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

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-21467

 

 

LMP Capital and Income Fund Inc.

(Exact name of registrant as specified in charter)

 

55 Water Street, New York, NY

 

10041

(Address of principal executive offices)

 

(Zip code)

 

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

300 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

Registrant's telephone number, including area code:

1-800-451-2010

 

 

Date of fiscal year end:

October 31

 

 

 

 

Date of reporting period:

January 31, 2008

 

 



 

ITEM 1.     SCHEDULE OF INVESTMENTS

 



 

LMP CAPITAL AND INCOME FUND INC.

 

FORM N-Q

JANUARY 31, 2008

 



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited)

January 31, 2008

 

Shares

 

 

 

Security

 

Value

 

COMMON STOCKS — 57.5%

 

 

 

CONSUMER DISCRETIONARY — 6.5%

 

 

 

Household Durables — 0.0%

 

 

 

1,226,577

 

 

 

Home Interiors & Gifts Inc. (a)(b)*

 

$

1

 

 

 

 

 

 

 

 

 

Media — 6.5%

 

 

 

 

 

 

 

272,980

 

 

 

E.W. Scripps Co., Class A Shares

 

11,115,746

 

234,970

 

 

 

Lamar Advertising Co., Class A Shares

 

10,131,906

 

117,220

 

 

 

Liberty Media Holding Corp., Capital Group, Series A Shares *

 

12,615,217

 

777,160

 

 

 

Time Warner Inc.

 

12,232,498

 

511,700

 

 

 

Warner Music Group Corp.

 

4,068,015

 

 

 

 

 

Total Media

 

50,163,382

 

 

 

 

 

TOTAL CONSUMER DISCRETIONARY

 

50,163,383

 

CONSUMER STAPLES — 2.1%

 

 

 

Tobacco — 2.1%

 

 

 

 

 

 

 

213,900

 

 

 

Altria Group Inc.

 

16,217,898

 

 

 

 

 

 

 

 

 

ENERGY — 8.1%

 

 

 

 

 

 

 

Energy Equipment & Services — 2.8%

 

 

 

54,460

 

 

 

Diamond Offshore Drilling Inc.

 

6,150,168

 

328,020

 

 

 

Halliburton Co.

 

10,880,423

 

56,070

 

 

 

SEACOR Holdings Inc. *

 

4,945,374

 

 

 

 

 

Total Energy Equipment & Services

 

21,975,965

 

Oil, Gas & Consumable Fuels — 5.3%

 

 

 

69,025

 

 

 

Anadarko Petroleum Corp.

 

4,044,175

 

500,865

 

 

 

Crosstex Energy Inc.

 

16,398,320

 

86,945

 

 

 

Devon Energy Corp.

 

7,388,586

 

174,570

 

 

 

Newfield Exploration Co. *

 

8,707,552

 

76,200

 

 

 

Valero Energy Corp.

 

4,510,278

 

 

 

 

 

Total Oil, Gas & Consumable Fuels

 

41,048,911

 

 

 

 

 

TOTAL ENERGY

 

63,024,876

 

EXCHANGE TRADED FUND — 0.4%

 

 

 

33,900

 

 

 

UltraShort FTSE/Xinhua China 25 ProShares

 

3,339,150

 

 

 

 

 

FINANCIALS — 14.3%

 

 

 

Capital Markets — 4.5%

 

 

 

415,020

 

 

 

Invesco Ltd.

 

11,296,844

 

89,400

 

 

 

Lehman Brothers Holdings Inc.

 

5,736,798

 

338,887

 

 

 

Och-Ziff Capital Management Group

 

7,475,847

 

259,730

 

 

 

UBS AG

 

10,724,252

 

 

 

 

 

Total Capital Markets

 

35,233,741

 

Commercial Banks — 1.9%

 

 

 

427,600

 

 

 

Wells Fargo & Co.

 

14,542,676

 

 

 

 

 

 

 

 

 

Consumer Finance — 1.5%

 

 

 

243,000

 

 

 

American Express Co.

 

11,984,760

 

 

 

 

 

 

 

 

 

Diversified Financial Services — 3.6%

 

 

 

318,500

 

 

 

Bank of America Corp.

 

14,125,475

 

284,300

 

 

 

JPMorgan Chase & Co.

 

13,518,465

 

 

 

 

 

Total Diversified Financial Services

 

27,643,940

 

Insurance — 2.8%

 

 

 

 

 

 

 

203,490

 

 

 

American International Group Inc.

 

11,224,509

 

528,509

 

 

 

Fidelity National Financial Inc., Class A Shares

 

10,406,342

 

 

 

 

 

Total Insurance

 

21,630,851

 

 

 

 

 

TOTAL FINANCIALS

 

111,035,968

 

 

See Notes to Schedule of Investments.

 

1



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Shares†

 

 

 

Security

 

Value

 

HEALTH CARE — 5.2%

 

 

 

Health Care Equipment & Supplies — 1.5%

 

 

 

248,220

 

 

 

Medtronic Inc.

 

$

11,559,605

 

 

 

 

 

Health Care Providers & Services — 2.3%

 

 

 

193,980

 

 

 

Quest Diagnostics Inc.

 

9,567,094

 

160,700

 

 

 

UnitedHealth Group Inc.

 

8,169,988

 

 

 

 

 

Total Health Care Providers & Services

 

17,737,082

 

Pharmaceuticals — 1.4%

 

 

 

71,655

 

 

 

Forest Laboratories Inc.

 

2,849,719

 

134,470

 

 

 

Johnson & Johnson

 

8,506,572

 

 

 

 

 

Total Pharmaceuticals

 

11,356,291

 

 

 

 

 

TOTAL HEALTH CARE

 

40,652,978

 

INDUSTRIALS — 8.6%

 

 

 

Aerospace & Defense — 1.3%

 

 

 

139,570

 

 

 

United Technologies Corp.

 

10,245,834

 

 

 

 

 

Building Products — 1.7%

 

 

 

739,300

 

SEK

 

Assa Abloy AB

 

12,877,415

 

 

 

 

 

Commercial Services & Supplies — 2.2%

 

 

 

448,970

 

 

 

Covanta Holding Corp. *

 

11,399,348

 

206,300

 

 

 

Monster Worldwide Inc. *

 

5,745,455

 

 

 

 

 

Total Commercial Services & Supplies

 

17,144,803

 

Industrial Conglomerates — 1.8%

 

 

 

404,170

 

 

 

General Electric Co.

 

14,311,660

 

 

 

 

 

Machinery — 1.6%

 

 

 

310,400

 

 

 

Dover Corp.

 

12,527,744

 

 

 

 

 

TOTAL INDUSTRIALS

 

67,107,456

 

INFORMATION TECHNOLOGY — 7.2%

 

 

 

Communications Equipment — 3.1%

 

 

 

463,170

 

 

 

Cisco Systems Inc. *

 

11,347,665

 

116,800

 

 

 

Corning Inc.

 

2,811,376

 

227,290

 

 

 

QUALCOMM Inc.

 

9,641,642

 

 

 

 

 

Total Communications Equipment

 

23,800,683

 

Computers & Peripherals — 1.5%

 

 

 

759,020

 

 

 

EMC Corp. *

 

12,045,647

 

 

 

 

 

Internet Software & Services — 1.3%

 

 

 

298,150

 

 

 

VeriSign Inc. *

 

10,113,248

 

 

 

 

 

 

 

 

 

Software — 1.3%

 

 

 

 

 

 

 

476,440

 

 

 

Oracle Corp. *

 

9,790,842

 

 

 

 

 

TOTAL INFORMATION TECHNOLOGY

 

55,750,420

 

TELECOMMUNICATION SERVICES — 3.0%

 

 

 

Wireless Telecommunication Services — 3.0%

 

 

 

325,980

 

 

 

Crown Castle International Corp. *

 

11,797,216

 

398,800

 

 

 

SBA Communications Corp., Class A *

 

11,808,468

 

 

 

 

 

TOTAL TELECOMMUNICATION SERVICES

 

23,605,684

 

UTILITIES — 2.1%

 

 

 

Gas Utilities — 0.9%

 

 

 

169,300

 

 

 

National Fuel Gas Co.

 

7,298,523

 

 

 

 

 

Independent Power Producers & Energy Traders — 1.2%

 

 

 

229,940

 

 

 

NRG Energy Inc. *

 

8,873,385

 

 

 

 

 

TOTAL UTILITIES

 

16,171,908

 

 

 

 

 

TOTAL COMMON STOCKS

 

 

 

 

 

 

 

(Cost — $486,675,756)

 

447,069,721

 

 

See Notes to Schedule of Investments.

 

2



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Shares

 

 

 

Security

 

Value

 

PREFERRED STOCKS — 0.3%

 

 

 

FINANCIALS — 0.3%

 

 

 

Diversified Financial Services — 0.1%

 

 

 

30,000

 

 

 

Citigroup Inc., 8.125% (c)

 

$

786,600

 

 

 

 

 

Thrifts & Mortgage Finance — 0.2%

 

 

 

28,000

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC), 8.375%

 

751,800

 

300

 

 

 

Federal National Mortgage Association (FNMA), 7.000% (d)

 

14,944

 

19,000

 

 

 

Federal National Mortgage Association (FNMA), 8.250%

 

501,980

 

 

 

 

 

Total Thrifts & Mortgage Finance

 

1,268,724

 

 

 

 

 

TOTAL PREFERRED STOCKS

 

 

 

 

 

 

 

(Cost — $1,940,960)

 

2,055,324

 

 

 

 

 

 

 

 

 

Face

 

 

 

 

 

 

 

Amount

 

 

 

 

 

 

 

ASSET-BACKED SECURITIES — 0.4%

 

 

 

Home Equity — 0.4%

 

 

 

$

750,000

 

 

 

Asset-Backed Funding Certificates, 4.826% due 1/25/34 (d)

 

673,568

 

210,859

 

 

 

Countrywide Asset-Backed Certificates, 6.115% due 6/25/34 (d)

 

163,808

 

73,417

 

 

 

Finance America Net Interest Margin Trust, 5.250% due 6/27/34 (b)(e)(g)

 

95

 

178,286

 

 

 

Fremont Home Loan Trust, 4.476% due 2/25/34 (d)

 

135,199

 

1,005,000

 

 

 

GSAMP Trust, 4.526% due 11/25/34 (d)

 

834,560

 

2,951

 

 

 

Merrill Lynch Mortgage Investors Inc., 5.000% due 9/25/35 (e)

 

2,958

 

1,500,000

 

 

 

Option One Mortgage Loan Trust, 4.426% due 5/25/34 (d)

 

1,284,614

 

497,401

 

 

 

Renaissance Home Equity Loan Trust, 5.276% due 3/25/34 (d)

 

457,757

 

 

 

 

 

Sail Net Interest Margin Notes:

 

 

 

141,210

 

 

 

7.750% due 4/27/33 (b)(e)(g)

 

16

 

71,380

 

 

 

5.500% due 3/27/34 (e)(g)

 

11,664

 

 

 

 

 

TOTAL ASSET-BACKED SECURITIES

 

 

 

 

 

 

 

(Cost — $4,441,822)

 

3,564,239

 

COLLATERALIZED MORTGAGE OBLIGATIONS — 0.4%

 

 

 

260,000

 

 

 

American Home Mortgage Investment Trust, 4.176% due 11/25/45 (d)

 

253,560

 

172,124

 

 

 

Bear Stearns ARM Trust, 5.737% due 2/25/36 (d)

 

172,839

 

 

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC):

 

 

 

63,172

 

 

 

6.000% due 3/15/34 (d)

 

58,965

 

542,360

 

 

 

PAC, 6.000% due 4/15/34 (d)

 

536,211

 

746,662

 

 

 

Harborview Mortgage Loan Trust, 5.004% due 11/19/35 (d)

 

534,914

 

410,279

 

 

 

Merit Securities Corp., 4.744% due 9/28/32 (d)(e)

 

379,802

 

 

 

 

 

MLCC Mortgage Investors Inc.:

 

 

 

352,749

 

 

 

4.296% due 4/25/29 (d)

 

346,189

 

588,543

 

 

 

4.256% due 5/25/29 (d)

 

562,833

 

 

 

 

 

Thornburg Mortgage Securities Trust:

 

 

 

250,481

 

 

 

6.220% due 7/25/37 (d)

 

253,876

 

266,876

 

 

 

6.232% due 7/25/37 (d)

 

273,687

 

 

 

 

 

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS

 

 

 

 

 

 

 

(Cost — $3,607,384)

 

3,372,876

 

COLLATERALIZED SENIOR LOANS — 0.8%

 

 

 

Aerospace & Defense — 0.1%

 

 

 

 

 

 

 

Dubai Aerospace Enterprise, Term Loan:

 

 

 

334,528

 

 

 

7.803% due 7/31/09 (d)

 

334,319

 

 

See Notes to Schedule of Investments.

 

3



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face

 

 

 

 

 

 

 

Amount

 

 

 

Security

 

Value

 

Aerospace & Defense — 0.1% (continued)

 

 

 

$

663,809

 

 

 

9.033% due 7/31/14

 

$

661,734

 

 

 

 

 

Total Aerospace & Defense

 

996,053

 

Airlines — 0.1%

 

 

 

 

 

 

 

250,000

 

 

 

Delta Airlines Inc., Term Loan, 8.082% due 4/30/14

 

227,604

 

180,207

 

 

 

United Airlines Inc., Term Loan B, 7.032% due 1/12/14

 

162,806

 

 

 

 

 

Total Airlines

 

390,410

 

Commercial Services & Supplies — 0.0%

 

 

 

249,373

 

 

 

US Investigations Services Inc., Term Loan B, 7.910% due 2/21/15

 

232,229

 

 

 

 

 

 

 

 

 

Diversified Consumer Services — 0.0%

 

 

 

249,375

 

 

 

Thomson Learning Hold, Term Loan B, 7.950% due 7/5/14 (d)

 

225,130

 

 

 

 

 

 

 

 

 

Diversified Telecommunication Services — 0.0%

 

 

 

168,750

 

 

 

Insight Midwest Holdings, LLC, Term Loan B, 6.480% due 4/10/14 (d)

 

155,227

 

 

 

 

 

 

 

 

 

Electric Utilities — 0.1%

 

 

 

500,000

 

 

 

TXU Corp., Term Loan B, 5.550% due 10/10/14

 

461,079

 

 

 

 

 

 

 

 

 

Health Care Equipment & Supplies — 0.0%

 

 

 

 

 

 

 

Bausch & Lomb Inc.:

 

 

 

200,000

 

 

 

Term Loan, 8.080% due 4/11/15 (d)

 

195,500

 

50,000

 

 

 

Term Loan B, 6.511% due 4/11/15

 

48,875

 

 

 

 

 

Total Health Care Equipment & Supplies

 

244,375

 

Health Care Providers & Services — 0.1%

 

 

 

 

 

 

 

Community Health Systems Inc.:

 

 

 

15,468

 

 

 

Term Loan, 7.756% due 7/2/14

 

14,314

 

234,532

 

 

 

Term Loan B, 7.756% due 7/2/14 (d)

 

217,032

 

248,744

 

 

 

HCA Inc., Term Loan B, 7.448% due 11/1/13 (d)

 

230,457

 

 

 

 

 

Total Health Care Providers & Services

 

461,803

 

Hotels, Restaurants & Leisure — 0.0%

 

 

 

250,000

 

 

 

Aramark Corp., Term Loan, 6.705% due 1/31/14

 

230,938

 

 

 

 

 

 

 

 

 

IT Services — 0.1%

 

 

 

570,000

 

 

 

First Data Corp., Term Loan, 7.634% due 10/15/14 (d)

 

515,612

 

 

 

 

 

 

 

 

 

Media — 0.2%

 

 

 

 

 

 

 

250,000

 

 

 

Charter Communications, Term Loan B, 7.350% due 3/15/14

 

218,870

 

249,342

 

 

 

CMP Susquehanna Corp., Term Loan, 6.876% due 6/7/13

 

220,356

 

499,370

 

 

 

Idearc Inc., Term Loan B, 6.830% due 11/1/14 (d)

 

456,470

 

248,750

 

 

 

LodgeNet Entertainment Corp., Term Loan B, 7.200% due 4/4/14

 

230,716

 

249,369

 

 

 

Regal Cinemas Corp., Term Loan B, 6.330% due 10/19/10

 

231,502

 

250,000

 

 

 

UPC Broadband Holding B.V., Term Loan N, 7.130% due 3/30/14 (d)

 

225,976

 

 

 

 

 

Total Media

 

1,583,890

 

Multiline Retail — 0.0%

 

 

 

250,000

 

 

 

Neiman Marcus Group Inc., Term Loan B, 6.939% due 3/13/13 (d)

 

230,417

 

 

 

 

 

 

 

 

 

Paper & Forest Products — 0.0%

 

 

 

250,000

 

 

 

NewPage Corp., Term Loan, Tranche B, 8.688% due 11/5/14 (d)

 

243,472

 

 

 

 

 

 

 

 

 

Pharmaceuticals — 0.1%

 

 

 

249,372

 

 

 

Royalty Pharma, Term Loan B, 7.095% due 5/15/14 (d)

 

247,657

 

 

 

 

 

 

 

 

 

Specialty Retail — 0.0%

 

 

 

249,370

 

 

 

Michaels Stores Inc. Term Loan B, 7.619% due 10/31/13 (d)

 

214,118

 

 

See Notes to Schedule of Investments.

 

4



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Wireless Telecommunication Services — 0.0%

 

 

 

 

 

 

 

Telesat Canada:

 

 

 

$

19,685

 

 

 

Term Loan, 7.901% due 10/15/14 (d)

 

$

18,676

 

230,315

 

 

 

Term Loan B, 7.901% due 10/15/14

 

218,512

 

 

 

 

 

Total Wireless Telecommunication Services

 

237,188

 

 

 

 

 

TOTAL COLLATERALIZED SENIOR LOANS
(Cost — $7,018,097)

 

6,669,598

 

CORPORATE BONDS & NOTES — 12.1%

 

 

 

Aerospace & Defense — 0.1%

 

 

 

275,000

 

 

 

Alliant Techsystems Inc., Senior Subordinated Notes, 6.750% due 4/1/16

 

266,750

 

670,000

 

 

 

Hawker Beechcraft Acquisition Co., Senior Notes, 8.875% due 4/1/15 (e)(f)

 

658,275

 

 

 

 

 

Total Aerospace & Defense

 

925,025

 

Airlines — 0.2%

 

 

 

 

 

 

 

Continental Airlines Inc.:

 

 

 

170,000

 

 

 

Notes, 8.750% due 12/1/11

 

153,850

 

 

 

 

 

Pass-Through Certificates:

 

 

 

122,925

 

 

 

8.312% due 4/2/11

 

121,081

 

380,000

 

 

 

7.339% due 4/19/14

 

347,700

 

800,000

 

 

 

DAE Aviation Holdings Inc., Senior Notes, 11.250% due 8/1/15 (e)

 

832,000

 

 

 

 

 

Total Airlines

 

1,454,631

 

Auto Components — 0.2%

 

 

 

280,000

 

 

 

Allison Transmission Inc., Senior Notes, 11.250% due 11/1/15 (e)(f)

 

228,200

 

295,000

 

 

 

Keystone Automotive Operations Inc., Senior Subordinated Notes, 9.750% due 11/1/13

 

199,125

 

1,075,000

 

 

 

Visteon Corp., Senior Notes, 8.250% due 8/1/10

 

884,187

 

 

 

 

 

Total Auto Components

 

1,311,512

 

Automobiles — 0.2%

 

 

 

110,000

 

 

 

Ford Motor Co., Debentures, 8.875% due 1/15/22

 

83,050

 

 

 

 

 

General Motors Corp., Senior Debentures:

 

 

 

600,000

 

 

 

8.250% due 7/15/23

 

483,000

 

1,300,000

 

 

 

8.375% due 7/15/33

 

1,062,750

 

 

 

 

 

Total Automobiles

 

1,628,800

 

Beverages — 0.1%

 

 

 

760,000

 

 

 

Constellation Brands Inc., Senior Notes, 8.375% due 12/15/14

 

786,600

 

 

 

 

 

Building Products — 0.1%

 

 

 

540,000

 

 

 

Associated Materials Inc., Senior Subordinated Notes, 9.750% due 4/15/12

 

531,900

 

30,000

 

 

 

Nortek Inc., Senior Subordinated Notes, 8.500% due 9/1/14

 

23,550

 

450,000

 

 

 

NTK Holdings Inc., Senior Discount Notes, step bond to yield 11.157% due 3/1/14

 

254,250

 

 

 

 

 

Total Building Products

 

809,700

 

Capital Markets — 0.4%

 

 

 

300,000

 

 

 

Bear Stearns Co. Inc., Senior Notes, 6.400% due 10/2/17

 

285,290

 

30,000

 

 

 

Goldman Sachs Capital II, Junior Subordinated Bonds, 5.793% due 6/1/12 (c)(d)

 

23,234

 

1,200,000

 

 

 

Kaupthing Bank HF, Subordinated Notes, 7.125% due 5/19/16 (e)

 

1,004,776

 

50,000

 

 

 

Lehman Brothers Holdings Capital Trust VII, Medium-Term Notes, 5.857% due 5/31/12 (c)(d)

 

38,659

 

 

 

 

 

Lehman Brothers Holdings Inc.:

 

 

 

1,110,000

 

 

 

Medium-Term Notes, 6.750% due 12/28/17

 

1,152,757

 

130,000

 

 

 

Senior Notes, Medium-Term Notes, 6.200% due 9/26/14

 

133,972

 

100,000

 

 

 

Merrill Lynch & Co. Inc., Senior Notes 5.450% due 2/5/13

 

100,264

 

 

 

 

 

Total Capital Markets

 

2,738,952

 

 

See Notes to Schedule of Investments.

 

5



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Chemicals — 0.1%

 

 

 

 

 

 

 

Georgia Gulf Corp., Senior Notes:

 

 

 

$

570,000

 

 

 

9.500% due 10/15/14

 

$

444,600

 

100,000

 

 

 

10.750% due 10/15/16

 

65,000

 

110,000

 

 

 

Huntsman International LLC, Senior Subordinated Notes, 7.875% due 11/15/14

 

114,950

 

100,000

 

 

 

Methanex Corp., Senior Notes, 8.750% due 8/15/12

 

107,750

 

 

 

 

 

Total Chemicals

 

732,300

 

Commercial Banks — 0.4%

 

 

 

20,000

 

 

 

BAC Capital Trust XIV, Junior Subordinated Notes, 5.630% due 3/15/12 (c)(d)

 

16,240

 

54,545

 

 

 

Fifth Third Bank, Notes, 2.870% due 8/10/09

 

53,340

 

290,000

 

 

 

Glitnir Banki HF, Notes, 6.375% due 9/25/12 (e)

 

275,548

 

100,000

 

 

 

HBOS Capital Funding LP, Tier 1 Notes, Perpetual Bonds, 6.071% due 6/30/14 (c)(d)(e)

 

94,962

 

1,300,000

 

 

 

Resona Preferred Global Securities Cayman Ltd., Bonds, 7.191% due 7/30/15 (c)(d)(e)

 

1,291,423

 

1,400,000

 

 

 

Shinsei Finance Cayman Ltd., Junior Subordinated Bonds, 6.418% due 7/20/16 (c)(d)(e)

 

1,184,229

 

200,000

 

 

 

Wells Fargo & Co., Senior Notes, 4.375% due 1/31/13

 

200,168

 

 

 

 

 

Total Commercial Banks

 

3,115,910

 

Commercial Services & Supplies — 0.3%

 

 

 

180,000

 

 

 

Allied Security Escrow Corp., Senior Subordinated Notes, 11.375% due 7/15/11

 

163,350

 

550,000

 

 

 

DynCorp International LLC/DIV Capital Corp., Senior Subordinated Notes, 9.500% due 2/15/13

 

573,375

 

600,000

 

 

 

Interface Inc., Senior Subordinated Notes, 9.500% due 2/1/14

 

616,500

 

290,000

 

 

 

Rental Services Corp., Senior Notes, 9.500% due 12/1/14

 

247,225

 

790,000

 

 

 

US Investigations Services Inc., Senior Notes, 10.500% due 11/1/15 (e)

 

695,200

 

225,000

 

 

 

Waste Management Inc., Senior Note, 6.375% due 11/15/12

 

244,295

 

 

 

 

 

Total Commercial Services & Supplies

 

2,539,945

 

Consumer Finance — 1.1%

 

 

 

300,000

 

 

 

Aiful Corp., Notes, 6.000% due 12/12/11 (e)

 

290,163

 

20,000

 

 

 

American Express Co., Subordinated Debentures, 6.800% due 9/1/66 (d)

 

19,542

 

 

 

 

 

Ford Motor Credit Co.:

 

 

 

1,050,000

 

 

 

Notes, 7.000% due 10/1/13

 

881,211

 

 

 

 

 

Senior Notes:

 

 

 

750,000

 

 

 

5.800% due 1/12/09

 

729,660

 

135,000

 

 

 

9.750% due 9/15/10

 

130,467

 

559,000

 

 

 

10.241% due 6/15/11 (d)

 

503,587

 

1,600,000

 

 

 

9.875% due 8/10/11

 

1,536,264

 

170,000

 

 

 

8.000% due 12/15/16

 

142,946

 

 

 

 

 

General Motors Acceptance Corp., Notes:

 

 

 

500,000

 

 

 

5.625% due 5/15/09

 

484,145

 

320,000

 

 

 

7.750% due 1/19/10

 

306,254

 

1,580,000

 

 

 

6.875% due 9/15/11

 

1,382,413

 

1,900,000

 

 

 

6.625% due 5/15/12

 

1,608,132

 

300,000

 

 

 

6.750% due 12/1/14

 

247,545

 

125,000

 

 

 

SLM Corp., Medium-Term Notes, 3.531% due 1/26/09 (d)

 

119,705

 

 

 

 

 

Total Consumer Finance

 

8,382,034

 

Containers & Packaging — 0.1%

 

 

 

285,000

 

 

 

Graham Packaging Co. Inc., Senior Subordinated Notes, 9.875% due 10/15/14

 

242,250

 

 

See Notes to Schedule of Investments.

 

6



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Containers & Packaging — 0.1% (continued)

 

 

 

$

535,000

 

 

 

Graphic Packaging International Corp., Senior Subordinated Notes, 9.500% due 8/15/13

 

$

506,912

 

195,000

 

 

 

Plastipak Holdings Inc., Senior Notes, 8.500% due 12/15/15 (e)

 

184,275

 

 

 

 

 

Total Containers & Packaging

 

933,437

 

Diversified Consumer Services — 0.0%

 

 

 

 

 

 

 

Education Management LLC/Education Management Finance Corp.:

 

 

 

20,000

 

 

 

Senior Notes, 8.750% due 6/1/14

 

19,350

 

210,000

 

 

 

Senior Subordinated Notes, 10.250% due 6/1/16

 

201,075

 

 

 

 

 

Total Diversified Consumer Services

 

220,425

 

Diversified Financial Services — 0.4%

 

 

 

150,000

 

 

 

AAC Group Holding Corp., Senior Discount Notes, step bond to yield 9.092% due 10/1/12

 

125,250

 

100,000

 

 

 

Aiful Corp., Notes, 5.000% due 8/10/10 (e)

 

96,054

 

100,000

 

 

 

Bank of America Corp., Subordinated Notes, 5.420% due 3/15/17

 

98,780

 

610,000

 

 

 

Basell AF SCA, Senior Secured Subordinated Second Priority Notes, 8.375% due 8/15/15 (e)

 

463,600

 

125,000

 

 

 

Capital One Bank, Notes, 5.750% due 9/15/10

 

123,440

 

125,000

 

 

 

Countrywide Home Loans Inc., Medium-Term Notes, 4.125% due 9/15/09

 

111,500

 

 

 

 

 

General Electric Capital Corp.:

 

 

 

250,000

 

 

 

Medium-Term Notes, 5.450% due 1/15/13

 

262,393

 

20,000

 

 

 

Subordinated Debentures, 6.375% due 11/15/67 (d)

 

20,830

 

200,000

 

 

 

Glen Meadow Pass-Through Certificates, 6.505% due 2/12/67 (d)(e)

 

192,946

 

125,000

 

 

 

HSBC Finance Corp., Senior Subordinated Notes, 5.875% due 2/1/09

 

127,468

 

 

 

 

 

Leucadia National Corp., Senior Notes:

 

 

 

210,000

 

 

 

8.125% due 9/15/15

 

210,000

 

70,000

 

 

 

7.125% due 3/15/17

 

66,325

 

 

 

 

 

Residential Capital LLC, Senior Notes:

 

 

 

10,000

 

 

 

6.598% due 4/17/09 (d)

 

6,900

 

40,000

 

 

 

7.615% due 5/22/09 (d)

 

27,400

 

430,000

 

 

 

8.000% due 6/1/12

 

270,900

 

620,000

 

 

 

Vanguard Health Holdings Co. I LLC, Senior Discount Notes, step bond to yield 10.257% due 10/1/15

 

443,300

 

260,000

 

 

 

Vanguard Health Holdings Co. II LLC, Senior Subordinated Notes, 9.000% due 10/1/14

 

247,650

 

 

 

 

 

Total Diversified Financial Services

 

2,894,736

 

Diversified Telecommunication Services — 0.8%

 

 

 

600,000

 

 

 

Deutsche Telekom International Finance, Senior Notes, 5.750% due 3/23/16

 

611,221

 

730,000

 

 

 

Embarq Corp., Senior Notes, 6.738% due 6/1/13

 

749,748

 

 

 

 

 

Hawaiian Telcom Communications Inc.:

 

 

 

120,000

 

 

 

Senior Notes, 9.750% due 5/1/13

 

111,000

 

170,000

 

 

 

Senior Subordinated Notes, 12.500% due 5/1/15

 

152,150

 

 

 

 

 

Intelsat Bermuda Ltd.:

 

 

 

180,000

 

 

 

9.250% due 6/15/16

 

180,450

 

680,000

 

 

 

Senior Notes, 11.250% due 6/15/16

 

683,400

 

 

 

 

 

Level 3 Financing Inc.:

 

 

 

30,000

 

 

 

9.150% due 2/15/15 (d)

 

22,500

 

295,000

 

 

 

Senior Notes, 9.250% due 11/1/14

 

255,175

 

250,000

 

 

 

Nordic Telephone Co. Holdings, Senior Secured Bonds, 8.875% due 5/1/16 (e)

 

255,000

 

740,000

 

 

 

Qwest Communications International Inc., Senior Notes, 7.500% due 2/15/14

 

736,300

 

100,000

 

 

 

Telecom Italia Capital S.p.A., Senior Notes, 5.250% due 10/1/15

 

97,831

 

450,000

 

 

 

Verizon Florida Inc., Senior Notes, 6.125% due 1/15/13

 

470,278

 

 

 

 

 

Virgin Media Finance PLC, Senior Notes:

 

 

 

450,000

 

 

 

8.750% due 4/15/14

 

414,000

 

 

See Notes to Schedule of Investments.

 

7



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Diversified Telecommunication Services — 0.8% (continued)

 

 

 

$

220,000

 

 

 

9.125% due 8/15/16

 

$

200,200

 

845,000

 

 

 

Windstream Corp., Senior Notes, 8.625% due 8/1/16

 

878,800

 

 

 

 

 

Total Diversified Telecommunication Services

 

5,818,053

 

Electric Utilities — 0.2%

 

 

 

365,000

 

 

 

FirstEnergy Corp., Notes, 7.375% due 11/15/31

 

402,071

 

120,000

 

 

 

Orion Power Holdings Inc., Senior Notes, 12.000% due 5/1/10

 

131,100

 

 

 

 

 

Pacific Gas & Electric Co.:

 

 

 

320,000

 

 

 

5.625% due 11/30/17

 

328,817

 

230,000

 

 

 

Senior Unsubordinated Notes, 5.800% due 3/1/37

 

221,343

 

180,000

 

 

 

VeraSun Energy Corp., Senior Notes, 9.375% due 6/1/17 (e)

 

144,000

 

 

 

 

 

Total Electric Utilities

 

1,227,331

 

Electronic Equipment & Instruments — 0.1%

 

 

 

1,065,000

 

 

 

NXP BV/NXP Funding LLC, Senior Notes, 9.500% due 10/15/15

 

933,206

 

 

 

 

 

Energy Equipment & Services — 0.1%

 

 

 

725,000

 

 

 

Complete Production Services Inc., Senior Notes, 8.000% due 12/15/16

 

706,875

 

250,000

 

 

 

Key Energy Services Inc., Senior Notes, 8.375% due 12/1/14 (e)

 

251,875

 

55,000

 

 

 

Pride International Inc., Senior Notes, 7.375% due 7/15/14

 

56,925

 

10,000

 

 

 

Southern Natural Gas Co., Senior Notes, 8.000% due 3/1/32

 

11,266

 

 

 

 

 

Total Energy Equipment & Services

 

1,026,941

 

Food & Staples Retailing — 0.1%

 

 

 

430,000

 

 

 

CVS Caremark Corp., 6.943% due 1/10/30 (e)

 

447,063

 

400,000

 

 

 

Kroger Co., Senior Notes, 6.150% due 1/15/20

 

413,149

 

150,000

 

 

 

Safeway Inc., Senior Notes, 6.500% due 11/15/08

 

152,490

 

 

 

 

 

Total Food & Staples Retailing

 

1,012,702

 

Food Products — 0.1%

 

 

 

 

 

 

 

Dole Food Co. Inc., Senior Notes:

 

 

 

125,000

 

 

 

7.250% due 6/15/10

 

110,625

 

261,000

 

 

 

8.875% due 3/15/11

 

233,595

 

 

 

 

 

Total Food Products

 

344,220

 

Health Care Providers & Services — 0.7%

 

 

 

460,000

 

 

 

Community Health Systems Inc., Senior Notes, 8.875% due 7/15/15

 

465,175

 

 

 

 

 

HCA Inc.:

 

 

 

295,000

 

 

 

Notes, 6.375% due 1/15/15

 

252,963

 

 

 

 

 

Senior Notes:

 

 

 

345,000

 

 

 

6.500% due 2/15/16

 

294,544

 

215,000

 

 

 

9.250% due 11/15/16

 

226,019

 

 

 

 

 

Senior Secured Notes:

 

 

 

800,000

 

 

 

9.125% due 11/15/14

 

833,000

 

285,000

 

 

 

9.625% due 11/15/16 (f)

 

300,675

 

425,000

 

 

 

IASIS Healthcare LLC/IASIS Capital Corp., Senior Subordinated Notes,
8.750% due 6/15/14

 

427,125

 

 

 

 

 

Tenet Healthcare Corp., Senior Notes:

 

 

 

180,000

 

 

 

6.375% due 12/1/11

 

166,050

 

650,000

 

 

 

7.375% due 2/1/13

 

575,250

 

31,000

 

 

 

9.875% due 7/1/14

 

29,760

 

600,000

 

 

 

UnitedHealth Group Inc., Senior Notes 5.250% due 3/15/11

 

611,819

 

230,000

 

 

 

US Oncology Holdings Inc., Senior Notes, 10.759% due 3/15/12 (d)(f)

 

174,225

 

 

 

 

 

WellPoint Inc., Senior Notes:

 

 

 

720,000

 

 

 

5.000% due 1/15/11

 

735,514

 

30,000

 

 

 

5.875% due 6/15/17

 

30,581

 

 

 

 

 

Total Health Care Providers & Services

 

5,122,700

 

 

See Notes to Schedule of Investments.

 

8



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

CORPORATE BONDS & NOTES — 12.1% (continued)

Hotels, Restaurants & Leisure — 0.8%

 

 

 

$

1,000,000

 

 

 

Boyd Gaming Corp., Senior Subordinated Notes, 6.750% due 4/15/14

 

$

875,000

 

255,000

 

 

 

Buffets Inc., Senior Notes, 12.500% due 11/1/14 (g)

 

17,850

 

305,000

 

 

 

Choctaw Resort Development Enterprise, Senior Notes, 7.250% due 11/15/19 (e)

 

289,750

 

550,000

 

 

 

Denny’s Holdings Inc., Senior Notes, 10.000% due 10/1/12

 

519,750

 

100,000

 

 

 

El Pollo Loco Inc., Senior Notes, 11.750% due 11/15/13

 

96,000

 

450,000

 

 

 

Herbst Gaming Inc., Senior Subordinated Notes, 7.000% due 11/15/14

 

178,875

 

660,000

 

 

 

Inn of the Mountain Gods Resort & Casino, Senior Notes, 12.000% due 11/15/10

 

660,000

 

 

 

 

 

MGM MIRAGE Inc.:

 

 

 

380,000

 

 

 

Notes, 6.750% due 9/1/12

 

367,650

 

 

 

 

 

Senior Notes:

 

 

 

575,000

 

 

 

5.875% due 2/27/14

 

523,250

 

320,000

 

 

 

7.625% due 1/15/17

 

312,000

 

203,000

 

 

 

Senior Subordinated Notes, 9.375% due 2/15/10

 

210,359

 

500,000

 

 

 

Pinnacle Entertainment Inc., Senior Subordinated Notes, 8.250% due 3/15/12

 

482,500

 

270,000

 

 

 

Sbarro Inc., Senior Notes, 10.375% due 2/1/15

 

230,850

 

625,000

 

 

 

Seneca Gaming Corp., Senior Notes, 7.250% due 5/1/12

 

609,375

 

 

 

 

 

Station Casinos Inc.:

 

 

 

 

 

 

 

Senior Notes:

 

 

 

60,000

 

 

 

6.000% due 4/1/12

 

52,650

 

250,000

 

 

 

7.750% due 8/15/16

 

221,562

 

105,000

 

 

 

Senior Subordinated Notes, 6.875% due 3/1/16

 

71,925

 

500,000

 

 

 

Turning Stone Casino Resort Enterprise, Senior Notes, 9.125% due 12/15/10 (e)

 

487,500

 

 

 

 

 

Total Hotels, Restaurants & Leisure

 

6,206,846

 

Household Durables — 0.2%

 

 

 

335,000

 

 

 

K Hovnanian Enterprises Inc., Senior Notes, 8.625% due 1/15/17

 

247,900

 

390,000

 

 

 

KB Home, Senior Subordinated Notes, 8.625% due 12/15/08

 

390,000

 

325,000

 

 

 

Norcraft Cos. LP/Norcraft Finance Corp., Senior Subordinated Notes, 9.000% due 11/1/11

 

325,000

 

700,000

 

 

 

Norcraft Holdings LP/Norcraft Capital Corp., Senior Discount Notes, step bond to yield 9.608% due 9/1/12

 

612,500

 

 

 

 

 

Total Household Durables

 

1,575,400

 

Independent Power Producers & Energy Traders — 0.9%

 

 

 

 

 

 

 

AES Corp.:

 

 

 

720,000

 

 

 

7.750% due 10/15/15

 

739,800

 

660,000

 

 

 

8.000% due 10/15/17

 

676,500

 

1,100,000

 

 

 

Senior Notes, 7.750% due 3/1/14

 

1,127,500

 

 

 

 

 

Edison Mission Energy, Senior Notes:

 

 

 

480,000

 

 

 

7.750% due 6/15/16

 

492,000

 

250,000

 

 

 

7.625% due 5/15/27

 

235,625

 

1,760,000

 

 

 

Energy Future Holdings, Senior Notes, 11.250% due 11/1/17 (e)(f)

 

1,742,400

 

152,070

 

 

 

Mirant Mid Atlantic LLC, Pass-Through Certificates, 9.125% due 6/30/17

 

168,227

 

 

 

 

 

NRG Energy Inc., Senior Notes:

 

 

 

250,000

 

 

 

7.250% due 2/1/14

 

244,062

 

1,025,000

 

 

 

7.375% due 2/1/16

 

992,969

 

380,000

 

 

 

TXU Corp., Senior Notes, 5.550% due 11/15/14

 

305,852

 

 

 

 

 

Total Independent Power Producers & Energy Traders

 

6,724,935

 

Insurance — 0.2%

 

 

 

1,170,000

 

 

 

American International Group Inc., Medium-Term Notes, 5.850% due 1/16/18

 

1,175,232

 

20,000

 

 

 

MetLife Inc., Junior Subordinated Debentures, 6.400% due 12/15/36

 

18,004

 

 

See Notes to Schedule of Investments.

 

9



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Insurance — 0.2% (continued)

 

 

 

$

140,000

 

 

 

Travelers Cos. Inc., Junior Subordinated Debentures, 6.250% due 3/15/37 (d)

 

$

133,354

 

 

 

 

 

Total Insurance

 

1,326,590

 

IT Services — 0.1%

 

 

 

170,000

 

 

 

Ceridian Corp., Senior Notes, 12.250% due 11/15/15 (e)(f)

 

143,650

 

 

 

 

 

SunGard Data Systems Inc.:

 

 

 

400,000

 

 

 

Senior Notes, 9.125% due 8/15/13

 

408,000

 

280,000

 

 

 

Senior Subordinated Notes, 10.250% due 8/15/15

 

281,400

 

 

 

 

 

Total IT Services

 

833,050

 

Machinery — 0.0%

 

 

 

60,000

 

 

 

Terex Corp., Senior Subordinated Notes, 7.375% due 1/15/14

 

59,550

 

 

 

 

 

 

 

 

 

Media — 0.8%

 

 

 

 

 

 

 

 

 

 

 

Affinion Group Inc.:

 

 

 

355,000

 

 

 

Senior Notes, 10.125% due 10/15/13

 

353,225

 

100,000

 

 

 

Senior Subordinated Notes, 11.500% due 10/15/15

 

93,000

 

205,000

 

 

 

CCH I Holdings LLC/CCH I Holdings Capital Corp., Senior Accreting Notes, 12.125% due 1/15/15 (d)

 

109,675

 

1,159,000

 

 

 

CCH I LLC/CCH Capital Corp., Senior Secured Notes, 11.000% due 10/1/15

 

835,929

 

 

 

 

 

CCH II LLC/CCH II Capital Corp., Senior Notes:

 

 

 

310,000

 

 

 

10.250% due 9/15/10

 

295,275

 

15,000

 

 

 

10.250% due 10/1/13

 

13,950

 

105,000

 

 

 

Charter Communications Holdings LLC/Charter Communications Holdings Capital Corp., Senior Discount Notes, 11.750% due 5/15/11

 

67,856

 

240,000

 

 

 

CMP Susquehanna Corp., 9.875% due 5/15/14

 

166,800

 

840,000

 

 

 

Comcast Corp., Notes, 6.500% due 1/15/17

 

879,295

 

700,000

 

 

 

Idearc Inc., Senior Notes, 8.000% due 11/15/16

 

630,000

 

180,000

 

 

 

Lamar Media Corp., Senior Subordinated Notes, 6.625% due 8/15/15

 

171,450

 

20,000

 

 

 

News America Inc., Notes, 6.650% due 11/15/37 (e)

 

20,371

 

 

 

 

 

R.H. Donnelley Corp.:

 

 

 

655,000

 

 

 

Senior Discount Notes, 6.875% due 1/15/13

 

553,475

 

450,000

 

 

 

Senior Notes, 8.875% due 1/15/16

 

388,125

 

10,000

 

 

 

Time Warner Cable Inc., 5.850% due 5/1/17

 

10,027

 

810,000

 

 

 

Time Warner Inc., Senior Notes, 6.875% due 5/1/12

 

852,073

 

360,000

 

 

 

TL Acquisitions Inc., Senior Notes, 10.500% due 1/15/15 (e)

 

329,400

 

170,000

 

 

 

XM Satellite Radio Inc., Senior Notes, 9.411% due 5/1/13 (d)

 

146,200

 

 

 

 

 

Total Media

 

5,916,126

 

Metals & Mining — 0.4%

 

 

 

960,000

 

 

 

Freeport-McMoRan Copper & Gold Inc., Senior Notes, 8.375% due 4/1/17

 

1,022,400

 

650,000

 

 

 

Metals USA Inc., Senior Secured Notes, 11.125% due 12/1/15

 

648,375

 

205,000

 

 

 

Noranda Aluminum Holding Corp., Senior Notes, 10.488% due 11/15/14 (d)(e)(f)

 

156,825

 

290,000

 

 

 

Novelis Inc., Senior Notes, 7.250% due 2/15/15

 

268,975

 

530,000

 

 

 

Ryerson Inc., Senior Secured Notes, 12.000% due 11/1/15 (e)

 

500,850

 

100,000

 

 

 

Steel Dynamics Inc., 7.375% due 11/1/12 (e)

 

100,250

 

200,000

 

 

 

Tube City IMS Corp., Senior Subordinated Notes, 9.750% due 2/1/15

 

181,000

 

156,000

 

 

 

Vale Overseas Ltd., Notes, 6.875% due 11/21/36

 

145,281

 

 

 

 

 

Total Metals & Mining

 

3,023,956

 

Multiline Retail — 0.1%

 

 

 

530,000

 

 

 

Dollar General Corp., Senior Subordinated Notes, 11.875% due 7/15/17 (e)(f)

 

426,650

 

535,000

 

 

 

Neiman Marcus Group Inc., Senior Subordinated Notes, 10.375% due 10/15/15

 

535,000

 

 

 

 

 

Total Multiline Retail

 

961,650

 

 

See Notes to Schedule of Investments.

 

10



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Office Electronics — 0.0%

 

 

 

$

290,000

 

 

 

Xerox Corp., Senior Notes, 6.750% due 2/1/17

 

$

 303,689

 

 

 

 

 

Oil, Gas & Consumable Fuels — 1.4%

 

 

 

750,000

 

 

 

Amerada Hess Corp., 6.650% due 8/15/11

 

809,061

 

 

 

 

 

Anadarko Petroleum Corp., Senior Notes:

 

 

 

60,000

 

 

 

5.950% due 9/15/16

 

61,974

 

1,240,000

 

 

 

6.450% due 9/15/36

 

1,268,571

 

 

 

 

 

Apache Corp.:

 

 

 

540,000

 

 

 

5.625% due 1/15/17

 

561,517

 

200,000

 

 

 

Senior Notes, 5.250% due 4/15/13

 

208,750

 

440,000

 

 

 

Belden & Blake Corp., Secured Notes, 8.750% due 7/15/12

 

440,000

 

775,000

 

 

 

Chesapeake Energy Corp., Senior Notes, 6.375% due 6/15/15

 

755,625

 

85,000

 

 

 

Compagnie Generale de Geophysique SA, Senior Notes, 7.500% due 5/15/15

 

84,150

 

330,000

 

 

 

ConocoPhillips Holding Co., Senior Notes, 6.950% due 4/15/29

 

378,783

 

750,000

 

 

 

Devon Financing Corp. ULC, Notes, 6.875% due 9/30/11

 

819,113

 

 

 

 

 

El Paso Corp., Medium-Term Notes:

 

 

 

180,000

 

 

 

7.800% due 8/1/31

 

179,900

 

1,050,000

 

 

 

7.750% due 1/15/32

 

1,049,295

 

320,000

 

 

 

Enterprise Products Operating LP, Junior Subordinated Notes, 8.375% due 8/1/66 (d)

 

320,263

 

450,000

 

 

 

EXCO Resources Inc., Senior Notes, 7.250% due 1/15/11

 

432,000

 

260,000

 

 

 

International Coal Group Inc., Senior Notes, 10.250% due 7/15/14

 

243,750

 

 

 

 

 

Kerr-McGee Corp.:

 

 

 

140,000

 

 

 

6.950% due 7/1/24

 

149,881

 

300,000

 

 

 

Notes, 6.875% due 9/15/11

 

326,006

 

540,000

 

 

 

Kinder Morgan Energy Partners LP, Senior Notes, 6.000% due 2/1/17

 

546,913

 

605,000

 

 

 

OPTI Canada Inc., Senior Secured Notes, 8.250% due 12/15/14 (e)

 

595,925

 

160,000

 

 

 

Petroplus Finance Ltd., Senior Note, 7.000% due 5/1/17 (e)

 

146,000

 

290,000

 

 

 

SemGroup LP, Senior Notes, 8.750% due 11/15/15 (e)

 

272,600

 

260,000

 

 

 

Stone Energy Corp., Senior Subordinated Notes, 8.250% due 12/15/11

 

258,700

 

 

 

 

 

Williams Cos. Inc.:

 

 

 

100,000

 

 

 

Notes, 8.750% due 3/15/32

 

120,000

 

470,000

 

 

 

Senior Notes, 7.750% due 6/15/31

 

512,300

 

 

 

 

 

XTO Energy Inc.:

 

 

 

350,000

 

 

 

5.650% due 4/1/16

 

355,798

 

170,000

 

 

 

Senior Notes, 7.500% due 4/15/12

 

189,865

 

 

 

 

 

Total Oil, Gas & Consumable Fuels

 

11,086,740

 

Paper & Forest Products — 0.2%

 

 

 

 

 

 

 

Abitibi-Consolidated Co. of Canada, Senior Notes:

 

 

 

60,000

 

 

 

7.750% due 6/15/11

 

46,050

 

210,000

 

 

 

8.491% due 6/15/11 (d)

 

153,563

 

120,000

 

 

 

6.000% due 6/20/13

 

82,200

 

220,000

 

 

 

8.375% due 4/1/15

 

156,750

 

160,000

 

 

 

Abitibi-Consolidated Inc., Debentures, 7.400% due 4/1/18

 

102,400

 

545,000

 

 

 

Appleton Papers Inc., Senior Subordinated Notes, 9.750% due 6/15/14

 

532,737

 

 

 

 

 

NewPage Corp.:

 

 

 

435,000

 

 

 

Senior Secured Notes, 11.161% due 5/1/12 (d)

 

428,475

 

200,000

 

 

 

Senior Subordinated Notes, 12.000% due 5/1/13

 

199,000

 

150,000

 

 

 

Weyerhaeuser Co., Notes, 6.750% due 3/15/12

 

159,301

 

 

 

 

 

Total Paper & Forest Products

 

1,860,476

 

Pharmaceuticals — 0.1%

 

 

 

650,000

 

 

 

Abbott Laboratories, 5.600% due 11/30/17

 

679,631

 

 

See Notes to Schedule of Investments.

 

11



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Pharmaceuticals — 0.1% (continued)

 

 

 

$

445,000

 

 

 

Leiner Health Products Inc., Senior Subordinated Notes, 11.000% due 6/1/12

 

$

180,225

 

 

 

 

 

Total Pharmaceuticals

 

859,856

 

Real Estate Investment Trusts (REITs) — 0.0%

 

 

 

75,000

 

 

 

iStar Financial Inc., Senior Notes, 4.875% due 1/15/09

 

73,458

 

85,000

 

 

 

Ventas Realty LP/Ventas Capital Corp., Senior Notes, 6.500% due 6/1/16

 

85,000

 

 

 

 

 

Total Real Estate Investment Trusts (REITs)

 

158,458

 

Real Estate Management & Development — 0.1%

 

 

 

270,000

 

 

 

Ashton Woods USA LLC/Ashton Woods Finance Co., Senior Subordinated Notes, 9.500% due 10/1/15

 

132,300

 

570,000

 

 

 

Realogy Corp., Senior Subordinated Notes, 12.375% due 4/15/15 (e)

 

342,000

 

 

 

 

 

Total Real Estate Management & Development

 

474,300

 

Road & Rail — 0.2%

 

 

 

1,195,000

 

 

 

Hertz Corp., Senior Subordinated Notes, 10.500% due 1/1/16

 

1,154,669

 

50,000

 

 

 

Kansas City Southern de Mexico, Senior Notes, 7.625% due 12/1/13

 

48,500

 

430,000

 

 

 

Kansas City Southern Railway, Senior Notes, 7.500% due 6/15/09

 

434,837

 

 

 

 

 

Total Road & Rail

 

1,638,006

 

Semiconductors & Semiconductor Equipment — 0.0%

 

 

 

195,000

 

 

 

Freescale Semiconductor Inc., Senior Notes, 8.875% due 12/15/14

 

159,413

 

 

 

 

 

Specialty Retail — 0.1%

 

 

 

235,000

 

 

 

Blockbuster Inc., Senior Subordinated Notes, 9.000% due 9/1/12

 

186,825

 

165,000

 

 

 

Eye Care Centers of America, Senior Subordinated Notes, 10.750% due 2/15/15

 

175,313

 

150,000

 

 

 

Michaels Stores Inc., 11.375% due 11/1/16

 

122,250

 

 

 

 

 

Total Specialty Retail

 

484,388

 

Textiles, Apparel & Luxury Goods — 0.0%

 

 

 

180,000

 

 

 

Oxford Industries Inc., Senior Notes, 8.875% due 6/1/11

 

176,850

 

 

 

 

 

Thrifts & Mortgage Finance — 0.0%

 

 

 

270,000

 

 

 

Countrywide Home Loans Inc., Notes, 5.625% due 7/15/09

 

248,120

 

 

 

 

 

 

 

 

Tobacco — 0.0%

 

 

 

 

 

 

 

 

 

 

Alliance One International Inc., Senior Notes:

 

 

 

150,000

 

 

 

8.500% due 5/15/12

 

140,250

 

90,000

 

 

 

11.000% due 5/15/12

 

92,250

 

 

 

 

 

Total Tobacco

 

232,500

 

Trading Companies & Distributors — 0.1%

 

 

 

355,000

 

 

 

Ashtead Capital Inc., Notes, 9.000% due 8/15/16 (e)

 

298,200

 

440,000

 

 

 

H&E Equipment Services Inc., Senior Notes, 8.375% due 7/15/16

 

407,000

 

450,000

 

 

 

Penhall International Corp., Senior Secured Notes, 12.000% due 8/1/14 (e)

 

375,750

 

 

 

 

 

Total Trading Companies & Distributors

 

1,080,950

 

Transportation Infrastructure — 0.0%

 

 

 

 

 

 

 

Saint Acquisition Corp.:

 

 

 

435,000

 

 

 

Secured Notes, 12.500% due 5/15/17 (e)

 

174,000

 

130,000

 

 

 

Senior Secured Notes, 12.619% due 5/15/15 (d)(e)

 

50,050

 

 

 

 

 

Total Transportation Infrastructure

 

224,050

 

Wireless Telecommunication Services — 0.6%

 

 

 

210,000

 

 

 

ALLTEL Communications Inc., Senior Notes, 10.375% due 12/1/17 (e)(f)

 

182,700

 

65,000

 

 

 

MetroPCS Wireless Inc., Senior Notes, 9.250% due 11/1/14

 

60,125

 

1,270,000

 

 

 

New Cingular Wireless Services Inc., Notes, 8.125% due 5/1/12

 

1,445,103

 

 

See Notes to Schedule of Investments.

 

12



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

Wireless Telecommunication Services — 0.6% (continued)

 

 

 

 

 

 

 

Rural Cellular Corp.:

 

 

 

$

245,000

 

 

 

Senior Notes, 9.875% due 2/1/10

 

$

254,800

 

110,000

 

 

 

Senior Secured Notes, 8.250% due 3/15/12

 

113,850

 

1,190,000

 

 

 

Sprint Capital Corp., Senior Notes, 8.375% due 3/15/12

 

1,237,909

 

300,000

 

 

 

Sprint Nextel Corp., 6.000% due 12/1/16

 

266,662

 

780,000

 

 

 

True Move Co., Ltd., 10.750% due 12/16/13 (e)

 

744,900

 

 

 

 

 

Total Wireless Telecommunication Services

 

4,306,049

 

 

 

 

 

TOTAL CORPORATE BONDS & NOTES
(Cost — $100,116,887)

 

93,881,108

 

MORTGAGE-BACKED SECURITIES — 6.5%

 

 

 

FHLMC — 3.8%

 

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC):

 

 

 

3,075,058

 

 

 

5.118% due 6/1/35 (d)

 

3,122,781

 

97,665

 

 

 

6.116% due 9/1/37 (d)

 

100,243

 

 

 

 

 

Gold:

 

 

 

610,076

 

 

 

7.000% due 6/1/17

 

637,586

 

23,851,268

 

 

 

6.000% due 7/1/21-2/1/36 (h)

 

24,560,460

 

321,468

 

 

 

8.500% due 9/1/25

 

356,888

 

710,822

 

 

 

6.500% due 8/1/29

 

744,563

 

 

 

 

 

TOTAL FHLMC

 

29,522,521

 

FNMA — 2.5%

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association (FNMA):

 

 

 

636,381

 

 

 

8.000% due 12/1/12

 

654,174

 

1,687,299

 

 

 

5.500% due 1/1/14-4/1/35

 

1,715,744

 

1,591,855

 

 

 

7.000% due 3/15/15-6/1/32

 

1,699,161

 

567,192

 

 

 

4.205% due 12/1/34 (d)

 

570,792

 

767,418

 

 

 

4.852% due 1/1/35 (d)

 

793,620

 

1,035,645

 

 

 

5.051% due 3/1/35 (d)

 

1,068,759

 

1,140,156

 

 

 

6.016% due 4/1/35 (d)

 

1,175,318

 

2,875,782

 

 

 

5.633% due 4/1/36 (d)

 

2,916,673

 

4,356,733

 

 

 

5.554% due 5/1/36 (d)(h)

 

4,422,084

 

1,394,134

 

 

 

6.000% due 11/1/37

 

1,431,009

 

3,100,000

 

 

 

5.000% due 2/12/38 (i)

 

3,086,921

 

 

 

 

 

TOTAL FNMA

 

19,534,255

 

GNMA — 0.2%

 

 

 

 

 

 

 

1,221,022

 

 

 

Government National Mortgage Association (GNMA), 5.500% due 8/15/21

 

1,251,932

 

 

 

 

 

TOTAL MORTGAGE-BACKED SECURITIES
(Cost — $49,549,772)

 

50,308,708

 

Face
Amount†

 

 

 

 

 

 

 

SOVEREIGN BONDS — 0.0%

 

 

 

Argentina — 0.0%

 

 

 

69,931

 

ARS

 

Republic of Argentina, GDP Linked Securities, 0.649% due 12/15/35
(Cost - $811)

 

2,093

 

 

 

 

 

U.S. GOVERNMENT & AGENCY OBLIGATIONS — 1.3%

 

 

 

U.S. Government Agency — 0.0%

 

 

 

100,000

 

 

 

Federal Home Loan Bank (FHLB), Global Bonds, 5.500% due 7/15/36

 

110,716

 

 

 

 

 

U.S. Government Obligations — 1.3%

 

 

 

 

 

 

 

U.S. Treasury Bonds:

 

 

 

3,090,000

 

 

 

4.750% due 2/15/37

 

3,292,784

 

40,000

 

 

 

5.000% due 5/15/37

 

44,316

 

 

 

 

 

U.S. Treasury Notes:

 

 

 

110,000

 

 

 

4.125% due 8/31/12

 

116,403

 

 

See Notes to Schedule of Investments.

 

13



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

Face
Amount

 

 

 

Security

 

Value

 

U.S. Government Obligations — 1.3% (continued)

 

 

 

$

6,200,000

 

 

 

4.750% due 8/15/17 (h)

 

$

 6,751,223

 

 

 

 

 

Total U.S. Government Obligations

 

10,204,726

 

 

 

 

 

TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost — $9,554,208)

 

10,315,442

 

U.S. TREASURY INFLATION PROTECTED SECURITIES — 1.1%

 

 

 

1,969,399

 

 

 

U.S. Treasury Bonds, Inflation Indexed, 2.375% due 1/15/27

 

2,192,496

 

 

 

 

 

U.S. Treasury Notes, Inflation Indexed:

 

 

 

99,830

 

 

 

0.875% due 4/15/10

 

101,039

 

2,974,947

 

 

 

2.375% due 4/15/11

 

3,155,306

 

2,813,427

 

 

 

2.375% due 1/15/17

 

3,089,056

 

 

 

 

 

TOTAL U.S. TREASURY INFLATION PROTECTED SECURITIES
(Cost — $7,672,379)

 

8,537,897

 

 

 

 

 

 

 

 

 

Contracts

 

 

 

 

 

 

 

PURCHASED OPTIONS — 0.6%

 

 

 

337

 

 

 

Eurodollar Futures, Call @ $94.00, expires 6/16/08

 

2,957,175

 

173

 

 

 

First American Corp., Put @ $35.00, expires 4/19/08

 

15,570

 

274

 

 

 

General Electric Co., Call @ $30.00, expires 1/16/10

 

204,130

 

 

 

 

 

Johnson & Johnson:

 

 

 

1,803

 

 

 

Call @ $60.00, expires 1/17/09

 

1,135,890

 

909

 

 

 

Call @ $65.00, expires 1/17/09

 

336,330

 

 

 

 

 

TOTAL PURCHASED OPTIONS
(Cost — $3,390,084)

 

4,649,095

 

 

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS
(Cost — $673,968,160)

 

630,426,101

 

 

 

 

 

 

 

 

 

Face
Amount

 

 

 

 

 

 

 

SHORT-TERM INVESTMENTS — 19.0%

 

 

 

U.S. Government Agencies — 2.5%

 

 

 

$

18,900,000

 

 

 

Federal Home Loan Bank (FHLB), Discount Notes, 1.750% due 2/1/08 (h)(j)

 

18,900,000

 

445,000

 

 

 

Federal National Mortgage Association (FNMA), Discount Notes, 4.208% - 5.203% due 3/17/08 (j)

 

442,580

 

 

 

 

 

Total U.S. Government Agencies
(Cost — $19,342,580)

 

19,342,580

 

Repurchase Agreements — 16.5%

 

 

 

111,253,000

 

 

 

Interest in $906,871,000 joint tri-party repurchase agreement dated 1/31/08 with Greenwich Capital Markets Inc., 2.850% due 2/1/08; Proceeds at maturity - $111,261,808; (Fully collateralized by various U.S. government agency obligations, 3.250% to 6.210% due 5/15/08 to 8/6/38; Market value - $113,478,225)

 

111,253,000

 

17,057,000

 

 

 

Morgan Stanley tri-party repurchase agreement dated 1/31/08, 2.800% due 2/1/08; Proceeds at maturity - $17,058,327; (Fully collateralized by U.S. government agency obligation, 8.875% due 7/15/20; Market value - $17,486,470) (h)

 

17,057,000

 

 

 

 

 

Total Repurchase Agreements
(Cost — $128,310,000)

 

128,310,000

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL SHORT-TERM INVESTMENTS
(Cost — $147,652,580)

 

147,652,580

 

 

 

 

 

TOTAL INVESTMENTS — 100.0% (Cost — $821,620,740#)

 

$

778,078,681

 

 


Face amount denominated in U.S. dollars, unless otherwise noted.

*

Non-income producing security.

 

See Notes to Schedule of Investments.

 

14



 

LMP Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)

January 31, 2008

 

(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)

Security has no maturity date. The date shown represents the next call date.

(d)

Variable rate security. Interest rate disclosed is that which is in effect at January 31, 2008.

(e)

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.

(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)

All or a portion of this security is segregated for open futures contracts, extended settlements, written options, swap contracts, foreign currency contracts and on securities traded on a to-be announced (“TBA”) basis.

(i)

This security is traded on a TBA basis (See Note 1).

(j)

Rate shown represents yield-to-maturity.

#

Aggregate cost for federal income tax purposes is substantially the same.

 

 

 

Abbreviations used in this schedule:

ARM - Adjustable Rate Mortgage

ARS - Argentine Peso

GDP - Gross Domestic Product

MTN - Medium-Term Note

PAC - Planned Amortization Class

SEK - Swedish Krona

 

Schedule of Options Written

 

 

 

 

 

Expiration

 

Strike

 

 

 

Contracts

 

Security

 

Date

 

Price

 

Value

 

6

 

Eurodollar Futures, Call

 

3/17/08

 

$

96.50

 

$

8,963

 

10

 

U.S. Treasury Notes 10 Year Futures, Put

 

2/22/08

 

107.00

 

156

 

 

 

TOTAL OPTIONS WRITTEN
(Premiums received - $11,014)

 

 

 

 

 

$

9,119

 

 

Schedule of Securities Sold Short

 

Shares

 

Security

 

 

Value

 

COMMON STOCKS

 

 

 

 

 

 

 

 

 

 

45,300

 

iShares MSCI Brazil Index Fund

 

 

 

 

 

$

3,439,629

 

32,900

 

iShares MSCI Emerging Market Index

 

 

 

 

 

4,482,625

 

 

 

COMMON STOCKS SOLD SHORT
(Proceeds - $7,495,217)

 

 

 

 

 

$

7,922,254

 

 

See Notes to Schedule of Investments.

 

15



 

Notes to Schedule of Investments (unaudited)

 

1. Organization and Significant Accounting Policies

 

LMP Capital and Income Fund Inc. (the “Fund”) was incorporated in Maryland on November 12, 2003 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended, (the “1940 Act”). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Fund’s 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”).

 

(a) Investment Valuation. Equity securities for which market quotations are available are valued at the last sale price or official closing price on the primary market or exchange on which they trade. Debt securities are valued at the mean between the 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 investments at fair value as determined in accordance with the procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value.

 

(b) Repurchase Agreements.  When entering into repurchase agreements, it is the Fund’s 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.

 

(c) 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.

 

(d) Written Options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the Fund realizes a gain from investments equal to the amount of the premium received. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s 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 Fund’s 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

 

16



 

Notes to Schedule of Investments (unaudited) (continued)

 

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.

 

(e) Financial Futures Contracts.  The Fund may enter into financial futures contracts typically, but not necessarily, to hedge a portion of the portfolio. Upon entering into a financial futures contract, the Fund is required to deposit cash or securities as initial margin, equal 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 denominated futures, 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 Fund’s 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.

 

(f) 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.

 

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.

 

(g) 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.

 

(h) 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 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.

 

(i) 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 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 to-be-announced (“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 Fund’s 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 Fund’s obligation to repurchase the securities.

 

(j) 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. 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.

 

17



 

Notes to Schedule of Investments (unaudited) (continued)

 

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.

 

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.

 

(k) 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 issuer’s 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 upon termination or maturity 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.

 

(l) 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 Fund’s 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 Fund’s investment in non-dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.

 

(m) Security Transactions.  Security transactions are accounted for on a trade date basis.

 

2.  Investments

 

At January 31, 2008, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

 

$

15,253,205

 

Gross unrealized depreciation

 

(58,795,264

)

Net unrealized depreciation

 

$

(43,542,059

)

 

During the period ended January 31, 2008, written option transactions for the Fund were as follows:

 

18



 

Notes to Schedule of Investments (unaudited) (continued)

 

 

 

Number of
Contracts

 

Premiums

 

Options written, outstanding October 31, 2007

 

10

 

$

9,169

 

Options written

 

12,316

 

3,486,027

 

Options closed

 

(12,310

)

(3,484,182

)

Options expired

 

 

 

Options written, outstanding January 31, 2008

 

16

 

$

11,014

 

 

At January 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:

 

 

 

 

 

 

 

 

 

Euro

 

$

2,830,000

 

$

4,198,513

 

2/12/08

 

$

(4,745

)

Pound Sterling

 

808,000

 

1,606,361

 

2/12/08

 

(670

)

Japanese Yen

 

72,660,000

 

681,209

 

2/12/08

 

36,145

 

Japanese Yen

 

72,660,000

 

684,880

 

5/7/08

 

(3,188

)

 

 

 

 

 

 

 

 

27,542

 

Contracts to Sell:

 

 

 

 

 

 

 

 

 

Euro

 

2,830,000

 

4,198,513

 

2/12/08

 

(166,753

)

Euro

 

2,830,000

 

4,186,574

 

5/7/08

 

4,656

 

Pound Sterling

 

808,000

 

1,606,361

 

2/12/08

 

42,605

 

Pound Sterling

 

808,000

 

1,597,543

 

5/7/08

 

681

 

Japanese Yen

 

72,660,000

 

681,209

 

2/12/08

 

3,197

 

 

 

 

 

 

 

 

 

(115,614

)

Net Unrealized Loss on Open Forward Foreign Currency Contracts

 

 

 

 

 

$

(88,072

)

 

At January 31, 2008, the Fund had the following open futures contracts:

 

 

 

 

Number of Contracts

 

Expiration
Date

 

Basis
Value

 

Market
Value

 

Unrealized Gain

 

Contracts to Buy:

 

 

 

 

 

 

 

 

 

 

 

Germany Federal Republic 10 Year

 

26

 

3/08

 

$

4,459,880

 

$

4,502,517

 

$

42,637

 

Euribor Futures

 

169

 

3/08

 

816,368

 

843,330

 

26,962

 

Eurodollar Futures

 

2

 

6/08

 

476,047

 

487,550

 

11,503

 

U.S. Treasury Bonds

 

54

 

3/08

 

6,347,418

 

6,442,875

 

95,457

 

U.S. 2 Year Treasury Notes

 

60

 

3/08

 

12,612,519

 

12,793,125

 

180,606

 

U.S. 5 Year Treasury Notes

 

179

 

3/08

 

19,681,653

 

20,227,000

 

545,347

 

 

 

 

 

 

 

 

 

 

 

902,512

 

 

 

 

 

 

 

 

 

 

 

 

 

Contracts to Sell:

 

 

 

 

 

 

 

 

 

 

 

U.S. 10 Year Treasury Notes

 

78

 

3/08

 

$

9,225,172

 

$

9,104,062

 

$

121,110

 

Net Unrealized Gain on Open Futures Contracts

 

 

 

 

 

 

 

 

 

$

1,023,622

 

 

At January 31, 2008, the Fund held TBA securities with a total cost of $3,068,938.

 

The average monthly balance of mortgage dollar rolls outstanding for the Fund for the period ended January 31, 2008 was approximately $5,020,133.

 

 At January 31, 2008, the Fund held the following interest rate swap contracts:

 

19



 

Notes to Schedule of Investments (unaudited) (continued)

 

Swap Counterparty:

 

Barclays Capital Inc.

Effective Date:

 

11/19/07

Notional Amount:

 

$400,000

Payments Made by Fund:

 

Floating Rate (Three-Month LIBOR)

Payments Received by Fund:

 

Fixed Rate, 4.000%

Termination Date:

 

12/15/09

Unrealized Appreciation

 

$7,663

 

Swap Counterparty:

 

Barclays Capital Inc.

Effective Date:

 

11/16/07

Notional Amount:

 

$1,079,000

Payments Made by Fund:

 

Floating Rate (Three-Month LIBOR)

Payments Received by Fund:

 

Fixed Rate, 4.400%

Termination Date:

 

5/31/12

Unrealized Appreciation

 

$40,156

 

At January 31, 2008, the Fund held the following credit default swap contracts:

 

Swap Counterparty:

 

Barclays Capital Inc.

Effective Date:

 

11/2/07

Reference Entity:

 

AMBAC Assurance Corp.

Notional Amount:

 

$30,000

Payment Made by Fund:

 

Payment only if credit event occurs

Payments Received by Fund:

 

Fixed Rate, 3.600%

Termination Date:

 

12/20/12

Unrealized Depreciation

 

$(1,020)

 

Swap Counterparty:

 

Barclays Capital Inc.

Effective Date:

 

11/2/07

Reference Entity:

 

MBIA Insurance Corp.

Notional Amount:

 

$40,000

Payment Made by Fund:

 

Payment only if credit event occurs

Payments Received by Fund:

 

Fixed Rate, 3.050%

Termination Date:

 

12/20/12

Unrealized Depreciation

 

$(2,271)

 

Swap Counterparty:

 

Barclays Capital Inc.

Effective Date:

 

11/2/07

Reference Entity:

 

AMBAC Assurance Corp.

Notional Amount:

 

$50,000

Payment Made by Fund:

 

Payment only if credit event occurs

Payments Received by Fund:

 

Fixed Rate, 3.600%

Termination Date:

 

12/20/12

Unrealized Depreciation

 

$(1,700)

 

Swap Counterparty:

 

Barclays Capital Inc.

Effective Date:

 

11/2/07

Reference Entity:

 

MBIA Insurance Corp.

Notional Amount:

 

$60,000

Payment Made by Fund:

 

Payment only if credit event occurs

Payments Received by Fund:

 

Fixed Rate, 3.100%

Termination Date:

 

12/20/12

Unrealized Appreciation

 

$3,292

 

At January 31, 2008, the Fund had total unrealized depreciation of $46,120 from swap contracts.

 

20



 

ITEM 2.     CONTROLS AND PROCEDURES.

 

(a)           The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s 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 registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 3.     EXHIBITS.

 

Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940, as amended, are attached hereto.

 



 

SIGNATURES

 

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

 

LMP Capital and Income Fund Inc.

 

 

By

      /s/ R. Jay Gerken

 

 

       R. Jay Gerken

 

 

Chief Executive Officer

 

 

 

 

 

 

Date: March 28, 2008

 

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

 

 

 

Date: March 28, 2008

 

 

By

       /s/ Kaprel Ozsolak

 

 

  Kaprel Ozsolak

 

 

  Chief Financial Officer

 

 

 

Date: March 28, 2008