UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number 811-4254

Legg Mason Partners Income Funds

(Exact name of registrant as specified in charter)

125 Broad Street, New York, NY 10004

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

300 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code: 1-800-451-2010

Date of fiscal year end: July 31

Date of reporting period: October 31, 2006

ITEM 1. SCHEDULE OF INVESTMENTS

LEGG MASON PARTNERS INCOME FUNDS

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

FORM N-Q

OCTOBER 31, 2006

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) October 31, 2006

SHARES	SECURITY	VALUE
COMMON STOCKS - 59.3%
CONSUMER DISCRETIONARY - 2.8%
Hotels, Restaurants & Leisure - 1.0%
125,000	McDonald’s Corp.	$	5,240,000
Media - 1.8%
50,000	Clear Channel Communications Inc.		1,742,500
75,000	Gannett Co. Inc.		4,435,500
125,000	Walt Disney Co.		3,932,500
	Total Media		10,110,500
	TOTAL CONSUMER DISCRETIONARY		15,350,500
CONSUMER STAPLES - 8.4%
Beverages - 2.7%
237,377	PepsiCo Inc. (a)		15,059,197
Food & Staples Retailing - 0.4%
50,000	Wal-Mart Stores Inc.		2,464,000
Food Products - 1.9%
1,948	Aurora Foods Inc. (b)(c)*		0
100,000	General Mills Inc.		5,682,000
50,000	H.J. Heinz Co.		2,108,000
50,000	Hershey Co.		2,645,500
	Total Food Products		10,435,500
Household Products - 3.4%
90,000	Kimberly-Clark Corp.		5,986,800
200,000	Procter & Gamble Co. (a)		12,678,000
	Total Household Products		18,664,800
	TOTAL CONSUMER STAPLES		46,623,497
ENERGY - 5.6%
Energy Equipment & Services - 1.4%
120,000	Schlumberger Ltd.		7,569,600
Oil, Gas & Consumable Fuels - 4.2%
230,000	Exxon Mobil Corp. (a)		16,426,600
100,000	Total SA, ADR		6,814,000
	Total Oil, Gas & Consumable Fuels		23,240,600
	TOTAL ENERGY		30,810,200
FINANCIALS - 13.1%
Capital Markets - 2.5%
100,000	Bank of New York Co. Inc.		3,437,000
50,000	Merrill Lynch & Co. Inc.		4,371,000
100,000	UBS AG		5,984,000
	Total Capital Markets		13,792,000
Commercial Banks - 1.8%
275,000	Wells Fargo & Co. (a)		9,979,750
Consumer Finance - 1.5%
75,000	American Express Co.		4,335,750
50,000	Capital One Financial Corp.		3,966,500
	Total Consumer Finance		8,302,250
Diversified Financial Services - 2.5%
85,000	Bank of America Corp.		4,578,950
198,000	JPMorgan Chase & Co.		9,393,120
	Total Diversified Financial Services		13,972,070
Insurance - 4.4%
75,000	American International Group Inc.		5,037,750
100,000	Chubb Corp.		5,315,000

See Notes to Schedule of Investments.

1

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

SHARES	SECURITY	VALUE
Insurance - 4.4% (continued)
30,000	Marsh & McLennan Cos. Inc.	$	883,200
250,000	St. Paul Travelers Cos. Inc. (a)		12,782,500
	Total Insurance		24,018,450
Thrifts & Mortgage Finance - 0.4%
75,000	Brookline Bancorp Inc.		999,750
75,000	Hudson City Bancorp Inc.		1,029,750
	Total Thrifts & Mortgage Finance		2,029,500
	TOTAL FINANCIALS		72,094,020
HEALTH CARE - 7.5%
Health Care Providers & Services - 1.1%
125,000	UnitedHealth Group Inc.		6,097,500
Pharmaceuticals - 6.4%
98,775	Bristol-Myers Squibb Co.		2,444,681
200,000	Johnson & Johnson (a)		13,480,000
135,000	Merck & Co. Inc.		6,131,700
300,000	Pfizer Inc.		7,995,000
105,000	Wyeth		5,358,150
	Total Pharmaceuticals		35,409,531
	TOTAL HEALTH CARE		41,507,031
INDUSTRIALS - 12.5%
Aerospace & Defense - 4.0%
130,000	Honeywell International Inc.		5,475,600
135,000	Raytheon Co.		6,743,250
150,000	United Technologies Corp.		9,858,000
	Total Aerospace & Defense		22,076,850
Air Freight & Logistics - 0.7%
50,000	United Parcel Service Inc., Class B Shares		3,767,500
Building Products - 0.6%
115,000	Masco Corp.		3,179,750
Commercial Services & Supplies - 2.0%
100,000	Pitney Bowes Inc.		4,671,000
175,000	Waste Management Inc.		6,559,000
	Total Commercial Services & Supplies		11,230,000
Industrial Conglomerates - 5.2%
136,000	3M Co. (a)		10,722,240
450,000	General Electric Co. (a)		15,799,500
70,000	Tyco International Ltd.		2,060,100
	Total Industrial Conglomerates		28,581,840
	TOTAL INDUSTRIALS		68,835,940
INFORMATION TECHNOLOGY - 2.3%
Computers & Peripherals - 0.8%
50,000	International Business Machines Corp.		4,616,500
IT Services - 0.9%
100,000	Automatic Data Processing Inc.		4,944,000
Software - 0.6%
105,000	Microsoft Corp.		3,014,550
	TOTAL INFORMATION TECHNOLOGY		12,575,050
MATERIALS - 3.0%
Chemicals - 3.0%
212,000	E.I. du Pont de Nemours & Co.		9,709,600
45,000	Ecolab Inc.		2,040,750
75,000	PPG Industries Inc.		5,130,000
	TOTAL MATERIALS	$	16,880,350

See Notes to Schedule of Investments.

2

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

	SHARES		SECURITY	VALUE
	TELECOMMUNICATION SERVICES - 1.0%
	Diversified Telecommunication Services - 0.7%
	105,000		Verizon Communications Inc.	3,885,000
	Wireless Telecommunication Services - 0.3%
	30,000		ALLTEL Corp.	1,599,300
			TOTAL TELECOMMUNICATION SERVICES	5,484,300
	UTILITIES - 3.1%
	Electric Utilities - 1.3%
	218,400		Duke Energy Corp.	6,910,176
	Multi-Utilities - 1.8%
	115,000		KeySpan Corp.	4,666,700
	100,000		Sempra Energy	5,304,000
			Total Multi-Utilities	9,970,700
			TOTAL UTILITIES	16,880,876
			TOTAL COMMON STOCKS (Cost - $262,037,394)	327,041,764
	CONVERTIBLE PREFERRED STOCKS - 0.1%
	TELECOMMUNICATION SERVICES - 0.1%
	Wireless Telecommunication Services - 0.1%
	6,100		Crown Castle International Corp., 6.250% due 8/15/12 (Cost - $180,325)	337,788
	PREFERRED STOCKS - 0.0%
	ENERGY - 0.0%
	Oil, Gas & Consumable Fuels - 0.0%
	260		Chesapeake Energy Corp., Convertible, 6.250% (Cost - $65,334)	71,143
	FACE AMOUNT	RATING‡
	ASSET-BACKED SECURITIES - 3.7%
	Automobiles - 1.3%
$	2,772,338	AAA	AmeriCredit Automobile Receivables Trust, Series 2004-AF, Class A4, 2.870% due 2/7/11	2,731,991
	2,500,000	AAA	ARG Funding Corp., Series 2005-1A, Class A3, 4.290% due 4/20/10 (d)	2,439,465
	2,000,000	AAA	Hertz Vehicle Financing LLC, Series 2005-2A, Class A3, 5.520% due 2/25/11 (d)(e)	2,001,812
			Total Automobiles	7,173,268
	Diversified Financial Services - 0.0%
	2,750,745	D	Airplanes Pass-Through Trust, Subordinated Notes, Series D, 10.875% due 3/15/19 (b)(c)(f)	0
	Home Equity - 2.4%
	1,127,758	AAA	Bear Stearns Asset Backed Securities Inc., Series 2006-1, Class A, 5.610% due 2/25/36 (e)	1,129,049
	366,423	AAA	Centex Home Equity Loan Trust, Series 2003-B, Class AF4, 3.235% due 2/25/32 (e)	359,012
			Countrywide Home Equity Loan Trust:
	1,066,206	AAA	Series 2004-J, Class 2A, 5.610% due 12/15/33 (e)	1,068,672
	1,202,018	AAA	Series 2004-P, Class 2A, 5.640% due 3/15/34 (e)	1,205,837
	1,381,520	AAA	Series 2005-E, Class 2A, 5.540% due 11/15/35 (e)	1,382,780
	1,600,219	AAA	Series 2005-I, Class 2A, 5.550% due 2/15/36 (e)	1,601,209
	1,500,000	Aaa(g)	Irwin Home Equity, Series 2005-1, Class 2A2, 4.720% due 6/25/25 (e)	1,482,490

See Notes to Schedule of Investments.

3

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

	FACE AMOUNT	RATING‡	SECURITY		VALUE
	Home Equity - 2.4% (continued)
$	146,018	AAA	Option One Mortgage Loan Trust, Series 2003-1, Class A2, 5.740% due 2/25/33 (e)	$	146,284
			SACO I Trust:
	2,200,000	AAA	Series 2005-WM3, Class A3, 5.670% due 9/25/35 (e)		2,202,111
	773,986	AAA	Series 2006-1, Class A, 5.490% due 9/25/35 (e)		774,466
	2,100,000	AAA	Series 2006-3, Class A3, 5.560% due 4/25/36 (e)		2,102,343
			Total Home Equity		13,454,253
			TOTAL ASSET-BACKED SECURITIES (Cost - $23,688,469)		20,627,521
	COLLATERALIZED MORTGAGE OBLIGATIONS(e) - 5.3%
	1,510,000	AAA	Banc of America Commercial Mortgage Inc., Series 2006-1, Class A4, 5.372% due 9/10/45		1,520,742
			Banc of America Funding Corp.:
	1,670,687	AAA	5.520% due 6/20/35		1,681,437
	1,488,722	AAA	Series 2005-E, Class 7A1, 5.520% due 6/20/35		1,500,469
	1,053,966	AAA	Bayview Commercial Asset Trust, Series 2006-1A, Class A1, 5.590% due 4/25/36 (b)(d)		1,054,062
			Countrywide Alternative Loan Trust:
	1,775,203	AAA	Series 2005-59, Class 1A1, 5.656% due 11/20/35		1,782,178
	1,877,592	AAA	Series 2005-72, Class A1, 5.590% due 1/25/36		1,880,156
	2,416,570	AAA	Series 2006-OA2, Class A5, 5.550% due 5/20/46		2,420,703
	1,510,000	AAA	Credit Suisse Mortgage Capital Certificates, Series 2006-C1, Class A4, 5.609% due 2/15/39		1,540,503
	1,170,020	AAA	Downey Savings and Loan Association Mortgage Loan Trust, Series 2004-AR1, Class A2B, 5.740% due 9/19/44		1,178,177
	1,893,194	AAA	Lehman XS Trust, Series 2006-4N, Class A2A, 5.540% due 4/25/46		1,894,081
	630,000	AAA	Merrill Lynch Mortgage Trust, Series 2006-C1, Class A4, 5.844% due 5/12/39		650,938
	1,820,620	AAA	Structured Adjustable Rate Mortgage Loan Trust, Series 2005-11, Class 3A, 5.407% due 5/25/35		1,827,422
	2,338,135	AAA	Structured Asset Mortgage Investment Inc., Series 2006-AR3, Class 11A1, 5.530% due 4/25/36		2,339,620
	1,539,340	AAA	Thornburg Mortgage Securities Trust, Series 2006-1, Class A3, 5.490% due 1/25/36		1,537,931
			Washington Mutual Inc.:
			Series 2005-AR01:
	1,489,872	AAA	Class A1A, 5.640% due 1/25/45		1,496,879
	1,638,860	AAA	Class A2A1, 5.660% due 1/25/45		1,642,157
	1,410,856	AAA	Series 2005-AR13, Class A1B3, 5.680% due 10/25/45		1,418,787
	2,166,760	AAA	Series 2005-AR17, Class A1A2, 5.610% due 12/25/45		2,177,253
			TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost - $29,366,811)		29,543,495
	CONVERTIBLE BOND & NOTE - 0.0%
	Semiconductors & Semiconductor Equipment - 0.0%
	55,000	CCC	Amkor Technologies Inc., Senior Subordinated Bond, 2.500% due 5/15/11 (Cost - $46,632)		46,681
	CORPORATE BONDS & NOTES - 14.1%
	Aerospace & Defense - 0.1%
	180,000	B+	DRS Technologies Inc., Senior Subordinated Notes, 6.625% due 2/1/16		179,100
	170,000	BB+	L-3 Communications Corp., Senior Subordinated Notes, 7.625% due 6/15/12		177,437
			Total Aerospace & Defense		356,537
	Airlines - 0.2%
			Continental Airlines Inc., Pass-Through Certificates:
	72,385	B+	Series 2000-2, Class C, 8.312% due 4/2/11		73,335

See Notes to Schedule of Investments.

4

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

	FACE AMOUNT	RATING‡	SECURITY		VALUE
	Airlines - 0.2% (continued)
$	355,000	B	Series 2001-2, Class D, 7.568% due 12/1/06	$	355,222
			United Airlines Inc., Pass-Through Certificates:
	162,820	B	Series 2000-1, Class B, 8.030% due 7/1/11 (f)		166,992
	245,469	B	Series 2000-2, Class B, 7.811% due 10/1/09 (f)		264,032
			Series 2001-1:
	105,000	B+	Class B, 6.932% due 9/1/11 (f)		115,041
	230,000	CCC-	Class C, 6.831% due 9/1/08 (f)		243,944
			Total Airlines		1,218,566
	Auto Components - 0.1%
	135,000	B	Arvin Capital I, Capital Securities, 9.500% due 2/1/27		137,869
	200,000	B-	Keystone Automotive Operations Inc., Senior Subordinated Notes, 9.750% due 11/1/13		194,000
	60,000	BB-	TRW Automotive Inc., Senior Subordinated Notes, 11.000% due 2/15/13		66,150
			Visteon Corp., Senior Notes:
	160,000	CCC+	8.250% due 8/1/10		153,600
	135,000	CCC+	7.000% due 3/10/14		117,787
			Total Auto Components		669,406
	Automobiles - 0.5%
			DaimlerChrysler North America Holding Corp.:
	500,000	BBB	5.875% due 3/15/11		504,164
	480,000	BBB	Notes, 4.050% due 6/4/08		469,515
			Ford Motor Co.:
			Debentures:
	65,000	B	8.875% due 1/15/22		56,713
	100,000	B	6.625% due 10/1/28		74,000
	65,000	B	8.900% due 1/15/32		58,988
	1,110,000	B	Notes, 7.450% due 7/16/31		875,512
			General Motors Corp., Senior Debentures:
	175,000	B-	8.250% due 7/15/23		156,187
	870,000	B-	8.375% due 7/15/33		778,650
			Total Automobiles		2,973,729
	Building Products - 0.1%
			Associated Materials Inc.:
	15,000	CCC	Senior Discount Notes, step bond to yield 15.827% due 3/1/14		8,888
	200,000	CCC	Senior Subordinated Notes, 9.750% due 4/15/12		205,500
	70,000	B	Jacuzzi Brands Inc., Senior Secured Notes, 9.625% due 7/1/10		75,337
	60,000	CCC+	Nortek Inc., Senior Subordinated Notes, 8.500% due 9/1/14		57,600
	410,000	CCC+	NTK Holdings Inc., Senior Discount Notes, step bond to yield 11.255% due 3/1/14		282,900
			Total Building Products		630,225
	Capital Markets - 0.5%
	195,000	B	BCP Crystal U.S. Holdings Corp., Senior Subordinated Notes, 9.625% due 6/15/14		214,988
	180,000	AA-	Credit Suisse USA Inc., Senior Notes, 5.500% due 8/16/11		182,434
			E*TRADE Financial Corp., Senior Notes:
	100,000	BB-	7.375% due 9/15/13		103,250
	45,000	BB-	7.875% due 12/1/15		47,813
	410,000	AA-	Goldman Sachs Group Inc., Notes, 4.500% due 6/15/10		401,549
	510,000	A+	Lehman Brothers Holdings Inc., Notes, 4.000% due 1/22/08		502,905
	1,465,000	A	Morgan Stanley, Subordinated Notes, 4.750% due 4/1/14		1,403,880
			Total Capital Markets		2,856,819

See Notes to Schedule of Investments.

5

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Chemicals - 0.2%
$	150,000	B+	Arco Chemical Co., Debentures, 9.800% due 2/1/20	$	170,250
	190,000	B+	Georgia Gulf Corp., Senior Notes, 9.500% due 10/15/14 (d)		188,100
	55,000	B	Huntsman International LLC, 7.875% due 11/13/14 (d)		55,000
			Lyondell Chemical Co.:
			Senior Notes:
	50,000	B+	8.000% due 9/15/14		51,375
	45,000	B+	8.250% due 9/15/16		46,575
			Senior Secured Notes:
	315,000	BB	11.125% due 7/15/12		342,562
	20,000	BB	10.500% due 6/1/13		22,100
	135,000	BBB-	Methanex Corp., Senior Notes, 8.750% due 8/15/12		146,137
	110,000	B-	Montell Finance Co. BV, Debentures, 8.100% due 3/15/27 (d)		103,950
	55,000	BB+	Westlake Chemical Corp., Senior Notes, 6.625% due 1/15/16		52,938
			Total Chemicals		1,178,987
	Commercial Banks - 0.6%
			Glitnir Banki HF:
	240,000	A-	Notes, 6.330% due 7/28/11 (d)		247,547
	420,000	BBB+	Subordinated Notes, 6.693% due 6/15/16 (d)(e)		433,886
	300,000	BBB-	Resona Preferred Global Securities Cayman Ltd., Bonds, 7.191% due 7/30/15 (d)(e)		315,060
	325,000	BBB-	Shinsei Finance Cayman Ltd., Bonds, 6.418% due 7/20/16 (d)(e)		327,425
	1,020,000	A	Wachovia Corp., Subordinated Notes, 5.250% due 8/1/14		1,012,714
	900,000	AA	Wells Fargo & Co., Notes, 5.300% due 8/26/11		907,443
			Total Commercial Banks		3,244,075
	Commercial Services & Supplies - 0.2%
	100,000	CCC+	Allied Security Escrow Corp., Senior Subordinated Notes, 11.375% due 7/15/11		101,000
	485,000	BB-	Allied Waste North America Inc., Senior Notes, Series B, 8.500% due 12/1/08		512,888
	125,000	BB-	Corrections Corporation of America, Senior Subordinated Notes, 6.250% due 3/15/13		122,500
	140,000	B	DynCorp International LLC/DIV Capital Corporation, Senior Subordinated Notes, Series B, 9.500% due 2/15/13		146,300
	480,000	BBB	Waste Management Inc., 6.375% due 11/15/12		502,651
			Total Commercial Services & Supplies		1,385,339
	Communications Equipment - 0.0%
	220,000	B	Lucent Technologies Inc., Debentures, 6.450% due 3/15/29		198,000
	Consumer Finance - 0.7%
			Ford Motor Credit Co.:
			Notes:
	100,000	B	6.625% due 6/16/08		98,149
	2,785,000	B	7.375% due 10/28/09		2,712,618
	50,000	B	7.000% due 10/1/13		46,543
	50,000	B	Senior Notes, 9.875% due 8/10/11		51,715
			General Motors Acceptance Corp., Notes:
	620,000	BB	6.125% due 8/28/07		618,131
	25,000	BB	7.250% due 3/2/11		25,495
	50,000	BB	8.000% due 11/1/31		53,723
			Total Consumer Finance		3,606,374
	Containers & Packaging - 0.4%
	85,000	CCC+	Berry Plastics Holding Corp., Senior Secured Notes, 8.875% due 9/15/14 (d)		86,275
	205,000	CCC+	Graham Packaging Co. Inc., Senior Subordinated Notes, 9.875% due 10/15/14		206,537

See Notes to Schedule of Investments.

6

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Containers & Packaging - 0.4% (continued)
			Graphic Packaging International Corp.:
$	10,000	B-	Senior Notes, 8.500% due 8/15/11	$	10,325
	265,000	B-	Senior Subordinated Notes, 9.500% due 8/15/13		273,612
	225,000	B-	JSG Funding PLC, Senior Notes, 9.625% due 10/1/12		239,344
	659,000	BB-	Owens-Brockway Glass Container Inc., Senior Secured Notes, 8.875% due 2/15/09		678,770
	150,000	B	Plastipak Holdings Inc., Senior Notes, 8.500% due 12/15/15 (d)		156,000
	335,000	BBB	Sealed Air Corp., Notes, 6.950% due 5/15/09 (d)		346,569
			Total Containers & Packaging		1,997,432
	Diversified Consumer Services - 0.2%
	105,000	CCC+	Education Management LLC/Education Management Corp., Senior Notes, 8.750% due 6/1/14 (d)		108,150
			Hertz Corp.:
	75,000	B	Senior Notes, 8.875% due 1/1/14 (d)		78,750
	380,000	B	Senior Subordinated Notes, 10.500% due 1/1/16 (d)		418,950
	250,000	BB-	Service Corp. International, Debentures, 7.875% due 2/1/13		258,750
			Total Diversified Consumer Services		864,600
	Diversified Financial Services - 1.4%
	300,000	BBB+	Aiful Corp., Notes, 5.000% due 8/10/10 (d)		292,613
	310,000	AA-	Bank of America Corp., 5.375% due 8/15/11		313,552
	150,000	B-	Basell AF SCA, Senior Secured Subordinated Second Priority Notes, 8.375% due 8/15/15 (d)		153,000
	95,000	BB	Case Credit Corp., Notes, 6.750% due 10/21/07		95,950
	90,000	CCC+	CCM Merger Inc., Notes, 8.000% due 8/1/13 (d)		87,188
	90,000	CCC+	CitiSteel USA Inc., Senior Secured Notes,, 12.949% due 9/1/10 (e)		93,375
	600,000	B+	El Paso Performance-Linked Trust Certificates, Notes, 7.750% due 7/15/11 (d)		624,000
	1,040,000	AAA	General Electric Capital Corp., Medium-Term Notes, Series A, 4.125% due 9/1/09		1,015,983
			Hexion U.S. Finance Corp./Hexion Nova Scotia Finance ULC:
	100,000	B-	Second Priority, Senior Secured Notes, 9.000% due 7/15/14		113,000
	70,000	B-	Senior Secured Notes, 9.750% due 11/15/14 (d)		70,175
	1,000,000	AA-	HSBC Finance Corp., Senior Notes, 8.000% due 7/15/10		1,092,163
	50,000	B-	Hughes Network Systems LLC/HNS Finance Corp., Senior Notes, 9.500% due 4/15/14 (d)		52,000
	1,450,000	A	JPMorgan Chase & Co., Subordinated Notes, 5.125% due 9/15/14		1,426,559
	200,000	BBB	MUFG Capital Finance 1 Ltd., 6.346% due 7/25/16 (e)		202,343
	900,000	A-	Pemex Finance Ltd., Notes, Series 2000-1, Class A-1, 9.030% due 2/15/11		966,100
			Residential Capital Corp., Notes:
	240,000	BBB-	6.125% due 11/21/08		241,447
	600,000	BBB-	6.000% due 2/22/11		602,302
	60,000	B-	UCAR Finance Inc., Senior Notes, 10.250% due 2/15/12		63,375
	85,000	B-	UGS Corp., Senior Subordinated Notes, 10.000% due 6/1/12		92,225
	135,000	CCC+	Vanguard Health Holdings Co. II LLC, Senior Subordinated Notes, 9.000% due 10/1/14		131,287
			Total Diversified Financial Services		7,728,637
	Diversified Telecommunication Services - 0.8%
			Cincinnati Bell Inc.:
	45,000	B-	Senior Notes, 7.000% due 2/15/15		44,438
	130,000	B-	Senior Subordinated Notes, 8.375% due 1/15/14		133,250
	15,000	BB-	Cincinnati Bell Telephone Co., Senior Debentures, 6.300% due 12/1/28		13,350
	135,000	BB+	Citizens Communications Co., Senior Notes, 9.000% due 8/15/31		147,319
	225,000	A-	Deutsche Telekom International Finance, Senior Notes, 5.750% due 3/23/16		222,689
	455,000	NR	GT Group Telecom Inc., Senior Discount Notes, 16.193% due 2/1/10 (b)(c)(f)		0

See Notes to Schedule of Investments.

7

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Diversified Telecommunication Services - 0.8% (continued)
$	145,000	CCC+	Hawaiian Telcom Communications Inc., Senior Subordinated Notes, Series B, 12.500% due 5/1/15	$	155,512
	65,000	B+	Inmarsat Finance PLC, Senior Notes, 7.625% due 6/30/12		67,356
			Intelsat Bermuda Ltd., Senior Notes:
	155,000	B+	9.250% due 6/15/16 (d)		166,237
	305,000	B	11.250% due 6/15/16 (d)		333,594
	40,000	B	Intelsat Ltd., Notes, 7.625% due 4/15/12		36,300
	400,000	BBB+	Koninklijke KPN NV, Senior Notes, 8.000% due 10/1/10		434,104
			Level 3 Financing Inc.:
	40,000	CCC-	11.800% due 3/15/11 (e)		42,300
	20,000	CCC-	10.750% due 10/15/11		21,350
	80,000	CCC-	Senior Notes, 9.250% due 11/1/14 (d)		80,900
	110,000	B	Nordic Telephone Co. Holdings, Senior Notes, 8.875% due 5/1/16 (d)		115,775
			NTL Cable PLC, Senior Notes:
	50,000	B-	8.750% due 4/15/14		52,812
	25,000	B-	9.125% due 8/15/16		26,406
	640,000	BB	Qwest Corp., Senior Notes, 7.500% due 10/1/14 (d)		673,600
	320,000	BBB+	Telecom Italia Capital SA, Notes, 5.250% due 10/1/15		299,760
	1,500,000	A	Verizon Florida Inc., Senior Notes, Series F, 6.125% due 1/15/13		1,526,256
			Total Diversified Telecommunication Services		4,593,308
	Electric Utilities - 0.4%
	500,000	BBB	Exelon Corp., Bonds, 5.625% due 6/15/35		476,764
			FirstEnergy Corp., Notes:
	300,000	BBB-	Series B, 6.450% due 11/15/11		314,212
	600,000	BBB-	Series C, 7.375% due 11/15/31		703,998
	16,696	BB-	Midwest Generation LLC, Pass-Through Certificates, Series B, 8.560% due 1/2/16		18,042
	210,000	B-	Orion Power Holdings Inc., Senior Notes, 12.000% due 5/1/10		239,400
	300,000	BBB	Pacific Gas & Electric Co., First Mortgage Bonds, 6.050% due 3/1/34		307,484
			Total Electric Utilities		2,059,900
	Electronic Equipment & Instruments - 0.0%
			NXP BV/NXP Funding LLC:
	85,000	BB+	Secured Notes, 7.875% due 10/15/14 (d)		86,700
	30,000	B+	Senior Notes, 9.500% due 10/15/15 (d)		30,412
			Total Electronic Equipment & Instruments		117,112
	Energy Equipment & Services - 0.1%
	44,000	B	Dresser-Rand Group Inc., Senior Subordinated Notes, 7.375% due 11/1/14		43,725
	20,000	B	GulfMark Offshore Inc., Senior Subordinated Notes, 7.750% due 7/15/14		20,200
	225,000	B	Hanover Compressor Co., Senior Notes, 9.000% due 6/1/14		240,750
	45,000	BB-	Pride International Inc., Senior Notes, 7.375% due 7/15/14		46,687
			Total Energy Equipment & Services		351,362
	Food Products - 0.1%
	300,000	B	Dole Food Co. Inc., Senior Notes, 7.250% due 6/15/10		281,250
	Gas Utilities - 0.0%
	200,000	B-	Suburban Propane Partners LP/Suburban Energy Finance Corp., Senior Notes, 6.875% due 12/15/13		193,500
	Health Care Providers & Services - 0.4%
	175,000	B-	AmeriPath Inc., Senior Subordinated Notes, 10.500% due 4/1/13		189,000
			DaVita Inc.:
	125,000	B	Senior Notes, 6.625% due 3/15/13		123,750
	135,000	B	Senior Subordinated Notes, 7.250% due 3/15/15		135,000

See Notes to Schedule of Investments.

8

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Health Care Providers & Services - 0.4% (continued)
			HCA Inc.:
$	225,000	B-	Debentures, 7.500% due 11/15/95	$	167,787
	100,000	B-	Notes, 6.375% due 1/15/15		80,250
			Senior Notes:
	73,000	B-	6.300% due 10/1/12		62,415
	141,000	B-	6.500% due 2/15/16		112,448
	325,000	B-	IASIS Healthcare LLC/IASIS Capital Corp., Senior Subordinated Notes, 8.750% due 6/15/14		315,656
	300,000	B-	Psychiatric Solutions Inc., Senior Subordinated Notes, 7.750% due 7/15/15		298,500
			Tenet Healthcare Corp., Senior Notes:
	450,000	CCC+	7.375% due 2/1/13		401,062
	25,000	CCC+	9.875% due 7/1/14		24,594
	275,000	B+	Triad Hospitals Inc., Senior Subordinated Notes, 7.000% due 11/15/13		268,813
			Total Health Care Providers & Services		2,179,275
	Hotels, Restaurants & Leisure - 0.7%
	300,000	B+	Boyd Gaming Corp., Senior Subordinated Notes, 6.750% due 4/15/14		295,125
	20,000	CCC	Buffets Inc., Senior Unsecured Notes, 12.500% due 11/1/14 (d)		20,200
	490,000	BB-	Caesars Entertainment Inc., Senior Subordinated Notes, 8.125% due 5/15/11		502,862
	50,000	B-	Carrols Corp., Senior Subordinated Notes, 9.000% due 1/15/13		50,875
	70,000	B-	Gaylord Entertainment Co., Senior Notes, 6.750% due 11/15/14		67,375
	225,000	B-	Herbst Gaming Inc., Senior Subordinated Notes, 8.125% due 6/1/12		231,750
	200,000	B-	Inn of the Mountain Gods Resort & Casino, Senior Notes, 12.000% due 11/15/10		215,000
	250,000	B	Isle of Capri Casinos Inc., Senior Subordinated Notes, 7.000% due 3/1/14		241,250
	200,000	B	Las Vegas Sands Corp., Senior Notes, 6.375% due 2/15/15		189,000
			Mandalay Resort Group, Senior Subordinated:
	140,000	B+	Debentures, 7.625% due 7/15/13		137,375
	390,000	B+	Notes, Series B, 10.250% due 8/1/07		403,162
			MGM MIRAGE Inc., Senior Subordinated Notes:
	100,000	B+	9.750% due 6/1/07		102,500
	360,000	B+	8.375% due 2/1/11		375,750
	125,000	B+	Mohegan Tribal Gaming Authority, Senior Subordinated Notes, 6.875% due 2/15/15		124,688
	175,000	B+	Penn National Gaming Inc., Senior Subordinated Notes, 6.875% due 12/1/11		176,750
	250,000	B-	Pinnacle Entertainment Inc., Senior Subordinated Notes, 8.250% due 3/15/12		255,000
	15,000	B+	River Rock Entertainment Authority, Senior Notes, 9.750% due 11/1/11		16,125
			Station Casinos Inc.:
	5,000	BB-	Senior Notes, 7.750% due 8/15/16		5,163
	200,000	B+	Senior Subordinated Notes, 6.875% due 3/1/16		184,500
	250,000	B+	Turning Stone Casino Resort Enterprise, Senior Notes, 9.125% due 12/15/10 (d)		256,250
			Total Hotels, Restaurants & Leisure		3,850,700
	Household Durables - 0.2%
	15,000	BB+	American Greetings Corp., Senior Notes, 7.375% due 6/1/16		15,338
	105,000	BB	Beazer Homes USA Inc., Senior Notes, 8.125% due 6/15/16		107,363
			Interface Inc.:
	150,000	B	Senior Notes, 10.375% due 2/1/10		165,000
	50,000	CCC+	Senior Subordinated Notes, 9.500% due 2/1/14		52,125
			K Hovnanian Enterprises Inc.:
	60,000	BB	6.250% due 1/15/16		54,900
	270,000	BB	Senior Notes, 8.625% due 1/15/17		279,787
	160,000	B-	Norcraft Cos. LP/Norcraft Finance Corp., Senior Subordinated Notes, 9.000% due 11/1/11		164,800
	60,000	B-	Norcraft Holdings LP/Norcraft Capital Corp., Senior Discount Notes, step bond to yield 8.977% due 9/1/12		49,950

See Notes to Schedule of Investments.

9

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Household Durables - 0.2% (continued)
$	125,000	B	Sealy Mattress Co., Senior Subordinated Notes, 8.250% due 6/15/14	$	130,312
			Total Household Durables		1,019,575
	Household Products - 0.0%
			Nutro Products Inc.:
	25,000	CCC	Senior Notes, 9.400% due 10/15/13 (d)(e)		25,813
	60,000	CCC	Senior Subordinated Notes, 10.750% due 4/15/14 (d)		64,800
	5,000	CCC	Spectrum Brands Inc., Senior Subordinated Notes, 7.375% due 2/1/15		4,075
			Total Household Products		94,688
	Independent Power Producers & Energy Traders - 0.5%
			AES Corp., Senior Notes:
	530,000	B	8.750% due 6/15/08		553,850
	75,000	B	9.500% due 6/1/09		80,719
	400,000	B	7.750% due 3/1/14		421,000
	600,000	BBB	Duke Energy Corp., Senior Notes, 5.625% due 11/30/12		610,206
	185,000	B2(g)	Dynegy Holdings Inc., Senior Notes, 8.375% due 5/1/16		191,012
	140,000	BB-	Edison Mission Energy, Senior Notes, 7.750% due 6/15/16 (d)		145,250
	160,000	B-	Mirant North America LLC, Senior Notes, 7.375% due 12/31/13		162,600
			NRG Energy Inc., Senior Notes:
	100,000	B-	7.250% due 2/1/14		101,375
	325,000	B-	7.375% due 2/1/16		329,469
	50,000	BBB-	Oncor Electric Delivery Co., Senior Secured Notes, 6.375% due 1/15/15		52,005
	140,000	BB+	TXU Corp., Senior Notes, Series P, 5.550% due 11/15/14		134,088
			Total Independent Power Producers & Energy Traders		2,781,574
	Industrial Conglomerates - 0.6%
	105,000	B	Koppers Inc., Senior Notes, 9.875% due 10/15/13		113,925
			Tyco International Group SA, Notes:
	1,000,000	BBB+	6.000% due 11/15/13		1,039,665
	1,780,000	BBB+	6.875% due 1/15/29		2,003,764
			Total Industrial Conglomerates		3,157,354
	Insurance - 0.0%
	220,000	BB	Crum & Forster Holdings Corp., Senior Notes, 10.375% due 6/15/13		229,350
	Internet & Catalog Retail - 0.0%
	35,000	B	Brookstone Co. Inc., Senior Secured Notes, 12.000% due 10/15/12		33,950
	125,000	B-	FTD Inc., Senior Subordinated Notes, 7.750% due 2/15/14		125,000
			Total Internet & Catalog Retail		158,950
	IT Services - 0.1%
			Sungard Data Systems Inc.:
	75,000	B-	Senior Notes, 9.125% due 8/15/13		78,188
	215,000	B-	Senior Subordinated Notes, 10.250% due 8/15/15		226,287
			Total IT Services		304,475
	Leisure Equipment & Products - 0.0%
	105,000	B	WMG Acquisition Corp., Senior Subordinated Notes, 7.375% due 4/15/14		103,163
	Machinery - 0.0%
	35,000	B+	Commercial Vehicle Group Inc., Senior Notes, 8.000% due 7/1/13		34,125
	244,000	B	Mueller Holdings Inc., Senior Discount Notes, step bond to yield 11.980% due 4/15/14		215,940
			Total Machinery		250,065

See Notes to Schedule of Investments.

10

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

	FACE AMOUNT	RATING‡	SECURITY		VALUE
	Media 1.4%
			Affinion Group Inc.:
$	5,000	B-	11.500% due 10/15/15	$	5,238
	160,000	B-	Senior Notes, 10.125% due 10/15/13		170,400
	260,000	CCC+	AMC Entertainment Inc., Senior Subordinated Notes, 11.000% due 2/1/16		288,925
			CCH I Holdings LLC/CCH I Holdings Capital Corp.:
	170,000	CCC-	Senior Notes, 11.750% due 5/15/14		145,775
	6,000	CCC(h)	Senior Secured Notes, 11.000% due 10/1/15 (d)		5,790
	240,000	CCC-	CCH I LLC/CCH Capital Corp., Senior Secured Notes, 11.000% due 10/1/15		232,500
			CCH II LLC/CCH II Capital Corp., Senior Notes:
	80,000	CCC-	10.250% due 9/15/10		83,000
	123,000	CCC(h)	10.250% due 10/1/13 (d)		127,305
	30,000	CCC-	Charter Communications Holdings LLC, Senior Discount Notes, step bond to yield 16.211% due 1/15/12		26,250
	125,000	B-	Charter Communications Operating LLC, Second Lien Senior Notes, 8.375% due 4/30/14 (d)		129,063
	75,000	BB-	Chukchansi Economic Development Authority, Senior Notes, 8.000% due 11/15/13 (d)		78,375
	115,000	CCC	CMP Susquehanna Corp., Senior Subordinated Notes, 9.875% due 5/15/14 (d)		111,694
			Comcast Corp., Notes:
	730,000	BBB+	6.500% due 1/15/15		765,172
	370,000	BBB+	6.500% due 1/15/17		388,731
			CSC Holdings Inc.:
	250,000	B+	Debentures, Series B, 8.125% due 8/15/09		259,062
	130,000	B+	Senior Notes, Series B, 7.625% due 4/1/11		131,787
	120,000	BB-	DIRECTV Holdings LLC/DIRECTV Financing Co. Inc., Senior Notes, 6.375% due 6/15/15		115,500
			EchoStar DBS Corp., Senior Notes:
	175,000	BB-	6.625% due 10/1/14		169,312
	545,000	BB-	7.125% due 2/1/16 (d)		535,462
			Houghton Mifflin Co.:
	135,000	CCC+	Senior Discount Notes, step bond to yield 7.094% due 10/15/13		122,513
	25,000	CCC+	Senior Subordinated Notes, 9.875% due 2/1/13		26,906
	35,000	CCC-	ION Media Networks Inc., Secured Notes, 11.624% due 1/15/13 (d)(e)		35,219
	215,000	B-	Kabel Deutschland GMBH, Senior Notes, 10.625% due 7/1/14 (d)		233,544
	90,000	B	Lamar Media Corp., Senior Subordinated Notes, 6.625% due 8/15/15		87,075
	195,000	B-	LodgeNet Entertainment Corp., Senior Subordinated Notes, 9.500% due 6/15/13		209,625
	1,015,000	BBB	News America Inc., 6.200% due 12/15/34		994,419
	110,000	B	Primedia Inc., Senior Notes, 8.875% due 5/15/11		109,725
			R.H. Donnelley Corp.:
			Senior Discount Notes:
	100,000	B	Series A-1, 6.875% due 1/15/13		94,625
	175,000	B	Series A-2, 6.875% due 1/15/13		165,594
	400,000	B	Senior Notes, Series A-3, 8.875% due 1/15/16		414,500
	150,000	B+	Rainbow National Services LLC, Senior Subordinated Debentures, 10.375% due 9/1/14 (d)		167,625
	165,000	BB+	Rogers Cable Inc., Secured Notes, 5.500% due 3/15/14		155,925
	230,000	B	Sinclair Broadcast Group Inc., Senior Subordinated Notes, 8.000% due 3/15/12		238,050
	260,000	BBB+	Time Warner Entertainment Co., LP, Senior Notes, 8.375% due 7/15/33		317,722
	180,000	BBB+	Time Warner Inc., Debentures, 7.700% due 5/1/32		205,613
	200,000	B+	Videotron Ltee., Senior Notes, 6.375% due 12/15/15		192,000
			XM Satellite Radio Inc., Senior Notes:
	50,000	CCC	9.989% due 5/1/13 (e)		47,250
	75,000	CCC	9.750% due 5/1/14		71,625
			Total Media		7,658,896

See Notes to Schedule of Investments.

11

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Metals & Mining - 0.1%
$	205,000	B-	Metals USA Inc., Senior Secured Notes, 11.125% due 12/1/15	$	225,500
	100,000	B-	RathGibson Inc., Senior Notes, 11.250% due 2/15/14 (d)		104,500
			Total Metals & Mining		330,000
	Multi-Utilities - 0.1%
	75,000	BB+	Avista Corp., Senior Notes, 9.750% due 6/1/08		79,553
	500,000	BBB	Dominion Resources Inc., Senior Notes, 5.700% due 9/17/12		507,101
			Total Multi-Utilities		586,654
	Multiline Retail - 0.1%
	235,000	B-	Neiman Marcus Group Inc., Senior Subordinated Notes, 10.375% due 10/15/15		258,206
	132,000	B+	Saks Inc., Notes, 9.875% due 10/1/11		143,880
			Total Multiline Retail		402,086
	Office Electronics - 0.1%
	275,000	B+	Xerox Capital Trust I Exchange Capital Securities, 8.000% due 2/1/27		282,219
	Oil, Gas & Consumable Fuels - 1.6%
	420,000	BBB-	Anadarko Finance Co., Senior Notes, Series B, 7.500% due 5/1/31		488,031
			Anadarko Petroleum Corp.:
	440,000	BBB-	5.790% due 9/15/09 (e)		440,982
	360,000	BBB-	Senior Notes, 5.950% due 9/15/16		366,289
	190,000	CCC+	Belden & Blake Corp., Secured Notes, 8.750% due 7/15/12		194,750
	250,000	CCC+	Chaparral Energy Inc., Senior Notes, 8.500% due 12/1/15		250,625
			Chesapeake Energy Corp., Senior Notes:
	170,000	BB	6.625% due 1/15/16		167,237
	20,000	BB	6.875% due 1/15/16		19,950
	25,000	BB	6.500% due 8/15/17		23,688
	200,000	BB	6.250% due 1/15/18		190,500
	510,000	AA	ChevronTexaco Capital Co., Notes, 3.500% due 9/17/07		502,656
	123,000	BB-	Cimarex Energy Co., Senior Notes, 9.600% due 3/15/12		130,073
	40,000	BB-	Compagnie Generale de Geophysique SA, Senior Notes, 7.500% due 5/15/15		39,700
	950,000	A-	ConocoPhillips Holding Co., Senior Notes, 6.950% due 4/15/29		1,099,965
	560,000	BBB	Devon Energy Corp., Debentures, 7.950% due 4/15/32		700,254
			El Paso Corp., Medium-Term Notes:
	310,000	B	7.800% due 8/1/31		324,725
	860,000	B	7.750% due 1/15/32		900,850
	90,000	B+	Enterprise Products Operating LP, Junior Subordinated Notes, 8.380% due 8/1/66 (e)		96,887
	275,000	B-	EXCO Resources Inc., Senior Notes, 7.250% due 1/15/11		266,062
	150,000	B	Inergy LP/Inergy Finance Corp., Senior Notes, 6.875% due 12/15/14		145,875
	110,000	CCC+	International Coal Group Inc., Senior Notes, 10.250% due 7/15/14 (d)		107,525
			Kinder Morgan Energy Partners LP:
	160,000	BBB+	Notes, 7.125% due 3/15/12		170,266
	50,000	BBB+	Senior Notes, 5.000% due 12/15/13		47,835
	85,000	B-	Mariner Energy Inc., Senior Notes, 7.500% due 4/15/13 (d)		82,025
	100,000	B-	Petrohawk Energy Corp., Senior Notes, 9.125% due 7/15/13 (d)		102,500
	170,000	B+	Plains Exploration & Production Co., Senior Subordinated Notes, Series B, 8.750% due 7/1/12		181,475
			Pogo Producing Co., Senior Subordinated Notes:
	60,000	B+	7.875% due 5/1/13 (d)		61,350
	105,000	B+	Series B, 8.250% due 4/15/11		108,413
	210,000	B1(g)	SemGroup LP, Senior Notes, 8.750% due 11/15/15 (d)		212,625
	10,000	BB-	SESI LLC, Senior Notes, 6.875% due 6/1/14 (d)		9,975
	250,000	B-	Stone Energy Corp., Senior Subordinated Notes, 8.250% due 12/15/11		249,687

See Notes to Schedule of Investments.

12

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Oil, Gas & Consumable Fuels - 1.6% (continued)
$	220,000	B	Swift Energy Co., Senior Subordinated Notes, 9.375% due 5/1/12	$	232,650
	250,000	A-	Vintage Petroleum Inc., Senior Notes, 8.250% due 5/1/12		263,452
	40,000	B	Whiting Petroleum Corp., Senior Subordinated Notes, 7.000% due 2/1/14		39,600
	550,000	BB-	Williams Cos. Inc., Notes, 8.750% due 3/15/32		613,250
			Total Oil, Gas & Consumable Fuels		8,831,727
	Paper & Forest Products - 0.3%
	215,000	B	Appleton Papers Inc., Senior Subordinated Notes, Series B, 9.750% due 6/15/14		213,925
			NewPage Corp.:
			Senior Secured Notes:
	60,000	CCC+	10.000% due 5/1/12		63,150
	40,000	CCC+	11.739% due 5/1/12 (e)		43,400
	50,000	CCC+	Senior Subordinated Notes, 12.000% due 5/1/13		52,500
	45,000	BB+	P.H. Glatfelter, Senior Notes, 7.125% due 5/1/16 (d)		45,093
			Verso Paper Holdings LLC:
	65,000	B+	Senior Secured Notes, 9.125% due 8/1/14 (d)		66,300
	60,000	B-	Senior Subordinated Notes, 11.375% due 8/1/16 (d)		61,200
	850,000	BBB	Weyerhaeuser Co., Notes, 6.750% due 3/15/12		891,087
			Total Paper & Forest Products		1,436,655
	Personal Products - 0.0%
	75,000	B+	Playtex Products Inc., Senior Secured Notes, 8.000% due 3/1/11		78,563
	Pharmaceuticals - 0.1%
	170,000	CCC	Leiner Health Products Inc., Senior Subordinated Notes, 11.000% due 6/1/12		168,725
	225,000	BB-	Valeant Pharmaceuticals International, Senior Notes, 7.000% due 12/15/11		217,125
			Total Pharmaceuticals		385,850
	Real Estate Investment Trusts (REITs) - 0.2%
	5,000	BB-	Forest City Enterprises Inc., Senior Notes, 7.625% due 6/1/15		5,100
	660,000	BB	Host Marriott LP, Senior Notes, Series I, 9.500% due 1/15/07		667,425
	70,000	B	Kimball Hill Inc., Senior Subordinated Notes, 10.500% due 12/15/12		63,350
			Ventas Realty LP/Ventas Capital Corp., Senior Notes:
	30,000	BB+	7.125% due 6/1/15		31,013
	35,000	BB+	6.500% due 6/1/16		35,087
	80,000	BB+	6.750% due 4/1/17		81,000
			Total Real Estate Investment Trusts (REITs)		882,975
	Real Estate Management & Development - 0.0%
	15,000	B-	Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated Notes, 9.500% due 10/1/15		12,938
	Road & Rail - 0.1%
			Grupo Transportacion Ferroviaria Mexicana SA de CV, Senior Notes:
	90,000	B-	10.250% due 6/15/07		92,362
	90,000	B-	9.375% due 5/1/12		96,525
	20,000	B-	12.500% due 6/15/12		22,000
	100,000	B-	Kansas City Southern Railway, 7.500% due 6/15/09		101,625
	26,896	A	Union Pacific Corp., Pass-Through Certificates, Series 2004-1, 5.404% due 7/2/25		27,025
			Total Road & Rail		339,537
	Software - 0.0%
	110,000	CCC+	Activant Solutions Inc., Senior Subordinated Notes, 9.500% due 5/1/16 (d)		102,850

See Notes to Schedule of Investments.

13

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Software - 0.0% (continued)
$	150,000	B-	UGS Capital Corp. II, Senior Subordinated Notes, 10.380% due 6/1/11 (d)(e)(i)	$	155,625
			Total Software		258,475
	Specialty Retail - 0.0%
	100,000	CCC	Blockbuster Inc., Senior Subordinated Notes, 9.000% due 9/1/12		90,500
	35,000	CCC+	EPL Finance Corp., Senior Notes, 11.750% due 11/15/13 (d)		37,450
	25,000	CCC+	Eye Care Centers of America, Senior Subordinated Notes, 10.750% due 2/15/15		27,437
	15,000	B	Linens ‘n Things Inc., 10.999% due 1/15/14 (e)		14,775
	35,000	CCC	Michaels Stores Inc., Senior Subordinated Notes, 11.375% due 11/1/16 (d)		35,219
			Total Specialty Retail		205,381
	Textiles, Apparel & Luxury Goods - 0.1%
	305,000	B-	Levi Strauss & Co., Senior Notes, 9.750% due 1/15/15		324,825
	125,000	B	Oxford Industries Inc., Senior Notes, 8.875% due 6/1/11		128,906
	400,000	B-	Simmons Co., Senior Discount Notes, step bond to yield 10.002% due 12/15/14		298,000
			Total Textiles, Apparel & Luxury Goods		751,731
	Thrifts & Mortgage Finance - 0.3%
	350,000	A	Countrywide Home Loans Inc., 5.560% due 2/27/08 (e)		350,432
	1,250,000	CCC-	Ocwen Capital Trust I, Capital Securities, 10.875% due 8/1/27		1,325,000
			Total Thrifts & Mortgage Finance		1,675,432
	Tobacco - 0.1%
	30,000	B-	Alliance One International Inc., Senior Notes, 11.000% due 5/15/12		31,350
	740,000	BBB	Altria Group Inc., Notes, 7.000% due 11/4/13		812,089
			Total Tobacco		843,439
	Trading Companies & Distributors - 0.1%
	80,000	B	Ashtead Capital Inc., Notes, 9.000% due 8/15/16 (d)		84,600
	55,000	B+	H&E Equipment Services Inc., Senior Notes, 8.375% due 7/15/16 (d)		57,062
	170,000	CCC+	Penhall International Corp., Senior Secured Notes, 12.000% due 8/1/14 (d)		181,900
	30,000	B-	Transdigm Inc., Senior Subordinated Notes, 7.750% due 7/15/14 (d)		30,975
			Total Trading Companies & Distributors		354,537
	Wireless Telecommunication Services - 0.3%
	30,000	CCC	Metropcs Wireless Inc., Senior Notes, 9.250% due 11/1/14 (d)		30,413
	145,000	CCC	Rural Cellular Corp., Senior Notes, 9.875% due 2/1/10		152,975
	1,000,000	BBB+	Sprint Capital Corp., Senior Notes, 6.875% due 11/15/28		1,027,551
	675,000	BBB+	UbiquiTel Operating Co., Senior Notes, 9.875% due 3/1/11		734,062
			Total Wireless Telecommunication Services		1,945,001
			TOTAL CORPORATE BONDS & NOTES (Cost - $76,756,787)		77,896,423
FACE AMOUNT
	MORTGAGE-BACKED SECURITIES - 11.2%
	FHLMC - 1.0%
			Federal Home Loan Mortgage Corp. (FHLMC):
			Gold:
	1,589,723		4.000% due 12/1/07		1,572,059
	3,575,000		5.000% due 11/13/36-12/12/36 (j)(k)		3,453,852
	180,000		Notes, 5.125% due 4/18/11		181,965
			TOTAL FHLMC		5,207,876

See Notes to Schedule of Investments.

14

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT			SECURITY	VALUE
	FNMA - 8.8%
			Federal National Mortgage Association (FNMA):
$	280,000		6.625% due 9/15/09	$	293,213
	1,361,120		5.000% due 7/1/20-9/1/20		1,341,173
	8,850,000		5.500% due 11/16/21-11/13/36 (j)(k)		8,773,941
	882,214		6.500% due 4/1/29-5/1/29		905,886
	65,889		8.500% due 10/1/30		70,933
	866,244		7.500% due 7/1/32		901,193
	17,575,000		5.000% due 11/13/36-12/12/36 (j)(k)		16,967,416
	18,150,000		6.000% due 11/13/36 (j)(k)		18,263,438
	1,000,000		5.000% due 1/11/37 (j)		965,000
			TOTAL FNMA		48,482,193
	GNMA - 1.4%
			Government National Mortgage Association (GNMA):
	1,671,990		7.000% due 2/15/24-7/15/31		1,730,208
	600,000		5.000% due 11/20/36 (j)		585,187
	4,000,000		6.000% due 11/20/36 (j)(k)		4,055,000
	1,500,000		6.500% due 11/20/36 (j)(k)		1,540,313
			TOTAL GNMA		7,910,708
			TOTAL MORTGAGE-BACKED SECURITIES (Cost - $61,600,009)		61,600,777
	FACE AMOUNT	RATING‡
	SOVEREIGN BONDS - 2.2%
	Mexico - 0.2%
			United Mexican States, Medium-Term Notes:
	486,000	BBB	5.625% due 1/15/17		485,757
	542,000	BBB	Series A, 7.500% due 4/8/33		638,476
			Total Mexico		1,124,233
	Russia - 1.8%
	8,590,000	BBB+	Russian Federation, 5.000% due 3/31/30 (d)		9,634,222
	Supranational - 0.2%
	1,200,000	A	Corporacion Andina de Fomento, Notes, 6.875% due 3/15/12		1,279,803
			TOTAL SOVEREIGN BONDS (Cost - $11,483,811)		12,038,258
	U.S. GOVERNMENT & AGENCY OBLIGATIONS - 2.1%
	U.S. Government Agencies - 0.7%
	920,000		Federal Home Loan Mortgage Corp. (FHLMC), 5.250% due 2/24/11		922,728
			Federal National Mortgage Association (FNMA):
	470,000		5.200% due 11/8/10		468,115
	1,400,000		6.000% due 5/15/11		1,464,565
	790,000		Notes, Series 1, 5.625% due 5/19/11		800,314
			Total U.S. Government Agencies		3,655,722
	U.S. Government Obligations - 1.4%
			U.S. Treasury Bonds:
	240,000		7.125% due 2/15/23		302,175
	3,015,000		4.500% due 2/15/36		2,910,889
			U.S. Treasury Notes:
	170,000		4.500% due 9/30/11		169,462

See Notes to Schedule of Investments.

15

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT			SECURITY	VALUE
	U.S. Government Obligations - 1.4% (continued)
$	4,500,000		4.875% due 8/15/16	$	4,594,923
			Total U.S. Government Obligations		7,977,449
			TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost - $11,341,072)		11,633,171
	U.S. TREASURY INFLATION PROTECTED SECURITIES - 1.9%
			U.S. Treasury Bonds, Inflation Indexed:
	1,633,343		2.000% due 1/15/16		1,587,278
	1,150,531		2.000% due 1/15/26		1,099,971
	347,267		3.875% due 4/15/29		447,242
			U.S. Treasury Notes, Inflation Indexed:
	688,787		0.875% due 4/15/10		649,290
	4,879,248		2.375% due 4/15/11		4,854,661
	146,749		1.875% due 7/15/15		141,344
	1,786,964		2.500% due 7/15/16		1,813,211
			TOTAL U.S. TREASURY INFLATION PROTECTED SECURITIES (Cost - $10,558,835)		10,592,997
	CONTRACTS
	PURCHASED OPTIONS - 0.2%
	14		Eurodollar Futures, Call @ $94.00, expires 12/18/06		22,225
	71		Eurodollar Futures, Call @ $94.63, expires 3/19/07		34,613
	139		Eurodollar Futures, Call @ $94.75, expires 3/19/07		45,175
	8		Eurodollar Futures, Put @ $93.00, expires 3/19/07		50
	15		Eurodollar Futures, Put @ $95.50, expires 3/19/07		27,094
	99		U.S. Treasury Bonds Futures, Call @ $110.00, expires 11/21/06		256,781
	31		U.S. Treasury Bonds Futures, Call @ $111.00, expires 11/21/06		53,281
	34		U.S. Treasury Bonds Futures, Call @ $113.00, expires 11/21/06		18,063
	24		U.S. Treasury Notes 5 Year Futures, Call @ $100.00, expires 11/21/06		133,500
	89		U.S. Treasury Notes 5 Year Futures, Call @ $102.00, expires 11/21/06		317,062
	11		U.S. Treasury Notes 10 Year Futures, Call @ $107.00, expires 11/21/06		13,234
			TOTAL PURCHASED OPTIONS (Cost - $631,838)		921,078
	WARRANTS
	WARRANTS(b)(c)(d) - 0.0%
	505		Cybernet Internet Services International Inc., Expires 7/1/09*		0
	455		GT Group Telecom Inc., Class B Shares, Expires 2/1/10*		0
	485		IWO Holdings Inc., Expires 1/15/11*		0
	505		Merrill Corp., Class B Shares, Expires 5/1/09*		0
			TOTAL WARRANTS (Cost - $194,409)		0
			TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost - $487,951,726)		552,351,096
	FACE AMOUNT	RATING‡
	SHORT-TERM INVESTMENTS - 8.9%
	Sovereign Bonds - 0.0%
$	240,000	NR	Government of Canada Treasury Bill, 5.142% due 12/15/06 (l) (Cost - $238,510)		238,510
	U.S. Government Agency - 0.1%
	655,000		Federal National Mortgage Association (FNMA), Discount Notes, 5.197% due 6/25/07 (l)(m) (Cost - $633,530)		633,595

See Notes to Schedule of Investments.

16

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

FACE AMOUNT		RATING‡	SECURITY	VALUE
	Repurchase Agreements - 8.8%
$	36,590,000		Interest in $443,169,000 joint tri-party repurchase agreement dated 10/31/06 with Greenwich Capital Markets Inc., 5.280% due 11/1/06; Proceeds at maturity- $36,595,367; (Fully collateralized by various U.S. government agency obligations, 3.314% to 6.554% due 11/1/28 to 11/1/36; Market value - $37,322,059) (a)	$	36,590,000
	11,730,000		Nomura Securities International Inc. repurchase agreement dated 10/31/06, 5.280% due 11/1/06; Proceeds at maturity - $11,731,720; (Fully collateralized by U.S. government agency obligation 0.000% due 12/27/06; Market value - $11,965,504) (a)		11,730,000
			Total Repurchase Agreements (Cost - $48,320,000)		48,320,000
			TOTAL SHORT-TERM INVESTMENTS (Cost - $49,192,040)		49,192,105
			TOTAL INVESTMENTS - 109.0% (Cost - $537,143,766#)		601,543,201
			Liabilities in Excess of Other Assets - (9.0)%		(49,827,000	)
			TOTAL NET ASSETS - 100.0%	$	551,716,201

* Non-income producing security.

‡ All ratings are by Standard & Poor’s Ratings Service, unless otherwise noted.

(a) All or a portion of this security is segregated for extended settlements and mortgage dollar rolls.

(b) Security is valued in good faith at fair value by or under the direction of the Board of Trustees (See Note 1).

(c) Illiquid security.

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

(e) Variable rate security. Interest rate disclosed is that which is in effect at October 31, 2006.

(f) Security is currently in default.

(g) Rating by Moody’s Investors Service.

(h) Rating by Fitch Ratings Service.

(i) Payment-in-kind security for which part of the income earned may be paid as additional principal.

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

(k) All or a portion of this security was acquired under a mortgage dollar roll agreement (See Notes 1 and 2 ).

(l) Rate shown represents yield-to-maturity.

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

# Aggregate cost for federal income tax purposes is substantially the same.

See pages 19 and 20 for definitions of ratings.

Abbreviation used in this schedule:
ADR	—American Depositary Receipt

Schedule of Options Written (unaudited)

Contracts	Security	Expiration Date	Strike Price		Value
9	Eurodollar Futures, Call	3/19/07	$	94.75	$	2,925
6	Eurodollar Futures, Call	12/18/06		94.75		150
6	Eurodollar Futures, Call	12/18/06		94.63		450
6	Eurodollar Futures, Call	3/19/07		95.13		450
36	Eurodollar Midcurve 1 Year Futures, Call	12/15/06		95.50		3,600
6	Eurodollar Futures, Put	12/18/06		94.50		75
13	Eurodollar Futures, Put	3/19/07		94.50		650
40	Eurodollar Futures, Put	3/19/07		94.63		4,500
6	Eurodollar Midcurve 2 Year Futures, Put	12/15/06		95.00		563
6	U.S. Treasury Bonds Futures, Call	11/21/06		112.00		6,282

See Notes to Schedule of Investments.

17

LEGG MASON PARTNERS DIVIDEND AND INCOME FUND

Schedule of Investments (unaudited) (continued) October 31, 2006

Contracts	Security	Expiration Date	Strike Price	Value
27	U.S. Treasury Bonds Futures, Call	11/21/06	114.00		5,906
32	U.S. Treasury Bonds Futures, Call	2/23/07	114.00		28,000
6	U.S. Treasury Bonds Futures, Call	2/23/07	115.00		3,844
34	U.S. Treasury Bonds Futures, Put	11/21/06	100.00		531
17	U.S. Treasury Bonds Futures, Put	11/21/06	103.00		266
15	U.S. Treasury Bonds Futures, Put	11/21/06	108.00		234
3	U.S. Treasury Bonds Futures, Put	11/21/06	107.00		47
22	U.S. Treasury Bonds Futures, Put	11/21/06	109.00		344
24	U.S. Treasury Bonds Futures, Put	2/23/07	109.00		10,875
3	U.S. Treasury Bonds Futures, Put	11/21/06	111.00		469
67	U.S. Treasury Notes 10 Year Futures, Call	11/21/06	109.00		10,467
54	U.S. Treasury Notes 10 Year Futures, Call	11/21/06	108.00		29,531
68	U.S. Treasury Notes 10 Year Futures, Call	2/23/07	110.00		25,500
76	U.S. Treasury Notes 10 Year Futures, Call	2/23/07	109.00		49,875
3	U.S. Treasury Notes 10 Year Futures, Put	11/21/06	104.00		47
16	U.S. Treasury Notes 10 Year Futures, Put	11/21/06	105.00		250
15	U.S. Treasury Notes 10 Year Futures, Put	2/23/07	104.00		703
13	U.S. Treasury Notes 10 Year Futures, Put	2/23/07	107.00		6,094
49	U.S. Treasury Notes 10 Year Futures, Put	2/23/07	106.00		12,250
	TOTAL OPTIONS WRITTEN			$	204,878
	(Premiums received - $286,219)

See Notes to Schedule of Investments.

18

Bond Ratings (unaudited)

The definitions of the applicable rating symbols are set forth below:

Standard & Poor’s Ratings Service (“Standard & Poor’s”) — Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

AAA — Bonds rated “AAA” have the highest rating assigned by Standard & Poor’s. Capacity to pay interest and repay principal is extremely strong.

AA — Bonds rated “AA” have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in a small degree.

A — Bonds rated “A” have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

BBB — Bonds rated “BBB” are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories.

BB, B, CCC, CC and C — Bonds rated “BB”, “B”, “CCC”, “CC” and “C” are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” represents the lowest degree of speculation and “C” the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

D — Bonds rated “D” are in default and payment of interest and/or repayment of principal is in arrears.

Moody’s Investors Service (“Moody’s”) — Numerical modifiers 1, 2 and 3 may be applied to each generic rating from “Aa” to “Caa,” where 1 is the highest and 3 the lowest ranking within its generic category.

Aaa — Bonds rated “Aaa” are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as “gilt edge.” Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.

Aa — Bonds rated “Aa” are judged to be of high quality by all standards. Together with the “Aaa” group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in “Aaa” securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in “Aaa” securities.

A — Bonds rated “A” possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future.

Baa — Bonds rated “Baa” are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.

Ba — Bonds rated “Ba” are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and therefore not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.

19

Bond Ratings (unaudited)(continued)

B — Bonds rated “B” are generally lack characteristics of desirable investments. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.

Caa — Bonds rated “Caa” are of poor standing. These may be in default, or present elements of danger may exist with respect to principal or interest.

Ca — Bonds rated “Ca” represent obligations which are speculative in a high degree. Such issues are often in default or have other marked short-comings.

C —Bonds rated “C” are the lowest class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.

Fitch Ratings Service (“Fitch”) — Ratings from “AA” to “CCC” may be modified by the addition of a plus (+) or minus (–) sign to show relative standings within the major rating categories.

AAA — Bonds rated “AAA” have the highest rating assigned by Fitch. Capacity to pay interest and repay principal is extremely strong.

AA — Bonds rated “AA” have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in a small degree.

A — Bonds rated “A” have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.

BBB — Bonds rated “BBB” are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories.

BB, B, CCC and CC — Bonds rated “BB”, “B”, “CCC” and “CC” are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. “BB” represents a lower degree of speculation than “B”, and “CC” the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions.

NR — Indicates that the bond is not rated by Standard & Poor’s, Moody’s or Fitch.

Short-Term Security Ratings (unaudited)

SP-1 — Standard & Poor’s highest rating indicating very strong or strong capacity to pay principal and interest; those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign.

A-1 — Standard & Poor’s highest commercial paper and variable-rate demand obligation (VRDO) rating indicating that the degree of safety regarding timely payment is either overwhelming or very strong; those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign.

VMIG 1 — Moody’s highest rating for issues having a demand feature — VRDO.

MIG1 — Moody’s highest rating for short-term municipal obligations.

P-1 — Moody’s highest rating for commercial paper and for VRDO prior to the advent of the VMIG 1 rating.

F-1 — Fitch’s highest rating indicating the strongest capacity for timely payment of financial commitments; those issues determined to possess overwhelming strong credit feature are denoted with a plus (+) sign.

20

Notes to Schedule of Investments (unaudited)

1. Organization and Significant Accounting Policies

The Legg Mason Partners Dividend and Income Fund (the “Fund”) is a separate diversified investment fund of Legg Mason Partners Income Funds (the “Trust”). The Trust, a Massachusetts business trust, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company.

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

(a) Investment Valuation. Equity securities for which market quotations are available are valued at the last sale price or official closing price on the primary market or exchange on which they trade. Debt securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund may value these investments at fair value as determined in accordance with the procedures approved by the Fund’s Board of Trustees. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value.

(b) Repurchase Agreements. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian take possession of the underlying collateral securities, the market value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

(c) Securities Traded on a To-Be-Announced Basis. The Fund may trade securities on a to-be-announced (“TBA”) basis. In a TBA transaction, the Fund commits to purchasing or selling securities which have not yet been issued by the issuer and for which specific information is not known, such as the face amount and maturity date and the underlying pool of investments in U.S. government agency mortgage pass-through transactions. Securities purchased on a TBA basis are not settled until they are delivered to the Fund, normally 15 to 45 days later. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These transactions are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(d) Mortgage Dollar Rolls. The Fund enters into dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date. During the roll period, the Fund forgoes principal and interest paid on the securities. The Fund is compensated by a fee paid by the counterparty, often in the form of a drop in the repurchase price of the securities. Dollar rolls are accounted for as financing arrangements; the fee is accrued into interest income ratably over the term of the dollar roll and any gain or loss on the roll is deferred and realized upon disposition of the rolled security.

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

(e) Financial Futures Contracts. The Fund may enter into financial futures contracts typically as a hedge against the economic impact of adverse changes in the market value of portfolio securities, because of changes in interest rates or exchange rates or securities markets; as a substitute for buying or selling securities; and as a cash flow management technique. Upon entering into a financial futures contract, the Fund is required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the financial futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuation in the value of the underlying financial instruments. The Fund

21

Notes to Schedule of Investments (unaudited) (continued)

recognizes an unrealized gain or loss equal to the daily variation margin. When the financial futures contracts are closed, a realized gain or loss is recognized equal to the difference between the proceeds from (or cost of) the closing transactions and the Fund’s basis in the contracts.

The risks associated with entering into financial futures contracts include the possibility that a change in the value of the contract may not correlate with the changes in the value of the underlying instruments. In addition, investing in financial futures contracts involves the risk that the Fund could lose more than the original margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(f) Written Options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the Fund realizes a gain from investments equal to the amount of the premium received. When a written call option is exercised, the difference between the premium and the amount for effecting a closing purchase transaction, including brokerage commission, is also treated as a realized gain or loss. When a written put option is exercised, the amount of the premium received reduces the cost of the security purchased by the Fund.

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

(g) Foreign Currency Translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

(h) Security Transactions. Security transactions are accounted for on a trade date basis.

2. Investments

At October 31, 2006, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

Gross unrealized appreciation	$	73,355,032
Gross unrealized depreciation		(8,955,597	)
Net unrealized appreciation	$	64,399,435

At October 31, 2006, the Fund had the following open futures contracts:

	Number of Contracts	Expiration Date	Basis Value		Market Value		Unrealized Gain (Loss)
Contracts to Buy:
Eurodollar Futures	16	3/08	$	3,796,130	$	3,811,400	$	15,270
Eurodollar Futures	43	9/07		10,206,665		10,225,938		19,273
Eurodollar Futures	6	3/07		1,422,368		1,421,700		(668	)
Eurodollar Futures	17	12/06		4,023,135		4,021,987		(1,148	)
U.S. Treasury 5 Year Notes	203	12/06		21,336,234		21,429,188		92,954
U.S. Treasury 10 Year Notes	6	3/07		644,186		649,875		5,689
U.S. Treasury Bond Futures	5	3/07		552,931		563,125		10,194
								141,564

22

Notes to Schedule of Investments (unaudited) (continued)

	Number of Contracts	Expiration Date	Basis Value		Market Value		Unrealized Gain (Loss)
Contracts to Sell:
Eurodollar Futures	5	12/06	$	1,183,600	$	1,182,937	$	663
Financial Eurodollar Futures	6	9/08		1,425,832		1,428,600		(2,768	)
U.S. Treasury 10 Year Notes	265	12/06		28,374,644		28,677,969		(303,325	)
U.S. Treasury Bond Futures	16	12/06		1,800,170		1,802,500		(2,330	)
								(307,760	)
Net Unrealized Loss on Open Futures Contracts							$	(166,196	)

During the period ended October 31, 2006, written option transactions for the Fund were as follows:

	Number of Contracts		Premiums Received
Options written, outstanding July 31, 2006	969			489,276
Options written	712			313,299
Options closed	(550	)		(354,142	)
Options expired	(453	)		(162,214	)
Options written, outstanding October 31, 2006	678		$	286,219

During the period ended October 31, 2006, the Fund entered into mortgage dollar roll transactions in the aggregate amount of $161,967,487. At October 31, 2006, the Fund had outstanding mortgage dollar rolls with a total cost of $48,750,539.

23

ITEM 2. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 3. EXHIBITS.

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Legg Mason Partners Income Funds
By	/s/    R. JAY GERKEN
	R. Jay Gerken
	Chief Executive Officer

Date: December 28, 2006

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

By	/s/    R. JAY GERKEN
	R. Jay Gerken
	Chief Executive Officer

Date: December 28, 2006

By	/s/    ROBERT J. BRAULT
	Robert J. Brault
	Chief Financial Officer

Date: December 28, 2006