MERRILL LYNCH
CAPITAL FUND, INC.
FUND LOGO
Annual Report
March 31, 1995
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Executive Vice President
Donald C. Burke, Vice President
Ernest S. Watts, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Bank of New York
90 Washington Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
<PAGE>
This report is not authorized for use as an offer of
sale or a solicitation of an offer to buy shares of the
Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in
this report should not be considered a representation
of future performance. Investment return and
principal value of shares will fluctuate so that shares,
when redeemed, may be worth more or less than their
original cost.
Merrill Lynch
Capital Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH CAPITAL FUND, INC.
PORTFOLIO SUMMARY
Security Diversification*
As of March 31, 1995
A pie chart illustrating the following percentages:
US Bonds 38.0%
Non-US Bonds 1.1%
Cash 3.9%
US Stocks 48.5%
Non-US Stocks 8.5%
<PAGE>
Sector Representation*
As a Percentage of US Equities
As of March 31, 1995
A pie chart illustrating the following percentages:
Financial Services 28.2%
Consumer Services 1.9%
Utilities 5.7%
Transportation 2.1%
Capital Goods--Technology 6.9%
Basic Industries 13.1%
Diversified 2.4%
Consumer Staples 10.1%
Credit Cyclicals 0.1%
Capital Goods 4.0%
Energy 14.9%
Consumer Cyclical 10.6%
[FN]
*Totals may not equal 100%
Currency Diversification Percent of
As of March 31, 1995 Net Assets
US Dollar 91.1%
Canadian Dollar 1.4
Spanish Peseta 0.6
Argentinian Peso 2.4
French Franc 0.9
Hong Kong Dollar 0.4
Netherlands Guilder 0.5
UK Sterling 1.7
Australian Dollar 0.1
Swiss Franc 0.9
US Common Stock Investments S&P
As of March 31, 1995 Fund 500*
Average Capitalization (in billions) $8.9 $7.3
Price-to-Book Value 2.02 3.36
Price-to-Earnings Ratio** 12.19 16.46
Yield Based on Current Dividend 3.28% 2.63%
[FN]
*An unmanaged broad-based index comprised of common stocks.
**Based on 1995 earnings estimates.
<PAGE>
Fixed-Income Investments Merrill Lynch
As of March 31, 1995 Fund D0A0 Index*
Duration 6.2 Years 5.1 Years
Average Maturity 10.9 Years 12.9 Years
Asset Breakdown:
Corporates 49.4% 16.9%
US Treasuries/Agencies 43.7% 56.3%
Mortgage-Backed 5.1% 26.8%
International Governments 1.8% --
[FN]
*An unmanaged marked-weighted corporate, Government and mortgage master
bond index reflecting approximately 97% of total outstanding US bonds.
DEAR SHAREHOLDER
Increasing signs of slowing economic growth led to
higher US stock and bond prices during the March
quarter. Although gross domestic product (GDP) was
reported to have increased at a revised 5.1% rate
during the final quarter of 1994, declines in other
indicators such as new home sales and durable goods
orders registered thus far in 1995 have led investors
to anticipate that the economy is losing enough
momentum to keep inflation under control and
preclude further significant monetary policy tighten-
ing by the Federal Reserve Board.
However, as US stock and bond markets have risen,
the value of the US dollar reached new lows relative
to the yen and the Deutschemark. Persistent trade
deficits and exports of capital from the United States
have kept the US currency in a decade-long decline
relative to the Japanese and German currencies. Over
the longer term, since the United States has the high-
est productivity among industrialized nations and
among the lowest labor costs, demand for US dollar-
denominated assets may improve. However, a reduc-
tion of the still-widening US trade deficit may be
necessary before the US dollar appreciates substan-
tially relative to the yen and the Deutschemark.
<PAGE>
The first three months of 1995 were very positive for
the US stock and bond markets. Continued signs of
a moderating expansion and well-contained infla-
tionary pressures would provide further assurance
that the peak in interest rates is behind us, creating
a stronger foundation for higher stock and bond
prices. On the other hand, indications of reacceler-
ating growth and inflation and further significant
monetary policy tightening by the Federal Reserve
Board would be decided negatives for the US
financial markets.
Portfolio Matters
It is our belief that investors must find solid values
from a statistical perspective, and discuss with the
management of each portfolio company its ability to
make steady progress in the face of varying economic
conditions. If these factors are in place, we are con-
vinced that investors need not be as concerned about
swings in the stock market and that good returns
over the long term can be realized.
In looking first at some statistics regarding holdings
in your Merrill Lynch Capital Fund, Inc., the average
price/earnings multiple for the 125 stocks held is 12.2
times, based on estimated 1995 per share earnings.
That is well below the 16.5 times price/earnings ratio
for the average stock in the Standard & Poor's
Composite Index of 500 Stocks (S&P 500), yet earn-
ings gains going into 1996 are expected to be stronger
for portfolio companies. If your Fund can continue to
invest in companies with a similar valuation of earn-
ings per share as those held at present, which earned
14.1% on their capital and surplus last year, the
long-term investment return is likely to be strong.
At present, the average stock held has a dividend
yield of 3.3%, versus 2.6% for the S&P 500, and it is
priced at 2.0 times book value per share versus 3.4
times for the Index.
Reviewing the March quarter, more than 83% of the
stocks in your Merrill Lynch Capital Fund, Inc.
increased in price sufficiently so that the equity
portion of your Fund was estimated to outpace the 9.7%
total return of the S&P 500. Common stocks represented
58.2% of net assets in Merrill Lynch Capital Fund, Inc.
on December 31, 1994 and 57% on March 31, 1995,
representing a modest reduction in equity holdings
as the stock market advanced sharply for the quarter.
Bond holdings did not provide as high a total return
for the quarter as did common stocks, but they did
return an estimated 5.3% for the quarter, which
exceeded the total returns from the unmanaged Merrill
Lynch D0A0 and Merrill Lynch B0A0 bond indexes, which are
widely followed by bond professionals.
<PAGE>
Turning to some of the individual common stocks
in your portfolio, Williams Companies, Inc. has
returned to a major position as a result of the effec-
tive drive for progress by its management, and it was
priced at less than 12 times estimated 1995 profits.
The company has an exciting future aided by its
positions in the fast-growing communications indus-
try, the executive and financial strengths it can lend
to the soon-to-be acquired Transco Energy pipeline
company and continuing gains at its expanding
pipeline complex.
We believe Yacimientos Petroliferos Fiscales S.A.
is a strong petroleum company, with hydrocarbon
reserves in the ground possibly worth more than the
market capitalization of the corporation. Already
held in your portfolio, the stock dropped sharply in
reaction to general emerging markets, political,
economic and currency uncertainties, compounded by a
widespread belief--which we did not share--that the
company was overpaying in buying Maxus Energy
Corporation, in an effort to increase international
operations. The company has long had an admiration
for the ability of Maxus to find oil. The companies
have a common interest in seeking oil in Bolivia, an
interest which has been expanded to a number of
areas around the world. Furthermore, both compa-
nies have a solid reserve base, in our opinion.
Argentina, we believe, is working to improve its
financial and political strengths. An added benefit is
that Yacimientos pays many of its bills in the local
currency while receiving its oil payments at prices
set in the US dollars.
Altogether, we increased the positions in 67 com-
panies held in your portfolio. Most of the increases
were moderate in relation to shares already held.
They were generally made as certain companies did
better than expected, or as other companies met
expectations but the stocks had failed to move higher
or as the stocks declined in price making them
relatively more attractive than at the start of the
March quarter. A concerted effort was made to build
up petroleum holdings, as stocks in that industry
often perform relatively better late in an economic
cycle, and it is one of the few industries with favor-
able prospects that affords above-average yields. We
also increased holdings in electric utility stocks.
Here again, the yields were favorable, and we did not
believe the rate of inflation or interest rates would
be as high as some project.
<PAGE>
There were 18 common stocks added in your portfolio.
In addition, the Tandy PERCS, a type of convertible
preferred, were converted into common shares.
Repsol, S.A., Exxon Corp., Texaco Inc., all petroleum
companies, and Texas Utilities Company, an electric
utility, were added for the general reasons indicated
earlier. As a cyclical industrial stock, Ford Motor
Company had dropped sharply in price to the point
where its yield was appealing and the shares were
selling at a sharp discount to the multiples of
earnings placed on most stocks. Progress made in
Australia and prospects for further gains made
moderately priced National Australian Bank Ltd.
attractive for purchase. Premark International, Inc.,
Cadbury Schweppes PLC, TIG Holdings, Inc., Roche
Holdings AG and Rollins, Inc. were chosen as
companies that should do reasonably well even in
the next downtrend in the economic business cycle.
During the March quarter, 77 holdings were reduced
in size and 11 common stocks were sold. Most of the
stocks sold were eliminated as they advanced in price.
As stock prices increase, we generally sell some shares,
particularly as market risks appear to increase. Many
of the reductions were in the banking, chemical, diver-
sified companies, electronics, financial services and
railroad industries. American Premier Underwriters,
Inc. and Provident Life & Accident Insurance Co.
investments were reduced as progress at the com-
panies has been disappointing. H.J. Heinz Co. and
Honeywell, Inc. were eliminated because their
earnings continued to fall short of expectations.
Corporate and Government bonds continued to repre-
sent 39% of your portfolio. As the uptrend in interest
rates appeared to flatten out, at least for the present,
the average years to maturity increased during the
March quarter from 6.6 to 10.9. At a time when common
stocks are at the low end of their historic range of
yields, bonds are providing yields that have proven to
be attractive in the past, so bond maturities were
lengthened to potentially provide the additional in-
come for a longer period of time. As of March 31, 1995,
the average bond held was yielding 7.8% to maturity.
<PAGE>
Fiscal Year in Review
Total returns for the year ended March 31, 1995 for
your Fund were less than that of the S&P 500 since
bonds and finance-related stocks, such as bank, insur-
ance, personal loan and brokerage stocks, did not do as
well for the period. For the most part, however, the
operations of the companies made progress and for that
reason, as well as the moderate valuations, your Fund
is heavily invested in the area. Your Fund was not
a significant investor in many healthcare
areas, beverages, household products or food pro-
ducers, which outperformed the US equity market,
since their stock valuations were considered to be
relatively high, nor in technology stocks, which
generally pay little in dividends and are often
highly volatile in price, which does not fit well with
the conservative investment tenants of your Fund,
in our opinion.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Ernest S. Watts)
Ernest S. Watts
Vice President and Portfolio Manager
May 5, 1995
<TABLE>
PROXY RESULTS
During the six-month period ended March 31, 1995, Merrill Lynch Capital Fund, Inc. shareholders voted on the following proposals.
Proposals 1, 2 and 4 were approved at a special shareholders' meeting on September 26, 1994. Proposal 3 was passed at a special
shareholders' meeting on January 31, 1995. The description of each proposal and number of shares voted are as follows:
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <C> <C>
1. To elect the Fund's Board of Directors: Donald Cecil 200,754,136 3,700,873
M. Colyer Crum 200,794,353 3,660,656
Edward H. Meyer 200,750,492 3,704,517
Jack B. Sunderland 200,822,072 3,632,937
J. Thomas Touchton 200,811,181 3,643,828
Arthur Zeikel 200,785,697 3,669,312
<CAPTION
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors. 197,835,135 1,597,488 5,022,386
3. To approve certain changes to the Fund's fundamental investment restrictions. 104,754,610 4,250,598 5,888,704
4. To amend the Fund's articles of incorporation to implement the Merrill Lynch
Select Pricing SM System. 180,689,379 10,547,017 13,218,613
</TABLE>
<PAGE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to pur-
chase shares of the Fund through the Merrill Lynch Select
Pricing SM System, which offers four pricing alternatives:
*Class A Shares incur a maximum initial sales charge
(front-end load) of 5.25% and bear no ongoing distribution
or account maintenance fees. Class A Shares are available
only to eligible investors.
*Class B Shares are subject to a maximum contingent de-
ferred sales charge of 4% if redeemed during the first year,
decreasing 1% each year thereafter to 0% after the fourth
year. In addition, Class B Shares are subject to a distribu-
tion fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D
Shares after 8 years.
*Class C Shares are subject to a distribution fee of 0.75%
and an account maintenance fee of 0.25%. In addition,
Class C Shares are subject to a 1% contingent deferred sales
charge if redeemed within one year of purchase.
*Class D Shares incur a maximum initial sales charge of
5.25% and an account maintenance fee of 0.25% (but no
distribution fee).
Performance data for the Fund's Class A and Class B Shares
are presented in the "Performance Summary", "Average
Annual Total Return" and "Total Return Based on a $10,000
Investment" tables on pages 5 and 7. The "Results of a $1,000
Investment Since Inception--Class A Shares" chart on page
6 illustrates the performance of a $1,000 investment in
Class A Shares made at the Fund's inception (assuming the
maximum initial sales charge of 5.25%) through March 31,
1995. "Aggregate Total Return" tables for Class C and Class D
Shares are also presented on page 5. Data for all of the
Fund's shares, including Class C and Class D Shares, are
presented in the "Recent Performance Results" table on
page 6.
<PAGE>
The "Recent Performance Results" table shows investment
results before the deduction of any sales charges for Class A
and Class B Shares for the 12-month and 3-month periods
ended March 31, 1995 and for Class C and Class D Shares for the
since inception and the 3-month periods ended March 31, 1995.
All data in this table assume imposition of the actual total
expenses incurred by each class of shares during the relevant
period.
None of the past results shown should be considered a
representation of future performance. Investment return
and principal value of shares will fluctuate so that shares,
when redeemed, may be worth more or less than their
original cost. Dividends paid to each class of shares will
vary because of the different levels of account mainte-
nance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available
to be paid to shareholders.
PERFORMANCE DATA (continued)
Total Return Based on $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the S&P 500
Index. Beginning and ending values are:
3/85 3/95
ML Capital Fund, Inc.++-- $ 9,475 $33,050
Class A Shares*
S&P 500 Index++++ $10,000 $38,494
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the S&P 500
Index. Beginning and ending values are:
10/21/88** 3/95
ML Capital Fund, Inc.++-- $10,000 $18,965
Class B Shares*
S&P 500 Index++++ $10,000 $21,595
<PAGE>
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Capital Fund, Inc. through a fully managed investment policy utilizes
equity, debt and convertible securities.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/95 +10.95% + 5.12%
Five Years Ended 3/31/95 +11.11 + 9.92
Ten Years Ended 3/31/95 +13.31 +12.70
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/95 + 9.81% + 5.81%
Five Years Ended 3/31/95 + 9.99 + 9.99
Inception (10/21/88) through 3/31/95 +10.44 +10.44
[FN]
*Maximum contingent deferred sales charge is 4% and is
reduced to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94) through 3/31/95 +6.07% +5.07%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0% after
1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94) through 3/31/95 +6.42% +0.83%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the growth of an investment in the
Fund's Class A Shares from $947.50 on November 8, 1973 to
$11,877.67 on Maarch 31, 1995.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
3/31/95 12/31/94 3/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Capital Fund, Inc. Class A Shares* $27.74 $25.70 $27.46 + 5.93%(1) +7.94%
ML Capital Fund, Inc. Class B Shares* 27.28 25.34 27.04 + 5.86(1) +7.66
ML Capital Fund, Inc. Class C Shares* 27.17 25.24 26.81 + 5.42(2) +7.65
ML Capital Fund, Inc. Class D Shares* 27.72 25.70 27.27 + 4.13(2) +7.86
Dow Jones Industrial Average** 4,157.69 3,834.44 3,635.96 +14.35 +8.43
Standard & Poor's 500 Index** 500.71 459.27 445.77 +12.32 +9.02
ML Capital Fund, Inc. Class A Shares--Total Return* +10.95(3) +7.94
ML Capital Fund, Inc. Class B Shares--Total Return* + 9.81(4) +7.66
ML Capital Fund, Inc. Class C Shares--Total Return* + 6.07(5) +7.65
ML Capital Fund, Inc. Class D Shares--Total Return* + 6.42(6) +7.86
Dow Jones Industrial Average--Total Return** +17.58 +9.20
Standard & Poor's 500 Index--Total Return** +15.59 +9.73
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results shown
would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total investment
returns for unmanaged indexes are based on estimates.
++Investment results shown for Class C and Class D Shares are since inception (10/21/94).
(1)Percent change includes reinvestment of $1.245 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.617 per share capital gains distributions.
(3)Percent change includes reinvestment of $1.247 per share ordinary income dividends and
$1.245 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.974 per share ordinary income dividends and
$1.245 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.543 per share ordinary income dividends and
$0.617 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.572 per share ordinary income dividends and
$0.617 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/8/73--12/31/73 $14.03 $13.87 -- -- - 1.11%
1974 13.87 10.78 -- $0.560 -18.62
1975 10.78 12.83 -- 0.510 +23.86
1976 12.83 14.10 -- 0.360 +12.75
1977 14.10 12.68 -- 0.370 - 7.37
1978 12.68 13.63 -- 0.500 +11.65
1979 13.63 16.54 -- 0.650 +26.73
1980 16.54 17.70 $1.250 1.150 +24.83
1981 17.70 16.62 1.990 1.150 +11.85
1982 16.62 17.85 0.830 0.930 +19.27
1983 17.85 20.63 0.600 0.690 +23.13
1984 20.63 19.33 1.990 0.670 + 7.98
1985 19.33 22.57 1.600 0.660 +29.88
1986 22.57 24.40 2.100 0.440 +19.89
1987 24.40 19.79 5.763 0.219 + 4.60
1988 19.79 21.39 1.008 0.742 +17.04
1989 21.39 24.43 0.723 1.099 +22.98
1990 24.43 23.01 0.390 1.295 + 1.08
1991 23.01 26.92 0.262 1.361 +24.69
1992 26.92 26.33 0.954 0.921 + 5.03
1993 26.33 27.97 0.699 1.201 +13.71
1994 27.97 25.70 1.245 1.247 + 0.91
1/1/95--3/31/95 25.70 27.74 -- -- + 7.94
------- -------
Total $21.404 Total $16.725
Cumulative total return as of 3/31/95: +1,153.58%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions at net asset value
on the ex-dividend date, and do not include sales charge; results would be lower if sales charge
was included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $22.64 $21.38 $0.773 $0.537 + 0.25%
1989 21.38 24.29 0.723 0.961 +21.70
1990 24.29 22.85 0.390 1.077 + 0.10
1991 22.85 26.66 0.262 1.147 +23.39
1992 26.66 26.03 0.954 0.684 + 3.99
1993 26.03 27.61 0.699 0.930 +12.54
1994 27.61 25.34 1.245 0.974 - 0.10
1/1/95--3/31/95 25.34 27.28 -- -- + 7.66
------ ------
Total $5.046 Total $6.310
Cumulative total return as of 3/31/95: +89.65%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions at net asset value
on the ex-dividend date, and do not reflect deduction of any sales charge; results would be lower
if sales charge was deducted.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Aerospace 95,000 The Boeing Co. $ 4,182,040 $ 5,118,125 0.1%
500,000 E-Systems, Inc. 20,529,589 22,687,500 0.4
400,000 Lockheed Corp. 17,783,366 21,150,000 0.3
1,370,000 Rockwell International Corporation 49,126,026 53,430,000 0.8
110,000 Thiokol Corporation 2,670,202 3,121,250 0.1
-------------- -------------- ------
94,291,223 105,506,875 1.7
<PAGE>
Automobile 800,000 Echlin Inc. 23,083,465 30,800,000 0.5
Equipment
Automotive 575,000 Ford Motor Company 14,936,737 15,525,000 0.2
Banking 700,000 Banco Bilboa Vizcaya (ADR)* 17,128,729 17,675,000 0.3
425,000 BancOne Corp. 11,754,992 12,112,500 0.2
1,593,000 Bancorp Hawaii, Inc. 45,961,032 45,201,375 0.7
3,540,000 Chemical Banking Corp. 131,045,003 133,635,000 2.1
155,000 First Union Corp. 6,685,000 6,723,125 0.1
600,000 National Australian Bank Ltd. 4,808,234 5,061,658 0.1
2,995,000 NationsBank Corp. 143,971,834 151,996,250 2.4
3,314,000 SouthTrust Corp. 52,776,401 69,179,750 1.1
1,530,000 ++++Union Planters Corp. 18,715,616 35,381,250 0.5
-------------- -------------- ------
432,846,841 476,965,908 7.5
Beverages 3,100,000 Cadbury Schweppes PLC 21,320,768 22,240,001 0.3
Building & 3,973,000 Kumagai Gumi Co., Ltd. (Ordinary) 2,854,985 2,954,763 0.0
Construction
Capital Goods 683,000 GATX Capital Corp. 23,355,006 30,564,250 0.5
Chemicals 900,000 Albemarle Corp. 13,100,366 11,475,000 0.2
690,000 du Pont (E.I.) de Nemours & Co. 35,108,540 41,745,000 0.7
920,000 Engelhard Corp. 22,757,034 27,255,000 0.4
180,000 Goodrich (B.F.) Co. 7,885,348 7,987,500 0.1
1,457,000 Grace (W.R.) & Co. 57,783,068 77,585,250 1.2
1,050,000 Imperial Chemical Industries PLC (ADR)* 49,729,518 49,350,000 0.8
600,000 Union Carbide Corp. 16,269,758 18,375,000 0.3
-------------- -------------- ------
202,633,632 233,772,750 3.7
Conglomerates 120,000 AlliedSignal, Inc. 4,296,015 4,710,000 0.1
Diversified 161,000 Corning Inc. 4,912,759 5,796,000 0.1
Companies 113,000 Dial Corp. 2,309,624 2,867,375 0.0
9,250,000 Hillsdown Holdings PLC 21,555,611 27,405,623 0.4
98,000 ITT Corp. 7,833,524 10,057,250 0.2
600,000 Tenneco, Inc. 23,717,598 28,275,000 0.4
1,100,000 United Technologies Corp. 63,816,513 76,037,500 1.2
990,000 Worldtex Inc. (b) 4,808,753 3,960,000 0.1
-------------- -------------- ------
128,954,382 154,398,748 2.4
Electrical Equipment 765,000 General Electric Co. 37,039,957 41,405,625 0.6
923,000 Philips Electronics N.V. (ADR)* 14,596,805 31,497,375 0.5
-------------- -------------- ------
51,636,762 72,903,000 1.1
Electronics 230,000 General Motors Corp. (Class H) 7,952,318 9,487,500 0.1
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Services 560,000 Dean Witter, Discover & Co. $ 18,513,096 $ 22,820,000 0.4%
330,000 Federal National Mortgage Association 23,903,393 26,853,750 0.4
200,000 Household International, Inc. 7,121,885 8,700,000 0.1
-------------- -------------- ------
49,538,374 58,373,750 0.9
Food Distribution 13,346,000 Dairy Farm International Holdings Ltd.
(Ordinary) 19,067,425 17,089,232 0.2
200,000 Fleming Cos., Inc. 5,623,541 4,525,000 0.1
-------------- -------------- ------
24,690,966 21,614,232 0.3
Foods 380,000 Universal Foods Corp. 12,340,680 12,920,000 0.2
Home Builders 270,000 ++++Oriole Homes Corp. 2,499,746 1,991,250 0.0
Hospital Management 3,100,000 National Medical Enterprises, Inc. (b) 39,572,413 49,212,500 0.8
Household Products 725,000 Premark International, Inc. 29,305,099 31,990,625 0.5
Insurance 206,000 Aetna Life & Casualty Co. 10,112,034 11,742,000 0.2
1,900,000 Allstate Corporation 47,445,671 54,625,000 0.9
530,000 American General Corporation 14,546,495 17,092,500 0.3
860,000 American International Group, Inc. 74,625,000 89,655,000 1.4
199,000 American Premier Underwriters, Inc. 5,369,665 4,800,875 0.1
1,320,000 EXEL Ltd. (ADR)* 53,556,226 58,245,000 0.9
1,450,000 ++++Fremont General Corp. (b) 30,727,920 28,456,250 0.4
202,000 Integon Corp. 2,488,257 2,626,000 0.0
114,000 Ohio Casualty Corp. 3,287,364 3,819,000 0.1
421,000 Provident Life & Accident Insurance Co. 11,373,807 9,525,125 0.1
800,000 Safeco Corp. 41,891,912 43,600,000 0.7
62,000 TIG Holdings, Inc. 1,253,058 1,395,000 0.0
1,579,000 Travelers Inc. 34,484,362 60,988,875 0.9
120,000 USLIFE Corporation 3,922,295 4,575,000 0.1
-------------- -------------- ------
335,084,066 391,145,625 6.1
Lodging/Hotels 240,000 Carnival Corp. (Class A) 5,170,816 5,610,000 0.1
Manufactured Housing 500,000 Fleetwood Enterprises, Inc. 10,300,013 11,812,500 0.2
Metals & Basic 272,000 Cameco Corp. 5,259,688 7,660,944 0.1
Materials 67,000 Harsco Corp. 2,898,057 2,948,000 0.0
732,000 Magma Copper Co. (b) 12,208,350 12,718,500 0.2
1,260,000 Newmont Mining Corp. 49,767,818 53,865,000 0.9
-------------- -------------- ------
70,133,913 77,192,444 1.2
<PAGE>
Natural Gas 1,322,000 Coastal Corp. 36,224,932 38,007,500 0.6
Suppliers 290,000 MAPCO, Inc. 15,203,489 16,167,500 0.3
700,000 MetroGas S.A. (ADR)* (b) 9,064,313 6,562,500 0.1
395,000 ONEOK Inc. 7,694,035 7,455,625 0.1
3,655,000 TransCanada Pipelines, Ltd. (ADR)* 53,909,854 47,058,125 0.7
3,628,000 Williams Companies, Inc. 95,404,110 111,107,500 1.7
-------------- -------------- ------
217,500,733 226,358,750 3.5
Office Equipment 1,143,000 ++++Wallace Computer Services, Inc. 27,348,699 36,718,875 0.6
Oil & Gas Producers 665,000 Repsol S.A. (ADR)* 18,547,170 18,872,332 0.3
7,700,000 Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR)* 161,797,410 146,300,000 2.3
-------------- -------------- ------
180,344,580 165,172,332 2.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Oil--Integrated 260,000 Exxon Corp. $ 16,829,862 $ 17,355,000 0.3%
80,000 Mobil Corp. 6,393,048 7,410,000 0.1
2,248,000 Occidental Petroleum Corp. 45,824,709 49,175,000 0.8
119,000 Texaco Inc. 7,820,140 7,913,500 0.1
1,941,000 TOTAL S.A. (ADR)* 51,197,859 58,230,000 0.9
708,000 USX-Marathon Group, Inc. 12,245,355 12,390,000 0.2
-------------- -------------- ------
140,310,973 152,473,500 2.4
Paper 1,875,000 Federal Paper Board Co., Inc. 50,262,052 53,437,500 0.9
275,000 Kimberly-Clark Corp. 14,081,476 14,300,000 0.2
1,016,000 Temple-Inland, Inc. 48,823,404 45,593,000 0.7
-------------- -------------- ------
113,166,932 113,330,500 1.8
Pharmaceuticals 485,000 Block Drug, Inc. (Class A) 14,594,736 16,975,000 0.3
430,000 Glaxo Holdings PLC (ADR)* 8,283,275 9,836,250 0.1
1,490,000 Mallinckrodt Group Inc. 47,176,242 50,287,500 0.8
1,475,000 Merck & Co., Inc. 45,473,895 62,871,875 1.0
601,000 Pfizer, Inc. 47,570,024 51,535,750 0.8
10,000 Roche Holdings AG 50,843,567 57,621,145 0.9
800,000 Warner-Lambert Co. 54,736,215 62,600,000 1.0
-------------- -------------- ------
268,677,954 311,727,520 4.9
<PAGE>
Photography 200,000 Eastman Kodak Co. 8,509,497 10,625,000 0.2
400,000 Polaroid Corp. 12,752,887 13,900,000 0.2
-------------- -------------- ------
21,262,384 24,525,000 0.4
Plastic Recycling 1,110,000 Wellman Inc. 23,898,457 28,027,500 0.4
Printing & 365,000 American Greetings Corp. 10,118,477 10,858,750 0.2
Publishing 14,402,000 Oriental Press Holdings (Ordinary) 9,181,713 6,147,138 0.1
-------------- -------------- ------
19,300,190 17,005,888 0.3
Railroads 2,110,000 Canadian Pacific Ltd. 33,271,322 31,650,000 0.5
600,000 Conrail, Inc. 31,315,863 33,675,000 0.5
150,000 Norfolk Southern Corp. 9,102,606 10,031,250 0.2
-------------- -------------- ------
73,689,791 75,356,250 1.2
Real Estate 1,100,000 RFS Hotel Investors, Inc. 17,119,211 15,537,500 0.3
Investment Trusts 795,000 Walden Residential Properties, Inc. 15,343,555 15,005,625 0.2
-------------- -------------- ------
32,462,766 30,543,125 0.5
Restaurants 177,000 Luby's Cafeterias, Inc. 4,091,252 3,761,250 0.1
Retail Trade 676,000 Fingerhut Companies, Inc. 12,524,247 8,027,500 0.1
107,000 Penney (J.C.) Company, Inc. 5,561,718 4,801,625 0.1
2,000,000 Sears, Roebuck & Co. 72,080,256 106,750,000 1.7
200,000 Tandy Corp. 8,880,724 9,550,000 0.1
1,000,000 Wal-Mart Stores, Inc. 24,232,700 25,500,000 0.4
-------------- -------------- ------
123,279,645 154,629,125 2.4
Savings & Loan 610,000 Ahmanson (H.F.) & Co. 10,410,632 10,980,000 0.2
Associations
Services 1,670,000 ++++PHH Corp. 62,537,753 63,460,000 1.0
365,000 Rollins, Inc. 9,108,996 10,037,500 0.2
-------------- -------------- ------
71,646,749 73,497,500 1.2
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Steel 445,000 Birmingham Steel Corp. $ 10,175,161 $ 9,011,250 0.2%
1,059,000 ++++Cleveland Cliffs, Inc. 36,464,349 40,771,500 0.6
-------------- -------------- ------
46,639,510 49,782,750 0.8
Telecommunications 2,189,000 GTE Corp. 68,550,750 72,784,250 1.1
Textiles 251,000 Delta Woodside Industries, Inc. 2,910,188 2,102,125 0.0
Tires & Rubber 3,713,000 The Goodyear Tire & Rubber Co. 141,384,746 136,452,750 2.1
Utilities--Electric, 305,552 American Water Works Co., Inc. 6,874,996 8,861,008 0.1
Gas & Water 31,000 Cascade Natural Gas Corp. 428,110 430,125 0.0
226,000 Central Hudson Gas & Electric Corp. 5,885,720 5,932,500 0.1
100,000 Entergy Corp 2,106,000 2,087,500 0.0
1,100,000 Illinova Corp. (a) 22,841,253 25,025,000 0.4
300,000 PacifiCorp 5,263,244 5,812,500 0.1
1,800,000 Pinnacle West Capital Corp. 35,431,138 37,575,000 0.6
139,000 Texas Utilities Company 4,378,172 4,413,250 0.1
1,700,000 Unicom Corp. 37,990,541 40,375,000 0.6
219,000 Western Resources, Inc. 6,293,169 6,843,750 0.1
-------------- -------------- ------
127,492,343 137,355,633 2.1
Total Common Stocks 3,301,167,494 3,644,276,344 57.0
Convertible Preferred Stock
Pharmaceuticals 140,000 Liposome Co., Inc. 2,453,465 3,482,500 0.0
Total Convertible Preferred Stock 2,453,465 3,482,500 0.0
Face
Amount Corporate Bonds
<PAGE>
Aerospace McDonnell Douglas Finance Corp.:
$ 10,000,000 6.38% due 1/15/1996 9,989,900 9,932,900 0.2
15,000,000 5.61% due 2/25/1997 15,000,000 14,518,350 0.2
-------------- -------------- ------
24,989,900 24,451,250 0.4
Automotive Ford Motor Co.:
10,000,000 7.20% due 6/18/1997 10,000,000 9,970,200 0.1
20,000,000 5.625% due 12/15/1998 19,369,800 18,790,400 0.3
-------------- -------------- ------
29,369,800 28,760,600 0.4
Banking 20,000,000 Banco Rio de la Plata, 8.75% due 12/15/2003 20,060,800 11,800,000 0.2
10,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 8,621,750 8,890,900 0.1
Bankers Trust Company:
25,000,000 4.70% due 7/01/1996 24,551,500 24,322,250 0.4
10,000,000 7.50% due 1/15/2002 9,688,700 9,640,500 0.2
The Chase Manhattan Corp.:
10,000,000 7.50% due 12/01/1997 10,165,600 9,982,800 0.2
20,000,000 7.75% due 11/01/1999 20,190,800 19,945,000 0.3
10,000,000 6.75% due 8/15/2008 8,517,400 8,772,500 0.1
First Chicago Corp.:
10,000,000 6.875% due 6/15/2003 8,952,700 9,302,100 0.1
20,000,000 6.375% due 1/30/2009 16,758,800 16,750,800 0.3
5,000,000 First Security Corp., 5.71% due 2/09/1999 5,000,000 4,683,700 0.1
15,000,000 First USA Bank, Wilmington, 5.75% due 1/15/1999 15,005,550 13,920,000 0.2
13,000,000 Great Western Financial Corp., 6.125%
due 6/15/1998 12,244,010 12,521,210 0.2
10,000,000 Margaretten Financial Corp., 6.75%
due 6/15/2000 9,621,060 9,565,800 0.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Banking NationsBank Corp.:
(concluded) $ 10,500,000 5.70% due 9/11/2000 $ 9,545,865 $ 9,624,720 0.1%
20,000,000 6.50% due 8/15/2003 17,358,050 18,097,400 0.3
5,000,000 8.57% due 11/15/2024 5,011,800 5,222,550 0.1
-------------- -------------- ------
201,294,385 193,042,230 3.0
Broadcasting & 30,000,000 News America Holdings, Inc., 7.50%
Publishing due 3/01/2000 29,179,330 29,333,100 0.5
<PAGE>
Capital Goods GATX Capital Corp.:
30,000,000 5.45% due 3/18/1996 30,000,000 29,549,700 0.5
15,000,000 5.48% due 3/22/1996 15,000,000 14,776,050 0.2
10,000,000 8.20% due 5/05/1997 10,000,000 10,116,900 0.1
10,000,000 General American Transport Corp., 8.625%
due 12/01/2004 9,936,900 10,357,200 0.2
-------------- -------------- ------
64,936,900 64,799,850 1.0
Chemicals Grace (W.R.) & Co.:
10,000,000 6.85% due 6/23/1997 9,903,700 9,849,000 0.2
20,000,000 7.40% due 2/01/2000 19,663,100 19,537,600 0.3
10,000,000 8% due 8/15/2004 9,530,100 9,830,500 0.1
-------------- -------------- ------
39,096,900 39,217,100 0.6
Diversified ITT Corp.:
Companies 20,000,000 5.50% due 3/24/1997 20,000,000 19,351,400 0.3
10,000,000 7.25% due 5/15/1997 10,080,100 9,940,600 0.2
5,000,000 8.125% due 11/15/1998 5,065,810 5,082,550 0.1
14,000,000 Tenneco, Inc., 7.875% due 10/01/2002 13,612,800 13,903,960 0.2
-------------- -------------- ------
48,758,710 48,278,510 0.8
Electronics 10,000,000 Philips Electronics N.V., 8.375% due 9/15/2006 10,039,100 10,223,300 0.2
Finance 5,000,000 Caterpillar Financial Services Corp., 5.35%
due 11/10/1998 4,924,800 4,643,400 0.1
22,000,000 Chrysler Finance Corp., 6.50% due 6/15/1998 22,107,192 21,328,120 0.3
40,000,000 ++GTE Finance Corp., 5.81% due 12/15/1997 40,000,000 38,200,000 0.6
8,000,000 General Electric Capital Corp., 5.13%
due 4/01/2004 8,000,000 8,056,000 0.1
General Motors Acceptance Corp.:
8,000,000 5.20% due 12/13/1996 7,680,000 7,742,000 0.1
22,000,000 6.70% due 4/15/1997 21,755,440 21,686,280 0.3
25,000,000 7% due 8/19/1997 24,898,750 24,719,250 0.4
10,000,000 8.25% due 1/23/1998 9,977,100 10,161,800 0.2
15,000,000 5.95% due 1/11/1999 13,783,650 14,142,150 0.2
25,000,000 5.875% due 1/12/1999 25,044,500 23,506,000 0.4
45,000,000 5.625% due 2/01/1999 43,885,925 41,851,800 0.7
10,000,000 7.15% due 4/30/1999 9,884,400 9,786,500 0.1
21,000,000 7.375% due due 6/22/2000 20,693,890 20,578,740 0.3
10,000,000 Greyhound Financial Corp., 6.75% due 3/25/1999 9,694,200 9,684,400 0.1
Household Finance Corp.:
10,000,000 6.70% due 8/08/1997 9,999,800 9,868,100 0.2
20,000,000 7.125% due 4/30/1999 19,142,400 19,675,600 0.3
10,000,000 7.45% due 4/01/2000 9,958,700 9,907,400 0.2
International Lease Finance Corp.:
25,000,000 5.98% due 11/16/1998 24,975,500 23,691,250 0.4
22,500,000 6.05% due 4/30/1999 22,368,375 21,202,875 0.3
5,000,000 7.10% due 6/15/1999 4,930,900 4,886,850 0.1
10,000,000 8.15% due 10/01/2004 9,691,300 10,027,400 0.2
-------------- -------------- ------
363,396,822 355,345,915 5.6
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Services Dean Witter, Discover & Co.:
$ 10,000,000 6% due 3/01/1998 $ 9,808,950 $ 9,613,300 0.2%
6,000,000 6.75% due 10/15/2013 5,011,560 5,051,940 0.1
15,000,000 Morgan Stanley Group, Inc., 7.875%
due 12/15/1998 14,940,900 15,070,800 0.2
Smith Barney Shearson Holdings, Inc.:
20,000,000 6% due 3/15/1997 19,897,700 19,475,400 0.3
15,000,000 7.98% due 3/01/2000 15,017,850 15,057,300 0.2
-------------- -------------- ------
64,676,960 64,268,740 1.0
Food & Tobacco 10,000,000 RJR Nabisco Holding Corp., 8.30% due 4/15/1999 9,897,500 10,050,000 0.2
Foreign 10,000,000 Hellenic Republic (Greece), 9.75% due 11/28/1999 10,020,300 10,336,800 0.2
Government Republic of Argentina:
Obligations 29,000,000 10.95% due 11/01/1999 24,392,500 25,592,500 0.4
14,000,000 8.375% due 12/20/2003 8,715,000 9,170,000 0.1
-------------- -------------- ------
43,127,800 45,099,300 0.7
Hospital Columbia-HCA Healthcare Corp.:
Management 20,000,000 6.125% due 12/15/2000 18,456,800 18,340,600 0.3
20,000,000 8.70% due 2/10/2010 19,921,500 20,702,600 0.3
10,000,000 National Medical Enterprises, Inc., 9.625%
due 9/01/2002 10,000,000 10,225,000 0.2
-------------- -------------- ------
48,378,300 49,268,200 0.8
Industrial 9,775,000 Crane Co., 7.25% due 6/15/1999 9,619,840 9,550,859 0.1
Insurance 10,000,000 NAC Re Corp., 8% due 6/15/1999 10,189,300 9,990,900 0.1
20,000,000 Travelers Inc., 6.125% due 6/15/2000 18,772,550 18,606,400 0.3
-------------- -------------- ------
28,961,850 28,597,300 0.4
Machinery 10,000,000 Black & Decker Corp., 6.625% due 11/15/2000 9,343,100 9,254,200 0.1
10,000,000 Harris Corp., 10.375% due 12/01/2018 10,541,400 10,976,900 0.2
10,000,000 TRINOVA Corp., 7.95% due 5/01/1997 9,975,000 9,935,400 0.2
-------------- -------------- ------
29,859,500 30,166,500 0.5
<PAGE>
Manufactured 3,000,000 Oakwood Homes Corp., 9.125% due 6/01/2007 3,000,000 3,007,500 0.0
Housing
Natural Gas Coastal Corp.:
Suppliers 13,000,000 8.75% due 5/15/1999 13,055,960 13,229,190 0.2
30,000,000 8.125% due 9/15/2002 29,984,410 29,876,700 0.5
10,000,000 Williams Companies, Inc., 8.875% due 9/15/2012 10,172,200 10,261,700 0.1
-------------- -------------- ------
53,212,570 53,367,590 0.8
Oil--Integrated Occidental Petroleum Corp.:
15,100,000 5.85% due 11/09/1998 14,057,259 14,207,741 0.2
12,000,000 5.90% due 11/09/1998 11,343,120 11,311,320 0.2
-------------- -------------- ------
25,400,379 25,519,061 0.4
Oil--International 5,000,000 Union Texas Petroleum Holdings, Inc., 8.375%
due 3/15/2005 5,008,250 5,000,000 0.1
Pharmaceutical 5,750,000 Cardinal Distribution, Inc., 8% due 3/01/1997 5,750,000 5,791,228 0.1
Distribution
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Railroads $ 3,000,000 Burlington Northern, Inc., 7.40% due 5/15/1999 $ 2,993,580 $ 2,974,230 0.0%
Services 17,725,000 ADT Operations, 8.25% due 8/01/2000 17,873,500 17,237,563 0.3
Steel 20,000,000 USX Corp., 6.375% due 7/15/1998 19,894,000 19,197,400 0.3
Telecommunications 20,000,000 AT&T Capital Corp., 7.66% due 1/30/1997 20,000,000 20,178,000 0.3
10,000,000 Allnet Communications Services, Inc., 9%
due 5/15/2003 9,746,250 9,600,000 0.2
10,000,000 Bell Atlantic Financial Services, Inc., 5.47%
due 4/27/1998 10,031,400 9,508,900 0.1
-------------- -------------- ------
39,777,650 39,286,900 0.6
<PAGE>
Utilities--Electric Commonwealth Edison Co.:
10,000,000 6% due 3/15/1998 10,157,200 9,521,700 0.2
25,000,000 6.40% due 10/15/2005 21,178,955 21,543,500 0.3
5,000,000 Long Island Lighting Co., 7.625% due 4/15/1998 4,986,210 4,961,750 0.1
15,000,000 PECO Energy Co., 7.50% due 1/15/1999 15,111,500 14,886,000 0.2
Texas Utilities Co.:
5,000,000 7.125% due 6/01/1997 4,987,500 4,970,650 0.1
9,500,000 5.75% due 7/01/1998 9,297,135 9,008,375 0.1
United Illuminating Co.:
5,000,000 7.375% due 1/15/1998 5,003,125 4,933,800 0.1
5,000,000 6.20% due 1/15/1999 4,693,050 4,702,500 0.1
-------------- -------------- ------
75,414,675 74,528,275 1.2
Total Corporate Bonds 1,293,908,201 1,276,362,501 20.0
Collateralized Mortgage Obligations
Federal Home Loan Mortgage Corp.:
20,000,000 5.80% due 4/15/2006 18,615,625 18,381,200 0.3
17,879,976 6% due 4/15/2006 17,467,200 17,181,539 0.3
Federal National Mortgage Association:
20,000,000 5.10% due 3/25/2002 19,256,250 19,037,400 0.3
20,000,000 5% due 3/25/2012 19,425,000 18,893,600 0.3
10,000,000 5% due 4/25/2014 9,756,250 9,462,500 0.1
29,402,892 6.999% due 10/25/2022 25,326,303 25,928,528 0.4
19,439,157 Prudential Home Mortgage Security Co.,
5.25% due 12/25/2000 18,606,918 18,467,199 0.3
Total Collateralized Mortgage Obligations 128,453,546 127,351,966 2.0
US Government Obligations
US Treasury Notes:
10,000,000 6.875% due 8/31/1999 9,951,562 9,923,000 0.2
236,000,000 6.375% due 8/15/2002 222,402,854 224,974,080 3.5
475,000,000 7.25% due 5/15/2016 448,562,150 459,263,250 7.2
400,000,000 7.50% due 11/15/2016 382,711,719 396,936,000 6.2
Total US Government Obligations 1,063,628,285 1,091,096,330 17.1
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Short-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $202,366,000 General Electric Capital Corp.,
6.25% due 4/03/1995 $ 202,295,734 $ 202,295,734 3.2%
Total Short-Term Investments 202,295,734 202,295,734 3.2
Total Investments $5,991,906,725 6,344,865,375 99.3
==============
Other Assets Less Liabilities 45,254,558 0.7
-------------- ------
Net Assets $6,390,119,933 100.0%
============== ======
<FN>
*American Depositary Receipt (ADR).
**Commercial Paper is traded on a
discount basis; the interest rate shown
is the discount rate paid at the time
of purchase by the Fund.
(a)Name changed from Illinois Power Co.
(b)Non-income producing security.
++Restricted security as to resale. The value of the Fund's investments in the restricted security was
approximately $38,200,000, representing 0.6% of net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C>
GTE Finance Corp., 5.81% due 12/15/1997 5/25/1993 $40,000,000 $38,200,000
Total $40,000,000 $38,200,000
=========== ===========
++++Investments in companies 5% or more of whose outstanding securities are held by the Fund (such
companies are defined as "Affiliated Companies" in section 2(a)(3) of the Investment Company Act of
1940) are as follows:
<CAPTION>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <S> <C> <C>
Banking Union Planters Corp. 128,000 $3,758,652 $1,303,200
Home Builders Oriole Homes Corp. -- -- 108,000
Insurance Fremont General Corp. 262,000 6,181,523 --
Office Equipment Wallace Computer Services, Inc. (7,000) 75,649 793,102
Services PHH Corp. -- -- 2,104,200
Steel Cleveland Cliffs, Inc. (3,000) (111,680) 1,325,900
See Notes to Financial Statements.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION
Ten Largest Percent of
Common Stock Holdings Net Assets
NationsBank Corp. 2.4%
Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR) 2.3
The Goodyear Tire & Rubber Co. 2.1
Chemical Banking Corp. 2.1
Williams Companies, Inc. 1.7
Sears, Roebuck & Co. 1.7
American International Group, Inc. 1.4
Grace (W.R.) & Co. 1.2
United Technologies Corp. 1.2
GTE Corp. 1.1
Ten Largest Percent of
Industries Net Assets*
Banking 10.5%
Insurance 6.5
Finance 5.6
Pharmaceuticals 4.9
Natural Gas Suppliers 4.3
Chemicals 4.3
Diversified Companies 3.2
Oil--Integrated 2.8
Oil & Gas Producers 2.6
Retail Trade 2.4
[FN]
*Based on total holdings in commmon stocks and bonds.
<PAGE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of March 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$5,991,906,725) (Note 1a) $6,344,865,375
Receivables:
Securities sold $ 70,189,239
Interest 51,868,769
Capital shares sold 32,656,354
Dividends 10,991,721 165,706,083
--------------
Prepaid registration fees and other assets (Note 1f) 66,763
--------------
Total assets 6,510,638,221
--------------
Liabilities: Payables:
Securities purchased 74,693,709
Capital shares redeemed 21,297,144
Distributor (Note 2) 3,099,130
Investment adviser (Note 2) 2,142,361 101,232,344
--------------
Accrued expenses and other liabilities 19,285,944
--------------
Total liabilities 120,518,288
--------------
Net Assets: Net assets $6,390,119,933
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 300,000,000 shares
Consist of: authorized $ 9,040,642
Class B Shares of Common Stock, $0.10 par value, 300,000,000 shares
authorized 13,432,818
Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 172,620
Class D Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 617,567
Paid-in capital in excess of par 5,886,600,213
Undistributed investment income--net 61,422,496
Undistributed realized capital gains on investments and foreign
currency transactions--net 65,876,859
Unrealized appreciation on investments and foreign currency
transactions--net 352,956,718
--------------
Net assets $6,390,119,933
==============
<PAGE>
Net Asset Value: Class A--Based on net assets of $2,507,766,853 and 90,406,424 shares
outstanding $ 27.74
==============
Class B--Based on net assets of $3,664,249,823 and 134,328,178 shares
outstanding $ 27.28
==============
Class C--Based on net assets of $46,902,309 and 1,726,200 shares
outstanding $ 27.17
==============
Class D--Based on net assets of $171,200,948 and 6,175,669 shares
outstanding $ 27.72
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Statement of Operations for the Year Ended March 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 142,744,258
Income Dividends (net of $1,800,077 foreign withholding tax) 108,179,348
(Notes 1d & 1e): Other 272,288
--------------
Total income 251,195,894
--------------
Expenses: Distribution fees--Class B (Note 2) 33,250,376
Investment advisory fees (Note 2) 23,221,209
Transfer agent fees--Class B (Note 2) 5,124,732
Transfer agent fees--Class A (Note 2) 3,099,547
Printing and shareholder reports 574,959
Custodian fees 499,949
Registration fees (Note 1f) 406,040
Professional fees 127,195
Account maintenance fees--Class D (Note 2) 110,571
Distribution fees--Class C (Note 2) 88,111
Transfer agent fees--Class D (Note 2) 75,967
Directors' fees and expenses 40,890
Transfer agent fees--Class C (Note 2) 17,660
Pricing fees 7,109
Other 38,471
--------------
Total expenses 66,682,786
--------------
Investment income--net 184,513,108
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net $ 240,271,642
(Loss) on Foreign currency transactions--net (10,591,681) 229,679,961
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 156,164,666
(Notes 1b, 1c, Foreign currency transactions--net 16,947 156,181,613
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 385,861,574
--------------
Net Increase in Net Assets Resulting from Operations $ 570,374,682
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended March 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 184,513,108 $ 150,688,436
Realized gain on investments and foreign currency
transactions--net 229,679,961 277,803,155
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 156,181,613 (196,672,342)
-------------- --------------
Net increase in net assets resulting from operations 570,374,682 231,819,249
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (79,657,527) (72,525,266)
Shareholders Class B (80,336,105) (71,778,790)
(Note 1g): Class C (186,349) --
Class D (1,531,830) --
Realized gain on investments--net:
Class A (132,046,243) (72,489,831)
Class B (188,065,461) (100,419,177)
Class C (321,434) --
Class D (2,472,719) --
-------------- --------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (484,617,668) (317,213,064)
-------------- --------------
Capital Share Net increase in net assets derived from capital share transactions 987,538,601 651,421,432
Transactions -------------- --------------
(Note 4):
<PAGE>
Net Assets: Total increase in net assets 1,073,295,615 566,027,617
Beginning of year 5,316,824,318 4,750,796,701
-------------- --------------
End of year* $6,390,119,933 $5,316,824,318
============== ==============
<FN>
*Undistributed investment income--net $ 61,422,496 $ 38,621,199
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 27.46 $ 27.89 $ 26.90 $ 25.38 $ 23.65
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net 1.01 .97 .87 1.02 1.17
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.77 .50 1.99 2.12 2.24
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.78 1.47 2.86 3.14 3.41
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.94) (.95) (.87) (1.02) (1.14)
Realized gain on investments--net (1.56) (.95) (1.00) (.60) (.54)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (2.50) (1.90) (1.87) (1.62) (1.68)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 27.74 $ 27.46 $ 27.89 $ 26.90 $ 25.38
=========== =========== =========== =========== ===========
Total Investment Based on net asset value per share 10.95% 5.39% 11.33% 12.96% 15.17%
Return:* =========== =========== =========== =========== ===========
Ratios to Expenses .57% .53% .55% .56% .58%
Average =========== =========== =========== =========== ===========
Net Assets: Investment income--net 3.81% 3.52% 3.56% 4.21% 5.13%
=========== =========== =========== =========== ===========
Supplemental Net assets, end of year (in thousands) $ 2,507,767 $ 2,237,492 $ 2,056,023 $ 1,533,530 $ 1,083,741
Data: =========== =========== =========== =========== ===========
Portfolio turnover 89% 86% 55% 59% 86%
=========== =========== =========== =========== ===========
<PAGE>
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1995 1994 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 27.04 $ 27.49 $ 26.58 $ 25.14 $ 23.46
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net .74 .70 .65 .80 .96
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.72 .48 1.89 2.05 2.19
----------- ----------- ----------- ----------- -----------
Total from investment operations 2.46 1.18 2.54 2.85 3.15
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net (.66) (.68) (.63) (.81) (.93)
Realized gain on investments--net (1.56) (.95) (1.00) (.60) (.54)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions (2.22) (1.63) (1.63) (1.41) (1.47)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 27.28 $ 27.04 $ 27.49 $ 26.58 $ 25.14
=========== =========== =========== =========== ===========
Total Investment Based on net asset value per share 9.81% 4.36% 10.16% 11.81% 14.03%
Return:* =========== =========== =========== =========== ===========
Ratios to Expenses, excluding distribution fees .59% .55% .56% .58% .60%
Average =========== =========== =========== =========== ===========
Net Assets: Expenses 1.59% 1.55% 1.56% 1.58% 1.60%
=========== =========== =========== =========== ===========
Investment income--net 2.79% 2.50% 2.53% 3.14% 4.11%
=========== =========== =========== =========== ===========
Supplemental Net assets, end of year (in thousands) $ 3,664,250 $ 3,079,332 $ 2,694,774 $ 1,582,065 $ 620,842
Data: =========== =========== =========== =========== ===========
Portfolio turnover 89% 86% 55% 59% 86%
=========== =========== =========== =========== ===========
<FN>
*Total investment returns exclude the effects of sales loads.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
March 31, 1995
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 26.81 $ 27.27
Operating -------- -------
Performance: Investment income--net .49 .48
Realized and unrealized gain on investments and foreign currency
transactions--net 1.03 1.15
-------- -------
Total from investment operations 1.52 1.63
-------- -------
Less dividends and distributions:
Investment income--net (.43) (.45)
Realized gain on investments--net (.73) (.73)
-------- -------
Total dividends and distributions (1.16) (1.18)
Net asset value, end of period $ 27.17 $ 27.72
======== ========
Total Investment Based on net asset value per share 6.07%+++ 6.42%+++
Return:** ======== ========
Ratios to Average Expenses, excluding account maintenance and distribution fees .64%* .62%*
Net Assets: ======== ========
Expenses 1.64%* .87%*
======== ========
Investment income--net 3.22%* 3.94%*
======== ========
Supplemental Net assets, end of period (in thousands) $ 46,902 $171,201
Data: ======== ========
Portfolio turnover 89% 89%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Capital Fund, Inc. (the "Fund") is regis-
tered under the Investment Company Act of 1940 as a
diversified, open-end management investment company.
The Fund offers four classes of shares under the Merrill
Lynch Select Pricing SM System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of
Class B and Class C may be subject to a contingent
deferred sales charge. All classes of shares have identical
voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C
and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive
voting rights with respect to matters relating to its
account maintenance and distribution expenditures.
The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which
are traded on stock exchanges are valued at the last
sale price on exchanges on which such securities are
traded, as of the close of business on the day the
securities are being valued or, lacking any sales, at the
last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid
price prior to the time of valuation. In cases where
securities are traded on more than one exchange, the
securities are valued on the exchange designated by or
under the authority of the Board of Directors as the
primary market. Securities which are traded both in the
over-the-counter market and on a stock exchange are
valued according to the broadest and most representa-
tive market. Options written are valued at the last sale
price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market,
the last asked price. Short-term securities are valued
at amortized cost, which approximates market value.
Other investments are stated at market value. Securities
and assets for which market value quotations are not
available are valued at their fair value as determined in
good faith by or under the direction of the Fund's Board
of Directors.
(b) Derivative financial instruments--The Fund may
engage in various portfolio strategies to seek to increase
its return by hedging its portfolio against adverse move-
ments in the equity, debt and currency markets. Losses
may arise due to changes in the value of the contract or
if the counterparty does not perform under the contract.
<PAGE>
*Options--The Fund is authorized to write covered call
options. When the Fund sells an option, an amount
equal to the premium received by the Fund is reflected
as an asset and an equivalent liability. The amount of the
liability is subsequently marked to market to reflect the
current market value of the option written. When a
security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired
or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a
gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost
of the closing transaction exceeds the premium paid
or received). Written and purchased options are
non-income producing investments.
(c) Foreign currency transactions--Transactions denom-
inated in foreign currencies are recorded at the exchange
rate prevailing when recognized. Assets and liabilities
denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency
transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unreal-
ized gains or losses from investments include the effects
of foreign exchange rates on investments.
(d) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a with-
holding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered into (the trade dates). Divi-
dend income is recorded on the ex-dividend date, except
that if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the
Fund is informed of the ex-dividend date. Interest
income (including amortization of discount) is recognized
on the accrual basis. Realized gains and losses on
security transactions are determined on the identified
cost basis.
(f) Prepaid registration fees--Prepaid registration fees
are charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and
distributions paid by the Fund are recorded on the
ex-dividend dates.
<PAGE>
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Merrill Lynch Asset Management, L.P.
("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned sub-
sidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which
is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with
Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facili-
ties, equipment and certain other services necessary to
the operations of the Fund. For such services, the Fund
pays a monthly fee based upon the average daily value of
the Fund's net assets at the following annual rates:
0.50% of the Fund's average daily net assets not
exceeding $250 million; 0.45% of average daily net assets
in excess of $250 million but not exceeding $300 million;
0.425% of average daily net assets in excess of $300
million but not exceeding $400 million; and 0.40% of
average daily net assets in excess of $400 million. The
Investment Advisory Agreement obligates MLAM to
reimburse the Fund to the extent the Fund's expenses
(excluding interest, taxes, distribution fees, brokerage
fees and commissions, and extraordinary items) exceed
2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the Fund's next $70 million of average
daily net assets, and 1.5% of the average daily net assets
in excess thereof. No fee payment will be made to the
Investment Adviser during any fiscal year which will
cause such expenses to exceed the most restrictive
expense limitation at the time of such payment.
Pursuant to the distribution plans (the "Distribution
Plans") adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the
Fund pays the Distributor ongoing account maintenance
and distribution fees. The fees are accrued daily and
paid monthly at annual rates based upon the average
daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
<PAGE>
Pursuant to a sub-agreement with the Distributor,
Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"),
a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account mainte-
nance services to Class B, Class C and Class D share-
holders. The ongoing distribution fee compensates
the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and
Class C shareholders.
For the year ended March 31, 1995, MLFD earned
underwriting discounts and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D
Shares as follows:
MLFD MLPF&S
Class A $168,068 $2,770,834
Class D $ 50,600 $ 871,472
For the year ended March 31, 1995, MLPF&S received
contingent deferred sales charges of $3,965,708 and
$4,929 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $315,095 in commissions
on the execution of portfolio security transactions for
the Fund for the year ended March 31, 1995.
Financial Data Services, Inc. ("FDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM
at cost.
Certain officers and/or directors of the Fund are officers
and/or directors of MLAM, PSI, MLPF&S, FDS, MLFD,
and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the year ended March 31, 1995
were $5,599,721,276 and $5,009,815,623, respectively.
Net realized and unrealized gains (losses) as of
March 31, 1995 were as follows:
<PAGE>
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $240,112,182 $352,958,650
Short-term investments (15,073) --
Paydowns 174,533 --
Foreign currency
transactions (10,591,681) (1,932)
------------ ------------
Total $229,679,961 $352,956,718
============ ============
As of March 31, 1995, net unrealized appreciation for
Federal income tax purposes aggregated $349,542,219
of which $440,544,225 related to appreciated securities
and $91,002,006 related to depreciated securities. At
March 31, 1995, the aggregate cost of investments for
Federal income tax purposes was $5,995,323,156.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions was $987,538,601 and $651,421,432 for the
years ended March 31, 1995 and 1994, respectively.
Transactions in capital shares for each class were as
follows:
Class A Shares for the Year Dollar
Ended March 31, 1995 Shares Amount
Shares sold 17,286,503 $471,481,609
Shares issued to shareholders
in reinvestment of dividends &
distributions 7,424,496 192,734,824
------------ ------------
Total issued 24,710,999 664,216,433
Shares redeemed (15,776,697) (427,291,645)
------------ ------------
Net increase 8,934,302 $236,924,788
============ ============
<PAGE>
Class A Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 18,233,680 $513,827,652
Shares issued to shareholders
in reinvestment of dividends &
distributions 4,757,359 130,645,330
------------ ------------
Total issued 22,991,039 644,472,982
Shares redeemed (15,246,391) (429,372,888)
------------ ------------
Net increase 7,744,648 $215,100,094
============ ============
Class B Shares for the Year Dollar
Ended March 31, 1995 Shares Amount
Shares sold 35,795,347 $958,699,323
Shares issued to shareholders
in reinvestment of dividends &
distributions 9,333,565 239,011,925
------------ ------------
Total issued 45,128,912 1,197,711,248
Shares redeemed (20,872,708) (557,090,978)
Automatic conversion
of shares (3,804,492) (100,075,150)
------------ ------------
Net increase 20,451,712 $540,545,120
============ ============
Class B Shares for the Year Dollar
Ended March 31, 1994 Shares Amount
Shares sold 29,452,988 $816,967,279
Shares issued to shareholders
in reinvestment of dividends &
distributions 5,685,835 154,225,540
------------ ------------
Total issued 35,138,823 971,192,819
Shares redeemed (19,273,929) (534,871,481)
------------ ------------
Net increase 15,864,894 $436,321,338
============ ============
<PAGE>
Class C Shares for the
Period October 21, 1994++ to Dollar
March 31, 1995 Shares Amount
Shares sold 1,868,357 $ 49,114,822
Shares issued to shareholders
in reinvestment of dividends &
distributions 18,191 452,606
------------ ------------
Total issued 1,886,548 49,567,428
Shares redeemed (160,348) (4,186,298)
------------ ------------
Net increase 1,726,200 $ 45,381,130
============ ============
[FN]
++Commencement of Operations.
Class D Shares for the
Period October 21, 1994++ to Dollar
March 31, 1995 Shares Amount
Shares sold 2,621,771 $ 69,784,869
Shares issued to shareholders
in reinvestment of dividends &
distributions 140,100 3,548,731
Automatic conversion
of shares 3,740,107 100,075,150
------------ ------------
Total issued 6,501,978 173,408,750
Shares redeemed (326,309) (8,721,187)
------------ ------------
Net increase 6,175,669 $164,687,563
============ ============
[FN]
++Commencement of Operations.
5. Commitments:
At March 31, 1995, the Fund had entered into forward
exchange contracts under which it had agreed to buy
and sell various foreign currencies with values of
$2,838,892 and $165,434, respectively.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Capital Fund, Inc.:
We have audited the accompanying statement of
assets and liabilities, including the schedule of invest-
ments, of Merrill Lynch Capital Fund, Inc. as of
March 31, 1995, the related statements of operations
for the year then ended and changes in net assets for
each of the years in the two-year period then ended,
and the financial highlights for each of the periods in the
five-year period then ended. These financial statements
and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an
opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and
the financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of
securities owned at March 31, 1995 by correspondence
with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating
the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial
highlights present fairly, in all material respects, the
financial position of Merrill Lynch Capital Fund, Inc. as
of March 31, 1995, the results of its operations, the
changes in its net assets, and the financial highlights for
the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 5, 1995
</AUDIT-REPORT>
<PAGE>
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended March 31, 1995
Additions
Stocks
AlliedSignal, Inc.
Cadbury Schweppes PLC
Cascade Natural Gas Corp.
Entergy Corp.
Exxon Corp.
Ford Motor Company
Harsco Corp.
Integon Corp.
Kumagai Gumi Co., Ltd. (Ordinary)
Magma Copper Co.
National Australian Bank Ltd.
*Pittston Co.
Premark International, Inc.
*Ren Corporation
Repsol S.A. (ADR)
Roche Holdings AG
Rollins, Inc.
*Sphere Drake Holdings Ltd.
TIG Holdings, Inc.
Texaco Inc.
Texas Utilities Company
Bonds
AT&T Capital Corp., 7.66% due 1/30/1997
Bank of Boston Corp., 6.625% due 12/01/2005
Bankers Trust Company, 7.50% due 1/15/2002
The Chase Manhattan Corp., 6.75% due 8/15/2008
Coastal Corp., 8.125% due 9/15/2002
Columbia-HCA Healthcare Corp., 8.70% due 2/10/2010
Commonwealth Edison Co., 6.40% due 10/15/2005
Dean Witter, Discover & Co., 6.75% due 10/15/2013
Federal National Mortgage Association, 6.999%
due 10/25/2022
First Chicago Corp., 6.375% due 1/30/2009
General Motors Acceptance Corp.:
8.25% due 1/23/1998
5.95% due 1/11/1999
Grace (W.R.) & Co., 8% due 8/15/2004
Household Finance Corp.:
7.125% due 4/30/1999
7.45% due 4/01/2000
National Medical Enterprises, Inc., 9.625% due 9/01/2002
Philips Electronics N.V., 8.375% due 9/15/2006
Republic of Argentina, 8.375% due 12/20/2003
Smith Barney Shearson Holdings, Inc., 7.98%
due 3/01/2000
Tenneco, Inc., 7.875% due 10/01/2002
US Treasury Notes:
6.875% due 8/31/1999
6.375% due 8/15/2002
Union Texas Petroleum Holdings, Inc., 8.375%
due 3/15/2005
Williams Companies, Inc., 8.875% due 9/15/2012
<PAGE>
Deletions
Stocks
CIGNA Corp.
Dresser Industries, Inc.
Heinz (H.J.) Co.
Honeywell, Inc.
IVAX Corp.
Masco Corp.
NICOR, Inc.
*Pittston Co.
Public Service Co. of Colorado
*Ren Corporation
Rigel Energy Corp.
Ryland Group, Inc.
Sears, Roebuck & Co. Preferred PERCS
*Sphere Drake Holdings Ltd.
Trident Microsystems, Inc.
[FN]
*Added and deleted in the same quarter.
Bonds
AT&T Capital Corp., 6.99% due 10/04/1996
AVCO Financial Services, Inc., 5.875% due 10/15/1997
Associates Corp., 4.75% due 8/01/1996
BankAmerica Corp.:
7.25% due 2/03/1997
7.50% due 3/15/1997
Bell Canada, Inc., 7.125% due 5/01/1998
Canadian Tire Corp., 7.50% due 3/04/1998
Cemex, S.A. de C.V., 8.875% due 6/10/1998
Chemical Banking Corp., 6.50% due 1/15/2009
Chrysler Finance Corp., 6% due 6/03/1996
Commonwealth Edison Co., 7% due 2/01/1997
Dow Chemical Co., 6.85% due 8/15/2013
Federal Home Loan Mortgage Corp., 5.40% due 4/15/2002
Ford Motor Co.:
5.625% due 3/03/1997
5.625% due 1/15/1999
General Electric Capital Corp., 5.38% due 11/17/1997
General Motors Acceptance Corp.:
7.75% due 4/15/1997
7.45% due 6/05/1997
Household Finance Corp.:
5.51% due 3/17/1997
6.25% due 10/15/1997
<PAGE>
Household International, Inc., 5.25% due 10/15/1998
International Business Machines Corp., 7.50%
due 6/15/2013
Lockheed Corp., 5.65% due 4/01/1997
National Medical Enterprises, Inc.:
8.05% due 5/15/1997
7.375% due 9/01/1997
Norwest Financial, Inc.:
4.93% due 11/15/1996
6.25% due 2/15/1997
Occidential Petroleum Corp., 6.04% due 9/15/1997
Sears, Roebuck & Co.:
5.25% due 2/24/1997
8.45% due 11/01/1998
5.86% due 1/22/1999
Tenneco, Inc., 8% due 11/15/1999
Tennessee Gas Pipeline, 6% due 12/15/2011
US Treasury Notes:
4% due 1/31/1996
4.625% due 2/15/1996
4.25% due 5/15/1996
4.375% due 8/15/1996
4.375% due 11/15/1996
5.25% due 7/31/1998
5.875% due 3/31/1999
5.75% due 8/15/2003
Union Texas Petroleum Holdings, Inc., 8.25%
due 11/15/1999
UtiliCorp United, Inc., 6% due 4/01/1998
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill Lynch Capital Fund, Inc. during the
fiscal year ended March 31, 1995:
<CAPTION>
Record Payable Qualifying Domestic Interest from Other Non-Qualifying Total Long-Term
Date Date Ordinary Income* Federal Obligations Ordinary Income Ordinary Income Capital Gains
<S> <C> <C> <C> <C> <C> <C>
Class A Shares:
07/05/94 07/13/94 $.264483 $.045902 $.357236 $.667621 $.628302
12/12/94 12/20/94 $.260126 $.065430 $.254178 $.579734 $.617148
Class B Shares:
07/05/94 07/13/94 $.210917 $.036606 $.284885 $.532408 $.628302
12/12/94 12/20/94 $.198070 $.049821 $.193541 $.441432 $.617148
Class C Shares:
12/12/94 12/20/94 $.243477 $.061243 $.237909 $.542629 $.617148
Class D Shares:
12/12/94 12/20/94 $.256572 $.064536 $.250704 $.571812 $.617148
</TABLE>
<PAGE>
The qualifying domestic ordinary income qualifies for
the dividends-received deduction for corporations.
The law varies in each state as to whether and what
percentage of dividend income attributable to Federal
obligations is exempt from state income tax. We
recommend that you consult your tax adviser to
determine if any portion of the dividends you received
are exempt from state income tax.
Listed at right are the percentages of total assets of the
Fund invested in Federal obligations as of the end of
each quarter of the fiscal year.
Please retain this information for your records.
Percentage of
For the Quarter Ended Federal Obligations*
June 30, 1994 10.92%
September 30, 1994 10.46%
December 31, 1994 12.54%
March 31, 1995 16.24%
[FN]
*For purposes of this calculation, Federal Obligations include
US Treasury Notes, US Treasury Bills and US Treasury Bonds.
Also included are obligations issued by the following agencies:
Banks for Cooperatives, Federal Intermediate Credit Banks,
Federal Land Banks, Federal Home Loan Banks and the Student
Loan Marketing Association. Repurchase Agreements are not
included in this calculation.
