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
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811-21467
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LMP Capital and Income Fund Inc.
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(Exact name of registrant as
specified in charter)
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55 Water Street, New York, NY
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10041
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(Address of principal executive
offices)
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(Zip code)
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Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
100 First Stamford Place
Stamford, CT 06902
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(Name and address of agent for
service)
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Registrants telephone number, including
area code:
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(800) 451-2010
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Date of fiscal year end:
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October 31
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Date of reporting period:
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October 31,
2008
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ITEM
1. REPORT TO
STOCKHOLDERS.
The
Annual
Report to Stockholders is filed
herewith.
ANNUAL REPORT
/ OCTOBER 31, 2008
LMP
Capital and Income
Fund Inc.
(SCD)
Managed
by
CLEARBRIDGE ADVISORS
WESTERN
ASSET
INVESTMENT PRODUCTS: NOT
FDIC INSURED
·
NO BANK GUARANTEE
·
MAY LOSE VALUE
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Fund objective
The
Funds investment objective is total return with an emphasis on income.
Whats inside
Letter
from the chairman
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I
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Fund
overview
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1
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Fund
at a glance
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8
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Schedule
of investments
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9
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Statement
of assets and liabilities
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31
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Statement
of operations
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32
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Statements
of changes in net assets
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33
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Statement
of cash flows
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34
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Financial
highlights
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35
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Notes
to financial statements
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36
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Report
of independent registered public accounting firm
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49
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Additional
information
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50
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Annual
chief executive officer and chief financial officer certifications
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55
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Dividend
reinvestment plan
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56
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Important
tax information
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58
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Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds
investment manager. ClearBridge Advisors, LLC (ClearBridge), Western Asset
Management Company (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.
Letter from the chairman
Dear
Shareholder,
Economic
growth in the U.S. was mixed during the 12-month reporting period ended October 31,
2008. Looking back, third quarter 2007 U.S. gross domestic product (GDP)
i
growth was a strong 4.8%. However, continued weakness in the
housing market, an ongoing credit crunch and soaring oil and food prices then
took their toll on the economy, as fourth quarter 2007 GDP declined 0.2%. The
economy then expanded 0.9% and 2.8% during the first and second quarters of
2008, respectively. This rebound was due, in part, to rising exports that were
buoyed by a weakening U.S. dollar, and solid consumer spending, which was aided
by the governments tax rebate program. The dollars rally and the end of the
rebate program, combined with other strains on the economy, then caused GDP to
take a step backward in the third quarter of 2008. According to the preliminary
estimate released by the U.S. Department of Commerce, third quarter 2008 GDP
declined 0.5%.
The
latest Bureau of Economic Research release indicates that the U.S. is currently
in recession. Evidence supporting this conclusion includes a slowdown in
consumer spending, with four consecutive months of declining retail sales from July through
October 2008. According to the Department of Commerce, Octobers 2.8% fall
in retail sales is the sharpest decline since it began tracking this data in
1992. In terms of the job market, the U.S. Department of Labor reported that
payroll employment declined in each of the first 10 months of 2008.
Year-to-date through October, roughly 1.2 million jobs have been shed and the
unemployment rate now stands at 6.5%, its highest level since 1994.
Ongoing
issues related to the housing and subprime mortgage markets and seizing credit
markets prompted the Federal Reserve Board (Fed)
ii
to
take aggressive and, in some cases, unprecedented actions. Beginning in September 2007,
the Fed reduced the federal funds rate
iii
from
5.25% to 4.75%. This marked the first such reduction since June 2003. The
Fed then reduced the federal funds rate on six additional occasions through April 2008,
bringing the federal funds rate to 2.00%. The Fed then shifted
LMP Capital and Income Fund Inc.
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I
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Letter from the chairman
continued
gears
in the face of mounting inflationary prices and a weakening U.S. dollar. At its
meetings in June, August and September 2008, the Fed held rates
steady. Then, on October 8, 2008, in a global coordination effort with six
central banks around the world, interest rates were cut in an attempt to reduce
the strains in the global financial markets. At that time, the Fed lowered the
federal funds rate from 2.00% to 1.50%. The Fed again cut rates from 1.50% to
1.00% at its regularly scheduled meeting on October 29, 2008. In
conjunction with its October meeting, the Fed stated: The pace of
economic activity appears to have slowed markedly, owing importantly to a
decline in consumer expenditures. ... Moreover, the intensification of
financial market turmoil is likely to exert additional restraint on spending,
partly by further reducing the ability of households and businesses to obtain
credit.
In
addition to the interest rate cuts, the Fed took several actions to improve
liquidity in the credit markets. In March 2008, the Fed established a new
lending program allowing certain brokerage firms, known as primary dealers, to
also borrow from its discount window. Also in March, the Fed played a major
role in facilitating the purchase of Bear Stearns by JPMorgan Chase. In mid-September 2008,
it announced an $85 billion rescue plan for ailing AIG and pumped $70 billion
into the financial system as Lehman Brothers bankruptcy and mounting troubles
at other financial firms roiled the markets.
The
U.S. Department of the Treasury has also taken an active role in attempting to
stabilize the financial system, as it orchestrated the governments takeover of
mortgage giants Fannie Mae and Freddie Mac in September. In addition, on October 3,
2008, the Treasurys $700 billion Troubled Asset Relief Program (TARP) was
approved by Congress and signed into law by President Bush. As part of TARP,
the Treasury had planned to make a $250 billion capital injection into some of
the nations largest banks. However, in November 2008 (after the reporting
period ended), Treasury Secretary Paulson said the Treasury no longer intended
to use TARP to purchase bad loans and other troubled financial assets.
The
U.S. stock market was extremely volatile and generated poor results during the
12 months ended October 31, 2008. Stock prices declined during each of the
first five months of the reporting period. This was due, in part, to the credit
crunch, weakening corporate profits, rising inflation and fears of an impending
recession. The market then reversed course and posted positive returns in April and
May 2008. The markets rebound was largely attributed to hopes that the
U.S. would skirt a recession and that corporate profits would rebound as the
year progressed. However, given the escalating credit crisis and the mounting
turmoil in the financial markets, stock prices moved lower during four of the
last five months of the period, including S&P 500 Inde
x
iv
declines of 8.91% and 16.79% in September and October,
II
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LMP
Capital and Income Fund Inc.
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respectively.
All told, the S&P 500 Index returned -36.10% during the 12-month reporting
period ended October 31, 2008.
Looking
at the U.S. bond market, both short- and long-term Treasury yields experienced
periods of extreme volatility during the reporting period. Investors were
initially focused on the subprime segment of the mortgage-backed market. These
concerns broadened, however, to include a wide range of financial institutions
and markets. As a result, other fixed-income instruments also experienced
increased price volatility. This unrest triggered several flights to quality,
causing Treasury yields to move lower (and their prices higher), while riskier
segments of the market saw their yields move higher (and their prices lower).
This was particularly true toward the end of the reporting period, as the
turmoil in the financial markets and sharply falling stock prices caused
investors to flee securities that were perceived to be risky, even high-quality
corporate bonds and high-grade municipal bonds. At one point in September 2008,
the yield available from the three-month Treasury bill fell to 0.04%, as
investors were essentially willing to forgo any return potential in order to
access the relative safety of government-backed securities. During the 12
months ended October 31, 2008, two-year Treasury yields fell from 3.94% to
1.56%. Over the same time frame, 10-year Treasury yields moved from 4.48% to
4.01%. Looking at the 12-month period as a whole, the overall bond market, as
measured by the Barclays Capital U.S. Aggregate Index
v
, returned 0.30%.
Special shareholder notice
On
November 18, 2008, the Fund announced changes to its managed distribution
policy that will take effect beginning in 2009. The Fund, which had declared
previously monthly distributions of $0.1400 per common share payable in the
months of November and December 2008, will pay distributions
quarterly beginning with the quarter ended March 2009. In addition, the
Fund will change the methodology it uses to determine its distribution rate.
The Fund, which previously had declared a set monthly distribution rate, will
begin setting its quarterly distribution rate based on a percentage of the Funds
net asset value (NAV)
vi
per share on December 31, 2008. The
Board of Directors of the Fund has approved an annual distribution rate, for
the 2009 calendar year, of a minimum of approximately 5% of the NAV of the Fund
as of the close of trading on December 31, 2008. The Fund may make
additional distributions as necessary to meet certain tax requirements.
The
Fund cited the deteriorating economic environment and the decline in equity and
fixed-income valuations during the past year, which accelerated beginning in
the second half of 2008. These declines have led to a reduction in the level of
capital gains and income available from the Funds equity and fixed-income
investments. Whereas the Funds distribution strategy
LMP Capital and Income Fund Inc.
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III
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Letter from the chairman
continued
previously
encompassed a combination of net investment income and potential short-term and
long-term capital gains, the current environment makes it more likely that
future distributions will rely less heavily on a capital gains component and
more on net investment income generated by the portfolio.
The
Fund also utilizes a line of credit to enhance portfolio returns; this line of
credit provides the Fund with the ability to moderate its use as market
conditions and opportunities change. As a result of the managers investment
outlook and the need to maintain asset coverage requirements, the Fund has
reduced its use of leverage to $145 million as of October 31, 2008. This
is down from $170 million as reported in the Funds semi-annual report dated April 30,
2008.
These
changes are intended to help improve the overall, long-term performance of the
Fund. It is anticipated that these actions will, over time, allow the Fund to
rebuild its asset base through the capital appreciation of the underlying
investments and will allow the investment manager to focus on longer-term
performance that could ultimately result in increased distributions should the
Funds NAV increase. There can be no assurance, however, that the investment
manager will be able to achieve these goals.
Under
the terms of the Funds revised managed distribution policy, the Fund will seek
to maintain a consistent quarterly distribution level stated as a fixed
percentage of its December 31, 2008 NAV, that may be paid in part or in
full from net investment income and realized capital gains, or a combination
thereof. Stockholders should note, however, that if the Funds aggregate net
investment income and net realized capital gains are less than the amount of
the quarterly distribution level, the difference will be distributed from the
Funds assets and will constitute a return of the shareholders capital. A
return of capital is not taxable as a dividend; rather it reduces a shareholders
tax basis in his or her shares of the Fund with any balance in excess of the
tax basis treated as a capital gain.
The
Board of Directors may reduce the Funds quarterly distribution rate in the
future or terminate or suspend the managed distribution policy at any time. Any
such reduction in the quarterly distribution rate, termination or suspension
could have an adverse effect on the market price of the Funds shares.
IV
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LMP
Capital and Income Fund Inc.
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A special note regarding increased market volatility
In
recent months, we have experienced a series of events that have impacted the
financial markets and created concerns among both novice and seasoned investors
alike. In particular, we have witnessed the failure and consolidation of
several storied financial institutions, periods of heightened market
volatility, and aggressive actions by the U.S. federal government to steady the
financial markets and restore investor confidence. While we hope that the worst
is over in terms of the issues surrounding the credit and housing crises, it is
likely that the fallout will continue to impact the financial markets and the
U.S. economy during the remainder of the year and into 2009 as well.
Like
all asset management firms, Legg Mason has not been immune to these difficult
and, in some ways, unprecedented times. However, todays challenges have only
strengthened our resolve to do everything we can to help you reach your
financial goals. Now, as always, we remain committed to providing you with
excellent service and a full spectrum of investment choices. And rest assured,
we will continue to work hard to ensure that our investment managers make every
effort to deliver strong long-term results.
We
also remain committed to supplementing the support you receive from your
financial advisor. One way we accomplish this is through our enhanced website,
www.leggmason.com/cef. Here you can gain immediate access to many special
features to help guide you through difficult times, including:
·
Fund prices and performance,
·
Market insights and commentaries
from our portfolio managers, and
·
A host of educational resources.
During
periods of market unrest, it is especially important to work closely with your
financial advisor and remember that reaching ones investment goals unfolds
over time and through multiple market cycles. Time and again, history has shown
that, over the long run, the markets have eventually recovered and grown.
LMP Capital and Income Fund Inc.
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V
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Letter from the chairman
continued
Information about your fund
Please
read on for a more detailed look at prevailing economic and market conditions
during the Funds reporting period and to learn how those conditions have
affected Fund performance.
Important
information with regard to recent regulatory developments that may affect the
Fund is contained in the Notes to Financial Statements included in this report.
As
always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you meet your financial goals.
Sincerely,
R. Jay Gerken, CFA
Chairman,
President and Chief Executive Officer
December 1,
2008
All
index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
i
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Gross
domestic product (GDP) is the market value of all final goods and services
produced within a country in a given period of time.
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ii
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The
Federal Reserve Board (Fed) is responsible for the formulation of policies
designed to promote economic growth, full employment, stable prices, and a
sustainable pattern of international trade and payments.
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iii
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The
federal funds rate is the rate charged by one depository institution on an
overnight sale of immediately available funds (balances at the Federal
Reserve) to another depository institution; the rate may vary from depository
institution to depository institution and from day to day.
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iv
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The
S&P 500 Index is an unmanaged index of 500 stocks and is generally
representative of the performance of larger companies in the U.S.
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v
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The
Barclays Capital (formerly Lehman Brothers) U.S. Aggregate Index is a
broad-based bond index comprised of government, corporate, mortgage- and
asset-backed issues, rated investment grade or higher, and having at least
one year to maturity.
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vi
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Net
asset value (NAV) is calculated by subtracting total liabilities and
outstanding preferred stock (if any) from the closing value of all securities
held by the Fund (plus all other assets) and dividing the result (total net
assets) by the total number of the common shares outstanding. The NAV
fluctuates with changes in the market prices of securities in which the Fund
has invested. However, the price at which an investor may buy or sell shares
of the Fund is at the Funds market price as determined by supply of and
demand for the Funds shares.
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VI
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LMP
Capital and Income Fund Inc.
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Fund overview
Q.
What is the Funds investment strategy?
A.
The Fund seeks total return with an emphasis on income. The Fund invests in a
broad range of equity and fixed-income securities of both U.S. and foreign
issuers. The Fund varies its allocation between equity and fixed-income securities
depending on the portfolio managers view of economic, market or political
conditions, fiscal and monetary policy and security valuation. The portfolio
manager manages the equity side of the Fund with a bottom-up approach focused
on the risk and reward of each investment opportunity. A portfolio management
team at Western Asset Management Company manages the fixed-income allocation of
the Fund.
Q.
What were the overall market conditions during the Funds reporting period?
A.
The Funds reporting period began amid a rallying bull market for equities that
was rapidly overwhelmed by a global credit crisis, centered on defaulting
subprime mortgages and related collateralized mortgage securities. As the
fiscal year progressed, the mortgage crisis metastasized into a series of
escalating financial institution failures and international economic events
that constituted a major historical disruption of the global stock and credit
markets.
In
early October of 2007, shortly before the start of the period, several
major U.S. equity market indexes, including the Dow Jones Industrial Average (DJIA)
i
and the S&P 500 Index
ii
reached
new record highs, with the DJIA closing above 14,000 for the first time. The
rally was short-lived, however, as early indicators of the growing mortgage
market crisis and a weakening economy soon came to dominate the headlines. The
stock market tested lows shortly after the start of the Funds fiscal year in
late November, with selling driven by the broadening impact of the subprime
mortgage market collapse and its impact on the global credit markets. By the
end of calendar year 2007, many of the largest U.S. financial institutions were
forced to raise capital in order to shore up their balance sheets.
The
market rallied again briefly after the start of 2008, but soon reversed course
amid significant volatility and growing concerns about the overall health of
the U.S. financial system. The credit markets continued to show signs of
weakness and, as a result, a number of money center and investment banks were
forced to take asset markdowns and raise capital, culminating in the collapse
of Bear Stearns in mid-March and the rescue of the firm by JPMorgan Chase
and the Federal Reserve Board (Fed)
iii
.
By the end of March, the major averages closed down across the board and had
lost between 10% and 20% of their value since the summer of 2007.
The
spring of 2008 brought another broad but short-lived market rally, leaving the
S&P 500 Index and other major averages up mid-single digits by the end of
May. However, the month of June saw a dramatic decline in
LMP Capital and Income Fund Inc. 2008 Annual Report
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1
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Fund overview
continued
equity
prices, the likes of which had not been seen in decades. The DJIA fell over 10%
in the month of June alone, its biggest June loss since 1930, putting
the major averages in, or near, bear market territory (defined as down 20% from
peak to trough). Key reasons for the sharp sell-off included the continued
stress on the financial system, especially the credit markets, along with a
sharp rise in commodity prices, particularly crude oil and energy prices.
In
early September of 2008, a rapidly unfolding series of events linked to
the ongoing credit market crisis led to the collapse and subsequent rescue by
the Fed of the worlds largest insurance company, American International Group,
the distressed acquisition of financial services firm Merrill Lynch by Bank of
America, and the bankruptcy filing of investment bank Lehman Brothers, the
largest in U.S. history. In response, the Fed and the U.S. Department of the
Treasury took several steps in an effort to stabilize the credit markets and
Congress approved a $700 billion program to clear much of the bad debt from the
books of major financial companies.
As
the fiscal year drew to a close, the month of October took its place in
the history books as one of the worst ever for the U.S. stock market, second
only to the Black Monday crash of October 1987 for the DJIA (which
dropped over 22% on a single day), and the most volatile month for the S&P
500 Index since November 1929. The difficulty was not isolated to the
U.S., as fears of a recession and worldwide slowdown led global stock markets
to lose trillions in value, while a global sell-off in commodities continued.
Consumer confidence in the U.S. dropped a record amount against the prior
month, as unemployment rose and headlines highlighted a shift of concerns from
commercial and real estate credit to consumer debt and speculation on the
severity of an anticipated recession.
During the fiscal year, the U.S. bond market experienced periods of
increased volatility. Changing perceptions regarding the economy, inflation and
future Fed monetary policy caused bond prices to fluctuate. Two- and 10-year
Treasury yields began the reporting period at 3.94% and 4.48%, respectively.
Treasury yields moved lowerand their prices moved highertoward the end of
2007 and
during the
first quarter of 2008, as concerns regarding the subprime mortgage market and a
severe credit crunch caused a flight to quality. During this period,
investors were drawn to the relative safety of Treasuries, while increased
investor risk aversion caused other segments of the bond market to falter.
Treasury
yields then moved higher in April, May and early June 2008, as the
economy performed better than expected and inflation moved higher. Over this
period, riskier fixed-income asset classes, such as high-yield bonds and
emerging market debt rallied. However, the credit crunch resumed in mid-June,
resulting in another flight to quality. Investors risk
2
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LMP
Capital and Income Fund Inc. 2008 Annual Report
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aversion
then intensified in September and October 2008 given the severe
disruptions in the global financial markets. During this time, virtually every
asset class, with the exception of short-term Treasuries, performed poorly. At
the end of the fiscal year, two- and 10-year Treasury yields were 1.56% and
4.01%, respectively.
The
Fed attempted to stimulate economic growth by cutting the federal funds rate
iv
from 5.25% to 2.00% from September 2007 through April 2008.
It then held rates steady until October 2008, citing inflationary
pressures triggered by soaring oil prices. However, with the global economy
moving toward a recession, oil prices falling sharply, and the financial
markets in disarray, the Fed lowered interest rates twice in October 2008.
The first cut occurred on October 8
th
,
as the Fed and several other central banks around the world lowered rates in a
coordinated effort. At that time, the Fed reduced the federal funds rate from
2.00% to 1.50%. Three weeks later, at its regularly scheduled meeting on October 29
th
, the Fed lowered rates from 1.50% to 1.00%. The Fed also left the door
open to further actions, saying: The Committee will monitor economic and
financial developments carefully and will act as needed to promote sustainable
economic growth and price stability.
Q.
How did we respond to these changing market conditions?
A.
We entered the fiscal year concerned about the health of the overall financial
system and had positioned the Funds equity portfolio with what we felt was an
appropriately defensive posture. We had relatively low exposure to the
Financials sector, an overweight in the Energy sector, and the balance of the
equity portfolio focused in what we believed to be high-quality companies with
relatively defensive fundamental business characteristics.
In
the fixed-income market, many asset prices remained well below their
fundamental value as a result of market fears. We underestimated the degree to
which the entire financial superstructure would decline. Despite the difficult
market environment, we believed that our focus on spread sectors, such as
agency pass-through mortgages and corporate bonds, was still valid.
LMP Capital and Income Fund Inc. 2008 Annual Report
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3
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Fund overview
continued
Performance review
For
the 12 months ended October 31, 2008, LMP Capital and Income Fund Inc.
returned -42.09% based on its net asset value (NAV)
v
and -44.95% based on its New York Stock Exchange (NYSE) market
price per share. The Funds unmanaged benchmarks, the Barclays Capital U.S. Aggregate
Index
vi
and the S&P 500 Index, returned
0.30% and -36.10%, respectively, over the same time frame. The Funds Lipper
Income and Preferred Stock Closed-End Funds Category Average
vii
returned -47.54% for the same period. Please note that Lipper performance
returns are based on each funds NAV.
During
the 12-month period of this report, the Fund made distributions to shareholders
totaling $3.21 per share. The performance table below shows the Funds 12-month
total return based on its NAV and market price as of October 31, 2008.
Past performance is no guarantee of future results.
PERFORMANCE SNAPSHOT
as of October 31, 2008 (unaudited)
PRICE PER SHARE
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12-MONTH
TOTAL RETURN*
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$11.20 (NAV)
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-42.09%
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$9.07 (Market Price)
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-44.95%
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All figures
represent past performance and are not a guarantee of future results.
* Total
returns are based on changes in NAV or market price, respectively. Total
returns assume the reinvestment of all distributions in additional shares in
accordance with the Funds Dividend Reinvestment Plan.
Q.
What were the leading contributors to performance?
A.
For the equity portion of the Fund, relative to the S&P 500 Index, stock
selection in the Consumer Staples, Materials, Telecommunication Services and
Information Technology (IT) sectors contributed to performance for the
period. The Funds overweights to the Energy and Utilities sectors and its
underweights to the IT and Health Care sectors helped relative performance. In
terms of individual Fund holdings, leading contributors to performance for the
period included
Fidelity National Financial
Inc.
in the Financials sector,
Schlumberger
Ltd.
in the Energy sector,
QUALCOMM
Inc.
and
Visa Inc.
,
both in the IT sector, and
Philip Morris
International Inc.
in the Consumer Staples sector.
In
the fixed-income portion of the Fund, our tactically-driven duration
viii
posture contributed to returns, as did our positioning in
anticipation of the yield curve
ix
steepening, as the spread between two-
and 10-year Treasury yields widened.
4
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LMP
Capital and Income Fund Inc. 2008 Annual Report
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Q.
What were the leading detractors from performance?
A.
For the equity portion of the Fund, relative to the S&P 500 Index, stock
selection in the Energy, Consumer Discretionary, Financials and Utilities
sectors detracted from performance for the period. The Funds overweight to the
Industrials sector and its underweights to the Consumer Staples and Materials
sectors also hurt relative performance. In terms of individual Fund holdings,
leading detractors from performance for the period included positions in
Crosstex Energy Inc.
in the Energy sector,
American International Group Inc.
and
Och-Ziff Capital Management Group LLC
, both
in the Financials sector,
General Electric
Co.
in the Industrials sector and
Lamar
Advertising Co. (Class A Shares)
in the Consumer Discretionary
sector.
Our
fixed-income positions, especially our high-yield holdings, performed poorly
during the reporting period. Our concentration of high-yield Industrials issues
and bank loans, especially of lower-rated quality, were hit hard by the credit
crisis and declining commodity prices. Our investment grade Financials suffered
from a series of bankruptcies, government conservatorships and mergers. In
addition, non-agency structured product mortgages reached new lows amid all the
market turmoil and weakness in the housing market.
Q.
Were there any significant changes to the Fund during the reporting period?
A.
During the fiscal year, we made three strategic changes to the Fund. First, we
increased the Funds allocation to fixed-income from a low 20% to a high 30%
range. Second, we increased the Funds exposure to high-yield fixed-income
securities during the course of the year as credit spreads expanded and,
therefore, made high-yield securities a more attractive investment in our view.
We also increased the Funds allocation to the investment grade credit sector
and reduced its allocation to agency mortgage-backed securities.
On
the equity side, as of the close of the fiscal year, we maintained a preference
for the Funds existing holdings in the Energy sector and other high-quality
companies, even though they may not have performed significantly better than
the overall market in the recent difficult economic environment.
LMP Capital and Income Fund Inc. 2008 Annual Report
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5
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Fund overview
continued
Looking for additional information?
The
Fund is traded under the symbol SCD and its closing market price is available
in most newspapers under the NYSE listings. The daily NAV is available on-line
under the symbol XSCDX on most financial websites.
Barrons
and
The Wall
Street Journals
Monday edition both carry closed-end fund tables
that provide additional information. In addition, the Fund issues a quarterly
press release that can be found on most major financial websites, as well as
www.leggmason.com/cef.
In
a continuing effort to provide information concerning the Fund, shareholders
may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m.
to 6:00 p.m. Eastern Time, for the Funds current NAV, market price and
other information.
Thank
you for your investment in LMP Capital and Income Fund Inc. As always, we
appreciate that you have chosen us to manage your assets and we remain focused
on achieving the Funds investment goals.
Sincerely,
Robert
Gendelman
Portfolio
Manager
ClearBridge
Advisors, LLC (Equity Portion)
Western
Asset Management Company (Fixed-Income Portion)
November 18,
2008
6
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
The
information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio
holdings and breakdowns are as of October 31, 2008 and are subject to
change and may not be representative of the portfolio managers current or
future investments. The Funds top 10 holdings (as a percentage of net assets)
as of this date were: Covanta Holding Corp. (3.5%), General Electric Co.
(3.0%), Total SA, ADR (2.9%), JPMorgan Chase & Co. (2.8%), El Paso
Corp. (2.7%), Assa Abloy AB (2.5%), Kimberly-Clark Corp. (2.3%), Time Warner
Inc. (2.2%), Novartis AG, ADR (2.1%) and Kraft Foods Inc., Class A Shares
(2.0%). Please refer to pages 9 through 30 for a list and percentage
breakdown of the Funds holdings.
The
mention of sector breakdowns is for informational purposes only and should not
be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon
which to make an investment decision. Investors seeking financial advice
regarding the appropriateness of investing in any securities or investment
strategies discussed should consult their financial professional. The Funds
top five sector holdings (as a percentage of net assets) as of October 31,
2008 were: Industrials (21.5%), Financials (16.7%), Energy (16.0%), Health Care
(13.6%), and Consumer Discretionary (12.4%). The Funds portfolio composition
is subject to change at any time.
RISKS:
Stock and bond prices are subject to fluctuation. As interests rates rise, bond
prices fall, reducing the value of the Funds share price. Investing in foreign
securities is subject to certain risks not associated with domestic investing,
such as currency fluctuations and changes in political and economic conditions.
These risks are magnified in emerging or developing markets. High-yield bonds
involve greater credit and liquidity risks than investment grade bonds. The
Fund may use derivatives, such as options and futures, which can be illiquid,
may disproportionately increase losses, and have a potentially large impact on
Fund performance. Leverage may magnify gains and increase losses in the Funds
portfolio.
All
index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
i
|
The
Dow Jones Industrial Average (DJIA) is a widely followed measurement of the
stock market. The average is comprised of 30 stocks that represent leading
companies in major industries. These stocks, widely held by both individual
and institutional investors, are considered to be all blue-chip companies.
|
ii
|
The
S&P 500 Index is an unmanaged index of 500 stocks and is generally
representative of the performance of larger companies in the U.S.
|
iii
|
The
Federal Reserve Board (Fed) is responsible for the formulation of policies
designed to promote economic growth, full employment, stable prices and a
sustainable pattern of international trade and payments.
|
iv
|
The
federal funds rate is the rate charged by one depository institution on an
overnight sale of immediately available funds (balances at the Federal
Reserve) to another depository institution; the rate may vary from depository
institution to depository institution and from day to day.
|
v
|
Net
asset value (NAV) is calculated by subtracting total liabilities and
outstanding preferred stock (if any) from the closing value of all securities
held by the Fund (plus all other assets) and dividing the result (total net
assets) by the total number of the common shares outstanding. The NAV
fluctuates with changes in the market prices of securities in which the Fund
has invested. However, the price at which an investor may buy or sell shares
of the Fund is at the Funds market price as determined by supply of and
demand for the Funds shares.
|
vi
|
The
Barclays Capital (formerly Lehman Brothers) U.S. Aggregate Index is a
broad-based bond index comprised of government, corporate, mortgage- and
asset-backed issues, rated investment grade or higher, and having at least
one year to maturity.
|
vii
|
Lipper, Inc.,
a wholly-owned subsidiary of Reuters, provides independent insight on global
collective investments. Returns are based on the 12-month period ended
October 31, 2008, including the reinvestment of all distributions,
including returns of capital, if any, calculated among the 30 funds in the
Funds Lipper category.
|
viii
|
Duration
is the measure of the price sensitivity of a fixed-income security to an
interest rate change of 100 basis points. Calculation is based on the
weighted average of the present values for all cash flows.
|
ix
|
The
yield curve is the graphical depiction of the relationship between the yield
on bonds of the same credit quality but different maturities.
|
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
7
|
Fund at a glance (unaudited)
INVESTMENT BREAKDOWN
(%) As a percent of total investments
October 31, 2008
8
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
Schedule of investments
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
SHARES
|
|
SECURITY
|
|
VALUE
|
|
COMMON STOCKS 50.8%
|
|
|
|
CONSUMER DISCRETIONARY 4.2%
|
|
|
|
|
|
Auto Components 0.6%
|
|
|
|
161,020
|
|
Johnson Controls Inc.
|
|
$
|
2,854,885
|
|
|
|
Household Durables 0.0%
|
|
|
|
1,226,577
|
|
Home Interiors & Gifts Inc.
(a)(b)
*
|
|
1
|
|
|
|
Media 3.6%
|
|
|
|
145,700
|
|
Lamar Advertising Co., Class A Shares*
|
|
2,210,269
|
|
342,880
|
|
Liberty Media Corp. - Entertainment, Series A*
|
|
5,520,368
|
|
748,160
|
|
Time Warner Inc.
|
|
7,548,934
|
|
511,700
|
|
Warner Music Group Corp.
|
|
2,118,438
|
|
|
|
Total Media
|
|
17,398,009
|
|
|
|
TOTAL
CONSUMER DISCRETIONARY
|
|
20,252,895
|
|
CONSUMER STAPLES 4.3%
|
|
|
|
|
|
Food Products 1.4%
|
|
|
|
235,600
|
|
Kraft Foods Inc., Class A Shares
|
|
6,865,384
|
|
|
|
Household Products 2.9%
|
|
|
|
124,800
|
|
Kimberly-Clark Corp.
|
|
7,648,992
|
|
98,800
|
|
Procter & Gamble Co.
|
|
6,376,552
|
|
|
|
Total Household Products
|
|
14,025,544
|
|
|
|
TOTAL
CONSUMER STAPLES
|
|
20,890,928
|
|
ENERGY 8.2%
|
|
|
|
|
|
Energy Equipment &
Services 2.5%
|
|
|
|
44,710
|
|
Diamond Offshore Drilling Inc.
|
|
3,970,248
|
|
206,920
|
|
Halliburton Co.
|
|
4,094,947
|
|
137,340
|
|
National-Oilwell Varco Inc.*
|
|
4,105,092
|
|
|
|
Total Energy Equipment &
Services
|
|
12,170,287
|
|
|
|
Oil, Gas & Consumable Fuels
5.7%
|
|
|
|
499,741
|
|
Crosstex Energy Inc.
|
|
5,102,356
|
|
41,095
|
|
Devon Energy Corp.
|
|
3,322,942
|
|
950,610
|
|
El Paso Corp.
|
|
9,220,917
|
|
177,530
|
|
Total SA, ADR
|
|
9,842,263
|
|
|
|
Total Oil, Gas &
Consumable Fuels
|
|
27,488,478
|
|
|
|
TOTAL
ENERGY
|
|
39,658,765
|
|
FINANCIALS 4.9%
|
|
|
|
|
|
Capital Markets 2.6%
|
|
|
|
321,700
|
|
Charles Schwab Corp.
|
|
6,150,904
|
|
307,220
|
|
Invesco Ltd.
|
|
4,580,650
|
|
333,237
|
|
Och-Ziff Capital Management Group
|
|
1,549,552
|
|
|
|
Total Capital Markets
|
|
12,281,106
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
9
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
SHARES
|
|
SECURITY
|
|
VALUE
|
|
|
|
Commercial Banks 0.4%
|
|
|
|
54,400
|
|
Wells Fargo & Co.
|
|
$
|
1,852,320
|
|
|
|
Diversified Financial Services
1.9%
|
|
|
|
225,300
|
|
JPMorgan Chase & Co.
|
|
9,293,625
|
|
|
|
TOTAL
FINANCIALS
|
|
23,427,051
|
|
HEALTH CARE 7.1%
|
|
|
|
|
|
Health Care Equipment &
Supplies 1.2%
|
|
|
|
142,020
|
|
Medtronic Inc.
|
|
5,727,667
|
|
|
|
Health Care Providers &
Services 1.0%
|
|
|
|
209,000
|
|
UnitedHealth Group Inc.
|
|
4,959,570
|
|
|
|
Health Care Technology 1.4%
|
|
|
|
824,980
|
|
HLTH Corp.*
|
|
6,839,084
|
|
|
|
Pharmaceuticals 3.5%
|
|
|
|
78,200
|
|
Johnson & Johnson
|
|
4,796,788
|
|
135,200
|
|
Novartis AG, ADR
|
|
6,893,848
|
|
158,500
|
|
Wyeth
|
|
5,100,530
|
|
|
|
Total Pharmaceuticals
|
|
16,791,166
|
|
|
|
TOTAL
HEALTH CARE
|
|
34,317,487
|
|
INDUSTRIALS 12.7%
|
|
|
|
|
|
Aerospace & Defense
3.2%
|
|
|
|
74,020
|
|
L-3 Communications Holdings Inc.
|
|
6,008,203
|
|
86,790
|
|
TransDigm Group Inc.*
|
|
2,615,851
|
|
124,800
|
|
United Technologies Corp.
|
|
6,859,008
|
|
|
|
Total Aerospace &
Defense
|
|
15,483,062
|
|
|
|
Air Freight & Logistics
0.5%
|
|
|
|
68,170
|
|
Expeditors International of Washington Inc.
|
|
2,225,750
|
|
|
|
Building Products 1.7%
|
|
|
|
737,600
|
|
Assa Abloy AB
|
|
8,269,746
|
|
|
|
Commercial Services &
Supplies 2.4%
|
|
|
|
548,680
|
|
Covanta Holding Corp.*
|
|
11,829,541
|
|
|
|
Industrial Conglomerates 3.0%
|
|
|
|
519,470
|
|
General Electric Co.
|
|
10,134,860
|
|
247,030
|
|
McDermott International Inc.*
|
|
4,231,624
|
|
|
|
Total Industrial Conglomerates
|
|
14,366,484
|
|
|
|
Machinery 1.2%
|
|
|
|
175,700
|
|
Dover Corp.
|
|
5,581,989
|
|
|
|
Road & Rail 0.7%
|
|
|
|
76,220
|
|
CSX Corp.
|
|
3,484,778
|
|
|
|
TOTAL
INDUSTRIALS
|
|
61,241,350
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
10
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
SHARES
|
|
SECURITY
|
|
VALUE
|
|
INFORMATION TECHNOLOGY 3.3%
|
|
|
|
|
|
Communications Equipment 1.3%
|
|
|
|
220,900
|
|
Nokia Oyj, ADR
|
|
$
|
3,353,262
|
|
76,810
|
|
QUALCOMM Inc.
|
|
2,938,750
|
|
|
|
Total Communications Equipment
|
|
6,292,012
|
|
|
|
Computers & Peripherals
0.8%
|
|
|
|
326,420
|
|
EMC Corp.*
|
|
3,845,228
|
|
|
|
Software 1.2%
|
|
|
|
98,600
|
|
Autodesk Inc.*
|
|
2,101,166
|
|
196,300
|
|
Oracle Corp.*
|
|
3,590,327
|
|
|
|
Total Software
|
|
5,691,493
|
|
|
|
TOTAL
INFORMATION TECHNOLOGY
|
|
15,828,733
|
|
MATERIALS 3.4%
|
|
|
|
|
|
Chemicals 2.5%
|
|
|
|
67,990
|
|
Air Products & Chemicals Inc.
|
|
3,952,259
|
|
163,510
|
|
Celanese Corp., Series A Shares
|
|
2,266,248
|
|
66,600
|
|
Monsanto Co.
|
|
5,926,068
|
|
|
|
Total Chemicals
|
|
12,144,575
|
|
|
|
Metals & Mining 0.9%
|
|
|
|
239,200
|
|
Commercial Metals Co.
|
|
2,655,120
|
|
58,430
|
|
Freeport-McMoRan Copper & Gold Inc.,
Class B Shares
|
|
1,700,313
|
|
|
|
Total Metals & Mining
|
|
4,355,433
|
|
|
|
TOTAL
MATERIALS
|
|
16,500,008
|
|
TELECOMMUNICATION SERVICES 1.4%
|
|
|
|
|
|
Wireless Telecommunication
Services 1.4%
|
|
|
|
205,240
|
|
American Tower Corp., Class A Shares*
|
|
6,631,305
|
|
UTILITIES 1.3%
|
|
|
|
|
|
Gas Utilities 1.3%
|
|
|
|
170,150
|
|
National Fuel Gas Co.
|
|
6,157,729
|
|
|
|
TOTAL
COMMON STOCKS
(Cost $365,140,645)
|
|
244,906,251
|
|
CONVERTIBLE PREFERRED STOCKS 0.2%
|
|
|
|
ENERGY 0.2%
|
|
|
|
|
|
Oil, Gas & Consumable
Fuels 0.2%
|
|
|
|
1,100
|
|
El
Paso Corp., 4.990%
(Cost $885,005)
|
|
872,025
|
|
PREFERRED STOCKS 0.1%
|
|
|
|
FINANCIALS 0.1%
|
|
|
|
|
|
Diversified Financial Services
0.1%
|
|
|
|
30,000
|
|
Citigroup Inc., 8.125%
|
|
505,500
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
11
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
SHARES
|
|
SECURITY
|
|
VALUE
|
|
|
|
Thrifts & Mortgage
Finance 0.0%
|
|
|
|
25,950
|
|
Federal Home Loan Mortgage Corp. (FHLMC), 8.375%
(e)*
|
|
$
|
40,223
|
|
300
|
|
Federal National Mortgage Association (FNMA),
7.000%
(c)(e)*
|
|
750
|
|
17,650
|
|
Federal National Mortgage Association (FNMA),
8.250%
(e)*
|
|
37,065
|
|
|
|
Total Thrifts & Mortgage
Finance
|
|
78,038
|
|
|
|
TOTAL
PREFERRED STOCKS
(Cost $1,855,960)
|
|
583,538
|
|
FACE AMOUNT
|
|
|
|
|
|
ASSET-BACKED SECURITIES 1.8%
|
|
|
|
FINANCIALS 1.8%
|
|
|
|
|
|
Home Equity 1.7%
|
|
|
|
$
|
658,646
|
|
Asset-Backed Funding Certificates, 4.709% due
1/25/34
(c)
|
|
352,639
|
|
129,379
|
|
Countrywide Asset-Backed Certificates, 4.509% due
6/25/34
(c)
|
|
57,720
|
|
720,000
|
|
Credit-Based Asset Servicing &
Securitization LLC, 5.704% due 12/25/36
|
|
562,804
|
|
73,417
|
|
Finance America Net Interest Margin Trust, 5.250%
due 6/27/34
(a)(b)(d)(g)
|
|
7
|
|
160,514
|
|
Fremont Home Loan Trust, 4.909% due 2/25/34
(c)
|
|
80,320
|
|
1,820,000
|
|
Green Tree, 8.970% due 4/25/38
(a)(c)(d)
|
|
1,330,875
|
|
|
|
GSAA Home Equity Trust:
|
|
|
|
1,770,000
|
|
3.559% due 3/25/37
(c)
|
|
656,458
|
|
1,790,000
|
|
3.529% due 7/25/37
(c)
|
|
552,585
|
|
1,720,000
|
|
3.559% due 5/25/47
(c)
|
|
622,256
|
|
1,005,000
|
|
GSAMP Trust, 4.409% due 11/25/34
(c)
|
|
804,832
|
|
771,228
|
|
Lehman XS Trust, 3.329% due 6/25/46
(c)
|
|
721,868
|
|
547,107
|
|
MASTR Specialized Loan Trust, 3.609% due 5/25/37
(a)(c)(d)
|
|
366,562
|
|
1,468,810
|
|
Option One Mortgage Loan Trust, 4.309% due 5/25/34
(c)
|
|
1,182,521
|
|
712,555
|
|
RAAC, 3.639% due 10/25/46
(c)(d)
|
|
499,932
|
|
458,567
|
|
Renaissance Home Equity Loan Trust, 5.159% due
3/25/34
(c)
|
|
246,067
|
|
|
|
Sail Net Interest Margin Notes:
|
|
|
|
141,210
|
|
7.750% due 4/27/33
(b)(d)(g)
|
|
14
|
|
71,380
|
|
5.500% due 3/27/34
(b)(d)(g)
|
|
8
|
|
504,409
|
|
Structured Asset Securities Corp., 3.509% due
11/25/37
(c)
|
|
453,968
|
|
|
|
Total Home Equity
|
|
8,491,436
|
|
|
|
Student Loan 0.1%
|
|
|
|
350,000
|
|
Nelnet Student Loan Trust, 5.015% due 4/25/24
(c)
|
|
292,761
|
|
|
|
TOTAL
ASSET-BACKED SECURITIES(Cost $11,656,319)
|
|
8,784,197
|
|
COLLATERALIZED MORTGAGE OBLIGATIONS 2.4%
|
|
|
|
260,000
|
|
American Home Mortgage Investment Trust, 4.059% due
11/25/45
(c)
|
|
39,800
|
|
1,374,505
|
|
BCAP LLC Trust, 3.449% due 10/25/36
(c)
|
|
843,909
|
|
156,180
|
|
Bear Stearns ARM Trust, 5.785% due 2/25/36
(c)
|
|
95,529
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
12
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Countrywide Alternative Loan Trust:
|
|
|
|
$
|
32,247
|
|
6.000% due 2/25/34
|
|
$
|
27,434
|
|
1,473,856
|
|
4.488% due 7/20/46
(c)
|
|
801,164
|
|
|
|
Federal Home Loan Mortgage Corp. (FHLMC):
|
|
|
|
60,576
|
|
6.000% due 3/15/34
(c)(e)
|
|
49,843
|
|
520,941
|
|
PAC, 6.000% due 4/15/34
(c)(e)
|
|
458,815
|
|
746,310
|
|
Harborview Mortgage Loan Trust, 5.348% due 11/19/35
(c)
|
|
52,242
|
|
|
|
JPMorgan Mortgage Trust:
|
|
|
|
2,110,000
|
|
5.907% due 6/25/37
(a)(c)
|
|
1,750,302
|
|
1,060,000
|
|
6.000% due 8/25/37
|
|
637,389
|
|
905,719
|
|
MASTR ARM Trust, 4.574% due 9/25/33
(c)
|
|
802,933
|
|
1,570,596
|
|
MASTR Reperforming Loan Trust, 5.425% due 5/25/36
(a)(c)(d)
|
|
1,319,411
|
|
339,500
|
|
Merit Securities Corp., 4.740% due 9/28/32
(c)(d)
|
|
237,913
|
|
|
|
MLCC Mortgage Investors Inc.:
|
|
|
|
300,171
|
|
4.179% due 4/25/29
(c)
|
|
257,026
|
|
484,041
|
|
4.139% due 5/25/29
(c)
|
|
463,377
|
|
1,054,301
|
|
RBS Greenwich Capital, Mortgage Pass-Through
Certificates, 7.000% due 4/25/35
|
|
669,228
|
|
|
|
Structured ARM Loan Trust:
|
|
|
|
1,723,292
|
|
5.365% due 5/25/35
(c)
|
|
1,241,772
|
|
631,603
|
|
5.895% due 5/25/36
(c)
|
|
422,399
|
|
|
|
Thornburg Mortgage Securities Trust:
|
|
|
|
213,555
|
|
6.214% due 7/25/37
(c)
|
|
173,726
|
|
221,404
|
|
6.217% due 7/25/37
(c)
|
|
182,438
|
|
779,248
|
|
Washington Mutual Mortgage Pass-Through
Certificates, 3.655% due 6/25/46
(c)
|
|
354,558
|
|
781,515
|
|
Wells Fargo Alternative Loan Trust, 3.689% due
6/25/37
(c)
|
|
483,081
|
|
|
|
TOTAL
COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost $13,316,111)
|
|
11,364,289
|
|
COLLATERALIZED SENIOR LOANS 2.6%
|
|
|
|
CONSUMER DISCRETIONARY 0.9%
|
|
|
|
|
|
Diversified Consumer Services 0.0%
|
|
|
|
247,500
|
|
Thomson Learning Hold, Term Loan B, 4.960% due
7/5/14
(c)
|
|
185,762
|
|
|
|
Hotels, Restaurants &
Leisure 0.1%
|
|
|
|
|
|
Aramark Corp.:
|
|
|
|
14,607
|
|
Letter of Credit Facility Deposits, 1.875% due
1/31/14
(c)
|
|
12,266
|
|
229,916
|
|
Term Loan, 6.705% due 1/31/14
|
|
193,072
|
|
|
|
Total Hotels,
Restaurants & Leisure
|
|
205,338
|
|
|
|
Media 0.7%
|
|
|
|
248,117
|
|
Charter Communications, Term Loan B, 7.350% due
3/15/14
|
|
186,824
|
|
248,029
|
|
CMP Susquehanna Corp., Term Loan, 4.669% due 6/7/13
(c)
|
|
111,613
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
13
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Media 0.7%
continued
|
|
|
|
$
|
1,075,000
|
|
Direct TV, Term Loan C, 5.250% due 4/13/13
(c)
|
|
$
|
984,969
|
|
496,862
|
|
Idearc Inc., Term Loan B, 4.860% due 11/1/14
(c)
|
|
214,479
|
|
242,875
|
|
LodgeNet Entertainment Corp., Term Loan B, 4.700%
due 4/4/14
(c)
|
|
142,082
|
|
1,000,000
|
|
Newsday LLC, 9.750% due 7/15/13
|
|
840,000
|
|
247,475
|
|
Regal Cinemas Corp., Term Loan B, 4.196% due
10/19/10
(c)
|
|
187,118
|
|
250,000
|
|
UPC Broadband Holding BV, Term Loan N, 4.214% due
3/30/14
(c)
|
|
179,375
|
|
1,000,000
|
|
Virgin Media Inc., Term Loan, 7.500% due 1/15/14
|
|
692,500
|
|
|
|
Total Media
|
|
3,538,960
|
|
|
|
Multiline Retail 0.1%
|
|
|
|
250,000
|
|
Neiman Marcus Group Inc., Term Loan B, 6.939% due
3/13/13
(c)
|
|
190,078
|
|
|
|
Specialty Retail 0.0%
|
|
|
|
247,481
|
|
Michaels Stores Inc., Term Loan B, 4.750% due
10/31/13
(c)
|
|
146,076
|
|
|
|
TOTAL
CONSUMER DISCRETIONARY
|
|
4,266,214
|
|
HEALTH CARE 0.2%
|
|
|
|
|
|
Health Care Equipment &
Supplies 0.0%
|
|
|
|
|
|
Bausch & Lomb Inc.:
|
|
|
|
198,500
|
|
Term Loan, 8.080% due 4/11/15
(c)
|
|
161,116
|
|
50,000
|
|
Term Loan B, 6.511% due 4/11/15
|
|
40,583
|
|
|
|
Total Health Care
Equipment & Supplies
|
|
201,699
|
|
|
|
Health Care Providers &
Services 0.1%
|
|
|
|
|
|
Community Health Systems Inc.:
|
|
|
|
15,468
|
|
Delayed Draw Term Loan, 7.756% due 7/2/14
|
|
12,434
|
|
226,754
|
|
Term Loan B, 4.713% due 7/2/14
(c)
|
|
182,282
|
|
246,851
|
|
HCA Inc., Term Loan B, 7.080% due 11/1/13
(c)
|
|
204,331
|
|
|
|
Total Health Care
Providers & Services
|
|
399,047
|
|
|
|
Pharmaceuticals 0.1%
|
|
|
|
247,487
|
|
Royalty Pharma, Term Loan B, 5.511% due 5/15/14
(c)
|
|
217,170
|
|
|
|
TOTAL
HEALTH CARE
|
|
817,916
|
|
INDUSTRIALS 0.1%
|
|
|
|
|
|
Aerospace & Defense
0.1%
|
|
|
|
|
|
Dubai Aerospace Enterprise, Term Loan:
|
|
|
|
284,588
|
|
6.410% due 7/31/14
(c)
|
|
212,018
|
|
287,234
|
|
6.450% due 7/31/14
(c)
|
|
213,989
|
|
|
|
Total Aerospace &
Defense
|
|
426,007
|
|
|
|
Airlines 0.0%
|
|
|
|
2,506
|
|
Delta Airlines Inc., Term Loan, 8.082% due 4/30/14
|
|
1,441
|
|
177,694
|
|
United Airlines Inc., Term Loan B, 4.500% due
1/12/14
(c)
|
|
102,174
|
|
|
|
Total Airlines
|
|
103,615
|
|
|
|
Commercial Services &
Supplies 0.0%
|
|
|
|
247,494
|
|
US Investigations Services Inc., Term Loan B,
7.910% due 2/21/15
|
|
175,721
|
|
|
|
TOTAL
INDUSTRIALS
|
|
705,343
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
14
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
INFORMATION TECHNOLOGY 0.1%
|
|
|
|
|
|
IT Services 0.1%
|
|
|
|
$
|
564,300
|
|
First Data Corp., Term Loan, 5.687% due 10/15/14
(c)
|
|
$
|
417,784
|
|
MATERIALS 0.4%
|
|
|
|
|
|
Chemicals 0.1%
|
|
|
|
1,000,000
|
|
Lyondell Chemical Co., Term Loan B2, 0.000% due
12/20/14
(c)
|
|
605,000
|
|
|
|
Containers & Packaging
0.1%
|
|
|
|
492,726
|
|
Graphic Packaging International, Term Loan C,
7.496% due 5/16/14
(c)
|
|
419,741
|
|
|
|
Paper & Forest Products
0.2%
|
|
|
|
1,000,000
|
|
Georgia-Pacific Corp., Term Loan, 4.544% due
12/23/13
(c)
|
|
833,056
|
|
248,125
|
|
NewPage Corp., Term Loan, Tranche B, 7.156%
due 11/5/14
(c)
|
|
202,577
|
|
|
|
Total Paper & Forest
Products
|
|
1,035,633
|
|
|
|
TOTAL
MATERIALS
|
|
2,060,374
|
|
TELECOMMUNICATION SERVICES 0.6%
|
|
|
|
|
|
Diversified Telecommunication
Services 0.4%
|
|
|
|
1,000,000
|
|
Cablevision Systems Corp., Term Loan B, 4.214% due
3/30/13
(c)
|
|
869,286
|
|
168,750
|
|
Insight Midwest, Term Loan B, 4.470% due 4/10/14
(c)
|
|
133,594
|
|
996,183
|
|
Intelsat Corp., Term Loan, 5.288% due 6/30/13
(c)
|
|
826,832
|
|
500,000
|
|
Level 3 Communications Inc., Term Loan, 4.946% due
3/1/14
(c)
|
|
373,750
|
|
|
|
Total Diversified
Telecommunication Services
|
|
2,203,462
|
|
|
|
Wireless Telecommunication
Services 0.2%
|
|
|
|
997,455
|
|
MetroPCS Wireless Inc., Term Loan, 5.402% due
2/20/14
(c)
|
|
828,137
|
|
|
|
TOTAL
TELECOMMUNICATION SERVICES
|
|
3,031,599
|
|
UTILITIES 0.3%
|
|
|
|
|
|
Electric Utilities 0.1%
|
|
|
|
498,750
|
|
TXU Corp., Term Loan B, 6.169% due 10/10/14
(c)
|
|
391,242
|
|
|
|
Independent Power
Producers & Energy Traders 0.2%
|
|
|
|
997,487
|
|
Calpine Corp., Term Loan, 6.645% due 3/29/09
(c)
|
|
802,621
|
|
|
|
TOTAL
UTILITIES
|
|
1,193,863
|
|
|
|
TOTAL
COLLATERALIZED SENIOR LOANS (Cost $15,598,112)
|
|
12,493,093
|
|
CONVERTIBLE BONDS & NOTES 1.1%
|
|
|
|
INFORMATION TECHNOLOGY 1.1%
|
|
|
|
|
|
Internet Software &
Services 1.1%
|
|
|
|
7,473,000
|
|
VeriSign
Inc., 3.250% due 8/15/37
(Cost $4,927,908)
|
|
5,109,664
|
|
CORPORATE BONDS & NOTES 23.5%
|
|
|
|
CONSUMER DISCRETIONARY 3.6%
|
|
|
|
|
|
Auto Components 0.3%
|
|
|
|
280,000
|
|
Allison Transmission Inc., Senior Notes, 11.250%
due 11/1/15
(d)(f)
|
|
149,800
|
|
295,000
|
|
Keystone Automotive Operations Inc., Senior
Subordinated Notes, 9.750% due 11/1/13
|
|
134,225
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
15
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Auto Components 0.3%
continued
|
|
|
|
|
|
Visteon Corp., Senior Notes:
|
|
|
|
$
|
1,507,000
|
|
8.250% due 8/1/10
|
|
$
|
881,595
|
|
845,000
|
|
12.250% due 12/31/16
(d)
|
|
291,525
|
|
|
|
Total Auto Components
|
|
1,457,145
|
|
|
|
Automobiles 0.1%
|
|
|
|
110,000
|
|
Ford Motor Co., Debentures, 8.875% due 1/15/22
|
|
34,650
|
|
|
|
General Motors Corp., Senior Debentures:
|
|
|
|
600,000
|
|
8.250% due 7/15/23
|
|
195,000
|
|
1,300,000
|
|
8.375% due 7/15/33
|
|
429,000
|
|
|
|
Total Automobiles
|
|
658,650
|
|
|
|
Diversified Consumer Services
0.0%
|
|
|
|
|
|
Education Management LLC/Education Management
Finance Corp.:
|
|
|
|
20,000
|
|
Senior Notes, 8.750% due 6/1/14
|
|
14,700
|
|
210,000
|
|
Senior Subordinated Notes, 10.250% due 6/1/16
|
|
145,950
|
|
|
|
Total Diversified Consumer
Services
|
|
160,650
|
|
|
|
Hotels, Restaurants &
Leisure 1.1%
|
|
|
|
1,000,000
|
|
Boyd Gaming Corp., Senior Subordinated Notes,
6.750% due 4/15/14
|
|
635,000
|
|
255,000
|
|
Buffets Inc., Senior Notes, 12.500% due 11/1/14
(g)
|
|
1,913
|
|
810,000
|
|
Caesars Entertainment Inc., Senior Subordinated
Notes, 8.125% due 5/15/11
|
|
291,600
|
|
305,000
|
|
Choctaw Resort Development Enterprise, Senior
Notes, 7.250% due 11/15/19
(d)
|
|
175,375
|
|
550,000
|
|
Dennys Holdings Inc., Senior Notes, 10.000% due
10/1/12
|
|
420,750
|
|
160,000
|
|
El Pollo Loco Inc., Senior Notes, 11.750% due
11/15/13
|
|
132,000
|
|
660,000
|
|
Inn of the Mountain Gods Resort & Casino,
Senior Notes, 12.000% due 11/15/10
|
|
293,700
|
|
600,000
|
|
McDonalds Corp., Medium Term Notes, 5.350% due 3/1/18
|
|
536,198
|
|
|
|
MGM MIRAGE Inc.:
|
|
|
|
380,000
|
|
Notes, 6.750% due 9/1/12
|
|
245,100
|
|
575,000
|
|
Senior Notes, 5.875% due 2/27/14
|
|
343,562
|
|
203,000
|
|
Senior Subordinated Notes, 9.375% due 2/15/10
|
|
134,995
|
|
750,000
|
|
River Rock Entertainment Authority, Senior Secured
Notes, 9.750% due 11/1/11
|
|
661,875
|
|
270,000
|
|
Sbarro Inc., Senior Notes, 10.375% due 2/1/15
|
|
157,950
|
|
625,000
|
|
Seneca Gaming Corp., Senior Notes, 7.250% due
5/1/12
|
|
421,875
|
|
|
|
Station Casinos Inc.:
|
|
|
|
|
|
Senior Notes:
|
|
|
|
60,000
|
|
6.000% due 4/1/12
|
|
22,350
|
|
530,000
|
|
7.750% due 8/15/16
|
|
180,200
|
|
100,000
|
|
Senior Subordinated Notes, 6.875% due 3/1/16
|
|
9,500
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
16
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Hotels, Restaurants &
Leisure 1.1%
continued
|
|
|
|
$
|
500,000
|
|
Turning Stone Casino Resort Enterprise, Senior
Notes, 9.125% due 12/15/10
(d)
|
|
$
|
437,500
|
|
|
|
Total Hotels,
Restaurants & Leisure
|
|
5,101,443
|
|
|
|
Household Durables 0.2%
|
|
|
|
185,000
|
|
K Hovnanian Enterprises Inc., Senior Notes, 8.625%
due 1/15/17
|
|
55,500
|
|
485,000
|
|
Norcraft Cos. LP/Norcraft Finance Corp., Senior
Subordinated Notes, 9.000% due 11/1/11
|
|
424,375
|
|
700,000
|
|
Norcraft Holdings LP/Norcraft Capital Corp., Senior
Discount Notes, 9.750% due 9/1/12
|
|
577,500
|
|
|
|
Total Household Durables
|
|
1,057,375
|
|
|
|
Internet & Catalog Retail
0.0%
|
|
|
|
30,000
|
|
Expedia Inc., Senior Notes, 8.500% due 7/1/16
(d)
|
|
22,350
|
|
|
|
Media 1.3%
|
|
|
|
|
|
Affinion Group Inc.:
|
|
|
|
355,000
|
|
Senior Notes, 10.125% due 10/15/13
|
|
250,275
|
|
340,000
|
|
Senior Subordinated Notes, 11.500% due 10/15/15
|
|
205,700
|
|
3,419,000
|
|
CCH I LLC/CCH I Capital Corp., Senior Secured
Notes, 11.000% due 10/1/15
|
|
1,555,645
|
|
325,000
|
|
CCH II LLC/CCH II Capital Corp., Senior Notes,
10.250% due 10/1/13
|
|
204,750
|
|
105,000
|
|
Charter
Communications Holdings LLC/Charter Communications Holdings Capital Corp.,
Senior Discount Notes, 11.750% due 5/15/11
|
|
42,000
|
|
390,000
|
|
Charter Communications Inc., Senior Secured Notes, 10.875%
due 9/15/14
(d)
|
|
318,825
|
|
|
|
Comcast Corp.:
|
|
|
|
1,320,000
|
|
5.700% due 5/15/18
|
|
1,092,580
|
|
840,000
|
|
Senior Notes, 6.500% due 1/15/17
|
|
739,517
|
|
225,000
|
|
Dex Media West LLC/Dex Media Finance Co., Senior
Notes, 8.500% due 8/15/10
|
|
173,250
|
|
1,485,000
|
|
Idearc Inc., Senior Notes, 8.000% due 11/15/16
|
|
213,469
|
|
20,000
|
|
News America Inc., Senior Notes, 6.650% due
11/15/37
|
|
15,885
|
|
|
|
R.H. Donnelley Corp.:
|
|
|
|
655,000
|
|
Senior Discount Notes, 6.875% due 1/15/13
|
|
153,925
|
|
450,000
|
|
Senior Notes, 8.875% due 1/15/16
|
|
96,750
|
|
10,000
|
|
Time Warner Cable Inc., Senior Notes, 5.850% due
5/1/17
|
|
8,205
|
|
810,000
|
|
Time Warner Inc., Senior Notes, 6.875% due 5/1/12
|
|
728,344
|
|
360,000
|
|
TL Acquisitions Inc., Senior Notes, 10.500% due
1/15/15
(d)
|
|
216,000
|
|
|
|
Total Media
|
|
6,015,120
|
|
|
|
Multiline Retail 0.5%
|
|
|
|
1,020,000
|
|
Dollar General Corp., Senior Subordinated Notes, 11.875%
due 7/15/17
(f)
|
|
838,950
|
|
2,105,000
|
|
Neiman Marcus Group Inc., Senior Notes, 9.000% due
10/15/15
(f)
|
|
1,452,450
|
|
|
|
Total Multiline Retail
|
|
2,291,400
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
17
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Specialty Retail 0.0%
|
|
|
|
$
|
315,000
|
|
Blockbuster Inc., Senior Subordinated Notes, 9.000%
due 9/1/12
|
|
$
|
181,125
|
|
|
|
Textiles, Apparel &
Luxury Goods 0.1%
|
|
|
|
270,000
|
|
Oxford Industries Inc., Senior Notes, 8.875% due
6/1/11
|
|
222,750
|
|
|
|
TOTAL
CONSUMER DISCRETIONARY
|
|
17,168,008
|
|
CONSUMER STAPLES 0.6%
|
|
|
|
|
|
Beverages 0.1%
|
|
|
|
760,000
|
|
Constellation Brands Inc., Senior Notes, 8.375% due
12/15/14
|
|
680,200
|
|
|
|
Food & Staples Retailing
0.2%
|
|
|
|
423,774
|
|
CVS Caremark Corp., Pass-Through Certificates,
6.943% due 1/10/30
(d)
|
|
359,570
|
|
|
|
Kroger Co., Senior Notes:
|
|
|
|
200,000
|
|
5.500% due 2/1/13
|
|
184,484
|
|
400,000
|
|
6.150% due 1/15/20
|
|
329,008
|
|
150,000
|
|
Safeway Inc., Senior Notes, 6.500% due 11/15/08
|
|
149,988
|
|
|
|
Total Food & Staples
Retailing
|
|
1,023,050
|
|
|
|
Food Products 0.1%
|
|
|
|
|
|
Dole Food Co. Inc., Senior Notes:
|
|
|
|
125,000
|
|
7.250% due 6/15/10
|
|
91,875
|
|
261,000
|
|
8.875% due 3/15/11
|
|
181,395
|
|
|
|
Total Food Products
|
|
273,270
|
|
|
|
Tobacco 0.2%
|
|
|
|
|
|
Alliance One International Inc., Senior Notes:
|
|
|
|
150,000
|
|
8.500% due 5/15/12
|
|
116,250
|
|
380,000
|
|
11.000% due 5/15/12
|
|
323,000
|
|
580,000
|
|
Reynolds American Inc., 6.750% due 6/15/17
|
|
435,822
|
|
|
|
Total Tobacco
|
|
875,072
|
|
|
|
TOTAL
CONSUMER STAPLES
|
|
2,851,592
|
|
ENERGY 2.7%
|
|
|
|
|
|
Energy Equipment &
Services 0.3%
|
|
|
|
965,000
|
|
Complete Production Services Inc., Senior Notes,
8.000% due 12/15/16
|
|
661,025
|
|
250,000
|
|
Key Energy Services Inc., Senior Notes, 8.375% due
12/1/14
|
|
186,250
|
|
55,000
|
|
Pride International Inc., Senior Notes, 7.375% due
7/15/14
|
|
45,375
|
|
10,000
|
|
Southern Natural Gas Co., Senior Notes, 8.000% due
3/1/32
|
|
7,776
|
|
460,000
|
|
Transocean Inc., Senior Notes, 5.250% due 3/15/13
|
|
419,296
|
|
|
|
Total Energy Equipment &
Services
|
|
1,319,722
|
|
|
|
Oil, Gas & Consumable
Fuels 2.4%
|
|
|
|
750,000
|
|
Amerada Hess Corp., Senior Notes, 6.650% due
8/15/11
|
|
704,198
|
|
|
|
Anadarko Petroleum Corp., Senior Notes:
|
|
|
|
60,000
|
|
5.950% due 9/15/16
|
|
50,121
|
|
1,240,000
|
|
6.450% due 9/15/36
|
|
886,758
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
18
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Oil, Gas & Consumable
Fuels 2.4%
continued
|
|
|
|
|
|
Apache Corp., Senior Notes:
|
|
|
|
$
|
200,000
|
|
5.250% due 4/15/13
|
|
$
|
189,405
|
|
540,000
|
|
5.625% due 1/15/17
|
|
471,124
|
|
440,000
|
|
Belden & Blake Corp., Secured Notes,
8.750% due 7/15/12
|
|
356,400
|
|
|
|
Chesapeake Energy Corp., Senior Notes:
|
|
|
|
775,000
|
|
6.375% due 6/15/15
|
|
598,688
|
|
400,000
|
|
6.500% due 8/15/17
|
|
296,500
|
|
85,000
|
|
Compagnie Generale de Geophysique SA, Senior Notes,
7.500% due 5/15/15
|
|
57,375
|
|
330,000
|
|
ConocoPhillips Holding Co., Senior Notes, 6.950%
due 4/15/29
|
|
288,374
|
|
750,000
|
|
Devon Financing Corp. ULC, Notes, 6.875% due
9/30/11
|
|
745,358
|
|
|
|
El Paso Corp., Medium-Term Notes:
|
|
|
|
180,000
|
|
7.800% due 8/1/31
|
|
125,823
|
|
1,050,000
|
|
7.750% due 1/15/32
|
|
731,541
|
|
870,000
|
|
Energy Transfer Partners LP, Senior Notes, 6.700%
due 7/1/18
|
|
709,770
|
|
320,000
|
|
Enterprise Products Operating LP, Junior Subordinated
Notes, 8.375% due 8/1/66
(c)
|
|
237,906
|
|
970,000
|
|
EXCO Resources Inc., Senior Notes, 7.250% due
1/15/11
|
|
790,550
|
|
260,000
|
|
International Coal Group Inc., Senior Notes,
10.250% due 7/15/14
|
|
219,700
|
|
|
|
Kerr-McGee Corp., Notes:
|
|
|
|
300,000
|
|
6.875% due 9/15/11
|
|
300,498
|
|
140,000
|
|
6.950% due 7/1/24
|
|
111,267
|
|
|
|
Kinder Morgan Energy Partners LP:
|
|
|
|
580,000
|
|
Medium-Term Notes, 6.950% due 1/15/38
|
|
426,452
|
|
|
|
Senior Notes:
|
|
|
|
540,000
|
|
6.000% due 2/1/17
|
|
432,112
|
|
100,000
|
|
5.950% due 2/15/18
|
|
78,384
|
|
605,000
|
|
OPTI Canada Inc., Senior Secured Notes, 8.250% due
12/15/14
|
|
363,000
|
|
240,000
|
|
Overseas Shipholding Group Inc., Senior Notes,
7.500% due 2/15/24
|
|
181,200
|
|
410,000
|
|
Parker Drilling Co., Senior Notes, 9.625% due
10/1/13
|
|
344,400
|
|
160,000
|
|
Petroplus Finance Ltd., Senior Notes, 7.000% due
5/1/17
(d)
|
|
105,600
|
|
780,000
|
|
SemGroup LP, Senior Notes, 8.750% due 11/15/15
(b)(d)(g)
|
|
50,700
|
|
260,000
|
|
Stone Energy Corp., Senior Subordinated Notes,
8.250% due 12/15/11
|
|
214,500
|
|
330,000
|
|
Teekay Corp., Senior Notes, 8.875% due 7/15/11
|
|
303,600
|
|
180,000
|
|
VeraSun Energy Corp., Senior Notes, 9.375% due
6/1/17
(g)
|
|
16,200
|
|
355,000
|
|
Whiting Petroleum Corp., Senior Subordinated Notes,
7.250% due 5/1/12
|
|
282,225
|
|
|
|
Williams Cos. Inc.:
|
|
|
|
100,000
|
|
Notes, 8.750% due 3/15/32
|
|
81,677
|
|
470,000
|
|
Senior Notes, 7.750% due 6/15/31
|
|
355,646
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
19
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Oil, Gas & Consumable
Fuels 2.4%
continued
|
|
|
|
|
|
XTO Energy Inc., Senior Notes:
|
|
|
|
$
|
170,000
|
|
7.500% due 4/15/12
|
|
$
|
163,880
|
|
350,000
|
|
5.650% due 4/1/16
|
|
276,265
|
|
300,000
|
|
5.500% due 6/15/18
|
|
236,555
|
|
|
|
Total Oil, Gas &
Consumable Fuels
|
|
11,783,752
|
|
|
|
TOTAL
ENERGY
|
|
13,103,474
|
|
FINANCIALS 4.8%
|
|
|
|
|
|
Capital Markets 0.4%
|
|
|
|
300,000
|
|
Bear Stearns Co. Inc., Senior Notes, 6.400% due
10/2/17
|
|
267,086
|
|
30,000
|
|
Goldman Sachs Capital II, Junior Subordinated
Bonds, 5.793% due 6/1/12
(c)(h)
|
|
13,786
|
|
600,000
|
|
Goldman Sachs Group Inc., Senior Notes, 6.150% due
4/1/18
|
|
497,874
|
|
1,200,000
|
|
Kaupthing Bank HF, Subordinated Notes, 7.125% due
5/19/16
(d)(g)
|
|
18,000
|
|
50,000
|
|
Lehman
Brothers Holdings Capital Trust VII, Medium-Term Notes, 5.857% due
5/31/12
(c)(g)(h)
|
|
25
|
|
|
|
Lehman Brothers Holdings Inc., Medium-Term Notes:
|
|
|
|
1,110,000
|
|
6.750% due 12/28/17
(g)
|
|
4,163
|
|
130,000
|
|
Senior Notes, 6.200% due 9/26/14
(g)
|
|
17,550
|
|
|
|
Merrill Lynch & Co. Inc.:
|
|
|
|
520,000
|
|
Notes, 6.875% due 4/25/18
|
|
462,628
|
|
100,000
|
|
Senior Notes, 5.450% due 2/5/13
|
|
90,219
|
|
940,000
|
|
Morgan Stanley, Medium-Term Notes, 5.625% due
1/9/12
|
|
818,641
|
|
|
|
Total Capital Markets
|
|
2,189,972
|
|
|
|
Commercial Banks 0.8%
|
|
|
|
20,000
|
|
BAC Capital Trust XIV, Junior Subordinated Notes, 5.630%
due 3/15/12
(c)(h)
|
|
9,409
|
|
27,272
|
|
Fifth Third Bank, Notes, 2.870% due 8/10/09
|
|
26,765
|
|
290,000
|
|
Glitnir Banki HF, Notes, 6.375% due 9/25/12
(d)(g)
|
|
10,150
|
|
100,000
|
|
HBOS Capital Funding LP, Tier 1 Notes, Perpetual
Bonds, 6.071% due 6/30/14
(c)(d)(h)
|
|
43,986
|
|
1,300,000
|
|
Resona Preferred Global Securities Cayman Ltd.,
Bonds, 7.191% due 7/30/15
(c)(d)(h)
|
|
624,633
|
|
1,400,000
|
|
Shinsei Finance Cayman Ltd., Junior Subordinated
Bonds, 6.418% due 7/20/16
(c)(d)(h)
|
|
315,258
|
|
700,000
|
|
SunTrust Capital, Trust Preferred Securities,
6.100% due 12/15/36
(c)
|
|
360,300
|
|
1,520,000
|
|
Wachovia Corp., Medium Term Notes, 5.500% due
5/1/13
|
|
1,428,437
|
|
|
|
Wells Fargo & Co.:
|
|
|
|
200,000
|
|
Medium Term Notes, 4.375% due 1/31/13
|
|
184,825
|
|
690,000
|
|
Senior Notes, 5.625% due 12/11/17
|
|
609,756
|
|
380,000
|
|
Wells Fargo Capital X, Capital Securities, 5.950%
due 12/15/36
|
|
249,151
|
|
|
|
Total Commercial Banks
|
|
3,862,670
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
20
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Consumer Finance 1.8%
|
|
|
|
$
|
300,000
|
|
Aiful
Corp., Notes, 6.000% due 12/12/11
(d)
|
|
$
|
181,607
|
|
610,000
|
|
American
Express Co., Subordinated Debentures, 6.800% due 9/1/66
(c)
|
|
340,027
|
|
300,000
|
|
Caterpillar
Financial Services Corp., Medium-Term Notes, 5.450% due 4/15/18
|
|
247,299
|
|
|
|
Ford
Motor Credit Co.:
|
|
|
|
|
|
Notes:
|
|
|
|
750,000
|
|
5.700% due 1/15/10
|
|
556,863
|
|
1,050,000
|
|
7.000% due 10/1/13
|
|
582,170
|
|
|
|
Senior Notes:
|
|
|
|
135,000
|
|
9.750% due 9/15/10
|
|
91,840
|
|
559,000
|
|
8.069% due 6/15/11
(c)
|
|
365,782
|
|
1,600,000
|
|
9.875% due 8/10/11
|
|
1,008,797
|
|
310,000
|
|
12.000% due 5/15/15
|
|
197,066
|
|
170,000
|
|
8.000% due 12/15/16
|
|
93,217
|
|
|
|
General
Motors Acceptance Corp.:
|
|
|
|
1,700,000
|
|
Bonds, 8.000% due 11/1/31
|
|
771,885
|
|
|
|
Notes:
|
|
|
|
500,000
|
|
5.625% due 5/15/09
|
|
424,050
|
|
320,000
|
|
7.750% due 1/19/10
|
|
239,738
|
|
1,580,000
|
|
6.875% due 9/15/11
|
|
925,845
|
|
1,900,000
|
|
6.625% due 5/15/12
|
|
1,053,736
|
|
300,000
|
|
6.750% due 12/1/14
|
|
151,655
|
|
500,000
|
|
John
Deere Capital Corp., Medium-Term Notes, 5.350% due 4/3/18
|
|
417,745
|
|
|
|
SLM
Corp.:
|
|
|
|
125,000
|
|
Medium-Term Notes, 3.735% due 1/26/09
(c)
|
|
118,526
|
|
1,340,000
|
|
Senior Notes, 8.450% due 6/15/18
|
|
911,615
|
|
|
|
Total Consumer Finance
|
|
8,679,463
|
|
|
|
Diversified Financial Services 1.3%
|
|
|
|
150,000
|
|
AAC
Group Holding Corp., Senior Discount Notes, 10.250% due 10/1/12
(d)
|
|
143,250
|
|
100,000
|
|
Aiful
Corp., Notes, 5.000% due 8/10/10
(d)
|
|
60,705
|
|
|
|
Bank
of America Corp.:
|
|
|
|
970,000
|
|
Senior Notes, 5.650% due 5/1/18
|
|
835,209
|
|
100,000
|
|
Subordinated Notes, 5.420% due 3/15/17
|
|
76,125
|
|
125,000
|
|
Capital
One Bank, Notes, 5.750% due 9/15/10
|
|
116,305
|
|
|
|
Citigroup
Inc.:
|
|
|
|
550,000
|
|
Notes, 6.875% due 3/5/38
|
|
457,208
|
|
570,000
|
|
Senior Notes, 6.500% due 8/19/13
|
|
540,879
|
|
125,000
|
|
Countrywide
Home Loans Inc., Medium-Term Notes, 4.125% due 9/15/09
|
|
119,899
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
21
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Diversified Financial Services 1.3%
continued
|
|
|
|
|
|
General
Electric Capital Corp.:
|
|
|
|
$
|
250,000
|
|
Medium-Term Notes, 5.450% due 1/15/13
|
|
$
|
231,265
|
|
1,290,000
|
|
Senior Notes, 5.625% due 5/1/18
|
|
1,063,824
|
|
20,000
|
|
Subordinated Debentures, 6.375% due 11/15/67
(c)
|
|
12,952
|
|
200,000
|
|
Glen
Meadow Pass-Through Certificates, 6.505% due 2/12/67
(c)(d)
|
|
97,938
|
|
125,000
|
|
HSBC
Finance Corp., Senior Subordinated Notes, 5.875% due 2/1/09
|
|
124,381
|
|
1,610,000
|
|
JPMorgan
Chase & Co., Subordinated Notes, 6.125% due 6/27/17
|
|
1,391,858
|
|
|
|
Leucadia
National Corp., Senior Notes:
|
|
|
|
370,000
|
|
8.125% due 9/15/15
|
|
329,300
|
|
70,000
|
|
7.125% due 3/15/17
|
|
60,200
|
|
|
|
Residential
Capital LLC:
|
|
|
|
344,000
|
|
Junior Secured Notes, 9.625% due 5/15/15
(d)
|
|
87,720
|
|
45,000
|
|
Senior Secured Notes, 8.500% due 5/15/10
(d)
|
|
22,050
|
|
620,000
|
|
Vanguard
Health Holdings Co., I LLC, Senior Discount Notes, step bond to yield 10.257%
due 10/1/15
|
|
489,800
|
|
300,000
|
|
Vanguard
Health Holdings Co., II LLC, Senior Subordinated Notes, 9.000% due
10/1/14
|
|
250,500
|
|
|
|
Total Diversified Financial
Services
|
|
6,511,368
|
|
|
|
Insurance 0.3%
|
|
|
|
1,170,000
|
|
American
International Group Inc., Medium-Term Notes, 5.850% due 1/16/18
|
|
425,097
|
|
650,000
|
|
MetLife
Inc., Junior Subordinated Debentures, 6.400% due 12/15/36
|
|
324,194
|
|
600,000
|
|
Pacific
Life Global Funding, Notes, 5.150% due 4/15/13
(d)
|
|
503,321
|
|
140,000
|
|
Travelers
Cos. Inc., Junior Subordinated Debentures, 6.250% due 3/15/37
(c)
|
|
83,565
|
|
|
|
Total Insurance
|
|
1,336,177
|
|
|
|
Real Estate Investment Trusts (REITs) 0.1%
|
|
|
|
220,000
|
|
Forest
City Enterprises Inc., Senior Notes, 6.500% due 2/1/17
|
|
144,100
|
|
75,000
|
|
iStar
Financial Inc., Senior Notes, 4.875% due 1/15/09
|
|
62,253
|
|
85,000
|
|
Ventas
Realty LP/Ventas Capital Corp., Senior Notes, 6.500% due 6/1/16
|
|
70,125
|
|
|
|
Total Real Estate Investment
Trusts (REITs)
|
|
276,478
|
|
|
|
Real Estate Management & Development 0.0%
|
|
|
|
270,000
|
|
Ashton
Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated Notes, 9.500% due
10/1/15
(g)
|
|
55,350
|
|
570,000
|
|
Realogy
Corp., Senior Subordinated Notes, 12.375% due 4/15/15
|
|
115,425
|
|
|
|
Total Real Estate
Management & Development
|
|
170,775
|
|
|
|
Thrifts & Mortgage Finance 0.1%
|
|
|
|
270,000
|
|
Countrywide
Home Loans Inc., Notes, 5.625% due 7/15/09
|
|
261,384
|
|
|
|
TOTAL
FINANCIALS
|
|
23,288,287
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
22
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
HEALTH CARE 2.2%
|
|
|
|
|
|
Health Care Equipment & Supplies 0.1%
|
|
|
|
$
|
690,000
|
|
Biomet
Inc., Senior Notes, 10.375% due 10/15/17
(f)
|
|
$
|
577,875
|
|
|
|
Health Care Providers & Services 1.9%
|
|
|
|
550,000
|
|
Cardinal
Health Inc., Senior Notes, 5.800% due 10/15/16
|
|
446,515
|
|
460,000
|
|
Community
Health Systems Inc., Senior Notes, 8.875% due 7/15/15
|
|
387,550
|
|
|
|
DaVita
Inc.:
|
|
|
|
220,000
|
|
Senior Notes, 6.625% due 3/15/13
|
|
194,150
|
|
730,000
|
|
Senior Subordinated Notes, 7.250% due 3/15/15
|
|
627,800
|
|
|
|
HCA
Inc.:
|
|
|
|
295,000
|
|
Notes, 6.375% due 1/15/15
|
|
177,000
|
|
|
|
Senior Secured Notes:
|
|
|
|
800,000
|
|
9.125% due 11/15/14
|
|
690,000
|
|
215,000
|
|
9.250% due 11/15/16
|
|
183,288
|
|
2,270,000
|
|
9.625% due 11/15/16
(f)
|
|
1,833,025
|
|
425,000
|
|
IASIS
Healthcare LLC/IASIS Capital Corp., Senior Subordinated Notes, 8.750% due
6/15/14
|
|
337,875
|
|
|
|
Tenet
Healthcare Corp., Senior Notes:
|
|
|
|
180,000
|
|
6.375% due 12/1/11
|
|
155,700
|
|
870,000
|
|
6.500% due 6/1/12
|
|
730,800
|
|
650,000
|
|
7.375% due 2/1/13
|
|
533,000
|
|
801,000
|
|
9.875% due 7/1/14
|
|
658,822
|
|
600,000
|
|
UnitedHealth
Group Inc., Senior Notes, 5.250% due 3/15/11
|
|
579,676
|
|
961,000
|
|
US
Oncology Holdings Inc., Senior Notes, 8.334% due 3/15/12
(c)(f)
|
|
677,505
|
|
|
|
WellPoint
Inc., Senior Notes:
|
|
|
|
720,000
|
|
5.000% due 1/15/11
|
|
710,319
|
|
30,000
|
|
5.875% due 6/15/17
|
|
24,563
|
|
|
|
Total Health Care
Providers & Services
|
|
8,947,588
|
|
|
|
Pharmaceuticals 0.2%
|
|
|
|
650,000
|
|
Abbott
Laboratories, Senior Notes, 5.600% due 11/30/17
|
|
599,665
|
|
445,000
|
|
Leiner
Health Products Inc., Senior Subordinated Notes, 11.000% due 6/1/12
(b)(g)
|
|
23,363
|
|
370,000
|
|
Wyeth,
Notes, 5.950% due 4/1/37
|
|
301,294
|
|
|
|
Total Pharmaceuticals
|
|
924,322
|
|
|
|
TOTAL
HEALTH CARE
|
|
10,449,785
|
|
INDUSTRIALS 2.1%
|
|
|
|
|
|
Aerospace & Defense 0.3%
|
|
|
|
2,280,000
|
|
Hawker
Beechcraft Acquisition Co., Senior Notes, 8.875% due 4/1/15
(f)
|
|
1,333,800
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
23
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Airlines 0.2%
|
|
|
|
|
|
Continental
Airlines Inc., Pass-Through Certificates:
|
|
|
|
$
|
94,289
|
|
8.312% due 4/2/11
(a)
|
|
$
|
75,431
|
|
380,000
|
|
7.339% due 4/19/14
|
|
252,700
|
|
800,000
|
|
DAE
Aviation Holdings Inc., Senior Notes, 11.250% due 8/1/15
(d)
|
|
604,000
|
|
|
|
Total Airlines
|
|
932,131
|
|
|
|
Building Products 0.4%
|
|
|
|
|
|
Associated
Materials Inc.:
|
|
|
|
625,000
|
|
Senior Discount Notes, step bond to yield 18.865%
due 3/1/14
|
|
340,625
|
|
1,110,000
|
|
Senior Subordinated Notes, 9.750% due 4/15/12
|
|
993,450
|
|
1,790,000
|
|
NTK
Holdings Inc., Senior Discount Notes, step bond to yield 21.028% due 3/1/14
|
|
545,950
|
|
|
|
Total Building Products
|
|
1,880,025
|
|
|
|
Commercial Services & Supplies 0.5%
|
|
|
|
220,000
|
|
Allied
Waste North America Inc., Senior Notes, 6.875% due 6/1/17
|
|
192,500
|
|
550,000
|
|
DynCorp
International LLC/DIV Capital Corp., Senior Subordinated Notes, 9.500% due
2/15/13
|
|
470,250
|
|
600,000
|
|
Interface
Inc., Senior Subordinated Notes, 9.500% due 2/1/14
|
|
531,000
|
|
440,000
|
|
Rental
Services Corp., Senior Notes, 9.500% due 12/1/14
|
|
266,200
|
|
790,000
|
|
US
Investigations Services Inc., Senior Subordinated Notes, 10.500% due 11/1/15
(d)
|
|
612,250
|
|
225,000
|
|
Waste
Management Inc., Senior Notes, 6.375% due 11/15/12
|
|
205,083
|
|
|
|
Total Commercial
Services & Supplies
|
|
2,277,283
|
|
|
|
Construction & Engineering 0.2%
|
|
|
|
1,000,000
|
|
CSC
Holdings Inc., Senior Notes, 8.500% due 6/15/15
(d)
|
|
850,000
|
|
|
|
Industrial Conglomerates 0.0%
|
|
|
|
|
|
Sequa
Corp., Senior Notes:
|
|
|
|
140,000
|
|
11.750% due 12/1/15
(d)
|
|
87,500
|
|
144,725
|
|
13.500% due 12/1/15
(d)(f)
|
|
83,217
|
|
|
|
Total Industrial Conglomerates
|
|
170,717
|
|
|
|
Road & Rail 0.2%
|
|
|
|
1,195,000
|
|
Hertz
Corp., Senior Subordinated Notes, 10.500% due 1/1/16
|
|
743,888
|
|
50,000
|
|
Kansas
City Southern de Mexico, Senior Notes, 7.625% due 12/1/13
|
|
39,375
|
|
430,000
|
|
Kansas
City Southern Railway, Senior Notes, 7.500% due 6/15/09
|
|
414,950
|
|
|
|
Total Road & Rail
|
|
1,198,213
|
|
|
|
Trading Companies & Distributors 0.3%
|
|
|
|
1,035,000
|
|
Ashtead
Capital Inc., Notes, 9.000% due 8/15/16
(d)
|
|
657,225
|
|
440,000
|
|
H&E
Equipment Services Inc., Senior Notes, 8.375% due 7/15/16
|
|
235,400
|
|
650,000
|
|
Penhall
International Corp., Senior Secured Notes, 12.000% due 8/1/14
(d)
|
|
451,750
|
|
|
|
Total Trading
Companies & Distributors
|
|
1,344,375
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
24
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Transportation Infrastructure 0.0%
|
|
|
|
|
|
Swift
Transportation Co., Senior Secured Notes:
|
|
|
|
$
|
150,000
|
|
10.554% due 5/15/15
(c)(d)
|
|
$
|
30,750
|
|
405,000
|
|
12.500% due 5/15/17
(d)
|
|
93,150
|
|
|
|
Total Transportation
Infrastructure
|
|
123,900
|
|
|
|
TOTAL
INDUSTRIALS
|
|
10,110,444
|
|
INFORMATION TECHNOLOGY 0.3%
|
|
|
|
|
|
Electronic Equipment, Instruments & Components
0.1%
|
|
|
|
695,000
|
|
NXP
BV/NXP Funding LLC, Senior Notes, 9.500% due 10/15/15
|
|
236,300
|
|
|
|
IT Services 0.2%
|
|
|
|
170,000
|
|
Ceridian
Corp., Senior Notes, 12.250% due 11/15/15
(d)(f)
|
|
106,250
|
|
360,000
|
|
First
Data Corp., Senior Notes, 9.875% due 9/24/15
|
|
232,200
|
|
660,000
|
|
SunGard
Data Systems Inc., Senior Subordinated Notes, 10.250% due 8/15/15
|
|
465,300
|
|
|
|
Total IT Services
|
|
803,750
|
|
|
|
Office Electronics 0.0%
|
|
|
|
290,000
|
|
Xerox
Corp., Senior Notes, 6.750% due 2/1/17
|
|
213,364
|
|
|
|
Semiconductors & Semiconductor Equipment 0.0%
|
|
|
|
35,000
|
|
Freescale
Semiconductor Inc., Senior Notes, 8.875% due 12/15/14
|
|
15,750
|
|
|
|
TOTAL
INFORMATION TECHNOLOGY
|
|
1,269,164
|
|
MATERIALS 1.9%
|
|
|
|
|
|
Chemicals 0.1%
|
|
|
|
|
|
Georgia
Gulf Corp., Senior Notes:
|
|
|
|
90,000
|
|
9.500% due 10/15/14
|
|
38,250
|
|
515,000
|
|
10.750% due 10/15/16
|
|
136,475
|
|
60,000
|
|
Huntsman
International LLC, Senior Subordinated Notes, 7.875% due 11/15/14
|
|
53,700
|
|
100,000
|
|
Methanex
Corp., Senior Notes, 8.750% due 8/15/12
|
|
95,500
|
|
360,000
|
|
PPG
Industries Inc., Senior Notes, 6.650% due 3/15/18
|
|
308,093
|
|
|
|
Total Chemicals
|
|
632,018
|
|
|
|
Containers & Packaging 0.1%
|
|
|
|
285,000
|
|
Graham
Packaging Co. Inc., Senior Subordinated Notes, 9.875% due 10/15/14
|
|
180,975
|
|
465,000
|
|
Graphic
Packaging International Corp., Senior Subordinated Notes, 9.500% due 8/15/13
|
|
320,850
|
|
195,000
|
|
Plastipak
Holdings Inc., Senior Notes, 8.500% due 12/15/15
(d)
|
|
140,400
|
|
|
|
Total Containers &
Packaging
|
|
642,225
|
|
|
|
Metals & Mining 1.1%
|
|
|
|
1,560,000
|
|
Freeport-McMoRan
Copper & Gold Inc., Senior Notes, 8.375% due 4/1/17
|
|
1,226,294
|
|
650,000
|
|
Metals
USA Inc., Senior Secured Notes, 11.125% due 12/1/15
|
|
458,250
|
|
205,000
|
|
Noranda
Aluminium Holding Corp., Senior Notes, 8.578% due 11/15/14
(c)(f)
|
|
77,900
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
25
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Metals & Mining 1.1%
continued
|
|
|
|
$
|
2,610,000
|
|
Novelis
Inc., Senior Notes, 7.250% due 2/15/15
|
|
$
|
1,761,750
|
|
1,400,000
|
|
Ryerson
Inc., Senior Secured Notes, 12.000% due 11/1/15
(d)
|
|
959,000
|
|
|
|
Steel
Dynamics Inc., Senior Notes:
|
|
|
|
100,000
|
|
7.375% due 11/1/12
|
|
74,875
|
|
785,000
|
|
7.750% due 4/15/16
(d)
|
|
523,987
|
|
200,000
|
|
Tube
City IMS Corp., Senior Subordinated Notes, 9.750% due 2/1/15
|
|
117,000
|
|
156,000
|
|
Vale
Overseas Ltd., Notes, 6.875% due 11/21/36
|
|
112,864
|
|
|
|
Total Metals & Mining
|
|
5,311,920
|
|
|
|
Paper & Forest Products 0.6%
|
|
|
|
1,640,000
|
|
Abitibi-Consolidated
Co. of Canada, Senior Secured Notes, 13.750% due 4/1/11
(d)
|
|
1,303,800
|
|
1,185,000
|
|
Appleton
Papers Inc., Senior Subordinated Notes, 9.750% due 6/15/14
|
|
716,925
|
|
435,000
|
|
NewPage Corp.,
Senior Secured Notes, 9.051% due 5/1/12
(c)
|
|
306,675
|
|
750,000
|
|
Verso
Paper Holdings LLC, 11.375% due 8/1/16
|
|
303,750
|
|
150,000
|
|
Weyerhaeuser
Co., Senior Notes, 6.750% due 3/15/12
|
|
129,191
|
|
|
|
Total Paper & Forest
Products
|
|
2,760,341
|
|
|
|
TOTAL
MATERIALS
|
|
9,346,504
|
|
TELECOMMUNICATION SERVICES
3.0%
|
|
|
|
|
|
Diversified Telecommunication Services 2.3%
|
|
|
|
|
|
AT&T
Inc.:
|
|
|
|
630,000
|
|
5.600% due 5/15/18
|
|
538,458
|
|
1,210,000
|
|
Senior Notes, 6.400% due 5/15/38
|
|
971,115
|
|
460,000
|
|
British
Telecommunications PLC, Bonds, 9.125% due 12/15/30
|
|
417,468
|
|
600,000
|
|
Deutsche
Telekom International Finance, Senior Notes, 5.750% due 3/23/16
|
|
491,922
|
|
730,000
|
|
Embarq
Corp., Senior Notes, 6.738% due 6/1/13
|
|
635,699
|
|
|
|
Hawaiian
Telcom Communications Inc.:
|
|
|
|
120,000
|
|
Senior Notes, 9.750% due 5/1/13
|
|
9,000
|
|
660,000
|
|
Senior Subordinated Notes, 12.500% due 5/1/15
|
|
19,800
|
|
680,000
|
|
Intelsat
Bermuda Ltd., Senior Notes, 11.250% due 6/15/16
|
|
584,800
|
|
|
|
Level
3 Financing Inc., Senior Notes:
|
|
|
|
1,295,000
|
|
9.250% due 11/1/14
|
|
744,625
|
|
30,000
|
|
6.845% due 2/15/15
(c)
|
|
13,800
|
|
1,095,000
|
|
Nordic
Telephone Co. Holdings, Senior Secured Bonds, 8.875% due 5/1/16
(d)
|
|
925,275
|
|
1,150,000
|
|
Qwest
Communications International Inc., Senior Notes, 7.500% due 2/15/14
|
|
796,375
|
|
100,000
|
|
Telecom
Italia Capital S.p.A., Senior Notes, 5.250% due 10/1/15
|
|
68,681
|
|
790,000
|
|
Telefonica
Emisones SAU, Senior Notes, 6.221% due 7/3/17
|
|
667,834
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
26
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Diversified Telecommunication Services 2.3%
continued
|
|
|
|
|
|
Verizon
Communications Inc. Senior Notes:
|
|
|
|
$
|
660,000
|
|
5.500% due 2/15/18
|
|
$
|
554,888
|
|
890,000
|
|
6.400% due 2/15/38
|
|
698,419
|
|
450,000
|
|
Verizon
Florida Inc., Senior Notes, 6.125% due 1/15/13
|
|
401,323
|
|
800,000
|
|
Virgin
Media Finance PLC, Senior Notes, 9.125% due 8/15/16
|
|
532,000
|
|
650,000
|
|
Wind
Acquisition Finance SA, Senior Bonds, 10.750% due 12/1/15
(d)
|
|
503,750
|
|
1,915,000
|
|
Windstream
Corp., Senior Notes, 8.625% due 8/1/16
|
|
1,455,400
|
|
|
|
Total Diversified
Telecommunication Services
|
|
11,030,632
|
|
|
|
Wireless Telecommunication Services 0.7%
|
|
|
|
420,000
|
|
ALLTEL
Communications Inc., Senior Notes, 10.375% due 12/1/17
(d)(f)
|
|
459,900
|
|
65,000
|
|
MetroPCS
Wireless Inc., Senior Notes, 9.250% due 11/1/14
|
|
54,438
|
|
1,270,000
|
|
New
Cingular Wireless Services Inc., Notes, 8.125% due 5/1/12
|
|
1,259,865
|
|
|
|
Sprint
Capital Corp., Senior Notes:
|
|
|
|
1,190,000
|
|
8.375% due 3/15/12
|
|
958,605
|
|
330,000
|
|
6.875% due 11/15/28
|
|
193,438
|
|
300,000
|
|
Sprint
Nextel Corp., 6.000% due 12/1/16
|
|
208,051
|
|
780,000
|
|
True
Move Co., Ltd., Notes, 10.750% due 12/16/13
(d)
|
|
276,900
|
|
|
|
Total Wireless Telecommunication
Services
|
|
3,411,197
|
|
|
|
TOTAL
TELECOMMUNICATION SERVICES
|
|
14,441,829
|
|
UTILITIES 2.3%
|
|
|
|
|
|
Electric Utilities 0.2%
|
|
|
|
365,000
|
|
FirstEnergy
Corp., Notes, 7.375% due 11/15/31
|
|
283,773
|
|
|
|
Pacific
Gas & Electric Co. Senior Notes:
|
|
|
|
320,000
|
|
5.625% due 11/30/17
|
|
276,114
|
|
230,000
|
|
5.800% due 3/1/37
|
|
171,914
|
|
670,000
|
|
Texas
Competitive Electric Holding Co. LLC, Senior Notes, 10.500% due 11/1/16
(d)(f)
|
|
422,100
|
|
|
|
Total Electric Utilities
|
|
1,153,901
|
|
|
|
Gas Utilities 0.1%
|
|
|
|
770,000
|
|
Suburban
Propane Partners LP/Suburban Energy Finance Corp., Senior Notes, 6.875% due
12/15/13
|
|
596,750
|
|
|
|
Independent Power Producers & Energy Traders
2.0%
|
|
|
|
|
|
AES
Corp., Senior Notes:
|
|
|
|
1,100,000
|
|
7.750% due 3/1/14
|
|
896,500
|
|
720,000
|
|
7.750% due 10/15/15
|
|
567,900
|
|
660,000
|
|
8.000% due 10/15/17
|
|
511,500
|
|
490,000
|
|
Dynegy
Holdings Inc., Senior Notes, 7.750% due 6/1/19
|
|
330,750
|
|
990,000
|
|
Dynegy
Inc., Bonds, 7.670% due 11/8/16
|
|
743,490
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
27
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
|
|
Independent Power Producers & Energy Traders
2.0%
continued
|
|
|
|
|
|
Edison
Mission Energy, Senior Notes:
|
|
|
|
$
|
480,000
|
|
7.750% due 6/15/16
|
|
$
|
387,600
|
|
350,000
|
|
7.200% due 5/15/19
|
|
264,250
|
|
750,000
|
|
7.625% due 5/15/27
|
|
491,250
|
|
3,920,000
|
|
Energy
Future Holdings, Senior Notes, 11.250% due 11/1/17
(d)(f)
|
|
2,469,600
|
|
670,896
|
|
Mirant
Mid Atlantic LLC, Pass-Through Certificates, 9.125% due 6/30/17
|
|
603,806
|
|
|
|
NRG
Energy Inc., Senior Notes:
|
|
|
|
250,000
|
|
7.250% due 2/1/14
|
|
219,375
|
|
2,175,000
|
|
7.375% due 2/1/16
|
|
1,881,375
|
|
380,000
|
|
TXU
Corp., Senior Notes, 5.550% due 11/15/14
|
|
207,587
|
|
|
|
Total Independent Power
Producers & Energy Traders
|
|
9,574,983
|
|
|
|
TOTAL
UTILITIES
|
|
11,325,634
|
|
|
|
TOTAL
CORPORATE BONDS & NOTES (Cost $161,396,940)
|
|
113,354,721
|
|
MORTGAGE-BACKED SECURITIES
4.0%
|
|
|
|
FHLMC 2.7%
|
|
|
|
|
|
Federal
Home Loan Mortgage Corp. (FHLMC):
|
|
|
|
2,624,898
|
|
5.114% due 6/1/35
(c)(e)
|
|
2,629,363
|
|
88,042
|
|
6.100% due 9/1/37
(c)(e)
|
|
89,655
|
|
|
|
Gold:
|
|
|
|
446,386
|
|
7.000% due 6/1/17
(e)
|
|
470,851
|
|
296,864
|
|
8.500% due 9/1/25
(e)
|
|
319,694
|
|
572,305
|
|
6.500% due 8/1/29
(e)
|
|
585,486
|
|
8,991,059
|
|
6.000% due 9/1/32-2/1/36
(e)
|
|
8,999,639
|
|
|
|
TOTAL
FHLMC
|
|
13,094,688
|
|
FNMA 1.3%
|
|
|
|
|
|
Federal
National Mortgage Association (FNMA):
|
|
|
|
381,507
|
|
8.000% due 12/1/12
(e)
|
|
390,425
|
|
1,533,020
|
|
5.500% due 1/1/14-4/1/35
(e)
|
|
1,508,059
|
|
1,356,423
|
|
7.000% due 3/15/15-6/1/32
(e)
|
|
1,418,461
|
|
491,731
|
|
4.212% due 12/1/34
(c)(e)
|
|
493,879
|
|
677,889
|
|
4.851% due 1/1/35
(c)(e)
|
|
695,243
|
|
881,681
|
|
5.040% due 3/1/35
(c)(e)
|
|
904,052
|
|
812,619
|
|
4.855% due 4/1/35
(c)(e)
|
|
821,269
|
|
|
|
TOTAL
FNMA
|
|
6,231,388
|
|
|
|
TOTAL
MORTGAGE-BACKED SECURITIES (Cost $19,396,557)
|
|
19,326,076
|
|
SOVEREIGN BONDS 0.0%
|
|
|
|
|
|
Argentina 0.0%
|
|
|
|
22,931
|
ARS
|
Republic
of Argentina, GDP Linked Securities, 1.384% due 12/15/35
(a)(c)
(Cost
$266)
|
|
414
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
28
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
LMP CAPITAL AND INCOME FUND INC.
FACE
AMOUNT
|
|
SECURITY
|
|
VALUE
|
|
U.S.
GOVERNMENT & AGENCY OBLIGATIONS 1.0%
|
|
|
|
|
|
U.S. Government Agencies 1.0%
|
|
|
|
$
|
100,000
|
|
Federal
Home Loan Bank (FHLB), Global Bonds, 5.500% due 7/15/36
|
|
$
|
97,018
|
|
|
|
Federal
Home Loan Mortgage Corp. (FHLMC), Notes:
|
|
|
|
700,000
|
|
4.875% due 2/17/09
(e)
|
|
704,502
|
|
3,900,000
|
|
4.210% due 10/19/09
(c)(e)
|
|
3,895,258
|
|
110,000
|
|
Federal
National Mortgage Association (FNMA), Subordinated Notes, 5.250% due 8/1/12
(e)
|
|
110,041
|
|
|
|
TOTAL
U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $4,805,183)
|
|
4,806,819
|
|
U.S.
TREASURY INFLATION PROTECTED SECURITIES 0.6%
|
|
|
|
|
|
U.S.
Treasury Bonds, Inflation Indexed:
|
|
|
|
839,025
|
|
2.000% due 1/15/26
|
|
688,983
|
|
2,053,542
|
|
2.375% due 1/15/27
(i)
|
|
1,777,599
|
|
760,571
|
|
U.S.
Treasury Notes, Inflation Indexed, 2.375% due 1/15/17
|
|
693,784
|
|
|
|
TOTAL
U.S. TREASURY INFLATION PROTECTED SECURITIES
(Cost $3,576,090)
|
|
3,160,366
|
|
|
|
TOTAL
INVESTMENTS BEFORE SHORT-TERM INVESTMENTS
(Cost $602,555,096)
|
|
424,761,453
|
|
SHORT-TERM
INVESTMENTS 11.9%
|
|
|
|
|
|
U.S. Government Agencies 0.3%
|
|
|
|
|
|
Federal
National Mortgage Association (FNMA), Discount Notes:
|
|
|
|
740,000
|
|
1.825%-2.716% due 12/15/08
(e)(j)
|
|
737,789
|
|
500,000
|
|
2.614% due 12/17/08
(e)(j)
|
|
498,351
|
|
145,000
|
|
2.554% due 12/26/08
(e)(j)
|
|
144,442
|
|
|
|
Total U.S. Government Agencies
(Cost $1,380,582)
|
|
1,380,582
|
|
|
|
Repurchase Agreements 11.6%
|
|
|
|
45,216,000
|
|
Interest
in $586,627,000 joint tri-party repurchase agreement dated 10/31/08 with
Barclays Capital Inc., 0.200% due 11/3/08; Proceeds at maturity
$45,216,754; (Fully collateralized by various U.S. government agency obligations,
0.000% to 5.360% due 11/19/08 to 12/11/20; Market value $46,120,322)
|
|
45,216,000
|
|
10,583,000
|
|
Morgan
Stanley tri-party repurchase agreement dated 10/31/08, 0.150% due 11/3/08;
Proceeds at maturity $10,583,132; (Fully collateralized by U.S. government
agency obligation, 3.375% due 6/24/11; Market value $10,797,451)
|
|
10,583,000
|
|
|
|
Total Repurchase Agreements (Cost
$55,799,000)
|
|
55,799,000
|
|
|
|
TOTAL
SHORT-TERM INVESTMENTS (Cost $57,179,582)
|
|
57,179,582
|
|
|
|
TOTAL
INVESTMENTS 100.0% (Cost $659,734,678#)
|
|
$481,941,035
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
29
|
Schedule of investments
continued
October 31, 2008
LMP CAPITAL AND INCOME FUND INC.
|
|
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
October 31, 2008.
|
(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)
|
|
On
September 7, 2008, the Federal Housing Finance Agency placed Fannie Mae
and Freddie Mac into Conservatorship.
|
(f)
|
|
Payment-in-kind
security for which part of the income earned may be paid as additional
principal.
|
(g)
|
|
Security
is currently in default.
|
(h)
|
|
Security
has no maturity date. The date shown represents the next call date.
|
(i)
|
|
All
or a portion of this security is held at the broker as collateral for open
futures contracts.
|
(j)
|
|
Rate
shown represents yield-to-maturity.
|
#
|
|
Aggregate
cost for federal income tax purposes is $663,908,894.
|
|
|
Abbreviations used in this schedule:
|
|
|
ADR
|
American Depositary Receipt
|
|
|
ARM
|
Adjustable Rate Mortgage
|
|
|
ARS
|
Argentine Peso
|
|
|
GDP
|
Gross Domestic Product
|
|
|
GSAMP
|
Goldman Sachs Alternative Mortgage Products
|
|
|
MASTR
|
Mortgage Asset Securitization Transactions Inc.
|
|
|
MLCC
|
Merrill Lynch Credit Corporation
|
|
|
PAC
|
Planned Amortization Class
|
SCHEDULE OF WRITTEN OPTIONS
CONTRACTS
|
|
SECURITY
|
|
EXPIRATION DATE
|
|
STRIKE PRICE
|
|
VALUE
|
|
14
|
|
Eurodollar
Futures, Call
|
|
3/16/09
|
|
$
|
97.75
|
|
$
|
12,688
|
|
14
|
|
Eurodollar
Futures, Call
|
|
3/16/09
|
|
|
97.50
|
|
20,300
|
|
1,126
|
|
JPMorgan
Chase & Co., Call
|
|
12/20/08
|
|
|
42.50
|
|
286,588
|
|
158
|
|
Monsanto
Co., Call
|
|
12/20/08
|
|
|
100.00
|
|
75,848
|
|
217
|
|
Qualcomm
Inc., Call
|
|
12/20/08
|
|
|
42.50
|
|
32,116
|
|
544
|
|
Wells
Fargo & Co., Call
|
|
12/20/08
|
|
|
36.00
|
|
108,527
|
|
|
|
TOTAL
WRITTEN OPTIONS
(Premiums Received $523,246)
|
|
|
|
|
|
|
$
|
536,067
|
|
See Notes to Financial Statements.
30
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
Statement of assets and liabilities
October 31, 2008
ASSETS:
|
|
|
|
Investments, at value (Cost $603,935,678)
|
|
$
|
426,142,035
|
|
Repurchase agreements, at value (Cost
$55,799,000)
|
|
55,799,000
|
|
Foreign currency, at value (Cost $638)
|
|
474
|
|
Receivable for securities sold
|
|
11,458,948
|
|
Interest and dividends receivable
|
|
4,551,817
|
|
Receivable for open forward currency
contracts
|
|
3,389,668
|
|
Deposits with brokers for open swap
contracts
|
|
450,002
|
|
Receivable from broker variation margin
on open futures contracts
|
|
420,432
|
|
Unrealized appreciation on swap contracts
|
|
67,236
|
|
Principal paydown receivable
|
|
39,666
|
|
Interest receivable for open swap contracts
|
|
20,273
|
|
Receivable for swap contracts closed
|
|
17,772
|
|
Premiums received for open swap contracts
|
|
2,860
|
|
Prepaid expenses
|
|
11,416
|
|
Total Assets
|
|
502,371,599
|
|
LIABILITIES:
|
|
|
|
Loan payable (Note 4)
|
|
145,000,000
|
|
Payable for securities purchased
|
|
12,869,953
|
|
Due to custodian
|
|
4,194,074
|
|
Payable for open forward currency contracts
|
|
3,120,640
|
|
Written options, at value (premium received
$523,246)
|
|
536,067
|
|
Interest payable (Note 4)
|
|
391,145
|
|
Investment management fee payable
|
|
361,067
|
|
Unrealized depreciation on swap contracts
|
|
32,950
|
|
Directors fees payable
|
|
12,432
|
|
Interest payable for open swap contracts
|
|
6,378
|
|
Accrued expenses
|
|
258,980
|
|
Total Liabilities
|
|
166,783,686
|
|
TOTAL NET ASSETS
|
|
$
|
335,587,913
|
|
NET ASSETS:
|
|
|
|
Par value ($0.001 par value; 29,964,106
shares issued and outstanding; 100,000,000 shares authorized)
|
|
$
|
29,964
|
|
Paid-in capital in excess of par value
|
|
559,713,252
|
|
Undistributed net investment income
|
|
9,656,195
|
|
Accumulated
net realized loss on investments, futures contracts, written options, short
sales, swap contracts and foreign currency transactions
|
|
(57,566,925
|
)
|
Net
unrealized depreciation on investments, futures contracts, written options,
swap contracts and foreign currencies
|
|
(176,244,573
|
)
|
TOTAL NET ASSETS
|
|
$
|
335,587,913
|
|
Shares Outstanding
|
|
29,964,106
|
|
Net Asset Value
|
|
$11.20
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
31
|
Statement of operations
For the Year Ended October 31, 2008
INVESTMENT INCOME:
|
|
|
|
Interest
|
|
$
|
16,072,628
|
|
Dividends
|
|
7,858,645
|
|
Total Investment Income
|
|
23,931,273
|
|
EXPENSES:
|
|
|
|
Interest expense (Note 4)
|
|
6,657,094
|
|
Investment management fee (Note 2)
|
|
6,066,804
|
|
Excise tax (Note 1)
|
|
606,545
|
|
Commitment fees (Note 4)
|
|
481,837
|
|
Shareholder reports
|
|
245,670
|
|
Legal fees
|
|
191,373
|
|
Directors fees
|
|
119,977
|
|
Dividend expense on securities sold short
|
|
118,621
|
|
Audit and tax
|
|
77,877
|
|
Stock exchange listing fees
|
|
25,756
|
|
Transfer agent fees
|
|
17,943
|
|
Custody fees
|
|
16,721
|
|
Insurance
|
|
12,473
|
|
Miscellaneous expenses
|
|
6,919
|
|
Total Expenses
|
|
14,645,610
|
|
Less: Fees paid indirectly (Note 1)
|
|
(367
|
)
|
Net Expenses
|
|
14,645,243
|
|
NET INVESTMENT INCOME
|
|
9,286,030
|
|
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS, FUTURES CONTRACTS,
|
|
|
|
WRITTEN OPTIONS, SHORT SALES, SWAP
CONTRACTS AND FOREIGN CURRENCY
|
|
|
|
TRANSACTIONS (NOTES 1 AND 3):
|
|
|
|
Net Realized Gain (Loss) From:
|
|
|
|
Investment transactions
|
|
(68,233,451
|
)
|
Futures contracts
|
|
6,776,713
|
|
Written options
|
|
3,021,958
|
|
Short sales
|
|
1,604,163
|
|
Swap contracts
|
|
32,735
|
|
Foreign currency transactions
|
|
(12,103
|
)
|
Net Realized Loss
|
|
(56,809,985
|
)
|
Change in Net Unrealized
Appreciation/Depreciation From:
|
|
|
|
Investments
|
|
(209,532,023
|
)
|
Futures contracts
|
|
872,757
|
|
Written options
|
|
(19,021
|
)
|
Swap contracts
|
|
34,286
|
|
Foreign currencies
|
|
180,528
|
|
Change in Net Unrealized
Appreciation/Depreciation
|
|
(208,463,473
|
)
|
NET LOSS ON
INVESTMENTS, FUTURES CONTRACTS, WRITTEN OPTIONS, SHORT SALES, SWAP CONTRACTS
AND FOREIGN CURRENCY TRANSACTIONS
|
|
(265,273,458
|
)
|
DECREASE IN NET ASSETS FROM OPERATIONS
|
|
$
|
(255,987,428
|
)
|
See Notes to Financial Statements.
32
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
Statements of changes in net assets
FOR THE YEARS ENDED OCTOBER 31,
|
|
2008
|
|
2007
|
|
OPERATIONS:
|
|
|
|
|
|
Net investment income
|
|
$
|
9,286,030
|
|
$
|
4,014,510
|
|
Net realized gain (loss)
|
|
(56,809,985
|
)
|
96,113,345
|
|
Change in net unrealized
appreciation/depreciation
|
|
(208,463,473
|
)
|
188,526
|
|
Increase (Decrease) in Net Assets From
Operations
|
|
(255,987,428
|
)
|
100,316,381
|
|
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE
1):
|
|
|
|
|
|
Net investment income
|
|
(6,133,652
|
)
|
(248,702
|
)
|
Net realized gains
|
|
(90,051,127
|
)
|
(46,195,662
|
)
|
Decrease in Net Assets From Distributions
to Shareholders
|
|
(96,184,779
|
)
|
(46,444,364
|
)
|
INCREASE (DECREASE) IN NET ASSETS
|
|
(352,172,207
|
)
|
53,872,017
|
|
NET ASSETS:
|
|
|
|
|
|
Beginning of year
|
|
687,760,120
|
|
633,888,103
|
|
End of year*
|
|
$
|
335,587,913
|
|
$687,760,120
|
|
* Includes undistributed net investment
income of:
|
|
$9,656,195
|
|
$5,727,873
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
33
|
Statement of cash flows
For the Year Ended October 31, 2008
CASH FLOWS PROVIDED (USED) BY OPERATING
ACTIVITIES:
|
|
|
|
Interest and dividends received
|
|
$
|
20,615,300
|
|
Operating expenses paid
|
|
(8,903,618
|
)
|
Net purchases of short-term investments
|
|
6,858,850
|
|
Realized loss on foreign currency transactions
|
|
(12,103
|
)
|
Realized gain on options
|
|
4,745,831
|
|
Realized gain on futures contracts
|
|
6,776,713
|
|
Realized gain on swap contracts
|
|
32,735
|
|
Net change in unrealized appreciation on
futures contracts
|
|
872,757
|
|
Net change in unrealized depreciation on
foreign currencies
|
|
(219,928
|
)
|
Purchases of long-term investments
|
|
(1,155,645,766
|
)
|
Proceeds from disposition of long-term
investments
|
|
1,247,654,450
|
|
Premium for written swaps
|
|
2,860
|
|
Premium for written options
|
|
523,246
|
|
Change in receivable from brokervariation
margin
|
|
(405,252
|
)
|
Change in payable for open forward currency
contracts
|
|
(402,088
|
)
|
Interest paid
|
|
(7,009,933
|
)
|
Net Cash Provided by Operating Activities
|
|
115,484,054
|
|
CASH FLOWS PROVIDED (USED) BY FINANCING
ACTIVITIES:
|
|
|
|
Cash distributions paid on Common Stock
|
|
(96,184,779
|
)
|
Paydown on loan
|
|
(25,000,000
|
)
|
Due to custodian
|
|
4,194,074
|
|
Deposits with brokers for swap contracts
|
|
(450,002
|
)
|
Net Cash Flows Used By Financing Activities
|
|
(117,440,707
|
)
|
NET DECREASE IN CASH
|
|
(1,956,653
|
)
|
Cash, Beginning of year
|
|
1,957,127
|
|
Cash, End of year
|
|
$
|
474
|
|
RECONCILIATION
OF INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH FLOWS PROVIDED (USED)
BY OPERATING ACTIVITIES:
|
|
|
|
Decrease in Net Assets From Operations
|
|
$
|
(255,987,428
|
)
|
Accretion of discount on investments
|
|
(1,547,020
|
)
|
Amortization of premium on investments
|
|
120,553
|
|
Decrease in investments, at value
|
|
397,565,019
|
|
Decrease in payable for securities
purchased
|
|
(28,575,088
|
)
|
Increase in interest and dividends receivable
|
|
(2,071,506
|
)
|
Increase in premium for written swaps
|
|
2,860
|
|
Increase in premium for written options
|
|
514,077
|
|
Decrease in receivable for securities sold
|
|
7,538,235
|
|
Decrease in payable for open forward
currency contracts
|
|
(402,088
|
)
|
Increase in receivable from
brokervariation margin
|
|
(405,252
|
)
|
Decrease in prepaid expenses
|
|
4,770
|
|
Decrease in interest payable
|
|
(352,839
|
)
|
Decrease in accrued expenses
|
|
(920,239
|
)
|
Total Adjustments
|
|
371,471,482
|
|
NET CASH FLOWS PROVIDED BY OPERATING
ACTIVITIES
|
|
$
|
115,484,054
|
|
See Notes to Financial Statements.
34
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
Financial highlights
FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31, UNLESS OTHERWISE NOTED:
|
|
2008
1
|
|
2007
1
|
|
2006
1
|
|
2005
1
|
|
2004
1,2
|
|
NET ASSET VALUE, BEGINNING OF YEAR
|
|
$22.95
|
|
$21.15
|
|
$19.69
|
|
$18.64
|
|
$19.06
|
3
|
INCOME (LOSS) FROM OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
0.31
|
|
0.13
|
|
0.48
|
|
0.69
|
|
0.37
|
|
Net realized and unrealized gain (loss)
|
|
(8.85
|
)
|
3.22
|
|
2.18
|
|
1.52
|
|
(0.19
|
)
|
Total income (loss) from operations
|
|
(8.54
|
)
|
3.35
|
|
2.66
|
|
2.21
|
|
0.18
|
|
Gain from Repurchase of Treasury Stock
|
|
|
|
|
|
|
|
0.04
|
|
|
|
LESS DISTRIBUTIONS FROM:
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(0.20
|
)
|
(0.01
|
)
|
(0.55
|
)
|
(0.98
|
)
|
(0.40
|
)
|
Net realized gains
|
|
(3.01
|
)
|
(1.54
|
)
|
(0.65
|
)
|
(0.22
|
)
|
|
|
Return of capital
|
|
|
|
|
|
|
|
|
|
(0.20
|
)
|
Total distributions
|
|
(3.21
|
)
|
(1.55
|
)
|
(1.20
|
)
|
(1.20
|
)
|
(0.60
|
)
|
NET ASSET VALUE, END OF YEAR
|
|
$11.20
|
|
$22.95
|
|
$21.15
|
|
$19.69
|
|
$18.64
|
|
MARKET PRICE, END OF YEAR
|
|
$9.07
|
|
$19.88
|
|
$18.19
|
|
$17.19
|
|
$17.24
|
|
Total return, based on NAV
4,5
|
|
(42.09
|
)%
|
16.32
|
%
|
13.89
|
%
|
12.34
|
%
|
1.06
|
%
|
Total return, based on Market Price
5
|
|
(44.95
|
)%
|
18.22
|
%
|
13.24
|
%
|
6.85
|
%
|
(10.74
|
)%
|
NET ASSETS, END OF YEAR (000s)
|
|
$335,588
|
|
$687,760
|
|
$633,888
|
|
$637,654
|
|
$614,324
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
2.72
|
%
|
3.03
|
%
6
|
3.13
|
%
|
2.45
|
%
|
1.54
|
%
7
|
Gross expenses, excluding interest expense and dividend expense
|
|
1.46
|
|
1.42
|
6
|
1.33
|
|
1.23
|
|
1.15
|
7
|
Net expenses
|
|
2.72
|
8
|
3.03
|
6,9
|
3.13
|
9
|
2.45
|
|
1.54
|
7
|
Net expenses, excluding interest expense
and dividend expense
|
|
1.46
|
8
|
1.42
|
6,9
|
1.33
|
9
|
1.23
|
|
1.15
|
7
|
Net investment income
|
|
1.73
|
|
0.60
|
|
2.33
|
|
3.55
|
|
2.97
|
7
|
PORTFOLIO TURNOVER RATE
|
|
169
|
%
10
|
180
|
%
|
193
|
%
|
64
|
%
|
39
|
%
|
AUCTION RATE PREFERRED STOCK:
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DATA:
|
|
|
|
|
|
|
|
|
|
|
|
Loans Outstanding, End of Year (000s)
|
|
$145,000
|
|
$170,000
|
|
$220,000
|
|
$220,000
|
|
$220,000
|
|
Asset Coverage for Loan Outstanding
|
|
331
|
%
|
505
|
%
|
388
|
%
|
390
|
%
|
379
|
%
|
Weighted Average Loan (000s)
|
|
$168,497
|
|
$181,370
|
|
$220,000
|
|
$220,000
|
|
$105,783
|
|
Weighted Average Interest Rate on Loans
|
|
3.89
|
%
|
5.67
|
%
|
5.26
|
%
|
3.54
|
%
|
2.22
|
%
|
1
|
Per
share amounts have been calculated using the average shares method.
|
2
|
For
the period February 24, 2004 (inception date) through October 31,
2004.
|
3
|
Initial
public offering price of $20.00 per share less offering costs and sales load
totaling $0.94 per share.
|
4
|
Performance
figures may reflect fee waivers and/or expense reimbursements. In the absence
of fee waivers and/or expense reimbursements, the total return would have
been lower. Past performance is no guarantee of future results. Total returns
for periods of less than one year are not annualized.
|
5
|
The
total return calculation assumes that distributions are reinvested in
accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results. Total returns for periods of less than one year
are not annualized.
|
6
|
Included
in the expense ratios are certain non-recurring restructuring (and
reorganization, if applicable) fees that were incurred by the Fund during the
period. Without these fees, the gross and net expense ratios would not have
changed.
|
7
|
Annualized.
|
8
|
The
impact to the expense ratio was less than 0.01% as a result of fees paid
indirectly.
|
9
|
Reflects
fee waivers and/or expense reimbursements.
|
10
|
Excluding
mortgage dollar roll transactions. If mortgage dollar roll transactions had
been included, the portfolio turnover rate would have been 177% for the year
ended October 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
35
|
Notes to financial statements
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 reported sales price or official closing
price on the primary market or exchange on which they trade. Debt securities
are valued at the mean between the last quoted 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 last quoted 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 securities at fair value as determined in accordance with the procedures
approved by the Funds Board of Directors. Short-term obligations with
maturities of 60 days or less are valued at amortized cost, which approximates
fair 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 all times, 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.
36
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
(c) 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 received plus the
option exercise price and the Funds basis in the underlying security (in the
case of a covered written call option), or the cost to purchase the underlying
security (in the case of an uncovered written call option), including brokerage
commission, is treated as a realized gain or loss. When a written put option is
exercised, the amount of the premium received is added to the cost of the
security purchased by the Fund from the exercise of the written put option to
form the Funds basis in the underlying security purchased. The writer or buyer
of an option traded on an exchange can liquidate the position before the
exercise of the option by entering into a closing transaction. The cost of a
closing transaction is deducted from the original premium received resulting in
a realized gain or loss to the Fund.
The
risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised. The risk in writing a call option is that the Fund is
exposed to the risk of loss if the market price of the underlying security
increases. In addition, there is the risk that the Fund may not be able to
enter into a closing transaction because of an illiquid secondary market.
(d) 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, equal in value to a certain
percentage of the contract amount (initial margin deposit). 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 fluctuations in the
value of the underlying financial instruments. For foreign currency denominated
futures contracts, variation margins are not settled daily. The Fund recognizes
an unrealized gain or loss equal to the fluctuation in the value. 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 contract may not correlate with
the changes in the value of the underlying financial instruments. In addition,
investing in financial futures contracts involves the risk that the Fund could
lose more than the initial 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.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
37
|
Notes to financial statements
continued
(e) Forward foreign currency contracts.
The Fund may enter into a forward foreign
currency contract to hedge against foreign currency exchange rate risk on its
non-U.S. dollar denominated securities or to facilitate settlement of a foreign
currency denominated portfolio transaction. A forward foreign currency contract
is an agreement between two parties to buy and sell a currency at a set price
with delivery and settlement at a future date. The contract is marked-to-market
daily and the change in value is recorded by the Fund as an unrealized gain or
loss. When a forward foreign currency contract is closed, through either
delivery or offset by entering into another forward foreign currency contract,
the Fund 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 closed.
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.
(f) Short sales of securities.
A short sale is a transaction in which the
Fund sells a security it does not own (but has borrowed) in anticipation of a
decline in the market price of that security. To complete a short sale, the
Fund may arrange through a broker to borrow the security to be delivered to the
buyer. The proceeds received by the Fund for the short sale are retained by the
broker until the Fund replaces the borrowed security. In borrowing the security
to be delivered to the buyer, the Fund becomes obligated to replace the
security borrowed at the market price at the time of replacement, whatever that
price may be. A gain, limited to the price at which the Fund sold the security
short, or a loss, unlimited in size, will be recognized upon the termination of
a short sale.
Dividends
declared on short positions existing on the record date are recorded on the
ex-dividend date as an expense.
(g) Swap contracts.
Swaps involve the exchange by the Fund with
another party of the respective amounts payable with respect to a notional
principal amount related to one or more indices or securities. The Fund may
enter into these transactions to preserve a return or spread on a particular
investment or portion of its assets, as a duration management technique, or to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund may also use these transactions for
speculative purposes, such as to obtain the price performance of a security
without actually purchasing the security in circumstances where, for example,
the subject security is illiquid, is unavailable for direct investment or
available only on less attractive terms.
Swaps
are marked-to-market daily based upon quotations from market makers and the
change in value, if any, is recorded as an unrealized gain or loss in the
Statement of Operations. Net receipts or payments of interest are recorded as
realized gains or losses, respectively.
38
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
Swaps
have risks associated with them, including possible default by the counterparty
to the transaction, illiquidity and, where swaps are used as hedges, the risk
that the use of a swap could result in losses greater than if the swap had not
been employed.
(h) Credit default swaps.
The Fund may enter into credit default swap (CDS)
contracts for investment purposes, to manage its credit risk or to add leverage.
CDS agreements involve one party making a stream of payments to another party
in exchange for the right to receive a specified return in the event of a
default by a third party, typically corporate issuers or sovereign issuers of
an emerging country, on a specified obligation. The Fund may use a CDS to
provide a measure of protection against defaults of the issuers (i.e., to
reduce risk where a Fund has exposure to the sovereign issuer) or to take an
active long or short position with respect to the likelihood of a particular
issuers default. As a seller of protection, the Fund generally receives an
upfront payment or a fixed rate of income throughout the term of the swap
provided that there is no credit event. If the Fund is a seller of protection
and a credit event occurs, as defined under the terms of that particular swap
agreement, the Fund will pay to the buyer of the protection an amount up to the
notional value of the swap, and in certain instances take delivery of the
security. As the seller, the Fund would effectively add leverage to its
portfolio because, in addition to its total net assets, the Fund would be
subject to investment exposure on the notional amount of the swap. As a buyer
of protection, the Fund generally receives an amount up to the notional value
of the swap if a credit event occurs.
Payments
received or made at the beginning of the measurement period are reflected as
such on the Statement of Assets and Liabilities.These upfront payments are
recorded as realized gain or loss on the Statement of Operations and are
amortized over the life of the swap. A liquidation payment received or made at
the termination of the swap is recorded as realized gain or loss on the
Statement of Operations. Net periodic payments received or paid by the Fund are
recorded as realized gain or loss on the Statement of Operations.
Entering
into a CDS agreement involves, to varying degrees, elements of credit, market
and documentation risk in excess of the related amounts recognized on the
Statement of Assets and Liabilities. Such risks involve the possibility that
there will be no liquid market for these agreements, that the counterparty to
the agreement may default on its obligation to perform or disagree as to the
meaning of the contractual terms in the agreement, and that there will be
unfavorable changes in net interest rates.
(i) Securities traded on a to-be-announced basis.
The Fund may trade securities on a
to-be-announced (TBA) basis. In a TBA transaction, the Fund commits to
purchasing or selling securities which have not yet been issued by the issuer
and for which specific information is not known, such as the face amount and
maturity date and the underlying pool of investments in U.S. government agency
mortgage pass-through securities. Securities purchased on a TBA basis are not
settled until they are delivered to the Fund, normally 15 to 45 days after
purchase. Beginning
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
39
|
Notes to financial statements
continued
on
the date the Fund enters into a TBA transaction, cash, U.S. government
securities or other liquid high-grade debt obligations are segregated in an
amount equal in value to the purchase price of the TBA security. These
securities are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
(j) Mortgage dollar rolls.
The Fund may enter into dollar rolls in which
the Fund sells mortgage-backed securities for delivery in the current month,
realizing a gain or loss, and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities to settle on
a specified future date. During the roll period, the Fund forgoes interest paid
on the securities. The Fund is compensated by the interest earned on the cash
proceeds of the initial sale and by the typically lower repurchase price at the
specified future date. The Fund maintains a segregated account, the dollar
value of which is at least equal to its obligations with respect to dollar
rolls.
The
Fund executes its mortgage dollar rolls entirely in the TBA market, where the
Fund makes a forward commitment to purchase a security and, instead of
accepting delivery, the position is offset by a sale of the security with a
simultaneous agreement to repurchase at a future date.
The
risk of entering into a mortgage dollar roll is that the market value of the
securities the Fund is obligated to repurchase under the agreement may decline
below the repurchase price. In the event the buyer of securities under a
mortgage dollar roll files for bankruptcy or becomes insolvent, the Funds use
of proceeds of the dollar roll may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Funds
obligation to repurchase the securities.
(k) 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 involves 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-dollar denominated securities may also result in foreign currency losses
caused by devaluations and exchange rate fluctuations.
(l) 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.
40
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
(m) Security transactions and investment income.
Security transactions are accounted for on a
trade date basis. Interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis. Dividend income is
recorded on the ex-dividend date. Foreign dividend income is recorded on the
ex-dividend date or as soon as practicable after the Fund determines the
existence of a dividend declaration after exercising reasonable due diligence.
The cost of investments sold is determined by use of the specific
identification method. To the extent any issuer defaults 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.
(n) 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 at 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 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.
(o) 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. Pursuant to its
Managed Distribution Policy, the Fund intends to make regular monthly
distributions to shareholders at a fixed rate per common share, which rate may
be adjusted from time to time by the Funds Board of Directors. Under the
Funds Managed Distribution Policy, if, for any monthly distribution, the value
of the Funds 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
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
41
|
Notes to financial statements
continued
Board
of Directors may modify, terminate or suspend the Managed Distribution Policy
at any time, including when certain events would make part of the return of
capital taxable to shareholders. Any such modification, termination or
suspension could have an adverse effect on the market price for Funds shares.
Distributions are recorded on the ex-dividend date and are determined in
accordance with income tax regulations, which may differ from GAAP.
Effective
in 2009, the Fund will pay distributions quarterly beginning with the quarter
ended March 2009.
(p) Fees paid indirectly.
The Funds custody fees are reduced according
to a fee arrangement, which provides for a reduction based on the level of cash
deposited with the custodian by the Fund. If material, the amount is shown as a
reduction of expenses on the Statement of Operations.
(q) 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 taxable income and net
realized gains, 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. The Fund paid
$1,321,440 of Federal excise taxes attributable to calendar year 2007 in March 2008.
The fund does not anticipate being subject to an excise tax for calendar year
2008. Under the applicable foreign tax laws, a withholdinig tax may be imposed
on interest, dividends and capital gains at various rates.
Management
has analyzed the Funds tax positions taken on federal income tax returns for
all open tax years and has concluded that as of October 31, 2008, no
provision for income tax would be required in the Funds financial statements.
The Funds federal and state income and federal excise tax returns for tax
years for which the applicable statutes of limitations have not expired are
subject to examination by the Internal Revenue Service and state departments of
revenue.
(r) 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
values per share. During the current year, the following reclassifications have
been made:
|
|
|
UNDISTRIBUTED NET
INVESTMENT INCOME
|
|
ACCUMULATED NET
REALIZED LOSS
|
|
PAID-IN
CAPITAL
|
|
|
(a)
|
|
|
$606,545
|
|
|
|
$(606,545)
|
|
|
(b)
|
|
|
169,399
|
|
$(169,399)
|
|
|
|
|
(a)
|
Reclassifications
are primarily due to a non-deductible excise tax accrued by the Fund.
|
(b)
|
Reclassifications
are primarily due to foreign currency transactions treated as ordinary income
for tax purposes, differences between book and tax amortization of premium on
fixed income securities, income from mortgage backed securities treated as
capital gains for tax purposes, book/tax differences in the treatment of swap
contracts and book/tax differences in the treatment of distributions.
|
42
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
2. Investment management agreement and other transactions with
affiliates
Legg
Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager.
ClearBridge Advisors, LLC (ClearBridge), Western Asset Management Company (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 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
has delegated 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 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 it
receives from the Fund. This fee will be divided on a pro rata basis, based on assets
allocated to each subadviser, from time to time.
Western
Asset Limited provides certain advisory services to the Fund relating to
currency transactions and investments in non-U.S. dollar denominated
securities. Western Asset Limited does not receive any compensation from the
Fund. In turn, Western Asset pays Western Asset Limited a subadvisory fee of
0.30% on the assets managed by Western Asset Limited.
During
periods in which the Fund is utilizing leverage, the fees which are payable to
LMPFA as a percentage of the Funds net assets will be higher then 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 year ended October 31, 2008, the aggregate cost of purchases and
proceeds from sales of investments (excluding short-term investments) and U.S
Government & Agency Obligations were as follows:
|
|
INVESTMENTS
|
|
U.S. GOVERNMENT &
AGENCY OBLIGATIONS
|
|
Purchases
|
|
$ 958,563,892
|
|
$117,565,622
|
|
Sales
|
|
1,012,350,444
|
|
163,667,474
|
|
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
43
|
Notes to financial statements
continued
At
October 31, 2008, the aggregate gross unrealized appreciation and
depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation
|
|
$ 1,557,411
|
|
Gross unrealized depreciation
|
|
(183,525,270
|
)
|
Net unrealized depreciation
|
|
$(181,967,859
|
)
|
During
the year ended October 31, 2008, written option transactions for the Fund
were as follows:
|
|
NUMBER OF
CONTRACTS
|
|
PREMIUMS
RECEIVED
|
|
Written options, outstanding October 31,
2007
|
|
10
|
|
|
$
|
9,169
|
|
Options written
|
|
20,545
|
|
|
5,208,896
|
|
Options closed
|
|
(17,783
|
)
|
|
(4,550,187
|
)
|
Options expired
|
|
(699
|
)
|
|
(144,632
|
)
|
Written options, outstanding
October 31, 2008
|
|
2,073
|
|
|
$
|
523,246
|
|
At
October 31, 2008, the Fund had the following open forward foreign currency
contracts:
FOREIGN CURRENCY
|
|
LOCAL
CURRENCY
|
|
MARKET
VALUE
|
|
SETTLEMENT
DATE
|
|
UNREALIZED
GAIN(LOSS)
|
|
Contracts to buy:
|
|
|
|
|
|
|
|
|
|
British Pound
|
|
808,000
|
|
$1,304,799
|
|
11/5/08
|
|
$
|
(6,989
|
)
|
Euro
|
|
1,320,254
|
|
1,679,954
|
|
11/5/08
|
|
(392,673
|
)
|
Euro
|
|
2,830,000
|
|
3,601,027
|
|
11/5/08
|
|
(41,749
|
)
|
Japanese Yen
|
|
72,660,000
|
|
739,493
|
|
11/5/08
|
|
64,214
|
|
Euro
|
|
5,320,192
|
|
6,761,694
|
|
12/4/08
|
|
(1,073,352
|
)
|
Swedish Krona
|
|
49,111,284
|
|
6,333,320
|
|
12/4/08
|
|
(1,223,425
|
)
|
Swiss Franc
|
|
4,428,000
|
|
3,814,348
|
|
12/4/08
|
|
(302,309
|
)
|
Euro
|
|
1,320,254
|
|
1,676,272
|
|
2/3/09
|
|
(76,075
|
)
|
Japanese Yen
|
|
72,660,000
|
|
742,614
|
|
2/3/09
|
|
1,186
|
|
|
|
|
|
|
|
|
|
(3,051,172
|
)
|
Contracts to sell:
|
|
|
|
|
|
|
|
|
|
British Pound
|
|
808,000
|
|
$1,304,799
|
|
11/5/08
|
|
$
|
285,345
|
|
Euro
|
|
2,830,000
|
|
3,601,027
|
|
11/5/08
|
|
796,793
|
|
Euro
|
|
1,320,254
|
|
1,679,954
|
|
11/5/08
|
|
75,984
|
|
Japanese Yen
|
|
72,660,000
|
|
739,493
|
|
11/5/08
|
|
(4,068
|
)
|
Euro
|
|
5,320,192
|
|
6,761,694
|
|
12/4/08
|
|
838,306
|
|
Swedish Krona
|
|
49,111,284
|
|
6,333,320
|
|
12/4/08
|
|
1,066,680
|
|
Swiss Franc
|
|
4,428,000
|
|
3,814,348
|
|
12/4/08
|
|
185,652
|
|
British Pound
|
|
808,000
|
|
1,299,030
|
|
2/3/09
|
|
7,506
|
|
Euro
|
|
2,830,000
|
|
3,593,134
|
|
2/3/09
|
|
43,416
|
|
Japanese Yen
|
|
72,350,000
|
|
739,446
|
|
2/3/09
|
|
24,586
|
|
|
|
|
|
|
|
|
|
3,320,200
|
|
Net unrealized gain on open forward foreign
currency contracts
|
|
|
|
|
|
|
|
$
|
269,028
|
|
44
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
At
October 31, 2008, the Fund had the following open futures contracts:
|
|
NUMBER OF
CONTRACTS
|
|
EXPIRATION
DATE
|
|
BASIS
VALUE
|
|
MARKET
VALUE
|
|
UNREALIZED
GAIN(LOSS)
|
|
Contracts to Buy:
|
|
|
|
|
|
|
|
|
|
|
|
90 Day Eurodollar
|
|
139
|
|
3/09
|
|
$33,471,895
|
|
$33,978,550
|
|
$ 506,655
|
|
90 Day Eurodollar
|
|
14
|
|
6/09
|
|
3,420,938
|
|
3,415,300
|
|
(5,638
|
)
|
90 Day Eurodollar
|
|
46
|
|
9/09
|
|
11,181,557
|
|
11,199,275
|
|
17,718
|
|
British Pound 90 Day
|
|
10
|
|
3/09
|
|
1,902,902
|
|
1,952,374
|
|
49,472
|
|
Germany
Federal Republic 10-Year Bonds
|
|
14
|
|
12/08
|
|
2,051,638
|
|
2,065,292
|
|
13,654
|
|
U.S. Treasury 2-Year Notes
|
|
62
|
|
12/08
|
|
13,149,341
|
|
13,319,343
|
|
170,002
|
|
U.S. Treasury 5-Year Notes
|
|
125
|
|
12/08
|
|
13,996,268
|
|
14,157,227
|
|
160,959
|
|
|
|
|
|
|
|
|
|
|
|
$ 912,822
|
|
Contracts to Sell:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury 10-Year Notes
|
|
87
|
|
12/08
|
|
$10,183,704
|
|
$ 9,837,797
|
|
345,907
|
|
Net unrealized gain on open futures contracts
|
|
|
|
|
|
|
|
$1,258,729
|
|
At
October 31, 2008, the Fund had the following open swap contracts:
SWAP COUNTERPARTY
(REFERENCE ENTITY)
|
|
NOTIONAL
AMOUNT
|
|
TERMINATION
DATE
|
|
PERIODIC
PAYMENTS
MADE BY
THE FUND
|
|
PERIODIC
PAYMENTS
RECEIVED BY
THE FUND
|
|
UNREALIZED
APPRECIATION/
(DEPRECIATION)
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
Barclays Capital Inc.
|
|
$1,079,000
|
|
5/31/12
|
|
3-Month LIBOR
|
|
4.400%
semi-annually
|
|
$
|
34,484
|
|
|
Barclays Capital Inc.
|
|
3,100,000
|
|
9/27/12
|
|
3-Month LIBOR
|
|
4.520%
semi-annually
|
|
|
8,618
|
|
|
Barclays Capital Inc.
|
|
740,000
|
|
9/27/20
|
|
4.910%
semi-annually
|
|
3-Month LIBOR
|
|
|
1,028
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,130
|
|
|
Credit Default Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Barclays
Capital Inc.
(AMBAC Assurance Corp.)
|
|
30,000
|
|
12/20/12
|
|
0.360%
quarterly
|
|
(a)
|
|
|
8,665
|
|
|
Barclays
Capital Inc
.
(MBIA Insurance Corp.)
|
|
40,000
|
|
12/20/12
|
|
(b)
|
|
0.305%
quarterly
|
|
|
(13,209
|
)
|
|
Barclays
Capital Inc.
(AMBAC Assurance Corp.)
|
|
50,000
|
|
12/20/12
|
|
0.360%
quarterly
|
|
(a)
|
|
|
14,441
|
|
|
Barclays
Capital Inc.
(MBIA Insurance Corp.)
|
|
60,000
|
|
12/20/12
|
|
(b)
|
|
0.310%
quarterly
|
|
|
(19,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,844
|
)
|
|
Net
unrealized appreciation on open swap contracts
|
|
|
|
|
|
$
|
34,286
|
|
|
Percentage shown is an annual percentage rate.
(a)
As a buyer of protection, the Fund generally receives an amount up to
the notional value of the swap if a credit event occurs.
(b)
As a seller of protection, the Fund will pay an amount up to the
notional value of the swap, and in certain instances take delivery of the
security if a credit event occurs.
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
45
|
Notes to financial statements
continued
4. Loan
At
October 31, 2008, the Fund had a $150,000,000 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 October 31,
2008, the Fund had a $145,000,000 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
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 0.12%.
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
year ended October 31, 2008, the Fund incurred interest expense on this
loan in the amount of $6,657,094 and commitment fees in the amount of $481,837.
5. Distributions subsequent to October 31, 2008
On
August 14, 2008, the Board of Directors of the Fund declared two
distributions in the amount of $0.1400 per share payable on November 28,
2008 and December 26, 2008 to shareholders of record on November 21,
2008 and December 19, 2008, 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 Program). 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. As of October 31, 2008, no shares
of common stock have been repurchased under this program.
7. Income tax information and distributions to shareholders
The
tax character of distributions paid during the fiscal years ended October 31,
were as follows:
|
|
2008
|
|
2007
|
|
Distributions Paid From:
|
|
|
|
|
|
Ordinary Income
|
|
$87,431,154
|
|
$
|
5,876,530
|
|
Net Long-term Capital Gains
|
|
8,753,625
|
|
40,567,834
|
|
Total distributions paid
|
|
$96,184,779
|
|
$
|
46,444,364
|
|
46
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
As
of October 31, 2008, the components of accumulated earnings on a tax basis
were as follows:
Undistributed ordinary income net
|
|
$
|
10,127,692
|
|
Capital loss carryforward*
|
|
(52,209,925
|
)
|
Other book/tax temporary differences
(a)
|
|
(1,654,281
|
)
|
Unrealized appreciation/(depreciation)
(b)
|
|
(180,418,789
|
)
|
Total accumulated earnings / (losses) net
|
|
$
|
(224,155,303
|
)
|
* As
of October 31, 2008, the Fund had the following net capital loss
carryforward remaining:
Year of Expiration
|
|
Amount
|
|
10/31/2016
|
|
$(52,209,925
|
)
|
This
amount will be available to offset any future taxable capital gains.
(a)
Other book/tax temporary differences are
attributable primarily to the realization for tax purposes of unrealized gains
on certain futures contracts and foreign currency contracts, differences
between book/tax accrual of interest income on securities in default and
book/tax differences in the timing of the deductibility of various expenses.
(b)
The difference between book-basis and
tax-basis unrealized appreciation / (depreciation) is attributable primarily to
the tax deferral of losses on wash sales and the difference between book and
tax amortization methods for premiums on fixed income securities and other
book/tax basis adjustments.
8. Recent accounting pronouncements
On
September 20, 2006, the Financial Accounting Standards Board (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.
Management has determined that there is no material impact to the Funds
valuation policies as a result of adopting FAS 157. The Fund will implement the
disclosure requirements beginning with its December 31, 2008 annual
report.
* * *
In
March 2008, FASB issued the Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and
Hedging Activities
(FAS 161). FAS 161 is effective for fiscal
years and interim periods beginning after November 15, 2008. FAS 161
requires enhanced disclosures about the Funds derivative and hedging
activities, including how such activities are accounted for and their effect on
the Funds financial position, performance and cash flows. Management is
currently evaluating the impact the adoption of FAS 161 will have on the Funds
financial statements and related disclosures.
* * *
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
47
|
Notes to financial statements
continued
During
September 2008, FASB Staff Position FAS 133-1 and FASB Interpretation
45-4,
Disclosures about Credit Derivatives
and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161
(Amendment) was issued and is effective for
annual and interim reporting periods ending after November 15, 2008. The
Amendment requires enhanced disclosures regarding credit derivatives and hybrid
financial instruments containing embedded credit derivatives. Management is
currently evaluating the impact the adoption of the Amendment will have on the
Funds financial statement disclosures.
9. Subsequent event
Effective
November 1, 2008, the fiscal year end for LMP Capital and Income Fund Inc.
will be changed from October 31st to December 31st. This change will
result in a stub period annual report being produced for the two-month period
ending December 31, 2008.
48
|
|
LMP
Capital and Income Fund Inc. 2008 Annual Report
|
Report of independent registered public
accounting firm
The Board of Directors and Shareholders
LMP Capital and Income Fund Inc.:
We
have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of LMP Capital and Income Fund Inc. as of October 31,
2008, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year
period then ended, the statement of cash flows for the year then ended, and the
financial highlights for each of the years in the four-year period then ended.
These financial statements and financial highlights are the responsibility of
the Funds management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the period from February 24, 2004 (commencement of
operations) to October 31, 2004 were audited by other independent
registered public accountants whose report thereon, dated December 21,
2004, expressed an unqualified opinion on those financial highlights.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of October 31, 2008, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of LMP
Capital and Income Fund Inc. as of October 31, 2008, and the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, its cash flows for the year
then ended, and the financial highlights for each of the years in the four-year
period then ended, in conformity with U.S. generally accepted accounting
principles.
New
York, New York
December 22,
2008
LMP Capital and Income Fund Inc. 2008 Annual Report
|
|
49
|
Additional information (unaudited)
Information about Directors and Officers
The
business and affairs of LMP Capital and Income Fund Inc. (Fund) are managed
under the direction of the Board of Directors. Information pertaining to the
Directors and Officers of the Fund is set forth below.
NON-INTERESTED DIRECTORS:
|
CAROL
L. COLMAN
c/o Chairman of the Fund, Legg Mason & Co., LLC (Legg Mason), 620
Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1946
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s)
during past five years
|
|
President,
Colman Consulting Co.
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
None
|
DANIEL
P. CRONIN
c/o Chairman of the Fund, Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1946
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s)
during past five years
|
|
Retired;
Formerly, Associate General Counsel, Pfizer Inc. (prior to and including
2004)
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
None
|
PAOLO
M. CUCCHI
c/o Chairman of the Fund, Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1941
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class I
|
Term of office
1
and length of time served
|
|
Since
2007
|
Principal occupation(s)
during past five years
|
|
Professor
of Italian and French languages, Drew University (since 1984); Formerly, Vice
President and Dean of College of Liberal Arts at Drew University (from 1984
to 2008)
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
None
|
50
|
|
LMP
Capital and Income Fund Inc.
|
LESLIE
H. GELB
c/o Chairman of the Fund, Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1937
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s)
during past five years
|
|
President
Emeritus and Senior Board Fellow, The Council on Foreign Relations (since
2003); Formerly, President, The Council on Foreign Relations; Formerly,
Columnist, Deputy Editorial Page Editor and Editor, Op-Ed Page, The New
York Times
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
Director
of two registered investment companies advised by Blackstone Asia Advisors
LLC (Blackstone Advisors): India Fund Inc. and Asia Tigers Fund, Inc.
|
WILLIAM
R. HUTCHINSON
c/o Chairman of the Fund, Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1942
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class II
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s) during
past five years
|
|
President,
W.R. Hutchinson & Associates Inc. (since 2001)
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
Director
of Associated Banc-Corp.
|
RIORDAN
ROETT
c/o Chairman of the Fund, Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1938
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class III
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s) during
past five years
|
|
The
Sarita and Don Johnston Professor of Political Science and Director, of Western
Hemisphere Studies, Paul H. Nitze School of Avanced International Studies,
The Johns Hopkins University (since 1993)
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
None
|
LMP Capital and Income Fund Inc.
|
|
51
|
Additional information (unaudited)
continued
Information about Directors and Officers
JESWALD
W. SALACUSE
c/o Chairman of the Fund, Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1938
|
Position(s) held with
Fund
1
|
|
Director
and Member of the Nominating and Audit Committees, Class III
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s) during
past five years
|
|
Henry
J. Braker Professor of Commercial Law, The Fletcher School of Law and
Diplomacy, Tufts University (since 1986); President, Arbitration Tribunal,
World Bank/ICSID (since 2004)
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
23
|
Other board memberships
held by Director
|
|
Director
of two registered investment companies advised by Blackstone Advisors
|
INTERESTED DIRECTORS:
|
R.
JAY GERKEN, CFA
2
Legg Mason, 620 Eighth
Avenue, New York, NY 10018
|
Birth year
|
|
1951
|
Position(s) held with
Fund
1
|
|
Director,
Chairman, President and Chief Executive Officer, Class II
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s) during
past five years
|
|
Managing
Director, Legg Mason; Chairman of the Board and Trustee/Director of 163 funds
associated with Legg Mason Partners Fund Advisor, LLC. (LMPFA) and its
affiliates; President of LMPFA (since 2006); Chairman, President and Chief
Executive Officer of certain mutual funds associated with Legg
Mason & Co. or its affiliates; Formerly, Chairman, Smith Barney Fund
Management LLC (SBFM) and Citi Fund Management, Inc. (CFM) (2002 to
2005); Formerly, Chairman, President and Chief Executive Officer, Travelers
Investment Advisers Inc. (2002 to 2005)
|
Number of portfolios in
fund complex overseen by director (including the Fund)
|
|
148
|
Other board memberships
held by Director
|
|
None
|
OFFICERS:
|
KAPREL
OZSOLAK
Legg Mason, 55 Water Street, New York, NY 10041
|
Birth year
|
|
1965
|
Position(s) held with
Fund
1
|
|
Chief
Financial Officer and Treasurer
|
Term of office
1
and length of time served
|
|
Since
2007
|
Principal occupation(s) during
past five years
|
|
Director
of Legg Mason; Chief Financial Officer and Treasurer of certain funds
associated with Legg Mason; Formerly, Controller of certain funds associated
with certain predecessor firms of Legg Mason (from 2002 to 2004)
|
52
|
|
LMP
Capital and Income Fund Inc.
|
TED
P. BECKER
Legg Mason, 620 Eighth Avenue, New York, NY 10018
|
Birth year
|
|
1951
|
Position(s) held with
Fund
1
|
|
Chief
Compliance Officer
|
Term of office
1
and length of time served
|
|
Since
2006
|
Principal occupation(s) during
past five years
|
|
Director
of Global Compliance at Legg Mason (since 2006); Chief Compliance Officer of
LMPFA (since 2006); Managing Director of Compliance at Legg Mason, (since
2005); Chief Compliance Officer with certain mutual funds associated with
Legg Mason, LMPFA and certain affiliates (since 2006); Formerly, Managing
Director of Compliance at Citigroup Asset Management (CAM) or its
predecessors (from 2002 to 2005)
|
ROBERT
I. FRENKEL
Legg Mason, 100 First Stamford Place, Stamford, CT 06902
|
Birth year
|
|
1954
|
Position(s) held with
Fund
1
|
|
Secretary
and Chief Legal Officer
|
Term of office
1
and length of time served
|
|
Since
2003
|
Principal occupation(s) during
past five years
|
|
Managing
Director and General Counsel of Global Mutual Funds for Legg Mason and its
predecessor (since 1994); Secretary and Chief Legal Officer of mutual funds
associated with Legg Mason (since 2003); Formerly, Secretary of CFM (from
2001 to 2004)
|
THOMAS
C. MANDIA
Legg Mason, 100 First Stamford Place, Stamford, CT 06902
|
Birth year
|
|
1962
|
Position(s) held with
Fund
1
|
|
Assistant
Secretary
|
Term of office
1
and length of time served
|
|
Since
2006
|
Principal occupation(s)
during past five years
|
|
Managing
Director and Deputy General Counsel of Legg Mason & Co. (since
2005); Managing Director and Deputy General Counsel for CAM (from 1992 to
2005); Assistant Secretary of certain mutual funds associated with Legg Mason
|
ALBERT
LASKAJ
Legg Mason, 55 Water Street, New York, NY 10041
|
Birth year
|
|
1977
|
Position(s) held with
Fund
1
|
|
Controller
|
Term of office
1
and length of time served
|
|
Since
2007
|
Principal
occupation(s) during past five years
|
|
Vice
President of Legg Mason (since 2008); Controller of certain funds associated
with Legg Mason (Since 2007); Formerly, Assistant Controller of certain
mutual funds associated with Legg Mason (from 2005 to 2007); Formerly,
Accounting Manager of certain mutual funds associated with certain
predecessor firms of Legg Mason (from 2003 to 2005)
|
LMP Capital and Income Fund Inc.
|
|
53
|
Additional information (unaudited)
continued
Information about Directors and Officers
STEVEN
FRANK
Legg Mason, 55 Water Street, New York, NY 10041
|
Birth year
|
|
1967
|
Position(s) held with
Fund
1
|
|
Controller
|
Term of office
1
and length of time served
|
|
Since
2007
|
Principal occupation(s)
during past five years
|
|
Vice
President of Legg Mason (since 2002); Controller of certain funds associated
with Legg Mason or its predecessors (since 2005); Formerly, Assistant
Controller of certain mutual funds associated with Legg Mason predecessors
(from 2001 to 2005)
|
1
The Funds Board of Directors is divided into
three classes: Class I, Class II and Class III. The terms of
office of the Class I, II and III Directors expire at the Annual
Meetings of Stockholders in the year 2009, year 2010 and year 2011,
respectively, or thereafter in each case when their respective successors are
duly elected and qualified. The Funds executive officers are chosen each year
at the first meeting of the Funds Board of Directors following the Annual
Meeting of Stockholders, to hold office until the meeting of the Board
following the next Annual Meeting of Stockholders and until their successors
are duly elected and qualified.
2
Mr. Gerken is an interested person of
the Fund as defined in the 1940 Act because Mr. Gerken is an officer of
LMPFA and certain of its affiliates.
54
|
|
LMP
Capital and Income Fund Inc.
|
Annual chief executive officer and chief
financial officer certifications (unaudited)
The
Funds Chief Executive Officer has submitted to the NYSE the required annual
certification and the Fund also has included the Certifications of the Funds
Chief Executive Officer and Chief Financial Officer required by Section 302
of the Sarbanes-Oxley Act in the Funds Form N-CSR filed with the SEC for
the period of this report.
.
LMP Capital and Income Fund Inc.
|
|
55
|
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
56
|
|
LMP
Capital and Income Fund Inc.
|
withdrawal
will be effective as soon as practicable after the Plan Agents investment of
the most recently declared dividend or distribution on the 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.
LMP Capital and Income Fund Inc.
|
|
57
|
Important tax information
(unaudited)
The
following information is provided with respect to the distributions paid during
the taxable year ended October 31, 2008:
Record Date:
|
|
11/23/2007
|
|
12/21/2007
|
|
1/18/2008
|
|
2/22/2008
|
|
3/20/2008
|
|
4/18/2008
|
|
Payable Date:
|
|
11/30/2007
|
|
12/28/2007
|
|
1/25/2008
|
|
2/29/2008
|
|
3/28/2008
|
|
4/25/2008
|
|
Ordinary Income:
Qualified Dividend Income for Individuals
|
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
Dividends Qualifying for the Dividends Received Deduction for Corporations
|
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
Interest from Federal Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Capital Gain Dividend
|
|
$0.012800
|
|
$0.152700
|
|
$0.012800
|
|
$0.012800
|
|
$0.012800
|
|
$0.012800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Date:
|
|
5/23/2008
|
|
6/20/2008
|
|
7/18/2008
|
|
8/22/2008
|
|
9/19/2008
|
|
10/24/2008
|
|
Payable Date:
|
|
5/30/2008
|
|
6/27/2008
|
|
7/25/2008
|
|
8/29/2008
|
|
9/26/2008
|
|
10/31/2008
|
|
Ordinary Income:
Qualified Dividend Income for Individuals
|
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
9.36
|
%
|
16.02
|
%
|
Dividends Qualifying for the Dividends Received Deduction for
Corporations
|
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
8.34
|
%
|
14.91
|
%
|
Interest from Federal Obligations
|
|
|
|
|
|
|
|
|
|
|
|
0.57
|
%
|
Long-Term Capital Gain Dividend
|
|
$0.012800
|
|
$0.012800
|
|
$0.012800
|
|
$0.012800
|
|
$0.012800
|
|
$0.011400
|
|
The
law varies in each state as to whether and what percentage of dividend income
attributable to Federal obligations is exempt from state income tax. We
recommend that you consult with your tax adviser to determine if any portion of
the dividends your received is exempt from state income taxes.
Please
retain this information for your records.
58
|
|
LMP Capital and Income
Fund Inc.
|
LMP Capital and Income Fund Inc.
Directors
|
LMP
Capital and Income Fund Inc.
|
Carol
L. Colman
|
55
Water Street
|
Daniel
P. Cronin
|
New
York, New York 10041
|
Paolo
M. Cucchi
|
|
Leslie
H. Gelb
|
Investment
manager
|
R.
Jay Gerken, CFA
|
Legg
Mason Partners Fund Advisor, LLC
|
Chairman
|
|
William
R. Hutchinson
|
Subadvisers
|
Riordan
Roett
|
ClearBridge
Advisors, LLC
|
Jeswald
W. Salacuse
|
|
|
Western
Asset Management Company
|
Officers
|
|
R.
Jay Gerken, CFA
|
Western
Asset Management Company Limited
|
President and Chief Executive Officer
|
|
|
Custodian
|
Kaprel
Ozsolak
|
State Street Bank and Trust
Company
|
Chief Financial Officer and Treasurer
|
225
Franklin Street
|
|
Boston,
Massachusetts 02110
|
Ted
P. Becker
|
|
Chief Compliance Officer
|
Transfer
agent
|
|
American Stock
Transfer & Trust Company
|
Robert
I. Frenkel
|
59
Maiden Lane
|
Secretary and Chief Legal Officer
|
New
York, New York 10038
|
|
|
Thomas
C. Mandia
|
Independent
registered public accounting firm
|
Assistant Secretary
|
KPMG
LLP
|
|
345
Park Avenue
|
Albert
Laskaj
|
New
York, New York 10154
|
Controller
|
|
|
Legal
counsel
|
Steven
Frank
|
Simpson
Thacher & Bartlett LLP
|
Controller
|
425
Lexington Avenue
|
|
New
York, New York 10017
|
|
|
|
New
York Stock Exchange Symbol
|
|
SCD
|
|
|
|
LMP Capital and Income Fund
Inc.
|
|
LMP
CAPITAL AND INCOME FUND INC.
|
55
Water Street
|
New
York, New York 10041
|
|
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.
|
|
The
Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission (SEC) for the first and third quarters of each
fiscal year on Form N-Q. The 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 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 are available (1) without
charge, upon request, by calling 1-800-451-2010. (2) on the Funds
website at www.leggmason.com/cef and (3) on the SECs website at
www.sec.gov.
|
|
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.
|
American
Stock
Transfer & Trust Company
59 Maiden Lane
New York, New York 10038
FD03548 12/08 SR08-721
ITEM
2.
CODE OF
ETHICS.
The
registrant has adopted a code of ethics that applies to the registrants
principal executive officer, principal financial officer, principal accounting
officer or controller.
ITEM
3.
AUDIT
COMMITTEE FINANCIAL EXPERT.
The Board of
Directors of the registrant has determined that William R. Hutchinson, the
chairman of the Boards Audit Committee, possesses the attributes identified in
Instruction 2(b) of Item 3 to Form N-CSR to qualify as an audit
committee financial expert, and has designated Mr. Hutchinson as the
audit committee financial expert. Mr. Hutchinson
is an independent Director pursuant to paragraph (a)(2) of Item 3 to Form N-CSR.
ITEM 4.
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
a)
Audit Fees
. The
aggregate fees billed in the last two fiscal years ending October 31, 2007
and October 31, 2008 (the Reporting Periods) for professional services
rendered by the Registrants principal accountant (the Auditor) for the audit
of the Registrants annual financial statements, or services that are normally
provided by the Auditor in connection with the statutory and regulatory filings
or engagements for the Reporting Periods, were $56,500 in 2007 and $59,000 in
2008.
b)
Audit-Related Fees
.
The aggregate fees billed in the Reporting Period for assurance and related
services by the Auditor that are reasonably related to the performance of the
Registrants financial statements were $13,500 in 2007 and $0 in 2008. These
services consisted of procedures performed in connection with procedures
performed in connection with the agreed upon procedures for the calculations
pursuant to the revolving credit and security agreement as of January 25,
2007 for the LMP Capital and Income Fund Inc.
In addition, there were no
Audit-Related Fees billed in the Reporting Period for assurance and related
services by the Auditor to the Registrants investment adviser (not including
any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any entity
controlling, controlled by or under common control with the investment adviser
that provides ongoing services to the
LMP Capital and Income Fund Inc.
(service
affiliates), that were reasonably related to the performance of the annual
audit of the service affiliates. Accordingly, there were no such fees that
required pre-approval by the Audit Committee for the Reporting Periods (prior
to August 6, 2003 services provided by the Auditor were not required to be
pre-approved).
(c)
Tax Fees
. The aggregate fees billed in
the Reporting Periods for professional services rendered by the Auditor for tax
compliance, tax advice and tax planning (Tax Services) were $5,150 in 2007
and $2,650 in 2008. These services consisted of (i) review or preparation
of U.S. federal, state, local and excise tax returns; (ii) U.S. federal,
state and local tax planning, advice and assistance regarding statutory,
regulatory or administrative developments, and (iii) tax advice regarding
tax qualification matters and/or treatment of various financial instruments
held or proposed to be acquired or held.
There were no fees billed for tax services by the
Auditors to service affiliates during the Reporting Periods that required
pre-approval by the Audit Committee.
d)
All Other Fees
.
There were no other fees billed in the Reporting Periods for products and
services provided by the Auditor, other than the services reported in
paragraphs (a) through (c) of this Item 4 for the LMP Capital and
Income Fund Inc..
All Other Fees. There
were no other non-audit services rendered by the Auditor to Legg Mason Partners
Fund Advisors, LLC (LMPFA), and any entity controlling, controlled by or
under common control with LMPFA that provided ongoing services to LMP Capital
and Income Fund Inc. requiring pre-approval by the Audit Committee in the
Reporting Period.
(e) Audit Committees preapproval policies and
procedures described in paragraph (c) (7) of
Rule 2-01 of Regulation S-X.
(1) The Charter for the Audit Committee (the Committee)
of the Board of each registered investment company the Fund) advised by LMPFA or one of their
affiliates (each, an Adviser) requires that the Committee shall approve (a) all
audit and permissible non-audit services to be provided to the Fund and (b) all
permissible non-audit services to be provided by the Funds independent
auditors to the Adviser and any Covered Service Providers if the engagement
relates directly to the operations and financial reporting of the Fund. The Committee may implement policies and
procedures by which such services are approved other than by the full
Committee.
The Committee
shall not approve non-audit services that the Committee believes may impair the
independence of the auditors. As of the
date of the approval of this Audit Committee Charter, permissible non-audit
services include any professional services (including tax services), that are
not prohibited services as described below, provided to the Fund by the
independent auditors, other than those provided to the Fund in connection with
an audit or a review of the financial statements of the Fund. Permissible non-audit services may not
include: (i) bookkeeping or other services related to the accounting
records or financial statements of the Fund; (ii) financial information
systems design and implementation; (iii) appraisal or valuation services,
fairness opinions or contribution-in-kind reports; (iv) actuarial
services; (v) internal audit outsourcing services; (vi) management
functions or human resources; (vii) broker or dealer, investment adviser
or investment banking services; (viii) legal services and expert services
unrelated to the audit; and (ix) any other service the Public Company
Accounting Oversight Board determines, by regulation, is impermissible.
Pre-approval by
the Committee of any permissible non-audit services is not required so long as:
(i) the aggregate amount of all such permissible non-audit services
provided to the Fund, the Adviser and any service providers controlling,
controlled by or under common control with the Adviser that provide ongoing
services to the Fund (Covered Service Providers) constitutes not more than 5%
of the total amount of revenues paid to the independent auditors during the
fiscal year in which the permissible non-audit services are provided to (a) the
Fund, (b) the Adviser and (c) any entity controlling, controlled by
or under common control with the Adviser that provides ongoing services to the
Fund during the fiscal year in which the services are provided that would have
to be approved by the Committee; (ii) the permissible non-audit services
were not recognized by the Fund at the time of the engagement to be non-audit
services; and (iii) such services are promptly brought to the attention of
the Committee and approved by the Committee (or its delegate(s)) prior to the
completion of the audit.
(2) For the
LMP Capital and Income Fund Inc., the percentage of fees that were approved by
the audit committee, with respect to: Audit-Related Fees were 100% and 0% for
2007 and 2008; Tax Fees were 100% and 0% for 2007 and 2008; and Other Fees were
100% and 0% for 2007 and 2008.
(f) N/A
(g) Non-audit fees billed by the Auditor for
services rendered to LMP Capital and Income Fund Inc., LMPFA and any entity
controlling, controlled by, or under common control with LMPFA that provides
ongoing services to LMP Capital and Income Fund Inc. during the reporting
period were $0 in 2008.
(h) Yes. LMP Capital and Income Fund Inc.s Audit Committee has considered whether
the provision of non-audit services that were rendered to Service Affiliates,
which were not pre-approved (not requiring pre-approval), is compatible with
maintaining the Accountants independence.
All services provided by the Auditor to the LMP Capital and Income
Fund Inc. or to Service Affiliates,
which were required to be pre-approved, were pre-approved as required.
ITEM
5.
AUDIT
COMMITTEE OF LISTED REGISTRANTS.
a)
The independent board
members are acting as the registrants audit committee as specified in Section 3(a)(58)(B) of
the Exchange Act.
The Audit Committee consists of the following
Board members:
William R. Hutchinson
Paolo M. Cucchi
Daniel P. Cronin
Carol L. Colman
Leslie H. Gelb
Dr. Riordan
Roett
Jeswald W.
Salacuse
b) Not applicable
ITEM
6.
SCHEDULE OF
INVESTMENTS.
Included herein
under Item 1.
ITEM 7.
DISCLOSURE
OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT
COMPANIES.
Proxy Voting
Guidelines and Procedures
Legg Mason Partners Fund
Advisor, LLC (LMPFA) delegates the responsibility for voting proxies for the
fund to the subadviser through its contracts with the subadviser. The
subadviser will use its own proxy voting policies and procedures to vote
proxies. Accordingly, LMPFA does not expect to have proxy-voting responsibility
for the fund. Should LMPFA become responsible for voting proxies for any
reason, such as the inability of the subadviser to provide investment advisory
services, LMPFA shall utilize the proxy voting guidelines established by the
most recent subadviser to vote proxies until a new subadviser is retained.
The subadvisers Proxy
Voting Policies and Procedures govern in determining how proxies relating to
the funds portfolio securities are voted and are provided below. Information regarding how each fund voted
proxies (if any) relating to portfolio securities during the most recent
12-month period ended June 30 is available without charge (1) by
calling 888-425-6432, (2) on the funds website at
http://www.leggmason.com/individualinvestors and (3) on the SECs website at
http://www.sec.gov.
PROXY VOTING GUIDELINES &
PROCEDURES SUMMARY
Concerning ClearBridge Advisors
Proxy Voting Policies and Procedures
ClearBridge is subject to
the Proxy Voting Policies and Procedures that it has adopted to seek to ensure
that
it votes proxies
relating to equity securities in the best interest of client accounts. The
following is a brief overview of
the policies.
ClearBridge votes proxies
for each client account with respect to which it has been authorized or is
required
by law to vote
proxies. In voting proxies, ClearBridge is guided by general fiduciary
principles and seeks to act prudently and solely in the best interest of the
beneficial owners of the accounts it manages. ClearBridge attempts to consider
all factors that could affect the value of the investment and will vote proxies
in the manner that it believes will be consistent with efforts to maximize
shareholder values. ClearBridge may utilize an external service provider to
provide it with information and/or a recommendation with regard to proxy votes.
However, such recommendations do not relieve ClearBridge of its responsibility
for the proxy vote.
In the case of a proxy issue
for which there is a stated position in the policies, ClearBridge generally
votes
in accordance with
such stated position. In the case of a proxy issue for which there is a list of
factors set forth in the policies that ClearBridge considers in voting on such
issue, ClearBridge considers those factors and votes on a case-by-case basis in
accordance with the general principles set forth above. In the case of a proxy
issue for which there is no stated position or list of factors that ClearBridge
considers in voting on such issue, ClearBridge votes on a case-by-case basis in
accordance with the general principles set forth above. Issues for which there
is a stated position set forth in the policies or for which there is a list of
factors set forth in the policies that ClearBridge considers in voting on such
issues fall into a variety of categories, including election of directors,
ratification of auditors, proxy and tender offer defenses, capital structure
issues, executive and director compensation, mergers and corporate
restructuring, and social and environmental issues. The stated position on an
issue set forth in the policies can always be superseded, subject to the duty
to act solely in the best interest of the beneficial owners of accounts, by the
investment management professionals responsible for the account whose shares
are being voted. There may be occasions when different investment teams vote
differently on the same issue. An investment team (e.g., ClearBridge SAI
investment team) may adopt proxy voting policies that supplement ClearBridges
Proxy Voting Policies and Procedures. In addition, in the case of Taft-Hartley
clients, ClearBridge will comply with a client direction to vote proxies in
accordance with Institutional Shareholder Services (ISS) PVS Voting
guidelines, which ISS represents to be fully consistent with AFL-CIO
guidelines.
In furtherance of
ClearBridges goal to vote proxies in the best interest of clients, ClearBridge
follows
procedures
designed to identify and address material conflicts that may arise between
ClearBridges interests and those of its clients before voting proxies on
behalf of such clients. To seek to identify conflicts of interest, ClearBridge
periodically notifies ClearBridge employees in writing that they are under an
obligation (i) to be aware of the potential for conflicts of interest on
the part of ClearBridge with respect to voting proxies on behalf of client
accounts both as a result of their personal relationships and due to special
circumstances that may arise during the conduct of ClearBridges business, and (ii) to
bring conflicts of interest of which they become aware to the attention of
ClearBridges compliance personnel. ClearBridge also maintains and considers a
list of significant ClearBridge relationships that could present a conflict of
interest for ClearBridge in voting proxies.ClearBridge is also sensitive to the
fact that a significant, publicized relationship between an issuer and a
non-ClearBridge Legg Mason affiliate might appear to the public to influence
the manner in which ClearBridge decides to vote a proxy with respect to such
issuer.
Absent special circumstances
or a significant, publicized non-ClearBridge Legg Mason affiliate relationship
that ClearBridge for
prudential reasons treats as a potential conflict of interest because such
relationship might appear to the public to influence the manner in which
ClearBridge decides to vote a proxy, ClearBridge generally takes the position
that non-ClearBridge relationships between a Legg Mason affiliate and an issuer
do not present a conflict of interest for ClearBridge in voting proxies with
respect to such issuer. Such position is based on the fact that ClearBridge is
operated as an independent business unit from other Legg Mason business units
as well as on the existence of information barriers between ClearBridge and
certain other Legg Mason business units.
ClearBridge maintains a
Proxy Committee to review and address conflicts of interest brought to its
attention
by ClearBridge
compliance personnel. A proxy issue that will be voted in accordance with a
stated ClearBridge position on such issue or in accordance with the
recommendation of an independent third party is not brought to the attention of
the Proxy Committee for a conflict of interest review because ClearBridges
position is that to the extent a conflict of interest issue exists, it is
resolved by voting in accordance with a pre-determined policy or in accordance
with the recommendation of an independent third party. With respect to a
conflict of interest brought to its attention, the Proxy Committee first
determines whether such conflict of interest is material. A conflict of
interest is considered material to the extent that it is determined that such
conflict is likely to influence, or appear to influence, ClearBridges
decision-making in voting proxies. If it is determined by the Proxy Committee
that a conflict of interest is not material, ClearBridge may vote proxies
notwithstanding the existence of the conflict.
If it is determined by the
Proxy Committee that a conflict of interest is material, the Proxy Committee is
responsible for determining an
appropriate method to resolve such conflict of interest before the proxy
affected by the conflict of interest is voted. Such determination is based on
the particular facts and circumstances, including the importance of the proxy
issue and the nature of the conflict of interest.
Western
Asset Management Company and Western Asset Management
Company
Limited (together, Western Asset or the Firm) Proxy Voting
Policy
Background
Western Asset Management Company
(WA) and Western Asset Management Company Limited (WAML) (together Western
Asset) have adopted and implemented policies and procedures that we believe
are reasonably designed to ensure that proxies are voted in the best interest
of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6
under the Investment Advisers Act of 1940 (Advisers Act). Our authority to
vote the proxies of our clients is established through investment management
agreements or comparable documents, and our proxy voting guidelines have been
tailored to reflect these specific contractual obligations. In addition to SEC
requirements governing advisers, our proxy voting policies reflect the
long-standing fiduciary standards and responsibilities for ERISA accounts.
Unless a manager of ERISA assets has been expressly precluded from voting
proxies, the Department of Labor has determined that the responsibility for
these votes lies with the Investment Manager.
In exercising its voting
authority, Western Asset will not consult or enter into agreements with
officers, directors or employees of Legg Mason Inc. or any of its affiliates
(except that WA and WAML may so consult and agree with each other) regarding
the voting of any securities owned by its clients.
Policy
Western Assets proxy voting
procedures are designed and implemented in a way that is reasonably expected to
ensure that proxy matters are handled in the best interest of our clients.
While the guidelines included in the procedures are intended to provide a
benchmark for voting standards, each vote is ultimately cast on a case-by-case
basis, taking into consideration Western Assets contractual obligations to our
clients
and all other relevant facts
and circumstances at the time of the vote (such that these guidelines may be
overridden to the extent Western Asset deems appropriate).
Procedures
Responsibility and Oversight
The Western Asset Compliance
Department (Compliance Department) is responsible for administering and
overseeing the proxy voting process. The gathering of proxies is coordinated
through the Corporate Actions area of Investment Support (Corporate Actions).
Research analysts and portfolio managers are responsible for determining
appropriate voting positions on each proxy utilizing any applicable guidelines
contained in these procedures.
Client Authority
Prior to August 1,
2003, all existing client investment management agreements (IMAs) will be
reviewed to determine whether Western Asset has authority to vote client
proxies. At account start-up, or upon amendment of an IMA, the applicable
client IMA are similarly reviewed. If an agreement is silent on proxy voting,
but contains an overall delegation of discretionary authority or if the account
represents assets of an ERISA plan, Western Asset will assume responsibility
for proxy voting. The Client Account Transition Team maintains a matrix of
proxy voting authority.
Proxy Gathering
Registered owners of record,
client custodians, client banks and trustees (Proxy Recipients) that receive
proxy materials on behalf of clients should forward them to Corporate Actions.
Prior to August 1, 2003, Proxy Recipients of existing clients will be
reminded of the appropriate routing to Corporate Actions for proxy materials
received and reminded of their responsibility to forward all proxy materials on
a timely basis. Proxy Recipients for new clients (or, if Western Asset becomes
aware that the applicable Proxy Recipient for an existing client has changed,
the Proxy Recipient for the existing client) are notified at start-up of
appropriate routing to Corporate Actions of proxy materials received and
reminded of their responsibility to forward all proxy materials on a timely
basis. If Western Asset personnel other than Corporate Actions receive proxy
materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are
received by Corporate Actions, they are forwarded to the Compliance Department
for coordination and the following actions:
a.
Proxies are reviewed to determine accounts impacted.
b.
Impacted accounts are checked to confirm Western Asset voting authority.
c.
Compliance Department staff reviews proxy issues to determine any material
conflicts of interest. (See conflicts of interest section of these procedures
for further information on determining material conflicts of interest.)
d.
If a material conflict of interest exists, (i) to the extent reasonably
practicable and permitted by applicable law, the client is promptly notified,
the conflict is disclosed and Western Asset obtains the clients proxy voting
instructions, and (ii) to the extent that it is not reasonably practicable
or permitted by applicable law to notify the client and obtain such
instructions
(e.g., the client is a mutual
fund or other commingled vehicle or is an ERISA plan client), Western Asset
seeks voting instructions from an independent third party.
e.
Compliance Department staff provides proxy material to the appropriate research
analyst or portfolio manager to obtain their recommended vote. Research
analysts and portfolio managers determine votes on a case-by-case basis taking
into account the voting guidelines contained in these procedures. For avoidance
of doubt, depending on the best interest of each individual client, Western
Asset may vote the same proxy differently for different clients. The analysts
or portfolio managers basis for their decision is documented and maintained by
the Compliance Department.
f.
Compliance Department staff votes the proxy pursuant to the instructions
received in (d) or (e) and returns the voted proxy as indicated in
the proxy materials.
Timing
Western Asset personnel act
in such a manner to ensure that, absent special circumstances, the proxy
gathering and proxy voting steps noted above can be completed before the
applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains
records of proxies voted pursuant to Section 204-2 of the Advisers Act and
ERISA DOL Bulletin 94-2. These records include:
a.
A copy of Western Assets policies and procedures.
b.
Copies of proxy statements received regarding client securities.
c.
A copy of any document created by Western Asset that was material to making a
decision how to vote proxies.
d.
Each written client request for proxy voting records and Western Assets
written response to both verbal and written client requests.
e.
A proxy log including:
1.
Issuer name;
2.
Exchange ticker symbol of the issuers shares to be voted;
3.
Council on Uniform Securities Identification Procedures (CUSIP) number for
the shares to be voted;
4.
A brief identification of the matter voted on;
5.
Whether the matter was proposed by the issuer or by a shareholder of the
issuer;
6.
Whether a vote was cast on the matter;
7.
A record of how the vote was cast; and
8.
Whether the vote was cast for or against the recommendation of the issuers
management team.
Records are maintained in an
easily accessible place for five years, the first two in Western Assets
offices.
Disclosure
Part II of both the WA Form ADV
and the WAML Form ADV contain a description of Western Assets proxy
policies. Prior to August 1, 2003, Western Asset will deliver Part II
of its revised Form ADV to all existing clients, along with a letter
identifying the new disclosure. Clients will be provided a copy of these
policies and procedures upon request. In addition, upon request, clients may
receive reports on how their proxies have been voted.
Conflicts of Interest
All proxies are reviewed by
the Compliance Department for material conflicts of interest. Issues to be
reviewed include, but are not limited to:
1.
Whether Western Asset (or, to the extent required to be considered by
applicable law, its affiliates) manages assets for the company or an employee
group of the company or otherwise has an interest in the company;
2.
Whether Western Asset or an officer or director of Western Asset or the
applicable portfolio manager or analyst responsible for recommending the proxy
vote (together, Voting Persons) is a close relative of or has a personal or
business relationship with an executive, director or person who is a candidate
for director of the company or is a participant in a proxy contest; and
3.
Whether there is any other business or personal relationship where a Voting
Person has a personal interest in the outcome of the matter before
shareholders.
Voting Guidelines
Western Assets substantive
voting decisions turn on the particular facts and circumstances of each proxy
vote and are evaluated by the designated research analyst or portfolio manager.
The examples outlined below are meant as guidelines to aid in the decision
making process.
Guidelines are grouped
according to the types of proposals generally presented to shareholders. Part I
deals with proposals which have been approved and are recommended by a companys
board of directors; Part II deals with proposals submitted by shareholders
for inclusion in proxy statements; Part III addresses issues relating to
voting shares of investment companies; and Part IV addresses unique
considerations pertaining to foreign issuers.
I.
Board Approved Proposals
The vast majority of matters
presented to shareholders for a vote involve proposals made by a company itself
that have been approved and recommended by its board of directors. In view of
the enhanced corporate governance practices currently being implemented in
public companies, Western Asset generally votes in support of decisions reached
by independent boards of directors. More specific guidelines related to certain
board-approved proposals are as follows:
1. Matters relating to the
Board of Directors
Western Asset votes proxies
for the election of the companys nominees for directors and for board-approved
proposals on other matters relating to the board of directors with the
following exceptions:
a.
Votes are withheld for the entire board of directors if the board does not have
a majority of independent directors or the board does not have nominating,
audit and compensation committees composed solely of independent directors.
b.
Votes are withheld for any nominee for director who is considered an
independent director by the company and who has received compensation from the
company other than for service as a director.
c.
Votes are withheld for any nominee for director who attends less than 75% of
board and committee meetings without valid reasons for absences.
d.
Votes are cast on a case-by-case basis in contested elections of directors.
2.
Matters relating to Executive Compensation
Western Asset generally
favors compensation programs that relate executive compensation to a companys
long-term performance. Votes are cast on a case-by-case basis on board-approved
proposals relating to executive compensation, except as follows:
a.
Except where the firm is otherwise withholding votes for the entire board of
directors, Western Asset votes for stock option plans that will result in a
minimal annual dilution.
b.
Western Asset votes against stock option plans or proposals that permit
replacing or repricing of underwater options.
c.
Western Asset votes against stock option plans that permit issuance of options
with an exercise price below the stocks current market price.
d.
Except where the firm is otherwise withholding votes for the entire board of
directors, Western Asset votes for employee stock purchase plans that limit the
discount for shares purchased under the plan to no more than 15% of their
market value, have an offering period of 27 months or less and result in
dilution of 10% or less.
3.
Matters relating to Capitalization
The management of a companys
capital structure involves a number of important issues, including cash flows,
financing needs and market conditions that are unique to the circumstances of
each company. As a result, Western Asset votes on a case-by-case basis on
board-approved proposals involving changes to a companys capitalization except
where Western Asset is otherwise withholding votes for the entire board of
directors.
a.
Western Asset votes for proposals relating to the authorization of additional
common stock.
b.
Western Asset votes for proposals to effect stock splits (excluding reverse
stock splits).
c.
Western Asset votes for proposals authorizing share repurchase programs.
4.
Matters relating to Acquisitions, Mergers, Reorganizations and Other
Transactions
Western Asset votes these
issues on a case-by-case basis on board-approved transactions.
5.
Matters relating to Anti-Takeover Measures
Western Asset votes against board-approved proposals
to adopt anti-takeover measures except as follows:
a. Western Asset votes on
a case-by-case basis on proposals to ratify or approve shareholder rights
plans.
b. Western Asset votes on
a case-by-case basis on proposals to adopt fair price provisions.
6. Other Business Matters
Western Asset votes for board-approved proposals
approving such routine business matters such as changing the companys name,
ratifying the appointment of auditors and procedural matters relating to the
shareholder meeting.
a. Western Asset votes on
a case-by-case basis on proposals to amend a companys charter or bylaws.
b. Western Asset votes
against authorization to transact other unidentified, substantive business at
the meeting.
II. Shareholder Proposals
SEC regulations permit shareholders to submit
proposals for inclusion in a companys proxy statement. These proposals
generally seek to change some aspect of a companys corporate governance
structure or to change some aspect of its business operations. Western Asset
votes in accordance with the recommendation of the companys board of directors
on all shareholder proposals, except as follows:
1. Western Asset votes for shareholder proposals to
require shareholder approval of shareholder rights plans.
2. Western Asset votes for shareholder proposals that
are consistent with Western Assets proxy voting guidelines for board-approved
proposals.
3. Western Asset votes on a case-by-case basis on
other shareholder proposals where the firm is otherwise withholding votes for
the entire board of directors.
III. Voting Shares of
Investment Companies
Western Asset may utilize shares of open or closed-end
investment companies to implement its investment strategies. Shareholder votes
for investment companies that fall within the categories listed in Parts I and
II above are voted in accordance with those guidelines.
1. Western Asset votes on a case-by-case basis on
proposals relating to changes in the investment objectives of an investment
company taking into account the original intent of the fund and the role the
fund plays in the clients portfolios.
2. Western Asset votes on a case-by-case basis all
proposals that would result in increases in expenses (e.g., proposals to adopt
12b-1 plans, alter investment advisory arrangements or approve fund mergers)
taking into account comparable expenses for similar funds and the services to
be provided.
IV. Voting Shares of
Foreign Issuers
In the event Western Asset is required to vote on
securities held in foreign issuers i.e. issuers that are incorporated under
the laws of a foreign jurisdiction and that are not listed on a U.S. securities
exchange or the NASDAQ stock market, the following guidelines are used, which
are premised on the existence of a sound corporate governance and disclosure
framework. These guidelines, however, may not be appropriate under some
circumstances for foreign issuers and therefore apply only where applicable.
1. Western Asset votes for shareholder proposals
calling for a majority of the directors to be independent of management.
2. Western Asset votes for shareholder proposals
seeking to increase the independence of board nominating, audit and
compensation committees. 3. Western Asset votes for shareholder proposals that
implement corporate governance standards similar to those established under
U.S. federal law and the listing requirements of U.S. stock exchanges, and that
do not otherwise violate the laws of the jurisdiction under which the company
is incorporated.
4. Western Asset votes on a case-by-case basis on
proposals relating to (1) the issuance of common stock in excess of 20% of
a companys outstanding common stock where shareholders do not have preemptive
rights, or (2) the issuance of common stock in excess of 100% of a companys
outstanding common stock where shareholders have preemptive rights.
ITEM 8.
PORTFOLIO
MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
(a)(1):
NAME AND
|
|
LENGTH OF
|
|
PRINCIPAL OCCUPATION(S) DURING
|
ADDRESS
|
|
TIME SERVED
|
|
PAST 5 YEARS
|
|
|
|
|
|
S. Kenneth Leech
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
|
|
Since 2006
|
|
Co-portfolio manager of
the fund; employee of SBAM since 2006 and Chief Investment Officer of Western
Asset since 1998.
|
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|
Stephen A. Walsh
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
|
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Since 2006
|
|
Co-portfolio manager of
the fund; employee of SBAM since 2006 and Deputy Chief Investment Officer of
Western Asset since 2000.
|
|
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|
|
|
Keith J. Gardner
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
|
|
Since 2007
|
|
Co-portfolio manager of
the fund; portfolio manager and research analyst at Western Asset since 1994.
|
|
|
|
|
|
Detlev Schlichter
Western Asset
385 East Colorado
|
|
Since 2007
|
|
Co-portfolio manager of the fund; portfolio manager at
Western Asset since 2001.
|
Blvd. Pasadena, CA
91101
|
|
|
|
|
|
|
|
|
|
Jeffrey D. Van Schaick
Western Asset
385 East Colorado Blvd.
Pasadena, CA 91101
|
|
Since 2007
|
|
Co-portfolio manager of the fund; portfolio
manager/research analyst with Western Asset and has been employed as
portfolio manager/research analyst with Western Asset for at least the past
five years.
|
|
|
|
|
|
Robert Gendelman
Clearbridge Advisors
620 Eighth Avenue New
York,
NY 10018
|
|
Since 2006
|
|
Portfolio manager of
the fund; employee of Clearbridge Advisors since 2006; Senior Portfolio
manager 2003-2006 at Cobble Creek Partners LLC; General Partner and Portfolio
Manager at Neuberger Berman 1994-2003.
|
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the funds portfolio managers for the fund. Unless noted otherwise, all information is provided as of October 31, 2008.
Other Accounts Managed by Portfolio Managers
The table below identifies the number of accounts (other than the fund) for which the funds portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.
|
|
Registered
|
|
Other Pooled
|
|
|
Portfolio
|
|
Investment
|
|
Investment
|
|
Other
|
Manager(s)
|
|
Companies
|
|
Vehicles
|
|
Accounts
|
S. Kenneth Leech
|
|
113 registered investment companies with $103.3 billion in total assets under management
|
|
282 Other pooled investment vehicles with $209.3 billion in assets under management
|
|
1,001 Other accounts with $225.9 billion in total assets under management*
|
|
|
|
|
|
|
|
Stephen A. Walsh
|
|
113 registered investment companies with $103.3 billion in total assets under management
|
|
282 Other pooled investment vehicles with $209.3 billion in assets under management
|
|
1,001 Other accounts with $225.9 billion in total assets under management*
|
|
|
|
|
|
|
|
Keith J. Gardner
|
|
6 registered investment companies with $0.8 billion in total assets under management
|
|
8 Other pooled investment vehicles with $0.9 billion in assets under management
|
|
0 Other accounts with $0 million in total assets under management
|
|
|
|
|
|
|
|
Detlev Schlichter
|
|
2
registered investment companies with $172.9 million in total assets
|
|
29 Other pooled investment vehicles with $3.4 billion in assets
|
|
67 Other accounts with $21.3 billion in total assets under
|
|
|
under management
|
|
under management
|
|
management**
|
|
|
|
|
|
|
|
Jeffrey Van Schaick
|
|
4
registered investment Companies with $0.8 billion in total assets Under management
|
|
4 Other pooled investment vehicles with $0.5 billion in assets under management
|
|
15 Other accounts with $2.8 billion in total assets under management***
|
|
|
|
|
|
|
|
Robert Gendelman
|
|
2
registered investment Companies with $0.5 billion in total assets Under management
|
|
2 Other pooled investment vehicles with $0.01 billion in assets under management
|
|
0 Other accounts with $0 in assets under management
|
*
Includes
93 accounts managed, totaling $23.5 billion, for which advisory fee is
performance based.
**
Includes
19 accounts managed, totaling $5.3 billion, for which advisory fee is
performance based.
***
Includes
2 accounts managed, totaling $0.2 billion, for which advisory fee is
performance based.
The numbers above reflect the overall number of portfolios
managed by employees of Western Asset Management Company (Western Asset). Mr. Leech and Mr. Walsh are
involved in the management of all the Firms portfolios, but they are not
solely responsible for particular portfolios.
Western Assets investment discipline emphasizes a team approach that
combines the efforts of groups of specialists working in different market
sectors. They are responsible for overseeing implementation of Western Assets
overall investment ideas and coordinating the work of the various sector teams.
This structure ensures that client portfolios benefit from a consensus that
draws on the expertise of all team members.
(a)(3):
Portfolio Manager Compensation (Western Asset)
With respect to the compensation of the portfolio managers, the
Advisers compensation system assigns each employee a total compensation target
and a respective cap, which are derived from annual market surveys that
benchmark each role with their job function and peer universe. This method is designed to reward employees
with total compensation reflective of the external market value of their
skills, experience, and ability to produce desired results.
Standard compensation includes competitive base salaries, generous
employee benefits, and a retirement plan.
In addition, employees
are eligible for bonuses. These are
structured to closely align the interests of employees with those of the
Advisers, and are determined by the professionals job function and performance
as measured by a formal review process.
All bonuses are completely discretionary. One of the principal factors considered is a
portfolio managers investment performance versus appropriate peer groups and
benchmarks. Performance is reviewed on a
1, 3 and 5 year basis for compensation with 3 years having the most emphasis.
Because portfolio managers are generally responsible for multiple accounts
(including the Portfolio) with similar investment strategies, they are
compensated on the performance of the aggregate group of similar accounts,
rather than a specific account, though relative performance against the stated
benchmark and its applicable Lipper peer group is considered. A smaller portion of a bonus payment is
derived from factors that include client service, business development, length
of service to the Adviser, management or supervisory responsibilities,
contributions to developing business strategy and overall contributions to the
Advisers business.
Finally, in order to attract and retain top talent, all
professionals are eligible for additional incentives in recognition of
outstanding performance. These are
determined based upon the factors described above and include Legg Mason, Inc.
stock options and long-term incentives that vest over a set period of time past
the award date.
Potential
Conflicts of Interest (Western Asset)
Potential conflicts of interest may arise in connection with the
management of multiple accounts (including accounts managed in a personal
capacity). These could include potential conflicts of interest related to
the knowledge and timing of a Portfolios trades, investment opportunities and
broker selection. Portfolio managers may be privy to the size, timing and
possible market impact of a Portfolios trades.
It is possible that an investment opportunity may be suitable for
both a Portfolio and other accounts managed by a portfolio manager, but may not
be available in sufficient quantities for both the Portfolio and the other
accounts to participate fully. Similarly, there may be limited
opportunity to sell an investment held by a Portfolio and another account.
A conflict may arise where the portfolio manager may have an incentive to treat
an account preferentially as compared to a Portfolio because the account pays a
performance-based fee or the portfolio manager, the Advisers or an affiliate
has an interest in the account. The Advisers have adopted procedures for
allocation of portfolio transactions and investment opportunities across
multiple client accounts on a fair and equitable basis over time. All
eligible accounts that can participate in a trade share the same price on a
pro-rata allocation basis in an attempt to mitigate any conflict of
interest. Trades are allocated among similarly managed accounts to
maintain consistency of portfolio strategy, taking into account cash
availability, investment restrictions and guidelines, and portfolio composition
versus strategy.
With respect to securities transactions for the Portfolios, the
Advisers determine which broker or dealer to use to execute each order,
consistent with their duty to seek best execution of the transaction.
However, with respect to certain other accounts (such as pooled investment
vehicles that are not registered investment companies and other accounts
managed for organizations and individuals), the Advisers may be limited by the
client with respect to the selection of brokers or dealers or may be instructed
to direct trades through a particular broker or dealer. In these cases,
trades for a Portfolio in a particular security may be placed separately from,
rather than aggregated with, such other accounts. Having separate
transactions with respect to a security may temporarily affect the market price
of the security or the execution of the transaction, or both, to the possible
detriment of a Portfolio or the other account(s) involved. Additionally,
the management of multiple Portfolios and/or other accounts may result in a
portfolio manager devoting unequal time and attention to the management of each
Portfolio and/or other account.
It is theoretically possible that portfolio managers could use
information to the advantage of other accounts they manage and to the possible
detriment of a Portfolio. For example, a portfolio manager could short
sell a security for an account immediately prior to a Portfolios sale of that
security. To address this conflict, the Advisers have adopted procedures
for reviewing and comparing selected trades of alternative investment accounts
(which may make directional trades such as short sales) with long only accounts
(which include the Portfolios) for timing and pattern related issues.
Trading decisions for alternative investment and long only accounts may not be
identical even though the same Portfolio Manager may manage both types of
accounts. Whether the Adviser allocates a particular investment opportunity
to only alternative investment accounts or to alternative investment and long
only accounts will depend on the investment strategy being implemented.
If, under the circumstances, an investment opportunity is appropriate for both
its alternative investment and long only accounts, then it will be allocated to
both on a pro-rata basis.
A portfolio
manager may also face other potential conflicts of interest in managing a
Portfolio, and the description above is not a complete description of every
conflict of interest that could be deemed to exist in managing both a Portfolio
and the other accounts listed above.
Portfolio Manager Compensation (ClearBridge
Advisors)
ClearBridge investment professionals receive base
salary, other employee benefits and are eligible to
receive incentive compensation. Base salary is fixed
and typically determined based on market factors and the skill and experience
of individual investment personnel.
ClearBridge has incentive and deferred compensation
plans (the Plans) for its investment professionals, including the funds
portfolio managers and research analysts. The Plans are designed to align the
objectives of ClearBridge investment professionals with those of fund
shareholders and other ClearBridge clients.
Additionally, the deferred plans are designed to
retain its investment professionals and reward long-term performance.
Incentive Compensation
Investment performance is the key component in
determining the final incentive award for all of ClearBridges investment professionals.
A portfolio managers initial incentive award is based on the investment
professionals ongoing contribution to ClearBridges investment and business
results and externally measured competitive pay practices for the portfolio
managers position/experience within the firm. This award is then adjusted
upward or downward based on investment performance during the most recent year
over a rolling 1, 3, and 5 year time period. Product performance is ranked
among a peer group of non-ClearBridge investment managers and the applicable
product benchmark (e.g., a securities index and, with respect to a fund, the
benchmark set forth in the funds prospectus to which the funds average annual
total returns are compared).
The peer group of non-ClearBridge investment managers
is defined by product style/type, vehicle type and geography and selected by
independent vendors that track and provide (for a fee paid by ClearBridge)
relevant peer group performance and ranking data (e.g., primarily Lipper or
Callan).
The 1, 3, and 5 year performance versus benchmark and
peer group approximate effective weightings are 35% for trailing 1 year
performance, 50% for trailing 3 year performance, and 15% for trailing 5 year performance.
Lastly, the incentive award for an investment professional may also be adjusted
by ClearBridges Chief Investment Officer and Chief Operating Officer based on
other qualitative factors such as contribution to the firm and the development
of investment staff.
For ClearBridges centralized research professionals,
there is an annual incentive compensation plan with a combined scorecard based
on portfolio manager questionnaires/surveys, stock picking performance, and contribution
to the firm. The analysts stock picks are tracked on a formal basis through
Factset and make up a portion of the analysts overall scorecard performance.
These stock picks are measured versus their respective sector indices.
Deferred Award
Up to 20% of an investment professionals annual
incentive compensation is subject to deferral. For portfolio managers,
one-quarter of this deferral is invested in their primary managed product,
one-quarter in a composite portfolio of the firms new products, and
one-quarter in up to 14 elected proprietary ClearBridgemanaged funds. Consequently,
portfolio managers potentially could have 50% of their deferred award amount
tracking the performance of their primary managed product. The final
one-quarter of the deferral is received in the form of Legg Mason restricted
stock shares.
For centralized research analysts, one-half of their
deferral is invested in up to 14 elected proprietary funds, while one-quarter
is invested in the new product composite and the remaining one-quarter is
received in the form of Legg Mason restricted stock shares. Legg Mason then
makes a company investment in the proprietary ClearBridge-managed funds equal
to the deferral amounts by fund. This investment is a
company asset held on the Legg Mason balance sheet and
paid out to the employees in shares upon vesting over a four-year deferral
period.
Potential Conflicts of Interest
Potential conflicts of interest may arise when the
funds portfolio manager also has day-to-day management responsibilities with
respect to one or more other funds or other accounts, as is the case for the
funds portfolio manager.
The manager, the subadviser and the fund have adopted
compliance polices and procedures that are designed to address various
conflicts of interest that may arise for the manager or the subadviser and the individuals
that each employs. For example, the manager and the subadviser each seek to
minimize the effects of competing interests for the time and attention of the
portfolio manager by assigning the portfolio manager to manage funds and
accounts that share a similar investment style. The manager and the subadviser
have also adopted trade allocation procedures that are designed to facilitate
the fair allocation of limited investment opportunities among multiple funds
and accounts. There is no guarantee, however, that the policies and procedures
adopted by the manager, the subadviser and the fund will be able to detect
and/or prevent every situation in which an actual or potential conflict may
appear. These potential conflicts include:
Allocation of Limited Time and
Attention
. A portfolio manager who is responsible for
managing multiple funds and/or accounts may devote unequal time and attention
to the management of those funds and/or accounts. As a result, the portfolio
manager may not be able to formulate as complete a strategy or identify equally
attractive investment opportunities for each of those accounts as might be the
case if he or she were to devote substantially more attention to the management
of a single fund. The effects of this potential conflict may be more pronounced
where funds and/or accounts overseen by a particular portfolio manager have
different investment strategies.
Allocation of Limited Investment
Opportunities
. If a portfolio manager identifies a limited
investment opportunity that may be suitable for multiple funds and/or accounts,
the opportunity may be allocated among these several funds or accounts, which
may limit a funds ability to take full advantage of the investment
opportunity.
Pursuit of Differing Strategies
.
At times, a portfolio manager may determine that an investment opportunity may
be appropriate for only some of the funds and/or accounts for which he or she
exercises investment responsibility, or may decide that certain of the funds
and/or accounts should take differing positions with respect to a particular
security. In these cases, the portfolio manager may place separate transactions
for one or more funds or accounts which may affect the market price of the
security or the execution of the transaction, or both, to the detriment or
benefit of one or more other funds and/or accounts.
Selection of Broker/Dealers.
Portfolio
managers may be able to select or influence the selection of the brokers and
dealers that are used to execute securities transactions for the funds and/or
accounts that they supervise. In addition to executing trades, some brokers and
dealers provide brokerage and research services (as those terms are defined in Section 28(e) of
the 1934 Act), which may result in the payment of higher brokerage fees than
might have otherwise been available. These services may be more beneficial to certain
funds or accounts than to others. Although the payment of brokerage commissions
is subject to the requirement that the sub-adviser determines in good faith
that the commissions are reasonable in relation to the value of the brokerage
and research services provided to the fund, a decision as to the selection of brokers
and dealers could yield disproportionate costs and benefits among the funds
and/or accounts managed. For this reason, the subadviser has formed a brokerage
committee that reviews, among other things, the allocation of brokerage to
broker/dealers, best execution and soft dollar usage.
Variation in Compensation
.
A conflict of interest may arise where the financial or other benefits
available to a portfolio manager differ among the
funds and/or accounts that he or she manages. If the structure of the managers
management fee and/or the portfolio managers compensation differs among funds
and/or accounts (such as where certain funds or accounts pay higher management
fees or performance-based management fees), the portfolio manager might be
motivated to help certain funds and/ or accounts over others. The portfolio
manager might be motivated to favor funds and/or accounts in which he or she
has an interest or in which the manager and/or its affiliates have interests.
Similarly, the desire to maintain assets under management or to enhance the
portfolio managers performance record or to derive other rewards, financial or
otherwise, could influence the portfolio manager in affording preferential treatment
to those funds and/or accounts that could most significantly benefit the
portfolio manager.
Related Business Opportunities
.
The manager or its affiliates may provide more services (such as distribution
or recordkeeping) for some types of funds or accounts than for others. In such
cases, a portfolio manager may benefit, either directly or indirectly, by
devoting disproportionate attention to the management of funds and/or accounts
that provide greater overall returns to the manager and its affiliates.
(a)(4):
Portfolio Manager Securities Ownership
The
table below identifies the dollar range of securities beneficially owned by
each portfolio managers as of October 31, 2008.
Portfolio Manager(s)
|
|
Dollar Range of
Portfolio Securities
Beneficially Owned
|
S. Kenneth Leech
|
|
A
|
Stephen A. Walsh
|
|
A
|
Keith J. Gardner
|
|
A
|
Detlev Schlichter
|
|
A
|
Jeffrey D. Van Schaick
|
|
A
|
Robert Gendelman
|
|
D
|
Dollar Range ownership is
as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
ITEM 9.
PURCHASES OF
EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT INVESTMENT COMPANY AND
AFFILIATED PURCHASERS.
None.
ITEM 10.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11.
CONTROLS AND
PROCEDURES.
(a)
The
registrants principal executive officer and principal financial officer have
concluded that the registrants disclosure
controls and procedures (as defined in Rule 30a-
3(c) under the Investment Company Act of 1940, as amended (the 1940 Act))
are effective as of a date within 90 days of the filing date of this report
that includes the disclosure required by this paragraph, based on their
evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under
the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.
(b)
There were
no changes in the registrants internal control over financial reporting (as
defined in Rule 30a-3(d) under the 1940 Act) that occurred during the
registrants last fiscal half-year (the registrants second fiscal half-year in
the case of an annual report) that have materially affected, or are likely to
materially affect the registrants internal control over financial reporting.
ITEM 12.
EXHIBITS.
(a) (1) Code
of Ethics attached hereto.
Exhibit 99.CODE ETH
(a) (2) Certifications
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.CERT
(b) Certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 attached hereto.
Exhibit 99.906CERT
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, there unto duly authorized.
|
LMP
Capital and Income Fund Inc.
|
|
|
|
|
By:
|
/s/
R. Jay Gerken
|
|
|
(R.
Jay Gerken)
|
|
|
Chief
Executive Officer of
|
|
|
LMP
Capital and Income Fund Inc.
|
|
|
|
|
Date:
|
January 7,
2009
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934 and the Investment
Company Act of 1940, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
By:
|
/s/
R. Jay Gerken
|
|
|
(R.
Jay Gerken)
|
|
|
Chief
Executive Officer of
|
|
|
LMP
Capital and Income Fund Inc.
|
|
|
|
|
Date:
|
January 7,
2009
|
|
|
|
|
|
|
|
By:
|
/s/
Kaprel Ozsolak
|
|
|
(Kaprel
Ozsolak)
|
|
|
Chief
Financial Officer of
|
|
|
LMP
Capital and Income Fund Inc.
|
|
|
|
|
Date:
|
January 7,
2009
|
|
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