Legg Mason Partners Income Trust N-14 Registration statement for investment companies business combination

Exhibit (17)(e)

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Schedule of investments

December 31, 2011

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Corporate Bonds & Notes — 41.3%
Consumer Discretionary — 1.0%
Automobiles — 0.3%
Daimler Finance NA LLC, Senior Notes		1.184	%		3/28/14	$	1,400,000	$	1,351,966	(a)(b)
Media — 0.5%
Time Warner Cable Inc., Senior Notes		8.250	%		2/14/14		550,000		620,241
Time Warner Cable Inc., Senior Notes		3.500	%		2/1/15		1,070,000		1,122,102
Walt Disney Co., Senior Notes		4.700	%		12/1/12		900,000		934,160
Total Media									2,676,503
Multiline Retail — 0.2%
Macy’s Retail Holdings Inc., Senior Notes		5.350	%		3/15/12		990,000		996,838
Total Consumer Discretionary									5,025,307
Consumer Staples — 1.7%
Beverages — 0.6%
Anheuser-Busch InBev Worldwide Inc., Senior Notes		4.125	%		1/15/15		1,160,000		1,251,564
Diageo Capital PLC		5.200	%		1/30/13		1,180,000		1,236,022
Dr. Pepper Snapple Group Inc., Senior Notes		2.350	%		12/21/12		510,000		517,186
Total Beverages									3,004,772
Food & Staples Retailing — 0.2%
Kroger Co., Notes		3.900	%		10/1/15		770,000		828,443
Food Products — 0.4%
Kraft Foods Inc., Senior Notes		2.625	%		5/8/13		2,240,000		2,289,202
Tobacco — 0.5%
Altria Group Inc., Senior Notes		8.500	%		11/10/13		380,000		429,187
Altria Group Inc., Senior Notes		9.250	%		8/6/19		180,000		242,047
Philip Morris International Inc.		4.875	%		5/16/13		1,100,000		1,161,168
Reynolds American Inc., Senior Notes		7.250	%		6/1/13		900,000		965,583
Total Tobacco									2,797,985
Total Consumer Staples									8,920,402
Energy — 2.6%
Oil, Gas & Consumable Fuels — 2.6%
Anadarko Petroleum Corp., Senior Notes		7.625	%		3/15/14		890,000		989,167
Apache Corp., Notes		6.250	%		4/15/12		1,820,000		1,847,391
BP Capital Markets PLC, Senior Notes		3.125	%		3/10/12		330,000		331,529
BP Capital Markets PLC, Senior Notes		5.250	%		11/7/13		680,000		729,667
BP Capital Markets PLC, Senior Notes		3.125	%		10/1/15		160,000		167,736
ConocoPhillips		4.750	%		10/15/12		1,000,000		1,030,057
Duke Capital LLC, Senior Notes		6.250	%		2/15/13		1,000,000		1,048,650
El Paso Natural Gas Co., Senior Notes		5.950	%		4/15/17		1,760,000		1,985,046

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011
Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Oil, Gas & Consumable Fuels — continued
Energy Transfer Partners LP, Senior Notes		9.700	%		3/15/19	$	370,000	$	453,917
Enterprise Products Operating LP, Senior Notes		9.750	%		1/31/14		890,000		1,028,571
Pemex Project Funding Master Trust, Senior Notes		1.127	%		12/3/12		2,131,000		2,121,411	(a)(b)
Petrobras International Finance Co., Senior Notes		3.875	%		1/27/16		1,130,000		1,169,788
Shell International Finance BV, Senior Notes		1.875	%		3/25/13		960,000		978,163
Total Energy									13,881,093
Financials — 30.8%
Capital Markets — 6.9%
Bear Stearns Co. Inc., Senior Notes		6.400	%		10/2/17		1,740,000		1,946,338
Credit Suisse AG/Guernsey, Secured Bonds		2.600	%		5/27/16		1,580,000		1,602,812	(a)
Credit Suisse USA Inc., Senior Notes		6.500	%		1/15/12		4,000,000		4,007,296
Deutsche Bank AG, Senior Notes		6.000	%		9/1/17		900,000		1,006,330
Goldman Sachs Capital II, Junior Subordinated Bonds		5.793	%		6/1/12		2,260,000		1,401,200	(b)(c)
Goldman Sachs Group Inc., Senior Notes		6.600	%		1/15/12		830,000		831,102
Goldman Sachs Group Inc., Senior Notes		5.250	%		10/15/13		1,390,000		1,418,863
Goldman Sachs Group Inc., Senior Notes		5.375	%		3/15/20		440,000		435,002
Kaupthing Bank HF, Senior Notes		1.000	%		1/15/10		190,000		47,975	(a)(d)(e)
Kaupthing Bank HF, Senior Notes		5.750	%		10/4/11		2,120,000		535,300	(a)(d)(e)
Kaupthing Bank HF, Senior Notes		7.625	%		2/28/15		890,000		224,725	(a)(d)(f)
Lehman Brothers Holdings Capital Trust VII, Medium-Term Notes		5.857	%		5/31/12		2,620,000		1,572	(b)(c)(f)
Lehman Brothers Holdings Inc., Subordinated Notes		6.500	%		7/19/17		810,000		891	(f)
Macquarie Bank Ltd.		2.600	%		1/20/12		3,620,000		3,620,069	(a)
Macquarie Bank Ltd., Senior Notes		4.100	%		12/17/13		1,000,000		1,060,678	(a)
Merrill Lynch & Co. Inc., Medium-Term Notes		6.150	%		4/25/13		1,930,000		1,948,688
Merrill Lynch & Co. Inc., Senior Notes, Medium-Term Notes		6.050	%		8/15/12		1,700,000		1,724,808
Morgan Stanley, Senior Notes		2.953	%		5/14/13		2,290,000		2,199,779	(b)
Pooled Funding Trust II, Notes		2.625	%		3/30/12		10,000,000		10,052,510	(a)
UBS AG, Senior Notes		2.250	%		1/28/14		250,000		243,401
UBS AG Stamford CT, Senior Notes		3.875	%		1/15/15		1,720,000		1,716,484
Total Capital Markets									36,025,823
Commercial Banks — 11.6%
Abbey National Treasury Services PLC, Senior Notes		4.000	%		4/27/16		1,400,000		1,257,225
ANZ National International Ltd., Senior Notes		2.375	%		12/21/12		1,370,000		1,393,982	(a)
Bank of Montreal, Secured Bonds		2.850	%		6/9/15		1,190,000		1,234,511	(a)
Bank of Montreal, Senior Secured Bonds		1.300	%		10/31/14		2,850,000		2,847,076	(a)

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Commercial Banks — continued
Bank of Tokyo-Mitsubishi UFJ Ltd., Senior Notes		2.600	%		1/22/13	$	320,000	$	323,934	(a)
Bank of Tokyo-Mitsubishi UFJ Ltd., Senior Notes		3.850	%		1/22/15		1,130,000		1,199,721	(a)
Barclays Bank PLC, Senior Notes		5.200	%		7/10/14		210,000		216,599
Barclays Bank PLC, Subordinated Notes		6.050	%		12/4/17		170,000		154,466	(a)
BBVA US Senior SAU, Senior Notes		3.250	%		5/16/14		1,200,000		1,137,305
BNP Paribas, Senior Notes		1.291	%		1/10/14		690,000		636,736	(b)
BNP Paribas, Senior Secured Bonds		2.200	%		11/2/15		2,420,000		2,329,110	(a)
BPCE SA, Senior Subordinated Bonds		2.375	%		10/4/13		990,000		959,269	(a)
Commonwealth Bank of Australia, Senior Notes		2.900	%		9/17/14		3,380,000		3,532,489	(a)
Commonwealth Bank of Australia, Senior Notes		3.750	%		10/15/14		980,000		1,010,359	(a)
Compagnie de Financement Foncier, Secured Bonds		2.250	%		3/7/14		2,000,000		1,967,020	(a)
Credit Agricole Home Loan SFH, Secured Bonds		1.162	%		7/21/14		600,000		576,863	(a)(b)
Credit Agricole SA, Senior Notes		3.500	%		4/13/15		1,230,000		1,130,684	(a)
Credit Agricole SA, Subordinated Notes		8.375	%		10/13/19		640,000		483,200	(a)(b)
Danske Bank A/S, Senior Notes		1.451	%		4/14/14		1,300,000		1,253,834	(a)(b)
Dexia Credit Local NY, Senior Notes		2.000	%		3/5/13		4,380,000		4,212,316	(a)
DnB NOR Boligkreditt, Secured Bonds		2.900	%		3/29/16		2,180,000		2,218,379	(a)
FIH Erhvervsbank A/S, Senior Notes		2.000	%		6/12/13		2,600,000		2,637,976	(a)
Glitnir Banki HF, Subordinated Notes		6.693	%		6/15/16		350,000		0	(a)(d)(f)(g)(h)
HSBC Bank PLC, Bonds		1.625	%		7/7/14		2,160,000		2,136,246	(a)
ING Bank NV, Secured Bonds		2.500	%		1/14/16		2,730,000		2,683,347	(a)
ING Bank NV, Senior Notes		2.625	%		2/9/12		2,000,000		2,003,688	(a)
Landsbanki Islands HF		7.431	%		10/19/17		590,000		0	(a)(c)(d)(f)(g)(h)
Landsbanki Islands HF, Senior Notes		6.100	%		8/25/11		1,720,000		68,800	(a)(d)(e)
Landwirtschaftliche Rentenbank		1.875	%		9/24/12		1,600,000		1,613,595
National Bank of Canada, Secured Bonds		2.200	%		10/19/16		1,590,000		1,604,979	(a)
Nordea Bank AB, Senior Notes		3.700	%		11/13/14		660,000		670,969	(a)
Nordea Eiendomskreditt AS, Mortgage Secured Bonds		1.875	%		4/7/14		2,580,000		2,584,368	(a)
Royal Bank of Scotland PLC, Senior Notes		4.875	%		3/16/15		1,310,000		1,253,509
Santander US Debt SA Unipersonal, Senior Notes		3.724	%		1/20/15		300,000		272,595	(a)
Societe Generale, Senior Notes		1.441	%		4/11/14		1,500,000		1,322,554	(a)(b)
Sparebank 1 Boligkreditt AS, Secured Bonds		2.625	%		5/27/16		1,860,000		1,880,001	(a)
Sumitomo Mitsui Banking Corp., Senior Notes		3.150	%		7/22/15		930,000		971,252	(a)
Wachovia Capital Trust III, Junior Subordinated Bonds		5.570	%		3/15/12		5,680,000		4,778,300	(b)(c)
Wells Fargo & Co., Senior Notes		3.676	%		6/15/16		1,660,000		1,736,475

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011
Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Commercial Banks — continued
Westpac Banking Corp., Senior Bonds		2.250	%		11/19/12	$	2,420,000	$	2,444,585
Total Commercial Banks									60,738,317
Consumer Finance — 2.6%
Ally Financial Inc., Notes		2.200	%		12/19/12		2,290,000		2,334,815
Ally Financial Inc., Senior Notes		7.500	%		12/31/13		3,048,000		3,139,440
Ally Financial Inc., Subordinated Notes		8.000	%		12/31/18		487,000		480,913
American Honda Finance Corp., Senior Notes		3.500	%		3/16/15		970,000		1,018,160	(a)
Caterpillar Financial Services Corp., Notes		1.900	%		12/17/12		810,000		819,671
FIA Credit Services N.A., Subordinated Notes		7.125	%		11/15/12		970,000		983,751
SLM Corp.		0.718	%		1/27/14		3,200,000		2,894,214	(b)
Toyota Motor Credit Corp., Senior Notes		2.000	%		9/15/16		1,950,000		1,971,606
Total Consumer Finance									13,642,570
Diversified Financial Services — 7.2%
Bank of America Corp., Senior Notes		4.875	%		9/15/12		340,000		342,240
Bank of America Corp., Senior Notes		4.500	%		4/1/15		250,000		241,426
Citigroup Inc., Senior Notes		6.000	%		12/13/13		1,230,000		1,273,335
Citigroup Inc., Senior Notes		6.375	%		8/12/14		4,450,000		4,673,167
Citigroup Inc., Senior Notes		5.500	%		10/15/14		340,000		349,760
FDIC Structured Sale Guaranteed Notes		0.000	%		10/25/13		1,150,000		1,137,091	(a)
General Electric Capital Corp., Senior Notes		5.875	%		2/15/12		4,500,000		4,527,419
General Electric Capital Corp., Senior Notes		0.511	%		4/10/12		5,500,000		5,501,397	(b)
General Electric Capital Corp., Senior Notes		5.900	%		5/13/14		1,410,000		1,545,023
General Electric Capital Corp., Senior Notes		5.625	%		5/1/18		400,000		448,604
General Electric Capital Corp., Subordinated Debentures		6.375	%		11/15/67		785,000		775,188	(b)
IBM International Group Capital LLC, Senior Notes		5.050	%		10/22/12		2,650,000		2,746,651
International Lease Finance Corp., Medium-Term Notes		0.748	%		7/13/12		580,000		562,673	(b)
Kreditanstalt fuer Wiederaufbau, Senior Bonds		3.500	%		3/10/14		2,100,000		2,218,171
NCUA Guaranteed Notes, Senior Notes		0.296	%		6/12/13		1,570,000		1,568,556	(b)
Private Export Funding Corp.		3.550	%		4/15/13		4,150,000		4,318,374
Private Export Funding Corp., Notes		4.950	%		11/15/15		1,820,000		2,092,507
SSIF Nevada LP, Senior Notes		1.101	%		4/14/14		2,640,000		2,599,877	(a)(b)
TNK-BP Finance SA, Notes		6.125	%		3/20/12		100,000		101,375	(a)
Westpac Securities NZ Ltd., Senior Notes		2.500	%		5/25/12		740,000		744,598	(a)
Total Diversified Financial Services									37,767,432
Insurance — 2.4%
American International Group Inc., Senior Notes		3.750	%		11/30/13		300,000		294,516	(a)
American International Group Inc., Senior Notes		3.650	%		1/15/14		1,860,000		1,807,343

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Insurance — continued
Berkshire Hathaway Inc., Senior Notes		2.125	%		2/11/13	$	2,570,000	$	2,614,263
MetLife Inc., Senior Notes		2.375	%		2/6/14		2,540,000		2,576,749
Metropolitan Life Global Funding I, Notes		2.875	%		9/17/12		1,060,000		1,074,044	(a)
Prudential Financial Inc., Senior Notes		2.750	%		1/14/13		1,250,000		1,261,089
Suncorp-Metway Ltd., Senior Notes		1.903	%		7/16/12		2,850,000		2,872,241	(a)(b)
Total Insurance									12,500,245
Thrifts & Mortgage Finance — 0.1%
Countrywide Financial Corp., Medium-Term Notes		5.800	%		6/7/12		160,000		160,353
Santander Holdings USA Inc., Senior Notes		4.625	%		4/19/16		750,000		720,921
Total Thrifts & Mortgage Finance									881,274
Total Financials									161,555,661
Health Care — 0.9%
Health Care Equipment & Supplies — 0.5%
Baxter International Inc., Senior Notes		1.800	%		3/15/13		1,070,000		1,083,027
Medtronic Inc., Senior Notes		3.000	%		3/15/15		1,340,000		1,416,156
Total Health Care Equipment & Supplies									2,499,183
Health Care Providers & Services — 0.1%
UnitedHealth Group Inc., Senior Notes		4.875	%		2/15/13		510,000		531,217
Pharmaceuticals — 0.3%
Teva Pharmaceutical Finance III BV, Senior Notes		1.067	%		3/21/14		1,810,000		1,800,666	(b)
Total Health Care									4,831,066
Industrials — 0.8%
Airlines — 0.5%
Continental Airlines Inc., Pass-Through Certificates		6.900	%		1/2/18		1,027,371		1,069,699
Continental Airlines Inc., Pass-Through Certificates		6.545	%		2/2/19		672,436		700,140
Continental Airlines Inc., Pass-Through Certificates		6.703	%		6/15/21		665,093		675,070
Total Airlines									2,444,909
Industrial Conglomerates — 0.3%
United Technologies Corp., Senior Notes		5.375	%		12/15/17		1,360,000		1,610,868
Total Industrials									4,055,777
Materials — 1.3%
Chemicals — 0.3%
Dow Chemical Co., Notes		5.700	%		5/15/18		90,000		100,400
E.I. du Pont de Nemours & Co., Senior Notes		3.250	%		1/15/15		1,180,000		1,259,312
Total Chemicals									1,359,712
Metals & Mining — 1.0%
BHP Billiton Finance USA Ltd., Senior Notes		1.125	%		11/21/14		2,410,000		2,417,365

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Metals & Mining — continued
Rio Tinto Finance USA Ltd., Senior Notes		2.500	%		5/20/16	$	1,160,000	$	1,184,525
Rio Tinto Finance USA Ltd., Senior Notes		2.250	%		9/20/16		1,070,000		1,091,009
Vale Overseas Ltd., Notes		6.250	%		1/23/17		480,000		543,320
Total Metals & Mining									5,236,219
Total Materials									6,595,931
Telecommunication Services — 1.6%
Diversified Telecommunication Services — 1.2%
AT&T Inc., Senior Notes		4.850	%		2/15/14		2,860,000		3,084,273
Telefonica Emisiones SAU		0.763	%		2/4/13		2,490,000		2,394,999	(b)
Telefonica Emisiones SAU, Senior Notes		3.729	%		4/27/15		180,000		172,748
Verizon Communications Inc., Senior Notes		8.750	%		11/1/18		440,000		595,129
Total Diversified Telecommunication Services									6,247,149
Wireless Telecommunication Services — 0.4%
America Movil SAB de CV, Notes		2.375	%		9/8/16		1,320,000		1,322,923
Rogers Wireless Inc., Secured Notes		6.375	%		3/1/14		520,000		573,661
Total Wireless Telecommunication Services									1,896,584
Total Telecommunication Services									8,143,733
Utilities — 0.6%
Electric Utilities — 0.4%
FirstEnergy Solutions Corp., Senior Notes		4.800	%		2/15/15		1,110,000		1,185,550
Pacific Gas & Electric Co.		4.800	%		3/1/14		1,100,000		1,181,978
Total Electric Utilities									2,367,528
Multi-Utilities — 0.2%
Dominion Resources Inc., Senior Notes		8.875	%		1/15/19		10,000		13,289
DTE Energy Co., Senior Notes		1.227	%		6/3/13		760,000		759,542	(b)
PG&E Corp., Senior Notes		5.750	%		4/1/14		160,000		174,422
Total Multi-Utilities									947,253
Total Utilities									3,314,781
Total Corporate Bonds & Notes (Cost — $222,002,862)									216,323,751
Asset-Backed Securities — 9.7%
Access Group Inc., 2005-B A2		0.648	%		7/25/22		1,775,384		1,662,287	(b)
AESOP Funding II LLC, 2011-2A A		2.370	%		11/20/14		1,570,000		1,568,745	(a)
ARI Fleet Lease Trust, 2010-A A		1.728	%		8/15/18		279,549		279,589	(a)(b)
Asset-Backed Funding Certificates, 2002-WF2 A2		1.419	%		5/25/32		221,263		187,878	(b)
Asset-Backed Funding Certificates, 2004-OPT2 M1		1.119	%		8/25/33		400,000		293,521	(b)
Bear Stearns Asset-Backed Securities Trust, 2004-1 A2		0.814	%		6/25/34		789,374		765,070	(b)
Bear Stearns Asset-Backed Securities Trust, 2007-SD1 22A1		2.755	%		10/25/36		259,935		123,048	(b)

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Asset-Backed Securities — continued
Brazos Higher Education Authority Inc., 2011-1 A3		1.556	%		11/25/33	$	2,400,000	$	2,246,198	(b)
Citibank Credit Card Issuance Trust, 2009-A1 A1		2.028	%		3/17/14		2,900,000		2,910,163	(b)
Citibank Credit Card Issuance Trust, 2009-A5 A5		2.250	%		12/23/14		3,290,000		3,339,422
Countrywide Asset-Backed Certificates, 2002-S3 M1		4.800	%		5/25/32		123,615		103,158	(b)
Countrywide Asset-Backed Certificates, 2007-QH1 A1		0.494	%		2/25/37		264,042		160,474	(a)(b)
Countrywide Home Equity Loan Trust, 2004-O		0.558	%		2/15/34		249,534		143,829	(b)
Education Funding Capital Trust, 2003-3 A6		1.787	%		12/15/42		200,000		191,000	(b)
Ford Credit Auto Owner Trust, 2011-A A2		0.620	%		7/15/13		979,572		979,592
Ford Credit Auto Owner Trust, 2011-B A2		0.680	%		1/15/14		3,300,000		3,300,762
GMAC Mortgage Servicer Advance Funding Co., Ltd., 2011-1A A		3.720	%		3/15/23		2,500,000		2,499,817	(a)
GSAMP Trust, 2006-SEA1 A		0.594	%		5/25/36		402,067		331,301	(a)(b)
GSAMP Trust, 2007-SEA1 A		0.594	%		12/25/36		863,482		477,238	(a)(b)
GSRPM Mortgage Loan Trust, 2006-1 A1		0.594	%		3/25/35		1,060,230		829,371	(a)(b)
GSRPM Mortgage Loan Trust, 2007-1 A		0.694	%		3/25/37		1,640,775		719,842	(a)(b)
Hertz Vehicle Financing LLC, 2009-2A A1		4.260	%		3/25/14		1,920,000		1,966,009	(a)
John Deere Owner Trust, 2011-A A2		0.640	%		6/16/14		3,000,000		2,998,401
Lehman XS Trust, 2005-5N 3A1A		0.594	%		11/25/35		939,616		626,346	(b)
Long Beach Mortgage Loan Trust, 2006-A A1		0.474	%		5/25/36		2,958,067		45,241	(b)
NCUA Guaranteed Notes, 2010-A1 A		0.624	%		12/7/20		3,974,485		3,986,051	(b)
Nissan Auto Receivables Owner Trust, 2011-A A2		0.650	%		12/16/13		1,400,000		1,403,032
Nissan Auto Receivables Owner Trust, 2011-A A3		1.180	%		2/16/15		1,200,000		1,205,691
Nissan Master Owner Trust Receivables, 2010-AA A		1.428	%		1/15/15		2,110,000		2,126,118	(a)(b)
Penarth Master Issuer, 2011-1A A1		0.935	%		5/18/15		730,000		728,319	(a)(b)
Residential Asset Mortgage Products Inc., 2003-RS7 MII1		1.419	%		8/25/33		220,856		128,107	(b)
Residential Asset Mortgage Products Inc., 2004-SL3 A4		8.500	%		12/25/31		19,195		19,921
Residential Asset Securities Corp., 2003-KS10 AI6		4.540	%		12/25/33		430,188		427,786	(b)
Saxon Asset Securities Trust, 2003-3 M1		1.269	%		12/25/33		78,485		55,969	(b)
SLM Student Loan Trust, 2003-04 A5A		1.296	%		3/15/33		104,238		99,319	(a)(b)
SLM Student Loan Trust, 2003-11 A4		0.736	%		6/15/20		520,514		518,877	(b)
SLM Student Loan Trust, 2003-11 A6		0.836	%		12/15/25		1,200,000		1,116,797	(a)(b)
SLM Student Loan Trust, 2004-6 B		0.798	%		4/25/25		2,330,000		2,103,634	(b)
SLM Student Loan Trust, 2005-10 A4		0.528	%		10/25/19		909,781		902,886	(b)
SLM Student Loan Trust, 2006-4 A4		0.498	%		4/25/23		282,906		282,086	(b)
SLM Student Loan Trust, 2006-5 A5		0.528	%		1/25/27		1,600,000		1,517,293	(b)
SLM Student Loan Trust, 2006-8 A3		0.438	%		1/25/18		767,181		766,488	(b)
SLM Student Loan Trust, 2007-2 A2		0.418	%		7/25/17		514,837		510,748	(b)
SLM Student Loan Trust, 2008-1 A2		0.768	%		10/25/16		1,383,381		1,378,496	(b)

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Asset-Backed Securities — continued
Specialty Underwriting & Residential Finance, 2003-BC4 M1		1.194	%		11/25/34	$	430,010	$	328,353	(b)
Structured Asset Securities Corp., 2003-AL1 A		3.357	%		4/25/31		312,856		301,816	(a)
Structured Asset Securities Corp., 2007-BC3 1A2		0.434	%		5/25/47		800,000		522,191	(b)
U.S. Small Business Administration, 2004-2		3.080	%		9/25/18		708,766		751,249	(b)
Volkswagen Auto Loan Enhanced Trust, 2008-1 A4		1.985	%		10/20/14		785,874		787,572	(b)
Total Asset-Backed Securities (Cost — $55,823,033)									50,717,101
Collateralized Mortgage Obligations — 12.9%
American Home Mortgage Investment Trust, 2005-4 1A1		0.584	%		11/25/45		988,990		567,995	(b)
Banc of America Funding Corp., 2004-B 3A2		2.846	%		12/20/34		198,175		114,058	(b)
Banc of America Funding Corp., 2005-E 4A1		2.675	%		3/20/35		359,474		318,477	(b)
Banc of America Funding Corp., 2006-D 1A1		0.455	%		5/20/36		915,375		690,147	(b)
Banc of America Funding Corp., 2006-E 2A1		2.827	%		6/20/36		1,674,601		987,889	(b)
Banc of America Mortgage Securities, 2002-J B1		3.520	%		9/25/32		163,725		81,802	(b)
Banc of America Mortgage Securities, 2003-C B1		2.857	%		4/25/33		606,492		198,466	(b)
Banc of America Mortgage Securities, 2004-E 1A1		2.748	%		6/25/34		314,412		297,501	(b)
Bayview Commercial Asset Trust, 2005-2A A2		0.644	%		8/25/35		950,375		719,923	(a)(b)
Bear Stearns Alt-A Trust, 2004-9 3A1		2.473	%		9/25/34		450,463		368,296	(b)
Bear Stearns Alt-A Trust, 2007-1 1A1		0.454	%		1/25/47		1,005,487		324,320	(b)
Bear Stearns ARM Trust, 2004-10 15A1		2.698	%		1/25/35		143,532		118,560	(b)
Bear Stearns ARM Trust, 2006-4 1A1		2.669	%		10/25/36		349,478		214,360	(b)
Bear Stearns Commercial Mortgage Securities Inc., 2004-PWR4 A2		5.286	%		6/11/41		1,703,203		1,768,005	(b)
CBA Commercial Small Balance Commercial Mortgage, 2006-1A A		0.544	%		6/25/38		1,476,618		774,946	(a)(b)
Chase Mortgage Finance Corp., 2007-A1 2A3		2.757	%		2/25/37		346,209		305,045	(b)
Chevy Chase Mortgage Funding Corp., 2004-3A A2		0.594	%		8/25/35		13,711		8,642	(a)(b)
Chevy Chase Mortgage Funding Corp., 2004-4A A2		0.584	%		10/25/35		42,887		28,007	(a)(b)
Chevy Chase Mortgage Funding Corp., 2005-1A A2		0.494	%		1/25/36		24,932		14,210	(a)(b)
Chevy Chase Mortgage Funding Corp., 2005-3A A2		0.524	%		7/25/36		125,451		68,616	(a)(b)
Citigroup Mortgage Loan Trust Inc., 2005-HE2 A		0.694	%		5/25/35		185,794		175,305	(a)(b)
Citigroup Mortgage Loan Trust Inc., 2007-AR4 2A1A		2.837	%		3/25/37		1,226,061		723,258	(b)
Countrywide Alternative Loan Trust, 2004-33 1A1		2.761	%		12/25/34		97,057		71,314	(b)
Countrywide Alternative Loan Trust, 2004-33 2A1		2.977	%		12/25/34		86,241		64,803	(b)
Countrywide Alternative Loan Trust, 2005-56 4A1		0.604	%		11/25/35		587,639		326,960	(b)
Countrywide Alternative Loan Trust, 2005-59 1A2A		0.665	%		11/20/35		1,965,537		412,582	(b)
Countrywide Home Loan, 2003-HYB1 1A1		2.803	%		5/19/33		155,014		135,394	(b)
Countrywide Home Loans, 2003-2 A2		4.000	%		3/25/33		250,272		249,991

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Collateralized Mortgage Obligations — continued
Countrywide Home Loans, 2003-HYB3 6A1		2.866	%		11/19/33	$	78,685	$	63,800	(b)
Countrywide Home Loans, 2005-R2 1AF2		0.634	%		6/25/35		182,248		129,961	(a)(b)
Countrywide Home Loans, 2005-R3 AF		0.694	%		9/25/35		84,693		69,813	(a)(b)
Countrywide Home Loans, 2006-R2 AF1		0.714	%		7/25/36		126,594		108,047	(a)(b)
Countrywide Home Loans Mortgage Pass-Through Trust, 2004-23 A		2.550	%		11/25/34		758,174		377,645	(b)
CS First Boston Mortgage Securities Corp., 2004-AR5 7A2		2.574	%		6/25/34		740,734		675,829	(b)
Downey Savings & Loan Association Mortgage Loan Trust, 2006-AR1 2A1A		1.148	%		4/19/47		624,564		339,272	(b)
Downey Savings and Loan Association Mortgage Loan Trust, 2005-AR1 2A1A		0.535	%		3/19/45		362,321		212,411	(b)
FDIC Structured Sale Guaranteed Notes, 2010-S1 1A		0.820	%		2/25/48		595,841		595,217	(a)(b)
FDIC Structured Sale Guaranteed Notes, 2010-S2		0.970	%		12/29/45		2,105,209		2,084,157	(a)(b)
Federal Home Loan Mortgage Corp. (FHLMC), 2525 AM		4.500	%		4/15/32		304,579		336,138
Federal Home Loan Mortgage Corp. (FHLMC), Structured Pass-Through Securities, T-51 1A		6.500	%		9/25/43		250,629		283,516	(b)
First Horizon Alternative Mortgage Securities, 2006-FA8 1A8		0.664	%		2/25/37		245,540		126,707	(b)
First Horizon Mortgage Pass-Through Trust, 2004-AR7 1A1		2.631	%		2/25/35		1,083,864		927,073	(b)
Government National Mortgage Association (GNMA), 1996-12 S, IO		8.188	%		6/16/26		759,031		161,511	(b)
Government National Mortgage Association (GNMA), 1996-17 S, IO		8.238	%		8/16/26		560,784		119,418	(b)
Government National Mortgage Association (GNMA), 2010-H03 FA		0.809	%		3/20/60		1,599,556		1,588,039	(b)
Government National Mortgage Association (GNMA), 2010-H10 FB		1.259	%		5/20/60		1,720,268		1,737,643	(b)(h)
Government National Mortgage Association (GNMA), 2010-H20 AF		0.575	%		10/20/60		4,359,238		4,282,952	(b)
Government National Mortgage Association (GNMA), 2010-H26 LF		0.595	%		8/20/58		5,238,253		5,160,831	(b)
Government National Mortgage Association (GNMA), 2011-H01 AF		0.695	%		11/20/60		3,688,745		3,648,169	(b)
Government National Mortgage Association (GNMA), 2011-H07 FA		0.745	%		2/20/61		1,033,770		1,019,556	(b)
Greenpoint Mortgage Funding Trust, 2006-AR3 3A1		0.524	%		9/25/35		411,054		158,131	(b)
GSMPS Mortgage Loan Trust, 2004-4 2A1		3.714	%		6/25/34		1,660,461		1,509,730	(a)(b)
GSMPS Mortgage Loan Trust, 2005-RP3 1AF		0.644	%		9/25/35		1,608,775		1,263,788	(a)(b)
GSR Mortgage Loan Trust, 2005-AR3 4A1		2.714	%		5/25/35		319,556		212,071	(b)
Harborview Mortgage Loan Trust, 2004-08 3A2		0.685	%		11/19/34		230,887		118,967	(b)

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Collateralized Mortgage Obligations — continued
Homebanc Mortgage Trust, 2004-2 A1		0.664	%		12/25/34	$	574,753	$	405,383	(b)
IMPAC CMB Trust, 2004-5 1A1		1.014	%		10/25/34		444,531		384,855	(b)
IMPAC CMB Trust, 2007-A A		0.544	%		5/25/37		157,918		121,806	(b)
Indymac Inda Mortgage Loan Trust, 2007-AR7 1A1		5.734	%		11/25/37		428,690		308,470	(b)
Indymac Index Mortgage Loan Trust, 2004-AR14 2A1A		0.654	%		1/25/35		383,258		194,427	(b)
Indymac Index Mortgage Loan Trust, 2006-AR04 A1A		0.504	%		5/25/46		380,433		205,779	(b)
JPMorgan Alternative Loan Trust, 2006-A4 A7		6.300	%		9/25/36		1,000,000		328,957	(b)
JPMorgan Mortgage Trust, 2004-A1 1A1		4.756	%		2/25/34		206,219		200,676	(b)
JPMorgan Mortgage Trust, 2006-A2 5A1		2.648	%		11/25/33		319,693		303,554	(b)
LB-UBS Commercial Mortgage Trust, 2002-C2 A4		5.594	%		6/15/31		824,429		831,542
MASTR, Asset Securitization Trust, 2003-4 6A2		4.375	%		5/25/33		254,422		253,713
MASTR Adjustable Rate Mortgages Trust, 2004-13 3A7		2.718	%		11/21/34		3,000,000		2,757,179	(b)
MASTR ARM Trust, 2003-6 1A2		2.700	%		12/25/33		188,797		170,714	(b)
MASTR Reperforming Loan Trust, 2005-1 1A3		7.000	%		8/25/34		58,206		59,835	(a)
Merrill Lynch Mortgage Investors Inc., 2003-A2 2M1		2.440	%		3/25/33		755,078		578,253	(b)
Merrill Lynch Mortgage Investors Inc., 2003-A6 1A		2.743	%		9/25/33		84,878		76,803	(b)
Morgan Stanley Dean Witter Capital I, 2002-IQ3 A4		5.080	%		9/15/37		1,339,858		1,364,435
Mortgage IT Trust, 2005-2 1A1		0.554	%		5/25/35		191,714		143,049	(b)
Mortgage IT Trust, 2005-3 A1		0.594	%		8/25/35		363,795		265,548	(b)
NCUA Guaranteed Notes, 2011-R1 1A		0.724	%		1/8/20		1,304,752		1,306,996	(b)
New York Mortgage Trust Inc., 2005-2 A		0.624	%		8/25/35		814,879		722,215	(b)
Nomura Asset Acceptance Corp., 2004-AR4 1A1		2.415	%		12/25/34		1,405,995		1,290,797	(b)
Prime Mortgage Trust, 2005-2 2A1		7.127	%		10/25/32		475,181		473,012	(b)
Residential Asset Mortgage Products Inc., 2004-SL2 A4		8.500	%		10/25/31		17,300		18,529
Residential Asset Mortgage Products Inc., 2004-SL3 A3		7.500	%		12/25/31		13,030		13,187
Residential Asset Mortgage Products Inc., 2004-SL4 A5		7.500	%		7/25/32		30,350		27,928
Sequoia Mortgage Trust, 2003-2 A2		1.278	%		6/20/33		206,111		161,927	(b)
Structured ARM Loan Trust, 2004-04 3A1		2.482	%		4/25/34		382,422		308,736	(b)
Structured ARM Loan Trust, 2004-07 A1		0.699	%		6/25/34		349,551		257,541	(b)
Structured ARM Loan Trust, 2004-9XS A		0.664	%		7/25/34		303,106		236,686	(b)
Structured ARM Loan Trust, 2005-04 1A1		2.534	%		3/25/35		654,085		407,028	(b)
Structured ARM Loan Trust, 2005-15 1A1		2.498	%		7/25/35		641,002		403,473	(b)
Structured Asset Mortgage Investments Inc., 2006-AR2 A1		0.524	%		2/25/36		502,492		280,444	(b)
Structured Asset Securities Corp., 2002-08A 7A1		1.834	%		5/25/32		144,168		123,636	(b)
Structured Asset Securities Corp., 2002-11A B2II		2.875	%		6/25/32		138,271		46,581	(b)
Structured Asset Securities Corp., 2002-16A B2II		2.500	%		8/25/32		284,930		63,823	(b)
Structured Asset Securities Corp., 2002-3 B2		6.500	%		3/25/32		1,162,598		1,068,081
Structured Asset Securities Corp., 2004-2 4A1		2.525	%		3/25/34		1,134,892		1,039,417	(b)

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
Collateralized Mortgage Obligations — continued
Structured Asset Securities Corp., 2004-5 1A		2.672	%		5/25/34	$	94,896	$	74,446	(b)
Structured Asset Securities Corp., 2004-NP1 A		0.694	%		9/25/33		715,717		621,146	(a)(b)
Structured Asset Securities Corp., 2005-4XS 3A4		4.790	%		3/25/35		2,291,948		2,276,953
Structured Asset Securities Corp., 2005-RF3 2A		3.716	%		6/25/35		1,060,698		885,850	(a)(b)
WaMu Mortgage Pass-Through Certificates, 2003-AR8 A		2.485	%		8/25/33		245,068		230,985	(b)
WaMu Mortgage Pass-Through Certificates, 2004-AR08 A1		0.670	%		6/25/44		339,991		226,166	(b)
WaMu Mortgage Pass-Through Certificates, 2004-AR14 A1		2.479	%		1/25/35		640,165		582,657	(b)
WaMu Mortgage Pass-Through Certificates, 2007-OA2 1A		0.908	%		3/25/47		586,853		292,388	(b)
WaMu Mortgage Pass-Through Certificates, 2007-OA2 2A		2.468	%		3/25/47		2,499,342		1,423,429	(b)
WaMu Mortgage Pass-Through Certificates, 2007-OA6 1A		1.018	%		7/25/47		3,751,588		2,181,265	(b)
Washington Mutual Inc., 2005-AR4 A5		2.576	%		4/25/35		200,000		140,956	(b)
Washington Mutual Inc., 2005-AR8 2A1A		0.584	%		7/25/45		492,080		361,501	(b)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2005-AR11 A1A		0.614	%		8/25/45		472,412		346,677	(b)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2006-AR09 1A		1.208	%		8/25/46		91,837		51,473	(b)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2006-AR11 1A		1.168	%		9/25/46		561,395		320,248	(b)
Washington Mutual Inc. Mortgage Pass-Through Certificates, Whole Loan, 2003-AR5 A7		2.581	%		6/25/33		398,776		382,435	(b)
Washington Mutual Inc. Pass-Through Certificates, 2003-AR10 A7		2.449	%		10/25/33		1,130,234		1,071,361	(b)
Washington Mutual Inc., Mortgage Pass-Through Certificates, 2005-AR09 A1A		0.614	%		7/25/45		540,162		397,876	(b)
Washington Mutual Mortgage Pass-Through Certificates, 2006-AR01 A1B		0.614	%		2/25/36		850,039		93,239	(b)
Washington Mutual Mortgage Pass-Through Certificates, 2006-AR4 DA		1.178	%		6/25/46		580,761		219,522	(b)
Wells Fargo Mortgage Backed Securities Trust, 2004-AA A1		2.661	%		12/25/34		706,551		665,188	(b)
Wells Fargo Mortgage Backed Securities Trust, 2004-I B2		2.709	%		7/25/34		328,364		159,970	(b)
Total Collateralized Mortgage Obligations (Cost — $79,985,806)									67,650,010
Mortgage-Backed Securities — 4.7%
FHLMC — 0.2%
Federal Home Loan Mortgage Corp. (FHLMC)		9.000	%		5/1/20-1/1/21		24,701		25,359

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
FHLMC — continued
Federal Home Loan Mortgage Corp. (FHLMC)		8.500	%		6/1/21	$	253	$	259
Federal Home Loan Mortgage Corp. (FHLMC)		8.000	%		2/1/31		159,120		192,891
Federal Home Loan Mortgage Corp. (FHLMC)		7.000	%		4/1/32		622,333		721,271
Total FHLMC									939,780
FNMA — 3.4%
Federal National Mortgage Association (FNMA)		6.500	%		7/1/13-4/1/31		60,147		64,076
Federal National Mortgage Association (FNMA)		11.000	%		12/1/15		2,120		2,166
Federal National Mortgage Association (FNMA)		12.500	%		1/1/18		15,359		15,483
Federal National Mortgage Association (FNMA)		9.000	%		11/1/21		23,876		27,459
Federal National Mortgage Association (FNMA)		7.000	%		2/1/27-1/1/33		1,990,793		2,315,633
Federal National Mortgage Association (FNMA)		6.000	%		11/1/27		95		105
Federal National Mortgage Association (FNMA)		2.435	%		5/1/32		29,739		29,934	(b)
Federal National Mortgage Association (FNMA)		2.373	%		8/1/32		39,227		41,267	(b)
Federal National Mortgage Association (FNMA)		2.425	%		12/1/32		203,793		210,342	(b)
Federal National Mortgage Association (FNMA)		1.806	%		1/1/33		404,278		416,585	(b)
Federal National Mortgage Association (FNMA)		2.050	%		5/1/34		1,048,077		1,100,843	(b)
Federal National Mortgage Association (FNMA)		2.096	%		5/1/35		860,294		901,087	(b)
Federal National Mortgage Association (FNMA)		3.529	%		12/1/39		10,885,792		11,414,473	(b)
Federal National Mortgage Association (FNMA)		5.000	%		1/12/42		400,000		432,188	(i)
Federal National Mortgage Association (FNMA)		6.000	%		1/12/42		800,000		881,000	(i)
Total FNMA									17,852,641
GNMA — 1.1%
Government National Mortgage Association (GNMA)		6.000	%		5/15/14-11/15/28		48,551		54,084
Government National Mortgage Association (GNMA)		9.000	%		9/15/22		420		422
Government National Mortgage Association (GNMA)		6.500	%		8/15/34		1,961,778		2,274,612
Government National Mortgage Association (GNMA)		1.540	%		1/20/60		1,853,372		1,869,163	(b)(h)
Government National Mortgage Association (GNMA)		2.297	%		8/20/60		1,560,715		1,666,219	(b)(h)
Total GNMA									5,864,500
Total Mortgage-Backed Securities (Cost — $23,895,587)									24,656,921
Sovereign Bonds — 1.2%
Japan — 0.7%
Japan Finance Corp., Senior Bonds		2.875	%		2/2/15		3,600,000		3,797,240
Norway — 0.5%
Kommunalbanken AS, Senior Notes		2.375	%		1/19/16		2,400,000		2,445,420	(a)
Total Sovereign Bonds (Cost — $5,985,702)									6,242,660

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Maturity Date		Face Amount		Value
U.S. Government & Agency Obligations — 23.8%
U.S. Government Agencies — 15.8%
Federal Farm Credit Bank (FFCB), Bonds		0.270	%		4/25/12	$	5,000,000	$	5,002,720
Federal Farm Credit Bank (FFCB), Bonds		0.244	%		11/29/12		6,000,000		6,009,804	(b)
Federal Farm Credit Bank (FFCB), Bonds		1.500	%		11/16/15		2,600,000		2,657,338
Federal Home Loan Bank (FHLB), Bonds		0.244	%		10/26/12		6,000,000		6,003,606	(b)
Federal Home Loan Bank (FHLB), Bonds		1.625	%		6/14/13		5,500,000		5,602,971
Federal Home Loan Bank (FHLB), Bonds		0.700	%		8/23/13		2,700,000		2,701,080
Federal Home Loan Mortgage Corp. (FHLMC), Notes		1.200	%		7/25/14		1,960,000		1,966,227
Federal Home Loan Mortgage Corp. (FHLMC), Notes		1.750	%		9/10/15		530,000		547,308
Federal Home Loan Mortgage Corp. (FHLMC), Senior Notes		5.750	%		1/15/12		5,100,000		5,109,751
Federal National Mortgage Association (FNMA), Bonds		1.952	%		4/1/33		684,675		717,851	(b)
Federal National Mortgage Association (FNMA), Notes		1.000	%		4/4/12		4,500,000		4,510,634
Federal National Mortgage Association (FNMA), Notes		0.375	%		12/28/12		4,250,000		4,260,064
Federal National Mortgage Association (FNMA), Notes		4.750	%		2/21/13		4,400,000		4,622,667
Federal National Mortgage Association (FNMA), Notes		1.050	%		9/9/13		3,100,000		3,128,334
Federal National Mortgage Association (FNMA), Notes		0.600	%		10/25/13		2,600,000		2,600,637
Federal National Mortgage Association (FNMA), Notes		1.625	%		8/8/14		3,700,000		3,704,066
Federal National Mortgage Association (FNMA), Notes		1.375	%		11/15/16		10,070,000		10,170,881
Federal National Mortgage Association (FNMA), Senior Notes		0.750	%		12/19/14		13,720,000		13,772,369
Total U.S. Government Agencies									83,088,308
U.S. Government Obligations — 8.0%
U.S. Treasury Notes		0.250	%		9/15/14		20,420,000		20,372,136
U.S. Treasury Notes		1.000	%		8/31/16		9,250,000		9,352,619
U.S. Treasury Notes		1.000	%		9/30/16		5,810,000		5,870,825
U.S. Treasury Notes		1.750	%		10/31/18		4,750,000		4,889,531
U.S. Treasury Notes		1.375	%		11/30/18		1,200,000		1,204,313
Total U.S. Government Obligations									41,689,424
Total U.S. Government & Agency Obligations (Cost — $124,290,240)									124,777,732
U.S. Treasury Inflation Protected Securities — 1.4%
U.S. Government Obligations — 1.4%
U.S. Treasury Bonds, Inflation Indexed		3.375	%		1/15/12		4,782,113		4,786,598
U.S. Treasury Notes, Inflation Indexed		2.000	%		4/15/12		2,901,288		2,915,794
Total U.S. Treasury Inflation Protected Securities (Cost — $7,706,038)									7,702,392

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Schedule of investments (cont’d)
December 31, 2011

Legg Mason Western Asset Short-Term Bond Fund

Security	Rate			Expiration Date		Contracts		Value
Purchased Options — 0.0%
Eurodollar Futures, Call @ $99.38					9/17/12		69	$	18,113
Eurodollar Mid Curve 1-Year Futures, Call @ $99.50					9/14/12		69		5,606
Total Purchased Options (Cost — $33,224)									23,719
Total Investments before Short-Term Investments (Cost — $519,722,492)									498,094,286
				Maturity Date		Face Amount
Short-Term Investments — 3.7%
Commercial Paper — 0.9%
Bank of Nova Scotia		0.150	%		1/27/12	$	2,450,000		2,449,734	(j)
Nationwide Building Society		0.500	%		2/14/12		2,000,000		1,998,778	(j)
Total Commercial Paper (Cost — $4,448,512)									4,448,512
U.S. Government Agencies — 2.3%
Federal Home Loan Bank (FHLB), Discount Notes		0.231	%		8/3/12		2,500,000		2,499,260	(j)
Federal Home Loan Bank (FHLB), Discount Notes		0.130	%		8/8/12		2,500,000		2,499,243	(j)
Federal Home Loan Bank (FHLB), Discount Notes		0.150	%		10/26/12		2,200,000		2,198,548	(j)
Federal Home Loan Mortgage Corp. (FHLMC), Discount Notes		0.120	%		1/10/12		750,000		749,979	(j)(k)
Federal Home Loan Mortgage Corp. (FHLMC), Discount Notes		0.120	%		7/6/12		2,900,000		2,899,403	(j)
Federal Home Loan Mortgage Corp. (FHLMC), Discount Notes		0.120	%		7/30/12		1,000,000		999,768	(j)
Federal Home Loan Mortgage Corp. (FHLMC), Discounted Notes		0.030	%		1/11/12		100,000		99,999	(j)(k)
Total U.S. Government Agencies (Cost — $11,939,307)									11,946,200
Ceritificates of Deposit (Yankee) — 0.5%
Nordea Bank Finland PLC (Cost — $2,700,000)		0.653	%		11/13/12		2,700,000		2,687,097	(b)
Total Short-Term Investments (Cost — $19,087,819)									19,081,809
Total Investments — 98.7% (Cost — $538,810,311#)									517,176,095
Other Assets in Excess of Liabilities — 1.3%									6,912,150
Total Net Assets — 100.0%								$	524,088,245

^(a)  Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Trustees, unless otherwise noted.

^(b)  Variable rate security. Interest rate disclosed is as of the most recent information available.

^(c)  Security has no maturity date. The date shown represents the next call date.

^(d)  Illiquid security (unaudited).

^(e)  The maturity principal is currently in default as of December 31, 2011.

^(f)  The coupon payment on these securities is currently in default as of December 31, 2011.

^(g)  Value is less than $1.

^(h)  Security is valued in good faith in accordance with procedures approved by the Board of Trustees (See Note 1).

⁽ⁱ⁾  This security is traded on a to-be-announced (“TBA”) basis (See Note 1).

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Legg Mason Western Asset Short-Term Bond Fund

^(j)  Rate shown represents yield-to-maturity.

^(k)  All or a portion of this security is held at the broker as collateral for open futures contracts.

# Aggregate cost for federal income tax purposes is $541,245,685.

Abbreviations used in this schedule:
ARM	— Adjustable Rate Mortgage
CMB	— Cash Management Bill
IO	— Interest Only

Schedule of Written Options

Security	Expiration Date		Strike Price			Contracts		Value
Eurodollar Futures, Call		9/17/12	$	99.50			69	$	7,763
Eurodollar Mid Curve 1-Year Futures, Call		9/14/12		99.38			69		13,368
			Strike Rate			Notional Par
Interest rate swaption with Credit Suisse, Put		8/26/14		2.50	%		131,592,000		353,076
Total Written Options (Premiums received — $584,070)								$	374,207

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Statement of assets and liabilities
December 31, 2011

Assets:
Investments, at value (Cost — $538,810,311)	$	517,176,095
Cash		8,065,878
Interest receivable		2,844,793
Receivable for securities sold		878,625
Receivable for Fund shares sold		394,597
Swaps, at value (net premiums paid — $9,892)		60,774
Principal paydown receivable		10,016
Prepaid expenses		49,519
Other receivables		903
Total Assets		529,481,200
Liabilities:
Payable for Fund shares repurchased		3,138,712
Payable for securities purchased		1,301,969
Written options, at value (premiums received $584,070)		374,207
Investment management fee payable		199,750
Service and/or distribution fees payable		82,626
Payable to broker — variation margin on open futures contracts		31,905
Distributions payable		22,847
Trustees’ fees payable		6,774
Payable for open swap contracts		1,450
Swaps, at value (net premiums received — $537)		217
Accrued expenses		232,498
Total Liabilities		5,392,955
Total Net Assets	$	524,088,245
Net Assets:
Par value (Note 7)	$	1,365
Paid-in capital in excess of par value		577,328,076
Overdistributed net investment income		(24,642	)
Accumulated net realized loss on investments, futures contracts, written options and swap contracts		(31,442,287	)
Net unrealized depreciation on investments, futures contracts, written options and swap contracts		(21,774,267	)
Total Net Assets	$	524,088,245

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Shares Outstanding:
Class A		16,248,108
Class C		42,405,029
Class I		77,894,476
Net Asset Value:
Class A (and redemption price)	$	3.84
Class C (and redemption price)	$	3.84
Class I (and redemption price)	$	3.84
Maximum Public Offering Price Per Share:
Class A (based on maximum initial sales charge of 2.25%)	$	3.93

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Statement of operations
For the Year Ended December 31, 2011

Investment Income:
Interest	$	12,456,332
Expenses:
Investment management fee (Note 2)		2,360,566
Service and/or distribution fees (Notes 2 and 5)		1,005,629
Transfer agent fees (Note 5)		265,585
Registration fees		75,189
Legal fees		64,148
Fund accounting fees		53,073
Shareholder reports		49,242
Audit and tax		41,750
Trustees’ fees		8,547
Insurance		5,457
Custody fees		4,371
Miscellaneous expenses		5,406
Total Expenses		3,938,963
Net Investment Income		8,517,369
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options and Swap Contracts (Notes 1, 3 and 4):
Net Realized Gain (Loss) From:
Investment transactions		(3,617,285	)
Futures contracts		(318,697	)
Written options		314,341
Swap contracts		(44,757	)
Net Realized Loss		(3,666,398	)
Change in Net Unrealized Appreciation (Depreciation) From:
Investments		360,510
Futures contracts		21,758
Written options		187,403
Swap contracts		8,298
Change in Net Unrealized Appreciation (Depreciation)		577,969
Net Loss on Investments, Futures Contracts, Written Options and Swap Contracts		(3,088,429	)
Increase in Net Assets from Operations	$	5,428,940

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Statements of changes in net assets

For the Years Ended December 31,	2011			2010
Operations:
Net investment income	$	8,517,369		$	11,837,918
Net realized loss		(3,666,398	)		(2,412,541	)
Change in net unrealized appreciation (depreciation)		577,969			25,103,043
Proceeds from settlement of a regulatory matter		—			67,524	†
Increase in Net Assets From Operations		5,428,940			34,595,944
Distributions to Shareholders From (Notes 1 and 6):
Net investment income		(10,576,650	)		(13,240,985	)
Decrease in Net Assets From Distributions to Shareholders		(10,576,650	)		(13,240,985	)
Fund Share Transactions (Note 7):
Net proceeds from sale of shares		179,018,124			237,428,291
Reinvestment of distributions		10,396,423			13,046,324
Cost of shares repurchased		(163,029,165	)		(175,275,802	)
Increase in Net Assets From Fund Share Transactions		26,385,382			75,198,813
Increase in Net Assets		21,237,672			96,553,772
Net Assets:
Beginning of year		502,850,573			406,296,801
End of year*	$	524,088,245		$	502,850,573
* Includes overdistributed net investment income of:	$	(24,642	)	$	(138,943	)

† The Fund received $56,780, $10,463, and $281 for Class A, C and I shares, respectively, related to this distribution.

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Financial highlights

For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Class A Shares1	2011			2010			2009			2008			2007
Net asset value, beginning of year	$	3.87		$	3.69		$	3.34		$	3.98		$	4.13
Income (loss) from operations:
Net investment income		0.06			0.09			0.09			0.15			0.19
Net realized and unrealized gain (loss)		(0.02	)		0.19			0.36			(0.63	)		(0.15	)
Total income (loss) from operations		0.04			0.28			0.45			(0.48	)		0.04
Less distributions from:
Net investment income		(0.07	)		(0.10	)		(0.10	)		(0.16	)		(0.19	)
Total distributions		(0.07	)		(0.10	)		(0.10	)		(0.16	)		(0.19	)
Net asset value, end of year	$	3.84		$	3.87		$	3.69		$	3.34		$	3.98
Total return2		1.12	%		7.75	%		13.70	%		(12.39	)%		1.00	%
Net assets, end of year (millions)	$	62		$	62		$	45		$	39		$	58
Ratios to average net assets:
Gross expenses		0.87	%		0.88	%		0.98	%		1.02	%		0.90	%
Net expenses3		0.87			0.88			0.98			1.01	4		0.90
Net investment income		1.51			2.33			2.61			4.09			4.54
Portfolio turnover rate5		89	%		80	%		94	%		46	%		81	%

1 Per share amounts have been calculated using the average shares method.

2 Performance figures, exclusive of sales charges, may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

3 The impact of compensating balance arrangements, if any, was less than 0.01%.

4 Reflects fee waivers and/or expense reimbursements.

5 Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 105%, 87%, 159%, 291% and 372% for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Class C Shares1	2011			2010			2009			2008			2007
Net asset value, beginning of year	$	3.88		$	3.70		$	3.34		$	3.99		$	4.14
Income (loss) from operations:
Net investment income		0.05			0.08			0.08			0.13			0.16
Net realized and unrealized gain (loss)		(0.03	)		0.19			0.37			(0.64	)		(0.14	)
Total income (loss) from operations		0.02			0.27			0.45			(0.51	)		0.02
Less distributions from:
Net investment income		(0.06	)		(0.09	)		(0.09	)		(0.14	)		(0.17	)
Total distributions		(0.06	)		(0.09	)		(0.09	)		(0.14	)		(0.17	)
Net asset value, end of year	$	3.84		$	3.88		$	3.70		$	3.34		$	3.99
Total return2		0.62	%		7.44	%		13.63	%		(13.15	)%		0.34	%
Net assets, end of year (millions)	$	163		$	172		$	123		$	5		$	7
Ratios to average net assets:
Gross expenses		1.12	%		1.08	%		1.08	%		1.63	%		1.56	%
Net expenses3		1.12			1.08	4		1.08	4		1.63			1.56
Net investment income		1.26			2.14			2.34			3.47			3.86
Portfolio turnover rate5		89	%		80	%		94	%		46	%		81	%

1 Per share amounts have been calculated using the average shares method.

2 Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

3 The impact of compensating balance arrangements, if any, was less than 0.01%.

4 Effective at the close of business on July 10, 2009, management contractually agreed to waive fees and/or reimburse expenses (other than brokerage, taxes, interest and extraordinary expenses) to limit total net operating expenses to 1.10% for Class C shares until April 30, 2010.

5 Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 105%, 87%, 159%, 291% and 372% for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.

See Notes to Financial Statements.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Financial highlights (cont’d)

For a share of each class of beneficial interest outstanding throughout each year ended December 31:
Class I Shares1	2011			2010			2009			2008			2007
Net asset value, beginning of year	$	3.87		$	3.70		$	3.34		$	3.99		$	4.13
Income (loss) from operations:
Net investment income		0.07			0.10			0.11			0.17			0.20
Net realized and unrealized gain (loss)		(0.01	)		0.18			0.37			(0.64	)		(0.13	)
Total income (loss) from operations		0.06			0.28			0.48			(0.47	)		0.07
Less distributions from:
Net investment income		(0.09	)		(0.11	)		(0.12	)		(0.18	)		(0.21	)
Total distributions		(0.09	)		(0.11	)		(0.12	)		(0.18	)		(0.21	)
Net asset value, end of year	$	3.84		$	3.87		$	3.70		$	3.34		$	3.99
Total return2		1.49	%		7.77	%		14.55	%		(12.16	)%		1.63	%
Net assets, end of year (millions)	$	299		$	269		$	238		$	182		$	212
Ratios to average net assets:
Gross expenses		0.51	%		0.50	%		0.51	%		0.50	%		0.52	%
Net expenses3		0.51	4		0.50	4		0.51	4		0.50			0.52
Net investment income		1.86			2.73			3.07			4.60			4.89
Portfolio turnover rate5		89	%		80	%		94	%		46	%		81	%

1 Per share amounts have been calculated using the average shares method.

2 Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

3 The impact of compensating balance arrangements, if any, was less than 0.01%.

4 As a result of an expense limitation arrangement, the ratio of expenses, other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.75%. This expense limitation arrangement cannot be terminated prior to December 31, 2013 without the Board of Trustees’ consent.

5 Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 105%, 87%, 159%, 291% and 372% for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively.

See Notes to Financial Statements.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

Notes to financial statement

1. Organization and significant accounting policies

Legg Mason Western Asset Short-Term Bond Fund (the “Fund”) is a separate diversified investment series of Legg Mason Partners Income Trust (the “Trust”). The Trust, a Maryland statutory trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ. Subsequent events have been evaluated through the date the financial statements were issued.

(a) Investment valuation. The valuations for fixed income securities and certain derivative instruments are typically the prices supplied by independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of fair valuation techniques and methodologies. Short-term fixed income securities that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. If independent third party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers. When reliable prices are not readily available, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Fund’s Board of Trustees.

The Fund has adopted Financial Accounting Standards Board Codification Topic 820 (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.

• Level 1 — quoted prices in active markets for identical investments

• Level 2 — other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

• Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:

ASSETS
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Total
Long-term investments†:
Corporate bonds & notes		—	$	216,323,751	$	0	*	$	216,323,751
Asset-backed securities		—		50,717,101		—			50,717,101
Collateralized mortgage obligations		—		67,650,010		—			67,650,010
Mortgage-backed securities		—		22,990,702		1,666,219			24,656,921
Sovereign bonds		—		6,242,660		—			6,242,660
U.S. government & agency obligations		—		124,777,732		—			124,777,732
U.S. treasury inflation protected securities		—		7,702,392		—			7,702,392
Purchased options	$	23,719		—		—			23,719
Total long-term investments	$	23,719	$	496,404,348	$	1,666,219		$	498,094,286
Short-term investments†		—		19,081,809		—			19,081,809
Total investments	$	23,719	$	515,486,157	$	1,666,219		$	517,176,095
Other financial instruments:
Futures contracts		85,493		—		—			85,493
Credit default swaps on corporate issues — buy protection‡		—		60,774		—			60,774
Total other financial instruments	$	85,493	$	60,774		—		$	146,267
Total	$	109,212	$	515,546,931	$	1,666,219		$	517,322,362

LIABILITIES
Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Other financial instruments:
Written options	$	21,131	$	353,076		—	$	374,207
Futures contracts		486,609		—		—		486,609
Credit default swaps on corporate issues ��� buy protection‡		—		217		—		217
Total	$	507,740	$	353,293		—	$	861,033

† See Schedule of Investments for additional detailed categorizations.

‡ Values include any premiums paid or received with respect to swap contracts.

* Value is less than $1.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

Investments in Securities	Corporate Bonds & Notes			Collateralized Mortgage Obligations		Mortgage Backed Securities		Total
Balance as of December 31, 2010	$	0	*	$	3,820,000		—	$	3,820,000
Accrued premiums/discounts		—			—		—		—
Realized gain (loss)		—			—		—		—
Change in unrealized appreciation (depreciation)		—			—		—		—
Purchases		—			—		—		—
Sales		—			(3,820,000)		—		(3,820,000)
Transfers into Level 31		—			—	$	1,666,219		1,666,219
Transfers out of Level 3		—			—		—		—
Balance as of December 31, 2011	$	0	*		—	$	1,666,219	$	1,666,219
Net change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2011		—			—		—		—

The Fund’s policy is to recognize transfers between levels as of the end of the reporting period.

* Value is less than $1.

¹  Transferred in to Level 3 as a result of the unavailability of a quoted price in an active market for an identical investment or the unavailability of other significant observable inputs.

(b) Repurchase agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

(c) Futures contracts. The Fund uses futures contracts generally to gain exposure to, or hedge against, changes in interest rates or gain exposure to, or hedge against, changes in certain asset classes. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin” and 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 certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. The daily changes in contract value are recorded as unrealized gains or losses in the Statement of Operations and the Fund recognizes a realized gain or loss when the contract is closed.

Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

(d) Written options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.

The risk in writing a covered call option is that the Fund may forego 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 the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing an uncovered call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

(e) Mortgage dollar rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date.

The Fund executes its mortgage dollar rolls entirely in the to-be-announced (“TBA”) market, whereby the Fund makes a forward commitment to purchase a security and,

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date. The Fund accounts for mortgage dollar rolls as purchases and sales.

The risk of entering into mortgage dollar rolls is that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the mortgage dollar roll may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities.

(f) Stripped securities. The Fund may invest in “Stripped Securities,” a term used collectively for components, or strips, of fixed income securities. Stripped securities can be principal only securities (“PO”), which are debt obligations that have been stripped of unmatured interest coupons or, interest only securities (“IO”), which are unmatured interest coupons that have been stripped from debt obligations. The market value of Stripped Securities will fluctuate in response to changes in economic conditions, rates of pre-payment, interest rates and the market’s perception of the securities. However, fluctuations in response to interest rates may be greater in Stripped Securities than for debt obligations of comparable maturities that pay interest currently. The amount of fluctuation may increase with a longer period of maturity.

The yield to maturity on IO’s is sensitive to the rate of principal repayments (including prepayments) on the related underlying debt obligation and principal payments may have a material effect on yield to maturity. If the underlying debt obligation experiences greater than anticipated prepayments of principal, the Fund may not fully recoup its initial investment in IO’s.

(g) Securities traded on a to-be-announced basis. The Fund may trade securities on a TBA basis. In a TBA transaction, the Fund commits to purchasing or selling securities which have not yet been issued by the issuer and for which specific information, such as the face amount, maturity date and underlying pool of investments in U.S. government agency mortgage pass-through securities, is not announced. Securities purchased on a TBA basis are not settled until they are delivered to the Fund. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(h) Swaptions. The Fund purchases and writes swaption contracts to manage exposure to fluctuations in interest rates. The Fund may also purchase or write options to manage exposure to an underlying instrument or to enhance yield. Swaption contracts written by the Fund represent an option that gives the purchaser the right, but not the obligation, to enter into a previously agreed upon swap contract at a future date. Swaption contracts purchased by the Fund represent an option that gives the Fund the right, but not the obligation, to enter into a previously agreed upon swap contract at a future date.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

When the Fund writes a swaption, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the swaption written. If the swaption expires, the Fund realizes a gain equal to the amount of the premium received.

When the Fund purchases a swaption, an amount equal to the premium paid by the Fund is recorded as an investment on the statement of assets and liabilities, the value of which is marked-to-market daily to reflect the current market value of the swaption purchased. If the swaption expires, the Fund realizes a loss equal to the amount of the premium paid.

Swaptions are marked-to-market daily based upon quotations from market makers. Changes in the value of the swaption are reported as unrealized gains or losses in the Statement of Operations.

(i) Inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value or interest rate is periodically adjusted according to the rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be adjusted accordingly. Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as an increase or decrease to investment income on the Statement of Operations. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

(j) Swap agreements. The Fund invests in swaps for the purpose of managing its 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 other portfolio transactions.

Swap contracts 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. 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. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement 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.

Payments received or made at the beginning of the measurement period are reflected as a premium or deposit, respectively, on the Statement of Assets and Liabilities. These upfront payments are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. Net periodic payments received or paid by the Fund are recognized as a realized gain or loss in the Statement of Operations.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

The Fund’s maximum exposure in the event of a defined credit event on a credit default swap to sell protection is the notional amount. As of December 31, 2011, the Fund did not hold any credit default swaps to sell protection.

For average notional amounts of swaps held during the year ended December 31, 2011, see Note 4.

Credit default swaps

The Fund enters into credit default swap (“CDS”) contracts for investment purposes, to manage its credit risk or to add leverage. CDS agreements involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default by a third party, typically corporate or sovereign issuers, on a specified obligation, or in the event of a write-down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising a credit index. The Fund may use a CDS to provide protection against defaults of the issuers (i.e., to reduce risk where the Fund has exposure to an issuer) or to take an active long or short position with respect to the likelihood of a particular issuer’s default. As a seller of protection, the Fund generally receives an upfront payment or a stream of payments throughout the term of the swap provided that there is no credit event. If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the maximum potential amount of future payments (undiscounted) that the Fund could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. These amounts of potential payments will be partially offset by any recovery of values from the respective referenced obligations. As a seller of protection, the Fund effectively adds leverage to its portfolio because, in addition to its total net assets, the Fund is subject to investment exposure on the notional amount of the swap. As a buyer of protection, the Fund generally receives an amount up to the notional value of the swap if a credit event occurs.

Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to enter into the agreement. Wider credit spreads and decreasing market values, when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. Credit spreads utilized in determining the period end market value of credit default swap agreements on corporate or sovereign issues are disclosed in the Notes to Financial Statements and serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for credit derivatives. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values, particularly in relation to the notional amount of the contract as well as the annual payment rate, serve as an indication of the current status of the payment/performance risk.

The Fund’s maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statements (cont’d)

counterparty to the Fund to cover the Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.

Entering into a CDS agreement involves, to varying degrees, elements of credit, market and documentation risk in excess of the related amounts recognized on the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreement, and that there will be unfavorable changes in net interest rates.

Interest rate swaps

The Fund may enter into interest rate swap contracts to manage its exposure to interest rate risk. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional principal amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional principal amount. Interest rate swaps are marked-to-market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized gain or loss in the Statement of Operations. When a swap contract is terminated early, the Fund records a realized gain or loss equal to the difference between the original cost and the settlement amount of the closing transaction.

The risks of interest rate swaps include changes in market conditions that will affect the value of the contract or changes in the present value of the future cash flow streams and the possible inability of the counterparty to fulfill its obligations under the agreement. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from the counterparty over the contract’s remaining life, to the extent that that amount is positive. This risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.

(k) Credit and market risk. The Fund invests in high-yield and emerging market instruments that may be subject to certain credit and market risks. The yields of high-yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s investment in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund.

Investments in securities that are 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 the full amount of accrued interest and

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.

(l) Counterparty risk and credit-risk-related contingent features of derivative instruments. The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Fund’s investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.

The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features. The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or NAV over a specified period of time. If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.

As of December 31, 2011, the Fund held written options and credit default swaps with credit related contingent features which had a liability position of $374,424. If a contingent feature in the master agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.

(m) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.

(n) Distributions to shareholders. Distributions from net investment income of the Fund are declared each business day to shareholders of record, and are paid monthly. Distributions of net realized gains, if any, are declared at least annually. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

(o) Share class accounting. Investment income, common expenses and realized/unrealized gains (losses) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Fees relating to a specific class are charged directly to that share class.

(p) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.

(q) Federal and other taxes. It is the Funds’ policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Funds intend to distribute their taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state income tax provision is required in the Funds’ financial statements.

Management has analyzed the Funds’ tax positions taken on income tax returns for all open tax years and has concluded that as of December 31, 2011, no provision for income tax would be required in the Fund’s financial statements. The Funds’ federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by Internal Revenue Service and state departments of revenue.

(r) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. During the current year, the following reclassifications have been made:

	Overdistributed Net Investment Income		Accumulated Net Realized Loss			Paid-in Capital
(a)		—	$	4,535,866		$	(4,535,866	)
(b)	$	2,173,582		(2,173,582	)		—

^(a) Reclassifications are primarily due to the expiration of a capital loss carryover.

^(b)  Reclassifications are primarily due to differences between book and tax amortization of premium on fixed income securities, losses from mortgage backed securities treated as capital losses for tax purposes and book/tax differences in the treatment of swaps.

2. Investment management agreement and other transactions with affiliates

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and Western Asset Management Company (“Western Asset”) is the Fund’s subadviser. LMPFA and Western Asset are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, at an annual rate of 0.45% of the Fund’s average daily net assets.

LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadviser the day-to-day portfolio management of the Fund. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

As a result of an expense limitation arrangement between the Fund and LMPFA, the ratio of expenses other than brokerage, interest, taxes, extraordinary expenses and acquired fund fees and expenses, to average net assets of Class I shares did not exceed 0.75%. This expense limitation arrangement cannot be terminated prior to December 31, 2013 without the Board of Trustees’ consent.

The investment manager is permitted to recapture amounts previously waived or reimbursed to the Fund during the same fiscal year if the Fund’s total annual operating expenses have fallen to a level below the expense limitation (“expense cap”) in effect at the time the fees were earned or the expense incurred. In no case will the investment manager recapture any amount that would result, on any particular business day of the Fund, in the Fund’s total annual operating expenses exceeding the expense cap or any other lower limit then in effect.

Legg Mason Investor Services, LLC (“LMIS”), a wholly-owned broker-dealer subsidiary of Legg Mason, serves as the Fund’s sole and exclusive distributor.

There is a maximum initial sales charge of 2.25% for Class A shares. Class C shares acquired from another Legg Mason Partners Fund subject to CDSC remain subject to the original fund’s CDSC while held in the Fund. In certain cases, Class A shares have a 1.00% contingent deferred sales charge (“CDSC”), which applies if redemption occurs within one year from purchase payment. This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of other shares of funds sold by LMIS, equal or exceed $500,000 in the aggregate. These purchases do not incur an initial sales charge.

For the year ended December 31, 2011, LMIS and its affiliates received sales charges of approximately $2,000 on sales of the Fund’s Class A shares. In addition, for the year ended December 31, 2011, CDSCs paid to LMIS and its affiliates were approximately:

	Class A		Class C
CDSCs	$	9,000	$	1,000

The Fund had adopted an unfunded, non-qualified deferred compensation plan (the “Plan”) which allowed non-interested trustees (“Independent Trustees”) to defer the receipt of all or a portion of their fees earned until a later date specified by the Independent Trustees. The deferred balances are reported in the Statement of Assets and Liabilities under Trustees’ fees payable and are considered a general obligation of the Fund and any payments made pursuant to the Plan will be made from the Fund’s general assets. The Plan was terminated effective January 1, 2006. This change had no effect on fees previously deferred. As of December 31, 2011, the Fund had accrued $3,514 as deferred compensation payable.

All officers and one Trustee of the Trust are employees of Legg Mason or its affiliates and do not receive compensation from the Trust.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

3. Investments

During the year ended December 31, 2011, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S Government & Agency Obligations were as follows:

	Investments		U.S. Government & Agency Obligations
Purchases	$	110,439,913	$	414,157,154
Sales		130,610,922		389,570,648

At December 31, 2011, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

Gross unrealized appreciation	$	7,484,597
Gross unrealized depreciation		(31,554,187	)
Net unrealized depreciation	$	(24,069,590	)

At December 31, 2011, the Fund had the following open futures contracts:

	Number of Contracts		Expiration Date		Basis Value		Market Value		Unrealized Gain (Loss)
Contracts to Buy:
90-day eurodollar		38		9/12	$	9,432,198	$	9,430,175	$	(2,023	)
90-day eurodollar		38		3/12		9,450,249		9,438,725		(11,524	)
U.S. treasury 2-year notes		954		3/12		210,316,227		210,401,720		85,493
										71,946
Contracts to Sell:
90-day eurodollar		38		3/13	$	9,398,227	$	9,428,750	$	(30,523	)
90-day eurodollar		76		9/13		18,729,716		18,849,900		(120,184	)
U.S. treasury 5-year notes		442		3/12		54,250,743		54,479,953		(229,210	)
U.S. treasury 10-year notes		83		3/12		10,790,230		10,883,375		(93,145	)
										(473,062	)
Net unrealized loss on open futures contracts									$	(401,116	)

During the year ended December 31, 2011, written option transactions for the Fund were as follows:

	Number of Contracts			Premiums
Written options, outstanding as of December 31, 2010		524		$	127,360
Options written		131,594,093			1,322,651
Options closed		(2,097	)		(762,751	)
Options exercised		(154	)		(61,431	)
Options expired		(228	)		(41,759	)
Written options, outstanding as of December 31, 2011		131,592,138		$	584,070

At December 31, 2011, the Fund held TBA securities with a total cost of $1,301,969.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report    

At December 31, 2011, the Fund held the following credit default swap contracts:

CREDIT DEFAULT SWAPS ON CORPORATE ISSUES — BUY PROTECTION¹

Swap Counterparty (Reference Entity)	Notional Amount2		Termination Date		Periodic Payments Made By The Fund‡	Market Value		Upfront Premiums Paid (Received)		Unrealized Appreciation
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480% due 11/15/13)	$	300,000		3/20/15	5.000% quarterly	$	17,362	$	1,883	$	15,479
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480% due 11/15/13)		370,000		3/20/20	5.000% quarterly		43,412		8,009		35,403
Goldman Sachs Group Inc. (Assured Guaranty Municipal Corp., 0.480%, due 11/15/13)		200,000		3/20/13	5.000% quarterly		(217)		(537)		320
Total	$	870,000				$	60,557	$	9,355	$	51,202

¹ If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the underlying securities comprising the referenced index.

² The maximum potential amount the Fund could be required to pay as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement.

‡ Percentage shown is an annual percentage rate.

4. Derivative instruments and hedging activities

Financial Accounting Standards Board Codification Topic 815 requires enhanced disclosure about an entity’s derivative and hedging activities.

Below is a table, grouped by derivative type, that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at December 31, 2011.

ASSET DERIVATIVES1
	Interest Rate Risk		Credit Risk		Total
Purchased options2	$	23,719		—	$	23,719
Futures contracts3		85,493		—		85,493
Swap contracts4		—	$	60,774		60,774
Total	$	109,212	$	60,774	$	169,986

LIABILITY DERIVATIVES1
	Interest Rate Risk		Credit Risk		Total
Written options	$	374,207		—	$	374,207
Futures contracts3		486,609		—		486,609
Swap contracts4		—	$	217		217
Total	$	860,816	$	217	$	861,033

¹  Generally, the balance sheet location for asset derivatives is receivables/net unrealized appreciation (depreciation) and for liability derivatives is payables/net unrealized appreciation (depreciation).

²  Market value of purchased options is reported in Investments at value in the Statement of Assets and Liabilities.

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

³  Includes cumulative appreciation (depreciation) of futures contracts as reported in the footnotes. Only variation margin is reported within the receivables and/or payables of the Statement of Assets and Liabilities.

⁴  Values include premiums paid (received) on swap contracts which are shown separately in the Statement of Assets and Liabilities.

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended December 31, 2011. The first table provides additional detail about the amounts and sources of gains (losses) realized on derivatives during the period. The second table provides additional information about the change in unrealized appreciation (depreciation) resulting from the Fund’s derivatives and hedging activities during the period.

AMOUNT OF REALIZED GAIN (LOSS) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk			Credit Risk			Total
Purchased options	$	(67,105	)		—		$	(67,105	)
Written options		314,341			—			314,341
Futures contracts		(318,697	)		—			(318,697	)
Swap contracts		—		$	(44,757	)		(44,757	)
Total	$	(71,461	)	$	(44,757	)	$	(116,218	)

CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON DERIVATIVES RECOGNIZED
	Interest Rate Risk			Credit Risk		Total
Purchased options	$	(8,695	)		—	$	(8,695	)
Written options		187,403			—		187,403
Futures contracts		21,758			—		21,758
Swap contracts		—		$	8,298		8,298
Total	$	200,466		$	8,298	$	208,764

During the year ended December 31, 2011, the volume of derivative activity for the Fund was as follows:

	Average Market Value
Purchased options	$	15,716
Written options		280,102
Futures contracts (to buy)		127,158,969
Futures contracts (to sell)		54,033,142
	Average Notional Balance
Credit default swap contracts (to buy protection)	$	939,231

5. Class specific expenses

The Fund has adopted a Rule 12b-1 distribution plan and under that plan the Fund pays a service fee with respect to its Class A and C shares calculated at the annual rate of 0.25% of the average daily net assets of each respective class. The Fund also pays a distribution fee with respect to its Class C shares calculated at the annual rate of 0.25% of the average daily net assets. Service and distribution fees are accrued daily and paid monthly.

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

For the year ended December 31, 2011, class specific expenses were as follows:

	Service and/or Distribution Fees		Transfer Agent Fees
Class A	$	155,965	$	68,826
Class C		849,664		181,860
Class I		—		14,899
Total	$	1,005,629	$	265,585

6. Distributions to shareholders by class

	Year Ended December 31, 2011		Year Ended December 31, 2010
Net Investment Income:
Class A	$	1,179,688	$	1,493,013
Class C		2,806,109		3,827,082
Class I		6,590,853		7,920,890
Total	$	10,576,650	$	13,240,985

7. Shares of beneficial interest

At December 31, 2011, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of shares. Each class of shares represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.

Transactions in shares of each class were as follows:

	Year Ended December 31, 2011						Year Ended December 31, 2010
	Shares			Amount			Shares			Amount
Class A
Shares sold		6,724,808		$	26,106,622			8,143,748		$	31,212,072
Shares issued on reinvestment		294,798			1,145,548			383,461			1,471,205
Shares repurchased		(6,705,631	)		(26,050,205	)		(4,957,201	)		(19,008,503	)
Net increase		313,975		$	1,201,965			3,570,008		$	13,674,774
Class C
Shares sold		19,154,233		$	74,641,818			31,066,541		$	118,606,164
Shares issued on reinvestment		709,806			2,759,150			968,950			3,718,702
Shares repurchased		(21,785,248	)		(84,738,111	)		(20,924,177	)		(80,260,875	)
Net increase (decrease)		(1,921,209	)	$	(7,337,143	)		11,111,314		$	42,063,991
Class I
Shares sold		20,141,440		$	78,269,684			22,986,839		$	87,610,055
Shares issued on reinvestment		1,670,746			6,491,725			2,050,302			7,856,417
Shares repurchased		(13,438,019	)		(52,240,849	)		(19,842,044	)		(76,006,424	)
Net increase		8,374,167		$	32,520,560			5,195,097		$	19,460,048

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

8. Income tax information and distributions to shareholders

Subsequent to the fiscal year end, the Fund has made the following distributions:

Record Date Payable Date	Class A		Class C		Class I
Daily 1/31/2012	$	0.004715	$	0.003986	$	0.005789

The tax character of distributions paid during the fiscal years ended December 31, was as follows:

	2011		2010
Distributions Paid From:
Ordinary income	$	10,576,650	$	13,240,985

As of December 31, 2011, the components of accumulated earnings on a tax basis were as follows:

Undistributed ordinary income — net	$	135,890
Capital loss carryforward*		(29,408,926	)
Other book/tax temporary differences(a)		241,481
Unrealized appreciation (depreciation)(b)		(24,209,641	)
Total accumulated earnings (losses) — net	$	(53,241,196	)

* As of December 31, 2011, the Fund had the following net capital loss carryforward remaining:

Year of Expiration	Amount
No Expiration	$	(6,047,189	)**
12/31/2012		(554,986	)
12/31/2013		(2,210,102	)
12/31/2014		(8,307,534	)
12/31/2015		(306,147	)
12/31/2016		(2,362,393	)
12/31/2017		(7,080,265	)
12/31/2018		(2,540,310	)
	$	(29,408,926	)

These amounts will be available to offset future taxable capital gains. Additionally, a portion of the losses transferred from a reorganization from a prior year may be subject to certain annual limitations for tax purposes.

** Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carryforward these capital losses for an unlimited period. However, these losses will be required to be utilized prior to the Fund’s other capital losses with the expiration dates listed above. Additionally, these capital losses retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.

^(a)  Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized losses on certain futures contracts, differences between book/tax accrual of interest income on securities in default and book/tax differences in the timing of the deductibility of various expenses.

^(b)  The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable primarily to the tax deferral of losses on wash sales and the difference between book and tax amortization methods for premiums on fixed income securities.

9. Legal matters

Beginning in May 2004, class action lawsuits alleging violations of the federal securities laws were filed against Citigroup Global Markets Inc. (“CGM”), a former

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

distributor of the Fund, and other affiliated funds (collectively, the “Funds”) and a number of its then affiliates, including Smith Barney Fund Management LLC (“SBFM”) and Salomon Brothers Asset Management Inc. (“SBAM”), which were then investment adviser or manager to certain of the Funds (the “Managers”), substantially all of the mutual funds then managed by the Managers (the “Defendant Funds”), and Board members of the Defendant Funds (collectively, the “Defendants”). The complaints alleged, among other things, that CGM created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Managers caused the Defendant Funds to pay excessive brokerage commissions to CGM for steering clients towards proprietary funds. The complaints also alleged that the Defendants breached their fiduciary duty to the Defendant Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Defendant Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Defendant Funds’ contracts with the Managers, recovery of all fees paid to the Managers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.

On December 15, 2004, a consolidated amended complaint (the “Complaint”) was filed alleging substantially similar causes of action. On May 27, 2005, all of the Defendants filed motions to dismiss the Complaint. On July 26, 2006, the court issued a decision and order (1) finding that plaintiffs lacked standing to sue on behalf of the shareholders of the Funds in which none of the plaintiffs had invested and dismissing those Funds from the case (although stating that they could be brought back into the case if standing as to them could be established), and (2) other than one stayed claim, dismissing all of the causes of action against the remaining Defendants, with prejudice, except for the cause of action under Section 36(b) of the 1940 Act, which the court granted plaintiffs leave to replead as a derivative claim.

On October 16, 2006, plaintiffs filed their Second Consolidated Amended Complaint (“Second Amended Complaint”) which alleges derivative claims on behalf of nine funds identified in the Second Amended Complaint, under Section 36(b) of the 1940 Act, against Citigroup Asset Management, SBAM and SBFM as investment advisers to the identified funds, as well as CGM as a distributor for the identified funds (collectively, the “Second Amended Complaint Defendants”). The Fund was not identified in the Second Amended Complaint. The Second Amended Complaint alleges no claims against any of the funds or any of their Board Members. Under Section 36(b), the Second Amended Complaint alleges similar facts and seeks similar relief against the Second Amended Complaint Defendants as the Complaint.

On December 3, 2007, the court granted the Defendants’ motion to dismiss, with prejudice. On January 2, 2008, the plaintiffs filed a notice of appeal to the Second Circuit Court of Appeals. The appeal was fully briefed and oral argument before the U.S. Court of Appeals for the Second Circuit took place on March 5, 2009. On June 9, 2011, the Court of Appeals issued a Summary Order affirming the District Court’s dismissal of all claims with the exception of Plaintiffs’ Section 36(b) claim as it relates to Transfer

	Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report
Notes to financial statments (cont’d)

Agent fees paid to an affiliate of the Managers. The case has been remanded to the District Court for further proceedings in accordance with the Summary Order.

Plaintiffs agreed to dismiss the case, and a Stipulation of Dismissal with Prejudice was filed with the Court on October 20, 2011, terminating the litigation.

*    *    *

On or about May 30, 2006, John Halebian, a purported shareholder of Western Asset New York Tax Free Money Market Fund (prior to May 31, 2010, the Fund was known as Western Asset / Citi^SM New York Tax Free Reserves, and prior to June 1, 2009, as Citi^SM New York Tax Free Reserves), a series of Legg Mason Partners Money Market Trust, formerly a series of CitiFunds Trust III (the “Subject Trust”), filed a complaint in the United States District Court for the Southern District of New York against the independent trustees of the Subject Trust (Elliott J. Berv, Donald M. Carlton, A. Benton Cocanougher, Mark T. Finn, Stephen Randolph Gross, Diana R. Harrington, Susan B. Kerley, Alan G. Merten and R. Richardson Pettit).

The Subject Trust is also named in the complaint as a nominal defendant. The complaint alleges both a derivative claim on behalf of the Subject Trust and class claims on behalf of a putative class of shareholders of the Subject Trust in connection with the 2005 sale of Citigroup’s asset management business to Legg Mason and the related approval of new investment advisory agreements by the trustees and shareholders. In the derivative claim, the plaintiff alleges, among other things, that the independent trustees breached their fiduciary duty to the Subject Trust and its shareholders by failing to negotiate lower fees or seek competing bids from other qualified investment advisers in connection with Citigroup’s sale to Legg Mason (the “Derivative Claim”). In the claims brought on behalf of the putative class of shareholders, the plaintiff alleges that the independent trustees violated the proxy solicitation requirements of the 1940 Act, and breached their fiduciary duty to shareholders, by virtue of the voting procedures, including “echo voting,” used to obtain approval of the new investment advisory agreements and statements made in a proxy statement regarding those voting procedures (the “Putative Class Claims”). The plaintiff alleges that the proxy statement was misleading because it failed to disclose that the voting procedures violated the 1940 Act. The relief sought includes an award of damages, rescission of the advisory agreement, and an award of costs and attorney fees.

In advance of filing the complaint, Mr. Halebian’s lawyers made written demand for relief on the Board of the Subject Trust, and the Board’s independent trustees formed a demand review committee to investigate the matters raised in the demand, and subsequently in the complaint, and recommend a course of action to the Board.

The committee, after a thorough review, determined that the independent trustees did not breach their fiduciary duties as alleged by Mr. Halebian, and that the action demanded by Mr. Halebian would not be in the best interests of the Subject Trust. The Board of the Subject Trust (the trustee who is an “interested person” of the Subject Trust, within the meaning of the 1940 Act, having recused himself from the

Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report     

matter), after receiving and considering the committee’s report and based upon the findings of the committee, subsequently also determined and, adopting the recommendation of the committee, directed counsel to move to dismiss Mr. Halebian’s complaint. A motion to dismiss was filed on October 23, 2006. Opposition papers were filed on or about December 7, 2006. The complaint was dismissed on July 31, 2007. Mr. Halebian filed an appeal in the U.S. Court of Appeals for the Second Circuit. On December 29, 2009, the U.S. Court of Appeals for the Second Circuit reserved judgment after determining that the propriety of the district court’s dismissal depended upon an unsettled question of Massachusetts state law regarding the statute governing derivative proceedings was better addressed by a Massachusetts court and certified the question to the Massachusetts Supreme Judicial Court.

On August 23, 2010, the Massachusetts Supreme Judicial Court answered the certified question, concluding that a derivative action must be dismissed under applicable state law following a corporation’s independent determination, made in good faith and after reasonable inquiry, that maintenance of the derivative proceeding is not in the best interests of the corporation, regardless whether the derivative complaint has been filed before or after the corporation’s rejection of the shareholder’s demand.

On May 6, 2011, the U.S. Court of Appeals for the Second Circuit affirmed the district court’s dismissal of the Putative Class Claims. With regard to the Derivative Claim, to which the certified question related and as to which the district court granted a motion to dismiss, the Second Circuit vacated the district court’s judgment and remanded with instructions to the court to convert the motion to dismiss to a motion for summary judgment, and to rule on that motion, after further discovery should the court determine that such further discovery is warranted. On August 4, 2011, the Court held a status conference and granted plaintiff leave to file a motion for particularized discovery, while indicating that any attempt to amend the existing Complaint would be denied. On September 16, 2011, plaintiff filed motions for discovery and to amend the Complaint. Defendants filed oppositions to those two motions on October 27, 2011.

10. Recent accounting pronouncement

In May 2011, the Financial Accounting Standards Board issued Accounting Standard Update No. 2011-04, Fair Value Measurement (Topic 820) — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 establishes common requirements for measuring fair value and for disclosing information about fair value measurements. ASU No. 2011-04 is effective during interim and annual periods beginning after December 15, 2011. Management is currently evaluating the impact the adoption of ASU No. 2011-04 will have on the Fund’s financial statements and related disclosures.

    Legg Mason Western Asset Short-Term Bond Fund 2011 Annual Report

Report of independent registered public accounting firm

The Board of Trustees and Shareholders

Legg Mason Partners Income Trust:

We have audited the accompanying statement of assets and liabilities of Legg Mason Western Asset Short-Term Bond Fund, a series of Legg Mason Partners Income Trust, including the schedule of investments, as of December 31, 2011, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2011, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Legg Mason Western Asset Short-Term Bond Fund as of December 31, 2011, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

New York, New York

February 17, 2012