UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-5029
Name of Fund: Legg Mason Income Trust, Inc.
Address of Principal Executive Offices: 100 Light Street, Baltimore, MD 21202
Name and address of agent for service: | |
Name and address of agent for service: Richard M. Wachterman, Esq. Legg Mason Wood Walker, Incorporated 100 Light Street Baltimore, MD 21202 |
Registrant’s telephone number, including area code: (410) 539-0000
Date of fiscal year end: December 31, 2004
Date of reporting period: June 30, 2004
Item 1 — Report to Shareholders
Semi-Annual Report to Shareholders |
Legg Mason | |
Income Trust, Inc. |
June 30, 2004 | |
To Our Shareholders,
We are pleased to provide you with Legg Mason Income Trust’s semi-annual report, combining reports for the Legg Mason Core Bond Fund, High Yield Portfolio, Investment Grade Income Portfolio, U.S. Government Intermediate-Term Portfolio and the U.S. Government Money Market Portfolio.
Net Asset Value | ||||||||||||
SEC YieldA | Average Life | Per Share | ||||||||||
Core Bond | 2.66% | 9.26 years | $ | 9.72 | ||||||||
High Yield | 6.65% | 6.08 years | $ | 8.90 | ||||||||
Investment Grade | 4.55% | 10.66 years | $ | 10.57 | ||||||||
U.S. Government Intermediate | 3.41% | 4.55 years | $ | 10.31 | ||||||||
U.S. Government Money MarketB | 0.45% | 66 days | $ | 1.00 |
For the six months ended June 30, 2004, total returns for the Primary Class of shares of the High Yield, Investment Grade and Government Intermediate Portfolios were +0.83%, -0.44%, and -0.49%, respectively. Total returns for the Institutional Class of shares were +1.13%, -0.29%, and -0.34%, respectively. The Core Bond Fund, which commenced operations on February 27, 2004, had a total return of -2.10% for the period from its inception to June 30, 2004. (Total return measures investment performance in terms of appreciation or depreciation in a portfolio’s net asset value per share, plus dividends and any capital gain distributions.)
A | SEC yields reported for the Core Bond, High Yield, Investment Grade and U.S. Government Intermediate Portfolios are for the 30 days ended June 30, 2004. For the U.S. Government Money Market Portfolio, the SEC yield is for the 7 days ended June 30, 2004. |
B | An investment in the U.S. Government Money Market Portfolio is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. |
Many of our shareholders regularly add to their Primary Class Fund holdings by authorizing automatic, monthly transfers from their bank checking or Legg Mason accounts. Your Legg Mason Financial Advisor will be happy to help you make these arrangements if you would like to purchase additional shares in this convenient way.
Sincerely, |
John F. Curley, Jr. Chairman | Mark R. Fetting President |
July 26, 2004
Performance Information
Core Bond Fund
Total return measures investment performance in terms of appreciation or depreciation in a fund’s net asset value per share, plus dividends and any capital gain distributions. It assumes that dividends and distributions were reinvested at the time they were paid. Average annual returns tend to smooth out variations in a fund’s return, so that they differ from actual year-to-year results. No adjustment has been made for any income taxes payable by shareholders.
The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please visit www.leggmasonfunds.com. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods. |
Portfolio Composition (as of June 30, 2004)
Debt RatingsA (as a percentage of portfolio)
Maturity Schedule (as a percentage of portfolio)
A | Source: Standard & Poor’s |
Portfolio of Investments
Core Bond Fund
(Amounts in Thousands) (Unaudited)
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Long-Term Securities — 97.6% | |||||||||||||||||
Corporate Bonds and Notes — 13.0% | |||||||||||||||||
Banking and Finance — 2.2% | |||||||||||||||||
Ford Motor Credit Company | 6.875% | 2/1/06 | $ | 240 | $ | 252 | |||||||||||
Ford Motor Credit Company | 7.000% | 10/1/13 | 150 | 151 | |||||||||||||
General Motors Acceptance Corporation | 5.625% | 5/15/09 | 210 | 210 | |||||||||||||
Household Finance Corporation | 4.625% | 1/15/08 | 180 | 183 | |||||||||||||
Wells Fargo & Company | 3.500% | 4/4/08 | 165 | 163 | |||||||||||||
959 | |||||||||||||||||
Banks — 0.8% | |||||||||||||||||
Bank of America Corporation | 3.875% | 1/15/08 | 160 | 160 | |||||||||||||
Bank One Corporation | 6.500% | 2/1/06 | 170 | 179 | |||||||||||||
339 | |||||||||||||||||
Cable — 0.6% | |||||||||||||||||
Comcast Corporation | 6.500% | 1/15/15 | 190 | 197 | |||||||||||||
Cox Communications, Inc. | 3.875% | 10/1/08 | 55 | 54 | |||||||||||||
251 | |||||||||||||||||
Computer Services and Systems — 0.2% | |||||||||||||||||
Electronic Data Systems Corporation | 6.000% | 8/1/13 | 100 | 95 | |||||||||||||
Diversified Financial Services — 0.8% | |||||||||||||||||
CIT Group Inc. | 4.000% | 5/8/08 | 5 | 5 | |||||||||||||
Citigroup Inc. | 3.500% | 2/1/08 | 185 | 183 | |||||||||||||
General Electric Capital Corporation | 4.250% | 1/15/08 | 175 | 177 | |||||||||||||
365 | |||||||||||||||||
Electric — 0.9% | |||||||||||||||||
Dominion Resources, Inc. | 5.700% | 9/17/12 | 90 | 91 | |||||||||||||
FirstEnergy Corp. | 7.375% | 11/15/31 | 235 | 245 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Electric — Continued | |||||||||||||||||
Oncor Electric Delivery Company | 6.375% | 1/15/15 | $ | 30 | $ | 32 | |||||||||||
The Cleveland Electric Illuminating Company | 5.650% | 12/15/13 | 20 | 19 | A | ||||||||||||
387 | |||||||||||||||||
Energy — 0.3% | |||||||||||||||||
Duke Energy Corporation | 5.625% | 11/30/12 | 105 | 105 | |||||||||||||
Pacific Gas and Electric Company | 2.300% | 4/3/06 | 20 | 20 | B | ||||||||||||
Pacific Gas and Electric Company | 6.050% | 3/1/34 | 30 | 28 | |||||||||||||
153 | |||||||||||||||||
Environmental Services — 0.2% | |||||||||||||||||
Waste Management, Inc. | 6.375% | 11/15/12 | 85 | 90 | |||||||||||||
Food, Beverage and Tobacco — 1.1% | |||||||||||||||||
Altria Group, Inc. | 7.000% | 11/4/13 | 185 | 188 | |||||||||||||
Anheuser-Busch Companies, Inc. | 4.950% | 1/15/14 | 125 | 123 | |||||||||||||
Kellogg Company | 6.600% | 4/1/11 | 80 | 88 | |||||||||||||
Kraft Foods Inc. | 5.625% | 11/1/11 | 105 | 107 | |||||||||||||
506 | |||||||||||||||||
Investment Banking/ Brokerage — 1.5% | |||||||||||||||||
Credit Suisse First Boston USA | 4.625% | 1/15/08 | 70 | 71 | |||||||||||||
J.P. Morgan Chase & Co. | 3.625% | 5/1/08 | 255 | 252 | |||||||||||||
Lehman Brothers Holdings Inc. | 4.000% | 1/22/08 | 90 | 90 | |||||||||||||
Morgan Stanley | 3.625% | 4/1/08 | 145 | 143 | |||||||||||||
The Goldman Sachs Group, Inc. | 4.125% | 1/15/08 | 125 | 125 | |||||||||||||
681 | |||||||||||||||||
Media — 0.4% | |||||||||||||||||
AOL Time Warner Inc. | 6.875% | 5/1/12 | 75 | 81 | |||||||||||||
AOL Time Warner Inc. | 7.700% | 5/1/32 | 75 | 82 | |||||||||||||
163 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Oil and Gas — 1.2% | |||||||||||||||||
Amerada Hess Corporation | 7.300% | 8/15/31 | $ | 100 | $ | 101 | |||||||||||
Apache Corporation | 6.250% | 4/15/12 | 75 | 82 | |||||||||||||
Conoco Inc. | 6.950% | 4/15/29 | 145 | 160 | |||||||||||||
ConocoPhillips | 4.750% | 10/15/12 | 40 | 39 | |||||||||||||
Devon Energy Corporation | 7.950% | 4/15/32 | 110 | 127 | |||||||||||||
XTO Energy, Inc. | 7.500% | 4/15/12 | 35 | 39 | |||||||||||||
548 | |||||||||||||||||
Paper and Forest Products — 0.6% | |||||||||||||||||
International Paper Company | 5.500% | 1/15/14 | 55 | 54 | |||||||||||||
MeadWestvaco Corporation | 6.850% | 4/1/12 | 30 | 32 | |||||||||||||
Weyerhaeuser Company | 6.750% | 3/15/12 | 150 | 162 | |||||||||||||
248 | |||||||||||||||||
Retail — 0.6% | |||||||||||||||||
Target Corporation | 5.400% | 10/1/08 | 120 | 126 | |||||||||||||
Wal-Mart Stores, Inc. | 3.375% | 10/1/08 | 150 | 146 | |||||||||||||
272 | |||||||||||||||||
Special Purpose — 1.6% | |||||||||||||||||
Anadarko Finance Company | 6.750% | 5/1/11 | 95 | 104 | |||||||||||||
ChevronTexaco Capital Company | 3.500% | 9/17/07 | 110 | 110 | |||||||||||||
DaimlerChrysler NA Holding Corporation | 4.050% | 6/4/08 | 110 | 108 | |||||||||||||
Sprint Capital Corporation | 4.780% | 8/17/06 | 15 | 15 | |||||||||||||
Sprint Capital Corporation | 6.000% | 1/15/07 | 220 | 231 | |||||||||||||
Verizon Global Funding Corp. | 7.375% | 9/1/12 | 130 | 146 | |||||||||||||
714 | |||||||||||||||||
Total Corporate Bonds and Notes (Identified Cost — $5,957) | 5,771 | ||||||||||||||||
Asset-Backed Securities — 5.0% | |||||||||||||||||
Fixed Rate Securities — 3.3% | |||||||||||||||||
Bank America Manufactured Housing Contract 1997-2 | 6.790% | 12/10/22 | 194 | 199 | |||||||||||||
Bank One Issuance Trust 2003-C1 | 4.540% | 9/15/10 | 200 | 202 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Asset-Backed Securities — Continued | |||||||||||||||||
Fixed Rate Securities — Continued | |||||||||||||||||
Citibank Credit Card Issuance Trust 2000-B1 | 7.050% | 9/17/07 | $ | 200 | $ | 210 | |||||||||||
Citibank Credit Card Issuance Trust 2001-C3 | 6.650% | 5/15/08 | 200 | 211 | |||||||||||||
Conseco Finance Home Equity Loan Trust 2001-A | 7.440% | 3/15/32 | 200 | 205 | |||||||||||||
Green Tree Home Improvement Loan Trust 1999-E | 9.450% | 10/15/24 | 200 | 208 | |||||||||||||
MMCA Auto Owner Trust 2002-2 | 3.670% | 7/17/06 | 48 | 48 | |||||||||||||
MMCA Auto Owner Trust 2002-4 | 3.050% | 11/16/09 | 200 | 200 | |||||||||||||
1,483 | |||||||||||||||||
Indexed SecuritiesB — 1.7% | |||||||||||||||||
Citibank Credit Card Issuance Trust 2000-C2 | 2.250% | 10/15/07 | 200 | 201 | |||||||||||||
EQCC Trust 2002 | 1.600% | 11/25/31 | 32 | 32 | |||||||||||||
Merrill Lynch Mortgage Investors, Inc. 2002-NC1 | 1.620% | 5/25/33 | 39 | 39 | |||||||||||||
Residential Asset Mortgage Product, Inc. 2004-RP1A | 1.600% | 11/25/42 | 252 | 252 | |||||||||||||
Wachovia Asset Securitization, Inc. 2002-HE1 | 1.670% | 9/27/32 | 226 | 227 | |||||||||||||
751 | |||||||||||||||||
Total Asset-Backed Securities (Identified Cost — $2,231) | 2,234 | ||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Mortgage-Backed Securities — 2.0% | |||||||||||||||||
Fixed Rate Securities — 0.8% | |||||||||||||||||
Asset Securitization Corporation 1996-D2 | 6.920% | 2/14/29 | $ | 68 | $ | 71 | |||||||||||
Washington Mutual Mortgage Securities Corporation 2004-RA1 | 7.000% | 3/25/34 | 256 | 271 | |||||||||||||
342 | |||||||||||||||||
Variable Rate SecuritiesC — 1.2% | |||||||||||||||||
Bear Stearns Adjustable Rate Mortgage Trust 2004-4 | 3.517% | 6/25/34 | 400 | 383 | |||||||||||||
Credit-Based Asset Servicing and Security 1999-3 | 6.324% | 1/3/29 | 67 | 65 | A | ||||||||||||
Washington Mutual 2004-AR7 | 3.963% | 7/25/34 | 100 | 96 | |||||||||||||
544 | |||||||||||||||||
Total Mortgage-Backed Securities (Identified Cost — $884) | 886 | ||||||||||||||||
U.S. Government and Agency Obligations — 47.1% | |||||||||||||||||
Fixed Rate Securities — 37.5% | |||||||||||||||||
Fannie Mae | 1.650% | 5/16/05 | 305 | 304 | |||||||||||||
Fannie Mae | 3.000% | 4/26/19 | 140 | 138 | A | ||||||||||||
United States Treasury Bonds | 6.250% | 8/15/23 | 150 | 166 | |||||||||||||
United States Treasury Bonds | 5.250% | 2/15/29 | 700 | 687 | |||||||||||||
United States Treasury Bonds | 6.250% | 5/15/30 | 360 | 403 | |||||||||||||
United States Treasury Bonds | 5.375% | 2/15/31 | 3,420 | 3,449 | |||||||||||||
United States Treasury Notes | 1.500% | 3/31/06 | 40 | 39 | |||||||||||||
United States Treasury Notes | 2.750% | 6/30/06 | 7,210 | 7,215 | |||||||||||||
United States Treasury Notes | 3.125% | 5/15/07 | 90 | 90 | |||||||||||||
United States Treasury Notes | 3.000% | 2/15/09 | 2,960 | 2,868 | |||||||||||||
United States Treasury Notes | 4.000% | 6/15/09 | 1,290 | 1,301 | |||||||||||||
United States Treasury Notes | 4.250% | 11/15/13 | 20 | 20 | |||||||||||||
16,680 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
U.S. Government and Agency Obligations — Continued | |||||||||||||||||
Indexed SecuritiesD — 9.6% | |||||||||||||||||
United States Treasury Inflation-Protected Security | 3.875% | 1/15/09 | $ | 493 | $ | 550 | |||||||||||
United States Treasury Inflation-Protected Security | 2.000% | 1/15/14 | 1,633 | 1,623 | |||||||||||||
United States Treasury Inflation-Protected Security | 3.875% | 4/15/29 | 1,635 | 2,085 | |||||||||||||
4,258 | |||||||||||||||||
Stripped Securities — N.M. | |||||||||||||||||
United States Treasury Bonds | 0.000% | 2/15/23 | 50 | 17 | E2 | ||||||||||||
Total U.S. Government and Agency Obligations (Identified Cost — $21,331) | 20,955 | ||||||||||||||||
U.S. Government Agency Mortgage-Backed Securities — 27.9% | |||||||||||||||||
Fixed Rate Securities — 27.9% | |||||||||||||||||
Fannie Mae | 6.000% | 8/1/17 to 5/1/34 | 1,326 | 1,369 | |||||||||||||
Fannie Mae | 5.500% | 12/1/17 to 5/1/34 | 862 | 865 | |||||||||||||
Fannie Mae | 5.500% | 1/1/31 | 1,100 | 1,094 | F | ||||||||||||
Fannie Mae | 6.000% | 1/1/32 | 100 | 102 | F | ||||||||||||
Fannie Mae | 5.500% | 1/1/33 | 1,000 | 1,022 | F | ||||||||||||
Freddie Mac | 5.500% | 1/1/18 to 9/1/18 | 791 | 810 | |||||||||||||
Freddie Mac | 4.500% | 4/1/19 | 496 | 485 | |||||||||||||
Freddie Mac | 5.000% | 7/1/34 | 1,200 | 1,158 | F | ||||||||||||
Government National Mortgage Association | 6.000% | 11/15/28 to 12/15/33 | 1,717 | 1,763 | |||||||||||||
Government National Mortgage Association | 6.500% | 2/15/32 | 872 | 912 | |||||||||||||
Government National Mortgage Association | 5.000% | 8/15/33 to 5/15/34 | 1,274 | 1,239 | |||||||||||||
Government National Mortgage Association | 5.500% | 10/15/33 to 4/15/34 | 1,570 | 1,571 | |||||||||||||
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $12,519) | 12,390 | ||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee BondsG — 2.6% | |||||||||||||||||
Foreign Governments — 1.2% | |||||||||||||||||
Russian Federation | 5.000% | 3/31/30 | $ | 210 | $ | 192 | A,H | ||||||||||
United Mexican States | 7.500% | 4/8/33 | 368 | 356 | |||||||||||||
548 | |||||||||||||||||
Manufacturing (Diversified) — 0.6% | |||||||||||||||||
Tyco International Group S.A. | 6.375% | 10/15/11 | 45 | 48 | |||||||||||||
Tyco International Group S.A. | 6.875% | 1/15/29 | 195 | 204 | |||||||||||||
252 | |||||||||||||||||
Oil and Gas — 0.1% | |||||||||||||||||
Apache Finance Canada Corp. | 4.375% | 5/15/15 | 28 | ||||||||||||||
Special Purpose — 0.5% | |||||||||||||||||
Banagricola DPR Funding Ltd. | 2.289% | 3/15/10 | 192 | 191 | A,B | ||||||||||||
Deutsche Telekom International Finance BV | 5.250% | 7/22/13 | 40 | 39 | |||||||||||||
230 | |||||||||||||||||
Telecommunications — 0.2% | |||||||||||||||||
British Telecommunications plc | 8.375% | 12/15/10 | 75 | 87 | |||||||||||||
INTELSAT | 6.500% | 11/1/13 | 10 | 9 | |||||||||||||
96 | |||||||||||||||||
Total Yankee Bonds (Identified Cost — $1,176) | 1,154 | ||||||||||||||||
Total Long-Term Securities (Identified Cost — $44,098) | 43,390 | ||||||||||||||||
Short-Term Securities — 6.6% | |||||||||||||||||
U.S. Government and Agency Obligations — 0.3% | |||||||||||||||||
Fannie Mae | 0.000% | 9/8/04 | 121 | 121 | I,J | ||||||||||||
Par/ | |||||||||||||||||
Shares | Value | ||||||||||||||||
Options PurchasedK — N.M. | |||||||||||||||||
Eurodollar Futures Call, October 2004, Strike Price $96.25 | 10 | L | $ | 2 | |||||||||||||
Eurodollar Futures Call, October 2004, Strike Price $97.00 | 8 | L | 8 | ||||||||||||||
10 | |||||||||||||||||
Repurchase Agreements — 6.3% | |||||||||||||||||
Deutsche Bank AG | |||||||||||||||||
1.40%, dated 6/30/04, to be repurchased at $1,500 on 7/1/04 (Collateral: $1,515 Federal Home Loan Bank bonds, 5.25%, due 6/18/14, value $1,539) | $1,500 | 1,500 | |||||||||||||||
Lehman Brothers, Inc. | |||||||||||||||||
1.40%, dated 6/30/04, to be repurchased at $1,304 on 7/1/04 (Collateral: $1,360 Freddie Mac zero-coupon notes, due 5/31/05, value $1,330) | 1,304 | 1,304 | |||||||||||||||
2,804 | |||||||||||||||||
Total Short-Term Securities (Identified Cost — $2,935) | 2,935 | ||||||||||||||||
Total Investments — 104.2% (Identified Cost — $47,033) | 46,325 | ||||||||||||||||
Other Assets Less Liabilities — (4.2)% | (1,897 | ) | |||||||||||||||
Net Assets — 100.0% | $ | 44,428 | |||||||||||||||
Actual | Appreciation/ | ||||||||||
Expiration | Contracts | (Depreciation) | |||||||||
Futures Contracts PurchasedK | |||||||||||
Eurodollar Futures | September 2004 | 8 | $ | — | |||||||
Eurodollar Futures | September 2004 | 40 | 1 | ||||||||
U.S. Treasury Note Futures | September 2004 | 51 | 52 | ||||||||
U.S. Treasury Note Futures | September 2004 | 26 | 9 | ||||||||
$ | 62 | ||||||||||
Futures Contracts WrittenK | |||||||||||
U.S. Treasury Bond Futures | September 2004 | 19 | $ | (18 | ) | ||||||
Options WrittenK | |||||||||||
Eurodollar Futures Call, Strike Price $96.75 | September 2004 | 4 | $ | 2 | |||||||
Eurodollar Futures Call, Strike Price $96.50 | October 2004 | 1 | — | ||||||||
Eurodollar Futures Call, Strike Price $97.00 | October 2004 | 3 | 1 | ||||||||
U.S. Treasury Note Futures Call, Strike Price $112.00 | September 2004 | 16 | 5 | ||||||||
U.S. Treasury Note Futures Call, Strike Price $114.00 | September 2004 | 6 | 6 | ||||||||
U.S. Treasury Note Futures Call, Strike Price $115.00 | September 2004 | 3 | 3 | ||||||||
U.S. Treasury Note Futures Call, Strike Price $112.00 | December 2004 | 15 | 1 | ||||||||
U.S. Treasury Note Futures Put, Strike Price $107.00 | September 2004 | 3 | 1 | ||||||||
U.S. Treasury Bond Futures Call, Strike Price $104.00 | September 2004 | 4 | (1 | ) | |||||||
U.S. Treasury Bond Futures Call, Strike Price $107.00 | September 2004 | 2 | (1 | ) | |||||||
U.S. Treasury Bond Futures Call, Strike Price $112.00 | September 2004 | 6 | 4 | ||||||||
$ | 21 | ||||||||||
A | Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 1.4% of net assets. |
B | Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (’LIBOR”). The coupon rates are the rates as of June 30, 2004. |
C | The coupon rates shown on variable securities are the rates at June 30, 2004. These rates vary with the weighted average coupon of the underlying loans. |
D | Inflation-Protected Securities — Security whose principal value is adjusted daily or monthly in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value. |
E | Stripped security — Security with interest-only or principal-only payment streams, denoted by a 1 or 2 respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due. |
F | When-issued security — Security purchased on a delayed delivery basis. Final settlement amount and maturity have not yet been announced. |
G | Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities. |
H | Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes. |
I | Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity. |
J | Collateral to cover futures contracts. |
K | Options and futures are described in more detail in the notes to financial statements. |
L | Represents actual number of contracts. |
N.M. — Not meaningful.
See notes to financial statements.
Statement of Assets and Liabilities
Core Bond Fund
Assets: | |||||||||||
Investment securities at market value (cost — $44,098) | $ | 43,390 | |||||||||
Short-term securities at value (cost — $2,935) | 2,935 | ||||||||||
Total investments | $ | 46,325 | |||||||||
Cash | 766 | ||||||||||
Receivable for: | |||||||||||
Fund shares sold | 476 | ||||||||||
Interest | 330 | ||||||||||
Futures variation margin | 52 | ||||||||||
47,949 | |||||||||||
Liabilities: | |||||||||||
Options proceeds (cost — $52) | 31 | ||||||||||
Swap contracts | 16 | ||||||||||
Payable for: | |||||||||||
Fund shares repurchased | 24 | ||||||||||
Securities purchased | 3,351 | ||||||||||
Income distribution | 53 | ||||||||||
Accrued expenses | 46 | ||||||||||
3,521 | |||||||||||
Net Assets | $ | 44,428 | |||||||||
Net assets consist of: | |||||||||||
Accumulated paid-in capital applicable to | |||||||||||
4,569 Primary Class shares outstanding | $ | 45,308 | |||||||||
Under/(over) distributed net investment income | (1 | ) | |||||||||
Accumulated net realized gain/(loss) on investments, options, futures, and swaps | (230 | ) | |||||||||
Unrealized appreciation/(depreciation) of investments, options, futures and swaps | (649 | ) | |||||||||
Net Assets | $ | 44,428 | |||||||||
Net Asset Value Per Share: | |||||||||||
Primary Class | $9.72 | ||||||||||
See notes to financial statements.
Statement of Operations
Core Bond Fund
Investment Income: | |||||||||||
Interest | $ | 359 | |||||||||
Expenses: | |||||||||||
Management fee | 47 | ||||||||||
Distribution and service fees | 52 | ||||||||||
Audit and legal fees | 14 | ||||||||||
Custodian fee | 33 | ||||||||||
Directors’ fees and expenses | 7 | ||||||||||
Registration fees | 10 | ||||||||||
Reports to shareholders | 7 | ||||||||||
Transfer agent and shareholder servicing expense | 13 | ||||||||||
Other expenses | 11 | ||||||||||
194 | |||||||||||
Less fees waived | (90 | ) | |||||||||
Total expenses, net of waivers | 104 | ||||||||||
Net Investment Income | 255 | ||||||||||
Net Realized and Unrealized Gain/(Loss) on Investments: | |||||||||||
Realized gain/(loss) on: | |||||||||||
Investments | (164 | ) | |||||||||
Options | 3 | ||||||||||
Futures | (73 | ) | |||||||||
Swaps | 4 | ||||||||||
(230 | ) | ||||||||||
Change in unrealized appreciation/(depreciation) of investments, options and futures | (649 | ) | |||||||||
Net Realized and Unrealized Gain/(Loss) on Investments | (879 | ) | |||||||||
Change in Net Assets Resulting From Operations | $ | (624 | ) | ||||||||
A | For the period February 27, 2004 (commencement of operations) to June 30, 2004. |
See notes to financial statements.
Statement of Changes in Net Assets
Core Bond Fund
For the Period | |||||
Ended | |||||
6/30/04A | |||||
(Unaudited) | |||||
Change in Net Assets: | |||||
Net investment income | $ | 255 | |||
Net realized gain/(loss) on investments, options, futures and swaps | (230 | ) | |||
Change in unrealized appreciation/(depreciation) of investments, options, futures and swaps | (649 | ) | |||
Change in net assets resulting from operations | (624 | ) | |||
Distributions to shareholders from net investment income: | |||||
Primary Class | (256 | ) | |||
Change in net assets from Fund share transactions: | |||||
Primary Class | 45,308 | ||||
Change in net assets | 44,428 | ||||
Net Assets: | |||||
Beginning of period | — | ||||
End of period | $ | 44,428 | |||
Under/(over) distributed net investment income | $ | (1 | ) | ||
A | For the period February 27, 2004 (commencement of operations) to June 30, 2004. |
See notes to financial statements.
Financial Highlights
Core Bond Fund
Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements.
Primary Class:
Period | |||||
Ended | |||||
June 30, 2004A | |||||
(Unaudited) | |||||
Net asset value, beginning of period | $10.00 | ||||
Investment operations: | |||||
Net investment income | .07 | B | |||
Net realized and unrealized gain/(loss) on investments | (.28 | ) | |||
Total from investment operations | (.21 | ) | |||
Distributions: | |||||
From net investment income | (.07 | ) | |||
Total distributions | (.07 | ) | |||
Net asset value, end of period | $9.72 | ||||
Ratios/supplemental data: | |||||
Total return | (2.10 | )%C | |||
Expenses to average net assets | 1.00 | %B,D | |||
Net investment income to average net assets | 2.47 | %B,D | |||
Portfolio turnover rate | 126 | %C | |||
Net assets, end of period (in thousands) | $ | 44,428 | |||
A | For the period February 27, 2004 (commencement of operations) to June 30, 2004. |
B | Net of fees waived by LMFA for expenses in excess of the voluntary expense limitation of 1.00% until April 30, 2005. If no fees had been waived by LMFA, the annualized ratio of expenses to daily average net assets would have been 1.87%. |
C | Not annualized. |
D | Annualized. |
See notes to financial statements.
Performance Information
High Yield Portfolio
The following graphs compare the Fund’s total returns against that of a closely matched broad-based securities market index. The graphs illustrate the cumulative total return of an initial $10,000 investment in the Primary Class and an initial $1,000,000 investment in the Institutional Class of the Fund, for the periods indicated. The line for the Fund represents the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The line representing the securities market index does not include any transaction costs associated with buying and selling securities in the index or other administrative expenses. Both the Fund’s results and the index’s results assume reinvestment of all dividends and distributions.
The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please visit www.leggmasonfunds.com. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods. |
Growth of a $10,000 Investment — Primary Class
Cumulative | Average Annual | |||||||||
Total Return | Total Return | |||||||||
One Year | +8.20% | +8.20% | ||||||||
Five Years | -1.76% | -0.35% | ||||||||
Ten Years | +64.19% | +5.08% |
The graph and table do not reflect the deduction of taxes that a shareholder
Past performance does not predict future performance.
A | A market value-weighted index that tracks the daily price-only, coupon, and total return performance of non-investment grade, fixed rate, publicly placed, dollar-denominated, and non-convertible debt registered with the U.S. Securities and Exchange Commission. |
Growth of a $1,000,000 Investment — Institutional Class
Cumulative | Average Annual | |||||||||
Total Return | Total Return | |||||||||
One Year | +8.80% | +8.80% | ||||||||
Five Years | +0.06% | +0.01% | ||||||||
Life of Class* | +1.14% | +0.18% | ||||||||
*Inception date: May 5, 1998 |
The graph and table do not reflect the deduction of taxes that a shareholder
Past performance does not predict future performance.
B | Index returns are for periods beginning April 30, 1998. |
Debt RatingsC (as a percentage of portfolio)
Maturity Schedule (as a percentage of portfolio)
C | Source: Standard & Poor’s |
Portfolio of Investments
High Yield Portfolio
June 30, 2004
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Long-Term Securities — 98.3% | |||||||||||||||||
Corporate Bonds and Notes — 89.0% | |||||||||||||||||
Advertising — 0.6% | |||||||||||||||||
Vertis Inc. | 10.875% | 6/15/09 | $ | 1,205 | $ | 1,295 | |||||||||||
Aerospace/ Defense — 1.8% | |||||||||||||||||
Armor Holdings, Inc. | 8.250% | 8/15/13 | 1,050 | 1,123 | |||||||||||||
Esterline Technologies Corporation | 7.750% | 6/15/13 | 1,173 | 1,208 | |||||||||||||
Hexcel Corporation | 9.875% | 10/1/08 | 966 | 1,060 | |||||||||||||
Hexcel Corporation | 9.750% | 1/15/09 | 380 | 399 | |||||||||||||
3,790 | |||||||||||||||||
Animal Hospitals — 0.5% | |||||||||||||||||
Vicar Operating, Inc. | 9.875% | 12/1/09 | 915 | 1,007 | |||||||||||||
Apparel — 1.6% | |||||||||||||||||
Oxford Industries, Inc. | 8.875% | 6/1/11 | 1,181 | 1,246 | A | ||||||||||||
Russell Corporation | 9.250% | 5/1/10 | 998 | 1,060 | |||||||||||||
The William Carter Company | 10.875% | 8/15/11 | 887 | 1,005 | |||||||||||||
3,311 | |||||||||||||||||
Auto and Automotive Parts — 1.9% | |||||||||||||||||
Cummins Inc. | 9.500% | 12/1/10 | 992 | 1,123 | |||||||||||||
Keystone Automotive Operations Inc. | 9.750% | 11/1/13 | 1,100 | 1,177 | A | ||||||||||||
TRW Automotive | 9.375% | 2/15/13 | 839 | 946 | |||||||||||||
TRW Automotive | 11.000% | 2/15/13 | 588 | 694 | |||||||||||||
3,940 | |||||||||||||||||
Automotive Retailer — 0.9% | |||||||||||||||||
Asbury Automotive Group Inc. | 9.000% | 6/15/12 | 1,896 | 1,934 | |||||||||||||
Building Materials — 3.3% | |||||||||||||||||
Associated Materials Incorporated | 0.000% | 3/1/14 | 1,910 | 1,280 | A,B | ||||||||||||
Atrium Companies, Inc. | 10.500% | 5/1/09 | 1,970 | 2,063 | |||||||||||||
Interface, Inc. | 7.300% | 4/1/08 | 553 | 548 | |||||||||||||
Interface, Inc. | 10.375% | 2/1/10 | 913 | 1,018 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Building Materials — Continued | |||||||||||||||||
Nortek Holdings, Inc. | 0.000% | 5/15/11 | $ | 1,700 | $ | 1,360 | A,B | ||||||||||
Nortek Holdings, Inc. | 9.875% | 6/15/11 | 471 | 537 | |||||||||||||
6,806 | |||||||||||||||||
Cable — 3.7% | |||||||||||||||||
Charter Communications Holdings, LLC | 9.625% | 11/15/09 | 2,250 | 1,823 | |||||||||||||
Charter Communications Holdings, LLC | 8.000% | 4/30/12 | 1,440 | 1,393 | A | ||||||||||||
Charter Communications, Inc. | 10.250% | 9/15/10 | 1,575 | 1,587 | A | ||||||||||||
CSC Holdings Inc. | 7.625% | 4/1/11 | 700 | 702 | |||||||||||||
CSC Holdings Inc. | 6.750% | 4/15/12 | 170 | 163 | A | ||||||||||||
CSC Holdings Inc. | 7.625% | 7/15/18 | 946 | 882 | |||||||||||||
LodgeNet Entertainment Corporation | 9.500% | 6/15/13 | 1,152 | 1,259 | |||||||||||||
7,809 | |||||||||||||||||
Casino Resorts — 4.4% | |||||||||||||||||
Herbst Gaming, Inc. | 8.125% | 6/1/12 | 650 | 659 | A | ||||||||||||
Inn of the Mountain Gods | 12.000% | 11/15/10 | 1,580 | 1,754 | A | ||||||||||||
MGM MIRAGE | 8.500% | 9/15/10 | 1,192 | 1,288 | |||||||||||||
Mirage Resorts, Incorporated | 7.250% | 10/15/06 | 355 | 370 | |||||||||||||
Park Place Entertainment Corporation | 7.875% | 12/15/05 | 259 | 272 | |||||||||||||
Park Place Entertainment Corporation | 8.875% | 9/15/08 | 1,210 | 1,313 | |||||||||||||
Premier Entertainment Biloxi LLC | 10.750% | 2/1/12 | 747 | 784 | A | ||||||||||||
River Rock Entertainment | 9.750% | 11/1/11 | 990 | 1,079 | |||||||||||||
Station Casinos, Inc. | 6.000% | 4/1/12 | 560 | 542 | |||||||||||||
Station Casinos, Inc. | 6.875% | 3/1/16 | 470 | 452 | |||||||||||||
Wynn Las Vegas LLC | 12.000% | 11/1/10 | 541 | 648 | |||||||||||||
9,161 | |||||||||||||||||
Chemicals — 5.5% | |||||||||||||||||
Airgas, Inc. | 6.250% | 7/15/14 | 610 | 584 | A | ||||||||||||
Equistar Chemicals LP | 10.125% | 9/1/08 | 450 | 493 | |||||||||||||
Equistar Chemicals LP | 10.625% | 5/1/11 | 696 | 773 | |||||||||||||
FMC Corporation | 10.250% | 11/1/09 | 154 | 177 | |||||||||||||
Georgia Gulf Corporation | 7.625% | 11/15/05 | 6 | 6 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Chemicals — Continued | |||||||||||||||||
Georgia Gulf Corporation | 7.125% | 12/15/13 | $ | 490 | $ | 496 | A | ||||||||||
Hercules Incorporated | 11.125% | 11/15/07 | 300 | 351 | |||||||||||||
Huntsman International Holdings LLC | 0.000% | 12/31/09 | 1,086 | 532 | C | ||||||||||||
Huntsman International LLC | 9.875% | 3/1/09 | 302 | 326 | |||||||||||||
Huntsman International LLC | 10.125% | 7/1/09 | 967 | 986 | |||||||||||||
IMC Global Inc. | 10.875% | 6/1/08 | 576 | 670 | |||||||||||||
Lyondell Chemical Company | 9.625% | 5/1/07 | 1,037 | 1,084 | |||||||||||||
MacDermid, Incorporated | 9.125% | 7/15/11 | 822 | 916 | |||||||||||||
Millennium America Inc. | 7.000% | 11/15/06 | 526 | 540 | |||||||||||||
Millennium America Inc. | 9.250% | 6/15/08 | 782 | 841 | |||||||||||||
Nalco Company | 7.750% | 11/15/11 | 450 | 471 | A | ||||||||||||
Nalco Company | 8.875% | 11/15/13 | 640 | 671 | A | ||||||||||||
Westlake Chemical Corporation | 8.750% | 7/15/11 | 1,480 | 1,606 | |||||||||||||
11,523 | |||||||||||||||||
Coal — 0.6% | |||||||||||||||||
Alpha Natural Resources LLC | 10.000% | 6/1/12 | 1,280 | 1,338 | A | ||||||||||||
Containers and Packaging — 1.0% | |||||||||||||||||
Graphic Packaging International Corp. | 9.500% | 8/15/13 | 1,160 | 1,259 | |||||||||||||
Owens Brockway Glass Containers | 8.750% | 11/15/12 | 850 | 922 | |||||||||||||
2,181 | |||||||||||||||||
Diversified Services — 0.4% | |||||||||||||||||
SPX Corporation | 7.500% | 1/1/13 | 792 | 812 | |||||||||||||
Electric — 3.6% | |||||||||||||||||
FirstEnergy Corp. | 5.500% | 11/15/06 | 25 | 26 | |||||||||||||
FirstEnergy Corp. | 6.450% | 11/15/11 | 360 | 373 | |||||||||||||
Midwest Generation LLC | 8.750% | 5/1/34 | 1,000 | 1,010 | A | ||||||||||||
Nevada Power Company | 6.500% | 4/15/12 | 1,140 | 1,083 | A | ||||||||||||
Orion Power Holdings, Inc. | 12.000% | 5/1/10 | 1,703 | 2,077 | |||||||||||||
The AES Corporation | 8.500% | 11/1/07 | 718 | 736 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Electric — Continued | |||||||||||||||||
The AES Corporation | 9.500% | 6/1/09 | $ | 710 | $ | 759 | |||||||||||
The AES Corporation | 9.000% | 5/15/15 | 1,403 | 1,503 | A | ||||||||||||
7,567 | |||||||||||||||||
Electronics — 1.7% | |||||||||||||||||
Amkor Technology, Inc. | 9.250% | 2/15/08 | 900 | 941 | |||||||||||||
BRL Universal Equipment 2001 A., L.P. | 8.875% | 2/15/08 | 300 | 321 | |||||||||||||
Fairchild Semiconductor International, Inc. | 10.500% | 2/1/09 | 240 | 261 | |||||||||||||
Rayovac Corporation | 8.500% | 10/1/13 | 860 | 903 | |||||||||||||
Viasystems Inc. | 10.500% | 1/15/11 | 1,120 | 1,176 | A | ||||||||||||
3,602 | |||||||||||||||||
Energy — 3.3% | |||||||||||||||||
Calpine Corporation | 7.625% | 4/15/06 | 620 | 546 | |||||||||||||
Calpine Corporation | 8.625% | 8/15/10 | 777 | 505 | |||||||||||||
Calpine Corporation | 8.500% | 2/15/11 | 1,224 | 799 | |||||||||||||
Calpine Corporation | 9.875% | 12/1/11 | 600 | 510 | A | ||||||||||||
Calpine Corporation | 8.750% | 7/15/13 | 1,192 | 977 | A | ||||||||||||
Calpine Generating Co. LLC | 11.500% | 4/1/11 | 610 | 537 | A | ||||||||||||
NRG Energy, Inc. | 8.000% | 12/15/13 | 1,102 | 1,113 | A | ||||||||||||
Peabody Energy Corporation | 5.875% | 4/15/16 | 320 | 291 | |||||||||||||
PG&E Corporation | 6.875% | 7/15/08 | 690 | 721 | A | ||||||||||||
TECO Energy, Inc. | 10.500% | 12/1/07 | 830 | 925 | |||||||||||||
6,924 | |||||||||||||||||
Environmental Services — 1.6% | |||||||||||||||||
Allied Waste North America Incorporated | 7.625% | 1/1/06 | 69 | 72 | |||||||||||||
Allied Waste North America Incorporated | 8.500% | 12/1/08 | 979 | 1,071 | |||||||||||||
Allied Waste North America Incorporated | 7.375% | 4/15/14 | 980 | 953 | A |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Environmental Services — Continued | |||||||||||||||||
Capital Environment Resource, Inc. | 9.500% | 4/15/14 | $ | 1,120 | $ | 1,148 | A | ||||||||||
Safety-Kleen Corp. | 9.250% | 5/15/09 | 3,894 | 195 | D | ||||||||||||
3,439 | |||||||||||||||||
Food, Beverage and Tobacco — 1.4% | |||||||||||||||||
Cott Beverages Incorporated | 8.000% | 12/15/11 | 950 | 1,010 | |||||||||||||
Domino’s, Inc. | 8.250% | 7/1/11 | 1,336 | 1,416 | |||||||||||||
Smithfield Foods, Inc. | 8.000% | 10/15/09 | 430 | 463 | |||||||||||||
2,889 | |||||||||||||||||
Funeral Parlors and Cemetery — N.M | |||||||||||||||||
Alderwoods Group, Inc. | 12.250% | 1/2/09 | 81 | 90 | |||||||||||||
Gaming — 1.3% | |||||||||||||||||
Argosy Gaming Company | 9.000% | 9/1/11 | 1,432 | 1,582 | |||||||||||||
Mohegan Tribal Gaming Authority | 6.375% | 7/15/09 | 1,110 | 1,113 | |||||||||||||
2,695 | |||||||||||||||||
Gas and Pipeline Utilities — 4.6% | |||||||||||||||||
ANR Pipeline, Inc. | 8.875% | 3/15/10 | 322 | 352 | |||||||||||||
ANR Pipeline, Inc. | 9.625% | 11/1/21 | 477 | 534 | |||||||||||||
Colorado Interstate Gas Company | 10.000% | 6/15/05 | 540 | 566 | |||||||||||||
Dynegy Holdings Inc. | 10.125% | 7/15/13 | 980 | 1,061 | A | ||||||||||||
Encore Acquisition Company | 6.250% | 4/15/14 | 310 | 291 | A | ||||||||||||
GulfTerra Energy Partners, L.P. | 10.625% | 12/1/12 | 466 | 554 | |||||||||||||
KCS Energy, Inc. | 7.125% | 4/1/12 | 930 | 925 | A | ||||||||||||
Northwest Pipelines Corporation | 8.125% | 3/1/10 | 254 | 274 | |||||||||||||
Sonat Inc. | 6.875% | 6/1/05 | 700 | 702 | |||||||||||||
Southern Natural Gas Company | 8.875% | 3/15/10 | 678 | 741 | |||||||||||||
The Williams Companies, Inc. | 8.625% | 6/1/10 | 472 | 519 | |||||||||||||
The Williams Companies, Inc. | 8.125% | 3/15/12 | 540 | 577 | |||||||||||||
The Williams Companies, Inc. | 7.500% | 1/15/31 | 334 | 302 | |||||||||||||
The Williams Companies, Inc. | 8.750% | 3/15/32 | 1,091 | 1,091 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Gas and Pipeline Utilities — Continued | |||||||||||||||||
Transcontinental Gas Pipeline Corporation | 7.000% | 8/15/11 | $ | 352 | $ | 361 | |||||||||||
Transcontinental Gas Pipeline Corporation | 8.875% | 7/15/12 | 729 | 824 | |||||||||||||
9,674 | |||||||||||||||||
Health Care — 2.0% | |||||||||||||||||
Ardent Health Services | 10.000% | 8/15/13 | 910 | 974 | |||||||||||||
Equinox Holdings Inc. | 9.000% | 12/15/09 | 940 | 935 | A | ||||||||||||
Tenet Healthcare Corporation | 9.875% | 7/1/14 | 2,147 | 2,185 | A | ||||||||||||
4,094 | |||||||||||||||||
Homebuilding — 0.5% | |||||||||||||||||
Schuler Homes, Inc. | 9.375% | 7/15/09 | 265 | 291 | |||||||||||||
Schuler Homes, Inc. | 10.500% | 7/15/11 | 640 | 730 | |||||||||||||
1,021 | |||||||||||||||||
Lodging/ Hotels — 0.2% | |||||||||||||||||
Hilton Hotels Corporation | 7.950% | 4/15/07 | 133 | 144 | |||||||||||||
La Quinta Inns, Inc. | 8.875% | 3/15/11 | 70 | 75 | |||||||||||||
Starwood Hotels & Resorts Worldwide, Inc. | 7.875% | 5/1/12 | 100 | 107 | |||||||||||||
326 | |||||||||||||||||
Machinery — 3.8% | |||||||||||||||||
Case New Holland Incorporated | 9.250% | 8/1/11 | 1,520 | 1,596 | A | ||||||||||||
Grant Prideco, Inc. | 9.000% | 12/15/09 | 877 | 954 | |||||||||||||
Hanover Compressor Company | 8.625% | 12/15/10 | 1,179 | 1,220 | |||||||||||||
Joy Global Inc. | 8.750% | 3/15/12 | 1,125 | 1,260 | |||||||||||||
NMHG Holdings Co. | 10.000% | 5/15/09 | 1,201 | 1,321 | |||||||||||||
Terex Corporation | 10.375% | 4/1/11 | 909 | 1,013 | |||||||||||||
Terex Corporation | 9.250% | 7/15/11 | 440 | 480 | |||||||||||||
7,844 | |||||||||||||||||
Manufacturing (Diversified) — 2.8% | |||||||||||||||||
Ames True Temper | 10.000% | 7/15/12 | 1,570 | 1,574 | A | ||||||||||||
California Steel Industries Inc. | 6.125% | 3/15/14 | 380 | 354 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Manufacturing (Diversified) — Continued | |||||||||||||||||
Jacuzzi Brands Incorporated | 9.625% | 7/1/10 | $ | 1,364 | $ | 1,460 | |||||||||||
Koppers Inc. | 9.875% | 10/15/13 | 920 | 1,007 | |||||||||||||
MMI Products, Inc. | 11.250% | 4/15/07 | 640 | 618 | |||||||||||||
Samsonite Corporation | 8.875% | 6/1/11 | 800 | 828 | A | ||||||||||||
5,841 | |||||||||||||||||
Media — 2.5% | |||||||||||||||||
EchoStar DBS Corporation | 4.360% | 10/1/08 | 1,240 | 1,291 | E | ||||||||||||
EchoStar DBS Corporation | 9.125% | 1/15/09 | 142 | 156 | |||||||||||||
Lamar Media Corporation | 7.250% | 1/1/13 | 620 | 631 | |||||||||||||
Paxson Communications Corporation | 10.750% | 7/15/08 | 645 | 654 | |||||||||||||
Paxson Communications Corporation | 0.000% | 1/15/09 | 25 | 22 | B | ||||||||||||
PRIMEDIA Inc. | 6.615% | 5/15/10 | 580 | 588 | A,E | ||||||||||||
Readers Digest Association, Inc. | 6.500% | 3/1/11 | 820 | 801 | |||||||||||||
Sinclair Broadcast Group, Inc. | 8.750% | 12/15/11 | 990 | 1,059 | |||||||||||||
5,202 | |||||||||||||||||
Medical Care Facilities — 1.4% | |||||||||||||||||
Extendicare Health Services, Inc. | 9.500% | 7/1/10 | 260 | 288 | |||||||||||||
Extendicare Health Services, Inc. | 6.875% | 5/1/14 | 720 | 677 | A | ||||||||||||
HCA Inc. | 6.910% | 6/15/05 | 49 | 51 | |||||||||||||
HCA Inc. | 8.750% | 9/1/10 | 136 | 155 | |||||||||||||
HCA Inc. | 7.875% | 2/1/11 | 510 | 559 | |||||||||||||
HCA Inc. | 9.000% | 12/15/14 | 970 | 1,128 | |||||||||||||
2,858 | |||||||||||||||||
Medical Products — 0.4% | |||||||||||||||||
Fresenius Medical Care Capital Trust II | 7.875% | 2/1/08 | 839 | 885 | F | ||||||||||||
Medical Supplies and Services — 0.4% | |||||||||||||||||
AmeriPath Inc. | 10.500% | 4/1/13 | 838 | 846 | |||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Office Equipment and Supplies — 0.3% | |||||||||||||||||
Xerox Corporation | 7.625% | 6/15/13 | $ | 550 | $ | 562 | |||||||||||
Oil and Gas — 5.8% | |||||||||||||||||
Amerada Hess Corporation | 7.875% | 10/1/29 | 410 | 443 | |||||||||||||
Amerigas Partners LP | 8.875% | 5/20/11 | 806 | 858 | |||||||||||||
Chesapeake Energy Corporation | 8.375% | 11/1/08 | 140 | 151 | |||||||||||||
Chesapeake Energy Corporation | 9.000% | 8/15/12 | 1,083 | 1,218 | |||||||||||||
El Paso CGP Co. | 7.750% | 6/15/10 | 660 | 596 | |||||||||||||
El Paso Corporation | 6.950% | 12/15/07 | 698 | 675 | |||||||||||||
El Paso Corporation | 7.800% | 8/1/31 | 730 | 586 | |||||||||||||
El Paso Corporation | 7.750% | 1/15/32 | 670 | 538 | |||||||||||||
El Paso Energy Partners | 8.500% | 6/1/11 | 173 | 187 | |||||||||||||
Evergreen Resources, Inc. | 5.875% | 3/15/12 | 850 | 858 | A | ||||||||||||
Ferrellgas Partners LP | 8.750% | 6/15/12 | 150 | 160 | |||||||||||||
Ferrellgas Partners LP | 6.750% | 5/1/14 | 510 | 492 | A | ||||||||||||
Pacific Energy Partners | 7.125% | 6/15/14 | 530 | 538 | A | ||||||||||||
Parker Drilling Company | 10.125% | 11/15/09 | 290 | 306 | |||||||||||||
Plains Exploration & Production Company | 7.125% | 6/15/14 | 810 | 824 | A | ||||||||||||
Pride International, Inc. | 7.375% | 7/15/14 | 1,170 | 1,182 | A | ||||||||||||
Suburban Propane Partners LP | 6.875% | 12/15/13 | 810 | 788 | |||||||||||||
Vintage Petroleum, Inc. | 7.875% | 5/15/11 | 592 | 607 | |||||||||||||
Vintage Petroleum, Inc. | 8.250% | 5/1/12 | 250 | 265 | |||||||||||||
Westport Resources Corporation | 8.250% | 11/1/11 | 768 | 869 | |||||||||||||
12,141 | |||||||||||||||||
Paper and Forest Products — 1.8% | |||||||||||||||||
Georgia-Pacific Corp. | 9.500% | 12/1/11 | 932 | 1,095 | |||||||||||||
Georgia-Pacific Corp. | 9.375% | 2/1/13 | 947 | 1,084 | |||||||||||||
Georgia-Pacific Corp. | 8.250% | 3/1/23 | 201 | 207 | |||||||||||||
Georgia-Pacific Corp. | 7.750% | 11/15/29 | 6 | 6 | |||||||||||||
Georgia-Pacific Corp. | 8.875% | 5/15/31 | 1,290 | 1,377 | |||||||||||||
3,769 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Pharmaceuticals — 0.4% | |||||||||||||||||
Leiner Health Products Inc. | 11.000% | 6/1/12 | $ | 800 | $ | 826 | A | ||||||||||
Publishing — 1.4% | |||||||||||||||||
Dex Media East LLC | 9.875% | 11/15/09 | 19 | 22 | |||||||||||||
Dex Media East LLC | 12.125% | 11/15/12 | 986 | 1,151 | |||||||||||||
Hollinger International Publishing | 9.000% | 12/15/10 | 990 | 1,143 | |||||||||||||
Sun Media Corporation | 7.625% | 2/15/13 | 501 | 511 | |||||||||||||
2,827 | |||||||||||||||||
Real Estate — 0.6% | |||||||||||||||||
Forest City Enterprises, Inc. | 7.625% | 6/1/15 | 130 | 131 | |||||||||||||
Ventas Realty, Limited Partnership | 8.750% | 5/1/09 | 695 | 750 | |||||||||||||
Ventas Realty, Limited Partnership | 9.000% | 5/1/12 | 408 | 447 | |||||||||||||
1,328 | |||||||||||||||||
Rental and Lease Services (Commercial) — 0.6% | |||||||||||||||||
NationsRent, Inc. | 9.500% | 10/15/10 | 570 | 607 | A | ||||||||||||
United Rentals North America Inc. | 7.000% | 2/15/14 | 638 | 568 | |||||||||||||
1,175 | |||||||||||||||||
Retail — 3.1% | |||||||||||||||||
American Achievement Corp. | 8.250% | 4/1/12 | 780 | 792 | A | ||||||||||||
Cinemark, Inc. | 0.000% | 3/15/14 | 1,250 | 816 | A,B | ||||||||||||
Hollywood Entertainment Corporation | 9.625% | 3/15/11 | 411 | 473 | |||||||||||||
J.C. Penney Company, Inc. | 8.000% | 3/1/10 | 425 | 475 | |||||||||||||
J.C. Penney Company, Inc. | 7.125% | 11/15/23 | 540 | 553 | |||||||||||||
J.C. Penney Company, Inc. | 7.400% | 4/1/37 | 597 | 630 | |||||||||||||
Norcraft Companies | 9.000% | 11/1/11 | 1,490 | 1,572 | A | ||||||||||||
Stater Bros. Holdings Inc. | 5.060% | 6/15/10 | 640 | 650 | A,E | ||||||||||||
Toys “R” Us, Inc. | 7.875% | 4/15/13 | 550 | 552 | |||||||||||||
6,513 | |||||||||||||||||
Special Purpose — 6.3% | |||||||||||||||||
Alamosa Incorporated | 11.000% | 7/31/10 | 1,124 | 1,225 | |||||||||||||
Arch Western Finance LLC | 6.750% | 7/1/13 | 601 | 601 | A |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Special Purpose — Continued | |||||||||||||||||
H & E Equipment Services LLC | 11.125% | 6/15/12 | $ | 1,314 | $ | 1,330 | |||||||||||
Huntsman Advanced Materials LLC | 11.000% | 7/15/10 | 370 | 417 | A | ||||||||||||
Midland Funding II | 11.750% | 7/23/05 | 687 | 711 | |||||||||||||
Milacron Escrow Corporation | 11.500% | 5/15/11 | 1,160 | 1,154 | A | ||||||||||||
Qwest Capital Funding, Inc. | 7.000% | 8/3/09 | 1,251 | 1,098 | |||||||||||||
Sensus Metering Systems Incorporated | 8.625% | 12/15/13 | 1,001 | 961 | A | ||||||||||||
The Williams Companies, Inc. Credit-Linked Certificates | 6.750% | 4/15/09 | 1,195 | 1,174 | A | ||||||||||||
Transdigm Funding Corp. | 8.375% | 7/15/11 | 1,167 | 1,185 | |||||||||||||
UCAR Finance Inc. | 10.250% | 2/15/12 | 1,315 | 1,463 | |||||||||||||
UGS Corporation | 10.000% | 6/1/12 | 900 | 959 | A | ||||||||||||
WII Components Inc. | 10.000% | 2/15/12 | 970 | 951 | A | ||||||||||||
13,229 | |||||||||||||||||
Storage Facilities — 0.7% | |||||||||||||||||
Mobile Mini, Inc. | 9.500% | 7/1/13 | 1,260 | 1,380 | |||||||||||||
Telecommunications — 4.9% | |||||||||||||||||
Cincinnati Bell Inc. | 7.250% | 7/15/13 | 144 | 135 | |||||||||||||
Cincinnati Bell Inc. | 8.375% | 1/15/14 | 1,060 | 943 | |||||||||||||
Crown Castle International Corp. | 9.375% | 8/1/11 | 810 | 891 | |||||||||||||
GTE Hawaiian Telephone Company, Inc. | 7.000% | 2/1/06 | 300 | 306 | |||||||||||||
GTE Hawaiian Telephone Company, Inc. | 7.375% | 9/1/06 | 230 | 236 | |||||||||||||
Insight Communications | 10.500% | 11/1/10 | 1,100 | 1,199 | A | ||||||||||||
MCI Inc. | 5.908% | 5/1/07 | 377 | 365 | |||||||||||||
MCI Inc. | 6.688% | 5/1/09 | 377 | 349 | |||||||||||||
MCI Inc. | 7.735% | 5/1/14 | 323 | 289 | |||||||||||||
PanAmSat Corporation | 6.375% | 1/15/08 | 651 | 657 | |||||||||||||
PanAmSat Corporation | 8.500% | 2/1/12 | 501 | 569 | |||||||||||||
Qwest Corporation | 9.125% | 3/15/12 | 1,420 | 1,534 | A | ||||||||||||
Qwest Services Corporation | 13.500% | 12/15/10 | 2,339 | 2,719 | A | ||||||||||||
10,192 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Telecommunications (Cellular/ Wireless) — 3.0% | |||||||||||||||||
Centennial Communications Corporation | 8.125% | 2/1/14 | $ | 1,290 | $ | 1,196 | A | ||||||||||
Nextel Communications, Inc. | 5.250% | 1/15/10 | 1,139 | 1,108 | G | ||||||||||||
Nextel Communications, Inc. | 7.375% | 8/1/15 | 1,055 | 1,065 | |||||||||||||
Rural Cellular Corporation | 8.250% | 3/15/12 | 780 | 798 | A | ||||||||||||
SBA Communications Corporation | 0.000% | 12/15/11 | 1,665 | 1,232 | |||||||||||||
US Unwired Inc. | 10.000% | 6/15/12 | 800 | 808 | A | ||||||||||||
6,207 | |||||||||||||||||
Transportation — 1.7% | |||||||||||||||||
Continental Airlines, Inc. | 7.373% | 12/15/15 | 1,042 | 833 | |||||||||||||
Horizon Lines, LLC | 9.000% | 11/1/12 | 800 | 800 | |||||||||||||
Kansas City Southern Railway | 9.500% | 10/1/08 | 1,834 | 1,992 | |||||||||||||
3,625 | |||||||||||||||||
Water Utilities — 0.5% | |||||||||||||||||
National Waterworks, Inc. | 10.500% | 12/1/12 | 957 | 1,062 | |||||||||||||
Total Corporate Bonds and Notes (Identified Cost — $184,511) | 185,540 | ||||||||||||||||
Yankee BondsH — 8.3% | |||||||||||||||||
Building Materials — 0.4% | |||||||||||||||||
North American Energy Partners | 8.750% | 12/1/11 | 940 | 930 | A | ||||||||||||
Chemicals — 1.2% | |||||||||||||||||
Rhodia SA | 10.250% | 6/1/10 | 980 | 990 | A | ||||||||||||
Rhodia SA | 8.875% | 6/1/11 | 1,750 | 1,479 | A | ||||||||||||
2,469 | |||||||||||||||||
Foreign Governments — 0.6% | |||||||||||||||||
Federative Republic of Brazil | 14.500% | 10/15/09 | 1,070 | 1,246 | |||||||||||||
Manufacturing (Diversified) — 0.1% | |||||||||||||||||
Tyco International Group S.A. | 6.375% | 10/15/11 | 193 | 205 | |||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee Bonds — Continued | |||||||||||||||||
Media — 1.0% | |||||||||||||||||
Kabel Deutschland GmbH | 10.625% | 7/1/14 | $ | 920 | $ | 945 | A | ||||||||||
Vivendi Universal S.A. | 9.250% | 4/15/10 | 926 | 1,095 | |||||||||||||
2,040 | |||||||||||||||||
Oil and Gas — 0.3% | |||||||||||||||||
Western Oil Sands Inc. | 8.375% | 5/1/12 | 480 | 521 | A | ||||||||||||
Paper and Forest Products — 0.4% | |||||||||||||||||
Abitibi-Consolidated Inc. | 8.550% | 8/1/10 | 490 | 517 | |||||||||||||
Abitibi-Consolidated Inc. | 5.020% | 6/15/11 | 350 | 351 | A,E | ||||||||||||
868 | |||||||||||||||||
Services — 0.5% | |||||||||||||||||
Compagnie Generale de Geophysique S.A. | 10.625% | 11/15/07 | 958 | 1,020 | |||||||||||||
Special Purpose — 2.2% | |||||||||||||||||
Calpine Canada Energy Finance | 8.500% | 5/1/08 | 753 | 497 | |||||||||||||
Eircom Funding | 8.250% | 8/15/13 | 1,030 | 1,071 | |||||||||||||
Gemstone Investors Limited | 7.710% | 10/31/04 | 40 | 40 | A | ||||||||||||
Inmarsat Finance PLC | 7.625% | 6/30/12 | 1,000 | 968 | A | ||||||||||||
MDP Acquisitions PLC | 9.625% | 10/1/12 | 839 | 919 | |||||||||||||
Smurfit Capital Funding PLC | 6.750% | 11/20/05 | 410 | 420 | |||||||||||||
Yell Finance BV | 10.750% | 8/1/11 | 510 | 588 | |||||||||||||
4,503 | |||||||||||||||||
Telecommunication — 0.2% | |||||||||||||||||
Nortel Networks Ltd. | 6.125% | 2/15/06 | 520 | 522 | |||||||||||||
Telecommunications (Cellular/ Wireless) — 0.7% | |||||||||||||||||
OMI Corporation | 7.625% | 12/1/13 | 746 | 731 | |||||||||||||
Rogers Wireless Communications Inc. | 9.625% | 5/1/11 | 628 | 705 | |||||||||||||
1,436 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee Bonds — Continued | |||||||||||||||||
Transportation — 0.7% | |||||||||||||||||
Teekay Shipping Corporation | 8.875% | 7/15/11 | $ | 1,355 | $ | 1,499 | |||||||||||
Total Yankee Bonds (Identified Cost — $17,158) | 17,259 | ||||||||||||||||
Common Stocks — 0.3% | |||||||||||||||||
Engineering and Construction — 0.1% | |||||||||||||||||
Washington Group International, Inc. | 8 | shs | 305 | I | |||||||||||||
Food — N.M | |||||||||||||||||
International Fast Food Corporation | 40 | 0.01 | I | ||||||||||||||
Telecommunication — N.M. | |||||||||||||||||
Cincinnati Bell Inc. | 0.1 | 0.5 | |||||||||||||||
Telecommunications (Cellular/ Wireless) — 0.2% | |||||||||||||||||
Rural Cellular Corporation | 4 | 364 | I | ||||||||||||||
Total Common Stocks (Identified Cost — $3,245) | 669 | ||||||||||||||||
Preferred Stocks — 0.6% | |||||||||||||||||
High Voltage Engineering Corporation | 12.500% | 0.5 | 5 | J | |||||||||||||
Paxson Communications Corporation | 14.250% | 0.1 | 1,290 | J,K | |||||||||||||
Total Preferred Stocks (Identified Cost — $1,656) | 1,295 | ||||||||||||||||
Par/ | ||||||||||||||||||||||||||
Shares | Value | |||||||||||||||||||||||||
Warrants — 0.1% | ||||||||||||||||||||||||||
American Tower Corporation | 1 | wts | $ | 158 | A,J | |||||||||||||||||||||
Horizon PCS, Inc. | 2 | 0.02 | A,J | |||||||||||||||||||||||
Next Generation Network, Inc. | 16 | 0.2 | J | |||||||||||||||||||||||
Washington Group International, Series A | 5 | 50 | J | |||||||||||||||||||||||
Washington Group International, Series B | 6 | 46 | J | |||||||||||||||||||||||
Washington Group International, Series C | 3 | 22 | J | |||||||||||||||||||||||
Total Warrants (Identified Cost — $310) | 276 | |||||||||||||||||||||||||
Total Long-Term Securities (Identified Cost — $206,880) | 205,039 | |||||||||||||||||||||||||
Short-Term Securities — 1.1% | ||||||||||||||||||||||||||
Repurchase Agreements — 1.1% | ||||||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||
1.40%, dated 6/30/04, to be repurchased at $1,000 on 7/1/04 (Collateral: $1,010 Federal Home Loan Bank bonds, 5.25%, dated 6/18/14, value $1,026) | $ | 1,000 | 1,000 | |||||||||||||||||||||||
Goldman, Sachs & Company | ||||||||||||||||||||||||||
1.40%, dated 6/30/04, to be repurchased at $1,173 on 7/1/04 (Collateral: $1,200 Freddie Mac zero-coupon notes, due 7/28/04, value $1,199) | 1,173 | 1,173 | ||||||||||||||||||||||||
Total Short-Term Securities (Identified Cost — $2,173) | 2,173 | |||||||||||||||||||||||||
Total Investments — 99.4% (Identified Cost — $209,053) | 207,212 | |||||||||||||||||||||||||
Other Assets Less Liabilities — 0.6% | 1,208 | |||||||||||||||||||||||||
Net Assets — 100.0% | $ | 208,420 | ||||||||||||||||||||||||
A | Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 31.2% of net assets. |
B | Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes. |
C | Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity. |
D | Bond is in default at June 30, 2004. |
E | Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”). The coupon rates are the rates as of June 30, 2004. |
F | Unit — A security which consists of a bond and warrants to purchase the common stock of the issuer. |
G | Convertible security — Security may be converted into the issuer’s common stock. |
H | Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities. |
I | Non-income producing. |
J | Pay-in-Kind (“PIK”) security — A security in which interest during the initial few years is paid in additional PIK securities rather than in cash. |
K | Private placement. |
N.M. | Not meaningful. |
See notes to financial statements.
Statement of Assets and Liabilities
High Yield Portfolio
Assets: | |||||||||||
Investment securities, at market value (cost — $206,880) | $ | 205,039 | |||||||||
Short-term securities, at value (cost — $2,173) | 2,173 | ||||||||||
Total investments | $ | 207,212 | |||||||||
Cash | 1,199 | ||||||||||
Receivable for: | |||||||||||
Fund shares sold | 77 | ||||||||||
Interest and dividends | 3,889 | ||||||||||
Other assets | 162 | ||||||||||
212,539 | |||||||||||
Liabilities: | |||||||||||
Payable for: | |||||||||||
Fund shares repurchased | 317 | ||||||||||
Securities purchased | 3,479 | ||||||||||
Due to manager and distributor | 193 | ||||||||||
Accrued expenses | 130 | ||||||||||
4,119 | |||||||||||
Net Assets | $ | 208,420 | |||||||||
Net assets consist of: | |||||||||||
Accumulated paid-in capital applicable to: | |||||||||||
22,572 Primary Class shares outstanding | $ | 358,986 | |||||||||
851 Institutional Class shares outstanding | 7,819 | ||||||||||
Under/(over) distributed net investment income | 639 | ||||||||||
Accumulated net realized gain/(loss) on investments | (157,183 | ) | |||||||||
Unrealized appreciation/(depreciation) of investments | (1,841 | ) | |||||||||
Net Assets | $ | 208,420 | |||||||||
Net Asset Value Per Share: | |||||||||||
Primary Class | $8.90 | ||||||||||
Institutional Class | $8.90 | ||||||||||
See notes to financial statements.
Statement of Operations
High Yield Portfolio
Investment Income: | |||||||||||
Dividends | $ | 113 | |||||||||
Interest | 8,806 | ||||||||||
Total income | $ | 8,919 | |||||||||
Expenses: | |||||||||||
Management fee | 718 | ||||||||||
Distribution and service fees | 534 | A | |||||||||
Audit and legal fees | 30 | ||||||||||
Custodian fee | 78 | ||||||||||
Directors’ fees and expenses | 6 | ||||||||||
Registration fees | 11 | ||||||||||
Reports to shareholders | 19 | ||||||||||
Transfer agent and shareholder servicing expense: | |||||||||||
Primary Class | 100 | ||||||||||
Institutional Class | 1 | ||||||||||
Other expenses | 5 | ||||||||||
Total expenses | 1,502 | ||||||||||
Net Investment Income | 7,417 | ||||||||||
Net Realized and Unrealized Gain/(Loss) on Investments: | |||||||||||
Realized gain/(loss) on investments | 782 | ||||||||||
Change in unrealized appreciation/(depreciation) of investments | (6,726 | ) | |||||||||
Net Realized and Unrealized Gain/(Loss) on Investments | (5,944 | ) | |||||||||
Change in Net Assets Resulting From Operations | $ | 1,473 | |||||||||
A See Note 1, Significant Accounting Policies, in the notes to financial statements.
See notes to financial statements.
Statement of Changes in Net Assets
High Yield Portfolio
For the Six | For the | ||||||||
Months Ended | Year Ended | ||||||||
6/30/04 | 12/31/03 | ||||||||
(Unaudited) | |||||||||
Change in Net Assets: | |||||||||
Net investment income | $ | 7,417 | $ | 15,039 | |||||
Net realized gain/(loss) on investments | 782 | 2,379 | |||||||
Change in unrealized appreciation/ (depreciation) of investments | (6,726 | ) | 24,619 | ||||||
Change in net assets resulting from operations | 1,473 | 42,037 | |||||||
Distributions to shareholders from net investment income: | |||||||||
Primary Class | (6,452 | ) | (14,885 | ) | |||||
Institutional Class | (238 | ) | (389 | ) | |||||
Change in net assets from Fund share transactions: | |||||||||
Primary Class | (17,892 | ) | 35,499 | ||||||
Institutional Class | 1,322 | 3,066 | |||||||
Change in net assets | (21,787 | ) | 65,328 | ||||||
Net Assets: | |||||||||
Beginning of period | 230,207 | 164,879 | |||||||
End of period | $ | 208,420 | $ | 230,207 | |||||
Under/(over) distributed net investment income | $ | 639 | $ | (88 | ) | ||||
See notes to financial statements.
Financial Highlights
High Yield Portfolio
Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements.
Primary Class:
Six Months | |||||||||||||||||||||||||
Ended | Years Ended December 31, | ||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $9.10 | $ | 7.96 | $ | 9.22 | $ | 10.18 | $ | 14.97 | $ | 14.72 | ||||||||||||||
Investment operations: | |||||||||||||||||||||||||
Net investment income | .30 | .63 | .77 | .94 | 1.32 | 1.01 | |||||||||||||||||||
Net realized and unrealized gain/(loss) on investments | (.23 | ) | 1.15 | (1.26 | ) | (.94 | ) | (3.45 | ) | .29 | |||||||||||||||
Total from investment operations | .07 | 1.78 | (.49 | ) | — | (2.13 | ) | 1.30 | |||||||||||||||||
Distributions: | |||||||||||||||||||||||||
From net investment income | (.27 | ) | (.64 | ) | (.77 | ) | (.96 | ) | (1.27 | ) | (1.05 | ) | |||||||||||||
From net realized gain on investments | — | — | — | — | (1.39 | ) | — | ||||||||||||||||||
Total distributions | (.27 | ) | (.64 | ) | (.77 | ) | (.96 | ) | (2.66 | ) | (1.05 | ) | |||||||||||||
Net asset value, end of period | $8.90 | $ | 9.10 | $ | 7.96 | $ | 9.22 | $ | 10.18 | $ | 14.97 | ||||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||
Total return | .83 | %A | 23.03 | % | (5.28 | )% | (.13 | )% | (16.43 | )% | 8.82 | % | |||||||||||||
Expenses to average net assets | 1.38 | %B | 1.41 | % | 1.36 | % | 1.51 | % | 1.51 | % | 1.31 | % | |||||||||||||
Net investment income to average net assets | 6.68 | %B | 7.26 | % | 9.06 | % | 9.59 | % | 9.98 | % | 6.51 | % | |||||||||||||
Portfolio turnover rate | 57 | %A | 122 | % | 97 | % | 130 | % | 45 | % | 83 | % | |||||||||||||
Net assets, end of period (in thousands) | $ | 200,845 | $ | 223,773 | $ | 162,175 | $ | 199,214 | $ | 217,769 | $ | 375,099 | |||||||||||||
A | Not annualized. |
B | Annualized. |
See notes to financial statements.
Financial Highlights — Continued
Institutional Class:
Six Months | Period From | Period | |||||||||||||||||||||||||||
Ended | Years Ended December 31, | March 8 to | Ended | ||||||||||||||||||||||||||
June 30, | December 31, | January 28, | |||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1999 | |||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||
Net asset value, beginning of period | $9.11 | $ | 7.96 | $ | 9.20 | $ | 10.18 | $ | 14.97 | $ | 15.98 | $ | 14.67 | ||||||||||||||||
Investment operations: | |||||||||||||||||||||||||||||
Net investment income | .33 | .66 | .78 | 1.01 | 1.41 | .89 | .08 | ||||||||||||||||||||||
Net realized and unrealized gain/(loss) on investments | (.24 | ) | 1.15 | (1.24 | ) | (1.00 | ) | (3.47 | ) | (.92 | ) | .72 | |||||||||||||||||
Total from investment operations | .09 | 1.81 | (.46 | ) | .01 | (2.06 | ) | (.03 | ) | .80 | |||||||||||||||||||
Distributions: | |||||||||||||||||||||||||||||
From net investment income | (.30 | ) | (.66 | ) | (.78 | ) | (.99 | ) | (1.34 | ) | (.98 | ) | (.04 | ) | |||||||||||||||
From net realized gain on investments | — | — | — | — | (1.39 | ) | — | — | |||||||||||||||||||||
Total distributions | (.30 | ) | (.66 | ) | (.78 | ) | (.99 | ) | (2.73 | ) | (.98 | ) | (.04 | ) | |||||||||||||||
Net asset value, end of period | $8.90 | $ | 9.11 | $ | 7.96 | $ | 9.20 | $ | 10.18 | $ | 14.97 | $ | 15.43 | ||||||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||||||
Total return | 1.13 | %A | 23.54 | % | (5.00 | )% | (.06 | )% | (15.99 | )% | (.20 | )%A | 5.47 | %A | |||||||||||||||
Expenses to average net assets | .81 | %B | .85 | % | .82 | % | .97 | % | 1.03 | % | .82 | %B | .81 | %B | |||||||||||||||
Net investment income to average net assets | 7.29 | %B | 7.78 | % | 9.63 | % | 10.20 | % | 10.98 | % | 7.19 | %B | 7.17 | %B | |||||||||||||||
Portfolio turnover rate | 57 | %A | 122 | % | 97 | % | 130 | % | 45 | % | 78 | %B | 116 | %B | |||||||||||||||
Net assets, end of period (in thousands) | $7,575 | $ | 6,434 | $ | 2,704 | $ | 1,331 | $ | 673 | $ | 673 | $ | — | ||||||||||||||||
See notes to financial statements.
Performance Information
Investment Grade Income Portfolio
The following graphs compare the Fund’s total returns against those of a closely matched broad-based securities market index. The lines illustrate the cumulative total return of an initial $10,000 investment in Primary Class shares and an initial $1,000,000 investment in Institutional Class shares of the Fund, for the periods indicated. The lines for the Fund represent the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The lines representing each securities market index do not include any transaction costs associated with buying and selling securities in the index or other administrative expenses.
The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please visit www.leggmasonfunds.com. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods. |
Growth of a $10,000 Investment — Primary Class
Cumulative | Average Annual | |||||||||
Total Return | Total Return | |||||||||
One Year | +0.40% | +0.40% | ||||||||
Five Years | +42.08% | +7.28% | ||||||||
Ten Years | +105.61% | +7.47% |
The graph and table do not reflect the deduction of taxes that a shareholder
Past performance does not predict future performance.
A | A market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $100 million par amount outstanding and with at least one year to final maturity. |
B | This index includes all publicly issued, fixed rate, non-convertible, investment grade, domestic corporate debt. It also includes Yankee bonds, which are dollar-denominated, SEC-registered public, non-convertible debt issued or guaranteed by foreign sovereign governments, municipalities, governmental agencies, and international agencies. |
Growth of a $1,000,000 Investment — Institutional Class
Cumulative | Average Annual | |||||||||
Total Return | Total Return | |||||||||
One Year | +0.80% | +0.80% | ||||||||
Five Years | +45.68% | +7.81% | ||||||||
Life of Class* | +80.12% | +7.10% | ||||||||
*Inception date: December 1, 1995 |
The graph and table do not reflect the deduction of taxes that a shareholder
Past performance does not predict future performance.
C | Index returns are for periods beginning November 30, 1995. |
Portfolio Composition (as of June 30, 2004)
Debt RatingsD (as a percentage of portfolio)
Maturity Schedule (as a percentage of portfolio)
D | Source: Standard & Poor’s |
Portfolio of Investments
Investment Grade Income Portfolio
(Amounts in Thousands) (Unaudited)
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Long-Term Securities — 98.0% | |||||||||||||||||
Corporate Bonds and Notes — 74.9% | |||||||||||||||||
Aerospace/ Defense — 1.3% | |||||||||||||||||
General Dynamics Corporation | 3.000% | 5/15/08 | $ | 525 | $ | 507 | |||||||||||
Lockheed Martin Corporation | 8.500% | 12/1/29 | 1,200 | 1,505 | |||||||||||||
Raytheon Company | 6.150% | 11/1/08 | 990 | 1,056 | |||||||||||||
Raytheon Company | 5.375% | 4/1/13 | 500 | 498 | |||||||||||||
Raytheon Company | 6.400% | 12/15/18 | 840 | 875 | |||||||||||||
United Technologies Corporation | 7.500% | 9/15/29 | 550 | 654 | |||||||||||||
5,095 | |||||||||||||||||
Auto Parts and Equipment — 0.3% | |||||||||||||||||
American Axle & Manufacturing Inc. | 5.250% | 2/11/14 | 800 | 768 | |||||||||||||
Lear Corporation | 7.960% | 5/15/05 | 231 | 241 | |||||||||||||
1,009 | |||||||||||||||||
Automotive — 1.7% | |||||||||||||||||
Ford Motor Company | 7.450% | 7/16/31 | 170 | 162 | |||||||||||||
Ford Motor Company | 8.900% | 1/15/32 | 370 | 403 | |||||||||||||
Ford Motor Company | 7.700% | 5/15/97 | 630 | 575 | |||||||||||||
General Motors Corporation | 8.250% | 7/15/23 | 650 | 681 | |||||||||||||
General Motors Corporation | 8.375% | 7/15/33 | 4,650 | 4,922 | |||||||||||||
6,743 | |||||||||||||||||
Banking and Finance — 8.6% | |||||||||||||||||
Boeing Capital Corporation | 6.500% | 2/15/12 | 1,000 | 1,078 | |||||||||||||
Capital One Bank | 6.875% | 2/1/06 | 150 | 158 | |||||||||||||
Caterpillar Financial Services Corporation | 4.500% | 6/15/09 | 1,040 | 1,044 | |||||||||||||
Countrywide Home Loans, Inc. | 2.875% | 2/15/07 | 1,320 | 1,294 | |||||||||||||
Countrywide Home Loans, Inc. | 3.250% | 5/21/08 | 1,200 | 1,155 | |||||||||||||
Ford Motor Credit Company | 6.875% | 2/1/06 | 250 | 262 | |||||||||||||
Ford Motor Credit Company | 6.500% | 1/25/07 | 6,950 | 7,303 | |||||||||||||
Ford Motor Credit Company | 5.800% | 1/12/09 | 2,500 | 2,523 | |||||||||||||
Ford Motor Credit Company | 7.250% | 10/25/11 | 1,600 | 1,671 | |||||||||||||
Ford Motor Credit Company | 7.000% | 10/1/13 | 2,730 | 2,756 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Banking and Finance — Continued | |||||||||||||||||
General Motors Acceptance Corporation | 2.135% | 5/18/06 | $ | 1,725 | $ | 1,728 | A | ||||||||||
General Motors Acceptance Corporation | 6.125% | 8/28/07 | 3,000 | 3,131 | |||||||||||||
General Motors Acceptance Corporation | 6.875% | 9/15/11 | 160 | 164 | |||||||||||||
General Motors Acceptance Corporation | 0.000% | 6/15/15 | 2,700 | 1,283 | B | ||||||||||||
John Deere Capital Corporation | 4.500% | 8/22/07 | 495 | 506 | |||||||||||||
MBNA America Bank | 7.750% | 9/15/05 | 1,200 | 1,264 | C | ||||||||||||
Mizuho Financial Group, Inc. | 5.790% | 4/15/14 | 2,595 | 2,551 | C | ||||||||||||
National Rural Utilities Cooperative Finance Corporation | 7.250% | 3/1/12 | 1,700 | 1,930 | |||||||||||||
SB Treasury Company LLC | 10.925% | 12/29/49 | 840 | 945 | C | ||||||||||||
Toyota Motor Credit Corporation | 5.500% | 12/15/08 | 1,000 | 1,051 | |||||||||||||
33,797 | |||||||||||||||||
Banks — 4.5% | |||||||||||||||||
Bank of America Corporation | 3.375% | 2/17/09 | 1,500 | 1,440 | |||||||||||||
Bank of America Corporation | 7.400% | 1/15/11 | 1,365 | 1,547 | |||||||||||||
Bank of America Corporation | 6.250% | 4/15/12 | 420 | 448 | |||||||||||||
Bank of America Corporation | 4.750% | 8/15/13 | 470 | 449 | |||||||||||||
Bank One Corporation | 4.125% | 9/1/07 | 730 | 739 | |||||||||||||
BankAmerica Capital | 1.710% | 1/15/27 | 585 | 564 | A | ||||||||||||
CBA Capital Trust I | 5.805% | 12/31/49 | 3,510 | 3,431 | C | ||||||||||||
Chase Capital II | 1.679% | 2/1/27 | 1,980 | 1,876 | A | ||||||||||||
FleetBoston Financial Corporation | 7.250% | 9/15/05 | 1,600 | 1,686 | |||||||||||||
UnionBanCal Corporation | 5.250% | 12/16/13 | 785 | 773 | |||||||||||||
Wachovia Bank NA | 7.800% | 8/18/10 | 580 | 670 | |||||||||||||
Wachovia Corporation | 3.625% | 2/17/09 | 2,400 | 2,328 | |||||||||||||
Washington Mutual, Inc. | 5.625% | 1/15/07 | 700 | 732 | |||||||||||||
Washington Mutual, Inc. | 4.625% | 4/1/14 | 1,000 | 912 | |||||||||||||
17,595 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Building Materials — N.M. | |||||||||||||||||
American Standard, Inc. | 8.250% | 6/1/09 | $ | 37 | $ | 41 | |||||||||||
American Standard, Inc. | 7.625% | 2/15/10 | 5 | 6 | |||||||||||||
47 | |||||||||||||||||
Cable — 1.8% | |||||||||||||||||
Comcast Cable Communications, Inc. | 6.750% | 1/30/11 | 160 | 173 | |||||||||||||
Comcast Corporation | 5.850% | 1/15/10 | 800 | 835 | |||||||||||||
Comcast Corporation | 7.050% | 3/15/33 | 1,800 | 1,864 | |||||||||||||
Cox Communications, Inc. | 7.125% | 10/1/12 | 2,255 | 2,471 | |||||||||||||
CSC Holdings Inc. | 7.625% | 7/15/18 | 1,500 | 1,399 | |||||||||||||
Tele-Communications, Inc. | 7.125% | 2/15/28 | 180 | 187 | |||||||||||||
6,929 | |||||||||||||||||
Casino Resorts — 0.2% | |||||||||||||||||
Harrah’s Operating Company, Inc. | 7.875% | 12/15/05 | 500 | 528 | |||||||||||||
Harrah’s Operating Company, Inc. | 5.500% | 7/1/10 | 410 | 412 | C | ||||||||||||
940 | |||||||||||||||||
Chemicals — 0.7% | |||||||||||||||||
E. I. du Pont de Nemours and Company | 4.875% | 4/30/14 | 1,100 | 1,073 | |||||||||||||
The Dow Chemical Company | 6.000% | 10/1/12 | 750 | 775 | |||||||||||||
The Dow Chemical Company | 7.375% | 11/1/29 | 800 | 870 | |||||||||||||
2,718 | |||||||||||||||||
Computer Services and Systems — 1.4% | |||||||||||||||||
Compaq Computer Corporation | 7.650% | 8/1/05 | 1,500 | 1,575 | |||||||||||||
Electronic Data Systems Corporation | 7.125% | 10/15/09 | 530 | 555 | D | ||||||||||||
Electronic Data Systems Corporation | 6.000% | 8/1/13 | 500 | 478 | |||||||||||||
Electronic Data Systems Corporation | 7.450% | 10/15/29 | 570 | 559 | |||||||||||||
Hewlett-Packard Company | 6.500% | 7/1/12 | 700 | 764 | |||||||||||||
International Business Machines Corporation | 4.750% | 11/29/12 | 1,750 | 1,712 | |||||||||||||
5,643 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Consumer Products — 0.3% | |||||||||||||||||
The Procter & Gamble Company | 4.300% | 8/15/08 | $ | 1,000 | $ | 1,014 | |||||||||||
Diversified Financial Services — 7.3% | |||||||||||||||||
Associates Corporation of North America | 8.150% | 8/1/09 | 775 | 896 | |||||||||||||
Boeing Capital Corporation | 5.800% | 1/15/13 | 1,500 | 1,545 | |||||||||||||
Capital One Financial Corporation | 8.750% | 2/1/07 | 400 | 443 | |||||||||||||
Capital One Financial Corporation | 7.125% | 8/1/08 | 340 | 366 | |||||||||||||
CIT Group Inc. | 3.875% | 11/3/08 | 2,350 | 2,296 | |||||||||||||
Citigroup Inc. | 5.500% | 8/9/06 | 1,000 | 1,044 | |||||||||||||
Citigroup Inc. | 5.000% | 3/6/07 | 4,800 | 4,979 | |||||||||||||
Citigroup Inc. | 5.625% | 8/27/12 | 1,600 | 1,645 | |||||||||||||
FDA Queens LP | 6.990% | 6/15/17 | 1,647 | 1,785 | |||||||||||||
General Electric Capital Corporation | 6.800% | 11/1/05 | 1,970 | 2,076 | |||||||||||||
General Electric Capital Corporation | 4.250% | 1/15/08 | 3,000 | 3,038 | |||||||||||||
General Electric Capital Corporation | 3.500% | 5/1/08 | 2,640 | 2,598 | |||||||||||||
General Electric Capital Corporation | 5.450% | 1/15/13 | 1,600 | 1,622 | |||||||||||||
General Electric Capital Corporation | 6.750% | 3/15/32 | 5 | 5 | |||||||||||||
IBJ Preferred Capital Corp. LLC | 8.790% | 12/29/49 | 1,520 | 1,664 | C | ||||||||||||
Wells Fargo & Company | 5.125% | 2/15/07 | 2,600 | 2,710 | |||||||||||||
Wells Fargo & Company | 5.000% | 11/15/14 | 90 | 87 | |||||||||||||
28,799 | |||||||||||||||||
Drug and Grocery Store Chains — 0.8% | |||||||||||||||||
Fred Meyer, Inc. | 7.375% | 3/1/05 | 1,000 | 1,032 | |||||||||||||
Kroger Company | 8.000% | 9/15/29 | 1,000 | 1,162 | |||||||||||||
Safeway Inc. | 5.800% | 8/15/12 | 750 | 756 | |||||||||||||
2,950 | |||||||||||||||||
Electric — 4.4% | |||||||||||||||||
AEP Texas Central Company | 5.500% | 2/15/13 | 1,060 | 1,061 | |||||||||||||
American Electric Power Company, Inc. | 6.125% | 5/15/06 | 965 | 1,013 | |||||||||||||
American Electric Power Company, Inc. | 5.250% | 6/1/15 | 350 | 336 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Electric — Continued | |||||||||||||||||
Commonwealth Edison Company | 6.150% | 3/15/12 | $ | 560 | $ | 598 | |||||||||||
Dominion Resources, Inc. | 5.125% | 12/15/09 | 490 | 496 | |||||||||||||
Dominion Resources, Inc. | 5.700% | 9/17/12 | 590 | 600 | |||||||||||||
FirstEnergy Corp. | 5.500% | 11/15/06 | 2,120 | 2,193 | |||||||||||||
FirstEnergy Corp. | 6.450% | 11/15/11 | 165 | 171 | |||||||||||||
FirstEnergy Corp. | 7.375% | 11/15/31 | 3,515 | 3,664 | |||||||||||||
Niagara Mohawk Power Corporation | 7.750% | 10/1/08 | 1,010 | 1,137 | |||||||||||||
Oncor Electric Delivery Company | 7.000% | 9/1/22 | 500 | 535 | |||||||||||||
Southern California Edison Company | 8.000% | 2/15/07 | 950 | 1,049 | |||||||||||||
System Energy Resources, Inc. | 4.875% | 10/1/07 | 1,020 | 1,033 | |||||||||||||
Tampa Electric Company | 6.375% | 8/15/12 | 380 | 393 | |||||||||||||
The Cleveland Electric Illuminating Company | 5.650% | 12/15/13 | 940 | 915 | C | ||||||||||||
The Cleveland Electric Illuminating Company | 7.880% | 11/1/17 | 850 | 981 | |||||||||||||
The Detroit Edison Company | 5.200% | 10/15/12 | 1,260 | 1,252 | |||||||||||||
17,427 | |||||||||||||||||
Energy — 3.8% | |||||||||||||||||
Alabama Power Company | 3.125% | 5/1/08 | 920 | 891 | |||||||||||||
Calpine Corporation | 7.750% | 4/15/09 | 49 | 31 | |||||||||||||
Calpine Corporation | 8.500% | 2/15/11 | 620 | 405 | |||||||||||||
DTE Energy Company | 6.375% | 4/15/33 | 350 | 328 | |||||||||||||
Duke Energy Corporation | 1.824% | 12/8/05 | 1,020 | 1,022 | A | ||||||||||||
Duke Energy Corporation | 5.625% | 11/30/12 | 270 | 269 | |||||||||||||
Exelon Corporation | 6.750% | 5/1/11 | 2,000 | 2,175 | |||||||||||||
MidAmerican Energy Holdings Company | 5.875% | 10/1/12 | 750 | 761 | |||||||||||||
Pacific Gas and Electric Company | 1.810% | 4/3/06 | 1,210 | 1,211 | A | ||||||||||||
Pacific Gas and Electric Company | 6.050% | 3/1/34 | 4,270 | 4,016 | |||||||||||||
Sempra Energy | 1.740% | 5/21/08 | 1,685 | 1,683 | A | ||||||||||||
TXU Corp. | 6.375% | 6/15/06 | 100 | 105 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Energy — Continued | |||||||||||||||||
TXU Energy Co. | 7.000% | 3/15/13 | $ | 930 | $ | 1,013 | |||||||||||
Xcel Energy, Inc. | 7.000% | 12/1/10 | 900 | 995 | |||||||||||||
14,905 | |||||||||||||||||
Environmental Services — 0.9% | |||||||||||||||||
Republic Services, Inc. | 6.750% | 8/15/11 | 2,340 | 2,560 | |||||||||||||
Safety-Kleen Corp. | 9.250% | 5/15/09 | 119 | 6 | E | ||||||||||||
Waste Management, Inc. | 6.375% | 11/15/12 | 310 | 328 | |||||||||||||
Waste Management, Inc. | 7.375% | 5/15/29 | 690 | 747 | |||||||||||||
3,641 | |||||||||||||||||
Food, Beverage and Tobacco — 4.1% | |||||||||||||||||
Altria Group, Inc. | 6.375% | 2/1/06 | 490 | 508 | |||||||||||||
Altria Group, Inc. | 7.000% | 11/4/13 | 2,450 | 2,495 | |||||||||||||
Altria Group, Inc. | 7.750% | 1/15/27 | 665 | 680 | |||||||||||||
Campbell Soup Company | 6.750% | 2/15/11 | 800 | 886 | |||||||||||||
Coca-Cola Enterprises Inc. | 5.250% | 5/15/07 | 980 | 1,027 | |||||||||||||
Kellogg Company | 6.000% | 4/1/06 | 1,000 | 1,049 | |||||||||||||
Kellogg Company | 6.600% | 4/1/11 | 300 | 329 | |||||||||||||
Kellogg Company | 7.450% | 4/1/31 | 650 | 750 | |||||||||||||
Kraft Foods Inc. | 4.000% | 10/1/08 | 3,750 | 3,695 | |||||||||||||
Kraft Foods Inc. | 6.250% | 6/1/12 | 210 | 221 | |||||||||||||
Kraft Foods Inc. | 6.500% | 11/1/31 | 1,050 | 1,061 | |||||||||||||
R.J. Reynolds Tobacco Holdings, Inc. | 7.750% | 5/15/06 | 1,280 | 1,331 | |||||||||||||
R.J. Reynolds Tobacco Holdings, Inc. | 7.875% | 5/15/09 | 860 | 869 | |||||||||||||
The Pepsi Bottling Group, Inc. | 7.000% | 3/1/29 | 340 | 379 | |||||||||||||
Tyson Foods, Inc. | 7.000% | 1/15/28 | 800 | 800 | |||||||||||||
16,080 | |||||||||||||||||
Gaming — N.M. | |||||||||||||||||
Horseshoe Gaming Holding Corp. | 8.625% | 5/15/09 | 69 | 72 | |||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Gas and Pipeline Utilities — 1.4% | |||||||||||||||||
CenterPoint Energy Resources Corp. | 7.875% | 4/1/13 | $ | 1,010 | $ | 1,130 | |||||||||||
Dynegy Holdings Inc. | 8.750% | 2/15/12 | 1,690 | 1,606 | |||||||||||||
Tennessee Gas Pipeline Company | 8.375% | 6/15/32 | 1,000 | 975 | |||||||||||||
The Williams Companies, Inc. | 7.625% | 7/15/19 | 2,000 | 1,925 | |||||||||||||
5,636 | |||||||||||||||||
Health Care — 0.7% | |||||||||||||||||
Tenet Healthcare Corporation | 7.375% | 2/1/13 | 2,310 | 2,090 | |||||||||||||
Tenet Healthcare Corporation | 6.875% | 11/15/31 | 750 | 589 | |||||||||||||
2,679 | |||||||||||||||||
Homebuilding — 0.2% | |||||||||||||||||
Centex Corporation | 5.125% | 10/1/13 | 420 | 397 | |||||||||||||
Pulte Homes, Inc. | 6.250% | 2/15/13 | 385 | 393 | |||||||||||||
790 | |||||||||||||||||
Insurance — 0.6% | |||||||||||||||||
Ace Capital Trust II | 9.700% | 4/1/30 | 50 | 65 | |||||||||||||
Loews Corporation | 7.000% | 10/15/23 | 1,000 | 992 | |||||||||||||
Oil Insurance Ltd | 5.150% | 8/15/33 | 585 | 586 | C | ||||||||||||
Provident Companies, Inc. | 7.000% | 7/15/18 | 590 | 562 | |||||||||||||
2,205 | |||||||||||||||||
Investment Banking/ Brokerage — 5.6% | |||||||||||||||||
Credit Suisse First Boston USA | 3.875% | 1/15/09 | 1,500 | 1,463 | |||||||||||||
J.P. Morgan Chase & Co. | 5.350% | 3/1/07 | 1,400 | 1,467 | |||||||||||||
J.P. Morgan Chase & Co. | 5.750% | 1/2/13 | 2,100 | 2,135 | |||||||||||||
Lehman Brothers Holdings Inc. | 6.250% | 5/15/06 | 2,000 | 2,110 | |||||||||||||
Lehman Brothers Holdings Inc. | 4.800% | 3/13/14 | 800 | 748 | |||||||||||||
Merrill Lynch & Co., Inc. | 3.375% | 9/14/07 | 1,345 | 1,332 | |||||||||||||
Merrill Lynch & Co., Inc. | 6.000% | 2/17/09 | 800 | 850 | |||||||||||||
Morgan Stanley | 5.800% | 4/1/07 | 2,600 | 2,749 | |||||||||||||
The Bear Stearns Companies Inc. | 4.000% | 1/31/08 | 1,600 | 1,595 | |||||||||||||
The Goldman Sachs Group, Inc. | 4.750% | 7/15/13 | 4,490 | 4,218 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Investment Banking/ Brokerage — Continued | |||||||||||||||||
The Goldman Sachs Group, Inc. | 6.125% | 2/15/33 | $ | 1,300 | $ | 1,227 | |||||||||||
The Goldman Sachs Group, Inc. | 6.345% | 2/15/34 | 2,025 | 1,901 | |||||||||||||
21,795 | |||||||||||||||||
Manufacturing (Diversified) — 0.1% | |||||||||||||||||
The Gillette Company | 2.875% | 3/15/08 | 410 | 399 | |||||||||||||
Media — 3.4% | |||||||||||||||||
AOL Time Warner Inc. | 6.150% | 5/1/07 | 1,600 | 1,694 | |||||||||||||
AOL Time Warner Inc. | 6.875% | 5/1/12 | 2,050 | 2,215 | |||||||||||||
AOL Time Warner Inc. | 7.700% | 5/1/32 | 2,020 | 2,207 | |||||||||||||
Clear Channel Communications, Inc. | 4.400% | 5/15/11 | 1,210 | 1,143 | |||||||||||||
EchoStar DBS Corporation | 4.360% | 10/1/08 | 500 | 521 | A | ||||||||||||
Liberty Media Corporation | 3.020% | 9/17/06 | 2,335 | 2,378 | A | ||||||||||||
Liberty Media Corporation | 8.500% | 7/15/29 | 840 | 973 | |||||||||||||
Liberty Media Corporation | 8.250% | 2/1/30 | 420 | 479 | |||||||||||||
News America Incorporated | 6.550% | 3/15/33 | 110 | 111 | |||||||||||||
Time Warner Entertainment Company, L.P. | 8.375% | 7/15/33 | 460 | 538 | |||||||||||||
Viacom Inc. | 5.625% | 8/15/12 | 1,250 | 1,276 | |||||||||||||
13,535 | |||||||||||||||||
Media and Entertainment — 0.3% | |||||||||||||||||
The Walt Disney Company | 6.200% | 6/20/14 | 1,280 | 1,341 | |||||||||||||
Medical Care Facilities — 0.7% | |||||||||||||||||
HCA Inc. | 6.300% | 10/1/12 | 1,790 | 1,791 | |||||||||||||
HCA Inc. | 5.750% | 3/15/14 | 1,000 | 951 | |||||||||||||
2,742 | |||||||||||||||||
Metals and Mining — 0.5% | |||||||||||||||||
Alcoa Inc. | 5.375% | 1/15/13 | 1,800 | 1,816 | |||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Oil and Gas — 3.7% | |||||||||||||||||
Amerada Hess Corporation | 7.300% | 8/15/31 | $ | 1,990 | $ | 2,020 | |||||||||||
Apache Corporation | 6.250% | 4/15/12 | 1,150 | 1,251 | |||||||||||||
Conoco Inc. | 6.950% | 4/15/29 | 820 | 903 | |||||||||||||
ConocoPhillips | 4.750% | 10/15/12 | 2,170 | 2,120 | |||||||||||||
Devon Energy Corporation | 7.950% | 4/15/32 | 1,350 | 1,559 | |||||||||||||
El Paso Corporation | 7.800% | 8/1/31 | 1,660 | 1,332 | |||||||||||||
El Paso Corporation | 7.750% | 1/15/32 | 340 | 273 | |||||||||||||
Ocean Energy Inc. | 4.375% | 10/1/07 | 965 | 977 | |||||||||||||
Panhandle Eastern Pipe Line Company | 4.800% | 8/15/08 | 1,170 | 1,167 | |||||||||||||
Pemex Project Funding Master Trust | 8.500% | 2/15/08 | 100 | 110 | |||||||||||||
Valero Energy Corporation | 6.875% | 4/15/12 | 565 | 614 | |||||||||||||
XTO Energy, Inc. | 7.500% | 4/15/12 | 610 | 688 | |||||||||||||
XTO Energy, Inc. | 6.250% | 4/15/13 | 1,250 | 1,301 | |||||||||||||
14,315 | |||||||||||||||||
Paper and Forest Products — 1.3% | |||||||||||||||||
International Paper Company | 5.500% | 1/15/14 | 1,000 | 979 | |||||||||||||
MeadWestvaco Corporation | 6.850% | 4/1/12 | 1,130 | 1,212 | |||||||||||||
Weyerhaeuser Company | 6.125% | 3/15/07 | 750 | 792 | |||||||||||||
Weyerhaeuser Company | 6.750% | 3/15/12 | 1,070 | 1,159 | |||||||||||||
Weyerhaeuser Company | 7.375% | 3/15/32 | 720 | 783 | |||||||||||||
4,925 | |||||||||||||||||
Pharmaceuticals — 0.4% | |||||||||||||||||
Bristol-Myers Squibb Company | 4.750% | 10/1/06 | 300 | 309 | |||||||||||||
Bristol-Myers Squibb Company | 5.750% | 10/1/11 | 1,160 | 1,209 | |||||||||||||
1,518 | |||||||||||||||||
Photo Equipment and Supplies — 0.4% | |||||||||||||||||
Eastman Kodak Company | 3.625% | 5/15/08 | 975 | 922 | |||||||||||||
Eastman Kodak Company | 7.250% | 11/15/13 | 500 | 509 | |||||||||||||
1,431 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Real Estate — 0.4% | |||||||||||||||||
EOP Operating Limited Partnership | 6.750% | 2/15/12 | $ | 1,500 | $ | 1,610 | |||||||||||
Retail — 0.5% | |||||||||||||||||
Target Corporation | 5.875% | 3/1/12 | 1,240 | 1,311 | |||||||||||||
Wal-Mart Stores Inc. | 6.875% | 8/10/09 | 475 | 529 | |||||||||||||
1,840 | |||||||||||||||||
Special Purpose — 7.1% | |||||||||||||||||
Ahold Finance USA, Inc. | 8.250% | 7/15/10 | 960 | 1,013 | |||||||||||||
American Honda Finance Corporation | 3.850% | 11/6/08 | 960 | 943 | C | ||||||||||||
Anadarko Finance Company | 6.750% | 5/1/11 | 970 | 1,067 | |||||||||||||
BAE Systems Holdings Inc. | 6.400% | 12/15/11 | 1,250 | 1,331 | C | ||||||||||||
ChevronTexaco Capital Company | 3.500% | 9/17/07 | 1,000 | 999 | |||||||||||||
Conoco Funding Company | 5.450% | 10/15/06 | 1,250 | 1,309 | |||||||||||||
Conoco Funding Company | 6.350% | 10/15/11 | 640 | 696 | |||||||||||||
DaimlerChrysler NA Holding Corporation | 6.400% | 5/15/06 | 800 | 842 | |||||||||||||
DaimlerChrysler NA Holding Corporation | 4.050% | 6/4/08 | 730 | 716 | |||||||||||||
DaimlerChrysler NA Holding Corporation | 7.300% | 1/15/12 | 735 | 802 | |||||||||||||
DaimlerChrysler NA Holding Corporation | 6.500% | 11/15/13 | 290 | 297 | |||||||||||||
DaimlerChrysler NA Holding Corporation | 8.500% | 1/18/31 | 1,800 | 2,068 | |||||||||||||
Devon Financing Corporation ULC | 6.875% | 9/30/11 | 450 | 490 | |||||||||||||
Duke Capital Corporation | 6.250% | 2/15/13 | 340 | 345 | |||||||||||||
NiSource Finance Corp. | 3.200% | 11/1/06 | 985 | 974 | |||||||||||||
Sprint Capital Corporation | 4.780% | 8/17/06 | 1,055 | 1,075 | |||||||||||||
Sprint Capital Corporation | 6.000% | 1/15/07 | 700 | 733 | |||||||||||||
Sprint Capital Corporation | 8.375% | 3/15/12 | 2,750 | 3,161 | |||||||||||||
Sprint Capital Corporation | 8.750% | 3/15/32 | 810 | 944 | |||||||||||||
TCI Communications Financing III | 9.650% | 3/31/27 | 3,350 | 3,941 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Special Purpose — Continued | |||||||||||||||||
Unilever Capital Corporation | 7.125% | 11/1/10 | $ | 480 | $ | 543 | |||||||||||
Verizon Global Funding Corp. | 6.125% | 6/15/07 | 2,065 | 2,201 | |||||||||||||
Verizon Global Funding Corp. | 7.750% | 6/15/32 | 375 | 421 | |||||||||||||
Verizon Wireless Capital LLC | 5.375% | 12/15/06 | 800 | 834 | |||||||||||||
27,745 | |||||||||||||||||
Telecommunications — 2.6% | |||||||||||||||||
AT&T Corp. | 8.050% | 11/15/11 | 1,450 | 1,489 | |||||||||||||
Citizens Communications Company | 8.500% | 5/15/06 | 2,460 | 2,621 | |||||||||||||
GTE Hawaiian Telephone Company Incorporated | 7.000% | 2/1/06 | 750 | 766 | |||||||||||||
INTELSAT | 6.500% | 11/1/13 | 965 | 852 | |||||||||||||
Qwest Corporation | 5.625% | 11/15/08 | 550 | 538 | |||||||||||||
SBC Communications Inc. | 5.875% | 8/15/12 | 1,910 | 1,960 | |||||||||||||
Verizon New York Inc. | 6.875% | 4/1/12 | 1,820 | 1,951 | |||||||||||||
10,177 | |||||||||||||||||
Telecommunications (Cellular/ Wireless) — 1.7% | |||||||||||||||||
AT&T Wireless Services Inc. | 7.500% | 5/1/07 | 1,500 | 1,645 | |||||||||||||
AT&T Wireless Services Inc. | 8.125% | 5/1/12 | 515 | 595 | |||||||||||||
AT&T Wireless Services Inc. | 8.750% | 3/1/31 | 1,300 | 1,585 | |||||||||||||
Cingular Wireless LLC | 5.625% | 12/15/06 | 800 | 836 | |||||||||||||
Motorola, Inc. | 7.625% | 11/15/10 | 850 | 957 | |||||||||||||
Nextel Communications, Inc. | 7.375% | 8/1/15 | 1,040 | 1,051 | |||||||||||||
6,669 | |||||||||||||||||
Transportation — 1.4% | |||||||||||||||||
Burlington Northern Railroad Company | 6.960% | 3/22/09 | 253 | 269 | |||||||||||||
Burlington Northern Railroad Company | 7.330% | 6/23/10 | 184 | 184 | |||||||||||||
Consolidated Rail Corporation | 7.875% | 5/15/43 | 600 | 696 | |||||||||||||
Continental Airlines, Inc. | 6.545% | 2/2/19 | 169 | 158 | |||||||||||||
Continental Airlines, Inc. | 7.256% | 3/15/20 | 600 | 585 | |||||||||||||
Delta Air Lines, Inc. | 7.570% | 11/18/10 | 400 | 371 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Corporate Bonds and Notes — Continued | |||||||||||||||||
Transportation — Continued | |||||||||||||||||
Delta Air Lines, Inc. | 6.718% | 1/2/23 | $ | 746 | $ | 768 | |||||||||||
Northwest Airlines Corporation | 7.575% | 9/1/20 | 199 | 196 | |||||||||||||
Union Pacific Corporation | 6.500% | 4/15/12 | 1,750 | 1,884 | |||||||||||||
United Airlines, Inc. | 7.783% | 1/1/14 | 245 | 202 | |||||||||||||
5,313 | |||||||||||||||||
Total Corporate Bonds and Notes (Identified Cost — $292,338) | 293,885 | ||||||||||||||||
U.S. Government and Agency Obligations — 0.2% | |||||||||||||||||
Fixed Rate Securities — 0.2% | |||||||||||||||||
Fannie Mae | 2.375% | 2/15/07 | 565 | 550 | |||||||||||||
Tennessee Valley Authority | 5.375% | 11/13/08 | 150 | 158 | |||||||||||||
Total U.S. Government and Agency Obligations (Identified Cost — $705) | 708 | ||||||||||||||||
U.S. Government Agency Mortgage-Backed Securities — 0.1% | |||||||||||||||||
Fixed Rate Securities — N.M. | |||||||||||||||||
Fannie Mae | 8.000% | 4/25/06 | 26 | 27 | |||||||||||||
Indexed SecuritiesA — 0.1% | |||||||||||||||||
Freddie Mac | 3.309% | 9/1/24 | 129 | 132 | |||||||||||||
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $156) | 159 | ||||||||||||||||
Yankee BondsF — 22.8% | |||||||||||||||||
Banking and Finance — 0.9% | |||||||||||||||||
Corporacion Andina de Fomento | 1.520% | 1/26/07 | 1,260 | 1,258 | A | ||||||||||||
HBOS Capital Funding LP | 6.071% | 6/30/49 | 1,490 | 1,496 | C | ||||||||||||
HBOS Treasury Services plc | 3.750% | 9/30/08 | 985 | 970 | C | ||||||||||||
3,724 | |||||||||||||||||
Banks — 0.9% | |||||||||||||||||
ABN Amro Bank NV | 4.650% | 6/4/18 | 1,530 | 1,361 | |||||||||||||
ING Bank N.V. | 5.125% | 5/1/15 | 500 | 481 | C | ||||||||||||
Royal Bank of Scotland Group plc | 8.817% | 3/31/49 | 1,500 | 1,567 | |||||||||||||
3,409 | |||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee Bonds — Continued | |||||||||||||||||
Cable — 0.2% | |||||||||||||||||
British Sky Broadcasting Group plc | 6.875% | 2/23/09 | $ | 870 | $ | 950 | |||||||||||
Electric — 1.0% | |||||||||||||||||
Empresa Nacional de Electricidad S.A. | 8.500% | 4/1/09 | 1,805 | 1,972 | |||||||||||||
Hydro-Quebec | 7.500% | 4/1/16 | 1,625 | 1,929 | |||||||||||||
3,901 | |||||||||||||||||
Foreign Governments — 7.9% | |||||||||||||||||
Federative Republic of Brazil | 2.125% | 4/15/09 | 147 | 133 | A | ||||||||||||
Federative Republic of Brazil | 14.500% | 10/15/09 | 280 | 326 | |||||||||||||
Federative Republic of Brazil | 12.000% | 4/15/10 | 580 | 618 | |||||||||||||
Federative Republic of Brazil | 2.125% | 4/15/12 | 405 | 338 | A | ||||||||||||
Federative Republic of Brazil | 2.125% | 4/15/12 | 621 | 520 | A | ||||||||||||
Federative Republic of Brazil | 8.000% | 4/15/14 | 1,513 | 1,381 | |||||||||||||
Federative Republic of Brazil | 11.000% | 8/17/40 | 410 | 386 | |||||||||||||
Province of Nova Scotia | 5.750% | 2/27/12 | 1,500 | 1,577 | |||||||||||||
Province of Ontario | 3.500% | 9/17/07 | 1,000 | 995 | |||||||||||||
Province of Ontario | 5.125% | 7/17/12 | 900 | 917 | |||||||||||||
Quebec Province | 7.500% | 9/15/29 | 460 | 556 | |||||||||||||
Republic of Chile | 1.570% | 1/28/08 | 850 | 859 | A | ||||||||||||
Republic of Colombia | 10.500% | 7/9/10 | 360 | 385 | |||||||||||||
Republic of Colombia | 11.750% | 2/25/20 | 510 | 557 | |||||||||||||
Republic of Italy | 3.750% | 12/14/07 | 1,490 | 1,491 | |||||||||||||
Republic of Panama | 9.625% | 2/8/11 | 120 | 133 | |||||||||||||
Republic of Panama | 9.375% | 7/23/12 | 300 | 328 | |||||||||||||
Republic of Panama | 2.000% | 7/17/16 | 229 | 195 | |||||||||||||
Republic of Panama | 10.750% | 5/15/20 | 190 | 213 | |||||||||||||
Republic of Panama | 9.375% | 1/16/23 | 60 | 61 | |||||||||||||
Republic of Peru | 9.125% | 2/21/12 | 90 | 92 | |||||||||||||
Republic of Peru | 8.375% | 5/3/16 | 80 | 74 | |||||||||||||
Republic of Peru | 5.000% | 3/7/17 | 855 | 740 | D | ||||||||||||
Republic of Peru | 5.000% | 3/7/17 | 228 | 193 | C,D | ||||||||||||
Republic of Peru | 8.750% | 11/21/33 | 210 | 185 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee Bonds — Continued | |||||||||||||||||
Foreign Governments — Continued | |||||||||||||||||
Republic of South Africa | 7.375% | 4/25/12 | $ | 650 | $ | 704 | |||||||||||
Republic of South Africa | 6.500% | 6/2/14 | 700 | 707 | |||||||||||||
Republic of the Philippines | 9.875% | 1/15/19 | 310 | 308 | |||||||||||||
Russian Federation | 8.250% | 3/31/10 | 80 | 87 | |||||||||||||
Russian Federation | 5.000% | 3/31/30 | 3,820 | 3,488 | D | ||||||||||||
United Mexican States | 8.375% | 1/14/11 | 6,375 | 7,204 | |||||||||||||
United Mexican States | 7.500% | 4/8/33 | 5,454 | 5,279 | |||||||||||||
31,030 | |||||||||||||||||
Insurance — 0.7% | |||||||||||||||||
Axa | 8.600% | 12/15/30 | 1,630 | 1,996 | |||||||||||||
XL Capital plc | 6.500% | 1/15/12 | 700 | 749 | |||||||||||||
2,745 | |||||||||||||||||
Manufacturing (Diversified) — 2.1% | |||||||||||||||||
Tyco International Group S.A. | 6.375% | 2/15/06 | 1,900 | 1,995 | |||||||||||||
Tyco International Group S.A. | 6.375% | 10/15/11 | 250 | 266 | |||||||||||||
Tyco International Group S.A. | 7.000% | 6/15/28 | 554 | 588 | |||||||||||||
Tyco International Group S.A. | 6.875% | 1/15/29 | 5,321 | 5,570 | |||||||||||||
8,419 | |||||||||||||||||
Oil and Gas — 1.4% | |||||||||||||||||
Gaz Capital S.A. | 8.625% | 4/28/34 | 200 | 194 | C | ||||||||||||
Petrobras International Finance Company (PIFCO) | 9.750% | 7/6/11 | 905 | 982 | |||||||||||||
Petroliam Nasional Berhad | 7.625% | 10/15/26 | 610 | 650 | C | ||||||||||||
YPF Sociedad Anonima | 10.000% | 11/2/28 | 3,500 | 3,850 | |||||||||||||
5,676 | |||||||||||||||||
Special Purpose — 3.8% | |||||||||||||||||
Deutsche Telekom International Finance BV | 8.750% | 6/15/30 | 1,400 | 1,704 | |||||||||||||
Deutsche Telekom International Finance BV | 9.250% | 6/1/32 | 670 | 883 | |||||||||||||
Diageo Capital plc | 3.500% | 11/19/07 | 630 | 623 | |||||||||||||
Diageo Capital plc | 3.375% | 3/20/08 | 120 | 117 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee Bonds — Continued | |||||||||||||||||
Special Purpose — Continued | |||||||||||||||||
Gemstone Investors Limited | 7.710% | 10/31/04 | $ | 440 | $ | 443 | C | ||||||||||
General Motors Nova Scotia Finance Company | 6.850% | 10/15/08 | 1,160 | 1,216 | |||||||||||||
HSBC Capital Funding LP | 4.610% | 12/29/49 | 760 | 689 | A,C | ||||||||||||
HSBC Holdings plc | 5.250% | 12/12/12 | 4,400 | 4,371 | |||||||||||||
Petronas Capital Ltd. | 7.875% | 5/22/22 | 770 | 852 | C | ||||||||||||
Telefonica Europe BV | 8.250% | 9/15/30 | 800 | 973 | |||||||||||||
UFJ Finance Aruba AEC | 6.750% | 7/15/13 | 2,835 | 2,932 | |||||||||||||
14,803 | |||||||||||||||||
Telecommunications — 2.9% | |||||||||||||||||
British Telecommunications plc | 8.375% | 12/15/10 | 900 | 1,051 | |||||||||||||
British Telecommunications plc | 8.875% | 12/15/30 | 420 | 518 | |||||||||||||
France Telecom SA | 8.750% | 3/1/11 | 3,000 | 3,476 | |||||||||||||
France Telecom SA | 9.500% | 3/1/31 | 340 | 427 | |||||||||||||
Koninklijke KPN NV | 8.000% | 10/1/10 | 990 | 1,146 | |||||||||||||
Tele Norte Leste Participacoes S.A. | 8.000% | 12/18/13 | 1,080 | 967 | C | ||||||||||||
Telecom Italia S.p.A. | 5.250% | 11/15/13 | 2,025 | 1,960 | C | ||||||||||||
Telus Corporation | 7.500% | 6/1/07 | 700 | 763 | |||||||||||||
Vodafone Group PLC | 7.625% | 2/15/05 | 1,000 | 1,033 | |||||||||||||
11,341 | |||||||||||||||||
Telecommunications (Cellular/ Wireless) — 0.2% | |||||||||||||||||
Rogers Wireless Communications Inc. | 6.375% | 3/1/14 | 1,000 | 920 | C | ||||||||||||
Transportation — 0.3% | |||||||||||||||||
C P Railway Limited | 7.125% | 10/15/31 | 1,000 | 1,112 | |||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Yankee Bonds — Continued | |||||||||||||||||
Utilities — 0.4% | |||||||||||||||||
United Utilities plc | 5.375% | 2/1/19 | $ | 1,550 | $ | 1,435 | |||||||||||
Total Yankee Bonds (Identified Cost — $88,146) | 89,465 | ||||||||||||||||
Total Long-Term Securities (Identified Cost — $381,343) | 384,217 | ||||||||||||||||
Short-Term Securities — N.M. | |||||||||||||||||
U.S. Government and Agency Obligations — N.M. | |||||||||||||||||
Fannie Mae | 0.000% | 9/8/04 | 110 | 110 | B,G | ||||||||||||
Total Short-Term Securities (Identified Cost — $110) | 110 | ||||||||||||||||
Total Investments — 98.0% (Identified Cost — $381,454) | 384,327 | ||||||||||||||||
Other Assets Less Liabilities — 2.0% | 7,978 | ||||||||||||||||
Net Assets — 100.0% | $ | 392,305 | |||||||||||||||
Actual | Appreciation/ | ||||||||||
Expiration | Contracts | (Depreciation) | |||||||||
Futures Contracts PurchasedH | |||||||||||
Eurodollar Futures | March 2005 | 80 | $ | 24 | |||||||
U.S. Treasury Note Futures | September 2004 | 30 | 6 | ||||||||
U.S. Treasury Bond Futures | September 2004 | 2 | 48 | ||||||||
$ | 78 | ||||||||||
A | Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (’LIBOR”). The coupon rates are the rates as of June 30, 2004. |
B | Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity. |
C | Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 6.1% of net assets. |
D | Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes. |
E | Bond is in default at June 30, 2004. |
F | Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities. |
G | Collateral to cover futures contracts. |
H | Futures are described in more detail in the notes to financial statements. |
Statement of Assets and Liabilities
Investment Grade Portfolio
Assets: | |||||||||||
Investment securities at market value (cost — $381,344) | $ | 384,217 | |||||||||
Short-term securities at value (cost — $110) | 110 | ||||||||||
Total investments | $ | 384,327 | |||||||||
Cash | 3,623 | ||||||||||
Receivable for: | |||||||||||
Fund shares sold | 719 | ||||||||||
Securities sold | 2,654 | ||||||||||
Interest | 6,253 | ||||||||||
Futures variation margin | 46 | ||||||||||
397,622 | |||||||||||
Liabilities: | |||||||||||
Payable for: | |||||||||||
Fund shares repurchased | 1,275 | ||||||||||
Securities purchased | 2,856 | ||||||||||
Income distribution | 786 | ||||||||||
Due to manager and distributor | 256 | ||||||||||
Accrued expenses | 144 | ||||||||||
5,317 | |||||||||||
Net Assets | $ | 392,305 | |||||||||
Net assets consist of: | |||||||||||
Accumulated paid-in capital applicable to: | |||||||||||
36,380 Primary Class shares outstanding | $ | 376,198 | |||||||||
750 Institutional Class shares outstanding | 7,901 | ||||||||||
Under/(over) distributed net investment income | (116 | ) | |||||||||
Accumulated net realized gain/(loss) on investments, options and futures | 5,371 | ||||||||||
Unrealized appreciation/(depreciation) of investments, options and futures | 2,951 | ||||||||||
Net Assets | $ | 392,305 | |||||||||
Net Asset Value Per Share: | |||||||||||
Primary Class | $10.57 | ||||||||||
Institutional Class | $10.57 | ||||||||||
See notes to financial statements.
Statement of Operations
Investment Grade Portfolio
Investment Income: | |||||||||||
Interest | $ | 11,396 | |||||||||
Expenses: | |||||||||||
Management fee | $ | 1,234 | |||||||||
Distribution and service fees | 1,011 | A | |||||||||
Audit and legal fees | 29 | ||||||||||
Custodian fee | 102 | ||||||||||
Directors’ fees and expenses | 12 | ||||||||||
Registration fees | 15 | ||||||||||
Reports to shareholders | 21 | ||||||||||
Transfer agent and shareholder servicing expense: | |||||||||||
Primary Class | 174 | ||||||||||
Institutional Class | 2 | ||||||||||
Other expenses | 10 | ||||||||||
2,610 | |||||||||||
Less fees waived | (571 | ) | |||||||||
Total expenses, net of waivers | 2,039 | ||||||||||
Net Investment Income | 9,357 | ||||||||||
Net Realized and Unrealized Gain/(Loss) on Investments: | |||||||||||
Realized gain/(loss) on: | |||||||||||
Investments | 5,407 | ||||||||||
Options | — | ||||||||||
Futures | 91 | ||||||||||
Change in unrealized appreciation/(depreciation) of investments, options and futures | (16,805 | ) | |||||||||
Net Realized and Unrealized Gain/(Loss) on Investments | (11,307 | ) | |||||||||
Change in Net Assets Resulting From Operations | $ | (1,950 | ) | ||||||||
A | See Note 1, Significant Accountant Policies, in the notes to financial statements. |
See notes to financial statements.
Statement of Changes in Net Assets
Investment Grade Portfolio
For the Six | For the | |||||||||
Months Ended | Year Ended | |||||||||
6/30/04 | 12/31/03 | |||||||||
(Unaudited) | ||||||||||
Change in Net Assets: | ||||||||||
Net investment income | $ | 9,357 | $ | 18,069 | ||||||
Net realized gain/(loss) on investments, options and futures | 5,498 | 6,707 | ||||||||
Change in unrealized appreciation/(depreciation) of investments, options, and futures | (16,805 | ) | 11,745 | |||||||
Change in net assets resulting from operations | (1,950 | ) | 36,521 | |||||||
Distributions to shareholders: | ||||||||||
From net investment income: | ||||||||||
Primary Class | (9,176 | ) | (18,075 | ) | ||||||
Institutional Class | (181 | ) | (209 | ) | ||||||
From net realized gain on investments: | ||||||||||
Primary Class | (690 | ) | (2,770 | ) | ||||||
Institutional Class | (14 | ) | (36 | ) | ||||||
Change in net assets from Fund share transactions: | ||||||||||
Primary Class | (12,524 | ) | 58,641 | |||||||
Institutional Class | 2,260 | 2,909 | ||||||||
Change in net assets | (22,275 | ) | 76,981 | |||||||
Net Assets: | ||||||||||
Beginning of period | 414,580 | 337,599 | ||||||||
End of period | $ | 392,305 | $ | 414,580 | ||||||
Under/(over) distributed net investment income | $ | (116 | ) | $ | (116 | ) | ||||
See notes to financial statements.
Financial Highlights
Investment Grade Income Portfolio
Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements.
Primary Class:
Six Months | Years Ended December 31, | ||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||
June 30, 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $10.88 | $ | 10.42 | $ | 10.10 | $ | 9.97 | $ | 9.78 | $ | 10.52 | ||||||||||||||
Investment operations: | |||||||||||||||||||||||||
Net investment income | .24 | A | .50 | A | .54 | A | .60 | A | .67 | A | .61 | A | |||||||||||||
Net realized and unrealized gain/(loss) on investments, options and futures | (.29 | ) | .53 | .32 | .14 | .19 | (.71 | ) | |||||||||||||||||
Total from investment operations | (.05 | ) | 1.03 | .86 | .74 | .86 | (.10 | ) | |||||||||||||||||
Distributions: | |||||||||||||||||||||||||
From net investment income | (.24 | ) | (.50 | ) | (.54 | ) | (.61 | ) | (.67 | ) | (.61 | ) | |||||||||||||
From net realized gain on investments | (.02 | ) | (.07 | ) | — | — | — | (.03 | ) | ||||||||||||||||
Total distributions | (.26 | ) | (.57 | ) | (.54 | ) | (.61 | ) | (.67 | ) | (.64 | ) | |||||||||||||
Net asset value, end of period | $10.57 | $ | 10.88 | $ | 10.42 | $ | 10.10 | $ | 9.97 | $ | 9.78 | ||||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||
Total return | (.44 | )%B | 10.16 | % | 8.82 | % | 7.52 | % | 9.16 | % | (.91 | )% | |||||||||||||
Expenses to average net assets | 1.00 | %A,C | 1.00 | % A | 1.00 | % A | 1.00 | % A | 1.00 | % A | 1.00 | % A | |||||||||||||
Net investment income to average net assets | 4.54 | %A,C | 4.62 | % A | 5.32 | % A | 5.90 | % A | 6.82 | % A | 6.08 | % A | |||||||||||||
Portfolio turnover rate | 42 | %B | 78 | % | 131 | % | 131 | % | 94 | % | 145 | % | |||||||||||||
Net assets, end of period (in thousands) | $ | 384,380 | $ | 408,685 | $ | 334,763 | $ | 255,298 | $ | 194,987 | $ | 183,615 | |||||||||||||
A | Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 1.00% until April 30, 2005. If no fees had been waived by LMFA, the annualized ratio of expenses to average daily net assets would have been as follows: for the six months ended June 30, 2004, 1.28%; and for the years ended December 31, 2003, 1.28%; 2002, 1.30%; 2001, 1.27%; 2000, 1.31%; and 1999, 1.31%. |
B | Not annualized. |
C | Annualized. |
See notes to financial statements.
Financial Highlights — Continued
Institutional Class:
Six Months | Years Ended December 31, | ||||||||||||||||||||||||
Ended | |||||||||||||||||||||||||
June 30, 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.89 | $ | 10.43 | $ | 10.11 | $ | 9.97 | $ | 9.79 | $ | 10.52 | |||||||||||||
Investment operations: | |||||||||||||||||||||||||
Net investment income | .27 | D | .55 | D | .59 | D | .66 | D | .71 | D | .66 | D | |||||||||||||
Net realized and unrealized gain/(loss) on investments, options and futures | (.30 | ) | .53 | .31 | .14 | .19 | (.70 | ) | |||||||||||||||||
Total from investment operations | (.03 | ) | 1.08 | .90 | .80 | .90 | (.04 | ) | |||||||||||||||||
Distributions: | |||||||||||||||||||||||||
From net investment income | (.27 | ) | (.55 | ) | (.58 | ) | (.66 | ) | (.72 | ) | (.66 | ) | |||||||||||||
From net realized gain on investments | (.02 | ) | (.07 | ) | — | — | — | (.03 | ) | ||||||||||||||||
Total distributions | (.29 | ) | (.62 | ) | (.58 | ) | (.66 | ) | (.72 | ) | (.69 | ) | |||||||||||||
Net asset value, end of period | $ | 10.57 | $ | 10.89 | $ | 10.43 | $ | 10.11 | $ | 9.97 | $ | 9.79 | |||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||
Total return | (.29 | )%B | 10.71 | % | 9.38 | % | 8.16 | % | 9.63 | % | (.33 | )% | |||||||||||||
Expenses to average net assets | .50 | %C,D | .50 | % D | .48 | % D | .47 | % D | .48 | % D | .46 | % D | |||||||||||||
Net investment income to average net assets | 5.08 | %C,D | 5.13 | % D | 5.85 | % D | 6.50 | % D | 7.32 | % D | 6.59 | % D | |||||||||||||
Portfolio turnover rate | 42 | %B | 78 | % | 131 | % | 131 | % | 94 | % | 145 | % | |||||||||||||
Net assets, end of period (in thousands) | $ | 7,925 | $ | 5,895 | $ | 2,836 | $ | 1,424 | $ | 839 | $ | 238 |
D | Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 0.50% until April 30, 2005. If no fees had been waived by LMFA, the annualized ratio of expenses to average daily net assets would have been as follows: for the six months ended June 30, 2004, 0.77%; and for the years ended December 31, 2003, 0.78%; 2002, 0.78%; 2001, 0.74%; 2000, 0.79%; and 1999, 0.77%. |
See notes to financial statements.
Performance Information
U.S. Government Intermediate-Term Portfolio
The following graphs compare the Fund’s total returns against those of a closely matched broad-based securities market index. The lines illustrate the cumulative total return of an initial $10,000 investment in Primary Class shares and an initial $1,000,000 investment in Institutional Class shares of the Fund, for the periods indicated. The lines for the Fund represent the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The lines representing each securities market index do not include any transaction costs associated with buying and selling securities in the index or other administrative expenses.
The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please visit www.leggmasonfunds.com. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods. |
Growth of a $10,000 Investment — Primary Class
Cumulative | Average Annual | |||||||||
Total Return | Total Return | |||||||||
One Year | -1.52% | -1.52% | ||||||||
Five Years | +27.55% | +4.99% | ||||||||
Ten Years | +70.63% | +5.49% |
The graph and table do not reflect the deduction of taxes that a shareholder
Past performance does not predict future performance.
A | A total return index consisting of investment grade corporate debt issues as well as U.S. government securities. The debt issues all maintain maturities within a range of 1 to 10 years. |
Growth of a $1,000,000 Investment — Institutional Class
Cumulative | Average Annual | |||||||||
Total Return | Total Return | |||||||||
One Year | -1.14% | -1.14% | ||||||||
Five Years | +30.90% | +5.53% | ||||||||
Life of Class* | +79.86% | +6.32% | ||||||||
*Inception date: December 1, 1994 |
The graph and table do not reflect the deduction of taxes that a shareholder
Past performance does not predict future performance.
B | Index returns are for periods beginning November 30, 1994. |
Portfolio Composition (as of June 30, 2004)
Debt RatingsC (as a percentage of portfolio)
Maturity Schedule (as a percentage of portfolio)
C | Source: Standard & Poor’s |
Portfolio of Investments
U.S. Government Intermediate
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Long-Term Securities — 87.8% | |||||||||||||||||
U.S. Government and Agency Obligations — 37.0% | |||||||||||||||||
Fixed Rate Securities — 37.0% | |||||||||||||||||
Fannie Mae | 4.375% | 7/17/13 | $ | 7,000 | $ | 6,554 | |||||||||||
Freddie Mac | 4.500% | 1/15/13 | 33,000 | 31,783 | |||||||||||||
United States Treasury Bonds | 8.000% | 11/15/21 | 7,670 | 10,053 | |||||||||||||
United States Treasury Bonds | 6.125% | 11/15/27 | 20,370 | 22,322 | |||||||||||||
United States Treasury Bonds | 5.375% | 2/15/31 | 4 | 4 | |||||||||||||
United States Treasury Notes | 2.250% | 4/30/06 | 900 | 894 | |||||||||||||
United States Treasury Notes | 4.250% | 8/15/13 | 37,000 | 36,119 | |||||||||||||
United States Treasury Notes | 4.750% | 5/15/14 | 3,000 | 3,031 | |||||||||||||
Total U.S. Government and Agency Obligations (Identified Cost — $115,024) | 110,760 | ||||||||||||||||
U.S. Government Agency Mortgage-Backed Securities — 32.9% | |||||||||||||||||
Fixed Rate Securities — 32.6% | |||||||||||||||||
Fannie Mae | 8.500% | 6/1/10 to 8/1/11 | 115 | 117 | |||||||||||||
Fannie Mae | 6.500% | 11/1/10 to 10/1/32 | 9,982 | 10,433 | |||||||||||||
Fannie Mae | 7.000% | 1/1/13 to 1/1/33 | 10,523 | 11,131 | |||||||||||||
Fannie Mae | 9.500% | 7/1/14 | 131 | 145 | |||||||||||||
Fannie Mae | 11.000% | 12/1/15 | 104 | 114 | |||||||||||||
Fannie Mae | 12.500% | 1/1/18 to 4/1/18 | 111 | 128 | |||||||||||||
Fannie Mae | 9.000% | 11/1/21 | 253 | 282 | |||||||||||||
Fannie Mae | 6.000% | 11/1/27 to 9/1/32 | 1,656 | 1,694 | |||||||||||||
Fannie Mae | 5.500% | 1/1/32 | 4,000 | 4,090 | A | ||||||||||||
Fannie Mae | 5.000% | 1/1/33 | 33,500 | 33,531 | A | ||||||||||||
Freddie Mac | 8.250% | 2/1/08 | 35 | 35 | |||||||||||||
Freddie Mac | 8.500% | 12/1/08 to 6/1/21 | 180 | 191 | |||||||||||||
Freddie Mac | 9.750% | 11/1/09 to 11/1/14 | 61 | 66 | |||||||||||||
Freddie Mac | 9.000% | 1/1/17 to 1/1/21 | 322 | 352 | |||||||||||||
Freddie Mac | 7.000% | 1/25/21 to 4/1/32 | 5,066 | 5,356 | |||||||||||||
Freddie Mac | 8.000% | 2/1/31 | 755 | 819 | |||||||||||||
Freddie Mac | 5.000% | 8/1/33 | 22,661 | 21,944 | |||||||||||||
Freddie Mac | 5.500% | 7/1/34 | 4,000 | 4,086 | A | ||||||||||||
Government National Mortgage Association | 9.000% | 6/15/06 to 9/15/22 | 536 | 564 |
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
U.S. Government Agency Mortgage-Backed Securities — Continued | |||||||||||||||||
Fixed Rate Securities — Continued | |||||||||||||||||
Government National Mortgage Association | 6.000% | 5/15/14 to 11/15/32 | $ | 1,657 | $ | 1,707 | |||||||||||
Government National Mortgage Association | 6.500% | 10/15/31 to 6/15/32 | 908 | 951 | |||||||||||||
97,736 | |||||||||||||||||
Indexed SecuritiesB — 0.3% | |||||||||||||||||
Government National Mortgage Association | 7.250% | 6/16/26 | 3,668 | 383 | C1 | ||||||||||||
Government National Mortgage Association | 7.300% | 8/16/26 | 3,064 | 358 | C1 | ||||||||||||
741 | |||||||||||||||||
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $99,441) | 98,477 | ||||||||||||||||
Corporate Bonds and Notes — 0.3% | |||||||||||||||||
Banking and Finance — 0.2% | |||||||||||||||||
Household Finance Corporation | 8.000% | 7/15/10 | 690 | 801 | |||||||||||||
Telecommunications — 0.1% | |||||||||||||||||
GTE Hawaiian Telephone Company, Inc. | 7.000% | 2/1/06 | 250 | 255 | |||||||||||||
Total Corporate Bonds and Notes (Identified Cost — $983) | 1,056 | ||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Mortgage-Backed Securities — 17.3% | |||||||||||||||||
Fixed Rate Securities — 8.0% | |||||||||||||||||
Blackrock Capital Finance L.P. 1997-R3 | 7.220% | 11/25/28 | $ | 733 | $ | 750 | D | ||||||||||
Residential Asset Securitization Trust 2003-A14 | 4.750% | 2/25/19 | 14,526 | 14,065 | |||||||||||||
Washington Mutual Mortgage Securities Corporation 2004-RA | 7.000% | 3/25/34 | 8,548 | 9,030 | |||||||||||||
23,845 | |||||||||||||||||
Indexed SecuritiesB — 9.3% | |||||||||||||||||
GSR Mortgage Loan Trust 2004-5 | 3.685% | 5/25/34 | 14,191 | 14,021 | |||||||||||||
Thornburg Mortgage Securities Trust 2004-1 | 2.657% | 3/25/44 | 14,246 | 13,854 | |||||||||||||
27,875 | |||||||||||||||||
Total Mortgage-Backed Securities (Identified Cost — $52,731) | 51,720 | ||||||||||||||||
Preferred Stocks — 0.3% | |||||||||||||||||
Home Ownership Funding Corporation | 13.331% | 5 | shs | 217 | D,E | ||||||||||||
Home Ownership Funding Corporation II | 13.338% | 14 | 610 | D,E | |||||||||||||
Total Preferred Stocks (Identified Cost — $1,537) | 827 | ||||||||||||||||
Total Long-Term Securities (Identified Cost — $269,716) | 262,840 | ||||||||||||||||
Maturity | Par/ | ||||||||||||||||
Rate | Date | Shares | Value | ||||||||||||||
Short-Term Securities — 11.6% | |||||||||||||||||
U.S. Government and Agency Obligations — 0.3% | |||||||||||||||||
Fannie Mae | 0.00% | 9/8/04 | $ | 960 | $ | 958 | F,G | ||||||||||
Repurchase Agreements — 11.3% | |||||||||||||||||
Goldman, Sachs & Company | |||||||||||||||||
1.45%, dated 6/30/04, to be repurchased at $13,557 on 7/1/04 (Collateral: $14,095 Freddie Mac notes, 4.75%, due 10/11/12, value 13,978) | 13,556 | 13,556 | |||||||||||||||
Merrill Lynch Government Securities, Inc. | |||||||||||||||||
1.40%, dated 6/30/04, to be repurchased at $20,335 on 7/1/04 (Collateral: $19,620 Federal Home Loan Bank bonds, 3.10%, due 12/20/06, value $20,655) | 20,334 | 20,334 | |||||||||||||||
33,890 | |||||||||||||||||
Total Short-Term Securities (Identified Cost — $34,848) | 34,848 | ||||||||||||||||
Total Investments — 99.4% (Identified Cost — $304,564) | 297,688 | ||||||||||||||||
Other Assets Less Liabilities — 0.6% | 1,814 | ||||||||||||||||
Net Assets — 100.0% | $ | 299,502 | |||||||||||||||
Actual | Appreciation/ | ||||||||||
Expiration | Contracts | (Depreciation) | |||||||||
Futures Contracts PurchasedH | |||||||||||
Eurodollar Futures | September 2004 | 239 | $ | (206 | ) | ||||||
Eurodollar Futures | December 2004 | 100 | 52 | ||||||||
U.S. Treasury Note Futures | September 2004 | 392 | 412 | ||||||||
$ | 258 | ||||||||||
Futures Contracts WrittenH | |||||||||||
U.S. Treasury Note Futures | September 2004 | 557 | $ | (988 | ) | ||||||
U.S. Treasury Bond Futures | September 2004 | 282 | (600 | ) | |||||||
$ | (1,588 | ) | |||||||||
A | When-issued Securities — Security purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced. |
B | Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (’LIBOR”). The coupon rates are the rates as of June 30, 2004. |
C | Stripped security — Security with interest-only or principal-only payment streams, denoted by a 1 or 2 respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due. |
D | Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 0.5% of net assets. |
E | Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes. |
F | Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity. |
G | Collateral to cover futures contracts. |
H | Futures are described in more detail in the notes to financial statements. |
See notes to financial statements.
Statement of Assets and Liabilities
U.S. Government Intermediate-Term Portfolio
Assets: | |||||||||||
Investment securities at market value (cost — $269,716) | $ | 262,840 | |||||||||
Short-term securities at value (cost — $34,848) | 34,848 | ||||||||||
Total investments | $ | 297,688 | |||||||||
Receivable for: | |||||||||||
Fund shares sold | 490 | ||||||||||
Securities sold | 42,757 | ||||||||||
Interest and dividends | 2,266 | ||||||||||
Other assets | 11 | ||||||||||
343,212 | |||||||||||
Liabilities: | |||||||||||
Payable for: | |||||||||||
Fund shares repurchased | 1,132 | ||||||||||
Securities purchased | 41,472 | ||||||||||
Income distribution | 437 | ||||||||||
Payable for futures variation margin | 389 | ||||||||||
Due to manager and distributor | 199 | ||||||||||
Accrued expenses | 81 | ||||||||||
43,710 | |||||||||||
Net Assets | $ | 299,502 | |||||||||
Net assets consist of: | |||||||||||
Accumulated paid-in capital applicable to: | |||||||||||
28,254 Primary Class shares outstanding | $ | 303,228 | |||||||||
803 Institutional Class shares outstanding | 8,279 | ||||||||||
Under/(over) distributed net investment income | 1,395 | ||||||||||
Accumulated net realized gain/(loss) on investments, options and futures | (5,194 | ) | |||||||||
Unrealized appreciation/(depreciation) of investments, options and futures | (8,206 | ) | |||||||||
Net Assets | $ | 299,502 | |||||||||
Net Asset Value Per Share: | |||||||||||
Primary Class | $ | 10.31 | |||||||||
Institutional Class | $ | 10.31 | |||||||||
See notes to financial statements.
Statement of Operations
U.S. Government Intermediate Portfolio
Investment Income: | |||||||||||
Dividends | $ | 127 | |||||||||
Interest | 7,051 | ||||||||||
Total income | $ | 7,178 | |||||||||
Expenses: | |||||||||||
Management fee | 873 | ||||||||||
Distribution and service fees | 773 | A | |||||||||
Audit and legal fees | 32 | ||||||||||
Custodian fee | 87 | ||||||||||
Directors’ fees and expenses | 11 | ||||||||||
Registration fees | 12 | ||||||||||
Reports to shareholders | 16 | ||||||||||
Transfer agent and shareholder servicing expense: | |||||||||||
Primary Class | 123 | ||||||||||
Institutional Class | 2 | ||||||||||
Other expenses | 3 | ||||||||||
1,932 | |||||||||||
Less fees waived | (365 | ) | |||||||||
Total expenses, net of waivers | 1,567 | ||||||||||
Net Investment Income | 5,611 | ||||||||||
Net Realized and Unrealized Gain/(Loss) on Investments: | |||||||||||
Realized gain/(loss) on: | |||||||||||
Investments | (3,895 | ) | |||||||||
Futures | 1,978 | ||||||||||
Change in unrealized appreciation/(depreciation) of investments, options and futures | (5,152 | ) | |||||||||
Net Realized and Unrealized Gain/(Loss) on Investments | (7,069 | ) | |||||||||
Change in Net Assets Resulting From Operations | $ | (1,458 | ) | ||||||||
A | See Note 1, Significant Accounting Policies, in the notes to financial statements |
See notes to financial statements.
Statement of Changes in Net Assets
U.S. Government Intermediate-Term Portfolio
For the Six | For the | ||||||||
Months Ended | Year Ended | ||||||||
6/30/04 | 12/31/03 | ||||||||
(Unaudited) | |||||||||
Change in Net Assets: | |||||||||
Net investment income | $ | 5,611 | $ | 9,203 | |||||
Net realized gain/(loss) on investments, options and futures | (1,917 | ) | 8,052 | ||||||
Change in unrealized appreciation/(depreciation) of investments, options and futures | (5,152 | ) | (13,276 | ) | |||||
Change in net assets resulting from operations | (1,458 | ) | 3,979 | ||||||
Distributions to shareholders from net investment income: | |||||||||
Primary Class | (5,327 | ) | (9,512 | ) | |||||
Institutional Class | (158 | ) | (279 | ) | |||||
Change in net assets from Fund share transactions: | |||||||||
Primary Class | (28,867 | ) | (47,284 | ) | |||||
Institutional Class | 728 | (1,598 | ) | ||||||
Change in net assets | (35,082 | ) | (54,694 | ) | |||||
Net Assets: | |||||||||
Beginning of period | 334,584 | 389,278 | |||||||
End of period | $ | 299,502 | $ | 334,584 | |||||
Under/(over) distributed net investment income | $ | 1,395 | $ | 1,269 | |||||
See notes to financial statements.
Financial Highlights
U.S. Government Intermediate-Term Portfolio
Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements.
Primary Class:
Six Months | |||||||||||||||||||||||||
Ended | Years Ended December 31, | ||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $10.54 | $ | 10.70 | $ | 10.32 | $ | 10.26 | $ | 9.92 | $ | 10.51 | ||||||||||||||
Investment operations: | |||||||||||||||||||||||||
Net investment income | .19 | A | .26 | A | .41 | A | .53 | A | .62 | A | .54 | A | |||||||||||||
Net realized and unrealized gain/(loss) on invest- ments, options and futures | (.24 | ) | (.14 | ) | .38 | .06 | .33 | (.59 | ) | ||||||||||||||||
Total from investment operations | (.05 | ) | .12 | .79 | .59 | .95 | (.05 | ) | |||||||||||||||||
Distributions: | |||||||||||||||||||||||||
From net investment income | (.18 | ) | (.28 | ) | (.41 | ) | (.53 | ) | (.61 | ) | (.54 | ) | |||||||||||||
Total distributions | (.18 | ) | (.28 | ) | (.41 | ) | (.53 | ) | (.61 | ) | (.54 | ) | |||||||||||||
Net asset value, end of period | $10.31 | $ | 10.54 | $ | 10.70 | $ | 10.32 | $ | 10.26 | $ | 9.92 | ||||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||
Total return | (.49 | )%B | 1.11 | % | 7.79 | % | 5.83 | % | 9.95 | % | (.48 | )% | |||||||||||||
Expenses to average net assets | 1.00 | %A,C | 1.00 | % A | 1.00 | % A | 1.00 | % A | 1.00 | % A | 1.00 | % A | |||||||||||||
Net investment income to average net assets | 3.52 | %A,C | 2.48 | % A | 3.85 | % A | 5.08 | % A | 6.14 | % A | 5.28 | % A | |||||||||||||
Portfolio turnover rate | 73 | %B | 487 | % | 204 | % | 535 | % | 248 | % | 979 | % | |||||||||||||
Net assets, end of period (in thousands) | $291,221 | $ | 326,844 | $ | 379,793 | $ | 300,597 | $ | 272,668 | $ | 298,207 | ||||||||||||||
A | Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 1.00% until April 30, 2005. If no fees had been waived by LMFA, the annualized ratio of expenses to average daily net assets would have been as follows: for the six months ended June 30, 2004, 1.23%; and for the years ended December 31, 2003, 1.21%; 2002, 1.19%; 2001, 1.17%; 2000, 1.19%; and 1999, 1.19%. |
B | Not annualized. |
C | Annualized. |
See notes to financial statements.
Financial Highlights — Continued
Institutional Class:
Six Months | |||||||||||||||||||||||||
Ended | Years Ended December 31, | ||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $10.55 | $ | 10.70 | $ | 10.32 | $ | 10.27 | $ | 9.92 | $ | 10.51 | ||||||||||||||
Investment operations: | |||||||||||||||||||||||||
Net investment income | .21 | D | .32 | D | .46 | D | .58 | D | .67 | D | .59 | D | |||||||||||||
Net realized and unrealized gain/(loss) on investments, options and futures | (.24 | ) | (.14 | ) | .38 | .05 | .35 | (.59 | ) | ||||||||||||||||
Total from investment operations | (.03 | ) | .18 | .84 | .63 | 1.02 | — | ||||||||||||||||||
Distributions: | |||||||||||||||||||||||||
From net investment income | (.21 | ) | (.33 | ) | (.46 | ) | (.58 | ) | (.67 | ) | (.59 | ) | |||||||||||||
Total distributions | (.21 | ) | (.33 | ) | (.46 | ) | (.58 | ) | (.67 | ) | (.59 | ) | |||||||||||||
Net asset value, end of period | $10.31 | $ | 10.55 | $ | 10.70 | $ | 10.32 | $ | 10.27 | $ | 9.92 | ||||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||
Total return | (.34 | )%B | 1.71 | % | 8.35 | % | 6.30 | % | 10.64 | % | .04 | % | |||||||||||||
Expenses to average net assets | .50 | %C,D | .46 | % D | .47 | % D | .46 | % D | .46 | % D | .47 | % D | |||||||||||||
Net investment income to average net assets | 4.04 | %C,D | 3.03 | % D | 4.38 | % D | 5.63 | % D | 6.66 | % D | 5.84 | % D | |||||||||||||
Portfolio turnover rate | 73 | %B | 487 | % | 204 | % | 535 | % | 248 | % | 979 | % | |||||||||||||
Net assets, end of period (in thousands) | $8,281 | $ | 7,740 | $ | 9,485 | $ | 7,221 | $ | 6,723 | $ | 9,076 | ||||||||||||||
D | Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 0.50% until April 30, 2005. If no fees had been waived by LMFA, the annualized ratio of expenses to average daily net assets would have been as follows: for the six months ended June 30, 2004, 0.73%; and for the years ended December 31, 2003, 0.68%; 2002, 0.66%; 2001, 0.63%; 2000, 0.65%; and 1999, 0.66%. |
See notes to financial statements.
Performance Information
U.S. Government Money Market Portfolio
Maturity Schedule (as a percentage of portfolio)
Statement of Net Assets
U.S. Government Money Market Portfolio
Maturity | |||||||||||||
Rate | Date | Par | Value | ||||||||||
U.S. Government and Agency Obligations — 99.4% | |||||||||||||
Fannie Mae | 0.92% to 1.8% | 7/7/04 to 5/27/05 | $ | 209,607 | $ | 209,502 | |||||||
Federal Home Loan Bank | 0.9% to 1.3% | 7/1/04 to 4/25/05 | 101,000 | 100,966 | |||||||||
Freddie Mac | 0.935% to 1.43% | 7/6/04 to 4/1/05 | 78,760 | 78,724 | |||||||||
The International Bank for Redevelopment and Development | 1.068% | 7/6/04 | 10,000 | 9,999 | |||||||||
Total U.S. Government and Agency Obligations (Identified Cost — $399,191) | 399,191 | ||||||||||||
Total Investments, at Amortized Cost and Value — 99.4% | 399,191 | A | |||||||||||
Other Assets Less Liabilities — 0.6% | 2,426 | ||||||||||||
Net Assets Applicable to 401,618 Shares | $ | 401,617 | |||||||||||
Net Asset Value Per Share | $ | 1.00 | |||||||||||
A | Also represents cost for income tax purposes. |
See notes to financial statements.
Statement of Operations
U.S. Government Money Market Portfolio
Investment Income: | ||||||||||
Interest | $ | 2,542 | ||||||||
Expenses: | ||||||||||
Management fee | 1,162 | |||||||||
Distribution and service fees | 232 | |||||||||
Audit and legal fees | 20 | |||||||||
Custodian fee | 71 | |||||||||
Directors’ fees and expenses | 12 | |||||||||
Registration fees | 24 | |||||||||
Reports to shareholders | 14 | |||||||||
Transfer agent and shareholder servicing expense | 129 | |||||||||
Other expenses | 8 | |||||||||
Total expenses | 1,672 | |||||||||
Net Investment Income | 870 | |||||||||
Net Realized Gain/(Loss) on Investments: | ||||||||||
Realized gain/(loss) on investments and futures | (1 | ) | ||||||||
Change in Net Assets Resulting From Operations | $ | 869 | ||||||||
See notes to financial statements.
Statement of Changes in Net Assets
U.S. Government Money Market Portfolio
For the Six | For the | |||||||
Months Ended | Year Ended | |||||||
6/30/04 | 12/31/03 | |||||||
(Unaudited) | ||||||||
Change in Net Assets: | ||||||||
Net investment income | $ | 870 | $ | 2,477 | ||||
Net realized gain/(loss) on investments | (1 | ) | — | |||||
Change in net assets resulting from operations | 869 | 2,477 | ||||||
Distributions to shareholders from net investment income | (870 | ) | (2,633 | ) | ||||
Change in net assets from Fund share transactions | (42,263 | ) | (97,836 | ) | ||||
Change in net assets | (42,264 | ) | (97,992 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 443,881 | 541,873 | ||||||
End of period | $ | 401,617 | $ | 443,881 | ||||
See notes to financial statements.
Financial Highlights
U.S. Government Money Market Portfolio
Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements.
Six Months | |||||||||||||||||||||||||
Ended | Years Ended December 31, | ||||||||||||||||||||||||
June 30, | |||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||
Net asset value, beginning of period | $1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
Investment operations: | |||||||||||||||||||||||||
Net investment income | .0019 | .0049 | .01 | .04 | .06 | .04 | |||||||||||||||||||
Total from investment operations | .0019 | .0049 | .01 | .04 | .06 | .04 | |||||||||||||||||||
Distributions: | |||||||||||||||||||||||||
From net investment income | (.0019 | ) | (.0049 | ) | (.01 | ) | (.04 | ) | (.06 | ) | (.04 | ) | |||||||||||||
Total distributions | (.0019 | ) | (.0049 | ) | (.01 | ) | (.04 | ) | (.06 | ) | (.04 | ) | |||||||||||||
Net asset value, end of period | $1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | $ | 1.00 | ||||||||||||||
Ratios/supplemental data: | |||||||||||||||||||||||||
Total return | .38 | %A | .51 | % | 1.13 | % | 3.57 | % | 5.66 | % | 4.44 | % | |||||||||||||
Expenses to average net assets | .72 | %A | .71 | % | .72 | % | .71 | % | .73 | % | .73 | % | |||||||||||||
Net investment income to average net assets | .37 | %A | .49 | % | 1.11 | % | 3.46 | % | 5.53 | % | 4.34 | % | |||||||||||||
Net assets, end of period (in thousands) | $401,617 | $ | 443,881 | $ | 541,873 | $ | 501,070 | $ | 426,988 | $ | 379,994 | ||||||||||||||
A | Annualized. |
See notes to financial statements.
Notes to Financial Statements
Legg Mason Income Trust, Inc.
1. Significant Accounting Policies:
Security Valuation
Security Transactions
Receivable | Payable for | |||||||
for Securities | Securities | |||||||
Sold | Purchased | |||||||
Core Bond | $ | — | $ | 3,351 | ||||
High Yield | — | 3,479 | ||||||
Investment Grade | 2,654 | 2,856 | ||||||
Government Intermediate | 42,757 | 41,472 |
For the six months ended June 30, 2004, investment transactions (excluding short-term investments) were as follows:
Purchases | Proceeds From Sales | |||||||||||||||
U.S. Gov’t. | U.S. Gov’t. | |||||||||||||||
Securities | Other | Securities | Other | |||||||||||||
Core Bond | $ | 71,060 | $ | 14,449 | $ | 35,734 | $ | 3,531 | ||||||||
High Yield | — | 123,171 | — | 128,546 | ||||||||||||
Investment Grade | 33,900 | 134,344 | 55,764 | 117,779 | ||||||||||||
Government Intermediate | 176,618 | 41,483 | 199,192 | 3,556 |
Repurchase Agreements
Investment Income and Distributions to Shareholders
Other
2. Federal Income Taxes:
Government | ||||||||
Expiration Date | High Yield | Intermediate | ||||||
2008 | $ | (38,887 | ) | $ | (3,834 | ) | ||
2009 | (83,723 | ) | — | |||||
2010 | (32,610 | ) | — | |||||
2011 | (2,797 | ) | — |
3. Financial Instruments:
Purchased option: | Impact on the Fund: | |
The option expires | Realize a loss in the amount of the cost of the option. | |
The option is closed through a closing sale transaction | Realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option. | |
The Fund exercises a call option | The cost of the security purchased through the exercise of the option will be increased by the premium originally paid to purchase the option. | |
The Fund exercises a put option | Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be reduced by the premium originally paid to purchase the put option. | |
Written option: | Impact on the Fund: | |
The option expires | Realize a gain equal to the amount of the premium received. | |
The option is closed through a closing purchase transaction | Realize a gain or loss without regard to any unrealized gain or loss on the underlying security and eliminate the option liability. The Fund will realize a loss in this transaction if the cost of the closing purchase exceeds the premium received when the option was written. | |
A written call option is exercised by the option purchaser | Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be increased by the premium originally received when the option was written. | |
A written put option is exercised by the option purchaser | The amount of the premium originally received will reduce the cost of the security that the Fund purchased when the option was exercised. | |
The risk associated with purchasing options is limited to the premium originally paid. Options written by a Fund involve, to varying degrees, risk of loss in excess of the option value reflected in the statement of net assets. The risk in writing a covered call option is that a Fund may forgo the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is the risk a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.
Core Bond:
Calls | Puts | |||||||||||||||
Actual | Actual | |||||||||||||||
Contracts | Premiums | Contracts | Premiums | |||||||||||||
Options written | 94 | $ | 81 | 16 | $ | 10 | ||||||||||
Options closed | (29 | ) | (27 | ) | (4 | ) | (4 | ) | ||||||||
Options expired | (5 | ) | (4 | ) | (9 | ) | (4 | ) | ||||||||
Options exercised | — | — | — | — | ||||||||||||
Options outstanding, June 30, 2004 | 60 | $ | 50 | 3 | $ | 2 | ||||||||||
Upon entering into a futures contract, the Fund is required to deposit with the broker cash or cash equivalents in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Fund recognizes a realized gain or loss when the contract is closed. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded.
Forward Currency Exchange Contracts
Swap Agreements
Core Bond:
Contract | Unrealized | |||||||||||||||||
The Fund | The Fund | Notional | Appreciation/ | |||||||||||||||
Agreement With: | Termination Date | Agrees to Pay | Will Receive | Amount | (Depreciation) | |||||||||||||
J.P. Morgan Chase & Co. (iBoxx IG Hi Vol 2) | September 20, 2009 | 1.15% Quarterly | Specified amount upon credit event noticeA | $ | 4,000 | $ | (16 | ) |
4. Transactions With Affiliates:
A Fund will receive $1,000 upon bankruptcy or failure to make a scheduled interest payment. |
Six Months | |||||||||||||||||
Ended June 30, | At June 30, | ||||||||||||||||
2004 | 2004 | ||||||||||||||||
Expense | Management | Management | |||||||||||||||
Fund | Management Fee | Limitation | Fees Waived | Fees Payable | |||||||||||||
Core Bond | 0.45% | 1.00% | $ | 44 | $ | — | |||||||||||
High Yield | |||||||||||||||||
— Primary Class | 0.65% | None | N/A | 107 | |||||||||||||
— Institutional Class | 0.65% | None | N/A | 4 | |||||||||||||
Investment Grade | |||||||||||||||||
— Primary Class | 0.60% | 1.00% | 561 | 96 | |||||||||||||
— Institutional Class | 0.60% | 0.50% | 10 | 2 | |||||||||||||
Government Intermediate | |||||||||||||||||
— Primary Class | 0.55% | 1.00% | 356 | 77 | |||||||||||||
— Institutional Class | 0.55% | 0.50% | 9 | 2 | |||||||||||||
Government Money Market | 0.50% – 0.40% B | None | N/A | 178 |
Western Asset Management Company (“Adviser”) serves as investment adviser to the Funds. The Adviser is responsible for the actual investment activity of each Fund. LMFA pays the Adviser a fee, computed daily and payable monthly, at an annual rate of 0.40% of the management fee received by LMFA for Core Bond; 77% of the management fee received by LMFA for High Yield; 40% for Investment Grade; and 30% for Government Money Market. For Government Intermediate, LMFA pays the Adviser a fee, computed daily and payable monthly, of 0.20% of its average daily net assets, not to exceed the fee received by LMFA.
B | Government Money Market’s management fee varies with the level of the Fund’s average daily net assets. The management fee is calculated as follows: |
Average Net Assets | Advisory Fee Rate | |||
$0 – $500 million | 0.50% | |||
next $500 million | 0.475% | |||
next $500 million | 0.45% | |||
next $500 million | 0.425% | |||
thereafter | 0.40% |
Legg Mason Wood Walker, Incorporated (“Legg Mason”), a member of the New York Stock Exchange, serves as distributor of the Funds. Legg Mason receives an annual distribution fee and an annual service fee based on each Fund’s Primary Class’s average daily net assets, computed daily and payable monthly as shown in the table below. For the period from its inception (February 27, 2004) to June 30, 2004, Legg Mason waived all $46 of Core Bond’s distribution and service fees.
At June 30, 2004 | ||||||||||||
Distribution | Service | Distribution and Service | ||||||||||
Fee | Fee | Fees Payable | ||||||||||
Core Bond | 0.25% | 0.25% | $ | — | ||||||||
High Yield | 0.25% | 0.25% | 82 | |||||||||
Investment Grade | 0.25% | 0.25% | 158 | |||||||||
Government Intermediate | 0.25% | 0.25% | 120 | |||||||||
Government Money Market | N/A | 0.10% | 36 |
LM Funds Services, Inc. (“LMFS”), a registered transfer agent, has an agreement with the Funds’ transfer agent to assist it with some of its duties. For this assistance, the transfer agent paid LMFS the following amounts for the period ended June 30, 2004: Core Bond, $0; High Yield, $30; Investment Grade, $41; Government Intermediate, $28; and Government Money Market, $46.
5. Line of Credit:
6. Fund Share Transactions:
Core Bond | |||||||||||||||||
Period | |||||||||||||||||
Ended | |||||||||||||||||
6/30/04C | |||||||||||||||||
Shares | |||||||||||||||||
Sold | 4,922 | ||||||||||||||||
Reinvested | 20 | ||||||||||||||||
Repurchased | (373 | ) | |||||||||||||||
Net Change | 4,569 | ||||||||||||||||
Amount | |||||||||||||||||
Sold | $ | 48,754 | |||||||||||||||
Reinvested | 189 | ||||||||||||||||
Repurchased | (3,635 | ) | |||||||||||||||
Net Change | $ | 45,308 | |||||||||||||||
High Yield | |||||||||||||||||
Primary Class | Institutional Class | ||||||||||||||||
Six Months | Year | Six Months | Year | ||||||||||||||
Ended | Ended | Ended | Ended | ||||||||||||||
6/30/04 | 12/31/03 | 6/30/04 | 12/31/03 | ||||||||||||||
Shares | |||||||||||||||||
Sold | 2,804 | 11,415 | 359 | 978 | |||||||||||||
Reinvested | 561 | 1,342 | 26 | 44 | |||||||||||||
Repurchased | (5,377 | ) | (8,542 | ) | (240 | ) | (656 | ) | |||||||||
Net Change | (2,012 | ) | 4,215 | 145 | 366 | ||||||||||||
Amount | |||||||||||||||||
Sold | $ | 25,462 | $ | 97,837 | $ | 3,256 | $ | 8,358 | |||||||||
Reinvested | 5,014 | 11,598 | 235 | 385 | |||||||||||||
Repurchased | (48,368 | ) | (73,936 | ) | (2,169 | ) | (5,677 | ) | |||||||||
Net Change | $ | (17,892 | ) | $ | 35,499 | $ | 1,322 | $ | 3,066 | ||||||||
C | For the period February 27, 2004 (commencement of operations) to March 31, 2004. |
Investment Grade | |||||||||||||||||
Primary Class | Institutional Class | ||||||||||||||||
Six Months | Six Months | Year | |||||||||||||||
Ended | Year Ended | Ended | Ended | ||||||||||||||
6/30/04 | 12/31/03 | 6/30/04 | 12/31/03 | ||||||||||||||
Shares | |||||||||||||||||
Sold | 4,765 | 14,879 | 292 | 412 | |||||||||||||
Reinvested | 745 | 1,713 | 17 | 23 | |||||||||||||
Repurchased | (6,701 | ) | (11,141 | ) | (101 | ) | (165 | ) | |||||||||
Net Change | (1,191 | ) | 5,451 | 208 | 270 | ||||||||||||
Amount | |||||||||||||||||
Sold | $ | 51,865 | $ | 159,989 | $ | 3,182 | $ | 4,456 | |||||||||
Reinvested | 8,019 | 18,456 | 178 | 244 | |||||||||||||
Repurchased | (72,408 | ) | (119,804 | ) | (1,100 | ) | (1,791 | ) | |||||||||
Net Change | $ | (12,524 | ) | $ | 58,641 | $ | 2,260 | $ | 2,909 | ||||||||
U.S. Government Intermediate | |||||||||||||||||
Primary Class | Institutional Class | ||||||||||||||||
Six Months | Six Months | Year | |||||||||||||||
Ended | Year Ended | Ended | Ended | ||||||||||||||
6/30/04 | 12/31/03 | 6/30/04 | 12/31/03 | ||||||||||||||
Shares | |||||||||||||||||
Sold | 2,593 | 10,382 | 210 | 417 | |||||||||||||
Reinvested | 415 | 785 | 13 | 26 | |||||||||||||
Repurchased | (5,766 | ) | (15,656 | ) | (154 | ) | (595 | ) | |||||||||
Net Change | (2,758 | ) | (4,489 | ) | 69 | (152 | ) | ||||||||||
Amount | |||||||||||||||||
Sold | $ | 27,266 | $ | 110,857 | $ | 2,212 | $ | 4,469 | |||||||||
Reinvested | 4,346 | 8,339 | 141 | 272 | |||||||||||||
Repurchased | (60,479 | ) | (166,480 | ) | (1,625 | ) | (6,339 | ) | |||||||||
Net Change | $ | (28,867 | ) | $ | (47,284 | ) | $ | 728 | $ | (1,598 | ) | ||||||
U.S. Government Money | |||||||||||||||||
Market | |||||||||||||||||
Six Months | Year | ||||||||||||||||
Ended | Ended | ||||||||||||||||
6/30/04 | 12/31/03 | ||||||||||||||||
Shares | |||||||||||||||||
Sold | 795,679 | 1,306,465 | |||||||||||||||
Reinvested | 842 | 2,476 | |||||||||||||||
Repurchased | (838,784 | ) | (1,406,777 | ) | |||||||||||||
Net Change | (42,263 | ) | (97,836 | ) | |||||||||||||
Amount | |||||||||||||||||
Sold | 795,679 | $ | 1,306,465 | ||||||||||||||
Reinvested | 842 | 2,476 | |||||||||||||||
Repurchased | (838,784 | ) | (1,406,777 | ) | |||||||||||||
Net Change | $ | (42,263 | ) | $ | (97,836 | ) | |||||||||||
Investment Manager
Legg Mason Fund Adviser, Inc. Baltimore, MD |
Investment Adviser
Western Asset Management Company Pasadena, CA |
Board of Directors
John F. Curley, Jr., Chairman Mark R. Fetting, President Arnold L. Lehman Robin J.W. Masters Dr. Jill E. McGovern Arthur S. Mehlman G. Peter O’Brien S. Ford Rowan |
Officers
Marie K. Karpinski, Vice President and Treasurer Gregory T. Merz, Vice President, Secretary and Chief Legal Officer Erin K. Morris, Assistant Treasurer Richard M. Wachterman, Assistant Secretary |
Transfer and Shareholder Servicing Agent
Boston Financial Data Services Braintree, MA |
Custodian
State Street Bank & Trust Company Boston, MA |
Counsel
Kirkpatrick & Lockhart LLP Washington, DC |
Independent Auditors
PricewaterhouseCoopers LLP Baltimore, MD |
About the Legg Mason Funds
Legg Mason, Inc., based in Baltimore, Maryland, has built its reputation, at least in part, on the success of the Legg Mason Funds, introduced in 1979. The primary purpose of our funds is to enable investors to diversify their portfolios across various asset classes and, consequently, enjoy the stability and growth prospects generally associated with diversification.
The success of our funds is contingent on the experience, discipline, and acumen of our fund managers. We believe the quality of our managers is crucial to investment success. Unlike many firms, which focus on a particular asset class or the fluctuations of the market, at Legg Mason we focus on providing a collection of top-notch managers in all the major asset classes.
For more information about the differences between the fund share classes included in this report, contact a Legg Mason Financial Advisor.
Information about the policies and procedures that the Funds use to determine how to vote proxies relating to each Fund’s portfolio securities is available in the Statement of Additional Information, available without charge upon request by calling 1-800-822-5544 or on the Securities and Exchange Commission website (http://www.sec.gov). Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is also available at the SEC’s website or without charge upon request through www.leggmasonfunds.com/about1mf.
This report is not to be distributed unless preceded or accompanied by a prospectus.
Legg Mason Funds For Primary Class Shareholders 800-822-5544 www.leggmasonfunds.com | Legg Mason Institutional Funds For FI and I Class Shareholders 888-425-6432 www.lminstitutionalfunds.com | ||
Legg Mason Wood Walker, Incorporated P.O. Box 1476, Baltimore, MD 21203-1476 410-539-0000 |
LMF-056
Item 2 — Code of Ethics
Not applicable for semi-annual reports.
Item 3 — Audit Committee Financial Expert
Not applicable for semi-annual reports.
Item 4 — Principal Accountant Fees and Services
Not applicable for semi-annual reports.
Item 5 — Audit Committee of Listed Registrants
Not applicable.
Item 6 — Schedule of Investments
The schedule of investments in securities of unaffiliated issuers is included in the semi-annual report. |
Item 7 — Disclosure of Proxy Voting Policies and Procedures
Not applicable.
Item 8 — Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers
Not applicable.
Item 9 — Submission of Matters to a Vote of Security Holders
The Nominating Committee will accept recommendations for nominations from shareholders. Shareholders may forward recommendations to the Fund Secretary at 100 Light Street, 23rd Floor, Baltimore, Maryland 21202, Attn: Fund Secretary. |
Item 10 — Controls and Procedures
(a) | The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the Registrant’s disclosure controls and procedures as of a date within 90 days of the filing date of this report, that the Registrant’s disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the required time periods and that information required to be disclosed by the Registrant in the reports that it files or submits on Form N-CSR is accumulated and communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. |
(b) | There were no changes in the Registrant’s internal control over financial reporting during the Registrant’s last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting. |
Item 11 | — Exhibits | |
(a) | File the exhibits listed below as part of this Form. | |
(a)(1) | Not applicable for semi-annual reports. | |
(a)(2) | Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. | |
(a)(3) | Not applicable. | |
(b) | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Legg Mason Income Trust, Inc.
By: /s/ Mark R. Fetting
Mark R. Fetting
President
Legg Mason Income Trust, Inc.
Date: 8/24/04
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Mark R. Fetting
Mark R. Fetting
President
Legg Mason Income Trust, Inc.
Date: 8/24/04
By: /s/ Marie K. Karpinski
Marie K. Karpinski
Vice President and Treasurer
Legg Mason Income Trust, Inc.
Date: 8/24/04