UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act File Number 811-21506
Name of Fund: Capital and Income Strategies Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, Capital and Income Strategies Fund, Inc., 800 Scudders Mill
Road, Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011,
Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 12/31/05
Date of reporting period: 07/01/05 - 09/30/05
Item 1 - Schedule of Investments
Capital and Income Strategies Fund, Inc.
Schedule of Investments as of September 30, 2005 (in U.S. dollars)
Preferred Securities
Face
Industry Amount Capital Trusts Value
Commercial Banks - 4.6% $ 1,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031 (a) $ 1,220,970
2,000,000 Lloyds TSB Bank PLC, 6.90% (d) 2,062,600
3,000,000 Mizuho JGB Investment LLC, 9.87% (a)(c)(d) 3,346,989
3,000,000 SB Treasury Co. LLC, 9.40% (a)(c)(d) 3,310,722
2,000,000 Westpac Capital Trust III, 5.819% (a)(c)(d) 2,061,600
---------------
12,002,881
Diversified Financial 1,500,000 Svensk Exportkredit AB, 6.375% (a)(d) 1,537,719
Services - 0.6%
Total Capital Trusts (Cost - $13,382,156) - 5.2% 13,540,600
Shares
Held Preferred Stocks
Capital Markets - 1.6% 80,000 Goldman Sachs Group, Inc. Series A, 3.91% 2,028,000
40,000 Lehman Brothers Holdings, Inc., 6.50% 1,051,600
40,000 Lehman Brothers Holdings, Inc. Series G, 3% 1,003,752
---------------
4,083,352
Commercial Banks - 3.1% 60,000 Banco Santander Central Hispano SA, 6.41% 1,548,000
9,662 First Republic Bank, 6.25% 235,210
1,674 First Tennessee Bank NA, 3.90% (a) 1,674,523
80,000 HSBC USA, Inc., 3.50% 2,020,000
20,000 Royal Bank of Scotland Group Plc Series L, 5.75% 484,000
2,000 SG Preferred Capital II, 6.302% 2,120,280
---------------
8,082,013
Consumer Finance - 1.0% 102,001 MBNA Corp. Series B, 5.50% 2,568,385
Diversified Financial 50,000 CIT Group, Inc. Series A, 6.35% 1,268,500
Services - 0.5%
Electric Utilities - 3.4% 11,109 Connecticut Light & Power, 5.28% 515,528
11,394 Delmarva Power & Light, 4.20% 967,778
11,250 Delmarva Power & Light, 4.28% 973,828
40,000 Duquesne Light Co., 6.50% 2,070,000
40,000 Interstate Power & Light Co. Series B, 8.375% 1,366,000
10,000 Peco Energy Co. Series D, 4.68% 873,000
20,000 Southern California Edison Co., 5.349% 2,038,750
---------------
8,804,884
Food Products - 1.5% 2,000 General Mills, Inc., 4.50% 1,939,400
20 HJ Heinz Finance Co., 6.226% (a) 2,117,500
---------------
4,056,900
Gas Utilities - 0.3% 35,000 Southern Union Co., 7.55% 931,700
Insurance - 5.1% 80,000 ACE Ltd. Series C, 7.80% 2,108,000
8,000 Axis Capital Holdings Ltd., 7.25% 200,000
80,000 Aegon NV, 6.375% 2,027,504
30,000 Genworth Financial, Inc. Series A, 5.25% 1,553,439
72,000 Metlife, Inc. Series B, 6.50% 1,825,200
80,000 Prudential Plc, 6.75% 2,059,200
60,000 RenaissanceRe Holdings Ltd. Series C, 6.08% 1,347,000
2,200 Zurich RegCaPS Funding Trust, 6.58% (a) 2,314,125
---------------
13,434,468
Multi-Utilities - 1.2% 80,000 Pacific Gas & Electric Co. Series A, 6% 2,056,800
12,400 Public Service Electric & Gas Series E, 5.28% 1,140,800
---------------
3,197,600
Oil, Gas & Consumable 19,500 Apache Corp. Series B, 5.68% (f) 1,990,829
Fuels - 0.8%
Thrifts & Mortgage 45,000 Fannie Mae, 7% 2,466,563
Finance - 4.8% 25,000 Fannie Mae Series I, 5.375% 1,110,000
59,350 Fannie Mae Series L, 5.125% 2,513,473
150,000 Freddie Mac, 3.93% 6,337,500
---------------
12,427,536
Total Preferred Stocks (Cost - $59,550,559) - 23.3% 60,846,167
Real Estate Investment Trusts
Real Estate Investment 52,000 Alexandria Real Estate Equities, Inc. Series C, 8.375% 1,368,640
Trusts - 0.5%
Total Real Estate Investment Trusts (Cost - $1,300,000) - 0.5% 1,368,640
Face
Amount Trust Preferreds
Commercial Banks - 0.8% $ 2,000,000 ABN AMRO North America Capital Funding Trust I,
6.968% due 9/15/2010 (a)(c) 2,130,608
Gas Utilities - 0.4% 1,000,000 Southwest Gas Capital II, 7.70% due 9/15/2043 1,051,365
Total Trust Preferreds (Cost - $3,138,574) - 1.2% 3,181,973
Total Preferred Securities (Cost - $77,371,289) - 30.2% 78,937,380
Corporate Bonds
Automobiles - 0.5% 1,200,000 Hyundai Motor Manufacturing Alabama LLC, 5.30%
due 12/19/2008 1,205,280
Beverages - 0.1% 250,000 Coca-Cola Femsa SA de CV, 8.95% due 11/01/2006 260,625
Commercial Banks - 3.2% 750,000 Banco Nacional de Desenvolvimento Economico e Social,
5.83% due 6/16/2008 (c) 750,000
450,000 Bancomext Trust Division, 11.25% due 5/30/2006 472,500
700,000 Bangko Sentral ng Pilipinas, 9% due 11/14/2005 754,250
1,350,000 Bangkok Bank Public Co. Ltd. (Hong Kong), 8.75%
due 3/15/2007 1,414,410
700,000 The Export-Import Bank of Korea, 4.25% due 11/27/2007 693,681
750,000 ICICI Bank Ltd., 4.75% due 10/22/2008 738,646
Korea Development Bank:
465,000 7.25% due 5/15/2006 472,865
575,000 5.25% due 11/16/2006 578,828
1,080,000 MDM Bank, 10.75% due 12/16/2005 1,090,800
1,070,000 Sberbank, 4.92% due 10/24/2006 1,083,268
465,000 Siam Commercial Bank Public Co. of Singapore, 7.50%
due 3/15/2006 470,146
---------------
8,519,394
Diversified Financial 900,000 AC International Finance Ltd., 8.125% due 2/21/2008 941,432
Services - 1.8% 750,000 Aries Vermoegensverwaltungs GmbH, 9.60% due 10/25/2014 (a) 990,000
560,000 Morgan Stanley (Gazprom), 9.625% due 3/01/2013 692,384
1,920,000 Salomon Brothers AG for OAO Gazprom, 9.125% due 4/25/2007 2,031,936
---------------
4,655,752
Diversified Telecommunication 750,000 Empresa Brasileira de Telecom SA Series B, 11% due 12/15/2008 856,875
Services - 1.4% 175,000 Excelcomindo Finance Company BV, 8% due 1/27/2009 179,813
Philippine Long Distance Telephone:
1,410,000 9.25% due 6/30/2006 1,462,875
300,000 7.85% due 3/06/2007 308,250
500,000 Telefonica de Argentina SA, 9.875% due 7/01/2006 522,500
300,000 Telefonos de Mexico SA de CV, 8.25% due 1/26/2006 303,214
---------------
3,633,527
Metals & Mining - 0.1% 320,000 Companhia Siderurgica Pa, 7.25% due 11/07/2006 320,000
Oil, Gas & Consumable 750,000 MEI Euro Finance Ltd., 10% due 3/19/2007 783,750
Fuels - 1.7% 610,000 Petrobras Energia SA, 9% due 1/30/2007 642,025
900,000 Petroleos Mexicanos, 8.85% due 9/15/2007 969,300
175,000 Petroliam Nasional Berhad, 7.75% due 8/15/2015 211,388
1,750,000 YPF SA Series A, 7.75% due 8/27/2007 1,844,500
---------------
4,450,963
Paper & Forest 250,000 SINO-FOREST Corp., 9.125% due 8/17/2011 (a) 270,000
Products - 0.1%
Real Estate - 0.1% 250,000 SM Investments Corp., 8% due 10/16/2007 258,475
Road & Rail - 0.1% 294,000 MTR Corp., 7.25% due 10/01/2005 294,000
Wireless Telecommunication 1,425,000 Total Access Communication Public Co. Ltd., 8.375%
Services - 0.6% due 11/04/2006 1,486,336
Total Corporate Bonds (Cost - $24,977,971) - 9.7% 25,354,352
Foreign Government Obligations
507,500 Argentina Government International Bond, 4.005%
due 8/03/2012 464,870
Brazilian Government International Bond:
140,000 10.25% due 1/11/2006 142,100
1,670,000 10% due 1/16/2007 1,780,220
3,015,000 11.50% due 3/12/2008 3,435,593
725,000 14.50% due 10/15/2009 942,862
290,000 10% due 8/07/2011 337,850
597,067 5.25% due 4/15/2012 587,394
650,000 8% due 1/15/2018 688,350
585,000 10.125% due 5/15/2027 700,830
200,000 8.25% due 1/20/2034 201,000
475,000 11% due 8/17/2040 (g) 582,350
60,000 Bulgaria Government International Bond, 8.25% due 1/15/2015 73,716
Chile Government International Bond:
1,000,000 5.625% due 7/23/2007 1,016,500
110,000 5.50% due 1/15/2013 114,609
Colombia Government International Bond:
740,000 10.50% due 6/13/2006 765,900
1,420,000 8.625% due 4/01/2008 1,539,280
280,000 10% due 1/23/2012 337,400
300,000 11.75% due 2/25/2020 417,300
262,579 Dominican Republic International Bond, 9.04% due 1/23/2018 290,938
965,000 Indonesia Government International Bond, 7.75% due 8/01/2006 984,300
Mexico Government International Bond:
1,170,000 9.875% due 1/15/2007 1,245,465
435,000 9.875% due 2/01/2010 517,432
500,000 8.375% due 1/14/2011 575,000
360,000 6.375% due 1/16/2013 383,040
200,000 5.875% due 1/15/2014 206,800
390,000 8.30% due 8/15/2031 487,500
725,000 7.50% due 4/08/2033 841,000
500,000 Series A, 6.625% due 3/03/2015 543,250
Panama Government International Bond:
975,000 8.25% due 4/22/2008 1,051,781
150,000 7.25% due 3/15/2015 163,500
435,000 8.875% due 9/30/2027 529,612
Peru Government International Bond:
1,090,000 9.125% due 1/15/2008 1,177,200
240,000 9.125% due 2/21/2012 288,000
137,200 5% due 3/07/2017 133,084
Philippine Government International Bond:
1,000,000 4.129%* due 10/03/2005 999,600
250,000 5.625% due 11/19/2006 251,872
720,000 8.875% due 4/15/2008 773,100
435,000 9.875% due 3/16/2010 483,938
175,000 9.875% due 1/15/2019 195,125
65,000 10.625% due 3/16/2025 75,888
750,000 9.50% due 2/02/2030 800,625
Russia Government International Bond:
500,000 10% due 6/26/2007 544,100
2,095,000 10% due 6/26/2007 (Regulation S) 2,279,779
775,000 11% due 7/24/2018 (Regulation S) (g) 1,182,108
780,000 5% due 3/31/2030 896,220
793,000 Santa Fe de Bogota DC, 9.50% due 12/12/2006 828,685
Turkey Government International Bond:
650,000 11.375% due 11/27/2006 698,750
1,080,000 10% due 9/19/2007 1,179,684
1,000,000 10% due 9/19/2007 (a) 1,090,000
390,000 11.50% due 1/23/2012 499,200
250,000 11% due 1/14/2013 319,687
500,000 7.375% due 2/05/2025 499,375
500,000 8% due 2/14/2034 527,500
Ukraine Government International Bond:
1,036,074 11% due 3/15/2007 1,095,130
200,000 6.875% due 3/04/2011 210,140
50,000 7.65% due 6/11/2013 (a) 55,063
Uruguay Government International Bond:
200,000 9.25% due 5/17/2017 224,250
267,960 7.875% due 1/15/2033 (h) 262,936
Venezuela Government International Bond:
1,230,000 9.125% due 6/18/2007 1,313,025
476,167 3.625% due 12/18/2007 473,786
725,000 10.75% due 9/19/2013 904,437
325,000 8.50% due 10/08/2014 (g) 360,750
150,000 9.375% due 1/13/2034 177,600
Total Foreign Government Obligations
(Cost - $41,193,055) - 16.3% 42,748,379
Shares
Held Common Stocks
Aerospace & Defense - 4.1% 89,800 Honeywell International, Inc. 3,367,500
32,100 Lockheed Martin Corp. 1,959,384
25,500 Northrop Grumman Corp. 1,385,925
108,700 Raytheon Co. 4,132,774
---------------
10,845,583
Beverages - 1.0% 140,400 Coca-Cola Enterprises, Inc. 2,737,800
Capital Markets - 4.3% 133,500 The Bank of New York Co., Inc. 3,926,235
55,800 Mellon Financial Corp. 1,783,926
102,700 Morgan Stanley 5,539,638
---------------
11,249,799
Chemicals - 1.4% 92,200 E.I. du Pont de Nemours & Co. 3,611,474
Commercial Banks - 4.0% 83,100 Bank of America Corp. 3,498,510
22,100 Wachovia Corp. 1,051,739
100,500 Wells Fargo & Co. 5,886,285
---------------
10,436,534
Communications 131,100 3Com Corp. (b) 534,888
Equipment - 1.9% 140,100 Motorola, Inc. 3,094,809
78,400 Nokia Oyj (f) 1,325,744
---------------
4,955,441
Computers & 130,700 Hewlett-Packard Co. 3,816,440
Peripherals - 4.6% 54,400 International Business Machines Corp. 4,363,968
97,300 Seagate Technology 1,542,205
612,200 Sun Microsystems, Inc. (b) 2,399,824
---------------
12,122,437
Consumer Finance - 0.8% 81,600 MBNA Corp. 2,010,624
Diversified Financial 75,490 Citigroup, Inc. 3,436,305
Services - 3.9% 195,772 JPMorgan Chase & Co. 6,642,544
---------------
10,078,849
Diversified Telecommunication 37,400 BCE, Inc. 1,026,256
Services - 3.5% 76,700 BellSouth Corp. 2,017,210
167,100 SBC Communications, Inc. 4,005,387
66,200 Verizon Communications, Inc. 2,164,078
---------------
9,212,931
Electric Utilities - 2.7% 65,300 FPL Group, Inc. 3,108,280
108,500 The Southern Co. 3,879,960
---------------
6,988,240
Electronic Equipment & 77,000 Agilent Technologies, Inc. (b) 2,521,750
Instruments - 1.0%
Energy Equipment & 81,800 BJ Services Co. 2,943,982
Services - 4.3% 125,400 GlobalSantaFe Corp. 5,720,748
38,800 Halliburton Co. 2,658,576
---------------
11,323,306
Food Products - 3.4% 70,300 General Mills, Inc. 3,388,460
74,700 Kraft Foods, Inc. 2,285,073
43,200 Unilever NV (f) 3,086,640
---------------
8,760,173
Health Care Equipment 65,900 Baxter International, Inc. 2,627,433
& Supplies - 1.0%
Hotels, Restaurants & 88,000 McDonald's Corp. 2,947,120
Leisure - 1.1%
Household Durables - 1.0% 98,400 Koninklijke Philips Electronics NV 2,625,312
Household Products - 1.6% 69,100 Kimberly-Clark Corp. 4,113,523
IT Services - 0.3% 132,200 Unisys Corp. (b) 877,808
Industrial 101,500 General Electric Co. 3,417,505
Conglomerates - 3.2% 176,000 Tyco International Ltd. 4,901,600
---------------
8,319,105
Insurance - 5.7% 31,000 The Allstate Corp. 1,713,990
58,400 American International Group, Inc. 3,618,464
127,300 Genworth Financial, Inc. Class A 4,104,152
23,500 Hartford Financial Services Group, Inc. 1,813,495
19,900 Marsh & McLennan Cos., Inc. 604,761
67,400 The St. Paul Travelers Cos., Inc. 3,024,238
---------------
14,879,100
Machinery - 1.0% 42,300 Deere & Co. 2,588,760
Media - 3.9% 202,100 Interpublic Group of Cos., Inc. (b) 2,352,444
317,700 Time Warner, Inc. 5,753,547
82,800 Walt Disney Co. 1,997,964
---------------
10,103,955
Metals & Mining - 0.9% 92,600 Alcoa, Inc. 2,261,292
Multi-Utilities - 2.4% 50,600 Consolidated Edison, Inc. 2,456,630
17,900 Dominion Resources, Inc. 1,541,906
88,300 Energy East Corp. 2,224,277
---------------
6,222,813
Oil, Gas & Consumable 19,900 Anadarko Petroleum Corp. 1,905,425
Fuels - 5.3% 139,400 Exxon Mobil Corp. 8,857,476
46,700 Royal Dutch Shell Plc (f) 3,065,388
---------------
13,828,289
Paper & Forest Products - 1.3% 118,200 International Paper Co. 3,522,360
Pharmaceuticals - 5.0% 51,100 AstraZeneca Group Plc (f) 2,406,810
63,500 GlaxoSmithKline Plc (f) 3,256,280
72,300 Merck & Co., Inc. 1,967,283
105,900 Pfizer, Inc. 2,644,323
137,400 Schering-Plough Corp. 2,892,270
---------------
13,166,966
Semiconductors & Semiconductor 106,100 Applied Materials, Inc. 1,799,456
Equipment - 3.9% 141,100 Fairchild Semiconductor International, Inc. (b) 2,096,746
260,600 LSI Logic Corp. (b) 2,566,910
122,900 Micron Technology, Inc. (b) 1,634,570
82,000 Novellus Systems, Inc. (b) 2,056,560
---------------
10,154,242
Specialty Retail - 0.8% 124,600 The Gap, Inc. 2,171,778
Total Common Stocks (Cost - $196,578,352) - 79.3% 207,264,797
Beneficial
Interest Short-Term Securities
$ 16,201,227 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (e) 16,201,227
Total Short-Term Securities (Cost - $16,201,227) - 6.2% 16,201,227
Total Investments (Cost - $356,321,894) - 141.7% 370,506,135
Number of
Contracts Options Written
Call Options Written - (0.0%) 41 McDonald's Corp., expiring October 2005 at USD 37.5 (8,120)
Total Options Written (Premiums Received - $19,893) - (0.0%) (8,120)
Total Investments, Net of Options Written
(Cost - $356,302,001**) - 141.7% 370,498,015
Liabilities in Excess of Other Assets - (41.7%) (109,032,516)
---------------
Net Assets - 100.0% $ 261,465,499
===============
* Represents a zero coupon bond; the interest rate shown reflects the effective
yield at the time of purchase.
** The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of September 30, 2005, as computed for federal income
tax purposes, were as follows:
Aggregate cost $ 356,347,840
====================
Gross unrealized appreciation $ 24,035,811
Gross unrealized depreciation (9,885,636)
--------------------
Net unrealized appreciation $ 14,150,175
====================
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Non-income producing security.
(c) Floating rate note.
(d) The security is a perpetual bond and has no definite maturity date.
(e) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $ 14,641,504 $ 106,057
(f) Depositary receipts.
(g) Brady Bonds are securities which have been issued to refinance commercial bank
loans and other debt. The risk associated with these instruments is the amount
of any uncollateralized principal or interest payments since there is a high
default rate of commercial bank loans by countries issuing these securities.
(h) Represents a pay-in-kind security which may pay interest/dividends in additional
face/shares.
For Fund compliance purposes, the Fund's industry classifications refer to any one
or more of the industry sub-classifications used by one or more widely recognized
market indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease. Industries are shown as a
percent of net assets.
Item 2 - Controls and Procedures
2(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our
evaluation of these controls and procedures as of a date within 90
days prior to the filing date of this report.
2(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal quarter of
the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 3 - Exhibits
Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Capital and Income Strategies Fund, Inc.
By: /s/ Robert C. Doll, Jr.
------------------------
Robert C. Doll, Jr.
Chief Executive Officer
Capital and Income Strategies Fund, Inc.
Date: November 17, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
------------------------
Robert C. Doll, Jr.
Chief Executive Officer
Capital and Income Strategies Fund, Inc.
Date: November 17, 2005
By: /s/ Donald C. Burke
------------------------
Donald C. Burke
Chief Financial Officer
Capital and Income Strategies Fund, Inc.
Date: November 17, 2005