Western Asset Funds NCSRS 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 Registrant:		Western Asset Funds, Inc.

Address of Principal Executive Offices:		385 East Colorado Boulevard, Pasadena, CA 91101

Registrant’s telephone number, including area code:		(626) 844-9400

Name and address of agent for service:		Richard M. Wachterman, Esq. Legg Mason Wood Walker, Incorporated 100 Light Street Baltimore, MD 21202

Date of fiscal year end:		March 31, 2007

Date of reporting period:		September 30, 2006

Item 1. Report to Shareholders.

Page 2 of 5

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

Western Asset Absolute Return Portfolio

Semi-Annual Report to Shareholders

September 30, 2006

Semi-Annual Report to Shareholders

Expense Example

Western Asset Limited Duration Bond Portfolio

As a shareholder of the Fund, you incur ongoing costs, including management fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested on April 1, 2006 and held through September 30, 2006.

Actual Expenses

The first line in the table below provides information about actual account values and actual expenses for the Fund. 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 value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. 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 the 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 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,028.10	$	2.03
Hypothetical (5% return before expenses)		1,000.00		1,023.06		2.03

Thesecalculations 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 of 0.40% 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.

Semi-Annual Report to Shareholders

Performance Information

Western Asset Limited Duration Bond Portfolio

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

Total return measures investment performance in terms of appreciation or depreciation in the Fund’s 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 (and the graph and table found below) 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.

Growth of a $1,000,000 Investment—Institutional Class

LOGO

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 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 gain distributions. Performance would have been lower if fees had not been waived in various periods.

Indexreturns are for periods beginning September 30, 2003.

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^B

(as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

Source:Standard & Poor's.

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

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Limited Duration Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	101.0%

Corporate Bonds and Notes	21.9%

Auto Parts and Equipment	0.1%
Johnson Controls, Inc.		5.737%	1/17/08	$	90	$	90	^A


Banking and Finance	5.7%
Caterpillar Financial Services		3.450%	1/15/09		200		193
Countrywide Financial Corporation		5.609%	3/24/09		280		280	^A
Ford Motor Credit Company		6.194%	9/28/07		450		446	^A
Ford Motor Credit Company		6.625%	6/16/08		1,510		1,487
General Motors Acceptance Corporation		6.539%	9/23/08		1,340		1,331	^A
HSBC Finance Corporation		5.696%	5/10/10		310		312	^A
Residential Capital Corporation		6.742%	6/29/07		130		131	^A
Residential Capital Corporation		6.693%	11/21/08		300		303	^A
Wachovia Capital Trust III		5.800%	3/15/42		670		672	^B

							5,155

Cable	0.6%
Comcast Cable Communications, Inc.		6.875%	6/15/09		400		416
Comcast MO of Delaware Inc.		9.000%	9/1/08		100		106

							522

Casino Resorts	0.3%
Caesars Entertainment, Inc.		7.500%	9/1/09		130		136
Harrah’s Operating Company, Inc.		6.099%	2/8/08		120		120	^A,C

							256

Chemicals	0.2%
The Dow Chemical Company		5.970%	1/15/09		200		203


Computer Services and Systems	0.3%
Electronic Data Systems Corporation		7.125%	10/15/09		290		303


Diversified Financial Services	1.3%
Citigroup Inc.		5.000%	9/15/14		200		195
iStar Financial Inc.		5.730%	9/15/09		300		300	^A,C
iStar Financial Inc.		5.650%	9/15/11		640		640

							1,135

Electric	1.3%
American Electric Power Company, Inc.		4.709%	8/16/07		40		40	^B
Appalachian Power Company		3.600%	5/15/08		300		292

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Electric—Continued
Commonwealth Edison Company		3.700%	2/1/08	$	180	$	176
Dominion Resources, Inc.		4.125%	2/15/08		100		98
FirstEnergy Corp.		6.450%	11/15/11		430		449
Niagara Mohawk Power Corporation		7.750%	10/1/08		100		104

							1,159

Energy	1.3%
CenterPoint Energy, Inc.		5.875%	6/1/08		150		151
Duke Energy Corporation		3.750%	3/5/08		200		196
Pacific Gas and Electric Co.		3.600%	3/1/09		190		183
Progress Energy, Inc.		5.850%	10/30/08		200		202
Sempra Energy		5.863%	5/21/08		90		90	^A
TXU Corp.		4.800%	11/15/09		400		390

							1,212

Environmental Services	0.5%
Waste Management, Inc.		7.375%	8/1/10		390		418


Food, Beverage and Tobacco	0.5%
Altria Group, Inc.		7.650%	7/1/08		30		31
Altria Group, Inc.		5.625%	11/4/08		410		413

							444

Investment Banking/Brokerage	1.2%
Lehman Brothers Holdings E-Capital Trust I		6.173%	8/19/65		310		312	^A
Merrill Lynch & Co., Inc.		5.700%	2/5/10		300		301	^A
Morgan Stanley		5.625%	1/9/12		280		284
The Bear Stearns Companies Inc.		5.715%	1/31/11		160		160	^A

							1,057

Media	1.0%
Clear Channel Communications, Inc.		6.625%	6/15/08		60		61
Clear Channel Communications, Inc.		4.250%	5/15/09		550		531
Liberty Media Corporation		7.875%	7/15/09		300		314

							906

Oil and Gas	2.4%
Hess Corporation		6.650%	8/15/11		720		756
Kinder Morgan Energy Partners, L.P.		6.750%	3/15/11		130		135
Ocean Energy Inc.		4.375%	10/1/07		100		99
Pemex Project Funding Master Trust		6.125%	8/15/08		292		294	^A,C

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Limited Duration Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Oil and Gas—Continued
Pemex Project Funding Master Trust		6.690%	6/15/10	$	140	$	143	^A,C
Pemex Project Funding Master Trust		5.991%	12/3/12		543		541
XTO Energy, Inc.		5.650%	4/1/16		180		179

							2,147

Paper and Forest Products	0.5%
International Paper Company		3.800%	4/1/08		390		381
Weyerhaeuser Company		5.950%	11/1/08		40		41

							422

Pharmaceuticals	0.2%
Bristol-Myers Squibb Company		4.000%	8/15/08		140		137


Photo Equipment and Supplies	N.M.
Eastman Kodak Company		7.250%	11/15/13		10		10


Special Purpose	3.7%
DaimlerChrysler North America Holding Corporation		5.875%	3/15/11		990		991
Devon Financing Corp. ULC		6.875%	9/30/11		520		554
ILFC E-Capital Trust I		5.900%	12/21/65		300		302	^B,C
International Lease Finance Corporation		5.000%	4/15/10		440		434
National Rural Utilities Cooperative Finance Corporation		3.875%	2/15/08		100		98
Sprint Capital Corporation		6.125%	11/15/08		680		690
Verizon Global Funding Corp.		7.250%	12/1/10		270		290

							3,359

Telecommunications	0.4%
AT&T Inc.		4.125%	9/15/09		100		97
AT&T Inc.		5.300%	11/15/10		280		279

							376

Telecommunications (Cellular/Wireless)	0.3%
Motorola, Inc.		4.608%	11/16/07		100		99
New Cingular Wireless Services Inc.		8.125%	5/1/12		130		146

							245

Telecommunications Equipment	0.1%
New York Telephone Co.		6.000%	4/15/08		100		101

Total Corporate Bonds and Notes (Identified Cost—$19,628)							19,657

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Asset-Backed Securities	7.5%

Fixed Rate Securities	1.9%
AmeriCredit Automobile Receivables Trust 2003-BX		2.720%	1/6/10	$	213	$	211
MBNA Practice Solutions Owners Trust 2005-2		4.100%	5/15/09		400		396	^C
Prestige Auto Receivables Trust 2005-1A		4.370%	6/15/12		200		197	^C
Prestige Auto Receivables Trust 2006-1A		5.120%	2/15/10		448		447	^C
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		83		82
UPFC Auto Receivables Trust 2004-A		3.270%	9/15/10		343		339

							1,672

Indexed Securities^A	5.6%
Aesop Funding II LLC 2004-2A		5.550%	4/20/10		500		501	^C
AmeriCredit Automobile Loan Trust 2003-BX		5.800%	1/6/10		16		16
AQ Finance Nim Trust 2003-N13		5.560%	12/25/08		20		20	^C,D
Bayview Financial Acquisition Trust 2004-C		5.744%	5/28/44		174		175
Bear Stearns Asset-Backed Securities, Inc. 2005-AQ2		5.600%	9/25/35		500		500
Bear Stearns Asset-Backed Securities Trust 2006-SD2		5.530%	6/25/36		613		614
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		5.700%	10/25/32		27		26
Citibank Credit Card Issuance Trust 2002-C3		6.530%	12/15/09		160		162
Countrywide Asset-Backed Certificates 2002-3		5.700%	5/25/32		7		7
Countrywide Home Equity Loan Trust 2002-C		5.570%	5/15/28		32		32
Countrywide Home Equity Loan Trust 2004-J		5.620%	12/15/33		82		82
Countrywide Home Equity Loan Trust 2004-O		5.610%	2/15/34		122		122
EQCC Trust 2002-1		5.630%	11/25/31		19		19
First Franklin Mortgage Loan Asset-Backed Certificate 2004-FF10		5.730%	12/25/32		259		260
GSAA Home Equity Trust 2004-9		5.710%	9/25/34		22		22
Morgan Stanley Mortgage Loan Trust 2006-12XS		5.444%	10/25/36		900		900
Navistar Financial Corp. Owner Trust 2003-B		5.530%	4/15/08		51		51
Origen Manufactured Housing 2006-A		5.474%	11/15/18		488		488
Rental Car Finance Corp. 2004-1A		5.530%	6/25/09		500		501	^C
Residential Asset Mortgage Products, Inc. 2002-RS6		5.780%	11/25/32		29		29
Superior Wholesale Inventory Financing Trust 2004-A10		5.430%	9/15/11		500		501

							5,028

Total Asset-Backed Securities (Identified Cost—$6,716)							6,700
Mortgage-Backed Securities	22.0%

Fixed Rate Securities	1.5%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		9		9
Countrywide Alternative Loan Trust 2004-J1		6.000%	2/25/34		46		46

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Limited Duration Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Residential Asset Mortgage Products, Inc. 2004-SL1		7.000%	11/25/31	$	556	$	564
Residential Asset Mortgage Products, Inc. 2004-SL2		8.500%	10/25/31		38		40
Residential Asset Mortgage Products, Inc. 2005-SL1		8.000%	5/25/32		700		729

							1,388

Indexed Securities^A	18.1%
American Home Mortgage Investment Trust 2005-SD1		5.780%	9/25/35		667		669	^C
Banc of America Mortgage Securities 2003-D		4.569%	5/25/33		179		177
Banc of America Mortgage Securities 2005-F		5.021%	7/25/35		867		858
Bear Stearns Arm Trust 2004-10		4.517%	1/25/35		703		698
CBA Commercial Small Balance Commercial Trust 2005-1A		5.650%	8/25/35		582		583	^C
Citigroup Mortgage Loan Trust, Inc. 2005-5		5.480%	8/25/35		327		328
Countrywide Alternative Loan Trust 2005-38		5.680%	9/25/35		552		554
Countrywide Alternative Loan Trust 2005-51		5.630%	11/20/35		643		646
Countrywide Asset-backed Certificates 2005-IM1		5.610%	11/25/35		990		991
Countrywide Home Loans 2005-R3		5.730%	9/25/35		713		717	^C
Credit Suisse/Morgan Stanley Commercial Mortgage Trust 2006-HC1A		5.520%	5/15/23		600		600	^C
Crusade Global Trust 2003-2		5.580%	9/18/34		77		77	^D
Granite Mortgages PLC 2003-1		5.690%	1/20/20		128		128	^D
GSMPS Mortgage Loan Trust 2005-RP3		5.680%	9/25/35		546		547
Harborview Mortgage Loan Trust 2006-7		5.530%	10/19/37		907		907
J.P. Morgan Mortgage Trust 2003-A1		4.359%	10/25/33		278		271
Luminent Mortgage Trust 2006-2		5.530%	2/25/46		862		861
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34		350		338
MASTR Specialized Loan Trust 2006-2		5.584%	2/25/36		618		618	^C
Medallion Trust 2000-2G		5.590%	12/18/31		86		86	^D
Medallion Trust 2003-1G		5.580%	12/21/33		78		78	^D
MLCC Mortgage Investors, Inc. 2003-H		6.706%	1/25/29		49		50
Provident Funding Mortgage Loan Trust 2005-1		4.159%	5/25/35		278		275
Sequoia Mortgage Trust 2003-2		5.560%	6/20/33		56		56
Structured Adjustable Rate Mortgage Loan Trust 2005-16XS		5.670%	8/25/35		418		419
Structured Adjustable Rate Mortgage Loan Trust 2005-19XS		5.630%	9/25/35		443		444
Structured Asset Mortgage Investments, Inc. 2006-AR6		5.586%	7/25/36		893		893
Thornburg Mortgage Securities Trust 2005-3		5.570%	10/25/35		711		710
Wachovia Mortgage Loan Trust, LLC 2005-A		4.783%	8/20/35		354		349

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
WaMu Mortgage Pass-Through Certificates 2003-AR10		4.062%	10/25/33	$	200	$	197
WaMu Mortgage Pass-Through Certificates 2005-AR15		5.610%	11/25/45		890		894
WaMu Mortgage Pass-Through Certificates 2005-AR19		5.740%	12/25/45		500		502
WaMu Mortgage Pass-Through Certificates 2006-AR11		5.590%	9/25/46		698		698

							16,219

Variable Rate Securities^E	2.4%
Banc of America Funding Corporation 2004-B		4.177%	12/20/34		150		150
Banc of America Funding Corporation 2005-F		5.257%	9/20/35		250		251
Countrywide Alternative Loan Trust 2004-33 1A1		5.003%	12/25/34		95		95
Countrywide Alternative Loan Trust 2004-33 2A1		4.948%	12/25/34		45		45
Countrywide Alternative Loan Trust 2005-14		3.300%	5/25/35		141		138
IndyMac INDX Mortgage Loan Trust 2004-AR15		5.074%	2/25/35		618		615
Prime Mortgage Trust 2005-2		7.448%	10/25/32		202		207
Residential Funding Mortgage Securities I 2005-SA3		4.920%	8/25/35		544		543
Structured Asset Securities Corporation 2004-SC1		9.902%	12/25/29		118		127	^C

							2,171

Total Mortgage-Backed Securities (Identified Cost—$19,806)							19,778
U.S. Government and Agency Obligations	19.5%

Fixed Rate Securities	17.8%
Fannie Mae		5.000%	9/15/08		150		150
Freddie Mac		3.800%	12/27/06		1,820		1,813
Freddie Mac		3.625%	11/14/08		375		365
United States Treasury Notes		3.500%	5/31/07		760		753
United States Treasury Notes		3.625%	6/30/07		1,730		1,713
United States Treasury Notes		4.375%	1/31/08		9,220		9,165
United States Treasury Notes		5.000%	7/31/08		2,000		2,009

							15,968

Treasury Inflation-Protected Securities^F	1.7%
United States Treasury Inflation-Protected Security		3.000%	7/15/12		849		881
United States Treasury Inflation-Protected Security		2.375%	1/15/25		658		669

							1,550

Total U.S. Government and Agency Obligations (Identified Cost—$17,621)							17,518

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Limited Duration Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government Agency Mortgage-Backed Securities	22.4%

Fixed Rate Securities	14.2%
Fannie Mae		5.000%	12/1/36	$	5,650	$	5,429	^G
Fannie Mae		5.500%	12/1/36		2,200		2,167	^G
Fannie Mae		6.000%	12/1/36		3,450		3,465	^G
Freddie Mac		5.000%	12/1/36		100		96	^G
Government National Mortgage Association		5.000%	8/15/33		84		82
Government National Mortgage Association		5.500%	12/1/36		1,500		1,490	^G
Government National Mortgage Association		5.000%	12/1/36		30		29	^G

							12,758

Indexed Securities^A	8.2%
Fannie Mae		4.215%	12/1/34		150		146
Fannie Mae		4.253%	12/1/34		147		144
Fannie Mae		4.329%	1/1/35		163		159
Fannie Mae		4.860%	1/1/35		291		287
Fannie Mae		4.792%	2/1/35		667		661
Fannie Mae		4.541%	3/1/35		334		329
Fannie Mae		5.113%	3/1/35		552		548
Fannie Mae		4.725%	7/1/35		4,648		4,596
Freddie Mac		4.354%	12/1/34		73		72
Freddie Mac		4.081%	1/1/35		50		48
Freddie Mac		4.099%	1/1/35		89		86
Freddie Mac		4.512%	1/1/35		243		239

							7,315

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$20,158)							20,073
Yankee Bonds^D	7.7%

Banking and Finance	1.5%
AIFUL CORPORATION		5.000%	8/10/10		370		360	^C
Islandsbanki hf		5.519%	2/22/08		10		10	^A,C
Kaupthing Bank hf		6.190%	4/12/11		300		300	^A,C
Kaupthing Bank hf		5.750%	10/4/11		290		289	^C
Landsbanki Islands hf (The National Bank of Iceland)		6.100%	8/25/11		210		212	^C
MUFG Capital Finance 1 Limited		6.346%	7/25/49		140		141	^B

							1,312

Beverages	0.5%
SABMiller Plc		5.671%	7/1/09		480		480	^A,C

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Yankee Bonds—Continued

Foreign Governments	0.8%
Russian Federation		3.000%	5/14/08	$	330	$	317
Russian Federation		8.250%	3/31/10		36		37
Russian Federation		8.250%	3/31/10		329		346	^C

							700

Health Care	0.2%
Baxter Finco B.V.		4.750%	10/15/10		150		147


Special Purpose	2.3%
Anadarko Finance Company		6.750%	5/1/11		790		830
Diageo Capital Plc		3.375%	3/20/08		280		273
TNK-BP Finance SA		6.875%	7/18/11		470		481	^C
Tyco International Group SA		6.375%	10/15/11		480		503

							2,087

Telecommunications	2.2%
British Telecommunications plc		8.375%	12/15/10		500		561
Deutsche Telekom International Finance BV		8.000%	6/15/10		300		327
France Telecom SA		7.750%	3/1/11		240		263
Koninklijke (Royal) KPN NV		8.000%	10/1/10		420		454
Telecom Italia Capital		5.969%	2/1/11		100		99	^A
Telefonica Emisiones, S.A.U.		5.690%	6/19/09		300		300	^A

							2,004

Telecommunications (Cellular/Wireless)	0.2%
Vodafone Group Plc		3.950%	1/30/08		170		167

Total Yankee Bonds (Identified Cost—$6,879)							6,897

Total Long-Term Securities (Identified Cost—$90,808)							90,623
Short-Term Securities	12.9%

U.S. Government and Agency Obligations	0.1%
Fannie Mae		0.000%	6/25/07		124		119^H,I


Options Purchased^J	N.M.
U.S. Treasury Note Futures Call, November 2006, Strike Price $102.03					400,000^K		3

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Limited Duration Bond Portfolio—Continued


	% OF NET ASSETS	PAR		VALUE

Short-Term Securities—Continued

Repurchase Agreements	12.8%
Goldman Sachs Group, Inc. 5.3%, dated 9/29/06, to be repurchased at $11,465 on 10/2/06 (Collateral: $11,190 Tennessee Valley
Authority notes, 5.375%, due 4/1/56, value $11,694)		$	11,460	$	11,460

Total Short-Term Securities (Identified Cost—$11,583)					11,582
Total Investments (Identified Cost—$102,391)	113.9%				102,205
Other Assets Less Liabilities	(13.9)%				(12,488	)


Net Assets	100.0%			$	89,717


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^J
U.S. Treasury Note Futures	December 2006	245	$	100

Futures Contracts Written^J
U.S. Treasury Note Futures	December 2006	2	$	(0.1	)
U.S. Treasury Note Futures	December 2006	3		(0.2	)
U.S. Treasury Note Futures	December 2006	112		(119	)
U.S. Treasury Note Futures	December 2006	120		(83	)

			$	(202	)

Options Written^J
Fannie Mae Futures Call, Strike Price $100.3984	November 2006	1,100,000		—^L
U.S. Treasury Note Futures Call, Strike Price $110.00	March 2007	38		10
U.S. Treasury Note Futures Put, Strike Price $106.00	March 2007	58		(6	)

			$	4

IndexedSecurity – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the one-year U.S. Treasury Bill Rate, or the Cost of Funds Index (“COFI”) rate. The coupon rates are the rates as of September 30, 2006.

SteppedCoupon Security – A security with a predetermined schedule of interest or dividend rate changes.

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, which the Fund’s investment adviser has determined to be liquid, represent 10.0% of net assets.

YankeeBond – A dollar denominated bond issued in the U.S. by foreign entities.

Thecoupon rates shown on variable rate securities are the rates at September 30, 2006. These rates vary with the weighted average coupon of the underlying loans.

TreasuryInflation-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.

When-issuedSecurity – A security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

Allor a portion of this security is pledged as collateral to cover futures contracts.

ZeroCoupon Bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

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

Parrepresents actual number of contracts.

Amounts less than $1.

N.M.—Not meaningful.

See note to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Limited Duration Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$90,808)			$	90,623
Short-term securities at value (Identified Cost—$11,583)				11,582
Swap contracts at value				6
Receivable for securities sold				3,467
Futures variation margin receivable				6
Interest receivable				609
Due from manager				10
Other assets				1

Total assets				106,304

Liabilities:
Payable for securities purchased	$	49
Payable for fund shares repurchased		16,446
Options written (Proceeds—$50)		46
Accrued expenses		46

Total liabilities				16,587


Net Assets			$	89,717


Net assets consist of:
Accumulated paid-in-capital applicable to:
9,117 Institutional Class shares outstanding			$	90,662
Undistributed net investment income				6
Accumulated net realized loss on investments, options, futures, and swaps				(670	)
Unrealized appreciation/(depreciation) of investments, options, futures, and swaps				(281	)


Net Assets			$	89,717


Net Asset Value Per Share:
Institutional Class				$9.84

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Limited Duration Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	1,920
Expenses:
Advisory fee	$	131
Audit and legal fees		35	��
Custodian fees		29
Directors’ fees and expenses		1
Proxy expense		—^A
Registration fees		8
Reports to shareholders		7
Transfer agent and shareholder servicing expense		4
Other expenses		7

		222
Less: Fees waived		(72	)
Compensating balance credits^B		—	^A

Total expenses, net of waivers and compensating balance credits					150

Net Investment Income					1,770
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized loss on:
Investments		(15	)
Futures		(131	)
Swaps		(1	)

					(147	)
Change in unrealized appreciation/(depreciation) of investments, options, futures, and swaps					479

Net Realized and Unrealized Gain on Investments					332

Change in Net Assets Resulting From Operations				$	2,102

Amounts less than $1.

Seenote 1, compensating balance credits, in the notes to financial statements.

N/A—Not applicable.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Limited Duration Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	1,770		$	2,658

Net realized loss on investments, options, futures, and swaps		(147	)		(449	)

Change in unrealized appreciation/(depreciation) of investments, options, futures, and swaps		479			(458	)

Change in net assets resulting from operations		2,102			1,751

Distributions to Shareholders from net investment income		(1,771	)		(2,696	)

Change in net assets from Fund share transactions		15,243			37,662

Change in net assets		15,574			36,717

Net Assets:
Beginning of period		74,143			37,426


End of period	$	89,717		$	74,143


Undistributed net investment income	$	6		$	7

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Limited Duration Bond Portfolio

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.

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004^A
	(Unaudited)
Net asset value, beginning of period	$	9.80		$	9.89		$	10.09		$	10.00

Investment operations:
Net investment income		.23			.38			.24			.08
Net realized and unrealized gain/(loss) on investments, options, futures, and swaps		.04			(.09	)		(.17	)		.09

Total from investment operations		.27			.29			.07			.17

Distributions paid from:
Net investment income		(.23	)		(.38	)		(.25	)		(.08	)
Net realized gain on investments		—			—			(.02	)		—

Total distributions		(.23	)		(.38	)		(.27	)		(.08	)

Net asset value, end of period	$	9.84		$	9.80		$	9.89		$	10.09

Total return		2.81	%^B		3.01	%		.69	%		1.69	%^B

Ratios to Average Net Assets:^C
Total expenses		.59	%^D		.68	%		.73	%		.68	%^D
Expenses net of waivers, if any		.40	%^D		.40	%		.40	%		.40	%^D
Expenses net of all reductions		.40	%^D		.40	%		.40	%		.40	%^D
Net investment income		4.7	%^D		3.9	%		2.4	%		1.6	%^D

Supplemental Data:
Portfolio turnover rate		127.8	%^B		244.7	%		231.5	%		125.5	%
Net assets at end of period (in thousands)	$	89,717		$	74,143		$	37,426		$	26,182

Forthe period October 1, 2003 (commencement of operations) to March 31, 2004.

Notannualized.

Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

Expense Example

Western Asset Intermediate Bond Portfolio

As a shareholder of the Fund, you incur ongoing costs, including management fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested on April 1, 2006, and held through September 30, 2006.

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,037.60	$	2.30
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28

Thesecalculations 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 of 0.45% 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.

Semi-Annual Report to Shareholders

Performance Information

Western Asset Intermediate Bond Portfolio

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

Growth of a $1,000,000 Investment—Institutional Class

LOGO

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^A

(as a percentage of the portfolio)

LOGO

Maturity Schedule

(as a percentage of the portfolio)

LOGO

Source:Standard & Poor's.

PreferredStocks do not have a defined maturity date.

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

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Intermediate Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	84.8%

Corporate Bonds and Notes	35.0%

Aerospace/Defense	0.2%
United Technologies Corporation		6.350%	3/1/11	$	1,037	$	1,083


Automotive	0.7%
Ford Motor Company		7.450%	7/16/31		1,159		896	^A
General Motors Corporation		8.375%	7/15/33		3,598		3,112	^A

							4,008

Banking and Finance	7.5%
Ford Motor Credit Company		6.194%	9/28/07		7,730		7,659	^B
Ford Motor Credit Company		8.466%	11/2/07		251		253	^B
Ford Motor Credit Company		6.625%	6/16/08		9,148		9,010
General Motors Acceptance Corporation		6.125%	8/28/07		3,792		3,787	^A
General Motors Acceptance Corporation		6.539%	9/23/08		995		989	^B
General Motors Acceptance Corporation		6.750%	12/1/14		1,556		1,519	^A
General Motors Acceptance Corporation		5.046%	9/19/35		1,721		1,707	^B
HSBC Finance Corporation		5.696%	5/10/10		1,272		1,278	^B
Nissan Motor Acceptance Corporation		5.625%	3/14/11		2,196		2,205	^C
Residential Capital Corporation		6.742%	6/29/07		3,962		3,984	^B
Residential Capital Corporation		6.000%	2/22/11		2,836		2,832	^A
Wachovia Capital Trust III		5.800%	3/15/42		6,788		6,807	^D
Washington Mutual, Inc.		4.200%	1/15/10		2,423		2,346

							44,376

Cable	0.8%
Comcast Cable Communications, Inc.		6.750%	1/30/11		4,303		4,521	^A


Casino Resorts	0.5%
Caesars Entertainment, Inc.		7.500%	9/1/09		802		838	^A
Harrah’s Operating Company, Inc.		5.500%	7/1/10		754		743
Harrah’s Operating Company, Inc.		5.625%	6/1/15		1,378		1,281

							2,862

Chemicals	0.4%
The Dow Chemical Company		5.750%	12/15/08		616		623
The Dow Chemical Company		5.970%	1/15/09		713		724
The Dow Chemical Company		6.000%	10/1/12		810		837

							2,184

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Computer Services and Systems	0.5%
Electronic Data Systems Corporation		7.125%	10/15/09	$	2,625	$	2,746


Diversified Financial Services	0.3%
ZFS Finance USA Trust II		6.450%	12/15/65		2,060		2,037	^C,D


Drug and Grocery Store Chains	0.3%
Safeway Inc.		6.500%	3/1/11		690		712
The Kroger Co.		6.200%	6/15/12		883		905

							1,617

Electric	1.3%
Appalachian Power Company		3.600%	5/15/08		1,094		1,064
Commonwealth Edison Company		6.150%	3/15/12		263		270
Dominion Resources, Inc.		5.700%	9/17/12		1,596		1,606	^A
FirstEnergy Corp.		6.450%	11/15/11		2,877		3,001	^A
Niagara Mohawk Power Corporation		7.750%	10/1/08		1,742		1,818

							7,759

Energy	2.6%
Alabama Power Company		5.590%	8/25/09		1,134		1,138	^B
CenterPoint Energy Inc.		5.875%	6/1/08		1,325		1,331
Duke Energy Corporation		6.250%	1/15/12		1,078		1,122	^A

Duke Energy Corporation		5.625%	11/30/12		729		739
Exelon Corporation		6.750%	5/1/11		2,269		2,384
MidAmerican Energy Holdings Company		5.875%	10/1/12		827		842
Pacific Gas and Electric Company		3.600%	3/1/09		2,309		2,226
Progress Energy, Inc.		5.850%	10/30/08		1,013		1,023
Progress Energy, Inc.		7.100%	3/1/11		1,337		1,433	^A
TXU Corp.		4.800%	11/15/09		570		556
TXU Corp.		5.550%	11/15/14		2,480		2,343	^A

							15,137

Environmental Services	0.9%
Waste Management, Inc.		6.875%	5/15/09		2,285		2,374
Waste Management, Inc.		7.375%	8/1/10		3,055		3,275

							5,649

Food, Beverage and Tobacco	1.0%
Altria Group, Inc.		7.000%	11/4/13		170		185
Kraft Foods Inc.		5.625%	11/1/11		1,932		1,952
Pepsi Bottling Holdings Inc.		5.625%	2/17/09		1,978		2,000	^C

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Food, Beverage and Tobacco—Continued
Sara Lee Corporation		2.750%	6/15/08	$	1,661	$	1,589
Sara Lee Corporation		6.250%	9/15/11		543		556

							6,282

Gas and Pipeline Utilities	0.7%
Kinder Morgan Energy Partners, L.P.		7.500%	11/1/10		1,321		1,411	^A
Kinder Morgan Energy Partners, L.P.		6.750%	3/15/11		1,337		1,393
The Williams Companies, Inc.		8.125%	3/15/12		1,540		1,644

							4,448

Investment Banking/Brokerage	2.9%
JPMorgan Chase & Co.		5.125%	9/15/14		1,329		1,303
JPMorgan Chase Capital XIII		6.317%	9/30/34		122		122	^B
Lehman Brothers Holdings E-Capital Trust I		6.173%	8/19/65		3,206		3,224	^B
Merrill Lynch & Co. Inc.		5.700%	2/5/10		2,334		2,343	^B
Morgan Stanley		5.050%	1/21/11		1,544		1,530
Morgan Stanley		5.625%	1/9/12		1,940		1,965
The Bear Stearns Companies Inc.		4.550%	6/23/10		1,118		1,093	^A
The Goldman Sachs Group, Inc.		5.664%	6/28/10		5,494		5,522	^B

							17,102

Investment Management	0.2%
Dryden Investor Trust		7.157%	7/23/08		1,260		1,280


Media	2.0%
Clear Channel Communications, Inc.		4.250%	5/15/09		3,347		3,235
Liberty Media Corporation		7.875%	7/15/09		2,820		2,952
News America Incorporated		5.300%	12/15/14		2,344		2,298
Time Warner Inc.		6.875%	5/1/12		1,288		1,362
Turner Broadcasting System, Inc.		8.375%	7/1/13		1,483		1,667
Viacom Inc.		5.750%	4/30/11		420		419	^C

							11,933

Medical Care Facilities	0.1%
HCA, Inc.		8.750%	9/1/10		822		830


Oil and Gas	4.5%
Amerada Hess Corporation		6.650%	8/15/11		4,528		4,751
Anadarko Petroleum Corporation		5.950%	9/15/16		4,110		4,159
Apache Corporation		6.250%	4/15/12		1,870		1,951
Occidental Petroleum Corporation		6.750%	1/15/12		1,000		1,069	^A

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Oil and Gas—Continued
Pemex Project Funding Master Trust		6.125%	8/15/08	$	319	$	321
Pemex Project Funding Master Trust		6.690%	6/15/10		4,603		4,704	^B,C
Pemex Project Funding Master Trust		5.991%	12/3/12		1,075		1,072	^B,C
Pemex Project Funding Master Trust		7.375%	12/15/14		178		193
Sonat Inc.		7.625%	7/15/11		3,954		4,053
XTO Energy, Inc.		7.500%	4/15/12		859		936
XTO Energy, Inc.		6.250%	4/15/13		1,645		1,697	^A
XTO Energy, Inc.		5.650%	4/1/16		1,612		1,599

							26,505

Paper and Forest Products	0.8%
International Paper Company		3.800%	4/1/08		1,872		1,830
International Paper Company		6.750%	9/1/11		810		860
Willamette Industries, Inc.		7.125%	7/22/13		1,839		1,988

							4,678

Pharmaceuticals	0.3%
Bristol-Myers Squibb Company		5.750%	10/1/11		1,900		1,937


Special Purpose	4.5%
DaimlerChrysler NA Holding Corporation		6.500%	11/15/13		6,790		6,963
Devon Financing Corporation ULC		6.875%	9/30/11		2,577		2,742
International Lease Finance Corp. E-Capital Trust I		5.900%	12/21/65		2,561		2,580	^A,C,D
International Lease Finance Corporation		5.000%	4/15/10		4,262		4,203
National Rural Utilities		3.875%	2/15/08		940		923
National Rural Utilities		5.750%	12/1/08		559		565
Sprint Capital Corporation		8.375%	3/15/12		4,019		4,504
Verizon Global Funding Corp.		7.250%	12/1/10		4,051		4,345

							26,825

Telecommunications	1.0%
AT&T Inc.		4.125%	9/15/09		1,929		1,868
AT&T Inc.		5.300%	11/15/10		2,706		2,698	^A
Embarq Corporation		6.738%	6/1/13		1,296		1,334

							5,900

Telecommunications (Cellular/Wireless)	0.5%
New Cingular Wireless Services Inc.		8.125%	5/1/12		2,774		3,122


Transportation	0.5%
Continental Airlines, Inc.		6.545%	8/2/20		1,036		1,054
Delta Air Lines, Inc.		6.619%	9/18/12		316		316
U.S. Airways		6.850%	1/30/18		1,528		1,547

							2,917

Total Corporate Bonds and Notes (Identified Cost—$208,292)							207,738

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Asset-Backed Securities	1.2%

Fixed Rate Securities	0.5%
ABFS Mortgage Loan Trust 2002-3		4.263%	9/15/33	$	359	$	355^D
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		648		543
Green Tree Financial Corporation 1994-6		8.900%	1/15/20		1,820		1,855
Mego Mortgage Home Loan Trust 1996-2		7.275%	8/25/17		10		10
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		377		376

							3,139

Indexed Securities^B	0.6%
AFC Home Equity Loan Trust 2003-3		5.680%	10/25/30		1,000		1,002	^C
AMRESCO Residential Securites Mortgage Loan Trust 1998-2		6.155%	6/25/28		164		164
Countrywide Asset-Backed Certificates 2002-BC1		5.990%	4/25/32		574		574
IndyMac Home Equity Loan Asset-Backed Trust 2001-A		5.590%	3/25/31		467		471
MSDWCC HELOC Trust 2003-1		5.600%	11/25/15		1,149		1,149
Residential Asset Securities Corporation 2003-KS1		5.700%	1/25/33		401		401

							3,761

Stripped Securities	0.1%
ACA CDS 2002-1, Ltd.		2.742%	7/15/08		6,158		154	^E1
Oakwood Mortgage Investors Inc. 2001-C		6.000%	5/15/08		3,079		250	^E1

							404

Total Asset-Backed Securities (Identified Cost—$7,537)							7,304
Mortgage-Backed Securities	5.7%

Fixed Rate Securities	1.6%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		44		44
Fannie Mae Grantor Trust 2002-T3		5.763%	12/25/11		3,103		3,211
GMAC Commercial Mortgage Securities Inc. 1998-C1		6.700%	5/15/30		563		572
Virginia Housing Development Authority Commonwealth Mortgage Bonds Pass-Through Certificates 2006		6.000%	6/25/34		5,724		5,725

							9,552

Indexed Securities^B	1.8%
Countrywide Home Loans 2003-49		3.697%	12/19/33		810		793
Impac CMB Trust 2003-12		6.090%	12/25/33		793		794
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34		5,915		5,715
Wells Fargo Mortgage-Backed Securities Trust 2004-S		3.539%	9/25/34		3,525		3,415

							10,717

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Variable Rate Securities^F	2.3%
Banc of America Funding Corporation 2005-B		5.109%	4/20/35	$	2,387	$	2,371
Bear Stearns ALT-A Trust 2005-2		4.745%	4/25/35		2,023		1,995
Citigroup Mortgage Loan Trust, Inc. 2005-8 1A1A		5.320%	10/25/35		2,007		1,997
Countrywide Home Loans 2004-20		6.882%	9/25/34		1,363		1,388
Merrill Lynch Mortgage Investors, Inc. 2005-A2		4.488%	2/25/35		1,755		1,724
MLCC Mortgage Investors, Inc. 2005-1 2A1		4.965%	4/25/35		923		915
MLCC Mortgage Investors, Inc. 2005-1 2A2		4.965%	4/25/35		2,873		2,849
WaMu Mortgage Pass-Through Certificates 2004-AR11		4.569%	10/25/34		409		402

							13,641

Total Mortgage-Backed Securities (Identified Cost—$34,163)							33,910
U.S. Government and Agency Obligations	20.2%

Fixed Rate Securities	17.9%
Fannie Mae		5.000%	9/15/08		2,080		2,081
Fannie Mae		7.250%	1/15/10		162		173
Fannie Mae		4.375%	3/15/13		2,868		2,777
Fannie Mae		4.625%	5/1/13		235		228
Fannie Mae		4.625%	10/15/13		5,600		5,490
Fannie Mae		5.125%	1/2/14		1,053		1,050
Farmer Mac		4.250%	7/29/08		1,005		991
Federal Farm Credit Bank		4.875%	4/4/12		2,561		2,552
Federal Home Loan Bank		5.800%	3/30/09		485		492
Federal Home Loan Bank		5.500%	7/15/36		180		189
Freddie Mac		5.125%	4/18/08		1,993		1,997
Freddie Mac		4.750%	1/18/11		5,899		5,863
Tennessee Valley Authority		5.625%	1/18/11		373		383
Tennessee Valley Authority		6.790%	5/23/12		2,747		2,994
United States Treasury Bonds		6.125%	11/15/27		1,475		1,725	^A
United States Treasury Bonds		6.250%	5/15/30		186		224	^A
United States Treasury Bonds		4.500%	2/15/36		194		186	^A
United States Treasury Notes		2.250%	2/15/07		1,920		1,900	^A
United States Treasury Notes		4.375%	5/15/07		794		791	^A
United States Treasury Notes		6.625%	5/15/07		1,856		1,874	^A
United States Treasury Notes		2.750%	8/15/07		421		413
United States Treasury Notes		4.375%	1/31/08		81		81	^A
United States Treasury Notes		3.750%	5/15/08		19,642		19,336	^A
United States Treasury Notes		5.000%	7/31/08		8,400		8,439
United States Treasury Notes		3.875%	5/15/09		3,946		3,873	^A
United States Treasury Notes		4.000%	6/15/09		4,246		4,180

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
United States Treasury Notes		3.875%	9/15/10	$	5,956	$	5,804	^A
United States Treasury Notes		4.500%	2/28/11		2,901		2,890	^A
United States Treasury Notes		4.750%	3/31/11		1,118		1,125	^A
United States Treasury Notes		4.875%	4/30/11		450		455	^A
United States Treasury Notes		4.625%	8/31/11		1,500		1,502	^A
United States Treasury Notes		4.250%	8/15/13		15,740		15,408	^A
United States Treasury Notes		4.250%	8/15/15		426		414	^A
United States Treasury Notes		4.875%	8/15/16		7,900		8,049	^A

							105,929

Stripped Securities	0.7%
United States Treasury Bonds		0.000%	11/15/24		9,318		3,869	^A,E2


Treasury Inflation-Protected Securities^G	1.6%
United States Treasury Inflation-Protected Security		3.000%	7/15/12		18		19	^A
United States Treasury Inflation-Protected Security		1.875%	7/15/13		341		332	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/14		3,099		3,040	^A
United States Treasury Inflation-Protected Security		2.000%	7/15/14		158		155	^A
United States Treasury Inflation-Protected Security		1.875%	7/15/15		1,238		1,198	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/16		2,600		2,540	^A
United States Treasury Inflation-Protected Security		2.375%	1/15/25		1,483		1,507	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/26		944		906	^A

							9,697

Total U.S. Government and Agency Obligations (Identified Cost—$119,914)							119,495
U.S. Government Agency Mortgage-Backed Securities	13.7%

Fixed Rate Securities	11.0%
Fannie Mae		6.500%	6/1/14		110		113
Fannie Mae		8.000%	9/1/15		55		57
Fannie Mae		6.000%	12/1/16		40,757		41,368
Fannie Mae		9.500%	4/15/21		42		46
Fannie Mae		6.000%	10/1/36		16,108		16,182
Fannie Mae		6.000%	12/1/36		50		50	^H
Fannie Mae		5.000%	12/1/36		50		48	^H
Fannie Mae		5.500%	12/1/36		386		380	^H
Freddie Mac		4.375%	11/16/07		4,100		4,067
Freddie Mac		4.500%	1/15/13		1,985		1,937
Freddie Mac		6.500%	6/1/13 to 11/1/15		63		65
Freddie Mac		7.500%	4/1/17		4		4

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government Agency Mortgage- Backed Securities—Continued

Fixed Rate Securities—Continued
Freddie Mac		9.300%	4/15/19	$	65	$	69
Freddie Mac		5.000%	12/1/36		891		857	^H

							65,243

Stripped Securities	N.M.
Fannie Mae		0.000%	5/25/22		9		8	^E2
Freddie Mac		10.000%	3/1/21		8		2	^E1

							10

Variable Rate Securities^F	2.7%
Fannie Mae		4.736%	3/1/18		28		28
Fannie Mae		4.316%	11/1/34		721		706
Fannie Mae		4.215%	12/1/34		916		891
Fannie Mae		4.860%	1/1/35		4,087		4,029
Fannie Mae		3.776%	3/1/35		1,720		1,668
Fannie Mae		4.768%	4/1/35		1,053		1,040
Freddie Mac		5.136%	1/1/19		9		9
Freddie Mac		4.354%	12/1/34		356		349
Freddie Mac		4.460%	12/1/34		1,747		1,717
Freddie Mac		4.081%	1/1/35		341		331
Freddie Mac		4.099%	1/1/35		611		593
Freddie Mac		4.608%	7/1/35		4,927		4,887

							16,248

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$81,845)							81,501
Yankee Bonds^I	8.9%

Aerospace/Defense	0.2%
Systems 2001 Asset Trust		6.664%	9/15/13		1,237		1,302	^C


Banking and Finance	1.7%
AIFUL CORPORATION		5.000%	8/10/10		3,371		3,278	^C
HBOS Treasury Services plc		4.000%	9/15/09		1,240		1,200	^C
HSBC Holdings plc		7.500%	7/15/09		3,808		4,041	^A
MUFG Capital Finance 1 Limited		6.346%	7/25/49		1,612		1,625	^D

							10,144


Banks	2.1%
Banco Santiago SA		5.740%	12/9/09		235		236	^B,C
Glitnir Banki hf		6.330%	7/28/11		120		120	^B,C
Islandsbanki hf		5.519%	2/22/08		80		80	^B,C
Kaupthing Bank hf		5.750%	10/4/11		4,090		4,071	^C

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE

Yankee Bonds—Continued

Banks—Continued
Landsbanki Islands hf (The National Bank of Iceland)		6.100%	8/25/11	$	2,210		$	2,233	^C
Royal Bank of Scotland Group plc		9.118%	3/31/49		2,431			2,713
Shinsei Fin Cayman Ltd		6.418%	1/29/49		2,755			2,736	^C,D

								12,189

Electric	0.3%
SP PowerAssets Limited		5.000%	10/22/13		1,592			1,558^C

Foreign Governments	0.8%
Russian Federation		5.000%	3/31/30		4,384			4,893

Manufacturing (Diversified)	0.4%
Tyco International Group SA		6.000%	11/15/13		2,358			2,440


Special Purpose	0.9%
Deutsche Telekom International Finance BV		8.000%	6/15/10		1,612			1,758
Petrozuata Finance, Inc.		8.220%	4/1/17		883			861	^C
TNK-BP Finance S.A.		6.875%	7/18/11		2,783			2,848	^C

								5,467

Telecommunications	2.4%
British Telecommunications plc		8.375%	12/15/10		3,817			4,278
France Telecom SA		7.750%	3/1/11		2,358			2,583
Koninklijke (Royal) KPN NV		8.000%	10/1/10		4,007			4,329
Telecom Italia Capital		5.969%	2/1/11		2,779			2,756	^B

								13,946

Utilities	0.1%
United Utilities plc		6.450%	4/1/08		778			788

Total Yankee Bonds (Identified Cost—$51,835)								52,727
Preferred Stocks	0.1%
Home Ownership Funding Corporation		13.331%			1	shs		108	^C,D
Home Ownership Funding Corporation II		13.338%			2			324	^C,D

Total Preferred Stocks (Identified Cost—$1,942)								432

Total Long-Term Securities (Identified Cost—$505,528)								503,107

Semi-Annual Report to Shareholders

% OF
NET ASSETS

RATE

MATURITY
DATE

PAR

VALUE

Investment of Collateral From Securities Lending

15.2%

State Street Navigator Securities Lending Prime
Portfolio

90,372

shs

90,372

Total Investment of Collateral From Securities
Lending (Identified Cost—$90,372)

90,372

Short-Term Securities

24.8%

U.S. Government and Agency Obligations

0.9%

Fannie Mae

0.000%

6/25/07

5,737

5,526

^J,K

Repurchase Agreements

23.9%

Goldman Sachs Group, Inc.
5.3%, dated 9/29/06, to be repurchased at $141,694 on 10/2/06 (Collateral: $45,270 Freddie Mac notes, 6.625%, due 9/15/09, value $47,477; $100,000 Federal Home Loan Bank note, 2.75%, due 3/14/08, value $97,000)

141,631

Total Short-Term Securities
(Identified Cost—$147,157)

147,157

Total Investments (Identified Cost—$743,057)

124.8%

740,636

Obligation to Return Collateral for Securities Loaned

(15.2)%

(90,372

)

Other Assets Less Liabilities

(9.6)%

(57,101

)

Net Assets

100.0%

593,163

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^L
Eurodollar Futures	June 2007	55	$	27
U.S. Treasury Note Futures	December 2006	890		630
U.S. Treasury Note Futures	December 2006	264		114

			$	771

Futures Contracts Written^L
U.S. Treasury Bond Futures	December 2006	62	$	(98	)
U.S. Treasury Note Futures	December 2006	72		5

			$	(93	)

Options Written^L
U.S. Treasury Note Futures Call, Strike Price $110.00	March 2007	66	$	7
U.S. Treasury Note Futures Call, Strike Price $111.00	March 2007	83		8
U.S. Treasury Note Futures Put, Strike Price $106.00	March 2007	81		(5	)

			$	10

Allor a portion of these securities is on loan.

Indexedsecurity – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the one-year Treasury Bill rate. The coupon rates are the rates as of September 30, 2006.

Rule144a – 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, which the Fund’s investment adviser has determined to be liquid, represent 6.2% of net assets.

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

Strippedsecurity – Security with interest-only or principal-only payments 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.

Thecoupon rates shown on variable rate securities are the rates at September 30, 2006. These rates vary with the weighted average coupon of the underlying loans.

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

When-issuedsecurity – Security purchased on a delayed basis. Final settlement amount and maturity date have not yet been announced.

YankeeBond – A dollar-denominated bond issued in the U.S. by foreign entities.

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

Allor a portion of this security is pledged as collateral to cover futures and option contracts.

Optionsand futures are described in more detail in the notes to financial statements.

N.M.—Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Intermediate Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$595,900)^A			$	593,479
Short-term securities at value (Identified Cost—$147,157)				147,157
Swap contracts at value				130
Cash				745
Receivable for securities sold				43,832
Receivable for fund shares sold				326
Interest and dividends receivable				5,499

Total assets				791,168

Liabilities:
Payable for securities purchased	$	106,487
Payable for fund shares repurchased		457
Accrued management fee		163
Income distribution payable		256
Interest expense payable		4
Obligation to return collateral for securities loaned		90,372
Options written (Proceeds—$100)		90
Futures variation margin		62
Accrued expenses		114

Total liabilities				198,005


Net Assets			$	593,163


Net assets consist of:
Accumulated paid-in-capital applicable to:
57,367 Institutional Class shares outstanding			$	606,510
Undistributed net investment income				144
Accumulated net realized loss on investments, options, futures and swaps				(11,941	)
Unrealized appreciation/(depreciation) of investments, options, futures and swaps				(1,550	)


Net Assets			$	593,163


Net Asset Value Per Share:
Institutional Class				$10.34

Themarket value of securities on loan is $90,318.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Intermediate Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	17,517
Dividends		80

Total income				$	17,597
Expenses:
Advisory fee		1,335
Audit and legal fees		56
Custodian fees		90
Directors’ fees and expenses		21
Proxy expense		4
Registration fees		16
Reports to shareholders		9
Transfer agent and shareholder servicing expense		10
Other expenses		28

		1,569
Less: Fees waived		(65	)
Compensating balance credits^A		(2	)

Total expenses, net of waivers and compensating balance credits					1,502

Net Investment Income					16,095
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(6,266	)
Options		(92	)
Futures		(94	)
Swaps		314

					(6,138	)
Change in unrealized appreciation/(depreciation) of investments, options, futures and swaps					13,600

Net Realized and Unrealized Gain/(Loss) on Investments					7,462

Change in Net Assets Resulting From Operations				$	23,557

Seenote 1, compensating balance credits, in the notes to financial statements.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Intermediate Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	16,095		$	30,272

Net realized loss on investments, options, futures, swaps		(6,138	)		(5,633	)

Change in unrealized appreciation/(depreciation) of investments, options, futures and swaps		13,600			(9,284	)

Change in net assets resulting from operations		23,557			15,355

Distributions to Shareholders from:
Net investment income		(16,193	)		(30,414	)
Net realized gain on investments		—			(6,582	)

Change in net assets from Fund share transactions		(153,693	)		100,653

Change in net assets		(146,329	)		79,012

Net Assets:
Beginning of period		739,492			660,480


End of period	$	593,163		$	739,492


Undistributed net investment income	$	144		$	242

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Intermediate Bond Portfolio

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002
	(Unaudited)
Net asset value, beginning of period	$	10.21		$	10.51		$	11.01		$	10.92		$	10.39		$	10.65

Investment operations:
Net investment income		.25			.44			.38			.44			.53			.57
Net realized and unrealized gain/(loss) on investments, options, futures and swaps		.13			(.20	)		(.22	)		.36			.62			(.13	)

Total from investment operations		.38			.24			.16			.80			1.15			.44

Distributions paid from:
Net investment income		(.25	)		(.44	)		(.38	)		(.44	)		(.53	)		(.57	)
Net realized gain on investments		—			(.10	)		(.28	)		(.27	)		(.09	)		(.13	)

Total distributions		(.25	)		(.54	)		(.66	)		(.71	)		(.62	)		(.70	)

Net asset value, end of period	$	10.34		$	10.21		$	10.51		$	11.01		$	10.92		$	10.39

Total return		3.76	%^A		2.37	%		1.66	%		7.58	%		11.37	%		4.20	%

Ratios to Average Net Assets:^B
Total expenses		.47	%^C		.47	%		.46	%		.47	%		.45	%		.47	%
Expenses net of waivers, if any		.45	%^C		.45	%		.45	%		.45	%		.45	%		.45	%
Expenses net of all reductions		.45	%^C		.45	%		.45	%		.45	%		.45	%		.45	%
Net investment income		4.8	%^C		4.3	%		3.6	%		4.0	%		5.0	%		5.3	%

Supplemental Data:
Portfolio turnover rate		177.7	%^A		266.1	%		215.7	%		255.1	%		238.5	%		274.8	%
Net assets at end of period (in thousands)	$	593,163		$	739,492		$	660,480		$	587,229		$	539,874		$	628,196

Notannualized.

Totalexpenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

Expense Example

Western Asset Intermediate Plus Bond Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,038.40	$	2.30
Hypothetical (5% return before expenses)		1,000.00		1,022.81		2.28

These calculationsare based on expensesincurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio of 0.45% 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.

Semi-Annual Report to Shareholders

Performance Information

Western Asset Intermediate Plus Bond Portfolio

Bonds are subject to a variety of risks, including interest rate, credit, and inflation risk. Non-U.S. investment are subject to currency fluctuations, social, economic and political risk.

Growth of a $1,000,000 Investment—Institutional Class

LOGO

Indexreturns are for periods beginning March 31, 2004.

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^B (as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

Source:Standard & Poor's.

PreferredStocks do not have a defined maturity date.

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

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Intermediate Plus Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	83.8%

Corporate Bonds and Notes	36.0%

Automotive	0.2%
Ford Motor Company		7.450%	7/16/31	$	110	$	85
General Motors Corporation		8.375%	7/15/33		120		104

							189

Banking and Finance	8.0%
Caterpillar Financial Services Corporation		3.450%	1/15/09		120		116
Ford Motor Credit Company		6.625%	6/16/08		850		837
Ford Motor Credit Company		9.957%	4/15/12		1,000		1,046	^A
General Motors Acceptance Corporation		6.407%	1/16/07		700		699	^A
General Motors Acceptance Corporation		6.125%	8/28/07		370		369
General Motors Acceptance Corporation		6.539%	9/23/08		850		845	^A
General Motors Acceptance Corporation		6.750%	12/1/14		40		39
General Motors Acceptance Corporation		5.046%	9/19/35		174		173	^A
HSBC Finance Corporation		5.696%	5/10/10		454		456	^A
John Deere Capital Corporation		5.100%	1/15/13		200		198
Nissan Motor Acceptance Corporation		5.625%	3/14/11		320		321	^B
Residential Capital Corporation		6.742%	6/29/07		100		100	^A
Residential Capital Corporation		6.000%	2/22/11		300		300
Wachovia Capital Trust III		5.800%	3/15/42		970		973	^C
Washington Mutual, Inc.		4.200%	1/15/10		290		281

							6,753

Cable	0.6%
Comcast Cable Communications, Inc.		6.750%	1/30/11		510		536


Casino Resorts	0.5%
Caesars Entertainment, Inc.		7.500%	9/1/09		90		94
Harrah’s Operating Company, Inc.		5.500%	7/1/10		200		197
Harrah’s Operating Company, Inc.		5.625%	6/1/15		130		121

							412

Chemicals	0.6%
The Dow Chemical Company		5.750%	12/15/08		100		101
The Dow Chemical Company		5.970%	1/15/09		70		71
The Dow Chemical Company		6.000%	10/1/12		300		310

							482

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Computer Services and Systems	0.5%
Electronic Data Systems Corporation		7.125%	10/15/09	$	330	$	345
International Business Machines Corporation		4.750%	11/29/12		100		98

							443

Diversified Financial Services	0.6%
ZFS Finance (USA) Trust II		6.450%	12/15/65		240		237^B,C
American Express Company		6.800%	9/1/66		250		264	^C

							501

Drug and Grocery Store Chains	0.1%
Safeway Inc.		6.500%	3/1/11		100		103


Electric	1.8%
Alabama Power Company		5.590%	8/25/09		120		120	^A
Appalachian Power Company		3.600%	5/15/08		277		270
Dominion Resources, Inc.		5.700%	9/17/12		380		382
FirstEnergy Corp.		6.450%	11/15/11		500		522
Niagara Mohawk Power Corporation		7.750%	10/1/08		50		52
The AES Corporation		9.500%	6/1/09		150		160

							1,506

Energy	2.4%
CenterPoint Energy, Inc.		5.875%	6/1/08		120		121
Duke Energy Corporation		6.250%	1/15/12		200		208
Duke Energy Corporation		5.625%	11/30/12		160		162
Exelon Corporation		6.750%	5/1/11		300		315
Pacific Gas and Electric Company		3.600%	3/1/09		320		309
Progress Energy, Inc.		5.850%	10/30/08		100		101
Progress Energy, Inc.		7.100%	3/1/11		370		396
TXU Corp.		4.800%	11/15/09		170		166
TXU Corp.		5.550%	11/15/14		280		264

							2,042

Environmental Services	0.9%
Waste Management, Inc.		6.875%	5/15/09		250		260
Waste Management, Inc.		7.375%	8/1/10		460		493

							753

Food, Beverage and Tobacco	1.9%
Altria Group, Inc.		5.625%	11/4/08		170		171
Altria Group, Inc.		7.000%	11/4/13		480		524

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Food, Beverage and Tobacco—Continued
Kraft Foods Inc.		5.625%	11/1/11	$	340	$	343
Pepsi Bottling Holdings Inc.		5.625%	2/17/09		320		324	^B
Sara Lee Corporation		2.750%	6/15/08		150		143
Sara Lee Corporation		6.250%	9/15/11		60		62

							1,567

Gas and Pipeline Utilities	1.1%
ANR Pipeline, Inc.		8.875%	3/15/10		65		68
Kinder Morgan Energy Partners, L.P.		7.500%	11/1/10		290		310
Kinder Morgan Energy Partners, L.P.		6.750%	3/15/11		80		83
Southern Natural Gas Company		8.875%	3/15/10		85		89
The Williams Companies, Inc.		6.375%	10/1/10		60		60	^B
The Williams Companies, Inc.		7.508%	10/1/10		280		285	^A,B

							895

Investment Banking/Brokerage	2.0%
JPMorgan Chase & Co.		5.125%	9/15/14		210		206
JPMorgan Chase Capital XIII		6.317%	9/30/34		20		20	^A
Lehman Brothers Holdings E-Capital Trust I		6.173%	8/19/65		430		432	^A
Lehman Brothers Holdings Inc.		4.500%	7/26/10		140		136
Merrill Lynch & Co., Inc.		5.700%	2/5/10		160		161	^A
Morgan Stanley		5.050%	1/21/11		180		179
Morgan Stanley		5.625%	1/9/12		330		334
The Bear Stearns Companies Inc.		4.550%	6/23/10		250		244

							1,712

Media	2.0%
Clear Channel Communications, Inc.		4.250%	5/15/09		480		464
Liberty Media Corporation		7.875%	7/15/09		440		461
News America Incorporated		5.300%	12/15/14		400		392
Time Warner Inc.		6.875%	5/1/12		200		211
Turner Broadcasting System, Inc.		8.375%	7/1/13		130		146
Viacom Inc.		5.750%	4/30/11		60		60	^B

							1,734

Medical Care Facilities	0.3%
HCA, Inc.		8.750%	9/1/10		50		50
HCA, Inc.		6.250%	2/15/13		130		109
HCA, Inc.		6.750%	7/15/13		70		59

							218

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Medical Products	0.4%
Bristol-Myers Squibb Company		5.750%	10/1/11	$	310	$	316


Oil and Gas	4.9%
Amerada Hess Corporation		6.650%	8/15/11		690		724
Apache Corporation		6.250%	4/15/12		100		104
ConocoPhillips		4.750%	10/15/12		500		490
El Paso Corporation		6.950%	12/15/07		300		303
Kerr-McGee Corporation		6.625%	10/15/07		60		61
Kerr-McGee Corporation		6.875%	9/15/11		650		688
Occidental Petroleum Corporation		6.750%	1/15/12		200		214
Pemex Project Funding Master Trust		6.125%	8/15/08		322		324
Pemex Project Funding Master Trust		5.991%	12/3/12		220		220	^A,B
Pemex Project Funding Master Trust		7.375%	12/15/14		230		248
XTO Energy, Inc.		7.500%	4/15/12		100		109
XTO Energy, Inc.		6.250%	4/15/13		190		196
XTO Energy, Inc.		5.650%	4/1/16		460		456

							4,137

Paper and Forest Products	0.7%
International Paper Company		3.800%	4/1/08		230		225
International Paper Company		6.750%	9/1/11		50		53
Weyerhaeuser Company		6.750%	3/15/12		330		345

							623

Photo Equipment and Supplies	N.M.
Eastman Kodak Company		3.625%	5/15/08		10		10


Special Purpose	4.7%
DaimlerChrysler NA Holding Corporation		6.500%	11/15/13		970		995
Devon Financing Corporation ULC		6.875%	9/30/11		450		479
International Lease Finance Corp. E-Capital Trust I		5.900%	12/21/65		470		473	^B,C
International Lease Finance Corporation		5.000%	4/15/10		510		503
National Rural Utilities Cooperative Finance Corporation		3.875%	2/15/08		100		98
Sprint Capital Corporation		8.375%	3/15/12		570		639
The Williams Companies, Inc. Credit-Linked Certificates		6.750%	4/15/09		170		171	^B
The Williams Companies, Inc. Credit-Linked Certificates		8.739%	5/1/09		255		267	^A,B
Verizon Global Funding Corp.		7.250%	12/1/10		350		375

							4,000

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Telecommunications	1.3%
AT&T Inc.		4.125%	9/15/09	$	190	$	184
AT&T Inc.		5.300%	11/15/10		380		379
AT&T Inc.		6.250%	3/15/11		100		103
Embarq Corporation		6.738%	6/1/13		200		206
Qwest Communications International Incorporated		8.905%	2/15/09		200		204	^A

							1,076

Telecommunications (Cellular/Wireless)	0.5%
New Cingular Wireless Services Inc.		8.125%	5/1/12		400		450

Total Corporate Bonds and Notes (Identified Cost—$30,448)							30,458
Asset-Backed Securities	0.2%

Indexed Securities^A	0.2%
Metris Master Trust 2004-1		5.610%	4/20/11		100		100
Residential Asset Securities Corporation 2002-KS7		5.700%	11/25/32		18		19

							119

Total Asset-Backed Securities (Identified Cost—$119)							119
Mortgage-Backed Securities	3.3%

Fixed Rate Securities	N.M.
Washington Mutual MSC Mortgage Pass-Through Certificates, Series 2004-RA1		7.000%	3/25/34		27		27


Indexed Securities^A	0.6%
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34		450		435
Merrill Lynch Mortgage Investors, Inc. 2004-B		6.660%	5/25/29		31		31

							466

Variable Rate Securities^D	2.7%
Banc of America Funding Corporation 2005-B		5.109%	4/20/35		194		193
Bear Stearns ALT-A Trust 2005-2		4.745%	4/25/35		153		151
Countrywide Home Loans 2004-20		6.882%	9/25/34		33		33
J.P. Morgan Mortgage Trust 2004-A3		4.304%	7/25/34		634		627
MLCC Mortgage Investors, Inc. 2005-1 2A1		4.965%	4/25/35		68		67
MLCC Mortgage Investors, Inc. 2005-1 2A2		4.965%	4/25/35		221		219
Structured Adjustable Rate Mortgage Loan Trust 2004-6 3A2		4.725%	6/25/34		208		206

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Variable Rate Securities—Continued
WaMu Mortgage Pass-Through Certificates 2005-AR12		4.839%	10/25/35	$	518	$	514
WaMu Mortgage Pass-Through Certificates 2005-AR4		4.674%	4/25/35		300		293

							2,303

Total Mortgage-Backed Securities (Identified Cost—$2,813)							2,796
U.S. Government and Agency Obligations	26.1%

Fixed Rate Securities	24.4%
Fannie Mae		5.000%	9/15/08		300		300
Fannie Mae		4.625%	10/15/13		430		422
Farmer Mac		4.250%	7/29/08		80		79
Federal Home Loan Bank		5.125%	6/13/08		140		140
Federal Home Loan Bank		5.375%	5/18/16		600		618
Federal Home Loan Bank		5.500%	7/15/36		20		21
Freddie Mac		4.750%	1/18/11		710		706
Tennessee Valley Authority		5.625%	1/18/11		10		10
Tennessee Valley Authority		6.790%	5/23/12		210		229
United States Treasury Bonds		6.125%	11/15/27		110		128
United States Treasury Bonds		4.500%	2/15/36		54		52
United States Treasury Notes		3.000%	11/15/07		3,600		3,527
United States Treasury Notes		4.375%	1/31/08		120		119
United States Treasury Notes		3.750%	5/15/08		3,940		3,879
United States Treasury Notes		5.000%	7/31/08		700		703
United States Treasury Notes		3.375%	9/15/09		770		744
United States Treasury Notes		3.375%	10/15/09		10		10
United States Treasury Notes		6.500%	2/15/10		40		42
United States Treasury Notes		3.875%	9/15/10		2,650		2,582
United States Treasury Notes		4.250%	10/15/10		1,080		1,067
United States Treasury Notes		4.500%	2/28/11		340		339
United States Treasury Notes		4.750%	3/31/11		80		80
United States Treasury Notes		4.250%	8/15/13		1,630		1,596
United States Treasury Notes		4.250%	11/15/14		10		10
United States Treasury Notes		4.250%	8/15/15		130		126
United States Treasury Notes		2.000%	1/15/16		328		320
United States Treasury Notes		4.500%	2/15/16		410		406
United States Treasury Notes		4.875%	8/15/16		2,380		2,425

							20,680

Stripped Securities	0.6%
United States Treasury Bonds		0.000%	11/15/24		1,270		527	^E2

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Treasury Inflation-Protected Securities^F	1.1%
United States Treasury Inflation-Protected Security		2.000%	1/15/14	$	628	$	616
United States Treasury Inflation-Protected Security		2.000%	7/15/14		11		10
United States Treasury Inflation-Protected Security		1.875%	7/15/15		94		91
United States Treasury Inflation-Protected Security		2.375%	1/15/25		76		77
United States Treasury Inflation-Protected Security		2.000%	1/15/26		103		98

							892

Total U.S. Government and Agency Obligations (Identified Cost—$22,130)							22,099
U.S. Government Agency Mortgage-Backed Securities	9.2%

Fixed Rate Securities	7.8%
Fannie Mae		5.000%	12/1/36		600		577	^G
Fannie Mae		6.000%	12/1/16		5,480		5,562	^G
Freddie Mac		4.375%	11/16/07		370		367
Freddie Mac		5.000%	12/1/36		100		96	^G

							6,602

Variable Rate Securities^D	1.4%
Fannie Mae		5.229%	9/1/35		388		385
Fannie Mae		4.240%	12/1/34		750		731
Freddie Mac		4.082%	1/1/35		25		24
Freddie Mac		4.098%	1/1/35		44		43

							1,183

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$7,797)							7,785
Yankee Bonds^H	7.9%

Banking and Finance	1.0%
AIFUL CORPORATION		5.000%	8/10/10		390		379	^B
HSBC Holdings plc		7.500%	7/15/09		120		128
MUFG Capital Finance 1 Limited		6.346%	7/25/49		150		151	^C
Royal Bank of Scotland Group plc		9.118%	3/31/49		180		201

							859

Banks	1.8%
Banco Santiago SA		5.740%	12/9/09		200		201	^A,B
Islandsbanki hf		5.519%	2/22/08		10		10	^A,B
Kaupthing Bank hf		5.750%	10/4/11		150		150	^B
Kaupthing Bank hf		6.125%	10/4/16		430		429	^B

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Yankee Bonds—Continued
Banks—Continued
Landsbanki Islands hf (The National Bank of Iceland)		6.100%	8/25/11	$	330	$	333	^B
Shinsei Fin Cayman Ltd		6.418%	1/29/49		420		417	^B,C

							1,540
Foreign Governments	1.3%
Federative Republic of Brazil		8.875%	4/15/24		20		24
Federative Republic of Brazil		10.125%	5/15/27		22		29
Federative Republic of Brazil		11.000%	8/17/40		144		188
Republic of Bulgaria		8.250%	1/15/15		6		7
Republic of Colombia		11.750%	2/25/20		17		24
Republic of Colombia		7.375%	9/18/37		100		101
Republic of Panama		7.125%	1/29/26		55		57
Republic of Panama		9.375%	4/1/29		20		26
Russian Federation		5.000%	3/31/30		340		380	^C
Russian Federation		5.000%	3/31/30		210		234	^B,C
United Mexican States		8.300%	8/15/31		10		12

							1,082

Manufacturing (Diversified)	0.6%
Tyco International Group SA		6.000%	11/15/13		460		476


Special Purpose	1.0%
Deutsche Telekom International Finance BV		8.000%	6/15/10		440		480
TNK-BP Finance S.A.		6.875%	7/18/11		380		389	^B

							869

Telecommunications	2.0%
British Telecommunications plc		8.375%	12/15/10		350		392
France Telecom SA		7.750%	3/1/11		400		438
Koninklijke (Royal) KPN NV		8.000%	10/1/10		490		530
Telecom Italia Capital		5.969%	2/1/11		370		367	^A

							1,727


Utilities	0.2%
United Utilities plc		6.450%	4/1/08		170		172

Total Yankee Bonds (Identified Cost—$6,647)							6,725
Foreign Government Obligations	0.8%
Canadian Real Return Bond		4.000%	12/1/31		192^I		254^F
Bundesrepublik Deutschland		3.750%	1/4/15		310^J		396

Total Foreign Government Obligations (Identified Cost—$605)							650

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 Corporate Bonds

0.1%

General Motors Corporation

8.375%

7/5/33

50^J

Total Foreign Corporate Bonds
(Identified Cost—$65)

Preferred Stocks

0.2%

General Motors Corporation

4.500%

shs

178

Total Preferred Stocks (Identified Cost—$168)

178

Total Long-Term Securities
(Identified Cost—$70,792)

70,866

Short-Term Securities

22.1%

U.S. Government and Agency Obligations

0.2%

Fannie Mae

0.000%

6/25/07

210

202

^K,L

Repurchase Agreements

21.9%

Goldman Sachs Group, Inc.
5.3%, dated 9/29/06, to be repurchased at $18,531 on 10/2/06 (Collateral: $18,570 Federal Home Loan Bank note, 5.875%, due 2/14/08, value $18,895)

18,523

Total Short-Term Securities (Identified Cost—$18,725)

18,725

Total Investments (Identified Cost—$89,517)

105.9%

89,591

Other Assets Less Liabilities

(5.9)%

(4,975

)

Net Assets

100.0%

84,616

Semi-Annual Report to Shareholders


	EXPIRATION		ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^M
Eurodollar Futures	June 2007		8	$	4
U.S. Treasury Note Futures	December 2006		145		92
U.S. Treasury Note Futures	December 2006		40		17

				$	113

Futures Contracts Written^M
U.S. Treasury Bond Futures	December 2006		9	$	(14	)
U.S. Treasury Note Futures	December 2006		25		(15	)

		��		$	(29	)

Options Written^M
U.S. Treasury Note Futures Call, Strike Price $110.00	March 2007		9	$	1
U.S. Treasury Note Futures Call, Strike Price $111.00	March 2007		12		1
U.S. Treasury Note Futures Put, Strike Price $106.00	March 2007		12		(1	)

				$	1

Rule144a – 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, which the fund’s investment adviser has determined to be liquid, represent 5.9% of net assets.

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

Thecoupon rates shown on variable rate securities are the rates at September 30, 2006. These rates vary with the weighted average coupon of the underlying loans.

Strippedsecurity – 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.

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

When-issuedsecurity – Security purchased on a delayed basis. Final settlement amount and maturity date have not yet been announced.

YankeeBond – A dollar-denominated bond issued in the U.S. by foreign entities.

Denominatedin Canadian dollars.

Denominatedin euros.

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

Allor a portion of this security is collateral to cover futures and option contracts.

Optionsand futures are described in more detail in the notes to financial statements.

N.M.—Not Meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Intermediate Plus Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$70,792)			$	70,866
Short-term securities at value (Identified Cost—$18,725)				18,725
Swap contracts at value				44
Cash and foreign currencies				1,604
Receivable for securities sold				6,544
Interest receivable				812

Total assets				98,595

Liabilities:
Payable for securities purchased	$	13,399
Payable for fund shares repurchased		400
Accrued management fee		14
Income distribution payable		52
Options written (Proceeds—$14)		13
Futures variation margin payable		9
Unrealized depreciation of foreign forward currency contracts		24
Accrued expenses		68

Total liabilities				13,979


Net Assets			$	84,616


Net assets consist of:
Accumulated paid-in-capital applicable to:
8,563 Institutional Class shares outstanding			$	84,936
Overdistributions of net investment income				(36	)
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions				(452	)
Unrealized appreciation/(depreciation) of investments, options, futures, swaps and foreign currency translations				168


Net Assets			$	84,616


Net Asset Value Per Share:
Institutional Class				$9.88

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Intermediate Plus Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	2,171
Dividends		4

Total income				$	2,175
Expenses:
Advisory fee		169
Audit and legal fees		46
Custodian fees		32
Directors’ fees and expenses		2
Proxy expense		—	^A
Registration fees		1
Reports to shareholders		8
Transfer agent and shareholder servicing expense		7
Other expenses		8

		273
Less: Fees waived		(81	)
Compensating balance credits^B		(1	)

Total expenses, net of waivers and compensating balance credits					191

Net Investment Income					1,984

Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(321	)
Options		(5	)
Futures		33
Foreign currency transactions		18
Swaps		37

					(238	)

Change in unrealized appreciation/(depreciation) of:
Investments, options, futures, foreign currency translations and swaps		1,427
Assets and liabilities denominated in foreign currency		(—	)^A

					1,427

Net Realized and Unrealized Gain/(Loss) on Investments					1,189

Change in Net Assets Resulting From Operations				$	3,173

Amountsless than $1.

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

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Intermediate Plus Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	1,984		$	2,314

Net realized loss on investments, options, futures, foreign currency transactions and swaps		(238	)		(29	)

Change in unrealized appreciation/(depreciation) of investments, options, futures, foreign currency translations, swaps and assets and liabilities denominated in foreign currencies		1,427			(813	)

Change in net assets resulting from operations		3,173			1,472

Distributions to Shareholders from net investment income		(1,984	)		(2,415	)

Change in net assets from Fund share transactions		13,519			30,214

Change in net assets		14,708			29,271

Net Assets:
Beginning of period		69,908			40,637


End of period	$	84,616		$	69,908


Overdistributions of net investment income	$	(36	)	$	(36	)

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Intermediate Plus Bond Portfolio

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005
	(Unaudited)
Net asset value, beginning of period	$	9.74		$	9.86		$	10.00

Investment operations:
Net investment income		.23			.40			.32
Net realized and unrealized gain/(loss) on investments, options, futures, swaps, and foreign currency transactions		.14			(.11	)		(.14	)

Total from investment operations		.37			.29			.18

Distributions paid from net investment income		(.23	)		(.41	)		(.32	)

Total distributions		(.23	)		(.41	)		(.32	)

Net asset value, end of period	$	9.88		$	9.74		$	9.86

Total return		3.84	%^A		2.99	%		1.81	%^A

Ratios to Average Net Assets:^B
Total expenses		.64	%^C		.76	%		1.22	%^C
Expenses net of waivers, if any		.45	%^C		.45	%		.45	%^C
Expenses net of all reductions		.45	%^C		.45	%		.45	%^C
Net investment income		4.7	%^C		4.1	%		3.1	%^C

Supplemental Data:
Portfolio turnover rate		195.1	%^A		368.6	%		463.5	%^A
Net assets at end of period (in thousands)	$	84,616		$	69,908		$	40,637

Notannualized.

Totalexpenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

Expense Example

Western Asset Core Bond Portfolio

As a shareholder of the Fund, 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 the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on April 1, 2006 and held through September 30, 2006.

Actual Expenses

Hypothetical Example for Comparison Purposes

The second line for each class in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. 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 the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples for the relevant classes that appear in the shareholder reports of other funds.


	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,044.60	$	2.35
Hypothetical (5% return before expenses)		1,000.00		1,022.77		2.32
Financial Intermediary Class:
Actual	$	1,000.00	$	1,043.30	$	3.69
Hypothetical (5% return before expenses)		1,000.00		1,021.46		3.65

Thesecalculations 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 ratios of 0.46% and 0.72% for the Institutional Class and Financial Intermediary Class, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal half-year (183), and divided by 365.

Semi-Annual Report to Shareholders

Performance Information

Western Asset Core Bond Portfolio

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

Total return measures investment performance in terms of appreciation or depreciation in the Fund’s 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 (and the graphs and tables found below) 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.

Growth of a $1,000,000 Investment—Institutional Class

Semi-Annual Report to Shareholders

Growth of a $1,000,000 Investment—Financial Intermediary Class

Indexreturns are for periods beginning July 31, 1999.

Performance Information—Continued

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^B (as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

Source: Standard &Poor's.

PreferredStocks do not have a defined maturity date.

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

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Core Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR	VALUE

Long-Term Securities	112.2%

Corporate Bonds and Notes	18.4%

Aerospace/Defense	0.1%
Lockheed Martin Corporation		7.650%	5/1/16	$ 135	$	157
Northrop Grumman Corporation		4.079%	11/16/06	2,600		2,596
Raytheon Company		6.000%	12/15/10	32		33
Raytheon Company		5.500%	11/15/12	65		65
United Technologies Corporation		5.400%	5/1/35	1,460		1,416	^A

						4,267

Automotive	0.4%
Ford Motor Company		7.450%	7/16/31	15,410		11,904	^A
General Motors Corporation		8.375%	7/15/33	7,850		6,790	^A

						18,694

Banking and Finance	3.3%
Boeing Capital Corporation		7.375%	9/27/10	3,240		3,493
Ford Motor Credit Company		6.625%	6/16/08	8,900		8,765
Ford Motor Credit Company		7.375%	10/28/09	50,175		48,760
Ford Motor Credit Company		7.875%	6/15/10	6,310		6,145
Ford Motor Credit Company		7.375%	2/1/11	6,435		6,177
Ford Motor Credit Company		7.250%	10/25/11	5,910		5,574
General Motors Acceptance Corporation		6.125%	8/28/07	8,620		8,608	^A
General Motors Acceptance Corporation		5.625%	5/15/09	9,550		9,313	^A
General Motors Acceptance Corporation		7.750%	1/19/10	5,355		5,487
General Motors Acceptance Corporation		7.250%	3/2/11	820		824
GMAC LLC		0.000%	6/15/15	13,910		7,431	^B
HSBC Finance Corporation		5.440%	2/28/07	30,000		30,013	^C
HSBC Finance Corporation		7.875%	3/1/07	2,800		2,828
HSBC Finance Corporation		8.000%	7/15/10	690		754
HSBC Finance Corporation		7.000%	5/15/12	700		757	^A
HSBC Finance Corporation		6.375%	11/27/12	440		461	^A
PHH Corporation		7.125%	3/1/13	4,700		4,831
Residential Capital Corporation		6.125%	11/21/08	8,180		8,212
SB Treasury Company LLC		9.400%	12/29/49	2,930		3,114	^D,E
SLM Corporation		5.440%	4/1/09	8,960		8,606	^C
Wachovia Capital Trust III		5.800%	3/15/42	6,130		6,147	^E

						176,300

Banks	0.8%
Bank of America Corporation		7.400%	1/15/11	2,000		2,164
Bank One Corporation		7.875%	8/1/10	4,500		4,906

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Banks—Continued
Bank One Corporation		5.900%	11/15/11	$	2,000	$	2,051
Firstar Bank NA		7.125%	12/1/09		450		475
Countrywide Bank NA		5.360%	8/16/07		35,000		35,017	^C

							44,613

Cable	0.3%
Comcast Corporation		6.500%	1/15/15		1,200		1,253	^A
Comcast Corporation		6.500%	1/15/17		600		626
Comcast Corporation		7.050%	3/15/33		3,130		3,352	^A
Comcast MO of Delaware Inc.		9.000%	9/1/08		2,200		2,344
Cox Communications, Inc.		7.875%	8/15/09		9,640		10,222

							17,797

Casino Resorts	0.1%
Harrah’s Operating Company, Inc		6.500%	6/1/16		7,680		7,529


Computer Services and Systems	0.2%
Electronic Data Systems Corporation		7.125%	10/15/09		7,685		8,038	^A


Diversified Financial Services	0.9%
Marsh & McLennan Companies, Inc.		5.150%	9/15/10		38,220		37,656	^A
U.S. Bancorp		3.125%	3/15/08		10,300		10,003
Wells Fargo & Company		5.000%	11/15/14		690		673	^A

							48,332

Electric	0.8%
Dominion Resources, Inc.		4.125%	2/15/08		10,850		10,677
Dominion Resources, Inc.		5.125%	12/15/09		50		50
Dominion Resources, Inc.		4.750%	12/15/10		570		556
Dominion Resources, Inc.		5.700%	9/17/12		2,050		2,062	^A
Exelon Corporation		5.625%	6/15/35		4,840		4,570	^A
FirstEnergy Corp.		5.500%	11/15/06		9,174		9,173
FirstEnergy Corp.		6.450%	11/15/11		340		355	^A
FirstEnergy Corp.		7.375%	11/15/31		10,850		12,544	^A
The Cleveland Electric Illuminating Company		5.650%	12/15/13		280		280
The Detroit Edison Company		6.125%	10/1/10		920		946

							41,213

Energy	0.9%
Duke Energy Corporation		6.250%	1/15/12		20		21	^A
Pacific Gas and Electric Company		6.050%	3/1/34		940		945	^A
Progress Energy, Inc.		7.100%	3/1/11		3,170		3,398	^A

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Energy—Continued
TXU Corp.		4.800%	11/15/09	$	9,000	$	8,772	^A
TXU Corp.		6.550%	11/15/34		11,020		10,380	^A
TXU Energy Co.		7.000%	3/15/13		25,800		27,087

							50,603

Environmental Services	0.4%
Waste Management, Inc.		7.125%	10/1/07		10,330		10,464
Waste Management, Inc.		6.875%	5/15/09		2,000		2,078
Waste Management, Inc.		6.375%	11/15/12		2,530		2,643
Waste Management, Inc.		7.125%	12/15/17		6,000		6,653
Waste Management, Inc.		7.375%	5/15/29		1,220		1,396	^A

							23,234

Food, Beverage and Tobacco	0.3%
Altria Group, Inc.		7.000%	11/4/13		3,815		4,160
Altria Group, Inc.		7.750%	1/15/27		2,500		3,027
Sara Lee Corporation		6.250%	9/15/11		10,600		10,858

							18,045

Gas and Pipeline Utilities	0.7%
Dynegy Holdings Inc.		8.750%	2/15/12		11,010		11,409
Kinder Morgan Energy Partners, L.P.		7.125%	3/15/12		4,650		4,929
Southern Natural Gas Company		8.000%	3/1/32		7,390		8,171
Tennessee Gas Pipeline Company		8.375%	6/15/32		1,110		1,274	^A
The Williams Companies, Inc.		8.125%	3/15/12		3,730		3,982
The Williams Companies, Inc.		7.500%	1/15/31		5,000		4,937	^A
The Williams Companies, Inc.		8.750%	3/15/32		3,240		3,548

							38,250

Health Care	0.2%
Tenet Healthcare Corporation		6.375%	12/1/11		2,500		2,197	^A
Tenet Healthcare Corporation		7.375%	2/1/13		9,462		8,527	^A

							10,724

Homebuilding	0.3%
Centex Corporation		5.450%	8/15/12		5,500		5,370	^A
D.R. Horton, Inc.		6.875%	5/1/13		3,100		3,166
Lennar Corporation		5.950%	10/17/11		3,700		3,700	^D
Pulte Homes, Inc.		5.250%	1/15/14		4,000		3,788

							16,024

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Investment Banking/Brokerage	1.3%
J.P. Morgan & Co. Incorporated		9.604%	2/15/12	$	2,000	$	2,077	^E
JPMorgan Chase & Co.		5.750%	1/2/13		3,770		3,855
Lehman Brothers Holdings Inc.		5.620%	4/20/07		5,470		5,476	^C
Merrill Lynch & Co., Inc.		3.375%	9/14/07		11,120		10,926
Merrill Lynch & Co., Inc.		5.490%	6/16/08		31,040		31,088	^C
Morgan Stanley		5.623%	1/18/08		8,000		8,014	^C
Morgan Stanley		4.750%	4/1/14		3,070		2,919	^A
The Goldman Sachs Group, Inc.		4.750%	7/15/13		4,370		4,197

							68,552

Investment Management	0.1%
Dryden Investor Trust		7.157%	7/23/08		6,491		6,599


Lodging/Hotels	0.1%
Starwood Hotels & Resorts Worldwide, Inc.		7.875%	5/1/12		6,100		6,405


Media	1.0%
Clear Channel Communications, Inc.		4.625%	1/15/08		1,430		1,412	^A
Clear Channel Communications, Inc.		4.250%	5/15/09		2,130		2,058
Clear Channel Communications, Inc.		6.250%	3/15/11		5,580		5,597
Clear Channel Communications, Inc.		5.500%	9/15/14		790		734
Liberty Media Corporation		7.875%	7/15/09		9,000		9,422
Liberty Media Corporation		3.750%	2/15/30		290		181	^A,F
News America, Inc.		6.200%	12/15/34		605		578	^A
Time Warner Inc.		6.875%	5/1/12		8,270		8,745	^A
Time Warner Inc.		6.950%	1/15/28		2,000		2,061	^A
Time Warner Inc.		7.625%	4/15/31		1,350		1,491
Time Warner Inc.		7.700%	5/1/32		8,565		9,565	^A
Viacom Inc.		5.750%	4/30/11		9,730		9,711	^D
Viacom Inc.		5.625%	8/15/12		970		959	^A

							52,514

Medical Care Facilities	0.6%
HCA, Inc.		5.750%	3/15/14		40,360		31,683


Oil and Gas	2.1%
Hess Corporation		7.875%	10/1/29		1,710		2,021
Hess Corporation		7.300%	8/15/31		10,825		12,189
Anadarko Petroleum Corporation		5.790%	9/15/09		12,340		12,355	^C
Anadarko Petroleum Corporation		6.450%	9/15/36		10,670		10,899

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Oil and Gas—Continued
Apache Corporation		6.250%	4/15/12	$	1,190	$	1,241
Conoco Inc.		6.950%	4/15/29		9,950		11,475	^A
ConocoPhillips		4.750%	10/15/12		770		754
Devon Energy Corporation		7.950%	4/15/32		4,145		5,118
El Paso Corporation		7.800%	8/1/31		110		113	^A
El Paso Natural Gas Company		8.375%	6/15/32		3,610		4,133
Kerr-McGee Corporation		6.875%	9/15/11		17,000		18,008
Kinder Morgan Energy Partners, L.P.		5.000%	12/15/13		3,180		3,020
Pemex Project Funding Master Trust		6.625%	6/15/35		12,805		12,581	^D
Sonat Inc.		7.625%	7/15/11		5,000		5,125
XTO Energy, Inc.		7.500%	4/15/12		10,379		11,316
XTO Energy, Inc.		6.250%	4/15/13		980		1,011

							111,359

Paper and Forest Products	0.1%
Weyerhaeuser Company		6.750%	3/15/12		3,445		3,600


Pharmaceuticals	0.1%
AmerisourceBergen Corporation		5.875%	9/15/15		3,050		2,990
Bristol-Myers Squibb Company		5.750%	10/1/11		830		846

							3,836

Photo Equipment and Supplies	1.0%
Eastman Kodak Company		3.625%	5/15/08		17,500		16,799	^A
Eastman Kodak Company		7.250%	11/15/13		34,680		33,865	^A

							50,664

Real Estate Management and Development	N.M.
Socgen Real Estate Co. LLC		7.640%	12/29/49		260		266	^D,E


Rental and Lease Services	0.1%
International Lease Finance Corporation		5.750%	6/15/11		7,300		7,435	^A


Retail	0.1%
Target Corporation		4.000%	6/15/13		4,445		4,129	^A


Special Purpose	1.7%
ASIF Global Financing XIX		4.900%	1/17/13		1,210		1,183	^D
DaimlerChrysler North America Holding Corporation		4.050%	6/4/08		1,530		1,494

Semi-Annual Report to Shareholders


		% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Special Purpose—Continued
DaimlerChrysler North America Holding Corporation			7.200%	9/1/09	$	1,240	$	1,292
DaimlerChrysler North America Holding Corporation			5.875%	3/15/11		700		701	^A
ILFC E-Capital Trust I			5.900%	12/21/65		4,420		4,452	^A,D,E
ILFC E-Capital Trust II			6.250%	12/21/65		800		800	^D,E
Patrons’ Legacy 2003 IV			5.775%	1/23/17		5,800		5,819	^D
Rabobank Capital Funding Trust II			5.260%	12/31/49		470		460	^D,E
Rabobank Capital Funding Trust III			5.254%	12/29/49		3,030		2,925	^D,E
Reynolds American Inc.			7.875%	5/15/09		3,240		3,383	^D
Sigma Finance Inc.			8.500%	8/11/16		17,200		17,200	^D,E
Sprint Capital Corporation			6.000%	1/15/07		31,760		31,794
Sprint Capital Corporation			8.375%	3/15/12		7,935		8,893
Texaco Capital Inc.			5.500%	1/15/09		1,000		1,012	^A
Toll Brothers Finance Corp.			5.950%	9/15/13		7,300		6,984
Unilever Capital Corporation			7.125%	11/1/10		1,730		1,848
Verizon Global Funding Corp.			7.250%	12/1/10		2,220		2,381
Verizon Global Funding Corp.			7.375%	9/1/12		5		6

								92,627

Telecommunications		0.1%
AT&T Inc.			5.100%	9/15/14		4,960		4,792
BellSouth Corporation			4.750%	11/15/12		440		420	^A

								5,212

Transportation		0.3%
Continental Airlines, Inc.			6.900%	1/2/18		465		478
Continental Airlines, Inc.			6.545%	8/2/20		2,799		2,847
Delta Air Lines, Inc.			7.111%	9/18/11		500		501
Southwest Airlines Co.			5.496%	11/1/06		9,700		9,705

								13,531

Total Corporate Bonds and Notes (Identified Cost—$990,681)								982,075
Asset-Backed Securities		3.5%

Fixed Rate Securities		0.2%
Advanta Mortgage Loan Trust 1999-3			7.590%	6/25/14		162		162
Conseco Finance Securitizations Corp. 2000-5			7.960%	2/1/32		4,700		4,280
Equity One ABS, Inc. 2003-3			4.995%	12/25/33		4,069		4,027
Green Tree Financial Corporation 1996-5	��		8.100%	7/15/27		694		145

								8,614

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Asset-Backed Securities—Continued

Indexed Securities^C	3.3%
Amortizing Residential Collateral Trust 2002-BC1M		5.610%	1/1/32	$	252	$	252
Asset-Backed Funding Certificates 2002-SB1		5.760%	4/25/18		2,108		2,112
Brazos Higher Education Authority, Inc. 2005-1		5.419%	9/26/16		15,738		15,719
CDC Mortgage Capital Trust 2002-HE1		5.640%	1/25/33		837		837
CIT Group Home Equity Loan Trust 2002-1		5.620%	3/25/33		706		708
Countrywide Asset-Backed Certificates 2003-BC3		5.640%	9/25/33		467		468
Countrywide Asset-Backed Certificates 2005-AB1		5.430%	5/25/35		6		6
Countrywide Home Equity Loan Trust 2005-H		5.570%	12/15/35		337		337
Credit-Based Asset Servicing and Securitization 2001-CB2		5.620%	8/25/33		187		187
Fleet Home Equity Loan Trust 2003-1		5.580%	1/20/33		3,973		3,978
GMAC Mortgage Corporation Loan Trust 2004-HE4		5.604%	3/25/35		30,419		30,441
GSAMP Trust 2006-S4		5.414%	5/25/36		7,219		7,219
Lehman XS Trust 2005-5N		5.630%	11/25/35		17,226		17,273
Lehman XS Trust 2006-2N		5.590%	2/25/46		25,053		25,101
Lehman XS Trust 2006-GP4		5.400%	8/25/46		5,132		5,135
Long Beach Mortgage Loan Trust 2000-1		5.840%	1/21/31		303		304
MSDWCC Heloc Trust 2005-1		5.520%	7/25/17		2,365		2,366
New Century Home Equity Loan Trust 2005-B		5.450%	10/25/35		1,881		1,882
Provident Bank Home Equity Loan Trust 1999-3		5.720%	1/25/31		1,026		1,026
Residential Asset Mortgage Products, Inc. 2003-RS2		5.670%	3/25/33		296		296
Residential Asset Securities Corporation 2001-KS2		5.790%	6/25/31		536		536
Residential Asset Securities Corporation 2001-KS3		5.790%	9/25/31		196		197
SLM Student Loan Trust 2006-5		5.429%	7/25/17		49,600		49,533
Structured Asset Investment Loan Trust 2005-3		5.460%	4/25/35		12,325		12,329

							178,242

Stripped Securities	N.M.
Diversified REIT Trust 1999-1A		0.596%	3/18/11		92,093		1,065	^G1

Total Asset-Backed Securities (Identified Cost—$188,763)							187,921

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities	20.2%

Fixed Rate Securities	2.8%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29	$	354	$	354
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		5,159		5,186	^D
CS First Boston Mortgage Securities Corp. 1998-C1 A1B		6.480%	5/17/40		450		458
Deutsche Mortgage and Asset Receiving Corporation 1998-C1		6.538%	6/15/31		6,780		6,851
GS Mortgage Securities Corporation II 2005-GG4		4.680%	7/10/39		12,900		12,526
J.P. Morgan Chase Commercial Mortgage Pass-Through Certificates 2005-CIBC12		4.895%	9/12/37		1,610		1,560
J.P. Morgan Commercial Mortgage Finance Corporation 1999-C8 A2		7.400%	7/15/31		456		475
LB-UBS Commercial Mortgage Trust 2005-C3 A5		4.739%	7/15/30		13,356		12,814
LB-UBS Commercial Mortgage Trust 2005-C3 AAB		4.664%	7/15/30		15,000		14,555
LB-UBS Commercial Mortgage Trust 2005-C5		4.954%	9/15/30		10,800		10,516
MASTR Reperforming Loan Trust 2005-1		7.000%	8/25/34		11,548		11,868	^D
MASTR Specialized Loan Trust 2005-1		6.500%	8/25/34		1,388		1,412	^D
Morgan Stanley Capital I 2005-HQ6		4.989%	8/13/42		13,450		13,120
Residential Asset Mortgage Products, Inc. 2005-SL2		7.500%	3/25/32		5,313		5,436
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		56,170		54,274

							151,405

Indexed Securities^C	15.3%
American Home Mortgage Assets 2006-4		5.540%	10/25/46		1,200		1,200
Banc of America Funding Corporation 2005-E		5.314%	6/20/35		22,534		22,604
Chevy Chase Mortgage Funding Corporation 2003-2A		5.710%	5/25/34		2,689		2,691	^D
Countrywide Alternative Loan Trust 2005-14		5.540%	5/25/35		14,059		14,069
Countrywide Alternative Loan Trust 2005-17 1A1		5.590%	7/25/35		17,797		17,843
Countrywide Alternative Loan Trust 2005-17 2A1		5.570%	7/25/35		31,807		31,876
Countrywide Alternative Loan Trust 2005-38		5.680%	9/25/35		621		624
Countrywide Alternative Loan Trust 2005-56		5.620%	11/25/35		1,975		1,981
Countrywide Alternative Loan Trust 2005-59		5.656%	11/20/35		4,027		4,040
Countrywide Alternative Loan Trust 2006-0A7		5.595%	6/25/46		23,222		23,241
Countrywide Asset-Backed Certificates 2005-3		5.620%	4/25/35		18,848		18,913
Countrywide Home Loans 2005-9 1A1		5.630%	5/25/35		19,910		19,995
Countrywide Home Loans 2005-9 2A1		5.550%	5/25/35		10,913		10,937
DSLA Mortgage Loan Trust 2005-AR6		5.620%	10/19/45		4,211		4,227
Granite Mortgages PLC 2003-1		5.690%	1/20/20		2,851		2,853	^H
Greenpoint Mortgage Funding Trust 2005-AR1		5.550%	6/25/45		15,032		15,084
Greenpoint Mortgage Funding Trust 2005-AR4		5.590%	10/25/45		4,889		4,900
Greenpoint Mortgage Funding Trust 2006-AR4		5.430%	9/25/46		53,368		53,368

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
Greenpoint Mortgage Funding Trust 2006-AR5		5.410%	10/25/46	$	52,900	$	52,905
GSMPS Mortgage Loan Trust 2005-RP2		5.680%	3/25/35		21,530		21,612	^D
Harborview Mortgage Loan Trust 2005-7		5.734%	6/19/45		26,792		26,924
Impac CMB Trust 2003-7		5.964%	8/25/33		1,032		1,033
Impac Secured Assets Corp. 2005-2		5.650%	3/25/36		2,139		2,143
Medallion Trust 2000-1G		5.730%	7/12/31		160		160	^H
Medallion Trust 2000-2G		5.590%	12/18/31		1,119		1,121	^H
Medallion Trust 2003-1G		5.580%	12/21/33		2,739		2,747	^H
MLCC Mortgage Investors, Inc. 2003-B		5.670%	4/25/28		4,301		4,322
Structured Adjustable Rate Mortgage Loan Trust 2005-19XS		5.650%	10/25/35		3,333		3,348
Structured Asset Mortgage Investments, Inc. 2006-AR6		5.586%	7/25/36		26,704		26,688
Structured Asset Mortgage Investments, Inc. 2006-AR7		5.540%	8/25/36		47,133		47,135
Thornburg Mortgage Securities Trust 2005-2 A1		5.550%	7/25/45		11,024		11,008
Thornburg Mortgage Securities Trust 2005-2 A2		5.560%	7/25/45		17,255		17,266
Thornburg Mortgage Securities Trust 2006-1		5.500%	1/25/36		65,984		65,869
Thornburg Mortgage Securities Trust 2006-3		5.435%	6/25/36		4,974		4,964
WaMu Mortgage Pass-Through Certificates 2005-AR6		5.560%	4/25/45		18,184		18,225
WaMu Mortgage Pass-Through Certificates 2005-AR8		5.600%	7/25/45		23,573		23,649
WaMu Mortgage Pass-Through Certificates 2005-AR11		5.650%	8/25/45		53,984		54,110
WaMu Mortgage Pass Through Certificates 2005-AR13 A1A1		5.620%	10/25/45		30,781		30,978
WaMu Mortgage Pass-Through Certificates 2005-AR13 B10		6.176%	10/25/45		4,182		3,665	^D
WaMu Mortgage Pass-Through Certificates 2005-AR17		5.620%	12/25/45		17,586		17,658
WaMu Mortgage Pass-Through Certificates 2005-AR19 A1A1		5.600%	12/25/45		41,665		41,800
WaMu Mortgage Pass-Through Certificates 2005-AR19 A1A2		5.620%	12/25/45		40,428		40,581
Zuni Mortgage Loan Trust 2006-0A1		5.615%	8/25/36		45,669		45,607

							815,964

Stripped Securities	N.M.
FFCA Secured Lending Corporation 1999-1A		1.447%	9/18/25		6,537		345	^D,G1
LB-UBS Commercial Mortgage Trust 2001-C3		1.189%	6/15/36		16,661		629	^D,G1
Structured Mortgage Asset Residential Trust 1991-8		0.014%	1/25/23		615		—	^G1,I

							974

Variable Rate Securities^J	2.1%
Banc of America Commercial Mortgage Inc. 2005-5		5.115%	10/10/45		6,440		6,334
Banc of America Commercial Mortgage Inc. 2006-3		5.889%	7/10/44		24,090		25,037
GE Capital Commercial Mortgage Corporation 2005-C4		5.511%	11/10/45		6,650		6,673
Greenwich Capital Commercial Funding Corp. 2006-GG7		6.110%	7/10/38		22,370		23,421
IndyMac INDX Mortgage Loan Trust 2005-AR15		5.099%	9/25/35		8,686		8,431
J.P. Morgan Chase Commercial Mortgage Pass-Through Certificates 2005-CB13		5.472%	1/12/43		7,500		7,499

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Variable Rate Securities—Continued
MASTR Adjustable Rate Mortgages Trust 2004-15		4.612%	12/25/34	$	1,603	$	1,592
Merrill Lynch Mortgage Trust 2005-CKI1		5.417%	11/12/37		23,750		23,688
Morgan Stanley Mortgage Loan Trust 2005-3AR		5.224%	7/25/35		5,872		5,883
Wachovia Bank Commercial Mortgage Trust 2005-C20		5.118%	7/15/42		4,000		3,930

							112,488

Total Mortgage-Backed Securities (Identified Cost—$1,083,650)							1,080,831
U.S. Government and Agency Obligations	15.6%

Fixed Rate Securities	11.2%
Fannie Mae		4.875%	4/15/09		430		430
Fannie Mae		6.625%	9/15/09		9,800		10,256
Fannie Mae		5.200%	11/8/10		10,910		10,866
Fannie Mae		5.625%	5/19/11		19,640		19,902
Fannie Mae		4.610%	10/10/13		30,420		29,320
Fannie Mae		6.419%	11/1/35		8,018		8,211
Federal Home Loan Bank		7.250%	2/15/07		100		101
Freddie Mac		4.625%	2/21/08		7,540		7,499
Freddie Mac		4.125%	10/18/10		2,490		2,420
Freddie Mac		4.750%	1/18/11		6,560		6,520
Freddie Mac		5.250%	2/24/11		21,300		21,349
Freddie Mac		5.125%	4/18/11		9,560		9,642
Freddie Mac		4.650%	10/10/13		34,390		33,200
Freddie Mac		5.300%	5/12/20		10,660		10,286
Tennessee Valley Authority		6.750%	11/1/25		2,560		3,051
Tennessee Valley Authority		7.125%	5/1/30		2,450		3,100
United States Treasury Bonds		7.500%	11/15/16		1,490		1,825	^A
United States Treasury Bonds		4.500%	2/15/36		148,943		142,718	^A
United States Treasury Notes		3.750%	5/15/08		2,840		2,796	^A
United States Treasury Notes		4.375%	11/15/08		5,590		5,555	^A
United States Treasury Notes		4.500%	2/15/09		14,780		14,727	^A
United States Treasury Notes		3.500%	8/15/09		4,700		4,561	^A
United States Treasury Notes		3.375%	10/15/09		750		724	^A
United States Treasury Notes		3.500%	12/15/09		18,492		17,890	^A
United States Treasury Notes		3.625%	1/15/10		39,670		38,494	^A
United States Treasury Notes		3.500%	2/15/10		12,250		11,829	^A
United States Treasury Notes		4.125%	8/15/10		4,660		4,583	^A
United States Treasury Notes		3.875%	9/15/10		22,690		22,109	^A
United States Treasury Notes		4.250%	10/15/10		2,530		2,499	^A

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
United States Treasury Notes		4.500%	11/15/10	$	2,320	$	2,312	^A
United States Treasury Notes		4.875%	7/31/11		13,970		14,132	^A
United States Treasury Notes		5.125%	5/15/16		131,530		136,442	^A
United States Treasury Notes		4.875%	8/15/16		40		41	^A

							599,390

Treasury Inflation-Protected Securities^K	4.4%
United States Treasury Inflation-Protected Security		0.875%	4/15/10		17,948		17,008^A
United States Treasury Inflation-Protected Security		2.375%	4/15/11		41,622		41,666^A
United States Treasury Inflation-Protected Security		3.375%	1/15/12		8,022		8,443	^A
United States Treasury Inflation-Protected Security		1.875%	7/15/13		12,464		12,141	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/14		650		637	^A
United States Treasury Inflation-Protected Security		2.000%	7/15/14		32		32	^A
United States Treasury Inflation-Protected Security		1.875%	7/15/15		25,180		24,382	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/16		30,161		29,469	^A
United States Treasury Inflation-Protected Security		2.375%	1/15/25		53,132		53,988	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/26		28,788		27,609	^A
United States Treasury Inflation-Protected Security		3.625%	4/15/28		12,656		15,684	^A

							231,059

Total U.S. Government and Agency Obligations (Identified Cost—$817,984)							830,449
U.S. Government Agency Mortgage-Backed Securities	48.2%

Fixed Rate Securities	46.2%
Fannie Mae		7.000%	9/1/07 to 2/1/33		10,957		11,280
Fannie Mae		8.000%	5/1/15		31		33
Fannie Mae		5.500%	4/1/18 to 10/1/35		59,109		58,383

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government Agency Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Fannie Mae		4.500%	7/1/18 to 9/1/35	$	13,351	$	12,626
Fannie Mae		4.000%	8/1/20 to 9/1/20		5,981		5,647
Fannie Mae		5.000%	8/1/20 to 1/1/36		151,065		145,646
Fannie Mae		5.500%	7/1/34		873		862
Fannie Mae		7.500%	6/1/25 to 7/1/29		645		671
Fannie Mae		6.000%	1/1/26 to 10/1/35		26,995		27,149
Fannie Mae		6.500%	7/1/28 to 7/1/35		21,028		21,485
Fannie Mae		6.000%	12/1/16		1,670		1,695	^L
Fannie Mae		5.000%	12/1/36		149,000		143,133	^L
Fannie Mae		5.000%	12/1/36		655,550		629,943	^L
Fannie Mae		5.500%	12/1/36		544,800		536,628	^L
Fannie Mae		6.000%	12/1/36		532,250		534,578	^L
Fannie Mae		6.500%	12/1/36		90,850		92,497	^L
Freddie Mac		9.750%	7/1/08		10		10
Freddie Mac		6.000%	3/1/09 to 10/1/35		4,101		4,133
Freddie Mac		5.500%	12/1/13 to 8/1/35		37,181		36,716
Freddie Mac		9.300%	4/15/19		155		163
Freddie Mac		5.000%	9/1/20 to 8/1/33		63,098		61,260
Freddie Mac		7.000%	4/1/24 to 5/1/32		3,412		3,514
Freddie Mac		6.500%	6/1/32		64		66
Freddie Mac		5.625%	11/23/35		12,290		12,016
Government National Mortgage Association		10.000%	11/15/09		0.2		0.2
Government National Mortgage Association		8.000%	10/15/16 to 7/15/17		158		166
Government National Mortgage Association		7.500%	10/15/22 to 8/15/32		348		363
Government National Mortgage Association		7.000%	6/15/23 to 5/15/32		433		445
Government National Mortgage Association		6.500%	10/15/23 to 3/15/33		20,671		21,233
Government National Mortgage Association		6.000%	3/15/26 to 8/15/35		37,103		37,600
Government National Mortgage Association		5.500%	1/15/33		271		269
Government National Mortgage Association		5.000%	6/15/35 to 9/15/35		69,591		67,627

							2,467,837

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE

U.S. Government Agency Mortgage-Backed Securities—Continued
Variable Rate Securities^J	2.0%
Fannie Mae		4.767%	6/1/35	$	14,828		$	14,681
Fannie Mae		4.357%	8/1/35		1,446			1,427
Fannie Mae		4.610%	9/1/35		7,961			7,898
Fannie Mae		4.681%	9/1/35		3,285			3,261
Fannie Mae		4.568%	10/1/35		2,809			2,789
Fannie Mae		4.659%	10/1/35		3,267			3,251
Fannie Mae		4.741%	10/1/35		5,153			5,112
Fannie Mae		4.816%	10/1/35		3,096			3,076
Fannie Mae		6.416%	10/1/35		22,859			23,409
Fannie Mae		6.418%	11/1/35		17,230			17,644
Fannie Mae		6.419%	11/1/35		7,783			7,970
Fannie Mae		6.421%	11/1/35		8,957			9,173
Freddie Mac		4.879%	10/1/35		5,385			5,351

								105,042

Stripped Securities	N.M.
Fannie Mae		9.500%	2/1/17		16			4	^G1
Fannie Mae		0.000%	2/25/20		—	^I		0.2	^G2
Fannie Mae		1009.300%	8/25/21		1			15^G1
Fannie Mae		0.000%	5/25/22		133			114	^G2
Financing Corporation		0.000%	4/5/19		1,150			611	^G2
Freddie Mac		10.000%	3/1/21		104			26	^G1
Freddie Mac		0.000%	7/15/22		17			15	^G2

								785

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$2,576,193)								2,573,664
Yankee Bonds^H	6.1%

Aerospace/Defense	0.1%
Systems 2001 Asset Trust		6.664%	9/15/13		3,149			3,312	^D


Banking and Finance	0.4%
AIFUL CORPORATION		5.000%	8/10/10		4,030			3,919	^D
Eksportfinans ASA		5.500%	5/25/16		10,700			11,036
MUFG Capital Finance 1 Limited		6.346%	7/25/49		4,660			4,698	^E

								19,653

Banks	1.9%
Glitnir Banki hf		6.330%	7/28/11		6,080			6,206	^D
Glitnir Banki hf		6.693%	6/15/16		11,830			12,097	^D,E

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Yankee Bonds^H—Continued

Banks—Continued
Kaupthing Bank hf		6.190%	4/12/11	$	17,140	$	17,143	^D
Kaupthing Bank hf		5.750%	10/4/11		2,080		2,070	^C,D
Kaupthing Bank hf		7.125%	5/19/16		30,520		32,082	^A,D
Landsbanki Islands hf (The National Bank of Iceland)		6.100%	8/25/11		17,170		17,350	^D
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		9,980		9,912	^D,E
The Korea Development Bank		4.250%	11/13/07		6,045		5,972

							102,832

Cable	0.1%
Rogers Cable Inc.		5.500%	3/15/14		4,340		4,080


Electric	N.M.
Hydro-Quebec		6.300%	5/11/11		570		597


Foreign Governments	1.6%
Russian Federation		5.000%	3/31/30		49,315		55,040	^E
United Mexican States		5.625%	1/15/17		160		158	^A
United Mexican States		8.300%	8/15/31		5,070		6,323	^A
United Mexican States		7.500%	4/8/33		19,890		22,943

							84,464

Manufacturing (Diversified)	0.8%
Tyco International Group SA		6.750%	2/15/11		430		454
Tyco International Group SA		6.375%	10/15/11		1,230		1,289
Tyco International Group SA		6.000%	11/15/13		2,300		2,380
Tyco International Group SA		7.000%	6/15/28		3,700		4,209
Tyco International Group SA		6.875%	1/15/29		29,900		33,286

							41,618

Mining	N.M.
Corporacion Nacional del Cobre—Codelco		4.750%	10/15/14		1,750		1,651	^D


Oil and Gas	0.2%
Petrobras International Finance Company (PIFCO)		6.125%	10/6/16		7,490		7,458
YPF Sociedad Anonima		7.750%	8/27/07		3,250		3,299

							10,757

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE

Yankee Bonds^H—Continued
Special Purpose	0.6%
Conoco Funding Company		6.350%	10/15/11	$	400		$	421	^A
Conoco Funding Company		7.250%	10/15/31		350			417
CVRD Finance Ltd.		6.157%	10/15/07		2,548			2,579	^C,D
HSBC Capital Funding LP		4.610%	12/29/49		1,630			1,511	^D,E
Petronas Capital Ltd.		7.875%	5/22/22		1,340			1,616	^D
Petrozuata Finance, Inc.		8.220%	4/1/17		3,950			3,851	^D
Resona Preferred Global Securities (Cayman) Ltd.		7.191%	12/29/49		13,670			14,149	^D,E
TNK-BP Finance SA		7.500%	7/18/16		9,940			10,385	^D

								34,929

Telecommunications	0.4%
British Telecommunications plc		8.375%	12/15/10		1,755			1,967
Deutsche Telekom International Finance B.V.		5.750%	3/23/16		5,370			5,254	^A
Koninklijke (Royal) KPN NV		8.000%	10/1/10		8,240			8,902
Telecom Italia Capital S.p.A.		5.250%	11/15/13		965			914
Telecom Italia Capital S.p.A.		4.950%	9/30/14		2,570			2,360
Telecom Italia Capital S.p.A.		5.250%	10/1/15		2,060			1,909

								21,306

Total Yankee Bonds (Identified Cost—$308,565)								325,199
Preferred Stocks	0.2%
Fannie Mae		5.375%			—^I	shs		4,236	^F
General Motors Corporation		5.250%			293			5,889	^F
Home Ownership Funding Corporation		13.331%			6			1,003	^D,E
Home Ownership Funding Corporation II		13.338%			5			900	^D,E

Total Preferred Stocks (Identified Cost—$18,532)								12,028

Total Long-Term Securities (Identified Cost—$5,984,368)								5,992,167
Investment of Collateral From Securities Lending	12.6%
State Street Navigator Securities Lending Prime Portfolio					673,701	shs		673,701

Total Investment of Collateral From Securities Lending (Identified Cost — $673,701)								673,701
Short-Term Securities — 23.2%	23.2%

Corporate Bonds and Notes	3.1%
BankAmerica Corporation		0.000%	10/11/06		50,000			49,925^B
Barclays Bank Plc		5.480%	10/20/06		40,000			40,001
Tribune Company		0.000%	2/1/07		18,200			17,837^B

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE

Short-Term Securities—Continued

Corporate Bonds and Notes—Continued
Washington Mutual Bank		5.420%	10/30/06	$	30,000		$	30,000
Washington Mutual Bank		5.390%	11/20/06		30,800			30,800

								168,563


U.S. Government and Agency Obligations	17.7%
Fannie Mae		0.000%	6/25/07		20,655			19,894	^A,B,M
Federal Home Loan Bank		0.000%	10/2/06		925,000			924,878	^B

								944,772


Foreign Government Obligations	0.1%
Government of Canada		0.000%	12/15/06		5,640			5,580^B


Options Purchased^N	0.4%
Eurodollar Futures Call, January 2007, Strike Price $94.50					2,305	^O		980
Eurodollar Futures Call, January 2007, Strike Price $94.00					911	^O		1,514
Eurodollar Futures Call, January 2007, Strike Price $94.625					2,587	^O		420
Eurodollar Futures Call, March 2007, Strike Price $94.75					525	^O		246
Eurodollar Futures Put, April 2007, Strike Price $93.00					218	^O		1
Goldman Sachs Futures Call, December 2006, Strike Price $4.848					260,550,000	^O		432
Goldman Sachs Futures Call, January 2007, Strike Price $5.6575					71,900,000	^O		1,890
Goldman Sachs Futures Call, October 2006, Strike Price $5.55					229,100,000	^O		1,929
Goldman Sachs Futures Call, October 2006, Strike Price $5.58					223,508,000	^O		2,007
U.S. Treasury Bond Futures Call, December 2006, Strike Price $110.00					615	^O		1,586
U.S. Treasury Bond Futures Call, December 2006, Strike Price $111.00					802	^O		1,391
U.S. Treasury Bond Futures Call, December 2006, Strike Price $113.00					90	^O		71
U.S. Treasury Note Futures Call, December 2006, Strike Price $100.00					554	^O		3,056
U.S. Treasury Note Futures Call, December 2006, Strike Price $102.00					913	^O		3,210

								18,733

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	PAR		VALUE

Short-Term Securities—Continued

Repurchase Agreements	1.9%
Goldman Sachs Group, Inc. 5.3%, dated 9/29/06, to be repurchased at $41,695 on 10/02/06 (Collateral: $40,680 Tennessee Valley Authority notes, 5.375%, due 4/1/56, value $42,511)		$	41,677	$	41,677
Lehman Brothers, Inc. 5.25%, dated 9/29/06, to be repurchased at $58,983 on 10/2/06 (Collateral: $187,220 Resolution Funding Corporation principal-only securities, due 1/15/30, value $60,137)			58,957		58,957

					100,634

Total Short-Term Securities (Identified Cost—$1,236,233)					1,238,282
Total Investments (Identified Cost—$7,894,302)	148.0%				7,904,150
Other Assets Less Liabilities	(35.4)%				(1,889,734	)
Obligation to Return Collateral for Securities Loaned	(12.6)%				(673,701	)


Net Assets	100.0%			$	5,340,715


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^N
Eurodollar Futures	December 2006	732	$	84
Eurodollar Futures	December 2006	125		(4	)
Eurodollar Futures	March 2008	341		280
U.S. Treasury Note Futures	March 2008	1,505		63

			$	423

Futures Contracts Written^N
Eurodollar Futures	September 2007	311	$	(99	)
Eurodollar Futures	September 2008	186		(63	)
U.S. Treasury Bond Futures	December 2006	316		180
U.S. Treasury Note Futures	December 2006	4,075		(1,033	)

			$	(1,015	)

Options Written^N
Eurodollar Futures Call, Strike Price $94.75	December 2006	344	$	22
Eurodollar Futures Call, Strike Price $95.125	March 2007	175		6
Eurodollar Futures Call, Strike Price $95.25	December 2006	384		(43	)
Eurodollar Futures Call, Strike Price $95.50	December 2006	516		30
Eurodollar Futures Put, Strike Price $94.50	December 2006	173		27
Eurodollar Futures Put, Strike Price $94.625	March 2007	625		(5	)
Eurodollar Futures Put, Strike Price $95.00	December 2006	358		(4	)
Goldman Sachs Swaption Call, Strike Price $4.946	December 2006	121,155,750		2,150
Goldman Sachs Swaption Call, Strike Price $5.67	October 2006	55,877,000		(1,592	)

Semi-Annual Report to Shareholders


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options Written—Continued
Goldman Sachs Swaption Call, Strike Price $5.69	October 2006	55,877,000	$	(1,642	)
U.S. Treasury Bond Futures Call, Strike Price $112.00	November 2006	1,817		(723	)
U.S. Treasury Bond Futures Call, Strike Price $114.00	November 2006	590		121
U.S. Treasury Bond Futures Call, Strike Price $115.00	February 2007	330		112
U.S. Treasury Bond Futures Put, Strike Price $100.00	November 2006	861		353
U.S. Treasury Bond Futures Put, Strike Price $103.00	November 2006	444		191
U.S. Treasury Bond Futures Put, Strike Price $107.00	November 2006	97		43
U.S. Treasury Bond Futures Put, Strike Price $108.00	November 2006	829		265
U.S. Treasury Bond Futures Put, Strike Price $109.00	November 2006	997		478
U.S. Treasury Bond Futures Put, Strike Price $109.00	February 2007	781		(27	)
U.S. Treasury Bond Futures Put, Strike Price $111.00	November 2006	90		0
U.S. Treasury Note Futures Call, Strike Price $104.50	November 2006	753		(594	)
U.S. Treasury Note Futures Call, Strike Price $107.00	November 2006	1,582		(1,630	)
U.S. Treasury Note Futures Call, Strike Price $108.00	November 2006	1,842		(348	)
U.S. Treasury Note Futures Call, Strike Price $109.00	November 2006	1,740		27
U.S. Treasury Note Futures Call, Strike Price $109.00	February 2007	978		(208	)
U.S. Treasury Note Futures Call, Strike Price $110.00	February 2007	3,025		(32	)
U.S. Treasury Note Futures Put, Strike Price $104.00	November 2006	258		85
U.S. Treasury Note Futures Put, Strike Price $104.00	February 2007	1,434		224
U.S. Treasury Note Futures Put, Strike Price $105.00	November 2006	458		84
U.S. Treasury Note Futures Put, Strike Price $106.00	February 2007	1,518		(77	)
U.S. Treasury Note Futures Put, Strike Price $107.00	February 2007	265		(22	)

			$	(2,729	)

Allor a portion of this security is on loan. See note 4 to the notes to financial statements.

ZeroCoupon Bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

IndexedSecurity – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the Cost of Funds Index (“COFI”) rate. The coupon rate is the rate as of September 30, 2006.

Rule144a 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, which the Fund’s investment adviser has determined to be liquid, represent 4.8% of net assets.

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

ConvertibleSecurity – The security may be converted into the issuer’s common stock.

Securitieswith 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.

YankeeBond – A dollar denominated bond issued in the U.S. by foreign entities.

Amountsless than $1.

Thecoupon rates shown on variable rate securities are the rates at September 30, 2006. These rates vary with the weighted average coupon of the underlying loans.

When-issuedSecurity – A security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

Allor a portion of this security is collateral to cover futures and options contracts.

Optionsand futures are described in more detail in the notes to financial statements.

Parrepresents actual number of contracts.

N.M.—Not

Meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Core Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$6,658,069)^A			$	6,665,868
Short-term securities at value (Identified Cost—$1,236,233)				1,238,282
Swap contracts at value				15,341
Cash				3,301
Receivable for securities sold				199,592
Receivable for fund shares sold				9,141
Interest receivable				48,650
Futures variation margin receivable				684
Other assets				1

Total assets				8,180,860

Liabilities:
Payable for securities purchased	$	2,135,870
Payable for fund shares repurchased		2,880
Accrued management fee		1,772
Accrued distribution fee		203
Income distribution payable		1,323
Interest expense payable		7,555
Obligation to return collateral for securities loaned		673,701
Options written (Proceeds—$13,947)		16,676
Accrued expenses		165

Total liabilities				2,840,145


Net Assets			$	5,340,715


Net assets consist of:
Accumulated paid-in-capital applicable to:
385,181 Institutional Class shares outstanding			$	4,361,026
89,129 Financial Intermediary Class shares outstanding				991,593
Undistributed net investment income				4,031
Accumulated net realized loss on investments, options, futures, and swaps				(40,013	)
Unrealized appreciation/(depreciation) of investments, options, futures, and swaps				24,078


Net Assets			$	5,340,715


Net Asset Value Per Share:
Institutional Class				$11.26
Financial Intermediary Class				$11.26

Marketvalue of securities on loan is $670,902.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Core Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	134,890
Dividends		712

Total income				$	135,602
Expenses:
Advisory fee		10,146
Distribution and service fees:
Financial Intermediary Class		902
Audit and legal fees		113
Custodian fees		456
Directors’ fees and expenses		86
Proxy expense		218
Registration fees		91
Reports to shareholders		394
Transfer agent and shareholder servicing expense:
Institutional Class		17
Financial Intermediary Class		9
Other expenses		46

		12,478
Less: Compensating balance credits^A		(3	)

Total expenses net of compensating balance credits					12,475

Net Investment Income					123,127
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(7,126	)
Options		1,695
Futures		(11,900	)
Swaps		13,424

					(3,907	)
Change in unrealized appreciation/(depreciation) of investments, options, futures and swaps					107,180

Net Realized and Unrealized Gain on Investments					103,273

Change in Net Assets Resulting From Operations				$	226,400

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

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Core Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	123,127		$	178,397

Net realized loss on investments, options, futures, and swaps		(3,907	)		(27,239	)

Change in unrealized appreciation/(depreciation) of investments, options, futures, and swaps		107,180			(66,457	)

Change in net assets resulting from operations		226,400			84,701

Distributions to Shareholders from:
Net investment income:
Institutional Class		(105,726	)		(173,004	)
Financial Intermediary Class		(17,058	)		(13,718	)

Net realized gain on investments:
Institutional Class		—			(1,163	)
Financial Intermediary Class		—			(95	)

Change in net assets from Fund share transactions:
Institutional Class		13,731			1,060,406
Financial Intermediary Class		619,301			103,640

Change in net assets		736,648			1,060,767

Net Assets:
Beginning of period		4,604,067			3,543,300


End of period	$	5,340,715		$	4,604,067


Undistributed net investment income	$	4,031		$	3,688

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Core Bond Portfolio

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

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002
	(Unaudited)
Net asset value, beginning of period	$	11.05		$	11.29		$	11.81		$	11.57		$	11.01		$	11.09

Investment operations:
Net investment income		.28			.49			.39			.41			.55			.62
Net realized and unrealized gain/(loss) on investments, options, futures, and swaps		.20			(.22	)		(.21	)		.45			.65			.05

Total from investment operations		.48			.27			.18			.86			1.20			.67

Distributions paid from:
Net investment income		(.27	)		(.51	)		(.39	)		(.44	)		(.55	)		(.62	)
Net realized gain on investments		—			—^A			(.31	)		(.18	)		(.09	)		(.13	)

Total distributions		(.27	)		(.51	)		(.70	)		(.62	)		(.64	)		(.75	)

Net asset value, end of period	$	11.26		$	11.05		$	11.29		$	11.81		$	11.57		$	11.01

Total return		4.46	%^B		2.46	%		1.68	%		7.64	%		11.19	%		6.14	%

Ratios to Average Net Assets:^C
Total expenses		.46	%^D		.45	%		.46	%		.49	%		.49	%		.52	%
Expenses net of waivers, if any		.46	%^D		.45	%		.46	%		.49	%		.49	%		.50	%
Expenses net of all reductions		.46	%^D		.45	%		.46	%		.49	%		.49	%		.50	%
Net investment income		5.0	%^D		4.3	%		3.4	%		3.5	%		4.9	%		5.6	%

Supplemental Data:
Portfolio turnover rate		247.7	%^B		540.4	%		407.2	%		464.6	%		438.6	%		595.2	%
Net assets at end of period (in thousands)	$	4,337,064		$	4,243,248		$	3,277,782		$	2,187,219		$	1,400,431		$	971,544

Amounts less than $.01.

Notannualized.

^DAnnualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Intermediary Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002
	(Unaudited)
Net asset value, beginning of period	$	11.05		$	11.29		$	11.81		$	11.57		$	11.02		$	11.10

Investment operations:
Net investment income		.25			.47			.38			.40			.53			.59
Net realized and unrealized gain/(loss) on investments, options, futures, and swaps		.22			(.22	)		(.23	)		.43			.63			.06

Total from investment operations		.47			.25			.15			.83			1.16			.65

Distributions paid from:
Net investment income		(.26	)		(.49	)		(.36	)		(.41	)		(.52	)		(.60	)
Net realized gain on investments		—			—^A			(.31	)		(.18	)		(.09	)		(.13	)

Total distributions		(.26	)		(.49	)		(.67	)		(.59	)		(.61	)		(.73	)

Net asset value, end of period	$	11.26		$	11.05		$	11.29		$	11.81		$	11.57		$	11.02

Total return		4.33	%^B		2.19	%		1.42	%		7.36	%		10.80	%		5.88	%

Ratios to Average Net Assets:^C
Total expenses		.72	%^D		.70	%		.72	%		.76	%		.75	%		.77	%
Expenses net of waivers, if any		.72	%^D		.70	%		.72	%		.75	%		.75	%		.75	%
Expenses net of all reductions		.72	%^D		.70	%		.72	%		.75	%		.75	%		.75	%
Net investment income		4.7	%^D		4.1	%		4.2	%		3.3	%		4.1	%		5.3	%

Supplemental Data:
Portfolio turnover rate		247.7	%^B		540.4	%		407.2	%		464.6	%		438.6	%		595.2	%
Net assets at end of period (in thousands)	$	1,003,651		$	360,819		$	265,518		$	121,607		$	79,120		$	1,885

See notes to financial statements.

Semi-Annual Report to Shareholders

Expense Example

Western Asset Core Plus Bond Portfolio

Actual Expenses

The first line for each class in the table below provides information about actual account values and actual expenses for each class. 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 value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line for each class in the table below provides information about hypothetical account values and hypothetical expenses based on the relevant class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the class’s actual return. 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 the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples for the relevant class that appear in the shareholder reports of other funds.


	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,049.10	$	2.26
Hypothetical (5% return before expenses)		1,000.00		1,022.86		2.23
Financial Intermediary Class:
Actual		1,000.00	$	1,047.80	$	3.54
Hypothetical (5% return before expenses)		1,000.00		1,021.61		3.50

These calculations are based on expenses incurred in themost recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 0.44% and 0.69% for the Institutional Class and Financial Intermediary Class, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal half-year (183), and divided by 365.

Semi-Annual Report to Shareholders

Performance Information

Western Asset Core Plus Bond Portfolio

Total return measures investment performance in terms of appreciation or depreciation in the Fund’s 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 (and the graphs and tables found below) 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. Non-U.S. investment are subject to currency fluctuations, social, economical and political risk.

Growth of a $1,000,000 Investment—Institutional Class

LOGO

Since-inception index returns are for periods beginning June 30, 1998.

Semi-Annual Report to Shareholders

Growth of a $1,000,000 Investment—Financial Intermediary Class

LOGO

Since-inception index returns are for periods beginning December 31, 2001.

Semi-Annual Report to Shareholders

Performance Information—Continued

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^C (as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

Source: Standard &Poor's.

PreferredStocks do not have a defined maturity date.

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

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Core Plus Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	112.9%

Corporate Bonds and Notes	18.4%

Aerospace/Defense	0.1%
L-3 Communications Corp.		7.625%	6/15/12	$	852	$	877
Lockheed Martin Corporation		7.650%	5/1/16		945		1,098
Lockheed Martin Corporation		6.150%	9/1/36		380		398	^A
Northrop Grumman Corporation		4.079%	11/16/06		3,580		3,574
Raytheon Company		6.000%	12/15/10		41		42
Raytheon Company		5.500%	11/15/12		75		76

							6,065

Apparel	N.M.
Oxford Industries, Inc.		8.875%	6/1/11		800		816


Auto Trucks and Parts	N.M.
Visteon Corporation		8.250%	8/1/10		2,050		1,999	^B


Automotive	0.7%
Ford Motor Company		7.450%	7/16/31		42,400		32,754	^B
General Motors Corporation		8.250%	7/15/23		8,000		6,930
General Motors Corporation		8.375%	7/15/33		33,195		28,714	^B

							68,398

Banking and Finance	4.2%
American Honda Finance Corporation		5.482%	5/12/08		28,000		28,041	^A,C
Boeing Capital Corporation		5.800%	1/15/13		2,030		2,095
Countrywide Financial Corporation		5.548%	11/3/06		15,000		15,001	^C
Countrywide Financial Corporation		5.448%	6/27/07		16,400		16,401	^C
Countrywide Home Loans, Inc.		5.560%	2/27/08		25,000		25,020^C
Ford Motor Credit Company		7.375%	10/28/09		57,540		55,918
Ford Motor Credit Company		7.875%	6/15/10		3,560		3,467
Ford Motor Credit Company		7.375%	2/1/11		19,135		18,366
Ford Motor Credit Company		10.640%	6/15/11		5,684		5,939	^A,C
Ford Motor Credit Company		7.250%	10/25/11		14,030		13,231
General Motors Acceptance Corporation		6.311%	11/30/07		4,570		4,519
General Motors Acceptance Corporation		8.000%	11/1/31		14,000		14,638
HSBC Finance Corporation		5.440%	2/28/07		45,000		45,020	^C
HSBC Finance Corporation		5.486%	5/10/07		18,100		18,109	^C
HSBC Finance Corporation		6.400%	6/17/08		20		20
HSBC Finance Corporation		6.500%	11/15/08		40		41
HSBC Finance Corporation		8.000%	7/15/10		70		77
HSBC Finance Corporation		6.375%	8/1/10		1,000		1,040

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Banking and Finance—Continued
HSBC Finance Corporation		7.000%	5/15/12	$	160	$	173
HSBC Finance Corporation		6.375%	11/27/12		520		546
SB Treasury Company LLC		9.400%	12/29/49		360		383	^A,D
Sigma Finance Inc		8.500%	8/11/16		29,650		29,650	^A,D
SLM Corporation		5.440%	4/1/09		11,220		10,777	^C
SLM Corporation		5.330%	4/11/12		40,000		40,010	^A,C
Toyota Motor Credit Corporation		5.255%	4/19/07		32,000		32,001	^C
Wachovia Capital Trust III		5.800%	3/15/42		9,420		9,446	^D

							389,929

Banks	0.7%
Bank of America Corporation		7.400%	1/15/11		3,090		3,344
Bank One Corporation		4.125%	9/1/07		2,780		2,744
Bank One Corporation		7.875%	8/1/10		150		163
Bank One Corporation		5.900%	11/15/11		2,000		2,051
Firstar Bank NA		7.125%	12/1/09		350		370
U.S. Bank		5.265%	2/8/08		27,200		27,184	^C
Wachovia Bank NA		5.425%	5/22/07		31,000		31,003	^C

							66,859

Cable	0.3%
Comcast Cable Communications, Inc.		6.750%	1/30/11		680		714
Comcast Corporation		6.500%	1/15/15		1,130		1,180
Comcast Corporation		6.500%	1/15/17		560		584
Comcast Corporation		7.050%	3/15/33		7,470		7,999
Comcast MO of Delaware Inc.		9.000%	9/1/08		1,060		1,130
Cox Communications, Inc.		7.875%	8/15/09		7,680		8,144
CSC Holdings Inc.		7.250%	4/15/12		500		498	^A
CSC Holdings Inc.		7.875%	2/15/18		260		270
CSC Holdings Inc.		7.625%	7/15/18		568		581
DirecTV Holdings LLC		8.375%	3/15/13		2,450		2,539
EchoStar DBS Corporation		6.625%	10/1/14		805		766

							24,405

Casino Resorts	0.2%
Caesars Entertainment Inc.		8.125%	5/15/11		733		773
Harrah’s Operating Company, Inc.		6.500%	6/1/16		13,400		13,136
Inn of The Mountain Gods Resort and Casino		12.000%	11/15/10		1,070		1,121
Mandalay Resort Group		9.500%	8/1/08		80		85
MGM MIRAGE		6.750%	9/1/12		815		804

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Casino Resorts—Continued
MGM MIRAGE		6.625%	7/15/15	$	2,240	$	2,150
Premier Entertainment Biloxi LLC		10.750%	2/1/12		810		824
Station Casinos, Inc.		7.750%	8/15/16		3,345		3,471

							22,364

Chemicals	0.1%
Georgia Gulf Corporation		9.500%	10/15/14		1,100		1,096	^A
IMC Global Inc.		11.250%	6/1/11		132		139
IMC Global Inc.		10.875%	8/1/13		460		513
Lyondell Chemical Company		8.000%	9/15/14		1,175		1,190
Lyondell Chemical Company		8.250%	9/15/16		670		680
MacDermid, Incorporated		9.125%	7/15/11		1,067		1,112
Westlake Chemical Corporation		6.625%	1/15/16		1,255		1,192

							5,922

Computer Services and Systems	0.5%
Electronic Data Systems Corporation		7.125%	10/15/09		19,905		20,819
International Business Machines Corporation		5.364%	6/28/07		25,500		25,513	^C
International Business Machines Corporation		4.750%	11/29/12		40		39
SunGard Data Systems Inc.		9.125%	8/15/13		1,640		1,698

							48,069

Containers and Packaging	N.M.
Horizon Lines, LLC		9.000%	11/1/12		855		881


Diversified Financial Services	0.8%
Aig-Fp Matched Funding		5.320%	12/17/07		32,700		32,700	^A,C
American General Finance Corporation (AGFC)		5.498%	6/27/08		18,300		18,339	^C
CIT Group Inc.		5.750%	9/25/07		80		80
Citigroup Inc.		5.000%	3/6/07		500		499	^B
Citigroup Inc.		5.100%	9/29/11		2,790		2,782
Citigroup Inc.		5.000%	9/15/14		150		146
General Electric Capital Corporation		5.450%	1/15/13		225		228
Mizuho Preferred Capital Corp. LLC		8.790%	12/29/49		3,380		3,560	^A,D
PHH Corporation		7.125%	3/1/13		8,100		8,326
U.S. Bancorp		3.125%	3/15/08		8,290		8,051
Wells Fargo & Company		5.000%	11/15/14		2,750		2,684

							77,395

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Electric	1.5%
Dominion Resources, Inc.		4.125%	2/15/08	$	2,000	$	1,968
Dominion Resources, Inc.		5.125%	12/15/09		1,260		1,252
Dominion Resources, Inc.		4.750%	12/15/10		1,010		985
Dominion Resources, Inc.		5.700%	9/17/12		3,335		3,355	^B
FirstEnergy Corp.		5.500%	11/15/06		9,348		9,347
FirstEnergy Corp.		6.450%	11/15/11		2,500		2,608
FirstEnergy Corp.		7.375%	11/15/31		17,150		19,828
General Electric Company		5.000%	2/1/13		8,205		8,112
Niagara Mohawk Power Corporation		7.750%	10/1/08		500		522
The AES Corporation		8.750%	5/15/13		18,838		20,204	^A
The AES Corporation		7.750%	3/1/14		63,005		65,525
The AES Corporation		9.000%	5/15/15		7,700		8,297	^A
The Cleveland Electric Illuminating Company		5.650%	12/15/13		1,495		1,495
The Detroit Edison Company		5.200%	10/15/12		10		10
TXU Electric Delivery Company		6.375%	1/15/15		125		129

							143,637

Energy	0.4%
Duke Energy Corporation		6.250%	1/15/12		50		52
Exelon Corporation		5.625%	6/15/35		7,510		7,091
MidAmerican Energy Holdings Company		5.875%	10/1/12		30		31
Pacific Gas and Electric Company		6.050%	3/1/34		4,480		4,506
Peabody Energy Corporation		6.875%	3/15/13		860		847
Peabody Energy Corporation		5.875%	4/15/16		880		807
Progress Energy, Inc.		7.100%	3/1/11		110		118
TXU Corp.		4.800%	11/15/09		7,760		7,563
TXU Corp.		5.550%	11/15/14		560		529
TXU Corp.		6.550%	11/15/34		14,425		13,587
TXU Energy Co.		7.000%	3/15/13		10		10

							35,141

Environmental Services	0.4%
Waste Management, Inc.		7.000%	10/15/06		5,330		5,332
Waste Management, Inc.		7.125%	10/1/07		10,940		11,082
Waste Management, Inc.		6.500%	11/15/08		4,340		4,444
Waste Management, Inc.		6.875%	5/15/09		8,000		8,312
Waste Management, Inc.		7.375%	8/1/10		6,055		6,490
Waste Management, Inc.		7.125%	12/15/17		500		554
Waste Management, Inc.		7.000%	7/15/28		3,010		3,295
Waste Management, Inc.		7.375%	5/15/29		80		92
Waste Management, Inc.		7.750%	5/15/32		1,290		1,547

							41,148

Semi-Annual Report to Shareholders


	% OF NET ASSETS		RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Food, Beverage and Tobacco	0.5%
Altria Group, Inc.			7.000%	11/4/13	$	5,525	$	6,024
Altria Group, Inc.			7.750%	1/15/27		5,000		6,054
Reynolds American Inc.			7.875%	5/15/09		730		762	^A
Sara Lee Corporation			6.250%	9/15/11		18,680		19,135
Sara Lee Corporation			3.875%	6/15/13		20		18
SUPERVALU INC.			7.875%	8/1/09		10,770		11,163

								43,156

Funeral Parlors and Cemeteries	N.M.
Service Corporation International			7.375%	10/1/14		155		156	^A
Service Corporation International			8.000%	6/15/17		1,510		1,446	^A
Service Corporation International			7.625%	10/1/18		235		236	^A

								1,838

Gaming	N.M.
Mohegan Tribal Gaming Authority			8.000%	4/1/12		245		253
River Rock Entertainment Authority			9.750%	11/1/11		220		234

								487

Gas and Pipeline Utilities	0.4%
Dynegy Holdings Inc.			8.750%	2/15/12		3,280		3,399
Kinder Morgan Energy Partners, L.P.			7.125%	3/15/12		7,565		8,020
Kinder Morgan Energy Partners, L.P.			5.000%	12/15/13		1,804		1,713
Southern Natural Gas Company			8.000%	3/1/32		8,940		9,884
The Williams Companies, Inc.			7.750%	6/15/31		530		530	^B
The Williams Companies, Inc.			8.750%	3/15/32		10,130		11,093

								34,639

Health Care	0.5%
Tenet Healthcare Corporation			6.375%	12/1/11		2,500		2,197	^B
Tenet Healthcare Corporation			7.375%	2/1/13		6,222		5,607	^B
Tenet Healthcare Corporation			9.875%	7/1/14		27,435		27,332	^B
Tenet Healthcare Corporation			9.250%	2/1/15		12,430		11,964

								47,100

Homebuilding	0.3%
Beazer Homes USA, Inc.			8.375%	4/15/12		210		209
Centex Corporation			5.450%	8/15/12		9,500		9,275
D. R. Horton, Inc.			6.875%	5/1/13		5,400		5,516
Lennar Corporation			5.950%	10/17/11		6,300		6,300	^A
Pulte Homes, Inc.			5.250%	1/15/14		7,000		6,629

		��						27,929

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Insurance	N.M.
Loews Corporation		8.875%	4/15/11	$	90	$	101


Investment Banking/Brokerage	1.4%
E*TRADE Financial Corporation		7.375%	9/15/13		590		603
J.P. Morgan Capital Trust II		7.950%	2/1/27		20		21
J.P. Morgan Chase & Co.		5.750%	1/2/13		4,430		4,530
JPMorgan Chase & Co.		6.750%	2/1/11		10		11
JPMorgan Chase & Co.		5.600%	6/1/11		140		142
Lehman Brothers Holdings Inc.		5.370%	6/26/07		28,000		28,003	^C
Lehman Brothers Holdings Inc.		4.000%	1/22/08		6,840		6,731
Lehman Brothers Holdings Inc.		7.000%	2/1/08		160		163
Merrill Lynch & Co., Inc.		5.365%	5/29/07		16,700		16,701	^C
Merrill Lynch & Co., Inc.		3.375%	9/14/07		3,130		3,075
Merrill Lynch & Co., Inc.		3.125%	7/15/08		3,115		3,004
Merrill Lynch & Co., Inc.		5.489%	8/22/08		42,800		42,838	^C
Merrill Lynch & Co., Inc.		6.375%	10/15/08		2,670		2,727
Morgan Stanley		5.550%	11/24/06		1,600		1,601	^C
Morgan Stanley		5.623%	1/18/08		12,000		12,020	^C
Morgan Stanley		3.625%	4/1/08		90		88
Morgan Stanley		4.750%	4/1/14		3,700		3,519
The Goldman Sachs Group, Inc.		6.600%	1/15/12		2,810		2,965
The Goldman Sachs Group, Inc.		4.750%	7/15/13		1,420		1,364

							130,106

Investment Management	N.M.
Dryden Investor Trust		7.157%	7/23/08		1,454		1,478


Lodging/Hotels	0.1%
Host Marriott LP		6.750%	6/1/16		2,055		2,027
Starwood Hotels & Resorts Worldwide, Inc.		7.375%	5/1/07		890		895
Starwood Hotels & Resorts Worldwide, Inc.		7.875%	5/1/12		10,700		11,235

							14,157

Machinery	N.M.
Terex Corporation		7.375%	1/15/14		1,734		1,743


Manufacturing (Diversified)	N.M.
American Achievement Corp.		8.250%	4/1/12		250		253
Jacuzzi Brands Incorporated		9.625%	7/1/10		200		212

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Manufacturing (Diversified)—Continued
Procter & Gamble Company		8.500%	8/10/09	$	90	$	98
The Gillette Company		2.500%	6/1/08		160		153

							716

Media	0.7%
Clear Channel Communications, Inc.		4.625%	1/15/08		165		163
Clear Channel Communications, Inc.		4.250%	5/15/09		2,760		2,667
Clear Channel Communications, Inc.		6.250%	3/15/11		5,450		5,467
Clear Channel Communications, Inc.		5.500%	9/15/14		8,050		7,479
Lamar Media Corporation		7.250%	1/1/13		1,459		1,468
Lamar Media Corporation		6.625%	8/15/15		1,990		1,908	^A
Liberty Media Corporation		5.700%	5/15/13		535		505	^B
Liberty Media Corporation		3.750%	2/15/30		170		106	^E
News America, Inc.		6.200%	12/15/34		1,300		1,242
News America, Inc.		6.750%	1/9/38		200		207
Readers Digest Association, Inc.		6.500%	3/1/11		460		437
Sinclair Broadcast Group, Inc.		8.000%	3/15/12		360		365
Time Warner Inc.		6.875%	5/1/12		5,850		6,186
Time Warner Inc.		7.625%	4/15/31		440		486
Time Warner Inc.		7.700%	5/1/32		15,350		17,142
Viacom Inc.		5.750%	4/30/11		17,794		17,758	^A
Viacom Inc.		5.625%	8/15/12		1,350		1,335

							64,921

Medical Care Facilities	0.2%
DaVita, Inc.		7.250%	3/15/15		1,270		1,248	^B
HCA, Inc.		8.750%	9/1/10		256		259
HCA, Inc.		6.300%	10/1/12		593		502
HCA, Inc.		5.750%	3/15/14		150		118
HCA, Inc.		6.500%	2/15/16		4,328		3,462	^B
HCA, Inc.		7.690%	6/15/25		723		564
HCA, Inc.		7.500%	11/6/33		14,640		11,419
Health Care REIT, Inc.		8.000%	9/12/12		128		141

							17,713

Medical Products	N.M.
Fresenius Medical Care Capital Trust II		7.875%	2/1/08		938		954	^F
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		681		699

							1,653

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Oil and Gas	1.7%
Amerigas Partners, L.P.		7.250%	5/20/15	$	990	$	986
Anadarko Petroleum Corporation		5.790%	9/15/09		21,500		21,526	^C
Anadarko Petroleum Corporation		6.450%	9/15/36		35,090		35,842
Apache Corporation		6.250%	4/15/12		1,280		1,335
Chesapeake Energy Corporation		6.375%	6/15/15		195		186
Chesapeake Energy Corporation		6.250%	1/15/18		1,970		1,827
Conoco Inc.		6.950%	4/15/29		10,193		11,755
ConocoPhillips		8.750%	5/25/10		3,100		3,462
ConocoPhillips		4.750%	10/15/12		1,130		1,107
ConocoPhillips		5.900%	10/15/32		10		10	^B
Devon Energy Corporation		7.950%	4/15/32		5,615		6,934
El Paso Corporation		7.800%	8/1/31		8,230		8,436	^B
El Paso Corporation		7.750%	1/15/32		9,560		9,799	^B
El Paso Natural Gas Company		8.375%	6/15/32		1,310		1,500
Hess Corporation		7.875%	10/1/29		2,280		2,695
Hess Corporation		7.300%	8/15/31		14,515		16,344
Kerr-McGee Corporation		6.875%	9/15/11		800		847
Kerr-McGee Corporation		7.875%	9/15/31		8,000		9,671
Pacific Energy Partners		7.125%	6/15/14		630		643
Pemex Project Funding Master Trust		5.991%	12/3/12		117		117	^A,C
Pemex Project Funding Master Trust		6.625%	6/15/35		16,845		16,550	^A
Plains Exploration & Production Company		7.125%	6/15/14		1,010		1,055	^B
Pogo Producing Company		6.875%	10/1/17		850		811
Pride International, Inc.		7.375%	7/15/14		1,440		1,483
Seariver Maritime Inc.		0.000%	9/1/12		70		53	^G
Suburban Propane Partners LP		6.875%	12/15/13		1,990		1,920
Vintage Petroleum, Inc.		8.250%	5/1/12		661		698
XTO Energy, Inc.		7.500%	4/15/12		691		753
XTO Energy, Inc.		6.250%	4/15/13		2,317		2,390

							160,735

Paper and Forest Products	0.1%
Georgia-Pacific Corp.		8.125%	5/15/11		9		9
Georgia-Pacific Corp.		7.700%	6/15/15		176		175
Weyerhaeuser Company		6.750%	3/15/12		5,775		6,036

							6,220

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Pharmaceuticals	0.2%
AmerisourceBergen Corporation		5.875%	9/15/15	$	7,070	$	6,931
Bristol-Myers Squibb Company		5.750%	10/1/11		8,840		9,005
Omnicare, Inc.		6.875%	12/15/15		709		689

							16,625

Photo Equipment and Supplies	0.4%
Eastman Kodak Company		3.625%	5/15/08		1,430		1,373	^B
Eastman Kodak Company		7.250%	11/15/13		21,284		20,783
Eastman Kodak Company		3.375%	10/15/33		12,820		12,532	^B

							34,688

Printing and Copying Services	N.M.
Xerox Corporation		6.750%	2/1/17		1,630		1,654


Real Estate Management and Development	N.M.
Forest City Enterprises, Inc.		7.625%	6/1/15		360		367
Forest City Enterprises, Inc.		6.500%	2/1/17		597		561
Ventas, Inc.		8.750%	5/1/09		770		819
Ventas, Inc.		6.750%	6/1/10		800		814
Ventas, Inc.		9.000%	5/1/12		440		491
Ventas, Inc.		6.625%	10/15/14		50		50
Ventas, Inc.		7.125%	6/1/15		800		823

							3,925

Rental and Lease Services	0.2%
Hertz Corporation		8.875%	1/1/14		1,435		1,503	^A
International Lease Finance Corporation		5.750%	6/15/11		12,700		12,935

							14,438

Retail	0.1%
J.C. Penney Company, Inc.		7.400%	4/1/37		690		747	^B
Target Corporation		4.000%	6/15/13		5,340		4,961	^B
Wal-Mart Stores, Inc.		4.125%	2/15/11		3,160		3,042	^B

							8,750

Special Purpose	1.3%
AAC Group Holding Corp.		0.000%	10/1/12		770		639	^D
Air 2 US Series A		8.027%	10/1/19		7,870		7,910	^A
ASIF Global Financing XIX		4.900%	1/17/13		2,180		2,130	^A
DaimlerChrysler North America Holding Corporation		4.050%	6/4/08		610		596

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Special Purpose—Continued
DaimlerChrysler North America Holding Corporation		7.200%	9/1/09	$	620	$	646
DaimlerChrysler North America Holding Corporation		5.875%	3/15/11		500		501
DaimlerChrysler North America Holding Corporation		7.300%	1/15/12		3,315		3,523
DaimlerChrysler North America Holding Corporation		6.500%	11/15/13		1,290		1,323
Di Finance Corporation		9.500%	2/15/13		1,004		1,039
El Paso Performance Linked Trust		7.750%	7/15/11		26,120		26,838	^A
Entercom Capital Inc.		7.625%	3/1/14		795		776
Hexion U.S. Finance Corp./ Hexion Nova Scotia Finance, ULC		9.000%	7/15/14		790		806
ILFC E-Capital Trust I		5.900%	12/21/65		7,880		7,938	^A,D
ILFC E-Capital Trust II		6.250%	12/21/65		1,800		1,800^A,D
John Deere Capital Corporation		7.000%	3/15/12		80		86
Patrons’ Legacy 2003 IV		5.775%	1/23/17		7,900		7,925	^A
Philip Morris Capital Corporation		7.500%	7/16/09		190		198
Rabobank Capital Funding Trust II		5.260%	12/31/49		590		577	^A,D
Rabobank Capital Funding Trust III		5.254%	12/29/49		4,140		3,996	^A,D
Sprint Capital Corporation		6.000%	1/15/07		16,370		16,388
Sprint Capital Corporation		6.125%	11/15/08		130		132
Sprint Capital Corporation		8.375%	3/15/12		13,945		15,629
TCI Communications Financing III		9.650%	3/31/27		1,480		1,572
Texaco Capital Inc.		5.500%	1/15/09		1,600		1,619
Toll Brothers Finance Corp		5.950%	9/15/13		12,700		12,151
UGS Corporation		10.000%	6/1/12		400		432
Unilever Capital Corporation		7.125%	11/1/10		1,450		1,549
Verizon Global Funding Corp.		7.375%	9/1/12		5		6

							118,725

Telecommunications	0.2%
AT&T Inc.		5.100%	9/15/14		8,630		8,338
BellSouth Corporation		4.750%	11/15/12		640		611
Cincinnati Bell Inc		7.000%	2/15/15		2,257		2,212
Citizens Communications Company		9.250%	5/15/11		530		584
Qwest Corporation		7.500%	10/1/14		4,140		4,275	^A
Windstream Corporation		8.625%	8/1/16		875		936	^A

							16,956

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Telecommunications (Cellular/Wireless)	N.M.
Nextel Communications, Inc.		5.950%	3/15/14	$	493	$	482
Nextel Communications, Inc.		7.375%	8/1/15		1,980		2,043

							2,525

Transportation	0.2%
Continental Airlines, Inc.		6.545%	8/2/20		8,191		8,332
Delta Air Lines, Inc.		6.619%	9/18/12		1,386		1,385
Norfolk Southern Corporation		6.200%	4/15/09		20		21
Northwest Airlines Inc.		5.960%	2/6/15		1,725		1,673
United Air Lines, Inc.		6.602%	3/1/15		7,888		7,908

							19,319

Total Corporate Bonds and Notes (Identified Cost—$1,724,168)							1,725,325
Asset-Backed Securities	1.6%

Fixed Rate Securities	0.2%
Bay View Auto Trust 2003-LJ1		3.440%	4/25/12		189		184
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		2,200		1,844
Contimortgage Home Equity Loan Trust 1997-4		7.330%	10/15/28		1,319		1,069
Green Tree Financial Corporation 1992-2		9.150%	1/15/18		267		231
Green Tree Financial Corporation 1993-2		8.000%	7/15/18		769		751
Green Tree Financial Corporation 1996-5		8.100%	7/15/27		3,973		830
Green Tree Home Improvement Loan Trust 1996-A		7.400%	2/15/26		463		415
Lehman ABS Manufactured Housing Contract 2001-B A3		4.350%	5/15/14		3,956		3,783
Lehman ABS Manufactured Housing Contract 2001-B A6		6.467%	8/15/28		2,974		3,035
Pegasus Aviation Lease Securitization 2000-1		8.370%	3/25/30		2,500		1,575	^A
Residential Asset Mortgage Products, Inc. 2004-SL4		7.500%	7/25/32		2,294		2,336
UCFC Home Equity Loan Trust 1998-C		5.935%	1/15/30		21		20
Vanderbilt Mortgage Finance 1996-A		8.150%	5/7/26		457		461
Vanderbilt Mortgage Finance 1997-B		8.155%	10/7/26		231		238
Vanderbilt Mortgage Finance 1997-C		7.830%	8/7/27		500		517

							17,289

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Asset-Backed Securities—Continued

Indexed Securities^C	1.2%
AFC Home Equity Loan Trust 2002-2		5.624%	6/25/30	$	626	$	628
Asset Backed Securities Corporation Home Equity Loan Trust 2001 HE3		5.870%	11/15/31		470		471
Bayview Financial Acquisition Trust 2003-G		5.924%	1/28/39		3,300		3,300
Bear Stearns Asset Backed Securities Series 2005-CL1		5.830%	9/25/34		14,997		15,026
Bear Stearns Asset Backed Securities, Inc. 2005-AQ2		5.490%	9/25/35		10,431		10,433
CDC Mortgage Capital Trust 2002-HE1		5.640%	1/25/33		798		798
Citibank Credit Card Issuance Trust 2002-C1		6.470%	2/9/09		2,040		2,046
Countrywide Asset-Backed Certificates 2002-BC1		5.990%	4/25/32		250		250
Countrywide Asset-Backed Certificates 2003-1		5.670%	6/25/33		470		471
Countrywide Asset-Backed Certificates 2003-BC3		5.640%	9/25/33		637		638
Countrywide Home Equity Loan Trust 2002-F		5.680%	11/15/28		1,089		1,095
Countrywide Home Equity Loan Trust 2006-RES		5.590%	7/25/36		1,263		1,270	^A
Credit Suisse First Boston Mortgage Securities Corp. 2005-AGE1		5.470%	2/25/32		12,751		12,754
Fannie Mae Grantor Trust 2002-T15		5.530%	11/26/32		1,563		1,563
Fleet Home Equity Loan Trust 2003-1		5.580%	1/20/33		6,648		6,657
Greenpoint Mortgage Funding Trust 2005-HE1		5.730%	9/25/34		1,200		1,204
IndyMac Home Equity Loan Asset-Backed Trust 2001-A		5.590%	3/25/31		138		139
Option One Mortgage Loan Trust 2003-1		5.750%	2/25/33		17		17
Popular ABA Morgage Pass-Through Trust 2005-A		5.430%	6/25/35		2,012		2,012
Provident Bank Home Equity Loan Trust 2000-2		5.600%	8/25/31		443		444
Renaissance Home Equity Loan Trust 2005-1		5.660%	5/25/35		3,000		3,016
Residential Asset Mortgage Products, Inc. 2003-RS4		5.660%	5/25/33		1,783		1,805
Residential Funding Mortgage Secs II 2003-HS3		5.620%	8/25/33		52		52
Salomon Brothers Mortgage Securities VII 2002-CIT1		5.630%	3/25/32		1,226		1,230
Southern Pacific Secured Assets Corporation 1998-2		5.670%	7/25/29		35		35
Truman Capital Mortgage Loan Trust 2006-1		5.660%	3/25/36		39,233		39,233	^A
Vanderbilt Mortgage Finance 1999-D		8.580%	1/7/30		4,100		4,384
Wachovia Asset Securitization, Inc. 2002-HE1		5.700%	9/27/32		1,601		1,604
Wachovia Asset Securitization, Inc. 2002-HE2		5.760%	12/25/32		116		116
Wachovia Asset Securitization, Inc. 2003-HE1		5.620%	3/25/33		52		52

							112,743

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Asset-Backed Securities—Continued

Stripped Securities	N.M.
Diversified REIT Trust 2001-1		0.772%	3/8/10	$	12,258	$	238	^A,H1
Oakwood Mortgage Investors Inc. 2001-E		6.000%	11/15/09		5,398		729	^A,H1

							967

Variable Rate Securities^I	0.2%
Countrywide Asset-Backed Certificates 2004-15		4.614%	12/25/32		11,882		11,687
Origen Manufactured Housing Contract Trust Series 2005-B		5.910%	1/15/37		4,797		4,768
Origen Manufactured Housing Contract Trust Series 2005-B		5.990%	1/15/37		1,500		1,486
Origen Manufactured Housing Contract Trust Series 2005-B		6.480%	1/15/37		2,100		2,111

							20,052

Total Asset-Backed Securities (Identified Cost—$151,640)							151,051
Mortgage-Backed Securities	16.1%

Fixed Rate Securities	1.2%
Asset Securitization Corporation 1996-D2		6.920%	2/14/29		550		551
Banc of America Funding Corporation 2003-1		6.000%	5/20/33		635		634
Bank One Issuance Trust 2003-C1 C1		4.540%	9/15/10		470		465
Blackrock Capital Finance L.P. 1997-R3		7.220%	11/25/28		31		31	^A
Commercial Mortgage Pass-Through Certificates, Series 2001-J1A A2		6.457%	2/16/34		193		200	^A
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		376		378	^A
CS First Boston Mortgage Securities Corp. 1998-C1 A1B		6.480%	5/17/40		180		183
GMAC Commercial Mortgage Securities Inc. 1998-C1		6.700%	5/15/30		7,508		7,626
GMAC Commercial Mortgage Securities Inc. 1999-C2		6.945%	9/15/33		339		351
GS Mortgage Securities Corporation II 1998-C1		6.620%	10/18/30		4,611		4,690
GS Mortgage Securities Corporation II 2005-GG4		4.680%	7/10/39		18,650		18,109
J.P. Morgan Chase Commercial Mortgage Securities Corp., 2006-CB15		5.814%	6/12/43		2,370		2,451
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC12		4.895%	9/12/37		3,000		2,906
J.P. Morgan Commercial Mortgage Finance Corporation 1999-C8		7.400%	7/15/31		1,822		1,900

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
LB-UBS Commercial Mortgage Trust 2000-C3 A2		7.950%	5/15/25	$	100	$	108
LB-UBS Commercial Mortgage Trust 2005-C3 A5		4.739%	7/15/30		8,640		8,289
LB-UBS Commercial Mortgage Trust 2005-C3 AAB		4.664%	7/15/30		4,100		3,978
MASTR Reperforming Loan Trust 2005-1		6.000%	8/25/34		6,970		6,991	^A
MASTR Reperforming Loan Trust 2005-1		7.000%	8/25/34		10,177		10,459	^A
Morgan Stanley Capital I 2005-HQ6		4.989%	8/13/42		21,070		20,554
Residential Asset Mortgage Products, Inc. 2004-SL2 A4		8.500%	10/25/31		344		359
Residential Asset Mortgage Products, Inc. 2005-SL2		7.500%	3/25/32		16,603		16,987
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		3,249		3,139
Structured Asset Securities Corporation 1996-CFL		7.750%	2/25/28		264		264	^A
WEF Issuer LLC Series 2006-A		5.190%	12/15/14		1,215		1,211	^A

							112,814

Indexed Securities^C	13.7%
American Home Mortgage Assets Trust 2006-3		5.330%	7/25/36		32,237		32,237
American Home Mortgage Investment Trust 2005-4		5.620%	11/25/45		28,497		28,622
Citigroup Mortgage Loan Trust 2005-HE2		5.730%	5/25/35		20,759		20,804	^A
Citigroup Mortgage Loan Trust, Inc.		5.480%	8/25/35		327		328
Countrywide Alternative Loan Trust		5.680%	9/25/35		34,255		34,413
Countrywide Alternative Loan Trust 2005-44 1A1		5.660%	10/25/35		47,489		47,593
Countrywide Alternative Loan Trust 2005-44 2A1		5.640%	10/25/35		26,626		26,632
Countrywide Alternative Loan Trust 2005-56 3A1		5.620%	11/25/35		33,102		33,204
Countrywide Alternative Loan Trust 2005-56 4A1		5.640%	11/25/35		11,808		11,843
Countrywide Alternative Loan Trust 2005-H 2A		5.570%	12/25/35		4,015		4,021
Countrywide Alternative Loan Trust 2005-J12		5.600%	11/25/35		1,593		1,596
Countrywide Alternative Loan Trust 2006-0A17		5.525%	10/25/36		79,000		79,014
Countrywide Home Loans 2005-9 1A1		5.630%	5/25/35		16,769		16,841
DSLA Mortgage Loan Trust 2006-AR1 1A1A		5.483%	4/19/36		2,774		2,774
DSLA Mortgage Loan Trust 2006-AR1 1A1B		5.483%	4/19/36		2,774		2,774

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
GMACM Home Equity Loan Trust 2004-HE4		5.604%	3/25/35	$	54,612	$	54,651
Government National Mortgage Association 2001-36		5.730%	8/20/31		3		3
Greenpoint Mortgage Funding Trust 2006-AR3		5.560%	9/25/35		2,675		2,680
GSMPS Mortgage Loan Trust 2005-RP2		5.680%	3/25/35		28,682		28,791	^A
GSMPS Mortgage Loan Trust 2005-RP3		5.680%	9/25/35		43,830		43,891
Harborview Mortgage Loan Trust 2005-3		5.570%	6/19/35		33,081		33,163
Harborview Mortgage Loan Trust 2005-7		5.734%	6/19/45		12,986		13,050
Impac CMB Trust 2003-4 1A1		5.650%	10/25/33		409		410
Impac CMB Trust 2003-5 A1		5.660%	8/25/33		520		520
Impac CMB Trust 2003-7		5.964%	8/25/33		1,057		1,057
Lehman XS Trust 2005-5N		5.630%	11/25/35		42,347		42,462
Lehman XS Trust 2006-GP2		5.400%	6/25/46		1,016		1,016
Medallion Trust 2000-2G		5.590%	12/18/31		387		388	^F
MLCC Mortgage Investors, Inc. 2003-B		5.670%	4/25/28		5,965		5,995
MSDWCC Heloc Trust 2005-1		5.520%	7/25/17		3,318		3,321
Nomura Asset Acceptance Corporation Series 2005-AP3		5.460%	8/25/35		14,168		14,173
Residential Accredit Loans, Inc.		5.730%	10/25/45		4,185		4,198
Sequoia Mortgage Trust 4		5.690%	11/22/24		21		21
Structured Asset Mortgage Investments II Trust 2006-AR7		5.540%	8/25/36		50,569		50,571
Thornburg Mortgage Secs Trust		5.500%	1/25/36		101,632		101,458
Thornburg Mortgage Securities Trust 2005-4		5.530%	12/25/35		81,860		81,755
WaMu Mortgage Pass-Through Certificates 2005-AR06		5.560%	4/25/45		25,929		25,987
WaMu Mortgage Pass-Through Certificates 2005-AR08		5.600%	7/25/45		14,819		14,867
WaMu Mortgage Pass-Through Certificates 2005-AR11		5.650%	8/25/45		73,526		73,698
WaMu Mortgage Pass-Through Certificates 2005-AR13 A1A1		5.620%	10/25/45		39,201		39,452
WaMu Mortgage Pass-Through Certificates 2005-AR13 B10		6.176%	10/25/45		6,264		5,488	^A
WaMu Mortgage Pass-Through Certificates 2005-AR15 A1A1		5.590%	11/25/45		37,292		37,418
WaMu Mortgage Pass-Through Certificates 2005-AR15 A1A2		5.610%	11/25/45		57,940		58,168

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
WaMu Mortgage Pass-Through Certificates 2005-AR17 A1A2		5.620%	12/25/45	$	27,852	$	27,966
WaMu Mortgage Pass-Through Certificates 2005-AR19 A1A1		5.600%	12/25/45		59,444		59,637
WaMu Mortgage Pass-Through Certificates 2005-AR19 A1A2		5.620%	12/25/45		65,706		65,954
Zuni Mortgage Loan Trust 2006-0A1		5.615%	8/25/36		51,813		51,743

							1,286,648

Stripped Securities	N.M.
Commercial Capital Access One, Inc. 2		12.000%	11/15/27		2,408		992	^H1
FFCA Secured Lending Corporation 1999-1A		1.447%	9/18/25		399		21	^A,H1
GMAC Commercial Mortgage Securities Inc. 1999-CTL1		0.794%	12/15/16		961		5	^A,H1
LB-UBS Commercial Mortgage Trust 2001-C3		1.189%	6/15/36		8,830		333	^A,H1

							1,351

Variable Rate Securities^I	1.2%
Banc of America Commercial Mortgage Inc. 2005-5		5.115%	10/10/45		7,630		7,505
Commercial Mortgage Asset Trust 1999-C2		7.546%	11/17/32		330		347
GE Capital Commercial Mortgage Corporation		5.511%	11/10/45		15,020		15,072
Harborview Mortgage Loan Trust 2006-2		5.449%	2/25/36		9,010		8,997
IndyMac INDX Mortgage Loan Trust 2004-AR15		5.074%	2/25/35		1,325		1,318
IndyMac INDX Mortgage Loan Trust 2005-AR13		4.477%	8/25/35		1,193		1,182
IndyMac Indx Mortgage Loan Trust 2005-AR15		5.099%	9/25/35		12,826		12,449
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC13		5.472%	1/12/43		11,800		11,799
Merrill Lynch Mortgage Investors, Inc. Series 2005-SD1 A2		5.666%	5/25/46		3,500		3,499
Merrill Lynch Mortgage Trust 2005-CKI1		5.417%	11/12/37		17,280		17,235
Merrill Lynch Mortgage Trust 2005-MCP1		4.747%	6/12/43		15,240		14,617
Morgan Stanley Mortgage Loan Trust 2005-3AR		5.224%	7/25/35		12,834		12,858
Prime Mortgage Trust 2005-2 2A1		7.448%	10/25/32		1,008		1,036
Thornburg Mortgage Securities Trust 2004-1		2.807%	3/25/44		970		955

							108,869

Total Mortgage-Backed Securities (Identified Cost—$1,511,474)							1,509,682

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Loan Participations and Assignments^C	0.3%

Containers and Packaging
Graham Packing Company, L.P., Term Loan, Tranche B		7.625%	4/7/12	$	424	$	425
Graham Packing Company, L.P., Term Loan, Tranche B		7.750%	4/7/12		472		473
Graham Packing Company, L.P., Term Loan, Tranche B		7.875%	4/7/12		600		601

							1,499


Environmental Services
Allied Waste North America, Inc., Credit Linked Deposit, Tranche A		7.270%	1/15/12		554		551
Allied Waste North America, Inc., Term Loan		7.170%	1/15/12		695		692
Allied Waste North America, Inc., Term Loan		7.210%	1/15/12		237		236
Allied Waste North America, Inc., Term Loan		7.270%	1/15/12		508		507

							1,986

Cable
Charter Communications Operating, LLC, Term Loan		8.125%	4/28/13		2,000		2,008
CSC Holdings Inc., Incremental Term Loan		7.110%	3/30/13		425		423
CSC Holdings Inc., Incremental Term Loan		7.218%	3/30/13		287		285
CSC Holdings Inc., Incremental Term Loan		7.258%	3/30/13		286		285
Insight Midwest Holdings, LLC, Term Loan, Tranche C		7.438%	1/5/07		1,995		2,000

							5,001

Chemicals
Celanese, AG, Dollar Term Loan		7.367%	4/11/11		997		1,000


Computer Services and Systems
Sungard Data Systems, Inc., Term Loan, Tranche B		7.999%	8/15/12		2,000		2,013


Drug Stores
Jean Coutu Group, Inc., Term Loan, Tranche B		8.000%	7/30/11		997		998


Energy
NRG Energy, Inc, Term Loan		7.367%	2/1/13		1,500		1,506

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Loan Participations and Assignments—Continued

Entertainment
Carmike Cinemas, Inc., Delayed Draw Term Loan		8.640%	5/19/12	$	841	$	847
Cedar Fair, LP, Term Loan, Tranche B		7.867%	6/13/12		997		1,002
Metro-Goldwyn-Mayer Studios, Inc., Term Loan, Tranche B		8.749%	4/6/11		1,500		1,483

							3,332


Medical Care Facilities
Davita, Inc., Term Loan, Tranche B		7.370%	10/5/12		339		340
Davita, Inc., Term Loan, Tranche B		7.400%	10/5/12		170		170
Davita, Inc., Term Loan, Tranche B		7.510%	10/5/12		1,110		1,113
Davita, Inc., Term Loan, Tranche B		7.690%	10/5/12		277		278
Healthsouth Corporation, Term Loan, Tranche B		8.580%	6/15/10		998		1,001
Iasis Healthcare Corporation, Term Loan, Tranche B		7.617%	6/22/11		8		7
Iasis Healthcare Corporation, Term Loan, Tranche B		7.730%	6/22/11		990		994

							3,903

Paper and Forest Products
Georgia Pacific Corporation, First Lien Term Loan		7.367%	12/23/13		186		187
Georgia Pacific Corporation, First Lien Term Loan		7.390%	12/23/13		766		767
Georgia Pacific Corporation, First Lien Term Loan		7.485%	12/23/13		48		48
Georgia Pacific Corporation, Second Lien Term Loan		8.390%	12/23/13		1,000		1,009

							2,011

Restaurants
Denny’s Corporation, Term Loan, Tranche B		8.576%	8/15/11		135		136
Denny’s Corporation, Term Loan, Tranche B		8.617%	8/15/11		339		339
Denny’s Corporation, Term Loan, Tranche B		8.750%	8/15/11		156		156
Denny’s Corporation, Term Loan, Tranche B		10.000%	8/15/11		9		9

							640

100

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Loan Participations and Assignments—Continued

Semiconductor Equipment and Production
Sensata Technologies, Term Loan, Tranche B		7.117%	4/27/13	$	16	$	16
Sensata Technologies, Term Loan, Tranche B		7.240%	4/27/13		1,480		1,469

							1,485


Special Purpose
CCM Merger, Inc., Term Loan, Tranche B		7.367%	7/21/12		725		723
CCM Merger, Inc., Term Loan, Tranche B		7.390%	7/21/12		78		77
CCM Merger, Inc., Term Loan, Tranche B		7.400%	7/21/12		194		193
Nielsen Finance, LLC, Term Loan, Tranche B		8.190%	8/8/13		2,000		1,993
Vanguard Health Holding Company II, Replacement Term Loan		7.868%	5/18/11		1,995		1,994

							4,980

Telecommunications
Panamsat Corporation, Term Loan, Tranche A		7.633%	7/3/12		2,000		1,997

Total Loan Participations and Assignments (Identified Cost—$32,375)							32,351
U.S. Government and Agency Obligations	20.6%

Fixed Rate Securities	15.3%
Fannie Mae		3.125%	12/15/07		35,000		34,210
Fannie Mae		6.625%	9/15/09		16,140		16,891
Fannie Mae		5.200%	11/8/10		17,470		17,400
Fannie Mae		5.625%	5/19/11		31,580		32,001
Fannie Mae		4.610%	10/10/13		40,690		39,218
Federal Home Loan Bank		4.875%	11/15/06		100		100
Federal Home Loan Bank		3.500%	11/15/07		100		98
Federal Home Loan Bank		5.875%	11/15/07		750		756
Freddie Mac		4.625%	2/21/08		11,930		11,866
Freddie Mac		5.250%	2/24/11		34,230		34,308
Freddie Mac		5.125%	4/18/11		14,440		14,564
Freddie Mac		5.300%	5/12/20		75,000		72,366
Tennessee Valley Authority		6.250%	12/15/17		40		44
Tennessee Valley Authority		6.750%	11/1/25		1,670		1,991
Tennessee Valley Authority		7.125%	5/1/30		840		1,063
United States Treasury Bonds		4.500%	2/15/36		384,797		368,714	^B
United States Treasury Notes		3.000%	12/31/06		11,784		11,724	^B
United States Treasury Notes		3.750%	5/15/08		25,460		25,063	^B
United States Treasury Notes		5.000%	7/31/08		5,835		5,862	^B
United States Treasury Notes		4.375%	11/15/08		66,590		66,176	^B

101

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
United States Treasury Notes		4.500%	2/15/09	$	13,500	$	13,452	^B
United States Treasury Notes		3.500%	8/15/09		36,100		35,031	^B
United States Treasury Notes		3.375%	10/15/09		5,910		5,704	^B
United States Treasury Notes		3.500%	12/15/09		177,095		171,326	^B
United States Treasury Notes		3.625%	1/15/10		11,280		10,946	^B
United States Treasury Notes		3.500%	2/15/10		20		19
United States Treasury Notes		4.000%	4/15/10		10		10	^B
United States Treasury Notes		3.875%	9/15/10		24,700		24,068	^B
United States Treasury Notes		4.250%	10/15/10		17,340		17,125	^B
United States Treasury Notes		4.500%	11/15/10		238,680		237,859	^B
United States Treasury Notes		4.250%	1/15/11		13,130		12,951	^B
United States Treasury Notes		4.875%	7/31/11		5,840		5,908	^B
United States Treasury Notes		4.250%	8/15/13		140		137	^B
United States Treasury Notes		5.125%	5/15/16		114,560		118,838	^B
United States Treasury Notes		4.875%	8/15/16		29,950		30,516	^B

							1,438,305

Treasury Inflation-Protected Securities^J	5.1%
United States Treasury Inflation-Protected Security		3.625%	1/15/08		50,758		51,165	^B
United States Treasury Inflation-Protected Security		0.875%	4/15/10		31,395		29,751	^B
United States Treasury Inflation-Protected Security		2.375%	4/15/11		72,460		72,536	^B
United States Treasury Inflation-Protected Security		4.625%	8/31/11		2,900		2,903	^B
United States Treasury Inflation-Protected Security		3.375%	1/15/12		12,399		13,051	^B
United States Treasury Inflation-Protected Security		1.875%	7/15/13		17,438		16,987	^B
United States Treasury Inflation-Protected Security		2.000%	1/15/14		1,255		1,231	^B
United States Treasury Inflation-Protected Security		2.000%	7/15/14		43		42	^B
United States Treasury Inflation-Protected Security		1.875%	7/15/15		38,853		37,620	^B
United States Treasury Inflation-Protected Security		2.000%	1/15/16		49,076		47,949	^B
United States Treasury Inflation-Protected Security		2.375%	1/15/25		114,696		116,542	^B

102

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Treasury Inflation-Protected Securities—Continued
United States Treasury Inflation-Protected Security		2.000%	1/15/26	$	47,128	$	45,199	^B
United States Treasury Inflation-Protected Security		3.625%	4/15/28		23,614		29,264	^B
United States Treasury Inflation-Protected Security		3.875%	4/15/29		9,395		12,139	^B

							476,379

Stripped Securities	0.2%
United States Treasury Bonds		0.000%	11/15/21		37,190		17,861	^B,H2

Total U.S. Government and Agency Obligations (Identified Cost—$1,911,026)							1,932,545
U.S. Government Agency Mortgage-Backed Securities	48.8%

Fixed Rate Securities	47.4%
Fannie Mae		6.500%	5/1/14 to 7/1/35		22,598		23,059
Fannie Mae		6.000%	12/1/16		1,030		1,045
Fannie Mae		5.500%	1/1/17 to 10/1/35		48,591		48,058
Fannie Mae		9.500%	11/1/21		2		2
Fannie Mae		6.000%	3/1/28 to 1/1/36		32,684		32,849
Fannie Mae		7.000%	8/1/29 to 7/1/32		5,348		5,505
Fannie Mae		7.500%	11/1/29		27		28
Fannie Mae		5.000%	6/1/35 to 10/1/36		210,138		202,051
Fannie Mae		6.414%	10/1/35 to 11/1/35		49,967		51,169
Fannie Mae		4.500%	12/1/36		26,400		24,659	^K
Fannie Mae		5.000%	12/1/36		1,775,300		1,705,941	^K
Fannie Mae		5.500%	12/1/36		617,300		608,041	^K
Fannie Mae		6.000%	12/1/36		1,227,305		1,232,674^K
Fannie Mae		6.500%	12/1/36		15,000		15,272	^K
Freddie Mac		6.000%	6/1/08 to 9/1/19		9,765		9,889
Freddie Mac		4.125%	10/18/10		28,720		27,911
Freddie Mac		4.750%	1/18/11		9,890		9,830
Freddie Mac		4.650%	10/10/13		47,200		45,566
Freddie Mac		5.500%	12/1/13 to 5/1/35		14,792		14,619
Freddie Mac		7.000%	10/1/16 to 4/1/32		1,782		1,835
Freddie Mac		6.500%	7/1/29		451		462
Freddie Mac		5.625%	11/23/35		19,270		18,840

103

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government Agency Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Freddie Mac		5.000%	12/1/36	$	35,000	$	33,655	^K
Freddie Mac		6.000%	12/1/36		4,000		4,020	^K
Government National Mortgage Association		7.500%	3/15/23 to 9/15/31		277		289
Government National Mortgage Association		7.000%	7/15/23 to 7/15/31		893		922
Government National Mortgage Association		6.500%	4/15/28 to 4/15/33		20,015		20,558
Government National Mortgage Association		6.000%	1/15/29 to 11/15/35		100,496		101,837
Government National Mortgage Association		8.000%	12/15/30 to 1/15/31		36		39
Government National Mortgage Association		5.000%	7/15/33 to 11/15/35		87,599		85,075
Government National Mortgage Association		5.500%	7/15/33 to 6/15/35		26,148		25,995
Government National Mortgage Association		5.000%	12/1/36		49,760		48,329	^K
Government National Mortgage Association		6.000%	12/1/36		5,700		5,768	^K
Government National Mortgage Association		6.500%	12/1/36		45,800		46,959	^K

							4,452,751

Stripped Securities	N.M.
Financing Corporation		0.000%	11/30/17		1,250		716^H2
Financing Corporation		0.000%	4/5/19		320		170^H2

							886


Variable Rate Securities^I	1.4%
Fannie Mae		4.767%	6/1/35		21,757		21,541
Fannie Mae		4.357%	8/1/35		2,181		2,151
Fannie Mae		4.610%	9/1/35		12,122		12,025
Fannie Mae		4.681%	9/1/35		4,951		4,914
Fannie Mae		4.568%	10/1/35		4,208		4,179
Fannie Mae		4.659%	10/1/35		4,865		4,841
Fannie Mae		4.741%	10/1/35		7,734		7,672

104

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government Agency Mortgage-Backed Securities—Continued

Variable Rate Securities^I—Continued
Fannie Mae		4.816%	10/1/35	$	4,653	$	4,623
Fannie Mae		6.416%	10/1/35		51,146		52,377
Fannie Mae		6.418%	10/1/35		7,477		7,657
Freddie Mac		4.879%	10/1/35		7,975		7,925

							129,905

Total U.S. Government Agency Mortgage- Backed Securities (Identified Cost—$4,580,633)							4,583,542
Yankee Bonds^L	6.0%

Aerospace/Defense	N.M.
Systems 2001 Asset Trust		6.664%	9/15/13		2,678		2,817	^A


Banks	1.9%
Glitnir Banki hf		6.330%	7/28/11		9,940		10,145	^A
Glitnir Banki hf		6.693%	6/15/16		19,500		19,941	^A,D
Kaupthing Bank hf		6.190%	4/12/11		27,710		27,714	^A,C
Kaupthing Bank hf		5.750%	10/4/11		3,700		3,683	^A
Kaupthing Bank hf		7.125%	5/19/16		6,060		6,370	^A
Landsbanki Islands hf (The National Bank of Iceland)		6.100%	8/25/11		28,390		28,687	^A
MUFG Capital Finance 1 Limited		6.346%	7/25/49		7,400		7,460	^D
Nordea Bank AB		5.310%	4/8/11		52,000		52,001	^A,C
Shinsei Fin Cayman Ltd		6.418%	1/29/49		17,115		16,998	^A,D
The Korea Development Bank		4.250%	11/13/07		200		198
The Korea Development Bank		5.500%	11/13/12		60		60

							173,257

Cable	N.M.
Kabel Deutschland GmbH		10.625%	7/1/14		680		729	^A
Rogers Cable Inc.		7.875%	5/1/12		687		733
Rogers Cable Inc.		5.500%	3/15/14		860		809
Rogers Cable Inc.		6.750%	3/15/15		130		131

							2,402

Diversified Financial Services	0.1%
AIFUL CORPORATION		5.000%	8/10/10		11,440		11,124	^A
Pemex Finance LTD.		9.030%	2/15/11		9		9

							11,133

Electric	N.M.
Hydro-Quebec		6.300%	5/11/11		1,720		1,801

105

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Yankee Bonds—Continued

Foreign Governments	2.1%
Federal Republic of Germany		3.750%	1/4/15	$	18,440	$	23,525
Federative Republic of Brazil		8.875%	4/15/24		950		1,143
Federative Republic of Brazil		10.125%	5/15/27		3,755		5,039	^B
Federative Republic of Brazil		11.000%	8/17/40		19,673		25,624	^B
Province of British Columbia		4.300%	5/30/13		180		173
Province of Ontario		3.500%	9/17/07		110		108
Republic of Bulgaria		8.250%	1/15/15		1,230		1,448
Republic of Colombia		11.750%	2/25/20		781		1,093
Republic of Colombia		7.375%	9/18/37		1,610		1,630	^B
Republic of Panama		7.125%	1/29/26		4,390		4,598	^B
Republic of Panama		8.875%	9/30/27		690		854
Republic of Panama		9.375%	4/1/29		354		457
Republic of Panama		6.700%	1/26/36		1,139		1,128
Russian Federation		5.000%	3/31/30		66,420		74,131	^D
United Mexican States		5.625%	1/15/17		374		370
United Mexican States		11.500%	5/15/26		9,330		14,774
United Mexican States		8.300%	8/15/31		6,950		8,667
United Mexican States		7.500%	4/8/33		28,211		32,541

							197,303

Insurance	0.1%
Foundation Re Ltd		9.526%	11/24/08		6,650		6,306	^A,C


Manufacturing (Diversified)	0.6%
Tyco International Group SA		6.125%	11/1/08		100		101
Tyco International Group SA		6.750%	2/15/11		460		486
Tyco International Group SA		6.375%	10/15/11		5,580		5,850
Tyco International Group SA		7.000%	6/15/28		1,035		1,177
Tyco International Group SA		6.875%	1/15/29		40,530		45,120

							52,734

Media	N.M.
Quebecor Media Inc.		7.750%	3/15/16		550		551
Shaw Communications Inc.		7.250%	4/6/11		630		644
Shaw Communications Inc.		7.200%	12/15/11		395		405

							1,600

Mining	N.M.
Corporacion Nacional del Cobre—Codelco		4.750%	10/15/14		2,590		2,444	^A

106

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Yankee Bonds—Continued

Oil and Gas	0.3%
Anadarko Finance Co		7.500%	5/1/31	$	11,880	$	13,584
Petrobras International Finance Company		6.125%	10/6/16		13,300		13,242
YPF Sociedad Anonima		7.750%	8/27/07		1,000		1,015	^B

							27,841

Publishing	N.M.
Sun Media Corporation		7.625%	2/15/13		565		571


Special Purpose	0.4%
Cascadia Ltd		8.515%	6/13/08		1,700		1,676	^A,C
ChevronTexaco Capital Company		3.500%	9/17/07		20		20
Conoco Funding Company		6.350%	10/15/11		590		621
Conoco Funding Company		7.250%	10/15/31		810		966
European Investment Bank		4.000%	3/3/10		100		97
General Motors Nova Scotia Finance Company		6.850%	10/15/08		1,550		1,507	^B
HSBC Capital Funding LP		4.610%	12/29/49		2,090		1,937	^A,D
Resona Preferred Global Securities Limited		7.191%	12/29/49		10,630		11,002	^A,D
TNK-BP Finance S.A.		7.500%	7/18/16		16,450		17,186	^A

							35,012

Telecommunications	0.5%
British Telecommunications plc		8.375%	12/15/10		2,315		2,594
Deutsche Telekom International Finance BV		5.750%	3/23/16		18,520		18,120
Intelsat (Bermuda), Ltd.		9.250%	6/15/16		1,095		1,151	^A
Koninklijke (Royal) KPN NV		8.000%	10/1/10		13,130		14,186
Telecom Italia Capital S.p.A		4.950%	9/30/14		3,730		3,426
Telecom Italia Capital S.p.A		5.250%	10/1/15		2,950		2,733
Telecom Italia Capital S.p.A.		5.250%	11/15/13		1,260		1,193

							43,403

Telecommunications (Cellular/Wireless)	N.M.
Rogers Wireless Communications Inc.		6.375%	3/1/14		1,850		1,843


Transportation	N.M.
OMI Corporation		7.625%	12/1/13		1,450		1,465
Teekay Shipping Corporation		8.875%	7/15/11		1,729		1,824

							3,289

Total Yankee Bonds (Identified Cost—$539,235)							563,756

107

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

Foreign Government Obligations	0.6%
Canadian Real Return Bond		4.000%	12/1/31		11,628	^M	15,356^J
Government of Canada		5.250%	6/1/12		45,000	^M	42,967

							58,323

Total Foreign Government Obligations (Identified Cost—$48,095)							58,323
Foreign Corporate Bonds	0.1%
General Motors Corporation		8.375%	7/5/33		9,520	^N	10,714

Total Foreign Corporate Bonds (Identified Cost—$12,361)							10,714
Preferred Stocks	0.4%
Fannie Mae		5.375%			0.029	shs	2,792	^E
Ford Motor Company		7.500%			16		302
General Motors Corporation		7.500%			260		4,921
General Motors Corporation		5.250%			646		12,998	^E
General Motors Corporation		7.250%			128		2,402
General Motors Corporation		7.250%			56		1,041
General Motors Corporation		7.250%			45		837
General Motors Corporation		7.375%			328		6,140
Home Ownership Funding Corporation		13.331%			2		270	^A,D
Home Ownership Funding Corporation II		13.338%			1		234	^A,D

							31,937

Total Preferred Stocks (Identified Cost—$28,453)							31,937
Options Purchased^O	N.M.

BellSouth Telecommunications Inc. Call, December 2095, Strike Price $97.72					500	^P	21
International Business Machines Corporation Call, December 2096, Strike Price $99.90					500	^P	81

Total Options Purchased (Identified Cost—$18)							102

Total Long-Term Securities (Identified Cost—$10,539,478)							10,599,328
Investment of Collateral From Securities Lending	18.1%
State Street Navigator Securities Lending Prime Portfolio					1,703,026	shs	1,703,026

Total Investment of Collateral From Securities Lending (Identified Cost — $1,703,026)							1,703,026
Short-Term Securities	23.7%

Corporate Bonds and Notes	4.1%
Bankamerica Corporation		5.533%	10/11/06	$	80,000		79,880
Barclays Banl Plc		5.480%	10/20/06		60,000		60,002

108

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE
Short-Term Securities—Continued

Corporate Bonds and Notes—Continued
Barclays U.S. Funding Corporation		5.434%	10/10/06	$	19,400		$	19,374
Royal Bank Scotland Plc New York		5.270%	9/14/07		50,000			49,981
State Street Bank & Trust Company		5.300%	10/10/06		50,000			50,000	^Q
Tribune Company		6.100%	2/1/07		29,450			28,863
Washington Mutual Bank Fa		5.420%	10/30/06		50,000			50,000
Washington Mutual Bank Fa		5.390%	11/20/06		49,600			49,600

								387,700

U.S. Government and Agency Obligations	17.9%
Fannie Mae		0.000%	6/25/07		29,300			28,217	^G,^R
Federal Home Loan Bank		0.000%	10/2/06		650,000			649,914	^G
Freddie Mac		0.000%	10/2/06		1,000,000			999,868	^G

								1,677,999

Yankee Bonds^L	0.1%
Government Of Canada		5.214%	12/15/06		10,370			10,260



Options Purchased^O	0.3%
Eurodollar Futures Call, December 2006, Strike Price $1.28					3,125	^P		33
Eurodollar Futures Call, January 2007, Strike Price $94.00					3,608	^P		2,399
Eurodollar Futures Call, January 2007, Strike Price $94.50					7,208	^P		1,225
Eurodollar Futures Call, January 2007, Strike Price $94.625					9,978	^P		649
Eurodollar Futures Call, March 2007, Strike Price $94.75					2,173	^P		407
Eurodollar Futures Put, April 2007, Strike Price $93.00					878	^P		2
Goldman Sachs Swaption Futures Call, October 2006, Strike Price $5.55					364,010,000	^P		3,065
Goldman Sachs Swaption Futures Call, October 2006, Strike Price $5.58					355,124,000	^P		3,189
Goldman Sachs Swaption Futures Call, December 2006, Strike Price $4.848					403,660,000	^P		669
Japanese Yen Futures Call, January 2007, Strike Price $88.00					313	^P		106
Goldman Sachs Swaption Futures Call, February 2007, Strike Price $4.97					292,700,000	^P		249
Goldman Sachs Swaption Futures Call, February 2007, Strike Price $5.03					292,700,000	^P		323

109

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 Purchased—Continued
Goldman Sachs Swaption Futures Call, January 2007, Strike Price $5.6575			113,900,000	^P	$	2,994
U.S. Treasury Bond Futures Call, December 2006, Strike Price $110.00			985	^P		2,540
U.S. Treasury Bond Futures Call, December 2006, Strike Price $111.00			1,395	^P		2,420
U.S. Treasury Bond Futures Call, December 2006, Strike Price $113.00			154	^P		121
U.S. Treasury Note Futures Call, November 2006, Strike Price $102.031			18,800	^P		142
U.S. Treasury Note Futures Call, December 2006, Strike Price $100.00			883	^P		4,870
U.S. Treasury Note Futures Call, December 2006, Strike Price $102.00			764	^P		2,686

						28,089


Repurchase Agreements	1.3%
Goldman Sachs Group, Inc. 5.3%, dated 9/29/06, to be repurchased at $123,578 on 10/2/06 (Collateral: $124,910 Freddie Mac notes, 5.25%, due 10/19/15, value $126,003)		$	123,523			123,523

Total Short-Term Securities (Identified Cost—$2,225,224)						2,227,571
Total Investments (Identified Cost—$14,467,728)	154.7%					14,529,925
Obligation to Return Collateral for Securities Loaned	(18.1)%					(1,703,026	)
Other Assets Less Liabilities	(36.6)%					(3,436,374	)


Net Assets	100.0%				$	9,390,525


	EXPIRATION	ACTUAL CONTRACTS			APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^O
Australian Treasury Bond Futures	December 2006		100		$	84
Canadian Government Bond Futures	December 2006		461			670
Euro Currency Futures	December 2006		537			(197	)
Eurodollar Futures	December 2006		1,369			170
Eurodollar Futures	March 2007		221			(7	)
Eurodollar Futures	March 2008		564			458
LIBOR Futures	March 2007		1,000			119
Japanese Yen Futures	December 2006		3,719			(2,704	)
Swiss Franc Futures	December 2006		50			(70	)
U.S. Treasury Note Futures	December 2006		1,645			23

					$	(1,454	)

110

Semi-Annual Report to Shareholders



	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Written^O
Australian Dollar Futures	December 2006	50	$	104
British Pound Futures	December 2006	50		45
Bundesobligation Futures	December 2006	936		(862	)
Canadian Dollar Futures	December 2006	515		258
Eurodollar Futures	September 2007	538		(171	)
Eurodollar Futures	September 2008	310		(104	)
U.S. Treasury Bond Futures	December 2006	2,866		(1,817	)
U.S. Treasury Note Futures	December 2006	4,704		845

			$	(1,702	)

Options Written^O
Euro Currency Futures Call, Strike Price $1.32	December 2006	275	$	318
Euro Currency Futures Call, Strike Price $1.35	December 2006	10		8
Euro Currency Futures Put, Strike Price $1.24	December 2006	150		105
Euro Currency Futures Put, Strike Price $1.25	December 2006	125		28
Eurodollar Futures Call, Strike Price $94.75	December 2006	606		39
Eurodollar Futures Call, Strike Price $95.25	December 2006	632		(70	)
Eurodollar Futures Call, Strike Price $95.50	December 2006	910		52
Eurodollar Futures Call, Strike Price $95.125	March 2007	293		9
Eurodollar Futures Put, Strike Price $94.50	December 2006	283		45
Eurodollar Futures Put, Strike Price $95.00	December 2006	622		(7	)
Eurodollar Futures Put, Strike Price $94.625	March 2007	1,104		(10	)
Fannie Mae Futures Call, Strike Price $100.3984	November 2006	48,900,000		(2	)
Goldman Sachs Swaption Futures Call, Strike Price $4.946	December 2006	187,701,900		3,331
Goldman Sachs Swaption Futures Call, Strike Price $5.67	October 2006	88,781,000		(2,529	)

Goldman Sachs Swaption Futures Call, Strike Price $5.69	October 2006	88,781,000		(2,609	)
Goldman Sachs Swaption Futures Call, Strike Price $5.005	February 2007	64,700,000		497
Goldman Sachs Swaption Futures Call, Strike Price $5.045	February 2007	64,700,000		436
Japanese Yen Futures Call, Strike Price $90.00	December 2006	175		178
Japanese Yen Futures Put, Strike Price $85.00	December 2006	70		(32	)
Japanese Yen Futures Put, Strike Price $84.00	December 2006	25		2
U.S. Treasury Bond Futures Call, Strike Price $109.00	November 2006	19		(45	)
U.S. Treasury Bond Futures Call, Strike Price $112.00	November 2006	2,897		(1,171	)
U.S. Treasury Bond Futures Call, Strike Price $114.00	November 2006	1,024		210
U.S. Treasury Bond Futures Call, Strike Price $115.00	February 2007	575		195

111

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued



	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options Written—Continued
U.S. Treasury Note Futures Call, Strike Price $104.50	November 2006	1,207	$	(950	)
U.S. Treasury Note Futures Call, Strike Price $107.00	November 2006	2,521		(2,594	)
U.S. Treasury Note Futures Call, Strike Price $108.00	November 2006	2,995		(566	)
U.S. Treasury Note Futures Call, Strike Price $109.00	November 2006	2,876		52
U.S. Treasury Note Futures Call, Strike Price $109.00	February 2007	1,649		(350	)
U.S. Treasury Note Futures Call, Strike Price $110.00	February 2007	4,525		86
U.S. Treasury Bond Futures Put, Strike Price $100.00	November 2006	1,376		565
U.S. Treasury Bond Futures Put, Strike Price $103.00	November 2006	713		306
U.S. Treasury Bond Futures Put, Strike Price $107.00	November 2006	165		74
U.S. Treasury Bond Futures Put, Strike Price $108.00	November 2006	1,332		431
U.S. Treasury Bond Futures Put, Strike Price $109.00	November 2006	1,595		773
U.S. Treasury Bond Futures Put, Strike Price $111.00	November 2006	166		—
U.S. Treasury Bond Futures Put, Strike Price $109.00	February 2007	1,345		(46	)
U.S. Treasury Note Futures Put, Strike Price $104.00	November 2006	419		138
U.S. Treasury Note Futures Put, Strike Price $105.00	November 2006	743		136
U.S. Treasury Note Futures Put, Strike Price $104.00	February 2007	1,758		243
U.S. Treasury Note Futures Put, Strike Price $106.00	February 2007	2,650		(134	)
U.S. Treasury Note Futures Put, Strike Price $107.00	February 2007	468		(39	)

			$	(2,897	)

Rule144a 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, which the Fund’s investment adviser has determined to be liquid, represent 6.6% of net assets.

Allor a portion of this security is on loan. See note 4 to the notes to financial statements.

IndexedSecurity – The rates of interest earned on this security are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”), or the Cost of Funds Index (“COFI”). The coupon rate is the rate as of September 30, 2006.

SteppedCoupon Security – A security with a predetermined schedule of interest or dividend rate changes.

ConvertibleSecurity – The security may be converted into issuer’s common or preferred stock.

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

ZeroCoupon Bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

Thecoupon rates shown on variable rate securities are the rates at September 30, 2006. These rates vary with the weighted average coupon of the underlying loans.

InflationProtected 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.

When-issuedSecurity – A security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

YankeeBond – A dollar denominated bond issued in the U.S. by foreign entities.

Denominatedin Canadian dollars.

Denominatedin Euro currency.

Optionsand futures are described in more detail in the notes to financial statements.

Parrepresents actual number of contracts.

Allor a portion of this security is pledged as collateral for credit default swap agreements.

Allor a portion of this security is pledged as collateral to cover futures and options contracts.

N.M.—Not meaningful.

See notes to financial statements.

112

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Core Plus Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$12,242,504)^A			$	12,302,354
Short-term securities at value (Identified Cost—$2,225,224)				2,227,571
Swap contracts at value				34,340
Cash and foreign currencies				188,791
Receivable for securities sold				229,047
Receivable for fund shares sold				82,780
Interest receivable				86,237
Other assets				1,755

Total assets				15,152,875

Liabilities:
Payable for securities purchased	$	3,963,252
Payable for fund shares repurchased		39,536
Accrued management fee		3,007
Accrued distribution fee		113
Income distribution payable		6,323
Interest expense payable		15,225
Obligation to return collateral for securities loaned		1,703,026
Options written (Proceeds—$25,376)		28,273
Futures variation margin		479
Unrealized depreciation of foreign forward currency contracts		2,479
Accrued expenses		637

Total liabilities				5,762,350


Net Assets			$	9,390,525


Net assets consist of:
Accumulated paid-in-capital applicable to:
842,029 Institutional Class shares outstanding			$	8,739,231
53,794 Financial Intermediary Class shares outstanding				565,914
Undistributed net investment income				7,124
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions				(15,743	)
Unrealized appreciation/(depreciation) of investments, options, futures, swaps and foreign currency translations				93,999


Net Assets			$	9,390,525


Net Asset Value Per Share:
Institutional Class				$10.48
Financial Intermediary Class				$10.49

Marketvalue of securities on loan is $1,700,048.

See notes to financial statements.

113

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Core Plus Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	216,584
Dividends		1,474

Total income				$	218,058
Expenses:
Advisory fee		16,293
Distribution and service fees:
Financial Intermediary Class		652
Audit and legal fees		156
Custodian fees		682
Directors’ fees and expenses		180
Proxy expense		85
Registration fees		76
Reports to shareholders		191
Transfer agent and shareholder servicing expense:
Institutional Class		17
Financial Intermediary Class		3
Other expenses		56

		18,391
Less: Compensating balance credits^A		(17	)

Total expenses, net of compensating balance credits					18,374

Net Investment Income					199,684
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(933	)
Options		7,589
Futures		(13,472	)
Swaps		21,735
Assets and liabilities denominated in foreign currency		1,245

					16,164
Change in unrealized appreciation/(depreciation) of:
Investments, options, futures, and swaps		187,043
Assets and liabilities denominated in foreign currency		15

					187,058

Net Realized and Unrealized Gain/(Loss) on Investments					203,222

Change in Net Assets Resulting From Operations				$	402,906

Seenote 1, compensating balance credits, in the notes to financial statements.

See notes to financial statements.

114

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Core Plus Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	199,684		$	256,356

Net realized gain/(loss) on investments, options, futures, assets and liabilities denominated in foreign currency and swaps transactions		16,164			(11,235	)

Change in unrealized appreciation/(depreciation) of investments, options, futures, swaps and assets and liabilities denominated in foreign currencies		187,058			(129,734	)

Change in net assets resulting from operations		402,906			115,387

Distributions to Shareholders from:
Net investment income:
Institutional Class		(187,455	)		(282,055	)
Financial Intermediary Class		(12,301	)		(15,483	)

Net realized gain on investments:
Institutional Class		—			(14,478	)
Financial Intermediary Class		—			(622	)

Change in net assets from Fund share transactions:
Institutional Class		1,739,356			2,515,953
Financial Intermediary Class		47,987			325,191

Change in net assets		1,990,493			2,643,893

Net Assets:
Beginning of period		7,400,032			4,756,139


End of period	$	9,390,525		$	7,400,032


Undistributed net investment income	$	7,124		$	7,196

See notes to financial statements.

115

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Core Plus Bond Portfolio

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002
	(Unaudited)
Net asset value, beginning of period	$	10.24		$	10.52		$	10.71		$	10.40		$	9.88		$	10.07

Investment operations:
Net investment income		.25			.45	^A		.37			.37			.51			.56	^A
Net realized and unrealized gain/(loss) on investments, options, futures, swaps, and foreign currency transactions		.25			(.18	)^A		.04			.55			.62			.06	^A

Total from investment operations		.50			.27			.41			.92			1.13			.62

Distributions paid from:
Net investment income		(.26	)		(.52	)		(.35	)		(.41	)		(.51	)		(.54	)
Net realized gain on investments		—			(.03	)		(.25	)		(.20	)		(.10	)		(.27	)

Total distributions		(.26	)		(.55	)		(.60	)		(.61	)		(.61	)		(.81	)

Net asset value, end of period	$	10.48		$	10.24		$	10.52		$	10.71		$	10.40		$	9.88

Total return		4.91	%^B		2.57	%		4.01	%		9.12	%		11.78	%		6.34	%

Ratios to Average Net Assets:^C
Total expenses		.44	%^D		.45	%		.45	%		.48	%		.50	%		.54	%
Expenses net of waivers, if any		.44	%^D		.45	%		.45	%		.45	%		.45	%		.45	%
Expenses net of all reductions		.44	%^D		.45	%		.45	%		.45	%		.45	%		.45	%
Net investment income		5.0	%^D		4.3	%		3.3	%		3.6	%		5.0	%		5.3	%

Supplemental Data:
Portfolio turnover rate		261.5	%^B		549.4	%		586.1	%		463.8	%		422.6	%		590.7	%
Net assets at end of period (in thousands)	$	8,826,459		$	6,896,815		$	4,565,054		$	3,286,650		$	1,866,619		$	991,673

Theamountpresented 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.

Notannualized.

Totalexpensesreflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

116

Semi-Annual Report to Shareholders

Financial Intermediary Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002^E
	(Unaudited)
Net asset value, beginning of period	$	10.24		$	10.52		$	10.71		$	10.40		$	9.87		$	10.04

Investment operations:
Net investment income		.23			.42	^A		.35			.36			.48			.11	^A
Net realized and unrealized gain/(loss) on investments, options, futures, swaps, and foreign currency transactions		.26			(.18	)^A		.04			.54			.63			(.17	)^A

Total from investment operations		.49			.24			.39			.90			1.11			(.06	)

Distributions paid from:
Net investment income		(.24	)		(.49	)		(.33	)		(.39	)		(.48	)		(.11	)
Net realized gain on investments		—			(.03	)		(.25	)		(.20	)		(.10	)		—

Total distributions		(.24	)		(.52	)		(.58	)		(.59	)		(.58	)		(.11	)

Net asset value, end of period	$	10.49		$	10.24		$	10.52		$	10.71		$	10.40		$	9.87

Total return		4.78	%^B		2.32	%		3.77	%		8.82	%		11.57	%		(.57	)%^B

Ratios to Average Net Assets:^C
Total expenses		.69	%^D		.70	%		.70	%		.73	%		.75	%		.75	%^D
Expenses net of waivers, if any		.69	%^D		.70	%		.70	%		.70	%		.70	%		.70	%^D
Expenses net of all reductions		.69	%^D		.70	%		.70	%		.70	%		.70	%		.70	%^D
Net investment income		4.7	%^D		4.0	%		2.9	%		3.2	%		4.8	%		5.3	%^D

Supplemental Data:
Portfolio turnover rate		261.5	%^B		549.4	%		586.1	%		463.8	%		422.6	%		590.7	%^B
Net assets at end of period (in thousands)	$	564,066		$	503,217		$	191,085		$	7,040		$	369		$	235

Forthe period January 8, 2002 (commencement of operations) to March 31, 2002.

See notes to financial statements.

117

Semi-Annual Report to Shareholders

Expense Example

Western Asset Inflation Indexed Plus Bond Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,043.60	$	1.28
Hypothetical (5% return before expenses)		1,000.00		1,023.82		1.27

Thesecalculations 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 of 0.25% 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 .

118

Semi-Annual Report to Shareholders

Performance Information

Western Asset Inflation Indexed Plus Bond Portfolio

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

Growth of a $1,000,000 Investment—Institutional Class

LOGO

Since-inception index returns are for periods beginning February 28, 2001.

119

Semi-Annual Report to Shareholders

Performance Information—Continued

Portfolio Composition (as of September 30, 2006)

Standard & Poor��s Debt Ratings^B (as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

Source:Standard & Poor's.

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

120

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Inflation Indexed Plus Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	98.4%

Corporate Bonds and Notes	1.6%

Gas and Pipeline Utilities	0.3%
The Williams Companies, Inc.		8.750%	3/15/32	$	1,900	$	2,080


Investment Banking/Brokerage	0.5%
J.P. Morgan & Co. Incorporated		9.604%	2/15/12		2,690		2,794	^A


Special Purpose	0.8%
Allstate Life Global Funding Trust		5.170%	4/2/07		4,600		4,565	^A

Total Corporate Bonds and Notes (Identified Cost—$9,508)							9,439
Asset-Backed Securities	0.2%

Indexed Securities^A	0.2%
Bear Stearns Asset Backed Securities, Inc. 2003-ABF1		5.700%	1/25/34		181		182
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		5.700%	10/25/32		237		238
Countrywide Asset-Backed Certificates 2002-1		5.890%	8/25/32		67		67
EMC Mortgage Loan Trust ABS Security 2002-B		5.880%	11/25/41		746		749	^B
EQCC Trust 2002-1		5.630%	11/25/31		115		115
Residential Asset Mortgage Products, Inc. 2003-RS2		5.670%	3/25/33		105		105

Total Asset-Backed Securities (Identified Cost—$1,452)							1,456
Mortgage-Backed Securities	0.4%

Indexed Securities^A	0.4%
Crusade Global Trust 2003-2		5.580%	9/18/34		1,058		1,060	^C
CS First Boston Mortgage Securities Corp. 2001-28		5.980%	11/25/31		713		719
GSRPM Mortgage Loan Trust 2003-2		6.030%	6/25/33		350		352

Total Mortgage-Backed Securities (Identified Cost—$2,123)							2,131
U.S. Government and Agency Obligations	89.6%

Indexed Securities^D	89.6%
Tennessee Valley Authority		3.375%	1/15/07		8,220		8,178
United States Treasury Inflation-Protected Security		3.625%	1/15/08		35,260		35,542
United States Treasury Inflation-Protected Security		3.875%	1/15/09		16,440		16,912
United States Treasury Inflation-Protected Security		4.250%	1/15/10		13,582		14,365
United States Treasury Inflation-Protected Security		0.875%	4/15/10		14,317		13,567^E

121

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Inflation Indexed Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Indexed Securities—Continued
United States Treasury Inflation-Protected Security		3.500%	1/15/11	$	24,043	$	25,183
United States Treasury Inflation-Protected Security		2.375%	4/15/11		12,445		12,459
United States Treasury Inflation-Protected Security		3.375%	1/15/12		19,114		20,119
United States Treasury Inflation-Protected Security		3.000%	7/15/12		41,126		42,670
United States Treasury Inflation-Protected Security		1.875%	7/15/13		28,417		27,681
United States Treasury Inflation-Protected Security		2.000%	1/15/14		43,587		42,754
United States Treasury Inflation-Protected Security		2.000%	7/15/14		21,460		21,033
United States Treasury Inflation-Protected Security		1.625%	1/15/15		25,650		24,398
United States Treasury Inflation-Protected Security		1.875%	7/15/15		23,295		22,556
United States Treasury Inflation-Protected Security		2.000%	1/15/16		17,797		17,389
United States Treasury Inflation-Protected Security		2.500%	7/15/16		14,680		14,974
United States Treasury Inflation-Protected Security		2.375%	1/15/25		22,324		22,683
United States Treasury Inflation-Protected Security		2.000%	1/15/26		39,860		38,228
United States Treasury Inflation-Protected Security		3.625%	4/15/28		37,730		46,757
United States Treasury Inflation-Protected Security		3.875%	4/15/29		41,638		53,801

Total U.S. Government and Agency Obligations (Identified Cost—$525,365)							521,249
U.S. Government Agency Mortgage-Backed Securities	3.4%

Fixed Rate Securities	3.4%
Fannie Mae		5.000%	12/1/36		16,440		15,796	^F
Fannie Mae		6.000%	12/1/36		3,900		3,917	^F

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$19,644)							19,713
Yankee Bonds^C	2.5%

Banks	0.9%
Glitnir Banki hf		6.693%	6/15/16		1,760		1,800	^A,B
Kaupthing Bank hf		7.125%	5/19/16		2,940		3,090	^B

							4,890


Foreign Governments	1.6%
Federative Republic of Brazil		8.875%	4/15/24		180		217
Federative Republic of Brazil		10.125%	5/15/27		310		416
Federative Republic of Brazil		11.000%	8/17/40		1,151		1,499
Republic of Colombia		11.750%	2/25/20		200		280
Republic of Colombia		7.375%	9/18/37		410		415
Republic of Panama		7.125%	1/29/26		697		730	^G

122

Semi-Annual Report to Shareholders

% OF
NET ASSETS

RATE

MATURITY
DATE

PAR

VALUE

Yankee Bonds—Continued

Foreign Governments—Continued

Russian Federation

5.000%

3/31/30

4,620

5,157

United Mexican States

7.500%

4/8/33

706

814

9,528

Total Yankee Bonds (Identified Cost—$13,707)

14,418

Foreign Government Obligations

0.7%

Canadian Real Return Bond

3.000%

12/1/36

942^I

1,105

Kingdom of Sweden Inflation-Protected Notes

3.500%

12/1/28

14,480^J

2,917

Total Foreign Government Obligations
(Identified Cost—$3,579)

4,022

Total Long-Term Securities (Identified Cost—$575,378)

572,428

Investment of Collateral From Securities Lending

0.1%

State Street Navigator Securities Lending Prime Portfolio

653

shs

653

Total Investment of Collateral From Securities Lending (Identified Cost—$653)

653

Short-Term Securities

3.8%

U.S. Government and Agency Obligations

1.2%

Fannie Mae

0.000%

6/25/07

7,300

7,031

^E,K

Options Purchased^L

N.M.

U.S. Treasury Note Futures Put, November 2006, Strike Price $107.00

125^M

Repurchase Agreements

2.6%

Lehman Brothers, Inc.
5.25%, dated 9/29/06, to be repurchased at $15,067 on 10/2/06 (Collateral: $14,915 Fannie Mae notes, 6.27%, due 7/18/16, value $15,361)

15,060

Total Short-Term Securities (Identified Cost—$22,129)

22,107

Total Investments (Identified Cost—$598,160)

102.3%

595,188

Obligation to Return Collateral for Securities Loaned

(0.1)%

(653

)

Other Assets Less Liabilities

(2.2)%

(12,587

)

Net Assets

100.0%

581,948

123

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Inflation Indexed Plus Bond Portfolio—Continued


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^L
U.S. Treasury Note Futures Call	December 2006	66	$	73

Rule144a 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, which the Fund’s investment adviser has determined to be liquid, represent 1.0% of net assets.

YankeeBond – A dollar-denominated bond issued in the U.S. by foreign entities.

Inflation-ProtectedSecurity – A security whose principal value is adjusted daily or monthly in accordance with changes to the relevant’s 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.

Allor a portion of this security is pledged as collateral to cover futures and options contracts.

When-issuedsecurity – Security purchased on a delayed basis. Final settlement amount and maturity date have not yet been announced.

A portionof this security is on loan.

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

Denominatedin Canadian dollars.

Denominatedin Swedish krona.

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

Optionsand futures are described in more detail in the notes to financial statements.

Parrepresents actual number of contracts.

N.M.—Not meaningful.

See notes to financial statements.

124

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Inflation Indexed Plus Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$576,031)^A			$	573,081
Short-term securities at value (Identified Cost—$22,129)				22,107
Swap contracts at value				1,642
Cash and foreign currencies				973
Receivable for securities sold				5,787
Receivable for fund shares sold				520
Interest receivable				4,221

Total assets				608,331

Liabilities:
Payable for securities purchased	$	25,379
Payable for fund shares repurchased		29
Accrued management fee		37
Income distribution payable		150
Obligation to return collateral for securities loaned		653
Futures variation margin payable		6
Unrealized depreciation of foreign forward currency contracts		40
Accrued expenses		89

Total liabilities				26,383


Net Assets			$	581,948


Net assets consist of:
Accumulated paid-in-capital applicable to:
56,243 Institutional Class shares outstanding			$	584,739
Overdistribution of net investment income				(84	)
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions				(1,595	)
Unrealized appreciation/(depreciation) of investments, options, futures, swaps and foreign currency translations				(1,112	)


Net Assets			$	581,948


Net Asset Value Per Share:
Institutional Class				$10.35

The market valueof securities on loan is $639.

See notes to financial statements.

125

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Inflation Indexed Plus Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	18,894
Expenses:
Advisory fee	$	554
Audit and legal fees		47
Custodian fees		71
Directors’ fees and expenses		21
Proxy expense		4
Registration fees		3
Reports to shareholders		24
Transfer agent and shareholder servicing expense:		58
Other expenses		21

		803
Less: Fees waived		(109	)
Compensating balance credits^A		(2	)

Total expenses, net of waivers and compensating balance credits					692

Net Investment Income					18,202
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(1,426	)
Options		181
Futures		(974	)
Foreign currency transactions		(145	)
Swaps		1,266

					(1,098	)
Change in unrealized gain/(loss) on:
Investments, options, futures, foreign currency translations, and swaps		6,834
Assets and liabilities denominated in foreign currency		1

					6,835

Net Realized and Unrealized Loss on Investments					5,737

Change in Net Assets Resulting From Operations				$	23,939

Seenote 1, compensating balance credits, in the notes to financial statements

See notes to financial statements.

126

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Inflation Indexed Plus Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	18,202		$	23,665

Net realized gain/(loss) on investments, options, futures, foreign currency transactions and swaps		(1,098	)		3,571

Change in unrealized appreciation/(depreciation) of investments, options, futures, foreign currency translations, swaps and assets and liabilities denominated in foreign currencies		6,835			(22,027	)

Change in net assets resulting from operations		23,939			5,209

Distributions to Shareholders from:
Net investment income		(18,196	)		(24,662	)
Net realized gain on investments		—			(3,825	)

Change in net assets from Fund share transactions		33,673			104,064

Change in net assets		39,416			80,786

Net Assets:
Beginning of period		542,532			461,746


End of period	$	581,948		$	542,532


Overdistributions of net investment income	$	(84	)	$	(90	)

See notes to financial statements.

127

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Inflation Indexed Plus Bond Portfolio

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002
	(Unaudited)
Net asset value, beginning of period	$	10.25		$	10.74		$	11.24		$	10.96		$	9.92		$	9.98

Investment operations:
Net investment income		.34			.54			.42			.37			.51			.41
Net realized and unrealized gain/(loss) on investments, options, futures, foreign currency transactions and swaps		.10			(.38	)		(.10	)		.71			1.19			.01

Total from investment operations		.44			.16			.32			1.08			1.70			.42

Distributions paid from:
Net investment income		(.34	)		(.56	)		(.42	)		(.37	)		(.51	)		(.41	)
Net realized gain on investments		—			(.09	)		(.40	)		(.43	)		(.15	)		(.07	)

Total distributions		(.34	)		(.65	)		(.82	)		(.80	)		(.66	)		(.48	)

Net asset value, end of period	$	10.35		$	10.25		$	10.74		$	11.24		$	10.96		$	9.92

Total return		4.36	%^A		1.44	%		3.27	%		10.33	%		17.62	%		4.28	%

Ratios to Average Net Assets:^B
Total expenses		.29	%^C		.27	%		.27	%		.27	%		.27	%		.67	%
Expenses net of waivers, if any		.25	%^C		.25	%		.25	%		.25	%		.25	%		.25	%
Expenses net of all reductions		.25	%^C		.25	%		.25	%		.25	%		.25	%		.25	%
Net investment income		6.6	%^C		5.0	%		3.8	%		3.4	%		4.8	%		5.0	%

Supplemental Data:
Portfolio turnover rate		49.1	%^A		177.1	%		255.5	%		281.8	%		75.4	%		79.5	%
Net assets at end of period (in thousands)	$	581,948		$	542,532		$	461,746		$	346,379		$	290,306		$	210,635

Notannualized.

Totalexpensesreflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

128

Semi-Annual Report to Shareholders

Expense Example

Western Asset High Yield Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes

The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. 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 the 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 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,041.60	$	3.12
Hypothetical (5% return before expenses)		1,000.00		1,022.01		3.09

Thesecalculations 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 of 0.61% 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.

129

Semi-Annual Report to Shareholders

Performance Information

Western Asset High Yield Portfolio

The graph compares the Fund’s total returns against that of two broad-based securities market indices. Effective September 1, 2005, the Fund changed its comparative index from the Lehman High Yield Index to the Lehman High Yield Index 2% Issuer Constrained (“High Yield Constrained Index”). As a result of significant changes to the Lehman High Yield composition and Lehman index methodology rules, the adviser has determined that the High Yield Constrained Index is more representative of the overall high yield market and therefore more accurately reflects the types of securities in which the Fund invests. The lines illustrate the cumulative total return of an initial $1,000,000 investment for the periods indicated. The line for the 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 indices or other investment management or administrative expenses.

Bonds are subject to a variety of risks, including interest rate, credit and inflation risk. High Yield securities are subject to greater fluctuations in value and greater risk of loss of income and principal due to default by the issuer than are higher rated bonds.

Growth of a $1,000,000 Investment—Institutional Class

Indexreturns are for periods beginning September 30, 2001.

130

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^B (as a percentage of the portfolio)

Maturity Schedule (as a percentage of the portfolio)

Source:Standard & Poor's.

PreferredStocks do not have a defined maturity date.

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

131

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset High Yield Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	96.7%

Corporate Bonds and Notes	85.4%

Advertising	1.0%
Affinion Group, Inc.		10.125%	10/15/13	$	3,020	$	3,171
R.H. Donnelley Corp.		6.875%	1/15/13		1,395		1,273
R.H. Donnelley Corp.		6.875%	1/15/13		2,520		2,299

							6,743

Aerospace/Defense	1.6%
Alliant Techsystems Inc.		6.750%	4/1/16		1,680		1,655
DRS Technologies, Inc.		6.625%	2/1/16		1,565		1,538
DRS Technologies, Inc.		7.625%	2/1/18		1,500		1,522
Standard Aero Holdings Inc.		8.250%	9/1/14		4,240		4,092
TransDigm Inc.		7.750%	7/15/14		1,750		1,763	^A

							10,570

Apparel	0.7%
Levi Strauss & Co.		9.750%	1/15/15		1,860		1,930
Levi Strauss & Co.		8.875%	4/1/16		1,200		1,194
Oxford Industries, Inc.		8.875%	6/1/11		1,504		1,534

							4,658

Auto and Automotive Parts	1.6%
Commercial Vehicle Group, Inc.		8.000%	7/1/13		2,170		2,078
Keystone Automotive Operations Inc.		9.750%	11/1/13		3,400		3,196
TRW Automotive		9.375%	2/15/13		990		1,054
Visteon Corporation		8.250%	8/1/10		1,907		1,859
Visteon Corporation		7.000%	3/10/14		2,640		2,363

							10,550

Automotive	1.4%
Ford Motor Company		8.875%	1/15/22		640		551
Ford Motor Company		7.450%	7/16/31		4,575		3,534
General Motors Corporation		7.200%	1/15/11		1,600		1,474
General Motors Corporation		8.375%	7/15/33		4,200		3,633

							9,192

Automotive Retailer	0.5%
Asbury Automotive Group Inc.		9.000%	6/15/12		2,832		2,899


Banking and Finance	3.8%
ACE Cash Express, Inc.		10.250%	10/1/14		651		659	^A
Ford Motor Credit Company		8.625%	11/1/10		1,310		1,305

132

Semi-Annual Report to Shareholders


	% OF NET ASSETS		RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Banking and Finance—Continued
Ford Motor Credit Company			7.375%	2/1/11	$	3,370	$	3,235
Ford Motor Credit Company			9.875%	8/10/11		2,800		2,897
General Motors Acceptance Corporation			6.875%	8/28/12		1,500		1,485
General Motors Acceptance Corporation			8.000%	11/1/31		14,015		14,654

								24,235

Building Materials	2.7%
Associated Materials Incorporated			0.000%	3/1/14		6,500		3,575	^B
Interface, Inc.			7.300%	4/1/08		411		415
Interface, Inc.			10.375%	2/1/10		3,182		3,469
K Hovnanian Enterprises Inc.			6.250%	1/15/16		3,250		2,860
K Hovnanian Enterprises Inc.			7.500%	5/15/16		1,400		1,307
Nortek, Inc.			8.500%	9/1/14		3,145		2,972
NTK Holdings, Inc.			10.750%	3/1/14		4,055		2,798

								17,396

Cable	4.1%
CCH I Holdings, LLC			11.000%	10/1/15		3,500		3,185
CCH I Holdings, LLC			11.000%	10/1/15		152		137	^A
CCH II Holdings, LLC			10.250%	10/1/13		2,892		2,942	^A
Charter Communications Holdings, LLC			10.250%	9/15/10		3,050		3,111
Charter Communications Holdings, LLC			11.750%	5/15/14		2,500		1,781
CSC Holdings Inc.			7.625%	4/1/11		820		841
CSC Holdings Inc.		��	7.250%	4/15/12		3,785		3,771	^A
CSC Holdings Inc.			7.875%	2/15/18		150		156
EchoStar DBS Corporation			7.000%	10/1/13		3,440		3,363	^A
EchoStar DBS Corporation			6.625%	10/1/14		3,030		2,882
EchoStar DBS Corporation			7.125%	2/1/16		920		889	^A
LodgeNet Entertainment Corporation			9.500%	6/15/13		2,852		3,052

								26,110

Casino Resorts	3.8%
Boyd Gaming Corporation			8.750%	4/15/12		862		905
Boyd Gaming Corporation			6.750%	4/15/14		480		469
Inn of The Mountain Gods Resort and Casino			12.000%	11/15/10		5,370		5,625
Isle of Capri Casinos, Inc.			7.000%	3/1/14		665		632
Mandalay Resort Group			9.375%	2/15/10		58		62
MGM MIRAGE			8.375%	2/1/11		1,750		1,824
Pinnacle Entertainment, Inc.			8.250%	3/15/12		2,760		2,795
Premier Entertainment Biloxi LLC			10.750%	2/1/12		5,000		5,087
Station Casinos, Inc.			7.750%	8/15/16		2,015		2,091

133

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Casino Resorts—Continued
Station Casinos, Inc.		6.625%	3/15/18	$	1,410	$	1,272
Turning Stone Casino Resort Enterprise		9.125%	9/15/14		965		975	^A
Wynn Las Vegas, LLC		6.625%	12/1/14		3,000		2,910

							24,647

Chemicals	1.3%
Chemtura Corporation		6.875%	6/1/16		70		69
Georgia Gulf Corporation		9.500%	10/15/14		3,500		3,487	^A
Lyondell Chemical Company		10.500%	6/1/13		1,445		1,589
Lyondell Chemical Company		8.000%	9/15/14		875		886
Lyondell Chemical Company		8.250%	9/15/16		720		731
Westlake Chemical Corporation		6.625%	1/15/16		1,377		1,308

							8,070

Coal	0.8%
Alpha Natural Resources LLC		10.000%	6/1/12		2,965		3,187
International Coal Group, Inc.		10.250%	7/15/14		2,365		2,247	^A

							5,434

Computer Services and Systems	1.2%
Activant Solutions, Inc.		9.500%	5/1/16		1,385		1,281	^A
SunGard Data Systems Inc.		9.125%	8/15/13		120		124
SunGard Data Systems Inc.		10.250%	8/15/15		5,805		5,979
UGS Capital Corporation II		10.380%	6/1/11		465		472	^A,C

							7,856

Containers and Packaging	1.9%
Berry Plastics Holding Corp		8.875%	9/15/14		1,420		1,427	^A
Graham Packaging Company Inc.		9.875%	10/15/14		3,106		3,052
Graphic Packaging International Corp.		8.500%	8/15/11		450		460
Graphic Packaging International Corp.		9.500%	8/15/13		2,610		2,669
Owens Brockway Glass Containers		8.750%	11/15/12		1,790		1,888
Plastipak Holdings Inc.		8.500%	12/15/15		2,810		2,838	^A

							12,334

Drug and Grocery Store Chains	0.7%
Delhaize America, Inc.		8.125%	4/15/11		1,208		1,297
Delhaize America, Inc.		9.000%	4/15/31		2,580		3,022

							4,319

134

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Educational Services	0.2%
Education Management LLC		8.750%	6/1/14	$	1,480	$	1,495	^A


Electric	2.1%
Mirant Americas Generation, LLC		8.300%	5/1/11		1,620		1,622
Mirant North America LLC		7.375%	12/31/13		2,070		2,073
Mission Energy Holding Company		13.500%	7/15/08		1,200		1,340
Orion Power Holdings, Inc.		12.000%	5/1/10		1,555		1,761
The AES Corporation		8.875%	2/15/11		40		43
The AES Corporation		8.750%	5/15/13		1,849		1,983	^A
The AES Corporation		7.750%	3/1/14		2,790		2,901
The AES Corporation		9.000%	5/15/15		1,535		1,654	^A

							13,377

Electronics	1.2%
Amkor Technology, Inc.		2.500%	5/15/11		1,660		1,386^D
L-3 Communications Corporation		7.625%	6/15/12		550		567
L-3 Communications Corporation		6.375%	10/15/15		3,800		3,695
Rayovac Corporation		8.500%	10/1/13		1,680		1,453
Spectrum Brands Inc.		7.375%	2/1/15		410		328

							7,429

Energy	2.7%
Edison Mission Energy		7.500%	6/15/13		345		348	^A
Edison Mission Energy		7.750%	6/15/16		1,960		1,985	^A
Elwood Energy LLC		8.159%	7/5/26		2,833		2,982
Midwest Generation LLC		8.560%	1/2/16		1,983		2,107
NRG Energy, Inc.		7.250%	2/1/14		190		189
NRG Energy, Inc.		7.375%	2/1/16		7,430		7,383
Sierra Pacific Resources		6.750%	8/15/17		2,360		2,361

							17,355

Entertainment	0.5%
Blockbuster Inc.		9.000%	9/1/12		1,590		1,459
Cinemark USA, Inc.		0.000%	3/15/14		145		116	^B
Warner Music Group		7.375%	4/15/14		1,755		1,711

							3,286

Environmental Services	0.2%
Allied Waste North America Incorporated		8.500%	12/1/08		1,185		1,241

135

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Food, Beverage and Tobacco	1.6%
Alliance One International, Inc.		11.000%	5/15/12	$	530	$	541
Constellation Brands, Inc.		7.250%	9/1/16		2,810		2,842
Dole Food Company, Inc.		7.250%	6/15/10		2,960		2,745
Domino’s, Inc.		8.250%	7/1/11		2,424		2,545
Stater Bros. Holdings Inc.		8.890%	6/15/10		1,420		1,434	^E

							10,107

Funeral Parlors and Cemeteries	0.2%
Service Corporation International		7.375%	10/1/14		410		413	^A
Service Corporation International		8.000%	6/15/17		515		493	^A
Service Corporation International		7.625%	10/1/18		615		619	^A

							1,525

Gaming	1.3%
CCM Merger Incorporated		8.000%	8/1/13		1,585		1,522	^A
Isle of Capri Casinos, Inc.		9.000%	3/15/12		195		203
Penn National Gaming, Inc.		6.750%	3/1/15		2,600		2,532
River Rock Entertainment Authority		9.750%	11/1/11		4,008		4,258

							8,515

Gas and Pipeline Utilities	2.2%
ANR Pipeline, Inc.		9.625%	11/1/21		1,604		1,976
Southern Natural Gas Company		8.000%	3/1/32		1,590		1,758
The Williams Companies, Inc.		7.500%	1/15/31		1,350		1,333
The Williams Companies, Inc.		8.750%	3/15/32		7,259		7,949
Transcontinental Gas Pipeline Corporation		8.875%	7/15/12		1,060		1,172

							14,188

Health Care	1.3%
Tenet Healthcare Corporation		9.875%	7/1/14		6,725		6,700
Tenet Healthcare Corporation		9.250%	2/1/15		1,830		1,761

							8,461

Homebuilding	0.5%
Beazer Homes USA, Inc.		8.625%	5/15/11		720		726
Beazer Homes USA, Inc.		8.375%	4/15/12		580		577
Beazer Homes USA, Inc.		6.875%	7/15/15		770		697
Beazer Homes USA, Inc.		8.125%	6/15/16		1,415		1,376

							3,376

Insurance	0.6%
Crum & Forster Holdings Corp		10.375%	6/15/13		3,745		3,839

136

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Investment Banking/Brokerage	0.5%
E*Trade Financial Corporation		7.375%	9/15/13	$	1,290	$	1,319
E*Trade Financial Corporation		7.875%	12/1/15		1,547		1,628

							2,947

Lodging/Hotels	0.2%
Host Marriott LP		6.750%	6/1/16		1,500		1,479


Machinery	0.4%
Terex Corporation		7.375%	1/15/14		2,855		2,869


Manufacturing (Diversified)	1.2%
American Achievement Corp.		8.250%	4/1/12		930		939
Jacuzzi Brands Incorporated		9.625%	7/1/10		4,156		4,405
Koppers Inc.		9.875%	10/15/13		750		812
Mueller Group Inc.		10.000%	5/1/12		1,295		1,407

							7,563

Media	3.4%
AMC Entertainment Inc.		11.000%	2/1/16		3,900		4,251
Barrington Brodcasting Group LLC		10.500%	8/15/14		560		546	^A
Clear Channel Communications, Inc.		5.500%	12/15/16		3,100		2,793
CMP Susquehanna Corp.		9.875%	5/15/14		555		522	^A
Hughes Network Systems LLC		9.500%	4/15/14		1,475		1,519	^A
ION Media Networks, Inc.		8.757%	1/15/12		1,760		1,773	^A,E
Lamar Media Corp.		6.625%	8/15/15		1,295		1,242
LIN Television Corporation		6.500%	5/15/13		1,040		970
LIN Television Corporation		6.500%	5/15/13		670		625
PRIMEDIA Inc.		8.875%	5/15/11		4,135		4,042
Sinclair Broadcast Group, Inc.		8.000%	3/15/12		1,395		1,414
XM Satellite Radio Inc.		9.989%	5/1/13		625		594	^A
XM Satellite Radio Inc.		9.750%	5/1/14		1,475		1,416	^A

							21,707

Medical Care Facilities	1.5%
DaVita, Inc.		7.250%	3/15/15		4,000		3,930
HCA Inc.		6.300%	10/1/12		890		753
HCA, Inc.		9.000%	12/15/14		56		53
HCA, Inc.		6.500%	2/15/16		890		712
HCA, Inc.		7.690%	6/15/25		1,850		1,444
HCA, Inc.		7.500%	11/15/95		4,210		3,003

							9,895

137

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Medical Products	0.3%
Fresenius Medical Care Capital Trust II		7.875%	2/1/08	$	1,767	$	1,798	^F
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		150		154

							1,952

Metals	0.6%
Metals USA, Inc.		11.125%	12/1/15		3,475		3,805


Oil and Gas	9.1%
AmeriGas Partners, L.P.		7.250%	5/20/15		860		857
Belden & Blake Corporation		8.750%	7/15/12		7,470		7,675
Chesapeake Energy Corporation		6.375%	6/15/15		1,990		1,901
Chesapeake Energy Corporation		6.625%	1/15/16		65		63
Chesapeake Energy Corporation		6.875%	1/15/16		420		410
Chesapeake Energy Corporation		6.500%	8/15/17		2,960		2,775
Chesapeake Energy Corporation		6.250%	1/15/18		1,760		1,632
Colorado Interstate Gas Company		6.800%	11/15/15		1,340		1,350
El Paso Corporation		7.750%	6/15/10		1,568		1,623
El Paso Corporation		8.050%	10/15/30		4,040		4,202
El Paso Corporation		7.800%	8/1/31		4,570		4,684
El Paso Natural Gas Company		8.375%	6/15/32		1,600		1,832
Encore Acquisition Company		6.250%	4/15/14		310		290
Encore Acquisition Company		6.000%	7/15/15		1,030		943
Encore Acquisition Company		7.250%	12/1/17		1,030		991
Exco Resources, Inc.		7.250%	1/15/11		2,878		2,813
Mariner Energy Inc.		7.500%	4/15/13		1,070		1,022	^A
Pacific Energy Partners		7.125%	6/15/14		510		520
Parker Drilling Company		9.625%	10/1/13		2,578		2,810
Petrohawk Energy Corporation		9.125%	7/15/13		1,480		1,487	^A
Plains Exploration & Production Company		7.125%	6/15/14		1,340		1,400
Pogo Producing Company		7.875%	5/1/13		120		122	^A
Pogo Producing Company		6.875%	10/1/17		2,995		2,857
Pride International, Inc.		7.375%	7/15/14		1,890		1,947
SemGroup, L.P.		8.750%	11/15/15		2,890		2,915	^A
SESI, L.L.C.		6.875%	6/1/14		120		119	^A
Stone Energy Corporation		8.250%	12/15/11		315		319
Stone Energy Corporation		6.750%	12/15/14		1,550		1,550
Suburban Propane Partners LP		6.875%	12/15/13		5,860		5,655
Whiting Petroleum Corporation		7.000%	2/1/14		2,120		2,067

							58,831

138

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Paper and Forest Products	1.6%
Appleton Papers Inc.		9.750%	6/15/14	$	3,635	$	3,590
Georgia-Pacific Corp.		7.700%	6/15/15		770		766
Glatfelter		7.125%	5/1/16		580		565	^A
NewPage Corporation		12.000%	5/1/13		3,305		3,421
Verso Paper Holdings LLC		9.125%	8/1/14		750		755	^A
Verso Paper Holdings LLC		11.375%	8/1/16		1,255		1,245	^A

							10,342

Personal Products	0.3%
Playtex Products, Inc.		8.000%	3/1/11		1,525		1,582


Pet Products	0.2%
Nutro Products Inc.		9.230%	10/15/13		315		324	^A,E
Nutro Products Inc.		10.750%	4/15/14		940		1,006	^A

							1,330

Pharmaceuticals	0.5%
Leiner Health Products Inc.		11.000%	6/1/12		3,305		3,198
Omnicare, Inc.		6.875%	12/15/15		300		291

							3,489

Printing and Copying Services	0.5%
Xerox Corporation		6.400%	3/15/16		2,180		2,169
Xerox Corporation		6.750%	2/1/17		830		843

							3,012

Publishing	0.3%
Houghton Mifflin Company		0.000%	10/15/13		2,215		1,933	^B


Real Estate Management and Development	1.0%
Forest City Enterprises, Inc.		7.625%	6/1/15		255		260
Forest City Enterprises, Inc.		6.500%	2/1/17		2,010		1,890
K. Hovnanian Enterprises, Inc.		8.625%	1/15/17		250		248
Kimball Hill, Inc.		10.500%	12/15/12		1,535		1,385
Ventas, Inc.		8.750%	5/1/09		1,616		1,719
Ventas, Inc.		9.000%	5/1/12		762		849
Ventas, Inc.		6.625%	10/15/14		290		291

							6,642

Rental and Lease Services	2.3%
Ashtead Capital, Inc.		9.000%	8/15/16		1,142		1,188	^A
Avis Budget Car Rental LLC		7.625%	5/15/14		400		388	^A

139

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Rental and Lease Services—Continued
H&E Equipment Services, Inc.		8.375%	7/15/16	$	3,100	$	3,178	^A
Hertz Corporation		8.875%	1/1/14		1,860		1,948	^A
Hertz Corporation		10.500%	1/1/16		5,070		5,577	^A
Penhall International Corp.		12.000%	8/1/14		2,630		2,755	^A

							15,034

Retail	2.5%
American Greetings Corporation		7.375%	6/1/16		235		238
Brookstone Company, Inc.		12.000%	10/15/12		2,030		1,847
El Pollo Loco, Inc.		11.750%	11/15/13		2,401		2,665	^A
FTD, Inc.		7.750%	2/15/14		1,525		1,502
J.C. Penney Company, Inc.		6.875%	10/15/15		1,055		1,115
Norcraft Companies		9.000%	11/1/11		3,755		3,807
Simmons Company		10.000%	12/15/14		855		609	^B
The Neiman Marcus Group, Inc.		9.000%	10/15/15		3,450		3,666
The Neiman Marcus Group, Inc.		10.375%	10/15/15		650		702

							16,151

Special Purpose	7.0%
AAC Group Holding Corp.		10.250%	10/1/12		4,510		3,743	^B
Allied Security Holdings LLC		11.375%	7/15/11		425		425
Denny’s Holdings, Inc.		10.000%	10/1/12		1,240		1,283
Di Finance Corporation		9.500%	2/15/13		4,490		4,647
DIRECTV Finance Co., Inc.		6.375%	6/15/15		2,060		1,936
Enterprise Products Operating L.P.		8.375%	8/1/66		1,460		1,537	^B
Ford Motor Credit Company		7.000%	10/1/13		3,000		2,784
H-Lines Finance Holding Corp.		11.000%	4/1/13		1,671		1,470	^B
Hexion U. S. Finance Corporation		9.000%	7/15/14		2,852		2,909
Milacron Escrow Corporation		11.500%	5/15/11		5,464		5,191
Mueller Holdings (N.A.), Inc.		14.750%	4/15/14		1,411		1,242	^B
Norcraft Holdings LP		0.000%	9/1/12		295		239	^B
Rainbow National Services LLC		8.750%	9/1/12		1,373		1,469	^A
Rainbow National Services LLC		10.375%	9/1/14		2,060		2,328	^A
Reynolds American Inc.		6.500%	7/15/10		1,330		1,342	^A
UCAR Finance Inc.		10.250%	2/15/12		1,636		1,718
UGS Corporation		10.000%	6/1/12		2,935		3,170
Vanguard Health Holding Company I, LLC		11.250%	10/1/15		366		264	^B
Vanguard Health Holding Company II, LLC		9.000%	10/1/14		6,359		6,168
Visant Holding Corp.		8.750%	12/1/13		1,230		1,238	^A

							45,103

140

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Steel Products	1.8%
Chaparral Steel Company		10.000%	7/15/13	$	3,120	$	3,479
CitiSteel USA, Inc.		12.949%	9/1/10		2,920		3,015	^E
CitiSteel USA, Inc.		15.000%	10/1/10		600		643	^A,C
International Steel Group, Inc.		6.500%	4/15/14		1,405		1,388
RathGibson Inc.		11.250%	2/15/14		2,695		2,776	^A

							11,301

Telecommunications	4.3%
Cincinnati Bell Inc.		7.000%	2/15/15		2,102		2,060
Cincinnati Bell Inc.		6.300%	12/1/28		2,725		2,357
Citizens Communications Company		9.000%	8/15/31		2,600		2,789
Hawaiian Telcom Communications, Inc.		12.500%	5/1/15		5,970		6,268
Qwest Communications International Inc.		8.905%	2/15/09		720		733	^E
Qwest Communications International Inc.		7.250%	2/15/11		2,652		2,652
Qwest Communications International Inc.		7.500%	2/15/14		3,102		3,110
Qwest Corporation		7.875%	9/1/11		2,180		2,289
Qwest Corporation		7.500%	10/1/14		1,780		1,838	^A
Windstream Corp.		8.625%	8/1/16		3,515		3,761	^A

							27,857

Telecommunications (Cellular/Wireless)	0.9%
Rural Cellular Corporation		9.875%	2/1/10		3,965		4,134
Ubiquitel Operating Company		9.875%	3/1/11		1,250		1,356

							5,490

Transportation	3.3%
American Airlines, Inc.		7.800%	10/1/06		4,940		4,940
American Commercial Lines LLC		9.500%	2/15/15		1,161		1,266
Continental Airlines, Inc.		7.568%	12/1/06		3,474		3,474
Gulfmark Offshore, Inc.		7.750%	7/15/14		2,250		2,261
Horizon Lines, LLC		9.000%	11/1/12		2,656		2,736
Kansas City Southern Railway		7.500%	6/15/09		1,400		1,400
United Air Lines, Inc.		7.032%	10/1/10		1,537		1,554
United Air Lines, Inc.		7.186%	10/1/12		4,040		4,091

							21,722

Total Corporate Bonds and Notes (Identified Cost—$550,751)							551,243

141

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Mortgage-Backed Securities	0.1%

Fixed Rate Securities	0.1%
Blackrock Capital Finance L.P. 1996-R1		9.537%	9/25/26	$	955	$	573
Ocwen Residential Mortgage Corporation 1998-R1		7.000%	10/25/40		298		28

Total Mortgage-Backed Securities (Identified Cost—$849)							601
Yankee Bonds^G	10.9%

Cable	0.9%
Rogers Cable Inc.		5.500%	3/15/14		1,650		1,551
Rogers Cable Inc.		6.750%	3/15/15		4,540		4,585

							6,136

Chemicals	1.0%
Montell Finl Co Bv		8.100%	3/15/27		4,600		4,255	^A
Nell Af SARL		8.375%	8/15/15		2,330		2,313	^A

							6,568

Electric	0.2%
AES China Generating Co., Ltd.		8.250%	6/26/10		1,580		1,552


Foreign Governments	1.6%
Federative Republic of Brazil		8.000%	1/15/18		240		264
Federative Republic of Brazil		11.000%	8/17/40		2,220		2,891
Republic of Panama		9.375%	4/1/29		610		787
Russian Federation		5.000%	3/31/30		5,640		6,296^B

							10,238

Media	1.2%
Kabel Deutschland GmbH		10.625%	7/1/14		3,855		4,134	^A
Quebecor Media Inc.		7.750%	3/15/16		3,650		3,655

							7,789

Oil and Gas	0.7%
Utilicorp Canada Finance Corp		7.750%	6/15/11		1,330		1,397
Western Oil Sands Inc.		8.375%	5/1/12		3,285		3,523

							4,920

Paper and Forest Products	0.5%
Domtar Inc.		7.875%	10/15/11		1,030		1,025
Domtar Inc.		5.375%	12/1/13		2,350		2,009

							3,034

Pharmaceuticals	0.2%
Angiotech Pharmaceuticals, Inc.		7.750%	4/1/14		1,310		1,245	^A

142

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

Yankee Bonds—Continued

Printing and Copying Services	0.2%
Quebecor World Capital Corp.		8.750%	3/15/16	$	1,120		$	1,078	^A


Semiconductor Equipment and Production	0.2%
Magnachip Semiconductor S.A.		8.000%	12/15/14		2,460			1,494


Services	0.3%
Compagnie Generale de Geophysique SA (CGG)		7.500%	5/15/15		1,870			1,851


Special Purpose	0.1%
MDP Acquisitions PLC		9.625%	10/1/12		475			501


Telecommunications	2.6%
Intelsat Bermuda Ltd.		9.250%	6/15/16		2,385			2,507	^A
Intelsat Bermuda Ltd.		11.250%	6/15/16		4,320			4,590	^A
Intelsat, Ltd.		7.625%	4/15/12		3,570			3,124
Nordic Telephone Company Holding ApS		8.875%	5/1/16		1,370			1,440	^A
NTL Cable PLC		9.125%	8/15/16		1,695			1,750
Wind Acquisition Finance SA		10.750%	12/1/15		2,605			2,875	^A

								16,286

Telecommunications (Cellular/Wireless)	0.2%
Rogers Wireless Communications Inc.		8.000%	12/15/12		60			64
Rogers Wireless Inc.		7.250%	12/15/12		1,060			1,109

								1,173

Transportation	1.0%
Grupo Transportacion Ferroviaria Mexicana, S.A de C.V. (TFM)		9.375%	5/1/12		1,930			2,046
OMI Corporation		7.625%	12/1/13		2,779			2,806
Teekay Shipping Corporation		8.875%	7/15/11		1,362			1,437

								6,289

Total Yankee Bonds (Identified Cost—$70,534)								70,154
Common Stocks	N.M.
Washington Group International, Inc.					0.3	shs		19

Total Common Stocks (Identified Cost—$0)								19

143

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	PAR/ SHARES			VALUE

Preferred Stocks	0.3%
Chespeake Energy Corporation			4	shs	$	939^D
ION Media Networks, Inc.			0.2			1,469	^C,D

Total Preferred Stocks (Identified Cost—$2,271)						2,408
Warrants	N.M.
Next Generation Network, Inc.			3	wts		—	^H,I

Total Warrants (Identified Cost—$—^H)
Total Long-Term Securities (Identified Cost—$624,405)						624,425
Short-Term Securities	1.0%

Repurchase Agreements	1.0%
Goldman Sachs Group, Inc. 5.3%, dated 9/29/06, to be repurchased at $6,347 on 10/2/06 (Collateral: $5,840 Tennessee Valley Authority bonds, 6.79%, due 5/23/12, value $6,475)		$	6,344			6,344

Total Short-Term Securities (Identified Cost—$6,344)						6,344
Total Investments (Identified Cost—$630,749)	97.7%					$630,769
Other Assets Less Liabilities	2.3%					14,499


Net Assets	100.0%					$645,268

Rule144a 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, which the Fund’s investment adviser has determined to be liquid, represent 17.1% of net assets.

SteppedCoupon Security – A security with a predetermined schedule of interest or dividend rate changes.

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

ConvertibleSecurity – The security may be convertd into the issuer’s common stock.

IndexedSecurity – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”). The coupon rates are the rates as of September 30, 2006.

Unit – Asecurity which consists of a bond and warrants to purchase the common stock of the issuer.

YankeeBond – A dollar denominated bond issued in the U.S. by foreign entities.

Amountsless than $1.

Non-incomeproducing.

N.M.—Not

meaningful.

See notes to financial statements.

144

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset High Yield Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$624,405)			$	624,425
Short-term securities at value (Identified Cost—$6,344)				6,344
Receivable for securities sold				4,396
Receivable for fund shares sold				7,350
Interest receivable				14,089

Total assets				656,604

Liabilities:
Payable for securities purchased	$	10,965
Accrued management fee		286
Accrued expenses		85

Total liabilities				11,336


Net Assets			$	645,268


Net assets consist of:
Accumulated paid-in-capital applicable to:
62,449 Institutional Class shares outstanding			$	635,343
Undistributed net investment income				10,746
Accumulated net realized loss on investments and swaps				(841	)
Unrealized appreciation/(depreciation) of investments				20


Net Assets			$	645,268


Net Asset Value Per Share:
Institutional Class				$10.33

See notes to financial statements.

145

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset High Yield Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	26,293
Dividends		115

Total income				$	26,408
Expenses:
Advisory fee		1,701
Audit and legal fees		55
Custodian fees		73
Directors’ fees and expenses		21
Proxy expense		1
Registration fees		10
Reports to shareholders		10
Transfer agent and shareholder servicing expense		7
Other expenses		18

		1,896
Less: Compensating balance credits^A		(1	)

Total expenses and compensating balance credits					1,895

Net Investment Income					24,513
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(524	)
Swaps		32

					(492	)
Change in unrealized appreciation/(depreciation) of investments					1,316

Net Realized and Unrealized Gain on Investments					824

Change in Net Assets Resulting From Operations				$	25,337

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

See notes to financial statements.

146

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset High Yield Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	24,513		$	36,822

Net realized gain/(loss) on investments and swaps		(492	)		38

Change in unrealized appreciation/(depreciation) of investments		1,316			(2,759	)

Change in net assets resulting from operations		25,337			34,101

Distributions to Shareholders from:
Net investment income		(25,445	)		(32,038	)
Net realized gain on investments		(131	)		(5,384	)

Change in net assets from Fund share transactions		48,589			185,822

Change in net assets		48,350			182,501

Net Assets:
Beginning of period		596,918			414,417


End of period	$	645,268		$	596,918


Undistributed net investment income	$	10,746		$	11,678

See notes to financial statements.

147

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset High Yield Portfolio

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002^A
	(Unaudited)
Net asset value, beginning of period	$	10.34		$	10.49		$	10.28		$	9.56		$	10.36		$	10.00

Investment operations:
Net investment income		.39			.76			.61			.78			.96			.53
Net realized and unrealized gain/(loss) on investments and swaps		.02			(.05	)		.17			.89			(.82	)		.07

Total from investment operations		.41			.71			.78			1.67			.14			.60

Distributions paid from:
Net investment income		(.42	)		(.73	)		(.57	)		(.95	)		(.94	)		(.24	)
Net realized gain on investments		—^B			(.13	)		—			—			—			—

Total distributions		(.42	)		(.86	)		(.57	)		(.95	)		(.94	)		(.24	)

Net asset value, end of period	$	10.33		$	10.34		$	10.49		$	10.28		$	9.56		$	10.36

Total return		4.16	%^C		7.30	%		7.81	%		18.27	%		2.22	%		6.02	%^C

Ratios to Average Net Assets:^D
Total expenses		.61	%^E		.62	%		.62	%		.67	%		.67	%		.75	%^E
Expenses net of waivers, if any		.61	%^E		.62	%		.62	%		.58	%		.55	%		.55	%^E
Expenses net of all reductions		.61	%^E		.62	%		.62	%		.58	%		.55	%		.55	%^E
Net investment income		7.9	%^E		7.8	%		7.0	%		7.9	%		10.2	%		10.4	%^E

Supplemental Data:
Portfolio turnover rate		35.7	%^C		147.2	%		121.0	%		116.0	%		110.1	%		51.8	%^C
Net assets at end of period (in thousands)	$	645,268		$	596,918		$	414,417		$	189,458		$	149,937		$	152,729

Forthe period September 28, 2001 (commencement of operations) to March 31, 2002.

Amounts less than $.01.

Notannualized.

Totalexpenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

148

Semi-Annual Report to Shareholders

Expense Example

Western Asset Non-U.S. Opportunity Bond Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^A During the Period 4/1/06 to 9/30/06
Institutional Class:
Actual	$	1,000.00	$	1,027.20	$	2.80
Hypothetical (5% return before expenses)		1,000.00		1,022.31		2.79

Thesecalculations 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 of 0.55% 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.

149

Semi-Annual Report to Shareholders

Performance Information

Western Asset Non-U.S. Opportunity Bond Portfolio

Total return measures investment performance in terms of appreciation or depreciation in a Fund’s 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 (and the graph and table found below) 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. Non U.S. investments are subject to currency fluctuations, social, economic and political risk.

Growth of a $1,000,000 Investment—Institutional Class

Indexreturns are for periods beginning July 31, 1998.

150

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^B (as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

Source:Standard & Poor's.

��

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

151

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Non-U.S. Opportunity Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR^A	VALUE

Long-Term Securities	89.9%

Australian Dollar	10.7%

Government Obligations	10.7%
Queensland Treasury Corp		6.000%	6/14/11	18,330	$	13,752	^B
British Sterling	11.3%

Corporate Bonds and Notes	8.1%

Banking and Finance	3.5%
European Investment Bank		4.250%	12/7/10	2,280		4,147
Landesbank Hessen-Thueringen Girozentrale		5.375%	3/7/12	200		380

						4,527


Diversified Financial Services	4.6%
Irish Nationwide Building Society		5.875%	12/15/08	200		378
Network Rail MTN Finance PLC		4.875%	3/6/09	3,000		5,591

						5,969


Government Obligations	3.2%
United Kingdom of Great Britain and Northern Ireland		8.000%	6/7/21	960		2,474
United Kingdom Treasury Bond		4.750%	9/7/15	870		1,653

						4,127

Total British Sterling						14,623
Canadian Dollar	15.3%

Government Obligations	15.3%
Canadian Real Return Bond		4.500%	6/1/15	20,038		18,619	^B
Canadian Real Return Bond		4.000%	12/1/31	840		1,109	^B

Total Canadian Dollar						19,728
Danish Krone	6.9%

Corporate Bonds and Notes	4.4%
Nordea Kredit Realkreditaktieselskab		4.000%	10/1/35	13,412		2,137
Nykredit Realkredit AS		4.000%	10/1/38	7,143		1,106
Realkredit Danmark AS		4.000%	10/1/38	15,070		2,373

						5,616


Government Obligations	2.5%
Kingdom of Denmark		5.000%	11/15/13	17,460		3,220

Total Danish Krone						8,836

152

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR^A	VALUE

Euro	29.1%

Corporate Bonds and Notes	6.7%

Banking and Finance	0.1%
BAWAG P.S.K.		4.350%	5/28/13	67	$	85


Banks	2.1%
Bank Nederlandse Gemeenten NV		5.625%	10/25/10	1,850		2,514
Resona Bank, Limited		4.125%	9/27/12	200		246	^C

						2,760


Diversified Financial Services	1.9%
Kreditanstalt fuer Wiederaufbau		5.250%	1/4/10	1,800		2,396


Investment Banking/Brokerage	2.6%
Caisse de Refinancement L’ Habitat		4.200%	4/25/11	2,000		2,588
Morgan Stanley		3.404%	7/20/12	600		761	^D

						3,349


U.S. Government and Agency Obligations	0.9%
Freddie Mac		5.750%	9/15/10	900		1,224


Government Obligations	21.5%
Federal Republic of Germany		4.125%	7/4/08	2,020		2,585
Federal Republic of Germany		3.500%	10/10/08	2,430		3,081
Federal Republic of Germany		3.500%	4/8/11	1,270		1,603
Federal Republic of Germany		3.750%	1/4/15	3,864		4,930
Federal Republic of Germany		4.750%	7/4/34	3,390		4,903
Kingdom of Spain		5.750%	7/30/32	1,970		3,214
Kingdom of the Netherlands		5.500%	1/15/28	1,270		1,975
Republic of France		5.000%	10/25/16	2,530		3,552	^B
Republic of France		4.750%	4/25/35	1,270		1,833	^B

						27,676

Total Euro						37,490
Japanese Yen	10.2%

Corporate Bonds and Notes	6.4%
Development Bank of Japan		1.600%	6/20/14	620,000		5,309
Japan Finance Corporation for Municipal Enterprises		1.350%	11/26/13	349,000		2,935

						8,244


Government Obligations	3.8%
Japan Development Bank		1.050%	6/20/23	319,000		2,327
Japan Development Bank		2.300%	3/19/26	300,000		2,562

						4,889

Total Japanese Yen						13,133

153

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

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


	% OF NET ASSETS	RATE	MATURITY DATE	PAR^A		VALUE
Norwegian Krone	2.4%

Government Obligations	2.4%
Kingdom of Norway		6.500%	5/15/13		10,000	$	1,750
Kingdom of Norway		5.000%	5/15/15		8,280		1,356

Total Norwegian Krone							3,106
Polish Zloty	3.2%

Government Obligations	3.2%
Republic of Poland		5.000%	10/24/13		5,410		1,683
Republic of Poland		6.250%	10/24/15		7,204		2,423

Total Polish Zloty							4,106
South African Rand	0.8%

Government Obligations	0.8%
Republic of South Africa		8.750%	12/21/14		8,460		1,096

Total Long-Term Securities (Identified Cost—$110,122)							115,870
Short-Term Securities	4.2%

Repurchase Agreements	4.2%
Lehman Brothers, Inc. 5.25%, dated 9/29/06, to be repurchased at $5,439 on 10/2/06 (Collateral: $5,400 Freddie Mac notes, 6.4%, due 5/2/16, value $5,546)				$	5,437		5,437

Total Short-Term Securities (Identified Cost—$5,437)							5,437
Total Investments (Identified Cost—$115,559)	94.1%					$	121,307
Other Assets Less Liabilities	5.9%						7,668


Net Assets	100.0%					$	128,975

154

Semi-Annual Report to Shareholders


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^E
Bundesobligation Futures	December 2006	127	$	67
LIBOR Futures	September 2007	109		16

			$	83

Futures Contracts Written^E
Australian Dollar Futures	December 2006	197	$	(165	)
Bundesobligation Futures	December 2006	133		7
Bundesobligation Futures	December 2006	230		13
U.K. Treasury Bond Futures	December 2006	44		(12	)

			$	(157	)

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

Inflation-ProtectedSecurity – 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.

SteppedCoupon Security – A security with a predetermined schedule of interest or dividend rate changes.

IndexedSecurity – The rates of interest earned on these securities is tied to the Euro Interbank Offered Rate (“EURIBOR”). The coupon rates are the rates as of September 30, 2006.

Futuresare described in more detail in the notes to financial statements.

See notes to financial statements.

155

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Non-U.S. Opportunity Bond Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$110,122)			$	115,870
Short-term securities at value (Identified Cost—$5,437)				5,437
Cash and foreign currencies				3,125
Receivable for securities sold				29
Receivable for fund shares sold				1,898
Interest receivable				2,349
Unrealized appreciation of forward foreign currency contracts				453

Total assets				129,161

Liabilities:
Payable for fund shares repurchased	$	17
Accrued management fee		31
Futures variation margin payable		74
Accrued expenses		64

Total liabilities				186


Net Assets			$	128,975


Net assets consist of:
Accumulated paid-in-capital applicable to:
13,374 Institutional Class shares outstanding			$	124,867
Overdistributions of net investment income				(616	)
Accumulated net realized loss on investments, futures and foreign currency transactions				(1,395	)
Unrealized appreciation/(depreciation) of investments, futures and foreign currency translations				6,119


Net Assets			$	128,975


Net Asset Value Per Share:
Institutional Class				$9.64

See notes to financial statements.

156

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Non-U.S. Opportunity Bond Portfolio

For the Six Months Ended September 30, 2006 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	2,364
Expenses:
Advisory fee	$	243
Audit and legal fees		39
Custodian fees		56
Directors’ fees and expenses		3
Proxy expense		—^A
Registration fees		7
Reports to shareholders		5
Transfer agent and shareholder servicing expense		9
Other expenses		13

		375
Less: Fees waived		(77	)
Compensating balance credits^B		(1	)

Total expenses, net of waivers and compensating balance credits					297

Net Investment Income					2,067
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain/(loss) on:
Investments		(705	)
Futures		164
Foreign currency transactions		(854	)

					(1,395	)
Change in unrealized appreciation/(depreciation) of:
Investments		3,749
Forward foreign currency exchange contracts		(1,061	)
Assets and liabilities denominated in foreign currencies		(7	)

					2,681

Net Realized and Unrealized Gain on Investments					1,286

Change in Net Assets Resulting From Operations				$	3,353

Amounts less than $1.

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

See notes to financial statements.

157

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Non-U.S. Opportunity Bond Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2006			FOR THE YEAR ENDED MARCH 31, 2006
Change in Net Assets:	(Unaudited)
Net investment income	$	2,067		$	2,667

Net realized gain/(loss) on investments, options, futures, swaps and foreign currency transactions		(1,395	)		11,263

Change in unrealized appreciation/(depreciation) of investments, options, futures, swaps and assets and liabilities denominated in foreign currencies		2,681			(9,560	)

Change in net assets resulting from operations		3,353			4,370

Distributions to Shareholders from:
Net investment income		(2,138	)		(7,829	)
Net realized gain on investments		—			(5,345	)

Change in net assets from Fund share transactions		37,339			10,055

Change in net assets		38,554			1,251

Net Assets:
Beginning of period		90,421			89,170


End of period	$	128,975		$	90,421


Overdistributions of net investment income	$	(616	)	$	(545	)

See notes to financial statements.

158

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Non-U.S. Opportunity Bond Portfolio

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2006			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2006			2006			2005			2004			2003			2002
	(Unaudited)
Net asset value, beginning of period	$	9.59		$	10.98		$	10.52		$	10.91		$	9.25		$	9.25

Investment operations:
Net investment income		.18^A			.64			.19			.97			.25			—	^A
Net realized and unrealized gain/(loss) on investments, options, futures, swaps, and foreign currency transactions		.07^A			(.07	)		.57			(.01	)		1.52			.46	^A

Total from investment operations		.25			.57			.76			.96			1.77			.46

Distributions paid from:
Net investment income		(.20	)		(1.16	)		(.29	)		(1.01	)		(.11	)		(.46	)
Net realized gain on investments		—			(.80	)		(.01	)		(.34	)		—			—

Total distributions		(.20	)		(1.96	)		(.30	)		(1.35	)		(.11	)		(.46	)

Net asset value, end of period	$	9.64		$	9.59		$	10.98		$	10.52		$	10.91		$	9.25

Total return		2.72	%^B		5.33	%		7.60	%		9.06	%		19.26	%		5.21	%

Ratios to Average Net Assets:^C
Total expenses		.69	%^D		.74	%		.68	%		.80	%		.82	%		.82	%
Expenses net of waivers, if any		.55	%^D		.55	%		.55	%		.55	%		.55	%		.55	%
Expenses net of all reductions		.55	%^D		.55	%		.55	%		.55	%		.55	%		.55	%
Net investment income		3.8	%^D		3.3	%		3.2	%		4.0	%		4.4	%		4.5	%

Supplemental Data:
Portfolio turnover rate		83.1	%^B		140.1	%		40.8	%		42.8	%		187.5	%		307.6	%
Net assets at end of period (in thousands)	$	128,975		$	90,421		$	89,170		$	97,027		$	59,026		$	47,487

Theamount 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.

Notannualized.

Totalexpenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

159

Semi-Annual Report to Shareholders

Expense Example

Western Asset Absolute Return Portfolio

Actual Expenses

The first table below provides information about actual account values and actual expenses for the Fund. You may use the information in this table, 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 value divided by $1,000 = 8.6), then multiply the result by the number under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period. The actual expense example is based on an investment of $1,000 invested on the inception date^A and held through September 30, 2006.

Hypothetical Example for Comparison Purposes

The second table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. 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 the 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. The hypothetical example is based on an investment of $1,000 invested on April 1, 2006, and held through September 30, 2006.


	Beginning Account Value Since Inception^A		Ending Account Value 9/30/06		Expenses Paid^B During the Period Since Inception to 9/30/06
Institutional Class
Actual	$	1,000.00	$	1,029.90	$	1.94
Financial Intermediary Class
Actual		1,000.00		1,006.00		0.72

	Beginning Account Value 4/1/06		Ending Account Value 9/30/06		Expenses Paid^C During the Period 4/1/06 to 9/30/06
Institutional Class
Hypothetical (5% return before expenses)	$	1,000.00	$	1,021.06	$	4.05
Financial Intermediary Class
Hypothetical (5% return before expenses)		1,000.00		1,019.80		5.32

The inception date of the Institutional Class is July 6, 2006. The inception date of the Financial Intermediary Class is September 6, 2006.

These calculations are based on expenses incurred since the inception date. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of ..0.80% and 1.05% for Institutional Class and Financial Intermediary Class, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal period (87 days) and (26 days) for Institutional Class and Financial Intermediary Class, respectively, and divided by 365.

These calculations are based on expenses incurred since the inception date. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense rations of 0.80% and 1.05% for Institutional Class and Financial Intermediary Class, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal half-year (183), and divided by 365.

160

Semi-Annual Report to Shareholders

Performance Information

Western Asset Absolute Return Portfolio

Portfolio Composition (as of September 30, 2006)

Standard & Poor’s Debt Ratings^A

(as a percentage of the portfolio)

LOGO

Maturity Schedule (as a percentage of the portfolio)

LOGO

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

Source:Standard & Poor's.

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

161

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Absolute Return Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Long-Term Securities	76.3%

Corporate Bonds and Notes	16.4%

Banking and Finance	6.9%
Ford Motor Credit Company		7.375%	10/28/09	$	560	$	544
Ford Motor Credit Company		9.750%	9/15/10		1,500		1,549^A
GMAC LLC		5.850%	1/14/09		1,375		1,348
GMAC LLC		8.000%	11/1/31		1,750		1,830
GMAC LLC		4.375%	12/10/07		425		415
PHH Corporation		7.125%	3/1/13		100		103

							5,789

Cable	0.3%
EchoStar DBS Corporation		7.125%	2/1/16		300		290^A


Casino Resorts	0.5%
Harrah’s Operating Company, Inc		6.500%	6/1/16		120		118
MGM MIRAGE		6.625%	7/15/15		300		288

							406

Electric	2.1%
The AES Corporation		7.750%	3/1/14		1,700		1,768


Food, Beverage and Tobacco	0.6%
Sara Lee Corporation		6.250%	9/15/11		150		154
SUPERVALU INC.		7.875%	8/1/09		300		311

							465

Homebuilding	0.5%
Centex Corporation		5.125%	10/1/13		350		332
D.R. Horton, Inc.		6.875%	5/1/13		100		102

							434


Health Care	0.7%
Tenet Healthcare Corporation		6.375%	12/1/11		670		589


Lodging/Hotels	0.1%
Starwood Hotels & Resorts Worldwide, Inc.		7.875%	5/1/12		100		105

162

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Corporate Bonds and Notes—Continued

Medical Care Facilities	0.9%
DaVita, Inc.		7.250%	3/15/15	$	300	$	295
HCA, Inc.		6.300%	10/1/12		4		3
HCA, Inc.		6.500%	2/15/16		588		470

							768


Oil and Gas	1.3%
Anadarko Petroleum Corporation		5.790%	9/15/09		170		170	^B
Anadarko Petroleum Corporation		6.450%	9/15/36		190		194
Chesapeake Energy Corporation		6.375%	6/15/15		300		286
Suburban Propane Partners, L.P.		6.875%	12/15/13		500		482

							1,132


Pharmaceuticals	0.1%
AmerisourceBergen Corporation		5.875%	9/15/15		50		49


Photo Equipment and Supplies	0.2%
Eastman Kodak Company		7.250%	11/15/13		200		195


Special Purpose	1.0%
AIR 2 US		8.027%	10/1/19		174		175^A
El Paso Performance-Link		7.750%	7/15/11		140		144^A
Sigma Finance Inc.		8.500%	8/11/16		500		500^A,C

							819

Telecommunications	0.4%
Qwest Corporation		7.500%	10/1/14		300		310^A


Transportation	0.8%
Continental Airlines, Inc.		6.820%	5/1/18		67		68
Continental Airlines, Inc.		6.703%	6/15/21		75		75
US Airways Pass Through Trust		6.850%	1/30/18		221		224
United Air Lines, Inc.		7.032%	10/1/10		298		301

							668

Total Corporate Bonds and Notes (Identified Cost—$13,624)							13,787

163

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Asset-Backed Securities	0.5%

Fixed Rate Securities	0.5%
ABSC Manufactured Housing Contract 2004-CN1		8.400%	12/2/30	$	170	$	152^A
Pegasus Aviation Lease Securitization II 2000-1		8.370%	3/25/30		390		246^A

Total Asset-Backed Securities (Identified Cost—$399)							398
Mortgage-Backed Securities	0.7%

Indexed Securities^B	0.1%
Merit Securities Corporation 11PA		6.828%	9/28/32		103		88^A


Variable Rate Securities^D	0.6%
Morgan Stanley Mortgage Loan Trust 2004-6AR		4.073%	8/25/34		485		481

Total Mortgage-Backed Securities (Identified Cost—$573)							569
U.S. Government and Agency Obligations	9.8%

Fixed Rate Securities	8.4%
United States Treasury Notes		5.125%	6/30/08		6,400		6,441
United States Treasury Notes		4.875%	8/15/16		570		581

							7,022

Treasury Inflation-Protected Securities^E	1.4%
United States Treasury Inflation-Protected Security		0.875%	4/15/10		564		534
United States Treasury Inflation-Protected Security		2.000%	1/15/16		718		701

							1,235

Total U.S. Government and Agency Obligations (Identified Cost—$8,188)							8,257
U.S. Government Agency Mortgage-Backed Securities	35.2%

Fixed Rate Securities	18.2%
Fannie Mae		5.000%	12/1/36		5,700		5,477^F
Fannie Mae		6.000%	12/1/36		9,800		9,843^F

							15,320

Variable Rate Securities^D	17.0%
Freddie Mac		5.598%	1/1/36		4,548		4,555
Freddie Mac		5.714%	7/1/36		9,642		9,687

							14,242

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost—$29,361)							29,562

164

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Yankee Bonds^G	2.6%

Banks	1.0%
Glitnir Banki hf		6.693%	6/15/16	$	310	$	317^A,C
Kaupthing Bank hf		7.125%	5/19/16		240		252^A
Landsbanki Islands hf (The National Bank of Iceland)		6.100%	8/25/11		190		192^A
UBS AG Jersey		3.398%	3/23/07		100		102^H

							863

Foreign Governments	1.4%
Federative Republic of Brazil		11.000%	8/17/40		300		391
Federative Republic of Brazil		8.000%	1/15/18		320		352
Republic of Panama		9.375%	4/1/29		198		256
United Mexican States		7.500%	4/8/33		110		127

							1,126


Special Purpose	0.2%
TNK-BP Finance SA		7.500%	7/18/16		200		209^A

Total Yankee Bonds (Identified Cost—$2,134)							2,198
Foreign Corporate Bonds and Notes	0.2%
Gazprom		6.950%	8/6/09		5,470^I		206

Total Foreign Corporate Bonds and Notes (Identified Cost—$206)
Foreign Government Obligations	0.2%
Republic of Argentina		2.000%	1/3/10		334^J		206	^C,^D
Total Foreign Government Obligations (Identified Cost—$212)
Loan Participations and Assignments^B	10.7%

Cable	2.4%
CableVision, Incremental Term Loan		7.110%	3/30/13		425		423
CableVision, Incremental Term Loan		7.258%	3/30/13		286		285
CableVision, Incremental Term Loan		7.218%	3/30/13		286		285
Charter Communications Operating, LLC, Term Loan		8.125%	4/28/13		1,000		1,004

							1,997

Chemicals	1.2%
Georgia Gulf Corporation, Term Loan		7.320%	9/18/13		1,001		1,002

165

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE
Loan Participations and Assignments—Continued
Computer Services and Systems	1.2%
SunGard Data Systems Inc., Term Loan, Tranche B		7.999%	8/15/12	$	1,000	$	1,006


Entertainment	1.2%
Cedar Fair, LP, Term Loan, Tranche B		7.867%	6/13/12		1,000		1,005


Environmental Services	1.2%
Allied Waste North America, Inc., Credit Linked Deposit, Tranche A		7.270%	1/15/12		277		276
Allied Waste North America, Inc., Term Loan		7.170%	1/15/12		347		346
Allied Waste North America, Inc., Term Loan		7.210%	1/15/12		119		118
Allied Waste North America, Inc., Term Loan		7.270%	1/15/12		254		253

							993


Medical Care Facilities	1.1%
DaVita, Inc., Term Loan, Tranche B		7.370%	10/5/12		169		170
DaVita, Inc., Term Loan, Tranche B		7.400%	10/5/12		85		85
DaVita, Inc., Term Loan, Tranche B		7.510%	10/5/12		553		556
DaVita, Inc., Term Loan, Tranche B		7.690%	10/5/12		139		139

							950

Paper and Forest Products	1.2%
Georgia-Pacific Corporation, First Lien Term Loan		7.367%	12/23/13		187		187
Georgia-Pacific Corporation, First Lien Term Loan		7.390%	12/23/13		766		767
Georgia-Pacific Corporation, First Lien Term Loan		7.485%	12/23/13		48		48

							1,002

Semiconductor Equipment and Production	1.2%
Sensata Technologies, Term Loan, Tranche B		7.240%	4/27/13		987		980
Sensata Technologies, Term Loan, Tranche B		7.117%	4/27/13		11		10

							990

Total Loan Participations and Assignments (Identified Cost—$8,957)							8,945

Total Long-Term Securities (Identified Cost—$63,654)							64,128

166

Semi-Annual Report to Shareholders

% OF
NET ASSETS

RATE

MATURITY
DATE

PAR

VALUE

Short-Term Securities

41.7%

Corporate Bonds and Notes

0.3%

Tribune Company

0.000%

2/1/07

250

244^K

U.S. Government and Agency Obligations

0.2%

Fannie Mae

0.000%

6/25/07

160

154^K,L

Options Purchased^M

0.1%

U.S. Treasury Note Futures Put, December 2006, Strike Price $106.00

U.S. Treasury Bond Futures Call, December 2006, Strike Price $112.00

Repurchase Agreements

41.1%

Merrill Lynch
5.27%, dated 9/29/06, to be repurchased at $34,552 on 10/2/06 (Collateral: $60,425 Resolution Funding Corporation principal-only securities, due 4/15/30, value $19,185; $15,845 Fannie Mae notes, 4.5%, due 10/15/08, value $16,043)

34,537

Total Short-Term Securities
(Identified Cost—$34,997)

35,004

Total Investments (Identified Cost—$98,651)

118.0%

99,132

Other Assets Less Liabilities

(18.0)%

(15,097

)

Net Assets

100.0%

84,035

167

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	EXPIRATION		ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^M
Eurodollar Futures	December 2006		7	$	2
Eurodollar Futures	March 2007		4		3
Eurodollar Futures	June 2007	��	5		—	^O
Eurodollar Futures	September 2007		75		105
LIBOR Futures	June 2007		46		1
U.S. Treasury Note Futures	December 2006		122		91

				$	202

Futures Contracts Written^M
Eurodollar Futures	March 2007		4	$	(5	)
U.S. Treasury Bond Futures	December 2006		13		(3	)
U.S. Treasury Note Futures	December 2006		12		(4	)
U.S. Treasury Note Futures	December 2006		7		3

				$	(9	)

Options Written^M
U.S. Treasury Note Futures Call, Strike Price $106.00	December 2006		7	$	(10	)

Rule144a 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, which the Fund's investment adviser has determined to be liquid, represent 5.3% of net assets.

IndexedSecurity – The rates of interest earned on these securities are tied to the London Interbank Offered Rate ("LIBOR"). The coupon rates are the rates as of September 30, 2006.

SteppedCoupon Security – A security with a predetermined schedule of interest or dividend rate changes.

The coupon rates shown on variable rate securities are the rates at September 30, 2006. These rates vary with the weighted average coupon of the underlying loans.

When-issuedSecurity – A security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.

YankeeBond – A dollar denominated bond issued in the U.S. by foreign entities.

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

Denominatedin Russian Rubles.

Denominatedin Argentine Pesos.

ZeroCoupon Bond – A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

All ora portion of this security is pledged as collateral to cover futures and options contracts.

Optionsand futures are described in more detail in the notes to financial statements.

Parrepresents actual number of contracts.

Amountsless than $1.

See notes to financial statements.

168

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Absolute Return Portfolio

September 30, 2006 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Identified Cost—$63,654)			$	64,128
Short-term securities at value (Identified Cost—$34,997)				35,004
Cash and foreign currencies				69
Receivable for securities sold				3,885
Receivable for fund shares sold				22
Interest and dividends receivable				563
Unrealized appreciation of forward foreign currency contracts				34

Total assets				103,705


Liabilities:
Payable for securities purchased	$	19,591
Accrued management fee		25
Accrued distribution fee		—^A
Income distribution payable		4
Options written (Proceeds—$5)		15
Swap contracts at value		1
Futures variation margin payable		8
Accrued expenses		26

Total liabilities				19,670


Net Assets			$	84,035


Net assets consist of:
Accumulated paid-in-capital applicable to:
8,237 Institutional Class shares outstanding			$	82,946
2 Financial Intermediary Class shares outstanding				17
Undistributed net investment income				1
Accumulated net realized gain on investments, options, futures, swaps and foreign currency transactions				374
Unrealized appreciation/(depreciation) of investments, options, futures, swaps, and foreign currency translations				697


Net Assets			$	84,035


Net Asset Value Per Share:
Institutional Class				$10.20
Financial Intermediary Class				$10.20

Amountsless than $1.

See notes to financial statements.

169

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Absolute Return Portfolio

For the Period Ended September 30, 2006^A (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	704
Expenses:
Advisory fee	$	99
Audit and legal fees		23
Custodian fees		27
Directors’ fees and expenses		7
Organization expense		4
Registration fees		16
Reports to shareholders		4
Transfer agent and shareholder servicing expense:
Institutional Class		3
Financial Intermediary Class		0
Other expenses		11

		194
Less: Fees waived		(74	)
Compensating balance credits^B		(14	)

Total expenses, net of waivers and compensating balance credits					106

Net Investment Income					598
Net Realized and Unrealized Gain/(Loss) on Investments:
Realized gain on:
Investments		182
Options		3
Futures		189

					374
Change in unrealized appreciation/(depreciation) of:
Investments, options, futures, swaps, and foreign currency translations		663
Forward foreign currency exchange contracts		34
Assets and liabilities denominated in foreign currencies		—^C

					697

Net Realized and Unrealized Gain on Investments					1,071

Change in Net Assets Resulting From Operations				$	1,669

Forthe period July 6, 2006 (commencement of operations) to September 30, 2006.

Seenote 1, compensating balance credits, in the notes to financial statements.

Amountsless than $1.

See notes to financial statements.

170

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Absolute Return Portfolio

(Amounts in Thousands)


	FOR THE PERIOD ENDED SEPTEMBER 30, 2006^A
	(Unaudited)
Change in Net Assets:
Net investment income	$	598

Net realized gain on investments, options, futures, swaps and foreign currency transactions		374

Change in unrealized appreciation/(depreciation) of investments, options, futures, swaps and assets and liabilities denominated in foreign currencies		697

Change in net assets resulting from operations		1,669

Distributions to Shareholders from:
Net investment income:
Institutional Class		(597	)
Financial Intermediary Class		—	^B

Change in net assets from Fund share transactions:
Institutional Class		82,946
Financial Intermediary Class		17

Change in net assets		84,035

Net Assets:
Beginning of period		0


End of period	$	84,035


Undistributed net investment income	$	1

For the period July 6, 2006 (commencement of operations) to September 30, 2006.

Amounts less than $1.

See notes to financial statements.

171

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Absolute Return Portfolio

Contained below is per share operating performance data for a share of common stock outstanding throughout the 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.

Institutional Class:


	PERIOD ENDED SEPTEMBER 30, 2006^A
	(Unaudited)
Net asset value, beginning of period	$	10.00

Investment operations:
Net investment income		.10
Net realized and unrealized gain on investments, options, futures, swaps, and foreign currency transactions		.20

Total from investment operations		.30

Distributions paid from net investment income:		(.10	)

Total distributions		(.10	)

Net asset value, end of period	$	10.20

Total return		2.99	%^B

Ratios To Average Net Assets:^C
Total expenses		1.46	%^D
Expenses net of waivers, if any		.90	%^D
Expenses net of all reductions		.80	%^D
Net investment income		4.5	%^D

Supplemental Data:
Portfolio turnover rate		64.2	%^B
Net assets at end of period (in thousands)	$	84,018

Forthe period July 6, 2006 (commencement of operations) to September 30, 2006.

Notannualized.

Totalexpenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

Annualized.

See notes to financial statements.

172

Semi-Annual Report to Shareholders

Financial Intermediary Class:


	PERIOD ENDED SEPTEMBER 30, 2006^E
	(Unaudited)
Net asset value, beginning of period	$	10.17

Investment operations:
Net investment income		.03
Net realized and unrealized gain/(loss) of investments, options, futures, swaps, and foreign currency transactions		.03

Total from investment operations		.06

Distributions paid from:
Net investment income		(.03	)

Total distributions		(.03	)

Net asset value, end of period	$	10.20

Total return		.60	%^B

Ratios To Average Net Assets:^C
Total expenses		1.85	%^D
Expenses net of waivers, if any		1.29	%^D
Expenses net of all reductions		1.05	%^D
Net investment income		4.8	%^D

Supplemental Data:
Portfolio turnover rate		64.2	%^B
Net assets at end of period (in thousands)	$	17

Forthe period September 6, 2006 (commencement of operations) to September 30, 2006.

See notes to financial statements.

173

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”), Western Asset Non-U.S. Opportunity Bond Portfolio (“Non-U.S.”), and Western Asset Absolute Return Portfolio (“Absolute Return”) (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. have not commenced operations. 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 pursuant to procedures approved by and under the general oversight of the Board of Directors. In determining fair value, all relevant qualitative and quantitative factors available are considered. 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, Non-U.S., and Absolute Return, 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 accounted for as of 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, 2006 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	$	93,663	$	25,788	$	87,250	$	15,548
Intermediate		723,271		297,935		850,644		372,761
Intermediate Plus		93,886		42,813		103,292		36,356
Core		11,487,028		1,720,325		11,083,508		2,183,559
Core Plus		20,884,306		4,402,170		19,717,949		3,229,412
Inflation Indexed		239,793		36,118		230,761		40,867
High Yield		—		257,222		—		211,674
Non-U.S.		—		115,561		—		78,741
Absolute Return		66,200		28,666		28,844		2,464

174

Semi-Annual Report to Shareholders

Forward Commitments

The Funds may enter into commitments to purchase securities on a “forward commitment” basis, including purchases on a “when-issued” basis or a “to be announced” basis. When such transactions are negotiated, certain terms may be fixed at the time the commitment is made, but delivery and payment for the securities takes place at a later date. During the period between a commitment and settlement, no payment is made by the purchaser for the securities purchased and, thus, no interest accrues to the purchaser from the transaction. In a “to be announced” transaction, a Fund commits to purchase securities for which all specific information is not yet known at the time of the trade, particularly the exact face amount in forward commitment mortgage-backed securities transactions. Depending on market conditions, a Fund’s forward commitment purchases could cause its net asset value to be more volatile.

A Fund may sell the securities subject to a forward commitment purchase, which may result in a gain or loss. When a Fund purchases securities on a forward commitment basis, it assumes the risks of ownership, including the risk of price fluctuation, at the time of purchase, not at the time of receipt. Purchases of forward commitment securities also involve a risk of loss if the seller fails to deliver after the value of the securities has risen.

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

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 New York Stock 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 foreign currency transactions.

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 valuations furnished by an independent pricing service or quotations provided by brokers and the change, if any, is recorded as unrealized appreciation or depreciation.

Investment Income and Distributions to Shareholders

Investment 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

175

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

declare and pay dividends quarterly. Net capital gain distributions, which are calculated at the Fund level, are declared and paid annually in May. 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.

Redemption-In-Kind

In consideration of the best interests of non-redeeming shareholders, the Corporation reserves the right to pay any redemption price in whole or in part by a distribution in-kind of readily marketable securities held by a Fund in lieu of cash. For financial reporting purposes, the Fund recognizes a gain on in-kind redemptions to the extent the value of the distributed securities on the date of redemption exceeds the cost of those securities; the Fund recognizes a loss if cost exceeds value. Gains and losses realized on redemption-in-kind transactions are not recognized for tax purposes, and are reclassified from undistributed realized gain/(loss) to paid-in-capital. During the period ended September 30, 2006, Western Asset Intermediate Bond Portfolio realized $1,834 of net loss on $132,323 redemption-in-kind transactions.

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 is considered remote.

2. Federal Income Taxes:

No provision for federal income or excise taxes is required since each Fund intends 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, 2006.

The Funds intend to retain realized capital gains that may be offset against available capital loss carryforwards for federal income tax purposes.

At March 31, 2006, the Funds listed below had capital loss carryforwards as follows:


Expiration Date	Limited Duration		Intermediate		Intermediate Plus		Core		Core Plus
2013		$—	$	—	$	113	$	—	$	—
2014		235		3,777		92		22,155		13,040

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.

176

Semi-Annual Report to Shareholders

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 exchange contracts involve market risk in excess of amounts reflected in the financial statements. Although forward foreign currency exchange 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, 2006, open forward foreign currency exchange contracts were as follows:

Intermediate Plus


Settlement Date	Contract to				Unrealized Gain/(Loss)
Settlement Date	Receive^A		Deliver^A		Unrealized Gain/(Loss)
11/7/06	CAD	1,010	USD	908	$	(4	)
11/7/06	JPY	104,502	CAD	1,010		(15	)
11/7/06	USD	205	AUD	272		2
11/7/06	USD	439	CAD	498		(8	)
11/7/06	USD	1,466	EUR	1,153		1

					$	(24	)

Core Plus


Settlement Date	Contract to				Unrealized Gain/(Loss)
Settlement Date	Receive^A		Deliver^A		Unrealized Gain/(Loss)
11/7/06	CAD	66,710	USD	59,993	$	(238	)
11/7/06	EUR	28,857	USD	36,715		(19	)
11/7/06	JPY	13,848,996	CAD	133,420		(784	)
11/7/06	JPY	3,680,000	USD	31,982		(642	)
11/7/06	USD	23,861	AUD	31,627		280
11/7/06	USD	63,766	CAD	72,410		(1,095	)
11/7/06	USD	108,820	EUR	85,559		19

					$	(2,479	)

Inflation Indexed


Settlement Date	Contract to				Unrealized Gain/(Loss)
Settlement Date	Receive^A		Deliver^A		Unrealized Gain/(Loss)
11/7/06	CAD	6,462	USD	5,685	$	103
11/7/06	EUR	2,834	USD	3,609		(5	)
11/7/06	JPY	1,328,527	CAD	12,740		(49	)
11/7/06	JPY	646,770	USD	5,618		(111	)
11/7/06	USD	7,076	CAD	7,896		3
11/7/06	USD	3,961	EUR	3,112		4
11/7/06	USD	3,163	SEK	22,981		15

					$	(40	)

177

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Non-U.S.


Settlement Date	Contract to				Unrealized Gain/(Loss)
Settlement Date	Receive^A		Deliver^A		Unrealized Gain/(Loss)
11/7/06	AUD	15,927	USD	11,974	$	(99	)
11/7/06	EUR	406	PLN	1,580		5
11/7/06	EUR	14,589	USD	18,682		(130	)
11/7/06	EUR	894	ZAR	7,998		56
11/7/06	GBP	3,020	USD	5,603		53
11/7/06	JPY	128,319	USD	1,116		(23	)
11/7/06	NOK	2,238	USD	358		(14	)
11/7/06	USD	26,347	AUD	34,831		376
11/7/06	USD	19,304	CAD	21,770		(197	)
11/7/06	USD	9,034	DKK	52,960		3
11/7/06	USD	58,685	EUR	46,112		47
11/7/06	USD	20,549	GBP	11,082		(204	)
11/7/06	USD	14,245	JPY	1,636,326		310
11/7/06	USD	3,593	NOK	22,439		143
11/7/06	USD	4,114	PLN	12,678		59
11/7/06	USD	707	ZAR	4,984		68

					$	453

Absolute Return


Settlement Date	Contract to				Unrealized Gain/(Loss)
Settlement Date	Receive^A		Deliver^A		Unrealized Gain/(Loss)
11/7/06	CAD	950	USD	854		3
11/7/06	EUR	1,387	USD	1,780		17
11/7/06	JPY	98,294	CAD	950		13
11/7/06	JPY	98,294	USD	950		1

					$	34

Definitionsof currency abbreviations:

AUD—Australian dollar

CAD—Canadian dollar

DKK—Danish krona

EUR—Euro

GBP—British pound

JPY—Japanese yen

NOK—Norwegian krone

PLN—Polish zloty

SEK—Swedish krona

USD—United States dollar

ZAR—South African rand

Loan Participations and Assignments

Core Plus and Absolute Return may invest in loans arranged through private negotiation between one or more financial institutions. The Funds’ investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Funds generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower and the Funds may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

The Funds will assume the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling the participation, the Funds may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

178

Semi-Annual Report to Shareholders

Options and Futures

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

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


Purchased option:		Impact on the Fund:
The option expires		Realize a loss in the amount of the cost of the option.
The option is closed through a closing sale transaction		Realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option.
The Fund exercises a call option		The cost of the security purchased through the exercise of the option will be increased by the premium originally paid to purchase the 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 assets and liabilities. 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.

Activity in written call and put options during the six months ended September 30, 2006, was as follows:


	Calls			Puts
Limited Duration	Actual Contracts	Premiums		Actual Contracts	Premiums
Options outstanding at March 31, 2006	—	$	—	—	$	—
Options written	1,100,038		30	58		20
Options closed	—		—	—		—
Options expired	—		—	—		—
Options exercised	—		—

Options outstanding at September 30, 2006	1,100,038	$	30	58	$	20

179

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued


	Calls					Puts
Intermediate	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2006	4,900,522		$	175		497		$	126
Options written	973			268		838			220
Options closed	(4,901,343	)		(372	)	(1,254	)		(316	)
Options expired	(3	)		(1	)	—			—
Options exercised	—			—		—			—

Options outstanding at September 30, 2006	149		$	70		81		$	30


	Calls					Puts
Intermediate Plus	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2006	900,051		$	23		48		$	12
Options written	143			39		132			35
Options closed	(900,173	)		(52	)	(168	)		(43	)
Options expired	—			—		—			—
Options exercised	—			—		—			—

Options outstanding at September 30, 2006	21		$	10		12		$	4


	Calls					Puts
Core	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2006	188,419,897		$	9,930		1,476		$	996
Options written	111,786,537			15,882		12,226			5,346
Options closed	(10,606	)		(6,249	)	(1,589	)		(1,358	)
Options expired	(67,268,987	)		(8,223	)	(1,578	)		(783	)
Options exercised	(3,015	)		(1,011	)	(1,347	)		(583	)

Options outstanding at September 30, 2006	232,923,826		$	10,329		9,188		$	3,618


	Calls					Puts
Core Plus	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2006	420,324,249		$	17,644		2,434		$	1,737
Options written	226,515,798			29,405		23,224			11,923
Options closed	(18,306	)		(11,230	)	(3,125	)		(2,526	)
Options expired	(103,229,630	)		(14,790	)	(4,136	)		(3,210	)
Options exercised	(5,022	)		(1,842	)	(3,288	)		(1,735	)

Options outstanding at September 30, 2006	543,587,089		$	19,187		15,109		$	6,189


	Calls					Puts
Inflation Indexed	Actual Contracts		Premiums			Actual Contracts		Premiums
Options outstanding at March 31, 2006	162		$	57		—		$	—
Options written	676			288		894			14
Options closed	(290	)		(153	)	—			—
Options expired	(306	)		(113	)	(894	)		(14	)
Options exercised	(242	)		(79	)	—			—

Options outstanding at September 30, 2006	—		$	—		—		$	—

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, Inflation Indexed, and Absolute Return, 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.

180

Semi-Annual Report to Shareholders

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, 2006, 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 or for other purposes. The use of swaps involves risks that are different from those associated with ordinary portfolio transactions.

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 below and 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 below and 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.

Western Asset Limited Duration Bond Portfolio

Agreement With:

Termination Date

The Fund

Agrees to Pay

The Fund

Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

300

0.2

Deutsche Bank AG
(RSHB Capital,
7.175%, due 5/16/13)¹

July 20, 2007

Specified amount upon credit event notice^C

0.870%
Quarterly

200

Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

1,000

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

400

(0.2

)

1,900

181

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Intermediate Bond Portfolio

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

2,200

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

4,600

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

4,500

Deutsche Bank AG
(RSHB Capital,
7.175%, due 5/16/13)¹

July 20, 2007

Specified amount upon credit event notice^C

0.870%
Quarterly

1,296

Deutsche Bank AG
(RSHB Capital,
7.175%, due 5/16/13)¹

July 20, 2007

Specified amount upon credit event notice^C

0.900%
Quarterly

405

Deutsche Bank AG
(Freddie Mac,
5.00%, due 7/15/14)¹

March 20, 2015

Specified amount upon credit event notice^C

0.290%
Quarterly

1,945

Lehman Brothers Holdings Inc. (Dynegy Holdings,
8.75%, due 2/15/12)¹

April 23, 2007

Specified amount upon credit event notice^C

3.000%
Quarterly

1,783

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

4,500

)

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol4)¹

June 20, 2012

Specified amount upon credit event notice^D

1.000%
Quarterly

7,811

29,040

184

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)

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

300

0.2

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

700

0.4

Barclays Capital, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

600

0.4

182

Semi-Annual Report to Shareholders

Western Asset Intermediate 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
(RSHB Capital,
7.175%, due 5/16/13)¹

July 20, 2007

Specified amount upon credit event notice^C

0.870%
Quarterly

200

Deutsche Bank AG
(RSHB Capital,
7.175%, due 5/16/13)¹

July 20, 2007

Specified amount upon credit event notice^C

0.900%
Quarterly

100

JP Morgan Chase & Co. (Countrywide Home Loans, 5.625%, due 7/15/09)¹

June 20, 2010

Specified amount upon credit event notice^C

0.580%
Quarterly

200

Merrill Lynch & Co., Inc.
(iBoxx HY3)¹

December 20, 2009

Specified amount upon credit event notice^D

3.750%
Quarterly

388

The Goldman Sachs Group, Inc. (iBoxx HY2)¹

September 20, 2009

Specified amount upon credit event notice^D

4.300%
Quarterly

240

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

600

(0.3

)

3,328

Western Asset Core Bond Portfolio

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Banc of America Securities LLC (Centex Corporation,
5.45%, due 8/15/12)¹

September 20, 2012

0.680%
Monthly

Specified amount upon credit event notice^B

5,500

Banc of America Securities LLC (D.R. Horton,
6.875%, due 5/1/13)¹

June 20, 2013

1.250%
Monthly

Specified amount upon credit event notice^B

3,100

)

Banc of America Securities LLC (Harrah’s Operating Co., 5.375%, due 12/15/13)¹

June 20, 2013

1.250%
Monthly

Specified amount upon credit event notice^B

7,680

162

Banc of America Securities LLC (Lehnnar Corporation,
5.95%, due 10/17/11)¹

September 20, 2011

0.670%
Monthly

Specified amount upon credit event notice^B

3,700

Banc of America Securities LLC (PHH Corporate Note, 7.125%, due 3/1/13)¹

March 20, 2013

1.050%
Monthly

Specified amount upon credit event notice^B

5,010

(20

)

Banc of America Securities LLC (Toll Brothers,
5.95%, due 9/15/13)¹

September 20, 2013

1.430%
Monthly

Specified amount upon credit event notice^B

7,300

(72

)

183

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)

Banc of America Securities LLC (iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

46,400

Banc of America Securities LLC²

October 17, 2011

5.293%
Semi-annually

3-month LIBOR^F

3,700

(34

)

Banc of America Securities LLC²

August 15, 2012

5.291%
Semi-annually

3-month LIBOR^F

5,500

(53

)

Banc of America Securities LLC²

September 15, 2013

5.290%
Semi-annually

3-month LIBOR^F

7,300

(72

)

Banc of America Securities LLC²

June 1, 2016

5.110%
Semi-annually

3-month LIBOR^F

3,100

)

Banc of America Securities LLC²

June 1, 2016

5.263%
Semi-annually

3-month LIBOR^F

7,680

(57

)

Bear Stearns, Inc.
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

June 20, 2010

Specified amount upon credit event notice^C

4.830%
Quarterly

12,500

545

Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M8 1-Month LIBOR^F + 160 bp^G, due 6/25/35)¹

April 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

784

(0.4

)

Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M9 1-Month LIBOR^F + 250 bp^G, due 6/25/35)¹

April 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (ACE Securities Corp. 2005-HE1 M8 1-Month LIBOR^F + 138 bp^G, due 2/25/35)¹

February 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (ACE Securities Corp. 2005-HE1 M9 1-Month LIBOR^F + 220 bp^G, due 2/25/35)¹

February 25, 2035

2.060%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Aegis Asset-Backed Securities Trust 2004-4 B2 1-Month LIBOR^F + 190 bp^G, due 10/25/34)¹

October 25, 2034

1.370%
Monthly

Specified amount upon credit event notice^B

1,046

184

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 (Aegis Asset-Backed Securities Trust 2005 B2 1-Month LIBOR^F + 130 bp^G, due 3/25/35)¹

March 25, 2035

1.310%
Quarterly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Aegis Asset-Backed Securities Trust 2005 B3 1-Month LIBOR^F + 200 bp^G, due 3/25/35)¹

March 25, 2035

2.180%
Quarterly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (AmerisourceBergen Corp., 8.125%, due 9/1/8)¹

September 20, 2015

0.900%
Monthly

Specified amount upon credit event notice^B

3,050

)

Credit Suisse First Boston USA (Argent Securities Inc. 2004-W4 M3 1-Month LIBOR^F + 300 bp^G, due 3/25/34)¹

March 25, 2034

2.200%
Monthly

Specified amount upon credit event notice^B

1,046

Credit Suisse First Boston USA (Argent Securities Inc, 2004-W11 M9 1-Month LIBOR^F + 225 bp^G, due 11/25/34)¹

November 25, 2034

1.330%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Argent Securities Inc, 2004-W11 M10 1-Month LIBOR^F+ 350 bp^G, due 11/25/34)¹

November 25, 2034

2.150%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (ConocoPhillips,
4.75%, due 10/15/12)¹

September 20, 2012

Specified amount upon credit event notice^D

0.270% Quarterly

1,000

)

Credit Suisse First Boston USA (Eastman Kodak Company, 7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice^D

1.400% Quarterly

6,500

(72

)

Credit Suisse First Boston USA (Finance America Mortgage Loan Trust 2004-3 M8 1-Month LIBOR^F + 180 bp^G, due 11/25/34)¹

November 25, 2034

1.310%
Monthly

Specified amount upon credit event notice^B

784

)

Credit Suisse First Boston USA (Finance America Mortgage Loan Trust 2004-3 M9 1-Month LIBOR^F + 315 bp^G, due 11/25/34)¹

November 25, 2034

2.180%
Monthly

Specified amount upon credit event notice^B

784

185

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 (Fremont Home Loan Trust 2005-A 1-Month LIBOR^F + 135 bp^G, due 1/25/35)¹

January 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

784

)

Credit Suisse First Boston USA (Fremont Home Loan Trust 2005-A 1-Month LIBOR^F + 100 bp^G, due 1/25/35)¹

January 25, 2035

2.080%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (IndyMac Home Equity Loan Asset-Backed Trust 2004-C M8 1-Month LIBOR^F + 190 bp^G, due 3/25/35)¹

March 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

784

(0.4

)

Credit Suisse First Boston USA (IndyMac Home Equity Loan Asset-Backed Trust 2004-C M9 1-Month LIBOR^F + 325 bp^G, due 3/25/35)¹

March 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2004-1 M9 1-Month LIBOR^F + 350 bp^G, due 2/25/34)¹

February 25, 2034

2.150%
Monthly

Specified amount upon credit event notice^B

1,046

Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2005-1 M8 1-Month LIBOR^F + 170 bp^G, due 2/25/35)¹

February 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Long Beach Mortgage Loan Trust 2005-1 M9 1-Month LIBOR^F + 275 bp^G, due 2/25/35)¹

February 25, 2035

2.080%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (MASTR Asset-Backed Securities Trust 2005-NC1 M8 1-Month LIBOR^F + 153 bp^G, due 12/25/34)¹

December 25, 2034

1.310%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (MASTR Asset-Backed Securities Trust 2005-NC1 M9 1-Month LIBOR^F + 240 bp^G, due 12/25/34)¹

December 25, 2034

2.080%
Monthly

Specified amount upon credit event notice^B

784

186

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 2004-WMC4 B3 1-Month LIBOR^F + 375 bp^G, due 4/25/35)¹

April 25, 2035

2.150%
Monthly

Specified amount upon credit event notice^B

1,046

Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B2 1-Month LIBOR^F + 135 bp^G, due 9/25/35)¹

September 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B3 1-Month LIBOR^F + 225 bp^G, due 9/25/35)¹

September 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-NC1 B2 1-Month LIBOR^F + 130 bp^G, due 10/25/35)¹

October 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Merrill Lynch Mortgage Investors, Inc 2005-NC1 B3 1-Month LIBOR^F + 205 bp^G, due 10/25/35)¹

October 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Morgan Stanley ABS Capital I 2005-WMC1 B2 1-Month LIBOR^F + 130 bp^G, due 1/25/35)¹

January 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

784

)

Credit Suisse First Boston USA (Morgan Stanley ABS Capital I 2005-WMC1 B3 1-Month LIBOR^F + 215 bp^G, due 1/25/35)¹

January 25, 2035

2.180%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2004-2 M9 1-Month LIBOR^F + 325 bp^G, due 8/25/34)¹

August 25, 2034

2.150%
Monthly

Specified amount upon credit event notice^B

1,046

187

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 (New Century Home Equity Loan Trust 2005-1 M8 1-Month LIBOR^F + 140 bp^G, due 3/25/35)¹

March 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (New Century Home Equity Loan Trust 2005-1 M9 1-Month LIBOR^F + 205 bp^G, due 3/25/35)¹

March 25, 2035

2.180%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Novastar Home Equity Loan 2005-1 B2 1-Month LIBOR^F + 135 bp^G, due 6/25/35)¹

June 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

784

(0.4

)

Credit Suisse First Boston USA (Novastar Home Equity Loan 2005-4 B3 1-Month LIBOR^F + 195 bp^G, due 6/25/35)¹

June 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Park Place Securities Inc. 2005-WCH1 M8 1-Month LIBOR^F + 155 bp^G, due 1/25/36)¹

January 25, 2036

1.360%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (Park Place Securities Inc. 2005-WCH1 M9 1-Month LIBOR^F + 250 bp^G, due 1/25/36)¹

January 25, 2036

2.180%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2004-1 M6 1-Month LIBOR^F + 230 bp^G, due 6/25/34)¹

June 25, 2034

1.370%
Quarterly

Specified amount upon credit event notice^B

1,046

Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2005-1 1-Month LIBOR^F+ 165 bp^G, due 1/25/35)¹

January 25, 2035

1.258%
Monthly

Specified amount upon credit event notice^B

784

Credit Suisse First Boston USA (People’s Choice Home Loan Securities Trust 2005-1 B3 1-Month LIBOR^F + 260 bp^G, due 1/25/35)¹

January 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

784

188

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 (Pulte Homes Inc., 7.875%, due 8/1/11)¹

September 20, 2013

0.870%
Monthly

Specified amount upon credit event notice^B

4,000

Credit Suisse First Boston USA (Starwood Hotels, 7.875%, due 5/1/12)¹

December 20, 2011

1.370%
Monthly

Specified amount upon credit event notice^B

6,400

(35

)

Credit Suisse First Boston USA (iBoxx IG Hi-Vol2)¹

September 20, 2009

1.150%
Quarterly

Specified amount upon credit event notice^B

24,167

(249

)

Credit Suisse First Boston USA²

May 1, 2012

5.085%
Semi-annually

3-month LIBOR^F

6,100

Credit Suisse First Boston USA²

January 15, 2014

5.328%
Semi-annually

3-month LIBOR^F

3,700

(45

)

Credit Suisse First Boston USA²

September 15, 2015

5.160%
Semi-annually

3-month LIBOR^F

3,050

)

Deutsche Bank AG
(Dynegy Holdings, 8.75%, due 2/15/12)¹

May 1, 2007

Specified amount upon credit event notice^C

5.250%
Quarterly

3,340

134

Deutsche Bank AG
(Eastman Kodak Company, 7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice^C

1.250%
Quarterly

1,100

(17

)

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice^C

1.670%
Quarterly

1,300

(104

)

Deutsche Bank AG
(Fannie Mae,
6.00%, due 5/15/11)¹

December 20, 2009

Specified amount upon credit event notice^C

0.215%
Quarterly

11,700

Deutsche Bank AG
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

December 20, 2010

Specified amount upon credit event notice^C

5.050%
Quarterly

17,100

904

Deutsche Bank AG
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

March 20, 2015

Specified amount upon credit event notice^C

2.930%
Quarterly

1,700

(307

)

Deutsche Bank AG
(Freddie Mac,
5.00%, due 7/15/14)¹

March 20, 2015

Specified amount upon credit event notice^C

0.290%
Quarterly

15,600

202

Deutsche Bank AG
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

March 20, 2007

Specified amount upon credit event notice^C

2.280%
Quarterly

5,000

189

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)

Deutsche Bank AG
(General Motors Acceptance Corporation,
8.375%, due 7/15/33)¹

March 20, 2015

Specified amount upon credit event notice^D

3.510%
Quarterly

1,700

(177

)

Deutsche Bank AG
(Sara Lee Corporation, 6.125%, due 11/1/32)¹

September 20, 2011

0.420%
Quarterly

Specified amount upon credit event notice^B

5,100

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

0.600%
Quarterly

Specified amount upon credit event notice^B

7,400

(61

)

Deutsche Bank AG
(iBoxx 30 Hi-Vol)¹

March 20, 2009

1.250%
Quarterly

Specified amount upon credit event notice^B

7,153

(14

)

Deutsche Bank AG
(iBoxx IG Hi-Vol)¹

March 20, 2009

Specified amount upon credit event notice^D

1.250%
Quarterly

9,415

Deutsche Bank AG
(iBoxx IG Hi-Vol2)¹

September 20, 2014

Specified amount upon credit event notice^D

1.300%
Quarterly

8,043

Deutsche Bank AG²

October 5, 2008

3-month LIBOR^F

4.655%
Semi-annually

115,540

(1,008

)

Deutsche Bank AG²

June 17, 2010

3-month LIBOR^F

4.313%
Semi-annually

31,430

(786

)

Deutsche Bank AG²

October 11, 2010

3-month LIBOR^F

4.708%
Semi-annually

206,791

(2,649

)

Deutsche Bank AG²

July 13, 2011

3-month LIBOR^F

5.628%
Semi-annually

83,870

1,944

Deutsche Bank AG²

September 15, 2011

5.186%
Semi-annually

3-month LIBOR^F

5,100

(23

)

Deutsche Bank AG²

July 21, 2016

3-month LIBOR^F

5.693%
Semi-annually

77,910

3,561

JP Morgan Chase & Co. (General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

6.000%
Quarterly

10,500

311

JP Morgan Chase & Co. (International Lease Finance Corporation,
5.75%, due 6/15/11)¹

June 20, 2011

0.160%
Quarterly

Specified amount upon credit event notice^B

7,300

(20

)

190

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)

JP Morgan Chase & Co.²

June 15, 2011

5.242%
Semi-annually

3-month LIBOR^F

7,300

(51

)

JP Morgan Chase & Co.²

September 7, 2016

5.322%
Semi-annually

3-month LIBOR^F

35,900

(393

)

Lehman Brothers Holdings Inc. (General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

May 1, 2007

Specified amount upon credit event notice^C

5.250%
Quarterly

10,000

606

Lehman Brothers Holdings Inc. (Sara Lee Corporation, 6.125%, due 11/01/32)¹

September 20, 2011

0.440% Quarterly

Specified amount upon credit event notice^B

5,500

Lehman Brothers Holdings Inc. (Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2011

0.570% Quarterly

Specified amount upon credit event notice^B

3,580

Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol2)¹

September 20, 2009

1.150% Quarterly

Specified amount upon credit event notice^B

8,507

(46

)

Lehman Brothers Holdings Inc. (iBoxx IG Hi-Vol3)¹

March 20, 2010

1.050% Quarterly

Specified amount upon credit event notice^B

773

)

Lehman Brothers Holdings Inc.²

October 7, 2007

3-month LIBOR^F

4.601%
Semi-annually

630

)

Lehman Brothers Holdings Inc.²

April 30, 2011

5.070%
Semi-annually

3-month LIBOR^F

3,580

Lehman Brothers Holdings Inc.²

September 15, 2011

5.193%
Semi-annually

3-month LIBOR^F

5,500

(27

)

Merrill Lynch & Co., Inc.
(Pacific Gas & Electric Co., 4.80%, due 3/1/14)¹

June 20, 2009

Specified amount upon credit event notice^D

0.420%
Quarterly

2,100

Morgan Stanley & Co., Inc. (Marsh & McLennan Inc., 5.375%, due 7/15/14)¹

September 20, 2010

0.350%
Quarterly

Specified amount upon credit event notice^C

37,000

246

RBS Greenwich
(DSLA Mortgage Loan Trust 2005-AR5 1-Month LIBOR^F + 175 bp^G, due 8/19/45)¹

August 19, 2045

4.500%
Monthly

Specified amount upon credit event notice^B

1,298

RBS Greenwich
(Ford Motor Credit Company, 7.00%, due 10/1/13)¹

December 20, 2010

Specified amount upon credit event notice^C

4.260%
Quarterly

25,000

670

191

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)

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/12/12)¹

June 20, 2010

Specified amount upon credit event notice^C

4.530%
Quarterly

15,000

1,362

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice^C

4.680%
Quarterly

25,000

2,388

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

September 20, 2010

Specified amount upon credit event notice^C

5.750%
Quarterly

7,500

1,014

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

6.800%
Quarterly

5,900

328

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

7.100%
Quarterly

5,800

374

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

7.700%
Quarterly

12,500

1,032

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

8.400%
Quarterly

12,500

1,289

RBS Greenwich
(Harborview Mortgage Loan Trust 2005-12 1-Month LIBOR^F + 175 bp^G, due 10/19/35)¹

October 19, 2035

2.500%
Monthly

Specified amount upon credit event notice^B

1,299

RBS Greenwich
(IndyMac Index Mortgage Loan Trust 2005-AR18 1-Month LIBOR^F + 125 bp^G, due 10/25/36)¹

October 25, 2036

2.700%
Monthly

Specified amount upon credit event notice^B

1,391

RBS Greenwich
(Time Warner Inc.,
6.875%, due 5/1/12)¹

September 20, 2010

Specified amount upon credit event notice^C

0.470%
Quarterly

5,000

RBS Greenwich
(Time Warner Inc.,
6.875%, due 5/1/12)¹

December 20, 2010

Specified amount upon credit event notice^C

0.500%
Quarterly

12,500

192

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
(Washington Mutual 2005-AR11 1-Month LIBOR^F + 120 bp^G, due 8/25/45)¹

August 25, 2045

2.550%
Monthly

Specified amount upon credit event notice^B

569

RBS Greenwich
(iBoxx IG Hi-Vol3)¹

March 20, 2010

1.050%
Quarterly

Specified amount upon credit event notice^B

17,303

273

The Goldman Sachs Group, Inc. (Eastman Kodak Company, 7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice^C

1.670%
Quarterly

1,400

(112

)

The Goldman Sachs Group, Inc. (Ford Motor Credit Company, 7.00%, due 10/1/13)¹

June 20, 2010

Specified amount upon credit event notice^C

4.750%
Quarterly

1,900

The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice^C

6.000%
Quarterly

5,000

686

The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation,
7.125%, due 7/15/13 )¹

June 20, 2010

Specified amount upon credit event notice^C

8.950%
Quarterly

5,000

597

The Goldman Sachs Group, Inc. (General Motors Acceptance Corporation,
8.375%, due 7/15/33)¹

September 20, 2010

Specified amount upon credit event notice^C

6.000%
Quarterly

18,500

549

The Goldman Sachs Group, Inc. (iBoxx IG Fin 3)¹

March 20, 2010

Specified amount upon credit event notice^D

0.500%
Quarterly

5,200

The Goldman Sachs Group, Inc. (iBoxx IG Fin 3)¹

March 20, 2015

Specified amount upon credit event notice^D

0.700%
Quarterly

5,300

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)¹

March 20, 2010

Specified amount upon credit event notice^D

1.050%
Quarterly

48,333

663

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)¹

March 20, 2010

Specified amount upon credit event notice^D

1.050%
Quarterly

16,433

298

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol3)¹

March 20, 2010

Specified amount upon credit event notice^D

1.050%
Quarterly

32,093

1,003

193

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. (iBoxx IG Hi-Vol4)¹

June 20, 2010

Specified amount upon credit
event notice^D

0.400%
Quarterly

17,600

282

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol4)¹

June 20, 2010

Specified amount upon credit
event notice^D

0.400%
Quarterly

45,500

804

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol5)¹

December 20, 2010

0.850%
Quarterly

Specified amount upon credit
event notice^B

30,100

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit
event notice^B

14,600

(15

)

The Goldman Sachs Group, Inc. (iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit
event notice^B

15,400

The Goldman Sachs Group, Inc.²

September 14, 2007

3-month LIBOR^F

3.215%
Semi-annually

26,500

(520

)

The Goldman Sachs Group, Inc.²

March 10, 2009

3-month LIBOR^F

4.360%
Semi-annually

54,100

(493

)

The Goldman Sachs Group, Inc.²

July 7, 2011

3-month LIBOR^F

5.713%
Semi-annually

71,600

1,909

1,525,382

17,552

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)

Banc of America Securities LLC
(Centex Corporation,
5.45%, due 8/15/12)¹

September 20, 2012

0.680%
Monthly

Specified amount upon credit event notice^B

9,500

Banc of America Securities LLC
(D.R. Horton,
6.875%, due 5/1/13)¹

June 20, 2013

1.250%
Monthly

Specified amount upon credit event notice^B

5,400

)

Banc of America Securities LLC
(Harrah’s Operating Co.,
5.375%, due 12/15/13)¹

June 20, 2013

1.250%
Monthly

Specified amount upon credit event notice^B

13,400

283

Banc of America Securities LLC
(Lehnnar Corporation,
5.95%, due 10/17/11)¹

September 20, 2011

0.670%
Monthly

Specified amount upon credit event notice^B

6,300

Banc of America Securities LLC
(PHH Corporate Note,
7.125%, due 3/1/13)¹

March 20, 2013

1.050%
Monthly

Specified amount upon credit event notice^B

8,640

(34

)

194

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)

Banc of America Securities LLC
(Toll Brothers,
5.95%, due 9/15/13)¹

September 20, 2013

1.430%
Monthly

Specified amount upon credit event notice^B

12,700

(126

)

Banc of America Securities LLC
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

75,600

Banc of America Securities LLC²

October 17, 2011

5.293%
Semi-annually

3-month LIBOR^F

6,300

(59

)

Banc of America Securities LLC²

August 15, 2012

5.291%
Semi-annually

3-month LIBOR^F

9,500

(92

)

Banc of America Securities LLC²

September 15, 2013

5.290%
Semi-annually

3-month LIBOR^F

12,700

(125

)

Banc of America Securities LLC²

June 1, 2016

5.110%
Semi-annually

3-month LIBOR^F

5,400

(0.1

)

Banc of America Securities LLC²

June 1, 2016

5.263%
Semi-annually

3-month LIBOR^F

13,400

(100

)

Bear Stearns, Inc.
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

June 20, 2010

Specified amount upon credit event notice^C

4.830%
Quarterly

12,500

545

Bear Stearns, Inc.
(GIE PSA Tresorerie,
5.875%, due 9/27/11)¹

March 20, 2011

0.320%
Quarterly

Specified amount upon credit event notice^B

2,620

(13

)

Bear Stearns, Inc.
(GIE PSA Tresorerie,
5.875%, due 9/27/11)¹

March 20, 2011

0.320%
Quarterly

Specified amount upon credit event notice^B

3,470

)

Bear Stearns, Inc.
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.350%
Quarterly

Specified amount upon credit event notice^B

790

Bear Stearns, Inc.
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.360%
Quarterly

Specified amount upon credit event notice^B

2,620

Bear Stearns, Inc.
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.360%
Quarterly

Specified amount upon credit event notice^B

2,620

Bear Stearns, Inc.
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.330%
Quarterly

Specified amount upon credit event notice^B

790

)

195

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)

Bear Stearns, Inc.
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.335%
Quarterly

Specified amount upon credit event notice^B

2,620

)

Bear Stearns, Inc.
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.340%

Quarterly

Specified amount upon credit event notice^B

2,620

(10

)

Bear Stearns, Inc.
(iBoxx HY 3)¹

December 20, 2010

3.950%
Quarterly

Specified amount upon credit event notice^B

8,439

116

Bear Stearns, Inc.
(iBoxx HY 6B)¹

June 20, 2011

3.000%
Quarterly

Specified amount upon credit event notice^B

17,000

206

Bear Stearns, Inc.
(iBoxx HY 6B)¹

June 20, 2011

Specified amount upon credit event notice^D

3.000%
Quarterly

25,000

131

Bear Stearns, Inc.
(iBoxx HY 7B)¹

December 20, 2011

Specified amount upon credit event notice^D

3.000%
Quarterly

20,000

(38

)

Credit Suisse First Boston USA
(AAMES Mortgage Investment Trust 2005-1 M8 1-Month LIBOR^F + 160 bp^G, due 6/25/35)¹

April 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

1,122

)

Credit Suisse First Boston USA
(AAMES Mortgage Investment Trust 2005-1 M9 1-Month LIBOR^F + 250 bp^G, due 6/25/35)¹

April 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(ACE Securities Corp. 2005-HE1 M8 1-Month LIBOR^F + 138 bp^G, due 2/25/35)¹

February 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(ACE Securities Corp. 2005-HE1 M9 1-Month LIBOR^F + 220 bp^G, due 2/25/35)¹

February 25, 2035

2.060%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Aegis Asset-Backed Securities Trust 2004-4 B2 1-Month LIBOR^F + 190 bp^G, due 10/25/34)¹

October 25, 2034

1.370%
Monthly

Specified amount upon credit event notice^B

1,494

196

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
(Aegis Asset-Backed Securities Trust 2005 B2 1-Month LIBOR^F + 130 bp^G, due 3/25/35)¹

March 25, 2035

1.310%
Quarterly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Aegis Asset-Backed Securities Trust 2005 B3 1-Month LIBOR^F + 200 bp^G, due 3/25/35)¹

March 25, 2035

2.180%
Quarterly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(AmerisourceBergen Corp.,
8.125%, due 9/1/8)¹

September 20, 2015

0.900%
Monthly

Specified amount upon credit event notice^B

5,350

)

Credit Suisse First Boston USA
(Argent Securities Inc. 2004-W4 M3 1-Month LIBOR^F + 300 bp^G, due 3/25/34)¹

March 25, 2034

2.200%
Monthly

Specified amount upon credit event notice^B

1,494

Credit Suisse First Boston USA
(Argent Securities Inc. 2004-W11 M9 1-Month LIBOR^F + 225 bp^G, due 11/25/34)¹

November 25, 2034

1.330%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Argent Securities Inc. 2004-W11 M10 1-Month LIBOR^F+ 350 bp^G, due 11/25/34)¹

November 25, 2034

2.150%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(ConocoPhillips,
4.75%, due 10/15/12)¹

September 20, 2012

Specified amount upon credit event notice^D

0.270%
Quarterly

1,460

)

Credit Suisse First Boston USA
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice^D

1.400%
Quarterly

9,000

(99

)

Credit Suisse First Boston USA
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice^D

2.320%
Quarterly

2,400

Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M8 1-Month LIBOR^F + 180 bp^G, due 11/25/34)¹

November 25, 2034

1.310%
Monthly

Specified amount upon credit event notice^B

1,122

)

197

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
(Finance America Mortgage Loan Trust 2004-3 M9 1-Month LIBOR^F + 315 bp^G, due 11/25/34)¹

November 25, 2034

2.180%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Fremont Home Loan Trust 2005-A M8 1-Month LIBOR^F + 135 bp^G, due 1/25/35)¹

January 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

1,122

)

Credit Suisse First Boston USA
(Fremont Home Loan Trust 2005-A 1-Month LIBOR^F + 100 bp^G, due 1/25/35)¹

January 25, 2035

2.080%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed Trust 2004-C M8 1-Month LIBOR^F + 190 bp^G, due 3/25/35)¹

March 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

1,122

)

Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed Trust 2004-C M9 1-Month LIBOR^F + 325 bp^G, due 3/25/35)¹

March 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2004-1 M9 1-Month LIBOR^F + 350 bp^G, due 2/25/34)¹

February 25, 2034

2.150%
Monthly

Specified amount upon credit event notice^B

1,494

Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2005-1 M8 1-Month LIBOR^F + 170 bp^G, due 2/25/35)¹

February 25, 2035

1.310%

Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2005-1 M9 1-Month LIBOR^F + 275 bp^G, due 2/25/35)¹

February 25, 2035

2.080%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(MASTR Asset-Backed Securities Trust 2005-NC1 M8 1-Month LIBOR^F + 153 bp^G, due 12/25/34)¹

December 25, 2034

1.310%
Monthly

Specified amount upon credit event notice^B

1,122

198

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
(MASTR Asset-Backed Securities Trust 2005-NC1 M9 1-Month LIBOR^F + 240 bp^G, due 12/25/34)¹

December 25, 2034

2.080%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2004-WMC4 B3 1-Month LIBOR^F + 375 bp^G, due 4/25/35)¹

April 25, 2035

2.150%
Monthly

Specified amount upon credit event notice^B

1,494

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2005-NC1 B2 1-Month LIBOR^F + 130 bp^G, due 10/25/35)¹

October 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2005-NC1 B3 1-Month LIBOR^F + 205 bp^G, due 10/25/35)¹

October 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B2 1-Month LIBOR^F + 135 bp^G, due 9/25/35)¹

September 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B3 1-Month LIBOR^F + 225 bp^G, due 9/25/35)¹

September 25, 2035

2.050%

Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B2 1-Month LIBOR^F + 130 bp^G, due 1/25/35)¹

January 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

1,122

)

Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B3 1-Month LIBOR^F + 215 bp^G, due 1/25/35)¹

January 25, 2035

2.180%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2004-2 M9 1-Month LIBOR^F + 325 bp^G, due 8/25/34)¹

August 25, 2034

2.150%
Monthly

Specified amount upon credit event notice^B

1,494

199

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
(New Century Home Equity Loan Trust 2005-1 M8 1-Month LIBOR^F + 140 bp^G, due 3/25/35)¹

March 25, 2035

1.310%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2005-1 M9 1-Month LIBOR^F + 205 bp^G, due 3/25/35)¹

March 25, 2035

2.180%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Novastar Home Equity Loan 2005-1 B2 1-Month LIBOR^F + 135 bp^G, due 6/25/35)¹

June 25, 2035

1.280%
Monthly

Specified amount upon credit event notice^B

1,122

)

Credit Suisse First Boston USA
(Novastar Home Equity Loan 2005-4 B3 1-Month LIBOR^F + 195 bp^G, due 6/25/35)¹

June 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Park Place Securities Inc. 2005-WCH1 M8 1-Month LIBOR^F + 155 bp^G, due 1/25/36)¹

January 25, 2036

1.360%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(Park Place Securities Inc. 2005-WCH1 M9 1-Month LIBOR^F + 250 bp^G, due 1/25/36)¹

January 25, 2036

2.180%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2004-1 M6 1-Month LIBOR^F + 230 bp^G, due 6/25/34)¹

June 25, 2034

1.370%
Quarterly

Specified amount upon credit event notice^B

1,494

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2005-1 1-Month LIBOR^F+ 165 bp^G, due 1/25/35)¹

January 25, 2035

1.258%
Monthly

Specified amount upon credit event notice^B

1,122

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2005-1 B3 1-Month LIBOR^F + 260 bp^G, due 1/25/35)¹

January 25, 2035

2.050%
Monthly

Specified amount upon credit event notice^B

1,122

200

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
(Pulte Homes Inc.,
7.875%, due 8/1/11)¹

September 20, 2013

0.870%
Monthly

Specified amount upon credit event notice^B

7,000

Credit Suisse First Boston USA
(Starwood Hotels,
7.875%, due 5/1/12)¹

December 20, 2011

1.370%
Monthly

Specified amount upon credit event notice^B

11,250

(61

)

Credit Suisse First Boston USA
(iBoxx IG Hi-Vol)¹

March 20, 2009

Specified amount upon credit event notice^D

1.250%
Quarterly

48,333

463

Credit Suisse First Boston USA
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.150%
Quarterly

Specified amount upon credit event notice^B

24,167

(249

)

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

3,078

209

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

3,078

209

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

15,539

513

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

11,532

294

Credit Suisse First Boston USA²

May 1, 2012

5.085%
Semi-annually

3-month LIBOR^F

10,700

Credit Suisse First Boston USA²

January 15, 2014

5.328%
Semi-annually

3-month LIBOR^F

6,300

(77

)

Credit Suisse First Boston USA²

September 15, 2015

5.160%
Semi-annually

3-month LIBOR^F

5,350

)

Deutsche Bank AG
(Dynegy Holdings,
8.75%, due 2/15/12)¹

April 23, 2007

Specified amount upon credit event notice^C

2.950%
Quarterly

2,250

Deutsche Bank AG
(Dynegy Holdings,
8.75%, due 2/15/12)¹

May 1, 2007

Specified amount upon credit event notice^C

5.250%
Quarterly

3,460

139

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice^C

1.250%
Quarterly

1,600

(25

)

201

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
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice^C

1.670%
Quarterly

1,900

(152

)

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

2.300%
Quarterly

3,020

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

2.300%
Quarterly

5,430

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

2.320%
Quarterly

3,200

Deutsche Bank AG
(Fannie Mae,
6%, due 5/15/11)¹

December 20, 2009

Specified amount upon credit event notice^C

0.215%
Quarterly

17,000

Deutsche Bank AG
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

December 20, 2010

Specified amount upon credit event notice^C

5.050%
Quarterly

25,400

1,343

Deutsche Bank AG
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

March 20, 2015

Specified amount upon credit event notice^C

2.930%
Quarterly

2,600

(469

)

Deutsche Bank AG
(Freddie Mac,
5.00%, due 7/15/14)¹

March 20, 2015

Specified amount upon credit event notice^C

0.290%
Quarterly

25,100

326

Deutsche Bank AG
(General Motors Acceptance Corporation,
6.875%, due 8/12/12)¹

March 20, 2010

Specified amount upon credit event notice^C

2.280%
Quarterly

5,500

Deutsche Bank AG
(General Motors Acceptance Corporation,
8.375%, due 7/15/33)¹

March 20, 2015

Specified amount upon credit event notice^D

3.510%
Quarterly

2,600

(271

)

Deutsche Bank AG
(GIE PSA Tresorerie,
5.875%, due 9/27/11)¹

March 20, 2011

0.325%
Quarterly

Specified amount upon credit event notice^E

2,540

(13

)

Deutsche Bank AG
(GIE PSA Tresorerie,
5.875%, due 9/27/11)¹

March 20, 2011

0.325%
Quarterly

Specified amount upon credit event notice^E

2,540

)

Deutsche Bank AG
(GIE PSA Tresorerie,
5.875%, due 9/27/11)¹

March 20, 2011

0.340%
Quarterly

Specified amount upon credit event notice^E

2,540

)

202

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
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.360%
Quarterly

Specified amount upon credit event notice^E

2,540

Deutsche Bank AG
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.380%
Quarterly

Specified amount upon credit event notice^E

2,540

(0.1

)

Deutsche Bank AG
(Sara Lee Corporation,
6.125%, due 11/1/32)¹

September 20, 2011

0.420%
Quarterly

Specified amount upon credit event notice^B

8,900

Deutsche Bank AG
(Supervalu Inc.,
7.5%, due 5/15/12)¹

September 20, 2009

1.200%
Quarterly

Specified amount upon credit event notice^E

11,310

(21

)

Deutsche Bank AG
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.340%
Quarterly

Specified amount upon credit event notice^E

2,540

(10

)

Deutsche Bank AG
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.370%
Quarterly

Specified amount upon credit event notice^E

2,540

(10

)

Deutsche Bank AG
(iBoxx 100 HY)¹

March 20, 2009

Specified amount upon credit event notice^D

4.250%
Quarterly

9,500

512

Deutsche Bank AG
(iBoxx IG Hi-Vol)¹

March 20, 2009

Specified amount upon credit event notice^D

1.250%
Quarterly

13,301

117

Deutsche Bank AG
(iBoxx IG Hi-Vol2)¹

September 20, 2014

Specified amount upon credit event notice^D

1.300%
Quarterly

11,175

106

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

0.600%
Quarterly

Specified amount upon credit event notice^B

6,450

(54

)

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

0.600%
Quarterly

Specified amount upon credit event notice^B

9,500

(79

)

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

1.250%
Quarterly

Specified amount upon credit event notice^B

9,183

(18

)

Deutsche Bank AG
(iBoxx HY 2)¹

September 20, 2009

Specified amount upon credit event notice^D

4.800%
Quarterly

2,559

224

203

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 HY B)¹

March 20, 2009

Specified amount upon credit event notice^D

5.000%
Quarterly

4,768

259

Deutsche Bank AG
(iBoxx HY B)¹

March 20, 2009

Specified amount upon credit event notice^D

5.000%
Quarterly

9,535

483

Deutsche Bank AG²

January 10, 2008

3-month LIBOR^F

3.754%
Semi-annually

143,500

(2,624

)

Deutsche Bank AG²

October 5, 2008

3-month LIBOR^F

4.655%
Semi-annually

194,330

(1,695

)

Deutsche Bank AG²

August 1, 2009

4.985%
Semi-annually

3-month LIBOR^F

10,770

Deutsche Bank AG²

June 17, 2010

3-month LIBOR^F

4.313%
Semi-annually

41,570

(1,039

)

Deutsche Bank AG²

October 11, 2010

3-month LIBOR^F

4.708%
Semi-annually

299,650

(3,838

)

Deutsche Bank AG²

July 13, 2011

3-month LIBOR^F

5.628%
Semi-annually

133,350

3,090

Deutsche Bank AG²

September 15, 2011

5.186%
Semi-annually

3-month LIBOR^F

8,900

(40

)

Deutsche Bank AG²

July 21, 2016

3-month LIBOR^F

5.693%
Semi-annually

124,720

5,701

JP Morgan Chase & Co.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

6.000%
Quarterly

14,300

424

JP Morgan Chase & Co.
(International Lease Finance Corporation,
5.75%, due 6/15/11)¹

June 20, 2011

0.160%

Quarterly

Specified amount upon credit event notice^C

12,700

(34

)

JP Morgan Chase & Co.²

June 15, 2011

5.242%
Semi-annually

3-month LIBOR^F

12,700

(89

)

JP Morgan Chase & Co.²

September 7, 2016

5.322%
Semi-annually

3-month LIBOR^F

59,000

(647

)

Lehman Brothers Holdings Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/12/12)¹

March 20, 2010

Specified amount upon credit event notice^C

3.650%
Quarterly

25,000

1,514

204

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.
(Sara Lee Corporation,
6.125%, due 11/01/32)¹

September 20, 2011

0.440%
Quarterly

Specified amount upon credit event notice^C

9,750

Lehman Brothers Holdings Inc.
(Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2011

0.570%
Quarterly

Specified amount upon credit event notice^C

6,270

Lehman Brothers Holdings Inc.
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.150%
Quarterly

Specified amount upon credit event notice^B

1,450

)

Lehman Brothers Holdings Inc.
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.150%
Quarterly

Specified amount upon credit event notice^B

12,180

(65

)

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

3,225

131

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

3,323

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

3,323

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2010

3.950%
Quarterly

Specified amount upon credit event notice^B

9,021

124

Lehman Brothers Holdings Inc.
(iBoxx HY 6)¹

June 20, 2011

3.450%
Quarterly

Specified amount upon credit event notice^B

8,000

Lehman Brothers Holdings Inc.*
(iBoxx IG TMT)¹

March 20, 2009

0.600%
Quarterly

Specified amount upon credit event notice^B

9,000

(107

)

Lehman Brothers Holdings Inc.²

October 7, 2007

3-month LIBOR^F

4.601%
Semi-annually

80,020

(562

)

Lehman Brothers Holdings Inc.²

April 30, 2011

5.070%
Semi-annually

3-month LIBOR^F

6,270

Lehman Brothers Holdings Inc.²

September 15, 2011

5.193%
Semi-annually

3-month LIBOR^F

9,750

(47

)

Merrill Lynch & Co., Inc.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

2.300%
Quarterly

1,610

205

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)

Merrill Lynch & Co., Inc.
(Pacific Gas & Electric Co.,
4.80%, due 3/1/14)¹

June 20, 2009

Specified amount upon credit event notice^D

0.420%
Quarterly

2,980

Morgan Stanley & Co., Inc.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2011

Specified amount upon credit event notice^C

2.700%
Quarterly

5,000

RBS Greenwich
(DSLA Mortgage Loan Trust 2005-AR5 1-Month LIBOR^F
+ 175 bp^G, due 8/19/45)¹

August 19, 2045

4.500%
Monthly

Specified amount upon credit event notice^B

2,098

RBS Greenwich
(Eastman Kodak,
7.250%, due 11/15/13)¹

December 20, 2010

Specified amount upon credit event notice^C

3.200%
Quarterly

19,300

800

RBS Greenwich
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

September 20, 2011

Specified amount upon credit event notice^C

3.750%
Quarterly

8,900

132

RBS Greenwich
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

September 20, 2011

Specified amount upon credit event notice^C

6.750%
Quarterly

18,400

2,411

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

September 20, 2010

Specified amount upon credit event notice^C

5.750%
Quarterly

7,500

1,014

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

6.800%
Quarterly

7,500

417

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

7.100%
Quarterly

8,000

516

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

7.700%
Quarterly

12,500

1,032

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

8.400%
Quarterly

12,500

1,289

206

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
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

6.100%
Quarterly

8,000

262

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

6.630%
Quarterly

19,600

965

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

6.900%
Quarterly

10,000

577

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice^C

7.200%
Quarterly

7,820

524

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

December 20, 2010

Specified amount upon credit event notice^C

8.950%
Quarterly

19,300

2,380

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2016

Specified amount upon credit event notice^C

5.000%
Quarterly

7,200

1,154

RBS Greenwich
(Harborview Mortgage Loan Trust 2005-12 1-Month LIBOR^F+ 175 bp^G, due 10/19/35)¹

October 19, 2035

2.500%
Monthly

Specified amount upon credit event notice^B

1,999

RBS Greenwich
(IndyMac Index Mortgage Loan Trust 2005-AR18 1-Month LIBOR^F+ 125 bp^G, due 10/25/36)¹

October 25, 2036

2.700%
Monthly

Specified amount upon credit event notice^B

1,887

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice^C

3.550%
Quarterly

1,600

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice^C

3.550%
Quarterly

3,900

207

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
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice^C

3.500%
Quarterly

3,920

)

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice^C

3.670%
Quarterly

5,000

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

December 20, 2010

Specified amount upon credit event notice^C

3.870%
Quarterly

7,700

RBS Greenwich
(Time Warner Inc.,
6.875%, due 5/1/12)¹

September 20, 2010

Specified amount upon credit event notice^C

0.470%
Quarterly

5,000

RBS Greenwich
(Time Warner Inc.,
6.875%, due 5/1/12)¹

December 20, 2010

Specified amount upon credit event notice^C

0.500%
Quarterly

12,500

RBS Greenwich
(Washington Mutual 2005-AR11 1-Month LIBOR^F+ 120 bp^G, due 8/25/45)¹

August 25, 2045

2.550%
Monthly

Specified amount upon credit event notice^B

829

RBS Greenwich
(iBoxx CDX)¹

December 20, 2010

Specified amount upon credit event notice^D

2.000%
Quarterly

13,114

579

RBS Greenwich
(iBoxx CDX)¹

December 20, 2010

Specified amount upon credit event notice^D

2.000%
Quarterly

15,154

409

RBS Greenwich
(iBoxx CDX)¹

June 20, 2011

Specified amount upon credit event notice^D

3.450%
Quarterly

11,000

The Goldman Sachs Group, Inc.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice^C

1.670%
Quarterly

1,900

(152

)

The Goldman Sachs Group, Inc.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2011

Specified amount upon credit event notice^C

2.920%
Quarterly

7,300

163

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

September 20, 2011

Specified amount upon credit event notice^C

3.800%
Quarterly

9,200

208

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.
(Ford Motor Credit Company,
7.00%, due 10/1/13)¹

June 20, 2010

Specified amount upon credit event notice^C

4.750%
Quarterly

2,500

103

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

September 20, 2011

Specified amount upon credit event notice^C

6.800%
Quarterly

10,000

1,145

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

September 20, 2011

Specified amount upon credit event notice^C

6.800%
Quarterly

8,400

962

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

September 20, 2007

Specified amount upon credit event notice^C

4.900%
Quarterly

10,000

351

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice^C

5.750%
Quarterly

10,000

1,293

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice^C

5.950%
Quarterly

500

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice^C

6.000%
Quarterly

5,000

686

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice^C

8.950%
Quarterly

5,000

597

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
8.375%, due 7/15/33)¹

September 20, 2010

Specified amount upon credit event notice^C

6.000%
Quarterly

25,100

744

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
8.375%, due 7/15/33)¹

December 20, 2010

Specified amount upon credit event notice^C

7.000%
Quarterly

42,500

2,554

The Goldman Sachs Group, Inc.
(iBoxx IG FIN 3)¹

March 20, 2010

Specified amount upon credit event notice^D

0.500%
Quarterly

7,500

209

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.
(iBoxx IG FIN 3)¹

March 20, 2015

Specified amount upon credit event notice^D

0.700%
Quarterly

7,600

129

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol3)¹

March 20, 2010

Specified amount upon credit event notice^D

1.050%
Quarterly

21,847

396

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol3)¹

March 20, 2010

Specified amount upon credit event notice^D

1.050%
Quarterly

42,823

1,339

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol4)¹

June 20, 2010

Specified amount upon credit event notice^D

0.400%
Quarterly

23,300

373

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol4)¹

June 20, 2010

Specified amount upon credit event notice^D

0.400%
Quarterly

61,600

1,089

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol5)¹

December 20, 2010

0.850%
Quarterly

Specified amount upon credit event notice^B

48,200

121

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

23,600

(25

)

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol6)¹

June 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

58,500

The Goldman Sachs Group, Inc.
(iBoxx IG Hi-Vol7)¹

December 20, 2011

0.750%
Quarterly

Specified amount upon credit event notice^B

34,200

The Goldman Sachs Group, Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

2,912

153

The Goldman Sachs Group, Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice^D

4.000%
Quarterly

977

The Goldman Sachs Group, Inc.
(iBoxx HY 3)¹

December 20, 2009

4.000%

Quarterly

Specified amount upon credit event notice^B

5,922

158

The Goldman Sachs Group, Inc.
(iBoxx HY 4)¹

June 20, 2010

Specified amount upon credit event notice^D

3.400%
Quarterly

2,200

156

210

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 HY 5)¹

December 20, 2010

Specified amount upon credit event notice^D

2.000%
Quarterly

8,160

215

The Goldman Sachs Group, Inc.
(iBoxx HY 5)¹

December 20, 2010

Specified amount upon credit event notice^D

2.000%
Quarterly

9,714

427

The Goldman Sachs Group, Inc.
(iBoxx HY 5)¹

December 20, 2010

3.950%
Quarterly

Specified amount upon credit event notice^B

8,342

114

The Goldman Sachs Group, Inc.
(iBoxx HY 6)¹

June 20, 2011

3.450%
Quarterly

Specified amount upon credit event notice^B

8,700

116

The Goldman Sachs Group, Inc.
(iBoxx HY 6)¹

June 20, 2011

3.450%
Quarterly

Specified amount upon credit event notice^B

7,800

The Goldman Sachs Group, Inc.
(iBoxx HY 6)¹

June 20, 2011

3.450%
Quarterly

Specified amount upon credit event notice^B

7,400

The Goldman Sachs Group, Inc.
(iBoxx HY 6B)¹

June 20, 2011

3.000%
Quarterly

Specified amount upon credit event notice^B

4,800

The Goldman Sachs Group, Inc.
(iBoxx HY 6B)¹

June 20, 2011

3.000%
Quarterly

Specified amount upon credit event notice^B

18,200

129

The Goldman Sachs Group, Inc.
(iBoxx HY 6B)¹

June 20, 2011

3.000%
Quarterly

Specified amount upon credit event notice^B

18,200

175

The Goldman Sachs Group, Inc.
(iBoxx HY 6B)¹

June 20, 2011

Specified amount upon credit event notice^D

3.000%
Quarterly

15,000

The Goldman Sachs Group, Inc.²

September 14, 2007

3-month LIBOR^F

3.215%
Semi-annually

37,270

(731

)

The Goldman Sachs Group, Inc.²

March 10, 2009

3-month LIBOR^F

4.360%
Semi-annually

74,400

(678

)

The Goldman Sachs Group, Inc.²

September 24, 2009

3.714%
Semi-annually

3-month LIBOR^F

100,000

3,692

The Goldman Sachs Group, Inc.²

July 7, 2011

3-month LIBOR^F

5.713%
Semi-annually

113,400

3,023

3,116,205

39,602

211

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Inflation Indexed 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
(iBoxx IG Hi-Vol6)¹

June 20, 2011

Specified amount upon credit event notice^D

0.750%
Quarterly

28,400

Deutsche Bank AG
(iBoxx HY4)¹

June 20, 2010

Specified amount upon credit event notice^D

3.600%
Quarterly

9,600

429

J.P. Morgan Chase & Co.
(Ford Motor Credit Company,
7.00%, due 8/15/12)¹

June 20, 2010

Specified amount upon credit event notice^C

2.900%
Quarterly

5,000

(73

)

Merrill Lynch & Co., Inc.
(El Paso Corporation,
7%, due 5/15/11)¹

June 20, 2010

Specified amount upon credit event notice^D

3.625%
Quarterly

2,500

184

Merrill Lynch & Co., Inc.
(Ford Motor Credit Company,
7.375%, due 10/28/09)¹

June 20, 2010

Specified amount upon credit event notice^C

5.500%
Quarterly

2,500

159

Merrill Lynch & Co., Inc.
(General Motors Acceptance Corporation,
7.75%, due 1/19/10)¹

March 20, 2007

Specified amount upon credit event notice^C

3.550%
Quarterly

5,000

288

The Goldman Sachs Group, Inc.
(Eastman Kodak Corporation,
7.25%, due 11/15/13)¹

March 20, 2011

Specified amount upon credit event notice^C

2.570%
Quarterly

4,800

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice^C

4.500%

Quarterly

7,500

674

65,300

1,821

Western Asset Absolute Return Portfolio

Agreement With:

Termination Date

The Fund

Agrees to Pay

The Fund

Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Banc of America
(D.R. Horton Inc.,
6.875%, due 5/01/13)¹

June 20, 2013

1.250%
Quarterly

Specified amount upon credit event notice^B

100

)

Banc of America
(Harrahs Operating Co.,
5.375%, due 12/15/13)¹

June 20, 2016

1.258%
Quarterly

Specified amount upon credit event notice^B

120

Banc of America
(PHH Corp.,
7.125%, due 3/01/13)¹

March 20, 2013

1.050%
Quarterly

Specified amount upon credit event notice^B

110

(0.4

)

212

Semi-Annual Report to Shareholders


Western Asset Absolute Return Portfolio—Continued
Agreement With:	Termination Date	The Fund Agrees to Pay	The Fund Will Receive	Contract Notional Amount		Unrealized Appreciation/ (Depreciation)

Banc of America Securities LLC²	May 1, 2013	5.110% Semi-annually	3-month LIBOR^F	$	100	$	(0	)

Banc of America Securities LLC²	June 1, 2016	5.263% Semi-annually	3-month LIBOR^F		120		(1	)

Credit Suisse First Boston USA (Amerisource Bergen Corp., 8.125%, due 9/01/08)¹	September 20, 2015	0.900% Quarterly	Specified amount upon credit event notice^B		50		(0.1	)

Credit Suisse First Boston USA (Centex Corp., 5.25%, due 6/15/15)¹	September 20, 2013	0.780% Quarterly	Specified amount upon credit event notice^B		350		1

Credit Suisse First Boston USA (Starwood Hotels Resorts, 7.875%, due 8/25/34)¹	December 20, 2011	1.370% Quarterly	Specified amount upon credit event notice^B		100		(1	)

Credit Suisse First Boston USA²	May 1, 2012	5.085% Semi-annually	3-month LIBOR^F		100		0

Credit Suisse First Boston USA²	October 1, 2013	5.204% Semi-annually	3-month LIBOR^F		300		(1	)

Credit Suisse First Boston USA²	September 15, 2015	5.160% Semi-annually	3-month LIBOR^F		50		(0	)

Deutsche Bank AG (Supervalu Inc., 7.5%, due 5/15/12)¹	September 20, 2009	1.200% Quarterly	Specified amount upon credit event notice^E		330		(1	)

Deutsche Bank AG²	August 1, 2009	4.985% Semi-annually	3-month LIBOR^F		300		1

Lehman Brothers Holdings Inc. (Sara Lee Corp., 6.125%, due 11/01/32)¹	December 20, 2011	1.370% Quarterly	Specified amount upon credit event notice^B		150		0.1

Lehman Brothers	September 15, 2011	5.193% Semi-annually	3-month LIBOR^F		150		(1	)

				$	2,430	$	(1	)

Uponbankruptcy or failure to make a scheduled interest payment, the Fund will receive $1,000.

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

Uponbankruptcy or failure to make a scheduled interest payment, the Fund will pay $1,000.

Uponbankruptcy or failure to make a scheduled interest payment, the Fund will receive $1,000; upon default, the Fund will receive $10,000.

Asof September 30, 2006, the one- and three-month London Interbank Offered Rates were 5.32% and 5.37%, respectively.

100basis points = 1%.

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, 2006, collateral for securities on loan by Core and Core Plus consisted of $673,701 and $1,703,026, in money market pooled accounts and investments in U.S. government securities, which were valued at $10,865 and $31,644, respectively.

213

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

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 Indexed, High Yield, and Absolute Return. 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, Inflation Indexed, and Absolute Return. 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. Any amounts waived or reimbursed in a particular fiscal year will be subject to repayment by a Fund to LMFA, Western Asset and WAML, to the extent that from time to time during the next three fiscal years the repayment will not cause a Fund’s expenses to exceed the limit set forth by LMFA, Western Asset and WAML. The following chart shows annual rates of management fees, expense limits, management fees waived and potential fees which may be recaptured for each Fund.


	Asset Breakpoint for Management Fee	Management Fee		Asset Breakpoint for Expense Limitation	Expense Limitation		Six Months Ended September 30, 2006			Maximum Amount Subject to Recapture
Fund	Asset Breakpoint for Management Fee	Management Fee		Asset Breakpoint for Expense Limitation	Expense Limitation		Management Fees (Waived)/ Recaptured			Maximum Amount Subject to Recapture
Limited Duration	All asset levels	0.350	%	All asset levels	0.40	%	$	(72	)	$	(375	)

Intermediate	All asset levels	0.400	%	All asset levels	0.45	%		(65	)		(246	)

Intermediate Plus	All asset levels	0.400	%	All asset levels	0.45	%		(81	)		(384	)

Core
Institutional Class	Up to $500 million	0.450	%	All asset levels	0.50	%		—			—
	Next $500 million	0.425	%	All asset levels
	In excess of $1 billion	0.400	%	All asset levels

Financial Intermediary Class	Up to $500 million	0.450	%	All asset levels	0.75	%		—			—
	Next $500 million	0.425	%	All asset levels
	In excess of $1 billion	0.400	%	All asset levels

Core Plus
Institutional Class	Up to $500 million	0.450	%	All asset levels	0.45	%		—			—
	Next $500 million	0.425	%	All asset levels
	In excess of $1 billion	0.400	%	All asset levels

Financial Intermediary Class	Up to $500 million	0.450	%	All asset levels	0.70	%		—			—
	Next $500 million	0.425	%	All asset levels
	In excess of $1 billion	0.400	%	All asset levels

Inflation Indexed	All asset levels	0.200	%	All asset levels	0.25	%		(109	)		(287	)

High Yield	All asset levels	0.550	%	All asset levels	0.65	%		—			—

Non-U.S.	All asset levels	0.450	%	All asset levels	0.55	%		(77	)		(356	)

Absolute Return
Institutional Class	All asset levels	0.750	%	Up to $300,000 In excess of $300,000	0.80 1.10	% %		(74	)		(74	)

Financial Intermediary Class	All asset levels	0.750	%	Up to $300,000 In excess of $300,000	1.05 1.35	% %		—			—

214

Semi-Annual Report to Shareholders

Legg Mason Investor Services, LLC (“LMIS”) serves as distributor of the Funds’ shares. LMIS 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 LMIS are wholly owned subsidiaries of Legg Mason, Inc.

6. Fund Share Transactions:

At September 30, 2006, 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, 2006	2,373	$	23,273	181	$	1,770	(1,003	)	$	(9,800	)	1,551		$	15,243
Year Ended Mar. 31, 2006	8,501	$	84,143	270	$	2,657	(4,989	)	$	(49,138	)	3,782		$	37,662

Intermediate
—Institutional Class
Six Months Ended September 30, 2006	7,715	$	78,607	1,371	$	13,994	(24,175	)	$	(246,294	)	(15,089	)	$	(153,693	)
Year Ended Mar. 31, 2006	21,900	$	228,223	3,348	$	34,866	(15,656	)	$	(162,436	)	9,592			100,653

Intermediate Plus
—Institutional Class
Six Months Ended September 30, 2006	1,732	$	16,867	172	$	1,673	(518	)	$	(5,021	)	1,386		$	13,519
Year Ended Mar. 31, 2006	3,608	$	35,668	194	$	1,917	(748	)	$	(7,371	)	3,054		$	30,214

Core
—Institutional Class
Six Months Ended September 30, 2006	38,525	$	424,255	8,863	$	97,914	(46,262	)	$	(508,438	)	1,126		$	13,731
Year Ended Mar. 31, 2006	130,793	$	1,480,041	14,372	$	162,380	(51,441	)	$	(582,015	)	93,724		$	1,060,406
—Financial Intermediary Class
Six Months Ended September 30, 2006	64,140	$	704,088	1,535	$	17,011	(9,200	)	$	(101,798	)	56,475		$	619,301
Year Ended Mar. 31, 2006	15,127	$	171,088	1,215	$	13,731	(7,204	)	$	(81,179	)	9,138		$	103,640

Core Plus
—Institutional Class
Six Months Ended September 30, 2006	228,773	$	2,354,983	15,773	$	162,216	(76,034	)	$	(777,843	)	168,512		$	1,739,356
Year Ended Mar. 31, 2006	296,675	$	3,113,891	25,658	$	268,904	(82,917	)	$	(866,842	)	239,416		$	2,515,953

—Financial Intermediary Class
Six Months Ended September 30, 2006	13,490	$	138,258	1,187	$	12,199	(10,005	)	$	(102,470	)	4,672		$	47,987
Year Ended Mar. 31, 2006	36,104	$	378,970	1,537	$	16,071	(6,683	)	$	(69,850	)	30,958		$	325,191

Inflation Indexed
—Institutional Class
Six Months Ended September 30, 2006	3,277	$	33,460	1,670	$	17,047	(1,653	)	$	(16,834	)	3,294		$	33,673
Year Ended Mar. 31, 2006	8,808	$	91,926	2,501	$	26,549	(1,335	)	$	(14,411	)	9,974		$	104,064

215

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued


	Sold			Reinvestment of Dividends			Repurchased					Net Change
	Shares	Amount		Shares	Amount		Shares		Amount			Shares	Amount

High Yield
—Institutional Class
Six Months Ended September 30, 2006	3,292	$	34,108	2,530	$	25,576	(1,084	)	$	(11,095	)	4,738	$	48,589
Year Ended Mar. 31, 2006	22,272	$	227,228	3,705	$	37,311	(7,754	)	$	(78,717	)	18,223	$	185,822

Non-U.S.
—Institutional Class
Six Months Ended September 30, 2006	4,353	$	41,216	193	$	1,792	(599	)	$	(5,669	)	3,947	$	37,339
Year Ended Mar. 31, 2006	2,472	$	24,939	1,316	$	12,870	(2,480	)	$	(27,754	)	1,308	$	10,055

Absolute Return
—Institutional Class
Period Ended September 30, 2006^A	8,400	$	84,610	58	$	586	(221	)	$	(2,250	)	8,237	$	82,946

—Financial Intermediary Class
Period Ended September 30, 2006^B	2	$	17	—	$	—	—		$	—		2	$	17

For the period July 6, 2006 (commencement of operations) to September 30, 2006.

For the period September 6, 2006 (commencement of operations) to September 30, 2006.

7. Recent Accounting Pronouncements

During June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 48 (“FIN 48” or the “Interpretation”), Accounting for Uncertainty in Income Taxes—an interpretation of FASB statement 109. FIN 48 supplements FASB Statement 109, Accounting for Income Taxes and prescribes a comprehensive model for how a fund should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the fund has taken or expects to take on a tax return. FIN 48 requires that the tax effects of a position be recognized only if it is “more likely than not” to be sustained based solely on its technical merits. Management must be able to conclude that the tax law, regulations, case law, and other objective information regarding the technical merits sufficiently support the position’s sustainability with a likelihood of more than 50 percent. FIN 48 is effective for fiscal periods beginning after December 15, 2006. At adoption, the financial statements must be adjusted to reflect only those tax positions that are more likely than not to be sustained as of the adoption date.

On September 20, 2006, the FASB released Statement of Financial Accounting Standards No. 157 “Fair Value Measurements” (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair-value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.

At this time, the Funds’ manager is evaluating the implications of FIN 48 and FAS 157, and their impact on the financial statements has not yet been determined.

216

Semi-Annual Report to Shareholders

Board Consideration of the Management and Advisory Agreements with respect to the

Absolute Return Portfolio

The Board of Directors, including a majority of the Independent Directors, considered and approved the Investment Management Agreement between Western Asset Funds, Inc. (the “Corporation”) and Legg Mason Fund Adviser, Inc. (“LMFA”), the Investment Advisory Agreement between LMFA and Western Asset Management Company (“Western Asset”) and the Investment Advisory Agreement between LMFA and Western Asset Management Company Limited (“WAML”) (collectively, the “Agreements”) with respect to the Western Asset Absolute Return Portfolio (the “Fund”) at an in-person meeting held on May 9, 2006.

In arriving at their decision to approve the Agreements, the Directors met with representatives of Western Asset and WAML (together, the “Advisers”), including relevant investment advisory personnel as well as representatives of LMFA, and reviewed information prepared by LMFA and the Advisers and materials provided by counsel to the Independent Directors. Additionally, the Directors noted that they were familiar with LMFA and the Advisers in their capacity as Directors with respect to the other funds of the Corporation.

As part of their review, the Directors examined the Advisers’ ability to provide high quality investment management services to the Fund. The Directors considered the investment philosophy and research and decision-making processes of each Adviser; the experience of its key advisory personnel responsible for management of the Fund; the ability of the Advisers to attract and retain capable research and advisory personnel; the capability and integrity of the Advisers’ senior management and staff; and the level of skill required to manage the Fund. In addition, the Directors reviewed the expected nature, cost, scope and quality of LMFA and the Advisers’ services under the Agreements, including with respect to regulatory compliance and compliance with the investment policies of the Fund, as well as the provision of such services by LMFA and the Advisers to other funds of the Corporation. The Directors also considered conditions that might affect LMFA or an Adviser’s ability to provide high quality services to the Fund in the future under the Agreements, including LMFA and each Adviser’s business reputation, financial condition and operational stability. Based on the foregoing, the Directors concluded that the Advisers’ investment process, research capabilities and philosophy were well suited to the Fund given the Fund’s investment objectives and policies, and that LMFA and each of the Advisers would be able to meet any reasonably foreseeable obligations under the Agreements.

Because the Fund had not yet commenced operations at the time of consideration of the Agreements, it had no past investment performance to be reviewed by the Directors. The Directors did, however, review information regarding the performance of client accounts overseen by Western Asset and WAML with investment strategies similar to those of the Fund.

The Directors also considered the management fees and total expenses payable by the Fund under the Agreements. They reviewed information concerning management fees paid to investment advisers of similarly-managed funds, as well as fees paid by the Advisers’ other clients, including separate accounts managed by the Advisers with investment strategies similar to those of the Fund. The Directors observed that the management fee to be paid by the Fund was generally comparable to the average of its respective peer group. The Directors noted that the management fee to be paid by the Fund would be generally higher than the fees paid by clients of the Advisers for accounts with similar investment strategies, but that the administrative and operational responsibilities for the Advisers with respect to the Fund would also be relatively higher. In light of these differences, the Directors concluded that the differences in management fees were reasonable.

The Directors did not consider historical information about the profitability of the Fund to LMFA and the Advisers since the Fund had not yet commenced operations. However, the Directors noted that they were familiar with LMFA and the Advisers’ profitability with respect to the other funds of the Corporation. The Directors further evaluated the potential benefits of the advisory relationship to LMFA and the Advisers, including, among others, the direct and indirect benefits that LMFA and each Adviser may receive from its relationship with the Fund, including any so-called “fallout benefits” to LMFA or the Advisers, such as reputational value derived from serving as investment manager or adviser, and the affiliations between LMFA, the Advisers and certain service providers for the Fund.

Finally, the Directors considered the extent to which economies of scale might be realized by LMFA and the Advisers as the assets of the Fund grow. They further concluded that, if the Fund’s assets were to grow to a level at which LMFA and the Advisers potentially may realize economies of scale from any future growth in the Fund, the Directors would discuss with LMFA and the Advisers whether it would be appropriate to implement fee breakpoints to capture a portion of any economies of scale for the benefit of the Fund’s shareholders.

217

Semi-Annual Report to Shareholders

Board Consideration of the Management and Advisory Agreements with respect to the

Absolute Return Portfolio—Continued

In their deliberations with respect to these matters, the Independent Directors were advised by their independent counsel, who are independent of LMFA and the Advisers within the meaning of the Securities and Exchange Commission rules regarding the independence of counsel. The Independent Directors weighed the foregoing matters in light of the advice given to them by their independent counsel as to the law applicable to the review of investment advisory contracts. In arriving at a decision, the Directors, including the Independent Directors, did not identify any single matter as all-important or controlling, and the foregoing summary does not detail all the matters considered. The Directors judged the terms and conditions of the Agreements, including the investment advisory fees, in light of all of the surrounding circumstances.

Based upon their review, the Directors, including all of the Independent Directors, determined, in the exercise of their business judgment, that they were satisfied with the expected quality of investment advisory services to be provided by each Adviser; that the fees to be paid to the Advisers and LMFA under the Agreements were fair and reasonable, given the scope and expected quality of the services to be rendered by the Advisers and LMFA; and that approval of the Agreements was in the best interest of the Corporation and its shareholders.

218

Semi-Annual Report to Shareholders

Stockholder Meeting Results (amounts not in thousands)

An Annual Meeting of the Stockholders of Western Asset Funds, Inc. was held on May 9, 2006 for the purpose of electing a Board of Directors, approving a change to the classification of the investment objective of each of Intermediate and Core, approving the elimination of Core’s fundamental investment restriction with respect to pledging assets, approving an amendment to Core’s fundamental investment restriction with respect to investments in commodities and approving the elimination of Core’s fundamental investment restriction with respect to margin transactions. Because a quorum was not present with respect to any of the proposals, the meeting was adjourned until June 9, 2006.

A continuation of the Annual Meeting of the Stockholders of Western Asset Funds, Inc. was held on June 9, 2006. Although a quorum was present with respect to each proposal, sufficient votes in favor of each proposal other than the election of directors had not been received, and the meeting was adjourned with until July 14, 2006 with respect to each proposal other than the election of directors. The following actions were taken were taken at the June 9, 2006 meeting:


	For	Withheld
Election of Directors:
Ronald J. Arnault	438,540,473	7,636,185
John E. Bryson	392,064,857	54,111,801
Anita L. DeFrantz	437,176,664	8,999,994
Michael Even*	438,730,118	7,446,540
Ronald L. Olson	438,641,905	7,534,753
William E.B. Siart	438,614,806	7,561,852
Louis A. Simpson	436,461,555	9,715,103
Jaynie Miller Studenmund	436,767,479	9,409,179

Michael Even resigned effective with his election to the Board.

At the continuation of the Annual Meeting of the Stockholders of Western Asset Funds, Inc. held on July 14, 2006 the following actions were taken:

The change to the classification of the investment objectives of each of Intermediate and Core were not approved:


	Shares Voted In Favor	Shares Voted Against	Abstained
Intermediate Bond Portfolio	27,950,635	13,397,149	6,572,220
Core Bond Portfolio	130,875,457	55,389,522	21,457,701

The elimination/amendment to certain of Core’s fundamental investment restrictions were each approved:


	Shares Voted In Favor	Shares Voted Against	Abstained
Eliminate investment restriction with respect to pledging assets	181,326,162	20,002,177	6,394,341
Approve amendment to investment restriction with respect to investments in commodities	164,158,079	37,223,252	6,341,349
Eliminate fundamental investment restriction with respect to margin transactions	161,287,083	40,035,013	6,400,584

219

Semi-Annual Report to Shareholders

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

R. Jay Gerken

Ronald L. Olson

Louis A. Simpson

Jaynie Miller Studenmund

Officers

James W. Hirschmann, President

D. Daniel Fleet, Vice President

Gavin L. James, Vice President

S. Kenneth Leech, Vice President

Stephen A. Walsh, Vice President

Susanne D. Wilson, Vice President

Marie K. Karpinski, Principal Financial and Accounting Officer

Erin K. Morris, Treasurer

Amy M. Olmert, Chief Compliance Officer

Lisa G. Mrozek, Secretary

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

10 Exchange Square

London, England EC2A2EN

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 each Fund uses 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’s (“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.

Each Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Form N-Q is available on the Securities and Exchange Commission’s (“SEC”) website (http://www.sec.gov) and may be viewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Quarterly portfolio holdings are also available upon request by calling 1-888-425-6432 or at www.lminstitutionalfunds.com/fund_information/fund_literature/gbl_literature/proxy_report.asp.

You should consider a fund’s investment objectives, risks, charges, and expenses carefully before investing. For a prospectus, which contains this and other information on any Fund, call 1-888-425-6432 or visit www.westernassetfunds.com. Please read the prospectus carefully before investing.

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

Legg Mason Investor Services, LLC, Distributor

Item 2. Code of Ethics.

Not applicable for semi-annual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semi-annual reports.

Item 4. Principal Accountant Fees and Services.

Not applicable for semi-annual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Schedule of Investments

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

Page 3 of 5

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 10.

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 rules 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 – filed as an exhibit hereto.

(a) (3) Not applicable.

(b) Certifications pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 – filed as an exhibit hereto.

Page 4 of 5

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 27, 2006

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 27, 2006


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

Date:		November 20, 2006

Page 5 of 5

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