Salomon Brothers Capital and Income Fund Inc.

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number 811-21467

 

Salomon Brothers Capital and Income Fund Inc.

(Exact name of registrant as specified in charter)

 

125 Broad Street, New York, NY 10004

(Address of principal executive offices) (Zip code)

 

Robert I. Frenkel, Esq.

Smith Barney Fund Management LLC

300 First Stamford Place

Stamford, CT 06902

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 1-800-451-2010

 

Date of fiscal year end: October 31

Date of reporting period: July 31, 2004

 



ITEM 1. SCHEDULE OF INVESTMENTS

 


SALOMON BROTHERS CAPITAL AND INCOME FUND

 

FORM N-Q

JULY 31, 2004

 


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited)   July 31, 2004

 

Shares   Security (a)    Value
Common Stock — 42.8%
Consumer Discretionary — 4.0%
Hotels Restaurants & Leisure — 0.3%

40,000

 

Applebee’s International, Inc.

   $ 1,065,600
30,100  

McDonald’s Corp.

     827,750
           1,893,350
Household Durables — 0.3%

118,900

 

Newell Rubbermaid Inc.

     2,568,240
Leisure Equipment & Products — 0.2%

100,400

 

Mattel, Inc.

     1,759,008
Media — 2.4%

158,100

 

Cablevision Systems Corp., NY Group Class A Shares+

     2,762,007

23,500

 

Comcast Corp., Class A Shares+

     643,900

112,300

 

EchoStar Communications Corp., Class A Shares+

     3,112,956

54,500

 

The Interpublic Group of Cos., Inc.+

     697,055

149,400

 

Liberty Media Corp., Series A Shares+

     1,266,912

3,494

 

Liberty Media International, Inc., Series A Rights+

     20,999

17,470

 

Liberty Media International, Inc., Series A Shares+

     544,715

50,600

 

The News Corp. Ltd., Sponsored Preferred ADR

     1,607,562

140,500

 

Time Warner Inc.+

     2,339,325

117,000

 

UnitedGlobalCom, Inc., Class A Shares+

     741,780

97,000

 

Viacom Inc., Class B Shares

     3,258,230
           16,995,441
Multiline Retail — 0.7%

50,000

 

Dollar General Corp.

     965,000

52,900

 

Federated Department Stores, Inc.

     2,534,968

30,100

 

Target Corp.

     1,312,360
           4,812,328
Textiles & Apparel — 0.1%

30,000

 

Reebok International Ltd.

     1,021,800
   

Total Consumer Discretionary

     29,050,167
Consumer Staples — 1.7%
Beverages — 0.1%

16,200

 

PepsiCo, Inc.

     810,000
Food & Drug Retailing — 0.1%

80,000

 

The Kroger Co.+

     1,264,000
Food Products — 0.6%

34,100

 

Kellogg Co.

     1,420,606

50,000

 

Sara Lee Corp.

     1,098,000

40,000

 

The J. M. Smucker Co.

     1,672,400
           4,191,006
Household Products — 0.4%

45,700

 

Kimberly — Clark Corp.

     2,927,999
Tobacco — 0.5%

72,300

 

Altria Group, Inc.

     3,441,480
   

Total Consumer Staples

     12,634,485

 

See Notes to Schedule of Investments.

 

1


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Shares   Security (a)    Value
Energy — 6.2%       
Energy Equipment & Services — 1.9%       

111,300

 

ENSCO International Inc.

   $ 3,351,243

62,500

 

Nabors Industries, Ltd.+

     2,906,250

244,000

 

Patterson-UTI Energy, Inc.

     4,448,120

116,500

 

Rowan Cos., Inc.+

     2,844,930
           13,550,543
Oil & Gas — 4.3%       

202,500

 

BP PLC, Sponsored ADR

     11,412,900

90,200

 

Marathon Oil Corp.

     3,397,834

51,400

 

Nexen Inc.

     1,977,872

146,300

 

Total SA, Sponsored ADR

     14,242,305
           31,030,911
   

Total Energy

     44,581,454
Financials — 8.7%       
Banks — 1.8%       

49,026

 

Bank of America Corp.

     4,167,700

19,100

 

The Bank of New York Co., Inc.

     548,743

16,400

 

Comerica Inc.

     958,908

8,900

 

Fifth Third Bancorp

     439,304

1,700

 

Golden West Financial Corp.

     181,747

7,900

 

M&T Bank Corp.

     736,517

14,400

 

U.S. Bancorp

     407,520

16,500

 

Wachovia Corp.

     731,115

64,800

 

Wells Fargo & Co.

     3,720,168

13,000

 

Zions Bancorp.

     786,500
           12,678,222
Diversified Financials — 1.4%       

11,300

 

American Express Co.

     567,825

18,000

 

Capital One Financial Corp.

     1,247,760

3,300

 

Countrywide Financial Corp.

     237,930

53,050

 

Federal Home Loan Mortgage Corp.

     3,411,645

40,040

 

J.P. Morgan Chase & Co.

     1,494,693

8,000

 

Lehman Brothers Holdings Inc.

     560,800

13,000

 

MBNA Corp.

     320,970

27,600

 

Merrill Lynch & Co., Inc.

     1,372,272

6,600

 

The Goldman Sachs Group, Inc.

     582,054
           9,795,949
Insurance — 0.9%       

28,700

 

American International Group, Inc.

     2,027,655

8

 

Berkshire Hathaway Inc., Class A Shares+

     698,000

15,300

 

IPC Holdings, Ltd.

     573,750

26,000

 

PartnerRe Ltd.

     1,360,060

8,000

 

The Hartford Financial Services Group, Inc.

     520,800

34,500

 

Willis Group Holdings Ltd.

     1,200,600
           6,380,865
Real Estate — 4.6%       

19,300

 

Alexandria Real Estate Equities, Inc.

     1,159,737

65,200

 

AMB Property Corp.

     2,291,128

20,000

 

American Financial Realty Trust

     265,000

7,400

 

Apartment Investment and Management Co., Class A Shares

     236,578

40,100

 

Archstone-Smith Trust

     1,180,143

25,000

 

Ashford Hospitality Trust Inc.

     223,500

31,900

 

AvalonBay Communities Inc.

     1,856,580

17,200

 

Boston Properties Inc.

     909,880

12,400

 

BRE Properties Inc., Class A Shares

     429,660

 

See Notes to Schedule of Investments.

 

2


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Shares   Security (a)    Value
Real Estate — 4.6% (continued)       

44,800

 

CarrAmerica Realty Corp.

   $ 1,365,952

12,000

 

Developers Diversified Realty Corp.

     430,560

20,900

 

Duke Realty Corp.

     642,884

29,900

 

Equity Office Properties Trust

     775,905

50,200

 

Equity Residential

     1,483,410

29,800

 

Federal Realty Investment Trust

     1,257,560

67,400

 

General Growth Properties Inc.

     2,027,392

9,600

 

Gramercy Capital Corp.+

     144,000

7,900

 

Heritage Property Investment Trust

     216,934

27,000

 

Highwoods Properties, Inc.

     626,400

24,000

 

iStar Financial Inc.

     912,000

12,400

 

Kimco Realty Corp.

     596,440

7,400

 

The Macerich Co.

     354,460

7,200

 

Pan Pacific Retail Properties, Inc.

     364,320

107,000

 

ProLogis

     3,642,280

39,200

 

PS Business Parks Inc.

     1,575,840

21,000

 

Public Storage Inc.

     989,730

34,700

 

The Rouse Co.

     1,693,360

34,500

 

Simon Property Group, Inc.

     1,780,545

45,900

 

SL Green Realty Corp.

     2,253,690

26,900

 

Vornado Realty Trust

     1,562,621
           33,248,489
    Total Financials      62,103,525
Health Care — 6.5%       
Biotechnology — 1.1%       

49,800

 

Amgen Inc.+

     2,832,624

4,500

 

MedImmune, Inc.+

     103,680

64,700

 

OSI Pharmaceuticals, Inc.+

     3,888,470

60,400

 

Transkaryotic Therapies, Inc. +

     900,564
           7,725,338
Health Care Equipment & Supplies — 0.8%       

108,900

 

DJ Orthopedics, Inc.+

     1,938,420

50,000

 

Fisher Scientific International Inc.+

     2,910,000

17,900

 

Guidant Corp.

     990,228
           5,838,648
Health Care Providers & Services — 0.3%       

25,000

 

Aetna, Inc.

     2,145,000
Pharmaceuticals — 4.3%       

276,300

 

GlaxoSmithKline PLC

     5,614,393

127,800

 

GlaxoSmithKline PLC, Sponsored ADR

     5,233,410

80,400

 

InterMune, Inc.+

     963,996

445,800

 

Pfizer Inc.

     14,247,768

2,600

 

Roche Holding AG

     257,134

19,000

 

Sepracor Inc.+

     873,430

105,000

 

Wyeth

     3,717,000
           30,907,131
    Total Health Care      46,616,117
Industrials — 5.1%       
Aerospace & Defense — 1.1%       

78,100

 

The Boeing Co.

     3,963,575

40,100

 

Lockheed Martin Corp.

     2,124,899

60,000

 

Raytheon Co.

     2,013,000
           8,101,474

 

See Notes to Schedule of Investments.

 

3


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Shares   Security (a)    Value
Building Products — 0.3%       

52,800

 

American Standard Cos. Inc.+

   $ 2,000,592
Commercial Services & Supplies — 0.6%       

35,700

 

Avery Dennison Corp.

     2,162,349

60,000

 

R.R. Donnelley & Sons Co.

     1,904,400
           4,066,749
Construction & Engineering — 0.3%       

76,000

 

Chicago Bridge & Iron Company N.V.

     2,218,440
Industrial Conglomerates — 2.1%       

259,800

 

General Electric Co.

     8,638,350

77,900

 

Honeywell International Inc.

     2,929,819

107,500

 

Tyco International Ltd.

     3,332,500
           14,900,669
Machinery — 0.7%       

131,300

 

Navistar International Corp.+

     4,720,235
Trading Companies & Distributors — 0.0%       

9,600

 

MSC Industrial Direct Co., Class A Shares

     300,480
    Total Industrials      36,308,639
Information Technology — 4.8%       
Communications Equipment — 2.0%       

553,600

 

3Com Corp.+

     2,729,248

1,676,200

 

ADC Telecommunications, Inc.+

     4,022,880

81,400

 

Comverse Technology, Inc.+

     1,388,684

20,000

 

Nokia Oyj, Sponsored ADR

     232,400

1,235,600

 

Nortel Networks Corp.+

     4,522,296

150,000

 

Tellabs, Inc.+

     1,336,500
           14,232,008
Computers & Peripherals — 0.7%       

186,700

 

Hewlett-Packard Co.

     3,762,005

300,000

 

Sun Microsystems, Inc.+

     1,185,000
           4,947,005
Electronic Equipment & Instruments — 0.2%       

67,500

 

Celestica, Inc., Subordinate Voting Shares+

     1,157,625

25,000

 

Flextronics International Ltd.+

     314,250
           1,471,875
Internet Software & Services — 1.0%       

85,500

 

Digitas Inc.+

     571,995

74,300

 

IAC/InterActiveCorp+

     2,028,390

260,200

 

McAfee Inc.+

     4,678,396
           7,278,781
IT Consulting & Services — 0.1%       

44,400

 

ProQuest Co.+

     1,110,000
Semiconductor Equipment & Products — 0.1%       

34,500

 

Teradyne, Inc.+

     589,950
Software — 0.7%       

152,200

 

Microsoft Corp.

     4,331,612

52,900

 

Novell, Inc.+

     361,836
           4,693,448
    Total Information Technology      34,323,067

 

See Notes to Schedule of Investments.

 

4


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Shares   Security (a)    Value
Materials — 2.2%       
Containers & Packaging — 0.2%       

67,200

 

Smurfit-Stone Container Corp.+

   $ 1,250,592
Metals & Mining — 1.1%       

99,600

 

Alcoa Inc.

     3,190,188

61,000

 

Arch Coal, Inc.

     2,059,970

81,200

 

Barrick Gold Corp.

     1,552,544

57,900

 

Compass Minerals International Inc.

     1,182,318
           7,985,020
Paper & Forest Products — 0.9%       

19,100

 

Bowater Inc.

     712,430

132,000

 

International Paper Co.

     5,706,360
           6,418,790
    Total Materials      15,654,402
Telecommunication Services — 1.7%       
Diversified Telecommunication Services — 1.1%       

106,300

 

Citizens Communications Co.

     1,530,720

101,900

 

MCI Inc.

     1,557,032

35,400

 

NTL Inc.+

     1,845,048

65,300

 

Spectrasite Inc.+

     2,807,900
           7,740,700
Wireless Telecommunication Services — 0.6%       

88,000

 

AT&T Wireless Services, Inc.+

     1,270,720

142,500

 

Nextel Communications, Inc., Class A Shares+

     3,243,300
           4,514,020
    Total Telecommunication Services      12,254,720
Utilities — 1.9%       
Electric Utilities — 0.8%       

9,500

 

Entergy Corp.

     546,250

78,600

 

FirstEnergy Corp.

     3,073,260

59,000

 

PG&E Corp.+

     1,683,860
           5,303,370
Gas Utilities — 0.9%       

361,900

 

El Paso Corp.

     2,855,391

34,200

 

Sempra Energy

     1,222,650

114,600

 

Southern Union Co.+

     2,281,686
           6,359,727
Multi-Utilities — 0.2%       

81,900

 

NiSource Inc.

     1,695,330
    Total Utilities      13,358,427
   

Total Common Stock

(Cost — $315,970,859)

     306,885,003
Preferred Stock — 0.0%       

14,000

 

Delphi Trust I +

     360,500
   

Total Preferred Stock

(Cost — $368,200)

     360,500
Convertible Preferred Stock — 4.2%       

75,000

 

Capital One Financial Corp.

     3,856,500

60,000

 

Commerce Capital Trust II

     3,367,500

 

See Notes to Schedule of Investments.

 

5


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Shares   Security (a)    Value
Convertible Preferred Stock — 4.2% (continued)       

22,500

 

Dobson Communications Corp.

   $ 2,061,799

38,000

 

Hanover Compressor Capital Trust

     1,824,000

167,000

 

Host Marriott Finance Trust

     8,530,360

30,100

 

Reckson Associates Realty Corp.

     793,135

140,000

 

Sovereign Cap Trust IV

     6,720,000

62,500

 

Toys “R” Us Inc.

     2,855,625
   

Total Convertible Preferred Stock

(Cost — $31,885,436)

     30,008,919

Face

Amount

          
Corporate Bonds — 15.7%       
Basic Industries — 2.9%       

$1,000,000

 

Abitibi-Consolidated Inc., Debentures, 8.850% due 8/1/30

     983,634

375,000

 

AK Steel Corp., 7.875% due 2/15/09

     359,063

500,000

 

BCP Caylux Holdings Luxembourg SCA, Sr. Sub. Notes, 9.625% due 6/15/14 (b)

     523,750

1,000,000

 

Berry Plastics Corp., 10.750% due 7/15/12

     1,120,000

250,000

 

Bowater Inc. Notes, 6.500% due 6/15/13

     236,844

500,000

 

Buckeye Cellulose Corp., 9.250% due 9/15/08

     501,250

1,000,000

 

Compass Minerals Group, Inc., 10.000% due 8/15/11

     1,115,000

1,000,000

 

Equistar Chemicals L.P./Equistar Funding Corp., Sr. Notes, 10.625% due 5/1/11

     1,115,000

500,000

 

Hercules Inc., 6.750% due 10/15/29 (b)

     492,500

1,000,000

 

Huntsman International LLC, 10.125% due 7/1/09

     1,022,500

500,000

 

ISP Holdings Inc., Secured Notes, Series B, 10.625% due 12/15/09

     552,500

950,000

 

Ispat Inland ULC, Secured Notes, 9.75% due 4/1/14 (b)

     985,625

500,000

 

Jefferson Smurfit Corp., 8.250% due 10/1/12

     536,250

500,000

 

JSG Funding PLC, Sr. Notes, 9.625% due 10/1/12

     562,500

1,000,000

 

Koppers Inc., 9.875% due 10/15/13

     1,110,000

1,000,000

 

Lyondell Chemical Co., Secured Notes, 11.125% due 7/15/12

     1,121,250

1,000,000

 

Millennium America Inc., 9.250% due 6/15/08

     1,085,000

225,000

 

Mueller Group Inc., Sr. Sub. Notes, 10.000% due 5/1/12 (b)

     237,375

500,000

 

Nalco Co., Sr. Sub. Notes, 8.875% due 11/15/13 (b)

     527,500

1,000,000

 

Newark Group, Inc., Sr. Sub. Notes, 9.750% due 3/15/14 (b)

     965,000

1,000,000

 

Norske Skog Canada Ltd., Sr. Notes, 7.375% due 3/1/14

     1,000,000

500,000

 

OM Group, Inc., 9.250% due 12/15/11

     513,750

400,000

 

Owens-Illinois Inc., Debentures, 7.500% due 5/15/10

     408,000

500,000

 

Plastipak Holdings Inc. 10.750% due 9/1/11

     540,625

500,000

 

Resolution Performance Products LLC/RPP Capital Corp., Sr. Notes, 9.500% due 4/15/10

     520,000
   

Rhodia S.A.:

      

500,000

 

Sr. Notes, 7.625% due 6/1/10 (b)

     462,500

500,000

 

Sr. Sub. Notes, 8.875% due 6/1/11 (b)

     432,500

1,000,000

 

Tembec Industries Inc., 8.625% due 6/30/09

     1,037,500

500,000

 

Westlake Chemical Corp., 8.750% due 7/15/11

     551,250

260,000

 

Weyerhaeuser Co., Notes, 6.125% due 3/15/07

     276,865

150,000

 

WMC Finance USA, 6.750% due 12/1/06

     160,973
           21,056,504
Consumer Cyclicals — 1.4%       

500,000

 

Buffets Inc., Sr. Sub. Notes, 11.250% due 7/15/10

     527,500

200,000

 

Carnival Corp., 3.750% due 11/15/07

     198,792

875,000

 

Cinemark Inc., Sr. Discount Notes, (zero coupon untill 3/15/09, 9.750% thereafter), due 3/15/14 (b)

     581,875

1,000,000

 

Cintas Corp. No. 2, 5.125% due 6/1/07

     1,050,834

1,000,000

 

CVS Corp., Notes, 5.625% due 3/15/06

     1,043,488

150,000

 

DaimlerChrysler NA Holding Corp., 6.400% due 5/15/06

     158,092

1,000,000

 

Felcor Lodging L.P., 9.000% due 6/1/11

     1,077,500

750,000

 

Home Depot Inc., Sr. Notes, 5.375% due 4/1/06

     781,752

500,000

 

Interface Inc., Sr. Sub. Notes, 9.500% due 2/1/14 (b)

     505,000

500,000

 

John Q. Hammons Hotels L.P., 1st Mortgage, Series B, 8.875% due 5/15/12

     553,125

750,000

 

Johnson Controls Inc., Notes, 5.000% due 11/15/06

     780,350

 

See Notes to Schedule of Investments.

 

6


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
  Consumer Cyclicals — 1.4% (continued)       
$ 75,000  

LCE Acquisition Corp., 9.000% due 8/1/14 (b)

   $ 74,250
  500,000  

Levi Strauss & Co., Notes, 7.000% due 11/1/06

     487,500
  500,000  

Meristar Hospitality Corp., 9.125% due 1/15/11

     518,750
  350,000  

Prime Hospitality Corp., Sr. Sub. Notes, Series B, 8.375% due 5/1/12

     370,125
  750,000  

Target Corp., Notes, 5.500% due 4/1/07

     791,359
  200,000  

VF Corp., Notes, 8.100% due 10/1/05

     212,166
  500,000  

VICORP Restaurants Inc., Sr. Notes, 10.500% due 4/15/11 (b)

     520,000
             10,232,458
  Consumer Non-Cyclicals — 2.7%       
  472,865  

Ahold Lease USA Inc., 7.820% due 1/2/20

     474,342
  250,000  

Ameripath Inc., 10.500% due 4/1/13

     255,000
  500,000  

Athena Neurosciences Finance LLC, 7.250% due 2/21/08

     496,250
  1,000,000  

Boyd Gaming Corp., Sr. Sub. Notes, 6.750% due 4/15/14 (b)

     966,250
  500,000  

Brown-Forman Corp., Notes, 2.125% due 3/15/06

     494,963
  950,000  

Cargill Inc., Notes, 6.250% due 5/1/06 (b)

     1,002,934
  700,000  

Cendant Corp., Notes, 6.875% due 8/15/06

     749,043
  500,000  

Constellation Brands Inc., Series B, 8.125% due 1/15/12

     541,250
  250,000  

Curative Health Services Inc., Sr. Notes, 10.75% due 5/1/11 (b)

     227,500
  500,000  

Del Monte Corp., Sr. Sub. Notes, 8.625% due 12/15/12

     547,500
  500,000  

Doane Pet Care Co., Sr. Sub Notes, 9.750% due 5/15/07

     472,500
  350,000  

Dole Food Co Inc., Debentures, 8.750% due 7/15/13

     369,250
  500,000  

Elizabeth Arden Inc., 7.750% due 1/15/14

     513,125
  500,000  

Extendicare Health Services, Inc., Sr. Sub. Notes, 6.875% due 5/1/14 (b)

     480,000
  700,000  

Fortune Brands Inc., Notes, 2.875% due 12/1/06

     695,234
  720,000  

The Gillette Co., Notes, 3.500% due 10/15/07

     722,321
  250,000  

Global Cash Access LLC/Global Cash Finance Corp., Sr. Sub. Notes, 8.750% due 3/15/12 (b)

     263,125
  142,000  

HCA Inc., Notes, 7.125% due 6/1/06

     150,134
  500,000  

Home Interiors & Gifts Inc., 10.125% due 6/1/08

     500,000
  1,000,000  

Isle of Capri Casinos Inc., Sr. Sub. Notes, 7.000% due 3/1/14

     956,250
  350,000  

Jean Coutu Group Inc., Sr. Sub. Notes, 8.500% due 8/1/14 (b)

     348,687
  700,000  

Kellogg Co., Sr. Notes, 2.875% due 6/1/08

     676,482
  500,000  

Pinnacle Entertainment Inc., Sr. Sub.Notes, 8.250% due 3/15/12

     482,500
  150,000  

Quest Diagnostics Inc., 6.750% due 7/12/06

     160,088
  500,000  

Rite Aid Corp., Debentures, 6.875 due 8/15/13

     460,000
  150,000  

Safeway Inc., Notes, 4.800% due 7/16/07

     153,746
  900,000  

Sealy Mattress Co., Sr. Sub. Notes, 8.250% due 6/15/14 (b)

     904,500
     

Tenet Healthcare Corp.:

      
  650,000  

Notes, 7.375% due 2/1/13

     604,500
  25,000  

Sr. Notes, 9.875% due 7/1/14 (b)

     26,094
  500,000  

Turning Stone Casino Resort Enterprise, Sr. Notes, 9.125% due 12/15/10 (b)

     535,000
  1,000,000  

Unilever Capital Corp., 6.875% due 11/1/05

     1,052,982
  775,000  

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

     761,784
  1,000,000  

Vanguard Health Systems, Inc., 9.750% due 8/1/11

     1,155,000
  750,000  

WellPoint Health Networks, Notes, 6.375% due 6/15/06

     792,680
  500,000  

VWR International Inc., Sr. Sub. Notes, 8.000% due 4/15/14 (b)

     512,500
             19,503,514
  Energy — 0.6%       
  700,000  

Cooper Cameron Corp., Sr. Notes, 2.650% due 4/15/07

     682,499
  250,000  

Duke Energy Field Services LLC, Notes, 5.750% due 11/15/06

     261,228
  1,000,000  

Dynegy Holdings Inc., Debentures, 7.125% due 5/15/18

     815,000
  1,000,000  

El Paso Corp., Sr. Notes, 7.800% due 8/1/31

     817,500
  500,000  

Exco Resources Inc., 7.250% due 1/15/11

     520,000
  200,000  

Norsk Hydro ASA, Notes, 6.36% due 1/15/09

     216,628
  1,000,000  

The Williams Cos., Inc., Sr. Notes, 8.625% due 6/1/10

     1,127,500
             4,440,355
  Finance — 2.5%       
  375,000  

American Express Centurion Bank, Notes, 1.500% due 7/19/07

     374,998
  750,000  

Amvescap PLC, 6.600% due 5/15/05

     771,253

 

See Notes to Schedule of Investments.

 

7


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
Finance — 2.5% (continued)       

$ 380,000

 

Banesto Finance Ltd., 7.500% due 3/25/07

   $ 414,855

250,000

 

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

     282,680

200,000

 

BB&T Corp., Sub. Notes, 6.375% due 6/30/05

     207,043

750,000

 

The Bear Stearns Cos., Inc., Notes, 6.500% due 5/1/06

     794,207

75,000

 

Boeing Capital Corp., Sr. Notes, 5.650% due 5/15/06

     78,849

250,000

 

Capital One Financial Corp., Notes, 7.250% due 5/1/06

     265,460

245,000

 

Chubb Corp., Notes, 6.150% due 8/15/05

     253,204

751,000

 

CIT Group Inc., Notes, 6.500% due 2/7/06

     790,777

750,000

 

Countrywide Home Loans Inc., 5.500% due 2/1/07

     785,104

200,000

 

Ford Motor Credit Co., Notes, 6.875% due 2/1/06

     209,905

700,000

 

General Electric Capital Corp., Notes, 1.610% due 6/22/07

     700,722

156,000

 

General Motors Acceptance Corp., Notes, 6.125% due 9/15/06

     162,755

1,000,000

 

Hartford Financial Services Group Inc., Sr. Notes, 2.375% due 6/1/06

     987,098

750,000

 

Household Finance Corp., Notes, 5.750% due 1/30/07

     791,959

750,000

 

International Lease Finance Corp., Notes, 5.750% due 10/15/06

     791,235

1,000,000

 

John Deere Capital Corp., Notes, 5.125% due 10/19/06

     1,039,883

750,000

 

JPMorgan Chase & Co., Sr. Notes, 5.350% due 3/1/07

     793,066

1,000,000

 

Marsh & McLennan Cos., Inc., Notes, 1.740% due 7/13/07

     999,894

1,000,000

 

MGIC Investment Corp., Sr. Notes, 7.500% due 10/15/05

     1,053,995

750,000

 

Morgan Stanley, 5.800% due 4/1/07

     793,927

1,000,000

 

Protective Life Secured Trust, Secured Notes, 1.680% due 4/13/07

     999,807

150,000

 

Rio Tinto Finance USA Ltd., Notes, 2.625% due 9/30/08

     141,807

1,000,000

 

SLM Corp., Notes, 1.860% due 1/26/09

     998,225

200,000

 

Suntrust Bank, Sr. Notes, 2.125% due 1/30/06

     199,036

260,000

 

Textron Financial Corp., Notes, 2.750% due 6/1/06

     258,362

200,000

 

Vornado Realty L.P., Notes, 5.625% due 6/15/07

     209,433

1,000,000

 

Wells Fargo & Co., Notes, 1.61938% due 3/23/07

     1,000,862

425,000

 

Zions Bancorp., Senior Notes, 2.700% due 5/1/06

     422,727
           17,573,128
Manufacturing — 0.7%       

175,000

 

Blount Inc., 13.000% due 8/1/09

     189,000

1,000,000

 

Cooper Industries Inc., 5.250% due 7/1/07

     1,046,389

352,000

 

Dover Corp., Notes, 6.450% due 11/15/05

     368,352

1,000,000

 

Eaton Corp., Notes, 6.950% due 11/15/04

     1,013,741

150,000

 

Goodrich Corp., 7.500% due 4/15/08

     166,338

710,000

 

Honeywell International Inc., Notes, 6.875% due 10/3/05

     744,008

200,000

 

Ingersoll-Rand Co., Notes, 6.250% due 5/15/06

     210,879

175,000

 

Invensys PLC, Sr. Notes, 9.875% due 3/15/11 (b)

     177,187

150,000

 

Masco Corp., Notes, 6.750% due 3/15/06

     158,921

500,000

 

Sensus Metering Systems Inc., Sr. Sub. Notes, 8.625% due 12/15/13 (b)

     492,500

250,000

 

Tyco International Group SA, 6.375% due 6/15/05

     257,487
           4,824,802
Media and Cable — 1.3%       
   

Cablevision Systems Corp., Sr. Notes:

      

625,000

 

5.670% due 4/1/09 (b)

     637,500

900,000

 

8.000% due 4/15/12 (b)

     888,750

1,000,000

 

CBS Corp., 7.150% due 5/20/05

     1,036,804
   

Charter Communications Holdings, LLC., Sr. Notes:

      

400,000

 

10.000% due 4/1/09

     317,000

1,000,000

 

10.750% due 10/1/09

     810,000

250,000

 

Clear Channel Communications Inc., Sr. Notes, 6.000% due 11/1/06

     262,756

250,000

 

COX Communications Inc., Notes, 7.750% due 8/15/06

     271,624

1,350,000

 

Dex Media Inc., Discount Notes, (zero coupon until 11/15/08, 9.000% thereafter), due 11/15/13 (b)

     945,000

750,000

 

Insight Midwest, L.P., Sr. Notes, 10.500% due 11/1/10

     804,375

750,000

 

Mediacom Broadband LLC, 11.000% due 7/15/13

     772,500

225,000

 

Nexstar Finance Holdings LLC, Sr. Discount Notes, (zero coupon until 4/1/08, 11.375% thereafter), due 4/1/13

     162,000

50,000

 

NTL Cable PLC, Sr. Notes, 8.750% due 4/15/14 (b)

     52,125

750,000

 

Reed Elsevier Capital Inc., 6.125% due 8/1/06

     791,878

150,000

 

TCI Communications Inc., Sr. Notes, 6.875% due 2/15/06

     158,342

 

See Notes to Schedule of Investments.

 

8


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
  Media and Cable — 1.3% (continued)       
$ 150,000  

Time Warner Inc., 6.125% due 4/15/06

   $ 157,191
  675,000  

Walt Disney Co., Notes, 5.500% due 12/29/06

     707,057
  325,000  

Young Broadcasting Inc., 10.000% due 3/1/11

     329,875
             9,104,777
  Services & Other — 0.4%       
  1,000,000  

Allied Waste North America, Inc., Sr. Notes, Series B, 7.375% due 4/15/14

     962,500
  500,000  

Cenveo Corp., Sr. Sub. Notes, 7.875% due 12/1/13

     458,750
  1,000,000  

Iron Mountain Inc., 7.750% due 1/15/15

     1,027,500
             2,448,750
  Technology — 0.4%       
  500,000  

Amkor Technology Inc., Sr. Notes, 7.125% due 3/15/11

     430,000
  1,000,000  

Hewlett-Packard Co., Notes, 7.150% due 6/15/05

     1,040,893
  2,000,000  

Lucent Technologies Inc., Debentures, 6.450% due 3/15/29

     1,535,000
             3,005,893
  Telecommunications — 1.7%       
  1,000,000  

Alamosa (Delaware), Inc., (zero coupon until 7/31/05, 12.000% thereafter), due 7/31/09

     982,500
  1,000,000  

American Tower Corp., Sr. Notes, 7.500% due 5/1/12 (b)

     987,500
  1,000,000  

BellSouth Corp., Notes, 4.119% due 4/26/05 (b)

     1,013,198
  1,000,000  

Crown Castle International Corp., Sr. Notes, Series B, 7.500% due 12/1/13

     1,002,500
  1,000,000  

GTE Corp., Debentures, 6.360% due 4/15/06

     1,052,299
  750,000  

GTE North Inc., Debentures, Series H, 5.650% due 11/15/08

     788,370
  175,000  

PanAm Sat Corp., Sr. Notes, 9.000% due 8/15/14 (b)

     176,855
  2,000,000  

Qwest Services Corp., Notes, 14.500% due 12/15/14 (b)

     2,410,000
  1,000,000  

SBA Communications Corp., Sr. Notes, 10.250% due 2/1/09

     1,040,000
  1,000,000  

SBC Communications Inc., Notes, 5.750% due 5/2/06

     1,046,051
  500,000  

SpectraSite Inc., Sr. Notes, 8.250% due 5/15/10

     518,750
  250,000  

Sprint Capital Corp., 6.000% due 1/15/07

     263,084
     

UbiquiTel Operating Co.:

      
  500,000  

Sr. Notes, 9.875% due 3/1/11

     498,750
  250,000  

Zero coupon until 4/15/05, (14.000% thereafter), due 4/15/10

     252,500
             12,032,357
  Utilities — 1.1%       
     

The AES Corp., Sr. Notes:

      
  100,000  

9.500% due 6/1/09

     109,000
  1,400,000  

7.750% due 3/1/14

     1,368,500
  1,000,000  

Calpine Corp., Secured Notes, 8.750% due 7/15/13 (b)

     805,000
  175,000  

Calpine Generating Co. LLC, Secured Notes, 10.250% due 4/1/11 (b)

     158,375
  350,000  

Duke Energy Corp., Sr. Notes, 4.200% due 10/1/08

     348,189
  1,000,000  

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

     1,037,500
  600,000  

KeySpan Corp., Notes, 6.150% due 6/1/06

     632,229
  950,000  

Niagra Mohawk Power Corp., 1st Mortgage, 7.750% due 5/15/06

     1,025,684
  150,000  

Nisource Finance Corp., 7.625% due 11/15/05

     158,730
  1,000,000  

NRG Energy Inc., Secured Notes, 8.000% due 12/15/13 (b)

     1,027,500
  250,000  

Pinnacle West Capital Corp., Senior Notes, 6.400% due 4/1/06

     262,641
  1,000,000  

Reliant Energy Inc., Secured Notes, 9.500% due 7/15/13

     1,080,000
  130,000  

United Utilities PLC, Notes, 6.450% due 4/1/08

     139,742
             8,153,090
     

Total Corporate Bonds

(Cost — $113,000,367)

     112,375,628
  Convertible Bonds — 9.5%       
  2,000,000  

Agere Systems Inc., Sub. Notes, 6.500% due 12/15/09

     2,017,500
  4,500,000  

Allied Waste Industries Inc., Sr. Sub. Debentures, 4.250% due 4/15/34

     3,982,500
  8,500,000  

Atmel Corp, Sub. Notes, Zero coupon due 5/23/21

     3,750,625
  3,000,000  

BEA Systems Inc., Sub. Notes, 4.000% due 12/15/06

     2,985,000
  5,000,000  

BioMarin Pharmaceuticals Inc. Sub. Notes, 3.500% due 6/15/08

     4,287,500
  7,500,000  

Ciena Corp., Sr. Notes, 3.750% due 2/1/08

     6,581,250
  2,000,000  

Conexant Systems Inc., Sub. Notes, 4.000% due 2/1/07

     1,752,500
  17,000,000  

EL Paso Corp., Zero Coupon Debentures due 2/28/21

     8,415,000
  7,000,000  

i2 Technologies Inc., Sub. Notes, 5.250% due 12/15/06

     6,308,750

 

See Notes to Schedule of Investments.

 

9


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
Convertible Bonds — 9.5% (continued)       
$5,250,000  

InterMune Inc., Sr. Notes, 0.250% due 3/1/11 (b)

   $ 4,200,000
4,000,000  

Mediacom Communications Corp., Sr. Notes, 5.250% due 7/1/06

     3,790,000
4,500,000  

Navistar Financial Corp., Sub. Notes, 4.750% due 4/1/09

     4,387,500
5,000,000  

Nortel Networks Corp., 4.250% due 9/1/08

     4,768,750
1,500,000  

Silicon Graphics Inc., Sr. Notes, 6.500% due 6/1/09

     1,944,375
3,500,000  

Tyco International Group SA, 2.750% due 1/15/08

     4,987,500
4,000,000  

Vertex Pharmaceuticals Inc., 5.750% due 2/15/11 (b)

     3,755,000
   

Total Convertible Bonds

(Cost — $73,551,813)

     67,913,750
Sovereign Bonds — 9.7%       
Argentina — 0.2%       
   

Republic of Argentina:

      
925,000  

Discount Bond, Series L-GL, 2.4375 % due 3/31/23 (c)(d)

     474,062
1,740,000  

Series L-GP, 6.000% due 3/31/23 (d)

     893,925
           1,367,987
Brazil — 2.5%       
   

Federal Republic of Brazil:

      
3,430,000  

12.250% due 3/6/30

     3,704,400
13,950,099  

C Bonds, 8.000% due 4/15/14

     13,161,047
1,247,064  

DCB, Series L, 2.125% due 4/15/12 (c)

     1,085,725
           17,951,172
Bulgaria — 0.1%       
600,000  

Republic of Bulgaria, 8.250% due 1/15/15

     715,500
Colombia — 0.5%       
4,300,000  

Republic of Colombia, 8.1250% due 5/21/24

     3,676,500
Costa Rica — 0.1%       
350,000  

Republic of Costa Rica, 9.995% due 8/1/20 (b)

     386,750
Dominican Republic — 0.0%       
385,000  

Dominican Republic, 9.500% due 9/27/06

     294,525
Ecuador — 0.5%       
   

Republic of Ecuador:

      
2,850,000  

12.000% due 11/15/12

     2,693,250
1,150,000  

7.000% due 8/15/30

     857,325
           3,550,575
Mexico — 1.6%       
   

United Mexican States:

      
650,000  

6.375% due 1/16/13

     663,650
10,810,000  

6.625% due 3/3/15

     11,023,498
           11,687,148
Panama — 0.4%       
2,475,000  

Republic of Panama, 9.375% due 1/16/23

     2,586,375
Peru — 0.3%       
1,900,000  

Republic of Peru, 9.875% due 2/6/15

     2,044,875
Philippines — 0.5%       
   

Republic of Philippines:

      
3,250,000  

9.000% due 2/15/13

     3,331,250
425,000  

10.625% due 3/16/25

     461,125
           3,792,375
Russia — 2.1%       
1,000,000  

Aries Vermogensverwaltungs GmbH Credit Linked Notes, 9.600% due 10/25/14 (b)

     1,062,500
   

Russian Federation:

      
3,335,000  

11.000% due 7/24/18

     4,227,112

 

See Notes to Schedule of Investments.

 

10


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
  Russia — 2.1% (continued)       
$ 275,000  

12.750% due 6/24/28

   $ 402,187
  10,300,000  

5.000% due 3/31/30 (c)

     9,463,125
             15,154,924
  South Africa — 0.1%       
     

Republic of South Africa:

      
  250,000  

9.125% due 5/19/09

     292,187
  100,000  

6.500% due 6/2/14

     103,000
             395,187
  SupraNational — 0.0%       
  300,000   Corporacion Andina de Fomento, 2.010% due 1/26/07 (c)      301,152
  Turkey — 0.5%       
     

Republic of Turkey:

      
  200,000  

11.750% due 6/15/10

     236,000
  2,700,000  

11.000% due 1/14/13

     3,125,250
             3,361,250
  Venezuela — 0.3%       
  2,575,000  

Republic of Venezuela, 5.375% due 8/7/10

     2,140,469
     

Total Sovereign Bonds

(Cost — $72,155,304)

     69,406,764
  U.S. Government Agencies and Obligations — 5.6%       
  3,715,968  

Fannie Mae, 8.000% due 12/1/12

     3,959,676
     

Freddie Mac:

      
  378,734  

6.000% due 3/15/34

     384,244
  967,522  

6.000% due 4/15/34

     984,475
     

Gold:

      
  786,148  

8.500% due 9/1/25

     864,600
  14,122,752  

6.000% due 9/1/32

     14,505,736
  19,182,836  

6.000% due 2/1/34

     19,695,592
     

Total U.S. Government Agencies and Obligations

(Cost — $40,299,540)

     40,394,323
  Asset-Backed Securities — 6.6%       
  840,385  

Aegis Asset Backed Securities Trust, Series 2004-2, Class N1, 4.500% due 4/25/34 (b)

     837,365
  1,000,000  

Ameriquest Mortgage Securities Inc., Series 2003-12, Class M2, 3.150% due 11/25/33

     1,025,672
  1,000,000  

AQ Finance Net Interest Margin Trust, Class A, 5.193% due 6/25/34 (b)

     1,000,077
  750,000  

Argent Net Interest Margin Trust, Series 2004-WN8, Class A, 4.700% due 7/25/34 (b)

     749,398
  2,000,000  

Argent Securities Inc., Series 2004-W8, Class M4, 2.750% due 5/25/34

     2,005,594
  750,000  

Asset Backed Funding Certificates, Series 2004-FF1, Class M2, 2.930% due 1/25/34

     750,000
  1,000,000  

Asset Backed Funding Corp. Net Interest Margin Trust, Series 2004-OPT4, Class N1, 4.450% due 5/26/34 (b)

     1,000,000
     

Bayview Financial Acquisition Trust:

      
  500,000  

Series 2001-C, Class M3, 2.700% due 8/25/36 (b)

     495,625
  1,006,408  

Series 2002-DA, Class M1, 2.150% due 8/25/32 (b)

     1,012,126
     

Bear Stearns Asset Backed Securities Inc.:

      
  2,000,000  

Series 2004-HE5, Class M1, 1.670% due 7/25/34

     2,001,187
     

Net Interest Margin Notes:

      
     

Class A1:

      
  270,000  

Series 2004-FR1, 5.000% due 5/25/34 (b)

     270,000
  937,061  

Series 2004-HE5N, 5.000% due 7/25/34 (b)

     935,744
  500,000  

Series 2004-HE6, 5.250% due 8/25/34 (b)

     500,000
  79,000  

Class A2, Series 2004-HE5N, 5.000% due 7/25/34 (b)

     78,790
     

Countrywide Asset-backed Certificates:

      
     

Class M4:

      
  750,000  

Series 2003-3, 2.850% due 3/25/33

     760,085
  410,000  

Series 2004-5, 2.700% due 6/25/34

     410,243
     

Class N1:

      
  1,112,015  

Series 2004-2N, 5.000% due 2/25/35 (b)

     1,108,192

 

See Notes to Schedule of Investments.

 

11


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
  Asset-Backed Securities — 6.6% (continued)       
$ 1,000,000  

Series 2004-5N, 5.500% due 10/25/35 (b)

   $ 1,000,000
  1,484,584  

Credit-Based Asset Servicing and Securitization, Series 2004-AN, Class A, 5.000% due 9/27/36 (b)

     1,470,677
  600,000  

C.S. First Boston Mortgage Securities Corp., Series 2001-HE16, Class M2, 2.650% due 11/25/31

     602,257
  940,047  

Finance America Net Interest Margin Trust, Series 2004-1, Class A, 5.250% due 6/27/34 (b)

     940,341
  1,085,457  

First Consumers Master Trust, Series 2001-A, Class A, 1.690% due 9/15/08

     998,556
  750,000  

First Franklin Mortgage Loan Asset Backed Certificates, Series 2004-FF2, Class M4, 2.250% due 3/25/34

     750,445
     

Fremont Home Loan Trust:

      
  1,000,000  

Series 2004-A, Class M5, 2.550% due 2/25/34

     1,000,593
  2,000,000  

Series 2004-B, Class M4, 2.620% due 5/25/34

     2,004,890
  876,582  

Fremont Net Interest Margin Trust, Series 2004-B, 4.703% due 5/25/34 (b)

     876,582
  1,218,880  

Merrill Lynch Mortgage Investors Inc., Series 2004-WM2N, Class N1, 4.500% due 10/25/05 (b)

     1,218,341
  1,200,000  

Metris Master Trust, Series 2001-3, Class B, 2.320% due 7/21/08

     1,200,898
  1,000,000  

Merit Securities Corp., Series 11PA, Class B2, 2.96188% due 9/28/32 (b)

     961,986
     

Morgan Stanley ABS Capital I:

      
  1,400,000  

Series 2004-HE4, Class M2, 2.750% due 5/25/34

     1,400,829
  725,846  

Series 2004-NC2N, 6.250% due 12/25/33 (b)

     727,065
     

New Century Home Equity Loan Trust:

      
  750,000  

2.520% due 6/20/31

     752,655
  1,500,000  

Series 2003-4, Class M2, 3.270% due 10/25/33

     1,542,664
  1,500,000  

North Street Referenced Linked Notes Ltd., Series 2000-1A, Class A, 2.380% due 4/28/11 (b)

     705,000
     

Novastar Home Equity Loan:

      
  2,000,000  

Series 2003-4, Class M2, 3.075% due 2/25/34

     2,045,604
  1,000,000  

Series 2004-1, Class M4, 2.425% due 6/25/34

     1,002,105
  1,250,000  

Series 2004-2, Class M5, 2.950% due 9/25/34

     1,251,308
  930,266  

Novastar Net Interest Margin Trust, Class 2004-N2, 4.458% due 6/26/34 (b)

     930,266
  1,500,000  

Option One Mortgage Loan Trust, Series 2004-2, Class M2, 2.500% due 5/25/34

     1,500,889
     

Sail Net Interest Margin Notes, Class A:

      
  561,601  

Series 2003-BC2A, 7.750% due 4/27/33 (b)

     556,152
  732,738  

Series 2004-2, 5.500% due 3/27/34 (b)

     732,197
  1,865,954  

Series 2004-4A, 5.000% due 4/27/34 (b)

     1,863,039
  1,319,322  

Series 2004-5, 4.500% due 6/27/34 (b)

     1,317,261
  1,308,542  

Sharp SP I LLC Net Interest Margin Trust, Series 2004-OP1N, Class NA, 5.190% due 4/25/34 (b)

     1,308,411
  1,500,000  

Structured Asset Investment Loan Trust, Series 2003-BC10, Class M2, 3.300% due 10/25/33

     1,523,202
     

Total Asset-Backed Securities

(Cost — $47,089,494)

     47,124,311
  Collateralized Mortgage Obligations — 0.8%       
  1,750,000  

Commercial Mortgage Pass-Through Certificates, Series 2002-FL6, Class E, 2.380% due 6/14/14

     1,760,124
  1,968,145  

Impac CMB Trust, Series 2004-4, Class 2M2, 2.950% due 9/25/34

     1,976,925
     

Merrill Lynch Mortgage Investors Inc., Class B2:

      
  750,000  

Series 2004-A, 2.370% due 4/25/29

     749,111
  1,000,000  

Series 2004-B, 2.330% due 5/25/29

     999,392
     

Total Collateralized Mortgage Obligations

(Cost — $5,465,270)

     5,485,552
  Loan Participations (c)(e) — 0.3%       
  2,582,500  

Kingdom of Morocco, Tranche A, 2.03125% due 1/2/09 (J.P. Morgan Chase & Co.) (Cost — $2,554,133)

     2,546,991
  Contracts       
  Purchased Options — 1.4%       
  200  

S&P 500 Index, Call @ 1,050, Expire 9/18/04

     1,197,000
  2,500  

S&P 500 Index, Put @ 1,075, Expire 12/18/04

     8,612,500
     

Total Purchased Options

(Cost — $11,455,672)

     9,809,500

 

See Notes to Schedule of Investments.

 

12


Salomon Brothers Capital and Income Fund Inc.

 

Schedule of Investments (unaudited) (continued)   July 31, 2004

 

Face

Amount

  Security (a)    Value
  Repurchase Agreements — 3.4%       
$ 7,000,000  

Deutsche Bank Securities Inc. dated 7/30/04, 1.340% due 8/2/04; Proceeds at maturity — $7,000,782; (Fully collateralized by various U.S. Government Obligations and Agencies, 0.000% to 7.125% due 8/3/04 to 3/15/31; Market value — $7,140,009)

   $ 7,000,000
  3,071,000  

Goldman Sachs Group Inc. dated 7/30/04, 1.360% due 8/2/04; Proceeds at maturity — $3,071,348; (Fully collateralized by various U.S. Government Obligations and Agencies, 0.000% to 8.750% due 9/2/04 to 1/15/25; Market value — $3,132,424)

     3,071,000
  7,000,000  

Morgan Stanley dated 7/30/04, 1.350% due 8/2/04; Proceeds at maturity — $7,000,788; (Fully collateralized by various U.S. Government Obligations and Agencies, 0.000% to 8.440% due 9/15/04 to 8/6/38; Market value — $7,209,402)

     7,000,000
  7,000,000  

UBS Securities LLC dated 7/30/04, 1.350% due 8/2/04; Proceeds at maturity — $7,000,788; (Fully collateralized by various U.S. Government Obligations and Agencies, 0.000% to 8.875% due 8/3/04 to 5/15/30; Market value — $7,140,039)

     7,000,000
     

Total Repurchase Agreements

(Cost — $24,071,000)

     24,071,000
     

Total Investments - 100.0%

(Cost — $737,867,088*)

   $ 716,382,241
              
+ Non-income producing security.
(a) All securities are segregated as collateral pursuant to revolving credit facility.
(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) Rate shown reflects current rate on instrument with variable rates or step coupon rates.
(d) Security is currently in defaulted.
(e) Participation interests were acquired through the financial institutions indicated parenthetically.
* Aggregate cost for Federal income tax purposes is substantially the same.

 

Abbreviations used in this schedule:

ADR — American Depositary Receipt

C Bond — Capitalization Bond

DCB — Debt Conversion Bond

 

See Notes to Schedule of Investments.

 

13


Notes to the Schedule of Investments (unaudited)

 

Note 1. Significant Accounting Policies

 

Salomon Brothers Capital and Income Fund Inc. (“Fund”) was incorporated in Maryland and is registered as a non-diversified, closed-end, management investment company under the Investment Company Act of 1940, as amended. The Fund seeks total return with an emphasis on income by investing primarily in a portfolio consisting of a broad range of equity and fixed income securities of both U.S. and foreign issuers.

 

The significant accounting policies followed by the Fund are as follows:

 

(a) SECURITIES VALUATION. In valuing the Fund’s assets, all securities for which market quotations are readily available are valued (i) at the last sale price prior to the time of determination if there were sales on the date of determination, (ii) at the mean between the last current bid and asked prices if there were no sales on such date and bid and asked quotations are available, and (iii) at the bid price if there was no sales price on such date and only bid quotations are available. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the last current bid and asked price as of the close of business of that market. However, when the spread between bid and asked price exceeds five percent of the par value of the security, the security is valued at the bid price. Securities may also be valued by independent pricing services which use prices provided by market-makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. Short-term investments having a maturity of 60 days or less are valued at amortized cost which approximates market value. Securities for which reliable quotations are not readily available and all other securities and assets are valued at fair value as determined in good faith by, or under procedures established by, the Board of Directors.

 

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

 

14


Notes to the Schedule of Investments (unaudited) (continued)

 

Note 2. Option Contracts

 

Premiums paid when put or call options are purchased by the Fund, represent investments, which are marked-to-market daily and are included in the schedules of investments. When a purchased option expires, the Fund will realize a loss in the amount of the premium paid. When the Fund enters into a closing sales transaction, the Fund will realize a gain or loss depending on whether the proceeds from the closing sales transaction are greater or less than the premium paid for the option. When the Fund exercises a put option, it will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Fund exercises a call option, the cost of the security which the Fund purchases upon exercise will be increased by the premium originally paid.

 

At July 31, 2004, the Fund held purchased put and call option contracts with a total cost of $11,455,672.

 

Note 3. Loan Participations

 

The Fund invests in fixed and floating rate loans arranged through private negotiations between a foreign sovereign entity and one or more financial institutions. The Fund’s investment in any such loan may be in the form of a participation in or an assignment of the loan. In connection with purchasing participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund may not benefit directly from any collateral supporting the loan in which it has purchased the participation. As a result, the Fund will assume the credit risk of both the borrower and the lender that is selling the participation. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

 

At July 31, 2004, the Fund held loan participations with a total cost of $2,554,133 and a total market value of $2,546,991.

 

Note 4. Credit Risk

 

The yields of emerging market debt obligations and high-yield corporate debt obligations reflect, among other things, perceived credit risk. The Fund’s investment in securities rated below investment grade typically involves risks not associated with higher rated securities including, among others, overall greater risk of timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund.

 

15


Notes to the Schedule of Investments (unaudited) (continued)

 

Note 5. Foreign Securities

 

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in U.S. companies and the U.S. government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of many foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. companies and the U.S. government.

 

Note 6. Loan

 

At July 31, 2004, the Fund had a $120,000,000 loan available pursuant to revolving credit and security agreement with Crown Point Capital Company, LLC and Citicorp North America, Inc. (“CNA”), an affiliate of SBAM. In addition, CNA acts as an administrative agent. The loans generally bear interest at a variable rate based on the weighted average interest rates of the underlying commercial paper or LIBOR, plus any applicable margin. Securities held by the Fund are subject to a lien, granted to the lenders, to the extent of the borrowing outstanding and any additional expenses.

 

16


ITEM 2. CONTROLS AND PROCEDURES.

 

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

 

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

 

ITEM 3. EXHIBITS.

 

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

 


SIGNATURES

 

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

 

Salomon Brothers Capital and Income Fund Inc.

By   /s/    R. JAY GERKEN        
    R. Jay Gerken
    Chief Executive Officer

Date: September 29, 2004

 

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

 

By   /s/    R. JAY GERKEN        
    R. Jay Gerken
    Chief Executive Officer

Date: September 29, 2004

 

By   /s/    FRANCES M. GUGGINO        
    Frances M. Guggino
    Chief Financial Officer

Date: September 29, 2004