-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JUrjODUVsmkVtCTH2HdGD+JNn/MgMXHM30eYtcbcXVAN4nyacbSK1+VZn0Jns0fz FCIYrqpiXeUKgRvU8jGcQw== 0001005477-97-002583.txt : 19971117 0001005477-97-002583.hdr.sgml : 19971117 ACCESSION NUMBER: 0001005477-97-002583 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH CAPITAL FUND INC CENTRAL INDEX KEY: 0000110055 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 132757134 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-02405 FILM NUMBER: 97721538 BUSINESS ADDRESS: STREET 1: P O BOX 9066 CITY: PRINCETON STATE: NJ ZIP: 08543 BUSINESS PHONE: 6092823319 MAIL ADDRESS: STREET 1: P.O. BOX 9066 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: LIONEL D EDIE CAPITAL FUND INC DATE OF NAME CHANGE: 19760810 N-30D 1 SEMI-ANNUAL REPORT MERRILL LYNCH CAPITAL FUND, INC. STRATEGIC Performance Semi-Annual Report September 30, 1997 MERRILL LYNCH CAPITAL FUND, INC. PORTFOLIO SUMMARY [The following table was represented as a pie chart in the original] Security Diversification As a Percentage of Net Assets As of September 30, 1997 US Bonds 32.6% Non-US Bonds 4.2% Cash & Cash Equivalents 3.0% US Stocks 48.8% Non-US Stocks 11.4% [The following table was represented as a pie chart in the original] Sector Representation As a Percentage of Equities As of September 30, 1997 Financial Services 24.8% Consumer Services 6.6% Utilities 1.5% Transportation 2.6% Capital Goods--Technology 13.4% Consumer Cyclicals 10.0% Energy 14.6% Basic Industries 8.9% Diversified 3.8% Credit Cyclicals 2.5% Consumer Staples 8.1% Capital Goods 3.2% - -------------------------------------------------------------------------------- Geographic Diversification Percent of As of September 30, 1997 Net Assets* - --------------------------------------------------- United States 83.8% - --------------------------------------------------- United Kingdom 4.9 - --------------------------------------------------- Argentina 3.2 - --------------------------------------------------- Switzerland 1.9 - --------------------------------------------------- Italy 1.1 - --------------------------------------------------- Mexico 1.0 - --------------------------------------------------- Brazil 0.7 - --------------------------------------------------- Japan 0.7 - --------------------------------------------------- Finland 0.6 - --------------------------------------------------- Netherlands 0.5 - --------------------------------------------------- France 0.4 - --------------------------------------------------- Turkey 0.4 - --------------------------------------------------- Chile 0.2 - --------------------------------------------------- Hong Kong 0.2 - --------------------------------------------------- South Korea 0.2 - --------------------------------------------------- India 0.1 - --------------------------------------------------- Czech Republic 0.1 - --------------------------------------------------- * Includes investments in short-term securities. US Common Stock Investments S&P As of September 30, 1997 Fund 500* - ------------------------------------------------------------ Average Capitalization (in billions) $22.3 $14.4 - ------------------------------------------------------------ Price/Book Value 3.0 5.4 - ------------------------------------------------------------ Price/Earnings Ratio** 20.0 21.9 - ------------------------------------------------------------ Yield Based on Current Dividend 1.7% 1.6% - ------------------------------------------------------------ * An unmanaged broad-based index comprised of common stocks. ** Based on 1997 earnings estimates. Fixed-Income Investments Merrill Lynch As of September 30, 1997 Fund DOAO Index* - ---------------------------------------------------------- Duration 5.5 Years 5.1 Years - ---------------------------------------------------------- Average Maturity 9.2 Years 8.8 Years - ---------------------------------------------------------- Asset Breakdown: - ---------------------------------------------------------- Corporates 52.1% 19.4% - ---------------------------------------------------------- US Treasuries/Agencies 41.3% 53.0% - ---------------------------------------------------------- Mortgage-Backed 1.1% 27.6% - ---------------------------------------------------------- International Governments 5.5% -- - ---------------------------------------------------------- * An unmanaged market-weighted corporate, Government and mortgage master bond index reflecting approximately 97% of total outstanding bonds. 1 Merrill Lynch Capital Fund, Inc. September 30, 1997 DEAR SHAREHOLDER During the quarter ended September 30, 1997, US financial markets continued to experience an unusual degree of volatility, driven by varying perceptions about the pace of economic growth and the corresponding implications for inflation and interest rate trends. Following strong financial asset price appreciation in July, the markets suffered a sharp reversal in August and a rapid recovery in September. Evidence of a decelerating pace of economic growth combined with continued benign inflationary pressure and expectations for good corporate profit performance propelled stock and bond prices higher in July. Preliminary indications of a 2.2% rate of second calendar quarter gross domestic product (GDP) growth were a welcome relief following the first quarter's blistering 4.9% rate of increase, which was revised downward from an originally reported 5.9% advance. The GDP price deflator measure of inflation rose at a mere 1.2% annual rate, the lowest level in 30 years. This extremely hospitable environment drove equity prices to near 8% gains in July, and brought long-term interest rates to their lowest levels of the year. However, in August, investors reacted negatively to several factors. Stronger-than-expected economic growth, economic and currency turmoil among several of our major Asian trading partners, earnings disappointments by market-leading companies such as The Coca-Cola Company and The Gillette Company, and record high valuation levels for the broad market averages precipitated a sell-off. The stock market retraced over half of its earlier gain, and long-term bond yields returned to the levels of mid-June. By September, there were renewed indications of moderating economic activity, including another downward revision to second-quarter GDP estimates, a slowdown in both the housing and auto sectors, and a drop in the closely watched Purchasing Managers Index. These factors combined with continued benign inflation and an increase in foreign investor participation in the US market to drive equity and fixed-income prices higher. For the September quarter, the stock market, as measured by the unmanaged Standard & Poor's 500 Index (S&P 500), recorded a +7.53% total return. The bond market, as measured by the unmanaged Merrill Lynch Domestic Bond Master Index, provided a +3.34% total return, while cash equivalents earned +1.34% for the same period. Total returns for Merrill Lynch Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares for the quarter ended September 30, 1997 were +7.21%, +6.92%, +6.91% and +7.14%, respectively. (Fund results shown do not reflect sales charges; results would be lower if sales charges were included. Complete performance information, including average annual total returns, can be found on pages 5-8 of this report to shareholders.) Merrill Lynch Capital Fund, Inc.'s quarterly results reflect the superior performance of the Fund's equity holdings compared to the S&P 500 Index as well as continued above-average fixed-income returns. While each individual asset class outpaced its respective benchmark during the quarter, the large representation of bonds within the portfolio restrained overall returns. At quarter-end, 60.2% of portfolio net assets were invested in equities, 36.8% in fixed-income securities, and 2.6% in cash equivalents. This compares to 57.9% in equities, 39.7% in bonds and 2.4% in cash equivalents at June 30, 1997. While we further reduced the fixed-income allocation of the portfolio as interest rates declined and as equity market volatility presented attractive new investment opportunities, we continue to believe bonds represent good value with inflation-adjusted interest rates at historically high levels and inflation pressures continuing to moderate. Conversely, we believe that any significant advance in equity prices is likely to be constrained by the still record-high current valuations and more difficult corporate profits comparisons expected in the second half of 1997. Equities have been the preferred financial asset class over time, providing superior returns compared to alternative asset classes, and we ultimately desire a larger equity commitment for the Fund. However, from time to time, and for extended periods of time, bonds have outperformed stocks and stocks have earned only modest returns. In 27 years of the 70 years from 1926 through 1996, long-term Government bonds provided superior total returns when compared to the broad equity market averages. Furthermore, for the 14-year period from 1968 to 1982, the stock market was essentially flat, with all of an investor's return coming from dividend income. The Dow Jones Industrial Average first pierced the 1,000 point level in 1968 and did not return to this height again until 1982. Our asset allocation disciplines suggest that fixed-income returns will be very competitive with those available in the equity market over the next 12 months. This should, in turn, provide opportunities to increase our equity exposure within the 2 Merrill Lynch Capital Fund, Inc. September 30, 1997 Fund as market valuations return to more reasonable and attractive levels. Portfolio Matters Within the equity component of the portfolio, we added four new investments during the September quarter and eliminated eight holdings. We increased our positions in 13 stocks while reducing our ownership interests in 11 holdings. Among the new positions is Unocal Corporation, a California-based oil and gas company that is radically restructuring its business to drive significant value creation over the next two years. The company sold its entire refining and marketing network for after-tax proceeds of $1.2 billion, providing ample financial resources with which to reduce debt, repurchase stock and reinvest in its core business. Unocal has an attractive production profile which, augmented by increased capital investment, should result in rapid earnings and cash flow growth and improved returns. A higher valuation for the stock should follow, producing handsome returns to investors with limited downside risk, in our opinion. Another new addition to the Fund is Reynolds & Reynolds Company, the Ohio-based information-management company, whose stock declined approximately 25% from its recent high in reaction to a disappointing quarterly earnings report. This afforded us an attractive buying opportunity in the shares of this high-quality company. Reynolds & Reynolds operates in the two business segments of business forms and computer systems. Management has articulated fairly aggressive financial objectives of double-digit revenue growth, margin improvement, maintenance of a return on equity in excess of 20% and a judicious redeployment of free cash flow for share repurchases and increasing dividends. In addition, stock ownership guidelines were recently implemented and changes in both the composition and compensation of the board are being considered. Management's long-term incentives are based on returns on equity, and options issued last year are at prices well above the current share price. Selling at 16 times estimated fiscal year 1998 earnings per share, this appears to represent an attractive entry price for a company with strong industrial positions, high returns, a solid balance sheet, substantial free cash flow, good earnings growth prospects and a shareholder-oriented management. We sold our position in Archer-Daniels-Midland Co., the agricultural commodity processor. We purchased the stock based on the belief that several operating problems were transitory as a result of strong underlying demand growth. We also expected changes in the management and board of directors. To date, neither has proven to be true. Archer-Daniels-Midland continues to be an insular, unresponsive company, unwilling or unable to leverage its industrial strengths to enhance shareholder value. While Archer-Daniels-Midland remains statistically inexpensive, management has a different agenda than our own, and the fortunes of the company appear wholly tied to agricultural commodity price trends, an area where we offer little value-added. In light of these factors, we decided to sell our position and redeploy proceeds into more attractive investment opportunities. We also sold Phillips Petroleum Company, the integrated oil company. Although well-managed, Phillips does not appear to offer any appreciable upside potential over the next two years. In the upstream oil and gas sector, unit volume growth is projected at a mediocre 3% per year for the next few years, while in the downstream refining and marketing sector, continued excess industry capacity and fierce competition are likely to keep profit margins under pressure. As a result, earnings per share are projected to be flat through 1998 and perhaps beyond. With no discernible catalysts for improved performance, we decided to eliminate our position. Examining the industry concentration of the Fund's equity holdings, we continue to maintain relatively low weightings relative to the S&P 500 in the broad consumer and technology sectors, while energy and financial services, specifically insurance, remain relatively heavily weighted in the Fund's portfolio. The consumer segment of the equity market is represented by many high-quality companies, but the stocks tend to sell at high valuation levels, and the risk of earnings disappointments appears to be rising as the strong US dollar begins to exact a toll on these global companies. Although our representation in the technology group increased this year based on selected, company-specific opportunities, it remains a challenging area. While technology is exerting a dramatic, positive impact on the way global business is conducted, the rapid pace of change, high risk of obsolescence and tremendous volatility of results which characterize most technology companies limit our ability to assess their prospects and value with high conviction. 3 Merrill Lynch Capital Fund, Inc. September 30, 1997 We believe the insurance industry offers many attractive investment opportunities. Several companies are well-advanced in the restructuring process to concentrate on high return lines of business, freeing up substantial excess capital. These funds, in turn, are being reinvested in acquisitions or share repurchases which help build value for shareholders. In addition, many such companies are managed by individuals with significant stock ownership, making for a mutuality of interest in achieving this objective. Finally, this area is among the more reasonably valued segments of the market. While most of our energy stock investments benefited from the strong commodity price environment, our investment position in this sector is not based upon a top-down, commodity price forecast. Many energy companies offer attractive unit volume growth and substantial restructuring opportunities, while selling at reasonable prices with high current dividend yields. In particular, many international oil companies headquartered outside the United States, such as Fund holdings YPF S.A. of Argentina, TOTAL S.A. of France and Ente Nazionale Idrocarburi S.p.A. (ENI) of Italy, appear quite inexpensive compared to their US-based counterparts. Within the fixed-income component of the portfolio, the average maturity and duration of our bonds was slightly increased from 9.1 years and 5.4 years during the June quarter to 9.2 years and 5.5 years, respectively, at the end of the quarter ended September 30, 1997. These changes reflect the benign inflation outlook and attractive real yields. Our strategy resulted in enhanced returns as interest rates declined. The average yield-to-maturity of our bonds declined 31 basis points (0.31%) to 6.67% at September 30, 1997, mitigated by selected return-enhancement swap trades and the sale of some lower-yielding investments. Average quality, as determined by the major bond rating agencies, was stable at A1/A+. Investment-grade corporate bonds continue to represent the largest category of fixed-income holdings at 46.6% of fixed-income assets, unchanged from the June 30, 1997 quarter, while high-yield corporate bonds rose slightly from 4.5% to 5.5%. Although US Government bonds declined from 42.2% to 41.3% of fixed-income assets, they still represent a relatively high allocation because of the continued narrow differential between their yields and those of riskier non-government bonds. Foreign government issues increased from 5.2% to 5.5%, while mortgage-backed securities declined from 1.4% to 1.1%, reflecting our view that callable bonds are vulnerable to the markets' heightened volatility. Despite the high overall level of the stock market, we continue to identify and invest in above-average companies whose stocks sell at below-average valuation levels. We define an above-average company as one that maintains a strong competitive position, earns consistently high returns on capital, is financially sound, generates cash in excess of its internal reinvestment requirements and is managed by individuals motivated to create value for shareholders. We define a below-average valuation as one that does not adequately or accurately reflect what we believe to be the company's underlying intrinsic value. On average, the stocks held in Merrill Lynch Capital Fund, Inc. generated comparable returns on shareholders' equity and have stronger balance sheets, while offering faster earnings growth than the average company as measured by the S&P 500. However, these same stocks sell at an average price/earnings ratio of 20.0 times estimated 1997 earnings per share compared to 20.9 times for the S&P 500, 3.0 times current book value per share versus 5.4 times for the S&P 500, and provide a slightly above-average 1.7% dividend yield versus 1.6% for the S&P 500. We believe this formula will provide superior risk-adjusted returns over time. In Conclusion We appreciate your continued interest and participation in Merrill Lynch Capital Fund, Inc., and we look forward to assisting you with your financial needs in the months and years to come. Sincerely, /s/ Arthur Zeikel Arthur Zeikel President /s/ Kurt Schansinger Kurt Schansinger Vice President and Portfolio Manager November 3, 1997 4 Merrill Lynch Capital Fund, Inc. September 30, 1997 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select PricingSM System, which offers four pricing alternatives: o Class A Shares incur a maximum initial sales charge (front-end load) of 5.25% and bear no ongoing distribution or account maintenance fees. Class A Shares are available only to eligible investors. o 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. (There is no initial sales charge for automatic share conversions.) o 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. o 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. Figures shown in the "Average Annual Total Return" tables as well as the "Performance Summary" tables assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. 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. Recent Performance Results
12 Month 3 Month 9/30/97 6/30/97 9/30/96 % Change % Change ====================================================================================================================== ML Capital Fund, Inc. Class A Shares* $35.53 $34.67 $30.51 +22.66%(1) +5.24%(2) - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class B Shares* 34.73 33.85 29.89 +22.51(1) +5.42(2) - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class C Shares* 34.39 33.54 29.63 +22.44(1) +5.38(2) - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class D Shares* 35.46 34.59 30.47 +22.59(1) +5.28(2) - ---------------------------------------------------------------------------------------------------------------------- Dow Jones Industrial Average 7,945.26 7,672.79 5,882.17 +35.07 +3.55 - ---------------------------------------------------------------------------------------------------------------------- Standard & Poor's 500 Index** 947.28 885.14 687.31 +37.82 +7.02 - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class A Shares--Total Return* +27.53(3) +7.21(4) - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class B Shares--Total Return* +26.21(5) +6.92(6) - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class C Shares--Total Return* +26.20(7) +6.91(8) - ---------------------------------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class D Shares--Total Return* +27.16(9) +7.14(10) - ---------------------------------------------------------------------------------------------------------------------- Dow Jones Industrial Average--Total Return +37.69 +4.00 - ---------------------------------------------------------------------------------------------------------------------- Standard & Poor's 500 Index--Total Return** +40.44 +7.53 ======================================================================================================================
* 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 $1.701 per share capital gains distributions. (2) Percent change includes reinvestment of $0.912 per share capital gains distributions. (3) Percent change includes reinvestment of $1.298 per share ordinary income dividends and $1.701 per share capital gains distributions. (4) Percent change includes reinvestment of $0.650 per share ordinary income dividends and $0.912 per share capital gains distributions. (5) Percent change includes reinvestment of $0.971 per share ordinary income dividends and $1.701 per share capital gains distributions. (6) Percent change includes reinvestment of $0.484 per share ordinary income dividends and $0.912 per share capital gains distributions. (7) Percent change includes reinvestment of $0.980 per share ordinary income dividends and $1.701 per share capital gains distributions. (8) Percent change includes reinvestment of $0.489 per share ordinary income dividends and $0.912 per share capital gains distributions. (9) Percent change includes reinvestment of $1.221 per share ordinary income dividends and $1.701 per share capital gains distributions. (10) Percent change includes reinvestment of $0.613 per share ordinary income dividends and $0.912 per share capital gains distributions. 5 Merrill Lynch Capital Fund, Inc. September 30, 1997 PERFORMANCE DATA (continued) Results of a $1,000 Investment Since Inception--Class A Shares (5.25% sales charge--$947.50 net amount invested; assuming reinvestment of all dividends and capital gains distributions) [Line graph omitted] Average Annual Total Return % Return Without % Return With Sales Charge Sales Charge** ========================================================= Class A Shares* ========================================================= Year Ended 9/30/97 +27.53% +20.83% - --------------------------------------------------------- Five Years Ended 9/30/97 +16.38 +15.13 - --------------------------------------------------------- Ten Years Ended 9/30/97 +12.66 +12.05 - --------------------------------------------------------- * Maximum sales charge is 5.25%. ** Assuming maximum sales charge. % Return % Return Without CDSC With CDSC** ============================================================ Class B Shares* ============================================================ Year Ended 9/30/97 +26.21% +22.21% - ------------------------------------------------------------ Five Years Ended 9/30/97 +15.20 +15.20 - ------------------------------------------------------------ Inception (10/21/88) through 9/30/97 +13.36 +13.36 - ------------------------------------------------------------ * 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 9/30/97 +26.20% +25.20% - ------------------------------------------------------------ Inception (10/21/94) through 9/30/97 +20.15 +20.15 - ------------------------------------------------------------ * 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 9/30/97 +27.16% +20.49% - --------------------------------------------------------- Inception (10/21/94) through 9/30/97 +21.09 +18.89 - --------------------------------------------------------- * Maximum sales charge is 5.25%. ** Assuming maximum sales charge. 6 Merrill Lynch Capital Fund, Inc. September 30, 1997 PERFORMANCE DATA (continued) Performance Summary--Class A Shares
Net Asset Value Capital Gains Period Covered Beginning Ending Distributed Dividends Paid* % Change** ==================================================================================================================== 11/8/73--12/31/73 $14.03 $13.87 -- -- - 1.11% - -------------------------------------------------------------------------------------------------------------------- 1974 13.87 10.78 -- $ 0.560 -18.62 - -------------------------------------------------------------------------------------------------------------------- 1975 10.78 12.83 -- 0.510 +23.86 - -------------------------------------------------------------------------------------------------------------------- 1976 12.83 14.10 -- 0.360 +12.75 - -------------------------------------------------------------------------------------------------------------------- 1977 14.10 12.68 -- 0.370 - 7.37 - -------------------------------------------------------------------------------------------------------------------- 1978 12.68 13.63 -- 0.500 +11.65 - -------------------------------------------------------------------------------------------------------------------- 1979 13.63 16.54 -- 0.650 +26.73 - -------------------------------------------------------------------------------------------------------------------- 1980 16.54 17.70 $ 1.250 1.150 +24.83 - -------------------------------------------------------------------------------------------------------------------- 1981 17.70 16.62 1.990 1.150 +11.85 - -------------------------------------------------------------------------------------------------------------------- 1982 16.62 17.85 0.830 0.930 +19.27 - -------------------------------------------------------------------------------------------------------------------- 1983 17.85 20.63 0.600 0.690 +23.13 - -------------------------------------------------------------------------------------------------------------------- 1984 20.63 19.33 1.990 0.670 + 7.98 - -------------------------------------------------------------------------------------------------------------------- 1985 19.33 22.57 1.600 0.660 +29.88 - -------------------------------------------------------------------------------------------------------------------- 1986 22.57 24.40 2.100 0.440 +19.89 - -------------------------------------------------------------------------------------------------------------------- 1987 24.40 19.79 5.763 0.219 + 4.60 - -------------------------------------------------------------------------------------------------------------------- 1988 19.79 21.39 1.008 0.742 +17.04 - -------------------------------------------------------------------------------------------------------------------- 1989 21.39 24.43 0.723 1.099 +22.98 - -------------------------------------------------------------------------------------------------------------------- 1990 24.43 23.01 0.390 1.295 + 1.08 - -------------------------------------------------------------------------------------------------------------------- 1991 23.01 26.92 0.262 1.361 +24.69 - -------------------------------------------------------------------------------------------------------------------- 1992 26.92 26.33 0.954 0.921 + 5.03 - -------------------------------------------------------------------------------------------------------------------- 1993 26.33 27.97 0.699 1.201 +13.71 - -------------------------------------------------------------------------------------------------------------------- 1994 27.97 25.70 1.245 1.247 + 0.91 - -------------------------------------------------------------------------------------------------------------------- 1995 25.70 30.55 1.419 2.036 +32.87 - -------------------------------------------------------------------------------------------------------------------- 1996 30.55 31.05 1.464 1.725 +12.67 - -------------------------------------------------------------------------------------------------------------------- 1/1/97--9/30/97 31.05 35.53 0.912 0.650 +19.71 - -------------------------------------------------------------------------------------------------------------------- Total $25.199 Total $21.136 ==================================================================================================================== Cumulative total return as of 9/30/97: +1,981.38%** ====================================================================================================================
* Figures may include short-term capital gains distributions. ** Figures do not include sales charge; results would be lower if sales charge was included. 7 Merrill Lynch Capital Fund, Inc. September 30, 1997 PERFORMANCE DATA (concluded) Performance Summary--Class B Shares
Net Asset Value Capital Gains Period Covered Beginning Ending Distributed Dividends Paid* % Change** ==================================================================================================================== 10/21/88--12/31/88 $22.64 $21.38 $0.773 $0.537 + 0.25% - -------------------------------------------------------------------------------------------------------------------- 1989 21.38 24.29 0.723 0.961 +21.70 - -------------------------------------------------------------------------------------------------------------------- 1990 24.29 22.85 0.390 1.077 + 0.10 - -------------------------------------------------------------------------------------------------------------------- 1991 22.85 26.66 0.262 1.147 +23.39 - -------------------------------------------------------------------------------------------------------------------- 1992 26.66 26.03 0.954 0.684 + 3.99 - -------------------------------------------------------------------------------------------------------------------- 1993 26.03 27.61 0.699 0.930 +12.54 - -------------------------------------------------------------------------------------------------------------------- 1994 27.61 25.34 1.245 0.974 - 0.10 - -------------------------------------------------------------------------------------------------------------------- 1995 25.34 30.04 1.419 1.748 +31.52 - -------------------------------------------------------------------------------------------------------------------- 1996 30.04 30.46 1.464 1.412 +11.50 - -------------------------------------------------------------------------------------------------------------------- 1/1/97--9/30/97 30.46 34.73 0.912 0.484 +18.82 - -------------------------------------------------------------------------------------------------------------------- Total $8.841 Total $9.954 ==================================================================================================================== Cumulative total return as of 9/30/97: +206.95%** ====================================================================================================================
* Figures may include short-term capital gains distributions. ** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted. Performance Summary--Class C Shares
Net Asset Value Capital Gains Period Covered Beginning Ending Distributed Dividends Paid* % Change** ==================================================================================================================== 10/21/94--12/31/94 $26.81 $25.24 $0.617 $0.543 - 1.47% - -------------------------------------------------------------------------------------------------------------------- 1995 25.24 29.81 1.419 1.832 +31.48 - -------------------------------------------------------------------------------------------------------------------- 1996 29.81 30.19 1.464 1.437 +11.54 1/1/97--9/30/97 30.19 34.39 0.912 0.489 +18.77 Total $4.412 Total $4.301 ==================================================================================================================== Cumulative total return as of 9/30/97: +71.63%** ====================================================================================================================
* Figures may include short-term capital gains distributions. ** Figures do not reflect deduction of any sales charge; results would be lower if sales charge was deducted. Performance Summary--Class D Shares
Net Asset Value Capital Gains Period Covered Beginning Ending Distributed Dividends Paid* % Change** ==================================================================================================================== 10/21/94--12/31/94 $27.27 $25.70 $0.617 $0.572 - 1.33% - -------------------------------------------------------------------------------------------------------------------- 1995 25.70 30.53 1.419 1.978 +32.55 - -------------------------------------------------------------------------------------------------------------------- 1996 30.53 31.02 1.464 1.652 +12.39 - -------------------------------------------------------------------------------------------------------------------- 1/1/97--9/30/97 31.02 35.46 0.912 0.613 +19.47 - -------------------------------------------------------------------------------------------------------------------- Total $4.412 Total $4.815 ==================================================================================================================== Cumulative total return as of 9/30/97: +75.60%** ====================================================================================================================
* Figures may include short-term capital gains distributions. ** Figures do not include sales charge; results would be lower if sales charge was included. 8 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS
Shares Value Percent of Industries Held Common Stocks Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Aerospace 1,100,000 Lockheed Martin Corp. $ 82,119,274 $ 117,287,500 1.1% - ------------------------------------------------------------------------------------------------------------------------------------ Appliances & 1,700,000 Sunbeam Corporation 67,904,223 75,437,500 0.7 Furniture - ------------------------------------------------------------------------------------------------------------------------------------ Automobile 1,900,000 Echlin Inc. 60,716,252 66,618,750 0.6 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ Automotive 1,000,000 General Motors Corp. 47,511,108 66,937,500 0.6 - ------------------------------------------------------------------------------------------------------------------------------------ Banking 1,300,000 The Chase Manhattan Corp. 91,963,256 153,400,000 1.5 - ------------------------------------------------------------------------------------------------------------------------------------ Building Materials 2,000,000 ++ American Standard Companies, Inc. 93,322,961 80,250,000 0.8 2,400,000 Masco Corporation 75,254,389 109,950,000 1.0 -------------- --------------- ---- 168,577,350 190,200,000 1.8 - ------------------------------------------------------------------------------------------------------------------------------------ Capital Goods 1,500,000 United Dominion Industries, Ltd. 34,449,123 42,468,750 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Chemicals 1,200,000 du Pont (E.I.) de Nemours & Co. 50,935,827 73,875,000 0.7 1,400,000 Engelhard Corp. 25,445,579 30,187,500 0.3 1,300,000 Grace (W.R.) & Co. 66,236,105 95,712,500 0.9 2,000,000 Imperial Chemical Industries PLC (ADR)* 98,975,520 132,250,000 1.3 -------------- --------------- ---- 241,593,031 332,025,000 3.2 - ------------------------------------------------------------------------------------------------------------------------------------ Communications 400,000 ++ Cisco Systems, Inc. 18,761,482 29,225,000 0.3 Equipment - ------------------------------------------------------------------------------------------------------------------------------------ Computer Software 1,225,000 Computer Associates International, Inc. 53,447,585 87,970,312 0.8 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Electronics 400,000 Nintendo Corp. Ltd. 28,474,285 37,460,633 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Diversified 2,300,000 Tenneco, Inc. 93,831,299 110,112,500 1.0 Companies 9,000,000 Tomkins PLC 39,576,902 50,223,375 0.5 1,900,000 United Technologies Corp. 56,635,222 153,900,000 1.5 1,500,000 Varian Associates, Inc. 78,745,084 93,187,500 0.9 -------------- --------------- ---- 268,788,507 407,423,375 3.9 - ------------------------------------------------------------------------------------------------------------------------------------ Drug Stores 2,150,000 Rite Aid Corp. 68,282,569 119,190,625 1.1 - ------------------------------------------------------------------------------------------------------------------------------------ Electrical 1,450,000 Belden Inc. (a) 45,973,282 54,646,875 0.5 Equipment 1,600,000 General Electric Co. 40,557,953 108,900,000 1.0 600,000 Philips Electronics N.V. (NY Registered Shares) 18,270,763 50,400,000 0.5 -------------- --------------- ---- 104,801,998 213,946,875 2.0 - ------------------------------------------------------------------------------------------------------------------------------------ Electronic 1,500,000 Avnet, Inc. 83,947,761 95,343,750 0.9 Components - ------------------------------------------------------------------------------------------------------------------------------------ Financial Services 2,000,000 Federal National Mortgage Association 52,392,099 94,000,000 0.9 1,100,000 Transamerica Corporation 81,108,138 109,450,000 1.0 -------------- --------------- ---- 133,500,237 203,450,000 1.9 - ------------------------------------------------------------------------------------------------------------------------------------ Foods/Food 2,081,200 Grand Metropolitan PLC (ADR)* 67,096,716 81,166,800 0.8 Processing 90,000 Nestle S.A. (Registered) 94,193,609 125,569,864 1.2 -------------- --------------- ---- 161,290,325 206,736,664 2.0 - ------------------------------------------------------------------------------------------------------------------------------------
9 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held Common Stocks Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Footwear 8,000,000 Yue Yuen Industrial (Holdings Limited) $ 10,727,086 $ 20,573,792 0.2% - ------------------------------------------------------------------------------------------------------------------------------------ Hardware & Tools 1,290,000 The Black & Decker Corporation 42,638,941 48,052,500 0.5 - ------------------------------------------------------------------------------------------------------------------------------------ Hospital 1,750,000 Columbia/HCA Healthcare Corp. 58,308,829 50,312,500 0.5 Management 3,600,000 ++ Tenet Healthcare Corp. 52,634,362 104,850,000 1.0 -------------- --------------- ---- 110,943,191 155,162,500 1.5 - ------------------------------------------------------------------------------------------------------------------------------------ Information Systems 2,500,000 Reynolds & Reynolds Company (Class A) 50,500,482 48,593,750 0.5 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance 2,300,000 Allstate Corporation 69,292,895 184,862,500 1.8 1,000,000 American International Group, Inc. 46,545,446 103,187,500 1.0 1,800,000 Berkley (W.R.) Corporation (a) 62,155,679 77,062,500 0.7 1,900,000 EXEL Ltd. 41,181,437 113,168,750 1.1 2,000,000 Fremont General Corp. (a) 33,362,385 95,500,000 0.9 1,100,000 Horace Mann Educators Corp. 34,550,993 61,737,500 0.6 2,000,000 Penncorp Financial Group, Inc. (a) 62,850,797 62,000,000 0.6 2,000,000 Provident Companies, Inc. 79,650,937 139,875,000 1.3 1,800,000 TIG Holdings, Inc. 54,108,848 62,662,500 0.6 3,000,000 Travelers Group, Inc. 39,986,618 204,750,000 1.9 -------------- --------------- ---- 523,686,035 1,104,806,250 10.5 - ------------------------------------------------------------------------------------------------------------------------------------ Iron & Steel 1,600,000 Birmingham Steel Corp. (a) 28,005,214 27,700,000 0.3 900,000 Nucor Corporation 45,502,522 47,418,750 0.4 -------------- --------------- ---- 73,507,736 75,118,750 0.7 - ------------------------------------------------------------------------------------------------------------------------------------ Leisure/Hotels 2,200,000 Carnival Corp. (Class A) 57,830,550 101,750,000 1.0 3,000,000 ++ Harrah's Entertainment, Inc. 55,543,541 67,312,500 0.6 -------------- --------------- ---- 113,374,091 169,062,500 1.6 - ------------------------------------------------------------------------------------------------------------------------------------ Machinery & 410,700 SPX Corp. 23,889,825 24,077,288 0.2 Machine Tools - ------------------------------------------------------------------------------------------------------------------------------------ Natural Gas 1,300,000 Coastal Corp. 46,005,120 79,625,000 0.8 Suppliers 1,300,000 El Paso Natural Gas Co. 56,192,288 78,731,250 0.7 5,200,000 Williams Companies, Inc. (a) 92,336,036 243,425,000 2.3 -------------- --------------- ---- 194,533,444 401,781,250 3.8 - ------------------------------------------------------------------------------------------------------------------------------------ Oil--Integrated 1,160,000 Ente Nazionale Idrocarburi S.p.A. (ENI) (ADR)* 56,869,994 72,862,500 0.7 1,000,000 TOTAL S.A. (ADR)* 31,610,031 57,312,500 0.5 1,750,000 Unocal Corporation 68,839,755 75,687,500 0.7 5,250,000 YPF S.A. (ADR)* 100,302,115 193,593,750 1.8 -------------- --------------- ---- 257,621,895 399,456,250 3.7 - ------------------------------------------------------------------------------------------------------------------------------------ Oil--Service 2,900,000 Dresser Industries, Inc. 77,166,439 124,700,000 1.2 - ------------------------------------------------------------------------------------------------------------------------------------ Paper & Forest 790,000 Temple-Inland, Inc. 36,163,014 50,560,000 0.5 Products 1,800,000 Weyerhaeuser Co. 82,324,720 106,875,000 1.0 -------------- --------------- ---- 118,487,734 157,435,000 1.5
10 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held Common Stocks Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Pharmaceuticals 2,750,000 Glaxo Wellcome PLC (ADR)* $ 72,705,383 $ 123,578,125 1.2% 375,000 Merck & Co., Inc. 18,550,809 37,476,563 0.4 50,000 Novartis AG (Registered) 61,610,822 76,785,345 0.7 600,000 Pfizer, Inc. 17,304,400 36,037,500 0.3 -------------- --------------- ---- 170,171,414 273,877,533 2.6 - ------------------------------------------------------------------------------------------------------------------------------------ Railroads 4,875,000 Kansas City Southern Industries, Inc. (a) 71,881,332 167,882,812 1.6 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 1,000,000 CarrAmerica Realty Corp. 27,000,078 32,000,000 0.3 Investment Trusts 1,250,700 Patriot American Hospitality, Inc. 31,469,476 39,866,063 0.4 1,369,700 RFS Hotel Investors, Inc. (a) 20,134,798 26,709,150 0.2 750,000 Walden Residential Properties, Inc. 13,361,662 18,937,500 0.2 -------------- --------------- ---- 91,966,014 117,512,713 1.1 - ------------------------------------------------------------------------------------------------------------------------------------ Restaurants 1,428,100 McDonald's Corporation 70,525,333 68,013,263 0.6 - ------------------------------------------------------------------------------------------------------------------------------------ Retail Trade 3,000,000 Wal-Mart Stores, Inc. 73,541,970 109,875,000 1.0 - ------------------------------------------------------------------------------------------------------------------------------------ Telecommunications 2,150,000 Frontier Corporation 59,511,165 49,450,000 0.5 1,000,000 GTE Corp. 33,930,001 45,375,000 0.4 1,100,000 Nokia Corp. (ADR)* 46,271,231 103,193,750 1.0 600,000 Telecomunicacoes Brasileiras S.A.--Telebras (ADR)* 46,694,061 77,250,00 0.7 -------------- --------------- ---- 186,406,458 275,268,750 2.6 - ------------------------------------------------------------------------------------------------------------------------------------ Tires & Rubber 2,500,000 The Goodyear Tire & Rubber Co. 98,262,526 171,875,000 1.6 - ------------------------------------------------------------------------------------------------------------------------------------ Total Common Stocks 4,075,960,312 6,358,247,135 60.2 - ------------------------------------------------------------------------------------------------------------------------------------ Face Amount Corporate Bonds - ------------------------------------------------------------------------------------------------------------------------------------ Automobile US$ 20,000,000 Eaton Corp., 6.50% due 6/01/2025 19,929,200 19,920,000 0.2 Parts - ------------------------------------------------------------------------------------------------------------------------------------ Automotive Hertz Corp.: 25,000,000 6.70% due 6/15/2002 24,815,300 25,174,250 0.2 13,000,000 6% due 1/15/2003 12,891,670 12,675,390 0.1 20,000,000 Hyundai Motor Co., Ltd., 7.60% due 7/15/2007+++ 19,916,100 19,798,000 0.2 -------------- --------------- ---- 57,623,070 57,647,640 0.5 - ------------------------------------------------------------------------------------------------------------------------------------ Banking 25,000,000 Banco Nacional de Commercio Exterior SNC, Global Bonds, 7.25% due 2/02/2004 23,425,000 23,781,250 0.2 13,600,000 Banco Rio de la Plata, 8.75% due 12/15/2003 13,751,700 14,059,000 0.1 25,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 23,519,000 24,706,250 0.2 BankAmerica Corp.: 15,000,000 6.875% due 6/01/2003 14,149,050 15,218,100 0.2 30,000,000 6.75% due 9/15/2005 29,591,750 30,153,300 0.3 The Chase Manhattan Corp.: 15,000,000 6.50% due 8/01/2005 14,552,850 14,852,700 0.2 15,000,000 6.25% due 1/15/2006 13,892,250 14,532,450 0.1 20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 20,190,560 0.2 30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 29,841,600 0.3
11 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Banking US$ 22,750,000 Firstbank Puerto Rico, 7.625% (concluded) due 12/20/2005 $ 22,140,803 $ 23,071,002 0.2% 10,000,000 Great Western Financial Corp., 6.375% due 7/01/2000 9,998,800 10,007,300 0.1 Household Bank: 10,000,000 6.87% due 5/15/2001 9,868,800 10,160,600 0.1 20,000,000 6.875% due 3/17/2003 19,886,200 20,296,000 0.2 10,300,000 6.50% due 7/15/2003 10,202,253 10,245,513 0.1 NationsBank Corp.: 40,000,000 5.60% due 2/07/2001 40,000,000 39,095,600 0.4 10,000,000 6.20% due 8/15/2003 9,670,360 9,835,500 0.1 25,000,000 6.50% due 8/15/2003 22,104,200 24,902,750 0.2 25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 24,922,025 24,841,845 0.2 20,000,000 People's Bank--Bridgeport, 7.20% due 12/01/2006 19,956,700 20,219,800 0.2 25,000,000 Provident Bank, 6.375% due 1/15/2004 24,296,430 24,559,250 0.2 Union Planters Corp.: 20,000,000 6.25% due 11/01/2003 18,756,100 19,507,800 0.2 12,500,000 6.75% due 11/01/2005 12,001,875 12,410,875 0.1 -------------- --------------- ---- 426,443,346 436,489,045 4.1 - ------------------------------------------------------------------------------------------------------------------------------------ Beverages 22,000,000 Coca-Cola Femsa S.A., 8.95% due 11/01/2006 21,984,595 23,284,580 0.2 15,000,000 Panamerican Beverages, Inc., 7.25% due 7/01/2009+++ 15,056,250 15,150,000 0.2 -------------- --------------- ---- 37,040,845 38,434,580 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Broadcasting 20,000,000 British Sky Broadcasting Group PLC, 7.30% due 10/15/2006 20,037,440 20,445,400 0.2 - ------------------------------------------------------------------------------------------------------------------------------------ Cable 10,000,000 Comcast Cable Communications, 8.125% due 5/01/2004+++ 9,991,000 10,662,900 0.1 - ------------------------------------------------------------------------------------------------------------------------------------ Chemicals 8,000,000 Airgas, Inc., 7.14% due 3/08/2004 8,000,000 8,198,432 0.1 26,900,000 Lyondell Petrochemical Company, 6.50% due 2/15/2006 25,498,197 26,146,531 0.3 25,000,000 Union Carbide Corp., 6.79% due 6/01/2025 25,000,000 24,873,250 0.2 -------------- --------------- ---- 58,498,197 59,218,213 0.6 - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Services 20,000,000 Loewen Group, Inc., 8.25% due 10/15/2003 20,208,132 20,942,780 0.2 - ------------------------------------------------------------------------------------------------------------------------------------ Electronics 16,000,000 Litton Industries, Inc., 6.98% due 3/15/2006 16,000,000 16,264,080 0.2 15,000,000 Tandy Corp., 6.95% due 9/01/2007 14,944,120 15,114,000 0.1 -------------- --------------- ---- 30,944,120 31,378,080 0.3 - ------------------------------------------------------------------------------------------------------------------------------------ Finance Ford Motor Credit Co.: 40,000,000 5.75% due 1/25/2001 39,596,900 39,317,600 0.4 9,000,000 5.90% due 2/23/2001 8,704,260 8,895,060 0.1 General Motors Acceptance Corp.: 50,000,000 6.375% due 4/04/2000 49,887,500 50,233,700 0.5 55,000,000 5.625% due 2/15/2001 54,450,000 53,826,850 0.5 30,000,000 6.75% due 6/10/2002 29,520,300 30,357,600 0.3 15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,749,800 0.1 -------------- --------------- ---- 197,154,760 197,380,610 1.9
12 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ Financial GATX Corp.: Leasing US$ 7,000,000 6.66% due 3/15/2001 $ 6,997,900 $ 7,050,330 0.1% 12,000,000 6.27% due 12/05/2001 11,823,270 11,897,760 0.1 25,000,000 6.69% due 11/30/2005 24,984,750 24,856,000 0.2 XTRA Corp.: 20,000,000 6.79% due 8/01/2001 19,945,800 20,223,120 0.2 20,000,000 6.68% due 11/30/2001 20,000,000 20,133,120 0.2 -------------- --------------- ---- 83,751,720 84,160,330 0.8 - ------------------------------------------------------------------------------------------------------------------------------------ Financial Finova Capital Corp.: Services 25,000,000 6.45% due 6/01/2000 24,766,550 25,061,500 0.2 15,000,000 5.98% due 2/27/2001 14,968,950 14,816,760 0.2 10,000,000 6.56% due 11/15/2002 10,000,000 10,018,400 0.1 McDonnell Douglas Finance Corp.: 20,000,000 6.78% due 12/19/2003 19,993,400 19,913,000 0.2 20,000,000 6.965% due 9/12/2005 20,049,200 20,394,180 0.2 35,000,000 Morgan Stanley Group, Inc., 5.75% due 2/15/2001 34,968,150 34,450,325 0.3 Salomon Inc.: 10,000,000 6.75% due 2/15/2003 9,804,000 10,034,980 0.1 5,000,000 6.875% due 12/15/2003 4,968,500 5,018,155 0.1 Smith Barney Shearson Holdings, Inc.: 25,000,000 6.625% due 7/01/2002 24,994,000 25,091,250 0.2 30,000,000 7% due 3/15/2004 29,927,700 30,518,580 0.3 -------------- --------------- ---- 194,440,450 195,317,130 1.9 - ------------------------------------------------------------------------------------------------------------------------------------ Food & Tobacco Nabisco Inc.: 20,000,000 6.70% due 6/15/2002 19,838,770 20,080,400 0.2 20,000,000 6.85% due 6/15/2005 20,000,000 20,038,400 0.2 10,000,000 RJR Nabisco Inc., 8.25% due 7/01/2004 9,971,250 10,189,450 0.1 -------------- --------------- ---- 49,810,020 50,308,250 0.5 - ------------------------------------------------------------------------------------------------------------------------------------ Foreign 10,000,000 Province of Mendoza, 10% due 9/04/2007 9,931,700 10,079,560 0.1 Government Republic of Argentina: Obligations 43,200,000 Floating Rate Brady Bonds, Series L, 6.75% due 3/31/2005+ 28,872,742 41,104,800 0.4 40,000,000 Global Bonds, 8.375% due 12/20/2003 38,561,250 40,200,000 0.4 15,000,000 Republic of Guatemala, 8.50% due 8/03/2007 15,082,250 15,056,250 0.1 37,500,000 Republic of Turkey, 10% due 9/19/2007 37,500,000 38,625,000 0.4 United Mexican States: 5,000,000 8.50% due 9/15/2002 5,043,750 5,118,750 0.0 50,000,000 Global Bonds, 9.875% due 1/15/2007 52,632,500 53,812,500 0.5 -------------- --------------- ---- 187,624,192 203,996,860 1.9 - ------------------------------------------------------------------------------------------------------------------------------------ Hardware & Tools 10,000,000 The Black & Decker Corporation, 6.625% due 11/15/2000 9,874,800 10,053,700 0.1 - ------------------------------------------------------------------------------------------------------------------------------------ Hospital 25,000,000 Medpartners, Inc., 6.875% due 9/01/2000 24,964,820 24,978,000 0.2 Management 26,500,000 Tenet Healthcare Corp., 8% due 1/15/2005 26,470,375 26,963,750 0.3 -------------- --------------- ---- 51,435,195 51,941,750 0.5
13 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Industrial US$ 12,750,000 Diamond Shamrock, Inc., 7.65% due 7/01/2026 $ 12,741,188 $ 13,702,935 0.1% 7,800,000 Interface, Inc., 9.50% due 11/15/2005 7,552,000 8,248,500 0.1 15,000,000 Reliance Industries Ltd., 8.25% due 1/15/2027+++ 14,814,819 14,985,000 0.1 10,000,000 Triton Energy Ltd., 8.75% due 4/15/2002 9,957,500 10,439,350 0.1 15,000,000 United Refining Co., 10.75% due 6/15/2007 15,000,000 15,450,000 0.1 Williams Holdings of Delaware, Inc.: 20,000,000 6.91% due 6/13/2002 19,988,200 20,255,620 0.2 50,000,000 6.25% due 2/01/2006 49,739,500 48,343,500 0.5 -------------- --------------- ---- 129,793,207 131,424,905 1.2 - ------------------------------------------------------------------------------------------------------------------------------------ Insurance 10,125,000 Integon Corp., 8% due 8/15/1999 10,208,769 10,264,512 0.1 20,000,000 Travelers Inc., 6.875% due 6/01/2025 20,037,200 20,669,400 0.2 -------------- --------------- ---- 30,245,969 30,933,912 0.3 - ------------------------------------------------------------------------------------------------------------------------------------ Machinery 20,000,000 FMC Corp., 6.375% due 9/01/2003 18,940,800 19,629,400 0.2 22,500,000 Harris Corp., 6.375% due 8/15/2002 22,461,850 22,304,025 0.2 -------------- --------------- ---- 41,402,650 41,933,425 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Natural Gas 27,500,000 Coastal Corp., 6.70% due 2/15/2027 27,225,400 27,782,508 0.3 Suppliers 15,000,000 ENSERCH Corporation, 7.125% due 6/15/2005 15,095,150 15,290,550 0.1 -------------- --------------- ---- 42,320,550 43,073,058 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Oil--Integrated 10,000,000 Giant Industries, Inc., 9% due 9/01/2007 10,000,000 10,050,000 0.1 18,375,000 Occidental Petroleum Corp., 6.24% due 11/24/2000 18,135,306 18,275,591 0.2 14,000,000 Perez Companc S.A., 8.125% due 7/15/2007 13,988,520 14,035,000 0.1 Union Texas Petroleum Holdings, Inc.: 10,000,000 6.70% due 11/18/2002 10,000,000 10,018,160 0.1 20,000,000 6.81% due 12/05/2007 20,000,000 19,946,600 0.2 10,000,000 Unocal Corporation, 6.11% due 2/17/2004 10,000,000 9,742,180 0.1 30,000,000 YPF S.A., 8% due 2/15/2004 26,971,875 30,562,500 0.3 -------------- --------------- ---- 109,095,701 112,630,031 1.1 - ------------------------------------------------------------------------------------------------------------------------------------ Oil--Related 15,000,000 Tosco Corporation, 7.25% due 1/01/2007+++ 15,212,150 15,357,00 0.2 - ------------------------------------------------------------------------------------------------------------------------------------ Paper & Forest 20,000,000 Boise Cascade Corporation, 7.66% Products due 5/27/2005 20,000,000 20,923,660 0.2 20,400,000 Champion International Corp., 6.40% due 2/15/2026 20,238,456 20,061,850 0.2 -------------- --------------- ---- 40,238,456 40,985,510 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Real Estate 20,000,000 Meditrust Corporation, 7.82% due 9/10/2026 20,633,700 21,090,960 0.2 Investment Trusts - ------------------------------------------------------------------------------------------------------------------------------------ Telecommuni- 10,000,000 Pacific Telecom, Inc., 6.625% due 10/20/2005 10,000,000 9,952,460 0.1 cations 43,200,000 PanAmSat L.P., 9.50%*** due 8/01/2003 41,699,501 42,825,024 0.4 25,000,000 Worldcom Inc., 7.55% due 4/01/2004 24,958,500 25,677,275 0.2 -------------- --------------- ---- 76,658,001 78,454,759 0.7 - ------------------------------------------------------------------------------------------------------------------------------------ Tires & Rubber 40,000,000 The Goodyear Tire & Rubber Co., 6.625% due 12/01/2006 39,840,000 39,515,200 0.4
14 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Transportation US$ 10,000,000 General American Transportation Corp., 6.44% due 11/13/2001 $ 10,000,000 $ 9,979,200 0.1% 15,000,000 Transportacion Maritima Mexicana, S.A. de C.V., 10% due 11/15/2006 15,130,250 15,450,000 0.1 -------------- --------------- ---- 25,130,250 25,429,200 0.2 - ------------------------------------------------------------------------------------------------------------------------------------ Travel & Lodging Royal Caribbean Cruises Ltd.: 10,000,000 7.125% due 9/18/2002 9,900,050 10,182,400 0.1 10,000,000 7.25% due 8/15/2006 9,854,415 10,120,400 0.1 -------------- --------------- ---- 19,754,465 20,302,800 0.2 - ------------------------------------------------------------------------------------------------------------------------------------ Utilities--Electric, Connecticut Light & Power Co.: Gas & Water 28,250,000 7.75% due 6/01/2002+++ 28,173,725 28,546,625 0.3 20,000,000 7.875% due 10/01/2024 20,431,000 20,512,800 0.2 25,000,000 Empresa Nacional de Electricidad S.A. (Endesa), 7.325% due 2/01/2037 25,000,000 26,061,900 0.2 30,000,000 Enron Corp., 6.75% due 7/01/2005 28,878,400 30,137,400 0.3 20,000,000 PECO Energy Co., 5.625% due 11/01/2001 18,908,800 19,452,000 0.2 17,500,000 Tata Electric Co., 8.50% due 8/19/2017+++ 17,313,775 17,265,325 0.1 -------------- --------------- ---- 138,705,700 141,976,050 1.3 - ------------------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds 2,183,837,286 2,231,404,078 21.2 - ------------------------------------------------------------------------------------------------------------------------------------ Collateralized Mortgage Obligations - ------------------------------------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp.: 9,241,900 6.50% due 5/15/2008 8,831,790 8,877,954 0.1 5,000,000 7% due 8/15/2008 4,762,500 5,001,550 0.1 13,000,000 6% due 2/15/2011 12,020,938 12,350,000 0.1 Federal National Mortgage Association: 12,000,000 6.50% due 1/25/2008 11,608,125 11,910,000 0.1 5,010,000 6.50% due 4/25/2008 4,653,037 4,912,148 0.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total Collateralized Mortgage Obligations 41,876,390 43,051,652 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ US Government Obligations - ------------------------------------------------------------------------------------------------------------------------------------ 190,000,000 US Treasury Bonds, 6.25% due 8/15/2023 173,008,984 184,448,200 1.8 US Treasury Notes: 465,000,000 5.75% due 8/15/2003 451,143,672 457,806,450 4.3 315,000,000 5.875% due 2/15/2004 314,218,750 311,604,300 3.0 660,000,000 5.875% due 11/15/2005 644,664,919 647,829,600 6.1 - ------------------------------------------------------------------------------------------------------------------------------------ Total US Government Obligations 1,583,036,325 1,601,688,550 15.2 - ------------------------------------------------------------------------------------------------------------------------------------ Short-Term Investments - ------------------------------------------------------------------------------------------------------------------------------------ Commercial 74,400,000 General Motors Acceptance Corp., 6.50% Paper** due 10/01/1997 74,400,000 74,400,000 0.7 40,000,000 Lexington Parker Capital Co. LLC, 5.65% due 10/02/1997 39,993,722 39,993,722 0.4 30,287,000 Park Avenue Receivables Corp., 5.52% due 10/17/1997 30,212,696 30,212,696 0.3 20,000,000 Preferred Receivable Funding Corp., 5.53% due 10/09/1997 19,975,422 19,975,422 0.2 36,777,000 Riverwoods Funding Corp., 5.52% due 10/06/1997 36,748,804 36,748,804 0.3
15 Merrill Lynch Capital Fund, Inc. September 30, 1997 SCHEDULE OF INVESTMENTS (concluded)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------------------ Commercial Czk 300,000,000 International Bank for Reconstruction Paper-- & Development, 11.50% due 10/09/1997 $ 11,157,442 $ 9,086,609 0.1% Foreign** - ------------------------------------------------------------------------------------------------------------------------------------ US Government Federal Home Loan Mortgage Corp.: Agency US$ 25,000,000 5.50% due 10/03/1997 24,992,361 24,992,361 0.2 Obligations** 40,000,000 5.41% due 10/15/1997 39,915,845 39,915,845 0.4 - ------------------------------------------------------------------------------------------------------------------------------------ Total Short-Term Investments 277,396,292 275,325,459 2.6 - ------------------------------------------------------------------------------------------------------------------------------------ Total Investments $8,162,106,605 10,509,716,874 99.6 ============== Other Assets Less Liabilities 47,378,234 0.4 --------------- ---- Net Assets $10,557,095,108 100.0% =============== ===== - ------------------------------------------------------------------------------------------------------------------------------------
* American Depositary Receipts (ADR). ** Commercial Paper, Commercial Paper--Foreign and certain 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. *** Represents a step-up bond; the interest rate shown is the effective yield at the time of purchase by the Fund. + Brady Bonds are securities which have been issued to refinance commercial bank loans and other debt. The risk associated with these instruments is the amount of any uncollateralized principal or interest payments since there is a high default rate of commercial bank loans by countries issuing these securities. ++ Non-income producing security. +++ The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (a) 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 - ---------------------------------------------------------------------------- Electrical Belden Inc. 310,900 $ 10,196,623 $ 145,000 Equipment Insurance Berkley (W.R.) Corporation 600,000 -- 378,000 Insurance Fremont General Corp (300,000) (3,275,189) 600,000 Insurance Penncorp Financial Group, Inc. -- -- 200,000 Iron & Steel Birmingham Steel Corp -- -- 320,000 Natural Gas Williams Suppliers Companies, Inc. -- -- 2,470,000 Railroads Kansas City Southern Industries, Inc. 3,375,000 6,418,591 356,340 Real Estate RFS Hotel Investment Investors, Inc. (430,300) (6,941,956) 1,296,000 Trusts - ---------------------------------------------------------------------------- See Notes to Financial Statements. 16 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION Statement of Assets and Liabilities as of September 30, 1997 Assets: Investments, at value (identified cost--$8,162,106,605) (Note 1a) ........ $10,509,716,874 Cash ..................................................................... 319,594 Foreign cash (Note 1c) ................................................... 18,561 Receivables: Interest ............................................................ $ 60,543,086 Capital shares sold ................................................. 11,933,093 Dividends ........................................................... 10,722,142 Securities sold ..................................................... 1,147,400 84,345,721 ------------- Prepaid registration fees and other assets (Note 1f) ..................... 89,854 --------------- Total assets ............................................................. 10,594,490,604 --------------- - ------------------------------------------------------------------------------------------------------------------------------- Liabilities: Payables: Capital shares redeemed ............................................. 20,559,919 Distributor (Note 2) ................................................ 5,272,109 Securities purchased ................................................ 4,808,255 Investment adviser (Note 2) ......................................... 3,663,492 34,303,775 ------------- Accrued expenses and other liabilities ................................... 3,091,721 --------------- Total liabilities ........................................................ 37,395,496 --------------- - ------------------------------------------------------------------------------------------------------------------------------- Net Assets: Net assets ............................................................... $10,557,095,108 =============== - ------------------------------------------------------------------------------------------------------------------------------- Net Assets Class A Shares of Common Stock, $0.10 par value, 400,000,000 shares Consist of: authorized ............................................................... $ 10,565,462 Class B Shares of Common Stock, $0.10 par value, 400,000,000 shares authorized ............................................................... 15,810,189 Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares authorized ............................................................... 1,119,097 Class D Shares of Common Stock, $0.10 par value, 200,000,000 shares authorized ............................................................... 2,615,327 Paid-in capital in excess of par ......................................... 7,920,876,701 Undistributed investment income--net ..................................... 66,515,948 Undistributed realized capital gains on investments and foreign currency transactions--net ............................................... 192,063,266 Unrealized appreciation on investments and foreign currency transactions--net ............................................... 2,347,529,118 --------------- Net assets ............................................................... $10,557,095,108 =============== - ------------------------------------------------------------------------------------------------------------------------------- Net Asset Value: Class A--Based on net assets of $3,753,788,013 and 105,654,624 shares outstanding ..................................................... $ 35.53 =============== Class B--Based on net assets of $5,490,900,875 and 158,101,890 shares outstanding ..................................................... $ 34.73 =============== Class C--Based on net assets of $384,910,953 and 11,190,966 shares outstanding ..................................................... $ 34.39 =============== Class D--Based on net assets of $927,495,267 and 26,153,268 shares outstanding ..................................................... $ 35.46 =============== - -------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 17 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION (continued) Statement of Operations for the Six Months Ended September 30, 1997 Investment Interest and discount earned ........................................ $ 142,135,499 Income Dividends (net of $1,828,680 foreign withholding tax) ............... 52,802,431 (Notes 1d & 1e): Other ............................................................... 362,498 -------------- Total income ........................................................ 195,300,428 -------------- - ------------------------------------------------------------------------------------------------------------------------------ Expenses: Account maintenance and distribution fees--Class B (Note 2) ......... $ 26,262,173 Investment advisory fees (Note 2) ................................... 20,048,934 Transfer agent fees--Class B (Note 2) ............................... 3,779,350 Transfer agent fees--Class A (Note 2) ............................... 2,225,753 Account maintenance and distribution fees--Class C (Note 2) ......... 1,755,320 Account maintenance fees--Class D (Note 2) .......................... 1,015,402 Transfer agent fees--Class D (Note 2) ............................... 511,496 Custodian fees ...................................................... 389,847 Transfer agent fees--Class C (Note 2) ............................... 269,528 Printing and shareholder reports .................................... 206,533 Registration fees (Note 1f) ......................................... 113,695 Professional fees ................................................... 45,247 Directors' fees and expenses ........................................ 20,111 Pricing fees ........................................................ 7,647 Other ............................................................... 39,791 -------------- Total expenses ...................................................... 56,690,827 -------------- Investment income--net .............................................. 138,609,601 -------------- - ------------------------------------------------------------------------------------------------------------------------------ Realized gain (loss) from: Investments--net ............................................... 194,857,898 Foreign currency transactions--net ............................. (320,349) 194,537,549 -------------- Change in unrealized appreciation/depreciation on: Investments--net ............................................... 1,304,709,878 Foreign currency transactions--net ............................. (9,265) 1,304,700,613 -------------- -------------- Net realized and unrealized gain on investments and foreign currency transactions ............................................... 1,499,238,162 -------------- Net Increase in Net Assets Resulting from Operations ................ $1,637,847,763 -------------- - ------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 18 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets
For the For the Six Months Year Ended Ended September 30, March 31, Increase (Decrease) in Net Assets: 1997 1997 - ---------------------------------------------------------------------------------------------------------------------------- Operations: Investment income--net ............................................ $ 138,609,601 $ 315,581,262 Realized gain on investments and foreign currency transactions--net 194,537,549 526,748,104 Change in unrealized appreciation/depreciation on investments and foreign currency transactions--net ................................ 1,304,700,613 208,655,806 ---------------- --------------- Net increase in net assets resulting from operations .............. 1,637,847,763 1,050,985,172 ---------------- --------------- - ---------------------------------------------------------------------------------------------------------------------------- Dividends & Investment income--net: Distributions to Class A ........................................................ (60,938,596) (129,132,730) Shareholders Class B ........................................................ (66,672,979) (153,592,754) (Note 1g): Class C ........................................................ (4,533,974) (9,633,153) Class D ........................................................ (13,122,411) (22,687,022) Realized gain on investments--net: Class A ........................................................ (99,340,942) (200,341,016) Class B ........................................................ (150,855,082) (318,637,995) Class C ........................................................ (10,148,827) (19,360,951) Class D ........................................................ (22,847,172) (37,329,858) ---------------- --------------- Net decrease in net assets resulting from dividends and distributions to shareholders ..................................... (428,459,983) (890,715,479) ---------------- --------------- - ---------------------------------------------------------------------------------------------------------------------------- Capital Share Net increase in net assets derived from capital share transactions 66,503,510 88,941,831 Transactions ---------------- --------------- (Note 4): - ---------------------------------------------------------------------------------------------------------------------------- Net Assets: Total increase in net assets ...................................... 1,275,891,290 249,211,524 Beginning of period ............................................... 9,281,203,818 9,031,992,294 ---------------- --------------- End of period* .................................................... $ 10,557,095,108 $ 9,281,203,818 ================ =============== - ---------------------------------------------------------------------------------------------------------------------------- * Undistributed investment income--net .............................. $ 66,515,948 $ 73,174,307 ================ =============== - ----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 19 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION (continued) Financial Highlights
Class A ------------------------------------------------------------ For the Six Months The following per share data and ratios have been derived Ended For the Year Ended March 31, from information provided in the financial statements. Sept. 30, --------------------------------------------- Increase (Decrease) in Net Asset Value: 1997++ 1997++ 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period ...... $ 31.39 $ 30.90 $ 27.74 $ 27.46 $ 27.89 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .................... .57 1.25 1.21 1.01 .97 Realized and unrealized gain on investments and foreign currency transactions--net .... 5.13 2.43 5.41 1.77 .50 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... 5.70 3.68 6.62 2.78 1.47 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net ................. (.59) (1.25) (1.16) (.94) (.95) Realized gain on investments--net ...... (.97) (1.94) (2.30) (1.56) (.95) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (1.56) (3.19) (3.46) (2.50) (1.90) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ............ $ 35.53 $ 31.39 $ 30.90 $ 27.74 $ 27.46 ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share ........ 18.42%++ 12.62% 24.50% 10.95% 5.39% Return:** ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses .................................. .55%* .55% .56% .57% .53% Net Assets: ========== ========== ========== ========== ========== Investment income--net .................... 3.38%* 3.99% 4.09% 3.81% 3.52% ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of period (in thousands) .. $3,753,788 $3,291,219 $3,225,758 $2,507,767 $2,237,492 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 14% 47% 84% 89% 86% ========== ========== ========== ========== ========== Average commission rate paid+ ............. $ .0371 $ .0432 $ .0382 -- -- ========== ========== ========== ========== ========== - ---------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total investment returns exclude the effects of sales loads. + For fiscal years beginning on or after September 1, 1995, the Fund is required to disclose its average commission rate per share for purchases and sales of equity securities. The "Average Commission Rate Paid" includes commissions paid in foreign currencies, which have been converted into US dollars using the prevailing exchange rate on the date of the transaction. Such conversions may significantly affect the rate shown. ++ Based on average shares outstanding during the period. ++ Aggregate total investment return. See Notes to Financial Statements. 20 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION (continued) Financial Highlights
Class B ------------------------------------------------------------ For the Six Months The following per share data and ratios have been derived Ended For the Year Ended March 31, from information provided in the financial statements. Sept. 30, --------------------------------------------- Increase (Decrease) in Net Asset Value: 1997++ 1997++ 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period ...... $ 30.72 $ 30.30 $ 27.28 $ 27.04 $ 27.49 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net .................... .39 .91 .90 .74 .70 Realized and unrealized gain on investments and foreign currency transactions--net .... 5.02 2.39 5.29 1.72 .48 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... 5.41 3.30 6.19 2.46 1.18 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net ................. (.43) (.94) (.87) (.66) (.68) Realized gain on investments--net ...... (.97) (1.94) (2.30) (1.56) (.95) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (1.40) (2.88) (3.17) (2.22) (1.63) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ............ $ 34.73 $ 30.72 $ 30.30 $ 27.28 $ 27.04 ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share ........ 17.82%++ 11.48% 23.22% 9.81% 4.36% Return:** ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses .................................. 1.56%* 1.57% 1.58% 1.59% 1.55% Net Assets: ========== ========== ========== ========== ========== Investment income--net .................... 2.36%* 2.97% 3.07% 2.79% 2.50% ========== ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of period (in thousands) .. $5,490,901 $4,977,431 $5,025,504 $3,664,250 $3,079,332 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 14% 47% 84% 89% 86% ========== ========== ========== ========== ========== Average commission rate paid+ ............. $ .0371 $ .0432 $ .0382 -- -- ========== ========== ========== ========== ========== - ---------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total investment returns exclude the effects of sales loads. + For fiscal years beginning on or after September 1, 1995, the Fund is required to disclose its average commission rate per share for purchases and sales of equity securities. The "Average Commission Rate Paid" includes commissions paid in foreign currencies, which have been converted into US dollars using the prevailing exchange rate on the date of the transaction. Such conversions may significantly affect the rate shown. ++ Based on average shares outstanding during the period. ++ Aggregate total investment return. See Notes to Financial Statements. 21 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION (continued) Financial Highlights
Class C --------------------------------------------- For the For the Period The following per share data and ratios have been derived Six Months For the Year Oct. 21, from information provided in the financial statements. Ended Ended March 31, 1994+++ to Sept. 30, -------------------- March 31, Increase (Decrease) in Net Asset Value: 1997+++ 1997+++ 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period .................. $ 30.44 $ 30.08 $ 27.17 $ 26.81 Operating -------- -------- -------- -------- Performance: Investment income--net ................................ .38 .90 .92 .49 Realized and unrealized gain on investments and foreign currency transactions--net ............................ 4.97 2.36 5.24 1.03 -------- -------- -------- -------- Total from investment operations ...................... 5.35 3.26 6.16 1.52 -------- -------- -------- -------- Less dividends and distributions: Investment income--net ............................. (.43) (.96) (.95) (.43) Realized gain on investments--net .................. (.97) (1.94) (2.30) (.73) -------- -------- -------- -------- Total dividends and distributions ..................... (1.40) (2.90) (3.25) (1.16) -------- -------- -------- -------- Net asset value, end of period ........................ $ 34.39 $ 30.44 $ 30.08 $ 27.17 ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share .................... 17.80%++ 11.45% 23.25% 6.07%++ Return:** ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses .............................................. 1.57%* 1.58% 1.59% 1.64%* Net Assets: ======== ======== ======== ======== Investment income--net ................................ 2.35%* 2.96% 3.08% 3.22%* ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of period (in thousands) .............. $384,911 $322,438 $259,131 $ 46,902 Data: ======== ======== ======== ======== Portfolio turnover .................................... 14% 47% 84% 89% ======== ======== ======== ======== Average commission rate paid+ ......................... $ .0371 $ .0432 $ .0382 -- ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total investment returns exclude the effects of sales loads. + For fiscal years beginning on or after September 1, 1995, the Fund is required to disclose its average commission rate per share for purchases and sales of equity securities. The "Average Commission Rate Paid" includes commissions paid in foreign currencies, which have been converted into US dollars using the prevailing exchange rate on the date of the transaction. Such conversions may significantly affect the rate shown. ++ Commencement of Operations. +++ Based on average shares outstanding during the period. ++ Aggregate total investment return. See Notes to Financial Statements. 22 Merrill Lynch Capital Fund, Inc. September 30, 1997 FINANCIAL INFORMATION (continued) Financial Highlights
Class D --------------------------------------------- For the For the Period The following per share data and ratios have been derived Six Months For the Year Oct. 21, from information provided in the financial statements. Ended Ended March 31, 1994+++ to Sept. 30, -------------------- March 31, Increase (Decrease) in Net Asset Value: 1997+++ 1997+++ 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period .................. $ 31.34 $ 30.86 $ 27.72 $ 27.27 Operating -------- -------- -------- -------- Performance: Investment income--net ................................ .53 1.17 1.16 .48 Realized and unrealized gain on investments and foreign currency transactions--net ............................ 5.12 2.43 5.38 1.15 -------- -------- -------- -------- Total from investment operations ...................... 5.65 3.60 6.54 1.63 -------- -------- -------- -------- Less dividends and distributions: Investment income--net ............................. (.56) (1.18) (1.10) (.45) Realized gain on investments--net .................. (.97) (1.94) (2.30) (.73) -------- -------- -------- -------- Total dividends and distributions ..................... (1.53) (3.12) (3.40) (1.18) -------- -------- -------- -------- Net asset value, end of period ........................ $ 35.46 $ 31.34 $ 30.86 $ 27.72 ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share .................... 18.25%++ 12.34% 24.21% 6.42%++ Return:** ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Ratios to Average Expenses .............................................. .80%* .80% .81% .87%* Net Assets: ======== ======== ======== ======== Investment income--net ................................ 3.12%* 3.75% 3.84% 3.94%* ======== ======== ======== ======== - ---------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of period (in thousands) .............. $927,495 $690,116 $521,599 $171,201 Data: ======== ======== ======== ======== Portfolio turnover .................................... 14% 47% 84% 89% ======== ======== ======== ======== Average commission rate paid+ ......................... $ .0371 $ .0432 $ .0382 -- ======== ======== ======== ======== - ----------------------------------------------------------------------------------------------------------------------------
* Annualized. ** Total investment returns exclude the effects of sales loads. + For fiscal years beginning on or after September 1, 1995, the Fund is required to disclose its average commission rate per share for purchases and sales of equity securities. The "Average Commission Rate Paid" includes commissions paid in foreign currencies, which have been converted into US dollars using the prevailing exchange rate on the date of the transaction. Such conversions may significantly affect the rate shown. ++ Commencement of Operations. +++ Based on average shares outstanding during the period. ++ Aggregate total investment return. See Notes to Financial Statements. 23 Merrill Lynch Capital Fund, Inc. September 30, 1997 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Merrill Lynch Capital Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal recurring nature. The Fund offers four classes of shares under the Merrill Lynch Select PricingSM System. Shares of Class A and Class D are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class B, Class C and Class D Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Portfolio securities which are traded on stock exchanges are valued at the last sale price on 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 representative 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. o Options--The Fund is authorized to write covered call 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 transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written options are non-income producing investments. (c) Foreign currency transactions--Transactions denominated 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 unrealized 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 provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends, and capital gains at various rates. 24 Merrill Lynch Capital Fund, Inc. September 30, 1997 (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 dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund has determined the ex-dividend date. Interest income (including amortization of discount) is recognized on the accrual basis. Realized gains and losses on security transactions are determined on the identified cost basis. (f) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued. (g) Dividends and distributions--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. 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 subsidiary 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, facilities, 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. Pursuant to 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% -- - ---------------------------------------------------- Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee compensates the Distributor and MLPF&S for providing account maintenance services to Class B, Class C and Class D shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders. For the six months ended September 30, 1997, MLFD earned underwriting 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.................. $40,645 $566,485 Class D.................. $67,928 $910,298 - ---------------------------------------------------------- For the six months ended September 30, 1997, MLPF&S received contingent deferred sales charges of $3,424,480 and $46,052 relating to transactions in Class B and Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred sales charges of $40,142 relating to transactions subject to front-end sales charge waivers in Class A Shares. In addition, MLPF&S received $139,037 in commissions on the execution of portfolio security transactions for the six months ended September 30, 1997. Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. During the six months ended September 30, 1997, Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, received $5,025 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, MLFDS, MLFD, and/or ML & Co. 25 Merrill Lynch Capital Fund, Inc. September 30, 1997 NOTES TO FINANCIAL STATEMENTS (concluded) 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended September 30, 1997 were $1,379,782,600 and $1,649,746,098, respectively. Net realized and unrealized gains (losses) as of September 30, 1997 were as follows: - -------------------------------------------------------------------------------- Realized Unrealized Gains (Losses) Gains (Losses) - -------------------------------------------------------------------------------- Long-term investments ................ $ 194,857,820 $ 2,349,681,101 Short-term investments ............... 78 (2,070,832) Foreign currency transactions ......................... (320,349) (81,151) ------------- --------------- Total ................................ $ 194,537,549 $ 2,347,529,118 ============= =============== - -------------------------------------------------------------------------------- As of September 30, 1997, net unrealized appreciation for Federal income tax purposes aggregated $2,347,610,269, of which $2,395,104,335 related to appreciated securities and $47,494,066 related to depreciated securities. At September 30, 1997, the aggregate cost of investments for Federal income tax purposes was $8,162,106,605. 4. Capital Share Transactions: Net increase in net assets derived from capital share transactions was $66,503,510 and $88,941,831 for the six months ended September 30, 1997 and the year ended March 31, 1997, respectively. Transactions in capital shares for each class were as follows: - -------------------------------------------------------------------------------- Class A Shares for the Dollar Six Months Ended Sept. 30, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 7,544,921 $ 255,750,674 Shares issued to shareholders in reinvestment of dividends and distributions .................... 4,335,029 146,654,022 -------------- -------------- Total issued ......................... 11,879,950 402,404,696 Shares redeemed ...................... (11,065,853) (372,347,370) -------------- -------------- Net increase ......................... 814,097 $ 30,057,326 ============== ============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class A Shares for the Dollar Year Ended March 31, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 17,867,783 $ 553,401,282 Shares issued to shareholders in reinvestment of dividends and distributions .................... 9,986,061 300,989,719 -------------- -------------- Total issued ......................... 27,853,844 854,391,001 Shares redeemed ...................... (27,414,603) (850,370,114) -------------- -------------- Net increase ......................... 439,241 $ 4,020,887 ============== ============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B Shares for the Six Months Ended Dollar September 30, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 10,695,039 $ 352,747,451 Shares issued to shareholders in reinvestment of dividends and distributions .................... 5,798,578 192,222,857 -------------- -------------- Total issued ......................... 16,493,617 544,970,308 Automatic conversion of shares ............................ (2,760,170) (90,955,350) Shares redeemed ...................... (17,636,837) (576,927,304) -------------- -------------- Net decrease ......................... (3,903,390) $ (122,912,346) ============== ============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B Shares for the Year Ended Dollar March 31, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 27,179,336 $ 802,909,943 Shares issued to shareholders in reinvestment of dividends and distributions .................... 14,204,232 420,101,200 -------------- -------------- Total issued ......................... 41,383,568 1,223,011,143 Automatic conversion of shares ............................ (1,163,610) (35,786,707) Shares redeemed ...................... (44,055,095) (1,317,756,891) -------------- -------------- Net decrease ......................... (3,835,137) $ (130,532,455) ============== ============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C Shares for the Six Months Ended Dollar September 30, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 1,868,270 $ 61,057,805 Shares issued to shareholders in reinvestment of dividends and distributions .................... 397,479 13,049,247 -------------- -------------- Total issued ......................... 2,265,749 74,107,052 Shares redeemed ...................... (1,665,650) (53,717,671) -------------- -------------- Net increase ......................... 600,099 $ 20,389,381 ============== ============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C Shares for the Year Ended Dollar March 31, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 4,367,744 $ 131,117,286 Shares issued to shareholders in reinvestment of dividends and distributions .................... 889,233 26,090,088 -------------- -------------- Total issued ......................... 5,256,977 157,207,374 Shares redeemed ...................... (3,280,962) (98,987,162) -------------- -------------- Net increase ......................... 1,976,015 $ 58,220,212 ============== ============== - -------------------------------------------------------------------------------- 26 Merrill Lynch Capital Fund, Inc. September 30, 1997 - -------------------------------------------------------------------------------- Class D Shares for the Six Months Ended Dollar September 30, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 3,622,229 $ 120,454,767 Automatic conversion of shares ............................ 2,338,548 90,955,350 Shares issued to shareholders in reinvestment of dividends and distributions .................... 1,298,482 32,227,341 -------------- -------------- Total issued ......................... 7,259,259 243,637,458 Shares redeemed ...................... (3,124,582) (104,668,309) -------------- -------------- Net increase ......................... 4,134,677 $ 138,969,149 ============== ============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class D Shares for the Year Ended Dollar March 31, 1997 Shares Amount - -------------------------------------------------------------------------------- Shares sold .......................... 7,903,395 $ 244,928,191 Automatic conversion of shares ............................ 1,141,681 35,786,707 Shares issued to shareholders in reinvestment of dividends and distributions .................... 1,738,833 52,347,617 -------------- -------------- Total issued ......................... 10,783,909 333,062,515 Shares redeemed ...................... (5,669,032) (175,829,328) -------------- -------------- Net increase ......................... 5,114,877 $ 157,233,187 ============== ============== - -------------------------------------------------------------------------------- PORTFOLIO INFORMATION As of September 30, 1997 Percent of Ten Largest Common Stock Holdings Net Assets Williams Companies, Inc................... 2.3% Travelers Group, Inc...................... 1.9 YPF S.A. (ADR)............................ 1.8 Allstate Corporation...................... 1.8 The Goodyear Tire & Rubber Co............. 1.6 Kansas City Southern Industries, Inc...... 1.6 United Technologies Corp.................. 1.5 The Chase Manhattan Corp.................. 1.5 Provident Companies, Inc.................. 1.3 Imperial Chemical Industries PLC (ADR).... 1.3 Percent of Ten Largest Industries Net Assets* Insurance................................. 10.8% Banking................................... 5.6 Oil--Integrated............................ 4.8 Natural Gas Suppliers..................... 4.2 Diversified Companies..................... 3.9 Financial Services........................ 3.8 Chemicals................................. 3.8 Telecommunications........................ 3.3 Pharmaceuticals........................... 2.6 Electrical Equipment...................... 2.0 * Based on total holdings in common stocks and bonds. Common Stock Portfolio Changes for the Quarter Ended September 30, 1997 Additions Patriot American Hospitality, Inc. Reynolds & Reynolds Company (Class A) SPX Corp. Unocal Corporation Deletions Archer-Daniels-Midland Co. Ayudhya Insurance Company, Ltd. (Foreign) Cooper Industries, Inc. Dairy Farm International Holdings Ltd. (Ordinary) Kennametal, Inc. Millennium Chemicals Inc. Mobil Corporation Phillips Petroleum Company 27 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 Walter Cuje, Vice President Kurt Schansinger, Vice President and Portfolio Manager Gerald M. Richard, Treasurer Thomas D. Jones, III, Secretary Custodian The Bank of New York 90 Washington Street, 12th Floor New York, NY 10286 Transfer Agent Merrill Lynch Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 (800) 637-3863 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. Merrill Lynch Capital Fund, Inc. Box 9011 Princeton, NJ 08543-9011 #10252--9/97 [LOGO] Printed on post-consumer recycled paper -----END PRIVACY-ENHANCED MESSAGE-----