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

811-21467

 

LMP Capital and Income Fund Inc.

(Exact name of registrant as specified in charter)

 

125 Broad Street, New York, NY

 

10004

(Address of principal executive offices)

 

(Zip code)

 

Robert I. Frenkel, Esq.
Legg Mason & Co., LLC
300 First Stamford Place, 4th Floor
Stamford, CT 06902

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(800) 451-2010

 

 

Date of fiscal year end:

October 31

 

 

Date of reporting period:

April 30, 2007

 

 



 

ITEM 1.                                                     REPORT TO STOCKHOLDERS.

 

The Semi-Annual Report to Stockholders is filed herewith.

 



 

 

LMP
Capital and Income Fund Inc.
(SCD)

 

 

 

 

SEMI-ANNUAL

 

 

REPORT

 

 

 

 

 

 

 

 

APRIL 30, 2007

 

 

 

 

 

 

  

 

 

 

INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE

 


 

 

LMP
Capital and Income Fund Inc.

 

 

Semi-Annual Report April 30, 2007

 

 

What’s

Letter from the Chairman

I

Inside

 

 

 

Fund at a Glance

1

 

 

 

 

Schedule of Investments

2

 

 

 

 

Statement of Assets and Liabilities

16

 

 

 

 

Statement of Operations

17

 

 

 

 

Statements of Changes in Net Assets

18

 

 

 

 

Statement of Cash Flows

19

 

 

 

 

Financial Highlights

20

 

 

 

 

Notes to Financial Statements

21

 

 

 

Fund Objective

Additional Shareholder Information

30

The Fund’s investment

 

 

objective is total return

Dividend Reinvestment Plan

31

with an emphasis on

 

 

income.

 

 

 


 

 

Letter from the Chairman

 

 



R. JAY GERKEN, CFA

Chairman, President and
Chief Executive Officer

Dear Shareholder,

 

The U.S. economy showed signs of weakening during the six-month reporting period. U.S. gross domestic product (“GDP”)i expanded 2.5% in the fourth quarter of 2006. Based on the preliminary estimate from the U.S. Commerce Department, GDP growth was a tepid 0.6% in the first quarter of 2007. While consumer spending remained fairly solid, ongoing troubles in the housing market continued to negatively impact the economy. In addition, corporate spending was mixed during the reporting period.

 

After increasing the federal funds rateii to 5.25% in June 2006 — its 17th consecutive rate hike — the Federal Reserve Board (“Fed”)iii held rates steady at its last seven meetings. In its statement accompanying the May 2007 meeting, the Fed stated, “Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters. Core inflation remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.”

 

Despite concerns regarding the economy and increased volatility in the financial markets, stock prices generally rose during the six-month reporting period. After treading water during the first half of 2006, U.S. stocks rallied through the end of the year. 2007 began on a positive note, as the S&P 500 Indexiv hit a six-year high in January. Stock prices rose on the back of optimism for continued solid corporate profits and hopes for a soft economic landing. The U.S. stock market’s ascent continued during much of February 2007, before a sharp decline at the end of the

 

LMP Capital and Income Fund Inc.           I


 

 

month. This was, in part, triggered by an 8.8% fall in China’s stock market on February 28th, its worst one-day performance in 10 years. The repercussions of this decline were widespread, as stock markets around the world also declined. After a modest increase in March, U.S. stock prices rallied sharply in April 2007, due to surprisingly strong first quarter corporate profits. All told, the S&P 500 Index returned 8.60% during the six months ended April 30, 2007.

 

 

 

During the reporting period, short- and long-term Treasury yields experienced periods of volatility. Initially, yields fluctuated given mixed economic data and shifting expectations regarding the Fed’s future monetary policy. Yields then fell sharply at the end of February 2007, as economic data weakened and the stock market experienced its largest one-day decline in more than five years. Overall, during the six months ended April 30, 2007, two-year Treasury yields fell from 4.71% to 4.60%. Over the same period, 10-year Treasury yields moved from 4.61% to 4.63%. Looking at the six-month period as a whole, the overall bond market, as measured by the Lehman Brothers U.S. Aggregate Indexv, returned 2.64%.

 

 

 

Performance Review

 

 

 

For the six months ended April 30, 2007, LMP Capital and Income Fund Inc. returned 10.63% based on its net asset value (“NAV”)vi and 12.37% based on its New York Stock Exchange (“NYSE”) market price per share. In comparison, the Fund’s unmanaged benchmarks, the Lehman Brothers U.S. Aggregate Index and S&P 500 Index, returned 2.64% and 8.60%, respectively, for the same time frame. The Lipper Income and Preferred Stock Closed-End Funds Category Averagevii increased 5.98% over the same period. Please note that Lipper performance returns are based on each fund’s NAV per share.

 

 

 

During this six-month period, the Fund made distributions to shareholders totaling $0.75 per share. The performance table shows the Fund’s six-month total return based on

 

II             LMP Capital and Income Fund Inc.


 

 

its NAV and market price as of April 30, 2007. Past performance is no guarantee of future results.

 

Performance Snapshot as of April 30, 2007 (unaudited)

 

Price Per Share

 

Six-Month
Total Return

 

$22.61 (NAV)

 

10.63%

 

$19.66 (Market Price)

 

12.37%

 

 

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, including returns of capital, if any, in additional shares.

 

 

Special Shareholder Notices

 

 

 

The Fund’s Board of Directors approved a change in the benchmark indices for the Fund to include the Lehman Brothers U.S. Aggregate Index in addition to the S&P 500 Index. This change became effective April 2, 2007. In the opinion of the investment manager, the use of both the S&P 500 Index and the Lehman Brothers U.S. Aggregate Index provides more effective benchmark indices for the Fund, which has the ability to allocate assets to both equity and fixed income investments. The Fund’s investment objective is total return with an emphasis on income. Under normal market conditions, the Fund seeks to achieve 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.

 

 

 

Pursuant to its Managed Distribution Policy, the Fund intends to make regular monthly distributions to shareholders of its common stock at a fixed rate per common share, which may be adjusted from time to time by the Fund’s Board of Directors. Under the Fund’s Managed Distribution Policy, if, for any monthly distribution, the total net investment income and net realized capital gain is less than the amount of the distribution, the difference will be distributed from the Fund’s assets (and constitute a “return of capital”). The Board of Directors may terminate the Managed Distribution Policy at any time, including when certain events would make part of the return of capital taxable to

 

LMP Capital and Income Fund Inc.           III


 

 

shareholders. Any such termination could have an adverse effect on the market price for the Fund’s shares.

 

 

 

Prior to October 9, 2006, the Fund was known as Salomon Brothers Capital and Income Fund Inc.

 

 

 

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. Barron’s and The Wall Street Journal’s 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/InvestorServices.

 

 

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 Fund’s current NAV, market price and other information.

 

 

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

 

 

 

June 4, 2007

 

IV            LMP Capital and Income Fund Inc.


 

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.

 

RISKS: As interest rates rise, bond prices fall, reducing the value of the Fund’s 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 Fund’s portfolio.

 

All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

 

i  

Gross Domestic Product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.

 

 

ii  

The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans.

 

 

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 S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S.

 

 

v  

The 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.

 

 

vi  

NAV is calculated by subtracting total liabilities 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 Fund’s market price, as determined by supply of and demand for the Fund’s shares.

 

 

vii  

Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the six-month period ended April 30, 2007, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 34 funds in the Fund’s Lipper category.

 

LMP Capital and Income Fund Inc.           V


 

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Fund at a Glance (unaudited)

 

Investment Breakdown

 

As a Percent of Total Investments

 

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report           1


 

Schedule of Investments (April 30, 2007) (unaudited)

 

LMP CAPITAL AND INCOME FUND INC.

 

 

Shares

 

Security

 

Value

 

COMMON STOCKS — 72.6%

 

 

 

CONSUMER DISCRETIONARY — 6.5%

 

 

 

Hotels, Restaurants & Leisure — 2.4%

 

 

 

222,600

 

Ameristar Casinos Inc.

 

$

6,758,136

 

175,940

 

Penn National Gaming Inc. *

 

8,504,940

 

79,400

 

Starwood Hotels & Resorts Worldwide Inc.

 

5,321,388

 

 

 

Total Hotels, Restaurants & Leisure

 

20,584,464

 

Household Durables — 0.0%

 

 

 

1,226,577

 

Home Interiors & Gifts Inc. (a)(b)*

 

12,266

 

Media — 4.1%

 

 

 

160,000

 

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

 

18,075,200

 

86,800

 

R.H. Donnelley Corp. *

 

6,778,212

 

633,700

 

Warner Music Group Corp.

 

10,899,640

 

 

 

Total Media

 

35,753,052

 

 

 

TOTAL CONSUMER DISCRETIONARY

 

56,349,782

 

 

 

 

 

 

 

CONSUMER STAPLES — 2.8%

 

 

 

Food Products — 1.0%

 

 

 

226,700

 

Archer-Daniels-Midland Co.

 

8,773,290

 

Tobacco — 1.8%

 

 

 

216,800

 

Altria Group Inc.

 

14,941,856

 

 

 

TOTAL CONSUMER STAPLES

 

23,715,146

 

 

 

 

 

 

 

ENERGY — 9.9%

 

 

 

Energy Equipment & Services — 3.7%

 

 

 

175,740

 

CCS Income Trust

 

5,771,728

 

81,600

 

Diamond Offshore Drilling Inc.

 

6,984,960

 

101,050

 

SEACOR Holdings Inc. *

 

9,628,044

 

116,700

 

Transocean Inc. *

 

10,059,540

 

 

 

Total Energy Equipment & Services

 

32,444,272

 

Oil, Gas & Consumable Fuels — 6.2%

 

 

 

260,850

 

Anadarko Petroleum Corp.

 

12,171,261

 

192,410

 

Cheniere Energy Inc. *

 

6,416,874

 

464,900

 

Crosstex Energy Inc.

 

13,970,245

 

212,820

 

Range Resources Corp.

 

7,778,571

 

176,560

 

Total SA, ADR

 

13,010,706

 

 

 

Total Oil, Gas & Consumable Fuels

 

53,347,657

 

 

 

TOTAL ENERGY

 

85,791,929

 

 

See Notes to Financial Statements.

 

2              LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Shares

 

Security

 

Value

 

FINANCIALS — 20.9%

 

 

 

Capital Markets — 4.0%

 

 

 

523,200

 

E*TRADE Financial Corp. *

 

$

11,552,256

 

356,300

 

UBS AG

 

23,123,870

 

 

 

Total Capital Markets

 

34,676,126

 

Commercial Banks — 1.6%

 

 

 

376,700

 

Wells Fargo & Co.

 

13,519,763

 

Consumer Finance — 4.5%

 

 

 

391,300

 

American Express Co.

 

23,740,171

 

207,832

 

Capital One Financial Corp.

 

15,433,604

 

 

 

Total Consumer Finance

 

39,173,775

 

Insurance — 10.8%

 

 

 

173,900

 

ACE Ltd.

 

10,340,094

 

274,000

 

AFLAC Inc.

 

14,067,160

 

269,700

 

American International Group Inc.

 

18,854,727

 

222,900

 

Chubb Corp.

 

11,998,707

 

519,910

 

Fidelity National Financial Inc., Class A Shares

 

13,252,506

 

185,000

 

First American Corp.

 

9,527,500

 

468,400

 

Marsh & McLennan Cos. Inc.

 

14,876,384

 

 

 

Total Insurance

 

92,917,078

 

 

 

TOTAL FINANCIALS

 

180,286,742

 

 

 

 

 

 

 

HEALTH CARE — 4.4%

 

 

 

Health Care Equipment & Supplies — 1.2%

 

 

 

177,100

 

Baxter International Inc.

 

10,029,173

 

Health Care Providers & Services — 2.3%

 

 

 

148,300

 

UnitedHealth Group Inc.

 

7,868,798

 

156,000

 

WellPoint Inc. *

 

12,319,320

 

 

 

Total Health Care Providers & Services

 

20,188,118

 

Health Care Technology — 0.9%

 

 

 

265,300

 

IMS Health Inc.

 

7,781,249

 

 

 

TOTAL HEALTH CARE

 

37,998,540

 

 

 

 

 

 

 

INDUSTRIALS — 11.8%

 

 

 

Aerospace & Defense — 4.2%

 

 

 

115,520

 

Alliant Techsystems Inc. *

 

10,758,378

 

153,010

 

L-3 Communications Holdings Inc.

 

13,760,189

 

179,900

 

United Technologies Corp.

 

12,076,687

 

 

 

Total Aerospace & Defense

 

36,595,254

 

Air Freight & Logistics — 0.7%

 

 

 

84,100

 

United Parcel Service Inc., Class B Shares

 

5,923,163

 

Commercial Services & Supplies — 1.0%

 

 

 

366,100

 

Covanta Holding Corp. *

 

8,984,094

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report           3


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Shares

 

Security

 

Value

 

Industrial Conglomerates — 5.0%

 

 

 

701,500

 

General Electric Co.

 

$

25,857,290

 

524,700

 

Tyco International Ltd.

 

17,120,961

 

 

 

Total Industrial Conglomerates

 

42,978,251

 

Machinery — 0.9%

 

 

 

223,010

 

Mueller Industries Inc.

 

7,314,728

 

 

 

TOTAL INDUSTRIALS

 

101,795,490

 

 

 

 

 

 

 

INFORMATION TECHNOLOGY — 13.6%

 

 

 

Communications Equipment — 2.8%

 

 

 

441,400

 

Cisco Systems Inc. *

 

11,803,036

 

286,300

 

QUALCOMM Inc.

 

12,539,940

 

 

 

Total Communications Equipment

 

24,342,976

 

Electronic Equipment & Instruments — 1.0%

 

 

 

242,500

 

Agilent Technologies Inc. *

 

8,334,725

 

Internet Software & Services — 1.1%

 

 

 

340,800

 

Yahoo! Inc. *

 

9,556,032

 

IT Services — 5.0%

 

 

 

245,700

 

Ceridian Corp. *

 

8,294,832

 

107,380

 

eFunds Corp. *

 

2,995,902

 

314,811

 

Fidelity National Information Services Inc.

 

15,907,400

 

548,710

 

Hewitt Associates Inc., Class A Shares *

 

16,324,122

 

 

 

Total IT Services

 

43,522,256

 

Software — 3.7%

 

 

 

673,000

 

Microsoft Corp.

 

20,149,620

 

180,800

 

Oracle Corp. *

 

3,399,040

 

462,800

 

Symantec Corp. *

 

8,145,280

 

 

 

Total Software

 

31,693,940

 

 

 

TOTAL INFORMATION TECHNOLOGY

 

117,449,929

 

 

 

 

 

 

 

MATERIALS — 0.8%

 

 

 

Chemicals — 0.8%

 

 

 

270,360

 

Nalco Holding Co.

 

7,186,169

 

UTILITIES — 1.9%

 

 

 

Gas Utilities — 1.9%

 

 

 

348,160

 

National Fuel Gas Co.

 

16,367,002

 

 

 

TOTAL COMMON STOCKS
(Cost — $584,357,002)

 

626,940,729

 

 

See Notes to Financial Statements.

 

4              LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

ASSET-BACKED SECURITIES — 0.7%

 

 

 

Home Equity — 0.7%

 

 

 

$

750,000

 

Asset-Backed Funding Certificates, Series 2004-FF1, Class M2, 6.770% due 1/25/34 (c)

 

$

754,389

 

 

 

Countrywide Asset-Backed Certificates:

 

 

 

209,859

 

Series 2003-03, Class M4, 6.720% due 3/25/33 (c)

 

211,277

 

410,000

 

Series 2004-05, Class M4, 6.570% due 6/25/34 (c)

 

412,444

 

73,417

 

Finance America Net Interest Margin Trust, Series 2004-01, Class A, 5.250% due 6/27/34 (d)

 

280

 

 

 

Fremont Home Loan Trust:

 

 

 

214,244

 

Series 2004-01, Class M5, 6.420% due 2/25/34 (c)

 

214,624

 

875,000

 

Series 2004-D, Class M5, 6.320% due 11/25/34 (c)

 

877,045

 

1,005,000

 

GSAMP Trust, Series 2004-OPT, Class M3, 6.470% due 11/25/34 (c)

 

1,010,299

 

3,420

 

Merrill Lynch Mortgage Investors Inc., Series 2005-WM1N, Class N1, 5.000% due 9/25/35 (d)

 

3,271

 

1,500,000

 

Option One Mortgage Loan Trust, Series 2004-02, Class M2, 6.370% due 5/25/34 (c)

 

1,500,930

 

596,937

 

Renaissance Home Equity Loan Trust, Series 2003-4, Class M3, 7.220% due 3/25/34 (c)

 

603,211

 

 

 

Sail Net Interest Margin Notes:

 

 

 

141,210

 

Series 2003-BC2A, Class A, 7.750% due 4/27/33 (d)

 

33,591

 

71,380

 

Series 2004-2A, Class A, 5.500% due 3/27/34 (d)

 

19,397

 

 

 

TOTAL ASSET-BACKED SECURITIES
(Cost — $5,864,755)

 

5,640,758

 

 

 

 

 

 

 

COLLATERALIZED MORTGAGE OBLIGATIONS — 0.4%

 

 

 

260,000

 

American Home Mortgage Investment Trust, Series 2005-4, Class M3, 6.120% due 11/25/45 (c)

 

258,758

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC):

 

 

 

85,781

 

Series 2764, Class DT, 6.000% due 3/15/34 (c)

 

83,755

 

567,903

 

Series 2780, Class SL, PAC, 6.000% due 4/15/34 (c)

 

563,276

 

747,781

 

Harborview Mortgage Loan Trust, Series 2005-10, Class B6, 6.390% due 11/19/35 (c)

 

729,904

 

588,644

 

Merit Securities Corp., Series 11PA, Class B2, 6.820% due 9/28/32 (c)(d)

 

506,834

 

 

 

MLCC Mortgage Investors Inc.:

 

 

 

507,310

 

Series 2004-A, Class B2, 6.240% due 4/25/29 (c)

 

507,937

 

732,307

 

Series 2004-B, Class B2, 6.200% due 5/25/29 (c)

 

735,559

 

 

 

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
(Cost — $3,410,522)

 

3,386,023

 

 

 

 

 

CORPORATE BONDS & NOTES — 7.9%

 

 

 

Aerospace & Defense — 0.0%

 

 

 

 

 

 

 

275,000

 

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

 

279,125

 

Airlines — 0.0%

 

 

 

170,000

 

Continental Airlines Inc., Notes, 8.750% due 12/1/11

 

168,725

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report           5


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Auto Components — 0.2%

 

 

 

$

295,000

 

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

 

$

281,725

 

1,075,000

 

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

 

1,101,875

 

 

 

Total Auto Components

 

1,383,600

 

Automobiles — 0.1%

 

 

 

110,000

 

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

 

97,625

 

630,000

 

General Motors Corp., Senior Debentures, 8.250% due 7/15/23

 

573,300

 

 

 

Total Automobiles

 

670,925

 

Building Products — 0.1%

 

 

 

540,000

 

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

 

565,650

 

490,000

 

NTK Holdings Inc., Senior Discount Notes, step bond to yield 11.186% due 3/1/14

 

369,950

 

 

 

Total Building Products

 

935,600

 

Capital Markets — 0.1%

 

 

 

 

 

E*TRADE Financial Corp., Senior Notes:

 

 

 

160,000

 

7.375% due 9/15/13

 

167,800

 

65,000

 

7.875% due 12/1/15

 

70,444

 

340,000

 

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

 

368,733

 

 

 

Total Capital Markets

 

606,977

 

Chemicals — 0.2%

 

 

 

1,000,000

 

Equistar Chemicals LP, Senior Notes, 10.625% due 5/1/11

 

1,060,000

 

570,000

 

Georgia Gulf Corp., Senior Notes, 9.500% due 10/15/14 (d)

 

572,850

 

110,000

 

Huntsman International LLC, Senior Subordinated Notes, 7.875% due 11/13/14 (d)

 

115,500

 

6,000

 

PPG Industries Inc., Notes, 6.500% due 11/1/07

 

6,015

 

 

 

Total Chemicals

 

1,754,365

 

Commercial Banks — 0.1%

 

 

 

125,000

 

American Express Centurion Bank, Notes, 5.410% due 7/19/07 (c)

 

125,030

 

250,000

 

Bank United Corp., Senior Notes, 8.875% due 5/1/07

 

250,000

 

68,181

 

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

 

66,156

 

340,000

 

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

 

359,962

 

340,000

 

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

 

344,444

 

 

 

Total Commercial Banks

 

1,145,592

 

Commercial Services & Supplies — 0.2%

 

 

 

180,000

 

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

 

183,600

 

75,000

 

Allied Waste North America Inc., Senior Notes, Series B, 7.250% due 3/15/15

 

77,438

 

40,000

 

Aramark Corp., Senior Notes, 8.860% due 2/1/15 (c)(d)

 

41,300

 

315,000

 

DynCorp International LLC/DIV Capital Corporation, Senior Subordinated Notes, Series B, 9.500% due 2/15/13

 

340,200

 

600,000

 

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

 

657,000

 

210,000

 

Rental Services Corp., Senior Bonds, 9.500% due 12/1/14 (d)

 

224,175

 

 

 

Total Commercial Services & Supplies

 

1,523,713

 

 

See Notes to Financial Statements.

 

6              LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Consumer Finance — 0.4%

 

 

 

 

 

Ford Motor Credit Co.:

 

 

 

$

1,050,000

 

Notes, 7.000% due 10/1/13

 

$

994,124

 

 

 

Senior Notes:

 

 

 

750,000

 

5.800% due 1/12/09

 

737,783

 

135,000

 

9.750% due 9/15/10

 

142,955

 

559,000

 

10.605% due 6/15/11 (c)

 

602,973

 

170,000

 

8.000% due 12/15/16

 

166,529

 

 

 

General Motors Acceptance Corp., Notes:

 

 

 

500,000

 

5.625% due 5/15/09

 

493,207

 

300,000

 

6.750% due 12/1/14

 

296,278

 

125,000

 

SLM Corp., Medium-Term Notes, Series A, 5.555% due 1/26/09 (c)

 

123,834

 

 

 

Total Consumer Finance

 

3,557,683

 

Containers & Packaging — 0.2%

 

 

 

550,000

 

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

 

572,000

 

535,000

 

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

 

575,125

 

195,000

 

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

 

209,625

 

 

 

Total Containers & Packaging

 

1,356,750

 

Diversified Consumer Services — 0.0%

 

 

 

 

 

Education Management LLC/Education Management Finance Corp.:

 

 

 

20,000

 

Senior Notes, 8.750% due 6/1/14

 

21,250

 

210,000

 

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

 

230,475

 

 

 

Total Diversified Consumer Services

 

251,725

 

Diversified Financial Services — 0.4%

 

 

 

150,000

 

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

 

137,250

 

100,000

 

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

 

98,716

 

100,000

 

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

 

99,653

 

870,000

 

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

 

909,150

 

125,000

 

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

 

126,987

 

110,493

 

Core Investment Grade Bond Trust I, Pass-Through Certificates, 4.642% due 11/30/07

 

110,107

 

125,000

 

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

 

121,755

 

162,000

 

Global Cash Access LLC/Global Cash Finance Corp., Senior Subordinated Notes, 8.750% due 3/15/12

 

170,505

 

125,000

 

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

 

126,485

 

410,000

 

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

 

429,475

 

60,000

 

Milacron Escrow Corp., Senior Secured Notes, 11.500% due 5/15/11

 

59,775

 

69,000

 

UCAR Finance Inc., Senior Notes, 10.250% due 2/15/12

 

72,967

 

160,000

 

UGS Corp., Senior Subordinated Notes, 10.000% due 6/1/12

 

175,200

 

620,000

 

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

 

520,800

 

260,000

 

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

 

270,725

 

 

 

Total Diversified Financial Services

 

3,429,550

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report           7


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Diversified Telecommunication Services — 0.6%

 

 

 

$

100,000

 

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

 

$

100,580

 

400,000

 

Hawaiian Telcom Communications Inc., Senior Subordinated Notes, Series B, 12.500% due 5/1/15

 

452,000

 

 

 

Intelsat Bermuda Ltd.:

 

 

 

180,000

 

9.250% due 6/15/16

 

198,900

 

 

 

Senior Notes:

 

 

 

90,000

 

8.872% due 1/15/15 (c)

 

92,475

 

680,000

 

11.250% due 6/15/16

 

779,450

 

 

 

Level 3 Financing Inc., Senior Notes:

 

 

 

25,000

 

9.250% due 11/1/14 (d)

 

26,094

 

10,000

 

9.150% due 2/15/15 (c)(d)

 

10,175

 

 

 

NTL Cable PLC, Senior Notes:

 

 

 

450,000

 

8.750% due 4/15/14

 

474,750

 

220,000

 

9.125% due 8/15/16

 

235,950

 

 

 

Qwest Communications International Inc., Senior Notes:

 

 

 

285,000

 

7.500% due 2/15/14

 

295,687

 

740,000

 

Series B, 7.500% due 2/15/14

 

767,750

 

605,000

 

Telcordia Technologies Inc., Senior Subordinated Notes, 10.000% due 3/15/13 (d)

 

574,750

 

100,000

 

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

 

96,278

 

660,000

 

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

 

727,650

 

 

 

Total Diversified Telecommunication Services

 

4,832,489

 

Electric Utilities — 0.1%

 

 

 

283,000

 

Midwest Generation LLC, Secured Notes, 8.750% due 5/1/34

 

314,130

 

100,000

 

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

 

116,000

 

 

 

Total Electric Utilities

 

430,130

 

Electronic Equipment & Instruments — 0.1%

 

 

 

1,065,000

 

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

 

1,123,575

 

Energy Equipment & Services — 0.2%

 

 

 

725,000

 

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

 

753,094

 

529,000

 

Dresser-Rand Group Inc., Senior Subordinated Notes, 7.375% due 11/1/14

 

542,225

 

95,000

 

Geokinetics Inc., Senior Secured Notes, 11.855% due 12/15/12 (c)(d)

 

98,562

 

55,000

 

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

 

56,719

 

10,000

 

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

 

12,091

 

 

 

Total Energy Equipment & Services

 

1,462,691

 

Food & Staples Retailing — 0.0%

 

 

 

150,000

 

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

 

152,505

 

Food Products — 0.0%

 

 

 

 

 

Dole Food Co. Inc., Senior Notes:

 

 

 

125,000

 

7.250% due 6/15/10

 

123,281

 

261,000

 

8.875% due 3/15/11

 

265,568

 

 

 

Total Food Products

 

388,849

 

 

See Notes to Financial Statements.

 

8              LMP Capital and Income Fund Inc. 2007 Semi-Annual Report           


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Health Care Providers & Services — 0.4%

 

 

 

$

250,000

 

AmeriPath Inc., Senior Subordinated Notes, 10.500% due 4/1/13

 

$

273,438

 

260,000

 

DaVita Inc., Senior Notes, 6.625% due 3/15/13 (d)

 

262,275

 

600,000

 

Genesis HealthCare Corp., Senior Subordinated Notes, 8.000% due 10/15/13

 

640,500

 

 

 

HCA Inc.:

 

 

 

295,000

 

Notes, 6.375% due 1/15/15

 

257,756

 

345,000

 

Senior Notes, 6.500% due 2/15/16

 

302,306

 

 

 

Senior Secured Notes:

 

 

 

215,000

 

9.250% due 11/15/16 (d)

 

234,888

 

165,000

 

9.625% due 11/15/16 (d)(f)

 

180,469

 

425,000

 

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

 

442,531

 

 

 

Tenet Healthcare Corp., Senior Notes:

 

 

 

650,000

 

7.375% due 2/1/13

 

614,250

 

70,000

 

9.875% due 7/1/14

 

72,100

 

175,000

 

Triad Hospitals Inc., Senior Subordinated Notes, 7.000% due 11/15/13

 

183,750

 

150,000

 

UnitedHealth Group Inc., Senior Notes, 3.300% due 1/30/08

 

147,599

 

 

 

Total Health Care Providers & Services

 

3,611,862

 

Hotels, Restaurants & Leisure — 0.9%

 

 

 

1,000,000

 

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

 

1,003,750

 

315,000

 

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

 

320,906

 

550,000

 

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

 

589,875

 

100,000

 

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

 

109,250

 

450,000

 

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

 

433,125

 

660,000

 

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

 

721,875

 

700,000

 

Isle of Capri Casinos Inc., Senior Subordinated Notes, 7.000% due 3/1/14

 

693,000

 

 

 

MGM MIRAGE Inc.:

 

 

 

 

 

Senior Notes:

 

 

 

380,000

 

6.750% due 9/1/12

 

382,375

 

575,000

 

5.875% due 2/27/14

 

542,656

 

320,000

 

7.625% due 1/15/17

 

328,000

 

203,000

 

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

 

220,001

 

500,000

 

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

 

516,250

 

625,000

 

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

 

639,063

 

 

 

Station Casinos Inc.:

 

 

 

 

 

Senior Notes:

 

 

 

60,000

 

6.000% due 4/1/12

 

59,100

 

250,000

 

7.750% due 8/15/16

 

261,250

 

105,000

 

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

 

99,225

 

500,000

 

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

 

512,500

 

 

 

Total Hotels, Restaurants & Leisure

 

7,432,201

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report           9


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Household Durables — 0.2%

 

 

 

$

405,000

 

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

 

$

409,050

 

325,000

 

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

 

340,438

 

700,000

 

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

 

640,500

 

350,000

 

Sealy Mattress Co., Senior Subordinated Notes, 8.250% due 6/15/14

 

370,125

 

 

 

Total Household Durables

 

1,760,113

 

Household Products — 0.0%

 

 

 

345,000

 

Nutro Products Inc., Senior Subordinated Notes, 10.750% due 4/15/14 (d)

 

367,425

 

Independent Power Producers & Energy Traders — 0.3%

 

 

 

670,000

 

Edison Mission Energy, Senior Notes, 7.730% due 6/15/09

 

706,850

 

 

 

NRG Energy Inc., Senior Notes:

 

 

 

250,000

 

7.250% due 2/1/14

 

259,375

 

1,025,000

 

7.375% due 2/1/16

 

1,067,281

 

190,000

 

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

 

171,427

 

 

 

Total Independent Power Producers & Energy Traders

 

2,204,933

 

Insurance — 0.1%

 

 

 

470,000

 

Crum & Forster Holdings Corp., Senior Notes, 10.375% due 6/15/13

 

517,931

 

75,000

 

Marsh & McLennan Cos. Inc., Notes, 5.495% due 7/13/07 (c)

 

75,013

 

500,000

 

Nationwide Life Global Funding I, Notes, 5.440% due 9/28/07 (c)(d)

 

500,242

 

 

 

Total Insurance

 

1,093,186

 

IT Services — 0.1%

 

 

 

 

 

SunGard Data Systems Inc.:

 

 

 

400,000

 

Senior Notes, 9.125% due 8/15/13

 

431,000

 

270,000

 

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

 

298,350

 

 

 

Total IT Services

 

729,350

 

Machinery — 0.1%

 

 

 

839,000

 

Mueller Holdings Inc., Senior Discount Notes, step bond to yield 11.471% due 4/15/14

 

788,660

 

Media — 0.8%

 

 

 

435,000

 

Affinion Group Inc., Senior Notes, 10.125% due 10/15/13

 

476,325

 

725,000

 

AMC Entertainment Inc., Senior Subordinated Notes, 11.000% due 2/1/16

 

835,562

 

380,000

 

CCH I Holdings LLC/CCH I Holdings Capital Corp., Senior Notes, 11.750% due 5/15/14

 

380,000

 

569,000

 

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

 

607,407

 

 

 

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

 

 

 

480,000

 

10.250% due 9/15/10

 

513,600

 

65,000

 

10.250% due 10/1/13

 

71,744

 

105,000

 

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

 

108,675

 

700,000

 

Charter Communications Operating LLC, Second Lien Senior Notes, 8.375% due 4/30/14 (d)

 

737,625

 

 

See Notes to Financial Statements.

10     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Media — 0.8% (continued)

 

 

 

$

240,000

 

CMP Susquehanna Corp., Senior Subordinated Notes, 9.875% due 5/15/14 (d)

 

$

246,000

 

300,000

 

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

 

319,157

 

65,000

 

ION Media Networks Inc., Senior Secured Notes, 11.606% due 1/15/13 (c)(d)

 

67,925

 

230,000

 

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

 

229,425

 

300,000

 

Primedia Inc., Senior Notes, 8.875% due 5/15/11

 

309,750

 

 

 

R.H. Donnelley Corp.:

 

 

 

 

 

Senior Discount Notes:

 

 

 

355,000

 

Series A-1, 6.875% due 1/15/13

 

353,669

 

300,000

 

Series A-2, 6.875% due 1/15/13

 

298,875

 

450,000

 

Senior Notes, Series A-3, 8.875% due 1/15/16

 

490,500

 

50,000

 

Rainbow National Services LLC, Senior Subordinated Debentures, 10.375% due 9/1/14 (d)

 

56,563

 

420,000

 

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

 

447,729

 

 

 

Total Media

 

6,550,531

 

Metals & Mining — 0.3%

 

 

 

960,000

 

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

 

1,052,400

 

420,000

 

Metals USA Holdings Corp., Senior Notes, 11.356% due 1/15/12 (c)(d)(f)

 

417,900

 

435,000

 

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

 

485,025

 

135,000

 

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

 

143,100

 

156,000

 

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

 

166,249

 

 

 

Total Metals & Mining

 

2,264,674

 

Multi-Utilities — 0.0%

 

 

 

125,000

 

Keyspan Gas East Corp., Medium-Term Notes, 6.900% due 1/15/08

 

126,244

 

Multiline Retail — 0.1%

 

 

 

535,000

 

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

 

603,881

 

Office Electronics — 0.0%

 

 

 

290,000

 

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

 

307,222

 

Oil, Gas & Consumable Fuels — 0.7%

 

 

 

60,000

 

Anadarko Petroleum Corp., Senior Notes, 5.950% due 9/15/16

 

60,574

 

440,000

 

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

 

455,400

 

775,000

 

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

 

779,844

 

85,000

 

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

 

89,675

 

 

 

El Paso Corp., Medium-Term Notes:

 

 

 

180,000

 

7.800% due 8/1/31

 

201,600

 

1,050,000

 

7.750% due 1/15/32

 

1,176,000

 

500,000

 

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

 

503,750

 

260,000

 

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

 

266,825

 

 

 

Kerr-McGee Corp.:

 

 

 

140,000

 

6.950% due 7/1/24

 

149,675

 

300,000

 

Notes, 6.875% due 9/15/11

 

318,239

 

605,000

 

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

 

642,812

 

290,000

 

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

 

300,875

 

170,000

 

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

 

170,000

 

 

See Notes to Financial Statements.

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report      11


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Oil, Gas & Consumable Fuels — 0.7% (continued)

 

 

 

 

 

Williams Cos. Inc.:

 

 

 

$

100,000

 

Notes, 8.750% due 3/15/32

 

$

116,875

 

470,000

 

Senior Notes, 7.750% due 6/15/31

 

508,775

 

170,000

 

XTO Energy Inc., Senior Notes, 7.500% due 4/15/12

 

186,361

 

 

 

Total Oil, Gas & Consumable Fuels

 

5,927,280

 

Paper & Forest Products — 0.2%

 

 

 

140,000

 

Abitibi-Consolidated Co. of Canada, 6.000% due 6/20/13

 

121,800

 

545,000

 

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

 

567,481

 

 

 

NewPage Corp.:

 

 

 

435,000

 

Senior Secured Notes, 11.610% due 5/1/12 (c)

 

484,481

 

200,000

 

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

 

223,250

 

205,000

 

Verso Paper Holdings LLC, Senior Secured Notes, 9.125% due 8/1/14 (d)

 

216,788

 

150,000

 

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

 

158,151

 

 

 

Total Paper & Forest Products

 

1,771,951

 

Pharmaceuticals — 0.0%

 

 

 

425,000

 

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

 

419,688

 

Real Estate Investment Trusts (REITs) — 0.0%

 

 

 

75,000

 

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

 

74,476

 

50,000

 

Simon Property Group LP, Notes, 6.375% due 11/15/07

 

50,234

 

85,000

 

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

 

86,381

 

200,000

 

Vornado Realty LP, Senior Notes, 5.625% due 6/15/07

 

199,955

 

 

 

Total Real Estate Investment Trusts (REITs)

 

411,046

 

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

 

260,888

 

Road & Rail — 0.2%

 

 

 

1,005,000

 

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

 

1,150,725

 

50,000

 

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

 

51,000

 

430,000

 

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

 

441,825

 

 

 

Total Road & Rail

 

1,643,550

 

Semiconductors & Semiconductor Equipment — 0.0%

 

 

 

345,000

 

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

 

347,156

 

Software — 0.0%

 

 

 

393,922

 

UGS Capital Corp. II, Senior Notes, 10.348% due 6/1/11 (c)(d)(f)

 

407,709

 

Specialty Retail — 0.1%

 

 

 

235,000

 

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

 

240,875

 

165,000

 

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

 

184,800

 

100,000

 

Linens ‘n Things Inc., Senior Secured Notes, 10.981% due 1/15/14 (c)

 

94,625

 

 

 

Total Specialty Retail

 

520,300

 

Textiles, Apparel & Luxury Goods — 0.1%

 

 

 

390,000

 

Levi Strauss & Co., Senior Notes, 9.750% due 1/15/15

 

429,975

 

300,000

 

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

 

312,750

 

 

 

Total Textiles, Apparel & Luxury Goods

 

742,725

 

 

See Notes to Financial Statements.

12     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Tobacco — 0.0%

 

 

 

$

70,000

 

Alliance One International Inc., Senior Notes, 11.000% due 5/15/12

 

$

78,050

 

Trading Companies & Distributors — 0.1%

 

 

 

355,000

 

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

 

383,400

 

390,000

 

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

 

429,000

 

 

 

Total Trading Companies & Distributors

 

812,400

 

Wireless Telecommunication Services — 0.2%

 

 

 

 

 

Rural Cellular Corp.:

 

 

 

245,000

 

Senior Notes, 9.875% due 2/1/10

 

260,312

 

110,000

 

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

 

116,600

 

340,000

 

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

 

379,045

 

780,000

 

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

 

822,900

 

 

 

Total Wireless Telecommunication Services

 

1,578,857

 

 

 

TOTAL CORPORATE BONDS & NOTES
(Cost — $65,842,511)

 

68,216,451

 

 

 

 

 

 

 

LOAN PARTICIPATION — 0.1%

 

 

 

Telecommunications — 0.1%

 

 

 

1,000,000

 

UPC Broadband Holding B.V., Term Loan, 7.640% due 3/15/13
(Toronto Dominion)(c)(g) (Cost — $1,000,000)

 

1,002,143

 

MORTGAGE-BACKED SECURITIES — 6.1%

 

 

 

FHLMC — 3.8%

 

 

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC):

 

 

 

3,484,106

 

5.121% due 6/1/35 (c)

 

3,502,595

 

 

 

Gold:

 

 

 

859,766

 

7.000% due 6/1/17

 

886,703

 

12,474,725

 

6.000% due 7/1/21 (h)

 

12,686,001

 

418,613

 

8.500% due 9/1/25

 

450,495

 

784,256

 

6.500% due 8/1/29

 

810,120

 

14,696,093

 

6.000% due 9/1/32-2/1/36

 

14,859,869

 

 

 

Total FHLMC

 

33,195,783

 

FNMA — 2.1%

 

 

 

 

 

Federal National Mortgage Association (FNMA):

 

 

 

961,112

 

8.000% due 12/1/12

 

980,517

 

1,940,556

 

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

 

1,928,012

 

1,868,985

 

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

 

1,958,981

 

619,591

 

4.209% due 12/1/34 (c)

 

613,258

 

851,329

 

4.860% due 1/1/35 (c)

 

851,645

 

1,153,005

 

5.080% due 3/1/35 (c)

 

1,156,600

 

2,133,765

 

4.618% due 4/1/35 (c)

 

2,159,920

 

3,090,160

 

5.610% due 4/1/36 (c)

 

3,109,473

 

5,544,753

 

5.598% due 5/1/36 (c)

 

5,579,408

 

 

 

Total FNMA

 

18,337,814

 

GNMA — 0.2%

 

 

 

1,445,812

 

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

 

1,453,698

 

 

 

TOTAL MORTGAGE-BACKED SECURITIES
(Cost — $52,916,296)

 

52,987,295

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report      13


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount†

 

Security

 

Value

 

SOVEREIGN BOND — 0.0%

 

 

 

Argentina — 0.0%

 

 

 

69,931ARS

 

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

 

$

2,907

 

 

 

 

 

 

 

 

U.S. GOVERNMENT & AGENCY OBLIGATIONS — 1.5%

 

 

 

U.S. Government Agencies — 1.5%

 

 

 

100,000

 

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

 

104,209

 

 

 

Federal National Mortgage Association (FNMA):

 

 

 

140,000

 

6.625% due 9/15/09

 

145,687

 

12,600,000

 

Notes, 4.840% due 6/22/07 (h)

 

12,593,196

 

 

 

Total U.S. Government Agencies

 

12,843,092

 

U.S. Government Obligations — 0.0%

 

 

 

 

 

U.S. Treasury Bonds:

 

 

 

40,000

 

4.500% due 2/15/36

 

37,943

 

90,000

 

4.750% due 2/15/37

 

89,058

 

 

 

Total U.S. Government Obligations

 

127,001

 

 

 

TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS
(Cost — $12,962,489)

 

12,970,093

 

 

 

 

 

 

 

U.S. TREASURY INFLATION PROTECTED SECURITIES — 0.0%

 

 

 

96,659

 

U.S. Treasury Notes, Inflation Indexed, 0.875% due 4/15/10 (Cost — $92,171)

 

93,616

 

 

 

 

 

 

 

Contracts

 

 

 

 

 

PURCHASED OPTIONS — 1.0%

 

 

 

1,803

 

Johnson & Johnson, Call @ $60.00, expires 1/17/09

 

1,532,550

 

909

 

Johnson & Johnson, Call @ $65.00, expires 1/17/09

 

490,860

 

627

 

Marsh & Mclennan Companies, Call @ $25.00, expires 1/19/08

 

479,655

 

5,500

 

Oracle Corp., Call @ $15.00, expires 1/19/08

 

2,640,000

 

1,516

 

S&P 500 Index, Put @ $1,450.00, expires 7/21/07

 

3,032,000

 

1,010

 

United Parcel Service Inc., Call @ $65.00, expires 1/19/08

 

868,600

 

 

 

TOTAL PURCHASED OPTIONS
(Cost — $7,815,024)

 

9,043,665

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS
(Cost — $734,261,581)

 

780,283,680

 

 

 

 

 

 

 

Face
Amount

 

 

 

 

 

SHORT-TERM INVESTMENTS — 9.7%

 

 

 

U.S. Government Agencies — 3.9%

 

 

 

$

 33,300,000

 

Federal Home Loan Bank (FHLB), Discount Notes, 5.061% due 5/1/07 (i)

 

33,300,000

 

100,000

 

Federal National Mortgage Association (FNMA), Discount Notes, 5.197% due 6/25/07 (i)(j)

 

99,236

 

 

 

Total U.S. Government Agenies
(Cost — $33,399,236)

 

33,399,236

 

 

See Notes to Financial Statements.

 

14     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Schedule of Investments (April 30, 2007) (unaudited) (continued)

 

Face
Amount

 

Security

 

Value

 

Repurchase Agreements — 5.8%

 

 

 

$

16,169,000 

 

Interest in $372,329,000 joint tri-party repurchase agreement
dated 4/30/07 with Greenwich Capital Markets Inc., 5.230%
due 5/1/07; Proceeds at maturity — $16,171,349; (Fully collateralized by
various U.S. government agency obligations, 3.555% to 7.089%
due 7/1/12 to 11/1/46; Market value — $16,492,493)

 

$

16,169,000

 

17,000,000 

 

Interest in $500,000,000 joint tri-party repurchase agreement
dated 4/30/07 with Morgan Stanley, 5.200% due 5/1/07; Proceeds at
maturity — $17,002,456; (Fully collateralized by U.S. government agency
obligation, 0.000% due 6/17/33; Market value — $17,427,093)

 

17,000,000

 

17,027,000 

 

Nomura Securities International Inc. tri-party repurchase agreement dated 4/30/07, 5.170% due 5/1/07; Proceeds at maturity — $17,029,445; (Fully
collateralized by various U.S. government agency obligations, 0.000% to
7.125% due 9/4/07 to 4/30/26; Market value — $17,367,775)

 

17,027,000

 

 

 

Total Repurchase Agreements
(Cost — $50,196,000)

 

50,196,000

 

 

 

TOTAL SHORT-TERM INVESTMENTS
(Cost — $83,595,236)

 

83,595,236

 

 

 

 

 

 

 

 

 

TOTAL INVESTMENTS — 100.0% (Cost — $817,856,817#)

 

$

863,878,916

 

 

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

*   Non-income producing security.

(a)  Security is valued in good faith at fair value by or under the direction of the Board of Directors (See Note 1).

(b)  Illiquid security.

(c)  Variable rate security. Interest rate disclosed is that which is in effect at April 30, 2007.

(d)  Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security may be resold in transactions that are exempt from registration, normally to qualified institutional buyers. This security has been deemed liquid pursuant to guidelines approved by the Board of Directors, unless otherwise noted.

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

(f)   Payment-in-kind security for which part of the income earned may be paid as additional principal.

(g)  Participation interest was acquired through the financial institution indicated parenthetically.

(h)  All or a portion of this security is segregated for open futures contracts, written options and forward foreign currency contracts.

(i)   Rate shown represents yield-to-maturity.

(j)   All or a portion of this security is held at the broker as collateral for open futures contracts.

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

 

     Abbreviations used in this schedule:

     ADR   – American Depositary Receipt

     ARS   –  Argentine Peso

     GDP   –  Gross Domestic Product

     PAC   –  Planned Amortization Class

 

Schedule of Options Written (April 30, 2007) (unaudited)

 

Contracts

 

Security

 

Expiration
Date

 

Strike
Price

 

Value

5

 

Eurodollar Futures, Call
(Premiums received — $1,725)

 

9/17/07

 

$95.25

 

$ 313

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report      15


 

Statement of Assets and Liabilities (April 30, 2007) (unaudited)

 

ASSETS:

 

 

 

Investments, at value (Cost — $817,856,817)

 

$

863,878,916

 

Foreign currency, at value (Cost — $1,682,728)

 

1,795,798

 

Cash

 

1,361

 

Receivable for securities sold

 

15,469,032

 

Dividends and interest receivable

 

2,281,715

 

Principal paydown receivable

 

158,244

 

Receivable for open forward currency contracts

 

3,592

 

Prepaid expenses

 

22,982

 

Total Assets

 

883,611,640

 

LIABILITIES:

 

 

 

Loan payable (Note 4)

 

170,000,000

 

Payable for securities purchased

 

34,509,015

 

Interest payable

 

705,376

 

Investment management fee payable

 

585,970

 

Directors’ fees payable

 

11,015

 

Payable to broker - variation margin on open futures contracts

 

877

 

Options written, at value (premiums received $1,725)

 

313

 

Accrued expenses

 

179,898

 

Total Liabilities

 

205,992,464

 

Total Net Assets

 

$

677,619,176

 

 

 

 

 

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

 

561,932,977

 

Undistributed net investment income

 

2,964,428

 

Accumulated net realized gain on investments, futures contracts, options written and foreign currency transactions

 

66,541,194

 

Net unrealized appreciation on investments, futures contracts, options written and foreign currencies

 

46,150,613

 

Total Net Assets

 

$

677,619,176

 

 

 

 

 

Shares Outstanding

 

29,964,106

 

Net Asset Value

 

$

22.61

 

 

See Notes to Financial Statements.

 

16     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Statement of Operations (For the six months ended April 30, 2007) (unaudited)

 

INVESTMENT INCOME:

 

 

 

Interest

 

$

8,057,121

 

Dividends

 

5,519,521

 

Less: Foreign taxes withheld

 

(268,914

)

Total Investment Income

 

13,307,728

 

EXPENSES:

 

 

 

Interest expense (Note 4)

 

5,390,479

 

Investment management fee (Note 2)

 

3,560,449

 

Excise tax (Note 1)

 

898,285

 

Commitment fees (Note 4)

 

212,339

 

Shareholder reports

 

137,679

 

Directors’ fees

 

37,263

 

Audit and tax

 

32,892

 

Legal fees

 

31,546

 

Custody fees

 

13,519

 

Transfer agent fees

 

11,257

 

Stock exchange listing fees

 

9,162

 

Insurance

 

7,587

 

Miscellaneous expenses

 

7,765

 

Total Expenses

 

10,350,222

 

Net Investment Income

 

2,957,506

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS, OPTIONS WRITTEN AND FOREIGN CURRENCY
TRANSACTIONS (NOTES 1 AND 3):

 

 

 

Net Realized Gain (Loss) From:

 

 

 

Investment transactions

 

48,937,226

 

Futures contracts

 

(44,217

)

Options written

 

275,821

 

Foreign currency transactions

 

(42,422

)

Net Realized Gain

 

49,126,408

 

Change in Net Unrealized Appreciation/Depreciation From:

 

 

 

Investments

 

13,898,545

 

Futures contracts

 

78,384

 

Options written

 

14,454

 

Foreign currencies

 

128,856

 

Change in Net Unrealized Appreciation/Depreciation

 

14,120,239

 

Net Gain on Investments, Futures Contracts, Options Written and Foreign Currency Transactions

 

63,246,647

 

Increase in Net Assets From Operations

 

$

66,204,153

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     17


 

Statements of Changes in Net Assets

 

For the six months ended April 30, 2007 (unaudited)
and the year ended October 31, 2006

 

 

 

2007

 

2006

 

OPERATIONS:

 

 

 

 

 

Net investment income

 

$

2,957,506

 

$

14,932,146

 

Net realized gain

 

49,126,408

 

63,622,130

 

Change in net unrealized appreciation/depreciation

 

14,120,239

 

(2,901,844

)

Increase in Net Assets From Operations

 

66,204,153

 

75,652,432

 

DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1):

 

 

 

 

 

Net investment income

 

 

(17,048,795

)

Net realized gains

 

(22,473,080

)

(20,449,892

)

Decrease in Net Assets From Distributions to Shareholders

 

(22,473,080

)

(37,498,687

)

FUND SHARE TRANSACTIONS:

 

 

 

 

 

Net increase in net assets due to an adjustment of initial offering costs*

 

 

442,559

 

Cost of shares repurchased (2,418,600 shares repurchased)

 

 

(42,362,520

)

Decrease in Net Assets From Fund Share Transactions

 

 

(41,919,961

)

Increase (Decrease) in Net Assets

 

43,731,073

 

(3,766,216

)

NET ASSETS:

 

 

 

 

 

Beginning of period

 

633,888,103

 

637,654,319

 

End of period**

 

$

677,619,176

 

$

633,888,103

 

 

 

 

 

 

 

** Includes undistributed net investment income of:

 

$

2,964,428

 

$

6,922

 

 

*   Upon the initial public offering of the Fund, the Fund estimated $1,318,000 of offering costs. The actual offering costs amounted to $875,441 at the end of the offering period.

 

See Notes to Financial Statements.

 

18     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Statement of Cash Flows (For the six months ended April 30, 2007) (unaudited)

 

CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:

 

 

 

Interest and dividends received

 

$

13,191,872

 

Operating expenses paid

 

(5,007,879

)

Net sales of short-term investments

 

11,342,075

 

Realized loss on foreign currency transactions

 

(42,422

)

Realized loss on options purchased and options written

 

(4,042,364

)

Realized loss on futures contracts

 

(44,217

)

Net change in unrealized appreciation/depreciation on futures contracts

 

78,384

 

Net change in unrealized appreciation/depreciation on foreign currencies

 

128,856

 

Purchases of long-term investments

 

(528,071,444

)

Proceeds from disposition of long-term investments

 

590,683,047

 

Premium for written options

 

1,725

 

Change in payable to broker — variation margin on futures contracts

 

(18,006

)

Change in receivable for open forward currency contracts

 

5,145

 

Change in payable for open forward currency contracts

 

(15,659

)

Interest paid

 

(5,623,873

)

Net Cash Flows Provided By Operating Activities

 

72,565,240

 

CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:

 

 

 

Cash distributions paid on Common Stock

 

(22,473,080

)

Cash paid on loan

 

(50,000,000

)

Net Cash Flows Used By Financing Activities

 

(72,473,080

)

Net Increase in Cash

 

92,160

 

Cash and foreign currency, Beginning of period

 

1,704,999

 

Cash and foreign currency, End of period

 

$

1,797,159

 

RECONCILIATION OF INCREASE IN NET ASSETS FROM OPERATIONS TO NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:

 

 

 

Increase in Net Assets From Operations

 

$

66,204,153

 

Accretion of discount on investments

 

(611,587

)

Amortization of premium on investments

 

150,525

 

Increase in investments, at value

 

(12,256,004

)

Increase in payable for securities purchased

 

19,647,653

 

Decrease in interest and dividends receivable

 

345,206

 

Decrease in premium for written options

 

(214,133

)

Increase in receivable for securities sold

 

(355,983

)

Increase in principal paydown receivable

 

(34,540

)

Decrease in receivable for open forward currency contracts

 

5,145

 

Decrease in payable for open forward currency contracts

 

(15,659

)

Decrease in payable to broker — variation margin on futures contracts

 

(18,006

)

Increase in prepaid expenses

 

(9,310

)

Decrease in interest payable

 

(233,394

)

Decrease in accrued expenses

 

(38,826

)

Total Adjustments

 

6,361,087

 

Net Cash Flows Provided By Operating Activities

 

$

72,565,240

 

 

See Notes to Financial Statements.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     19


 

Financial Highlights

 

For a share of capital stock outstanding throughout each year ended October 31, unless otherwise noted:

 

 

 

2007(1)(2)

 

2006(1)

 

2005(1)

 

2004(1)(3)

 

Net Asset Value, Beginning of Period

 

$ 21.15

 

$ 19.69

 

$ 18.64

 

$ 19.06

(4)

Income (Loss) From Operations:

 

 

 

 

 

 

 

 

 

Net investment income

 

0.10

 

0.48

 

0.69

 

0.37

 

Net realized and unrealized gain (loss)

 

2.11

 

2.18

 

1.52

 

(0.19

)

Total Income From Operations

 

2.21

 

2.66

 

2.21

 

0.18

 

Gain From Repurchase of Common Stock

 

 

 

0.04

 

 

Less Distributions From:

 

 

 

 

 

 

 

 

 

Net investment income

 

 

(0.55

)

(0.98

)

(0.40

)

Net realized gains

 

(0.75

)

(0.65

)

(0.22

)

 

Return of capital

 

 

 

 

(0.20

)

Total Distributions

 

(0.75

)

(1.20

)

(1.20

)

(0.60

)

Net Asset Value, End of Period

 

$ 22.61

 

$ 21.15

 

$ 19.69

 

$ 18.64

 

Market Price, End of Period

 

$ 19.66

 

$ 18.19

 

$ 17.19

 

$ 17.24

 

Total Return, Based on NAV(5)

 

10.63

%

13.89

%

12.34

%(6)

1.06

%

Total Return, Based on Market Price(7)

 

12.37

%

13.24

%

6.85

%(6)

(10.74

)%

Net Assets, End of Period (000s)

 

$ 677,619

 

$ 633,888

 

$ 637,654

 

$ 614,324

 

Ratios to Average Net Assets:

 

 

 

 

 

 

 

 

 

Gross expenses

 

3.20

%(8)

3.13

%

2.45

%

1.54

%(8)

Gross expenses, excluding interest expense

 

1.54

(8)

1.33

 

1.23

 

1.15

(8)

Net expenses

 

3.20

(8)

3.13

(9)

2.45

 

1.54

(8)

Net expenses, excluding interest expense

 

1.54

(8)

1.33

(9)

1.23

 

1.15

(8)

Net investment income

 

0.92

(8)

2.33

 

3.55

 

2.97

(8)

Portfolio Turnover Rate

 

73

%

193

%

64

%

39

%

Supplemental Data:

 

 

 

 

 

 

 

 

 

Loan Outstanding, End of Period (000s)

 

$ 170,000

 

$ 220,000

 

$ 220,000

 

$ 220,000

 

Asset Coverage for Loan Outstanding

 

499

%

388

%

390

%

379

%

Weighted Average Loan (000s)

 

$ 192,928

 

$ 220,000

 

$ 220,000

 

$ 105,783

 

Weighted Average Interest Rate on Loan

 

5.57

%

5.26

%

3.54

%

2.22

%

 

(1)  Per share amounts have been calculated using the average shares method.

(2)  For the six months ended April 30, 2007 (unaudited).

(3)  For the period February 24, 2004 (commencement of operations) through October 31, 2004.

(4)  Initial public offering price of $20.00 per share less offering costs and sales load totaling $0.94 per share.

(5)  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.

(6)  The investment manager fully reimbursed the Fund for losses incurred resulting from an investment transaction error. Without this reimbursement, total return would not have changed.

(7)  The total return calculation assumes that distributions are reinvested in accordance with the Fund’s dividend reinvestment plan. Past performance is no guarantee of future results. Total returns for periods of less than one year are not annualized.

(8)  Annualized.

(9)  Reflects fee waivers and/or expense reimbursements.

 

See Notes to Financial Statements.

 

20     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Notes to Financial Statements (unaudited)

 

1.  Organization and Significant Accounting Policies

 

LMP Capital and Income Fund Inc. (the “Fund”) was incorporated in Maryland on November 12, 2003 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The 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”). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.

 

(a) Investment Valuation. Equity securities for which market quotations are available are valued at the last sale price or official closing price on the primary market or exchange on which they trade. Debt securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the bid and asked prices as of the close of business of that market. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund may value these investments at fair value as determined in accordance with the procedures approved by the Fund’s Board of Directors. Short-term obligations maturing within 60 days are valued at amortized cost, which approximates market value.

 

(b) Repurchase Agreements. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian take possession of the underlying collateral securities, the market value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.

 

(c) Loan Participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Fund’s investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     21


 

Notes to Financial Statements (unaudited) (continued)

 

rights of set-off against the borrower and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation.

 

The Fund assumes the credit risk of the borrower, the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

 

(d) Written Options. When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability, the value of which is marked-to-market daily to reflect the current market value of the option written. If the option expires, the Fund realizes a gain from investments equal to the amount of the premium received. When a written call option is exercised, the difference between the premium and the amount for effecting a closing purchase transaction, including brokerage commission, is also treated as a realized gain or loss. When a written put option is exercised, the amount of the premium received reduces the cost of the security purchased by the Fund.

 

A risk in writing a covered call option is that the Fund may forego the opportunity of profit if the market price of the underlying security increases and the option is exercised. The risk in writing a call option is that the Fund is exposed to the risk of loss if the market price of the underlying security increases. The risk in writing a put option is that the Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is the risk that the Fund may not be able to enter into a closing transaction because of an illiquid secondary market.

 

(e) Financial Futures Contracts. The Fund may enter into financial futures contracts typically, but not necessarily, to hedge a portion of the portfolio. Upon entering into a financial futures contract, the Fund is required to deposit cash or securities as initial margin. Additional securities are also segregated up to the current market value of the financial futures contracts. Subsequent payments, known as variation margin, are made or received by the Fund each day, depending on the daily fluctuation in the value of the underlying financial instruments. The Fund recognizes an unrealized gain or loss equal to the daily variation margin. When the financial futures contracts are closed, a realized gain or loss is recognized equal to the difference between the proceeds from (or cost of) the closing transactions and the 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 contracts may not correlate with the changes in the value of the underlying instruments. In addition, investing in financial futures contracts involves the risk that the Fund could lose more than the original margin deposit and subsequent payments required for a futures transaction. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

 

(f) Forward Foreign Currency Contracts. The Fund may enter into forward foreign currency contracts to hedge against foreign currency exchange rate risk on its non-U.S. dollar denominated securities or to facilitate settlement of foreign currency denominated portfolio transactions. A forward foreign currency contract is an agreement between two

 

22     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Notes to Financial Statements (unaudited) (continued)

 

parties to buy and sell a currency at a set price on a future date. The contract is marked-to-market daily and the change in value is recorded by the Fund as an unrealized gain or loss. When a forward foreign currency contract is extinguished, through either delivery or offset by entering into another forward foreign currency contract, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value of the contract at the time it was extinguished.

 

Forward foreign currency contracts involve elements of market risk in excess of the amounts reflected in the Statement of Assets and Liabilities. The Fund bears the risk of an unfavorable change in the foreign exchange rate underlying the forward foreign currency contract. Risks may also arise upon entering into these contracts from the potential inability of the counterparties to meet the terms of their contracts.

 

(g) Credit and Market Risk. The Fund invests in high yield and emerging market instruments that are subject to certain credit and market risks. The yields of high yield and emerging market debt obligations reflect, among other things, perceived credit and market risks. The Fund’s investment in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Fund’s investment in non-U.S. dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.

 

(h) Cash Flow Information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash payments are presented in the Statement of Cash Flows.

 

(i) Security Transactions and Investment Income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults on an expected interest payment, the Fund’s policy is to generally halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default.

 

(j) Foreign Currency Translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.

 

The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     23


 

Notes to Financial Statements (unaudited) (continued)

 

changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.

 

Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities, at the date of valuation, resulting from changes in exchange rates.

 

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

 

(k) Distributions to Shareholders. Distributions from net investment income for the Fund, if any, are declared and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Under the Fund’s Managed Distribution Policy, if, for any monthly distribution, net investment income and net realized capital gain is less than the amount of the distribution, the difference will be distributed from the Fund’s assets (and constitute a “return of capital”). The Board of Directors may terminate the Managed Distribution Policy at any time, including when certain events would make part of the return of capital taxable to shareholders. Any such termination could have an adverse effect on the market price for the Fund’s shares. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.

 

(l) Federal and Other Taxes. It is the Fund’s policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute substantially all of its income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required in the Fund’s 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 Fund’s annual taxable income exceeds the distributions from such taxable income for the year. Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.

 

(m) Reclassification. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share.

 

2.  Investment Management Agreement and Other Transactions with Affiliates

 

Legg Mason Partners Fund Advisor, LLC (“LMPFA”) is the Fund’s investment manager and ClearBridge Advisors, LLC (“ClearBridge”), Western Asset Management Company

 

24     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Notes to Financial Statements (unaudited) (continued)

 

(“Western Asset”), and Western Asset Management Company Limited (“Western Asset Limited”) are the Fund’s subadvisers. LMPFA, ClearBridge, Western Asset and Western Asset Limited are wholly-owned subsidiaries of Legg Mason, Inc. (“Legg Mason”).

 

LMPFA provides administrative and certain oversight services to the Fund. The Fund pays LMPFA an investment management fee, calculated daily and paid monthly, at an annual rate of 0.85% of the Fund’s average daily net assets plus the proceeds of any outstanding borrowings used for leverage. LMPFA delegates to ClearBridge the day-to-day portfolio management of the Fund. ClearBridge provides investment advisory services to the Fund by both determining the allocation of the Fund’s assets between equity and fixed-income investments and performing the day-to-day management of the Fund’s investments in equity securities. Western Asset provides advisory services to the Fund by performing the day-to-day management of the Fund’s fixed-income investments. For its services, LMPFA pays the subadvisers 70% of the net management fee that it receives from the Fund. This fee will be divided between the subadvisers, on a pro rata basis, based on the assets allocated to each subadviser, from time to time.

 

Western Asset Limited provides certain advisory services to the Fund relating to currency transactions and investment in non-U.S. dollar denominated securities. Western Asset Limited will not receive any compensation from the Fund and will be paid by Western Asset for its services to the Fund.

 

During periods in which the Fund is utilizing leverage, the fees which are payable to the manager as a percentage of the Fund’s net assets will be higher than if the Fund did not utilize leverage because the fees are calculated as a percentage of the Fund’s net assets, including those investments purchased with leverage.

 

Certain officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.

 

3.  Investments

 

During the six months ended April 30, 2007, the aggregate cost of purchases and proceeds from sales of investments and U.S Government & Agency Obligations (excluding short-term investments) were as follows:

 

 

 

Investments

 

U.S. Government &
Agency Obligations

 

Purchases

 

$ 534,364,854

 

$ 13,354,243   

 

Sales

 

582,769,911

 

8,464,259   

 

 

 

At April 30, 2007, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

 

$ 53,271,836

 

Gross unrealized depreciation

 

(7,249,737

)

Net unrealized appreciation

 

$ 46,022,099

 

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     25


 

Notes to Financial Statements (unaudited) (continued)

 

At April 30, 2007, the Fund held loan participations with a total cost of $1,000,000 and a total market value of $1,002,143.

 

During the six months ended April 30, 2007, written option transactions for the Fund were as follows:

 

 

 

Number of
Contracts

 

Premiums

 

Options written, outstanding October 31, 2006

 

1,090

 

$

215,858

 

Options written

 

555

 

935,075

 

Options closed

 

(1,640

)

(1,149,208

)

Options expired

 

 

 

Options written, outstanding April 30, 2007

 

5

 

$

1,725

 

 

At April 30, 2007, the Fund had open forward foreign currency contracts as described below. The unrealized gain on the open contracts reflected in the accompanying financial statements were as follows:

 

Foreign Currency

 

Local
Currency

 

Market
Value

 

Settlement
Date

 

Unrealized
Gain

 

Contracts to Buy:

 

 

 

 

 

 

 

 

 

Japanese Yen

 

72,660,000

 

$609,092

 

5/9/07

 

$3,592

 

 

At April 30, 2007, the Fund had the following open futures contracts:

 

 

 

Number of
Contracts

 

Expiration
Date

 

Basis
Value

 

Market
Value

 

Unrealized
Gain (Loss)

 

Contracts to Buy:

 

 

 

 

 

 

 

 

 

 

 

Eurodollar Futures

 

2

 

 

6/08

 

$

476,048

 

$

476,600

 

$

552

 

Eurodollar Futures

 

3

 

 

9/07

 

712,365

 

711,000

 

(1,365

)

U.S. 2 Year Treasury Notes

 

72

 

 

6/07

 

14,706,282

 

14,739,750

 

33,468

 

U.S. 5 Year Treasury Notes

 

47

 

 

6/07

 

4,943,735

 

4,973,922

 

30,187

 

 

 

 

 

 

 

 

 

 

 

 

$

62,842

 

Contracts to Sell:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. 10 Year Treasury Notes

 

66

 

 

6/07

 

$

7,095,897

 

$

7,149,656

 

$

(53,759

)

Net Unrealized Gain on Open Futures Contracts

 

 

 

 

 

 

 

 

 

$  9,083

 

 

 

4.  Loan

 

At April 30, 2007, the Fund had a $325,000,000 credit line available pursuant to a revolving credit and security agreement, dated as of December 21, 2006 (the “Agreement”), with CHARTA, LLC and Citibank N.A. (“Citibank”). Citibank acts as administrative agent and secondary lender. As of April 30, 2007, the Fund had a $170,000,000 loan outstanding pursuant to the Agreement. The loan generally bears interest at a variable rate based on the weighted average interest rates of the underlying commercial paper or LIBOR plus any

 

26     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Notes to Financial Statements (unaudited) (continued)

 

applicable margin. In addition, the Fund pays a commitment fee on the total credit line available, whether used or unused, at an annual rate of 0.10%. Securities held by the Fund are subject to a lien, granted to the lenders, to the extent of the borrowings outstanding and any additional expenses. For the six months ended April 30, 2007, the Fund incurred interest expense on this loan in the amount of $5,390,479.

 

5.  Distributions Subsequent to April 30, 2007

 

On March 1, 2007, the Board of Directors (“Board”) of the Fund declared a distribution in the amount of $0.10 per share payable on May 25, 2007 to shareholders of record on May 18, 2007.

 

On May 17, 2007, the Fund’s Board declared four distributions each in the amount of $0.14 per share, payable on June 29, 2007, July 27, 2007, August 31, 2007 and September 28, 2007 to shareholders of record on June 22, 2007, July 20, 2007, August 24, 2007, and September 21, 2007, respectively.

 

6.  Capital Shares

 

On November 20, 2006, the Fund’s Board authorized the Fund to repurchase from time to time in the open market up to 1,000,000 shares of the Fund’s common stock. The Board of Directors directed the management of the Fund to repurchase shares of the Fund’s common stock at such times and in such amounts as management believes will enhance shareholder value, subject to review by the Fund’s Board of Directors. This is the fourth repurchase program authorized by the Board of Directors since the Fund’s inception in 2004. Pursuant to the Fund’s previous three repurchase programs of up to 1,000,000 shares each, the Fund has repurchased 3,000,000 shares of common stock. The second and third repurchase programs were authorized and announced in February 2006 and June 2006, respectively.

 

7.  Regulatory Matters

 

On May 31, 2005, the U.S. Securities and Exchange Commission (“SEC”) issued an order in connection with the settlement of an administrative proceeding against Smith Barney Fund Management LLC (“SBFM”) and Citigroup Global Markets Inc. (“CGM”) relating to the appointment of an affiliated transfer agent for the Smith Barney family of mutual funds (the “Affected Funds”).

 

The SEC order finds that SBFM and CGM willfully violated Section 206(1) of the Investment Advisers Act of 1940 (“Advisers Act”). Specifically, the order finds that SBFM and CGM knowingly or recklessly failed to disclose to the boards of the Affected Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that: First Data Investors Services Group (“First Data”), the Affected Funds’ then existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before; and that Citigroup Asset Management (“CAM”), the Citigroup business unit that, at the time, included the Affected Funds’ investment manager and other investment advisory companies, had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     27


 

Notes to Financial Statements (unaudited) (continued)

 

sub-transfer agent to the affiliated transfer agent in exchange for, among other things, a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGM. The order also finds that SBFM and CGM willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Affected Funds’ boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Affected Funds’ best interests and that no viable alternatives existed. SBFM and CGM do not admit or deny any wrongdoing or liability. The settlement does not establish wrongdoing or liability for purposes of any other proceeding.

 

The SEC censured SBFM and CGM and ordered them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order requires Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Affected Funds, primarily through fee waivers. The remaining $183.7 million, including the penalty, has been paid to the U.S. Treasury and will be distributed pursuant to a plan submitted for the approval of the SEC. At this time, there is no certainty as to how the above-described proceeds of the settlement will be distributed, to whom such distributions will be made, the methodology by which such distributions will be allocated, and when such distributions will be made.

 

The order also required that transfer agency fees received from the Affected Funds since December 1, 2004 less certain expenses be placed in escrow and provided that a portion of such fees might be subsequently distributed in accordance with the terms of the order.

 

On April 3, 2006, an aggregate amount of approximately $9 million was distributed to the Affected Funds.

 

The order required SBFM to recommend a new transfer agent contract to the Affected Funds boards within 180 days of the entry of the order; if a Citigroup affiliate submitted a proposal to serve as transfer agent or sub-transfer agent, SBFM and CGM would have been required, at their expense, to engage an independent monitor to oversee a competitive bidding process. On November 21, 2005, and within the specified timeframe, the Affected Funds’ Board selected a new transfer agent for the Fund. No Citigroup affiliate submitted a proposal to serve as transfer agent. Under the order, SBFM also must comply with an amended version of a vendor policy that Citigroup instituted in August 2004.

 

Although there can be no assurance, the Fund’s manager does not believe that this matter will have a material adverse effect on the Affected Funds.

 

This Fund is not among the Affected Funds and therefore did not implement the transfer agent arrangement described above and therefore will not receive any portion of the distributions.

 

On December 1, 2005, Citigroup completed the sale of substantially all of its global asset management business, including SBFM, to Legg Mason.

 

28     LMP Capital and Income Fund Inc. 2007 Semi-Annual Report


 

Notes to Financial Statements (unaudited) (continued)

 

8.  Other Matters

 

On September 16, 2005, the staff of the SEC informed SBFM and Salomon Brothers Asset Management Inc. (“SBAM”) that the staff is considering recommending that the SEC institute administrative proceedings against SBAM for alleged violations of Sections 19(a) and 34(b) of the 1940 Act (and related Rule 19a-1). The notification is a result of an industry wide inspection undertaken by the SEC and is based upon alleged deficiencies in disclosures regarding dividends and distributions paid to shareholders of certain funds. Section 19(a) and related Rule 19a-1 of the 1940 Act generally require funds that are making dividend and distribution payments to provide shareholders with a written statement disclosing the source of the dividends and distributions, and, in particular, the portion of the payments made from each of net investment income, undistributed net profits and/or paid-in capital. In connection with the contemplated proceedings, the staff may seek a cease and desist order and/or monetary damages from SBFM or SBAM.

 

Although there can be no assurance, the Fund’s manager believes that this matter is not likely to have a material adverse effect on the Fund.

 

9. Recent Accounting Pronouncements

 

During June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation 48 (“FIN 48” or the “Interpretation”), Accounting for Uncertainty in Income Taxes — an interpretation of FASB statement 109. FIN 48 supplements FASB Statement 109, Accounting for Income Taxes, by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 prescribes a comprehensive model for how a fund should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the fund has taken or expects to take on a tax return. FIN 48 requires that the tax effects of a position be recognized only if it is “more likely than not” to be sustained based solely on its technical merits. Management must be able to conclude that the tax law, regulations, case law, and other objective information regarding the technical merits sufficiently support the position’s sustainability with a likelihood of more than 50 percent. FIN 48 is effective for fiscal periods beginning after December 15, 2006, which for this Fund will be November 1, 2007. At adoption, the financial statements must be adjusted to reflect only those tax positions that are more likely than not to be sustained as of the adoption date. Management of the Fund has determined that adopting FIN 48 will not have a material impact on the Fund’s financial statements.

 

 

***

 

On September 20, 2006, FASB released Statement of Financial Accounting Standards No. 157 Fair Value Measurements (“FAS 157”). FAS 157 establishes an authoritative definition of fair value, sets out a framework for measuring fair value, and requires additional disclosures about fair value measurements. The application of FAS 157 is required for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. At this time, management is evaluating the implications of FAS 157 and its impact on the financial statements has not yet been determined.

 

LMP Capital and Income Fund Inc. 2007 Semi-Annual Report     29


 

Additional Shareholder Information (unaudited)

 

Results of Annual Meeting of Shareholders

 

The Annual Meeting of Shareholders of LMP Capital and Income Fund Inc. was held on February 27, 2007, for the purpose of considering and voting upon the election of Directors. The following table provides information concerning the matter voted upon at the Meeting.

 

Nominees

 

Votes For

 

Votes Withheld

 

Leslie H. Gelb

 

27,054,485

 

969,953

 

R. Jay Gerken

 

27,065,598

 

958,841

 

William R. Hutchinson

 

27,052,626

 

971,812

 

 

At April 30, 2007, in addition to Leslie H. Gelb, R. Jay Gerken and William R. Hutchinson, the other Directors of the Fund were as follows:

 

Carol L. Colman

Daniel P. Cronin

Paolo M. Cucchi

Dr. Riordan Roett

Jeswald W. Salacuse

 

30     LMP Capital and Income Fund Inc.


 

Dividend Reinvestment Plan (unaudited)

 

Unless you elect to receive distributions in cash, all distributions, on your Common Shares will be automatically reinvested by American Stock Transfer & Trust Company, as agent for the Common Shareholders (the “Plan Agent”), in additional Common Shares under the Dividend Reinvestment Plan (the “Plan”). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by American Stock Transfer & Trust Company as dividend paying agent.

 

If you participate in the Plan, the number of Common Shares you will receive will be determined as follows:

 

(1) If the market price of the Common Shares on the record date (or, if the record date is not a New York Stock Exchange trading day, the immediately preceding trading day) for determining shareholders eligible to receive the relevant distribution (the “determination date”) is equal to or exceeds the net asset value per share of the Common Shares, the Fund will issue new Common Shares at a price equal to the greater of (a) the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the market price per share of the Common Shares on the determination date.

 

(2) If the net asset value per share of the Common Shares exceeds the market price of the Common Shares on the determination date, the Plan Agent will receive the distribution in cash and will buy Common Shares in the open market, on the Exchange or elsewhere, for your account as soon as practicable commencing on the trading day following the determination date and terminating no later than the earlier of (a) 30 days after the distribution payment date, or (b) the record date for the next succeeding distribution to be made to the Common Shareholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price rises so that it equals or exceeds the net asset value per share of the Common Shares at the close of trading on the Exchange on the determination date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Shares in the open market and the Fund shall issue the remaining Common Shares at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the then current market price per share.

 

The Plan Agent maintains all participants’ accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by the Plan Agent in non-certified form. Any proxy you receive will include all Common Shares you have received under the Plan.

 

You may withdraw from the Plan by notifying the Plan Agent in writing at 59 Maiden Lane, New York, New York 10038. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agent’s investment of the most recently declared dividend or distribution on the

 

LMP Capital and Income Fund Inc.     31


 

Dividend Reinvestment Plan (unaudited) (continued)

 

Common Shares. The Plan may be terminated by the Fund upon notice in writing mailed to Common Shareholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination is to be effective. Upon any termination, you will be sent a certificate or certificates for the full Common Shares held for you under the Plan and cash for any fractional Common Shares. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your shares on your behalf. The Plan Agent is authorized to deduct brokerage charges actually incurred for this transaction from the proceeds.

 

There is no service charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional Common Shares, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Shares over time.

 

Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions.

 

The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan and your account may be obtained from the Plan Agent at 1-888-888-0151.

 


 

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its common stock in the open market.

 

32     LMP Capital and Income Fund Inc.


 

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LMP
Capital and Income Fund Inc.

 

 

 

 

 

 

 

DIRECTORS

SUBADVISERS

 

Carol L. Colman

ClearBridge Advisors, LLC

 

Daniel P. Cronin

Western Asset Management

 

Paolo M. Cucchi

  Company

 

Leslie H. Gelb

Western Asset Management

 

R. Jay Gerken, CFA

  Company Limited

 

  Chairman

 

 

William R. Hutchinson

 

 

Dr. Riordan Roett

CUSTODIAN

 

Jeswald W. Salacuse

State Street Bank and Trust

 

 

  Company

 

 

225 Franklin Street

 

OFFICERS

Boston, Massachusetts 02110

 

R. Jay Gerken, CFA

 

 

President and

 

 

Chief Executive Officer

TRANSFER AGENT

 

 

American Stock Transfer &

 

Kaprel Ozsolak

  Trust Company

 

Chief Financial Officer

59 Maiden Lane

 

and Treasurer

New York, New York 10038

 

 

 

 

Ted P. Becker

 

 

Chief Compliance Officer

INDEPENDENT

 

 

REGISTERED PUBLIC

 

Robert I. Frenkel

ACCOUNTING FIRM

 

Secretary and Chief Legal Officer

KPMG, LLP

 

 

345 Park Avenue

 

 

New York, New York 10154

 

LMP CAPITAL AND INCOME
FUND INC.

 

 

125 Broad Street

LEGAL COUNSEL

 

10th Floor, MF-2

Simpson Thacher & Bartlett LLP

 

New York, New York 10004

425 Lexington Avenue

 

 

New York, New York 10017

 

 

 

 

INVESTMENT MANAGER

 

 

Legg Mason Partners Fund

NEW YORK STOCK

 

    Advisor, LLC

EXCHANGE SYMBOL

 

 

SCD

 


 

This report is transmitted to the shareholders of LMP Capital and Income Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund or any securities mentioned in this report.

 

LMP
Capital and Income Fund Inc.

 

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time, the Fund may purchase shares of its common stock in the open market.

 

 

The Fund files its complete schedule of portfolio holdings with the Securities


American Stock Transfer
& Trust Company
59 Maiden Lane
New York, New York 10038

FD04219 4/07                        SR07-356

 

and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call Shareholder Services at 1-800-451-2010.

 

 

 

 

 

 

 

 

 

 

Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions is available (1) without charge, upon request, by calling 1-800-451-2010. (2) on the Fund’s website at www.leggmason.com/InvestorServices and (3) on the SEC’s website at www.sec.gov.

 


 

ITEM 2.                 CODE OF ETHICS.

 

Not applicable.

 

ITEM 3.                 AUDIT COMMITTEE FINANCIAL EXPERT.

 

Not applicable.

 

ITEM 4.                 PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Not applicable.

 

ITEM 5.                 AUDIT COMMITTEE OF LISTED REGISTRANTS.

 

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

 

Although individual trustees may not agree with particular policies or votes by the manager or subadvisers, the Board has delegated proxy voting discretion to the manager and/or the subadvisers, believing that the manager and/or the subadvisers should be responsible for voting because it is a matter relating to the investment decision making process. LMPFA delegates the responsibility for voting proxies for the fund to the subadvisers through its contracts with the subadvisers. The subadvisers will use their 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 a 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. In the case of a material conflict between the interests of LMPFA (or its affiliates if such conflict is known to persons responsible for voting at LMPFA) and the fund, the board of trustees of LMPFA shall consider how to address the conflict and/or how to vote the proxies. LMPFA shall maintain records of all proxy votes in accordance with applicable securities laws and regulations, to the extent that LMPFA votes proxies. LMPFA shall be responsible for gathering relevant documents and records related to proxy voting from the subadvisers and providing them to the fund as required for the fund to comply with applicable rules under the 1940 Act. The subadvisers’ Proxy Voting Policies and Procedures govern in determining how proxies relating to the fund’s portfolio securities are voted and are attached as Appendix A to this SAI. 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 fund’s website at http://www.leggmason.com/ InvestorServices and (3) on the SEC’s website at http://www.sec.gov.

 

Background

 

An investment adviser is required to adopt and implement policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with fiduciary duties and SEC Rule

 



 

206(4)-6 under the Investment Advisers Act of 1940 (“Advisers Act”). The authority to vote the proxies of our clients is established through investment management agreements or comparable documents. In addition to SEC requirements governing advisers, long-standing fiduciary standards and responsibilities have been established 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.

 

Policy

 

As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has 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”). 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.

 

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 the Firm’s 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 the Firm deems appropriate).

 

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 (other than Western Asset Management Company Limited) regarding the voting of any securities owned by its clients.

 

Procedure

 

Responsibility and Oversight

 

The Western Asset Legal and 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

 

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. 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 Legal and 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. Legal and 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 client’s 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. Legal and 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 analyst’s or portfolio manager’s basis for their decision is documented and maintained by the Legal and Compliance Department.

 

f. Legal and 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 Asset’s 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 Asset’s written response to both verbal and written client requests.

 

e. A proxy log including:

 

1. Issuer name;

 

2. Exchange ticker symbol of the issuer’s 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 issuer’s management team.

 

Records are maintained in an easily accessible place for five years, the first two in Western Asset’s offices.

 

Disclosure

 

Western Asset’s proxy policies are described in the firm’s Part II of Form ADV. 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 Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not limited to:

 

1. Whether Western (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 or an officer or director of Western 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 Asset’s 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 company’s 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 company’s 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 company’s 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 stock’s 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 company’s 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 company’s 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 company’s 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 company’s 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 company’s proxy statement. These proposals generally seek to change some aspect of a company’s corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the company’s 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 Asset’s 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

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-CSR

 



 

CERTIFIED SHAREHOLDER REPORT OF

 

g 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 non-U.S. 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 company’s outstanding common stock where shareholders do not have preemptive rights, or (2) the issuance of common stock in excess of 100% of a company’s outstanding common stock where shareholders have preemptive rights.

 

ITEM 8.                 PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

 

Not applicable.

 

ITEM 9.                 PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

 

None.

 

ITEM 10.               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

Not applicable.

 

ITEM 11.               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 half-year (the registrant’s second fiscal half-year in the case of an annual report) that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 12.               EXHIBITS.

 

(a) (1)     Not applicable.

 

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

 

 

LMP Capital and Income Fund Inc.

 

 

 

 

Date:

July 6, 2007

 

 

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

 

LMP Capital and Income Fund Inc.

 

 

Date:

July 6, 2007

 

 

By:

/s/ Kaprel Ozsolak

 

 

(Kaprel Ozsolak)

 

Chief Financial Officer

 

LMP Capital and Income Fund Inc.

 

 

Date:

July 6, 2007