Legg Mason Income Trust N-CSRS Certified semi-annual shareholder report (management investment company)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-05029

Name of Registrant: Legg Mason Income Trust, Inc.

Address of Principal Executive Offices: 100 Light Street, Baltimore, MD 21202

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: 12/31/2005

Date of reporting period: 06/30/2005

Item 1. Report to Shareholders.

Semi-Annual Report to Shareholders

Legg Mason

Income Trust, Inc.

June 30, 2005

Semi-Annual Report to Shareholders

1

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, Limited Duration Bond Portfolio and the U.S. Government Money Market Portfolio.

   The following table summarizes key statistics for the Primary Class of each portfolio, as of June 30, 2005:

					Net Asset Value
	SEC YieldA		Average Life		Per Share
Core Bond		3.09%		8.26 years	$	9.97
High Yield		6.60%		6.71 years	$	9.13
Investment Grade		4.35%		10.12 years	$	10.78
Limited DurationB		3.27%		3.03 years	$	10.31
U.S. Government Money MarketC		2.34%		21 days	$	1.00

   For the six months ended June 30, 2005, total returns for the Primary Class of shares of the Core Bond, High Yield, Investment Grade and Limited Duration Portfolios were +1.70%, +0.41%, +2.30%, and +0.99%, respectively. Total returns for the Institutional Class of shares of High Yield, Investment Grade and Limited Duration Portfolios were +0.68%, +2.50%, and +1.26%, respectively. (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.)

   For each of our Funds, historical performance is not indicative of future results, and the principal value of the Core Bond, High Yield, Investment Grade and Limited Duration Portfolios will continue to fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The U.S. Government Money Market Portfolio seeks to preserve the value of your investment at $1.00 per share; however, it is possible to lose money by investing in the Fund. The U.S. Government Money Market Portfolio is primarily invested in government agency securities. Although most government agency securities are not backed by the full faith and credit of the U.S. government, all such securities held in the Portfolio at June 30, 2005 carry the highest quality ratings of the Standard & Poor’s and Moody’s rating services.

^A  SEC yields reported for the Core Bond, High Yield, Investment Grade and Limited Duration Portfolios are for the 30 days ended June 30, 2005. For the U.S. Government Money Market Portfolio, the SEC yield is for the 7 days ended June 30, 2005.

^B  Limited Duration was formerly the U.S. Government Intermediate Portfolio, see page 81 for additional information about the change.

^C  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.

Semi-Annual Report to Shareholders

2

   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 11, 2005

Semi-Annual Report to Shareholders

3

Expense Example

Core Bond Fund

   As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2005, and held through June 30, 2005.

Actual Expenses

   The first line in the table below provides information about actual account values and actual expenses for the Fund. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

   The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds.

	Beginning		Ending		Expenses PaidA
	Account		Account		During the
	Value		Value		Period
	1/1/05		6/30/05		1/1/05 to 6/30/05
Actual	$	1,000.00	$	1,017.00	$	5.00
Hypothetical (5% return before expenses)		1,000.00		1,019.84		5.01

^A  These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio of 1.00% multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

Semi-Annual Report to Shareholders

4

Performance Information

Core Bond Fund

   The graph on the following page compares the Fund’s total returns to that of a closely matched broad-based securities market index. The graph illustrates the cumulative total return of an initial $10,000 investment in the Fund’s Primary Class shares, 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 and the index’s results assume reinvestment of all dividends and distributions.

   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.

Semi-Annual Report to Shareholders

5

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+5.85%		+5.85%
Life of Class*		+3.63%		+2.70%
* Inception date: February 27, 2004

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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^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.

Performance Information — Continued

Semi-Annual Report to Shareholders

6

Portfolio Composition (As of June 30, 2005)

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

Maturity Schedule (As a percentage of the portfolio)

^B Standard & Poor’s Ratings Services provide capital markets with credit ratings for the evaluation and assessment of credit risk.

Semi-Annual Report to Shareholders

7

Portfolio of Investments

Legg Mason Core Bond Fund

June 30, 2005 (Unaudited)
(Amounts in Thousands)

				Maturity		Par/
		Rate		Date		Shares		Value
Long-Term Securities — 124.3%
Corporate Bonds and Notes — 20.7%
Aerospace/Defense — 0.1%
	Northrop Grumman Corporation		4.079%		11/16/06	$	40	$	40
	United Technologies Corporation		5.400%		5/1/35		20		21
									61
Automotive — 1.0%
	Ford Motor Company		7.450%		7/16/31		720		601
	General Motors Corporation		8.375%		7/15/33		150		125
									726
Banking and Finance — 2.9%
	Ford Motor Credit Company		4.950%		1/15/08		40		38
	Ford Motor Credit Company		6.625%		6/16/08		240		237
	Ford Motor Credit Company		7.375%		10/28/09		220		215
	Ford Motor Credit Company		7.375%		2/1/11		230		224
	Ford Motor Credit Company		7.250%		10/25/11		100		96
	Ford Motor Credit Company		7.000%		10/1/13		10		10
	General Motors Acceptance Corporation		6.125%		9/15/06		30		30
	General Motors Acceptance Corporation		6.125%		2/1/07		10		10
	General Motors Acceptance Corporation		6.150%		4/5/07		40		40
	General Motors Acceptance Corporation		6.125%		8/28/07		230		228
	General Motors Acceptance Corporation		5.625%		5/15/09		685		641
	General Motors Acceptance Corporation		7.750%		1/19/10		110		107
	HSBC Finance Corporation		4.125%		11/16/09		225		223
									2,099

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

8

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Banks — 1.1%
	Bank of America Corporation		3.875%		1/15/08	$	210	$	209
	Bank One Corporation		6.500%		2/1/06		220		223
	Bank One Corporation		2.625%		6/30/08		335		321
	Rabobank Capital Funding Trust II		5.260%		12/31/49		10		10	A,B
	Rabobank Capital Funding Trust III		5.254%		12/31/49		20		21	A,B
									784
Cable — 0.4%
	Comcast Corporation		6.500%		1/15/15		240		267
	Cox Communications, Inc.		3.875%		10/1/08		70		69
									336
Diversified Financial Services — 0.7%
	CIT Group Inc.		4.000%		5/8/08		5		5
	Citigroup Inc.		4.125%		2/22/10		230		229
	General Electric Capital Corporation		4.250%		1/15/08		180		181
	Wells Fargo & Company		4.200%		1/15/10		105		105
									520
Electric — 0.7%
	Dominion Resources, Inc.		4.750%		12/15/10		30		30
	Dominion Resources, Inc.		5.700%		9/17/12		95		100
	FirstEnergy Corp.		7.375%		11/15/31		285		349
	Oncor Electric Delivery Company		6.375%		1/15/15		30		33
	The Cleveland Electric Illuminating Company		5.650%		12/15/13		20		21
									533
Energy — 2.3%
	Duke Energy Corporation		5.625%		11/30/12		140		148
	Pacific Gas and Electric Company		3.820%		4/3/06		4		4	A

Semi-Annual Report to Shareholders

9

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Energy — Continued
	Pacific Gas and Electric Company		6.050%		3/1/34	$	135	$	149
	TXU Corp.		6.550%		11/15/34		800		786	B
	TXU Energy Co.		4.360%		1/17/06		15		15	A
	TXU Energy Co.		7.000%		3/15/13		500		557
									1,659
Environmental Services — 0.1%
	Waste Management, Inc.		6.375%		11/15/12		85		93
Food, Beverage and Tobacco — 0.7%
	Altria Group, Inc.		7.000%		11/4/13		155		174
	Anheuser-Busch Companies, Inc.		4.950%		1/15/14		165		171
	Kraft Foods Inc.		5.625%		11/1/11		135		143
									488
Insurance — 0.1%
	ASIF Global Financing XIX		4.900%		1/17/13		40		40	B
Investment Banking/Brokerage — 0.6%
	Lehman Brothers Holdings Inc.		4.000%		1/22/08		115		115
	Morgan Stanley		3.625%		4/1/08		190		187
	The Goldman Sachs Group, Inc.		4.125%		1/15/08		100		100
	The Goldman Sachs Group, Inc.		4.500%		6/15/10		60		60
									462

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

10

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Media — 0.3%
	Clear Channel Communications, Inc.		4.250%		5/15/09	$	50	$	48
	Time Warner Inc.		6.875%		5/1/12		75		85
	Time Warner Inc.		7.700%		5/1/32		75		95
									228
Medical Care Facilities — 0.9%
	HCA, Inc.		5.750%		3/15/14		700		697
Oil and Gas — 1.7%
	Amerada Hess Corporation		7.300%		8/15/31		245		296
	Apache Corporation		6.250%		4/15/12		65		72
	Conoco Inc.		6.950%		4/15/29		225		283
	ConocoPhillips		4.750%		10/15/12		30		31
	Devon Energy Corporation		7.950%		4/15/32		140		184
	Kerr-McGee Corporation		6.875%		9/15/11		300		320
	XTO Energy, Inc.		7.500%		4/15/12		15		17
	XTO Energy, Inc.		6.250%		4/15/13		20		22
									1,225
Paper and Forest Products — 0.4%
	International Paper Company		5.500%		1/15/14		70		71
	Weyerhaeuser Company		6.750%		3/15/12		235		259
									330
Photo Equipment and Supplies — 0.8%
	Eastman Kodak Company		7.250%		11/15/13		540		568
Retail — 0.5%
	Target Corporation		5.400%		10/1/08		155		161
	Wal-Mart Stores, Inc.		3.375%		10/1/08		190		186
									347

Semi-Annual Report to Shareholders

11

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Special Purpose — 4.5%
	Anadarko Finance Company		6.750%		5/1/11	$	125	$	139
	ChevronTexaco Capital Company		3.500%		9/17/07		140		139
	Conoco Funding Company		6.350%		10/15/11		10		11
	DaimlerChrysler NA Holding Corporation		4.050%		6/4/08		95		94
	DaimlerChrysler NA Holding Corporation		7.200%		9/1/09		50		54
	Sprint Capital Corporation		4.780%		8/17/06		15		15
	Sprint Capital Corporation		6.000%		1/15/07		270		276
	Sprint Capital Corporation		8.375%		3/15/12		2,040		2,454
	Verizon Global Funding Corp.		7.375%		9/1/12		75		88
									3,270
Telecommunications — 0.1%
	BellSouth Corporation		4.750%		11/15/12		30		30
	SBC Communications Inc.		5.100%		9/15/14		70		72
									102
Transportation — 0.8%
	JetBlue Airways Corporation		3.643%		8/15/16		300		296	A
	JetBlue Airways Corporation		3.718%		11/15/16		300		294	A
									590
Total Corporate Bonds and Notes (Identified Cost — $15,071)									15,158
Asset-Backed Securities — 8.6%
Fixed Rate Securities — 1.5%
	BankAmerica Manufactured Housing Contract 1997-2		6.790%		12/10/22		85		85
	Bank One Issuance Trust 2003-C1		4.540%		9/15/10		200		201
	Citibank Credit Card Issuance Trust 2000-B1		7.050%		9/17/07		200		201

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

12

				Maturity		Par/
		Rate		Date		Shares		Value
Asset-Backed Securities — Continued
Fixed Rate Securities — Continued
	Citibank Credit Card Issuance Trust 2001-C3		6.650%		5/15/08	$	200	$	205
	Conseco Finance Home Equity Loan Trust 2001-A		7.440%		3/15/32		200		204
	Green Tree Home Improvement Loan Trust 1999-E		9.450%		10/15/24		45		45
	MMCA Automobile Owner Trust 2002-4		3.050%		11/16/09		184		183
									1,124
Indexed SecuritiesA — 7.1%
	AAA Trust 2005-2		3.414%		11/26/35		960		960	B
	Ameriquest Mortgage Securities Inc. 2005-R3		3.404%		5/25/35		544		544
	Bayview Financial Aquisition Trust 2005-B		3.460%		4/28/39		504		505
	Bayview Financial Acquisition Trust 2003-BA		3.794%		4/25/33		217		217	B
	Bayview Financial Acquisition Trust 2004-C		3.740%		5/28/44		626		628
	Carrington Mortgage Loan Trust 2005-OPT2		3.404%		5/25/35		659		659
	Citibank Credit Card Issuance Trust 2000-C2		4.250%		10/15/07		200		200
	Credit Based Asset Servicing and Security 2005-RP1		3.494%		1/25/35		274		274	B
	EQCC Trust 2002-1		3.614%		11/25/31		15		15
	Household Mortgage Loan Trust 2003-HC1		3.780%		2/20/33		223		223
	Morgan Stanley ABS Capital I 2005-WMC2		3.394%		2/25/35		601		601

Semi-Annual Report to Shareholders

13

				Maturity		Par/
		Rate		Date		Shares		Value
Asset-Backed Securities — Continued
Indexed Securities — Continued
	Residential Asset Mortgage Product, Inc. 2004-RPIA		3.614%		11/25/42	$	92	$	93
	Structured Asset Investment Loan Trust 2003-BC9		3.564%		8/25/33		89		90
	Wachovia Asset Securitization, Inc. 2002-HE1		3.684%		9/27/32		163		163
									5,172
Total Asset-Backed Securities (Identified Cost — $6,311)									6,296
Mortgage-Backed Securities — 14.6%
Fixed Rate Securities — 2.7%
	Asset Securitization Corporation 1996-D2		6.920%		2/14/29		64		65
	Banc of America Commercial Mortgage Incorporated 2005-3		4.668%		7/10/43		500		502
	Countrywide Alternative Loan Trust 2004-2 CB		4.250%		3/25/34		361		359
	GS Mortgage Securities Corporation II 2005-GG4		4.680%		7/10/39		200		202
	LB-UBS Commercial Mortgage Trust 2005-C3 A5		4.739%		7/15/30		140		142
	LB-UBS Commercial Mortgage Trust 2005-C3 AAB		4.664%		7/15/30		200		202
	MASTR Reperforming Loan Trust 2005-1		7.000%		8/25/34		364		384

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

14

				Maturity		Par/
		Rate		Date		Shares		Value
Mortgage-Backed Securities — Continued
Fixed Rate Securities — Continued
	Washington Mutual MSC Mortgage Pass-Through Certificates, Series 2004-RA1		7.000%		3/25/34	$	128	$	132
									1,988
Indexed SecuritiesA — 10.6%
	ABFS Mortgage Loan Trust 2003-2		3.814%		4/25/34		177		177	B
	Banc of America Funding Corporation 2005-E		3.950%		6/20/35		700		700
	Countrywide Alternative Loan Trust 2005-17		3.574%		7/25/35		695		695
	Countrywide Home Loans 2005-11		3.614%		3/25/35		543		543
	Countrywide Home Loans 2005-11		4.139%		4/25/35		572		578
	Countrywide Home Loans 2005-3		3.604%		4/25/35		563		565
	Countrywide Home Loans 2005-9 1A1		3.614%		5/25/35		582		582
	Greenpoint Mortgage Funding Trust 2005-AR1		3.534%		6/25/45		648		647
	Greenpoint Mortgage Funding Trust 2005-AR4		3.826%		10/25/45		410		410
	GSMPS Mortgage Loan Trust 2005-RP2		3.664%		3/25/35		413		414
	Harborview Mortgage Loan Trust 2005-7		4.365%		6/19/45		700		707
	Impac CMB Trust 2003-7		3.634%		8/25/33		428		429
	MSDWCC Heloc Trust 2005-1		3.504%		7/25/17		96		96
	Thornburg Mortgage Securities Trust 2005-2 A1		3.460%		7/25/45		300		300

Semi-Annual Report to Shareholders

15

				Maturity		Par/
		Rate		Date		Shares		Value
Mortgage-Backed Securities — Continued
Indexed Securities — Continued
	Thornburg Mortgage Securities Trust 2005-2 A2		3.470%		7/25/45	$	300	$	300
	Washington Mutual Mortgage Securities Corporation 2005-AR6		3.355%		4/25/45		600		598
									7,741
Stripped Securities — 0.1%
	Mach One Trust, Commercial Mortgage-Backed Securities 2004-1A		1.630%		5/28/40		1,294		83	B,C1
Variable Rate SecuritiesD — 1.2%
	Bear Stearns ARM Trust, Mortgage Pass-Through Certificates, Series 2004-4		3.515%		6/25/34		200		196
	Credit-Based Asset Servicing and Securitization 1999-3		6.670%		2/3/29		51		51	B
	Washington Mutual Mortgage Pass Through Certificates 2005-AR8		3.650%		7/25/45		600		600
									847
Total Mortgage-Backed Securities (Identified Cost — $10,660)									10,659
U.S. Government and Agency Obligations — 41.1%
Fixed Rate Securities — 33.0%
	Fannie Mae		4.610%		10/10/13		360		359
	Fannie Mae		3.000%		4/26/19		140		139
	United States Treasury Bonds		6.250%		8/15/23		150		187
	United States Treasury Bonds		5.250%		11/15/28		20		23
	United States Treasury Bonds		5.250%		2/15/29		240		274
	United States Treasury Bonds		6.250%		5/15/30		2,020		2,631
	United States Treasury Bonds		5.375%		2/15/31		2,040		2,407

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

16

				Maturity		Par/
		Rate		Date		Shares		Value
U.S. Government and Agency Obligations — Continued
Fixed Rate Securities — Continued
	United States Treasury Notes		1.500%		7/31/05	$	110	$	110
	United States Treasury Notes		1.875%		12/31/05		70		70
	United States Treasury Notes		1.500%		3/31/06		40		39
	United States Treasury Notes		2.750%		6/30/06		4,780		4,743
	United States Treasury Notes		2.875%		11/30/06		740		733
	United States Treasury Notes		3.000%		12/31/06		6,970		6,906
	United States Treasury Notes		3.125%		1/31/07		390		387
	United States Treasury Notes		3.625%		4/30/07		150		150
	United States Treasury Notes		3.125%		5/15/07		100		99
	United States Treasury Notes		3.375%		2/15/08		3,160		3,137
	United States Treasury Notes		3.750%		5/15/08		200		200
	United States Treasury Notes		3.625%		6/15/10		450		448
	United States Treasury Notes		4.000%		2/15/15		120		120
	United States Treasury Notes		4.125%		5/15/15		930		944
									24,106
Indexed SecuritiesE — 7.7%
	United States Treasury Inflation-Protected Security		3.375%		1/15/07		2,517		2,597
	United States Treasury Inflation-Protected Security		3.625%		1/15/08		217		229
	United States Treasury Inflation-Protected Security		3.875%		1/15/09		261		284
	United States Treasury Inflation-Protected Security		0.875%		4/15/10		1,941		1,893
	United States Treasury Inflation-Protected Security		3.375%		1/15/12		77		86
	United States Treasury Inflation-Protected Security		2.000%		1/15/14		68		71
	United States Treasury Inflation-Protected Security		1.625%		1/15/15		20		20

Semi-Annual Report to Shareholders

17

				Maturity		Par/
		Rate		Date		Shares		Value
U.S. Government and Agency Obligations — Continued
Indexed Securities — Continued
	United States Treasury Inflation-Protected Security		2.375%		1/15/25	$	382	$	418
	United States Treasury Inflation-Protected Security		3.875%		4/15/29		47		67
									5,665
Stripped Securities — 0.4%
	United States Treasury Bonds		0.000%		11/15/21		480		237	C2
	United States Treasury Bonds		0.000%		2/15/23		50		23	C2
	United States Treasury Bonds		0.000%		11/15/27		100		38	C2
									298
Total U.S. Government and Agency Obligations (Identified Cost — $29,745)									30,069
U.S. Government Agency Mortgage-Backed Securities — 32.2%
Fixed Rate Securities — 32.2%
	Fannie Mae		5.500%	7/1/15 to 7/1/35			4,400		4,418	F
	Fannie Mae		6.000%	8/1/17 to 5/1/34			767		789
	Fannie Mae		5.500%	12/1/17 to 5/1/34			597		607
	Fannie Mae		5.500%		7/1/35		3,950		4,003	F
	Fannie Mae		6.000%		7/1/35		6,100		6,252	F
	Fannie Mae		6.500%		7/1/35		3,050		3,156	F
	Freddie Mac		4.500%		4/1/19		352		350
	Freddie Mac		5.000%		7/1/15		1,300		1,314	F
	Government National Mortgage Association		6.000%	11/15/28 to 12/15/33			1,099		1,134
	Government National Mortgage Association		6.500%		2/15/32		473		495
	Government National Mortgage Association		5.000%	8/15/33 to 5/15/34			1,014		1,023
									23,541
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $23,558)									23,541

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

18

				Maturity		Par/
		Rate		Date		Shares		Value
Yankee BondsG — 5.8%
Cable —  0.1%
	Rogers Cable Inc.		5.500%		3/15/14	$	90	$	85
Foreign Governments — 2.7%
	Russian Federation		5.000%		3/31/30		860		960	H
	United Mexican States		8.375%		1/14/11		170		198
	United Mexican States		8.300%		8/15/31		120		149
	United Mexican States		7.500%		4/8/33		588		675
									1,982
Investment Banking/Brokerage — 0.2%
	BNP Paribas SA		6.875%		3/1/09		110		120
Manufacturing (Diversified) — 2.2%
	Tyco International Group SA		6.375%		10/15/11		45		49
	Tyco International Group SA		6.000%		11/15/13		100		109
	Tyco International Group SA		6.875%		1/15/29		1,195		1,426
									1,584
Special Purpose — 0.3%
	Apache Finance Canada Corporation		4.375%		5/15/15		60		60
	Banagricola DPR Funding Ltd.		4.440%		3/15/10		159		159	A,B
	Deutsche Telekom International Finance BV		5.250%		7/22/13		40		41
									260
Telecommunications — 0.3%
	British Telecommunications plc		8.380%		12/15/10		100		119
	INTELSAT		6.500%		11/1/13		10		8
	Telecom Italia Capital S.p.A.		4.950%		9/30/14		70		69	B
									196
Total Yankee Bonds (Identified Cost — $3,927)									4,227

Semi-Annual Report to Shareholders

19

				Maturity		Par/
		Rate		Date		Shares			Value
Municipal Bonds — 0.5%
	Brazos Texas Higher Education Authority, Inc. 2005-1 VRDN		3.033%		6/15/42	$	400		$	400A
Preferred Stocks — 0.8%
	Fannie Mae		5.380%				1	shs		290	I
	Fannie Mae		7.000%				3			164	A
	General Motors Corporation		5.250%				8			154	I
Total Preferred Stocks (Identified Cost — $584)										608
Total Long-Term Securities (Identified Cost — $90,256)										90,958
Short-Term Securities — 3.7%
U.S. Government and Agency Obligations — 0.5%
	Fannie Mae		0.000%		12/5/05	$	342			337	J,K
Options PurchasedL — 0.1%
Eurodollar Futures Call, October 2005, Strike Price $95.50							5	M		8
Eurodollar Futures Call, October 2005, Strike Price $95.75							4	M		4
Eurodollar Futures Call, October 2005, Strike Price $96.00							51	M		22
Eurodollar Futures Call, October 2005, Strike Price $96.25							1	M		0.1
Eurodollar Futures Call, October 2005, Strike Price $96.25							5	M		0.8
Eurodollar Futures Call, October 2005, Strike Price $96.50							5	M		0.1
Eurodollar Futures Call, April 2006, Strike Price $95.00							15	M		38
Eurodollar Futures Call, April 2006, Strike Price $96.25							11	M		3
Eurodollar Futures Put, October 2005, Strike Price $95.00							65	M		—
Eurodollar Futures Put, October 2005, Strike Price $96.50							1	M		1
Eurodollar Futures Put, April 2006, Strike Price $96.00							11	M		5
Eurodollar Futures Put, July 2006, Strike Price $94.00							4	M		—
Federal fund Futures Call, August 2006, Strike Price $96.75							7	M		0.1
U.S. Treasury Bond Futures Call, September 2005, Strike Price $116.00							1	M		3
U.S. Treasury Bond Futures Call, September 2005, Strike Price $118.00							2	M		4

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

20

	Par/
	Shares			Value
Options Purchased — Continued
U.S. Treasury Note Futures Call, July 2005, Strike Price $101.45		180,000	M	$	0.5
U.S. Treasury Note Futures Put, September 2005, Strike Price $104.00		59	M		0.9
U.S. Treasury Note Futures Put, September 2005, Strike Price $113.00		14	M		10
					101
Repurchase Agreements — 3.1%
Merrill Lynch Government Securities, Inc. 3.2%, dated 6/30/05, to be repurchased at $1,132 on 7/1/05 (Collateral: $1,035 Freddie Mac notes, 6.625%, due 9/15/09, value $1,179)	$	1,132			1,132
Nomura Securities International, Inc. 3.33%, dated 6/30/05, to be repurchased at $1,132 on 7/1/05 (Collateral: $895 Fannie Mae mortgage-backed securities, 6.625%, due 11/15/30, value $1,141)		1,132			1,132
					2,264
Total Short-Term Securities (Identified Cost — $2,757)					2,702
Total Investments — 128.0% (Identified Cost — $93,013)					93,660
Other Assets Less Liabilities — (28.0)%					(20,504	)
Net Assets — 100.0%				$	73,156

Semi-Annual Report to Shareholders

21

				Actual		Appreciation/
		Expiration		Contracts		(Depreciation)
Futures Contracts PurchasedL
	Eurodollar Futures		September 2005		76	$	(48	)
	Eurodollar Futures		December 2005		7		(5	)
	Eurodollar Futures		March 2006		2		1
	Eurodollar Futures		June 2006		47		42
	U.S. Treasury Note Futures		September 2005		91		29
							19
Futures Contracts WrittenL
	U.S. Treasury Bond Futures		September 2005		52		(19	)
	U.S. Treasury Note Futures		September 2005		29		(42	)
							(61	)
Option WrittenL
	Federal Fund Futures Call, Strike Price $101.41		July 2005		600,000		1
	U.S. Treasury Bond Futures Call, Strike Price $112.00		September 2005		2		(10	)
	U.S. Treasury Bond Futures Call, Strike Price $115.00		September 2005		7		(24	)
	U.S. Treasury Bond Futures Call, Strike Price $120.00		September 2005		8		1
	U.S. Treasury Bond Futures Put, Strike Price $110.00		September 2005		6		6
	U.S. Treasury Bond Futures Put, Strike Price $111.00		September 2005		14		11
	U.S. Treasury Bond Futures Put, Strike Price $113.00		September 2005		8		5
	U.S. Treasury Bond Futures Put, Strike Price $113.00		September 2005		4		N.M.
	U.S. Treasury Bond Futures Put, Strike Price $115.00		September 2005		13		5
	U.S. Treasury Bond Futures Put, Strike Price $117.00		September 2005		4		1
	U.S. Treasury Note Futures Call, Strike Price $114.00		August 2005		9		2
	U.S. Treasury Note Futures Call, Strike Price $111.00		September 2005		37		(70	)
	U.S. Treasury Note Futures Call, Strike Price $112.00		September 2005		26		(22	)
	U.S. Treasury Note Futures Call, Strike Price $113.00		September 2005		14		(4	)

Legg Mason Core Bond Fund — Continued

Semi-Annual Report to Shareholders

22

				Actual		Appreciation/
		Expiration		Contracts		(Depreciation)
Option Written — Continued
	U.S. Treasury Note Futures Call, Strike Price $114.00		September 2005		22	$	1
	U.S. Treasury Note Futures Call, Strike Price $115.00		September 2005		25		4
	U.S. Treasury Note Futures Put, Strike Price $106.00		September 2005		2		1
	U.S. Treasury Note Futures Put, Strike Price $107.00		September 2005		7		3
	U.S. Treasury Note Futures Put, Strike Price $107.50		September 2005		10		4
	U.S. Treasury Note Futures Put, Strike Price $108.50		September 2005		21		4
	U.S. Treasury Note Futures Put, Strike Price $109.00		September 2005		4		2
	U.S. Treasury Note Futures Put, Strike Price $111.00		December 2005		6		N.M.
						$	(79	)

^A Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”) or the one year Treasury Bill Constant Maturity Rate. The coupon rates are the rates as of June 30, 2005.

B	Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 3.9% of net assets.
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	The coupon rates shown on variable rate securities are the rates at June 30, 2005. These rates vary with the weighted average coupon of the underlying loans.

E	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.
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, at which time it begins to accrue interest or pay dividends.

I	Convertible Security — Security may be converted into issuer’s common stock.
J	Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

K	Collateral to cover options and futures contracts.
L	Options and futures are described in more detail in the notes to financial statements.

^M Par represents actual number of contracts.

N.M. — Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

23

Statement of Assets and Liabilities

Core Bond Fund

June 30, 2005

(Amounts in Thousands) (Unaudited)

Assets:
Investment securities at market value (Identified Cost – $90,256)					$90,958
Short-term securities at value (Identified Cost – $2,757)					2,702
Cash					372
Receivable for securities sold					285
Receivable for fund shares sold					321
Interest and dividends receivable					566
Other assets					7
	Total assets				95,211
Liabilities:
Proceeds from options written (Identified Cost – $183)		$	262
Payable for fund shares repurchased			430
Payable for securities purchased			21,172
Income distribution payable			109
Futures variation margin payable			19
Accrued management fee			—	A
Accrued distribution and service fees			30
Accrued expenses			33
	Total liabilities				22,055
Net Assets					$73,156
Net assets consist of:
Accumulated paid-in capital applicable to:
	7,337 Primary Class shares outstanding				$72,779
Under/(over) distributed net investment income					(30)
Accumulated net realized loss on investments, options, and futures					(119)
Unrealized appreciation of investments, options and futures					526
Net Assets					$73,156
Net Asset Value Per Share:
Primary Class					$9.97

^A Amounts less than $1.

See notes to financial statements.

Semi-Annual Report to Shareholders

24

Statement of Operations

Core Bond Fund

For the Six Months Ended June 30, 2005

(Amounts in Thousands) (Unaudited)

Investment Income:
	Interest			$	1,347
	Dividends				11
			Total income				$	1,358
Expenses:
	Management fees				156
	Distribution and service fees				174
	Audit and legal fees				24
	Custodian fees				49
	Directors’ fees and expenses				7
	Registration fees				8
	Reports to shareholders				13
	Transfer agent and shareholder servicing expense				23
	Other expenses				2
					456
	Less: Fees waived				(108	)
	Compensating balance credits				—	A
			Total expenses, net of waivers and compensating balance credits					348
Net Investment Income								1,010
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on:
		Investments			103
		Options			41
		Futures			(258	)
								(114	)
	Change in unrealized appreciation/(depreciation) of investments, options and futures							293
Net Realized and Unrealized Gain/(Loss) on Investments								179
Change in Net Assets Resulting From Operations							$	1,189

^A Amounts less than $1.

See notes to financial statements.

Semi-Annual Report to Shareholders

25

Statement of Changes in Net Assets

Core Bond Fund

(Amounts in Thousands)

			For the Six			For the
			Months Ended			Period Ended
			6/30/05			12/31/04A
			(Unaudited)
Change in Net Assets:
Net investment income			$	1,010		$	951
Net realized gain/(loss) on investments, options and futures				(114	)		238
Change in unrealized appreciation/(depreciation) of investments, options, and futures				293			233
Change in net assets resulting from operations				1,189			1,422
Distributions to shareholders:
	From net investment income:
		Primary Class		(1,040	)		(1,051	)
	From net realized gain on investments:
		Primary Class		(11	)		(132	)
Change in net assets from Fund share transactions:
	Primary Class			9,245			63,534
Change in net assets				9,383			63,773
Net Assets:
Beginning of period				63,773			—
End of period			$	73,156		$	63,773
Under/(over) distributed net investment income			$	(30	)	$	—

^A February 27, 2004 (commencement of operations) to December 31, 2004.

See notes to financial statements.

Semi-Annual Report to Shareholders

26

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:

		Six Months Ended			Period Ended
		June 30, 2005			December 31, 2004A
		(Unaudited)
Net asset value, beginning of period		$	9.95		$	10.00
Investment operations:
	Net investment income		.14			.21	B
	Net realized and unrealized gain/(loss) on investments		.03			(.03	)
	Total from investment operations		.17			.18
Distributions:
	From net investment income		(.15	)		(.21	)
	From net realized gain on investments		(.002	)		(.02	)
	Total distributions		(.152	)		(.23	)
Net asset value, end of period		$	9.97		$	9.95
Ratios/supplemental data:
	Total return		1.70%	C		1.90%	C
	Expenses to average net assets		1.00%	B,D		1.00%	B,D
	Net investment income to average net assets		2.91%	B,D		2.50%	B,D
	Portfolio turnover rate		193.9%	C		233.8%	C
Net assets, end of period (in thousands)		$	73,156			$63,773

^A February 27, 2004 (commencement of operations) to December 31, 2004.

B	Net of fees waived by LMFA for expenses in excess of the voluntary expense limitation of 1.00% until April 30, 2006. If no fees had been waived by LMFA, the annualized ratio of expenses to daily average net assets would have been as follows: for the six months ended June 30, 2005, 1.31%; and for the period ended December 31, 2004, 1.56%.
C	Not annualized.
D	Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

27

Expense Example

High Yield Portfolio

   As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees on Primary Class shares; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2005, and held through June 30, 2005.

Actual Expenses

   The first line for each class in the table below provides information about actual account values and actual expenses for each class. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

   The second line for each class in the table below provides information about hypothetical account values and hypothetical expenses based on the relevant class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the class’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples for the relevant class that appear in the shareholder reports of other funds.

		Beginning		Ending		Expenses PaidA
		Account		Account		During the
		Value		Value		Period
		1/1/05		6/30/05		1/1/05 to 6/30/05
Primary Class:
	Actual	$	1,000.00	$	1,004.10	$	6.81
	Hypothetical (5% return before expenses)		1,000.00		1,018.00		6.85
Institutional Class:
	Actual	$	1,000.00	$	1,006.80	$	4.03
	Hypothetical (5% return before expenses)		1,000.00		1,020.78		4.06

^A  These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 1.37% and 0.81% for the Primary Class and Institutional Class, respectively, multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

Semi-Annual Report to Shareholders

28

Performance Information

High Yield Portfolio

   The graphs on the following pages compare the Fund’s total returns to 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 lines for the Fund represent the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The line representing the securities market index does not include any transaction costs associated with buying and selling securities in the index or other administrative expenses. Both the Fund’s and the index’s results assume reinvestment of all dividends and distributions.

   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.

Semi-Annual Report to Shareholders

29

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+10.04%		+10.04%
Five Years		+11.54%		+2.21%
Ten Years		+65.84%		+5.19%

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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^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.

Performance Information — Continued

Semi-Annual Report to Shareholders

30

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

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+10.65%		+10.65%
Five Years		+13.64%		+2.59%
Life of Class*		+11.91%		+1.59%
*Inception date: May 5, 1998

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 call 1-888-425-6432. 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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^B Index returns are for periods beginning April 30, 1998.

Semi-Annual Report to Shareholders

31

Portfolio Composition (As of June 30, 2005)

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

Maturity Schedule (As a percentage of the portfolio)

^C Standard & Poor’s Ratings Services provides capital markets with credit ratings for the evaluation and assessment of credit risk.

Semi-Annual Report to Shareholders

32

Portfolio of Investments

High Yield Portfolio
June 30, 2005 (Unaudited)

(Amounts in Thousands)

				Maturity		Par/
		Rate		Date		Shares		Value
Long-Term Securities — 98.7%
Corporate Bonds and Notes — 87.7%
Advertising — 0.7%
	WDAC Subsidiary Corp.		8.375%		12/1/14	$	1,350	$	1,289	A
Apparel — 1.4%
	Levi Strauss & Co.		9.750%		1/15/15		900		893
	Oxford Industries, Inc.		8.875%		6/1/11		891		954
	Russell Corporation		9.250%		5/1/10		858		905
									2,752
Auto and Automotive Parts — 2.7%
	Commercial Vehicle Group, Inc.		8.000%		7/1/13		530		539	A
	Delphi Corporation		6.550%		6/15/06		590		574
	Keystone Automotive Operations Inc.		9.750%		11/1/13		1,880		1,861
	Visteon Corporation		8.250%		8/1/10		2,410		2,229
									5,203
Automotive Retailers — 1.0%
	Asbury Automotive Group Inc.		9.000%		6/15/12		1,896		1,939
Banking and Finance — 3.4%
	General Motors Acceptance Corporation		7.750%		1/19/10		1,090		1,066
	General Motors Acceptance Corporation		6.875%		8/28/12		980		897
	General Motors Acceptance Corporation		8.000%		11/1/31		3,100		2,766
	Refco Finance Holdings		9.000%		8/1/12		1,660		1,759
									6,488
Building Materials — 2.6%
	Associated Materials Incorporated		0.000%		3/1/14		2,420		1,537	B
	Compression Polymers Holdings LLC		10.500%		7/1/13		120		121
	Interface, Inc.		7.300%		4/1/08		402		410
	Interface, Inc.		10.375%		2/1/10		1,333		1,467
	Nortek, Inc.		8.500%		9/1/14		370		344
	NTK Holdings Inc.		0.000%		3/1/14		2,560		1,203	A,B
									5,082

Semi-Annual Report to Shareholders

33

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Cable — 3.9%
	Charter Communications Holdings, LLC		9.625%		11/15/09	$	1,400	$	1,047
	Charter Communications Holdings, LLC		10.250%		9/15/10		1,455		1,471
	Charter Communications Holdings, LLC		0.000%		5/15/11		1,250		828	B
	CSC Holdings Inc.		8.125%		8/15/09		430		435
	CSC Holdings Inc.		7.625%		4/1/11		165		163
	CSC Holdings Inc.		7.000%		4/15/12		170		160	A
	CSC Holdings Inc.		7.625%		7/15/18		946		913
	EchoStar DBS Corporation		6.754%		10/1/08		450		460	C
	EchoStar DBS Corporation		6.625%		10/1/14		1,200		1,185
	LodgeNet Entertainment Corporation		9.500%		6/15/13		882		961
									7,623
Casino Resorts — 2.3%
	Inn of The Mountain Gods Resort and Casino		12.000%		11/15/10		1,950		2,252
	Premier Entertainment Biloxi LLC		10.750%		2/1/12		2,091		2,028
	Station Casinos, Inc.		6.875%		3/1/16		90		93
									4,373
Chemicals — 1.2%
	Georgia Gulf Corporation		7.625%		11/15/05		6		6
	Innophos, Inc.		8.875%		8/15/14		540		551	A
	MacDermid, Incorporated		9.125%		7/15/11		22		24
	PQ Corporation		7.500%		2/15/13		710		697	A
	Westlake Chemical Corporation		8.750%		7/15/11		1,032		1,122
									2,400
Coal — 0.8%
	Alpha Natural Resources LLC		10.250%		6/1/12		1,360		1,503	A
Computer Services and Systems — 0.4%
	Activant Solutions, Inc.		9.504%		4/1/10		580		600	A,C
	Activant Solutions, Inc.		10.500%		6/15/11		200		217
									817

Portfolio of Investments — Continued

High Yield Portfolio — Continued

Semi-Annual Report to Shareholders

34

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Containers and Packaging — 1.9%
	Graham Packaging Company, Inc.		9.875%		10/15/14	$	1,520	$	1,524	A
	Graphic Packaging International Corp.		9.500%		8/15/13		1,160		1,169
	Portola Packaging, Inc.		8.250%		2/1/12		740		503
	Solo Cup Company		8.500%		2/15/14		550		514
									3,710
Electric — 1.1%
	The AES Corporation		7.750%		3/1/14		940		1,020
	The AES Corporation		9.000%		5/15/15		943		1,058	A
									2,078
Electronics — 0.7%
	Rayovac Corporation		8.500%		10/1/13		960		1,003
	Rayovac Corporation		7.375%		2/1/15		370		358	A
									1,361
Energy — 3.1%
	Calpine Generating Co., LLC		11.500%		4/1/11		270		242
	Calpine Generating Co., LLC		12.390%		4/1/11		60		54	C
	Elwood Energy LLC		8.159%		7/5/26		1,780		2,007
	Midwest Generation LLC		8.560%		1/2/16		1,639		1,807
	NRG Energy, Inc.		8.000%		12/15/13		317		335	A
	Reliant Energy Inc.		6.750%		12/15/14		1,670		1,632
									6,077
Entertainment — 0.4%
	Cinemark, Inc.		0.000%		3/15/14		780		519	B
	Warner Music Group		7.375%		4/15/14		350		353
									872

Semi-Annual Report to Shareholders

35

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Environmental Services — 1.2%
	Allied Waste North America Incorporated		8.500%		12/1/08	$	864	$	906
	Browning-Ferris Industries, Inc.		9.250%		5/1/21		440		446
	Capital Environment Resource, Inc.		9.500%		4/15/14		1,010		1,000	A
									2,352
Food, Beverage and Tobacco — 1.2%
	Alliance One International, Inc.		11.000%		5/15/12		130		134	A
	Domino’s, Inc.		8.250%		7/1/11		974		1,037
	R.J. Reynolds Tobacco Holdings, Inc.		6.500%		7/15/10		580		578	A
	Stater Bros. Holdings Inc.		6.910%		6/15/10		640		634	C
									2,383
Gaming — 0.9%
	River Rock Entertainment Authority		9.750%		11/1/11		1,510		1,657
Gas and Pipeline Utilities — 3.5%
	ANR Pipeline, Inc.		9.625%		11/1/21		477		605
	Dynegy Holdings Inc.		8.750%		2/15/12		600		654
	Dynegy Holdings Inc.		10.125%		7/15/13		1,470		1,661	A
	Southern Natural Gas Company		8.875%		3/15/10		678		744
	The Williams Companies, Inc.		7.500%		1/15/31		440		476
	The Williams Companies, Inc.		8.750%		3/15/32		2,141		2,572
									6,712
Health Care — 3.2%
	Ardent Health Services		10.000%		8/15/13		2,000		2,418
	Tenet Healthcare Corporation		9.875%		7/1/14		2,417		2,592
	Tenet Healthcare Corporation		9.250%		2/1/15		1,170		1,214	A
									6,224
Machinery — 2.0%
	Case New Holland Incorporated		9.250%		8/1/11		1,508		1,583	A
	Case New Holland Incorporated		9.250%		8/1/11		152		160	A

Portfolio of Investments — Continued

High Yield Portfolio — Continued

Semi-Annual Report to Shareholders

36

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Machinery — Continued
	Grant Prideco, Inc.		9.000%		12/15/09	$	1,057	$	1,158
	Terex Corporation		7.375%		1/15/14		890		921
									3,822
Manufacturing (Diversified) — 2.3%
	Jacuzzi Brands Incorporated		9.625%		7/1/10		1,644		1,800
	Ki Holdings Inc.		0.000%		11/15/14		1,160		673	B
	Koppers Inc.		9.875%		10/15/13		690		745
	MMI Products, Inc.		11.250%		4/15/07		230		227
	Samsonite Corporation		8.875%		6/1/11		960		1,020
									4,465
Media — 1.7%
	Emmis Operating Company		6.875%		5/15/12		450		445
	Paxson Communications Corporation		10.750%		7/15/08		245		241
	Paxson Communications Corporation		0.000%		1/15/09		25		24	B
	PRIMEDIA Inc.		8.638%		5/15/10		1,155		1,207	C
	PRIMEDIA Inc.		8.875%		5/15/11		140		147
	Sinclair Broadcast Group, Inc.		8.750%		12/15/11		940		987
	Sinclair Broadcast Group, Inc.		8.000%		3/15/12		210		215
									3,266
Medical Care Facilities — 2.6%
	Community Health Systems Inc.		6.500%		12/15/12		590		600
	DaVita, Inc.		6.625%		3/15/13		140		145	A
	DaVita, Inc.		7.250%		3/15/15		1,250		1,284	A
	HCA, Inc.		9.000%		12/15/14		470		563
	HCA, Inc.		7.690%		6/15/25		480		515
	HCA, Inc.		7.500%		11/6/33		120		129
	HEALTHSOUTH Corporation		10.750%		10/1/08		740		770
	Select Medical Corporation		7.625%		2/1/15		950		940	A
									4,946

Semi-Annual Report to Shareholders

37

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Medical Products — 0.4%
	Fresenius Medical Care Capital Trust II		7.875%		2/1/08	$	515	$	538	D
	Fresenius Medical Care Capital Trust IV		7.875%		6/15/11		170		183
									721
Oil and Gas — 9.0%
	AmeriGas Partners, L.P.		7.250%		5/20/15		1,000		1,040	A
	Belden & Blake Corporation		8.750%		7/15/12		1,945		1,906
	Chesapeake Energy Corporation		7.500%		9/15/13		40		43
	Chesapeake Energy Corporation		6.375%		6/15/15		130		133	A
	El Paso CGP Co.		7.750%		6/15/10		1,180		1,204
	El Paso Corporation		7.625%		8/16/07		340		349	A
	El Paso Corporation		7.800%		8/1/31		870		846
	El Paso Corporation		7.750%		1/15/32		1,110		1,082
	El Paso Production Holding Company		7.750%		6/1/13		1,210		1,292
	Encore Acquisition Company		8.375%		6/15/12		320		347
	Encore Acquisition Company		6.250%		4/15/14		160		162
	KCS Energy, Inc.		7.125%		4/1/12		930		948
	KCS Energy, Inc.		7.125%		4/1/12		40		41	A
	Kerr-McGee Corporation		6.875%		9/15/11		940		1,004
	Pacific Energy Partners		7.125%		6/15/14		460		479
	Parker Drilling Company		9.625%		10/1/13		1,500		1,691
	Plains Exploration & Production Company		7.125%		6/15/14		810		867
	Pride International, Inc.		7.375%		7/15/14		940		1,032
	SESI, LLC		8.875%		5/15/11		630		672
	Suburban Propane Partners LP		6.875%		12/15/13		1,610		1,529
	Vintage Petroleum, Inc.		7.875%		5/15/11		722		762
									17,429
Paper and Forest Products — 0.7%
	Abitibi-Consolidated Inc.		7.750%		6/15/11		180		181
	Georgia-Pacific Corp.		9.500%		12/1/11		10		12
	NewPage Corporation		12.000%		5/1/13		1,120		1,109	A
									1,302

Portfolio of Investments — Continued

High Yield Portfolio — Continued

Semi-Annual Report to Shareholders

38

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Pharmaceuticals — 0.5%
	Leiner Health Products Inc.		11.000%		6/1/12	$	1,020	$	1,000
Real Estate — 1.1%
	Forest City Enterprises, Inc.		7.625%		6/1/15		40		43
	Forest City Enterprises, Inc.		6.500%		2/1/17		910		907
	Ventas Realty, Limited Partnership		8.750%		5/1/09		475		525
	Ventas Realty, Limited Partnership		6.750%		6/1/10		200		208	A
	Ventas Realty, Limited Partnership		9.000%		5/1/12		408		469
									2,152
Rental and Lease Services (Commercial) — 0.9%
	NationsRent Inc.		9.500%		10/15/10		1,390		1,515
	NationsRent Inc.		9.500%		5/1/15		300		297	A
									1,812
Retail — 3.3%
	Ames True Temper		7.599%		1/15/12		930		883	C
	J.C. Penney Company, Inc.		6.875%		10/15/15		860		925
	J.C. Penney Company, Inc.		7.400%		4/1/37		990		1,069
	Norcraft Companies		9.000%		11/1/11		970		999
	Toys “R” Us, Inc.		7.875%		4/15/13		610		546
	Toys “R” Us, Inc.		7.375%		10/15/18		2,390		1,936
									6,358
Special Purpose — 13.3%
	AAC Group Holding Corporation		0.000%		10/1/12		2,860		1,931	A,B
	Alamosa Incorporated		11.000%		7/31/10		294		330
	Alamosa Incorporated		8.500%		1/31/12		640		671
	American Commercial Lines/ACL Finance		9.500%		2/15/15		770		812	A
	Denny’s Holdings, Inc.		10.000%		10/1/12		950		988
	Di Finance Corporation		9.500%		2/15/13		2,460		2,288	A
	Goodman Global Holding Company, Inc.		6.410%		6/15/12		70		69	A,C
	Goodman Global Holding Company, Inc.		7.875%		12/15/12		1,060		981	A
	H & E Equipment Services LLC		11.125%		6/15/12		1,314		1,449
	H Lines Finance Holding Corporation		0.000%		4/1/13		1,530		1,178	A,B

Semi-Annual Report to Shareholders

39

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Special Purpose — Continued
	K&F Parent Inc.		11.500%		2/1/15	$	310	$	328	A,E
	Milacron Escrow Corporation		11.500%		5/15/11		2,265		2,378
	Norcraft Holdings LP		0.000%		9/1/12		670		462	B
	Qwest Capital Funding, Inc.		7.900%		8/15/10		623		620
	Qwest Capital Funding, Inc.		7.250%		2/15/11		440		421
	Rainbow National Services LLC		8.750%		9/1/12		510		557	A
	Rainbow National Services LLC		10.375%		9/1/14		360		414	A
	Sensus Metering Systems Inc.		8.625%		12/15/13		1,121		1,043
	Sithe Independence Funding Corporation		9.000%		12/30/13		450		484
	Texas Genco LLC		6.875%		12/15/14		883		929	A
	The Williams Companies, Inc. Credit Certificate Trust		6.750%		4/15/09		910		942	A
	TransDigm Funding Corp.		8.375%		7/15/11		1,027		1,089
	UCAR Finance Inc.		10.250%		2/15/12		1,415		1,489
	UGS Corporation		10.000%		6/1/12		900		999
	Valor Telecommunications		7.750%		2/15/15		1,000		983	A
	Vanguard Health Holding Company II		9.000%		10/1/14		580		626
	Visant Corp.		7.625%		10/1/12		860		849
	WMG Holdings Corporation		0.000%		12/15/14		657		453	A,B
									25,763
Steel Products — 1.2%
	Allegheny Technologies, Inc.		8.375%		12/15/11		1,280		1,325
	Chaparrel Steel Company		10.000%		7/15/13		970		975	A
									2,300
Storage Facilities — 0.3%
	Mobile Mini, Inc.		9.500%		7/1/13		490		542
Telecommunications — 4.8%
	Cincinnati Bell Inc.		8.375%		1/15/14		1,950		1,999
	Cincinnati Bell Inc.		8.375%		1/15/14		130		133	A
	Hawaiian Telcom Communications, Inc.		12.500%		5/1/15		1,140		1,214	A
	Qwest Communications International Inc.		7.250%		2/15/11		1,080		1,045
	Qwest Communications International Inc.		7.500%		2/15/14		200		189	A

Portfolio of Investments — Continued

High Yield Portfolio — Continued

Semi-Annual Report to Shareholders

40

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Telecommunications — Continued
	Qwest Corporation		7.875%		9/1/11	$	830	$	865	A
	Qwest Corporation		6.671%		6/15/13		1,240		1,270	A,C
	Qwest Services Corporation		13.500%		12/15/10		1,229		1,419
	Telcordia Technologies Inc.		10.000%		3/15/13		1,130		1,057	A
									9,191
Telecommunications (Cellular/ Wireless) — 1.6%
	Centennial Communications Corporation		8.125%		2/1/14		1,440		1,534
	Nextel Communications, Inc.		5.950%		3/15/14		42		44
	Ubiquitel Operating Company		9.875%		3/1/11		610		669
	US Unwired Inc.		10.000%		6/15/12		800		890
									3,137
Transportation — 3.7%
	American Airlines, Inc.		7.800%		4/1/08		1,130		1,074
	Continental Airlines, Inc.		7.033%		6/15/11		1,083		909
	Continental Airlines, Inc.		7.373%		12/15/15		855		714
	Continental Airlines, Inc.		6.748%		3/15/17		757		622
	Gulfmark Offshore, Inc.		7.750%		7/15/14		930		979
	Horizon Lines, LLC		9.000%		11/1/12		730		765	A
	Kansas City Southern Railway		9.500%		10/1/08		121		132
	OMI Corporation		7.625%		12/1/13		966		962
	Progress Rail Corp.		7.750%		4/1/12		900		911	A
									7,068
Water Utilities — 0.7%
	National Waterworks, Inc.		10.500%		12/1/12		1,247		1,403
Total Corporate Bonds and Notes (Identified Cost — $167,694)									169,572

Semi-Annual Report to Shareholders

41

				Maturity		Par/
		Rate		Date		Shares		Value
Mortgage-Backed Securities — 0.4%
	Blackrock Capital Finance L.P. 1996-R1		9.471%		9/25/26	$	741	$	497
	Blackrock Capital Finance L.P. 1997-R1		7.750%		3/25/37		537		241	A
	Ocwen Residential Mortgage Corporation 1998-R1		7.000%		10/25/40		259		47
Total Mortgage-Backed Securities (Identified Cost — $855)									785
Yankee BondsF — 9.6%
Aluminum — 0.4%
	Novelis, Inc.		7.250%		2/15/15		850		853	A
Cable — 0.4%
	Rogers Cable Inc.		5.500%		3/15/14		790		744
Chemicals — 1.4%
	Rhodia SA		10.250%		6/1/10		2,470		2,649
Foreign Governments — 0.7%
	Federative Republic of Brazil		14.500%		10/15/09		1,070		1,391
Media — 0.8%
	Kabel Deutschland GmbH		10.625%		7/1/14		1,340		1,454	A
Oil and Gas — 0.8%
	Western Oil Sands Inc.		8.375%		5/1/12		1,425		1,623
Paper and Forest Products — 1.0%
	Abitibi Consolidated Inc.		6.910%		6/15/11		536		532	C
	Abitibi Consolidated Inc.		8.375%		4/1/15		990		1,010
	Domtar Inc.		7.875%		10/15/11		450		476
									2,018

Portfolio of Investments — Continued

High Yield Portfolio — Continued

Semi-Annual Report to Shareholders

42

				Maturity		Par/
		Rate		Date		Shares			Value
Yankee Bonds — Continued
Services — 0.4%
	Compagnie Generale De Geophysique		7.500%		5/15/15	$	780		$	813	A
Special Purpose — 0.5%
	MDP Acquisitions PLC		9.625%		10/1/12		930			930
Steel (Producers) — 0.5%
	Ispat Inland Ulc		9.750%		4/1/14		750			874
Telecommunications — 1.0%
	INTELSAT		7.625%		4/15/12		2,200			1,936
Telecommunications (Cellular/ Wireless) — 0.8%
	Rogers Wireless Communications Inc.		9.625%		5/1/11		1,088			1,277
	Rogers Wireless Communications Inc.		8.000%		12/15/12		330			356
										1,633
Transportation — 0.4%
	Teekay Shipping Corporation		8.875%		7/15/11		586			669
Exploration and Production — 0.5%
	Ocean Rig Norway AS		8.375%		7/1/13		920			931	A
Total Yankee Bonds (Identified Cost — $18,147)										18,518
Common Stocks — 0.2%
Engineering and Construction — 0.2%
	Washington Group International, Inc.						8	shs		434	G
Total Common Stocks (Identified Cost — $55)										434
Preferred Stocks — 0.5%
	Paxson Communications Corporation		14.250%				0.1			1,083	E,H
Total Preferred Stocks (Identified Cost — $1,332)										1,083

Semi-Annual Report to Shareholders

43

		Par/
		Shares			Value
Warrants — 0.3%
	American Tower Corporation		1	wts	$	246	A,G
	Next Generation Network, Inc.		16			0.1	G
	Washington Group International, Series A		5			120	G
	Washington Group International, Series B		6			119	G
	Washington Group International, Series C		3			58	G
Total Warrants (Identified Cost — $291)						543
Total Long-Term Securities (Identified Cost — $188,374)						190,935
Total Investments — 98.7% (Identified Cost — $188,374)						190,935
Other Assets Less Liabilities — 1.3%						2,503
Net Assets — 100.0%					$	193,438

^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 23.5% of net assets.

B	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.
C	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, 2005.
D	Unit — A security which consists of a bond and warrants to purchase the common stock of the issuer.

E	Pay-in-Kind (“PIK”) security — A bond in which interest or dividends during the initial few years is paid in additional PIK securities rather than in cash.
F	Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities.

G	Non-income producing.
H	Private placement.

N.M. — Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

44

Statement of Assets and Liabilities

High Yield Portfolio

June 30, 2005

(Amounts in Thousands) (Unaudited)

Assets:
Investment securities at market value (Identified Cost – $188,374)				$	190,935
Cash					352
Receivable for securities sold					4,009
Receivable for fund shares sold					133
Interest and dividends receivable					3,802
Other assets					149
	Total assets				199,380
Liabilities:
Payable for fund shares repurchased		$	352
Payable for securities purchased			5,349
Accrued management fee			103
Accrued distribution and service fees			76
Accrued expenses			62
	Total liabilities				5,942
Net Assets				$	193,438
Net assets consist of:
Accumulated paid-in capital applicable to:
	19,865 Primary Class shares outstanding			$	333,966
	1,311 Institutional Class shares outstanding				12,040
Under/(over) distributed net investment income					620
Accumulated net realized loss on investments					(155,749	)
Unrealized appreciation of investments					2,561
Net Assets				$	193,438
Net Asset Value Per Share:
Primary Class				$	9.13
Institutional Class				$	9.16

See notes to financial statements.

Semi-Annual Report to Shareholders

45

Statement of Operations

High Yield Portfolio

For the Six Months Ended June 30, 2005

(Amounts in Thousands) (Unaudited)

Investment Income:
	Interest			$	8,430
	Dividends				80
			Total income				$	8,510
Expenses:
	Management fees				651
	Distribution and service fees				478
	Audit and legal fees				35
	Custodian fees				53
	Directors’ fees and expenses				8
	Registration fees				13
	Reports to shareholders				19
	Transfer agent and shareholder servicing expense:
		Primary Class			90
		Institutional Class			1
	Other expenses				6
					1,354
			Less compensating balance credits		(4	)
			Total expenses, net of compensating balance credits					1,350
Net Investment Income								7,160
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on investments				(70	)
	Change in unrealized appreciation/(depreciation) of investments				(6,380	)
Net Realized and Unrealized Gain/(Loss) on Investments								(6,450	)
Change in Net Assets Resulting From Operations							$	710

See notes to financial statements.

Semi-Annual Report to Shareholders

46

Statement of Changes in Net Assets

High Yield Portfolio

(Amounts in Thousands)

		For the Six			For the
		Months Ended			Year Ended
		6/30/05			12/31/04
		(Unaudited)
Change in Net Assets:
Net investment income		$	7,160		$	14,774
Net realized gain/(loss) on investments			(70	)		2,146
Change in unrealized appreciation/(depreciation) on investments			(6,380	)		4,056
Change in net assets resulting from operations			710			20,976
Distributions to shareholders from net investment income:
	Primary Class		(6,135	)		(14,195	)
	Institutional Class		(313	)		(565	)
Change in net assets from Fund share transactions:
	Primary Class		(18,393	)		(24,402	)
	Institutional Class		3,508			2,040
Change in net assets			(20,623	)		(16,146	)
Net Assets:
Beginning of period			214,061			230,207
End of period		$	193,438		$	214,061
Under/(over) distributed net investment income		$	620		$	(92	)

See notes to financial statements.

Semi-Annual Report to Shareholders

47

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,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period		$	9.39		$	9.10		$	7.96		$	9.22		$	10.18		$	14.97
Investment operations:
	Net investment income		.32			.62			.63			.77			.94			1.32
	Net realized and unrealized gain/(loss) on investments		(.28	)		.29			1.15			(1.26	)		(.94	)		(3.45	)
	Total from investment operations		.04			.91			1.78			(.49	)		—			(2.13	)
Distributions:
	From net investment income		(.30	)		(.62	)		(.64	)		(.77	)		(.96	)		(1.27	)
	From net realized gain on investments		—			—			—			—			—			(1.39	)
	Total distributions		(.30	)		(.62	)		(.64	)		(.77	)		(.96	)		(2.66	)
Net asset value, end of period		$	9.13		$	9.39		$	9.10		$	7.96		$	9.22		$	10.18
Ratios/supplemental data:
	Total return		.41	%A		10.51	%		23.03	%		(5.28	)%		(.13	)%		(16.43	)%
	Expenses to average net assets		1.37	%B		1.36	%		1.41	%		1.36	%		1.51	%		1.51	%
	Net investment income to average net assets		7.11	%B		6.79	%		7.26	%		9.06	%		9.59	%		9.98	%
	Portfolio turnover rate		57.4	%A		109.1	%		122.3	%		96.6	%		130.0	%		45.0	%
Net assets, end of period (in thousands)		$	181,425		$	205,314		$	223,773		$	162,175		$	199,214		$	217,769

^A Not annualized.

^B Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

48

Institutional Class:

		Six Months
		Ended			Years Ended December 31,
		June 30,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period			$9.41		$	9.11		$	7.96		$	9.20		$	10.18		$	14.97
Investment operations:
	Net investment income		.34			.66			.66			.78			1.01			1.41
	Net realized and unrealized gain/(loss) on investments		(.28	)		.31			1.15			(1.24	)		(1.00	)		(3.47	)
	Total from investment operations		.06			.97			1.81			(.46	)		.01			(2.06	)
Distributions:
	From net investment income		(.31	)		(.67	)		(.66	)		(.78	)		(.99	)		(1.34	)
	From net realized gain on investments		—			—			—			—			—			(1.39	)
	Total distributions		(.31	)		(.67	)		(.66	)		(.78	)		(.99	)		(2.73	)
Net asset value, end of period			$9.16		$	9.41		$	9.11		$	7.96		$	9.20		$	10.18
Ratios/supplemental data:
	Total return		.68	%A		11.15	%		23.54	%		(5.00	)%		(.06	)%		(15.99	)%
	Expenses to average net assets		.81	%B		.80	%		.85	%		.82	%		.97	%		1.03	%
	Net investment income to average net assets		7.76	%B		7.38	%		7.78	%		9.63	%		10.20	%		10.98	%
	Portfolio turnover rate		57.4	%A		109.1	%		122.3	%		96.6	%		130.0	%		45.0	%
Net assets, end of period (in thousands)		$	12,013		$	8,747		$	6,434		$	2,704		$	1,331		$	673

See notes to financial statements.

Semi-Annual Report to Shareholders

49

Expense Example

Investment Grade Income Portfolio

   As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees on Primary Class shares; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2005, and held through June 30, 2005.

Actual Expenses

   The first line for each class in the table below provides information about actual account values and actual expenses for each class. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

   The second line for each class in the table below provides information about hypothetical account values and hypothetical expenses based on the relevant class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the class’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples for the relevant class that appear in the shareholder reports of other funds.

		Beginning		Ending		Expenses PaidA
		Account		Account		During the
		Value		Value		Period
		1/1/05		6/30/05		1/1/05 to 6/30/05
Primary Class:
	Actual	$	1,000.00	$	1,023.00	$	5.02
	Hypothetical (5% return before expenses)		1,000.00		1,019.84		5.01
Institutional Class:
	Actual	$	1,000.00	$	1,025.00	$	2.11
	Hypothetical (5% return before expenses)		1,000.00		1,022.71		2.11

^A  These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 1.00% and 0.42% for the Primary Class and Institutional Class, respectively, multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

Semi-Annual Report to Shareholders

50

Performance Information

Investment Grade Income Portfolio

   The graphs on the following pages compare the Fund’s total returns to that of a closely matched broad-based securities market index. The graphs 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 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 and the index’s results assume reinvestment of all dividends and distributions.

   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.

Semi-Annual Report to Shareholders

51

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+9.22%		+9.22%
Five Years		+49.05%		+8.31%
Ten Years		+98.91%		+7.12%

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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^A 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.

^B 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.

Performance Information — Continued

Semi-Annual Report to Shareholders

52

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

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+9.84%		+9.84%
Five Years		+52.96%		+8.87%
Life of Class*		+97.82%		+7.38%
*Inception date: December 1, 1995

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 call 1-888-425-6432. 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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^C Index returns are for periods beginning November 30, 1995.

Semi-Annual Report to Shareholders

53

Portfolio Composition (As of June 30, 2005)

Standard & Poor’s Debt Ratings^D (As a percentage of the portfolio)

Maturity Schedule (As a percentage of the portfolio)

^D Standard & Poor’s Ratings Services provides capital markets with credit ratings for the evaluation and assessment of credit risk.

Semi-Annual Report to Shareholders

54

Portfolio of Investments

Investment Grade Income Portfolio

June 30, 2005 (Unaudited)
(Amounts in Thousands)

				Maturity		Par/
		Rate		Date		Shares		Value
Long-Term Securities — 98.7%
Corporate Bonds and Notes — 73.8%
Aerospace/ Defense — 1.0%
	L-3 Communications Corp.		7.625%		6/15/12	$	1,000	$	1,065
	Lockheed Martin Corporation		8.500%		12/1/29		760		1,098
	Northrop Grumman Corporation		7.750%		2/15/31		170		230
	Raytheon Company		6.150%		11/1/08		489		516
	Raytheon Company		5.375%		4/1/13		1,240		1,291
									4,200
Auto Parts and Equipment — 0.2%
	American Axle & Manufacturing Inc.		5.250%		2/11/14		800		704
Automotive — 1.0%
	Ford Motor Company		7.450%		7/16/31		1,975		1,649
	Ford Motor Company		8.900%		1/15/32		370		337
	General Motors Corporation		8.250%		7/15/23		650		538
	General Motors Corporation		8.375%		7/15/33		1,990		1,662
									4,186
Banking and Finance — 8.8%
	AIFUL Corporation		4.450%		2/16/10		1,235		1,221	A
	Boeing Capital Corporation		6.500%		2/15/12		1,000		1,119
	Boeing Capital Corporation		5.800%		1/15/13		530		577
	Countrywide Home Loans, Inc.		2.875%		2/15/07		1,320		1,292
	Countrywide Home Loans, Inc.		3.250%		5/21/08		1,200		1,165
	Countrywide Home Loans, Inc.		4.125%		9/15/09		340		336
	Ford Motor Credit Company		4.950%		1/15/08		250		238
	Ford Motor Credit Company		6.625%		6/16/08		8,210		8,109
	Ford Motor Credit Company		7.375%		10/28/09		2,970		2,902
	Ford Motor Credit Company		7.375%		2/1/11		2,390		2,328
	Ford Motor Credit Company		7.250%		10/25/11		2,070		1,992
	Ford Motor Credit Company		7.000%		10/1/13		340		326
	General Motors Acceptance Corporation		4.145%		5/18/06		1,725		1,717	B
	General Motors Acceptance Corporation		6.125%		2/1/07		1,570		1,559
	General Motors Acceptance Corporation		6.125%		8/28/07		2,680		2,652

Semi-Annual Report to Shareholders

55

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Banking and Finance — Continued
	General Motors Acceptance Corporation		6.311%		11/30/07	$	320	$	310
	General Motors Acceptance Corporation		5.625%		5/15/09		590		553
	General Motors Acceptance Corporation		6.875%		9/15/11		750		692
	General Motors Acceptance Corporation		0.000%		6/15/15		2,700		1,222	C
	HSBC Finance Corporation		4.750%		4/15/10		1,325		1,344
	International Lease Finance Corporation		6.375%		3/15/09		890		942
	John Deere Capital Corporation		4.500%		8/22/07		5		5
	MBNA America Bank		5.375%		1/15/08		1,200		1,233
	National Rural Utilities Cooperative Finance Corporation		7.250%		3/1/12		1,700		1,971
	SB Treasury Company LLC		9.400%		12/29/49		840		942	A
									36,747
Banks — 5.3%
	Bank of America Corporation		3.375%		2/17/09		1,500		1,462
	Bank of America Corporation		7.400%		1/15/11		1,785		2,043
	Bank of America Corporation		4.750%		8/15/13		470		478
	Bank One Corporation		4.125%		9/1/07		2,130		2,139
	BankAmerica Capital		4.169%		1/15/27		585		561	B
	CBA Capital Trust I		5.805%		12/31/49		3,510		3,719	A
	Chase Capital II		3.710%		2/1/27		1,980		1,849	B
	Key Bank NA		5.800%		7/1/14		535		576
	Rabobank Capital Funding Trust II		5.260%		12/31/49		320		329	A, B
	Rabobank Capital Funding Trust III		5.254%		12/29/49		3,120		3,200	A, B
	UnionBanCal Corporation		5.250%		12/16/13		785		811
	Wachovia Bank NA		7.800%		8/18/10		2,640		3,066
	Washington Mutual, Inc.		4.200%		1/15/10		700		694
	Washington Mutual, Inc.		4.625%		4/1/14		1,000		974
									21,901

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

56

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Building Materials — N.M.
	American Standard, Inc.		8.250%		6/1/09	$	37	$	42
	American Standard, Inc.		7.625%		2/15/10		5		5
									47
Cable — 1.6%
	Comcast Cable Communications, Inc.		6.750%		1/30/11		960		1,059
	Comcast Corporation		7.050%		3/15/33		1,800		2,125
	Cox Communications, Inc.		4.625%		1/15/10		1,410		1,406
	CSC Holdings Inc.		7.625%		7/15/18		1,500		1,448
	EchoStar DBS Corporation		6.754%		10/1/08		500		511	B
	Tele-Communications, Inc.		7.125%		2/15/28		180		210
									6,759
Casino Resorts — 0.2%
	Harrah’s Operating Company, Inc.		7.875%		12/15/05		500		508
	Harrah’s Operating Company, Inc.		5.500%		7/1/10		410		423
									931
Chemicals — 0.7%
	E. I. du Pont de Nemours and Company		4.875%		4/30/14		1,100		1,138
	The Dow Chemical Company		6.000%		10/1/12		750		822
	The Dow Chemical Company		7.375%		11/1/29		800		1,033
									2,993
Computer Services and Systems — 0.8%
	Electronic Data Systems Corporation		7.125%		10/15/09		530		571
	Electronic Data Systems Corporation		6.500%		8/1/13		500		511
	Electronic Data Systems Corporation		7.450%		10/15/29		570		607
	International Business Machines Corporation		4.750%		11/29/12		1,750		1,788
									3,477
Consumer Products — 0.2%
	The Clorox Company		5.000%		1/15/15		350		363
	The Procter & Gamble Company		4.300%		8/15/08		350		353
									716

Semi-Annual Report to Shareholders

57

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Diversified Financial Services — 7.3%
	AIG SunAmerica Global Financing VI		6.300%		5/10/11	$	5,170	$	5,635	A
	Associates Corporation of North America		8.150%		8/1/09		775		887
	Beaver Valley Funding Corp.		9.000%		6/1/17		1,100		1,305
	Capital One Bank		4.875%		5/15/08		150		152
	Capital One Bank		5.750%		9/15/10		870		918
	Capital One Bank		6.500%		6/13/13		690		759
	Capital One Financial Corporation		7.250%		5/1/06		1,700		1,743
	Capital One Financial Corporation		8.750%		2/1/07		400		427
	Capital One Financial Corporation		7.125%		8/1/08		340		365
	Citigroup Inc.		5.000%		3/6/07		300		305
	Citigroup Inc.		5.000%		9/15/14		1,600		1,637
	General Electric Capital Corporation		4.000%		6/15/09		3,640		3,614
	General Electric Capital Corporation		3.750%		12/15/09		4,900		4,812
	General Electric Capital Corporation		5.450%		1/15/13		2,000		2,122
	General Electric Capital Corporation		6.750%		3/15/32		5		6
	iStar Financial Inc.		5.375%		4/15/10		3,180		3,217
	iStar Financial Inc.		6.000%		12/15/10		580		603
	Mizuho Preferred Capital Corp. LLC		8.790%		12/29/49		1,520		1,677	A
	Wells Fargo & Company		5.000%		11/15/14		90		93
									30,277
Drug and Grocery Store Chains — 0.5%
	Kroger Company		8.000%		9/15/29		1,000		1,258
	Safeway Inc.		5.800%		8/15/12		750		788
									2,046
Electric — 4.2%
	AEP Texas Central Company		5.500%		2/15/13		1,060		1,111
	American Electric Power Company, Inc.		6.125%		5/15/06		404		411
	American Electric Power Company, Inc.		5.250%		6/1/15		350		362
	Commonwealth Edison Company		6.150%		3/15/12		560		619
	Dominion Resources, Inc.		5.125%		12/15/09		490		503
	Dominion Resources, Inc.		4.750%		12/15/10		140		141
	Dominion Resources, Inc.		5.700%		9/17/12		510		537

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

58

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Electric — Continued
	FirstEnergy Corp.		6.450%		11/15/11	$	2,285	$	2,497
	FirstEnergy Corp.		7.375%		11/15/31		4,440		5,427
	Niagara Mohawk Power Corporation		7.750%		10/1/08		1,010		1,110
	System Energy Resources, Inc.		4.875%		10/1/07		1,020		1,030
	Tampa Electric Company		6.375%		8/15/12		380		419
	The Cleveland Electric Illuminating Company		5.650%		12/15/13		940		989
	The Cleveland Electric Illuminating Company		7.880%		11/1/17		850		1,064
	The Detroit Edison Company		5.200%		10/15/12		1,260		1,311
									17,531
Energy — 4.0%
	Alabama Power Company		3.125%		5/1/08		920		896
	DTE Energy Company		6.375%		4/15/33		350		383
	Duke Energy Corporation		5.625%		11/30/12		270		286
	Exelon Corporation		6.750%		5/1/11		2,000		2,221
	MidAmerican Energy Holdings Company		5.875%		10/1/12		750		797
	Pacific Gas and Electric Company		3.820%		4/3/06		151		151	B
	Pacific Gas and Electric Company		6.050%		3/1/34		4,610		5,080
	Sempra Energy		3.754%		5/21/08		1,685		1,688	B
	TXU Corp.		6.375%		6/15/06		100		102
	TXU Corp.		6.550%		11/15/34		2,730		2,681	A
	TXU Energy Co.		4.360%		1/17/06		325		325	B
	TXU Energy Co.		7.000%		3/15/13		930		1,037
	Xcel Energy, Inc.		7.000%		12/1/10		900		1,001
									16,648
Environmental Services — 0.6%
	Republic Services, Inc.		6.750%		8/15/11		1,340		1,489
	Waste Management, Inc.		6.375%		11/15/12		310		339
	Waste Management, Inc.		7.375%		5/15/29		690		830
									2,658
Food, Beverage and Tobacco — 3.1%
	Altria Group, Inc.		7.000%		11/4/13		1,385		1,550
	Coca-Cola Enterprises Inc.		5.250%		5/15/07		680		695

Semi-Annual Report to Shareholders

59

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Food, Beverage and Tobacco — Continued
	Kellogg Company		6.600%		4/1/11	$	1,000	$	1,108
	Kellogg Company		7.450%		4/1/31		650		862
	Kraft Foods Inc.		4.125%		11/12/09		3,850		3,818
	Kraft Foods Inc.		6.250%		6/1/12		210		231
	Kraft Foods Inc.		6.500%		11/1/31		1,050		1,234
	R.J. Reynolds Tobacco Holdings, Inc.		7.750%		5/15/06		1,280		1,315
	R.J. Reynolds Tobacco Holdings, Inc.		7.875%		5/15/09		860		899
	The Pepsi Bottling Group, Inc.		7.000%		3/1/29		340		431
	Tyson Foods, Inc.		7.000%		1/15/28		800		912
									13,055
Gas and Pipeline Utilities — 1.6%
	CenterPoint Energy Resources Corp.		7.875%		4/1/13		1,010		1,200
	Dynegy Holdings Inc.		8.750%		2/15/12		1,690		1,842
	Tennessee Gas Pipeline Company		8.375%		6/15/32		1,000		1,177
	The Williams Companies, Inc.		7.625%		7/15/19		2,000		2,250
									6,469
Health Care — 1.0%
	Tenet Healthcare Corporation		7.375%		2/1/13		2,310		2,281
	Tenet Healthcare Corporation		6.875%		11/15/31		750		630
	WellPoint Inc.		5.000%		12/15/14		1,330		1,358
									4,269
Homebuilding — 0.5%
	Centex Corporation		5.125%		10/1/13		420		420
	D.R. Horton, Inc.		5.250%		2/15/15		1,110		1,075
	Pulte Homes, Inc.		6.250%		2/15/13		385		411
									1,906
Insurance — 0.5%
	ASIF Global Financing XIX		4.900%		1/17/13		1,120		1,137	A
	Willis Group North America		5.125%		7/15/10		760		764
									1,901

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

60

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Investment Banking/ Brokerage — 5.0%
	J.P. Morgan Chase & Co.		5.125%		9/15/14	$	6,175	$	6,317
	Merrill Lynch & Co., Inc.		3.375%		9/14/07		1,345		1,331
	Merrill Lynch & Co., Inc.		6.000%		2/17/09		800		844
	Merrill Lynch & Co., Inc.		5.000%		1/15/15		65		67
	Morgan Stanley		5.800%		4/1/07		2,600		2,672
	Morgan Stanley		4.750%		4/1/14		2,860		2,818
	The Bear Stearns Companies Inc.		4.000%		1/31/08		1,600		1,593
	The Goldman Sachs Group, Inc.		4.750%		7/15/13		3,100		3,097
	The Goldman Sachs Group, Inc.		6.345%		2/15/34		2,025		2,194
									20,933
Machinery — 0.3%
	Case New Holland Incorporated		9.250%		8/1/11		1,000		1,050	A
Media — 3.1%
	Clear Channel Communications, Inc.		4.400%		5/15/11		1,210		1,138
	Clear Channel Communications, Inc.		5.500%		9/15/14		940		891
	Liberty Media Corporation		4.910%		9/17/06		1,026		1,032	B
	Liberty Media Corporation		8.500%		7/15/29		340		344
	Liberty Media Corporation		8.250%		2/1/30		120		119
	News America, Inc.		6.550%		3/15/33		1,495		1,622
	News America, Inc.		6.200%		12/15/34		530		556
	Time Warner Entertainment Company, L.P.		8.375%		7/15/33		855		1,135
	Time Warner Inc.		6.150%		5/1/07		1,390		1,438
	Time Warner Inc.		6.875%		5/1/12		1,260		1,422
	Time Warner Inc.		7.700%		5/1/32		1,210		1,531
	Viacom Inc.		7.700%		7/30/10		90		100
	Viacom Inc.		5.625%		8/15/12		1,315		1,345
									12,673
Media and Entertainment — 0.3%
	The Walt Disney Company		6.200%		6/20/14		1,280		1,421

Semi-Annual Report to Shareholders

61

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Medical Care Facilities — 1.3%
	Coventry Health Care, Inc.		5.875%		1/15/12	$	1,050	$	1,069
	HCA, Inc.		6.300%		10/1/12		1,790		1,837
	HCA, Inc.		6.250%		2/15/13		1,580		1,615
	HCA, Inc.		5.750%		3/15/14		700		697
									5,218
Metals and Mining — 0.5%
	Alcoa Inc.		5.375%		1/15/13		1,800		1,899
Oil and Gas — 5.3%
	Amerada Hess Corporation		7.300%		8/15/31		3,740		4,513
	Apache Corporation		6.250%		4/15/12		1,150		1,284
	Conoco Inc.		6.950%		4/15/29		600		754
	ConocoPhillips		4.750%		10/15/12		2,290		2,343
	Devon Energy Corporation		7.950%		4/15/32		1,080		1,421
	El Paso Corporation		7.800%		8/1/31		1,660		1,614
	El Paso Corporation		7.750%		1/15/32		340		332
	Kerr-McGee Corporation		7.875%		9/15/31		4,700		5,352
	Ocean Energy Inc.		4.375%		10/1/07		965		965
	Panhandle Eastern Pipe Line Company		4.800%		8/15/08		1,170		1,184
	Pemex Project Funding Master Trust		8.500%		2/15/08		100		110
	Pride International, Inc.		7.375%		7/15/14		800		878
	Valero Energy Corporation		6.875%		4/15/12		565		631
	XTO Energy, Inc.		6.250%		4/15/13		745		806
									22,187
Paper and Forest Products — 1.4%
	International Paper Company		5.500%		1/15/14		1,000		1,021
	Weyerhaeuser Company		6.125%		3/15/07		331		340
	Weyerhaeuser Company		6.750%		3/15/12		2,150		2,366
	Weyerhaeuser Company		7.375%		3/15/32		1,785		2,105
									5,832
Pharmaceuticals — 0.3%
	Bristol-Myers Squibb Company		5.750%		10/1/11		1,160		1,241

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

62

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Photo Equipment and Supplies — 0.4%
	Eastman Kodak Company		3.625%		5/15/08	$	975	$	938
	Eastman Kodak Company		7.250%		11/15/13		500		526
									1,464
Real Estate — 0.4%
	EOP Operating Limited Partnership		6.750%		2/15/12		1,500		1,651
Retail — 0.6%
	Target Corporation		5.875%		3/1/12		860		934
	Toys “R” Us, Inc.		7.875%		4/15/13		1,000		895
	Wal-Mart Stores, Inc.		6.875%		8/10/09		475		523
									2,352
Special Purpose — 7.3%
	Ahold Finance USA, Inc.		8.250%		7/15/10		960		1,056
	Anadarko Finance Company		6.750%		5/1/11		970		1,078
	Arch Western Finance, LLC		6.750%		7/1/13		1,000		1,033
	Caterpillar Financial Services Corporation		4.500%		6/15/09		1,040		1,050
	ChevronTexaco Capital Company		3.500%		9/17/07		1,000		990
	Conoco Funding Company		6.350%		10/15/11		520		576
	DaimlerChrysler NA Holding Corporation		6.400%		5/15/06		800		816
	DaimlerChrysler NA Holding Corporation		3.859%		9/10/07		1,520		1,520	B
	DaimlerChrysler NA Holding Corporation		4.050%		6/4/08		470		463
	DaimlerChrysler NA Holding Corporation		7.200%		9/1/09		260		283
	DaimlerChrysler NA Holding Corporation		7.300%		1/15/12		735		821
	DaimlerChrysler NA Holding Corporation		6.500%		11/15/13		290		314
	DaimlerChrysler NA Holding Corporation		8.500%		1/18/31		1,800		2,280
	Duke Capital Corporation		6.250%		2/15/13		340		367
	Fosters Finance Corporation		4.875%		10/1/14		840		832	A

Semi-Annual Report to Shareholders

63

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Special Purpose — Continued
	NiSource Finance Corp.		3.200%		11/1/06	$	985	$	974
	Reed Elsevier Capital Inc.		4.625%		6/15/12		2,300		2,289
	Sprint Capital Corporation		6.000%		1/15/07		700		717
	Sprint Capital Corporation		8.375%		3/15/12		1,860		2,237
	Sprint Capital Corporation		8.750%		3/15/32		2,170		3,019
	TCI Communications Financing III		9.650%		3/31/27		3,350		3,796
	Unilever Capital Corporation		7.125%		11/1/10		480		543
	Verizon Global Funding Corp.		6.125%		6/15/07		2,065		2,141
	Verizon Global Funding Corp.		7.750%		6/15/32		375		487
	Verizon Wireless Capital LLC		5.375%		12/15/06		800		815
									30,497
Telecommunications — 1.5%
	BellSouth Corporation		4.750%		11/15/12		830		834
	GTE Hawaiian Telephone Company, Inc.		7.000%		2/1/06		750		758
	Qwest Corporation		5.625%		11/15/08		550		540
	SBC Communications Inc.		5.100%		9/15/14		1,910		1,953
	Verizon New York Inc.		6.875%		4/1/12		1,820		2,012
									6,097
Telecommunications (Cellular/ Wireless) — 1.8%
	AT&T Wireless Services Inc.		7.500%		5/1/07		1,500		1,589
	AT&T Wireless Services Inc.		8.125%		5/1/12		570		683
	AT&T Wireless Services Inc.		8.750%		3/1/31		980		1,373
	Cingular Wireless LLC		5.625%		12/15/06		800		813
	Motorola, Inc.		7.625%		11/15/10		850		973
	Nextel Communications, Inc.		5.950%		3/15/14		469		487
	Nextel Communications, Inc.		7.375%		8/1/15		1,600		1,728
									7,646
Transportation — 1.2%
	Burlington Northern Railroad Company		6.960%		3/22/09		207		218
	Burlington Northern Railroad Company		7.330%		6/23/10		152		164
	Continental Airlines, Inc.		6.545%		2/2/19		165		165
	Continental Airlines, Inc.		7.256%		3/15/20		558		563

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

64

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Transportation — Continued
	CSX Transportation, Inc.		7.875%		5/15/43	$	252	$	343
	Delta Air Lines, Inc.		7.570%		11/18/10		300		282
	Delta Air Lines, Inc.		6.718%		1/2/23		698		733
	Norfolk Southern Corporation		7.875%		5/15/43		348		478
	Northwest Airlines Corporation		7.575%		3/1/19		193		195
	Union Pacific Corporation		4.875%		1/15/15		1,740		1,749
	United Airlines, Inc.		7.783%		1/1/14		245		227
									5,117
Total Corporate Bonds and Notes (Identified Cost — $298,050)									306,699
U.S. Government and Agency Obligations — 3.0%
Fixed Rate Securities — 0.2%
	Tennessee Valley Authority		5.375%		11/13/08		150		157
	United States Treasury Notes		4.125%		5/15/15		700		710
									867
Indexed Securities — 2.8%
	United States Treasury Inflation-Protected Security		0.875%		4/15/10		11,923		11,629	D
Total U.S. Government and Agency Obligations (Identified Cost — $12,665)									12,496
U.S. Government Agency Mortgage-Backed Securities — N.M.
Fixed Rate Securities — N.M.
	Fannie Mae		8.000%		4/25/06		6		6
Indexed Securities — N.M.
	Freddie Mac		4.508%		9/1/24		95		98	B
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $102)									104

Semi-Annual Report to Shareholders

65

				Maturity		Par/
		Rate		Date		Shares		Value
Yankee BondsE — 21.7%
Banking and Finance — 1.9%
	Corporacion Andina de Fomento		4.000%		1/26/07	$	1,260	$	1,261	B
	HBOS Capital Funding LP		6.071%		6/30/49		1,490		1,608	A
	HBOS Treasury Services plc		4.000%		9/15/09		1,080		1,072	A
	Mizuho Financial Group, Inc.		5.790%		4/15/14		3,565		3,750	A
									7,691
Banks — 0.4%
	ABN Amro Bank Nv		4.650%		6/4/18		1,530		1,508
Cable — 0.2%
	British Sky Broadcasting Group plc		6.875%		2/23/09		870		936
Containers and Packaging — 0.2%
	Cascades Inc.		7.250%		2/15/13		1,000		978
Diversified Financial Services — 0.7%
	Encana Holdings Finance Corp		5.800%		5/1/14		2,725		2,924
Electric — 1.0%
	Empresa Nacional de Electricidad S.A.		8.500%		4/1/09		1,805		2,007
	Hydro-Quebec		7.500%		4/1/16		1,625		2,015
									4,022
Foreign Governments — 7.2%
	Federative Republic of Brazil		14.500%		10/15/09		280		364
	Federative Republic of Brazil		12.000%		4/15/10		580		705
	Federative Republic of Brazil		4.313%		4/15/12		354		340	B
	Federative Republic of Brazil		4.313%		4/15/12		544		523	B
	Federative Republic of Brazil		8.000%		4/15/14		1,362		1,395
	Federative Republic of Brazil		10.125%		5/15/27		430		498
	Federative Republic of Brazil		11.000%		8/17/40		410		493
	Province of Nova Scotia		5.750%		2/27/12		1,000		1,089
	Province of Ontario		4.500%		2/3/15		460		467
	Republic of Chile		3.587%		1/28/08		120		121	B
	Republic of Colombia		10.500%		7/9/10		300		357

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

66

				Maturity		Par/
		Rate		Date		Shares		Value
Yankee Bonds — Continued
Foreign Governments — Continued
	Republic of Colombia		11.750%		2/25/20	$	570	$	750
	Republic of Panama		9.625%		2/8/11		90		108
	Republic of Panama		10.750%		5/15/20		480		650
	Republic of Panama		9.375%		1/16/23		270		334
	Republic of Peru		5.000%		3/7/17		578		550	F
	Republic of Peru		5.000%		3/7/17		213		202	A,F
	Republic of Peru		8.750%		11/21/33		500		564
	Republic of South Africa		7.375%		4/25/12		650		748
	Republic of South Africa		6.500%		6/2/14		700		781
	Russian Federation		8.250%		3/31/10		80		87
	Russian Federation		5.000%		3/31/30		5,120		5,716	F
	United Mexican States		8.375%		1/14/11		4,965		5,779
	United Mexican States		11.500%		5/15/26		1,100		1,766
	United Mexican States		8.300%		8/15/31		820		1,021
	United Mexican States		7.500%		4/8/33		3,942		4,523
									29,931
Insurance — 0.8%
	Axa		8.600%		12/15/30		1,630		2,220
	Oil Insurance Ltd		5.150%		8/15/33		585		589	A
	XL Capital Ltd.		5.250%		9/15/14		700		710
									3,519
Manufacturing (Diversified) — 1.0%
	Tyco International Group SA		6.375%		2/15/06		1,900		1,925
	Tyco International Group SA		6.375%		10/15/11		250		275
	Tyco International Group SA		7.000%		6/15/28		554		668
	Tyco International Group SA		6.875%		1/15/29		1,051		1,255
									4,123
Oil and Gas — 1.5%
	Gazprom		9.625%		3/1/13		150		184	A
	Gazprom		9.625%		3/1/13		50		61	A

Semi-Annual Report to Shareholders

67

				Maturity		Par/
		Rate		Date		Shares		Value
Yankee Bonds — Continued
Oil and Gas — Continued
	Petrobras International Finance Company (PIFCO)		9.750%		7/6/11	$	905	$	1,072
	Petroliam Nasional Berhad		7.625%		10/15/26		610		776	A
	YPF Sociedad Anonima		10.000%		11/2/28		3,500		4,165
									6,258
Special Purpose — 2.9%
	Deutsche Telekom International Finance BV		8.750%		6/15/30		1,400		1,896
	Deutsche Telekom International Finance BV		9.250%		6/1/32		670		1,000
	General Motors Nova Scotia Finance Company		6.850%		10/15/08		1,160		1,093
	HSBC Capital Funding LP		4.610%		12/29/49		760		742	A
	HSBC Holdings plc		5.250%		12/12/12		3,850		4,007
	Petronas Capital Ltd.		7.875%		5/22/22		770		983	A
	Telefonica Europe BV		8.250%		9/15/30		800		1,116
	UFJ Finance Aruba AEC		6.750%		7/15/13		920		1,026
									11,863
Telecommunications — 3.3%
	British Telecommunications plc		8.375%		12/15/10		900		1,066
	British Telecommunications plc		8.875%		12/15/30		420		593
	France Telecom SA		7.750%		3/1/11		3,000		3,481
	France Telecom SA		8.500%		3/1/31		340		474
	INTELSAT		7.625%		4/15/12		32		28
	INTELSAT		6.500%		11/1/13		1,333		1,080
	Koninklijke (Royal) KPN NV		8.000%		10/1/10		990		1,146
	Tele Norte Leste Participacoes S.A.		8.000%		12/18/13		1,080		1,112
	Telecom Italia Capital S.p.A.		5.250%		11/15/13		2,025		2,056
	Telecom Italia Capital S.p.A.		4.950%		9/30/14		1,860		1,842	A
	Telus Corporation		7.500%		6/1/07		700		741
									13,619
Telecommunications (Cellular/ Wireless) — 0.2%
	Rogers Wireless Communications Inc.		6.375%		3/1/14		1,000		1,018

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued

Semi-Annual Report to Shareholders

68

					Maturity		Par/
		Rate			Date		Shares			Value
Yankee Bonds — Continued
Utilities — 0.4%
	United Utilities plc		5.375%	��		2/1/19	$	1,550		$	1,570
Total Yankee Bonds (Identified Cost — $83,575)											89,960
Preferred Stocks — 0.2%
	Fannie Mae		7.000%					16	shs		899	B
Total Preferred Stocks (Identified Cost — $810)											899
Total Long-Term Securities (Identified Cost — $395,202)											410,158
Short-Term Securities — 0.4%
U.S. Government and Agency Obligations — 0.1%
	Fannie Mae		0.000%			12/5/05	$	323			318	C,G
Repurchase Agreements — 0.3%
Merrill Lynch Government Securities, Inc.
3.2%, dated 6/30/05, to be repurchased at $602 on 7/1/05 (Collateral: $585 Tennessee Valley Authority bonds, 4.875%, due 12/15/16, value $619)								602			602
	Lehman Brothers, Inc.
3.25%, dated 6/30/05, to be repurchased at $601 on 7/1/05 (Collateral: $605 Fannie Mae mortgage-backed securities, 4.72%,     due 3/15/10, value $621)								601			601
											1,203
Total Short-Term Securities (Identified Cost — $1,521)											1,521
Total Investments — 99.1% (Identified Cost — $396,723)											411,679
Other Assets Less Liabilities — 0.9%											3,792
Net Assets — 100.0%										$	415,471

Semi-Annual Report to Shareholders

69

			Actual		Appreciation/
		Expiration	Contracts		(Depreciation)
Futures Contracts PurchasedH
	Eurodollar Futures	September 2005		505	$	(356	)
	U.S. Treasury Note Futures	September 2005		145		13
					$	(343	)
Futures Contracts WrittenH
	U.S. Treasury Bond Futures	September 2005		253	$	(120	)
	U.S. Treasury Note Futures	September 2005		15		(13	)
					$	(133	)

^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 8.2% 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, 2005.
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	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	Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities.
F	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes.

G	Collateral to cover futures contracts.
H	Futures are described in more detail in the notes to financial statements.

N.M. — Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

70

Statement of Assets and Liabilities

Investment Grade Income Portfolio

June 30, 2005

(Amounts in Thousands) (Unaudited)

Assets:
Investment securities at market value (Identified Cost — $395,202)				$	410,158
Short-term securities at value (Identified Cost — $1,521)					1,521
Cash					1
Receivable for securities sold					853
Receivable for fund shares sold					639
Interest and dividends receivable					5,980
Other assets					21
	Total assets				419,173
Liabilities:
Payable for fund shares repurchased		$	1,699
Payable for securities purchased			788
Income distribution payable			813
Futures variation margin payable			76
Accrued management fee			89
Accrued distribution and service fees			165
Accrued expenses			72
	Total liabilities				3,702
Net Assets				$	415,471
Net assets consist of:
Accumulated paid-in capital applicable to:
	36,813 Primary Class shares outstanding			$	380,970
	1,733 Institutional Class shares outstanding				18,491
Under/(over) distributed net investment income					(118	)
Accumulated net realized gain on investments, options and futures					1,648
Unrealized appreciation of investments, options and futures					14,480
Net Assets				$	415,471
Net Asset Value Per Share:
Primary Class				$	10.78
Institutional Class				$	10.78

See notes to financial statements.

Semi-Annual Report to Shareholders

71

Statement of Operations

Investment Grade Income Portfolio

For the Six Months Ended June 30, 2005

(Amounts in Thousands) (Unaudited)

Investment Income:
	Interest				$	11,319
	Dividends					29
			Total income					$	11,348
Expenses:
	Management fees					1,227
	Distribution and service fees					994
	Audit and legal fees					36
	Custodian fees					65
	Directors’ fees and expenses					17
	Registration fees					25
	Reports to shareholders					20
	Transfer agent and shareholder servicing expense:
		Primary Class				180
		Institutional Class				1
	Other expenses					12
						2,577
		Less: Fees waived				(564	)
				Compensating balance credits		(1	)
			Total expenses, net of waivers and compensating balance credits						2,012
Net Investment Income									9,336
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on:
		Investments				1,812
		Futures				9
									1,821
	Change in unrealized appreciation/(depreciation) of investments, options and futures								(1,721	)
Net Realized and Unrealized Gain/(Loss) on Investments									100
Change in Net Assets Resulting From Operations								$	9,436

See notes to financial statements.

Semi-Annual Report to Shareholders

72

Statement of Changes in Net Assets

Investment Grade Income Portfolio

(Amounts in Thousands)

			For the Six			For the
			Months Ended			Year Ended
			6/30/05			12/31/04
			(Unaudited)
Change in Net Assets:
Net investment income			$	9,336		$	18,372
Net realized gain/(loss) on investments, options and futures				1,821			9,812
Change in unrealized appreciation/(depreciation) of investments, options, and futures				(1,721	)		(3,555	)
Change in net assets resulting from operations				9,436			24,629
Distributions to shareholders:
	From net investment income:
		Primary Class		(9,036	)		(17,963	)
		Institutional Class		(301	)		(411	)
	From net realized gain on investments:
		Primary Class		(1,248	)		(9,054	)
		Institutional Class		(39	)		(220	)
Change in net assets from Fund share transactions:
		Primary Class		(5,398	)		(2,354	)
		Institutional Class		8,480			4,370
Change in net assets				1,894			(1,003	)
Net Assets:
Beginning of period				413,577			414,580
End of period			$	415,471		$	413,577
Under/(over) distributed net investment income			$	(118	)	$	(117	)

See notes to financial statements.

Semi-Annual Report to Shareholders

73

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
		Ended			Years Ended December 31,
		June 30,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period		$	10.81		$	10.88		$	10.42		$	10.10		$	9.97		$	9.78
Investment operations:
	Net investment income		.24	A		.49	A		.50	A		.54	A		.60	A		.67	A
	Net realized and unrealized gain/(loss) on investments, options and futures		(.01	)		.18			.53			.32			.14			.19
	Total from investment operations		.23			.67			1.03			.86			.74			.86
Distributions:
	From net investment income		(.24	)		(.49	)		(.50	)		(.54	)		(.61	)		(.67	)
	From net realized gain on investments		(.02	)		(.25	)		(.07	)		—			—			—
	Total distributions		(.26	)		(.74	)		(.57	)		(.54	)		(.61	)		(.67	)
Net asset value, end of period		$	10.78		$	10.81		$	10.88		$	10.42			$10.10		$	9.97
Ratios/supplemental data:
	Total return		2.30	%B		6.29	%		10.16	%		8.82	%		7.52	%		9.16	%
	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		4.55	%A,C		4.47	% A		4.62	%A		5.32	%A		5.90	%A		6.82	%A
	Portfolio turnover rate		25.3	%B		74.9	%		78.2	%		131.0	%		131.3	%		93.6	%
Net assets, end of period (in thousands)		$	396,776		$	403,361		$	408,685		$	334,763		$	255,298		$	194,987

^A Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 1.00% until April 30, 2006. 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, 2005, 1.28%; and for the years ended December 31, 2004, 1.27%; 2003, 1.28%; 2002, 1.30%; 2001, 1.27%; and 2000, 1.31%.

B	Not annualized.
C	Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

74

Institutional Class:

		Six Months
		Ended			Years Ended December 31,
		June 30,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period		$	10.82		$	10.89		$	10.43		$	10.11			$9.97		$	9.79
Investment operations:
	Net investment income		.27	D		.54	D		.55	D		.59	D		.66	D		.71	D
	Net realized and unrealized gain/(loss) on investments, options and futures		(.03	)		.17			.53			.31			.14			.19
	Total from investment operations		.24			.71			1.08			.90			.80			.90
Distributions:
	From net investment income		(.26	)		(.53	)		(.55	)		(.58	)		(.66	)		(.72	)
	From net realized gain on investments		(.02	)		(.25	)		(.07	)		—			—			—
	Total distributions		(.28	)		(.78	)		(.62	)		(.58	)		(.66	)		(.72	)
Net asset value, end of period		$	10.78		$	10.82		$	10.89		$	10.43		$	10.11		$	9.97
Ratios/supplemental data:
	Total return		2.50	%B		6.85	%		10.71	%		9.38	%		8.16	%		9.63	%
	Expenses to average net assets		.42	%C,D		.47	% D		.50	% D		.48	% D		.47	% D		.48	% D
	Net investment income to average net assets		5.20	%C,D		5.02	% D		5.13	% D		5.85	% D		6.50	% D		7.32	% D
	Portfolio turnover rate		25.3	%B		74.9	%		78.2	%		131.0	%		131.3	%		93.6	%
Net assets, end of period (in thousands)		$	18,695		$	10,216		$	5,895		$	2,836		$	1,424		$	839

^D Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 0.50% until April 30, 2006. 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, 2005, 0.69%; and for the years ended December 31, 2004, 0.73%; 2003, 0.78%; 2002, 0.78%; 2001, 0.74%; and 2000, 0.79%.

See notes to financial statements.

Semi-Annual Report to Shareholders

75

Expense Example

Limited Duration Bond Portfolio

   As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees on Primary Class shares; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2005, and held through June 30, 2005.

Actual Expenses

   The first line for each class in the table below provides information about actual account values and actual expenses for each class. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

   The second line for each class in the table below provides information about hypothetical account values and hypothetical expenses based on the relevant class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the class’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples for the relevant class that appear in the shareholder reports of other funds.

		Beginning		Ending		Expenses PaidA
		Account		Account		During the
		Value		Value		Period
		1/1/05		6/30/05		1/1/05 to 6/30/05
Primary Class:
	Actual	$	1,000.00	$	1,009.90	$	4.98
	Hypothetical (5% return before expenses)		1,000.00		1,019.84		5.01
Institutional Class:
	Actual	$	1,000.00	$	1,012.60	$	2.30
	Hypothetical (5% return before expenses)		1,000.00		1,022.51		2.31

^A  These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 1.00% and 0.46% for the Primary Class and Institutional, Class respectively, multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

Semi-Annual Report to Shareholders

76

Performance Information

Limited Duration Bond Portfolio

   The graphs on the following pages compare the Fund’s total returns to those of closely matched broad-based securities market indices. 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. Both the Fund’s and the indices’ results assume reinvestment of all dividends and distributions.

   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.

   Prior to August 31, 2004, the Fund was known as the Legg Mason U.S. Government Intermediate-Term Portfolio and followed a policy of investing at least 80% of its assets in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, or repurchase agreements secured by such investments, with a dollar-weighted average portfolio maturity between three and ten years. The Fund’s performance prior to such change might have been better or worse had the Fund been managed in accordance with its current objective, policies and strategies.

Semi-Annual Report to Shareholders

77

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+3.40%		+3.40%
Five Years		+25.67%		+4.68%
Ten Years		+61.82%		+4.93%

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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^A A subset of the Merrill Lynch Treasury Master Index, consisting of bonds with an outstanding par that is greater than or equal to $25 million and fixed rate coupons greater than 4.25%. The maturity range on these securities is from 1 to 3 years.

Performance Information — Continued

Semi-Annual Report to Shareholders

78

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

Periods Ended June 30, 2005

	Cumulative		Average Annual
	Total Return		Total Return
One Year		+4.05%		+4.05%
Five Years		+28.99%		+5.22%
Ten Years		+70.65%		+5.49%

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 call 1-888-425-6432. 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.

The graph and table do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

Semi-Annual Report to Shareholders

79

Portfolio Composition (As of June 30, 2005)

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

Maturity Schedule (As a percentage of the portfolio)

^B Standard & Poor’s Ratings Services provides capital markets with credit ratings for the evaluation and assessment of credit risk.

Semi-Annual Report to Shareholders

80

Portfolio of Investments

Limited Duration Bond Portfolio

June 30, 2005 (Unaudited)

(Amounts in Thousands)

				Maturity		Par/
		Rate		Date		Shares		Value
Long-Term Securities — 99.0%
Corporate Bonds and Notes — 29.8%
Aerospace/ Defense — 0.3%
	Northrop Grumman Corporation		4.079%		11/16/06	$	840	$	838
Banking and Finance — 5.9%
	American General Finance Corporation (AGFC)		3.730%		1/18/08		330		330	A
	Countrywide Financial Corporation		3.469%		5/5/08		850		851	A
	Ford Motor Credit Company		4.308%		9/28/07		4,020		3,885	A
	Ford Motor Credit Company		6.625%		6/16/08		2,050		2,024
	General Motors Acceptance Corporation		4.510%		1/16/07		1,400		1,369	A
	General Motors Acceptance Corporation		4.130%		3/20/07		70		68	A
	General Motors Acceptance Corporation		4.560%		7/16/07		350		338	A
	General Motors Acceptance Corporation		4.602%		9/23/08		4,250		3,929	A
	HSBC Finance Corporation		3.480%		5/10/10		500		500	A
	iStar Financial Inc.		3.740%		3/3/08		1,050		1,038	A
	John Deere Capital Corporation		3.900%		1/15/08		1,000		994
	Nissan Motor Acceptance Corporation		4.625%		3/8/10		660		661	B
	SLM Corporation		3.850%		1/26/09		100		100	A
									16,087
Cable — 1.2%
	Comcast Cable Communications, Inc.		6.375%		1/30/06		2,000		2,028
	Comcast Cable Communications, Inc.		8.375%		5/1/07		230		247
	Cox Communications, Inc.		3.950%		12/14/07		1,050		1,055	A
									3,330

Semi-Annual Report to Shareholders

81

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Cable — Continued
Chemicals — 0.2%
	The Dow Chemical Company		5.750%		12/15/08	$	560	$	587
Computer Services and Systems — 0.4%
	Electronic Data Systems Corporation		7.125%		10/15/09		1,000		1,076
Diversified Financial Services — 1.0%
	Capital One Financial Corporation		4.738%		5/17/07		690		695
	CIT Group Inc.		3.504%		5/23/08		690		690	A
	General Electric Capital Corporation		3.450%		6/15/09		1,470		1,471	A
									2,856
Electric — 2.4%
	Appalachian Power Company		3.600%		5/15/08		1,700		1,669
	Dominion Resources, Inc.		3.568%		5/15/06		2,000		2,004	A
	DTE Energy Company		4.280%		6/1/07		1,050		1,053	A
	FirstEnergy Corp.		5.500%		11/15/06		1,610		1,637
	Ohio Edison Company		4.000%		5/1/08		310		307
									6,670
Energy — 2.0%
	Alabama Power Company		3.484%		8/25/09		1,000		1,001	A
	Duke Energy Corporation		3.750%		3/5/08		1,500		1,481
	Pacific Gas and Electric Company		3.600%		3/1/09		1,000		977
	Sempra Energy		3.754%		5/21/08		2,000		2,003	A
									5,462
Environmental Services — 0.4%
	Waste Management, Inc.		7.375%		8/1/10		1,090		1,219

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued

Semi-Annual Report to Shareholders

82

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Environmental Services — Continued
Food, Beverage and Tobacco — 1.6%
	Altria Group, Inc.		5.625%		11/4/08	$	3,000	$	3,112
	General Mills, Inc.		6.449%		10/15/06		1,000		1,027
	Sara Lee Corporation		6.250%		9/15/11		230		247
									4,386
Investment Banking/ Brokerage — 1.7%
	J.P. Morgan Chase & Co.		3.720%		10/2/09		1,730		1,733	A
	Lehman Brothers Holdings Inc.		3.480%		11/10/09		1,120		1,123	A
	Morgan Stanley		3.890%		1/15/10		700		701	A
	The Bear Stearns Companies Inc.		3.640%		9/9/09		1,000		1,003	A
									4,560
Media — 3.0%
	Clear Channel Communications, Inc.		4.625%		1/15/08		200		198
	Clear Channel Communications, Inc.		7.650%		9/15/10		610		660
	Liberty Media Corporation		7.875%		7/15/09		3,360		3,586
	News America Incorporated		6.625%		1/9/08		2,000		2,110
	Time Warner Inc.		6.125%		4/15/06		550		559
	Viacom Inc.		5.625%		5/1/07		1,000		1,021
									8,134
Oil and Gas — 3.0%
	Amerada Hess Corporation		7.375%		10/1/09		1,500		1,663
	Anadarko Petroleum Corporation		3.250%		5/1/08		1,440		1,402
	Occidental Petroleum Corporation		7.375%		11/15/08		750		825
	Ocean Energy Inc.		4.375%		10/1/07		580		580
	Pemex Project Funding Master Trust		8.500%		2/15/08		3,300		3,614
									8,084

Semi-Annual Report to Shareholders

83

				Maturity		Par/
		Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Oil and Gas — Continued
Paper and Forest Products — 0.5%
	International Paper Company		3.800%		4/1/08	$	790	$	776
	Weyerhaeuser Company		6.125%		3/15/07		580		596
									1,372
Photo Equipment and Supplies — N.M.
	Eastman Kodak Company		7.250%		11/15/13		110		116
Retail — 0.6%
	Wal-Mart Stores, Inc.		5.450%		8/1/06		1,500		1,523
Special Purpose — 3.4%
	American Honda Finance Corporation		3.330%		5/12/08		900		900	A,B
	ChevronTexaco Capital Company		3.500%		9/17/07		120		119
	DaimlerChrysler NA Holding Corporation		3.610%		3/7/07		230		229	A
	DaimlerChrysler NA Holding Corporation		3.859%		9/10/07		3,000		3,000	A
	International Lease Finance Corporation		4.625%		6/2/08		670		675
	International Lease Finance Corporation		5.000%		4/15/10		410		418
	Sprint Capital Corporation		4.780%		8/17/06		3,000		3,022	C
	Verizon Wireless Capital LLC		5.375%		12/15/06		1,000		1,019
									9,382
Telecommunications (Cellular/ Wireless) — 2.2%
	ALLTEL Corporation		4.656%		5/17/07		2,310		2,328
	AT&T Wireless Services Inc.		7.350%		3/1/06		2,000		2,044

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued

Semi-Annual Report to Shareholders

84

					Maturity		Par/
			Rate		Date		Shares		Value
Corporate Bonds and Notes — Continued
Telecommunications (Cellular/ Wireless) — Continued
	Motorola, Inc.			4.608%		11/16/07	$	1,500	$	1,511
										5,883
Total Corporate Bonds and Notes (Identified Cost — $82,065)										81,565
Asset-Backed Securities — 17.1%
Fixed Rate Securities — 3.9%
	AmeriCredit Automobile Receivables Trust 2003-BX			2.720%		1/6/10		3,000		2,962
	MBNA Practice Solutions Owners Trust 2005-2			4.100%		5/15/09		2,700		2,700	B
	Prestige Auto Receivables Trust 2005-1A			4.370%		6/15/12		1,300		1,304	B
	Structured Asset Securities Corporation 2003-AL1			3.356%		4/25/31		859		788	B
	UPFC Auto Receivables Trust 2004-A			3.270%		9/15/10		3,000		2,966
										10,720
Indexed SecuritiesA — 13.2%
	Asset Backed Funding Certificates 2002-WF2			4.064%		5/25/32		770		776
	Bear Stearns Asset Backed Securities, Inc. 2004-1			3.834%		6/25/34		3,000		3,026
	CHEC Loan Trust 2004-2			3.644%		2/25/31		3,500		3,511
	Citibank Credit Card Issuance Trust 2002-B1			3.800%		6/25/09		1,675		1,681
	Countrywide Home Equity Loan Trust 2002-G	��		3.760%		12/15/28		2,560		2,575
	Countrywide Home Equity Loan Trust 2004-J			3.680%		12/15/33		4,134		4,141
	Countrywide Home Equity Loan Trust 2004-O			3.670%		2/15/34		2,031		2,035
	Fremont Home Loan Trust 2004-C			3.584%		1/25/32		1,792		1,794

Semi-Annual Report to Shareholders

85

				Maturity		Par/
		Rate		Date		Shares		Value
Asset-Backed Securities — Continued
Indexed Securities — Continued
	GSAA Home Equity Trust 2004-9		3.694%		9/25/34	$	2,295	$	2,298
	Providian Gateway Master Trust 2002-B		4.090%		6/15/09		3,000		3,010	B
	RAAC Series 2005-RP1		3.65%		7/25/37		2,274		2,274	B
	Rental Car Finance Corp. 2003-1A		3.714%		5/25/08		3,000		3,014	B
	Rental Car Finance Corp. 2004-1A		3.514%		6/25/09		3,000		3,000	B
	Superior Wholesale Inventory Financing Trust 2004-A10		3.490%		9/15/11		3,000		3,001
									36,136
Total Asset-Backed Securities (Identified Cost — $46,899)									46,856
Mortgage-Backed Securities — 22.9%
Fixed Rate Securities — 7.9%
	Blackrock Capital Finance L.P. 1997-R3		7.220%		11/25/28		370		372	B
	Prime Mortgage Trust 2005-2		7.600%		10/25/32		2,470		2,571
	Residential Asset Mortgage Products, Inc. 2005-SL1 A7		8.000%		5/25/32		2,419		2,527
	Residential Asset Securitization Trust 2003-A14		4.750%		2/25/19		11,753		11,690
	Washington Mutual MSC Mortgage Pass-Through Certificates, Series 2004-RA1		7.000%		3/25/34		4,260		4,394
									21,554
Indexed SecuritiesA — 11.2%
	Bear Stearns Arm Trust 2004-10		4.634%		1/25/35		1,335		1,340
	Harborview Mortgage Loan Trust 2004-8		3.820%		11/29/34		2,421		2,424

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued

Semi-Annual Report to Shareholders

86

				Maturity		Par/
		Rate		Date		Shares		Value
Mortgage-Backed Securities — Continued
Indexed Securities — Continued
	HomeBanc Mortgage Trust 2004-2		3.684%		12/25/34	$	2,710	$	2,715
	HomeBanc Mortgage Trust 2005-1		3.564%		3/25/35		2,969		2,972
	Impac CMB Trust 2004-2		3.574%		4/25/34		1,613		1,615
	Impac CMB Trust 2004-6		3.704%		10/25/34		1,525		1,528
	Impac Secured Assets Corp. 2004-3		3.514%		11/25/34		2,451		2,451
	J.P. Morgan Mortgage Trust 2003-A1		4.380%		10/25/33		2,688		2,600
	Provident Funding Mortgage Loan Trust 2005-1 1A1		4.200%		5/25/35		2,730		2,726
	Sequoia Mortgage Trust 2003-2 A2		3.668%		6/20/33		1,698		1,692
	Sequoia Mortgage Trust 2003-7 A1		3.750%		1/20/34		1,853		1,856
	Thornburg Mortgage Securities Trust 2004-2		3.464%		6/25/44		2,124		2,123
	Washington Mutual 2004-AR8		3.545%		6/25/44		2,489		2,491
	Washington Mutual Mortgage Pass-Through Certificates 2003-AR10		4.075%		10/25/33		2,100		2,106
									30,639
Variable Rate SecuritiesD — 3.8%
	Banc of America Funding Corporation 2004-B		4.250%		12/20/34		2,243		2,272
	Countrywide Alternative Loan Trust 2004-33		4.980%		12/25/34		699		704
	Countrywide Alternative Loan Trust 2004-33		5.084%		12/25/34		1,482		1,495
	MASTR Adjustable Rate Mortgages Trust 2004-13		3.787%		11/21/34		3,000		2,914

Semi-Annual Report to Shareholders

87

				Maturity		Par/
		Rate		Date		Shares		Value
Mortgage-Backed Securities — Continued
Variable Rate Securities — Continued
	MLCC Mortgage Investors, Inc. 2005-1 2A2		4.975%		4/25/35	$	3,169	$	3,196
									10,581
Total Mortgage-Backed Securities (Identified Cost — $63,007)									62,774
U.S. Government and Agency Obligations — 6.7%
Fixed Rate Securities — 3.8%
	Federal Home Loan Bank		3.125%		9/15/06		1,900		1,885
	Freddie Mac		3.800%		12/27/06		5,000		5,000
	United States Treasury Notes		3.375%		10/15/09		550		542
	United States Treasury Notes		3.625%		1/15/10		690		687
	United States Treasury Notes		3.500%		2/15/10		1,875		1,856
	United States Treasury Notes		4.250%		11/15/14		350		358
									10,328
Indexed SecuritiesE — 2.9%
	United States Treasury Inflation-Protected Security		0.875%		4/15/10		2,249		2,194
	United States Treasury Inflation-Protected Security		3.000%		7/15/12		5,410		5,942
									8,136
Total U.S. Government and Agency Obligations (Identified Cost — $18,486)									18,464
U.S. Government Agency Mortgage-Backed Securities — 16.6%
Fixed Rate Securities — 5.9%
	Fannie Mae		8.500%	6/1/10 to 8/1/11			63		66
	Fannie Mae		6.500%	11/1/10 to 10/1/32			3,887		4,033
	Fannie Mae		7.000%	1/1/13 to 1/1/33			6,616		6,980
	Fannie Mae		9.500%		7/1/14		89		96
	Fannie Mae		11.000%		12/1/15		73		78
	Fannie Mae		12.500%	1/1/18 to 4/1/18			46		52
	Fannie Mae		9.000%		11/1/21		186		201
	Fannie Mae		6.000%		11/1/27		N.M.		N.M.
	Freddie Mac		8.250%		2/1/08		20		21

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued

Semi-Annual Report to Shareholders

88

				Maturity		Par/
		Rate		Date		Shares		Value
U.S. Government Agency Mortgage-Backed Securities — Continued
Fixed Rate Securities — Continued
	Freddie Mac		8.500%	12/1/08 to 6/1/21		$	86	$	89
	Freddie Mac		9.750%	11/1/09 to 11/1/14			39		41
	Freddie Mac		9.000%	1/1/17 to 1/1/21			216		228
	Freddie Mac		7.000%	1/25/21 to 4/1/32			3,020		3,174
	Freddie Mac		8.000%		2/1/31		508		547
	Government National Mortgage Association		9.000%	6/15/06 to 9/15/22			239		245
	Government National Mortgage Association		6.000%	5/15/14 to 11/15/28			329		341
									16,192
Indexed SecuritiesA — 10.7%
	Fannie Mae		4.320%		11/1/34		1,620		1,621
	Fannie Mae		4.199%		12/1/34		1,651		1,643
	Fannie Mae		4.333%		1/1/35		1,351		1,345
	Fannie Mae		4.882%		1/1/35		2,717		2,754
	Fannie Mae		4.833%		2/1/35		6,306		6,357
	Fannie Mae		4.550%		3/1/35		3,083		3,092
	Fannie Mae		4.976%		3/1/35		6,161		6,226
	Freddie Mac		4.361%		12/1/34		672		671
	Freddie Mac		4.490%		12/1/34		3,426		3,435
	Freddie Mac		4.091%		1/1/35		602		595
	Freddie Mac		4.101%		1/1/35		1,102		1,089
	Government National Mortgage Association		5.060%		6/16/26		2,650		252
	Government National Mortgage Association		5.110%		8/16/26		2,200		270
									29,350
Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $46,723)									45,542
Yankee BondsF — 3.5%
Banks — 0.4%
	The Korea Development Bank		4.750%		7/20/09		1,000		1,013

Semi-Annual Report to Shareholders

89

				Maturity		Par/
		Rate		Date		Shares			Value
Yankee Bonds — Continued
Banks — Continued
Energy — 0.4%
	SP Powerassests Limited Global		3.800%		10/22/08	$	1,000		$	989	B
Foreign Governments — 0.5%
	Russian Federation		8.250%		3/31/10		1,360			1,483
Manufacturing (Diversified) — 1.1%
	Tyco International Group SA		4.436%		6/15/07		3,000			3,006	B
Telecommunications — 1.1%
	British Telecommunications plc		7.875%		12/1505		1,500			1,526
	Telecom Italia Capital		4.000%		1/15/10		1,500			1,458	B
										2,984
Total Yankee Bonds (Identified Cost — $9,578)										9,475
Preferred Stocks — 2.4%
	Fannie Mae		7.000%				105	shs		5,844	A
	Home Ownership Funding Corporation		13.331%				5			170	B,C
	Home Ownership Funding Corporation II		13.338%				14			475	B,C
Total Preferred Stocks (Identified Cost — $7,407)										6,489
Total Long-Term Securities (Identified Cost — $274,165)										271,165

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued

Semi-Annual Report to Shareholders

90

				Maturity		Par/
		Rate		Date		Shares		Value
Short-Term Securities — 0.4%
U.S. Government and Agency Obligations — 0.4%
	Fannie Mae		0.000%		12/5/05	$	135	$	133	G,H
	Fannie Mae		0.000%		9/16/05		1,000		995	H
Total Short-Term Securities (Identified Cost — $1,128)									1,128
Total Investments — 99.4% (Identified Cost — $275,293)									272,293
Other Assets Less Liabilities — 0.6%									1,641
Net Assets — 100.0%								$	273,934

Semi-Annual Report to Shareholders

91

			Actual		Appreciation/
		Expiration	Contracts		(Depreciation)
Futures Contracts PurchasedI
	U.S. Treasury Note Futures	September 2005		276	$	65
Futures Contracts WrittenI
	U.S. Treasury Note Futures	September 2005		39		(3	)

A	Indexed security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”) or the one-year Treasury bill rate. The coupon rates are the rates as of June 30, 2005.
B	Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities represent 8.8% of net assets.
C	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes, at which time it begins to accrue interest or pay dividends.
D	The coupon rates shown on variable rate securities are the rates at June 30, 2005. These rates vary with the weighted average coupon of the underlying loans.
E	Treasury Inflation-Protected Security — Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

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

G	Collateral to cover futures.
H	Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^I       Futures are described in more detail in the notes to financial statements.

See notes to financial statements.

Semi-Annual Report to Shareholders

92

Statement of Assets and Liabilities

Limited Duration Bond Portfolio

June 30, 2005

(Amounts in Thousands) (Unaudited)

Assets:
Investment securities at market value (Identified Cost – $274,165)				$	271,165
Short-term securities at value (Identified Cost – $1,128)					1,128
Cash					425
Receivable for fund shares sold					904
Interest and dividends receivable					1,629
Other assets					19
	Total assets				275,270
Liabilities:
Payable for fund shares repurchased		$	647
Income distribution payable			424
Futures variation margin payable			6
Accrued management fee			63
Accrued distribution and service fees			108
Accrued expenses			88
	Total liabilities				1,336
Net Assets				$	273,934
Net assets consist of:
Accumulated paid-in capital applicable to:
	25,145 Primary Class shares outstanding			$	271,007
	1,414 Institutional Class shares outstanding				14,595
Under/(over) distributed net investment income					(252	)
Accumulated net realized loss on investments, options, and futures					(8,478	)
Unrealized depreciation of investments, options and futures					(2,938	)
Net Assets				$	273,934
Net Asset Value Per Share:
Primary Class				$	10.31
Institutional Class				$	10.32

See notes to financial statements.

Semi-Annual Report to Shareholders

93

Statement of Operations

Limited Duration Bond Portfolio

For the Six Months Ended June 30, 2005

(Amounts in Thousands) (Unaudited)

Investment Income:
	Interest			$	5,082
	Dividends				254
			Total income				$	5,336
Expenses:
	Management fees				621
	Distribution and service fees				665
	Audit and legal fees				45
	Custodian fees				53
	Directors’ fees and expenses				14
	Registration fees				15
	Reports to shareholders				20
	Transfer agent and shareholder servicing expense:
		Primary Class			116
		Institutional Class			2
	Other expenses				12
					1,563
	Less: Fees waived				(209	)
	Compensating balance credits				(1	)
			Total expenses, net of waivers and compensating balance credits					1,353
Net Investment Income								3,983
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on:
		Investments			(47	)
		Futures			(102	)
								(149	)
	Change in unrealized appreciation/(depreciation) of investments, options and futures							(1,005	)
Net Realized and Unrealized Gain/(Loss) on Investments								(1,154	)
Change in Net Assets Resulting From Operations							$	2,829

See notes to financial statements.

Semi-Annual Report to Shareholders

94

Statement of Changes in Net Assets

Limited Duration Bond Portfolio

(Amounts in Thousands)

		For the Six			For the
		Months Ended			Year Ended
		6/30/05			12/31/04
		(Unaudited)
Change in Net Assets:
Net investment income		$	3,983		$	8,628
Net realized gain/(loss) on investments, options and futures			(149	)		(4,077	)
Change in unrealized appreciation/(depreciation) of investments, options and futures			(1,005	)		1,121
Change in net assets resulting from operations			2,829			5,672
Distributions to shareholders from net investment income:
	Primary Class		(3,949	)		(10,465	)
	Institutional Class		(180	)		(348	)
Distributions to shareholders from net realized gain on investments:
	Primary Class		—			(186	)
	Institutional Class		—			(7	)
Change in net assets from Fund share transactions:
	Primary Class		(14,006	)		(47,055	)
	Institutional Class		5,088			1,957
Change in net assets			(10,218	)		(50,432	)
Net Assets:
Beginning of period			284,152			334,584
End of period		$	273,934		$	284,152
Under/(over) distributed net investment income		$	(252	)	$	(106	)

See notes to financial statements.

Semi-Annual Report to Shareholders

95

Financial Highlights

Limited Duration Bond 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,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period			$10.36		$	10.54		$	10.70		$	10.32		$	10.26		$	9.92
Investment operations:
	Net investment income		.15	A		.29	A		.26	A		.41	A		.53	A		.62	A
	Net realized and unrealized gain/(loss) on investments, options and futures		(.05	)		(.09	)		(.14	)		.38			.06			.33
	Total from investment operations		.10			.20			.12			.79			.59			.95
Distributions:
	From net investment income		(.15	)		(.37	)		(.28	)		(.41	)		(.53	)		(.61	)
	From net realized gain on investments		—			(.01	)		—			—			—			—
	Total distributions		(.15	)		(.38	)		(.28	)		(.41	)		(.53	)		(.61	)
Net asset value, end of period			$10.31		$	10.36		$	10.54		$	10.70		$	10.32		$	10.26
Ratios/supplemental data:
	Total return		0.99	%B		1.89	%		1.11	%		7.79	%		5.83	%		9.95	%
	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		2.87	%A,C		2.81	%A		2.48	%A		3.85	%A		5.08	%A		6.14	%A
	Portfolio turnover rate		37.7	%B		238.0	%		487.3	%		204.1	%		535.2	%		247.8	%
Net assets, end of period (in thousands)		$	259,343		$	274,606		$	326,844		$	379,793		$	300,597		$	272,668

^A Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 1.00% until April 30, 2006. 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, 2005, 1.15%; and for the years ended December 31, 2004, 1.21%; 2003, 1.21%; 2002, 1.19%; 2001, 1.17%; and 2000, 1.19%.

B	Not annualized.
C	Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

96

Institutional Class:

		Six Months
		Ended
					Years Ended December 31,
		June 30,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period			$10.37		$	10.55		$	10.70		$	10.32		$	10.27			$9.92
Investment operations:
	Net investment income		.19	D		.35	D		.32	D		.46	D		.58	D		.67	D
	Net realized and unrealized gain/(loss) on investments, options and futures		(.06	)		(.10	)		(.14	)		.38			.05			.35
	Total from investment operations		.13			.25			.18			.84			.63			1.02
Distributions:
	From net investment income		(.18	)		(.42	)		(.33	)		(.46	)		(.58	)		(.67	)
	From net realized gain on investments		—			(.01	)		—			—			—			—
	Total distributions		(.18	)		(.43	)		(.33	)		(.46	)		(.58	)		(.67	)
Net asset value, end of period			$10.32		$	10.37		$	10.55		$	10.70		$	10.32		$	10.27
Ratios/supplemental data:
	Total return		1.26	%B		2.41	%		1.71	%		8.35	%		6.30	%		10.64	%
	Expenses to average net assets		0.46	%C,D		0.48	% D		.46	%D		.47	%D		.46	%D		.46	%D
	Net investment income to average net assets		3.42	%C,D		3.22	% D		3.03	% D		4.38	% D		5.63	% D		6.66	% D
	Portfolio turnover rate		37.7	%B		238.0	%		487.3	%		204.1	%		535.2	%		247.8	%
Net assets, end of period (in thousands)		$	14,591		$	9,546		$	7,740		$	9,485		$	7,221		$	6,723

^D Net of fees waived by LMFA for expenses in excess of a voluntary expense limitation of 0.50% until April 30, 2006. 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, 2005, 0.61%; for the years ended December 31, 2004, 0.70%; 2003, 0.68%; 2002, 0.66%; 2001, 0.63%; and 2000, 0.65%.

See notes to financial statements.

Semi-Annual Report to Shareholders

97

Expense Example

U.S. Government Money Market Portfolio

   As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2005, and held through June 30, 2005.

Actual Expenses

   The first line in the table below provides information about actual account values and actual expenses for the Fund. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

   The second line in the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of other funds.

	Beginning		Ending		Expenses PaidA
	Account		Account		During the
	Value		Value		Period
	1/1/05		6/30/05		1/1/05 to 6/30/05
Actual	$	1,000.00	$	1,009.30	$	3.54
Hypothetical (5% return before expenses)		1,000.00	$	1,021.27	$	3.56

^A  These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratio of 0.71% multiplied by the average value over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

Expense Example — Continued

U.S. Government Money Market Portfolio

Semi-Annual Report to Shareholders

98

Performance Information

U.S. Government Money Market Portfolio

Maturity Schedule (As a percentage of the portfolio)

Semi-Annual Report to Shareholders

99

Portfolio of Investments

U.S. Government Money Market Portfolio

June 30, 2005 (Unaudited)

(Amounts in Thousands)

			Maturity
		Rate	Date	Par		Value
U.S. Government and Agency Obligations — 71.5%
	Fannie Mae	2.57% to 3.35%	7/1/05 to 9/27/05	$	53,265	$	53,203
	Fannie Mae	2.73% to 2.95%	8/17/05 to 12/9/05		15,250		15,248	A
	Federal Farm Credit Bank	2.56% to 2.61%	7/6/05 to 7/7/05		7,052		7,049
	Federal Home Loan Bank	2.30% to 3.21%	7/5/05 to 11/4/05		110,608		110,474
	Federal Home Loan Bank	2.66% to 2.98%	3/28/06 to 5/10/06		9,000		8,996	A
	Freddie Mac	2.30% to 3.17%	7/1/05 to 9/26/05		69,392		69,278
	Inter-American Development Bank	2.694%	7/8/05		6,800		6,796
Total U.S. Government and Agency Obligations (Identified Cost — $271,044)						$	271,044
Repurchase Agreements — 28.5%
Lehman Brothers, Inc. 3.25%, dated 6/30/05, to be repurchased at $37,844 on 7/1/05 (Collateral: $37,935 Fannie Mae mortgage-backed securities, 1.875%, due 9/15/05, value $38,805)					37,841		37,841
Merrill Lynch Government Securities, Inc. 3.2%, dated 6/30/05, to be repurchased at $70,006 on 7/1/05 (Collateral: $63,750 Freddie Mac notes, 6.625%, due 9/15/09, value $72,632)					70,000		70,000
Total Repurchase Agreements (Identified Cost — $107,841)							107,841
Total Investments, at Amortized Cost and Value — 100.0%							378,885	B
Other Assets Less Liabilities — N.M.							182
Net Assets Applicable to 379,069 Shares Outstanding — 100.0%						$	379,067
Net Asset Value Per Share						$	1.00

^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, 2005.

^B Also represents cost for income tax purposes.

N.M.— Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders

100

Statement of Operations

U.S. Government Money Market Portfolio

For the Six Months Ended June 30, 2005

(Amounts in Thousands) (Unaudited)

Investment Income:
	Interest						$	5,086
Expenses:
	Management fees			$	988
	Distribution and service fees				198
	Audit and legal fees				17
	Custodian fees				45
	Directors’ fees and expenses				11
	Registration fees				27
	Reports to shareholders				17
	Transfer agent and shareholder servicing expense				89
	Other expenses				8
					1,400
		Less compensating balance credits			(1	)
			Total expenses, net of compensating balance credits					1,399
Net Investment Income								3,687
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on investments							(1	)
Change in Net Assets Resulting From Operations							$	3,686

See notes to financial statements.

Semi-Annual Report to Shareholders

101

Statement of Changes in Net Assets

U.S. Government Money Market Portfolio

(Amounts in Thousands)

	For the Six			For the
	Months Ended			Year Ended
	6/30/05			12/31/04
	(Unaudited)
Change in Net Assets:
Net investment income	$	3,687		$	2,864
Net realized gain/(loss) on investments		(1	)		(1	)
Change in net assets resulting from operations		3,686			2,863
Distributions to shareholders from net investment income		(3,687	)		(2,864	)
Change in net assets from Fund share transactions		(13,615	)		(51,197	)
Change in net assets		(13,616	)		(51,198	)
Net Assets:
Beginning of period	$	392,683		$	443,881
End of period	$	379,067		$	392,683

See notes to financial statements.

Semi-Annual Report to Shareholders

102

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,
		2005			2004			2003			2002			2001			2000
		(Unaudited
Net asset value, beginning of period		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Investment operations:
	Net investment income		.01			.01			.0049	A		.01	A		.04	A		.06	A
	Total from investment operations		.01			.01			.0049			.01			.04			.06
Distributions:
	From net investment income		(.01	)		(.01	)	(	.0049	)		(.01	)		(.04	)		(.06	)
	Total distributions		(.01	)		(.01	)	(	.0049	)		(.01	)		(.04	)		(.06	)
Net asset value, end of period			$1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Ratios/supplemental data:
	Total return		.93	%B		.67	%		.51	%		1.13	%		3.57	%		5.66	%
	Expenses to average net assets		.71	%C		.71	%		.71	%A		.72	%A		.71	%A		.73	%A
	Net investment income to average net assets		1.87	%C		.65	%		.49	%A		1.11	%A		3.46	%A		5.53	%A
Net assets, end of period (in thousands)		$	379,067		$	392,683		$	443,881		$	541,873		$	501,070		$	426,988

^A Net of 12b-1 service fees waived by Legg Mason Wood Walker, Inc. of 0.10% of average daily net assets. If no fees had been waived by Legg Mason, the annualized ratio of expenses to average daily net assets would have been as follows for the year ended December 31, 2003: 0.81%; 2002, 0.82%; 2001, 0.81% and 2000, 0.83%.

B	Not annualized.
C	Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders

103

Notes to Financial Statements

Legg Mason Income Trust, Inc.

(Amounts in Thousands) (Unaudited)

1. Organization and Significant Accounting Policies:

   The Legg Mason Income Trust, Inc. (“Corporation”), consisting of the Core Bond Fund (“Core Bond”), the High Yield Portfolio (“High Yield”), the Investment Grade Income Portfolio (“Investment Grade”), the Limited Duration Bond Portfolio, formerly the U.S. Government Intermediate Portfolio, (“Limited Duration”), and the U.S. Government Money Market Portfolio (“Government Money Market”) (each a “Fund”), is registered under the Investment Company Act of 1940 (“1940 Act”), as amended, as an open-end, diversified investment company.

   The High Yield, Investment Grade and Limited Duration Portfolios consist of two classes of shares: Primary Class and Institutional Class. The income and expenses of each of these Funds are allocated proportionately to the two classes of shares based on daily net assets, except for Rule 12b-1 distribution fees, which are charged only on Primary Class shares, and transfer agent and shareholder servicing expenses, which are determined separately for each class.

   Preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements:

Security Valuation

   Securities owned by Core Bond, High Yield, Investment Grade and Limited Duration for which market quotations are readily available are valued at current market value. Securities for which market quotations are not readily available are fair valued pursuant to procedures adopted by the Board of Directors. In determining fair value, the Board of Directors or the Funds’ Valuation Committee considers all relevant qualitative and quantitative factors available. These factors are subject to change over time and are reviewed periodically. The values assigned to fair value investments are based on available information and do not necessarily represent amounts that might ultimately be realized, since such amounts depend on future developments inherent in long-term investments. Further, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market of the investments existed, and the differences could be material.

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Semi-Annual Report to Shareholders

104

   With respect to High Yield, where a security is traded on more than one market, which may include foreign markets, the securities are generally valued on the market considered by the Fund’s adviser to be the primary market. The Fund will value its foreign securities in U.S. dollars on the basis of the then-prevailing exchange rates. Assets and liabilities initially expressed in non-U.S. currencies are translated into U.S. dollars using currency exchange rates determined prior to the close of trading on the Exchange, usually at 2:00 p.m. Eastern time. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are included with the net realized and unrealized gain or loss on investment securities.

   In accordance with Rule 2a-7, the investments of Government Money Market are valued on the basis of amortized cost, so long as the Fund’s Board of Directors determines that this method constitutes fair value. Under this method, securities are valued at cost when purchased and, thereafter, a constant proportionate accretion or amortization of any discount or premium is recorded until maturity of the security.

Security Transactions

   Security transactions are recorded on the trade date. Realized gains and losses from security transactions are reported on an identified cost basis for both financial reporting and federal income tax purposes.

   For the six months ended June 30, 2005, 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	$	160,341	$	26,962	$	139,922	$	4,432
High Yield		—		114,100		—		124,696
Investment Grade		24,987		85,779		18,875		83,706
Limited Duration		43,436		63,098		56,819		43,892

Semi-Annual Report to Shareholders

105

Repurchase Agreements

   The Funds may engage in repurchase agreement transactions. Under the terms of a typical repurchase agreement, a fund takes possession of an underlying debt obligation subject to an obligation of the seller to repurchase, and a fund to resell, the obligation at an agreed-upon price and time, thereby determining the yield during a fund’s holding period. This arrangement results in a fixed rate of return that is not subject to market fluctuations during the fund’s holding period. The value of the collateral is at all times at least equal to the total amount of the repurchase obligation, including interest. In the event of counterparty default, a fund has the right to use the collateral to satisfy the terms of the repurchase agreement. However, there could be potential loss to the fund in the event the fund is delayed or prevented from exercising its right to dispose of the collateral securities, including the risk of a possible decline in the value of the collateral securities during the period in which the fund seeks to assert its rights. The Funds’ investment adviser reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Funds enter into repurchase agreements to evaluate potential risks.

Investment Income and Distributions to Shareholders

   Dividend income and distributions to shareholders are allocated at the class level and are recorded on the ex-dividend date. Dividends from net investment income are declared daily and paid monthly for each Fund except High Yield, which declares and pays dividends monthly. Net capital gain distributions, which are calculated at the Fund level, are declared and paid after the end of the tax year in which the gain is realized. An additional distribution may be made in December, to the extent necessary in order to comply with federal excise tax regulations. Distributions are determined in accordance with federal income tax regulations, which may differ from those determined in accordance with accounting principles generally accepted in the United States of America; accordingly, periodic reclassifications are made within the Funds’ capital accounts to reflect income and gains available for distribution under federal income tax regulations.

Compensating Balance Credits

   The Funds have an arrangement with their custodian bank, whereby a portion of the custodian’s fee is paid indirectly by credits earned on each Fund’s cash on deposit with the bank. This deposit arrangement is an alternative to purchasing overnight investments.

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Semi-Annual Report to Shareholders

106

Other

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

2. Federal Income Taxes:

   No provision for federal income or excise taxes is required since each Fund intends to qualify or to continue to qualify as a regulated investment company and distribute substantially all of its taxable income and capital gain to its shareholders. Because federal income tax regulations differ from accounting principles generally accepted in the United States of America, income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes differ from those reflected in the accompanying financial statements. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2005.

3. Financial Instruments:

Options and Futures

   As part of their investment programs, Core Bond, High Yield, Investment Grade and Limited Duration may utilize options and futures. Options may be written (sold) or purchased by these Funds. When a Fund purchases a put or call option, the premium paid is recorded as an investment and its value is marked-to-market daily. When a Fund writes a put or call option, an amount equal to the premium received by the Fund is recorded as a liability and its value is marked-to-market daily.

   When options, whether written or purchased, expire, are exercised or are closed (by entering into a closing purchase or sale transaction), the Fund realizes a gain or loss as described in the chart below:

Purchased option:	Impact on the Fund:
The option expires	Realize a loss in the amount of the cost of the option.
The option is closed through a closing sale transaction	Realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option.

Semi-Annual Report to Shareholders

107

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.

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Semi-Annual Report to Shareholders

108

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

Core Bond Fund:

	Calls						Puts
	Actual						Actual
	Contracts			Premiums			Contracts			Premiums
Options outstanding at December 31, 2004		76		$	57			105		$	97
Options written		600,270			192			205			142
Options closed		(105	)		(74	)		(51	)		(47	)
Options expired		(83	)		(57	)		(160	)		(123	)
Options exercised		(8	)		(4	)		—			—
Options outstanding at June 30, 2005		600,150		$	114			99		$	69

   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.

   The Funds enter into futures contracts as a hedge against anticipated changes in interest rates. There are several risks in connection with the use of futures contracts as a hedging device. Futures contracts involve, to varying degrees, risk of loss in excess of the amounts reflected in the financial statements. The change in the value of futures contracts primarily corresponds with the value of their underlying instruments, which may not correlate with the change in the value of the hedged instruments. In addition, there is the risk that a Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

   The open futures positions and related appreciation or depreciation at June 30, 2005, for Core Bond, Investment Grade, and Limited Duration are listed at the end of each Fund’s portfolio of investments.

Forward Currency Exchange Contracts

   As part of its investment program, High Yield may utilize forward currency exchange contracts. The nature and risks of these financial instruments and the reasons for using them are set forth more fully in the Corporation’s prospectus and statement of additional information.

Semi-Annual Report to Shareholders

109

   Forward foreign currency contracts are marked-to-market daily using forward foreign currency exchange rates supplied by an independent pricing service. The change in a contract’s market value is recorded by High Yield as an unrealized gain or loss. When the contract is closed or delivery is taken, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

   The use of forward foreign currency contracts does not eliminate fluctuations in the underlying prices of the Fund’s securities, but it does establish a rate of exchange that can be achieved in the future. These forward foreign currency contracts involve market risk in excess of amounts reflected in the financial statements. Although forward foreign currency contracts used for hedging purposes limit the risk of loss due to a decline in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency increase. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s adviser will enter into forward foreign currency contracts only with parties approved by the Board of Directors because there is a risk of loss to the Fund if the counterparties do not complete the transaction.

   At June 30, 2005, High Yield had no open forward currency exchange contracts.

Swap Agreements

   The use of swaps involves risks that are different from those associated with ordinary portfolio securities transactions. Swap agreements may be considered to be illiquid. Although a Fund will not enter into any swap agreement unless the adviser believes that the other party to the transaction is creditworthy, a Fund does bear the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of the agreement counterparty. The nature and risks of these financial instruments and the reasons for using them are set forth more fully in the Corporation’s prospectus and statement of additional information.

   The Funds may invest in different types of swap agreements. Credit default swap contracts represent the exchange of commitments to provide a level of credit protection for a commitment to receive interest at a fixed rate based on the potential risk of default of the relevant underlying issuer (for credit default swap contracts, the relevant underlying issuer is listed in a parenthetical reference following the agreement counterparty). Interest rate swap contracts involve the exchange of commitments to pay and receive interest based on a notional principal amount. Total return swap contracts involve the exchange of commitments to pay and receive interest based on the total return of an index over a specified period.

   At June 30, 2005, there were no swap contracts outstanding for any fund.

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Semi-Annual Report to Shareholders

110

4. Transactions With Affiliates:

   Each Fund has a management agreement with Legg Mason Fund Adviser, Inc. (“LMFA”). Pursuant to their respective agreements, LMFA provides the Funds with management and administrative services for which each Fund pays a fee, computed daily and payable monthly, at annual rates of each Fund’s average daily net assets. LMFA has contractually agreed to waive its fees to the extent each Fund’s expenses (exclusive of taxes, interest, brokerage and extraordinary expenses) exceed during any month certain annual rates. These contractual expense limitations for Core Bond, Investment Grade and Limited Duration are due to expire on April 30, 2006. Pursuant to an agreement approved by the Board, each Fund has agreed to repay LMFA for waived fees and reimbursed expenses provided that payment does not cause operating expenses to exceed 1.00% of the Primary Class shares and 0.50% of the Institutional Class shares average net assets and the payment is made within three years after the year in which LMFA earned the fee or incurred the expense. High Yield and Government Money Market have no expense limitations. The following chart shows annual rates of management fees, expense limits, and management fees waived, for each Fund:

						Six Months
						Ended
						June 30, 2005
				Expense		Management
Fund		Management Fee		Limitation		Fees Waived
Core Bond			0.45%		1.00%	$	(108	)
High Yield
	— Primary Class		0.65%		None		—
	— Institutional Class		0.65%		None		—
Investment Grade
	— Primary Class		0.60%		1.00%		(547	)
	— Institutional Class		0.60%		0.50%		(17	)
Limited Duration
	— Primary Class		0.45%		1.00%		(202	)
	— Institutional Class		0.45%		0.50%		(7	)
Government Money Market		0.50% – 0.40% A			None		—

^A 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%

Semi-Annual Report to Shareholders

111

   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 40% of the management fee received by LMFA for Core Bond; 77% of the management fee received by LMFA for High Yield; 40% of the management fee received for Investment Grade; and 30% for Government Money Market. For Limited Duration, 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.

   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.

	Distribution		Service
	Fee		Fee
Core Bond		0.25%		0.25%
High Yield		0.25%		0.25%
Investment Grade		0.25%		0.25%
Limited Duration		0.25%		0.25%
Government Money Market		N/A		0.10%

   LM Fund 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, 2005: Core Bond, $9; High Yield, $27; Investment Grade, $40; Limited Duration, $26; and Government Money Market, $42.

   LMFA, the Adviser, Legg Mason and LMFS are corporate affiliates and wholly owned subsidiaries of Legg Mason, Inc.

   Under a Deferred Compensation Plan (the “Plan”), directors may elect to defer receipt of all or a specified portion of their compensation. A participating director may select one or more funds in which his or her deferred director’s fees will be deemed to be invested. Deferred amounts remain in the fund until distributed in accordance with the Plan.

5. Line of Credit:

   The Funds, excluding Government Money Market, but including certain other Legg Mason Funds, participate in a $400 million line of credit (“Credit Agreement”) to be used for temporary or emergency purposes. Pursuant to the Credit Agreement, each participating Fund is liable only for principal and interest payments related to borrowings made by that Fund. Borrowings under the Credit Agreement bear interest at a rate equal to the federal

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Semi-Annual Report to Shareholders

112

funds rate plus the federal funds rate margin. None of the Funds utilized the line of credit during the six months ended June 30, 2005.

6. Fund Share Transactions:

   At June 30, 2005, there were 2,000,000 shares authorized at $.001 par value for all classes of each portfolio of the Corporation. At June 30, 2005, for U.S. Government Money Market, net assets consisted of paid-in capital of $379,069 and accumulated net realized loss of $(2). Share transactions were as follows:

		Core Bond
		Six Months			Period
		Ended			Ended
		6/30/05			12/31/04A
Shares
	Sold		2,124			7,274
	Reinvestment of Distributions		87			111
	Repurchased		(1,282	)		(977	)
	Net Change		929			6,408
Amount
	Sold	$	21,053		$	72,052
	Reinvestment of Distributions		865			1,103
	Repurchased		(12,673	)		(9,621	)
	Net Change	$	9,245		$	63,534

^A For the period February 27, 2004 (commencement of operations) to December 31, 2004.

Semi-Annual Report to Shareholders

113

		High Yield
		Primary Class						Institutional Class
		Six Months			Year			Six Months			Year
		Ended			Ended			Ended			Ended
		6/30/05			12/31/04			6/30/05			12/31/04
Shares
	Sold		1,478			4,287			592			608
	Reinvestment of Distributions		507			1,211			34			61
	Repurchased		(3,982	)		(8,220	)		(244	)		(446	)
	Net Change		(1,997	)		(2,722	)		382			223
Amount
	Sold	$	13,664		$	39,099		$	5,461		$	5,538
	Reinvestment of Distributions		4,643			10,986			310			558
	Repurchased		(36,700	)		(74,487	)		(2,263	)		(4,056	)
	Net Change	$	(18,393	)	$	(24,402	)	$	3,508		$	2,040

		Investment Grade
		Primary Class						Institutional Class
		Six Months			Year			Six Months			Year
		Ended			Ended			Ended			Ended
		6/30/05			12/31/04			6/30/05			12/31/04
Shares
	Sold		3,486			7,793			830			557
	Reinvestment of Distributions		797			2,253			29			58
	Repurchased		(4,786	)		(10,301	)		(70	)		(213	)
	Net Change		(503	)		(255	)		789			402
Amount
	Sold	$	37,398		$	84,747		$	8,929		$	6,057
	Reinvestment of Distributions		8,524			24,367			307			631
	Repurchased		(51,320	)		(111,468	)		(756	)		(2,318	)
	Net Change	$	(5,398	)	$	(2,354	)	$	8,480		$	4,370

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Semi-Annual Report to Shareholders

114

		Limited Duration
		Primary Class						Institutional Class
		Six Months			Year			Six Months			Year
		Ended			Ended			Ended			Ended
		6/30/05			12/31/04			6/30/05			12/31/04
Shares
	Sold		2,043			5,553			612			499
	Reinvestment of Distributions		310			910			15			33
	Repurchased		(3,713	)		(10,970	)		(134	)		(345	)
	Net Change		(1,360	)		(4,507	)		493			187
Amount
	Sold	$	21,086		$	58,022		$	6,318		$	5,222
	Reinvestment of Distributions		3,193			9,486			156			346
	Repurchased		(38,285	)		(114,563	)		(1,386	)		(3,611	)
	Net Change	$	(14,006	)	$	(47,055	)	$	5,088		$	1,957

		U.S. Government
		Money Market
		Six Months			Year
		Ended			Ended
		6/30/05			12/31/04
Shares
	Sold		667,438			1,461,762
	Reinvestment of Distributions		2,464			2,616
	Repurchased		(683,517	)		(1,515,575	)
	Net Change		(13,615	)		(51,197	)
Amount
	Sold	$	667,438		$	1,461,762
	Reinvestment of Distributions		2,464			2,616
	Repurchased		(683,517	)		(1,515,575	)
	Net Change	$	(13,615	)	$	(51,197	)

Fund Information

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
Dr. Ruby P. Hearn
Arnold L. Lehman
Robin J.W. Masters
Dr. Jill E. McGovern
Arthur S. Mehlman
G. Peter O’Brien
S. Ford Rowan
Robert M. Tarola

Officers

Marie K. Karpinski, Vice President and Treasurer
Gregory T. Merz, Vice President and Chief Legal Officer
Amy M. Olmert, Vice President and Chief Compliance Officer
Richard M. Wachterman, Secretary
Erin K. Morris, Assistant Treasurer

Transfer and Shareholder Servicing Agent

Boston Financial Data Services
Braintree, MA

Custodian

State Street Bank & Trust Company
Boston, MA

Counsel

Kirkpatrick & Lockhart Nicholson Graham LLP
Washington, DC

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP
Baltimore, MD

About the Legg Mason Funds

Equity Funds
American Leading Companies Trust
Classic Valuation Fund
Growth Trust
Special Investment Trust
U.S. Small-Capitalization Value Trust
Value Trust

Specialty Funds
Balanced Trust
Financial Services Fund
Opportunity Trust

Global Funds
Emerging Markets Trust
Global Income Trust
International Equity Trust

Taxable Bond Funds
Core Bond Fund
High Yield Portfolio
Investment Grade Income Portfolio
Limited Duration Bond Portfolio

Tax-Free Bond Funds
Maryland Tax-Free Income Trust
Pennsylvania Tax-Free Income Trust
Tax-Free Intermediate-Term Income Trust

Money Market Funds
Cash Reserve Trust
Tax-Exempt Trust
U.S. Government Money Market Portfolio 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.

Information about the policies and procedures that each Fund uses to determine how to vote proxies relating to its portfolio securities is contained in the Statement of Additional Information, available without charge upon request by calling 1-800-822-5544 or on the Securities and Exchange Commission (“SEC”) website (http://www.sec.gov). Information regarding how each Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is also available on the SEC’s website or through the Funds’ website at www.leggmasonfunds.com/aboutlmf.

Each Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Form N-Q is available on the SEC’s website or may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

For more information about the differences between the fund share classes included in this report, contact a Legg Mason Financial Advisor.

You should consider a fund’s investment objectives, risks, charges, and expenses carefully before investing. For a prospectus, which contains this and other information on any Legg Mason fund, call your Legg Mason Financial Advisor, call 1-800-577-8589, or visit www.leggmasonfunds.com. Please read the prospectus carefully before investing.

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 as part of the report to shareholders filed under Item 1 of this Form.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

     Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

     Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers.

     Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

     Not applicable.

Item 11. Controls and Procedures.

     (a) The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) that the Registrant’s disclosure controls and procedures are effective, and that the disclosure controls and procedures are reasonably designed to ensure that the 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 is properly communicated to the Registrant’s officers, as appropriate, to allow timely decisions regarding the required disclosures.

     (b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) during the Registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 12. Exhibits.

     (a) (1) Not applicable for semi-annual reports.

(a) (2) Separate certifications for the Registrant’s principal executive officer and principal financial officer are attached.

(b) Separate certifications for the Registrant’s principal executive officer and principal financial officer are attached.

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: August 24, 2005     

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Mark R. Fetting     
 
 
Mark R. Fetting
President, Legg Mason Income Trust, Inc.

Date: August 24, 2005     
 
 
By: /s/ Marie K. Karpinski     
 
 
Marie K. Karpinski
Treasurer, Legg Mason Income Trust, Inc.
Date: August 24, 2005