SEC Form N-CSRS filed by LMP Capital and Income Fund Inc.
$SCD
Trusts Except Educational Religious and Charitable
Finance
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)
620 Eighth Avenue, 47th Floor, New York, NY 10018
(Address of principal executive offices) (Zip code)
Marc A. De Oliveira
Franklin Templeton
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: November 30
Date of reporting period: May 31, 2024
| ITEM 1. | REPORT TO STOCKHOLDERS. |
The Semi-Annual Report to Stockholders is filed herewith.
Managed Distribution Policy: The Fund’s Board of Directors (the “Board”) has authorized a managed distribution plan pursuant to which the Fund makes monthly distributions
to shareholders at a fixed rate of $0.1130 per common share, which rate may be adjusted
from time to time by the Fund’s Board (the “Plan”). The Plan is intended to provide shareholders with a constant, but not guaranteed, fixed minimum rate of distribution each month.
The Fund is managed with a goal of generating as much of the distribution as possible
from net ordinary income and short-term capital gains that is consistent with the Fund’s investment strategy and risk profile. To the extent that sufficient distributable income is not
available on a monthly basis, the Fund will distribute long-term capital gains and/or return
of capital in order to maintain its managed distribution rate. A return of capital may occur,
for example, when some or all of the money that was invested in the Fund is paid back
to shareholders. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income”. Even though the Fund may realize current year capital gains, such gains may be offset, in whole
or in part, by the Fund’s capital loss carryovers from prior years.
The Board may amend the terms of the Plan or terminate the Plan at any time without
prior notice to the Fund’s shareholders, however, at this time there are no reasonably foreseeable circumstances that might cause the termination of the Plan. The amendment or termination
of the Plan could have an adverse effect on the market price of the Fund’s common shares. The Plan is subject to the periodic review by the Board to determine if an adjustment
should be made.
Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the current distribution or from the terms of the Fund’s Plan. The Fund will send a Form 1099-DIV to shareholders for the calendar year that will describe
how to
report the Fund’s distributions for federal income tax purposes.
Fund objective
The Fund’s investment objective is total return with an emphasis on income.
The Fund may invest in a broad range of equity and fixed income securities of both U.S. and foreign issuers. The Fund will vary its allocation between equity and fixed income securities depending on the investment manager’s view of economic, market or political conditions, fiscal and monetary policy and security valuation.
The Fund may invest in a broad range of equity and fixed income securities of both U.S. and foreign issuers. The Fund will vary its allocation between equity and fixed income securities depending on the investment manager’s view of economic, market or political conditions, fiscal and monetary policy and security valuation.
What’s inside
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Letter from the chairman
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III
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IV
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34
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LMP Capital and Income Fund Inc.
II
Letter from the chairman
Dear Shareholder,
We are pleased to provide the semi-annual report of LMP Capital and Income Fund Inc.
for the six-month reporting period ended May 31, 2024. Please read on for Fund performance
information during the Fund’s reporting period.
Special shareholder notice
Effective March 1, 2024, the named portfolio management team responsible for the day-to-day oversight of the Fund became as follows: from ClearBridge, Peter Vanderlee, Patrick
McElroy, and Tatiana Thibodeau Eades; from Western Asset, Michael Buchanan, Ryan Brist,
Christopher Kilpatrick, Chia-Liang (CL) Lian and Mark Lindbloom.
Subsequent event notice
Effective June 3, 2024, Chia-Liang (CL) Lian no longer serves as a member of the Fund’s portfolio management team.
As always, we remain committed to providing you with excellent service and a full
spectrum of investment choices. We also remain committed to supplementing the support
you receive from your financial advisor. One way we accomplish this is through our
website, www.franklintempleton.com. Here you can gain immediate access to market and investment information, including:
•
Fund prices and performance,
•
Market insights and commentaries from our portfolio managers, and
•
A host of educational resources.
We look forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
Chairman, President and Chief Executive Officer
June 28, 2024
III
LMP Capital and Income Fund Inc.
Performance review
For the six months ended May 31, 2024, LMP Capital and Income Fund Inc. returned 14.45%
based on its net asset value (NAV)i and 21.28% based on its New York Stock Exchange (NYSE) market price per share. The Fund’s unmanaged benchmarks, the Bloomberg U.S. Aggregate Indexii and the S&P 500 Indexiii, returned 2.12% and 16.35%, respectively. The Fund’s Composite Indexiv returned 11.24% over the same time frame.
The Fund has adopted a managed distribution policy (the “Managed Distribution Policy”). Pursuant to this policy, the Fund intends to make regular monthly distributions to
common shareholders at a fixed rate per common share, which rate may be adjusted from time
to time by the Fund’s Board of Directors. This policy has no impact on the Fund’s investment strategy and may reduce the Fund’s NAV. The Fund’s manager believes the policy helps maintain the Fund’s competitiveness and may benefit the Fund’s market price and premium/discount to the Fund’s NAV.
During this six-month period, the Fund made distributions to shareholders totaling
$0.68 per share. As of May 31, 2024, the Fund estimates that 10% of the distributions were sourced
from net investment income and 90% constituted realized capital gains.* The performance table shows the Fund’s six-month total return based on its NAV and market price as of May 31, 2024. Past performance is no guarantee of future results.
|
Performance Snapshot as of May 31, 2024 (unaudited)
|
|
|
Price Per Share
|
6-Month
Total Return**
|
|
$16.34 (NAV)
|
14.45
%†
|
|
$15.24 (Market Price)
|
21.28
%‡
|
All figures represent past performance and are not a guarantee of future results.
Performance figures for periods shorter than one year represent cumulative figures and are not
annualized.
** Total returns are based on changes in NAV or market price, respectively. Returns
reflect the deduction of all Fund expenses, including management fees, operating expenses, and
other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that
investors may pay on distributions or the sale of shares.
† Total return assumes the reinvestment of all distributions, including returns of capital, if any, at NAV.
‡ Total return assumes the reinvestment of all distributions, including returns of capital, if any, in additional shares in accordance with the Fund’s Dividend Reinvestment Plan.
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 online under the symbol
*
This estimate is not for tax purposes. The Fund will issue a Form 1099 with final
composition of the distributions for tax purposes after year-end. A return of capital is not taxable and results in
a reduction in the tax basis of a shareholder’s investment. For more information about a distribution’s composition, please refer to the Fund’s distribution press release or, if applicable, the Section 19 notice located in the
press release section of our website, www.franklintempleton.com.
LMP Capital and Income Fund Inc.
IV
Performance review (cont’d)
“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 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 5:30 p.m. Eastern
Time, for the Fund’s current NAV, market price and other information.
Thank you for your investment in the LMP Capital and Income Fund Inc. As always, we
appreciate that you have chosen us to manage your assets and we remain focused on
achieving the Fund’s investment goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
Chairman, President and Chief Executive Officer
June 28, 2024
RISKS: The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not
intended to be a complete investment program and, due to the uncertainty inherent in all investments,
there can be no assurance that the Fund will achieve its investment objective. The Fund’s common stock is traded on the New York Stock Exchange. Similar to stocks, the Fund’s share price will fluctuate with market conditions and, at the time of sale, may be worth more or less than the
original investment. Shares of closed-end funds often trade at a discount to their net asset
value. Because the Fund is non-diversified, it may be more susceptible to economic, political
or regulatory events than a diversified fund. The Fund’s investments are subject to a number of risks such as stock market and equity securities risk, MLP risk, fixed income securities
risk, foreign investments risk, market events risk and portfolio management risk. Investments
in MLP securities are subject to unique risks. The Fund’s concentration of investments in energy-related MLPs subjects it to the risks of MLPs and the energy sector, including the risks of
declines in energy and commodity prices, decreases in energy demand, adverse weather conditions,
natural or other disasters, changes in government regulation, and changes in tax laws. MLP
distributions are not guaranteed and there is no assurance that all such distributions will be tax
deferred. Stock and bond prices are subject to fluctuation. As interest rates rise, bond prices
fall, reducing the value of the fixed income securities held by the Fund. Investing in foreign securities
is subject to certain risks not associated with domestic investing, such as currency
fluctuations and changes in political, social, and economic conditions. These risks are magnified in
emerging or developing markets. Emerging market countries tend to have economic, political, and
legal systems that are less developed and are less stable than those of more developed countries.
The Fund may invest in lower-rated high-yield bonds or “junk bonds”, which are subject to greater liquidity and credit risk (risk of default) than higher-rated obligations. The repositioning
of the
V
LMP Capital and Income Fund Inc.
Fund’s portfolio may increase a shareholder’s risk of loss associated with an investment in the Fund’s shares. Funds that invest in securities related to the real estate industry are subject to the risks of real estate markets, including fluctuating property values, changes in interest
rates and other mortgage-related risks. 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 result in greater volatility of NAV and the market
price of common shares and increases a shareholder’s risk of loss. Dividends are not guaranteed, and a company may reduce or eliminate its dividend at any time. Distributions are not guaranteed
and are subject to change. The market values of securities or other assets will fluctuate,
sometimes sharply and unpredictably, due to changes in general market conditions, overall economic
trends or events, governmental actions or intervention, actions taken by the U.S. Federal
Reserve or foreign central banks, market disruptions caused by trade disputes or other factors,
political developments, armed conflicts, economic sanctions and countermeasures in response
to sanctions, major cybersecurity events, investor sentiment, the global and domestic
effects of a pandemic, and other factors that may or may not be related to the issuer of the security
or other asset. The market values of securities or other assets will fluctuate, sometimes sharply
and unpredictably, due to changes in general market conditions, overall economic trends
or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or
foreign central banks, market disruptions caused by trade disputes or other factors, political
developments, armed conflicts, economic sanctions and countermeasures in response
to sanctions, major cybersecurity events, investor sentiment, the global and domestic
effects of a pandemic, and other factors that may or may not be related to the issuer of the security
or other asset. The Fund may also invest in money market funds, including funds affiliated with the Fund’s manager and subadviser.
All investments are subject to risk including the possible loss of principal. Past
performance is no guarantee of future results. All index performance reflects no deduction for fees,
expenses or taxes. Please note that an investor cannot invest directly in an index.
i
Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities
associated with financial leverage (if any), from the closing value of all securities held by the Fund (plus
all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The
NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price
at which an investor may buy or sell shares of the Fund is the Fund’s market price as determined by supply of and demand for the Fund’s shares.
ii
The Bloomberg 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.
iii
The S&P 500 Index is an unmanaged index of the stocks of 500 leading companies, and
is generally representative of the performance of larger companies in the U.S.
iv
The Composite Index reflects the blended rate of return of the following underlying
indices: 65% S&P 500 Index and 35% Bloomberg U.S. Aggregate Index.
Important data provider notices and terms available at www.franklintempletondatasources.com.
LMP Capital and Income Fund Inc.
VI
Fund at a glance† (unaudited)
Investment breakdown (%) as a percent of total investments
†
The bar graph above represents the composition of the Fund’s investments as of May 31, 2024 and November 30, 2023. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
1
Schedule of investments (unaudited)
May 31, 2024
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
|
|
Shares
|
Value
|
|
Common Stocks — 88.4%
|
|||||
|
Communication Services — 3.7%
|
|||||
|
Interactive Media & Services — 1.8%
|
|||||
|
Alphabet Inc., Class A Shares
|
9,500
|
$1,638,750
*
|
|||
|
Meta Platforms Inc., Class A Shares
|
7,500
|
3,501,225
|
|||
|
Total Interactive Media & Services
|
5,139,975
|
||||
|
Media — 0.4%
|
|||||
|
Paramount Global, Class B Shares
|
79,959
|
952,312
|
|||
|
Wireless Telecommunication Services — 1.5%
|
|||||
|
T-Mobile US Inc.
|
24,600
|
4,304,016
|
|||
|
|
|||||
|
Total Communication Services
|
10,396,303
|
||||
|
Consumer Discretionary — 1.5%
|
|||||
|
Household Durables — 1.5%
|
|||||
|
Lennar Corp., Class A Shares
|
26,600
|
4,265,310
|
|||
|
|
|||||
|
Consumer Staples — 8.9%
|
|||||
|
Beverages — 2.2%
|
|||||
|
Coca-Cola Co.
|
99,210
|
6,243,285
(a)
|
|||
|
Consumer Staples Distribution & Retail — 1.0%
|
|||||
|
Target Corp.
|
17,000
|
2,654,720
|
|||
|
Food Products — 2.9%
|
|||||
|
McCormick & Co. Inc., Non Voting Shares
|
53,100
|
3,834,882
|
|||
|
Nestle SA, ADR
|
40,600
|
4,315,780
|
|||
|
Total Food Products
|
8,150,662
|
||||
|
Household Products — 2.8%
|
|||||
|
Colgate-Palmolive Co.
|
41,400
|
3,848,544
(a)
|
|||
|
Procter & Gamble Co.
|
24,760
|
4,074,011
(a)
|
|||
|
Total Household Products
|
7,922,555
|
||||
|
|
|||||
|
Total Consumer Staples
|
24,971,222
|
||||
|
Energy — 5.4%
|
|||||
|
Oil, Gas & Consumable Fuels — 5.4%
|
|||||
|
Enbridge Inc.
|
41,960
|
1,534,897
|
|||
|
ONEOK Inc.
|
119,779
|
9,702,099
(a)
|
|||
|
Williams Cos. Inc.
|
96,740
|
4,015,677
(a)
|
|||
|
|
|||||
|
Total Energy
|
15,252,673
|
||||
|
Financials — 11.9%
|
|||||
|
Banks — 3.5%
|
|||||
|
JPMorgan Chase & Co.
|
39,480
|
7,999,832
(a)
|
|||
|
US Bancorp
|
40,700
|
1,650,385
|
|||
|
Total Banks
|
9,650,217
|
||||
See Notes to Financial Statements.
2
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
|
|
Shares
|
Value
|
|
|
|||||
|
Capital Markets — 7.2%
|
|||||
|
Blackstone Inc.
|
99,310
|
$11,966,855
(a)
|
|||
|
Blue Owl Capital Inc.
|
394,200
|
7,091,658
|
|||
|
Intercontinental Exchange Inc.
|
8,230
|
1,101,997
|
|||
|
Total Capital Markets
|
20,160,510
|
||||
|
Insurance — 0.5%
|
|||||
|
Chubb Ltd.
|
5,590
|
1,513,884
|
|||
|
Mortgage Real Estate Investment Trusts (REITs) — 0.7%
|
|||||
|
AGNC Investment Corp.
|
194,900
|
1,869,091
|
|||
|
|
|||||
|
Total Financials
|
33,193,702
|
||||
|
Health Care — 8.5%
|
|||||
|
Biotechnology — 2.2%
|
|||||
|
AbbVie Inc.
|
29,900
|
4,821,076
|
|||
|
Amgen Inc.
|
4,290
|
1,312,096
|
|||
|
Total Biotechnology
|
6,133,172
|
||||
|
Pharmaceuticals — 6.3%
|
|||||
|
Eli Lilly & Co.
|
3,700
|
3,035,258
|
|||
|
Johnson & Johnson
|
29,856
|
4,378,980
(a)
|
|||
|
Merck & Co. Inc.
|
64,600
|
8,109,884
(a)
|
|||
|
Pfizer Inc.
|
71,008
|
2,035,089
|
|||
|
Total Pharmaceuticals
|
17,559,211
|
||||
|
|
|||||
|
Total Health Care
|
23,692,383
|
||||
|
Industrials — 8.7%
|
|||||
|
Aerospace & Defense — 2.8%
|
|||||
|
L3Harris Technologies Inc.
|
14,700
|
3,305,001
(a)
|
|||
|
Lockheed Martin Corp.
|
9,878
|
4,646,019
(a)
|
|||
|
Total Aerospace & Defense
|
7,951,020
|
||||
|
Air Freight & Logistics — 0.6%
|
|||||
|
United Parcel Service Inc., Class B Shares
|
11,360
|
1,578,245
(a)
|
|||
|
Electrical Equipment — 1.0%
|
|||||
|
Emerson Electric Co.
|
25,720
|
2,884,755
(a)
|
|||
|
Ground Transportation — 2.2%
|
|||||
|
Union Pacific Corp.
|
25,900
|
6,030,038
(a)
|
|||
|
Machinery — 1.9%
|
|||||
|
Otis Worldwide Corp.
|
54,510
|
5,407,392
(a)
|
|||
|
Professional Services — 0.2%
|
|||||
|
Paychex Inc.
|
5,170
|
621,227
(a)
|
|||
|
|
|||||
|
Total Industrials
|
24,472,677
|
||||
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
3
Schedule of investments (unaudited) (cont’d)
May 31, 2024
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
|
|
Shares
|
Value
|
|
|
|||||
|
Information Technology — 23.4%
|
|||||
|
Electronic Equipment, Instruments & Components — 0.8%
|
|||||
|
Amphenol Corp., Class A Shares
|
16,300
|
$2,157,631
|
|||
|
Semiconductors & Semiconductor Equipment — 10.7%
|
|||||
|
ASML Holding NV, Registered Shares
|
2,600
|
2,496,910
|
|||
|
Broadcom Inc.
|
8,067
|
10,717,413
(a)
|
|||
|
Marvell Technology Inc.
|
60,300
|
4,149,243
(a)
|
|||
|
NXP Semiconductors NV
|
4,240
|
1,153,704
|
|||
|
QUALCOMM Inc.
|
33,740
|
6,884,647
(a)
|
|||
|
Texas Instruments Inc.
|
23,000
|
4,485,230
|
|||
|
Total Semiconductors & Semiconductor Equipment
|
29,887,147
|
||||
|
Software — 6.7%
|
|||||
|
Microsoft Corp.
|
32,230
|
13,379,640
(a)
|
|||
|
Oracle Corp.
|
30,590
|
3,584,842
(a)
|
|||
|
Salesforce Inc.
|
8,100
|
1,898,964
|
|||
|
Total Software
|
18,863,446
|
||||
|
Technology Hardware, Storage & Peripherals — 5.2%
|
|||||
|
Apple Inc.
|
75,230
|
14,462,967
(a)
|
|||
|
|
|||||
|
Total Information Technology
|
65,371,191
|
||||
|
Materials — 0.5%
|
|||||
|
Chemicals — 0.5%
|
|||||
|
Huntsman Corp.
|
60,050
|
1,489,240
(a)
|
|||
|
|
|||||
|
Real Estate — 9.7%
|
|||||
|
Health Care REITs — 0.2%
|
|||||
|
Global Medical REIT Inc.
|
72,500
|
673,525
|
|||
|
Industrial REITs — 1.2%
|
|||||
|
Prologis Inc.
|
29,700
|
3,281,553
(a)
|
|||
|
Office REITs — 0.6%
|
|||||
|
Boston Properties Inc.
|
25,500
|
1,547,085
|
|||
|
Residential REITs — 2.6%
|
|||||
|
American Homes 4 Rent, Class A Shares
|
113,800
|
4,101,352
(a)
|
|||
|
Equity LifeStyle Properties Inc.
|
51,730
|
3,247,092
|
|||
|
Total Residential REITs
|
7,348,444
|
||||
|
Specialized REITs — 5.1%
|
|||||
|
American Tower Corp.
|
26,490
|
5,185,153
(a)
|
|||
|
Digital Realty Trust Inc.
|
17,400
|
2,528,916
(a)
|
|||
|
Equinix Inc.
|
4,110
|
3,135,848
(a)
|
|||
|
Gaming and Leisure Properties Inc.
|
74,677
|
3,352,997
(a)
|
|||
|
Total Specialized REITs
|
14,202,914
|
||||
|
|
|||||
|
Total Real Estate
|
27,053,521
|
||||
See Notes to Financial Statements.
4
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
|
|
Shares
|
Value
|
|
|
|||||
|
Utilities — 6.2%
|
|||||
|
Electric Utilities — 2.4%
|
|||||
|
PPL Corp.
|
229,900
|
$6,742,967
(a)
|
|||
|
Multi-Utilities — 3.8%
|
|||||
|
DTE Energy Co.
|
43,825
|
5,106,927
|
|||
|
Sempra
|
72,360
|
5,573,891
(a)
|
|||
|
Total Multi-Utilities
|
10,680,818
|
||||
|
|
|||||
|
Total Utilities
|
17,423,785
|
||||
|
Total Common Stocks (Cost — $168,405,152)
|
247,582,007
|
||||
|
|
|
|
|
Shares/Units
|
|
|
Master Limited Partnerships — 21.3%
|
|||||
|
Diversified Energy Infrastructure — 13.9%
|
|||||
|
Energy Transfer LP
|
1,087,280
|
17,037,678
(a)
|
|||
|
Enterprise Products Partners LP
|
472,780
|
13,474,230
(a)
|
|||
|
Plains GP Holdings LP, Class A Shares
|
463,340
|
8,344,753
*
|
|||
|
Total Diversified Energy Infrastructure
|
38,856,661
|
||||
|
Oil/Refined Products — 5.0%
|
|||||
|
CrossAmerica Partners LP
|
101,729
|
2,062,047
|
|||
|
MPLX LP
|
188,500
|
7,668,180
(a)
|
|||
|
Sunoco LP
|
81,658
|
4,164,558
(a)
|
|||
|
Total Oil/Refined Products
|
13,894,785
|
||||
|
Petrochemicals — 2.0%
|
|||||
|
Westlake Chemical Partners LP
|
239,536
|
5,597,956
(a)
|
|||
|
Power Generation — 0.4%
|
|||||
|
NextEra Energy Partners LP
|
37,500
|
1,264,125
|
|||
|
|
|||||
|
Total Master Limited Partnerships (Cost — $18,461,123)
|
59,613,527
|
||||
|
|
|
Rate
|
|
Shares
|
|
|
Convertible Preferred Stocks — 6.6%
|
|||||
|
Financials — 3.3%
|
|||||
|
Financial Services — 3.3%
|
|||||
|
Apollo Global Management Inc.
|
6.750%
|
|
142,451
|
9,247,919
|
|
|
|
|||||
|
Utilities — 3.3%
|
|||||
|
Electric Utilities — 3.3%
|
|||||
|
NextEra Energy Inc.
|
6.926%
|
|
202,400
|
9,199,080
|
|
|
|
|||||
|
Total Convertible Preferred Stocks (Cost — $14,730,072)
|
18,446,999
|
||||
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
5
Schedule of investments (unaudited) (cont’d)
May 31, 2024
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount
|
Value
|
|
Corporate Bonds & Notes — 5.4%
|
|||||
|
Communication Services — 0.9%
|
|||||
|
Entertainment — 0.3%
|
|||||
|
Netflix Inc., Senior Notes
|
5.375%
|
11/15/29
|
$400,000
|
$402,814
(b)
|
|
|
Walt Disney Co., Senior Notes
|
2.000%
|
9/1/29
|
600,000
|
517,471
|
|
|
Total Entertainment
|
920,285
|
||||
|
Interactive Media & Services — 0.1%
|
|||||
|
Match Group Holdings II LLC, Senior Notes
|
3.625%
|
10/1/31
|
350,000
|
291,796
(b)
|
|
|
Media — 0.3%
|
|||||
|
Comcast Corp., Senior Notes
|
4.250%
|
10/15/30
|
550,000
|
523,726
|
|
|
Fox Corp., Senior Notes
|
6.500%
|
10/13/33
|
400,000
|
418,110
|
|
|
Total Media
|
941,836
|
||||
|
Wireless Telecommunication Services — 0.2%
|
|||||
|
T-Mobile USA Inc., Senior Notes
|
3.875%
|
4/15/30
|
500,000
|
464,873
|
|
|
|
|||||
|
Total Communication Services
|
2,618,790
|
||||
|
Consumer Discretionary — 0.8%
|
|||||
|
Automobiles — 0.2%
|
|||||
|
Ford Motor Co., Senior Notes
|
3.250%
|
2/12/32
|
550,000
|
452,347
|
|
|
General Motors Financial Co. Inc., Senior Notes
|
4.350%
|
1/17/27
|
250,000
|
243,601
|
|
|
Total Automobiles
|
695,948
|
||||
|
Broadline Retail — 0.2%
|
|||||
|
Amazon.com Inc., Senior Notes
|
2.100%
|
5/12/31
|
550,000
|
460,113
|
|
|
Hotels, Restaurants & Leisure — 0.3%
|
|||||
|
Hilton Domestic Operating Co. Inc., Senior Notes
|
5.375%
|
5/1/25
|
400,000
|
398,980
(b)
|
|
|
Royal Caribbean Cruises Ltd., Senior Notes
|
7.250%
|
1/15/30
|
400,000
|
413,456
(b)
|
|
|
Total Hotels, Restaurants & Leisure
|
812,436
|
||||
|
Specialty Retail — 0.1%
|
|||||
|
Home Depot Inc., Senior Notes
|
2.700%
|
4/15/30
|
300,000
|
264,794
|
|
|
|
|||||
|
Total Consumer Discretionary
|
2,233,291
|
||||
|
Consumer Staples — 0.4%
|
|||||
|
Food Products — 0.3%
|
|||||
|
Darling Ingredients Inc., Senior Notes
|
5.250%
|
4/15/27
|
250,000
|
243,495
(b)
|
|
|
Lamb Weston Holdings Inc., Senior Notes
|
4.375%
|
1/31/32
|
550,000
|
486,173
(b)
|
|
|
Total Food Products
|
729,668
|
||||
|
Personal Care Products — 0.1%
|
|||||
|
Kenvue Inc., Senior Notes
|
4.900%
|
3/22/33
|
400,000
|
393,497
|
|
|
|
|||||
|
Total Consumer Staples
|
1,123,165
|
||||
See Notes to Financial Statements.
6
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount
|
Value
|
|
|
|||||
|
Financials — 1.3%
|
|||||
|
Banks — 1.0%
|
|||||
|
Bank of America Corp., Senior Notes (5.015% to
7/22/32 then SOFR + 2.160%)
|
5.015%
|
7/22/33
|
$600,000
|
$584,812
(c)
|
|
|
Citigroup Inc., Subordinated Notes (6.174% to
5/25/33 then SOFR + 2.661%)
|
6.174%
|
5/25/34
|
700,000
|
711,218
(c)
|
|
|
JPMorgan Chase & Co., Subordinated Notes
(5.717% to 9/14/32 then SOFR + 2.580%)
|
5.717%
|
9/14/33
|
700,000
|
708,242
(c)
|
|
|
Truist Financial Corp., Senior Notes (5.711% to
1/24/34 then SOFR + 1.922%)
|
5.711%
|
1/24/35
|
300,000
|
298,221
(c)
|
|
|
Wells Fargo & Co., Senior Notes (4.897% to
7/25/32 then SOFR + 2.100%)
|
4.897%
|
7/25/33
|
500,000
|
478,634
(c)
|
|
|
Total Banks
|
2,781,127
|
||||
|
Capital Markets — 0.0%††
|
|||||
|
Daimler Truck Finance North America LLC,
Senior Notes
|
5.200%
|
1/17/25
|
200,000
|
199,353
(b)
|
|
|
Consumer Finance — 0.2%
|
|||||
|
American Express Co., Senior Notes (5.043% to
5/1/33 then SOFR + 1.835%)
|
5.043%
|
5/1/34
|
500,000
|
488,902
(c)
|
|
|
Financial Services — 0.1%
|
|||||
|
Boost Newco Borrower LLC, Senior Secured
Notes
|
7.500%
|
1/15/31
|
250,000
|
259,293
(b)
|
|
|
|
|||||
|
Total Financials
|
3,728,675
|
||||
|
Health Care — 1.2%
|
|||||
|
Biotechnology — 0.2%
|
|||||
|
Amgen Inc., Senior Notes
|
5.250%
|
3/2/33
|
550,000
|
546,040
|
|
|
Health Care Providers & Services — 0.8%
|
|||||
|
Centene Corp., Senior Notes
|
3.000%
|
10/15/30
|
600,000
|
510,611
|
|
|
Cigna Group, Senior Notes
|
2.400%
|
3/15/30
|
348,000
|
298,886
|
|
|
CVS Health Corp., Senior Notes
|
3.750%
|
4/1/30
|
600,000
|
548,032
|
|
|
HCA Inc., Senior Notes
|
5.625%
|
9/1/28
|
400,000
|
402,268
|
|
|
UnitedHealth Group Inc., Senior Notes
|
5.000%
|
10/15/24
|
500,000
|
499,337
|
|
|
Total Health Care Providers & Services
|
2,259,134
|
||||
|
Pharmaceuticals — 0.2%
|
|||||
|
Pfizer Investment Enterprises Pte Ltd., Senior
Notes
|
4.750%
|
5/19/33
|
550,000
|
532,028
|
|
|
|
|||||
|
Total Health Care
|
3,337,202
|
||||
|
Industrials — 0.5%
|
|||||
|
Aerospace & Defense — 0.2%
|
|||||
|
Northrop Grumman Corp., Senior Notes
|
4.750%
|
6/1/43
|
500,000
|
448,174
|
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
7
Schedule of investments (unaudited) (cont’d)
May 31, 2024
LMP Capital and Income Fund Inc.
(Percentages shown based on Fund net assets)
|
Security
|
|
Rate
|
Maturity
Date
|
Face
Amount
|
Value
|
|
|
|||||
|
Ground Transportation — 0.1%
|
|||||
|
XPO Inc., Senior Secured Notes
|
6.250%
|
6/1/28
|
$350,000
|
$349,600
(b)
|
|
|
Trading Companies & Distributors — 0.2%
|
|||||
|
United Rentals North America Inc., Senior Notes
|
3.750%
|
1/15/32
|
500,000
|
427,889
|
|
|
|
|||||
|
Total Industrials
|
1,225,663
|
||||
|
Materials — 0.3%
|
|||||
|
Containers & Packaging — 0.1%
|
|||||
|
Ball Corp., Senior Notes
|
3.125%
|
9/15/31
|
550,000
|
462,203
|
|
|
Metals & Mining — 0.2%
|
|||||
|
Freeport-McMoRan Inc., Senior Notes
|
5.450%
|
3/15/43
|
500,000
|
471,005
|
|
|
|
|||||
|
Total Materials
|
933,208
|
||||
|
Total Corporate Bonds & Notes (Cost — $15,353,646)
|
15,199,994
|
||||
|
|
|
|
|
Shares
|
|
|
Investments in Underlying Funds — 2.2%
|
|||||
|
Ares Capital Corp. (Cost — $5,260,817)
|
286,890
|
6,188,217
(a)(d)
|
|||
|
Total Investments before Short-Term Investments (Cost — $222,210,810)
|
347,030,744
|
||||
|
|
|
Rate
|
|
|
|
|
Short-Term Investments — 0.6%
|
|||||
|
Dreyfus Government Cash Management,
Institutional Shares
|
5.212%
|
|
61,102
|
61,102
(e)
|
|
|
JPMorgan 100% U.S. Treasury Securities Money
Market Fund, Institutional Class
|
5.153%
|
|
1,501,875
|
1,501,875
(e)
|
|
|
|
|||||
|
Total Short-Term Investments (Cost — $1,562,977)
|
1,562,977
|
||||
|
Total Investments — 124.5% (Cost — $223,773,787)
|
348,593,721
|
||||
|
Liabilities in Excess of Other Assets — (24.5)%
|
(68,610,103
)
|
||||
|
Total Net Assets — 100.0%
|
$279,983,618
|
||||
|
††
|
Represents less than 0.1%.
|
|
*
|
Non-income producing security.
|
|
(a)
|
All or a portion of this security is pledged as collateral pursuant to the loan agreement (Note 5).
|
|
(b)
|
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.
|
|
(c)
|
Variable rate security. Interest rate disclosed is as of the most recent information
available. Certain variable rate
securities are not based on a published reference rate and spread but are determined
by the issuer or agent and
are based on current market conditions. These securities do not indicate a reference
rate and spread in their
description above.
|
|
(d)
|
Security is a business development company (Note 1).
|
|
(e)
|
Rate shown is one-day yield as of the end of the reporting period.
|
See Notes to Financial Statements.
8
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
LMP Capital and Income Fund Inc.
|
Abbreviation(s) used in this schedule:
|
||
|
ADR
|
—
|
American Depositary Receipts
|
|
REIT
|
—
|
Real Estate Investment Trust
|
|
SOFR
|
—
|
Secured Overnight Financing Rate
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
9
Statement of assets and liabilities (unaudited)
May 31, 2024
|
Assets:
|
|
|
Investments, at value (Cost — $223,773,787)
|
$348,593,721
|
|
Dividends and interest receivable
|
664,521
|
|
Prepaid expenses
|
7,734
|
|
Total Assets
|
349,265,976
|
|
Liabilities:
|
|
|
Loan payable (Note 5)
|
67,000,000
|
|
Distributions payable
|
1,936,571
|
|
Investment management fee payable
|
249,018
|
|
Interest and commitment fees payable
|
11,434
|
|
Accrued expenses
|
85,335
|
|
Total Liabilities
|
69,282,358
|
|
Total Net Assets
|
$279,983,618
|
|
Net Assets:
|
|
|
Par value ($0.001 par value; 17,137,794 shares issued and outstanding; 100,000,000
shares
authorized)
|
$17,138
|
|
Paid-in capital in excess of par value
|
155,724,872
|
|
Total distributable earnings (loss)
|
124,241,608
|
|
Total Net Assets
|
$279,983,618
|
|
Shares Outstanding
|
17,137,794
|
|
Net Asset Value
|
$16.34
|
See Notes to Financial Statements.
10
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
Statement of operations (unaudited)
For the Six Months Ended May 31, 2024
|
Investment Income:
|
|
|
Dividends and distributions
|
$5,770,892
|
|
Interest
|
382,484
|
|
Less: Foreign taxes withheld
|
(47,095
)
|
|
Total Investment Income
|
6,106,281
|
|
Expenses:
|
|
|
Interest expense (Note 5)
|
2,063,671
|
|
Investment management fee (Note 2)
|
1,435,793
|
|
Directors’ fees
|
63,827
|
|
Legal fees
|
36,429
|
|
Shareholder reports
|
35,222
|
|
Transfer agent fees
|
33,580
|
|
Audit and tax fees
|
33,450
|
|
Fund accounting fees
|
16,464
|
|
Stock exchange listing fees
|
6,258
|
|
Commitment fees (Note 5)
|
4,859
|
|
Insurance
|
1,193
|
|
Custody fees
|
701
|
|
Miscellaneous expenses
|
5,762
|
|
Total Expenses
|
3,737,209
|
|
Net Investment Income
|
2,369,072
|
|
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions
(Notes 1 and 3):
|
|
|
Net Realized Gain From:
|
|
|
Investment transactions
|
15,350,604
|
|
Foreign currency transactions
|
465
|
|
Net Realized Gain
|
15,351,069
|
|
Change in Net Unrealized Appreciation (Depreciation) From:
|
|
|
Investments
|
18,453,947
|
|
Foreign currencies
|
(317
)
|
|
Change in Net Unrealized Appreciation (Depreciation)
|
18,453,630
|
|
Net Gain on Investments and Foreign Currency Transactions
|
33,804,699
|
|
Increase in Net Assets From Operations
|
$36,173,771
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
11
Statements of changes in net assets
|
For the Six Months Ended May 31, 2024 (unaudited)
and the Year Ended November 30, 2023
|
2024
|
2023
|
|
Operations:
|
|
|
|
Net investment income
|
$2,369,072
|
$555,468
|
|
Net realized gain
|
15,351,069
|
20,364,976
|
|
Change in net unrealized appreciation (depreciation)
|
18,453,630
|
4,390,857
|
|
Increase in Net Assets From Operations
|
36,173,771
|
25,311,301
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
Total distributable earnings
|
(11,619,424
)
|
(12,082,296
)
|
|
Return of capital
|
—
|
(11,068,806
)
|
|
Decrease in Net Assets From Distributions to Shareholders
|
(11,619,424
)
|
(23,151,102
)
|
|
Fund Share Transactions:
|
|
|
|
Cost of shares repurchased (0 and 267,305 shares repurchased,
respectively) (Note 7)
|
—
|
(3,265,764
)
|
|
Decrease in Net Assets From Fund Share Transactions
|
—
|
(3,265,764
)
|
|
Increase (Decrease) in Net Assets
|
24,554,347
|
(1,105,565
)
|
|
Net Assets:
|
|
|
|
Beginning of period
|
255,429,271
|
256,534,836
|
|
End of period
|
$279,983,618
|
$255,429,271
|
See Notes to Financial Statements.
12
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
Statement of cash flows (unaudited)
For the Six Months Ended May 31, 2024
|
Increase (Decrease) in Cash:
|
|
|
Cash Flows from Operating Activities:
|
|
|
Net increase in net assets resulting from operations
|
$36,173,771
|
|
Adjustments to reconcile net increase in net assets resulting from operations to net
cash
provided (used) by operating activities:
|
|
|
Purchases of portfolio securities
|
(57,685,999
)
|
|
Sales of portfolio securities
|
56,891,494
|
|
Net purchases, sales and maturities of short-term investments
|
2,822,782
|
|
Net amortization of premium (accretion of discount)
|
(50,857
)
|
|
Return of capital
|
1,271,470
|
|
Securities litigation proceeds
|
51,687
|
|
Increase in dividends and interest receivable
|
(8,929
)
|
|
Increase in prepaid expenses
|
(5,049
)
|
|
Increase in investment management fee payable
|
33,712
|
|
Decrease in Directors’ fees payable
|
(11,142
)
|
|
Increase in interest and commitment fees payable
|
1,045
|
|
Decrease in accrued expenses
|
(60,010
)
|
|
Net realized gain on investments
|
(15,350,604
)
|
|
Change in net unrealized appreciation (depreciation) of investments
|
(18,453,947
)
|
|
Net Cash Provided in Operating Activities*
|
5,619,424
|
|
Cash Flows from Financing Activities:
|
|
|
Distributions paid on common stock
|
(11,619,424
)
|
|
Proceeds from loan facility borrowings
|
6,000,000
|
|
Net Cash Used by Financing Activities
|
(5,619,424
)
|
|
Cash and restricted cash at beginning of period
|
—
|
|
Cash and restricted cash at end of period
|
—
|
|
*
|
Included in operating expenses is $2,067,485 paid for interest and commitment fees
on borrowings.
|
The following table provides a reconciliation of cash and restricted cash reported
within the Statement of Assets
and Liabilities that sums to the total of such amounts shown on the Statement of Cash
Flows.
|
|
May 31, 2024
|
|
Cash
|
—
|
|
Restricted cash
|
—
|
|
Total cash and restricted cash shown in the Statement of Cash Flows
|
—
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
13
Financial highlights
|
For a share of capital stock outstanding throughout each year ended November 30,
unless otherwise noted:
|
||||||
|
|
20241,2
|
20231
|
20221
|
20211
|
20201
|
20191
|
|
Net asset value, beginning of period
|
$14.90
|
$14.74
|
$15.93
|
$13.12
|
$15.60
|
$14.24
|
|
Income (loss) from operations:
|
||||||
|
Net investment income
|
0.14
|
0.03
|
0.37
|
0.50
|
0.56
|
0.44
|
|
Net realized and unrealized gain (loss)
|
1.98
|
1.45
|
(0.55
)
|
3.33
|
(1.80
)
|
2.16
|
|
Total income (loss) from
operations
|
2.12
|
1.48
|
(0.18)
|
3.83
|
(1.24)
|
2.60
|
|
Less distributions from:
|
|
|
|
|
|
|
|
Net investment income
|
(0.68
)3
|
(0.71
)
|
(0.33
)
|
(0.52
)
|
(0.46
)
|
(0.45
)
|
|
Return of capital
|
—
|
(0.64
)
|
(0.71
)
|
(0.52
)
|
(0.78
)
|
(0.79
)
|
|
Total distributions
|
(0.68
)
|
(1.35
)
|
(1.04
)
|
(1.04
)
|
(1.24
)
|
(1.24
)
|
|
Anti-dilutive impact of repurchase plan
|
—
|
0.03
4
|
0.03
4
|
0.02
4
|
—
|
—
|
|
Capital contributions
|
—
|
—
|
—
|
—
|
0.00
5
|
—
|
|
Net asset value, end of period
|
$16.34
|
$14.90
|
$14.74
|
$15.93
|
$13.12
|
$15.60
|
|
Market price, end of period
|
$15.24
|
$13.16
|
$13.04
|
$14.27
|
$11.33
|
$14.62
|
|
Total return, based on NAV6,7
|
14.45
%
|
11.18
%
|
(0.71
)%
|
30.38
%
|
(5.82
)%8
|
19.45
%
|
|
Total return, based on Market Price9
|
21.28
%
|
12.51
%
|
(1.32
)%
|
36.28
%
|
(12.83
)%
|
29.56
%
|
|
Net assets, end of period (millions)
|
$280
|
$255
|
$257
|
$282
|
$236
|
$281
|
|
Ratios to average net assets:
|
||||||
|
Gross expenses
|
2.75
%10
|
2.62
%
|
1.67
%
|
1.33
%
|
1.65
%
|
2.18
%
|
|
Net expenses
|
2.75
10
|
2.62
|
1.67
|
1.33
|
1.65
11
|
2.11
11
|
|
Net investment income
|
1.75
10
|
0.22
|
2.45
|
3.35
|
4.40
|
2.98
|
|
Portfolio turnover rate
|
17
%
|
41
%
|
16
%
|
33
%
|
52
%
|
36
%
|
|
Supplemental data:
|
|
|
|
|
|
|
|
Loan Outstanding, End of Period (000s)
|
$67,000
|
$61,000
|
$61,000
|
$61,000
|
$55,000
|
$82,000
|
|
Asset Coverage Ratio for Loan
Outstanding12
|
518
%
|
519
%
|
521
%
|
562
%
|
529
%
|
442
%
|
|
Asset Coverage, per $1,000 Principal
Amount of Loan Outstanding12
|
$5,179
|
$5,187
|
$5,205
|
$5,619
|
$5,289
|
$4,421
|
|
Weighted Average Loan (000s)
|
$66,344
|
$61,000
|
$61,000
|
$57,663
|
$62,973
|
$82,548
|
|
Weighted Average Interest Rate on
Loan
|
6.12
%
|
5.60
%
|
2.03
%
|
0.79
%
|
1.44
%
|
2.98
%
|
See Notes to Financial Statements.
14
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
|
1
|
Per share amounts have been calculated using the average shares method.
|
|
2
|
For the six months ended May 31, 2024 (unaudited).
|
|
3
|
The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of
capital or a combination of both. Shareholders will be informed of the tax characteristics
of the distributions after
the close of the fiscal year.
|
|
4
|
The repurchase plan was completed at an average repurchase price of $12.22 for 267,305
shares and $3,265,764
for the year ended November 30, 2023, $14.15 for 281,609 shares and $3,984,968 for
the year ended November 30,
2022 and $14.15 for 296,622 shares and $4,197,215 for the year ended November 30,
2021.
|
|
5
|
Amount represents less than $0.005 or greater than $(0.005) per share.
|
|
6
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or
expense reimbursements.
In the absence of compensating balance arrangements, 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.
|
|
7
|
The total return calculation assumes that distributions are reinvested at NAV. Past
performance is no guarantee of
future results. Total returns for periods of less than one year are not annualized.
|
|
8
|
Includes the effect of a capital contribution. Absent the capital contribution, the
total return would have been
unchanged.
|
|
9
|
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.
|
|
10
|
Annualized.
|
|
11
|
Reflects fee waivers and/or expense reimbursements.
|
|
12
|
Represents value of net assets plus the loan outstanding at the end of the period
divided by the loan outstanding
at the end of the period.
|
See Notes to Financial Statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
15
Notes to financial statements (unaudited)
1. Organization and significant accounting policies
LMP Capital and Income Fund Inc. (the “Fund”) was incorporated in Maryland on November 12, 2003, and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Fund’s investment objective is total return with an emphasis on income.
Under normal market conditions, the Fund seeks to maximize total return by investing
at least 80% of its Managed Assets in a broad range of equity and fixed income securities
of both U.S. and foreign issuers. The Fund will vary its allocation between equity and
fixed income securities depending on ClearBridge’s view of economic, market or political conditions, fiscal and monetary policy and security valuation.
The Fund follows the accounting and reporting guidance in Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies (“ASC 946”). The following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted
accounting principles (“GAAP”), including, but not limited to, ASC 946. 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. Subsequent events have been evaluated
through the date the financial statements were issued.
(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. The valuations for fixed income securities (which may
include, but are not limited to, corporate, government, municipal, mortgage-backed,
collateralized mortgage obligations and asset-backed securities) and certain derivative
instruments are typically the prices supplied by independent third party pricing services,
which may use market prices or broker/dealer quotations or a variety of valuation
techniques and methodologies. The independent third party pricing services typically
use inputs that are observable such as issuer details, interest rates, yield curves, prepayment
speeds, credit risks/spreads, default rates and quoted prices for similar securities.
Investments in open-end funds are valued at the closing net asset value per share
of each fund on the day of valuation. When the Fund holds securities or other assets that
are denominated in a foreign currency, the Fund will normally use the currency exchange
rates as of 4:00 p.m. (Eastern Time). If independent third party pricing services are unable
to supply prices for a portfolio investment, or if the prices supplied are deemed by
the manager to be unreliable, the market price may be determined by the manager using
quotations from one or more broker/dealers or at the transaction price if the security
has recently been purchased and no value has yet been obtained from a pricing service
or pricing broker. When reliable prices are not readily available, such as when the value
of a
16
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
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.
Pursuant to policies adopted by the Board of Directors, the Fund’s manager has been designated as the valuation designee and is responsible for the oversight of the daily
valuation process. The Fund’s manager is assisted by the Global Fund Valuation Committee (the “Valuation Committee”). The Valuation Committee is responsible for making fair value determinations, evaluating the effectiveness of the Fund’s pricing policies, and reporting to the Fund’s manager and the Board of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee,
among other things, conducts due diligence reviews of pricing vendors, monitors the
daily change in prices and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and
appropriate when making fair value determinations. Examples of possible methodologies
include, but are not limited to, multiple of earnings; discount from market of a similar
freely traded security; discounted cash-flow analysis; book value or a multiple thereof;
risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis.
The Valuation Committee will also consider factors it deems relevant and appropriate in
light of the facts and circumstances. Examples of possible factors include, but are not limited
to, the type of security; the issuer’s financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time
of purchase; analysts’ research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of
merger proposals or tender offers affecting the security; the price and extent of public
trading in similar securities of the issuer or comparable companies; and the existence of a shelf
registration for restricted securities.
For each portfolio security that has been fair valued pursuant to the policies adopted
by the Board of Directors, the fair value price is compared against the last available and
next available market quotations. The Valuation Committee reviews the results of such back
testing monthly and fair valuation occurrences are reported to the Board of Directors
quarterly.
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.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
17
Notes to financial statements (unaudited) (cont’d)
GAAP establishes a disclosure hierarchy that categorizes the inputs to valuation techniques
used to value assets and liabilities at measurement date. These inputs are summarized
in the three broad levels listed below:
•
Level 1 — unadjusted 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 methodologies used to value securities are not necessarily an indication
of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets carried at fair value:
|
ASSETS
|
||||
|
Description
|
Quoted Prices
(Level 1)
|
Other Significant
Observable Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Total
|
|
Long-Term Investments†:
|
|
|
|
|
|
Common Stocks
|
$247,582,007
|
—
|
—
|
$247,582,007
|
|
Master Limited Partnerships
|
59,613,527
|
—
|
—
|
59,613,527
|
|
Convertible Preferred Stocks
|
18,446,999
|
—
|
—
|
18,446,999
|
|
Corporate Bonds & Notes
|
—
|
$15,199,994
|
—
|
15,199,994
|
|
Investments in Underlying
Funds
|
6,188,217
|
—
|
—
|
6,188,217
|
|
Total Long-Term Investments
|
331,830,750
|
15,199,994
|
—
|
347,030,744
|
|
Short-Term Investments†
|
1,562,977
|
—
|
—
|
1,562,977
|
|
Total Investments
|
$333,393,727
|
$15,199,994
|
—
|
$348,593,721
|
|
†
|
See Schedule of Investments for additional detailed categorizations.
|
(b) Business development companies. The Fund may invest in securities of closed-end investment companies that have elected to be treated as a business development company
under the 1940 Act. The Fund may purchase a business development company to gain exposure to the securities in the underlying portfolio. The risks of owning a business
development company generally reflect the risks of owning the underlying securities.
Business development companies have expenses that reduce their value.
(c) Master limited partnerships. The Fund may invest without limit in the securities of both energy and non-energy Master Limited Partnerships (“MLPs”), so long as no more than 25% of the Fund’s total assets are invested in MLPs that are treated for U.S. federal tax purposes as qualified publicly traded partnerships. This 25% limitation applies generally
to MLPs that focus on commodity and energy-related industries. Entities commonly referred
to
18
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
as “MLPs” are generally organized under state law as limited partnerships or limited liability companies. To be treated as a partnership for U.S. federal income tax purposes,
an MLP whose units are traded on a securities exchange must receive at least 90% of its
income from qualifying sources such as interest, dividends, real estate rents, gain
from the sale or disposition of real property, income and gain from mineral or natural resources
activities, income and gain from the transportation or storage of certain fuels, and,
in certain circumstances, income and gain from commodities or futures, forwards and options
with respect to commodities. Mineral or natural resources activities include exploration,
development, production, processing, mining, refining, marketing and transportation
(including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber
or industrial source carbon dioxide. An MLP consists of a general partner and limited
partners (or in the case of MLPs organized as limited liability companies, a managing member
and members). The general partner or managing member typically controls the operations
and management of the MLP and has an ownership stake in the partnership. The limited partners or members, through their ownership of limited partner or member interests,
provide capital to the entity, are intended to have no role in the operation and management
of the entity and receive cash distributions. The MLPs themselves generally do not
pay U.S. federal income taxes. Thus, unlike investors in corporate securities, direct MLP investors
are generally not subject to double taxation (i.e., corporate level tax and tax on
corporate dividends). Currently, most MLPs operate in the energy and/or natural resources sector.
(d) 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
Statements of Changes in Net Assets and additional information on cash receipts and cash payments
is presented in the Statement of Cash Flows.
(e) 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
fluctuations in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies,
including gains and losses on forward foreign currency contracts, currency gains or
losses realized between the trade and settlement dates on securities transactions, and the
difference between the amounts of dividends, interest, and foreign withholding taxes
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
19
Notes to financial statements (unaudited) (cont’d)
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 values of assets and liabilities, other than investments in securities, on 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.
(f) Foreign investment risks. The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since securities may be denominated in
foreign currencies, may require settlement in foreign currencies or may pay interest or dividends
in foreign currencies, changes in the relationship of these foreign currencies to the
U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign
investments may also subject the Fund to foreign government exchange restrictions,
expropriation, taxation or other political, social or economic developments, all of
which affect the market and/or credit risk of the investments.
(g) Security transactions and investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from payment-in-kind
securities) is recorded on the accrual basis. Amortization of premiums and accretion
of discounts on debt securities are recorded to interest income over the lives of the
respective securities, except for premiums on certain callable debt securities, which are amortized
to the earliest call date. Dividend income is recorded on the ex-dividend date for dividends
received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend
date or as soon as practicable after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence. The cost of investments sold
is determined by use of the specific identification method. To the extent any issuer
defaults or a credit event occurs that impacts the issuer, the Fund may halt any additional interest
income accruals and consider the realizability of interest accrued up to the date
of default or credit event.
(h) Return of capital estimates. Distributions received from the Fund’s investments in MLPs generally are comprised of income and return of capital and distributions received
from the Fund’s investments in Real Estate Investment Trusts (“REITs”) generally are comprised of income, realized capital gains and return of capital. The Fund records
investment income, realized capital gains and return of capital based on estimates
made at the time such distributions are received. Such estimates are based on historical information
available from each MLP or REIT and other industry sources. These estimates may subsequently be revised based on information received from the MLPs and REITs after
their tax reporting periods are concluded.
20
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
(i) Partnership accounting policy. The Fund records its pro rata share of the income (loss) and capital gains (losses), to the extent of distributions it has received,
allocated from the underlying partnerships and accordingly adjusts the cost basis of the underlying
partnerships for return of capital. These amounts are included in the Fund’s Statement of Operations.
(j) Distributions to shareholders. Distributions from net investment income by the Fund, if any, are declared and paid on a monthly basis. The actual source of the Fund’s current fiscal year distributions may be from net investment income, return of capital or
a combination of both. Shareholders will be informed of the tax characteristics of the
distributions after the close of the fiscal year. The Fund intends to distribute all
of its net investment income earned each month and any cash received during the month from its
investments in MLPs and REITs. The Fund intends to distribute the cash received from
MLPs and REITs even if all or a portion of that cash may represent a return of capital
to the Fund. The Fund may distribute additional amounts if required under the income tax regulations.
Distributions of net realized gains, if any, are declared at least annually. Pursuant
to its Managed Distribution Policy, the Fund intends to make regular monthly distributions
to shareholders at a fixed rate per common share, which rate may be adjusted from time
to time by the Fund’s Board of Directors. Under the Fund’s Managed Distribution Policy, if, for any monthly distribution, the value of the Fund’s 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 net assets (and may constitute a “return of capital”). The Board of Directors may modify, terminate or suspend the Managed Distribution Policy at any time, including
when certain events would make part of the return of capital taxable to shareholders.
Any such modification, termination or suspension could have an adverse effect on the market
price of the Fund’s shares. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which
may differ from GAAP.
(k) Compensating balance arrangements. The Fund has an arrangement with its custodian bank whereby a portion of the custodian’s fees is paid indirectly by credits earned on the Fund’s cash on deposit with the bank.
(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 (the “Code”), as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute
its taxable income and net realized gains, if any, to shareholders in accordance with
timing requirements imposed by the Code. Therefore, no federal or state income tax provision
is required in the Fund’s financial statements.
The Fund may invest without limit in the securities of MLPs, so long as no more than
25% of its total assets are invested in MLPs that are treated as qualified publicly traded
partnerships for U.S. federal income tax purposes. As a limited partner in the MLPs,
the
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
21
Notes to financial statements (unaudited) (cont’d)
Fund reports its allocable share of the MLP’s taxable income in computing its own taxable income. The distributions paid by the MLPs generally do not constitute income for
tax purposes. Each MLP may allocate losses to the Fund which are generally not deductible
in computing the Fund’s taxable income until such time as that particular MLP either generates income to offset those losses or the Fund disposes of units in that MLP. This may
result in the Fund’s taxable income being substantially different than its book income in any given year. As a result, the Fund may have insufficient taxable income to support its distributions
paid resulting in a return of capital to shareholders. A return of capital distribution
is generally not treated as taxable income to shareholders and instead reduces a shareholder’s basis in their shares of the Fund.
The Fund, and entities in which the Fund invests, may be subject to audit by the Internal Revenue Service or other applicable tax authorities. The Fund’s taxable income or tax liability for prior taxable years could be adjusted if there is an audit of the Fund, or of any entity that is treated as a partnership for tax purposes in which the Fund holds an equity interest. The Fund may be required to pay a fund-level tax as a result of such an adjustment or may pay a “deficiency dividend” to its current shareholders in order to avoid a fund-level tax associated with the adjustment. The Fund could also be required to pay interest and penalties in connection with such an adjustment.
The Fund, and entities in which the Fund invests, may be subject to audit by the Internal Revenue Service or other applicable tax authorities. The Fund’s taxable income or tax liability for prior taxable years could be adjusted if there is an audit of the Fund, or of any entity that is treated as a partnership for tax purposes in which the Fund holds an equity interest. The Fund may be required to pay a fund-level tax as a result of such an adjustment or may pay a “deficiency dividend” to its current shareholders in order to avoid a fund-level tax associated with the adjustment. The Fund could also be required to pay interest and penalties in connection with such an adjustment.
Management has analyzed the Fund’s tax positions taken on income tax returns for all open tax years and has concluded that as of November 30, 2023, no provision for income
tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations
have not expired are subject to examination by the Internal Revenue Service and state departments
of revenue.
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 reclassified 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
Franklin Templeton Fund Adviser, LLC (“FTFA”) is the Fund’s investment manager. ClearBridge Investments, LLC (“ClearBridge”), Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited (“Western Asset London”) are the Fund’s subadvisers. FTFA, ClearBridge, Western Asset and Western Asset London are indirect, wholly-owned subsidiaries of Franklin Resources, Inc. (“Franklin Resources”).
FTFA provides administrative and certain oversight services to the Fund. The Fund
pays an investment management fee, calculated daily and paid monthly, at an annual rate of
0.85%
22
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
of the Fund’s average daily net assets plus the proceeds of any outstanding borrowings used for leverage and any proceeds from the issuance of preferred stock (“Managed Assets”).
FTFA delegates to the subadvisers 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, FTFA pays the subadvisers monthly 70% of the net management fee it receives from the Fund. This
fee will be divided on a pro rata basis, based on assets allocated to each subadviser.
Western Asset London provides certain advisory services to the Fund relating to currency
transactions and investments in non-U.S. dollar denominated securities. Western Asset
London does not receive any compensation from the Fund. In turn, Western Asset pays
Western Asset London monthly a subadvisory fee of 0.30% on the assets managed by Western Asset London.
During periods in which the Fund utilizes financial leverage, the fees paid to FTFA
will be higher than if the Fund did not utilize leverage because the fees are calculated as
a percentage of the Fund’s assets, including those investments purchased with leverage.
All officers and one Director of the Fund are employees of Franklin Resources or its
affiliates and do not receive compensation from the Fund.
3. Investments
During the six months ended May 31, 2024, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as follows:
|
Purchases
|
$57,685,999
|
|
Sales
|
56,891,494
|
At May 31, 2024, the aggregate cost of investments and the aggregate gross unrealized
appreciation and depreciation of investments for federal income tax purposes were
substantially as follows:
|
|
Cost
|
Gross
Unrealized
Appreciation
|
Gross
Unrealized
Depreciation
|
Net
Unrealized
Appreciation
|
|
Securities
|
$223,773,787
|
$132,182,952
|
$(7,363,018)
|
$124,819,934
|
4. Derivative instruments and hedging activities
During the six months ended May 31, 2024, the Fund did not invest in derivative instruments.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
23
Notes to financial statements (unaudited) (cont’d)
5. Loan
The Fund has a Margin Loan and Security Agreement (the “Credit Agreement”) with Bank of America, N.A. (“BofA”) that allows the Fund to borrow up to an aggregate amount of $80,000,000 and renews daily for a 179-day term unless notice to the contrary is given
to the Fund. The Fund pays interest on borrowings calculated based on SOFR plus applicable
margin. The Fund pays a commitment fee on the unutilized portion of the loan commitment
amount at an annual rate of 0.10% except that the commitment fee is 0.07% when the
aggregate outstanding balance of the loan is equal to or greater than 50% of the maximum
commitment amount. To the extent of the borrowing outstanding, the Fund is required
to maintain collateral in a special custody account at the Fund’s custodian on behalf of BofA. The Fund’s Credit Agreement contains customary covenants that, among other things, may limit the Fund’s ability to pay distributions in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including
mergers and consolidations, and require asset coverage ratios in addition to those
required by the 1940 Act. In addition, the Credit Agreement may be subject to early termination
under certain conditions and may contain other provisions that could limit the Fund’s ability to utilize borrowing under the agreement. Interest expense related to the Credit Agreement
for the six months ended May 31, 2024 was $2,063,284. For the six months ended May
31, 2024, the Fund incurred commitment fees of $4,859. For the six months ended May 31,
2024, based on the number of days during the reporting period that the Fund had a
loan balance outstanding, the average daily loan balance was $66,344,262 and the weighted
average interest rate was 6.12%. At May 31, 2024, the Fund had $67,000,000 of borrowings
outstanding.
6. Distributions subsequent to May 31, 2024
The following distributions have been declared by the Fund’s Board of Directors and are payable subsequent to the period end of this report:
|
Record Date
|
Payable Date
|
Amount
|
|
5/23/2024
|
6/3/2024
|
$0.1130
|
|
6/21/2024
|
7/1/2024
|
$0.1130
|
|
7/24/2024
|
8/1/2024
|
$0.1130
|
|
8/23/2024
|
9/3/2024
|
$0.1130
|
7. Stock repurchase program
On November 16, 2015, the Fund announced that the Fund’s Board of Directors (the “Board”) had authorized the Fund to repurchase in the open market up to approximately 10% of
the Fund’s outstanding common stock when the Fund’s shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of
common stock at such times and in such amounts as management reasonably believes may
enhance stockholder value. The Fund is under no obligation to purchase shares at any
specific discount levels or in any specific amounts.
24
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
During the six months ended May 31, 2024, the Fund did not repurchase any shares.
During the year ended November 30, 2023, the Fund repurchased and retired 1.49% of its common
shares outstanding under the repurchase plan. The weighted average discount per share
on these repurchases was 13.27% for the year ended November 30, 2023. Shares repurchased
and the corresponding dollar amount are included in the Statement of Changes in Net
Assets. The anti-dilutive impact of these share repurchases is included in the Financial
Highlights.
Since the commencement of the stock repurchase program through May 31, 2024, the Fund repurchased 845,536 shares or 4.70% of its common shares outstanding for a total amount of $11,447,947.
Since the commencement of the stock repurchase program through May 31, 2024, the Fund repurchased 845,536 shares or 4.70% of its common shares outstanding for a total amount of $11,447,947.
8. Recent accounting pronouncement
In June 2022, the FASB issued Accounting Standards Update (ASU) No. 2022-03, Fair Value Measurement (Topic 820) – Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in the ASU clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of
account of the equity security and, therefore, should not be considered in measuring fair value.
The ASU is effective for interim and annual reporting periods beginning after December
15, 2023, with the option of early adoption. Management has reviewed the requirements
and believes that the adoption of the ASU will not have a material impact on the financial
statements.
LMP Capital and Income Fund Inc. 2024 Semi-Annual Report
25
Board approval of management and
subadvisory agreements (unaudited)
Background
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Directors (the “Board”) of LMP Capital and Income Fund Inc. (the “Fund”), including a majority of its members who are not considered to be “interested persons” under the 1940 Act (the “Independent Directors”) voting separately, approve on an annual basis the continuation of the investment management agreement (the “Management Agreement”) between the Fund and the Fund’s manager, Franklin Templeton Fund Adviser, LLC (formerly, Legg Mason Partners Fund Advisor, LLC) (the “Manager”), and the sub-advisory agreements (individually, a “Sub-Advisory Agreement,” and collectively, the “Sub-Advisory Agreements”) with the Manager’s affiliates, ClearBridge Investments, LLC (“ClearBridge”), Western Asset Management Company, LLC (“Western Asset”) and Western Asset Management Company Limited (“Western Asset London,” and with ClearBridge and Western Asset, collectively, the “Sub-Advisers”), with respect to the Fund.
At an in-person meeting (the “Contract Renewal Meeting”) held on May 20-21, 2024, the Board, including the Independent Directors, considered and approved the continuation
of each of the Management Agreement and the Sub-Advisory Agreements for an additional
one-year period. To assist in its consideration of the renewal of each of the Management
Agreement and the Sub-Advisory Agreements, the Board received and considered extensive
information (together with the information provided at the Contract Renewal Meeting,
the “Contract Renewal Information”) about the Manager and the Sub-Advisers, as well as the management and sub-advisory arrangements for the Fund and the other closed-end funds
in the same complex under the Board’s purview (the “Franklin Templeton Closed-end Funds”), certain portions of which are discussed below.
A presentation made by the Manager and the Sub-Advisers to the Board at the Contract
Renewal Meeting in connection with the Board’s evaluation of each of the Management Agreement and the Sub-Advisory Agreements encompassed the Fund and other Franklin
Templeton Closed-end Funds. In addition to the Contract Renewal Information, the Board
received performance and other information throughout the year related to the respective
services rendered by the Manager and the Sub-Advisers to the Fund. The Board’s evaluation took into account the information received throughout the year and also reflected
the knowledge and experience gained as members of the Boards of the Fund and other Franklin
Templeton Closed-end Funds with respect to the services provided to the Fund by the
Manager and the Sub-Advisers. The information received and considered by the Board
(including its various committees) in conjunction with both the Contract Renewal Meeting
and throughout the year was both written and oral. The contractual arrangements discussed
below are the product of multiple years of review and negotiation and information
received and considered by the Board during each of those years.
26
LMP Capital and Income Fund Inc.
At a meeting held on April 26, 2024, the Independent Directors, in preparation for
the Contract Renewal Meeting, met in a private session with their independent legal counsel
to review the Contract Renewal Information regarding the Franklin Templeton Closed-end
Funds, including the Fund, received to date. No representatives of the Manager or
the Sub-Advisers participated in this meeting. Following the April 26, 2024 meeting, the Independent Directors submitted certain questions and requests for additional information
to Fund management. The Independent Directors also met in private sessions with their
independent legal counsel to consider the Contract Renewal Information and Fund management’s responses to the Independent Directors’ questions and requests for additional information in advance of and during the Contract Renewal Meeting. The
discussion below reflects all of these reviews.
The Manager provides the Fund with investment advisory and administrative services
pursuant to the Management Agreement and the Sub-Advisers together provide the Fund
with investment sub-advisory services pursuant to the Sub-Advisory Agreements. The
discussion below covers both the advisory and administrative functions being rendered
by the Manager, each such function being encompassed by the Management Agreement, and
the investment sub-advisory functions being rendered by the Sub-Advisers pursuant
to the Sub-Advisory Agreements.
Board Approval of Management Agreement and Sub-Advisory Agreements
The Independent Directors were advised by separate independent legal counsel throughout
the process. Prior to voting, the Independent Directors received a memorandum discussing
the legal standards for their consideration of the proposed continuation of the Management
Agreement and the Sub-Advisory Agreements. The Independent Directors considered the
Management Agreement and each Sub-Advisory Agreement separately during the course
of their review. In doing so, they noted the respective roles of the Manager and the
Sub-Advisers in providing services to the Fund.
In approving the continuation of the Management Agreement and Sub-Advisory Agreements, the Board, including the Independent Directors, considered a variety of
factors, including those factors discussed below. No single factor reviewed by the Board was
identified by the Board as the principal factor in determining whether to approve
the continuation of the Management Agreement and the Sub-Advisory Agreements. Each Director may have attributed different weight to the various factors in evaluating
the Management Agreement and the Sub-Advisory Agreements.
After considering all relevant factors and information, the Board, exercising its
reasonable business judgment, determined that the continuation of the Management Agreement and
Sub-Advisory Agreements were in the best interests of the Fund’s stockholders and approved the continuation of each such agreement for an additional one-year period.
LMP Capital and Income Fund Inc.
27
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
Nature, Extent and Quality of the Services under the Management Agreement and Sub-Advisory Agreements
The Board received and considered Contract Renewal Information regarding the nature,
extent, and quality of services provided to the Fund by the Manager and the Sub-Advisers
under the Management Agreement and the Sub-Advisory Agreements, respectively, during
the past year. The Board noted information received at regular meetings throughout
the year related to the services provided by the Manager in its management of the Fund’s affairs and the Manager’s role in coordinating the activities of the Sub-Advisers and the Fund’s other service providers. The Board observed that the scope of services provided by the Manager
and the Sub-Advisers, and of the undertakings required of the Manager and Sub-Advisers
in connection with those services, including maintaining and monitoring their respective
compliance programs as well as the Fund’s compliance programs had expanded over time as a result of regulatory, market and other developments. The Board also noted that
on a regular basis it received and reviewed information from the Manager and the Sub-Advisers
regarding the Fund’s compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. The Board also considered the risks borne by the Manager, the
Sub-Advisers and their respective affiliates on behalf of the Fund, including entrepreneurial,
operational, reputational, litigation and regulatory risks, as well as the Manager’s and the Sub-Advisers’ risk management processes.
The Board reviewed the qualifications, backgrounds, and responsibilities of the Manager’s senior personnel and the Sub-Advisers’ portfolio management teams primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered, based
on its knowledge of the Manager and its affiliates, the financial resources of Franklin
Resources, Inc., the parent organization of the Manager and the Sub-Advisers. The
Board recognized the importance of having a fund manager with significant resources.
The Board considered the division of responsibilities between the Manager and the
Sub-Advisers under the Management Agreement and the Sub-Advisory Agreements, respectively, including the Manager’s coordination and oversight of the services provided to the Fund by the Sub-Advisers and other fund service providers and Western Asset’s coordination and oversight of the services provided to the Fund by Western Asset London.
The Management Agreement permits the Manager to delegate certain of its responsibilities, including its investment advisory duties thereunder, provided that
the Manager, in each case, will supervise the activities of the delegee.
In reaching its determinations regarding continuation of the Management Agreement
and the Sub-Advisory Agreements, the Board took into account that Fund stockholders, in
pursuing their investment goals and objectives, may have purchased their shares of
the
28
LMP Capital and Income Fund Inc.
Fund based upon the reputation and the investment style, philosophy and strategy of
the Manager and the Sub-Advisers, as well as the resources available to the Manager and
the Sub-Advisers.
The Board concluded that, overall, the nature, extent, and quality of the management
and other services provided (and expected to be provided) to the Fund, under the Management
Agreement and the Sub-Advisory Agreements were satisfactory.
Fund Performance
The Board received and considered information regarding Fund performance, including
information and analyses (the “Broadridge Performance Information”) for the Fund, as well as for a group of comparable funds (the “Performance Universe”) selected by Broadridge Financial Solutions, Inc. (“Broadridge”), an independent third-party provider of investment company data. The Board was provided with a description of the methodology Broadridge
used to determine the similarity of the Fund with the funds included in the Performance
Universe. It was noted that while the Board found the Broadridge Performance Information
generally useful, they recognized its limitations, including that the data may vary
depending on the end date selected, and that the results of the performance comparisons may
vary depending on the selection of the peer group and its composition over time. The Board
also noted that Board members had received and discussed with the Manager and the Sub-Advisers information throughout the year at periodic intervals comparing the Fund’s performance against its benchmark and against the Fund’s peers. In addition, the Board considered the Fund’s performance in view of overall financial market conditions.
The Broadridge Performance Information comparing the Fund’s performance to that of its Performance Universe, consisting of the Fund and all leveraged closed-end income and
preferred stock funds, regardless of asset size, showed, among other data, that based
on net asset value per share, the Fund’s performance was above the median for the 1-, 3-, 5- and 10-year periods ended December 31, 2023. The Board noted the explanations from
the Manager and the Sub-Advisers regarding the Fund’s relative performance versus the Performance Universe for the various periods.
Based on the reviews and discussions of Fund performance and considering other relevant
factors, including those noted above, the Board concluded, under the circumstances,
that continuation of the Management Agreement and the Sub-Advisory Agreements for an additional one-year period would be consistent with the interests of the Fund and
its stockholders.
Management and Sub-Advisory Fees and Expense Ratios
The Board reviewed and considered the contractual management fee (the “Contractual Management Fee”) and the actual management fee (the “Actual Management Fee”)
LMP Capital and Income Fund Inc.
29
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
payable by the Fund to the Manager under the Management Agreement and the sub-advisory fees (the “Sub-Advisory Fees”) payable by the Manager to the Sub-Advisers under the Sub-Advisory Agreements in view of the nature, extent and overall quality of the
management, investment advisory and other services provided by the Manager and the
Sub-Advisers, respectively. The Board noted that the Sub-Advisory Fees payable to
ClearBridge and Western Asset under their Sub-Advisory Agreements with the Manager
are paid by the Manager, not the Fund, and, accordingly, that the retention of ClearBridge
and Western Asset does not increase the fees or expenses otherwise incurred by the Fund’s stockholders. Similarly, the Board noted that the Sub-Advisory Fee payable to Western
Asset London under its Sub-Advisory Agreement with Western Asset are paid by Western
Asset, not the Fund, and, accordingly, that the retention of Western Asset London
does not increase the fees or expenses otherwise incurred by the Fund’s stockholders.
In addition, the Board received and considered information and analyses prepared by
Broadridge (the “Broadridge Expense Information”) comparing the Contractual Management Fee and the Actual Management Fee and the Fund’s total actual expenses with those of funds in an expense group (the “Expense Group”), as well as a broader group of funds, each selected and provided by Broadridge. The comparison was based upon the constituent
funds’ latest fiscal years. It was noted that while the Board found the Broadridge Expense Information generally useful, they recognized its limitations, including that the
data may vary depending on the selection of the peer group.
The Broadridge Expense Information showed that the Fund’s Contractual Management Fee was above the median. The Broadridge Expense Information also showed that the Fund’s Actual Management Fee was below the median based on common share assets and above
the median based on leveraged assets. The Broadridge Expense Information also showed
that the Fund’s actual total expenses were below the median based on both common share assets and leveraged assets. The Board took into account management’s discussion of the Fund’s expenses and noted the limited size of the Expense Group.
The Board also reviewed Contract Renewal Information regarding fees charged by the
Manager and/or the Sub-Advisers to other U.S. clients investing primarily in an asset
class similar to that of the Fund, including, where applicable, institutional and separate
accounts. The Manager reviewed with the Board the differences in services provided to these
different types of accounts, noting that the Fund is provided with certain administrative
services, office facilities, and Fund officers, and that the Fund is subject not only
to heightened regulatory requirements relative to institutional clients but also to requirements
for listing on the New York Stock Exchange, and that the Manager coordinates and oversees the provision of services to the Fund by other fund service providers. The
Board considered the fee comparisons in view of the different services provided in managing
these other types of clients and funds.
30
LMP Capital and Income Fund Inc.
The Board considered the overall management fee, the fees of the Sub-Advisers and
the amount of the management fee retained by the Manager after payment of the subadvisory
fees in each case in view of the services rendered for those amounts. The Board also
received an analysis of complex-wide management fees provided by the Manager, which,
among other things, set out a framework of fees based on asset classes.
Taking all of the above into consideration, as well as the factors identified below,
the Board determined that the management fee and the Sub-Advisory Fees were reasonable in view
of the nature, extent and overall quality of the management, investment advisory and
other services provided by the Manager and the Sub-Advisers to the Fund under the Management
Agreement and the Sub-Advisory Agreements, respectively.
Manager Profitability
The Board, as part of the Contract Renewal Information, received an analysis of the
profitability to the Manager and its affiliates in providing services to the Fund
for the Manager’s fiscal years ended September 30, 2023 and September 30, 2022. The Board also received profitability information with respect to the Franklin Templeton fund complex
as a whole. In addition, the Board received Contract Renewal Information with respect to
the Manager’s revenue and cost allocation methodologies used in preparing such profitability data. It was noted that the allocation methodologies had been reviewed by an outside
consultant. The profitability to each of the Sub-Advisers was not considered to be
a material factor in the Board’s considerations since the Sub-Advisory Fee is paid by the Manager in the case of ClearBridge and Western Asset and by Western Asset in the case
of Western Asset London, not the Fund, although the Board noted the affiliation of the
Manager with the Sub-Advisers. The profitability of the Manager and its affiliates
was considered by the Board to be reasonable in view of the nature, extent and quality
of services provided to the Fund.
Economies of Scale
The Board received and discussed Contract Renewal Information concerning whether the
Manager realizes economies of scale if the Fund’s assets grow. The Board noted that because the Fund is a closed-end fund it has limited ability to increase its assets.
The Board determined that the management fee structure was appropriate under the circumstances.
For similar reasons as stated above with respect to the Sub-Advisers’ profitability and the costs of the Sub-Advisers’ provision of services, the Board did not consider the potential for economies of scale in the Sub-Advisers’ management of the Fund to be a material factor in the Board’s consideration of the Sub-Advisory Agreements.
Other Benefits to the Manager and the Sub-Advisers
The Board considered other benefits received by the Manager, the Sub-Advisers and
their affiliates as a result of their relationship with the Fund, including the opportunity
to offer
LMP Capital and Income Fund Inc.
31
Board approval of management and
subadvisory agreements (unaudited) (cont’d)
additional products and services to the Fund’s stockholders. In view of the costs of providing investment management and other services to the Fund and the ongoing commitment of
the Manager and the Sub-Advisers to the Fund, the Board considered that the ancillary
benefits that the Manager and its affiliates, including the Sub-Advisers, were reasonable.
32
LMP Capital and Income Fund Inc.
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
April 12, 2024, for the purpose of considering and voting upon the proposals presented
at the Meeting. The following table provides information concerning the matters voted
upon at the Meeting:
Election of Directors
|
Nominees
|
FOR
|
WITHHELD
|
ABSTAIN
|
|
Carol L. Colman
|
13,766,488
|
383,939
|
200,403
|
|
Daniel P. Cronin
|
13,732,846
|
390,708
|
227,276
|
|
Paolo M. Cucchi
|
13,674,229
|
443,663
|
232,938
|
At the Meeting, Ms. Colman and Messrs. Cronin and Cucchi, were each duly elected by
the shareholders to serve as Class I Directors of the Fund until the 2027 Annual Meeting
of Shareholders, or until their successors have been duly elected and qualified or until
their resignation or are otherwise removed.
At May 31, 2024, in addition to Ms. Colman and Messrs. Cronin and Cucchi, the other
Directors of the Fund were as follows:
Robert D. Agdern
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Ratification of Selection of Independent Registered Public Accountants
To ratify the selection of PricewaterhouseCoopers LLP (“PwC”) as independent registered public accountants of the Fund for the fiscal year ended November 30, 2024.
|
FOR
|
AGAINST
|
ABSTAIN
|
BROKER NON-VOTES
|
|
13,952,383
|
142,267
|
256,180
|
N/A
|
LMP Capital and Income Fund Inc.
33
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends,
including any capital gain dividends and return of capital distributions, on your Common Stock will
be automatically reinvested by Computershare Trust Company, N.A., as agent for the stock-
holders (the “Plan Agent”), in additional shares of Common Stock under the Fund’s 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 Computershare Trust Company, N.A., as dividend paying
agent.
If you participate in the Plan, the number of shares of Common Stock you will receive
will be determined as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the
payment date (or, if the payment date is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the
Common Stock at the close of trading on the NYSE on the payment date, the Fund will
issue new Common Stock at a price equal to the greater of (a) the net asset value
per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price
of the Common Stock (plus $0.03 per share commission) at the close of trading on the
NYSE on the payment date, the Plan Agent will receive the dividend or distribution
in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding
dividend or distribution to be made to the stockholders; except when necessary to
comply with applicable provisions of the federal securities laws. If during this period:
(i) the market price (plus $0.03 per share commission) rises so that it equals or
exceeds the net asset value per share of the Common Stock at the close of trading
on the NYSE on the payment 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 Stock in the open market and the Fund shall issue the remaining Common Stock at a
price per share equal to the greater of (a) the net asset value per share at the close
of trading on the NYSE on the day prior to the issuance of shares for reinvestment or
(b) 95% of the then current market price per share.
Common Stock in your account will be held by the Plan Agent in non-certificated form.
Any proxy you receive will include all shares of Common Stock you have received under
the Plan. You may withdraw from the Plan (i.e., opt-out) by notifying the Plan Agent in
writing at P.O. Box 43006, Providence, RI 02940-3078 or by calling the Plan Agent at 1-888-888-0151.
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 Common Stock.
34
LMP Capital and Income Fund Inc.
Plan participants who sell their shares will be charged a service charge (currently
$5.00 per transaction) and the Plan Agent is authorized to deduct brokerage charges actually
incurred from the proceeds (currently $0.05 per share commission). There is no service charge
for reinvestment of your dividends or distributions in Common Stock. 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 shares of Common Stock, this allows you to add to your investment
through dollar cost averaging, which may lower the average cost of your Common Stock
over time. Dollar cost averaging is a technique for lowering the average cost per
share over time if the Fund’s net asset value declines. While dollar cost averaging has definite advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean that you do not
have to pay income taxes due upon receiving dividends and distributions. Investors will be
subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of
the Board of Directors, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in writing mailed to stockholders at least 30
days prior to the record date for the payment of any dividend or distribution by the Fund
for which the termination or amendment is to be effective. Upon any termination, you will be
sent cash for any fractional share of Common Stock in your account. You may elect to notify
the Plan Agent in advance of such termination to have the Plan Agent sell part or all
of your Common Stock on your behalf. Additional information about the Plan and your account
may be obtained from the Plan Agent at P.O. Box 43006, Providence, RI 02940-3078 or by
calling the Plan Agent at 1-888-888-0151.
LMP Capital and Income Fund Inc.
35
LMP
Capital and Income Fund Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Chairman
Officers
Jane Trust
President and Chief Executive
Officer
President and Chief Executive
Officer
Christopher Berarducci
Treasurer and Principal Financial
Officer
Treasurer and Principal Financial
Officer
Fred Jensen
Chief Compliance Officer
Chief Compliance Officer
Marc A. De Oliveira
Secretary and Chief Legal Officer
Secretary and Chief Legal Officer
Thomas C. Mandia
Senior Vice President
Senior Vice President
Jeanne M. Kelly
Senior Vice President
Senior Vice President
LMP Capital and Income Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
47th Floor
New York, NY 10018
Investment manager
Franklin Templeton Fund Adviser, LLC
Subadvisers
ClearBridge Investments, LLC
Western Asset Management Company, LLC
Western Asset Management Company Limited
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
P.O. Box 43006
Providence, RI 02940-3078
Independent registered
public accounting firm
public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett LLP
900 G Street NW
Washington, DC 20001
900 G Street NW
Washington, DC 20001
New York Stock
Exchange Symbol
Exchange Symbol
SCD
Franklin Templeton Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to Us
This Privacy and Security Notice (the “Privacy Notice”) addresses the Funds’ privacy and data protection practices with respect to nonpublic personal information the Fund receives.
The Legg Mason Funds include the Western Asset Money Market Funds (Funds) sold by the Funds’ distributor, Franklin Distributors, LLC, as well as Legg Mason-sponsored closed-end
funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder
and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection
with your shareholder account. Such information may include, but is not limited to:
•
Personal information included on applications or other forms;
•
Account balances, transactions, and mutual fund holdings and positions;
•
Bank account information, legal documents, and identity verification documentation;
and
•
Online account access user IDs, passwords, security challenge question responses.
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties
or with affiliates for their marketing purposes, unless you have authorized the Funds to do
so. The Funds do not disclose any nonpublic personal information about you except as may be
required to perform transactions or services you have authorized or as permitted or required
by law. The Funds may disclose information about you to:
•
Employees, agents, and affiliates on a “need to know” basis to enable the Funds to conduct ordinary business or to comply with obligations to government regulators;
•
Service providers, including the Funds’ affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or processing or
servicing your account with us) or otherwise perform services on the Funds’ behalf, including companies that may perform statistical analysis, market research and marketing services
solely for the Funds;
•
Permit access to transfer, whether in the United States or countries outside of the
United States to such Funds’ employees, agents and affiliates and service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
•
The Funds’ representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
•
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or
trustee of a grantor trust.
NOT PART OF THE SEMI-ANNUAL REPORT
Franklin Templeton Funds Privacy and Security Notice
(cont’d)
Except as otherwise permitted by applicable law, companies acting on the Funds’ behalf, including those outside the United States, are contractually obligated to keep nonpublic
personal information the Funds provide to them confidential and to use the information
the Funds share only to provide the services the Funds ask them to perform.
The Funds may disclose nonpublic personal information about you when necessary to
enforce their rights or protect against fraud, or as permitted or required by applicable law,
such as in connection with a law enforcement or regulatory request, subpoena, or similar legal
process. In the event of a corporate action or in the event a Fund service provider changes,
the Funds may be required to disclose your nonpublic personal information to third parties.
While it is the Funds’ practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds’ Privacy and Security Practices
The Funds will notify you annually of their privacy policy as required by federal
law. While the Funds reserve the right to modify this policy at any time, they will notify you promptly
if this privacy policy changes.
The Funds’ Security Practices
The Funds maintain appropriate physical, electronic and procedural safeguards designed
to guard your nonpublic personal information. The Funds’ internal data security policies restrict access to your nonpublic personal information to authorized employees, who may use
your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal information, they cannot
ensure or warrant the security of any information you provide or transmit to them, and you
do so at your own risk. In the event of a breach of the confidentiality or security of your
nonpublic personal information, the Funds will attempt to notify you as necessary so you can
take appropriate protective steps. If you have consented to the Funds using electronic
communications or electronic delivery of statements, they may notify you under such
circumstances using the most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information
accurate is very important. If you believe that your account information is incomplete,
not accurate or not current, if you have questions about the Funds’ privacy practices, or our use of your nonpublic personal information, write the Funds using the contact information
on your account statements, email the Funds by clicking on the Contact Us section of the Funds’ website at www.franklintempleton.com, or contact the Funds at 1-877-721-1926 for the
Western Asset Money Market Funds or 1-888-777-0102 for the Legg Mason-sponsored closed-end funds. For additional information related to certain state privacy rights, please
visit https://www.franklintempleton.com/help/privacy-policy.
Revised December 2023.
NOT PART OF THE SEMI-ANNUAL REPORT
LMP Capital and Income Fund Inc.
LMP Capital and Income Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
620 Eighth Avenue
47th Floor
New York, NY 10018
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 stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Forms N-PORT are available on the SEC’s website at www.sec.gov. To obtain information on Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.franklintempleton.com and (3) on the SEC’s website at www.sec.gov.
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Fund may be found on Franklin Templeton’s website, which can be accessed at www.franklintempleton.com. Any reference to Franklin Templeton’s website in this report is intended to allow investors public access to information regarding the Fund and does not, and is not intended to, incorporate Franklin Templeton’s website in this report.
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.
Computershare Inc.
P.O. Box 43006
Providence, RI 02940-3078
P.O. Box 43006
Providence, RI 02940-3078
FD04219 7/24
| 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. | FINANCIAL STATEMENTS AND FINANCIAL HIGHLIGHTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 9. | PROXY DISCLOSURES FOR OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 10. | REMUNERATION PAID TO DIRECTORS, OFFICERS, AND OTHERS OF OPEN-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 11. | STATEMENT REGARDING BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACT. |
Not applicable.
| ITEM 12. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable.
| ITEM 13. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
On March 1, 2024, Christopher Kilpatrick became part of the portfolio management team of the Fund.
| NAME AND ADDRESS |
LENGTH OF TIME SERVED | PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS | ||
| Christopher F. Kilpatrick Western Asset 385 East Colorado Blvd. Pasadena, CA 91101 |
Since March 1, 2024 | Responsible for the day-to-day management with other members of the Fund’s portfolio management team; employed by Western Asset Management as an investment professional for at least the past five years. |
The following tables set forth certain additional information with respect to the above named fund's investment professional responsible for the day-to-day management with other members of the Fund’s portfolio management team for the fund. Unless noted otherwise, all information is provided as of May 31, 2024.
Other Accounts Managed by Investment Professional
The table below identifies the number of accounts (other than the fund) for which the below named fund's investment professional has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated.
| Name of PM | Type of Account | Number of Accounts Managed | Total Assets Managed | Number of Accounts Managed for which Advisory Fee is Performance-Based | Assets Managed for which Advisory Fee is Performance-Based |
| Christopher Kilpatrick‡ | Other Registered Investment Companies | 8 | $3.29 billion | None | None |
| Other Pooled Vehicles | 6 | $483 million | 3 | $326 million | |
| Other Accounts | None | None | None | None |
| ‡ | The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management Company (“Western Asset”). Western Asset’s investment discipline emphasizes a team approach that combines the efforts of groups of specialists working in different market sectors. They are responsible for overseeing implementation of Western Asset’s overall investment ideas and coordinating the work of the various sector teams. This structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members. |
(a)(3): As of May 31, 2024 : Investment Professional Compensation
Conflicts of Interest
The Subadviser has adopted compliance policies and procedures to address a wide range of potential conflicts of interest that could directly impact client portfolios. For example, potential conflicts of interest may arise in connection with the management of multiple portfolios (including portfolios managed in a personal capacity). These could include potential conflicts of interest related to the knowledge and timing of a portfolio’s trades, investment opportunities and broker selection. Portfolio managers are privy to the size, timing, and possible market impact of a portfolio’s trades.
It is possible that an investment opportunity may be suitable for both a portfolio and other accounts managed by a portfolio manager, but may not be available in sufficient quantities for both the portfolio and the other accounts to participate fully. Similarly, there may be limited opportunity to sell an investment held by a portfolio and another account. A conflict may arise where the portfolio manager may have an incentive to treat an account preferentially as compared to a portfolio because the account pays a performance-based fee or the portfolio manager, the Subadviser or an affiliate has an interest in the account. The Subadviser has adopted procedures for allocation of portfolio transactions and investment opportunities across multiple client accounts on a fair and equitable basis over time. Eligible accounts that can participate in a trade generally share the same price on a pro-rata allocation basis, taking into account differences based on factors such as cash availability, investment restrictions and guidelines, and portfolio composition versus strategy.
With respect to securities transactions, the Subadviser determines which broker or dealer to use to execute each order, consistent with their duty to seek best execution of the transaction. However, with respect to certain other accounts (such as pooled investment vehicles that are not registered investment companies and other accounts managed for organizations and individuals), the Subadviser may be limited by the client with respect to the selection of brokers or dealers or may be instructed to direct trades through a particular broker or dealer. In these cases, trades for a portfolio in a particular security may be placed separately from, rather than aggregated with, such other accounts. Having separate transactions with respect to a security may temporarily affect the market price of the security or the execution of the transaction, or both, to the possible detriment of a portfolio or the other account(s) involved. Additionally, the management of multiple portfolios and/or other accounts may result in a portfolio manager devoting unequal time and attention to the management of each portfolio and/or other account. The Subadviser’s team approach to portfolio management and block trading approach seeks to limit this potential risk.
The Subadviser also maintains a gift and entertainment policy to address the potential for a business contact to give gifts or host entertainment events that may influence the business judgment of an employee. Employees are permitted to retain gifts of only a nominal value and are required to make reimbursement for entertainment events above a certain value. All gifts (except those of a de minimis value) and entertainment events that are given or sponsored by a business contact are required to be reported in a gift and entertainment log which is reviewed on a regular basis for possible issues.
Employees of the Subadviser have access to transactions and holdings information regarding client accounts and the Subadviser’s overall trading activities. This information represents a potential conflict of interest because employees may take advantage of this information as they trade in their personal accounts. Accordingly, the Subadviser maintains a Code of Ethics that is compliant with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act to address personal trading. In addition, the Code of Ethics seeks to establish broader principles of good conduct and fiduciary responsibility in all aspects of the Subadviser’s business. The Code of Ethics is administered by the Legal and Compliance Department and monitored through the Subadviser’s compliance monitoring program.
The Subadviser may also face other potential conflicts of interest with respect to managing client assets, and the description above is not a complete description of every conflict of interest that could be deemed to exist. The Subadviser also maintains a compliance monitoring program and engages independent auditors to conduct a SOC1/ISAE 3402 audit on an annual basis. These steps help to ensure that potential conflicts of interest have been addressed.
Investment Professional Compensation
With respect to the compensation of the Fund’s investment professionals, the Subadviser’s compensation system assigns each employee a total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of their skills, experience and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits and a retirement plan.
In addition, the Subadviser’s employees are eligible for bonuses. These are structured to closely align the interests of employees with those of the Subadviser, and are determined by the professional’s job function and pre-tax performance as measured by a formal review process. All bonuses are completely discretionary. The principal factor considered is an investment professional’s investment performance versus appropriate peer groups and benchmarks (e.g., a securities index and with respect to the Fund, the benchmark set forth in the Fund’s Prospectus to which the Fund’s average annual total returns are compared or, if none, the benchmark set forth in the Fund’s annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensation—with 3 and 5 years having a larger emphasis. The Subadviser may also measure an investment professional’s pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment professionals are generally responsible for multiple accounts (including the Fund) with similar investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account. Other factors that may be considered when making bonus decisions include client service, business development, length of service to the Subadviser, management or supervisory responsibilities, contributions to developing business strategy and overall contributions to the Subadviser’s business.
Finally, in order to attract and retain top talent, all investment professionals are eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include long-term incentives that vest over a set period of time past the award date.
Investment Professional Securities Ownership
The table below identifies the dollar range of securities beneficially owned by the named investment professional as of May 31, 2024.
| Investment Professional | Dollar Range of Portfolio Securities Beneficially Owned | |
| Christopher F. Kilpatrick | A |
Dollar Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
| ITEM 14. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. |
Not applicable.
| ITEM 15. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
Not applicable.
| ITEM 16. | 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 period covered by this report that have materially affected, or are likely to materially affect the registrant’s internal control over financial reporting. |
| ITEM 17. | DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. |
Not applicable
| ITEM 18. | RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION. |
| (a) | Not applicable. |
| (b) | Not applicable. |
| ITEM 19. | 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/ Jane Trust | |
| Jane Trust | ||
| Chief Executive Officer | ||
| Date: | July 25, 2024 |
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/ Jane Trust | |
| Jane Trust | ||
| Chief Executive Officer | ||
| Date: | July 25, 2024 |
| By: | /s/ Christopher Berarducci | |
| Christopher Berarducci | ||
| Principal Financial Officer | ||
| Date: | July 25, 2024 |