INVESTMENT MANAGER
Legg Mason Fund Adviser, Inc. REPORT TO SHAREHOLDERS
Baltimore, MD FOR THE YEAR ENDED
DECEMBER 31, 1995
INVESTMENT ADVISER
Western Asset Management Company
Pasadena, CA
BOARD OF DIRECTORS
John F. Curley, Jr., Chairman
Edmund J. Cashman, Jr., Vice Chairman
Edward A. Taber, III, President THE
Richard G. Gilmore LEGG MASON
Charles F. Haugh U.S.
Arnold L. Lehman GOVERNMENT
Dr. Jill E. McGovern MONEY
T. A. Rodgers MARKET
PORTFOLIO
TRANSFER AND SHAREHOLDER SERVICING AGENT
Boston Financial Data Services
Boston, MA
PUTTING YOUR FUTURE FIRST
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
COUNSEL
Kirkpatrick & Lockhart LLP
Washington, D.C.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Baltimore, MD
THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT.
THIS REPORT IS NOT TO BE DISTRIBUTED UNLESS PRECEDED OR ACCOMPANIED BY A
PROSPECTUS.
LEGG MASON WOOD WALKER, INCORPORATED
111 South Calvert Street
P.O. Box 1476, Baltimore, MD 21203-1476
410 (Bullet) 539 (Bullet) 0000
[RECYCLED LOGO] PRINTED ON RECYCLED PAPER
LMF-020
[LEGG MASON FUNDS LOGO]
<PAGE>
TO OUR SHAREHOLDERS,
On December 31, 1995, the Legg Mason U.S. Government Money Market
Portfolio had $317 million invested in a diversified portfolio of high
quality government securities with an average weighted maturity of 57
days.
The Federal Reserve Board lowered short-term interest rates twice
during 1995 after raising them throughout 1994. Lower interest rates
are favorable for business and consumers but unfavorable for owners of
money market funds and other short-term investments. As this letter is
written, the Government Money Market Portfolio's seven day yield is
4.81%.
This report includes a complete listing of our year-end portfolio
holdings. We appreciate your ownership of the Portfolio, and hope you
will let us know whenever you have questions or suggestions.
Sincerely,
/s/John F. Curley, Jr.
John F. Curley, Jr.
Chairman
February 9, 1996
<PAGE>
STATEMENT OF NET ASSETS
LEGG MASON INCOME TRUST, INC.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Par Rate Value
<S> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 96.0%
Federal Farm Credit
Bank
$ 35,000 4/1/96 to 4/15/96 5.32 to 5.45% $ 34,762
Federal Home Loan Bank
35,000 1/4/96 to 3/21/96 5.56 to 5.64 34,865
Federal Home Loan
Mortgage Corporation
45,708 1/2/96 to 3/1/96 5.48 to 5.59 45,573
Federal National
Mortgage Association
165,000 1/4/96 to 8/19/96 5.31 to 8.00 164,519
United States Treasury
Bills
25,000 6/6/96 to 11/14/96 5.06 to 5.22 24,103
Total U.S. Government
and Agency
Obligations 303,822
</TABLE>
<TABLE>
<CAPTION>
Par Rate Value
<S> <C> <C> <C>
REPURCHASE AGREEMENT -- 9.1%
Merrill Lynch
Government Securities, Inc.
dated 12/29/95, to be
repurchased at $28,900
on 1/2/96
(Collateral: $29,950
Federal Home Loan Bank,
5.38% due 4/18/96,
$ 28,882 value $29,471) 5.75% $ 28,882
Total Investments, at
amortized cost and
value -- 105.1% 332,704A
Other Assets Less
Liabilities -- (5.1)% (16,058)
NET ASSETS APPLICABLE
TO 316,707 SHARES
OUTSTANDING -- 100.0% $316,646
NET ASSET VALUE PER
SHARE $1.00
</TABLE>
A ALSO REPRESENTS COST FOR FEDERAL INCOME TAX PURPOSES.
SEE NOTES TO FINANCIAL STATEMENTS.
2
<PAGE>
STATEMENT OF OPERATIONS
LEGG MASON INCOME TRUST, INC.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
INVESTMENT INCOME:
Interest $15,853
EXPENSES:
Management fee $ 1,353
Transfer agent and shareholder servicing expense 233
Registration fees 75
Custodian fees 73
Audit and legal fees 46
Reports to shareholders 27
Directors' fees 7
Other expenses 10
Total expenses 1,824
NET INVESTMENT INCOME 14,029
NET REALIZED GAIN ON INVESTMENTS 65
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $14,094
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
LEGG MASON INCOME TRUST, INC.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
For the Years Ended December 31,
(Amounts in Thousands) 1995 1994
<S> <C> <C>
CHANGE IN NET ASSETS:
Net investment income $ 14,029 $ 7,384
Net realized gain (loss) on investments 65 (396)
Increase in net assets resulting from operations 14,094 6,988
Distributions to shareholders from net investment income (14,029) (7,384)
Contributions from Manager 170 100
Increase in net assets from Fund share transactions 101,835 42,339
Increase in net assets 102,070 42,043
NET ASSETS:
Beginning of year 214,576 172,533
End of year $316,646 $214,576
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
FINANCIAL HIGHLIGHTS
LEGG MASON INCOME TRUST, INC.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
Contained below is per share operating performance data for a
share of common stock outstanding, total investment return, ratios
to average net assets and other supplemental data. This information
has been derived from information provided in the financial
statements.
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .05 .04 .03 .03 .05
Net realized gain (loss) on investments Nil (Nil) -- -- Nil
Total from investment operations .05 .04 .03 .03 .05
Dividends paid from:
Net investment income (.05) (.04) (.03) (.03) (.05)
Realized gain on investments -- -- -- -- (Nil)
Net asset value, end of year $1.00 $1.00 $1.00 $1.00 $1.00
Total return 5.31% 3.66% 2.80% 3.49% 5.87%
RATIOS/SUPPLEMENTAL DATA:
Ratios to average net assets:
Expenses .67% .69% .71% .73% .73%
Net investment income 5.17% 3.66% 2.76% 3.45% 5.36%
Net assets, end of year (in thousands) $316,646 $214,576 $172,533 $170,910 $180,733
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
LEGG MASON INCOME TRUST, INC.
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
(Amounts in Thousands)
1. SIGNIFICANT ACCOUNTING POLICIES:
The Legg Mason Income Trust, Inc. ("Trust"), consisting of the
U.S. Government Money Market Portfolio ("Fund"), the U.S.
Government Intermediate-Term Portfolio, the Investment Grade
Income Portfolio and the High Yield Portfolio, is registered under
the Investment Company Act of 1940, as amended, as an open-end,
diversified investment company. The financial statements of the
other portfolios of the Trust are included in separate reports to
shareholders.
Security Valuation
Portfolio securities are valued under the amortized cost
method, which approximates current market value. Under this
method, securities are valued at cost when purchased and,
thereafter, a constant proportionate amortization of any discount
or premium is recorded until maturity of the security.
Dividends to Shareholders
Dividends are declared daily and paid monthly. Dividends
payable are recorded on the dividend record date. Net investment
income for dividend purposes consists of interest accrued,
original issue and market discount earned, less amortization of
market premium and accrued expenses. At December 31, 1995,
dividends payable of $20 were accrued.
Security Transactions
Security transactions are accounted for on the trade date and
the cost of investments sold is determined by use of the specific
identification method for both financial reporting and income tax
purposes. At December 31, 1995, $20,000 was payable for securities
purchased but not yet received.
Repurchase Agreements
All repurchase agreements are fully collateralized by
obligations issued by the U.S. government or its agencies and such
collateral is in the possession of the Fund's custodian. The value
of such collateral includes accrued interest. Risks arise from the
possible delay in recovery or potential loss of rights in the
collateral should the issuer of the repurchase agreement fail
financially.
Federal Income Taxes
No provision for federal income or excise taxes is required
since the Fund intends to continue to qualify as a regulated
investment company and distribute all of its taxable income to its
shareholders. The Fund has unused capital loss carryforwards for
federal income tax purposes of $61 which expire in 2002.
2. FUND SHARE TRANSACTIONS:
At December 31, 1995, there were 1,000,000 shares authorized
at $.001 par value for all portfolios of the Trust (including the
Fund). At December 31, 1995 paid-in capital aggregated $316,707
for the Fund. Since the Fund has sold and redeemed shares at a
constant net asset value of $1.00 per share, the number of shares
represented by such sales and redemptions is the same as the
amounts shown below for such transactions:
For the Years Ended December 31,
1995 1994
Shares sold $ 1,165,303 $ 874,097
Shares reinvested 13,455 7,087
Shares repurchased (1,076,923) (838,845)
Net increase $ 101,835 $ 42,339
3. TRANSACTIONS WITH AFFILIATES:
The Fund has a management agreement with Legg Mason Fund
Adviser, Inc. ("Manager"), a corporate affiliate of Legg Mason
Wood Walker, Incorporated, ("Legg Mason") a member of the New York
Stock Exchange and the distributor for the Fund. Under this
agreement, the Manager provides the Fund with management and
administrative services for which the Fund pays a fee at an annual
rate of 0.50% of average daily net assets of the Fund. Management
fees of $126 were payable at December 31, 1995.
Western Asset Management Company ("Adviser"), a corporate
affiliate of the Manager and Legg Mason, serves as investment
adviser to the Fund. The Adviser is responsible for the actual
investment activity of the Fund, for which the Manager pays a fee
at an annual rate equal to 30% of the fee received by the Manager.
Legg Mason has contributed $270 to offset a portion of the
Fund's net realized losses.
Legg Mason also has an agreement with the Fund's transfer
agent to assist with certain of its duties. For this assistance,
Legg Mason was paid $77 by the transfer agent for the year ended
December 31, 1995.
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND DIRECTORS OF
LEGG MASON INCOME TRUST, INC.:
We have audited the accompanying statement of net assets of Legg
Mason U.S. Government Money Market Portfolio (one of the portfolios
comprising the Legg Mason Income Trust, Inc.) as of December 31, 1995,
and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the
period then ended and financial highlights for each of the five years in
the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Legg Mason U.S. Government Money Market Portfolio
of Legg Mason Income Trust, Inc. as of December 31, 1995, and the
results of its operations, changes in its net assets, and financial
highlights for each of the respective periods stated in the first
paragraph, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
February 1, 1996
6
