MERRILL LYNCH
CAPITAL FUND, INC.
FUND LOGO
Annual Report
March 31, 1996
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. Statements and other information
herein are as dated and are subject to change.
<PAGE>
Merrill Lynch
Capital Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH CAPITAL FUND, INC.
PORTFOLIO SUMMARY
Security Diversification
As of March 31, 1996
A pie chart illustrating the following percentages:
US Bonds 46.33%
Non-US Bonds 2.85%
US Stocks 35.50%
Non-US Stocks 11.50%
Cash & Cash Equivalents 3.82%
Sector Representation
As a Percentage of US Equities
As of March 31, 1996
A pie chart illustrating the following percentages:
<PAGE>
Financial Services 26.07%
Consumer Services 4.16%
Utilities 6.14%
Transportation 0.88%
Capital Goods--Technology 7.44%
Basic Industries 6.67%
Diversified 3.29%
Consumer Staples 12.22%
Credit Cyclicals 0.22%
Capital Goods 3.58%
Energy 21.36%
Consumer Cyclicals 7.97%
Geographic Diversification Percent of
As of March 31, 1996 Net Assets*
United States 85.8%
Argentina 4.8
United Kingdom 3.0
Switzerland 1.2
France 1.1
Netherlands 0.9
Canada 0.8
Spain 0.6
Brazil 0.4
Australia 0.3
Singapore 0.3
Thailand 0.2
Finland 0.2
Hong Kong 0.1
Ireland 0.1
Colombia 0.1
Peru 0.1
[FN]
*Includes investments in short-term securities.
US Common Stock Investments S&P
As of March 31, 1996 Fund 500*
Average Capitalization (in billions) $10.2 $ 9.6
Price/Book Value 2.2 4.1
Price/Earnings Ratio** 13.1 16.5
Yield Based on Current Dividend 2.8% 2.1%
[FN]
*An unmanaged broad-based index comprised of common stocks.
**Based on 1996 earnings estimates.
<PAGE>
Fixed-Income Investments Merrill Lynch
As of March 31, 1996 Fund DOAO Index*
Duration 5.3 Years 5.1 Years
Average Maturity 7.9 Years 12.7 Years
Asset Breakdown:
Corporates 48.2% 17.4%
US Treasuries/Agencies 45.8% 55.1%
Mortgage-Backed 2.3% 27.5%
International Governments 3.7% --
[FN]
*An unmanaged market-weighted corporate, Government and mortgage master
bond index reflecting approximately 97% of total outstanding bonds.
DEAR SHAREHOLDER
A number of crosscurrents buffeted the US financial
markets during the first quarter of 1996. Uncertain
prospects for economic growth and, in turn, the
outlook for inflation and interest rates resulted in
divergent performance between the stock and bond
markets and high levels of volatility within each
market. Early in the year, the risk of an economic
recession appeared quite high. Fourth quarter 1995
gross domestic product was reported to have grown
at a sluggish 0.5%. Retail sales were weak as the
increasingly debt-burdened consumer began to
retrench and a number of prominent retail chains
were forced into bankruptcy. Inventories of autos,
housing and certain industrial commodities were
historically high, while poor economic conditions
among our major trading partners seemed likely to
restrain export growth opportunities. The Federal
Reserve Board, in reaction to these weak economic
indicators and continued low levels of inflation,
reduced short-term interest rates in January for the
second time in six weeks.
However, by March 31, 1996 quarter-end, an accumu-
lating body of evidence suggested the economy was
beginning to reaccelerate. Commodity prices, as
measured by the Commodity Research Bureau Index,
reached an eight-year high. Non-farm payroll employ-
ment exploded in February, rising by some 705,000
jobs and reducing the unemployment rate to 5.5%.
Retail sales trends improved, rising almost 5% in
February. Finally, and in contrast to earlier expecta-
tions, the Federal Reserve Board left short-term
interest rates unchanged following its March meeting.
<PAGE>
We do not believe current conditions support a
sustained increase in the rate of economic growth.
Consumers, who represent two-thirds of overall eco-
nomic activity, maintain debt and debt service
burdens at or near historic highs and are unlikely to
contribute significant incremental spending power
to the economy. Indeed, recent evidence of rising
delinquencies on credit card and other consumer
installment debt suggest that consumers are already
overextended and may begin to reduce spending in
the period ahead. Corporate capital expenditures are
projected to rise by a very modest 1.5% in 1996 after
1995's 8.1% rate of growth as industrial capacity
expansion moderates and technology spending slows.
The strengthening of the US dollar so far in 1996,
combined with weak economic conditions in Europe
and Japan, suggest limited export growth for US
companies as well. Therefore, we do not anticipate
an extended period of robust economic activity.
Within this context, inflationary pressures are likely
to remain well controlled.
Portfolio Matters
So far in 1996, the stock market has continued its
extraordinary advance. The combination of strong
corporate profit performance and unprecedented
mutual fund cash inflows propelled the Standard &
Poor's 500 Composite Index (S&P 500) to a +5.38%
total return for the three months ended March 31,
1996. These results have extended the stock market's
current record for the duration of an advance with-
out a 10% correction to 65 months, by far the longest
such bull market since 1960. The bond market, how-
ever, retreated during the March quarter, with the
unmanaged Merrill Lynch Domestic Bond Master
Index recording a -1.76% total return. This weak-
ness was prompted by perceptions of accelerating
economic activity and concerns over the lack of
progress in addressing the Federal budget deficit.
Short-term investments returned +1.23% for the
March quarter.
<PAGE>
While the stock market has risen over fivefold since
1982, it is worth noting that in the 14-year period
from 1968 to 1982, the stock market was actually flat
in price with all the return coming from dividend
income. Indeed, in the post-war period from 1946 to
1995, the dividend yield has provided approximately
40% of the stock market's total return. Meanwhile,
the S&P 500's current dividend yield of 2.13% is the
lowest since 1955. We do not believe the current
yield of the equity market provides adequate compen-
sation for the risk of equity ownership and have
further reduced Merrill Lynch Capital Fund, Inc.'s
equity exposure. We continue to seek high-quality
companies with strong competitive positions, sound
financial characteristics and good managements
whose stocks sell at reasonable prices. We are con-
cerned about the likelihood of a continuation of the
stock market's powerful advance in light of high
historical valuation levels and uncertain corporate
earnings prospects, however. Meanwhile, bond mar-
ket yields are attractive relative to both the rate of
inflation and stock dividend yields. We therefore
maintain a balanced investment posture in Merrill
Lynch Capital Fund, Inc., with 46.7% of the Fund's
net assets in stocks, 48.9% in bonds and 4.4% in cash
at March quarter-end.
Within the Fund's equity component the average
stock sells for 13.1 times estimated 1996 earnings per
share compared to 16.5 times for the S&P 500. On
average, the stocks in the Fund sell for 2.2 times
current book value and provide a 2.8% dividend yield
compared to the S&P 500, which sells for 4.1 times
book value and yields 2.1%. We believe these attrac-
tive valuation parameters for our equity holdings
provide the prospect of upside potential while limit-
ing downside risk. The Fund's fixed-income invest-
ments provide, on average, a 6.8% yield to maturity
and mature, on average, in 7.9 years. We believe the
current asset allocation of the Fund is appropriate
relative to our objective of seeking to enhance total
investment return while limiting risk in the present
economic and financial market environment.
During the quarter ended March 31, 1996, the Fund
initiated new investments in 22 stocks while eliminat-
ing 12 stocks from the portfolio. In addition, the Fund
increased its holdings in 67 companies while reduc-
ing positions in an additional 81. Notable among the
new holdings is Telecomunicacoes Brasileiras S.A.--
Telebras, the Brazilian national telephone company,
which enjoys near-monopoly status in one of the
developing world's least-penetrated telephone mar-
kets. The extremely attractive valuation of the stock,
combined with both an improving country outlook
and company fundamentals such as double-digit
unit volume growth, significant pricing power and
substantial restructuring opportunities, make this a
particularly timely investment opportunity.
<PAGE>
Kennametal, Inc. is another new addition to the
Fund. This leading supplier of tools and tooling sys-
tems for metal cutting and forming is reporting solid
order trends supported by new business activities
in the Pacific Rim, India and China. Revenues are
projected to grow in excess of 10% in 1996 and, with
opportunities for significant margin improvement,
strong earnings per share growth is expected. The
company generates consistently high returns on
equity and is very well capitalized and attractively
valued, in our opinion.
The Fund increased its holdings in a number of stocks
during the March quarter as stock prices weakened
and/or new developments enhanced our conviction
in the investment merits of a company. We continued
to add to Glaxo Holdings PLC, the world's largest
pharmaceutical company. Further stock price weak-
ness afforded us the opportunity to add shares in this
high-quality company at reasonable prices. Our invest-
ment in Phillips Petroleum Company was increased
based upon this company's above-average unit volume
growth prospects, exciting exploration opportunities
and attractive valuation. More First Colony Holding
Corp. shares were also purchased. This well-run,
well-capitalized life insurance and annuity company
is attractively priced and is likely to readily with-
stand rising competitive pressures in its business.
The Fund sold its holding in Aetna Life & Casualty
Co., the multi-line insurance company. We disagreed
with the company's strategy of selling its property
and casualty business at a low price in order to
redeploy the proceeds to acquire a health main-
tenance organization (HMO) company and expand
its health insurance operations. While providing
faster growth, publicly traded HMOs sell at high valu-
ation levels, and we were concerned about Aetna
management's ability to realize a compensatory return
on this proposed investment.
The Fund also eliminated its holding in British Steel
PLC. Although statistically attractive, we were con-
cerned that recent declines in European and Asian
steel prices, coupled with the start-up of new steel-
making capacity later this year, would depress the
company's earnings. We did not believe the low
valuation parameters of the stock would protect the
value of our investment if this were to occur.
<PAGE>
Holdings of individual stocks may be reduced for a
variety of reasons: price appreciation, deteriorating
fundamental trends in the company's business, con-
cerns over broader economic or interest rate trends
and their effect on specific companies, and to provide
assets to invest in more attractive opportunities. The
Fund reduced its ownership of General Motors Corp.
and Temple-Inland, Inc. based on concerns over the
impact of a weakening economy on these companies'
near-term fortunes. We continued to take profits in
selected bank stocks, which have continued to per-
form extremely well, such as Chemical Banking
Corp. and NationsBank Corp. Business conditions
are unlikely to improve much from current levels for
these companies, and their valuations are no longer
compelling. Warner-Lambert Co. was also reduced as
further stock price appreciation, driven in part by
takeover speculation, allowed us to continue to scale
back this investment. We also sold some Wal-Mart
Stores, Inc. shares during the March quarter after the
company's disappointing fourth quarter earnings
report compelled us to reassess the company's near-
term growth prospects.
Fiscal Year in Review
Total returns of Merrill Lynch Capital Fund, Inc. for
the 12 months ended March 31, 1996 were below the
unmanaged S&P 500. While bonds performed reason-
ably well over this period, their returns paled in
comparison to equities so that the large concentration
of bonds in the Fund served to dampen overall port-
folio results. Within the equity component of the
Fund, the large representation of financial companies
positively contributed to performance as the bank,
insurance and diversified financial sectors of the
market performed well. The pharmaceutical group, of
which the Fund had sizable holdings, was also a strong
performer over the last year.
The Fund was not exposed to many healthcare and
consumer-related companies such as beverages,
restaurants and tobacco, whose stocks outperformed
the overall market average, since their stock valuations
seemed to adequately reflect the fundamental attri-
butes and growth prospects of these companies. The
Fund was not a large investor in technology, a broad
area of the market which performed well. The rapid
pace of change and high risk of obsolescence for com-
panies in this sector, combined with the often high
valuations of their stocks, make this a difficult area
in which to invest in the context of the Fund's con-
servative investment philosophy.
<PAGE>
In Conclusion
We appreciate your continued interest in Merrill
Lynch Capital Fund, Inc. We continue to strive to
provide our investors with attractive long-term, risk-
adjusted investment returns, and we look forward to
reviewing our progress with you in our next quarterly
report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Ernest S. Watts)
Ernest S. Watts
Vice President and Portfolio Manager
May 1, 1996
Ernest S. Watts is on an indefinite leave of absence for
personal family reasons from his responsibilities as Portfolio
Manager of the Fund. The Fund's day-to-day management
responsibilities will be assumed by Kurt Schansinger and
Walter Cuje, Associate Portfolio Managers. Mr. Schansinger
has been Associate Portfolio Manager of the Fund and Vice
President of Merrill Lynch Asset Management, L.P. ("MLAM")
since January 1995. From 1983 to 1995, he was Portfolio Manager
at Oppenheimer Capital. Mr. Cuje has been Associate Portfolio
Manager of the Fund since October 1993 and Vice President
of MLAM since July 1991. From 1987 to 1993, he was
Portfolio Manager in MLAM's Insurance Portfolio Group.
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund
through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
<PAGE>
* Class A Shares incur a maximum initial sales charge
(front-end load) of 5.25% and bear no ongoing dis-
tribution or account maintenance fees. Class A
Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent
deferred 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 distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically
convert to Class D Shares after approximately 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).
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 maintenance, distribution and
transfer agency fees applicable to each class, which
are deducted from the income available to be paid to
shareholders.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
3/31/96 12/31/95 3/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Capital Fund, Inc. Class A Shares* $30.90 $30.55 $27.74 +16.71%(1) +1.15%
ML Capital Fund, Inc. Class B Shares* 30.30 30.04 27.28 +16.46(1) +0.87
ML Capital Fund, Inc. Class C Shares* 30.08 29.81 27.17 +16.12(1) +0.91
ML Capital Fund, Inc. Class D Shares* 30.86 30.53 27.72 +16.65(1) +1.08
Dow Jones Industrial Average** 5,587.14 5,117.12 4,157.69 +34.38 +9.19
Standard & Poor's 500 Index** 645.50 615.93 500.71 +28.92 +4.80
ML Capital Fund, Inc. Class A Shares--Total Return* +24.50(2) +1.15
ML Capital Fund, Inc. Class B Shares--Total Return* +23.22(3) +0.87
ML Capital Fund, Inc. Class C Shares--Total Return* +23.25(4) +0.91
ML Capital Fund, Inc. Class D Shares--Total Return* +24.21(5) +1.08
Dow Jones Industrial Average--Total Return** +37.68 +9.79
Standard & Poor's 500 Index--Total Return** +32.09 +5.38
<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.
(1)Percent change includes reinvestment of $1.419 per share
capital gains distributions.
(2)Percent change includes reinvestment of $2.036 per share
ordinary income dividends and $1.419 per share capital gains
distributions.
(3)Percent change includes reinvestment of $1.748 per share
ordinary income dividends and $1.419 per share capital gains
distributions.
(4)Percent change includes reinvestment of $1.832 per share
ordinary income dividends and $1.419 per share capital gains
distributions.
(5)Percent change includes reinvestment of $1.978 per share
ordinary income dividends and $1.419 per share capital gains
distributions.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Shares compared to an investment in the Standard & Poor's 500.
Beginning and ending values are:
3/86 3/96
ML Capital Fund, Inc.++--
Class A Shares* $ 9,475 $30,087
S&P 500 Index++++ $10,000 $36,926
10/21/88** 3/96
ML Capital Fund, Inc.++--
Class B Shares* $10,000 $23,370
S&P 500 Index++++ $10,000 $28,524
<PAGE>
10/21/94** 3/96
ML Capital Fund, Inc.++--
Class C Shares* $10,000 $13,073
ML Capital Fund, Inc.++--
Class D Shares* $ 9,475 $12,525
S&P 500 Index++++ $10,000 $14,398
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses including advisory fees.
**Commencement of Operations.
++Merrill Lynch 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 precidtive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/96 +24.50% +17.97%
Five Years Ended 3/31/96 +12.86 +11.65
Ten Years Ended 3/31/96 +12.25 +11.64
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/96 +23.22% +19.22%
Five Years Ended 3/31/96 +11.71 +11.71
Inception (10/21/88)
through 3/31/96 +12.07 +12.07
<PAGE>
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 3/31/96 +23.25% +22.25%
Inception (10/21/94)
through 3/31/96 +20.39 +20.39
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 3/31/96 +24.21% +17.69%
Inception (10/21/94)
through 3/31/96 +21.32 +16.88
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
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)
<PAGE>
A mountain chart depicting the growth of an investment in the
Fund's Class A Shares from $947.50 on November 8, 1973 to
$14,788.30 on March 31, 1996.
PORTFOLIO INFORMATION
As of March 31, 1996
Ten Largest Common Percent of
Stock Holdings Net Assets
YPF S.A. (Sponsored) (ADR) 2.5%
Williams Companies, Inc. 2.1
The Goodyear Tire & Rubber Co. 1.6
Pfizer, Inc. 1.5
United Technologies Corp. 1.2
Nestle S.A. 1.2
Columbia/HCA Healthcare Corp. 1.2
TOTAL S.A. (ADR) 1.2
Phillips Petroleum Company 1.1
Travelers Inc. 1.1
Ten Largest Percent of
Industries Net Assets*
Banking 7.8%
Oil--Integrated 7.5
Insurance 6.9
Finance 5.8
Natural Gas Suppliers 4.2
Diversified Companies 3.5
Pharmaceuticals 3.5
Utilities--Electric, Gas & Water 3.0
Financial Services 2.7
Telecommunications 2.1
[FN]
*Based on total holdings in common stocks and bonds.
<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 178,000 Goodrich (B.F.) Co. $ 9,078,923 $ 14,151,000 0.2%
514,000 Lockheed Martin Corp. (a) 31,379,559 38,999,750 0.4
1,010,000 Rockwell International Corporation 35,951,594 59,463,750 0.7
-------------- -------------- ------
76,410,076 112,614,500 1.3
<PAGE>
Airlines 455,000 KLM Royal Dutch Airlines N.V. 15,454,833 15,847,417 0.2
408,000 KLM Royal Dutch Airlines N.V. (NY Shares) (ADR)* 12,936,844 14,178,000 0.1
-------------- -------------- ------
28,391,677 30,025,417 0.3
Automobile 944,000 Echlin Inc. 28,954,480 34,220,000 0.4
Equipment
Automotive 1,000,000 General Motors Corp. 47,198,920 53,250,000 0.6
Banking 237,000 Banco Bilboa Vizcaya (ADR)* 5,835,430 8,798,625 0.1
1,593,000 Bancorp Hawaii, Inc. 46,046,216 55,954,125 0.6
600,000 Bangkok Bank Company Ltd. 5,935,084 8,085,612 0.1
360,000 BankAmerica Corp. 20,136,956 27,900,000 0.3
360,000 Chemical Banking Corp. 12,987,657 25,380,000 0.3
950,000 NationsBank Corp. 45,495,094 76,118,750 0.8
2,740,000 SouthTrust Corp. 47,579,304 75,692,500 0.8
1,220,000 Union Planters Corp. 17,085,667 36,905,000 0.4
-------------- -------------- ------
201,101,408 314,834,612 3.4
Beverages 1,600,000 Cadbury Schweppes PLC 11,499,142 12,210,400 0.1
Building Materials 241,000 Medusa Corp. 6,023,782 7,380,625 0.1
Capital Goods 442,000 GATX Corp. 17,933,469 20,332,000 0.2
458,000 Giddings & Lewis, Inc. 7,717,565 8,702,000 0.1
284,000 Kennametal, Inc. 8,803,338 10,259,500 0.1
235,000 United Dominion Industries, Ltd. 5,650,699 5,698,750 0.1
-------------- -------------- ------
40,105,071 44,992,250 0.5
Chemicals 197,000 Dexter Corporation 4,882,022 5,220,500 0.1
400,000 du Pont (E.I.) de Nemours & Co. 24,194,771 33,200,000 0.3
792,000 Engelhard Corp. 13,001,621 18,513,000 0.2
1,240,000 Imperial Chemical Industries PLC (ADR)* 60,045,532 70,680,000 0.8
-------------- -------------- ------
102,123,946 127,613,500 1.4
<PAGE>
Computer Software 1,025,000 ++Creative Technology, Ltd. 12,833,743 6,150,000 0.1
Diversified 3,500,000 Hanson PLC (Sponsored) (ADR)* 56,409,536 52,500,000 0.6
Companies 10,599,000 Hillsdown Holdings PLC 25,028,158 29,927,919 0.3
743,000 Tenneco, Inc. 30,564,622 41,515,125 0.5
3,900,000 Tomkins PLC 16,271,315 15,060,002 0.1
1,000,000 United Technologies Corp. 59,058,703 112,250,000 1.2
1,240,000 ++Worldtex Inc. (c) 5,964,546 6,045,000 0.1
-------------- -------------- ------
193,296,880 257,298,046 2.8
Drug Stores 770,000 Rite Aid Corp. 22,045,542 23,773,750 0.3
</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>
Electrical 266,000 Cooper Industries, Inc. $ 9,655,449 $ 10,374,000 0.1%
Equipment 820,000 General Electric Co. 41,535,004 63,857,500 0.7
868,000 Philips Electronics N.V. (ADR)* 21,479,447 31,573,500 0.4
-------------- -------------- ------
72,669,900 105,805,000 1.2
Financial Services 1,460,000 Federal National Mortgage Association 35,463,490 46,537,500 0.5
4,770,000 Ruam Pattana II Fund (Foreign) 2,849,866 3,072,235 0.0
9,730,000 ++Ruam Pattana II Fund (Local) 6,628,068 6,266,845 0.1
-------------- -------------- ------
44,941,424 55,876,580 0.6
Food Distribution 13,870,000 Dairy Farm International Holdings Ltd.
(Ordinary) 15,534,045 13,107,150 0.1
Foods/Food 1,361,600 Archer-Daniels-Midland Co. 23,758,364 25,019,400 0.3
Processing 14,600 Cultor OY 573,921 662,518 0.0
321,000 Dean Foods Co. 8,659,673 8,025,000 0.1
99,000 Nestle S.A. 103,564,527 111,767,477 1.2
200,000 Thai Theparos Food Product Public Company
Limited (Foreign) 880,000 871,978 0.0
359,400 Thai Theparos Food Product Public Company
Limited (Local) 1,589,259 1,566,944 0.0
-------------- -------------- ------
139,025,744 147,913,317 1.6
Footware 28,618,000 Yue Yuen Industrial (Holdings Limited) 7,454,895 6,956,535 0.1
<PAGE>
Forest Products 612,000 Weyerhaeuser Co. 27,846,461 28,228,500 0.3
Home Builders 260,000 ++Oriole Homes Corp. (c) 2,394,771 1,950,000 0.0
Hospital 1,900,000 Columbia/HCA Healthcare Corp. 90,574,852 109,725,000 1.2
Management 2,810,000 ++Tenet Healthcare Corp. (b) 36,022,061 59,010,000 0.7
-------------- -------------- ------
126,596,913 168,735,000 1.9
Household Products 170,000 Armor All Products Corp. 3,045,566 2,677,500 0.0
Insurance 1,800,000 Allstate Corporation 49,201,588 75,825,000 0.8
416,000 American General Corporation 14,956,200 14,352,000 0.2
773,000 American International Group, Inc. 50,408,890 72,372,125 0.8
176,000 American National Insurance Co. 10,182,521 11,880,000 0.1
36,700 Ayudhya Insurance Company, Ltd. (Foreign) 241,496 232,739 0.0
61,200 Ayudhya Insurance Company, Ltd. (Local) 403,981 388,109 0.0
1,080,000 EXEL Ltd. (ADR)* 45,501,718 74,520,000 0.8
600,000 First Colony Holding Corp. 14,962,987 14,325,000 0.2
2,158,000 Fremont General Corp. (c) 29,940,486 50,982,750 0.6
457,000 Horace Mann Educators Corp. 11,386,151 13,938,500 0.1
123,000 Integon Corp. 2,126,783 2,506,125 0.0
2,154,000 Lowndes Lambert Group Holdings PLC 5,366,108 4,799,969 0.1
200,000 Penncorp Financial Group, Inc. 6,372,501 6,300,000 0.1
290,000 Provident Life & Accident Insurance Co. 7,317,251 8,808,750 0.1
1,605,000 Safeco Corp. 42,977,252 53,767,500 0.6
1,170,000 Sphere Drake Holdings Ltd. 15,809,901 11,846,250 0.1
361,000 St. Paul Companies, Inc. 18,451,602 20,035,500 0.2
465,000 TIG Holdings, Inc. 10,689,988 15,112,500 0.2
1,450,000 Travelers Inc. 32,039,038 95,700,000 1.1
275,000 USLIFE Corporation 7,161,900 8,078,125 0.1
-------------- -------------- ------
375,498,342 555,770,942 6.2
</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>
Iron & Steel 492,000 Birmingham Steel Corp. $ 10,326,934 $ 7,257,000 0.1%
854,000 Cleveland-Cliffs, Inc. (c) 28,920,123 37,789,500 0.4
-------------- -------------- ------
39,247,057 45,046,500 0.5
Leisure/Hotels 1,092,000 Carnival Corp. (Class A) 25,400,446 30,030,000 0.3
3,400,000 Mandarin Oriental International Ltd. 3,324,644 4,284,000 0.1
-------------- -------------- ------
28,725,090 34,314,000 0.4
<PAGE>
Manufactured 277,000 Fleetwood Enterprises, Inc. 6,068,949 6,855,750 0.1
Housing
Medical Services 442,000 Bumrungrad Hospital Public Company, Ltd.
(Foreign) 556,290 499,287 0.0
232,300 Bumrungrad Hospital Public Company, Ltd.
(Local) 289,002 262,408 0.0
-------------- -------------- ------
845,292 761,695 0.0
Metals & Basic 215,000 Cameco Corp. 4,880,067 11,361,468 0.1
Materials 571,000 Minsura Sociedad Limitada S.A. (T Shares) 4,121,560 4,566,057 0.1
-------------- -------------- ------
9,001,627 15,927,525 0.2
Natural Gas 1,400,000 Coastal Corp. 39,876,060 55,300,000 0.6
Suppliers 320,000 El Paso Natural Gas Co. 8,804,854 11,840,000 0.1
659,000 MetroGas S.A. (ADR)* 7,847,336 6,260,500 0.1
3,684,000 TransCanada Pipelines, Ltd. (ADR)* 54,273,082 51,115,500 0.6
3,760,000 Williams Companies, Inc. 101,147,048 189,410,000 2.1
-------------- -------------- ------
211,948,380 313,926,000 3.5
Oil & Gas 40,000 ++BELCO Oil & Gas Corporation 882,400 910,000 0.0
Exploration
Oil--Integrated 167,000 Mobil Corporation 18,409,272 19,351,125 0.2
2,558,000 Phillips Petroleum Company 88,340,747 101,041,000 1.1
37,000 Repsol, S.A. (ADR)* 1,287,719 1,382,875 0.0
1,240,000 Repsol, S.A. (Ordinary) 37,646,000 46,784,908 0.5
448,000 Texaco Inc. 29,612,871 38,528,000 0.4
3,000,000 TOTAL S.A. (ADR)* 86,214,090 102,000,000 1.2
11,313,000 YPF S.A. (Sponsored) (ADR)* 234,428,432 227,674,125 2.5
-------------- -------------- ------
495,939,131 536,762,033 5.9
Oil--Refining & 290,000 Ultramar Corp. 7,506,452 8,373,750 0.1
Marketing
Oil Service 1,265,000 Dresser Industries, Inc. 28,464,979 38,582,500 0.4
Paper 200,000 ++Jefferson Smurfit Group PLC (ADR)* 6,207,462 5,325,000 0.1
790,000 Temple-Inland, Inc. 36,163,014 37,031,250 0.4
-------------- -------------- ------
42,370,476 42,356,250 0.5
Pharmaceuticals 503,000 Block Drug, Inc. (Class A) 15,230,004 20,371,500 0.2
3,480,000 Glaxo Holdings PLC (ADR)* 90,665,465 87,435,000 1.0
650,000 Mallinckrodt Group Inc. 20,266,093 24,456,250 0.3
393,000 Merck & Co., Inc. 18,821,304 24,464,250 0.3
2,110,000 Pfizer, Inc. 98,215,361 141,370,000 1.5
200,000 Warner-Lambert Co. 16,152,383 20,650,000 0.2
-------------- -------------- ------
259,350,610 318,747,000 3.5
</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>
Photography 290,000 Eastman Kodak Co. $ 16,924,155 $ 20,590,000 0.2%
Plastic Recycling 946,000 Wellman Inc. 20,386,872 22,231,000 0.3
Railroads 420,000 Canadian National Railway Co. 6,732,746 7,245,000 0.1
Real Estate 195,000 National Health Investors, Inc. 6,202,950 6,337,500 0.1
Investment Trusts 1,754,000 RFS Hotel Investors, Inc. (c) 26,471,049 29,598,750 0.3
406,000 South West Properties Trust 5,524,272 5,430,250 0.1
1,270,000 Walden Residential Properties, Inc. (c) 23,297,776 27,781,250 0.3
-------------- -------------- ------
61,496,047 69,147,750 0.8
Retail Trade 1,904,000 Wal-Mart Stores, Inc. 45,929,299 44,030,000 0.5
Savings & Loan 475,000 Ahmanson (H.F.) & Co. 11,043,343 11,518,750 0.1
Associations
Services 1,670,000 PHH Corp. (c) 62,537,753 92,893,750 1.0
265,000 Rollins, Inc. 6,535,562 6,194,375 0.1
-------------- -------------- ------
69,073,315 99,088,125 1.1
Telecommuni- 130,000 Frontier Corporation 3,759,365 4,095,000 0.0
cations 1,818,000 GTE Corp. 58,038,914 79,764,750 0.9
410,000 ++Nokia Corp. (ADR)* (c) 14,103,994 14,042,500 0.2
970,000 ++Telecomunicacoes Brasileiras S.A.--
Telebras (ADR)* 53,263,047 48,257,500 0.5
-------------- -------------- ------
129,165,320 146,159,750 1.6
Tires & Rubber 2,900,000 The Goodyear Tire & Rubber Co. 114,315,790 147,900,000 1.6
Utilities--Electric, 101,000 Aquarion Co. 2,306,022 2,575,500 0.0
Gas & Water 115,000 Central Hudson Gas & Electric Corp. 3,045,568 3,478,750 0.1
136,000 Energen Corp. 3,115,698 2,975,000 0.0
640,000 Entergy Corp. 15,520,093 17,920,000 0.2
1,050,000 Illinova Corp. 22,555,391 29,531,250 0.3
156,000 Montana Power Co. 3,575,431 3,373,500 0.1
118,000 Northwest Natural Gas Co. 3,862,348 3,746,500 0.1
23,000 NUI Corporation 419,780 428,375 0.0
1,900,000 Pinnacle West Capital Corp. 37,516,110 54,862,500 0.6
160,000 Public Service Company of North Carolina 2,555,808 2,560,000 0.0
288,000 Texas Utilities Co. 11,556,428 11,916,000 0.1
1,400,000 Unicom Corp. 32,447,717 37,800,000 0.4
170,000 United Water Resources, Inc. 2,203,889 2,231,250 0.0
240,000 Washington Water Power Co. 4,030,780 4,590,000 0.1
-------------- -------------- ------
144,711,063 177,988,625 2.0
Total Common Stocks 3,335,121,121 4,219,845,627 46.7
<PAGE>
Face
Amount Corporate Bonds
Automobile Parts $ 20,000,000 Eaton Corp., 6.50% due 6/01/2025 19,929,200 19,545,000 0.2
Automotive Hertz Corp.:
15,000,000 6.70% due 6/15/2002 14,982,500 14,916,900 0.2
13,000,000 6% due 1/15/2003 12,891,670 12,371,840 0.1
-------------- -------------- ------
27,874,170 27,288,740 0.3
</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 $ 20,000,000 Banco Rio de la Plata, 8.75% due 12/15/2003 $ 20,060,800 $ 17,200,000 0.2%
25,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 23,519,000 24,203,250 0.3
BankAmerica Corp.:
15,000,000 6.875% due 6/01/2003 14,149,050 14,988,300 0.2
30,000,000 6.75% due 9/15/2005 29,591,750 29,579,100 0.3
10,000,000 Bankers Trust Company, 7.50% due 1/15/2002 9,688,700 10,181,500 0.1
30,000,000 The Chase Manhattan Corp., 6.50% due 8/01/2005 29,105,700 28,953,000 0.3
11,400,000 Chemical Bank, 7% due 6/01/2005 11,191,266 11,370,702 0.1
15,000,000 First Chicago Corp., 6.875% due 6/15/2003 13,963,300 14,939,250 0.2
6,000,000 First Hawaiian, Inc., 6.25% due 8/15/2000 5,841,600 5,895,240 0.1
First Security Corp.:
5,000,000 5.71% due 2/09/1999 5,000,000 4,908,000 0.1
10,000,000 7% due 7/15/2005 9,978,700 9,910,710 0.1
30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 29,326,800 0.3
Great Western Financial Corp.:
13,000,000 6.125% due 6/15/1998 12,244,010 12,985,960 0.1
10,000,000 6.375% due 7/01/2000 9,998,800 9,896,400 0.1
NationsBank Corp.:
10,500,000 5.70% due 9/11/2000 9,545,865 10,163,160 0.1
40,000,000 5.60% due 2/07/2001 40,000,000 38,395,600 0.4
10,000,000 6.20% due 8/15/2003 9,670,360 9,623,100 0.1
25,000,000 6.50% due 8/15/2003 22,104,200 24,336,250 0.3
25,000,000 PNC Funding Corp., 6.125% due 9/01/2003 24,451,000 23,757,000 0.3
Provident Bank:
10,000,000 6.125% due 12/15/2000 10,071,000 9,755,200 0.1
15,000,000 6.375% due 1/15/2004 14,709,250 14,326,650 0.2
20,000,000 Union Planters Corp., 6.25% due 11/01/2003 18,756,100 19,055,600 0.2
20,000,000 Wachovia Corp., 6.605% due 10/01/2025 20,012,500 19,601,600 0.2
-------------- -------------- ------
393,606,301 393,352,372 4.4
<PAGE>
Broadcasting & 30,000,000 News America Holdings, Inc., 7.50% due
Publishing 3/01/2000 29,179,330 30,810,600 0.3
Capital Goods 5,000,000 Giddings & Lewis, Inc., 7.50% due 10/01/2005 5,000,000 4,971,800 0.1
Chemicals 16,000,000 Lyondell Petrochemical Company,
6.50% due 2/15/2006 15,228,970 15,234,240 0.2
25,000,000 Union Carbide Corp., 6.79% due 6/01/2025 25,000,000 24,566,000 0.3
-------------- -------------- ------
40,228,970 39,800,240 0.5
Diversified Grace (W.R.) & Co.:
Companies 10,000,000 6.85% due 6/23/1997 9,903,700 10,107,800 0.1
20,000,000 7.40% due 2/01/2000 19,663,100 20,363,400 0.2
Tenneco, Inc.:
15,000,000 7.875% due 10/01/2002 14,619,180 15,683,700 0.2
20,000,000 6.50% due 12/15/2005 19,991,900 19,053,400 0.2
-------------- -------------- ------
64,177,880 65,208,300 0.7
Electronics 16,000,000 Litton Industries, Inc., 6.98% due 3/15/2006 16,000,000 15,987,808 0.2
Philips Electronics N.V.:
10,000,000 6.75% due 8/15/2003 9,866,300 9,866,300 0.1
10,000,000 7.125% due 5/15/2025 9,972,650 10,107,900 0.1
-------------- -------------- ------
35,838,950 35,962,008 0.4
</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>
Finance $ 5,000,000 Caterpillar Financial Services Corp.,
5.35% due 11/10/1998 $ 4,924,800 $ 4,896,050 0.1%
Chrysler Finance Corp.:
13,000,000 6.50% due 6/15/1998 12,752,820 13,054,990 0.2
12,000,000 5.375% due 10/15/1998 11,439,770 11,752,200 0.1
10,000,000 5.70% due 1/19/1999 10,011,600 9,840,300 0.1
30,000,000 6.20% due 12/06/2000 30,000,000 29,489,400 0.3
Ford Motor Credit Co.:
10,000,000 5.625% due 12/15/1998 9,703,400 9,835,800 0.1
30,000,000 5.75% due 1/25/2001 29,937,200 28,939,800 0.3
40,000,000 ++++GTE Finance Corp., 5.81% due 12/15/1997 40,000,000 39,592,000 0.5
8,000,000 General Electric Capital Corp., 5.13%
<PAGE> due 4/01/2004 8,000,000 8,550,936 0.1
General Motors Acceptance Corp.:
25,000,000 5.875% due 1/12/1999 25,044,500 24,728,250 0.3
48,500,000 5.625% due 2/01/1999 47,273,190 47,629,910 0.5
50,000,000 5.625% due 2/15/2001 49,623,200 47,935,000 0.5
30,000,000 6.75% due 6/10/2002 29,520,300 29,826,600 0.3
10,000,000 Greyhound Financial Corp., 6.75% due 3/25/1999 9,694,200 10,014,600 0.1
Household Finance Corp.:
15,000,000 7.125% due 4/30/1999 14,356,800 15,259,350 0.2
10,000,000 7.45% due 4/01/2000 9,958,700 10,296,400 0.1
10,300,000 6.50% due 7/15/2003 10,202,253 10,011,497 0.1
International Lease Finance Corp.:
10,000,000 5.98% due 11/16/1998 9,990,200 9,919,900 0.1
22,500,000 6.05% due 4/30/1999 22,368,375 22,269,375 0.3
20,000,000 5.62% due 2/01/2000 19,876,200 19,368,200 0.2
10,000,000 Margaretten Financial Corp., 6.75% due 6/15/2000 9,621,060 10,037,700 0.1
Sears, Roebuck Acceptance Corp.:
20,000,000 6.50% due 6/15/2000 20,025,000 19,910,200 0.2
25,000,000 5.71% due 2/06/2001 25,000,000 24,017,500 0.3
50,000,000 5.63% due 2/07/2001 49,996,500 48,038,000 0.5
15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,520,000 0.2
-------------- -------------- ------
524,315,868 519,733,958 5.8
<PAGE>
Financial Leasing GATX Corp.:
12,000,000 6.27% due 12/05/2001 11,823,270 11,700,840 0.1
25,000,000 6.69% due 11/30/2005 24,984,750 24,304,250 0.3
XTRA Corp.:
20,000,000 6.79% due 8/01/2001 19,945,800 20,072,400 0.2
20,000,000 6.68% due 11/30/2001 20,000,000 19,918,000 0.2
-------------- -------------- ------
76,753,820 75,995,490 0.8
Financial Services 10,000,000 American Express Credit Corp., 6.125%
due 11/15/2001 9,963,300 9,807,700 0.1
Finova Capital Corp.:
25,000,000 6.45% due 6/01/2000 24,766,550 24,888,750 0.3
15,000,000 5.98% due 2/27/2001 14,968,950 14,590,800 0.2
10,000,000 6.56% due 11/15/2002 10,000,000 9,756,300 0.1
McDonnell Douglas Finance Corp.:
5,000,000 5.48% due 2/08/1999 4,997,600 4,854,250 0.1
10,000,000 6.375% due 7/15/1999 9,864,100 9,935,400 0.1
10,000,000 6.77% due 9/11/2002 9,983,500 10,035,400 0.1
20,000,000 6.965% due 9/12/2005 20,049,200 19,773,400 0.2
Morgan Stanley Group, Inc.:
15,000,000 5.625% due 3/01/1999 14,969,100 14,702,025 0.2
35,000,000 5.75% due 2/15/2001 34,968,150 33,716,550 0.4
</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 Smith Barney Shearson Holdings, Inc.:
(concluded) $ 10,000,000 6% due 3/15/1997 $ 9,902,000 $ 10,010,100 0.1%
20,000,000 5.875% due 2/01/2001 19,936,800 19,359,000 0.2
-------------- -------------- ------
184,369,250 181,429,675 2.1
Food & Tobacco Nabisco Inc.:
21,000,000 6.70% due 6/15/2002 20,830,000 20,686,260 0.2
20,000,000 6.85% due 6/15/2005 20,000,000 19,419,200 0.2
40,830,000 40,105,460 0.4
Foreign 20,000,000 ++++Province of Buenos Aires, 11.50% due 10/19/1998 20,000,000 20,340,000 0.2
Government Republic of Argentina:
Obligations 45,000,000 9.25% due 2/23/2001 44,801,400 41,287,500 0.5
55,000,000 8.375% due 12/20/2003 40,435,000 46,200,000 0.5
74,250,000 6.812% due 3/31/2005 49,722,750 53,367,188 0.6
4,500,000 Republic of Colombia, 7.25% due 2/23/2004 4,145,000 4,140,000 0.1
-------------- -------------- ------
159,104,150 165,334,688 1.9
Forest Products 20,000,000 Champion International Corp., 6.40%
due 2/15/2026 19,863,440 18,894,860 0.2
Hospital Columbia/HCA Healthcare Corp.:
20,000,000 6.125% due 12/15/2000 18,456,800 19,558,800 0.2
20,000,000 6.91% due 6/15/2005 19,919,400 19,934,800 0.2
17,500,000 6.63% due 7/15/2045 17,149,625 17,064,425 0.2
5,000,000 Tenet Healthcare Corp., 9.625% due 9/01/2002 5,000,000 5,362,500 0.1
-------------- -------------- ------
60,525,825 61,920,525 0.7
Industrial 9,775,000 Crane Co., 7.25% due 6/15/1999 9,619,840 9,888,879 0.1
50,000,000 Williams Holdings of Delaware, Inc., 6.25%
due 2/01/2006 49,739,500 47,143,500 0.5
-------------- -------------- ------
59,359,340 57,032,379 0.6
Insurance 15,125,000 Integon Corp., 8% due 8/15/1999 15,225,519 15,230,724 0.2
10,000,000 NAC Re Corp., 8% due 6/15/1999 10,189,300 10,309,500 0.1
Travelers Inc.:
20,000,000 6.125% due 6/15/2000 18,772,550 19,499,600 0.2
20,000,000 6.875% due 6/01/2025 20,037,200 20,143,800 0.2
-------------- -------------- ------
64,224,569 65,183,624 0.7
<PAGE>
Machinery 15,000,000 Black & Decker Corp., 6.625% due 11/15/2000 14,248,100 14,950,650 0.2
20,000,000 FMC Corp., 6.375% due 9/01/2003 18,940,800 19,080,800 0.2
Harris Corp.:
22,500,000 6.375% due 8/15/2002 22,461,850 21,891,600 0.2
10,000,000 10.375% due 12/01/2018 10,541,400 11,030,900 0.1
10,000,000 TRINOVA Corp., 7.95% due 5/01/1997 9,975,000 10,166,600 0.1
-------------- -------------- ------
76,167,150 77,120,550 0.8
Manufactured 3,000,000 Oakwood Homes Corp., 9.125% due 6/01/2007 3,000,000 3,015,000 0.0
Housing
Natural Gas Coastal Corp.:
Suppliers 13,000,000 8.75% due 5/15/1999 13,055,960 13,702,000 0.2
30,000,000 8.125% due 9/15/2002 29,984,410 31,678,800 0.3
15,000,000 ENSERCH Corporation, 7.125% due 6/15/2005 15,095,150 15,006,300 0.2
-------------- -------------- ------
58,135,520 60,387,100 0.7
</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>
Oil--Integrated Occidental Petroleum Corp.:
$ 12,000,000 5.85% due 11/09/1998 $ 11,150,172 $ 11,848,080 0.1%
14,475,000 5.90% due 11/09/1998 14,325,907 14,308,827 0.2
18,375,000 6.24% due 11/24/2000 18,135,306 18,103,234 0.2
Union Texas Petroleum Holdings, Inc.:
10,000,000 6.70% due 11/18/2002 10,000,000 9,764,500 0.1
20,000,000 6.81% due 12/05/2007 20,000,000 19,417,200 0.2
Unocal Corporation:
10,000,000 6.11% due 2/17/2004 10,000,000 9,427,100 0.1
40,000,000 6.23% due 2/15/2005 40,000,000 37,810,800 0.4
25,000,000 YPF S.A., 8% due 2/15/2004 21,533,750 22,187,500 0.3
-------------- -------------- ------
145,145,135 142,867,241 1.6
Oil--Related 20,000,000 Tosco Corporation, 7% due 7/15/2000 19,894,250 19,600,000 0.2
Railroads 3,000,000 Burlington Northern, Inc., 7.40% due 5/15/1999 2,993,580 3,065,220 0.0
Services 19,375,000 ADT Operations, 8.25% due 8/01/2000 19,511,125 19,907,813 0.2
<PAGE>
Steel 20,000,000 USX Corp., 6.375% due 7/15/1998 19,894,000 19,877,000 0.2
Telecommuni- 25,000,000 AT&T Capital Corp., 6.07% due 10/24/1997 25,000,000 25,030,000 0.3
cations 10,000,000 Bell Atlantic Financial Services, Inc.,
5.47% due 4/27/1998 10,031,400 9,882,900 0.1
10,000,000 Pacific Telecom, Inc., 6.625% due 10/20/2005 10,000,000 9,647,400 0.1
-------------- -------------- ------
45,031,400 44,560,300 0.5
Transportation 10,000,000 General American Transportation Corp., 6.44%
due 11/13/2001 10,000,000 9,801,700 0.1
Utilities--Electric, 10,000,000 Commonwealth Edison Co., 6% due 3/15/1998 10,157,200 9,929,400 0.1
Gas & Water 25,000,000 Enron Corp., 6.75% due 7/01/2005 24,050,050 24,321,250 0.3
5,000,000 Long Island Lighting Co., 7.625% due 4/15/1998 4,986,210 5,029,100 0.0
PECO Energy Co.:
5,000,000 7.50% due 1/15/1999 5,043,600 5,131,700 0.1
20,000,000 5.625% due 11/01/2001 18,908,800 18,830,600 0.2
Texas Utilities Co.:
5,000,000 7.125% due 6/01/1997 4,987,500 5,060,700 0.1
9,500,000 5.75% due 7/01/1998 9,297,135 9,394,075 0.1
United Illuminating Co.:
5,000,000 7.375% due 1/15/1998 5,003,125 5,044,450 0.1
5,000,000 6.20% due 1/15/1999 4,693,050 4,894,950 0.0
87,126,670 87,636,225 1.0
-------------- -------------- ------
Total Corporate Bonds 2,292,079,893 2,290,407,868 25.4
Collateralized Mortgage Obligations
Federal Home Loan Mortgage Corp.:
20,000,000 5.80% due 4/15/2006 18,615,625 19,518,600 0.2
14,902,246 6% due 4/15/2006 14,558,214 14,836,974 0.2
13,000,000 6% due 2/15/2011 12,020,937 11,765,000 0.1
Federal National Mortgage Association:
20,000,000 5.10% due 3/25/2002 19,256,250 19,756,200 0.2
12,000,000 6.50% due 1/25/2008 11,608,125 11,553,720 0.1
10,000,000 5% due 4/25/2014 9,756,250 9,853,100 0.1
13,093,229 Prudential Home Mortgage Security Co.,
5.25% due 12/25/2000 12,532,675 12,790,383 0.2
Total Collateralized Mortgage Obligations 98,348,076 100,073,977 1.1
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount US Government Obligations Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
US Treasury Notes:
$110,000,000 5.75% due 10/31/2000 $ 111,273,437 $ 108,401,700 1.2%
130,000,000 6.375% due 8/15/2002 123,911,719 130,751,400 1.4
525,000,000 5.75% due 8/15/2003 512,372,188 507,034,500 5.6
605,000,000 5.875% due 2/15/2004 600,813,281 586,850,000 6.5
345,000,000 5.875% due 11/15/2005 348,964,844 332,493,750 3.7
376,000,000 5.625% due 2/15/2006 375,408,750 356,613,440 4.0
Total US Government Obligations 2,072,744,219 2,022,144,790 22.4
Short-Term Investments
Commercial 49,000,000 American Telephone & Telegraph Co., 5.32%
Paper** due 4/23/1996 48,826,213 48,826,213 0.5
34,862,000 Associates Corp. of North America, 5.48%
due 4/01/1996 34,851,386 34,851,386 0.4
42,000,000 Daimler-Benz AG, 5.14% due 4/03/1996 41,976,013 41,976,013 0.5
50,000,000 Goldman Sachs Group L.P., 5.35% due 4/25/1996 49,806,806 49,806,806 0.6
40,000,000 National Fleet Funding Corp., 5.25% due 5/01/1996 39,813,333 39,813,333 0.4
8,000,000 Schering-Plough Corp., 5.12% due 4/04/1996 7,994,311 7,994,311 0.1
-------------- -------------- ------
223,268,062 223,268,062 2.5
US Government Federal National Mortgage Association:
& Agency 40,000,000 5.17% due 4/16/1996 39,902,344 39,902,344 0.5
Obligations** 40,000,000 5.17% due 4/19/1996 39,885,111 39,885,111 0.4
40,000,000 5.17% due 4/26/1996 39,844,900 39,844,900 0.4
-------------- -------------- ------
119,632,355 119,632,355 1.3
Total Short-Term Investments 342,900,417 342,900,417 3.8
Total Investments $8,141,193,726 8,975,372,679 99.4
==============
Other Assets Less Liabilities 56,619,615 0.6
-------------- ------
Net Assets $9,031,992,294 100.0%
============== ======
<PAGE>
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and US Government & Agency Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
++Non-income producing security.
++++Restricted security as to resale. The value of the Fund's
investments in restricted securities was $59,932,000,
representing 0.7% of net assets.
Acquisition Value
Issue Dates Cost (Note 1a)
GTE Finance Corp.,
5.81% due 12/15/1997 5/25/1993 $40,000,000 $39,592,000
Province of Buenos Aires,
11.50% due 10/19/1998 10/04/1995 20,000,000 20,340,000
Total $60,000,000 $59,932,000
=========== ===========
(a)Formerly Lockheed Corp.
(b)Formerly National Medical Enterprises, Inc.
(c)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:
Net Share Net Dividend
Industry Affiliate Activity Cost Income
Diversified Worldtex Inc. 250,000 $ 1,155,793 +++
Companies
Home Builders Oriole Homes Corp. (10,000) (104,975) +++
Insurance Fremont General
Corp. 708,000 (787,434) $1,234,300
Iron & Steel Cleveland--Cliffs,
Inc. (205,000) (7,544,226) 1,120,393
Real Estate RFS Hotel
Investment Investors, Inc. 654,000 9,351,838 1,869,130
Trusts
Real Estate Walden Residential
Investment Properties, Inc. 475,000 7,954,221 2,081,130
Trusts
Services PHH Corp. -- -- 2,237,800
Telecommuni-
cations Nokia Corp. (ADR) 410,000 14,103,994 +++
+++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of March 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$8,141,193,726) (Note 1a) $8,975,372,679
Cash 3,012,797
Foreign cash (Note 1c) 3,462,743
Receivables:
Interest $ 57,826,401
Capital shares sold 28,875,344
Dividends 10,741,685
Securities sold 9,152,874 106,596,304
--------------
Prepaid registration fees and other assets (Note 1f) 135,000
--------------
Total assets 9,088,579,523
--------------
Liabilities: Payables:
Capital shares redeemed 24,214,226
Securities purchased 21,961,605
Distributor (Note 2) 4,246,383
Investment adviser (Note 2) 2,864,387 53,286,601
--------------
Accrued expenses and other liabilities 3,300,628
--------------
Total liabilities 56,587,229
--------------
Net Assets: Net assets $9,031,992,294
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 300,000,000 shares
Consist of: authorized $ 10,440,129
Class B Shares of Common Stock, $0.10 par value, 300,000,000 shares
authorized 16,584,042
Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 861,485
Class D Shares of Common Stock, $0.10 par value, 200,000,000 shares
authorized 1,690,371
Paid-in capital in excess of par 7,765,965,408
Undistributed investment income--net 71,862,639
Undistributed realized capital gains on investments and foreign
currency transactions--net 330,415,520
Unrealized appreciation on investments and foreign currency
transactions--net 834,172,700
--------------
Net assets $9,031,992,294
==============
<PAGE>
Net Asset Value: Class A--Based on net assets of $3,225,757,636 and 104,401,286 shares
outstanding $ 30.90
==============
Class B--Based on net assets of $5,025,504,320 and 165,840,417 shares
outstanding $ 30.30
==============
Class C--Based on net assets of $259,131,009 and 8,614,852 shares
outstanding $ 30.08
==============
Class D--Based on net assets of $521,599,329 and 16,903,714 shares
outstanding $ 30.86
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended March 31, 1996
<S> <S> <C> <C>
Investment Interest and discount earned $ 245,286,391
Income Dividends (net of $2,678,657 foreign withholding tax) 117,437,311
(Notes 1d & 1e): Other 118,038
--------------
Total income 362,841,740
Expenses: Account maintenance and distribution fees--Class B (Note 2) $ 43,935,168
Investment advisory fees (Note 2) 31,428,894
Transfer agent fees--Class B (Note 2) 6,544,983
Transfer agent fees--Class A (Note 2) 3,690,869
Account maintenance and distribution fees--Class C (Note 2) 1,382,636
Account maintenance fees--Class D (Note 2) 875,288
Printing and shareholder reports 782,018
Registration fees (Note 1f) 707,903
Custodian fees 578,365
Transfer agent fees--Class D (Note 2) 452,520
Transfer agent fees--Class C (Note 2) 223,212
Professional fees 108,486
Directors' fees and expenses 41,285
Pricing fees 10,005
Other 117,237
--------------
Total expenses 90,878,869
--------------
Investment income--net 271,962,871
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 843,469,459
(Loss) on Foreign currency transactions--net (418,926) 843,050,533
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 481,220,303
(Notes 1b, 1c, Foreign currency transactions--net (4,321) 481,215,982
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 1,324,266,515
--------------
Net Increase in Net Assets Resulting from Operations $1,596,229,386
==============
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: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 271,962,871 $ 184,513,108
Realized gain on investments and foreign currency transactions--net 843,050,533 229,679,961
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net 481,215,982 156,181,613
-------------- --------------
Net increase in net assets resulting from operations 1,596,229,386 570,374,682
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (107,615,888) (79,657,527)
Shareholders Class B (124,808,348) (80,336,105)
(Note 1g): Class C (4,109,418) (186,349)
Class D (12,210,426) (1,531,830)
Realized gain on investments--net:
Class A (215,994,688) (132,046,243)
Class B (336,099,182) (188,065,461)
Class C (11,431,655) (321,434)
Class D (27,764,995) (2,472,719)
-------------- --------------
Net decrease in net assets resulting from dividends
and distributions to shareholders (840,034,600) (484,617,668)
-------------- --------------
<PAGE>
Capital Share Net increase in net assets derived from capital share transactions 1,885,677,575 987,538,601
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase in net assets 2,641,872,361 1,073,295,615
Beginning of year 6,390,119,933 5,316,824,318
-------------- --------------
End of year* $9,031,992,294 $6,390,119,933
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ 71,862,639 $ 61,422,496
============== ==============
See Notes to Financial Statements.
FINANCIAL INFORMATION (continued)
</TABLE>
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratiois have been derived Class A
from informatioon provided in the financial statements. For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 27.74 $ 27.46 $ 27.89 $ 26.90 $ 25.38
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net 1.21 1.01 .97 .87 1.02
Realized and unrealized gain on investments
and foreign currency transactions--net 5.41 1.77 .50 1.99 2.12
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.62 2.78 1.47 2.86 3.14
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (1.16) (.94) (.95) (.87) (1.02)
Realized gain on investments--net (2.30) (1.56) (.95) (1.00) (.60)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (3.46) (2.50) (1.90) (1.87) (1.62)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 30.90 $ 27.74 $ 27.46 $ 27.89 $ 26.90
========== ========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value per share 24.50% 10.95% 5.39% 11.33% 12.96%
Return:* ========== ========== ========== ========== ==========
Ratios to Expenses .56% .57% .53% .55% .56%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net 4.09% 3.81% 3.52% 3.56% 4.21%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $3,225,758 $2,507,767 $2,237,492 $2,056,023 $1,533,530
Data: ========== ========== ========== ========== ==========
Portfolio turnover 84% 89% 86% 55% 59%
========== ========== ========== ========== ==========
Average commission rate paid $ .0382 -- ++ -- ++ -- ++ -- ++
========== ========== ========== ========== ==========
<CAPTION>
The following per share data and ratiois have been derived Class B
from informatioon provided in the financial statements. For the Year Ended March 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 27.28 $ 27.04 $ 27.49 $ 26.58 $ 25.14
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .90 .74 .70 .65 .80
Realized and unrealized gain on investments
and foreign currency transactions--net 5.29 1.72 .48 1.89 2.05
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.19 2.46 1.18 2.54 2.85
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.87) (.66) (.68) (.63) (.81)
Realized gain on investments--net (2.30) (1.56) (.95) (1.00) (.60)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (3.17) (2.22) (1.63) (1.63) (1.41)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 30.30 $ 27.28 $ 27.04 $ 27.49 $ 26.58
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 23.22% 9.81% 4.36% 10.16% 11.81%
Return:* ========== ========== ========== ========== ==========
Ratios to Expenses 1.58% 1.59% 1.55% 1.56% 1.58%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net 3.07% 2.79% 2.50% 2.53% 3.14%
========== ========== ========== ========== ==========
<PAGE>
Supplemental Net assets, end of year (in thousands) $5,025,504 $3,664,250 $3,079,332 $2,694,774 $1,582,065
Data: ========== ========== ========== ========== ==========
Portfolio turnover 84% 89% 86% 55% 59%
========== ========== ========== ========== ==========
Average commission rate paid $ .0382 -- ++ -- ++ -- ++ -- ++
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Data not required for the period.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
March 31, March 31, March 31, March 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 27.17 $ 26.81 $ 27.72 $ 27.27
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net .92 .49 1.16 .48
Realized and unrealized gain on investments
and foreign currency transactions--net 5.24 1.03 5.38 1.15
---------- ---------- ---------- ----------
Total from investment operations 6.16 1.52 6.54 1.63
---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.95) (.43) (1.10) (.45)
Realized gain on investments--net (2.30) (.73) (2.30) (.73)
---------- ---------- ---------- ----------
Total dividends and distributions (3.25) (1.16) (3.40) (1.18)
---------- ---------- ---------- ----------
Net asset value, end of period $ 30.08 $ 27.17 $ 30.86 $ 27.72
========== ========== ========== ==========
Total Investment Based on net asset value per share 23.25% 6.07%+++ 24.21% 6.42%+++
Return:** ========== ========== ========== ==========
<PAGE>
Ratios to Average Expenses 1.59% 1.64%* .81% .87%*
Net Assets: ========== ========== ========== ==========
Investment income--net 3.08% 3.22%* 3.84% 3.94%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 259,131 $ 46,902 $ 521,599 $ 171,201
Data: ========== ========== ========== ==========
Portfolio turnover 84% 89% 84% 89%
========== ========== ========== ==========
Average commission rate paid $ .0382 -- ++++$ .0382 -- ++++
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Commencement of Operations.
++++Data not required for the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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 con-
tingent 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 ex-
clusive 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.
<PAGE>
(a) Valuation of investments--Portfolio securities which
are traded on stock exchanges are valued at the last
sale price on the exchange 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. Options purchased 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 bid price. Short-term securities are
valued at amortized cost, which approximates market
value. Securities and assets for which market quotations
are not available are valued at 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
movements 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.
* Options--The Fund is authorized to write covered call
options and purchase put options. When the Fund writes
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 trans-
action), 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).
<PAGE>
Written and purchased options are non-income pro-
ducing investments.
(c) Foreign currency transactions--Transactions denomi-
nated 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 substantially all of its taxable income to its
shareholders. Therefore, no Federal income tax pro-
vision is required. Under the applicable foreign tax law,
a withholding 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).
Dividend 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 recog-
nized 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.
(h) Reclassification--Generally accepted accounting
principles require that certain components of net assets be
reclassified to reflect permanent differences between
financial reporting and tax purposes. Accordingly,
current year's permanent book/tax differences of
$12,778,648 have been reclassified from undistributed
net investment income to accumulated net realized
capital losses. These reclassifications have no effect
on net assets or net asset value per share.
<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 MLAM 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 main-
tenance and distribution services to the Fund. The
ongoing account maintenance fee compensates the Dis-
tributor and MLPF&S for providing account maintenance
services to Class B, Class C and Class D shareholders.
The ongoing distribution fee compensates the Dis-
tributor and MLPF&S for providing shareholder and
distribution-related services to Class B and Class C
shareholders.
For the year ended March 31, 1996, MLFD earned under-
writing discounts and commissions 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 $ 81,332 $1,167,475
Class D $247,249 $3,538,854
For the year ended March 31, 1996, MLPF&S received
contingent deferred sales charges of $4,025,586 and
$75,917 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $525,422 in commissions
on the execution of portfolio security transactions for
the year ended March 31, 1996.
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch Financial Data Services, Inc. ("MLFDS"),
a wholly-owned subsidiary of ML & Co., is the Fund's
transfer agent.
During the year ended March 31, 1996, Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, received
$7,714 for security price quotations to compute the net
asset value of the Fund.
Certain officers and/or directors of the Fund are officers
and/or directors of MLAM, PSI, MLPF&S, MLFDS, MLFD,
and/or ML & Co.
<PAGE>
3. Investments:
Purchases and sales of investments, excluding short-
term securities, for the year ended March 31, 1996 were
$7,446,853,963 and $6,285,139,919, respectively.
Net realized and unrealized gains (losses) as of
March 31, 1996 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $843,151,299 $834,178,953
Short-term investments (22,268) --
Paydowns 340,428 --
Foreign currency
transactions (418,926) (6,253)
------------ ------------
Total $843,050,533 $834,172,700
============ ============
As of March 31, 1996, net unrealized appreciation
for Federal income tax purposes aggregated $830,016,332,
of which $982,470,622 related to appreciated securities
and $152,454,290 related to depreciated securities. At
March 31, 1996, the aggregate cost of investments for
Federal income tax purposes was $8,145,356,347.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions was $1,885,677,575 and $987,538,601 for
the years ended March 31, 1996 and March 31, 1995,
respectively.
Transactions in capital shares for each class were as
follows:
Class A Shares for the Year Dollar
Ended March 31, 1996 Shares Amount
Shares sold 19,027,848 $ 584,244,547
Shares issued to shareholders
in reinvestment of dividends
& distributions 9,847,092 289,450,802
-------------- --------------
Total issued 28,874,940 873,695,349
Shares redeemed (14,880,078) (451,792,754)
-------------- --------------
Net increase 13,994,862 $ 421,902,595
============== ==============
<PAGE>
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
============== ==============
Class B Shares for the Year Dollar
Ended March 31, 1996 Shares Amount
Shares sold 45,146,025 $1,369,296,478
Shares issued to shareholders
in reinvestment of dividends
& distributions 13,896,514 386,369,306
-------------- --------------
Total issued 59,042,539 1,755,665,784
Shares redeemed (25,082,439) (748,567,202)
Automatic conversion
of shares (2,447,861) (71,651,206)
-------------- --------------
Net increase 31,512,239 $ 935,447,376
============== ==============
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
============== ==============
<PAGE>
Class C Shares for the Year Dollar
Ended March 31, 1996 Shares Amount
Shares sold 7,451,321 $ 221,649,300
Shares issued to shareholders
in reinvestment of dividends
& distributions 474,830 13,924,668
-------------- --------------
Total issued 7,926,151 235,573,968
Shares redeemed (1,037,499) (31,045,232)
-------------- --------------
Net increase 6,888,652 $ 204,528,736
============== ==============
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Mar. 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 Year Dollar
Ended March 31, 1996 Shares Amount
Shares sold 10,198,663 $ 303,203,877
Automatic conversion
of shares 2,406,94 71,651,206
Shares issued to shareholders
in reinvestment of dividends
& distributions 1,173,178 35,170,384
-------------- --------------
Total issued 13,778,786 410,025,467
Shares redeemed (3,050,741) (86,226,599)
-------------- --------------
Net increase 10,728,045 $ 323,798,868
============== ==============
<PAGE>
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Mar. 31, 1995 Shares Amount
Shares sold 2,621,771 $ 69,784,869
Automatic conversion
of shares 3,740,107 100,075,150
Shares issued to shareholders
in reinvestment of dividends
& distributions 140,100 3,548,731
-------------- --------------
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, 1996, the Fund had entered into forward
exchange contracts under which it had agreed to buy
and sell various foreign currencies with a value of
$317,838 and 696,025, respectively.
<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, 1996, 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 years 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.
<PAGE>
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, 1996 by correspondence
with the custodian and brokers; where replies were not
received from brokers, we performed other auditing
procedures. 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, 1996, 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 1, 1996
</AUDIT-REPORT>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Capital Fund, Inc. during its fiscal year
ended March 31, 1996:
Record Payable Qualifying Domestic Interest from Domestic Non-Qualifying Total Long-Term
Date Date Ordinary Income* Federal Obligations Ordinary Income Ordinary Income Capital Gains
<C> <C> <C> <C> <C> <C> <C>
Class A Shares:
6/22/95 6/30/95 $0.155544 $0.061657 $0.276204 $0.493405 $0.308408
12/11/95 12/19/95 $0.215393 $0.204604 $1.122461 $1.542458 $1.111073
Class B Shares:
<PAGE>
6/22/95 6/30/95 $0.120721 $0.047853 $0.214369 $0.382943 $0.308408
12/11/95 12/19/95 $0.190678 $0.181128 $0.993666 $1.365472 $1.111073
Class C Shares:
6/22/95 6/30/95 $0.136410 $0.054072 $0.242228 $0.432710 $0.308408
12/11/95 12/19/95 $0.195349 $0.185565 $1.018011 $1.398925 $1.111073
Class D Shares:
6/22/95 6/30/95 $0.149446 $0.059239 $0.265375 $0.474060 $0.308408
12/11/95 12/19/95 $0.209950 $0.199435 $1.094101 $1.503486 $1.111073
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 for each quarter
ended during the fiscal year.
Please retain this information for your records.
Percentage of
For the Quarter Ended Federal Obligations*
June 30, 1995 19.43%
September 30, 1995 17.34%
December 31, 1995 20.31%
March 31, 1996 22.18%
<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.
<PAGE>
PORTFOLIO CHANGES
Common Stock Portfolio Changes
For the Quarter Ended March 31, 1996
Additions
Ayudhya Insurance Company, Ltd. (Foreign)
Ayudhya Insurance Company, Ltd. (Local)
BELCO Oil & Gas Corporation
Bumrungrad Hospital Public Company, Ltd. (Foreign)
Bumrungrad Hospital Public Company, Ltd. (Local)
*Engineering Animation, Inc.
*Ford Motor Company
Frontier Corporation
KLM Royal Dutch Airlines N.V.
KLM Royal Dutch Airlines N.V. (NY Shares) (ADR)
Kennametal, Inc.
Mobil Corporation
NUI Corporation
Penncorp Financial Group, Inc.
Repsol, S.A. (ADR)
*Telefonos de Mexico S.A. (Class L) (ADR)
Telecomunicacoes Brasileiras S.A.--Telebras (ADR)
Thai Theparos Food Product Public Company Limited
(Foreign)
Thai Theparos Food Product Public Company Limited
(Local)
Tomkins PLC
United Dominion Industries, Ltd.
United Water Resources, Inc.
Deletions
Aetna Life & Casualty Co.
American Water Works Co., Inc.
British Steel PLC (ADR)
*Engineering Animation, Inc.
English China Clays PLC (Ordinary)
Federal Paper Board Co., Inc.
*Ford Motor Company
Kerr-McGee Corp.
MCN Corp.
Newmont Mining Corp.
PT Telekomunikasi Indonesia (ADR)
*Telefonos de Mexico S.A. (Class L) (ADR)
*Added and deleted in the same quarter.
<PAGE>
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, Senior 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, New York 10286
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
</TABLE>
