Investment Manager
Legg Mason Fund Adviser, Inc.
Baltimore, MD Report to Shareholders
For the Six Months Ended
Investment Adviser June 30, 1996
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
Richard G. Gilmore
Charles F. Haugh THE
Arnold L. Lehman LEGG MASON
Dr. Jill E. McGovern HIGH
T. A. Rodgers YIELD
PORTFOLIO
Transfer and Shareholder Servicing Agent
Boston Financial Data Services
Boston, MA
Custodian Putting Your Future First
State Street Bank & Trust Company
Boston, MA
Counsel [Legg Mason Logo]
Kirkpatrick & Lockhart FUNDS
Washington, D.C.
Independent Accountants
Coopers & Lybrand L.L.P.
Baltimore, MD
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-056
<PAGE>
To Our Shareholders,
The Legg Mason High Yield Portfolio's assets have grown to over $166
million as of June 30, 1996. On that date, the Fund's net asset value was $14.98
per share, the weighted average maturity was 6.1 years and its annualized 30-day
SEC yield was 11.12%. For the twelve and six months ended June 30, the Fund's
total returns* (not annualized) were 15.35% and 6.81%, respectively.
The Fund seeks to provide high current income, and as a secondary
objective, seeks capital appreciation. Under normal circumstances, it will
invest at least 65% of its total assets in high yield fixed income securities.
The High Yield Portfolio is Legg Mason's highest income, most total
return-oriented taxable bond fund. It is designed for high income-oriented
investors seeking to achieve high current yields and potentially high total
returns who are willing to accept the risks of investing in bonds with below
investment grade credit ratings.
Investments in high yield bonds should be part of a well-diversified
investment portfolio and we hope you will consider using the High Yield
Portfolio for investments of additional funds as they become available. Some
shareholders have chosen to regularly add to their investment in the Fund by
authorizing automatic, monthly transfers from their bank checking accounts or
Legg Mason money market funds. Your Investment Executive will be happy to help
you make these arrangements if you would like to purchase additional shares in
this convenient manner.
Sincerely,
/s/ Edward A. Taber, III
Edward A. Taber, III
President
August 15, 1996
*Total return measures investment performance in terms of appreciation or
depreciation in the fund's net asset value per share, plus capital gain
distributions and dividends. It assumes that capital gain distributions and
dividends were reinvested in the fund at the times they were paid.
<PAGE>
Portfolio Manager's Comments
Despite a very difficult quarter for the U.S. fixed income markets
due to rising interest rates, the high yield market performed quite well.
The Lehman Brothers High Yield Index returned a very respectable 1.66% and
3.46% for the second quarter and first half of 1996 compared to a .57%
quarterly and a -4.76% first half return for the Lehman Aggregate Index.
The Legg Mason High Yield Fund returned an outperforming 2.7% and 6.8%,
respectively for the second quarter and first half of 1996.
The rising interest rate environment favored lower-rated bonds, which
are less interest rate sensitive, in the first quarter, with single B and
CCC bonds outperforming BB bonds by a significant margin. This is typical
of the historical relative performance between these credit sectors during
periods of rising interest rates.The fund's relative outperformance
resulted in an overweighting in the single B credit sector.
The fund also benefitted from an overweighting in "story bonds";
securities that trade independently of the market in general and reflect
an improvement in fundamental operating performance based upon
company-specific events or the potential takeover by a financially
stronger company.
Industry sectors which outperformed during the first half of the year
were Consumer Products, Capital Goods, Specialty Retailing, Home Builders
& Building Products, Metals and Mining, and Hotels and Gaming. These
companies represent a mix of consumer and industrial businesses which
suggests increased investor optimism about the economic outlook.
Relative underperformers during the quarter were Cable and Media,
Paper and Forest Products and Telecommunications. These are sectors that
investors have liked on a longer-term basis; however, many investors have
expressed some unease with telecommunications companies that remain in the
construction phase and lack established cashflows.
The fund benefitted from an overweighting in the Capital Goods,
Metals and Mining and Hotels and Gaming sectors of the market while having
offset some gains with an overweighting in the Cable, Media and
Telecommunications sectors.
Looking forward, high yield should continue to outperform other fixed
income markets due to its low correlation of returns with those markets.
Additionally, any strength in the U.S. economy means improving credit
trends for high yield companies and tightening spreads to Treasuries.
The current strategy of the Fund is to invest in high coupon, single
B and select double B credits with improving financial trends that would
suggest the potential for a ratings upgrade and enhanced total returns in
addition to high current income. Sectors the fund will overweight in
expectation of outperformance include, gaming and leisure, cable, media
and telecommunications, and select consumer and industrial related
companies.
Trudie D. Whitehead
Senior High Yield Research Analyst
and Portfolio Manager
August 15, 1996
- --------------------------------------------------------------------------------
Total Return for One Year and Life of Fund, as of June 30, 1996
The returns shown on this page are based on historical results and are not
intended to indicate future performance. The investment return and principal
value of an investment in the fund will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost. Average
annual returns tend to smooth out variations in the fund's return, so they
differ from actual year-to-year results. No adjustment has been made for any
income taxes payable by shareholders.
The fund's total returns as of June 30, 1996 were as follows:
Cumulative Average Annual
Total Return Total Return
- --------------------------------------------------------------------------------
One Year +15.35% +15.35%
Life of Fund(dagger) +22.41 +8.74
- -----------------
(dagger) Fund inception--February 1, 1994
2
<PAGE>
Statement of Net Assets
Legg Mason Income Trust, Inc.
High Yield Portfolio
June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
Principal Principal
(Amounts in Thousands) Amount Value (Amounts in Thousands) Amount Value
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Corporate Bonds and Notes -- 81.7% Forest Products -- 1.8%
Builders/Building Materials -- 1.4% Williamhouse-Regency of Del., Inc.
Fortress Group Inc. 13.00% 11/15/05 $2,650 $ 3,001(C,D)
13.75% 5/15/03 $1,500 $ 1,553
Miles Homes Services, Inc. Gaming -- 5.1%
12.00% 4/1/01 1,000 846 Casino Magic Corporation
2,399 11.50% 10/15/01 1,000 1,030
Grand Casinos, Inc.
Cable and Media -- 7.8% 10.125% 12/1/03 1,500 1,538
Allbritton Communications Company Trump Hotels & Casino Resorts, Inc.
9.75% 11/30/07 1,000 915 15.50% 6/15/05 1,000 1,178
Busse Broadcasting Corporation Trump's Castle Funding, Inc.
11.625% 10/15/00 2,000 2,043 11.75% 11/15/03 2,000 2,045
Chancellor Broadcasting Company Trump Atlantic City Associates
12.50% 10/1/04 750 825 11.25% 5/1/06 2,750 2,764
CS Wireless Systems, Inc. 8,555
0%(F) 3/1/06 1,500 908(C,D)
EZ Communications Incorporated Gas and Pipeline Utilities -- 2.9%
9.75% 12/1/05 1,000 1,009 HarCor Energy, Inc.
Granite Broadcasting Corporation 14.875% 7/15/02 2,500 2,763
9.375% 12/1/05 2,000 1,988 TransTexas Gas Corporation
10.375% 5/15/05 1,000 980 11.50% 6/15/02 2,000 1,990
Park Broadcasting Incorporated 4,753
11.75% 5/15/04 2,500 2,444(C,D)
Rifkin Acquisitions Hotels and Restaurants -- 0.9%
11.125% 1/15/06 1,000 978 John Q Hammons Hotels, L.P.
Young Broadcasting Corporation 9.75% 10/1/05 1,500 1,447
10.125% 2/15/05 1,000 955
13,045 Industrials -- 7.0%
American Standard Companies
Chemicals -- 2.9% Incorporated
Harris Chemical North America, Inc. 0%(F) 6/1/05 1,000 872
10.75% 10/15/03 2,000 1,955 Haynes International, Inc.
Rexene Corporation 11.25% 6/15/98 1,000 1,024
11.75% 12/1/04 2,750 2,846 13.50% 8/15/99 2,500 2,537
4,801 Norcal Waste Systems, Inc.
12.75%(G) 11/15/05 1,500 1,560(C,D)
Consumer Products -- 0.9% NL Industries Incorporated
Revlon Worldwide Corporation 11.75% 10/15/03 1,000 1,020
0%(E) 3/15/98 1,750 1,455 Packaging Resources Group
Food Services -- 2.5% 11.625% 5/1/03 1,500 1,534(C,D)
Di Giorgio Corporation Sea Containers Ltd.
12.00% 2/15/03 2,300 2,174 9.50% 7/1/03 1,000 975
TLC Beatrice International 12.50% 12/1/04 2,000 2,200
Holdings, Inc. 11,722
11.50% 10/1/05 1,000 1,010 Leisure and Entertainment -- 9.6%
AMF Group Inc.
White Rose Foods Incorporated 10.875% 3/15/06 2,000 1,970(C,D)
0%(E) 11/1/98 1,250 981 Boomtown, Inc.
4,165 11.50% 11/1/03 3,000 2,895
</TABLE>
3
<PAGE>
Statement of Net Assets--Continued
Legg Mason Income Trust, Inc.
High Yield Portfolio
<TABLE>
<CAPTION>
Principal Principal
(Amounts in Thousands) Amount Value (Amounts in Thousands) Amount Value
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Leisure and Entertainment -- Continued Services -- 3.1%
GP Golf Palm Desert LLC Alamo Rent-A-Car, Inc.
13.50% 2/16/98 $1,900 $ 1,900(C,D) 11.75% 1/31/06 $2,250 $ 2,326
Manning Real Estate Associates LLC La Petite Holdings Corporation
15.00% 2/28/01 1,000 975(C,D) 9.625% 8/1/01 750 690
Maritime Gaming L.P. SC International Services, Inc.
15.00% 2/28/01 1,500 1,462(C,D) 13.00% 10/1/05 2,000 2,180
Players International, Inc. 5,196
10.875% 4/15/05 2,500 2,544
Selmer Company Inc. Supermarkets -- 4.1%
11.00% 5/15/05 3,000 3,165 Big V Supermarkets Incorporated
Sullivan Broadcasting 11.00% 2/15/04 1,000 945
10.25% 12/15/05 1,000 1,036 Farm Fresh Holdings Corporation
15,947 14.25% 10/1/02 4,295 1,825(C,D,H)
Farm Fresh, Inc.
Medical Products and Supplies -- 2.0% 12.25% 10/1/00 1,500 1,290
Dade International Incorporated Pathmark Stores Incorporated
11.125% 5/1/06 2,000 2,060(C,D) 12.625% 6/15/02 250 252
Unilab Corporation Smiths Food & Drug
11.00% 4/1/06 1,250 1,250 11.25% 5/15/07 2,500 2,519
3,310 6,831
Metals and Mining -- 1.6%
Florida Steel Corporation Telecommunications -- 12.9%
11.50% 12/15/00 1,000 990 A+ Network, Inc.
Gulf States Steel Acquisition 11.875% 11/1/05 2,000 2,055
Corporation Arch Communications Group, Inc.
13.50% 4/15/03 1,750 1,597 0%(F) 3/15/08 2,500 1,287
2,587 Charter Communications
International, Inc.
Publishing -- 4.1% 11.25% 3/15/06 1,250 1,231(C,D)
Affiliated Newspapers Communications & Power
Investments, Inc. Industries, Inc.
13.25%(F) 7/1/06 2,000 1,390 12.00% 8/1/05 500 527
Garden State Newspapers, Inc. Dictaphone Corporation
12.00% 7/1/04 2,500 2,637 11.75% 8/1/05 1,500 1,447
Hollinger, Inc. Galaxy Telecom L.P.
9.25% 2/1/06 1,000 915 12.375% 10/1/05 1,750 1,811
Marvel Parent Holdings, Inc. Metrocall, Inc.
0%(E) 4/15/98 2,450 1,942 10.375% 10/1/07 1,000 925
6,884 MFS Communications Company, Inc.
Retail Sales -- 2.8% 8.875%(F) 1/15/06 1,000 605
Cort Furniture Rental Corporation Mobile Telecommunication
12.00% 9/1/00 1,400 1,470 Technologies Corporation
County Seat Stores, Inc. 13.50% 12/15/02 2,250 2,391
12.00% 10/1/02 500 440 Nextel Communications, Inc.
General Host Corporation 9.75%(F) 8/15/04 4,000 2,350
11.50% 2/15/02 750 703 Nextlink Communications
Michaels Stores Incorporated 12.50% 4/15/06 1,750 1,762(C,D)
10.875% 6/15/06 2,000 2,048 Peoples Telephone Company, Inc.
4,661 12.25% 7/15/02 2,000 1,940
ProNet Inc.
10.875% 9/15/06 500 478
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Principal Principal
(Amounts in Thousands) Amount Value (Amounts in Thousands) Amount Value
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Telecommunications -- Continued Metals and Mining -- 1.2%
Shared Technologies Fairchild, Inc. Algoma Steel, Inc.
12.25%(F) 3/1/06 $1,750 $ 1,312(C,D) 12.375% 7/15/05 $ 2,000 $ 1,940
Wireless One Incorporated
13.00% 10/15/03 1,250 1,294 Real Estate -- 1.2%
21,415 Trizec Finance Ltd.
10.875% 10/15/05 2,000 2,010
Textiles and Apparel -- 8.3%
Apparel Ventures, Inc. Services -- 2.2%
12.25% 12/31/00 2,250 2,327 GPA Group PLC
Casablanca Incorporated 0%(F) 1/1/99 10,000 3,650
14.00% 9/1/01 2,000 2,210(C,D)
Collins & Aikman Corporation Telecommunications -- 1.5%
11.50% 4/15/06 1,500 1,519 Rogers Cantel, Inc.
National Fiberstock Corporation 9.375% 6/1/08 2,500 2,425
11.625% 6/15/02 1,500 1,521(C,D) Total Yankee Bonds
Pour Le Bebe, Incorporated (Identified Cost-- $18,990) 19,285
13.00% 8/9/01 2,750 3,080(C,D) -----------------------------------------------------------
15.00% 4/30/97 3,100 3,177(C,D)
13,834 Shares
Total Corporate Bonds and Notes Common Stock -- 0.3%
(Identified Cost -- $131,699) 136,008 Algoma Steel, Inc. 44 152(B)
- ----------------------------------------------------------- Ladish Company Inc. 200 375(B)
Total Common Stock
Yankee Bonds(A) -- 11.7% (Identified Cost-- $319) 527
Cable and Media -- 3.5% -----------------------------------------------------------
Fundy Cable Ltd. Preferred Stock -- 3.3%
11.00% 11/15/05 500 513 Cablevision Systems Corporation
Newsquest Capital PLC Series L
11.00% 5/1/06 1,750 1,765(C,D) 11.25% 4/1/08 15 1,540(C,D,H)
Le Groupe Videotron Ltee Chancellor Broadcasting Company
10.625% 2/15/05 1,500 1,568 12.25% 2/15/08 30 3,026(C,D,H)
Rogers Cablesystems Limited La Petite Holdings Corporation
10.00% 3/15/05 2,000 1,970 12.125% 8/1/03 18 558(B)
5,816 Prime Retail, Inc.
Series B Cv.
Industrials -- 2.1% 8.5% 3/31/99 20 360
Multicanal Participacoes SA Total Preferred Stock
12.625% 6/18/04 2,000 2,075(C,D) (Identified Cost-- $5,490) 5,484
Polysindo Eka Perkasa -----------------------------------------------------------
13.00% 6/15/01 1,250 1,369
3,444
</TABLE>
5
<PAGE>
Statement of Net Assets--Continued
Legg Mason Income Trust, Inc.
High Yield Porfolio
<TABLE>
<CAPTION>
(Amounts in Thousands) Shares Value (Amounts in Thousands)
- ----------------------------------------------------------- -----------------------------------------------------------
<S> <C>
Warrants(B) -- 0.3% Net assets consisting of:
Affiliated Newspapers Accumulated paid-in capital
Investments, Inc. 2 $ 60(D) applicable to 11,102 shares
Apparel Ventures, Inc. 5 175(D) outstanding $162,514
Cort Business Services Corporation 25 30 Undistributed net investment
County Seat Stores, Inc. 1 5(D) income 538
Gulf States Steel Inc. 2 79(D) Accumulated net realized loss on
HarCor Energy, Inc. 33 66(D) investments (1,871)
Wireless One Incorporated 4 37(D) Unrealized appreciation of
Total Warrants investments 5,183
(Identified Cost-- $75) 452
- ----------------------------------------------------------- Net assets-- 100.0% $166,364
Principal
Amount Net asset value per share $14.98
Repurchase Agreement -- 0.7%
J.P. Morgan Securities, Inc.
5.47% dated 6/28/96, to be
repurchased at $1,122 on
7/1/96 (Collateral: $1,110
Federal National Mortgage
Association, 8.625%
due 9/10/96, value $1,173)
(Identified Cost-- $1,121) $1,121 1,121
- -----------------------------------------------------------
Total Investments -- 98.0%
(Identified Cost-- $157,694) 162,877
Other Assets Less Liabilities-- 2.0% 3,487
Net assets-- 100.0% $166,364
</TABLE>
(A) Yankee bond -- dollar-denominated bond issued in the U.S. by foreign
entities.
(B) Non-income producing
(C) Private placement
(D) 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.
(E) 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.
(F) Stepped coupon bond -- a bond which amortizes to par by a specified date at
which time it begins to accrue interest.
(G) Coupon increases 0.25% each coupon date (semi-annually) until November
15, 1997, thereafter remains fixed at 13.5% until maturity.
(H) Payment-in-kind ("PIK") -- a bond or preferred stock in which interest
during the initial few years is paid in additional PIK bonds or preferred
stock rather than in cash.
See notes to financial statements.
6
<PAGE>
Statement of Operations
Legg Mason Income Trust, Inc.
High Yield Portfolio
For the Six Months Ended June 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment Income:
Interest $7,328
Dividends (net of foreign taxes withheld of $3) 21 $7,349
Expenses:
Management fee 450
Distribution and service fees 346
Transfer agent and shareholder servicing expense 51
Custodian fee 47
Registration fees 20
Legal and audit fees 18
Reports to shareholders 14
Directors' fees 4
Other expenses 10
Total expenses 960
Net Investment Income 6,389
Net Realized and Unrealized Gain (Loss) on Investments:
Realized loss on investments (72)
Change in unrealized appreciation of investments 2,604
Net Realized Gain on Investments 2,532
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets Resulting from Operations $8,921
</TABLE>
Statement of Changes in Net Assets
Legg Mason Income Trust, Inc.
High Yield Portfolio
<TABLE>
<CAPTION>
For the Six For the
Months Ended Year Ended
(Amounts in Thousands) June 30, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Change in Net Assets:
Net investment income $ 6,389 $ 6,980
Net realized loss on investments (72) (628)
Change in unrealized appreciation of investments 2,604 5,683
Change in net assets resulting from operations 8,921 12,035
Distributions to shareholders from net investment income (5,860) (6,993)
Increase in net assets from Fund share transactions 54,886 49,951
Increase in net assets 57,947 54,993
Net Assets:
Beginning of period 108,417 53,424
- ---------------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income of $538 and $8,
respectively) $166,364 $108,417
</TABLE>
See notes to financial statements.
7
<PAGE>
Financial Highlights
Legg Mason Income Trust, Inc.
High Yield 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 Six For the February 1, 1994(A)
Months Ended Year Ended to
June 30, 1996 December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C>
Per Share Operating Performance:
Net asset value, beginning of period $14.62 $13.57 $15.00
Net investment income .67 1.29 1.02
Net realized and unrealized gain (loss) on investments .31 1.05 (1.44)
Total from investment operations .98 2.34 (.42)
Distributions to shareholders from net investment income (.62) (1.29) (1.01)
Net asset value, end of period $14.98 $14.62 $13.57
Total return 6.81%(B) 18.01% (2.90)%(B)
Ratios/Supplemental Data:
Ratios to average net assets: 1.39%(C) 1.47% 1.6%(C)
Expenses 9.23%(C) 9.28% 8.4%(C)
Net investment income
Portfolio turnover rate 93.63%(C) 47.41% 67.4%(C)
Net assets, end of period (in thousands) $166,364 $108,417 $53,424
</TABLE>
(A) Commencement of operations
(B) Not annualized
(C) Annualized
See notes to financial statements.
8
<PAGE>
Notes to Financial Statements
Legg Mason Income Trust, Inc.
High Yield Portfolio
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies:
The Legg Mason Income Trust, Inc. ("Trust"), consisting of the High Yield
Portfolio ("Fund"), Investment Grade Income Portfolio, the U.S. Government
Intermediate-Term Portfolio and the U.S. Government Money Market
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 based on prices received from
recognized broker-dealers in the same or similar securities. The amortized
cost method of valuation is used for debt obligations with 60 days or less
remaining to maturity.
Investment Income and Dividends to SharehoIders
Income and expenses are recorded on the accrual basis. Bond premiums
are amortized for financial reporting and tax purposes. Bond discounts,
other than original issue and zero-coupon bonds, are not amortized.
Dividends are declared and paid monthly. Dividends payable are recorded on
the dividend record date.
Security Transactions
Security transactions are recorded on the trade date. Realized gains
and losses from security transactions are reported on an identified cost
basis. At June 30, 1996, $1,559 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 of 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.
2. Investment Transactions:
Investment transactions for the six months ended June 30, 1996
(excluding short-term securities) were as follows:
Purchases $120,535
Proceeds from sales 62,735
At June 30, 1996, the cost of securities for federal income tax
purposes was $157,694. Aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was $7,318
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $2,135. The Fund has unused
capital loss carryforwards for federal income tax purposes of $1,840 which
expire in 2004.
3. Fund Share Transactions:
At June 30, 1996 there were 1,000,000 shares authorized at $.001 par
value for all portfolios of the Trust (including the Fund). Transactions
in Fund shares were as follows:
For the For the
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
Shares Amount Shares Amount
- --------------------------------------------------------------------------------
Sold 5,246 $ 78,153 4,821 $ 69,103
Reinvestment of
distributions 329 4,889 413 5,894
Repurchased (1,890) (28,156) (1,755) (25,046)
Net increase 3,685 $ 54,886 3,479 $ 49,951
- --------------------------------------------------------------------------------
9
<PAGE>
Notes to Financial Statements -- Continued
Legg Mason Income Trust, Inc.
High Yield Portfolio
(Amounts in Thousands) (Unaudited)
- --------------------------------------------------------------------------------
4. 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 0.65% of average daily net assets of the
Fund.
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.
The Manager pays the Adviser a fee for its services at an annual rate
equal to 77% of the fee received by the Manager.
Legg Mason, as distributor of the Fund, receives an annual
distribution fee of 0.25% and an annual service fee of 0.25% of the Fund's
average daily net assets, calculated daily and payable monthly. At June
30, 1996, $152 was due to the Advisor and distributor.
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 $13 by the transfer agent for the six months ended June 30, 1996.
10
