UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-04254

Legg Mason Partners Income Trust

(Exact name of registrant as specified in charter)

55 Water Street, New York, NY 10041

(Address of principal executive offices) (Zip code)

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

Registrant’s telephone number, including area code:

Funds Investor Services 1-800-822-5544

or

Institutional Shareholder Services 1-888-425-6432

Date of fiscal year end: July 31

Date of reporting period: July 31, 2010

ITEM 1. REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

July 31, 2010

Annual Report

Legg Mason

Western Asset

Strategic

Income Fund

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

II Legg Mason Western Asset Strategic Income Fund

Fund objective

The Fund seeks high current income.

Fund name change

Prior to October 5, 2009, the Fund was known as Legg Mason Partners Strategic Income Fund. There was no change in the Fund’s investment objective or investment policies as a result of the name change.

What’s inside
Letter from the chairman	II
Investment commentary	III
Fund overview	1
Fund at a glance	5
Fund expenses	6
Fund performance	7
Schedule of investments	8
Statement of assets and liabilities	23
Statement of operations	24
Statements of changes in net assets	25
Financial highlights	26
Notes to financial statements	30
Report of independent registered public accounting firm	47
Additional information	48
Important tax information	54

Letter from the chairman

Dear Shareholder,

We are pleased to provide the annual report of Legg Mason Western Asset Strategic Income Fund for the twelve-month reporting period ended July 31, 2010. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.leggmason.com/individualinvestors. Here you can gain immediate access to market and investment information, including:

Ÿ Fund prices and performance,

Ÿ Market insights and commentaries from our portfolio managers, and

Ÿ A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

R. Jay Gerken, CFA

Chairman, President and Chief Executive Officer

August 27, 2010

Legg Mason Western Asset Strategic Income Fund III

Investment commentary

Economic review

While the overall U.S. economy continued to expand over the twelve months ended July 31, 2010, several economic data points weakened toward the end of the reporting period. This, in combination with sovereign debt woes in Europe, impacted investor sentiment and had significant implications for the financial markets.

Looking back, the U.S. Department of Commerce reported that U.S. gross domestic product (“GDP”)ⁱ contracted four consecutive quarters, beginning in the third quarter of 2008 through the second quarter of 2009. Economic conditions then began to improve in the third quarter of 2009, as GDP growth was 1.6%. A variety of factors helped the economy to regain its footing, including the government’s $787 billion stimulus program. Economic growth then accelerated during the fourth quarter of 2009, as GDP growth was 5.0%. A slower drawdown in business inventories and renewed consumer spending were contributing factors spurring the economy’s higher growth rate. While the economy continued to expand during the first half of 2010, it did so at a more modest pace, as GDP growth was 3.7% during the first quarter of 2010. The economy moderated further, with an estimated 1.6% for the second quarter.

Even before GDP growth turned positive, there were signs that the economy was on the mend. The manufacturing sector, as measured by the Institute for Supply Management’s PMIⁱⁱ, rose to 52.8 in August 2009, the first time it surpassed 50 since January 2008 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion). While July 2010’s PMI reading of 55.5 was lower than June’s reading of 56.2, manufacturing has now expanded twelve consecutive months according to PMI data. During July, ten of the eighteen industries tracked by the Institute for Supply Management expanded.

After experiencing sharp job losses in 2009, the U.S. Department of Labor reported that over one million new positions were added during the first five months of 2010. Included in that number, however, were 700,000 temporary government jobs tied to the 2010 Census. In June and July, a total of 368,000 of these temporary positions were eliminated. This offset private sector growth and resulted in a net loss of 221,000 and 131,000 jobs in June and July, respectively. The unemployment rate was 9.5% in July and June, versus 9.7% and 9.9% in May and April, respectively.

There was mixed news in the housing market during the period. According to the National Association of

Realtors, existing home sales increased 7.0% and 8.0% in March and April, respectively, after sales had fallen for the period from December 2009 through February 2010. The rebound was largely attributed to people rushing to take advantage of the government’s $8,000 tax credit for first-time home buyers that expired at the end of April. However, with the end of the tax credit, existing home sales then declined 2.2% and 7.1% in May and June, respectively. In July, sales plummeted 27.2% to 3.83 million — the lowest level reported in over a decade. In addition, the inventory of unsold homes increased to nearly four million in July. This represents a 12.5 month supply at the current sales level, versus an 8.9 month supply in June. Looking at home prices, the S&P/Case-Shiller Home Price Indexⁱⁱⁱ indicated that month-to-month U.S. home prices rose 1.0% in June. This marked the third straight monthly increase following six consecutive months of declining prices.

Financial market overview

During the majority of the reporting period, the financial markets were largely characterized by healthy investor risk appetite and solid results by lower-quality bonds. However, the market experienced a sharp sell-off beginning in late April and in May, during which risk aversion returned and investors flocked to the relative safety of U.S. Treasury securities. Demand for riskier assets then resumed during the last two months of the period.

Given certain pockets of weakness in the economy, the Federal Reserve Board (“Fed”)^iv remained cautious throughout the reporting period. At its meeting in August 2010 (after the reporting period ended), the Fed said that “the pace of recovery in output and employment has slowed in recent months. . . . The Committee will maintain the target range for the federal funds rate^v at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

In addition to prior steps taken to reverse its accommodative monetary stance, the Fed indicated in August 2010 its willingness to take further actions to spur the economy. At its August 10^th meeting, the Fed announced that it would begin to use the proceeds from expiring agency debt and agency mortgage-backed securities to purchase longer-dated Treasury securities. This led to speculation that the Fed may again move to purchase large amounts of agency and Treasury securities in

IV Legg Mason Western Asset Strategic Income Fund

Investment commentary (cont’d)

an attempt to avoid a double-dip recession and ward off deflation.

Fixed-income market review

Continuing the trend that began in the second quarter of 2009, nearly every spread sector (non-Treasury) outperformed equal-duration^vi Treasuries during the first nine months of the reporting period. Over that time, investor confidence was high given encouraging economic data, continued low interest rates, benign inflation and rebounding corporate profits. However, robust investor appetite was replaced with heightened risk aversion toward the end of April and during the month of May. This was due to the escalating sovereign debt crisis in Europe, uncertainties regarding new financial reforms in the U.S. and some worse-than-expected economic data. Most spread sectors then produced positive absolute returns in June and July, as investor demand for these securities again increased.

Both short- and long-term Treasury yields fluctuated but, overall, moved lower during the twelve months ended July 31, 2010. When the period began, two- and ten-year Treasury yields were 1.13% and 3.52%, respectively. Two-year Treasury yields initially rose, reaching as high as 1.32% in early August 2009, whereas ten-year Treasuries peaked at 4.01% in April 2010. Subsequent to hitting their highs for the period, yields largely declined during the remainder of the reporting period. When the period ended on July 31, 2010, two- and ten-year Treasury yields were 0.55% and 2.94%, respectively — at or near their lows for the reporting period. For the twelve months ended July 31, 2010, the Barclays Capital U.S. Aggregate Index^vii returned 8.91%.

While the high-yield bond market could not escape the negative impact of the investor “flight to quality,” it still was able to produce strong results during the reporting period. The asset class posted positive returns during each month, except for May 2010 when risk aversion reached extremely elevated levels. The high-yield market was supported by better-than-expected corporate profits and overall strong investor demand. All told, the Barclays Capital U.S. High Yield — 2% Issuer Cap Index^viii returned 23.69% for the twelve months ended July 31, 2010.

Emerging market debt prices rallied over the reporting period, also posting positive returns each month during the period except for May 2010. This impressive performance was triggered by strong economic growth in many emerging market countries, solid domestic demand and generally robust investor demand for the asset class. The JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)^ix returned 19.08% over the twelve months ended July 31, 2010.

As always, thank you for your confidence in our stewardship of your assets.

Sincerely,

R. Jay Gerken, CFA

Chairman, President and Chief Executive Officer

August 31, 2010

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

ⁱ Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.

ⁱⁱ The Institute for Supply Management's PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector.

ⁱⁱⁱ The S&P/Case-Shiller Home Price Index measures the residential housing market, tracking changes in the value of the residential real estate market in twenty metropolitan regions across the United States.

^iv The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.

^v The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to another depository institution; the rate may vary from depository institution to depository institution and from day to day.

^vi Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

^vii The Barclays Capital U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

^viii The Barclays Capital U.S. High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays Capital U.S. Corporate High Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

^ix The JPMorgan Emerging Markets Bond Index Global (“EMBI Global”) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 1

Fund overview

Q. What is the Fund’s investment strategy?

A. The Fund seeks high current income. The Fund normally invests in a globally diverse portfolio of fixed-income securities, including mortgage- and asset-backed securities, U.S. government obligations, U.S. and foreign corporate debt, including emerging market corporate debt, and sovereign debt, including emerging market sovereign debt, as well as related securities and instruments. We have broad discretion to invest in all types of fixed-income securities and to allocate the Fund’s assets among all segments of the global market for fixed-income securities, with no specific minimum or maximum investment in any one segment. Up to 50% of the Fund’s assets may be invested in below investment grade securities or, if unrated, securities determined by us to be of comparable quality and up to 20% of its assets may be invested in below investment grade securities (or those determined by us to be of comparable quality) issued by issuers located in emerging market countries. The Fund may invest without limit in foreign securities denominated either in U.S. dollars or foreign currencies.

Under normal circumstances, the Fund will invest primarily in intermediate-term securities, although the Fund may invest in securities of any maturity. The effective durationⁱ of the Fund’s portfolio is normally expected to be between three and seven years. In selecting securities, we use a combination of quantitative models that seek to measure the relative risks and opportunities of each market segment based upon economic, market, political, currency and technical data and our own assessment of economic and market conditions in an effort to create an optimal risk/return allocation of the Fund’s assets among various segments of the fixed-income market. After we make our sector allocations, we use traditional credit analysis to identify individual securities for the Fund’s portfolio.

At Western Asset Management Company (“Western Asset”), the Fund’s subadviser, we utilize a fixed-income team approach, with decisions derived from interaction among various investment management sector specialists. The sector teams are comprised of Western Asset’s senior portfolio managers, research analysts and an in-house economist. Under this team approach, management of client fixed-income portfolios will reflect a consensus of interdisciplinary views within the Western Asset organization.

Q. What were the overall market conditions during the Fund’s reporting period?

A. During the twelve months ended July 31, 2010, the riskier segments of the fixed-income market

produced strong results and outperformed U.S. Treasuries. This was due, in part, to improving economic conditions following the lengthy downturn from mid-2008 through mid-2009. Also supporting the spread sectors (non-U.S. Treasuries) was overall solid demand from investors seeking incremental yields given the low rates available from short-term fixed-income securities.

The spread sectors rallied during most of the reporting period, with a notable exception being in late April and May 2010. During that time, there was a “flight to quality,” triggered by concerns regarding the escalating sovereign debt crisis in Europe. In addition, investor sentiment was negatively impacted by uncertainties surrounding financial reform legislation in the U.S. and signs that economic growth was moderating. Collectively, this caused investors to flock to the relative safety of Treasury securities, driving their yields lower and prices higher.

However, robust investor risk appetite largely resumed during the last two months of the fiscal year. This turnaround occurred as the situation in Europe appeared to stabilize, the financial reform bill was signed into law and the Federal Reserve Board (“Fed”)ⁱⁱ continued to indicate that it would keep short-term rates low for “an extended period.”

The yields on two- and ten-year Treasuries began the fiscal year at 1.13% and 3.52%, respectively. Treasury yields fluctuated during the twelve-month reporting period given changing perceptions regarding the economy, interest rates, inflation and deflation. During the period, two-year Treasury yields moved as high as 1.32% and ended the period at 0.55%, its low during the fiscal year. In contrast, ten-year Treasuries rose as high as 4.01%, fell as low as 2.90% and ended the fiscal year at 2.94%.

All told, the Barclays Capital U.S. Aggregate Indexⁱⁱⁱ returned 8.91% for the twelve months ended July 31, 2010. For comparison purposes, riskier fixed-income securities, including high-yield bonds and emerging market debt, produced even stronger results. Over the fiscal year, the Barclays Capital U.S. High Yield — 2% Issuer Cap Index^iv and the JPMorgan Emerging Markets Bond Index Global (“EMBI Global”)^v returned 23.69% and 19.08%, respectively.

Q. How did we respond to these changing market conditions?

A. A number of adjustments were made to the Fund’s portfolio during the reporting period. We significantly reduced our exposure to high-yield

2 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Fund overview (cont’d)

bonds in order to capture profits, given the sector’s strong performance, and to pare the Fund’s overall risk exposure. We also increased our exposure to Treasury securities to reduce risk. In addition, we felt that Treasuries were more attractive than cash, given the latter’s extremely low yields.

During the reporting period, we utilized U.S. Treasury and Eurodollar futures and options, as well as interest rate swaps to manage the Fund’s duration^vi. Credit default swaps were used to manage our exposure to investment grade bonds, commercial mortgage-backed securities (“MBS”) and asset-backed securities. We also used currency contracts to hedge currency risk within the portfolio. Overall, the use of these derivative vehicles contributed positively to performance.

Performance review

For the twelve months ended July 31, 2010, Class A shares of Legg Mason Western Asset Strategic Income Fund, excluding sales charges, returned 18.37%. The Fund’s unmanaged benchmark, the Barclays Capital U.S. Aggregate Index, returned 8.91% for the same period. The Lipper Multi-Sector Income Funds Category Average¹ returned 16.21% over the same time frame.

Performance Snapshot as of July 31,  2010
(excluding sales charges) (unaudited)	6 months		12 months
Legg Mason Western Asset Strategic Income Fund:
Class A	6.66	%	18.37	%
Class B	8.29	%	19.95	%
Class C	6.59	%	18.02	%
Class I	6.52	%	18.43	%
Barclays Capital U.S. Aggregate Index	4.85	%	8.91	%
Lipper Multi-Sector Income Funds Category Average1	5.43	%	16.21	%

The performance shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown above. Principal value, investment returns and yields will fluctuate and investors’ shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end, please visit our website at www.leggmason.com/individualinvestors.

All share class returns assume the reinvestment of all distributions, including returns of capital, if any, at net asset value and the deduction of all Fund expenses. Returns have not been adjusted to include sales charges that may apply or the deduction of taxes that a shareholder would pay on Fund distributions. If sales charges were reflected, the performance quoted would be lower. Performance figures for periods shorter than one year represent cumulative figures and are not annualized.

Performance figures reflect compensating balance arrangements, expense reimbursements and/or fee waivers, without which the performance would have been lower.

Performance reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the returns for the six months ended July 31, 2010 for Class A, B and C shares would have been 6.50%, 6.15% and 6.26%, respectively; the returns for the twelve months ended July 31, 2010 for Class A, B and C shares would have been 18.19%, 17.58% and 17.65%, respectively.

The 30-Day SEC Yields for the period ended July 31, 2010 for Class A, B, C and I shares were 3.29%, 2.83%, 3.00% and 3.56%, respectively. Absent current compensating balance arrangements, expense reimbursements and/or fee waivers, the 30-Day SEC Yield for Class I shares would have been 3.47%. The 30-Day SEC Yield is the average annualized net investment income per share for the 30-day period indicated and is subject to change.

Total Annual Operating Expenses (unaudited)

As of the Fund’s most current prospectus dated November 30, 2009, the gross total operating expense ratios for Class A, Class B, Class C and Class I shares were 1.13%, 1.72%, 1.59% and 0.97%, respectively.

Actual expenses may be higher. For example, expenses may be higher than those shown if average net assets decrease. Net assets are more likely to decrease and Fund expense ratios are more likely to increase when markets are volatile.

As a result of an expense limitation agreement, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets will not exceed 0.95% for Class I shares. This expense limitation agreement cannot be terminated prior to December 31, 2011 without the Board of Trustees’ consent.

The manager is permitted to recapture amounts previously forgone or reimbursed to the class during the same fiscal year if the class’ total annual operating expenses have fallen to a level below the expense limitation in effect at the time the fees were earned or the expense incurred.

¹ Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the period ended July 31, 2010, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 165 funds for the six-month period and among the 154 funds for the twelve-month period in the Fund’s Lipper category, and excluding sales charges.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 3

Q. What were the leading contributors to performance?

A. The largest contributor to the Fund’s relative performance during the reporting period was its overweight to the high-yield bond sector. While we pared the Fund’s high-yield exposure as the reporting period progressed, we captured most of the sector’s strong results as the majority of its gains occurred during the first half of the fiscal year. Within the sector, the Fund’s overweights to Industrials and Financials, in particular, were rewarded. In terms of individual holdings, overweight positions in Motors Liquidation Co. and Ford Motor Credit Co., LLC were additive to performance.

An overweight exposure to non-agency MBS also contributed to results. The combination of the government’s aggressive programs to aid the housing market and signs that housing prices appeared to be stabilizing helped these securities generate strong results. In addition, the sector was supported by ongoing demand from asset managers participating in the Public-Private Investment Program (“PPIP”).

In addition, an overweight to investment grade bonds enhanced the Fund’s results. Within the sector, the Fund’s exposure to Metals & Mining company Teck Resources Ltd. and Industrial Conglomerate Tyco International benefited performance.

Elsewhere, tactically adjusting the Fund’s duration was a contributor to performance. After starting the reporting period with a longer duration than that of the benchmark, we moved to a short position at the end of 2009 given improving economic conditions. In early 2010, we extended the Fund’s duration and again had a long position based on signs that economic growth appeared to be moderating. This positioning was rewarded as, overall, the Fund’s duration was longer than that of the benchmark and interest rates declined during the fiscal year.

Q. What were the leading detractors from performance?

A. The largest detractor from the Fund’s relative performance during the reporting period was its underweight exposure to commercial MBS. We did not believe an overweight position was warranted given the potential increase in delinquencies within the commercial real estate market. However, this positioning modestly detracted from results as investor risk appetite was robust for the

majority of the period and the sector outperformed the benchmark.

The Fund’s underweight to agency MBS was also a slight detractor from results based on the sector’s outperformance over the fiscal year. While tactical trading within the sector toward the end of the period aided results, it was not enough to overcome the negative effect associated with the Fund’s underweight position.

Thank you for your investment in Legg Mason Western Asset Strategic Income Fund. As always, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Fund’s investment goals.

Sincerely,

Western Asset Management Company

August 17, 2010

RISKS: Investments in bonds are subject to interest rate and credit risks. As interest rates rise, bond prices fall, reducing the value of the Fund’s share price. The Fund is subject to certain risks of overseas investing, including currency fluctuations and changes in political and economic conditions. These risks are magnified in emerging markets. In addition, the Fund invests in high-yield securities. These issues are lower-rated and inherently more risky than higher-rated fixed-income securities. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. Please see the Fund’s prospectus for more information on these and other risks.

Portfolio holdings and breakdowns are as of July 31, 2010 and are subject to change and may not be representative of the portfolio managers’ current or future investments. Please refer to pages 8 through 22 for a list and percentage breakdown of the Fund’s holdings.

The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. The Fund’s top five sector holdings (as a percentage of net assets) as of July 31, 2010 were: U.S. Government & Agency Obligations (21.0%), Financials (19.5%), Mortgage-Backed Securities (12.6%), Collateralized Mortgage Obligations (11.2%) and Consumer Discretionary (7.7%). The Fund’s portfolio composition is subject to change at any time.

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.

4 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Fund overview (cont’d)

ⁱ Effective duration measures the expected sensitivity of market price to changes in interest rates, taking into account the effects of structural complexities. (For example, some bonds can be prepaid by the issuer.)

ⁱⁱ The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.

ⁱⁱⁱ The Barclays Capital U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity.

^iv The Barclays Capital U.S. High Yield — 2% Issuer Cap Index is an index of the 2% Issuer Cap component of the Barclays Capital U.S. Corporate High

Yield Index, which covers the U.S. dollar-denominated, non-investment grade, fixed-rate, taxable corporate bond market.

^v The JPMorgan Emerging Markets Bond Index Global (“EMBI Global”) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds and local market instruments.

^vi Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 5

Fund at a glance^†(unaudited)

Investment breakdown (%) as a percent of total investments

† The bar graph above represents the composition of the Fund’s investments as of July 31, 2010 and July 31, 2009 and does not include derivatives. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

6 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Fund expenses (unaudited)

Example

As a shareholder of the Fund, you may incur two types of costs: (1) transaction costs, including front-end and back-end sales charges (loads) on purchase payments; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

This example is based on an investment of $1,000 invested on February 1, 2010 and held for the six months ended July 31, 2010.

Actual expenses

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

Hypothetical example for comparison purposes

The table below titled “Based on Hypothetical Total Return” provides information about hypothetical account values and hypothetical expenses based on the actual expense ratio and an assumed rate of return of 5.00% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use the information provided in this table to compare the ongoing costs of investing in the Fund and other funds. To do so, compare the 5.00% hypothetical example relating to the Fund with the 5.00% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table below are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front-end or back-end sales charges (loads). Therefore, the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

Based on actual total return1											Based on hypothetical total return1
	Actual  Total Return Without Sales Charges2		Beginning Account Value		Ending Account Value		Annualized Expense Ratio		Expenses Paid During the Period3			Hypothetical Annualized Total Return		Beginning Account Value		Ending Account Value		Annualized Expense Ratio		Expenses Paid During the Period3
Class  A4	6.66	%	$	1,000.00	$	1,066.60	1.10	%	$	5.64	Class A	5.00	%	$	1,000.00	$	1,019.34	1.10	%	$	5.51
Class  B4	8.29			1,000.00		1,082.90	1.70			8.78	Class B	5.00			1,000.00		1,016.36	1.70			8.50
Class  C4	6.59			1,000.00		1,065.90	1.55			7.94	Class C	5.00			1,000.00		1,017.11	1.55			7.75
Class I	6.52			1,000.00		1,065.20	0.95			4.86	Class I	5.00			1,000.00		1,020.08	0.95			4.76

¹ For the six months ended July 31, 2010.

² Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable contingent deferred sales charges (“CDSC”) with respect to Class B and C shares. Total return is not annualized, as it may not be representative of the total return for the year. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.

³ Expenses (net of compensating balance arrangements, fee waivers and/or expense reimbursements) are equal to each class’ respective annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year (181), then divided by 365.

⁴ The total returns reflect a payment received due to the settlement of a regulatory matter. Absent this payment, the total returns would have been 6.50%, 6.15% and 6.26% for Class A, B and C shares, respectively.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 7

Fund performance (unaudited)

Average annual total returns
Without sales  charges1	Class A‡		Class B‡		Class C‡		Class I
Twelve Months Ended 7/31/10	18.37	%	19.95	%	18.02	%	18.43	%
Five Years Ended 7/31/10	4.83		4.59		4.36		5.15
Ten Years Ended 7/31/10	5.19		4.73		4.68		5.52
With sales charges2	Class A‡		Class B‡		Class C‡		Class I
Twelve Months Ended 7/31/10	13.38	%	15.45	%	17.02	%	18.43	%
Five Years Ended 7/31/10	3.91		4.43		4.36		5.15
Ten Years Ended 7/31/10	4.73		4.73		4.68		5.52

Cumulative total returns
Without sales  charges1
Class A‡ (7/31/00 through 7/31/10)	65.80%
Class B‡ (7/31/00 through 7/31/10)	58.68
Class C‡ (7/31/00 through 7/31/10)	57.99
Class I (7/31/00 through 7/31/10)	71.18

Historical performance

Value of $10,000 invested in

Class A, B, C and I Shares of Legg Mason Western Asset Strategic Income Fund vs. Barclays Capital U.S. Aggregate Index† — July 2000 - July 2010

All figures represent past performance and are not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance arrangements, fee waivers and/or expense reimbursements, the total return would have been lower.

¹ Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value and does not reflect the deduction of the applicable sales charge with respect to Class A shares or the applicable CDSC with respect to Class B and C shares.

² Assumes the reinvestment of all distributions, including returns of capital, if any, at net asset value. In addition, Class A shares reflect the deduction of the maximum initial sales charge of 4.25%; Class B shares reflect the deduction of a 4.50% CDSC, which applies if shares are redeemed within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter by 1.00% per year until no CDSC is incurred. Class C shares also have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment.

† Hypothetical illustration of $10,000 invested in Class A, B, C and I shares of Legg Mason Western Asset Strategic Income Fund on July 31, 2000, assuming the deduction of the maximum initial sales charge of 4.25% at the time of investment for Class A shares and the reinvestment of all distributions, including returns of capital, if any, at net asset value through July 31, 2010. The Barclays Capital U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment grade or higher, and having at least one year to maturity. The Index is unmanaged and is not subject to the same management and trading expenses as a mutual fund. Please note that an investor cannot invest directly in an index.

‡ The total returns reflect a payment received due to the settlement of a regulatory matter. Absent this payment, the total returns would have been lower.

8 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Corporate Bonds & Notes — 48.7%
Consumer Discretionary — 7.4%
Automobiles — 0.6%
DaimlerChrysler North America Holding Corp., Notes	5.875	%	3/15/11	700,000	$	720,761
Motors Liquidation Co., Senior Debentures	8.250	%	7/15/23	440,000		151,800	(a)
Motors Liquidation Co., Senior Debentures	8.375	%	7/15/33	5,925,000		2,073,750	(a)
Total Automobiles						2,946,311
Diversified Consumer Services — 0.5%
Realogy Corp., Senior Notes	10.500	%	4/15/14	2,350,000		2,032,750
Stonemor Operating LLC/Cornerstone Family Services/Osiris Holdings, Senior Notes	10.250	%	12/1/17	670,000		713,550	(b)
Total Diversified Consumer Services						2,746,300
Hotels, Restaurants & Leisure — 1.4%
CCM Merger Inc., Notes	8.000	%	8/1/13	665,000		615,125	(b)
El Pollo Loco Inc., Senior Notes	11.750	%	11/15/13	530,000		439,900
Harrah’s Operating Co. Inc., Senior Bonds	5.625	%	6/1/15	1,000,000		697,500
Harrah’s Operating Co. Inc., Senior Notes	10.750	%	2/1/16	660,000		557,700
Harrah’s Operating Co. Inc., Senior Secured Notes	11.250	%	6/1/17	770,000		835,450
Host Hotels & Resorts LP, Senior Notes	7.125	%	11/1/13	175,000		178,937
Inn of the Mountain Gods Resort & Casino, Senior Notes	12.000	%	11/15/10	1,145,000		498,075	(a)(c)
Mandalay Resort Group, Senior Subordinated Debentures	7.625	%	7/15/13	585,000		506,025
MGM MIRAGE Inc., Senior Notes	6.750	%	9/1/12	145,000		137,388
MGM Resorts International, Senior Secured Notes	10.375	%	5/15/14	185,000		205,350
MGM Resorts International, Senior Secured Notes	11.125	%	11/15/17	440,000		501,600
Mohegan Tribal Gaming Authority, Senior Secured Notes	11.500	%	11/1/17	1,240,000		1,218,300	(b)
Mohegan Tribal Gaming Authority, Senior Subordinated Notes	7.125	%	8/15/14	75,000		52,125
Mohegan Tribal Gaming Authority, Senior Subordinated Notes	6.875	%	2/15/15	75,000		49,500
Sbarro Inc., Senior Notes	10.375	%	2/1/15	375,000		296,250
Snoqualmie Entertainment Authority, Senior Secured Notes	4.136	%	2/1/14	165,000		136,125	(b)(d)
Station Casinos Inc., Senior Notes	7.750	%	8/15/16	1,095,000		27,375	(a)(c)
Total Hotels, Restaurants & Leisure						6,952,725
Leisure Equipment & Products — 0.6%
Eastman Kodak Co., Senior Notes	7.250	%	11/15/13	2,874,000		2,794,965
Media — 3.8%
Cablevision Systems Corp., Senior Notes	8.000	%	4/15/20	1,250,000		1,328,125
CCH II LLC/CCH II Capital Corp., Senior Notes	13.500	%	11/30/16	943,208		1,124,775
Cengage Learning Acquisitions Inc., Senior Notes	10.500	%	1/15/15	210,000		204,225	(b)
Charter Communications Operating LLC/Charter Communications Operating Capital, Senior Secured Notes	10.875	%	9/15/14	760,000		855,000	(b)
CMP Susquehanna Corp.	3.623	%	5/15/14	35,000		24,500	(b)(d)(e)
Comcast Cable Communications LLC, Notes	8.875	%	5/1/17	140,000		176,079
Comcast Corp.	5.700	%	5/15/18	3,020,000		3,398,418
Comcast Corp., Notes	6.500	%	1/15/15	1,580,000		1,843,544
Comcast Corp., Notes	5.875	%	2/15/18	20,000		22,693
Comcast Corp., Senior Notes	6.500	%	1/15/17	690,000		804,979
CSC Holdings Inc., Senior Notes	6.750	%	4/15/12	100,000		104,500
DISH DBS Corp., Senior Notes	7.750	%	5/31/15	1,520,000		1,596,000
DISH DBS Corp., Senior Notes	7.875	%	9/1/19	590,000		629,825

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 9

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Media — continued
News America Inc., Notes	5.300	%	12/15/14	675,000	$	757,731
News America Inc., Senior Notes	6.200	%	12/15/34	690,000		729,903
News America Inc., Senior Notes	6.650	%	11/15/37	80,000		89,345
Sun Media Corp., Senior Notes	7.625	%	2/15/13	410,000		414,100
Time Warner Cable Inc., Senior Notes	3.500	%	2/1/15	2,030,000		2,112,055
Time Warner Inc., Senior Notes	7.625	%	4/15/31	615,000		744,778
Univision Communications Inc., Senior Secured Notes	12.000	%	7/1/14	985,000		1,085,962	(b)
UPC Holding BV, Senior Notes	9.875	%	4/15/18	185,000		194,250	(b)
Virgin Media Finance PLC, Senior Notes	9.125	%	8/15/16	795,000		858,600
Total Media						19,099,387
Multiline Retail — 0.2%
Neiman Marcus Group Inc., Senior Notes	9.000	%	10/15/15	1,000,000		1,028,750	(f)
Neiman Marcus Group Inc., Senior Secured Notes	7.125	%	6/1/28	280,000		259,000
Total Multiline Retail						1,287,750
Specialty Retail — 0.2%
American Greetings Corp., Senior Notes	7.375	%	6/1/16	460,000		464,600
Michaels Stores Inc., Senior Notes	10.000	%	11/1/14	440,000		462,000
Total Specialty Retail						926,600
Textiles, Apparel & Luxury Goods — 0.1%
Oxford Industries Inc., Senior Secured Notes	11.375	%	7/15/15	605,000		680,625
Total Consumer Discretionary						37,434,663
Consumer Staples — 1.0%
Beverages — 0.3%
Anheuser-Busch InBev Worldwide Inc., Senior Notes	5.000	%	4/15/20	1,240,000		1,334,115	(b)
Food & Staples Retailing — 0.4%
CVS Pass-Through Trust, Secured Notes	5.880	%	1/10/28	334,117		342,593
CVS Pass-Through Trust, Secured Notes	6.036	%	12/10/28	1,416,940		1,473,824
Kroger Co., Senior Notes	6.400	%	8/15/17	60,000		70,843
Kroger Co., Senior Notes	6.150	%	1/15/20	90,000		105,445
Wal-Mart Stores Inc., Notes	5.800	%	2/15/18	220,000		259,937
Total Food & Staples Retailing						2,252,642
Food Products — 0.2%
Kraft Foods Inc., Senior Notes	5.375	%	2/10/20	1,110,000		1,216,459
Tobacco — 0.1%
Alliance One International Inc., Senior Notes	10.000	%	7/15/16	170,000		176,587
Altria Group Inc., Senior Notes	9.250	%	8/6/19	210,000		270,631
Total Tobacco						447,218
Total Consumer Staples						5,250,434
Energy — 7.4%
Energy Equipment & Services — 0.5%
Basic Energy Services Inc., Senior Secured Notes	11.625	%	8/1/14	1,000,000		1,105,000
Complete Production Services Inc., Senior Notes	8.000	%	12/15/16	1,035,000		1,053,112
GulfMark Offshore Inc., Senior Subordinated Notes	7.750	%	7/15/14	680,000		676,600
Total Energy Equipment & Services						2,834,712

See Notes to Financial Statements.

10 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Oil, Gas & Consumable Fuels — 6.9%
Anadarko Petroleum Corp., Senior Notes	5.950	%	9/15/16	540,000	$	521,601
Belden & Blake Corp., Secured Notes	8.750	%	7/15/12	1,455,000		1,404,075
Berry Petroleum Co., Senior Notes	10.250	%	6/1/14	190,000		210,900
Chesapeake Energy Corp., Senior Notes	7.250	%	12/15/18	1,310,000		1,391,875
Compagnie Generale de Geophysique SA, Senior Notes	7.750	%	5/15/17	310,000		303,800
Compagnie Generale de Geophysique-Veritas, Senior Notes	7.500	%	5/15/15	515,000		507,275
ConocoPhillips Holding Co., Senior Notes	6.950	%	4/15/29	1,625,000		2,017,096
Corral Petroleum Holdings AB, Senior Bonds	12.500	%	9/18/11	300,474		277,939	(b)(d)
Devon Energy Corp., Debentures	7.950	%	4/15/32	1,150,000		1,544,590
El Paso Corp., Medium-Term Notes	7.375	%	12/15/12	500,000		534,888
El Paso Corp., Medium-Term Notes	7.750	%	1/15/32	4,463,000		4,495,678
Enterprise Products Operating LLP, Junior Subordinated Notes	8.375	%	8/1/66	670,000		683,358	(d)
Forest Oil Corp., Senior Notes	8.000	%	12/15/11	200,000		212,000
Hess Corp., Notes	7.300	%	8/15/31	370,000		442,765
International Coal Group Inc., Senior Secured Notes	9.125	%	4/1/18	680,000		708,900
Kerr-McGee Corp., Notes	6.950	%	7/1/24	1,450,000		1,472,503
Kerr-McGee Corp., Notes	7.875	%	9/15/31	70,000		73,018
Kinder Morgan Energy Partners LP, Medium-Term Notes	6.950	%	1/15/38	20,000		22,972
Kinder Morgan Energy Partners LP, Notes	6.750	%	3/15/11	500,000		516,647
Kinder Morgan Energy Partners LP, Senior Notes	7.125	%	3/15/12	35,000		37,867
Kinder Morgan Energy Partners LP, Senior Notes	5.000	%	12/15/13	325,000		350,949
Kinder Morgan Energy Partners LP, Senior Notes	6.000	%	2/1/17	20,000		22,384
Linn Energy LLC/Linn Energy Finance Corp., Senior Notes	8.625	%	4/15/20	320,000		341,600	(b)
Overseas Shipholding Group Inc., Senior Notes	8.125	%	3/30/18	1,000,000		1,020,000
Peabody Energy Corp., Senior Notes	6.875	%	3/15/13	110,000		111,375
Pemex Project Funding Master Trust, Senior Bonds	6.625	%	6/15/35	1,626,000		1,719,515
Petrobras International Finance Co., Senior Notes	6.125	%	10/6/16	170,000		189,473
Petrobras International Finance Co., Senior Notes	5.750	%	1/20/20	517,000		552,245
Petrohawk Energy Corp., Senior Notes	9.125	%	7/15/13	510,000		534,225
Petroleos Mexicanos, Bonds	5.500	%	1/21/21	600,000		620,400	(b)
Petroplus Finance Ltd., Senior Notes	7.000	%	5/1/17	470,000		404,200	(b)
Plains Exploration & Production Co., Senior Notes	10.000	%	3/1/16	365,000		403,325
Plains Exploration & Production Co., Senior Notes	8.625	%	10/15/19	195,000		208,163
Quicksilver Resources Inc., Senior Notes	8.250	%	8/1/15	1,000,000		1,042,500
Quicksilver Resources Inc., Senior Notes	11.750	%	1/1/16	435,000		506,775
Range Resources Corp., Senior Subordinated Notes	6.750	%	8/1/20	3,390,000		3,419,662
SandRidge Energy Inc., Senior Notes	9.875	%	5/15/16	890,000		952,300	(b)
Shell International Finance BV, Senior Notes	4.375	%	3/25/20	1,070,000		1,132,354
Tennessee Gas Pipeline Co., Debentures	7.625	%	4/1/37	10,000		11,222
TNK-BP Finance SA, Senior Notes	7.500	%	7/18/16	150,000		162,000	(b)
Whiting Petroleum Corp., Senior Subordinated Notes	7.000	%	2/1/14	650,000		680,062
Williams Cos. Inc., Notes	7.875	%	9/1/21	2,018,000		2,452,409
Williams Cos. Inc., Senior Notes	8.750	%	3/15/32	194,000		242,903
XTO Energy Inc., Senior Notes	7.500	%	4/15/12	40,000		44,384
Total Oil, Gas & Consumable Fuels						34,504,172
Total Energy						37,338,884

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 11

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Financials — 16.1%
Capital Markets — 2.6%
Bear Stearns Cos. LLC, Senior Notes	7.250	%	2/1/18	3,630,000	$	4,331,392
Credit Suisse USA Inc., Senior Notes	5.500	%	8/16/11	780,000		814,666
Goldman Sachs Group Inc., Notes	6.600	%	1/15/12	100,000		106,782
Goldman Sachs Group Inc., Notes	5.450	%	11/1/12	240,000		257,069
Goldman Sachs Group Inc., Notes	4.750	%	7/15/13	70,000		74,766
Goldman Sachs Group Inc., Notes	5.250	%	10/15/13	210,000		227,764
Goldman Sachs Group Inc., Senior Notes	5.300	%	2/14/12	40,000		41,972
Goldman Sachs Group Inc., Senior Notes	3.625	%	8/1/12	150,000		154,899
Goldman Sachs Group Inc., Senior Notes	5.375	%	3/15/20	2,810,000		2,897,843
Lehman Brothers Holdings Inc., Medium-Term Notes	4.500	%	7/26/10	1,000,000		217,500	(a)
Lehman Brothers Holdings Inc., Medium-Term Notes	5.625	%	1/24/13	270,000		59,738	(a)
Lehman Brothers Holdings Inc., Medium-Term Notes, Senior Notes	6.200	%	9/26/14	520,000		113,100	(a)
Morgan Stanley, Medium-Term Notes	5.625	%	1/9/12	410,000		429,013
Morgan Stanley, Medium-Term Notes	0.975	%	10/18/16	650,000		575,636	(d)
Morgan Stanley, Subordinated Notes	4.750	%	4/1/14	1,975,000		2,038,317
UBS AG Stamford CT, Senior Notes	3.875	%	1/15/15	730,000		750,276
Total Capital Markets						13,090,733
Commercial Banks — 4.5%
Bank of Tokyo-Mitsubishi UFJ Ltd., Senior Notes	3.850	%	1/22/15	410,000		436,433	(b)
CIT Group Inc., Senior Secured Bonds	7.000	%	5/1/16	2,500,000		2,393,750
Dexia Credit Local, Notes	2.375	%	9/23/11	470,000		476,076	(b)
Glitnir Banki HF, Notes	6.330	%	7/28/11	1,070,000		302,275	(a)(b)(c)
Glitnir Banki HF, Notes	6.375	%	9/25/12	780,000		220,350	(a)(b)(c)
Glitnir Banki HF, Subordinated Bonds	7.451	%	9/14/16	200,000		750	(a)(b)(c)(d)(e)(g)
Glitnir Banki HF, Subordinated Notes	6.693	%	6/15/16	2,270,000		8,513	(a)(b)(c)(d)(e)
ICICI Bank Ltd., Subordinated Bonds	6.375	%	4/30/22	692,000		656,958	(b)(d)
Landsbanki Islands HF, Senior Notes	6.100	%	8/25/11	460,000		54,050	(a)(b)(c)
Lloyds TSB Bank PLC, Bonds	4.375	%	1/12/15	1,100,000		1,115,620	(b)
Lloyds TSB Bank PLC, Notes	5.800	%	1/13/20	880,000		897,778	(b)
Lloyds TSB Bank PLC, Senior Notes	2.800	%	4/2/12	710,000		725,915	(b)
Nordea Bank AB, Senior Notes	4.875	%	1/27/20	1,060,000		1,122,961	(b)
Resona Preferred Global Securities Cayman Ltd., Junior Subordinated Bonds	7.191	%	7/30/15	1,230,000		1,169,099	(b)(d)(g)
Royal Bank of Scotland Group PLC, Senior Notes	6.400	%	10/21/19	240,000		253,967
Royal Bank of Scotland PLC, Senior Notes	4.875	%	3/16/15	200,000		206,944
Santander Issuances SA Unipersonal, Subordinated Notes	5.805	%	6/20/16	220,000		211,468	(b)(d)
Santander US Debt SA Unipersonal, Senior Notes	3.724	%	1/20/15	700,000		704,343	(b)
Shinsei Finance Cayman Ltd., Junior Subordinated Bonds	6.418	%	7/20/16	1,880,000		1,212,036	(b)(d)(g)
Wachovia Corp., Subordinated Notes	5.250	%	8/1/14	5,280,000		5,656,675
Wells Fargo & Co., Notes	5.300	%	8/26/11	4,365,000		4,569,247
Wells Fargo Capital X, Capital Securities	5.950	%	12/15/36	100,000		91,185
Total Commercial Banks						22,486,393
Consumer Finance — 2.1%
Aiful Corp., Notes	5.000	%	8/10/10	570,000		561,450	(b)
American General Finance Corp., Medium-Term Notes	6.900	%	12/15/17	450,000		385,875
Ford Motor Credit Co., LLC, Senior Notes	8.000	%	12/15/16	2,940,000		3,142,081

See Notes to Financial Statements.

12 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Consumer Finance — continued
GMAC Inc., Notes	2.200	%	12/19/12	1,090,000	$	1,125,743
GMAC Inc., Senior Notes	8.300	%	2/12/15	10,000		10,550	(b)
GMAC Inc., Senior Notes	8.000	%	3/15/20	250,000		258,438	(b)
GMAC Inc., Senior Notes	8.000	%	11/1/31	1,350,000		1,324,687
SLM Corp., Senior Notes	8.000	%	3/25/20	3,900,000		3,466,792
Total Consumer Finance						10,275,616
Diversified Financial Services — 6.3%
Bank of America Corp., Notes, Preferred Securities	8.000	%	1/30/18	3,000,000		3,023,313	(d)(g)
Bank of America Corp., Senior Notes	4.500	%	4/1/15	2,870,000		2,968,570
Bank of America Corp., Subordinated Notes	5.420	%	3/15/17	800,000		812,258
Citigroup Funding Inc.	2.125	%	7/12/12	1,220,000		1,254,029
Citigroup Funding Inc., Notes	2.250	%	12/10/12	1,220,000		1,260,761
Citigroup Inc., Senior Notes	5.500	%	10/15/14	2,880,000		3,053,471
Citigroup Inc., Senior Notes	6.010	%	1/15/15	1,580,000		1,703,370
Citigroup Inc., Senior Notes	5.875	%	5/29/37	300,000		293,241
Citigroup Inc., Senior Notes	6.875	%	3/5/38	1,820,000		1,959,721
Citigroup Inc., Subordinated Notes	6.125	%	8/25/36	80,000		75,346
Emeralds, Notes	5.593	%	8/4/20	209,934		156,401	(a)(b)(c)(d)(e)
General Electric Capital Corp., Senior Notes	2.125	%	12/21/12	3,630,000		3,741,038
General Electric Capital Corp., Senior Notes	5.500	%	1/8/20	150,000		162,102
International Lease Finance Corp., Senior Notes	8.750	%	3/15/17	1,970,000		2,014,325	(b)
JPMorgan Chase & Co., Subordinated Notes	6.625	%	3/15/12	700,000		757,442
JPMorgan Chase & Co., Subordinated Notes	5.125	%	9/15/14	5,160,000		5,609,090
JPMorgan Chase & Co., Subordinated Notes	5.150	%	10/1/15	1,360,000		1,468,544
MUFG Capital Finance 1 Ltd., Preferred Securities	6.346	%	7/25/16	890,000		881,885	(d)(g)
Smurfit Kappa Funding PLC, Senior Subordinated Notes	7.750	%	4/1/15	405,000		411,075
Total Diversified Financial Services						31,605,982
Insurance — 0.4%
American International Group Inc., Medium-Term Notes, Senior Notes	5.850	%	1/16/18	260,000		248,300
Berkshire Hathaway Inc., Senior Notes	3.200	%	2/11/15	1,010,000		1,056,733
Teachers Insurance & Annuity Association of America — College Retirement Equity Fund, Notes	6.850	%	12/16/39	630,000		742,278	(b)
Total Insurance						2,047,311
Thrifts & Mortgage Finance — 0.2%
Countrywide Financial Corp., Subordinated Notes	6.250	%	5/15/16	1,060,000		1,124,642
Total Financials						80,630,677
Health Care — 2.1%
Health Care Equipment & Supplies — 0.1%
Medtronic Inc., Senior Notes	4.450	%	3/15/20	400,000		431,290
Health Care Providers & Services — 2.0%
Community Health Systems Inc., Senior Notes	8.875	%	7/15/15	140,000		147,000
HCA Inc., Debentures	7.500	%	11/15/95	70,000		56,000
HCA Inc., Senior Notes	5.750	%	3/15/14	69,000		67,275
HCA Inc., Senior Secured Notes	9.250	%	11/15/16	1,070,000		1,158,275
HCA Inc., Senior Secured Notes	9.625	%	11/15/16	4,204,000		4,550,830	(f)
Tenet Healthcare Corp., Senior Notes	7.375	%	2/1/13	1,398,000		1,443,435

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 13

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Health Care Providers & Services — continued
Universal Hospital Services Inc., Senior Secured Notes	4.134	%	6/1/15	180,000	$	154,800	(d)
Universal Hospital Services Inc., Senior Secured Notes	8.500	%	6/1/15	135,000		137,363	(f)
US Oncology Holdings Inc., Senior Notes	6.643	%	3/15/12	963,000		917,257	(d)(f)
US Oncology Inc., Senior Secured Notes	9.125	%	8/15/17	545,000		579,744
Vanguard Health Holdings Co., II LLC, Senior Notes	8.000	%	2/1/18	1,000,000		1,005,000
Total Health Care Providers & Services						10,216,979
Total Health Care						10,648,269
Industrials — 3.1%
Airlines — 0.9%
Continental Airlines Inc., Pass-Through Certificates, Subordinated Secured Notes	8.312	%	4/2/11	81,246		79,621
Continental Airlines Inc., Pass-Through Certificates, Subordinated Secured Notes	7.339	%	4/19/14	1,128,468		1,104,488
DAE Aviation Holdings Inc., Senior Notes	11.250	%	8/1/15	1,300,000		1,306,500	(b)
Delta Air Lines Inc., Pass-Through Certificates, 2002-1	6.417	%	7/2/12	1,310,000		1,316,550
Delta Air Lines Inc., Secured Notes	8.021	%	8/10/22	448,593		433,341
Delta Air Lines Inc., Senior Secured Notes	9.500	%	9/15/14	160,000		174,000	(b)
Total Airlines						4,414,500
Building Products — 0.0%
Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated Notes, step bond	0.000	%	6/30/15	169,000		98,020	(b)(c)
Commercial Services & Supplies — 1.0%
Allied Waste North America Inc., Senior Notes	6.875	%	6/1/17	1,169,000		1,292,058
Altegrity Inc., Senior Subordinated Notes	10.500	%	11/1/15	850,000		837,250	(b)
RSC Equipment Rental Inc./RSC Holdings III LLC, Senior Secured Notes	10.000	%	7/15/17	280,000		312,200	(b)
Waste Management Inc., Senior Notes	6.375	%	11/15/12	2,290,000		2,523,271
Total Commercial Services & Supplies						4,964,779
Road & Rail — 1.2%
Kansas City Southern de Mexico, Senior Notes	9.375	%	5/1/12	100,000		102,750
Kansas City Southern de Mexico, Senior Notes	12.500	%	4/1/16	319,000		385,193
Kansas City Southern de Mexico, Senior Notes	8.000	%	2/1/18	515,000		548,475	(b)
Kansas City Southern Railway, Senior Notes	8.000	%	6/1/15	1,640,000		1,756,850
RailAmerica Inc., Senior Secured Notes	9.250	%	7/1/17	2,882,000		3,134,175
Total Road & Rail						5,927,443
Total Industrials						15,404,742
Information Technology — 0.5%
Electronic Equipment, Instruments & Components — 0.2%
NXP BV / NXP Funding LLC, Senior Secured Notes	9.750	%	8/1/18	1,000,000		1,057,500	(b)
IT Services — 0.1%
Ceridian Corp., Senior Notes	12.250	%	11/15/15	383,400		366,147	(f)
Fidelity National Information Services Inc., Senior Notes	7.625	%	7/15/17	110,000		114,950	(b)
Fidelity National Information Services Inc., Senior Notes	7.875	%	7/15/20	150,000		157,500	(b)
Total IT Services						638,597
Semiconductors & Semiconductor Equipment — 0.2%
Freescale Semiconductor Inc., Senior Secured Notes	9.250	%	4/15/18	500,000		518,750	(b)
Freescale Semiconductor Inc., Senior Subordinated Notes	10.125	%	12/15/16	213,000		193,830
Total Semiconductors & Semiconductor Equipment						712,580
Total Information Technology						2,408,677

See Notes to Financial Statements.

14 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Materials — 1.3%
Chemicals — 0.4%
Lyondell Chemical Co., Senior Secured Notes	11.000	%	5/1/18	1,000,000	$	1,081,250
Solutia Inc., Senior Notes	7.875	%	3/15/20	680,000		719,950
Total Chemicals						1,801,200
Containers & Packaging — 0.1%
Ball Corp., Senior Notes	6.750	%	9/15/20	490,000		516,950
Radnor Holdings Inc., Senior Notes	11.000	%	3/15/11	750,000		0	(a)(c)(e)
Total Containers & Packaging						516,950
Metals & Mining — 0.5%
Metals USA Inc., Senior Secured Notes	11.125	%	12/1/15	1,140,000		1,216,950
Teck Resources Ltd., Senior Secured Notes	9.750	%	5/15/14	75,000		91,243
Teck Resources Ltd., Senior Secured Notes	10.250	%	5/15/16	60,000		72,682
Vale Overseas Ltd., Notes	8.250	%	1/17/34	105,000		131,686
Vale Overseas Ltd., Notes	6.875	%	11/21/36	840,000		930,632
Total Metals & Mining						2,443,193
Paper & Forest Products — 0.3%
Appleton Papers Inc., Senior Secured Notes	11.250	%	12/15/15	1,137,000		963,607	(b)
NewPage Corp., Senior Secured Notes	11.375	%	12/31/14	710,000		661,188
Total Paper & Forest Products						1,624,795
Total Materials						6,386,138
Telecommunication Services — 5.2%
Diversified Telecommunication Services — 3.8%
AT&T Inc., Global Notes	5.500	%	2/1/18	600,000		677,972
CC Holdings GS V LLC, Senior Secured Notes	7.750	%	5/1/17	750,000		823,125	(b)
Cincinnati Bell Telephone Co., Senior Debentures	6.300	%	12/1/28	70,000		48,300
Deutsche Telekom International Finance BV, Senior Notes	5.750	%	3/23/16	1,450,000		1,631,121
Hawaiian Telcom Communications Inc., Senior Subordinated Notes	12.500	%	5/1/15	370,000		37	(a)(c)
Intelsat Jackson Holdings Ltd., Senior Notes	9.500	%	6/15/16	1,161,000		1,245,173
Intelsat Jackson Holdings Ltd., Senior Notes	11.250	%	6/15/16	2,000,000		2,170,000
Koninklijke KPN NV, Senior Notes	8.000	%	10/1/10	2,130,000		2,154,597
Level 3 Financing Inc., Senior Notes	9.250	%	11/1/14	855,000		797,288
Nordic Telephone Co. Holdings, Senior Secured Bonds	8.875	%	5/1/16	760,000		803,700	(b)
Qwest Corp., Senior Notes	7.500	%	10/1/14	1,190,000		1,306,025
Telecom Italia Capital S.p.A., Senior Notes	5.250	%	10/1/15	1,725,000		1,818,590
Telefonica Emisiones SAU, Senior Notes	5.134	%	4/27/20	850,000		894,630
Verizon Florida Inc., Senior Notes	6.125	%	1/15/13	1,970,000		2,155,680
Vimpel Communications, Loan Participation Notes	8.375	%	4/30/13	100,000		108,770	(b)
Wind Acquisition Finance SA, Senior Bonds	12.000	%	12/1/15	90,000		95,625	(b)
Wind Acquisition Holdings Finance SpA, Senior Notes	12.250	%	7/15/17	1,250,000		1,175,000	(b)(f)
Windstream Corp., Senior Notes	8.625	%	8/1/16	1,000,000		1,047,500
Total Diversified Telecommunication Services						18,953,133
Wireless Telecommunication Services — 1.4%
America Movil SAB de CV, Senior Notes	5.000	%	3/30/20	680,000		726,346	(b)
Sprint Capital Corp., Senior Notes	8.750	%	3/15/32	4,505,000		4,589,469
True Move Co., Ltd., Notes	10.750	%	12/16/13	1,590,000		1,633,725	(b)
Total Wireless Telecommunication Services						6,949,540
Total Telecommunication Services						25,902,673

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 15

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Utilities — 4.6%
Electric Utilities — 1.6%
Duke Energy Corp., Senior Notes	5.625	%	11/30/12	1,000,000	$	1,096,690
Exelon Corp., Bonds	5.625	%	6/15/35	1,710,000		1,703,742
FirstEnergy Corp., Notes	6.450	%	11/15/11	11,000		11,575
FirstEnergy Corp., Notes	7.375	%	11/15/31	3,345,000		3,678,553
Pacific Gas & Electric Co., First Mortgage Bonds	6.050	%	3/1/34	1,420,000		1,620,328
Total Electric Utilities						8,110,888
Independent Power Producers & Energy Traders — 2.5%
AES Corp., Senior Notes	7.750	%	10/15/15	590,000		622,450
AES Corp., Senior Notes	8.000	%	10/15/17	720,000		767,700
Calpine Corp., Senior Secured Notes	7.875	%	7/31/20	3,800,000		3,857,000	(b)
Edison Mission Energy, Senior Notes	7.750	%	6/15/16	950,000		681,625
Energy Future Holdings Corp., Senior Notes	11.250	%	11/1/17	6,182,980		4,049,852	(f)
NRG Energy Inc., Senior Notes	7.375	%	2/1/16	2,205,000		2,254,613
Total Independent Power Producers & Energy Traders						12,233,240
Multi-Utilities — 0.5%
Dominion Resources Inc., Senior Notes	5.700	%	9/17/12	2,400,000		2,602,682
Total Utilities						22,946,810
Total Corporate Bonds & Notes (Cost — $249,249,463)						244,351,967
Asset-Backed Securities — 3.2%
Financials — 3.2%
Automobiles — 0.3%
AESOP Funding II LLC, 2010-3A A	4.640	%	5/20/16	490,000		514,652	(b)
Hertz Vehicle Financing LLC, 2009-2A A2	5.290	%	3/25/16	810,000		887,476	(b)
Total Automobiles						1,402,128
Home Equity — 1.4%
ACE Securities Corp., 2006-GP1 A	0.459	%	2/25/31	1,160,306		894,111	(d)
ACE Securities Corp., 2006-SL2 A	0.499	%	1/25/36	722,179		42,461	(d)
Amortizing Residential Collateral Trust, 2002-BC6 M2	2.129	%	8/25/32	682,129		210,763	(d)
Asset-Backed Securities Corp., Home Loan Equity Trust, 2003-HE2 M2	3.191	%	4/15/33	587,194		232,265	(d)
Countrywide Asset-Backed Certificates, 2004-5 M4	1.579	%	6/25/34	1,380,821		327,281	(d)
Countrywide Home Equity Loan Trust, 2002-F A	0.691	%	11/15/28	13,640		11,086	(d)
First Horizon ABS Trust, 2006-HE1 A	0.489	%	10/25/34	838,553		433,897	(d)
Green Tree Financial Corp., 1997-6 A8	7.070	%	1/15/29	122,847		127,755
GSAA Home Equity Trust, 2007-7 A4	0.599	%	7/25/37	2,690,000		1,562,409	(d)
GSAMP Trust, 2006-S2 A2	0.429	%	1/25/36	301,454		18,038	(d)
GSAMP Trust, 2006-S4 A1	0.419	%	5/25/36	1,029,136		69,475	(d)
GSRPM Mortgage Loan Trust, 2006-1 A1	0.629	%	3/25/35	552,016		443,675	(b)(d)
Indymac Home Equity Loan Asset-Backed Trust, 2006-H1 A	0.499	%	4/25/36	439,743		112,985	(d)
Indymac Seconds Asset Backed Trust, 2006-A A	0.459	%	6/25/36	3,837,296		380,708	(d)
Lehman XS Trust, 2005-7N 3A1	0.609	%	12/25/35	549,429		289,294	(d)
Provident Bank Home Equity Loan Trust, 1999-3 A3	1.109	%	1/25/31	69,002		31,386	(d)
RAAC Series, 2006-RP2 A	0.579	%	2/25/37	2,244,168		1,415,328	(b)(d)
SACO I Trust, 2006-4 A1	0.499	%	3/25/36	430,303		101,846	(d)
SACO I Trust, 2006-6 A	0.459	%	6/25/36	1,951,519		385,213	(d)
Sail Net Interest Margin Notes, 2003-3 A	7.750	%	4/27/33	106,424		1	(a)(b)(c)

See Notes to Financial Statements.

16 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Home Equity — continued
Sail Net Interest Margin Notes, 2004-2A A	5.500	%	3/27/34	208,430	$	0	(a)(b)(c)
Structured Asset Securities Corp., 2006-ARS1 A1	0.439	%	2/25/36	1,953,877		78,378	(b)(d)
Total Home Equity						7,168,355
Manufactured Housing — 0.1%
Mid-State Trust, 6 A1	7.340	%	7/1/35	390,524		400,913
Student Loan — 1.4%
Education Funding Capital Trust, 2003-3 A6	1.520	%	12/15/42	400,000		380,000	(d)(e)
EFS Volunteer LLC, 2010-1 A2	1.389	%	10/25/35	600,000		590,362	(b)(d)
Kentucky Higher Education Student Loan Corp., 2010-1 A2	1.450	%	5/1/34	600,000		609,078	(d)
Keycorp Student Loan Trust, 2003-A 1A2	0.758	%	10/25/32	1,049,552		940,631	(d)
Nelnet Student Loan Trust, 2005-4 A4R2	1.239	%	3/22/32	4,040,000		3,590,550	(d)(e)
SLM Student Loan Trust, 2003-11 A6	0.827	%	12/15/25	800,000		742,480	(b)(d)
Total Student Loan						6,853,101
Total Asset-Backed Securities (Cost — $29,425,799)						15,824,497
Collateralized Mortgage Obligations — 11.2%
Banc of America Commercial Mortgage Inc., 2005-3 A4	4.668	%	7/10/43	1,554,000		1,609,018
Banc of America Mortgage Securities, 2005-3 A4	2.993	%	4/25/35	268,863		201,506	(d)
Bear Stearns ARM Trust, 2005-12 24A1	5.596	%	2/25/36	1,674,122		1,298,489	(d)
Commercial Mortgage Asset Trust, 1999-C1 C	7.350	%	1/17/32	675,000		752,895	(d)
Commercial Mortgage Pass-Through Certificates, 2001-J2A A1	5.447	%	7/16/34	3,655,155		3,718,474	(b)
Countrywide Alternative Loan Trust, 2005-59 1A1	0.677	%	11/20/35	729,644		411,796	(d)
Countrywide Alternative Loan Trust, 2005-63 1A1	5.324	%	12/25/35	658,342		457,966	(d)
Countrywide Alternative Loan Trust, 2005-72 A1	0.599	%	1/25/36	1,342,896		832,369	(d)
Countrywide Alternative Loan Trust, 2005-IM1 A1	0.629	%	1/25/36	584,273		301,119	(d)
Countrywide Alternative Loan Trust, 2006-OA6 1A1A	0.539	%	7/25/46	822,717		421,320	(d)
Credit Suisse Mortgage Capital Certificates, 2007-C4 A3	5.830	%	9/15/39	500,000		507,611	(d)
CWCapital Cobalt, 2007-C2 A3	5.484	%	4/15/47	1,800,000		1,754,015	(d)
Deutsche Mortgage Securities Inc., 2005-WF1 1A3	5.193	%	6/26/35	2,150,000		1,829,549	(b)(d)
Downey Savings & Loan Association Mortgage Loan Trust, 2005-AR2 2A1A	0.551	%	3/19/45	449,709		259,711	(d)
Downey Savings & Loan Association Mortgage Loan Trust, 2006-AR1 1A1A	1.322	%	3/19/46	726,623		350,529	(d)
Federal Home Loan Mortgage Corp. (FHLMC), 1103 N IO	11.565	%	6/15/21	50,994		1,190
Federal National Mortgage Association (FNMA), 1989-17 E	10.400	%	4/25/19	1,489		1,726
First Union National Bank Commercial Mortgage, 2000-C1 IO	0.899	%	5/17/32	3,235,354		98,905	(d)
GMAC Mortgage Corporation Loan Trust, 2005-AR5 3A1	4.310	%	9/19/35	275,388		263,939	(d)
Greenpoint Mortgage Funding Trust, 2007-AR2 1A1	0.459	%	4/25/47	3,928,939		2,858,006	(d)
GSR Mortgage Loan Trust, 2005-AR4 3A5	2.910	%	7/25/35	3,700,000		2,654,280	(d)
GSR Mortgage Loan Trust, 2005-AR5 1A1	3.041	%	10/25/35	411,720		300,292	(d)
Harborview Mortgage Loan Trust, 2004-11 3A1A	0.691	%	1/19/35	528,704		284,837	(d)
Impac CMB Trust, 2005-5 A1	0.649	%	8/25/35	445,452		315,375	(d)
Indymac Index Mortgage Loan Trust, 2005-AR1 1A1	3.000	%	3/25/35	403,551		296,586	(d)
Indymac Index Mortgage Loan Trust, 2006-AR4 A1A	0.539	%	5/25/46	929,871		491,647	(d)
Indymac Index Mortgage Loan Trust, 2006-AR6 2A1A	0.529	%	6/25/47	4,022,704		2,047,228	(d)
JPMorgan Mortgage Trust, 2005-A6 7A1	4.943	%	8/25/35	566,798		478,213	(d)
JPMorgan Mortgage Trust, 2005-S3 1A1	6.500	%	1/25/36	1,546,831		1,029,187
Luminent Mortgage Trust, 2006-4 A1A	0.519	%	5/25/46	3,369,450		1,602,184	(d)
MASTR Adjustable Rate Mortgages Trust, 2006-2 3A1	4.657	%	1/25/36	268,084		226,463	(d)

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 17

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Collateralized Mortgage Obligations — continued
MASTR Adjustable Rate Mortgages Trust, 2006-OA1 1A1	0.539	%	4/25/46	2,840,266	$	1,497,383	(d)
MASTR Adjustable Rate Mortgages Trust, 2007-R5 A1	5.533	%	11/25/35	1,595,565		988,556	(b)(d)
Merit Securities Corp., 11PA B2	1.847	%	9/28/32	1,254,713		1,074,391	(b)(d)
Merrill Lynch Mortgage Investors Inc., 2005-A1 2A1	3.061	%	12/25/34	59,359		58,013	(d)
Merrill Lynch Mortgage Trust, 2006-C1 A4	5.655	%	5/12/39	2,740,000		3,004,460	(d)
Morgan Stanley Mortgage Loan Trust, 2006-8AR 4A1	2.241	%	6/25/36	3,724,237		3,384,762	(d)
Novastar Mortgage-Backed Notes, 2006-MTA1 2A1A	0.519	%	9/25/46	3,240,880		2,101,460	(d)
Residential Accredit Loans Inc., 2006-QA1 A21	5.881	%	1/25/36	1,613,672		903,582	(d)
Residential Accredit Loans Inc., 2006-QO2 A1	0.549	%	2/25/46	2,562,332		997,860	(d)
Residential Asset Securitization Trust, 2004-A6 A1	5.000	%	8/25/19	423,288		409,124
Structured Asset Mortgage Investments Inc., 2005-AR3 2A1	2.681	%	8/25/35	245,128		158,391	(d)
Structured Asset Mortgage Investments Inc., 2006-AR5 2A1	0.539	%	5/25/36	508,050		273,065	(d)
Structured Asset Mortgage Investments Inc., 2006-AR6 1A3	0.519	%	7/25/46	4,258,209		2,223,792	(d)
Structured Asset Securities Corp., 2005-RF1 A	0.679	%	3/25/35	1,428,716		1,139,491	(b)(d)
Structured Asset Securities Corp., 2005-RF2 A	0.679	%	4/25/35	1,371,668		1,097,236	(b)(d)
Structured Asset Securities Corp., 2005-RF3 1A	0.679	%	6/25/35	1,375,415		1,121,256	(b)(d)
Voyager Dwnys Delaware Trust, 2009-1 UGL2	1.322	%	3/20/47	609,367		50,273	(b)(c)(d)(e)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2005-AR17 A1A1	0.599	%	12/25/45	3,584,649		2,762,435	(d)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2005-AR17 A1A2	0.619	%	12/25/45	696,048		513,325	(d)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2005-AR19 A1A2	0.619	%	12/25/45	415,964		306,815	(d)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2006-AR8 1A3	5.788	%	8/25/46	5,100,000		3,139,134	(d)
Washington Mutual Inc. Mortgage Pass-Through Certificates, 2005-AR19 A1A1	0.599	%	12/25/45	277,309		216,552	(d)
Washington Mutual Inc., Mortgage Pass-Through Certificates, 2005-AR12 1A1	4.800	%	10/25/35	176,617		166,153	(d)
Washington Mutual Inc., Mortgage Pass-Through Certificates, 2005-AR14 1A4	5.029	%	12/25/35	643,653		544,055	(d)
Washington Mutual Inc., Mortgage Pass-Through Certificates, 2005-AR7 A4	4.185	%	8/25/35	530,042		457,403	(d)
Wells Fargo Mortgage Backed Securities Trust, 2006-AR8 2A3	4.420	%	4/25/36	223,896		204,995	(d)
Total Collateralized Mortgage Obligations (Cost — $71,127,999)						56,450,387
Mortgage-Backed Securities — 12.6%
FHLMC — 0.2%
Federal Home Loan Mortgage Corp. (FHLMC)	5.380	%	2/1/36	297,329		311,747	(d)
Federal Home Loan Mortgage Corp. (FHLMC)	4.500	%	8/12/40	100,000		104,516	(h)
Federal Home Loan Mortgage Corp. (FHLMC), Gold	6.000	%	10/1/10	25		26
Federal Home Loan Mortgage Corp. (FHLMC), Gold	7.000	%	7/1/11-8/1/30	20,916		23,396
Federal Home Loan Mortgage Corp. (FHLMC), Gold	6.500	%	9/1/31-12/1/31	336,307		374,198
Federal Home Loan Mortgage Corp. (FHLMC), Gold	5.500	%	11/1/35	329,040		355,097
Total FHLMC						1,168,980
FNMA — 7.1%
Federal National Mortgage Association (FNMA)	6.500	%	4/1/15-5/1/31	1,039,187		1,135,948
Federal National Mortgage Association (FNMA)	5.500	%	10/1/16-8/1/37	2,532,755		2,739,508
Federal National Mortgage Association (FNMA)	7.000	%	8/1/29-5/1/32	1,146,103		1,303,983
Federal National Mortgage Association (FNMA)	7.500	%	9/1/29-3/1/32	1,849,153		2,116,925

See Notes to Financial Statements.

18 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†		Value
FNMA — continued
Federal National Mortgage Association (FNMA)	8.000	%	2/1/31	3,518		$	4,089
Federal National Mortgage Association (FNMA)	6.000	%	4/1/32-11/1/37	5,839,931			6,451,268
Federal National Mortgage Association (FNMA)	5.000	%	6/1/35	3,073,862			3,288,354
Federal National Mortgage Association (FNMA)	4.000	%	8/12/40-9/14/40	400,000			409,656	(h)
Federal National Mortgage Association (FNMA)	5.000	%	8/12/40	2,100,000			2,238,142	(h)
Federal National Mortgage Association (FNMA)	5.500	%	8/12/40	14,800,000			15,949,309	(h)
Total FNMA							35,637,182
GNMA — 5.3%
Government National Mortgage Association (GNMA)	6.500	%	5/15/28-8/15/34	3,733,023			4,182,299
Government National Mortgage Association (GNMA)	7.000	%	3/15/29-3/15/32	1,409,439			1,621,641
Government National Mortgage Association (GNMA)	7.500	%	1/15/30-9/15/31	555,032			640,635
Government National Mortgage Association (GNMA)	5.000	%	1/15/40	4,160,751			4,486,392
Government National Mortgage Association (GNMA)	4.500	%	8/19/40	11,400,000			12,000,504	(h)
Government National Mortgage Association (GNMA)	5.500	%	8/19/40	800,000			868,625	(h)
Government National Mortgage Association (GNMA)	6.000	%	8/19/40	2,400,000			2,624,628	(h)
Government National Mortgage Association (GNMA)	5.000	%	9/21/40	100,000			107,018	(h)
Total GNMA							26,531,742
Total Mortgage-Backed Securities (Cost — $60,505,278)							63,337,904
Municipal Bonds — 0.7%
Georgia — 0.1%
Municipal Electric Authority, GA, Build America Bonds, Plant Vogtle Units 3&4 Project J	6.637	%	4/1/57	310,000			310,679
Municipal Electric Authority, GA, Build America Bonds, Plant Vogtle Units 3&4 Project M	6.655	%	4/1/57	180,000			176,331
Total Georgia							487,010
Pennsylvania — 0.6%
Pennsylvania State Higher Education Assistance Agency, Student Loan Revenue	0.331	%	5/1/46	3,500,000			3,097,500	(d)(e)
Total Municipal Bonds (Cost — $3,586,015)							3,584,510
Sovereign Bonds — 4.6%
Brazil — 1.9%
Brazil Nota do Tesouro Nacional	10.000	%	1/1/14	850,000	BRL		455,592
Brazil Nota do Tesouro Nacional, Notes	10.000	%	1/1/12	13,881,000	BRL		7,732,099
Brazil Nota do Tesouro Nacional, Notes	10.000	%	1/1/17	2,657,000	BRL		1,380,468
Total Brazil							9,568,159
Indonesia — 0.6%
Republic of Indonesia, Senior Bonds	11.000	%	9/15/25	23,046,000,000	IDR		3,093,431
Italy — 1.0%
Region of Lombardy	5.804	%	10/25/32	4,750,000			4,721,357
Mexico — 0.6%
United Mexican States, Medium-Term Notes	5.625	%	1/15/17	380,000			422,275
United Mexican States, Medium-Term Notes	6.750	%	9/27/34	2,310,000			2,760,450
Total Mexico							3,182,725
Russia — 0.3%
RSHB Capital, Loan Participation Notes, Senior Secured Bonds	6.299	%	5/15/17	340,000			349,350	(b)
Russian Foreign Bond — Eurobond	11.000	%	7/24/18	365,000			513,281	(b)

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 19

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
Russia — continued
Russian Foreign Bond — Eurobond, Senior Bonds	7.500	%	3/31/30	714,840	$	830,787	(b)
Total Russia						1,693,418
Supranational — 0.2%
Corporacion Andina de Fomento, Notes	6.875	%	3/15/12	875,000		942,183
Total Sovereign Bonds (Cost — $22,104,801)						23,201,273
U.S. Government & Agency Obligations — 21.0%
U.S. Government Agencies — 2.3%
Federal Home Loan Bank (FHLB), Global Bonds	1.750	%	8/22/12	720,000		735,577
Federal Home Loan Bank (FHLB), Global Bonds	5.500	%	7/15/36	420,000		487,824
Federal National Mortgage Association (FNMA), Notes	3.875	%	7/12/13	420,000		456,080
Federal National Mortgage Association (FNMA), Debentures	0.000	%	10/9/19	1,410,000		881,133
Federal National Mortgage Association (FNMA), Bonds	6.625	%	11/15/30	270,000		356,792
Federal National Mortgage Association (FNMA), Senior Notes	4.375	%	10/15/15	730,000		821,210
Federal National Mortgage Association (FNMA), Senior Notes	5.625	%	7/15/37	255,000		300,198
Federal National Mortgage Association (FNMA), Subordinated Notes	5.250	%	8/1/12	1,460,000		1,575,101
Federal National Mortgage Association (FNMA), Subordinated Notes	4.625	%	5/1/13	1,270,000		1,375,122
Financing Corp. (FICO) Strip, Bonds	0.000	%	11/2/18	770,000		593,690
Financing Corp. (FICO) Strip, Debentures	0.000	%	2/8/18	220,000		176,034
Financing Corp. (FICO) Strip, Debentures	0.000	%	5/11/18	810,000		643,168
Financing Corp. (FICO) Strip, Debentures	0.000	%	8/3/18	1,310,000		1,026,470
Financing Corp. (FICO) Strip, Debentures	0.000	%	3/7/19	340,000		255,206
Financing Corp. (FICO) Strip, Debentures	0.000	%	6/6/19	110,000		81,346
Financing Corp. (FICO) Strip, Notes	0.000	%	4/6/18	660,000		525,578
Financing Corp. (FICO) Strip, Notes	0.000	%	8/3/18	780,000		611,181
Financing Corp. (FICO) Strip, Notes	0.000	%	9/26/19	40,000		29,043
Tennessee Valley Authority, Bonds	5.980	%	4/1/36	30,000		36,078
Tennessee Valley Authority, Notes	5.250	%	9/15/39	500,000		556,745
Total U.S. Government Agencies						11,523,576
U.S. Government Obligations — 18.7%
U.S. Treasury Bonds	8.750	%	8/15/20	800,000		1,205,375
U.S. Treasury Bonds	3.500	%	2/15/39	250,000		229,610
U.S. Treasury Bonds	4.250	%	5/15/39	2,080,000		2,176,524
U.S. Treasury Bonds	4.500	%	8/15/39	4,870,000		5,306,016
U.S. Treasury Bonds	4.375	%	11/15/39	6,650,000		7,101,994
U.S. Treasury Bonds	4.375	%	5/15/40	6,170,000		6,596,143
U.S. Treasury Notes	1.750	%	4/15/13	1,010,000		1,037,307
U.S. Treasury Notes	1.375	%	5/15/13	2,500,000		2,542,593
U.S. Treasury Notes	2.625	%	12/31/14	5,550,000		5,842,679
U.S. Treasury Notes	2.250	%	1/31/15	2,750,000		2,849,902
U.S. Treasury Notes	3.125	%	10/31/16	4,580,000		4,851,938
U.S. Treasury Notes	2.750	%	11/30/16	5,790,000		5,997,629
U.S. Treasury Notes	3.125	%	1/31/17	7,350,000		7,764,584
U.S. Treasury Notes	3.000	%	2/28/17	1,220,000		1,278,140
U.S. Treasury Notes	2.750	%	5/31/17	1,550,000		1,596,742
U.S. Treasury Notes	2.500	%	6/30/17	5,625,000		5,703,221
U.S. Treasury Notes	3.375	%	11/15/19	8,943,000		9,324,473

See Notes to Financial Statements.

20 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

Security	Rate		Maturity Date	Face Amount†	Value
U.S. Government Obligations — continued
U.S. Treasury Notes	3.625	%	2/15/20	1,710,000	$	1,815,406
U.S. Treasury Notes	3.500	%	5/15/20	340,000		357,108
U.S. Treasury Notes	1.250	%	7/15/20	10,440,000		10,569,686
U.S. Treasury Strip Principal (STRIPS)	0.000	%	5/15/18	1,030,000		851,583
U.S. Treasury Strip Principal (STRIPS)	0.000	%	2/15/25	15,620,000		9,019,285
Total U.S. Government Obligations						94,017,938
Total U.S. Government & Agency Obligations (Cost — $100,466,153)						105,541,514
				Shares
Common Stocks — 0.3%
Consumer Discretionary — 0.2%
Media — 0.2%
Charter Communications Inc., Class A Shares				22,538		822,637	*
Dex One Corp.				2,967		53,762	*
SuperMedia Inc.				817		17,231	*
Total Consumer Discretionary						893,630
Energy — 0.0%
Oil, Gas & Consumable Fuels — 0.0%
SemGroup Corp., Class A Shares				4,463		111,575	*
Industrials — 0.0%
Building Products — 0.0%
Nortek Inc.				4,239		173,799	*
Materials — 0.1%
Chemicals — 0.1%
Georgia Gulf Corp.				23,984		368,154	*
Total Common Stocks (Cost — $3,658,253)						1,547,158
Convertible Preferred Stocks — 0.2%
Consumer Discretionary — 0.1%
Automobiles — 0.1%
Motors Liquidation Co., Senior Debentures, Series C	6.250	%	7/15/33	72,772		563,437	*
Utilities — 0.1%
Electric Utilities — 0.1%
AES Trust III	6.750	%		5,200		241,384
Total Convertible Preferred Stocks (Cost — $2,074,147)						804,821
Preferred Stocks — 0.2%
Consumer Discretionary — 0.0%
Media — 0.0%
CMP Susquehanna Radio Holdings Corp.				8,115		1	*(b)(c)(e)
Financials — 0.2%
Diversified Financial Services — 0.2%
Citigroup Capital XII	8.500%			29,450		772,841	(d)
Thrifts & Mortgage Finance — 0.0%
Federal Home Loan Mortgage Corp. (FHLMC)	8.375%			92,225		35,507	*(d)
Federal National Mortgage Association (FNMA)	7.000%			3,200		1,280	*(d)

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 21

Legg Mason Western Asset Strategic Income Fund

Security	Rate			Shares	Value
Thrifts & Mortgage Finance — continued
Federal National Mortgage Association (FNMA)	8.250%			62,800	$	21,352	*(d)
Total Thrifts & Mortgage Finance						58,139
Total Financials						830,980
Total Preferred Stocks (Cost — $4,787,932)						830,981
			Expiration Date	Contracts
Purchased Options — 0.0%
Eurodollar Futures, Put @ $99.25			9/13/10	89		2,225
Eurodollar Mid Curve 1-Year Futures, Put @ $98.75			9/10/10	61		1,906
U.S. Treasury 10-Year Notes Futures, Call @ $119.50			8/27/10	25		108,203
U.S. Treasury 10-Year Notes Futures, Call @ $121.50			8/27/10	17		41,172
Total Purchased Options (Cost — $86,102)						153,506
				Warrants
Warrants — 0.0%
Buffets Restaurant Holdings			4/28/14	633		6	*(c)(e)
Charter Communications Inc.			11/30/14	897		5,405	*
CNB Capital Trust			3/23/19	9,274		0	*(b)(c)(e)
Nortek Inc.			12/7/14	1,036		1,046	*
SemGroup Corp.			11/30/14	4,698		29,363	*
Total Warrants (Cost — $15,258)						35,820
Total Investments before Short-Term Investments (Cost — $547,087,200)						515,664,338
			Maturity Date	Face Amount†
Short-Term Investments — 4.9%
U.S. Government Agencies — 4.2%
Federal Home Loan Mortgage Corp. (FHLMC), Discount Notes	0.240	%	12/20/10	20,000,000		19,983,660	(i)
Federal National Mortgage Association (FNMA), Discount Notes	0.180	%	8/23/10	1,250,000		1,249,862	(i)(j)
Total U.S. Government Agencies (Cost — $21,231,063)						21,233,522
Repurchase Agreement — 0.7%
Morgan Stanley tri-party repurchase agreement dated 7/30/10; Proceeds at maturity — $3,507,056; (Fully collateralized by U.S. government agency obligations, 3.875% due 6/29/11; Market value — $3,577,745) (Cost — $3,507,000)	0.190	%	8/2/10	3,507,000		3,507,000
Total Short-Term Investments (Cost — $24,738,063)						24,740,522
Total Investments — 107.6% (Cost — $571,825,263#)						540,404,860
Liabilities in Excess of Other Assets — (7.6)%						(38,186,261	)
Total Net Assets — 100.0%					$	502,218,599

See Notes to Financial Statements.

22 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Schedule of investments (cont’d)

July 31, 2010

Legg Mason Western Asset Strategic Income Fund

† Face amount denominated in U.S. dollars, unless otherwise noted.

* Non-income producing security.

^(a) The coupon payment on these securities is currently in default as of July 31, 2010.

^(b) 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.

^(c) Illiquid security.

^(d) Variable rate security. Interest rate disclosed is that which is in effect at July 31, 2010.

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

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

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

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

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

^(j) 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 $573,292,347.

Abbreviations used in this schedule:
ARM	— Adjustable Rate Mortgage
BRL	— Brazilian Real
IDR	— Indonesian Rupiah
IO	— Interest Only
STRIPS	— Separate Trading of Registered Interest and Principal Securities

Schedule of Written Options
Security	Expiration Date	Strike Price		Contracts	Value
Eurodollar Futures, Call	9/13/10	$	99.13	22	$	25,987
Eurodollar Futures, Call	3/14/11		98.88	34		56,950
Eurodollar Futures, Call	3/14/11		98.75	37		72,613
Eurodollar Futures, Put	9/13/10		98.63	89		556
Eurodollar Futures, Put	3/14/11		98.88	34		4,675
Eurodollar Futures, Put	3/14/11		98.75	37		4,625
Eurodollar Mid Curve 1-Year Futures, Put	9/10/10		98.50	61		762
U.S. Treasury 10-Year Notes Futures, Call	8/27/10		119.00	37		178,641
U.S. Treasury 5-Year Notes Futures, Call	11/26/10		120.00	16		8,875
U.S. Treasury 5-Year Notes Futures, Put	11/26/10		116.50	16		4,625
Total Written Options (Premiums received — $197,158)					$	358,309

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 23

Statement of assets and liabilities

July 31, 2010

Assets:
Investments, at value (Cost — $571,825,263)	$	540,404,860
Foreign currency, at value (Cost — $353,275)		362,271
Cash		13,602
Receivable for securities sold		33,806,761
Interest receivable		5,712,247
Unrealized appreciation on swaps		2,614,697
Receivable for Fund shares sold		522,926
Receivable for open swap contracts		291,385
Unrealized appreciation on forward currency contracts		284,138
Premiums paid for open swaps		103,582
Receivable from broker — variation margin on open futures contracts		82,018
Prepaid expenses		34,391
Total Assets		584,232,878
Liabilities:
Payable for securities purchased		75,985,274
Payable for Fund shares repurchased		1,574,890
Unrealized depreciation on swaps		1,342,164
Premiums received for open swaps		1,017,046
Unrealized depreciation on forward currency contracts		820,140
Written options, at value (premiums received $197,158)		358,309
Investment management fee payable		273,842
Distribution fees payable		146,050
Distributions payable		89,858
Deferred foreign capital gains tax		41,105
Trustees’ fees payable		27,899
Payable for open swap contracts		9,911
Accrued expenses		327,791
Total Liabilities		82,014,279
Total Net Assets	$	502,218,599
Net Assets:
Par value (Note 7)	$	784
Paid-in capital in excess of par value		626,112,021
Undistributed net investment income		11,158,110
Accumulated net realized loss on investments, futures contracts, written options, swap contracts and foreign currency transactions		(103,685,449)
Net unrealized depreciation on investments, futures contracts, written options, swap contracts and foreign currencies		(31,366,867)
Total Net Assets	$	502,218,599
Shares Outstanding:
Class A		61,609,001
Class B		5,250,031
Class C		10,853,749
Class I		640,262
Net Asset Value:
Class A (and redemption price)		$6.40
Class B*		$6.56
Class C*		$6.42
Class I (and redemption price)		$6.42
Maximum Public Offering Price Per Share:
Class A (based on maximum initial sales charge of 4.25%)		$6.68

* Redemption price per share is NAV of Class B and C shares reduced by a 4.50% and 1.00% CDSC, respectively, if shares are redeemed within one year from purchase payment (See Note 2).

See Notes to Financial Statements.

24 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Statement of operations

For the Year Ended July 31, 2010

Investment Income:
Interest	$28,269,744
Dividends	163,930
Less: Foreign taxes withheld	(178,784)
Total Investment Income	28,254,890
Expenses:
Investment management fee (Note 2)	3,212,316
Distribution fees (Notes 2 and 5)	1,763,529
Transfer agent fees (Note 5)	644,785
Shareholder reports	67,652
Registration fees	59,939
Audit and tax	58,503
Legal fees	52,242
Custody fees	24,415
Insurance	12,945
Trustees’ fees	5,153
Miscellaneous expenses	2,569
Total Expenses	5,904,048
Less: Fee waivers and/or expense reimbursements (Notes 2 and 5)	(1,273)
Compensating balance arrangements (Note 1)	(247)
Net Expenses	5,902,528
Net Investment Income	22,352,362
Realized and Unrealized Gain (Loss) on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions (Notes 1, 3 and 4):
Net Realized Gain (Loss) From:
Investment transactions	(26,153,851)
Futures contracts	3,591,070
Written options	657,894
Swap contracts	1,406,251
Foreign currency transactions	851,285
Net Realized Loss	(19,647,351)
Change in Net Unrealized Appreciation/Depreciation From:
Investments	78,593,209
Futures contracts	(111,724)
Written options	(247,194)
Swap contracts	1,359,692
Foreign currencies	(547,708)
Change in Net Unrealized Appreciation/Depreciation	79,046,275
Net Gain on Investments, Futures Contracts, Written Options, Swap Contracts and Foreign Currency Transactions	59,398,924
Proceeds from Settlement of a Regulatory Matter (Note 9)	1,643,671
Increase in Net Assets from Operations	$83,394,957

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 25

Statements of changes in net assets

For the years ended July 31,	2010		2009
Operations:
Net investment income	$	22,352,362	$	34,281,301
Net realized loss		(19,647,351)		(22,978,834)
Change in net unrealized appreciation/depreciation		79,046,275		(1,072,253)
Proceeds from settlement of a regulatory matter (Note 9)		1,643,671		—
Increase in Net Assets From Operations		83,394,957		10,230,214
Distributions to Shareholders From (Notes 1 and 6):
Net investment income		(23,998,294)		(36,486,354)
Decrease in Net Assets From Distributions to Shareholders		(23,998,294)		(36,486,354)
Fund Share Transactions (Note 7):
Net proceeds from sale of shares		61,726,436		43,572,832
Reinvestment of distributions		22,601,082		33,535,694
Cost of shares repurchased		(125,580,793)		(183,768,956)
Decrease in Net Assets From Fund Share Transactions		(41,253,275)		(106,660,430)
Increase (Decrease) in Net Assets		18,143,388		(132,916,570)
Net Assets:
Beginning of year		484,075,211		616,991,781
End of year*	$	502,218,599	$	484,075,211
*Includes undistributed net investment income of:		$11,158,110		$7,075,951

See Notes to Financial Statements.

26 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Financial highlights

For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class A Shares1	2010		2009		2008		2007		2006
Net asset  value, beginning of year	$5.68		$5.82		$6.52		$6.64		$6.89
Income (loss) from operations:
Net investment income	0.28		0.37		0.40		0.40		0.37
Net realized and unrealized gain (loss)	0.73		(0.12)		(0.68)		(0.10)		(0.23)
Proceeds from settlement of a regulatory matter	0.01		—		—		—		—
Total income (loss) from operations	1.02		0.25		(0.28)		0.30		0.14
Less distributions from:
Net investment income	(0.30)		(0.39)		(0.42)		(0.42)		(0.39)
Total distributions	(0.30)		(0.39)		(0.42)		(0.42)		(0.39)
Net asset value, end of year	$6.40		$5.68		$5.82		$6.52		$6.64
Total return2	18.37	%3	5.28	%	(4.66)	%	4.41	%	2.06	%
Net assets, end of year (000s)	$394,057		$363,290		$438,360		$562,788		$532,121
Ratios to average net assets:
Gross expenses	1.08	%	1.12	%	1.07	%	1.03	%4	1.01	%
Net expenses5	1.08		1.09	6,7	1.00	6,7	1.02	4,6,7	0.99	6
Net investment income	4.63		7.12		6.32		5.93		5.54
Portfolio turnover rate8	83	%	32	%	46	%	198	%	202	%

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

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

³ The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 18.19% (Note 9).

⁴ Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios would have been 1.02% and 1.01%, respectively.

⁵ The impact of compensating balance arrangements, if any, was less than 0.01%.

⁶ Reflects fee waivers and/or expense reimbursements.

⁷ As a result of a contractual expense limitation, effective March 5, 2007 through December 1, 2008, the ratio of expenses, other than brokerage, taxes and extraordinary expenses, to average net assets of Class A shares did not exceed 1.00%.

⁸ Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 200%, 181%, 307%, 344% and 513% for the years ended July 31, 2010, 2009, 2008, 2007 and 2006, respectively.

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 27

For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class B Shares1	2010		2009		2008		2007		2006
Net asset value, beginning of year	$5.71		$5.85		$6.56		$6.68		$6.93
Income (loss) from operations:
Net investment income	0.25		0.34		0.36		0.37		0.34
Net realized and unrealized gain (loss)	0.74		(0.12)		(0.69)		(0.11)		(0.24)
Proceeds from settlement of a regulatory matter	0.13		—		—		—		—
Total income (loss) from operations	1.12		0.22		(0.33)		0.26		0.10
Less distributions from:
Net investment income	(0.27)		(0.36)		(0.38)		(0.38)		(0.35)
Total distributions	(0.27)		(0.36)		(0.38)		(0.38)		(0.35)
Net asset value, end of year	$6.56		$5.71		$5.85		$6.56		$6.68
Total return2	19.95	%3	4.60	%	(5.39)	%	3.85	%	1.52	%
Net assets, end of year (000s)	$34,422		$47,642		$74,664		$116,963		$139,363
Ratios to average net assets:
Gross expenses	1.69	%	1.76	%	1.67	%	1.57	%4	1.54	%
Net expenses5	1.69		1.76		1.67		1.57	4,6	1.53	6
Net investment income	4.08		6.49		5.63		5.38		4.96
Portfolio turnover rate7	83	%	32	%	46	%	198	%	202	%

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

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

³ The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 17.58% (Note 9).

⁴ Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the period. Without these fees, the gross and net expense ratios both would have been 1.55%.

⁵ The impact of compensating balance arrangements, if any, was less than 0.01%.

⁶ Reflects fee waivers and/or expense reimbursements.

⁷ Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 200%, 181%, 307%, 344% and 513% for the years ended July 31, 2010, 2009, 2008, 2007 and 2006, respectively.

See Notes to Financial Statements.

28 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Financial highlights (cont’d)

For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class C Shares1	2010		2009		2008		2007		2006
Net asset value, beginning of year	$5.69		$5.83		$6.53		$6.65		$6.90
Income (loss) from operations:
Net investment income	0.26		0.34		0.37		0.37		0.34
Net realized and unrealized gain (loss)	0.73		(0.11)		(0.69)		(0.10)		(0.24)
Proceeds from settlement of a regulatory matter	0.02		—		—		—		—
Total income (loss) from operations	1.01		0.23		(0.32)		0.27		0.10
Less distributions from:
Net investment income	(0.28)		(0.37)		(0.38)		(0.39)		(0.35)
Total distributions	(0.28)		(0.37)		(0.38)		(0.39)		(0.35)
Net asset value, end of year	$6.42		$5.69		$5.83		$6.53		$6.65
Total return2	18.02	%3	4.78	%	(5.14)	%	3.93	%	1.54	%
Net assets, end of year (000s)	$69,630		$72,302		$88,052		$122,439		$108,003
Ratios to average net assets:
Gross expenses	1.52	%	1.58	%	1.52	%	1.48	%4	1.52	%
Net expenses5	1.52		1.58		1.52		1.48	4,6	1.50	6
Net investment income	4.21		6.65		5.79		5.48		5.03
Portfolio turnover rate7	83	%	32	%	46	%	198	%	202	%

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

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

³ The total return reflects a payment received due to the settlement of a regulatory matter. Absent this payment, the total return would have been 17.65% (Note 9).

⁴ Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the year. Without these fees, the gross and net expense ratios both would have been 1.47%.

⁵ The impact of compensating balance arrangements, if any, was less than 0.01%.

⁶ Reflects fee waivers and/or expense reimbursements.

⁷ Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 200%, 181%, 307%, 344% and 513% for the years ended July 31, 2010, 2009, 2008, 2007 and 2006, respectively.

See Notes to Financial Statements.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 29

For a share of each class of beneficial interest outstanding throughout each year ended July 31:
Class I Shares1	2010		2009		2008		2007		2006
Net asset value, beginning of year	$5.70		$5.83		$6.53		$6.65		$6.90
Income (loss) from operations:
Net investment income	0.28		0.41		0.42		0.42		0.39
Net realized and unrealized gain (loss)	0.75		(0.13)		(0.68)		(0.10)		(0.23)
Total income (loss) from operations	1.03		0.28		(0.26)		0.32		0.16
Less distributions from:
Net investment income	(0.31)		(0.41)		(0.44)		(0.44)		(0.41)
Total distributions	(0.31)		(0.41)		(0.44)		(0.44)		(0.41)
Net asset value, end of year	$6.42		$5.70		$5.83		$6.53		$6.65
Total return2	18.43	%	5.81	%	(4.34)	%	4.75	%	2.38	%
Net assets, end of year (000s)	$4,110		$841		$15,916		$21,979		$17,820
Ratios to average net assets:
Gross expenses	1.03	%	0.72	%	0.69	%	0.71	%3	0.67	%
Net expenses4,5	0.95	6	0.70	7	0.68	7	0.69	3,7	0.67
Net investment income	4.55		7.77		6.61		6.24		5.69
Portfolio turnover rate8	83	%	32	%	46	%	198	%	202	%

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

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

³ Included in the expense ratios are certain non-recurring restructuring (and reorganization, if applicable) fees that were incurred by the Fund during the year. Without these fees, the gross and net expense ratios would have been 0.69% and 0.68%, respectively.

⁴ Reflects fee waivers and/or expense reimbursements.

⁵ The impact of compensating balance arrangements, if any, was less than 0.01%.

⁶ As a result of an expense limitation agreement, effective September 18, 2009 through December 31, 2011, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets of Class I shares will not exceed 0.95%.

⁷ As a result of a contractual expense limitation, effective March 5, 2007 through December 1, 2008, the ratio of expenses, other than brokerage, taxes and extraordinary expenses, to average net assets of Class I shares did not exceed 0.68%.

⁸ Excluding mortgage dollar roll transactions. If mortgage dollar roll transactions had been included, the portfolio turnover rate would have been 200%, 181%, 307%, 344% and 513% for the years ended July 31, 2010, 2009, 2008, 2007 and 2006, respectively.

See Notes to Financial Statements.

30 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements

1. Organization and significant accounting policies

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

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

(a) Investment valuation. Debt securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service, which are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the last quoted bid and asked prices as of the close of business of that market. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. 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 values these securities at fair value as determined in accordance with 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.

The Fund has adopted Financial Accounting Standards Board Codification Topic 820 (formerly, Statement of Financial Accounting Standards No. 157) (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.

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

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

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

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

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

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 31

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

Description	Quoted Prices (Level 1)		Other Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Long-term investments†:
Corporate bonds & notes		—	$	244,161,803	$	190,164	$	244,351,967
Asset-backed securities		—		11,853,947		3,970,550		15,824,497
Collateralized mortgage obligations		—		56,400,114		50,273		56,450,387
Mortgage-backed securities		—		63,337,904		—		63,337,904
Municipal bonds		—		487,010		3,097,500		3,584,510
Sovereign bonds		—		23,201,273		—		23,201,273
U.S. government & agency obligations		—		105,541,514		—		105,541,514
Common stocks	$	1,547,158		—		—		1,547,158
Convertible preferred stocks		241,384		563,437		—		804,821
Preferred stocks		58,139		772,841		1		830,981
Purchased options		153,506		—		—		153,506
Warrants		5,405		30,409		6		35,820
Total long-term investments	$	2,005,592	$	506,350,252	$	7,308,494	$	515,664,338
Short-term investments†		—		24,740,522		—		24,740,522
Total investments	$	2,005,592	$	531,090,774	$	7,308,494	$	540,404,860
Other financial instruments:
Futures contracts	$	(497,526)		—		—	$	(497,526)
Forward foreign currency contracts		—	$	(536,002)		—		(536,002)
Written options		(358,309)		—		—		(358,309)
Interest rate swaps‡		—		1,094,300		—		1,094,300
Credit default swaps on credit indices — sell protection‡		—		(837,006)		—		(837,006)
Credit default swaps on credit indices — buy protection‡		—		101,775		—		101,775
Total other financial instruments	$	(855,835)	$	(176,933)		—	$	(1,032,768)
Total	$	1,149,757	$	530,913,841	$	7,308,494	$	539,372,092

† See Schedule of Investments for additional detailed categorizations.

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

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

Investments In Securities	Corporate Bonds & Notes		Asset- Backed Securities			Collateralized Mortgage Obligations		Municipal Bonds		Common Stocks			Escrowed Shares			Preferred Stocks		Warrants			Total
Balance as of July 31, 2009	$	234,651	$	0	*	$	254,233		—	$	193		$	0	*	$	3,449	$	255		$	492,781
Accrued premiums/discounts		29,637		81,528			688	$	703		—			—			—		—			112,556
Realized gain/(loss)1		(2,637,345)		(15,609,212)			5,597		—		(29)			0	*		—		(140,513)			(18,381,502)
Change in unrealized appreciation (depreciation)2		2,653,631		15,533,234			156,730		1,485		(164)			0	*		(3,448)		140,264			18,481,732
Net purchases (sales)		(1,653)		3,965,000			(66,719)		3,095,312		0	*		0	*		—		0	*		6,991,940
Transfers into Level 3		9,263		—			50,273		—		—			—			—		—			59,536
Transfers out of Level 3		(98,020)		—			(350,529)		—		—			—			—		—			(448,549)
Balance as of July 31, 2010	$	190,164	$	3,970,550		$	50,273	$	3,097,500		—			—		$	1	$	6		$	7,308,494
Net change in unrealized appreciation (depreciation) for investments in securities still held at July 31, 20102	$	9,090	$	(217)			—	$	1,485		—			—		$	(3,448)	$	(249)		$	6,661

* Value is less than $1.

¹ This amount is included in net realized gain (loss) from investment transactions in the accompanying Statement of Operations.

² This amount is included in the change in net unrealized appreciation (depreciation) in the accompanying Statement of Operations. Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.

32 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

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

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

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

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

(d) Forward foreign currency contracts. The Fund may enter into a forward foreign currency contract to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of a foreign currency denominated portfolio transaction. A forward foreign currency contract is an agreement between two parties to buy and sell a currency at a set price with delivery and settlement at a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is closed, through either delivery or offset by entering into another forward foreign currency contract, the Fund recognizes a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it is closed.

Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected on the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

(e) 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, such as the face amount, maturity date and underlying pool of investments in U.S. government agency mortgage pass-through securities, is not announced. Securities purchased on a TBA basis are not settled until they are delivered to the Fund. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 33

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

The Fund executes its mortgage dollar rolls entirely in the TBA market, whereby 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 Fund accounts for mortgage dollar rolls as purchases and sales.

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

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

The risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. The risk in writing 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.

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

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

(i) 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 related to the loan, or any rights of off-set against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

34 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

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 off-set between the lender and the borrower.

(j) Swap agreements. The Fund may invest in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those associated with ordinary portfolio transactions.

Swap contracts are marked to market daily and changes in value are recorded as unrealized appreciation/(depreciation). Gains or losses are realized upon termination of the swap agreement. Periodic payments and premiums received or made by the Fund are recognized in the Statement of Operations as realized gains or losses, respectively. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments and restricted cash, if any, is identified on the Statement of Assets and Liabilities. Risks may exceed amounts recorded in the Statement of Assets and Liabilities. These risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts’ terms, and the possible lack of liquidity with respect to the swap agreements.

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

As disclosed in the Fair Values of Derivatives – Statement of Assets and Liabilities table that follows the Fund’s summary of open swap contracts, the aggregate fair value of credit default swaps in a net liability position as of July 31, 2010 was $837,006. The aggregate fair value of assets received as collateral for swaps was $799,652. The Fund did not post collateral for its swap transactions. If a defined credit event had occurred as of July 31, 2010, the swaps’ credit-risk-related contingent features would have been triggered and the Fund would have been required to pay up to $29,574,550 less the value of the contracts’ related reference obligations.

Credit default swaps

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

Implied spreads are the theoretical prices a lender receives for credit default protection. When spreads rise, market perceived credit risk rises and when spreads fall, market perceived credit risk falls. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 35

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

The Fund’s maximum risk of loss from counterparty risk, as the protection buyer, is the fair value of the contract (this risk is mitigated by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty). As the protection seller, the Fund’s maximum risk is the notional amount of the contract. Credit default swaps are considered to have credit risk-related contingent features since they require payment by the protection seller to the protection buyer upon the occurrence of a defined credit event.

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

Interest rate swaps

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

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

Total return swaps

The Fund may enter into total return swaps for investment purposes. Total return swaps are agreements to exchange the return generated by one instrument for the return generated by another instrument. For example, the agreement to pay a predetermined or fixed interest rate in exchange for a market-linked return based on a notional amount. To the extent the total return of a referenced index or instrument exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent it is less, the Fund will make a payment to the counterparty.

(k) 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.

The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

36 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.

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.

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

Investments in securities that are collateralized by residential real estate mortgages are subject to certain credit and liquidity risks. When market conditions result in an increase in default rates of the underlying mortgages and foreclosure values of underlying real estate properties are materially below the outstanding amount of these underlying mortgages, collection of the full amount of accrued interest and principal on these investments may be doubtful. Such market conditions may significantly impair the value and liquidity of these investments and may result in a lack of correlation between their credit ratings and values.

(m) Other risks. Consistent with its objective to seek high current income, the Fund may invest in instruments whose values and interest rates are linked to foreign currencies, interest rates, indices or some other financial indicator. The value at maturity or interest rates for these instruments will increase or decrease according to the change in the indicator to which they are indexed, amongst other factors. These securities are generally more volatile in nature, and the risk of loss of principal may be greater.

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

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

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

(q) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank. The amount is shown as a reduction of expenses in the Statement of Operations.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 37

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

Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years and has concluded that as of July 31, 2010, no provision for income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by Internal Revenue Service and state departments of revenue.

Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates. Realized gains upon disposition of Indonesian securities held by the Fund are subject to capital gains tax. As of July 31, 2010, there were $41,105 of deferred capital gains tax liabilities accrued on unrealized gains.

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

	Undistributed Net Investment Income		Accumulated Net Realized Loss		Paid-in Capital
(a)		—	$	120,890,366	$	(120,890,366)
(b)	$	4,084,420		(4,084,420)		—

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

^(b) Reclassifications are primarily due to foreign currency transactions treated as ordinary income for tax purposes, differences between book and tax amortization of premium on fixed income securities, losses from mortgage-backed securities treated as capital losses for tax purposes, book/tax differences in the treatment of certain securities, book/tax differences in the treatment of consent fees and book/tax differences in the treatment of swap contracts.

2. Investment management agreement and other transactions with affiliates

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

Under the investment management agreement, the Fund pays an investment management fee, calculated daily and paid monthly, in accordance with the following breakpoint schedule:

Average Daily Net Assets	Annual Rate
First $1 billion	0.650	%
Next $1 billion	0.625
Next $3 billion	0.600
Next $5 billion	0.575
Over $10 billion	0.550

LMPFA provides administrative and certain oversight services to the Fund. LMPFA delegates to the subadvisers the day-to-day portfolio management of the Fund. Western Asset Limited, Western Singapore and Western Japan provide certain advisory services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated securities and related foreign currency investments. For its services, LMPFA pays Western Asset 70% of the net management fee it receives from the Fund. In turn, Western Asset pays Western Asset Limited, Western Singapore and Western Japan a subadvisory fee of 0.30% on the assets managed by Western Asset Limited, Western Singapore and Western Japan.

As a result of an expense limitation agreement between the Fund and LMPFA, the ratio of expenses, other than interest, brokerage, taxes and extraordinary expenses, to average net assets of Class I shares will not

38 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

exceed 0.95%. This expense limitation agreement cannot be terminated prior to December 31, 2011 without the Board of Trustees’ consent.

During the year ended July 31, 2010, fees waived and/or expenses reimbursed amounted to $1,273.

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

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

There is a maximum initial sales charge of 4.25% for Class A shares. There is a contingent deferred sales charge (“CDSC”) of 4.50% on Class B shares, which applies if redemption occurs within one year from purchase payment. This CDSC declines by 0.50% the first year after purchase payment and thereafter 1.00% per year until no CDSC is incurred. Class C shares have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. In certain cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs within one year from purchase payment. This CDSC only applies to those purchases of Class A shares, which, when combined with current holdings of Class A shares, equal or exceed $1,000,000 in the aggregate. These purchases do not incur an initial sales charge.

For the year ended July 31, 2010, LMIS and its affiliates received sales charges of approximately $28,000 on sales of the Fund’s Class A shares. In addition, for the year ended July 31, 2010, CDSCs paid to LMIS and its affiliates were approximately:

	Class A			Class B		Class C
CDSCs	$	0	*	$	37,000	$	2,000

* Amount represents less than $1,000.

The Fund had adopted an unfunded, non-qualified deferred compensation plan (the “Plan”) which allowed non-interested trustees (“Independent Trustees”) to defer the receipt of all or a portion of their fees earned until a later date specified by the Independent Trustees. The deferred balances are reported in the Statement of Assets and Liabilities under Trustees’ fees payable and are considered a general obligation of the Fund and any payments made pursuant to the Plan will be made from the Fund’s general assets. The Plan was terminated effective January 1, 2007. This change had no effect on fees previously deferred. As of July 31, 2010, the Fund had accrued $15,708 as deferred compensation payable.

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

3. Investments

During the year ended July 31, 2010, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) and U.S Government & Agency Obligations were as follows:

	Investments		U.S. Government & Agency Obligations
Purchases	$	130,754,739	$	839,609,686
Sales		223,541,292		774,201,140

At July 31, 2010, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:

Gross unrealized appreciation	$	23,285,834
Gross unrealized depreciation		(56,173,321)
Net unrealized depreciation	$	(32,887,487)

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 39

At July 31, 2010, the Fund had the following open futures contracts:

	Number of Contracts	Expiration Date	Basis Value		Market Value		Unrealized Gain/(Loss)
Contracts to Buy:
90-Day Eurodollar	61	9/10	$	15,139,561	$	15,187,475	$	47,914
U.S. Treasury 5-Year Notes	132	9/10		15,483,351		15,817,313		333,962
Ultra Long Term U.S. Treasury Bonds	218	9/10		28,820,170		29,484,500		664,330
							$	1,046,206
Contracts to Sell:
90-Day Eurodollar	60	6/11		14,811,930		14,906,250		(94,320)
U.S. Treasury 10-Year Notes	613	9/10		74,663,672		75,897,062		(1,233,390)
U.S. Treasury 30-Year Bonds	74	9/10		9,309,166		9,525,188		(216,022)
							$	(1,543,732)
Net unrealized loss on open futures contracts							$	(497,526)

At July 31, 2010, the Fund had the following open forward foreign currency contracts:

Foreign Currency	Counterparty	Local Currency	Market Value		Settlement Date	Unrealized Gain/(Loss)
Contracts to Buy:
Euro	Citibank N.A.	3,950,000	$	5,147,409	8/17/10	$	277,138
Euro	Citibank N.A.	1,925,373		2,509,033	8/17/10		4,957
						$	282,095
Contracts to Sell:
Euro	Citibank N.A.	8,282,135		10,792,795	8/17/10		(268,851)
Euro	UBS A.G.	1,000,000		1,303,142	8/17/10		2,043
Euro	Citibank N.A.	3,820,000		4,978,001	8/17/10		(107,921)
Euro	Citibank N.A.	1,960,000		2,554,158	8/17/10		(79,893)
Japanese Yen	Goldman Sachs	231,810,720		2,683,458	8/17/10		(232,690)
Japanese Yen	Citibank N.A.	212,740,000		2,462,694	8/17/10		(130,785)
						$	(818,097)
Net unrealized loss on open forward foreign currency contracts						$	(536,002)

At July 31, 2010, the Fund held TBA securities with a total cost of $34,044,614.

During the year ended July 31, 2010, written option transactions for the Fund were as follows:

	Number of Contracts	Premiums
Written options, outstanding July 31, 2009	556	$	475,871
Options written	1,224		570,978
Options closed	(744)		(382,701)
Options exercised	(119)		(104,096)
Options expired	(534)		(362,894)
Written options, outstanding July 31, 2010	383	$	197,158

40 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

At July 31, 2010, the Fund held the following swap contracts:

INTEREST RATE SWAPS
Swap Counterparty	Notional Amount		Termination Date	Periodic Payments Made By The Fund†	Periodic Payments Received By The Fund†		Upfront Premiums Paid/ (Received)		Unrealized Appreciation/ (Depreciation)
Barclays Capital Inc.	$	13,500,000	3/19/18	3-Month LIBOR		5.000%	$	(140,931)	$	2,547,734
Barclays Capital Inc.		4,250,000	2/15/25	Zero coupon		3-Month LIBOR		—		(382,750)	*
Barclays Capital Inc.		1,250,000	2/15/25	Zero coupon		3-Month LIBOR		—		(104,718)	*
Barclays Capital Inc.		1,620,000	2/15/25	Zero coupon		3-Month LIBOR		—		(143,958)	*
Barclays Capital Inc.		4,610,000	2/15/25	Zero coupon		3-Month LIBOR		—		(407,562)	*
Barclays Capital Inc.		2,740,000	7/26/40	3.707% semi-annually		3-Month LIBOR		—		(7,756)
Morgan Stanley & Co. Inc.		3,080,000	2/15/25	Zero coupon		3-Month LIBOR		—		(265,759)	*
Total	$	31,050,000					$	(140,931)	$	1,235,231
CREDIT DEFAULT SWAPS ON CREDIT INDICES — SELL PROTECTION1
Swap Counterparty (Reference Entity)	Notional Amount2		Termination Date	Periodic Payments Received By The Fund†	Market Value3		Upfront Premiums Paid/ (Received)		Unrealized Appreciation/ (Depreciation)
Barclays Capital Inc. (CDX.NA.IG.HVOL.9 Index)	$	1,399,995	12/20/12	1.400% quarterly		$  (35,477)	$	(21,110)	$	(14,367)
Barclays Capital Inc. (CDX.NA.IG.HVOL.9 Index)		2,426,658	12/20/12	1.400% quarterly		(61,494)		(95,705)		34,211
Barclays Capital Inc. (CDX.NA.IG.HVOL.9 Index)		1,866,660	12/20/12	1.400% quarterly		(47,303)		(57,783)		10,480
Barclays Capital Inc. (CDX.NA.IG.HVOL.9 Index)		22,399,920	12/20/12	1.400% quarterly		(567,636)		(585,229)		17,593
Credit Suisse First Boston Inc. (ABX.HE.AAA.06-1 Index)		240,317	7/25/45	0.180% monthly		(27,636)		(14,600)		(13,036)
Goldman Sachs Group Inc. (CMBX 1 2006-1 AAA Index)		841,000	10/12/52	0.100% monthly		(50,460)		(53,954)		3,494
Morgan Stanley & Co. Inc. (CMBX 4 2007-2 AAA Index)		400,000	2/17/51	0.350% monthly		(47,000)		(47,734)		734
Total	$	29,574,550				$(837,006)	$	(876,115)	$	39,109
CREDIT DEFAULT SWAPS ON CREDIT INDICES — BUY PROTECTION4
Swap Counterparty (Reference Entity)	Notional Amount2		Termination Date	Periodic Payments Made By The Fund†	Market Value3		Upfront Premiums Paid/ (Received)		Unrealized Appreciation/ (Depreciation)
Goldman Sachs Group Inc. (CMBX 2 2006-2 AAA Index)	$	797,000	3/15/49	0.070% monthly	$	59,775	$	62,033	$	(2,258)
Morgan Stanley & Co. Inc. (CMBX 1 2006-1 AAA Index)		700,000	10/12/52	0.100% monthly		42,000		41,549		451
Total	$	1,497,000			$	101,775	$	103,582	$	(1,807)

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

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

³ The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement been closed/sold as of the period end. Decreasing market values when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.

⁴ If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the underlying securities comprising the referenced index.

† Percentage shown is an annual percentage rate.

* Security is valued in good faith at fair value in accordance with procedures approved by the Board of Trustees.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 41

4. Derivative instruments and hedging activities

Financial Accounting Standards Board Codification Topic 815 (formerly, Statement of Financial Accounting Standards No. 161) requires enhanced disclosure about an entity’s derivative and hedging activities.

Below are tables, grouped by derivative type that provides information about the fair value and the location of derivatives within the Statement of Assets and Liabilities at July 31, 2010.

ASSET DERIVATIVES1
	Interest Rate Contracts Risk		Foreign Exchange Contracts Risk		Credit Contracts Risk		Total
Purchased options2	$	153,506		—		—	$	153,506
Futures contracts3		1,046,206		—		—		1,046,206
Swap contracts4		2,406,803		—	$	101,775		2,508,578
Forward foreign currency contracts		—	$	284,138		—		284,138
Total	$	3,606,515	$	284,138	$	101,775	$	3,992,428

LIABILITY DERIVATIVES1
	Interest Rate Contracts Risk		Foreign Exchange Contracts Risk		Credit Contracts Risk		Total
Written options	$	358,309		—		—	$	358,309
Futures contracts3		1,543,732		—		—		1,543,732
Swap contracts4		1,312,503		—	$	837,006		2,149,509
Forward foreign currency contracts		—	$	820,140		—		820,140
Total	$	3,214,544	$	820,140	$	837,006	$	4,871,690

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

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

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

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

The following tables provide information about the effect of derivatives and hedging activities on the Fund’s Statement of Operations for the year ended July 31, 2010. The first table provides additional detail about the amounts and sources of gains/(losses) realized on derivatives during the period. The second table provides additional information about the changes in unrealized appreciation/(depreciation) resulting from the Fund’s derivatives and hedging activities during the period.

AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED
	Interest Rate Contracts Risk		Foreign Exchange Contracts Risk		Credit Contracts Risk		Total
Purchased options	$	(180,537)		—		—	$	(180,537)
Written options		657,894		—		—		657,894
Futures contracts		3,591,070		—		—		3,591,070
Swap contracts		774,376		—	$	631,875		1,406,251
Forward foreign currency contracts		—	$	865,499		—		865,499
Total	$	4,842,803	$	865,499	$	631,875	$	6,340,177

CHANGE IN UNREALIZED APPRECIATION/DEPRECIATION ON DERIVATIVES RECOGNIZED
	Interest Rate Contracts Risk		Foreign Exchange Contracts Risk		Credit Contracts Risk		Total
Purchased options	$	67,807		—		—	$	67,807
Written options		(247,194)		—		—		(247,194)
Futures contracts		(111,724)		—		—		(111,724)
Swap contracts		(351,433)		—	$	1,711,125		1,359,692
Forward foreign currency contracts		—	$	(536,002)		—		(536,002)
Total	$	(642,544)	$	(536,002)	$	1,711,125	$	532,579

42 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

During the year ended July 31, 2010, the volume of derivative activity for the Fund was as follows:

	Average Market Value
Purchased options	$	72,835
Written options		222,144
Forward foreign currency contracts (to buy)		1,333,781
Forward foreign currency contracts (to sell)		6,693,352
Futures contracts (to buy)		134,715,678
Futures contracts (to sell)		52,697,826
	Average Notional Balance
Interest rate swap contracts	$	21,003,846
Credit default swap contracts (to buy protection)		176,462
Credit default swap contracts (to sell protection)		30,760,167
Total return swap contracts†		1,073,077

† At July 31, 2010, there were no open positions held in this derivative.

The Fund has several credit related contingent features that if triggered would allow its derivatives counterparties to close out and demand payment or additional collateral to cover their exposure from the Fund. Credit related contingent features are established between the Fund and its derivatives counterparties to reduce the risk that the Fund will not fulfill its payment obligations to its counterparties. These triggering features include, but are not limited to, a percentage decrease in the Fund’s net assets and/or a percentage decrease in the Fund’s Net Asset Value or NAV. The contingent features are established within the Fund’s International Swap and Derivatives Association, Inc. master agreements which govern positions in swaps, over-the-counter options, and forward currency exchange contracts for each individual counterparty.

As of July 31, 2010, the total value of swap positions with credit related contingent features in a net liability position was $837,006. If a contingent feature would have been triggered as of July 31, 2010, the Fund would have been required to pay this amount in cash to its counterparties. The aggregate fair value of assets received as collateral for swaps was $799,652. The Fund did not post collateral for its swap transactions.

5. Class specific expenses, waivers and/or reimbursements

The Fund has adopted a Rule 12b-1 distribution plan and under that plan the Fund pays a service fee with respect to its Class A, B and C shares calculated at the annual rate of 0.25% of the average daily net assets of each respective class. The Fund also pays a distribution fee with respect to its Class B and C shares calculated at the annual rate of 0.50% and 0.45% of the average daily net assets of each class. Distribution fees are accrued daily and paid monthly.

For the year ended July 31, 2010, class specific expenses were as follows:

	Distribution Fees		Transfer Agent Fees		Shareholder Reports Expenses*
Class A	$	947,708	$	464,019	$	4,224
Class B		310,514		96,367		1,760
Class C		505,307		79,527		608
Class I		—		4,872		7
Total	$	1,763,529	$	644,785	$	6,599

* For the period August 1, 2009, through September 1, 2009. Subsequent to September 1, 2009, these expenses were accrued as common fund expenses.

For the year ended July 31, 2010, waivers and/or reimbursements by class were as follows:

	Waivers/ Reimbursements
Class A		—
Class B		—
Class C		—
Class I	$	1,273
Total	$	1,273

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 43

6. Distributions to shareholders by class

	Year Ended July 31, 2010		Year Ended July 31, 2009
Net Investment Income:
Class A	$	18,827,739	$	27,283,542
Class B		1,818,877		3,706,058
Class C		3,276,740		5,024,323
Class I		74,938		472,431
Total	$	23,998,294	$	36,486,354

7. Shares of beneficial interest

At July 31, 2010, the Trust had an unlimited number of shares of beneficial interest authorized with a par value of $0.00001 per share. The Fund has the ability to issue multiple classes of shares. Each class of shares represents an identical interest and has the same rights, except that each class bears certain direct expenses, including those specifically related to the distribution of its shares.

Transactions in shares of each class were as follows:

	Year Ended July 31, 2010			Year Ended July 31, 2009
	Shares	Amount		Shares	Amount
Class A
Shares sold	7,866,652	$	48,246,657	6,253,568	$	32,114,475
Shares issued on reinvestment	2,917,686		17,804,800	4,926,196		25,254,082
Shares repurchased	(13,134,400)		(80,088,337)	(22,542,235)		(116,444,449)
Net decrease	(2,350,062)	$	(14,036,880)	(11,362,471)	$	(59,075,892)
Class B
Shares sold	579,929	$	3,530,946	817,808	$	4,229,565
Shares issued on reinvestment	266,413		1,636,822	625,985		3,226,244
Shares repurchased	(3,934,452)		(24,149,153)	(5,859,257)		(30,339,540)
Net decrease	(3,088,110)	$	(18,981,385)	(4,415,464)	$	(22,883,731)
Class C
Shares sold	1,053,346	$	6,362,570	995,715	$	5,096,690
Shares issued on reinvestment	506,163		3,092,205	893,404		4,587,741
Shares repurchased	(3,412,488)		(20,775,585)	(4,283,379)		(21,941,490)
Net decrease	(1,852,979)	$	(11,320,810)	(2,394,260)	$	(12,257,059)
Class I
Shares sold	573,857	$	3,586,263	425,077	$	2,132,102
Shares issued on reinvestment	10,869		67,255	90,592		467,627
Shares repurchased	(91,862)		(567,718)	(3,098,906)		(15,043,477)
Net increase (decrease)	492,864	$	3,085,800	(2,583,237)	$	(12,443,748)

8. Income tax information and distributions to shareholders

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

Record Date Payable Date	Class A		Class B		Class C		Class I
Daily	$	0.025172	$	0.021895	$	0.022770	$	0.025559

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

	2010		2009
Distributions Paid From:
Ordinary income	$	23,998,294	$	36,486,354

44 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

As of July 31, 2010, the components of accumulated earnings on a tax basis were as follows:

Undistributed ordinary income — net	$	11,169,860
Capital loss carryforward*		(78,303,653)
Other book/tax temporary differences(a)		(23,926,462)
Unrealized appreciation/(depreciation)(b)		(32,833,951)
Total accumulated earnings/(losses) — net	$	(123,894,206)

* As of July 31, 2010, the Fund had the following net capital loss carryforward remaining:

Year of Expiration	Amount
7/31/2011	$	(38,053,600	)
7/31/2018		(40,250,053	)
	$	(78,303,653	)

These amounts will be available to offset any future taxable capital gains.

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

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

9. Regulatory matters

On May 31, 2005, the U.S. Securities and Exchange Commission (“SEC”) issued an order in connection with the settlement of an administrative proceeding against Smith Barney Fund Management LLC (“SBFM”), a wholly-owned subsidiary of Legg Mason and the then investment adviser or manager to the Fund, and Citigroup Global Markets Inc. (“CGM”), a former distributor of the Fund, relating to the appointment of an affiliated transfer agent for the Smith Barney family of mutual funds, including the Fund (the “Affected Funds”).

The SEC order found that SBFM and CGM willfully violated Section 206(1) of the Investment Advisers Act of 1940, as amended, and the rules promulgated there under (the “Advisers Act”). Specifically, the order found that SBFM and CGM knowingly or recklessly failed to disclose to the boards of the Affected Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that: First Data Investors Services Group (“First Data”), the Affected Funds’ then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before; and that Citigroup Asset Management (“CAM”), the Citigroup business unit that, at the time, included the Affected Funds’ investment manager and other investment advisory companies, had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange for, among other things, a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGM. The order also found that SBFM and CGM willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Affected Funds’ boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Affected Funds’ best interests and that no viable alternatives existed.

SBFM and CGM do not admit or deny any wrongdoing or liability. The settlement does not establish wrongdoing or liability for purposes of any other proceeding. The SEC censured SBFM and CGM and ordered them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act.

The order required Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Affected Funds, primarily through fee waivers. The remaining $183.7 million, including the penalty, has been paid to the U.S. Treasury and will be distributed pursuant to a plan submitted for the approval of the SEC. The order also required that transfer agency fees received from the Affected Funds since December 1, 2004, less certain expenses, be placed in escrow and provided that a portion of such fees might be subsequently distributed in accordance with the terms of the order. On April 3, 2006, an aggregate amount of approximately $9 million held in escrow was distributed to the Affected Funds.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 45

The order required SBFM to recommend a new transfer agent contract to the Affected Funds’ Boards within 180 days of the entry of the order; if a Citigroup affiliate submitted a proposal to serve as transfer agent or sub-transfer agent, SBFM and CGM would have been required, at their expense, to engage an independent monitor to oversee a competitive bidding process. On November 21, 2005, and within the specified timeframe, the Affected Funds’ boards selected a new transfer agent for the Affected Funds. No Citigroup affiliate submitted a proposal to serve as transfer agent. Under the order, SBFM also must comply with an amended version of a vendor policy that Citigroup instituted in August 2004.

Although there can be no assurance, LMPFA does not believe that this matter will have a material adverse effect on the Affected Funds.

On December 1, 2005, Citigroup completed the sale of substantially all of its global asset management business, including SBFM, to Legg Mason.

On May 12, 2010, the SEC approved the disbursement of approximately $108.6 million previously paid to the U.S. Treasury, reflecting the disgorgement of Citigroup’s profits, plus interest. On May 26, 2010, these amounts were disbursed to the Affected Funds pursuant to a Plan of Distribution approved by the SEC. The Fund has received $666,652, $764,991, $211,891 and $137 for Classes A, B, C and I, respectively, related to this distribution. All other amounts not previously distributed were retained by the U.S. Treasury.

10. Legal matters

Beginning in May 2004, class action lawsuits alleging violations of the federal securities laws were filed against CGM, a former distributor of the Fund, and other affiliated funds (collectively, the “Funds”) and a number of its then affiliates, including SBFM and Salomon Brothers Asset Management Inc. (“SBAM”), which were then investment adviser or manager to certain of the Funds (the “Managers”), substantially all of the mutual funds then managed by the Managers (the “Defendant Funds”), and Board members of the Defendant Funds (collectively, the “Defendants”). The complaints alleged, among other things, that CGM created various undisclosed incentives for its brokers to sell Smith Barney and Salomon Brothers funds. In addition, according to the complaints, the Managers caused the Defendant Funds to pay excessive brokerage commissions to CGM for steering clients towards proprietary funds. The complaints also alleged that the Defendants breached their fiduciary duty to the Defendant Funds by improperly charging Rule 12b-1 fees and by drawing on fund assets to make undisclosed payments of soft dollars and excessive brokerage commissions. The complaints also alleged that the Defendant Funds failed to adequately disclose certain of the allegedly wrongful conduct. The complaints sought injunctive relief and compensatory and punitive damages, rescission of the Defendant Funds’ contracts with the Managers, recovery of all fees paid to the Managers pursuant to such contracts and an award of attorneys’ fees and litigation expenses.

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

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

On December 3, 2007, the court granted the Defendants’ motion to dismiss, with prejudice. On January 2, 2008, the plaintiffs filed a notice of appeal to the Second Circuit Court of Appeals. The appeal was fully

46 Legg Mason Western Asset Strategic Income Fund 2010 Annual Report

Notes to financial statements (cont’d)

briefed and oral argument before the U.S. Court of Appeals for the Second Circuit took place on March 5, 2009. The parties currently are awaiting a decision from the U.S. Court of Appeals for the Second Circuit.

Additional lawsuits arising out of these circumstances and presenting similar allegations and requests for relief may be filed in the future.

11. Other matters

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

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

In advance of filing the complaint, Mr. Halebian’s lawyers made written demand for relief on the Board of the Subject Trust, and the Board’s independent trustees formed a demand review committee to investigate the matters raised in the demand, and subsequently in the complaint, and recommend a course of action to the Board. The committee, after a thorough review, determined that the independent trustees did not breach their fiduciary duties as alleged by Mr. Halebian, and that the action demanded by Mr. Halebian would not be in the best interests of the Subject Trust. The Board of the Subject Trust (the trustee who is an “interested person” of the Subject Trust, within the meaning of the 1940 Act, having recused himself from the matter), after receiving and considering the committee’s report and based upon the findings of the committee, subsequently also determined and, adopting the recommendation of the committee, directed counsel to move to dismiss Mr. Halebian’s complaint. A motion to dismiss was filed on October 23, 2006. Opposition papers were filed on or about December 7, 2006. The complaint was dismissed on July 31, 2007. Mr. Halebian filed an appeal in the U.S. Court of Appeals for the Second Circuit. On December 29, 2009, the U.S. Court of Appeals for the Second Circuit reserved judgment after determining that the propriety of the district court’s dismissal depended upon an unsettled question of Massachusetts state law regarding the statute governing derivative proceedings was better addressed by a Massachusetts court and certified the question to the Massachusetts Supreme Judicial Court. On August 23, 2010, the Massachusetts Supreme Judicial Court answered the certified question, concluding that a derivative action must be dismissed under applicable state law following a corporation’s independent determination, made in good faith and after reasonable inquiry, that maintenance of the derivative proceeding is not in the best interests of the corporation, regardless whether the derivative complaint has been filed before or after the corporation’s rejection of the shareholder’s demand. The answer will be conveyed to the U.S. Court of Appeals for the Second Circuit and the parties await a decision of that Court.

Legg Mason Western Asset Strategic Income Fund 2010 Annual Report 47

Report of independent registered public accounting firm

The Board of Trustees and Shareholders

Legg Mason Partners Income Trust:

We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Legg Mason Western Asset Strategic Income Fund (formerly Legg Mason Partners Strategic Income Fund), a series of Legg Mason Partners Income Trust, as of July 31, 2010, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2010, by correspondence with the custodian and broker or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Legg Mason Western Asset Strategic Income Fund as of July 31, 2010, and the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

New York, New York

September 24, 2010

48 Legg Mason Western Asset Strategic Income Fund

Additional information (unaudited)

Information about Trustees and Officers

The business and affairs of Legg Mason Western Asset Strategic Income Fund (formerly known as Legg Mason Partners Strategic Income Fund) (the “Fund”) are conducted by management under the supervision and subject to the direction of its Board of Trustees. The business address of each Trustee is c/o R. Jay Gerken, 620 Eighth Avenue, New York, New York 10018. Information pertaining to the Trustees and officers of the Fund is set forth below.

The Statement of Additional Information includes additional information about Trustees and is available, without charge, upon request by calling Funds Investor Services at 1-800-822-5544 or Institutional Shareholder Services at 1-888-425-6432.

Independent Trustees†:
Elliott J. Berv
Year of birth	1943
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1989
Principal occupation(s) during past five years	President and Chief Executive Officer, Catalyst (consulting) (since 1984); formerly, Chief Executive Officer, Rocket City Enterprises (media) (2000 to 2005)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	World Affairs Council (since 2009); formerly, Board Member, American Identity Corp. (doing business as Morpheus Technologies) (biometric information management) (2001 to 2008); formerly, Director, Lapoint Industries (industrial filter company) (2002 to 2007); formerly, Director, Alzheimer’s Association (New England Chapter) (1998 to 2008)
A. Benton Cocanougher
Year of birth	1938
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1991
Principal occupation(s) during past five years	Retired; Dean Emeritus and Professor Emeritus, Texas A&M University (since 2008); Interim Dean, George Bush School of Government and Public Service, Texas A&M University (2009 to 2010); A.P. Wiley Professor, Texas A&M University (2001 to 2008); Interim Chancellor, Texas A&M University System (2003 to 2004); Dean of the Mays Business School, Texas A&M University (1987 to 2001)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	Formerly, Director, First American Bank, Texas (1994 to 1999); formerly, Director, Randle Foods, Inc. (1991 to 1999); formerly, Director, Petrolon, Inc. (engine lubrication products) (1991 to 1994)
Jane F. Dasher
Year of birth	1949
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1999
Principal occupation(s) during past five years	Chief Financial Officer, Korsant Partners, LLC (a family investment company) (since 1997)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	None

Legg Mason Western Asset Strategic Income Fund 49

Independent Trustees cont’d
Mark T. Finn
Year of birth	1943
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1989
Principal occupation(s) during past five years	Adjunct Professor, College of William & Mary (since 2002); Chairman, Chief Executive Officer and Owner, Vantage Consulting Group, Inc. (investment management) (since 1988); Principal/Member, Balvan Partners (investment management) (2002 to 2009)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	None
Rainer Greeven
Year of birth	1936
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1994
Principal occupation(s) during past five years	Attorney, Rainer Greeven PC (since 1998); President and Director, 62nd Street East Corporation (real estate) (since 2002)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	Avica, Ltd (industrial and real estate holding) (since 2002)
Stephen Randolph Gross
Year of birth	1947
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1986
Principal occupation(s) during past five years	Chairman, HLB Gross Collins, P.C. (accounting and consulting firm) (since 1974); Executive Director of Business Builders Team, LLC (since 2005); formerly, Managing Director, Fountainhead Ventures, L.L.C. (technology accelerator) (1998 to 2003)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	Director, Andersen Calhoun (assisted living) (since 1987); formerly, Director, United Telesis, Inc. (telecommunications) (1997 to 2002); formerly, Director, ebank Financial Services, Inc. (1997 to 2004)
Richard E. Hanson, Jr.
Year of birth	1941
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1985
Principal occupation(s) during past five years	Retired; formerly Headmaster, The New Atlanta Jewish Community High School, Atlanta, Georgia (1996 to 2000)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	None

50 Legg Mason Western Asset Strategic Income Fund

Additional information (unaudited) (cont’d)

Information about Trustees and Officers

Independent Trustees cont’d
Diana R. Harrington
Year of birth	1940
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1992
Principal occupation(s) during past five years	Babson Distinguished Professor of Finance, Babson College (since 1992)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	None
Susan M. Heilbron
Year of birth	1945
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1994
Principal occupation(s) during past five years	Retired; formerly, President, Lacey & Heilbron (communications consulting) (1990 to 2002); formerly, General Counsel and Executive Vice President, The Trump Organization (1986 to 1990); formerly, Senior Vice President, New York State Urban Development Corporation (1984 to 1986)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	Formerly, Director, Lincoln Savings Bank, FSB (1991 to 1994); formerly, Director, Trump Shuttle, Inc. (air transportation) (1989 to 1990); formerly, Director, Alexander’s Inc. (department store) (1987 to 1990)
Susan B. Kerley
Year of birth	1951
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1992
Principal occupation(s) during past five years	Investment Consulting Partner, Strategic Management Advisors, LLC (investment consulting) (since 1990)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	Director and Trustee (since 1990) and Chairman (since 2005) of various series of MainStay Family of Funds (66 funds)
Alan G. Merten
Year of birth	1941
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1990
Principal occupation(s) during past five years	President, George Mason University (since 1996)
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	Director, Cardinal Financial Corporation (since 2006); Trustee, First Potomac Realty Trust (since 2005); formerly, Director, Xybernaut Corporation (information technology) (2004 to 2006); formerly, Director, Digital Net Holdings, Inc. (2003 to 2004); formerly, Director, Comshare, Inc. (information technology) (1985 to 2003)

Legg Mason Western Asset Strategic Income Fund 51

Independent Trustees cont’d
R. Richardson Pettit
Year of birth	1942
Position(s) with Trust	Trustee
Term of office1 and length of time served2	Since 1990
Principal occupation(s) during past five years	Retired; formerly, Duncan Professor of Finance, University of Houston (1977 to 2006); previous academic or management positions include: University of Washington, University of Pennsylvania and Purdue University
Number of funds in fund complex overseen by Trustee	59
Other board memberships held by Trustee during past five years	None
Interested Trustee and Officer:
R. Jay Gerken, CFA3
Year of birth	1951
Position(s) with Trust	Trustee, President, Chairman and Chief Executive Officer
Term of office1 and length of time served2	Since 2002
Principal occupation(s) during past five years	Managing Director of Legg Mason & Co., LLC (“Legg Mason & Co.”) (since 2005); Officer and Trustee/Director of 147 funds associated with Legg Mason Partners Fund Advisor, LLC (“LMPFA”) or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); President and Chief Executive Officer (“CEO”) of LMPFA (since 2006); President and CEO of Smith Barney Fund Management LLC (“SBFM”) and Citi Fund Management, Inc. (“CFM”) (formerly registered investment advisers) (since 2002); formerly, Chairman, President and CEO, Travelers Investment Adviser Inc. (prior to 2005)
Number of funds in fund complex overseen by Trustee	134
Other board memberships held by Trustee during past five years	Former Trustee, Consulting Group Capital Markets Funds (11 funds) (prior to 2006)
Additional Officers:
Ted P. Becker Legg Mason 620 Eighth Avenue, New York, NY 10018
Year of birth	1951
Position(s) with Trust	Chief Compliance Officer
Term of office1 and length of time served2	Since 2007
Principal occupation(s) during past five years	Director of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of LMPFA (since 2006); Managing Director of Compliance of Legg Mason & Co. (since 2005); Chief Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)
John Chiota Legg Mason 100 First Stamford Place, Stamford, CT 06902
Year of birth	1968
Position(s) with Trust	Chief Anti-Money Laundering Compliance Officer and Identity Theft Prevention Officer
Term of office1 and length of time served2	Since 2007 and 2008
Principal occupation(s) during past five years	Identity Theft Prevention Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2008); Chief Anti-Money Laundering Compliance Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006); Vice President of Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (prior to 2006); formerly, Chief Anti-Money Laundering Compliance Officer of TD Waterhouse (prior to 2004)

52 Legg Mason Western Asset Strategic Income Fund

Additional information (unaudited) (cont’d)

Information about Trustees and Officers

Additional Officers cont’d
Robert I. Frenkel Legg Mason 100 First Stamford Place, Stamford, CT 06902
Year of birth	1954
Position(s) with Trust	Secretary and Chief Legal Officer
Term of office1 and length of time served2	Since 2007
Principal occupation(s) during past five years	Vice President and Deputy General Counsel of Legg Mason (since 2006); Managing Director and General Counsel of Global Mutual Funds for Legg Mason & Co. (since 2006) and Legg Mason & Co. predecessors (since 1994); Secretary and Chief Legal Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006)
Thomas C. Mandia Legg Mason 100 First Stamford Place, Stamford, CT 06902
Year of birth	1962
Position(s) with Trust	Assistant Secretary
Term of office1 and length of time served2	Since 2007
Principal occupation(s) during past five years	Managing Director and Deputy General Counsel of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005); Secretary of LMPFA (since 2006); Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2006) and Legg Mason & Co. predecessors (prior to 2006); Secretary to SBFM and CFM (since 2002)
Kaprel Ozsolak Legg Mason 55 Water Street, New York, NY 10041
Year of birth	1965
Position(s) with Trust	Chief Financial Officer
Term of office1 and length of time served2	Since 2010
Principal occupation(s) during past five years	Director of Legg Mason & Co. (since 2005); Chief Financial Officer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010) and Legg Mason & Co. predecessors (prior to 2005); formerly, Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010) and Legg Mason & Co. predecessors (prior to 2005); formerly, Controller of certain mutual funds associated with Legg Mason & Co. predecessors (prior to 2004)
David Castano Legg Mason 55 Water Street, New York, NY 10041
Year of birth	1971
Position(s) with Trust	Treasurer
Term of office1 and length of time served2	Since 2010
Principal occupation(s) during past five years	Vice President of Legg Mason & Co. (since 2008); Treasurer of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2010); formerly, Controller of certain mutual funds associated with Legg Mason & Co. or its affiliates (prior to 2010); formerly, Assistant Treasurer of Lord Abbett mutual funds (prior to 2006); formerly, Supervisor at UBS Global Asset Management (prior to 2004)

Legg Mason Western Asset Strategic Income Fund 53

Additional Officers cont’d
Jeanne M. Kelly Legg Mason 620 Eighth Avenue, New York, NY 10018
Year of birth	1951
Position(s) with Trust	Senior Vice President
Term of office1 and length of time served2	Since 2007
Principal occupation(s) during past five years	Senior Vice President of certain mutual funds associated with Legg Mason & Co. or its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); Managing Director of Legg Mason & Co. (since 2005) and Legg Mason & Co. predecessors (prior to 2005)

† Trustees who are not “interested persons” of the Fund within the meaning of section (a)(19) of the 1940 Act.

¹ Each Trustee and officer serves until his or her respective successor has been duly elected and qualified or until his or her earlier death, resignation, retirement or removal.

² Indicates the earliest year in which the Trustee became a board member for a fund in the Legg Mason fund complex or the officer took such office.

³ Mr. Gerken is an “interested person” of the Fund, as defined in the 1940 Act, because of his position with LMPFA and/or certain of its affiliates.

54 Legg Mason Western Asset Strategic Income Fund

Important tax information (unaudited)

The following information is provided with respect to the distributions paid during the taxable year ended July 31, 2010:

Record date:	Daily	Daily
Payable date:	August 2009 through December 2009	January 2010 through July 2010
Interest from Federal obligations	1.10%	5.98%

The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult with your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes.

Please retain this information for your records.

Legg Mason Western Asset

Strategic Income Fund

Trustees

Elliott J. Berv

A. Benton Cocanougher

Jane F. Dasher

Mark T. Finn

R. Jay Gerken, CFA

Chairman

Rainer Greeven

Stephen R. Gross

Richard E. Hanson, Jr.

Diana R. Harrington

Susan M. Heilbron

Susan B. Kerley

Alan G. Merten

R. Richardson Pettit

Investment manager

Legg Mason Partners Fund Advisor, LLC

Subadvisers

Western Asset Management Company

Western Asset Management Company Limited

Western Asset Management Company Pte. Ltd.

Western Asset Management Company Ltd

Distributor

Legg Mason Investor Services, LLC

Custodian

State Street Bank and Trust Company

Co-transfer agents

Boston Financial Data Services, Inc.

2000 Crown Colony Drive

Quincy, MA 02169

BNY Mellon Asset Servicing

4400 Computer Drive

Westborough, MA 01581

Independent registered public accounting firm

KPMG LLP

345 Park Avenue

New York, NY 10154

Legg Mason Western Asset Strategic Income Fund

The Fund is a separate investment series of Legg Mason Partners Income Trust, a Maryland statutory trust.

Legg Mason Western Asset Strategic Income Fund

Legg Mason Funds

55 Water Street

New York, NY 10041

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call Funds Investor Services at 1-800-822-5544 or Institutional Shareholder Services at 1-888-425-6432.

Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio transactions are available (1) without charge, upon request, by calling Funds Investor Services at 1-800-822-5544 or Institutional Shareholder Services at 1-888-425-6432, (2) on the Fund’s website at www.leggmason.com/individualinvestors and (3) on the SEC’s website at www.sec.gov.

This report is submitted for the general information of the shareholders of Legg Mason Western Asset Strategic Income Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by a current prospectus.

Investors should consider the Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing.

www.leggmason.com/individualinvestors

^© 2010 Legg Mason Investor Services, LLC

Member FINRA, SIPC

Privacy policy

We are committed to keeping nonpublic personal information about you secure and confidential. This notice is intended to help you understand how we fulfill this commitment. From time to time, we may collect a variety of personal information about you, including:

Ÿ Information we receive from you on applications and forms, via the telephone, and through our websites;

Ÿ Information about your transactions with us, our affiliates, or others (such as your purchases, sales, or account balances); and

Ÿ Information we receive from consumer reporting agencies.

We do not disclose nonpublic personal information about our customers or former customers, except to our affiliates (such as broker-dealers or investment advisers within the Legg Mason family of companies) or as is otherwise permitted by applicable law or regulation. For example, we may share this information with others in order to process your transactions or service an account. We may also provide this information to companies that perform marketing services on our behalf, such as printing and mailing, or to other financial institutions with whom we have joint marketing agreements. When we enter into such agreements, we will require these companies to protect the confidentiality of this information and to use it only to perform the services for which we hired them.

With respect to our internal security procedures, we maintain physical, electronic, and procedural safeguards to protect your nonpublic personal information, and we restrict access to this information.

If you decide at some point either to close your account(s) or become an inactive customer, we will continue to adhere to our privacy policies and practices with respect to your nonpublic personal information.

NOT PART OF THE ANNUAL REPORT

At Legg Mason, we’ve assembled a collection of experienced investment management firms and empowered each of them with the tools, the resources and, most importantly, the independence to pursue the strategies they know best.

Ÿ Each was purposefully chosen for their commitment to investment excellence.

Ÿ Each is focused on specific investment styles and asset classes.

Ÿ Each exhibits thought leadership in their chosen area of focus.

Together, we’ve built a powerful portfolio of solutions for financial advisors and their clients. And it has made us a world leader in money management.*

* Ranked 11th-largest money manager in the world, according to Pensions & Investments, June 28, 2010, based on 12/31/09 worldwide assets under management.

www.leggmason.com/individualinvestors

©2010 Legg Mason Investor Services, LLC Member FINRA, SIPC

FD01184 9/10 SR10-1189

NOT PART OF THE ANNUAL REPORT

ITEM 2. CODE OF ETHICS.

The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

The Board of Trustees of the registrant has determined that Stephen R. Gross the Chairman of the Board’s Audit Committee and Jane F. Dasher, possess the technical attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to qualify as “audit committee financial experts,” and have designated Mr. Gross and Ms. Dasher as the Audit Committee’s financial experts. Mr. Gross and Ms. Dasher are “independent” Trustees pursuant to paragraph (a) (2) of Item 3 to Form N-CSR.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

a) Audit Fees. The aggregate fees billed in the last two fiscal years ending July 31, 2009 and July 31, 2010 (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $201,170 in 2009 and $212,400 in 2010.

b) Audit-Related Fees. The aggregate fees billed in the Reporting Period for assurance and related services by the Auditor that are reasonably related to the performance of the Registrant’s financial statements were $12,900 in 2009 and $0 in 2010. These services consisted of procedures performed in connection with the Re-domiciliation of the various reviews of Prospectus supplements, and consent issuances related to the N-1A filings for the Legg Mason Partners Income Trust.

In addition, there were no Audit-Related Fees billed in the Reporting Period for assurance and related services by the Auditor to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Legg Mason Partners Income Trust (“service affiliates”), that were reasonably related to the performance of the annual audit of the service affiliates. Accordingly, there were no such fees that required pre-approval by the Audit Committee for the Reporting Periods.

(c) Tax Fees. The aggregate fees billed in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $18,200 in 2009 and $0 in 2010. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state and local tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired or held.

There were no fees billed for tax services by the Auditors to service affiliates during the Reporting Periods that required pre-approval by the Audit Committee.

d) All Other Fees. There were no other fees billed in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) for the Item 4 for the Legg Mason Partners Income Trust.

All Other Fees. There were no other non-audit services rendered by the Auditor to Legg Mason Partners Fund Advisors, LLC (“LMPFA”), and any entity controlling, controlled by or under common control with LMPFA that provided ongoing services to Legg Mason Partners Income Trust requiring pre-approval by the Audit Committee in the Reporting Period.

(e) Audit Committee’s pre–approval policies and procedures described in paragraph (c) (7) of Rule 2-01 of Regulation S-X.

(1) The Charter for the Audit Committee (the “Committee”) of the Board of each registered investment company (the “Fund”) advised by LMPFA or one of their affiliates (each, an “Adviser”) requires that the Committee shall approve (a) all audit and permissible non-audit services to be provided to the Fund and (b) all permissible non-audit services to be provided by the Fund’s independent auditors to the Adviser and any Covered Service Providers if the engagement relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and procedures by which such services are approved other than by the full Committee.

The Committee shall not approve non-audit services that the Committee believes may impair the independence of the auditors. As of the date of the approval of this Audit Committee Charter, permissible non-audit services include any professional services (including tax services), that are not prohibited services as described below, provided to the Fund by the independent auditors, other than those provided to the Fund in connection with an audit or a review of the financial statements of the Fund. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Fund; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the Public Company Accounting Oversight Board determines, by regulation, is impermissible.

Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Fund, the Adviser and any service providers controlling, controlled by or under common control with the Adviser that provide ongoing services to the Fund (“Covered Service Providers”) constitutes not more than 5% of the total amount of revenues paid to the independent auditors during the fiscal year in which the permissible non-audit services are provided to (a) the Fund, (b) the Adviser and (c) any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund during the fiscal year in which the services are provided that would have to be approved by the Committee; (ii) the permissible non-audit services were not recognized by the Fund at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee (or its delegate(s)) prior to the completion of the audit.

(2) For the Legg Mason Partners Income Trust, the percentage of fees that were approved by the audit committee, with respect to: Audit-Related Fees were 100% and 100% for 2009 and 2010; Tax Fees were 100% and 100% for 2009 and 2010; and Other Fees were 100% and 100% for 2009 and 2010.

(f) N/A

(g) Non-audit fees billed by the Auditor for services rendered to Legg Mason Partners Income Trust, LMPFA and any entity controlling, controlled by, or under common control with LMPFA that provides ongoing services to Legg Mason Partners Income Trust during the reporting period were $0 in 2010.

(h) Yes. Legg Mason Partners Income Trust’s Audit Committee has considered whether the provision of non-audit services that were rendered to Service Affiliates, which were not pre-approved (not requiring pre-approval), is compatible with maintaining the Accountant’s independence. All services provided by the Auditor to the Legg Mason Partners Income Trust or to Service Affiliates, which were required to be pre-approved, were pre-approved as required.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

a) The independent board members are acting as the registrant’s audit committee as specified in Section 3(a)(58)(B) of the Exchange Act . The Audit Committee consists of the following Board members:

Elliott J. Berv

A. Benton Cocanougher

Jane F. Dasher

Mark T. Finn

Rainer Greeven

Stephen R. Gross

Richard E. Hanson, Jr.

Diana R. Harrington

Susan M. Heilbron

Susan B. Kerley

Alan G. Merten

R. Richardson Pettit

b) Not applicable

ITEM 6. SCHEDULE OF INVESTMENTS.

Included herein under Item 1.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 9. PURCHASES OF INCOME SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 11. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive 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 half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

ITEM 12. EXHIBITS.

(a) (1) Code of Ethics attached hereto.

Exhibit 99.CODE ETH

(a) (2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.CERT

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.

Exhibit 99.906CERT

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, there unto duly authorized.

Legg Mason Partners Income Trust
By:	/S/    R. JAY GERKEN
	(R. Jay Gerken)
	Chief Executive Officer of Legg Mason Partners Income Trust
Date: October 4, 2010

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 of Legg Mason Partners Income Trust
Date: October 4, 2010

By:	/S/    KAPREL OZSOLAK
	(Kaprel Ozsolak)
	Chief Financial Officer of Legg Mason Partners Income Trust
Date: October 4, 2010