-----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, VXEMj4vw9SjHfT2kahISkNBqtxIiX5GomqB38bHAUY3MM78+JUU00zhci+UmFV2F iYpE+hdEeaL5/mnEmBAAWA== 0001005477-98-001800.txt : 19980522 0001005477-98-001800.hdr.sgml : 19980522 ACCESSION NUMBER: 0001005477-98-001800 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980521 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: 98629356 BUSINESS ADDRESS: STREET 1: P O BOX 9011 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 ANNUAL REPORT MERRILL LYNCH CAPITAL FUND, INC. 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. STRATEGIC Performance [GRAPHIC ART OMITTED] Merrill Lynch Capital Fund, Inc. Box 9011 Princeton, NJ 08543-9011 #10252--3/98 Annual Report March 31, 1998 Printed on post-consumer recycled paper MERRILL LYNCH CAPITAL FUND, INC. PORTFOLIO SUMMARY Security Diversification As a Percentage of Net Assets As of March 31, 1998 [THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] US Stocks 53.4% US Bonds 29.5% Non-US Stocks 9.9% Non-US Bonds 3.6% Cash & Cash Equivalents 3.6% Sector Representation As a Percentage of Equities As of March 31, 1998 [THE FOLLOWING TABLE WAS REPRESENTED AS A PIE CHART IN THE PRINTED MATERIAL] Financial Services 23.6% Consumer Services 6.9% Utiliities 0.9% Transportation 4.3% Capital Goods--Technology 13.4% Consumer Cylcicals 14.7% Energy 13.2% Basic Industries 7.5% Diversified 3.6% Credit Cyclicals 1.9% Consumer Staples 6.6% Capital Goods 3.4% Geographic Diversification Percent of As of March 31, 1998 Net Assets* - ---------------------------------------------------- United States 85.8% - ---------------------------------------------------- United Kingdom 3.8 - ---------------------------------------------------- Argentina 3.0 - ---------------------------------------------------- Switzerland 1.9 - ---------------------------------------------------- Mexico 1.1 - ---------------------------------------------------- Brazil 0.7 - ---------------------------------------------------- Netherlands 0.6 - ---------------------------------------------------- Italy 0.6 - ---------------------------------------------------- France 0.6 - ---------------------------------------------------- Turkey 0.5 - ---------------------------------------------------- Japan 0.3 - ---------------------------------------------------- India 0.3 - ---------------------------------------------------- Chile 0.3 - ---------------------------------------------------- Colombia 0.2 - ---------------------------------------------------- Hong Kong 0.1 - ---------------------------------------------------- South Korea 0.1 - ---------------------------------------------------- Guatemala 0.1 - ---------------------------------------------------- * Includes investments in short-term securities. US Common Stock Investments S&P As of March 31, 1998 Fund 500* - ----------------------------------------------------------------------- Average Capitalization (in billions) $23.0 $17.0 - ----------------------------------------------------------------------- Price/Book Value 3.4 6.1 - ----------------------------------------------------------------------- Price/Earnings Ratio** 19.8 24.3 - ----------------------------------------------------------------------- Yield Based on Current Dividend 1.5% 1.4% - ----------------------------------------------------------------------- * An unmanaged broad-based index comprised of common stocks. ** Based on 1998 earnings estimates. Fixed-Income Investments Merrill Lynch As of March 31, 1998 Fund DOAO Index* - --------------------------------------------------------------------------- Duration 5.5 Years 5.1 Years - --------------------------------------------------------------------------- Average Maturity 9.1 Years 8.9 Years - --------------------------------------------------------------------------- Asset Breakdown: - --------------------------------------------------------------------------- Corporates 53.6% 20.1% - --------------------------------------------------------------------------- US Treasuries/Agencies 39.0% 52.1% - --------------------------------------------------------------------------- Mortgage-Backed 0.8% 27.8% - --------------------------------------------------------------------------- International Governments 6.6% -- - --------------------------------------------------------------------------- * An unmanaged market-weighted corporate, Government and mortgage master bond index reflecting approximately 97% of total outstanding bonds. 1 Merrill Lynch Capital Fund, Inc. March 31, 1998 DEAR SHAREHOLDER A continuation of favorable political, economic and inflationary trends, coupled with very positive investor sentiment, propelled the stock market to a series of record highs during the March quarter. Beginning late last year, a series of factors prompted strong buying interest in US equities. Retrenchments by US investors from emerging markets accelerated. US financial assets also became more attractive to foreign investors because of their perceived safety and security and the continued strength of the US dollar, which reached a five-year high against the Japanese yen and a seven-year high against the German mark. This interest continued through January, as the most dire forecasts about the impact of the Asian crisis on global financial markets proved extreme and early fourth quarter of 1997 US corporate profits performance proved respectable. Furthermore, the recovery in the prices of two key commodities, oil and gold, appeared to confirm that the crisis was over. By February, evidence of moderating economic growth, continued benign inflation and additional solid fourth quarter corporate earnings results further encouraged the view that the impact of the Asian financial crisis on US companies and financial markets would be modest and manageable, supporting continued capital flows into the equity market. By March, ongoing gains in important economic measures such as consumer income, housing and manufacturing activity confirmed a solid growth outlook for the US economy, despite the crisis in Asia. Moreover, this growth occurred without reigniting inflationary pressures. The annualized rate of consumer price inflation has fallen in each of the past five months to a 1.4% annual rate. Finally, the strong performance of the US equity market precipitated an acceleration in equity mutual fund inflows. This combination of factors drove the unman aged Standard & Poor's 500 Composite Index (S&P 500) to a +13.95% total return for the first calendar quarter of 1998. The US bond market continued to provide positive returns as well, with the unmanaged Merrill Lynch Domestic Bond Master Index providing a +1.62% total return, benefiting from the continued benign inflationary environment and expectations for more moderate economic growth in the periods ahead. Cash equivalents earned a +1.25% total return for the March quarter. Total returns for Merrill Lynch Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares for the quarter ended March 31, 1998 were +8.84%, +8.55%, +8.58% and +8.79%, 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 6 - 8 of this report to shareholders.) While these factors supporting the US stock market's extraordinary advance are unlikely to abate in the near term, we question whether the stock market can provide significant appreciation from current levels because of two primary factors. First, corporate earnings growth is slowing. Currently, most analysts expect corporate profits to continue rising at a 12%- 13% annual rate over the next three years-five years, but we are hard-pressed to see how recent profit increases can be sustained. Wage gains are increasing and finding skilled labor is becoming more difficult. Meanwhile, international competitive pressures are keeping price levels flat to down. These forces point toward margin contraction and a deceleration in the rate of corporate earnings advances. Second, stock market valuations are at record high levels on virtually every measure. We do not believe this combination represents a formula for sustained further gains for the broad equity market averages. While current conditions remain favorable, we believe risks are rising and, at current price levels, the equity market offers little room for disappointment. Meanwhile, bonds continue to represent good value, in our view, with inflation-adjusted interest rates at above-average historic levels and inflationary pressures continuing to moderate. Consequently, we continued to maintain the Fund's bond weighting. Our investment position at March quarter-end showed 63.3% of net assets invested in equities, 33.1% in fixed-income securities and 3.6% in cash equivalents. 2 Merrill Lynch Capital Fund, Inc. March 31, 1998 This compares to 62.5% in equities, 34.1% in fixed-income securities and 3.4% in cash equivalents at December 31, 1997. Portfolio Matters Within the equity component of the portfolio, we added five new investments during the March quarter, increased our position in 26 stocks, eliminated four holdings and reduced our ownership in an additional 11 stocks. Among the new positions is Rockwell International Corporation, a global electronics company which maintains leadership positions in three major markets: industrial automation, avionics and communications and semiconductors systems. We sold the stock early in 1997, based on its high valuation and uncertain semiconductor systems prospects. Disappointing results from this division precipitated a subsequent 25% decline in the share price, creating what we consider to be an attractive reentry point. Rockwell's core businesses of factory automation and avionics, accounting for 80% of sales and 83% of operating profits, enjoy leading global market shares and generate above-average returns. The semiconductor division has disappointed investors as a result of increased competition, new product transition, a weaker product mix and higher research and development expenses. We believe this business is poised to improve in response to a new industry standard and sequential margin improvements going forward. Rockwell targets revenue growth of 8% and earnings per share growth of 13%-15% annually. The company also maintains a strong balance sheet and an ongoing share repurchase program. The stock appears inexpensive compared to its own historical valuation history, its electrical equipment peer group and broad market averages. Another valuation methodology suggests we are buying the semiconductor business at essentially no cost. This combination of strong industrial positions, steady earnings and cash flow growth, rising margins and returns, free cash flow, active share repurchases and a reasonable valuation make Rockwell an attractive addition to the portfolio. Another new position is Motorola, Inc., the semiconductor and communications equipment manufacturer. This stock has declined sharply and is now selling at the same price as in 1993 following downward earnings revisions resulting from weakness in Asian semiconductor, handset and paging sales, creating what we believe to be an attractive buying opportunity in the stock. While 1998 will be a challenging year, a number of factors are expected to converge which could propel rapid earnings growth into 1999: new digital handset products, continued growth in land mobile products, further market share gains in wireless infrastructure and a swing in operating profits from the company's satellite venture. Downside risk in the stock appears quite limited, since it sells at the low-end of the company's five-year historical range. Substantial upside potential exists if earnings power is realized and the stock's valuation expands toward the upper end of this range. The stock's rapid ascent late last year, before its subsequent decline, is indicative of the powerful potential this stock enjoys when business conditions improve. With limited downside risk and a reasonable likelihood of an improving trend in revenues and earnings into next year, Motorola appears to offer very good value at its current price. We sold our position in Nokia Corp. OY, the Finnish telecommunications equipment company. This has been an outstanding investment, up over 60% year-to-date at March 31, 1998 and nearly triple the price at the beginning of 1996, which has resulted in a dramatic expansion of valuation multiples. While the company possesses many attractive qualities, we see a rising near-term risk profile which, at current lofty multiples, suggests the potential for significant downside risk in the stock. In our view, the Asian economic crisis is likely to impair prospects for the company's telecommunications infrastructure business, with delays and/or cancellations increasingly possible as these countries attempt to resolve their current financial problems. In addition, competition in this business is intensifying. Furthermore, several new competitors are entering the handset business, 3 Merrill Lynch Capital Fund, Inc. March 31, 1998 suggesting forthcoming margin pressures. We believe that any evidence of accelerating price competition and/or loss of market share will be adverse to the stock price. With the upside potential from current levels constrained as the stock appears to reflect virtually all the recent good news, and the downside risk rising, we decided to eliminate our profitable position and redeploy proceeds into more attractive investment opportunities. We also sold Nucor Corporation, the specialty steel company. The original investment thesis on Nucor was predicated upon the company's ability to create value for shareholders through both favorable and adverse market conditions. However, following a recent meeting with company management, we were compelled to reassess this view and concluded that the stock no longer represented good value. We are concerned that the company may not be able to successfully execute its strategy of capturing market share through the addition of low-cost capacity, prompting our decision to eliminate our position with a modest gain. 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 which 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 price as one which 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 much 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 19.8 times estimated 1998 earnings per share compared to 24.3 times for the S&P 500, at 3.4 times current book value per share versus 6.1 times for the S&P 500, and provide a 1.5% dividend yield which approximates that of the S&P 500. We believe this formula will provide superior risk-adjusted returns over time. Within the fixed-income component of the portfolio, we shortened the average duration of our bond holdings from 5.6 years to 5.4 years when long-term interest rates reached their lowest levels in over four years in early January. We also shifted a modest amount of assets from investment-grade corporate bonds into below investment-grade corporate bonds to seek to capture their higher yields. At the same time, we increased our holdings of US Treasury securities and foreign government bonds, while reducing our mortgage securities holdings. As a result of these transactions, we maintained our average quality rating at A2/A+ by Moody's Investors Service, Inc. and Standard & Poor's Corp. At March quarter-end, investment-grade corporate bonds represented 45.3% of fixed-income assets; US Treasury securities represented 39.0%; foreign government bonds, 6.6%; below investment-grade corporate bonds, 8.3%; and mortgage-backed securities, 0.8%. This compares to 48.0% in investment-grade corporate bonds, 37.8% in US Treasury securities, 6.1% in foreign government bonds, 6.9% in below investment-grade corporate bonds and 1.2% in mortgage-backed securities at December quarter-end. The average duration of our bonds at March quarter-end was 5.5 years, average maturity was 9.1 years, and the average yield-to- maturity was 6.55%. Fiscal Year in Review For the 12 months ended March 31, 1998, the total returns of Merrill Lynch Capital Fund, Inc. trailed the continued strong performance of the unmanaged S&P 500 Index. While each individual asset class within the Fund performed reasonably well, overall equity returns were greatly in excess of those available in the fixed-income market. The large representation of bonds within the portfolio consequently restrained overall results. For the fiscal year ended March 31, 1998, total returns for Merrill Lynch Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares were +30.71%, +29.38%, +29.40% and +30.40%, respectively. For the same 12-month period, the S&P 500 provided a +48.01% total return, the Merrill Lynch Domestic Bond Master Index generated a +12.05% total return, and cash equivalents earned a +5.31% total return. 4 Merrill Lynch Capital Fund, Inc. March 31, 1998 Within the equity component of the Fund, the large representation of financial companies positively contributed to performance since the bank, insurance and diversified financial sectors of the market performed well. The consumer cyclical group, in which the Fund was also sizably represented, also performed strongly during the fiscal year, aided by high employment levels, rising consumer incomes and strong consumer confidence. The Fund was not exposed to many consumer staple companies whose stocks outperformed the overall market averages. While this segment of the market is represented by many outstanding global companies, the premium valuation levels these stocks command limited their appeal. In addition, the Fund's investment in the energy group negatively impacted overall returns, since a weak commodity price environment impaired this group's ability to fully participate in the strong market advance. 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 Senior Vice President and Portfolio Manager May 5, 1998 5 Merrill Lynch Capital Fund, Inc. March 31, 1998 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select Pricing(SM) System, which offers four pricing alternatives: 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 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. Average Annual Total Return % Return Without % Return With Sales Charge Sales Charge** ================================================================================ Class A Shares* ================================================================================ Year Ended 3/31/98 +30.71% +23.85% - -------------------------------------------------------------------------------- Five Years Ended 3/31/98 +16.47 +15.22 - -------------------------------------------------------------------------------- Ten Years Ended 3/31/98 +14.91 +14.29 - -------------------------------------------------------------------------------- * Maximum sales charge is 5.25%. ** Assuming maximum sales charge. ================================================================================ % Return % Return Without CDSC With CDSC** ================================================================================ Class C Shares* ================================================================================ Year Ended 3/31/98 +29.40% +28.40% - -------------------------------------------------------------------------------- Inception (10/21/94) through 3/31/98 +20.23 +20.23 - -------------------------------------------------------------------------------- * Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1 year. ** Assuming payment of applicable contingent deferred sales charge. % Return % Return Without CDSC With CDSC** ================================================================================ Class B Shares* ================================================================================ Year Ended 3/31/98 +29.38% +25.38% - -------------------------------------------------------------------------------- Five Years Ended 3/31/98 +15.29 +15.29 - -------------------------------------------------------------------------------- Inception (10/21/88) through 3/31/98 +13.74 +13.74 - -------------------------------------------------------------------------------- * Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4 years. ** Assuming payment of applicable contingent deferred sales charge. ================================================================================ % Return Without % Return With Sales Charge Sales Charge** ================================================================================ Class D Shares* ================================================================================ Year Ended 3/31/98 +30.40% +23.55% - -------------------------------------------------------------------------------- Inception (10/21/94) through 3/31/98 +21.17 +19.29 - -------------------------------------------------------------------------------- * Maximum sales charge is 5.25%. ** Assuming maximum sales charge. 6 Merrill Lynch Capital Fund, Inc. March 31, 1998 PERFORMANCE DATA (continued) Total Return Based on a $10,000 Investment Class A Shares [LINE CHART OMITTED] Class B Shares [LINE CHART OMITTED] Class C & Class D Shares [LINE CHART OMITTED] * Assuming maximum sales charge, transaction costs and other operating expenses, including advisory fees. ** Commencement of operations. + ML Capital Fund, Inc., through a fully managed investment policy, utilizes equity, debt and convertible securities. ++ This unmanaged broad-based Index is comprised of common stocks. Past performance is not predictive of future performance. 7 Merrill Lynch Capital Fund, Inc. March 31, 1998 PERFORMANCE DATA (concluded) Results of a $1,000 Investment Since Inception -- Class A Shares (5.25% sales charge -- $947.50 net amount invested; assuming reinvestment of all dividends and capital gains distributions) [AREA CHART OMITTED] Recent Performance Results
Ten Years/ 12 Month 3 Month Since Inception Total Return Total Return Total Return =========================================================================================== ML Capital Fund, Inc. Class A Shares* +30.71% +8.84% +301.46% - ------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class B Shares* +29.38 +8.55 +237.07 - ------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class C Shares* +29.40 +8.58 + 88.54 - ------------------------------------------------------------------------------------------- ML Capital Fund, Inc. Class D Shares* +30.40 +8.79 + 93.64 - ------------------------------------------------------------------------------------------- Dow Jones Industrial Average +36.04 +11.73 +496.77/+439.69/+144.89 - ------------------------------------------------------------------------------------------- Standard & Poor's 500 Index** +48.01 +13.95 +465.74/+405.55/+155.25 ===========================================================================================
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. The Fund's ten-year/inception dates are: Class A Shares, ten years ended 3/31/98; Class B Shares, 10/21/88; and Class C and Class D Shares, 10/21/94. ** An unmanaged broad-based index comprised of common stocks. Total investment returns for unmanaged indexes are based on estimates. Ten years/since inception total returns are for the ten years ended 3/31/98; from 10/21/88 to 3/31/98; and from 10/21/94 to 3/31/98, respectively. 8 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS
Shares Value Percent of Industries Held Common Stocks Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Aerospace 2,400,000 Boeing Co. (The) $ 116,958,469 $ 125,100,000 1.0% 815,000 Lockheed Martin Corporation 69,418,145 91,687,500 0.8 ------------- ------------- ----- 186,376,614 216,787,500 1.8 - ------------------------------------------------------------------------------------------------------------------------ Apparel 2,500,000++ Fruit of the Loom, Inc. (Class A) 70,546,151 76,562,500 0.6 - ------------------------------------------------------------------------------------------------------------------------ Appliances & 2,750,000 Sunbeam Corporation 113,382,466 121,171,875 1.0 Furniture - ------------------------------------------------------------------------------------------------------------------------ Automobile Parts 1,850,000 Federal-Mogul Corp. 77,609,094 98,396,875 0.8 - ------------------------------------------------------------------------------------------------------------------------ Automotive 1,000,000 General Motors Corp. 44,944,948 67,437,500 0.6 - ------------------------------------------------------------------------------------------------------------------------ Banking 1,000,000 Chase Manhattan Corporation (The) 81,222,073 134,875,000 1.1 - ------------------------------------------------------------------------------------------------------------------------ Building Materials 2,000,000++ American Standard Companies, Inc. 93,322,961 91,750,000 0.8 2,400,000 Masco Corporation 75,254,389 142,800,000 1.2 ------------- ------------- ----- 168,577,350 234,550,000 2.0 - ------------------------------------------------------------------------------------------------------------------------ Capital Goods 1,650,000 United Dominion Industries, Ltd. 38,856,970 53,521,875 0.5 - ------------------------------------------------------------------------------------------------------------------------ Chemicals 1,600,000 du Pont (E.I.) de Nemours and Co. 74,606,947 108,800,000 0.9 2,000,000 Imperial Chemical Industries PLC (ADR)* 100,317,691 143,750,000 1.2 ------------- ------------- ----- 174,924,638 252,550,000 2.1 - ------------------------------------------------------------------------------------------------------------------------ Communications 600,000++ Cisco Systems, Inc. 18,761,482 41,025,000 0.3 Equipment - ------------------------------------------------------------------------------------------------------------------------ Computer Software 1,500,000 Computer Associates International, Inc. 44,432,476 86,625,000 0.7 - ------------------------------------------------------------------------------------------------------------------------ Consumer Electronics 400,000 Nintendo Corp. Ltd. 28,474,285 34,565,675 0.3 - ------------------------------------------------------------------------------------------------------------------------ Diversified 1,100,000 Corning, Inc. 43,667,986 48,675,000 0.4 Companies 310,000 GenCorp Inc. 9,173,452 9,532,500 0.1 1,200,000 Rockwell International Corporation 68,537,356 68,850,000 0.6 2,500,000 Tenneco, Inc. 102,219,111 106,718,750 0.9 10,000,000 Tomkins PLC 44,821,118 60,964,500 0.5 2,000,000 United Technologies Corp. 63,643,951 184,625,000 1.6 1,750,000 Varian Associates, Inc. (a) 93,141,060 96,906,250 0.8 ------------- ------------- ----- 425,204,034 576,272,000 4.9 - ------------------------------------------------------------------------------------------------------------------------ Drug Stores 4,300,000 Rite Aid Corp. 68,282,570 147,275,000 1.2 - ------------------------------------------------------------------------------------------------------------------------ Electrical Equipment 1,500,000 Belden Inc. (a) 47,721,621 62,812,500 0.5 1,500,000 General Electric Co. 38,165,328 129,281,250 1.1 1,000,000 Philips Electronics N.V. (NY Registered Shares) 70,415,130 73,437,500 0.6 ------------- ------------- ----- 156,302,079 265,531,250 2.2 - ------------------------------------------------------------------------------------------------------------------------ Electronic 1,500,000 Avnet, Inc. 83,947,762 86,343,750 0.7 Components - ------------------------------------------------------------------------------------------------------------------------ Financial Services 2,000,000 Federal National Mortgage Association 52,392,099 126,500,000 1.1 1,000,000 Transamerica Corporation 76,009,264 116,500,000 1.0 ------------- ------------- ----- 128,401,363 243,000,000 2.1 - ------------------------------------------------------------------------------------------------------------------------ Food & Beverage 2,500,000 Diageo PLC (ADR)* 96,190,207 121,406,250 1.0 - ------------------------------------------------------------------------------------------------------------------------ Foods/Food 75,000 Nestle S.A. (Registered) 78,575,411 143,535,247 1.2 Processing - ------------------------------------------------------------------------------------------------------------------------
9 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held Common Stocks Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Footwear 1,625,000 Nike, Inc. (Class B) $ 76,992,273 $ 71,906,250 0.6% 8,000,000 Yue Yuen Industrial (Holdings Limited) 10,727,086 15,591,120 0.1 ------------- ------------- ----- 87,719,359 87,497,370 0.7 - ------------------------------------------------------------------------------------------------------------------------ Hospital Management 3,600,000++ Tenet Healthcare Corp. 52,634,362 130,725,000 1.1 - ------------------------------------------------------------------------------------------------------------------------ Hotels & Casinos 1,800,000++ Sun International Hotels Ltd. 68,687,868 85,275,000 0.7 - ------------------------------------------------------------------------------------------------------------------------ Information Systems 3,500,000 Reynolds & Reynolds Company (Class A) 70,124,940 76,562,500 0.7 - ------------------------------------------------------------------------------------------------------------------------ Insurance 2,300,000 Allstate Corporation 69,292,895 211,456,250 1.8 1,000,000 American International Group, Inc. 46,545,446 125,937,500 1.1 1,800,000 Berkley (W.R.) Corporation (a) 62,155,679 85,275,000 0.7 1,900,000 EXEL Ltd. 41,181,437 147,250,000 1.2 2,000,000 Fremont General Corp. (a) 33,362,385 117,625,000 1.0 2,200,000 Horace Mann Educators Corp. 34,550,993 77,275,000 0.6 2,000,000 Penncorp Financial Group, Inc. (a) 62,850,797 57,750,000 0.5 4,000,000 Provident Companies, Inc. 79,650,937 137,250,000 1.2 1,800,000 TIG Holdings, Inc. 54,108,848 47,362,500 0.4 4,500,000 Travelers Group, Inc. 39,986,618 270,000,000 2.3 ------------- ------------- ----- 523,686,035 1,277,181,250 10.8 - ------------------------------------------------------------------------------------------------------------------------ Iron & Steel 1,600,000 Birmingham Steel Corp. (a) 28,005,214 26,200,000 0.2 - ------------------------------------------------------------------------------------------------------------------------ Leisure/Hotels 2,200,000 Carnival Corp. (Class A) 57,830,550 153,450,000 1.3 3,000,000++ Harrah's Entertainment, Inc. 55,543,541 73,687,500 0.6 ------------- ------------- ----- 113,374,091 227,137,500 1.9 - ------------------------------------------------------------------------------------------------------------------------ Machinery & Machine 750,000++ SPX Corp. (a) 44,070,962 57,234,375 0.5 Tools - ------------------------------------------------------------------------------------------------------------------------ Natural Gas 1,650,000 Coastal Corp. 66,552,668 107,456,250 0.9 Suppliers 1,300,000 El Paso Natural Gas Co. 56,192,288 91,731,250 0.8 8,290,000 Williams Companies, Inc. 74,032,333 265,280,000 2.2 ------------- ------------- ----- 196,777,289 464,467,500 3.9 - ------------------------------------------------------------------------------------------------------------------------ Oil Field Equipment 210,000 McCormick & Company, Inc. 6,699,376 6,772,500 0.1 - ------------------------------------------------------------------------------------------------------------------------ Oil -- Integrated 1,100,000 Ente Nazionale Idrocarburi S.p.A.(ENI) (ADR)* 54,064,994 74,525,000 0.6 1,100,000 TOTAL S.A.(ADR)* 36,453,868 66,068,750 0.6 2,500,000 Unocal Corporation 95,486,005 96,718,750 0.8 5,000,000 Yacimientos Petroliferos Fiscales S.A. (YPF) (ADR)* 95,920,616 170,000,000 1.4 ------------- ------------- ----- 281,925,483 407,312,500 3.4 - ------------------------------------------------------------------------------------------------------------------------ Oil -- Service 2,500,000 Dresser Industries, Inc. 69,699,584 120,156,250 1.0 - ------------------------------------------------------------------------------------------------------------------------ Paper & Forest 1,900,000 Kimberly-Clark Corp. 95,282,857 95,237,500 0.8 Products 800,000 Temple-Inland, Inc. 36,743,614 49,700,000 0.4 1,641,500 Weyerhaeuser Co. 74,855,268 92,744,750 0.8 ------------- ------------- ----- 206,881,739 237,682,250 2.0 - ------------------------------------------------------------------------------------------------------------------------ Pharmaceuticals 2,000,000 Glaxo Wellcome PLC (ADR)* 54,175,864 108,250,000 0.9 50,000 Novartis AG (Registered) 61,610,822 88,627,554 0.8 ------------- ------------- ----- 115,786,686 196,877,554 1.7 - ------------------------------------------------------------------------------------------------------------------------
10 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Shares Value Percent of Industries Held Common Stocks Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Railroads 4,900,000 Kansas City Southern Industries, Inc. $ 74,694,146 $ 215,600,000 1.8% 1,925,000 Union Pacific Corporation 117,418,836 108,160,938 0.9 ------------- ------------- ----- 192,112,982 323,760,938 2.7 - ------------------------------------------------------------------------------------------------------------------------ Real Estate 1,000,000 CarrAmerica Realty Corp. 26,832,805 30,000,000 0.3 Investment Trusts 2,600,000 Patriot American Hospitality, Inc. 69,867,303 70,200,000 0.6 1,000,000 Walden Residential Properties, Inc. (a) 20,679,751 25,250,000 0.2 ------------- ------------- ----- 117,379,859 125,450,000 1.1 - ------------------------------------------------------------------------------------------------------------------------ Restaurants 2,000,000 McDonald's Corporation 98,086,085 120,000,000 1.0 - ------------------------------------------------------------------------------------------------------------------------ Retail Trade 250,000 Sears, Roebuck and Co. 11,748,382 14,359,375 0.1 3,000,000 Wal-Mart Stores, Inc. 73,541,970 152,437,500 1.3 ------------- ------------- ----- 85,290,352 166,796,875 1.4 - ------------------------------------------------------------------------------------------------------------------------ Semiconductors 900,000 Motorola, Inc. 51,015,893 54,562,500 0.5 - ------------------------------------------------------------------------------------------------------------------------ Telecommunications 2,000,000 Frontier Corporation 55,148,100 65,125,000 0.5 600,000 Telecomunicacoes Brasileiras S.A. -- Telebras (ADR)* 51,096,291 77,887,500 0.7 ------------- ------------- ----- 106,244,391 143,012,500 1.2 - ------------------------------------------------------------------------------------------------------------------------ Tires & Rubber 2,500,000 Goodyear Tire & Rubber Co. (The) 98,262,526 189,375,000 1.6 - ------------------------------------------------------------------------------------------------------------------------ Total Common Stocks 4,699,477,049 7,525,471,659 63.3 - ------------------------------------------------------------------------------------------------------------------------ Face Amount Corporate Bonds - ------------------------------------------------------------------------------------------------------------------------ Aerospace $ 12,500,000 Boeing Co. (The), 6.44% due 12/20/2004 12,560,000 12,546,875 0.1 - ------------------------------------------------------------------------------------------------------------------------ Automotive Hertz Corp.: 10,000,000 7% due 5/01/2002 10,305,500 10,179,800 0.1 25,000,000 6.70% due 6/15/2002 24,815,300 25,203,500 0.2 13,000,000 6% due 1/15/2003 12,891,670 12,733,630 0.1 20,000,000 Hyundai Motor Co., Ltd., 7.60% due 7/15/2007+++ 19,916,100 15,000,000 0.1 ------------- ------------- ----- 67,928,570 63,116,930 0.5 - ------------------------------------------------------------------------------------------------------------------------ Banking 30,000,000 Banco Nacional de Commercio Exterior SNC, Global Bonds, 7.25% due 2/02/2004 28,187,700 28,650,000 0.2 13,600,000 Banco Rio de la Plata, 8.75% due 12/15/2003 13,751,700 13,974,000 0.1 29,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 27,575,520 29,323,930 0.2 BankAmerica Corp.: 15,000,000 6.875% due 6/01/2003 14,149,050 15,378,300 0.1 30,000,000 6.75% due 9/15/2005 29,591,750 30,637,800 0.3 Chase Manhattan Corporation (The): 15,000,000 6.50% due 8/01/2005 14,552,850 15,053,550 0.1 15,000,000 6.25% due 1/15/2006 13,892,250 14,849,400 0.1 20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 20,662,060 0.2 30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 30,504,300 0.3 ` 22,750,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 22,140,802 23,363,841 0.2 10,000,000 Great Western Financial Corp., 6.375% due 7/01/2000 9,998,800 10,020,200 0.1 Household Bank: 10,000,000 6.87% due 5/15/2001 9,868,800 10,158,090 0.1 20,000,000 6.875% due 3/17/2003 19,886,200 20,464,200 0.2 10,300,000 6.50% due 7/15/2003 10,202,253 10,344,187 0.1
11 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Banking NationsBank Corp.: (concluded) $ 40,000,000 5.60% due 2/07/2001 $ 40,000,000 $ 39,533,600 0.3% 10,000,000 6.20% due 8/15/2003 9,670,360 10,015,300 0.1 25,000,000 6.50% due 8/15/2003 22,104,200 25,199,500 0.2 25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 24,922,025 25,147,335 0.2 20,000,000 People's Bank -- Bridgeport, 7.20% due 12/01/2006 19,956,700 20,493,400 0.2 26,000,000 Provident Bank, 6.375% due 1/15/2004 25,287,430 26,034,580 0.2 Union Planters Corp.: 20,000,000 6.25% due 11/01/2003 18,756,100 19,906,000 0.2 12,500,000 6.75% due 11/01/2005 12,001,875 12,634,625 0.1 ------------- ------------- ----- 436,253,565 452,348,198 3.8 - ------------------------------------------------------------------------------------------------------------------------ Beverages 22,000,000 Coca-Cola Femsa S.A., 8.95% due 11/01/2006 21,984,595 23,224,476 0.2 10,000,000 Panamerican Beverages, Inc., 7.25% due 7/01/2009+++ 10,037,500 9,825,000 0.1 ------------- ------------- ----- 32,022,095 33,049,476 0.3 - ------------------------------------------------------------------------------------------------------------------------ Broadcasting 20,000,000 British Sky Broadcasting Group PLC, 7.30% due 10/15/2006 20,037,440 20,712,000 0.2 - ------------------------------------------------------------------------------------------------------------------------ Cable 10,000,000 Comcast Cable Communications, Inc., 8.125% due 5/01/2004 9,991,000 10,758,600 0.1 - ------------------------------------------------------------------------------------------------------------------------ Chemicals 8,000,000 Airgas, Inc., 7.14% due 3/08/2004 8,000,000 8,331,120 0.1 37,000,000 Lyondell Petrochemical Company, 6.50% due 2/15/2006 35,447,015 36,518,260 0.3 40,000,000 Union Carbide Corp., 6.79% due 6/01/2025 40,292,500 40,234,000 0.3 ------------- ------------- ----- 83,739,515 85,083,380 0.7 - ------------------------------------------------------------------------------------------------------------------------ Computers 15,000,000 Digital Equipment Corp., 8.625% due 11/01/2012 17,050,650 17,254,200 0.2 - ------------------------------------------------------------------------------------------------------------------------ Consumer Services Loewen Group, Inc.: 16,000,000 6.70% due 10/01/1999 15,970,340 16,067,296 0.1 20,000,000 8.25% due 10/15/2003+++ 20,208,132 21,242,580 0.2 ------------- ------------- ----- 36,178,472 37,309,876 0.3 - ------------------------------------------------------------------------------------------------------------------------ Electronics Tandy Corp.: 20,000,000 6.125% due 1/15/2003 19,971,600 19,821,600 0.2 15,000,000 6.95% due 9/01/2007 14,944,120 15,292,950 0.1 ------------- ------------- ----- 34,915,720 35,114,550 0.3 - ------------------------------------------------------------------------------------------------------------------------ Finance 40,000,000 Ford Motor Credit Co., 5.75% due 1/25/2001 39,596,900 39,567,600 0.3 General Motors Acceptance Corp.: 30,000,000 6.375% due 4/04/2000 29,932,500 30,152,940 0.2 55,000,000 5.625% due 2/15/2001 54,450,000 54,331,200 0.5 30,000,000 6.75% due 6/10/2002 29,520,300 30,599,400 0.3 15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,897,700 0.1 ------------- ------------- ----- 168,495,500 169,548,840 1.4 - ------------------------------------------------------------------------------------------------------------------------ Financial Leasing GATX Corp.: 25,000,000 6.875% due 11/01/2004 24,938,000 25,338,000 0.2 25,000,000 6.69% due 11/30/2005 24,984,750 25,437,000 0.2 XTRA Corp.: 20,000,000 6.79% due 8/01/2001 19,945,800 20,388,040 0.2 20,000,000 6.68% due 11/30/2001 20,000,000 20,325,320 0.2 ------------- ------------- ----- 89,868,550 91,488,360 0.8 - ------------------------------------------------------------------------------------------------------------------------
12 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Financial Finova Capital Corp.: Services $ 25,000,000 6.45% due 6/01/2000 $ 24,766,550 $ 25,160,000 0.2% 15,000,000 5.98% due 2/27/2001 14,968,950 14,888,775 0.1 10,000,000 6.56% due 11/15/2002 10,000,000 10,141,200 0.1 McDonnell Douglas Finance Corp.: 7,500,000 6.78% due 12/19/2003 7,497,525 7,610,775 0.1 20,000,000 6.965% due 9/12/2005 20,049,200 20,861,360 0.2 35,000,000 Morgan Stanley Group, Inc., 5.75% due 2/15/2001 34,968,150 34,703,620 0.3 13,000,000 Norwest Financial, Inc., 6.625% due 7/15/2004 13,000,000 13,253,240 0.1 Salomon, Inc.: 10,000,000 6.75% due 2/15/2003 9,804,000 10,157,940 0.1 5,000,000 6.875% due 12/15/2003 4,968,500 5,114,525 0.0 Smith Barney Shearson Holdings, Inc.: 25,000,000 6.625% due 7/01/2002 24,994,000 25,336,000 0.2 30,000,000 7% due 3/15/2004 29,927,700 30,801,060 0.3 ------------- ------------- ----- 194,944,575 198,028,495 1.7 - ------------------------------------------------------------------------------------------------------------------------ Food & Tobacco Nabisco Inc.: 20,000,000 6.125% due 2/01/2033 19,915,200 19,640,400 0.1 20,000,000 6.375% due 2/01/2035 19,939,200 19,676,000 0.2 ------------- ------------- ----- 39,854,400 39,316,400 0.3 - ------------------------------------------------------------------------------------------------------------------------ Foreign Government 10,000,000 Province of Mendoza, 10% due 9/04/2007+++ 9,931,700 9,750,000 0.1 Obligations Republic of Argentina: 45,000,000 8.75% due 7/10/2002 43,707,500 41,428,125 0.4 33,360,000 Floating Rate Brady Bonds, Series L, 6.6875% due 3/31/2005+ 24,661,342 30,774,600 0.3 40,000,000 Global Bonds, 8.375% due 12/20/2003 38,561,250 39,850,000 0.3 20,000,000 Republic of Colombia, Global Bonds, 7.625% due 2/15/2007 18,825,650 18,850,000 0.2 15,000,000 Republic of Guatemala, 8.50% due 8/03/2007+++ 15,082,250 14,887,500 0.1 Republic of Turkey+++: 15,000,000 9.875% due 2/23/2005 14,853,700 15,187,500 0.1 40,000,000 10% due 9/19/2007 39,980,625 40,400,000 0.3 50,000,000 United Mexican States, Global Bonds, 8.625% due 3/12/2008 50,000,000 49,625,000 0.4 ------------- ------------- ----- 255,604,017 260,752,725 2.2 - ------------------------------------------------------------------------------------------------------------------------ Hospital Management 34,625,000 Medpartners, Inc., 6.875% due 9/01/2000 34,411,290 34,319,608 0.3 26,500,000 Tenet Healthcare Corp., 8% due 1/15/2005 26,470,375 27,228,750 0.2 ------------- ------------- ----- 60,881,665 61,548,358 0.5 - ------------------------------------------------------------------------------------------------------------------------ Industrial Interface, Inc.: 7,800,000 9.50% due 11/15/2005 7,552,000 8,326,500 0.1 8,000,000 7.30% due 4/01/2008 7,999,520 7,999,520 0.1 20,000,000 Reliance Industries Ltd., 8.25% due 1/15/2027+++ 19,526,999 18,600,000 0.1 25,000,000 Triton Energy Ltd., 8.75% due 4/15/2002 25,363,000 25,865,675 0.2 15,000,000 United Refining Co., 10.75% due 6/15/2007 15,000,000 15,750,000 0.1 Williams Holdings of Delaware, Inc.: 20,000,000 6.625% due 11/15/2004 19,908,000 20,113,000 0.2 50,000,000 6.25% due 2/01/2006 49,739,500 49,678,000 0.4 ------------- ------------- ----- 145,089,019 146,332,695 1.2 - ------------------------------------------------------------------------------------------------------------------------
13 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Information Reynolds & Reynolds Company: Systems $ 10,000,000 5.875% due 3/20/2000 $ 9,992,900 $ 9,972,400 0.1% 28,750,000 6.12% due 3/02/2001 28,750,000 28,738,500 0.2 ------------- ------------- ----- 38,742,900 38,710,900 0.3 - ------------------------------------------------------------------------------------------------------------------------ Machinery 20,000,000 FMC Corp., 6.375% due 9/01/2003 18,940,800 19,680,800 0.2 22,500,000 Harris Corp., 6.375% due 8/15/2002 22,461,850 22,641,525 0.2 ------------- ------------- ----- 41,402,650 42,322,325 0.4 - ------------------------------------------------------------------------------------------------------------------------ Media/Publishing 15,000,000 News American, Inc., 6.75% due 1/09/2038+++ 15,000,000 14,756,250 0.1 - ------------------------------------------------------------------------------------------------------------------------ Natural Gas 27,500,000 Coastal Corp., 6.70% due 2/15/2027 27,225,400 28,690,998 0.3 Suppliers 15,000,000 ENSERCH Corporation, 7.125% due 6/15/2005 15,095,150 15,492,000 0.1 ------------- ------------- ----- 42,320,550 44,182,998 0.4 - ------------------------------------------------------------------------------------------------------------------------ Oil -- Integrated 10,000,000 Giant Industries, Inc., 9% due 9/01/2007+++ 10,000,000 10,225,000 0.1 18,375,000 Occidental Petroleum Corp., 6.24% due 11/24/2000 18,135,306 18,416,160 0.1 Perez Companc S.A.+++: 10,000,000 9% due 1/30/2004 10,125,000 10,300,000 0.1 20,500,000 8.125% due 7/15/2007 20,201,470 20,090,000 0.2 Union Texas Petroleum Holdings, Inc.: 23,250,000 6.70% due 11/18/2002 23,190,070 23,598,634 0.2 20,000,000 6.81% due 12/05/2007 20,000,000 20,576,600 0.2 10,000,000 Unocal Corporation, 6.11% due 2/17/2004 10,000,000 9,935,830 0.0 20,000,000 Yacimientos Petroliferos Fiscales S.A. (YPF), 8% due 2/15/2004 18,334,375 20,317,400 0.2 ------------- ------------- ----- 129,986,221 133,459,624 1.1 - ------------------------------------------------------------------------------------------------------------------------ Paper & Forest Boise Cascade Corporation: Products 10,000,000 7.35% due 10/11/2004 10,316,700 10,300,000 0.1 20,000,000 7.66% due 5/27/2005 20,000,000 20,898,200 0.2 25,000,000 Champion International Corp., 6.65% due 12/15/2037 25,000,000 25,382,500 0.2 ------------- ------------- ----- 55,316,700 56,580,700 0.5 - ------------------------------------------------------------------------------------------------------------------------ Real Estate 10,000,000 Franchise Finance Corp. of America, 6.95% Investment Trusts due 8/29/2007 10,000,000 9,843,190 0.1 - ------------------------------------------------------------------------------------------------------------------------ Telecommunications 10,000,000 Pacific Telecom, Inc., 6.625% due 10/20/2005 10,000,000 10,195,240 0.1 25,000,000 WorldCom, Inc., 7.55% due 4/01/2004 24,958,500 26,349,500 0.2 ------------- ------------- ----- 34,958,500 36,544,740 0.3 - ------------------------------------------------------------------------------------------------------------------------ Tires & Rubber 40,000,000 Goodyear Tire & Rubber Co. (The), 6.625% due 12/01/2006 39,840,000 40,149,200 0.3 - ------------------------------------------------------------------------------------------------------------------------ Transportation 12,500,000 Northwest Airlines Inc., 7.625% due 3/15/2005 12,471,225 12,421,875 0.1 17,000,000 Transportacion Maritima Mexicana, S.A. de C.V., 10% due 11/15/2006 17,152,730 17,063,750 0.2 15,000,000 Union Pacific Corp., 6.625% due 2/01/2008 14,776,750 14,784,900 0.1 ------------- ------------- ----- 44,400,705 44,270,525 0.4 - ------------------------------------------------------------------------------------------------------------------------ Travel & Lodging Royal Caribbean Cruises Ltd.: 10,000,000 7.125% due 9/18/2002 9,900,050 10,227,700 0.1 10,000,000 7.25% due 8/15/2006 9,854,415 10,273,400 0.1 ------------- ------------- ----- 19,754,465 20,501,100 0.2 - ------------------------------------------------------------------------------------------------------------------------
14 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Industries Amount Corporate Bonds Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Utilities -- Connecticut Light & Power Co.: Electric, $ 28,250,000 7.75% due 6/01/2002+++ $ 28,173,725 $ 28,589,847 0.2% Gas & Water 20,000,000 7.875% due 10/01/2024 20,431,000 20,433,800 0.2 33,000,000 Empresa Nacional de Electricidad S.A. (Endesa), 7.325% due 2/01/2037 33,065,750 32,885,622 0.3 38,500,000 Enron Corp., 6.75% due 7/01/2005 37,527,310 38,897,705 0.3 20,000,000 Niagara Mohawk Power Corp., 5.875% due 9/01/2002 19,504,200 19,486,600 0.2 17,500,000 Tata Electric Co., 8.50% due 8/19/2017+++ 17,313,775 15,692,250 0.1 ------------- ------------- ----- 156,015,760 155,985,824 1.3 - ------------------------------------------------------------------------------------------------------------------------ Total Corporate Bonds 2,333,153,204 2,371,617,334 20.0 - ------------------------------------------------------------------------------------------------------------------------ Collateralized Mortgage Obligations - ------------------------------------------------------------------------------------------------------------------------ Federal Home Loan Mortgage Corp.: 9,241,900 6.50% due 5/15/2008 8,831,790 9,054,104 0.1 5,000,000 7% due 8/15/2008 4,762,500 5,042,150 0.0 13,000,000 6% due 2/15/2011 12,020,937 12,593,750 0.1 5,010,000 Federal National Mortgage Association, 6.50% due 4/25/2008 4,653,037 4,995,909 0.0 - ------------------------------------------------------------------------------------------------------------------------ Total Collateralized Mortgage Obligations 30,268,264 31,685,913 0.2 - ------------------------------------------------------------------------------------------------------------------------ US Government Obligations - ------------------------------------------------------------------------------------------------------------------------ US Treasury Bonds: 200,000,000 6.25% due 8/15/2023 184,808,984 206,156,000 1.7 75,000,000 6% due 2/15/2026 74,730,469 74,929,500 0.6 US Treasury Notes: 175,000,000 5.875% due 7/31/1999 175,533,203 175,602,000 1.5 200,000,000 5.75% due 8/15/2003 191,405,078 200,718,000 1.7 650,000,000 5.875% due 11/15/2005 634,453,981 655,278,000 5.5 225,000,000 5.625% due 2/15/2006 224,046,875 223,276,500 1.9 - ------------------------------------------------------------------------------------------------------------------------ Total US Government Obligations 1,484,978,590 1,535,960,000 12.9 - ------------------------------------------------------------------------------------------------------------------------ Short-Term Investments - ------------------------------------------------------------------------------------------------------------------------ Commercial 35,000,000 Associates Corp. of North America, 6.07% Paper** due 4/01/1998 35,000,000 35,000,000 0.3 25,000,000 BTAB Holdings Funding Corp., 5.65% due 4/21/1998 24,921,528 24,921,528 0.2 25,000,000 CXC Inc., 5.50% due 4/03/1998 24,992,361 24,992,361 0.2 Corporate Asset Funding Co. Inc.: 34,500,000 5.52% due 4/20/1998 34,399,490 34,399,490 0.3 20,000,000 5.52% due 4/22/1998 19,935,600 19,935,600 0.2 20,000,000 Finova Capital Corp., 5.49% due 4/17/1998 19,951,200 19,951,200 0.2 28,771,000 General Motors Acceptance Corp., 6.13% due 4/01/1998 28,771,000 28,771,000 0.2 Lehman Brothers Holdings Inc.: 40,400,000 5.52% due 4/06/1998 40,369,027 40,369,027 0.3 20,000,000 5.52% due 4/13/1998 19,963,200 19,963,200 0.2 14,700,000 Lexington Parker Capital Co. LLC, 5.48% due 4/02/1998 14,697,762 14,697,762 0.1
15 Merrill Lynch Capital Fund, Inc. March 31, 1998 SCHEDULE OF INVESTMENTS (continued)
Face Value Percent of Amount Short-Term Investments Cost (Note 1a) Net Assets - ------------------------------------------------------------------------------------------------------------------------ Commercial $ 12,131,000 Park Avenue Receivables Corp., 5.57% Paper** due 4/17/1998 $ 12,100,969 $ 12,100,969 0.1% (concluded) 50,000,000 Riverwoods Funding Corp., 5.53% due 5/01/1998 49,769,583 49,769,583 0.4 ------------- ------------- ----- 324,871,720 324,871,720 2.7 - ------------------------------------------------------------------------------------------------------------------------ US Government 30,000,000 Federal Home Loan Banks, 5.45% due Agency 4/08/1998 29,968,208 29,968,208 0.3 Obligations** - ------------------------------------------------------------------------------------------------------------------------ Total Short-Term Investments 354,839,928 354,839,928 3.0 - ------------------------------------------------------------------------------------------------------------------------ Total Investments $8,902,717,035 11,819,574,834 99.4 ============== Other Assets Less Liabilities 67,910,560 0.6 --------------- ----- Net Assets $11,887,485,394 100.0% =============== ===== - ------------------------------------------------------------------------------------------------------------------------
* American Depositary Receipts (ADR). ** Commercial Paper 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. + 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. See Notes to Financial Statements. (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 - -------------------------------------------------------------------------------- Diversified Varian Associates, Companies Inc. 1,150,000 $60,939,161 $570,433 Electrical Belden Inc. 360,900 11,944,962 295,000 Equipment Insurance Berkley (W.R.) Corporation 600,000 -- 792,000 Insurance Fremont General Corp. (300,000) (3,275,189) 1,200,000 Insurance Penncorp Financial Group, Inc. -- -- 400,000 Iron & Steel Birmingham Steel Corp. -- -- 640,000 Machinery & SPX Corp. 750,000 44,070,962 ++ Machine Tools Real Estate Walden Residential Investment Properties, Inc. 257,800 7,506,369 1,491,987 Trusts - -------------------------------------------------------------------------------- ++ Non-income producing security. 16 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION Statement of Assets and Liabilities as of March 31, 1998 Assets: Investments, at value (identified cost -- $8,902,717,035) (Note 1a) ............................... $11,819,574,834 Cash .................................................... 93,561 Foreign cash (Note 1c) .................................. 605,832 Receivables: Securities sold ...................................... $ 67,934,654 Interest ............................................. 60,790,954 Capital shares sold .................................. 23,371,632 Dividends ............................................ 11,047,785 163,145,025 ------------- Prepaid registration fees and other assets (Note 1f) .... 179,474 --------------- Total assets ............................................ 11,983,598,726 --------------- - ------------------------------------------------------------------------------------------------------------------ Liabilities: Payables: Securities purchased ................................. 47,591,638 Capital shares redeemed .............................. 35,846,597 Distributor (Note 2) ................................. 5,854,636 Investment adviser (Note 2) .......................... 4,141,004 93,433,875 ------------- Accrued expenses and other liabilities .................. 2,679,457 --------------- Total liabilities ....................................... 96,113,332 --------------- - ------------------------------------------------------------------------------------------------------------------ Net Assets: Net assets .............................................. $11,887,485,394 =============== - ------------------------------------------------------------------------------------------------------------------ Net Assets Class A Shares of Common Stock, $0.10 par value, Consist of: 400,000,000 shares authorized ........................... $ 11,064,324 Class B Shares of Common Stock, $0.10 par value, 400,000,000 shares authorized ........................... 16,188,770 Class C Shares of Common Stock, $0.10 par value, 200,000,000 shares authorized ........................... 1,412,405 Class D Shares of Common Stock, $0.10 par value, 200,000,000 shares authorized ........................... 3,415,522 Paid-in capital in excess of par ........................ 8,597,071,799 Undistributed investment income -- net .................. 73,165,000 Undistributed realized capital gains on investments and foreign currency transactions -- net ................ 268,313,754 Unrealized appreciation on investments and foreign currency transactions -- net ............................ 2,916,853,820 --------------- Net assets .............................................. $11,887,485,394 =============== - ------------------------------------------------------------------------------------------------------------------ Net Asset Value: Class A -- Based on net assets of $4,155,677,231 and 110,643,239 shares outstanding ...................... $ 37.56 =============== Class B -- Based on net assets of $5,938,708,616 and 161,887,699 shares outstanding .......................... $ 36.68 =============== Class C -- Based on net assets of $512,782,732 and 14,124,050 shares outstanding ........................... $ 36.31 =============== Class D -- Based on net assets of $1,280,316,815 and 34,155,217 shares outstanding ........................... $ 37.49 =============== - ------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 17 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION (continued) Statement of Operations for the Year Ended March 31, 1998 Investment Interest and discount earned ............................ $ 278,880,820 Income Dividends (net of $2,428,105 foreign withholding tax) ... 111,518,341 (Notes 1d & 1e): Other ................................................... 647,445 --------------- Total income ............................................ 391,046,606 --------------- - ------------------------------------------------------------------------------------------------------------------ Expenses: Account maintenance and distribution fees -- Class B (Note 2) ........................................ $ 53,880,781 Investment advisory fees (Note 2) ....................... 41,894,654 Transfer agent fees -- Class B (Note 2) ................. 8,024,817 Transfer agent fees -- Class A (Note 2) ................. 4,858,453 Account maintenance and distribution fees -- Class C (Note 2) ................................................ 3,866,998 Account maintenance fees -- Class D (Note 2) ............ 2,351,416 Transfer agent fees -- Class D (Note 2) ................. 1,250,921 Custodian fees .......................................... 734,998 Transfer agent fees -- Class C (Note 2) ................. 613,773 Printing and shareholder reports ........................ 395,906 Registration fees (Note 1f) ............................. 386,555 Professional fees ....................................... 99,032 Directors' fees and expenses ............................ 47,273 Pricing fees ............................................ 16,858 Other ................................................... 83,625 ------------- Total expenses .......................................... 118,506,060 --------------- Investment income -- net ............................... 272,540,546 --------------- - ------------------------------------------------------------------------------------------------------------------ Realized & Realized gain (loss) from: Unrealized Gain Investments -- net ................................... 571,665,488 (Loss) on Foreign currency transactions -- net ................. (2,456,877) 569,208,611 Investments & -------------- Foreign Currency Change in unrealized appreciation/depreciation on: Transactions--Net Investments -- net ................................... 1,873,957,408 (Notes 1b, 1c, Foreign currency transactions -- net ................. 67,907 1,874,025,315 1e & 3): -------------- --------------- Net realized and unrealized gain on investments and foreign currency transactions ....................... 2,443,233,926 --------------- Net Increase in Net Assets Resulting from Operations .... $ 2,715,774,472 =============== - ------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 18 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets
For the Year Ended March 31, ------------------------------- Increase (Decrease) in Net Assets: 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Operations: Investment income -- net ................................ $ 272,540,546 $ 315,581,262 Realized gain on investments and foreign currency transactions -- net ..................................... 569,208,611 526,748,104 Change in unrealized appreciation on investments and foreign currency transactions -- net ................ 1,874,025,315 208,655,806 -------------- -------------- Net increase in net assets resulting from operations .... 2,715,774,472 1,050,985,172 -------------- -------------- - ------------------------------------------------------------------------------------------------------------------ Dividends & Investment income -- net: Distributions to Class A .............................................. (115,518,688) (129,132,730) Shareholders Class B .............................................. (119,396,439) (153,592,754) (Note 1g): Class C .............................................. (8,523,951) (9,633,153) Class D .............................................. (26,653,341) (22,687,022) Realized gain on investments -- net: Class A .............................................. (204,758,968) (200,341,016) Class B .............................................. (306,423,980) (318,637,995) Class C .............................................. (21,655,996) (19,360,951) Class D .............................................. (51,231,087) (37,329,858) -------------- -------------- Net decrease in net assets resulting from dividends and distributions to shareholders ....................... (854,162,450) (890,715,479) -------------- -------------- - ------------------------------------------------------------------------------------------------------------------ Capital Share Net increase in net assets derived from capital Transactions share transactions ...................................... 744,669,554 88,941,831 (Note 4): -------------- -------------- - ------------------------------------------------------------------------------------------------------------------ Net Assets: Total increase in net assets ............................ 2,606,281,576 249,211,524 Beginning of year ....................................... 9,281,203,818 9,031,992,294 -------------- -------------- End of year* ............................................ $11,887,485,394 $9,281,203,818 =============== ============== - ------------------------------------------------------------------------------------------------------------------ * Undistributed investment income -- net (Note 1h) ........ $ 73,165,000 $ 73,174,307 =============== ============== - ------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements. 19 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION (continued) Financial Highlights The following per share data and ratios have been derived from information provided in the financial statements.
Class A ------------------------------------------------------------------ For the Year Ended March 31, ------------------------------------------------------------------ Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of year ........ $ 31.39 $ 30.90 $ 27.74 $ 27.46 $ 27.89 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income -- net .................. 1.11 1.25 1.21 1.01 .97 Realized and unrealized gain on investments and foreign currency transactions -- net .. 8.14 2.43 5.41 1.77 .50 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... 9.25 3.68 6.62 2.78 1.47 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income -- net ............... (1.11) (1.25) (1.16) (.94) (.95) Realized gain on investments -- net .... (1.97) (1.94) (2.30) (1.56) (.95) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (3.08) (3.19) (3.46) (2.50) (1.90) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year .............. $ 37.56 $ 31.39 $ 30.90 $ 27.74 $ 27.46 ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share ........ 30.71% 12.62% 24.50% 10.95% 5.39% Return:* ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Expenses .................................. .55% .55% .56% .57% .53% Average ========== ========== ========== ========== ========== Net Assets: Investment income -- net .................. 3.21% 3.99% 4.09% 3.81% 3.52% ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of year (in thousands) .... $4,155,677 $3,291,219 $3,225,758 $2,507,767 $2,237,492 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 38% 47% 84% 89% 86% ========== ========== ========== ========== ========== Average commission rate paid+ ............. $ .0478 $ .0432 $ .0382 -- -- ========== ========== ========== ========== ========== - -----------------------------------------------------------------------------------------------------------------------------------
* 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. See Notes to Financial Statements. 20 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION (continued) Financial Highlights (continued) The following per share data and ratios have been derived from information provided in the financial statements.
Class B ------------------------------------------------------------------ For the Year Ended March 31, ------------------------------------------------------------------ Increase (Decrease) in Net Asset Value: 1998++ 1997++ 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of year ........ $ 30.72 $ 30.30 $ 27.28 $ 27.04 $ 27.49 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income -- net .................. .74 .91 .90 .74 .70 Realized and unrealized gain on investments and foreign currency transactions -- net .. 7.96 2.39 5.29 1.72 .48 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... 8.70 3.30 6.19 2.46 1.18 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income -- net ............... (.77) (.94) (.87) (.66) (.68) Realized gain on investments -- net .... (1.97) (1.94) (2.30) (1.56) (.95) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (2.74) (2.88) (3.17) (2.22) (1.63) ---------- ---------- ---------- ---------- ---------- Net asset value, end of year .............. $ 36.68 $ 30.72 $ 30.30 $ 27.28 $ 27.04 ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share ........ 29.38% 11.48% 23.22% 9.81% 4.36% Return:* ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- Ratios to Expenses .................................. 1.57% 1.57% 1.58% 1.59% 1.55% Average ========== ========== ========== ========== ========== Net Assets: Investment income -- net .................. 2.19% 2.97% 3.07% 2.79% 2.50% ========== ========== ========== ========== ========== - ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of year (in thousands) .... $5,938,708 $4,977,431 $5,025,504 $3,664,250 $3,079,332 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 38% 47% 84% 89% 86% ========== ========== ========== ========== ========== Average commission rate paid+ ............. $ .0478 $ .0432 $ .0382 -- -- ========== ========== ========== ========== ========== - -----------------------------------------------------------------------------------------------------------------------------------
* 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. See Notes to Financial Statements. 21 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION (continued) Financial Highlights (continued) The following per share data and ratios have been derived from information provided in the financial statements.
Class C --------------------------------------------------- For the Period For the Year Oct. 21, Ended March 31, 1994++ to ------------------------------------- March 31, Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period .......... $ 30.44 $ 30.08 $ 27.17 $ 26.81 Operating --------- --------- --------- --------- Performance: Investment income -- net ...................... .73 .90 .92 .49 Realized and unrealized gain on investments and foreign currency transactions -- net .......... 7.89 2.36 5.24 1.03 --------- --------- --------- --------- Total from investment operations .............. 8.62 3.26 6.16 1.52 --------- --------- --------- --------- Less dividends and distributions: Investment income -- net ................... (.78) (.96) (.95) (.43) Realized gain on investments -- net ........ (1.97) (1.94) (2.30) (.73) --------- --------- --------- --------- Total dividends and distributions ............. (2.75) (2.90) (3.25) (1.16) --------- --------- --------- --------- Net asset value, end of period ................ $ 36.31 $ 30.44 $ 30.08 $ 27.17 ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share ............ 29.40% 11.45% 23.25% 6.07%++++ Return:** ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------- Ratios to Expenses ...................................... 1.58% 1.58% 1.59% 1.64%* Average ========= ========= ========= ========= Net Assets: Investment income -- net ...................... 2.18% 2.96% 3.08% 3.22%* ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of period (in thousands) ...... $ 512,783 $ 322,438 $ 259,131 $ 46,902 Data: ========= ========= ========= ========= Portfolio turnover ............................ 38% 47% 84% 89% ========= ========= ========= ========= Average commission rate paid+ ................. $ .0478 $ .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. ++++ Aggregate total investment return. See Notes to Financial Statements. 22 Merrill Lynch Capital Fund, Inc. March 31, 1998 FINANCIAL INFORMATION (concluded) Financial Highlights (concluded) The following per share data and ratios have been derived from information provided in the financial statements.
Class D --------------------------------------------------- For the Period For the Year Oct. 21, Ended March 31, 1994++ to ------------------------------------- March 31, Increase (Decrease) in Net Asset Value: 1998+++ 1997+++ 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Per Share Net asset value, beginning of period .......... $ 31.34 $ 30.86 $ 27.72 $ 27.27 Operating --------- --------- --------- --------- Performance: Investment income -- net ...................... 1.02 1.17 1.16 .48 Realized and unrealized gain on investments and foreign currency transactions -- net .......... 8.14 2.43 5.38 1.15 --------- --------- --------- --------- Total from investment operations .............. 9.16 3.60 6.54 1.63 --------- --------- --------- --------- Less dividends and distributions: Investment income -- net ................... (1.04) (1.18) (1.10) (.45) Realized gain on investments -- net ........ (1.97) (1.94) (2.30) (.73) --------- --------- --------- --------- Total dividends and distributions ............. (3.01) (3.12) (3.40) (1.18) --------- --------- --------- --------- Net asset value, end of period ................ $ 37.49 $ 31.34 $ 30.86 $ 27.72 ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------- Total Investment Based on net asset value per share ............ 30.40% 12.34% 24.21% 6.42%++++ Return:** ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------- Ratios to Expenses ...................................... .80% .80% .81% .87%* Average ========= ========= ========= ========= Net Assets: Investment income -- net ...................... 2.95% 3.75% 3.84% 3.94%* ========= ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------- Supplemental Net assets, end of period (in thousands) ...... $1,280,317 $ 690,116 $ 521,599 $ 171,201 Data: ========= ========= ========= ========= Portfolio turnover ............................ 38% 47% 84% 89% ========= ========= ========= ========= Average commission rate paid+ ................. $ .0478 $ .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. ++++ Aggregate total investment return. See Notes to Financial Statements. 23 Merrill Lynch Capital Fund, Inc. March 31, 1998 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. 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 invest ment 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. (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 24 Merrill Lynch Capital Fund, Inc. March 31, 1998 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. (h) Reclassification -- Generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, current year's permanent book/tax differences of $2,457,434 have been reclassified between undistributed net realized capital gains and undistributed net investment income. These reclassifications have no effect on net assets or net asset values per share. 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 year ended March 31, 1998, 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 ............ $ 43,421 $ 509,945 Class D ............ $137,456 $1,903,313 - ------------------------------------------------------- For the year ended March 31, 1998, MLPF&S received contingent deferred sales charges of $5,593,399 and $91,818 relating to transactions in Class B and Class C Shares, respectively. Furthermore, MLPF&S received contingent deferred sales charges of $60,049 and $18,937 relating to transactions subject to front-end sales charge waivers in Class A Shares and Class D Shares, respectively. In addition, MLPF&S received $279,047 in commissions on the execution of portfolio security transactions for the year ended March 31, 1998. Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. During the year ended March 31, 1998, Merrill Lynch Security Pricing Service, an affiliate of MLPF&S, received $3,755 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. March 31, 1998 NOTES TO FINANCIAL STATEMENTS (concluded) 3. Investments: Purchases and sales of investments, excluding short-term securities, for the year ended March 31, 1998 were $3,821,996,903 and $3,809,744,862, respectively. Net realized gains (losses) for the year ended March 31, 1998 and net unrealized gains (losses) as of March 31, 1998 were as follows: - -------------------------------------------------------------------------------- Realized Unrealized Gains (Losses) Gains (Losses) - -------------------------------------------------------------------------------- Long-term investments ............. $573,598,239 $2,916,857,799 Short-term investments ............ (1,932,751) -- Foreign currency transactions ...................... (2,456,877) (3,979) ------------ -------------- Total ............................. $569,208,611 $2,916,853,820 ============ ============== - -------------------------------------------------------------------------------- As of March 31, 1998, net unrealized appreciation for Federal income tax purposes aggregated $2,914,425,533, of which $2,959,300,597 related to appreciated securities and $44,875,064 related to depreciated securities. At March 31, 1998, the aggregate cost of investments for Federal income tax purposes was $8,905,149,301. 4. Capital Share Transactions: Net increase in net assets derived from capital share transactions was $744,669,554 and $88,941,831 for the years ended March 31, 1998 and March 31, 1997, respectively. Transactions in capital shares for each class were as follows: - -------------------------------------------------------------------------------- Class A Shares for the Dollar Year Ended March 31, 1998 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................. 18,254,019 $ 634,543,940 Shares issued to shareholders in reinvestment of dividends and distributions ....................... 8,638,512 294,091,362 ----------- --------------- Total issued ............................ 26,892,531 928,635,302 Shares redeemed ......................... (21,089,819) (727,078,860) ----------- --------------- Net increase ............................ 5,802,712 $ 201,556,442 =========== =============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 Dollar Year Ended March 31, 1998 Shares Amount - -------------------------------------------------------------------------------- Shares sold .............................. 26,936,302 $ 915,743,174 Shares issued to shareholders in reinvestment of dividends and distributions ........................ 11,273,540 376,017,355 ----------- --------------- Total issued ............................. 38,209,842 1,291,760,529 Automatic conversion of shares ................................ (7,065,614) (239,303,799) Shares redeemed .......................... (31,261,809) (1,049,566,557) ----------- --------------- Net increase (decrease) .................. (117,581) $ 2,890,173 =========== =============== - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B Shares for the Dollar Year Ended 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 Dollar Year Ended March 31, 1998 Shares Amount - -------------------------------------------------------------------------------- Shares sold .............................. 5,470,865 $ 185,136,065 Shares issued to shareholders in reinvestment of dividends and distributions ........................ 812,551 26,837,937 ----------- --------------- Total issued ............................. 6,283,416 211,974,002 Shares redeemed .......................... (2,750,233) (91,023,357) ----------- --------------- Net increase ............................. 3,533,183 $ 120,950,645 =========== =============== - -------------------------------------------------------------------------------- 26 Merrill Lynch Capital Fund, Inc. March 31, 1998 - -------------------------------------------------------------------------------- Class C Shares for the Dollar Year Ended 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 ========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class D Shares for the Dollar Year Ended March 31, 1998 Shares Amount - -------------------------------------------------------------------------------- Shares sold .............................. 9,630,431 $ 333,114,038 Automatic conversion of shares ................................ 6,920,593 239,303,799 Shares issued to shareholders in reinvestment of dividends and distributions ........................ 2,068,449 70,372,205 ----------- ------------- Total issued ............................. 18,619,473 642,790,042 Shares redeemed .......................... (6,482,847) (223,517,748) ----------- ------------- Net increase ............................. 12,136,626 $ 419,272,294 ========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class D Shares for the Dollar Year Ended 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 ========== ============= - -------------------------------------------------------------------------------- 5. Loaned Securities: At March 31, 1998, the Fund held US Treasury Notes having an aggregate value of approximately $26,856,000 as collateral for portfolio securities loaned having a market value of approximately $24,111,000. 27 Merrill Lynch Capital Fund, Inc. March 31, 1998 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders, Merrill Lynch Capital Fund, Inc.: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Merrill Lynch Capital Fund, Inc. as of March 31, 1998, the related statements of operations for the year then ended and changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at March 31, 1998 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights present fairly, in all material respects, the financial position of Merrill Lynch Capital Fund, Inc. as of March 31, 1998, the results of its operations, the changes in its net assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles. Deloitte & Touche LLP Princeton, New Jersey May 14, 1998 28 Merrill Lynch Capital Fund, Inc. March 31, 1998 IMPORTANT TAX INFORMATION (unaudited) The following information summarizes all per share distributions paid by Merrill Lynch Capital Fund, Inc. during its fiscal year ended March 31, 1998:
====================================================================================================== Qualifying Interest Domestic Total Record Payable Domestic from Federal Non-Qualifying Ordinary Long-Term Date Date Ordinary Income Obligations Ordinary Income Income Capital Gains ====================================================================================================== Class A Shares: ====================================================================================================== 7/02/97 7/11/97 $.136571 $.141343 $.372494 $.650408 $.911909* - ------------------------------------------------------------------------------------------------------ 12/09/97 12/17/97 $.123167 $.108383 $.385139 $.616689 $.896217** ====================================================================================================== Class B Shares: ====================================================================================================== 7/02/97 7/11/97 $.101708 $.105263 $.277407 $.484378 $.911909* - ------------------------------------------------------------------------------------------------------ 12/09/97 12/17/97 $.087562 $.077052 $.273804 $.438418 $.896217** ====================================================================================================== Class C Shares: ====================================================================================================== 7/02/97 7/11/97 $.102680 $.106269 $.280059 $.489008 $.911909* - ------------------------------------------------------------------------------------------------------ 12/09/97 12/17/97 $.089121 $.078424 $.278679 $.446224 $.896217** ====================================================================================================== Class D Shares: ====================================================================================================== 7/02/97 7/11/97 $.128626 $.133121 $.350826 $.612573 $.911909* - ------------------------------------------------------------------------------------------------------ 12/09/97 12/17/97 $.114997 $.101194 $.359591 $.575782 $.896217** ======================================================================================================
* All of this long-term capital gain distribution is subject to the 28% tax rate. ** Of this long-term capital gain distribution, 22.90% is subject to the 28% tax rate and 77.10% is subject to the 20% tax rate. The qualifying domestic ordinary income qualifies for the dividends-received deduction for corporations. The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult your tax adviser to determine if any portion of the dividends you received are exempt from state income tax. Listed at right are the percentages of total assets of the Fund invested in Federal obligations for each quarter ended during the fiscal year. Please retain this information for your records. - --------------------------------------------------- Percentage of For the Quarter Ended Federal Obligations+ - --------------------------------------------------- June 30, 1997 .................. 16.48% September 30, 1997 ............. 15.01% December 31, 1997 .............. 12.72% March 31, 1998 ................. 12.99% - --------------------------------------------------- + For purposes of this calculation, Federal Obligations include US Treasury Notes, US Treasury Bills and US Treasury Bonds. Also included are obligations issued by the following agencies: Banks for Cooperatives, Federal Intermediate Credit Banks, Federal Land Banks, Federal Home Loan Banks and the Student Loan Marketing Association. Repurchase Agreements are not included in this calculation. 29 Merrill Lynch Capital Fund, Inc. March 31, 1998 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 Fred G. Weiss, Director Terry K. Glenn, Executive Vice President Norman R. Harvey, Senior Vice President Kurt Schansinger, Senior Vice President and Portfolio Manager Donald C. Burke, Vice President Walter Cuje, Vice President 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 30 Merrill Lynch Capital Fund, Inc. March 31, 1998 PORTFOLIO INFORMATION (unaudited) As of March 31, 1998: Percent of Ten Largest Common Stock Holdings Net Assets Travelers Group, Inc. ............................... 2.3% Williams Companies, Inc. ............................ 2.2 Kansas City Southern Industries, Inc. ............... 1.8 Allstate Corporation ................................ 1.8 Goodyear Tire & Rubber Co. (The) .................... 1.6 United Technologies Corp. ........................... 1.6 Yacimientos Petroliferos Fiscales S.A. (YPF)(ADR) ............................ 1.4 Carnival Corp. (Class A) ............................ 1.3 Wal-Mart Stores, Inc. ............................... 1.3 Rite Aid Corp. ...................................... 1.2 Percent of Ten Largest Industries .............................. Net Assets* Insurance ........................................... 10.8% Banking ............................................. 4.9 Diversified Companies ............................... 4.9 Oil -- Integrated ................................... 4.5 Natural Gas Suppliers ............................... 4.3 Financial Services .................................. 3.8 Chemicals ........................................... 2.8 Railroads ........................................... 2.7 Paper & Forest Products ............................. 2.5 Electrical Equipment ................................ 2.2 * Based on total holdings in common stocks and bonds. Common Stock Portfolio Changes for the Quarter Ended March 31, 1998 Additions Corning, Inc. GenCorp Inc. McCormick & Company, Inc. *Morrison Knudsen Corporation Motorola, Inc. Rockwell International Corporation Deletions Columbia/HCA Healthcare Corp. Grace (W.R.) & Co. *Morrison Knudsen Corporation Nokia Corp. OY (ADR) Nucor Corporation * Added and deleted in the same quarter. 31 -----END PRIVACY-ENHANCED MESSAGE-----