SCD LMP Capital and Income Fund Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

ITEM 1.                  REPORT TO STOCKHOLDERS.

The Annual Report to Stockholders is filed herewith.

Annual Report

LMP Capital and Income Fund Inc.
(SCD)

Fund objective

The Fund’s investment objective is total return with an emphasis on income.

What’s inside

Dear Shareholder,

We are pleased to provide the annual report of LMP Capital and Income Fund Inc. for the twelve-month reporting period ended December 31, 2010. Please read on for a detailed look at prevailing economic and market conditions during the Fund’s reporting period and to learn how those conditions have affected Fund performance.

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.leggmason.com/cef. Here you can gain immediate access to market and investment information, including:

·                   Fund prices and performance,

·                   Market insights and commentaries from our portfolio managers, and

·                   A host of educational resources.

We look forward to helping you meet your financial goals.

Sincerely,

R. Jay Gerken, CFA

Chairman, President and Chief Executive Officer

February 9, 2011

Investment commentary

Economic review

Despite continued headwinds from high unemployment and issues in the housing market, the U.S. economy continued to expand over the twelve months ended December 31, 2010. Toward the end of the reporting period, fears regarding moderating economic growth were replaced with optimism for a strengthening economy in 2011. With investor sentiment improving, U.S. equities moved sharply higher in the fourth quarter, while rising interest rates negatively impacted some sectors of the fixed-income market. All told, during 2010, investors who took on additional risk in their portfolios were generally rewarded.

In September 2010, the National Bureau of Economic Research (“NBER”), the organization charged with determining when recessions start and end, announced that the recession that began in December 2007 had concluded in June 2009. However, the NBER said, “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.” The NBER’s point is well-taken given continued areas of weakness in the U.S. economy.

Although the U.S. Department of Commerce continued to report positive U.S. gross domestic product (“GDP”) i  growth, the expansion has moderated since peaking at 5.0% in the fourth quarter of 2009. A slower drawdown in business inventories and renewed consumer spending were contributing factors spurring the economy’s solid growth at the end of 2009. However, the economy grew at a more modest pace in 2010. According to the Commerce Department, GDP growth was 3.7%, 1.7% and 2.6% during the first, second and third quarters of 2010, respectively. The initial estimate for fourth quarter GDP was a 3.2% expansion.

Turning to the job market, while the unemployment rate moved lower in December 2010, it remained elevated throughout the reporting period. While 384,000 new jobs were created during the fourth quarter and the unemployment rate fell from 9.8% in November to 9.4% in December 2010, there continued to be some disturbing trends in the labor market. The unemployment rate has now exceeded 9.0% for twenty consecutive months, the longest period since the government began tracking this data in 1949. In addition, the U.S. Department of Labor reported in December that a total of 14.5 million Americans looking for work have yet to find a job, and 44% of these individuals have been out of work for more than six months.

There was mixed news in the housing market during the period. According to the National Association of Realtors (“NAR”), existing-home sales increased 7.0% and 8.0% in March and April, respectively, after sales had fallen for the period from December 2009 through February 2010. The rebound was largely attributed to people rushing to take advantage of the government’s $8,000 tax credit for first-time home buyers that expired at the end of April. However, with the end of the tax credit, existing-home sales then declined from May through July. Sales then generally rose from August through the end of the year. In total, existing-home sales volume in 2010 was 4.9 million, the lowest amount since 1997. Looking at home prices, the NAR reported that the median existing-home price for all housing types rose a tepid 0.3% in 2010. The inventory of unsold homes was an 8.1 month supply in December at the

Investment commentary (cont’d)

current sales level, versus a 9.5 month supply in November.

The manufacturing sector was one area of the economy that remained relatively strong during 2010. Based on the Institute for Supply Management’s PMI ii , the manufacturing sector has grown seventeen consecutive months since it began expanding in August 2009. After reaching a six-year peak of 60.4 in April 2010 (a reading below 50 indicates a contraction, whereas a reading above 50 indicates an expansion), PMI data indicated somewhat more modest growth through the remainder of the year. However, in December, the manufacturing sector expanded at its fastest pace in seven months, with a reading of 57.0 versus 56.6 in November.

Financial market overview

The financial markets experienced several periods of volatility during the reporting period that tested the resolve of novice and experienced investors alike. During most of the first four months of the reporting period, the financial markets were largely characterized by healthy investor risk appetite and solid results by stocks and lower-quality bonds. The market then experienced sharp sell-offs in late April and in May, and again beginning in mid-November. During those periods, investors tended to favor the relative safety of U.S. Treasury securities. However, these setbacks proved to be only temporary and, in each case, risk aversion was replaced with solid demand for riskier assets.

Due to signs that certain areas of the economy were moderating in the second half of the reporting period, the Federal Reserve Board (“Fed”) iii  took further actions to spur the economy. At its August 10 th  meeting, the Fed announced an ongoing program that calls for using the proceeds from expiring agency debt and agency mortgage-backed securities to purchase longer-dated Treasury securities.

In addition, the Fed remained cautious throughout the reporting period given pockets of weakness in the economy. At its meeting in September 2010, the Fed said, “The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery. . . .” This led to speculation that the Fed may again move to purchase large amounts of agency and Treasury securities in an attempt to avoid a double-dip recession and ward off deflation.

The Fed then took additional action in early November. Citing that “the pace of recovery in output and employment continues to be slow,” the Fed announced another round of quantitative easing to help stimulate the economy, entailing the purchase of $600 billion of long-term U.S. Treasury securities by the end of the second quarter of 2011. This, coupled with the Fed’s previously announced program to use the proceeds of expiring securities to purchase Treasuries, means it could buy a total of $850 billion to $900 billion of Treasury securities by the end of June 2011. At its final meeting of the year in December, the Fed said it “will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.”

Equity market review

U.S. stock prices, as measured by the S&P 500 Index iv  (the “Index”), moved higher during the twelve months ended December 31, 2010. The reporting period got off to a solid start, with the Index moving higher during three of the first four months covered by this report. The market’s ascent was the result of a number of factors, including optimism regarding the economy, better-than-expected corporate profits and increased investor risk appetite. However, robust investor appetite was replaced with heightened risk aversion in May and June. This was due to the escalating sovereign debt crisis in Europe, uncertainties regarding new financial reforms in the U.S. and some worse-than-expected economic data.

After reaching a nineteen-month high on April 23, 2010, the market, as measured by the Index, fell into “correction territory” in May and declined more than 10%. Despite continued disappointing economic data, strong second quarter corporate profits helped the market to rally in July. The market then declined again in August, given some disappointing economic data. With the Fed indicating the possibility of another round of quantitative easing, stock prices then moved sharply higher in September and October. After posting solid results in early November, the market weakened later in the month as financial troubles in Ireland resulted in a re-emergence of the European sovereign debt crisis. However, investor sentiment was buoyed in December by a two-year extension of the Bush-era tax cuts and the Index gained 6.68% during the month. This represented its strongest month of December since 1991. All told, the Index returned 15.06% over the twelve months ended December 31, 2010.

Fixed-income market review

Continuing the trend that began in the second quarter of 2009, nearly every spread sector (non-Treasury) outperformed equal-duration v  Treasuries during most of the first four months of the reporting period. Over that time, investor confidence was high given encouraging economic data, continued low interest rates, benign inflation and rebounding corporate profits. Robust investor appetite was then replaced with heightened risk aversion toward the end of April and during the month of May. This was due to the escalating sovereign debt crisis in Europe, uncertainties regarding new financial reforms in the U.S. and some worse-than-expected economic data. Most spread sectors then produced positive absolute returns in June and July, as investor demand for these securities again increased. There was another bout of risk aversion in August, given fears that the economy may slip back into a recession. However, due to expectations for additional quantitative easing, most spread sectors rallied in September and October. The spread sectors started to weaken again toward the middle of November as the European sovereign debt crisis again took center stage. While several spread sectors regained their footing in December, others remained weak given ongoing uncertainties in Europe and concerns regarding economic growth in China and its potential impact on the global economy.

Both short- and long-term Treasury yields fluctuated but, overall, moved lower during the twelve months ended December 31, 2010. When the period began, two- and ten-year Treasury yields were 1.14% and 3.85%, respectively. On April 5, 2010, two- and ten-year Treasury yields peaked at 1.18%

Investment commentary (cont’d)

and 4.01%, respectively. Subsequent to hitting their highs for the period, yields largely declined during much of the next six months, with two-year Treasuries hitting their low for the year of 0.33% on November 4, 2010. Ten-year Treasuries reached their 2010 trough of 2.41% in early October. Yields then moved sharply higher given expectations for stronger growth in 2011 and the potential for rising inflation. When the period ended on December 31, 2010, two-year Treasury yields were 0.61% and ten-year Treasury yields were 3.30%. For the twelve months ended December 31, 2010, the Barclays Capital U.S. Aggregate Index vi  returned 6.54%.

As always, thank you for your confidence in our stewardship of your assets.

Sincerely,

R. Jay Gerken, CFA

Chairman, President and

Chief Executive Officer

January 28, 2011

All investments are subject to risk including the possible loss of principal. Past performance is no guarantee of future results. All index performance reflects no deduction for fees, expenses or taxes. Please note that an investor cannot invest directly in an index.

i                      Gross domestic product (“GDP”) is the market value of all final goods and services produced within a country in a given period of time.

ii                   The Institute for Supply Management’s PMI is based on a survey of purchasing executives who buy the raw materials for manufacturing at more than 350 companies. It offers an early reading on the health of the manufacturing sector.

iii                The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.

iv                 The S&P 500 Index is an unmanaged index of 500 stocks and is generally representative of the performance of larger companies in the U.S.

v                    Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

vi                 The Barclays Capital 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.

Fund overview

Q. What is the Fund’s investment strategy?

A. The Fund’s investment objective is total return with an emphasis on income. The Fund invests 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 management’s view of economic, market or political conditions, fiscal and monetary policy and security valuation.

The Fund’s investments in equity securities will include, among other securities, common stocks, preferred stocks and convertible securities. The Fund’s 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. In addition, the Fund may use options, futures and options on futures to increase exposure to part or all of the market or to hedge against adverse changes in the market value of the Fund’s securities.

The Fund’s portfolio managers, Harry D. “Hersh” Cohen, Peter Vanderlee and Michael Clarfeld of ClearBridge Advisors, LLC (“ClearBridge”), one of the Fund’s subadvisers, oversee the Fund’s allocation between equity and fixed-income securities, as well as the Fund’s equity investments in general. They 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 (“Western Asset”) manages the fixed-income portion of the Fund. The fixed-income portfolio management team includes portfolio managers S. Kenneth Leech, Stephen A. Walsh, Keith J. Gardner, Mark Lindbloom, Michael C. Buchanan and Ryan Brist. Their focus is on portfolio structure, including sector allocation, duration i  weighting and term-structure decisions.

Q. What were the overall market conditions during the Fund’s reporting period?

A. Despite a difficult economic environment, the stock market ended a volatile 2010 with solid gains, marking a second straight annual increase. Most major domestic stock market indices ended December at or near two-year highs, extending the rally that began during the third quarter in September, but remained below the levels reached in 2007. For the reporting period, the broad S&P 500 Index ii  returned 15.06%, the blue-chip Dow Jones Industrial Average (“DJIA”) iii  gained 14.06% and the technology-oriented NASDAQ Composite Index iv  returned 18.15%.

During 2010, we witnessed an angry and discouraged populace, political turmoil, European countries on the brink of economic collapse, zero percent interest rates, continued high unemployment, an ongoing housing debacle, struggling municipalities, and a see-saw year for financial markets. These were just some of the issues confronting investors over the past year. The “Great Recession” was declared over, but it sure didn’t feel like that for many Americans.

To put the markets in perspective, we go back to the three factors that we

Fund overview (cont’d)

have relied upon for decades to help us. It has been our belief that the three major determinants of stock market behavior are earnings, interest rates and psychology. When earnings are in a rising trend, or beginning a recovery from depressed levels, we view that as a plus. Low interest rates are typically supportive of the price investors are willing to pay for each dollar of earnings. With regard to psychology, we feel the best opportunities for making sound purchases are when people are generally pessimistic, and conversely, during periods of extreme optimism, we find stocks offer much less attraction. When viewing 2010 through those classic lenses, the picture becomes easier to understand. Indeed, 2010 offered an environment in which we saw many companies increase earnings while interest rates hovered near record lows. These two positive factors were offset by an increasingly positive investor sentiment as the year progressed. Against this backdrop, it is less surprising that the stock market generally rose solidly in 2010.

The stock market started off the reporting period doing well, continuing the previous year’s rally into January, but it soon stumbled over fears about the potential impact of the European sovereign debt crisis and fell to new lows in February. The market managed to recover over the remainder of the first quarter and rose into the start of the second. The market was then shaken badly by the dramatic May 6 th  intraday point drop known as the “flash crash” and driven to new lows for the year in July by weaker-than-expected employment data. Those lows were tested over the summer as investors continued to forgo stocks for the relative safety of U.S. Treasuries, which fell to record low yields after weak housing sales data fueled fears that the fragile economy could fall into a double-dip recession.

Following indications from the Federal Reserve Board (“Fed”) v  in late August of a second round of monetary stimulus, known as Quantitative Easing 2 or QE2, the market reversed course and began to rally at the start of September. The advance continued into the fourth quarter as stocks reacted positively to the mid-term election results and the start of QE2 in November, the extension of the Bush-era tax package in December and improving economic and corporate earnings data.

During the twelve months ended December 31, 2010, the riskier segments of the fixed-income market produced strong results and outperformed U.S. Treasuries. This was due, in part, to improving economic conditions following the lengthy downturn from mid-2008 through mid-2009. Also supporting the spread sectors (non-U.S. Treasuries) was overall solid demand from investors seeking incremental yields given the low rates available from short-term fixed-income securities.

The spread sectors rallied during most of the reporting period, with notable exceptions being in late April and May 2010, as well as August and November 2010. Starting toward the end of April, there was a “flight to quality,” triggered by concerns regarding the escalating sovereign debt crisis in Europe. In addition, investor sentiment was negatively impacted by uncertainties surrounding financial reform legislation in the U.S. and signs that economic growth was moderating.

Collectively, this caused investors to flock to the relative safety of Treasury securities, driving their yields lower and prices higher.

Robust investor risk appetite largely resumed during June and July, and again in September and October. These turnarounds occurred as the situation in Europe appeared to stabilize, the financial reform bill was signed into law and the Fed continued to indicate that it would keep short-term rates low for an extended period. Investor risk aversion briefly returned in November when fears regarding the European debt crisis re-emerged. However, investor sentiment improved in December, given expectations for strengthening economic conditions in 2011.

The yields on two- and ten-year Treasuries began the fiscal year at 1.14% and 3.85%, respectively. Treasury yields fluctuated during the twelve-month reporting period given mixed signals regarding the economy and uncertainties regarding Fed monetary policy. Yields moved sharply lower in October 2010 in anticipation of additional quantitative easing by the Fed. Yields then reversed course toward the end of the period as certain economic data were stronger than expected and there were concerns regarding future inflation. During the fiscal year, two-year Treasury yields moved as high as 1.18% and as low as 0.33%, while ten-year Treasuries rose as high as 4.01% and fell as low as 2.41%. On December 31, 2010, yields on two- and ten-year Treasuries were 0.61% and 3.30%, respectively. All told, the Barclays Capital U.S. Aggregate Index vi  returned 6.54% for the twelve months ended December 31, 2010.

Q. How did we respond to these changing market conditions?

A. During 2010, we broadly continued along the path we began in the second half of 2009: reducing the Fund’s exposure to fixed-income securities and increasing the Fund’s exposure to what we consider to be high-quality, relatively high-yielding equities. During the summer, we took advantage of the Fund’s lower borrowing costs and the pullback in the equity market to opportunistically increase the Fund’s debt leverage to $100 million, equivalent to a leverage ratio of approximately 20%, where we remained at year end. Within equities, we continued to generally favor large-capitalization companies with robust balance sheets and strong free cash flows.

In the fixed-income portion of the portfolio, we pared our allocation to investment grade bonds as we took opportunities to realize gains and reduce risk.

The fixed-income portion of the portfolio used U.S. Treasury futures and options, Eurodollar futures and options, and interest rate swaps to manage our duration and yield curve vii  exposure. Total return swaps were used to manage our mortgage-backed security (“MBS”) exposure. Euribor viii  options were utilized to manage our exposure to the short end of the euro curve. We also used foreign currency contracts to manage the Fund’s currency exposure. Overall, the use of these derivative instruments modestly detracted from performance during the twelve-month reporting period.

Performance review

For the twelve months ended December 31, 2010, LMP Capital and

Fund overview (cont’d)

Income Fund Inc. returned 14.83% based on its net asset value (“NAV”) ix  and 26.18% based on its New York Stock Exchange (“NYSE”) market price per share. The Fund’s unmanaged benchmarks, the Barclays Capital U.S. Aggregate Index and the S&P 500 Index, returned 6.54% and 15.06%, respectively, over the same time frame. The Lipper Income and Preferred Stock Closed-End Funds Category Average x  returned 20.20% for the same period. Please note that Lipper performance returns are based on each fund’s NAV.

During the twelve-month period, the Fund made distributions to shareholders totaling $0.54 per share. The performance table shows the Fund’s twelve-month total return based on its NAV and market price as of December 31, 2010. Past performance is no guarantee of future results.

Performance Snapshot as of December 31, 2010

All figures represent past performance and are not a guarantee of future results.

Q. What were the leading contributors to performance?

A. With respect to the equity portion of the portfolio, on an absolute basis, the Fund had positive returns in nine out of ten equity market sectors during the reporting period, with the greatest contributions to return coming from the Financials, Consumer Staples and Consumer Discretionary sectors.

Relative to the S&P 500 Index, the Fund’s stock selection in the Materials, Information Technology (“IT”), Utilities and Financials sectors contributed positively to performance for the period. As for sector allocation, our underweights to the Health Care and IT sectors and our overweight to the Consumer Staples sector contributed to relative performance.

In terms of individual Fund holdings, leading contributors to performance for the period included positions in E.I. du Pont de Nemours & Co. in the Materials sector, Spectra Energy Corp. in the Energy sector, McDonald’s Corp. in the Consumer Discretionary sector, H.J. Heinz Co. in the Consumer Staples sector and Verizon Communications Inc. in the Telecommunication Services sector.

In the fixed-income portion of the Fund, relative to the Barclays Capital U.S. Aggregate Index, the largest contributor to performance was our overweight to non-agency MBS. The combination of the government’s aggressive programs to aid the housing market and signs that housing prices appeared to be stabilizing helped these securities generate strong results. In addition, the sector was supported by ongoing demand from asset managers participating in the Public-Private Investment Program (“PPIP”).

An overweight to the investment grade corporate bond market also enhanced results. The asset class performed well due to generally better-than-expected corporate profits and overall robust demand. In particular, our Financials holdings American International Group

Inc. and Citigroup Inc. produced the best results. Additionally, our positions in Comcast Corp. in the Consumer Discretionary sector and CVS Caremark Corp. in the Consumer Staples sector were beneficial for performance.

We tactically adjusted the Fund’s duration during the reporting period. Overall, the Fund’s duration, which was longer than that of the Barclays Capital U.S. Aggregate Index, enhanced results as interest rates declined during the reporting period.

Q. What were the leading detractors from performance?

A. With respect to the equity portion of the portfolio, on an absolute basis, the Fund had a negative return from the Energy sector for the reporting period. Relative to the S&P 500 Index, both the Fund’s overall stock selection and overall sector allocation detracted from performance for the period. In particular, stock selection in the Energy, Industrials, Consumer Staples and Consumer Discretionary sectors detracted from relative performance for the period, as did an overweight to the Utilities sector and an underweight to the Consumer Discretionary sector. The Fund’s allocation to convertible securities also negatively impacted relative performance for the period.

In terms of individual Fund holdings, leading detractors from performance for the period included positions in Total SA (ADR), BP PLC (ADR) and Diamond Offshore Drilling Inc. , all in the Energy sector, People’s United Financial Inc. in the Financials sector and Vivendi Universal SA in the Consumer Discretionary sector.

In the fixed-income portion of the portfolio, the largest detractor from relative performance for the period was yield curve positioning. In expectation of a flattening yield curve in the U.S., we maintained an overweight to longer-term securities. This positioning was not rewarded as the curve steepened during the fourth quarter, with long-term yields rising more than their short-term counterparts.

An underweight to the commercial MBS sector was also a negative for performance. The sector was the best-performing spread sector during the reporting period given generally strong investor demand.

Looking for additional information?

The Fund is traded under the symbol “SCD” and its closing market price is available in most newspapers under the NYSE listings. The daily NAV is available on-line under the symbol “XSCDX” on most financial websites. Barron’s and the Wall Street Journal’s Monday edition both carry closed-end fund tables that provide additional information. In addition, the Fund issues a quarterly press release that can be found on most major financial websites as well as www.leggmason.com/cef.

In a continuing effort to provide information concerning the Fund, shareholders may call 1-888-777-0102 (toll free), Monday through Friday from 8:00 a.m. to 5:30 p.m. Eastern Time, for the Fund’s current NAV, market price and other information.

Thank you for your investment in LMP Capital and Income Fund Inc. As always, we appreciate that you have chosen us to manage your assets and

Fund overview (cont’d)

we remain focused on achieving the Fund’s investment goals.

Sincerely,

Hersh D. Cohen

Portfolio Manager
ClearBridge Advisors, LLC

Michael Clarfeld, CFA

Portfolio Manager
ClearBridge Advisors, LLC

Peter Vanderlee, CFA

Portfolio Manager
ClearBridge Advisors, LLC

Western Asset Management Company

(Fixed-Income Portion)

January 18, 2011

RISKS: 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 and economic conditions. These risks are magnified in emerging or developing markets. High-yield bonds involve greater credit and liquidity risks than investment grade bonds. 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 magnify gains and increase losses in the Fund’s portfolio.

Portfolio holdings and breakdowns are as of December 31, 2010 and are subject to change and may not be representative of the portfolio managers’ current or future investments. The Fund’s top ten holdings (as a percentage of total investments) as of this date were: Verizon Communications Inc. (3.8%), Spectra Energy Corp. (3.8%), H.J. Heinz Co. (3.7%), Procter & Gamble Co. (3.7%), NextEra Energy Inc., 7.000% (3.4%), Total SA, ADR (3.3%), Johnson & Johnson (3.3%), Annaly Capital Management Inc. (3.3%), Kimberly-Clark Corp. (3.2%) and Waste Management Inc. (3.1%). Please refer to pages 9 through 20 for a list and percentage breakdown of the Fund’s 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 Fund’s top five sector holdings (as a percentage of total investments) as of December 31, 2010 were: Financials (16.8%), Utilities (12.8%), Consumer Staples (12.4%), Energy (11.4%) and Industrials (9.6%). The Fund’s 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.

i                      Duration is the measure of the price sensitivity of a fixed-income security to an interest rate change of 100 basis points. Calculation is based on the weighted average of the present values for all cash flows.

ii                   The S&P 500 Index is an unmanaged index of 500 stocks and is generally representative of the performance of larger companies in the U.S.

iii                The Dow Jones Industrial Average (“DJIA”) is a widely followed measurement of the stock market. The average is comprised of thirty stocks that represent leading companies in major industries. These stocks, widely held by both individual and institutional investors, are considered to be all blue-chip companies.

iv                 The NASDAQ Composite Index is a market-value weighted index, which measures all securities listed on the NASDAQ stock market.

v                    The Federal Reserve Board (“Fed”) is responsible for the formulation of policies designed to promote economic growth, full employment, stable prices and a sustainable pattern of international trade and payments.

vi                 The Barclays Capital 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.

vii              The yield curve is the graphical depiction of the relationship between the yield on bonds of the same credit quality but different maturities.

viii           The Euro Interbank Offered Rate (“Euribor”) is the benchmark rate at which euro interbank term deposits within the eurozone are offered by one prime bank to another prime bank.

ix                  Net asset value (“NAV”) is calculated by subtracting total liabilities and outstanding preferred stock (if any) from the closing value of all securities held by the Fund (plus all other assets) and dividing the result (total net assets) by the total number of the common shares outstanding. The NAV fluctuates with changes in the market prices of securities in which the Fund has invested. However, the price at which an investor may buy or sell shares of the Fund is the Fund’s market price as determined by supply of and demand for the Fund’s shares.

x                     Lipper, Inc., a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments. Returns are based on the twelve-month period ended December 31, 2010, including the reinvestment of all distributions, including returns of capital, if any, calculated among the 23 funds in the Fund’s Lipper category.

Fund at a glance †  (unaudited)

Investment breakdown (%) as a percent of total investments

†            The bar graph above represents the composition of the Fund’s investments as of December 31, 2010 and December 31, 2009 and does not include derivatives, such as written options, futures contracts, options on futures and total return swaps. The Fund is actively managed. As a result, the composition of the Fund’s investments is subject to change at any time.

Schedule of investments

December 31, 2010

LMP Capital and Income Fund Inc.

See Notes to Financial Statements.

Schedule of investments (cont’d)

December 31, 2010

LMP Capital and Income Fund Inc.

See Notes to Financial Statements.

LMP Capital and Income Fund Inc.

See Notes to Financial Statements.

Schedule of investments (cont’d)

December 31, 2010

LMP Capital and Income Fund Inc.

See Notes to Financial Statements.

LMP Capital and Income Fund Inc.

See Notes to Financial Statements.

Schedule of investments (cont’d)

December 31, 2010

LMP Capital and Income Fund Inc.

See Notes to Financial Statements.