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

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-21467

 

 

LMP Capital and Income Fund Inc.

(Exact name of registrant as specified in charter)

 

620 Eighth Avenue, New York, NY

 

10018

(Address of principal executive offices)

 

(Zip code)

 

Robert I. Frenkel, Esq.

Legg Mason & Co., LLC

100 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

1-888-777-0102

 

 

Date of fiscal year end:

December 31

 

 

 

 

Date of reporting period:

March 31, 2011

 

 



 

ITEM 1.                  SCHEDULE OF INVESTMENTS

 


 


 

LMP CAPITAL AND INCOME FUND INC.

 

FORM N-Q

MARCH 31, 2011

 


 

Schedule of investments (unaudited)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

 

 

 

 

SHARES

 

VALUE

 

COMMON STOCKS — 64.7%

 

 

 

 

 

 

 

 

 

CONSUMER DISCRETIONARY — 4.9%

 

 

 

 

 

 

 

 

 

Hotels, Restaurants & Leisure — 2.0%

 

 

 

 

 

 

 

 

 

McDonald’s Corp.

 

 

 

 

 

145,000

 

$

11,033,050

Media — 1.9%

 

 

 

 

 

 

 

 

 

Charter Communications Inc., Class A Shares

 

 

 

 

 

11,990

 

607,053

*

Reed Elsevier PLC

 

 

 

 

 

500,000

 

4,331,338

 

Thomson Corp.

 

 

 

 

 

150,000

 

5,886,000

 

Total Media

 

 

 

 

 

 

 

10,824,391

 

Specialty Retail — 1.0%

 

 

 

 

 

 

 

 

 

Home Depot Inc.

 

 

 

 

 

150,000

 

5,559,000

 

TOTAL CONSUMER DISCRETIONARY

 

 

 

 

 

 

 

27,416,441

 

CONSUMER STAPLES — 9.4%

 

 

 

 

 

 

 

 

 

Beverages — 0.6%

 

 

 

 

 

 

 

 

 

PepsiCo Inc.

 

 

 

 

 

50,000

 

3,220,500

 

Food Products — 3.2%

 

 

 

 

 

 

 

 

 

H.J. Heinz Co.

 

 

 

 

 

310,000

 

15,134,200

Kraft Foods Inc., Class A Shares

 

 

 

 

 

80,000

 

2,508,800

Total Food Products

 

 

 

 

 

 

 

17,643,000

 

Household Products — 5.6%

 

 

 

 

 

 

 

 

 

Kimberly-Clark Corp.

 

 

 

 

 

290,000

 

18,928,300

Procter & Gamble Co.

 

 

 

 

 

198,000

 

12,196,800

Total Household Products

 

 

 

 

 

 

 

31,125,100

 

TOTAL CONSUMER STAPLES

 

 

 

 

 

 

 

51,988,600

 

ENERGY — 7.7%

 

 

 

 

 

 

 

 

 

Energy Equipment & Services — 0.5%

 

 

 

 

 

 

 

 

 

Diamond Offshore Drilling Inc.

 

 

 

 

 

35,520

 

2,759,904

 

Oil, Gas & Consumable Fuels — 7.2%

 

 

 

 

 

 

 

 

 

Kinder Morgan Inc.

 

 

 

 

 

140,000

 

4,149,600

Spectra Energy Corp.

 

 

 

 

 

620,000

 

16,851,600

Targa Resources Corp.

 

 

 

 

 

100,000

 

3,624,000

 

Total SA, ADR

 

 

 

 

 

255,000

 

15,547,350

Total Oil, Gas & Consumable Fuels

 

 

 

 

 

 

 

40,172,550

 

TOTAL ENERGY

 

 

 

 

 

 

 

42,932,454

 

FINANCIALS — 10.7%

 

 

 

 

 

 

 

 

 

Capital Markets — 0.5%

 

 

 

 

 

 

 

 

 

Medley Capital Corp.

 

 

 

 

 

220,000

 

2,679,600

Insurance — 1.6%

 

 

 

 

 

 

 

 

 

Travelers Cos. Inc.

 

 

 

 

 

150,000

 

8,922,000

Real Estate Investment Trusts (REITs) — 4.0%

 

 

 

 

 

 

 

 

 

Annaly Capital Management Inc.

 

 

 

 

 

864,910

 

15,092,680

Chimera Investment Corp.

 

 

 

 

 

1,792,770

 

7,099,369

 

Total Real Estate Investment Trusts (REITs)

 

 

 

 

 

 

 

22,192,049

 

Thrifts & Mortgage Finance — 4.6%

 

 

 

 

 

 

 

 

 

First Niagara Financial Group Inc.

 

 

 

 

 

590,000

 

8,012,200

New York Community Bancorp Inc.

 

 

 

 

 

480,000

 

8,284,800

People’s United Financial Inc.

 

 

 

 

 

740,000

 

9,309,200

Total Thrifts & Mortgage Finance

 

 

 

 

 

 

 

25,606,200

 

TOTAL FINANCIALS

 

 

 

 

 

 

 

59,399,849

 

HEALTH CARE — 6.5%

 

 

 

 

 

 

 

 

 

Pharmaceuticals — 6.5%

 

 

 

 

 

 

 

 

 

Bristol-Myers Squibb Co.

 

 

 

 

 

480,000

 

12,686,400

GlaxoSmithKline PLC, ADR

 

 

 

 

 

208,000

 

7,989,280

Johnson & Johnson

 

 

 

 

 

220,000

 

13,035,000

Pfizer Inc.

 

 

 

 

 

100,000

 

2,031,000

TOTAL HEALTH CARE

 

 

 

 

 

 

 

35,741,680

 

INDUSTRIALS — 6.8%

 

 

 

 

 

 

 

 

 

Aerospace & Defense — 1.9%

 

 

 

 

 

 

 

 

 

Lockheed Martin Corp.

 

 

 

 

 

128,000

 

10,291,200

 

See Notes to Schedule of Investments.

 

1


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

 

 

 

 

SHARES

 

VALUE

 

Building Products — 0.0%

 

 

 

 

 

 

 

 

 

Ashton Woods USA LLC, Class B Membership

 

 

 

 

 

43

 

$

19,352

*(a)(b)

Commercial Services & Supplies — 2.4%

 

 

 

 

 

 

 

 

 

Waste Management Inc.

 

 

 

 

 

350,510

 

13,088,043

Industrial Conglomerates — 1.5%

 

 

 

 

 

 

 

 

 

3M Co.

 

 

 

 

 

70,000

 

6,545,000

General Electric Co.

 

 

 

 

 

100,000

 

2,005,000

Total Industrial Conglomerates

 

 

 

 

 

 

 

8,550,000

 

Marine — 1.0%

 

 

 

 

 

 

 

 

 

Alexander & Baldwin Inc.

 

 

 

 

 

120,000

 

5,478,000

TOTAL INDUSTRIALS

 

 

 

 

 

 

 

37,426,595

 

INFORMATION TECHNOLOGY — 3.3%

 

 

 

 

 

 

 

 

 

IT Services — 2.0%

 

 

 

 

 

 

 

 

 

Automatic Data Processing Inc.

 

 

 

 

 

100,000

 

5,131,000

 

Paychex Inc.

 

 

 

 

 

180,000

 

5,644,800

Total IT Services

 

 

 

 

 

 

 

10,775,800

 

Semiconductors & Semiconductor Equipment — 0.9%

 

 

 

 

 

Intel Corp.

 

 

 

 

 

255,000

 

5,143,350

Software — 0.4%

 

 

 

 

 

 

 

 

 

Microsoft Corp.

 

 

 

 

 

94,000

 

2,383,840

TOTAL INFORMATION TECHNOLOGY

 

 

 

 

 

 

 

18,302,990

 

MATERIALS — 0.9%

 

 

 

 

 

 

 

 

 

Chemicals — 0.9%

 

 

 

 

 

 

 

 

 

E.I. du Pont de Nemours & Co.

 

 

 

 

 

90,000

 

4,947,300

TELECOMMUNICATION SERVICES — 8.3%

 

 

 

 

 

 

 

 

 

Diversified Telecommunication Services — 8.3%

 

 

 

 

 

 

 

AT&T Inc.

 

 

 

 

 

640,000

 

19,584,000

Verizon Communications Inc.

 

 

 

 

 

403,000

 

15,531,620

Windstream Corp.

 

 

 

 

 

830,000

 

10,682,100

TOTAL TELECOMMUNICATION SERVICES

 

 

 

 

 

 

 

45,797,720

 

UTILITIES — 6.2%

 

 

 

 

 

 

 

 

 

Electric Utilities — 3.9%

 

 

 

 

 

 

 

 

 

American Electric Power Co. Inc.

 

 

 

 

 

235,000

 

8,257,900

Duke Energy Corp.

 

 

 

 

 

251,870

 

4,571,441

NextEra Energy Inc.

 

 

 

 

 

18,000

 

992,160

 

Southern Co.

 

 

 

 

 

204,530

 

7,794,638

Total Electric Utilities

 

 

 

 

 

 

 

21,616,139

 

Multi-Utilities — 2.3%

 

 

 

 

 

 

 

 

 

CenterPoint Energy Inc.

 

 

 

 

 

730,000

 

12,818,800

TOTAL UTILITIES

 

 

 

 

 

 

 

34,434,939

 

TOTAL COMMON STOCKS (Cost — $311,363,591)

 

 

 

358,388,568

 

 

 

 

 

 

 

 

 

 

 

 

 

RATE

 

 

 

 

 

 

 

CONVERTIBLE PREFERRED STOCKS — 8.4%

 

 

 

 

 

 

 

 

 

CONSUMER DISCRETIONARY — 0.1%

 

 

 

 

 

 

 

 

 

General Motors Co.

 

4.750%

 

 

 

8,000

 

385,600

 

ENERGY — 0.4%

 

 

 

 

 

 

 

 

 

Apache Corp.

 

6.000%

 

 

 

37,000

 

2,621,820

 

FINANCIALS — 4.6%

 

 

 

 

 

 

 

 

 

Diversified Financial Services — 2.1%

 

 

 

 

 

 

 

 

 

CalEnergy Capital Trust III

 

6.500%

 

 

 

228,100

 

11,519,050

Insurance — 1.5%

 

 

 

 

 

 

 

 

 

Metlife Inc.

 

5.000%

 

 

 

96,000

 

8,145,600

*

Real Estate Investment Trusts (REITs) — 1.0%

 

 

 

 

 

 

 

 

 

Health Care Reit Inc.

 

6.500%

 

 

 

110,000

 

5,731,000

*

TOTAL FINANCIALS

 

 

 

 

 

 

 

25,395,650

 

 

See Notes to Schedule of Investments.

 

2


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

RATE

 

 

 

SHARES

 

VALUE

 

UTILITIES — 3.3%

 

 

 

 

 

 

 

 

 

Electric Utilities — 3.3%

 

 

 

 

 

 

 

 

 

Great Plains Energy Inc.

 

12.000%

 

 

 

65,370

 

$

4,219,634

NextEra Energy Inc.

 

7.000%

 

 

 

280,010

 

14,140,505

 

TOTAL UTILITIES

 

 

 

 

 

 

 

18,360,139

 

TOTAL CONVERTIBLE PREFERRED STOCKS (Cost — $44,589,532)

 

 

 

46,763,209

 

PREFERRED STOCKS — 0.0%

 

 

 

 

 

 

 

 

 

FINANCIALS — 0.0%

 

 

 

 

 

 

 

 

 

Thrifts & Mortgage Finance — 0.0%

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC)

 

8.375%

 

 

 

25,950

 

44,115

*

Federal National Mortgage Association (FNMA)

 

7.000%

 

 

 

300

 

900

*

Federal National Mortgage Association (FNMA)

 

8.250%

 

 

 

17,650

 

30,005

*

TOTAL PREFERRED STOCKS (Cost — $1,105,960)

 

 

 

75,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MATURITY
DATE

 

FACE
AMOUNT

 

 

 

ASSET-BACKED SECURITIES — 0.3%

 

 

 

 

 

 

 

 

 

Asset-Backed Funding Certificates, 2004-FF1 M2

 

2.425%

 

1/25/34

 

$

289,958

 

96,498

(c)

Countrywide Asset-Backed Certificates, 2004-5 M4

 

1.500%

 

6/25/34

 

126,652

 

39,449

(c)

Finance America Net Interest Margin Trust, 2004-1 A

 

5.250%

 

6/27/34

 

73,417

 

1

(b)(d)

Fremont Home Loan Trust, 2004-1 M5

 

1.900%

 

2/25/34

 

121,618

 

54,491

(c)

GSAMP Trust, 2004-OPT M3

 

1.400%

 

11/25/34

 

236,471

 

96,895

(c)

MASTR Specialized Loan Trust, 2007-2 A

 

0.600%

 

5/25/37

 

391,412

 

221,860

(c)(d)

Nelnet Student Loan Trust, 2008-4 A4

 

1.783%

 

4/25/24

 

350,000

 

359,888

(c)

RAAC Series, 2007-RP3 A

 

0.630%

 

10/25/46

 

443,789

 

290,455

(c)(d)

Renaissance Home Equity Loan Trust, 2003-4 M3

 

2.150%

 

3/25/34

 

389,160

 

175,526

(c)

Sail Net Interest Margin Notes, 2003-BC2A A

 

7.750%

 

4/27/33

 

141,210

 

0

(b)(d)

Sail Net Interest Margin Notes, 2004-2A A

 

5.500%

 

3/27/34

 

71,380

 

1

(b)(d)

TOTAL ASSET-BACKED SECURITIES (Cost — $2,350,921)

 

 

 

 

 

1,335,064

 

COLLATERALIZED MORTGAGE OBLIGATIONS — 1.1%

 

 

 

 

 

 

 

BCAP LLC Trust, 2006-AA1 A1

 

0.440%

 

10/25/36

 

1,032,383

 

637,184

(c)

Bear Stearns ARM Trust, 2005-12 24A1

 

5.592%

 

2/25/36

 

104,285

 

74,054

(c)

Countrywide Alternative Loan Trust, 2006-0A9 2A1A

 

0.464%

 

7/20/46

 

1,248,439

 

562,477

(c)

Federal Home Loan Mortgage Corp. (FHLMC), 3738 BP

 

4.000%

 

12/15/38

 

100,000

 

97,523

 

Federal Home Loan Mortgage Corp. (FHLMC), K007 X1, IO

 

1.521%

 

8/25/20

 

1,395,168

 

127,662

(c)

Government National Mortgage Association (GNMA), 2010-H22 FE

 

0.610%

 

5/20/59

 

99,657

 

99,159

(c)

Government National Mortgage Association (GNMA), 2010-H26 LF

 

0.610%

 

8/20/58

 

199,221

 

198,723

(c)

Greenwich Capital Commercial Funding Corp., 2006-GG7

 

5.890%

 

7/10/38

 

25,000

 

27,382

(c)

GS Mortgage Securities Corp.

 

1.345%

 

3/10/44

 

600,000

 

37,920

(a)(c)(d)

JPMorgan Mortgage Trust, 2007-S3 1A74

 

6.000%

 

8/25/37

 

1,060,000

 

929,933

 

LB-UBS Commercial Mortgage Trust, 2006-C6 A4

 

5.372%

 

9/15/39

 

100,000

 

106,868

 

MASTR ARM Trust, 2003-3 3A4

 

2.494%

 

9/25/33

 

656,769

 

591,640

(c)

Merit Securities Corp., 11PA B2

 

1.748%

 

9/28/32

 

147,026

 

138,764

(c)(d)

MLCC Mortgage Investors Inc., 2004-A B2

 

1.170%

 

4/25/29

 

237,843

 

96,781

(c)

MLCC Mortgage Investors Inc., 2004-B B2

 

1.130%

 

5/25/29

 

385,496

 

184,973

(c)

Morgan Stanley Capital I, 2006-IQ11 A4

 

5.726%

 

10/15/42

 

120,000

 

131,614

(c)

RBS Greenwich Capital, Mortgage Pass-Through Certificates, 2005-A 5A

 

7.000%

 

4/25/35

 

850,877

 

810,902

 

Structured ARM Loan Trust, 2006-4 4A1

 

5.556%

 

5/25/36

 

611,738

 

480,582

(c)

Thornburg Mortgage Securities Trust, 2007-4 2A1

 

6.182%

 

7/25/37

 

137,587

 

136,328

(c)

Thornburg Mortgage Securities Trust, 2007-4 3A1

 

6.174%

 

7/25/37

 

143,853

 

144,869

(c)

 

See Notes to Schedule of Investments.

 

3


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

COLLATERALIZED MORTGAGE OBLIGATIONS — continued

 

Washington Mutual Inc. Pass-Through Certificates, 2006-AR5 4A

 

1.282%

 

6/25/46

 

$

585,454

 

$

264,149

(c)

Wells Fargo Alternative Loan Trust, 2007-PA2 2A1

 

0.692%

 

6/25/37

 

601,367

 

364,670

(c)

TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost — $6,939,607)

 

6,244,157

 

CONVERTIBLE BONDS & NOTES — 1.4%

 

 

 

 

 

 

 

 

 

INFORMATION TECHNOLOGY — 1.4%

 

 

 

 

 

 

 

 

 

Internet Software & Services — 1.4%

 

 

 

 

 

 

 

 

 

VeriSign Inc., Junior Subordinated Notes (Cost - $4,962,577)

 

3.250%

 

8/15/37

 

6,500,000

 

7,865,000

CORPORATE BONDS & NOTES — 16.1%

 

 

 

 

 

 

 

 

 

CONSUMER DISCRETIONARY — 0.2%

 

 

 

 

 

 

 

 

 

Hotels, Restaurants & Leisure — 0.1%

 

 

 

 

 

 

 

 

 

Choctaw Resort Development Enterprise, Senior Notes

 

7.250%

 

11/15/19

 

285,000

 

220,875

(d)

Inn of the Mountain Gods Resort & Casino, Senior Secured Notes

 

8.750%

 

11/30/20

 

198,000

 

195,525

(d)

Total Hotels, Restaurants & Leisure

 

 

 

 

 

 

 

416,400

 

Media — 0.1%

 

 

 

 

 

 

 

 

 

Comcast Corp.

 

5.700%

 

5/15/18

 

300,000

 

327,036

 

News America Inc., Senior Notes

 

6.650%

 

11/15/37

 

10,000

 

10,521

 

Time Warner Cable Inc., Senior Notes

 

6.200%

 

7/1/13

 

180,000

 

198,008

 

Time Warner Cable Inc., Senior Notes

 

5.850%

 

5/1/17

 

10,000

 

10,951

 

Total Media

 

 

 

 

 

 

 

546,516

 

TOTAL CONSUMER DISCRETIONARY

 

 

 

 

 

 

 

962,916

 

CONSUMER STAPLES — 2.0%

 

 

 

 

 

 

 

 

 

Food & Staples Retailing — 2.0%

 

 

 

 

 

 

 

 

 

CVS Caremark Corp., Junior Subordinated Bonds

 

6.302%

 

6/1/37

 

10,825,000

 

10,638,464

(c) ‡

CVS Corp., Pass-Through Trust, Secured Notes

 

6.943%

 

1/10/30

 

139,794

 

152,345

 

Kroger Co., Senior Notes

 

5.500%

 

2/1/13

 

60,000

 

64,229

 

Kroger Co., Senior Notes

 

6.150%

 

1/15/20

 

50,000

 

56,485

 

Safeway Inc., Senior Notes

 

3.950%

 

8/15/20

 

20,000

 

18,954

 

Total Food & Staples Retailing

 

 

 

 

 

 

 

10,930,477

 

Tobacco — 0.0%

 

 

 

 

 

 

 

 

 

Reynolds American Inc., Senior Notes

 

6.750%

 

6/15/17

 

110,000

 

125,952

 

TOTAL CONSUMER STAPLES

 

 

 

 

 

 

 

11,056,429

 

ENERGY — 2.6%

 

 

 

 

 

 

 

 

 

Energy Equipment & Services — 0.0%

 

 

 

 

 

 

 

 

 

Transocean Inc., Senior Notes

 

5.250%

 

3/15/13

 

110,000

 

116,827

 

Oil, Gas & Consumable Fuels — 2.6%

 

 

 

 

 

 

 

 

 

Apache Corp., Senior Notes

 

5.625%

 

1/15/17

 

80,000

 

90,086

 

ConocoPhillips Holding Co., Senior Notes

 

6.950%

 

4/15/29

 

140,000

 

167,611

 

Devon Financing Corp. ULC, Notes

 

6.875%

 

9/30/11

 

120,000

 

123,682

 

Energy Transfer Partners LP, Senior Notes

 

6.700%

 

7/1/18

 

10,000

 

11,346

 

Kerr-McGee Corp., Notes

 

6.950%

 

7/1/24

 

80,000

 

88,685

 

Kinder Morgan Energy Partners LP, Senior Notes

 

6.000%

 

2/1/17

 

170,000

 

189,420

 

Shell International Finance BV, Senior Notes

 

4.375%

 

3/25/20

 

30,000

 

31,026

 

Southern Union Co., Junior Subordinated Notes

 

7.200%

 

11/1/66

 

14,000,000

 

13,440,000

(c) ‡

Williams Cos. Inc., Senior Notes

 

7.750%

 

6/15/31

 

108,000

 

128,616

 

Total Oil, Gas & Consumable Fuels

 

 

 

 

 

 

 

14,270,472

 

TOTAL ENERGY

 

 

 

 

 

 

 

14,387,299

 

FINANCIALS — 7.5%

 

 

 

 

 

 

 

 

 

Capital Markets — 0.2%

 

 

 

 

 

 

 

 

 

Bear Stearns Co. Inc., Senior Notes

 

6.400%

 

10/2/17

 

180,000

 

202,480

 

Goldman Sachs Group Inc., Senior Notes

 

5.300%

 

2/14/12

 

10,000

 

10,392

 

Goldman Sachs Group Inc., Senior Notes

 

5.250%

 

10/15/13

 

20,000

 

21,490

 

Goldman Sachs Group Inc., Senior Notes

 

6.150%

 

4/1/18

 

180,000

 

195,430

 

Merrill Lynch & Co. Inc., Notes

 

6.875%

 

4/25/18

 

160,000

 

177,962

 

Morgan Stanley, Medium-Term Notes

 

5.625%

 

1/9/12

 

170,000

 

176,540

 

 

See Notes to Schedule of Investments.

 

4

 


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

Capital Markets — continued

 

 

 

 

 

 

 

 

 

 

 

UBS AG Stamford CT, Senior Notes

 

3.875%

 

1/15/15

 

$

260,000

 

$

266,711

 

Total Capital Markets

 

 

 

 

 

 

 

1,051,005

 

Commercial Banks — 1.2%

 

 

 

 

 

 

 

 

 

BAC Capital Trust XIV, Junior Subordinated Notes

 

5.630%

 

3/15/12

 

10,000

 

7,775

(c)(e)

Bank of Montreal, Secured Bonds

 

2.850%

 

6/9/15

 

300,000

 

302,874

(d)

Nordea Bank AB, Senior Notes

 

4.875%

 

1/27/20

 

120,000

 

122,981

(d)

Resona Preferred Global Securities Cayman Ltd., Junior Subordinated Bonds

 

7.191%

 

7/30/15

 

150,000

 

149,644

(c)(d)(e)

Santander US Debt SA Unipersonal, Senior Notes

 

3.724%

 

1/20/15

 

100,000

 

96,789

(d)

Wachovia Bank N.A., Subordinated Notes

 

6.000%

 

11/15/17

 

250,000

 

277,958

 

Wells Fargo Capital X, Capital Securities

 

5.950%

 

12/1/36

 

160,000

 

158,344

 

Wells Fargo Capital XIII, Medium-Term Notes

 

7.700%

 

3/26/13

 

3,000,000

 

3,105,000

(c)(e)

Wells Fargo Capital XV, Junior Subordinated Notes

 

9.750%

 

9/26/13

 

2,500,000

 

2,756,250

(c)(e) ‡

Total Commercial Banks

 

 

 

 

 

 

 

6,977,615

 

Consumer Finance — 0.1%

 

 

 

 

 

 

 

 

 

American Express Co., Subordinated Debentures

 

6.800%

 

9/1/66

 

220,000

 

226,050

(c)

Caterpillar Financial Services Corp., Medium-Term Notes

 

5.450%

 

4/15/18

 

110,000

 

122,478

 

John Deere Capital Corp., Medium-Term Notes

 

5.350%

 

4/3/18

 

100,000

 

110,289

 

SLM Corp., Medium-Term Notes, Senior Notes

 

8.450%

 

6/15/18

 

140,000

 

157,015

 

Total Consumer Finance

 

 

 

 

 

 

 

615,832

 

Diversified Financial Services — 4.7%

 

 

 

 

 

 

 

 

 

Bank of America Corp., Senior Notes

 

5.650%

 

5/1/18

 

190,000

 

198,855

 

Citigroup Inc., Senior Notes

 

6.875%

 

3/5/38

 

320,000

 

352,793

 

General Electric Capital Corp., Senior Notes

 

5.625%

 

5/1/18

 

330,000

 

357,292

 

General Electric Capital Corp., Subordinated Debentures

 

6.375%

 

11/15/67

 

10,000

 

10,312

(c)

JPMorgan Chase & Co., Junior Subordinated Notes

 

7.900%

 

4/30/18

 

12,000,000

 

13,174,836

(c)(e)

JPMorgan Chase & Co., Subordinated Notes

 

6.125%

 

6/27/17

 

110,000

 

119,858

 

PPL Capital Funding Inc., Junior Subordinated Notes

 

6.700%

 

3/30/67

 

12,000,000

 

11,849,364

(c) ‡

Total Diversified Financial Services

 

 

 

 

 

 

 

26,063,310

 

Insurance — 1.3%

 

 

 

 

 

 

 

 

 

American International Group Inc., Medium-Term Notes, Senior Notes

 

5.850%

 

1/16/18

 

290,000

 

302,919

 

MetLife Inc., Junior Subordinated Debentures

 

6.400%

 

12/15/36

 

6,910,000

 

6,689,571

 

Teachers Insurance & Annuity Association of America - College Retirement Equity Fund, Notes

 

6.850%

 

12/16/39

 

10,000

 

11,313

(d)

Total Insurance

 

 

 

 

 

 

 

7,003,803

 

TOTAL FINANCIALS

 

 

 

 

 

 

 

41,711,565

 

HEALTH CARE — 0.0%

 

 

 

 

 

 

 

 

 

Health Care Equipment & Supplies — 0.0%

 

 

 

 

 

 

 

 

 

Medtronic Inc., Senior Notes

 

4.450%

 

3/15/20

 

30,000

 

30,790

 

Health Care Providers & Services — 0.0%

 

 

 

 

 

 

 

 

 

WellPoint Inc., Notes

 

5.875%

 

6/15/17

 

20,000

 

22,463

 

Pharmaceuticals — 0.0%

 

 

 

 

 

 

 

 

 

Wyeth, Notes

 

5.950%

 

4/1/37

 

120,000

 

128,723

 

TOTAL HEALTH CARE

 

 

 

 

 

 

 

181,976

 

MATERIALS — 0.1%

 

 

 

 

 

 

 

 

 

Chemicals — 0.0%

 

 

 

 

 

 

 

 

 

Potash Corp. of Saskatchewan Inc., Senior Notes

 

4.875%

 

3/30/20

 

10,000

 

10,388

 

PPG Industries Inc., Senior Notes

 

6.650%

 

3/15/18

 

120,000

 

139,883

 

Total Chemicals

 

 

 

 

 

 

 

150,271

 

Metals & Mining — 0.0%

 

 

 

 

 

 

 

 

 

Vale Overseas Ltd., Notes

 

6.875%

 

11/21/36

 

156,000

 

166,509

 

Paper & Forest Products — 0.1%

 

 

 

 

 

 

 

 

 

Appleton Papers Inc., Senior Secured Notes

 

11.250%

 

12/15/15

 

408,000

 

397,800

 

TOTAL MATERIALS

 

 

 

 

 

 

 

714,580

 

 

See Notes to Schedule of Investments.

 

5


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

TELECOMMUNICATION SERVICES — 0.2%

 

 

 

 

 

 

 

 

 

Diversified Telecommunication Services — 0.2%

 

 

 

 

 

 

 

 

 

AT&T Inc., Global Notes

 

5.600%

 

5/15/18

 

$

80,000

 

$

87,960

 

AT&T Inc., Senior Notes

 

6.400%

 

5/15/38

 

100,000

 

102,428

 

British Telecommunications PLC, Bonds

 

9.875%

 

12/15/30

 

40,000

 

55,470

 

Deutsche Telekom International Finance BV, Senior Notes

 

5.750%

 

3/23/16

 

100,000

 

112,081

 

Telecom Italia Capital, Senior Notes

 

5.250%

 

10/1/15

 

40,000

 

41,444

 

Telefonica Emisones SAU, Senior Notes

 

6.221%

 

7/3/17

 

130,000

 

142,007

 

Verizon Communications Inc., Senior Notes

 

5.500%

 

2/15/18

 

120,000

 

131,009

 

Verizon Communications Inc., Senior Notes

 

6.400%

 

2/15/38

 

120,000

 

126,139

 

TOTAL TELECOMMUNICATION SERVICES

 

 

 

 

 

 

 

798,538

 

UTILITIES — 3.5%

 

 

 

 

 

 

 

 

 

Electric Utilities — 2.6%

 

 

 

 

 

 

 

 

 

FirstEnergy Corp., Notes

 

7.375%

 

11/15/31

 

125,000

 

135,771

 

NextEra Energy Capital Holding Inc., Junior Subordinated Notes

 

6.350%

 

10/1/66

 

6,000,000

 

5,924,250

(c) ‡

NextEra Energy Capital Holding Inc., Junior Subordinated Notes

 

6.650%

 

6/15/67

 

8,000,000

 

8,000,016

(c) ‡

Pacific Gas & Electric Co., Senior Notes

 

5.800%

 

3/1/37

 

140,000

 

142,008

 

Total Electric Utilities

 

 

 

 

 

 

 

14,202,045

 

Multi-Utilities — 0.9%

 

 

 

 

 

 

 

 

 

Dominion Resources Inc., Junior Subordinated Notes

 

6.300%

 

9/30/66

 

5,000,000

 

4,913,070

(c) ‡

TOTAL UTILITIES

 

 

 

 

 

 

 

19,115,115

 

TOTAL CORPORATE BONDS & NOTES (Cost — $86,081,899)

 

 

 

 

88,928,418

 

MORTGAGE-BACKED SECURITIES — 2.3%

 

 

 

 

 

 

 

 

 

FHLMC — 0.1%

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC)

 

3.500%

 

4/13/41

 

200,000

 

187,969

(f)

Federal Home Loan Mortgage Corp. (FHLMC), Gold

 

5.500%

 

5/12/41

 

100,000

 

106,406

(f)

Total FHLMC

 

 

 

 

 

 

 

294,375

 

FNMA — 1.3%

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association (FNMA)

 

4.500%

 

4/13/41

 

900,000

 

916,172

(f)

Federal National Mortgage Association (FNMA)

 

5.000%

 

4/13/41-5/12/41

 

2,300,000

 

2,403,750

(f)

Federal National Mortgage Association (FNMA)

 

5.500%

 

4/13/41-5/12/41

 

2,500,000

 

2,670,392

(f)

Federal National Mortgage Association (FNMA)

 

6.000%

 

4/13/41-5/12/41

 

1,300,000

 

1,413,203

(f)

Total FNMA

 

 

 

 

 

 

 

7,403,517

 

GNMA — 0.9%

 

 

 

 

 

 

 

 

 

Government National Mortgage Association (GNMA)

 

5.000%

 

1/15/40

 

1,607,317

 

1,717,866

 

Government National Mortgage Association (GNMA)

 

4.500%

 

4/20/41

 

500,000

 

515,172

(f)

Government National Mortgage Association (GNMA)

 

5.000%

 

4/20/41

 

900,000

 

954,938

(f)

Government National Mortgage Association (GNMA)

 

5.500%

 

4/20/41

 

300,000

 

324,656

(f)

Government National Mortgage Association (GNMA)

 

4.500%

 

5/18/41

 

1,400,000

 

1,437,407

(f)

Government National Mortgage Association (GNMA)

 

2.014%

 

7/20/60

 

151,004

 

157,300

(c)

Total GNMA

 

 

 

 

 

 

 

5,107,339

 

TOTAL MORTGAGE-BACKED SECURITIES (Cost — $12,731,391)

 

 

 

12,805,231

 

 

See Notes to Schedule of Investments.

 

6


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

VALUE

 

MUNICIPAL BONDS — 0.0%

 

 

 

 

 

 

 

 

 

California — 0.0%

 

 

 

 

 

 

 

 

 

Imperial Irrigation District Electric Revenue

 

5.125%

 

11/1/38

 

$

10,000

 

$

9,166

 

Los Angeles, CA, Department of Airports Revenue

 

5.250%

 

5/15/39

 

10,000

 

9,602

 

San Francisco, CA, City & County Public Utilities Commission, Water Revenue

 

5.000%

 

11/1/39

 

10,000

 

9,379

 

Total California

 

 

 

 

 

 

 

28,147

 

Georgia — 0.0%

 

 

 

 

 

 

 

 

 

Metropolitan Atlanta, GA, Rapid Transit Authority, Sales Tax Revenue

 

5.000%

 

7/1/39

 

10,000

 

9,763

 

Illinois — 0.0%

 

 

 

 

 

 

 

 

 

Illinois State, GO

 

5.665%

 

3/1/18

 

40,000

 

39,963

 

Illinois State, GO

 

5.877%

 

3/1/19

 

40,000

 

39,990

 

Total Illinois

 

 

 

 

 

 

 

79,953

 

New York — 0.0%

 

 

 

 

 

 

 

 

 

Liberty, NY, Development Corporation Revenue, Goldman Sachs Headquarters

 

5.250%

 

10/1/35

 

40,000

 

38,249

 

New York State Dormitory Authority Lease Revenue, State University Dormitory Facilities

 

5.000%

 

7/1/40

 

10,000

 

9,499

 

New York State Environmental Facilities Corp., State Clean Water & Drinking

 

5.125%

 

6/15/38

 

10,000

 

9,934

 

Port Authority of New York & New Jersey

 

5.000%

 

1/15/41

 

30,000

 

28,874

 

Total New York

 

 

 

 

 

 

 

86,556

 

TOTAL MUNICIPAL BONDS (Cost — $202,264)

 

 

 

 

 

 

 

204,419

 

U.S. GOVERNMENT & AGENCY OBLIGATIONS — 2.5%

 

 

 

 

 

 

 

U.S. Government Agencies — 0.4%

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank (FHLB), Global Bonds

 

1.625%

 

7/27/11

 

1,770,000

 

1,778,837

 

Federal Home Loan Bank (FHLB), Global Bonds

 

5.500%

 

7/15/36

 

100,000

 

108,624

 

Federal Home Loan Mortgage Corp. (FHLMC), Notes

 

0.375%

 

11/30/12

 

500,000

 

497,510

 

Total U.S. Government Agencies

 

 

 

 

 

 

 

2,384,971

 

U.S. Government Obligations — 2.1%

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds

 

4.375%

 

5/15/40

 

550,000

 

537,799

 

U.S. Treasury Bonds

 

4.250%

 

11/15/40

 

10,000

 

9,566

 

U.S. Treasury Bonds

 

4.750%

 

2/15/41

 

1,230,000

 

1,278,623

 

U.S. Treasury Notes

 

1.250%

 

8/31/15

 

4,520,000

 

4,381,575

 

U.S. Treasury Notes

 

2.000%

 

1/31/16

 

90,000

 

89,360

 

U.S. Treasury Notes

 

2.125%

 

2/29/16

 

310,000

 

309,079

 

U.S. Treasury Notes

 

2.750%

 

2/28/18

 

900,000

 

893,320

 

U.S. Treasury Notes

 

2.875%

 

3/31/18

 

1,810,000

 

1,807,879

 

U.S. Treasury Notes

 

3.500%

 

5/15/20

 

1,310,000

 

1,327,917

 

U.S. Treasury Notes

 

3.625%

 

2/15/21

 

610,000

 

618,769

 

U.S. Treasury Strip Principal (STRIPS)

 

0.000%

 

11/15/24

 

190,000

 

106,927

 

Total U.S. Government Obligations

 

 

 

 

 

 

 

11,360,814

 

TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost — $13,872,171)

 

 

13,745,785

 

U.S. TREASURY INFLATION PROTECTED SECURITIES — 0.1%

 

 

 

 

 

 

 

U.S. Treasury Bonds, Inflation Indexed

 

2.000%

 

1/15/26

 

177,502

 

189,900

 

U.S. Treasury Bonds, Inflation Indexed

 

2.375%

 

1/15/27

 

338,477

 

377,745

(g)

U.S. Treasury Bonds, Inflation Indexed

 

2.125%

 

2/15/41

 

110,602

 

117,350

 

TOTAL U.S. TREASURY INFLATION PROTECTED SECURITIES (Cost — $618,957)

 

684,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPIRATION
DATE

 

CONTRACTS

 

 

 

PURCHASED OPTIONS — 0.0%

 

 

 

 

 

 

 

 

 

Eurodollar Mid Curve 1-Year Futures, Call @ $99.38

 

12/16/11

 

10

 

63

 

U.S. Treasury 10-Year Notes Futures, Call @ $122.00

 

4/21/11

 

5

 

485

 

U.S. Treasury 10-Year Notes Futures, Call @ $122.00

 

5/20/11

 

1

 

266

 

U.S. Treasury 10-Year Notes Futures, Call @ $122.50

 

5/20/11

 

14

 

2,625

 

U.S. Treasury 30-Year Notes Futures, Put @ $110.00

 

5/20/11

 

5

 

312

 

TOTAL PURCHASED OPTIONS (Cost — $7,739)

 

 

 

 

 

3,751

 

 

See Notes to Schedule of Investments.

 

7


 

Schedule of investments (unaudited) (cont’d)

March 31, 2011

 

LMP CAPITAL AND INCOME FUND INC.

 

SECURITY

 

 

 

EXPIRATION
DATE

 

WARRANTS

 

VALUE

 

WARRANTS — 0.0%

 

 

 

 

 

 

 

 

 

Buffets Restaurant Holdings

 

 

 

4/28/14

 

215

 

$

2

*(a)(b)

Charter Communications Inc.

 

 

 

11/30/14

 

189

 

1,937

*

TOTAL WARRANTS (Cost — $378)

 

 

 

 

 

 

 

1,939

 

TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS (Cost — $484,826,987)

 

537,045,556

 

 

 

 

 

 

 

 

 

 

 

 

 

RATE

 

MATURITY
DATE

 

FACE
AMOUNT

 

 

 

SHORT-TERM INVESTMENTS — 3.1%

 

 

 

 

 

 

 

 

 

U.S. Government Agencies — 0.4%

 

 

 

 

 

 

 

 

 

Federal Home Loan Mortgage Corp. (FHLMC), Discount Notes (Cost - $2,098,862)

 

0.150%

 

8/9/11

 

$

2,100,000

 

2,099,091

(h)

Repurchase Agreements — 2.7%

 

 

 

 

 

 

 

 

 

Interest in $562,442,000 joint tri-party repurchase agreement dated 3/31/11 with Barclays Capital Inc.; Proceeds at maturity - $11,590,035; (Fully collateralized by various U.S. government obligations, 1.375% to 1.750 due 1/15/20 to 1/15/28; Market value - $11,821,800)

 

0.110%

 

4/1/11

 

11,590,000

 

11,590,000

 

Morgan Stanley tri-party repurchase agreement dated 3/31/11; Proceeds at maturity - $3,602,011; (Fully collateralized by U.S. government agency obligations, 3.740% due 10/27/25; Market value - $3,674,864)

 

0.110%

 

4/1/11

 

3,602,000

 

3,602,000

 

Total Repurchase Agreements (Cost — $15,192,000)

 

 

 

15,192,000

 

TOTAL SHORT-TERM INVESTMENTS (Cost — $17,290,862)

 

 

 

17,291,091

 

TOTAL INVESTMENTS — 100.0% (Cost — $502,117,849#)

 

 

 

554,336,647

 

 

*

Non-income producing security.

(a)

Security is valued in good faith at fair value in accordance with procedures approved by the Board of Directors (See Note 1).

(b)

Illiquid security.

(c)

Variable rate security. Interest rate disclosed is as of the most recent information available.

(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)

This security is traded on a to-be-announced (“TBA”) basis (See Note 1).

(g)

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

(h)

Rate shown represents yield-to-maturity.

All or a portion of these securities are held as collateral pursuant to a loan agreement.

The coupon payment on these securities is currently in default as of March 31, 2011.

#

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

 

 

 

Abbreviations used in this schedule:

 

 ADR

- American Depositary Receipt

 

 ARM

- Adjustable Rate Mortgage

 

 GO

- General Obligation

 

 IO

- Interest Only

 

 STRIPS

- Separate Trading of Registered Interest and Principal Securities

 

SCHEDULE OF WRITTEN OPTIONS

 

 

 

 

 

 

 

 

 

SECURITY

 

EXPIRATION
DATE

 

STRIKE
PRICE

 

CONTRACTS

 

VALUE

 

Eurodollar Mid Curve 1-Year Futures, Call

 

9/16/11

 

$

99.38

 

5

 

$

63

 

TOTAL WRITTEN OPTIONS (Premiums received — $171)

 

 

 

 

 

$

63

 

 

See Notes to Schedule of Investments.

 

8

 


 

Notes to Schedule of Investments (unaudited)

 

1. Organization and Significant Accounting Policies

 

LMP Capital and Income Fund Inc. (the “Fund”) was incorporated in Maryland on November 12, 2003 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”).  The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Fund’s investment objective is total return with an emphasis on income. The Fund pursues its investment objective by investing at least 80% of its assets in a broad range of equity and fixed income securities of both U.S. and foreign issuers.

 

The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (“GAAP”).

 

(a) Investment Valuation.  Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade.  Debt securities are valued at the mean between the last quoted bid and asked prices provided by an independent pricing service, which are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various other relationships between securities. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the last quoted bid and asked prices as of the close of business of that market. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded. When reliable prices are not readily available, 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 values these securities as determined in accordance with procedures approved by the Fund’s Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates fair value.

 

The Fund has adopted Financial Accounting Standards Board Codification Topic 820 (“ASC Topic 820”). ASC Topic 820 establishes a single definition of fair value, creates a three-tier hierarchy as a framework for measuring fair value based on inputs used to value the Fund’s investments, and requires additional disclosure about fair value. The hierarchy of inputs is summarized below.

 

·                  Level 1—quoted prices in active markets for identical investments

·                  Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

·                  Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

The Fund uses valuation techniques to measure fair value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.

 

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities carried at fair value:

 

9


 

Notes to Schedule of Investments (unaudited) (continued)

 

ASSETS

DESCRIPTION

 

QUOTED
PRICES
(LEVEL 1)

 

OTHER
SIGNIFICANT
OBSERVABLE
INPUTS
(LEVEL 2)

 

SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

 

TOTAL

 

Long-term investments†:

 

 

 

 

 

 

 

 

 

Common stocks:

 

 

 

 

 

 

 

 

 

Industrials

 

$

37,407,243

 

 

$

19,352

 

$

37,426,595

 

Other common stocks

 

320,961,973

 

 

 

320,961,973

 

Convertible preferred stocks:

 

 

 

 

 

 

 

 

 

Financials

 

13,876,600

 

$

11,519,050

 

 

25,395,650

 

Other convertible preferred stocks

 

21,367,559

 

 

 

21,367,559

 

Preferred stocks

 

75,020

 

 

 

75,020

 

Asset-backed securities

 

 

1,335,064

 

 

1,335,064

 

Collateralized mortgage obligations

 

 

6,206,237

 

37,920

 

6,244,157

 

Convertible bonds & notes

 

 

7,865,000

 

 

7,865,000

 

Corporate bonds & notes

 

 

88,928,418

 

 

88,928,418

 

Mortgage-backed securities

 

 

12,805,231

 

 

12,805,231

 

Municipal bonds

 

 

204,419

 

 

204,419

 

U.S. government & agency obligations

 

 

13,745,785

 

 

13,745,785

 

U.S. treasury inflation protected securities

 

 

684,995

 

 

684,995

 

Purchased options

 

3,751

 

 

 

3,751

 

Warrants

 

1,937

 

 

2

 

1,939

 

Total long-term investments

 

$

393,694,083

 

$

143,294,199

 

$

57,274

 

$

537,045,556

 

Short-term investments†

 

 

17,291,091

 

 

17,291,091

 

Total investments

 

$

393,694,083

 

$

160,585,290

 

$

57,274

 

$

554,336,647

 

Other financial instruments:

 

 

 

 

 

 

 

 

 

Futures contracts

 

$

17,263

 

 

 

$

17,263

 

Total return swaps

 

 

$

970

 

 

970

 

Total other financial instruments

 

$

17,263

 

$

970

 

 

$

18,233

 

Total

 

$

393,711,346

 

$

160,586,260

 

$

57,274

 

$

554,354,880

 

 

LIABILITIES

 

 

QUOTED
PRICES

 

OTHER
SIGNIFICANT
OBSERVABLE
INPUTS

 

SIGNIFICANT
UNOBSERVABLE
INPUTS

 

 

 

DESCRIPTION

 

(LEVEL 1)

 

(LEVEL 2)

 

(LEVEL 3)

 

TOTAL

 

Other financial instruments:

 

 

 

 

 

 

 

 

 

Written options

 

$

63

 

 

 

$

63

 

Futures contracts

 

39,818

 

 

 

39,818

 

Total return swaps

 

 

$

184

 

 

184

 

Total

 

$

39,881

 

$

184

 

 

$

40,065

 

 

†See Schedule of Investments for additional detailed categorizations.

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:

 

INVESTMENTS IN SECURITIES

 

COMMON
STOCKS

 

COLLATERALIZED
MORTGAGE
OBLIGATIONS

 

WARRANTS

 

TOTAL

 

Balance as of December 31, 2010

 

$

19,352

 

 

$

2

 

$

19,354

 

Accrued premiums/discounts

 

 

 

 

 

Realized gain(loss)

 

 

 

 

 

Change in unrealized appreciation (depreciation)(1)

 

 

$

1,547

 

 

1,547

 

Net purchases (sales)

 

 

36,373

 

 

36,373

 

Transfers into Level 3

 

 

 

 

 

Transfers out of Level 3

 

 

 

 

 

Balance as of March 31, 2011

 

$

19,352

 

$

37,920

 

$

2

 

$

57,274

 

Net change in unrealized appreciation (depreciation) for investments in securities still held at March 31, 2011(1)

 

 

$

1,547

 

 

$

1,547

 

 

10


 

Notes to Schedule of Investments (unaudited) (continued)

 

(1) Change in unrealized appreciation (depreciation) includes net unrealized appreciation (depreciation) resulting from changes in investment values during the reporting period and the reversal of previously recorded unrealized appreciation (depreciation) when gains or losses are realized.

 

(b) Repurchase Agreements. The Fund may enter into repurchase agreements with institutions that its investment adviser has determined are creditworthy. Each repurchase agreement is recorded at cost. Under the terms of a typical repurchase agreement, the Fund acquires a debt security subject to an obligation of the seller to repurchase, and of the Fund to resell, the security at an agreed-upon price and time, thereby determining the yield during the Fund’s holding period. When entering into repurchase agreements, it is the Fund’s policy that its custodian or a third party custodian, acting on the Fund’s behalf, take possession of the underlying collateral securities, the market value of which, at all times, at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction maturity exceeds one business day, the value of the collateral is marked-to-market and measured against the value of the agreement in an effort to ensure the adequacy of the collateral. If the counterparty defaults, the Fund generally has the right to use the collateral to satisfy the terms of the repurchase transaction. However, if the market value of the collateral declines during the period in which the Fund seeks to assert its rights 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) 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 premium received is recorded as a realized gain. When a written call option is exercised, the difference between the premium received plus the option exercise price and the Fund’s basis in the underlying security (in the case of a covered written call option), or the cost to purchase the underlying security (in the case of an uncovered written call option), including brokerage commission, is recognized as a realized gain or loss. When a written put option is exercised, the amount of the premium received is subtracted from the cost of the security purchased by the Fund from the exercise of the written put option to form the Fund’s basis in the underlying security purchased. The writer or buyer of an option traded on an exchange can liquidate the position before the exercise of the option by entering into a closing transaction. The cost of a closing transaction is deducted from the original premium received resulting in a realized gain or loss to the Fund.

 

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

 

(d) Futures Contracts. The Fund uses futures contracts to gain exposure to, or hedge against, changes in the value of equities, interest rates or foreign currencies. A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

 

Upon entering into a futures contract, the Fund is required to deposit cash or cash equivalents with a broker in an amount equal to a certain percentage of the contract amount. This is known as the ‘‘initial margin’’ and subsequent payments (‘‘variation margin’’) are made or received by the Fund each day, depending on the daily fluctuation in the value of the contract. For certain futures, including foreign denominated futures, variation margin is not settled daily, but is recorded as a net variation margin payable or receivable. Futures contracts are valued daily at the settlement price established by the board of trade or exchange on which they are traded.

 

(e) Inflation-Indexed Bonds. Inflation-indexed bonds are fixed-income securities whose principal value or interest rate is periodically adjusted according to the rate of inflation. As the index measuring inflation changes, the principal value or interest rate of inflation-indexed bonds will be adjusted accordingly. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

 

(f) Foreign Currency Translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates 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.

 

Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of

 

11


 

Notes to Schedule of Investments (unaudited) (continued)

 

U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.

 

(g) Swap Agreements. The Fund invests in swaps for the purpose of managing its exposure to interest rate, credit or market risk, or for other purposes. The use of swaps involves risks that are different from those associated with ordinary portfolio transactions.

 

Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). Gains or losses are realized upon termination of the swap agreement. Collateral, in the form of restricted cash or securities, may be required to be held in segregated accounts with the Fund’s custodian in compliance with the terms of the swap contracts. Securities posted as collateral for swap contracts are identified in the Schedule of Investments.

 

Total Return Swaps

The Fund enters into total return swaps for investment purposes. Total return swaps are agreements to exchange the return generated by one instrument for the return generated by another instrument. For example, the agreement to pay a predetermined or fixed interest rate in exchange for a market-linked return based on a notional amount. To the extent the total return of a referenced index or instrument exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent it is less, the Fund will make a payment to the counterparty.

 

(h) Securities Traded on a To-Be-Announced Basis. The Fund may trade securities on a to-be-announced (“TBA”) basis. In a TBA transaction, the Fund commits to purchasing or selling securities which have not yet been issued by the issuer and for which specific information, such as the face amount, maturity date and underlying pool of investments in U.S. government agency mortgage pass-through securities, is not announced.  Securities purchased on a TBA basis are not settled until they are delivered to the Fund. Beginning on the date the Fund enters into a TBA transaction, cash, U.S. government securities or other liquid high-grade debt obligations are segregated in an amount equal in value to the purchase price of the TBA security. These securities are subject to market fluctuations and their current value is determined in the same manner as for other securities.

 

(i) Mortgage Dollar Rolls. The Fund may enter into mortgage dollar rolls in which the Fund sells mortgage-backed securities for delivery in the current month, realizing a gain or loss, and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities to settle on a specified future date.

 

The Fund executes its mortgage dollar rolls entirely in the TBA market, whereby the Fund makes a forward commitment to purchase a security and, instead of accepting delivery, the position is offset by a sale of the security with a simultaneous agreement to repurchase at a future date.  The Fund accounts for mortgage dollar rolls as purchases and sales.

 

The risk of entering into mortgage dollar rolls is that the market value of the securities the Fund is obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund’s use of the proceeds of the mortgage dollar roll may be restricted pending a determination by the counterparty, or its trustee or receiver, whether to enforce the Fund’s obligation to repurchase the securities.

 

(j) Credit and Market Risk.  The Fund invests in high-yield and emerging market instruments that may be 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.

 

(k) Counterparty Risk and Credit-Risk-Related Contingent Features of Derivative Instruments. The Fund may invest in certain securities or engage in other transactions, where the Fund is exposed to counterparty credit risk in addition to broader market risks. The Fund may invest in securities of issuers, which may also be considered counterparties as trading partners in other transactions. This may increase the risk of loss in the event of default or bankruptcy by the counterparty or if the counterparty otherwise fails to meet its contractual obligations. The Fund’s investment manager attempts to mitigate counterparty risk by (i) periodically assessing the creditworthiness of its trading partners, (ii) monitoring and/or limiting the amount of its net

 

12


 

Notes to Schedule of Investments (unaudited) (continued)

 

exposure to each individual counterparty based on its assessment and (iii) requiring collateral from the counterparty for certain transactions. Market events and changes in overall economic conditions may impact the assessment of such counterparty risk by the investment manager. In addition, declines in the values of underlying collateral received may expose the Fund to increased risk of loss.

 

The Fund has entered into master agreements with certain of its derivative counterparties that provide for general obligations, representations, agreements, collateral, events of default or termination and credit related contingent features.  The credit related contingent features include, but are not limited to, a percentage decrease in the Fund’s net assets or NAV over a specified period of time.  If these credit related contingent features were triggered, the derivatives counterparty could terminate the positions and demand payment or require additional collateral.

 

As of March 31, 2011, the Fund held written options and total return swaps with credit related contingent features which had a liability position of $247. If a contingent feature in the Master Agreements would have been triggered, the Fund would have been required to pay this amount to its derivatives counterparties.

 

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

 

2.  Investments

 

At March 31, 2011, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were substantially as follows:

 

Gross unrealized appreciation

 

$60,274,606

 

Gross unrealized depreciation

 

(8,055,808

)

Net unrealized appreciation

 

$52,218,798

 

 

During the period ended March 31, 2011, written option transactions for the Fund were as follows:

 

 

 

Number of Contracts

 

Premiums

 

Written options, outstanding December 31, 2010

 

17

 

$7,960

 

Options written

 

28

 

8,315

 

Options closed

 

(28

)

(15,206

)

Options exercised

 

 

 

Options expired

 

(12

)

(898

)

Written options, outstanding March 31, 2011

 

5

 

$171

 

 

At March 31, 2011, the Fund had the following open futures contracts:

 

 

 

NUMBER OF
CONTRACTS

 

EXPIRATION
DATE

 

BASIS
VALUE

 

MARKET
VALUE

 

UNREALIZED
GAIN (LOSS)

 

Contracts to Buy:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury 10-Year Notes

 

2

 

6/11

 

$

237,991

 

$

238,063

 

$

72

 

U.S. Treasury 30-Year Bonds

 

15

 

6/11

 

1,790,322

 

1,802,812

 

12,490

 

U.S. Treasury Ultra Long-Term Bonds

 

1

 

6/11

 

119,386

 

123,562

 

4,176

 

 

 

 

 

 

 

 

 

 

 

16,738

 

Contracts to Sell:

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury 2-Year Notes

 

2

 

6/11

 

436,775

 

436,250

 

525

 

U.S. Treasury 5-Year Notes

 

81

 

6/11

 

9,420,096

 

9,459,914

 

(39,818

)

 

 

 

 

 

 

 

 

 

 

(39,293

)

Net unrealized loss on open futures contracts

 

 

 

 

 

 

 

 

 

$

(22,555

)

 

At March 31, 2011, the Fund held TBA securities with a total cost of $10,901,214.

 

At March 31, 2011, the Fund had the following open swap contracts:

 

13


 

Notes to Schedule of Investments (unaudited) (continued)

 

TOTAL RETURN SWAPS

SWAP COUNTERPARTY

 

NOTIONAL
AMOUNT

 

TERMINATION
DATE

 

PERIODIC
PAYMENTS
MADE BY THE
FUND

 

PERIODIC
PAYMENTS
RECEIVED BY
THE FUND

 

UPFRONT
PREMIUMS
PAID
(RECEIVED)

 

UNREALIZED
APPRECIATION
(DEPRECIATION)

 

Barclays Capital Inc.

 

$76,916

 

1/12/40

 

1-Month LIBOR

 

IOS.FN30.500.09

 

$970

 

Morgan Stanley & Co. Inc.

 

25,000

 

1/1/12

 

TRX-CMBS

 

TRX-CMBS Reset

 

 

(184

)

Total

 

$101,916

 

 

 

 

 

 

 

 

$786

 

 

†  Periodic payments made/received by the Fund are based on the total return of the referenced entity.

‡  Markit Interest only Fannie Mae 30 year 5.00% fixed rate total return swap index.

 

3. Derivative Instruments and Hedging Activities

 

Financial Accounting Standards Board Codification Topic 815 requires enhanced disclosure about an entity’s derivative and hedging activities.

 

The following is a summary of the Fund’s derivative instruments categorized by risk exposure at March 31, 2011.

 

 

 

Purchased

 

Written

 

Futures Contracts

 

Swap

 

 

 

Primary Underlying
Risk Disclosure

 

Options, at
value

 

Options, at
value

 

Unrealized
Appreciation

 

Unrealized
Depreciation

 

Contracts, at
value

 

Total

 

Interest Rate Contracts

 

$

3,751

 

$

(63

)

$

17,263

 

$

(39,818

)

$

970

 

$

(17,897

)

Credit Contracts

 

 

 

 

 

(184

)

(184

)

Total

 

$

3,751

 

$

(63

)

$

17,263

 

$

(39,818

)

$

786

 

$

(18,081

)

 

During the period ended March 31, 2011, the volume of derivative activity for the Fund was as follows:

 

 

 

Average Market
Value

 

Purchased options

 

$

1,078

 

Written options

 

2,109

 

Futures contracts (to buy)

 

4,537,663

 

Futures contracts (to sell)

 

9,286,487

 

 

 

 

 

 

 

Average Notional
Balance

 

Total return swap contracts

 

$

136,710

 

 

14

 


 

ITEM 2.                  CONTROLS AND PROCEDURES.

 

(a)           The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a- 3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the Securities Exchange Act of 1934.

 

(b)           There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting.

 

ITEM 3.                  EXHIBITS.

 

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

 


 


 

SIGNATURES

 

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

 

LMP Capital and Income Fund Inc.

 

By

/s/ R. Jay Gerken

 

R. Jay Gerken

 

Chief Executive Officer

 

 

 

Date:

May 25, 2011

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By

/s/ R. Jay Gerken

 

R. Jay Gerken

 

Chief Executive Officer

 

 

 

Date:

May 25, 2011

 

 

 

By

/s/ Kaprel Ozsolak

 

Kaprel Ozsolak

 

Chief Financial Officer

 

 

 

Date:

May 25, 2011