nvcsrs

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VifJA6n/057CDgMCzemSUjvFlTM8G7P8KaKY5YTd1pNbzt15awpEn1FtHMMHlXax QgxxWe2eIRDSFytZOvl4YA== 0000950133-06-003991.txt : 20060831 0000950133-06-003991.hdr.sgml : 20060831 20060831105150 ACCESSION NUMBER: 0000950133-06-003991 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060831 DATE AS OF CHANGE: 20060831 EFFECTIVENESS DATE: 20060831 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEGG MASON INCOME TRUST INC CENTRAL INDEX KEY: 0000810868 IRS NUMBER: 521519230 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05029 FILM NUMBER: 061067180 BUSINESS ADDRESS: STREET 1: 100 LIGHT STREET STREET 2: 23RD FLOOR CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 1-800-368-2558 MAIL ADDRESS: STREET 1: 100 LIGHT STREET STREET 2: 23RD FLOOR CITY: BALTIMORE STATE: MD ZIP: 21202 FORMER COMPANY: FORMER CONFORMED NAME: LEGG MASON INCOME TRUST DATE OF NAME CHANGE: 19870428

0000810868 S000000662 Legg Mason Limited Duration Bond Portfolio

C000001901 Primary Class LMLDX

C000001902 Institutional Class LMLIX

0000810868 S000000663 Legg Mason Investment Grade Income Portfolio

C000001903 Institutional Class

C000001904 Primary Class LMIGX

0000810868 S000000664 Legg Mason High Yield Portfolio

C000001905 Institutional Class

C000001906 Primary Class LMHYX

0000810868 S000000665 Legg Mason Core Bond Fund

C000001907 Primary Class LMBDX

0000810868 S000000666 Legg Mason U.S. Government Money Market Portfolio

C000001908 Legg Mason U.S. Government Money Market Portfolio LMGXX

N-CSRS 1 w22240nvcsrs.htm LEGG MASON INCOME TRUST, INC. nvcsrs

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

Investment Company Act file number: 811-05029

Name of Registrant: Legg Mason Income Trust, Inc.

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

Name and address of agent for service:

Richard M. Wachterman, Esq.
Legg Mason & Co., LLC
100 Light Street
Baltimore, MD 21202

Registrant’s telephone number, including area code: (410) 539-0000

Date of fiscal year-end: December 31, 2006

Date of reporting period: June 30, 2006

Semi-Annual Report to Shareholders 1

To Our Shareholders,

We are pleased to provide you with Legg Mason Income Trust’s semi-annual report for the period ended June 30, 2006, combining reports for the Legg Mason Core Bond Fund, High Yield Portfolio, Investment Grade Income Portfolio and Limited Duration Bond Portfolio.

The following table summarizes key statistics for the Primary Class of each portfolio, as of June 30, 2006:


					Net Asset Value
	SEC Yield^A		Average Life		Per Share

Core Bond		5.04%		9.62 years	$	9.40
High Yield		7.11%		7.52 years	$	8.95
Investment Grade		5.72%		10.16 years	$	10.03
Limited Duration		4.94%		3.07 years	$	10.11

For the period ended June 30, 2006, total returns for the Primary Class of shares of the Core Bond, High Yield, Investment Grade and Limited Duration Portfolios were -1.22%, +3.77%, - -1.15%, and +1.15%, respectively. Total returns for the Institutional Class of shares of the High Yield, Investment Grade and Limited Duration Portfolios were +4.08%, -0.90%, and +1.40%, respectively. (Total return measures investment performance in terms of appreciation or depreciation in a portfolio’s net asset value per share, plus dividends and any capital gain distributions.)

For each of our Funds, historical performance is not indicative of future results, and the principal value of the Core Bond, High Yield, Investment Grade and Limited Duration Portfolios will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

At a special meeting of shareholders of Legg Mason U.S. Government Money Market Portfolio, shareholders approved a Plan of Liquidation, Dissolution and Termination of the Fund. The Fund’s assets were liquidated on February 27, 2006. Details of the shareholder meeting results can be found in the notes to financial statements.


^A	SEC yields are for the 30 days ended June 30, 2006, and are the average annualized net investment income per share for this period. Yields are subject to change at any time.

2 Semi-Annual Report to Shareholders

Many of our shareholders regularly add to their Primary Class Fund holdings by authorizing automatic, monthly transfers from their bank checking or brokerage accounts. Dollar cost averaging is a convenient and sensible way to invest, as it encourages continued purchases over time regardless of fluctuating price levels. Of course, it does not ensure a profit nor protect against declines in the value of your investment. Your financial adviser will be happy to help you establish a dollar cost averaging plan should you wish to do so.


	Sincerely,



John F. Curley, Jr. Chairman		Mark R. Fetting President

August 15, 2006

Semi-Annual Report to Shareholders 3

Expense Example

Core Bond Fund

As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2006, and held through June 30, 2006.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

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

Beginning

Ending

Expenses Paid^A

Account

During the

Value

Period

1/1/06

6/30/06

1/1/06 to 6/30/06

Primary Class:

Actual

1,000.00

987.80

4.93

Hypothetical (5% return before expenses)

1,000.00

1,019.84

5.01


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

4 Semi-Annual Report to Shareholders

Performance Information

Core Bond Fund

The graph on the following page compares the Fund’s total returns to that of a closely matched broad-based securities market index. The graph illustrates the cumulative total return of an initial $10,000 investment in the Fund’s Primary Class shares, for the periods indicated. The line for the Fund represents the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The line representing the securities market index does not include any transaction costs associated with buying and selling securities in the index or other administrative expenses. Both the Fund’s and the index’s results assume reinvestment of all dividends and distributions.

Total return measures investment performance in terms of appreciation or depreciation in a fund’s net asset value per share, plus dividends and any capital gain distributions. It assumes that dividends and distributions were reinvested at the time they were paid. Average annual returns tend to smooth out variations in a fund’s return, so that they differ from actual year-to-year results.

Semi-Annual Report to Shareholders 5

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2006


		Cumulative		Average Annual
		Total Return		Total Return

	One Year		-1.95%		-1.95%
	Life of Class*		+1.62%		+0.69%

* Inception date: February 27, 2004

The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please visit www.leggmasonfunds.com. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods.

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


^A	A market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $100 million par amount outstanding and with at least one year to final maturity. Index returns are for the periods beginning February 29, 2004.

6 Semi-Annual Report to Shareholders

Performance Information — Continued

Portfolio Composition (as of June 30, 2006)^B

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

Maturity Schedule (as a percentage of the portfolio)


^B	The Fund is actively managed. As a result, the composition of its portfolio holdings and sectors is subject to change at any time.


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

Semi-Annual Report to Shareholders 7

Portfolio of Investments

Legg Mason Core Bond Fund

June 30, 2006 (Unaudited)

(Amounts in Thousands)


					Par/
		Rate	Maturity Date		Shares		Value

Long-Term Securities — 120.4%
Corporate Bonds and Notes — 23.4%
Aerospace/ Defense — 0.1%
	Northrop Grumman Corporation	4.079%		11/16/06	$	40	$	40
	United Technologies Corporation	5.400%		5/1/35		20		18

								58

Automotive — 2.1%
	Ford Motor Company	7.450%		7/16/31		720		520
	General Motors Corporation	8.250%		7/15/23		1,000		787
	General Motors Corporation	8.375%		7/15/33		150		121

								1,428

Banking and Finance — 3.4%
	Ford Motor Credit Company	4.950%		1/15/08		40		38
	Ford Motor Credit Company	6.625%		6/16/08		190		181
	Ford Motor Credit Company	7.375%		10/28/09		590		545
	Ford Motor Credit Company	7.375%		2/1/11		230		206
	Ford Motor Credit Company	7.250%		10/25/11		210		186
	General Motors Acceptance Corporation	6.125%		8/28/07		230		228
	General Motors Acceptance Corporation	5.625%		5/15/09		685		652
	General Motors Acceptance Corporation	7.750%		1/19/10		110		109
	HSBC Finance Corporation	4.125%		11/16/09		225		214
	Residential Capital Corporation	6.125%		11/21/08		20		20

								2,379

Banks — 0.9%
	Bank of America Corporation	3.875%		1/15/08		90		88
	Bank of America Corporation	4.500%		8/1/10		120		115
	Bank One Corporation	2.625%		6/30/08		335		316
	Rabobank Capital Funding Trust II	5.260%		12/31/49		10		10	^A,B
	Rabobank Capital Funding Trust III	5.254%		12/29/49		20		18	^A,B
	Wachovia Capital Trust III	5.800%		3/15/42		100		97	^B

								644

8 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


					Par/
		Rate	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Cable — 0.4%
	Comcast Corporation	6.500%		1/15/15	$	240	$	242
	Cox Communications, Inc.	3.875%		10/1/08		70		67

								309

Computer Services and Systems — N.M.
	Electronic Data Systems Corporation	7.125%		10/15/09		10		10

Diversified Financial Services — 1.6%
	CIT Group Inc.	4.000%		5/8/08		5		5
	Citigroup Inc.	5.125%		2/14/11		230		225
	General Electric Capital Corporation	4.250%		1/15/08		70		69
	General Electric Capital Corporation	4.125%		9/1/09		90		86
	Marsh & McLennan Companies, Inc.	5.150%		9/15/10		650		627
	Wells Fargo & Company	4.200%		1/15/10		105		100

								1,112

Electric — 0.7%
	Dominion Resources, Inc.	4.750%		12/15/10		30		29
	Dominion Resources, Inc.	5.700%		9/17/12		95		93
	FirstEnergy Corp.	7.375%		11/15/31		285		306
	Oncor Electric Delivery Company	6.375%		1/15/15		10		10
	The Cleveland Electric Illuminating Company	5.650%		12/15/13		20		19

								457

Energy — 2.6%
	Duke Energy Corporation	6.250%		1/15/12		50		51
	Duke Energy Corporation	5.625%		11/30/12		90		89
	Pacific Gas and Electric Company	6.050%		3/1/34		135		127
	TXU Corp.	5.550%		11/15/14		20		18
	TXU Corp.	6.550%		11/15/34		800		703
	TXU Energy Co.	7.000%		3/15/13		770		786

								1,774

Environmental Services — 0.1%
	Waste Management, Inc.	6.375%		11/15/12		85		87

Semi-Annual Report to Shareholders 9


					Par/
		Rate	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Food, Beverage and Tobacco — 0.5%
	Altria Group, Inc.	7.000%		11/4/13	$	155	$	164
	Anheuser-Busch Companies, Inc.	4.950%		1/15/14		155		147
	Kraft Foods Inc.	5.625%		11/1/11		65		64

								375

Investment Banking/ Brokerage — 0.6%
	Lehman Brothers Holdings Inc.	4.000%		1/22/08		115		112
	Morgan Stanley	3.625%		4/1/08		190		184
	The Goldman Sachs Group, Inc.	4.500%		6/15/10		70		67
	The Goldman Sachs Group, Inc.	5.000%		1/15/11		40		38

								401

Media — 0.4%
	Clear Channel Communications, Inc.	4.625%		1/15/08		30		29
	Clear Channel Communications, Inc.	4.250%		5/15/09		50		47
	Clear Channel Communications, Inc.	5.500%		9/15/14		15		14
	Time Warner Inc.	6.875%		5/1/12		75		77
	Time Warner Inc.	7.700%		5/1/32		75		82

								249

Medical Care Facilities — 0.9%
	HCA, Inc.	5.750%		3/15/14		700		626

Oil and Gas — 1.9%
	Amerada Hess Corporation	7.300%		8/15/31		245		260
	Apache Corporation	6.250%		4/15/12		35		36
	Conoco Inc.	6.950%		4/15/29		225		245
	ConocoPhillips	4.750%		10/15/12		60		57
	Devon Energy Corporation	7.950%		4/15/32		140		161
	Kerr-McGee Corporation	6.875%		9/15/11		300		310
	Pemex Project Funding Master Trust	6.625%		6/15/35		50		45	^A

10 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


					Par/
		Rate	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Oil and Gas — Continued
	XTO Energy, Inc.	7.500%		4/15/12	$	145	$	154
	XTO Energy, Inc.	6.250%		4/15/13		20		20

								1,288

Paper and Forest Products — 0.3%
	Weyerhaeuser Company	6.750%		3/15/12		235		240

Photo Equipment and Supplies — 0.8%
	Eastman Kodak Company	7.250%		11/15/13		540		520

Retail — 0.5%
	Target Corporation	5.400%		10/1/08		155		155
	Wal-Mart Stores, Inc.	3.375%		10/1/08		190		181

								336

Special Purpose — 4.7%
	ASIF Global Financing XIX	4.900%		1/17/13		40		38	^A
	DaimlerChrysler NA Holding Corporation	4.050%		6/4/08		95		92
	DaimlerChrysler NA Holding Corporation	7.200%		9/1/09		50		52
	Devon Financing Corp ULC	6.875%		9/30/11		10		10
	Lilacs Repackaging 05-I	5.138%		1/15/64		500		477	^A
	Sprint Capital Corporation	4.780%		8/17/06		15		15
	Sprint Capital Corporation	6.000%		1/15/07		270		270
	Sprint Capital Corporation	8.375%		3/15/12		2,040		2,254
	Verizon Global Funding Corp.	7.375%		9/1/12		35		37

								3,245

Telecommunications — 0.1%
	AT&T Inc.	5.100%		9/15/14		90		84
	BellSouth Corporation	4.750%		11/15/12		10		9

								93

Semi-Annual Report to Shareholders 11


					Par/
		Rate	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Transportation — 0.8%
	JetBlue Airways Corporation	5.545%		8/15/16	$	293	$	292	^C
	JetBlue Airways Corporation	5.620%		11/15/16		300		295	^C

								587

Total Corporate Bonds and Notes (Identified Cost — $17,152)								16,218

Asset-Backed Securities — 2.3%
Fixed Rate Securities — 0.4%
	Bank One Issuance Trust 2003-C1	4.540%		9/15/10		200		196
	MMCA Automobile Owner Trust 2002-4	3.050%		11/16/09		45		45

								241

Indexed Securities^C — 1.9%
	AAA Trust 2005-2	5.423%		11/26/35		33		33	^A
	Ace Securities Corp. Home Equity Loan Trust, Series 2006-SL3	5.450%		6/25/36		600		600
	Bayview Financial Acquisition Trust 2004-C	5.761%		5/28/44		384		385
	Bayview Financial Acquisition Trust 2005-B	5.231%		4/28/39		82		82
	Credit-Based Asset Servicing and Securitization 2005-RP1	5.503%		1/25/35		112		114	^A
	EQCC Trust 2002-1	5.623%		11/25/31		6		6
	Morgan Stanley ABS Capital I 2005-WMC2	5.403%		2/25/35		9		9
	Residential Asset Mortgage Product Inc. 2004-RPIA	5.623%		11/25/42		6		6	^A
	Wachovia Asset Securitization, Inc. 2002-HE1	5.693%		9/27/32		100		100

								1,335

Total Asset-Backed Securities (Identified Cost — $1,580)								1,576

12 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


					Par/
		Rate	Maturity Date		Shares		Value

Mortgage-Backed Securities — 21.8%
Fixed Rate Securities — 2.8%
	Asset Securitization Corporation 1996-D2	6.920%		2/14/29	$	7	$	7
	Banc of America Commercial Mortgage Incorporated 2005-3	4.668%		7/10/43		500		459
	Countrywide Alternative Loan Trust 2004-2 CB	4.250%		3/25/34		245		238
	GS Mortgage Securities Corporation II 2005-GG4	4.680%		7/10/39		200		189
	J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP4	4.918%		10/15/42		200		186
	LB-UBS Commercial Mortgage Trust 2005-C3 A5	4.739%		7/15/30		140		129
	LB-UBS Commercial Mortgage Trust 2005-C3 AAB	4.664%		7/15/30		200		188
	MASTR Reperforming Loan Trust 2005-1	7.000%		8/25/34		279		283	^A
	Morgan Stanley Capital I, Series 2005-HQ6	4.989%		8/13/42		240		225
	Washington Mutual MSC Mortgage Pass-Through Certificates, Series 2004-RA1	7.000%		3/25/34		89		89

								1,993

Indexed Securities^C — 17.7%
	ABFS Mortgage Loan Trust 2003-2	5.823%		4/25/34		83		83	^A
	Banc of America Funding Corporation 2005-E	5.054%		6/20/35		456		457
	Brazos Texas Higher Education Authority, Inc. 2005-1	4.990%		9/26/16		369		368
	Countrywide Alternative Loan Trust 2005-17	5.583%		7/25/35		495		496
	Countrywide Alternative Loan Trust 2005-38	5.673%		9/25/35		482		485
	Countrywide Home Loans 2005-3, 1A2	5.613%		4/25/35		379		380

Semi-Annual Report to Shareholders 13


					Par/
		Rate	Maturity Date		Shares		Value

Mortgage-Backed Securities — Continued
Indexed Securities — Continued
	Countrywide Home Loans 2005-9, 1A1	5.623%		5/25/35	$	401	$	403
	Countrywide Home Loans 2005-11, 3A3	5.425%		4/25/35		405		408
	Countrywide Home Loans 2005-11, 6A1	5.623%		3/25/35		340		342
	DSLA Mortgage Loan Trust 2006-AR1 1A1A	5.063%		4/19/36		670		670
	Greenpoint Mortgage Funding Trust 2005-AR1	5.543%		6/25/45		356		357
	Greenpoint Mortgage Funding Trust 2005-AR4	5.583%		10/25/45		225		225
	GSMPS Mortgage Loan Trust 2005-RP2	5.673%		3/25/35		315		317	^A
	Harborview Mortgage Loan Trust 2005-7	5.474%		6/19/45		553		555
	Harborview Mortgage Loan Trust 2005-9	5.607%		6/20/35		428		430
	Impac CMB Trust 2003-7	5.963%		8/25/33		147		147
	IXIS Real Estate Capital Trust 2006-HE2	5.383%		8/25/36		678		678
	Lehman XS Trust Series 2005-7N 1A1B	5.623%		12/25/35		346		347
	Lehman XS Trust Series 2006-GP2 1A1A	5.393%		6/25/46		698		699
	MSDWCC Heloc Trust 2005-1	5.513%		7/25/17		57		57
	Thornburg Mortgage Securities Trust 2005-2 A1	5.543%		7/25/35		185		185
	Thornburg Mortgage Securities Trust 2005-2 A2	5.553%		7/25/45		359		359
	WaMu Mortgage Pass-Through Certificates, Series 2005-AR6	5.553%		4/25/45		395		396
	WaMu Mortgage Pass-Through Certificates, Series 2005-AR8	5.593%		7/25/45		361		362
	WaMu Mortgage Pass-Through Certificates, Series 2005-AR11	5.643%		8/25/45		1,177		1,181

14 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


					Par/
		Rate	Maturity Date		Shares		Value

Mortgage-Backed Securities — Continued
Indexed Securities — Continued
	WaMu Mortgage Pass-Through Certificates, Series 2005-AR13	5.613%		10/25/45	$	500	$	503
	WaMu Mortgage Pass-Through Certificates, Series 2005-AR19	5.613%		12/25/45		724		727
	Zuni Mortgage Loan Trust 2006-0A1	5.407%		7/25/36		600		600

								12,217

Stripped Securities — 0.1%
	Mach One Trust, Commercial Mortgage-Backed Securities 2004-1A	1.612%		5/28/40		1,285		57	^D1,E

Variable Rate Securities^F — 1.2%
	Bear Stearns ARM Trust, Mortgage Pass-Through Certificates, Series 2004-4	3.513%		6/25/34		200		190
	Credit-Based Asset Servicing and Securitization 1999-3	6.665%		1/3/29		41		39	^A
	GE Commercial Mortgage Corporation 2005-C4	5.511%		11/10/45		360		348
	IndyMac INDX Mortgage Loan Trust 2005-AR15	5.099%		9/25/35		149		141
	J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 2005-CIBC13	5.472%		1/12/43		100		96

								814

Total Mortgage-Backed Securities (Identified Cost — $15,251)								15,081

U.S. Government and Agency Obligations — 13.8%
Fixed Rate Securities — 8.9%
	Fannie Mae	6.625%		9/15/09		160		166
	Fannie Mae	5.200%		11/8/10		170		167
	Fannie Mae	5.625%		5/19/11		290		289
	Fannie Mae	4.610%		10/10/13		560		525

Semi-Annual Report to Shareholders 15


					Par/
		Rate	Maturity Date		Shares		Value

U.S. Government and Agency Obligations — Continued
Fixed Rate Securities — Continued
	Freddie Mac	4.625%		2/21/08	$	170	$	168
	Freddie Mac	4.125%		10/18/10		40		38
	Freddie Mac	4.750%		1/18/11		110		107
	Freddie Mac	5.250%		2/24/11		340		334
	Freddie Mac	4.650%		10/10/13		600		564
	Freddie Mac	5.625%		11/23/35		210		191
	United States Treasury Bonds	6.250%		8/15/23		300		331
	United States Treasury Bonds	5.250%		11/15/28		20		20
	United States Treasury Bonds	5.250%		2/15/29		340		338
	United States Treasury Bonds	4.500%		2/15/36		1,103		989
	United States Treasury Notes	3.750%		5/15/08		40		39
	United States Treasury Notes	4.500%		2/15/09		60		59
	United States Treasury Notes	4.125%		8/15/10		100		96
	United States Treasury Notes	3.875%		2/15/13		800		745
	United States Treasury Notes	4.500%		2/15/16		80		76
	United States Treasury Notes	5.125%		5/15/16		900		899

								6,141

Stripped Securities — 0.3%
	United States Treasury Bonds	0.000%		11/15/21		420		185	^D2

Treasury Inflation-Protected Securities^G — 4.6%
	United States Treasury Inflation-Protected Security	3.375%		1/15/12		79		83
	United States Treasury Inflation-Protected Security	2.000%		1/15/14		71		69
	United States Treasury Inflation-Protected Security	2.000%		1/15/16		345		330
	United States Treasury Inflation-Protected Security	2.375%		1/15/25		1,945		1,893
	United States Treasury Inflation-Protected Security	2.000%		1/15/26		568		520

16 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


					Par/
		Rate	Maturity Date		Shares		Value

U.S. Government and Agency Obligations — Continued
Treasury Inflation-Protected Securities — Continued
	United States Treasury Inflation-Protected Security	3.875%		4/15/29	$	233	$	288

								3,183

Total U.S. Government and Agency Obligations (Identified Cost — $9,854)								9,509

U.S. Government Agency Mortgage-Backed Securities — 50.8%
Fixed Rate Securities — 50.8%
	Fannie Mae	5.500%		12/1/17 to 9/1/35		1,234		1,189
	Fannie Mae	5.000%		10/1/20 to 6/1/36		2,199		2,099
	Fannie Mae	6.000%		3/1/32 to 12/1/35		2,179		2,150
	Fannie Mae	6.500%		12/1/34		308		311
	Fannie Mae	4.500%		9/1/35		97		87
	Fannie Mae	5.000%		12/1/36		9,000		8,411	^H
	Fannie Mae	5.500%		12/1/36		5,250		5,041	^H
	Fannie Mae	6.000%		12/1/16 to 12/1/36		6,990		6,884	^H
	Fannie Mae	6.500%		12/1/36		2,350		2,362	^H
	Freddie Mac	4.500%		4/1/19		300		284
	Freddie Mac	5.000%		7/1/20 to 9/1/35		1,444		1,383
	Government National Mortgage Association	6.000%		11/15/28 to 12/15/33		783		778
	Government National Mortgage Association	6.500%		2/15/32		313		317
	Government National Mortgage Association	5.000%		8/15/33 to 5/15/34		1,002		950
	Government National Mortgage Association	5.500%		2/15/35		2,869		2,782
	Government National Mortgage Association	5.000%		12/1/36		100		94	^H

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $35,695)								35,122

Semi-Annual Report to Shareholders 17


					Par/
		Rate	Maturity Date		Shares		Value

Yankee Bonds^I — 7.9%
Banking and Finance — 0.2%
	Eksportfinans ASA	5.500%		5/25/16	$	160	$	159

Banks — 1.3%
	Glitnir Banki HF	6.693%		6/15/16		120		119	^A,B
	Kaupthing Bank Hf	5.758%		4/12/11		270		270
	Kaupthing Bank Hf	7.125%		5/19/16		440		440	^A
	Shinsei Finance Cayman Limited	6.418%		1/29/49		100		94	^A,B

								923

Cable — 0.1%
	Rogers Cable Inc.	5.500%		3/15/14		90		80

Foreign Governments — 2.4%
	Russian Federation	5.000%		3/31/30		860		915	^B
	United Mexican States	5.625%		1/15/17		4		4
	United Mexican States	8.300%		8/15/31		120		138
	United Mexican States	7.500%		4/8/33		572		608

								1,665

Investment Banking/ Brokerage — 0.2%
	BNP Paribas NY	6.875%		3/1/09		110		113

Manufacturing (Diversified) — 2.1%
	Tyco International Group SA	6.375%		10/15/11		45		46
	Tyco International Group SA	6.000%		11/15/13		100		99
	Tyco International Group SA	7.000%		6/15/28		10		11
	Tyco International Group SA	6.875%		1/15/29		1,235		1,273

								1,429

Special Purpose — 1.2%
	Anadarko Finance Company	6.750%		5/1/11		125		128
	Apache Finance Canada Corporation	4.375%		5/15/15		60		54
	Banagricola DPR Funding Ltd.	6.250%		3/15/10		188		190	^A,C
	ChevronTexaco Capital Company	3.500%		9/17/07		140		137
	Conoco Funding Company	6.350%		10/15/11		10		10

18 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


					Par/
		Rate	Maturity Date		Shares			Value

Yankee Bonds — Continued
Special Purpose — Continued
	Deutsche Telekom International Finance BV	5.750%		3/23/16	$	75		$	71
	MUFG Capital Finance 1 Limited	6.346%		7/25/49		100			97	^B
	Resona PFD Global Securities	7.191%		12/29/49		140			140	^A,B

									827

Telecommunications — 0.4%
	British Telecommunications plc	8.375%		12/15/10		100			110
	Koninklijke (Royal) KPN NV	8.000%		10/1/10		80			85
	Telecom Italia Capital S.p.A.	4.950%		9/30/14		70			62
	Telecom Italia Capital S.p.A.	5.250%		10/1/15		20			18

									275

Total Yankee Bonds (Identified Cost — $5,538)									5,471

Preferred Stocks — 0.4%
	Fannie Mae	5.375%				0.001	shs		93	^J
	General Motors Corporation	5.250%				8			153	^J

Total Preferred Stocks (Identified Cost — $245)									246

Total Long-Term Securities (Identified Cost — $85,315)									83,223

Short-Term Securities — 13.5%
U.S. Government and Agency Obligations — 0.2%
	Fannie Mae	0.000%		9/25/06	$	139			137	^K,L

Yankee Bonds^I — 0.1%
	Government of Canada	0.000%		9/20/06		90			89	^K

Semi-Annual Report to Shareholders 19


	Par/
	Shares			Value

Options Purchased^M — 0.1%
Eurodollar Futures Call, December 2006, Strike Price $94.50		23	^N		6
Eurodollar Futures Call, September 2006, Strike Price $94.00		34	^N		36
Eurodollar Futures Call, September 2006, Strike Price $94.50		16	^N		3
U.S. Treasury Bond Futures Call, September 2006, Strike Price $108.00		2	^N		1

					46

Repurchase Agreements — 13.1%
Lehman Brothers, Inc. 5.05%, dated 6/30/06, to be repurchased at $4,528 on 7/3/06 (Collateral: $4,625 Freddie Mac notes, 6.4%, due 5/2/16, value $4,617)	$	4,526			4,526
Merrill Lynch Government Securities, Inc. 5.14%, dated 6/30/06, to be repurchased at $4,527 on 7/3/06 (Collateral: $11,145 Resolution Funding Co. principal-only securities, due 7/15/17 to 1/15/30, value $4,615)		4,525			4,525

					9,051

Total Short-Term Securities (Identified Cost — $9,409)					9,323

Total Investments — 133.9% (Identified Cost — $94,724)					92,546
Other Assets Less Liabilities — (33.9)%					(23,432	)

Net Assets — 100.0%				$	69,114


			Actual		Appreciation/
		Expiration	Contracts		(Depreciation)

Futures Contracts Purchased^M
	Eurodollar Futures	September 2006		28	$	(20	)
	Eurodollar Futures	December 2006		5		(7	)
	Eurodollar Futures	March 2008		4		(3	)
	U.S. Treasury Note Futures	September 2006		78		(35	)
	U.S. Treasury Note Futures	September 2006		13		(8	)

					$	(73	)

Futures Contracts Written^M
	U.S. Treasury Bond Futures	September 2006		16	$	5

20 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


			Actual		Appreciation/
		Expiration	Contracts		(Depreciation)

Option Written^M
	Eurodollar Futures Call, Strike Price $94.75	September 2006		41	$	8
	Eurodollar Futures Call, Strike Price $94.875	September 2006		6		1
	Eurodollar Futures Call, Strike Price $95.00	September 2006		45		9
	Eurodollar Futures Call, Strike Price $95.25	September 2006		4		1
	Eurodollar Futures Call, Strike Price $95.50	September 2006		5		2
	Eurodollar Futures Put, Strike Price $94.50	September 2006		3		(1	)
	Eurodollar Futures Put, Strike Price $94.625	September 2006		10		(3	)
	U.S. Treasury Bond Futures Call, Strike Price $109.00	September 2006		6		3
	U.S. Treasury Bond Futures Call, Strike Price $111.00	September 2006		12		8
	U.S. Treasury Bond Futures Call, Strike Price $113.00	September 2006		4		4
	U.S. Treasury Bond Futures Put, Strike Price $104.00	September 2006		6		2
	U.S. Treasury Bond Futures Put, Strike Price $105.00	September 2006		7		1
	U.S. Treasury Bond Futures Put, Strike Price $108.00	September 2006		3		(2	)
	U.S. Treasury Bond Futures Put, Strike Price $100.00	December 2006		13		3
	U.S. Treasury Note Futures Call, Strike Price $106.00	August 2006		3		1
	U.S. Treasury Note Futures Call, Strike Price $104.50	September 2006		17		4
	U.S. Treasury Note Futures Call, Strike Price $105.00	September 2006		9		2
	U.S. Treasury Note Futures Call, Strike Price $105.50	September 2006		1		0.2

Semi-Annual Report to Shareholders 21


			Actual		Appreciation/
		Expiration	Contracts		(Depreciation)

Option Written — Continued
	U.S. Treasury Note Futures Call, Strike Price $106.00	September 2006		3	$	1
	U.S. Treasury Note Futures Call, Strike Price $107.00	September 2006		34		13
	U.S. Treasury Note Futures Call, Strike Price $108.00	September 2006		17		7
	U.S. Treasury Note Futures Call, Strike Price $109.00	September 2006		6		2
	U.S. Treasury Note Futures Call, Strike Price $110.00	September 2006		5		3
	U.S. Treasury Note Futures Call, Strike Price $105.00	December 2006		4		(0.2	)
	U.S. Treasury Note Futures Call, Strike Price $107.00	December 2006		4		(0.1	)
	U.S. Treasury Note Futures Call, Strike Price $109.00	December 2006		4		1
	U.S. Treasury Note Futures Put, Strike Price $103.50	September 2006		2		(0.3	)

					$	70


^A	Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities, which the Fund’s investment adviser has determined to be liquid, represent 3.5% of net assets.


^B	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes.

^C	Indexed security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”) or the ten year Treasury Bill Constant Maturity Rate. The coupon rates are the rates as of June 30, 2006.

^D	Stripped security — Security with interest-only or principal-only payment streams, denoted by a 1 or 2 respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due.


^E	Illiquid security valued at fair value under procedures approved by the Board of Directors.

^F	The coupon rates shown on variable rate securities are the rates at June 30, 2006. These rates vary with the weighted average coupon of the underlying loans.


^G	Inflation-Protected Securities — Security whose principal value is adjusted daily or monthly in accordance with changes to the Consumer Price Index for All Urban Consumers. Interest is calculated on the basis of the current adjusted principal value.

22 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Legg Mason Core Bond Fund — Continued


^H	When-issued security — Security purchased on a delayed delivery basis. Final settlement amount and maturity have not yet been announced.


^I	Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities.

^J	Convertible Security — Security may be converted into the issuer’s common stock.


^K	Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^L	Collateral to cover options and futures contracts.


^M	Options and futures are described in more detail in the notes to financial statements.

^N	Par represents actual number of contracts.

N.M. — Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders 23

Statement of Assets and Liabilities

Core Bond Fund

June 30, 2006

(Amounts in Thousands) (Unaudited)



Assets:
	Investment securities at market value (Identified Cost – $85,315)				$	83,223
	Short-term securities at value (Identified Cost – $9,409)					9,323
	Cash					1
	Receivable for securities sold					2,998
	Receivable for fund shares sold					198
	Receivable for futures variation margin					14
	Interest and dividends receivable					607

		Total assets				96,364
Liabilities:
	Payable for securities purchased		$	25,906
	Payable for fund shares repurchased			1,079
	Income distribution payable			138
	Written options at market value (Proceeds – $109)			39
	Accrued management fee			3
	Accrued distribution and service fees			29
	Accrued expenses			56

		Total liabilities				27,250

Net Assets					$	69,114

Net assets consist of:
	Accumulated paid-in capital applicable to:
		7,350 Primary Class shares outstanding			$	72,952
	Overdistribution of net investment income					—	^A
	Accumulated net realized loss on investments, options, and futures					(1,662	)
	Unrealized appreciation/(depreciation) of investments, options and futures					(2,176	)

Net Assets					$	69,114

Net Asset Value Per Share:
	Primary Class				$	9.40


^A	Amount less than $1.

See notes to financial statements.

24 Semi-Annual Report to Shareholders

Statement of Operations

Core Bond Fund

For the Six Months Ended June 30, 2006

(Amounts in Thousands) (Unaudited)



Investment Income:

	Interest			$	1,787
	Dividends				8

			Total income				$	1,795

Expenses:

	Management fees				160
	Distribution and service fees
		Primary Class			178
	Audit and legal fees				32
	Custodian fees				50
	Directors’ fees and expenses				14
	Registration fees				14
	Reports to shareholders				20
	Transfer agent and shareholder servicing expense				25
	Other expenses				14

					507
	Less: Fees waived				(149	)
			Compensating balance credits		(3	) ^A

			Total expenses, net of waivers and compensating balance credits					355

Net Investment Income								1,440

Net Realized and Unrealized Gain/(Loss) on Investments:

	Realized gain/(loss) on:
		Investments			(434	)
		Options			110
		Futures			(603	)


								(927	)
	Change in unrealized appreciation/(depreciation) of investments, options and futures							(1,364	)

Net Realized and Unrealized Loss on Investments								(2,291	)

Change in Net Assets Resulting From Operations							$	(851	)


^A	See note 1, Compensating Balance Credits, in the notes to financial statements.

See notes to financial statements.

Semi-Annual Report to Shareholders 25

Statement of Changes in Net Assets

Core Bond Fund

(Amounts in Thousands)


			For the			For the
			Six Months Ended			Year Ended
			6/30/06			12/31/05

			(Unaudited)
Change in Net Assets:
Net investment income			$	1,440		$	2,333
Net realized loss on investments, options and futures				(927	)		(663	)
Change in unrealized depreciation of investments, options and futures				(1,364	)		(1,045	)

Change in net assets resulting from operations				(851	)		625
Distributions to shareholders:
	From net investment income:
		Primary Class		(1,440	)		(2,400	)
	From net realized gain on investments:
		Primary Class		—			(11	)
Change in net assets from Fund share transactions:
		Primary Class		(420	)		9,838

Change in net assets				(2,711	)		8,052
Net Assets:
Beginning of period				71,825			63,773

End of period			$	69,114		$	71,825

Overdistribution of net investment income			$	—	^A	$	—	^A


^A	Amount less than $1.

See notes to financial statements.

26 Semi-Annual Report to Shareholders

Financial Highlights

Core Bond Fund

Contained below is per share operating performance data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data. This information has been derived from information provided in the financial statements.

Primary Class:


		Six Months
		Ended			Year Ended December 31,
		June 30,
		2006			2005			2004^A

		(Unaudited)
Net asset value, beginning of period		$	9.71		$	9.95		$	10.00

Investment operations:
	Net investment income		.19			.32			.18
	Net realized and unrealized gain/(loss) on investments		(.31	)		(.23	)		.004

	Total from investment operations		(.12	)		.09			.18

Distributions:
	From net investment income		(.19	)		(.33	)		(.21	)
	From net realized gain on investments		—			(.002	)		(.02	)

	Total distributions		(.19	)		(.33	)		(.23	)

Net asset value, end of period		$	9.40		$	9.71		$	9.95

Total return			(1.22	)%^B		.94	%		1.90	%^B
Ratios to Average Net Assets:^C
	Total expenses		1.43	%^D		1.38	%		1.56	%^D
	Expenses net of waivers, if any		1.01	%^D		1.00	%		1.00	%^D
	Expenses net of all reductions		1.00	%^D		1.00	%		1.00	%^D
	Net investment income		4.06	%^D		3.29	%		2.50	%^D
Supplemental Data:
	Portfolio turnover rate		208.4	%^B		435.7	%		233.8	%^B
Net assets, end of period (in thousands)		$	69,114		$	71,825		$	63,773


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


^B	Not annualized.

^C	Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

^D	Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders 27

Expense Example

High Yield Portfolio

As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution and service (12b-1) fees on Primary Class shares; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. Each example is based on an investment of $1,000 invested on January 1, 2006, and held through June 30, 2006.

Actual Expenses

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

Hypothetical Example for Comparison Purposes

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


		Beginning		Ending		Expenses Paid^A
		Account		Account		During the
		Value		Value		Period
		1/1/06		6/30/06		1/1/06 to 6/30/06

Primary Class:
	Actual	$	1,000.00	$	1,037.70	$	7.33
	Hypothetical (5% return before expenses)		1,000.00		1,017.60		7.25
Institutional Class:
	Actual	$	1,000.00	$	1,040.80	$	4.81
	Hypothetical (5% return before expenses)		1,000.00		1,020.08		4.76

These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 1.45% and 0.95% for the Primary Class and Institutional Class, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

28 Semi-Annual Report to Shareholders

Performance Information

High Yield Portfolio

The graphs on the following pages compare the Fund’s total returns to that of two closely matched broad-based securities market indices. The graphs illustrate the cumulative total return of an initial $10,000 investment in the Primary Class and an initial $1,000,000 investment in the Institutional Class of the Fund, for the periods indicated. The lines for the Fund represent the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The line representing the securities market index does not include any transaction costs associated with buying and selling securities in the index or other administrative expenses. Both the Fund’s and the index’s results assume reinvestment of all dividends and distributions.

Semi-Annual Report to Shareholders 29

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2006


	Cumulative		Average Annual
	Total Return		Total Return

One Year		+5.81%		+5.81%
Five Years		+36.05%		+6.35%
Ten Years		+52.13%		+4.28%

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


^A	A market value-weighted index that tracks the daily price, coupon, and total return performance of non-investment grade, fixed rate, publicly placed, dollar-denominated, and non-convertible debt registered with the U.S. Securities and Exchange Commission. The index limits the maximum exposure to any one issuer to 2%.


^B	A market value-weighted index that tracks the daily price, coupon, and total return performance of non-investment grade, fixed rate, publicly placed, dollar-denominated, and non-convertible debt registered with the U.S. Securities and Exchange Commission.

30 Semi-Annual Report to Shareholders

Performance Information — Continued

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

Periods Ended June 30, 2006


		Cumulative		Average Annual
		Total Return		Total Return

	One Year		+6.41%		+6.41%
	Five Years		+39.21%		+6.84%
	Life of Class*		+19.09%		+2.17%

*Inception date: May 5, 1998

The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please call 1-888-425-6432. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods.

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


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

Semi-Annual Report to Shareholders 31

Portfolio Composition (as of June 30, 2006)^D

Standard & Poor’s Debt Ratings^E (as a percentage of the portfolio)

Maturity Schedule (as a percentage of the portfolio)


^D	The Fund is actively managed. As a result, the composition of its portfolio holdings and sectors is subject to change at any time.


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

32 Semi-Annual Report to Shareholders

Portfolio of Investments

High Yield Portfolio

June 30, 2006 (Unaudited)

(Amounts in Thousands)


						Par/
		Rate		Maturity Date		Shares		Value

Long-Term Securities — 97.7%
Corporate Bonds and Notes — 85.8%
Advertising — 1.3%
	Affinion Group Inc.		10.125%		10/15/13	$	790	$	794	^A
	R.H. Donnelley Corp.		6.875%		1/15/13		525		483	^A
	R.H. Donnelley Corp.		6.875%		1/15/13		960		883	^A

									2,160

Aerospace and Defense — 1.1%
	Alliant Techsystems Inc.		6.750%		4/1/16		490		472
	DRS Technologies, Inc.		6.625%		2/1/16		340		329
	DRS Technologies, Inc.		7.625%		2/1/18		470		467
	TransDigm Inc.		7.750%		7/15/14		460		458	^A

									1,726

Apparel — 1.6%
	Levi Strauss & Co.		9.750%		1/15/15		750		750
	Levi Strauss & Co.		8.875%		4/1/16		50		48	^A
	Oxford Industries, Inc.		8.875%		6/1/11		891		891
	Russell Corporation		9.250%		5/1/10		858		897

									2,586

Auto and Automotive Parts — 1.9%
	Commercial Vehicle Group, Inc		8.000%		7/1/13		590		565
	Keystone Automotive Operations Inc.		9.750%		11/1/13		1,260		1,191
	TRW Automotive		9.375%		2/15/13		260		276
	Visteon Corporation		8.250%		8/1/10		1,164		1,088

									3,120

Automotive — 0.7%
	Ford Motor Company		7.450%		7/16/31		285		206
	General Motors Corporation		8.375%		7/15/33		1,180		950

									1,156

Semi-Annual Report to Shareholders 33


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Banking and Finance — 3.8%
	Ford Motor Credit Company		7.375%		2/1/11	$	1,775	$	1,589
	General Motors Acceptance Corporation		6.875%		8/28/12		640		603
	General Motors Acceptance Corporation		8.000%		11/1/31		4,100		3,941

									6,133

Building Materials — 2.9%
	Associated Materials Incorporated		11.250%		3/1/14		1,650		994
	Interface, Inc.		10.375%		2/1/10		943		1,031
	K Hovnanian Enterprises Inc.		6.250%		1/15/16		1,240		1,076
	K Hovnanian Enterprises Inc.		8.625%		1/15/17		90		89
	Nortek, Inc.		8.500%		9/1/14		1,140		1,103
	NTK Holdings, Inc.		0.000%		3/1/14		265		192	^B
	U.S. Concrete, Inc.		8.375%		4/1/14		85		84	^A

									4,569

Cable — 3.7%
	Charter Communications Holdings, LLC		8.625%		4/1/09		170		131
	Charter Communications Holdings, LLC		10.750%		10/1/09		1,000		790
	Charter Communications Holdings, LLC		9.625%		11/15/09		360		277
	Charter Communications Holdings, LLC		10.250%		9/15/10		1,215		1,218
	CSC Holdings Inc.		7.250%		4/15/12		965		931	^A
	CSC Holdings Inc.		7.875%		2/15/18		430		429
	EchoStar DBS Corporation		5.750%		10/1/08		90		88
	EchoStar DBS Corporation		6.625%		10/1/14		950		893
	EchoStar DBS Corporation		7.125%		2/1/16		330		318	^A
	LodgeNet Entertainment Corporation		9.500%		6/15/13		782		833

									5,908

34 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

High Yield Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Casino Resorts — 3.0%
	Boyd Gaming Corporation		8.750%		4/15/12	$	340	$	356
	Boyd Gaming Corporation		6.750%		4/15/14		180		171
	Inn of The Mountain Gods Resort and Casino		12.000%		11/15/10		1,660		1,764
	Pinnacle Entertainment, Inc.		8.250%		3/15/12		800		802
	Premier Entertainment Biloxi LLC		10.750%		2/1/12		1,681		1,735

									4,828

Chemicals — 0.3%
	Westlake Chemical Corporation		6.625%		1/15/16		525		485

Coal — 0.9%
	Alpha Natural Resources LLC		10.000%		6/1/12		1,010		1,081
	International Coal Group, Inc.		10.250%		7/15/14		400		399	^A

									1,480

Computer Services and Systems — 1.2%
	Activant Solutions, Inc.		9.500%		5/1/16		275		266	^A
	Sungard Data Systems Incorporated		10.250%		8/15/15		1,620		1,675	^A

									1,941

Containers and Packaging — 1.9%
	Graham Packaging Company Inc.		8.500%		10/15/12		174		171
	Graham Packaging Company Inc.		9.875%		10/15/14		596		590
	Graphic Packaging International Corp.		9.500%		8/15/13		954		944
	Owens Brockway Glass Containers		8.750%		11/15/12		440		458
	Plastipak Holdings Inc.		8.500%		12/15/15		840		840	^A

									3,003

Diversified Financial Services — 0.6%
	CitiSteel USA, Inc.		12.490%		9/1/10		790		816	^C
	CitiSteel USA, Inc.		15.000%		10/1/10		155		155	^A,D

									971

Semi-Annual Report to Shareholders 35


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Drug and Grocery Store Chains — 0.7%
	Delhaize America, Inc.		8.125%		4/15/11	$	464	$	488
	Delhaize America, Inc.		9.000%		4/15/31		630		691

									1,179

Educational Services — 0.2%
	Education Management LLC		8.750%		6/1/14		390		386	^A

Electric — 1.4%
	Mirant Americas Generation, LLC		8.300%		5/1/11		950		938
	The AES Corporation		7.750%		3/1/14		405		407
	The AES Corporation		9.000%		5/15/15		763		820	^A

									2,165

Electronics — 1.6%
	Amkor Technology, Inc.		2.500%		5/15/11		655		604	^E
	L-3 Communications Corporation		6.375%		10/15/15		1,260		1,203
	Rayovac Corporation		8.500%		10/1/13		957		818

									2,625

Energy — 3.8%
	Edison Mission Energy		7.500%		6/15/13		95		93	^A
	Edison Mission Energy		7.750%		6/15/16		520		511	^A
	Elwood Energy LLC		8.159%		7/5/26		1,007		1,089
	Midwest Generation LLC		8.560%		1/2/16		1,241		1,303
	NRG Energy, Inc.		7.375%		2/1/16		2,170		2,116
	Sierra Pacific Resources		6.750%		8/15/17		980		926

									6,038

Entertainment — 0.5%
	Blockbuster Inc.		9.000%		9/1/12		440		410
	Warner Music Group		7.375%		4/15/14		420		408

									818

36 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

High Yield Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Food, Beverage and Tobacco — 0.9%
	Domino’s, Inc.		8.250%		7/1/11	$	814	$	845
	Reynolds American Inc.		6.500%		7/15/10		580		561	^A

									1,406

Funeral Parlors and Cemeteries — 0.3%
	Service Corporation International		8.000%		6/15/17		480		449	^A

Gaming — 0.8%
	River Rock Entertainment Authority		9.750%		11/1/11		1,290		1,358

Gas and Pipeline Utilities — 2.8%
	ANR Pipeline, Inc.		9.625%		11/1/21		282		329
	Colorado Interstate Gas Company		6.800%		11/15/15		500		482
	Dynegy Holdings Inc.		8.750%		2/15/12		180		183
	Southern Natural Gas Company		8.000%		3/1/32		415		429
	The Williams Companies, Inc.		7.500%		1/15/31		440		424
	The Williams Companies, Inc.		8.750%		3/15/32		2,351		2,557

									4,404

Health Care — 2.0%
	Tenet Healthcare Corporation		9.875%		7/1/14		2,417		2,417
	Tenet Healthcare Corporation		9.250%		2/1/15		770		756	^A

									3,173

Homebuilding — 0.9%
	Beazer Homes USA, Inc.		8.625%		5/15/11		265		267
	Beazer Homes USA, Inc.		8.375%		4/15/12		230		230
	Beazer Homes USA, Inc.		8.125%		6/15/16		515		495	^A
	Kimball Hill Inc.		10.500%		12/15/12		490		453

									1,445

Insurance — 0.4%
	Crum & Forster Holdings Corp.		10.375%		6/15/13		700		712

Semi-Annual Report to Shareholders 37


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Investment Banking/ Brokerage — 0.5%
	E*Trade Financial Corporation		7.375%		9/15/13	$	450	$	450
	E*Trade Financial Corporation		7.875%		12/1/15		332		340

									790

Lodging/ Hotels — 0.3%
	Host Marriott Corporation		6.750%		6/1/16		420		401	^A

Machinery — 0.5%
	Terex Corporation		7.375%		1/15/14		760		756

Manufacturing (Diversified) — 0.8%
	Jacuzzi Brands Incorporated		9.625%		7/1/10		1,150		1,215

Media — 3.2%
	AMC Entertainment Inc.		11.000%		2/1/16		1,120		1,198
	CMP Susquehanna Corp.		9.875%		5/15/14		130		121	^A
	Lamar Media Corporation		6.625%		8/15/15		460		426
	LIN Television Corporation		6.500%		5/15/13		435		397
	LIN Television Corporation		6.500%		5/15/13		250		228
	PRIMEDIA Inc.		8.875%		5/15/11		1,270		1,219
	Sinclair Broadcast Group, Inc.		8.000%		3/15/12		865		878
	XM Satellite Radio Inc.		9.649%		5/1/13		170		156	^A,C
	XM Satellite Radio Inc.		9.750%		5/1/14		545		499	^A

									5,122

Medical Care Facilities — 1.4%
	DaVita, Inc.		7.250%		3/15/15		1,160		1,114
	HCA, Inc.		9.000%		12/15/14		270		293
	HCA, Inc.		7.690%		6/15/25		330		312
	HCA, Inc.		7.500%		11/6/33		425		388
	HCA, Inc.		7.500%		11/15/95		155		129

									2,236

38 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

High Yield Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Medical Products — 0.2%
	Fresenius Medical Care Capital Trust II		7.875%		2/1/08	$	100	$	101	^F
	Fresenius Medical Care Capital Trust IV		7.875%		6/15/11		170		172

									273

Metals — 0.5%
	Metals USA, Inc.		11.125%		12/1/15		665		728	^A

Oil and Gas — 9.9%
	Belden & Blake Corporation		8.750%		7/15/12		2,055		2,086
	Chesapeake Energy Corporation		7.625%		7/15/13		375		377
	Chesapeake Energy Corporation		6.500%		8/15/17		205		187
	Chesapeake Energy Corporation		6.250%		1/15/18		810		739
	El Paso Corporation		7.750%		6/15/10		230		234	^A
	El Paso Corporation		8.050%		10/15/30		950		952
	El Paso Corporation		7.800%		8/1/31		2,150		2,088
	Encore Acquisition Company		6.250%		4/15/14		160		147
	Encore Acquisition Company		6.000%		7/15/15		310		279
	Encore Acquisition Company		7.250%		12/1/17		400		384
	Exco Resources, Inc.		7.250%		1/15/11		810		777
	Kerr-Mcgee Corporation		6.950%		7/1/24		940		945
	Mariner Energy Inc.		7.500%		4/15/13		295		284	^A
	Petrohawk Energy Corporation		9.125%		7/15/13		390		388	^A
	Plains Exploration & Production Company		7.125%		6/15/14		810		798
	Pogo Producing Company		6.875%		10/1/17		910		843
	Pride International, Inc.		7.375%		7/15/14		940		945
	SemGroup, L.P.		8.750%		11/15/15		1,030		1,025	^A
	SESI, L.L.C		6.875%		6/1/14		30		29	^A
	Stone Energy Corporation		8.250%		12/15/11		230		232
	Stone Energy Corporation		6.750%		12/15/14		285		286

Semi-Annual Report to Shareholders 39


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Oil and Gas — Continued
	Suburban Propane Partners LP		6.875%		12/15/13	$	1,110	$	1,038
	Whiting Peteroleum Corporation		7.000%		2/1/14		820		775

									15,838

Paper and Forest Products — 1.3%
	Appleton Papers Inc.		9.750%		6/15/14		830		838
	Glatfelter		7.125%		5/1/16		160		158	^A
	NewPage Corporation		12.000%		5/1/13		1,085		1,123

									2,119

Personal Products — 0.1%
	Playtex Products, Inc.		8.000%		3/1/11		230		238

Pet Products — 0.2%
	Nutro Products, Inc.		9.230%		10/15/13		90		92	^A,E
	Nutro Products, Inc.		10.750%		4/15/14		190		195	^A

									287

Pharmaceuticals — 0.6%
	Leiner Health Products Inc.		11.000%		6/1/12		940		889

Printing and Copying Services — 0.4%
	Xerox Corporation		6.400%		3/15/16		620		585

Real Estate — 1.0%
	Forest City Enterprises, Inc.		6.500%		2/1/17		830		776
	Ventas, Inc.		8.750%		5/1/09		475		499
	Ventas, Inc.		6.750%		6/1/10		200		198
	Ventas, Inc.		9.000%		5/1/12		158		173

									1,646

Rental and Lease Services — 1.9%
	Avis Budget Car Rental Llc		7.625%		5/15/14		110		107	^A
	Hertz Corporation		8.875%		1/1/14		470		482	^A

40 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

High Yield Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Rental and Lease Services — Continued
	Hertz Corporation		10.500%		1/1/16	$	1,290	$	1,367	^A
	NationsRent Inc.		9.500%		10/15/10		1,090		1,161

									3,117

Retail — 2.8%
	American Greetings Corporation		7.375%		6/1/16		60		60
	Brookstone Company Inc.		12.000%		10/15/12		810		713	^A
	El Pollo Loco, Inc.		11.750%		11/15/13		570		651	^A
	FTD, Inc.		7.750%		2/15/14		425		419
	Norcraft Companies		9.000%		11/1/11		1,420		1,445
	The Neiman Marcus Group, Inc.		9.000%		10/15/15		1,090		1,139	^A

									4,427

Special Purpose — 9.0%
	AAC Group Holding Corp.		0.000%		10/1/12		1,820		1,420	^B
	CCM Merger Inc.		8.000%		8/1/13		165		156	^A
	Denny’s Holdings, Inc.		10.000%		10/1/12		350		348
	Di Finance Corporation		9.500%		2/15/13		1,460		1,518
	H & E Equipment Services LLC		11.125%		6/15/12		1,444		1,595
	H-Lines Finance Holding Corp.		0.000%		4/1/13		994		852	^B
	Hexion U.S. Finance Corp./ Hexion Nova Scotia Finance, ULC		9.000%		7/15/14		790		800
	Hughes Network Systems Llc		9.500%		4/15/14		355		348	^A
	Milacron Escrow Corporation		11.500%		5/15/11		1,665		1,544
	Rainbow National Services LLC		8.750%		9/1/12		510		535	^A
	Rainbow National Services LLC		10.375%		9/1/14		360		399	^A
	Standard Aero Holdings Inc.		8.250%		9/1/14		1,405		1,251
	UCAR Finance Inc.		10.250%		2/15/12		435		459
	UGS Corporation		10.000%		6/1/12		900		968
	Vanguard Health Holding Company I LLC		11.250%		10/1/15		475		335	^B
	Vanguard Health Holding Company II LLC		9.000%		10/1/14		1,605		1,601
	Visant Holding Corporation		8.750%		12/1/13		330		318	^A

									14,447

Semi-Annual Report to Shareholders 41


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Steel Products — 1.1%
	Chaparral Steel Company		10.000%		7/15/13	$	790	$	861
	Rathgibson Inc.		11.250%		2/15/14		835		860	^A

									1,721

Telecommunications — 4.0%
	Cincinnati Bell Inc.		7.000%		2/15/15		699		659
	Cincinnati Bell Inc.		6.300%		12/1/28		330		285
	Citizens Communications Company		9.000%		8/15/31		505		511
	Hawaiian Telcom Communications, Inc.		12.500%		5/1/15		1,810		1,896
	Qwest Communications International Inc.		7.250%		2/15/11		703		682
	Qwest Communications International Inc.		7.500%		2/15/14		620		605
	Qwest Corporation		7.875%		9/1/11		830		840
	Windstream Corporation		8.625%		8/1/16		925		946	^A

									6,424

Telecommunications (Cellular/ Wireless) — 0.7%
	Rural Cellular Corporation		9.875%		2/1/10		490		504
	Ubiquitel Operating Company		9.875%		3/1/11		610		663

									1,167

Transportation — 4.2%
	American Airlines, Inc.		7.800%		10/1/06		830		831
	American Commercial Lines Llc		9.500%		2/15/15		500		548
	Gulfmark Offshore, Inc.		7.750%		7/15/14		820		799
	Horizon Lines, LLC		9.000%		11/1/12		428		434
	Kansas City Southern Railway		7.500%		6/15/09		710		710
	Progress Rail Corp.		8.500%		4/1/12		900		972	^A
	United Air Lines, Inc.		7.811%		10/1/09		344		358

42 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

High Yield Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Transportation — Continued
	United Air Lines, Inc.		7.032%		10/1/10	$	566	$	573
	United Air Lines, Inc.		7.186%		10/1/12		1,488		1,500

									6,725

Total Corporate Bonds and Notes (Identified Cost — $139,277)									137,375

Mortgage-Backed Securities — 0.3%
	Blackrock Capital Finance L.P. 1996-R1		9.515%		9/25/26		550		330
	Blackrock Capital Finance L.P. 1997-R1		7.750%		3/25/37		472		99	^A
	Ocwen Residential Mortgage Corporation 1998-R1		7.000%		10/25/40		174		17

Total Mortgage-Backed Securities (Identified Cost — $768)									446

Yankee Bonds^G — 10.5%
Cable — 0.7%
	Rogers Cable Inc.		5.500%		3/15/14		790		701
	Rogers Cable Inc.		6.750%		3/15/15		530		505

									1,206

Chemicals — 0.6%
	Basell AF SCA		8.375%		8/15/15		980		942	^A

Electric — 0.6%
	AES China Generating Co. Ltd.		8.250%		6/26/10		995		984

Foreign Governments — 0.2%
	Federative Republic of Brazil		8.000%		1/15/18		310		327

Semi-Annual Report to Shareholders 43


						Par/
		Rate		Maturity Date		Shares		Value

Yankee Bonds — Continued
Media — 1.8%
	Kabel Deutschland GmbH		10.625%		7/1/14	$	1,200	$	1,266	^A
	Quebecor Media Inc.		7.750%		3/15/16		1,325		1,299	^A
	Quebecor World Capital Corp.		8.750%		3/15/16		340		310	^A

									2,875

Oil and Gas — 0.8%
	Utilicorp Canada Finance Corp		7.750%		6/15/11		510		528
	Western Oil Sands Inc.		8.375%		5/1/12		640		680

									1,208

Paper and Forest Products — 0.4%
	Domtar Inc.		7.875%		10/15/11		450		423
	Domtar Inc.		5.375%		12/1/13		310		251

									674

Pharmaceuticals — 0.2%
	Angiotech Pharmaceuticals, Inc.		7.750%		4/1/14		370		353	^A

Semiconductor Equipment and Production — 0.5%
	MagnaChip Semiconductor S.A.		8.000%		12/15/14		880		730

Services — 0.5%
	Compagnie Generale de Geophysique SA (CGG)		7.500%		5/15/15		780		763

Special Purpose — 0.5%
	Montell Finance Co BV		8.100%		3/15/27		850		769	^A

44 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

High Yield Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares			Value

Yankee Bonds — Continued
Telecommunications — 2.4%
	Intelsat (Bermuda), Ltd.		7.625%		4/15/12	$	1,040		$	858
	Intelsat (Bermuda), Ltd.		9.250%		6/15/16		635			656	^A
	Intelsat (Bermuda), Ltd.		11.250%		6/15/16		1,145			1,173	^A
	Nordic Telephone Company Holding		8.875%		5/1/16		380			391	^A
	Wind Acquisition Finance SA		10.750%		12/1/15		790			839	^A

										3,917

Telecommunications (Cellular/ Wireless) — 0.2%
	Rogers Wireless		7.250%		12/15/12		330			333

Transportation — 1.1%
	Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (TFM)		9.375%		5/1/12		370			394
	OMI Corporation		7.625%		12/1/13		966			964
	Teekay Shipping Corporation		8.875%		7/15/11		376			394

										1,752

Total Yankee Bonds (Identified Cost — $17,273)										16,833

Common Stocks — N.M.
	Washington Group International, Inc.						0.3	shs		18

Total Common Stocks (Identified Cost — $0)										18

Preferred Stocks — 1.1%
	Chespeake Energy Corporation		6.250%				1			174
	Paxson Communications Corporation		14.250%				0.2			1,643	^D,H

Total Preferred Stocks (Identified Cost — $1,695)										1,817

Semi-Annual Report to Shareholders 45


		Par/
		Shares			Value

Warrants — N.M.
	Next Generation Network, Inc.		16	wts	$	0.2	^I

Total Warrants (Identified Cost — $237)						0.2

Total Long-Term Securities (Identified Cost — $159,250)						156,489

Short-Term Securities — 2.6%
Repurchase Agreements — 2.6%
Goldman, Sachs & Company 5.21%, dated 6/30/06, to be repurchased at $2,092 on 7/3/06 (Collateral: $2,255 Fannie Mae notes, 4.375%, due 7/17/13 value $2,134)		$	2,091			2,091
Lehman Brothers, Inc. 5.05%, dated 6/30/06, to be repurchased at $2,092 on 7/3/06 (Collateral: $9,225 Federal Home Loan Bank zero-coupon bonds, due 9/29/28, value $2,133)			2,091			2,091

Total Short-Term Securities (Identified Cost — $4,182)						4,182

Total Investments — 100.3% (Identified Cost — $163,432)						160,671
Other Assets Less Liabilities — (0.3)%						(484	)

Net Assets — 100.0%					$	160,187


^A	Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities, which the Fund’s investment adviser has determined to be liquid, represent 20.5% of net assets.

^B	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes.

^C	Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”). The coupon rates are the rates as of June 30, 2006.


^D	Pay-in-Kind (“PIK”) security — A security in which interest or dividends during the initial few years is paid in additional PIK securities rather than in cash.


^E	Convertible Security — Security may be converted into issuer’s common stock.


^F	Unit — A security which consists of a bond and warrants to purchase the stock of the issuer.

^G	Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities.

^H	Private placement.


^I	Non-income producing.

See notes to financial statements.

46 Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

High Yield Portfolio

June 30, 2006

(Amounts in Thousands) (Unaudited)



Assets:
	Investment securities at market value (Identified Cost – $159,250)				$	156,489
	Short-term securities at value (Identified Cost – $4,182)					4,182
	Interest and dividends receivable					3,453
	Receivable for fund shares sold					285
	Receivable for securities sold					254

		Total assets				164,663
Liabilities:
	Payable for securities purchased		$	3,863
	Payable for fund shares repurchased			373
	Accrued management fee			86
	Accrued distribution and service fees			61
	Accrued expenses			93

		Total liabilities				4,476

Net Assets					$	160,187

Net assets consist of:
	Accumulated paid-in capital applicable to:
		16,370 Primary Class shares outstanding			$	302,215
		1,523 Institutional Class shares outstanding				13,965
	Undistributed net investment income					473
	Accumulated net realized loss on investments					(153,705	)
	Unrealized appreciation/(depreciation) of investments					(2,761	)

Net Assets					$	160,187

Net Asset Value Per Share:
	Primary Class					$8.95

	Institutional Class					$8.99

See notes to financial statements.

Semi-Annual Report to Shareholders 47

Statement of Operations

High Yield Portfolio

For the Six Months Ended June 30, 2006

(Amounts in Thousands) (Unaudited)



Investment Income:
	Interest			$	7,295
	Dividends				115

			Total income				$	7,410
Expenses:
	Management fees				538
	Distribution and service fees
		Primary Class			381
	Audit and legal fees				36
	Custodian fees				40
	Directors’ fees and expenses				15
	Registration fees				27
	Reports to shareholders				26
	Transfer agent and shareholder servicing expense:
		Primary Class			74
		Institutional Class			7
	Other expenses				21

					1,165
		Less: Compensating balance credits			(2	)^A

			Total expenses, net of compensating balance credits					1,163

Net Investment Income								6,247
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain on investments				1,173
	Change in unrealized appreciation/(depreciation) of investments				(1,049	)

Net Realized and Unrealized Gain/(Loss) on Investments								124

Change in Net Assets Resulting From Operations							$	6,371


^A	See note 1, Compensating Balance Credits, in the notes to financial statements.

See notes to financial statements.

48 Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

High Yield Portfolio

(Amounts in Thousands)


			For the			For the
			Six Months Ended			Year Ended
			6/30/06			12/31/05

			(Unaudited)
Change in Net Assets:
Net investment income			$	6,247		$	14,117
Net realized gain on investments				1,173			765
Change in unrealized appreciation/(depreciation) on investments				(1,049	)		(10,653	)

Change in net assets resulting from operations				6,371			4,229
Distributions to shareholders:
	From net investment income:
		Primary Class		(5,288	)		(13,197	)
		Institutional Class		(487	)		(861	)
Change in net assets from Fund share transactions:
		Primary Class		(11,461	)		(38,618	)
		Institutional Class		1,264			4,174

Change in net assets				(9,601	)		(44,273	)
Net Assets:
Beginning of period				169,788			214,061

End of period			$	160,187		$	169,788

Undistributed net investment income			$	473		$	1

See notes to financial statements.

Semi-Annual Report to Shareholders 49

Financial Highlights

High Yield Portfolio

Primary Class:


		Six Months
		Ended			Years Ended December 31,
		June 30,
		2006			2005			2004			2003			2002			2001

		(Unaudited)
Net asset value, beginning of period		$	8.93		$	9.39		$	9.10		$	7.96		$	9.22		$	10.18

Investment operations:
	Net investment income		.34			.67			.62			.63			.77			.94
	Net realized and unrealized gain/(loss) on investments		(.01	)		(.46	)		.29			1.15			(1.26	)		(.94	)

	Total from investment operations		.33			.21			.91			1.78			(.49	)		—

Distributions:
	From net investment income		(.31	)		(.67	)		(.62	)		(.64	)		(.77	)		(.96	)

	Total distributions		(.31	)		(.67	)		(.62	)		(.64	)		(.77	)		(.96	)

Net asset value, end of period		$	8.95		$	8.93		$	9.39		$	9.10		$	7.96		$	9.22

Total return			3.77	%^A		2.39	%		10.51	%		23.03	%		(5.28	)%		(.13	)%
Ratios to Average Net Assets:^B
	Total expenses		1.45	%^C		1.40	%		1.36	%		1.41	%		1.36	%		1.51	%
	Expenses net of waivers, if any		1.45	%^C		1.40	%		1.36	%		1.41	%		1.36	%		1.51	%
	Expenses net of all reductions		1.45	%^C		1.40	%		1.36	%		1.41	%		1.36	%		1.51	%
	Net investment income		7.51	%^C		7.28	%		6.79	%		7.26	%		9.06	%		9.59	%
Supplemental Data:
	Portfolio turnover rate		49.3	%^A		134.0	%		109.1	%		122.3	%		96.6	%		130.0	%
Net assets, end of period (in thousands)		$	146,502		$	157,399		$	205,314		$	223,773		$	162,175		$	199,214


^A	Not annualized.


^B	Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

^C	Annualized.

See notes to financial statements.

50 Semi-Annual Report to Shareholders

Institutional Class:


		Six Months
		Ended			Years Ended December 31,
		June 30,
		2006			2005			2004			2003			2002			2001

		(Unaudited)
Net asset value, beginning of period		$	8.96		$	9.41		$	9.11		$	7.96		$	9.20		$	10.18

Investment operations:
	Net investment income		.36			.71			.66			.66			.78			1.01
	Net realized and unrealized gain/(loss) on investments		—			(.45	)		.31			1.15			(1.24	)		(1.00	)

	Total from investment operations		.36			.26			.97			1.81			(.46	)		.01

Distributions:
	From net investment income		(.33	)		(.71	)		(.67	)		(.66	)		(.78	)		(.99	)

	Total distributions		(.33	)		(.71	)		(.67	)		(.66	)		(.78	)		(.99	)

Net asset value, end of period		$	8.99		$	8.96		$	9.41		$	9.11		$	7.96		$	9.20

Total return			4.08	%^A		2.94	%		11.15	%		23.54	%		(5.00	)%		(.06	)%
Ratios to Average Net Assets:^B
	Total expenses		.95	%^C		.85	%		.80	%		.85	%		.82	%		.97	%
	Expenses net of waivers, if any		.95	%^C		.85	%		.80	%		.85	%		.82	%		.97	%
	Expenses net of all reductions		.95	%^C		.84	%		.80	%		.85	%		.82	%		.97	%
	Net investment income		8.01	%^C		7.93	%		7.38	%		7.78	%		9.63	%		10.20	%
Supplemental Data:
	Portfolio turnover rate		49.3	%^A		134.0	%		109.1	%		122.3	%		96.6	%		130.0	%
Net assets, end of period (in thousands)		$	13,685		$	12,389		$	8,747		$	6,434		$	2,704		$	1,331

See notes to financial statements.

Semi-Annual Report to Shareholders 51

Expense Example

Investment Grade Income Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


		Beginning		Ending		Expenses Paid^A
		Account		Account		During the
		Value		Value		Period
		1/1/06		6/30/06		1/1/06 to 6/30/06

Primary Class:
	Actual	$	1,000.00	$	988.50	$	4.93
	Hypothetical (5% return before expenses)		1,000.00		1,019.84		5.01
Institutional Class:
	Actual	$	1,000.00	$	991.00	$	2.47
	Hypothetical (5% return before expenses)		1,000.00		1,022.32		2.51

These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 1.00% and 0.50% for the Primary Class and Institutional Class, respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

52 Semi-Annual Report to Shareholders

Performance Information

Investment Grade Income Portfolio

The graphs on the following pages compare the Fund’s total returns to that of two closely matched broad-based securities market indices. The graphs illustrate the cumulative total return of an initial $10,000 investment in Primary Class shares and an initial $1,000,000 investment in Institutional Class shares of the Fund, for the periods indicated. The lines for the Fund represent the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The line representing each securities market index does not include any transaction costs associated with buying and selling securities in the index or other administrative expenses. Both the Fund’s and the indices results assume reinvestment of all dividends and distributions.

Semi-Annual Report to Shareholders 53

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2006


	Cumulative		Average Annual
	Total Return		Total Return

One Year		-1.75%		-1.75%
Five Years		+31.75%		+5.67%
Ten Years		+85.68%		+6.38%

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


^A	This index includes all publicly issued, fixed rate, non-convertible, investment grade, domestic corporate debt. It also includes Yankee bonds, which are dollar-denominated, SEC- registered public, non-convertible debt issued or guaranteed by foreign sovereign governments, municipalities, governmental agencies, and international agencies.


^B	A market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $100 million par amount outstanding and with at least one year to final maturity.

54 Semi-Annual Report to Shareholders

Performance Information — Continued

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

Periods Ended June 30, 2006


	Cumulative		Average Annual
	Total Return		Total Return

One Year		-1.12%		-1.12%
Five Years		+35.36%		+6.24%
Ten Years		+95.95%		+6.96%

The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please call 1-888-425-6432. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods.

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

Semi-Annual Report to Shareholders 55

Portfolio Composition (as of June 30, 2006)^C

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

Maturity Schedule (as a percentage of the portfolio)


^C	The Fund is actively managed. As a result, the composition of its portfolio holdings and sectors is subject to change at any time.
^D	Standard & Poor’s Ratings Services provides capital markets with credit ratings for the evaluation and assessment of credit risk.

56 Semi-Annual Report to Shareholders

Portfolio of Investments

Investment Grade Income Portfolio

June 30, 2006 (Unaudited)

(Amounts in Thousands)


						Par/
		Rate		Maturity Date		Shares		Value

Long-Term Securities — 98.5%
Corporate Bonds and Notes — 72.7%
Aerospace/ Defense — 1.0%
	L-3 Communications Corp.		7.625%		6/15/12	$	1,000	$	1,015
	Lockheed Martin Corporation		8.500%		12/1/29		760		956
	Northrop Grumman Corporation		7.750%		2/15/31		170		199
	Raytheon Company		6.150%		11/1/08		489		494
	Raytheon Company		5.375%		4/1/13		1,240		1,204

									3,868

Auto Parts and Equipment — 0.4%
	Johnson Controls, Inc.		5.250%		1/15/11		1,460		1,423

Automotive — 1.0%
	Ford Motor Company		7.450%		7/16/31		1,975		1,427
	Ford Motor Company		8.900%		1/15/32		370		295
	General Motors Corporation		8.250%		7/15/23		650		512
	General Motors Corporation		8.375%		7/15/33		1,990		1,602

									3,836

Banking and Finance — 7.9%
	Boeing Capital Corporation		6.500%		2/15/12		1,000		1,035
	Boeing Capital Corporation		5.800%		1/15/13		530		531
	Countrywide Home Loans, Inc.		3.250%		5/21/08		1,200		1,148
	Countrywide Home Loans, Inc.		4.125%		9/15/09		340		324
	Ford Motor Credit Company		7.375%		10/28/09		2,970		2,746
	Ford Motor Credit Company		7.375%		2/1/11		2,390		2,140
	Ford Motor Credit Company		10.486%		6/15/11		6,829		6,853	^A,B
	Ford Motor Credit Company		7.250%		10/25/11		2,410		2,138
	General Motors Acceptance Corporation		6.125%		8/28/07		2,680		2,652
	General Motors Acceptance Corporation		6.311%		11/30/07		320		308
	General Motors Acceptance Corporation		5.625%		5/15/09		590		561
	General Motors Acceptance Corporation		6.875%		9/15/11		750		716

Semi-Annual Report to Shareholders 57


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Banking and Finance — Continued
	General Motors Acceptance Corporation		0.000%		6/15/15	$	2,700	$	1,252	^C
	HSBC Finance Corporation		4.750%		4/15/10		1,325		1,278
	HSBC Finance Corporation		5.500%		1/19/16		1,610		1,533
	John Deere Capital Corporation		4.500%		8/22/07		5		5
	MBNA America Bank		5.375%		1/15/08		1,200		1,196
	National Rural Utilities Cooperative Finance Corporation		7.250%		3/1/12		1,700		1,811
	Residential Capital Corporation		6.125%		11/21/08		530		523
	Residential Capital Corporation		6.000%		2/22/11		1,970		1,909
	SB Treasury Company LLC		9.400%		12/29/49		840		892	^A,D

									31,551

Banks — 6.9%
	Bank of America Corporation		7.400%		1/15/11		3,165		3,367
	Bank of America Corporation		4.750%		8/15/13		110		103
	BankAmerica Capital III		5.638%		1/15/27		585		567	^B
	BB&T Capital Trust II		6.750%		6/7/36		1,750		1,743
	CBA Capital Trust I		5.805%		12/31/49		3,510		3,381	^A
	Chase Capital II		5.649%		2/1/27		1,980		1,902	^B
	HSBC Finance Capital Trust IX		5.911%		11/30/35		2,500		2,386	^D
	Key Bank NA		5.800%		7/1/14		535		528
	Rabobank Capital Funding Trust II		5.260%		12/31/49		320		300	^A,D
	Rabobank Capital Funding Trust III		5.254%		12/29/49		3,120		2,858	^A,D
	RBS Capital Trust III		5.512%		9/29/49		4,020		3,748	^D
	Suntrust Bank		5.000%		9/1/15		770		723
	UnionBanCal Corporation		5.250%		12/16/13		785		750
	Wachovia Bank NA		7.800%		8/18/10		2,640		2,826
	Wachovia Capital Trust III		5.800%		3/15/42		520		505	^D
	Washington Mutual, Inc.		4.200%		1/15/10		700		666
	Washington Mutual, Inc.		4.625%		4/1/14		1,000		903

									27,256

Building Materials — N.M.
	American Standard, Inc.		8.250%		6/1/09		37		39
	American Standard, Inc.		7.625%		2/15/10		5		5

									44

58 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Cable — 1.7%
	Comcast Cable Communications, Inc.		6.750%		1/30/11	$	960	$	991
	Comcast Corporation		7.050%		3/15/33		1,800		1,826
	Comcast Corporation		6.450%		3/15/37		1,100		1,033
	Cox Communications, Inc.		4.625%		1/15/10		1,410		1,345
	CSC Holdings Inc.		7.625%		7/15/18		1,500		1,485
	Tele-Communications, Inc.		7.125%		2/15/28		180		177

									6,857

Casino Resorts — 0.6%
	Harrah’s Operating Company, Inc.		5.500%		7/1/10		410		400
	Harrah’s Operating Company, Inc.		5.750%		10/1/17		2,110		1,922

									2,322

Chemicals — 0.7%
	E. I. du Pont de Nemours and Company		4.875%		4/30/14		1,100		1,029
	The Dow Chemical Company		6.000%		10/1/12		750		756
	The Dow Chemical Company		7.375%		11/1/29		800		888

									2,673

Computer Services and Systems — 0.8%
	Electronic Data Systems Corporation		7.125%		10/15/09		530		548
	Electronic Data Systems Corporation		6.500%		8/1/13		500		493
	Electronic Data Systems Corporation		7.450%		10/15/29		570		587
	International Business Machines Corporation		4.750%		11/29/12		1,750		1,658

									3,286

Consumer Products — 0.1%
	The Clorox Company		5.000%		1/15/15		350		328
	The Procter & Gamble Company		4.300%		8/15/08		200		195

									523

Semi-Annual Report to Shareholders 59


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Diversified Financial Services — 7.6%
	AIG SunAmerica Global Financing VI		6.300%		5/10/11	$	5,170	$	5,283	^A
	Associates Corporation of North America		8.150%		8/1/09		775		828
	Beaver Valley Funding Corp.		9.000%		6/1/17		1,100		1,223
	Capital One Bank		4.875%		5/15/08		150		148
	Capital One Bank		5.750%		9/15/10		870		868
	Capital One Bank		6.500%		6/13/13		690		705
	Capital One Financial Corporation		7.125%		8/1/08		340		348
	General Electric Capital Corporation		4.000%		6/15/09		3,640		3,484
	General Electric Capital Corporation		3.750%		12/15/09		4,900		4,611
	General Electric Capital Corporation		5.450%		1/15/13		1,740		1,710
	General Electric Capital Corporation		6.750%		3/15/32		5		5
	iStar Financial Inc.		5.375%		4/15/10		3,180		3,105
	iStar Financial Inc.		6.000%		12/15/10		580		578
	Marsh & McLennan Companies, Inc.		5.150%		9/15/10		240		231
	Marsh & McLennan Companies, Inc.		5.875%		8/1/33		900		782
	Mizuho Preferred Capital Corp. LLC		8.790%		12/29/49		1,520		1,597	^A,D
	ZFS Finance (USA) Trust I		6.150%		12/15/65		2,490		2,386	^A,D
	ZFS Finance (USA) Trust II		6.450%		12/15/65		2,500		2,287	^A,D

									30,179

Drug and Grocery Store Chains — 0.6%
	Kroger Company		8.000%		9/15/29		1,000		1,086
	Safeway Inc.		7.500%		9/15/09		600		627
	Safeway Inc.		5.800%		8/15/12		750		732

									2,445

60 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Electric — 3.9%
	AEP Texas Central Company		5.500%		2/15/13	$	1,060	$	1,023
	American Electric Power Company, Inc.		5.250%		6/1/15		350		327
	Commonwealth Edison Company		6.150%		3/15/12		560		566
	Dominion Resources, Inc.		5.125%		12/15/09		490		478
	Dominion Resources, Inc.		4.750%		12/15/10		140		133
	Dominion Resources, Inc.		5.700%		9/17/12		510		499
	FirstEnergy Corp.		6.450%		11/15/11		2,285		2,325
	FirstEnergy Corp.		7.375%		11/15/31		4,440		4,763
	Niagara Mohawk Power Corporation		7.750%		10/1/08		1,010		1,051
	System Energy Resources, Inc.		4.875%		10/1/07		1,020		1,004
	Tampa Electric Company		6.375%		8/15/12		380		388
	The Cleveland Electric Illuminating Company		5.650%		12/15/13		940		911
	The Cleveland Electric Illuminating Company		7.880%		11/1/17		850		955
	The Detroit Edison Company		5.200%		10/15/12		1,260		1,211

									15,634

Energy — 3.7%
	Alabama Power Company		3.125%		5/1/08		920		880
	DTE Energy Company		6.375%		4/15/33		350		331
	Duke Energy Corporation		5.625%		11/30/12		270		267
	Exelon Corporation		6.750%		5/1/11		2,000		2,067
	MidAmerican Energy Holdings Company		5.875%		10/1/12		750		744
	Pacific Gas and Electric Company		6.050%		3/1/34		4,610		4,351
	Sempra Energy		5.659%		5/21/08		1,685		1,686	^B
	TXU Corp.		6.550%		11/15/34		2,730		2,398
	TXU Energy Co.		7.000%		3/15/13		930		949
	Xcel Energy, Inc.		7.000%		12/1/10		900		937

									14,610

Environmental Services — 0.3%
	Waste Management, Inc.		6.375%		11/15/12		310		316
	Waste Management, Inc.		7.375%		5/15/29		690		750

									1,066

Semi-Annual Report to Shareholders 61


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Food, Beverage and Tobacco — 1.3%
	Altria Group, Inc.		7.000%		11/4/13	$	1,385	$	1,461
	Kellogg Company		6.600%		4/1/11		1,000		1,033
	Kellogg Company		7.450%		4/1/31		650		738
	Reynolds American Inc.		7.875%		5/15/09		860		877	^A
	The Pepsi Bottling Group, Inc.		7.000%		3/1/29		340		366
	Tyson Foods, Inc.		7.000%		1/15/28		800		738

									5,213

Gas and Pipeline Utilities — 1.5%
	CenterPoint Energy Resources Corp.		7.875%		4/1/13		1,010		1,098
	Dynegy Holdings Inc.		8.750%		2/15/12		1,690		1,715
	Tennessee Gas Pipeline Company		8.375%		6/15/32		1,000		1,070
	The Williams Companies, Inc.		7.625%		7/15/19		2,000		2,030

									5,913

Health Care — 1.6%
	Humana Inc.		6.450%		6/1/16		600		594
	Tenet Healthcare Corporation		9.875%		7/1/14		2,310		2,310
	Tenet Healthcare Corporation		6.875%		11/15/31		750		600
	Universal Health Services, Inc.		7.125%		6/30/16		1,450		1,457
	WellPoint Inc.		5.000%		12/15/14		1,330		1,237

									6,198

Homebuilding — 0.3%
	Centex Corporation		5.125%		10/1/13		420		384
	D.R. Horton, Inc.		5.250%		2/15/15		610		542
	Pulte Homes, Inc.		6.250%		2/15/13		385		375

									1,301

Insurance — 0.9%
	Aetna Inc.		5.750%		6/15/11		1,490		1,480
	Liberty Mutual Group		5.750%		3/15/14		720		676	^A
	The St. Paul Travelers Companies, Inc.		6.250%		6/20/16		780		777
	Willis Group North America		5.125%		7/15/10		760		733

									3,666

62 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Investment Banking/ Brokerage — 3.8%
	JPMorgan Chase & Co.		5.125%		9/15/14	$	5	$	5
	JPMorgan Chase & Co.		4.891%		9/1/15		1,035		996	^D
	Lehman Brothers Holdings Inc.		5.500%		4/4/16		4,690		4,482
	Merrill Lynch & Co., Inc.		3.375%		9/14/07		1,345		1,313
	Merrill Lynch & Co., Inc.		6.000%		2/17/09		800		805
	Morgan Stanley		5.050%		1/21/11		900		873
	Morgan Stanley		4.750%		4/1/14		65		59
	The Bear Stearns Companies Inc.		4.550%		6/23/10		1,600		1,534
	The Goldman Sachs Group, Inc.		6.345%		2/15/34		2,025		1,888
	UBS Preferred Funding Trust V		6.243%		5/12/49		3,030		2,985	^D

									14,940

Machinery — 0.3%
	Case New Holland Incorporated		9.250%		8/1/11		1,000		1,052

Media — 2.8%
	Clear Channel Communications, Inc.		4.400%		5/15/11		1,210		1,096
	Clear Channel Communications, Inc.		5.500%		9/15/14		500		453
	Liberty Media Corporation		7.875%		7/15/09		1,000		1,035
	Liberty Media Corporation		8.500%		7/15/29		340		331
	Liberty Media Corporation		8.250%		2/1/30		120		115
	News America, Inc.		6.550%		3/15/33		1,495		1,394
	News America, Inc.		6.200%		12/15/34		115		104
	Time Warner Entertainment Co., L.P.		8.375%		7/15/33		855		967
	Time Warner Inc.		6.150%		5/1/07		1,390		1,395
	Time Warner Inc.		9.125%		1/15/13		1,130		1,292
	Time Warner Inc.		7.700%		5/1/32		1,625		1,766
	Viacom Inc.		7.700%		7/30/10		90		96
	Viacom Inc.		5.625%		8/15/12		1,095		1,070

									11,114

Media and Entertainment — 0.3%
	The Walt Disney Company		6.200%		6/20/14		1,220		1,240

Semi-Annual Report to Shareholders 63


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Medical Care Facilities — 1.6%
	Coventry Health Care, Inc.		5.875%		1/15/12	$	1,050	$	1,008
	HCA, Inc.		6.300%		10/1/12		1,790		1,683
	HCA, Inc.		6.250%		2/15/13		2,130		1,989
	HCA, Inc.		5.750%		3/15/14		150		134
	Health Care REIT, Inc.		5.875%		5/15/15		1,440		1,374

									6,188

Metals and Minerals — 0.7%
	Vale Overseas Limited		6.250%		1/11/16		2,885		2,748

Oil and Gas — 6.0%
	Amerada Hess Corporation		7.875%		10/1/29		3,770		4,206
	Apache Corporation		6.250%		4/15/12		1,150		1,178
	Conoco Inc.		6.950%		4/15/29		600		653
	ConocoPhillips		4.750%		10/15/12		2,290		2,178
	Devon Energy Corporation		7.950%		4/15/32		1,080		1,244
	El Paso Corporation		7.800%		8/1/31		1,660		1,612
	El Paso Corporation		7.750%		1/15/32		340		331
	Kerr-McGee Corporation		7.875%		9/15/31		4,700		5,305
	Ocean Energy Inc.		4.375%		10/1/07		965		949
	Panhandle Eastern Pipe Line Company		4.800%		8/15/08		1,170		1,141
	Pemex Project Funding Master Trust		8.500%		2/15/08		100		104
	Pemex Project Funding Master Trust		6.625%		6/15/35		2,900		2,625	^A
	Pride International, Inc.		7.375%		7/15/14		800		804
	Valero Energy Corporation		6.875%		4/15/12		565		586
	XTO Energy, Inc.		6.250%		4/15/13		745		745

									23,661

Paper and Forest Products — 1.0%
	Weyerhaeuser Company		6.750%		3/15/12		2,150		2,197
	Weyerhaeuser Company		7.375%		3/15/32		1,785		1,807

									4,004

64 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Pharmaceuticals — 0.8%
	Bristol-Myers Squibb Company		5.750%		10/1/11	$	1,160	$	1,157
	Wyeth		6.950%		3/15/11		2,000		2,086

									3,243

Photo Equipment and Supplies — 0.3%
	Eastman Kodak Company		3.625%		5/15/08		975		922
	Eastman Kodak Company		7.250%		11/15/13		500		482

									1,404

Real Estate — 0.4%
	EOP Operating Limited Partnership		6.750%		2/15/12		1,500		1,548

Retail — 0.6%
	May Department Stores Company		5.750%		7/15/14		1,070		1,039
	Target Corporation		5.875%		3/1/12		860		869
	Wal-Mart Stores, Inc.		6.875%		8/10/09		475		492

									2,400

Special Purpose — 6.8%
	Ahold Finance USA, Inc.		8.250%		7/15/10		960		1,001
	ASIF Global Financing XIX		4.900%		1/17/13		1,120		1,061	^A
	Caterpillar Financial Services Corporation		4.500%		6/15/09		1,040		1,009
	DaimlerChrysler NA Holding Corporation		5.780%		9/10/07		1,520		1,524	^B
	DaimlerChrysler NA Holding Corporation		4.050%		6/4/08		160		155
	DaimlerChrysler NA Holding Corporation		7.200%		9/1/09		260		268
	DaimlerChrysler NA Holding Corporation		5.875%		3/15/11		300		295
	DaimlerChrysler NA Holding Corporation		7.300%		1/15/12		735		765
	DaimlerChrysler NA Holding Corporation		6.500%		11/15/13		290		290
	DaimlerChrysler NA Holding Corporation		8.500%		1/18/31		1,800		2,038

Semi-Annual Report to Shareholders 65


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Special Purpose — Continued
	Deutsche Bank Capital Funding Trust		5.628%		1/19/49	$	1,760	$	1,630	^A,D
	Duke Capital Corporation		6.250%		2/15/13		340		343
	Fosters Finance Corporation		4.875%		10/1/14		840		768	^A
	ILFC E-Capital Trust I		5.900%		12/21/65		1,980		1,930	^A,D
	Sprint Capital Corporation		8.375%		3/15/12		1,860		2,055
	Sprint Capital Corporation		8.750%		3/15/32		3,300		3,980
	TCI Communications Financing III		9.650%		3/31/27		3,350		3,572
	Unilever Capital Corporation		7.125%		11/1/10		480		504
	Verizon Global Funding Corp.		6.125%		6/15/07		2,065		2,073
	Verizon Global Funding Corp.		7.750%		6/15/32		375		404
	Verizon Global Funding Corp.		5.850%		9/15/35		1,580		1,374

									27,039

Telecommunications — 2.2%
	AT&T Inc.		5.100%		9/15/14		1,910		1,772
	AT&T Corp.		8.000%		11/15/31		1,200		1,378
	BellSouth Corporation		4.750%		11/15/12		830		770
	Embarq Corporation		6.738%		6/1/13		950		947
	Embarq Corporation		7.082%		6/1/16		1,500		1,492
	Qwest Corporation		5.625%		11/15/08		550		536
	Verizon New York Inc.		6.875%		4/1/12		1,820		1,844

									8,739

Telecommunications (Cellular/ Wireless) — 1.4%
	Motorola, Inc.		7.625%		11/15/10		135		144
	New Cingular Wireless Services Inc.		7.500%		5/1/07		1,500		1,521
	New Cingular Wireless Services Inc.		8.125%		5/1/12		570		627
	New Cingular Wireless Services Inc.		8.750%		3/1/31		980		1,202
	Nextel Communications, Inc.		5.950%		3/15/14		469		450
	Nextel Communications, Inc.		7.375%		8/1/15		1,600		1,629

									5,573

66 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Transportation — 0.9%
	Burlington Northern Railroad Company		6.960%		3/22/09	$	157	$	161
	Burlington Northern Railroad Company		7.330%		6/23/10		121		125
	Continental Airlines, Inc.		7.256%		3/15/20		521		534
	Continental Airlines, Inc.		6.545%		8/2/20		161		159
	CSX Transportation, Inc.		7.875%		5/15/43		252		296
	Delta Air Lines, Inc.		7.570%		5/18/12		300		301
	Norfolk Southern Corporation		7.875%		5/15/43		348		412
	Union Pacific Corporation		4.875%		1/15/15		1,740		1,617

									3,605

Total Corporate Bonds and Notes (Identified Cost — $298,095)									288,362

U.S. Government and Agency Obligations — 4.8%
Fixed Rate Securities — 4.8%
	Tennessee Valley Authority		5.375%		11/13/08		150		150
	United States Treasury Bonds		6.250%		5/15/30		40		45
	United States Treasury Notes		4.500%		2/15/09		3,885		3,824
	United States Treasury Notes		4.125%		8/15/10		10,300		9,931
	United States Treasury Notes		4.875%		5/31/11		5,070		5,018

Total U.S. Government and Agency Obligations (Identified Cost — $19,082)									18,968

U.S. Government Agency Mortgage-Backed Securities — N.M.
Indexed Securities^B — N.M.
	Freddie Mac		5.923%		9/1/24		72		73

Total U.S. Government and Agency Obligations (Identified Cost — $72)									73

Semi-Annual Report to Shareholders 67


						Par/
		Rate		Maturity Date		Shares		Value

Yankee Bonds^E — 21.0%
Banking and Finance — 2.6%
	AIFUL CORPORATION		5.000%		8/10/10	$	2,685	$	2,553	^A
	Corporacion Andina de Fomento		5.458%		1/26/07		1,260		1,260	^B
	HBOS Capital Funding LP		6.071%		6/30/49		1,490		1,452	^A,D
	HBOS Treasury Services plc		4.000%		9/15/09		1,080		1,029	^A
	Mizuho Financial Group, Inc.		5.790%		4/15/14		3,565		3,490	^A
	Sumitomo Mitsui Banking Corporation		5.625%		7/29/49		730		681	^A,D

									10,465

Banks — 4.1%
	BOI Capital Funding		5.571%		2/1/49		2,000		1,846	^A,D
	Glitnir Banki HF		6.693%		6/15/16		1,900		1,889	^A,D
	HSBC Holdings plc		5.250%		12/12/12		830		802
	Kaupthing Bank Hf		5.758%		4/12/11		1,440		1,441	^A
	Kaupthing Bank Hf		7.125%		5/19/16		3,585		3,586	^A
	RSHB Capital SA		7.175%		5/16/13		3,690		3,658	^A
	Shinsei Finance Cayman Limited		6.418%		1/29/49		3,055		2,869	^A,D

									16,091

Cable — 0.2%
	British Sky Broadcasting Group plc		6.875%		2/23/09		870		891

Electric — 1.0%
	Empresa Nacional de Electricidad S.A.		8.350%		8/1/13		2,011		2,165
	Hydro-Quebec		7.500%		4/1/16		1,625		1,831

									3,996

Foreign Governments — 3.0%
	Federative Republic of Brazil		8.875%		4/15/24		240		266
	Federative Republic of Brazil		10.125%		5/15/27		740		920
	Federative Republic of Brazil		12.250%		3/6/30		340		499
	Province of Nova Scotia		5.750%		2/27/12		1,000		1,008
	Republic of Colombia		11.750%		2/25/20		359		472
	Republic of Panama		7.125%		1/29/26		740		714
	Republic of Panama		6.700%		1/26/36		353		323
	Russian Federation		5.000%		3/31/30		980		1,043	^D
	United Mexican States		11.500%		5/15/26		1,100		1,623

68 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


						Par/
		Rate		Maturity Date		Shares		Value

Yankee Bonds — Continued
Foreign Governments — Continued
	United Mexican States		8.300%		8/15/31	$	820	$	947
	United Mexican States		7.500%		4/8/33		3,942		4,188

									12,003

Insurance — 0.5%
	Axa		8.600%		12/15/30		1,630		1,940
	XL Capital Ltd.		5.250%		9/15/14		20		18

									1,958

Manufacturing (Diversified) — 0.8%
	Tyco International Group SA		6.375%		10/15/11		250		255
	Tyco International Group SA		7.000%		6/15/28		554		578
	Tyco International Group SA		6.875%		1/15/29		2,051		2,114

									2,947

Oil and Gas — 1.4%
	Petrobras International Finance Company (PIFCO)		9.750%		7/6/11		905		1,023
	Petroliam Nasional Berhad		7.625%		10/15/26		610		690	^A
	YPF Sociedad Anonima		10.000%		11/2/28		3,500		3,990	^F

									5,703

Special Purpose — 3.2%
	Anadarko Finance Company		6.750%		5/1/11		970		997
	Conoco Funding Company		6.350%		10/15/11		520		535
	Deutsche Telekom International Finance BV		8.250%		6/15/30		1,400		1,617
	Deutsche Telekom International Finance BV		9.250%		6/1/32		670		845
	General Motors Nova Scotia Finance Company		6.850%		10/15/08		1,160		1,099
	HSBC Capital Funding LP		4.610%		12/29/49		760		683	^A,D
	Molson Coors Capital Finance		4.850%		9/22/10		1,305		1,256
	Petronas Capital Ltd.		7.875%		5/22/22		770		881	^A
	Resona Preferred Global Securities Limited		7.191%		12/29/49		2,880		2,889	^A,D
	Telefonica Europe BV		8.250%		9/15/30		800		904
	UFJ Finance Aruba AEC		6.750%		7/15/13		920		958

									12,664

Semi-Annual Report to Shareholders 69


						Par/
		Rate		Maturity Date		Shares		Value

Yankee Bonds — Continued
Telecommunications — 3.4%
	British Telecommunications plc		8.375%		12/15/10	$	900	$	988
	British Telecommunications plc		8.875%		12/15/30		420		516
	France Telecom SA		7.750%		3/1/11		3,000		3,223
	France Telecom SA		8.500%		3/1/31		340		409
	INTELSAT		7.625%		4/15/12		32		27
	INTELSAT		6.500%		11/1/13		1,333		1,013
	Koninklijke (Royal) KPN NV		8.000%		10/1/10		990		1,050
	Koninklijke (Royal) KPN NV		8.375%		10/1/30		655		703
	Tele Norte Leste Participacoes S.A.		8.000%		12/18/13		1,080		1,123
	Telecom Italia Capital S.p.A.		5.250%		11/15/13		2,025		1,872
	Telecom Italia Capital S.p.A.		4.950%		9/30/14		1,860		1,665
	Telus Corporation		7.500%		6/1/07		700		710

									13,299

Telecommunications (Cellular/ Wireless) — 0.2%
	Rogers Wireless Communications Inc.		6.375%		3/1/14		1,000		952

Transportation — 0.2%
	Qantas Airways Limited		6.050%		4/15/16		980		949	^A

Utilities — 0.4%
	United Utilities plc		5.375%		2/1/19		1,550		1,403

Total Yankee Bonds (Identified Cost — $84,393)									83,321

Total Long-Term Securities (Identified Cost — $401,642)									390,724

Short-Term Securities — 0.5%
U.S. Government and Agency Obligations — N.M.
	Fannie Mae		0.000%		9/25/06		200		198	^C,G

70 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Investment Grade Income Portfolio — Continued


Repurchase Agreements — 0.5%
Goldman, Sachs & Company 5.21%, dated 6/30/06, to be repurchased at $994 on 7/3/06 (Collateral: $995 Fannie Mae notes, 4.75%, due 1/2/07, value $1,015)	$	994	$	994
Merrill Lynch Government Securities, Inc. 5.14%, dated 6/30/06, to be repurchased at $993 on 7/3/06 (Collateral: $2,075 Resolution Funding Co. principal-only securities, due 7/15/15 to 1/15/26, value $1,014)		993		993

				1,987

Total Short-Term Securities (Identified Cost — $2,185)				2,185

Total Investments — 99.0% (Identified Cost — $403,827)				392,909
Other Assets Less Liabilities — 1.0%				3,869

Net Assets — 100.0%			$	396,778

Semi-Annual Report to Shareholders 71


				Actual		Appreciation/
		Expiration		Contracts		(Depreciation)

Futures Contracts Purchased^H
	U.S. Treasury Bond Futures		September 2006		41	$	(31	)
	U.S. Treasury Note Futures		September 2006		255		(162	)

						$	(193	)

Futures Contracts Written^H
	U.S. Treasury Note Futures		September 2006		435	$	270


^A	Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities, which the Fund’s investment adviser has determined to be liquid, represent 16.6% of net assets.


^B	Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”) or the ten year Treasury Bill Constant Maturity Rate. The coupon rates are the rates as of June 30, 2006.

^C	Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity.

^D	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes.


^E	Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities.

^F	Illiquid security valued at fair value under procedures approved by the Board of Directors.


^G	Collateral to cover futures and options contracts.

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

N.M. — Not meaningful.

See notes to financial statements.

72 Semi-Annual Report to Shareholders

Statement of Assets and Liabilities

Investment Grade Income Portfolio

June 30, 2006

(Amounts in Thousands) (Unaudited)



Assets:
	Investment securities at market value (Identified Cost – $401,642)				$	390,724
	Short-term securities at value (Identified Cost – $2,185)					2,185
	Cash					68
	Receivable for fund shares sold					805
	Interest and dividends receivable					6,244
	Other assets					1

		Total assets				400,027
Liabilities:
	Payable for fund shares repurchased		$	1,337
	Payable for securities purchased			583
	Payable for futures variation margin			105
	Income distribution payable			868
	Accrued management fee			129
	Accrued distribution and service fees			124
	Accrued expenses			103

		Total liabilities				3,249

Net Assets					$	396,778

Net assets consist of:
	Accumulated paid-in capital applicable to:
		37,285 Primary Class shares outstanding			$	385,171
		2,266 Institutional Class shares outstanding				24,022
	Overdistribution of net investment income					(109	)
	Accumulated net realized loss on investments and futures					(1,465	)
	Unrealized appreciation/(depreciation) of investments and futures					(10,841	)

Net Assets					$	396,778

Net Asset Value Per Share:
	Primary Class					$10.03

	Institutional Class					$10.04

See notes to financial statements.

Semi-Annual Report to Shareholders 73

Statement of Operations

Investment Grade Income Portfolio

For the Six Months Ended June 30, 2006

(Amounts in Thousands) (Unaudited)



Investment Income:
	Interest					$	11,520
Expenses:
	Management fees			1,163
	Distribution and service fees
		Primary Class		915
	Audit and legal fees			35
	Custodian fees			65
	Directors’ fees and expenses			26
	Registration fees			57
	Reports to shareholders			44
	Transfer agent and shareholder servicing expense:
		Primary Class		166
		Institutional Class		1
	Other expenses			42

				2,514
		Less: Fees waived		(629	)
		Compensating balance credits		(1	)^A

			Total expenses, net of waivers and compensating balance credits			$	1,884

Net Investment Income							9,636
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on:
		Investments		(1,283	)
		Futures		7

							(1,276	)
	Change in unrealized appreciation/(depreciation) of investments and futures						(12,881	)

Net Realized and Unrealized Loss on Investments							(14,157	)

Change in Net Assets Resulting From Operations						$	(4,521	)


^A	See note 1, Compensating Balance Credits, in the notes to financial statements.

See notes to financial statements.

74 Semi-Annual Report to Shareholders

Statement of Changes in Net Assets

Investment Grade Income Portfolio

(Amounts in Thousands)


			For the			For the
			Six Months Ended			Year Ended
			6/30/06			12/31/05

			(Unaudited)
Change in Net Assets:
Net investment income			$	9,636		$	18,980
Net realized gain/(loss) on investments and futures				(1,276	)		2,302
Change in unrealized appreciation/(depreciation) of investments and futures				(12,881	)		(14,161	)

Change in net assets resulting from operations				(4,521	)		7,121
Distributions to shareholders:
	From net investment income:
		Primary Class		(9,038	)		(18,146	)
		Institutional Class		(589	)		(836	)
	From net realized gain on investments:
		Primary Class		(15	)		(3,431	)
		Institutional Class		(1	)		(157	)
Change in net assets from Fund share transactions:
		Primary Class		21,075			(22,272	)
		Institutional Class		3,097			10,914

Change in net assets				10,008			(26,807	)
Net Assets:
Beginning of period				386,770			413,577

End of period			$	396,778		$	386,770

Overdistribution of net investment income			$	(109	)	$	(118	)

See notes to financial statements.

Semi-Annual Report to Shareholders 75

Financial Highlights

Investment Grade Income Portfolio

Primary Class:


		Six Months
		Ended			Years Ended December 31,
		June 30,
		2006			2005			2004			2003			2002			2001

		(Unaudited)
Net asset value, beginning of period		$	10.40		$	10.81		$	10.88		$	10.42		$	10.10		$	9.97

Investment operations:
	Net investment income		.25			.49			.49			.50			.54			.60
	Net realized and unrealized gain/(loss) on investments, options and futures		(.37	)		(.31	)		.18			.53			.32			.14

	Total from investment operations		(.12	)		.18			.67			1.03			.86			.74

Distributions:
	From net investment income		(.25	)		(.49	)		(.49	)		(.50	)		(.54	)		(.61	)
	From net realized gain on investments		—^A			(.10	)		(.25	)		(.07	)		—			—

	Total distributions		(.25	)		(.59	)		(.74	)		(.57	)		(.54	)		(.61	)

Net asset value, end of period		$	10.03		$	10.40		$	10.81		$	10.88		$	10.42		$	10.10

Total return			(1.15	)%^B		1.69	%		6.29	%		10.16	%		8.82	%		7.52	%
Ratios to Average Net Assets:^C
	Total expenses		1.33	%^D		1.30	%		1.27	%		1.28	%		1.30	%		1.27	%
	Expenses net of waivers, if any		1.00	%^D		1.00	%		1.00	%		1.00	%		1.00	%		1.00	%
	Expenses net of all reductions		1.00	%^D		1.00	%		1.00	%		1.00	%		1.00	%		1.00	%
	Net investment income		4.95	%^D		4.64	%		4.47	%		4.62	%		5.32	%		5.90	%
Supplemental Data:
	Portfolio turnover rate		32.3	%^B		51.1	%		74.9	%		78.2	%		131.0	%		131.3	%
Net assets, end of period (in thousands)		$	374,036		$	366,329		$	403,361		$	408,685		$	334,763		$	255,298


^A	$(.0004) per share.


^B	Not annualized.

^C	Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

^D	Annualized.

See notes to financial statements.

76 Semi-Annual Report to Shareholders

Institutional Class:


		Six Months
		Ended			Years Ended December 31,
		June 30,
		2006			2005			2004			2003			2002			2001

		(Unaudited)
Net asset value, beginning of period		$	10.41		$	10.82		$	10.89		$	10.43		$	10.11		$	9.97

Investment operations:
	Net investment income		.28			.55			.54			.55			.59			.66
	Net realized and unrealized gain/(loss) on investments, options and futures		(.37	)		(.31	)		.17			.53			.31			.14

	Total from investment operations		(.09	)		.24			.71			1.08			.90			.80

Distributions:
	From net investment income		(.28	)		(.55	)		(.53	)		(.55	)		(.58	)		(.66	)
	From net realized gain on investments		—^A			(.10	)		(.25	)		(.07	)		—			—

	Total distributions		(.28	)		(.65	)		(.78	)		(.62	)		(.58	)		(.66	)

Net asset value, end of period		$	10.04		$	10.41		$	10.82		$	10.89		$	10.43		$	10.11

Total return			(.90	)%^B		2.27	%		6.85	%		10.71	%		9.38	%		8.16	%
Ratios to Average Net Assets:^C
	Total expenses		.74	%^D		.74	%		.74	%		.78	%		.78	%		.74	%
	Expenses net of waivers, if any		.50	%^D		.44	%		.47	%		.50	%		.48	%		.47	%
	Expenses net of all reductions		.50	%^D		.44	%		.47	%		.50	%		.48	%		.47	%
	Net investment income		5.46	%^D		5.26	%		5.02	%		5.13	%		5.85	%		6.50	%
Supplemental Data:
	Portfolio turnover rate		32.3	%^B		51.1	%		74.9	%		78.2	%		131.0	%		131.3	%
Net assets, end of period (in thousands)		$	22,742		$	20,441		$	10,216		$	5,895		$	2,836		$	1,424

See notes to financial statements.

Semi-Annual Report to Shareholders 77

Expense Example

Limited Duration Bond Portfolio

Actual Expenses

Hypothetical Example for Comparison Purposes


		Beginning		Ending		Expenses Paid^A
		Account		Account		During the
		Value		Value		Period
		1/1/06		6/30/06		1/1/06 to 6/30/06

Primary Class:
	Actual	$	1,000.00	$	1,011.50	$	4.99
	Hypothetical (5% return before expenses)		1,000.00		1,019.84		5.01
Institutional Class:
	Actual	$	1,000.00	$	1,014.00	$	2.50
	Hypothetical (5% return before expenses)		1,000.00		1,022.32		2.51

These calculations are based on expenses incurred in the most recent fiscal half-year. The dollar amounts shown as “Expenses Paid” are equal to the annualized expense ratios of 1.00% and 0.50% for the Primary Class and Institutional Class respectively, multiplied by the average values over the period, multiplied by the number of days in the most recent fiscal half-year (181), and divided by 365.

78 Semi-Annual Report to Shareholders

Performance Information

Limited Duration Bond Portfolio

The graphs on the following pages compare the Fund’s total returns to those of closely matched broad-based securities market indices. The lines illustrate the cumulative total return of an initial $10,000 investment in Primary Class shares and an initial $1,000,000 investment in Institutional Class shares of the Fund, for the periods indicated. The lines for the Fund represent the total return after deducting all Fund investment management and other administrative expenses and the transaction costs of buying and selling securities. The lines representing each securities market index do not include any transaction costs associated with buying and selling securities in the index or other administrative expenses. Both the Fund’s and the indices’ results assume reinvestment of all dividends and distributions.

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

Semi-Annual Report to Shareholders 79

Growth of a $10,000 Investment — Primary Class

Periods Ended June 30, 2006


	Cumulative		Average Annual
	Total Return		Total Return

One Year		+1.99%		+1.99%
Five Years		+18.07%		+3.38%
Ten Years		+57.77%		+4.66%

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


^A	A total rate of return index based on daily closing prices and consisting of Treasury bills with a maturity of 1-3 years.


^B	A total return index consisting of investment grade corporate debt issues as well as U.S. government securities. The debt issues all maintain maturities within a range of 1 to 10 years.

80 Semi-Annual Report to Shareholders

Performance Information — Continued

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

Periods Ended June 30, 2006


	Cumulative		Average Annual
	Total Return		Total Return

One Year		+2.43%		+2.43%
Five Years		+21.16%		+3.91%
Ten Years		+66.31%		+5.22%

The performance data quoted represents past performance and does not guarantee future results. The performance stated may have been due to extraordinary market conditions, which may not be duplicated in the future. Current performance may be lower or higher than the performance data quoted. To obtain the most recent month-end performance information please call 1-888-425-6432. The investment return and principal value of the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Calculations assume reinvestment of dividends and capital gain distributions. Performance would have been lower if fees had not been waived in various periods.

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

Semi-Annual Report to Shareholders 81

Portfolio Composition (as of June 30, 2006)^C

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

Maturity Schedule (as a percentage of the portfolio)


^C	The Fund is actively managed. As a result, the composition of its portfolio holdings and sectors is subject to change at any time.
^D	Standard & Poor’s Ratings Services provides capital markets with credit ratings for the evaluation and assessment of credit risk.

82 Semi-Annual Report to Shareholders

Portfolio of Investments

Limited Duration Bond Portfolio

June 30, 2006 (Unaudited)

(Amounts in Thousands)


					Par/
		Rates	Maturity Date		Shares		Value

Long-Term Securities — 97.8%
Corporate Bonds and Notes — 27.0%
Auto Parts and Equipment — 0.1%
	Johnson Controls, Inc.	5.298%		1/17/08	$	270	$	270	^A

Banking and Finance — 8.1%
	Countrywide Financial Corporation	5.680%		3/24/09		850		850	^A
	Ford Motor Credit Company	6.320%		9/28/07		1,020		998	^A
	Ford Motor Credit Company	6.625%		6/16/08		4,810		4,578
	General Motors Acceptance Corporation	6.599%		9/23/08		4,000		3,919	^A
	HSBC Finance Corporation	5.410%		5/10/10		690		693	^A
	iStar Financial Inc.	5.661%		3/3/08		1,160		1,162	^A
	iStar Financial Inc.	5.650%		9/15/11		1,400		1,369
	Residential Capital Corporation	6.875%		6/29/07		1,630		1,635	^A
	SLM Corporation	5.240%		7/27/09		1,140		1,141	^A
	Wachovia Capital Trust III	5.800%		3/15/42		1,210		1,174	^B

								17,519

Cable — 0.3%
	Comcast Cable Communications, Inc.	6.875%		6/15/09		700		720

Casino Resorts — 0.2%
	Caesars Entertainment, Inc.	7.500%		9/1/09		330		343

Chemicals — 0.4%
	The Dow Chemical Company	5.750%		12/15/08		560		561
	The Dow Chemical Company	5.970%		1/15/09		330		332

								893

Computer Services and Systems — 0.5%
	Electronic Data Systems Corporation	7.125%		10/15/09		1,000		1,033

Semi-Annual Report to Shareholders 83


					Par/
		Rates	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Diversified Financial Services — 0.7%
	ZFS Finance USA Trust III	6.479%		12/15/65	$	1,500	$	1,503	^A,C

Electric — 1.6%
	Appalachian Power Company	3.600%		5/15/08		1,700		1,635
	Commonwealth Edison Company	3.700%		2/1/08		580		562
	FirstEnergy Corp.	6.450%		11/15/11		370		376
	Niagara Mohawk Power Corporation	7.750%		10/1/08		460		479
	Ohio Edison Company	4.000%		5/1/08		440		425

								3,477

Energy — 3.2%
	Alabama Power Company	5.400%		8/25/09		1,000		1,003	^A
	CenterPoint Energy, Inc.	5.875%		6/1/08		440		439
	Duke Energy Corporation	3.750%		3/5/08		1,500		1,454
	Pacific Gas and Electric Company	3.600%		3/1/09		1,000		949
	Sempra Energy	5.659%		5/21/08		2,000		2,001	^A
	TXU Corp.	4.800%		11/15/09		1,080		1,028

								6,874

Environmental Services — 0.5%
	Waste Management, Inc.	7.375%		8/1/10		1,150		1,213

Food, Beverage and Tobacco — 1.5%
	Altria Group, Inc.	5.625%		11/4/08		3,000		2,990
	Sara Lee Corporation	6.250%		9/15/11		230		229

								3,219

Investment Banking/ Brokerage — 0.7%
	Morgan Stanley	5.318%		1/18/11		880		881	^A
	The Bear Stearns Companies Inc.	5.356%		1/31/11		580		580	^A

								1,461

84 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued


					Par/
		Rates	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Media — 0.9%
	Clear Channel Communications, Inc.	6.625%		6/15/08	$	140	$	141
	Clear Channel Communications, Inc.	4.250%		5/15/09		790		749
	Liberty Media Corporation	7.875%		7/15/09		1,120		1,160

								2,050

Oil and Gas — 3.6%
	Amerada Hess Corporation	6.650%		8/15/11		1,710		1,757
	Anadarko Petroleum Corporation	3.250%		5/1/08		1,440		1,371
	Ocean Energy Inc.	4.375%		10/1/07		580		571
	Pemex Project Funding Master Trust	8.500%		2/15/08		866		901
	Pemex Project Funding Master Trust	5.871%		12/3/12		2,568		2,560	^A,C
	XTO Energy, Inc.	5.650%		4/1/16		640		607

								7,767

Paper and Forest Products — 0.8%
	International Paper Company	3.800%		4/1/08		1,150		1,111
	Weyerhaeuser Company	6.125%		3/15/07		395		395
	Weyerhaeuser Company	5.950%		11/1/08		170		170

								1,676

Photo Equipment and Supplies — N.M.
	Eastman Kodak Company	7.250%		11/15/13		110		106

Special Purpose — 2.7%
	BAE Systems Holdings Inc.	5.570%		8/15/08		680		681	^A,C
	DaimlerChrysler NA Holding Corporation	5.875%		3/15/11		1,790		1,761
	ILFC E-Capital Trust I	5.900%		12/21/65		1,110		1,082	^B,C
	International Lease Finance Corporation	5.000%		4/15/10		650		631

Semi-Annual Report to Shareholders 85


					Par/
		Rates	Maturity Date		Shares		Value

Corporate Bonds and Notes — Continued
Special Purpose — Continued
	National Rural Utilities Cooperative Finance Corporation	5.750%		12/1/08	$	330	$	330
	Sprint Capital Corporation	6.125%		11/15/08		1,150		1,159
	Verizon Global Funding Corp.	7.250%		12/1/10		240		252

								5,896

Telecommunications — 0.3%
	AT&T Inc.	4.125%		9/15/09		160		152
	AT&T Inc.	5.300%		11/15/10		540		527

								679

Telecommunications (Cellular/ Wireless) — 0.9%
	Motorola, Inc.	4.608%		11/16/07		1,500		1,479
	New Cingular Wireless Services Inc.	8.125%		5/1/12		390		429

								1,908

Total Corporate Bonds and Notes (Identified Cost — $59,591)								58,607

Asset-Backed Securities — 11.5%
Fixed Rate Securities — 3.0%
	AmeriCredit Automobile Receivables Trust 2003-BX	2.720%		1/6/10		1,912		1,884
	MBNA Practice Solutions Owners Trust 2005-2	4.100%		5/15/09		2,700		2,652	^C
	Prestige Auto Receivables Trust 2005-1A	4.370%		6/15/12		1,300		1,267	^C
	Structured Asset Securities Corporation 2003-AL1	3.356%		4/25/31		714		634	^C

								6,437

Indexed Securities^A — 8.2%
	Asset Backed Funding Certificates 2002-WF2	6.073%		5/25/32		221		222
	Bear Stearns Asset Backed Securities, Inc. 2004-1	5.843%		6/25/34		3,000		3,022
	CHEC Loan Trust 2004-2	5.653%		2/25/31		3,500		3,503

86 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued


					Par/
		Rates	Maturity Date		Shares		Value

Asset-Backed Securities — Continued
Indexed Securities — Continued
	Citibank Credit Card Issuance Trust 2002-B1	5.790%		6/25/09	$	1,675	$	1,679
	Countrywide Home Equity Loan Trust 2004-O	5.479%		2/15/34		976		978
	Fremont Home Loan Trust 2004-C	5.593%		1/25/32		410		410
	GSAA Home Equity Trust 2004-9	5.703%		9/25/34		873		874
	Magnetite CBO II, Ltd.	5.640%		8/25/12		24		24	^C,D
	RAAC Series 2005-RP1	5.663%		7/25/37		1,158		1,158	^C
	Rental Car Finance Corp. 2003-1A	5.723%		5/25/08		3,000		3,008	^C
	Rental Car Finance Corp. 2004-1A	5.523%		6/25/09		3,000		3,004	^C

								17,882

Stripped Securities — 0.3%
	HSI Asset Securitization Corporation Trust, Series 2006-OPT4	1.500%		3/25/36		33,017		570	^E1

Total Asset-Backed Securities (Identified Cost — $25,074)								24,889

Mortgage-Backed Securities — 22.6%
Fixed Rate Securities — 3.0%
	Blackrock Capital Finance L.P. 1997-R3	7.220%		11/25/28		141		141	^C
	Prime Mortgage Trust 2005-2	7.596%		10/25/32		1,622		1,655
	Residential Asset Mortgage Products, Inc. 2005-SL1 A7	8.000%		5/25/32		1,694		1,747
	Washington Mutual MSC Mortgage Pass-Through Certificates, Series 2004-RA1	7.000%		3/25/34		2,954		2,978

								6,521

Indexed Securities^A — 14.8%
	Banc of America Mortgage Securities 2005-F	5.023%		7/25/35		2,323		2,269
	Bear Stearns Arm Trust 2004-10	4.548%		1/25/35		893		877

Semi-Annual Report to Shareholders 87


					Par/
		Rates	Maturity Date		Shares		Value

Mortgage-Backed Securities — Continued
Indexed Securities — Continued
	Countrywide Alternative Loan Trust 2005-59 1A1	5.597%		11/20/35	$	2,217	$	2,226
	Countrywide Alternative Loan Trust 2006-0a2 A5	5.497%		5/20/46		2,459		2,461
	Harborview Mortgage Loan Trust 2004-8	5.652%		11/19/34		1,031		1,034
	HomeBanc Mortgage Trust 2004-2	5.693%		12/25/34		1,779		1,783
	HomeBanc Mortgage Trust 2005-1	5.573%		3/25/35		2,128		2,128
	Impac CMB Trust 2004-2	5.583%		4/25/34		635		635
	Impac CMB Trust 2004-6	5.713%		10/25/34		846		848
	Impac Secured Assets Corp. 2004-3	5.523%		11/25/34		43		44
	Lehman XS Trust 2005-5N 3A1A	5.623%		11/25/35		2,635		2,637
	Luminent Mortgage Trust 2006-2 A1A	5.523%		2/25/46		2,552		2,548
	MASTR Specialized Loan Trust 2006-01 A	5.623%		1/25/36		1,153		1,153	^C
	Provident Funding Mortgage Loan Trust 2005-1 1A1	4.168%		5/25/35		2,078		2,031
	Sequoia Mortgage Trust 2003-2 A2	5.560%		6/20/33		818		817
	Sequoia Mortgage Trust 2003-7 A1	5.587%		1/20/34		893		894
	Thornburg Mortgage Securities Trust 2005-4	5.533%		12/25/35		2,275		2,272
	WaMu Mortgage Pass-Through Certificates, Series 2003-AR10	4.065%		10/25/33		2,100		2,034
	WaMu Mortgage Pass-Through Certificates, Series 2004-AR8	5.545%		6/25/44		1,428		1,431
	WaMu Mortgage Pass-Through Certificates, Series 2006-AR1	5.643%		2/25/36		2,053		2,055

								32,177

Stripped Securities — N.M.
	Nomura Asset Acceptance Corporation, Series 2006-AP1	4.500%		2/15/28		400		14	^E1

88 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued


					Par/
		Rates	Maturity Date		Shares		Value

Mortgage-Backed Securities — Continued
Variable Rate Securities^F — 4.8%
	Banc of America Funding Corporation 2004-B	4.193%		12/20/34	$	1,231	$	1,221
	Countrywide Alternative Loan Trust 2004-33, 1A1	5.002%		12/25/34		849		846
	Countrywide Alternative Loan Trust 2004-33, 2A1	4.950%		12/25/34		439		434
	J.P. Morgan Mortgage Trust 2003-A1	4.363%		10/25/33		2,344		2,245
	MASTR Adjustable Rate Mortgages Trust 2004-13	3.786%		11/21/34		3,000		2,823
	MLCC Mortgage Investors, Inc. 2005-1 2A2	4.968%		4/25/35		2,894		2,832

								10,401

Total Mortgage-Backed Securities (Identified Cost — $49,742)								49,113

U.S. Government and Agency Obligations — 5.4%
Fixed Rate Securities — 3.3%
	Fannie Mae	5.250%		6/15/08		440		438
	Freddie Mac	3.800%		12/27/06		5,000		4,959
	United States Treasury Bonds	5.375%		2/15/31		190		193
	United States Treasury Notes	4.375%		1/31/08		1,650		1,630

								7,220

Treasury Inflation-Protected Securities^G — 2.1%
	United States Treasury Inflation-Protected Security	3.000%		7/15/12		2,325		2,394
	United States Treasury Inflation-Protected Security	2.375%		1/15/25		2,137		2,080

								4,474

Total U.S. Government and Agency Obligations (Identified Cost — $12,019)								11,694

Semi-Annual Report to Shareholders 89


					Par/
		Rates	Maturity Date		Shares		Value

U.S. Government Agency Mortgage-Backed Securities — 25.9%
Fixed Rate Securities — 15.6%
	Fannie Mae	8.500%		6/1/10 to 8/1/11	$	29	$	29
	Fannie Mae	7.000%		1/1/13 to 1/1/33		4,892		5,013
	Fannie Mae	6.500%		7/1/13 to 10/1/32		1,848		1,865
	Fannie Mae	9.500%		7/1/14		41		43
	Fannie Mae	11.000%		12/1/15		55		57
	Fannie Mae	12.500%		1/1/18 to 4/1/18		44		48
	Fannie Mae	9.000%		11/1/21		123		130
	Fannie Mae	6.000%		11/1/27		0.2		0.2
	Fannie Mae	5.000%		12/1/36		17,500		16,355	^H
	Fannie Mae	5.500%		12/1/36		3,800		3,649	^H
	Freddie Mac	8.250%		2/1/08		8		8
	Freddie Mac	8.500%		12/1/08 to 6/1/21		39		39
	Freddie Mac	9.750%		11/1/09 to 11/1/14		23		24
	Freddie Mac	9.000%		1/1/17 to 1/1/21		145		152
	Freddie Mac	8.000%		2/1/31		245		258
	Freddie Mac	7.000%		4/1/32		1,943		1,991
	Freddie Mac	5.000%		12/1/36		200		187	^H
	Government National Mortgage Association	9.000%		8/15/06 to 9/15/22		7		8
	Government National Mortgage Association	6.000%		5/15/14 to 11/15/28		261		261
	Government National Mortgage Association	5.500%		12/1/36		3,800		3,682	^H

								33,799

Indexed Securities^A — 10.2%
	Fannie Mae	4.324%		11/1/34		1,208		1,173
	Fannie Mae	4.214%		12/1/34		1,399		1,346
	Fannie Mae	4.330%		1/1/35		1,195		1,149
	Fannie Mae	4.865%		1/1/35		2,158		2,116
	Fannie Mae	4.801%		2/1/35		4,686		4,573
	Fannie Mae	4.545%		3/1/35		2,663		2,601
	Fannie Mae	4.964%		3/1/35		4,840		4,773
	Freddie Mac	4.350%		12/1/34		545		528
	Freddie Mac	4.462%		12/1/34		2,687		2,615

90 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued


					Par/
		Rates	Maturity Date		Shares		Value

U.S. Government Agency Mortgage-Backed Securities — Continued
Indexed Securities — Continued
	Freddie Mac	4.083%		1/1/35	$	515	$	496
	Freddie Mac	4.104%		1/1/35		882		849

								22,219

Stripped Securities — 0.1%
	Government National Mortgage Association	3.250%		6/16/26		2,072		147	^E1
	Government National Mortgage Association	3.300%		8/16/26		1,592		148	^E1

								295

Total U.S. Government Agency Mortgage-Backed Securities (Identified Cost — $58,710)								56,313

Yankee Bonds^D — 5.2%
Banking and Finance — 0.3%
	AIFUL CORPORATION	5.000%		8/10/10		670		637	^C

Banks — 0.5%
	Kaupthing Bank Hf	5.758%		4/12/11		1,000		1,000

Energy — 0.4%
	SP PowerAssets Limited Global	3.800%		10/22/08		1,000		957	^C

Foreign Governments — 0.8%
	Russian Federation	3.000%		5/14/08		1,940		1,831

Manufacturing (Diversified) — 0.7%
	Tyco International Group SA	6.375%		10/15/11		1,480		1,510

Special Purpose — 0.3%
	MUFG Capital Finance 1 Limited	6.346%		7/25/49		600		579	^B

Semi-Annual Report to Shareholders 91


					Par/
		Rates	Maturity Date		Shares			Value

Yankee Bonds — Continued
Telecommunications — 1.9%
	British Telecommunications plc	8.375%		12/15/10	$	1,520		$	1,669
	Koninklijke (Royal) KPN NV	8.000%		10/1/10		900			955
	Telecom Italia Capital	5.629%		2/1/11		1,040			1,045	^A
	Telefonica Emisiones SAU	5.714%		6/19/09		400			400	^A

									4,069

Telecommunications (Cellular/ Wireless) — 0.3%
	Vodafone Group Plc	3.950%		1/30/08		730			711

Total Yankee Bonds (Identified Cost — $11,550)									11,294

Preferred Stocks — 0.2%
	Home Ownership Funding Corporation	13.331%				1	shs		101	^B,C
	Home Ownership Funding Corporation II	13.338%				1			281	^B,C

Total Preferred Stocks (Identified Cost — $1,538)									382

Total Long-Term Securities (Identified Cost — $218,224)									212,292

Short-Term Securities — 13.4%
U.S. Government and Agency Obligations — 0.1%
	Fannie Mae	0.000%		9/25/06	$	220			217	^I,J

Repurchase Agreements — 13.3%
Goldman, Sachs & Company 5.21%, dated 6/30/06, to be repurchased at $14,434 (Collateral: $14,720 Freddie Mac notes, 5.25%, due 5/21/09, value $14,720)					$	14,428		$	14,428
Merrill Lynch Government Securities, Inc. 5.14%, dated 6/30/06, to be repurchased at $14,434 (Collateral: $15,535 Fannie Mae notes, 4.625%, due 10/15/14, value $14,719)						14,428			14,428

									28,856

Total Short-Term Securities (Identified Cost — $29,073)									29,073

92 Semi-Annual Report to Shareholders

Portfolio of Investments — Continued

Limited Duration Bond Portfolio — Continued


	Value

Total Investments — 111.2% (Identified Cost — $247,297)	$	241,365
Other Assets Less Liabilities — (11.2)%		(24,287	)

Net Assets — 100.0%	$	217,078


			Actual		Appreciation/
		Expiration	Contracts		(Depreciation)

Futures Contracts Purchased^K
	Eurodollar Futures	September 2006		35	$	(24	)
	U.S. Treasury Note Futures	September 2006		561		(340	)

					$	(364	)

Futures Contracts Written^K
	U.S. Treasury Note Futures	September 2006		256	$	171
	U.S. Treasury Note Futures	September 2006		309		176

					$	347


^A	Indexed Security — The rates of interest earned on these securities are tied to the London Interbank Offered Rate (“LIBOR”) or the ten year Treasury Bill Constant Maturity Rate. The coupon rates are the rates as of June 30, 2006.

^B	Stepped coupon security — A security with a predetermined schedule of interest or dividend rate changes.

^C	Rule 144a Security — A security purchased pursuant to Rule 144a under the Securities Act of 1933 which may not be resold subject to that rule except to qualified institutional buyers. These securities, which the Fund’s investment adviser has determined to be liquid, represent 9.6% of net assets.

^D	Yankee Bond — A dollar-denominated bond issued in the U.S. by foreign entities.

^E	Stripped security — Security with interest-only or principal-only payment streams, denoted by a 1 or 2 respectively. For interest-only securities, the amount shown as principal is the notional balance used to calculate the amount of interest due.

^F	The coupon rates shown on variable rate securities are the rates at June 30, 2006. These rates vary with the weighted average coupon of the underlying loans.


^G	Treasury Inflation - Protected Security — Treasury security whose principal value is adjusted daily in accordance with changes to the Consumer Price Index for all urban consumers. Interest is calculated on the basis of the current adjusted principal value.


^H	When Issued security — Securities purchased on a delayed delivery basis. Final settlement amount and maturity date have not yet been announced.


^I	Zero coupon bond — A bond with no periodic interest payments which is sold at such a discount as to produce a current yield to maturity. The amount shown as principal is the notional balance used to calculate the amount of interest due.

^J	Collateral to cover futures and options contracts.


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

N.M. — Not meaningful.

See notes to financial statements.

Semi-Annual Report to Shareholders 93

Statement of Assets and Liabilities

Limited Duration Bond Portfolio

June 30, 2006

(Amounts in Thousands) (Unaudited)



Assets:
	Investment securities at market value (Identified Cost – $218,224)				$	212,292
	Short-term securities at value (Identified Cost – $29,073)					29,073
	Cash					27
	Receivable for securities sold					2,787
	Receivable for fund shares sold					145
	Interest and dividends receivable					1,230
	Other assets					11

		Total assets				245,565
Liabilities:
	Payable for securities purchases		$	26,831
	Payable for fund shares repurchased			937
	Payable for futures variation margin			110
	Income distribution payable			401
	Accrued management fee			62
	Accrued distribution and service fees			72
	Accrued expenses			74

		Total liabilities				28,487

Net Assets					$	217,078

Net assets consist of:
	Accumulated paid-in capital applicable to:
		19,840 Primary Class shares outstanding			$	216,807
		1,634 Institutional Class shares outstanding				16,859
	Overdistribution of net investment income					(178	)
	Accumulated net realized loss on investments and futures					(10,461	)
	Unrealized appreciation/(depreciation) of investments and futures					(5,949	)

Net Assets					$	217,078

Net Asset Value Per Share:
	Primary Class					$10.11

	Institutional Class					$10.11

See notes to financial statements.

94 Semi-Annual Report to Shareholders

Statement of Operations

Limited Duration Bond Portfolio

For the Six Months Ended June 30, 2006

(Amounts in Thousands) (Unaudited)



Investment Income:
	Interest			$	5,514
	Dividends				127

			Total income				$5,641
Expenses:
	Management fees				507
	Distribution and service fees
		Primary Class			520
	Audit and legal fees				30
	Custodian fees				55
	Directors’ fees and expenses				25
	Registration fees				24
	Reports to shareholders				24
	Transfer agent and shareholder servicing expense:
		Primary Class			86
		Institutional Class			1
	Other expenses				27

					1,299
		Less: Fees waived			(214	)
		Compensating balance credits			(2	) ^A

			Total expenses, net of waivers and compensating balance credits				1,083

Net Investment Income							4,558
Net Realized and Unrealized Gain/(Loss) on Investments:
	Realized gain/(loss) on:
		Investments			(806	)
		Futures			324

							(482	)
	Change in unrealized appreciation/(depreciation) of investments and futures						(1,424	)

Net Realized and Unrealized Loss on Investments							(1,906	)

Change in Net Assets Resulting From Operations							$2,652


^A	See note 1, Compensating Balance Credits, in the notes to financial statements.

See notes to financial statements.

Semi-Annual Report to Shareholders 95

Statement of Changes in Net Assets

Limited Duration Bond Portfolio

(Amounts in Thousands)


			For the			For the
			Six Months Ended			Year Ended
			6/30/06			12/31/05

			(Unaudited)
Change in Net Assets:
Net investment income			$	4,558		$	8,707
Net realized loss on investments and futures				(482	)		(1,274	)
Change in unrealized appreciation/(depreciation) of investments and futures				(1,424	)		(2,592	)

Change in net assets resulting from operations				2,652			4,841
Distributions to shareholders:
	From net investment income:
		Primary Class		(4,250	)		(8,515	)
		Institutional Class		(389	)		(574	)
Change in net assets from Fund share transactions:
		Primary Class		(17,102	)		(51,090	)
		Institutional Class		(1,543	)		8,896

Change in net assets				(20,632	)		(46,442	)
Net Assets:
Beginning of period				237,710			284,152

End of period			$	217,078		$	237,710

Overdistribution of net investment income			$	(178	)	$	(97	)

See notes to financial statements.

96 Semi-Annual Report to Shareholders

Financial Highlights

Limited Duration Bond Portfolio

Primary Class:


		Six Months
		Ended			Years Ended December 31,
		June 30,
		2006			2005			2004			2003			2002			2001

		(Unaudited)
Net asset value, beginning of period		$	10.20		$	10.36		$	10.54		$	10.70		$	10.32		$	10.26

Investment operations:
	Net investment income		.20			.33			.29			.26			.41			.53
	Net realized and unrealized gain/(loss) on investments and futures		(.08	)		(.14	)		(.09	)		(.14	)		.38			.06

	Total from investment operations		.12			.19			.20			.12			.79			.59

Distributions:
	From net investment income		(.21	)		(.35	)		(.37	)		(.28	)		(.41	)		(.53	)
	From net realized gain on investments		—			—			(.01	)		—			—			—

	Total distributions		(.21	)		(.35	)		(.38	)		(.28	)		(.41	)		(.53	)

Net asset value, end of period		$	10.11		$	10.20		$	10.36		$	10.54		$	10.70		$	10.32

Total return			1.15	%^A		1.83	%		1.89	%		1.11	%		7.79	%		5.83	%
Ratios to Average Net Assets:^B
	Total expenses		1.20	%^C		1.15	%		1.21	%		1.21	%		1.19	%		1.17	%
	Expenses net of waivers, if any		1.00	%^C		1.00	%		1.00	%		1.00	%		1.00	%		1.00	%
	Expenses net of all reductions		1.00	%^C		1.00	%		1.00	%		1.00	%		1.00	%		1.00	%
	Net investment income		4.03	%^C		3.21	%		2.81	%		2.48	%		3.85	%		5.08	%
Supplemental Data:
	Portfolio turnover rate		120.7	%^A		81.6	%		238.0	%		487.3	%		204.1	%		535.2	%
Net assets, end of period (in thousands)		$	200,557		$	219,497		$	274,606		$	326,844		$	379,793		$	300,597


^A	Not annualized.


^B	Total expenses reflects operating expenses prior to any voluntary expense waivers and/or compensating balance credits. Expenses net of waivers reflects total expenses before compensating balance credits but net of any voluntary expense waivers. Expenses net of all reductions reflects expenses less any compensating balance credits and/or voluntary expense waivers.

^C	Annualized.

See notes to financial statements.

Semi-Annual Report to Shareholders 97

Institutional Class:


		Six Months
		Ended			Years Ended December 31,
		June 30,
		2006			2005			2004			2003			2002			2001

		(Unaudited)
Net asset value, beginning of period		$	10.20		$	10.37		$	10.55		$	10.70		$	10.32		$	10.27

Investment operations:
	Net investment income		.23			.40			.35			.32			.46			.58
	Net realized and unrealized gain/(loss) on investments, options and futures		(.09	)		(.17	)		(.10	)		(.14	)		.38			.05

	Total from investment operations		.14			.23			.25			.18			.84			.63

Distributions:
	From net investment income		(.23	)		(.40	)		(.42	)		(.33	)		(.46	)		(.58	)
	From net realized gain on investments		—			—			(.01	)		—			—			—

	Total distributions		(.23	)		(.40	)		(.43	)		(.33	)		(.46	)		(.58	)

Net asset value, end of period		$	10.11		$	10.20		$	10.37		$	10.55		$	10.70		$	10.32

Total return			1.40	%^A		2.29	%		2.41	%		1.71	%		8.35	%		6.30	%
Ratios to Average Net Assets:^B
	Total expenses		.63	%^C		.62	%		.70	%		.68	%		.66	%		.63	%
	Expenses net of waivers, if any		.50	%^C		.46	%		.48	%		.46	%		.47	%		.46	%
	Expenses net of all reductions		.50	%^C		.46	%		.48	%		.46	%		.47	%		.46	%
	Net investment income		4.30	%^C		3.85	%		3.22	%		3.03	%		4.38	%		5.63	%
Supplemental Data:
	Portfolio turnover rate		120.7	%^A		81.6	%		238.0	%		487.3	%		204.1	%		535.2	%
Net assets, end of period (in thousands)		$	16,521		$	18,213		$	9,546		$	7,740		$	9,485		$	7,221

See notes to financial statements.

98 Semi-Annual Report to Shareholders

Notes to Financial Statements

Legg Mason Income Trust, Inc.

(Amounts in Thousands) (Unaudited)

1. Organization and Significant Accounting Policies:

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

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

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

Security Valuation

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

With respect to High Yield, where a security is traded on more than one market, which may include foreign markets, the securities are generally valued on the market considered by the Fund’s adviser to be the primary market. The Fund will value its foreign securities in U.S. dollars on the basis of the then-prevailing exchange rates.

Semi-Annual Report to Shareholders 99

Foreign Currency Translation

Assets and liabilities initially expressed in non-U.S. currencies are translated into U.S. dollars using currency exchange rates determined prior to the close of trading on the New York Stock Exchange, usually at 2:00 p.m. Eastern time. Purchases and sales of securities and income and expenses are translated into U.S. dollars at the prevailing market rates on the dates of such transactions. The effects of changes in non-U.S. currency exchange rates on investment securities and other assets and liabilities are included with the net realized and unrealized gain or loss on investment securities.

Security Transactions

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

For the six months ended June 30, 2006, investment transactions (excluding short-term investments) were as follows:


	Purchases				Proceeds From Sales

	U.S. Gov’t.				U.S. Gov’t.
	Securities		Other		Securities		Other

Core Bond	$	176,772	$	5,880	$	175,921	$	5,662
High Yield		—		80,183		—		88,662
Investment Grade		62,008		86,521		55,888		67,475
Limited Duration		233,152		36,568		232,353		58,165

Repurchase Agreements

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

100 Semi-Annual Report to Shareholders

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

Investment Income and Distributions to Shareholders

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

Compensating Balance Credits

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

Other

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

2. Federal Income Taxes:

No provision for federal income or excise taxes is required since each Fund intends to continue to qualify as a regulated investment company and distribute substantially all of its taxable income and capital gain to its shareholders. Because federal income tax regulations differ from accounting principles generally accepted in the United States of America, income and capital gain distributions determined in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Accordingly, the character of distributions and composition of net assets for tax purposes differ from those reflected in the accompanying financial statements.

Semi-Annual Report to Shareholders 101

3. Financial Instruments:

Options and Futures

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

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


Purchased option:		Impact on the Fund:

The option expires		Realize a loss in the amount of the cost of the option.

The option is closed through a closing sale transaction		Realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option.

The Fund exercises a call option		The cost of the security purchased through the exercise of the option will be increased by the premium originally paid to purchase the option.

The Fund exercises a put option		Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be reduced by the premium originally paid to purchase the put option.


Written option:		Impact on the Fund:

The option expires		Realize a gain equal to the amount of the premium received.

The option is closed through a closing purchase transaction		Realize a gain or loss without regard to any unrealized gain or loss on the underlying security and eliminate the option liability. The Fund will realize a loss in this transaction if the cost of the closing purchase exceeds the premium received when the option was written.

A written call option is exercised by the option purchaser		Realize a gain or loss from the sale of the underlying security. The proceeds of that sale will be increased by the premium originally received when the option was written.

A written put option is exercised by the option purchaser		The amount of the premium originally received will reduce the cost of the security that the Fund purchased when the option was exercised.

102 Semi-Annual Report to Shareholders

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

The risk associated with purchasing options is limited to the premium originally paid. Options written by a Fund involve, to varying degrees, risk of loss in excess of the option value reflected in the statement of net assets. The risk in writing a covered call option is that a Fund may forgo the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is the risk a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.

Activity in written call and put options during the six months ended June 30, 2006, was as follows:

Core Bond Fund:


	Calls						Puts

	Actual						Actual
	Contracts			Premiums			Contracts			Premiums

Options outstanding at December 31, 2005		104		$	58			68		$	43
Options written		399			184			73			41
Options closed		(54	)		(40	)		(22	)		(15	)
Options expired		(214	)		(114	)		(50	)		(35	)
Options exercised		(5	)		(1	)		(25	)		(12	)

Options outstanding at June 30, 2006		230		$	87			44		$	22

Upon entering into a futures contract, the Fund is required to deposit with the broker cash or cash equivalents in an amount equal to a certain percentage of the contract amount. This is known as the “initial margin.” Subsequent payments (“variation margin”) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. The daily changes in contract value are recorded as unrealized gains or losses and the Fund recognizes a realized gain or loss when the contract is closed. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded.

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

Semi-Annual Report to Shareholders 103

The open futures positions and related appreciation or depreciation at June 30, 2006, are listed at the end of each Fund’s portfolio of investments.

Forward Currency Exchange Contracts

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

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

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

At June 30, 2006, High Yield had no open forward currency exchange contracts.

Swap Agreements

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

104 Semi-Annual Report to Shareholders

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

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

At June 30, 2006, there were no swap contracts outstanding for any fund.

4. Transactions With Affiliates:

Each Fund has a management agreement with Legg Mason Fund Adviser, Inc. (“LMFA”). Pursuant to their respective agreements, LMFA provides the Funds with management and administrative services for which each Fund pays a fee, computed daily and payable monthly, at annual rates of each Fund’s average daily net assets. LMFA has contractually agreed to waive its fees to the extent Core Bond and Limited Duration’s expenses (exclusive of taxes, interest, brokerage and extraordinary expenses) exceed during any month certain annual rates. These contractual expense limitations are due to expire on April 30, 2007. LMFA has voluntarily agreed to waive fees to the extent that Investment Grade’s expense (exclusive of taxes, interest, brokerage and extraordinary expenses) exceed during any month certain annual rates. This voluntary waiver is currently expected to continue until April 30, 2007, but may be terminated at any time. Pursuant to an agreement approved by the Board, each Fund has agreed to repay LMFA for waived fees and reimbursed expenses provided that payment does not cause operating expenses to exceed 1.00% of the Primary Class’s average net assets and 0.50% of the Institutional Class’s average net assets and the payment is made within three years after the year in which LMFA earned the fee or incurred the expense. At June 30, 2006, High Yield has no expense

Semi-Annual Report to Shareholders 105

limitation. The following chart shows annual rates of management fees, expense limits, and management fees waived, for each Fund:


						Six Months Ended
						June 30, 2006

				Expense		Management Fees
Fund		Management Fee		Limitation		Waived

Core Bond			0.45%		1.00%	$	(149	)
High Yield
	— Primary Class		0.65%		None		—
	— Institutional Class		0.65%		None		—
Investment Grade
	— Primary Class		0.60%		1.00%		(437	)
	— Institutional Class		0.60%		0.50%		(26	)
Limited Duration
	— Primary Class		0.45%		1.00%		(132	)
	— Institutional Class		0.45%		0.50%		(11	)

Western Asset Management Company (“Adviser”) serves as investment adviser to the Funds. The Adviser is responsible for the actual investment activity of each Fund. LMFA pays the Adviser a fee, computed daily and payable monthly, at an annual rate of 40% of the management fee received by LMFA for Core Bond; 77% of the management fee received by LMFA for High Yield; 40% of the management fee received for Investment Grade. For Limited Duration, LMFA pays the Adviser a fee, computed daily and payable monthly, of 0.20% of its average daily net assets, not to exceed the fee received by LMFA.

Legg Mason Investor Services, LLC (“LMIS”) serves as distributor of the Funds. LMIS receives an annual distribution fee and an annual service fee based on each Fund’s Primary Class’s average daily net assets, computed daily and payable monthly as shown in the table below. For the six months ended June 30, 2006, LMIS waived $166 and $71 of the distribution and service fees for Investment Grade and Limited Duration, respectively.


	Distribution		Service
	Fee		Fee

Core Bond		0.25%		0.25%
High Yield		0.25%		0.25%
Investment Grade		0.25%		0.25%
Limited Duration		0.25%		0.25%

LM Fund Services, Inc. (“LMFS”), a registered transfer agent, has an agreement with the Funds’ transfer agent to assist it with some of its duties. For this assistance, the transfer agent paid LMFS the following amounts during the six months ended June 30, 2006: Core Bond, $9; High Yield, $21; Investment Grade, $36; and Limited Duration, $22.

106 Semi-Annual Report to Shareholders

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued

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

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

5. Line of Credit:

The Funds, along with certain other Legg Mason Funds, participate in a $400 million line of credit (“Credit Agreement”) to be used for temporary or emergency purposes. Pursuant to the Credit Agreement, each participating Fund is liable only for principal and interest payments related to borrowings made by that Fund. Borrowings under the Credit Agreement bear interest at a rate equal to the federal funds rate plus the federal funds rate margin. For the six months ended June 30, 2006, the Funds had no borrowings under the credit agreement.

6. Fund Share Transactions:

At June 30, 2006, there were 2,000,000 shares authorized at $.001 par value for all classes of each portfolio of the Corporation. Share transactions for the Funds were as follows:


		Core Bond

		Six Months			Year
		Ended			Ended
		6/30/06			12/31/05

Shares
	Sold		1,055			3,168
	Reinvestment of Distributions		126			226
	Repurchased		(1,229	)		(2,404	)

	Net Change		(48	)		990

Amount
	Sold	$	10,123		$	31,295
	Reinvestment of Distributions		1,198			2,215
	Repurchased		(11,741	)		(23,672	)

	Net Change	$	(420	)	$	9,838

Semi-Annual Report to Shareholders 107


		High Yield

		Primary Class						Institutional Class

		Six Months			Year			Six Months			Year
		Ended			Ended			Ended			Ended
		6/30/06			12/31/05			6/30/06			12/31/05

Shares
	Sold		1,364			2,693			280			855
	Reinvestment of Distributions		434			1,090			54			94
	Repurchased		(3,061	)		(8,012	)		(194	)		(495	)

	Net Change		(1,263	)		(4,229	)		140			454

Amount
	Sold	$	12,327		$	24,689		$	2,539		$	7,866
	Reinvestment of Distributions		3,909			9,912			484			857
	Repurchased		(27,697	)		(73,219	)		(1,759	)		(4,549	)

	Net Change	$	(11,461	)	$	(38,618	)	$	1,264		$	4,174


		Investment Grade

		Primary Class						Institutional Class

		Six Months			Year			Six Months			Year
		Ended			Ended			Ended			Ended
		6/30/06			12/31/05			6/30/06			12/31/05

Shares
	Sold		6,476			6,762			535			1,449
	Reinvestment of Distributions		721			1,834			51			92
	Repurchased		(5,124	)		(10,700	)		(284	)		(521	)

	Net Change		2,073			(2,104	)		302			1,020

Amount
	Sold	$	66,212		$	72,007		$	5,501		$	15,490
	Reinvestment of Distributions		7,356			19,415			518			970
	Repurchased		(52,493	)		(113,694	)		(2,922	)		(5,546	)

	Net Change	$	21,075		$	(22,272	)	$	3,097		$	10,914

108 Semi-Annual Report to Shareholders

Notes to Financial Statements — Continued

Legg Mason Income Trust, Inc. — Continued


		Limited Duration

		Primary Class						Institutional Class

		Six Months			Year			Six Months			Year
		Ended			Ended			Ended			Ended
		6/30/06			12/31/05			6/30/06			12/31/05

Shares
	Sold		1,537			3,474			244			1,392
	Reinvestment of Distributions		347			743			28			49
	Repurchased		(3,566	)		(9,200	)		(423	)		(577	)

	Net Change		(1,682	)		(4,983	)		(151	)		864

Amount
	Sold	$	15,629		$	35,740		$	2,478		$	14,310
	Reinvestment of Distributions		3,526			7,624			287			510
	Repurchased		(36,257	)		(94,454	)		(4,308	)		(5,924	)

	Net Change	$	(17,102	)	$	(51,090	)	$	(1,543	)	$	8,896

7. Shareholder Meeting Results:

A special meeting of shareholders of Legg Mason U.S. Government Money Market Portfolio was held on February 24, 2006 to approve the liquidation of the Fund. The following shares were voted at the meeting:

That the Plan of Liquidation for Legg Mason U.S. Government Money Market Portfolio be approved.


			% of
	Shares Voted		Outstanding Shares

Affirmative		16,173,762		56.54%
Against		8,017		0.03%
Abstain		—		0.00%

Notes

Fund Information

Investment Manager


	Legg Mason Fund Adviser, Inc. Baltimore, MD

Investment Adviser


	Western Asset Management Company Pasadena, CA

Board of Directors


	John F. Curley, Jr., Chairman Mark R. Fetting, President Dr. Ruby P. Hearn Arnold L. Lehman Robin J.W. Masters Dr. Jill E. McGovern Arthur S. Mehlman G. Peter O’Brien S. Ford Rowan Robert M. Tarola

Officers


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

Transfer and Shareholder Servicing Agent


	Boston Financial Data Services Braintree, MA

Custodian


	State Street Bank & Trust Company Boston, MA

Counsel


	Kirkpatrick & Lockhart Nicholson Graham LLP Washington, DC

Independent Registered Public Accounting Firm


	PricewaterhouseCoopers LLP Baltimore, MD

About the Legg Mason Funds



Equity Funds American Leading Companies Trust Classic Valuation Fund Growth Trust Special Investment Trust U.S. Small-Capitalization Value Trust Value Trust Specialty Funds Balanced Trust Financial Services Fund Opportunity Trust Global Funds Emerging Markets Trust Global Income Trust International Equity Trust Taxable Bond Funds Core Bond Fund High Yield Portfolio Investment Grade Income Portfolio Limited Duration Bond Portfolio Tax-Free Bond Funds Maryland Tax-Free Income Trust Pennsylvania Tax-Free Income Trust Tax-Free Intermediate-Term Income Trust		Legg Mason, Inc., based in Baltimore, Maryland, has built its reputation, at least in part, on the success of the Legg Mason Funds, introduced in 1979. The primary purpose of our funds is to enable investors to diversify their portfolios across various asset classes and, consequently, enjoy the stability and growth prospects generally associated with diversification. The success of our funds is contingent on the experience, discipline, and acumen of our fund managers. We believe the quality of our managers is crucial to investment success. Unlike many firms, which focus on a particular asset class or the fluctuations of the market, at Legg Mason we focus on providing a collection of top-notch managers in all the major asset classes. Information about the policies and procedures that each Fund uses to determine how to vote proxies relating to its portfolio securities is contained in the Statement of Additional Information, available without charge upon request by calling 1-800-822-5544 or on the Securities and Exchange Commission’s (“SEC”) website (http://www.sec.gov). Information regarding how each Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is also available on the SEC’s website or through the Legg Mason Funds’ website at www.leggmasonfunds.com/about. Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. You may obtain a free copy of each Fund’s portfolio holdings as filed on Form N-Q, by contacting each Fund at the appropriate phone number, address or website listed below. Additionally, each Fund’s Form N-Q is available on the SEC’s website (http://www.sec.gov) or may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

This report must be preceded or accompanied by a free prospectus. Investors should consider each Fund’s investment objectives, risks, charges and expenses carefully before investing. The prospectus contains this and other important information about each Fund. Please read the prospectus carefully before investing.


Legg Mason Funds For Primary Class Shareholders c/o BFDS P.O. Box 55214 Boston, MA 02205-8504 800-822-5544 www.leggmasonfunds.com		Legg Mason Investor Services — Institutional For FI and I Class Shareholders c/o BFDS P.O. Box 8037 Boston, MA 02206-8037 888-425-6432 www.lminstitutionalfunds.com

Legg Mason Investor Services, LLC, Distributor

A Legg Mason, Inc. subsidiary

LMF-056 (06/06)

Item 2. Code of Ethics.

Not applicable for semiannual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semiannual reports.

Item 4. Principal Accountant Fees and Services.

Not applicable for semiannual reports.

Item 5. Audit Committee of Listed Registrants.

The Registrant is not a listed issuer as defined in Rule 10A-3 under the Securities Exchange Act of 1934.

Item 6. Schedule of Investments

The schedule of investments in securities of unaffiliated issuers is included as part of the report to shareholders filed under Item 1 of this Form.

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

Not applicable.

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

Not applicable.

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

Not applicable.

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

Not applicable.

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive and principal financial officers have concluded, based on their evaluation of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing date of this report that the Registrant’s disclosure controls and procedures are effective, and that the disclosure controls and procedures are reasonably designed to ensure that the information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed is properly communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding the required disclosures.

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

Item 12. Exhibits.

     (a) (1) Not applicable for semiannual reports.

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

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

SIGNATURES

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

Legg Mason Income Trust, Inc.

By: /s/ Mark R. Fetting
Mark R. Fetting
President, Legg Mason Income Trust, Inc.
Date: August 23, 2006

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

By: /s/ Mark R. Fetting
Mark R. Fetting
President, Legg Mason Income Trust, Inc.
Date: August 23, 2006

By: /s/ Marie K. Karpinski
Marie K. Karpinski
Vice President and Chief Financial Officer, Legg Mason Income Trust, Inc.
Date: August 21, 2006

EX-99.CERT 2 w22240exv99wcert.htm CERTIFICATIONS 302 exv99wcert

Certification Filed as Exhibit 12(a)(2) to Form N-CSR

CERTIFICATION

I, Mark R. Fetting, certify that:

1. I have reviewed this report on Form N-CSR of Legg Mason Income Trust, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 23, 2006

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

Certification Filed as Exhibit 12(a)(2) to Form N-CSR

CERTIFICATION

I, Marie K. Karpinski, certify that:

1. I have reviewed this report on Form N-CSR of Legg Mason Income Trust, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 21, 2006

/s/ Marie K. Karpinski
Marie K. Karpinski
Vice President and Chief Financial Officer
Legg Mason Income Trust, Inc.

EX-99.CERT.906 3 w22240exv99wcertw906.htm CERTIFICATIONS 906 exv99wcertw906

Certification Filed as Exhibit 12(b) to Form N-CSR

CERTIFICATION

I, Mark R. Fetting, chief executive officer of Legg Mason Income Trust, Inc. (the “Trust”), certify that, to my knowledge:

1. The Trust’s periodic report on Form N-CSR for the period ended June 30, 2006, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in such Form N-CSR fairly presents, in all material aspects, the financial condition and results of operations of the Trust.


/s/ Mark R. Fetting Mark R. Fetting President		August 23, 2006 Date

Certification Filed as Exhibit 12(b) to Form N-CSR

CERTIFICATION

I, Marie K. Karpinski, chief financial officer of Legg Mason Income Trust, Inc. (the “Trust”), certify that, to my knowledge:

1. The Trust’s periodic report on Form N-CSR for the period ended June 30, 2006, fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in such Form N-CSR fairly presents, in all material aspects, the financial condition and results of operations of the Trust.


/s/ Marie K. Karpinski Marie K. Karpinski Vice President and Chief Financial Officer		August 21, 2006 Date


	(a) (1) Not applicable for semiannual reports.

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

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