February 14, 1996
Salomon Brothers
Capital Fund Inc
To Our Shareholders:
The net asset value of each of your shares at December 31, 1995 was $18.67,
equivalent to $21.07 assuming income and capital gains distributions in 1995
were reinvested in additional shares of the Fund. We are very pleased that this
represents a 34.9% increase in the value of your shares from $15.62 on December
31, 1994, compared with an increase of 37.5% for the Standard & Poor's Index of
500 stocks and an increase of 30.3% for the average 158 funds tracked by Lipper
Analytical Inc. in the capital appreciation funds category.
On the following pages you will find audited financial statements for the year
ended December 31, 1995, the related report of independent accountants,
unaudited major portfolio changes for the six months ended on that date and
other information about the Fund.
All of us at Salomon Brothers Asset Management Inc appreciate the confidence you
have demonstrated in the past and hope to continue to justify such confidence in
the future. Please call us with any questions or comments you may have at
1-800-SALOMON (1-800-725-6666).
Cordially,
Michael S. Hyland
Chairman and President
1
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Annual Investment Review and Outlook
The stock market enjoyed a banner year in 1995. The Standard and Poor's Index of
500 stocks rose by 37.5% and the upward pattern was relatively stable, with no
interim correction exceeding 4%. Moderate economic growth, low inflation,
declining interest rates and strong growth in corporate profits created ideal
conditions for the market. In the U.S., large capitalization stocks led the
advance, and technology, health care and financial services companies were among
the best performing groups. The slight underperformance of the Fund compared to
the benchmarks is the result of the Fund's expenses and the need to keep 5% of
the assets in working capital (repurchase agreements) which earned 5% rather
than 37.5% earned by stocks.
We believe that prospects for the stock market in 1996 will be driven by a
tug-of-war between slowing corporate profits and the Federal Reserve's
determined effort to stimulate the economy through lower interest rates. Our
position is that the Federal Reserve will ultimately prevail, and that the U.S.
economy will receive a boost from this monetary policy.
The investment strategy of the Salomon Brothers Capital Fund underwent a
shift in 1995. The portfolio is no longer determined by a sector rotation
approach, but rather by "bottom-up" selection of stocks with attractive
risk/reward trade-offs. For each investment, we estimate the 12-24 month return
potential, as well as the stock's downside risk. Stocks with the most favorable
risk/reward trade-offs are aover-weighted in the portfolio.
At year end, the portfolio included a large position in retailers. Our
focus in this sector is on companies that are profitably gaining market share in
a consolidating industry. The Fund's holdings of attractive stocks in this
category include department store chains (Sears, Roebuck, Federated Department
Stores and Profitts), a specialty retailer, a warehouse club and food retailers.
The portfolio also begins 1996 with significant investments in consumer
staple and energy stocks. In each case, we have selected stocks that
individually have attractive risk/reward profiles. In the aggregate, our
investments in these sectors fall into the lower risk portion of the portfolio.
In the year ahead, we will look for opportunities to invest in technology
companies and cyclical stocks. Despite the current earnings slump for many
technology firms, this sector will continue to drive productivity improvements
throughout corporate America. We hope to use the period of near-term earnings
uncertainty to invest in technology companies that have attractive long-term
growth prospects. Likewise, the recent weakening in the economy should provide
us with opportunities to invest in cyclical companies in the months ahead.
2
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Results of an Investment in Salomon Brothers Capital Fund Inc
Set forth below are average annual total return figures for the periods
indicated and a graph showing the value of a hypothetical $10,000 investment
made in Salomon Brothers Capital Fund Inc on December 31, 1985. The average
annual return total return figures and the information in the graph represent
past performance; they reflect changes in the price of the Fund's shares and
assume that any income dividends and/or capital gain distributions made by the
Fund during the period were reinvested in additional shares of the Fund.
Investment return and share price of the Fund will fluctuate. Shares when
redeemed may be worth more or less than original cost. The Board of Directors
approved the elimination of the sales charge in 1992 and accordingly, no sales
charge is reflected in the average annual total return figures or the graph.
AVERAGE ANNUAL TOTAL RETURN
The average annual total return over the periods indicated below shows the
average annual percentage change in value of an investment in the Fund from the
beginning of the measuring period to the end of the measuring period. When
considering "average" total return for periods longer than one year, it is
important to note that the Fund's annual total return for any one year in the
period might have been greater or less than the average for the entire period.
The Fund's average annual total return for the periods indicated was as follows:
+34.88% for the one-year period beginning January 1, 1995 and ended December 31,
1995;
+13.64% for the five-year period beginning January 1, 1991 and ended December
31, 1995;
+10.23%% for the ten-year period beginning January 1, 1986 and ended December
31, 1995.
PERFORMANCE COMPARISON -- GROWTH OF $10,000
(Chart Material)
$45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
________ Salomon Brothers Capital Fund Inc
- -------- S&P 500
$26,494
$40,040
Past performance is not predictive of future performance
12/31/85 12/31/86 12/31/87 12/31/88 12/31/89
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- --------------------------------------------------------------------------------
Federal Tax Status of Distributions
For corporate taxpayers 14% of the ordinary income distributions paid during the
year 1995 qualify for the corporate dividends received deduction.
- --------------------------------------------------------------------------------
3
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
(Left Column)
Ten Largest Holdings (unaudited)
- ---------------------------------------------------------------------
Shares Cost Value
- ------ ---- -----
100,000 Sears, Roebuck ................. $ 3,178,280 $ 3,900,000
160,000 Stop & Shop
Companies .................... 3,105,918 3,700,000
70,000 Bank of
New York ..................... 2,588,120 3,412,500
60,000 SmithKline
Beecham --
ADR .......................... 2,933,140 3,330,000
60,000 Columbia/HCA
Healthcare ................... 2,544,558 3,045,000
80,000 Kroger ......................... 2,123,840 3,000,000
70,000 Conagra ........................ 2,315,459 2,887,500
75,000 Plantronics .................... 2,170,918 2,709,375
100,000 Union Pacific
Resources
Group ........................ 2,188,999 2,537,500
20,000 Mobil .......................... 2,142,450 2,240,000
----------- -----------
$25,291,682 $30,761,875
=========== ===========
(Right Column)
Major Portfolio Changes
six months ended December 31, 1995 (unaudited)
Additions+
- -----------------------------------------------------
Shares
Increased
----------
Big Flower Press Holdings .............. 130,000(1)
Browning-Ferris Industries ............. 60,000(1)
Canadian National Railway .............. 140,000(1)
Diamond Shamrock ....................... 75,000(1)
Exide .................................. 30,000(1)
MascoTech .............................. 78,600
Midcom Communications .................. 47,500(1)
Nobile Affiliates ...................... 50,000(1)
Omnicom Group .......................... 60,000(1)
Price\Costco ........................... 130,000(1)
Prudential Reinsurance Holdings ........ 65,000(1)
Sears, Roebuck ......................... 50,000
SmithKline Beecham -- ADR .............. 60,000
Sonoco Products ........................ 30,000(1)
Texaco ................................. 20,000(1)
Trenwick Group ......................... 35,000(1)
Union Pacific Resources Group .......... 100,000(1)
Unocal ................................. 70,000(1)
Whitman ................................ 77,300(1)
Williams Companies ..................... 50,000(1)
Reductions
- ------------------------------------------------------
Shares/
Principal
Amount
Decreased
-----------
AT&T ................................... 20,000(2)
AirTouch Communications ................ 100,000(2)
Avery Dennison ......................... 40,000(2)
Ceridian ............................... 60,000(2)
Federal Home Loan Mortgage ............. 35,000(2)
First Data ............................. 30,000(2)
Lennar ................................. 70,000(2)
Liberty Property Trust,
8% due 7/01/01 .......................$2,000,000(2)
Lubrizol ............................... 65,000(2)
MascoTech $1.20 Conv.
Pfd DECS ............................. 150,000(2)
Nokia, Class A -- ADR .................. 25,000(2)
Pharmaceutical Marketing,
6.25% due 2/1/03 .....................$2,000,000(2)
Plantronics ............................ 44,000
Praxair ................................ 70,000
RPM Zero Coupon Notes
due 9/30/12 ..........................$6,000,000(2)
Royal Dutch Petroleum,
5 Guilder ............................ 15,000(2)
Sealed Air ............................. 45,000(2)
St Paul Companies ...................... 45,000
Sysco .................................. 55,000
(1) New addition (2) Elimination
+ This list excludes changes resulting entirely from stock
dividends and stock splits.
4
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Net Assets December 31, 1995
Common Stocks -- 89.1% of Net Assets
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
Basic Industries -- 5.1%
25,000 Allegheny Ludlum ......................... $ 426,500 $ 462,500
25,000 Hercules ................................. 1,169,906 1,409,375
20,000 Hanna (M.A.) ............................. 533,710 560,000
30,000 OM Group ................................. 918,661 993,750
30,000 Praxair .................................. 691,980 1,008,750
30,000 Sonoco Products .......................... 808,670 787,500
----------- ------------
4,549,427 5,221,875
----------- ------------
Capital Goods -- 6.0%
60,000 Browning-Ferris Industries ............... 2,016,120 1,770,000
25,000 Deere .................................... 693,854 881,250
40,000 Raytheon ................................. 1,287,429 1,890,000
46,000 Tyco International ....................... 1,082,070 1,638,750
----------- ------------
5,079,473 6,180,000
----------- ------------
Consumer Cyclicals -- 19.5%
130,000 Big Flower Press Holdings* ............... 2,048,026 2,015,000
35,000 Gadzooks* ................................ 615,000 883,750
30,000 Exide .................................... 1,382,425 1,376,250
60,000 Federated Department Stores* ............. 1,312,617 1,650,000
150,000 Hollinger ................................ 1,136,000 1,087,500
125,000 MascoTech ................................ 1,531,529 1,359,375
60,000 Omnicom Group ............................ 1,768,020 2,235,000
130,000 Price\Costco* ............................ 2,282,435 1,982,500
45,000 Proffitts* ............................... 1,161,359 1,181,250
100,000 Sears, Roebuck ........................... 3,178,280 3,900,000
40,000 Sherwin-Williams ......................... 1,396,315 1,630,000
20,000 Times Mirror, Class A .................... 601,200 677,500
----------- ------------
18,413,206 19,978,125
----------- ------------
Consumer Staples -- 15.3%
45,000 Albertson's .............................. 1,361,636 1,479,375
70,000 ConAgra .................................. 2,315,459 2,887,500
15,000 Estee Lauder Companies, Class A .......... 390,000 523,125
80,000 Kroger* .................................. 2,123,840 3,000,000
23,300 Penn Traffic* ............................ 369,153 349,500
60,000 Riviana Foods ............................ 754,522 795,000
160,000 Stop & Shop Companies* ................... 3,105,918 3,700,000
35,000 Sysco .................................... 993,475 1,137,500
77,300 Whitman .................................. 1,654,688 1,797,225
----------- ------------
13,068,691 15,669,225
----------- ------------
Energy -- 17.4%
30,000 Amoco .................................... 1,893,920 2,156,250
35,000 Ashland .................................. 1,083,355 1,229,375
40,000 Chevron .................................. 1,931,150 2,100,000
75,000 Diamond Shamrock ......................... 1,876,590 1,940,625
20,000 Mobil .................................... 2,142,450 2,240,000
50,000 Noble Affiliates ......................... 1,302,375 1,493,750
20,000 Texaco ................................... 1,548,075 1,570,000
10,000 Tejas Gas* ............................... 480,250 528,750
70,000 Unocal ................................... 1,827,950 2,038,750
100,000 Union Pacific Resources Group ............ 2,188,999 2,537,500
----------- ------------
16,275,114 17,835,000
----------- ------------
5
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Net Assets December 31, 1995 (continued)
Common Stocks (continued)
- --------------------------------------------------------------------------------
Value
Shares Cost (Note 1a)
- --------------------------------------------------------------------------------
Financial Services -- 8.3%
70,000 Bank of New York ......................... $ 2,588,120 $ 3,412,500
15,000 NationsBank .............................. 1,081,525 1,044,375
65,000 Prudential Reinsurance Holdings .......... 1,246,597 1,519,375
10,000 St. Paul Companies ....................... 553,037 556,250
35,000 Trenwick Group ........................... 1,762,413 1,968,750
----------- ------------
7,231,692 8,501,250
Health Care -- 7.4%
60,000 Columbia/HCA Healthcare .................. 2,544,558 3,045,000
60,000 SmithKline Beecham -- ADR ................ 2,933,140 3,330,000
25,000 U.S. HealthCare .......................... 1,025,720 1,162,500
----------- ------------
6,503,418 7,537,500
Technology -- 3.5%
75,000 Plantronics* ............................. 2,170,918 2,709,375
40,000 Spectrian* ............................... 961,255 890,000
----------- ------------
3,132,173 3,599,375
Transportation -- 3.6%
140,000 Canadian National Railway ................ 2,033,637 2,100,000
50,000 Pittston Services Group .................. 1,240,283 1,568,750
----------- ------------
3,273,920 3,668,750
Telecommunications & Utilities -- 3.0%
47,500 Midcom Communications* ................... 663,562 866,875
50,000 Williams Companies ....................... 1,928,000 2,193,750
----------- ------------
2,591,562 3,060,625
----------- ------------
Total Common Stocks ...................... 80,118,676 91,251,725
----------- ------------
Preferred Stocks -- 2.3%
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------------
Capital Goods -- 1.5%
30,000 Elsag Bailey, 5.50% Convertible .......... 1,516,250 1,511,250
----------- ------------
Consumer Staples-- 0.8%
37,000 James River Depository Shares, 9% ........ 841,414 864,875
----------- ------------
Total Preferred Stocks ................... 2,357,664 2,376,125
----------- ------------
6
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Net Assets December 31, 1995 (continued)
Purchased Options -- 0.0%
- --------------------------------------------------------------------------------
Premium Value
Contracts Paid (Note 1a)
- --------------------------------------------------------------------------------
100 S&P Midcap 400 Index Puts
(expiring January 1996, exercise price $195) $ 9,575 $ 1,562
50 S&P Midcap 400 Index Puts
(expiring January 1996, exercise price $200) 2,600 1,250
50 S&P Midcap 400 Index Puts
(expiring February 1996, exercise price $200) 5,150 3,594
----------- ------------
Total purchased options 17,325 6,406
----------- ------------
Total Investments -- 91.4% ........................... $82,493,665 93,634,256
=========== ------------
Repurchase Agreements -- 9.3%
- --------------------------------------------------------------------------------
Principal
Amount
(thousands)
- --------------------------------------------------------------------------------
$4,750 J.P. Morgan Securities, 5.75%, cost $4,750,000
dated 12/29/95, $4,753,035 due 1/2/96,
collateralized by $3,819,000 U.S. Treasury Bonds,
8.125%, valued at $4,845,356 due 2/15/21 ... 4,750,000
4,750 Merrill Lynch, 5.60%, cost $4,750,000,
dated 12/29/95, $4,752,956 due 1/2/96,
collateralized by $4,770,000 U.S. Treasury Notes,
5.625%, valued at $4,847,513 due 10/31/97 .. 4,750,000
------------
Total Repurchase Agreements ................. 9,500,000
------------
Cash and Receivables -- 3.3% ................ $33,364,953
Liabilities -- (4.0)% ....................... (4,070,582) (705,629)
----------- ------------
Net Assets -- equivalent to $18.67, offering and
redemption price per share on 5,484,823 shares of
$1.00 par value capital stock outstanding; 25,000,000
shares authorized .......................... $102,428,627
============
Net Assets Consist of:
Capital stock ............................... $ 5,484,823
Additional paid-in capital .................. 80,484,396
Undistributed net investment income ......... 4,470
Undistributed net realized gain ............. 5,314,347
Net unrealized appreciation ................. 11,140,591
------------
Net Assets .................................. $102,428,627
============
- ----------
*Non-income producing security.
See accompanying notes to financial statements.
7
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Operations year ended December 31, 1995
Investment Income
Income
Dividends (net of foreign withholding taxes of $16,179) .......... $ 1,378,300
Interest ......................................................... 624,141
------------
2,002,441
Expenses
Management fee ...................................... $ 957,755
Directors' fees and expenses ........................ 64,780
Legal ............................................... 61,275
Audit and tax return preparation fees ............... 57,750
Shareholder services ................................ 50,150
Custodian ........................................... 39,735
Printing ............................................ 30,850
Other ............................................... 37,150 1,299,445
------------ ------------
Net investment income ............................................ 702,996
------------
Net Realized and Unrealized Gain on Investments
Realized gain on investments and options ......................... 20,581,764
Net Unrealized Appreciation of Investments
Beginning of year ................................... 3,724,714
End of year ......................................... 11,140,591
------------
Increase in net unrealized appreciation .......................... 7,415,877
------------
Net realized gain and increase in net unrealized appreciation .... 27,997,641
------------
Net increase in net assets from operations ....................... $ 28,700,637
============
See accompanying notes to financial statements.
8
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994
- ----------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C>
Net investment income ........................................... $ 702,996 $ 129,318
Net realized gain on investments and options .................... 20,581,764 2,885,474
Change in net unrealized appreciation ........................... 7,415,877 (19,541,271)
------------ -----------
Net change in net assets from operations ........................ 28,700,637 (16,526,479)
------------ -----------
Distributions to Shareholders from
Net investment income ........................................... (698,526) (148,595)
Net realized gain on investments ................................ (11,082,177) (8,197,412)
Distributions in excess of net realized gains ................... -- (4,185,240)
------------ -----------
(11,780,703) (12,531,247)
------------ -----------
Capital Share Transactions
Proceeds from sales of 1,609,281 and 1,403,122 shares,
respectively .................................................. 29,031,088 26,086,673
Net asset value of 600,042 and 677,223 shares, respectively,
issued in reinvestment of net investment income and net
realized gain distributions ................................... 11,026,944 11,471,834
Payment for redemption of 2,277,011 and 2,003,136 shares,
respectively .................................................. (41,253,697) (35,701,771)
------------ -----------
Change in net assets resulting from capital share
transactions, representing net decrease of 67,688 and
net increase of 77,209 shares, respectively ................... (1,195,665) 1,856,736
------------ -----------
Total change in net assets ...................................... 15,724,269 (27,200,990)
------------ -----------
Net Assets
Beginning of year ............................................... 86,704,358 113,905,348
------------ -----------
End of year (includes undistributed net investment income
of $4,470 for 1995) .......................................... $102,428,627 $86,704,358
============ ===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements
1. Significant Accounting Policies
The Fund is registered as a non-diversified, open-end, management investment
company under the Investment Company Act of 1940, as amended. The Fund's
investment objective is capital appreciation through investments primarily in
common stocks or securities convertible into common stocks which are believed to
have above-average price appreciation potential and which may also involve
above-average risk. The following is a summary of significant accounting
policies consistently followed by the Fund in the preparation of its financial
statements. The policies are in conformity with generally accepted accounting
principles ("GAAP"). The preparation of financial statements in accordance with
GAAP requires management to make estimates of certain reported amounts in the
financial statements. Actual amounts could differ from those estimates.
(a) Securities Valuation. Portfolio securities listed or traded on
national securities exchanges, or reported by the NASDAQ national market
system, are valued at the last sale price, or, if there have been no sales
on that day, at the mean of the current bid and ask price which represents
the current value of the security. Over-the-counter securities are valued at
the mean of the current bid and ask price. If no quotations are readily
available (as may be the case for securities of limited marketability), such
portfolio securities are valued at a fair value determined pursuant to
procedures established by the Board of Directors.
(b) Option Contracts. When the Fund writes or purchases a call option or
a put option, an amount equal to the premium received or paid is recorded as
a liability or asset, the value of which is marked-to-market daily to
reflect the current market value of the option. When the option expires, the
Fund realizes a gain or loss equal to the amount of the premium received or
paid. When the Fund enters into a closing transaction by purchasing or
selling an offsetting option, it realizes a gain or loss without regard to
any unrealized gain or loss on the underlying security. When a written call
option is exercised, the Fund realizes a gain or loss from the sale of the
underlying security and the proceeds from such sale are increased by the
premium originally received. When a written put option is exercised, the
amount of the premium received reduces the cost of the security that the
Fund purchased upon exercise.
(c) Federal Income Taxes. The Fund has complied and intends to continue
to comply with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies, and to distribute all
of its taxable income to its shareholders. Therefore, no Federal income tax
or excise tax provision is required.
(d) Repurchase Agreements. When entering into repurchase agreements, it
is the Fund's policy to take possession, through its custodian, of the
underlying collateral and to monitor its value at the time the arrangement
is entered into and at all times during the term of the repurchase agreement
to ensure that it always equals or exceeds the repurchase price. In the
event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or retention
of the collateral may be subject to legal proceedings.
10
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements (continued)
(e) Dividends and Distributions. Dividends and distributions to
shareholders are recorded on the ex-dividend date, and determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles due primarily to deferral of wash sales.
(f) Other. Securities transactions are recorded as of the trade date.
Dividend income is recorded on the ex-dividend date. Gains or losses on
sales of securities are calculated for financial accounting and Federal tax
purposes on the identified cost basis. Interest is recognized as interest
income when earned.
2. Capital Stock
Payable for Fund shares redeemed at December 31, 1995 amounted to
$1,872,782.
3. Management Fee and Other Transactions
The Fund retains Salomon Brothers Asset Management Inc ("SBAM"), an
indirect, wholly-owned subsidiary of Salomon Inc, to act as investment manager
of the Fund subject to supervision by the Board of Directors of the Fund. SBAM
furnishes the Fund with office space and pays the compensation of its officers.
The management fee for these services is payable monthly and is based on the
following annual percentages of the Fund's average daily net assets: first $100
million--1%; next $100 million--.75%; next $200 million--.625%; excess over $400
million--.50%. The management fee payable at December 31, 1995 was $85,026.
Brokerage commissions of $57,993 were paid to Salomon Brothers Inc, the
Fund's distributor and an indirect wholly-owned subsidiary of Salomon Inc, for
transactions executed on behalf of the Fund during the year ended December 31,
1995.
If in any fiscal year the total expenses of the Fund, excluding taxes,
interest, brokerage and extraordinary expenses, but including the management
fee, exceed the most stringent expense limitation imposed by state securities
regulations applicable to the Fund, SBAM will pay or reimburse the Fund for the
excess. Currently, this limitation on an annual basis is 2.5% of the first $30
million of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of average daily net assets in excess of $100 million.
For the year ended December 31, 1995, there was no such reimbursement.
11
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Notes to Financial Statements (continued)
4. Portfolio Activity
The cost of securities purchased and proceeds from securities sold (other
than short-term investments) during the year ended December 31, 1995 aggregated
$193,714,152 and $210,691,117, respectively. Amounts payable for securities
purchased at December 31, 1995 aggregated $1,325,453.
Cost of securities held (excluding short-term investments and written
options) on December 31, 1995 for Federal income tax purposes was substantially
the same as for book purposes. As of December 31, 1995, total unrealized
appreciation and depreciation, based on the cost for Federal income tax
purposes, was approximately $12,101,000 and $960,000, respectively, resulting in
net unrealized appreciation of approximately $11,141,000.
Transactions in options written during the year ended December 31, 1995 were
as follows:
Number of Premiums
Contracts Received
--------- --------
Options outstanding at December 31, 1994 ........... (1,550) $(441,761)
Options written .................................... (779) (135,739)
Options terminated in closing purchase transactions. 2,100 563,231
Options expired .................................... 29 1,211
Options exercised .................................. 200 13,058
----- ---------
Options outstanding at December 31, 1995 ........... -- --
===== =========
During the year ended December 31, 1995 net realized loss from written
option transactions amounted to $507,368. During the year ended December 31,
1995 net realized loss from purchased option transactions amounted to $347,275,
for a net realized loss on all option transactions of $854,643.
The risk in writing a covered call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a put option is that the Fund
may incur a loss if the market price of the underlying security decreases and
the option is exercised. In addition, there is the risk that the Fund may not be
able to enter a closing transaction because of an illiquid secondary market.
12
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Financial Highlights
Selected data per share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990+ 1989 1988 1987 1986
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year .. $15.62 $20.80 $19.64 $19.06 $14.86 $16.75 $15.58 $16.58 $17.87 $19.75
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment income ............... .14 .03 .028 .10 .33 .20 .05 .01P. .04 .13
Net gains (losses) on securities
(both realized and unrealized) .... 5.27 (2.87) 3.242 .80 4.56 (1.715) 6.25 (.775) .355* 2.275
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations .. 5.41 (2.84) 3.27 .90 4.89 (1.515) 6.30 (.765) .395 2.405
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less dividends and distributions:
Divdends from net investment income . (.14) (.03) (.035) (.105) (.325) (.285) -- -- (.13) (.25)
Distributions from net realized gain
on investments .................... (2.22) (1.51) (2.075) (.215) (.365) (.09) (5.13) (.235) (1.555) (4.035)
Distributions in excess of net
realized gains .................... -- (.80) -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total dividends and distributions (2.36) (2.34) (2.11) (.32) (.69) (.375) (5.13) (.235) (1.685) (4.285)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of year ........ $18.67 $15.62 $20.80 $19.64 $19.06 $14.86 $16.75 $15.58 $16.58 $17.87
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total investment return based on net
asset value per share ............. +34.9% -14.2% +17.2% +4.7% +33.4% -9.1% +39.7% -4.6% +1.7% +13.7%
Ratios/Supplemental Data:
Net assets end of year
(thousands) ....................... $102,429 $86,704 $113,905 $103,356 $89,829 $75,815 $72,621 $64,267 $91,313 $105,215
Ratio of expenses to average net
assets++ .......................... 1.36% 1.30% 1.31% 1.34% 1.48% 1.44% 1.48% 1.27% 1.17%* 1.13%
Ratio of net investment income to
average net assets ................ .74% 0.12% 0.13% 0.58% 1.87% 1.59% 0.33% 0.03% 0.19% 0.65%
Portfolio turnover rate ............. 217% 152% 104% 41% 94% 156% 362% 270% 395% 279%
<FN>
- ----------
* Net of provision for income taxes of $.057 per share. Expense ratio including provision would be 1.45%.
P. Calculated using average shares outstanding.
++ Net of reimbursement for years 1986 through 1988.
+ Since May 1, 1990, the Fund has been managed by SBAM. Prior thereto, the Lehman Management Co. division of Shearson
Lehman Brothers Inc. served as the Fund's investment manager.
</FN>
</TABLE>
13
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
Report of Independent Accountants
To the Board of Directors and Shareholders of
Salomon Brothers Capital Fund Inc
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Salomon Brothers Capital Fund Inc (the "Fund") at December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for
each of the two years in the period then ended, and the financial highlights for
each of the ten years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 16, 1996
14
<PAGE>
(Left Column)
Family of Funds*
Salomon Brothers
Opportunity Fund Inc
An equity fund that invests for long-term capital appreciation. Current income
is secondary.
The Fund may employ speculative investment techniques to attain its goals.
Salomon Brothers New York
Municipal Money Market Fund
A money market fund that invests in high- quality, short-term municipal
securities with the goal of providing as high a level of current income exempt
from regular Federal, New York State and New York City personal income taxes as
is consistent with liquidity and stability of principal. Income may not be
exempt from certain state or local taxes.
- --------------------------------------------------------------------------------
*For more complete information about the Salomon Brothers Family of Funds, you
may obtain a Prospectus by calling 1-800-SALOMON (1-800-725-6666).
(Right Column)
Salomon Brothers Capital Fund Inc
7 World Trade Center
New York, New York 10048
1-800-SALOMON (1-800-725-6666)
INVESTMENT MANAGER
Salomon Brothers Asset Management Inc
7 World Trade Center
New York, New York 10048
DISTRIBUTOR
Salomon Brothers Inc
7 World Trade Center
New York, New York 10048
CUSTODIAN
Boston Safe Deposit and Trust Company
P.0. Box 9109
Boston, Massachusetts 02205-9109
DIVIDEND DISBURSING AND TRANSFER AGENT
First Data Investor Services Group
P.0. Box 9109
Boston, Massachusetts 02205-9109
LEGAL COUNSEL
Simpson Thatcher & Bartlett
New York, New York 10017-3909
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of
Salomon Brothers Capital Fund Inc. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective
Prospectus for the Fund, which contains information concerning the Fund's
investment policies and expenses as well as other pertinent information.
15
<PAGE>
S A L O M O N B R O T H E R S C A P I T A L F U N D I N C
(Left Column)
Directors
CHARLES F. BARBER*
Consultant; formerly Chairman,
ASARCO Incorporated
ANDREW L. BREECH++
President, Dealer Operating Control
Service Inc.
THOMAS W. BROCK
Chairman and Chief Executive Officer,
Salomon Brothers Asset Management Inc:
Managing Director, Salomon Brothers Inc
CAROL L. COLMAN*
President, Colman Consulting Co., Inc.
WILLIAM R. DILL+
President, Anna Maria College;
formerly Consultant and Director of the
Office of Global Enterprise, University
of Southern Maine
MICHAEL S. HYLAND
Chairman and President, President, Salomon
Brothers Asset Management Inc; Managing
Director, Salomon Brothers Inc
CLIFFORD M. KIRTLAND, JR.++
Formerly Chairman,
Cox Communications, Inc.
ROBERT W. LAWLESS++
President and Chief Executive Officer,
Texas Tech University
LOUIS P. MATTIS+
Formerly Chairman and President, Sterling
Winthrop Inc.
THOMAS F. SCHLAFLY*+
Of counsel to law firm of Peper, Martin,
Jensen, Maichel & Hetlage; President,
The Saint Louis Brewery, Inc.
(Right Column)
Officers
MICHAEL S. HYLAND
Chairman and President
RICHARD E. DAHLBERG
Executive Vice President
ALLAN R. WHITE, III
Executive Vice President
ROSS S. MARGOLIES
Executive Vice President
LAWRENCE H. KAPLAN
Executive Vice President
and General Counsel
ALAN M. MANDEL
Treasurer
TANA E. TSELEPIS
Secretary
JANET S. TOLCHIN
Assistant Treasurer
REJI PAUL
Assistant Treasurer
JENNIFER G. MUZZEY
Assistant Secretary
Honorary Director
EDWIN A. GEE
Formerly Chairman,
International Paper Company
- --------
*Member Audit Committee
+Member Nominating Committee
++Member Proxy Committee
16
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17
<PAGE>
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18
<PAGE>
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19
<PAGE>
(Left Column)
Salomon Brothers Asset Management
Seven World Trade Center
New York, New York 10048
- ----------------
BULK RATE
U.S. POSTAGE
PAID
BOSTON, MA
PERMIT No. 54201
- ----------------
(Right Column)
Salomon Brothers
Capital Fund Inc
Annual Report
DECEMBER 31, 1995
- ---------------------------------------
Salomon Brothers Asset Management
---------------------------------
