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
Salomon Brothers Capital and Income Fund Inc.Registrant's telephone number, including area code: (800) 725-6666
Date of fiscal year end: October
31
Date of reporting period: October
31, 2005
ITEM 1. |
REPORT TO STOCKHOLDERS. |
The Annual Report to Stockholders
is filed herewith. |
E X P E R I E N C E |
Salomon Brothers Capital and Income Fund Inc. |
||
A N N U A L R
E P O R T |
|||
OCTOBER 31, 2005 |
|||
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE |
Salomon Brothers Capital and Income Fund Inc. |
|||||
Annual Report October 31, 2005 | |||||
Letter from the Chairman | 1 | ||||
Whats Inside |
|||||
Manager Overview | 5 | ||||
Fund at a Glance | 11 | ||||
Schedule of Investments | 12 | ||||
Statement of Assets and Liabilities | 37 | ||||
Statement of Operations | 38 | ||||
Statements of Changes in Net Assets | 39 | ||||
Statement of Cash Flows | 40 | ||||
Financial Highlights | 41 | ||||
Fund Objective The Funds investment objective is total return with an emphasis on income. |
|||||
Notes to Financial Statements | 42 | ||||
Report of Independent Registered Public Accounting Firm | 50 | ||||
Board Approval of Management Agreement | 51 | ||||
Additional Information | 61 | ||||
Annual Chief Executive Officer and Chief Financial Officer | |||||
Certification | 65 | ||||
Dividend Reinvestment Plan | 66 | ||||
Important Tax Information | 68 |
Under a licensing agreement between Citigroup and Legg Mason, the names of funds, the names of any classes of shares of funds, and the names of investment advisers of funds, as well as all logos, trademarks and service marks related to Citigroup or any of its affiliates (Citi Marks) are licensed for use by Legg Mason. Citi Marks include, but are not limited to, Smith Barney, Salomon Brothers, Citi, Citigroup Asset Management, and Davis Skaggs Investment Management. Legg Mason and its affiliates, as well as the Funds investment manager, are not affiliated with Citigroup.
All Citi Marks are owned by Citigroup, and are licensed for use until no later than one year after the date of the licensing agreement.
Letter from the Chairman | ||
R. JAY GERKEN, CFA Chairman, President and Chief Executive Officer |
Dear Shareholder, The U.S. economy was surprisingly resilient during the fiscal year of this report. While surging oil prices, rising interest rates, and the impact of Hurricanes Katrina and Rita threatened to derail the economic expansion, growth remained solid throughout the period. After a 3.3% advance in the second quarter of 2005, third quarter gross domestic product (GDP)i growth grew to 4.3%, marking the tenth consecutive quarter in which GDP growth grew 3.0% or more. As expected, the Federal Reserve Board (Fed)ii continued to raise interest rates in an attempt to ward-off inflation. After raising rates three times from June 2004 through September 2004, the Fed increased its target for the federal funds rateiii in 0.25% increments eight additional times over the reporting period. The Fed again raised rates in early November, after the Funds reporting period had ended. All told, the twelve rate hikes by the Fed have brought the target for the federal funds rate from 1.00% to 4.00%. This represents the longest sustained Fed tightening cycle since 1976-1979. During the 12-month period covered by this report, the U.S. stock market generated solid results, with the S&P 500 Indexiv returning 8.72%. Generally positive economic news, relatively benign core inflation, and strong corporate profits supported the market during much of the period. Looking at the fiscal year as a whole, mid-cap stocks generated superior returns, with the Russell Midcapv, Russell 1000vi, and Russell 2000vii Indexes returning 18.09%, 10.47%, and 12.08%, respectively. From a market style perspective, value-oriented stocks significantly outperformed their growth counterparts, with the Russell 3000 Valueviii and Russell 3000 Growthix Indexes returning 11.96% and 8.99%, respectively. |
Salomon Brothers Capital and Income Fund Inc. 1
During much of this fiscal year, the fixed income market confounded investors as short-term interest rates rose in concert with the Fed rate tightening, while longer-term rates, surprisingly, declined. However, due to a spike late in the period, the 10-year Treasury yield was 4.56% on October 31, 2005, versus 4.11% when the period began. Nevertheless, this was still lower than its yield of 4.62% when the Fed began its tightening cycle on June 30, 2004. Looking at the one-year period as a whole, the overall bond market, as measured by the Lehman Brothers Aggregate Bond Indexx, returned 1.13%. Please read on for a more detailed look at prevailing economic and market conditions during the Funds fiscal year and to learn how those conditions have affected Fund performance. Special Shareholder Notice Information About Your Fund |
2 Salomon Brothers Capital and Income Fund Inc.
Important information concerning the Fund and its Manager with regard to recent regulatory developments is contained in the Notes to Financial Statements included in this report. As previously described in proxy statements that were mailed to shareholders of the Fund in connection with the transaction, Legg Mason intends to combine the fixed-income operations of the Manager with those of Legg Masons wholly-owned subsidiary, Western Asset Management Company, and its affiliates, (Western Asset). This combination will involve Western Asset and the Manager sharing common systems and procedures, employees (including portfolio managers), investment trading platforms, and other resources. At a future date, Legg Mason expects to recommend to the Boards of Directors of the funds that Western Asset be appointed as the adviser or sub-adviser to the funds, subject to applicable regulatory requirements. The combination is also expected to result in changes to portfolio managers or portfolio management teams for a number of funds, subject to Board oversight and appropriate notice to shareholders. The Fund has been advised by the Manager that, in anticipation of this combination, Legg Mason and Western Asset have come to a mutually beneficial agreement with a select group of portfolio managers and other investment professionals from the Manager of the Fund, including Peter Wilby. The agreement provides them the opportunity to start a new firm based in New York focusing on high yield, emerging market debt, and specialty fixed income strategies. Importantly, the group has committed to remain employed with the Manager through March 31, 2006 to assist in the orderly integration of the fixed-income operations of the Manager, including the management of the Fund, with those of Western Asset. Western Asset has also entered into a consulting agreement with the group, effective as of April 1, 2006, to ensure an effective and orderly transition of portfolio management and Board liaison responsibilities for the Funds to Western Asset. The Board will be working with the Manager, Western Asset, and the portfolio managers to implement an orderly combination of the Managers fixed income operations and Western Asset in the best interests of the Fund and its shareholders. |
Salomon Brothers Capital and Income Fund Inc. 3
As always, thank you for your confidence in our stewardship of your assets. We look forward to helping you continue to meet your financial goals. Sincerely, R. Jay Gerken, CFA December 1, 2005 |
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
ii | The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
iii | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
iv | The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. |
v | The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index whose average market capitalization was approximately $4.7 billion as of 6/24/05. |
vi | The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index, which represents approximately 92% of the total market capitalization of the Russell 3000 Index. |
vii | The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. |
viii | The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. (A price-to-book ratio is the price of a stock compared to the difference between a companys assets and liabilities.) ix The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. |
x | The Lehman Brothers Aggregate Bond 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. |
4 Salomon Brothers Capital and Income Fund Inc.
Manager Overview
MICHAEL SEDOY (left) Co-portfolio Manager MARK MCALLISTER (right) Co-Portfolio Manager |
A. There was no shortage of problems for the U.S. economy to overcome during the reporting period. These included record high oil prices, rising short-term interest rates, the devastation inflicted by Hurricanes Katrina and Rita, geopolitical issues, and falling consumer confidence. However, the economy proved to be surprisingly resilient during the fiscal year and the S&P 500 Indexi posted an 8.72% total return for the period.
The Fed continued to raise interest rates over the period in an attempt to ward-off inflation. All told, the Feds 12 rate hikes have brought the target for the federal funds rate from 1.00% to 4.00%. This represents the longest sustained Fed tightening cycle since 1976-1979.
The top-performing sector within the S&P 500 Index was energy, gaining 33.71%. Other leading sectors included utilities (23.86%) and consumer staples (10.18%) . All sectors had positive returns during the period with the exception of consumer discretionary (1.06%) and telecommunications (0.46%). Among large-cap equities, value stocks continued to outperform growth stocks as measured by the performance of the S&P 500 Barra Value Indexii, which returned 10.17% and the S&P 500 Barra Growth Indexiii, which returned 7.25%. Small-cap stocks continued to outperform large-cap stocks as represented by the small-cap Russell 2000 Indexiv, which increased 12.08% and the large-cap Russell 1000 Index, which increased 10.47%.
In the fixed income markets, during the one-year period, emerging markets returned 10.54%, as represented by the JPMorgan Emerging Markets Bond Index Global (EMBI Global)v. Although there were periods of weakness in March and July 2005, the emerging markets debt asset class generated solid results. Improving country fundamentals and strong market technicals outweighed the downward pressure exerted by Fed tightening. In addition, continued strength in commodity prices, including metals, agriculture, and oil supported many emerging market countries. The high yield market returned 3.55%, as represented by the Citigroup High Yield Market Indexvi. After a strong start, high-yield bonds fell sharply in March and April 2005 as investors became concerned over downgrades for General Motors and Ford Motor Company bonds. However, the high yield market reversed course and rallied as the uncertainty surrounding the downgrades lifted and investors searched for incremental yield. Investment grade bonds returned 1.13%, as represented by the Lehman Brothers Aggregate Bond Indexvii. In general, the investment grade
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 5
bond asset class experienced lackluster performance and broad-based weakness with higher rates and wider spreads across the curve.
Due to the Funds allocations across investment grade, high yield and emerging markets debt, please find three separate market overviews, for the period of this report included below.
Investment Grade Market Review
During
the 12 months ended October 31, 2005, markets were primarily driven by Federal
Reserve Board (Fed)viii activity,
employment and inflation data and rising energy costs, exacerbated near period-end
by the devastating impact of Hurricane Katrina on the U.S. Gulf Coast. The Feds eight measured 25-basis-pointix
hikes during the period brought the federal funds ratex to
3.75% from 1.75% by the reporting periods end. The Fed raised rates
an additional quarter point to 4.00% on November 1st, after the close of the reporting period. These measured, consecutive rate hikes exerted upward pressure on short-term bond yields, driving 2-year yields up about 183 basis points during the 12
months. However, in what Fed Chairman Alan Greenspan termed a conundrum, yields
on the long bond stayed low during the period, even declining slightly (four
basis points) over the 12 months despite relinquishing all gains to end 53 basis
points higher by period-end. This sharp rise in short yields and relative stagnation
in longer yields resulted in the extensive yield curve flattening seen during
the period.
As the market fully expected each 25-basis-point hike in the federal funds rate during the period thanks to the Feds well-advertised intentions to raise rates at a measured pace investors spent much of the period dissecting language from the Fed for clues on its assessment of the U.S. economy and the pace of rate hikes. The Fed reiterated throughout the year that it would increase rates at a pace that is likely to be measured and, starting in June 2004, added that, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability. In its most recent statement (from the September 20th meeting), the Fed noted that core inflation remained low near the end of the period and long-term inflation expectations remained contained (even if the language was downgraded from the well contained language used at prior meetings).
Slowing global growth, rising inflation and surging oil prices undoubtedly restrained economic activity during the period, with Gross Domestic Product (GDP)xi declining year-over-year to 3.8% growth in first quarter 2005 (from first quarter 2004s 4.5% pace) and to 3.4% growth in second quarter 2005 (from second quarter 2004s 3.5%). However, economic growth remained remarkably resilient into the third quarter, particularly after fears of a sharp slowdown in the wake of Hurricanes Katrina and Rita, gaining 3.8% on an annualized basis versus 3.9% last year and consensus expectations of 3.6% growth. Although growth remained strong throughout the reporting period, fears of potential slowing, combined with increasing inflation, drove markets. Oil prices, which breached $70 per barrel before reporting periods end, continue to cast a pall on growth and consumer spending expectations.
This was particularly true in the latter half of the reporting period, as investors assessed the potential impact of Hurricanes Katrina and Rita on U.S. economic growth, inflation and the pace of interest rates and growth indicators turned increasingly mixed. For example, the U.S. labor market began to pick up in early 2004 and continued to improve through most of the Funds fiscal year, although the pace of improvement remained uneven from month to month. Unemployment fell through the majority of the reporting period,
6 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
declining from 5.5% in October 2004 to 4.9% in August 2005. However, employment skyrocketed, even if not as much as expected, in the wake of Hurricane Katrina, and the unemployment rate rose to 5.0% in October. Industrial production and retail sales also remained positive through most of the reporting period, even considering the volatility in the auto sector as General Motors and Ford were successively downgraded by three major statistical credit rating agencies to below investment grade. Again, however, as with employment, industrial production and retail sales data turned negative near the reporting periods end as the effects of Hurricane Katrina roiled through the economy, reductions in auto production hit the market and the highly successful automotive dealer incentive packages offered through the summer came to an end.
While inflationary pressures from sustained high commodity prices began to creep into the economy, particularly near the end of the reporting period, continued strong growth and limited wage pressures are keeping long-term inflation expectations contained. Core inflation rates, in particular, remained subdued throughout the period despite growing inflationary pressure. Specifically, Core Consumer Price Index (CPI) inflation rose only 0.1% year-over-year to 2.1% in October 2005, and core Producer Price Index (PPI) inflation edged up only 0.1% year-over-year to 1.9% in September 2005. However, both consumer and producer headline inflation rose dramatically by period end as continually high and rising energy prices and competitive pricing pressures began to be passed through to the consumer. Headline CPI inflation rose approximately 1.1% to 4.3% in October 2005 versus October 2004, and headline PPI inflation increased 1.5% to 5.9% over the same period. Pricing pressures were also seen in the core PCE deflator, the Feds preferred measure of inflation, which rose 0.5% versus September 2004 to 2.0% year-over-year in the latest September reading.
Emerging Markets Debt Review
Emerging
markets debt returned 10.54% during the 12 months ended October 31, 2005, as
represented by the EMBI Global. Strong country fundamentals and market technicals
offset the downward pressure exerted by eight measured increases
in the federal funds rate throughout the 12 months and credit contagion from
the auto sector during volatility of Spring 2005. Continued progress on political
and economic reform in many emerging countries, continued commodity price strength
and the generally positive macro environment supported broad credit quality improvements
across emerging markets during the 12 months.
Sovereign debt markets achieved positive momentum at the start of the period after recovering from depressed levels earlier in 2004 and rallied through the remainder of the year. Positive returns were supported by strong underlying country fundamentals, commodity prices strength (particularly in metals, agriculture and oil) and relatively low U.S. Treasury market volatility. Emerging market debt continued to trend positive during the first two months of 2005 despite concerns over the path of U.S. interest rates, risks of higher inflation and new bond issuance weighing on the market. However, indications of potentially more aggressive tightening (50-basis-point increments) from the Fed and increasingly prominent inflation worries led the market down in March, broadly in line with the U.S. Treasury market. Emerging debt markets remained under pressure in early April as spillover from volatile credit markets, with the highly visible troubles in the auto sector, worsened technicals.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 7
Markets turned again by mid-April and followed a generally upward trajectory through the remainder of the reporting period as U.S. Treasury market volatility declined, the U.S. equity market recovered and country fundamentals remained broadly supportive. Although sovereign market volatility trended upward near the end of the reporting period, emerging markets proved relatively resilient, boosted by strong investor demand for greater risk assets despite the early July terrorist bombings in London, continued political noise in key emerging countries and increasing volatility in U.S. Treasuries.
Spreads tightened 157 basis points during the 12-month period ended October 31, 2005, closing at 242 basis points over U.S. Treasuries. Of note, sovereign spreads tightened 67 basis points alone during the month of June 2005 due primarily to index rebalancing with the conclusion of the Argentine bond exchange. Over the period, 12-month return volatility stood at 4.92% xii, substantially below long-term, historical levels of approximately 16%.
Performance Review
For
the 12 months ended October 31, 2005, the Salomon Brothers Capital and Income
Fund Inc. returned 6.85%, based on its New York Stock Exchange (NYSE) market price and 12.34% based on its net asset value
(NAV)xiii per
share. In comparison, the Funds unmanaged benchmark, the S&P 500 Index,
returned 8.72% and its Lipper Income and Preferred Stock Closed-End Funds Category
Averagexiv increased
6.76% over the same time frame. Please note that Lipper performance returns are
based on each Funds NAV.
During the 12-month period of this report, the Fund made distributions to shareholders totaling $1.20 per share, (which may have included a return of capital). The performance table shows the Funds 12-month total return based on its NAV and market price as of October 31, 2005. Past performance is no guarantee of future results.
Q. What were the most significant factors affecting Fund performance?
12 Month | |||
Price Per Share
|
Total Return | ||
|
|||
$19.69 (NAV)
|
12.34 | % | |
|
|||
$17.19 (Market
Price)
|
6.85 | % | |
|
Total returns are based on changes in NAV or market price, respectively. Total returns assume the reinvestment of all distributions, including returns of capital, if any, in additional shares.
What were the leading contributors to performance?
A. The performance of the equity portion of the Fund was driven by both asset allocation and security selection. Energy, financials and health care were the strongest contributing sectors to Fund performance with Nexen, Total S.A., Altria Group, SpectraSite Inc., and Marathon Oil making the largest positive contributions.
We have kept our leverage levels constant over the last 12 months at $220 million, which is approximately 25% of gross assets or 33% of net assets. While the cost of our credit facility rose during the year along with short-term interest rates, we are still comfortable with our leverage ratio.
8 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
For the fixed-income portion, during the annual period, the Fund benefited from its yield curve positioning, underweight to shorter maturities in favor of the longer portion of the curve. The flattening yield curve positively impacted Fund returns. The Funds exposure to higher yielding assets also supported returns during the period on favorable market fundamentals and technicals in non-investment grade markets.
What were the leading detractors from performance?
A. The weakest performing sectors of the equity portion of the Fund were materials, utilities and industrials. Securities that detracted the most from performance included OSI Pharmaceuticals Inc., Pfizer Inc., Lexmark International, Navistar International Corp., and Zimmer Holdings. Within the fixed income portion of the Fund, emerging markets debt was the only investment class to outperform the S&P 500 Index.
For the fixed-income portion, the portfolios shorter duration posture versus the benchmark early in the reporting period detracted from performance, as the longer end (10+ years) of the yield curve held up better than we expected. However, the portfolio recouped some of its early losses in the second half of the period due to its shorter duration position as rates continued to climb across all parts of the yield curve. The Funds allocation to investment grade corporates detracted from performance during the annual period due to market volatility predicated on idiosyncratic risk (i.e. negative auto sector headlines, M&A and LBO activity and shareholder-friendly corporate actions).
Q. Were there any significant changes to the Fund during the reporting period?
A. Last year, the Board of Directors authorized the Fund to repurchase up to 1 million shares of common stock at such times and in such amounts as management believes will enhance shareholder value, subject to review by the Funds Board of Directors. For the period, the Fund repurchased 581,400 shares. The NAV discount was 12.7% as of October 31, 2005. We believe this NAV discount is not justified by the Funds structure or performance over the period.
Looking for Additional Information?
The
Fund is traded under the symbol SCD and its closing market price
is available in most newspapers under the NYSE listings. The daily NAV is available
on-line under symbol XSCDX. Barrons and The
Wall Street Journals Monday editions carry closed-end fund tables that will provide additional
information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.citigroupam.com.
In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 or 1-800-SALOMON (toll free), Monday through Friday from 8:00 a.m. to 6:00 p.m. Eastern Time, for the Funds current NAV, market price, and other information.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 9
Thank you for your investment in the Salomon Brothers Capital and Income Fund Inc. As ever, we appreciate that you have chosen us to manage your assets and we remain focused on achieving the Funds investment goals.
Sincerely,
December 1, 2005
The information provided is not intended to be a forecast of future events, a guarantee of future results or investment advice. Views expressed may differ from those of the firm as a whole.
Portfolio holdings and breakdowns are as of October 31, 2005 and are subject to change and may not be representative of the Funds current or future investments. The Funds top ten holdings (as a percentage of net assets) as of this date were: Federal Republic of Brazil (3.0%), Targeted Return Index Securities (TRAINS) (2.5%), Federal Home Loan Mortgage Corp. (FHLMC) (2.3%), Total SA (1.7%), Russian Federation (1.7%), United Mexican States (1.5%), El Paso Corp. (1.4%), Host Marriott Finance Trust (1.4%), United Mexican States (1.4%) and General Electric Co. (1.4%). Please refer to pages 12 through 36 for a list and percentage breakdown of the Funds holdings.
The mention of sector breakdowns is for informational purposes only and should not be construed as a recommendation to purchase or sell any securities. The information provided regarding such sectors is not a sufficient basis upon which to make an investment decision. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies discussed should consult their financial professional. Portfolio holdings are subject to change at any time and may not be representative of the Funds current or future investments. The Funds top five sector holdings (as a percentage of net assets) as of October 31, 2005 were: Financials (24.4%), Consumer Discretionary (13.0%), Energy (12.1%), Health Care (11.0%) and Information Technology (9.1%). The Funds portfolio composition is subject to change at any time.
RISKS: Like any investment where there is risk of loss, you may not be able to sell the shares of the Fund for the same amount that you purchased them. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact in Fund performance. Leverage may magnify gains and increase losses in the Funds portfolio.
All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.
i | The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. |
ii | The S&P 500 Barra Value Index is a market-capitalization weighted index of stocks in the S&P 500 having lower price-to-book ratios relative to the S&P 500 as a whole. (A price-to-book ratio is the price of a stock compared to the difference between a companys assets and liabilities.) |
iii | The S&P 500 Barra Growth Index is a market-capitalization weighted index of stocks in the S&P 500 having higher price-to-book ratios relative to the S&P 500 as a whole. (A price-to-book ratio is the price of a stock compared to the difference between a companys assets and liabilities.) |
iv | The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. |
v | JPMorgan Emerging Markets Bond Index Global (EMBI Global) tracks total returns for U.S. dollar denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities: Brady bonds, loans, Eurobonds, and local market instruments. Countries covered are Algeria, Argentina, Brazil, Bulgaria, Chile, China, Colombia, Cote dIvoire, Croatia, Ecuador, Greece, Hungary, Lebanon, Malaysia, Mexico, Morocco, Nigeria, Panama, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Thailand, Turkey and Venezuela. |
vi | The Citigroup High Yield Market Index is a broad-based unmanaged index of high yield securities. |
vii | The Lehman Brothers Aggregate Bond 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. |
viii | The Federal Reserve Board is responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments. |
ix | A basis point is one one-hundredth (1/100 or 0.01) of one percent. |
x | The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans. |
xi | Gross domestic product is a market value of goods and services produced by labor and property in a given country. |
xii | Source: JP Morgan Chase |
xiii | NAV is calculated by subtracting total liabilities from the closing value of all securities (plus all other assets) held by the Fund and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is at the Funds market price as determined by supply of and demand for the Funds shares. |
xiv | Lipper, Inc. is a major independent mutual-fund tracking organization. Returns are based on the 12-month period ended October 31, 2005, including the reinvestment of distributions, including returns of capital, if any, calculated among the 36 funds in the Funds Lipper category, and excluding sales charges. |
10 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
As a Percent of Total Investments (Excluding Securities Purchased From Securities Lending Collateral)
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 11
|
||||
|
Security# | Value | ||
|
||||
CORPORATE BONDS & NOTES 15.7%
|
||||
Aerospace & Defense 0.0%
|
||||
$ 150,000
|
Goodrich Corp., Notes, 7.500% due 4/15/08 |
$
|
157,580 | |
125,000
|
Lockheed Martin Corp., Notes, 7.700% due 6/15/08 | 133,076 | ||
112,000
|
Raytheon Co., Notes, 6.750% due 8/15/07 | 115,294 | ||
|
||||
Total Aerospace & Defense | 405,950 | |||
|
||||
Auto Components 0.0%
|
||||
213,000
|
Dura Operating Corp., Senior Unsecured Notes, Series B, 8.625% due 4/15/12 (a) | 181,582 | ||
125,000
|
Johnson Controls Inc., Senior Unsecured Notes, 5.000% due 11/15/06 | 124,971 | ||
|
||||
Total Auto Components | 306,553 | |||
|
||||
Automobiles 0.3%
|
||||
150,000
|
DaimlerChrysler North America Holding Corp., Notes, 6.400% due 5/15/06 | 151,267 | ||
Ford Motor Co.: | ||||
250,000
|
Debentures, 6.625% due 10/1/28 | 172,500 | ||
1,675,000
|
Notes, 7.450% due 7/16/31 (a) | 1,239,500 | ||
General Motors Corp., Senior Debentures: | ||||
150,000
|
8.250% due 7/15/23 (a) | 111,375 | ||
1,200,000
|
8.375% due 7/15/33 (a) | 895,500 | ||
|
||||
Total Automobiles | 2,570,142 | |||
|
||||
Beverages 0.1%
|
||||
100,000
|
Bottling Group LLC, Senior Notes, 2.450% due 10/16/06 | 97,759 | ||
500,000
|
Constellation Brands Inc., Senior Subordinated Notes, Series B, | |||
8.125% due 1/15/12 (a) | 523,125 | |||
|
||||
Total Beverages | 620,884 | |||
|
||||
Building Products 0.0%
|
||||
100,000
|
Masco Corp., Notes, 6.750% due 3/15/06 | 100,762 | ||
|
||||
Capital Markets 0.1%
|
||||
325,000
|
BCP Crystal U.S. Holdings Corp., Senior Subordinated Notes, 9.625% due 6/15/14 359,125 | |||
150,000
|
Morgan Stanley, Notes, 5.800% due 4/1/07 | 151,879 | ||
|
||||
Total Capital Markets | 511,004 | |||
|
||||
Chemicals 1.2%
|
||||
500,000
|
Borden U.S. Finance Corp./Nova Scotia Finance ULC, | |||
Second Priority Senior Secured Notes, 9.000% due 7/15/14 (b)
|
494,375 | |||
1,000,000
|
Compass Minerals Group Inc., Senior Subordinated Notes, | |||
10.000% due 8/15/11 | 1,082,500 | |||
1,000,000
|
Equistar Chemicals LP, Senior Notes, 10.625% due 5/1/11 (a) | 1,095,000 | ||
650,000
|
Hercules Inc., Senior Subordinated Notes, 6.750% due 10/15/29 | 630,500 | ||
1,000,000
|
Huntsman International LLC, Senior Subordinated Notes, | |||
10.125% due 7/1/09 (a) | 1,033,750 | |||
104,000
|
ICI Wilmington Inc., Notes, 4.375% due 12/1/08 | 101,728 | ||
500,000
|
ISP Holdings Inc., Senior Secured Notes, Series B, 10.625% due 12/15/09 | 527,500 | ||
1,000,000
|
Lyondell Chemical Co., Senior Secured Notes, 11.125% due 7/15/12 | 1,120,000 | ||
1,116,000
|
Millennium America Inc., Senior Notes, 9.250% due 6/15/08 | 1,202,490 | ||
600,000
|
Nalco Co., Senior Subordinated Notes, 8.875% due 11/15/13 (a) | 615,750 |
See Notes to Financial Statements.
12 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Face | ||||
Amount | Security# | Value | ||
|
||||
Chemicals 1.2% (continued) | ||||
$ 500,000 | OM Group Inc., Senior Subordinated Notes, 9.250% due 12/15/11 | $ | 483,750 | |
6,000 | PPG Industries Inc., Notes, 6.500% due 11/1/07 | 6,181 | ||
650,000 | PQ Corp., Senior Subordinated Notes, 7.500% due 2/15/13 (b) | 601,250 | ||
125,000 | Praxair Inc., Unsecured Notes, 2.750% due 6/15/08 | 118,587 | ||
500,000 | Resolution Performance Products LLC/RPP Capital Corp., Secured Notes, | |||
9.500% due 4/15/10 (a) | 507,500 | |||
Rhodia SA: | ||||
500,000 | Senior Notes, 7.625% due 6/1/10 | 486,250 | ||
500,000 | Senior Subordinated Notes, 8.875% due 6/1/11 (a) | 475,000 | ||
325,000 | Westlake Chemical Corp., Senior Notes, 8.750% due 7/15/11 | 349,375 | ||
|
||||
Total Chemicals | 10,931,486 | |||
|
||||
Commercial Banks 0.2% | ||||
125,000 | American Express Centurion Bank, Notes, 4.087% due 7/19/07 (c) | 125,222 | ||
380,000 | Banesto Finance Ltd., Subordinated Notes, 7.500% due 3/25/07 | 392,305 | ||
125,000 | Bank of America Corp., Subordinated Notes, 6.375% due 2/15/08 | 129,042 | ||
250,000 | Bank United Corp., Senior Notes, 8.875% due 5/1/07 | 262,109 | ||
109,091 | Fifth Third Bank, Notes, 2.870% due 8/10/09 | 104,838 | ||
200,000 | SunTrust Bank, Notes, 4.550% due 5/25/09 | 197,121 | ||
150,000 | Wells Fargo & Co., Notes, 4.020% due 3/23/07 (c) | 150,145 | ||
100,000 | Zions Bancorp., Senior Notes, 2.700% due 5/1/06 | 99,042 | ||
|
||||
Total Commercial Banks | 1,459,824 | |||
|
||||
Commercial Services & Supplies 0.4% | ||||
475,000 | Aleris International Inc., Senior Secured Notes, 10.375% due 10/15/10 | 521,312 | ||
Allied Waste North America Inc.: | ||||
75,000 | Senior Notes, 7.250% due 3/15/15 (a)(b) | 74,625 | ||
Senior Secured Notes, Series B: | ||||
217,000 | 9.250% due 9/1/12 (a) | 234,978 | ||
1,000,000 | 7.375% due 4/15/14 (a) | 942,500 | ||
100,000 | Cendant Corp., Senior Notes, 6.875% due 8/15/06 | 101,314 | ||
450,000 | Cenveo Corp., Senior Subordinated Notes, 7.875% due 12/1/13 | 418,500 | ||
125,000 | Cintas Corp. No. 2, Senior Notes, 5.125% due 6/1/07 (a) | 125,571 | ||
350,000 | Corrections Corporation of America, Senior Subordinated Notes, | |||
6.250% due 3/15/13 | 346,063 | |||
1,325,000 | Iron Mountain Inc., Senior Subordinated Notes, 7.750% due 1/15/15 | 1,325,000 | ||
|
||||
Total Commercial Services & Supplies | 4,089,863 | |||
|
||||
Communications Equipment 0.2% | ||||
2,000,000 | Lucent Technologies Inc., Debentures, 6.450% due 3/15/29 | 1,720,000 | ||
|
||||
Computers & Peripherals 0.1% | ||||
125,000 | Hewlett-Packard Co., Senior Notes, 5.500% due 7/1/07 | 126,468 | ||
125,000 | IBM Canada Credit Services Co., Senior Notes, 3.750% due 11/30/07 (b) | 122,287 | ||
200,000 | SunGard Data Systems Inc., Senior Notes, 9.125% due 8/15/13 (b) | 204,000 | ||
|
||||
Total Computers & Peripherals | 452,755 | |||
|
||||
Consumer Finance 0.0% | ||||
125,000 | SLM Corp., Medium-Term Notes, Series A, 4.400% due 1/26/09 (c) | 125,404 | ||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 13
Face | ||||
Amount | Security# | Value | ||
|
||||
Containers & Packaging 0.6% | ||||
$ 500,000 | Anchor Glass Container Corp., Senior Secured Notes, | |||
11.000% due 2/15/13 (d)* | $ | 320,000 | ||
1,000,000 | Berry Plastics Corp., Senior Subordinated Notes, 10.750% due 7/15/12 | 1,035,000 | ||
213,415 | Crown European Holdings SA, Secured Notes, 9.500% due 3/1/11 | 234,757 | ||
625,000 | Graphic Packaging International Corp., Senior Subordinated Notes, | |||
9.500% due 8/15/13 (a) | 564,062 | |||
1,250,000 | Jefferson Smurfit Corp., Senior Notes, 8.250% due 10/1/12 (a) | 1,184,375 | ||
750,000 | JSG Funding PLC, Senior Notes, 9.625% due 10/1/12 | 723,750 | ||
900,000 | Owens-Illinois Inc., Debentures, 7.500% due 5/15/10 (a) | 895,500 | ||
500,000 | Plastipak Holdings Inc., Senior Notes, 10.750% due 9/1/11 | 550,000 | ||
Pliant Corp.: | ||||
234,020 | Senior Secured Notes, 11.625% due 6/15/09 | 253,912 | ||
Senior Subordinated Notes: | ||||
100,000 | 13.000% due 6/1/10 | 15,000 | ||
50,000 | 13.000% due 6/1/10 | 7,500 | ||
50,000 | Stone Container Finance Co. of Canada II, Senior Notes, | |||
7.375% due 7/15/14 (a) | 44,625 | |||
|
||||
Total Containers & Packaging | 5,828,481 | |||
|
||||
Diversified Financial Services 2.5% | ||||
1,000,000 | Alamosa Delaware Inc., Senior Discount Notes, step bond to yield | |||
10.290% due 7/31/09 | 1,100,000 | |||
125,000 | Amvescap PLC, Senior Notes, 5.900% due 1/15/07 | 125,971 | ||
125,000 | Bear Stearns Cos. Inc., Notes, 5.700% due 1/15/07 | 126,245 | ||
75,000 | Boeing Capital Corp., Senior Notes, 5.650% due 5/15/06 | 75,521 | ||
125,000 | Capital One Bank, Notes, 5.750% due 9/15/10 | 127,445 | ||
125,000 | CIT Group Inc., Senior Notes, 5.500% due 11/30/07 | 126,618 | ||
113,579 | Core Investment Grade Bond Trust I, Pass-Through Certificates, | |||
4.659% due 11/30/07 | 112,302 | |||
125,000 | Countrywide Home Loans Inc., Medium-Term Notes, Series M, | |||
4.125% due 9/15/09 | 120,183 | |||
Ford Motor Credit Co.: | ||||
200,000 | Global Landmark Securities, 6.500% due 1/25/07 | 197,684 | ||
1,050,000 | Notes, 7.000% due 10/1/13 (a) | 962,440 | ||
125,000 | General Electric Capital Corp., Medium-Term Notes, Series A, | |||
3.984% due 6/22/07 (c) | 125,162 | |||
General Motors Acceptance Corp., Notes: | ||||
156,000 | 6.125% due 9/15/06 | 155,576 | ||
1,600,000 | 6.750% due 12/1/14 (a) | 1,532,515 | ||
162,000 | Global Cash Access LLC/Global Cash Finance Corp., | |||
Senior Subordinated Notes, 8.750% due 3/15/12 | 173,137 | |||
125,000 | HSBC Finance Corp., Senior Subordinated Notes, 5.875% due 2/1/09 | 128,061 | ||
125,000 | International Lease Finance Corp., Notes, 5.750% due 10/15/06 | 125,817 | ||
125,000 | John Deere Capital Corp., Medium-Term Notes, Series D, 4.400% due 7/15/09 | 123,023 | ||
150,000 | JPMorgan Chase & Co., Senior Notes, 5.350% due 3/1/07 | 151,128 | ||
125,000 | Nationwide Building Society, Medium-Term Notes, 2.625% due 1/30/07 (b) | 121,802 | ||
275,000 | Nell AF SARL, Senior Notes, 8.375% due 8/15/15 (a)(b) | 265,375 | ||
150,000 | Rio Tinto Finance USA Ltd., Notes, 2.625% due 9/30/08 | 140,719 |
See Notes to Financial Statements.
14 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Face | ||||
Amount | Security# | Value | ||
|
||||
Diversified Financial Services 2.5% (continued) | ||||
$ 500,000 | Sensus Metering Systems Inc., Senior Subordinated Notes, | |||
8.625% due 12/15/13 |
$
|
457,500 | ||
15,579,265 | Targeted Return Index Securities (TRAINS), Secured Notes, | |||
Series HY-2005-1, 7.651% due 6/15/15 (b) | 15,800,148 | |||
125,000 | Textron Financial Corp., Medium-Term Notes, Series E, 2.750% due 6/1/06 | 123,774 | ||
125,000 | TIAA Global Markets Inc., Notes, 4.125% due 11/15/07 (b) | 123,315 | ||
350,000 | Vanguard Health Holdings Co. I LLC, Senior Discount Notes, | |||
step bond to yield 5.594% due 10/1/15 (a) | 246,750 | |||
125,000 | Vanguard Health Holdings Co. II LLC, Senior Subordinated Notes, | |||
9.000% due 10/1/14 | 130,937 | |||
|
||||
Total Diversified Financial Services | 22,999,148 | |||
|
||||
Diversified Telecommunication Services 0.6% | ||||
125,000 | GTE Corp., Debentures, 6.360% due 4/15/06 | 125,900 | ||
750,000 | Insight Midwest LP/Insight Capital Inc., Senior Notes, 10.500% due 11/1/10 (a) | 791,250 | ||
150,000 | Intelsat Bermuda Ltd., Senior Notes, 8.695% due 1/15/12 (b)(c) | 152,625 | ||
550,000 | Intelsat Ltd., Senior Discount Notes, step bond to yield 9.253% due 2/1/15 (b) | 364,375 | ||
850,000 | MCI Inc., Senior Notes, 8.735% due 5/1/14 | 943,500 | ||
50,000 | NTL Cable PLC, Senior Notes, 8.750% due 4/15/14 | 52,625 | ||
190,000 | PanAmSat Corp., Senior Notes, 9.000% due 8/15/14 | 200,925 | ||
2,125,000 | Qwest Services Corp., Senior Secured Notes, 14.000% due 12/15/14 | 2,584,531 | ||
125,000 | SBC Communications Inc., Notes, 5.750% due 5/2/06 (a) | 125,673 | ||
|
||||
Total Diversified Telecommunication Services | 5,341,404 | |||
|
||||
Electric Utilities 0.3% | ||||
1,000,000 | Edison Mission Energy, Senior Notes, 7.730% due 6/15/09 | 1,042,500 | ||
75,000 | Entergy Gulf States Inc., First Mortgage Notes, 3.600% due 6/1/08 | 71,991 | ||
125,000 | Niagara Mohawk Power Corp., First Mortgage Notes, 7.750% due 5/15/06 | 127,117 | ||
150,000 | Nisource Finance Corp., Senior Notes, 7.625% due 11/15/05 | 150,157 | ||
250,000 | Pinnacle West Capital Corp., Senior Notes, 6.400% due 4/1/06 | 251,826 | ||
1,000,000 | Reliant Energy Inc., Senior Secured Notes, 9.500% due 7/15/13 | 1,070,000 | ||
325,000 | Texas Genco LLC/Texas Genco Financing Corp., Senior Notes, | |||
6.875% due 12/15/14 (b) | 349,375 | |||
|
||||
Total Electric Utilities | 3,062,966 | |||
|
||||
Energy Equipment & Services 0.1% | ||||
75,000 | Cooper Cameron Corp., Senior Notes, 2.650% due 4/15/07 | 72,379 | ||
529,000 | Dresser-Rand Group Inc., Senior Subordinated Notes, 7.375% due 11/1/14 (b) | 544,870 | ||
250,000 | Duke Energy Field Services LLC, Senior Notes, 5.750% due 11/15/06 | 252,208 | ||
|
||||
Total Energy Equipment & Services | 869,457 | |||
|
||||
Food & Staples Retailing 0.1% | ||||
125,000 | CVS Corp., Notes, 5.625% due 3/15/06 | 125,403 | ||
325,000 | Jean Coutu Group Inc., Senior Subordinated Notes, 8.500% due 8/1/14 (a) | 303,062 | ||
500,000 | Rite Aid Corp., Senior Debentures, 6.875% due 8/15/13 (a) | 417,500 | ||
150,000 | Safeway Inc., Senior Notes, 6.500% due 11/15/08 | 155,315 | ||
|
||||
Total Food & Staples Retailing | 1,001,280 | |||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 15
|
||||
|
Security# | Value | ||
|
||||
Food Products 0.5%
|
||||
$ 396,017 | Ahold Lease USA Inc., Pass-Through Certificates, Series 2001 A-1, | |||
7.820% due 1/2/20 | $ | 425,966 | ||
75,000 | Bunge Ltd. Finance Corp., Senior Notes, 4.375% due 12/15/08 | 73,617 | ||
125,000 | Campbell Soup Co., Notes, 6.900% due 10/15/06 | 127,145 | ||
325,000 | Dean Foods Co., Senior Notes, 6.900% due 10/15/17 | 329,875 | ||
500,000 | Del Monte Corp., Senior Subordinated Notes, 8.625% due 12/15/12 | 535,000 | ||
Doane Pet Care Co., Senior Subordinated Notes: | ||||
500,000 | 9.750% due 5/15/07 | 500,625 | ||
325,000 | 10.625% due 11/15/15 (b) | 330,687 | ||
Dole Food Co. Inc.: | ||||
350,000 | Debentures, 8.750% due 7/15/13 | 366,625 | ||
161,000 | Senior Notes, 8.875% due 3/15/11 | 167,440 | ||
125,000 | Kellogg Co., Senior Notes, 2.875% due 6/1/08 | 118,981 | ||
200,000 | Kraft Foods Inc., Notes, 4.625% due 11/1/06 | 199,465 | ||
500,000 | Pinnacle Foods Holding Corp., Senior Subordinated Notes, 8.250% due 12/1/13 | 465,000 | ||
125,000 | Unilever Capital Corp., Senior Notes, 6.875% due 11/1/05 | 125,000 | ||
625,000 | United Agri Products Inc., Senior Notes, 8.250% due 12/15/11 | 659,375 | ||
|
||||
Total Food Products | 4,424,801 | |||
|
||||
Health Care Providers & Services 0.6% | ||||
250,000 | AmeriPath Inc., Senior Subordinated Notes, 10.500% due 4/1/13 | 261,250 | ||
300,000 | DaVita Inc., Senior Subordinated Notes, 7.250% due 3/15/15 | 304,500 | ||
500,000 | Extendicare Health Services Inc., Senior Subordinated Notes, | |||
6.875% due 5/1/14 | 490,000 | |||
600,000 | Genesis HealthCare Corp., Senior Subordinated Notes, 8.000% due 10/15/13 | 637,500 | ||
HCA Inc.: | ||||
375,000 | Debentures, 7.050% due 12/1/27 | 347,257 | ||
Notes: | ||||
142,000 | 7.125% due 6/1/06 | 144,250 | ||
975,000 | 6.375% due 1/15/15 (a) | 961,586 | ||
925,000 | IASIS Healthcare LLC/IASIS Capital Corp., Senior Subordinated Notes, | |||
8.750% due 6/15/14 | 952,750 | |||
325,000 | InSight Health Services Holdings Corp., Senior Subordinated Notes, | |||
9.174% due 11/1/11 (b)(c) | 311,188 | |||
150,000 | Quest Diagnostics Inc., Senior Notes, 6.750% due 7/12/06 | 151,913 | ||
Tenet Healthcare Corp., Senior Notes: | ||||
650,000 | 7.375% due 2/1/13 (a) | 580,125 | ||
375,000 | 9.875% due 7/1/14 | 364,687 | ||
150,000 | UnitedHealth Group Inc., Senior Notes, 3.300% due 1/30/08 (a) | 145,141 | ||
75,000 | WellPoint Health Networks Inc., Notes, 6.375% due 6/15/06 | 75,767 | ||
|
||||
Total Health Care Providers & Services | 5,727,914 | |||
|
||||
Hotels, Restaurants & Leisure 1.3% | ||||
625,000 | AMF Bowling Worldwide Inc., Senior Subordinated Notes, 10.000% due 3/1/10 | 626,562 | ||
1,000,000 | Boyd Gaming Corp., Senior Subordinated Notes, 6.750% due 4/15/14 | 991,250 | ||
200,000 | Carnival Corp., Secured Notes, 3.750% due 11/15/07 | 195,682 | ||
325,000 | Choctaw Resort Development Enterprise, Senior Notes, 7.250% due 11/15/19 (b) | 323,375 | ||
875,000 | Cinemark Inc., Senior Discount Notes, step bond to yield 18.428% due 3/15/14 | 623,438 |
See Notes to Financial Statements.
16 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Face | ||||
Amount | Security# | Value | ||
|
||||
Hotels, Restaurants & Leisure 1.3% (continued) | ||||
$ 550,000 | Dennys Holdings Inc., Senior Notes, 10.000% due 10/1/12 (a) |
$
|
540,375 | |
325,000 | Gaylord Entertainment Co., Notes, 6.750% due 11/15/15 | 315,250 | ||
450,000 | Herbst Gaming Inc., Senior Subordinated Notes, 7.000% due 11/15/14 | 446,625 | ||
1,000,000 | Isle of Capri Casinos Inc., Senior Subordinated Notes, 7.000% due 3/1/14 | 950,000 | ||
500,000 | Kerzner International Ltd., Senior Subordinated Notes, 6.750% due 10/1/15 (b) | 477,500 | ||
550,000 | Las Vegas Sands Corp., Senior Notes, 6.375% due 2/15/15 (a) | 523,875 | ||
250,000 | Leslies Poolmart, Senior Notes, 7.750% due 2/1/13 | 251,250 | ||
25,000 | Loews Cineplex Entertainment Corp., Senior Subordinated Notes, | |||
9.000% due 8/1/14 | 24,188 | |||
125,000 | McDonalds Corp., Medium-Term Notes, Series E, 5.950% due 1/15/08 | 128,177 | ||
MGM MIRAGE Inc.: | ||||
Senior Notes: | ||||
700,000 | 6.750% due 9/1/12 | 700,000 | ||
575,000 | 5.875% due 2/27/14 (a) | 540,500 | ||
203,000 | Senior Subordinated Notes, 9.375% due 2/15/10 (a) | 222,285 | ||
Mohegan Tribal Gaming Authority,
Senior Subordinated Notes: |
||||
300,000 | 7.125% due 8/15/14 | 304,500 | ||
350,000 | 6.875% due 2/15/15 (a) | 351,750 | ||
325,000 | Penn National Gaming Inc., Senior Subordinated Notes, 6.750% due 3/1/15 | 313,625 | ||
500,000 | Pinnacle Entertainment Inc., Senior Subordinated Notes, 8.250% due 3/15/12 | 498,750 | ||
325,000 | Riddell Bell Holdings Inc., Senior Subordinated Notes, | |||
8.375% due 10/1/12 (a) | 312,000 | |||
625,000 | Seneca Gaming Corp., Senior Notes, 7.250% due 5/1/12 (a) | 641,406 | ||
425,000 | Six Flags Inc., Senior Notes, 9.625% due 6/1/14 | 422,875 | ||
625,000 | Station Casinos Inc., Senior Subordinated Notes, 6.875% due 3/1/16 (a) | 632,812 | ||
500,000 | Turning Stone Casino Resort Enterprise, Senior Notes, | |||
9.125% due 12/15/10 (b) | 517,500 | |||
500,000 | VICORP Restaurants Inc., Senior Notes, 10.500% due 4/15/11 (a) | 465,000 | ||
|
||||
Total Hotels, Restaurants & Leisure | 12,340,550 | |||
|
||||
Household Durables 0.3% | ||||
100,000 | Centex Corp., Notes, 4.750% due 1/15/08 | 99,053 | ||
125,000 | Fortune Brands Inc., Notes, 2.875% due 12/1/06 | 122,185 | ||
500,000 | Home Interiors & Gifts Inc., Senior Subordinated Notes, | |||
10.125% due 6/1/08 | 317,500 | |||
600,000 | Interface Inc., Senior Subordinated Notes, 9.500% due 2/1/14 (a) | 600,000 | ||
600,000 | Sealy Mattress Co., Senior Subordinated Notes, 8.250% due 6/15/14 (a) | 612,000 | ||
575,000 | Tempur-Pedic Inc./Tempur Production USA Inc., | |||
Senior Subordinated Notes, 10.250% due 8/15/10 | 623,875 | |||
|
||||
Total Household Durables | 2,374,613 | |||
|
||||
Independent Power Producers & Energy Traders 1.3% | ||||
AES Corp., Senior Notes: | ||||
100,000 | 9.500% due 6/1/09 | 108,000 | ||
1,400,000 | 7.750% due 3/1/14 (a) | 1,459,500 | ||
Calpine Corp.: | ||||
13,075,000 | Senior Notes, 8.500% due 2/15/11 (a) | 6,210,625 | ||
1,000,000 | Senior Secured Notes, 8.750% due 7/15/13 (a)(b) | 697,500 |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 17
|
||||
|
Security# | Value | ||
|
||||
Independent Power
Producers & Energy Traders 1.3% (continued)
|
||||
$ 175,000
|
Calpine Generating Co. LLC, Secured Notes, 13.216% due 4/1/11 (c) |
$
|
164,062 | |
100,000
|
Duke Energy Corp., Senior Notes, 4.200% due 10/1/08 | 97,764 | ||
Dynegy Holdings Inc.: | ||||
1,725,000
|
Debentures, 7.125% due 5/15/18 | 1,526,625 | ||
450,000
|
Senior Secured Notes, 10.125% due 7/15/13 (b) | 497,250 | ||
835,000
|
NRG Energy Inc., Second Priority Senior Secured Notes, 8.000% due 12/15/13 | 914,325 | ||
|
||||
Total Independent Power Producers & Energy Traders | 11,675,651 | |||
|
||||
Industrial Conglomerates 0.2%
|
||||
Cooper Industries Inc., Senior Notes: | ||||
125,000
|
5.250% due 7/1/07 | 125,697 | ||
100,000
|
5.500% due 11/1/09 | 101,519 | ||
1,000,000
|
Koppers Inc., Senior Secured Notes, 9.875% due 10/15/13 | 1,095,000 | ||
350,000
|
Park-Ohio Industries Inc., Senior Subordinated Notes, 8.375% due 11/15/14 (a) | 308,000 | ||
|
||||
Total Industrial Conglomerates | 1,630,216 | |||
|
||||
Insurance 0.1%
|
||||
125,000
|
Hartford Financial Services Group Inc., Senior Notes, 2.375% due 6/1/06 | 123,391 | ||
75,000
|
Marsh & McLennan Cos. Inc., Notes, 4.270% due 7/13/07 (c) | 74,711 | ||
500,000
|
Nationwide Life Global Funding I, Notes, 4.090% due 9/28/07 (b)(c) | 500,531 | ||
150,000
|
Protective Life Secured Trust, Senior Secured Notes, Medium-Term Notes, | |||
4.210% due 4/13/07 (c) | 150,208 | |||
156,000
|
Prudential Financial Inc., Medium Term Notes, 3.750% due 5/1/08 | 153,286 | ||
75,000
|
Unitrin Inc., Senior Notes, 5.750% due 7/1/07 | 75,648 | ||
|
||||
Total Insurance | 1,077,775 | |||
|
||||
Machinery 0.2%
|
||||
352,000
|
Dover Corp., Notes, 6.450% due 11/15/05 | 352,207 | ||
200,000
|
Ingersoll-Rand Co., Notes, 6.250% due 5/15/06 | 201,786 | ||
475,000
|
Invensys PLC, Senior Notes, 9.875% due 3/15/11 (a)(b) | 458,375 | ||
225,000
|
Mueller Group Inc., Senior Subordinated Notes, 10.000% due 5/1/12 | 237,375 | ||
775,000
|
Mueller Holdings Inc., Discount Notes, step bond to yield 11.895% due 4/15/14 | 569,625 | ||
213,000
|
Terex Corp., Senior Subordinated Notes, 7.375% due 1/15/14 | 213,000 | ||
|
||||
Total Machinery | 2,032,368 | |||
|
||||
Media 1.5%
|
||||
300,000
|
Bear Creek Corp., Senior Notes, 9.000% due 3/1/13 (b) | 309,000 | ||
625,000
|
Cablevision Systems Corp., Senior Notes, Series B, 8.716% due 4/1/09 (c) | 642,187 | ||
625,000
|
CanWest Media Inc., Senior Subordinated Notes, Series B, 8.000% due 9/15/12 (a) | 657,812 | ||
CCH I Holdings LLC: | ||||
1,525,000
|
Senior Accreting Notes, step bond to yield 19.077% due 5/15/14 (b)
|
976,000 | ||
2,020,563
|
Senior Secured Notes, 11.000% due 10/1/15 (b) | 1,838,712 | ||
700,000
|
Charter Communications Operating LLC, Second Lien Senior Notes, | |||
8.375% due 4/30/14 (b) | 705,250 | |||
250,000
|
Clear Channel Communications Inc., Senior Notes, 3.125% due 2/1/07 (a) | 243,635 | ||
250,000
|
COX Communications Inc., Notes, 7.750% due 8/15/06 | 255,328 | ||
CSC Holdings Inc.: | ||||
225,000
|
Debentures, Series B, 8.125% due 8/15/09 | 231,188 | ||
375,000
|
Senior Notes, Series B, 8.125% due 7/15/09 (a) | 385,312 |
See Notes to Financial Statements.
18 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
||||
|
Security# | Value | ||
|
||||
Media 1.5% (continued) | ||||
Dex Media Inc., Discount Notes: | ||||
$ 750,000 | step bond to yield 8.608% due 11/15/13 | $ | 585,000 | |
1,000,000 | step bond to yield 8.873% due 11/15/13 (a) | 780,000 | ||
DIRECTV Holdings LLC/DIRECTV
Financing Co., Inc., Senior Notes: |
||||
764,000 | 8.375% due 3/15/13 | 830,850 | ||
475,000 | 6.375% due 6/15/15 | 468,469 | ||
1,000,000 | EchoStar DBS Corp., Senior Notes, 6.625% due 10/1/14 | 975,000 | ||
300,000 | Emmis Communications Corp., Senior Notes, 9.745% due 6/15/12 (c) | 302,250 | ||
500,000 | LodgeNet Entertainment Corp., Senior Subordinated Debentures, | |||
9.500% due 6/15/13 | 543,750 | |||
750,000 | Mediacom Broadband LLC, Senior Notes, 11.000% due 7/15/13 (a) | 806,250 | ||
200,000 | Nexstar Finance Holdings LLC, Senior Discount Notes, | |||
step bond to yield 9.548% due 4/1/13 | 145,000 | |||
50,000 | Rainbow National Services LLC, Senior Subordinated Debentures, | |||
10.375% due 9/1/14 (b) | 55,250 | |||
125,000 | Reed Elsevier Capital Inc., Notes, 6.125% due 8/1/06 | 125,890 | ||
600,000 | Rogers Cable Inc., Senior Secured Notes, 7.875% due 5/1/12 | 639,000 | ||
625,000 | Sinclair Broadcast Group Inc., Senior Subordinated Notes, | |||
8.000% due 3/15/12 | 645,312 | |||
150,000 | TCI Communications Inc., Senior Notes, 6.875% due 2/15/06 | 150,809 | ||
150,000 | Time Warner Inc., Notes, 6.125% due 4/15/06 (a) | 150,905 | ||
Walt Disney Co.: | ||||
100,000 | Medium-Term Notes, 5.500% due 12/29/06 | 100,742 | ||
125,000 | Senior Notes, Series B, 6.750% due 3/30/06 | 126,115 | ||
Young Broadcasting Inc., Senior Subordinated Notes: | ||||
325,000 | 10.000% due 3/1/11 (a) | 303,875 | ||
300,000 | 8.750% due 1/15/14 (a) | 267,000 | ||
|
||||
Total Media | 14,245,891 | |||
|
||||
Metals & Mining 0.1% | ||||
600,000 | Corporacion Nacional del Cobre-Codelco, Notes, 5.500% due 10/15/13 | 607,426 | ||
275,000 | IPSCO Inc., Senior Notes, 8.750% due 6/1/13 (a) | 305,250 | ||
325,000 | Novelis Inc., Senior Notes, 7.250% due 2/15/15 (b) | 298,187 | ||
150,000 | WMC Finance USA, 6.750% due 12/1/06 | 153,091 | ||
|
||||
Total Metals & Mining | 1,363,954 | |||
|
||||
Multi-Utilities 0.0%
|
||||
125,000 | Keyspan Gas East Corp., Medium-Term Notes, 6.900% due 1/15/08 | 130,055 | ||
|
||||
Multiline Retail 0.0% | ||||
225,000 | Neiman Marcus Group Inc., Senior Subordinated Notes, | |||
10.375% due 10/15/15 (b) | 218,250 | |||
125,000 | Target Corp., Senior Notes, 5.500% due 4/1/07 | 126,320 | ||
|
||||
Total Multiline Retail | 344,570 | |||
|
||||
Oil, Gas & Consumable Fuels 0.8% | ||||
255,000 | Burlington Resources Finance Corp., Senior Notes, 5.600% due 12/1/06 | 256,957 | ||
Chesapeake Energy Corp., Senior Notes: | ||||
775,000 | 6.375% due 6/15/15 | 765,312 | ||
75,000 | 6.625% due 1/15/16 | 75,188 |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 19
|
||||
|
Security# | Value | ||
|
||||
Oil, Gas & Consumable Fuels 0.8% (continued) | ||||
El Paso Corp., Medium-Term Notes: | ||||
$ 1,050,000 | 7.750% due 1/15/32 (a) | $ | 1,047,375 | |
1,000,000 | 7.800% due 8/1/31 (a) | 997,500 | ||
500,000 | EXCO Resources Inc., Senior Notes, 7.250% due 1/15/11 | 507,500 | ||
325,000 | Holly Energy Partners, L.P., Senior Notes, 6.250% due 3/1/15 | 316,875 | ||
125,000 | Norsk Hydro ASA, Notes, 6.360% due 1/15/09 | 130,251 | ||
1,550,000 | Petronas Capital Ltd., 7.875% due 5/22/22 (b) | 1,888,749 | ||
1,500,000 | Williams Cos. Inc., Senior Notes, 7.750% due 6/15/31 (a) | 1,591,875 | ||
|
||||
Total Oil, Gas & Consumable Fuels | 7,577,582 | |||
|
||||
Paper & Forest Products 0.4% | ||||
440,000 | Abitibi-Consolidated Inc., Debentures, 8.850% due 8/1/30 | 369,600 | ||
500,000 | Appleton Papers Inc., Senior Subordinated Notes, Series B, | |||
9.750% due 6/15/14 (a) | 472,500 | |||
250,000 | Bowater Inc., Notes, 6.500% due 6/15/13 (a) | 221,250 | ||
Buckeye Technologies Inc.: | ||||
150,000 | Senior Notes, 8.500% due 10/1/13 | 149,625 | ||
Senior Subordinated Notes: | ||||
400,000 | 9.250% due 9/15/08 (a) | 402,000 | ||
75,000 | 8.000% due 10/15/10 | 71,250 | ||
1,000,000 | Newark Group Inc., Senior Subordinated Notes, 9.750% due 3/15/14 | 865,000 | ||
1,000,000 | Norske Skog Canada Ltd., Senior Notes, 7.375% due 3/1/14 (a) | 895,000 | ||
115,000 | Weyerhaeuser Co., Notes, 5.250% due 12/15/09 | 114,788 | ||
|
||||
Total Paper & Forest Products | 3,561,013 | |||
|
||||
Personal Products 0.2% | ||||
125,000 | Avon Products Inc., Senior Notes, 7.150% due 11/15/09 | 134,822 | ||
675,000 | DEL Laboratories Inc., Senior Subordinated Notes, 8.000% due 2/1/12 (a) | 509,625 | ||
150,000 | Gillette Co., Notes, 3.500% due 10/15/07 | 146,644 | ||
600,000 | Playtex Products Inc., Senior Subordinated Notes, 9.375% due 6/1/11 (a) | 624,000 | ||
|
||||
Total Personal Products | 1,415,091 | |||
|
||||
Pharmaceuticals 0.0% | ||||
350,000 | Warner Chilcott Corp., Senior Subordinated Notes, 8.750% due 2/1/15 (b) | 323,750 | ||
|
||||
Real Estate 0.3%
|
||||
1,000,000 | Felcor Lodging LP, Senior Notes, 9.000% due 6/1/11 (a) | 1,081,250 | ||
1,250,000 | Host Marriott LP, Senior Notes, 7.125% due 11/1/13 (a) | 1,273,438 | ||
500,000 | MeriStar Hospitality Corp., Senior Notes, 9.125% due 1/15/11 (a) | 535,625 | ||
50,000 | Simon Property Group LP, Notes, 6.375% due 11/15/07 | 51,268 | ||
200,000 | Vornado Realty LP, Senior Notes, 5.625% due 6/15/07 | 201,828 | ||
|
||||
Total Real Estate | 3,143,409 | |||
|
||||
Semiconductors & Semiconductor Equipment 0.1% | ||||
Amkor Technology Inc., Senior Notes: | ||||
400,000 | 9.250% due 2/15/08 | 384,000 | ||
500,000 | 7.125% due 3/15/11 (a) | 435,000 | ||
213,000 | 7.750% due 5/15/13 (a) | 182,648 | ||
|
||||
Total Semiconductors & Semiconductor Equipment | 1,001,648 | |||
|
See Notes to Financial Statements.
20 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
||||
|
Security# | Value | ||
|
||||
Specialty Retail 0.2%
|
||||
$ 500,000
|
Buffets Inc., Senior Subordinated Notes, 11.250% due 7/15/10 (a) |
$
|
502,500 | |
125,000
|
Carrols Corp., Senior Subordinated Notes, 9.000% due 1/15/13 (b) | 124,375 | ||
500,000
|
CSK Auto Inc., Senior Notes, 7.000% due 1/15/14 | 470,000 | ||
325,000
|
Eye Care Centers of America Inc., Senior Subordinated Notes, | |||
10.750% due 2/15/15 (b) | 306,312 | |||
225,000
|
Finlay Fine Jewelry Corp., Senior Notes, 8.375% due 6/1/12 (a) | 192,375 | ||
150,000
|
Home Depot Inc., Senior Notes, 5.375% due 4/1/06 | 150,447 | ||
125,000
|
Lowes Cos. Inc., Notes, 7.500% due 12/15/05 | 125,402 | ||
200,000
|
Toys R Us Inc., Notes, 7.375% due 10/15/18 (a) | 143,000 | ||
|
||||
Total Specialty Retail | 2,014,411 | |||
|
||||
Textiles, Apparel & Luxury Goods 0.2%
|
||||
Levi Strauss & Co., Senior Notes: | ||||
150,000
|
8.804% due 4/1/12 (c) | 149,625 | ||
800,000
|
9.750% due 1/15/15 (a) | 812,000 | ||
300,000
|
Oxford Industries Inc., Senior Notes, 8.875% due 6/1/11 | 309,000 | ||
425,000
|
Simmons Bedding Co., Senior Subordinated Notes, 7.875% due 1/15/14 (a) | 377,187 | ||
|
||||
Total Textiles, Apparel & Luxury Goods | 1,647,812 | |||
|
||||
Tobacco 0.0%
|
||||
75,000
|
Altria Group Inc., Notes, 7.200% due 2/1/07 | 76,779 | ||
125,000
|
Cargill Inc., Notes, 6.250% due 5/1/06 (b) | 126,073 | ||
|
||||
Total Tobacco | 202,852 | |||
|
||||
Water Utilities 0.0%
|
||||
155,000
|
United Utilities PLC, Notes, 6.450% due 4/1/08 | 159,916 | ||
|
||||
Wireless Telecommunication
Services 0.6%
|
||||
1,000,000
|
American Tower Corp., Senior Notes, 7.500% due 5/1/12 (a) | 1,047,500 | ||
1,450,000
|
Nextel Communications Inc., Senior Notes, Series E, 6.875% due 10/31/13 | 1,518,120 | ||
625,000
|
Rogers Wireless Communications Inc., Secured Notes, 7.500% due 3/15/15 | 673,437 | ||
650,000
|
SBA Communications Corp., Senior Notes, 8.500% due 12/1/12 | 711,750 | ||
250,000
|
Sprint Capital Corp., Notes, 6.000% due 1/15/07 | 253,259 | ||
650,000
|
UbiquiTel Operating Co., Senior Notes, 9.875% due 3/1/11 | 713,375 | ||
325,000
|
US Unwired Inc., Second Priority Secured Notes, Series B, | |||
10.000% due 6/15/12 | 371,313 | |||
|
||||
Total Wireless Telecommunication Services | 5,288,754 | |||
|
||||
TOTAL CORPORATE BONDS & NOTES | ||||
(Cost $152,721,532) | 146,101,959 | |||
|
||||
CONVERTIBLE BONDS & NOTES 8.0%
|
||||
Airlines 0.2%
|
||||
2,000,000
|
Continental Airlines Inc., Notes, 4.500% due 2/1/07 | 1,725,000 | ||
|
||||
Biotechnology 2.1%
|
||||
5,000,000
|
BioMarin Pharmaceuticals Inc., Subordinated Notes, 3.500% due 6/15/08 | 4,706,250 | ||
3,000,000
|
Enzon Pharmaceuticals Inc., Subordinated Notes, 4.500% due 7/1/08 (a) | 2,745,000 | ||
4,250,000
|
InterMune Inc., Senior Notes, 0.250% due 3/1/11 (b) | 3,277,813 | ||
1,500,000
|
Isis Pharmaceuticals Inc., Subordinated Notes, 5.500% due 5/1/09 | 1,306,875 | ||
4,000,000
|
NPS Pharmaceuticals Inc., Senior Notes, 3.000% due 6/15/08 | 3,465,000 |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 21
|
||||
|
Security# |
|
||
|
||||
Biotechnology 2.1%
(continued)
|
||||
$ 2,750,000
|
Oscient Pharmaceutical Corp., Senior Notes, 3.500% due 4/15/11 | $ |
2,028,125
|
|
900,000
|
Vertex Pharmaceuticals Inc., Senior Subordinated Notes, | |||
5.750% due 2/15/11 (b) |
1,450,125
|
|||
|
||||
Total Biotechnology |
18,979,188
|
|||
|
||||
Commercial Services & Supplies 0.4%
|
||||
4,500,000
|
Allied Waste North America Inc., Senior Subordinated Debentures, | |||
4.250% due 4/15/34 |
3,920,625
|
|||
|
||||
Communications Equipment 1.2%
|
||||
9,000,000
|
Ciena Corp., Senior Notes, 3.750% due 2/1/08 |
8,223,750
|
||
2,000,000
|
Nortel Networks Corp., Senior Notes, 4.250% due 9/1/08 |
1,877,500
|
||
1,000,000
|
Terayon Communication Systems Inc., Subordinated Notes, | |||
5.000% due 8/1/07 |
965,000
|
|||
|
||||
Total Communications Equipment |
11,066,250
|
|||
|
||||
Computers & Peripherals 0.1%
|
||||
1,500,000
|
Silicon Graphics Inc., Senior Notes, 6.500% due 6/1/09 |
1,183,125
|
||
|
||||
Independent Power
Producers & Energy Traders 0.1%
|
||||
2,500,000
|
Calpine Corp., Contingent Convertible Senior Notes, 4.750% due 11/15/23 (a) |
1,115,625
|
||
|
||||
Media 0.7%
|
||||
Charter Communications Inc., Senior Notes, Class A Shares: | ||||
1,560,000
|
5.875% due 11/16/09 |
1,146,600
|
||
690,000
|
5.875% due 11/16/09 (b) |
507,150
|
||
5,000,000
|
Mediacom Communications Corp., Senior Notes, 5.250% due 7/1/06 |
4,925,000
|
||
|
||||
Total Media |
6,578,750
|
|||
|
||||
Oil, Gas & Consumable Fuels 1.0%
|
||||
17,000,000
|
El Paso Corp., Debentures, zero coupon bond to yield 8.687% due 2/28/21 |
9,265,000
|
||
|
||||
Pharmaceuticals 0.2%
|
||||
2,000,000
|
Sepracor Inc., Subordinated Debentures, 5.000% due 2/15/07 |
1,997,500
|
||
|
||||
Semiconductors & Semiconductor Equipment 0.9%
|
||||
840,000
|
Amkor Technology Inc., Subordinated Notes, 5.000% due 3/15/07 |
739,200
|
||
8,500,000
|
Atmel Corp., Subordinated Notes, zero coupon bond to yield | |||
5.762% due 5/23/21 |
4,069,375
|
|||
3,500,000
|
Conexant Systems Inc., Subordinated Notes, 4.000% due 2/1/07 (a) |
3,377,500
|
||
|
||||
Total Semiconductors & Semiconductor Equipment |
8,186,075
|
|||
|
||||
Software 0.8%
|
||||
3,545,000
|
i2 Technologies Inc., Subordinated Notes, 5.250% due 12/15/06 |
3,505,119
|
||
4,275,000
|
Manugistics Group Inc., Subordinated Notes, 5.000% due 11/1/07 |
4,071,937
|
||
|
||||
Total Software |
7,577,056
|
|||
|
||||
Wireless Telecommunicattion
Services 0.3%
|
||||
4,500,000
|
Liberty Media Corp., Senior Debentures, 4.000% due 11/15/29 (a) |
2,677,500
|
||
|
||||
TOTAL CONVERTIBLE BONDS & NOTES | ||||
(Cost $79,078,000) |
74,271,694
|
|||
|
See Notes to Financial Statements.
22 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
||||
|
Security# | Value | ||
|
||||
ASSET-BACKED SECURITIES 5.9% | ||||
Credit Card 0.0%
|
||||
$ 192,765 | First Consumers Master Trust, Series 2001-A, Class A, | |||
4.280% due 9/15/08 (c) | $ | 191,671 | ||
|
||||
Home Equity 5.9%
|
||||
1,000,000 | ACE Securities Corp., Series 2004-OP1, Class M3, 5.288% due 4/25/34 (c) | 1,002,400 | ||
Aegis Asset-Backed Securities Trust: | ||||
161,700 | Series 2004-2N, Class N1, 4.500% due 4/25/34 (b) | 161,387 | ||
1,250,000 | Series 2004-5, Class M2, 5.258% due 12/25/34 (c) | 1,265,484 | ||
376,357 | Series 2004-5N, 5.000% due 12/25/34 (b) | 372,911 | ||
944,418 | Series 2004-6N, 4.750% due 3/25/35 (b) | 939,254 | ||
Ameriquest Mortgage Securities Inc.: | ||||
1,000,000 | Series 2003-12, Class M2, 5.738% due 11/25/33 (c) | 1,026,146 | ||
1,000,000 | Series 2004-R08, Class M10, 6.538% due 9/25/34 (b)(c) | 946,525 | ||
1,000,000 | Series 2004-R11, Class M5, 5.238% due 11/25/34 (c) | 1,019,351 | ||
1,000,000 | Amortizing Residential Collateral Trust, Series 2004-1, Class M4, | |||
5.088% due 10/25/34 (c) | 1,019,841 | |||
182,383 | AQ Finance NIM Trust, Series 2004-RN5, Class A, 5.193% due 6/25/34 (b) | 181,625 | ||
Argent NIM Trust: | ||||
34,935 | Series 2004-WN08, Class A, 4.700% due 7/25/34 (b) | 34,899 | ||
500,000 | Series 2004-WN10, Class B, 7.385% due 11/25/34 (b) | 506,162 | ||
Argent Securities Inc., Series 2004-W8: | ||||
600,000 | Class M10, 7.538% due 5/25/34 (c) | 589,838 | ||
2,000,000 | Class M4, 5.338% due 5/25/34 (c) | 2,018,007 | ||
750,000 | Asset-Backed Funding Certificates, Series 2004-FF1, Class M2, | |||
5.488% due 1/25/34 (c) | 760,945 | |||
227,394 |
Asset-Backed Funding Corp. NIM Trust, Series 2004-OPT4, Class N1,
|
|||
4.450% due 5/26/34 (b) | 226,148 | |||
Bear Stearns Asset-Backed Securities Inc.: | ||||
2,000,000 | Series 2004-HE5, Class M1, 4.608% due 7/25/34 (c) | 2,001,166 | ||
1,253,068 | Series 2005-AC4, Class M2, 4.708% due 7/25/35 (c) | 1,253,063 | ||
Bear Stearns Asset-Backed Securities Inc. NIM Trust, Series 2004-HE5N:
|
||||
117,297 | Class A1, 5.000% due 7/25/34 (b) | 117,018 | ||
79,000 | Class A2, 5.000% due 7/25/34 (b) | 78,584 | ||
Bear Stearns Asset-Backed Securities NIM Trust: | ||||
60,841 | Series 2004-FR1N, Class A1, 5.000% due 5/25/34 (b) | 60,508 | ||
115,852 | Series 2004-HE6N, Class A1, 5.250% due 8/25/34 (b) | 115,304 | ||
Countrywide Asset-Backed Certificates: | ||||
750,000 | Series 2003-03, Class M4, 5.438% due 3/25/33 (c) | 755,326 | ||
236,840 | Series 2004-02N, Class N1, 5.000% due 2/25/35 (b) | 235,563 | ||
410,000 | Series 2004-05, Class M4, 5.288% due 6/25/34 (c) | 416,360 | ||
230,245 | Series 2004-05N, Class N1, 5.500% due 10/25/35 (b) | 229,409 | ||
2,000,000 | Series 2004-BC4, Class M2, 4.888% due 10/25/34 (c) | 2,007,612 | ||
97,737 |
Credit-Based Asset Servicing and Securitization, Series 2004-AN, Class A,
|
|||
5.000% due 9/27/36 (b) | 97,253 | |||
814,991 |
CS First Boston Mortgage Securities Corp., Series 2001-HE16, Class M2,
|
|||
5.238% due 11/25/31 (c) | 817,552 | |||
230,088 |
Finance America NIM Trust, Series 2004-01, Class A, 5.250% due 6/27/34 (b)
|
229,780 |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 23
Face | ||||
Amount | Security# | Value | ||
|
||||
Home Equity 5.9% (continued) | ||||
$ 750,000 |
First Franklin Mortgage Loan Asset Backed Certificates, Series 2004-FF2,
|
|||
Class M4, 4.938% due 3/25/34 (c) | $ | 757,356 | ||
1,000,000 |
First Franklin Mortgage Loan Trust NIM, Series 2004-FF10, Class N2,
|
|||
6.000% due 11/26/34 (b)(e) | 979,919 | |||
256,405 | First Franklin NIM Trust, Series 2004-FF7A, Class A, | |||
5.000% due 9/27/34 (b) | 255,170 | |||
Fremont Home Loan Trust: | ||||
1,000,000 | Series 2004-01, Class M5, 5.138% due 2/25/34 (c) | 1,011,727 | ||
2,000,000 | Series 2004-B, Class M4, 5.208% due 5/25/34 (c) | 2,003,316 | ||
875,000 | Series 2004-D, Class M5, 5.038% due 11/25/34 (c) | 879,817 | ||
3,640 | Fremont NIM Trust, Series 2004-B, 4.703% due 5/25/34 (b) | 3,636 | ||
1,005,000 |
GSAMP Trust, Series 2004-OPT, Class M3, 5.188% due 11/25/34 (c)
|
1,012,197 | ||
836,455 | Long Beach Asset Holdings Corp., Series 2004-06, Class N2, | |||
7.500% due 11/25/34 (b) | 776,649 | |||
750,000 | Long Beach Mortgage Loan Trust, Series 2004-06, Class M2, | |||
5.188% due 11/25/34 (c) | 752,996 | |||
1,000,000 |
MASTR Asset-Backed Securities Trust, Series 2004-OPT2, Class M4,
|
|||
5.038% due 9/25/34 (c) | 1,008,403 | |||
Merrill Lynch Mortgage Investors Inc.: | ||||
94,020 | Series 2004-WM2N, Class N1, 4.500% due 12/25/34 (b) | 93,452 | ||
236,671 | Series 2005-WM1N, Class N1, 5.000% due 9/25/35 (b) | 234,403 | ||
Morgan Stanley Asset Backed Securities Capital I: | ||||
1,400,000 | Series 2004-HE4, Class M2, 5.338% due 5/25/34 (c) | 1,400,814 | ||
500,000 | Series 2004-HE9, Class M6, 5.288% due 11/25/34 (c) | 505,716 | ||
1,000,000 | Series 2004-NC8, Class M4, 5.038% due 9/25/34 (c) | 1,011,981 | ||
1,000,000 | Series 2004-OP1, Class M5, 5.088% due 11/25/34 (c) | 1,013,378 | ||
New Century Home Equity Loan Trust: | ||||
1,250,000 | Series 2001-NC1, Class M2, 5.100% due 6/20/31 (c) | 1,251,395 | ||
1,500,000 | Series 2003-04, Class M2, 5.858% due 10/25/33 (c) | 1,533,809 | ||
Novastar Home Equity Loan: | ||||
2,000,000 | Series 2003-04, Class M2, 5.663% due 2/25/34 (c) | 2,038,294 | ||
1,000,000 | Series 2004-01, Class M4, 5.013% due 6/25/34 (c) | 1,004,655 | ||
1,250,000 | Series 2004-02, Class M5, 5.538% due 9/25/34 (c) | 1,266,030 | ||
1,000,000 | Series 2004-4, Class M4, 5.138% due 3/25/35 (c) | 1,001,251 | ||
750,000 | Series 2005-02, Class M10, 7.038% due 10/25/35 (c) | 682,500 | ||
88,070 | Novastar NIM Trust, Series 2004-N2, 4.458% due 6/26/34 (b) | 87,815 | ||
Option One Mortgage Loan Trust: | ||||
422,349 | Series 2002-02, Class M2, 5.188% due 6/25/32 (c) | 423,062 | ||
1,000,000 | Series 2002-4, Class M2, 5.168% due 7/25/32 (c) | 1,004,801 | ||
1,500,000 | Series 2004-02, Class M2, 5.088% due 5/25/34 (c) | 1,500,875 | ||
Park Place Securities NIM Trust: | ||||
500,000 | Series 2004-WWF1, Class B, 6.290% due 1/25/35 (b) | 497,813 | ||
616,675 | Series 2005-WHQ2, Class A, 5.192% due 5/25/35 (b) | 614,825 | ||
1,000,000 | Renaissance Home Equity Loan Trust, Series 2003-4, Class M3, | |||
5.938% due 3/25/34 (c) | 1,012,774 | |||
1,000,000 | Residential Asset Securities Corp., Series 2004-KS10, Class M2, | |||
5.188% due 11/25/34 (c) | 1,013,533 |
See Notes to Financial Statements.
24 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
||||
|
Security# | Value | ||
|
||||
Home Equity 5.9%
(continued)
|
||||
Sail NIM Notes: | ||||
$ 150,206
|
Series 2003-BC2A, Class A, 7.750% due 4/27/33 (b) | $ | 139,517 | |
264,512
|
Series 2004-002A, Class A, 5.500% due 3/27/34 (b) | 264,485 | ||
306,049
|
Series 2004-004A, Class A, 5.000% due 4/27/34 (b) | 305,768 | ||
185,166
|
Series 2004-005A, Class A, 4.500% due 6/27/34 (b) | 185,166 | ||
243,063
|
Series 2004-008A, Class A, 5.000% due 9/27/34 (b) | 241,805 | ||
183,271
|
Series 2004-011A, Class A2, 4.750% due 1/27/35 (b) | 182,276 | ||
292,389
|
Series 2004-11A, Class B, 7.500% due 1/27/35 (b) | 285,986 | ||
398,357
|
Series 2004-AA, Class B, 7.500% due 10/27/34 (b) | 318,685 | ||
Series 2004-BN2A: | ||||
391,821
|
Class A, 5.000% due 12/27/34 (b) | 390,903 | ||
383,598
|
Class B, 7.000% due 12/27/34 (b) | 296,061 | ||
Series 2005-1A: | ||||
100,137
|
Class A, 4.250% due 2/27/35 (b) | 99,529 | ||
326,556
|
Class B, 7.500% due 2/27/35 (b) | 319,960 | ||
Sharp SP I LLC, NIM Trust: | ||||
266,032
|
Series 2004-HS1N, 5.920% due 2/25/34 (b) | 262,743 | ||
190,908
|
Series 2004-OP1N, 5.190% due 4/25/34 (b) | 190,693 | ||
280,590
|
Series 2005-HE1N, 5.190% due 2/25/35 (b) | 279,528 | ||
1,500,000
|
Structured Asset Investment Loan Trust, Series 2003-BC10, Class M2,
|
|||
5.888% due 10/25/33 (c) | 1,514,856 | |||
|
||||
Total Home Equity | 54,397,744 | |||
|
||||
TOTAL ASSET-BACKED SECURITIES | ||||
(Cost $54,502,671) | 54,589,415 | |||
|
||||
MORTGAGE-BACKED SECURITIES 2.1%
|
||||
FHLMC 1.7%
|
||||
Federal Home Loan Mortgage Corp. (FHLMC), Gold: | ||||
482,106
|
8.500% due 9/1/25 | 524,806 | ||
14,672,470
|
6.000% due 9/1/32-2/1/34 | 14,831,016 | ||
|
||||
Total FHLMC | 15,355,822 | |||
|
||||
FNMA 0.4%
|
||||
Federal National Mortgage Association (FNMA): | ||||
2,058,141
|
8.000% due 12/1/12 | 2,154,402 | ||
1,924,820
|
5.500% due 4/1/35 | 1,900,042 | ||
|
||||
Total FNMA | 4,054,444 | |||
|
||||
TOTAL MORTGAGE-BACKED SECURITIES | ||||
(Cost $19,643,686) | 19,410,266 | |||
|
||||
COLLATERALIZED MORTGAGE
OBLIGATIONS 1.0%
|
||||
Commercial Mortgage Pass-Through Certificates: | ||||
2,000,000
|
Series 2002-FL6, Class E, 4.970% due 6/14/14 (b)(c) | 2,005,725 | ||
186,860
|
Series 2003-FL9, Class E, 4.970% due 11/15/15 (b)(c) | 187,770 | ||
Federal Home Loan Mortgage Corp. (FHLMC): | ||||
245,102
|
Series 2764, Class DT, 6.000% due 3/15/34 (c) | 240,428 | ||
736,488
|
Series 2780, Class SL PAC, 6.000% due 4/15/34 (c) | 725,727 | ||
446,836
|
Homestar NIM Trust, Series 2004-6, Class A1, 5.500% due 1/25/35 (b)
|
447,325 |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 25
|
||||
|
Security# |
|
||
|
||||
COLLATERALIZED MORTGAGE OBLIGATIONS 1.0% (continued) | ||||
$ 1,299,657 | Impac CMB Trust, Series 2004-04, Class 2M2, 5.538% due 9/25/34 (c) | $ |
1,302,708
|
|
915,785 | Merit Securities Corp., Series 11PA, Class B2, 5.570% due 9/28/32 (b)(c) |
893,606
|
||
MLCC Mortgage Investors Inc.: | ||||
750,000 | Series 2004-A, Class B2, 4.958% due 4/25/29 (c) |
749,415
|
||
1,000,000 | Series 2004-B, Class B2, 4.918% due 5/25/29 (c) |
1,005,845
|
||
1,924,950 | Saco I Trust, Series 2005-2, Class A, 4.238% due 4/25/35 (b)(c) |
1,924,950
|
||
|
||||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS
|
||||
(Cost $9,458,580) |
9,483,499
|
|||
|
||||
SOVEREIGN BONDS 14.3% | ||||
Argentina 0.5%
|
||||
Republic of Argentina: | ||||
437,000 | EUR | 10.250% due 1/26/07 |
178,222
|
|
1,553,125 | 4.005% due 8/3/12 (c) |
1,379,812
|
||
5,951,899 | ARS | Discount Bonds, 5.830% due 12/31/33 |
2,355,614
|
|
800,000 | Par bonds, 1.330% due 12/31/38 (c) |
298,600
|
||
|
||||
Total Argentina |
4,212,248
|
|||
|
||||
Brazil 3.3%
|
||||
Federative Republic of Brazil: | ||||
2,200,000 | 11.000% due 8/17/40 |
2,647,150
|
||
18,330,000 | Collective Action Security, 8.000% due 1/15/18 |
18,953,220
|
||
8,889,870 | DCB, Series L, 5.250% due 4/15/12 |
8,684,292
|
||
|
||||
Total Brazil |
30,284,662
|
|||
|
||||
Bulgaria 0.2%
|
||||
1,715,000 | Republic of Bulgaria, 8.250% due 1/15/15 (b) |
2,058,000
|
||
|
||||
Chile 0.2%
|
||||
2,000,000 | Republic of Chile, 5.500% due 1/15/13 |
2,050,971
|
||
|
||||
China 0.1%
|
||||
705,000 | Peoples Republic of China, 4.750% due 10/29/13 |
686,639
|
||
|
||||
Colombia 0.7%
|
||||
Republic of Colombia: | ||||
1,640,000 | 11.750% due 2/25/20 |
2,214,000
|
||
4,300,000 | 8.125% due 5/21/24 |
4,465,550
|
||
145,000 | 10.375% due 1/28/33 |
181,975
|
||
|
||||
Total Colombia |
6,861,525
|
|||
|
||||
Ecuador 0.2%
|
||||
Republic of Ecuador: | ||||
190,000 | 12.000% due 11/15/12 (b) |
190,950
|
||
1,835,000 | Step bond to yield 12.573% due 8/15/30 (b) |
1,651,500
|
||
|
||||
Total Ecuador |
1,842,450
|
|||
|
||||
El Salvador 0.1%
|
||||
1,175,000 | Republic of El Salvador, 7.750% due 1/24/23 (b) |
1,277,813
|
||
|
See Notes to Financial Statements.
26 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
||||
|
|
|
||
|
||||
Malaysia 0.2%
|
||||
Federation of Malaysia: | ||||
350,000
|
8.750% due 6/1/09 | $ |
393,223
|
|
1,625,000
|
7.500% due 7/15/11 |
1,821,621
|
||
|
||||
Total Malaysia |
2,214,844
|
|||
|
||||
Mexico 2.9%
|
||||
United Mexican States: | ||||
1,170,000
|
11.375% due 9/15/16 |
1,696,500
|
||
7,770,000
|
8.125% due 12/30/19 |
9,318,172
|
||
Medium-Term Notes, Series A: | ||||
1,000,000
|
6.375% due 1/16/13 |
1,051,250
|
||
425,000
|
5.875% due 1/15/14 |
433,500
|
||
8,325,000
|
6.625% due 3/3/15 |
8,901,506
|
||
3,425,000
|
8.000% due 9/24/22 |
4,092,875
|
||
265,000
|
7.500% due 4/8/33 |
302,763
|
||
600,000
|
8.300% due 8/15/31 |
739,500
|
||
475,000
|
Series XW, 10.375% due 2/17/09 |
551,000
|
||
|
||||
Total Mexico |
27,087,066
|
|||
|
||||
Panama 0.6%
|
||||
Republic of Panama: | ||||
700,000
|
7.250% due 3/15/15 |
738,150
|
||
1,915,000
|
9.375% due 1/16/23 |
2,336,300
|
||
1,625,000
|
8.875% due 9/30/27 |
1,901,250
|
||
200,000
|
9.375% due 4/1/29 |
245,500
|
||
|
||||
Total Panama |
5,221,200
|
|||
|
||||
Peru 0.7%
|
||||
Republic of Peru: | ||||
380,000
|
9.125% due 2/21/12 |
439,945
|
||
1,900,000
|
9.875% due 2/6/15 |
2,353,625
|
||
705,000
|
7.350% due 7/21/25 |
715,575
|
||
260,000
|
8.750% due 11/21/33 |
300,300
|
||
2,989,000
|
FLIRB, 5.000% due 3/7/17 (c) |
2,828,341
|
||
|
||||
Total Peru |
6,637,786
|
|||
|
||||
Philippines 0.7%
|
||||
Republic of the Philippines: | ||||
2,625,000
|
9.000% due 2/15/13 |
2,795,625
|
||
375,000
|
8.250% due 1/15/14 |
385,547
|
||
2,175,000
|
10.625% due 3/16/25 |
2,516,203
|
||
625,000
|
Senior Notes, 9.500% due 2/2/30 |
660,937
|
||
|
||||
Total Philippines |
6,358,312
|
|||
|
||||
Poland 0.2%
|
||||
1,495,000
|
Republic of Poland, Notes, 5.250% due 1/15/14
|
1,515,706
|
||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 27
|
||||
|
Security# | Value | ||
|
||||
Russia 1.4%
|
||||
Russian Federation: | ||||
1,665,000
|
11.000% due 7/24/18 (b) | $ | 2,430,900 | |
9,615,000
|
Step bond to yield 5.000% due 3/31/30 (b) | 10,687,673 | ||
|
||||
Total Russia | 13,118,573 | |||
|
||||
South Africa 0.2%
|
||||
Republic of South Africa: | ||||
250,000
|
9.125% due 5/19/09 | 281,250 | ||
1,825,000
|
6.500% due 6/2/14 | 1,957,313 | ||
|
||||
Total South Africa | 2,238,563 | |||
|
||||
Supranational 0.0%
|
||||
300,000
|
Corporacion Andina de Fomento, Notes, 4.556% due 1/26/07 (c)
|
300,225 | ||
|
||||
Turkey 1.0%
|
||||
Republic of Turkey: | ||||
200,000
|
11.750% due 6/15/10 | 246,000 | ||
725,000
|
11.500% due 1/23/12 | 917,125 | ||
4,150,000
|
11.000% due 1/14/13 | 5,229,000 | ||
900,000
|
7.250% due 3/15/15 | 936,000 | ||
1,250,000
|
7.000% due 6/5/20 | 1,225,000 | ||
800,000
|
11.875% due 1/15/30 | 1,163,000 | ||
|
||||
Total Turkey | 9,716,125 | |||
|
||||
Ukraine 0.2%
|
||||
1,400,000
|
Republic of Ukraine, 7.650% due 6/11/13 (b) | 1,506,750 | ||
|
||||
Uruguay 0.1%
|
||||
Republic of Uruguay, Benchmark Bonds: | ||||
575,000
|
7.250% due 2/15/11 | 586,500 | ||
750,000
|
7.500% due 3/15/15 | 738,750 | ||
|
||||
Total Uruguay | 1,325,250 | |||
|
||||
Venezuela 0.8%
|
||||
Bolivarian Republic of Venezuela: | ||||
2,750,000
|
5.375% due 8/7/10 | 2,662,000 | ||
1,050,000
|
8.500% due 10/8/14 | 1,145,550 | ||
1,200,000
|
7.650% due 4/21/25 | 1,196,400 | ||
1,900,000
|
Collective Action Security, 10.750% due 9/19/13 | 2,318,000 | ||
|
||||
Total Venezuela | 7,321,950 | |||
|
||||
TOTAL SOVEREIGN BONDS | ||||
(Cost $129,249,319) | 133,836,658 | |||
|
||||
LOAN PARTICIPATION
(c)(e) 0.1%
|
||||
United States 0.1%
|
||||
1,000,000
|
UPC Broadband Inc. Term Loan, Tranche H2, | |||
6.554% due 3/15/12 (Bank of America) (Cost $1,000,000) | 1,009,739 | |||
|
See Notes to Financial Statements.
28 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
|
|
||
|
||||
COMMON STOCKS 40.6%
|
||||
CONSUMER DISCRETIONARY 4.3%
|
||||
Hotels, Restaurants & Leisure 0.4%
|
||||
13,000
|
Ctrip.com International Ltd., ADR (a) | $ |
747,890
|
|
72,800
|
McDonalds Corp. |
2,300,480
|
||
25,000
|
Outback Steakhouse Inc. |
941,500
|
||
|
||||
Total Hotels, Restaurants & Leisure |
3,989,870
|
|||
|
||||
Household Durables 0.3%
|
||||
117,400
|
Newell Rubbermaid Inc. (a) |
2,699,026
|
||
|
||||
Media 2.9%
|
||||
88,100
|
Cablevision Systems Corp., New York Group, Class A Shares* |
2,184,880
|
||
425,000
|
Charter Communications Inc., Class A Shares (a)* |
510,000
|
||
22,800
|
Comcast Corp., Class A Shares* |
634,524
|
||
178,800
|
EchoStar Communications Corp., Class A Shares* |
4,804,356
|
||
206,500
|
Interpublic Group of Cos. Inc. (a)* |
2,133,145
|
||
52,875
|
Liberty Global Inc., Class A Shares* |
1,309,714
|
||
52,875
|
Liberty Global Inc., Series C Shares* |
1,254,195
|
||
172,400
|
Liberty Media Corp., Class A Shares* |
1,374,028
|
||
196,100
|
News Corp., Class B Shares |
2,953,266
|
||
8,400
|
NTL Inc. (a)* |
515,088
|
||
100,000
|
Regal Entertainment Group, Class A Shares (a) |
1,843,000
|
||
345,800
|
SES Global SA, FDR |
5,468,862
|
||
140,500
|
Time Warner Inc. |
2,505,115
|
||
|
||||
Total Media |
27,490,173
|
|||
|
||||
Multiline Retail 0.3%
|
||||
56,100
|
J.C. Penney Co. Inc. |
2,872,320
|
||
|
||||
Specialty Retail 0.4%
|
||||
35,000
|
Best Buy Co. Inc. |
1,549,100
|
||
40,000
|
Sherwin-Williams Co. |
1,702,000
|
||
|
||||
Total Specialty Retail |
3,251,100
|
|||
|
||||
TOTAL CONSUMER DISCRETIONARY |
40,302,489
|
|||
|
||||
CONSUMER STAPLES 2.1%
|
||||
Beverages 0.1%
|
||||
25,000
|
PepsiCo Inc. |
1,477,000
|
||
|
||||
Food & Staples Retailing 0.7%
|
||||
20,000
|
CVS Corp. |
488,200
|
||
162,600
|
Kroger Co.* |
3,235,740
|
||
53,000
|
Wal-Mart Stores Inc. |
2,507,430
|
||
|
||||
Total Food & Staples Retailing |
6,231,370
|
|||
|
||||
Food Products 0.5%
|
||||
25,200
|
Hormel Foods Corp. |
801,360
|
||
29,300
|
Kellogg Co. |
1,294,181
|
||
50,000
|
McCormick & Co. Inc., Non Voting Shares |
1,514,500
|
||
75,000
|
Sara Lee Corp. |
1,338,750
|
||
|
||||
Total Food Products |
4,948,791
|
|||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 29
|
|
|
||
|
||||
Household Products 0.3%
|
||||
46,300
|
Kimberly-Clark Corp. | $ |
2,631,692
|
|
|
||||
Tobacco 0.5%
|
||||
63,000
|
Altria Group Inc. |
4,728,150
|
||
|
||||
TOTAL CONSUMER STAPLES |
20,017,003
|
|||
|
||||
ENERGY 6.2%
|
||||
Energy Equipment & Services 2.3%
|
||||
137,700
|
ENSCO International Inc. |
6,277,743
|
||
74,200
|
GlobalSantaFe Corp. |
3,305,610
|
||
71,500
|
Halliburton Co. |
4,225,650
|
||
32,200
|
Nabors Industries Ltd.* |
2,209,886
|
||
29,900
|
National-Oilwell Varco Inc.* |
1,867,853
|
||
105,000
|
Pride International Inc.* |
2,947,350
|
||
|
||||
Total Energy Equipment & Services |
20,834,092
|
|||
|
||||
Oil, Gas & Consumable Fuels 3.9%
|
||||
82,500
|
Arlington Tankers Ltd. (a) |
1,837,275
|
||
58,100
|
CNX Gas Corp. (b)* |
1,205,575
|
||
87,200
|
Marathon Oil Corp. |
5,245,952
|
||
196,414
|
Nexen Inc. |
8,119,755
|
||
127,000
|
OPTI Canada Inc.* |
3,947,188
|
||
17,600
|
Suncor Energy Inc. |
943,888
|
||
87,480
|
Total SA, Sponsored ADR (a) |
11,024,230
|
||
190,400
|
Williams Cos. Inc. |
4,245,920
|
||
|
||||
Total Oil, Gas & Consumable Fuels |
36,569,783
|
|||
|
||||
TOTAL ENERGY |
57,403,875
|
|||
|
||||
FINANCIALS 12.0%
|
||||
Capital Markets 0.5%
|
||||
6,600
|
Goldman Sachs Group Inc. |
834,042
|
||
8,000
|
Lehman Brothers Holdings Inc. |
957,360
|
||
35,600
|
Merrill Lynch & Co. Inc. |
2,304,744
|
||
|
||||
Total Capital Markets |
4,096,146
|
|||
|
||||
Commercial Banks 1.1%
|
||||
82,952
|
Bank of America Corp. |
3,628,320
|
||
24,700
|
Comerica Inc. |
1,427,166
|
||
16,500
|
Wachovia Corp. |
833,580
|
||
58,500
|
Wells Fargo & Co. |
3,521,700
|
||
13,000
|
Zions Bancorporation |
955,110
|
||
|
||||
Total Commercial Banks |
10,365,876
|
|||
|
||||
Consumer Finance 1.0%
|
||||
42,200
|
American Express Co. |
2,100,294
|
||
95,032
|
Capital One Financial Corp. |
7,255,693
|
||
|
||||
Total Consumer Finance |
9,355,987
|
|||
|
||||
Diversified Financial
Services 0.2%
|
||||
49,940
|
JPMorgan Chase & Co. |
1,828,803
|
||
|
See Notes to Financial Statements.
30 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
|
|
||
|
||||
Insurance 0.8%
|
||||
35,200
|
AFLAC Inc. | $ |
1,681,856
|
|
24,300
|
American International Group Inc. |
1,574,640
|
||
8
|
Berkshire Hathaway Inc., Class A Shares* |
687,200
|
||
30,800
|
Chubb Corp. |
2,863,476
|
||
8,000
|
Hartford Financial Services Group Inc. |
638,000
|
||
|
||||
Total Insurance |
7,445,172
|
|||
|
||||
Real Estate 7.7%
|
||||
19,300
|
Alexandria Real Estate Equities Inc. |
1,560,405
|
||
65,200
|
AMB Property Corp. |
2,880,536
|
||
155,000
|
American Financial Realty Trust |
1,908,050
|
||
7,400
|
Apartment Investment and Management Co., Class A Shares |
284,160
|
||
62,100
|
Archstone-Smith Trust |
2,519,397
|
||
60,000
|
Arden Realty Inc. |
2,708,400
|
||
25,000
|
Ashford Hospitality Trust Inc. |
262,500
|
||
31,900
|
Avalonbay Communities Inc. |
2,751,375
|
||
46,500
|
BioMed Realty Trust Inc. |
1,162,965
|
||
17,200
|
Boston Properties Inc. |
1,190,584
|
||
12,400
|
BRE Properties Inc., Class A Shares |
546,964
|
||
66,800
|
CarrAmerica Realty Corp. |
2,199,724
|
||
12,000
|
Developers Diversified Realty Corp. |
524,160
|
||
20,900
|
Duke Realty Corp. |
712,690
|
||
218,000
|
Equity Office Properties Trust |
6,714,400
|
||
50,200
|
Equity Residential |
1,970,350
|
||
29,800
|
Federal Realty Investment Trust |
1,807,370
|
||
60,700
|
General Growth Properties Inc. |
2,578,536
|
||
46,000
|
Global Signal Inc. |
1,906,700
|
||
47,500
|
Gramercy Capital Corp. |
1,120,525
|
||
57,900
|
Heritage Property Investment Trust (a) |
1,887,540
|
||
27,000
|
Highwoods Properties Inc. |
761,670
|
||
90,000
|
iStar Financial Inc. |
3,318,300
|
||
24,800
|
Kimco Realty Corp. |
734,576
|
||
70,000
|
Liberty Property Trust |
2,918,300
|
||
7,400
|
Macerich Co. |
475,598
|
||
100,000
|
Maguire Properties Inc. |
3,000,000
|
||
105,000
|
New Plan Excel Realty Trust Inc. (a) |
2,413,950
|
||
7,200
|
Pan Pacific Retail Properties Inc. |
457,200
|
||
60,000
|
Prentiss Properties Trust |
2,367,600
|
||
106,300
|
ProLogis |
4,570,900
|
||
39,200
|
PS Business Parks Inc. |
1,824,368
|
||
16,400
|
Public Storage Inc. |
1,085,680
|
||
26,393
|
Reckson Associates Realty Corp. |
926,394
|
||
34,500
|
Simon Property Group Inc. |
2,470,890
|
||
41,300
|
SL Green Realty Corp. |
2,809,639
|
||
25,000
|
United Dominion Realty Trust Inc. |
553,250
|
||
26,900
|
Vornado Realty Trust |
2,178,900
|
||
|
||||
Total Real Estate |
72,064,546
|
|||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 31
|
|
Value | ||
|
||||
Thrifts & Mortgage Finance 0.7% | ||||
54,950 | Freddie Mac | $ | 3,371,183 | |
60,000 | Golden West Financial Corp. | 3,523,800 | ||
|
||||
Total Thrifts & Mortgage Finance | 6,894,983 | |||
|
||||
TOTAL FINANCIALS | 112,051,513 | |||
|
||||
HEALTH CARE 4.5% | ||||
Biotechnology 0.8%
|
||||
74,400 | Abgenix Inc. (a)* | 773,760 | ||
39,500 | Amgen Inc.* | 2,992,520 | ||
28,400 | CV Therapeutics Inc. (a)* | 711,704 | ||
8,700 | Genentech Inc.* | 788,220 | ||
34,400 | InterMune Inc. (a)* | 467,840 | ||
9,800 | Invitrogen Corp.* | 623,182 | ||
34,600 | Protein Design Labs Inc.* | 969,492 | ||
|
||||
Total Biotechnology | 7,326,718 | |||
|
||||
Health Care Equipment & Supplies 0.3% | ||||
63,800 | Boston Scientific Corp.* | 1,602,656 | ||
37,400 | DJ Orthopedics Inc. (a)* | 1,087,592 | ||
|
||||
Total Health Care Equipment & Supplies | 2,690,248 | |||
|
||||
Health Care Providers & Services 1.4% | ||||
18,600 | Aetna Inc. | 1,647,216 | ||
32,700 | Coventry Health Care Inc.* | 1,765,473 | ||
33,000 | DaVita Inc.* | 1,622,940 | ||
15,700 | PacifiCare Health Systems Inc.* | 1,293,052 | ||
29,800 | UnitedHealth Group Inc. | 1,725,122 | ||
64,500 | WellPoint Inc.* | 4,816,860 | ||
|
||||
Total Health Care Providers & Services | 12,870,663 | |||
|
||||
Pharmaceuticals 2.0% | ||||
61,500 | Abbott Laboratories | 2,647,575 | ||
49,200 | GlaxoSmithKline PLC, Sponsored ADR | 2,557,908 | ||
51,100 | Novartis AG, Sponsored ADR | 2,750,202 | ||
93,400 | Pfizer Inc. | 2,030,516 | ||
23,900 | Sanofi-Aventis | 1,915,333 | ||
23,100 | Sanofi-Aventis, ADR | 926,772 | ||
53,000 | Schering-Plough Corp. | 1,078,020 | ||
66,800 | Sepracor Inc.* | 3,757,500 | ||
22,800 | Teva Pharmaceutical Industries Ltd., Sponsored ADR (a) | 869,136 | ||
15,300 | Wyeth | 681,768 | ||
|
||||
Total Pharmaceuticals | 19,214,730 | |||
|
||||
TOTAL HEALTH CARE | 42,102,359 | |||
|
||||
INDUSTRIALS 3.0% | ||||
Aerospace & Defense 1.0% | ||||
98,400 | Boeing Co. | 6,360,576 | ||
90,000 | Raytheon Co. | 3,325,500 | ||
|
||||
Total Aerospace & Defense | 9,686,076 | |||
|
See Notes to Financial Statements.
32 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
|
|
||
|
||||
Building Products 0.2%
|
||||
52,800
|
American Standard Cos. Inc. | $ |
2,008,512
|
|
|
||||
Commercial Services & Supplies 0.2%
|
||||
35,700
|
Avery Dennison Corp. |
2,022,405
|
||
|
||||
Construction & Engineering 0.3%
|
||||
100,500
|
Chicago Bridge & Iron Co. NV, New York Shares (a) |
2,241,150
|
||
|
||||
Industrial Conglomerates 1.2%
|
||||
259,800
|
General Electric Co. |
8,809,818
|
||
30,100
|
Textron Inc. |
2,168,404
|
||
|
||||
Total Industrial Conglomerates |
10,978,222
|
|||
|
||||
Machinery 0.1%
|
||||
21,300
|
Navistar International Corp.* |
586,176
|
||
|
||||
Trading Companies & Distributors 0.0%
|
||||
9,600
|
MSC Industrial Direct Co. Inc., Class A Shares |
366,528
|
||
|
||||
TOTAL INDUSTRIALS |
27,889,069
|
|||
|
||||
INFORMATION TECHNOLOGY 2.8%
|
||||
Communications Equipment 1.0%
|
||||
154,375
|
ADC Telecommunications Inc. (a)* |
2,693,844
|
||
42,451
|
Comverse Technology Inc.* |
1,065,520
|
||
159,000
|
Nokia Oyj, Sponsored ADR |
2,674,380
|
||
755,700
|
Nortel Networks Corp.* |
2,456,025
|
||
|
||||
Total Communications Equipment |
8,889,769
|
|||
|
||||
Computers & Peripherals 0.1%
|
||||
40,000
|
EMC Corp.* |
558,400
|
||
|
||||
Internet Software & Services 0.4%
|
||||
133,900
|
Digitas Inc.* |
1,446,120
|
||
8,500
|
Netease.com Inc. ADR* |
648,295
|
||
81,900
|
SINA Corp.* |
2,076,165
|
||
|
||||
Total Internet Software & Services |
4,170,580
|
|||
|
||||
IT Services 0.1%
|
||||
50,000
|
Wright Express Corp.* |
1,079,000
|
||
|
||||
Semiconductors & Semiconductor Equipment 0.5%
|
||||
80,000
|
Applied Materials Inc. |
1,310,400
|
||
20,000
|
ASML Holding NV, NY Registered Shares* |
339,600
|
||
74,300
|
Maxim Integrated Products Inc. |
2,576,724
|
||
|
||||
Total Semiconductors & Semiconductor Equipment |
4,226,724
|
|||
|
||||
Software 0.7%
|
||||
42,500
|
Cognos Inc.* |
1,595,025
|
||
14,000
|
Macromedia Inc.* |
614,880
|
||
175,400
|
Microsoft Corp. |
4,507,780
|
||
|
||||
Total Software |
6,717,685
|
|||
|
||||
TOTAL INFORMATION TECHNOLOGY |
25,642,158
|
|||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 33
|
|
Value | ||
|
||||
MATERIALS 1.3%
|
||||
Chemicals 0.7%
|
||||
61,700
|
Air Products & Chemicals Inc. | $ | 3,531,708 | |
62,000
|
E.I. du Pont de Nemours & Co. | 2,584,780 | ||
|
||||
Total Chemicals | 6,116,488 | |||
|
||||
Containers & Packaging 0.1%
|
||||
20,000
|
Sealed Air Corp.* | 1,006,200 | ||
|
||||
Metals & Mining 0.5%
|
||||
153,400
|
Barrick Gold Corp. | 3,873,350 | ||
56,200
|
Compass Minerals International Inc. (a) | 1,258,318 | ||
|
||||
Total Metals & Mining | 5,131,668 | |||
|
||||
TOTAL MATERIALS | 12,254,356 | |||
|
||||
TELECOMMUNICATION
SERVICES 2.6%
|
||||
Diversified Telecommunication
Services 0.7%
|
||||
276,800
|
Citizens Communications Co. | 3,388,032 | ||
80,000
|
IDT Corp., Class B Shares* | 955,200 | ||
107,600
|
Telewest Global Inc.* | 2,454,356 | ||
|
||||
Total Diversified Telecommunication Services | 6,797,588 | |||
|
||||
Wireless Telecommunication
Services 1.9%
|
||||
60,800
|
ALLTEL Corp. | 3,761,088 | ||
216,197
|
American Tower Corp., Class A Shares* | 5,156,299 | ||
174,300
|
Dobson Communications Corp., Class A Shares* | 1,270,647 | ||
313,968
|
Sprint Nextel Corp. | 7,318,594 | ||
|
||||
Total Wireless Telecommunication Services | 17,506,628 | |||
|
||||
TOTAL TELECOMMUNICATION SERVICES | 24,304,216 | |||
|
||||
UTILITIES 1.8%
|
||||
Electric Utilities 0.3%
|
||||
100,000
|
ITC Holdings Corp. | 2,750,000 | ||
|
||||
Independent Power
Producers & Energy Traders 0.9%
|
||||
133,000
|
AES Corp.* | 2,113,370 | ||
73,800
|
NRG Energy Inc. (a)* | 3,174,138 | ||
33,600
|
TXU Corp. | 3,385,200 | ||
|
||||
Total Independent Power Producers & Energy Traders | 8,672,708 | |||
|
||||
Multi-Utilities 0.6%
|
||||
123,300
|
Sempra Energy | 5,462,190 | ||
|
||||
TOTAL UTILITIES | 16,884,898 | |||
|
||||
TOTAL COMMON STOCKS | ||||
(Cost $337,078,574) | 378,851,936 | |||
|
||||
PREFERRED STOCK 0.0%
|
||||
CONSUMER DISCRETIONARY 0.0%
|
||||
Auto Components 0.0%
|
||||
14,000
|
Delphi Trust I, 8.250% (a) (Cost $368,200) | 103,600 | ||
|
See Notes to Financial Statements.
34 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
Security# |
|
||
|
||||
CONVERTIBLE PREFERRED
STOCKS 1.9%
|
||||
ENERGY 0.2%
|
||||
Energy Equipment & Services 0.2%
|
||||
38,000
|
Hanover Compressor Capital Trust, 7.250% (a) | $ |
1,814,500
|
|
|
||||
FINANCIALS 1.5%
|
||||
Real Estate 1.1%
|
||||
167,000
|
Host Marriott Finance Trust, 6.750% |
9,164,125
|
||
26,000
|
Simon Property Group Inc., 6.000% |
1,612,000
|
||
|
||||
10,776,125
|
||||
|
||||
Thrifts & Mortgage Finance 0.4%
|
||||
77,000
|
Sovereign Capital Trust IV, 4.375% |
3,455,375
|
||
|
||||
TOTAL FINANCIALS |
14,231,500
|
|||
|
||||
TELECOMMUNICATION
SERVICES 0.2%
|
||||
Wireless Telecommunication
Services 0.2%
|
||||
12,514
|
Dobson Communications Corp., 6.000% |
2,108,609
|
||
|
||||
TOTAL CONVERTIBLE PREFERRED STOCKS | ||||
(Cost $17,521,622) |
18,154,609
|
|||
|
||||
|
||||
|
||||
PURCHASED OPTION 0.3%
|
||||
2,300
|
S&P 500 Index, Put @ 1,175, Expires 12/05 | |||
(Cost $3,019,900) |
2,530,000
|
|||
|
||||
TOTAL INVESTMENTS BEFORE SHORT-TERM INVESTMENTS | ||||
(Cost $803,642,084) |
838,343,375
|
|||
|
||||
|
||||
|
||||
|
||||
SHORT-TERM INVESTMENTS 10.1%
|
||||
Repurchase Agreements 0.9%
|
||||
$ 3,523,000
|
Interest in $572,678,000 joint tri-party repurchase agreement | |||
dated 10/31/05 with Deutche
Bank Securities Inc., 4.000% |
||||
due 11/1/05;
Proceeds at maturity $3,523,391; (Fully |
||||
collateralized by various
U.S. Government Agency Obligations |
||||
0.000% to 7.125% due 11/28/05 to 1/15/30; | ||||
Market value $3,593,480) |
3,523,000
|
|||
5,000,000
|
Interest in $689,187,000 joint tri-party repurchase agreement | |||
dated 10/31/05 with Merrill Lynch, Pierce, Fenner & Smith Inc., | ||||
4.000%
due 11/1/05; Proceeds at maturity $5,000,556; |
||||
(Fully collateralized by
U.S. Treasury obligations, 0.000% to |
||||
3.750% due 11/3/05 to
5/15/08; Market value $5,100,011)
|
5,000,000
|
|||
|
||||
Total Repurchase Agreements (Cost $8,523,000) |
8,523,000
|
|||
|
||||
Shares
|
||||
|
||||
Securities Purchased
from Securities Lending Collateral 9.2%
|
||||
85,925,599
|
State Street Navigator Securities Lending Trust Prime Portfolio | |||
(Cost $85,925,599) |
85,925,599
|
|||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 35
Value | |||
|
|||
TOTAL SHORT-TERM INVESTMENTS | |||
(Cost $94,448,599) | $ | 94,448,599 | |
|
|||
TOTAL INVESTMENTS 100.0% | |||
(Cost $898,090,683**) | $ | 932,791,974 | |
|
# | All securities (except those on loan) are segregated as collateral pursuant to revolving credit facility. |
* | Non-income producing security. |
| Face amount denominated in U.S. dollars, unless otherwise indicated. |
| Security is exchangeable for Sprint Nexel Corp. Common Stock. |
(a) | All or a portion of this security is on loan (See Notes 1 and 3). |
(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, unless otherwise noted. |
(c) | Variable rate security. Coupon rates disclosed are those which are in effect at October 31, 2005. |
(d) | Security is currently in default. |
(e) | Participation interest was acquired through the financial institution indicated parenthetically. |
** | Aggregate cost for federal income tax purposes is $899,839,147. |
Abbreviations used in this schedule: ADR American Depositary Receipt ARS Argentine Peso DCB Debt Conversion Bond EUR Euro Currency FDR Foreign Depositary Receipt FLIRB Front-Loaded Interest Reduction Bonds MASTR Mortgage Asset Securitization Transactions Inc. NIM Net Interest Margin PAC Planned Amortization Cost |
See Notes to Financial Statements.
36 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
ASSETS: | ||||
Investments, at value (Cost $898,090,683) | $ | 932,791,974 | ||
Foreign currency, at value (Cost $838) | 835 | |||
Cash | 146 | |||
Receivable for swap contracts | 1,940 | |||
Receivable for securities sold | 8,643,459 | |||
Dividends and interest receivable | 6,504,109 | |||
Prepaid expenses | 12,454 | |||
|
||||
Total Assets | 947,954,917 | |||
|
||||
LIABILITIES: | ||||
Loan payable (Notes 1 and 4) | 220,000,000 | |||
Payable for loaned securities collateral (Notes 1 and 3) | 85,925,599 | |||
Payable for securities purchased | 2,134,173 | |||
Interest payable (Note 4) | 720,266 | |||
Management fee payable | 623,208 | |||
Payable for offering costs | 442,559 | |||
Payable for Fund shares repurchased | 223,668 | |||
Payable for swap contracts | 5,424 | |||
Directors fees payable | 145 | |||
Accrued expenses | 225,556 | |||
|
||||
Total Liabilities | 310,300,598 | |||
|
||||
Total Net Assets | $ | 637,654,319 | ||
|
||||
NET ASSETS: | ||||
Par value ($0.001 par value; 32,382,706 shares issued and outstanding; | ||||
100,000,000 shares authorized) | $ | 32,383 | ||
Paid-in capital in excess of par value | 603,674,127 | |||
Accumulated net realized loss on investments, swap contracts and foreign currency transactions | (751,862 | ) | ||
Net unrealized appreciation on investments and foreign currency transactions | 34,699,671 | |||
|
||||
Total Net Assets | $ | 637,654,319 | ||
|
||||
Shares Outstanding | 32,382,706 | |||
|
||||
Net Asset Value | $19.69 | |||
|
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 37
INVESTMENT INCOME: | ||||
Interest | $ | 28,798,058 | ||
Dividends | 9,524,758 | |||
Income from securities lending | 199,025 | |||
Less: Foreign taxes withheld | (118,810 | ) | ||
|
||||
Total Investment Income | 38,403,031 | |||
|
||||
EXPENSES: | ||||
Interest expense (Notes 3 and 4) | 7,777,427 | |||
Management fee (Note 2) | 7,311,175 | |||
Shareholder reports | 180,981 | |||
Custody fees | 161,087 | |||
Directors fees | 61,365 | |||
Audit and tax | 60,746 | |||
Legal fees | 45,565 | |||
Transfer agent fees | 25,159 | |||
Loan fees | 21,266 | |||
Stock exchange listing fees | 20,830 | |||
Insurance | 7,499 | |||
Miscellaneous expenses | 4,650 | |||
|
||||
Total Expenses | 15,677,750 | |||
|
||||
Net Investment Income | 22,725,281 | |||
|
||||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, SWAP CONTRACTS
|
||||
AND FOREIGN CURRENCY TRANSACTIONS (NOTES 1 AND 3): | ||||
Net Realized Gain (Loss) From: | ||||
Investments | 28,057,054 | |||
Swap contracts | 3,608 | |||
Foreign currency transactions | (100,286 | ) | ||
Option contracts | (17,321,069 | ) | ||
|
||||
Net Realized Gain | 10,639,307 | |||
|
||||
Change in Net Unrealized Appreciation/Depreciation From: | ||||
Investments | 32,522,448 | |||
Foreign currency transactions | (2,007 | ) | ||
Option contracts | 7,151,350 | |||
|
||||
Change in Net Unrealized Appreciation/Depreciation | 39,671,791 | |||
|
||||
Increase from payment by affiliate | 21,460 | |||
|
||||
Net Gain on Investments, Swap Contracts and Foreign Currency Transactions | 50,332,558 | |||
|
||||
Increase in Net Assets From Operations | $ | 73,057,839 | ||
|
See Notes to Financial Statements.
38 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
|
|||||||
|
||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 22,725,281 | $ | 12,181,904 | ||||
Net realized gain (loss) | 10,639,307 | (1,394,587 | ) | |||||
Change in net unrealized appreciation/depreciation | 39,671,791 | (4,972,120 | ) | |||||
Increase from payment by Affiliate | 21,460 | | ||||||
|
||||||||
Increase in Net Assets From Operations | 73,057,839 | 5,815,197 | ||||||
|
||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 1): | ||||||||
Net investment income | (32,052,389 | ) | (13,404,047 | ) | ||||
Net realized gains | (7,365,538 | ) | | |||||
Return of capital | | (6,373,531 | ) | |||||
|
||||||||
Decrease in Net Assets From Distributions to Shareholders | (39,417,927 | ) | (19,777,578 | ) | ||||
|
||||||||
FUND SHARE TRANSACTIONS: | ||||||||
Net proceeds from sale of shares (32,950,000 shares issued, | ||||||||
net of $1,318,000 offering costs) | | 628,027,000 | ||||||
Reinvestment of distributions (8,859 shares issued) | | 159,269 | ||||||
Cost of shares repurchased (581,400 shares repurchased) | (10,309,481 | ) | | |||||
|
||||||||
Increase (Decrease) in Net Assets From Fund Share Transactions | (10,309,481 | ) | 628,186,269 | |||||
|
||||||||
Increase in Net Assets | 23,330,431 | 614,223,888 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 614,323,888 | 100,000 | ||||||
|
||||||||
End of year* | $ | 637,654,319 | $ | 614,323,888 | ||||
|
||||||||
* Includes overdistributed net investment income of: | | $ | (918,153 | ) | ||||
|
(1) | For the period February 24, 2004 (commencement of operations) to October 31, 2004. |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 39
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: | ||||
Interest and dividends received | $ | 35,929,527 | ||
Operating expenses paid | (7,843,678 | ) | ||
Net sales of short-term investments | 31,092,350 | |||
Realized loss on foreign currency transactions | (100,286 | ) | ||
Realized loss on options | (17,321,069 | ) | ||
Realized gain on swap contracts | 3,608 | |||
Net change in unrealized depreciation on foreign currencies | (2,007 | ) | ||
Purchases of long-term investments | (535,353,068 | ) | ||
Proceeds from disposition of long-term investments | 550,885,116 | |||
Interest paid | (7,435,327 | ) | ||
|
||||
Net Cash Flows Provided By Operating Activities | 49,855,166 | |||
|
||||
CASH FLOWS USED BY FINANCING ACTIVITIES: | ||||
Cash distributions paid on Common Stock | (39,417,927 | ) | ||
Cost of shares repurchased | (10,085,813 | ) | ||
Offering costs paid | (351,019 | ) | ||
|
||||
Net Cash Flows Used By Financing Activities | (49,854,759 | ) | ||
|
||||
NET INCREASE IN CASH | 407 | |||
Cash and foreign currency Beginning of year | 574 | |||
|
||||
Cash and foreign currency End of year | $ | 981 | ||
|
||||
RECONCILIATION OF INCREASE IN NET ASSETS FROM OPERATIONS
|
||||
TO NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
|
||||
Increase in Net Assets From Operations | $ | 73,057,839 | ||
|
||||
Accretion of discount on investments | (3,270,499 | ) | ||
Amortization of premium on investments | 1,725,257 | |||
Increase in investments, at value | (15,248,259 | ) | ||
Decrease in payable for securities purchased | (2,325,160 | ) | ||
Increase in interest receivable | (928,262 | ) | ||
Increase in receivable for securities sold | (3,554,495 | ) | ||
Increase in prepaid expenses | (12,454 | ) | ||
Increase in interest payable | 342,100 | |||
Increase in accrued expenses | 69,099 | |||
|
||||
Total Adjustments | (23,202,673 | ) | ||
|
||||
Net Cash Flows Provided By Operating Activities | $ | 49,855,166 | ||
|
See Notes to Financial Statements.
40 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
|
|
||||||||
|
|||||||||
Net Asset Value, Beginning of Year | $ | 18.64 | $ | 19.06 | (3) | ||||
|
|||||||||
Income (Loss) From Operations: | |||||||||
Net investment income | 0.69 | 0.37 | |||||||
Net realized and unrealized gain (loss) | 1.52 | (0.19 | ) | ||||||
|
|||||||||
Total Income From Operations | 2.21 | 0.18 | |||||||
|
|||||||||
Gain From Repurchase of Stock | 0.04 | | |||||||
|
|||||||||
Less Distributions From: | |||||||||
Net investment income | (0.98 | ) | (0.40 | ) | |||||
Realized gains | (0.22 | ) | | ||||||
Return of capital | | (0.20 | ) | ||||||
|
|||||||||
Total Distributions | (1.20 | ) | (0.60 | ) | |||||
|
|||||||||
Net Asset Value, End of Year | $ | 19.69 | $ | 18.64 | |||||
|
|||||||||
Market Price, End of Year | $ | 17.19 | $ | 17.24 | |||||
|
|||||||||
Total Return, Based on Net Asset Value | 12.34 | %(5) | 1.06 | % | |||||
Total Return, Based on Market Price Per Share(4) | 6.85 | %(5) | (10.74 | )% | |||||
Net Assets, End of Year (000s) | $ | 637,654 | $ | 614,324 | |||||
|
|||||||||
Ratios to Average Net Assets: | |||||||||
Expenses | 2.45 | % | 1.54 |
%(6)
|
|||||
Expenses, excluding interest expense | 1.23 | 1.15 | (6) | ||||||
Net investment income | 3.55 | 2.97 | (6) | ||||||
|
|||||||||
Portfolio Turnover Rate | 64 | % | 39 | % | |||||
|
|||||||||
Supplemental Data: | |||||||||
Loans Outstanding, End of Year (000s) | $ | 220,000 | $ | 220,000 | |||||
Asset Coverage for Loan Outstanding | 390 | % | 379 | % | |||||
Weighted Average Loan (000s) | $ | 220,000 | $ | 105,783 | |||||
Weighted Average Interest Rate on Loans | 3.54 | % | 2.22 | % | |||||
|
(1) | Per share amounts have been calculated using the average shares method. |
(2) | For the period February 24, 2004 (commencement of operations) through October 31, 2004. |
(3) | Initial public offering price of $20.00 per share less offering costs and sales load totaling $0.94 per share. |
(4) | The total return calculation assumes that dividends are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no guarantee of future results and the broker commission paid to purchase or sell a share is excluded. |
(5) | The investment manager fully reimbursed the Fund for losses incurred resulting from an investment transaction error. Without this reimbursement, total return would not have changed. |
(6) | Annualized. |
| Total return is not annualized, as it may not be representative of the total return for the year. |
See Notes to Financial Statements.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 41
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The
Salomon Brothers Capital and Income Fund Inc. (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 (1940 Act). The Board of Directors authorized 100 million shares of $0.001
par value common stock. 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 following are significant accounting policies consistently followed by the Fund and are in conformity with U.S. generally accepted accounting principles (GAAP). Estimates and assumptions are required to be made regarding assets, liabilities and changes in net assets resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ.
(a) Investment Valuation. Equity securities for which market quotations are available are valued at the last sale price or official closing price on the primary market or exchange on which they trade. Debt securities are valued at the mean between the bid and asked prices provided by an independent pricing service that are based on transactions in debt obligations, quotations from bond dealers, market transactions in comparable securities and various relationships between securities. Publicly traded foreign government debt securities are typically traded internationally in the over-the-counter market, and are valued at the mean between the bid and asked prices as of the close of business of that market. When prices are not readily available, or are determined not to reflect fair value, such as when the value of a security has been significantly affected by events after the close of the exchange or market on which the security is principally traded, but before the Fund calculates its net asset value, the Fund may value these investments at fair value as determined in accordance with the procedures approved by the Funds Board of Directors. Short-term obligations with maturities of 60 days or less are valued at amortized cost, which approximates market value.
(b) Repurchase Agreements. When entering into repurchase agreements, it is the Funds policy that its custodian or a third party custodian takes possession of the underlying collateral securities, the market value of which at least equals the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market to ensure the adequacy of the collateral. If the seller defaults, and the market value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited.
(c) Lending of Portfolio Securities. The Fund has an agreement with its custodian whereby the custodian may lend securities owned by the Fund to brokers, dealers and other financial organizations. In exchange for lending securities under the terms of the agreement with its custodian, the Fund receives a lenders fee. Fees earned by the Fund on securities lending are recorded as securities lending income. Loans of securities by the Fund are collateralized by cash, U.S. government securities or high quality money market instruments that are maintained at all times in an amount at least equal to the current market value of
42 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Notes to Financial Statements (continued)
the loaned securities, plus a margin which varies depending on the type of securities loaned. The custodian establishes and maintains the collateral in a segregated account. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund maintains the risk of any loss on the securities on loan as well as the potential loss on investments purchased with cash collateral received from securities lending.
(d) Loan Participations. The Fund may invest in loans arranged through private negotiation between one or more financial institutions. The Funds 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.
The Fund will assume the credit risk of both the borrower and the lender that is selling the participation and any other persons interpositioned between the Fund and the borrower. In the event of the insolvency of the lender selling the participation, the Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.
(e) Credit, Exchange Rate and Market Risk. The Fund invests in high yield and emerging market instruments that are subject to certain credit and market risks. The yields of high yield and emerging market debt obligations reflect, among other things, perceived credit risk. The Funds investment in securities rated below investment grade typically involve risks not associated with higher rated securities including, among others, greater risk related to timely and ultimate payment of interest and principal, greater market price volatility and less liquid secondary market trading. The consequences of political, social, economic or diplomatic changes may have disruptive effects on the market prices of investments held by the Fund. The Funds investment in non-dollar denominated securities may also result in foreign currency losses caused by devaluations and exchange rate fluctuations.
(f ) Cash Flow Information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are reported in the Statement of Changes in Net Assets and additional information on cash receipts and cash payments are presented in the Statement of Cash Flows.
(g) Security Transactions and Investment Income. Security transactions are accounted for on a trade date basis. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Foreign dividend income is recorded on the ex-dividend date or as soon as practical after the Fund determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method.
(h) 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
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 43
Notes to Financial Statements (continued)
and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities, at the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(i) Distributions to Shareholders. Distributions from net investment income for the Fund, if any, are declared and paid on a monthly basis. Distributions of net realized gains, if any, are declared at least annually. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which may differ from GAAP.
(j) Federal and Other Taxes. It is the Funds policy to comply with the federal income and excise tax requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. Accordingly, the Fund intends to distribute substantially all of its taxable income and net realized gains on investments, if any, to shareholders each year. Therefore, no federal income tax provision is required in the Funds financial statements. Under the applicable foreign tax laws, a withholding tax may be imposed on interest, dividends and capital gains at various rates.
(k) Reclassification. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. During the current year, the following reclassifications have been made:
Undistributed Net | Accumulated Net | Paid-in | ||||||
Investment Income |
|
Capital | ||||||
|
||||||||
(a)
|
$7,896,747 | | $( 7,896,747 | ) | ||||
|
||||||||
(b)
|
2,348,514 | $( 2,348,514 | ) | | ||||
|
(a) | Reclassifications are primarily due to a taxable overdistribution. |
(b) | Reclassifications are primarily due to foreign currency transactions treated as ordinary income for tax purposes and differences between book and tax amortization of premium on fixed income securities, income from mortgage backed securities treated as capital gains for tax purposes, book/tax differences in the treatment of distributions from real estate investment trusts, book/tax differences in the treatment of passive foreign investment companies and book/tax differences in the treatment of credit default swap contracts. |
44 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Notes to Financial Statements (continued)
2. Management Agreement and Other Transactions with Affiliates
Salomon
Brothers Asset Management Inc (SBAM), which for the period of this report was an indirect wholly-owned subsidiary of Citigroup Inc. (Citigroup), acts as investment manager to the Fund. SBAM
is responsible on a day-to-day basis for the management of the Funds portfolio in accordance with the Funds investment objectives and policies and for making decisions to buy, sell or hold particular securities of the Fund. The
management fee for these services is payable monthly at an annual rate of 0.85% of the Funds
average daily net assets (plus any borrowings).
During the year ended October 31, 2005, SBAM reimbursed the Fund in the amount of $21,460 for losses incurred resulting from an investment transaction error.
At October 31, 2005, Citigroup Financial Products Inc., another indirect wholly-owned subsidiary of Citigroup, held 5,789 shares of the Fund.
Certain officers and/or directors of the Fund are also officers and/or directors of SBAM and do not receive compensation from the Fund.
3. Investments
During
the year ended October 31, 2005, the aggregate cost of purchases and proceeds
from sales of investments (excluding short-term investments) and U.S Government & Agency
Obligations were as follows:
|
U.S. Government & Agency Obligations | |||||
|
||||||
Purchases |
|
$2,017,130 | ||||
|
||||||
Sales |
|
| ||||
|
At October 31, 2005, the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
Gross unrealized appreciation | $ | 62,274,357 | ||
Gross unrealized depreciation | (29,321,530 | ) | ||
|
||||
Net unrealized appreciation | $ | 32,952,827 | ||
|
At October 31, 2005, the Fund loaned securities having a market value of $84,035,780. The Fund received cash collateral amounting to $85,925,599 which was invested into the State Street Navigator Securities Lending Trust Prime Portfolio, a Rule 2a-7 money market fund, registered under the 1940 Act.
At October 31, 2005, the Fund held loan participations with a total cost of $1,000,000 and a total market value of $1,009,739.
4. Loan
At
October 31, 2005, the Fund had a $220,000,000 loan pursuant to a revolving credit and security agreement with Crown Point Capital Company LLC and Citicorp North America, Inc. (CNA).
In addition, CNA acts as administrative agent of the credit facility. The loan
generally bears interest at a variable rate based on the weighted average interest
rates of the underlying commercial paper or LIBOR plus any applicable margin.
Securities held by the Fund are subject to a lien, granted to the lenders, to
the extent of the borrowings outstand-
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 45
Notes to Financial Statements (continued)
ing and any additional expenses. For the year ended October 31, 2005, the Fund incurred interest expense on this loan in the amount of $7,777,427.
5. Dividends Subsequent to October 31, 2005
On
July 25, 2005, the Board of Directors (Board) of the Fund declared a distribution in the amount of $0.10
per share payable on November 25, 2005 to shareholders of record on November
15, 2005.
On November 18, 2005, the Funds board declared three distributions in the amounts of $0.10 per share, payable on December 30, 2005, January 27, 2006 and February 24, 2006 to shareholders of record on December 27, 2005, January 24, 2006 and February 21, 2006, respectively.
6. Capital Shares
On
May 14, 2004, the Funds Board authorized the Fund to repurchase from time to time in the open market up to 1,000,000 shares of the Funds common stock. The Board directed the management of the Fund to
repurchase shares of the Funds common stock at such times and in such amounts as management believes will enhance shareholder value, subject to review by the Funds Board. On June 28, 2005, the Fund commenced this share repurchase plan.
Since the inception of the repurchase plan, the Fund repurchased 581,400 shares with a total cost of $10,309,481
at the weighted average discount of 12.10% per share.
7. Income Tax Information and Distributions to Shareholders
Subsequent to the fiscal year end, the Fund has made the following distributions from Net Investment Income:
Record Date: | 11/15/2005 | |
|
||
Payable Date: | 11/25/2005 | |
|
||
Class A | 0.1000 | |
|
The tax character of distributions paid during the fiscal years ended October 31, were as follows:
|
|
||||||
|
|||||||
Distributions paid from: | |||||||
Ordinary Income | $ | 39,252,185 | $ | 13,404,047 | |||
Net Long-term Capital Gains
|
165,742 | | |||||
|
|||||||
Total Taxable Distributions | $ | 39,417,927 | $ | 13,404,047 | |||
Tax Return of Capital
|
| 6,373,531 | |||||
|
|||||||
Total Distributions Paid | $ | 39,417,927 | $ | 19,777,578 | |||
|
46 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Notes to Financial Statements (continued)
As of October 31, 2005, the components of accumulated earnings on a tax basis were as follows:
Other book/tax temporary differences (a) | $ | 489,900 | |
Unrealized appreciation (b) | 33,457,909 | ||
|
|||
Total Accumulated Earnings/(Losses) net | $ | 33,947,809 | |
|
(a) | Other book/tax temporary differences are attributable primarily to the realization for tax purposes of unrealized lossses on certain options contracts. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax def-feral of losses on wash sales, the difference between book and tax amortization methods for discounts and premiums on fixed income securities, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies, and the difference between the book and tax cost basis of investmments in real estate investment trusts. |
8. Change in Independent Registered Public Accounting Firm (unaudited)
PricewaterhouseCoopers
LLP resigned as the independent registered public accounting firm for the Fund
effective June 17, 2005. The Funds Audit Committee approved the engagement of KPMG LLP as the Funds new
independent registered public accounting firm for the fiscal year ending October 31, 2005. A majority of the Funds
Board of Directors, including a majority of the independent Directors, approved
the appointment of KPMG LLP, subject to the right of the Fund, by a majority
vote of the shareholders at any meeting called for that purpose, to terminate
the appointment without penalty.
The report of PricewaterhouseCoopers LLP on the Funds financial statements for the period February 24, 2004 (commencement of operations) through October 31, 2004 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. There have been no disagreements with PricewaterhouseCoopers LLP during the period February 24, 2004 (commencement of operations) through October 31, 2004 and any subsequent interim period on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of PricewaterhouseCoopers LLP, would have caused them to make reference thereto in their report on the financial statements for such period.
9. Regulatory Matters
On
May 31, 2005, the U.S. Securities and Exchange Commission (SEC) issued an order in connection with the settlement of an administrative proceeding against SBFM and Citigroup Global Markets Inc.
(CGM) relating to the appointment of an affiliated transfer agent for the Smith Barney family of mutual funds (the Affected Funds).
The SEC order finds that SBFM and CGM willfully violated Section 206(1) of the Investment Advisers Act of 1940 (Advisers Act). Specifically, the order finds that SBFM and CGM knowingly or recklessly failed to disclose to the boards of the Affected Funds in 1999 when proposing a new transfer agent arrangement with an affiliated transfer agent that: First Data Investors Services Group (First Data), the Affected Funds then-existing transfer agent, had offered to continue as transfer agent and do the same work for substantially less money than before; and that Citigroup Asset Management (CAM), the Citigroup business unit that, at the time, included the funds investment manager and other
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 47
Notes to Financial Statements (continued)
investment advisory companies, had entered into a side letter with First Data under which CAM agreed to recommend the appointment of First Data as sub-transfer agent to the affiliated transfer agent in exchange for, among other things, a guarantee by First Data of specified amounts of asset management and investment banking fees to CAM and CGM. The order also finds that SBFM and CGM willfully violated Section 206(2) of the Advisers Act by virtue of the omissions discussed above and other misrepresentations and omissions in the materials provided to the Affected Funds boards, including the failure to make clear that the affiliated transfer agent would earn a high profit for performing limited functions while First Data continued to perform almost all of the transfer agent functions, and the suggestion that the proposed arrangement was in the Affected Funds best interests and that no viable alternatives existed. SBFM and CGM do not admit or deny any wrongdoing or liability. The settlement does not establish wrongdoing or liability for purposes of any other proceeding.
The SEC censured SBFM and CGM and ordered them to cease and desist from violations of Sections 206(1) and 206(2) of the Advisers Act. The order requires Citigroup to pay $208.1 million, including $109 million in disgorgement of profits, $19.1 million in interest, and a civil money penalty of $80 million. Approximately $24.4 million has already been paid to the Affected Funds, primarily through fee waivers. The remaining $183.7 million, including the penalty, has been paid to the U.S. Treasury and will be distributed pursuant to a plan prepared and submitted for approval by the SEC. The order also requires that transfer agency fees received from the Funds since December 1, 2004 less certain expenses be placed in escrow and provides that a portion of such fees may be subsequently distributed in accordance with the terms of the order.
The order required SBFM to recommend a new transfer agent contract to the Affected Fund boards within 180 days of the entry of the order; if a Citigroup affiliate submitted a proposal to serve as transfer agent or sub-transfer agent, SBFM and CGM would have been required, at their expense, to engage an independent monitor to oversee a competitive bidding process. On November 21, 2005, and within the specified timeframe, the Funds Board approved a new transfer agent contract for the Fund. No Citigroup affiliate submitted a proposal to serve as transfer agent. Under the order, SBFM also must comply with an amended version of a vendor policy that Citigroup instituted in August 2004.
At this time, there is no certainty as to how the proceeds of the settlement will be distributed, to whom such distributions will be made, the methodology by which such distributions will be allocated, and when such distributions will be made. Although there can be no assurance, SBFM does not believe that this matter will have a material adverse effect on the Affected Funds.
This Fund is not one of the Affected Funds and therefore did not implement the transfer agent arrangement described above and therefore will not receive any portion of the distributions.
On December 1, 2005, Citigroup completed the sale of substantially all of its global asset management business, including SBFM, to Legg Mason Inc.
48 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Notes to Financial Statements (continued)
10. Other Matters
The Fund has received information from SBAM as follows:
On September 16, 2005, the staff of the Securities and Exchange Commission (the Commission) informed SBAM that the staff is considering recommending that the Commission institute administrative proceedings against SBAM for alleged violations of Sections 19(a) and 34(b) of the Investment Company Act (and related Rule 19a-1). The notification is a result of an industry wide inspection undertaken by the Commission and is based upon alleged deficiencies in disclosures regarding dividends and distributions paid to shareholders of certain funds. In connection with the contemplated proceedings, the staff may seek a cease and desist order and/or monetary damages from SBAM.
Although there can be no assurance, SBAM believes that this matter is not likely to have a material adverse effect on the Fund or SBAMs ability to perform investment advisory services relating to the Fund.
11. Subsequent Events
On
December 1, 2005, Citigroup completed the sale of substantially all of its asset
management business, CAM, to Legg Mason. As a result, the Funds Manager, previously an indirect wholly-owned subsidiary of Citigroup,
has become a wholly-owned subsidiary of Legg Mason. Completion of the sale caused the Funds existing investment management contract to terminate. The Funds
shareholders previously approved a new investment management contract between
the Fund and the Manager which became effective on December 1, 2005.
Legg Mason, whose principal executive offices are at 100 Light Street, Baltimore, Maryland 21202, is a financial services holding company. As of December 2, 2005, Legg Masons asset management operation had aggregate assets under management of approximately $830 billion.
Effective December 1, 2005, CGM will no longer be an affiliated person of the Fund under the Investment Company Act of 1940, as amended. As a result, the fund will be permitted to execute transactions with CGM or an affiliate of CGM as agent without the restrictions applicable to transactions with affiliated persons. Similarly, the Fund generally will be permitted to purchase securities in underwritings in which CGM or an affiliate of CGM is a member without the restrictions imposed by certain rules of the Securities and Exchange Commission. The Managers use of CGM or affiliates of CGM as agent in portfolio transactions with the Fund will be governed by the Funds policy of seeking the best overall terms available.
Certain officers and one Director of the Fund are employees of Legg Mason or its affiliates and do not receive compensation from the Fund.
The Funds Board has approved American Stock Transfer & Trust Co. (AST) to serve as transfer agent for the Fund. The principal business office of AST is located at 59 Maiden Lane, New York, NY 10038.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 49
Report of Independent Registered Public Accounting Firm
The Board of Directors and ShareholdersWe have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Salomon Brothers Capital and Income Fund Inc. as of October 31, 2005, and the related statement of operations, statement of changes in net assets, statement of cash flows, and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets and the financial highlights for the period February 24, 2004 (commencement of operations) through October 31, 2004 were audited by other independent registered public accountants whose report thereon, dated December 21, 2004, expressed an unqualified opinion on that financial statement and those financial highlights.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2005, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Salomon Brothers Capital and Income Fund Inc. as of October 31, 2005, and the results of its operations, changes in its net assets, its cash flows, and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles.
New York, New York
December 16, 2005
50 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Board Approval of Management Agreement (unaudited)
Background
The
members of the Board of Salomon Brothers Capital and Income Fund Inc. (the Fund), including the Funds independent, or non-interested, Board members (the Independent Board Members), received
extensive information from the Funds manager (the Manager) to assist them in their consideration of the Funds management agreement (the Management Agreement).
This includes a variety of information about the Manager, including the advisory
arrangements for the Fund and other funds overseen by the Board, certain portions
of which are discussed below.
At an in-person meeting held on July 25 and 26, 2005, a presentation was made to the Board by the Manager that encompassed the Fund and all the funds for which the Board has responsibility. The Board evaluated information made available on a fund-by-fund basis and its determinations were made separately in respect of each fund, including the Fund. The Fund has a combined investment advisory and administration agreement. The discussion below covers both advisory and administrative functions being rendered by the Manager.
Board Approval of Management Agreement
The
Board unanimously approved the continuation of the Management Agreement for a
period of up to one year concluding, in doing so, that the Manager should continue
to be the Funds investment adviser and that the
compensation payable under the agreement is fair and reasonable in light of the
services performed, expenses incurred and such other matters as the Board considered
relevant in the exercise of its business judgment. In approving continuance of
the Management Agreement, the Board considered the announcement on June 24, 2005
by Citigroup that it had signed a definitive agreement under which Citigroup
will sell substantially all of its worldwide asset management business to Legg
Mason, Inc. Upon completion of this transaction the Manager, which was an indirect
wholly-owned subsidiary of Citigroup, would become an indirect wholly-owned subsidiary
of Legg Mason, Inc. and the Management Agreement will terminate. Other factors
considered and conclusions rendered by the Board in determining to approve the
continuation of the Management Agreement included the following:
Nature, Extent and Quality of the Services under the Management Agreement
The
Board received and considered information regarding the nature, extent and quality
of services provided to the Fund by the Manager under the Management Agreement
during the past year. The Board also received a description of the administrative
and other services rendered to the Fund and its shareholders by the Manager.
The Board noted that it had received information at regular meetings throughout
the year related to the services rendered by the Manager about the management
of the Funds affairs and the Managers role in coordinating the activities of the Funds other service providers. The Boards evaluation of the services provided by the Manager took into account the
Boards knowledge and familiarity gained as Board members of funds in the Citigroup Asset Management (CAM) fund complex, including the scope and quality of the Managers
investment management and other capabilities and the quality of its administrative
and other services. The
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 51
Board Approval of Management Agreement (unaudited)
(continued)
Board considered that the scope of
services provided by the Manager had expanded over time as a result of regulatory
and other developments, including maintaining and monitoring its own and the
Funds expanded
compliance programs. The Board also considered the Managers response to recent regulatory compliance issues affecting it and the CAM fund complex. The Board reviewed information received from the Manager regarding the implementation to date of
the Funds compliance policies and procedures established pursuant to Rule
38a-1 under the Investment Company Act of 1940.
The Board reviewed information describing the qualifications, backgrounds and responsibilities of the Funds senior personnel and the portfolio management team primarily responsible for the day-to-day portfolio management of the Fund. The Board also considered the willingness of the Manager to consider and implement organizational changes to improve investment results and the services provided to the CAM fund complex. The Board also considered financial information from the Manager and based on its general knowledge of the Manager, affiliates, the financial resources available to CAM and its then parent organization, Citigroup Inc.
The Board also considered information presented regarding the Managers brokerage policies and practices, the standards applied in seeking best execution, the use of a broker affiliated with the Manager and the existence of quality controls applicable to brokerage allocation procedures. In addition, the Manager also reported to the Board on, among other things, its business plans, recent organizational changes and portfolio manager compensation plan.
The Board concluded that, overall, it was satisfied with the nature, extent and quality of services provided (and expected to be provided) under the Management Agreement.
Fund Performance
The
Board received and considered performance information for the Fund as well as
for a group of funds (the Performance Universe) selected by Lipper, Inc. (Lipper), an independent provider of
investment company data. The Board was provided with a description of the methodology Lipper used to select the funds included in the Performance Universe. The Board also noted that it had received information prepared by the Manager throughout the
year at periodic intervals comparing the Funds performance against its
bench-mark(s) and Lipper peers.
The information comparing the Funds performance to that of its Performance Universe, consisting of all closed-end funds classified as income and preferred stock funds by Lipper, showed that the Funds performance since inception presented was slightly below the median.
Based on their review, which included consideration of all of the factors noted above, the Board concluded that the investment performance of the Fund has been satisfactory.
Management Fees and Expense Ratios
The
Board considered the contractual management fee (the Contractual Management Fee)
payable by the Fund to the Manager in light of the nature, extent and quality
of the management services provided by the Manager. Additionally, the Board received
and con-
52 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Board Approval of Management Agreement (unaudited)
(continued)
sidered
information prepared by Lipper comparing the Funds Contractual Management Fees and the Funds overall expenses with those of funds in a relevant expense group and a broader group of funds, each selected
and provided by Lipper. The Board also reviewed information regarding fees charged by the Manager to other U.S. clients investing primarily in an asset class similar to that of the Fund including, where applicable, separate accounts. The Manager
reviewed with the Board the significant differences in scope of services provided to the Fund and the scope of the services provided to these other clients, noting that, unlike such other clients, the Fund is provided with administrative services,
office facilities, Fund officers (including the Funds chief executive,
chief financial and chief compliance officers), and that the Manager coordinates
and oversees the provision of services to the Fund by other Fund providers. The
Board considered the fee comparisons in light of the broader range of services
provided to the Fund and did not place a significant weight on this factor. The
Board received an analysis of complex-wide management fees provided by the Manager,
which, among other things, set out a proposed framework of fees based on asset
classes.
The information comparing the Funds Contractual Management Fees as well as its actual total expense ratio to its Expense Group, consisting of 9 closed-end funds (including the Fund) classified as leveraged income and preferred funds by Lipper, showed that the Funds Contractual Management Fees were equal to the median range of management fees paid by the other funds in the Expense Group. The Board noted that the Funds actual total expense ratio was equal to the median, and concluded that the expense ratio of the Fund was acceptable in the light of the quality of the services the Fund received and such other factors as the Board considered relevant.
Taking all of the above into consideration, the Board determined that the Funds Management Fee was reasonable in light of the nature, extent and quality of the services provided to the Fund under the Management Agreement.
The material factors and conclusions that formed the basis for the Boards determination to approve the continuance of the Management Agreement (including the determinations that the Manager should continue to serve as the investment adviser to the Fund and that the fees payable to the Manager pursuant to the Management Agreement are appropriate) included the following:
Manager Profitability
The
Board considered information regarding the profitability to Manager and its affiliates
of their relationships with the Fund. The Board also received profitability information
with respect to the CAM fund complex as a whole. In addition, the Board received
information with respect to the Managers allocation methodologies used in preparing this profitability data as well as a report from an outside consultant that had reviewed the Managers methodology.
Based upon their review of the information made available, the Board concluded that the Managers
profitability was not excessive in light of the nature, extent and quality of
the services provided to the Fund.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 53
Board Approval of Management Agreement (unaudited)
(continued)
Economies of Scale
The
Board received and considered information regarding whether there have been economies
of scale with respect to the management of the Fund, whether the Fund has appropriately
benefited from any economies of scale, and whether, given the Funds closed-end structure, there is a realistic potential for realization of any further economies of scale. The Board considered whether economies of scale in the provision of services to the Fund were being passed along
to the shareholders. The Board also considered whether alternative fee structures (such as breakpoints at lower asset levels) would be more appropriate or reasonable taking into consideration economies of scale or other efficiencies. The Board also
noted that as the Funds assets have increased over time, it has realized
other economies of scale, as certain expenses, such as fees for Board members,
auditors and legal fees, become a smaller percentage of overall assets.
Generally, in light of the Managers profitability data, and such other factors as the Board considered relevant, the Board concluded that the Managers sharing of current economies of scale with the Fund was reasonable.
Other Benefits to the Manager
The Board considered other benefits received by the Manager and its affiliates as a result of their relationship with the Fund, including soft dollar arrangements and the opportunity to offer additional products and
services to Fund shareholders.
In light of the costs of providing investment management and other services to the Fund and the Managers ongoing commitment to the Fund, other ancillary benefits that the Manager and its affiliates received were not considered unreasonable to the Board.
Additional Information
On
June 23, 2005, Citigroup Inc. entered into a definitive agreement (the Transaction Agreement) with Legg Mason, Inc. under which Citigroup agreed to sell substantially all of its asset management business,
Citigroup Asset Management (CAM), which includes the Adviser, to Legg Mason in exchange for the broker-dealer and investment banking businesses of Legg Mason and certain other considerations (the Transaction).
The Transaction closed on December 1, 2005.
The consummation of the Transaction resulted in the automatic termination of the Funds current management agreement for each CAM-advised Fund overseen by the Board (the CAM funds) including the Fund (each, a Current Management Agreement) in accordance with the Investment Company Act of 1940, as amended (the 1940 Act). At meetings held on August 12, 2005, the Funds Board, including the Independent Board Members, unanimously approved a new management agreement between each CAM fund including the Fund, and the Adviser (each, a New Management Agreement) and authorized the Funds officers to submit the New Management Agreement to shareholders for their approval.
In anticipation of the Transaction, members of the Funds Board met in person on July 11, 2005 and August 12, 2005 for purposes of, among other things, considering whether it would be in the best interests of each CAM fund and its shareholders to approve the New
54 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Board Approval of Management Agreement (unaudited)
(continued)
Management Agreement between the
fund and the funds Adviser. At those Board meetings, and for the reasons
discussed below, the Board, including a majority of the Independent Board Members,
unanimously approved each New Management Agreement and unanimously recommended
its approval by shareholders in order to assure continuity of investment advisory
services to the CAM fund after the Transaction.
To assist the Boards in their consideration of the New Management Agreements, Legg Mason provided materials and information about Legg Mason, including its financial condition and asset management capabilities and organization, and Legg Mason and CAM provided materials and information about the Transaction between Legg Mason and Citigroup. The Independent Board Members, through their independent legal counsel, also requested and received additional information from CAM and Legg Mason in connection with their consideration of the agreements. The additional information was provided in advance of and at the August meetings. In addition, the Independent Board Members consulted with their counsel on various occasions on, and received from their counsel a memorandum outlining, among other things, the legal standards and certain other considerations relevant to the Board Members deliberations.
On July 11, 2005 and August 12, 2005, members of the Boards discussed with CAM management and certain Legg Mason representatives the Transaction and Legg Masons general plans and intentions regarding CAM funds, including the preservation, strengthening and growth of CAMs business and its combination with Legg Masons business. The Board Members also inquired about the plans for and anticipated roles and responsibilities of certain CAM employees and officers after the Transaction. The Independent Board Members of the Board also conferred separately and with their counsel about the Transaction on a number of occasions, including in connection with the July discussion and August meetings.
At the Boards August meeting, representatives of CAM and Legg Mason made presentations to and responded to questions from the Board. After the presentations and after reviewing the written materials provided, the Independent Board Members met in executive session with their counsel to consider the New Management Agreement.
Among other things, the Board Members considered:
(i) |
the reputation, financial strength and resources of Legg Mason and its investment advisory subsidiaries; | ||
(ii) |
that Legg Mason and its wholly-owned subsidiary, Western Asset Management Company and its affiliates (Western Asset), are experienced and respected asset management firms, and that Legg Mason has advised the Board Members that (a) it intends to combine the fixed income investment operations (including money market fund operations) of CAM with those of Western Asset and may also wish to combine other CAM operations with those of other Legg Mason subsidiaries; (b) after the closing of the Transaction, it will take steps to combine the investment management operations of Western Asset with the fixed income operations of the Adviser to CAM funds, which, among other things, may involve Western Asset, the Adviser to CAM funds sharing common systems and procedures, | ||
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 55
Board Approval of Management Agreement (unaudited)
(continued)
employees (including portfolio managers), investment and trading platforms, and other resources; (c) it is expected that these combination processes will result in changes to portfolio managers or portfolio management teams for a number of CAM funds, subject to Board consent and appropriate notice to shareholders, and that, in other cases, the current portfolio managers or portfolio management teams will remain in place; and (d) in the future, it may recommend that Western Asset or other Legg Mason subsidiaries be appointed as the adviser or subadviser to certain CAM fund, including the Fund, subject to applicable regulatory requirements; | |||
(iii) | that CAM management and Legg Mason have advised the Boards that following the Transaction, there is not expected to be any diminution in the nature, quality and extent of services provided to each CAM fund, including the Fund, and its shareholders by the Adviser, including compliance services; | ||
(iv) | the assurances from Citigroup and Legg Mason that, for a three year period following the closing of the Transaction, the Adviser will have substantially the same access to the Citigroup sales force when distributing shares of CAM funds as is currently provided to CAM and that other arrangements between the Adviser and Citigroup sales channels will be preserved; | ||
(v) | that Legg Mason and Citigroup intend to enter into an agreement in connection with the Transaction under which Citigroup-affiliated broker-dealers will continue to offer CAM funds as investment products, and the potential benefits to fund shareholders from this and other third-party distribution access; | ||
(vi) | the potential benefits to CAM fund shareholders from being part of a combined fund family with Legg Mason-sponsored funds, including possible economies of scale and access to investment opportunities; | ||
(vii) | that Citigroup and Legg Mason would derive benefits from the Transaction and that as a result, they have a financial interest in the matters that were being considered; | ||
(viii) | the potential effects of regulatory restrictions on CAM funds if Citigroup-affiliated broker-dealers remain the principal underwriters for CAM funds; | ||
(ix) | the fact that the Funds total advisory and administrative fees will not increase by virtue of the New Management Agreement, but will remain the same; | ||
(x) | the terms and conditions of the New Management Agreement, including the differences from the Current Management Agreement, and, where applicable, the benefits of a single, uniform form of agreement covering these services; | ||
(xi) | that in July 2005 each Board had performed a full annual review of the Funds Current Management Agreement as required by the 1940 Act, and had determined that the Adviser has the capabilities, resources and personnel necessary to provide the advisory and administrative services currently provided to the Fund; and that the advisory and/or management fees paid by the Fund represent | ||
56 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Board Approval of Management Agreement (unaudited)
(continued)
reasonable compensation to the Adviser in light of the nature, extent and quality of the services to be provided by the Adviser, the investment performance of the Fund and the Adviser, the costs of the services to be provided and the profits to be realized by the Adviser and its affiliates from the relationship with the Fund, the extent to which economies of scale may be realized as the Fund grows, the reflection of these economies of scale in the fee levels for the benefit of Fund shareholders, and such other matters as the Board Members considered relevant in the exercise of their reasonable judgment; | |||
(xii) | that the Fund would not bear the costs of obtaining shareholder approval of the New Management Agreements; and | ||
(xiii) |
that under the Transaction Agreement, Citigroup and Legg Mason have agreed not to take any action that is not contemplated by the Transaction or fail to take any action that to their respective knowledge would cause any of the requirements of Section 15(f) not to be met. |
Certain of these considerations are discussed in more detail below.
In their deliberations, the Board Members considered information received in connection with their recent approval of continuance of each Current Management Agreement in addition to information provided by Legg Mason and CAM in connection with their evaluation of the terms and conditions of the New Management Agreement. The Board Members did not identify any particular information that was all-important or controlling, and each Board Member attributed different weights to the various factors. The Board Members evaluated all information available to them on a Fund-by-Fund basis, and their determinations were made separately in respect of each Fund. The Board Members, including a majority of the Independent Board Members, concluded that the terms of the New Management Agreements, including the New Management Agreement for the Fund, are fair and reasonable, that the fees stated therein are reasonable in light of the services to be provided to each Fund, and that the New Management Agreements should be approved and recommended to Fund shareholders.
Nature, Quality and Extent of Services Provided
In
evaluating the nature, quality and extent of the services to be provided by the
Adviser under the New Management Agreements, the Board Members considered, among
other things, the expected impact, if any, of the Transaction on the operations,
facilities, organization and personnel of the Adviser; the potential implications
of regulatory restrictions on the CAM funds following the Transaction; the ability
of the Adviser to perform its duties after the Transaction, taking into account,
where the CAM fund currently has a subadviser, the delegation of certain duties
to the subadviser; and any anticipated changes to the current investment and
other practices of the CAM funds. The Board Members considered Legg Masons advice that, after the closing of the Transaction, Legg Mason intends to review all aspects of the Funds operations (including equity, fixed income and money market fund operations). The Board Members considered
Legg Masons advice that it intends to combine the fixed income investment
operations of CAM with those of Western Asset
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 57
Board Approval of Management Agreement (unaudited)
(continued)
and may also wish to combine other
CAM operations with those of other Legg Mason subsidiaries. The Board Members
noted that Western Asset is an experienced and respected institutional asset
manager that focuses on managing fixed income assets on behalf of institutional
separate accounts, retirement plans and other institutional investors, including
mutual funds. The Board Members further noted that, as of June 30, 2005, Western
Asset managed approximately $230
billion in assets on behalf of its clients. The Board Members considered Legg Masons advice that, after the closing of the sale, Legg Mason will take steps to combine the investment management operations of Western Asset with the fixed income
operations of the Adviser and, in relevant cases, Citigroup Asset Management Limited (the Subadviser) to the CAM funds, which, among other things, may involve Western Asset, the Adviser and, in relevant cases, the Subadviser to the CAM
funds sharing common systems and procedures, employees (including portfolio managers), investment and trading platforms, and other resources. The Board Members also considered Legg Masons advice that it is expected that the combination
processes described above will result in additional changes to portfolio managers or portfolio management teams for a number of the CAM funds, subject to Board consent and appropriate notice to shareholders, and that, in other cases, the current
portfolio managers or portfolio management teams will remain in place. The Board Members also considered Legg Masons
advice that, in the future, Legg Mason may recommend that Western Asset or other
Legg Mason subsidiaries be appointed as the adviser or subadviser to some or
all of the CAM funds, subject to applicable regulatory requirements.
The Board Members were advised that if Citigroup-affiliated broker-dealers remain the CAM funds principal underwriters, the funds would continue to be subject to restrictions concerning certain transactions involving Citigroup affiliates (for example, transactions with a Citigroup broker-dealer acting as principal) absent regulatory relief or clarification.
Based on their review of the materials provided and the assurances they had received from CAM management and Legg Mason, the Board Members determined that the Transaction was not expected to adversely affect the nature and quality of services provided by the Adviser and that the Transaction was not expected to have a material adverse effect on the ability of the Adviser to provide those services. It was noted, however, that, in addition to the changes previously described, it is expected that there will be other changes in personnel following the Transaction or after the combination of CAMs operations with those of Legg Mason subsidiaries. The Board Members noted that if current portfolio managers or other personnel cease to be available, each Board would consider all available options, which could include seeking the investment advisory or other services of Legg Mason affiliates or investment advisers not affiliated with Legg Mason. In this regard, it was noted that Legg Mason has indicated that it could potentially make available to the Adviser additional portfolio management resources in the event of loss of CAM personnel for particular investment disciplines. Accordingly, the Board Members concluded that, overall, they were satisfied at the present time with assurances from Legg Mason and CAM as to the expected nature, extent and quality of the services to be provided to the CAM funds under the New Management Agreements.
58 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Board Approval of Management Agreement (unaudited)
(continued)
Costs of Services Provided and Profitability
In evaluating the costs of the services to be provided by the Adviser under the New Management
Agreements and the profitability to the Adviser of their relationships with the
Funds, the Board Members considered, among other things, whether advisory and
administrative (or management) fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the assurances
they had received from CAM management and Legg Mason, the Board Members determined
that the Transaction would not increase the fees payable for advisory and administrative
(or management) services and that overall CAM fund expenses were not expected
to increase materially as a result of the Transaction. The Board Members noted
that it was not possible to predict how the Transaction would affect the Advisers profitability from its relationship with the CAM funds, but that they had been satisfied in their most recent review of the Current Management Agreements, including the Funds Current Management
Agreements, that the Advisers level of profitability from its relationship with the Funds was not excessive. It was noted that in conjunction with that review, the Board Members had obtained an independent accountants review of the
methodology used to determine the Advisers profitability. The Board Members concluded that, overall, they were satisfied that currently, the Advisers
level of profitability from its relationship with each CAM fund, including the
Fund, was not excessive.
The Board Members noted that they expect to receive Adviser profitability information on an annual basis and thus be in a position to evaluate whether any adjustments in Fund fees and/or fee breakpoints would be appropriate.
Fall-Out Benefits
In evaluating the fall-out benefits to be received by the Adviser under the New
Management Agreements, the Board Members considered whether the Transaction would have an impact on the fall-out benefits received by virtue of the Current Management Agreements. Based on their review of the materials
provided, including materials received in connection with their recent approval of the continuance of each Current Management Agreement, and their discussions with CAM management, Legg Mason and Western Asset, the Board Members determined that those
benefits could include increased ability for Legg Mason to distribute shares of its funds and other investment products and to obtain research services using the CAM funds portfolio transaction brokerage. The Board Members noted that any such
benefits were difficult to quantify with certainty at this time, and indicated that they would continue to evaluate them going forward.
Fees and Economies of Scale
In
reviewing the Transaction, the Board Members considered, among other things,
whether advisory and administrative fees or other expenses would change as a
result of the Transaction. Based on the assurances they had received from CAM
management and Legg Mason, the Board Members determined that as a result of the
Transaction, each Funds total advisory and administrative fees would not
increase. The Board Members noted that in conjunction with their most recent
deliberations concerning the Current Management
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 59
Board Approval of Management Agreement (unaudited)
(continued)
Agreements, advisory or management
fee reductions and fee breakpoints had been implemented for certain Funds, and
that after taking those reductions and breakpoints into account, the Board Members
had determined that the total fees for advisory and administrative services for
many CAM funds were reasonable in light of the services provided and that CAM
management had already initiated or would be taking steps to address the Board
Members concerns regarding the
fee levels of other CAM funds. It was noted that in conjunction with the recent review of the Current Management Agreements, the Board Members had received, among other things, a report from Lipper, Inc. (Lipper) comparing each CAM
funds fees, expenses and performance to those of a peer group for that Fund selected by Lipper, and information as to the fees charged by the Adviser to other registered investment company clients for investment management services. The Board
Members concluded that because the advisory and administrative fees for each CAM fund were not expected to increase as a result of the Transaction, each CAM funds
fees for advisory and administrative services remain appropriate and that no
additional fee reductions or breakpoints were necessary at this time. The Board
Members recognized that Legg Mason may realize economies of scale from the Transaction
based on certain consolidations and synergies of operations.
Investment Performance
The
Board Members noted that investment performance for many CAM funds was satisfactory
or better, and that CAM management had already implemented or undertaken to implement
steps to address investment performance in other funds. Following the closing
of the Transaction, these steps may include combining certain CAM operations
with those of certain Legg Mason subsidiaries. The Boards noted Legg Masons
considerable investment management experience and capabilities, but were unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the CAM funds, including the Fund.
60 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Additional Information (unaudited)
Information about Directors and Officers
The
business and affairs of Salomon Brothers Capital and Income Fund Inc. (Fund)
are managed under the direction of the Board of Directors. Information pertaining
to the Directors and Officers of the Fund is set forth below.
Portfolios in | ||||||||||
Fund Complex | ||||||||||
Term of | Principal | Overseen by | ||||||||
|
Occupation(s) | Director | Other | |||||||
Name, Address and |
|
Length of | During Past | (including |
|
|||||
Birth Year |
|
Time Served | 5 Years | the Fund) | |
|||||
|
||||||||||
Non-Interested Directors: | ||||||||||
Carol L. Colman | Director and | Since | President, | 37 | None | |||||
Colman Consulting Co. | Member of | 2003 | Colman | |||||||
278 Hawley Road | the Nominating | Consulting Co. | ||||||||
North Salem, NY 10560 | and Audit | |||||||||
Birth year: 1946 | Committees, | |||||||||
Class I | ||||||||||
Daniel P. Cronin | Director and | Since | Formerly, Associate | 34 | None | |||||
24 Woodlawn Avenue | Member of | 2003 | General Counsel, | |||||||
New Rochelle, NY 10804 | the Nominating | Pfizer Inc. | ||||||||
Birth year: 1946 | and Audit | |||||||||
Committees, | ||||||||||
Class I | ||||||||||
Leslie H. Gelb | Director and | Since | President, Emeritus | 34 | Director of two | |||||
150 East 69th Street | Member of | 2003 | and Senior Board Fellow, | registered | ||||||
New York, NY 10021 | the Nominating | The Council on Foreign | investment | |||||||
Birth year: 1937 | and Audit | Relations; Formerly, | companies | |||||||
Committees, | Columnist, Deputy | advised by | ||||||||
Class II | Editorial Page Editor | Blackstone Asia | ||||||||
and Editor, Op-Ed Page, | Advisors L.L.C. | |||||||||
The New York Times | (Blackstone) | |||||||||
William R. Hutchinson | Director and | Since | President, W.R. | 44 | Associated | |||||
535 N. Michigan Avenue | Member of | 2003 | Hutchinson & Associates | Banc-Corp. | ||||||
Suite 1012 | Nominating | Inc.; Formerly Group Vice | ||||||||
Chicago, IL 60611 | and Audit | President, Mergers and | ||||||||
Birth year: 1942 | Committees, | Acquisitions, BP Amoco | ||||||||
Class II | P.L.C. | |||||||||
Riordan Roett | Director and | Since | Professor and Director | 34 | None | |||||
The Johns Hopkins | Member of | 2003 | Latin American Studies | |||||||
University | the Nominating | Program, Paul H. Nitze | ||||||||
1740 Massachusetts | and Audit | School of Avanced | ||||||||
Ave., NW | Committees, | International Studies, | ||||||||
Washington, DC 20036 | Class III | The Johns Hopkins | ||||||||
Birth year: 1938 | University | |||||||||
Jeswald W. Salacuse | Director and | Since | Henry J. Braker | 34 | Director of two | |||||
Tufts University | Member of | 2003 | Professor of | registered | ||||||
The Fletcher School of | the Nominating | Commercial Law and | investment | |||||||
Law & Diplomacy
|
and Audit | formerly Dean, The | companies | |||||||
160 Packard Avenue | Committees, | Fletcher School of | advised by | |||||||
Medford, MA 02155 | Class III | Law & Diplomacy, | Blackstone | |||||||
Birth year: 1938 | Tufts University |
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 61
Additional Information (unaudited) (continued)
Portfolios in | ||||||||||
Fund Complex | ||||||||||
|
|
Overseen by | ||||||||
Position(s) |
|
|
Director | Other | ||||||
Name, Address and | Held with |
|
|
(including | Board Memberships | |||||
Birth Year | Fund(1) |
|
|
the Fund) | Held by Director | |||||
|
||||||||||
Interested Director: | ||||||||||
R. Jay Gerken, CFA(2) | Director, |
|
Managing Director
|
171 | None | |||||
Citigroup Asset | Chairman |
|
of CAM; Chairman,
|
|||||||
Management (CAM)
|
and Chief |
President, Chief Executive
|
||||||||
399 Park Avenue | Executive Officer, |
Officer and Director of
|
||||||||
Mezzanine | Class II |
Smith Barney Fund
|
||||||||
New York, NY 10022 |
Management LLC
|
|||||||||
Birth year: 1951 |
(SBFM), Travelers
|
|||||||||
Investment Adviser, Inc.
|
||||||||||
(TIA) and
Citi Fund
|
||||||||||
Management Inc.
|
||||||||||
(CFM); President
and
|
||||||||||
Chief Executive Officer
|
||||||||||
of certain mutual funds
|
||||||||||
associated with CAM;
|
||||||||||
Formerly Porfolio
|
||||||||||
Manager of Smith Barney
|
||||||||||
Allocation Series Inc. (from
|
||||||||||
1996 to 2001) and Smith
|
||||||||||
Barney Growth and
|
||||||||||
Income Fund (from 1996
|
||||||||||
to 2000)
|
||||||||||
Officers: | ||||||||||
Andrew B. Shoup | Senior Vice |
|
Director of CAM;
|
N/A | N/A | |||||
CAM | President and |
|
Senior Vice President
|
|||||||
125 Broad Street, | Chief |
and Chief Administrative
|
||||||||
11th Floor | Administrative |
Officer of mutual funds
|
||||||||
New York, NY 10004 | Officer |
associated with CAM;
|
||||||||
Birth year: 1956 |
Treasurer of certain
|
|||||||||
mutual funds associated
|
||||||||||
with CAM; Head of
|
||||||||||
International Funds
|
||||||||||
Administration of CAM
|
||||||||||
(from 2001 to 2003);
|
||||||||||
Director of Global Funds
|
||||||||||
Administration of CAM
|
||||||||||
(from 2000 to 2001); Head
|
||||||||||
of U.S. Citibank Funds
|
||||||||||
Administration of CAM
|
||||||||||
(from 1998 to 2000)
|
62 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Additional Information (unaudited) (continued)
|
Portfolios in | |||||||||
|
Fund Complex | |||||||||
|
Principal | Overseen by | ||||||||
|
|
Occupation(s) | Director | Other | ||||||
Name, Address and |
|
|
During Past | (including | Board Memberships | |||||
Birth Year | |
5 Years | the Fund) | Held by Director | ||||||
|
||||||||||
Frances M. Guggino | Chief Financial |
|
Director of CAM; | N/A | N/A | |||||
CAM | Officer and |
|
Chief Financial Officer | |||||||
125 Broad Street | Treasurer |
|
and Treasurer of certain | |||||||
10th Floor |
|
mutual funds associated | ||||||||
New York, NY 10004 |
|
with CAM. Controller of | ||||||||
Birth year: 1957 |
|
certain mutual funds | ||||||||
|
associated with CAM | |||||||||
|
from (1999 to 2004) | |||||||||
James E. Craige, CFA | Executive Vice |
|
Managing Director of | N/A | N/A | |||||
CAM | President |
|
CAM and SBAM | |||||||
399 Park Avenue, |
|
|||||||||
4th Floor |
|
|||||||||
New York, NY 10022 |
|
|||||||||
Birth Year: 1967 |
|
|||||||||
Mark J. McAllister, CFA | Vice President |
|
Managing Director of CAM; | N/A | N/A | |||||
CAM | and Investment |
|
Investment Officer of SBFM | |||||||
399 Park Avenue, | Officer |
|
||||||||
4th Floor |
|
|||||||||
New York, NY 10022 |
|
|||||||||
Birth Year: 1962 |
|
|||||||||
Michael Sedoy, CFA | Vice President |
|
Director of CAM and SBAM | N/A | N/A | |||||
CAM | and Investment |
|
||||||||
399 Park Avenue, | Officer |
|
||||||||
4th Floor |
|
|||||||||
New York, NY 10022 |
|
|||||||||
Birth Year: |
|
|||||||||
Beth A. Semmel, CFA | Executive Vice |
|
Managing Director of CAM | N/A | N/A | |||||
CAM | President |
|
and SBAM | |||||||
399 Park Avenue |
|
|||||||||
4th Floor |
|
|||||||||
New York, NY 10022 |
|
|||||||||
Birth Year: 1960 |
|
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 63
Additional Information (unaudited) (continued)
|
Portfolios in | |||||||||
|
Fund Complex | |||||||||
|
Principal | Overseen by | ||||||||
|
Occupation(s) | Director | Other | |||||||
Name, Address and |
|
|
During Past | (including | Board Memberships | |||||
Birth Year |
|
|
5 Years | the Fund) | Held by Director | |||||
|
||||||||||
Andrew Beagley | Chief |
|
Director of CAM | N/A | N/A | |||||
CAM | Compliance |
|
(since 2000); Director | |||||||
399 Park Avenue | Officer |
|
of Compliance, North | |||||||
4th Floor |
|
America, CAM (since | ||||||||
New York, NY 10022 |
|
2000); Chief Anti-Money | ||||||||
Birth Year: 1962 |
|
Laundering Compliance | ||||||||
|
Officer, Chief Compliance | |||||||||
|
Officer and Vice President | |||||||||
|
of certain mutual funds | |||||||||
|
associated with CAM; | |||||||||
|
Director of Compliance, | |||||||||
|
Europe, the Middle East | |||||||||
|
and Africa. CAM (from 1999 | |||||||||
|
to 2000); Chief Compliance | |||||||||
|
Officer SBFM, CFM, TIA | |||||||||
|
Salomon Brothers Asset | |||||||||
|
Management Limited, | |||||||||
|
Smith Barney Global | |||||||||
|
Capital Management Inc. | |||||||||
Wendy S. Setnicka | Controller |
|
Vice President of | N/A | N/A | |||||
CAM |
|
CAM (since 2003); | ||||||||
125 Broad Street |
|
Controller of certain | ||||||||
10th Floor |
|
mutual funds associated | ||||||||
New York, NY 10004 |
|
with CAM; Assistant | ||||||||
Birth Year: 1964 |
|
Controller of CAM | ||||||||
|
(from 2002 to 2004); | |||||||||
|
Accounting Manager | |||||||||
|
of CAM (from 1998 | |||||||||
to 2002) |
||||||||||
Robert I. Frenkel | Secretary and Since | Managing Director and | N/A | N/A | ||||||
CAM | Chief Legal |
|
General Counsel of | |||||||
300 First Stamford Place | Officer |
|
Global Mutual Funds | |||||||
4th Floor |
|
for CAM and its | ||||||||
Stamford, CT 06902 |
|
predecessor (since | ||||||||
Birth year: 1954 |
|
1994); Secretary of CFM | ||||||||
|
(from 2001 to 2004); | |||||||||
|
Secretary and Chief Legal | |||||||||
|
Officer of mutual funds | |||||||||
|
associated with CAM |
(1) | The Funds Board of Directors is divided into three classes: Class I, Class II and Class III. The terms of office of the Class I, II and III Directors expire at the Annual Meetings of Stockholders in the year 2006, year 2007 and year 2008, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Funds executive officers are chosen each year by the Funds Board of Directors to hold office for a one-year term and until their successors are duly elected and qualified. |
(2) | Mr. Gerken is an interested person of the Fund as defined in the Investment Company Act of 1940, as amended, because Mr. Gerken is an officer of SBFM and certain of its affiliates. |
64 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Annual Chief Executive Officer and
Chief Financial Officer Certification (unaudited)
The Funds CEO has submitted to the NYSE the required annual certification and the Fund also has included the Certifications of the Funds CEO and CFO required by Section 302 of the Sarbanes-Oxley Act in the Funds Form N-CSR filed with the SEC for the period of this report.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 65
Dividend Reinvestment Plan (unaudited)
Unless you elect to receive distributions in cash, all distributions, on your Common Shares will be automatically reinvested by American Stock Transfer & Trust Company, as agent for the Common Shareholders (the Plan Agent), in additional Common Shares under the Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by American Stock Transfer & Trust Company as dividend paying agent.
If you participate in the Plan, the number of Common Shares you will receive will be determined as follows:
(1) If the market price of the Common Shares on the record date (or, if the record date is not a New York Stock Exchange trading day, the immediately preceding trading day) for determining shareholders eligible to receive the relevant distribution (the determination date) is equal to or exceeds the net asset value per share of the Common Shares, the Fund will issue new Common Shares at a price equal to the greater of (a) the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the market price per share of the Common Shares on the determination date.
(2) If the net asset value per share of the Common Shares exceeds the market price of the Common Shares on the determination date, the Plan Agent will receive the distribution in cash and will buy Common Shares in the open market, on the Exchange or elsewhere, for your account as soon as practicable commencing on the trading day following the determination date and terminating no later than the earlier of (a) 30 days after the distibution payment date, or (b) the record date for the next succeeding distribution to be made to the Common Shareholders; except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price rises so that it equals or exceeds the net asset value per share of the Common Shares at the close of trading on the Exchange on the determination date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases, the Plan Agent will cease purchasing Common Shares in the open market and the Fund shall issue the remaining Common Shares at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the Exchange on the determination date or (b) 95% of the then current market price per share.
The Plan Agent maintains all participants accounts in the Plan and gives written confirmation of all transactions in the accounts, including information you may need for tax records. Common Shares in your account will be held by the Plan Agent in non-certified form. Any proxy you receive will include all Common Shares you have received under the Plan.
You may withdraw from the Plan by notifying the Plan Agent in writing at 59 Maiden Lane, New York, New York 10038. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date; otherwise such withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on the Common Shares. The Plan may be terminated by the fund upon notice in writing mailed to Common Shareholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination is to be effective. Upon any
66 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Dividend Reinvestment Plan (unaudited) (continued)
termination, you will be sent a certificate or certificates for the full Common Shares held for you under the Plan and cash for any fractional Common Shares. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your shares on your behalf. The Plan Agent is authorized to deduct brokerage charges actually incurred for this transaction from the proceeds.
There is no service charge for reinvestment of your dividends or distributions in Common Shares. However, all participants will pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional Common Shares, this allows you to add to your investment through dollar cost averaging, which may lower the average cost of your Common Shares over time.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends and distributions.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan and your account may be obtained from the Plan Agent at 59 Maiden Lane, New York, New York 10038.
Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report 67
Important Tax Information (unaudited)
The following information is provided with respect to the distributions paid during the taxable year ended October 31, 2005
Record Date: |
|
||
Payable Date: |
|
||
|
|||
Qualified Dividend Income for Individuals | 16.73 | % | |
|
|||
Dividends Qualifying for the Dividends Received Deduction for Corporations | 13.80 | % | |
|
Please retain this information for your records.
68 Salomon Brothers Capital and Income Fund Inc. 2005 Annual Report
Salomon Brothers Capital and Income Fund Inc. 125 Broad Street 10th Floor, MF-2 New York, New York 10004 Telephone 1-888-777-0102 |
|||
DIRECTORS | INVESTMENT MANAGER | ||
Carol L. Colman | AND ADMINISTRATOR | ||
Daniel P. Cronin | Salomon Brothers Asset | ||
Leslie H. Gelb | Management Inc. | ||
R. Jay Gerken, CFA | 399 Park Avenue | ||
William R. Hutchinson | New York, New York 10022 | ||
Riordan Roett | |||
Jeswald W. Salacuse | CUSTODIAN | ||
State Street Bank | |||
OFFICERS | & Trust Company | ||
R. Jay Gerken, CFA | 225 Franklin Street | ||
Chairman, President and | Boston, Massachusetts 02110 | ||
Chief Executive Officer | |||
TRANSFER AGENT | |||
Andrew B. Shoup | American Stock Transfer & | ||
Senior Vice President and | Trust Company | ||
Chief Administrative Officer | 59 Maiden Lane | ||
New York, New York 10038 | |||
James E. Craige, CFA | |||
Executive Vice President | INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | |||
Mark J. McAllister, CFA | KPMG LLP | ||
Executive Vice President | 345 Park Avenue | ||
New York, NY 10154 | |||
Michael Sedoy, CFA | |||
Executive Vice President | LEGAL COUNSEL | ||
Simpson Thacher & Bartlett LLP | |||
Beth A. Semmel, CFA | 425 Lexington Avenue | ||
Executive Vice President | New York, New York 10017 | ||
Frances M. Guggino | NEW YORK STOCK | ||
Chief Financial Officer and | EXCHANGE SYMBOL | ||
Treasurer | SCD | ||
Andrew Beagley | |||
Chief Compliance Officer | |||
Wendy S. Setnicka | |||
Controller | |||
Robert I. Frenkel | |||
Secretary and Chief Legal Officer |
This report is transmitted
|
Salomon Brothers Capital and Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its common stock in the open market. The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The Funds Forms N-Q are available on the Commissions website at www.sec.gov. The Funds Forms N-Q may be reviewed and copied at the Commissions Public Reference Room in Washington D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. To obtain information on Form N-Q from the Fund, shareholders can call 1-800-725-6666. Information on how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 and a description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling 1-800-725-6666, (2) on the Funds website at www.citigroupam.com and (3) on the SECs website at www.sec.gov. |
ITEM 2.
|
CODE OF ETHICS. |
The registrant has adopted a code of ethics that applies to the | |
registrants principal executive officer, principal financial | |
officer, principal accounting officer or controller. | |
ITEM 3.
|
AUDIT COMMITTEE FINANCIAL EXPERT. |
The Board of Directors of the registrant has determined that | |
William R. Hutchinson, the chairman of the Boards Audit Committee, | |
possesses the attributes identified in Instruction 2(b) of Item 3 | |
to Form N-CSR to qualify as an audit committee financial expert, | |
and has designated Mr. Hutchinson as the audit committee financial | |
expert. Mr. Hutchinson is an independent Director pursuant to | |
paragraph (a)(2) of Item 3 to Form N-CSR. | |
ITEM 4.
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
a) Audit Fees. Effective June 17, 2005 PricewaterhouseCoopers
|
|
LLP (PWC) resigned as the Registrants principal accountant (the | |
Auditor). The Registrants audit committee approved the | |
engagement of KPMG LLP (KPMG) as the Registrants new principal | |
accountant for the fiscal year ended October 31, 2005. The | |
aggregate fees billed in the last two fiscal years ending October | |
31, 2004 and October 31, 2005 (the "Reporting Periods") for | |
professional services rendered by PWC for the audit of the | |
Registrant's annual financial statements, or services that are | |
normally provided by the Auditor in connection with the statutory | |
and regulatory filings or engagements for the Reporting Periods, | |
were $72,000 in 2004 and $53,000 in 2005. KPMG has not billed the | |
Registrant for professional services rendered as of October 31, | |
2005. | |
b) Audit-Related Fees. The aggregate fees billed in the Reporting | |
Periods for assurance and related services by PWC or KPMG that are | |
reasonably related to the performance of the audit of the | |
Registrant's financial statements and are not reported under | |
paragraph (a) of this Item 4 were $8,500 in 2004 and $8,500 in | |
2005. | |
In addition, there were no Audit-Related Fees billed in the | |
Reporting Period for assurance and related services by the Auditor | |
to the Registrants investment adviser (not including any sub- | |
adviser whose role is primarily portfolio management and is | |
subcontracted with or overseen by another investment adviser), and | |
any entity controlling, controlled by or under common control with | |
the investment adviser that provides ongoing services to the | |
Salomon Brothers Capital and Income Fund (service affiliates), | |
that were reasonably related to the performance of the annual audit | |
of the service affiliates. Accordingly, there were no such fees | |
that required pre-approval by the Audit Committee for the Reporting | |
Periods (prior to May 6, 2003 services provided by the Auditor were | |
not required to be pre-approved). | |
(c) Tax Fees. The aggregate fees billed in the Reporting Periods | |
for professional services rendered by PWC for tax compliance, tax | |
advice and tax planning ("Tax Services") were $5,900 in 2004 and $0 | |
in 2005. These services consisted of (i) review or preparation of | |
U.S. federal, state, local and excise tax returns; (ii) U.S. | |
federal, state and local tax planning, advice and assistance | |
regarding statutory, regulatory or administrative developments, and | |
(iii) tax advice regarding tax qualification matters and/or | |
treatment of various financial instruments held or proposed to be | |
acquired or held. As of October 31, 2005, KPMG has not billed the | |
Registrant for any Tax Services rendered. |
There were no fees billed for tax services by PWC or KPMG to | |
service affiliates during the Reporting Periods that required pre- | |
approval by the Audit Committee. | |
d) All Other Fees. The aggregate fees billed for all other non- | |
audit services rendered by PWC to Salomon Brothers Asset Management | |
(SBAM), and any entity controlling, controlled by or under common | |
control with SBAM that provided ongoing services to Salomon | |
Brothers Capital and Income Fund, requiring pre-approval by the | |
Audit Committee for the period May 6, 2003 through October 31, 2004 | |
and for the year ended October 31, 2005, which include the issuance | |
of reports on internal control under SAS No. 70 related to various | |
Citigroup Asset Management (CAM) entities a profitability review | |
of the Adviser and phase 1 pf an analysis of Citigroups current | |
and future real estate occupancy requirements in the tri-state area | |
and security risk issues in the New York metro region were $0.0 and | |
$1.3 million, respectively, all of which were pre-approved by the | |
Audit Committee. | |
There were no non-audit services rendered by KPMG to SBAM, or any | |
entity controlling, controlled by or under common control with SBAM | |
that provided ongoing services to the Registrant. | |
All Other Fees. There were no other non-audit services rendered by | |
PWC or KPMG to Smith Barney Fund Management LLC (SBFM), and any | |
entity controlling, controlled by or under common control with SBFM | |
that provided ongoing services to Salomon Brothers Capital and | |
Income Fund requiring pre-approval by the Audit Committee in the | |
Reporting Period. | |
(e) Audit Committees preapproval policies and procedures | |
described in paragraph (c) (7) of Rule 2-01 of Regulation S-X. | |
(1) The Charter for the Audit Committee (the Committee) of the | |
Board of each registered investment company (the Fund) advised by | |
Smith Barney Fund Management LLC or Salomon Brothers Asset | |
Management Inc. or one of their affiliates (each, an Adviser) | |
requires that the Committee shall approve (a) all audit and | |
permissible non-audit services to be provided to the Fund and (b) | |
all permissible non-audit services to be provided by the Funds | |
independent auditors to the Adviser and any Covered Service | |
Providers if the engagement relates directly to the operations and | |
financial reporting of the Fund. The Committee may implement | |
policies and procedures by which such services are approved other | |
than by the full Committee. | |
The Committee shall not approve non-audit services that the | |
Committee believes may impair the independence of the auditors. As | |
of the date of the approval of this Audit Committee Charter, | |
permissible non-audit services include any professional services | |
(including tax services), that are not prohibited services as | |
described below, provided to the Fund by the independent auditors, | |
other than those provided to the Fund in connection with an audit | |
or a review of the financial statements of the Fund. Permissible | |
non-audit services may not include: (i) bookkeeping or other | |
services related to the accounting records or financial statements | |
of the Fund; (ii) financial information systems design and | |
implementation; (iii) appraisal or valuation services, fairness | |
opinions or contribution-in-kind reports; (iv) actuarial services; | |
(v) internal audit outsourcing services; (vi) management functions | |
or human resources; (vii) broker or dealer, investment adviser or | |
investment banking services; (viii) legal services and expert | |
services unrelated to the audit; and (ix) any other service the | |
Public Company Accounting Oversight Board determines, by | |
regulation, is impermissible. |
Pre-approval by the Committee of any permissible non-audit services | |
is not required so long as: (i) the aggregate amount of all such | |
permissible non-audit services provided to the Fund, the Adviser | |
and any service providers controlling, controlled by or under | |
common control with the Adviser that provide ongoing services to | |
the Fund (Covered Service Providers) constitutes not more than 5% | |
of the total amount of revenues paid to the independent auditors | |
during the fiscal year in which the permissible non-audit services | |
are provided to (a) the Fund, (b) the Adviser and (c) any entity | |
controlling, controlled by or under common control with the Adviser | |
that provides ongoing services to the Fund during the fiscal year | |
in which the services are provided that would have to be approved | |
by the Committee; (ii) the permissible non-audit services were not | |
recognized by the Fund at the time of the engagement to be non- | |
audit services; and (iii) such services are promptly brought to the | |
attention of the Committee and approved by the Committee (or its | |
delegate(s)) prior to the completion of the audit. | |
(2) For the Salomon Brothers Capital and Income Fund, the | |
percentage of fees that were approved by the audit committee, with | |
respect to: Audit-Related Fees were 100% and 100% for 2004 and | |
2005; Tax Fees were 100% and 100% for 2004 and 2005; and Other Fees | |
were 100% and 100% for 2004 and 2005. | |
(f) N/A | |
(g) Non-audit fees billed by PwC for services rendered to Salomon | |
Brothers Capital and Income Fund and CAM and any entity | |
controlling, controlled by, or under common control with CAM that | |
provides ongoing services to Salomon Brothers Capital and Income | |
Fund during the reporting period were $6.4 million and $2.7 million | |
for the years ended October 31, 2004 and October 31, 2005, | |
respectively. | |
Non-audit fees billed by KPMG for services rendered to Salomon | |
Brothers Capital and Income Fund and CAM and any entity | |
controlling, controlled by, or under common control with CAM that | |
provides ongoing services to Salomon Brothers Capital and Income | |
Fund during the reporting period was $75,000 and $0 for the years | |
ended October 31, 2004 and October 31, 2005, respectively. Such | |
fees relate to services provided in connection with the transfer | |
agent matter as fully described in the notes to the financial | |
statements. | |
(h) Yes. The Salomon Brothers Capital and Income Funds Audit | |
Committee has considered whether the provision of non-audit | |
services that were rendered to Service Affiliates which were not | |
pre-approved (not requiring pre-approval) is compatible with | |
maintaining the Accountant's independence. All services provided | |
by the Auditor to the Salomon Brothers Capital and Income Fund or | |
to Service Affiliates, which were required to be pre-approved, were | |
pre-approved as required. |
ITEM 5.
|
AUDIT COMMITTEE OF LISTED REGISTRANTS. |
a) Registrant has a separately-designated standing Audit Committee | |
established in accordance with Section 3(a)58(A) of the Exchange | |
Act. The Audit Committee consists of the following Board members: | |
Carol L. Colman | |
Daniel P. Cronin | |
Leslie H. Gelb | |
William R. Hutchinson | |
Riordan Roett | |
Jeswald W. Salacuse | |
b) Not applicable | |
ITEM 6.
|
SCHEDULE OF INVESTMENTS. |
Not applicable. | |
ITEM 7.
|
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END |
MANAGEMENT INVESTMENT COMPANIES. | |
The Board of Directors of the Fund has delegated the authority to | |
develop policies and procedures relating to proxy voting to the | |
Manager. The Manager is part of Citigroup Asset Management (CAM), | |
a group of investment adviser affiliates of Citigroup, Inc. | |
(Citigroup). Along with the other investment advisers that | |
comprise CAM, the Manager has adopted a set of proxy voting | |
policies and procedures (the Policies) to ensure that the Manager | |
votes proxies relating to equity securities in the best interest of | |
clients. | |
In voting proxies, the Manager is guided by general fiduciary | |
principles and seeks to act prudently and solely in the best | |
interest of clients. The Manager attempts to consider all factors | |
that could affect the value of the investment and will vote proxies | |
in the manner that it believes will be consistent with efforts to | |
maximize shareholder values. The Manager may utilize an external | |
service provider to provide
it with information and/or a |
|
recommendation with regard to proxy votes. However, such | |
recommendations do not relieve the Manager of its responsibility | |
for the proxy vote. | |
In the case of a proxy issue for which there is a stated position | |
in the Policies, CAM generally votes in accordance with such stated | |
position. In the case of a proxy issue for which there is a list | |
of factors set forth in the Policies that CAM considers in voting | |
on such issue, CAM votes on a case-by-case basis in accordance with | |
the general principles set forth above and considering such | |
enumerated factors. In the case of a proxy issue for which there | |
is no stated position or list of factors that CAM considers in | |
voting on such issue, CAM votes on a case-by-case basis in | |
accordance with the general principles set forth above. Issues for | |
which there is a stated position set forth in the Policies or for | |
which there is a list of factors set forth in the Policies that CAM | |
considers in voting on such issues fall into a variety of | |
categories, including election of directors, ratification of | |
auditors, proxy and tender offer defenses, capital structure | |
issues, executive and director compensation, mergers and corporate | |
restructurings, and social and environmental issues. The stated | |
position on an issue set forth in the Policies can always be | |
superseded, subject to the duty to act solely in the best interest | |
of the beneficial owners of accounts, by the investment management | |
professionals responsible for the account whose shares are being |
voted. Issues applicable to a particular industry may cause CAM to | |
abandon a policy that would have otherwise applied to issuers | |
generally. As a result of the independent investment advisory | |
services provided by distinct CAM business units, there may be | |
occasions when different business units or different portfolio | |
managers within the same business unit vote differently on the same | |
issue. | |
In furtherance of the Managers goal to vote proxies in the best | |
interest of clients, the Manager follows procedures designed to | |
identify and address material conflicts that may arise between the | |
Managers interests and those of its clients before voting proxies | |
on behalf of such clients. To seek to identify conflicts of | |
interest, CAM periodically notifies CAM employees (including | |
employees of the Manager) in writing that they are under an | |
obligation (i) to be aware of the potential for conflicts of | |
interest with respect to voting proxies on behalf of client | |
accounts both as a result of their personal relationships and due | |
to special circumstances that may arise during the conduct of CAMs | |
and the Managers business, and (ii) to bring conflicts of interest | |
of which they become aware to the attention of compliance | |
personnel. The Manager also maintains and considers a list of | |
significant relationships that could present a conflict of interest | |
for the Manager in voting proxies. The Manager is also sensitive | |
to the fact that a significant, publicized relationship between an | |
issuer and a non-CAM affiliate might appear to the public to | |
influence the manner in which the Manager decides to vote a proxy | |
with respect to such issuer. Absent special circumstances or a | |
significant, publicized non-CAM affiliate relationship that CAM or | |
the Manager for prudential reasons treats as a potential conflict | |
of interest because such relationship might appear to the public to | |
influence the manner in which the Manager decides to vote a proxy, | |
the Manager generally takes the position that non-CAM relationships | |
between Citigroup and an issuer (e.g. investment banking or | |
banking) do not present a conflict of interest for the Manager in | |
voting proxies with respect to such issuer. Such position is based | |
on the fact that the Manager is operated as an independent business | |
unit from other Citigroup business units as well as on the | |
existence of information barriers between the Manager and certain | |
other Citigroup business units. | |
CAM maintains a Proxy Voting Committee, of which the Manager | |
personnel are members, to review and address conflicts of interest | |
brought to its attention by compliance personnel. A proxy issue | |
that will be voted in accordance with a stated position on an issue | |
or in accordance with the recommendation of an independent third | |
party is not brought to the attention of the Proxy Voting Committee | |
for a conflict of interest review because the Managers position is | |
that to the extent a conflict of interest issue exists, it is | |
resolved by voting in accordance with a pre-determined policy or in | |
accordance with the recommendation of an independent third party. | |
With respect to a conflict of interest brought to its attention, | |
the Proxy Voting Committee first determines whether such conflict | |
of interest is material. A conflict of interest is considered | |
material to the extent that it is determined that such conflict is | |
likely to influence, or appear to influence, the Managers | |
decision-making in voting proxies. If it is determined by the | |
Proxy Voting Committee that a conflict of interest is not material, | |
the Manager may vote proxies notwithstanding the existence of the | |
conflict. | |
If it is determined by the Proxy Voting Committee that a conflict | |
of interest is material, the Proxy Voting Committee is responsible | |
for determining an appropriate method to resolve such conflict of | |
interest before the proxy affected by the conflict of interest is | |
voted. Such determination is based on the particular facts and | |
circumstances, including the importance of the proxy issue and the | |
nature of the conflict of interest. Methods of resolving a |
material conflict of interest may include, but are not limited to, | |||
disclosing the conflict to clients and obtaining their consent | |||
before voting, or suggesting to clients that they engage another | |||
party to vote the proxy on their behalf. | |||
ITEM 8. | [RESERVED] | ||
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT | ||
COMPANY AND AFFILIATED PURCHASERS. | |||
Not applicable. | |||
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. | ||
Not applicable. | |||
ITEM 11. | CONTROLS AND PROCEDURES. | ||
(a) | The registrants principal executive officer and principal | ||
financial officer have concluded that the registrants | |||
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 registrants internal control | ||
over financial reporting (as defined in Rule 30a-3(d) under | |||
the 1940 Act) that occurred during the registrants last | |||
fiscal half-year (the registrants second fiscal half-year in | |||
the case of an annual report) that have materially affected, | |||
or are likely to materially affect the registrants internal | |||
control over financial reporting. | |||
ITEM 12. | EXHIBITS. | ||
(a)(1) | Code of Ethics attached hereto. | ||
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.
Salomon Brothers Capital and Income Fund Inc.
By: | /s/ R. Jay Gerken |
(R. Jay Gerken) | |
Chief Executive Officer of | |
Salomon Brothers Capital and Income Fund Inc. | |
Date: | January 9, 2006 |
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 of | |
Salomon Brothers Capital and Income Fund Inc. | |
Date: | January 9, 2006 |
By: | /s/ Frances M. Guggino |
(Frances M. Guggino) | |
Chief Financial Officer of | |
Salomon Brothers Capital and Income Fund Inc. | |
Date: | January 9, 2006 |