarterly		2,500		112
Merrill Lynch & Co., Inc. (General Motors Acceptance Corporation, 7.75%, due 1/19/10)1	March 20, 2007	Specified amount upon credit event noticeB	3.55% Quarterly		5,000		(264)
Merrill Lynch & Co., Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.90% Quarterly		5,000		(43)
The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation, 6.875%, due 8/28/12)1	June 20, 2010	Specified amount upon credit event noticeB	4.50% Quarterly		7,500		(131)
The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)1	June 20, 2010	Specified amount upon credit event noticeB	0.90% Quarterly		9,500		(22)
				$	58,600	$	(366)

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

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

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

^E As of September 30, 2005, the one- and three-month London Interbank Offered Rates were 3.86% and 4.06%, respectively.

^F 100 basis points = 1%.

N.M.—Not meaningful.

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, 2005, the market value of securities on loan to broker-dealers was $176,243 for Intermediate, $978,251 for Core, and $1,470,363 for Core Plus and $116,150 for Inflation Indexed Plus. Cash collateral received was $179,860 for Intermediate, $998,356 for Core, $1,500,496 for Core Plus and $118,493 for Inflation Indexed Plus.

5. Transactions With Affiliates:

Each Fund has an investment 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

158

Semi-Annual Report to Shareholders

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, and management fees waived for each Fund:

Fund	Asset Breakpoint	Management Fee		Expense Limitation
Limited Duration	All asset levels	0.350	%	0.40	%
Intermediate	All asset levels	0.400	%	0.45	%
Intermediate Plus	All asset levels	0.400	%	0.45	%
Core
Institutional Class	Up to $500 million	0.450	%	0.50	%
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Financial Intermediary Class	Up to $500 million	0.450	%	0.75	%
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Core Plus
Institutional Class	Up to $500 million	0.450	%	0.45	%
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Financial Intermediary Class	Up to $500 million	0.450	%	0.70	%
	Next $500 million	0.425	%
	In excess of $1 billion	0.400	%
Inflation Indexed	All asset levels	0.200	%	0.25	%
High Yield	All asset levels	0.550	%	0.65	%
Non-U.S.	All asset levels	0.450	%	0.55	%

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.

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

159

Semi-Annual Report to Shareholders

NOTES TO FINANCIAL STATEMENTS—Continued

6. Fund Share Transactions:

At September 30, 2005, 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 September 30, 2005	5,695	$	56,507	106	$	1,050	(1,316	)	$	(13,015	)	4,485		$	44,542
Year Ended Mar. 31, 2005	2,314		23,070	95		942	(1,220	)		(12,193	)	1,189			11,819
Intermediate
—Institutional Class
Six Months Ended September 30, 2005	10,163	$	106,872	1,883	$	19,779	(6,321	)	$	(66,392	)	5,726		$	60,259
Year Ended Mar. 31, 2005	15,428		163,649	3,396		35,624	(9,292	)		(98,232	)	9,532			101,041
Intermediate Plus
—Institutional Class
Six Months Ended September 30, 2005	1,199	$	11,974	74	$	738	(252	)	$	(2,508	)	1,021		$	10,204
Period Ended Mar. 31, 2005F	4,511		45,012	54		531	(442	)		(4,340	)	4,123			41,203
Core
—Institutional Class
Six Months Ended September 30, 2005	64,316	$	734,749	6,521	$	74,647	(25,947	)	$	(296,312	)	44,890		$	513,084
Year Ended Mar. 31, 2005	130,619		1,488,655	12,384		139,680	(37,948	)		(433,066	)	105,055			1,195,269
—Financial Intermediary Class
Six Months Ended September 30, 2005	6,359	$	72,724	541	$	6,198	(2,295	)	$	(26,234	)	4,605		$	52,688
Year Ended Mar. 31, 2005	16,894		192,947	746		8,418	(4,423	)		(50,544	)	13,217			150,821
Core Plus
—Institutional Class
Six Months Ended September 30, 2005	112,809	$	1,201,615	10,869	$	115,722	(25,382	)	$	(270,031	)	98,296		$	1,047,306
Year Ended Mar. 31, 2005	178,983		1,885,071	18,064		188,984	(69,914	)		(735,370	)	127,133			1,338,685
—Financial Intermediary Class
Six Months Ended September 30, 2005	12,929	$	137,986	514	$	5,479	(1,715	)	$	(18,268	)	11,728		$	125,197
Year Ended Mar. 31, 2005	19,384		205,763	286		3,027	(2,163	)		(23,011	)	17,507			185,779
Inflation Indexed
—Institutional Class
Six Months Ended September 30, 2005	723	$	7,814	1,266	$	13,689	(1,263	)	$	(13,665	)	726		$	7,838
Year Ended Mar. 31, 2005	11,379		121,576	2,469		25,781	(1,683	)		(18,165	)	12,165			129,192
High Yield
—Institutional Class
Six Months Ended September 30, 2005	5,393	$	55,594	2,112	$	21,398	(1,457	)	$	(15,209	)	6,048		$	61,783
Year Ended Mar. 31, 2005	29,305		305,054	2,049		21,159	(10,290	)		(109,064	)	21,064			217,149
Non-U.S.
—Institutional Class
Six Months Ended September 30, 2005	375	$	4,237	69	$	777	(2,295	)	$	(25,870	)	(1,851	)	$	(20,856	)
Year Ended Mar. 31, 2005	760		8,175	285		2,869	(2,151	)		(23,757	)	(1,106	)		(12,713	)

^F For the period from October 1, 2004 (commencement of operations) to March 31, 2005.

160

Semi-Annual Report to Shareholders

SHAREHOLDER MEETING RESULTS

At a Special Meeting of Stockholders of Western Asset Intermediate Bond Portfolio (the “Portfolio”) held on May 10, 2005, the following action was taken:

A change to the Portfolio’s investment objective, such that the target average modified duration of the Portfolio would be expected to range within 20% of the duration of its benchmark, the Lehman Brothers Intermediate Government/Credit Bond Index was approved as follows:

Shares Voted For	Shares Abstained
35,371,202.597	26,170,497.266

161

PRIVACY POLICY

We are committed to keeping nonpublic personal information about you secure and confidential. This notice is intended to help you understand how we fulfill this commitment.

From time to time, we may collect a variety of personal information about you, including:

• Information we receive from you on applications and forms, via the telephone, and through our websites;

• Information about your transactions with us, our affiliates, or others (such as your purchases, sales, or account balances); and

• Information we receive from consumer reporting agencies.

We do not disclose your nonpublic personal information, except as permitted by applicable law or regulation. For example, we may share this information with others in order to process your transactions. We may also provide this information to companies that perform services on our behalf, such as printing and mailing, or to other financial institutions with whom we have joint marketing agreements. We will require these companies to protect the confidentiality of this information and to use it only to perform the services for which we hired them.

With respect to our internal security procedures, we maintain physical, electronic, and procedural safeguards to protect your nonpublic personal information, and we restrict access to this information.

If you decide at some point either to close your account(s) or become an inactive customer, we will continue to adhere to our privacy policies and practices with respect to your nonpublic personal information.

This notice is being provided on behalf of:

Western Asset Funds, Inc.

Western Asset Funds, Inc.

The Board of Directors

William E. B. Siart, Chairman

Ronald J. Arnault

John E. Bryson

Anita L. DeFrantz

Ronald L. Olson

Louis A. Simpson

Jaynie Miller Studenmund

Officers

James W. Hirschmann, President

Scott F. Grannis, Vice President

Ilene S. Harker, Vice President

S. Kenneth Leech, Vice President

Stephen A. Walsh, Vice President

Marie K. Karpinski, Vice President and Treasurer and Principal Financial and Accounting Officer

Amy M. Olmert, Chief Compliance Officer

Lisa G. Mrozek, Secretary

Erin K. Morris, Assistant Treasurer

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.

Quarterly 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

(9/05)

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 – Portfolio Managers of Closed-End Management Investment Companies

Not applicable.

Item 9 – Purchases of Equity Securities by Closed-End Management Investment

Companies and Affiliated Purchasers

Not applicable.

Item 10 – 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 11 – 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 second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 12 – Exhibits

(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:	November 29, 2005

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:	November 29, 2005
By:	/s/    MARIE K. KARPINSKI
	Marie K. Karpinski
	Treasurer and Principal Financial and Accounting Officer
	Western Asset Funds, Inc.
Date:	November 25, 2005