Western Asset Funds, Inc.

N-CSRS 1 dncsrs.htm WESTERN ASSET FUNDS, INC. Western Asset Funds, Inc.

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: (410) 539-0000

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, 2008

Date of reporting period: September 30, 2007

Item 1. Report to Shareholders.

Western Asset Funds, Inc.

Western Asset Absolute Return Portfolio

Western Asset Core Bond Portfolio

Western Asset Core Plus Bond Portfolio

Western Asset High Yield Portfolio

Western Asset Inflation Indexed Plus Bond Portfolio

Western Asset Intermediate Bond Portfolio

Western Asset Intermediate Plus Bond Portfolio

Western Asset Limited Duration Bond Portfolio

Western Asset Non-U.S. Opportunity Bond Portfolio

Semi-Annual Report to Shareholders

September 30, 2007

Semi-Annual Report to Shareholders

Expense Example

Western Asset Absolute Return Portfolio

As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (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, 2007 and held through September 30, 2007.

Actual Expense

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 Examples 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 classes that appear in the shareholder reports of other funds.


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,016.30	$	4.80
Hypothetical (5% return before expenses)		1,000.00		1,020.31		4.81
Financial Intermediary Class:
Actual	$	1,000.00	$	1,015.00	$	6.06
Hypothetical (5% return before expenses)		1,000.00		1,019.05		6.07

These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid During the Period” are equal to the annualized expense ratios of 0.95% and 1.20% 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 Absolute Return Portfolio

The graphs compare the Fund’s total returns to that of two broad-based securities market indices. The graphs illustrate the cumulative total return of an initial $1,000,000 investment in each of 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 lines representing the securities market indexes do not include any transaction costs associated with buying and selling securities in the indexes 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. Non-U.S. investments are subject to currency fluctuations, social, economical and political 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 June 30, 2006.

Semi-Annual Report to Shareholders

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

LOGO

Indexreturns are for periods beginning August 31, 2006.

Semi-Annual Report to Shareholders

Performance Information—Continued

Portfolio Composition (as of September 30, 2007)

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.

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 Absolute Return Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE


Long-Term Securities	95.7%

Corporate Bonds and Notes	10.5%

Airlines	0.1%
Continental Airlines Inc.		6.820%	5/1/18	$	64	$	63
Continental Airlines Inc.		6.703%	6/15/21		69		69
United Air Lines Inc.		7.032%	10/1/10		192		193
United Air Lines Inc.		7.186%	10/1/12		120		121
US Airways Pass-Through Trust		6.850%	1/30/18		315		310

							756

Auto Components	0.1%
Visteon Corp.		8.250%	8/1/10		500		440


Automobiles	N.M.
Ford Motor Co.		4.250%	12/15/36		80		94	^A


Building Products	N.M.
Associated Materials Inc.		0.000%	3/1/14		155		98	^B
Masco Corp.		7.125%	8/15/13		50		52

							150

Capital Markets	0.5%
Lehman Brothers Holdings Capital Trust VII		5.857%	11/29/49		40		38	^B
Lehman Brothers Holdings Inc.		6.200%	9/26/14		320		321
The Bear Stearns Cos. Inc.		6.950%	8/10/12		2,330		2,430

							2,789

Commercial Banks	0.2%
HSBC Bank PLC		7.000%	11/1/11		294		294
HSBC Bank USA		7.000%	11/1/11		265		265	^C
HSBC Bank USA		7.000%	11/1/11		255		256	^C

							815

Commercial Services and Supplies	0.1%
Allied Security Escrow Corp.		11.375%	7/15/11		250		250
PHH Corp.		7.125%	3/1/13		110		116

							366

Consumer Finance	3.9%
Ford Motor Credit Co.		7.375%	10/28/09		4,360		4,275
Ford Motor Credit Co.		9.750%	9/15/10		2,000		2,040
Ford Motor Credit Co.		9.875%	8/10/11		3,700		3,748

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Corporate Bonds and Notes—Continued

Consumer Finance—Continued
GMAC LLC		4.375%	12/10/07	$	915	$	910
GMAC LLC		5.850%	1/14/09		1,320		1,292
GMAC LLC		6.875%	9/15/11		2,700		2,569
GMAC LLC		6.000%	12/15/11		1,600		1,477
GMAC LLC		6.625%	5/15/12		1,500		1,400
GMAC LLC		8.000%	11/1/31		2,930		2,875

							20,586

Containers and Packaging	N.M.
Graham Packaging Co. Inc.		9.875%	10/15/14		100		99
Graphic Packaging International Corp.		9.500%	8/15/13		150		154

							253

Diversified Financial Services	0.6%
Air 2 US		8.027%	10/1/19		961		975	^C
East Lane Re Ltd.		11.356%	5/6/11		300		300	^C,D
El Paso Performance-Linked		7.750%	7/15/11		340		349	^C
Glen Meadow Pass-Through Certificates		6.505%	2/12/67		100		96	^B,C
Sigma Finance Inc.		8.500%	8/11/16		500		482	^C,E
Vanguard Health Holding Co. II LLC		9.000%	10/1/14		250		243
ZFS Finance USA Trust II		6.450%	12/15/65		500		483	^B,C

							2,928

Diversified Telecommunication Services	0.1%
Level 3 Financing Inc.		9.250%	11/1/14		500		492
Qwest Corp.		7.500%	10/1/14		190		198

							690

Electric Utilities	0.1%
Edison Mission Energy		7.000%	5/15/17		190		187	^C
Edison Mission Energy		7.200%	5/15/19		250		246	^C
Edison Mission Energy		7.625%	5/15/27		90		87	^C

							520

Food and Staples Retailing	0.1%
CVS Corp.		9.350%	1/10/23		500		569	^C
CVS Corp.		5.298%	1/11/27		35		33	^C
CVS Lease Pass-Through Trust		5.880%	1/10/28		45		43	^C
CVS Lease Pass-Through Trust		6.036%	12/10/28		121		118	^C

							763

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Corporate Bonds and Notes—Continued

Food Products	0.1%
H.J. Heinz Co.		6.428%	12/1/08	$	100	$	102	^C
Sara Lee Corp.		6.250%	9/15/11		150		155

							257

Gas Utilities	0.1%
Suburban Propane Partners LP		6.875%	12/15/13		500		487


Health Care Equipment and Supplies	N.M.
Advanced Medical Optics Inc.		7.500%	5/1/17		250		230


Health Care Providers and Services	0.7%
AmerisourceBergen Corp.		5.875%	9/15/15		50		49
Cardinal Health Inc.		5.800%	10/15/16		60		59	^C
DaVita Inc.		6.625%	3/15/13		500		496
HCA Inc.		9.125%	11/15/14		10		11	^C
HCA Inc.		6.500%	2/15/16		893		759
HCA Inc.		9.250%	11/15/16		910		967	^C
HCA Inc.		9.625%	11/15/16		599		639	^C,F
Tenet Healthcare Corp.		6.375%	12/1/11		670		586
Tenet Healthcare Corp.		9.875%	7/1/14		29		27

							3,593

Hotels, Restaurants and Leisure	0.3%
Buffets Inc.		12.500%	11/1/14		250		175
Inn of the Mountain Gods Resort and Casino		12.000%	11/15/10		200		211
Las Vegas Sands LLC		6.950%	12/31/07		800		778
MGM MIRAGE		6.625%	7/15/15		140		133
Starwood Hotels and Resorts Worldwide Inc.		7.875%	5/1/12		50		53

							1,350

Independent Power Producers and Energy Traders	0.4%
NRG Energy Inc.		7.375%	2/1/16		250		251
The AES Corp.		7.750%	3/1/14		1,800		1,827

							2,078

Insurance	N.M.
The Travelers Cos. Inc.		6.250%	3/15/37		80		77	^B


IT Services	0.1%
SunGard Data Systems Inc.		10.250%	8/15/15		250		261

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†			VALUE

Corporate Bonds and Notes—Continued

Leisure Equipment and Products	0.4%
Eastman Kodak Co.		7.250%	11/15/13	$	1,870		$	1,856


Media	0.1%
EchoStar DBS Corp.		7.125%	2/1/16		300			308
Gannett Co. Inc.		6.375%	4/1/12		40			41
Idearc Inc.		8.000%	11/15/16		250			250
Viacom Inc.		5.750%	4/30/11		100			101

								700

Metals and Mining	0.1%
Freeport-McMoRan Copper & Gold Inc.		8.375%	4/1/17		500			546


Oil, Gas and Consumable Fuels	0.8%
Anadarko Petroleum Corp.		6.094%	9/15/09		170			169	^D
Anadarko Petroleum Corp.		5.950%	9/15/16		540			535
Chesapeake Energy Corp.		6.375%	6/15/15		400			392
El Paso Corp.		7.000%	6/15/17		2,640			2,681
Gazprom		6.950%	8/6/09		5,470	RUB		221
Gazprom		6.790%	10/29/09		620	RUB		25
Gazprom		7.000%	10/27/11		210	RUB		9
SemGroup LP		8.750%	11/15/15		85			83	^C

								4,115

Pharmaceuticals	N.M.
Leiner Health Products Inc.		11.000%	6/1/12		250			210


Real Estate Investment Trusts	0.1%
Health Care Property Investors Inc.		6.450%	6/25/12		60			62
iStar Financial Inc.		5.850%	3/15/17		770			681

								743

Real Estate Management and Development	0.1%
Realogy Corp.		12.375%	4/15/15		755			570	^C


Road and Rail	0.1%
Hertz Corp.		8.875%	1/1/14		200			206
Saint Acquisition Corp.		12.500%	5/15/17		120			80	^C

								286

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Corporate Bonds and Notes—Continued

Textiles, Apparel and Luxury Goods	0.1%
Levi Strauss and Co.		9.750%	1/15/15	$	150	$	157
Oxford Industries Inc.		8.875%	6/1/11		200		202

							359

Thrifts and Mortgage Finance	1.2%
Countrywide Financial Corp.		5.585%	2/28/08		2,000		1,980	^D
Countrywide Financial Corp.		5.600%	4/30/08		2,200		2,162	^D
Countrywide Financial Corp.		5.756%	6/18/08		300		294	^D
Countrywide Home Loans Inc.		5.665%	2/27/08		300		297	^D
Residential Capital LLC		6.460%	4/17/09		90		77	^D
Residential Capital LLC		7.595%	5/22/09		250		212	^G
Residential Capital LLC		6.000%	2/22/11		1,480		1,206

							6,228

Wireless Telecommunication Services	N.M.
Rural Cellular Corp.		8.621%	6/1/13		20		21	^C,D

Total Corporate Bonds and Notes (Cost—$56,314)							55,117
Asset-Backed Securities	6.4%

Fixed Rate Securities	0.3%
ABSC Manufactured Housing Contract 2004-CN1		8.400%	12/2/30		170		153	^C
Bombardier Capital Mortgage Securitization Corp. 2000-A A3		7.830%	6/15/30		947		677
Centex Home Equity 2003-B AF4		3.235%	2/25/32		143		139
Oakwood Mortgage Investors Inc. 1999-D A1		7.840%	11/15/29		335		313
Pegasus Aviation Lease Securitization 2000-1 A2		8.370%	3/25/30		390		234	^C

							1,516

Indexed Securities^D	5.9%
ACE Securities Corp. 2006-GP1 A		5.261%	2/25/31		931		917
Asset Backed Securities Corp. Home Equity Loan Trust 2007-HE1 A4		5.271%	12/25/36		1,470		1,422
Bear Stearns Asset-Backed Securities Trust 2006-SD2		5.331%	6/25/36		1,059		1,044
Carrington Mortgage Loan Trust 2006-NC4 A2		5.231%	10/25/36		1,450		1,425
Citigroup Mortgage Loan Trust Inc. 2006-SHL1 A1		5.331%	11/25/45		266		262	^C
Countrywide Home Equity Loan Trust 2006-B 2A		5.923%	5/15/36		651		641
Countrywide Home Equity Loan Trust 2006-D 2A		5.953%	5/15/36		1,187		1,159
Fremont Home Loan Trust 2006-B 2A2		5.231%	8/25/36		3,000		2,972
GMAC Mortgage Corp. Loan Trust 2006-HE4 A1		5.201%	12/25/36		2,600		2,566
GSAMP Trust 2006-SEA1 A		5.431%	5/25/36		565		520	^C

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Asset-Backed Securities—Continued

Indexed Securities—Continued
GSRPM Mortgage Loan Trust 2006-2 A2		5.431%	9/25/36	$	769	$	731	^C
HSI Asset Securitization Corp. Trust 2007-NC1 A3		5.311%	4/25/37		2,740		2,588
IXIS Real Estate Capital Trust 2005-HE4 A3		5.471%	2/25/36		1,300		1,237
Lehman XS Trust 2006-16N A4B		5.371%	11/25/46		857		836
Lehman XS Trust 2006-2N 1A1		5.391%	2/25/46		534		521
Lehman XS Trust 2006-GP3 2A2		5.351%	6/25/46		870		854
Lehman XS Trust 2007-2N 3A1		5.221%	2/25/37		3,399		3,372
MASTR Asset Backed Securities Trust 2006-FRE1 A2		5.251%	12/25/35		1,300		1,289
MASTR Second Lien Trust 2005-1 A		5.401%	9/25/35		999		994
MASTR Specialized Loan Trust 2006-3 A		5.391%	6/25/46		659		646	^C
Morgan Stanley Home Equity Loans 2007-1 A3		5.271%	12/25/36		2,720		2,622
Morgan Stanley Mortgage Loan Trust 2006-12XS		5.251%	10/25/36		744		744
Option One Mortgage Loan Trust 2005-1 A4		5.531%	2/25/35		1,070		1,033
RAAC 2006-RP4 A		5.421%	1/25/46		1,001		979	^C

							31,374

Stripped Securities	0.1%
First Franklin Mortgage Loan Asset-Backed Certificates 2006-FF5 2A5		0.000%	4/25/36		400		319	^H2


Variable Rate Securities	0.1%
GSAMP Trust 2006-S3 A1		6.085%	5/25/36		518		374	^B

Total Asset-Backed Securities (Cost—$33,955)							33,583
Mortgage-Backed Securities	15.1%

Fixed Rate Securities	0.3%
Banc of America Funding Corp. 2006-8T2 A2		5.791%	10/25/36		834		833
BlackRock Capital Finance LP 1997-R1		7.750%	3/25/37		354		142	^C
Indymac Manufactured Housing Contract A2-2		6.170%	12/25/11		749		723

							1,698

Indexed Securities^D	11.8%
American Home Mortgage Assets 2006-6 A1A		5.321%	12/25/46		720		706
American Home Mortgage Investment Trust 2005-4 5A		5.350%	11/25/45		983		972
Banc of America Mortgage Securities 2003-F 1A1		7.149%	7/25/33		48		48
Banc of America Mortgage Securities 2003-I 2A5		4.150%	10/25/33		1,616		1,594
Banc of America Mortgage Securities 2004-A 1A1		6.084%	2/25/34		162		164
Banc of America Mortgage Securities 2004-E 2A3		4.110%	6/25/34		961		952
Bear Stearns Adjustable Rate Mortgage Trust 2005-12 23A1		5.734%	2/25/36		3,519		3,527

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
Bear Stearns Alt-A Trust 2004-10 1A1		5.471%	9/25/34	$	270	$	270
Bear Stearns Alt-A Trust 2004-11 1A2		5.551%	11/25/34		189		189
Bear Stearns Alt-A Trust 2005-2 1A1		5.381%	3/25/35		89		89
Bear Stearns Mortgage Funding Trust 2006-AR5 1A1		5.291%	12/25/46		1,266		1,242
Citigroup Mortgage Loan Trust Inc. 2005-9 1A1		5.391%	11/25/35		777		765
Countrywide Alternative Loan Trust 2005-24 4A1		5.726%	7/20/35		944		925
Countrywide Alternative Loan Trust 2005-51 2A1		5.796%	11/20/35		565		549
Countrywide Alternative Loan Trust 2005-59 1A1		5.868%	11/20/35		721		706
Countrywide Alternative Loan Trust 2005-76 3A1		5.391%	1/25/46		642		625
Countrywide Alternative Loan Trust 2006-OA1 1A1		5.706%	3/20/46		362		352
Countrywide Alternative Loan Trust 2006-OA10 4A3		5.401%	8/25/46		2,518		2,451
Countrywide Alternative Loan Trust 2006-OA8 1A2		5.361%	7/25/46		764		743
Countrywide Alternative Loan Trust 2006-OA9 1A1		5.696%	7/20/46		1,358		1,327
Countrywide Home Loans 2001-HYB1 1A1		6.926%	6/19/31		53		52
Countrywide Home Loans 2003-60 1A1		4.731%	2/25/34		983		965
Countrywide Home Loans 2003-HYB1 1A1		3.691%	5/19/33		133		133
Countrywide Home Loans 2006-3 1A2		5.461%	3/25/36		679		669
Deutsche Mortgage Securities Inc. 2004-4 7AR2		5.581%	6/25/34		551		547
First Horizon Alternative Mortgage Securities 2005-AA12 1A1		5.923%	2/25/36		701		709
Greenpoint Mortgage Funding Trust 2006-AR3 3A1		5.361%	4/25/36		965		947
GSR Mortgage Loan Trust 2006-0A1 2A2		5.391%	8/25/46		741		720
Harborview Mortgage Loan Trust 2006-13 A		5.683%	11/19/46		903		893
Harborview Mortgage Loan Trust 2006-14 2A1A		5.653%	3/19/38		1,395		1,360
Impac CMB Trust 2004-5 1A1		5.491%	10/25/34		358		358
Impac CMB Trust 2004-6 1A2		5.521%	10/25/34		553		547
Impac CMB Trust 2005-7 A1		5.391%	10/25/35		712		708
Impac Secured Assets Corp. 2004-3 1A4		5.531%	11/25/34		30		31
Impac Secured Assets Corp. 2005-2		5.451%	3/25/36		605		593
IXIS Real Estate Capital Trust 2006-HE2 A1		5.191%	8/25/36		1,077		1,075
Lehman XS Trust 2006-GP2 1A1A		5.201%	6/25/46		482		479
Merit Securities Corp. 11PA B2		7.005%	9/28/32		63		58	^C
Merrill Lynch Mortgage Investors Trust 2004-A3 4A3		5.029%	5/25/34		1,505		1,445
Residential Accredit Loans Inc. 2007-Q01 A1		5.281%	2/25/37		3,726		3,546
Structured Adjustable Rate Mortgage Loan Trust 2004-7 A1		5.401%	6/25/34		28		28
Structured Adjustable Rate Mortgage Loan Trust 2005-19XS		5.451%	10/25/35		2,208		2,152
Structured Asset Mortgage Investments Inc. 2003-AR2 A1		5.873%	12/19/33		149		148

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
Structured Asset Mortgage Investments Inc. 2006-AR6		5.321%	7/25/36	$	2,466	$	2,396
Structured Asset Mortgage Investments Inc. 2007-AR4 A1		5.700%	9/25/47		2,430		2,401
Structured Asset Securities Corp. 2002-08A 7A1		6.846%	5/25/32		192		191
Structured Asset Securities Corp. 2002-11A 1A1		6.925%	6/25/32		46		46
Structured Asset Securities Corp. 2002-16A 1A1		7.689%	8/25/32		365		364
Structured Asset Securities Corp. 2002-18A 1A1		7.710%	9/25/32		34		34
Structured Asset Securities Corp. 2004-NP1 A		5.531%	9/25/33		342		336	^C
Thornburg Mortgage Securities Trust 2004-1 I2A		5.581%	3/25/44		68		68
Thornburg Mortgage Securities Trust 2005-3 A1		5.361%	10/25/45		206		205
Thornburg Mortgage Securities Trust 2005-3 A4		5.401%	10/25/45		751		748
Thornburg Mortgage Securities Trust 2006-1		5.301%	1/25/46		966		961
WaMu Mortgage Pass-Through Certificates 2006-AR11 3A1A		5.903%	9/25/46		3,385		3,307
WaMu Mortgage Pass-Through Certificates 2006-AR2 A1A		5.923%	4/25/46		5,296		5,206
WaMu Mortgage Pass-Through Certificates 2006-AR3 A1A		5.953%	5/25/46		4,195		4,101
WaMu Mortgage Pass-Through Certificates 2006-AR4 DA		5.953%	6/25/46		2,205		2,148
WaMu Mortgage Pass-Through Certificates 2006-AR6 2A		5.943%	8/25/46		2,990		2,915

							61,786

Variable Rate Securities^E	3.0%
Adjustable Rate Mortgage Trust 2004-1 4A1		5.551%	1/25/35		5,331		5,235
Bear Stearns Adjustable Rate Mortgage Trust 2004-12 1A1		4.175%	2/25/35		358		355
Bear Stearns Alt-A Trust 2003-5 2A1		4.898%	12/25/33		955		947
BlackRock Capital Finance LP 1996-R1		9.555%	9/25/26		458		284
Morgan Stanley Mortgage Loan Trust 2004-6AR		6.133%	8/25/34		174		174
Morgan Stanley Mortgage Loan Trust 2006-3AR 2A3		5.700%	3/25/36		757		768
Sequoia Mortgage Trust 2007-4 4A1		6.046%	7/20/47		1,900		1,869
Structured Adjustable Rate Mortgage Loan Trust 2004-17 A1		6.098%	11/25/34		90		92
Structured Adjustable Rate Mortgage Loan Trust 2004-4 3A2		4.590%	9/25/37		1,354		1,342
Thornburg Mortgage Securities Trust 2007-4 2A1		6.240%	11/25/17		2,067		2,074

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Mortgage-Backed Securities—Continued

Variable Rate Securities—Continued
Thornburg Mortgage Securities Trust 2007-4 3A1		6.228%	9/25/37	$	1,889	$	1,872
Wells Fargo Mortgage-Backed Securities Trust 2005-AR9 4A1		4.305%	5/25/35		845		837

							15,849

Total Mortgage-Backed Securities (Cost—$79,954)							79,333
Loan Participations and Assignments^D	9.7%

Aerospace and Defense	0.4%
Dubai Aerospace Enterprise, Bridge Loan		9.110%	1/31/08		1,000		990
TransDigm Inc., Term Loan, Tranche B		7.200%	12/27/07		1,000		978

							1,968

Airlines	0.2%
Delta Air Lines Inc., Second Lien Term Loan		8.610%	10/30/07		1,000		967


Auto Components	0.2%
Allison Transmission Inc., Term Loan, Tranche B		8.480% to 8.570%	12/10/07		1,000		967


Automobiles	0.2%
Chrysler Financial Services NA LLC, First Lien Term Loan		9.360%	11/8/07		1,000		997


Chemicals	0.1%
Georgia Gulf Corp., Term Loan		8.298%	10/9/07		621		606


Commercial Services and Supplies	0.6%
Allied Waste North America Inc., Credit Linked Deposit, Tranche A		6.820%	10/1/07		277		273
Allied Waste North America Inc., Term Loan		6.630% to 6.890%	2/18/08		509		502
Aramark Corp., Letter of Credit		7.198%	12/31/07		148		145
Aramark Corp., Term Loan, Tranche B		7.198%	12/31/07		2,106		2,067

							2,987

Communications Equipment	0.4%
Panamsat Corp., Term Loan, Tranche B		7.360%	10/2/07		1,995		1,968

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Loan Participations and Assignments—Continued

Computers and Peripherals	0.3%
CCG, Term Loan, Tranche B		7.360%	11/1/07	$	895	$	869
SunGard Data Systems Inc., Term Loan, Tranche B		7.356%	11/8/07		992		974

							1,843

Containers and Packaging	0.3%
Amscan Holdings Inc., Term Loan, Tranche B		7.345% to 9.000%	12/31/07		998		950
Graham Packaging Co. LP, Term Loan, Tranche B		7.500% to 8.000%	3/4/08		998		981

							1,931

Distributors	0.2%
Keystone Automotive Industries Inc., Term Loan, Tranche B		8.820% to 10.250%	12/31/07		998		918


Diversified Consumer Services	0.2%
Thomson Medical Education, First Lien Term Loan		7.950%	12/31/07		1,000		995


Health Care Providers and Services	1.2%
Community Health Systems Inc., Term Loan, Tranche B		7.760%	11/30/07		2,345		2,301
Davita Inc., Term Loan, Tranche B1		6.700% to 7.010%	12/31/07		1,000		980
HCA Inc., Term Loan, Tranche B		7.448%	12/31/07		995		974
IASIS Healthcare Corp., Term Loan		7.360%	10/26/07		1,000		951
Sheridan Healthcare Inc., Term Loan, Tranche B		7.860%	10/16/07		1,000		930

							6,136

Hotels, Restaurants and Leisure	0.3%
Quiznos LLC, First Lien Term Loan		7.450% to 7.610%	12/28/07		992		962
Wimar Opco LLC, Term Loan, Tranche B		7.448%	12/31/07		977		944

							1,906

Independent Power Producers and Energy Traders	0.3%
NRG Energy Inc., Term Loan		7.110%	10/1/07		1,500		1,470

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Loan Participations and Assignments—Continued

IT Services	0.6%
First Data Corp., Term Loan, Tranche B1		7.960%	12/24/07	$	3,370	$	3,232


Machinery	0.4%
Nacco Materials Handling Group, Term Loan		7.350% to 7.665%	11/15/07		995		958
Oshkosh Truck Corp., Term Loan, Tranche B		7.450%	12/6/07		995		979

							1,937

Media	2.2%
Cedar Fair LP, Term Loan, Tranche B		7.129%	10/31/07		990		968
Charter Communications Operating LLC, Term Loan		7.360%	10/30/07		1,000		964
Citadel Communication Group, Term Loan, Tranche B		6.755% to 6.825%	12/31/07		1,000		951
CSC Holdings Inc., Incremental Term Loan		7.569%	10/9/07		990		975
Discovery Communications Inc., Term Loan, Tranche B		7.198%	12/31/07		1,000		980
Idearc Inc., Term Loan, Tranche B		7.200%	12/31/07		995		979
Insight Midwest Holdings LLC, Term Loan, Tranche B		7.110% to 7.360%	10/5/07		1,000		979
Lodgenet Entertainment Corp., Term Loan, Tranche B		7.360%	12/31/07		1,000		975
Nielsen Finance LLC, Term Loan, Tranche B		7.360%	11/9/07		990		961
Tribune Co., Tranche B		8.360%	10/5/07		1,000		907
Univision Communications, Term Loan, Tranche B		7.610%	10/31/07		940		893
UPC Broadband Holding, Term Loan, Tranche N		7.130%	1/2/08		1,000		956

							11,488

Metals and Mining	0.2%
Noranda Aluminum Acquisition Corp., Term Loan		7.510%	11/19/07		1,000		970


Multiline Retail	0.4%
Dollar General Corp., Term Loan, Tranche B		8.108%	10/31/07		1,000		949
Neiman Marcus Group Inc., Term Loan		7.448%	12/6/07		1,000		983

							1,932

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Loan Participations and Assignments—Continued

Oil, Gas and Consumable Fuels	0.2%
Alpha Natural Resources, Term Loan, Tranche B		7.110%	10/1/07	$	995	$	978


Paper and Forest Products	0.2%
Georgia-Pacific Corp., First Lien Term Loan		6.948% to 7.474%	12/31/07		990		968


Road and Rail	0.1%
Swift Transportation, Term Loan		8.375%	11/1/07		884		800


Semiconductors and Semiconductor Equipment	0.3%
Freescale Semiconductor, Term Loan, Tranche B		7.330%	12/3/07		993		947
Sensata Technologies, Term Loan, Tranche B		7.090% to 7.110%	10/29/07		990		948

							1,895

Specialty Retail	0.2%
Michaels Stores Inc., Term Loan B		7.625% to 8.125%	1/31/08		997		966

Total Loan Participations and Assignments (Cost—$51,819)							50,825
U.S. Government and Agency Obligations	6.2%

Fixed Rate Securities	3.1%
Federal Home Loan Bank		5.500%	5/21/09		6,900		6,904
United States Treasury Notes		3.625%	7/15/09		2,960		2,943
United States Treasury Notes		4.750%	8/15/17		6,110		6,192

							16,039

Treasury Inflation-Protected Securities^I	3.1%
United States Treasury Inflation-Protected Security		0.875%	4/15/10		1,083		1,047
United States Treasury Inflation-Protected Security		2.375%	4/15/11		861		866
United States Treasury Inflation-Protected Security		2.000%	1/15/16		3,568		3,488
United States Treasury Inflation-Protected Security		2.500%	7/15/16		4,074		4,150

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

U.S. Government and Agency Obligations—Continued

Treasury Inflation-Protected Securities—Continued
United States Treasury Inflation-Protected Security		2.375%	1/15/17	$	4,318	$	4,349
United States Treasury Inflation-Protected Security		2.375%	1/15/27		2,572		2,603

							16,503

Total U.S. Government and Agency Obligations (Cost—$31,943)							32,542
U.S. Government Agency Mortgage-Backed Securities	42.6%

Fixed Rate Securities	24.7%
Fannie Mae		5.000%	12/1/37		80,320		76,595	^J
Fannie Mae		5.500%	12/1/37		42,300		41,412	^J
Fannie Mae		6.000%	12/1/37		11,600		11,613	^J

							129,620

Indexed Securities^D	17.9%
Fannie Mae		5.878%	3/1/36		5,395		5,445
Fannie Mae		5.861%	6/1/36		1,801		1,810
Fannie Mae		5.807%	9/1/36		23,635		23,888
Fannie Mae		5.585%	12/1/36		1,399		1,406
Fannie Mae		6.454%	1/1/37		5,139		5,228
Fannie Mae		5.726%	4/1/37		5,647		5,698
Fannie Mae		5.896%	4/1/37		3,658		3,685
Fannie Mae		6.238%	4/1/37		4,457		4,514
Freddie Mac		5.524%	1/1/36		3,004		3,023
Freddie Mac		5.990%	6/1/36		1,863		1,894
Freddie Mac		5.726%	7/1/36		8,710		8,780
Freddie Mac		6.157%	12/1/36		5,124		5,219
Freddie Mac		5.603%	1/1/37		1,100		1,106
Freddie Mac		5.889%	2/1/37		1,083		1,091
Freddie Mac		5.818%	5/1/37		1,127		1,137
Freddie Mac		5.895%	5/1/37		3,379		3,413
Freddie Mac		6.057%	5/1/37		8,774		8,912
Freddie Mac		5.796%	6/1/37		570		575
Freddie Mac		6.225%	9/1/37		6,970		7,004

							93,828

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$222,809)							223,448

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†		VALUE

Yankee Bonds^K	3.5%

Commercial Banks	2.5%
Barclays Capital		5.456%	3/20/08	$	700	$	685	^C,D
Glitnir Banki Hf		6.375%	9/25/12		680		682	^C
Glitnir Banki Hf		6.693%	6/15/16		1,810		1,850	^B,C
Glitnir Banki Hf		7.451%	9/14/49		100		99	^B,C
HBOS Capital Funding LP		6.071%	6/30/49		230		221	^B,C
HSBK Europe BV		7.250%	5/3/17		1,480		1,335	^C
ICICI Bank Ltd.		6.375%	4/30/22		1,422		1,330	^B,C
ICICI Bank Ltd.		6.375%	4/30/22		160		150	^B,C
Kaupthing Bank Hf		7.125%	5/19/16		240		242	^C
Landsbanki Islands Hf		6.100%	8/25/11		2,190		2,219	^C
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		300		278	^B,C
TuranAlem Finance BV		8.250%	1/22/37		1,330		1,124	^C
TuranAlem Finance BV		8.250%	1/22/37		500		436	^C
VTB Capital SA for Vneshtorgbank		5.956%	8/1/08		2,651		2,624	^C,D

							13,275

Diversified Financial Services	0.4%
TNK-BP Finance SA		7.500%	7/18/16		781		779	^C
TNK-BP Finance SA		7.500%	7/18/16		550		546	^C
TNK-BP Finance SA		6.625%	3/20/17		200		186	^C
TNK-BP Finance SA		6.625%	3/20/17		342		320	^C

							1,831

Diversified Telecommunication Services	0.1%
Intelsat Bermuda Ltd.		9.250%	6/15/16		250		259


Energy Equipment and Services	N.M.
Compagnie Generale de Geophysique-Veritas		7.750%	5/15/17		250		258


Foreign Governments	0.2%
Federative Republic of Brazil		8.000%	1/15/18		520		580
Federative Republic of Brazil		11.000%	8/17/40		206		276
Republic of Panama		9.375%	4/1/29		141		189

							1,045

Metals and Mining	0.3%
Vale Overseas Ltd.		8.250%	1/17/34		60		71
Vale Overseas Ltd.		6.875%	11/21/36		1,546		1,593

							1,664

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†			VALUE

Yankee Bonds—Continued

Wireless Telecommunication Services	N.M.
Vodafone Group PLC		5.000%	9/15/15	$	100		$	94

Total Yankee Bonds (Cost—$19,020)								18,426
Foreign Government Obligations	1.7%
Commonwealth of Australia		4.000%	8/20/20		1,730	AUD		2,335	^L
Federative Republic of Brazil		10.000%	1/1/10		—	^M BRL		1
Federative Republic of Brazil		10.000%	7/1/10		2	BRL		962
Federative Republic of Brazil		6.000%	5/15/15		1	BRL		508	^L
Federative Republic of Brazil		6.000%	5/15/45		1	BRL		526	^L
Kingdom of Sweden Inflation-Protected Notes		3.500%	12/1/28		15,000	SEK		3,335	^L
Republic of Argentina		2.000%	1/3/10		1,089	ARS		443	^L
United Kingdom Treasury Gilt		1.250%	11/22/55		363	GBP		858	^L

Total Foreign Government Obligations (Cost—$8,556)								8,968
Preferred Stocks	N.M.
Fannie Mae		7.000%			2	Shs		99	^D

Total Preferred Stocks (Cost—$101)								99

Total Long-Term Securities (Cost—$504,471)								502,341
Short-Term Securities	29.3%

U.S. Government and Agency Obligations	0.1%
Fannie Mae		0.000%	3/17/08	$	725			710	^N,O


Corporate Bonds and Notes	1.0%
Banc of America Corp.		5.130%	10/2/07		5,000			4,999


Foreign Government Obligations	0.9%
Bank Negara Malaysia Monetary Notes		0.000%	11/1/07		620	MYR		182	^N
Bank Negara Malaysia Monetary Notes		0.000%	12/6/07		163	MYR		48	^N
Bank Negara Malaysia Monetary Notes		0.000%	1/17/08		2,933	MYR		846	^N
Egypt Treasury Bills		0.000%	10/30/07		550	EGP		98	^N
Egypt Treasury Bills		0.000%	10/30/07		3,925	EGP		698	^N
Egypt Treasury Bills		0.000%	11/6/07		275	EGP		49	^N

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES^†			VALUE

Short-Term Securities—Continued

Foreign Government Obligations—Continued
Egypt Treasury Bills		0.000%	11/20/07		675	EGP	$	119	^N
Egypt Treasury Bills		0.000%	1/15/08		13,500	EGP		2,365	^N
Egypt Treasury Bills		0.000%	2/18/08		850	EGP		148	^N
Egypt Treasury Bills		0.000%	3/25/08		850	EGP		147	^N
Egypt Treasury Bills		0.000%	4/1/08		425	EGP		73	^N

								4,773

Options Purchased^P	1.1%
Eurodollar Futures Call, March 2008, Strike Price $94.00					1,198	^Q		4,433
Eurodollar Futures Call, March 2008, Strike Price $94.25					100	^Q		307
Eurodollar Futures Put, June 2008, Strike Price $93.75					202	^Q		1
Eurodollar Futures Put, June 2008, Strike Price $94.00					205	^Q		1
LIBOR Call, March 2008, Strike Price $93.50					419	^Q		921

								5,663

Repurchase Agreement	26.2%
Lehman Brothers Inc. 4.75%, dated 9/28/07, to be repurchased at $137,171 on 10/1/07 (Collateral: $79,797 Fannie Mae notes, 6.63%, due 9/15/09, value $83,283, $100,000 Federal Home Loan Bank notes, zero-coupon bond, due 7/29/19, value $50,490, $6,035 Federal Home Loan Bank notes, 4.5%, due 6/22/10, value $6,086)				$	137,117			137,117

Total Short-Term Securities (Cost—$151,411)								153,262
Total Investments (Cost—$655,587)^R	125.0%							655,603
Other Assets Less Liabilities	(25.0)%							(131,064	)


Net Assets	100.0%						$	524,539


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^P
Bundesobligations Futures	December 2007	5	$	(3	)
Eurodollar Futures	December 2007	157		112
Eurodollar Futures	March 2008	121		(14	)
LIBOR Futures	March 2008	70		57
U.S. Treasury Bond Futures	December 2007	114		20
U.S. Treasury Note Futures	December 2007	602		357

			$	529

Semi-Annual Report to Shareholders


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Written^P
Eurodollar Futures	September 2008	27	$	(47	)
Eurodollar Futures	December 2008	7		(5	)
Eurodollar Futures	June 2009	57		(39	)
U.S. Treasury Note Futures	December 2007	714		197

			$	106

Options Written^P
Eurodollar Futures Call, Strike Price $95.50	March 2008	43	$	1
Eurodollar Futures Call, Strike Price $96.00	March 2008	209		62
Eurodollar Futures Put, Strike Price $95.25	March 2008	210		30
Eurodollar Futures Put, Strike Price $95.50	March 2008	43		1
U.S. Treasury Note Futures Call, Strike Price $112.00	November 2007	86		47
U.S. Treasury Note Futures Put, Strike Price $105.00	November 2007	20		13
U.S. Treasury Note Futures Put, Strike Price $107.00	February 2008	66		8

			$	162

N.M.—Not Meaningful.

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

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

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 4.99% of net assets.

Indexed Security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Euro Interbank Offered Rate (“EURIBOR”) Index, the Consumer Price Index (“CPI”), the one-year Treasury Bill Rate or the ten-year Japanese Government Bond Rate. The coupon rates are the rates as of September 30, 2007.

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

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

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

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

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

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

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

Inflation-Protected Security – 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.

Amount represents less than $0.05.

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

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

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

Par represents actual number of contracts.

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Absolute Return Portfolio—Continued

Aggregate cost for federal income tax purposes is substantially the same as book cost. At September 30, 2007, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:


Gross unrealized appreciation	$	5,357
Gross unrealized depreciation		(5,341	)

Net unrealized appreciation/(depreciation)	$	16

^†

Securities are denominated in U.S. Dollars, unless otherwise noted.

ARS—Argentine Peso

AUD—Australian Dollar

BRL—Brazilian Real

EGP—Egyptian Pound

GBP—British Pound

MYR—Malaysian Ringgit

RUB—Russian Ruble

SEK—Swedish Krona

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Absolute Return Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$504,471)				$	502,341
Short-term securities at value (Cost—$151,411)					153,262
Cash					894
Foreign currency at value (Cost—$346)					350
Receivable for securities sold					79,188
Receivable for fund shares sold					127
Interest receivable					3,608
Futures variation margin receivable					96
Unrealized appreciation of forward foreign currency contracts					521

Total assets					740,387


Liabilities:
Swap contracts at value	$	390
Payable for securities purchased		214,373
Payable for fund shares repurchased		59
Accrued management fee		315
Accrued distribution fees		—	^A
Income distribution payable		119
Options written (Proceeds—$438)		276
Unrealized depreciation of forward foreign currency contracts		62
Amounts payable on swaps		13
Accrued expenses		241

Total liabilities					215,848


Net Assets				$	524,539


Net assets consist of:
Accumulated paid-in-capital				$	525,992
Undistributed net investment income					90
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions					(2,386	)
Unrealized appreciation of investments, options, futures, swaps and foreign currency translations					843


Net Assets				$	524,539


Net Asset Value Per Share:
Institutional Class (52,008 shares outstanding)					$10.09
Financial Intermediary Class (2 shares outstanding)					$10.09

Amount less than $1.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Absolute Return Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	12,659
Dividends		2

Total income				$	12,661
Expenses:
Management fees		1,632
Distribution fees:
Financial Intermediary Class		—	^A
Audit and legal fees		88
Custodian fees		46
Directors’ fees and expenses		12
Registration fees		68
Reports to shareholders		15
Transfer agent and shareholder servicing expense:
Institutional Class		8
Financial Intermediary Class		—	^A
Other expenses		22

		1,891
Less: Expenses reimbursed by adviser		—	^A
Compensating balance credits		(16	)
Fees recaptured		190

Net expenses					2,065

Net Investment Income					10,596
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		484
Options		(1,104	)
Futures		(1,396	)
Swaps		465
Foreign currency transactions		(324	)

					(1,875	)
Change in unrealized appreciation/depreciation of:
Investments, options, futures, swaps and foreign currency translations		(335	)
Assets and liabilities denominated in foreign currency		(41	)

					(376	)

Net Realized and Unrealized Loss on Investments					(2,251	)

Change in Net Assets Resulting From Operations				$	8,345

Amount less than $1.

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Western Asset Absolute Return Portfolio

(Amounts in Thousands)


	FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007			FOR THE PERIOD ENDED MARCH 31, 2007^A
Change in Net Assets:	(Unaudited)
Net investment income	$	10,596		$	5,736

Net realized gain/(loss)		(1,875	)		2,151

Change in unrealized appreciation/depreciation		(376	)		1,219

Change in net assets resulting from operations		8,345			9,106

Distributions to shareholders from:
Net investment income:
Institutional Class		(10,585	)		(5,734	)
Financial Intermediary Class		—	^B		—	^B

Net realized gain on investments:
Institutional Class		(1,802	)		(783	)
Financial Intermediary Class		—	^B		—	^B

Change in net assets from fund share transactions:
Institutional Class		157,325			368,650
Financial Intermediary Class		—	^B		17

Change in net assets		153,283			371,256

Net Assets:
Beginning of period		371,256			—


End of period	$	524,539		$	371,256


Under distributions of net investment income	$	90		$	79

For the period July 6, 2006 (commencement of operations) to March 31, 2007.

Amount less than $1.

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Absolute Return Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			PERIOD ENDED MARCH 31, 2007^A
	(Unaudited)
Net asset value, beginning of period	$	10.23		$	10.00

Investment operations:
Net investment income		.25	^B		.36	^B
Net realized and unrealized gain		(.10	)		.29

Total from investment operations		.15			.65

Distributions from:
Net investment income		(.24	)		(.35	)
Net realized gain on investments		(.05	)		(.07	)

Total distributions		(.29	)		(.42	)

Net asset value, end of period	$	10.09		$	10.23

Total return		1.63	%^C		6.63	%^C

Ratios to Average Net Assets:^D
Total expenses		.87	%^E		1.09	%^E
Expenses net of waivers, if any		.96	%^E		.93	%^E
Expenses net of all reductions		.95	%^E		.89	%^E
Net investment income		4.87	%^E		4.90	%^E

Supplemental Data:
Portfolio turnover rate		196.3	%^C		182.2	%^C
Net assets, end of period (in thousands)	$	524,521		$	371,239

For the period July 6, 2006 (commencement of operations) to March 31, 2007.

Computed using average daily shares outstanding.

Not annualized.

Total expenses reflects operating expenses prior to any voluntary expense (waivers)/reimbursements 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

Financial Highlights

Western Asset Absolute Return Portfolio

For a share of each class of capital stock outstanding:

Financial Intermediary Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			PERIOD ENDED MARCH 31, 2007^F
	(Unaudited)
Net asset value, beginning of period	$	10.23		$	10.17

Investment operations:
Net investment income		.23	^B		.27	^B
Net realized and unrealized gain/(loss)		(.09	)		.13

Total from investment operations		.14			.40

Distributions from:
Net investment income		(.23	)		(.27	)
Net realized gain on investments		(.05	)		(.07	)

Total distributions		(.28	)		(.34	)

Net asset value, end of period	$	10.09		$	10.23

Total return		1.50	%^C		3.99	%^C

Ratios to Average Net Assets:^D
Total expenses		1.36	%^E		85.97	%^E
Expenses net of waivers, if any		1.21	%^E		1.18	%^E
Expenses net of all reductions		1.20	%^E		1.16	%^E
Net investment income		4.62	%^E		4.60	%^E

Supplemental Data:
Portfolio turnover rate		196.3	%^C		182.2	%^C
Net assets, end of period (in thousands)	$	18		$	17

Computed using average daily shares outstanding.

Not annualized.

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.

For the period September 6, 2006 (commencement of operations) to March 31, 2007.

See notes to financial statements.

Semi-Annual Report to Shareholders

Expense Example

Western Asset Core Bond Portfolio

Actual Expenses

The first line for each class 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 Examples for Comparison Purposes


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class
Actual	$	1,000.00	$	1,004.00	$	2.21
Hypothetical (5% return before expenses)		1,000.00		1,022.86		2.23
Financial Intermediary Class
Actual	$	1,000.00	$	1,002.80	$	3.46
Hypothetical (5% return before expenses)		1,000.00		1,021.61		3.50

Thesecalculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid During the Period” 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 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.

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, economical and political risk.

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

LOGO

Semi-Annual Report to Shareholders

Performance Information—Continued

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

LOGO

Indexreturns are for periods beginning July 31, 1999.

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2007)

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 Core Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE


Long-Term Securities	118.7%

Corporate Bonds and Notes	17.7%

Aerospace and Defense	N.M.
United Technologies Corp.		5.400%	5/1/35	$	1,460	$	1,367


Airlines	0.7%
Continental Airlines Inc.		6.900%	1/2/18		440		450
Continental Airlines Inc.		6.545%	2/2/19		2,702		2,719
Delta Air Lines Inc.		7.379%	5/18/10		5,565		5,621
Delta Air Lines Inc.		7.570%	11/18/10		12,026		12,334
Delta Air Lines Inc.		7.111%	9/18/11		15,600		15,814
Southwest Airlines Co.		5.125%	3/1/17		2,640		2,433	^A
US Airways Pass-Through Trust		6.850%	1/30/18		9,575		9,431

							48,802

Automobiles	0.2%
DaimlerChrysler NA Holding Corp.		4.050%	6/4/08		1,530		1,513
DaimlerChrysler NA Holding Corp.		7.200%	9/1/09		1,240		1,285
DaimlerChrysler NA Holding Corp.		5.875%	3/15/11		700		710
Ford Motor Co.		7.450%	7/16/31		13,410		10,527	^A

							14,035

Building Products	0.1%
Masco Corp.		7.125%	8/15/13		3,320		3,481
Masco Corp.		6.125%	10/3/16		4,120		4,021

							7,502

Capital Markets	2.7%
Lehman Brothers Holdings Capital Trust VII		5.857%	11/29/49		520		495	^B
Lehman Brothers Holdings Inc.		5.260%	4/2/08		50,000		49,803	^A,C
Lehman Brothers Holdings Inc.		6.200%	9/26/14		4,370		4,387
Lehman Brothers Holdings Inc.		7.394%	9/15/22		42,560		43,615	^C
Merrill Lynch and Co. Inc.		5.794%	6/16/08		31,040		31,028	^C
Merrill Lynch and Co. Inc.		6.110%	1/29/37		3,510		3,304
Morgan Stanley		5.485%	1/18/08		8,000		7,993	^C
Morgan Stanley		4.750%	4/1/14		3,070		2,884
Morgan Stanley		5.810%	10/18/16		4,040		3,865	^C
The Bear Stearns Cos. Inc.		5.550%	1/22/17		7,855		7,415	^A
The Bear Stearns Cos. Inc.		6.400%	10/2/17		26,540		26,422
The Goldman Sachs Group Inc.		5.625%	1/15/17		9,935		9,639

							190,850

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Commercial Banks	0.7%
Bank One Corp.		7.875%	8/1/10	$	4,500	$	4,815
Bank One Corp.		5.900%	11/15/11		2,000		2,036
HBOS Treasury Services PLC		5.250%	2/21/17		2,500		2,487	^D
Rabobank Capital Funding Trust II		5.260%	12/31/49		470		445	^B,D
Rabobank Capital Funding Trust III		5.254%	12/31/49		3,030		2,788	^B,D
SunTrust Capital VIII		6.100%	12/15/36		14,970		13,580	^B
Wachovia Capital Trust III		5.800%	3/15/49		6,130		6,089	^B
Wachovia Corp.		5.750%	6/15/17		16,100		16,161	^A
Wells Fargo Capital X		5.950%	12/15/36		1,890		1,734

							50,135

Commercial Services and Supplies	0.4%
PHH Corp.		7.125%	3/1/13		5,010		5,284
Waste Management Inc.		7.125%	10/1/07		10,330		10,330
Waste Management Inc.		6.875%	5/15/09		2,000		2,067
Waste Management Inc.		6.375%	11/15/12		2,530		2,625
Waste Management Inc.		5.000%	3/15/14		3,440		3,294
Waste Management Inc.		7.125%	12/15/17		6,000		6,331

							29,931

Communications Equipment	0.1%
Motorola Inc.		8.000%	11/1/11		5,600		6,112


Consumer Finance	2.0%
American Express Co.		6.800%	9/1/66		3,920		4,017	^B
Capital One Financial Corp.		6.150%	9/1/16		3,170		3,092
Ford Motor Credit Co.		6.625%	6/16/08		8,900		8,833
Ford Motor Credit Co.		7.375%	10/28/09		50,175		49,200
Ford Motor Credit Co.		7.875%	6/15/10		6,310		6,168
Ford Motor Credit Co.		7.375%	2/1/11		6,435		6,166
Ford Motor Credit Co.		7.250%	10/25/11		5,910		5,538
GMAC LLC		5.625%	5/15/09		9,550		9,297
GMAC LLC		7.750%	1/19/10		5,355		5,312
GMAC LLC		7.250%	3/2/11		820		795
GMAC LLC		0.000%	6/15/15		220		115	^E
SLM Corp.		3.820%	4/1/09		8,960		8,242	^F
SLM Corp.		5.625%	8/1/33		42,895		33,020	^A

							139,795

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Diversified Financial Services	1.2%
Air 2 US		8.027%	10/1/19	$	11,859	$	12,037	^D
Bank of America Corp.		5.420%	3/15/17		2,000		1,945
Dryden Investor Trust		7.157%	7/23/08		4,368		4,403
Glen Meadow Pass-Through Certificates		6.505%	2/12/67		12,080		11,611	^B,D
HSBC Finance Corp.		8.000%	7/15/10		690		741
HSBC Finance Corp.		7.000%	5/15/12		700		736
HSBC Finance Corp.		6.375%	11/27/12		440		455
ILFC E-Capital Trust II		6.250%	12/21/65		4,160		4,010	^A,B,D
J.P. Morgan and Co. Inc.		7.214%	2/15/12		2,000		2,064	^F
JPMorgan Chase and Co.		5.750%	1/2/13		3,770		3,823
SB Treasury Co. LLC		9.400%	12/29/49		2,930		2,997	^B,D
Sigma Finance Inc.		8.500%	8/11/16		17,200		16,590	^D,G
Sigma Finance Inc.		8.000%	6/22/17		19,210		18,089	^D,G
Unilever Capital Corp.		7.125%	11/1/10		1,730		1,838

							81,339

Diversified Telecommunication Services	0.2%
AT&T Inc.		5.100%	9/15/14		4,960		4,800
BellSouth Corp.		4.750%	11/15/12		440		428	^A
BellSouth Corp.		5.200%	9/15/14		4,270		4,156
CenturyTel Inc.		6.000%	4/1/17		4,120		4,082
Verizon Global Funding Corp.		7.250%	12/1/10		2,220		2,358
Verizon Global Funding Corp.		7.375%	9/1/12		5		6

							15,830

Electric Utilities	0.7%
Exelon Corp.		5.625%	6/15/35		345		309
FirstEnergy Corp.		6.450%	11/15/11		290		300
FirstEnergy Corp.		7.375%	11/15/31		9,330		10,210
Pacific Gas and Electric Co.		6.050%	3/1/34		940		923
Pacific Gas and Electric Co.		5.800%	3/1/37		7,330		6,928
Progress Energy Inc.		7.100%	3/1/11		1,488		1,565
The Cleveland Electric Illuminating Co.		5.700%	4/1/17		630		613
The Detroit Edison Co.		6.125%	10/1/10		920		950
TXU Energy Co.		7.000%	3/15/13		25,800		28,332

							50,130

Food and Staples Retailing	0.7%
CVS Lease Pass-Through Trust		6.036%	12/10/28		36,022		34,989	^D
Wal-Mart Stores Inc.		5.800%	2/15/18		16,920		17,037

							52,026

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Food Products	0.2%
General Mills Inc.		5.700%	2/15/17	$	3,580	$	3,521
H.J. Heinz Co.		6.428%	12/1/08		6,650		6,756	^D
Sara Lee Corp.		6.250%	9/15/11		5,500		5,681

							15,958

Gas Utilities	0.1%
Southern Natural Gas Co.		8.000%	3/1/32		7,390		8,354


Health Care Equipment and Supplies	N.M.
Mallinckrodt Inc.		6.500%	11/15/07		1,210		1,211


Health Care Providers and Services	0.9%
AmerisourceBergen Corp.		5.625%	9/15/12		3,520		3,491
AmerisourceBergen Corp.		5.875%	9/15/15		3,050		2,983
Cardinal Health Inc.		6.300%	10/15/16		3,530		3,475	^D
Cardinal Health Inc.		5.850%	12/15/17		12,985		12,807
HCA Inc.		5.750%	3/15/14		35,430		29,717
Tenet Healthcare Corp.		6.375%	12/1/11		2,500		2,188	^A
Tenet Healthcare Corp.		7.375%	2/1/13		6,584		5,580

							60,241

Hotels, Restaurants and Leisure	0.1%
Marriott International Inc.		5.810%	11/10/15		4,400		4,355	^A
Starwood Hotels and Resorts Worldwide Inc.		7.875%	5/1/12		3,050		3,255

							7,610

Household Durables	N.M.
Pulte Homes Inc.		8.125%	3/1/11		2,110		2,037	^A


Independent Power Producers and Energy Traders	0.3%
TXU Corp.		4.800%	11/15/09		9,000		9,079
TXU Corp.		6.500%	11/15/24		1,090		873
TXU Corp.		6.550%	11/15/34		9,930		7,788	^A

							17,740

Insurance	1.4%
American International Group Inc.		6.250%	3/15/37		12,690		11,947
ASIF Global Financing XIX		4.900%	1/17/13		1,210		1,169	^D
Marsh and McLennan Cos. Inc.		5.150%	9/15/10		3,070		3,059

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Insurance—Continued
MetLife Inc.		6.400%	12/15/36	$	46,240	$	43,967
The Travelers Cos. Inc.		6.250%	3/15/37		36,940		35,716	^B

							95,858

IT Services	0.1%
Electronic Data Systems Corp.		7.125%	10/15/09		7,685		7,824


Leisure Equipment and Products	0.7%
Eastman Kodak Co.		3.625%	5/15/08		17,500		16,975
Eastman Kodak Co.		7.250%	11/15/13		34,680		34,420

							51,395

Media	0.9%
CBS Corp.		7.625%	1/15/16		2,750		2,958
Clear Channel Communications Inc.		4.625%	1/15/08		1,430		1,420
Clear Channel Communications Inc.		4.250%	5/15/09		2,130		2,030
Clear Channel Communications Inc.		6.250%	3/15/11		5,580		5,115
Clear Channel Communications Inc.		5.500%	9/15/14		790		620
Comcast Corp.		6.500%	1/15/15		1,200		1,240
Comcast Corp.		6.500%	1/15/17		600		619
Comcast Corp.		7.050%	3/15/33		3,130		3,299
Comcast MO of Delaware Inc.		9.000%	9/1/08		2,200		2,270
Cox Communications Inc.		7.875%	8/15/09		9,640		10,081
Liberty Media LLC		7.875%	7/15/09		9,000		9,263
Liberty Media LLC		3.750%	2/15/30		290		168	^H
News America Inc.		6.200%	12/15/34		105		99
Time Warner Inc.		6.875%	5/1/12		8,270		8,678
Time Warner Inc.		6.950%	1/15/28		2,000		2,046
Time Warner Inc.		7.625%	4/15/31		350		381
Viacom Inc.		5.750%	4/30/11		8,580		8,663
Viacom Inc.		6.250%	4/30/16		3,400		3,409

							62,359

Multi-Utilities	0.2%
Dominion Resources Inc.		4.125%	2/15/08		10,850		10,791
Dominion Resources Inc.		5.125%	12/15/09		50		50
Dominion Resources Inc.		4.750%	12/15/10		570		562
Dominion Resources Inc.		5.700%	9/17/12		2,050		2,057

							13,460

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Multiline Retail	0.1%
Target Corp.		4.000%	6/15/13	$	4,445	$	4,110	^A


Oil, Gas and Consumable Fuels	1.7%
Anadarko Petroleum Corp.		6.094%	9/15/09		12,340		12,269	^C
Anadarko Petroleum Corp.		6.450%	9/15/36		10,010		9,855
Conoco Inc.		6.950%	4/15/29		2,780		3,058
El Paso Natural Gas Co.		8.375%	6/15/32		3,610		4,242
Hess Corp.		7.875%	10/1/29		2,940		3,379
Hess Corp.		7.300%	8/15/31		9,595		10,518
Kerr-McGee Corp.		6.875%	9/15/11		17,000		17,875
Kerr-McGee Corp.		6.950%	7/1/24		650		674
Kinder Morgan Energy Partners LP		7.125%	3/15/12		4,650		4,903
Kinder Morgan Energy Partners LP		5.000%	12/15/13		3,180		3,034
Kinder Morgan Energy Partners LP		6.000%	2/1/17		1,670		1,651
Pemex Project Funding Master Trust		6.625%	6/15/35		16,155		16,647
Sonat Inc.		7.625%	7/15/11		5,000		5,175
Tennessee Gas Pipeline Co.		8.375%	6/15/32		1,110		1,305
Texaco Capital Inc.		5.500%	1/15/09		1,000		1,006	^A
The Williams Cos. Inc.		8.125%	3/15/12		3,730		4,019	^A
The Williams Cos. Inc.		7.500%	1/15/31		2,035		2,111
The Williams Cos. Inc.		8.750%	3/15/32		3,240		3,730
XTO Energy Inc.		7.500%	4/15/12		10,379		11,215

							116,666

Paper and Forest Products	N.M.
Weyerhaeuser Co.		6.750%	3/15/12		2,775		2,881


Pharmaceuticals	0.1%
Wyeth		5.950%	4/1/37		9,750		9,409


Real Estate Investment Trusts	0.1%
Health Care Property Investors Inc.		6.450%	6/25/12		3,550		3,647


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


Specialty Retail	0.3%
Autozone Inc.		6.950%	6/15/16		5,620		5,965
Home Depot Inc.		4.625%	8/15/10		1,380		1,345

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Specialty Retail—Continued
Home Depot Inc.		5.250%	12/16/13	$	2,740	$	2,630
Home Depot Inc.		5.400%	3/1/16		4,250		3,982
Limited Brands Inc.		6.125%	12/1/12		9,420		9,484

							23,406

Thrifts and Mortgage Finance	0.6%
Countrywide Financial Corp.		6.250%	5/15/16		14,400		13,031	^A
Residential Capital LLC		7.125%	11/21/08		8,180		7,321	^A
Residential Capital LLC		8.460%	4/17/09		1,280		1,088	^C
Residential Capital LLC		7.595%	5/22/09		3,550		3,018	^C,F
Residential Capital LLC		7.000%	2/22/11		15,310		12,478
Residential Capital LLC		7.500%	6/1/12		5,150		4,171

							41,107

Tobacco	0.1%
Altria Group Inc.		7.000%	11/4/13		1,115		1,212
Altria Group Inc.		7.750%	1/15/27		2,500		3,071
Reynolds American Inc.		7.875%	5/15/09		3,240		3,365

							7,648

Wireless Telecommunication Services	0.1%
Sprint Capital Corp.		8.375%	3/15/12		7,935		8,737
Sprint Capital Corp.		6.900%	5/1/19		230		231
Sprint Capital Corp.		8.750%	3/15/32		1,330		1,525

							10,493

Total Corporate Bonds and Notes (Cost—$1,279,032)							1,251,528
Asset-Backed Securities	5.3%

Fixed Rate Securities	0.5%
Conseco Finance Securitizations Corp. 2000-5		7.960%	2/1/32		4,700		4,177
Drive Auto Receivables Trust 2006-2 A3		5.330%	4/15/14		25,360		25,456	^D
Equity One ABS Inc. 2003-3		4.995%	12/25/33		4,037		3,838
Green Tree Financial Corp. 1996-5		8.100%	7/15/26		571		137
Patrons’ Legacy 2003-IV		5.775%	12/23/63		5,800		5,798	^D

							39,406

Indexed Securities^C	4.8%
Asset-Backed Funding Certificates 2002-SB1		5.561%	12/25/30		1,554		1,542
Bear Stearns Asset Backed Securities Trust 2007-HE6 1A1		6.381%	8/25/37		12,319		12,392

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Asset-Backed Securities—Continued

Indexed Securities—Continued
Brazos Higher Education Authority Inc. 2005-1		5.390%	9/26/16	$	11,137	$	11,043
CDC Mortgage Capital Trust 2002-HE1		5.441%	1/25/33		561		549
CIT Group Home Equity Loan Trust 2002-1		5.421%	3/25/33		411		405
Countrywide Asset-Backed Certificates 2003-BC3		5.751%	9/25/33		467		463
Countrywide Home Equity Loan Trust 2005-H 2A		5.331%	12/15/35		192		189
Fleet Home Equity Loan Trust 2003-1		5.788%	1/20/33		2,699		2,658
GMAC Mortgage Corp. Loan Trust 2004-VF1 A1		5.881%	2/25/31		64,200		61,877	^D
GMAC Mortgage Corp. Loan Trust 2005-HE3 A1VN		5.765%	2/25/36		48,410		47,442
GSAMP Trust 2006-S4		5.221%	5/25/36		2,899		2,767
Lehman XS Trust 2005-5N		5.431%	11/25/35		9,686		9,494
Lehman XS Trust 2006-2N 1A1		5.391%	2/25/46		16,808		16,424
Lehman XS Trust 2006-GP4		5.201%	8/25/46		3,302		3,267
Long Beach Mortgage Loan Trust 2000-1		5.669%	1/21/31		249		245
Merrill Lynch Mortgage Investors Trust 2007-SD1 A1		5.581%	2/25/47		62,305		61,471
MSDWCC Heloc Trust 2005-1		5.321%	7/25/17		1,390		1,365
Provident Bank Home Equity Loan Trust 1999-3		5.521%	1/25/31		782		769
Residential Asset Mortgage Products Inc. 2003-RS2		5.471%	3/25/33		159		156
Residential Asset Securities Corp. 2001-KS2		5.591%	6/25/31		319		315
Residential Asset Securities Corp. 2001-KS3 AII		5.591%	9/25/31		109		107
SACO I Trust 2005-10 1A		5.391%	6/25/36		2,464		2,355
SACO I Trust 2005-8 A1		5.411%	11/25/20		1,978		1,927
SACO I Trust 2006-1 A		5.301%	9/25/35		2,194		2,133
Securitized Asset Backed Receivables LLC Trust 2007-BR2 A2		5.361%	2/25/37		59,820		58,786
SLM Student Loan Trust 2006-5		5.350%	7/25/17		37,792		37,760

							337,901

Total Asset-Backed Securities (Cost—$383,150)							377,307

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Mortgage-Backed Securities	18.1%

Fixed Rate Securities	6.0%
Banc of America Commercial Mortgage Inc. 2005-5 A4		5.115%	10/10/45	$	10,120	$	9,893
Banc of America Commercial Mortgage Inc. 2006-3 A4		5.889%	7/10/44		24,090		24,682
Citicorp Mortgage Securities Inc. 2003-7 A1		4.750%	8/25/18		8,112		7,964
Countrywide Alternative Loan Trust 2003-20CB 1A1		5.500%	10/25/33		10,999		10,710
Credit Suisse Mortgage Capital Certificates 2006-C5 A3		5.311%	12/15/39		14,800		14,525
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		2,069		2,087	^D
CS First Boston Mortgage Securities Corp. 1998-C1 A1B		6.480%	5/17/40		385		387
Deutsche Mortgage and Asset Receiving Corp. 1998-C1		6.538%	6/15/31		332		331
GE Capital Commercial Mortgage Corp. 2007-C1 A4		5.543%	12/10/49		1,330		1,322
GMAC Commercial Mortgage Securities Inc 2006-C1 A4		5.238%	11/10/45		3,800		3,735
GS Mortgage Securities Corp. II 2005-GG4		4.680%	7/10/39		12,900		12,550
GSR Mortgage Loan Trust 2005-4F 1A1		4.500%	4/25/20		8,298		8,033
JP Morgan Chase Commercial Mortgage Pass-Through Certificates 2005-CIBC12		4.895%	9/12/37		1,610		1,550
JP Morgan Chase Commercial Mortgage Securities Corp. 2007-LDPX A3		5.420%	1/15/49		56,130		55,306
JP Morgan Commercial Mortgage Finance Corp. 1999-C8 A2		7.400%	7/15/31		4,151		4,257
LB-UBS Commercial Mortgage Trust 2005-C3 A5		4.739%	7/15/30		13,356		12,745
LB-UBS Commercial Mortgage Trust 2005-C3 AAB		4.664%	7/15/30		15,000		14,575
LB-UBS Commercial Mortgage Trust 2005-C5		4.954%	9/15/30		12,680		12,261
MASTR Reperforming Loan Trust 2005-1		6.500%	8/25/34		1,136		1,166	^D
MASTR Reperforming Loan Trust 2005-1 1A3		7.000%	8/25/34		9,456		9,873	^D
Merrill Lynch/Countrywide Commercial Mortgage 2007-6 A4		5.485%	3/12/51		18,540		18,331
Merrill Lynch/Countrywide Commercial Mortgage Trust 2007-5 A4		5.378%	8/12/48		1,030		1,012

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Morgan Stanley Capital I 2005-HQ6		4.989%	8/13/42	$	13,450	$	13,031
Morgan Stanley Capital I 2006-IQ12 A4		5.332%	12/15/43		8,700		8,556
Prime Mortgage Trust 2006-DR1 1A1		5.500%	5/25/35		29,893		29,571	^D
Prime Mortgage Trust 2006-DR1 1A2		6.000%	5/25/35		13,496		13,550	^D
Prime Mortgage Trust 2006-DR1 2A2		6.000%	5/25/35		49,222		48,653	^D
Residential Asset Mortgage Products Inc. 2005-SL2		7.500%	2/25/32		3,791		3,764
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		47,384		45,711
Structured Asset Securities Corp. 2003-29 1A1		4.750%	9/25/18		27,289		26,360
WaMu Mortgage Pass-Through Certificates 2003-S7 A1		4.500%	8/25/18		5,142		4,906

							421,397

Indexed Securities^C	10.1%
American Home Mortgage Assets 2006-4		5.341%	10/25/46		1,021		989
American Home Mortgage Investment Trust 2006-2 1A1		5.211%	6/25/46		3,310		3,291
Amortizing Residential Collateral Trust 2002-BC1M		5.411%	1/1/32		180		171
Banc of America Funding Corp. 2005-E		5.723%	6/20/35		14,095		14,053
Bear Stearns Adjustable Rate Mortgage Trust 2004-9 24A1		5.472%	11/25/34		21,083		20,500
Bear Stearns Mortgage Funding Trust 2007-AR5 1A1A		5.301%	6/25/37		9,601		9,356
Bear Stearns Structured Products Inc. 2007-R11 A1A		6.103%	9/27/37		7,300		7,188	^D
Citigroup Mortgage Loan Trust Inc. 2005-HE2		5.531%	5/25/35		3,644		3,502	^D
Countrywide Alternative Loan Trust 2005-14		5.341%	5/25/35		8,360		8,305
Countrywide Alternative Loan Trust 2005-17 1A1		5.391%	7/25/35		10,119		9,924
Countrywide Alternative Loan Trust 2005-17 2A1		5.371%	7/25/35		20,726		20,563
Countrywide Alternative Loan Trust 2005-38 A3		5.481%	9/25/35		6,503		6,396
Countrywide Alternative Loan Trust 2005-56 3A1		5.421%	11/25/35		972		952
Countrywide Alternative Loan Trust 2005-59 1A1		5.868%	11/20/35		2,645		2,588
Countrywide Alternative Loan Trust 2006-0A7		5.341%	6/25/46		12,758		12,576
Countrywide Home Loans 2005-03 1A2		5.421%	4/25/35		11,841		11,602

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities^C—Continued
Countrywide Home Loans 2005-09 1A1		5.431%	5/25/35	$	11,848	$	11,550
Countrywide Home Loans 2005-09 2A1		5.351%	5/25/35		5,593		5,575
Downey Savings and Loan Association Mortgage Loan Trust 2005-AR6		5.793%	10/19/45		2,849		2,784
GMAC Mortgage Corp. Loan Trust 2004-AR2 3A		4.376%	8/19/34		41,902		41,528
Granite Mortgages PLC 2003-1		5.550%	1/20/20		1,105		1,098	^D,I
Greenpoint Mortgage Funding Trust 2005-AR1		5.351%	6/25/45		9,441		9,256
Greenpoint Mortgage Funding Trust 2005-AR4		5.391%	10/25/45		2,137		2,112
Greenpoint Mortgage Funding Trust 2006-AR4		5.231%	9/25/46		38,250		37,902
Greenpoint Mortgage Funding Trust 2006-AR5		5.211%	10/25/46		41,625		41,408
GSMPS Mortgage Loan Trust 2005-RP2		5.481%	3/25/35		17,180		17,013	^D
Harborview Mortgage Loan Trust 2005-7		6.133%	6/19/45		17,306		16,838
Harborview Mortgage Loan Trust 2006-14 2A1A		5.171%	3/19/38		837		816
Harborview Mortgage Loan Trust 2006-9 2A1A		5.208%	11/19/36		1,041		1,020
Impac Secured Assets Corp. 2005-2		5.451%	3/25/36		1,512		1,483
IndyMac Inda Mortgage Loan Trust 2007-AR7 1A1		6.287%	11/25/37		9,360		9,355
IXIS Real Estate Capital Trust 2006-HE2 A1		5.191%	8/25/36		1,077		1,075
MASTR Adjustable Rate Mortgages Trust 2007-3 22A2		5.341%	5/25/47		34,908		34,180
Medallion Trust 2000-2G		5.846%	12/18/31		830		825	^I
Medallion Trust 2003-1G		5.428%	12/21/33		2,068		2,056	^I
MLCC Mortgage Investors Inc. 2003-B		5.471%	4/25/28		2,517		2,445
Structured Adjustable Rate Mortgage Loan Trust 2005-19XS		5.451%	10/25/35		1,865		1,818
Structured Asset Mortgage Investments Inc. 2006-AR6		5.321%	7/25/36		18,880		18,346
Structured Asset Mortgage Investments Inc. 2006-AR7 A1A		5.341%	8/25/36		39,181		38,567
Thornburg Mortgage Securities Trust 2005-2 A1		5.351%	7/25/45		8,349		8,372
Thornburg Mortgage Securities Trust 2005-2 A2		5.361%	7/25/45		15,111		15,090
Thornburg Mortgage Securities Trust 2006-1		5.301%	1/25/36		56,628		56,344
Thornburg Mortgage Securities Trust 2006-3		5.236%	5/25/46		4,265		4,238
WaMu Alternative Mortgage Pass-Through Certificates 2007-OA4 A1A		5.743%	4/25/47		53,689		52,045

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities^C—Continued
WaMu Mortgage Pass-Through Certificates, Series 2005-AR06 2A1A		5.361%	4/25/45	$	9,692	$	9,503
WaMu Mortgage Pass-Through Certificates, Series 2005-AR08 1A1A		5.401%	7/25/45		11,330		11,011
WaMu Mortgage Pass-Through Certificates, Series 2005-AR11		5.451%	8/25/45		28,063		27,485
WaMu Mortgage Pass-Through Certificates, Series 2005-AR13 A1A1		5.421%	10/25/45		16,936		16,559
WaMu Mortgage Pass-Through Certificates, Series 2005-AR13 B10		6.705%	10/25/45		4,034		3,126	^D
WaMu Mortgage Pass-Through Certificates, Series 2005-AR17 A1A2		5.421%	12/25/45		10,399		10,176
WaMu Mortgage Pass-Through Certificates, Series 2005-AR19 A1A1		5.401%	12/25/45		21,336		21,026
WaMu Mortgage Pass-Through Certificates, Series 2005-AR19 A1A2		5.421%	12/25/45		20,702		20,307
Zuni Mortgage Loan Trust 2006-OA1		5.261%	8/25/36		24,563		24,375

							710,663

Stripped Securities	0.1%
Diversified REIT Trust 1999-1A		0.617%	3/18/11		71,358		780	^J1
FFCA Secured Lending Corp. 1999-1A		1.427%	9/18/25		5,611		233	^D,J1
GE Capital Commercial Mortgage Corp. 2005-C4		5.333%	11/10/45		6,980		6,954	^J1
LB-UBS Commercial Mortgage Trust 2001-C3 X		0.941%	6/15/36		16,298		489	^D,J1
Structured Mortgage Asset Residential Trust 1991-8		0.014%	1/25/23		598		—	^J1,K

							8,456

Variable Rate Securities^G	1.9%
Citigroup Mortgage Loan Trust Inc. 2005-5 3A2A		5.621%	9/25/35		4,203		4,223
Credit Suisse Mortgage Capital Certificates 2006-C1 A4		5.609%	2/15/39		5,080		5,095
Greenwich Capital Commercial Funding Corp. 2006-GG7		6.111%	7/10/38		22,370		23,063
IndyMac INDX Mortgage Loan Trust 2005-AR15		5.099%	9/25/35		7,285		7,170
JP Morgan Chase Commercial Mortgage Securities Corp. 2005-CB13		5.472%	1/12/43		7,600		7,545

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Mortgage-Backed Securities—Continued

Variable Rate Securities—Continued
MASTR Adjustable Rate Mortgages Trust 2004-15		5.247%	12/25/34	$	383	$	388
Merrill Lynch Mortgage Trust 2005-CIP1 A4		5.047%	7/12/38		1,100		1,070
Merrill Lynch Mortgage Trust 2005-CKI1		5.417%	11/12/37		23,750		23,519
Morgan Stanley Mortgage Loan Trust 2005-3AR		5.197%	7/25/35		4,511		4,580
Thornburg Mortgage Securities Trust 2007-4 2A1		6.240%	9/25/37		27,907		27,994
Thornburg Mortgage Securities Trust 2007-4 3A1		6.228%	9/25/37		25,487		25,252
Wachovia Bank Commercial Mortgage Trust 2005-C20		5.118%	7/15/42		4,000		3,911

							133,810

Total Mortgage-Backed Securities (Cost—$1,288,461)							1,274,326
U.S. Government and Agency Obligations	10.4%

Fixed Rate Securities	5.7%
Fannie Mae		2.880%	10/22/07		54,000		53,933
Fannie Mae		5.200%	11/8/10		10,910		10,918
Fannie Mae		5.625%	5/19/11		19,640		20,014
Fannie Mae		4.610%	10/10/13		30,420		29,798
Fannie Mae		6.000%	4/18/36		9,300		9,520
Federal Home Loan Bank		3.875%	8/22/08		5,460		5,423	^A
Federal Home Loan Bank		5.400%	1/2/09		11,470		11,470
Federal Home Loan Bank		5.400%	1/16/09		18,870		18,877
Freddie Mac		5.250%	2/24/11		9,960		10,063
Freddie Mac		5.625%	3/15/11		2,210		2,292	^A
Freddie Mac		5.125%	4/18/11		9,560		9,763	^A
Freddie Mac		4.650%	10/10/13		34,390		33,723	^A
Freddie Mac		5.450%	11/21/13		11,340		11,415
Freddie Mac		5.300%	5/12/20		53,095		51,935	^A
Freddie Mac		5.625%	11/23/35		12,290		12,065
Tennessee Valley Authority		7.125%	5/1/30		2,450		3,032
United States Treasury Bonds		7.500%	11/15/16		1,490		1,810	^A
United States Treasury Bonds		5.375%	2/15/31		10,000		10,705	^A
United States Treasury Bonds		4.750%	2/15/37		7,552		7,448	^A
United States Treasury Bonds		5.000%	5/15/37		8,470		8,688	^A
United States Treasury Notes		3.750%	5/15/08		2,840		2,833	^A
United States Treasury Notes		3.625%	7/15/09		29,610		29,441	^A

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
United States Treasury Notes		6.000%	8/15/09	$	4,260	$	4,415	^A
United States Treasury Notes		4.625%	11/15/09		31,610		32,020	^A
United States Treasury Notes		3.500%	2/15/10		4,150		4,103	^A
United States Treasury Notes		3.875%	9/15/10		251		250
United States Treasury Notes		4.500%	11/15/10		2,320		2,352	^A
United States Treasury Notes		4.625%	10/31/11		3,270		3,328	^A
United States Treasury Notes		4.500%	3/31/12		30		30	^A
United States Treasury Notes		4.875%	6/30/12		120		123	^A
United States Treasury Notes		4.625%	7/31/12		2,260		2,299	^A

							404,086

Stripped Securities	0.1%
United States Treasury Bonds		0.000%	5/15/30		9,190		3,054	^A,J2


Treasury Inflation-Protected Securities^L	4.6%
United States Treasury Inflation- Protected Security		3.875%	1/15/09		2,502		2,553	^A
United States Treasury Inflation- Protected Security		1.875%	7/15/13		6,068		5,971	^A
United States Treasury Inflation- Protected Security		2.000%	1/15/14		665		656	^A
United States Treasury Inflation- Protected Security		1.875%	7/15/15		35,457		34,518	^A
United States Treasury Inflation- Protected Security		2.000%	1/15/16		26,174		25,585	^A
United States Treasury Inflation- Protected Security		2.375%	1/15/17		20,276		20,422	^A
United States Treasury Inflation- Protected Security		2.375%	1/15/25		42,700		43,077	^A
United States Treasury Inflation- Protected Security		2.000%	1/15/26		70,872		67,683	^A
United States Treasury Inflation- Protected Security		2.375%	1/15/27		83,209		84,223	^A
United States Treasury Inflation- Protected Security		3.625%	4/15/28		12,956		15,782	^A
United States Treasury Inflation- Protected Security		3.875%	4/15/29		16,244		20,628	^A
United States Treasury Inflation- Protected Security		3.375%	4/15/32		5,328		6,507	^A

							327,605

Total U.S. Government and Agency Obligations (Cost — $720,875)							734,745

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

U.S. Government Agency Mortgage-Backed Securities	60.0%

Fixed Rate Securities	56.5%
Fannie Mae		7.000%	12/1/07 to 2/1/33	$	8,872		$	9,233
Fannie Mae		7.000%	12/1/09		—	^M		—	^K
Fannie Mae		7.000%	11/1/12		—	^M		—	^K
Fannie Mae		8.000%	5/1/15		29			30
Fannie Mae		5.500%	4/1/18 to 3/1/37		347,399			340,279
Fannie Mae		4.500%	7/1/18 to 9/1/35		12,011			11,292
Fannie Mae		4.000%	8/1/20 to 9/1/20		5,277			4,959
Fannie Mae		5.000%	8/1/20 to 8/1/37		322,589			309,969
Fannie Mae		5.500%	12/1/22		11,300			11,272	^N
Fannie Mae		6.000%	12/1/22 to 12/1/37		541,570			541,864	^N
Fannie Mae		7.500%	6/1/25 to 5/1/28		533			561
Fannie Mae		6.000%	1/1/26 to 9/1/37		848,185			849,582
Fannie Mae		7.500%	7/1/26		—	^M		—	^K
Fannie Mae		6.500%	7/1/28 to 7/1/35		9,196			9,404
Fannie Mae		5.000%	12/1/37		1,091,300			1,040,719	^N
Fannie Mae		6.500%	12/1/37		185,170			188,518	^N
Freddie Mac		9.750%	7/1/08		4			4
Freddie Mac		6.000%	3/1/09		—	^M		—	^K
Freddie Mac		6.000%	3/1/09 to 5/1/29		1,004			1,019
Freddie Mac		5.500%	12/1/13 to 8/1/35		33,376			32,740
Freddie Mac		9.300%	4/15/19		125			133
Freddie Mac		5.000%	9/1/20 to 11/1/36		431,075			412,342
Freddie Mac		7.000%	4/1/24 to 5/1/32		2,819			2,931
Freddie Mac		6.500%	6/1/32		46			47
Government National Mortgage Association		10.000%	11/15/09		—	^M		—	^K
Government National Mortgage Association		8.000%	10/15/16 to 7/15/17		132			138
Government National Mortgage Association		7.500%	10/15/22 to 8/15/32		286			298
Government National Mortgage Association		7.000%	6/15/23 to 5/15/32		324			338
Government National Mortgage Association		6.500%	10/15/23 to 3/15/33		16,319			16,721
Government National Mortgage Association		6.000%	3/15/26 to 8/15/35		30,724			30,971
Government National Mortgage Association		5.500%	1/15/33		220			217

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

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

Fixed Rate Securities—Continued
Government National Mortgage Association		5.000%	6/15/35 to 9/15/35	$	62,175		$	60,194
Government National Mortgage Association		6.500%	12/1/37		105,700			107,961	^N

								3,983,736

Indexed Securities^C	3.5%
Fannie Mae		4.795%	6/1/35		11,180			11,214
Fannie Mae		4.333%	8/1/35		1,171			1,165
Fannie Mae		4.615%	9/1/35		6,623			6,607
Fannie Mae		4.698%	9/1/35		2,637			2,631
Fannie Mae		4.578%	10/1/35		2,270			2,262
Fannie Mae		4.704%	10/1/35		3,377			3,366
Fannie Mae		4.718%	10/1/35		2,170			2,168
Fannie Mae		4.826%	10/1/35		2,085			2,105
Fannie Mae		7.029%	10/1/35		16,850			17,325
Fannie Mae		7.002%	11/1/35		6,469			6,691
Fannie Mae		7.004%	11/1/35		6,489			6,711
Fannie Mae		7.009%	11/1/35		5,864			6,065
Fannie Mae		7.021%	11/1/35		5,708			5,870
Fannie Mae		7.034%	11/1/35		6,343			6,522
Fannie Mae		5.515%	2/1/37		62,559			62,704
Fannie Mae		5.638%	4/1/37		14,156			14,263
Freddie Mac		4.829%	10/1/35		3,926			3,943
Freddie Mac		5.896%	2/1/37		63,554			64,253
Freddie Mac		5.830%	8/1/37		21,627			21,810

								247,675

Stripped Securities	N.M.
Fannie Mae		9.500%	2/1/17		13			3	^J1
Fannie Mae		1,009.500%	2/25/20		—	^M		—	^J1,K
Fannie Mae		1,009.250%	8/25/21		—	^M		1	^J1
Fannie Mae		0.000%	5/25/22		105			93	^E,J2
Financing Corp.		0.000%	4/5/19		1,150			641	^E,J2
Freddie Mac		10.000%	3/1/21		78			20	^J1
Freddie Mac		0.000%	7/15/22		13			11	^E,J2

								769

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$4,235,787)								4,232,180

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Yankee Bonds^I	7.0%

Aerospace and Defense	N.M.
Systems 2001 Asset Trust		6.664%	9/15/13	$	2,856	$	3,011	^D


Commercial Banks	3.1%
Eksportfinans ASA		5.500%	5/25/16		10,700		10,974
Glitnir Banki Hf		6.330%	7/28/11		6,080		6,185	^D
Glitnir Banki Hf		6.375%	9/25/12		8,920		8,941	^D
Glitnir Banki Hf		6.693%	6/15/16		11,830		12,090	^B,D
Glitnir Banki Hf		7.451%	9/14/49		1,600		1,576	^B,D
HBOS Capital Funding LP		6.071%	6/30/49		3,105		2,987	^B,D
HBOS Treasury Services PLC		3.500%	11/30/07		48,500		48,431	^D
HSBC Capital Funding LP		4.610%	6/27/49		1,630		1,531	^B,D
Kaupthing Bank Hf		6.050%	4/12/11		17,140		17,002	^C,D
Kaupthing Bank Hf		5.750%	10/4/11		2,960		2,922	^D
Kaupthing Bank Hf		7.125%	5/19/16		30,520		30,802	^D
Korea Development Bank		4.250%	11/13/07		6,045		6,039	^A
Landsbanki Islands Hf		6.100%	8/25/11		17,170		17,395	^D
Resona Preferred Global Securities		7.191%	12/29/49		13,670		13,718	^B,D
Royal Bank of Scotland Group PLC		7.640%	3/19/49		3,700		3,700	^B
Royal Bank of Scotland Group PLC		6.990%	10/29/49		5,720		5,827	^B,D
RSHB Capital SA		6.299%	5/15/17		15,740		14,818	^D
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		11,080		10,274	^D,G

							215,212

Diversified Financial Services	0.5%
Aiful Corp.		5.000%	8/10/10		4,030		3,896	^D
CVRD Finance Ltd.		6.010%	10/15/07		529		529	^C,D
MUFG Capital Finance 1 Ltd.		6.346%	7/29/49		4,660		4,429	^B
SMFG Preferred Capital		6.078%	1/29/49		13,800		12,761	^B,D
TNK-BP Finance SA		7.500%	7/18/16		726		724	^D
TNK-BP Finance SA		7.500%	7/18/16		9,940		9,871	^D
TNK-BP Finance SA		6.625%	3/20/17		4,830		4,498	^D
TNK-BP Finance SA		6.625%	3/20/17		318		298	^A,D

							37,006

Diversified Telecommunication Services	0.3%
British Telecommunications PLC		8.625%	12/15/10		1,755		1,932	^F
Deutsche Telekom International Finance BV		5.750%	3/23/16		5,370		5,307	^A
Koninklijke (Royal) KPN NV		8.000%	10/1/10		8,240		8,863
Telecom Italia Capital SpA		5.250%	11/15/13		965		936

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Yankee Bonds—Continued

Diversified Telecommunication Services—Continued
Telecom Italia Capital SpA		4.950%	9/30/14	$	2,570	$	2,429
Telecom Italia Capital SpA		5.250%	10/1/15		2,060		1,956

							21,423

Electric Utilities	N.M.
Hydro-Quebec		6.300%	5/11/11		570		598


Foreign Governments	0.7%
Russian Federation		7.500%	3/31/30		18,617		20,999	^D
United Mexican States		5.625%	1/15/17		160		160	^A
United Mexican States		7.500%	4/8/33		302		358	^A
United Mexican States		6.750%	9/27/34		26,862		29,212	^A

							50,729

Gas Utilities	0.2%
Intergas Finance BV		6.375%	5/14/17		13,221		12,768	^D


Industrial Conglomerates	1.0%
Tyco International Group SA		6.125%	11/1/08		820		829
Tyco International Group SA		6.125%	1/15/09		330		335
Tyco International Group SA		6.750%	2/15/11		26,549		27,985
Tyco International Group SA		6.375%	10/15/11		6,560		6,712
Tyco International Group SA		6.000%	11/15/13		2,950		2,978
Tyco International Group SA		7.000%	6/15/28		3,380		3,676
Tyco International Group SA		6.875%	1/15/29		24,710		24,803

							67,318

Insurance	0.2%
Merna Reinsurance Ltd.		7.110%	7/7/10		13,500		13,481	^C,D


Metals and Mining	0.3%
Corporacion Nacional del Cobre—Codelco		4.750%	10/15/14		1,750		1,672	^D
Vale Overseas Ltd.		8.250%	1/17/34		330		391
Vale Overseas Ltd.		6.875%	11/21/36		20,252		20,865

							22,928

Oil, Gas and Consumable Fuels	0.6%
Anadarko Finance Co.		7.500%	5/1/31		730		795
Conoco Funding Co.		6.350%	10/15/11		400		417
Conoco Funding Co.		7.250%	10/15/31		350		395
Gazprom		6.212%	11/22/16		15,410		15,274	^D
Gazprom		6.510%	3/7/22		12,230		12,107	^D

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

Yankee Bonds—Continued

Oil, Gas and Consumable Fuels—Continued
Petrobras International Finance Co.		6.125%	10/6/16	$	10,020		$	10,097
Petrozuata Finance Inc.		8.220%	4/1/17		3,950			3,940	^D

								43,025

Wireless Telecommunication Services	0.1%
Vodafone Group PLC		5.000%	9/15/15		6,040			5,699

Total Yankee Bonds (Cost—$494,288)								493,198
Preferred Stocks	0.2%
Fannie Mae		5.375%			—	^M		4,303	^H
Fannie Mae		7.000%			27			1,386	^C,H
General Motors Corp.		5.250%			293			6,232	^H
Home Ownership Funding Corp.		1.000%			6			834	^D
Home Ownership Funding Corp. II		1.000%			5			748	^D

Total Preferred Stocks (Cost—$19,947)								13,503

Total Long-Term Securities (Cost—$8,421,540)								8,376,787
Investment of Collateral From Securities Lending	7.2%
State Street Navigator Securities Lending Prime Portfolio					511,124	shs		511,124

Total Investment of Collateral From Securities Lending (Cost—$511,124)								511,124
Short-Term Securities	8.5%

U.S. Government and Agency Obligations	2.2%
Fannie Mae		0.000%	3/17/08	$	129,660			127,010	^E,O
Fannie Mae		0.000%	3/31/08		3,600			3,509	^E,O
United States Treasury Bill		0.000%	1/24/08		23,000			22,725	^A,E

Options Purchased^P	0.2%
Eurodollar Futures Call, December 2007, Strike Price $94.00					1,573	^Q		4,542
Eurodollar Futures Call, December 2007, Strike Price $94.50					1,500	^Q		2,625
Eurodollar Futures Put, December 2007, Strike Price $93.625					1,660	^Q		10
Eurodollar Futures Put, December 2007, Strike Price $93.75					1,424	^Q		151
Eurodollar Futures Put, December 2007, Strike Price $94.00					1,997	^Q		13

Semi-Annual Report to Shareholders


	% OF NET ASSETS	PAR/ SHARES			VALUE

Short-Term Securities—Continued

Options Purchased—Continued
Eurodollar Futures Put, December 2007, Strike Price $94.125			2,493	^Q	$	16
Eurodollar Futures Put, March 2008, Strike Price $93.25			1,669	^Q		10
Eurodollar Futures Put, March 2008, Strike Price $93.75			1,822	^Q		11
J.P. Morgan Swaption Call, January 2008, Strike Price $5.1577			30,590,000	^Q		544
Goldman Sachs Swaption Call, November 2007, Strike Price $5.2725			70,900,000	^Q		1,412
Greenwich Swaption Call, September 2009, Strike Price $4.50			197,300,000	^Q		787
U.S. Treasury Bond Futures Call, November 2007, Strike Price $113.00			354	^Q		255
U.S. Treasury Note Futures Put, November 2007, Strike Price $108.00			32	^Q		14

						10,390

Repurchase Agreements	6.1%
Lehman Brothers Inc. 4.75%, dated 9/28/07, to be repurchased at $231,643 on 10/1/07 (Collateral: $718,435 Resolution Funding Corporation principal-only securities, due 1/15/30, value $236,186.		$	231,551			231,551
Merrill Lynch Government Securities Inc. 4.75%, dated 9/28/07, to be repurchased at $200,079 on 10/1/07 (Collateral: $180,943 Fannie Mae discount notes, zero-coupon bond, due 10/31/07, value $180,264, $24,408 Fannie Mae discount notes, Zero-coupon bond, 5/16/08, value $23,057)			200,000			200,000

						431,551

Total Short-Term Securities (Cost—$592,019)						595,185
Total Investments (Cost—$9,524,683)^R	134.4%					9,483,096
Obligation to Return Collateral for Securities Loaned	(7.2)%					(511,124	)
Other Assets Less Liabilities	(27.2)%					(1,915,857	)


Net Assets	100.0%				$	7,056,115

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Bond Portfolio—Continued


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^P
Eurodollar Futures	December 2007	8,458	$	2,481
Eurodollar Futures	March 2008	3,251		3,353
Eurodollar Futures	September 2008	10		8

			$	5,842

Futures Contracts Written^P
U.S. Treasury Bond Futures	December 2007	1,203	$	934
U.S. Treasury Note Futures	December 2007	15,481		(3,126	)
U.S. Treasury Note Futures	December 2007	107		(126	)
U.S. Treasury Note Futures	December 2007	456		353

			$	(1,965	)

Options Written^P
Eurodollar Futures Call, Strike Price $95.00	April 2008	1,081	$	(1,245	)
Eurodollar Futures Call, Strike Price $95.125	January 2008	1,010		27
Eurodollar Futures Call, Strike Price $95.50	December 2007	1,178		240
Eurodollar Futures Call, Strike Price $95.125	December 2007	622		(38	)
Eurodollar Futures Call, Strike Price $95.50	March 2008	1,364		44
Eurodollar Futures Put, Strike Price $95.00	December 2007	2,806		254
Greenwich Swaption Call, Strike Price $4.95	September 2009	43,844,000		91
U.S. Treasury Bond Futures Call, Strike Price $112.00	November 2007	304		(87	)
U.S. Treasury Bond Futures Put, Strike Price $106.00	November 2007	198		107
U.S. Treasury Bond Futures Put, Strike Price $108.00	November 2007	779		(55	)
U.S. Treasury Bond Futures Put, Strike Price $109.00	December 2007	4,085		(694	)
U.S. Treasury Bond Futures Put, Strike Price $109.00	March 2008	382		(34	)
U.S. Treasury Bond Futures Put, Strike Price $111.00	December 2007	921		(347	)
U.S. Treasury Note Futures Call, Strike Price $107.00	November 2007	2,097		(4,465	)
U.S. Treasury Note Futures Call, Strike Price $108.00	December 2007	443		(596	)
U.S. Treasury Note Futures Call, Strike Price $109.00	December 2007	97		(57	)
U.S. Treasury Note Futures Call, Strike Price $110.00	November 2007	502		36
U.S. Treasury Note Futures Call, Strike Price $110.00	December 2007	1,934		152
U.S. Treasury Note Futures Call, Strike Price $111.00	December 2007	1,156		13
U.S. Treasury Note Futures Put, Strike Price $102.00	December 2007	450		244
U.S. Treasury Note Futures Put, Strike Price $103.00	December 2007	1,199		535
U.S. Treasury Note Futures Put, Strike Price $104.00	December 2007	534		178
U.S. Treasury Note Futures Put, Strike Price $105.00	December 2007	281		139
U.S. Treasury Note Futures Put, Strike Price $106.00	November 2007	188		12
U.S. Treasury Note Futures Put, Strike Price $106.00	December 2007	673		72
U.S. Treasury Note Futures Put, Strike Price $107.00	December 2007	833		84
U.S. Treasury Note Futures Put, Strike Price $107.00	December 2007	194		(20	)

Semi-Annual Report to Shareholders


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options Written—Continued
U.S. Treasury Note Futures Put, Strike Price $107.00	March 2008	525	$	60
U.S. Treasury Note Futures Put, Strike Price $108.00	March 2008	1,062		29
U.S. Treasury Note Futures Put, Strike Price $109.00	December 2007	2,712		287

			$	(5,034	)

N.M.—Not Meaningful.

All or a portion of this security is on loan.

Indexed Security – The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”), the Consumer Price Index (“CPI”) or the one-year Treasury Bill Rate. The coupon rates are the rates as of September 30, 2007.

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

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

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

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

Amount less than $1.

Amount represents less than $0.05.

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

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

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

Par represents actual number of contracts.


Gross unrealized appreciation	$	51,490
Gross unrealized depreciation		(93,078	)

Net unrealized appreciation/(depreciation)	$	(41,588	)

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Core Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$8,932,664)			$	8,887,911	^A
Short-term securities at value (Cost—$592,019)				595,185
Receivable for securities sold				1,690,117
Receivable for fund shares sold				16,055
Interest receivable				87,434
Futures variation margin receivable				78
Other assets				801

Total assets				11,277,581


Liabilities:
Obligation to return collateral for securities loaned	$	511,124
Payable for securities purchased		3,612,598
Payable for fund shares repurchased		2,943
Accrued management fee		2,310
Accrued distribution fee		318
Income distribution payable		2,547
Swap contracts at value		41,582
Amounts payable on swaps		25,840
Options written (Proceeds—$15,852)		20,886
Accrued expenses		1,318

Total liabilities				4,221,466


Net Assets			$	7,056,115


Net assets consist of:
Accumulated paid-in-capital			$	7,190,319
Undistributed net investment income				4,449
Accumulated net realized loss on investments, options, futures and swaps				(91,968	)
Net unrealized depreciation on investments, options, futures and swaps				(46,685	)


Net Assets			$	7,056,115


Net Asset Value Per Share:
Institutional Class (494,621 shares outstanding)				$11.07
Financial Intermediary Class (142,886 shares outstanding)				$11.07

The market value of securities on loan is $571,476.

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, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	190,612
Dividends		542
Income from securities lending		602

Total income				$	191,756
Expenses:
Management fees		13,527
Distribution fee:
Financial Intermediary Class		1,849
Audit and legal fees		90
Custodian fees		306
Directors’ fees and expenses		98
Registration fees		53
Reports to shareholders		482
Transfer agent and shareholder servicing expense:
Institutional Class		24
Financial Intermediary Class		12
Other expenses		50

Net expenses					16,491

Net Investment Income					175,265
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		(41,819	)
Options		(7,087	)
Futures		(63,438	)
Swaps		26,668

					(85,676	)
Change in unrealized appreciation/depreciation of investments, options, futures and swaps					(58,936	)

Net Realized and Unrealized Loss on Investments					(144,612	)

Change in Net Assets Resulting From Operations				$	30,653

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	175,265		$	259,136

Net realized gain/(loss)		(85,676	)		69,503

Change in unrealized appreciation/depreciation		(58,936	)		95,353

Change in net assets resulting from operations		30,653			423,992

Distributions to shareholders from:
Net investment income:
Institutional Class		(137,336	)		(224,496	)
Financial Intermediary Class		(37,269	)		(45,595	)

Net realized gain on investments:
Institutional Class		(22,348	)		—
Financial Intermediary Class		(6,285	)		—

Change in net assets from fund share transactions:
Institutional Class		633,934			611,643
Financial Intermediary Class		216,993			1,008,162

Change in net assets		678,342			1,773,706

Net Assets:
Beginning of period		6,377,773			4,604,067


End of period	$	7,056,115		$	6,377,773


Under distributions of net investment income	$	4,449		$	3,789

See notes to financial statements.

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Core Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	11.37		$	11.05		$	11.29		$	11.81		$	11.57		$	11.01

Investment operations:
Net investment income		.29	^A		.55	^A		.49			.39			.41			.55
Net realized and unrealized gain/(loss)		(.25	)		.34			(.22	)		(.21	)		.45			.65

Total from investment operations		.04			.89			.27			.18			.86			1.20

Distributions from:
Net investment income		(.29	)		(.57	)		(.51	)		(.39	)		(.44	)		(.55	)
Net realized gain on investments		(.05	)		—	^B		—	^B		(.31	)		(.18	)		(.09	)

Total distributions		(.34	)		(.57	)		(.51	)		(.70	)		(.62	)		(.64	)

Net asset value, end of period	$	11.07		$	11.37		$	11.05		$	11.29		$	11.81		$	11.57

Total return		.40	%^C		8.23	%		2.46	%		1.68	%		7.64	%		11.19	%

Ratios to Average Net Assets:^D
Total expenses		.44	%^E		.47	%		.45	%		.46	%		.49	%		.49	%
Expenses net of waivers, if any		.44	%^E		.47	%		.45	%		.46	%		.49	%		.49	%
Expenses net of all reductions		.44	%^E		.47	%		.45	%		.46	%		.49	%		.49	%
Net investment income		5.3	%^E		4.9	%		4.3	%		3.4	%		3.5	%		4.9	%

Supplemental Data:
Portfolio turnover rate		258.9	%^C		431.7	%		540.4	%		407.2	%		464.6	%		438.6	%
Net assets, end of period (in thousands)	$	5,474,530		$	4,975,052		$	4,243,248		$	3,277,782		$	2,187,219		$	1,400,431

Computed using average daily shares outstanding.

Amount less than $.01 per share.

Not annualized.

Annualized.

See notes to financial statements

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Core Bond Portfolio

For a share of each class of capital stock outstanding:

Financial Intermediary Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	11.37		$	11.05		$	11.29		$	11.81		$	11.57		$	11.02

Investment operations:
Net investment income		.28	^A		.51	^A		.47			.38			.40			.53
Net realized and unrealized gain/(loss)		(.25	)		.35			(.22	)		(.23	)		.43			.63

Total from investment operations		.03			.86			.25			.15			.83			1.16

Distributions from:
Net investment income		(.28	)		(.54	)		(.49	)		(.36	)		(.41	)		(.52	)
Net realized gain on investments		(.05	)		—			—	^B		(.31	)		(.18	)		(.09	)

Total distributions		(.33	)		(.54	)		(.49	)		(.67	)		(.59	)		(.61	)

Net asset value, end of period	$	11.07		$	11.37		$	11.05		$	11.29		$	11.81		$	11.57

Total return		.28	%^C		7.95	%		2.19	%		1.42	%		7.36	%		10.80	%

Ratios to Average Net Assets:^D
Total expenses		.69	%^E		.72	%		.70	%		.72	%		.76	%		.75	%
Expenses net of waivers, if any		.69	%^E		.72	%		.70	%		.72	%		.75	%		.75	%
Expenses net of all reductions		.69	%^E		.72	%		.70	%		.72	%		.75	%		.75	%
Net investment income		5.1	%^E		4.6	%		4.1	%		4.2	%		3.3	%		4.1	%

Supplemental Data:
Portfolio turnover rate		258.9	%^C		431.7	%		540.4	%		407.2	%		464.6	%		438.6	%
Net assets, end of period (in thousands)	$	1,581,585		$	1,402,721		$	360,819		$	265,518		$	121,607		$	79,120

See notes to financial statements.

Semi-Annual Report to Shareholders

Expense Example

Western Asset Core Plus Bond Portfolio

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 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 that appear in the shareholder reports of other funds.


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,005.50	$	2.16
Hypothetical (5% return before expenses)		1,000.00		1,022.91		2.18
Financial Intermediary Class:
Actual	$	1,000.00	$	1,005.20	$	3.42
Hypothetical (5% return before expenses)		1,000.00		1,021.66		3.45

These calculations are based on expenses incurred in themost recent fiscal half-year. The dollar amounts shown as “Expenses Paid During the Period” are equal to the annualized expense ratios of 0.43% and 0.68% 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

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

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

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, 2007)

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.

Preferred Stocks 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, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†			VALUE

Long-Term Securities	113.5%

Corporate Bonds and Notes	14.7%

Aerospace and Defense	N.M.
DRS Technologies Inc.		6.625%	2/1/16	$	10		$	10
L-3 Communications Corp.		7.625%	6/15/12		852			871

								881

Airlines	0.4%
Continental Airlines Inc.		6.545%	8/2/20		7,906			7,956
Continental Airlines Inc.		5.983%	4/19/22		8,300			8,042
Delta Air Lines Inc.		7.570%	5/18/12		11,375			11,667
Northwest Airlines Inc.		5.836%	2/6/15		1,238			1,158	^A
Southwest Airlines Co.		5.125%	3/1/17		5,320			4,902
United Air Lines Inc.		7.032%	4/1/12		575			578
United Air Lines Inc.		7.186%	10/1/12		13,372			13,489
United Air Lines Inc.		6.602%	3/1/15		5,766			5,780

								53,572

Auto Components	N.M.
Visteon Corp.		8.250%	8/1/10		2,050			1,804	^B


Automobiles	0.6%
DaimlerChrysler NA Holding Corp.		4.050%	6/4/08		610			603
DaimlerChrysler NA Holding Corp.		7.200%	9/1/09		620			642
DaimlerChrysler NA Holding Corp.		5.875%	3/15/11		500			507
DaimlerChrysler NA Holding Corp.		7.300%	1/15/12		3,315			3,536
DaimlerChrysler NA Holding Corp.		6.500%	11/15/13		1,390			1,441
Ford Motor Co.		7.450%	7/16/31		30,335			23,813	^B
Ford Motor Co.		4.250%	12/15/36		175			205	^C
General Motors Corp.		8.250%	7/15/23		8,240			7,210
General Motors Corp.		8.375%	7/5/33		9,520	EUR		11,813
General Motors Corp.		8.375%	7/15/33		35,270			30,905	^B

								80,675

Building Products	0.1%
Masco Corp.		7.125%	8/15/13		5,830			6,113
Masco Corp.		6.125%	10/3/16		8,270			8,072

								14,185

Capital Markets	0.7%
E*TRADE Financial Corp.		7.375%	9/15/13		590			552
Goldman Sachs Group LP		4.500%	6/15/10		1,450			1,429

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Capital Markets—Continued
Lehman Brothers Holdings Capital Trust VII		5.857%	11/29/49	$	3,940	$	3,754	^D
Lehman Brothers Holdings Inc.		5.250%	2/6/12		1,690		1,655
Lehman Brothers Holdings Inc.		6.200%	9/26/14		8,690		8,724
Merrill Lynch and Co. Inc.		3.125%	7/15/08		3,115		3,049
Merrill Lynch and Co. Inc.		5.585%	8/22/08		42,800		42,739	^A
Merrill Lynch and Co. Inc.		6.375%	10/15/08		2,670		2,693
Morgan Stanley		5.485%	1/18/08		12,000		11,990	^A
Morgan Stanley		3.625%	4/1/08		120		119
Morgan Stanley		5.625%	1/9/12		110		111
Morgan Stanley		4.750%	4/1/14		8,460		7,947
Morgan Stanley		5.810%	10/18/16		7,290		6,974	^A
The Bear Stearns Cos. Inc.		5.550%	1/22/17		60		56	^B
The Goldman Sachs Group Inc.		6.600%	1/15/12		2,810		2,945
The Goldman Sachs Group Inc.		5.625%	1/15/17		1,420		1,378

							96,115

Chemicals	N.M.
Georgia Gulf Corp.		9.500%	10/15/14		1,550		1,418	^B
Lyondell Chemical Co.		8.000%	9/15/14		1,175		1,293
Lyondell Chemical Co.		8.250%	9/15/16		670		755
Westlake Chemical Corp.		6.625%	1/15/16		1,265		1,202

							4,668

Commercial Banks	0.2%
Bank One Corp.		7.875%	8/1/10		150		161
Bank One Corp.		5.900%	11/15/11		2,000		2,036
HBOS Treasury Services PLC		5.250%	2/21/17		4,570		4,546	^E
HSBC Bank PLC		7.000%	11/1/11		2,629		2,630	^F
HSBC Bank USA		7.000%	11/1/11		2,212		2,213	^E,G
HSBC Bank USA		7.000%	11/1/11		2,129		2,130	^E,G
Rabobank Capital Funding Trust II		5.260%	12/31/49		590		558	^D,E
Rabobank Capital Funding Trust III		5.254%	12/29/49		4,140		3,810	^D,E
SunTrust Capital VIII		6.100%	12/15/36		2,660		2,413	^D
Wachovia Capital Trust III		5.800%	3/15/42		9,480		9,416	^D
Wachovia Corp.		5.250%	8/1/14		210		206
Wells Fargo and Co.		5.000%	11/15/14		130		125
Wells Fargo Capital X		5.950%	12/15/36		6,895		6,327	^D

							36,571

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Commercial Services and Supplies	0.3%
PHH Corp.		7.125%	3/1/13	$	8,640	$	9,112
Waste Management Inc.		7.125%	10/1/07		10,940		10,940
Waste Management Inc.		6.500%	11/15/08		4,340		4,396
Waste Management Inc.		6.875%	5/15/09		8,000		8,269
Waste Management Inc.		7.375%	8/1/10		6,055		6,409
Waste Management Inc.		6.375%	11/15/12		1,770		1,837
Waste Management Inc.		5.000%	3/15/14		6,938		6,644
Waste Management Inc.		7.125%	12/15/17		500		527
Waste Management Inc.		7.750%	5/15/32		90		101

							48,235

Communications Equipment	0.1%
Motorola Inc.		8.000%	11/1/11		10,850		11,842


Computers and Peripherals	N.M.
International Business Machines Corp.		4.750%	11/29/12		40		39


Consumer Finance	2.2%
American Express Co.		6.800%	9/1/66		8,385		8,593	^D
Ford Motor Credit Co.		5.800%	1/12/09		4,180		4,037
Ford Motor Credit Co.		7.875%	6/15/10		3,560		3,480
Ford Motor Credit Co.		10.944%	6/15/11		5,724		5,840	^A
Ford Motor Credit Co.		7.800%	6/1/12		19,090		18,160
Ford Motor Credit Co.		8.000%	12/15/16		22,000		20,581
GMAC LLC		5.125%	5/9/08		345		342	^B
GMAC LLC		6.625%	5/15/12		280		261
GMAC LLC		8.000%	11/1/31		156,550		153,588	^B
HSBC Finance Corp.		4.625%	1/15/08		220		220
SLM Corp.		5.806%	5/12/08		40,000		39,649	^A,E
SLM Corp.		3.820%	4/1/09		11,220		10,321	^A
SLM Corp.		5.000%	10/1/13		17,665		15,425
SLM Corp.		5.375%	5/15/14		25,005		21,822
SLM Corp.		5.050%	11/14/14		4,690		3,978
SLM Corp.		5.000%	4/15/15		740		621
SLM Corp.		5.625%	8/1/33		4,160		3,202

							310,120

Diversified Consumer Services	N.M.
Service Corp. International		6.750%	4/1/16		1,530		1,482
Service Corp. International		7.625%	10/1/18		400		415
Service Corp. International		7.500%	4/1/27		5,385		5,035

							6,932

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†			VALUE

Corporate Bonds and Notes—Continued

Diversified Financial Services	2.3%
AAC Group Holding Corp.		0.000%	10/1/12	$	770		$	685	^B,D
AIG-Fp Matched Funding		5.743%	12/17/07		32,700			32,695	^A,E
Air 2 US		8.027%	10/1/19		14,643			14,863	^E
American General Finance Corp.		5.330%	6/27/08		18,300			18,291	^A
American Honda Finance Corp.		5.580%	5/12/08		28,000			28,009	^A,E
Banca Italease SpA		4.460%	2/2/10		49,100	EUR		65,939	^A
Bank of America Corp.		5.131%	7/25/08		75,000			74,921	^A
Bank of America Corp.		5.420%	3/15/17		7,030			6,835
Citigroup Inc.		5.000%	9/15/14		150			145
DI Finance LLC		9.500%	2/15/13		1,004			1,039
Dryden Investor Trust		7.157%	7/23/08		752			758
General Electric Capital Corp.		5.450%	1/15/13		1,155			1,166
HSBC Finance Corp.		6.400%	6/17/08		20			20
HSBC Finance Corp.		6.500%	11/15/08		40			41
HSBC Finance Corp.		8.000%	7/15/10		70			75
HSBC Finance Corp.		6.375%	8/1/10		1,000			1,035	^B
HSBC Finance Corp.		7.000%	5/15/12		160			168
HSBC Finance Corp.		6.375%	11/27/12		520			538
ILFC E-Capital Trust II		6.250%	12/21/65		7,220			6,959	^D,E
JPMorgan Chase and Co.		5.750%	1/2/13		4,430			4,493
JPMorgan Chase and Co.		5.125%	9/15/14		200			195
JPMorgan Chase and Co.		5.150%	10/1/15		110			105
Mizuho Preferred Capital Co. LLC		8.790%	12/29/49		3,380			3,443	^D,E
SB Treasury Co. LLC		9.400%	12/29/49		360			368	^D,E
Sigma Finance Inc.		8.500%	8/11/16		29,650			28,598	^D,E
Sigma Finance Inc.		8.000%	6/22/17		37,320			35,143	^D,E
Unilever Capital Corp.		7.125%	11/1/10		1,450			1,540

								328,067

Diversified Telecommunication Services	0.4%
AT&T Inc.		5.100%	9/15/14		8,640			8,361
BellSouth Corp.		4.750%	11/15/12		640			622	^B
BellSouth Corp.		5.200%	9/15/14		8,250			8,030
CenturyTel Inc.		6.000%	4/1/17		8,270			8,194
Cincinnati Bell Inc.		7.000%	2/15/15		983			949
Citizens Communications Co.		9.250%	5/15/11		530			575
Citizens Communications Co.		7.875%	1/15/27		4,590			4,475
Intelsat Corp.		9.000%	6/15/16		1,690			1,741
Level 3 Financing Inc.		9.250%	11/1/14		4,695			4,625
Qwest Communications International Inc.		9.058%	2/15/09		20			20	^A

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Diversified Telecommunication Services—Continued
Qwest Communications International Inc.		7.500%	2/15/14	$	3,174	$	3,214
Qwest Corp.		7.500%	10/1/14		2,680		2,787
Qwest Corp.		6.875%	9/15/33		5,600		5,236
Verizon Global Funding Corp.		7.375%	9/1/12		45		49
Verizon New York Inc.		6.875%	4/1/12		3,942		4,152
Windstream Corp.		8.625%	8/1/16		7,115		7,586

							60,616

Electric Utilities	0.3%
Duke Energy Corp.		5.625%	11/30/12		790		801
Exelon Corp.		5.625%	6/15/35		255		228
FirstEnergy Corp.		6.450%	11/15/11		3,000		3,101
FirstEnergy Corp.		7.375%	11/15/31		16,640		18,210
Niagara Mohawk Power Corp.		7.750%	10/1/08		500		510
Pacific Gas and Electric Co.		6.050%	3/1/34		4,990		4,900
Pacific Gas and Electric Co.		5.800%	3/1/37		11,750		11,105
Progress Energy Inc.		7.100%	3/1/11		52		55
The Cleveland Electric Illuminating Co.		5.700%	4/1/17		1,080		1,051
The Detroit Edison Co.		5.200%	10/15/12		10		10
TXU Energy Co.		7.000%	3/15/13		10		11

							39,982

Energy Equipment and Services	0.1%
Complete Production Services Inc.		8.000%	12/15/16		5,355		5,295
Pacific Energy Partners		7.125%	6/15/14		630		646
Pride International Inc.		7.375%	7/15/14		1,440		1,476

							7,417

Food and Staples Retailing	0.2%
CVS Corp.		5.298%	1/11/27		618		593	^E
CVS Lease Pass-Through Trust		5.880%	1/10/28		5,859		5,581	^E
CVS Lease Pass-Through Trust		6.036%	12/10/28		20,135		19,557	^E

							25,731

Food Products	0.2%
General Mills Inc.		5.700%	2/15/17		7,210		7,092
H.J. Heinz Co.		6.428%	12/1/08		11,660		11,844	^E
Sara Lee Corp.		6.250%	9/15/11		9,750		10,071

							29,007

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Gas Utilities	0.1%
AmeriGas Partners LP		7.250%	5/20/15	$	990	$	975
Southern Natural Gas Co.		5.900%	4/1/17		20		20	^E
Southern Natural Gas Co.		8.000%	3/1/32		9,410		10,637
Suburban Propane Partners LP		6.875%	12/15/13		2,000		1,950

							13,582

Health Care Equipment and Supplies	N.M.
Fresenius Medical Care Capital Trust II		7.875%	2/1/08		938		940
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		681		707
Mallinckrodt Inc.		6.500%	11/15/07		2,345		2,347

							3,994

Health Care Providers and Services	0.6%
AmerisourceBergen Corp.		5.625%	9/15/12		6,330		6,278
AmerisourceBergen Corp.		5.875%	9/15/15		7,070		6,915
Cardinal Health Inc.		6.300%	10/15/16		6,260		6,163	^E
Community Health Systems Inc.		8.875%	7/15/15		7,910		8,128	^E
DaVita Inc.		6.625%	3/15/13		4,435		4,402
HCA Inc.		8.750%	9/1/10		256		259
HCA Inc.		6.250%	2/15/13		1,243		1,100
HCA Inc.		5.750%	3/15/14		86		72
HCA Inc.		9.125%	11/15/14		1,280		1,350	^E
HCA Inc.		6.500%	2/15/16		379		322
HCA Inc.		9.250%	11/15/16		10,500		11,156	^E
HCA Inc.		9.625%	11/15/16		2,059		2,198	^E,H
HCA Inc.		7.690%	6/15/25		723		594
HCA Inc.		7.500%	11/6/33		14,640		11,785
Tenet Healthcare Corp.		6.375%	12/1/11		2,500		2,188	^B
Tenet Healthcare Corp.		7.375%	2/1/13		6,222		5,273
Tenet Healthcare Corp.		9.875%	7/1/14		2,668		2,441	^B
Tenet Healthcare Corp.		9.250%	2/1/15		12,430		10,969	^B

							81,593

Hotels, Restaurants and Leisure	0.2%
Boyd Gaming Corp.		6.750%	4/15/14		10		10
Boyd Gaming Corp.		7.125%	2/1/16		20		19
Caesars Entertainment Inc.		8.125%	5/15/11		733		748
Inn of the Mountain Gods Resort and Casino		12.000%	11/15/10		1,070		1,129	^B
Mandalay Resort Group		9.500%	8/1/08		80		82
Marriott International Inc.		5.810%	11/10/15		7,950		7,869	^B
MGM MIRAGE		6.750%	9/1/12		435		428

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Hotels, Restaurants and Leisure—Continued
MGM MIRAGE		6.625%	7/15/15	$	380	$	361
MGM MIRAGE		7.500%	6/1/16		4,000		3,975
MGM MIRAGE		7.625%	1/15/17		4,670		4,623
Mohegan Tribal Gaming Authority		8.000%	4/1/12		245		250
River Rock Entertainment Authority		9.750%	11/1/11		220		227
Starwood Hotels and Resorts Worldwide Inc.		7.875%	5/1/12		5,350		5,709
Station Casinos Inc.		7.750%	8/15/16		7,660		7,583

							33,013

Household Durables	N.M.
Pulte Homes Inc.		8.125%	3/1/11		4,110		3,967


Household Products	N.M.
American Achievement Corp.		8.250%	4/1/12		250		249
Procter and Gamble Co.		8.500%	8/10/09		90		96

							345

Independent Power Producers and Energy Traders	0.8%
Dynegy Holdings Inc.		7.750%	6/1/19		6,530		6,245	^E
NRG Energy Inc.		7.250%	2/1/14		3,130		3,138
NRG Energy Inc.		7.375%	2/1/16		6,791		6,808
NRG Energy Inc.		7.375%	1/15/17		595		595
The AES Corp.		8.750%	5/15/13		18,838		19,709	^E
The AES Corp.		7.750%	3/1/14		33,375		33,876
The AES Corp.		9.000%	5/15/15		7,700		8,085	^E
TXU Corp.		5.550%	11/15/14		1,560		1,258
TXU Corp.		6.500%	11/15/24		2,850		2,284
TXU Corp.		6.550%	11/15/34		33,925		26,606	^B

							108,604

Industrial Conglomerates	N.M.
General Electric Co.		5.000%	2/1/13		7,055		6,993


Insurance	0.1%
ASIF Global Financing XIX		4.900%	1/17/13		2,180		2,106	^E
Marsh and McLennan Cos. Inc.		5.150%	9/15/10		5,990		5,969
MetLife Inc.		6.400%	12/15/66		120		114	^D
The Travelers Cos. Inc.		6.250%	3/15/67		100		97	^D

							8,286

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Internet and Catalog Retail	0.2%
Amazon.com Inc.		4.750%	2/1/09	$	19,320	$	23,788	^C


IT Services	0.2%
Electronic Data Systems Corp.		7.125%	10/15/09		21,645		22,037
SunGard Data Systems Inc.		9.125%	8/15/13		1,650		1,716

							23,753

Leisure Equipment and Products	0.2%
Eastman Kodak Co.		7.250%	11/15/13		21,264		21,105
Eastman Kodak Co.		3.375%	10/15/33		13,820		14,666	^C

							35,771

Media	0.8%
CBS Corp.		7.625%	1/15/16		5,500		5,916
Clear Channel Communications Inc.		4.625%	1/15/08		165		164
Clear Channel Communications Inc.		4.250%	5/15/09		2,760		2,631
Clear Channel Communications Inc.		6.250%	3/15/11		6,600		6,050
Clear Channel Communications Inc.		5.500%	9/15/14		8,120		6,376
Comcast Cable Communications Inc.		6.750%	1/30/11		210		218
Comcast Cable Communications Inc.		8.875%	5/1/17		40		47
Comcast Corp.		6.500%	1/15/15		3,760		3,885
Comcast Corp.		6.500%	1/15/17		560		578
Comcast Corp.		5.875%	2/15/18		10		10
Comcast Corp.		7.050%	3/15/33		7,470		7,874
Comcast MO of Delaware Inc.		9.000%	9/1/08		1,060		1,094
Cox Communications Inc.		7.875%	8/15/09		7,680		8,032	^B
CSC Holdings Inc.		6.750%	4/15/12		500		481
CSC Holdings Inc.		7.875%	2/15/18		260		252
CSC Holdings Inc.		7.625%	7/15/18		568		542	^B
DirecTV Holdings LLC		8.375%	3/15/13		2,531		2,629
EchoStar DBS Corp.		7.000%	10/1/13		6,340		6,483
EchoStar DBS Corp.		6.625%	10/1/14		1,185		1,191
EchoStar DBS Corp.		7.125%	2/1/16		20		21
Gannett Co. Inc.		6.375%	4/1/12		4,560		4,686	^B
Idearc Inc.		8.000%	11/15/16		8,250		8,229
Lamar Media Corp.		7.250%	1/1/13		1,459		1,466
Lamar Media Corp.		6.625%	8/15/15		2,010		1,940
Liberty Media LLC		5.700%	5/15/13		535		500
Liberty Media LLC		3.750%	2/15/30		170		99	^C
News America Inc.		6.200%	12/15/34		240		226

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Media—Continued
News America Inc.		6.750%	1/9/38	$	200	$	209
Time Warner Entertainment Co. LP		8.375%	7/15/33		20		23
Time Warner Inc.		6.875%	5/1/12		5,950		6,243
Time Warner Inc.		7.625%	4/15/31		440		479
Time Warner Inc.		7.700%	5/1/32		5,554		6,098
Univision Communications Inc.		9.750%	3/15/15		2,100		2,047	^B,E,H
Viacom Inc.		5.750%	4/30/11		14,870		15,014
Viacom Inc.		6.250%	4/30/16		6,600		6,617

							108,350

Metals and Mining	0.1%
Freeport-McMoRan Copper & Gold Inc.		8.375%	4/1/17		10,140		11,078
Steel Dynamics Inc.		6.750%	4/1/15		5,890		5,684	^E

							16,762

Multi-Utilities	0.1%
Dominion Resources Inc.		4.125%	2/15/08		2,000		1,989
Dominion Resources Inc.		5.125%	12/15/09		1,260		1,256
Dominion Resources Inc.		4.750%	12/15/10		1,010		996
Dominion Resources Inc.		5.700%	9/17/12		5,135		5,153

							9,394

Multiline Retail	N.M.
J.C. Penney Co. Inc.		7.400%	4/1/37		690		728	^B
Target Corp.		4.000%	6/15/13		5,340		4,937	^B

							5,665

Office Electronics	N.M.
Xerox Corp.		6.750%	2/1/17		1,180		1,208


Oil, Gas and Consumable Fuels	1.8%
Anadarko Petroleum Corp.		6.094%	9/15/09		21,500		21,376	^A
Anadarko Petroleum Corp.		6.450%	9/15/36		33,540		33,020
Chesapeake Energy Corp.		6.375%	6/15/15		1,205		1,183
Chesapeake Energy Corp.		6.250%	1/15/18		1,970		1,901
Conoco Inc.		6.950%	4/15/29		83		91
ConocoPhillips		8.750%	5/25/10		3,100		3,378
ConocoPhillips		5.900%	10/15/32		10		10
El Paso Corp.		7.000%	6/15/17		69,240		70,305
El Paso Corp.		7.800%	8/1/31		4,277		4,342
El Paso Corp.		7.750%	1/15/32		5,074		5,152	^B

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†			VALUE

Corporate Bonds and Notes—Continued

Oil, Gas and Consumable Fuels—Continued
El Paso Natural Gas Co.		8.375%	6/15/32	$	2,520		$	2,962
Gazprom		6.950%	8/6/09		546,352	RUB		22,059
Gazprom		6.790%	10/29/09		71,970	RUB		2,933
Gazprom		7.000%	10/27/11		23,990	RUB		987
Hess Corp.		7.875%	10/1/29		4,020			4,621
Hess Corp.		7.300%	8/15/31		14,505			15,901
Kerr-McGee Corp.		6.875%	9/15/11		800			841
Kerr-McGee Corp.		6.950%	7/1/24		2,560			2,652
Kerr-McGee Corp.		7.875%	9/15/31		10,555			12,205
Kinder Morgan Energy Partners LP		6.300%	2/1/09		10			10
Kinder Morgan Energy Partners LP		6.750%	3/15/11		60			63
Kinder Morgan Energy Partners LP		7.125%	3/15/12		7,565			7,977
Kinder Morgan Energy Partners LP		5.000%	12/15/13		1,804			1,721
Kinder Morgan Energy Partners LP		6.000%	2/1/17		8,430			8,335
Peabody Energy Corp.		6.875%	3/15/13		1,085			1,096
Peabody Energy Corp.		5.875%	4/15/16		880			863
Pemex Project Funding Master Trust		6.994%	6/15/10		13			13	^A,E
Pemex Project Funding Master Trust		6.180%	12/3/12		104			104	^A,E
Pemex Project Funding Master Trust		6.625%	6/15/35		18,085			18,636
Pogo Producing Co.		6.875%	10/1/17		4,760			4,784
Seariver Maritime Inc.		0.000%	9/1/12		70			55	^I
Texaco Capital Inc.		5.500%	1/15/09		1,600			1,610
The Williams Cos. Inc.		7.500%	1/15/31		110			114
The Williams Cos. Inc.		7.750%	6/15/31		530			557	^B
XTO Energy Inc.		7.500%	4/15/12		971			1,049

								252,906

Paper and Forest Products	0.1%
Georgia-Pacific Corp.		8.125%	5/15/11		9			9
Weyerhaeuser Co.		6.750%	3/15/12		7,090			7,361

								7,370

Personal Products	N.M.
The Gillette Co.		2.500%	6/1/08		160			157


Pharmaceuticals	0.1%
Wyeth		5.950%	4/1/37		19,765			19,074


Real Estate Investment Trusts	0.1%
Health Care Property Investors Inc.		6.450%	6/25/12		6,240			6,410
Host Marriott LP		6.750%	6/1/16		2,065			2,044

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Real Estate Investment Trusts—Continued
Ventas Inc.		8.750%	5/1/09	$	770	$	795
Ventas Inc.		6.750%	6/1/10		800		810
Ventas Inc.		9.000%	5/1/12		440		479
Ventas Inc.		6.750%	4/1/17		850		848

							11,386

Real Estate Management and Development	N.M.
Forest City Enterprises Inc.		7.625%	6/1/15		360		339
Forest City Enterprises Inc.		6.500%	2/1/17		597		533

							872

Road and Rail	N.M.
Hertz Corp.		8.875%	1/1/14		3,285		3,384
Hertz Corp.		10.500%	1/1/16		1,780		1,922
Norfolk Southern Corp.		6.200%	4/15/09		20		20	^B

							5,326

Semiconductors and Semiconductor Equipment	N.M.
Freescale Semiconductor Inc.		8.875%	12/15/14		10		10


Specialty Retail	0.3%
Autozone Inc.		6.950%	6/15/16		10,890		11,559
Home Depot Inc.		4.625%	8/15/10		2,720		2,652
Home Depot Inc.		5.250%	12/16/13		5,510		5,289
Home Depot Inc.		5.400%	3/1/16		8,230		7,711
Limited Brands Inc.		6.125%	12/1/12		16,900		17,014

							44,225

Textiles, Apparel and Luxury Goods	N.M.
Oxford Industries Inc.		8.875%	6/1/11		800		808


Thrifts and Mortgage Finance	0.5%
Countrywide Financial Corp.		5.600%	4/30/08		25,000		24,564	^A
Countrywide Financial Corp.		5.756%	6/18/08		30		29	^A
Countrywide Financial Corp.		5.500%	1/5/09		30		28	^A
Countrywide Home Loans Inc.		5.665%	2/27/08		25,070		24,819	^A
Residential Capital LLC		7.460%	4/17/09		2,650		2,253	^A
Residential Capital LLC		7.595%	5/22/09		7,170		6,095	^A,F
Residential Capital LLC		7.000%	2/22/11		9,495		7,738	^F
Residential Capital LLC		7.500%	6/1/12		3,040		2,462	^F

							67,988

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Corporate Bonds and Notes—Continued

Tobacco	0.1%
Altria Group Inc.		7.000%	11/4/13	$	2,430	$	2,641
Altria Group Inc.		7.750%	1/15/27		5,000		6,143
Philip Morris Capital Corp.		7.500%	7/16/09		190		197
Reynolds American Inc.		7.875%	5/15/09		730		758	^B
Reynolds American Inc.		6.750%	6/15/17		8,430		8,622

							18,361

Wireless Telecommunication Services	0.2%
Nextel Communications Inc.		6.875%	10/31/13		60		60
Nextel Communications Inc.		5.950%	3/15/14		493		471
Nextel Communications Inc.		7.375%	8/1/15		1,980		2,012
Sprint Capital Corp.		6.125%	11/15/08		130		131
Sprint Capital Corp.		8.375%	3/15/12		17,025		18,745
Sprint Capital Corp.		6.900%	5/1/19		720		723
Sprint Capital Corp.		8.750%	3/15/32		4,055		4,650

							26,792

Total Corporate Bonds and Notes (Cost—$2,131,489)							2,096,802
Asset-Backed Securities	5.7%

Fixed Rate Securities	0.4%
Bank One Issuance Trust 2003-C1		4.540%	9/15/10		470		469
Bay View Auto Trust 2003-LJ1		3.440%	4/25/12		94		93
Citibank Credit Card Issuance Trust 2003-A3 A3		3.100%	3/10/10		330		327
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		2,180		1,847
Contimortgage Home Equity Trust 1997-4 B1F		7.330%	10/15/28		1,240		859
Green Tree Financial Corp. 1992-2 B		9.150%	1/15/18		191		155
Green Tree Financial Corp. 1993-2		8.000%	7/15/18		567		544
Green Tree Financial Corp. 1996-5		8.100%	7/15/27		3,268		781
Green Tree Home Improvement Loan Trust 1996-A		7.400%	2/15/26		334		281
Lehman ABS Manufactured Housing Contract 2001-B A3		4.350%	5/15/14		3,305		3,126
Lehman ABS Manufactured Housing Contract 2001-B A6		6.467%	8/15/28		2,485		2,561
Merrill Lynch Mortgage Investors Inc. 2005-SD1 A2		5.666%	5/25/46		1,985		1,968
Origen Manufactured Housing Contract Trust 2005-B		5.910%	1/15/37		4,797		4,751

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Asset-Backed Securities—Continued

Fixed Rate Securities—Continued
Origen Manufactured Housing Contract Trust 2005-B		5.990%	1/15/37	$	1,500	$	1,492
Origen Manufactured Housing Contract Trust 2005-B		6.480%	1/15/37		2,100		2,113
Patrons’ Legacy 2003-IV		5.775%	12/23/63		7,900		7,897	^E
Pegasus Aviation Lease Securitization 2000-1 A2		8.370%	3/25/30		2,500		1,501	^E
Terwin Mortgage Trust 2006-10SL A1		4.750%	10/25/37		31,374		30,542
UCFC Home Equity Loan 1998-C		5.935%	1/15/30		10		10
Vanderbilt Mortgage Finance 1997-B 1B2		8.155%	10/7/26		187		191
Vanderbilt Mortgage Finance 1997-C		7.830%	8/8/27		431		442
WEF Issuer LLC 2006-A		5.190%	12/15/14		802		799	^E

							62,749

Indexed Securities^A	5.2%
Ace Securities Corp. Home Equity Loan Trust 2006-SL3		5.231%	6/25/36		229		221
AFC Home Equity Loan Trust 2002-2		5.431%	6/25/30		535		520
Asset Backed Securities Corp. Home Equity Loan Trust 2001-HE3		6.293%	11/15/31		301		296
Bear Stearns Asset Backed Securities Inc. 2005-AQ2		5.291%	9/25/35		773		773
Bear Stearns Asset Backed Securities Inc. 2005-CL1		5.631%	9/25/34		11,278		11,048
Bear Stearns Asset Backed Securities Inc. 2006-1 A		5.411%	2/25/36		3,116		3,042
Bear Stearns Second Lien Trust 2007-SV1A A3		5.381%	12/25/36		3,693		3,537	^E
CDC Mortgage Capital Trust 2002-HE1		5.441%	1/25/33		535		524
Countrywide Asset-Backed Certificates 2002-BC1		5.791%	4/25/32		178		173
Countrywide Asset-Backed Certificates 2003-1		5.471%	6/25/33		414		408
Countrywide Asset-Backed Certificates 2003-BC3		5.751%	9/25/33		637		631
Countrywide Asset-Backed Certificates 2006-SD4 A1		5.471%	12/25/36		281		257	^E
Countrywide Home Equity Loan Trust 2002-F		6.103%	11/15/28		713		699
Countrywide Home Equity Loan Trust 2005-H 2A		5.993%	12/15/35		2,286		2,255
Countrywide Home Equity Loan Trust 2006-RES		6.013%	6/15/29		777		777	^E
Credit-Based Asset Servicing and Securitization 2007-RP1 A		5.441%	5/25/46		42,707		42,716	^E

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Asset-Backed Securities—Continued

Indexed Securities—Continued
CS First Boston Mortgage Securities Corp. 2005-AGE1		5.271%	2/25/32	$	2,354	$	2,352
EMC Mortgage Loan Trust 2002-B A1		5.781%	2/25/41		657		655	^E
Fairbanks Capital Mortgage Loan Trust 1999-1 A		5.731%	5/25/28		1,056		1,052	^E
Fleet Home Equity Loan Trust 2003-1		5.788%	1/20/33		4,516		4,448
GMAC Mortgage Corp. Loan Trust 2004-HE3 A2VN		5.745%	10/25/34		97,859		97,783
GMAC Mortgage Corp. Loan Trust 2004-VF1 A1		5.881%	2/25/31		6,867		6,619	^E
GMAC Mortgage Corp. Loan Trust 2005-HE3 A1VN		5.765%	2/25/36		87,218		85,474
GMAC Mortgage Corp. Loan Trust 2006-HE1 A		5.341%	11/25/36		1,505		1,481
Greenpoint Mortgage Funding Trust 2005-HE1		5.531%	9/25/34		2,200		2,046
GSRPM Mortgage Loan Trust 2004-1 A1		5.611%	9/25/42		3,650		3,639	^E
Indymac Home Equity Loan Asset-Backed Trust 2001-A		5.391%	3/25/31		87		83
Lehman XS Trust 2005-5N		5.431%	11/25/35		23,810		23,338
Lehman XS Trust 2005-5N 3A1A		5.431%	11/25/35		6,281		6,131
Lehman XS Trust 2006-2N 1A1		5.391%	2/25/46		285		278
Lehman XS Trust 2006-4N A2A		5.351%	4/25/46		7,261		7,098
Lehman XS Trust 2007-8H A1		5.261%	6/25/37		107,154		106,599
Merrill Lynch Mortgage Investors Trust 2007-SD1 A1		5.581%	2/25/37		120,758		119,140
MSDWCC Heloc Trust 2005-1		5.321%	7/25/17		1,951		1,915
Option One Mortgage Loan Trust 2003-1		5.551%	2/25/33		17		17
Provident Bank Home Equity Loan Trust 2000-2		5.401%	8/25/31		313		305
RAAC 2006-RP3 A		5.401%	5/25/36		62		61	^E
RAAC 2006-RP4 A		5.421%	1/25/46		39,751		38,886	^E
Renaissance Home Equity Loan Trust 2005-1		5.461%	5/25/35		3,000		2,944
Residential Asset Mortgage Products Inc. 2003-RS4		5.791%	5/25/33		1,084		1,041
Residential Funding Mortgage Securities II 2003-HS3		5.421%	8/25/33		33		32
Residential Funding Securities Corp. 2002-RP2 A1		5.881%	10/25/32		5,499		5,424	^E
SACO I Trust 2006-3 A3		5.361%	4/25/36		4,588		3,937
SACO I Trust 2006-6 A		5.261%	6/25/36		252		224

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Asset-Backed Securities—Continued

Indexed Securities—Continued
Salomon Brothers Mortgage Securities VII 2002-CIT1		5.431%	3/25/32	$	685	$	680
Securitized Asset Backed Receivables LLC 2007-BR3 A2B		5.351%	4/25/37		70,887		68,912
Securitized Asset Backed Receivables LLC Trust 2007-BR2 A2		5.361%	2/25/37		43,984		43,224
SLM Student Loan Trust 2006-10 A2		5.370%	10/25/17		380		380
Southern Pacific Secured Asset Corp. 1998-2		5.471%	7/25/29		24		23
Structured Asset Securities Corp. 2006-ARS1 A1		5.241%	2/25/36		276		188	^E
Truman Capital Mortgage Loan Trust 2006-1		5.391%	3/25/36		30,318		27,286	^E
Vanderbilt Mortgage Finance 1999-D		9.069%	1/7/30		4,100		4,330
Wachovia Asset Securitization Inc. 2002-HE1		5.501%	9/27/32		1,005		996
Wachovia Asset Securitization Inc. 2002-HE2		5.561%	12/25/32		56		56
Wachovia Asset Securitization Inc. 2003-HE1		5.421%	3/25/33		25		25

							736,979

Stripped Securities	N.M.
Oakwood Mortgage Investors Inc. 2001-E		6.000%	11/15/09		4,847		492	^J1


Variable Rate Securities^G	0.1%
Countrywide Asset-Backed Certificates 2004-15		4.614%	12/25/32		11,882		11,699
Irwin Home Equity Corp. 2005-1 2A2		4.720%	6/25/35		4,759		4,721

							16,420

Total Asset-Backed Securities (Cost—$831,037)							816,640
Mortgage-Backed Securities	13.6%

Fixed Rate Securities	2.4%
Banc of America Commercial Mortgage Inc. 2005-5 A4		5.115%	10/10/45		7,630		7,459
Banc of America Commercial Mortgage Inc. 2006-1 A4		5.372%	9/10/45		310		307
Banc of America Funding Corp. 2003-1		6.000%	5/20/33		495		486
Banc of America Funding Corp. 2006-8T2 A2		5.791%	10/25/36		226		226
BlackRock Capital Finance LP 1997-R3		7.220%	11/25/28		6		6	^E
Commercial Capital Access One Inc. 2I		12.000%	11/15/27		2,117		720
Commercial Mortgage Pass-Through Certificates 2001-J1A A2		6.457%	2/16/34		370		384	^E

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Countrywide Alternative Loan Trust 2003-20CB 1A1		5.500%	10/25/33	$	24,346	$	23,707
Criimi Mae Commercial Mortgage Trust 1998-C1		7.000%	6/2/33		151		152	^E
CS First Boston Mortgage Securities Corp. 1998-C1 A1B		6.480%	5/17/40		2,312		2,324
GE Capital Commercial Mortgage Corp. 2007-C1 A4		5.543%	12/10/49		31,620		31,421
GMAC Commercial Mortgage Securities Inc. 1998-C1 A2		6.700%	5/15/30		3,944		3,950
GMAC Commercial Mortgage Securities Inc. 1999-C2		6.945%	9/15/33		325		333
GS Mortgage Securities Corp. II 1998-C1		6.620%	10/18/30		3,780		3,799
GS Mortgage Securities Corp. II 2005-GG4		4.680%	7/10/39		18,650		18,144
JP Morgan Chase Commercial Mortgage Pass-Through Certificates 2005-CIBC12		4.895%	9/12/37		3,000		2,888
JP Morgan Chase Commercial Mortgage Securities Corp. 2006-CB15		5.814%	6/12/43		2,370		2,416
JP Morgan Chase Commercial Mortgage Securities Corp. 2007-LDPX A3		5.420%	1/15/49		33,610		33,116
JP Morgan Commercial Mortgage Finance Corp. 1999-C8 A2		7.400%	7/15/31		1,661		1,703
LB-UBS Commercial Mortgage Trust 2000-C3 A2		7.950%	5/15/25		99		105
LB-UBS Commercial Mortgage Trust 2005-C3 A5		4.739%	7/15/30		8,640		8,245
LB-UBS Commercial Mortgage Trust 2005-C3 AAB		4.664%	7/15/30		4,100		3,984
MASTR Reperforming Loan Trust 2005-1 1A1		6.000%	8/25/34		5,489		5,478	^E
MASTR Reperforming Loan Trust 2005-1 1A3		7.000%	8/25/34		8,333		8,701	^E
Merrill Lynch/Countrywide Commercial Mortgage 2007-6 A4		5.485%	3/12/51		22,150		21,900
Morgan Stanley Capital I 2005-HQ6		4.989%	8/13/42		21,070		20,414
Morgan Stanley Capital I 2007-IQ14 A4		5.692%	4/15/49		36,175		36,239
Prime Mortgage Trust 2006-DR1 2A2		6.000%	11/25/36		83,786		82,817	^E
Residential Asset Mortgage Products Inc. 2004-SL2		8.500%	10/25/31		269		281
Residential Asset Mortgage Products Inc. 2004-SL4		7.500%	7/25/32		1,940		1,982

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Residential Asset Mortgage Products Inc. 2005-SL2		7.500%	3/25/32	$	11,846	$	11,761
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		2,741		2,644

							338,092

Indexed Securities^A	8.7%
American Home Mortgage Assets Trust 2006-3		5.321%	7/25/46		20,857		20,387
American Home Mortgage Investment Trust 2005-4		5.421%	11/25/45		17,851		17,320
Bayview Commercial Asset Trust 2006-2A A1		5.361%	7/25/36		2,104		2,069	^E
Bayview Commercial Asset Trust 2006-SP1 A1		5.401%	4/25/36		2,894		2,869	^E
Bear Stearns Mortgage Funding Trust 2006-AR5 1A1		5.291%	12/25/36		370		363
Bear Stearns Second Lien Trust 2007-SV1A A1		5.351%	12/25/36		13,002		11,703	^E
Bear Stearns Structured Products Inc. 2007-R10 A1		5.853%	9/26/37		46,450		46,229	^E
Bear Stearns Structured Products Inc. 2007-R11 A1A		6.398%	9/27/37		141,000		138,831	^E
Citigroup Mortgage Loan Trust Inc. 2005-5		5.433%	8/25/35		257		260
Citigroup Mortgage Loan Trust Inc. 2005-HE2		5.531%	7/25/35		13,123		12,614	^E
Countrywide Alternative Loan Trust 2004-J9 3A4		5.710%	10/25/34		197		197
Countrywide Alternative Loan Trust 2005-38 A3		5.481%	9/25/35		19,696		19,371
Countrywide Alternative Loan Trust 2005-44 1A1		5.461%	10/25/35		23,716		23,385
Countrywide Alternative Loan Trust 2005-44 2A1		5.441%	10/25/35		13,770		13,659
Countrywide Alternative Loan Trust 2005-56 3A1		5.421%	11/25/35		16,296		15,951
Countrywide Alternative Loan Trust 2005-56 4A1		5.441%	11/25/35		7,320		7,085
Countrywide Alternative Loan Trust 2005-59 1A1		5.868%	11/20/35		7,032		6,882
Countrywide Alternative Loan Trust 2005-72 A1		5.401%	1/25/36		5,635		5,512
Countrywide Alternative Loan Trust 2005-J12		5.401%	8/25/35		1,015		1,013
Countrywide Alternative Loan Trust 2006-0A2 A5		5.726%	5/20/46		8,278		8,090

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
Countrywide Alternative Loan Trust 2006-OA1 2A1		5.706%	3/20/46	$	339	$	331
Countrywide Alternative Loan Trust 2006-OA17		5.691%	12/20/46		76,473		75,027
Countrywide Alternative Loan Trust 2006-OA18 A2		5.371%	12/25/46		379		365
Countrywide Alternative Loan Trust 2006-OC2 2A3		5.421%	2/25/36		9,400		9,149
Countrywide Home Loans 2005-09 1A1		5.431%	5/25/35		9,979		9,728
Countrywide Home Loans 2005-R3		5.531%	9/25/35		7,248		7,080	^E
Countrywide Home Loans 2006-OA5 1A1		5.331%	4/25/46		5,967		5,831
DSLA Mortgage Loan Trust 2006-AR1 1A1A		5.903%	3/19/46		1,747		1,714
DSLA Mortgage Loan Trust 2006-AR1 1A1B		5.903%	3/19/47		1,747		1,714
GMAC Mortgage Corp. Loan Trust 2005-AR6 2A1		5.199%	11/19/35		335		333
Greenpoint Mortgage Funding Trust 2006-AR3 3A1		5.361%	4/25/36		7,469		7,330
Greenpoint Mortgage Funding Trust 2007-AR2 1A1		5.261%	4/25/47		77,978		77,045
GSMPS Mortgage Loan Trust 2005-RP2		5.481%	3/25/35		22,886		22,664	^E
GSMPS Mortgage Loan Trust 2005-RP3		5.481%	9/25/35		35,584		35,634	^E
Harborview Mortgage Loan Trust 2005-3		5.743%	6/19/35		18,792		18,388
Harborview Mortgage Loan Trust 2005-7		6.133%	6/19/45		8,388		8,161
Harborview Mortgage Loan Trust 2006-13 A		5.683%	11/19/46		197		195
Harborview Mortgage Loan Trust 2006-7		5.703%	10/19/37		4,046		3,983
Harborview Mortgage Loan Trust 2007-4 2A1		5.723%	7/19/47		37,602		36,537
Impac CMB Trust 2003-4 1A1		5.771%	10/25/33		235		233
IndyMac Inda Mortgage Loan Trust 2007-AR7 1A1		6.287%	11/25/37		18,190		18,180
IndyMac Index Mortgage Loan Trust 2004-AR2 2A1		5.441%	6/25/34		74		72
IndyMac Index Mortgage Loan Trust 2006-AR15 A1		5.251%	7/25/36		334		328
La Hipotecaria SA 2007-1GA A		5.750%	12/23/36		379		377	^E
Lehman XS Trust 2006-GP2 1A1A		5.201%	6/25/46		1,126		1,116
Luminent Mortgage Trust 2006-7 2A1		5.301%	12/25/36		5,499		5,336
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34		1,830		1,789
MASTR Reperforming Loan Trust 2005-2 1A1F		5.481%	5/25/35		6,611		6,542	^E
Medallion Trust 2000-2G		5.846%	12/18/31		287		285

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
MLCC Mortgage Investors Inc. 2003-B		5.471%	4/25/28	$	3,491	$	3,391
Residential Accredit Loans Inc. 2005-QO3 A1		5.531%	10/24/45		2,776		2,722
Residential Accredit Loans Inc. 2006-QO10 A1		5.291%	1/25/37		359		349
Residential Accredit Loans Inc. 2006-QO5 3A1		5.201%	5/25/46		30		30
Residential Accredit Loans Inc. 2006-QO8 1A1A		5.221%	10/25/46		3,049		3,029
Residential Accredit Loans Inc. 2007-QO4 A1A		5.321%	5/25/47		15,089		14,723
Sequoia Mortgage Trust A4		5.496%	11/22/24		14		14
Structured Asset Mortgage Investments Inc. 2006-AR3 11A1		5.341%	4/25/36		6,698		6,596
Structured Asset Mortgage Investments Inc. 2006-AR7 A1A		5.341%	8/25/36		42,868		42,196
Thornburg Mortgage Securities Trust 2005-4 A4		5.331%	12/25/35		75,095		74,793
Thornburg Mortgage Securities Trust 2006-1		5.301%	1/25/36		121,157		120,550
Thornburg Mortgage Securities Trust 2006-1 A2		5.281%	1/25/36		7,462		7,423
WaMu Mortgage Pass-Through Certificates, 2005-AR06 2A1A		5.361%	4/25/45		13,821		13,550
WaMu Mortgage Pass-Through Certificates, 2005-AR08 1A1A		5.401%	7/25/45		12,983		12,617
WaMu Mortgage Pass-Through Certificates, 2005-AR1 A1A		5.451%	1/25/45		3,201		3,150
WaMu Mortgage Pass-Through Certificates, 2005-AR11		5.451%	8/25/45		38,222		37,435
WaMu Mortgage Pass-Through Certificates, 2005-AR13 A1A1		5.421%	10/25/45		21,650		21,168
WaMu Mortgage Pass-Through Certificates, 2005-AR13 B10		6.705%	10/25/45		6,409		4,967	^E
WaMu Mortgage Pass-Through Certificates, 2005-AR15 A1A1		5.391%	11/25/45		21,081		20,739
WaMu Mortgage Pass-Through Certificates, 2005-AR15 A1A2		5.411%	11/25/45		33,156		32,392
WaMu Mortgage Pass-Through Certificates, 2005-AR17 A1A2		5.421%	12/25/45		20,839		20,391
WaMu Mortgage Pass-Through Certificates, 2005-AR19 A1A1		5.401%	12/25/45		30,440		29,998
WaMu Mortgage Pass-Through Certificates, 2005-AR19 A1A2		5.421%	12/25/45		33,646		33,004
WaMu Mortgage Pass-Through Certificates, 2007-OA5 A1A		5.823%	5/25/47		1,592		1,549
Zuni Mortgage Loan Trust 2006-OA1		5.261%	8/25/36		32,272		32,025

							1,248,058

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Mortgage-Backed Securities—Continued

Stripped Securities	0.1%
Diversified REIT Trust 2001-1A		0.755%	3/8/10	$	10,587	$	188	^E,J1
FFCA Secured Lending Corp. 1999-1A		1.427%	9/18/25		342		14	^E,J1
GE Capital Commercial Mortgage Corp. 2005-C4		5.512%	11/10/45		15,020		14,964	^J1
GMAC Commercial Mortgage Securities Inc. 1999-CTL1		0.461%	12/15/16		479		1	^E,J1
LB-UBS Commercial Mortgage Trust 2001-C3 X		1.164%	6/15/36		8,638		259	^E,J1

							15,426

Variable Rate Securities^G	2.4%
Banc of America Commercial Mortgage Inc. 2006-2 A4		5.930%	5/10/45		28,805		29,359
Banc of America Funding Corp. 2005-F 2A1		5.207%	9/20/35		25,101		25,038
Commercial Mortgage Asset Trust 1999-C2		7.546%	11/17/32		319		329
Countrywide Home Loan Mortgage Pass Through Trust 2006-HYB1 2A1		5.339%	3/20/36		262		261
Credit Suisse Mortgage Capital Certificates 2006-C1 A4		5.609%	2/15/39		310		311
GSR Mortgage Loan Trust 2005-AR7 1A1		5.124%	11/25/35		3,892		3,946
Harborview Mortgage Loan Trust 2006-2		5.430%	2/25/36		7,291		7,255
IndyMac INDX Mortgage Loan Trust 2004-AR15		5.035%	2/25/35		802		798
IndyMac INDX Mortgage Loan Trust 2005-AR1 1A1		5.326%	3/25/35		150		150
IndyMac INDX Mortgage Loan Trust 2005-AR13		4.417%	8/25/35		911		911
IndyMac INDX Mortgage Loan Trust 2005-AR15		5.099%	9/25/35		10,757		10,588
JP Morgan Chase Commercial Mortgage Securities Corp. 2005-CB13		5.472%	1/12/43		11,800		11,715
JP Morgan Chase Commercial Mortgage Securities Corp. 2006-LDP9 HS		5.941%	5/15/47		5,000		4,117	^E
MASTR Adjustable Rate Mortgages Trust 2004-4 3A1		4.172%	5/25/34		3,040		2,995
MASTR Adjustable Rate Mortgages Trust 2006-2 3A1		4.844%	1/25/36		191		188
Merrill Lynch Mortgage Investors Trust 2006-A1 1A1		5.854%	3/25/36		39,573		39,845
Merrill Lynch Mortgage Trust 2005-CKI1		5.417%	11/12/37		18,740		18,558
Merrill Lynch Mortgage Trust 2005-MCP1		4.747%	6/12/43		15,240		14,528

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Mortgage-Backed Securities—Continued

Variable Rate Securities—Continued
Merrill Lynch Mortgage Trust 2006-C1 A4		5.843%	5/12/39	$	130	$	132
Merrill Lynch/Countrywide Commercial Mortgage Trust 2007-7 A4		5.810%	6/12/50		5,150		5,201
Morgan Stanley Mortgage Loan Trust 2005-3AR		5.197%	7/25/35		9,859		10,010
Prime Mortgage Trust 2005-2		7.408%	10/25/32		821		844
Structured Adjustable Rate Mortgage Loan Trust 2004-16 5A2		5.070%	11/25/34		42,888		41,984
Thornburg Mortgage Securities Trust 2004-1		6.302%	3/25/44		118		119
Thornburg Mortgage Securities Trust 2007-4 2A1		6.240%	9/25/37		56,129		56,304
Thornburg Mortgage Securities Trust 2007-4 3A1		6.228%	9/25/37		51,126		50,654
WaMu Mortgage Pass-Through Certificates 2005-AR14 1A1		5.058%	12/25/35		322		319
WaMu Mortgage Pass-Through Certificates 2007-HY4 4A1		5.503%	9/25/36		149		148

							336,607

Total Mortgage-Backed Securities (Cost—$1,960,115)							1,938,183
Loan Participations and Assignments^A	0.5%

Auto Components	N.M.
Allison Transmission Inc., Term Loan, Tranche B		8.480% to 8.570%	12/10/07		1,000		968


Commercial Services and Supplies	N.M.
Allied Waste North America Inc., Credit Linked Deposit, Tranche A		6.820%	10/1/07		554		546
Allied Waste North America Inc., Term Loan		6.630% to 6.890%	2/18/08		1,019		1,004

							1,550

Communications Equipment	N.M.
Panamsat Corp., Term Loan, Tranche A		7.360%	10/2/07		1,850		1,821

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

Loan Participations and Assignments—Continued

Computers and Peripherals	N.M.
SunGard Data Systems Inc., Term Loan, Tranche B		7.356%	11/8/07	$	1,980	$	1,943


Containers and Packaging	N.M.
Amscan Holdings Inc., Term Loan, Tranche B		7.345% to 9.000%	12/31/07		998		950


Diversified Consumer Services	N.M.
Thomson Medical Education, First Lien Term Loan		7.950%	12/31/07		1,000		995


Diversified Financial Services	N.M.
CCM Merger Inc., Term Loan, Tranche B		7.198% to 7.720%	12/28/07		990		959


Health Care Providers and Services	0.1%
Davita Inc., Term Loan, Tranche B1		6.700% to 7.010%	12/31/07		2,000		1,959
Healthsouth Corp., Term Loan, Tranche B		7.630% to 7.860%	10/29/07		563		546
Sheridan Healthcare Inc., Term Loan, Tranche B		7.860%	10/16/07		1,000		930
Vanguard Health Holding Co. II, Replacement Term Loan		7.448%	12/31/07		1,980		1,916

							5,351

Hotels, Restaurants and Leisure	N.M.
Metro-Goldwyn-Mayer Studios Inc., Term Loan, Tranche B		8.448%	12/31/07		1,485		1,419


IT Services	0.3%
First Data Corp., Term Loan, Tranche B1		7.960%	12/24/07		39,810		38,218


Media	0.1%
Carmike Cinemas Inc., Delayed Draw Term Loan		7.750% to 8.980%	12/31/07		835		826
Cedar Fair LP, Term Loan, Tranche B		7.129%	10/31/07		990		968

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Loan Participations and Assignments—Continued

Media—Continued
Charter Communications Operating LLC, Term Loan		7.360%	10/30/07	$	2,000	$	1,929
Citadel Communication Group, Term Loan, Tranche B		6.755% to 6.825%	12/31/07		1,000		952
CSC Holdings Inc., Incremental Term Loan		7.569%	10/9/07		990		975
Idearc Inc., Term Loan, Tranche B		7.200%	12/31/07		995		979
Nielsen Finance LLC, Term Loan, Tranche B		7.360%	11/9/07		1,985		1,926
Tribune Co., Tranche B		8.360%	10/5/07		1,000		907
Univision Communications, Term Loan, Tranche B		7.610%	10/31/07		940		893
UPC Broadband Holding, Term Loan, Tranche N		7.130%	1/2/08		1,000		956

							11,311

Multiline Retail	N.M.
Dollar General Corp., Term Loan, Tranche B		8.108%	10/31/07		1,000		949


Paper and Forest Products	N.M.
Georgia-Pacific Corp., First Lien Term Loan		6.948% to 7.474%	12/31/07		990		968


Road and Rail	N.M.
Swift Transportation, Term Loan		8.375%	11/1/07		884		800


Semiconductors and Semiconductor Equipment	N.M.
Sensata Technologies, Term Loan, Tranche B		7.090% to 7.110%	10/29/07		1,485		1,422

Total Loan Participations and Assignments (Cost—$70,617)							69,624
U.S. Government and Agency Obligations	14.7%

Fixed Rate Securities	9.6%
Fannie Mae		2.880%	10/22/07		81,000		80,900
Fannie Mae		3.125%	12/15/07		35,000		34,869	^B

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
Fannie Mae		5.200%	11/8/10	$	17,470	$	17,483
Fannie Mae		5.625%	5/19/11		31,580		32,182	^B
Fannie Mae		4.610%	10/10/13		40,690		39,857
Fannie Mae		6.000%	4/18/36		18,560		19,000
Farmer Mac		5.125%	8/25/16		410		416
Federal Home Loan Bank		3.875%	8/22/08		8,640		8,582	^B
Federal Home Loan Bank		5.100%	9/19/08		800		804
Federal Home Loan Bank		5.400%	1/2/09		22,690		22,690
Federal Home Loan Bank		5.400%	1/16/09		38,000		38,015
Federal Home Loan Bank		5.500%	5/21/09		300		300
Federal Home Loan Bank		5.000%	12/21/15		240		241
Federal Home Loan Bank		5.500%	7/15/36		3,040		3,134	^B
Freddie Mac		3.500%	11/15/07		100		100
Freddie Mac		5.875%	11/15/07		750		751
Freddie Mac		4.750%	1/18/11		280		283
Freddie Mac		5.250%	2/24/11		16,000		16,166	^B
Freddie Mac		5.625%	3/15/11		25,450		26,391	^B
Freddie Mac		5.125%	4/18/11		14,440		14,746	^B
Freddie Mac		4.650%	10/10/13		47,200		46,284
Freddie Mac		5.450%	11/21/13		18,230		18,350
Freddie Mac		5.300%	5/12/20		75,000		73,361	^B
Freddie Mac		5.625%	11/23/35		19,270		18,918	^B
Tennessee Valley Authority		6.250%	12/15/17		40		44
Tennessee Valley Authority		7.125%	5/1/30		840		1,039
Tennessee Valley Authority		5.980%	4/1/36		120		132
United States Treasury Bonds		8.875%	8/15/17		10		13	^B
United States Treasury Bonds		4.750%	2/15/37		7,198		7,098	^B
United States Treasury Bonds		5.000%	5/15/37		44,190		45,329	^B
United States Treasury Notes		3.750%	5/15/08		25,460		25,394	^B
United States Treasury Notes		5.000%	7/31/08		5,835		5,876	^B
United States Treasury Notes		4.500%	3/31/09		29,490		29,718	^B
United States Treasury Notes		4.750%	5/31/09		48,800		49,517	^B
United States Treasury Notes		3.625%	7/15/09		62,120		61,766	^B
United States Treasury Notes		6.000%	8/15/09		34,850		36,121	^B
United States Treasury Notes		4.625%	11/15/09		180,120		182,456	^B
United States Treasury Notes		4.000%	4/15/10		10		10	^B
United States Treasury Notes		3.875%	9/15/10		24,700		24,603	^B
United States Treasury Notes		4.875%	5/31/11		11,900		12,212	^B

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
United States Treasury Notes		4.500%	9/30/11	$	29,420	$	29,813	^B
United States Treasury Notes		4.625%	10/31/11		10,600		10,789	^B
United States Treasury Notes		4.625%	12/31/11		234,920		239,031	^B
United States Treasury Notes		4.500%	3/31/12		9,720		9,838	^B
United States Treasury Notes		4.750%	5/31/12		1,820		1,861	^B
United States Treasury Notes		4.875%	6/30/12		180		185	^B
United States Treasury Notes		4.625%	7/31/12		3,330		3,388	^B
United States Treasury Notes		5.125%	5/15/16		10		10	^B
United States Treasury Notes		4.625%	2/15/17		20,310		20,404	^B
United States Treasury Notes		4.750%	8/15/17		54,800		55,536	^B

							1,366,006

Indexed Securities^A	0.2%
Farmer Mac		5.011%	2/23/09		27,000		26,994


Stripped Securities	0.3%
United States Treasury Bonds		0.000%	11/15/21		37,190		18,414	^J2
United States Treasury Bonds		0.000%	11/15/24		32,510		13,864	^B,J2
United States Treasury Bonds		0.000%	5/15/30		17,830		5,924	^B,J2

							38,202

Treasury Inflation-Protected Securities^K	4.6%
United States Treasury Inflation- Protected Security		3.875%	1/15/09		4,522		4,614	^B
United States Treasury Inflation- Protected Security		0.875%	4/15/10		33		32	^B
United States Treasury Inflation- Protected Security		2.375%	4/15/11		52		53	^B
United States Treasury Inflation- Protected Security		1.875%	7/15/13		8,495		8,359	^B
United States Treasury Inflation- Protected Security		2.000%	1/15/14		1,285		1,267	^B
United States Treasury Inflation- Protected Security		1.875%	7/15/15		58,557		57,006	^B
United States Treasury Inflation- Protected Security		2.000%	1/15/16		51,866		50,699	^B
United States Treasury Inflation- Protected Security		2.500%	7/15/16		7,942		8,090	^B
United States Treasury Inflation- Protected Security		2.375%	1/15/17		41,161		41,457	^B

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

U.S. Government and Agency Obligations—Continued

Treasury Inflation-Protected Securities—Continued
United States Treasury Inflation-Protected Security		2.375%	1/15/25	$	77,741	$	78,427	^B
United States Treasury Inflation-Protected Security		2.000%	1/15/26		139,834		133,541	^B
United States Treasury Inflation-Protected Security		2.375%	1/15/27		183,403		185,639	^B
United States Treasury Inflation-Protected Security		3.625%	4/15/28		24,173		29,446	^B
United States Treasury Inflation-Protected Security		3.875%	4/15/29		39,901		50,668	^B
United States Treasury Inflation-Protected Security		3.375%	4/15/32		10,304		12,585	^B

							661,883

Total U.S. Government and Agency Obligations (Cost—$2,057,164)							2,093,085
U.S. Government Agency Mortgage-Backed Securities	55.4%

Fixed Rate Securities	52.5%
Fannie Mae		6.500%	5/1/14 to 7/1/35		11,625		11,877
Fannie Mae		5.500%	1/1/17 to 5/1/37		727,963		713,366
Fannie Mae		9.500%	11/1/21		1		2
Fannie Mae		5.000%	12/1/22 to 12/1/37		3,253,500		3,106,047	^L
Fannie Mae		5.500%	12/1/22		163,600		163,191	^L
Fannie Mae		6.000%	12/1/22 to 12/1/37		672,760		673,277	^L
Fannie Mae		6.000%	4/1/24 to 8/1/37		1,380,942		1,383,176
Fannie Mae		7.000%	8/1/29 to 6/1/32		4,364		4,540
Fannie Mae		7.500%	11/1/29		22		23
Fannie Mae		4.500%	12/1/34 to 3/1/35		15,293		14,196
Fannie Mae		5.000%	6/1/35 to 2/1/37		310,732		296,887
Fannie Mae		4.500%	12/1/37		10,800		10,017	^L
Fannie Mae		6.500%	12/1/37		304,560		310,074	^L
Freddie Mac		6.000%	6/1/08 to 7/1/37		11,345		11,461
Freddie Mac		5.500%	12/1/13 to 5/1/35		12,189		11,975
Freddie Mac		7.000%	10/1/16 to 4/1/32		1,429		1,486
Freddie Mac		6.500%	7/1/29		369		379
Freddie Mac		5.000%	10/1/35 to 11/1/36		432,611		413,345

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

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

Fixed Rate Securities—Continued
Freddie Mac		5.000%	12/1/37	$	35,000	$	33,381	^L
Government National Mortgage Association		7.500%	3/15/23 to 9/15/31		234		246
Government National Mortgage Association		7.000%	7/15/23		0.4		—	^M
Government National Mortgage Association		7.000%	8/15/23 to 7/15/31		760		796
Government National Mortgage Association		6.500%	4/15/28 to 4/15/33		16,175		16,568
Government National Mortgage Association		6.000%	1/15/29 to 11/15/35		80,851		81,479
Government National Mortgage Association		8.000%	12/15/30 to 1/15/31		24		26
Government National Mortgage Association		5.000%	7/15/33 to 11/15/35		75,666		73,127
Government National Mortgage Association		5.500%	7/15/33 to 6/15/35		21,921		21,642
Government National Mortgage Association		6.000%	12/1/37		15,100		15,194	^L
Government National Mortgage Association		6.500%	12/1/37		107,800		110,128	^L

							7,477,906

Indexed Securities^A	2.9%
Fannie Mae		4.795%	6/1/35		16,404		16,453
Fannie Mae		4.333%	8/1/35		1,766		1,757
Fannie Mae		4.615%	9/1/35		10,085		10,060
Fannie Mae		4.698%	9/1/35		3,974		3,964
Fannie Mae		4.578%	10/1/35		3,401		3,389
Fannie Mae		4.704%	10/1/35		5,069		5,052
Fannie Mae		4.718%	10/1/35		3,231		3,229
Fannie Mae		4.826%	10/1/35		3,133		3,163
Fannie Mae		7.007%	10/1/35		22,367		23,134
Fannie Mae		7.012%	10/1/35		5,302		5,452
Fannie Mae		7.029%	10/1/35		36,701		37,737
Fannie Mae		6.998%	11/1/35		15,381		15,908
Fannie Mae		5.286%	12/1/35		537		536
Fannie Mae		6.454%	1/1/37		25,604		26,047
Fannie Mae		5.515%	2/1/37		38,812		38,902

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

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

Indexed Securities—Continued
Fannie Mae		5.726%	4/1/37	$	28,137	$	28,392
Fannie Mae		5.896%	4/1/37		18,103		18,236
Fannie Mae		6.178%	8/1/37		31,760		32,145
Freddie Mac		4.829%	10/1/35		5,815		5,840
Freddie Mac		5.141%	12/1/35		734		731
Freddie Mac		5.198%	12/1/35		520		517
Freddie Mac		5.821%	2/1/37		67		67
Freddie Mac		6.092%	3/1/37		39,077		39,701
Freddie Mac		5.818%	5/1/37		5,755		5,803
Freddie Mac		5.895%	5/1/37		17,207		17,379
Freddie Mac		5.958%	5/1/37		190		192
Freddie Mac		6.033%	5/1/37		140		142
Freddie Mac		5.796%	6/1/37		2,870		2,893
Freddie Mac		5.922%	7/1/37		45,139		45,481
Freddie Mac		5.900%	8/1/37		13,985		14,134
Government National Mortgage Association		5.896%	8/20/31		3		3

							406,439

Stripped Securities	N.M.
Financing Corp.		0.000%	11/30/17 to 4/5/19		1,570		932	^J2

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$7,899,514)							7,885,277
Yankee Bonds^N	6.8%

Aerospace and Defense	N.M.
Systems 2001 Asset Trust		6.664%	9/15/13		2,429		2,561	^E


Automobiles	N.M.
General Motors Nova Scotia Finance Co.		6.850%	10/15/08		1,550		1,534


Commercial Banks	2.5%
Barclays Capital		6.060%	3/20/08		23,100		22,611	^A,E
Glitnir Banki Hf		6.330%	7/28/11		10,670		10,854	^E
Glitnir Banki Hf		6.375%	9/25/12		18,040		18,082	^E
Glitnir Banki Hf		6.693%	6/15/16		19,600		20,031	^D,E
Glitnir Banki Hf		7.451%	9/14/49		3,065		3,020	^D,E

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Yankee Bonds—Continued

Commercial Banks—Continued	2.5%
HSBC Capital Funding LP		4.610%	6/27/49	$	2,090	$	1,963	^D,E
ICICI Bank Ltd.		6.375%	4/30/22		14,359		13,427	^D,E
ICICI Bank Ltd.		6.375%	4/30/22		15,561		14,541	^B,D,E
Kaupthing Bank Hf		6.050%	4/12/11		27,860		27,635	^A,E
Kaupthing Bank Hf		5.750%	10/4/11		5,550		5,479	^E
Kaupthing Bank Hf		7.125%	5/19/16		6,060		6,116	^E
Korea Development Bank		4.250%	11/13/07		200		200
Korea Development Bank		5.500%	11/13/12		60		60
Landsbanki Islands Hf		6.100%	8/25/11		28,520		28,895	^E
Nordea Bank AB		5.810%	4/8/11		52,000		51,968	^A,E
Resona Preferred Global Securities		7.191%	12/29/49		11,630		11,671	^D,E
Royal Bank of Scotland Group PLC		7.640%	3/31/49		7,400		7,400	^D
Royal Bank of Scotland Group PLC		6.990%	10/29/49		12,030		12,255	^D,E
RSHB Capital SA		6.299%	5/15/17		30,690		28,892	^E
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		25,685		23,816	^D,E
TuranAlem Finance BV		8.250%	1/22/37		29,590		25,004	^E
TuranAlem Finance BV		8.250%	1/22/37		30,793		26,867	^E

							360,787

Diversified Financial Services	0.4%
Aiful Corp.		5.000%	8/10/10		12,430		12,017	^E
Cascadia Ltd.		8.849%	6/13/08		4,100		4,100	^A,E
Credit Suisse Guernsey Ltd.		5.860%	5/15/49		40		38	^D
European Investment Bank		4.000%	3/3/10		100		99
European Investment Bank		4.625%	3/21/12		50		50
MUFG Capital Finance 1 Ltd.		6.346%	7/29/49		7,400		7,034	^D
Pemex Finance Ltd.		9.030%	2/15/11		7		7
TNK-BP Finance SA		7.500%	7/18/16		17,280		17,161	^E
TNK-BP Finance SA		7.500%	7/18/16		1,650		1,645	^E
TNK-BP Finance SA		6.625%	3/20/17		11,350		10,570	^B,E
TNK-BP Finance SA		6.625%	3/20/17		724		678	^E

							53,399

Diversified Telecommunication Services	0.3%
British Telecommunications PLC		8.625%	12/15/10		2,315		2,549	^F
Deutsche Telekom International Finance BV		5.750%	3/23/16		20,000		19,764	^B
Intelsat Bermuda Ltd.		9.250%	6/15/16		1,105		1,146
Koninklijke (Royal) KPN NV		8.000%	10/1/10		14,470		15,564
Telecom Italia Capital SpA		5.250%	11/15/13		1,260		1,223
Telecom Italia Capital SpA		4.950%	9/30/14		3,730		3,526
Telecom Italia Capital SpA		5.250%	10/1/15		6,090		5,781

							49,553

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Core Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†		VALUE

Yankee Bonds—Continued

Electric Utilities	N.M.
Hydro-Quebec		6.300%	5/11/11	$	1,720	$	1,805


Energy Equipment and Services	0.1%
Compagnie Generale de Geophysique-Veritas		7.500%	5/15/15		1,970		2,029
Compagnie Generale de Geophysique-Veritas		7.750%	5/15/17		7,494		7,719

							9,748

Foreign Governments	1.2%
Federative Republic of Brazil		8.875%	4/15/24		950		1,223
Federative Republic of Brazil		10.125%	5/15/27		4,255		6,070
Federative Republic of Brazil		7.125%	1/20/37		4,528		5,058	^B
Federative Republic of Brazil		11.000%	8/17/40		9,709		12,986
Province of British Columbia		4.300%	5/30/13		180		173	^B
Republic of Colombia		7.375%	9/18/37		2,272		2,499
Republic of Panama		7.125%	1/29/26		2,566		2,771	^B
Republic of Panama		9.375%	4/1/29		1,933		2,590
Republic of Panama		6.700%	1/26/36		2,860		2,939
Russian Federation		7.500%	3/31/30		65,229		73,572	^E
United Mexican States		5.625%	1/15/17		374		373	^B
United Mexican States		6.750%	9/27/34		56,506		61,450	^B

							171,704

Gas Utilities	0.2%
Intergas Finance BV		6.375%	5/14/17		25,819		24,933	^E


Industrial Conglomerates	0.7%
Tyco International Group SA		6.125%	11/1/08		1,738		1,757
Tyco International Group SA		6.125%	1/15/09		644		654
Tyco International Group SA		6.750%	2/15/11		35,798		37,735
Tyco International Group SA		6.375%	10/15/11		15,948		16,319
Tyco International Group SA		6.000%	11/15/13		4,808		4,853
Tyco International Group SA		7.000%	6/15/28		945		1,028
Tyco International Group SA		6.875%	1/15/29		31,995		32,115

							94,461

Insurance	0.3%
Foundation Re Ltd.		9.620%	11/24/08		9,400		9,143	^A,E
Merna Reinsurance Ltd.		7.110%	6/30/12		26,450		26,413	^A,E

							35,556

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†			VALUE

Yankee Bonds—Continued

Media	N.M.
Rogers Cable Inc.		7.875%	5/1/12	$	687		$	740
Rogers Cable Inc.		6.750%	3/15/15		130			134
Shaw Communications Inc.		7.250%	4/6/11		630			646
Sun Media Corp.		7.625%	2/15/13		1,125			1,105

								2,625

Metals and Mining	0.3%
Corporacion Nacional del Cobre—Codelco		4.750%	10/15/14		2,590			2,475	^E
Vale Overseas Ltd.		8.250%	1/17/34		770			912
Vale Overseas Ltd.		6.875%	11/21/36		37,075			38,197

								41,584

Oil, Gas and Consumable Fuels	0.7%
Anadarko Finance Co.		7.500%	5/1/31		15,957			17,378
Conoco Funding Co.		6.350%	10/15/11		590			615
Conoco Funding Co.		7.250%	10/15/31		810			913
Gazprom		6.212%	11/22/16		29,470			29,211	^E
Gazprom		6.510%	3/7/22		23,180			22,946	^E
OPTI Canada Inc.		8.250%	12/15/14		2,405			2,423	^E
Petrobras International Finance Co.		6.125%	10/6/16		18,870			19,015
Teekay Shipping Corp.		8.875%	7/15/11		1,729			1,815

								94,316

Semiconductors and Semiconductor Equipment	N.M.
NXP BV/NXP Funding LLC		7.875%	10/15/14		595			573
NXP BV/NXP Funding LLC		9.500%	10/15/15		2,660			2,480	^B

								3,053

Thrifts and Mortgage Finance	N.M.
Willow Re Ltd.		10.483%	6/16/10		250			253	^A,E


Wireless Telecommunication Services	0.1%
Rogers Wireless Inc.		6.375%	3/1/14		1,850			1,869
Vodafone Group PLC		5.000%	9/15/15		10,600			10,002

								11,871

Total Yankee Bonds (Cost—$966,191)								959,743
Foreign Government Obligations	1.3%
Canadian Government Bond		5.250%	6/1/12		45,000	CAD		47,265
Canadian Real Return Bond		4.000%	12/1/31		6,974	CAD		9,566	^O

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—Continued
Federal Republic of Germany		3.750%	1/4/15	18,440	EUR	$	25,477
Federative Republic of Brazil		10.000%	1/1/10	—	^P BRL		1
Federative Republic of Brazil		10.000%	7/1/10	135	BRL		71,627
Federative Republic of Brazil		6.000%	5/15/15	19	BRL		16,283
Federative Republic of Brazil		6.000%	5/15/45	22	BRL		18,511

Total Foreign Government Obligations (Cost—$162,787)							188,730
Preferred Stocks	0.8%
AES Trust III		6.750%		71	shs		3,470	^B,C
Fannie Mae		5.375%		—	^P		2,836	^C
Fannie Mae		7.000%		53			2,768
Ford Motor Co.		7.500%		16			302
General Motors Corp.		1.500%		399			11,287	^B,C
General Motors Corp.		5.250%		207			4,408	^C
General Motors Corp.		6.250%		2,701			66,142	^C
General Motors Corp.		7.250%		128			2,385	^B
General Motors Corp.		7.250%		56			1,029
General Motors Corp.		7.250%		45			830	^B
General Motors Corp.		7.375%		328			6,114
General Motors Corp.		7.500%		260			5,025	^B
Home Ownership Funding Corp.		1.000%		2			224	^E
Home Ownership Funding Corp. II		1.000%		1			195	^E

Total Preferred Stocks (Cost—$101,411)							107,015
Warrants	N.M.
Bear Stearns Trust Certficates 2001-2, Strike Price $97.72				5	wts		50	^Q
Bear Stearns Trust Certficates 2001-3, Strike Price $99.897				5			32	^Q

Total Warrants (Cost—$18)							82

Total Long-Term Securities (Cost—$16,180,343)							16,155,181
Investment of Collateral From Securities Lending	11.1%
State Street Navigator Securities Lending Prime Portfolio				1,593,825	shs		1,593,825

Total Investment of Collateral From Securities Lending (Cost—$1,593,825)							1,593,825

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES†			VALUE

Short-Term Securities	17.1%

Corporate Bonds and Notes	0.4%
State Street Bank and Trust		5.100%	12/14/07	$	52,000		$	52,000


U.S. Government and Agency Obligations	2.2%
Fannie Mae		0.000%	3/31/08		15,180			14,797	^I,R
Fannie Mae		0.000%	11/28/07		100,000			99,275	^B,I
Fannie Mae		0.000%	3/17/08		113,400			111,082	^I,R
Fannie Mae		0.000%	3/17/08		80			78	^I,R
Fannie Mae		0.000%	4/7/08		1,720			1,677	^I,R
Federal Home Loan Bank		0.000%	10/1/07		87,521			87,521	^I

								314,430

Foreign Government Obligations	0.2%
Bank Negara Islamic Notes		0.000%	12/6/07		77,038	MYR		22,462	^I
Bank Negara Islamic Notes		0.000%	12/6/07		2,785	MYR		807	^I
Bank Negara Islamic Notes		0.000%	12/6/07		3,527	MYR		1,029	^I
Bank Negara Islamic Notes		0.000%	12/13/07		12,139	MYR		3,514	^I
Bank Negara Islamic Notes		0.000%	12/21/07		5,712	MYR		1,652	^I
Bank Negara Islamic Notes		0.000%	12/27/07		8,325	MYR		2,443	^I
Bank Negara Malaysia Monetary Notes		0.000%	11/1/07		6,412	MYR		1,876	^I

								33,783

Options Purchased^S	0.1%
Euro Currency Futures Put, December 2007, Strike Price $1.38					28	^T		11
Euro Currency Futures Put, December 2007, Strike Price $1.40					1,922	^T		1,490
Eurodollar Futures Call, December 2007, Strike Price $94.00					678	^T		1,958
Eurodollar Futures Put, December 2007, Strike Price $93.625					2,384	^T		15
Eurodollar Futures Put, December 2007, Strike Price $93.75					9,650	^T		1,025
Eurodollar Futures Put, March 2008, Strike Price $93.25					2,000	^T		12
Eurodollar Futures Put, March 2008, Strike Price $93.75					886	^T		6
Libor Call, December 2007, Strike Price $93.00					2,000	^T		4,931
Libor Call, December 2007, Strike Price $93.50					2,000	^T		2,606
Libor Put, March 2008, Strike Price $93.00					5,026	^T		—	^M
JP Morgan Swaption Call, January 2008, Strike Price $5.1577					57,570,000	^T		1,024

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
Swaption Call, November 2007, Strike Price $5.2725			137,100,000	^T	$	2,730
Merrill Swaption Call, September 2009, Strike Price $4.50			2,300,000	^T		9
Goldman Swaption Call, September 2009, Strike Price $4.50			397,000,000	^T		1,584
Greenwich U.S. Treasury Bond Futures Call, November 2007, Strike Price $113.00			708	^T		509
U.S. Treasury Note Futures Put, November 2007, Strike Price $108.00			68	^T		30

						17,940

Repurchase Agreements	14.2%
Goldman Sachs Group, Inc. 4.85% dated 9/28/07, to be repurchased at $869,800 on 10/1/07 (Collateral: $140,535 Freddie Mac notes, 5.25% due 7/18/11, value $145,454; $385,000 Tennessee Valley Authority bonds, 5.375% to 5.88% due 4/1/36 to 4/1/56, value $420,131; $315,000 Fannie Mae notes, 5.78% due 6/7/22, value $321,300)		$	869,449			869,449
Lehman Brothers Inc. 4.75% dated 9/28/07, to be repurchased at $1,155,203 on 10/1/07 (Collateral: $500,000 Federal Home Loan Bank zero-coupon notes due 9/18/28, value $124,340; $731,860 Fannie Mae notes, 5.15% to 6.27% due 3/8/12 to 6/5/17, value $737,432; $247,900 Tennessee Valley Authority interest-only securities, 7.125% due 5/1/30, value $316,073)			1,154,746			1,154,746

						2,024,195

Total Short-Term Securities (Cost—$2,439,248)						2,442,348
Total Investments (Cost—$20,213,416)^U	141.7%					20,191,354
Obligation to Return Collateral for Securities Loaned	(11.1)%					(1,593,825	)
Other Assets Less Liabilities	(30.6)%					(4,352,408	)


Net Assets	100.0%				$	14,245,121


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^S
Australia Bond Futures	December 2007	97	$	(157	)
Bundesobligations Futures	December 2007	2,675		(1,055	)
Canada Government Bond Futures	December 2007	461		(114	)
Canadian Dollar Futures	December 2007	218		866
Eurodollar Futures	December 2007	10,697		4,268
Eurodollar Futures	March 2008	4,709		3,740
Eurodollar Futures	September 2008	20		17
LIBOR Futures	March 2008	6,935		9,515
U.S. Treasury Note Futures	December 2007	55		20
United Kingdom Treasury Bond Futures	December 2007	418		(32	)

			$	17,068

Semi-Annual Report to Shareholders


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Written^S
Australian Dollar Futures	December 2007	809	$	(4,425	)
British Pound Futures	December 2007	1,890		(1,805	)
Euro Currency Futures	December 2007	268		(1,510	)
Japanese Yen Futures	December 2007	807		(899	)
Swiss Franc Futures	December 2007	50		(99	)
U.S. Treasury Bond Futures	December 2007	4,907		1,023
U.S. Treasury Note Futures	December 2007	24,186		(3,043	)

			$	(10,758	)

Options Written^S
Eurodollar Futures Call, Strike Price $95.00	March 2008	1,926	$	(2,218	)
Eurodollar Futures Call, Strike Price $95.125	December 2007	2,740		(168	)
Eurodollar Futures Call, Strike Price $95.25	December 2007	342		9
Eurodollar Futures Call, Strike Price $95.50	December 2007	1,972		484
Eurodollar Futures Call, Strike Price $95.50	March 2008	1,394		45
Eurodollar Futures Put, Strike Price $95.00	December 2007	5,663		513
Japanese Yen Futures Call, Strike Price $85.00	December 2007	805		(2,326	)
Goldman Swaption Call, Strike Price $4.95	September 2009	511,000		1
Greenwich Swaption Call, Strike Price $4.95	September 2009	88,225,000		184
U.S. Treasury Bond Futures Call, Strike Price $112.00	October 2007	611		(175	)
U.S. Treasury Bond Futures Put, Strike Price $106.00	November 2007	404		219
U.S. Treasury Bond Futures Put, Strike Price $108.00	November 2007	1,566		(111	)
U.S. Treasury Bond Futures Put, Strike Price $109.00	November 2007	8,203		(1,386	)
U.S. Treasury Bond Futures Put, Strike Price $109.00	February 2008	773		(68	)
U.S. Treasury Bond Futures Put, Strike Price $111.00	November 2007	1,827		(694	)
U.S. Treasury Note Futures Call, Strike Price $107.00	November 2007	4,118		(8,766	)
U.S. Treasury Note Futures Call, Strike Price $108.00	November 2007	4,150		(5,780	)
U.S. Treasury Note Futures Call, Strike Price $109.00	November 2007	204		(119	)
U.S. Treasury Note Futures Call, Strike Price $110.00	October 2007	1,028		72
U.S. Treasury Note Futures Call, Strike Price $110.00	November 2007	3,938		299
U.S. Treasury Note Futures Call, Strike Price $111.00	November 2007	2,327		26
U.S. Treasury Note Futures Put, Strike Price $102.00	November 2007	871		472
U.S. Treasury Note Futures Put, Strike Price $103.00	November 2007	1,927		883
U.S. Treasury Note Futures Put, Strike Price $104.00	November 2007	1,061		352
U.S. Treasury Note Futures Put, Strike Price $105.00	November 2007	572		283
U.S. Treasury Note Futures Put, Strike Price $106.00	November 2007	371		24
U.S. Treasury Note Futures Put, Strike Price $106.00	November 2007	1,353		144
U.S. Treasury Note Futures Put, Strike Price $107.00	November 2007	1,699		173
U.S. Treasury Note Futures Put, Strike Price $107.00	November 2007	392		(42	)
U.S. Treasury Note Futures Put, Strike Price $107.00	February 2008	1,058		121

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 Put, Strike Price $108.00	February 2008	2,147	$	59
U.S. Treasury Note Futures Put, Strike Price $109.00	November 2007	5,426		570

			$	(16,920	)

N.M. Not Meaningful.

All or a portion of this security is on loan.

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

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

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

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

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

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

Amount less than $1.

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

Amount represents less than $0.50.

Non-income producing.

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

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

Par represents actual number of contracts.


Gross unrealized appreciation	$	130,210
Gross unrealized depreciation	$	(152,272	)

Net unrealized appreciation/(depreciation)	$	(22,062	)

†

Securities are denominated in U.S. Dollars, unless otherwise noted.

Semi-Annual Report to Shareholders

BRL—Brazilian Real

CAD—Canadian Dollar

EUR—Euro

MYR—Malaysian Ringgit

RUB—Russian Ruble

See notes to financial statements.

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Core Plus Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$17,774,168)			$	17,749,006	^A
Short-term securities at value (Cost—$2,439,248)				2,442,348
Cash				57,281
Foreign currency at value (Cost—$37,132)				38,798
Receivable for securities sold				3,505,426
Receivable for fund shares sold				66,056
Interest receivable				167,703
Unrealized appreciation of forward foreign currency contracts				12,115
Other assets				2,810

Total assets				24,041,543


Liabilities:
Obligation to return collateral for securities loaned	$	1,593,825
Payable for securities purchased		8,021,309
Payable for fund shares repurchased		21,738
Accrued management fee		4,612
Accrued distribution		207
Income distribution payable		9,292
Amounts payable on swaps		42,693
Futures variation margin payable		11,143
Swap contracts at value		36,067
Options written (Proceeds—$32,569)		49,489
Accrued expenses		539
Unrealized depreciation of forward foreign currency contracts		5,508

Total liabilities				9,796,422


Net Assets			$	14,245,121


Net assets consist of:
Accumulated paid-in-capital			$	14,442,190
Undistributed net investment income				3,706
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions				(195,942	)
Net unrealized depreciation on investments, options, futures, swaps and foreign currency translations				(4,833	)


Net Assets			$	14,245,121


Net Asset Value Per Share:
Institutional Class (1,284,129 shares outstanding)				$10.26
Financial Intermediary Class (104,097 shares outstanding)				$10.26

The market value of securities on loan is $1,770,577.

See notes to financial statements.

100

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Core Plus Bond Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	390,405
Dividends		3,391
Income from securities lending		1,672

Total income				$	395,468
Expenses:
Management fees		26,515
Distribution fee
Financial Intermediary Class		1,115
Audit and legal fees		160
Custodian fees		781
Directors’ fees and expenses		209
Registration fees		145
Reports to shareholders		284
Transfer agent and shareholder servicing expense:
Institutional Class		217
Financial Intermediary Class		18
Other expenses		83

Net expenses					29,527

Net Investment Income					365,941
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		(37,584	)
Options		(14,182	)
Futures		(162,385	)
Swaps		25,421
Foreign currency transactions		(633	)

					(189,363	)
Change in unrealized appreciation/depreciation of:
Investments, options, futures, swaps and foreign currency translations		(74,880	)
Assets and liabilities denominated in foreign currency		(525	)

					(75,405	)

Net Realized and Unrealized Loss on Investments					(264,768	)

Change in Net Assets Resulting From Operations				$	101,173

See notes to financial statements.

101

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	365,941		$	456,733

Net realized gain/(loss)		(189,363	)		130,745

Change in unrealized appreciation/depreciation		(75,405	)		163,631

Change in net assets resulting from operations		101,173			751,109

Distributions to shareholders from:
Net investment income:
Institutional Class		(325,538	)		(451,788	)
Financial Intermediary Class		(22,543	)		(28,392	)

Net realized gain on investments:
Institutional Class		(92,868	)		(3,625	)
Financial Intermediary Class		(6,596	)		(231	)

Change in net assets from fund share transactions:
Institutional Class		2,004,986			4,348,340
Financial Intermediary Class		322,762			248,300

Change in net assets		1,981,376			4,863,713

Net Assets:
Beginning of period		12,263,745			7,400,032


End of period	$	14,245,121		$	12,263,745


Under/(over) distributions of net investment income	$	3,706		$	(14,154	)

See notes to financial statements.

102

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Core Plus Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	10.55		$	10.24		$	10.52		$	10.71		$	10.40		$	9.88

Investment operations:
Net investment income		.29	^A		.51	^A		.45	^B		.37			.37			.51
Net realized and unrealized gain/(loss)		(.23	)		.33			(.18	)^B		.04			.55			.62

Total from investment operations		.06			.84			.27			.41			.92			1.13

Distributions from:
Net investment income		(.27	)		(.53	)		(.52	)		(.35	)		(.41	)		(.51	)
Net realized gain on investments		(.08	)		—	^C		(.03	)		(.25	)		(.20	)		(.10	)

Total distributions		(.35	)		(.53	)		(.55	)		(.60	)		(.61	)		(.61	)

Net asset value, end of period	$	10.26		$	10.55		$	10.24		$	10.52		$	10.71		$	10.40

Total return		.55	%^D		8.48	%		2.57	%		4.01	%		9.12	%		11.78	%

Ratios to Average Net Assets:^E
Total expenses		.43	%^F		.44	%		.45	%		.45	%		.48	%		.50	%
Expenses net of waivers, if any		.43	%^F		.44	%		.45	%		.45	%		.45	%		.45	%
Expenses net of all reductions		.43	%^F		.44	%		.45	%		.45	%		.45	%		.45	%
Net investment income		5.6	%^F		4.9	%		4.3	%		3.3	%		3.6	%		5.0	%

Supplemental Data:
Portfolio turnover rate		240.2	%^D		448.6	%		549.4	%		586.1	%		463.8	%		422.6	%
Net assets, end of period (in thousands)	$	13,176,623		$	11,495,842		$	6,896,815		$	4,565,054		$	3,286,650		$	1,866,619

Computed using average daily shares outstanding.

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

Amount less than $.01 per share.

Not annualized.

Annualized.

See notes to financial statements.

103

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Core Plus Bond Portfolio

For a share of each class of capital stock outstanding:

Financial Intermediary Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	10.56		$	10.24		$	10.52		$	10.71		$	10.40		$	9.87

Investment operations:
Net investment income		.27	^A		.48	^A		.42	^B		.35			.36			.48
Net realized and unrealized gain/(loss)		(.23	)		.35			(.18	)^B		.04			.54			.63

Total from investment operations		.04			.83			.24			.39			.90			1.11

Distributions from:
Net investment income		(.26	)		(.51	)		(.49	)		(.33	)		(.39	)		(.48	)
Net realized gain on investments		(.08	)		—	^C		(.03	)		(.25	)		(.20	)		(.10	)

Total distributions		(.34	)		(.51	)		(.52	)		(.58	)		(.59	)		(.58	)

Net asset value, end of period	$	10.26		$	10.56		$	10.24		$	10.52		$	10.71		$	10.40

Total return		.52	%^D		8.30	%		2.32	%		3.77	%		8.82	%		11.57	%

Ratios to Average Net Assets:^E
Total expenses		.68	%^F		.69	%		.70	%		.70	%		.73	%		.75	%
Expenses net of waivers, if any		.68	%^F		.69	%		.70	%		.70	%		.70	%		.70	%
Expenses net of all reductions		.68	%^F		.69	%		.70	%		.70	%		.70	%		.70	%
Net investment income		5.3	%^F		4.7	%		4.0	%		2.9	%		3.2	%		4.8	%

Supplemental Data:
Portfolio turnover rate		240.2	%^D		448.6	%		549.4	%		586.1	%		463.8	%		422.6	%
Net assets, end of period (in thousands)	$	1,068,498		$	767,903		$	503,217		$	191,085		$	7,040		$	369

See notes to financial statements.

104

Semi-Annual Report to Shareholders

Expense Example

Western Asset High Yield 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, 2007, and held through September 30, 2007.

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 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class
Actual	$	1,000.00	$	996.50	$	2.90
Hypothetical (5% return before expenses)		1,000.00		1,022.16		2.94

Thesecalculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid During the Period” are equal to the annualized expense ratio of 0.58% 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.

105

Semi-Annual Report to Shareholders

Performance Information

Western Asset High Yield Portfolio

The graph compares the Fund’s total returns to that of an appropriate broad-based securities market index. The lines illustrate the cumulative total return of an initial $1,000,000 investment for the periods indicated. The line for 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 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.

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

LOGO

Indexreturns are for periods beginning September 30, 2001.

106

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2007)

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.

Preferred and Common stocks do not have defined maturity dates.

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

107

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset High Yield Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Long-Term Securities	95.3%

Corporate Bonds and Notes	82.2%

Aerospace and Defense	1.1%
Alliant Techsystems Inc.		6.750%	4/1/16	$	1,815	$	1,797
DRS Technologies Inc.		6.875%	11/1/13		280		280
DRS Technologies Inc.		6.625%	2/1/16		1,705		1,684
DRS Technologies Inc.		7.625%	2/1/18		1,500		1,530
L-3 Communications Corp.		7.625%	6/15/12		760		777
L-3 Communications Corp.		6.375%	10/15/15		4,455		4,377

							10,445

Airlines	1.6%
Continental Airlines Inc.		8.750%	12/1/11		2,510		2,409
Continental Airlines Inc.		7.339%	4/19/14		1,455		1,364
DAE Aviation Holdings Inc.		11.250%	8/1/15		7,150		7,472	^A
United Air Lines Inc.		7.032%	10/1/10		990		995
United Air Lines Inc.		7.186%	10/1/12		2,837		2,862

							15,102

Auto Components	0.9%
Visteon Corp.		8.250%	8/1/10		10,147		8,929


Automobiles	2.2%
Ford Motor Co.		7.450%	7/16/31		4,000		3,140
Ford Motor Co.		8.900%	1/15/32		1,680		1,386
Ford Motor Co.		4.250%	12/15/36		410		479	^B
General Motors Corp.		7.200%	1/15/11		1,780		1,700
General Motors Corp.		8.250%	7/15/23		3,415		2,988
General Motors Corp.		8.375%	7/15/33		12,970		11,365

							21,058

Beverages	0.1%
Constellation Brands Inc.		7.250%	9/1/16		1,100		1,100


Building Products	1.6%
Associated Materials Inc.		9.750%	4/15/12		2,400		2,436
Associated Materials Inc.		0.000%	3/1/14		9,565		6,026	^C
Nortek Inc.		8.500%	9/1/14		2,170		1,882
NTK Holdings Inc.		0.000%	3/1/14		7,525		4,628	^C

							14,972

108

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Capital Markets	0.4%
E*Trade Financial Corp.		7.375%	9/15/13	$	2,080	$	1,945
E*Trade Financial Corp.		7.875%	12/1/15		997		922
LaBranche and Co. Inc.		11.000%	5/15/12		1,490		1,494

							4,361

Chemicals	1.4%
ARCO Chemical Co.		9.800%	2/1/20		80		79
Equistar Chemicals LP		10.625%	5/1/11		126		132
Georgia Gulf Corp.		9.500%	10/15/14		4,930		4,511
Huntsman International LLC		7.875%	11/15/14		2,120		2,258
Lyondell Chemical Co.		10.500%	6/1/13		1,450		1,559
Lyondell Chemical Co.		8.000%	9/15/14		975		1,072
Lyondell Chemical Co.		8.250%	9/15/16		800		902
Lyondell Chemical Co.		6.875%	6/15/17		1,850		2,007
Westlake Chemical Corp.		6.625%	1/15/16		547		520

							13,040

Commercial Services and Supplies	1.9%
Allied Security Escrow Corp.		11.375%	7/15/11		6,820		6,820
Allied Waste North America Inc.		7.250%	3/15/15		150		153
Allied Waste North America Inc.		6.875%	6/1/17		1,251		1,257
Interface Inc.		10.375%	2/1/10		5,454		5,754
Interface Inc.		9.500%	2/1/14		200		209
Rental Service Corp.		9.500%	12/1/14		4,170		3,983

							18,176

Consumer Finance	3.6%
AmeriCredit Corp.		8.500%	7/1/15		4,305		3,810	^A
Ford Motor Credit Co.		8.625%	11/1/10		1,310		1,299
Ford Motor Credit Co.		9.875%	8/10/11		2,875		2,912
Ford Motor Credit Co.		8.110%	1/13/12		5,835		5,514	^D
Ford Motor Credit Co.		7.000%	10/1/13		3,270		2,955
Ford Motor Credit Co.		8.000%	12/15/16		1,865		1,745
GMAC LLC		6.875%	8/28/12		2,120		1,988
GMAC LLC		8.000%	11/1/31		14,795		14,515

							34,738

Containers and Packaging	2.5%
Graham Packaging Co. Inc.		8.500%	10/15/12		260		258
Graham Packaging Co. Inc.		9.875%	10/15/14		4,946		4,897
Graphic Packaging International Corp.		9.500%	8/15/13		5,685		5,841

109

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Containers and Packaging—Continued
Greif Inc.		6.750%	2/1/17	$	3,850	$	3,840
Owens-Brockway Glass Container Inc.		8.875%	2/15/09		85		86
Owens-Brockway Glass Container Inc.		8.750%	11/15/12		1,910		1,998
Plastipak Holdings Inc.		8.500%	12/15/15		2,940		3,043	^A
Smurfit-Stone Container Enterprises Inc.		8.000%	3/15/17		4,190		4,117

							24,080

Distributors	0.3%
Keystone Automotive Operations Inc.		9.750%	11/1/13		3,970		3,236


Diversified Consumer Services	1.1%
Education Management LLC		8.750%	6/1/14		5,475		5,612
Education Management LLC		10.250%	6/1/16		1,940		2,008
Service Corp. International		7.875%	2/1/13		315		325
Service Corp. International		6.750%	4/1/16		515		499
Service Corp. International		7.625%	10/1/18		575		596
Service Corp. International		7.500%	4/1/27		1,560		1,459

							10,499

Diversified Financial Services	3.2%
AAC Group Holding Corp.		0.000%	10/1/12		5,510		4,904	^C
CCM Merger Inc.		8.000%	8/1/13		3,400		3,315	^A
Chukchansi Economic Development Authority		8.000%	11/15/13		185		187	^A
DI Finance LLC		9.500%	2/15/13		7,180		7,431
El Paso Performance-Linked		7.750%	7/15/11		155		159	^A
Hexion US Finance Corp/Hexion Nova Scotia Finance ULC		10.058%	11/15/14		1,110		1,143	^D
Leucadia National Corp.		8.125%	9/15/15		3,350		3,371
Milacron Escrow Corp.		11.500%	5/15/11		3,170		2,980
The Williams Cos. Inc. Credit Linked Certificate Trust		8.606%	5/1/09		470		476	^A,D
Vanguard Health Holding Co. I LLC		0.000%	10/1/15		616		460	^C
Vanguard Health Holding Co. II LLC		9.000%	10/1/14		6,749		6,547

							30,973

Diversified Telecommunication Services	4.0%
Cincinnati Bell Inc.		7.000%	2/15/15		422		407
Cincinnati Bell Inc.		6.300%	12/1/28		3,160		2,765
Citizens Communications Co.		7.875%	1/15/27		3,585		3,495
Citizens Communications Co.		7.050%	10/1/46		380		311
Hawaiian Telcom Communications Inc.		10.860%	5/1/13		1,370		1,387	^D

110

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Diversified Telecommunication Services—Continued
Intelsat Corp.		9.000%	8/15/14	$	80	$	82
Intelsat Corp.		9.000%	6/15/16		725		747
Level 3 Financing Inc.		9.250%	11/1/14		3,625		3,571
Level 3 Financing Inc.		9.150%	2/15/15		3,475		3,310	^D
MetroPCS Wireless Inc.		9.250%	11/1/14		120		122	^A
MetroPCS Wireless Inc.		9.250%	11/1/14		1,195		1,219	^A
NTL Cable PLC		8.750%	4/15/14		970		994
PAETEC Holding Corp.		9.500%	7/15/15		2,330		2,330	^A
Qwest Communications International Inc.		9.058%	2/15/09		480		485	^D
Qwest Communications International Inc.		7.250%	2/15/11		2,652		2,682
Qwest Communications International Inc.		7.500%	2/15/14		5,707		5,778
Qwest Corp.		7.875%	9/1/11		255		268
Qwest Corp.		7.500%	10/1/14		2,035		2,117
Qwest Corp.		6.875%	9/15/33		315		295
Windstream Corp.		8.625%	8/1/16		5,500		5,864

							38,229

Electric Utilities	1.5%
Edison Mission Energy		7.750%	6/15/16		2,190		2,267
Edison Mission Energy		7.200%	5/15/19		1,410		1,389	^A
Edison Mission Energy		7.625%	5/15/27		1,515		1,462	^A
Elwood Energy LLC		8.159%	7/5/26		2,611		2,641
IPALCO Enterprises Inc.		8.625%	11/14/11		240		254	^E
Midwest Generation LLC		8.560%	1/2/16		2,083		2,229
Orion Power Holdings Inc.		12.000%	5/1/10		4,090		4,478

							14,720

Energy Equipment and Services	0.8%
Complete Production Services Inc.		8.000%	12/15/16		3,350		3,312
Gulfmark Offshore Inc.		7.750%	7/15/14		2,300		2,312
Pride International Inc.		7.375%	7/15/14		1,975		2,024

							7,648

Food and Staples Retailing	0.3%
Delhaize America Inc.		9.000%	4/15/31		2,588		3,083


Food Products	0.5%
Dole Food Co. Inc.		7.250%	6/15/10		4,275		4,040
Dole Food Co. Inc.		8.875%	3/15/11		165		161
Dole Food Co. Inc.		8.750%	7/15/13		290		283

							4,484

111

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Gas Utilities	0.9%
Southern Natural Gas Co.		8.000%	3/1/32	$	2,280	$	2,577
Suburban Propane Partners LP		6.875%	12/15/13		6,660		6,494

							9,071

Health Care Equipment and Supplies	0.4%
Advanced Medical Optics Inc.		7.500%	5/1/17		2,030		1,868
Fresenius Medical Care Capital Trust II		7.875%	2/1/08		1,767		1,771
Fresenius Medical Care Capital Trust IV		7.875%	6/15/11		150		156

							3,795

Health Care Providers and Services	5.0%
Community Health Systems Inc.		8.875%	7/15/15		5,095		5,235	^A
DaVita Inc.		6.625%	3/15/13		165		164
DaVita Inc.		7.250%	3/15/15		5,425		5,439
HCA Inc.		9.000%	12/15/14		56		55
HCA Inc.		6.375%	1/15/15		2,775		2,366
HCA Inc.		9.250%	11/15/16		4,230		4,494	^A
HCA Inc.		9.625%	11/15/16		9,325		9,954	^A,F
HCA Inc.		7.500%	12/15/23		170		139
HCA Inc.		7.690%	6/15/25		1,870		1,536
IASIS Healthcare LLC		8.750%	6/15/14		450		456
Tenet Healthcare Corp.		6.375%	12/1/11		5,355		4,686
Tenet Healthcare Corp.		7.375%	2/1/13		305		258
Tenet Healthcare Corp.		9.875%	7/1/14		5,785		5,293
Tenet Healthcare Corp.		9.250%	2/1/15		1,870		1,650
U.S. Oncology Holdings Inc.		10.194%	3/15/12		4,515		4,018	^A,D,F
Universal Hospital Services Inc.		8.500%	6/1/15		1,135		1,124	^A,F
Universal Hospital Services Inc.		8.759%	6/1/15		940		935	^A,D

							47,802

Hotels, Restaurants and Leisure	4.7%
Boyd Gaming Corp.		7.750%	12/15/12		80		82
Boyd Gaming Corp.		6.750%	4/15/14		690		676
Buffets Inc.		12.500%	11/1/14		4,245		2,972
Caesars Entertainment Inc.		8.125%	5/15/11		165		168
Denny’s Holdings Inc.		10.000%	10/1/12		1,710		1,766
El Pollo Loco Inc.		11.750%	11/15/13		2,521		2,597
Fontainebleau Las Vegas Holdings LLC/Fontainebleau Las Vegas Capital Corp.		10.250%	6/15/15		1,945		1,823	^A
Herbst Gaming Inc.		7.000%	11/15/14		270		221

112

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Hotels, Restaurants and Leisure—Continued
Inn of the Mountain Gods Resort and Casino		12.000%	11/15/10	$	5,690	$	6,003
Las Vegas Sands Corp.		6.375%	2/15/15		415		402
Mandalay Resort Group		9.375%	2/15/10		58		61
MGM MIRAGE		8.500%	9/15/10		85		89
MGM MIRAGE		8.375%	2/1/11		1,750		1,824
MGM MIRAGE		6.750%	9/1/12		125		123
MGM MIRAGE		7.500%	6/1/16		1,850		1,838
MGM MIRAGE		7.625%	1/15/17		3,500		3,465
OSI Restaurant Partners Inc.		10.000%	6/15/15		1,890		1,673	^A
Pinnacle Entertainment Inc.		8.250%	3/15/12		2,985		3,022
Pinnacle Entertainment Inc.		8.750%	10/1/13		135		139
Quapaw Downstream Development		12.000%	10/15/15		1,490		1,453	^A
River Rock Entertainment Authority		9.750%	11/1/11		4,013		4,143
Sbarro Inc.		10.375%	2/1/15		2,265		2,061
Snoqualmie Entertainment Authority		9.063%	2/1/14		3,075		2,990	^A,D
Station Casinos Inc.		6.000%	4/1/12		530		504
Station Casinos Inc.		7.750%	8/15/16		2,910		2,881
Station Casinos Inc.		6.625%	3/15/18		1,155		967
The Choctaw Resort Development Enterprise		7.250%	11/15/19		342		337	^A
Turning Stone Casino Resort Enterprise		9.125%	9/15/14		995		1,030	^A

							45,310

Household Durables	1.7%
American Greetings Corp.		7.375%	6/1/16		260		252
Jarden Corp.		7.500%	5/1/17		3,335		3,227
K Hovnanian Enterprises Inc.		6.250%	1/15/16		2,245		1,729
K Hovnanian Enterprises Inc.		7.500%	5/15/16		1,570		1,248
K Hovnanian Enterprises Inc.		8.625%	1/15/17		505		417
KB HOME		7.750%	2/1/10		2,560		2,425
Norcraft Cos.		9.000%	11/1/11		4,780		4,804
Norcraft Holdings LP		0.000%	9/1/12		2,090		1,870	^C

							15,972

Household Products	0.2%
American Achievement Corp.		8.250%	4/1/12		975		970
Visant Holding Corp.		8.750%	12/1/13		1,395		1,427

							2,397

Independent Power Producers and Energy Traders	3.8%
Dynegy Holdings Inc.		7.750%	6/1/19		9,870		9,438	^A
Mirant Mid Atlantic LLC		9.125%	6/30/17		2,232		2,472

113

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Independent Power Producers and Energy Traders—Continued
Mirant Mid Atlantic LLC		10.060%	12/30/28	$	604	$	719
Mirant North America LLC		7.375%	12/31/13		3,825		3,883
NRG Energy Inc.		7.250%	2/1/14		860		862
NRG Energy Inc.		7.375%	2/1/16		8,930		8,952
NRG Energy Inc.		7.375%	1/15/17		3,045		3,045
The AES Corp.		9.375%	9/15/10		200		211
The AES Corp.		8.750%	5/15/13		1,849		1,935	^A
The AES Corp.		7.750%	3/1/14		395		401
The AES Corp.		9.000%	5/15/15		3,805		3,995	^A
TXU Corp.		6.500%	11/15/24		870		697

							36,610

Internet and Catalog Retail	0.1%
FTD Inc.		7.750%	2/15/14		1,180		1,121


IT Services	0.8%
SunGard Data Systems Inc.		9.125%	8/15/13		430		447
SunGard Data Systems Inc.		10.250%	8/15/15		7,155		7,477

							7,924

Machinery	0.1%
American Railcar Industries Inc.		7.500%	3/1/14		1,250		1,244


Media	8.9%
Affinion Group Inc.		10.125%	10/15/13		2,825		2,980
Affinion Group Inc.		11.500%	10/15/15		3,455		3,628
AMC Entertainment Inc.		11.000%	2/1/16		760		809
Cablevision Systems Corp.		8.000%	4/15/12		1,100		1,067
CCH I Holdings LLC		11.750%	5/15/14		8,935		8,265
CCH I Holdings LLC		12.125%	1/15/15		1,020		954
CCH I Holdings LLC		11.000%	10/1/15		7,784		7,881
CCH II Holdings LLC		10.250%	9/15/10		3,780		3,865
CCH II Holdings LLC		10.250%	10/1/13		125		130
Charter Communications Holdings LLC		11.750%	5/15/11		980		940
Charter Communications Holdings LLC		12.125%	1/15/12		1,185		1,136
Charter Communications Operating LLC		8.000%	4/30/12		700		697	^A
CMP Susquehanna Corp.		9.875%	5/15/14		4,025		3,743
CSC Holdings Inc.		8.125%	7/15/09		325		331
CSC Holdings Inc.		8.125%	8/15/09		475		483

114

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Media—Continued
CSC Holdings Inc.		7.625%	4/1/11	$	915	$	917
CSC Holdings Inc.		6.750%	4/15/12		4,030		3,879
Dex Media Inc.		0.000%	11/15/13		275		259	^C
Dex Media Inc.		0.000%	11/15/13		145		136	^C
Dex Media West LLC		9.875%	8/15/13		105		112
EchoStar DBS Corp.		7.000%	10/1/13		3,440		3,518
EchoStar DBS Corp.		6.625%	10/1/14		270		271
EchoStar DBS Corp.		7.125%	2/1/16		1,700		1,747
Idearc Inc.		8.000%	11/15/16		3,080		3,072
ION Media Networks Inc.		8.610%	1/15/12		1,760		1,751	^A,D
ION Media Networks Inc.		11.000%	7/31/13		1,163		989
Lamar Media Corp.		6.625%	8/15/15		1,475		1,423
PGS Solutions Inc.		9.625%	2/15/15		915		853	^A
R.H. Donnelley Corp.		6.875%	1/15/13		5,305		5,013
R.H. Donnelley Corp.		6.875%	1/15/13		3,120		2,948
R.H. Donnelley Corp.		8.875%	1/15/16		650		662
R.H. Donnelley Corp.		8.875%	10/15/17		4,190		4,253	^A
TL Acquisitions Inc.		10.500%	1/15/15		4,160		4,108	^A
TL Acquisitions Inc.		0.000%	7/15/15		3,145		2,548	^A,C
Tube City IMS Corp.		9.750%	2/1/15		4,575		4,472
Univision Communications Inc.		9.750%	3/15/15		1,075		1,048	^A,F
WMG Acquisition Corp.		7.375%	4/15/14		2,410		2,097
XM Satellite Radio Inc.		9.856%	5/1/13		1,865		1,842	^D
XM Satellite Radio Inc.		9.750%	5/1/14		690		692

							85,519

Metals and Mining	2.6%
Freeport-McMoRan Copper & Gold Inc.		8.375%	4/1/17		13,170		14,388
Metals USA Holdings Corp.		11.360%	7/1/12		2,615		2,445	^A,D,F
Metals USA Inc.		11.125%	12/1/15		4,520		4,814
Noranda Aluminium Holding Corp.		11.146%	11/15/14		3,500		3,255	^A,D,F

							24,902

Multiline Retail	1.5%
Dollar General Corp.		10.625%	7/15/15		3,065		2,881	^A
Dollar General Corp.		11.875%	7/15/17		4,330		3,767	^A,F
The Neiman-Marcus Group Inc.		9.000%	10/15/15		3,675		3,914	^F
The Neiman-Marcus Group Inc.		10.375%	10/15/15		3,225		3,515

							14,077

115

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Oil, Gas and Consumable Fuels	9.7%
ANR Pipeline Inc.		9.625%	11/1/21	$	1,364	$	1,817
Belden and Blake Corp.		8.750%	7/15/12		8,195		8,339
Chesapeake Energy Corp.		7.500%	6/15/14		370		379
Chesapeake Energy Corp.		6.375%	6/15/15		2,065		2,026
Chesapeake Energy Corp.		6.625%	1/15/16		250		249
Chesapeake Energy Corp.		6.500%	8/15/17		2,525		2,456
Chesapeake Energy Corp.		6.250%	1/15/18		2,515		2,427
Colorado Interstate Gas Co.		6.800%	11/15/15		1,175		1,216
El Paso Corp.		7.750%	6/15/10		1,568		1,625
El Paso Corp.		7.875%	6/15/12		350		366
El Paso Corp.		8.050%	10/15/30		4,040		4,152
El Paso Corp.		7.800%	8/1/31		4,190		4,254
El Paso Corp.		7.750%	1/15/32		205		208
El Paso Natural Gas Co.		8.375%	6/15/32		1,600		1,880
Encore Acquisition Co.		6.250%	4/15/14		310		290
Enterprise Products Operating LP		8.375%	8/1/66		3,640		3,741	^C
Exco Resources Inc.		7.250%	1/15/11		5,038		5,013
International Coal Group Inc.		10.250%	7/15/14		3,120		2,995
Mariner Energy Inc.		7.500%	4/15/13		1,210		1,174
Mariner Energy Inc.		8.000%	5/15/17		1,405		1,374
Northwest Pipelines Corp.		7.000%	6/15/16		155		161
Overseas Shipholding Group		8.250%	3/15/13		2,020		2,083
Parker Drilling Co.		9.625%	10/1/13		3,673		3,930
Petrohawk Energy Corp.		9.125%	7/15/13		1,930		2,036
Pogo Producing Co.		7.875%	5/1/13		235		243
Pogo Producing Co.		6.875%	10/1/17		3,155		3,171
SemGroup LP		8.750%	11/15/15		4,020		3,930	^A
SESI LLC		6.875%	6/1/14		135		131
Sonat Inc.		7.625%	7/15/11		95		98
Stone Energy Corp.		8.250%	12/15/11		9,880		9,855
Stone Energy Corp.		6.750%	12/15/14		1,635		1,512
Swift Energy Co.		7.625%	7/15/11		85		85
The Williams Cos. Inc.		7.875%	9/1/21		335		364
The Williams Cos. Inc.		7.500%	1/15/31		1,350		1,401
The Williams Cos. Inc.		8.750%	3/15/32		7,559		8,702
Transcontinental Gas Pipe Line Corp.		8.875%	7/15/12		1,060		1,179
VeraSun Energy Corp.		9.375%	6/1/17		4,205		3,616	^A
W&T Offshore Inc.		8.250%	6/15/14		2,380		2,291	^A

116

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Oil, Gas and Consumable Fuels—Continued
Whiting Petroleum Corp.		7.250%	5/1/12	$	195	$	192
Whiting Petroleum Corp.		7.000%	2/1/14		2,350		2,256

							93,217

Paper and Forest Products	1.5%
Appleton Papers Inc.		8.125%	6/15/11		650		642
Appleton Papers Inc.		9.750%	6/15/14		4,225		4,215
NewPage Corp.		11.606%	5/1/12		4,915		5,284	^D
NewPage Corp.		12.000%	5/1/13		1,275		1,367
Verso Paper Holdings LLC		9.125%	8/1/14		1,575		1,622
Verso Paper Holdings LLC		11.375%	8/1/16		1,455		1,531

							14,661

Personal Products	0.1%
Playtex Products Inc.		9.375%	6/1/11		1,030		1,065


Pharmaceuticals	0.8%
Leiner Health Products Inc.		11.000%	6/1/12		9,050		7,602


Real Estate Investment Trusts	0.4%
Ventas Inc.		8.750%	5/1/09		1,616		1,668
Ventas Inc.		9.000%	5/1/12		762		829
Ventas Inc.		6.750%	4/1/17		910		908

							3,405

Real Estate Management and Development	1.2%
Ashton Woods USA LLC		9.500%	10/1/15		2,160		1,707
Forest City Enterprises Inc.		7.625%	6/1/15		465		438
Forest City Enterprises Inc.		6.500%	2/1/17		2,010		1,794
Kimball Hill Inc.		10.500%	12/15/12		960		662
Realogy Corp.		12.375%	4/15/15		9,860		7,444	^A

							12,045

Road and Rail	2.1%
Hertz Corp.		8.875%	1/1/14		4,235		4,362
Hertz Corp.		10.500%	1/1/16		7,015		7,576
Kansas City Southern Railway		7.500%	6/15/09		2,675		2,705
Saint Acquisition Corp.		13.308%	5/15/15		1,705		1,159	^A,D
Saint Acquisition Corp.		12.500%	5/15/17		7,010		4,697	^A

							20,499

117

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Semiconductors and Semiconductor Equipment	0.3%
Freescale Semiconductor Inc.		8.875%	12/15/14	$	3,345	$	3,228


Software	0.2%
Activant Solutions Inc.		9.500%	5/1/16		2,530		2,226


Specialty Retail	0.8%
AutoNation Inc.		7.360%	4/15/13		2,010		1,920	^D
Blockbuster Inc.		9.000%	9/1/12		3,405		3,064
Eye Care Centers of America Inc.		10.750%	2/15/15		560		596
Michaels Stores Inc.		10.000%	11/1/14		1,950		1,999	^A

							7,579

Textiles, Apparel and Luxury Goods	0.9%
Levi Strauss and Co.		9.750%	1/15/15		3,620		3,801
Levi Strauss and Co.		8.875%	4/1/16		2,335		2,405
Oxford Industries Inc.		8.875%	6/1/11		1,644		1,660
Simmons Co.		0.000%	12/15/14		855		682	^C

							8,548

Thrifts and Mortgage Finance	0.5%
Residential Capital LLC		9.190%	4/17/09		1,155		809	^A,D
Residential Capital LLC		6.375%	6/30/10		1,980		1,643	^G
Residential Capital LLC		7.500%	6/1/12		2,610		2,114	^E

							4,566

Tobacco	0.7%
Alliance One International Inc.		8.500%	5/15/12		1,990		1,950	^A
Alliance One International Inc.		11.000%	5/15/12		2,950		3,134
Reynolds American Inc.		6.500%	7/15/10		1,330		1,365

							6,449

Trading Companies and Distributors	1.6%
Ashtead Capital Inc.		9.000%	8/15/16		3,092		3,049	^A
H&E Equipment Services Inc.		8.375%	7/15/16		5,940		5,792
Penhall International Corp.		12.000%	8/1/14		6,245		6,307	^A

							15,148

Transportation Infrastructure	0.9%
Hawker Beechcraft Acquisition Co.		8.875%	4/1/15		5,175		5,214	^A,F
Hawker Beechcraft Acquisition Co.		9.750%	4/1/17		3,355		3,430	^A

							8,644

118

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Wireless Telecommunication Services	0.8%
Rural Cellular Corp.		9.875%	2/1/10	$	1,575	$	1,646
Rural Cellular Corp.		8.250%	3/15/12		2,775		2,879
Rural Cellular Corp.		8.621%	6/1/13		2,685		2,752	^A,D

							7,277

Total Corporate Bonds and Notes (Cost—$808,034)							790,776
Mortgage-Backed Securities	0.1%

Fixed Rate Securities	N.M.
Ocwen Residential Mortgage Corp. 1998-R1		7.000%	10/25/40		306		18	^H


Variable Rate Securities^G	0.1%
BlackRock Capital Finance LP 1996-R1		9.533%	9/25/26		803		498

Total Mortgage-Backed Securities (Cost—$794)							516
Yankee Bonds^I	11.2%

Biotechnology	N.M.
FMC Finance III SA		6.875%	7/15/17		10		10	^A


Chemicals	0.7%
Methanex Corp.		8.750%	8/15/12		2,507		2,657
Montell Finance Co. BV		8.100%	3/15/27		4,995		4,346	^A

							7,003

Commercial Banks	0.4%
ATF Capital BV		9.250%	2/21/14		1,105		1,126	^A
TuranAlem Finance BV		8.250%	1/22/37		1,720		1,453	^A
TuranAlem Finance BV		8.250%	1/22/37		1,585		1,383	^A

							3,962

Containers and Packaging	0.4%
Smurfit Capital Funding PLC		7.500%	11/20/25		2,225		2,136
Smurfit Kappa Funding PLC		7.750%	4/1/15		2,070		2,018

							4,154

Diversified Financial Services	1.0%
Basell AF SCA		8.375%	8/15/15		2,595		2,368	^A
JPMorgan Chase		0.000%	11/8/07		3,985		3,996	^A,J
Petroplus Finance Ltd.		6.750%	5/1/14		1,110		1,065	^A
Petroplus Finance Ltd.		7.000%	5/1/17		2,065		1,962	^A

							9,391

119

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Yankee Bonds—Continued

Diversified Telecommunication Services	2.7%
Intelsat Bermuda Ltd.		9.250%	6/15/16	$	2,625	$	2,723
Intelsat Bermuda Ltd.		11.250%	6/15/16		7,265		7,783
Nordic Telephone Co. Holdings ApS		8.875%	5/1/16		5,305		5,597	^A
NTL Cable PLC		9.125%	8/15/16		6,250		6,484
Wind Acquisition Finance SA		10.750%	12/1/15		2,605		2,885	^A

							25,472

Energy Equipment and Services	0.2%
Compagnie Generale de Geophysique-Veritas		7.500%	5/15/15		1,950		2,008


Foreign Governments	0.9%
Federative Republic of Brazil		8.000%	1/15/18		240		268
Federative Republic of Brazil		11.000%	8/17/40		1,527		2,042
Russian Federation		7.500%	3/31/30		5,920		6,677	^A

							8,987

Independent Power Producers and Energy Traders	0.2%
AES China Generating Co. Ltd.		8.250%	6/26/10		1,705		1,675


Media	0.6%
Rogers Cable Inc.		6.750%	3/15/15		2,150		2,210
Sun Media Corp.		7.625%	2/15/13		3,880		3,812

							6,022

Metals and Mining	0.5%
Novelis Inc.		7.250%	2/15/15		5,125		4,946


Oil, Gas and Consumable Fuels	1.1%
Corral Finans AB		10.360%	4/15/10		2,674		2,540	^A,D,F
OPTI Canada Inc.		7.875%	12/15/14		30		30	^A
OPTI Canada Inc.		8.250%	12/15/14		2,645		2,665	^A
Teekay Shipping Corp.		8.875%	7/15/11		1,362		1,430
Western Oil Sands Inc.		8.375%	5/1/12		3,285		3,626

							10,291

Paper and Forest Products	0.8%
Abitibi-Consolidated Co. of Canada		6.000%	6/20/13		2,335		1,634
Abitibi-Consolidated Co. of Canada		8.375%	4/1/15		400		291
Abitibi-Consolidated Inc.		8.550%	8/1/10		895		738
Abitibi-Consolidated Inc.		7.750%	6/15/11		340		262

120

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

Yankee Bonds—Continued

Paper and Forest Products—Continued
Abitibi-Consolidated Inc.		7.400%	4/1/18	$	4,360		$	2,965
Abitibi-Consolidated Inc.		8.850%	8/1/30		630			435
Ainsworth Lumber Co., Ltd.		7.250%	10/1/12		1,220			836
Ainsworth Lumber Co., Ltd.		6.750%	3/15/14		555			358

								7,519

Road and Rail	0.5%
Grupo Transportacion Ferroviaria Mexicana SA de CV		9.375%	5/1/12		2,510			2,629
Grupo Transportacion Ferroviaria Mexicana SA de CV		7.625%	12/1/13		540			529	^A
Grupo Transportacion Ferroviaria Mexicana SA de CV		7.375%	6/1/14		1,380			1,349	^A

								4,507

Semiconductors and Semiconductor Equipment	0.4%
NXP BV/NXP Funding LLC		7.875%	10/15/14		2,895			2,787
NXP BV/NXP Funding LLC		9.500%	10/15/15		1,330			1,240

								4,027

Wireless Telecommunication Services	0.8%
Rogers Wireless Inc.		7.250%	12/15/12		1,060			1,122
True Move Co. Ltd.		10.750%	12/16/13		5,505			5,558	^A
True Move Co. Ltd.		10.750%	12/16/13		865			873

								7,553

Total Yankee Bonds (Cost—$109,926)								107,527
Common Stocks and Equity Interests	N.M.
Washington Group International Inc.					1	shs		62	^K

Total Common Stocks and Equity Interests (Cost—$—)^L								62
Preferred Stocks	0.1%
Chesapeake Energy Corp.		6.250%			4			1,273	^B
ION Media Networks Inc.		12.000%			—	^M		60

Total Preferred Stocks (Cost—$1,226)								1,333
Warrants	N.M.
Next Generation Network Inc.					3	wts		—	^H,K,L

Total Warrants (Cost—$—)^L								—	^L
Loan Participations and Assignments^D	1.7%

Auto Components	0.4%
Allison Transmission Inc., Term Loan, Tranche B		8.480% to 8.570%	12/10/07	$	4,250			4,112

121

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset High Yield Portfolio—Continued

% OF
NET ASSETS

RATE

MATURITY
DATE

PAR/
SHARES

VALUE

Loan Participations and Assignments—Continued

Containers and Packaging

0.3%

Berry Plastics Holding Corp., Term Loan

12.244%

1/7/08

3,000

2,700

Independent Power Producers and Energy Traders

0.2%

Dynegy Holdings Inc., Term Loan

4.819%

4/2/13

2,000

1,910

IT Services

0.8%

First Data Corp., Term Loan, Tranche B1

7.960%

12/24/07

7,500

7,192

Total Loan Participations and Assignments
(Cost—$15,885)

15,914

Total Long-Term Securities (Cost—$935,865)

916,128

Short-Term Securities

4.1%

Repurchase Agreement

4.1%

Goldman Sachs & Company
4.85%, dated 9/28/07, to be repurchased at $39,715 on 10/1/07 (Collateral: $38,520 Federal Home Loan Bank notes, 5.375%, due 5/18/16, value $40,494)

39,699

Total Short-Term Securities (Cost—$39,699)

39,699

Total Investments (Cost—$975,564)^N

99.4%

955,827

Other Assets Less Liabilities

0.6%

5,759

Net Assets

100.0%

961,586

N.M.—Not Meaningful.

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

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

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

122

Semi-Annual Report to Shareholders

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

Illiquid security valued at fair value under the procedures approved by the Board of Directors.

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

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

Non-income producing.

Amount less than $1.

Amount less than $0.05.


Gross unrealized appreciation	$	9,253
Gross unrealized depreciation		(28,980	)

Net unrealized depreciation	$	(19,737	)

See notes to financial statements.

123

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset High Yield Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$935,865)			$	916,128
Short-term securities at value (Cost—$39,699)				39,699
Cash				1
Interest receivable				22,670
Receivable for securities sold				3,651
Receivable for fund shares sold				101

Total assets				982,250


Liabilities:
Payable for securities purchased	$	19,680
Accrued management fee		428
Swap contracts at value		250
Payable for fund shares repurchased		234
Accrued expenses		72

Total liabilities				20,664


Net Assets			$	961,586


Net assets consist of:
Accumulated paid-in-capital			$	960,826
Undistributed net investment income				18,784
Accumulated net realized gain on investments and swaps				1,963
Net unrealized depreciation on investments and swaps				(19,987	)


Net Assets			$	961,586


Net Asset Value Per Share:
Institutional Class (93,629 shares outstanding)				$10.27

See notes to financial statements.

124

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset High Yield Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	38,286
Dividends		33

Total income				$	38,319
Expenses:
Management fees		2,472
Audit and legal fees		47
Custodian fees		42
Directors’ fees and expenses		12
Registration fees		16
Reports to shareholders		2
Transfer agent and shareholder servicing expense:
Institutional Class		10
Other expenses		22

		2,623
Less: Compensating balance credits		(12	)

Net expenses					2,611

Net Investment Income					35,708
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain on:
Investments		2,809
Swaps		129

					2,938
Change in unrealized appreciation/depreciation of investments and swaps					(39,697	)

Net Realized and Unrealized Loss on Investments					(36,759	)

Change in Net Assets Resulting From Operations				$	(1,051	)

See notes to financial statements.

125

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	35,708		$	53,018

Net realized gain		2,938			4,212

Change in unrealized appreciation/depreciation		(39,697	)		21,006

Change in net assets resulting from operations		(1,051	)		78,236

Distributions to shareholders from:
Net investment income:
Institutional Class		(33,514	)		(48,140	)

Net realized gain on investments:
Institutional Class		(4,804	)		(131	)

Change in net assets from fund share transactions:
Institutional Class		121,632			252,440

Change in net assets		82,263			282,405

Net Assets:
Beginning of period		879,323			596,918


End of period	$	961,586		$	879,323


Under distributions of net investment income	$	18,784		$	16,590

See notes to financial statements.

126

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset High Yield Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	10.75		$	10.34		$	10.49		$	10.28		$	9.56		$	10.36

Investment operations:
Net investment income		.41	^A		.80	^A		.76			.61			.78			.96
Net realized and unrealized gain/(loss)		(.44	)		.39			(.05	)		.17			.89			(.82	)

Total from investment operations		(.03	)		1.19			.71			.78			1.67			.14

Distributions from:
Net investment income		(.39	)		(.78	)		(.73	)		(.57	)		(.95	)		(.94	)
Net realized gain on investments		(.06	)		—	^B		(.13	)		—			—			—

Total distributions		(.45	)		(.78	)		(.86	)		(.57	)		(.95	)		(.94	)

Net asset value, end of period	$	10.27		$	10.75		$	10.34		$	10.49		$	10.28		$	9.56

Total return		(.35	)%^C		12.14	%		7.30	%		7.81	%		18.27	%		2.22	%

Ratios to Average Net Assets:^D
Total expenses		.58	%^E		.61	%		.62	%		.62	%		.67	%		.67	%
Expenses net of waivers, if any		.58	%^E		.61	%		.62	%		.62	%		.58	%		.55	%
Expenses net of all reductions		.58	%^E		.61	%		.62	%		.62	%		.58	%		.55	%
Net investment income		7.9	%^E		7.8	%		7.8	%		7.0	%		7.9	%		10.2	%

Supplemental Data:
Portfolio turnover rate		26.3	%^C		63.6	%		147.2	%		121.0	%		116.0	%		110.1	%
Net assets, end of period (in thousands)	$	961,586		$	879,323		$	596,918		$	414,417		$	189,458		$	149,937

Computed using average daily shares outstanding.

Amount less than $.01 per share.

Not annualized.

Annualized.

See notes to financial statements.

127

Semi-Annual Report to Shareholders

Expense Example

Western Asset Inflation Indexed Plus Bond Portfolio

As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution 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. The example is based on an investment of $1,000 invested on April 1, 2007, and held through September 30, 2007. The Financial Intermediary Class began operations on June 28, 2007, therefore an expense example is not presented.

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,032.40	$	1.27
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 During the Period” 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 .

128

Semi-Annual Report to Shareholders

Performance Information

Western Asset Inflation Indexed Plus Bond Portfolio

The graph compares the Fund’s total returns to 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.

Due to the limited operating history of the Financial Intermediary Class, a performance graph is not presented. The Financial Intermediary Class shares, which began operations on June 28, 2007 had a total return of 4.81% for the period from its inception to September 30, 2007.

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

Index returns are for periods beginning February 28, 2001.

129

Semi-Annual Report to Shareholders

Performance Information—Continued

Portfolio Composition (as of September 30, 2007)

Standard & Poor’s Debt Ratings^B

(as a percentage of the portfolio)

Maturity Schedule (as a percentage of the portfolio)

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.

130

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Inflation Indexed Plus Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Long-Term Securities	101.6%

Corporate Bonds and Notes	1.6%

Consumer Finance	0.5%
SLM Corp.		5.375%	1/15/13	$	2,775	$	2,512
SLM Corp.		5.375%	5/15/14		1,580		1,379

							3,891

Diversified Financial Services	0.4%
J.P. Morgan and Co. Inc.		7.214%	2/15/12		2,690		2,777	^A


Oil, Gas and Consumable Fuels	0.3%
The Williams Cos. Inc.		8.750%	3/15/32		1,900		2,187

Thrifts and Mortgage Finance	0.4%
Residential Capital LLC		7.000%	2/22/11		3,500		2,853	^B

Total Corporate Bonds and Notes (Cost—$11,931)							11,708
Asset-Backed Securities	0.2%

Indexed Securities^A	0.2%
Bear Stearns Asset Backed Securities Inc. 2003-ABF1		5.501%	2/25/34		181		173
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		5.871%	10/25/32		184		182
Countrywide Asset-Backed Certificates 2002-1		5.691%	8/25/32		46		45
EMC Mortgage Loan Trust 2003-B		5.681%	11/25/41		498		479	^C
GSRPM Mortgage Loan Trust 2003-2		5.831%	6/25/33		350		352
Residential Asset Mortgage Products Inc. 2003-RS2		5.471%	3/25/33		52		51

Total Asset-Backed Securities (Cost—$1,312)							1,282
Mortgage-Backed Securities	0.2%

Indexed Securities^A	0.2%
Credit Suisse First Boston Mortgage Securities Corp. 2001-28		5.781%	11/25/31		533		533
Crusade Global Trust 2003-2		5.836%	9/18/34		787		788	^D

Total Mortgage-Backed Securities (Cost—$1,322)							1,321
U.S. Government and Agency Obligations	87.3%

Treasury Inflation-Protected Securities^E	87.3%
United States Treasury Inflation-Protected Security		3.875%	1/15/09		56,584		57,742	^F
United States Treasury Inflation-Protected Security		4.250%	1/15/10		13,904		14,561
United States Treasury Inflation-Protected Security		0.875%	4/15/10		35,735		34,548	^F,G
United States Treasury Inflation-Protected Security		3.500%	1/15/11		29,400		30,682	^F

131

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

Treasury Inflation-Protected Securities—Continued
United States Treasury Inflation-Protected Security		2.375%	4/15/11	$	12,635	$	12,717	^F
United States Treasury Inflation-Protected Security		3.000%	7/15/12		26,808		27,901	^F
United States Treasury Inflation-Protected Security		1.875%	7/15/13		35,759		35,189	^F
United States Treasury Inflation-Protected Security		2.000%	1/15/14		31,813		31,356	^F
United States Treasury Inflation-Protected Security		2.000%	7/15/14		21,969		21,672	^F
United States Treasury Inflation-Protected Security		1.625%	1/15/15		26,258		25,121
United States Treasury Inflation-Protected Security		1.875%	7/15/15		34,556		33,641	^F
United States Treasury Inflation-Protected Security		2.000%	1/15/16		22,543		22,036	^F
United States Treasury Inflation-Protected Security		2.500%	7/15/16		25,353		25,824	^F
United States Treasury Inflation-Protected Security		2.375%	1/15/17		32,062		32,292	^F
United States Treasury Inflation-Protected Security		2.625%	7/15/17		5,025		5,180	^F
United States Treasury Inflation-Protected Security		2.375%	1/15/25		50,297		50,741	^F
United States Treasury Inflation-Protected Security		2.000%	1/15/26		39,923		38,126	^F
United States Treasury Inflation-Protected Security		2.375%	1/15/27		16,248		16,446	^F
United States Treasury Inflation-Protected Security		3.625%	4/15/28		38,623		47,048	^F
United States Treasury Inflation-Protected Security		3.875%	4/15/29		52,204		66,291	^F

Total U.S. Government and Agency Obligations (Cost—$626,264)							629,114
U.S. Government Agency Mortgage-Backed Securities	9.4%

Fixed Rate Securities	9.4%
Fannie Mae		5.000%	12/1/37		25,600		24,411	^H
Fannie Mae		6.000%	12/1/37		43,100		43,121	^H

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$67,481)							67,532
Yankee Bonds^D	1.9%

Commercial Banks	0.8%
Glitnir Banki Hf		6.693%	6/15/16		1,760		1,799	^C,I
Kaupthing Bank Hf		7.125%	5/19/16		2,940		2,967	^C
RSHB Capital SA		6.299%	5/15/17		1,500		1,412	^C

							6,178

Foreign Governments	0.9%
Federative Republic of Brazil		8.875%	4/15/24		180		232
Federative Republic of Brazil		10.125%	5/15/27		310		442
Federative Republic of Brazil		11.000%	8/17/40		510		682
Republic of Colombia		7.375%	9/18/37		410		451

132

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†			VALUE

Yankee Bonds—Continued

Foreign Governments—Continued
Republic of Panama		7.125%	1/29/26	$	408		$	441
Republic of Panama		6.700%	1/26/36		305			313
Russian Federation		7.500%	3/31/30		3,354			3,783	^C

								6,344

Metals and Mining	0.2%
Vale Overseas Ltd.		6.875%	11/21/36		1,463			1,507

Total Yankee Bonds (Cost—$13,585)								14,029
Foreign Government Obligations	1.0%
Canadian Real Return Bond		3.000%	12/1/36		962	CAD		1,166	^J
Federative Republic of Brazil		6.000%	5/15/45		4	BRL		3,048	^J
Kingdom of Sweden Inflation-Protected Notes		3.500%	12/1/28		14,480	SEK		3,219	^J

Total Foreign Government Obligations (Cost—$6,264)								7,433

Total Long-Term Securities (Cost—$728,159)								732,419
Investment of Collateral From Securities Lending	17.5%
State Street Navigator Securities Lending Prime Portfolio					126,271	shs		126,271

Total Investment of Collateral From Securities Lending (Cost—$126,271)								126,271
Short-Term Securities	6.7%

Repurchase Agreement	6.7%
Goldman Sachs & Company 4.85%, dated 9/28/07, to be repurchased at $48,229 on 10/1/07 (Collateral: $46,780 Federal Home Loan Bank notes, 5.375%, due 5/18/16, value $49,177)					$ 48,210			48,210

Total Short-Term Securities (Cost—$48,210)								48,210
Total Investments (Cost—$902,640)^L	125.8%							906,900
Obligation to Return Collateral For Securities Loaned	(17.5)%							(126,271	)
Other Assets Less Liabilities	(8.3)%							(59,684	)


Net Assets	100.0%						$	720,945

133

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^K
Eurodollar Futures	March 2008	105	$	89

Futures Contracts Written^K
U.S. Treasury Note Futures	January 2008	107	$	16

Options Written^K
U.S. Treasury Note Futures Call, Strike Price $107.50	November 2007	184	$	(38	)
U.S. Treasury Note Futures Put, Strike Price $106.00	November 2007	475		67

			$	29

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

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

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

All or a portion of this security is on loan.

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

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

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


Gross unrealized appreciation	$	8,668
Gross unrealized depreciation		(4,408	)

Net unrealized appreciation/(depreciation)	$	4,260

^†

Securities are denominated in U.S. Dollars, unless otherwise noted.

BRL—Brazilian Real

CAD—Canadian Dollar

SEK—Swedish Krona

See notes to financial statements.

134

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Inflation Indexed Plus Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$854,430)			$	858,690	^A
Cash				2,073
Short-term securities at value (Cost—$48,210)				48,210
Swap contracts at value				70
Foreign currency at value (Cost—$1,495)				1,544
Receivable for securities sold				33,423
Receivable for fund shares sold				1,099
Interest receivable				5,022
Unrealized appreciation of forward foreign currency contracts				729

Total assets				950,860


Liabilities:
Obligation to return collateral for securities loaned	$	126,271
Payable for securities purchased		102,284
Payable for fund shares repurchased		32
Accrued management fee		107
Income distribution payable		96
Futures variation margin payable		1
Options written (Proceeds—$183)		154
Unrealized depreciation of forward foreign currency contracts		906
Accrued expenses		64

Total liabilities				229,915


Net Assets			$	720,945


Net assets consist of:
Accumulated paid-in-capital			$	720,875
Undistributed net investment income				1,054
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions				(6,380	)
Unrealized appreciation of investments, options, futures, swaps and foreign currency translations				5,396


Net Assets			$	720,945


Net Asset Value Per Share:
Institutional Class (69,546 shares outstanding)				$10.37
Financial Intermediary Class (1 shares outstanding)				$10.36

The market value of securities on loan is $178,711.

See notes to financial statements.

135

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Inflation Indexed Plus Bond Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	25,685
Income from securities lending		54

Total income				$	25,739
Expenses:
Management fees		667
Audit and legal fees		32
Custodian fees		46
Directors’ fees and expenses		9
Registration fees		6
Reports to shareholders		29
Transfer agent and shareholder servicing expense:
Institutional Class		77
Other expenses		22

		888
Less: Fees waived		(53	)
Compensating balance credits		(1	)

Net expenses					834

Net Investment Income					24,905
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		(212	)
Options		3
Futures		(2,302	)
Swaps		505
Foreign currency transactions		(907	)

					(2,913	)
Change in unrealized appreciation/depreciation of:
Investments, options, futures, swaps and foreign currency translations		231
Assets and liabilities denominated in foreign currency		9

					240

Net Realized and Unrealized Loss on Investments					(2,673	)

Change in Net Assets Resulting From Operations				$	22,232

See notes to financial statements.

136

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	24,905		$	22,204

Net realized loss		(2,913	)		(1,654	)

Change in unrealized appreciation		240			13,104

Change in net assets resulting from operations		22,232			33,654

Distributions to shareholders from:
Net investment income:
Institutional Class		(24,907	)		(22,375	)
Financial Intermediary Class		—	^A		—

Change in net assets from fund share transactions:
Institutional Class		79,372			90,425
Financial Intermediary Class		12			—

Change in net assets		76,709			101,704

Net Assets:
Beginning of period		644,236			542,532


End of period	$	720,945		$	644,236


Under distributions of net investment income	$	1,054		$	1,056

Amount represents less than $1.

See notes to financial statements.

137

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Inflation Indexed Plus Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	10.43		$	10.25		$	10.74		$	11.24		$	10.96		$	9.92

Investment operations:
Net investment income		.38	^A		.39	^A		.54			.42			.37			.51
Net realized and unrealized gain/(loss)		(.05	)		.20			(.38	)		(.10	)		.71			1.19

Total from investment operations		.33			.59			.16			.32			1.08			1.70

Distributions from:
Net investment income		(.39	)		(.41	)		(.56	)		(.42	)		(.37	)		(.51	)
Net realized gain on investments		—			—			(.09	)		(.40	)		(.43	)		(.15	)

Total distributions		(.39	)		(.41	)		(.65	)		(.82	)		(.80	)		(.66	)

Net asset value, end of period	$	10.37		$	10.43		$	10.25		$	10.74		$	11.24		$	10.96

Total return		3.24	%^B		5.89	%		1.44	%		3.27	%		10.33	%		17.62	%

Ratios to Average Net Assets:^C
Total expenses		.27	%^D		.29	%		.27	%		.27	%		.27	%		.27	%
Expenses net of waivers, if any		.25	%^D		.25	%		.25	%		.25	%		.25	%		.25	%
Expenses net of all reductions		.25	%^D		.25	%		.25	%		.25	%		.25	%		.25	%
Net investment income		7.5	%^D		3.8	%		5.0	%		3.8	%		3.4	%		4.8	%

Supplemental Data:
Portfolio turnover rate		39.7	%^B		96.4	%		177.1	%		255.5	%		281.8	%		75.4	%
Net assets, end of period (in thousands)	$	720,933		$	644,236		$	542,532		$	461,746		$	346,379		$	290,306

Computed using average daily shares outstanding.

Not annualized.

Annualized.

See notes to financial statements.

138

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Inflation Indexed Plus Bond Portfolio

For a share of each class of capital stock outstanding:

Financial Intermediary Class:


	FOR THE PERIOD ENDED SEPTEMBER 30, 2007^E
	(Unaudited)
Net asset value, beginning of period	$	10.02

Investment operations:
Net investment income		.07	^A
Net realized and unrealized gain		.41

Total from investment operations		.48

Distributions from:
Net investment income		(.14	)

Total distributions		(.14	)

Net asset value, end of period	$	10.36

Total return		4.81	%^B

Ratios to Average Net Assets:^C
Total expenses		.52	%^D
Expenses net of waivers, if any		.50	%^D
Expenses net of all reductions		.50	%^D
Net investment income		2.6	%^D

Supplemental Data:
Portfolio turnover rate		39.7	%^B
Net assets, end of period (in thousands)	$	12

For the period June 28, 2007 (commencement of operations) to September 30, 2007.

See notes to financial statements.

139

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, 2007, and held through September 30, 2007.

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,018.10	$	2.28
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 During the Period” 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.

140

Semi-Annual Report to Shareholders

Performance Information

Western Asset Intermediate 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 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

141

Semi-Annual Report to Shareholders

Performance Information—Continued

Portfolio Composition (as of September 30, 2007)

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

LOGO

Maturity Schedule (as a percentage of the portfolio)

Source: Standard & Poor’s.

Preferred Stocks 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.

142

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Intermediate Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Long-Term Securities	79.0%

Corporate Bonds and Notes	27.5%

Aerospace and Defense	0.1%
United Technologies Corp.		6.350%	3/1/11	$	1,037	$	1,086


Airlines	0.5%
Continental Airlines Inc.		6.545%	2/2/19		1,000		1,006
Delta Air Lines Inc.		6.619%	9/18/12		1,289		1,287
US Airways Pass-Through Trust		6.850%	1/30/18		1,426		1,405

							3,698

Automobiles	0.6%
DaimlerChrysler NA Holding Corp.		6.500%	11/15/13		2,050		2,125
Ford Motor Co.		7.450%	7/16/31		1,159		910	^A
General Motors Corp.		8.375%	7/15/33		1,198		1,050	^A

							4,085

Capital Markets	3.7%
Goldman Sachs Capital II		5.793%	12/29/49		11,260		10,655	^B
Goldman Sachs Capital III		6.350%	9/29/49		720		654	^C
Lehman Brothers Holdings Capital Trust VII		5.857%	12/31/49		6,410		6,107	^B
Lehman Brothers Holdings Capital Trust VIII		6.371%	5/29/49		670		629	^C
Lehman Brothers Holdings Inc.		6.500%	7/19/17		480		486	^A
Merrill Lynch and Co. Inc.		5.700%	5/2/17		2,500		2,431
Morgan Stanley		5.550%	4/27/17		2,340		2,270
The Bear Stearns Cos. Inc.		6.400%	10/2/17		3,590		3,579

							26,811

Chemicals	0.7%
The Dow Chemical Co.		6.000%	10/1/12		4,850		4,972


Commercial Banks	2.1%
Comerica Capital Trust II		6.576%	2/20/37		960		868	^A,B
SunTrust Capital VIII		6.100%	12/15/36		550		499	^A,B
Wachovia Capital Trust III		5.800%	3/15/42		10,868		10,795	^B
Wells Fargo Capital X		5.950%	12/15/36		3,020		2,771	^A

							14,933

Commercial Services and Supplies	0.4%
Waste Management Inc.		7.375%	8/1/10		3,055		3,233

143

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Consumer Finance	2.8%
American Express Co.		6.800%	9/1/66	$	6,530	$	6,692	^A,B
Ford Motor Credit Co.		8.359%	11/2/07		251		251	^A,C
Ford Motor Credit Co.		6.625%	6/16/08		9,148		9,079	^A
GMAC LLC		6.360%	9/23/08		995		980	^A,C
GMAC LLC		6.750%	12/1/14		1,556		1,410	^A
Nelnet Inc.		7.400%	9/29/36		1,850		1,815	^B

							20,227

Diversified Financial Services	2.5%
AGFC Capital Trust I		6.000%	1/15/67		10,610		9,942	^B,D
Capmark Financial Group Inc.		5.875%	5/10/12		2,500		2,277	^D,E
Dryden Investor Trust		7.157%	7/23/08		652		657
Glen Meadow Pass-Through Certificates		6.505%	2/12/67		2,500		2,403	^B,D
National Rural Utilities Cooperative Finance Corp.		5.750%	12/1/08		559		562
TNK-BP Finance SA		6.125%	3/20/12		210		201	^D
ZFS Finance USA Trust II		6.450%	12/15/65		2,060		1,990	^B,D

							18,032

Diversified Telecommunication Services	1.1%
Embarq Corp.		7.082%	6/1/16		1,880		1,949
Qwest Corp.		8.875%	3/15/12		1,510		1,648
Verizon Global Funding Corp.		7.250%	12/1/10		4,051		4,303

							7,900

Electric Utilities	0.7%
Duke Energy Corp.		6.250%	1/15/12		1,078		1,116	^A
Duke Energy Corp.		5.625%	11/30/12		729		739
Exelon Corp.		6.750%	5/1/11		2,269		2,359
TXU Energy Co.		7.000%	3/15/13		430		472

							4,686

Food and Staples Retailing	0.2%
Safeway Inc.		6.500%	3/1/11		760		795
The Kroger Co.		6.200%	6/15/12		883		910

							1,705

Health Care Equipment and Supplies	0.2%
Hospira Inc.		5.550%	3/30/12		1,700		1,698


Health Care Providers and Services	0.7%
HCA Inc.		8.750%	9/1/10		822		832

144

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Health Care Providers and Services—Continued
Quest Diagnostics Inc.		7.500%	7/12/11	$	2,220	$	2,374
Universal Health Services Inc.		6.750%	11/15/11		1,720		1,778

							4,984

Hotels, Restaurants and Leisure	0.1%
Caesars Entertainment Inc.		7.500%	9/1/09		802		822	^A


Independent Power Producers and Energy Traders	0.4%
TXU Corp.		4.800%	11/15/09		610		615	^A
TXU Corp.		5.550%	11/15/14		2,480		2,000

							2,615

IT Services	0.4%
Electronic Data Systems Corp.		7.125%	10/15/09		2,625		2,673


Media	1.8%
Clear Channel Communications Inc.		4.250%	5/15/09		3,347		3,190
Comcast Corp.		6.500%	1/15/17		3,300		3,404
Liberty Media LLC		7.875%	7/15/09		2,820		2,902
Time Warner Inc.		6.875%	5/1/12		1,288		1,352
Turner Broadcasting System Inc.		8.375%	7/1/13		1,483		1,659
Viacom Inc.		5.750%	4/30/11		410		414

							12,921

Multi-Utilities	0.5%
CenterPoint Energy Inc.		5.875%	6/1/08		1,325		1,324
Dominion Resources Inc.		5.700%	9/17/12		1,596		1,601	^A
MidAmerican Energy Holdings Co.		5.875%	10/1/12		827		840

							3,765

Multiline Retail	0.4%
Federated Retail Holdings Inc.		5.350%	3/15/12		1,050		1,030
JC Penney Corp. Inc.		5.750%	2/15/18		610		585
May Department Stores Co.		5.750%	7/15/14		1,470		1,422

							3,037

Office Electronics	0.3%
Xerox Corp.		5.500%	5/15/12		2,240		2,219


Oil, Gas and Consumable Fuels	4.0%
Anadarko Petroleum Corp.		5.950%	9/15/16		3,200		3,169

145

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Corporate Bonds and Notes—Continued

Oil, Gas and Consumable Fuels—Continued
Hess Corp.		6.650%	8/15/11	$	4,528	$	4,734
Kinder Morgan Energy Partners LP		6.000%	2/1/17		3,700		3,658
Occidental Petroleum Corp.		6.750%	1/15/12		1,310		1,387
Pemex Project Funding Master Trust		6.994%	6/15/10		117		119	^C,D
Pemex Project Funding Master Trust		6.994%	6/15/10		4,683		4,765	^C,D
Pemex Project Funding Master Trust		6.180%	12/3/12		752		751	^C,D
Pemex Project Funding Master Trust		7.375%	12/15/14		178		196
Sonat Inc.		7.625%	7/15/11		3,954		4,092
The Williams Cos. Inc.		8.125%	3/15/12		1,540		1,659	^A
XTO Energy Inc.		7.500%	4/15/12		859		928	^A
XTO Energy Inc.		6.250%	4/15/13		1,645		1,691
XTO Energy Inc.		5.650%	4/1/16		1,612		1,576

							28,725

Paper and Forest Products	0.3%
Willamette Industries Inc.		7.125%	7/22/13		1,839		1,935


Real Estate Investment Trusts	0.2%
iStar Financial Inc.		5.950%	10/15/13		1,400		1,314


Thrifts and Mortgage Finance	1.9%
Countrywide Financial Corp.		5.800%	6/7/12		4,400		4,124	^A
Residential Capital LLC		7.800%	11/21/08		5,130		4,604	^C
Residential Capital LLC		7.460%	4/17/09		1,300		1,105	^C
Residential Capital LLC		7.000%	2/22/11		1,286		1,048	^E
Washington Mutual Inc.		4.625%	4/1/14		2,700		2,459	^A

							13,340

Wireless Telecommunication Services	0.9%
New Cingular Wireless Services Inc.		8.125%	5/1/12		3,000		3,326
Sprint Capital Corp.		8.375%	3/15/12		2,669		2,939

							6,265

Total Corporate Bonds and Notes (Cost—$200,786)							197,681
Asset-Backed Securities	1.6%

Fixed Rate Securities	0.4%
ABFS Mortgage Loan Trust 2002-3		4.263%	9/15/33		129		125	^B
Conseco Finance Securitizations Corp. 2000-4		8.310%	5/1/32		642		544
Green Tree Financial Corp. 1994-6		8.900%	1/15/20		1,019		1,020

146

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Asset-Backed Securities—Continued

Fixed Rate Securities—Continued
Mego Mortgage Home Loan Trust 1996-2		7.275%	8/25/17	$	5	$	5
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		963		959

							2,653

Indexed Securities^C	1.2%
AFC Home Equity Loan Trust 2003-3		5.481%	10/25/30		812		813	^D
AMRESCO Residential Securities Mortgage Loan Trust 1998-2		5.956%	6/25/28		46		45
Countrywide Asset-Backed Certificates 2002-BC1		5.791%	4/25/32		417		403
Indymac Home Equity Loan Asset-Backed Trust 2001-A		5.391%	3/25/31		294		281
Long Beach Mortgage Loan Trust 2005-WL3 2A2A		5.271%	11/25/35		1,657		1,646
MSDWCC Heloc Trust 2003-1		5.401%	11/25/15		642		633
Washington Mutual Master Note Trust 2006-A3A A3		5.783%	9/16/13		5,180		5,102	^D

							8,923

Stripped Securities	N.M.
Oakwood Mortgage Investors Inc. 2001-C		6.000%	5/15/08		2,771		98	^F1

Total Asset-Backed Securities (Cost—$11,853)							11,674
Mortgage-Backed Securities	7.4%

Fixed Rate Securities	1.7%
Fannie Mae Grantor Trust 2002-T3		5.763%	12/25/11		3,103		3,159
GMAC Commercial Mortgage Securities Inc. 1998-C1 A2		6.700%	5/15/30		296		296
Prime Mortgage Trust 2006-DR1 2A2		6.000%	11/25/36		1,012		1,000	^D
Residential Asset Securitization Trust 2003-A14		4.750%	2/25/19		3,058		2,950
Virginia Housing Development Mortgage Bonds Pass-Through Certificates 2006		6.000%	6/25/34		4,614		4,614

							12,019

Indexed Securities^C	3.8%
Bear Stearns Structured Products Inc. 2007-R10 A1		5.853%	9/26/37		7,120		7,086	^D
Citigroup Mortgage Loan Trust Inc. 2005-11 A3		4.900%	12/25/35		2,848		2,771
Countrywide Home Loans 2003-49		3.697%	10/25/33		692		683
First Horizon Mortgage Pass-Through Trust 2003-AR2 2A1		4.735%	7/25/33		1,796		1,783
GMAC Mortgage Corp. Loan Trust 2005-AR5 3A1		5.046%	9/19/35		1,438		1,432
IndyMac Inda Mortgage Loan Trust 2007-AR7 1A1		6.287%	11/25/37		3,650		3,648

147

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34	$	6,815	$	6,663
Wells Fargo Mortgage-Backed Securities Trust 2004-S		3.539%	9/25/34		3,525		3,448

							27,514

Variable Rate Securities^G	1.9%
Banc of America Funding Corp. 2005-B		5.100%	4/20/35		1,989		1,983
Bear Stearns Alt-A Trust 2005-2		4.702%	4/25/35		1,562		1,549
Citigroup Mortgage Loan Trust Inc. 2005-8 1A1A		5.292%	10/25/35		1,748		1,745
Countrywide Home Loans 2004-20		7.465%	9/25/34		691		709
Merrill Lynch Mortgage Investors Inc. 2005-A2		4.487%	2/25/35		1,577		1,558
Merrill Lynch Mortgage Investors Trust 2004-A1 2A1		4.557%	2/25/34		2,707		2,674
MLCC Mortgage Investors Inc. 2005-1 2A1		4.965%	4/25/35		785		781
MLCC Mortgage Investors Inc. 2005-1 2A2		4.965%	4/25/35		2,442		2,430
WaMu Mortgage Pass-Through Certificates 2004-AR11		4.554%	10/25/34		351		346

							13,775

Total Mortgage-Backed Securities (Cost—$53,400)							53,308
U.S. Government and Agency Obligations	13.9%

Fixed Rate Securities	11.4%
Fannie Mae		7.250%	1/15/10		162		172	^A
Fannie Mae		6.250%	2/1/11		5,890		6,186	^A
Fannie Mae		4.625%	5/1/13		235		233
Fannie Mae		5.125%	1/2/14		1,053		1,063	^A
Farmer Mac		4.250%	7/29/08		1,005		1,001
Farmer Mac		4.875%	4/4/12		2,561		2,590
Farmer Mac		4.500%	10/17/12		1,710		1,701
Farmer Mac		5.125%	4/19/17		2,800		2,789
Federal Home Loan Bank		5.800%	3/30/09		485		494
Federal Home Loan Bank		5.375%	10/30/09		2,000		2,001
Federal Home Loan Bank		5.500%	7/15/36		180		186
Freddie Mac		4.750%	1/18/11		1,769		1,785	^A
Tennessee Valley Authority		5.625%	1/18/11		373		385
Tennessee Valley Authority		6.790%	5/23/12		2,747		2,984
Tennessee Valley Authority		5.980%	4/1/36		70		77

148

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
United States Treasury Notes		4.375%	1/31/08	$	81	$	81	^A
United States Treasury Notes		3.375%	2/15/08		105		105	^A
United States Treasury Notes		3.750%	5/15/08		19,642		19,591	^A
United States Treasury Notes		3.875%	5/15/09		8,366		8,355	^A
United States Treasury Notes		3.500%	2/15/10		5,570		5,506	^A
United States Treasury Notes		3.875%	9/15/10		5,956		5,933	^A
United States Treasury Notes		4.875%	5/31/11		3,790		3,890	^A
United States Treasury Notes		4.500%	9/30/11		1,890		1,915	^A
United States Treasury Notes		4.625%	10/31/11		4,280		4,356	^A
United States Treasury Notes		4.875%	6/30/12		4,400		4,523	^A
United States Treasury Notes		4.625%	7/31/12		4,200		4,273	^A
United States Treasury Notes		4.250%	8/15/14		60		60
United States Treasury Notes		5.125%	5/15/16		18		19	^A

							82,254

Treasury Inflation-Protected Securities^H	2.5%
United States Treasury Inflation-Protected Security		0.875%	4/15/10		517		500	^A
United States Treasury Inflation-Protected Security		2.375%	4/15/11		409		412	^A
United States Treasury Inflation-Protected Security		1.875%	7/15/13		349		344	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/14		3,172		3,127	^A
United States Treasury Inflation-Protected Security		2.000%	7/15/14		161		159	^A
United States Treasury Inflation-Protected Security		1.875%	7/15/15		1,320		1,285
United States Treasury Inflation-Protected Security		2.000%	1/15/16		1,476		1,442	^A
United States Treasury Inflation-Protected Security		2.500%	7/15/16		1,269		1,292	^A
United States Treasury Inflation-Protected Security		2.375%	1/15/17		1,632		1,644	^A
United States Treasury Inflation-Protected Security		2.375%	1/15/25		1,518		1,532	^A
United States Treasury Inflation-Protected Security		2.000%	1/15/26		967		923	^A
United States Treasury Inflation-Protected Security		2.375%	1/15/27		5,113		5,175	^A

							17,835

Total U.S. Government and Agency Obligations (Cost—$99,352)							100,089

149

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

U.S. Government Agency Mortgage-Backed Securities	18.2%

Fixed Rate Securities	15.5%
Fannie Mae		6.500%	6/1/14 to 4/1/37	$	1,686	$	1,717
Fannie Mae		8.000%	9/1/15		41		42
Fannie Mae		9.500%	4/15/21		34		37
Fannie Mae		5.000%	2/1/36		8,365		7,993
Fannie Mae		6.000%	10/1/36		15,124		15,149
Fannie Mae		5.000%	12/1/37		35,700		34,042	^I
Fannie Mae		6.000%	12/1/37		33,100		33,128	^I
Fannie Mae		6.500%	12/1/37		50		51	^I
Freddie Mac		4.375%	11/16/07		4,100		4,097
Freddie Mac		4.500%	1/15/13		1,985		1,968
Freddie Mac		6.500%	6/1/13 to 11/1/15		51		52
Freddie Mac		7.500%	4/1/17		2		3
Freddie Mac		9.300%	4/15/19		53		56
Freddie Mac		5.000%	11/1/35		464		443
Freddie Mac		6.000%	9/1/37		12,036		12,051
Freddie Mac		5.000%	12/1/37		491		468	^I
Government National Mortgage Association		6.000%	12/1/37		300		302	^I

							111,599

Indexed Securities^C	2.7%
Fannie Mae		5.711%	3/1/18		22		22
Fannie Mae		4.328%	11/1/34		546		537
Fannie Mae		4.220%	12/1/34		790		776
Fannie Mae		4.856%	1/1/35		3,490		3,484
Fannie Mae		3.821%	3/1/35		898		878
Fannie Mae		4.762%	4/1/35		872		864
Fannie Mae		5.779%	9/1/37		6,036		6,090
Freddie Mac		6.090%	1/1/19		8		8
Freddie Mac		4.367%	12/1/34		288		284
Freddie Mac		4.473%	12/1/34		1,502		1,489
Freddie Mac		4.092%	1/1/35		296		291
Freddie Mac		4.132%	1/1/35		486		477
Freddie Mac		4.604%	7/1/35		3,898		3,895

							19,095

Stripped Securities	N.M.
Fannie Mae		0.000%	5/25/22		7		6	^F2

150

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES		VALUE

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

Stripped Securities—Continued
Freddie Mac		10.000%	3/1/21	$	6	$	2	^F1

							8

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$130,951)							130,702
Yankee Bonds^J	10.3%

Aerospace and Defense	0.2%
Systems 2001 Asset Trust		6.664%	9/15/13		1,122		1,183	^D


Commercial Banks	4.3%
Glitnir Banki Hf		5.800%	1/21/11		4,310		4,208	^C,D
Glitnir Banki Hf		6.190%	7/28/11		120		122	^C,D
Glitnir Banki Hf		6.693%	6/15/16		810		828	^B,D
HBOS Treasury Services PLC		4.000%	9/15/09		1,240		1,218	^D
Kaupthing Bank Hf		5.750%	10/4/11		4,090		4,038	^D
Landsbanki Islands Hf		6.100%	8/25/11		2,210		2,239	^D
Resona Preferred Global Securities		7.191%	12/29/49		4,590		4,606	^B,D
Royal Bank of Scotland Group PLC		9.118%	3/31/49		2,431		2,603
RSHB Capital SA		6.299%	5/15/17		270		254	^D
Santander Issuances		5.805%	6/20/16		1,030		1,043	^B,D
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		5,325		4,938	^B,D
TuranAlem Finance BV		6.735%	1/22/09		970		953	^C,D
VTB Capital SA for Vneshtorgbank		5.956%	8/1/08		3,880		3,841	^C,D
VTB Capital SA for Vneshtorgbank		5.956%	8/1/08		367		364	^C,D

							31,255

Diversified Financial Services	1.4%
Aiful Corp.		5.000%	8/10/10		3,371		3,259	^D
European Investment Bank		4.625%	3/21/12		730		727
MUFG Capital Finance 1 Ltd.		6.346%	7/29/49		3,402		3,234	^B
TNK-BP Finance SA		6.875%	7/18/11		2,783		2,762	^D

							9,982

Diversified Telecommunication Services	2.7%
British Telecommunications PLC		8.625%	12/15/10		3,817		4,202	^E
Deutsche Telekom International Finance BV		5.750%	3/23/16		1,800		1,779	^A
France Telecom SA		7.750%	3/1/11		2,358		2,535
Koninklijke (Royal) KPN NV		8.000%	10/1/10		4,007		4,310
Telecom Italia Capital SpA		5.250%	10/1/15		1,400		1,329	^A

151

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

Yankee Bonds—Continued
Diversified Telecommunication Services—Continued
Telefonica Emisiones S.A.U.		5.690%	2/4/13	$	5,230		$	5,133	^A,C

								19,288

Foreign Government	N.M.
Russian Federation		7.500%	3/31/30		18			20	^D


Health Care Equipment and Supplies	0.2%
Baxter Finco BV		4.750%	10/15/10		1,370			1,369


Industrial Conglomerates	0.3%
Tyco International Group SA		6.000%	11/15/13		2,358			2,380


Insurance	0.2%
Merna Reinsurance Ltd.		7.110%	6/30/12		1,300			1,298	^C,D


Metals and Mining	0.5%
Vale Overseas Ltd.		6.250%	1/23/17		3,560			3,600


Oil, Gas and Consumable Fuels	0.5%
Gazprom		6.212%	11/22/16		1,710			1,695	^D
Gazprom		6.510%	3/7/22		940			930	^D
Petrozuata Finance Inc.		8.220%	4/1/17		883			881	^D

								3,506

Total Yankee Bonds (Cost—$74,567)								73,881
Preferred Stocks	0.1%
Home Ownership Funding Corp.		1.000%			1	shs		90	^D
Home Ownership Funding Corp. II		1.000%			2			269	^D

Total Preferred Stocks (Cost—$1,942)								359

Total Long-Term Securities (Cost—$572,851)								567,694
Investment of Collateral From Securities Lending	15.0%
State Street Navigator Securities Lending Prime Portfolio					92,821			92,821

Total Investment of Collateral From Securities Lending (Cost—$92,821)								92,821

152

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR/ SHARES			VALUE

Short-Term Securities	30.3%

U.S. Government and Agency Obligations	0.3%
Fannie Mae		0.000%	3/17/08	$	2,389		$	2,340	^K,L


Options Purchased^M	0.1%
Deutsche Bank Swaption Call, November 2007, Strike Price $5.27					14,900,000	^N		294
Greenwich Swaption Call, September 2009, Strike Price $4.50					19,700,000	^N		79

								373

Repurchase Agreement	29.9%
Lehman Brothers Inc. 4.75%, dated 9/28/07, to be repurchased at $215,166 on 10/1/07 (Collateral: $667,335 Resolution Fuding Corp principal-only securities, due 1/15/30, value $219,380)					215,081			215,081

Total Short-Term Securities (Cost—$217,617)								217,794
Total Investments (Cost—$883,289)^O	122.2%							878,309
Obligation to return collateral from securities lending	(12.9)%							(92,821	)
Other Assets Less Liabilities	(9.3)%							(66,844	)


Net Assets	100.0%						$	718,644


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^M
Eurodollar Futures	December 2007	29	$	14
Eurodollar Futures	June 2008	83		188
U.S. Treasury Note Futures	December 2007	116		53
U.S. Treasury Note Futures	December 2007	120		92
U.S. Treasury Note Futures	December 2007	868		624

			$	971

Options Written^M
Eurodollar Futures Call, Strike Price $95.50	March 2008	207	$	13
JP Morgan Swaption Call, Strike Price $1.40	November 2007	28,730,000		30
Greenwich Swaption Call, Strike Price $4.95	September 2009	4,378,000		9

153

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Bond Portfolio—Continued


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Options Written—Continued
JP Morgan Swaption Put, Strike Price $1.70	November 2007	28,730,000	$	(116	)
U.S. Treasury Note Futures Put, Strike Price $108.00	December 2007	268		(19	)

			$	(83	)

N.M. Not Meaningful.

All or a portion of this security is on loan.

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

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

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

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

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

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

Par represents actual number of contracts.


Gross unrealized appreciation	$	3,117
Gross unrealized depreciation		(8,097	)

Net unrealized depreciation	$	(4,980	)

^†

Securities are denominated in U.S. Dollars, unless otherwise noted.

See notes to financial statements.

154

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Intermediate Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$665,672)			$	660,515	^A
Short-term securities at value (Cost—$217,617)				217,794
Cash				1,106
Receivable for securities sold				60,951
Receivable for fund shares sold				982
Interest receivable				6,238

Total assets				947,586


Liabilities:
Obligation to return collateral for securities loaned	$	92,821
Swap contracts at value		862
Payable for securities purchased		133,495
Payable for fund shares repurchased		148
Accrued management fee		228
Income distribution payable		547
Futures variation margin payable		32
Options written (Proceeds—$622)		705
Accrued expenses		104

Total liabilities				228,942


Net Assets			$	718,644


Net assets consist of:
Accumulated paid-in-capital			$	730,894
Undistributed net investment income				405
Accumulated net realized loss on investments, options, futures and swaps				(8,138	)
Net unrealized depreciation on investments, options, futures and swaps				(4,517	)


Net Assets			$	718,644


Net Asset Value Per Share:
Institutional Class (69,388 shares outstanding)				$10.36

The market value of securities on loan is $105,434.

See notes to financial statements.

155

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Intermediate Bond Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest	$	18,826
Dividends		6
Income from securities lending		82

Total income				$	18,914
Expenses:
Management fees		1,357
Audit and legal fees		44
Custodian fees		48
Directors’ fees and expenses		9
Registration fees		27
Reports to shareholders		8
Transfer agent and shareholder servicing expense:
Institutional Class		16
Other expenses		36

		1,545
Less: Fees waived		(17	)
Compensating balance credits		(2	)

Net expenses					1,526

Net Investment Income					17,388
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		(2,960	)
Options		246
Futures		324
Swaps		194

					(2,196	)
Change in unrealized appreciation/depreciation of investments, options, futures and swaps					(4,520	)

Net Realized and Unrealized Loss on Investments					(6,716	)

Change in Net Assets Resulting From Operations				$	10,672

See notes to financial statements.

156

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	17,388		$	30,716

Net realized loss		(2,196	)		(1,665	)

Change in unrealized appreciation/depreciation		(4,520	)		15,153

Change in net assets resulting from operations		10,672			44,204

Distributions to shareholders from:
Net investment income:
Institutional Class		(17,392	)		(30,869	)

Change in net assets from fund share transactions:
Institutional Class		85,629			(113,092	)

Change in net assets		78,909			(99,757	)

Net Assets:
Beginning of period		639,735			739,492


End of period	$	718,644		$	639,735


Under distributions of net investment income	$	405		$	409

See notes to financial statements.

157

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Intermediate Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	10.43		$	10.21		$	10.51		$	11.01		$	10.92		$	10.39

Investment operations:
Net investment income		.26	^A		.49	^A		.44			.38			.44			.53
Net realized and unrealized gain/(loss)		(.06	)		.22			(.20	)		(.22	)		.36			.62

Total from investment operations		.20			.71			.24			.16			.80			1.15

Distributions from:
Net investment income		(.27	)		(.49	)		(.44	)		(.38	)		(.44	)		(.53	)
Net realized gain on investments		—			—			(.10	)		(.28	)		(.27	)		(.09	)

Total distributions		(.27	)		(.49	)		(.54	)		(.66	)		(.71	)		(.62	)

Net asset value, end of period	$	10.36		$	10.43		$	10.21		$	10.51		$	11.01		$	10.92

Total return		1.81	%^B		7.17	%		2.37	%		1.66	%		7.58	%		11.37	%

Ratios to Average Net Assets:^C
Total expenses		.46	%^D		.46	%		.47	%		.46	%		.47	%		.45	%
Expenses net of waivers, if any		.45	%^D		.45	%		.45	%		.45	%		.45	%		.45	%
Expenses net of all reductions		.45	%^D		.45	%		.45	%		.45	%		.45	%		.45	%
Net investment income		5.1	%^D		4.8	%		4.3	%		3.6	%		4.0	%		5.0	%

Supplemental Data:
Portfolio turnover rate		117.6	%^B		244.1	%		266.1	%		215.7	%		255.1	%		238.5	%
Net assets, end of period (in thousands)	$	718,644		$	639,735		$	739,492		$	660,480		$	587,229		$	539,874

Computed using average daily shares outstanding.

Not annualized.

Annualized.

See notes to financial statements.

158

Semi-Annual Report to Shareholders

Expense Example

Western Asset Intermediate Plus Bond Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,016.10	$	2.27
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 During the Period” 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.

159

Semi-Annual Report to Shareholders

Performance Information

Western Asset Intermediate 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 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

Index returns are for periods beginning March 31, 2004.

160

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2007)

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.

161

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Intermediate Plus Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†			VALUE

Long-Term Securities	77.9%

Corporate Bonds and Notes	29.1%

Airlines	0.2%
Delta Air Lines Inc.		7.570%	11/18/10	$	200		$	205


Automobiles	0.5%
DaimlerChrysler NA Holding Corp.		6.500%	11/15/13		260			270
Ford Motor Co.		7.450%	7/16/31		110			86
General Motors Corp.		8.375%	7/5/33		50	EUR		62
General Motors Corp.		8.375%	7/15/33		120			105

								523

Capital Markets	3.5%
Goldman Sachs Capital II		5.793%	12/29/49		1,520			1,438	^A
Goldman Sachs Capital III		6.350%	9/29/49		100			91	^B
Lehman Brothers Holdings Capital Trust VII		5.857%	5/31/49		830			791	^A
Lehman Brothers Holdings Capital Trust VIII		6.371%	5/29/49		70			66	^B
Lehman Brothers Holdings Inc.		4.500%	7/26/10		140			136
Merrill Lynch and Co. Inc.		5.700%	5/2/17		200			194
Morgan Stanley		5.550%	4/27/17		310			301
The Bear Stearns Cos. Inc.		6.400%	10/2/17		510			508

								3,525

Chemicals	0.7%
The Dow Chemical Co.		6.000%	10/1/12		660			677


Commercial Banks	2.1%
Comerica Capital Trust II		6.576%	2/20/37		130			117	^A
SunTrust Capital VIII		6.100%	12/15/36		80			73	^A
Wachovia Capital Trust III		5.800%	8/29/49		1,550			1,540	^A
Wells Fargo Capital X		5.950%	12/15/36		410			376

								2,106

Commercial Services and Supplies	0.5%
Waste Management Inc.		7.375%	8/1/10		460			487


Consumer Finance	4.8%
American Express Co.		6.800%	9/1/66		550			564	^A
Ford Motor Credit Co.		8.110%	1/13/12		940			888	^B
Ford Motor Credit Co.		9.810%	4/15/12		1,000			1,035	^B
GMAC LLC		6.875%	9/15/11		700			666
GMAC LLC		6.000%	12/15/11		850			785

162

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Corporate Bonds and Notes—Continued

Consumer Finance—Continued
GMAC LLC		6.750%	12/1/14	$	40	$	36
John Deere Capital Corp.		5.100%	1/15/13		100		98
Nelnet Inc.		7.400%	9/29/36		250		245	^A
SLM Corp.		5.660%	1/27/14		700		611	^B

							4,928

Diversified Financial Services	2.7%
AGFC Capital Trust I		6.000%	1/15/67		1,520		1,424	^A,C
Capmark Financial Group Inc.		5.875%	5/10/12		350		319	^C,D
Glen Meadow Pass-Through Certificates		6.505%	2/12/67		340		327	^A,C
The Williams Cos. Inc. Credit Linked Certificate Trust		6.750%	4/15/09		170		171	^C
The Williams Cos. Inc. Credit Linked Certificate Trust		8.606%	5/1/09		255		258	^B,C
ZFS Finance USA Trust II		6.450%	12/15/65		240		232	^A,C

							2,731

Diversified Telecommunication Services	0.9%
Embarq Corp.		7.082%	6/1/16		250		259
Qwest Communications International Inc.		9.058%	2/15/09		133		134	^B
Qwest Corp.		8.875%	3/15/12		90		98
Verizon Global Funding Corp.		7.250%	12/1/10		350		372

							863

Electric Utilities	0.7%
Duke Energy Corp.		6.250%	1/15/12		200		207
Duke Energy Corp.		5.625%	11/30/12		160		162
Exelon Corp.		6.750%	5/1/11		300		312
TXU Energy Co.		7.000%	3/15/13		50		55

							736

Food and Staples Retailing	0.1%
Safeway Inc.		6.500%	3/1/11		110		115


Health Care Equipment and Supplies	0.2%
Hospira Inc.		5.550%	3/30/12		200		200


Health Care Providers and Services	1.0%
HCA Inc.		8.750%	9/1/10		50		51
HCA Inc.		6.250%	2/15/13		130		115
HCA Inc.		6.750%	7/15/13		70		63
HCA Inc.		9.125%	11/15/14		10		10	^C
HCA Inc.		9.250%	11/15/16		90		96	^C

163

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

Health Care Providers and Services—Continued
HCA Inc.		9.625%	11/15/16	$	60	$	64	^C,E
Quest Diagnostics Inc.		7.500%	7/12/11		320		342
Universal Health Services Inc.		6.750%	11/15/11		240		248

							989

Hotels, Restaurants and Leisure	0.1%
Caesars Entertainment Inc.		7.500%	9/1/09		90		92


Independent Power Producers and Energy Traders	0.5%
The AES Corp.		9.500%	6/1/09		150		156
TXU Corp.		5.550%	11/15/14		480		387

							543

IT Services	0.3%
Electronic Data Systems Corp.		7.125%	10/15/09		330		336


Leisure Equipment and Products	N.M.
Eastman Kodak Co.		3.625%	5/15/08		10		10


Media	1.8%
Clear Channel Communications Inc.		4.250%	5/15/09		480		457
Comcast Corp.		6.500%	1/15/17		500		516
Liberty Media LLC		7.875%	7/15/09		440		453
Time Warner Inc.		6.875%	5/1/12		200		210
Turner Broadcasting System Inc.		8.375%	7/1/13		130		145
Viacom Inc.		5.750%	4/30/11		60		61

							1,842

Metals and Mining	0.4%
Freeport-McMoRan Copper & Gold Inc.		8.375%	4/1/17		400		437


Multi-Utilities	0.4%
CenterPoint Energy Inc.		5.875%	6/1/08		120		120
Dominion Resources Inc.		5.700%	9/17/12		280		281

							401

Multiline Retail	0.4%
Federated Retail Holdings Inc.		5.350%	3/15/12		140		137
JC Penney Corp. Inc.		5.750%	2/15/18		80		77
May Department Stores Co.		5.750%	7/15/14		210		203

							417

164

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Corporate Bonds and Notes—Continued

Office Electronics	0.3%
Xerox Corp.		5.500%	5/15/12	$	300	$	297


Oil, Gas and Consumable Fuels	4.3%
El Paso Corp.		7.000%	5/15/11		730		742
El Paso Corp.		6.875%	6/15/14		540		545
El Paso Corp.		7.000%	6/15/17		200		203
Kerr-McGee Corp.		6.875%	9/15/11		650		683
Kinder Morgan Energy Partners LP		6.000%	2/1/17		470		465
Occidental Petroleum Corp.		6.750%	1/15/12		200		212
Pemex Project Funding Master Trust		6.994%	6/15/10		24		24	^B,C
Pemex Project Funding Master Trust		6.180%	12/3/12		196		196	^B,C
Pemex Project Funding Master Trust		7.375%	12/15/14		230		253
The Williams Cos. Inc.		6.375%	10/1/10		60		60	^C
The Williams Cos. Inc.		7.360%	10/1/10		280		282	^B,C
XTO Energy Inc.		7.500%	4/15/12		100		108
XTO Energy Inc.		6.250%	4/15/13		190		195
XTO Energy Inc.		5.650%	4/1/16		460		450

							4,418

Real Estate Investment Trusts	0.2%
iStar Financial Inc.		5.950%	10/15/13		200		188


Real Estate Management and Development	0.1%
Realogy Corp.		12.375%	4/15/15		150		113	^C


Thrifts and Mortgage Finance	1.6%
Countrywide Financial Corp.		5.800%	6/7/12		600		562
Residential Capital LLC		7.800%	11/21/08		80		72	^B
Residential Capital LLC		7.460%	4/17/09		130		111	^B
Residential Capital LLC		7.595%	5/22/09		90		77	^B
Residential Capital LLC		7.375%	6/30/10		330		274	^F
Residential Capital LLC		7.000%	2/22/11		300		244	^D
Washington Mutual Inc.		4.625%	4/1/14		300		273

							1,613

Wireless Telecommunication Services	0.8%
New Cingular Wireless Services Inc.		8.125%	5/1/12		400		444
Sprint Capital Corp.		8.375%	3/15/12		370		407

							851

Total Corporate Bonds and Notes (Cost—$30,197)							29,643

165

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Asset-Backed Securities	0.9%

Indexed Securities^B	0.9%
Long Beach Mortgage Loan Trust 2005-WL3 2A2A		5.271%	11/25/35	$	236	$	234
Washington Mutual Master Note Trust 2006-A3A A3		5.783%	9/16/13		700		690	^C

Total Asset-Backed Securities (Cost—$922)							924
Mortgage-Backed Securities	4.4%

Fixed Rate Securities	N.M.
Washington Mutual MSC Mortgage Pass-Through Certificates Series 2004-RA1		7.000%	3/25/34		20		20


Indexed Securities^B	2.1%
Bear Stearns Structured Products Inc. 2007-R10 A1		5.853%	9/26/37		924		919	^C
GMAC Mortgage Corp. Loan Trust 2005-AR5 3A1		5.046%	9/19/35		145		144
IndyMac Inda Mortgage Loan Trust 2007-AR7 1A1		6.867%	11/25/37		500		500
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34		550		538
MLCC Mortgage Investors Inc. 2004-B		6.981%	5/25/29		17		17

							2,118

Variable Rate Securities^F	2.3%
Banc of America Funding Corp. 2005-B		5.100%	4/20/35		162		162
Bear Stearns Alt-A Trust 2005-2		4.702%	4/25/35		118		117
Countrywide Home Loans 2004-20		7.465%	9/25/34		17		17
JP Morgan Mortgage Trust 2004-A3		4.304%	7/25/34		518		515
Merrill Lynch Mortgage Investors Trust 2004-A1 2A1		4.557%	2/25/34		374		370
MLCC Mortgage Investors Inc. 2005-1 2A1		4.965%	4/25/35		58		57
MLCC Mortgage Investors Inc. 2005-1 2A2		4.965%	4/25/35		188		187
Structured Adjustable Rate Mortgage Loan Trust 2004-6 3A2		4.715%	6/25/34		170		168
Washington Mutual Inc. 2005-AR12		4.834%	10/25/35		439		435
Washington Mutual Inc. 2005-AR4		4.673%	4/25/35		300		294

							2,322

Total Mortgage-Backed Securities (Cost—$4,465)							4,460
U.S. Government and Agency Obligations	18.0%

Fixed Rate Securities	15.7%
Farmer Mac		4.250%	7/29/08		80		80
Farmer Mac		4.500%	10/17/12		230		229
Farmer Mac		5.125%	4/19/17		400		398
Federal Home Loan Bank		5.125%	6/13/08		140		140
Federal Home Loan Bank		5.000%	12/21/15		540		543
Federal Home Loan Bank		5.500%	7/15/36		20		21

166

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

U.S. Government and Agency Obligations—Continued

Fixed Rate Securities—Continued
Tennessee Valley Authority		5.625%	1/18/11	$	10	$	10
Tennessee Valley Authority		6.790%	5/23/12		210		228
Tennessee Valley Authority		5.980%	4/1/36		10		11
United States Treasury Bonds		8.875%	8/15/17		10		13
United States Treasury Notes		4.375%	1/31/08		120		120
United States Treasury Notes		3.000%	2/15/08		2,250		2,241
United States Treasury Notes		3.750%	5/15/08		3,940		3,930
United States Treasury Notes		3.625%	7/15/09		850		845
United States Treasury Notes		6.500%	2/15/10		40		42
United States Treasury Notes		3.875%	9/15/10		2,650		2,640
United States Treasury Notes		4.875%	5/31/11		400		411
United States Treasury Notes		4.500%	9/30/11		870		882
United States Treasury Notes		4.625%	10/31/11		470		478
United States Treasury Notes		4.875%	6/30/12		470		483
United States Treasury Notes		4.625%	7/31/12		890		906
United States Treasury Notes		4.250%	8/15/14		1,300		1,291
United States Treasury Notes		5.125%	5/15/16		31		32

							15,974

Treasury Inflation-Protected Securities^G	2.3%
United States Treasury Inflation-Protected Security		0.875%	4/15/10		66		64
United States Treasury Inflation-Protected Security		2.375%	4/15/11		52		53
United States Treasury Inflation-Protected Security		2.000%	1/15/14		643		633
United States Treasury Inflation-Protected Security		2.000%	7/15/14		11		11
United States Treasury Inflation-Protected Security		1.875%	7/15/15		139		135
United States Treasury Inflation-Protected Security		2.000%	1/15/16		189		185
United States Treasury Inflation-Protected Security		2.500%	7/15/16		175		179
United States Treasury Inflation-Protected Security		2.375%	1/15/17		213		214
United States Treasury Inflation-Protected Security		2.375%	1/15/25		77		78
United States Treasury Inflation-Protected Security		2.000%	1/15/26		105		100
United States Treasury Inflation-Protected Security		2.375%	1/15/27		733		742

							2,394

Total U.S. Government and Agency Obligations (Cost—$18,173)							18,368
U.S. Government Agency Mortgage-Backed Securities	15.8%

Fixed Rate Securities	13.7%
Fannie Mae		5.000%	2/1/36		700		668

167

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 Agency Mortgage-Backed Securities—Continued

Fixed Rate Securities—Continued
Fannie Mae		5.000%	12/1/37	$	5,400	$	5,150	^H
Fannie Mae		6.000%	12/1/37		6,400		6,406	^H
Freddie Mac		6.000%	9/1/37		1,650		1,652
Freddie Mac		5.000%	12/1/37		100		95	^H

							13,971

Indexed Securities^B	2.1%
Fannie Mae		4.276%	12/1/34		554		545
Fannie Mae		4.603%	9/1/35		311		311
Fannie Mae		5.879%	8/1/37		400		406
Freddie Mac		4.092%	1/1/35		21		21
Freddie Mac		4.132%	1/1/35		36		35
Freddie Mac		6.126%	9/1/37		800		808

							2,126

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$16,097)							16,097
Yankee Bonds^I	9.7%

Commercial Banks	4.1%
Banco Santiago SA		6.074%	12/9/09		200		200	^B,C
Glitnir Banki Hf		5.800%	1/21/11		640		625	^B,C
Kaupthing Bank Hf		5.750%	10/4/11		580		573	^C
Landsbanki Islands Hf		6.100%	8/25/11		330		334	^C
Resona Preferred Global Securities		7.191%	12/29/49		670		672	^A,C
Royal Bank of Scotland Group PLC		9.118%	3/31/49		180		193
Santander Issuances		5.805%	6/20/16		140		142	^A,C
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		750		695	^A,C
TuranAlem Finance BV		6.735%	1/22/09		130		128	^B,C
VTB Capital SA for Vneshtorgbank		5.956%	8/1/08		578		572	^B,C

							4,134

Diversified Financial Services	1.3%
Aiful Corp.		5.000%	8/10/10		390		377	^C
European Investment Bank		4.625%	3/21/12		100		100
MUFG Captial Finance 1 Ltd.		6.346%	7/29/49		450		428	^A
TNK-BP Finance SA		6.875%	7/18/11		380		377	^C

							1,282

Diversified Telecommunication Services	2.6%
British Telecommunications PLC		8.625%	12/15/10		350		385	^D

168

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Yankee Bonds—Continued

Diversified Telecommunication Services—Continued
Deutsche Telekom International Finance BV		5.750%	3/23/16	$	500	$	494
France Telecom SA		7.750%	3/1/11		400		430
Koninklijke (Royal) KPN NV		8.000%	10/1/10		490		527
Telecom Italia Capital SpA		5.250%	10/1/15		200		190
Telefonica Emisiones S.A.U.		5.690%	2/4/13		680		668	^B

							2,694

Foreign Governments	0.4%
Federative Republic of Brazil		8.875%	4/15/24		20		26
Federative Republic of Brazil		10.125%	5/15/27		22		31
Federative Republic of Brazil		11.000%	8/17/40		67		90
Republic of Colombia		7.375%	9/18/37		100		110
Republic of Panama		7.125%	1/29/26		32		34
Republic of Panama		6.700%	1/26/36		24		25
Russian Federation		7.500%	3/31/30		40		45	^C
United Mexican States		6.750%	9/27/34		9		10

							371

Health Care Equipment and Supplies	0.2%
Baxter Finco BV		4.750%	10/15/10		220		220


Industrial Conglomerates	0.4%
Tyco International Group SA		6.000%	11/15/13		460		464


Metals and Mining	0.4%
Vale Overseas Ltd.		6.250%	1/23/17		460		465


Oil, Gas and Consumable Fuels	0.3%
Gazprom		6.212%	11/22/16		190		188	^C
Gazprom		6.510%	3/7/22		110		109	^C

							297

Total Yankee Bonds (Cost—$10,014)							9,927

Total Long-Term Securities (Cost—$79,868)							79,419
Short-Term Securities	32.9%

U.S. Government and Agency Obligations	0.6%
Fannie Mae		0.000%	3/17/08		650		637	^J,K

169

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Intermediate Plus Bond Portfolio—Continued


	% OF NET ASSETS	PAR†			VALUE

Short-Term Securities—Continued

Options Purchased^L	0.1%
Deutsche Swaption Call, November 2007, Strike Price $5.27			1,900,000	^M	$	37
Greenwich Swaption Call, September 2009, Strike Price $4.50			2,700,000	^M		11

						48

Repurchase Agreement	32.2%
Goldman Sachs Group Inc. 4.85% dated 9/28/07, to be repurchased at $32,845 on 10/1/07 (Collateral: 33,450 Fannie Mae note, 3.875%, due 7/15/08, value $33,492)		$	32,832			32,832

Total Short-Term Securities (Cost—$33,502)						33,517
Total Investments (Cost—$113,370)^O	110.8%					112,936
Other Assets Less Liabilities	(10.8)%					(11,035	)


Net Assets	100.0%				$	101,901


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^L
Bundesobligations Futures	December 2007	23	$	(4	)
Eurodollar Futures	December 2007	4		2
Eurodollar Futures	June 2008	11		25
U.S. Treasury Note Futures	December 2007	20		16
U.S. Treasury Note Futures	December 2007	115		82

			$	121

Futures Contracts Written^L
U.S. Treasury Bond Futures	December 2007	2	$	(1	)
U.S. Treasury Note Futures	December 2007	39		(2	)

			$	(3	)

Options Written^L
Eurodollar Futures Call, Strike Price $95.50	March 2008	28	$	2
JP Morgan Swaption Call, Strike Price $1.40	November 2007	4,100,000		4
Greenwich Swaption Call, Strike Price $4.95	September 2009	600,000		1
JP Morgan Swaption Put, Strike Price $1.70	November 2007	4,100,000		(16	)
U.S. Treasury Note Futures Put, Strike Price $108.00	December 2007	36		(3	)

			$	(12	)

170

Semi-Annual Report to Shareholders

N.M. Not Meaningful.

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

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

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

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

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

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

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

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

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

Par represents actual number of contracts.

Amount represents less than $1.


Gross unrealized appreciation	$	526
Gross unrealized depreciation		(952	)

Net unrealized appreciation/(depreciation)	$	(426	)

^†

Securities are denominated in U.S. Dollars, unless otherwise noted.

EUR—Euro

See notes to financial statements.

171

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Intermediate Plus Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$79,868)			$	79,419
Short-term securities at value (Cost—$33,502)				33,517
Cash				125
Foreign currency at value (Cost—$21)				21
Receivable for securities sold				9,571
Interest receivable				898
Unrealized appreciation of forward foreign currency contracts				132

Total assets				123,683


Liabilities:
Payable for securities purchased	$	21,306
Accrued management fee		20
Income distribution payable		32
Futures variation margin payable		43
Options written (Proceeds—$86)		98
Swap contracts at value		87
Unrealized depreciation of forward foreign currency contracts		137
Accrued expenses		59

Total liabilities				21,782


Net Assets			$	101,901


Net assets consist of:
Accumulated paid-in-capital			$	102,643
Overdistributed net investment income				(32	)
Accumulated net realized loss on investments, options, futures, swaps and foreign currency transactions				(334	)
Net unrealized depreciation on investments, options, futures and swaps				(376	)


Net Assets			$	101,901


Net Asset Value Per Share:
Institutional Class (10,368 shares outstanding)				$9.83

See notes to financial statements.

172

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Intermediate Plus Bond Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	2,524
Expenses:
Management fees	$	184
Audit and legal fees		41
Custodian fees		21
Directors’ fees and expenses		2
Registration fees		4
Reports to shareholders		6
Transfer agent and shareholder servicing expense:
Institutional Class		7
Other expenses		11

		276
Less: Fees waived		(69	)
Compensating balance credits		—	^A

Net expenses					207

Net Investment Income					2,317
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		(81	)
Options		28
Futures		(88	)
Swaps		(88	)
Foreign currency transactions		51

					(178	)
Change in unrealized appreciation/depreciation of:
Investments, options, futures and swaps		(627	)
Assets and liabilities denominated in foreign currency		(1	)

					(628	)

Net Realized and Unrealized Loss on Investments					(806	)

Change in Net Assets Resulting From Operations				$	1,511

Amount less than $1.

See notes to financial statements.

173

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	2,317		$	3,919

Net realized gain/(loss)		(178	)		225

Change in unrealized appreciation/depreciation		(628	)		1,511

Change in net assets resulting from operations		1,511			5,655

Distributions to shareholders from:
Net investment income:
Institutional Class		(2,317	)		(3,921	)
Net realized gain on investments:
Institutional Class		(161	)		—

Change in net assets from fund share transactions:
Institutional Class		16,046			15,180

Change in net assets		15,079			16,914

Net Assets:
Beginning of period		86,822			69,908


End of period	$	101,901		$	86,822


Overdistributed net investment income	$	(32	)	$	(32	)

See notes to financial statements.

174

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Intermediate Plus Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005
	(Unaudited)
Net asset value, beginning of period	$	9.95		$	9.74		$	9.86		$	10.00

Investment operations:
Net investment income		.25	^A		.45	^A		.40			.32
Net realized and unrealized gain/(loss)		(.10	)		.21			(.11	)		(.14	)

Total from investment operations		.15			.66			.29			.18

Distributions from:
Net investment income		(.25	)		(.45	)		(.41	)		(.32	)
Net realized gain on investments		(.02	)		—			—			—

Total distributions		(.27	)		(.45	)		(.41	)		(.32	)

Net asset value, end of period	$	9.83		$	9.95		$	9.74		$	9.86

Total return		1.61	%^B		6.98	%		2.99	%		1.81	%

Ratios to Average Net Assets:^C
Total expenses		.60	%^D		.63	%		.76	%		1.22	%
Expenses net of waivers, if any		.45	%^D		.45	%		.45	%		.45	%
Expenses net of all reductions		.45	%^D		.45	%		.45	%		.45	%
Net investment income		5.1	%^D		4.6	%		4.1	%		3.1	%

Supplemental Data:
Portfolio turnover rate		153.4	%^B		312.2	%		368.6	%		463.5	%
Net assets, end of period (in thousands)	$	101,901		$	86,822		$	69,908		$	40,637

Computed using average daily shares outstanding.

Not annualized.

Annualized.

See notes to financial statements.

175

Semi-Annual Report to Shareholders

Expense Example

Western Asset Limited Duration Bond Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


	Beginning Account Value 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,006.70	$	2.01
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 During the Period” 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.

176

Semi-Annual Report to Shareholders

Performance Information

Western Asset Limited Duration 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 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, economical and political risk.

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

Indexreturns are for periods beginning September 30, 2003.

177

Semi-Annual Report to Shareholders

Performance Information—Continued

Portfolio Composition (as of September 30, 2007)

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

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.

178

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Limited Duration Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Long-Term Securities	120.1%

Corporate Bonds and Notes	20.6%

Airlines	0.4%
Northwest Airlines Inc.		6.260%	5/20/14	$	468	$	468	^A


Capital Markets	2.1%
Goldman Sachs Capital II		5.793%	12/29/49		260		246	^B
Goldman Sachs Capital III		6.350%	9/29/49		340		309	^A
Lehman Brothers Holdings Capital Trust VII		5.857%	11/29/49		480		457	^B
Lehman Brothers Holdings Inc.		6.500%	7/19/17		200		203
Merrill Lynch and Co. Inc.		6.050%	8/15/12		400		410
Morgan Stanley		6.600%	4/1/12		200		208
The Bear Stearns Cos. Inc.		6.400%	10/2/17		230		229
The Goldman Sachs Group Inc.		6.600%	1/15/12		210		220

							2,282

Commercial Banks	1.5%
HSBC Bank PLC		8.190%	7/20/12		500		447	^A
HSBC Bank PLC		10.749%	8/20/12		40		40	^A
SunTrust Capital VIII		6.100%	12/15/36		60		55	^B
Wachovia Capital Trust III		5.800%	8/29/42		980		973	^B
Wells Fargo Capital X		5.950%	12/15/36		150		138	^B

							1,653

Commercial Services and Supplies	0.4%
Waste Management Inc.		7.375%	8/1/10		450		476


Consumer Finance	3.1%
American Express Co.		6.800%	9/1/66		300		307	^B
Ford Motor Credit Co.		6.625%	6/16/08		1,510		1,499
GMAC LLC		6.360%	9/23/08		1,340		1,320	^A
Nelnet Inc.		7.400%	9/29/36		280		275	^B

							3,401

Diversified Financial Services	1.5%
AGFC Capital Trust I		6.000%	1/15/67		630		590	^B,C
Capmark Financial Group Inc.		5.875%	5/10/12		300		273	^C,D
General Electric Capital Corp.		5.000%	12/1/10		270		271
ZFS Finance USA Trust III		6.844%	12/15/65		540		513	^B,C

							1,647

Diversified Telecommunication Services	0.1%
Qwest Corp.		8.875%	3/15/12		130		142

179

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

Electric Utilities	0.4%
Pacific Gas and Electric Co.		4.800%	3/1/14	$	400	$	381


Food and Staples Retailing	0.5%
Wal-Mart Stores Inc.		5.800%	2/15/18		580		584


Health Care Equipment and Supplies	0.2%
Hospira Inc.		5.550%	3/30/12		200		200


Health Care Providers and Services	0.2%
Quest Diagnostics Inc.		5.125%	11/1/10		180		180


Hotels, Restaurants and Leisure	0.2%
Caesars Entertainment Inc.		7.500%	9/1/09		130		133
Harrah’s Operating Co. Inc.		5.956%	2/8/08		120		120	^A,C

							253

Independent Power Producers and Energy Traders	0.7%
TXU Corp.		4.800%	11/15/09		750		757


IT Services	0.3%
Electronic Data Systems Corp.		7.125%	10/15/09		290		295


Leisure Equipment and Products	N.M.
Eastman Kodak Co.		7.250%	11/15/13		10		10


Media	1.7%
Clear Channel Communications Inc.		6.625%	6/15/08		60		60
Clear Channel Communications Inc.		4.250%	5/15/09		550		524
Comcast Cable Communications Inc.		6.875%	6/15/09		300		308
Comcast Cable Communications Inc.		6.750%	1/30/11		200		208
Liberty Media LLC		7.875%	7/15/09		300		309
Time Warner Inc.		5.500%	11/15/11		400		399

							1,808

Multi-Utilities	0.5%
CenterPoint Energy Inc.		5.875%	6/1/08		150		150
Dominion Resources Inc.		4.750%	12/15/10		400		394

							544

180

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Corporate Bonds and Notes—Continued

Multiline Retail	0.2%
Federated Retail Holdings Inc.		5.350%	3/15/12	$	150	$	147
May Department Stores Co.		5.750%	7/15/14		50		49

							196

Office Electronics	0.2%
Xerox Corp.		5.500%	5/15/12		170		168


Oil, Gas and Consumable Fuels	2.3%
Devon Financing Corp. ULC		6.875%	9/30/11		260		275
El Paso Natural Gas Co.		5.950%	4/15/17		370		361	^C
Hess Corp.		6.650%	8/15/11		320		335
Kinder Morgan Energy Partners LP		6.750%	3/15/11		310		323
Pemex Project Funding Master Trust		6.125%	8/15/08		172		173
Pemex Project Funding Master Trust		6.994%	6/15/10		59		60	^A,C
Pemex Project Funding Master Trust		6.994%	6/15/10		242		246	^A,C
Pemex Project Funding Master Trust		6.180%	12/3/12		380		379	^A,C
XTO Energy Inc.		5.650%	4/1/16		290		283

							2,435

Paper and Forest Products	N.M.
Weyerhaeuser Co.		5.950%	11/1/08		40		40


Real Estate Investment Trusts	0.7%
iStar Financial Inc.		6.034%	9/15/09		300		280	^A
iStar Financial Inc.		5.650%	9/15/11		500		475

							755

Thrifts and Mortgage Finance	2.5%
Countrywide Financial Corp.		5.430%	3/24/09		570		536	^A
Countrywide Financial Corp.		5.800%	6/7/12		60		56
Countrywide Home Loans Inc.		5.665%	2/27/08		10		10	^A
Residential Capital LLC		7.800%	11/21/08		700		628	^A
Residential Capital LLC		7.460%	4/17/09		510		433	^A
Residential Capital LLC		7.000%	2/22/11		1,000		815	^D
Washington Mutual Bank		5.844%	6/16/10		250		247	^A

							2,725

Tobacco	0.3%
Altria Group Inc.		5.625%	11/4/08		310		311

181

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

Wireless Telecommunication Services	0.6%
Sprint Capital Corp.		6.125%	11/15/08	$	200	$	201
Vodafone Group PLC		5.350%	2/27/12		400		399

							600

Total Corporate Bonds and Notes (Cost — $22,840)							22,311
Asset-Backed Securities	17.0%

Fixed Rate Securities	1.6%
Countryplace Manufactured Housing Contract Trust 2007-1 A1		5.484%	7/15/37		482		478	^C
Countryplace Manufactured Housing Contract Trust 2007-1 A2		5.232%	7/15/37		500		493	^C
GMAC Mortgage Corp. Loan Trust 2005-HE2 A3		4.622%	11/25/35		458		453
MBNA Practice Solutions Owner Trust 2005-2		4.100%	5/15/09		41		42	^C
Prestige Auto Receivables Trust 2005-1A		4.370%	6/16/12		147		146	^C
Prestige Auto Receivables Trust 2006-1A		5.120%	2/15/10		57		57	^C
UCFC Home Equity Loan 1998-D		6.905%	4/15/30		52		52

							1,721

Indexed Securities^A	15.4%
AESOP Funding II LLC 2004-2A		5.716%	4/20/10		500		497	^C
Ameriquest Mortgage Securities Inc. 2005-R11 A2D		5.461%	1/25/36		240		228
Asset Backed Securities Corp. Home Equity Loan Trust 2005-HE5 A1		5.291%	6/25/35		439		436
Bayview Financial Acquisition Trust 2004-C		5.925%	5/28/44		108		107
Bayview Financial Acquisition Trust 2006-D 2A4		5.785%	12/28/36		743		728
Bear Stearns Asset Backed Securities Trust 2007-HE6 1A1		6.381%	8/25/37		490		493
Bear Stearns Asset-Backed Securities Inc. 2005-AQ2		5.401%	9/25/35		500		496
Bear Stearns Asset-Backed Securities Inc. 2007-SD2 2A1		5.531%	9/25/46		449		441
Bear Stearns Asset-Backed Securities Trust 2006-SD2		5.331%	6/25/36		441		435
Chase Funding Mortgage Loan Asset-Backed Certificates 2002-4		5.871%	10/25/32		21		20
Citibank Credit Card Issuance Trust 2002-C3		6.834%	12/15/09		160		160
Citigroup Mortgage Loan Trust Inc. 2007-SHL1 A		5.531%	11/25/46		914		871	^C
Countrywide Asset-Backed Certificates 2002-3		5.871%	5/25/32		7		7
Countrywide Asset-Backed Certificates 2007-SE1 1A1		5.681%	5/25/47		978		902	^C

182

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

Asset-Backed Securities—Continued

Indexed Securities—Continued
Countrywide Home Equity Loan Trust 2004-J		6.043%	12/15/33	$	40	$	40
Countrywide Home Equity Loan Trust 2004-O		6.033%	2/15/34		71		70
Countrywide Home Equity Loan Trust 2007-GW A		6.303%	8/15/37		777		762
Ellington Loan Acquisition Trust 2007-1 A2A1		6.131%	5/26/37		306		306	^C
First Franklin Mortgage Loan Asset-Backed Certificates 2004-FF10		5.531%	12/25/32		22		22
FLAC Holdings LLC 2006-1 A1		5.914%	12/15/18		500		493	^C
GSAA Home Equity Trust 2005-8 A2		5.725%	6/25/35		1,000		996
HSI Asset Securitization Corp. Trust 2005-I1 2A1		5.251%	11/25/35		346		345
Ixis Real Estate Capital Trust 2006-HE2 A3		5.291%	8/25/36		900		883
Long Beach Mortgage Loan Trust 2006-A A1		5.221%	5/25/36		530		437
MASTR Specialized Loan Trust 2006-3 A		5.391%	6/25/46		659		645	^C
Morgan Stanley Mortgage Loan Trust 2006-12XS		5.251%	10/25/36		479		479
Origen Manufactured Housing 2006-A		5.903%	11/15/18		383		382
Ownit Mortgage Loan Asset-Backed Certificates 2005-2 A2C		5.431%	3/25/36		189		187
RAAC Series 2007-RP2 A		5.481%	2/25/46		752		724	^C
RAAC Series 2007-RP2 M1		5.781%	2/25/46		600		528	^C
Rental Car Finance Corp. 2004-1A		5.331%	6/25/09		750		750	^C
Residential Asset Mortgage Products Inc. 2002-RS6		6.031%	11/25/32		12		12
Residential Asset Securities Corp. 2006-KS1 A4		5.431%	2/25/36		310		290
SACO I Trust 2006-3 A3		5.361%	4/25/36		927		795
Securitized Asset Backed Receivables LLC 2006-FR3 A2		5.271%	5/25/36		800		788
Superior Wholesale Inventory Financing Trust 2004-A10		5.853%	9/15/11		500		492
WaMu Asset-Backed Certificates 2007-HE1 2A3		5.281%	1/25/37		500		471

							16,718

Total Asset-Backed Securities (Cost—$19,001)							18,439
Mortgage-Backed Securities	31.1%

Fixed Rate Securities	0.8%
Countrywide Alternative Loan Trust 2004-J1		6.000%	2/25/34		48		47
Residential Asset Mortgage Products Inc. 2004-SL1		7.000%	11/25/31		232		237
Residential Asset Mortgage Products Inc. 2004-SL2		8.500%	10/25/31		30		31
Residential Asset Mortgage Products Inc. 2005-SL1		8.000%	5/25/32		569		602

							917

183

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

Indexed Securities^A	23.2%
American Home Mortgage Investment Trust 2005-4 5A		5.350%	11/25/45	$	983	$	972
American Home Mortgage Investment Trust 2005-SD1		5.581%	9/25/35		494		477	^C
Banc of America Mortgage Securities 2003-D		4.569%	5/25/33		162		161
Banc of America Mortgage Securities 2005-F		5.013%	7/25/35		768		764
Bayview Commercial Asset Trust 2005-2A A2		5.481%	8/25/35		435		404	^C
Bear Stearns Alt-A Trust 2007-1 1A1		5.291%	1/25/47		1,104		1,093
Bear Stearns ARM Trust 2004-10		4.595%	1/25/35		456		454
Bear Stearns Second Lien Trust 2007-SV1A A1		5.351%	12/25/36		579		521	^C
Bear Stearns Structured Products Inc. 2007-R10 A1		5.853%	9/26/37		1,070		1,065	^C
CBA Commercial Small Balance Commercial Trust 2005-1A		5.451%	7/25/35		444		438	^C
Citigroup Mortgage Loan Trust Inc. 2005-5		5.433%	7/25/35		257		260
Countrywide Alternative Loan Trust 2005-38 A3		5.481%	9/25/35		317		312
Countrywide Alternative Loan Trust 2005-51 2A1		5.796%	11/20/35		329		320
Countrywide Alternative Loan Trust 2006-0A22 A1		5.291%	2/25/47		1,088		1,063
Countrywide Alternative Loan Trust 2006-OA1 2A1		5.706%	3/20/46		511		500
Countrywide Asset-Backed Certificates 2005-IM1		5.785%	11/25/35		449		445
Countrywide Home Loans 2005-R3		5.531%	9/25/35		562		549	^C
Credit Suisse/Morgan Stanley Commercial Mortgage Trust 2006-HC1A		5.943%	5/15/23		600		598	^C
Crusade Global Trust 2003-2		5.836%	9/18/34		57		57	^E
CS First Boston Mortgage Securities Corp. 2004-AR5 7A2		4.602%	6/25/34		353		347
CS First Boston Mortgage Securities Corp. 2004-AR6 1A1		5.530%	10/25/34		310		312
Granite Mortgages PLC 2003-1		5.550%	1/20/20		50		49	^C,E
Greenpoint Mortgage Funding Trust 2006-AR7 1A1B		5.251%	12/25/46		440		437
GSMPS Mortgage Loan Trust 2005-RP3		5.481%	9/25/35		439		440	^C
Harborview Mortgage Loan Trust 2006-13 A		5.683%	11/19/46		492		487
Harborview Mortgage Loan Trust 2006-7		5.703%	10/19/37		638		628
JPMorgan Mortgage Trust 2004-A1 1A1		4.341%	10/25/33		256		249
JPMorgan Mortgage Trust 2004-A1 1A1		4.811%	2/25/34		326		314
Luminent Mortgage Trust 2006-2		5.331%	2/25/46		561		551
Luminent Mortgage Trust 2006-7 2A2		5.351%	12/25/36		1,153		1,121
MASTR Adjustable Rate Mortgages Trust 2004-13		3.786%	11/21/34		350		342
MASTR Adjustable Rate Mortgages Trust 2006-OA2 1A1		6.105%	12/25/46		589		579

184

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE

Mortgage-Backed Securities—Continued

Indexed Securities—Continued
MASTR Specialized Loan Trust 2006-2		5.391%	2/25/36	$	405		$	397	^C
Medallion Trust 2000-2G		5.846%	12/18/31		64			63	^E
Medallion Trust 2003-1G		5.428%	12/21/33		59			59	^E
MLCC Mortgage Investors Inc. 2003-H		6.988%	1/25/29		24			24
Provident Funding Mortgage Loan Trust 2005-1 1A1		4.130%	5/25/35		—	^F		—	^G
Sequoia Mortgage Trust 2003-2 A2		5.701%	6/20/33		31			31
Structured Adjustable Rate Mortgage Loan Trust 2005-16XS		5.471%	8/25/35		187			184
Structured Adjustable Rate Mortgage Loan Trust 2005-19XS		5.431%	10/25/35		239			231
Structured Asset Mortgage Investments Inc. 2006-AR5 2A1		5.341%	5/25/36		351			347
Structured Asset Mortgage Investments Inc. 2006-AR5 4A1		5.351%	5/25/46		533			517
Structured Asset Mortgage Investments Inc. 2006-AR6		5.321%	7/25/36		634			616
Structured Asset Mortgage Investments Inc. 2006-AR7 A1A		5.341%	8/25/36		747			736
Thornburg Mortgage Securities Trust 2005-2 A4		5.381%	7/25/45		911			910
Thornburg Mortgage Securities Trust 2005-3		5.371%	10/25/35		630			628
Wachovia Mortgage Loan Trust LLC 2005-A		4.732%	8/20/35		269			268
WaMu Mortgage Pass-Through Certificates 2003-AR8 A		4.030%	8/25/33		358			354
WaMu Mortgage Pass-Through Certificates 2003-AR10		4.057%	10/25/33		600			593
WaMu Mortgage Pass-Through Certificates 2005-AR19		5.541%	12/25/45		500			482
WaMu Mortgage Pass-Through Certificates 2006-AR11		6.483%	9/25/46		589			573
WaMu Mortgage Pass-Through Certificates 2007-HY7 1A1		5.662%	7/25/37		478			478
WaMu Mortgage Pass-Through Certificates, 2005-AR15 A1A2		5.411%	11/25/45		503			491
WaMu Mortgage Pass-Through Certificates 2006-AR4 DA		5.953%	6/25/46		498			485
Zuni Mortgage Loan Trust 2006-OA1		5.261%	8/25/36		395			392

								25,168

185

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

Variable Rate Securities^H	7.1%
Banc of America Funding Corp. 2004-B		4.183%	12/20/34	$	177	$	177
Banc of America Funding Corp. 2005-F 2A1		5.207%	9/20/35		1,097		1,095
Chase Mortgage Finance Corp. 2007-A1 2A3		4.139%	2/25/37		472		465
Citigroup Mortgage Loan Trust Inc. 2007-AR8 1A1A		5.757%	8/25/47		593		590
Countrywide Alternative Loan Trust 2004-33 1A1		4.989%	12/25/34		55		55
Countrywide Alternative Loan Trust 2004-33 2A1		4.955%	12/25/34		31		31
Countrywide Alternative Loan Trust 2005-14		3.300%	5/25/35		87		87
Countrywide Home Loans 1A1-11		4.983%	7/25/34		247		248
IndyMac INDX Mortgage Loan Trust 2004-AR15		5.035%	2/25/35		344		342
JPMorgan Mortgage Trust 2006-A2 5A1		3.756%	11/25/33		250		247
Merrill Lynch Mortgage Investors Trust 2004-A1 2A1		4.557%	2/25/34		410		405
Nomura Asset Acceptance Corp. 2004-AR4 1A1		4.907%	12/25/34		567		561
Prime Mortgage Trust 2005-2		7.408%	10/25/32		149		153
Residential Funding Mortgage Securities I 2005-SA3		4.905%	8/25/35		440		437
Small Business Administration Series 2004-2		8.080%	9/25/18		432		454
Structured Adjustable Rate Mortgage Loan Trust 2004-2 4A1		4.260%	3/25/34		275		271
Structured Adjustable Rate Mortgage Loan Trust 2005-12 3A1		5.661%	6/25/35		387		386
Structured Asset Securities Corp. 2003-22A 3A		4.420%	6/25/33		722		718
Structured Asset Securities Corp. 2004-SC1		9.962%	12/25/29		89		93	^C
WaMu Mortgage Pass-Through Certificates 2007-HY3 4A1		5.349%	3/25/37		832		826

							7,641

Total Mortgage-Backed Securities (Cost—$34,002)							33,726
U.S. Government and Agency Obligations	11.2%

Fixed Rate Securities	8.3%
Fannie Mae		5.000%	9/15/08		150		151
Federal Home Loan Bank		5.000%	2/20/09		320		322
Freddie Mac		5.000%	6/11/09		4,200		4,239
Freddie Mac		5.125%	8/23/10		260		265
United States Treasury Notes		5.000%	7/31/08		1,500		1,510
United States Treasury Notes		4.750%	12/31/08		300		303
United States Treasury Notes		4.500%	5/15/10		1,500		1,519
United States Treasury Notes		4.500%	9/30/11		550		557
United States Treasury Notes		4.625%	10/31/11		145		148

							9,014

186

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR		VALUE

U.S. Government and Agency Obligations—Continued

Treasury Inflation-Protected Securities^I	2.9%
United States Treasury Inflation-Protected Security		1.875%	7/15/15	$	107	$	104
United States Treasury Inflation-Protected Security		2.500%	7/15/16		722		735
United States Treasury Inflation-Protected Security		2.375%	1/15/17		1,116		1,124
United States Treasury Inflation-Protected Security		2.375%	1/15/25		1,105		1,115

							3,078

Total U.S. Government and Agency Obligations (Cost—$11,918)							12,092
U.S. Government Agency Mortgage-Backed Securities	30.6%

Fixed Rate Securities	21.9%
Fannie Mae		5.000%	12/1/22 to 12/1/37		5,500		5,253	^J
Fannie Mae		5.500%	12/1/22 to 12/1/37		6,550		6,423	^J
Fannie Mae		6.000%	12/1/37		8,800		8,806	^J
Fannie Mae		6.500%	12/1/37		1,500		1,526	^J
Freddie Mac		5.000%	12/1/37		100		95	^J
Government National Mortgage Association		5.000%	8/15/33		73		71
Government National Mortgage Association		6.000%	12/1/37		1,500		1,509	^J

							23,683

Indexed Securities^A	8.7%
Fannie Mae		4.205%	12/1/34		131		129
Fannie Mae		4.246%	12/1/34		125		123
Fannie Mae		4.331%	1/1/35		145		144
Fannie Mae		4.856%	1/1/35		249		248
Fannie Mae		4.785%	2/1/35		562		562
Fannie Mae		4.536%	3/1/35		259		256
Fannie Mae		5.051%	3/1/35		436		437
Fannie Mae		4.717%	7/1/35		4,218		4,189
Freddie Mac		4.367%	12/1/34		59		58
Freddie Mac		4.092%	1/1/35		43		42
Freddie Mac		4.132%	1/1/35		71		69
Freddie Mac		4.482%	1/1/35		199		196

187

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—Continued

Indexed Securities^A—Continued
Freddie Mac		6.224%	12/1/36	$	2,902	$	2,953

							9,406

Total U.S. Government Agency Mortgage-Backed Securities (Cost—$33,128)							33,089
Yankee Bonds^E	9.6%

Capital Markets	0.5%
Deutsche Bank AG		6.000%	9/1/17		500		507


Commercial Banks	3.6%
Glitnir Banki Hf		5.800%	1/21/11		720		703	^A,C
HSBC Bank PLC		10.999%	8/20/12		40		39	^D
Kaupthing Bank Hf		6.050%	4/12/11		300		298	^A,C
Kaupthing Bank Hf		5.750%	10/4/11		290		286	^C
Landsbanki Islands Hf		6.100%	8/25/11		410		415	^C
Resona Preferred Global Securities		7.191%	12/29/49		360		361	^B,C
Shinsei Finance Cayman Ltd.		6.418%	1/29/49		1,070		992	^B,C
TuranAlem Finance BV		6.735%	1/22/09		130		128	^A,C
VTB Capital SA for Vneshtorgbank		5.956%	8/1/08		639		633	^A,C

							3,855

Diversified Financial Services	1.0%
Aiful Corp.		5.000%	8/10/10		500		484	^C
MUFG Captial Finance 1 Ltd.		6.346%	7/29/49		240		228	^B
TNK-BP Finance SA		6.875%	7/18/11		370		367	^C

							1,079

Diversified Telecommunication Services	2.3%
British Telecommunications PLC		8.625%	12/15/10		400		440	^D
Deutsche Telekom International Finance BV		8.000%	6/15/10		400		428
France Telecom SA		7.750%	3/1/11		400		430	^D
Koninklijke (Royal) KPN NV		8.000%	10/1/10		400		430
Telefonica Emisiones S.A.U.		5.888%	6/19/09		410		410	^A
Telefonica Emisiones S.A.U.		5.690%	2/4/13		400		393	^A

							2,531

188

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR			VALUE

Yankee Bonds—Continued

Foreign Governments	0.4%
Russian Federation		3.000%	5/14/08	$	180		$	177
Russian Federation		8.250%	3/31/10		27			28	^C
Russian Federation		8.250%	3/31/10		247			256	^C

								461

Health Care Equipment and Supplies	0.2%
Baxter Finco BV		4.750%	10/15/10		260			260


Industrial Conglomerates	0.3%
Tyco International Group SA		6.375%	10/15/11		300			307


Metals and Mining	0.6%
Vale Overseas Ltd.		6.250%	1/23/17		620			627


Oil, Gas and Consumable Fuels	0.7%
Anadarko Finance Co.		6.750%	5/1/11		700			731

Total Yankee Bonds (Cost—$10,391)								10,358

Total Long-Term Securities (Cost—$131,280)								130,015
Short-Term Securities	0.2%

U.S. Government and Agency Obligations	0.2%
Fannie Mae		0.000%	3/17/08		200			196	^K,L
Fannie Mae		0.000%	3/27/08		32			31	^K

								227

Options Purchased^M	N.M.
Deutsche Bank Swaption Call, November 2007, Strike Price $5.27					2,200,000	^N		44

Total Short-Term Securities (Cost—$244)								271
Total Investments (Cost—$131,524)^O	120.3%							130,286
Other Assets Less Liabilities	(20.3)%							(21,962	)


Net Assets	100.0%						$	108,324

189

Semi-Annual Report to Shareholders

Portfolio of Investments—Continued

Western Asset Limited Duration Bond Portfolio—Continued


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^M
Eurodollar Futures	December 2007	25	$	17
U.S. Treasury Note Futures	December 2007	231		238

			$	255

Futures Contracts Written^M
U.S. Treasury Note Futures	December 2007	203	$	(104	)
U.S. Treasury Note Futures	December 2007	128		(70	)

			$	(174	)

N.M.—Not Meaningful.

Credit Linked Security – The rates of interest earned on these securities are tied to the credit rating assigned by Standard & Poor’s Rating Service and/or Moody’s Investors Services.

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

Amount less than $0.05.

Amount less than $1.

The coupon rates shown on variable rate securities are the rates at September 30, 2007. These rates vary with the weighted average coupon of the underlying loans.

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

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

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

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

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

Par represents actual number of contracts.


Gross unrealized appreciation	$	464
Gross unrealized depreciation		(1,702	)

Net unrealized appreciation/(depreciation)	$	(1,238	)

See notes to financial statements.

190

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Limited Duration Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$131,280)			$	130,015
Short-term securities at value (Cost—$244)				271
Cash				160
Receivable for securities sold				13,865
Receivable for fund shares sold				1,395
Interest receivable				810
Futures variation margin receivable				6
Other assets				50

Total assets				146,572


Liabilities:
Payable for securities purchased	$	38,038
Payable for fund shares repurchased		1
Accrued management fee		21
Income distribution payable		1
Swap contracts at value		123
Amounts payable on swaps		26
Accrued expenses		38

Total liabilities				38,248


Net Assets			$	108,324


Net assets consist of:
Accumulated paid-in-capital			$	110,981
Undistributed net investment income				40
Accumulated net realized loss on investments, options, futures and swaps				(1,490	)
Net unrealized depreciation on investments, futures and swaps				(1,207	)


Net Assets			$	108,324


Net Asset Value Per Share:
Institutional Class (11,181 shares outstanding)				$9.69

See notes to financial statements.

191

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Limited Duration Bond Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	2,918
Expenses:
Management fees	$	181
Audit and legal fees		28
Custodian fees		20
Directors’ fees and expenses		1
Registration fees		12
Reports to shareholders		7
Transfer agent and shareholder servicing expense:
Institutional Class		7
Other expenses		13

		269
Less: Fees waived		(61	)
Compensating balance credits		(1	)

Net expenses					207

Net Investment Income					2,711
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		6
Options		24
Futures		(535	)
Swaps		(279	)

					(784	)
Change in unrealized appreciation/depreciation of investments, futures and swaps					(1,288	)

Net Realized and Unrealized Loss on Investments					(2,072	)

Change in Net Assets Resulting From Operations				$	639

See notes to financial statements.

192

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	2,711		$	3,946

Net realized loss		(784	)		(158	)

Change in unrealized appreciation/depreciation		(1,288	)		841

Change in net assets resulting from operations		639			4,629

Distributions to shareholders from:
Net investment income:
Institutional Class		(2,705	)		(3,944	)

Change in net assets from fund share transactions:
Institutional Class		17,990			17,572

Change in net assets		15,924			18,257

Net Assets:
Beginning of period		92,400			74,143


End of period	$	108,324		$	92,400


Under distributions of net investment income	$	40		$	34

See notes to financial statements.

193

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Limited Duration Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004^A
	(Unaudited)
Net asset value, beginning of period	$	9.88		$	9.80		$	9.89		$	10.09		$	10.00

Investment operations:
Net investment income		.26	^B		.47	^B		.38			.24			.08
Net realized and unrealized gain/(loss)		(.19	)		.08			(.09	)		(.17	)		.09

Total from investment operations		.07			.55			.29			.07			.17

Distributions from:
Net investment income		(.26	)		(.47	)		(.38	)		(.25	)		(.08	)
Net realized gain on investments		—			—			—			(.02	)		—

Total distributions		(.26	)		(.47	)		(.38	)		(.27	)		(.08	)

Net asset value, end of period	$	9.69		$	9.88		$	9.80		$	9.89		$	10.09

Total return		.67	%^C		5.73	%		3.01	%		.69	%		1.69	%^C

Ratios to Average Net Assets:^D
Total expenses		.52	%^E		.58	%		.68	%		.73	%		.68	%^E
Expenses net of waivers, if any		.40	%^E		.40	%		.40	%		.40	%		.40	%^E
Expenses net of all reductions		.40	%^E		.40	%		.40	%		.40	%		.40	%^E
Net investment income		5.2	%^E		4.8	%		3.9	%		2.4	%		1.6	%^E

Supplemental Data:
Portfolio turnover rate		162.0	%^C		270.5	%		244.7	%		231.5	%		125.5	%
Net assets, end of period (in thousands)	$	108,324		$	92,400		$	74,143		$	37,426		$	26,182

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

Computed using average daily shares outstanding.

Not annualized.

Annualized.

See notes to financial statements.

194

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 4/1/07		Ending Account Value 9/30/07		Expenses Paid^A During the Period 4/1/07 to 9/30/07
Institutional Class:
Actual	$	1,000.00	$	1,009.70	$	2.77
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 During the Period” 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.

195

Semi-Annual Report to Shareholders

Performance Information

Western Asset Non-U.S. Opportunity 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. 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.

196

Semi-Annual Report to Shareholders

Portfolio Composition (as of September 30, 2007)

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.

197

Semi-Annual Report to Shareholders

Portfolio of Investments

Western Asset Non-U.S. Opportunity Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Long-Term Securities	90.2%

Corporate Bonds and Notes	26.7%

Capital Markets	1.0%
Lehman Brothers Holdings Inc.		4.625%	3/14/19	1,300	EUR	$	1,682	^A


Commercial Banks	8.5%
Alliance and Leicester PLC		5.000%	10/4/10	1,200	EUR		1,692
Banco Popolare di Verona e Novara Scrl		6.156%	6/29/49	1,000	EUR		1,353	^A
Commerzbank Capital Funding Trust		5.012%	3/29/49	550	EUR		717	^A
Deutsche Postbank IV		5.983%	6/29/49	1,150	EUR		1,549	^A
Dexia Municipal Agency		1.550%	10/31/13	282,000	JPY		2,469
European Investment Bank		4.250%	12/7/10	2,280	GBP		4,504
Fortis Bank SA/NV		5.757%	10/4/17	706	EUR		1,013
HSH Nordbank Luxembourg		7.408%	6/29/49	1,100	EUR		1,605	^A

							14,902

Diversified Financial Services	14.6%
Banca Italease SpA		4.499%	2/11/08	100	EUR		141	^B
Banca Italease SpA		4.911%	5/27/08	200	EUR		283	^B
Banca Italease SpA		4.904%	3/2/09	50	EUR		69	^B
Banca Italease SpA		4.459%	10/15/09	50	EUR		68	^B
Banca Italease SpA		4.460%	2/2/10	250	EUR		336	^B
Banca Italease SpA		4.914%	11/23/10	200	EUR		264	^B
Banca Italease SpA		4.609%	2/8/12	50	EUR		66	^B
Banca Italease SpA		5.000%	3/14/12	50	EUR		67	^B
Caisse Refinancement de l’Habitat		4.200%	4/25/11	2,000	EUR		2,833
Eksportfinans ASA		1.600%	3/20/14	365,000	JPY		3,206
Eurohypo Capital Funding Trust 1		6.445%	5/29/49	61	EUR		89	^A
Irish Nationwide Building Society		5.875%	12/15/08	200	GBP		407
Japan Finance Corp. for Municipal Enterprises		1.350%	11/26/13	181,000	JPY		1,575
Kreditanstalt fuer Wiederaufbau		5.250%	1/4/10	1,800	EUR		2,617
Kreditanstalt fuer Wiederaufbau		2.050%	2/16/26	570,000	JPY		4,851
Kreditanstalt fuer Wiederaufbau		2.600%	6/20/37	106,000	JPY		944
Landesbank Hessen-Thueringen Girozentrale		5.375%	3/7/12	200	GBP		405
Network Rail MTN Finance PLC		4.875%	3/6/09	3,000	GBP		6,084
Resona Bank Ltd.		4.125%	9/29/49	200	EUR		261	^A,C
SNS Reaal		6.258%	7/17/17	650	EUR		905	^A

							25,471

198

Semi-Annual Report to Shareholders


	% OF NET ASSETS	RATE	MATURITY DATE	PAR†		VALUE

Corporate Bonds and Notes—Continued

Diversified Telecommunication Services	0.4%
British Telecommunications PLC		5.250%	6/23/14	274	EUR	$	391
Telecom Italia SpA		5.250%	3/17/55	200	EUR		228

							619

Insurance	1.0%
AXA SA		5.777%	7/29/49	200	EUR		285	^A
Mapfre SA		5.921%	7/24/37	400	EUR		570	^A
Muenchener Rueckversicherungs-Gesellschaft AG (MunichRe)		5.767%	6/29/49	700	EUR		980	^A

							1,835

Pharmaceuticals	0.5%
AstraZeneca PLC		5.125%	1/15/15	639	EUR		917


Thrifts and Mortgage Finance	0.3%
Hypo Real Estate International Trust I		5.864%	6/14/49	350	EUR		442	^A


Tobacco	0.4%
BAT International Finance PLC		5.375%	6/29/17	500	EUR		708

Total Corporate Bonds and Notes (Cost—$42,218)							46,576
U.S. Government and Agency Obligations	0.8%

Fixed Rate Securities	0.8%
Freddie Mac		5.750%	9/15/10	900	EUR		1,329

Total U.S. Government and Agency Obligations (Cost—$867)							1,329
Foreign Government Obligations	62.7%
Canadian Real Return Bond		4.500%	6/1/15	4,348	CAD		4,429	^D
Canadian Real Return Bond		4.000%	12/1/31	196	CAD		269	^D
Federal Republic of Germany		4.125%	7/4/08	6,720	EUR		9,586
Federal Republic of Germany		3.500%	10/10/08	2,130	EUR		3,021
Federal Republic of Germany		3.500%	4/8/11	2	EUR		3
Federal Republic of Germany		4.750%	7/4/34	2,390	EUR		3,482
France Government Bond OAT		4.000%	4/25/55	7,760	EUR		9,787
Government of Canada		4.000%	6/1/16	4,130	CAD		4,065
Government of Poland		5.000%	10/24/13	2,550	PLN		934
Government of Poland		6.250%	10/24/15	7,204	PLN		2,818
Government of Poland		5.750%	9/23/22	8,680	PLN		3,303

199

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†			VALUE

Foreign Government Obligations—Continued
Japan Development Bank		2.300%	3/19/26		560,000	JPY	$	4,952
Kingdom of Denmark		5.000%	11/15/13		17,460	DKK		3,457
Kingdom of Norway		6.500%	5/15/13		10,000	NOK		2,007
Kingdom of Norway		5.000%	5/15/15		29,280	NOK		5,465
Kingdom of Norway		4.250%	5/19/17		9,370	NOK		1,643
Kingdom of Spain		5.750%	7/30/32		1,970	EUR		3,245
Kingdom of the Netherlands		4.500%	7/15/17		2,500	EUR		3,588
Kingdom of the Netherlands		5.500%	1/15/28		1,270	EUR		2,014
Queensland Treasury Corp.		6.000%	6/14/11		16,640	AUD		14,413	^D
Republic of France		5.000%	10/25/16		1,419	EUR		2,114	^D
Republic of France		4.750%	4/25/35		2,220	EUR		3,211	^D
United Kingdom of Great Britain and Northern Ireland		8.000%	6/7/21		960	GBP		2,550
United Kingdom Treasury Stock		5.000%	3/7/12		9,350	GBP		19,114


Total Foreign Government Obligations (Cost—$99,946)								109,470

Total Long-Term Securities (Cost—$143,031)								157,375
Short-Term Securities	1.7%

Options Purchased^E	0.3%
U.S. Treasury Note Futures Call, December 2007, Strike Price $107.00					714	^F		547

								547

Repurchase Agreement	1.4%
Goldman Sachs & Company 4.85%, dated 9/28/07, to be repurchased at $2,459 on 10/1/07 (Collateral: $2,385 Federal Home Loan Bank notes, 5.375%, due 5/18/16, value $2,507)				$	2,458			2,458

Total Short-Term Securities (Cost—$3,252)								3,005
Total Investments (Cost—$146,283)^H	91.9%							160,380
Other Assets Less Liabilities	8.1%							14,113


Net Assets	100.0%						$	174,493

200

Semi-Annual Report to Shareholders


	EXPIRATION	ACTUAL CONTRACTS	APPRECIATION/ (DEPRECIATION)
Futures Contracts Purchased^E
Bundesobligations Futures	December 2007	99	$	—	^G
Euro Currency Futures	December 2007	1		—	^G
LIBOR Futures	March 2008	109		61

			$	61

Futures Contracts Written^E
Bundesobligations Futures	December 2007	49	$	42
U.S. Treasury Note Futures	December 2007	40		(8	)
United Kingdom Treasury Bond Futures	December 2007	6		(1	)

			$	33

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

Par represents actual number of contracts.

Amount less than $1.


Gross unrealized appreciation	$	14,480
Gross unrealized depreciation		(383	)

Net unrealized appreciation/(depreciation)	$	14,097

^†

Securities are denominated in U.S. Dollars, unless otherwise noted.

AUD—Australian Dollar

CAD—Canadian Dollar

DKK—Danish Krone

EUR—Euro

GBP—British Pound

JPY—Japanese Yen

NOK—Norwegian Krone

PLN—Polish Zloty

See notes to financial statements.

201

Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Western Asset Non-U.S. Opportunity Bond Portfolio

September 30, 2007 (Unaudited)

(Amounts in Thousands)


Assets:
Investment securities at market value (Cost—$143,031)			$	157,375
Short-term securities at value (Cost—$3,252)				3,005
Cash				1,950
Foreign currency at value (Cost—$11,861)				11,934
Receivable for securities sold				7,896
Receivable for fund shares sold				2,223
Interest receivable				2,577
Futures variation margin receivable				70

Total assets				187,030


Liabilities:
Payable for securities purchased	$	7,969
Payable for fund shares repurchased		398
Accrued management fee		55
Unrealized depreciation of forward foreign currency contracts		4,063
Accrued expenses		52

Total liabilities				12,537


Net Assets			$	174,493


Net assets consist of:
Accumulated paid-in-capital			$	167,058
Undistributed net investment income				4,356
Accumulated net realized loss on investments, futures and foreign currency transactions				(7,368	)
Unrealized appreciation of investments, futures and foreign currency translations				10,447


Net Assets			$	174,493


Net Asset Value Per Share:
Institutional Class (17,735 shares outstanding)				$9.84

See notes to financial statements.

202

Semi-Annual Report to Shareholders

Statement of Operations

Western Asset Non-U.S. Opportunity Bond Portfolio

For the Six Months Ended September 30, 2007 (Unaudited)

(Amounts in Thousands)


Investment Income:
Interest				$	3,631
Expenses:
Management fees	$	384
Audit and legal fees		30
Custodian fees		43
Directors’ fees and expenses		3
Registration fees		14
Reports to shareholders		6
Transfer agent and shareholder servicing expense:
Institutional Class		10
Other expenses		22

		512
Less: Fees waived		(42	)
Compensating balance credits		—	^A

Net expenses					470

Net Investment Income					3,161
Net Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Investments		(1,154	)
Futures		(129	)
Foreign currency transactions		(5,962	)
Options		(123	)

					(7,368	)
Change in unrealized appreciation/depreciation of:
Investments, futures and foreign currency translations		6,161
Assets and liabilities denominated in foreign currency		(372	)

					5,789

Net Realized and Unrealized Loss on Investments					(1,579	)

Change in Net Assets Resulting From Operations				$	1,582

Amount less than $1.

See notes to financial statements.

203

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, 2007			FOR THE YEAR ENDED MARCH 31, 2007
Change in Net Assets:	(Unaudited)
Net investment income	$	3,161		$	4,930

Net realized loss		(7,368	)		(979	)

Change in unrealized appreciation/depreciation		5,789			1,220

Change in net assets resulting from operations		1,582			5,171

Distributions to shareholders from:
Net investment income:
Institutional Class		—			(2,138	)

Net realized gain on investments:
Institutional Class		(73	)		—

Change in net assets from fund share transactions:
Institutional Class		(4,324	)		83,854

Change in net assets		(2,815	)		86,887

Net Assets:
Beginning of period		177,308			90,421


End of period	$	174,493		$	177,308


Under distributions of net investment income	$	4,356		$	1,195

See notes to financial statements.

204

Semi-Annual Report to Shareholders

Financial Highlights

Western Asset Non-U.S. Opportunity Bond Portfolio

For a share of each class of capital stock outstanding:

Institutional Class:


	SIX MONTHS ENDED SEPTEMBER 30, 2007			YEARS ENDED MARCH 31,
	SIX MONTHS ENDED SEPTEMBER 30, 2007			2007			2006			2005			2004			2003
	(Unaudited)
Net asset value, beginning of period	$	9.75		$	9.59		$	10.98		$	10.52		$	10.91		$	9.25

Investment operations:
Net investment income		.18	^A		.36	^A		.64			.19			.97			.25
Net realized and unrealized gain/(loss)		(.09	)		—	^B		(.07	)		.57			(.01	)		1.52

Total from investment operations		.09			.36			.57			.76			.96			1.77

Distributions from:
Net investment income		—			(.20	)		(1.16	)		(.29	)		(1.01	)		(.11	)
Net realized gain on investments		—			—			(.80	)		(.01	)		(.34	)		—

Total distributions		—			(.20	)		(1.96	)		(.30	)		(1.35	)		(.11	)

Net asset value, end of period	$	9.84		$	9.75		$	9.59		$	10.98		$	10.52		$	10.91

Total return		.97	%^C		3.89	%		5.33	%		7.60	%		9.06	%		19.26	%

Ratios to Average Net Assets:^D
Total expenses		.60	%^E		.64	%		.74	%		.68	%		.80	%		.82	%
Expenses net of waivers, if any		.55	%^E		.55	%		.55	%		.55	%		.55	%		.55	%
Expenses net of all reductions		.55	%^E		.55	%		.55	%		.55	%		.55	%		.55	%
Net investment income		3.7	%^E		3.7	%		3.3	%		3.2	%		4.0	%		4.4	%

Supplemental Data:
Portfolio turnover rate		40.4	%^C		117.9	%		140.1	%		40.8	%		42.8	%		187.5	%
Net assets, end of period (in thousands)	$	174,493		$	177,308		$	90,421		$	89,170		$	97,027		$	59,026

Computed using average daily shares outstanding.

Amount less than $.01 per share.

Not annualized.

Annualized.

See notes to financial statements.

205

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

Each Fund offers two classes of shares: Institutional Class and Financial Intermediary Class. Shares in the Financial Intermediary Class bear a distribution fee. The Financial Intermediary Class shares of Limited Duration, Intermediate, Intermediate Plus, 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 shareholder servicing expenses, and certain other 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 those estimates. The following is a summary of significant accounting policies followed by each Fund in the preparation of its 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 Absolute Return, Core Plus, High Yield, Inflation Indexed, Intermediate Plus and Non-U.S., where a security is traded on more than one market, which may include foreign markets, the securities are generally valued on the market considered by the Funds’ adviser to be the primary market. The Funds will value their foreign securities in U.S. dollars on the basis of the then-prevailing exchange rates.

Security Transactions

Security transactions are 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, 2007, security transactions (excluding short-term investments) were:


	Purchases				Proceeds From Sales
	U.S. Gov’t Securities		Other		U.S. Gov’t Securities		Other
Absolute Return	$	881,825	$	117,956	$	728,372	$	18,493
Core		20,107,817		1,047,994		19,099,050		360,269
Core Plus		34,759,663		2,679,843		32,295,654		1,253,592
High Yield		8,428		339,643		8,433		218,598
Inflation Indexed		333,449		16,230		262,692		2,297
Intermediate		560,496		177,261		538,388		101,214
Intermediate Plus		100,839		16,482		101,619		16,977
Limited Duration		182,888		31,799		170,585		15,265
Non-U.S.		—		70,790		—		61,077

206

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 investment securities.

Repurchase Agreements

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

Options, Futures and Swap Agreements

The current market value of an exchange traded option is the last sale price or, in the absence of a sale, the price obtained by reference to broker-dealer quotations. 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 the contract’s value fluctuates, payments known as variation margin are made or received by the 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 generally priced daily based upon quotations from brokers and the change, if any, is recorded as unrealized appreciation or depreciation.

Investment Income and Distributions to Shareholders

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 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 December 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

207

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

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 each Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments.

Credit and Market Risk

Investments in structured securities collateralized by residential real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value of these investments resulting in a lack of correlation between their credit ratings and values.

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:

It is the Funds’ policy to continue to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute substantially all of their income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required in the Funds’ financial statements. Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates. 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, 2007.

3. Financial Instruments:

Forward Currency Exchange Contracts

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

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

The use of forward foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the Funds’ securities, but it does establish a rate of exchange that can be achieved in the future. These 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 Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts.

208

Semi-Annual Report to Shareholders

At September 30, 2007, open forward currency exchange contracts (expressed in the contractual currency) were:

Absolute Return


Broker	Settlement Date	Contract to				Unrealized Gain/(Loss)
Broker	Settlement Date	Receive		Deliver		Unrealized Gain/(Loss)
Citibank NA	11/7/07	EUR	23	USD	32		1
Credit Suisse First Boston	11/7/07	JPY	380,220	USD	3,192		137
Citibank NA	11/7/07	JPY	1,008,284	USD	8,461		367
Citibank NA	11/7/07	USD	1,103	CAD	1,150		(56	)
Credit Suisse First Boston	11/7/07	USD	1,581	GBP	768		13
Citibank NA	11/7/07	USD	4,857	GBP	2,377		3
Citibank NA	11/7/07	USD	2,042	JPY	233,910		(6	)

						$	459

Core Plus


Broker	Settlement Date	Contract to				Unrealized Gain/(Loss)
Broker	Settlement Date	Receive		Deliver		Unrealized Gain/(Loss)
Credit Suisse First Boston	11/7/07	AUD	1,610	USD	1,417	$	8
Goldman Sachs International	11/7/07	EUR	28,857	USD	39,976		1,218
Deutsche Bank AG London	11/7/07	JPY	6,594,775	USD	55,407		2,336
Credit Suisse First Boston	11/7/07	JPY	6,924,498	USD	58,125		2,505
UBS AG London	11/7/07	JPY	3,680,000	USD	30,864		1,358
Morgan Stanley London FX	11/7/07	JPY	13,222,000	USD	111,079		4,690
UBS AG London	11/7/07	USD	20,079	CAD	20,929		(1,005	)
JPMorgan Chase Bank	11/7/07	USD	49,343	CAD	51,481		(2,521	)
UBS AG London	11/7/07	USD	5,463	EUR	3,945		(169	)
Credit Suisse First Boston	11/7/07	USD	37,668	EUR	27,191		(1,147	)
Citibank NA	11/7/07	USD	16,024	EUR	16,024		(666	)

						$	6,607

Inflation Indexed


Broker	Settlement Date	Contract to				Unrealized Gain/(Loss)
Broker	Settlement Date	Receive		Deliver		Unrealized Gain/(Loss)
UBS AG London	11/7/07	CAD	6,462	USD	6,200	$	310
Morgan Stanley London FX	11/7/07	EUR	2,834	USD	3,927		119
Deutsche Bank AG London	11/7/07	JPY	564,264	USD	4,741		200
Credit Suisse First Boston	11/7/07	JPY	278,245	USD	2,336		101
Deutsche Bank AG London	11/7/07	USD	7,832	CAD	8,166		(394	)
Credit Suisse First Boston	11/7/07	USD	5,846	CAD	6,100		(299	)
Citibank NA	11/7/07	USD	1,830	EUR	1,320		(55	)
Credit Suisse First Boston	11/7/07	USD	2,482	EUR	1,792		(76	)
Deutsche Bank AG London	11/7/07	USD	1,939	SEK	12,850		(59	)
UBS AG London	11/7/07	USD	883	SEK	5,837		(24	)

						$	(177	)

209

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Intermediate Plus


Broker	Settlement Date	Contract to				Unrealized Gain/(Loss)
Broker	Settlement Date	Receive		Deliver		Unrealized Gain/(Loss)
Credit Suisse First Boston	11/7/07	AUD	289	USD	255	$	1
UBS AG London	11/7/07	EUR	664	USD	918		28
Credit Suisse First Boston	11/7/07	EUR	660	USD	912		30
Citibank NA	11/7/07	EUR	660	USD	915		27
Credit Suisse First Boston	11/7/07	JPY	157,122	USD	1,335		41
UBS AG London	11/7/07	USD	239	AUD	272		(1	)
Citibank NA	11/7/07	USD	633	EUR	456		(19	)
Credit Suisse First Boston	11/7/07	USD	306	EUR	221		(9	)
UBS AG London	11/7/07	USD	913	EUR	660		(29	)
Citibank NA	11/7/07	USD	1,900	EUR	1,380		(70	)
Credit Suisse First Boston	11/7/07	USD	676	GBP	328		5
Credit Suisse First Boston	11/7/07	USD	1,383	JPY	159,000		(9	)

						$	(5	)

Non-US


Broker	Settlement Date	Contract to				Unrealized Gain/(Loss)
Broker	Settlement Date	Receive		Deliver		Unrealized Gain/(Loss)
UBS AG London	11/7/07	AUD	2,000	USD	1,761	$	9
UBS AG London	11/7/07	DKK	12,386	USD	2,306		66
Morgan Stanley London FX	11/7/07	EUR	594	USD	824		25
Citibank NA	11/7/07	GBP	1,212	USD	2,495		(20	)
Morgan Stanley London FX	11/7/07	JPY	41,140	USD	346		14
Deutsche Bank AG London	11/7/07	JPY	650,000	USD	5,652		39
UBS AG London	11/7/07	NOK	2,238	USD	391		24
Credit Suisse First Boston	11/7/07	SEK	12,242	USD	1,853		50
Goldman Sachs International	11/7/07	USD	16,964	AUD	19,236		(70	)
Goldman Sachs International	11/7/07	USD	1,337	CAD	1,391		(64	)
Credit Suisse First Boston	11/7/07	USD	7,185	CAD	7,497		(367	)
JPMorgan Chase Bank	11/7/07	USD	1,797	CAD	1,875		(92	)
JPMorgan Chase Bank	11/7/07	USD	3,851	DKK	20,691		(111	)
Citibank NA	11/7/07	USD	2,076	DKK	11,155		(60	)
Citibank NA	11/7/07	USD	26,557	EUR	19,161		(796	)
Deutsche Bank AG London	11/7/07	USD	288	EUR	208		(9	)
JPMorgan Chase Bank	11/7/07	USD	25,063	EUR	18,086		(755	)
UBS AG London	11/7/07	USD	19,030	EUR	13,743		(588	)
Goldman Sachs International	11/7/07	USD	513	GBP	250		3
Deutsche Bank AG London	11/7/07	USD	25,593	GBP	12,433		199
Credit Suisse First Boston	11/7/07	USD	9,150	GBP	4,442		77
UBS AG London	11/7/07	USD	2,270	GBP	1,104		14
JPMorgan Chase Bank	11/7/07	USD	2,987	GBP	1,450		25
Goldman Sachs International	11/7/07	USD	8,344	JPY	1,000,000		(411	)
Citibank NA	11/7/07	USD	10,001	JPY	1,191,731		(434	)
Deutsche Bank AG London	11/7/07	USD	2,041	JPY	237,440		(37	)
Goldman Sachs International	11/7/07	USD	1,800	JPY	204,190		12
Deutsche Bank AG London	11/7/07	USD	7,018	NOK	40,060		(408	)
Citibank NA	11/7/07	USD	2,312	NOK	13,219		(139	)
Citibank NA	11/7/07	USD	7,255	PLN	19,741		(223	)

						$	(4,027	)

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

210

Semi-Annual Report to Shareholders

Loan Participations and Assignments

The Funds 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.

Options and Futures

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

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


Purchased option:		Impact on the Fund:
The option expires		Realize a loss in the amount of the cost of the option.
The option is closed through a closing sale transaction		Realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option.
The Fund exercises a call option		The cost of the security purchased through the exercise of the option will be increased by the premium originally paid to purchase the option.
The Fund exercises a put option		Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be reduced by the premium originally paid to purchase the put option.

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

211

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

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

Activity in written call and put options during the six months ended September 30, 2007, was as follows:


Absolute Return	Actual Contracts		Premiums
Options outstanding at March 31, 2007	208		$	74
Options written	15,702,119			744
Options closed	(680	)		(204	)
Options expired	(14,900,654	)		(107	)
Options exercised	(800,316	)		(69	)

Options outstanding at September 30, 2007	677		$	438


Core	Actual Contracts		Premiums
Options outstanding at March 31, 2007	28,799		$	12,147
Options written	276,176,389			36,016
Options closed	(29,730	)		(13,279	)
Options expired	(150,390,298	)		(14,465	)
Options exercised	(81,911,958	)		(4,567	)

Options outstanding at September 30, 2007	43,873,202		$	15,852


Core Plus	Actual Contracts		Premiums
Options outstanding at March 31, 2007	48,443		$	20,217
Options written	800,067,239			71,223
Options closed	(48,781	)		(22,745	)
Options expired	(577,542,949	)		(27,082	)
Options exercised	(133,727,034	)		(9,044	)

Options outstanding at September 30, 2007	88,796,918		$	32,569


Inflation Indexed	Actual Contracts		Premiums
Options outstanding at March 31, 2007	177		$	79
Options written	659			183
Options closed	(88	)		(39	)
Options expired	—			—
Options exercised	(89	)		(40	)

Options outstanding at September 30, 2007	659		$	183


Intermediate	Actual Contracts		Premiums
Options outstanding at March 31, 2007	47,700,450		$	169
Options written	109,919,247			974
Options closed	(5,100,836	)		(230	)
Options expired	(46,280,000	)		(80	)
Options exercised	(44,400,386	)		(211	)

Options outstanding at September 30, 2007	61,838,475		$	622

212

Semi-Annual Report to Shareholders


Intermediate Plus	Actual Contracts		Premiums
Options outstanding at March 31, 2007	10,000,060		$	28
Options written	14,880,168			133
Options closed	(6,600,112	)		(40	)
Options expired	(6,680,000	)		(12	)
Options exercised	(2,800,052	)		(23	)

Options outstanding at September 30, 2007	8,800,064		$	86


Limited Duration	Actual Contracts		Premiums
Options outstanding at March 31, 2007	10,700,106		$	43
Options written	6,610,039			32
Options closed	(2,100,145	)		(48	)
Options expired	(8,010,000	)		(14	)
Options exercised	(7,200,000	)		(13	)

Options outstanding at September 30, 2007	—		$	—

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 Absolute Return, Core Plus, Inflation Indexed, Intermediate Plus, and Non-U.S. Opportunity, payment is not sent daily, but is recorded as a net payable or receivable by the Fund to or from the futures broker, which holds cash collateral from the Fund. The daily changes in contract value are recorded as unrealized gains or losses and each Fund recognizes a realized gain or loss when the contract is closed. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded.

The Funds enter into futures contracts for various reasons, including in connection with their interest rate management strategy. Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. The change in the value of 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, 2007 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.

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

213

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Commodity swaps, (denoted in the table on the following pages by a superscript 3), are agreements to exchange cash flows at specified intervals to gain investment exposure to the relevant spread of commodity reference prices. Total return swaps, (denoted in the table on the following pages by a superscript 4), 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 Fund will receive a payment from the counterparty. To the extent it is less, the Fund will make a payment to the counterparty. Periodic payments received or made by the Fund are recorded in the accompanying statements of operations as realized gains or losses, respectively.

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 restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the 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.

If the fund is a seller of protection and a credit event occurs, as defined under the terms of the particular swap agreement, the portfolio will pay to the buyer of the protection an amount up to the notional value of the swap and in certain instances, take delivery of the security.

As of September 30, 2007, the one-and three-month London Interbank Offered Rates were 5.12% and 5.23%, respectively.

The Lehman Brothers US ABS AAA Floating Home Equities Index was 5.33%. The 28 day Mexican Interbank Deposit Rate was 7.68%.

The following is a summary of open swap contracts outstanding as of September 30, 2007.

Western Asset Absolute Return 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 LLC²

December 1, 2008

5.03%
Semi-Annually

3-month
LIBOR

100

—

Banc of America Securities LLC²

March 1, 2013

5.104%
Semi-Annually

3-month
LIBOR

100

)

Banc of America Securities LLC (Heinz Corp.,
6.428%, due 12/01/08)¹

December 20, 2008

0.165%
Quarterly

Specified amount upon credit event notice

100

—

Banc of America Securities LLC (PHH Corporate Note, 7.125%, due 3/1/13)¹

March 20, 2013

1.05%
Monthly

Specified amount upon credit event notice

110

Barclays Capital Inc.
(Cardinal Health Inc.
5.85%, due 12/15/17)¹

September 20, 2016

0.49%
Quarterly

Specified amount upon credit event notice

—

Barclays Capital Inc.
(General Motors Corp.
7.125%, due 7/15/13)¹

March 20, 2012

Specified amount upon credit event notice

3.45%
Quarterly

1,600

(68

)

Barclays Capital Inc.²

June 25, 2012

5.06%
Semi-Annually

3-month
LIBOR

)

Barclays Capital Inc.²

October 20, 2016

5.326%
Semi-Annually

3-month
LIBOR

)

214

Semi-Annual Report to Shareholders

Western Asset Absolute Return Bond Portfolio—Continued

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

800

(16

)

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

10,000

(120

)

Barclays Capital Inc.
(Countrywide Home Loans, Inc., 4%, due 3/22/11)¹

September 20, 2008

Specified amount upon credit event notice

4.8%
Quarterly

3,500

Barclays Capital Inc.
(Health Care Property Investments Inc.,
6.45%, due 06/25/12)¹

June 20, 2012

0.63%
Quarterly

Specified amount upon credit
event notice

Barclays Capital Inc.
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.35%
Quarterly

2,350

—

Barclays Capital Inc.
(The AES Corp.,
7.75%, due 3/1/14)¹

September 20, 2012

Specified amount upon credit event notice

3.15%
Quarterly

3,000

Barclays Capital Inc.
(The AES Corp.,
7.75%, due 3/1/14)¹

September 20, 2012

Specified amount upon credit event notice

3.65%
Quarterly

3,000

Barclays Capital Inc.
(TXU Corp.,
5.55%, due 11/15/14)¹

September 20, 2012

Specified amount upon credit event notice

2.97%
Quarterly

2,000

(128

)

Barclays Capital Inc.
(CDX HY 8)¹

June 20, 2012

2.75%
Quarterly

Specified amount upon credit

event notice

3,200

109

Bear Stearns, Inc.²

April 30, 2011

5.05%
Semi-Annually

3-month
LIBOR

100

)

Bear Stearns, Inc.
(Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2011

0.59%
Quarterly

Specified amount upon credit
event notice

100

)

Credit Suisse First Boston USA²

May 1, 2012

5.085%
Semi-Annually

3-month
LIBOR

—

Credit Suisse First Boston USA²

August 15, 2013

5.023%
Semi-Annually

3-month
LIBOR

—

Credit Suisse First Boston USA²

September 15, 2015

5.16%
Semi-Annually

3-month
LIBOR

—

Credit Suisse First Boston USA²

September 15, 2015

5.1285%
Semi-Annually

3-month
LIBOR

—

215

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued


Western Asset Absolute Return 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 (Amerisource Bergen Corp., 8.125%, due 9/1/08)¹	September 20, 2015	0.9% Monthly	Specified amount upon credit event notice	$	50	$	(1	)

Credit Suisse First Boston USA (Masco Corp., 5.875%, due 7/15/12)¹	September 20, 2013	0.75% Quarterly	Specified amount upon credit event notice		50		—

Credit Suisse First Boston USA (Starwood Hotels Resorts, 7.875%, due 8/25/34)¹	December 20, 2011	1.37% Quarterly	Specified amount upon credit event notice		50		(1	)

Credit Suisse First Boston USA (Vodafone Group, 7.75%, due 02/15/10)¹	September 20, 2015	0.54% Monthly	Specified amount upon credit event notice		100		—

Deutsche Bank AG (ABX. HE-AAA 06-2)¹	May 25, 2046	Specified amount upon credit event notice	0.11% Monthly		700		5

Lehman Brothers Holdings Inc.²	September 15, 2011	5.193% Semi-Annually	3-month LIBOR		150		(2	)

Lehman Brothers Holdings Inc. (Sara Lee Corp., 6.125%, due 11/01/32)¹	September 20, 2011	1.37% Quarterly	Specified amount upon credit event notice		150		(1	)

Morgan Stanley & Co., Inc. (Gannett Co., 6.375%, due 4/01/12)¹	March 20, 2012	1.37% Quarterly	Specified amount upon credit event notice		40		—

RBS Greenwich²	April 1, 2012	5.011% Semi-Annually	3-month LIBOR		40		—

				$	31,870	$	(96	)

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 LLC²

December 1, 2008

5.03%
Semi-Annually

3-month
LIBOR

6,650

(15

)

Banc of America Securities LLC²

March 1, 2013

5.104%
Semi-Annually

3-month
LIBOR

4,700

(40

)

Banc of America Securities LLC²

December 16, 2013

5.381%
Semi-Annually

3-month
LIBOR

2,740

(57

)

Banc of America Securities LLC²

November 10, 2015

4.864%
Semi-Annually

3-month
LIBOR

4,400

Banc of America Securities LLC²

January 15, 2016

5.45084%
Semi-Annually

3-month
LIBOR

2,750

(62

)

Banc of America Securities LLC²

October 3, 2016

5.425%
Semi-Annually

3-month
LIBOR

4,120

(81

)

216

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)

Banc of America Securities LLC
(Heinz Co.,
6.428%, due 12/01/08)¹

December 20, 2008

0.165%
Monthly

Specified amount upon credit event notice

6,650

)

Banc of America Securities LLC
(Home Depot Inc.,
3.75%, due 9/15/09)¹

December 20, 2013

0.635%
Quarterly

Specified amount upon credit event notice

2,740

Banc of America Securities LLC
(Marriot International Inc.,
4.625%, due 6/15/12)¹

December 20, 2015

0.73%
Monthly

Specified amount upon credit event notice

4,400

(45

)

Banc of America Securities LLC
(Masco Corp.,
5.875%, due 7/15/12)¹

December 20, 2016

1.04%
Quarterly

Specified amount upon credit event notice

4,120

)

Banc of America Securities LLC
(MBIA Global Funding LLC,
5.37563%, due 10/6/10)¹

September 20, 2008

Specified amount upon credit event notice

1.4%
Quarterly

9,810

Banc of America Securities LLC
(MBIA Global Funding LLC,
5.37563%, due 10/6/10)¹

September 20, 2008

Specified amount upon credit event notice

1.5%
Quarterly

6,440

Banc of America Securities LLC
(PHH Corporate Note,
7.125%, due 3/1/13)¹

March 20, 2013

1.05%
Monthly

Specified amount upon credit event notice

5,010

Banc of America Securities LLC
(Viacom Inc.,
4.625%, due 5/15/18)¹

December 20, 2015

1.13%
Quarterly

Specified amount upon credit event notice

2,750

(62

)

Barclays Capital Inc.²

November 1, 2011

5.439%
Semi-Annually

3-month
LIBOR

5,600

(131

)

Barclays Capital Inc.²

June 25, 2012

5.06%
Semi-Annually

3-month
LIBOR

3,550

(31

)

Barclays Capital Inc.²

September 15, 2012

5.189%
Semi-Annually

3-month
LIBOR

3,520

(45

)

Barclays Capital Inc.²

October 20, 2016

5.326%
Semi-Annually

3-month
LIBOR

3,530

(41

)

Barclays Capital Inc.
(Amerisourcebergen Corp.,
5.625%, due 9/15/12)¹

September 20, 2012

0.5%
Quarterly

Specified amount upon credit event notice

3,520

—

Barclays Capital Inc.
(Cardinal Health Inc.,
5.85%, due 12/15/17)¹

September 20, 2016

0.49%
Quarterly

Specified amount upon credit event notice

3,530

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

13,900

(276

)

217

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)

Barclays Capital Inc.
(Health Care Property Investments Inc.,
6.45%, due 06/25/12)¹

June 20, 2012

0.63%
Quarterly

Specified amount upon credit event notice

3,550

Barclays Capital Inc.
(Motorola Inc.,
6.5%, due 9/1/25)¹

December 20, 2011

0.32%
Quarterly

Specified amount upon credit event notice

5,600

)

Bear Stearns, Inc.²

April 30, 2011

5.05%
Semi-Annually

3-month
LIBOR

2,500

(24

)

Bear Stearns, Inc.²

September 15, 2014

5%
Semi-Annually

3-month
LIBOR

4,270

Bear Stearns, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

28,500

(687

)

Bear Stearns, Inc.
(ABX. HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

5,000

(75

)

Bear Stearns, Inc.
(ABX. HE-A 06-2)¹

May 25, 2046

Specified amount upon credit event notice

0.44%
Quarterly

25,000

(7,332

)

Bear Stearns, Inc.
(Bell South Corp.,
6%, due 10/15/11)¹

September 20, 2014

0.28%
Quarterly

Specified amount upon credit event notice

4,270

Bear Stearns, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

42,200

(93

)

Bear Stearns, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,300

(264

)

Bear Stearns, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,200

(267

)

Bear Stearns, Inc.
(Ford Motor Credit Company,
7%, due 10/1/13)¹

June 20, 2010

Specified amount upon credit event notice

4.83%
Quarterly

12,500

316

Bear Stearns, Inc.
(Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2011

0.59%
Quarterly

Specified amount upon credit event notice

2,500

(24

)

Bear Stearns, Inc.
(Washington Mutual Inc.,
5.25%, due 9/15/17)¹

March 20, 2017

Specified amount upon credit event notice

0.81%
Quarterly

9,600

218

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 USA²

August 15, 2010

5.446%
Semi-Annually

3-month
LIBOR

1,380

(27

)

Credit Suisse First Boston USA²

September 15, 2010

5.0025%
Semi-Annually

3-month
LIBOR

3,070

(22

)

Credit Suisse First Boston USA²

March 1, 2011

5.229%
Semi-Annually

3-month
LIBOR

2,110

(31

)

Credit Suisse First Boston USA²

May 1, 2012

5.085%
Semi-Annually

3-month
LIBOR

2,750

(27

)

Credit Suisse First Boston USA²

December 1, 2012

4.9025%
Semi-Annually

3-month
LIBOR

5,870

Credit Suisse First Boston USA²

August 15, 2013

5.0225%
Semi-Annually

3-month
LIBOR

3,020

(10

)

Credit Suisse First Boston USA²

March 15, 2014

5.131%
Semi-Annually

3-month
LIBOR

3,290

(22

)

Credit Suisse First Boston USA²

September 15, 2015

5.1285%

Semi-Annually

3-month
LIBOR

5,740

)

Credit Suisse First Boston USA²

September 15, 2015

5.16%
Semi-Annually

3-month
LIBOR

3,050

(11

)

Credit Suisse First Boston USA²

March 1, 2017

5.335%
Semi-Annually

3-month
LIBOR

2,420

(30

)

Credit Suisse First Boston USA
(AAMES Mortgage Investment
Trust 2005-1 M8 1-Month
LIBOR + 160 bp,
due 6/25/35)¹

June 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

784

245

Credit Suisse First Boston USA
(AAMES Mortgage Investment
Trust 2005-1 M9 1-Month
LIBOR + 250 bp,
due 6/25/35)¹

June 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

784

236

Credit Suisse First Boston USA
(ABX.HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

11,800

(262

)

Credit Suisse First Boston USA
(ABX.HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

6,400

)

Credit Suisse First Boston USA
(ABX.HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

1,300

)

219

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
(ACE Securities Corp.,
2005-HE1 M8 1-Month
LIBOR + 138 bp,
due 2/25/35)¹

February 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

784

167

Credit Suisse First Boston USA
(ACE Securities Corp.,
2005-HE1 M9 1-Month
LIBOR + 220 bp,
due 2/25/35)¹

February 25, 2035

2.06%
Monthly

Specified amount upon credit event notice

784

204

Credit Suisse First Boston USA
(Aegis Asset Backed
Securities Trust 2004-4 B2 1-Month LIBOR + 190 bp,
due 10/25/34)¹

October 25, 2034

1.37%
Monthly

Specified amount upon credit event notice

1,046

213

Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2005 B2 1Month
LIBOR + 130 bp,
due 3/25/35)¹

March 25, 2035

1.31%
Quarterly

Specified amount upon credit event notice

784

275

Credit Suisse First Boston USA (Aegis Asset Backed Securities Trust 2005 B3 1-Month
LIBOR + 200 bp,
due 3/25/35)¹

March 25, 2035

2.18%
Quarterly

Specified amount upon credit event notice

784

318

Credit Suisse First Boston USA (Amerisource Bergen Corp., 8.125%, due 9/1/08)¹

September 20, 2015

0.9%
Monthly

Specified amount upon credit event notice

3,050

(27

)

Credit Suisse First Boston USA
(Argent Securities Inc,
2004-W11 M10 1-Month
LIBOR + 350 bp,
due 11/25/34)¹

November 25, 2034

2.15%
Monthly

Specified amount upon credit event notice

784

127

Credit Suisse First Boston USA
(Argent Securities Inc,
2004-W11 M9 1-Month
LIBOR + 225 bp,
due 11/25/34)¹

November 25, 2034

1.33%
Monthly

Specified amount upon credit event notice

784

107

Credit Suisse First Boston USA
(Argent Securities Inc.,
2004-W4 M3 1-Month
LIBOR + 300 bp,
due 3/25/34)¹

March 25, 2034

2.2%
Monthly

Specified amount upon credit event notice

401

220

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
(ConocoPhillips,
4.75%, due 10/15/12)¹

September 20, 2012

Specified amount upon credit event notice

0.27%
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

1.4%
Quarterly

6,500

Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M8 1-Month LIBOR + 180 bp,
due 11/25/34)¹

November 25, 2034

1.31%
Monthly

Specified amount upon credit event notice

285

Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M9 1-Month LIBOR + 315 bp,
due 11/25/34)¹

November 25, 2034

2.18%
Monthly

Specified amount upon credit event notice

285

119

Credit Suisse First Boston USA
(Fremont Home Loan
Trust 2005-A, 1-Month
LIBOR + 135 bp,
due 1/25/35)¹

January 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

784

116

Credit Suisse First Boston USA
(Fremont Home Loan
Trust 2005-A,1-Month
LIBOR + 100 bp,
due 1/25/35)¹

January 25, 2035

2.08%
Monthly

Specified amount upon credit event notice

493

127

Credit Suisse First Boston USA
(Home Depot Inc.,
3.75%, due 9/15/09)¹

September 20, 2010

0.17%
Quarterly

Specified amount upon credit event notice

1,380

Credit Suisse First Boston USA
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.15%
Quarterly

Specified amount upon credit event notice

24,167

(41

)

Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M8, 1-Month LIBOR + 190 bp,
due 3/25/35)¹

March 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

784

193

Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M9, 1-Month LIBOR + 325 bp,
due 3/25/35)¹

March 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

784

213

221

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
(Limited Brands Inc.,
6.125%, due 12/01/12)¹

December 20, 2012

0.6%
Monthly

Specified amount upon credit event notice

5,870

Credit Suisse First Boston USA
(Long Beach Mortgage Loan
Trust 2004-1 M9 1-Month
LIBOR + 350 bp, due 2/25/34)¹

February 25, 2034

2.15%
Monthly

Specified amount upon credit event notice

315

Credit Suisse First Boston USA
(Long Beach Mortgage Loan
Trust 2005-1 M8 1-Month
LIBOR + 170 bp, due 2/25/35)¹

February 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

784

230

Credit Suisse First Boston USA
(Long Beach Mortgage Loan
Trust 2005-1 M9 1-Month
LIBOR + 275 bp, due 2/25/35)¹

February 25, 2035

2.08%
Monthly

Specified amount upon credit event notice

784

255

Credit Suisse First Boston USA
(Marsh & Mclennan Company, Inc.,
5.375%, due 7/15/14)¹

September 20, 2010

0.46%
Quarterly

Specified amount upon credit event notice

3,070

(20

)

Credit Suisse First Boston USA
(Masco Corp.,
5.875%, due 7/15/12)¹

September 20, 2013

0.75%
Monthly

Specified amount upon credit event notice

3,320

Credit Suisse First Boston USA
(MASTR Asset Backed Securities Trust 2005-NC1 M8 1-Month LIBOR + 153 bp, due 12/25/34)¹

December 25, 2034

1.31%
Monthly

Specified amount upon credit event notice

784

102

Credit Suisse First Boston USA
(MASTR Asset Backed Securities Trust 2005-NC1 M9 1-Month LIBOR + 240 bp, due 12/25/34)¹

December 25, 2034

2.08%
Monthly

Specified amount upon credit event notice

784

222

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B2 1-Month LIBOR + 135 bp, due 9/25/35)¹

September 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

784

165

222

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 + 375 bp, due 4/25/35)¹

April 25, 2035

2.15%
Monthly

Specified amount upon credit event notice

1,046

126

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-NC1 B2 1-Month LIBOR + 130 bp, due 10/25/35)¹

October 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

784

108

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-NC1 B3 1-Month LIBOR + 205 bp, due 10/25/35)¹

October 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

784

133

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-WMC1 B3 1-Month LIBOR + 225 bp, due 9/25/35)¹

September 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

784

114

Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B2 1-Month LIBOR + 130 bp, due 1/25/35)¹

January 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

784

146

Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B3 1-Month LIBOR + 215 bp, due 1/25/35)¹

January 25, 2035

2.18%
Monthly

Specified amount upon credit event notice

727

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2004-2 M9 1-Month LIBOR + 325 bp, due 8/25/34)¹

August 25, 2034

2.15%
Monthly

Specified amount upon credit event notice

1,046

169

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2005-1 M8 1-Month LIBOR + 140 bp, due 3/25/35)¹

March 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

784

105

223

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 M9 1-Month LIBOR + 205 bp, due 3/25/35)¹

March 25, 2035

2.18%
Monthly

Specified amount upon credit event notice

784

232

Credit Suisse First Boston USA
(Novastar Home Equity Loan
2005-1 B2 1-Month
LIBOR + 135 bp, due 6/25/35)¹

June 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

784

135

Credit Suisse First Boston USA
(Novastar Home Equity Loan
2005-4 B3 1-Month
LIBOR + 195 bp, due 6/25/35)¹

June 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

784

167

Credit Suisse First Boston USA
(Park Place Securities Inc.
2005-WCH1 M8 1-Month
LIBOR + 155 bp, due 1/25/36)¹

January 25, 2036

1.36%
Monthly

Specified amount upon credit event notice

784

256

Credit Suisse First Boston USA
(Park Place Securities Inc.
2005-WCH1 M9 1-Month
LIBOR + 250 bp, due 1/25/36)¹

January 25, 2036

2.18%
Monthly

Specified amount upon credit event notice

784

296

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2004-1 M6 1-Month LIBOR + 230 bp, due 6/25/34)¹

June 25, 2034

1.37%
Quarterly

Specified amount upon credit event notice

1,046

181

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2005-1 B3 1-Month LIBOR + 260 bp, due 1/25/35)¹

January 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

784

299

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2005-1, 1-Month LIBOR + 165 bp, due 1/25/35)¹

January 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

784

197

Credit Suisse First Boston USA
(Pulte Homes Inc.,
7.875%, due 8/1/11)¹

March 20, 2011

0.79%
Quarterly

Specified amount upon credit event notice

2,100

189

224

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
(Southwest Airlines Co.,
5.25%, due 10/1/14)¹

March 20, 2017

0.69%
Quarterly

Specified amount upon credit event notice

2,420

Credit Suisse First Boston USA
(Starwood Hotels,
7.875%, due 5/1/12)¹

December 20, 2011

1.37%
Monthly

Specified amount upon credit event notice

3,050

(66

)

Credit Suisse First Boston USA
(Vodafone Group,
7.75%, due 02/15/10)¹

September 20, 2015

0.54%
Monthly

Specified amount upon credit event notice

6,040

(11

)

Credit Suisse First Boston USA
(Waste Management Inc.,
7.375%, due 8/1/10)¹

March 20, 2014

0.49%
Quarterly

Specified amount upon credit event notice

3,290

(11

)

Deutsche Bank AG²

October 5, 2008

3-month
LIBOR

4.6545%
Semi-Annually

115,540

(199

)

Deutsche Bank AG²

June 17, 2010

3-month
LIBOR

4.3132%
Semi-Annually

31,430

(326

)

Deutsche Bank AG²

October 11, 2010

3-month
LIBOR

4.7077%
Semi-Annually

206,790

(17

)

Deutsche Bank AG²

July 13, 2011

3-month
LIBOR

5.6281%
Semi-Annually

83,870

2,461

Deutsche Bank AG²

June 15, 2016

5.1825%
Semi-Annually

3-month
LIBOR

5,620

(13

)

Deutsche Bank AG²

July 21, 2016

3-month
LIBOR

5.6931%
Semi-Annually

77,910

3,037

Deutsche Bank AG²

April 1, 2017

5.435%
Semi-Annually

3-month
LIBOR

4,120

(79

)

Deutsche Bank AG
(ABX AAA)¹

May 25, 2046

Specified amount upon credit event notice

0.11%
Monthly

7,600

Deutsche Bank AG
(ABX. HE-AAA 06-2)¹

May 25, 2046

Specified amount upon credit event notice

0.11%
Monthly

7,700

Deutsche Bank AG
(Autozone Inc.,
6.95%, due 6/15/16)¹

June 20, 2016

0.58%
Quarterly

Specified amount upon credit event notice

5,620

)

Deutsche Bank AG
(Centurytel Inc.,
7.875%, due 8/15/12)¹

March 20, 2017

0.89%
Quarterly

Specified amount upon credit event notice

4,120

(32

)

225

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
(Countrywide Home Loan Inc., 4%, due 3/22/11)¹

March 20, 2017

Specified amount upon credit event notice

0.94%
Quarterly

9,600

(581

)

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice

1.25%
Quarterly

1,100

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice

1.67%
Quarterly

1,300

(45

)

Deutsche Bank AG
(Fannie Mae,
6%, due 5/15/11)¹

December 20, 2009

Specified amount upon credit event notice

0.215%
Quarterly

11,700

Deutsche Bank AG
(Ford Motor Credit Company,
7%, due 10/1/13)¹

December 20, 2010

Specified amount upon credit event notice

5.05%
Quarterly

17,100

563

Deutsche Bank AG
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

March 20, 2015

Specified amount upon credit event notice

2.93%
Quarterly

1,700

(242

)

Deutsche Bank AG
(Freddie Mac,
5%, due 7/15/14)¹

March 20, 2015

Specified amount upon credit event notice

0.29%
Quarterly

15,600

Deutsche Bank AG
(iBoxx 30 Hi-Vol)¹

March 20, 2009

1.25%
Quarterly

Specified amount upon credit event notice

7,153

Deutsche Bank AG
(iBoxx IG Hi-Vol)¹

March 20, 2009

Specified amount upon credit event notice

1.25%
Quarterly

9,415

Deutsche Bank AG
(iBoxx IG Hi-Vol2)¹

September 20, 2014

Specified amount upon credit event notice

1.3%
Quarterly

8,043

(44

)

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

0.6%
Quarterly

Specified amount upon credit event notice

7,400

(48

)

JP Morgan Chase & Co.²

June 8, 2009

3-month LIBOR

5.393%
Semi-Annually

157,400

1,686

JP Morgan Chase & Co.²

December 1, 2012

5.275%
Semi-Annually

3-month
LIBOR

3,550

(59

)

JP Morgan Chase & Co.²

September 7, 2016

5.3215%
Semi-Annually

3-month
LIBOR

35,900

(389

)

226

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.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

29,100

(571

)

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

38,900

(703

)

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

45,250

(1,091

)

JP Morgan Chase & Co.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

6%
Quarterly

10,500

512

JP Morgan Chase & Co.
(Limited Brands Inc.,
6.125%, due 12/1/12)¹

December 20, 2012

0.67%
Quarterly

Specified amount upon credit event notice

3,550

Lehman Brothers Holdings Inc.²

October 7, 2007

3-month
LIBOR

4.6012%
Semi-Annually

630

—

Lehman Brothers Holdings Inc.⁴

January 1, 2008

1-month
LIBOR

LEHM U.S. ABS AAA
Floating Home Equities Index

26,400

258

Lehman Brothers Holdings Inc.⁴

March 1, 2008

1-month
LIBOR

MBS Fixed

248,600

1,312

Lehman Brothers Holdings Inc.⁴

March 1, 2008

1-month
LIBOR

LEHM U.S. ABS AAA
Floating Home Equities Index

197,900

1,749

Lehman Brothers Holdings Inc.²

April 30, 2011

5.0704%
Semi-Annually

3-month
LIBOR

3,580

(37

)

Lehman Brothers Holdings Inc.²

September 15, 2011

5.193%
Semi-Annually

3-month
LIBOR

5,500

(74

)

Lehman Brothers Holdings Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

7,400

(35

)

Lehman Brothers Holdings Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

97,000

(590

)

Lehman Brothers Holdings Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,900

227

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Core Bond Portfolio—Continued

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Lehman Brothers Holdings Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

15,000

(82

)

Lehman Brothers Holdings Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

March 20, 2010

Specified amount upon credit event notice

5.25%

Quarterly

10,000

102

Lehman Brothers Holdings Inc.
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.15%
Quarterly

Specified amount upon credit event notice

8,507

Lehman Brothers Holdings Inc.
(iBoxx IG Hi-Vol3)¹

September 20, 2009

1.05%
Quarterly

Specified amount upon credit event notice

773

Lehman Brothers Holdings Inc.
(Sara Lee Corporation,
6.125%, due 11/1/32)¹

September 20, 2011

0.44%
Quarterly

Specified amount upon credit event notice

5,500

(43

)

Lehman Brothers Holdings Inc.
(Sprint Capital Corporation,
8.375%, due 3/15/12)¹

December 20, 2007

Specified amount upon credit event notice

0.05%

Quarterly

1,230

)

Lehman Brothers Holdings Inc.
(Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2011

0.57%
Quarterly

Specified amount upon credit event notice

3,580

(33

)

Lehman Brothers Holdings Inc.
(Washington Mutual Inc.,
5.25%, due 9/15/17)¹

June 20, 2017

Specified amount upon credit event notice

0.65%
Quarterly

9,600

(77

)

Merrill Lynch & Co., Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

0.82%
Quarterly

47,600

(1,882

)

Merrill Lynch & Co., Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

0.90%
Quarterly

16,400

(593

)

Merrill Lynch & Co., Inc.
(Pacific Gas & Electric Co.,
4.8%, due 3/1/14)¹

June 20, 2009

Specified amount upon credit event notice

0.42%
Quarterly

2,100

Morgan Stanley & Co., Inc.
(Weyerhaeuser Co. Note,
7.125%, due 7/15/23)¹

March 20, 2012

0.74%
Quarterly

Specified amount upon credit event notice

2,750

Morgan Stanley & Co., Inc.²

March 15, 2012

4.7625% Semi-Annually

3-month
LIBOR

2,750

Morgan Stanley & Co., Inc.²

April 30, 2016

5.189% Semi-Annually

3-month
LIBOR

3,400

(15

)

228

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)

Morgan Stanley & Co., Inc. (Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2012

0.36%
Monthly

Specified amount upon credit event notice

5,460

RBS Greenwich²

March 1, 2016

5.12% Semi-Annually

3-month
LIBOR

4,250

RBS Greenwich²

February 15, 2017

5.115% Semi-Annually

3-month
LIBOR

3,580

RBS Greenwich
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

45,900

(199

)

RBS Greenwich
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

7,400

RBS Greenwich
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

7,200

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,200

(359

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

17,300

(393

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,600

(320

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

50,000

(1,063

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,200

(276

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,400

(266

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,400

(269

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

18,100

(209

)

229

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
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

7,300

(80

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,400

125

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

100,000

(517

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

91,800

(556

)

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

91,800

532

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

7,500

(38

)

RBS Greenwich
(Countrywide Home Loan Inc.,
4%, due 3/22/11)¹

March 20, 2012

Specified amount upon credit event notice

0.66%
Quarterly

39,300

(2,966

)

RBS Greenwich
(Countrywide Home Loan Inc.,
4%, due 3/22/11)¹

June 20, 2012

Specified amount upon credit event notice

0.72%
Quarterly

25,000

(1,818

)

RBS Greenwich
(Countrywide Home Loans, Inc.,
4%, due 3/22/11)¹

September 20, 2012

Specified amount upon credit event notice

6%
Quarterly

9,100

1,256

RBS Greenwich
(Countrywide Home Loans, Inc.,
4%, due 3/22/11)¹

September 20, 2012

Specified amount upon credit event notice

6.1%
Quarterly

9,100

1,292

RBS Greenwich
(Countrywide Home Loans, Inc.,
4.0%, due 3/22/11)¹

September 20, 2012

Specified amount upon credit event notice

0.86%
Quarterly

9,100

(606

)

RBS Greenwich
(Countrywide Home Loans, Inc.,
4.0%, due 3/22/11)¹

September 20, 2012

Specified amount upon credit event notice

2.75%
Quarterly

10,000

RBS Greenwich
(DSLA Mortgage Loan
Trust 2005-AR5, 1-Month
LIBOR + 175 bp, due 8/19/45)¹

August 19, 2045

4.5%
Monthly

Specified amount upon credit event notice

1,298

(44

)

230

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
(Ford Motor Credit Company,
7%, due 10/1/13)¹

December 20, 2010

Specified amount upon credit event notice

4.26%
Quarterly

25,000

309

RBS Greenwich
(General Mills Inc.,
5.7%, due 2/15/17)¹

March 20, 2017

0.33 %
Quarterly

Specified amount upon credit event notice

3,580

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/12/12)¹

June 20, 2010

Specified amount upon credit event notice

4.53%
Quarterly

15,000

460

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit event notice

4.68%
Quarterly

25,000

853

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

September 20, 2010

Specified amount upon credit event notice

5.75%
Quarterly

7,500

467

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice

6.8%
Quarterly

5,900

392

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice

7.1%
Quarterly

5,800

426

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice

8.4%
Quarterly

12,500

1,302

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

7.7%
Quarterly

12,500

1,148

RBS Greenwich
(Harborview Mortgage Loan
Trust 2005-12, 1-Month
LIBOR + 175 bp,
due 10/19/35)¹

October 19, 2035

2.5%
Monthly

Specified amount upon credit event notice

1,295

)

RBS Greenwich
(Home Depot Inc.,
5.4%, due 3/1/16)¹

March 20, 2016

0.48%
Monthly

Specified amount upon credit event notice

4,250

106

231

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
(iBoxx IG Hi-Vol3)¹

March 20, 2010

1.05%
Quarterly

Specified amount upon credit event notice

17,303

151

RBS Greenwich
(IndyMac Index Mortgage Loan Trust 2005—AR18, 1-Month LIBOR + 125 bp, due 10/25/36)¹

October 25, 2036

2.7%
Monthly

Specified amount upon credit event notice

1,390

(73

)

RBS Greenwich
(Residential Capital Corp.,
6.5%, due 4/17/13)¹

September 20, 2012

Specified amount upon credit event notice

2.32%
Quarterly

25,000

(4,442

)

RBS Greenwich
(Residential Capital, LLC,
7.5%, due 4/17/13)¹

September 20, 2012

Specified amount upon credit event notice

4.9%
Quarterly

9,100

(935

)

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

June 20, 2012

Specified amount upon credit event notice

1.38%
Quarterly

20,000

(788

)

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

June 20, 2012

Specified amount upon credit event notice

1.78%
Quarterly

25,000

(509

)

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.35%
Quarterly

1,500

—

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.4%
Quarterly

1,500

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.44%
Quarterly

25,000

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.67 %
Quarterly

10,000

135

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.67%
Quarterly

10,000

135

RBS Greenwich
(Time Warner Inc.
6.875%, due 5/1/12)¹

September 20, 2010

Specified amount upon credit event notice

0.47%
Quarterly

5,000

RBS Greenwich
(Time Warner Inc.,
6.875%, due 5/1/12)¹

December 20, 2010

Specified amount upon credit event notice

0.5%
Quarterly

12,500

232

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 + 120 bp, due 8/25/45)¹

August 25, 2045

2.55%
Monthly

Specified amount upon credit event notice

521

(25

)

RBS Greenwich
(Washington Mutual Inc.,
5.25%, due 9/15/17)¹

March 20, 2017

Specified amount upon credit event notice

0.64%
Quarterly

10,000

(90

)

The Goldman Sachs Group, Inc.²

October 18, 2008

3-month
LIBOR

5.55%
Semi-Annually

229,100

926

The Goldman Sachs Group, Inc.²

October 19, 2008

3-month
LIBOR

5.55%
Semi-Annually

223,508

952

The Goldman Sachs Group, Inc.²

March 10, 2009

3-month
LIBOR

4.36%
Semi-Annually

54,100

The Goldman Sachs Group, Inc.²

July 7, 2011

3-month
LIBOR

5.7125%
Semi-Annually

71,600

2,303

The Goldman Sachs Group, Inc.²

November 3, 2011

3-month
LIBOR

5.0435%
Semi-Annually

81,800

722

The Goldman Sachs Group, Inc.²

January 10, 2012

3-month
LIBOR

5.658%
Semi-Annually

71,900

1,655

The Goldman Sachs Group, Inc.²

January 12, 2012

3-month
LIBOR

5.0863%
Semi-Annually

71,000

725

The Goldman Sachs Group, Inc.²

January 31, 2012

3-month
LIBOR

5.279%
Semi-Annually

71,100

1,254

The Goldman Sachs Group, Inc.²

February 1, 2012

3-month
LIBOR

5.315%
Semi-Annually

81,200

1,536

The Goldman Sachs Group, Inc.²

October 18, 2016

5.67%
Semi-Annually

3-month
LIBOR

55,877

(1,457

)

The Goldman Sachs Group, Inc.²

October 19, 2016

5.69%
Semi-Annually

3-month
LIBOR

55,877

(1,508

)

The Goldman Sachs Group, Inc.²

February 2, 2017

3-month
LIBOR

5.376%
Semi-Annually

35,200

527

The Goldman Sachs Group, Inc.²

July 30, 2017

3-month
LIBOR

5.56545%
Semi-Annually

150,000

4,264

The Goldman Sachs Group, Inc.²

August 20, 2017

3-month
LIBOR

5.45136%
Semi-Annually

64,570

1,244

The Goldman Sachs Group, Inc.²

September 14, 2017

5.0575%
Semi-Annually

3-month
LIBOR

30,100

362

233

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.²

March 19, 2018

3-month
LIBOR

5%
Semi-Annually

45,100

284

The Goldman Sachs Group, Inc.²

March 19, 2038

3-month
LIBOR

5.25%
Semi-Annually

335,084

(2,696

)

The Goldman Sachs Group, Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

0.82%
Quarterly

47,700

(1,886

)

The Goldman Sachs Group, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

42,300

(260

)

The Goldman Sachs Group, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

42,800

(199

)

The Goldman Sachs Group, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

14,700

140

The Goldman Sachs Group, Inc.
(CDX IG HVOL 3)¹

March 20, 2010

Specified amount upon credit event notice

1.05%
Quarterly

16,433

182

The Goldman Sachs Group, Inc.
(CDX IG HVOL 3)¹

March 20, 2010

Specified amount upon credit event notice

1.05%
Quarterly

32,093

777

The Goldman Sachs Group, Inc.
(CDX IG HVOL 3)¹

March 20, 2010

Specified amount upon credit event notice

1.05%
Quarterly

48,333

322

The Goldman Sachs Group, Inc.
(CDX IG HVOL 4)¹

June 20, 2010

0.9%
Quarterly

Specified amount upon credit event notice

14,200

135

The Goldman Sachs Group, Inc.
(CDX IG HVOL 4)¹

December 20, 2010

0.85%
Quarterly

Specified amount upon credit event notice

14,200

114

The Goldman Sachs Group, Inc.
(CDX IG HVOL 5)¹

December 20, 2010

0.85%
Quarterly

Specified amount upon credit event notice

30,100

232

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

80,900

(2,492

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

34,000

(884

)

234

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)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

29,200

(826

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,100

(374

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,700

(356

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

28,200

(659

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

100,000

(2,357

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

100,000

(2,127

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,100

(269

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,300

(270

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,600

(130

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,600

(151

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,200

148

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,700

252

The Goldman Sachs Group, Inc.
(Countrywide Home Loans, Inc., 4%, due 3/22/11)¹

September 20, 2012

Specified amount upon credit event notice

6%
Quarterly

4,700

648

235

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.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice

1.67%
Quarterly

1,400

(49

)

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7%, due 10/1/13)¹

June 20, 2010

Specified amount upon credit event notice

4.75%
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

6%
Quarterly

5,000

320

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

8.95%
Quarterly

5,000

585

The Goldman Sachs Group, Inc.
(Washington Mutual Inc.,
5.25%, due 9/15/17)¹

June 20, 2017

Specified amount upon credit event notice

0.75%
Quarterly

9,600

)

5,604,202

(3,942

)

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 LLC²

December 1, 2008

5.03%
Semi-Annually

3-month
LIBOR

11,660

(26

)

Banc of America Securities LLC²

March 1, 2013

5.104%
Semi-Annually

3-month
LIBOR

8,100

(69

)

Banc of America Securities LLC²

December 16, 2013

5.381%
Semi-Annually

3-month
LIBOR

5,510

(114

)

Banc of America Securities LLC²

November 10, 2015

4.864%
Semi-Annually

3-month
LIBOR

7,950

127

Banc of America Securities LLC²

January 15, 2016

5.45084%
Semi-Annually

3-month
LIBOR

5,500

(125

)

Banc of America Securities LLC²

October 3, 2016

5.425%
Semi-Annually

3-month
LIBOR

8,270

(162

)

Banc of America Securities LLC
(Heinz Co.,
6.428%, due 12/01/08)¹

December 20, 2008

0.165%
Monthly

Specified amount upon credit event notice

11,660

(15

)

236

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
(Home Depot Inc.,
3.75%, due 9/15/09)¹

December 20, 2013

0.635%
Quarterly

Specified amount upon credit event notice

5,510

Banc of America Securities LLC
(Marriot International Inc.,
4.625%, due 6/15/12)¹

December 20, 2015

0.73%
Monthly

Specified amount upon credit event notice

7,950

(81

)

Banc of America Securities LLC
(Masco Corp.,
5.875%, due 7/15/12)¹

December 20, 2016

1.04%
Quarterly

Specified amount upon credit event notice

8,270

(18

)

Banc of America Securities LLC
(PHH Corporate Note,
7.125%, due 3/1/13)¹

March 20, 2013

1.05%
Monthly

Specified amount upon credit event notice

8,640

Banc of America Securities LLC
(Viacom Inc.,
4.625%, due 5/15/18)¹

December 20, 2015

1.13%
Quarterly

Specified amount upon credit event notice

5,500

(124

)

Barclays Capital Inc.²

November 1, 2011

5.439%
Semi-Annually

3-month
LIBOR

10,850

(254

)

Barclays Capital Inc.²

June 25, 2012

5.06%
Semi-Annually

3-month
LIBOR

6,240

(54

)

Barclays Capital Inc.²

September 15, 2012

5.189%
Semi-Annually

3-month
LIBOR

6,330

(81

)

Barclays Capital Inc.²

October 20, 2016

5.326%
Semi-Annually

3-month
LIBOR

6,260

(73

)

Barclays Capital Inc.
(Amerisourcebergen Corp.,
5.625%, due 9/15/12)¹

September 20, 2012

0.5%
Quarterly

Specified amount upon credit event notice

6,330

—

Barclays Capital Inc.
(Cardinal Health Inc.,
5.85%, due 12/15/17)¹

September 20, 2016

0.49%
Quarterly

Specified amount upon credit event notice

6,260

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

27,100

(599

)

Barclays Capital Inc.
(General Motors Corp.,
7.125%, due 07/15/13)¹

December 20, 2011

Specified amount upon credit event notice

4.16%
Quarterly

7,000

(101

)

Barclays Capital Inc.
(Health Care Property Investments Inc.,
6.45%, due 06/25/12)¹

June 20, 2012

0.63%
Quarterly

Specified amount upon credit event notice

6,240

237

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)

Barclays Capital Inc.
(Motorola Inc.,
6.5%, due 9/1/25)¹

December 20, 2011

0.32%
Quarterly

Specified amount upon credit event notice

10,850

(17

)

Barclays Capital Inc.
(Residential Capital Corp.,
6.5%, due 4/17/13)¹

September 20, 2008

Specified amount upon credit event notice

12%
Quarterly

500

(10

)

Bear Stearns, Inc.²

April 30, 2011

5.05%
Semi-Annually

3-month
LIBOR

4,300

(41

)

Bear Stearns, Inc.²

December 22, 2011

3-month
LIBOR

4.9925%
Semi-Annually

54,900

378

Bear Stearns, Inc.²

September 15, 2014

5%
Semi-Annually

3-month
LIBOR

8,250

Bear Stearns, Inc.
(ABX.
HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

10,000

(150

)

Bear Stearns, Inc.
(Bell South Corp.,
6%, due 10/15/11)¹

September 20, 2014

0.28%
Quarterly

Specified amount upon credit event notice

8,250

Bear Stearns, Inc.
(CDX HY 6B)¹

June 20, 2011

3%
Quarterly

Specified amount upon credit event notice

11,600

Bear Stearns, Inc.
(CDX HY 6B)¹

June 20, 2011

Specified amount upon credit event notice

3%
Quarterly

25,000

(89

)

Bear Stearns, Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit
even notice

0.91%
Quarterly

31,750

(1,135

)

Bear Stearns, Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

1.01%
Quarterly

31,800

(1,004

)

Bear Stearns, Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

1.05%
Quarterly

12,700

(379

)

Bear Stearns, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

85,500

(189

)

Bear Stearns, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

28,200

(521

)

238

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)

Bear Stearns, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly	$	28,500	$	(536	)

Bear Stearns, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		207,400		(1,213	)

Bear Stearns, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		56,100		(1,352	)

Bear Stearns, Inc. (Ford Motor Credit Company, 7%, due 10/1/13)¹	June 20, 2010	Specified amount upon credit event notice	4.83% Quarterly		12,500		316

Bear Stearns, Inc. (General Motors Acceptance Corporation, 7.125%, due 7/15/13)¹	March 20, 2012	Specified amount upon credit event notice	3.2% Quarterly		9,900		(504	)

Bear Stearns, Inc. (General Motors Acceptance Corporation, 7.125%, due 7/15/13)¹	March 20, 2012	Specified amount upon credit event notice	3.25% Quarterly		18,500		(911	)

Bear Stearns, Inc. (GIE PSA Tresorerie, 5.875%, due 9/27/11)¹	March 20, 2011	0.32% Quarterly	Specified amount upon credit event notice		2,620		(7	)

Bear Stearns, Inc. (GIE PSA Tresorerie, 5.875%, due 9/27/11)¹	March 20, 2011	0.32% Quarterly	Specified amount upon credit event notice		3,470		(6	)

Bear Stearns, Inc. (Renault S.A., 4.625%, due 5/28/10)¹	March 20, 2011	0.36% Quarterly	Specified amount upon credit event notice		2,620		(6	)

Bear Stearns, Inc. (Renault S.A., 4.625%, due 5/28/10)¹	March 20, 2011	0.36% Quarterly	Specified amount upon credit event notice		2,620		(6	)

Bear Stearns, Inc. (Renault S.A., 4.625%, due 5/28/10)¹	March 20, 2011	0.35% Quarterly	Specified amount upon credit event notice		790		(2	)

Bear Stearns, Inc. (Viacom Inc., 6.25%, due 4/30/16)¹	March 20, 2011	0.59% Quarterly	Specified amount upon credit event notice		4,300		(42	)

239

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	$	2,620	$	(12	)

Bear Stearns, Inc. (Volkswagen International Finance NV, 4.875%, due 5/22/13)¹	March 20, 2011	0.34% Quarterly	Specified amount upon credit event notice		2,620		(12	)

Bear Stearns, Inc. (Volkswagen International Finance NV, 4.875%, due 5/22/13)¹	March 20, 2011	0.33% Quarterly	Specified amount upon credit event notice		790		(3	)

Credit Suisse First Boston USA²	January 19, 2009	Mexican Interbank Deposit Rate	7.69% Monthly		144,500		(59	)

Credit Suisse First Boston USA²	August 15, 2010	5.446% Semi-Annually	3-month LIBOR		2,720		(53	)

Credit Suisse First Boston USA²	September 15, 2010	5.0025% Semi-Annually	3-month LIBOR		5,990		(43	)

Credit Suisse First Boston USA²	March 1, 2011	5.229% Semi-Annually	3-month LIBOR		4,110		(61	)

Credit Suisse First Boston USA²	May 1, 2012	5.085% Semi-Annually	3-month LIBOR		4,800		(47	)

Credit Suisse First Boston USA²	December 1, 2012	4.9025% Semi-Annually	3-month LIBOR		10,600		2

Credit Suisse First Boston USA²	August 15, 2013	5.0225% Semi-Annually	3-month LIBOR		5,300		(18	)

Credit Suisse First Boston USA²	March 15, 2014	5.131% Semi-Annually	3-month LIBOR		6,630		(45	)

Credit Suisse First Boston USA²	September 15, 2015	5.1285% Semi-Annually	3-month LIBOR		10,070		(14	)

Credit Suisse First Boston USA²	September 15, 2015	5.16% Semi-Annually	3-month LIBOR		5,350		(18	)

Credit Suisse First Boston USA²	March 1, 2017	5.335% Semi-Annually	3-month LIBOR		4,880		(60	)

Credit Suisse First Boston USA (AAMES Mortgage Investment Trust 2005-1 M8 1-Month LIBOR + 160 bp, due 6/25/35)¹	June 25, 2035	1.28% Monthly	Specified amount upon credit event notice		1,122		350

240

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
(AAMES Mortgage Investment Trust 2005-1 M9 1-Month LIBOR + 250 bp,
due 6/25/35)¹

June 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

1,122

338

Credit Suisse First Boston USA
(ABX.
HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

23,300

(517

)

Credit Suisse First Boston USA
(ABX.
HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

12,800

(12

)

Credit Suisse First Boston USA
(ABX.
HE-AAA 07-2)¹

January 25, 2038

Specified amount upon credit event notice

0.76%
Monthly

2,600

(12

)

Credit Suisse First Boston USA
(ACE Securities Corp.,
2005-HE1 M8 1-Month
LIBOR + 138 bp,
due 2/25/35)¹

February 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

1,122

238

Credit Suisse First Boston USA
(ACE Securities Corp.,
2005-HE1 M9 1-Month
LIBOR + 220 bp,
due 2/25/35)¹

February 25, 2035

2.06%
Monthly

Specified amount upon credit event notice

1,122

292

Credit Suisse First Boston USA
(Aegis Asset Backed Securities Trust 2004-4 B2 1-Month LIBOR + 190 bp,
due 10/25/34)¹

October 25, 2034

1.37%
Monthly

Specified amount upon credit event notice

1,494

304

Credit Suisse First Boston USA
(Aegis Asset Backed Securities Trust 2005 B2 1Month LIBOR + 130 bp,
due 3/25/35)¹

March 25, 2035

1.31%
Quarterly

Specified amount upon credit event notice

1,122

394

Credit Suisse First Boston USA
(Aegis Asset Backed Securities Trust 2005 B3 1-Month LIBOR + 200 bp,
due 3/25/35)¹

March 25, 2035

2.18%
Quarterly

Specified amount upon credit event notice

1,122

455

Credit Suisse First Boston USA
(Amerisource Bergen Corp.,
8.125%, due 9/1/08)¹

September 20, 2015

0.9%
Monthly

Specified amount upon credit event notice

5,350

(47

)

241

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Core Plus Bond Portfolio—Continued

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/

(Depreciation)

Credit Suisse First Boston USA
(Argent Securities Inc,
2004-W11 M10 1-Month
LIBOR + 350 bp,
due 11/25/34)¹

November 25, 2034

2.15%
Monthly

Specified amount upon credit event notice

1,122

182

Credit Suisse First Boston USA
(Argent Securities Inc,
2004-W11 M9 1-Month
LIBOR + 225 bp,
due 11/25/34)¹

November 25, 2034

1.33%
Monthly

Specified amount upon credit event notice

1,122

153

Credit Suisse First Boston USA
(Argent Securities Inc.,
2004-W4 M3 1-Month
LIBOR + 300 bp,
due 3/25/34)¹

March 25, 2034

2.2%
Monthly

Specified amount upon credit event notice

572

Credit Suisse First Boston USA
(ConocoPhillips,
4.75%, due 10/15/12)¹

September 20, 2012

Specified amount upon credit event notice

0.27%
Quarterly

1,460

Credit Suisse First Boston USA
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice

2.32%
Quarterly

2,400

Credit Suisse First Boston USA
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice

1.4%
Quarterly

9,000

114

Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M8 1-Month LIBOR + 180 bp,
due 11/25/34)¹

November 25, 2034

1.31%
Monthly

Specified amount upon credit event notice

408

136

Credit Suisse First Boston USA
(Finance America Mortgage Loan Trust 2004-3 M9 1-Month LIBOR + 315 bp,
due 11/25/34)¹

November 25, 2034

2.18%
Monthly

Specified amount upon credit event notice

408

170

Credit Suisse First Boston USA
(Fremont Home Loan Trust 2005-A, 1-Month LIBOR + 135 bp, due 1/25/35)¹

January 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

1,122

166

Credit Suisse First Boston USA
(Fremont Home Loan Trust 2005-A,1-Month LIBOR + 100 bp, due 1/25/35)¹

January 25, 2035

2.08%
Monthly

Specified amount upon credit event notice

705

182

242

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
(Home Depot Inc.,
3.75%, due 9/15/09)¹

September 20, 2010

0.17%
Quarterly

Specified amount upon credit event notice

2,720

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice

4%
Quarterly

3,007

252

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice

4%
Quarterly

3,007

252

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice

4%
Quarterly

15,177

739

Credit Suisse First Boston USA
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice

4%
Quarterly

11,264

464

Credit Suisse First Boston USA
(iBoxx IG Hi-Vol)¹

March 20, 2009

Specified amount upon credit event notice

1.25%
Quarterly

48,333

Credit Suisse First Boston USA
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.15%
Quarterly

Specified amount upon credit event notice

24,167

(41

)

Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M8, 1-Month
LIBOR + 190 bp,
due 3/25/35)¹

March 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

1,122

276

Credit Suisse First Boston USA
(IndyMac Home Equity Loan Asset-Backed, Trust 2004-C M9, 1-Month
LIBOR + 325 bp, due 3/25/35)¹

March 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

1,122

304

Credit Suisse First Boston USA
(Limited Brands Inc.,
6.125%, due 12/01/12)¹

December 20, 2012

0.6%
Monthly

Specified amount upon credit event notice

10,600

145

Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2004-1 M9 1-Month LIBOR + 350 bp, due 2/25/34)¹

February 25, 2034

2.15%
Monthly

Specified amount upon credit event notice

450

243

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
(Long Beach Mortgage Loan Trust 2005-1 M8 1-Month LIBOR + 170 bp, due 2/25/35)¹

February 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

1,122

329

Credit Suisse First Boston USA
(Long Beach Mortgage Loan Trust 2005-1 M9 1-Month LIBOR + 275 bp, due 2/25/35)¹

February 25, 2035

2.08%
Monthly

Specified amount upon credit event notice

1,122

365

Credit Suisse First Boston USA
(Marsh & Mclennan Company, Inc.,
5.375%, due 7/15/14)¹

September 20, 2010

0.46%
Quarterly

Specified amount upon credit event notice

5,990

(38

)

Credit Suisse First Boston USA
(Masco Corp.,
5.875%, due 7/15/12)¹

September 20, 2013

0.75%
Monthly

Specified amount upon credit event notice

5,830

Credit Suisse First Boston USA
(MASTR Asset Backed Securities Trust 2005-NC1 M8 1-Month LIBOR + 153 bp, due 12/25/34)¹

December 25, 2034

1.31%
Monthly

Specified amount upon credit event notice

1,122

146

Credit Suisse First Boston USA
(MASTR Asset Backed Securities Trust 2005-NC1 M9 1-Month LIBOR + 240 bp, due 12/25/34)¹

December 25, 2034

2.08%
Monthly

Specified amount upon credit event notice

1,122

318

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc 2005-WMC1 B2 1-Month LIBOR + 135 bp, due 9/25/35)¹

September 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

1,122

235

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2004-WMC4 B3 1-Month LIBOR + 375 bp, due 4/25/35)¹

April 25, 2035

2.15%
Monthly

Specified amount upon credit event notice

1,494

180

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-NC1 B2 1-Month LIBOR + 130 bp, due 10/25/35)¹

October 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

1,122

154

244

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
(Merrill Lynch Mortgage Investors, Inc. 2005-NC1 B3 1-Month LIBOR + 205 bp, due 10/25/35)¹

October 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

1,122

190

Credit Suisse First Boston USA
(Merrill Lynch Mortgage Investors, Inc. 2005-WMC1 B3 1-Month LIBOR + 225 bp, due 9/25/35)¹

September 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

1,122

164

Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B2 1-Month LIBOR + 130 bp, due 1/25/35)¹

January 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

1,122

209

Credit Suisse First Boston USA
(Morgan Stanley ABS Capital I 2005-WMC1 B3 1-Month LIBOR + 215 bp, due 1/25/35)¹

January 25, 2035

2.18%
Monthly

Specified amount upon credit event notice

1,041

125

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2004-2 M9 1-Month LIBOR + 325 bp, due 8/25/34)¹

August 25, 2034

2.15%
Monthly

Specified amount upon credit event notice

1,494

242

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2005-1 M8 1-Month LIBOR + 140 bp, due 3/25/35)¹

March 25, 2035

1.31%
Monthly

Specified amount upon credit event notice

1,122

151

Credit Suisse First Boston USA
(New Century Home Equity Loan Trust 2005-1 M9 1-Month LIBOR + 205 bp, due 3/25/35)¹

March 25, 2035

2.18%
Monthly

Specified amount upon credit event notice

1,122

332

Credit Suisse First Boston USA
(Novastar Home Equity Loan 2005-1 B2 1-Month LIBOR + 135 bp, due 6/25/35)¹

June 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

1,122

193

Credit Suisse First Boston USA
(Novastar Home Equity Loan 2005-4 B3 1-Month LIBOR + 195 bp, due 6/25/35)¹

June 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

1,122

239

245

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
(Park Place Securities Inc. 2005-WCH1 M8 1-Month LIBOR + 155 bp, due 1/25/36)¹

January 25, 2036

1.36%
Monthly

Specified amount upon credit event notice

1,122

366

Credit Suisse First Boston USA
(Park Place Securities Inc. 2005-WCH1 M9 1-Month LIBOR + 250 bp, due 1/25/36)¹

January 25, 2036

2.18%
Monthly

Specified amount upon credit event notice

1,122

423

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2004-1 M6 1-Month LIBOR + 230 bp, due 6/25/34)¹

June 25, 2034

1.37%
Quarterly

Specified amount upon credit event notice

1,494

258

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2005-1 B3 1-Month LIBOR + 260 bp, due 1/25/35)¹

January 25, 2035

2.05%
Monthly

Specified amount upon credit event notice

1,122

427

Credit Suisse First Boston USA
(People’s Choice Home Loan Securities Trust 2005-1, 1-Month LIBOR + 165 bp, due 1/25/35)¹

January 25, 2035

1.28%
Monthly

Specified amount upon credit event notice

1,122

282

Credit Suisse First Boston USA
(Pulte Homes Inc.,
7.875%, due 8/1/11)¹

March 20, 2011

0.79%
Quarterly

Specified amount upon credit event notice

4,080

367

Credit Suisse First Boston USA
(Southwest Airlines Co.,
5.25%, due 10/1/14)¹

March 20, 2017

0.69%
Quarterly

Specified amount upon credit event notice

4,880

Credit Suisse First Boston USA
(Starwood Hotels,
7.875%, due 5/1/12)¹

December 20, 2011

1.37%
Monthly

Specified amount upon credit event notice

5,350

(116

)

Credit Suisse First Boston USA
(Vodafone Group,
7.75%, due 02/15/10)¹

September 20, 2015

0.54%
Monthly

Specified amount upon credit event notice

10,600

(19

)

Credit Suisse First Boston USA
(Waste Management Inc.,
7.375%, due 8/1/10)¹

March 20, 2014

0.49%
Quarterly

Specified amount upon credit event notice

6,630

(23

)

246

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 AG²

October 5, 2008

3-month
LIBOR

4.6545%
Semi-Annually

194,330

(335

)

Deutsche Bank AG²

June 17, 2010

3-month
LIBOR

4.3132%
Semi-Annually

41,570

(431

)

Deutsche Bank AG²

October 11, 2010

3-month
LIBOR

4.7077%
Semi-Annually

299,650

(25

)

Deutsche Bank AG²

July 13, 2011

3-month
LIBOR

5.6281%
Semi-Annually

133,350

3,913

Deutsche Bank AG²

June 15, 2016

5.1825%
Semi-Annually

3-month
LIBOR

10,890

(25

)

Deutsche Bank AG²

July 21, 2016

3-month
LIBOR

5.6931%
Semi-Annually

124,720

4,861

Deutsche Bank AG²

April 1, 2017

5.435%
Semi-Annually

3-month
LIBOR

8,270

(159

)

Deutsche Bank AG
(ABX. HE-AAA 06-2)¹

May 25, 2046

Specified amount upon credit event notice

0.11%
Monthly

15,700

121

Deutsche Bank AG
(AES Corp.,
7.75%, due 3/1/14)¹

December 20, 2016

Specified amount upon credit event notice

2.2%
Quarterly

3,700

(330

)

Deutsche Bank AG
(AES Corp.,
7.75%, due 3/1/14)¹

December 20, 2016

Specified amount upon credit event notice

2.21%
Quarterly

4,200

(372

)

Deutsche Bank AG
(Autozone Inc.,
6.95%, due 6/15/16)¹

June 20, 2016

0.58%
Quarterly

Specified amount upon credit event notice

10,890

(17

)

Deutsche Bank AG
(Centurytel Inc.,
7.875%, due 8/15/12)¹

March 20, 2017

0.89%
Quarterly

Specified amount upon credit event notice

8,270

(63

)

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2010

Specified amount upon credit event notice

1.25%
Quarterly

1,600

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice

2.3%
Quarterly

3,020

107

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount upon credit event notice

2.32%
Quarterly

3,200

115

247

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

September 20, 2010

Specified amount upon credit event notice

2.3%
Quarterly

5,430

193

Deutsche Bank AG
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount upon credit event notice

1.67%
Quarterly

1,900

(66

)

Deutsche Bank AG
(Fannie Mae,
6%, due 5/15/11)¹

December 20, 2009

Specified amount upon credit event notice

0.215%
Quarterly

17,000

Deutsche Bank AG
(Ford Motor Credit Co.,
7.25%, due 10/25/11)¹

September 20, 2007

Specified amount upon credit event notice

3.65%
Quarterly

3,500

—

Deutsche Bank AG
(Ford Motor Credit Co.,
7.25%, due 10/25/11)¹

September 20, 2017

Specified amount upon credit event notice

3.65%
Quarterly

4,450

(65

)

Deutsche Bank AG
(Ford Motor Credit Company,
7%, due 10/1/13)¹

December 20, 2010

Specified amount upon credit event notice

5.05%
Quarterly

25,400

837

Deutsche Bank AG
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

March 20, 2015

Specified amount upon credit event notice

2.93%
Quarterly

2,600

(370

)

Deutsche Bank AG
(Freddie Mac,
5%, due 7/15/14)¹

March 20, 2015

Specified amount upon credit event notice

0.29%
Quarterly

25,100

137

Deutsche Bank AG
(GIE PSA Tresorerie,
5.875%, due 9/27/11)¹

March 20, 2011

0.34%
Quarterly

Specified amount upon credit event notice

2,540

)

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

2,540

)

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

2,540

)

Deutsche Bank AG
(iBoxx 100 HY)¹

March 20, 2009

Specified amount upon credit event notice

4.25%
Quarterly

9,400

343

Deutsche Bank AG
(iBoxx 30 Hi-Vol)¹

March 20, 2009

1.25%
Quarterly

Specified amount upon credit event notice

9,183

248

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
(iBoxx HY 2)¹

September 20, 2009

Specified amount upon credit event notice

4.8%
Quarterly

2,498

194

Deutsche Bank AG
(iBoxx HY B)¹

March 20, 2009

Specified amount upon credit event notice

5%
Quarterly

4,651

117

Deutsche Bank AG
(iBoxx HY B)¹

March 20, 2009

Specified amount upon credit event notice

5%
Quarterly

9,302

200

Deutsche Bank AG
(iBoxx IG Hi-Vol)¹

March 20, 2009

Specified amount upon credit event notice

1.25%
Quarterly

13,301

Deutsche Bank AG
(iBoxx IG Hi-Vol2)¹

September 20, 2014

Specified amount upon credit event notice

1.3%
Quarterly

11,175

(61

)

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

0.6%
Quarterly

Specified amount upon credit event notice

6,450

(41

)

Deutsche Bank AG
(iBoxx IG TMT)¹

March 20, 2009

0.6%
Quarterly

Specified amount upon credit event notice

9,500

(61

)

Deutsche Bank AG
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.38%
Quarterly

Specified amount upon credit event notice

2,540

)

Deutsche Bank AG
(Renault S.A.,
4.625%, due 5/28/10)¹

March 20, 2011

0.36%
Quarterly

Specified amount upon credit event notice

2,540

)

Deutsche Bank AG
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.37%
Quarterly

Specified amount upon credit event notice

2,540

(12

)

Deutsche Bank AG
(Volkswagen International Finance NV,
4.875%, due 5/22/13)¹

March 20, 2011

0.34%
Quarterly

Specified amount upon credit event notice

2,540

(12

)

JP Morgan Chase & Co.²

January 19, 2009

Mexican Interbank Deposit Rate

7.69%
Monthly

144,500

(59

)

JP Morgan Chase & Co.²

June 8, 2009

3-month
LIBOR

5.393%
Semi-Annually

304,600

3,262

249

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)

JP Morgan Chase & Co.²

November 6, 2011

3-month
LIBOR

5.02%
Semi-Annually

93,600

744

JP Morgan Chase & Co.²

December 1, 2012

5.275%
Semi-Annually

3-month
LIBOR

6,300

(105

)

JP Morgan Chase & Co.²

September 7, 2016

5.3215%
Semi-Annually

3-month
LIBOR

59,000

(639

)

JP Morgan Chase & Co.
(ABX. HE-AAA 06-1)¹

July 25, 2045

Specified amount upon credit event notice

0.18%
Monthly

24,000

142

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

56,800

(1,115

)

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

76,900

(2,028

)

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

87,875

(2,117

)

JP Morgan Chase & Co.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

6%
Quarterly

14,300

698

JP Morgan Chase & Co.
(Limited Brands Inc.,
6.125%, due 12/1/12)¹

December 20, 2012

0.67%
Quarterly

Specified amount upon credit event notice

6,300

Lehman Brothers Holdings Inc.²

October 7, 2007

3-month
LIBOR

4.6012%
Semi-Annually

80,020

(20

)

Lehman Brothers Holdings Inc.⁴

January 1, 2008

1-month
LIBOR

LEHM U.S. ABS AAA Floating Home Equities Index

51,700

505

Lehman Brothers Holdings Inc.⁴

March 1, 2008

1-month
LIBOR

LEHM U.S. ABS AAA Floating Home Equities Index

387,800

3,425

Lehman Brothers Holdings Inc.²

April 30, 2011

5.0704%
Semi-Annually

3-month
LIBOR

6,270

(65

)

Lehman Brothers Holdings Inc.²

September 15, 2011

5.193%
Semi-Annually

3-month
LIBOR

9,750

(132

)

250

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.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

14,800

(71

)

Lehman Brothers Holdings Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

29,600

118

Lehman Brothers Holdings Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

29,900

(163

)

Lehman Brothers Holdings Inc.
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

March 20, 2010

Specified amount upon credit event notice

5.25%
Quarterly

4,400

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit even notice

4%
Quarterly

3,150

177

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount
upon credit
even notice

4%
Quarterly

3,245

105

Lehman Brothers Holdings Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount
upon credit
even notice

4%
Quarterly

3,245

105

Lehman Brothers Holdings Inc.
(iBoxx IG Hi-Vol2)¹

September 20, 2009

1.15%
Quarterly

Specified amount
upon credit
event notice

12,180

Lehman Brothers Holdings Inc.
(iBoxx IG Hi-Vol3)¹

September 20, 2009

1.05%
Quarterly

Specified amount
upon credit
event notice

1,450

Lehman Brothers Holdings Inc.
(iBoxx IG TMT)¹

March 20, 2009

0.6%
Quarterly

Specified amount
upon credit
even notice

9,000

(91

)

Lehman Brothers Holdings Inc.
(Sara Lee Corporation,
6.125%, due 11/1/32)¹

September 20, 2011

0.44%
Quarterly

Specified amount
upon credit
event notice

9,750

(77

)

Lehman Brothers Holdings Inc.
(Sprint Capital Corporation,
8.375%, due 3/15/12)¹

December 20, 2007

Specified amount
upon credit
event notice

0.05%
Quarterly

2,220

)

Lehman Brothers Holdings Inc.
(Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2011

0.57%
Quarterly

Specified amount
upon credit
event notice

6,270

(57

)

251

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.
(AES Corp.,
7.75%, due 3/1/14)¹

March 20, 2017

Specified amount
upon credit
even notice

2.8%
Quarterly

5,600

(367

)

Merrill Lynch & Co., Inc.
(AES Corp.,
7.75%, due 3/1/14)¹

March 20, 2017

Specified amount
upon credit
even notice

2.6%
Quarterly

3,600

(241

)

Merrill Lynch & Co., Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount
upon credit
even notice

0.82%
Quarterly

42,600

(1,684

)

Merrill Lynch & Co., Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount
upon credit
even notice

0.92%
Quarterly

31,750

(1,122

)

Merrill Lynch & Co., Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount
upon credit
even notice

1.125%
Quarterly

18,800

(503

)

Merrill Lynch & Co., Inc.
(Pacific Gas & Electric Co.,
4.8%, due 3/1/14)¹

June 20, 2009

Specified amount
upon credit
event notice

0.42%
Quarterly

2,980

Merrill Lynch & Co., Inc.
(The AES Corp.,
7.75%, due 3/1/14)¹

September 20, 2017

Specified amount
upon credit
event notice

3.9%
Quarterly

10,100

129

Merrill Lynch & Co., Inc.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

September 20, 2010

Specified amount
upon credit
even notice

2.3%
Quarterly

1,610

Morgan Stanley & Co. Inc.
(ABX. HE-AAA 06-2)¹

May 25, 2046

Specified amount
upon credit
event notice

0.11%
Monthly

17,200

218

Morgan Stanley & Co. Inc.
(Residential Capital Corp.,
6.5%, due 4/17/13)¹

September 20, 2008

Specified amount
upon credit
event notice

11.5%
Quarterly

3,800

(94

)

Morgan Stanley & Co. Inc.
(Residential Capital Corp.,
6.5%, due 4/17/13)¹

September 20, 2008

Specified amount
upon credit
event notice

12.75%
Quarterly

3,800

(55

)

Morgan Stanley & Co. Inc.
(Residential Capital Corp.,
6.5%, due 4/17/13)¹

September 20, 2008

Specified amount
upon credit
event notice

13.5%
Quarterly

3,800

(31

)

Morgan Stanley & Co., Inc.²

March 15, 2012

4.7625%
Semi-annually

3-month
LIBOR

5,540

Morgan Stanley & Co., Inc.²

April 30, 2016

5.189%
Semi-Annually

3-month
LIBOR

6,600

(28

)

252

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)

Morgan Stanley & Co., Inc.
(Eastman Kodak Co.,
7.25%, due 11/15/13)¹

March 20, 2011

Specified amount
upon credit
even notice

2.7%
Quarterly

5,000

237

Morgan Stanley & Co., Inc.
(Gannett Company Inc.,
6.375%, due 4/1/12)¹

March 20, 2012

0.46%
Quarterly

Specified amount
upon credit
even notice

4,560

Morgan Stanley & Co., Inc.
(Residential Capital Corp.,
6.5%, due 4/17/13)¹

August 20, 2008

Specified amount
upon credit
event notice

10.25%
Quarterly

18,800

(663

)

Morgan Stanley & Co., Inc.
(Viacom Inc.,
6.25%, due 4/30/16)¹

March 20, 2012

0.36%
Monthly

Specified amount
upon credit
event notice

10,540

Morgan Stanley & Co., Inc.
(Weyerhaeuser Co. Note,
7.125%, due 7/15/23)¹

March 20, 2012

0.74%
Quarterly

Specified amount upon credit event notice

5,540

RBS Greenwich²

April 1, 2012

5.011%
Semi-Annually

3-month
LIBOR

4,560

(32

)

RBS Greenwich²

March 1, 2016

5.12%
Semi-Annually

3-month
LIBOR

8,230

RBS Greenwich²

February 15, 2017

5.115%
Semi-annually

3-month
LIBOR

7,210

RBS Greenwich
(AES Corp.,
7.75%, due 3/1/14)¹

March 20, 2012

Specified amount upon credit event notice

2.07%
Quarterly

3,900

(85

)

RBS Greenwich
(AES Corp.,
7.75%, due 3/1/14)¹

March 20, 2013

Specified amount upon credit event notice

1.64%
Quarterly

4,000

(154

)

RBS Greenwich
(AES Corp.,
7.75%, due 3/1/14)¹

June 20, 2012

Specified amount upon credit event notice

2.14%
Quarterly

10,500

(274

)

RBS Greenwich
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

16,900

177

RBS Greenwich
(CDX IG 8)¹

June 20, 2012

Specified amount upon credit event notice

0.35%
Quarterly

14,500

126

RBS Greenwich
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75 %
Quarterly

250,000

(7,181

)

253

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 (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly	$	28,500	$	(720	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		33,300		(757	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		29,100		(638	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		28,300		(549	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		28,400		(524	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		28,700		(537	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		36,400		(421	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		16,200		(178	)

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		28,800		250

RBS Greenwich (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		15,400		(78	)

RBS Greenwich (Countrywide Home Loan Inc., 4%, due 3/22/11)¹	March 20, 2012	Specified amount upon credit event notice	0.6% Quarterly		7,400		(575	)

RBS Greenwich (Countrywide Home Loans, Inc., 4.0%, due 3/22/11)¹	June 20, 2012	Specified amount upon credit event notice	0.66% Quarterly		9,900		(743	)

RBS Greenwich (DSLA Mortgage Loan Trust 2005-AR5, 1-Month LIBOR + 175 bp, due 8/19/45)¹	August 19, 2045	4.5% Monthly	Specified amount upon credit event notice		2,097		(71	)

254

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
(Dynergy Holdings Inc.,
6.875%, due 4/1/11)¹

June 20, 2011

Specified amount upon credit event notice

2.25%
Quarterly

4,200

(73

)

RBS Greenwich
(Eastman Kodak Co.,
7.25%, due 11/15/13)¹

September 20, 2017

Specified amount upon credit event notice

3.32%
Quarterly

7,100

373

RBS Greenwich
(Eastman Kodak Co.,
7.25%, due 11/15/13)¹

September 20, 2017

Specified amount upon credit event notice

3.22%
Quarterly

7,130

325

RBS Greenwich
(Eastman Kodak,
7.25%, due 11/15/13)¹

December 20, 2010

Specified amount upon credit event notice

3.2%
Quarterly

19,300

1,217

RBS Greenwich
(Eastman Kodak,
7.25%, due 11/15/13)¹

December 20, 2011

Specified amount upon credit event notice

1.83%
Quarterly

4,200

RBS Greenwich
(Eastman Kodak,
7.25%, due 11/15/13)¹

December 20, 2011

Specified amount upon credit event notice

2.1%
Quarterly

4,200

RBS Greenwich
(Eastman Kodak,
7.25%, due 11/15/13)¹

December 20, 2011

Specified amount upon credit event notice

2.15%
Quarterly

4,100

RBS Greenwich
(Eastman Kodak,
7.25%, due 11/15/13)¹

December 20, 2011

Specified amount upon credit event notice

2.15%
Quarterly

4,100

RBS Greenwich
(Eastman Kodak,
7.25%, due 11/15/13)¹

December 20, 2016

Specified amount upon credit event notice

2.8%
Quarterly

7,200

147

RBS Greenwich
(El Paso Corp.,
7.875%, due 6/15/12)¹

December 20, 2011

Specified amount upon credit event notice

1.42%
Quarterly

3,500

RBS Greenwich
(Ford Motor Credit Company,
7%, due 10/1/13)¹

September 20, 2011

Specified amount upon credit event notice

3.75%
Quarterly

8,900

RBS Greenwich
(Ford Motor Credit Company,
7%, due 10/1/13)¹

March 20, 2012

Specified amount upon credit event notice

5.38%
Quarterly

8,200

(90

)

RBS Greenwich
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

September 20, 2011

Specified amount upon credit event notice

6.75%
Quarterly

18,400

746

255

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
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

June 20, 2012

Specified amount upon credit event notice

5.85%
Quarterly

7,400

RBS Greenwich
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

June 20, 2012

Specified amount upon credit event notice

5.1%
Quarterly

12,450

(306

)

RBS Greenwich
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

June 20, 2012

Specified amount upon credit event notice

5.15%
Quarterly

6,900

(157

)

RBS Greenwich
(General Mills Inc.,
5.7%, due 2/15/17)¹

March 20, 2017

0.33 %
Quarterly

Specified amount upon credit event notice

7,210

RBS Greenwich
(General Motors Acceptance Corp.,
6.875%, due 8/28/12)¹

September 20, 2012

Specified amount upon credit event notice

5.95%
Quarterly

3,800

350

RBS Greenwich
(General Motors Acceptance Corp.,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

6.63%
Quarterly

19,600

1,269

RBS Greenwich
(General Motors Acceptance Corp., Inc.,
6.875%, due 8/28/12)¹

September 20, 2012

Specified amount upon credit event notice

7.2%
Quarterly

10,700

1,456

RBS Greenwich
(General Motors Acceptance Corporation,
6%, due 4/1/11)¹

December 20, 2011

Specified amount upon credit event notice

1.34%
Quarterly

780

(48

)

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

September 20, 2010

Specified amount upon credit event notice

5.75%
Quarterly

1,250

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

December 20, 2011

Specified amount upon credit event notice

1.2%
Quarterly

680

(45

)

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

March 20, 2012

Specified amount upon credit event notice

1.17%
Quarterly

8,500

(598

)

256

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,
6.875%, due 8/28/12)¹

March 20, 2012

Specified amount upon credit event notice

1.4%
Quarterly

9,400

(590

)

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

March 20, 2012

Specified amount upon credit event notice

1.85%
Quarterly

9,700

(466

)

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

March 20, 2012

Specified amount upon credit event notice

2%
Quarterly

9,300

(401

)

RBS Greenwich
(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

December 20, 2016

Specified amount upon credit event notice

1.55%
Quarterly

4,200

(381

)

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

6.1%
Quarterly

8,000

411

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

6.9%
Quarterly

10,000

716

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

7.2%
Quarterly

7,820

619

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

December 20, 2010

Specified amount upon credit event notice

8.95%
Quarterly

19,300

2,502

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

March 20, 2012

Specified amount upon credit event notice

3.7%

Quarterly

8,400

(284

)

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice

7.1%
Quarterly

8,000

588

257

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Core Plus Bond Portfolio—Continued

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/

(Depreciation)

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice

6.8%

Quarterly

7,500

498

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount upon credit event notice

8.4%
Quarterly

12,500

1,302

RBS Greenwich
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

September 20, 2010

Specified amount upon credit event notice

7.7%

Quarterly

12,500

1,148

RBS Greenwich
(Harborview Mortgage Loan
Trust 2005-12, 1-Month
LIBOR + 175 bp,
due 10/19/35)¹

October 19, 2035

2.5%
Monthly

Specified amount upon credit event notice

1,992

(12

)

RBS Greenwich
(Home Depot Inc.,
5.4%, due 3/1/16)¹

March 20, 2016

0.48%
Monthly

Specified amount upon credit event notice

8,230

206

RBS Greenwich
(IndyMac Index Mortgage Loan Trust 2005-AR18, 1-Month LIBOR + 125 bp,
due 10/25/36)¹

October 25, 2036

2.7%
Monthly

Specified amount upon credit event notice

1,886

(99

)

RBS Greenwich
(LCDX 8)¹

June 20, 2012

Specified amount upon credit event notice

1.2 %
Quarterly

40,000

(204

)

RBS Greenwich
(LCDX 8)¹

June 20, 2012

Specified amount upon credit event notice

1.2 %
Quarterly

23,800

449

RBS Greenwich
(LCDX 8)¹

June 20, 2012

Specified amount upon credit event notice

1.2 %
Quarterly

47,700

(434

)

RBS Greenwich
(LCDX 8)¹

June 20, 2012

Specified amount upon credit event notice

1.2 %
Quarterly

20,000

(82

)

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

June 20, 2012

Specified amount upon credit event notice

1.76%
Quarterly

24,300

(514

)

258

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
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.35%
Quarterly

3,600

RBS Greenwich
(SLM Corp.,
5.125%, due 8/27/12)¹

September 20, 2012

Specified amount upon credit event notice

2.4%
Quarterly

3,600

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice

3.5%
Quarterly

3,920

(197

)

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice

3.55%
Quarterly

1,600

(78

)

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice

3.55%
Quarterly

3,900

(191

)

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

September 20, 2010

Specified amount upon credit event notice

3.67%
Quarterly

5,000

(230

)

RBS Greenwich
(Tenet Healthcare Corporation,
6.375%, due 12/1/11)¹

December 20, 2010

Specified amount upon credit event notice

3.87%
Quarterly

7,700

(354

)

RBS Greenwich
(The AES Corp.,
7.75%, due 3/1/14)¹

June 20, 2012

Specified amount upon credit even notice

2.23%
Quarterly

7,400

(167

)

RBS Greenwich
(The AES Corp.,
7.75%, due 3/1/14)¹

June 20, 2012

Specified amount upon credit even notice

2.23%
Quarterly

6,300

(142

)

RBS Greenwich
(The AES Corp.,
7.75%, due 3/1/14)¹

June 20, 2012

Specified amount upon credit even notice

1.9 %
Quarterly

12,000

(429

)

RBS Greenwich
(Time Warner Inc.
6.875%, due 5/1/12)¹

September 20, 2010

Specified amount upon credit event notice

0.47%
Quarterly

5,000

RBS Greenwich
(Time Warner Inc.,
6.875%, due 5/1/12)¹

December 20, 2010

Specified amount upon credit event notice

0.5%
Quarterly

12,500

259

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
(TXU Corp.,
5.55%, due 11/15/14)¹

September 20, 2012

Specified amount
upon credit
even notice

3%
Quarterly

5,500

(346

)

RBS Greenwich
(TXU Corp.,
5.55%, due 11/15/14)¹

September 20, 2012

Specified amount upon credit
even notice

3.05%
Quarterly

2,700

(165

)

RBS Greenwich
(TXU Corp.,
5.55%, due 11/15/14)¹

September 20, 2012

Specified amount upon credit
even notice

3.4%
Quarterly

3,100

(147

)

RBS Greenwich
(Washington Mutual
2005-AR11, 1-Month
LIBOR + 120 bp,
due 8/25/45)¹

August 25, 2045

2.55%
Monthly

Specified amount
upon credit
event notice

759

(36

)

The Goldman Sachs Group, Inc.²

October 18, 2008

3-month
LIBOR

5.55%
Semi-Annually

364,010

1,471

The Goldman Sachs Group, Inc.²

October 19, 2008

3-month
LIBOR

5.55%
Semi-Annually

355,124

1,512

The Goldman Sachs Group, Inc.²

March 10, 2009

3-month
LIBOR

4.36%
Semi-Annually

74,400

121

The Goldman Sachs Group, Inc.²

September 24, 2009

3.7135%
Semi-Annually

3-month
LIBOR

100,000

1,763

The Goldman Sachs Group, Inc.²

July 7, 2011

3-month
LIBOR

5.7125%
Semi-Annually

113,400

3,647

The Goldman Sachs Group, Inc.²

November 3, 2011

3-month
LIBOR

5.0435%
Semi-Annually

147,000

1,298

The Goldman Sachs Group, Inc.²

January 10, 2012

3-month
LIBOR

5.658%
Semi-Annually

113,900

2,622

The Goldman Sachs Group, Inc.²

January 12, 2012

3-month
LIBOR

5.0863
Semi-Annually

128,700

1,315

The Goldman Sachs Group, Inc.²

January 31, 2012

3-month
LIBOR

5.279%
Semi-Annually

132,400

2,336

The Goldman Sachs Group, Inc.²

February 1, 2012

3-month
LIBOR

5.315%
Semi-Annually

151,100

2,857

The Goldman Sachs Group, Inc.²

October 18, 2016

5.67%
Semi-Annually

3-month
LIBOR

88,781

(2,315

)

The Goldman Sachs Group, Inc.²

October 19, 2016

5.69%
Semi-Annually

3-month
LIBOR

88,781

(2,395

)

260

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.²

February 2, 2017

3-month
LIBOR

5.376%
Semi-Annually

65,200

976

The Goldman Sachs Group, Inc.²

July 24, 2017

3-month
LIBOR

5.63965%
Semi-Annually

150,000

5,137

The Goldman Sachs Group, Inc.²

July 30, 2017

3-month
LIBOR

5.56545%
Semi-Annually

150,000

4,264

The Goldman Sachs Group, Inc.²

August 20, 2017

3-month
LIBOR

5.45136%
Semi-Annually

130,200

2,508

The Goldman Sachs Group, Inc.²

August 21, 2017

3-month
LIBOR

5.37551%
Semi-Annually

85,000

1,140

The Goldman Sachs Group, Inc.²

September 14, 2017

5.0575%
Semi-Annually

3-month
LIBOR

60,400

727

The Goldman Sachs Group, Inc.²

March 19, 2018

3-month
LIBOR

5%
Semi-Annually

129,800

816

The Goldman Sachs Group, Inc.²

March 19, 2038

3-month
LIBOR

5.25%
Semi-Annually

567,555

(4,565

)

The Goldman Sachs Group, Inc.
(CDX HY 8)¹

June 20, 2012

0.9%
Quarterly

Specified amount
upon credit
even notice

32,000

(1,158

)

The Goldman Sachs Group, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount
upon credit
event notice

0.35%
Quarterly

85,500

(525

)

The Goldman Sachs Group, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount
upon credit
event notice

0.35%
Quarterly

86,400

(401

)

The Goldman Sachs Group, Inc.
(CDX IG 8)¹

June 20, 2012

Specified amount
upon credit
event notice

0.35%
Quarterly

29,100

277

The Goldman Sachs Group, Inc.
(CDX IG HVOL 3)¹

March 20, 2010

Specified amount
upon credit
event notice

1.05%
Quarterly

21,847

242

The Goldman Sachs Group, Inc.
(CDX IG HVOL 3)¹

March 20, 2010

Specified amount
upon credit
event notice

1.05%
Quarterly

42,823

1,037

The Goldman Sachs Group, Inc.
(CDX IG HVOL 4)¹

June 20, 2010

0.9%
Quarterly

Specified amount
upon credit
event notice

25,300

240

The Goldman Sachs Group, Inc.
(CDX IG HVOL 4)¹

December 20, 2010

0.85%
Quarterly

Specified amount
upon credit
event notice

25,300

203

261

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. (CDX IG HVOL 5)¹	December 20, 2010	0.85% Quarterly	Specified amount upon credit event notice	$	48,200	$	372

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		156,700		(4,828	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		65,500		(1,703	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		58,400		(1,651	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		27,200		(721	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		76,200		(1,844	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		55,600		(1,299	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		150,000		(3,535	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		28,200		(538	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		6,700		(99	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		28,500		(539	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		29,100		(260	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		29,100		(302	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		27,100		282

262

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.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount
upon credit
event notice

0.75%
Quarterly

29,100

499

The Goldman Sachs Group, Inc.
(CMBX A3)¹

December 13, 2049

0.62%
Monthly

Specified amount
upon credit even notice

5,000

(507

)

The Goldman Sachs Group, Inc.
(Eastman Kodak Co.,
7.25%, due 11/15/13)¹

September 20, 2017

Specified amount
upon credit
event notice

3.4%
Quarterly

4,400

255

The Goldman Sachs Group, Inc.
(Eastman Kodak Company,
7.25%, due 11/15/13)¹

March 20, 2015

Specified amount
upon credit
event notice

1.67%
Quarterly

1,900

(66

)

The Goldman Sachs Group, Inc.
(Ford Motor Credit Co.,
7%, due 10/1/2013)¹

September 20, 2017

Specified amount
upon credit
event notice

3.77%
Quarterly

6,400

(54

)

The Goldman Sachs Group, Inc.
(Ford Motor Credit Co.,
7.45%, due 7/16/31)¹

September 20, 2011

Specified amount
upon credit event notice

6.8%
Quarterly

10,000

421

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7%, due 10/1/13)¹

June 20, 2010

Specified amount
upon credit
event notice

4.75%
Quarterly

2,500

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7%, due 10/1/13)¹

September 20, 2011

Specified amount
upon credit
event notice

3.8%
Quarterly

9,200

)

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

6.8%
Quarterly

8,400

354

The Goldman Sachs Group, Inc.
(Ford Motor Credit Company,
7.45%, due 7/16/31)¹

March 20, 2012

Specified amount
upon credit
event notice

6.05%
Quarterly

11,500

138

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

5.95%
Quarterly

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

5.75%
Quarterly

2,000

117

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

6%
Quarterly

1,000

263

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Core Plus Bond Portfolio—Continued

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/

(Depreciation)

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

June 20, 2010

Specified amount
upon credit
event notice

8.95%
Quarterly

5,000

585

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

March 20, 2012

Specified amount upon credit event notice

3.15%
Quarterly

19,400

(1,022

)

The Goldman Sachs Group, Inc.
(General Motors Acceptance Corporation,
7.125%, due 7/15/13)¹

March 20, 2012

Specified amount upon credit event notice

4.4%
Quarterly

11,500

(113

)

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

7%
Quarterly

42,500

3,272

The Goldman Sachs Group, Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice

4%
Quarterly

2,845

194

The Goldman Sachs Group, Inc.
(iBoxx HY 3)¹

December 20, 2009

Specified amount upon credit event notice

4%
Quarterly

955

The Goldman Sachs Group, Inc.
(iBoxx HY 3)¹

December 20, 2009

4%
Quarterly

Specified amount upon credit event notice

5,785

246

The Goldman Sachs Group, Inc.
(iBoxx HY 4)¹

June 20, 2010

Specified amount upon credit event notice

3.4%
Quarterly

2,200

140

The Goldman Sachs Group, Inc.
(iBoxx HY 6B)¹

June 20, 2011

Specified amount upon credit event notice

3%
Quarterly

11,400

(19

)

The Goldman Sachs Group, Inc.
(iBoxx HY 6B)¹

June 20, 2011

Specified amount upon credit event notice

3%
Quarterly

15,000

(54

)

The Goldman Sachs Group, Inc.
(JPM Chase Commercial Mortgage,
5.7966%, due 5/15/47)¹

May 15, 2047

0.75%
Monthly

Specified amount upon credit event notice

5,000

1,506

The Goldman Sachs Group, Inc.
(LCDX 8)¹

June 20, 2012

Specified amount upon credit event notice

1.2%
Quarterly

17,000

670

264

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.
(The AES Corp.,
7.75%, due 3/1/14)¹

September 20, 2017

Specified amount upon credit event notice

3.8%

Quarterly

4,320

The Goldman Sachs Group, Inc.
(TXU Corp.,
5.55%, due 11/15/2014)¹

September 20, 2012

Specified amount upon credit even notice

3.24%
Quarterly

2,700

(145

)

9,842,486

19,172

Western Asset High Yield Portfolio

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Deutsche Bank AG
(Residential Capital Corp., 6.5%, due 4/17/13)¹

September 20, 2008

Specified amount upon credit event notice

8.5%
Quarterly

5,000

(250

)

5,000

(250

)

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)

Barclays Capital Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

2.75%
Quarterly

7,200

321

Bear Stearns, Inc.
(CDX HY 8)¹

June 20, 2012

Specified amount upon credit event notice

2.75%
Quarterly

13,400

(38

)

Deutsche Bank AG
(CDX HY 4)¹

June 20, 2010

Specified amount upon credit even notice

3.6%
Quarterly

9,500

578

Deutsche Bank AG
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit even notice

.75%
Quarterly

14,700

(390

)

J.P. Morgan Chase & Co.
(Ford Motor Credit Company,
7%, due 8/15/12)¹

June 20, 2010

Specified amount upon credit even notice

2.9%
Quarterly

5,000

(95

)

Merrill Lynch & Co., Inc.
(El Paso Corporation,
7%, due 5/15/11)¹

June 20, 2010

Specified amount upon credit even notice

3.625%
Quarterly

2,500

169

Merrill Lynch & Co., Inc.
(Ford Motor Credit Company,
7.375%, due 10/28/09)¹

June 20, 2010

Specified amount upon credit even notice

5.5%
Quarterly

2,500

102

265

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

Western Asset Inflation Indexed 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.
(General Motors Acceptance Corporation,
7.75%, due 1/19/10)¹

March 20, 2010

Specified amount upon credit even notice

3.55%
Quarterly

5,000

The Goldman Sachs Group, Inc.
(Eastman Kodak Corporation,
7.25%, due 11/15/13)¹

March 20, 2011

Specified amount upon credit even notice

2.57%
Quarterly

4,800

207

The Goldman Sachs Group, Inc.

(General Motors Acceptance Corporation,
6.875%, due 8/28/12)¹

June 20, 2010

Specified amount upon credit even notice

4.5%
Quarterly

7,500

225

72,100

1,120

Western Asset Intermediate 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
(MBIA Global Funding LLC,
5.37563%, due 10/6/10)¹

September 20, 2008

Specified amount upon credit event notice

1.4%
Quarterly

980

Banc of America Securities LLC
(MBIA Global Funding LLC,
5.37563%, due 10/6/10)¹

September 20, 2008

Specified amount upon credit event notice

1.5%
Quarterly

640

Banc of America Securities LLC
(Nadarko Petroleum Corp.,
5.95%, due 9/15/16)¹

December 20, 2007

Specified Amount upon credit event notice

0.1%
Quarterly

1,900

—

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

0.75%
Quarterly

Specified amount upon credit event notice

5,200

(104

)

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

3,600

(60

)

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

1,400

(28

)

Deutsche Bank AG
(Freddie Mac,
5%, due 7/15/14)¹

March 20, 2015

Specified Amount upon credit event notice

.29%
Quarterly

1,945

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

2,900

(57

)

266

Semi-Annual Report to Shareholders

Western Asset Intermediate Bond Portfolio—Continued

Agreement With:

Termination Date

The Fund
Agrees to Pay

The Fund
Will Receive

Contract
Notional Amount

Unrealized
Appreciation/
(Depreciation)

Morgan Stanley & Co., Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

1,500

(43

)

Morgan Stanley & Co., Inc.
(SLM Corp.,
5.125%, due 8/27/12)¹

June 26, 2012

Specified amount upon credit event notice

2.6%
Quarterly

800

The Goldman Sachs Group, Inc.
(CDX HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

5,500

(146

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

2,800

(72

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

2,800

(35

)

The Goldman Sachs Group, Inc.
(iBoxx IG HiVol4)¹

June 20, 2012

Specified Amount upon credit event notice

1%
Quarterly

7,811

39,776

(425

)

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)

Banc of America Securities LLC
(Nadarko Petroleum Corp.,
5.95%, due 9/15/16)¹

December 20, 2007

Specified amount upon credit event notice

0.10%
Quarterly

200

—

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

0.75%
Quarterly

Specified amount upon credit event notice

700

(14

)

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

500

)

Barclays Capital Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

200

)

JP Morgan Chase & Co.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

400

)

Merrill Lynch & Co., Inc.
(iBoxx HY3)¹

December 20, 2009

Specified amount upon credit event notice

3.75%
Quarterly

384

267

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued

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)

Morgan Stanley & Co., Inc.
(SLM Corp.,
5.125%, due 8/27/12)¹

June 20, 2012

Specified amount upon credit event notice

2.60%
Quarterly

100

Morgan Stanley & Co., Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

200

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

700

(18

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

400

(10

)

The Goldman Sachs Group, Inc.
(CDX IG HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

400

)

The Goldman Sachs Group, Inc.
(iBoxx HY2)¹

September 20, 2009

Specified amount upon credit event notice

4.3%
Quarterly

238

4,422

(51

)

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.
(CDX HVOL 8)¹

June 20, 2012

0.75%
Quarterly

Specified amount upon credit event notice

700

(14

)

Barclays Capital Inc.
(CDX HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

1600

(35

)

Barclays Capital Inc.
(CDX HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

200

)

Deutsche Bank AG
(CDX HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

240

Deutsche Bank AG
(CDX HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

240

JP Morgan Chase & Co.
(CDX HVOL 8)¹

June 20, 2012

Specified amount upon credit event notice

0.75%
Quarterly

400

)

268

Semi-Annual Report to Shareholders


Western Asset Limited Duration 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.⁴	January 1, 2008	1-month LIBOR	LEHM U.S. ABS AAA Floating Home Equities Index	$	700	$	7

Lehman Brothers Holdings Inc.⁴	March 1, 2008	1-month LIBOR	LEHM U.S. ABS AAA Floating Home Equities Index		5,500		49

Morgan Stanley & Co., Inc. (CDX HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		100		(2	)

Morgan Stanley & Co., Inc. (CDX HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		200		(5	)

Morgan Stanley & Co., Inc. (CDX HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		200		(5	)

Morgan Stanley & Co., Inc. (CDX HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		200		(5	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		1,100		(29	)

The Goldman Sachs Group, Inc. (CDX IG HVOL 8)¹	June 20, 2012	Specified amount upon credit event notice	0.75% Quarterly		300		(4	)

				$	11,680	$	(50	)

4. Securities Lending

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 the 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, 2007, collateral for securities on loan consisted of:


	Money Market Pooled Accounts		U.S. Government Securities
Core	$	511,124	$	71,998
Core Plus		1,593,825		212,870
Inflation Indexed		126,270		56,102
Intermediate		92,821		14,774

269

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 Absolute Return, Core, Core Plus, High Yield, Inflation Indexed, Intermediate, Intermediate Plus, and Limited Duration. Western Asset Management Company Limited (“WAML”) is the investment adviser to Non-U.S. and shares advisory responsibilities with Western Asset for Absolute Return, Core Plus, Inflation Indexed, and Intermediate Plus. 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.


Fund	Asset Breakpoint for Management Fee	Management Fee		Asset Breakpoint for Expense Limitation	Expense Limitation		Six Months Ended September 30, 2007			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
Absolute Return

Institutional Class	All asset levels	0.750	%	Up to $300,000	1.10	%	$	190		$	—

				In excess of $300,000	1.35	%

Financial Intermediary Class	All asset levels	0.750	%	Up to $300,000 In excess of $300,000	1.05 1.35	% %		—	^A

Core

Institutional Class	Up to $500 million Next $500 million In excess of $1 billion	0.450 0.425 0.400	% % %	All asset levels All asset levels All asset levels	0.50	%		—			—

Financial Intermediary Class	Up to $500 million Next $500 million In excess of $1 billion	0.450 0.425 0.400	% % %	All asset levels All asset levels All asset levels	0.75	%		—			—

Core Plus

Institutional Class	Up to $500 million Next $500 million In excess of $1 billion	0.450 0.425 0.400	% % %	All asset levels All asset levels All asset levels	0.45	%		—			—

Financial Intermediary Class	Up to $500 million Next $500 million In excess of $1 billion	0.450 0.425 0.400	% % %	All asset levels All asset levels All asset levels	0.70	%		—			—

High Yield	All asset levels	0.550	%	All asset levels	0.65	%		—			—

Inflation Indexed	All asset levels	0.200	%	All asset levels	0.25	%		(53	)		(408	)

Intermediate	All asset levels	0.400	%	All asset levels	0.45	%		(17	)		(255	)

Intermediate Plus	All asset levels	0.400	%	All asset levels	0.45	%		(69	)		(290	)

Limited Duration	All asset levels	0.350	%	All asset levels	0.40	%		(61	)		(450	)

Non-U.S.	All asset levels	0.450	%	All asset levels	0.55	%		(42	)		(388	)

^A As of September 30, 2007 the Absolute Return Portfolio waived less than $1 of 12 b-1 fees in the Financial Intermediary Class.

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.

270

Semi-Annual Report to Shareholders

6. Fund Share Transactions:

At September 30, 2007, there were 13.1 billion shares of common stock of the Corporation authorized at $.001 par value. Transactions in the Funds’ shares were as follows:


	Six Months Ended September 30, 2007					Year Ended March 31, 2007
	Shares		Amount			Shares		Amount
Absolute Return
Institutional Class
Shares sold	15,946		$	159,744		36,584		$	371,514
Shares issued on reinvestment	1,196			12,023		631			6,442
Shares repurchased	(1,440	)		(14,442	)	(909	)		(9,306	)

Net Increase	15,702		$	157,325		36,306		$	368,650

Financial Intermediary Class
Shares sold	—		$	—		2		$	17
Shares issued on reinvestment	—			—		—			—
Shares repurchased	—			—		—			—

Net Increase	—		$	—		2		$	17


Core
Institutional Class
Shares sold	89,723		$	997,087		109,208		$	1,227,540
Shares issued on reinvestment	13,010			144,600		18,453			206,866
Shares repurchased	(45,843	)		(507,753	)	(73,985	)		(822,763	)

Net Increase	56,890		$	633,934		53,676		$	611,643

Financial Intermediary Class
Shares sold	31,718		$	352,667		104,516		$	1,162,120
Shares issued on reinvestment	3,906			43,403		4,042			45,486
Shares repurchased	(16,149	)		(179,077	)	(17,801	)		(199,444	)

Net Increase	19,475		$	216,993		90,757		$	1,008,162


Core Plus
Institutional Class
Shares sold	267,309		$	2,748,926		517,391		$	5,399,184
Shares issued on reinvestment	32,771			337,065		35,685			372,524
Shares repurchased	(105,419	)		(1,081,005	)	(137,125	)		(1,423,368	)

Net Increase	194,661		$	2,004,986		415,951		$	4,348,340

Financial Intermediary Class
Shares sold	42,521		$	437,158		35,662		$	372,492
Shares issued on reinvestment	2,817			28,991		2,729			28,501
Shares repurchased	(13,991	)		(143,387	)	(14,763	)		(152,693	)

Net Increase	31,347		$	322,762		23,628		$	248,300

271

Semi-Annual Report to Shareholders

Notes to Financial Statements—Continued


	Six Months Ended September 30, 2007					Year Ended March 31, 2007
	Shares		Amount			Shares		Amount
High Yield
Institutional Class
Shares sold	16,729		$	172,882		21,424		$	225,258
Shares issued on reinvestment	3,639			38,315		4,733			48,268
Shares repurchased	(8,573	)		(89,565	)	(2,034	)		(21,086	)

Net Increase	11,795		$	121,632		24,123		$	252,440


Inflation Indexed
Institutional Class
Shares sold	7,809		$	79,353		9,069		$	93,117
Shares issued on reinvestment	2,275			23,236		2,049			20,971
Shares repurchased	(2,289	)		(23,217	)	(2,315	)		(23,663	)

Net Increase	7,795		$	79,372		8,803		$	90,425

Financial Intermediary Class^A
Shares sold	1		$	12		N/A			N/A
Shares issued on reinvestment	—			—		N/A			N/A
Shares repurchased	—			—		N/A			N/A

Net Increase	1		$	12		N/A			N/A


Intermediate
Institutional Class
Shares sold	17,436		$	179,803		20,543		$	211,660
Shares issued on reinvestment	1,366			15,953		2,589			26,659
Shares repurchased	(10,721	)		(110,127	)	(34,281	)		(351,411	)

Net Increase (Decrease)	8,081		$	85,629		(11,149	)	$	(113,092	)

Intermediate Plus
Institutional Class
Shares sold	1,527		$	14,960		2,077		$	20,298
Shares issued on reinvestment	232			2,279		350			3,440
Shares repurchased	(121	)		(1,193	)	(874	)		(8,558	)

Net Increase	1,638		$	16,046		1,553		$	15,180


Limited Duration
Institutional Class
Shares sold	3,564		$	34,892		6,140		$	60,429
Shares issued on reinvestment	275			2,687		391			3,844
Shares repurchased	(2,008	)		(19,589	)	(4,747	)		(46,701	)

Net Increase	1,831		$	17,990		1,784		$	17,572

272

Semi-Annual Report to Shareholders


	Six Months Ended September 30, 2007					Year Ended March 31, 2007
	Shares		Amount			Shares		Amount
Non-U.S.
Institutional Class
Shares sold	3,584		$	34,805		10,431		$	100,110
Shares issued on reinvestment	6			63		193			1,792
Shares repurchased	(4,034	)		(39,192	)	(1,872	)		(18,048	)

Net Increase (Decrease)	(444	)	$	(4,324	)	8,752		$	83,854

^AFinancial Intermediary Class commenced operations June 28, 2007.

7. Recent Accounting Pronouncements

In 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 establishes financial reporting rules regarding recognition, measurement, presentation, and disclosure in its financial statements of tax positions that a fund has taken or expects to take on a tax return. FIN 48 became effective for fiscal periods beginning after December 15, 2006.

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, management is evaluating the implications of FAS 157 and its impact on the financial statements has not yet been determined.

273

Western Asset Funds, Inc.

The Board of Directors

William E. B. Siart, Chairman

Ronald J. Arnault

Anita L. DeFrantz

R. Jay Gerken

Ronald L. Olson

Avedick B. Poladian

Jaynie Miller Studenmund

Officers

R. Jay Gerken, 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

Susan C. Curry, Assistant Treasurer

Todd F. Kuehl, 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

1211 Avenue of the Americas

New York, New York 10036

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.

This report must be preceded or accompanied by a free prospectus. Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.

Western Asset Management Company

Legg Mason Investor Services, LLC, Distributor

Legg Mason, Inc. Subsidiaries

Item 2. Code of Ethics.

Not applicable for semi-annual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semi-annual reports.

Item 4. Principal Accountant Fees and Services.

Not applicable for semi-annual reports.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Schedule of Investments

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

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

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

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

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/ R. Jay Gerken

R. Jay Gerken

President

Western Asset Funds, Inc.

Date: November 27, 2007

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/ R. Jay Gerken

R. Jay Gerken

President

Western Asset Funds, Inc.

Date: November 27, 2007

By: /s/ Marie K. Karpinski

Marie K. Karpinski

Principal Financial and Accounting Officer

Western Asset Funds, Inc.

Date: November 20, 2007