Schedule of Investments (April 30, 2007) (unaudited)
(continued)
Face
Amount
|
|
Security
|
|
Value
|
|
Repurchase Agreements 5.8%
|
|
|
|
$
|
16,169,000
|
|
Interest in $372,329,000 joint tri-party repurchase
agreement
dated 4/30/07 with Greenwich Capital Markets Inc., 5.230%
due 5/1/07; Proceeds at maturity $16,171,349; (Fully collateralized by
various U.S. government agency obligations, 3.555% to 7.089%
due 7/1/12 to 11/1/46; Market value $16,492,493)
|
|
$
|
16,169,000
|
|
17,000,000
|
|
Interest in $500,000,000 joint tri-party repurchase
agreement
dated 4/30/07 with Morgan Stanley, 5.200% due 5/1/07; Proceeds at
maturity $17,002,456; (Fully collateralized by U.S. government agency
obligation, 0.000% due 6/17/33; Market value $17,427,093)
|
|
17,000,000
|
|
17,027,000
|
|
Nomura Securities International Inc. tri-party
repurchase agreement dated 4/30/07, 5.170% due 5/1/07; Proceeds at maturity
$17,029,445; (Fully
collateralized by various U.S. government agency obligations, 0.000% to
7.125% due 9/4/07 to 4/30/26; Market value $17,367,775)
|
|
17,027,000
|
|
|
|
Total Repurchase Agreements
(Cost $50,196,000)
|
|
50,196,000
|
|
|
|
TOTAL SHORT-TERM INVESTMENTS
(Cost $83,595,236)
|
|
83,595,236
|
|
|
|
|
|
|
|
|
|
TOTAL INVESTMENTS 100.0%
(Cost $817,856,817#)
|
|
$
|
863,878,916
|
|
|
|
|
|
|
|
|
|
Face amount denominated in U.S.
dollars, unless otherwise noted.
* Non-income producing security.
(a)
Security is valued in good faith at fair value
by or under the direction of the Board of Directors (See Note 1).
(b)
Illiquid security.
(c)
Variable rate security. Interest rate
disclosed is that which is in effect at April 30, 2007.
(d)
Security is exempt from registration under
Rule 144A of the Securities Act of 1933. This security may be resold in
transactions that are exempt from registration, normally to qualified
institutional buyers. This security has been deemed liquid pursuant to
guidelines approved by the Board of Directors, unless otherwise noted.
(e)
Security has no maturity date. The date shown
represents the next call date.
(f)
Payment-in-kind security for which part of
the income earned may be paid as additional principal.
(g)
Participation interest was acquired through
the financial institution indicated parenthetically.
(h)
All or a portion of this security is
segregated for open futures contracts, written options and forward foreign
currency contracts.
(i)
Rate shown represents yield-to-maturity.
(j)
All or a portion of this security is held at
the broker as collateral for open futures contracts.
#
Aggregate cost for federal income tax
purposes is substantially the same.
Abbreviations used in this schedule
:
ADR American
Depositary Receipt
ARS
Argentine Peso
GDP
Gross Domestic Product
PAC
Planned Amortization Class
Schedule of Options Written (April 30, 2007)
(unaudited)
Contracts
|
|
Security
|
|
Expiration
Date
|
|
Strike
Price
|
|
Value
|
5
|
|
Eurodollar
Futures, Call
(Premiums received $1,725)
|
|
9/17/07
|
|
$
95.25
|
|
$ 313
|
See Notes to Financial
Statements.
LMP Capital and Income Fund
Inc.
2007 Semi-Annual Report 15
Notes to Financial Statements (unaudited)
1. Organization and Significant Accounting
Policies
LMP
Capital and Income Fund Inc. (the Fund) was incorporated in Maryland on
November 12, 2003 and is registered as a non-diversified, closed-end management
investment company under the Investment Company Act of 1940, as amended (the 1940
Act). The Board of Directors authorized 100 million shares of $0.001 par value
common stock. The Funds investment objective is total return with an emphasis
on income. The Fund pursues its investment objective by investing at least 80%
of its assets in a broad range of equity and fixed income securities of both
U.S. and foreign issuers.
The following are significant accounting policies
consistently followed by the Fund and are in conformity with U.S. generally
accepted accounting principles (GAAP). Estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
(a) Investment Valuation.
Equity securities for which market
quotations are available are valued at the last sale price or official closing
price on the primary market or exchange on which they trade. Debt securities
are valued at the mean between the bid and asked prices provided by an
independent pricing service that are based on transactions in debt obligations,
quotations from bond dealers, market transactions in comparable securities and
various other relationships between securities. Publicly traded foreign
government debt securities are typically traded internationally in the
over-the-counter market, and are valued at the mean between the bid and asked
prices as of the close of business of that market. When prices are not readily
available, or are determined not to reflect fair value, such as when the value
of a security has been significantly affected by events after the close of the
exchange or market on which the security is principally traded, but before the
Fund calculates its net asset value, the Fund may value these investments at
fair value as determined in accordance with the procedures approved by the Funds
Board of Directors. Short-term obligations maturing within 60 days are valued
at amortized cost, which approximates market value.
(b) Repurchase Agreements.
When entering into repurchase agreements, it
is the Funds policy that its custodian or a third party custodian take
possession of the underlying collateral securities, the market value of which
at least equals the principal amount of the repurchase transaction, including
accrued interest. To the extent that any repurchase transaction exceeds one
business day, the value of the collateral is marked-to-market to ensure the
adequacy of the collateral. If the seller defaults, and the market value of the
collateral declines or if bankruptcy proceedings are commenced with respect to
the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
(c) Loan Participations.
The Fund may invest in loans arranged
through private negotiation between one or more financial institutions. The
Funds investment in any such loan may be in the form of a participation in or
an assignment of the loan. In connection with purchasing participations, the
Fund generally will have no right to enforce compliance by the borrower with
the terms of the loan agreement relating to the loan, nor any
LMP Capital and Income Fund
Inc. 2007 Semi-Annual Report
21
Notes to Financial Statements (unaudited) (continued)
rights
of set-off against the borrower and the Fund may not benefit directly from any
collateral supporting the loan in which it has purchased the participation.
The Fund assumes the credit risk of the borrower,
the lender that is selling the participation and any other persons
interpositioned between the Fund and the borrower. In the event of the
insolvency of the lender selling the participation, the Fund may be treated as
a general creditor of the lender and may not benefit from any set-off between
the lender and the borrower.
(d) Written Options.
When the Fund writes an option, an amount
equal to the premium received by the Fund is recorded as a liability, the value
of which is marked-to-market daily to reflect the current market value of the
option written. If the option expires, the Fund realizes a gain from
investments equal to the amount of the premium received. When a written call
option is exercised, the difference between the premium and the amount for
effecting a closing purchase transaction, including brokerage commission, is
also treated as a realized gain or loss. When a written put option is
exercised, the amount of the premium received reduces the cost of the security
purchased by the Fund.
A risk in writing a covered call option is that the
Fund may forego the opportunity of profit if the market price of the underlying
security increases and the option is exercised. The risk in writing a call
option is that the Fund is exposed to the risk of loss if the market price of
the underlying security increases. The risk in writing a put option is that the
Fund may incur a loss if the market price of the underlying security decreases
and the option is exercised. In addition, there is the risk that the Fund may
not be able to enter into a closing transaction because of an illiquid
secondary market.
(e) Financial Futures Contracts.
The Fund may enter into financial futures
contracts typically, but not necessarily, to hedge a portion of the portfolio.
Upon entering into a financial futures contract, the Fund is required to
deposit cash or securities as initial margin. Additional securities are also
segregated up to the current market value of the financial futures contracts.
Subsequent payments, known as variation margin, are made or received by the
Fund each day, depending on the daily fluctuation in the value of the underlying
financial instruments. The Fund recognizes an unrealized gain or loss equal to
the daily variation margin. When the financial futures contracts are closed, a
realized gain or loss is recognized equal to the difference between the
proceeds from (or cost of) the closing transactions and the Funds basis in the
contracts.
The risks associated with entering into financial
futures contracts include the possibility that a change in the value of the
contracts may not correlate with the changes in the value of the underlying
instruments. In addition, investing in financial futures contracts involves the
risk that the Fund could lose more than the original margin deposit and
subsequent payments required for a futures transaction. Risks may also arise
upon entering into these contracts from the potential inability of the
counterparties to meet the terms of their contracts.
(f) Forward Foreign Currency
Contracts.
The Fund
may enter into forward foreign currency contracts to hedge against foreign
currency exchange rate risk on its non-U.S. dollar denominated securities or to
facilitate settlement of foreign currency denominated portfolio transactions. A
forward foreign currency contract is an agreement between two
22
LMP Capital and Income Fund Inc. 2007
Semi-Annual Report
Notes to Financial Statements (unaudited) (continued)
parties
to buy and sell a currency at a set price on a future date. The contract is
marked-to-market daily and the change in value is recorded by the Fund as an
unrealized gain or loss. When a forward foreign currency contract is
extinguished, through either delivery or offset by entering into another
forward foreign currency contract, 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 of the contract at the time it was extinguished.
Forward foreign currency contracts involve elements
of market risk in excess of the amounts reflected in the Statement of Assets
and Liabilities. The Fund bears the risk of an unfavorable change in the
foreign exchange rate underlying the forward foreign currency contract. Risks
may also arise upon entering into these contracts from the potential inability
of the counterparties to meet the terms of their contracts.
(g) Credit and Market Risk.
The Fund invests in high yield and emerging
market instruments that are subject to certain credit and market risks. The
yields of high yield and emerging market debt obligations reflect, among other
things, perceived credit and market risks. The Funds investment in securities
rated below investment grade typically involve risks not associated with higher
rated securities including, among others, greater risk related to timely and
ultimate payment of interest and principal, greater market price volatility and
less liquid secondary market trading. The consequences of political, social,
economic or diplomatic changes may have disruptive effects on the market prices
of investments held by the Fund. The Funds investment in non-U.S. dollar
denominated securities may also result in foreign currency losses caused by
devaluations and exchange rate fluctuations.
(h) Cash Flow Information.
The Fund invests in securities and
distributes dividends from net investment income and net realized gains, which
are paid in cash and may be reinvested at the discretion of shareholders. These
activities are reported in the Statement of Changes in Net Assets and
additional information on cash receipts and cash payments are presented in the
Statement of Cash Flows.
(i) Security Transactions and
Investment Income.
Security transactions are accounted for on a trade date basis. Interest income,
adjusted for amortization of premium and accretion of discount, is recorded on
the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign
dividend income is recorded on the ex-dividend date or as soon as practical
after the Fund determines the existence of a dividend declaration after
exercising reasonable due diligence. The cost of investments sold is determined
by use of the specific identification method. To the extent any issuer defaults
on an expected interest payment, the Funds policy is to generally halt any
additional interest income accruals and consider the realizability of interest
accrued up to the date of default.
(j) Foreign Currency Translation.
Investment securities and other assets and
liabilities denominated in foreign currencies are translated into U.S. dollar
amounts based upon prevailing exchange rates on the date of valuation.
Purchases and sales of investment securities and income and expense items
denominated in foreign currencies are translated into U.S. dollar amounts based
upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from
LMP Capital and Income Fund
Inc. 2007 Semi-Annual Report
23
Notes to Financial Statements (unaudited) (continued)
changes
in market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise
from sales of foreign currencies, including gains and losses on forward foreign
currency contracts, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on the
Funds books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in
the fair values of assets and liabilities, other than investments in
securities, at the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may
involve certain considerations and risks not typically associated with those of
U.S. dollar denominated transactions as a result of, among other factors, the
possibility of lower levels of governmental supervision and regulation of
foreign securities markets and the possibility of political or economic
instability.
(k) Distributions to Shareholders.
Distributions from net investment income for
the Fund, if any, are declared and paid on a monthly basis. Distributions of
net realized gains, if any, are declared at least annually. Under the Funds
Managed Distribution Policy, if, for any monthly distribution, net investment
income and net realized capital gain is less than the amount of the
distribution, the difference will be distributed from the Funds assets (and
constitute a return of capital). The Board of Directors may terminate the
Managed Distribution Policy at any time, including when certain events would
make part of the return of capital taxable to shareholders. Any such
termination could have an adverse effect on the market price for the Funds
shares. Distributions are recorded on the ex-dividend date and are determined
in accordance with income tax regulations, which may differ from GAAP.
(l) Federal and Other Taxes.
It is the Funds policy to comply with the
federal income and excise tax requirements of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies. Accordingly,
the Fund intends to distribute substantially all of its income and net realized
gains on investments, if any, to shareholders each year. Therefore, no federal
income tax provision is required in the Funds financial statements. However,
due to the timing of when distributions are made, the Fund may be subject to an
excise tax of 4% of the amount by which 98% of the Funds annual taxable income
exceeds the distributions from such taxable income for the year. Under the
applicable foreign tax laws, a withholding tax may be imposed on interest,
dividends and capital gains at various rates.
(m) Reclassification.
GAAP requires that certain components of net
assets be adjusted to reflect permanent differences between financial and tax
reporting. These reclassifications have no effect on net assets or net asset
value per share.
2. Investment Management Agreement and
Other Transactions with Affiliates
Legg
Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager and
ClearBridge Advisors, LLC (ClearBridge), Western Asset Management Company
24 LMP
Capital and Income Fund Inc. 2007 Semi-Annual Report
Notes to Financial Statements (unaudited) (continued)
(Western
Asset), and Western Asset Management Company Limited (Western Asset Limited)
are the Funds subadvisers. LMPFA, ClearBridge, Western Asset and Western Asset
Limited are wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason).
LMPFA provides administrative and certain oversight
services to the Fund. The Fund pays LMPFA an investment management fee,
calculated daily and paid monthly, at an annual rate of 0.85% of the Funds
average daily net assets plus the proceeds of any outstanding borrowings used
for leverage. LMPFA delegates to ClearBridge the day-to-day portfolio
management of the Fund. ClearBridge provides investment advisory services to
the Fund by both determining the allocation of the Funds assets between equity
and fixed-income investments and performing the day-to-day management of the
Funds investments in equity securities. Western Asset provides advisory
services to the Fund by performing the day-to-day management of the Funds
fixed-income investments. For its services, LMPFA pays the subadvisers 70% of
the net management fee that it receives from the Fund. This fee will be divided
between the subadvisers, on a pro rata basis, based on the assets allocated to
each subadviser, from time to time.
Western Asset Limited provides certain advisory
services to the Fund relating to currency transactions and investment in
non-U.S. dollar denominated securities. Western Asset Limited will not receive
any compensation from the Fund and will be paid by Western Asset for its
services to the Fund.
During periods in which the Fund is utilizing
leverage, the fees which are payable to the manager as a percentage of the Funds
net assets will be higher than if the Fund did not utilize leverage because the
fees are calculated as a percentage of the Funds net assets, including those
investments purchased with leverage.
Certain officers and one Director of the Fund are
employees of Legg Mason or its affiliates and do not receive compensation from
the Fund.
3. Investments
During
the six months ended April 30, 2007, the aggregate cost of purchases and
proceeds from sales of investments and U.S Government & Agency Obligations
(excluding short-term investments) were as follows:
|
|
Investments
|
|
U.S.
Government &
Agency Obligations
|
|
Purchases
|
|
$ 534,364,854
|
|
$ 13,354,243
|
|
Sales
|
|
582,769,911
|
|
8,464,259
|
|
At April 30, 2007, the aggregate gross unrealized
appreciation and depreciation of investments for federal income tax purposes
were substantially as follows:
Gross unrealized appreciation
|
|
$ 53,271,836
|
|
Gross
unrealized depreciation
|
|
(7,249,737
|
)
|
Net
unrealized appreciation
|
|
$ 46,022,099
|
|
LMP Capital and Income Fund
Inc. 2007 Semi-Annual Report 25
Notes to Financial Statements (unaudited) (continued)
At April 30, 2007, the Fund held loan participations
with a total cost of $1,000,000 and a total market value of $1,002,143.
During the six months ended April 30, 2007, written
option transactions for the Fund were as follows:
|
|
Number of
Contracts
|
|
Premiums
|
|
Options written, outstanding October 31,
2006
|
|
1,090
|
|
$
|
215,858
|
|
Options written
|
|
555
|
|
935,075
|
|
Options closed
|
|
(1,640
|
)
|
(1,149,208
|
)
|
Options expired
|
|
|
|
|
|
Options written, outstanding April 30, 2007
|
|
5
|
|
$
|
1,725
|
|
|
|
|
|
|
|
|
|
At April 30, 2007, the Fund had open forward foreign
currency contracts as described below. The unrealized gain on the open
contracts reflected in the accompanying financial statements were as follows:
Foreign Currency
|
|
Local
Currency
|
|
Market
Value
|
|
Settlement
Date
|
|
Unrealized
Gain
|
|
Contracts
to Buy:
|
|
|
|
|
|
|
|
|
|
Japanese Yen
|
|
72,660,000
|
|
$609,092
|
|
5/9/07
|
|
$3,592
|
|
At April 30, 2007, the Fund
had the following open futures contracts:
|
|
Number of
Contracts
|
|
Expiration
Date
|
|
Basis
Value
|
|
Market
Value
|
|
Unrealized
Gain (Loss)
|
|
Contracts
to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
Eurodollar
Futures
|
|
2
|
|
|
6/08
|
|
$
|
476,048
|
|
$
|
476,600
|
|
$
|
552
|
|
Eurodollar
Futures
|
|
3
|
|
|
9/07
|
|
712,365
|
|
711,000
|
|
(1,365
|
)
|
U.S. 2 Year
Treasury Notes
|
|
72
|
|
|
6/07
|
|
14,706,282
|
|
14,739,750
|
|
33,468
|
|
U.S. 5 Year
Treasury Notes
|
|
47
|
|
|
6/07
|
|
4,943,735
|
|
4,973,922
|
|
30,187
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,842
|
|
Contracts
to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. 10 Year
Treasury Notes
|
|
66
|
|
|
6/07
|
|
$
|
7,095,897
|
|
$
|
7,149,656
|
|
$
|
(53,759
|
)
|
Net
Unrealized Gain on Open Futures Contracts
|
|
|
|
|
|
|
|
|
|
$ 9,083
|
|
4. Loan
At
April 30, 2007, the Fund had a $325,000,000 credit line available pursuant to a
revolving credit and security agreement, dated as of December 21, 2006 (the Agreement),
with CHARTA, LLC and Citibank N.A. (Citibank). Citibank acts as
administrative agent and secondary lender. As of April 30, 2007, the Fund had a
$170,000,000 loan outstanding pursuant to the Agreement. The loan generally
bears interest at a variable rate based on the weighted average interest rates
of the underlying commercial paper or LIBOR plus any
26
LMP
Capital and Income Fund Inc. 2007 Semi-Annual Report
Notes to Financial Statements (unaudited) (continued)
applicable
margin. In addition, the Fund pays a commitment fee on the total credit line
available, whether used or unused, at an annual rate of 0.10%. Securities held
by the Fund are subject to a lien, granted to the lenders, to the extent of the
borrowings outstanding and any additional expenses. For the six months ended
April 30, 2007, the Fund incurred interest expense on this loan in the amount
of $5,390,479.
5. Distributions Subsequent to April 30,
2007
On
March 1, 2007, the Board of Directors (Board) of the Fund declared a
distribution in the amount of $0.10 per share payable on May 25, 2007 to
shareholders of record on May 18, 2007.
On May 17, 2007, the Funds Board declared four
distributions each in the amount of $0.14 per share, payable on June 29, 2007,
July 27, 2007, August 31, 2007 and September 28, 2007 to shareholders of record
on June 22, 2007, July 20, 2007, August 24, 2007, and September 21, 2007,
respectively.
6. Capital Shares
On
November 20, 2006, the Funds Board authorized the Fund to repurchase from time
to time in the open market up to 1,000,000 shares of the Funds common stock.
The Board of Directors directed the management of the Fund to repurchase shares
of the Funds common stock at such times and in such amounts as management
believes will enhance shareholder value, subject to review by the Funds Board
of Directors. This is the fourth repurchase program authorized by the Board of
Directors since the Funds inception in 2004. Pursuant to the Funds previous
three repurchase programs of up to 1,000,000 shares each, the Fund has
repurchased 3,000,000 shares of common stock. The second and third repurchase
programs were authorized and announced in February 2006 and June 2006,
respectively.
7. Regulatory Matters
On
May 31, 2005, the U.S. Securities and Exchange Commission (SEC) issued an
order in connection with the settlement of an administrative proceeding against
Smith Barney Fund Management LLC (SBFM) and Citigroup Global Markets Inc. (CGM)
relating to the appointment of an affiliated transfer agent for the Smith
Barney family of mutual funds (the Affected Funds).
The SEC order finds that SBFM and CGM willfully
violated Section 206(1) of the Investment Advisers Act of 1940 (Advisers Act).
Specifically, the order finds that SBFM and CGM knowingly or recklessly failed
to disclose to the boards of the Affected Funds in 1999 when proposing a new
transfer agent arrangement with an affiliated transfer agent that: First Data
Investors Services Group (First Data), the Affected Funds then existing
transfer agent, had offered to continue as transfer agent and do the same work
for substantially less money than before; and that Citigroup Asset Management (CAM),
the Citigroup business unit that, at the time, included the Affected Funds
investment manager and other investment advisory companies, had entered into a
side letter with First Data under which CAM agreed to recommend the appointment
of First Data as
LMP Capital and Income Fund
Inc. 2007 Semi-Annual Report
27
Notes to Financial Statements (unaudited) (continued)
sub-transfer
agent to the affiliated transfer agent in exchange for, among other things, a
guarantee by First Data of specified amounts of asset management and investment
banking fees to CAM and CGM. The order also finds that SBFM and CGM willfully
violated Section 206(2) of the Advisers Act by virtue of the omissions
discussed above and other misrepresentations and omissions in the materials
provided to the Affected Funds boards, including the failure to make clear
that the affiliated transfer agent would earn a high profit for performing
limited functions while First Data continued to perform almost all of the transfer
agent functions, and the suggestion that the proposed arrangement was in the
Affected Funds best interests and that no viable alternatives existed. SBFM
and CGM do not admit or deny any wrongdoing or liability. The settlement does
not establish wrongdoing or liability for purposes of any other proceeding.
The SEC censured SBFM and CGM and ordered them to
cease and desist from violations of Sections 206(1) and 206(2) of the Advisers
Act. The order requires Citigroup to pay $208.1 million, including $109 million
in disgorgement of profits, $19.1 million in interest, and a civil money
penalty of $80 million. Approximately $24.4 million has already been paid to
the Affected Funds, primarily through fee waivers. The remaining $183.7
million, including the penalty, has been paid to the U.S. Treasury and will be
distributed pursuant to a plan submitted for the approval of the SEC. At this
time, there is no certainty as to how the above-described proceeds of the
settlement will be distributed, to whom such distributions will be made, the
methodology by which such distributions will be allocated, and when such
distributions will be made.
The order also required that transfer agency fees
received from the Affected Funds since December 1, 2004 less certain expenses
be placed in escrow and provided that a portion of such fees might be
subsequently distributed in accordance with the terms of the order.
On April 3, 2006, an aggregate amount of
approximately $9 million was distributed to the Affected Funds.
The order required SBFM to recommend a new transfer
agent contract to the Affected Funds boards within 180 days of the entry of the
order; if a Citigroup affiliate submitted a proposal to serve as transfer agent
or sub-transfer agent, SBFM and CGM would have been required, at their expense,
to engage an independent monitor to oversee a competitive bidding process. On
November 21, 2005, and within the specified timeframe, the Affected Funds
Board selected a new transfer agent for the Fund. No Citigroup affiliate submitted
a proposal to serve as transfer agent. Under the order, SBFM also must comply
with an amended version of a vendor policy that Citigroup instituted in August
2004.
Although there can be no assurance, the Funds
manager does not believe that this matter will have a material adverse effect
on the Affected Funds.
This Fund is not among the Affected
Funds and therefore did not implement the transfer agent arrangement described
above and therefore will not receive any portion of the distributions.
On December 1, 2005, Citigroup completed the sale of
substantially all of its global asset management business, including SBFM, to
Legg Mason.
28
LMP Capital and Income Fund Inc. 2007
Semi-Annual Report
Notes to Financial Statements (unaudited) (continued)
8. Other Matters
On
September 16, 2005, the staff of the SEC informed SBFM and Salomon Brothers
Asset Management Inc. (SBAM) that the staff is considering recommending that
the SEC institute administrative proceedings against SBAM for alleged
violations of Sections 19(a) and 34(b) of the 1940 Act (and related Rule
19a-1). The notification is a result of an industry wide inspection undertaken
by the SEC and is based upon alleged deficiencies in disclosures regarding
dividends and distributions paid to shareholders of certain funds. Section
19(a) and related Rule 19a-1 of the 1940 Act generally require funds that are
making dividend and distribution payments to provide shareholders with a
written statement disclosing the source of the dividends and distributions,
and, in particular, the portion of the payments made from each of net
investment income, undistributed net profits and/or paid-in capital. In
connection with the contemplated proceedings, the staff may seek a cease and
desist order and/or monetary damages from SBFM or SBAM.
Although there can be no assurance, the Funds
manager believes that this matter is not likely to have a material adverse
effect on the Fund.
9. Recent Accounting Pronouncements
During
June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation 48 (FIN 48 or the Interpretation),
Accounting for Uncertainty in Income
Taxes an interpretation of FASB statement 109
.
FIN 48 supplements FASB Statement 109,
Accounting
for Income Taxes
, by defining the confidence level that a tax
position must meet in order to be recognized in the financial statements. FIN
48 prescribes a comprehensive model for how a fund should recognize, measure,
present, and disclose in its financial statements uncertain tax positions that
the fund has taken or expects to take on a tax return. FIN 48 requires that the
tax effects of a position be recognized only if it is more likely than not to
be sustained based solely on its technical merits. Management must be able to
conclude that the tax law, regulations, case law, and other objective
information regarding the technical merits sufficiently support the positions
sustainability with a likelihood of more than 50 percent. FIN 48 is effective
for fiscal periods beginning after December 15, 2006, which for this Fund will
be November 1, 2007. At adoption, the financial statements must be adjusted to
reflect only those tax positions that are more likely than not to be sustained
as of the adoption date. Management of the Fund has determined that adopting
FIN 48 will not have a material impact on the Funds financial statements.
***
On
September 20, 2006, FASB released Statement of Financial Accounting Standards
No. 157
Fair Value Measurements
(FAS
157). FAS 157 establishes an authoritative definition of fair value, sets out
a framework for measuring fair value, and requires additional disclosures about
fair value measurements. The application of FAS 157 is required for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal
years. At this time, management is evaluating the implications of FAS 157 and
its impact on the financial statements has not yet been determined.
LMP Capital
and Income Fund Inc. 2007 Semi-Annual Report 29
Additional Shareholder Information (unaudited)
Results of Annual Meeting of Shareholders
The
Annual Meeting of Shareholders of LMP Capital and Income Fund Inc. was held on
February 27, 2007, for the purpose of considering and voting upon the election
of Directors. The following table provides information concerning the matter
voted upon at the Meeting.
Nominees
|
|
Votes For
|
|
Votes Withheld
|
|
Leslie H.
Gelb
|
|
27,054,485
|
|
969,953
|
|
R. Jay
Gerken
|
|
27,065,598
|
|
958,841
|
|
William R.
Hutchinson
|
|
27,052,626
|
|
971,812
|
|
At
April 30, 2007, in addition to Leslie H. Gelb, R. Jay Gerken and William R.
Hutchinson, the other Directors of the Fund were as follows:
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Dr. Riordan Roett
Jeswald
W. Salacuse
30
LMP Capital and Income Fund Inc.
Dividend Reinvestment Plan (unaudited)
Unless
you elect to receive distributions in cash, all distributions, on your Common
Shares will be automatically reinvested by American Stock Transfer & Trust
Company, as agent for the Common Shareholders (the Plan Agent), in additional
Common Shares under the Dividend Reinvestment Plan (the Plan). You may elect
not to participate in the Plan by contacting the Plan Agent. If you do not
participate, you will receive all cash distributions paid by check mailed directly
to you by American Stock Transfer & Trust Company as dividend paying agent.
If you participate in the Plan, the number of Common
Shares you will receive will be determined as follows:
(1) If the market price of the Common Shares on the
record date (or, if the record date is not a New York Stock Exchange trading
day, the immediately preceding trading day) for determining shareholders
eligible to receive the relevant distribution (the determination date) is
equal to or exceeds the net asset value per share of the Common Shares, the
Fund will issue new Common Shares at a price equal to the greater of (a) the
net asset value per share at the close of trading on the Exchange on the
determination date or (b) 95% of the market price per share of the Common
Shares on the determination date.
(2) If the net asset value per share of the Common
Shares exceeds the market price of the Common Shares on the determination date,
the Plan Agent will receive the distribution in cash and will buy Common Shares
in the open market, on the Exchange or elsewhere, for your account as soon as
practicable commencing on the trading day following the determination date and
terminating no later than the earlier of (a) 30 days after the distribution
payment date, or (b) the record date for the next succeeding distribution to be
made to the Common Shareholders; except when necessary to comply with
applicable provisions of the federal securities laws. If during this period:
(i) the market price rises so that it equals or exceeds the net asset value per
share of the Common Shares at the close of trading on the Exchange on the
determination date before the Plan Agent has completed the open market
purchases or (ii) if the Plan Agent is unable to invest the full amount
eligible to be reinvested in open market purchases, the Plan Agent will cease
purchasing Common Shares in the open market and the Fund shall issue the
remaining Common Shares at a price per share equal to the greater of (a) the
net asset value per share at the close of trading on the Exchange on the
determination date or (b) 95% of the then current market price per share.
The Plan Agent maintains all participants accounts
in the Plan and gives written confirmation of all transactions in the accounts,
including information you may need for tax records. Common Shares in your
account will be held by the Plan Agent in non-certified form. Any proxy you
receive will include all Common Shares you have received under the Plan.
You may withdraw from the Plan by notifying the Plan
Agent in writing at 59 Maiden Lane, New York, New York 10038. Such withdrawal
will be effective immediately if notice is received by the Plan Agent not less
than ten business days prior to any dividend or distribution record date;
otherwise such withdrawal will be effective as soon as practicable after the
Plan Agents investment of the most recently declared dividend or distribution
on the
LMP Capital and Income Fund
Inc.
31
Dividend Reinvestment Plan (unaudited) (continued)
Common
Shares. The Plan may be terminated by the Fund upon notice in writing mailed to
Common Shareholders at least 30 days prior to the record date for the payment
of any dividend or distribution by the Fund for which the termination is to be
effective. Upon any termination, you will be sent a certificate or certificates
for the full Common Shares held for you under the Plan and cash for any
fractional Common Shares. You may elect to notify the Plan Agent in advance of
such termination to have the Plan Agent sell part or all of your shares on your
behalf. The Plan Agent is authorized to deduct brokerage charges actually
incurred for this transaction from the proceeds.
There is no service charge for reinvestment of your
dividends or distributions in Common Shares. However, all participants will pay
a pro rata share of brokerage commissions incurred by the Plan Agent when it
makes open market purchases. Because all dividends and distributions will be
automatically reinvested in additional Common Shares, this allows you to add to
your investment through dollar cost averaging, which may lower the average cost
of your Common Shares over time.
Automatically reinvesting dividends and
distributions does not mean that you do not have to pay income taxes due upon
receiving dividends and distributions.
The Fund reserves the right to amend or terminate
the Plan if, in the judgment of the Board of Directors, the change is
warranted. There is no direct service charge to participants in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants. Additional information about the Plan and your
account may be obtained from the Plan Agent at 1-888-888-0151.
Notice is hereby given in accordance with Section
23(c) of the Investment Company Act of 1940, as amended, that from time to time
the Fund may purchase, at market prices, shares of its common stock in the open
market.
32
LMP
Capital and Income Fund Inc.
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blank.)
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blank.)
|
LMP
Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
DIRECTORS
|
SUBADVISERS
|
|
Carol
L. Colman
|
ClearBridge
Advisors, LLC
|
|
Daniel
P. Cronin
|
Western
Asset Management
|
|
Paolo
M. Cucchi
|
Company
|
|
Leslie
H. Gelb
|
Western
Asset Management
|
|
R.
Jay Gerken, CFA
|
Company
Limited
|
|
Chairman
|
|
|
William
R. Hutchinson
|
|
|
Dr.
Riordan Roett
|
CUSTODIAN
|
|
Jeswald
W. Salacuse
|
State
Street Bank and Trust
|
|
|
Company
|
|
|
225
Franklin Street
|
|
OFFICERS
|
Boston,
Massachusetts 02110
|
|
R.
Jay Gerken, CFA
|
|
|
President
and
|
|
|
Chief
Executive Officer
|
TRANSFER AGENT
|
|
|
American
Stock Transfer &
|
|
Kaprel
Ozsolak
|
Trust
Company
|
|
Chief
Financial Officer
|
59
Maiden Lane
|
|
and
Treasurer
|
New
York, New York 10038
|
|
|
|
|
Ted
P. Becker
|
|
|
Chief
Compliance Officer
|
INDEPENDENT
|
|
|
REGISTERED PUBLIC
|
|
Robert
I. Frenkel
|
ACCOUNTING FIRM
|
|
Secretary
and Chief Legal Officer
|
KPMG,
LLP
|
|
|
345
Park Avenue
|
|
|
New
York, New York 10154
|
|
LMP CAPITAL AND INCOME
FUND
INC.
|
|
|
125
Broad Street
|
LEGAL COUNSEL
|
|
10th
Floor, MF-2
|
Simpson
Thacher & Bartlett LLP
|
|
New
York, New York 10004
|
425
Lexington Avenue
|
|
|
New
York, New York 10017
|
|
|
|
|
INVESTMENT MANAGER
|
|
|
Legg
Mason Partners Fund
|
NEW YORK STOCK
|
|
Advisor, LLC
|
EXCHANGE SYMBOL
|
|
|
SCD
|
This
report is transmitted to the shareholders of LMP Capital and Income Fund Inc.
for their information. This is not a prospectus, circular or representation
intended for use in the purchase of shares of the Fund or any securities
mentioned in this report.
|
|
LMP
Capital and Income Fund Inc.
Notice
is hereby given in accordance with Section 23(c) of the Investment Company
Act of 1940, as amended, that from time to time, the Fund may purchase shares
of its common stock in the open market.
|
|
|
The
Fund files its complete schedule of portfolio holdings with the Securities
|
American Stock Transfer
& Trust Company
59 Maiden Lane
New York, New York 10038
FD04219 4/07 SR07-356
|
|
and
Exchange Commission (SEC) for the first and third quarters of each fiscal
year on Form N-Q. The Funds Forms N-Q are available on the SECs website at
www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the SECs
Public Reference Room in Washington D.C., and information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330. To
obtain information on Form N-Q from the Fund, shareholders can call
Shareholder Services at 1-800-451-2010.
|
|
|
|
|
|
Information on how the Fund voted proxies relating to portfolio
securities during the prior 12-month period ended June 30th of each year and
a description of the policies and procedures that the Fund uses to determine
how to vote proxies related to portfolio transactions is available (1)
without charge, upon request, by calling 1-800-451-2010. (2) on the Funds
website at www.leggmason.com/InvestorServices and (3) on the SECs website at
www.sec.gov.
|