MERRILL LYNCH
CAPITAL FUND, INC.
Strategic
Performance
[GRAPHIC OMITTED]
Quarterly Report
June 30, 1998
<PAGE>
MERRILL LYNCH CAPITAL FUND, INC.
PORTFOLIO SUMMARY
Security Diversification
As a Percentage of Net Assets
As of June 30, 1998
A pie chart illustrating the following percentages:
US Bonds 29.3%
Non-US Bonds 4.5%
Cash & Cash
Equivalents 3.9%
US Stocks 51.3%
Non-US Stocks 11.0%
Sector Representation
As a Percentage of Equities
As of June 30, 1998
A pie chart illustrating the following percentages:
Financial Services 23.0%
Consumer Services 6.9%
Utilities 0.8%
Transportation 4.6%
Capital Goods--Technology 13.2%
Consumer Cyclicals 13.7%
Energy 13.3%
Basic Industries 7.5%
Diversified 3.5%
Credit Cyclicals 2.0%
Consumer Staples 7.6%
Capital Goods 3.9%
Geographic Diversification Percent of
As of June 30, 1998 Net Assets*
- --------------------------------------------------------------------------------
United States 84.9%
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United Kingdom 4.4
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Argentina 2.7
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Switzerland 2.2
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Mexico 1.1
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Netherlands 1.0
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France 0.7
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Brazil 0.5
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Italy 0.4
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Turkey 0.4
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Panama 0.3
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Japan 0.3
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India 0.3
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Chile 0.3
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Colombia 0.2
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Hong Kong 0.1
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South Korea 0.1
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Guatemala 0.1
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*Includes investments in short-term securities.
US Common Stock Investments S&P
As of June 30, 1998 Fund 500*
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Average Capitalization (in billions) $23.8 $17.8
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Price/Book Value 2.6 6.2
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Price/Earnings Ratio** 21.0 25.9
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Yield Based on Current Dividend 1.7% 1.3%
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*An unmanaged broad-based index comprised of common stocks.
**Based on 1998 earnings estimates.
Fixed-Income Investments Merrill Lynch
As of June 30, 1998 Fund DOAO Index*
- --------------------------------------------------------------------------------
Duration 5.4 Years 5.2 Years
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Average Maturity 9.0 Years 8.7 Years
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Asset Breakdown:
- --------------------------------------------------------------------------------
Corporates 51.8% 20.9%
- --------------------------------------------------------------------------------
US Treasuries/Agencies 40.3% 51.2%
- --------------------------------------------------------------------------------
Mortgage-Backed 0.8% 27.9%
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International Governments 7.1% --
- --------------------------------------------------------------------------------
*An unmanaged market-weighted corporate, Government and mortgage master bond
index reflecting approximately 97% of total outstanding bonds.
1
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
DEAR SHAREHOLDER
The financial market environment was characterized by tremendous volatility and
unpredictability during the quarter ended June 30, 1998 as investors confronted
divergent political, economic and corporate earnings trends. In April, concerns
about the sustained rapid pace of economic growth and the associated risk of
higher inflation began to offset continued upbeat expectations for corporate
earnings growth and very positive investor sentiment. As a result, financial
markets results were relatively stagnant for the month. While reports continued
to show a benign inflationary environment, with most readings at levels not seen
since the mid-1960s, the acceleration in first quarter real economic growth to a
+5.4% rate increased the likelihood of the Federal Reserve Board raising
short-term interest rates to quell prospective inflationary pressures.
Typically, this would be viewed negatively by stock market investors. In the
interim, first quarter corporate earnings growth met or exceeded reduced
expectations.
By May, intensifying economic and political problems in Asia compelled investors
to further reduce corporate earnings growth expectations. Despite the strong
domestic economy, after-tax corporate profits declined in both the fourth
quarter of 1997 and the first quarter of 1998. With a sharply deteriorating US
trade deficit and export markets suffering economic contraction, prospects for
accelerating earnings growth became increasingly suspect, resulting in the first
monthly decline in stock prices since October 1997.
While June appeared to be a rewarding month for investors with the broad stock
market averages providing attractive returns, these results masked a very
disparate performance between various sectors of the market.
Large-capitalization stocks performed relatively well, while
medium-capitalization and small-capitalization companies performed poorly
because investors were willing to pay increasingly large premiums for liquidity.
Companies that serve the consumer segment of the economy (including
pharmaceutical, retail, broadcasting and entertainment companies) provided
positive returns, while companies serving the industrial sector of the economy
(including companies in commodities, transportation and selected areas of
technology) provided negative returns for the month. These results closely
mirrored trends in the US economy, where high consumer confidence and rising
consumer incomes have sustained strong auto, housing and other consumer-related
markets. By contrast, the Asian economic turmoil negatively affected
manufacturing, with orders, industrial production and inventories all showing
deteriorating trends and earnings expectations being sharply reduced.
For the June quarter, the US stock market, as measured by the unmanaged Standard
& Poor's 500 Index (S&P 500), provided a +3.30% total return. The US bond market
continued to provide positive returns in this environment, as measured by the
unmanaged Merrill Lynch Domestic Bond Master Index, which had a +2.37% total
return for the June quarter. This performance was driven by three factors:
o Evidence of moderating economic growth;
o Continued benign inflation, with the gross domestic product implicit price
deflator rising at a mere 1.0% annual rate in the first calendar quarter of
1998, the lowest increase in almost 35 years;
o A renewed flight-to-quality among global investors seeking the safety and
security of US Government securities. During the June quarter, cash equivalents
earned a +1.29% total return as measured by the three-month US Treasury bill.
Portfolio Matters
Total returns for Merrill Lynch Capital Fund, Inc.'s Class A, Class B, Class C
and Class D Shares for the quarter ended June 30, 1998 were -0.85%, -1.09%,
- -1.10% and -0.93%, respectively. (Fund results shown do not reflect sales
charges; results would be lower if sales charges were included.)
The Fund's underperformance compared to the broad market averages during the
June quarter is largely attributable to adverse stock selection in this
increasingly difficult environment. As previously discussed, while the S&P 500
Index of large companies provided relatively attractive returns, the unmanaged
S&P Mid Cap Index of medium-sized companies declined by over 3% for the June
quarter and the unmanaged Russell 2000 Index of smaller companies fell more than
6% for the same period. Furthermore, our value style of investing suffered
during the June quarter compared to the growth style of investing, with value
stocks declining 0.5% on average and growth stocks advancing by almost 4% on
average. The Fund's value orientation and investments in many moderately sized
companies consequently extracted a short-term performance penalty. In addition,
some traditionally defensive sectors of the stock market in which the Fund has
representation--such as insurance and
2
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
real estate--significantly underperformed the broader averages. This
underperformance occurred despite the domestic orientation of these companies
and the benefits of declining interest rates because of deteriorating pricing
trends in selected markets. Finally, expectations for slowing economic growth
precipitated sharp declines in most commodity prices, negatively affecting the
performance of companies in the energy and forest products groups in which the
Fund is invested. While disappointed by these results, we continue to believe
our investment philosophy and security selection disciplines are sound and will
provide above-average returns to investors over time.
In our view, the increasingly narrow universe of stocks propelling the market
averages higher represents an unsound foundation upon which to build further
significant gains. Those consumer-related companies that have continued to
produce consistent earnings performance, and which are largely accountable for
the market's recent advance, command dauntingly high valuation levels, limiting
their investment attraction. Meanwhile, consensus expectations for overall
corporate profits growth have been revised sharply lower as the reality of the
"Asian contagion" has begun to impair corporate earnings results. Yet, despite
these limited earnings growth prospects, broad stock market valuations stand at
record high levels on virtually every measure. This condition does not, in our
view, represent a formula for substantial stock price appreciation and this
disparity is likely to restrain the market's advance. We believe bonds continue
to represent good value, with inflation-adjusted interest rates at historically
above-average levels and inflationary pressures continuing to moderate.
Consequently, we maintained our bond weighting in Merrill Lynch Capital Fund,
Inc. At June 30, 1998, we had 62.3% of the Fund's net assets invested in
equities, 33.8% in fixed-income securities and 3.9% in cash and cash
equivalents. This compares to 63.3% of the Fund's net assets invested in
equities, 33.1% in fixed-income securities and 3.6% in cash and cash equivalents
at March 31, 1998.
Within the equity component of the portfolio, we increased our position in 22
stocks, reduced our ownership in 13 others and eliminated 3 holdings. Two of the
three holdings we sold were Cisco Systems, Inc., the data networking company,
and Sunbeam Corporation, the household appliance manufacturer. Cisco Systems had
been an admirable performer, dramatically outperforming the market and the
overall technology sector. While Cisco remains the dominant company in the
rapidly growing networking industry, the stock's appreciation had driven its
valuation to levels that, we believed, adequately reflected these positive
characteristics. While no evident near-term risks are on the horizon, even the
most powerful companies may be at risk in the current volatile stock market
environment. Since we have been handsomely rewarded for our investment in the
company, we decided to sell our position and look to redeploy proceeds into
alternative investment opportunities.
We also sold our position in Sunbeam Corporation. The initial success of this
investment proved temporary, following announced revenue declines, operating
losses and allegations of questionable accounting practices. Having successfully
restructured the core Sunbeam operation, investors greeted a series of
acquisition announcements favorably, anticipating further consolidation and
integration benefits and significant incremental shareholder value. However, it
soon became apparent that revenue projections were too high, margins were
contracting and the balance sheet was deteriorating, resulting in a significant
decline in the stock price. While there will ultimately be a resolution of these
difficulties and a restoration of some degree of earnings growth and value
enhancement, Sunbeam's problems will likely be long-lived. Therefore, we decided
to eliminate our position in order to redeploy the proceeds into more attractive
investment opportunities.
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 who we believe are motivated to create value for
shareholders. We define a below-average valuation level as one that does not
adequately or accurately reflect what we believe to be the company's underlying
intrinsic value. On average, the stocks in the portfolio generated comparable
returns on shareholder equity and have much stronger balance sheets while
offering faster earnings growth than the average company as measured by the S&P
500. However, as of June 30, 1998, these same stocks sold at an average
price/earnings ratio of 21.0 times estimated 1998
3
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Merrill Lynch Capital Fund, Inc. June 30, 1998
earnings per share as compared to 25.9 times for the S&P 500, 2.6 times book
value per share as of June 30 as compared to 6.2 times for the S&P 500 and
provided a 1.7% dividend yield as compared to 1.3% for the S&P 500 for the
quarter ended June 30, 1998.
Within the fixed-income component of the portfolio, we slightly reduced the
average portfolio maturity and duration of the bonds to 9.0 years and 5.4 years,
respectively, at June 30, 1998, as domestic interest rates approached
historically low levels. This is compared to 9.1 years and 5.5 years,
respectively, at March 31, 1998. In reaction to the relatively narrow yield
differential between corporate bonds and US Treasury bonds, we continued to
shift more assets from the corporate sector into a combination of
higher-yielding foreign government bonds and US Treasury securities. Thus, we
reduced investment-grade corporate bonds and high-yield corporate bonds from
45.3% of fixed-income assets and 8.3% at March 31, 1998, respectively, to 44.0%
and 7.8%, respectively, at June 30, 1998. We increased US Government bonds from
39.0% of fixed-income assets at March 31, 1998 to 40.3% at June 30, 1998, and
foreign government bonds from 6.6% of fixed-income assets to 7.1% for the same
three-month period. Mortgage-backed securities remained unchanged during the
quarter at 0.8% of fixed-income assets. The net result of these transactions was
an increase in the average quality rating of our bonds to A1/A+, as rated by
Moody's Investors Service, Inc. and Standard & Poor's Corp., and a nominal 2
basis point (0.02%) decline in the average yield-to-maturity to 6.53% by June
30, 1998. This contrasts with the 20 basis point decline in intermediate-term
interest rates during the same period.
In Conclusion
We appreciate your investment in Merrill Lynch Capital Fund, Inc., and we look
forward to sharing our investment outlook and strategies again with you in our
next report to shareholders.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Kurt Schansinger
Kurt Schansinger
Senior Vice President and Portfolio Manager
July 30, 1998
4
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 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.
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
=======================================================================================
<S> <C> <C> <C>
ML Capital Fund, Inc. Class A Shares* +17.34% -0.85% +279.18%
- ---------------------------------------------------------------------------------------
ML Capital Fund, Inc. Class B Shares* +16.13 -1.09 +233.40
- ---------------------------------------------------------------------------------------
ML Capital Fund, Inc. Class C Shares* +16.15 -1.10 + 86.46
- ---------------------------------------------------------------------------------------
ML Capital Fund, Inc. Class D Shares* +17.04 -0.93 + 91.83
- ---------------------------------------------------------------------------------------
Dow Jones Industrial Average +18.67 +2.13 +460.35/+451.23/+150.12
- ---------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +30.16 +3.30 +448.89/+423.82/+164.01
=======================================================================================
</TABLE>
* 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 6/30/98; 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 6/30/98;
from 10/21/88 to 6/30/98; and from 10/21/94 to 6/30/98, respectively.
5
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 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)
A mountain chart depicting the growth of an investment in the Fund's Class A
Shares from $947.50 on November 8, 1973 to $21,583.01 on June 30, 1998.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class A Shares*
==============================================================================
Year Ended 6/30/98 +17.34% +11.18%
------------------------------------------------------------------------------
Five Years Ended 6/30/98 +16.08 +14.83
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Ten Years Ended 6/30/98 +14.26 +13.64
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*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
==============================================================================
Class B Shares*
==============================================================================
Year Ended 6/30/98 +16.13% +12.13%
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Five Years Ended 6/30/98 +14.90 +14.90
------------------------------------------------------------------------------
Inception (10/21/88)
through 6/30/98 +13.23 +13.23
------------------------------------------------------------------------------
*Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4
years.
**Assuming payment of applicable contingent deferred sales charge.
==============================================================================
% Return % Return
Without CDSC With CDSC**
==============================================================================
Class C Shares*
==============================================================================
Year Ended 6/30/98 +16.15% +15.15%
------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/98 +18.39 +18.39
------------------------------------------------------------------------------
*Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
**Assuming payment of applicable contingent deferred sales charge.
==============================================================================
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class D Shares*
==============================================================================
Year Ended 6/30/98 +17.04% +10.90%
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Inception (10/21/94)
through 6/30/98 +19.31 +17.58
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*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
6
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Aerospace 2,500,000 Boeing Co. (The) $ 122,280,349 $ 111,406,250 0.9%
913,000 Lockheed Martin Corporation 79,769,902 96,663,875 0.8
-------------- --------------- -----
202,050,251 208,070,125 1.7
====================================================================================================================================
Apparel 2,750,000 Fruit of the Loom, Inc. (Class A) 79,184,128 91,265,625 0.8
====================================================================================================================================
Automobile Parts 2,000,000 Federal-Mogul Corp. 86,309,094 135,000,000 1.1
====================================================================================================================================
Automotive 1,000,000 General Motors Corp. 44,944,948 66,812,500 0.6
====================================================================================================================================
Banking 2,000,000 Chase Manhattan Corporation (The) 81,222,073 151,000,000 1.3
====================================================================================================================================
Building Materials 2,000,000 American Standard Companies, Inc. 93,322,961 89,375,000 0.8
2,400,000 Masco Corporation 75,254,389 145,200,000 1.2
-------------- --------------- -----
168,577,350 234,575,000 2.0
====================================================================================================================================
Capital Goods 2,000,000 United Dominion Industries, Ltd. 50,002,195 66,750,000 0.6
====================================================================================================================================
Chemicals 1,685,000 du Pont (E.I.) de Nemours & Co. 80,776,366 125,743,125 1.0
2,000,000 Imperial Chemical Industries PLC (ADR)* 102,243,511 129,000,000 1.1
-------------- --------------- -----
183,019,877 254,743,125 2.1
====================================================================================================================================
Computer Software 1,500,000 Computer Associates International, Inc. 44,432,476 83,343,750 0.7
====================================================================================================================================
Consumer Electronics 400,000 Nintendo Corp. Ltd. 28,474,285 37,093,166 0.3
====================================================================================================================================
Diversified 2,200,000 Corning, Inc. 87,464,309 76,450,000 0.6
Companies 1,850,000 GenCorp Inc. 54,315,295 46,712,500 0.4
2,100,000 Rockwell International Corporation 116,109,160 100,931,250 0.8
1,875,500 Tenneco, Inc. 81,128,414 71,386,219 0.6
10,000,000 Tomkins PLC 44,821,118 54,267,962 0.5
2,000,000 United Technologies Corp. 63,643,951 185,000,000 1.6
1,750,000 Varian Associates, Inc. 93,141,060 68,250,000 0.6
-------------- --------------- -----
540,623,307 602,997,931 5.1
====================================================================================================================================
Drug Stores 4,300,000 Rite Aid Corp. 68,282,570 161,518,750 1.4
====================================================================================================================================
Electrical Equipment 1,500,000 Belden Inc. 47,721,621 45,937,500 0.4
1,500,000 General Electric Co. 38,165,328 136,500,000 1.1
1,000,000 Philips Electronics N.V. 70,415,130 85,000,000 0.7
-------------- --------------- -----
156,302,079 267,437,500 2.2
====================================================================================================================================
Electronic 1,500,000 Avnet, Inc. 83,947,762 82,031,250 0.7
Components
====================================================================================================================================
Financial Services 2,000,000 Federal National Mortgage Association 52,392,099 121,500,000 1.0
1,000,000 Transamerica Corporation 76,009,264 115,125,000 1.0
-------------- --------------- -----
128,401,363 236,625,000 2.0
====================================================================================================================================
Food & Beverage 2,601,300 Diageo PLC (ADR)* 100,982,572 125,350,144 1.1
====================================================================================================================================
Foods/Food 75,000 Nestle S.A. (Registered) 78,575,411 160,608,260 1.3
Processing
====================================================================================================================================
Footwear 1,700,000 Nike, Inc. (Class B) 80,368,533 82,768,750 0.7
8,000,000 Yue Yuen Industrial (Holdings Limited) 10,727,086 14,300,280 0.1
-------------- --------------- -----
91,095,619 97,069,030 0.8
====================================================================================================================================
Hospital Management 4,000,000 Tenet Healthcare Corp. 66,520,659 125,000,000 1.0
====================================================================================================================================
</TABLE>
7
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Hotels & Casinos 2,500,000 Sun International Hotels Ltd. $ 99,267,368 $ 113,750,000 1.0%
====================================================================================================================================
Information Systems 3,000,000 Reynolds & Reynolds Company (Class A) 60,505,409 54,562,500 0.5
====================================================================================================================================
Insurance 1,800,000 Allstate Corporation 57,144,862 164,812,500 1.4
1,000,000 American International Group, Inc. 46,545,446 146,000,000 1.2
1,800,000 Berkley (W.R.) Corporation 62,155,679 72,112,500 0.6
1,900,000 EXEL Ltd. (US Registered Shares) 41,181,437 147,843,750 1.2
2,000,000 Fremont General Corp. 33,362,385 108,375,000 0.9
2,200,000 Horace Mann Educators Corp. 34,550,993 75,900,000 0.6
2,000,000 Penncorp Financial Group, Inc. 62,850,797 41,000,000 0.3
4,000,000 Provident Companies, Inc. 79,650,937 138,000,000 1.2
1,800,000 TIG Holdings, Inc. 54,108,848 41,400,000 0.3
4,500,000 Travelers Group, Inc. 39,986,618 272,812,500 2.3
-------------- --------------- -----
511,538,002 1,208,256,250 10.0
====================================================================================================================================
Iron & Steel 1,372,100 Birmingham Steel Corp. 22,939,267 16,979,738 0.1
====================================================================================================================================
Leisure/Hotels 4,400,000 Carnival Corp. (Class A) 57,830,550 174,350,000 1.4
3,000,000 Harrah's Entertainment, Inc. 55,543,541 69,750,000 0.6
-------------- --------------- -----
113,374,091 244,100,000 2.0
====================================================================================================================================
Machinery & Machine 750,000 SPX Corp. 44,070,962 48,281,250 0.4
Tools
====================================================================================================================================
Natural Gas 1,750,000 Coastal Corp. 73,551,243 122,171,875 1.0
Suppliers 2,500,000 El Paso Natural Gas Co. 54,411,468 95,625,000 0.8
8,000,000 Williams Companies, Inc. 71,579,900 270,000,000 2.3
-------------- --------------- -----
199,542,611 487,796,875 4.1
====================================================================================================================================
Oil Field Equipment 1,000,000 McCormick & Company, Inc. 33,154,872 35,687,500 0.3
====================================================================================================================================
Oil--Integrated 790,500 Ente Nazionale Idrocarburi S.p.A. (ENI) (ADR)* 39,595,869 51,382,500 0.4
1,350,000 TOTAL S.A. (ADR)* 50,875,698 88,256,250 0.8
2,750,000 Unocal Corporation 104,663,889 98,312,500 0.8
5,000,000 Yacimientos Petroliferos Fiscales S.A.
(YPF) (ADR)* 95,920,616 150,312,500 1.3
-------------- --------------- -----
291,056,072 388,263,750 3.3
====================================================================================================================================
Oil--Service 2,500,000 Dresser Industries, Inc. 69,699,584 110,156,250 0.9
====================================================================================================================================
Paper & Forest 2,100,000 Kimberly-Clark Corp. 105,243,199 96,337,500 0.8
Products 800,000 Temple-Inland, Inc. 36,743,614 43,100,000 0.4
1,500,000 Weyerhaeuser Co. 68,318,476 69,281,250 0.6
-------------- --------------- -----
210,305,289 208,718,750 1.8
====================================================================================================================================
Pharmaceuticals 1,800,000 Glaxo Wellcome PLC (ADR)* 48,669,764 107,662,500 0.9
60,000 Novartis AG (Registered) 78,569,582 99,907,640 0.8
-------------- --------------- -----
127,239,346 207,570,140 1.7
====================================================================================================================================
Railroads 4,750,000 Kansas City Southern Industries, Inc. 72,518,792 235,718,750 2.0
2,300,000 Union Pacific Corporation 135,110,114 101,487,500 0.8
-------------- --------------- -----
207,628,906 337,206,250 2.8
====================================================================================================================================
</TABLE>
8
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Real Estate 1,000,000 CarrAmerica Realty Corp. $ 26,832,805 $ 28,375,000 0.3%
Investment Trusts 2,600,000 Patriot American Hospitality, Inc. 69,867,303 62,237,500 0.5
1,000,000 Walden Residential Properties, Inc. 20,679,751 24,500,000 0.2
-------------- --------------- -----
117,379,859 115,112,500 1.0
====================================================================================================================================
Restaurants 2,000,000 McDonald's Corporation 98,086,085 138,000,000 1.2
====================================================================================================================================
Retail Trade 2,400,000 Wal-Mart Stores, Inc. 58,428,638 145,800,000 1.2
====================================================================================================================================
Semiconductors 2,000,000 Motorola, Inc. 111,044,417 105,125,000 0.9
====================================================================================================================================
Telecommunications 2,000,000 Frontier Corporation 55,148,100 63,000,000 0.5
600,000 Telecomunicacoes Brasileiras S.A.--Telebras
(ADR)* 51,096,291 65,512,500 0.6
-------------- --------------- -----
106,244,391 128,512,500 1.1
====================================================================================================================================
Tires & Rubber 2,250,000 Goodyear Tire & Rubber Co. (The) 87,133,864 144,984,375 1.2
====================================================================================================================================
Total Common Stocks 4,851,587,052 7,426,154,784 62.3
====================================================================================================================================
Face
Amount Corporate Bonds
====================================================================================================================================
Aerospace Boeing Company (The):
$ 12,500,000 6.44% due 12/20/2004 12,560,000 12,672,250 0.1
10,000,000 6.18% due 3/15/2005 10,000,000 10,009,320 0.1
-------------- --------------- -----
22,560,000 22,681,570 0.2
====================================================================================================================================
Automotive Hertz Corp.:
10,000,000 7% due 5/01/2002 10,305,500 10,214,800 0.1
25,000,000 6.70% due 6/15/2002 24,815,300 25,303,750 0.2
13,000,000 6% due 1/15/2003 12,891,670 12,832,690 0.1
20,000,000 Hyundai Motor Co., Ltd., 7.60% due 7/15/2007 19,916,100 15,250,000 0.1
-------------- --------------- -----
67,928,570 63,601,240 0.5
====================================================================================================================================
Banking 30,000,000 Banco Nacional de Commercio Exterior SNC,
Global Bonds, 7.25% due 2/02/2004 28,187,700 28,050,000 0.2
13,600,000 Banco Rio de la Plata, 8.75% due 12/15/2003 13,751,700 13,362,000 0.1
29,000,000 Bank of Boston Corp., 6.625% due 12/01/2005 27,575,520 29,279,560 0.2
BankAmerica Corp.:
15,000,000 6.875% due 6/01/2003 14,149,050 15,517,800 0.1
30,000,000 6.75% due 9/15/2005 29,591,750 30,917,100 0.3
Chase Manhattan Corporation (The):
15,000,000 6.50% due 8/01/2005 14,552,850 15,188,400 0.1
15,000,000 6.25% due 1/15/2006 13,892,250 15,004,800 0.1
20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 20,903,640 0.2
30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 30,526,200 0.3
22,750,000 Firstbank Puerto Rico, 7.625% due 12/15/2005 22,140,803 23,444,353 0.2
10,000,000 Great Western Financial Corp., 6.375% due
7/01/2000 9,998,800 10,036,400 0.1
Household Bank:
10,000,000 6.87% due 5/15/2001 9,868,800 10,177,220 0.1
20,000,000 6.875% due 3/17/2003 19,886,200 20,498,400 0.2
10,300,000 6.50% due 7/15/2003 10,202,253 10,384,048 0.1
NationsBank Corp.:
40,000,000 5.60% due 2/07/2001 40,000,000 39,712,000 0.3
10,000,000 6.20% due 8/15/2003 9,670,360 10,090,600 0.1
25,000,000 6.50% due 8/15/2003 22,104,200 25,335,500 0.2
</TABLE>
9
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Banking $ 25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 $ 24,922,025 $ 25,328,385 0.2%
(concluded) 20,000,000 People's Bank--Bridgeport, 7.20%
due 12/01/2006 19,956,700 20,770,200 0.2
26,000,000 Provident Bank, 6.375% due 1/15/2004 25,287,430 26,115,700 0.2
Union Planters Corp.:
20,000,000 6.25% due 11/01/2003 18,756,100 20,062,600 0.2
12,500,000 6.75% due 11/01/2005 12,001,875 12,718,750 0.1
-------------- --------------- -----
436,253,566 453,423,656 3.8
====================================================================================================================================
Beverages 22,000,000 Coca-Cola Femsa S.A., 8.95% due 11/01/2006 21,984,595 22,303,116 0.2
10,000,000 Panamerican Beverages, Inc., 7.25% due 7/01/2009 10,037,500 9,975,000 0.1
-------------- --------------- -----
32,022,095 32,278,116 0.3
====================================================================================================================================
Broadcasting 20,000,000 British Sky Broadcasting Group PLC, 7.30%
due 10/15/2006 20,037,440 20,886,400 0.2
====================================================================================================================================
Cable 10,000,000 Comcast Cable Communications, Inc., 8.125%
due 5/01/2004 9,991,000 10,834,300 0.1
====================================================================================================================================
Chemicals 8,000,000 Airgas, Inc., 7.14% due 3/08/2004 8,000,000 8,161,680 0.1
37,000,000 Lyondell Petrochemical Company, 6.50%
due 2/15/2006 35,447,015 36,144,190 0.3
40,000,000 Union Carbide Corp., 6.79% due 6/01/2025 40,292,500 39,169,600 0.3
-------------- --------------- -----
83,739,515 83,475,470 0.7
====================================================================================================================================
Consumer Services Loewen Group, Inc.:
16,000,000 6.70% due 10/01/1999 15,970,340 15,941,792 0.1
20,000,000 8.25% due 10/15/2003 20,208,132 20,771,800 0.2
-------------- --------------- -----
36,178,472 36,713,592 0.3
====================================================================================================================================
Electronics 10,000,000 Dell Computer Corporation, 6.55% due 4/15/2008 9,978,200 10,004,600 0.1
Tandy Corp.:
20,000,000 6.125% due 1/15/2003 19,971,600 19,948,000 0.2
15,000,000 6.95% due 9/01/2007 14,944,120 15,514,500 0.1
-------------- --------------- -----
44,893,920 45,467,100 0.4
====================================================================================================================================
Finance 40,000,000 Ford Motor Credit Co., 5.75% due 1/25/2001 39,596,900 39,739,200 0.3
General Motors Acceptance Corp.:
30,000,000 6.375% due 4/04/2000 29,932,500 30,167,040 0.2
55,000,000 5.625% due 2/15/2001 54,450,000 54,429,650 0.5
30,000,000 6.75% due 6/10/2002 29,520,300 30,679,500 0.3
15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,953,950 0.1
-------------- --------------- -----
168,495,500 169,969,340 1.4
====================================================================================================================================
Financial Leasing GATX Corp.:
25,000,000 6.875% due 11/01/2004 24,938,000 25,480,250 0.2
25,000,000 6.69% due 11/30/2005 24,984,750 25,699,000 0.2
20,000,000 XTRA Corp., 6.68% due 11/30/2001 20,000,000 20,391,820 0.2
-------------- --------------- -----
69,922,750 71,571,070 0.6
====================================================================================================================================
Financial Services Finova Capital Corp.:
25,000,000 6.45% due 6/01/2000 24,766,550 25,190,750 0.2
15,000,000 5.98% due 2/27/2001 14,968,950 14,980,845 0.1
10,000,000 6.56% due 11/15/2002 10,000,000 10,200,800 0.1
20,000,000 McDonnell Douglas Finance Corp., 6.965%
due 9/12/2005 20,049,200 21,078,240 0.2
35,000,000 Morgan Stanley Group, Inc., 5.75% due 2/15/2001 34,968,150 34,790,035 0.3
</TABLE>
10
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Financial Services $ 13,000,000 Norwest Financial, Inc., 6.625% due 7/15/2004 $ 13,000,000 $ 13,356,980 0.1%
(concluded) Salomon Inc.:
10,000,000 6.75% due 2/15/2003 9,804,000 10,243,230 0.1
5,000,000 6.875% due 12/15/2003 4,968,500 5,158,090 0.0
Smith Barney Shearson Holdings, Inc.:
25,000,000 6.625% due 7/01/2002 24,994,000 25,345,000 0.2
20,000,000 7% due 3/15/2004 19,951,800 20,706,980 0.2
-------------- --------------- -----
177,471,150 181,050,950 1.5
====================================================================================================================================
Food & Tobacco Nabisco Inc.:
20,000,000 6.125% due 2/01/2033 19,915,200 19,768,600 0.1
20,000,000 6.375% due 2/01/2035 19,939,200 19,871,400 0.2
-------------- --------------- -----
39,854,400 39,640,000 0.3
====================================================================================================================================
Foreign Government 10,000,000 Province of Mendoza, 10% due 9/04/2007 9,931,700 9,200,000 0.1
Obligations Republic of Argentina:
55,000,000 8.75% due 7/10/2002 52,688,750 47,300,000 0.4
33,012,500 Floating Rate Brady Bonds, Series L, 6.625%
due 3/31/2005+ 24,404,453 29,087,314 0.3
25,000,000 Global Bonds, 8.375% due 12/20/2003 24,480,000 24,875,000 0.2
25,000,000 Republic of Colombia, Global Bonds, 7.625%
due 2/15/2007 23,410,450 22,500,000 0.2
15,000,000 Republic of Guatemala, 8.50% due 8/03/2007 15,082,250 14,400,000 0.1
39,500,000 Republic of Panama, 8.25% due 4/22/2008 39,272,995 38,413,750 0.3
Republic of Turkey:
15,000,000 9.875% due 2/23/2005 14,853,700 14,100,000 0.1
40,000,000 10% due 9/19/2007 39,980,625 38,600,000 0.3
50,000,000 United Mexican States, Global Bonds, 8.625%
due 3/12/2008 50,000,000 48,500,000 0.4
-------------- --------------- -----
294,104,923 286,976,064 2.4
====================================================================================================================================
Hospital Management Medpartners, Inc.:
29,125,000 6.875% due 9/01/2000 28,915,910 27,387,694 0.2
5,500,000 7.375% due 10/01/2006 4,886,570 4,929,650 0.1
-------------- --------------- -----
33,802,480 32,317,344 0.3
====================================================================================================================================
Industrial 20,000,000 Browning--Ferris Industries, Inc., 6.375%
due 1/15/2008 19,627,200 20,114,000 0.2
Interface, Inc.:
7,800,000 9.50% due 11/15/2005 7,552,000 8,287,500 0.1
8,000,000 7.30% due 4/01/2008 7,999,520 8,058,848 0.1
20,000,000 Reliance Industries Ltd., 8.25% due 1/15/2027 19,526,999 17,800,000 0.1
25,000,000 Triton Energy Ltd., 8.75% due 4/15/2002 25,363,000 26,186,600 0.2
15,000,000 United Refining Co., 10.75% due 6/15/2007 15,000,000 14,512,500 0.1
Williams Holdings of Delaware, Inc.:
20,000,000 6.625% due 11/15/2004 19,908,000 20,282,200 0.2
50,000,000 6.25% due 2/01/2006 49,739,500 50,343,500 0.4
-------------- --------------- -----
164,716,219 165,585,148 1.4
====================================================================================================================================
Information Systems Reynolds & Reynolds Company:
10,000,000 5.875% due 3/20/2000 9,992,900 10,000,200 0.1
28,750,000 6.12% due 3/02/2001 28,750,000 28,803,532 0.2
-------------- --------------- -----
38,742,900 38,803,732 0.3
====================================================================================================================================
</TABLE>
11
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Machinery $ 20,000,000 FMC Corp., 6.75% due 5/05/2005 $ 19,890,200 $ 20,179,120 0.2%
22,500,000 Harris Corp., 6.375% due 8/15/2002 22,461,850 22,762,350 0.2
-------------- --------------- -----
42,352,050 42,941,470 0.4
====================================================================================================================================
Media/Publishing 15,000,000 News American, Inc., 6.75% due 1/09/2038 15,000,000 15,004,350 0.1
====================================================================================================================================
Natural Gas 27,500,000 Coastal Corp., 6.70% due 2/15/2027 27,225,400 29,023,060 0.2
Suppliers
====================================================================================================================================
Oil--Integrated 10,000,000 Compania Naviera Perez Companc S.A.C.F.I.M.F.A.,
9% due 1/30/2004 10,125,000 9,800,000 0.1
10,000,000 Giant Industries, Inc., 9% due 9/01/2007 10,000,000 10,262,500 0.1
Occidental Petroleum Corp.:
18,375,000 6.24% due 11/24/2000 18,135,306 18,465,956 0.1
10,500,000 6.50% due 4/01/2005 10,440,150 10,499,895 0.1
20,500,000 Perez Companc S.A., 8.125% due 7/15/2007 20,201,470 18,706,250 0.1
Union Texas Petroleum Holdings, Inc.:
23,250,000 6.70% due 11/18/2002 23,190,070 23,715,558 0.2
20,000,000 6.81% due 12/05/2007 20,000,000 20,869,200 0.2
10,000,000 Unocal Corporation, 6.11% due 2/17/2004 10,000,000 10,002,940 0.1
20,000,000 Yacimientos Petroliferos Fiscales S.A. (YPF),
8% due 2/15/2004 18,334,375 20,146,000 0.2
-------------- --------------- -----
140,426,371 142,468,299 1.2
====================================================================================================================================
Paper & Forest Boise Cascade Corporation:
Products 10,000,000 7.35% due 10/11/2004 10,316,700 10,257,000 0.1
20,000,000 7.66% due 5/27/2005 20,000,000 20,725,400 0.2
25,000,000 Champion International Corp., 6.65% due
12/15/2037 25,000,000 26,558,000 0.2
-------------- --------------- -----
55,316,700 57,540,400 0.5
====================================================================================================================================
Real Estate 10,000,000 Franchise Finance Corp. of America, 6.95%
Investment Trusts due 8/29/2007 (Convertible) 10,000,000 9,996,890 0.1
====================================================================================================================================
Telecommunications 10,000,000 Pacific Telecom, Inc., 6.625% due 10/20/2005 10,000,000 10,308,620 0.1
20,000,000 WorldCom, Inc., 7.55% due 4/01/2004 19,966,800 21,258,740 0.2
-------------- --------------- -----
29,966,800 31,567,360 0.3
====================================================================================================================================
Tires & Rubber 40,000,000 Goodyear Tire & Rubber Co. (The), 6.625%
due 12/01/2006 39,840,000 40,719,600 0.3
====================================================================================================================================
Transportation 12,500,000 Northwest Airlines Inc., 7.625% due 3/15/2005 12,471,225 12,250,000 0.1
20,000,000 Ryder System, Inc., 6.50% due 5/15/2005 19,960,600 20,161,980 0.2
17,000,000 Transportacion Maritima Mexicana, S.A. de C.V.,
10% due 11/15/2006 17,152,730 15,980,000 0.1
15,000,000 Union Pacific Corp., 6.625% due 2/01/2008 14,776,750 14,972,400 0.1
-------------- --------------- -----
64,361,305 63,364,380 0.5
====================================================================================================================================
Travel & Lodging Royal Caribbean Cruises Ltd.:
10,000,000 7.125% due 9/18/2002 9,900,050 10,240,200 0.1
10,000,000 7.25% due 8/15/2006 9,854,415 10,405,800 0.1
-------------- --------------- -----
19,754,465 20,646,000 0.2
====================================================================================================================================
</TABLE>
12
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Utilities--Electric, Connecticut Light & Power Co.:
Gas & Water $ 28,250,000 7.75% due 6/01/2002 $ 28,173,725 $ 28,975,347 0.2%
20,000,000 7.875% due 10/01/2024 20,431,000 20,406,000 0.2
33,000,000 Empresa Nacional de Electricidad S.A. (Endesa),
7.325% due 2/01/2037 33,065,750 34,440,417 0.3
38,500,000 Enron Corp., 6.75% due 7/01/2005 37,527,310 39,149,110 0.3
20,000,000 Niagara Mohawk Power Corp., 5.875% due
9/01/2002 19,504,200 19,645,400 0.2
24,750,000 Tata Electric Co., 8.50% due 8/19/2017 23,737,525 20,882,812 0.2
-------------- --------------- -----
162,439,510 163,499,086 1.4
====================================================================================================================================
Total Corporate Bonds 2,347,397,501 2,372,045,987 19.9
====================================================================================================================================
Collateralized Mortgage Obligations
====================================================================================================================================
6,000,000 Criimi Mae CMBS Corp., Series 1998-1, Class A2,
6.009% due 2/20/2008 5,865,000 5,902,500 0.1
Federal Home Loan Mortgage Corp.:
9,241,900 6.50% due 5/15/2008 8,831,790 9,080,166 0.1
5,000,000 7% due 8/15/2008 4,762,500 5,096,850 0.0
13,000,000 6% due 2/15/2011 12,020,938 12,676,170 0.1
====================================================================================================================================
Total Collateralized Mortgage Obligations 31,480,228 32,755,686 0.3
====================================================================================================================================
US Government Obligations
====================================================================================================================================
US Treasury Bonds:
200,000,000 6.25% due 8/15/2023 184,808,985 214,124,000 1.8
80,000,000 6% due 2/15/2026 79,564,844 83,224,800 0.7
US Treasury Notes:
200,000,000 5.875% due 7/31/1999 200,618,945 200,718,000 1.7
55,000,000 5.50% due 2/28/2003 54,694,922 54,957,100 0.5
50,000,000 5.75% due 8/15/2003 47,705,859 50,531,000 0.4
650,000,000 5.875% due 11/15/2005 634,453,981 662,389,000 5.6
350,000,000 5.625% due 2/15/2006 349,235,547 351,421,000 2.9
====================================================================================================================================
Total US Government Obligations 1,551,083,083 1,617,364,900 13.6
====================================================================================================================================
Short-Term Investments
====================================================================================================================================
Commercial Paper** Atlantic Asset Securitization Corp.:
24,117,000 5.55% due 7/01/1998 24,117,000 24,117,000 0.2
25,000,000 5.54% due 7/17/1998 24,938,444 24,938,444 0.2
78,407,000 General Motors Acceptance Corp., 6.50%
due 7/01/1998 78,407,000 78,407,000 0.7
20,000,000 Lexington Parker Capital Co. LLC, 5.53%
due 7/06/1998 19,984,639 19,984,639 0.2
30,000,000 Morgan Stanley Dean Group, Inc., 6% due 7/01/1998 30,000,000 30,000,000 0.3
Park Avenue Receivables Corp.:
16,622,000 5.54% due 7/07/1998 16,606,653 16,606,653 0.1
33,088,000 5.55% due 7/09/1998 33,047,191 33,047,191 0.3
40,000,000 Preferred Receivable Funding Corp., 5.56%
due 8/04/1998 39,789,956 39,789,956 0.3
Republic Industries, Inc.:
50,000,000 5.52% due 7/20/1998 49,854,333 49,854,333 0.4
20,000,000 5.55% due 8/06/1998 19,889,000 19,889,000 0.2
</TABLE>
13
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Percent of
Amount Short-Term Investments Cost Value Net Assets
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Commercial Paper** $ 40,000,000 Riverwoods Funding Corp., 5.60% due 7/02/1998 $ 39,993,778 $ 39,993,778 0.3%
(concluded) 15,000,000 Transamerica Finance Corp., 5.53% due 8/11/1998 14,905,529 14,905,529 0.1
25,000,000 Variable Funding Capital Corp., 5.60% due 7/20/1998 24,926,111 24,926,111 0.2
====================================================================================================================================
Total Short-Term Investments 416,459,634 416,459,634 3.5
====================================================================================================================================
Total Investments $9,198,007,498 11,864,780,991 99.6
==============
Time Deposit++ 2,187,000 0.0
Other Assets Less Liabilities 47,441,554 0.4
--------------- ------
Net Assets $11,914,409,545 100.0%
=============== ======
====================================================================================================================================
Net Asset Class A--Based on net assets of $4,125,371,382 and 110,778,262 shares outstanding $ 37.24
Value: ===============
Class B--Based on net assets of $5,866,988,464 and 161,709,595 shares outstanding $ 36.28
===============
Class C--Based on net assets of $569,578,431 and 15,863,465 shares outstanding $ 35.91
===============
Class D--Based on net assets of $1,352,471,268 and 36,412,319 shares outstanding $ 37.14
===============
====================================================================================================================================
</TABLE>
* American Depositary Receipts (ADR).
** Commercial Paper is 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.
++ The time deposit bears interest at 5.50% and matures on 7/01/1998.
14
<PAGE>
Merrill Lynch Capital Fund, Inc. June 30, 1998
PORTFOLIO INFORMATION
As of June 30, 1998
Percent of
Ten Largest Common Stock Holdings Net Assets
Travelers Group, Inc. ........................... 2.3%
Williams Companies, Inc. ........................ 2.3
Kansas City Southern Industries, Inc. ........... 2.0
United Technologies Corp. ....................... 1.6
Carnival Corp. (Class A) ........................ 1.4
Allstate Corporation ............................ 1.4
Rite Aid Corp. .................................. 1.4
Nestle S.A. (Registered) ........................ 1.3
Chase Manhattan Corporation (The) ............... 1.3
Yacimientos Petroliferos Fiscales S.A.
(YPF)(ADR) .................................... 1.3
Percent of
Ten Largest Industries Net Assets*
Insurance ....................................... 10.0%
Banking ......................................... 5.1
Diversified Companies ........................... 5.1
Oil--Integrated ................................. 4.5
Natural Gas Suppliers ........................... 4.3
Financial Services .............................. 3.5
Chemicals ....................................... 2.8
Railroads ....................................... 2.8
Foreign Government Obligations .................. 2.4
Paper & Forest Products ......................... 2.3
*Based on total holdings in common stocks and bonds.
Common Stock Portfolio Changes for the
Quarter Ended June 30, 1998
Deletions
Cisco Systems, Inc.
Sears, Roebuck and Co.
Sunbeam Corporation
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
15
<PAGE>
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
Merrill Lynch
Capital Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 #10252--6/98
[LOGO] Printed on post-consumer recycled paper
