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: 12/31/2006
Date of reporting period: 01/01/06 - 03/31/06
Item 1 - Schedule of Investments
Capital and Income Strategies Fund, Inc.
Schedule of Investments as of March 31, 2006 (in U.S. dollars)
Preferred Securities
Face
Industry Amount Capital Trusts Value
Commercial Banks - 4.3% $ 1,000,000 Dresdner Funding Trust I, 8.151% due 6/30/2031 (a) $ 1,166,672
2,000,000 Lloyds TSB Bank Plc, 6.90% (d) 2,005,000
3,000,000 Mizuho JGB Investment LLC, 9.87% (a)(c)(d) 3,257,037
3,000,000 SB Treasury Co. LLC, 9.40% (a)(c)(d) 3,227,868
2,000,000 Westpac Capital Trust III, 5.819% (a)(c)(d) 1,983,140
Total Capital Trusts (Cost - $11,985,095) - 4.3% 11,639,717
Shares
Held Preferred Stocks
Capital Markets - 1.5% 80,000 Goldman Sachs Group, Inc. Series A, 3.91% 2,072,000
40,000 Lehman Brothers Holdings, Inc., 6.50% 1,025,600
40,000 Lehman Brothers Holdings, Inc. Series G, 3% 1,018,752
---------------
4,116,352
Commercial Banks - 4.1% 60,000 Banco Santander Central Hispano SA, 6.41% 1,518,000
27,734 First Republic Bank, 6.25% 718,485
1,674 First Tennessee Bank NA, 3.90% (a) 1,695,971
80,000 HSBC USA, Inc., 3.50% 2,067,504
20,000 Royal Bank of Scotland Group Plc Series L, 5.75% 467,200
60,000 Royal Bank of Scotland Group Plc Series N, 6.35% 1,510,800
2,000 SG Preferred Capital II, 6.302% 2,058,200
40,000 US Bancorp Series B, 5.56% 1,010,000
---------------
11,046,160
Diversified Financial 50,000 CIT Group, Inc. Series A, 6.35% 1,265,000
Services - 0.5%
Electric Utilities - 4.0% 11,109 Connecticut Light & Power, 5.28% 478,729
11,394 Delmarva Power & Light, 4.20% 835,323
11,250 Delmarva Power & Light, 4.28% 826,172
40,000 Duquesne Light Co., 6.50% 2,040,000
6,800 Entergy Arkansas, Inc., 6.45% 170,638
22,000 Entergy Louisiana LLC, 6.95% (a) 2,208,250
40,000 Interstate Power & Light Co. Series B, 8.375% 1,300,000
10,000 Peco Energy Co. Series D, 4.68% 860,000
20,000 Southern California Edison Co., 5.349% 2,021,250
---------------
10,740,362
Food Products - 1.5% 2,000 General Mills, Inc., 4.50% 1,955,600
20 HJ Heinz Finance Co., 6.226% (a) 2,063,750
---------------
4,019,350
Gas Utilities - 0.3% 35,000 Southern Union Co., 7.55% 912,800
Insurance - 5.3% 80,000 ACE Ltd. Series C, 7.80% 2,096,000
80,000 Aegon NV, 6.375% 1,990,000
40,000 Arch Capital Group Ltd., 8% 1,018,752
8,000 Axis Capital Holdings Ltd., 7.25% 195,280
48,000 Endurance Specialty Holdings Ltd., 7.75% 1,178,400
30,000 Genworth Financial, Inc. Series A, 5.25% 1,521,564
72,000 Metlife, Inc. Series B, 6.50% 1,841,760
80,000 Prudential Plc, 6.75% 2,004,000
2,200 Zurich RegCaPS Funding Trust, 6.58% (a) 2,276,312
---------------
14,122,068
Multi-Utilities - 1.2% 80,000 Pacific Gas & Electric Co. Series A, 6% 2,037,600
12,400 Public Service Electric & Gas Series E, 5.28% 1,149,480
---------------
3,187,080
Oil, Gas & Consumable Fuels - 0.7% 19,500 Apache Corp. Series B, 5.68% (f) 1,978,031
Thrifts & Mortgage 45,000 Fannie Mae, 7% 2,420,158
Finance - 4.7% 25,000 Fannie Mae Series I, 5.375% 1,135,000
59,350 Fannie Mae Series L, 5.125% 2,611,400
150,000 Freddie Mac, 3.93% 6,315,000
---------------
12,481,558
Total Preferred Stocks (Cost - $63,200,883) - 23.8% 63,868,761
Real Estate Investment Trusts
Real Estate - 0.5% 52,000 Alexandria Real Estate Equities, Inc. Series C, 8.375% 1,358,760
Total Real Estate Investment Trusts (Cost - $1,300,000) - 0.5% 1,358,760
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 (c) 2,066,555
Gas Utilities - 0.4% 1,000,000 Southwest Gas Capital II, 7.70% due 9/15/2043 1,035,163
Total Trust Preferreds (Cost - $3,127,236) - 1.2% 3,101,718
Total Preferred Securities (Cost - $79,613,214) - 29.8% 79,968,956
Corporate Bonds
Automobiles - 0.4% 1,200,000 Hyundai Motor Manufacturing Alabama LLC,
5.30% due 12/19/2008 1,185,480
Beverages - 0.1% 250,000 Coca-Cola Femsa SA de CV, 8.95% due 11/01/2006 255,000
Commercial Banks - 2.6% 500,000 Alfa MTN Issuance Ltd., 7.75% due 2/09/2007 502,400
750,000 Banco Nacional de Desenvolvimento Economico e Social,
5.727% due 6/16/2008 (c) 727,500
450,000 Bancomext Trust Division, 11.25% due 5/30/2006 454,500
1,350,000 Bangkok Bank Public Co. Ltd. (Hong Kong),
8.75% due 3/15/2007 1,384,818
500,000 Bayerische Hypo - und Vereinsbank AG for MDM Bank OAO,
9.375% due 9/23/2006 505,300
700,000 The Export-Import Bank of Korea, 4.25% due 11/27/2007 687,077
750,000 ICICI Bank Ltd., 4.75% due 10/22/2008 731,603
465,000 Korea Development Bank, 7.25% due 5/15/2006 466,024
575,000 Korea Development Bank, 5.25% due 11/16/2006 575,516
1,070,000 Sberbank, 6.38% due 10/24/2006 (c) 1,076,313
---------------
7,111,051
Diversified Financial 900,000 AC International Finance Ltd., 8.125% due 2/21/2008 925,754
Services - 1.1% 1,920,000 Salomon Brothers AG for OAO Gazprom, 9.125% due 4/25/2007 1,987,200
---------------
2,912,954
Diversified Telecommunication 750,000 Empresa Brasileira de Telecom SA Series B, 11% due 12/15/2008 834,375
Services - 1.4% 675,000 Excelcomindo Finance Company BV, 8% due 1/27/2009 691,875
1,410,000 Philippine Long Distance Telephone, 9.25% due 6/30/2006 1,431,150
300,000 Philippine Long Distance Telephone, 7.85% due 3/06/2007 304,500
500,000 Telefonica de Argentina SA, 9.875% due 7/01/2006 505,000
---------------
3,766,900
Independent Power Producers & 150,000 Aes Dominicana Energia Finance SA, 11% due 12/13/2015 (a) 149,250
Energy Traders - 0.1%
Metals & Mining - 0.1% 320,000 Companhia Siderurgica Pa, 7.25% due 11/07/2006 322,240
Oil, Gas & Consumable Fuels - 2.0% 630,000 Gazprom International SA, 7.201% due 2/01/2020 658,035
750,000 MEI Euro Finance Ltd., 10% due 3/19/2007 772,500
900,000 Pemex Project Funding Master Trust, 8.85% due 9/15/2007 927,000
300,000 Pemex Project Funding Master Trust, 6.125% due 8/15/2008 302,250
610,000 Petrobras Energia SA, 9% due 1/30/2007 619,150
175,000 Petroliam Nasional Berhad, 7.75% due 8/15/2015 202,420
1,750,000 YPF SA Series A, 7.75% due 8/27/2007 1,776,250
---------------
5,257,605
Paper & Forest Products - 0.1% 250,000 SINO-FOREST Corp., 9.125% due 8/17/2011 (a) 268,750
Real Estate - 0.1% 250,000 SM Investments Corp., 8% due 10/16/2007 256,386
Wireless Telecommunication 625,000 Mobile Telesystems Finance SA, 9.75% due 1/30/2008 657,063
Services - 0.8% 1,425,000 Total Access Communication Public Co. Ltd.,
8.375% due 11/04/2006 1,448,796
---------------
2,105,859
Total Corporate Bonds (Cost - $23,796,199) - 8.8% 23,591,475
Foreign Government Obligations
179,375 Argentina Government International Bond, 4.889% due 8/03/2012 166,207
1,376,500 Argentina Government International Bond, 1.33% due 12/31/2038 521,005
1,670,000 Brazilian Government International Bond, 10% due 1/16/2007 1,726,780
2,290,000 Brazilian Government International Bond, 11.50% due 3/12/2008 2,546,480
1,540,000 Brazilian Government International Bond, 10% due 8/07/2011 1,805,650
800,000 Brazilian Government International Bond, 10.50% due 7/14/2014 996,000
650,000 Brazilian Government International Bond, 8% due 1/15/2018 704,275
585,000 Brazilian Government International Bond, 10.125% due 5/15/2027 758,452
200,000 Brazilian Government International Bond, 8.25% due 1/20/2034 220,400
115,000 Brazilian Government International Bond, 7.125% due 1/20/2037 112,700
450,000 Brazilian Government International Bond, 11% due 8/17/2040 577,350
30,000 Bulgaria Government International Bond, 8.25% due 1/15/2015 35,115
1,000,000 Chile Government International Bond, 5.625% due 7/23/2007 1,002,700
110,000 Chile Government International Bond, 5.50% due 1/15/2013 110,000
740,000 Colombia Government International Bond, 10.50% due 6/13/2006 743,700
1,420,000 Colombia Government International Bond, 8.625% due 4/01/2008 1,505,200
340,000 Colombia Government International Bond, 10% due 1/23/2012 400,860
300,000 Colombia Government International Bond, 11.75% due 2/25/2020 427,500
138,947 Dominican Republic International Bond, 9.04% due 1/23/2018 150,618
965,000 Indonesia Government International Bond, 7.75% due 8/01/2006 972,238
325,000 Indonesia Government International Bond,
7.50% due 1/15/2016 (a) 335,562
1,170,000 Mexico Government International Bond, 9.875% due 1/15/2007 1,213,875
950,000 Mexico Government International Bond, 8.375% due 1/14/2011 1,052,600
375,000 Mexico Government International Bond, 8.125% due 12/30/2019 (g) 440,625
1,050,000 Mexico Government International Bond Series A, 6.625%
due 3/03/2015 1,095,675
1,150,000 Mexico Government International Bond Series A, 6.75% due
9/27/2034 1,187,375
1,425,000 Panama Government International Bond, 8.25% due 4/22/2008 1,489,125
150,000 Panama Government International Bond, 7.25% due 3/15/2015 159,000
435,000 Panama Government International Bond, 8.875% due 9/30/2027 528,525
1,090,000 Peru Government International Bond, 9.125% due 1/15/2008 1,144,500
135,800 Peru Government International Bond, 5% due 3/07/2017 127,991
240,000 Peru Government International Bond, 8.75% due 11/21/2033 267,600
250,000 Philippine Government International Bond,
5.625% due 11/19/2006 249,915
1,700,000 Philippine Government International Bond, 7.50% due 9/11/2007 1,743,896
763,880 Philippine Government International Bond, 5.438% due 6/01/2008 754,631
460,000 Philippine Government International Bond, 8.375% due 2/15/2011 499,100
180,000 Philippine Government International Bond,
8.875% due 3/17/2015 203,175
65,000 Philippine Government International Bond,
10.625% due 3/16/2025 84,256
750,000 Philippine Government International Bond, 9.50% due 2/02/2030 890,625
230,000 Philippine Government International Bond, 7.75% due 1/14/2031 231,725
2,595,000 Russia Government International Bond, 10% due 6/26/2007 2,730,719
975,000 Russia Government International Bond, 11% due 7/24/2018
(Regulation S) (g) 1,397,272
100,000 Russia Government International Bond, 12.75% due 6/24/2028
(Regulation S) 178,380
580,000 Russia Government International Bond, 5% due 3/31/2030 636,376
650,000 Turkey Government International Bond, 11.375% due 11/27/2006 673,563
2,080,000 Turkey Government International Bond, 10% due 9/19/2007 2,201,264
715,000 Turkey Government International Bond, 11.50% due 1/23/2012 893,750
500,000 Turkey Government International Bond, 7.375% due 2/05/2025 518,125
225,000 Turkey Government International Bond, 11.875% due 1/15/2030 347,344
930,000 Turkey Government International Bond, 6.875% due 3/17/2036 897,450
690,753 Ukraine Government International Bond, 11% due 3/15/2007 715,965
50,000 Ukraine Government International Bond, 7.65% due 6/11/2013 (a) 52,438
200,000 Uruguay Government International Bond, 9.25% due 5/17/2017 232,000
270,639 Uruguay Government International Bond, 7.875% due 1/15/2033 (h) 281,465
1,710,000 Venezuela Government International Bond, 9.125% due 6/18/2007 1,778,400
380,920 Venezuela Government International Bond, 5.563%
due 12/18/2007 380,920
360,000 Venezuela Government International Bond, 5.375% due 8/07/2010 348,660
725,000 Venezuela Government International Bond, 10.75% due 9/19/2013 904,075
495,000 Venezuela Government International Bond, 9.375% due 1/13/2034 632,362
Total Foreign Government Obligations
(Cost - $44,170,968) - 16.7% 44,983,534
Municipal Bonds
500,000 Dresdner Bank AG for City of Kiev, 8.75% due 8/08/2008 515,150
450,000 Dresdner Bank AG for Kyivstar GSM, 10.375% due 8/17/2009 489,060
100,000 Dresdner Bank AG for Kyivstar GSM, 7.75% due 4/27/2012 100,500
793,000 Santa Fe de Bogota DC, 9.50% due 12/12/2006 808,860
Total Municipal Bonds
(Cost - $1,943,855) - 0.7% 1,913,570
Shares
Held Common Stocks
Aerospace & Defense - 6.0% 89,200 Honeywell International, Inc. 3,815,084
33,600 Lockheed Martin Corp. 2,524,368
68,200 Northrop Grumman Corp. 4,657,378
113,600 Raytheon Co. 5,207,424
---------------
16,204,254
Beverages - 1.1% 145,800 Coca-Cola Enterprises, Inc. 2,965,572
Capital Markets - 4.3% 120,000 The Bank of New York Co., Inc. 4,324,800
116,700 Morgan Stanley 7,331,094
---------------
11,655,894
Chemicals - 2.0% 107,200 E.I. du Pont de Nemours & Co. 4,524,912
13,700 PPG Industries, Inc. 867,895
---------------
5,392,807
Commercial Banks - 4.6% 129,327 Bank of America Corp. 5,889,552
103,000 Wells Fargo & Co. 6,578,610
---------------
12,468,162
Communications 116,600 Nokia Oyj (f) 2,415,952
Equipment - 0.9%
Computers & Peripherals - 4.5% 99,600 Hewlett-Packard Co. 3,276,840
73,600 International Business Machines Corp. 6,069,792
528,100 Sun Microsystems, Inc. (b) 2,709,153
---------------
12,055,785
Diversified Financial 109,190 Citigroup, Inc. 5,158,136
Services - 5.0% 196,972 JPMorgan Chase & Co. 8,201,914
---------------
13,360,050
Diversified Telecommunication 174,600 AT&T, Inc. 4,721,184
Services - 3.7% 80,300 BellSouth Corp. 2,782,395
70,500 Verizon Communications, Inc. 2,401,230
---------------
9,904,809
Electric Utilities - 2.4% 68,200 FPL Group, Inc. 2,737,548
113,300 The Southern Co. 3,712,841
---------------
6,450,389
Energy Equipment & 57,100 BJ Services Co. 1,975,660
Services - 3.2% 71,700 GlobalSantaFe Corp. 4,355,775
31,800 Halliburton Co. 2,322,036
---------------
8,653,471
Food & Staples Retailing - 0.4% 57,600 The Kroger Co. 1,172,736
Food Products - 4.1% 54,600 ConAgra Foods, Inc. 1,171,716
90,400 General Mills, Inc. 4,581,472
65,200 Kraft Foods, Inc. 1,976,212
45,300 Unilever NV (f) 3,135,666
---------------
10,865,066
Health Care Equipment & 89,100 Baxter International, Inc. 3,457,971
Supplies - 1.3%
Hotels, Restaurants & 87,900 McDonald's Corp. 3,020,244
Leisure - 1.1%
Household Durables - 1.0% 80,300 Koninklijke Philips Electronics NV 2,702,095
Household Products - 1.6% 75,900 Kimberly-Clark Corp. 4,387,020
IT Services - 1.0% 397,400 Unisys Corp. (b) 2,738,086
Industrial Conglomerates - 3.2% 118,300 General Electric Co. 4,114,474
163,200 Tyco International Ltd. 4,386,816
---------------
8,501,290
Insurance - 6.0% 36,000 The Allstate Corp. 1,875,960
59,400 American International Group, Inc. 3,925,746
106,700 Genworth Financial, Inc. Class A 3,566,981
24,500 Hartford Financial Services Group, Inc. 1,973,475
70,500 The St. Paul Travelers Cos., Inc. 2,946,195
26,400 XL Capital Ltd. Class A 1,692,504
---------------
15,980,861
Machinery - 1.0% 32,300 Deere & Co. 2,553,315
Media - 5.1% 117,900 Comcast Corp. Special Class A (b) 3,079,548
319,100 Interpublic Group of Cos., Inc. (b) 3,050,596
279,400 Time Warner, Inc. 4,691,126
104,300 Walt Disney Co. 2,908,927
---------------
13,730,197
Metals & Mining - 1.7% 145,200 Alcoa, Inc. 4,437,312
Multi-Utilities - 2.3% 52,900 Consolidated Edison, Inc. 2,301,150
24,600 Dominion Resources, Inc. 1,698,138
92,300 Energy East Corp. 2,242,890
---------------
6,242,178
Office Electronics - 0.6% 99,500 Xerox Corp. (b) 1,512,400
Oil, Gas & Consumable Fuels - 4.0% 15,800 Anadarko Petroleum Corp. 1,595,958
15,500 Chevron Corp. 898,535
135,000 Exxon Mobil Corp. 8,216,100
---------------
10,710,593
Paper & Forest Products - 1.2% 96,800 International Paper Co. 3,346,376
Pharmaceuticals - 5.1% 39,300 Eli Lilly & Co. 2,173,290
61,500 GlaxoSmithKline Plc (f) 3,217,065
37,800 Johnson & Johnson 2,238,516
133,300 Pfizer, Inc. 3,321,836
145,800 Schering-Plough Corp. 2,768,742
---------------
13,719,449
Semiconductors & Semiconductor 121,300 Fairchild Semiconductor International, Inc. (b) 2,313,191
Equipment - 2.6% 330,300 LSI Logic Corp. (b) 3,818,268
36,400 Novellus Systems, Inc. (b) 873,600
---------------
7,005,059
Software - 0.2% 40,700 Oracle Corp. (b) 557,183
Specialty Retail - 1.0% 141,200 The Gap, Inc. 2,637,616
Total Common Stocks (Cost - $202,332,693) - 82.2% 220,804,192
Warrants
Foreign Government 3,000 Argentina Government International Bond
Obligations - 0.0% (expires 12/15/2035) 27,000
Total Warrants (Cost - $13,883) - 0.0% 27,000
Beneficial
Interest Short-Term Securities
$ 4,961,172 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 4.56% (c)(e) 4,961,172
Total Short-Term Securities (Cost - $4,961,172) - 1.8% 4,961,172
Total Investments (Cost - $356,831,984*) - 140.0% 376,249,899
Liabilities in Excess of Other Assets - (40.0%) (107,529,486)
---------------
Net Assets - 100.0% $ 268,720,413
===============
* The cost and unrealized appreciation (depreciation) of investments as of March 31, 2006,
as computed for federal income tax purposes, were as follows:
Aggregate cost $ 357,026,094
================
Gross unrealized appreciation $ 25,914,904
Gross unrealized depreciation (6,691,099)
----------------
Net unrealized appreciation $ 19,223,805
================
(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 $ (7,188,033) $ 47,331
(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.
o 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: May 22, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.
Chief Executive Officer
Capital and Income Strategies Fund, Inc.
Date: May 22, 2006
By: /s/ Donald C. Burke
--------------------
Donald C. Burke
Chief Financial Officer
Capital and Income Strategies Fund, Inc.
Date: May 22, 2006