N-Q 1 dnq.htm LMP INCOME TRUST - LMP ADJUSTABLE RATE INCOME FUND LMP Income Trust - LMP Adjustable Rate Income Fund

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 811-04254

Legg Mason Partners Income Trust

(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: May 31

Date of reporting period: August 31, 2007

 

ITEM 1. SCHEDULE OF INVESTMENTS

LEGG MASON PARTNERS INCOME TRUST

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

FORM N-Q

AUGUST 31, 2007

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  COLLATERALIZED MORTGAGE OBLIGATIONS - 44.0%   
$ 5,874,631   

American Home Mortgage Assets, Series 2006-04, Class 1A12, 5.530% due 10/25/46 (a)(b)

    $ 5,695,343
  

Banc of America Mortgage Securities Inc.:

   
  95,497   

Series 2003-B, Class 1A1, 7.247% due 3/25/33 (a)

      95,147
  3,681,473   

Series 2005-A, Class 2A1, 4.459% due 2/25/35 (a)(b)

      3,620,994
  

Bear Stearns Alternate-A Trust:

   
  447,096   

Series 2004-11, Class 1A2, 5.925% due 11/25/34 (a)

      446,818
  1,373,354   

Series 2005-2, Class 1A1, 5.755% due 4/25/35 (a)

      1,367,145
  

Bear Stearns ARM Trust:

   
  2,167,381   

Series 2004-12, Class 1A1, 4.179% due 2/25/35 (a)(b)

      2,148,971
  4,082,851   

Series 2005-6, Class 1A1, 5.086% due 8/25/35 (a)(b)

      4,075,524
  3,432,097   

Bear Stearns Asset-Backed Securities Inc., Series 2003-AC5, Class A3, 6.105% due 10/25/33 (a)(b)

      3,431,735
  2,891,737   

Bear Stearns Second Lien Trust, Series 2007-SV1A, Class A1, 5.725% due 12/25/36 (a)(b)(c)

      2,602,563
  

Countrywide Home Loan Mortgage Pass-Through Trust:

   
  3,678,470   

Series 2002-26, Class A4, 6.005% due 12/25/17 (a)(b)

      3,685,707
  4,435,428   

Series 2003-20, Class 3A6, 5.955% due 7/25/18 (a)(b)

      4,423,453
  2,197,979   

Series 2003-37, Class 2A1, 4.243% due 9/25/33 (a)(b)

      2,195,272
  2,301,720   

Deutsche Mortgage Securities Inc., Series 2004-4, Class 7AR2, 5.955% due 6/25/34 (a)(b)

      2,266,507
  

Federal Home Loan Mortgage Corp. (FHLMC):

   
  830,006   

Series 2579, Class WF, 6.061% due 11/15/26 (a)

      829,920
  742,232   

STRIPS, Series 19, Class F, 3.506% due 6/1/28 (a)

      738,126
  

Federal National Mortgage Association (FNMA):

   
  

Grantor Trust:

   
  554,617   

Series 2000-T06, Class A3, 6.382% due 1/25/28 (a)

      568,653
  4,579,830   

Series 2002-T19, Class A4, 6.314% due 3/25/42 (a)(b)

      4,555,059
  5,145,194   

Series 2004-T03, Class 2A, 6.428% due 8/25/43 (a)(b)

      5,119,740
  

REMIC Trust:

   
  1,620,198   

Series 1997-20, Class F, 5.527% due 3/25/27 (a)

      1,577,352
  5,207,087   

Series 2003-117, Class KF, PAC, 5.905% due 8/25/33 (a)(b)

      5,175,832
  2,953,223   

Series 2005-86, Class FC, 5.805% due 10/25/35 (a)(b)

      2,888,745
  

Whole Loan:

   
  3,906,717   

Series 2003-W06, Class 6A, 6.455% due 8/25/42 (a)(b)

      3,941,804
  716,933   

Series 2003-W08, Class 3F1, 5.905% due 5/25/42 (a)

      707,800
  1,753,379   

First Horizon Alternative Mortgage Securities, Series 2005-AA12, Class 1A1, 5.923% due 2/25/36 (a)

      1,771,095
  993,922   

First Republican Mortgage Loan Trust, Series 2000-FRB1, Class A2, 6.193% due 6/25/30 (a)

      991,421
  2,634,363   

First Union-Lehman Brothers Commercial Mortgage Trust, Series 1997-C1, Class IO, 1.569% due 4/18/29 (a)(d)

      202,124
  903,907   

GS Mortgage Securities Corp. II, Series 2000-1A, Class A, 1.711% due 3/20/23 (a)(c)

      901,838
  

Harborview Mortgage Loan Trust:

   
  5,517,818   

5.720% due 11/19/36 (a)(b)

      5,385,390
  2,789,329   

Series 2004-2, Class 2A1, 5.798% due 6/19/34 (a)(b)

      2,713,141
  185,910   

IMPAC CMB Trust, Series 2003-8, Class 1A2, 6.505% due 10/25/33 (a)

      183,979
  755,267   

IMPAC Secured Assets Corp., Series 2004-03, Class 1A4, 5.905% due 12/25/34 (a)

      755,771
  3,407,740   

Indymac Index Mortgage Loan Trust, 5.402% due 10/25/35 (a)(b)

      3,383,552
  1,206,130   

JPMorgan Commercial Mortgage Finance Corp., Series 1997-C5, Class X, IO, 1.179% due 9/15/29 (a)

      53,420
  18,815,960   

LB Commercial Conduit Mortgage Trust, Series 1998-C4, Class X, IO, 0.702% due 10/15/35 (a)

      201,301
  1,000,106   

Lehman Structured Securities Corp., Series 2005-1, Class A1, 5.845% due 9/26/45 (a)(c)

      997,534

 

See Notes to Schedule of Investments.

 

1

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
$ 1,409,564   

MASTR ARM Trust, Series 2003-6, Class 5A1, 7.250% due 12/25/33 (a)

    $ 1,409,700
  3,477,513   

Merrill Lynch Mortgage Investors Inc., Series 2005-A2, Class A4, 4.487% due 2/25/35 (a)(b)

      3,422,173
  60,283   

MLCC Mortgage Investors Inc., Series 1999-A, Class A, 5.991% due 3/15/25 (a)

      58,769
  1,862,602   

New York Mortgage Trust Inc., 5.835% due 8/25/35 (a)

      1,858,404
  

Residential Accredit Loans Inc.:

   
  3,153,912   

Series 2003-QA1, Class A1, 5.845% due 12/25/33 (a)(b)

      3,143,644
  3,900,000   

Series 2006-QO7, Class 3A2, 5.710% due 9/25/46 (a)(b)

      3,887,812
  

Residential Asset Securitization Trust:

   
  2,534,620   

Series 2003-A05, Class A5, 6.005% due 6/25/33 (a)(b)

      2,521,979
  2,825,447   

Series 2003-A11, Class A2, PAC, 5.955% due 11/25/33 (a)(b)

      2,814,863
  1,923,806   

Series 2004-A02, Class 1A3, PAC, 5.905% due 5/25/34 (a)

      1,918,995
  3,674,746   

Residential Funding Mortgage Securities I Trust, Series 2003-S10, Class A2, 5.905% due 6/25/33 (a)(b)

      3,645,001
  

Sequoia Mortgage Trust:

   
  1,404,727   

Series 09, Class 2A, 6.933% due 9/20/32 (a)

      1,405,175
  777,305   

Series 2003-2, Class A1, 5.868% due 6/20/33 (a)

      777,094
  

Structured ARM Loan Trust:

   
  551,078   

Series 2004-01, Class 2A, 5.815% due 2/25/34 (a)

      550,746
  931,666   

Series 2004-02, Class 1A1, 7.749% due 3/25/34 (a)

      953,234
  1,570,840   

Series 2004-17, Class A1, 6.099% due 11/25/34 (a)

      1,612,563
  

Structured Asset Mortgage Investments Inc.:

   
  1,306,327   

7.503% due 8/25/35 (a)

      1,317,663
  1,559,040   

Series 2003-CL1, Class 1F2, 6.105% due 7/25/32 (a)

      1,552,939
  

Series 2005-AR7:

   
  2,396,234   

Class 1A1, 7.650% due 12/27/35 (a)(b)

      2,433,177
  1,520,857   

Class 1A2, 5.885% due 12/27/35 (a)

      1,516,016
  1,750,000   

Series 2007-AR4, Class A1, 5.700% due 9/25/47 (a)

      1,741,250
  

Structured Asset Securities Corp.:

   
  1,930,111   

6.505% due 3/25/28 (a)

      1,719,392
  3,314,043   

6.445% due 8/25/28 (a)(b)

      3,151,610
  2,832,917   

6.546% due 6/25/35 (a)(b)(c)

      2,836,459
  585,999   

Series 2002-11A, Class 1A1, 6.925% due 6/25/32 (a)

      584,006
  461,171   

Series 2002-18A, Class 1A1, 7.710% due 9/25/32 (a)

      462,459
  1,649,727   

Series 2003-08, Class 2A9, 5.820% due 4/25/33 (a)

      1,632,844
  

Thornburg Mortgage Securities Trust:

   
  1,345,999   

5.775% due 10/25/35 (a)

      1,340,933
  2,178,046   

5.570% due 7/25/45 (a)(b)

      2,174,992
  437,280   

Series 2004-01, Class I2A, 5.955% due 3/25/44 (a)

      437,187
  3,533,346   

Wachovia Mortgage Loan Trust LLC, Series 2005-A, Class 1A1, 4.747% due 8/20/35 (a)(b)

      3,507,418
  

Washington Mutual Alternative Mortgage Pass-Through Certificates:

   
  1,846,656   

6.475% due 5/25/46 (a)

      1,799,623
  2,207,843   

6.465% due 8/25/46 (a)(b)

      2,194,820
  

Washington Mutual Inc.:

   
  2,072,100   

5.945% due 9/25/36 (a)

      2,065,486
  2,742,802   

Series 2003-S4, Class 2A9, 6.470% due 6/25/33 (a)(b)

      2,728,937
  1,383,829   

Series 2004-AR2, Class A, 6.422% due 4/25/44 (a)

      1,385,691
  2,061,864   

Washington Mutual Mortgage Pass-Through Certificates, Series 2002-AR1, Class 1A1, 7.474% due 11/25/30 (a)

      2,053,588
  

Wells Fargo Mortgage Backed Securities Trust:

   
  1,773,277   

4.500% due 6/25/33

      1,756,197
  2,910,643   

Series 2003-5, Class A4, PAC, 5.905% due 5/25/33 (a)(b)

      2,883,909

 

See Notes to Schedule of Investments.

 

2

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

   

VALUE

$ 3,937,841   

Series 2004-Y, Class 1A1, 4.587% due 11/25/34 (a)(b)

    $ 3,878,427
         
  

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS

(Cost - $159,782,189)

      156,833,951
         
  ASSET-BACKED SECURITIES - 13.1%   
  Diversified Financial Services - 2.1%   
  

Business Loan Express:

   
  2,500,714   

Series 2001-2A, Class A, 6.085% due 1/25/28 (a)(b)(c)

      2,513,165
  1,330,009   

Series 2002-1A, Class A, 5.870% due 7/25/28 (a)(c)

      1,335,358
  942,082   

Series 2002-AA, Class A, 6.155% due 6/25/28 (a)(c)

      944,506
  2,739,457   

Series 2003-AA, Class A, 6.561% due 5/15/29 (a)(b)(c)

      2,765,717
         
  

Total Diversified Financial Services

      7,558,746
         
  Home Equity - 11.0%   
  

Amortizing Residential Collateral Trust:

   
  4,188,481   

Series 2002-BC4, Class M1, 6.205% due 7/25/32 (a)(b)

      3,938,910
  372,576   

Series 2002-BC6, Class A2, 5.855% due 8/25/32 (a)

      364,328
  

Bear Stearns Asset-Backed Securities Inc.:

   
  630,810   

Series 2003-SD1, Class A, 5.955% due 12/25/33 (a)

      629,017
  2,874,909   

Series 2003-SD3, Class A, 5.985% due 10/25/33 (a)(b)

      2,802,809
  695,885   

Cendant Mortgage Corp., Series 2003-A, Class A3, 5.870% due 7/25/43 (a)(c)

      695,876
  1,069,094   

Centex Home Equity, Series 2005-D, Class AV2, 5.775% due 10/25/35 (a)

      1,064,714
  91,150   

First Franklin Mortgage Loan Trust, Series 2002-FF3, Class A2, 6.425% due 8/25/32 (a)

      90,984
  3,469,358   

GSAMP Trust, Series 2006-SEA1, Class A, 5.805% due 5/25/36 (a)(b)(c)

      3,191,810
  5,889,000   

New Century Home Equity Loan Trust, Series 2004-2, Class M2, 6.125% due 8/25/34 (a)(b)

      5,625,668
  2,213,682   

NovaStar Home Equity Loan Trust, Series 2003-1, Class M1, 6.455% due 5/25/33 (a)(b)

      2,159,845
  

Renaissance Home Equity Loan Trust:

   
  1,083,984   

5.945% due 8/25/33 (a)

      1,052,499
  1,265,368   

Series 2003-1, Class A, 5.935% due 6/25/33 (a)

      1,237,701
  4,020,233   

Series 2003-3, Class A, 6.005% due 12/25/33 (a)(b)

      3,885,512
  

SACO I Trust:

   
  2,085,638   

5.655% due 4/25/36 (a)

      1,781,225
  1,097,181   

Series 2005-10, Class 1A, 5.765% due 6/25/36 (a)

      1,045,800
  747,009   

Series 2005-WM3, Class A1, 5.765% due 9/25/35 (a)

      740,667
  4,528,249   

Saxon Asset Securities Trust, Series 2003-1, Class M1, 6.205% due 6/25/33 (a)(b)

      4,297,849
  118,169   

Specialty Underwriting & Residential Finance Trust, Series 2003-BC1, Class A, 5.845% due 1/25/34 (a)

      112,476
  905,216   

Structured Asset Investment Loan Trust, Series 2003-BC1, Class A2, 6.185% due 1/25/33 (a)

      875,146
  3,911,043   

Truman Capital Mortgage Loan Trust, Series 2005-01, Class A, 5.935% due 3/25/37 (a)(b)(c)

      3,598,160
         
  

Total Home Equity

      39,190,996
         
  

TOTAL ASSET-BACKED SECURITIES

(Cost - $48,757,619)

      46,749,742
         
  CORPORATE BONDS & NOTES - 9.5%   
  Aerospace & Defense - 0.0%   
  35,000   

Hawker Beechcraft Acquisition Co., Senior Subordinated Notes, 9.750% due 4/1/17 (c)

      34,738
         
  Airlines - 0.0%   
  40,000   

DAE Aviation Holdings Inc., Senior Notes, 11.250% due 8/1/15 (c)

      40,000
         

 

See Notes to Schedule of Investments.

 

3

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  Automobiles - 0.6%   
$ 2,000,000   

DaimlerChrysler NA, Holding Corp., 5.810% due 8/3/09 (a)

    $ 1,991,274
         
  Building Products - 0.0%   
  220,000   

Associated Materials Inc., Senior Discount Notes, step bond to yield 16.822% due 3/1/14

      144,650
         
  Capital Markets - 0.6%   
  2,000,000   

Kaupthing Bank HF, Notes, 5.750% due 10/4/11 (c)

      2,016,926
         
  Chemicals - 0.0%   
  35,000   

Georgia Gulf Corp., Senior Notes, 9.500% due 10/15/14

      32,550
  20,000   

Methanex Corp., Senior Notes, 8.750% due 8/15/12

      21,500
         
  

Total Chemicals

      54,050
         
  Commercial Banks - 2.8%   
  2,000,000   

Glitnir Banki HF, Bond, 5.830% due 1/18/12 (a)(c)

      2,011,944
  

HSBC Bank PLC:

   
  100,000   

10.999% due 8/20/12 (a)

      99,580
  100,000   

Medium Term Note, 10.749% due 8/20/12 (a)

      98,630
  2,000,000   

Medium-Term Notes, 8.190% due 7/20/12 (a)(c)

      1,790,800
  2,000,000   

Landsbanki Islands HF, Senior Notes, 6.205% due 8/25/09 (a)(c)

      2,011,716
  970,000   

Russian Agricultural Bank, Loan Participation Notes, 6.299% due 5/15/17 (c)

      919,075
  690,000   

TuranAlem Finance BV, Bond, 6.735% due 1/22/09 (a)(c)

      663,262
  2,360,000   

VTB Capital SA for Vneshtorgbank, Loan Participation Notes, 5.956% due 8/1/08 (a)(b)(c)

      2,342,890
         
  

Total Commercial Banks

      9,937,897
         
  Commercial Services & Supplies - 0.0%   
  30,000   

Allied Security Escrow Corp., Senior Subordinated Notes, 11.375% due 7/15/11

      30,000
  40,000   

DynCorp International LLC/DIV Capital Corp., Senior Subordinated Notes, 9.500% due 2/15/13

      40,800
  

Rental Services Corp.:

   
  40,000   

9.500% due 12/1/14

      39,350
  30,000   

Senior Bonds, 9.500% due 12/1/14 (c)

      29,512
         
  

Total Commercial Services & Supplies

      139,662
         
  Containers & Packaging - 0.1%   
  35,000   

Graham Packaging Co. Inc., 8.500% due 10/15/12

      34,300
  30,000   

Graphic Packaging International Corp., Senior Subordinated Notes, 9.500% due 8/15/13

      30,450
  110,000   

Plastipak Holdings Inc., Senior Notes, 8.500% due 12/15/15 (c)

      112,200
  45,000   

Smurfit-Stone Container Corp., Senior Notes, 8.000% due 3/15/17

      43,144
         
  

Total Containers & Packaging

      220,094
         
  Diversified Consumer Services - 0.0%   
  40,000   

Education Management LLC/Education Management Finance Corp., Senior Subordinated Notes, 10.250% due 6/1/16

      41,500
  20,000   

Service Corp. International, 7.500% due 4/1/27

      18,500
         
  

Total Diversified Consumer Services

      60,000
         
  Diversified Financial Services - 0.7%   
  90,000   

AAC Group Holding Corp., Senior Discount Notes, step bond to yield 10.700% due 10/1/12

      77,850
  750,000   

Merna Reinsurance Ltd., Subordinated Notes, 7.110% due 7/7/10 (a)(c)

      750,937
  2,000,000   

Residential Capital Corp., Senior Notes, 7.460% due 4/17/09 (a)

      1,602,500

 

See Notes to Schedule of Investments.

 

4

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  Diversified Financial Services - 0.7% (continued)   
$ 10,000   

Vangent Inc., Senior Subordinated Notes, 9.625% due 2/15/15 (c)

    $ 9,300
         
  

Total Diversified Financial Services

      2,440,587
         
  Diversified Telecommunication Services - 0.9%   
  

Citizens Communications Co.:

   
  30,000   

7.050% due 10/1/46

      23,850
  10,000   

Senior Notes, 7.875% due 1/15/27

      9,425
  210,000   

Intelsat Bermuda Ltd., Senior Notes, 11.250% due 6/15/16

      220,762
  100,000   

L-3 Communications Corp., Senior Subordinated Notes, 6.375% due 10/15/15

      97,250
  65,000   

Level 3 Financing Inc., 9.250% due 11/1/14

      62,888
  60,000   

Nordic Telephone Co. Holdings, Senior Secured Bonds, 8.875% due 5/1/16 (c)

      62,400
  10,000   

PAETEC Holding Corp., Senior Note, 9.500% due 7/15/15 (c)

      9,600
  400,000   

Qwest Communications International Inc., Senior Notes, 9.058% due 2/15/09 (a)

      403,000
  180,000   

Qwest Corp., Notes, 8.610% due 6/15/13 (a)

      190,800
  2,000,000   

Telecom Italia Capital, 5.970% due 7/18/11 (a)

      1,988,590
  280,000   

Virgin Media Finance PLC, Senior Notes, 9.125% due 8/15/16

      284,550
  30,000   

Windstream Corp., Senior Notes, 8.625% due 8/1/16

      31,500
         
  

Total Diversified Telecommunication Services

      3,384,615
         
  Electric Utilities - 0.0%   
  10,000   

Orion Power Holdings Inc., Senior Notes, 12.000% due 5/1/10

      10,950
         
  Health Care Equipment & Supplies - 0.0%   
  10,000   

Advanced Medical Optics Inc., 7.500% due 5/1/17

      9,175
         
  Health Care Providers & Services - 0.3%   
  

Community Health Systems Inc.:

   
  61,872   

Senior Notes, 8.875% due 7/15/15

      60,325
  40,000   

Senior Notes, 8.875% due 7/15/15 (c)

      40,150
  55,000   

DaVita Inc., Senior Subordinated Notes, 7.250% due 3/15/15

      54,175
  276,000   

HCA Inc., Senior Secured Notes, 9.625% due 11/15/16 (c)(e)

      286,005
  

Tenet Healthcare Corp., Senior Notes:

   
  371,000   

9.875% due 7/1/14

      330,190
  189,000   

9.250% due 2/1/15

      163,485
  5,000   

Universal Hospital Services Inc., Secured Notes, 8.500% due 6/1/15 (c)(e)

      4,775
  50,000   

US Oncology Holdings Inc., Senior Notes, 9.797% due 3/15/12 (a)(c)(e)

      46,500
         
  

Total Health Care Providers & Services

      985,605
         
  Hotels, Restaurants & Leisure - 0.1%   
  25,000   

Buffets Inc., Senior Notes, 12.500% due 11/1/14

      19,375
  

MGM MIRAGE Inc., Senior Notes:

   
  100,000   

5.875% due 2/27/14

      92,250
  45,000   

7.500% due 6/1/16

      44,662
  40,000   

Station Casinos Inc., Senior Notes, 7.750% due 8/15/16

      38,500
         
  

Total Hotels, Restaurants & Leisure

      194,787
         
  Independent Power Producers & Energy Traders - 0.1%   
  100,000   

AES Corp., Senior Secured Notes, 9.000% due 5/15/15 (c)

      104,750
  40,000   

Dynegy Holdings Inc., Senior Notes, 7.750% due 6/1/19 (c)

      37,200
  

Edison Mission Energy, Senior Notes:

   
  20,000   

7.200% due 5/15/19 (c)

      19,000
  30,000   

7.625% due 5/15/27 (c)

      28,050
  70,000   

NRG Energy Inc., Senior Notes, 7.375% due 1/15/17

      68,950
         
  

Total Independent Power Producers & Energy Traders

      257,950
         

 

See Notes to Schedule of Investments.

 

5

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  IT Services - 0.0%   
$ 40,000   

SunGard Data Systems Inc., Senior Subordinated Notes, 10.250% due 8/15/15

    $ 41,400
         
  Media - 0.7%   
  50,000   

Affinion Group Inc., Senior Subordinated Notes, 11.500% due 10/15/15

      50,250
  

CCH I Holdings LLC/CCH I Holdings Capital Corp.:

   
  10,000   

Senior Accreting Notes, 12.125% due 1/15/15

      9,000
  45,000   

Senior Notes, 11.750% due 5/15/14

      40,275
  110,000   

CCH I LLC/CCH Capital Corp., Senior Secured Notes, 11.000% due 10/1/15

      108,350
  180,000   

EchoStar DBS Corp., Senior Notes, 6.625% due 10/1/14

      174,600
  25,000   

Idearc Inc., Senior Notes, 8.000% due 11/15/16

      24,812
  30,000   

TL Acquisitions Inc., Senior Notes, 10.500% due 1/15/15 (c)

      28,425
  10,000   

Univision Communications Inc., Senior Notes, 9.750% due 3/15/15 (c)(e)

      9,575
  2,000,000   

Viacom Inc., Senior Notes, 5.710% due 6/16/09 (a)

      1,990,742
  10,000   

XM Satellite Radio Inc., Senior Notes, 9.856% due 5/1/13 (a)

      9,350
         
  

Total Media

      2,445,379
         
  Metals & Mining - 0.1%   
  100,000   

Freeport-McMoRan Copper & Gold Inc., Senior Notes, 8.375% due 4/1/17

      106,750
  30,000   

Metals USA Inc., Senior Secured Notes, 11.125% due 12/1/15

      32,100
  25,000   

Noranda Aluminum Holding Corp., Senior Notes, 11.146% due 11/15/14 (a)(c)(e)

      22,875
  20,000   

Novelis Inc., Senior Notes, 7.250% due 2/15/15

      19,500
  25,000   

Tube City IMS Corp., 9.750% due 2/1/15

      24,625
         
  

Total Metals & Mining

      205,850
         
  Multiline Retail - 0.0%   
  

Dollar General Corp.:

   
  20,000   

Senior Notes, 10.625% due 7/15/15 (c)

      18,100
  30,000   

Senior Subordinated Notes, 11.875% due 7/15/17 (c)(e)

      25,350
  40,000   

Neiman Marcus Group Inc., Senior Subordinated Notes, 10.375% due 10/15/15

      43,200
         
  

Total Multiline Retail

      86,650
         
  Oil, Gas & Consumable Fuels - 1.8%   
  2,000,000   

Anadarko Petroleum Corp., Senior Notes, 5.760% due 9/15/09 (a)

      1,989,656
  140,000   

El Paso Corp., Senior Subordinated Notes, 7.000% due 6/15/17

      140,259
  70,000   

Enterprise Products Operating LP, 7.034% due 1/15/68 (a)

      63,156
  30,000   

EXCO Resources Inc., Senior Notes, 7.250% due 1/15/11

      30,375
  

OPTI Canada Inc., Senior Secured Notes:

   
  30,000   

7.875% due 12/15/14 (c)

      30,225
  10,000   

8.250% due 12/15/14 (c)

      10,175
  4,120,000   

Pemex Project Funding Master Trust, Senior Notes, 5.960% due 12/3/12 (a)(b)(c)

      4,118,970
  25,000   

Stone Energy Corp., Senior Subordinated Notes, 8.250% due 12/15/11

      24,687
  15,000   

W&T Offshore Inc., Senior Notes, 8.250% due 6/15/14 (c)

      14,063
  80,000   

Williams Cos. Inc., Notes, 8.750% due 3/15/32

      91,400
         
  

Total Oil, Gas & Consumable Fuels

      6,512,966
         
  Paper & Forest Products - 0.0%   
  

Abitibi-Consolidated Co. of Canada, Senior Notes:

   
  15,000   

6.000% due 6/20/13

      11,175
  10,000   

8.375% due 4/1/15

      7,900
  25,000   

Abitibi-Consolidated Inc., Debentures, 7.400% due 4/1/18

      18,250
  30,000   

Appleton Papers Inc., Senior Notes, 8.125% due 6/15/11

      29,888
  30,000   

Smurfit Capital Funding PLC, Debentures, 7.500% due 11/20/25

      28,800

 

See Notes to Schedule of Investments.

 

6

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  Paper & Forest Products - 0.0% (continued)
$ 20,000   

Verso Paper Holdings LLC, 11.375% due 8/1/16

    $ 20,500
         
  

Total Paper & Forest Products

      116,513
         
  Pharmaceuticals - 0.0%   
  90,000   

Leiner Health Products Inc., Senior Subordinated Notes, 11.000% due 6/1/12

      78,750
         
  Real Estate Management & Development - 0.0%   
  70,000   

Realogy Corp., Senior Subordinated Notes, 12.375% due 4/15/15 (c)

      51,713
         
  Road & Rail - 0.0%   
  60,000   

Hertz Corp., Senior Subordinated Notes, 10.500% due 1/1/16

      65,100
         
  Specialty Retail - 0.0%   
  20,000   

Blockbuster Inc., Senior Subordinated Notes, 9.000% due 9/1/12

      17,300
         
  Textiles, Apparel & Luxury Goods - 0.0%   
  25,000   

Levi Strauss & Co., Senior Notes, 8.875% due 4/1/16

      25,250
  17,000   

Oxford Industries Inc., Senior Notes, 8.875% due 6/1/11

      17,128
         
  

Total Textiles, Apparel & Luxury Goods

      42,378
         
  Tobacco - 0.0%   
  

Alliance One International Inc., Senior Notes:

   
  10,000   

8.500% due 5/15/12 (c)

      10,000
  10,000   

11.000% due 5/15/12

      10,500
         
  

Total Tobacco

      20,500
         
  Trading Companies & Distributors - 0.1%   
  100,000   

Ashtead Capital Inc., Notes, 9.000% due 8/15/16 (c)

      99,500
  30,000   

H&E Equipment Services Inc., Senior Notes, 8.375% due 7/15/16

      30,900
  65,000   

Penhall International Corp., Senior Secured Notes, 12.000% due 8/1/14 (c)

      67,925
         
  

Total Trading Companies & Distributors

      198,325
         
  Transportation Infrastructure - 0.0%   
  

Saint Acquisition Corp., Secured Notes:

   
  30,000   

13.308% due 5/15/15 (a)(c)

      21,000
  40,000   

12.500% due 5/15/17 (c)

      27,300
         
  

Total Transportation Infrastructure

      48,300
         
  Wireless Telecommunication Services - 0.6%   
  5,000   

MetroPCS Wireless Inc., Senior Notes, 9.250% due 11/1/14 (c)

      4,950
  20,000   

Rural Cellular Corp., Senior Subordinated Notes, 8.360% due 6/1/13 (a)(c)

      20,500
  2,000,000   

Vodafone Group PLC, 5.785% due 2/27/12 (a)

      2,004,752
         
  

Total Wireless Telecommunication Services

      2,030,202
         
  

TOTAL CORPORATE BONDS & NOTES

(Cost - $34,930,211)

      33,884,286
         
  LOAN PARTICIPATIONS - 7.1%   
  Aerospace & Defense - 0.2%   
  786,560   

Hawker Beechcraft, Term Loan B, 7.193% due 3/26/14 (Credit Suisse) (a)(f)

      752,148
         
  Diversified Consumer Services - 0.5%   
  1,000,000   

Education Management, Term Loan C, 7.660% due 6/15/13 (Bear Stearns) (a)(f)

      954,236
  1,000,000   

Thomson Learning Hold, Term Loan B, 8.500% due 7/5/14 (Credit Suisse) (a)(f)

      949,167
         
  

Total Diversified Consumer Services

      1,903,403
         

 

See Notes to Schedule of Investments.

 

7

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  Diversified Financial Services - 0.5%   
$ 1,000,000   

Chrysler Financial, Term Loan B, 9.360% due 8/3/12 (Chase Securities) (a)(f)

    $ 976,477
  1,000,000   

Ocinix, Term Loan B, 7.600% due 5/1/14 (Lehman Brothers) (a)(f)

      960,000
         
  

Total Diversified Financial Services

      1,936,477
         
  Diversified Telecommunication Services - 0.3%   
  1,000,000   

Cablevision Systems Corp., Term Loan B, 6.450% due 3/30/13(Bank of America) (a)(f)

      962,009
         
  Food Products - 0.5%   
  1,000,000   

Bolthouse Farms Inc., Term Loan B, 7.625% due 12/16/12 (Goldman Sachs & Co.) (a)(f)

      966,250
  1,000,000   

Dole Food Co., Tranche C Term Loan, 6.750% due 4/12/13 (Morgan Stanley) (a)(f)

      946,607
         
  

Total Food Products

      1,912,857
         
  Health Care Providers & Services - 1.0%   
  938,128   

Community Health Systems Inc., Term Loan B, 7.560% due 7/2/14 (Credit Suisse) (a)(f)

      904,708
  1,000,000   

HCA Inc., Term Loan B, 8.150% due 11/1/13 (Bank of America) (a)(f)

      966,172
  1,000,000   

Health Management Association, Term Loan B, 7.110% due 1/16/14 (Bank of America) (a)(f)

      943,594
  1,000,000   

Vanguard Health, Term Loan B, 7.610% due 5/18/11 (Bank of America) (a)(f)

      961,250
         
  

Total Health Care Providers & Services

      3,775,724
         
  Hotels, Restaurants & Leisure - 1.1%   
  1,000,000   

Cinemark USA Inc., Term Loan B, 7.250% due 10/5/13 (Lehman Brothers) (a)(f)

      960,000
  1,000,000   

Golden Nugget Inc., Term Loan, 7.350% due 6/14/14 (Wachovia Securities) (a)(f)

      952,500
  

Las Vegas Sands LLC, Term Loan:

   
  200,000   

7.100% due 5/8/14 (Morgan Stanley) (a)(f)

      190,775
  800,000   

7.110% due 5/8/14 (Morgan Stanley) (a)(f)

      763,100
  1,000,000   

Tropicana Entertainment, Term Loan B, 7.610% due 12/15/11 (Credit Suisse) (a)(f)

      955,893
         
  

Total Hotels, Restaurants & Leisure

      3,822,268
         
  Household Products - 0.3%   
  1,000,000   

Yankee Candle, Term Loan B, 7.400% due 1/15/14 (Merrill Lynch) (a)(f)

      963,750
         
  Independent Power Producers & Energy Traders - 0.1%   
  500,000   

NRG Energy Inc., Term Loan, 7.110% due 2/1/13 (Credit Suisse) (a)(f)

      482,678
         
  Media - 1.1%   
  1,000,000   

Charter Communications, Term Loan B, 7.360% due 3/15/14 (Chase Securities) (a)(f)

      949,107
  1,000,000   

Discovery Holding Co., Term Loan, 7.360% due 5/15/14 (Bank of America) (a)(f)

      974,583
  1,000,000   

Idearc Inc., Term Loan B, 7.360% due 11/1/14 (Merrill Lynch) (a)(f)

      971,364
  1,000,000   

LodgeNet Entertainment Corp., Term Loan B, 7.350% due 4/4/14 (Barclays Capital) (a)(f)

      960,000
         
  

Total Media

      3,855,054
         
  Multiline Retail - 0.3%   
  1,000,000   

Neiman Marcus Group Inc., Term Loan B, 7.110% due 3/13/13 (Credit Suisse) (a)(f)

      974,464
         

 

See Notes to Schedule of Investments.

 

8

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  Paper & Forest Products - 0.3%   
$ 1,000,000   

Georgia-Pacific Corp., Term Loan, 6.750% due 12/23/13 (Merrill Lynch) (a)(f)

    $ 960,192
         
  Road & Rail - 0.3%   
  1,000,000   

UPC Term Loan N, 7.100% due 3/30/14 (Toronto Dominion) (a)(f)

      943,750
         
  Specialty Retail - 0.3%   
  1,000,000   

Michaels Stores, Inc. Term Loan B, 7.600% due 10/31/13 (Merrill Lynch) (a)(f)

      947,321
         
  Wireless Telecommunication Services - 0.3%   
  1,000,000   

Centennial Cellular Operating Co., Term Loan C, 7.555% due 2/9/11 (Credit Suisse) (a)(f)

      976,500
         
  

TOTAL LOAN PARTICIPATIONS

(Cost - $25,220,968)

      25,168,595
         
  MORTGAGE-BACKED SECURITIES - 14.7%   
  FNMA - 14.7%   
  

Federal National Mortgage Association (FNMA):

   
  6,400,000   

5.000% due 9/13/37-10/11/37 (g)

      6,083,001
  43,800,000   

6.000% due 9/13/37-10/11/37 (g)

      43,747,886
  1,350,000   

6.500% due 9/13/37 (g)

      1,370,461
  1,350,000   

5.500% due 10/11/37 (g)

      1,318,571
         
  

TOTAL MORTGAGE-BACKED SECURITIES

(Cost - $52,371,934)

      52,519,919
         
  SOVEREIGN BONDS - 0.8%   
  Brazil - 0.2%   
  497,000   

Federative Republic of Brazil, 11.000% due 8/17/40

      657,283
         
  Russia - 0.6%   
  1,975,075   

Russian Federation, 7.500% due 3/31/30 (b)(c)

      2,194,802
         
  

TOTAL SOVEREIGN BONDS

(Cost - $2,899,103)

      2,852,085
         
  U.S. GOVERNMENT & AGENCY OBLIGATIONS - 23.0%   
  U.S. Government Agencies - 23.0%   
  

Federal Home Loan Mortgage Corp. (FHLMC):

   
  

3/1 Hybrid ARM:

   
  93,364   

7.600% due 8/1/29 (a)

      95,017
  654,851   

7.211% due 8/1/32 (a)

      663,182
  339,474   

7.600% due 8/1/32 (a)

      342,844
  

5/1 Hybrid ARM:

   
  319,206   

7.273% due 12/1/26 (a)

      321,267
  853,048   

7.352% due 7/1/29 (a)

      867,245
  213,300   

7.438% due 7/1/29 (a)

      217,685
  2,913,197   

3.950% due 7/1/33 (a)

      2,885,186
  

Five Year CMT ARM:

   
  248,655   

7.935% due 8/1/25 (a)

      253,530
  47,533   

6.384% due 12/1/30 (a)

      48,282
  

Gold Fifteen Year:

   
  2,915   

6.000% due 5/1/08

      2,921
  3,532   

6.000% due 6/1/08

      3,540
  10,112   

6.000% due 11/1/08

      10,142
  89,106   

6.000% due 3/1/09

      89,285

 

See Notes to Schedule of Investments.

 

9

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  U.S. Government Agencies - 23.0% (continued)   
$ 13,023   

6.000% due 4/1/09

    $ 13,059
  12,580   

6.000% due 7/1/09

      12,660
  45,001   

6.000% due 3/1/11

      45,633
  103,087   

6.000% due 5/1/11

      104,536
  100,306   

6.000% due 6/1/11

      101,657
  458,656   

6.500% due 9/1/14

      469,390
  532,150   

6.000% due 10/1/15

      539,892
  616,750   

6.000% due 4/1/17

      624,226
  217,465   

6.000% due 5/1/17

      220,088
  357,122   

6.000% due 6/1/17

      361,430
  14,790   

Gold Thirty Year, 6.500% due 4/1/29

      15,136
  

One Year CMT ARM:

   
  324,569   

7.262% due 12/1/23 (a)

      329,007
  238,877   

6.135% due 2/1/24 (a)

      241,965
  1,278,571   

7.007% due 4/1/26 (a)

      1,291,700
  2,139,323   

7.140% due 6/1/29 (a)

      2,162,655
  623,695   

7.384% due 7/1/29 (a)

      632,804
  386,524   

7.390% due 3/1/31 (a)

      391,301
  6,459   

7.200% due 5/1/31 (a)

      6,507
  6,202,249   

4.869% due 3/1/33 (a)

      6,272,566
  1,615,477   

5.298% due 10/1/33 (a)

      1,627,613
  3,629,791   

One Year LIBOR, 4.073% due 5/1/33 (a)

      3,628,348
  89,300   

Six Month LIBOR, 7.423% due 7/1/27 (a)

      89,154
  190,099   

Three Year CMT ARM, 6.094% due 12/1/30 (a)

      194,288
  

Federal National Mortgage Association (FNMA):

   
  1,522,600   

11th District COFI, 5.781% due 2/1/31 (a)

      1,537,915
  247,843   

Fifteen Year, 5.500% due 3/1/11

      247,930
  867,239   

Five Year CMT ARM, 6.408% due 5/1/30 (a)

      888,741
  

One Year CMT ARM:

   
  493,092   

7.222% due 11/1/18 (a)

      506,354
  225,869   

7.316% due 4/1/20 (a)

      226,777
  195,825   

7.241% due 7/1/21 (a)

      196,694
  104,818   

7.283% due 8/1/22 (a)

      107,156
  174,055   

7.500% due 7/1/23 (a)

      174,469
  317,623   

6.516% due 8/1/23 (a)

      316,460
  384,468   

7.382% due 2/1/24 (a)

      387,855
  113,386   

7.176% due 12/1/25 (a)

      114,281
  302,403   

7.234% due 1/1/27 (a)

      305,648
  886,432   

7.331% due 7/1/27 (a)

      892,102
  258,956   

6.299% due 8/1/27 (a)

      260,896
  58,331   

7.129% due 2/1/28 (a)

      58,557
  192,428   

7.250% due 3/1/28 (a)

      192,903
  687,278   

5.947% due 2/1/29 (a)

      707,924
  731,594   

6.840% due 8/1/29 (a)

      753,804
  44,451   

7.110% due 9/1/29 (a)

      44,562
  945,665   

7.301% due 11/1/29 (a)

      948,977
  304,201   

6.607% due 1/1/30 (a)

      310,014
  329,404   

6.460% due 5/1/30 (a)

      336,813
  222,563   

7.065% due 9/1/30 (a)

      227,353
  1,347,639   

7.486% due 12/1/30 (a)

      1,355,490
  236,134   

7.235% due 1/1/31 (a)

      237,642
  334,671   

7.146% due 2/1/31 (a)

      335,762
  421,600   

7.206% due 3/1/31 (a)

      424,796
  203,634   

6.477% due 4/1/31 (a)

      207,012
  537,917   

6.889% due 4/1/31 (a)

      545,997
  606,233   

7.218% due 7/1/31 (a)

      612,570

 

See Notes to Schedule of Investments.

 

10

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

 

FACE
AMOUNT		   

SECURITY

    VALUE
  U.S. Government Agencies - 23.0% (continued)   
$ 1,450,128   

6.097% due 9/1/31 (a)

    $ 1,479,418
  203,816   

6.224% due 9/1/31 (a)

      209,529
  493,122   

6.678% due 10/1/31 (a)

      492,633
  204,473   

7.090% due 3/1/32 (a)

      206,393
  73,119   

6.875% due 6/1/32 (a)

      72,924
  1,474,115   

5.891% due 7/1/32 (a)

      1,509,961
  1,228,101   

4.903% due 9/1/32 (a)

      1,245,946
  170,376   

7.540% due 11/1/32 (a)

      171,422
  3,268,683   

4.781% due 12/1/32 (a)

      3,322,145
  1,118,579   

4.543% due 1/1/33 (a)

      1,137,787
  681,641   

7.290% due 1/1/33 (a)

      686,424
  2,099,722   

4.021% due 5/1/33 (a)

      2,117,872
  

One Year LIBOR:

   
  426,457   

6.887% due 8/1/32 (a)

      427,562
  1,144,502   

4.986% due 11/1/32 (a)

      1,141,696
  

Six Month CD ARM:

   
  692,798   

6.383% due 12/1/20 (a)

      692,718
  75,763   

6.877% due 6/1/24 (a)

      76,613
  557,133   

7.254% due 7/1/24 (a)

      563,940
  1,214,796   

7.052% due 9/1/24 (a)

      1,224,625
  456,888   

7.149% due 9/1/24 (a)

      458,782
  

Six Month LIBOR:

   
  177,286   

6.750% due 11/1/31 (a)

      177,237
  961,256   

7.231% due 1/1/33 (a)

      973,667
  1,180,936   

4.649% due 4/1/33 (a)

      1,190,577
  182,797   

7.405% due 4/1/33 (a)

      182,095
  3,096,499   

4.541% due 5/1/33 (a)

      3,105,732
  2,598,425   

4.442% due 6/1/33 (a)

      2,597,724
  

Three Year CMT ARM:

   
  132,348   

5.225% due 9/1/21 (a)

      133,565
  2,735,768   

6.534% due 6/1/30 (a)

      2,820,079
  32,195   

Government National Mortgage Association (GNMA), Fifteen Year, 6.000% due 12/15/08

      32,326
  

Government National Mortgage Association (GNMA) II, One Year CMT ARM:

   
  249,723   

6.375% due 2/20/16 (a)

      252,145
  278,359   

6.375% due 6/20/17 (a)

      280,326
  826,285   

5.750% due 9/20/20 (a)

      833,345
  461,459   

6.375% due 3/20/21 (a)

      466,542
  1,705,102   

6.375% due 6/20/22 (a)

      1,718,050
  385,306   

5.750% due 8/20/22 (a)

      387,917
  1,004,691   

6.125% due 10/20/22 (a)

      1,011,894
  491,774   

6.125% due 11/20/22 (a)

      495,308
  207,115   

6.125% due 12/20/22 (a)

      208,474
  364,042   

6.375% due 5/20/23 (a)

      366,608
  263,735   

6.375% due 1/20/24 (a)

      266,114
  601,378   

6.375% due 3/20/24 (a)

      606,619
  338,459   

6.375% due 5/20/26 (a)

      341,092
  603,456   

5.750% due 9/20/27 (a)

      607,444
  643,510   

6.125% due 10/20/27 (a)

      648,388
  1,291,801   

6.375% due 4/20/32 (a)

      1,300,441
  477,806   

6.375% due 5/20/32 (a)

      481,002
  2,437,169   

5.500% due 7/20/32 (a)

      2,453,673
  1,878,220   

5.500% due 8/20/32 (a)

      1,890,948
  396,634   

5.500% due 9/20/32 (a)

      399,178
         

 

See Notes to Schedule of Investments.

 

11

LEGG MASON PARTNERS ADJUSTABLE RATE INCOME FUND

 

Schedule of Investments (unaudited) (continued)    August 31, 2007

 

FACE
AMOUNT		   

SECURITY

    VALUE  
  

TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS

(Cost - $82,894,564)

      82,106,095  
           
  U.S. TREASURY INFLATION PROTECTED SECURITIES - 1.0%   
  

U.S. Treasury Notes, Inflation Indexed:

   
$ 749,805   

1.875% due 7/15/15

    $ 723,094  
  2,810,141   

2.375% due 1/15/17 (b)

      2,807,508  
           
  

TOTAL U.S. TREASURY INFLATION PROTECTED SECURITIES

(Cost - $3,460,153)

      3,530,602  
           
  

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS

(Cost - $410,316,741)

      403,645,275  
           
  SHORT-TERM INVESTMENTS - 3.6%   
  U.S. Government Agency - 0.4%   
  1,500,000   

Federal National Mortgage Association (FNMA), Discount Notes, 5.203% due 3/17/08 (h)(i)

      1,462,260  
           
  Repurchase Agreement - 3.2%   
  11,264,000   

Nomura Securities International Inc., tri-party repurchase agreement dated 8/31/07, 5.180% due 9/4/07; Proceeds at maturity - $11,270,483; (Fully collateralized by U.S. government agency obligations 0.000% to 5.620% due 9/18/07 to 6/1/15; Market value - $11,489,673)

      11,264,000  
           
  

TOTAL SHORT-TERM INVESTMENTS

(Cost - $12,723,294)

      12,726,260  
           
  

TOTAL INVESTMENTS - 116.8%

(Cost - $423,040,035#)

      416,371,535  
  

Liabilities in Excess of Other Assets - (16.8)%

      (59,769,490 )
           
  

TOTAL NET ASSETS - 100.0%

    $  356,602,045  
           

 

(a) Variable rate security. Interest rate disclosed is that which is in effect at August 31, 2007.

 

(b) All or a portion of this security is segregated for open futures contracts, extended settlements and TBA’s.

 

(c) 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.

 

(d) Illiquid security.

 

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

 

(f) Participation interest was acquired through the financial institution indicated parenthetically.

 

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

 

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

 

(i) 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.

 

Abbreviations used in this schedule:
ARM   

— Adjustable Rate Mortgage

CD   

— Certificate of Deposit

CMT   

— Constant Maturity Treasury

COFI   

— Cost of Funds Index

IO   

— Interest Only

LIBOR   

— London Interbank Offered Rate

MASTR   

— Mortgage Asset Securitization Transactions Inc.

PAC   

— Planned Amortization Class

REMIC   

— Real Estate Mortgage Investment Conduit

STRIPS   

— Separate Trading of Registered Interest and Principal Securities

 

See Notes to Schedule of Investments.

 

12

Notes to Schedule of Investments (unaudited)

1. Organization and Significant Accounting Policies

The Legg Mason Partners Adjustable Rate Income Fund (the “Fund”) is a separate diversified investment series of Legg Mason Partners Income Trust (the “Trust”). The Trust, a Maryland 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. Debt securities are valued at the mean between the last quoted 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 securities 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 fair 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 all times, 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) Financial Futures Contracts. The Fund may enter into financial futures contracts typically, but not necessarily, to hedge a portion of the portfolio. Upon entering into a financial futures contract, the Fund is required to deposit cash or securities as initial margin, equal to a certain percentage of the contract amount (initial margin deposit). 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 fluctuations in the value of the underlying financial instruments. The Fund 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 financial instruments. In addition, investing in financial futures contracts involves the risk that the Fund could lose more than the initial 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.

(d) 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 securities. Securities purchased on a TBA basis are not settled until they are delivered to the Fund, normally 15 to 45 days after purchase. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

(e) Mortgage Dollar Rolls. The Fund may enter into dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date. During the roll period, the Fund forgoes interest paid on the securities. The Fund is compensated by the interest earned on the cash proceeds of the initial sale and by the lower repurchase price at the specified future date. The Fund maintains a segregated account, the dollar value of which is at least equal to its obligations with respect to dollar rolls.

The Fund executes its mortgage dollar rolls entirely in the to-be-announced (“TBA”) market, where the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date.

The 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.

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

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

(g) Loan Participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement, or any rights of set-off against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

(h) Credit and Market Risk. Investment in structured securities collateralized by residential real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and the foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of accrued interest and principal of these investments may doubtful. Such market conditions may significantly impair the value of these investments resulting in a lack of correlation between credit ratings and values.

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

2. Investments

At August 31, 2007, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

    $ 600,468  

Gross unrealized depreciation

      (7,268,968 )
        

Net unrealized depreciation

    $ (6,668,500 )
        

At August 31, 2007, the Fund had the following open futures contracts:

 

     Number of
Contracts		    Expiration
Date		   

Basis

Value

    Market
Value		    Unrealized
Gain (Loss)		  
Contracts to Buy:               

Eurodollar

    79    12/07    $ 18,739,195    $ 18,775,338    $ 36,143  

U.S. Treasury 2-Year Notes

    65    12/07      13,391,028      13,400,156      9,128  
                    
               $ 45,271  
Contracts to Sell:               

U.S. Treasury 5-Year Notes

    4    9/07    $ 420,980    $ 427,125    $ (6,145 )

U.S. Treasury 5-Year Notes

    390    12/07      41,487,753      41,614,219      (126,466 )

U.S. Treasury 10-Year Notes

    44    9/07      4,682,889      4,817,312      (134,423 )

U.S. Treasury 10-Year Notes

    173    12/07      18,791,588      18,865,109      (73,521 )
                    
               $ (340,555 )
                    
Net Unrealized Loss on Open Futures Contracts                $ (295,284 )
                    

At August 31, 2007, the Fund held TBA securities with a total cost of $52,371,934.

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 Trust

 

By  

/S/    R. JAY GERKEN        

  R. Jay Gerken
  Chief Executive Officer
Date: October 26, 2007

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

 

By  

/S/    R. JAY GERKEN        

  R. Jay Gerken
  Chief Executive Officer
Date: October 26, 2007

 

By  

/S/    FRANCES M. GUGGINO      

  Frances M. Guggino
  Chief Financial Officer
Date: October 26, 2007