ITEM 1.
|
REPORT TO STOCKHOLDERS.
|
The Annual Report to Stockholders is filed herewith.
|
|
|
Annual Report
|
|
November 30, 2020
|
LMP
CAPITAL AND INCOME FUND INC. (SCD)
Beginning in or after January 2021, as permitted by regulations adopted by the Securities and Exchange Commission,
the Fund intends to no longer mail paper copies of the Funds shareholder reports like this one, unless you specifically request paper copies of the reports from the Fund or from your financial intermediary (such as a broker-dealer or bank).
Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you invest through a financial intermediary and you already elected to receive shareholder reports electronically (e-delivery), you will not be affected by this change and you need not take any action. If you have not already elected e-delivery, you may elect to receive
shareholder reports and other communications from the Fund electronically by contacting your financial intermediary.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies
of your shareholder reports. That election will apply to all Legg Mason Funds held in your account at that financial intermediary. If you are a direct shareholder with the Fund, you can call the Fund at 1-888-888-0151, or write to the Fund by regular mail at P.O. Box 505000, Louisville, KY 40233 or by overnight delivery to Computershare, 462 South 4th Street, Suite
1600, Louisville, KY 40202 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. That election will apply to all Legg Mason Funds held in your account held directly with the fund complex.
|
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE
VALUE
|
Fund objective
The Funds investment objective is total return with an emphasis on income.
The Fund may invest in a broad range
of equity and fixed income securities of both U.S. and foreign issuers. The Fund will vary its allocation between equity and fixed income securities depending on the investment managers view of economic, market or political conditions, fiscal
and monetary policy and security valuation.
|
|
|
II
|
|
LMP Capital and Income Fund Inc.
|
Letter from the chairman
Dear Shareholder,
We are pleased to provide the annual report of LMP Capital and Income Fund Inc. for the twelve-month reporting period ended November 30, 2020.
Please read on for a detailed look at prevailing economic and market conditions during the Funds reporting period and to learn how those conditions have affected Fund performance.
Special shareholder notice
On July 31, 2020, Franklin Resources, Inc. (Franklin
Resources) acquired Legg Mason, Inc. (Legg Mason) in an all-cash transaction. As a result of the transaction, Legg Mason Partners Fund Advisor, LLC (LMPFA) and the subadvisers
became indirect, wholly-owned subsidiaries of Franklin Resources. Under the Investment Company Act of 1940, as amended, consummation of the transaction automatically terminated the management and subadvisory agreements that were in place for the
Fund prior to the transaction. The Funds manager and subadvisers continue to provide uninterrupted services with respect to the Fund pursuant to new management and subadvisory agreements that were approved by Fund shareholders.
Franklin Resources, whose principal executive offices are at One Franklin Parkway, San Mateo, California 94403, is a global investment management organization
operating, together with its subsidiaries, as Franklin Templeton. As of November 30, 2020, after giving effect to the transaction described above, Franklin Templetons asset management operations had aggregate assets under management of
approximately $1.5 trillion.
As always, we remain committed to providing you with excellent service and a full spectrum of investment choices. We also
remain committed to supplementing the support you receive from your financial advisor. One way we accomplish this is through our website, www.lmcef.com. Here you can gain immediate access to market and investment information, including:
|
|
Fund prices and performance,
|
|
|
|
LMP Capital and Income Fund Inc.
|
|
III
|
Letter from the chairman
|
|
Market insights and commentaries from our portfolio managers, and
|
|
|
A host of educational resources.
|
We look
forward to helping you meet your financial goals.
Sincerely,
Jane Trust, CFA
Chairman, President and Chief Executive Officer
December 31, 2020
|
|
|
IV
|
|
LMP Capital and Income Fund Inc.
|
Fund overview
Q. What is the Funds investment strategy?
A. The Funds investment objective is total return with an emphasis on income. Under normal market conditions, the Fund seeks to maximize total return by investing at least 80% of its Managed Assets in
a broad range of equity and fixed income securities of both U.S. and foreign issuers. The Fund may invest without limit in both energy and non-energy master limited partnerships (MLPs), so long as
no more than 25% of the Funds total assets are invested in MLPs that are treated as qualified publicly traded partnerships (QPTPs). The Fund will vary its allocation between equity and fixed income securities depending on
ClearBridge Investments, LLCs (ClearBridge) view of economic, market or political conditions, fiscal and monetary policy and security valuation. Depending on ClearBridges view of these factors, which may vary from time to
time, ClearBridge, one of the Funds subadvisers, may allocate substantially all of the investments in the portfolio to equity securities or fixed income securities.
The Funds investment manager applies a rigorous, bottom-up research process to identify companies with strong fundamentals, skilled and committed management
teams and a clear market advantage. Through patient management, the Fund seeks to capture earnings growth from companies offering new or innovative technologies, products and services.
Peter Vanderlee, CFA of ClearBridge, oversees the Funds allocation between equity and fixed income securities, as well as the Funds equity investments in general, with a focus on dividend-paying
securities. The ClearBridge portfolio management team also includes Mark McAllister, CFA, and Tatiana Eades, who are focused on their respective areas of expertise: Mr. McAllister on real estate investment trusts (REITs)i and
Ms. Eades on utilities. These individuals manage the equity side of the Fund with a bottom-up approach focused on the risk and reward of each investment opportunity.
A portfolio management team at Western Asset Management Company, LLC (Western Asset) manages the fixed income portion of the Fund. The fixed income
portfolio management team includes portfolio managers S. Kenneth Leech, Chia-Liang (CL) Lian, Mark Lindbloom, Michael C. Buchanan and Ryan Brist. Their focus is on portfolio structure, including sector allocation, duration weighting and term
structure decisions.
During the reporting period, the Fund was substantially invested in equity securities.
Q. What were the overall market conditions during the Funds reporting period?
A. U.S. equity markets generated solid gains in the twelve-month reporting period ended November 30, 2020, with the broad market
S&P 500 Indexii advancing 17.46%. Growth stocks greatly outperformed their
value counterparts: the Russell 1000 Growth Indexiii rose 36.40%, compared to
the Russell 1000 Value Indexsiv return of 1.72%. Meanwhile, small-cap stocks modestly underperformed large-cap stocks, with the Russell 2000 Indexv returning 13.59%.
The period began with a long-awaited, though only partial, resolution to a U.S.-China trade dispute. This, along with a federal funds ratevi cut of 25 basis pointsvii and the resumption of expansionary monetary policy, helped equities reach all-time
highs in the first quarter of 2020. High-beta technology stocks led the market, while manufacturing returned to expansion territory.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
1
|
Fund overview (contd)
The rapid global spread of the COVID-19 illness
early in 2020, however, brought a shock to markets and created unprecedented volatility across all asset classes late in the first quarter. The S&P 500 Indexs 30% decline in twenty-two trading days
was the fastest drop of that magnitude in history. The severity and swiftness of this market selloff caught many by surprise. The energy sector led the decline on the back of a two-thirds decline in oil prices
from $61 dollars to $20 dollars per barrel over the quarter. Oil prices initially fell when a price war erupted between Russia and Saudi Arabia, both major oil suppliers. A further and even more dramatic selloff in oil was precipitated by the near
simultaneous collapse in demand due to global actions mobility restrictions and shutting down schools and all but essential businesses taken to combat the spread of COVID-19.
The market decline differed from prior ones insofar as virtually no asset class or industry was spared. Assets across the board saw losses on a global
basis. The U.S. equity market selloff featured little differentiation in terms of the factors that historically indicated a defensive stock: quality, beta, dividends. Larger stocks outperformed smaller, and companies with stronger balance sheets did
better than companies with leverage. Behind the record selling, which was highly correlated and indiscriminate, was a liquidity event. Commodity trading accounts, volatility funds, risk parity funds and other quant-oriented funds, as well as hedge
funds, levered exchange-traded funds, MLPs and others all de-levered in March 2020.
Large
fiscal stimulus packages and the Federal Reserve Board (the
Fed)viii lowering short-term interest rates effectively to zero
helped the market roar back in a similarly unprecedented fashion, with the S&P 500 Index rising 44% in the fifty-three trading days between March 23 and June 8, 2020. The S&P 500s second-quarter 20%+ total return was the best
quarter in over twenty years (the NASDAQ also made a record high). The rebound continued in the third quarter of 2020, albeit at a slower pace, and with a slight rotation from technology and consumer-focused areas of the market toward more cyclical
areas, such as the Industrials and Materials sectors, at the end of the period. Strong market returns came amid a shift in Fed regime, as the Fed announced it would no longer preemptively raise interest rates to ward off inflation and would instead
tolerate periods of inflation above its 2% target. Continued massive fiscal stimulus buoyed personal income and consumer spending; while unemployment remained high, it started to decline later in the year due to the effects of the stimulus and the
relaxation of some lockdown restrictions. After a slight pullback in October, ahead of a contentious 2020 presidential election, markets resumed their recovery in November 2020, with cyclical and economically sensitive areas of the market continuing
to excel, as election-related volatility receded, and two successful COVID-19 vaccines were announced.
|
|
|
2
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Q. How did we respond to these changing market conditions?
A. The Fund invests in equity securities that exhibit an attractive income stream, including dividend-paying stocks, energy MLPs and REITs.
We increased the Funds exposure to common equities, largely as a result of the strong performance of the Information Technology (IT) sector; later
in the period we trimmed Apple Inc. and Microsoft Corp. to manage position sizes and risk. We initiated modest positions in several health care names, such as AbbVie Inc., Amgen Inc., Omeros Corp. (5.25% senior unsecured convertible notes) and
Becton Dickinson and Co. (5% convertible preferred shares), increasing our Health Care exposure and reducing our underweight in that sector. Market movement and the sale of mortgage REITs Starwood Property Trust and TPG Real Estate Finance Trust, as
well as Owl Rock Capital (a Business Development Company), helped decrease our Financials exposure. At the same time, we increased our exposure to high-quality diversified banks with the addition of JPMorgan Chase & Co. and bought
Intercontinental Exchange Inc. and CME Group Inc., two exchange companies positively levered to higher market volatility. Travel bans and plummeting economic activity led to attractive opportunities in the Industrials sector, such as new positions
in American Airlines Group Inc. (6.5% convertible preferred shares) and Otis Worldwide Corp.; we also initiated a new position in United Parcel Service Inc., whose efforts to improve execution are bearing fruits at a time of increased volume in a stay-at-home environment. These actions helped increase our Industrials holdings from underweight to neutral.
In the Energy sector, the addition of Plains All American Pipeline LP and additions to existing holdings in Magellan Midstream Partners LP, Enterprise Products Partners LP and Energy Transfer LP, at what we believe
were attractive valuations, contributed to an increase in the Funds Energy overweight. At the same time the Fund exited Hoegh LNG Partners LP and Genesis Energy LP in that sector.
The REIT market faced severe headwinds during the period, resulting in decreased exposure in the Fund. In light of the challenges faced by some
property subsectors of the Real Estate sector, the Fund exited positions such as Simon Property Group Inc., Retail Properties of America Inc., EPR Properties and Park Hotels & Resorts Inc. We increased exposure to the technology and
communications REIT subsectors where we expect to see continued growth due to long-term drivers such as data center buildouts (through new position Equinix Inc.) and the launch of 5G communication services (through new positions SBA Communications Corp. and Crown Castle International
Corp.). The net result of portfolio activity and market movements was to decrease the Funds overweight to Real Estate.
Performance review
For
the twelve months ended November 30, 2020, LMP Capital and Income Fund Inc. returned -5.82% based on its net asset value (NAV)ix and -12.83% based on its New York Stock Exchange (NYSE) market price per
share. The Funds unmanaged benchmarks, the Bloomberg Barclays U.S. Aggregate Indexx and the S&P 500 Index, returned 7.28% and 17.46%, respectively. The Lipper Income and Preferred Stock Closed-End Funds Category Averagexi returned 2.07% over the same time frame. Please note that Lipper performance returns are
based on each funds NAV.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
3
|
Fund overview (contd)
During the twelve-month period, the Fund made distributions to shareholders totaling
$1.24 per share.* The performance table shows the Funds twelve-month total return based on its NAV and market price as of November 30, 2020. Past performance is no guarantee of future results.
|
|
|
|
|
Performance Snapshot as of November 30, 2020
|
|
Price Per Share
|
|
12-Month
Total Return**
|
|
$13.12 (NAV)
|
|
|
-5.82
|
%
|
$11.33 (Market Price)
|
|
|
-12.83
|
%
|
All figures represent past performance and are not a guarantee of future results.
** Total returns are based on changes in NAV or market price, respectively. Returns reflect the deduction of all Fund expenses, including management fees,
operating expenses, and other Fund expenses. Returns do not reflect the deduction of brokerage commissions or taxes that investors may pay on distributions or the sale of shares.
Total return assumes the reinvestment of all distributions at NAV.
Total return assumes the
reinvestment of all distributions in additional shares in accordance with the Funds Dividend Reinvestment Plan.
Q. What
were the leading contributors to performance?
A. With respect to the equity portion of the portfolio, on an absolute basis during the
reporting period, the Funds greatest positive contributions to returns were found in the IT, Utilities, Industrials and Consumer Discretionary sectors. Relative to the equity benchmark, stock selection in the Utilities, Consumer Discretionary
and Energy sectors and underweights to the Industrials and Consumer Staples sectors proved beneficial. In terms of individual Fund holdings, leading contributors to performance for the period included Microsoft Corp., Broadcom Inc. (8% convertible
preferred shares), Qualcomm Inc., Apple Inc. and Brookfield Renewable Partners LP.
Q. What were the leading detractors from
performance?
A. With respect to the equity portion of the portfolio, on an absolute basis during the reporting period, the primary detractors
from returns were found in the Financials, Real Estate and Energy sectors. Relative to the equity benchmark, overall stock selection and sector allocation detracted from performance. Stock selection in the Financials, Real Estate, Communication
Services and Health Care sectors, overweights to Energy, Financials, Utilities and Real Estate and underweights to the Consumer Discretionary and IT sectors detracted the most. In terms of individual Fund holdings, leading detractors from
performance for the period included TPG Re Finance Trust Inc., Starwood Property Trust Inc., Energy Transfer LP, Two Harbors Investment Corp. and PBF Logistics LP.
*
|
For the tax character of distributions paid during the fiscal year ended November 30, 2020, please refer to page 31 of this report.
|
|
|
|
4
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Q. Were there any significant changes to the Fund during the reporting period?
A. Among the largest additions to the Funds holdings during the reporting period were securities of 2020 Cash Mandatory Exchangeable Trust (5.25%
convertible preferred shares), which are exchangeable into common shares of T-Mobile in the Communication Services sector, KKR & Co. (6% convertible preferred shares) in the Financials sector, NextEra
Energy Inc. (6.219% convertible preferred securities) in the Utilities sector, NXP Semiconductors NV in the IT sector and Aptiv PLC (5.5% convertible preferred shares) in the Consumer Discretionary sector. Among larger positions sold were Starwood
Property Trust Inc., Owl Rock Capital Corp. and TPG RE Finance Trust Inc. in Financials sector, Genesis Energy LP in the Energy sector and STORE Capital Corp. in the Real Estate sector.
Looking for additional information?
The Fund is traded under the symbol SCD and
its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available online under the symbol XSCDX on most financial websites. Barrons and The Wall Street Journals Monday
edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.lmcef.com
(click on the name of the Fund).
In a continuing effort to provide information concerning the Fund, shareholders may call
1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Funds current NAV,
market price and other information.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
5
|
Fund overview (contd)
Thank you for your investment in LMP Capital and Income Fund Inc. As always, we
appreciate that you have chosen us to manage your assets and we remain focused on achieving the Funds investment goals.
Sincerely,
Peter Vanderlee, CFA
Portfolio
Manager
ClearBridge Investments, LLC
Mark McAllister,
CFA Portfolio
Manager
ClearBridge Investments, LLC
Tatiana Eades
Portfolio Manager
ClearBridge Investments, LLC
Western Asset Management
Company, LLC
(Fixed Income Portion)
December 17,
2020
RISKS: The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent
in all investments, there can be no assurance that the Fund will achieve its investment objective. The Funds common stock is traded on the New York Stock Exchange. Similar to stocks, the Funds share price will fluctuate with market
conditions and, at the time of sale, may be worth more or less than the original investment. Shares of closed-end funds often trade at a discount to their net asset value. Because the Fund is non-diversified, it may be more susceptible to economic, political or regulatory events than a diversified fund. The Funds investments are subject to a number of risks such as stock market and equity
securities risk, MLP risk, fixed income securities risk, foreign investments risk, market events risk and portfolio management risk. Investments in MLP securities are subject to unique risks. The Funds concentration of investments in
energy-related MLPs subjects it to the risks of MLPs and the energy sector, including the risks of declines in energy and commodity prices, decreases in energy demand, adverse weather conditions, natural or other disasters, changes in government
regulation, and changes in tax laws. MLP distributions are not guaranteed and there is no assurance that all such distributions will be tax deferred.
|
|
|
6
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Stock and bond prices are subject to fluctuation. As interest rates rise, bond prices fall, reducing the value of
the fixed income securities held by the Fund. Investing in foreign securities is subject to certain risks not associated with domestic investing, such as currency fluctuations and changes in political, social, and economic conditions. These risks
are magnified in emerging or developing markets. Emerging market countries tend to have economic, political, and legal systems that are less developed and are less stable than those of more developed countries. The Fund may invest in lower-rated
high yield bonds or junk bonds, which are subject to greater liquidity and credit risk (risk of default) than higher-rated obligations. The repositioning of the Funds portfolio may increase a shareholders risk of loss
associated with an investment in the Funds shares. Funds that invest in securities related to the real estate industry are subject to the risks of real estate markets, including fluctuating property values, changes in interest rates and other
mortgage-related risks. The Fund may use derivatives, such as options and futures, which can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. Leverage may result in greater volatility of
NAV and the market price of common shares and increases a shareholders risk of loss. Dividends are not guaranteed, and a company may reduce or eliminate its dividend at any time. Distributions are not guaranteed and are subject to change. The
Fund may also invest in money market funds, including funds affiliated with the Funds manager and subadvisers. For more information on Fund risks, see Summary of information regarding the Fund - Principal Risk Factors in this report.
Portfolio holdings and breakdowns are as of November 30, 2020 and are subject to change and may not be representative of the portfolio
managers current or future investments. The Funds top ten holdings (as a percentage of net assets) as of November 30, 2019 were: Broadcom Inc. (6.4%), Microsoft Corp. (4.8%), Enterprise Products Partners LP (4.5%), 2020 Cash
Mandatory Exchangeable Trust (4.0%), Apple Inc. (4.0%), QUALCOMM Inc. (3.8%), Blackstone Group Inc. (3.6%), Magellan Midstream Partners LP (3.5%), Lockheed Martin Corp. (3.4%) and Energy Transfer LP (3.3%). Please refer to pages 10 through 15 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. The Funds top five sector holdings (as a percentage of net assets) as of November 30, 2020 were: Master Limited Partnerships
(28.0%), Information Technology (25.4%), Financials (13.3%), Industrials (10.7%) and Health Care (9.8%). The Funds portfolio composition is subject to change at any time.
All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note
that an investor cannot invest directly in an index.
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.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
7
|
Fund overview (contd)
i
|
Real estate investment trusts (REITs) invest in real estate or loans secured by real estate and issue shares in such investments, which can be
illiquid.
|
ii
|
The S&P 500 Index is an unmanaged index of the stocks of 500 leading companies, and is generally representative of the performance of larger companies in the
U.S.
|
iii
|
The Russell 1000 Growth Index measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. (A price-to-book ratio is the price of a stock compared to the
difference between a companys assets and liabilities.) The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000 Index and
includes approximately 1,000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 90% of the U.S. market. The Russell 3000 Index measures the performance of the
3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the U.S. equity market.
|
iv
|
The Russell 1000 Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It
includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth values.
|
v
|
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 is
a subset of the Russell 3000 Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership.
|
vi
|
The federal funds rate is the rate charged by one depository institution on an overnight sale of immediately available funds (balances at the Federal Reserve) to
another depository institution; the rate may vary from depository institution to depository institution and from day to day.
|
vii
|
A basis point is one-hundredth (1/100 or 0.01) of one percent.
|
viii
|
The Federal Reserve Board (the Fed) is responsible for the formulation of U.S. policies designed to promote economic growth, full employment, stable
prices and a sustainable pattern of international trade and payments.
|
ix
|
Net asset value (NAV) is calculated by subtracting total liabilities, including liabilities associated with financial leverage (if any), from the
closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the
Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Funds market price as determined by supply of and demand for the Funds shares.
|
x
|
The Bloomberg Barclays U.S. Aggregate Index is a broad-based bond index comprised of government, corporate, mortgage- and asset-backed issues, rated investment
grade or higher, and having at least one year to maturity.
|
xi
|
Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period
ended November 30, 2020, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 35 funds in the Funds Lipper category.
|
|
|
|
8
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Fund at a
glance (unaudited)
|
Investment breakdown (%) as a percent of total investments
|
|
The bar graph above represents the composition of the Funds investments as of November 30, 2020 and November 30, 2019. The Fund is
actively managed. As a result, the composition of the Funds investments is subject to change at any time.
|
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
9
|
Schedule of investments
November 30, 2020
LMP Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
|
Security
|
|
Shares
|
|
|
Value
|
|
Common Stocks 61.5%
|
|
|
|
|
|
|
|
|
Communication Services 1.1%
|
|
|
|
|
|
|
|
|
Diversified Telecommunication Services 1.1%
|
|
|
|
|
|
|
|
|
AT&T Inc.
|
|
|
50,630
|
|
|
$
|
1,455,613
|
(a)
|
Verizon Communications Inc.
|
|
|
19,110
|
|
|
|
1,154,435
|
(a)
|
Total Communication Services
|
|
|
|
|
|
|
2,610,048
|
|
Consumer Discretionary 0.2%
|
|
|
|
|
|
|
|
|
Internet & Direct Marketing Retail 0.2%
|
|
|
|
|
|
|
|
|
Qurate Retail Inc., Class A Shares
|
|
|
39,070
|
|
|
|
409,063
|
|
Consumer Staples 3.1%
|
|
|
|
|
|
|
|
|
Beverages 1.0%
|
|
|
|
|
|
|
|
|
PepsiCo Inc.
|
|
|
15,600
|
|
|
|
2,249,988
|
(a)
|
Household Products 2.1%
|
|
|
|
|
|
|
|
|
Kimberly-Clark Corp.
|
|
|
16,420
|
|
|
|
2,287,470
|
(a)
|
Procter & Gamble Co.
|
|
|
19,860
|
|
|
|
2,757,958
|
(a)
|
Total Household Products
|
|
|
|
|
|
|
5,045,428
|
|
Total Consumer Staples
|
|
|
|
|
|
|
7,295,416
|
|
Energy 0.9%
|
|
|
|
|
|
|
|
|
Oil, Gas & Consumable Fuels 0.9%
|
|
|
|
|
|
|
|
|
Williams Cos. Inc.
|
|
|
96,740
|
|
|
|
2,029,605
|
(a)
|
Financials 9.4%
|
|
|
|
|
|
|
|
|
Banks 1.6%
|
|
|
|
|
|
|
|
|
Bank of America Corp.
|
|
|
52,960
|
|
|
|
1,491,354
|
|
JPMorgan Chase & Co.
|
|
|
19,780
|
|
|
|
2,331,666
|
|
Total Banks
|
|
|
|
|
|
|
3,823,020
|
|
Capital Markets 5.2%
|
|
|
|
|
|
|
|
|
Apollo Global Management Inc.
|
|
|
30,130
|
|
|
|
1,314,271
|
(a)
|
Blackstone Group Inc., Class A Shares
|
|
|
141,800
|
|
|
|
8,444,190
|
(a)
|
CME Group Inc.
|
|
|
7,970
|
|
|
|
1,394,989
|
|
Intercontinental Exchange Inc.
|
|
|
11,430
|
|
|
|
1,205,979
|
|
Total Capital Markets
|
|
|
|
|
|
|
12,359,429
|
|
Insurance 0.9%
|
|
|
|
|
|
|
|
|
Chubb Ltd.
|
|
|
14,230
|
|
|
|
2,103,621
|
|
Mortgage Real Estate Investment Trusts (REITs) 1.7%
|
|
|
|
|
|
|
|
|
AGNC Investment Corp.
|
|
|
255,040
|
|
|
|
3,897,011
|
(a)
|
Total Financials
|
|
|
|
|
|
|
22,183,081
|
|
Health Care 6.5%
|
|
|
|
|
|
|
|
|
Biotechnology 1.5%
|
|
|
|
|
|
|
|
|
AbbVie Inc.
|
|
|
23,100
|
|
|
|
2,415,798
|
|
Amgen Inc.
|
|
|
5,190
|
|
|
|
1,152,388
|
|
Total Biotechnology
|
|
|
|
|
|
|
3,568,186
|
|
See Notes to Financial
Statements.
|
|
|
10
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
LMP Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
|
Security
|
|
Shares
|
|
|
Value
|
|
Pharmaceuticals 5.0%
|
|
|
|
|
|
|
|
|
Johnson & Johnson
|
|
|
17,640
|
|
|
$
|
2,552,155
|
(a)
|
Merck & Co. Inc.
|
|
|
86,740
|
|
|
|
6,973,028
|
(a)
|
Pfizer Inc.
|
|
|
56,380
|
|
|
|
2,159,918
|
|
Total Pharmaceuticals
|
|
|
|
|
|
|
11,685,101
|
|
Total Health Care
|
|
|
|
|
|
|
15,253,287
|
|
Industrials 9.7%
|
|
|
|
|
|
|
|
|
Aerospace & Defense 4.9%
|
|
|
|
|
|
|
|
|
Lockheed Martin Corp.
|
|
|
22,120
|
|
|
|
8,073,800
|
(a)
|
Raytheon Technologies Corp.
|
|
|
49,930
|
|
|
|
3,580,980
|
|
Total Aerospace & Defense
|
|
|
|
|
|
|
11,654,780
|
|
Air Freight & Logistics 0.7%
|
|
|
|
|
|
|
|
|
United Parcel Service Inc., Class B Shares
|
|
|
9,360
|
|
|
|
1,601,215
|
|
Electrical Equipment 0.7%
|
|
|
|
|
|
|
|
|
Emerson Electric Co.
|
|
|
20,720
|
|
|
|
1,591,710
|
(a)
|
Machinery 3.4%
|
|
|
|
|
|
|
|
|
Otis Worldwide Corp.
|
|
|
35,060
|
|
|
|
2,346,917
|
|
Stanley Black & Decker Inc.
|
|
|
30,300
|
|
|
|
5,584,593
|
(a)
|
Total Machinery
|
|
|
|
|
|
|
7,931,510
|
|
Total Industrials
|
|
|
|
|
|
|
22,779,215
|
|
Information Technology 19.0%
|
|
|
|
|
|
|
|
|
Electronic Equipment, Instruments & Components
1.5%
|
|
|
|
|
|
|
|
|
TE Connectivity Ltd.
|
|
|
31,290
|
|
|
|
3,566,121
|
|
IT Services 0.2%
|
|
|
|
|
|
|
|
|
Paychex Inc.
|
|
|
5,570
|
|
|
|
518,846
|
(a)
|
Semiconductors & Semiconductor Equipment
7.0%
|
|
|
|
|
|
|
|
|
ASML Holding NV, Registered Shares
|
|
|
2,850
|
|
|
|
1,247,530
|
|
NXP Semiconductors NV
|
|
|
25,340
|
|
|
|
4,014,363
|
|
QUALCOMM Inc.
|
|
|
61,530
|
|
|
|
9,055,370
|
(a)
|
Texas Instruments Inc.
|
|
|
13,620
|
|
|
|
2,196,225
|
(a)
|
Total Semiconductors & Semiconductor Equipment
|
|
|
|
|
|
|
16,513,488
|
|
Software 6.3%
|
|
|
|
|
|
|
|
|
Microsoft Corp.
|
|
|
52,470
|
|
|
|
11,232,253
|
(a)
|
NortonLifeLock Inc.
|
|
|
95,180
|
|
|
|
1,735,131
|
(a)
|
Oracle Corp.
|
|
|
33,340
|
|
|
|
1,924,385
|
|
Total Software
|
|
|
|
|
|
|
14,891,769
|
|
Technology Hardware, Storage & Peripherals
4.0%
|
|
|
|
|
|
|
|
|
Apple Inc.
|
|
|
79,000
|
|
|
|
9,404,950
|
(a)
|
Total Information Technology
|
|
|
|
|
|
|
44,895,174
|
|
See Notes to Financial
Statements.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
11
|
Schedule of investments (contd)
November 30, 2020
LMP Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
|
Security
|
|
Shares
|
|
|
Value
|
|
Materials 1.5%
|
|
|
|
|
|
|
|
|
Chemicals 1.5%
|
|
|
|
|
|
|
|
|
Air Products & Chemicals Inc.
|
|
|
6,320
|
|
|
$
|
1,770,485
|
|
Huntsman Corp.
|
|
|
74,450
|
|
|
|
1,844,126
|
(a)
|
Total Materials
|
|
|
|
|
|
|
3,614,611
|
|
Real Estate 6.4%
|
|
|
|
|
|
|
|
|
Equity Real Estate Investment Trusts (REITs) 6.4%
|
|
|
|
|
|
|
|
|
Alexandria Real Estate Equities Inc.
|
|
|
15,770
|
|
|
|
2,582,022
|
(a)
|
American Tower Corp.
|
|
|
12,320
|
|
|
|
2,848,384
|
(a)
|
Crown Castle International Corp.
|
|
|
12,021
|
|
|
|
2,014,359
|
|
Duke Realty Corp.
|
|
|
17,500
|
|
|
|
666,050
|
|
Equinix Inc.
|
|
|
5,100
|
|
|
|
3,558,729
|
(a)
|
Equity LifeStyle Properties Inc.
|
|
|
13,630
|
|
|
|
798,582
|
|
Prologis Inc.
|
|
|
9,500
|
|
|
|
950,475
|
|
SBA Communications Corp.
|
|
|
6,260
|
|
|
|
1,797,747
|
|
Total Real Estate
|
|
|
|
|
|
|
15,216,348
|
|
Utilities 3.7%
|
|
|
|
|
|
|
|
|
Electric Utilities 1.9%
|
|
|
|
|
|
|
|
|
Edison International
|
|
|
56,540
|
|
|
|
3,469,295
|
(a)
|
NextEra Energy Inc.
|
|
|
15,480
|
|
|
|
1,139,173
|
|
Total Electric Utilities
|
|
|
|
|
|
|
4,608,468
|
|
Multi-Utilities 1.8%
|
|
|
|
|
|
|
|
|
Sempra Energy
|
|
|
32,980
|
|
|
|
4,204,290
|
|
Total Utilities
|
|
|
|
|
|
|
8,812,758
|
|
Total Common Stocks (Cost $91,171,296)
|
|
|
|
|
|
|
145,098,606
|
|
|
|
|
|
|
Shares/Units
|
|
|
|
|
Master Limited Partnerships 28.0%
|
|
|
|
|
|
|
|
|
Diversified Energy Infrastructure 8.7%
|
|
|
|
|
|
|
|
|
Energy Transfer LP
|
|
|
1,240,880
|
|
|
|
7,668,638
|
(a)
|
Enterprise Products Partners LP
|
|
|
542,380
|
|
|
|
10,522,172
|
(a)
|
Plains All American Pipeline LP
|
|
|
306,850
|
|
|
|
2,436,389
|
|
Total Diversified Energy Infrastructure
|
|
|
|
|
|
|
20,627,199
|
|
Gathering/Processing 0.8%
|
|
|
|
|
|
|
|
|
Rattler Midstream LP
|
|
|
214,190
|
|
|
|
1,775,635
|
(a)
|
Global Infrastructure 2.2%
|
|
|
|
|
|
|
|
|
Brookfield Renewable Partners LP
|
|
|
81,430
|
|
|
|
5,175,354
|
|
Liquids Transportation & Storage 4.6%
|
|
|
|
|
|
|
|
|
Magellan Midstream Partners LP
|
|
|
202,280
|
|
|
|
8,323,822
|
(a)
|
PBF Logistics LP
|
|
|
267,730
|
|
|
|
2,497,921
|
(a)
|
Total Liquids Transportation & Storage
|
|
|
|
|
|
|
10,821,743
|
|
See Notes to Financial
Statements.
|
|
|
12
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
LMP Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
|
|
|
Shares/Units
|
|
|
Value
|
|
Oil/Refined Products 5.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
CrossAmerica Partners LP
|
|
|
|
|
|
|
255,980
|
|
|
$
|
4,387,497
|
(a)
|
MPLX LP
|
|
|
|
|
|
|
160,000
|
|
|
|
3,366,400
|
(a)
|
Sunoco LP
|
|
|
|
|
|
|
184,200
|
|
|
|
5,118,918
|
(a)
|
Total Oil/Refined Products
|
|
|
|
|
|
|
|
|
|
|
12,872,815
|
|
Petrochemicals 2.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
Westlake Chemical Partners LP
|
|
|
|
|
|
|
305,246
|
|
|
|
6,480,373
|
(a)
|
Propane 1.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Suburban Propane Partners LP
|
|
|
|
|
|
|
200,000
|
|
|
|
3,064,000
|
(a)
|
Shipping 2.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
KNOT Offshore Partners LP
|
|
|
|
|
|
|
350,000
|
|
|
|
5,113,500
|
(a)
|
Total Master Limited Partnerships (Cost $62,594,621)
|
|
|
|
|
|
|
|
|
|
|
65,930,619
|
|
|
|
|
|
|
|
Rate
|
|
|
Shares
|
|
|
|
|
Convertible Preferred Stocks 24.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication Services 4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless Telecommunication Services 4.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Cash Mandatory Exchangeable Trust
|
|
|
5.250
|
%
|
|
|
7,810
|
|
|
|
9,486,807
|
|
Consumer Discretionary 3.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto Components 1.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Aptiv PLC, Non Voting Shares
|
|
|
5.500
|
%
|
|
|
26,340
|
|
|
|
3,682,858
|
|
Internet & Direct Marketing Retail 1.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Mandatory Exchangeable Trust
|
|
|
6.500
|
%
|
|
|
1,968
|
|
|
|
3,494,873
|
|
Total Consumer Discretionary
|
|
|
|
|
|
|
|
|
|
|
7,177,731
|
|
Financials 3.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Markets 2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
KKR & Co. Inc., Non Voting Shares
|
|
|
6.000
|
%
|
|
|
89,590
|
|
|
|
4,910,428
|
|
Insurance 1.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Assurant Inc., Non Voting Shares
|
|
|
6.500
|
%
|
|
|
34,500
|
|
|
|
4,240,050
|
|
Total Financials
|
|
|
|
|
|
|
|
|
|
|
9,150,478
|
|
Health Care 2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Equipment & Supplies 2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Becton Dickinson and Co., Non Voting Shares
|
|
|
6.000
|
%
|
|
|
25,650
|
|
|
|
1,330,209
|
|
Boston Scientific Corp., Non Voting Shares
|
|
|
5.500
|
%
|
|
|
2,819
|
|
|
|
287,031
|
|
Danaher Corp., Non Voting Shares
|
|
|
4.750
|
%
|
|
|
2,961
|
|
|
|
4,562,575
|
|
Total Health Care
|
|
|
|
|
|
|
|
|
|
|
6,179,815
|
|
Information Technology 6.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Semiconductors & Semiconductor Equipment
6.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcom Inc., Non Voting Shares
|
|
|
8.000
|
%
|
|
|
11,414
|
|
|
|
15,188,724
|
|
See Notes to Financial
Statements.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
13
|
Schedule of investments (contd)
November 30, 2020
LMP Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
Utilities 4.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric Utilities 1.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NextEra Energy Inc.
|
|
|
6.219
|
%
|
|
|
|
|
|
|
84,050
|
|
|
$
|
4,112,567
|
|
Multi-Utilities 2.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CenterPoint Energy Inc., Non Voting Shares
|
|
|
7.000
|
%
|
|
|
|
|
|
|
78,000
|
|
|
|
3,290,040
|
|
DTE Energy Co.
|
|
|
6.250
|
%
|
|
|
|
|
|
|
61,080
|
|
|
|
2,937,337
|
|
Total Multi-Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,227,377
|
|
Total Utilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,339,944
|
|
Total Convertible Preferred Stocks (Cost $47,544,159)
|
|
|
|
|
|
|
|
|
|
|
|
57,523,499
|
|
Investments in Underlying Funds 4.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ares Capital Corp.
|
|
|
|
|
|
|
|
|
|
|
98,010
|
|
|
|
1,615,205
|
(a)(b)
|
Barings BDC Inc.
|
|
|
|
|
|
|
|
|
|
|
349,050
|
|
|
|
3,026,263
|
(a)(b)
|
TriplePoint Venture Growth BDC Corp.
|
|
|
|
|
|
|
|
|
|
|
441,985
|
|
|
|
5,692,767
|
(a)(b)
|
Total Investments in Underlying Funds (Cost $10,764,361)
|
|
|
|
|
|
|
|
10,334,235
|
|
|
|
|
|
|
|
|
Rate
|
|
|
Maturity
Date
|
|
|
Face
Amount
|
|
|
|
|
Convertible Bonds & Notes 2.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 0.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotels, Restaurants & Leisure 0.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal Caribbean Cruises Ltd., Senior Notes
|
|
|
4.250
|
%
|
|
|
6/15/23
|
|
|
$
|
1,250,000
|
|
|
|
1,723,750
|
(c)
|
Health Care 0.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals 0.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omeros Corp., Senior Notes
|
|
|
5.250
|
%
|
|
|
2/15/26
|
|
|
|
1,820,000
|
|
|
|
1,616,034
|
|
Industrials 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airlines 1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Airlines Group Inc., Senior Notes
|
|
|
6.500
|
%
|
|
|
7/1/25
|
|
|
|
2,197,000
|
|
|
|
2,403,078
|
|
Total Convertible Bonds & Notes (Cost $5,378,234)
|
|
|
|
|
|
|
|
|
|
|
|
5,742,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
Preferred Stocks 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internet & Direct Marketing Retail 0.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qurate Retail Inc. (Cost $1,568,368)
|
|
|
8.000
|
%
|
|
|
|
|
|
|
14,420
|
|
|
|
1,416,477
|
|
Total Investments before Short-Term Investments (Cost
$219,021,039)
|
|
|
|
286,046,298
|
|
See Notes to Financial
Statements.
|
|
|
14
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
LMP Capital and Income Fund Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Rate
|
|
|
Shares
|
|
|
Value
|
|
Short-Term Investments 0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan 100% U.S. Treasury Securities Money Market Fund, Institutional Class (Cost $160,397)
|
|
|
0.006
|
%
|
|
|
160,397
|
|
|
$
|
160,397
|
|
Total Investments 121.3% (Cost $219,181,436)
|
|
|
|
|
|
|
|
286,206,695
|
|
Liabilities in Excess of Other Assets (21.3)%
|
|
|
|
|
|
|
|
|
|
|
(50,333,011
|
)
|
Total Net Assets 100.0%
|
|
|
|
|
|
|
|
|
|
$
|
235,873,684
|
|
|
Represents less than 0.1%.
|
(a)
|
All or a portion of this security is pledged as collateral pursuant to the loan agreement (Note 5).
|
(b)
|
Security is a business development company (Note 1).
|
(c)
|
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.
|
See Notes to Financial Statements.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
15
|
Statement of assets and liabilities
November 30, 2020
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
Investments, at value (Cost $219,181,436)
|
|
$
|
286,206,695
|
|
Foreign currency, at value (Cost $2)
|
|
|
2
|
|
Cash
|
|
|
82,800
|
|
Receivable for securities sold
|
|
|
3,427,752
|
|
Dividends and interest receivable
|
|
|
1,554,758
|
|
Prepaid expenses
|
|
|
3,636
|
|
Total Assets
|
|
|
291,275,643
|
|
|
|
Liabilities:
|
|
|
|
|
Loan payable (Note 5)
|
|
|
55,000,000
|
|
Investment management fee payable
|
|
|
197,063
|
|
Payable for securities purchased
|
|
|
112,785
|
|
Interest expense payable
|
|
|
13,438
|
|
Directors fees payable
|
|
|
7,736
|
|
Accrued expenses
|
|
|
70,937
|
|
Total Liabilities
|
|
|
55,401,959
|
|
Total Net Assets
|
|
$
|
235,873,684
|
|
|
|
Net Assets:
|
|
|
|
|
Par value ($0.001 par value; 17,983,330 shares issued and outstanding; 100,000,000 shares authorized)
|
|
$
|
17,983
|
|
Paid-in capital in excess of par value
|
|
|
193,472,053
|
|
Total distributable earnings (loss)
|
|
|
42,383,648
|
|
Total Net Assets
|
|
$
|
235,873,684
|
|
|
|
Shares Outstanding
|
|
|
17,983,330
|
|
|
|
Net Asset Value
|
|
|
$13.12
|
|
See Notes to Financial
Statements.
|
|
|
16
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Statement of operations
For the Year Ended November 30, 2020
|
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
Dividends
|
|
$
|
13,719,229
|
|
Interest
|
|
|
125,421
|
|
Less: Foreign taxes withheld
|
|
|
(21,318)
|
|
Total Investment Income
|
|
|
13,823,332
|
|
|
|
Expenses:
|
|
|
|
|
Investment management fee (Note 2)
|
|
|
2,480,334
|
|
Interest expense (Note 5)
|
|
|
908,227
|
|
Audit and tax fees
|
|
|
93,328
|
|
Directors fees
|
|
|
83,770
|
|
Legal fees
|
|
|
66,820
|
|
Transfer agent fees
|
|
|
57,966
|
|
Fund accounting fees
|
|
|
31,107
|
|
Shareholder reports
|
|
|
20,528
|
|
Stock exchange listing fees
|
|
|
14,519
|
|
Custody fees
|
|
|
4,844
|
|
Insurance
|
|
|
4,230
|
|
Franchise taxes
|
|
|
2,080
|
|
Miscellaneous expenses
|
|
|
2,653
|
|
Total Expenses
|
|
|
3,770,406
|
|
Less: Fee waivers and/or expense reimbursements (Note 2)
|
|
|
(7,738)
|
|
Net Expenses
|
|
|
3,762,668
|
|
Net Investment Income
|
|
|
10,060,664
|
|
|
|
Realized and Unrealized Loss on Investments and Foreign Currency Transactions (Notes 1 and 3):
|
|
|
|
|
Net Realized Loss From:
|
|
|
|
|
Investment transactions
|
|
|
(18,769,960)
|
|
Foreign currency transactions
|
|
|
(2,659)
|
|
Net Realized Loss
|
|
|
(18,772,619)
|
|
Change in Net Unrealized Appreciation (Depreciation) From
Investments
|
|
|
(13,651,087)
|
|
Net Loss on Investments and Foreign Currency Transactions
|
|
|
(32,423,706)
|
|
Decrease in Net Assets From Operations
|
|
$
|
(22,363,042)
|
|
See Notes to Financial
Statements.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
17
|
Statements of changes in net assets
|
|
|
|
|
|
|
|
|
For the Years Ended November 30,
|
|
2020
|
|
|
2019
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
10,060,664
|
|
|
$
|
7,826,476
|
|
Net realized gain (loss)
|
|
|
(18,772,619)
|
|
|
|
6,686,013
|
|
Change in net unrealized appreciation (depreciation)
|
|
|
(13,651,087)
|
|
|
|
32,273,020
|
|
Increase (Decrease) in Net Assets From Operations
|
|
|
(22,363,042)
|
|
|
|
46,785,509
|
|
|
|
|
Distributions to Shareholders From (Note 1):
|
|
|
|
|
|
|
|
|
Total distributable earnings
|
|
|
(8,187,233)
|
|
|
|
(8,070,466)
|
|
Return of capital
|
|
|
(14,112,096)
|
|
|
|
(14,228,863)
|
|
Decrease in Net Assets From Distributions to
Shareholders
|
|
|
(22,299,329)
|
|
|
|
(22,299,329)
|
|
|
|
|
Capital Contributions:
|
|
|
|
|
|
|
|
|
Capital contributions
|
|
|
15,262
|
|
|
|
|
|
Increase (Decrease) in Net Assets
|
|
|
(44,647,109)
|
|
|
|
24,486,180
|
|
|
|
|
Net Assets:
|
|
|
|
|
|
|
|
|
Beginning of year
|
|
|
280,520,793
|
|
|
|
256,034,613
|
|
End of year
|
|
$
|
235,873,684
|
|
|
$
|
280,520,793
|
|
See Notes to Financial
Statements.
|
|
|
18
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Statement of cash flows
For the Year Ended November 30, 2020
|
|
|
|
|
|
|
Increase (Decrease) in Cash:
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
Net decrease in net assets resulting from operations
|
|
$
|
(22,363,042)
|
|
Adjustments to reconcile net decrease in net assets resulting from operations to net cash provided (used) by operating
activities:
|
|
|
|
|
Purchases of portfolio securities
|
|
|
(149,194,968)
|
|
Sales of portfolio securities
|
|
|
178,850,835
|
|
Net purchases, sales and maturities of short-term investments
|
|
|
6,790,107
|
|
Net amortization of premium (accretion of discount)
|
|
|
11,519
|
|
Return of capital
|
|
|
6,932,973
|
|
Securities litigation proceeds
|
|
|
39,288
|
|
Increase in receivable for securities sold
|
|
|
(3,427,752)
|
|
Increase in interest and dividends receivable
|
|
|
(681,170)
|
|
Decrease in prepaid expenses
|
|
|
2,820
|
|
Increase in payable for securities purchased
|
|
|
112,785
|
|
Decrease in investment management fee payable
|
|
|
(39,669)
|
|
Increase in Directors fees payable
|
|
|
2,720
|
|
Decrease in interest expense payable
|
|
|
(45,646)
|
|
Decrease in accrued expenses
|
|
|
(76,547)
|
|
Net realized loss on investments
|
|
|
18,769,960
|
|
Change in net unrealized appreciation (depreciation) of investments
|
|
|
13,651,087
|
|
Net Cash Provided in Operating Activities*
|
|
|
49,335,300
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
Distributions paid on common stock
|
|
|
(22,299,329)
|
|
Decrease in loan facility borrowings
|
|
|
(27,000,000)
|
|
Capital contribution
|
|
|
15,262
|
|
Net Cash Used by Financing Activities
|
|
|
(49,284,067)
|
|
Net Increase in Cash and Restricted Cash
|
|
|
51,233
|
|
Cash and restricted cash at beginning of year
|
|
|
31,569
|
|
Cash and restricted cash at end of year
|
|
$
|
82,802
|
|
*
|
Included in operating expenses is cash of $953,873 paid for interest on borrowings.
|
|
The following table provides a reconciliation of cash (including foreign currency) and restricted cash reported within the Statement of Assets and
Liabilities that sums to the total of such amounts shown on the Statement of Cash Flows.
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
Cash
|
|
$
|
82,802
|
|
Restricted cash
|
|
|
|
|
Total cash and restricted cash shown in the Statement of Cash Flows
|
|
$
|
82,802
|
|
See Notes to Financial
Statements.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
19
|
Financial highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For a share of capital stock outstanding throughout each year ended November
30:
|
|
|
|
20201
|
|
|
20191
|
|
|
20181
|
|
|
20171
|
|
|
20161
|
|
|
|
|
|
|
|
Net asset value, beginning of year
|
|
|
$15.60
|
|
|
|
$14.24
|
|
|
|
$15.34
|
|
|
|
$15.33
|
|
|
|
$15.31
|
|
|
|
|
|
|
|
Income (loss) from operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.56
|
|
|
|
0.44
|
|
|
|
0.53
|
|
|
|
0.47
|
|
|
|
0.50
|
|
Net realized and unrealized gain (loss)
|
|
|
(1.80)
|
|
|
|
2.16
|
|
|
|
(0.39)
|
|
|
|
0.78
|
|
|
|
0.76
|
|
Total income (loss) from operations
|
|
|
(1.24)
|
|
|
|
2.60
|
|
|
|
0.14
|
|
|
|
1.25
|
|
|
|
1.26
|
|
|
|
|
|
|
|
Less distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.46)
|
|
|
|
(0.45)
|
|
|
|
(0.54)
|
|
|
|
(0.57)
|
|
|
|
(0.46)
|
|
Return of capital
|
|
|
(0.78)
|
|
|
|
(0.79)
|
|
|
|
(0.70)
|
|
|
|
(0.67)
|
|
|
|
(0.78)
|
|
Total distributions
|
|
|
(1.24)
|
|
|
|
(1.24)
|
|
|
|
(1.24)
|
|
|
|
(1.24)
|
|
|
|
(1.24)
|
|
Capital contributions
|
|
|
0.00
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of year
|
|
|
$13.12
|
|
|
|
$15.60
|
|
|
|
$14.24
|
|
|
|
$15.34
|
|
|
|
$15.33
|
|
|
|
|
|
|
|
Market price, end of year
|
|
|
$11.33
|
|
|
|
$14.62
|
|
|
|
$12.42
|
|
|
|
$13.76
|
|
|
|
$13.11
|
|
Total return, based on NAV3,4
|
|
|
(5.82)
|
%5
|
|
|
19.45
|
%
|
|
|
0.99
|
%
|
|
|
8.40
|
%
|
|
|
8.84
|
%
|
Total return, based on Market Price6
|
|
|
(12.83)
|
%
|
|
|
29.56
|
%
|
|
|
(1.04)
|
%
|
|
|
14.47
|
%
|
|
|
12.88
|
%
|
|
|
|
|
|
|
Net assets, end of year (millions)
|
|
|
$236
|
|
|
|
$281
|
|
|
|
$256
|
|
|
|
$276
|
|
|
|
$276
|
|
|
|
|
|
|
|
Ratios to average net assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses
|
|
|
1.65
|
%
|
|
|
2.18
|
%
|
|
|
2.18
|
%
|
|
|
1.80
|
%
|
|
|
1.54
|
%
|
Net expenses
|
|
|
1.65
|
7
|
|
|
2.11
|
7
|
|
|
2.18
|
|
|
|
1.80
|
|
|
|
1.54
|
|
Net investment income
|
|
|
4.40
|
|
|
|
2.98
|
|
|
|
3.62
|
|
|
|
3.00
|
|
|
|
3.38
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
52
|
%
|
|
|
36
|
%
|
|
|
26
|
%
|
|
|
37
|
%
|
|
|
29
|
%
|
|
|
|
|
|
|
Supplemental data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Outstanding, End of Year (000s)
|
|
|
$55,000
|
|
|
|
$82,000
|
|
|
|
$90,000
|
|
|
|
$90,000
|
|
|
|
$82,500
|
|
Asset Coverage Ratio for Loan Outstanding8
|
|
|
529
|
%
|
|
|
442
|
%
|
|
|
384
|
%
|
|
|
407
|
%
|
|
|
434
|
%
|
Asset Coverage, per $1,000 Principal Amount of Loan Outstanding8
|
|
|
$5,289
|
|
|
|
$4,421
|
|
|
|
$3,845
|
|
|
|
$4,065
|
|
|
|
$4,343
|
|
Weighted Average Loan (000s)
|
|
|
$62,973
|
|
|
|
$82,548
|
|
|
|
$90,000
|
|
|
|
$88,849
|
|
|
|
$75,307
|
|
Weighted Average Interest Rate on Loan
|
|
|
1.44
|
%
|
|
|
2.98
|
%
|
|
|
2.63
|
%
|
|
|
1.72
|
%
|
|
|
1.13
|
%
|
See Notes to Financial
Statements.
|
|
|
20
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
1
|
Per share amounts have been calculated using the average shares method.
|
2
|
Amount represents less than $0.005 per share.
|
3
|
Performance figures may reflect compensating balance arrangements, fee waivers and/or expense reimbursements. In the absence of compensating balance
arrangements, fee waivers and/or expense reimbursements, the total return would have been lower. Past performance is no guarantee of future results.
|
4
|
The total return calculation assumes that distributions are reinvested at NAV. Past performance is no guarantee of future results.
|
5
|
Includes the effect of a capital contribution. Absent the capital contribution, the total return would have been unchanged.
|
6
|
The total return calculation assumes that distributions are reinvested in accordance with the Funds dividend reinvestment plan. Past performance is no
guarantee of future results.
|
7
|
Reflects fee waivers and/or expense reimbursements.
|
8
|
Represents value of net assets plus the loan outstanding at the end of the period divided by the loan outstanding at the end of the period.
|
See Notes to Financial
Statements.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
21
|
Notes to financial statements
1.
Organization and significant accounting policies
LMP Capital and Income Fund Inc. (the Fund) was incorporated in Maryland on
November 12, 2003 and is registered as a non-diversified, closed-end management investment company under the Investment Company Act of 1940, as amended (the
1940 Act). The Board of Directors authorized 100 million shares of $0.001 par value common stock. The Funds investment objective is total return with an emphasis on income.
Under normal market conditions, the Fund seeks to maximize total return by investing at least 80% of its Managed Assets in a broad range of equity and fixed income
securities of both U.S. and foreign issuers. The Fund will vary its allocation between equity and fixed income securities depending on ClearBridges view of economic, market or political conditions, fiscal and monetary policy and security
valuation. Effective April 1, 2020 and August 14, 2020, the Board of Directors of the Fund approved amendments to the Funds bylaws. The amended and restated bylaws were subsequently filed on Form
8-K and are available on the Securities and Exchange Commissions website at www.sec.gov.
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.
Subsequent events have been evaluated through the date the financial statements were issued.
(a) Investment valuation. Equity securities for which market quotations are available are valued at the last reported sales price or official closing price on the primary market or exchange on which they trade. The valuations for fixed
income securities (which may include, but are not limited to, corporate, government, municipal, mortgage-backed, collateralized mortgage obligations and asset-backed securities) and certain derivative instruments are typically the prices supplied by
independent third party pricing services, which may use market prices or broker/dealer quotations or a variety of valuation techniques and methodologies. The independent third party pricing services use inputs that are observable such as issuer
details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates and quoted prices for similar securities. Investments in open-end funds are valued at the closing net asset value
per share of each fund on the day of valuation. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time). If independent third
party pricing services are unable to supply prices for a portfolio investment, or if the prices supplied are deemed by the manager to be unreliable, the market price may be determined by the manager using quotations from one or more broker/dealers
or at the transaction price if the security has recently been purchased and no value has yet been obtained from a pricing service or pricing broker. When reliable prices are not readily available, such as when the value of a security has been
significantly
|
|
|
22
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
affected by events after the close of the exchange or market on which the security is principally traded, but before
the Fund calculates its net asset value, the Fund values these securities as determined in accordance with procedures approved by the Funds Board of Directors.
The Board of Directors is responsible for the valuation process and has delegated the supervision of the daily valuation process to the Legg Mason North Atlantic Fund Valuation Committee (the Valuation
Committee). The Valuation Committee, pursuant to the policies adopted by the Board of Directors, is responsible for making fair value determinations, evaluating the effectiveness of the Funds pricing policies, and reporting to the Board
of Directors. When determining the reliability of third party pricing information for investments owned by the Fund, the Valuation Committee, among other things, conducts due diligence reviews of pricing vendors, monitors the daily change in prices
and reviews transactions among market participants.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when
making fair value determinations. Examples of possible methodologies include, but are not limited to, multiple of earnings; discount from market of a similar freely traded security; discounted cash-flow analysis; book value or a multiple thereof;
risk premium/yield analysis; yield to maturity; and/or fundamental investment analysis. The Valuation Committee will also consider factors it deems relevant and appropriate in light of the facts and circumstances. Examples of possible factors
include, but are not limited to, the type of security; the issuers financial statements; the purchase price of the security; the discount from market value of unrestricted securities of the same class at the time of purchase; analysts
research and observations from financial institutions; information regarding any transactions or offers with respect to the security; the existence of merger proposals or tender offers affecting the security; the price and extent of public trading
in similar securities of the issuer or comparable companies; and the existence of a shelf registration for restricted securities.
For each portfolio
security that has been fair valued pursuant to the policies adopted by the Board of Directors, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such back
testing monthly and fair valuation occurrences are reported to the Board of Directors quarterly.
The Fund uses valuation techniques to measure fair
value that are consistent with the market approach and/or income approach, depending on the type of security and the particular circumstance. The market approach uses prices and other relevant information generated by market transactions involving
identical or comparable securities. The income approach uses valuation techniques to discount estimated future cash flows to present value.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
23
|
Notes to financial statements (contd)
GAAP establishes a
disclosure hierarchy that categorizes the inputs to valuation techniques used to value assets and liabilities at measurement date. These inputs are summarized in the three broad levels listed below:
|
|
Level 1 quoted prices in active markets for identical investments
|
|
|
Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
|
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
|
The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those
securities.
The following is a summary of the inputs used in valuing the Funds assets carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Description
|
|
Quoted Prices
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Total
|
|
Long-Term Investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
$
|
145,098,606
|
|
|
|
|
|
|
|
|
|
|
$
|
145,098,606
|
|
Master Limited Partnerships
|
|
|
65,930,619
|
|
|
|
|
|
|
|
|
|
|
|
65,930,619
|
|
Convertible Preferred Stocks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication Services
|
|
|
|
|
|
$
|
9,486,807
|
|
|
|
|
|
|
|
9,486,807
|
|
Consumer Discretionary
|
|
|
3,682,858
|
|
|
|
3,494,873
|
|
|
|
|
|
|
|
7,177,731
|
|
Other Convertible Preferred Stocks
|
|
|
40,858,961
|
|
|
|
|
|
|
|
|
|
|
|
40,858,961
|
|
Investments in Underlying Funds
|
|
|
10,334,235
|
|
|
|
|
|
|
|
|
|
|
|
10,334,235
|
|
Convertible Bonds & Notes
|
|
|
|
|
|
|
5,742,862
|
|
|
|
|
|
|
|
5,742,862
|
|
Preferred Stocks
|
|
|
1,416,477
|
|
|
|
|
|
|
|
|
|
|
|
1,416,477
|
|
Total Long-Term Investments
|
|
|
267,321,756
|
|
|
|
18,724,542
|
|
|
|
|
|
|
|
286,046,298
|
|
Short-Term Investments
|
|
|
160,397
|
|
|
|
|
|
|
|
|
|
|
|
160,397
|
|
Total Investments
|
|
$
|
267,482,153
|
|
|
$
|
18,724,542
|
|
|
|
|
|
|
$
|
286,206,695
|
|
|
See Schedule of Investments for additional detailed categorizations.
|
(b) Business development companies. The Fund may invest in securities of closed-end investment
companies that have elected to be treated as a business development company under the 1940 Act. A business development company operates similar to an exchange-traded fund and represents a portfolio of securities. The Fund may purchase a business
development company to gain exposure to the securities in the underlying portfolio. The risks of owning a business development company generally reflect the risks of owning the underlying securities. Business development companies have expenses that
reduce their value.
|
|
|
24
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
(c) Master limited partnerships. The Fund may
invest without limit in the securities of both energy and non-energy Master Limited Partnerships (MLPs), so long as no more than 25% of the Funds total assets are invested in MLPs that are
treated for U.S. federal tax purposes as qualified publicly traded partnerships. This 25% limitation applies generally to MLPs that focus on commodity and energy-related industries. Entities commonly referred to as MLPs are generally
organized under state law as limited partnerships or limited liability companies. To be treated as a partnership for U.S. federal income tax purposes, an MLP whose units are traded on a securities exchange must receive at least 90% of its income
from qualifying sources such as interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from mineral or natural resources activities, income and gain from the transportation or storage of certain
fuels, and, in certain circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities include exploration, development, production, processing, mining, refining,
marketing and transportation (including pipelines) of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. An MLP consists of a general partner and limited partners (or in the case of MLPs organized as
limited liability companies, a managing member and members). The general partner or managing member typically controls the operations and management of the MLP and has an ownership stake in the partnership. The limited partners or members, through
their ownership of limited partner or member interests, provide capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions. The MLPs themselves generally do not pay U.S. federal
income taxes. Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation (i.e., corporate level tax and tax on corporate dividends). Currently, most MLPs operate in the energy and/or natural
resources sector.
The Fund, and entities in which the Fund invests, may be subject to audit by the Internal Revenue Service or other applicable tax
authorities. The Funds taxable income or tax liability for prior taxable years could be adjusted if there is an audit of the Fund, or of any entity that is treated as a partnership for tax purposes in which the Fund holds an equity interest.
The Fund may be required to pay a fund-level tax as a result of such an adjustment or may pay a deficiency dividend to its current shareholders in order to avoid a fund-level tax associated with the adjustment. The Fund could also be
required to pay interest and penalties in connection with such an adjustment.
(d) Cash flow information. The Fund invests in securities and distributes dividends from net investment income and net realized gains, which are paid in cash and may be reinvested at the discretion of shareholders. These activities are
reported in the Statements of Changes in Net Assets and additional information on cash receipts and cash payments are presented in the Statement of Cash Flows.
(e) Foreign currency translation. Investment securities and other assets and liabilities denominated in foreign currencies are translated into
U.S. dollar amounts based upon
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
25
|
Notes to financial statements (contd)
prevailing exchange
rates on the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts based upon prevailing exchange rates on the respective dates of such
transactions.
The Fund does not isolate that portion of the results of operations resulting from fluctuations in foreign exchange rates on investments
from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of foreign currencies, including gains and losses on forward foreign currency contracts, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes 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 values of assets and liabilities, other than investments in securities, on the date of valuation, resulting from changes in exchange rates.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of U.S. dollar denominated transactions
as a result of, among other factors, the possibility of lower levels of governmental supervision and regulation of foreign securities markets and the possibility of political or economic instability.
(f) Foreign investment risks. The Funds investments in foreign securities may involve
risks not present in domestic investments. Since securities may be denominated in foreign currencies, may require settlement in foreign currencies or pay interest or dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which affect the market and/or credit risk of the investments.
(g) Security transactions and
investment income. Security transactions are accounted for on a trade date basis. Interest income (including interest income from
payment-in-kind securities), adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date for dividends received in cash and/or securities. Foreign dividend income is recorded on the ex-dividend date or as soon as practicable after the Fund
determines the existence of a dividend declaration after exercising reasonable due diligence. The cost of investments sold is determined by use of the specific identification method. To the extent any issuer defaults or a credit event occurs that
impacts the issuer, the Fund may halt any additional interest income accruals and consider the realizability of interest accrued up to the date of default or credit event.
|
|
|
26
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
(h) Return of capital estimates. Distributions
received from the Funds investments in MLPs generally are comprised of income and return of capital and distributions received from the Funds investments in Real Estate Investment Trusts (REITs) generally are comprised of
income, realized capital gains and return of capital. The Fund records investment income, realized capital gains and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical
information available from each MLP or REIT and other industry sources. These estimates may subsequently be revised based on information received from the MLPs and REITs after their tax reporting periods are concluded.
(i) Partnership accounting policy. The Fund records its pro rata share of the income (loss)
and capital gains (losses), to the extent of distributions it has received, allocated from the underlying partnerships and accordingly adjusts the cost basis of the underlying partnerships for return of capital. These amounts are included in the
Funds Statement of Operations.
(j) Distributions to shareholders.
Distributions from net investment income by the Fund, if any, are declared and paid on a quarterly basis. The Fund intends to distribute all of its net investment income earned each quarter and any
cash received during the quarter from its investments in MLPs and REITs. The Fund intends to distribute the cash received from MLPs and REITs even if all or a portion of that cash may represent a return of capital to the Fund. The Fund may
distribute additional amounts if required under the income tax regulations. Distributions of net realized gains, if any, are declared at least annually. Pursuant to its Managed Distribution Policy, the Fund intends to make regular quarterly
distributions to shareholders at a fixed rate per common share, which rate may be adjusted from time to time by the Funds Board of Directors. Under the Funds Managed Distribution Policy, if, for any quarterly distribution, the value of
the Funds net investment income and net realized capital gain is less than the amount of the distribution, the difference will be distributed from the Funds net assets (and may constitute a return of capital). The Board of
Directors may modify, terminate or suspend the Managed Distribution Policy at any time, including when certain events would make part of the return of capital taxable to shareholders. Any such modification, termination or suspension could have an
adverse effect on the market price of the Funds shares. Distributions to shareholders of the Fund are recorded on the ex-dividend date and are determined in accordance with income tax regulations, which
may differ from GAAP.
(k) Compensating balance arrangements. The Fund has an
arrangement with its custodian bank whereby a portion of the custodians fees is paid indirectly by credits earned on the Funds cash on deposit with the bank.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
27
|
Notes to financial statements (contd)
(l)
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 (the Code), as amended,
applicable to regulated investment companies. Accordingly, the Fund intends to distribute its taxable income and net realized gains, if any, to shareholders in accordance with timing requirements imposed by the Code. Therefore, no federal or state
income tax provision is required in the Funds financial statements.
The Fund may invest up to 25% of its total assets in MLPs, which generally are
treated for federal income tax purposes as qualified publicly traded partnerships. As a limited partner in the MLPs, the Fund reports its allocable share of the MLPs taxable income in computing its own taxable income. The distributions paid by
the MLPs generally do not constitute income for tax purposes. Each MLP may allocate losses to the Fund which are generally not deductible in computing the Funds taxable income until such time as that particular MLP either generates income to
offset those losses or the Fund disposes of units in that MLP. This may result in the Funds taxable income being substantially different than its book income in any given year. As a result, the Fund may have insufficient taxable income to
support its distributions paid resulting in a return of capital to shareholders. A return of capital distribution is generally not treated as taxable income to shareholders and instead reduces a shareholders basis in their shares of the Fund.
Management has analyzed the Funds tax positions taken on income tax returns for all open tax years and has concluded that as of November 30,
2020, no provision for income tax is required in the Funds financial statements. The Funds federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are
subject to examination by the Internal Revenue Service and state departments of revenue.
Under the applicable foreign tax laws, a withholding tax may be
imposed on interest, dividends and capital gains at various rates.
(m) Reclassification. GAAP requires that certain components of net assets be reclassified to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per
share. During the current year, the following reclassifications have been made:
|
|
|
|
|
|
|
|
|
|
|
Total Distributable
Earnings (Loss)
|
|
|
Paid-in
Capital
|
|
(a)
|
|
$
|
(1,046,108)
|
|
|
$
|
1,046,108
|
|
(a)
|
Reclassifications are due to differences between actual and estimated information for the prior year related to the Funds investments in REITs and MLPs.
|
2. Investment management agreement and other transactions with affiliates
Legg Mason Partners Fund Advisor, LLC (LMPFA) is the Funds investment manager. ClearBridge Investments, LLC (ClearBridge), Western
Asset Management Company, LLC (Western Asset) and Western Asset Management Company Limited (Western Asset
|
|
|
28
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Limited) are the Funds subadvisers. As of July 31, 2020, LMPFA, ClearBridge, Western Asset and Western Asset Limited are indirect, wholly-owned subsidiaries of Franklin
Resources, Inc. (Franklin Resources). Prior to July 31, 2020, LMPFA, ClearBridge, Western Asset and Western Asset Limited were wholly-owned subsidiaries of Legg Mason, Inc. (Legg Mason). As of July, 31, 2020, Legg Mason
is a subsidiary of Franklin Resources.
LMPFA provides administrative and certain oversight services to the Fund. The Fund pays an investment management
fee, calculated daily and paid monthly, at an annual rate of 0.85% of the Funds average daily net assets plus the proceeds of any outstanding borrowings used for leverage and any proceeds from the issuance of preferred stock (Managed
Assets).
LMPFA delegates to the subadvisers the day-to-day
portfolio management of the Fund. ClearBridge provides investment advisory services to the Fund by both determining the allocation of the Funds assets between equity and fixed income investments and performing the day-to-day management of the Funds investments in equity securities. Western Asset provides advisory services to the Fund by performing the day-to-day management of the Funds fixed income investments. For its services, LMPFA pays the subadvisers monthly 70% of the net management fee it receives from the
Fund. This fee will be divided on a pro rata basis, based on assets allocated to each subadviser.
Western Asset Limited provides certain advisory
services to the Fund relating to currency transactions and investments in non-U.S. dollar denominated securities. Western Asset Limited does not receive any compensation from the Fund. In turn, Western Asset
pays Western Asset Limited monthly a subadvisory fee of 0.30% on the assets managed by Western Asset Limited.
During periods in which the Fund utilizes
financial leverage, the fees paid to LMPFA will be higher than if the Fund did not utilize leverage because the fees are calculated as a percentage of the Funds assets, including those investments purchased with leverage.
During the year ended November 30, 2020, fees waived and/or expenses reimbursed amounted to $7,738.
As of July 31, 2020, all officers and one Director of the Fund are employees of Franklin Resources or its affiliates and do not receive compensation from the Fund. Prior to July 31, 2020, all officers and
one Director of the Fund were employees of Legg Mason and did not receive compensation from the Fund.
3. Investments
During the year ended November 30, 2020, the aggregate cost of purchases and proceeds from sales of investments (excluding short-term investments) were as
follows:
|
|
|
|
|
Purchases
|
|
|
$149,194,968
|
|
Sales
|
|
|
178,850,835
|
|
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
29
|
Notes to financial statements (contd)
At November 30,
2020, the aggregate cost of investments and the aggregate gross unrealized appreciation and depreciation of investments for federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
Depreciation
|
|
|
Net
Unrealized
Appreciation
|
|
Securities
|
|
$
|
211,972,134
|
|
|
$
|
85,341,347
|
|
|
$
|
(11,106,786)
|
|
|
$
|
74,234,561
|
|
4. Derivative instruments and hedging activities
During the year ended November 30, 2020, the Fund did not invest in derivative instruments.
5. Loan
The Fund has a revolving credit
agreement with Pershing LLC (Credit Agreement), which permits the Fund to borrow up to an aggregate amount of $110,000,000, subject to the approval of Pershing LLC, and renews daily for a 180-day
term unless notice to the contrary is given to the Fund. The interest on the loan is calculated at a variable rate based on the one-month LIBOR, plus any applicable margin. To the extent of the borrowing
outstanding, the Fund is required to maintain collateral in a special custody account at the Funds custodian on the behalf of Pershing, LLC. The Funds Credit Agreement contains customary covenants that, among other things, may limit the
Funds ability to pay distributions in certain circumstances, incur additional debt, change its fundamental investment policies and engage in certain transactions, including mergers and consolidations, and require asset coverage ratios in
addition to those required by the 1940 Act. In addition, the Credit Agreement may be subject to early termination under certain conditions and may contain other provisions that could limit the Funds ability to utilize borrowing under the
agreement. Interest expense related to the loan for the year ended November 30, 2020 was $908,227. For the year ended November 30, 2020, the Fund had an average daily loan balance outstanding of $62,972,678 and the weighted average
interest rate was 1.44%. At November 30, 2020, the Fund had $55,000,000 of borrowings outstanding per this Credit Agreement.
6.
Distributions subsequent to November 30, 2020
The following distribution has been declared by the Funds Board of Directors and is payable
subsequent to the period end of this report:
|
|
|
|
|
|
|
|
|
Record Date
|
|
Payable Date
|
|
|
Amount
|
|
12/23/2020
|
|
|
12/31/2020
|
|
|
$
|
0.2600
|
|
7. Stock repurchase program
On November 16, 2015, the Fund announced that the Funds Board of Directors (the Board) had authorized the Fund to repurchase in the open market up to approximately 10% of the Funds
outstanding common stock when the Funds shares are trading at a discount to net asset value. The Board has directed management of the Fund to repurchase shares of
|
|
|
30
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
common stock at such times and in such amounts as management reasonably believes may enhance stockholder value. The Fund is under no obligation to purchase shares at any specific discount levels
or in any specific amounts. During the year ended November 30, 2020, the Fund did not repurchase any shares.
8. Income tax
information and distributions to shareholders
The tax character of distributions paid during the fiscal years ended November 30, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
8,187,233
|
|
|
$
|
8,070,466
|
|
Tax return of capital
|
|
|
14,112,096
|
|
|
|
14,228,863
|
|
Total distributions paid
|
|
$
|
22,299,329
|
|
|
$
|
22,299,329
|
|
As of November 30, 2020, the components of distributable earnings (loss) on a tax basis were as follows:
|
|
|
|
|
Deferred capital losses*
|
|
$
|
(16,254,014)
|
|
Other book/tax temporary differences(a)
|
|
|
(15,596,900)
|
|
Unrealized appreciation (depreciation)(b)
|
|
|
74,234,562
|
|
Total distributable earnings (loss) net
|
|
$
|
42,383,648
|
|
*
|
These capital losses have been deferred in the current year as either short-term or long-term losses. The losses will be deemed to occur on the first
day of the next taxable year in the same character as they were originally deferred and will be available to offset future taxable capital gains.
|
(a)
|
Other book/tax temporary differences are attributable to book/tax differences in the treatment of certain passive activity losses from partnership investments
and book/tax differences in the timing of the deductibility of various expenses.
|
(b)
|
The difference between book-basis and tax-basis unrealized appreciation (depreciation) is attributable to the tax
deferral of losses on wash sales and the difference between the book and tax cost basis in partnership investments.
|
9. Other matters
The outbreak of the
respiratory illness COVID-19 (commonly referred to as coronavirus) has continued to rapidly spread around the world, causing considerable uncertainty for the global economy and financial markets.
The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. The COVID-19 pandemic could adversely affect the value and
liquidity of the Funds investments and negatively impact the Funds performance. In addition, the outbreak of COVID-19, and measures taken to mitigate its effects, could result in disruptions to the
services provided to the Fund by its service providers.
* * *
The London Interbank Offered Rate, or LIBOR, the offered rate for short-term Eurodollar deposits between major international banks, is used extensively
in the United States and globally as a reference rate in various financing and commercial transactions. Plans are
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
31
|
Notes to financial statements (contd)
underway to phase out
the use of LIBOR by the end of 2021. There remains uncertainty regarding the nature of any replacement rate and the impact of the transition from LIBOR on the financial markets generally, transactions that use LIBOR as a reference rate and financial
institutions that engage in such transactions, including issuers of securities in which the Fund invests. As such, the potential effect of a transition away from LIBOR on the Fund or the Funds investments cannot yet be determined.
* * *
On
August 14, 2020, the Fund announced that it has elected, by resolution unanimously adopted by the Funds board of directors, to be subject to the Maryland Control Share Acquisition Act (the MCSAA), effective immediately. The
MCSAA protects the interests of all stockholders of a Maryland corporation by providing that any holder of control shares acquired in a control share acquisition will not be entitled to vote its shares unless the other
stockholders of the corporation reinstate those voting rights at a meeting of stockholders by a vote of two-thirds of the votes entitled to be cast on the matter, excluding the acquiring person
(i.e., the holder or group of holders acting in concert that acquires, or proposes to acquire, control shares) and any other holders of interested shares as defined in the MCSAA. Generally, control shares are
shares that, when aggregated with shares already owned by an acquiring person, would entitle the acquiring person to exercise 10% or more, 33 1/3% or more, or a majority of the total voting power of shares entitled to vote in the election of
directors.
Application of the MCSAA seeks to limit the ability of an acquiring person to achieve a short-term gain at the expense of the Funds
ability to pursue its investment objective and policies and seek long-term value for the rest of the Funds stockholders. The above description of the MCSAA is only a high-level summary and does not purport to be complete. Investors should
refer to the actual provisions of the MCSAA and the Funds bylaws for more information, including definitions of key terms, various exclusions and exemptions from the statutes scope, and the procedures by which stockholders may approve
the reinstatement of voting rights to holders of control shares.
|
|
|
32
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of LMP Capital and Income Fund Inc.
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of LMP Capital and Income Fund Inc. (the Fund) as of November 30, 2020, the related
statements of operations and cash flows for the year ended November 30, 2020, the statement of changes in net assets for each of the two years in the period ended November 30, 2020, including the related notes, and the financial highlights
for each of the four years in the period ended November 30, 2020 (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Fund as of November 30, 2020, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period ended November 30, 2020 and the financial highlights for each
of the four years in the period ended November 30, 2020 in conformity with accounting principles generally accepted in the United States of America.
The financial statements of the Fund as of and for the year ended November 30, 2016 and the financial highlights for the year then ended (not presented herein,
other than the financial highlights) were audited by other auditors whose report dated January 19, 2017 expressed an unqualified opinion on those financial statements and financial highlights.
Basis for Opinion
These financial statements
are the responsibility of the Funds management. Our responsibility is to express an opinion on the Funds financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our procedures included confirmation of securities owned as of November 30, 2020 by correspondence with the custodian and brokers, when replies were not received from brokers, we performed other auditing procedures. We
believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Baltimore, Maryland
January 22, 2021
We have served as the auditor of one or more investment companies in the Franklin Templeton Group of Funds since 1948.
|
|
|
LMP Capital and Income Fund Inc. 2020 Annual Report
|
|
33
|
Additional shareholder information (unaudited)
Results of special meeting of shareholders
On July 6, 2020, a special meeting of shareholders was held for the following purposes: 1) to approve a new management agreement between the Fund and its
investment manager; and 2) to approve a new subadvisory agreement with respect to each of the Funds subadvisers. The following table provides the number of votes cast for or against, as well as the number of abstentions and broker non-votes as to each matter voted on at the special meeting of shareholders. Each item voted on was approved.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item Voted On
|
|
Voted For
|
|
|
Voted Against
|
|
|
Abstentions
|
|
|
Broker
Non-Votes
|
|
To Approve a New Management Agreement with Legg Mason Partners Fund Advisor, LLC
|
|
|
8,716,764
|
|
|
|
395,795
|
|
|
|
409,004
|
|
|
|
0
|
|
To Approve a New Subadvisory Agreement with ClearBridge Investments, LLC
|
|
|
8,665,956
|
|
|
|
428,656
|
|
|
|
426,951
|
|
|
|
0
|
|
To Approve a New Subadvisory Agreement with Western Asset Management Company, LLC
|
|
|
8,680,277
|
|
|
|
408,406
|
|
|
|
432,880
|
|
|
|
0
|
|
To Approve a New Subadvisory Agreement with Western Asset Management Company Limited
|
|
|
8,669,630
|
|
|
|
410,386
|
|
|
|
441,547
|
|
|
|
0
|
|
|
|
|
34
|
|
LMP Capital and Income Fund Inc.
|
Additional information (unaudited)
Information about Directors and Officers
The business and affairs of LMP Capital and Income Fund Inc. (the Fund) are conducted by management under the supervision and subject to the direction
of its Board of Directors. The business address of each Director is c/o Jane Trust, Legg Mason, 100 International Drive, 11th Floor, Baltimore, Maryland 21202. Information pertaining to the Directors and officers of the Fund is set forth below.
The Funds annual proxy statement includes additional information about Directors and is available, without charge, upon request by calling the
Fund at 1-888-777-0102.
|
|
|
Independent Directors
|
|
|
|
|
Robert D. Agdern
|
|
|
|
|
Year of birth
|
|
1950
|
Position(s) held with Fund1
|
|
Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, and Compliance Liaison, Class III
|
Term of office1 and length of time served
|
|
Since 2015
|
Principal occupation(s) during the past five years
|
|
Member of the Advisory Committee of the Dispute Resolution Research Center at the Kellogg Graduate School of Business, Northwestern University (2002
to 2016); formerly, Deputy General Counsel responsible for western hemisphere matters for BP PLC (1999 to 2001); Associate General Counsel at Amoco Corporation responsible for corporate, chemical, and refining and marketing matters and special
assignments (1993 to 1998) (Amoco merged with British Petroleum in 1998 forming BP PLC)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
None
|
|
|
Carol L. Colman
|
|
|
|
|
Year of birth
|
|
1946
|
Position(s) held with Fund1
|
|
Director and Member of Nominating, Audit and Compensation Committees, and Chair of Pricing and Valuation Committee, Class I
|
Term of office1 and length of time served
|
|
Since 2003
|
Principal occupation(s) during the past five years
|
|
President, Colman Consulting Company (consulting)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
None
|
|
|
|
LMP Capital and Income Fund Inc.
|
|
35
|
Additional information
(unaudited) (contd)
Information about Directors and Officers
|
|
|
Independent Directors (contd)
|
|
|
|
|
Daniel P. Cronin
|
|
|
|
|
Year of birth
|
|
1946
|
Position(s) held with Fund1
|
|
Director and Member of Audit, Compensation and Pricing and Valuation Committees, and Chair of Nominating Committee, Class I
|
Term of office1 and length of time served
|
|
Since 2003
|
Principal occupation(s) during the past five years
|
|
Retired; formerly, Associate General Counsel, Pfizer Inc. (prior to and including 2004)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
None
|
|
|
Paolo M. Cucchi
|
|
|
|
|
Year of birth
|
|
1941
|
Position(s) held with Fund1
|
|
Director and Member of Nominating, Audit, and Pricing and Valuation Committees, and Chair of Compensation Committee, Class I
|
Term of office1 and length of time served
|
|
Since 2007
|
Principal occupation(s) during the past five years
|
|
Emeritus Professor of French and Italian (since 2014) and formerly, Vice President and Dean of The College of Liberal Arts (1984 to 2009) and
Professor of French and Italian (2009 to 2014) at Drew University
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
None
|
|
|
William R. Hutchinson
|
|
|
|
|
Year of birth
|
|
1942
|
Position(s) held with Fund1
|
|
Lead Independent Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class II
|
Term of office1 and length of time served
|
|
Since 2003
|
Principal occupation(s) during the past five years
|
|
President, W.R. Hutchinson & Associates Inc. (consulting) (since 2001)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
Director (since 1994) and formerly, Non-Executive Chairman of the Board (December 2009 to April 2020),
Associated Banc Corp. (banking)
|
|
|
|
36
|
|
LMP Capital and Income Fund Inc.
|
|
|
|
Independent Directors (contd)
|
|
|
|
|
Eileen A. Kamerick
|
|
|
|
|
Year of birth
|
|
1958
|
Position(s) held with Fund1
|
|
Director and Member of Nominating, Compensation and Pricing and Valuation Committees, and Chair of Audit Committee, Class III
|
Term of office1 and length of time served
|
|
Since 2013
|
Principal occupation(s) during the past five years
|
|
Chief Executive Officer, The Governance Partners, LLC (consulting firm) (since 2015); National Association of Corporate Directors Board Leadership
Fellow (since 2016) and financial expert; Adjunct Professor, The University of Chicago Law School (since 2018); Adjunct Professor, Washington University in St. Louis and University of Iowa law schools (since 2007); formerly, Senior Advisor to the
Chief Executive Officer and Executive Vice President and Chief Financial Officer of ConnectWise, Inc. (software and services company) (2015 to 2016); Chief Financial Officer, Press Ganey Associates (health care informatics company) (2012 to 2014);
Managing Director and Chief Financial Officer, Houlihan Lokey (international investment bank) and President, Houlihan Lokey Foundation (2010 to 2012)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
Trustee of AIG Funds and Anchor Series Trust (since 2018); Hochschild Mining plc (precious metals company) (since 2016); Director of Associated
Banc-Corp (financial services company) (since 2007); Westell Technologies, Inc. (technology company) (2003 to 2016)
|
|
|
Nisha Kumar
|
|
|
|
|
Year of birth
|
|
1970
|
Position(s) held with Fund1
|
|
Director and Member of Nominating, Audit, Compensation and Pricing and Valuation Committees, Class II
|
Term of office1 and length of time served
|
|
Since 2019
|
Principal occupation(s) during the past five years
|
|
Managing Director and the Chief Financial Officer and Chief Compliance Officer of Greenbriar Equity Group, LP (since 2011); formerly, Chief
Financial Officer and Chief Administrative Officer of Rent the Runway, Inc. (2011); Executive Vice President and Chief Financial Officer of AOL LLC, a subsidiary of Time Warner Inc. (2007 to 2009), Member of the Council of Foreign
Relations
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
22
|
|
|
Other board memberships held by Director during the past five years
|
|
Director of The India Fund, Inc. (since 2016); formerly, Director of Aberdeen Income Credit Strategies Fund (2017-2018); and Director of The Asia
Tigers Fund, Inc. (2016 to 2018)
|
|
|
|
LMP Capital and Income Fund Inc.
|
|
37
|
Additional information
(unaudited) (contd)
Information about Directors and Officers
|
|
|
Interested Director and Officer
|
|
|
|
|
Jane Trust, CFA2
|
|
|
|
|
Year of birth
|
|
1962
|
Position(s) held with Fund1
|
|
Director, Chairman, President and Chief Executive Officer, Class II
|
Term of office1 and length of time served
|
|
Since 2015
|
Principal occupation(s) during the past five years
|
|
Senior Vice President, Fund Board Management, Franklin Templeton (since 2020); Officer and/or Trustee/Director of 148 funds associated with Legg
Mason Partners Fund Advisor, LLC (LMPFA) or its affiliates (since 2015); President and Chief Executive Officer of LMPFA (since 2015); formerly, Senior Managing Director (2018 to 2020) and Managing Director (2016 to 2018) of Legg
Mason & Co., LLC (Legg Mason & Co.); Senior Vice President of LMPFA (2015)
|
Number of portfolios in fund complex overseen by Director (including the Fund)
|
|
145
|
|
|
Other board memberships held by Director during the past five years
|
|
None
|
|
|
|
Additional Officers
|
|
|
|
|
Fred Jensen*
Franklin Templeton
620
Eighth Avenue, 47th Floor, New York, NY 10018
|
|
|
|
|
Year of birth
|
|
1963
|
Position(s) held with Fund1
|
|
Chief Compliance Officer
|
Term of office1 and length of time served
|
|
Since 2020
|
|
|
Principal occupation(s) during the past five years
|
|
Director - Global Compliance of Franklin Templeton (since 2020); Managing Director of Legg Mason & Co. (2006 to 2020); Director of
Compliance, Legg Mason Office of the Chief Compliance Officer (2006 to 2020); formerly, Chief Compliance Officer of Legg Mason Global Asset Allocation (prior to 2014); Chief Compliance Officer of Legg Mason Private Portfolio Group (prior to 2013);
formerly, Chief Compliance Officer of The Reserve Funds (investment adviser, funds and broker-dealer) (2004) and Ambac Financial Group (investment adviser, funds and broker-dealer) (2000 to 2003)
|
|
|
Jenna Bailey
Franklin Templeton
100
First Stamford Place, 5th Floor, Stamford, CT 06902
|
|
|
|
|
Year of birth
|
|
1978
|
Position(s) held with Fund1
|
|
Identity Theft Prevention Officer
|
Term of office1 and length of time served
|
|
Since 2015
|
|
|
Principal occupation(s) during the past five years
|
|
Senior Compliance Analyst of Franklin Templeton (since 2020); Identity Theft Prevention Officer of certain funds associated with Legg
Mason & Co. or its affiliates (since 2015); formerly, Compliance Officer of Legg Mason & Co. (2013 to 2020); Assistant Vice President of Legg Mason & Co. (2011 to 2020)
|
|
|
|
38
|
|
LMP Capital and Income Fund Inc.
|
|
|
|
Additional Officers (contd)
|
|
|
|
|
George P. Hoyt**
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
|
|
|
|
|
Year of birth
|
|
1965
|
Position(s) held with Fund1
|
|
Secretary and Chief Legal Officer
|
Term of office1 and length of time served
|
|
Since 2020
|
|
|
Principal occupation(s) during the past five years
|
|
Associate General Counsel of Franklin Templeton (since 2020); Secretary and Chief Legal Officer of certain mutual funds associated with Legg
Mason & Co. or its affiliates (since 2020); formerly, Managing Director (2016 to 2020) and Associate General Counsel for Legg Mason & Co. and Assistant Secretary of certain mutual funds associated with Legg Mason & Co. or
its affiliates (2006 to 2020)
|
|
|
Thomas C. Mandia
Franklin Templeton
100 First Stamford Place, 6th Floor, Stamford, CT 06902
|
|
|
|
|
Year of birth
|
|
1962
|
Position(s) held with Fund1
|
|
Assistant Secretary
|
Term of office1 and length of time served
|
|
Since 2006
|
|
|
Principal occupation(s) during the past five years
|
|
Senior Associate General Counsel of Franklin Templeton (since 2020); Secretary of LMPFA (since 2006); Assistant Secretary of certain funds
associated with Legg Mason & Co. or its affiliates (since 2006); Secretary of LM Asset Services, LLC (LMAS) (since 2002) and Legg Mason Fund Asset Management, Inc. (LMFAM) (since 2013) (formerly registered investment
advisers); formerly, Managing Director and Deputy General Counsel of Legg Mason & Co. (2005 to 2020)
|
|
|
Christopher Berarducci
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
|
|
|
|
|
Year of birth
|
|
1974
|
Position(s) held with Fund1
|
|
Treasurer and Principal Financial Officer
|
Term of office1 and length of time served
|
|
Since 2019
|
|
|
Principal occupation(s) during the past five years
|
|
Vice President, Fund Administration and Reporting, Franklin Templeton (since 2020); Treasurer (since 2010) and Principal Financial Officer (since
2019) of certain funds associated with Legg Mason & Co. or its affiliates; formerly, Managing Director (2020), Director (2015 to 2020), and Vice President (2011 to 2015) of Legg Mason & Co.
|
|
|
|
LMP Capital and Income Fund Inc.
|
|
39
|
Additional information
(unaudited) (contd)
Information about Directors and Officers
|
|
|
Additional Officers (contd)
|
|
|
|
|
Jeanne M. Kelly
Franklin Templeton
620 Eighth Avenue, 47th Floor, New York, NY 10018
|
|
|
|
|
Year of birth
|
|
1951
|
Position(s) held with Fund1
|
|
Senior Vice President
|
Term of office1 and length of time served
|
|
Since 2009
|
|
|
Principal occupation(s) during the past five years
|
|
U.S. Fund Board Team Manager, Franklin Templeton (since 2020); Senior Vice President of certain funds associated with Legg Mason & Co. or
its affiliates (since 2007); Senior Vice President of LMPFA (since 2006); President and Chief Executive Officer of LMAS and LMFAM (since 2015); formerly, Managing Director of Legg Mason & Co. (2005 to 2020); Senior Vice President of LMFAM
(2013 to 2015)
|
|
Directors who are not interested persons of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, as
amended (the 1940 Act).
|
*
|
Effective April 17, 2020, Mr. Jensen became Chief Compliance Officer.
|
**
|
Effective August 13, 2020, Mr. Hoyt became Secretary and Chief Legal Officer.
|
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 2021, year 2022 and year 2023, respectively, or thereafter in each case when their respective successors are duly elected and qualified. The Funds executive officers are
chosen each year, to hold office until their successors are duly elected and qualified.
|
2
|
Ms. Trust is an interested person of the Fund as defined in the 1940 Act because Ms. Trust is an officer of LMPFA and certain of its
affiliates.
|
|
|
|
40
|
|
LMP Capital and Income Fund Inc.
|
Annual chief executive officer and principal financial officer
certifications (unaudited)
The Funds Chief Executive Officer (CEO) has submitted to the NYSE the required annual certification and the Fund also has included the
Certifications of the Funds CEO and Principal Financial Officer 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.
|
|
|
LMP Capital and Income Fund Inc.
|
|
41
|
Other shareholder communications regarding accounting matters (unaudited)
The Funds Audit
Committee has established guidelines and procedures regarding the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters (collectively, Accounting Matters). Persons with
complaints or concerns regarding Accounting Matters may submit their complaints to the Chief Compliance Officer (CCO). Persons who are uncomfortable submitting complaints to the CCO, including complaints involving the CCO, may submit
complaints directly to the Funds Audit Committee Chair. Complaints may be submitted on an anonymous basis.
The CCO may be contacted at:
Legg Mason & Co., LLC
Compliance Department
620 Eighth Avenue, 47th Floor
New York, New York 10018
Complaints may also be submitted by telephone at
1-800-742-5274. Complaints submitted through this number will be received by the CCO.
|
|
|
42
|
|
LMP Capital and Income Fund Inc.
|
Summary of information regarding the Fund (unaudited)
Investment Objective
The Funds
investment objective is total return with an emphasis on income.
Principal Investment Policies and Strategies
Under normal market conditions, the Fund seeks to maximize total return by investing at least 80% of its Managed Assets in a broad range of equity and fixed income
securities of both U.S. and foreign issuers. The Funds investment approach is designed to offer the potential for total return performance similar to that of the S&P 500 Index over the long term. The Fund will vary its allocation between
equity and fixed income securities depending on ClearBridges view of economic, market and political conditions, fiscal and monetary policy and security valuation. The investment manager has delegated to ClearBridge, one of the Funds
subadvisers, the Funds allocation between equity and fixed income securities, as well as the Funds equity investments in general. A portfolio management team at Western Asset, the Funds other subadviser, manages the fixed income
portion of the Fund. Depending on ClearBridges view of these factors, which may vary from time to time, ClearBridge may allocate substantially all of the investments in the portfolio to equity securities or fixed income securities.
The Funds investments in equity securities will include, among other securities, common stock traded on an exchange or in the
over-the-counter market, preferred stocks, warrants, rights, convertible securities, depositary receipts, trust certificates, real estate investment trusts, limited
partnership interests, equity-linked debt securities and shares of other investment companies. The Funds investments in fixed income securities will include, among other securities, corporate bonds, mortgage and asset backed securities, U.S.
government obligations, investment grade and high yield debt, including emerging market debt and high yield sovereign debt, and loans. The Fund may invest without limit in both energy and non-energy master
limited partnerships (MLPs), so long as no more than 25% of the Funds total assets are invested in MLPs that are treated as qualified publicly traded partnerships.
As noted above, the Fund may depart from its principal investment strategy in response to adverse economic, market or political conditions by taking temporary defensive positions in any non-corporate issuer, including high-quality, short-term debt securities or cash. If the Fund takes a temporary defensive position, it may be unable to achieve its investment objective.
The Fund may invest up to 15% of its Managed Assets in illiquid securities, which are securities that cannot be sold within seven days in the ordinary course of
business at approximately the value at which the Fund has valued the securities.
With respect to the Funds fixed income portion of the Fund, the
Fund usually will attempt to maintain a portfolio with a weighted average credit quality rated between Ba3 and A2 by
|
|
|
LMP Capital and Income Fund Inc.
|
|
43
|
Summary of information regarding the Fund (unaudited) (contd)
Moodys Investor Services, Inc. (Moodys) or between BB- and A by Standard & Poors
Ratings Services (S&P). As applicable, Western Asset determines the Funds average credit quality by calculating on a daily basis the weighted average of the credit ratings of the Funds investments. Securities are rated by
different agencies and if a security receives different ratings from these agencies, the Fund will treat the securities as being rated in the highest rating category. Credit rating criteria are applied at the time the Fund purchases a security.
The average portfolio duration of the fixed income securities held by the Fund will normally be within one and seven years, including the effect of
leverage, based on Western Assets forecast for interest rates.
The Fund may also use reverse repurchase agreements as part of its investment
strategy.
The Fund may engage in currency transactions with counterparties to hedge the value of portfolio securities denominated in particular
currencies against fluctuations in relative value or to generate income or gain. Currency transactions include currency forward contracts, exchange-listed currency futures contracts and options thereon, exchange listed and over-the-counter options on currencies and currency swaps.
The Fund may use a
variety of derivative instruments as part of its investment strategies or for hedging or risk management purposes. Examples of derivative instruments that the Fund may use include options contracts, futures contracts, options on futures contracts,
credit default swaps and swap agreements. As part of its strategies, the Fund may purchase and sell futures contracts, purchase and sell (or write) exchange-listed and
over-the-counter put and call options on securities, financial indices and futures contracts, enter into interest rate and currency transactions and enter into other
similar transactions which may be developed in the future to the extent the applicable subadviser determines that they are consistent with the Funds investment objective and policies and applicable regulatory requirements (collectively,
derivative transactions). The Fund may use any or all of these techniques at any time, and the use of any particular derivative transaction will depend on market conditions.
Principal Risk Factors
The Fund is a non-diversified, closed-end management investment company designed primarily as a long-term investment and not as a trading vehicle. The Fund is not intended to be a complete investment program and, due to the uncertainty inherent
in all investments, there can be no assurance that the Fund will achieve its investment objective. The Funds Common Shares at any point in time may be worth less than you invested, even after taking into account the reinvestment of Fund
dividends and distributions.
Investment Risk and Market Risk. An investment in the Fund is subject to investment risk, including the possible
loss of the entire amount that you invest. Your investment in the
|
|
|
44
|
|
LMP Capital and Income Fund Inc.
|
Common Stock represents an indirect investment in the securities owned by the Fund, most of which could be purchased directly. The value of the Funds portfolio securities may move up or
down, sometimes rapidly and unpredictably. At any point in time, your Common Stock may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
Equity Securities and Related Market Risk. The stock markets are volatile and the market prices of the Funds equity securities may decline generally.
Equity securities may have greater price volatility than other asset classes, such as fixed income securities, and may fluctuate in price based on actual or perceived changes in a companys financial condition and overall market and economic
conditions and perceptions. If the market prices of the equity securities owned by the Fund fall, the value of your investment in the Fund will decline. If the Fund holds equity securities in a company that becomes insolvent, the Funds
interests in the company will be subordinated to the interests of debtholders and general creditors of the company, and the Fund may lose its entire investment.
Information Technology Sector Risks. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on profit margins. Like other
technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid technological developments,
frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily dependent on patent and intellectual property rights. The
loss, or impairment of, or inability to enforce, these rights may adversely affect the profitability of these companies.
Risks of Investing in MLP
Units. An investment in MLP units involves risks that differ from a similar investment in equity securities, such as common stock, of a corporation. Holders of MLP units have the rights typically afforded to limited partners in a limited
partnership. As compared to common stockholders of a corporation, holders of MLP units have more limited control and limited rights to vote on matters affecting the partnership. Holders of MLP units are also exposed to the risk that they will be
required to repay amounts to the MLP that are wrongfully distributed to them. Additionally, conflicts of interest may exist among common unit holders, subordinated unit holders and the general partner or managing member of an MLP; for example, a
conflict may arise as a result of incentive distribution payments, and the general partner does not generally have any duty to the limited partners beyond a good faith standard. For example, over the last few years there have been
several simplification transactions in which the incentive distribution rights were eliminated by either (i) a purchase of the outstanding MLP units by the general partner or (ii) by the purchase of the incentive distribution
rights by the MLP. These simplification transactions
|
|
|
LMP Capital and Income Fund Inc.
|
|
45
|
Summary of information regarding the Fund (unaudited) (contd)
present a conflict of interest between the general partner and the MLP and may be structured in a way that is unfavorable to the MLP. There are also certain tax
risks associated with an investment in MLP units (described below).
Tax Risks of Investing in Equity Securities of MLPs. Partnerships do not pay
United States federal income tax at the partnership level. Rather, each partner of a partnership, in computing its United States federal income tax liability, will include its allocable share of the partnerships income, gains, losses,
deductions and expenses. A change in current tax law, a change in the business of a given MLP, or a change in the types of income earned by a given MLP, could result in an MLP being treated as a corporation for United States federal income tax
purposes, which would result in such MLP being required to pay United States federal income tax on its taxable income. The classification of an MLP as a corporation for United States federal income tax purposes would have the effect of reducing the
amount of cash available for distribution by the MLP and causing any such distributions received by the Fund to be taxed as dividend income to the extent of the MLPs current or accumulated earnings and profits. Thus, if any of the MLPs owned
by the Fund were treated as corporations for United States federal income tax purposes, the after-tax return to the Fund with respect to its investment in such MLPs could be materially reduced, which could
cause a substantial decline in the value of the Funds shares of Common Stock.
Energy Sector Risks. MLPs and midstream entities operating in
the energy sector are subject to many operating risks, including: equipment failure causing outages; structural, maintenance, impairment and safety problems; transmission or transportation constraints, inoperability or inefficiencies; dependence on
a specified fuel source; changes in electricity and fuel usage; availability of competitively priced alternative energy sources; changes in generation efficiency and market heat rates; lack of sufficient capital to maintain facilities; significant
capital expenditures to keep older assets operating efficiently; seasonality; changes in supply and demand for energy; catastrophic and/or weather-related events such as spills, leaks, well blowouts, uncontrollable flows, ruptures, fires,
explosions, floods, earthquakes, hurricanes, discharges of toxic gases and similar occurrences; storage, handling, disposal and decommissioning costs; and environmental compliance. Breakdown or failure of an energy companys assets may prevent
it from performing under applicable sales agreements, which in certain situations, could result in termination of the agreement or incurring a liability for liquidated damages. As a result of the above risks and other potential hazards associated
with energy companies, certain companies may become exposed to significant liabilities for which they may not have adequate insurance coverage. Any of the aforementioned risks could have a material adverse effect on the business, financial
condition, results of operations and cash flows of energy companies.
A downturn in the energy sector of the economy, adverse political, legislative or
regulatory developments, material declines in energy-related commodity prices (such as those
|
|
|
46
|
|
LMP Capital and Income Fund Inc.
|
experienced over the last few years) or other events could have a larger impact on the Fund than on an investment company that does not concentrate in the sector. At times, the performance of
securities of companies in the sector may lag the performance of other sectors or the broader market as a whole. In addition, there are several specific risks associated with investments in the energy sector, including the following:
Distribution Risk For Equity Income Securities. In selecting equity income securities in which the Fund will invest, ClearBridge will consider the
issuers history of making regular periodic distributions (i.e., dividends) to its equity holders. An issuers history of paying dividends, however, does not guarantee that the issuer will continue to pay dividends in the future. The
dividend income stream associated with equity income securities generally is not guaranteed and is subordinate to payment obligations of the issuer on its debt and other liabilities. Accordingly, in the event the issuer does not realize sufficient
income in a particular period both to service its liabilities and to pay dividends on its equity securities, it may forgo paying dividends on its equity securities. In addition, because in most instances issuers are not obligated to make periodic
distributions to the holders of their equity securities, such distributions or dividends generally may be discontinued at the issuers discretion.
Convertible Securities Risk. A convertible security is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for
a prescribed amount of common stock or other equity security of the same or a different issuer within a particular period of time at a specified price or formula. Before conversion, convertible securities have characteristics similar to
nonconvertible income securities in that they ordinarily provide a stable stream of income with generally higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible securities. The value
of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on
the convertible securitys investment value. Convertible securities rank senior to common stock in a corporations capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be
subject to redemption at the option of the issuer at a price established in the convertible securitys governing instrument.
Preferred Stock
Risk. In addition to equity securities risk and credit risk, investment in preferred stocks involves certain other risks. Certain preferred stocks contain provisions that allow an issuer under certain conditions to skip or defer distributions.
If the Fund owns a preferred stock of an issuer that is deferring its distribution, the Fund may be required to report income for tax purposes despite the fact that it is not receiving current income on this position. Preferred stocks often are
subject to legal provisions that allow for redemption in the event of certain tax or legal changes or at the issuers call. In the event of
|
|
|
LMP Capital and Income Fund Inc.
|
|
47
|
Summary of information regarding the Fund (unaudited) (contd)
redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred stocks are subordinated to bonds and other debt securities in
an issuers capital structure in terms of priority for corporate income and liquidation payments, and therefore will be subject to greater credit risk than those debt securities. Preferred stocks may trade less frequently and in a limited
volume and may be subject to more abrupt or erratic price movements than many other securities, such as common stocks, corporate debt securities and U.S. Government securities.
Interest Rate Risk. The market price of the Funds investments will change in response to changes in interest rates and other factors. During periods of declining interest rates, the market price of
fixed income securities generally rises. Conversely, during periods of rising interest rates, the market price of such securities generally declines. The magnitude of these fluctuations in the market price of fixed income securities is generally
greater for securities with longer maturities. Additionally, such risk may be greater during the current period of historically low interest rates. Fluctuations in the market price of the Funds securities will not affect interest income
derived from securities already owned by the Fund, but will be reflected in the Funds net asset value. The Fund may utilize certain strategies, including investments in structured notes or interest rate swap or cap transactions, for the
purpose of reducing the interest rate sensitivity of the portfolio and decreasing the Funds exposure to interest rate risk, although there is no assurance that it will do so or that such strategies will be successful.
Leverage Risk. The Fund is authorized to use leverage (including loans from financial institutions, the use of mortgage dollar roll transactions and reverse
repurchase agreements and possibly through the issuance of preferred shares) in amounts of up to approximately 33% of its total assets immediately after such borrowing and/or issuance, and under current market conditions intends to use leverage up
to such amount. The value of your investment may be more volatile if the fund borrows or uses instruments, such as derivatives, that have a leveraging effect on the funds portfolio. Other risks described in the Prospectus also will be
compounded because leverage generally magnifies the effect of a change in the value of an asset and creates a risk of loss of value on a larger pool of assets than the fund would otherwise have had. The fund may also have to sell assets at
inopportune times to satisfy its obligations created by the use of leverage or derivatives. The use of leverage is considered to be a speculative investment practice and may result in the loss of a substantial amount, and possibly all, of the
funds assets. In addition, the funds portfolio will be leveraged if it exercises its right to delay payment on a redemption, and losses will result if the value of the funds assets declines between the time a redemption request is
deemed to be received by the fund and the time the fund liquidates assets to meet redemption requests.
|
|
|
48
|
|
LMP Capital and Income Fund Inc.
|
Issuer Risk. The value of securities may decline for a number of reasons that directly relate to the issuer,
such as management performance, financial leverage and reduced demand for the issuers goods and services.
Below Investment Grade Securities
(High-Yield) Risk. At any one time, a portion of the Funds Managed Assets may be invested in below investment grade securities (high yield securities). High yield debt securities are generally subject to greater credit risks than
higher-grade debt securities, including the risk of default on the payment of interest or principal. High yield debt securities are considered speculative, typically have lower liquidity and are more difficult to value than higher grade bonds. High
yield debt securities tend to be volatile and more susceptible to adverse events, credit downgrades and negative sentiments and may be difficult to sell at a desired price, or at all, during periods of uncertainty or market turmoil.
Low Rated and Unrated Securities Risk. Low rated and unrated debt instruments generally offer a higher current yield than that available from higher grade
issues, but typically involve greater risk. Low rated and unrated securities are especially subject to adverse changes in general economic conditions, to changes in the financial condition of their issuers and to price fluctuation in response to
changes in interest rates. During periods of economic downturn or rising interest rates, issuers of low rated and unrated instruments may experience financial stress that could adversely affect their ability to make payments of principal and
interest and increase the possibility of default. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may also decrease the values and liquidity of low rated and unrated securities especially in a market
characterized by a low volume of trading.
Derivatives Risk. The Fund may utilize a variety of derivative instruments for investment or risk
management purposes, such as options, futures contracts, swap agreements and credit default swaps. Using derivatives can increase Fund losses and reduce opportunities for gains when market prices, interest rates, currencies, or the derivatives
themselves behave in a way not anticipated by the Fund. Using derivatives also can have a leveraging effect and increase Fund volatility. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.
Derivatives may not be available at the time or price desired, may be difficult to sell, unwind or value, and the counterparty may default on its obligations to the Fund. Derivatives are generally subject to the risks applicable to the assets,
rates, indices or other indicators underlying the derivative. The value of a derivative may fluctuate more than the underlying assets, rates, indices or other indicators to which it relates. Use of derivatives may have different tax consequences for
the Fund than an investment in the underlying security, and those differences may affect the amount, timing and character of income distributed to shareholders. The U.S. government and foreign governments are in the process of adopting and
implementing regulations governing
|
|
|
LMP Capital and Income Fund Inc.
|
|
49
|
Summary of information regarding the Fund (unaudited) (contd)
derivatives markets, including mandatory clearing of certain derivatives, margin and reporting requirements. The ultimate impact of the regulations remains unclear.
Additional regulation of derivatives may make derivatives more costly, limit their availability or utility, otherwise adversely affect their performance or disrupt markets.
The Securities and Exchange Commission adopted a new rule on October 28, 2020 that mandates that a funds derivatives risk management program provide for specific items as required by the rule, including
compliance with a VaR test. Compliance with these new requirements will be required after an eighteen-month transition period following the effective date of the adopted rule. Following the compliance date, these requirements may limit
the ability of the Fund to use derivatives and reverse repurchase agreements and similar financing transactions as part of its investment strategies. These requirements may increase the cost of the Funds investments in derivatives, which could
adversely affect shareholders.
Credit default swap contracts involve heightened risks and may result in losses to the Fund. Credit default swaps may be
illiquid and difficult to value. When the Fund sells credit protection via a credit default swap, credit risk increases since the Fund has exposure to both the issuer whose credit is the subject of the swap and the counterparty to the swap.
Credit Risk and Counterparty Risk. If an issuer or guarantor of a security held by the Fund or a counterparty to a financial contract with the
Fund defaults or its credit is downgraded, or is perceived to be less creditworthy, or if the value of the assets underlying a security declines, the value of your investment will typically decline. Changes in actual or perceived creditworthiness
may occur quickly. The Fund could be delayed or hindered in its enforcement of rights against an issuer, guarantor or counterparty. Subordinated securities are more likely to suffer a credit loss than
non-subordinated securities of the same issuer and will be disproportionately affected by a default, downgrade or perceived decline in creditworthiness.
Smaller Company Risk. The general risks associated with income-producing securities are particularly pronounced for securities issued by companies with smaller market capitalizations. These companies may
have limited product lines, markets or financial resources or they may depend on a few key employees. As a result, they may be subject to greater levels of credit, market and issuer risk. Securities of smaller companies may trade less frequently and
in lesser volume than more widely held securities and their values may fluctuate more sharply than other securities. Companies with medium-sized market capitalizations may have risks similar to those of
smaller companies.
Foreign (Non-U.S.) Investment Risk. A fund that invests in foreign (non-U.S.) securities may experience more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. The securities markets of many foreign countries are relatively
|
|
|
50
|
|
LMP Capital and Income Fund Inc.
|
small, with a limited number of companies representing a small number of industries. Investments in foreign securities (including those denominated in U.S. dollars) are subject to economic and
political developments in the countries and regions where the issuers operate or are domiciled, or where the securities are traded, such as changes in economic or monetary policies. Values may also be affected by restrictions on receiving the
investment proceeds from a foreign country. Less information may be publicly available about foreign companies than about U.S. companies. Foreign companies are generally not subject to the same accounting, auditing and financial reporting standards
as are U.S. companies. In addition, the Funds investments in foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency exchange controls or restrictions on the repatriation of foreign
currency, confiscatory taxation, political or financial instability and adverse diplomatic developments. In addition, there may be difficulty in obtaining or enforcing a court judgment abroad. Dividends or interest on, or proceeds from the sale of,
foreign securities may be subject to non-U.S. withholding taxes, and special U.S. tax considerations may apply.
The risks of foreign investment are greater for investments in emerging markets. The Fund considers an investment to be in an emerging market if the local currency
long-term debt rating assigned by all NRSROs to debt issued by that country is below A-. Emerging market countries typically have economic and political systems that are less fully developed, and that can be
expected to be less stable, than those of more advanced countries. Low trading volumes may result in a lack of liquidity and in price volatility. Emerging market countries may have policies that restrict investment by foreigners, that require
governmental approval prior to investments by foreign persons, or that prevent foreign investors from withdrawing their money at will. An investment in emerging market securities should be considered speculative.
Reinvestment Risk. Reinvestment risk is the risk that income from the Funds portfolio will decline if and when the Fund invests the proceeds from
matured, traded or called fixed income securities at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the Funds Common Stock price, its distributions or its overall return.
Fund Distribution Risk. Pursuant to its distribution policy, the Fund intends to make regular distributions on its Common Shares. To the extent
the total distributions for a year exceed the Funds investment company taxable income and net capital gain for that year, the excess will generally constitute a return of capital. Return of capital distributions are generally tax-free up to the amount of a Common Shareholders tax basis in the Common Shares. In addition, such excess distributions may have the effect of decreasing the Funds total assets and may increase the
Funds expense ratio as the Funds fixed expenses may become a larger percentage of the Funds average net assets. In order to make such distributions, the
|
|
|
LMP Capital and Income Fund Inc.
|
|
51
|
Summary of information regarding the Fund (unaudited) (contd)
Fund might have to sell a portion of its investment portfolio at a time when independent investment judgment may not dictate such action. For instance, these sales
may result in the Fund recognizing short-term capital gains, which are taxed to shareholders at ordinary income rates.
Inflation/Deflation Risk.
Inflation risk is the risk that the value of certain assets or income from the Funds investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Common Stock and
distributions on the Common Stock can decline. In addition, during any periods of rising inflation, the dividend rates or borrowing costs associated with the Funds use of leverage would likely increase, which would tend to further reduce
returns to stockholders. Deflation risk is the risk that prices throughout the economy decline over time the opposite of inflation. Deflation may have an adverse affect on the creditworthiness of issuers and may make issuer defaults more
likely, which may result in a decline in the value of the Funds portfolio.
Liquidity Risk. The Fund may invest up to 15% of its Managed
Assets in illiquid securities. Liquidity risk exists when particular investments are difficult to sell. Securities may become illiquid after purchase by the Fund, particularly during periods of market turmoil. When the Fund holds illiquid
investments, the portfolio may be harder to value, especially in changing markets, and if the Fund is forced to sell these investments in order to segregate assets or for other cash needs, the Fund may suffer a loss.
Market Events Risk. The market values of securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market
conditions, overall economic trends or events, governmental actions or intervention, actions taken by the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, investor
sentiment, the global and domestic effects of a pandemic, and other factors that may or may not be related to the issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic,
financial or political events, trading and tariff arrangements, public health events, terrorism, natural disasters and other circumstances in one country or region could have profound impacts on global economies or markets. As a result, whether or
not the Fund invests in securities of issuers located in or with significant exposure to the countries directly affected, the value and liquidity of the Funds investments may be negatively affected.
The rapid and global spread of a highly contagious novel coronavirus respiratory disease, designated COVID-19, first
detected in China in December 2019, has resulted in extreme volatility in the financial markets and severe losses; reduced liquidity of many instruments; restrictions on international and, in some cases, local travel, significant disruptions to
business operations (including business closures); strained healthcare systems; disruptions to supply chains, consumer demand and employee availability; and widespread uncertainty
|
|
|
52
|
|
LMP Capital and Income Fund Inc.
|
regarding the duration and long-term effects of this pandemic. Some sectors of the economy and individual issuers have experienced particularly large losses. In addition, the COVID-19 pandemic may result in a sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations and increased
volatility and/or decreased liquidity in the securities markets. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, are not known. Certain risks, such as interest rate
risk, credit risk, liquidity risk and counterparty risk, may be heightened as a result of such market events. The U.S. government and the Federal Reserve, as well as certain foreign governments and central banks, are taking extraordinary actions to
support local and global economies and the financial markets in response to the COVID-19 pandemic, including by pushing interest rates to very low levels. This and other government intervention into the
economy and financial markets to address the COVID-19 pandemic may not work as intended, particularly if the efforts are perceived by investors as being unlikely to achieve the desired results. The COVID-19 pandemic could adversely affect the value and liquidity of the Funds investments and negatively impact the Funds performance. In addition, the outbreak of
COVID-19, and measures taken to mitigate its effects, could result in disruptions to the services provided to the Fund by its service providers.
Currency Risk. The value of investments in securities denominated in foreign currencies increases or decreases as the rates of exchange between those currencies and the U.S. dollar change. Currency
conversion costs and currency fluctuations could erase investment gains or add to investment losses. Currency exchange rates can be volatile, and are affected by factors such as general economic conditions, the actions of the U.S. and foreign
governments or central banks, the imposition of currency controls and speculation. The Fund may be unable or may choose not to hedge its foreign currency exposure.
Risks of Securities Linked to the Real Estate Industry. Investments by the Fund in REITs will be closely linked to the performance of the real estate markets. Property values may fall due to increasing
vacancies or declining rents resulting from economic, legal, cultural or technological developments. Real Estate Company share prices may drop because of the failure of Real Estate Company borrowers to pay their loans and poor management. Many Real
Estate Companies, including REITs, utilize leverage (and some may be highly leveraged), which increases investment risk and could adversely affect a Real Estate Companys operations and market value in periods of rising interest rates.
Financial covenants related to a Real Estate Companys leveraging may affect its ability to operate effectively. Real estate risks may also arise where Real Estate Companies fail to carry adequate insurance, or where a Real Estate Company may
become liable for removal or other costs related to environmental contamination. Real Estate Companies tend to be small to medium-sized companies. Real Estate Company shares, like other smaller company shares,
can be more volatile than, and perform differently from, larger company shares.
|
|
|
LMP Capital and Income Fund Inc.
|
|
53
|
Summary of information regarding the Fund (unaudited) (contd)
There may be less trading in a smaller companys shares, which means that buy and sell transactions in those shares could have a larger impact on the price per
share than is the case with larger company shares. The value of the Common Shares will also depend on the general condition of the economy. An economic downturn could have a material adverse effect on the real estate markets and on the Real Estate
Companies in which the Fund invests, which in turn could result in the Fund not achieving its investment objective.
Risks of Warrants and Rights.
Warrants and rights are subject to the same market risks as stocks, but may be more volatile in price. Warrants and rights do not carry the right to dividends or voting rights with respect to their underlying securities, and they do not
represent any rights in the assets of the issuer. An investment in warrants or rights may be considered speculative. In addition, the value of a warrant or right does not necessarily change with the value of the underlying security and a warrant or
right ceases to have value if it is not exercised prior to its expiration date. The purchase of warrants or rights involves the risk that the Fund could lose the purchase value of a warrant or right if the right to subscribe to additional shares is
not exercised prior to the warrants or rights expiration. Also, the purchase of warrants and rights involves the risk that the effective price paid for the warrant or right added to the subscription price of the related security may
exceed the value of the subscribed securitys market price such as when there is no movement in the price of the underlying security.
Management
Risk. The Fund is subject to management risk because it is an actively managed investment portfolio. Each subadviser will apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee
that these will produce the desired results.
Interest Rate Transactions Risk. The Fund may enter into a swap or cap transaction to attempt to
protect itself from increasing interest expenses on Borrowings resulting from increasing short-term interest rates or dividend expenses on Fund Preferred Shares. A decline in interest rates may result in a decline in net amounts receivable by the
Fund from the counterparty under the swap or cap (or an increase in the net amounts payable by the Fund to the counterparty under the swap), which may result in a decline in the net asset value of the Fund.
Risks of Futures and Options on Futures. The use by the Fund of futures contracts and options on futures contracts to hedge interest rate risks involves
special considerations and risks, as described below.
|
|
|
Successful use of hedging transactions depends upon the applicable subadvisers ability to correctly predict the direction of changes in interest rates.
There can be no assurance that any particular hedging strategy will succeed.
|
|
|
|
54
|
|
LMP Capital and Income Fund Inc.
|
|
|
|
There might be imperfect correlation, or even no correlation, between the price movements of a futures or option contract and the movements of the interest rates
being hedged. Such a lack of correlation might occur due to factors unrelated to the interest rates being hedged, such as market liquidity and speculative or other pressures on the markets in which the hedging instrument is traded.
|
|
|
|
Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable movements in the interest rates
being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable movements in the hedged interest rates.
|
|
|
|
There is no assurance that a liquid secondary market will exist for any particular futures contract or option thereon at any particular time. If the Fund were
unable to liquidate a futures contract or an option on a futures contract position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market
risk with respect to the position.
|
|
|
|
There is no assurance that the Fund will use hedging transactions. For example, if the Fund determines that the cost of hedging will exceed the potential benefit
to the Fund, the Fund will not enter into such transactions.
|
Market Price Discount from Net Asset Value. Shares of closed-end investment companies frequently trade at a discount from their net asset value. This risk is separate and distinct from the risk that the Funds net asset value could decrease as a result of its
investment activities and may be a greater risk to investors expecting to sell their Common Stock in a relatively short period following completion of this offering. Whether investors will realize gains or losses upon the sale of the Common Stock
will depend not upon the Funds net asset value but upon whether the market price of the Common Stock at the time of sale is above or below the investors purchase price for the Common Stock.
Non-Diversification Risk. The Fund is classified as
non-diversified under the 1940 Act. As a result, it can invest a greater portion of its assets in obligations of a single issuer than a diversified fund. The Fund may therefore be more
susceptible than a diversified fund to being adversely affected by any single corporate, economic, political or regulatory occurrence. The Fund intends to qualify for the special tax treatment available to regulated investment companies
under Subchapter M of the Code, and thus intends to satisfy the diversification requirements of Subchapter M, including the less stringent diversification requirement that applies to the percent of its total assets that are represented by cash and
cash items (including receivables), U.S. government securities, the securities of other regulated investment companies and certain other securities.
Anti-Takeover Provisions Risk. The Funds Charter and Bylaws include provisions that are designed to limit the ability of other entities or persons to
acquire control of the Fund for
|
|
|
LMP Capital and Income Fund Inc.
|
|
55
|
Summary of information regarding the Fund (unaudited) (contd)
short-term objectives, including by converting the Fund to open-end status or changing the composition of the Board, that
may be detrimental to the Funds ability to achieve its primary investment objective. Such provisions may limit the ability of shareholders to sell their shares at a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund. There can be no assurance, however, that such provisions will be sufficient to deter activist investors that seek to cause the Fund to take actions that may not be aligned with the interests of long-term
shareholders.
Operational risk. The valuation of the Funds investments may be negatively impacted because of the operational risks arising
from factors such as processing errors and human errors, inadequate or failed internal or external processes, failures in systems and technology, changes in personnel, and errors caused by third party service providers or trading counterparties. It
is not possible to identify all of the operational risks that may affect the Fund or to develop processes and controls that completely eliminate or mitigate the occurrence of such failures. The Fund and its shareholders could be negatively impacted
as a result.
Cybersecurity risk. Cybersecurity incidents, both intentional and unintentional, may allow an unauthorized party to gain access to
Fund assets, Fund or proprietary information, cause the Fund, the Funds manager and subadvisers and/or their service providers to suffer data breaches, data corruption or loss of operational functionality or prevent fund investors from
purchasing, redeeming or exchanging shares or receiving distributions. The Fund, manager and subadvisers have limited ability to prevent or mitigate cybersecurity incidents affecting third party service providers, and such third party service
providers may have limited indemnification obligations to the Fund or the manager. Cybersecurity incidents may result in financial losses to the Fund and its shareholders, and substantial costs may be incurred in order to prevent any future
cybersecurity incidents. Issuers of securities in which the Fund invests are also subject to cybersecurity risks, and the value of these securities could decline if the issuers experience cybersecurity incidents.
More Information
For a complete list of the
Funds fundamental investment restrictions and more detailed descriptions of the Funds investment policies, strategies and risks, see the Funds registration statement on Form N-2 that was
declared effective by the SEC on February 24, 2004, as amended or superseded by subsequent disclosures. The Funds fundamental investment restrictions may not be changed without the approval of the holders of a majority of the outstanding
voting securities, as defined in the 1940 Act.
|
|
|
56
|
|
LMP Capital and Income Fund Inc.
|
Dividend reinvestment plan (unaudited)
Unless you elect to receive distributions in cash (i.e., opt-out), all dividends, including any capital gain dividends and
return of capital distributions, on your Common Stock will be automatically reinvested by Computershare Trust Company, N.A., as agent for the stockholders (the Plan Agent), in additional shares of Common Stock under the Funds
Dividend Reinvestment Plan (the Plan). You may elect not to participate in the Plan by contacting the Plan Agent. If you do not participate, you will receive all cash distributions paid by check mailed directly to you by Computershare
Trust Company, N.A., as dividend paying agent.
If you participate in the Plan, the number of shares of Common Stock you will receive will be determined
as follows:
(1) If the market price of the Common Stock (plus $0.03 per share commission) on the payment date (or, if the payment date
is not a NYSE trading day, the immediately preceding trading day) is equal to or exceeds the net asset value per share of the Common Stock at the close of trading on the NYSE on the payment date, the Fund will issue new Common Stock at a price equal
to the greater of (a) the net asset value per share at the close of trading on the NYSE on the payment date or (b) 95% of the market price per share of the Common Stock on the payment date.
(2) If the net asset value per share of the Common Stock exceeds the market price of the Common Stock (plus $0.03 per share commission) at the close
of trading on the NYSE on the payment date, the Plan Agent will receive the dividend or distribution in cash and will buy Common Stock in the open market, on the NYSE or elsewhere, for your account as soon as practicable commencing on the trading
day following the payment date and terminating no later than the earlier of (a) 30 days after the dividend or distribution payment date, or (b) the payment date for the next succeeding dividend or distribution to be made to the stockholders;
except when necessary to comply with applicable provisions of the federal securities laws. If during this period: (i) the market price (plus $0.03 per share commission) rises so that it equals or exceeds the net asset value per share of the
Common Stock at the close of trading on the NYSE on the payment date before the Plan Agent has completed the open market purchases or (ii) if the Plan Agent is unable to invest the full amount eligible to be reinvested in open market purchases,
the Plan Agent will cease purchasing Common Stock in the open market and the Fund shall issue the remaining Common Stock at a price per share equal to the greater of (a) the net asset value per share at the close of trading on the NYSE on the
day prior to the issuance of shares for reinvestment or (b) 95% of the then current market price per share.
Common Stock in your account will be held by
the Plan Agent in non-certificated form. Any proxy you receive will include all shares of Common Stock you have received under the Plan. You may withdraw from the Plan (i.e.,
opt-out) by notifying the Plan Agent in writing at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at 1-888-888-0151. Such withdrawal will be effective immediately if notice is received by the Plan Agent not less than ten business days prior to any dividend or distribution record date; otherwise such
withdrawal will be effective as soon as practicable after the Plan Agents investment of the most recently declared dividend or distribution on the Common Stock.
|
|
|
LMP Capital and Income Fund Inc.
|
|
57
|
Dividend reinvestment plan
(unaudited) (contd)
Plan participants who sell their shares will be charged a service charge (currently $5.00 per transaction) and the Plan Agent is authorized to deduct brokerage
charges actually incurred from the proceeds (currently $0.05 per share commission). There is no service charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a pro rata share of brokerage
commissions incurred by the Plan Agent when it makes open market purchases. Because all dividends and distributions will be automatically reinvested in additional shares of Common Stock, this allows you to add to your investment through dollar cost
averaging, which may lower the average cost of your Common Stock over time. Dollar cost averaging is a technique for lowering the average cost per share over time if the Funds net asset value declines. While dollar cost averaging has definite
advantages, it cannot assure profit or protect against loss in declining markets.
Automatically reinvesting dividends and distributions does not mean
that you do not have to pay income taxes due upon receiving dividends and distributions. Investors will be subject to income tax on amounts reinvested under the Plan.
The Fund reserves the right to amend or terminate the Plan if, in the judgment of the Board of Directors, the change is warranted. The Plan may be terminated, amended or supplemented by the Fund upon notice in
writing mailed to stockholders at least 30 days prior to the record date for the payment of any dividend or distribution by the Fund for which the termination or amendment is to be effective. Upon any termination, you will be sent cash for any
fractional share of Common Stock in your account. You may elect to notify the Plan Agent in advance of such termination to have the Plan Agent sell part or all of your Common Stock on your behalf. Additional information about the Plan and your
account may be obtained from the Plan Agent at 462 South 4th Street, Suite 1600, Louisville, KY 40202 or by calling the Plan Agent at
1-888-888-0151.
|
|
|
58
|
|
LMP Capital and Income Fund Inc.
|
Important tax information (unaudited)
The following information is provided with respect to the distributions paid during the taxable year ended October 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record Date:
|
|
|
12/20/2019
|
|
|
|
3/24/2020
|
|
|
|
6/23/2020
|
|
|
|
9/23/2020
|
|
Payable Date:
|
|
|
12/31/2019
|
|
|
|
4/1/2020
|
|
|
|
7/1/2020
|
|
|
|
10/1/2020
|
|
Ordinary Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qualified Dividend Income for Individuals
|
|
|
35.00
|
%
|
|
|
100.00
|
%*
|
|
|
100.00
|
%*
|
|
|
100.00
|
%*
|
Dividends Qualifying for the Dividends
Received Deduction for Corporations
|
|
|
35.00
|
%
|
|
|
100.00
|
%*
|
|
|
100.00
|
%*
|
|
|
100.00
|
%*
|
Tax Return of Capital**
|
|
|
|
|
|
|
84.38
|
%
|
|
|
84.38
|
%
|
|
|
84.38
|
%
|
*
|
Expressed as a percentage of the distribution paid reduced by the return of capital.
|
**
|
Expressed as a percentage of the cash distribution received.
|
|
|
|
LMP Capital and Income Fund Inc.
|
|
59
|
LMP
Capital and Income Fund Inc.
Directors
Robert D. Agdern
Carol L. Colman
Daniel P. Cronin
Paolo M. Cucchi
William R. Hutchinson
Eileen A. Kamerick
Nisha Kumar
Jane Trust
Chairman
Officers
Jane Trust
President and Chief Executive Officer
Christopher Berarducci
Treasurer and Principal Financial Officer
Fred Jensen*
Chief Compliance Officer
Jenna Bailey
Identity Theft Prevention Officer
George P.
Hoyt**
Secretary and Chief Legal Officer
Thomas
C. Mandia
Assistant Secretary
Jeanne M. Kelly
Senior Vice President
*
|
Effective April 17, 2020, Mr. Jensen became Chief Compliance Officer.
|
**
|
Effective August 13, 2020, Mr. Hoyt became Secretary and Chief Legal Officer.
|
LMP Capital and Income Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Investment manager
Legg Mason Partners Fund Advisor, LLC
Subadvisers
ClearBridge Investments, LLC
Western Asset Management Company, LLC
Western Asset
Management Company Limited
Custodian
The Bank of New York Mellon
Transfer agent
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
Independent registered
public accounting firm
PricewaterhouseCoopers LLP
Baltimore, MD
Legal counsel
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
New York Stock
Exchange Symbol
SCD
Legg Mason Funds Privacy and Security Notice
Your Privacy and the Security of Your Personal Information is Very Important to the Legg Mason Funds
This Privacy and Security Notice (the Privacy Notice) addresses the Legg Mason Funds privacy and data protection practices with respect to
nonpublic personal information the Funds receive. The Legg Mason Funds include any funds sold by the Funds distributor, Legg Mason Investor Services, LLC, as well as Legg Mason-sponsored closed-end
funds. The provisions of this Privacy Notice apply to your information both while you are a shareholder and after you are no longer invested with the Funds.
The Type of Nonpublic Personal Information the Funds Collect About You
The Funds collect and maintain nonpublic personal information about you in connection with your shareholder account. Such information may include, but is not
limited to:
|
|
Personal information included on applications or other forms;
|
|
|
Account balances, transactions, and mutual fund holdings and positions;
|
|
|
Bank account information, legal documents, and identity verification documentation;
|
|
|
Online account access user IDs, passwords, security challenge question responses; and
|
|
|
Information received from consumer reporting agencies regarding credit history and creditworthiness (such as the amount of an individuals total debt,
payment history, etc.).
|
How the Funds Use Nonpublic Personal Information About You
The Funds do not sell or share your nonpublic personal information with third parties or with affiliates for their marketing purposes, or with other financial
institutions or affiliates for joint marketing purposes, unless you have authorized the Funds to do so. The Funds do not disclose any nonpublic personal information about you except as may be required to perform transactions or services you have
authorized or as permitted or required by law.
The Funds may disclose information about you to:
|
|
Employees, agents, and affiliates on a need to know basis to enable the Funds to conduct ordinary business, or to comply with obligations to
government regulators;
|
|
|
Service providers, including the Funds affiliates, who assist the Funds as part of the ordinary course of business (such as printing, mailing services, or
processing or servicing your account with us) or otherwise perform services on the Funds behalf, including companies that may perform statistical analysis, market research and marketing services solely for the Funds;
|
|
|
Permit access to transfer, whether in the United States or countries outside of the United States to such Funds employees, agents and affiliates and
service providers as required to enable the Funds to conduct ordinary business, or to comply with obligations to government regulators;
|
|
|
The Funds representatives such as legal counsel, accountants and auditors to enable the Funds to conduct ordinary business, or to comply with obligations
to government regulators;
|
|
|
Fiduciaries or representatives acting on your behalf, such as an IRA custodian or trustee of a grantor trust.
|
|
NOT PART OF THE ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
Except as otherwise permitted by applicable law, companies acting on the Funds
behalf, including those outside the United States, are contractually obligated to keep nonpublic personal information the Funds provide to them confidential and to use the information the Funds share only to provide the services the Funds ask them
to perform. The Funds may disclose nonpublic personal information about you when necessary to enforce their rights or protect against fraud, or as permitted or required by applicable law, such as in connection with a law enforcement or regulatory
request, subpoena, or similar legal process. In the event of a corporate action or in the event a Fund service provider changes, the Funds may be required to disclose your nonpublic personal information to third parties. While it is the Funds
practice to obtain protections for disclosed information in these types of transactions, the Funds cannot guarantee their privacy policy will remain unchanged.
Keeping You Informed of the Funds Privacy and Security Practices
The Funds will notify
you annually of their privacy policy as required by federal law. While the Funds reserve the right to modify this policy at any time they will notify you promptly if this privacy policy changes.
The Funds Security Practices
The
Funds maintain appropriate physical, electronic and procedural safeguards designed to guard your nonpublic personal information. The Funds internal data security policies restrict access to your nonpublic personal information to authorized
employees, who may use your nonpublic personal information for Fund business purposes only.
Although the Funds strive to protect your nonpublic personal
information, they cannot ensure or warrant the security of any information you provide or transmit to them, and you do so at your own risk. In the event of a breach of the confidentiality or security of your nonpublic personal information, the Funds
will attempt to notify you as necessary, so you can take appropriate protective steps. If you have consented to the Funds using electronic communications or electronic delivery of statements, they may notify you under such circumstances using the
most current email address you have on record with them.
In order for the Funds to provide effective service to you, keeping your account information
accurate is very important. If you believe that your account information is incomplete, not accurate or not current, if you have questions about the Funds privacy practices, or our use of your nonpublic personal information, write the Funds
using the contact information on your account statements, email the Funds by clicking on the Contact Us section of the Funds website at www.leggmason.com, or contact the Fund at
1-888-777-0102.
Revised April
2018
Legg Mason California Consumer Privacy Act Policy
Although much of the personal information we collect is nonpublic personal information subject to federal law, residents of California may, in certain circumstances, have additional rights under the
California Consumer Privacy Act (CCPA). For example, if you are a broker,
|
NOT PART OF THE ANNUAL REPORT
|
Legg Mason Funds Privacy and Security Notice (contd)
dealer, agent, fiduciary, or representative acting by or on behalf of, or for, the
account of any other person(s) or household, or a financial advisor, or if you have otherwise provided personal information to us separate from the relationship we have with personal investors, the provisions of this Privacy Policy apply to your
personal information (as defined by the CCPA).
|
|
In addition to the provisions of the Legg Mason Funds Security and Privacy Notice, you may have the right to know the categories and specific pieces of personal
information we have collected about you.
|
|
|
You also have the right to request the deletion of the personal information collected or maintained by the Funds.
|
If you wish to exercise any of the rights you have in respect of your personal information, you should advise the Funds by contacting them as set forth below. The
rights noted above are subject to our other legal and regulatory obligations and any exemptions under the CCPA. You may designate an authorized agent to make a rights request on your behalf, subject to the identification process described below. We
do not discriminate based on requests for information related to our use of your personal information, and you have the right not to receive discriminatory treatment related to the exercise of your privacy rights.
We may request information from you in order to verify your identity or authority in making such a request. If you have appointed an authorized agent to make a
request on your behalf, or you are an authorized agent making such a request (such as a power of attorney or other written permission), this process may include providing a password/passcode, a copy of government issued identification, affidavit or
other applicable documentation, i.e. written permission. We may require you to verify your identity directly even when using an authorized agent, unless a power of attorney has been provided. We reserve the right to deny a request submitted by an
agent if suitable and appropriate proof is not provided.
For the 12-month period prior to the date of this
Privacy Policy, the Legg Mason Funds have not sold any of your personal information; nor do we have any plans to do so in the future.
Contact
Information
Address: Data Privacy Officer, 100 International Dr., Baltimore, MD 21202
Email: DataProtectionOfficer@franklintempleton.com
Phone: 1-800-396-4748
Revised October 2020
|
NOT PART OF THE ANNUAL REPORT
|
LMP Capital and Income Fund Inc.
LMP Capital and Income Fund Inc.
620 Eighth Avenue
47th Floor
New York, NY 10018
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that from time to time the Fund may purchase, at market prices, shares of its stock.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each
fiscal year as an exhibit to its reports on Form N-PORT. The Funds Forms N-PORT are available on the SECs website at www.sec.gov. To obtain information on
Form N-PORT, shareholders can call the Fund at 1-888-777-0102.
Information on how the Fund voted proxies relating to portfolio securities during the prior 12-month period ended June 30th
of each year and a description of the policies and procedures that the Fund uses to determine how to vote proxies related to portfolio transactions are available (1) without charge, upon request, by calling 1-888-777-0102, (2) at www.lmcef.com and (3) on the SECs website at www.sec.gov.
This report is transmitted to the shareholders of LMP Capital and Income Fund Inc. for their information. This is not a prospectus, circular or representation intended for use in the purchase of shares of the Fund
or any securities mentioned in this report.
Computershare Inc.
462 South 4th Street, Suite 1600
Louisville, KY 40202
FD03548 1/21 SR20-4057
ITEM 7.
|
DISCLOSURE OF PROXY VOTING POLOCIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
|
CLEARBRIDGE INVESTMENTS
PROXY VOTING POLICIES AND PROCEDURES
AMENDED AS OF MARCH 2020
I.
|
Types of Accounts for Which ClearBridge Votes Proxies
|
III.
|
How ClearBridge Votes
|
IV.
|
Conflicts of Interest
|
|
A.
|
Procedures for Identifying Conflicts of Interest
|
|
B.
|
Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of Interest
|
|
C.
|
Third Party Proxy Voting Firm - Conflicts of Interest
|
|
D.
|
Proxy Contest Defenses
|
|
F.
|
Miscellaneous Governance Provisions
|
|
H.
|
Executive and Director Compensation
|
|
I.
|
State/Country of Incorporation
|
|
J.
|
Mergers and Corporate Restructuring
|
|
K.
|
Social and Environmental Issues
|
VII.
|
Disclosure of Proxy Voting
|
VIII.
|
Recordkeeping and Oversight
|
CLEARBRIDGE INVESTMENTS
Proxy Voting Policies and Procedures
I.
|
TYPES OF ACCOUNTS FOR WHICH CLEARBRIDGE VOTES PROXIES
|
ClearBridge votes proxies for each client for which it has investment discretion unless the investment management agreement provides that the client or other
authorized party (e.g., a trustee or named fiduciary of a plan) is responsible for voting proxies.
In voting proxies, we are guided by general fiduciary principles. Our goal is to act prudently, solely in the best interest of the beneficial owners of the
accounts we manage. We attempt to provide for the consideration of all factors that could affect the value of the investment and will vote proxies in the manner that we believe will be consistent with efforts to maximize shareholder values.
III.
|
HOW CLEARBRIDGE VOTES
|
Section V of these policies and procedures sets forth certain stated positions. In the case of a proxy issue for which there is a stated position, we generally
vote in accordance with the stated position. In the case of a proxy issue for which there is a list of factors set forth in Section V that we consider in voting on such issue, we consider those factors and vote on a case-by-case basis in accordance with the general principles set forth above. In the case of a proxy issue for which there is no stated position or list of factors that we consider in voting on such issue, we
vote on a case-by-case basis in accordance with the general principles set forth above. We may utilize an external service provider to provide us with information and/or
a recommendation with regard to proxy votes but we are not required to follow any such recommendations. The use of an external service provider does not relieve us of our responsibility for the proxy vote.
For routine matters, we usually vote according to our policy or the external service providers recommendation, although we are not obligated to do so
and each individual portfolio management team may vote contrary to our policy or the recommendation of the external service provider. If a matter is non-routine, e.g., managements recommendation is
different than that of the external service provider and ClearBridge is a significant holder or it is a significant holding for ClearBridge, the issues will be highlighted to the appropriate investment teams. Different investment teams may vote
differently on the same issue, depending upon their assessment of clients best interests.
ClearBridges policies are reviewed annually and its
proxy voting process is overseen and coordinated by its Proxy Committee.
IV.
|
CONFLICTS OF INTEREST
|
In furtherance of ClearBridges goal to vote proxies in the best interests of clients, ClearBridge follows procedures designed to identify and address
material conflicts that may arise between ClearBridges interests and those of its clients before voting proxies on behalf of such clients.
|
A.
|
Procedures for Identifying Conflicts of Interest
|
ClearBridge relies on the following to seek to identify conflicts of interest with respect to proxy voting:
|
1.
|
ClearBridges employees are periodically reminded of their obligation (i) to be aware of the
potential for conflicts of interest on the part of ClearBridge with respect to voting proxies on behalf of client accounts both as a result of their personal relationships or personal or business relationships relating to another Legg Mason business
unit, and (ii) to bring conflicts of interest of which they become aware to the attention of ClearBridges General Counsel/Chief Compliance Officer.
|
|
2.
|
ClearBridges finance area maintains and provides to ClearBridge Compliance and proxy voting personnel an up- to-date list of all client relationships that have historically accounted for or are projected to account for greater than 1% of ClearBridges net revenues.
|
|
3.
|
As a general matter, ClearBridge takes the position that relationships between a
non-ClearBridge Legg Mason unit and an issuer (e.g., investment management relationship between an issuer and a non-ClearBridge Legg Mason affiliate) do not present a
conflict of interest for ClearBridge in voting proxies with respect to such issuer because ClearBridge operates as an independent business unit from other Legg Mason business units and because of the existence of informational barriers between
ClearBridge and certain other Legg Mason business units. As noted above, ClearBridge employees are under an obligation to bring such conflicts of interest, including conflicts of interest which may arise because of an attempt by another Legg Mason
business unit or non-ClearBridge Legg Mason officer or employee to influence proxy voting by ClearBridge to the attention of ClearBridge Compliance.
|
|
4.
|
A list of issuers with respect to which ClearBridge has a potential conflict of interest in voting proxies on
behalf of client accounts will be maintained by ClearBridge proxy voting personnel. ClearBridge will not vote proxies relating to such issuers until it has been determined that the conflict of interest is not material or a method for resolving the
conflict of interest has been agreed upon and implemented, as described in Section IV below.
|
|
B.
|
Procedures for Assessing Materiality of Conflicts of Interest and for Addressing Material Conflicts of
Interest
|
|
1.
|
ClearBridge maintains a Proxy Committee which, among other things, reviews and addresses conflicts of interest
brought to its attention. The Proxy Committee is comprised of such ClearBridge personnel (and others, at ClearBridges request), as are designated from time to time. The current members of the Proxy Committee are set forth in the Proxy
Committees Terms of Reference.
|
|
2.
|
All conflicts of interest identified pursuant to the procedures outlined in Section IV. A. must be brought to
the attention of the Proxy Committee for resolution. A proxy issue that will be voted in accordance with a stated ClearBridge position on such issue or in accordance with the recommendation of an independent third party generally is not brought to
the attention of the Proxy Committee for a conflict of interest review because ClearBridges position is that any conflict of interest issues are resolved by voting in accordance with a pre-determined
policy or in accordance with the recommendation of an independent third party.
|
|
3.
|
The Proxy Committee will determine whether a conflict of interest is material. A conflict of interest will be
considered material to the extent that it is determined that such conflict is likely to influence, or appear to influence, ClearBridges decision-making in voting the proxy. All materiality determinations will be based on an assessment of the
particular facts and circumstances. A written record of all materiality determinations made by the Proxy Committee will be maintained.
|
|
4.
|
If it is determined by the Proxy Committee that a conflict of interest is not material, ClearBridge may vote
proxies notwithstanding the existence of the conflict.
|
|
5.
|
If it is determined by the Proxy Committee that a conflict of interest is material, the Proxy Committee will
determine an appropriate method to resolve such conflict of interest before the proxy affected by the conflict of interest is voted. Such determination shall be based on the particular facts and circumstances, including the importance of the proxy
issue, the nature of the conflict of interest, etc. Such methods may include:
|
|
|
|
disclosing the conflict to clients and obtaining their consent before voting;
|
|
|
|
suggesting to clients that they engage another party to vote the proxy on their behalf;
|
|
|
|
in the case of a conflict of interest resulting from a particular employees personal relationships,
removing such employee from the decision-making process with respect to such proxy vote; or
|
|
|
|
such other method as is deemed appropriate given the particular facts and circumstances, including the importance
of the proxy issue, the nature of the conflict of interest, etc.*
|
A written record
of the method used to resolve a material conflict of interest shall be maintained.
|
C.
|
Third Party Proxy Voting Firm - Conflicts of Interest
|
With respect to a third party proxy voting firm described herein, the Proxy Committee will periodically review and assess such firms policies, procedures
and practices with respect to the disclosure and handling of conflicts of interest.
These are policy guidelines that 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 holding the shares being voted. There may be occasions when different investment teams vote differently on the same issue. In addition, in the case of Taft-Hartley clients, ClearBridge
will comply with a client direction to vote proxies in accordance with Institutional Shareholder Services (ISS) PVS Proxy Voting Guidelines, which ISS represents to be fully consistent with AFL-CIO
guidelines.
|
1.
|
Voting on Director Nominees in Uncontested Elections.
|
*
|
Especially in the case of an apparent, as opposed to actual, conflict of interest, the Proxy Committee may
resolve such conflict of interest by satisfying itself that ClearBridges proposed vote on a proxy issue is in the best interest of client accounts and is not being influenced by the conflict of interest.
|
|
a.
|
We withhold our vote from a director nominee who:
|
|
|
|
attended less than 75 percent of the companys board and committee meetings without a valid excuse
(illness, service to the nation/local government, work on behalf of the company);
|
|
|
|
received more than 50 percent withheld votes of the shares cast at the previous board election, and the
company has failed to address the issue as to why;
|
|
|
|
is a member of the companys audit committee, when excessive
non-audit fees were paid to the auditor, or there are chronic control issues and an absence of established effective control mechanisms;
|
|
|
|
is a member of the companys compensation committee if the compensation committee ignore a say on pay
proposal that a majority of shareholders opposed;
|
|
|
|
is a member of the companys nominating committee and there are no women on the board (or currently proposed
for election to the board).
|
|
b.
|
We vote for all other director nominees.
|
|
2.
|
Chairman and CEO is the Same Person.
|
We vote on a case-by-case basis on shareholder proposals that
would require the positions of the Chairman and CEO to be held by different persons. We would generally vote FOR such a proposal unless there are compelling reasons to vote against the proposal, including:
|
|
|
Designation of a lead director
|
|
|
|
Majority of independent directors (supermajority)
|
|
|
|
All independent key committees
|
|
|
|
Size of the company (based on market capitalization)
|
|
|
|
Established governance guidelines
|
|
3.
|
Majority of Independent Directors
|
|
a.
|
We vote for shareholder proposals that request that the board be comprised of a majority of independent
directors. Generally that would require that the director have no connection to the company other than the board seat. In determining whether an independent director is truly independent (e.g. when voting on a slate of director candidates), we
consider certain factors including, but not necessarily limited to, the following: whether the director or his/her company provided professional services to the company or its affiliates either currently or in the past year; whether the director has
any transactional relationship with the company; whether the director is a significant customer or supplier of the company; whether the director is employed by a foundation or university that received significant grants or endowments from the
company or its affiliates; and whether there are interlocking directorships.
|
|
b.
|
We vote for shareholder proposals that request that the board audit, compensation and/or nominating committees
include independent directors exclusively.
|
|
4.
|
Stock Ownership Requirements
|
We vote against shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director, or to
remain on the board.
We vote against shareholder proposals to limit the tenure of independent directors.
|
6.
|
Director and Officer Indemnification and Liability Protection
|
|
a.
|
Subject to subparagraphs 2, 3, and 4 below, we vote for proposals concerning director and officer
indemnification and liability protection.
|
|
b.
|
We vote for proposals to limit and against proposals to eliminate entirely director and officer liability for
monetary damages for violating the duty of care.
|
|
c.
|
We vote against indemnification proposals that would expand coverage beyond just legal expenses to acts, such
as negligence, that are more serious violations of fiduciary obligations than mere carelessness.
|
|
d.
|
We vote for only those proposals that provide such expanded coverage noted in subparagraph 3 above in cases
when a directors or officers legal defense was unsuccessful if: (1) the director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and (2) if only the
directors legal expenses would be covered.
|
|
7.
|
Director Qualifications
|
We vote case-by-case on proposals that establish or amend
director qualifications. Considerations include how reasonable the criteria are and to what degree they may preclude dissident nominees from joining the board.
We vote against shareholder proposals requiring two candidates per board seat.
|
1.
|
Voting for Director Nominees in Contested Elections
|
We vote on a case-by-case basis in contested elections of
directors. Considerations include: chronology of events leading up to the proxy contest; qualifications of director nominees (incumbents and dissidents); for incumbents, whether the board is comprised of a majority of outside directors; whether key
committees (i.e.: nominating, audit, compensation) comprise solely of independent outsiders; discussion with the respective portfolio manager(s).
|
2.
|
Reimburse Proxy Solicitation Expenses
|
We vote on a case-by-case basis on proposals to provide full
reimbursement for dissidents waging a proxy contest. Considerations include: identity of persons who will pay solicitation expenses; cost of solicitation; percentage that will be paid to proxy solicitation firms.
We vote for proposals to ratify auditors, unless an auditor has a financial interest in or association with the company, and is therefore not
independent; or there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the companys financial position or there is reason to believe the independent auditor has not followed
the highest level of ethical conduct. Specifically, we will vote to ratify auditors if the auditors only provide the company audit services and such other audit-related and non-audit services the provision of
which will not cause such auditors to lose their independence under applicable laws, rules and regulations.
|
2.
|
Financial Statements and Director and Auditor Reports
|
We generally vote for management proposals seeking approval of financial accounts and reports and the discharge of management and supervisory
board members, unless there is concern about the past actions of the companys auditors or directors.
|
3.
|
Remuneration of Auditors
|
We vote for proposals to authorize the board or an audit committee of the board to determine the remuneration of auditors, unless there is
evidence of excessive compensation relative to the size and nature of the company.
|
4.
|
Indemnification of Auditors
|
We vote against proposals to indemnify auditors.
|
D.
|
Proxy Contest Defenses
|
|
1.
|
Board Structure: Staggered vs. Annual Elections
|
|
a.
|
We vote against proposals to classify the board.
|
|
b.
|
We vote for proposals to repeal classified boards and to elect all directors annually.
|
2.
|
Shareholder Ability to Remove Directors
|
|
a.
|
We vote against proposals that provide that directors may be removed only for cause.
|
|
b.
|
We vote for proposals to restore shareholder ability to remove directors with or without cause.
|
|
c.
|
We vote against proposals that provide that only continuing directors may elect replacements to fill board
vacancies.
|
|
d.
|
We vote for proposals that permit shareholders to elect directors to fill board vacancies.
|
|
a.
|
If plurality voting is in place for uncontested director elections, we vote for proposals to permit or restore
cumulative voting.
|
|
b.
|
If majority voting is in place for uncontested director elections, we vote against cumulative voting.
|
|
c.
|
If plurality voting is in place for uncontested director elections, and proposals to adopt both cumulative
voting and majority voting are on the same slate, we vote for majority voting and against cumulative voting.
|
We vote for non-binding and/or binding resolutions requesting that the board amend a companys by-laws to stipulate that directors need to be elected with an affirmative majority of the votes cast, provided that it does not conflict with the state law where the company is incorporated. In addition, all
resolutions need to provide for a carve-out for a plurality vote standard when there are more nominees than board seats (i.e. contested election). In addition, ClearBridge strongly encourages companies to
adopt a post-election director resignation policy setting guidelines for the company to follow to promptly address situations involving holdover directors.
5.
|
Shareholder Ability to Call Special Meetings
|
|
a.
|
We vote against proposals to restrict or prohibit shareholder ability to call special meetings.
|
|
b.
|
We vote for proposals that provide shareholders with the ability to call special meetings, taking into account
a minimum ownership threshold of 10 percent (and investor ownership structure, depending on bylaws).
|
6.
|
Shareholder Ability to Act by Written Consent
|
|
a.
|
We vote against proposals to restrict or prohibit shareholder ability to take action by written consent.
|
|
b.
|
We vote for proposals to allow or make easier shareholder action by written consent.
|
7.
|
Shareholder Ability to Alter the Size of the Board
|
|
a.
|
We vote for proposals that seek to fix the size of the board.
|
|
b.
|
We vote against proposals that give management the ability to alter the size of the board without shareholder
approval.
|
8.
|
Advance Notice Proposals
|
We vote on advance notice proposals on a case-by-case basis,
giving support to those proposals which allow shareholders to submit proposals as close to the meeting date as reasonably possible and within the broadest window possible.
|
a.
|
We vote against proposals giving the board exclusive authority to amend the
by-laws.
|
|
b.
|
We vote for proposals giving the board the ability to amend the by-laws
in addition to shareholders.
|
10.
|
Article Amendments (not otherwise covered by ClearBridge Proxy Voting Policies and Procedures).
|
|
a.
|
We review on a case-by-case
basis all proposals seeking amendments to the articles of association.
|
|
b.
|
We vote for article amendments if:
|
|
|
|
shareholder rights are protected;
|
|
|
|
there is negligible or positive impact on shareholder value;
|
|
|
|
management provides adequate reasons for the amendments; and
|
|
|
|
the company is required to do so by law (if applicable).
|
|
a.
|
We vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
|
|
b.
|
We vote on a case-by-case basis
on shareholder proposals to redeem a companys poison pill. Considerations include: when the plan was originally adopted; financial condition of the company; terms of the poison pill.
|
|
c.
|
We vote on a case-by-case basis
on management proposals to ratify a poison pill. Considerations include: sunset provision - poison pill is submitted to shareholders for ratification or rejection every 2 to 3 years; shareholder redemption feature
-10% of the shares may call a special meeting or seek a written consent to vote on rescinding the rights plan.
|
|
a.
|
We vote for fair price proposals, as long as the shareholder vote requirement embedded in the provision is no
more than a majority of disinterested shares.
|
|
b.
|
We vote for shareholder proposals to lower the shareholder vote requirement in existing fair price provisions.
|
|
a.
|
We vote for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict a
companys ability to make greenmail payments.
|
|
b.
|
We vote on a case-by-case basis
on anti-greenmail proposals when they are bundled with other charter or bylaw amendments.
|
|
a.
|
We vote against dual class exchange offers.
|
|
b.
|
We vote against dual class re-capitalization.
|
|
5.
|
Supermajority Shareholder Vote Requirement to Amend the Charter or Bylaws
|
|
a.
|
We vote against management proposals to require a supermajority shareholder vote to approve charter and bylaw
amendments.
|
|
b.
|
We vote for shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw
amendments.
|
|
6.
|
Supermajority Shareholder Vote Requirement to Approve Mergers
|
|
a.
|
We vote against management proposals to require a supermajority shareholder vote to approve mergers and other
significant business combinations.
|
|
b.
|
We vote for shareholder proposals to lower supermajority shareholder vote requirements for mergers and other
significant business combinations.
|
|
7.
|
White Knight/Squire Placements
|
We vote for shareholder proposals to require approval of blank check preferred stock issues.
|
F.
|
Miscellaneous Governance Provisions
|
|
a.
|
We vote for shareholder proposals that request corporations to adopt confidential voting, use independent
tabulators and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: in the case of a contested election, management is permitted to request that the dissident group honor its confidential
voting policy. If the dissidents agree, the policy remains in place. If the dissidents do not agree, the confidential voting policy is waived.
|
|
b.
|
We vote for management proposals to adopt confidential voting subject to the proviso for contested elections
set forth in sub-paragraph A.1. above.
|
We vote for shareholder proposals that would allow significant company shareholders equal access to managements proxy material in order
to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board.
We vote on a case-by-case basis on bundled or
conditioned proxy proposals. In the case of items that are conditioned upon each other, we examine the benefits and costs of the packaged items. In instances when the joint effect of the conditioned items is not in shareholders
best interests and therefore not in the best interests of the beneficial owners of accounts, we vote against the proposals. If the combined effect is positive, we support such proposals.
|
4.
|
Shareholder Advisory Committees
|
We vote on a case-by-case basis on proposals to establish a
shareholder advisory committee. Considerations include: rationale and cost to the firm to form such a committee. We generally vote against such proposals if the board and key nominating committees are comprised solely of independent/outside
directors.
We vote for proposals that seek to bring forth other business matters.
We vote on a case-by-case basis on proposals that seek to
adjourn a shareholder meeting in order to solicit additional votes.
We vote against proposals if a company fails to provide shareholders with adequate information upon which to base their voting decision.
|
1.
|
Common Stock Authorization
|
|
a.
|
We vote on a case-by-case basis
on proposals to increase the number of shares of common stock authorized for issue, except as described in paragraph 2 below.
|
|
b.
|
Subject to paragraph 3, below we vote for the approval requesting increases in authorized shares if the company
meets certain criteria:
|
|
|
|
Company has already issued a certain percentage (i.e. greater than 50%) of the companys allotment.
|
|
|
|
The proposed increase is reasonable (i.e. less than 150% of current inventory) based on an analysis of the
companys historical stock management or future growth outlook of the company.
|
|
c.
|
We vote on a case-by-case
basis, based on the input of affected portfolio managers, if holding is greater than 1% of an account.
|
|
2.
|
Stock Distributions: Splits and Dividends
|
We vote on a case-by-case basis on management proposals to
increase common share authorization for a stock split, provided that the split does not result in an increase of authorized but unissued shares of more than 100% after giving effect to the shares needed for the split.
We vote for management proposals to implement a reverse stock split, provided that the reverse split does not result in an increase of
authorized but unissued shares of more than 100% after giving effect to the shares needed for the reverse split.
|
4.
|
Blank Check Preferred Stock
|
|
a.
|
We vote against proposals to create, authorize or increase the number of shares with regard to blank check
preferred stock with unspecified voting, conversion, dividend distribution and other rights.
|
|
b.
|
We vote for proposals to create declawed blank check preferred stock (stock that cannot be used as
a takeover defense).
|
|
c.
|
We vote for proposals to authorize preferred stock in cases where the company specifies the voting, dividend,
conversion, and other rights of such stock and the terms of the preferred stock appear reasonable.
|
|
d.
|
We vote for proposals requiring a shareholder vote for blank check preferred stock issues.
|
|
5.
|
Adjust Par Value of Common Stock
|
We vote for management proposals to reduce the par value of common stock.
|
a.
|
We vote on a case-by-case basis
for shareholder proposals seeking to establish them and consider the following factors:
|
|
|
|
Characteristics of the size of the holding (holder owning more than 1% of the outstanding shares).
|
|
|
|
Percentage of the rights offering (rule of thumb less than 5%).
|
|
b.
|
We vote on a case-by-case basis
for shareholder proposals seeking the elimination of pre-emptive rights.
|
We vote on a case-by-case basis for proposals to increase
common and/or preferred shares and to issue shares as part of a debt-restructuring plan. Generally, we approve proposals that facilitate debt restructuring.
|
8.
|
Share Repurchase Programs
|
We vote for management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms.
We vote for proposals to create a new class of nonvoting or sub voting common stock if:
|
|
|
It is intended for financing purposes with minimal or no dilution to current shareholders
|
|
|
|
It is not designed to preserve the voting power of an insider or significant shareholder
|
|
10.
|
Issue Stock for Use with Rights Plan
|
We vote against proposals that increase authorized common stock for the explicit purpose of implementing a shareholder rights plan (poison
pill).
|
11.
|
Debt Issuance Requests
|
When evaluating a debt issuance request, the issuing companys present financial situation is examined. The main factor for analysis is
the companys current debt-to-equity ratio, or gearing
level. A high gearing level may incline markets and financial analysts to downgrade the companys bond rating, increasing its investment risk factor in the process. A gearing level up to
100 percent is considered acceptable.
We vote for debt issuances for companies when the gearing level is between zero and
100 percent.
We view on a case-by-case basis
proposals where the issuance of debt will result in the gearing level being greater than 100 percent. Any proposed debt issuance is compared to industry and market standards.
We generally vote for the adopting of financing plans if we believe they are in the best economic interests of shareholders.
|
H.
|
Executive and Director Compensation
|
In general, we vote for executive and director compensation plans, with the view that viable compensation programs reward the creation of
stockholder wealth by having high payout sensitivity to increases in shareholder value. Certain factors, however, such as repricing underwater stock options without shareholder approval, would cause us to vote against a plan. Additionally, in some
cases we would vote against a plan deemed unnecessary.
|
1.
|
OBRA-Related Compensation Proposals
|
|
a.
|
Amendments that Place a Cap on Annual Grant or Amend Administrative Features
|
We vote for plans that simply amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one
participant may receive to comply with the provisions of Section 162(m) of the Internal Revenue Code.
|
b.
|
Amendments to Added Performance-Based Goals
|
We vote for amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of the
Internal Revenue Code.
|
c.
|
Amendments to Increase Shares and Retain Tax Deductions Under OBRA
|
We vote for amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions
of Section 162(m) the Internal Revenue Code.
|
d.
|
Approval of Cash or
Cash-and-Stock Bonus Plans
|
We vote for
cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of the Internal Revenue Code.
We vote for proposals to expense stock options on financial statements.
|
3.
|
Shareholder Proposals to Limit Executive and Director Pay
|
|
a.
|
We vote on a case-by-case basis
on all shareholder proposals that seek additional disclosure of executive and director pay information. Considerations include: cost and form of disclosure. We vote for such proposals if additional disclosure is relevant to shareholders needs
and would not put the company at a competitive disadvantage relative to its industry.
|
|
b.
|
We vote on a case-by-case basis
on all other shareholder proposals that seek to limit executive and director pay.
|
|
4.
|
Reports to Assess the Feasibility of Including Sustainability as a Performance Metrice
|
We vote in favor of non-binding proposals for reports on the feasibility of including sustainability
as a performance metric for senior executive compensation.
We have a policy of voting to reasonably limit the level of options and other
equity-based compensation arrangements available to management to reasonably limit shareholder dilution and management compensation. For options and equity-based compensation arrangements, we vote FOR proposals or amendments that would result in the
available awards being less than 10% of fully diluted outstanding shares (i.e. if the combined total of shares, common share equivalents and options available to be awarded under all current and proposed compensation plans is less than 10% of fully
diluted shares). In the event the available awards exceed the 10% threshold, we would also consider the % relative to the common practice of its specific industry (e.g. technology firms). Other considerations would include, without limitation, the
following:
|
|
|
Compensation committee comprised of independent outside directors
|
|
|
|
Repricing without shareholder approval prohibited
|
|
|
|
3-year average burn rate for company
|
|
|
|
Plan administrator has authority to accelerate the vesting of awards
|
|
|
|
Shares under the plan subject to performance criteria
|
|
a.
|
We vote for shareholder proposals to have golden parachutes submitted for shareholder ratification.
|
|
b.
|
We vote on a case-by-case basis
on all proposals to ratify or cancel golden parachutes. Considerations include: the amount should not exceed 3 times average base salary plus guaranteed benefits; golden parachute should be less attractive than an ongoing employment opportunity with
the firm.
|
|
a.
|
We vote for shareholder proposals that request a company not to make any death benefit payments to senior
executives estates or beneficiaries, or pay premiums in respect to any life insurance policy covering a senior executives life (golden coffin). We carve out benefits provided under a plan, policy or arrangement applicable to
a broader group of employees, such as offering group universal life insurance.
|
|
b.
|
We vote for shareholder proposals that request shareholder approval of survivor benefits for future agreements
that, following the death of a senior executive, would obligate the company to make payments or awards not earned.
|
|
7.
|
Anti Tax Gross-up Policy
|
|
a.
|
We vote for proposals that ask a company to adopt a policy whereby it will not make, or promise to make, any
tax gross-up payment to its senior executives, except for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable to management employees of the
company generally, such as relocation or expatriate tax equalization policy; we also vote for proposals that ask management to put gross-up payments to a shareholder vote.
|
|
b.
|
We vote against proposals where a company will make, or promise to make, any tax
gross-up payment to its senior executives without a shareholder vote, except for tax gross-ups provided pursuant to a plan, policy, or arrangement applicable to
management employees of the company generally, such as relocation or expatriate tax equalization policy.
|
|
8.
|
Employee Stock Ownership Plans (ESOPs)
|
We vote for proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs,
except in cases when the number of shares allocated to the ESOP is excessive (i.e., generally greater than five percent of outstanding shares).
|
9.
|
Employee Stock Purchase Plans
|
a. We vote for qualified plans where all of the following apply:
|
|
|
The purchase price is at least 85 percent of fair market value
|
|
|
|
The offering period is 27 months or less
|
|
|
|
The number of shares allocated to the plan is five percent or less of outstanding shares
|
If the above do not apply, we vote on a case-by-case basis.
b. We vote for non-qualified plans where all of the following apply:
|
|
|
All employees of the company are eligible to participate (excluding 5 percent or more beneficial owners)
|
|
|
|
There are limits on employee contribution (ex: fixed dollar amount)
|
|
|
|
There is a company matching contribution with a maximum of 25 percent of an employees contribution
|
|
|
|
There is no discount on the stock price on purchase date (since there is a company match)
|
If the above do not apply, we vote against the non-qualified employee stock purchase plan.
|
10.
|
401(k) Employee Benefit Plans
|
We vote for proposals to implement a 401(k) savings plan for employees.
|
11.
|
Stock Compensation Plans
|
|
a.
|
We vote for stock compensation plans which provide a dollar-for-dollar cash for stock exchange.
|
|
b.
|
We vote on a case-by-case basis
for stock compensation plans which do not provide a dollar-for-dollar cash for stock exchange using a quantitative model.
|
|
12.
|
Directors Retirement Plans
|
|
a.
|
We vote against retirement plans for non-employee directors.
|
|
b.
|
We vote for shareholder proposals to eliminate retirement plans for
non-employee directors.
|
|
13.
|
Management Proposals to Reprice Options
|
We vote against management proposals seeking approval to reprice options.
|
14.
|
Shareholder Proposals Regarding Executive and Director Pay
|
|
a.
|
We vote against shareholder proposals seeking to set absolute levels on compensation or otherwise dictate the
amount or form of compensation.
|
|
b.
|
We vote against shareholder proposals requiring director fees be paid in stock only.
|
|
c.
|
We vote against shareholder proposals to eliminate vesting of options and restricted stock on change of
control.
|
|
d.
|
We vote for shareholder proposals to put option repricing to a shareholder vote.
|
|
e.
|
We vote for shareholder proposals that call for a non-binding advisory
vote on executive pay (say-on-pay). Company boards would adopt a policy giving shareholders the opportunity at each annual meeting to vote on an advisory
resolution to ratify the compensation of the named executive officers set forth in the proxy statements summary compensation table.
|
|
f.
|
We vote annual for the frequency of
say-on-pay proposals rather than once every two or three years.
|
|
g.
|
We vote on a case-by-case basis
for all other shareholder proposals regarding executive and director pay, taking into account company performance, pay level versus peers, pay level versus industry, and long term corporate outlook.
|
|
15.
|
Management Proposals on Executive Compensation
|
For non-binding advisory votes on executive officer compensation, when management and the external
service provider agree, we vote for the proposal. When management and the external service provider disagree, the proposal becomes a refer item. In the case of a Refer item, the factors under consideration will include the following:
|
|
|
Company performance over the last 1-,
3- and 5-year periods on a total shareholder return basis
|
|
|
|
Performance metrics for short- and long-term incentive programs
|
|
|
|
CEO pay relative to company performance (is there a misalignment)
|
|
|
|
Tax gross-ups to senior executives
|
|
|
|
Change-in-control arrangements
|
|
|
|
Presence of a clawback provision, ownership guidelines, or stock holding requirements for senior executives
|
|
16.
|
Stock Retention / Holding Period of Equity Awards
|
We vote on a case-by-case basis on shareholder proposals
asking companies to adopt policies requiring senior executives to retain all or a significant (>50 percent) portion of their shares acquired through equity compensation plans, either:
|
|
|
While employed and/or for one to two years following the termination of their employment; or
|
|
|
|
For a substantial period following the lapse of all other vesting requirements for the award, with ratable
release of a portion of the shares annually during the lock-up period
|
The
following factors will be taken into consideration:
|
|
|
Whether the company has any holding period, retention ratio, or named executive officer ownership requirements
currently in place
|
|
|
|
Actual stock ownership of the companys named executive officers
|
|
|
|
Policies aimed at mitigating risk taking by senior executives
|
|
|
|
Pay practices at the company that we deem problematic
|
|
I.
|
State/Country of Incorporation
|
|
1.
|
Voting on State Takeover Statutes
|
|
a.
|
We vote for proposals to opt out of state freeze-out provisions.
|
|
b.
|
We vote for proposals to opt out of state disgorgement provisions.
|
|
2.
|
Voting on Re-incorporation Proposals
|
We vote on a case-by-case basis on proposals to change a
companys state or country of incorporation. Considerations include: reasons for re-incorporation (i.e. financial, restructuring, etc); advantages/benefits for change (i.e. lower taxes); compare the
differences in state/country laws governing the corporation.
|
3.
|
Control Share Acquisition Provisions
|
|
a.
|
We vote against proposals to amend the charter to include control share acquisition provisions.
|
|
b.
|
We vote for proposals to opt out of control share acquisition statutes unless doing so would enable the
completion of a takeover that would be detrimental to shareholders.
|
|
c.
|
We vote for proposals to restore voting rights to the control shares.
|
|
d.
|
We vote for proposals to opt out of control share cashout statutes.
|
|
J.
|
Mergers and Corporate Restructuring
|
|
a.
|
Mergers and Acquisitions
|
We vote on a case-by-case basis on mergers and acquisitions.
Considerations include: benefits/advantages of the combined companies (i.e. economies of scale, operating synergies, increase in market power/share, etc
); offer price (premium or discount); change in the capital structure; impact on
shareholder rights.
|
b.
|
Corporate Restructuring
|
We vote on a case-by-case basis on corporate restructuring
proposals involving minority squeeze outs and leveraged buyouts. Considerations include: offer price, other alternatives/offers considered and review of fairness opinions.
We vote on a case-by-case basis on spin-offs. Considerations
include the tax and regulatory advantages, planned use of sale proceeds, market focus, and managerial incentives.
We vote on a case-by-case basis on asset sales. Considerations
include the impact on the balance sheet/working capital, value received for the asset, and potential elimination of diseconomies.
We vote on a case-by-case basis on liquidations after
reviewing managements efforts to pursue other alternatives, appraisal value of assets, and the compensation plan for executives managing the liquidation.
We vote for proposals to restore, or provide shareholders with, rights of appraisal.
|
g.
|
Changing Corporate Name
|
We vote for proposals to change the corporate name, unless the proposed name change bears a negative connotation.
|
h.
|
Conversion of Securities
|
We vote on a case-by-case basis on proposals regarding
conversion of securities. Considerations include the dilution to existing shareholders, the conversion price relative to market value, financial issues, control issues, termination penalties, and conflicts of interest.
|
i.
|
Stakeholder Provisions
|
We vote against proposals that ask the board to consider non-shareholder constituencies or other non-financial effects when evaluating a merger or business combination.
|
K.
|
Social and Environmental Issues
|
When considering environmental and social (E&S) proposals, we have an obligation to vote proxies in the best interest of our clients,
considering both shareholder value as well as societal impact.
|
1.
|
Sustainability Reporting
|
|
a.
|
We vote for proposals seeking greater disclosure on the companys environmental, social &
governance policies and practices;
|
|
b.
|
We vote for proposals that would require companies whose annual revenues are at least $5 billion to
prepare a sustainability report. All others will be decided on a case-by-case basis.
|
|
a.
|
We vote for proposals supporting nomination of most qualified candidates, inclusive of a diverse pool of women
and people of color, to the Board of Directors and senior management levels;
|
|
b.
|
We vote for proposals requesting comprehensive disclosure on board diversity if the frequency is no more than
once a year;
|
|
c.
|
We vote for proposals requesting comprehensive disclosure on employee diversity if the frequency is no more
than once a year;
|
|
d.
|
We vote for proposals requesting comprehensive reports on gender pay disparity if the frequency is no more than
once a year;
|
|
e.
|
We vote for proposals seeking to amend a companys EEO statement or diversity policies to prohibit
discrimination based on sexual orientation and/or gender identity.
|
|
3.
|
As a firm, we strongly support E&S proposals. However, due to significantly divergent approaches and a lack
of consistency in wording for many of these proposals, we will vote a case by case basis for the following types of proposals:
|
|
a.
|
Climate proposals seeking more disclosure on financial, physical or regulatory risks related to climate change
and/or how the company measures and manages such risks;
|
|
b.
|
Climate proposals requesting a report/disclosure of goals on GHG emissions from company operations and/or
products;
|
|
c.
|
Climate proposals seeking company disclosure on GHG reduction targets and/or goals;
|
|
d.
|
Animal welfare policies;
|
|
e.
|
Human rights and company policies;
|
|
f.
|
Operations in high-risk or sensitive areas;
|
|
g.
|
Product integrity and marketing.
|
1.
|
Charitable Contributions
|
We vote against proposals to eliminate, direct or otherwise restrict charitable contributions.
2.
|
Political Contributions
|
We will vote in favor of non-binding proposals for reports on corporate lobbying and political
contributions if the frequency is no more than annual.
In general, we vote on a case-by-case basis on other shareholder proposals pertaining to political contributions. In determining our vote on political contribution proposals we consider, among other things, the following:
|
|
|
Does the company have a political contributions policy publicly available
|
|
|
|
How extensive is the disclosure on these documents
|
|
|
|
What oversight mechanisms the company has in place for approving/reviewing political contributions and
expenditures
|
|
|
|
Does the company provide information on its trade association expenditures
|
|
|
|
Total amount of political expenditure by the company in recent history
|
|
|
|
We vote against proposals to provide management with the authority to adjourn an annual or special meeting absent
compelling reasons to support the proposal.
|
|
|
|
We vote against proposals to reduce quorum requirements for shareholder meetings below a majority of the shares
outstanding unless there are compelling reasons to support the proposal.
|
|
|
|
We vote for by-law or charter changes that are of a housekeeping nature
(updates or corrections).
|
|
|
|
We vote for management proposals to change the date/time/location of the annual meeting unless the proposed
change is unreasonable.
|
|
|
|
We vote against shareholder proposals to change the date/time/location of the annual meeting unless the current
scheduling or location is unreasonable.
|
|
|
|
We vote against proposals to approve other business when it appears as voting item.
|
In some markets, shareholders are routinely asked to approve:
|
|
|
the opening of the shareholder meeting
|
|
|
|
that the meeting has been convened under local regulatory requirements
|
|
|
|
the presence of a quorum
|
|
|
|
the agenda for the shareholder meeting
|
|
|
|
the election of the chair of the meeting
|
|
|
|
the allowance of questions
|
|
|
|
the publication of minutes
|
|
|
|
the closing of the shareholder meeting
|
We generally vote for these and similar routine management proposals.
5.
|
Allocation of Income and Dividends
|
We generally vote for management proposals concerning allocation of income and the distribution of dividends, unless the amount of the distribution is
consistently and unusually small or large.
6.
|
Stock (Scrip) Dividend Alternatives
|
|
a.
|
We vote for most stock (scrip) dividend proposals.
|
|
b.
|
We vote against proposals that do not allow for a cash option unless management demonstrates that the cash
option is harmful to shareholder value.
|
ClearBridge has determined that registered investment companies, particularly
closed end investment companies, raise special policy issues making specific voting guidelines frequently inapplicable. To the extent that ClearBridge has proxy voting authority with respect to shares of registered investment companies, ClearBridge
shall vote such shares in the best interest of client accounts and subject to the general fiduciary principles set forth herein without regard to the specific voting guidelines set forth in Section V. A. through L.
The voting policy guidelines set forth herein will be reviewed annually and may be changed by ClearBridge in its sole discretion.
In certain situations, ClearBridge may determine not to vote proxies on behalf of a client because ClearBridge believes that the expected benefit to the client
of voting shares is outweighed by countervailing considerations. Examples of situations in which ClearBridge may determine not to vote proxies on behalf of a client include:
Proxy voting in certain countries requires share blocking. This means that shareholders wishing to vote their proxies must deposit
their shares shortly before the date of the meeting (e.g. one week) with a designated depositary. During the blocking period, shares that will be voted at the meeting cannot be sold until the meeting has taken place and the shares have been returned
to client accounts by the designated depositary. In deciding whether to vote shares subject to share blocking, ClearBridge will consider and weigh, based on the particular facts and circumstances, the expected benefit to clients of voting in
relation to the detriment to clients of not being able to sell such shares during the applicable period.
Certain clients of ClearBridge, such as an institutional client or a mutual fund for which ClearBridge acts as a
sub-adviser, may engage in securities lending with respect to the securities in their accounts. ClearBridge typically does not direct or oversee such securities lending activities. To the extent feasible and
practical under the circumstances, ClearBridge will request that the client recall shares that are on loan so that such shares can be voted if ClearBridge believes that the expected benefit to the client of voting such shares outweighs the detriment
to the client of recalling such shares (e.g., foregone income). The ability to timely recall shares for proxy voting purposes typically is not entirely within the control of ClearBridge and requires the cooperation of the client and its other
service providers. Under certain circumstances, the recall of shares in time for such shares to be voted may not be possible due to applicable proxy voting record dates and administrative considerations.
VII.
|
DISCLOSURE OF PROXY VOTING
|
ClearBridge employees may not disclose to others outside of ClearBridge (including employees of other Legg Mason business units) how ClearBridge intends to
vote a proxy absent prior approval from ClearBridges General Counsel/Chief Compliance Officer, except that a ClearBridge investment professional may disclose to a third party (other than an employee of another Legg Mason business unit) how
s/he intends to vote without obtaining prior approval from ClearBridges General Counsel/Chief Compliance Officer if (1) the disclosure is intended to facilitate a discussion of publicly available information by ClearBridge personnel with
a representative of a company whose securities are the subject of the proxy, (2) the companys market capitalization exceeds $1 billion and (3) ClearBridge has voting power with respect to less than 5% of the outstanding common
stock of the company.
If a ClearBridge employee receives a request to disclose ClearBridges proxy voting intentions to, or is otherwise contacted
by, another person outside of ClearBridge (including an employee of another Legg Mason business unit) in connection with an upcoming proxy voting matter, he/she should immediately notify ClearBridges General Counsel/Chief Compliance Officer.
If a portfolio manager wants to take a public stance with regards to a proxy, s/he must consult with ClearBridges General Counsel/Chief Compliance
Officer before making or issuing a public statement.
VIII.
|
RECORDKEEPING AND OVERSIGHT
|
ClearBridge shall maintain the following records relating to proxy voting:
|
|
|
a copy of these policies and procedures;
|
|
|
|
a copy of each proxy form (as voted);
|
|
|
|
a copy of each proxy solicitation (including proxy statements) and related materials with regard to each vote;
|
|
|
|
documentation relating to the identification and resolution of conflicts of interest;
|
|
|
|
any documents created by ClearBridge that were material to a proxy voting decision or that memorialized the basis
for that decision; and
|
|
|
|
a copy of each written client request for information on how ClearBridge voted proxies on behalf of the client,
and a copy of any written response by ClearBridge to any (written or oral) client request for information on how ClearBridge voted proxies on behalf of the requesting client.
|
Such records shall be maintained and preserved in an easily accessible place for a period of not less than six years from the end of the fiscal year during
which the last entry was made on such record, the first two years in an appropriate office of the ClearBridge adviser.
To the extent that ClearBridge is
authorized to vote proxies for a United States Registered Investment Company, ClearBridge shall maintain such records as are necessary to allow such fund to comply with its recordkeeping, reporting and disclosure obligations under applicable laws,
rules and regulations.
In lieu of keeping copies of proxy statements, ClearBridge may rely on proxy statements filed on the EDGAR system as well as on
third party records of proxy statements and votes cast if the third party provides an undertaking to provide the documents promptly upon request.
Western Asset Management Company, LLC and Western Asset Management
Company Limited (together, Western Asset or the Firm) Proxy Voting
Policy
BACKGROUND
An investment adviser is required to adopt and implement policies and procedures that we believe are reasonably designed to ensure that proxies
are voted in the best interest of clients, in accordance with fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940 (Advisers Act). The authority to vote the proxies of
our clients is established through investment management agreements or comparable documents. In addition to SEC requirements governing advisers, long-standing fiduciary standards and responsibilities have been established for ERISA accounts. Unless
a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the investment manager.
POLICY
As a fixed income only manager,
the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our
fiduciary duties and SEC Rule 206(4)- 6 under the Investment Advisers Act of 1940 (Advisers Act). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and
responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firms contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote
(such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western
Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
PROCEDURE
Responsibility and Oversight
The Western Asset Legal and Compliance Department (Compliance Department) is responsible for administering and overseeing the proxy
voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support (Corporate Actions). Research analysts and portfolio managers are responsible for determining appropriate voting positions
on each proxy utilizing any applicable guidelines contained in these procedures.
Client Authority
The Investment Management Agreement for each client is reviewed at account start-up for proxy voting
instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and
Compliance Department maintains a matrix of proxy voting authority.
Proxy Gathering
Registered owners of record, client custodians, client banks and trustees (Proxy Recipients) that receive proxy materials on behalf
of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are
notified at start-up of appropriate routing to Corporate Actions of proxy materials received and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel
other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
Proxy Voting
Once proxy materials are received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the
following actions:
|
1.
|
Proxies are reviewed to determine accounts impacted.
|
|
2.
|
Impacted accounts are checked to confirm Western Asset voting authority.
|
|
3.
|
Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of interest.
(See conflicts of interest section of these procedures for further information on determining material conflicts of interest.)
|
|
4.
|
If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by
applicable law, the client is promptly notified, the conflict is disclosed and Western Asset obtains the clients proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to
notify the client and obtain such instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.
|
|
5.
|
Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio
manager to obtain their recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into the account the voting guidelines
contained in these procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analysts or portfolio managers basis for their
decision is documented and maintained by the Legal and Compliance Department.
|
|
6.
|
Legal and Compliance Department staff votes the proxy pursuant to the instructions received in (d) or (e)
and returns the voted proxy as indicated in the proxy materials.
|
Timing
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering, and proxy voting steps noted
above can be completed before the applicable deadline for returning proxy votes.
Recordkeeping
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and
ERISA DOL Bulletin 94-2. These records include:
|
a.
|
A copy of Western Assets policies and procedures.
|
|
b.
|
Copies of proxy statements received regarding client securities.
|
|
c.
|
A copy of any document created by Western Asset that was material to making a decision how to vote proxies.
|
|
d.
|
Each written client request for proxy voting records and Western Assets written response to both verbal
and written client requests.
|
|
e.
|
A proxy log including:
|
|
2.
|
Exchange ticker symbol of the issuers shares to be voted;
|
|
3.
|
Committee on Uniform Securities Identification Procedures (CUSIP) number for the shares to be
voted;
|
|
4.
|
A brief identification of the matter voted on;
|
|
5.
|
Whether the matter was proposed by the issuer or by a shareholder of the issuer;
|
|
6.
|
Whether a vote was cast on the matter;
|
|
7.
|
A record of how the vote was cast; and
|
|
8.
|
Whether the vote was cast for or against the recommendation of the issuers management team.
|
Records are maintained in an easily accessible place for five years, the first two in Western
Assets offices.
Disclosure
Western
Assets proxy policies are described in the firms Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been
voted.
Conflicts of Interest
All proxies
are reviewed by the Legal and Compliance Department for material conflicts of interest.
Issues to be reviewed include, but are not limited to:
|
1.
|
Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets
for the company or an employee group of the company or otherwise has an interest in the company;
|
|
2.
|
Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible
for recommending the proxy vote (together, Voting Persons) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a
proxy contest; and
|
|
3.
|
Whether there is any other business or personal relationship where a Voting Person has a personal interest in
the outcome of the matter before shareholders.
|
Voting Guidelines
Western Assets substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the
designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been
approved and are recommended by a companys board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV
addresses unique considerations pertaining to foreign issuers.
|
I.
|
Board Approved Proposals
|
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and
recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More
specific guidelines related to certain board-approved proposals are as follows:
|
1.
|
Matters relating to the Board of Directors
|
Western Asset votes proxies for the election of the companys nominees for directors and for board- approved proposals on
other matters relating to the board of directors with the following exceptions:
|
a.
|
Votes are withheld for the entire board of directors if the board does not have a majority of independent
directors or the board does not have nominating, audit and compensation committees composed solely of independent directors.
|
|
b.
|
Votes are withheld for any nominee for director who is considered an independent director by the company and
who has received compensation from the company other than for service as a director.
|
|
c.
|
Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings
without valid reasons for absences.
|
|
d.
|
Votes are cast on a
case-by-case basis in contested elections of directors.
|
|
2.
|
Matters relating to Executive Compensation
|
Western Asset generally favors compensation programs that relate executive compensation to a companys long-term
performance. Votes are cast on a case-by-case basis on board-approved proposals relating to executive compensation, except as follows:
|
a.
|
Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for
stock option plans that will result in a minimal annual dilution.
|
|
b.
|
Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater
options.
|
|
c.
|
Western Asset votes against stock option plans that permit issuance of options with an exercise price below the
stocks current market price.
|
|
d.
|
Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for
employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.
|
|
3.
|
Matters relating to Capitalization
|
The management of a companys capital structure involves a number of important issues, including cash flows, financing
needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-approved proposals
involving changes to a companys capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
|
a.
|
Western Asset votes for proposals relating to the authorization of additional common stock.
|
|
b.
|
Western Asset votes for proposals to effect stock splits (excluding reverse stock splits).
|
|
c.
|
Western Asset votes for proposals authorizing share repurchase programs.
|
|
4.
|
Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions
|
Western Asset votes these issues on a case-by-case basis on
board-approved transactions.
|
5.
|
Matters relating to Anti-Takeover Measures
|
Western Asset votes against board-approved proposals to adopt anti-takeover measures except as follows:
|
a.
|
Western Asset votes on a
case-by-case basis on proposals to ratify or approve shareholder rights plans.
|
|
b.
|
Western Asset votes on a
case-by-case basis on proposals to adopt fair price provisions.
|
|
6.
|
Other Business Matters
|
Western Asset votes for board-approved proposals approving such routine business matters such as changing the companys
name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
|
a.
|
Western Asset votes on a
case-by-case basis on proposals to amend a companys charter or bylaws.
|
|
b.
|
Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.
|
|
II.
|
Shareholder Proposals
|
SEC regulations permit shareholders to submit proposals for inclusion in a companys proxy statement. These proposals generally seek to
change some aspect of a companys corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the companys board of directors on all shareholder
proposals, except as follows:
|
a.
|
Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans.
|
|
b.
|
Western Asset votes for shareholder proposals that are consistent with Western Assets proxy voting
guidelines for board-approved proposals.
|
|
c.
|
Western Asset votes on a
case-by-case basis on other shareholder proposals where the firm is otherwise withholding votes for the entire board of directors.
|
|
III.
|
Voting Shares of Investment Companies
|
Western Asset may utilize shares of open or closed-end investment companies to implement its investment
strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
|
1.
|
Western Asset votes on a
case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the
role the fund plays in the clients portfolios.
|
|
2.
|
Western Asset votes on a
case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter
investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.
|
|
IV.
|
Voting Shares of Foreign Issuers
|
In the event Western Asset is required to vote on securities held in non-U.S. issuers i.e.
issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate
governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for foreign issuers and therefore apply only where applicable.
|
1.
|
Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of
management.
|
|
2.
|
Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit
and compensation committees.
|
|
3.
|
Western Asset votes for shareholder proposals that implement corporate governance standards similar to those
established under U.S. federal law and the listing requirements of U.S. stock exchanges, and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated.
|
|
4.
|
Western Asset votes on a
case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a companys outstanding common stock where shareholders do not
have preemptive rights, or (2) the issuance of common stock in excess of 100% of a companys outstanding common stock where shareholders have preemptive rights.
|
RETIREMENT ACCOUNTS
For accounts subject
to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (DOL) has issued a bulletin that states that investment managers have the
responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary. Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL
has determined that the responsibility remains with the investment manager.
In order to comply with the DOLs position, Western Asset will be presumed to have the
obligation to vote proxies for its Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western
Asset is precluded from voting proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with
any proxy voting guidelines provided by the client.
Western Asset Management Company Limited
Proxy Voting and Corporate Actions Policy
NOTE: Below policy relating to Proxy Voting and Corporate Actions is a global policy for all Western Asset affiliates. As compliance with the Policy is
monitored by Western Asset Pasadena affiliate, the Policy has been adopted from US Compliance Manual and therefore all defined terms are those defined in the US Compliance Manual rather than UK Compliance Manual.
As a fixed income only manager, the occasion to vote proxies is very rare. However, the Firm has adopted and implemented policies and procedures that we
believe are reasonably designed to ensure that proxies are voted in the best interest of clients, in accordance with our fiduciary duties and SEC Rule 206(4)-6 under the Investment Advisers Act of 1940
(Advisers Act). In addition to SEC requirements governing advisers, our proxy voting policies reflect the long-standing fiduciary standards and responsibilities for ERISA accounts. Unless a manager of ERISA assets has been expressly
precluded from voting proxies, the Department of Labor has determined that the responsibility for these votes lies with the Investment Manager.
While the guidelines included in the procedures are intended to provide a benchmark for voting standards, each vote is ultimately cast on a case-by-case basis, taking into consideration the Firms contractual obligations to our clients and all other relevant facts and circumstances at the time of the vote
(such that these guidelines may be overridden to the extent the Firm deems appropriate).
In exercising its voting authority, Western
Asset will not consult or enter into agreements with officers, directors or employees of Legg Mason Inc. or any of its affiliates (other than Western Asset affiliated companies) regarding the voting of any securities owned by its clients.
RESPONSIBILITY AND OVERSIGHT
The Western
Asset Legal and Compliance Department (Compliance Department) is responsible for administering and overseeing the proxy voting process. The gathering of proxies is coordinated through the Corporate Actions area of Investment Support
(Corporate Actions). Research analysts and portfolio managers are responsible for determining appropriate voting positions on each proxy utilizing any applicable guidelines contained in these procedures.
CLIENT AUTHORITY
The Investment
Management Agreement for each client is reviewed at account start-up for proxy voting instructions. If an agreement is silent on proxy voting, but contains an overall delegation of discretionary authority or
if the account represents assets of an ERISA plan, Western Asset will assume responsibility for proxy voting. The Legal and Compliance Department maintains a matrix of proxy voting authority.
PROXY GATHERING
Registered owners of
record, client custodians, client banks and trustees (Proxy Recipients) that receive proxy materials on behalf of clients should forward them to Corporate Actions. Proxy Recipients for new clients (or, if Western Asset becomes aware that
the applicable Proxy Recipient for an existing client has changed, the Proxy Recipient for the existing client) are notified at start-up of appropriate routing to Corporate Actions of proxy materials received
and reminded of their responsibility to forward all proxy materials on a timely basis. If Western Asset personnel other than Corporate Actions receive proxy materials, they should promptly forward the materials to Corporate Actions.
PROXY VOTING
Once proxy materials are
received by Corporate Actions, they are forwarded to the Legal and Compliance Department for coordination and the following actions:
Proxies are reviewed to determine accounts impacted.
Impacted accounts are checked to confirm Western Asset voting authority.
Legal and Compliance Department staff reviews proxy issues to determine any material conflicts of
interest. (See conflicts of interest section of these procedures for further information on determining material conflicts of interest.)
If a material conflict of interest exists, (i) to the extent reasonably practicable and permitted by applicable law, the client is
promptly notified, the conflict is disclosed and Western Asset obtains the clients proxy voting instructions, and (ii) to the extent that it is not reasonably practicable or permitted by applicable law to notify the client and obtain such
instructions (e.g., the client is a mutual fund or other commingled vehicle or is an ERISA plan client), Western Asset seeks voting instructions from an independent third party.
Legal and Compliance Department staff provides proxy material to the appropriate research analyst or portfolio manager to obtain their
recommended vote. Research analysts and portfolio managers determine votes on a case-by-case basis taking into account the voting guidelines contained in these
procedures. For avoidance of doubt, depending on the best interest of each individual client, Western Asset may vote the same proxy differently for different clients. The analysts or portfolio managers basis for their decision is
documented and maintained by the Legal and Compliance Department.
Legal and Compliance Department staff votes the proxy pursuant to the
instructions received in (d) or (e) and returns the voted proxy as indicated in the proxy materials.
TIMING
Western Asset personnel act in such a manner to ensure that, absent special circumstances, the proxy gathering and proxy voting steps noted
above can be completed before the applicable deadline for returning proxy votes.
RECORDKEEPING
Western Asset maintains records of proxies voted pursuant to Section 204-2 of the Advisers Act and
ERISA DOL Bulletin 94-2. These records include:
A copy of Western Assets policies and procedures.
Copies of proxy statements received regarding client securities.
A copy of any document created by Western Asset that was material to making a decision how to vote proxies.
Each written client request for proxy voting records and Western Assets written response to both verbal and written client requests.
A proxy log including:
|
|
|
Exchange ticker symbol of the issuers shares to be voted;
|
|
|
|
Committee on Uniform Securities Identification Procedures (CUSIP) number for the shares to be voted;
|
|
|
|
A brief identification of the matter voted on;
|
|
|
|
Whether the matter was proposed by the issuer or by a shareholder of the issuer;
|
|
|
|
Whether a vote was cast on the matter;
|
|
|
|
A record of how the vote was cast; and
|
|
|
|
Whether the vote was cast for or against the recommendation of the issuers management team.
|
Records are maintained in an easily accessible place for five years, the first two in Western Assets offices.
DISCLOSURE
Western Assets proxy
policies are described in the firms Part 2A of Form ADV. Clients will be provided a copy of these policies and procedures upon request. In addition, upon request, clients may receive reports on how their proxies have been voted.
CONFLICT OF INTEREST
All proxies are reviewed by the Legal and Compliance Department for material conflicts of interest. Issues to be reviewed include, but are not
limited to:
|
|
Whether Western (or, to the extent required to be considered by applicable law, its affiliates) manages assets
for the company or an employee group of the company or otherwise has an interest in the company;
|
|
|
Whether Western or an officer or director of Western or the applicable portfolio manager or analyst responsible
for recommending the proxy vote (together, Voting Persons) is a close relative of or has a personal or business relationship with an executive, director or person who is a candidate for director of the company or is a participant in a
proxy contest; and
|
|
|
Whether there is any other business or personal relationship where a Voting Person has a personal interest in the
outcome of the matter before shareholders.
|
VOTING GUIDELINES
Western Assets substantive voting decisions turn on the particular facts and circumstances of each proxy vote and are evaluated by the
designated research analyst or portfolio manager. The examples outlined below are meant as guidelines to aid in the decision making process.
Guidelines are grouped according to the types of proposals generally presented to shareholders. Part I deals with proposals which have been
approved and are recommended by a companys board of directors; Part II deals with proposals submitted by shareholders for inclusion in proxy statements; Part III addresses issues relating to voting shares of investment companies; and Part IV
addresses unique considerations pertaining to foreign issuers.
BOARD APPROVAL PROPOSALS
The vast majority of matters presented to shareholders for a vote involve proposals made by a company itself that have been approved and
recommended by its board of directors. In view of the enhanced corporate governance practices currently being implemented in public companies, Western Asset generally votes in support of decisions reached by independent boards of directors. More
specific guidelines related to certain board-approved proposals are as follows:
Matters relating to the Board of Directors Western Asset
votes proxies for the election of the companys nominees for directors and for board-approved proposals on other matters relating to the board of directors with the following exceptions:
|
|
Votes are withheld for the entire board of directors if the board does not have a majority of independent
directors or the board does not have nominating, audit and compensation committees composed solely of independent directors.
|
|
|
Votes are withheld for any nominee for director who is considered an independent director by the company and who
has received compensation from the company other than for service as a director.
|
|
|
Votes are withheld for any nominee for director who attends less than 75% of board and committee meetings without
valid reasons for absences.
|
|
|
Votes are cast on a case-by-case
basis in contested elections of directors.
|
Matters relating to Executive Compensation Western Asset generally favors
compensation programs that relate executive compensation to a companys long-term performance. Votes are cast on a case-by- case basis on board-approved proposals
relating to executive compensation, except as follows:
|
|
Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for
stock option plans that will result in a minimal annual dilution.
|
|
|
Western Asset votes against stock option plans or proposals that permit replacing or repricing of underwater
options.
|
|
|
Western Asset votes against stock option plans that permit issuance of options with an exercise price below the
stocks current market price.
|
|
|
Except where the firm is otherwise withholding votes for the entire board of directors, Western Asset votes for
employee stock purchase plans that limit the discount for shares purchased under the plan to no more than 15% of their market value, have an offering period of 27 months or less and result in dilution of 10% or less.
|
Matters relating to Capitalization The management of a companys capital structure involves a number of important issues, including cash
flows, financing needs and market conditions that are unique to the circumstances of each company. As a result, Western Asset votes on a case-by-case basis on board-
approved proposals involving changes to a companys capitalization except where Western Asset is otherwise withholding votes for the entire board of directors.
|
|
Western Asset votes for proposals relating to the authorization of additional common stock;
|
|
|
Western Asset votes for proposals to effect stock splits (excluding reverse stock splits);
|
|
|
Western Asset votes for proposals authorizing share repurchase programs;
|
|
|
Matters relating to Acquisitions, Mergers, Reorganizations and Other Transactions;
|
|
|
Western Asset votes these issues on a
case-by-case basis on board-approved transactions;
|
Matters relating to Anti-Takeover Measures Western Asset votes against board-approved proposals to adopt anti-takeover measures except as
follows:
|
|
Western Asset votes on a
case-by-case basis on proposals to ratify or approve shareholder rights plans;
|
|
|
Western Asset votes on a
case-by-case basis on proposals to adopt fair price provisions.
|
Other Business Matters Western Asset votes for board-approved proposals approving such routine business matters such as changing the
companys name, ratifying the appointment of auditors and procedural matters relating to the shareholder meeting.
|
|
Western Asset votes on a
case-by-case basis on proposals to amend a companys charter or bylaws;
|
|
|
Western Asset votes against authorization to transact other unidentified, substantive business at the meeting.
|
SHAREHOLDER PROPOSALS
SEC regulations permit shareholders to submit proposals for inclusion in a companys proxy statement. These proposals generally seek to
change some aspect of a companys corporate governance structure or to change some aspect of its business operations. Western Asset votes in accordance with the recommendation of the companys board of directors on all shareholder
proposals, except as follows:
Western Asset votes for shareholder proposals to require shareholder approval of shareholder rights plans;
Western Asset votes for shareholder proposals that are consistent with Western Assets proxy voting guidelines for board-approved proposals;
Western Asset votes on a case-by-case basis on other shareholder proposals
where the firm is otherwise withholding votes for the entire board of directors.
VOTING SHARES OF INVESTMENT COMPANIES
Western Asset may utilize shares of open or closed-end investment companies to implement its investment
strategies. Shareholder votes for investment companies that fall within the categories listed in Parts I and II above are voted in accordance with those guidelines.
|
|
Western Asset votes on a
case-by-case basis on proposals relating to changes in the investment objectives of an investment company taking into account the original intent of the fund and the
role the fund plays in the clients portfolios;
|
|
|
Western Asset votes on a
case-by-case basis all proposals that would result in increases in expenses (e.g., proposals to adopt 12b-1 plans, alter
investment advisory arrangements or approve fund mergers) taking into account comparable expenses for similar funds and the services to be provided.
|
VOTING SHARES OF FOREIGN ISSUERS
In the
event Western Asset is required to vote on securities held in non-U.S. issuers i.e. issuers that are incorporated under the laws of a foreign jurisdiction and that are not listed on a U.S. securities
exchange or the NASDAQ stock market, the following guidelines are used, which are premised on the existence of a sound corporate governance and disclosure framework. These guidelines, however, may not be appropriate under some circumstances for
foreign issuers and therefore apply only where applicable.
|
|
Western Asset votes for shareholder proposals calling for a majority of the directors to be independent of
management;
|
|
|
Western Asset votes for shareholder proposals seeking to increase the independence of board nominating, audit and
compensation committees;
|
|
|
Western Asset votes for shareholder proposals that implement corporate governance standards similar to those
established under U.S. federal law and the listing requirements of U.S. stock exchanges and that do not otherwise violate the laws of the jurisdiction under which the company is incorporated;
|
|
|
Western Asset votes on a
case-by-case basis on proposals relating to (1) the issuance of common stock in excess of 20% of a companys outstanding common stock where shareholders do not
have preemptive rights, or (2) the issuance of common stock in excess of 100% of a companys outstanding common stock where shareholders have preemptive rights.
|
RETIREMENT ACCOUNTS
For accounts subject
to ERISA, as well as other Retirement Accounts, Western Asset is presumed to have the responsibility to vote proxies for the client. The Department of Labor (DOL) has issued a bulletin that states that investment managers have the
responsibility to vote proxies on behalf of Retirement Accounts unless the authority to vote proxies has been specifically reserved to another named fiduciary.
Furthermore, unless Western Asset is expressly precluded from voting the proxies, the DOL has determined that the responsibility remains with the investment
manager.
In order to comply with the DOLs position, Western Asset will be presumed to have the obligation to vote proxies for its
Retirement Accounts unless Western Asset has obtained a specific written instruction indicating that: (a) the right to vote proxies has been reserved to a named fiduciary of the client, and (b) Western Asset is precluded from voting
proxies on behalf of the client. If Western Asset does not receive such an instruction, Western Asset will be responsible for voting proxies in the best interests of the Retirement Account client and in accordance with any proxy voting guidelines
provided by the client.
CORPORATE ACTIONS
Western Asset must pay strict attention to any corporate actions that are taken with respect to issuers whose securities are held in client
accounts. For example, Western Asset must review any tender offers, rights offerings, etc., made in connection with securities owned by clients. Western Asset must also act in a timely manner and in the best interest of each client with respect to
any such corporate actions.
ITEM 8.
|
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
|
(a)(1):
|
|
|
|
|
NAME AND
ADDRESS
|
|
LENGTH OF
TIME SERVED
|
|
PRINCIPAL OCCUPATION(S) DURING
PAST 5 YEARS
|
S. Kenneth Leech
Western Asset
385 East Colorado Blvd. Pasadena, CA
91101
|
|
Since 2014
|
|
Responsible for the day-to-day management with other members of the Funds portfolio management team; Chief Investment Officer of Western Asset
from 1998 to 2008 and since 2014; Senior Advisor/Chief Investment Officer Emeritus of Western Asset from 2008-2013; Co- Chief Investment Officer of Western Asset from 2013-2014.
|
|
|
|
Michael C. Buchanan
Western Asset
385 East
Colorado Blvd.
Pasadena, CA
91101
|
|
Since 2010
|
|
Responsible for the day-to-day management with other members of the Funds portfolio management team; employed by Western Asset Management as an
investment professional for at least the past five years; Managing Director and head of U.S. Credit Products from 2003-2005 at Credit Suisse Asset Management
|
|
|
|
Ryan Brist
Western Asset
385 East Colorado
Blvd. Pasadena, CA
91101
|
|
Since 2010
|
|
Responsible for the day-to-day management with other members
of the Funds portfolio management team; Head of U.S. Investment Grade Credit of
Western Asset since 2009; Chief Investment Officer and Portfolio
Manager at Logan Circle Partners, L.P. from 2007-2009; Co-Chief Investment Officer and Senior Portfolio Manager at Delaware Investment Advisors from 2000-2007
|
|
|
|
Mark Lindbloom
Western Asset
385 East Colorado
Blvd. Pasadena, CA
91101
|
|
Since 2010
|
|
Co-portfolio manager of the fund; Portfolio Manager with Western Asset since 2006. Formerly, a Managing Director of Citigroup Asset Management and its predecessors from 1986-2006.
|
|
|
|
Chia-Liang Lian
Western Asset
385 East
Colorado
Blvd. Pasadena, CA
91101
|
|
Since 2015
|
|
Responsible for the day-to-day management with other members of the Funds portfolio management team; employed by Western Asset Management as an
investment professional since 2011; Prior to joining Western Asset, Mr. Lian spent approximately six years with the Pacific Investment Management Company (PIMCO), where he served as Head of Emerging Asia Portfolio Management.
|
|
|
|
Mark McAllister
Clearbridge
620 Eighth Avenue
New York, NY
10018
|
|
Since 2011
|
|
Co-portfolio manager of the fund; Managing Director and Senior Portfolio Manager with ClearBridge; Mr. McAllister has 32 years of investment industry experience.
|
|
|
|
Peter Vanderlee
Clearbridge
620 Eighth Avenue
New York, NY
10018
|
|
Since 2009
|
|
Co-portfolio manager of the fund; Managing Director and Portfolio Manager with ClearBridge Advisors. Mr. Vanderlee has 20 years of investment management experience and thirteen years of
related investment experience.
|
|
|
|
Tatiana Thibodeau Eades
Clearbridge
620 Eighth Avenue
New York, NY
10018
|
|
Since 2011
|
|
Co-portfolio manager of the fund; Director and Portfolio Manager with ClearBridge Advisors. Ms. Thibodeau has 20 years of investment management experience.
|
(a)(2): DATA TO BE PROVIDED BY FINANCIAL CONTROL
The following tables set forth certain additional information with respect to the funds portfolio managers for the fund. Unless noted otherwise, all
information is provided as of November 30, 2020.
Other Accounts Managed by Portfolio Managers
The table below identifies the number of accounts (other than the fund) for which the funds portfolio managers have day-to-day management responsibilities and the total assets in such accounts, within each of the following categories:
registered investment companies, other pooled investment vehicles, and other accounts. For each category, the number of accounts and total assets in the
accounts where fees are based on performance is also indicated.
|
|
|
|
|
|
|
|
|
|
|
Name of PM
|
|
Type of Account
|
|
Number of
Accounts
Managed
|
|
Total Assets
Managed
|
|
Number of
Accounts
Managed for
which
Advisory
Fee is
Performance
-Based
|
|
Assets
Managed for
which
Advisory Fee
is
Performance-
Based
|
S. Kenneth Leech
|
|
Other Registered Investment Companies
|
|
99
|
|
$168.35 billion
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
223
|
|
$82.09 billion
|
|
10
|
|
$1.44 billion
|
|
Other Accounts
|
|
636
|
|
$228.91 billion
|
|
25
|
|
$15.56 billion
|
|
|
|
|
|
|
Ryan Brist
|
|
Other Registered Investment Companies
|
|
10
|
|
$7.18 billion
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
19
|
|
$9.40 billion
|
|
None
|
|
None
|
|
Other Accounts
|
|
98
|
|
$46.35 billion
|
|
3
|
|
$1.32 billion
|
|
|
|
|
|
|
Michael Buchanan
|
|
Other Registered Investment Companies
|
|
34
|
|
$19.68 billion
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
64
|
|
$21.99 billion
|
|
5
|
|
$773 million
|
|
Other Accounts
|
|
162
|
|
$76.48 billion
|
|
10
|
|
$7.17 billion
|
|
|
|
|
|
|
Mark Lindbloom
|
|
Other Registered Investment Companies
|
|
26
|
|
$84.31 billion
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
19
|
|
$16.86 billion
|
|
None
|
|
None
|
|
Other Accounts
|
|
187
|
|
$63.57 billion
|
|
7
|
|
$5.11 billion
|
|
|
|
|
|
|
|
|
|
|
|
Chia-Liang Lian
|
|
Other Registered Investment Companies
|
|
13
|
|
$10.10 billion
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
33
|
|
$7.05 billion
|
|
4
|
|
$659 million
|
|
Other Accounts
|
|
53
|
|
$7.34 billion
|
|
2
|
|
$712 million
|
|
|
|
|
|
|
Mark McAllister
|
|
Other Registered Investment Companies
|
|
1
|
|
$300 million
|
|
None
|
|
None
|
|
|
Other Pooled Vehicles
|
|
4
|
|
$1.02 billion
|
|
None
|
|
None
|
|
|
Other Accounts
|
|
1,586
|
|
$470 million
|
|
None
|
|
None
|
|
|
|
|
|
|
Tatiana Thibodeau Eades
|
|
Other Registered Investment Companies
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Other Accounts
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
|
|
|
|
Peter Vanderlee
|
|
Other Registered Investment Companies
|
|
8
|
|
$10.21 billion
|
|
None
|
|
None
|
|
Other Pooled Vehicles
|
|
6
|
|
$1.20 billion
|
|
None
|
|
None
|
|
Other Accounts
|
|
43,388
|
|
$13.95 billion
|
|
None
|
|
None
|
|
The numbers above reflect the overall number of portfolios managed by employees of Western Asset Management
Company (Western Asset). Mr.Leech is involved in the management of all the Firms portfolios, but they are not solely responsible for particular portfolios. Western Assets investment discipline emphasizes a team approach that
combines the efforts of groups of specialists working in different market sectors. They are responsible for overseeing implementation of Western Assets overall investment ideas and coordinating the work of the various sector teams. This
structure ensures that client portfolios benefit from a consensus that draws on the expertise of all team members.
|
(a)(3): Investment Professional Compensation (Western Asset)
Conflicts of Interest
The Subadviser has
adopted compliance policies and procedures to address a wide range of potential conflicts of interest that could directly impact client portfolios. For example, potential conflicts of interest may arise in connection with the management of multiple
portfolios (including portfolios managed in a personal capacity). These could include potential conflicts of interest related to the knowledge and timing of a portfolios trades, investment opportunities and broker selection. Portfolio managers
are privy to the size, timing, and possible market impact of a portfolios trades.
It is possible that an investment opportunity may
be suitable for both a portfolio and other accounts managed by a portfolio manager, but may not be available in sufficient quantities for both the portfolio and the other accounts to participate fully. Similarly, there may be limited opportunity to
sell an investment held by a portfolio and another account. A conflict may arise where the portfolio manager may have an incentive to treat an account preferentially as compared to a portfolio because the account pays a performance-based fee or the
portfolio manager, the Subadviser or an affiliate has an interest in the account. The Subadviser has adopted procedures for allocation of portfolio transactions and investment opportunities across multiple client accounts on a fair and equitable
basis over time. Eligible accounts that can participate in a trade generally share the same price on a pro-rata allocation basis, taking into account differences based on factors such as cash availability,
investment restrictions and guidelines, and portfolio composition versus strategy.
With respect to securities transactions, the
Subadviser determines which broker or dealer to use to execute each order, consistent with their duty to seek best execution of the transaction. However, with respect to certain other accounts (such as pooled investment vehicles that are not
registered investment companies and other accounts managed for organizations and individuals), the Subadviser may be limited by the client with respect to the selection of brokers or dealers or may be instructed to direct trades through a particular
broker or dealer. In these cases, trades for a portfolio in a particular security may be placed separately from, rather than aggregated with, such other accounts. Having separate transactions with respect to a security may temporarily affect the
market price of the security or the execution of the transaction, or both, to the possible detriment of a portfolio or the other account(s) involved. Additionally, the management of multiple portfolios and/or other accounts may result in a portfolio
manager devoting unequal time and attention to the management of each portfolio and/or other account. The Subadvisers team approach to portfolio management and block trading approach seeks to limit this potential risk.
The Subadviser also maintains a gift and entertainment policy to address the potential for a business contact to give gifts or host
entertainment events that may influence the business judgment of an employee. Employees are permitted to retain gifts of only a nominal value and are required to make reimbursement for entertainment events above a certain value. All gifts (except
those of a de minimis value) and entertainment events that are given or sponsored by a business contact are required to be reported in a gift and entertainment log which is reviewed on a regular basis for possible issues.
Employees of the Subadviser have access to transactions and holdings information regarding client accounts and the Subadvisers overall
trading activities. This information represents a potential conflict of interest because employees may take advantage of this information as they trade in their personal accounts. Accordingly, the Subadviser maintains a Code of Ethics that is
compliant with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act to address personal trading. In addition, the Code of Ethics seeks to establish
broader principles of good conduct and fiduciary responsibility in all aspects of the Subadvisers business. The Code of Ethics is administered by the Legal and Compliance Department and monitored through the Subadvisers compliance
monitoring program.
The Subadviser may also face other potential conflicts of interest with respect to managing client assets, and the
description above is not a complete description of every conflict of interest that could be deemed to exist. The Subadviser also maintains a compliance monitoring program and engages independent auditors to conduct a SOC1/ISAE 3402 audit on an
annual basis. These steps help to ensure that potential conflicts of interest have been addressed.
Investment Professional Compensation
With respect to the compensation of the Funds investment professionals, the Subadvisers compensation system assigns each employee a
total compensation range, which is derived from annual market surveys that benchmark each role with its job function and peer universe. This method is designed to reward employees with total compensation reflective of the external market value of
their skills, experience and ability to produce desired results. Standard compensation includes competitive base salaries, generous employee benefits and a retirement plan.
In addition, the Subadvisers employees are eligible for bonuses. These are structured to
closely align the interests of employees with those of the Subadviser, and are determined by the professionals job function and pre-tax performance as measured by a formal review process. All bonuses are
completely discretionary. The principal factor considered is an investment professionals investment performance versus appropriate peer groups and benchmarks (e.g., a securities index and with respect to the Fund, the benchmark set forth in
the Funds Prospectus to which the Funds average annual total returns are compared or, if none, the benchmark set forth in the Funds annual report). Performance is reviewed on a 1, 3 and 5 year basis for compensationwith 3 and
5 years having a larger emphasis. The Subadviser may also measure an investment professionals pre-tax investment performance against other benchmarks, as it determines appropriate. Because investment
professionals are generally responsible for multiple accounts (including the Fund) with similar investment strategies, they are generally compensated on the performance of the aggregate group of similar accounts, rather than a specific account.
Other factors that may be considered when making bonus decisions include client service, business development, length of service to the Subadviser, management or supervisory responsibilities, contributions to developing business strategy and overall
contributions to the Subadvisers business.
Finally, in order to attract and retain top talent, all investment professionals are
eligible for additional incentives in recognition of outstanding performance. These are determined based upon the factors described above and include long-term incentives that vest over a set period of time past the award date.
Portfolio Manager Compensation (ClearBridge)
Potential Conflicts of Interest
In this
subsection and the next subsection titled Portfolio Manager Compensation Structure, Subadviser refers to ClearBridge Investments, LLC.
Potential conflicts of interest may arise when the Funds portfolio managers also have day-to-day management responsibilities with respect to one or more other funds or other accounts, as is the case for the Funds portfolio managers.
The Subadviser and the Fund have adopted compliance policies and procedures that are designed to address various conflicts of interest that
may arise for the Subadviser and the individuals that each employs. For example, the Subadviser seeks to minimize the effects of competing interests for the time and attention of portfolio managers by assigning portfolio managers to manage funds and
accounts that share a similar investment style. The Subadviser has also adopted trade allocation procedures that are designed to facilitate the fair allocation of investment opportunities among multiple funds and accounts. There is no guarantee,
however, that the policies and procedures adopted by the Subadviser and the Fund will be able to detect and/or prevent every situation in which an actual or potential conflict may appear. These potential conflicts include:
Allocation of Limited Time and Attention. A portfolio manager who is responsible for managing multiple funds and/or accounts may devote
unequal time and attention to the management of those funds and/or accounts. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
Allocation of Investment Opportunities. If a portfolio manager identifies an investment opportunity that may be suitable for
multiple funds and/or accounts, the opportunity may be allocated among these several funds or accounts, which may limit a funds ability to take full advantage of the investment opportunity. The Subadviser has adopted policies and procedures to
ensure that all accounts, including the Fund, are treated equitably.
Pursuit of Differing Strategies. At times, a portfolio
manager may determine that an investment opportunity may be appropriate for only some of the funds and/or accounts for which he or she exercises investment responsibility, or may decide that certain of the funds and/or accounts should take differing
positions with respect to a particular security. In these cases, the portfolio manager may place separate transactions for one or more funds or accounts which may affect the market price of the security or the execution of the transaction, or both,
to the detriment or benefit of one or more other funds and/or accounts.
Selection of Broker/Dealers. In addition to executing
trades, some broker/dealers provide brokerage and research services (as those terms are defined in Section 28(e) of the 1934 Act), which may result in the payment of higher brokerage fees than might have otherwise been available. These services
may be more beneficial to certain funds or accounts than to others. For this reason, the Subadviser has formed a brokerage committee that reviews, among other things, the allocation of brokerage to broker/dealers, best execution and soft dollar
usage.
Variation in Compensation. A conflict of interest may arise where the financial or other benefits available to the
portfolio manager differ among the funds and/or accounts that he or she manages. If the structure of the managers management fee (and the percentage paid to the Subadviser) differs among funds and/or accounts (such as where certain funds or
accounts pay higher management fees or performance-based management fees), the portfolio manager might be motivated to help certain funds and/or accounts over others.
The portfolio manager might be motivated to favor funds and/or accounts in which he or she has an interest or in which the manager and/or its
affiliates have interests. Similarly, the desire to maintain assets under management or to enhance the portfolio managers performance record or to derive other rewards, financial or otherwise, could influence the portfolio manager in affording
preferential treatment to those funds and/or accounts that could most significantly benefit the portfolio manager.
Portfolio Manager Compensation Structure
The Subadvisers portfolio managers participate in a competitive compensation program that is designed to attract and retain outstanding
investment professionals and closely align the interests of its investment professionals with those of its clients and overall firm results. The total compensation program includes a significant incentive component that rewards high performance
standards, integrity, and collaboration consistent with the firms values. Portfolio manager compensation is reviewed and modified each year as appropriate to reflect changes in the market and to ensure the continued alignment with the goals
stated above. The Subadvisers portfolio managers and other investment professionals receive a combination of base compensation and discretionary compensation, comprising a cash incentive award and deferred incentive plans described below.
Base salary compensation. Base salary is fixed and primarily determined based on market factors and the experience and responsibilities
of the investment professional within the firm.
Discretionary compensation. In addition to base compensation managers may receive
discretionary compensation.
Discretionary compensation can include:
|
|
|
The Subadvisers Deferred Incentive Plan (CDIP)a mandatory program that typically defers 15% of
discretionary year-end compensation into the Subadvisers managed products. For portfolio managers, one-third of this deferral tracks the performance of their
primary managed product, one-third tracks the performance of a composite portfolio of the firms new product and one-third can be elected to track the performance
of one or more of the Subadvisers managed funds. Consequently, portfolio managers can have two-thirds of their CDIP award tracking the performance of their primary managed products. For centralized
research analysts, two-thirds of their deferral is elected to track the performance of one of more of Subadvisers managed funds, while one-third tracks the
performance of the new product composite. The Subadviser then makes a company investment in the proprietary managed funds equal to the deferral amounts by fund. This investment is a company asset held on the balance sheet and paid out to the
employees in the shares subject to vesting requirements.
|
|
|
|
Franklin Resources Restricted Stock Deferrala mandatory program that typically defers 5% of discretionary year-end compensation into Franklin Resources restricted stock. The award is paid out to employees in shares subject to vesting requirements.
|
Several factors are considered by the Subadvisers Senior Management when determining discretionary compensation for portfolio managers.
These include but are not limited to:
|
|
|
Investment performance. A portfolio managers compensation is linked to the
pre-tax investment performance of the fund/accounts managed by the portfolio manager. Investment performance is calculated for 1-,
3-, and 5-year periods measured against the applicable product benchmark (e.g., a securities index and, with respect to a fund, the benchmark set forth in the
Funds Prospectus) and relative to applicable industry peer groups. The greatest weight is generally placed on 3- and 5-year performance.
|
|
|
|
Appropriate risk positioning that is consistent with the Subadvisers investment philosophy and the
Investment Committee/CIO approach to generation of alpha.
|
|
|
|
Overall firm profitability and performance.
|
|
|
|
Amount and nature of assets managed by the portfolio manager.
|
|
|
|
Contributions for asset retention, gathering and client satisfaction.
|
|
|
|
Contribution to mentoring, coaching and/or supervising.
|
|
|
|
Contribution and communication of investment ideas in the Subadvisers Investment Committee meetings and on
a day to day basis.
|
|
|
|
Market compensation survey research by independent third parties.
|
(a)(4): Portfolio Manager Securities Ownership
The table below identifies the dollar range of securities beneficially owned by each portfolio managers as of November 30, 2020.
|
|
|
Portfolio Manager(s)
|
|
Dollar Range of
Portfolio Securities
Beneficially Owned
|
S. Kenneth Leech
|
|
A
|
Ryan Brist
|
|
A
|
Michael Lindbloom
|
|
A
|
Michael Buchanan
Michael McAllister
|
|
A
C
|
Peter Vanderlee
|
|
E
|
Tatiana Thibodeau Eades
Chia-Liang
Lian
|
|
B
A
|
Dollar Range ownership is as follows:
A: none
B: $1 - $10,000
C: 10,001 - $50,000
D: $50,001 - $100,000
E: $100,001 - $500,000
F: $500,001 - $1 million
G: over $1 million
ITEM 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.