MERRILL LYNCH
CAPITAL FUND, INC.
STRATEGIC
Performance
[GRAPHIC OMITTED]
Quarterly Report
December 31, 1997
<PAGE>
MERRILL LYNCH CAPITAL FUND, INC.
PORTFOLIO SUMMARY
Security Diversification
As a Percentage of Net Assets
As of December 31, 1997
A pie chart illustrating the following percentages:
US Bonds 29.9%
Non-US Bonds 4.2%
Cash & Cash
Equivalents 3.4%
US Stocks 51.5%
Non-US Stocks 11.0%
Sector Representation
As a Percentage of Equities
As of December 31, 1997
A pie chart illustrating the following percentages:
Financial Services 24.7%
Consumer Services 6.7%
Utilities 0.8%
Transportation 3.8%
Capital Goods--Technology 12.2%
Consumer Cyclicals 13.2%
Energy 14.4%
Basic Industries 9.1%
Diversified 3.1%
Credit Cyclicals 1.8%
Consumer Staples 6.6%
Capital Goods 3.6%
Geographic Diversification Percent of
As of December 31, 1997 Net Assets*
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United States 84.9%
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United Kingdom 3.8
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Argentina 3.3
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Switzerland 1.8
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Mexico 1.2
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Netherlands 0.8
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Brazil 0.7
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Finland 0.7
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Italy 0.6
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France 0.5
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Japan 0.4
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Turkey 0.4
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India 0.3
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Chile 0.2
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Hong Kong 0.2
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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 December 31, 1997 Fund 500*
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Average Capitalization (in billions) $20.0 $15.1
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Price/Book Value 2.8 4.9
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Price/Earnings Ratio** 20.9 22.8
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Yield Based on Current Dividend 1.7% 1.6%
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*An unmanaged broad-based index comprised of common stocks.
**Based on 1997 earnings estimates.
Fixed-Income Investments Merrill Lynch
As of December 31, 1997 Fund DOAO Index*
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Duration 5.6 Years 5.2 Years
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Average Maturity 9.6 Years 8.8 Years
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Asset Breakdown:
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Corporates 54.9% 19.6%
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US Treasuries/Agencies 37.8% 52.7%
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Mortgage-Backed 1.2% 27.7%
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International Governments 6.1% --
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*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. December 31, 1997
DEAR SHAREHOLDER
During the quarter ended December 31, 1997, global financial market turmoil
precipitated a significant degree of volatility in US financial markets. In
October, currency devaluations across Southeast Asia resulted in a downward
revision to economic growth prospects in this region and produced dramatic share
price declines. The magnitude and rapidity of these corrections afflicted stock
markets around the world. In the United States, widespread concerns about
economic stability, the outlook for corporate earnings and the sustainability of
high equity valuation levels precipitated the first 10% correction in US equity
prices since 1991.
However, three primary factors generated a strong recovery in US stock prices in
November. These factors included prompt action from the International Monetary
Fund and other supranational lending agencies to provide liquidity to the
troubled Asian economies in return for promises of economic reform; expectations
that the Asian turmoil would have little effect on US economic growth and
corporate profits; and a "flight to quality" among global investors seeking the
safety of US financial assets. Further stock market gains in December were
driven by accelerated retrenchments from emerging markets 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, making US financial assets
relatively more attractive to foreign investors. Lower bond yields also helped
support high valuation levels. For the December quarter, the unmanaged Standard
& Poor's 500 Index (S&P 500) earned a +2.88% total return, ending the December
quarter within 2% of its all-time high.
The US bond market was a significant beneficiary of this volatile climate. Not
only have reported rates of inflation continued to moderate, with the consumer
price index rising at a mere 1.8% rate through the first 11 months of 1997, but
also this anticipated slowdown in global economic growth enhances the
probability of continued low inflation rates in the months ahead. In addition,
many global investors sought the security of US Government instruments in this
tumultuous period. For the December quarter, the unmanaged Merrill Lynch
Domestic Bond Master Index earned a +2.94% total return, and long-term
Government bond yields reached their lowest levels of the year at just under 6%.
This marks the first quarter since the fourth quarter of 1994 in which the bond
market outperformed the equity market. Cash equivalents earned a +1.25% total
return for the December quarter. Total returns for Merrill Lynch Capital Fund,
Inc.'s Class A, Class B, Class C and Class D Shares for the quarter ended
December 31, 1997 were +1.42%, +1.16%, +1.17% and +1.36%, respectively. (Fund
results shown do not reflect sales charges; results would be lower if sales
charges were included. Complete performance information, including average
annual total returns, can be found on pages 5 and 6 of this report to
shareholders.)
While the US stock market has held firm through this difficult period, we
believe the implications of these Asian economic developments are far more
serious for the US market than the consensus appears to believe. Real US
economic growth is expected to decelerate, perhaps sharply, in response to a
number of related factors. First, there is the likelihood of a widening trade
deficit. Imports from Asia are now much cheaper in the United States following
the dramatic currency devaluations in Asia. The United States may experience
weaker exports resulting from the high value of the US dollar and the likelihood
of a significant slowdown in Asian economic growth over the next 12 months.
Second, there may be a slowdown in corporate profits growth as the potentially
deflationary consequences of the Asian turmoil on corporate revenues combine
with rising unit labor costs because of the tight job market to depress profit
margins. This could, in turn, slow capital expenditures and employment growth
prospects, two important components underpinning this economic expansion.
Consumer confidence could also erode if the Asian crisis worsens, restraining
consumer expenditures which account for two-thirds of economic activity.
These prospective developments further reinforce our view that any significant
upside in the equity market is likely to be constrained by this combination of
slower economic growth, more difficult corporate profits comparisons and
still-high current valuations. Meanwhile, we believe bonds continue to represent
good value, as inflation-adjusted interest rates remain at historically high
levels and inflationary pressures continue to moderate. Consequently, we
continued to maintain a significant bond weighting in Merrill Lynch Capital
Fund, with 62.5% of net assets invested in equities, 34.1% in fixed-income
securities and 3.4% in cash equivalents at December quarter-end. This compares
to 60.2% of net assets in equities, 36.8% in fixed-income securities and 2.6% in
cash equivalents at September 30, 1997. We modestly reduced the
2
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Merrill Lynch Capital Fund, Inc. December 31, 1997
Fund's fixed-income allocation in favor of equities during the December quarter
as interest rates declined and equity market volatility presented attractive new
investment opportunities.
Portfolio Matters
Within the equity component of the Fund, we added eight new investments and
eliminated seven holdings during the December quarter. We increased our position
in 16 stocks while reducing our ownership of an additional nine. Among the new
positions is Union Pacific Corporation, the nation's largest railroad company.
Union Pacific's stock price has declined sharply in response to integration and
operating problems associated with the recent acquisition of a large competitor.
These problems appear both short term in nature and resolvable, which should
limit further downside risk in the stock. On the upside, Union Pacific enjoys a
well-diversified traffic mix and anticipates merger synergies of approximately
$1 billion. This is expected to propel significant earnings growth, improve
returns and generate substantial free cash flow generation. Large senior
management performance option incentives should facilitate the achievement of
these objectives. Selling at less than 10 times prospective earnings, we believe
Union Pacific offers excellent value.
Another new position is Sun International Hotels Ltd., a resort and gaming
company whose share price also suffered recent sharp declines on projections for
flat earnings in 1998. Looking ahead, both earnings and cash flow are projected
to increase by some 50% in 1999, and by a further 25% in 2000 as both Paradise
Island and Atlantic City expansion projects are completed. Free cash flow
accelerates rapidly beginning in 1999, and the company could be debt-free within
five years. Even at peak projected debt levels, the balance sheet remains sound.
Based on its unique property characteristics, expansion opportunities, high cash
flow returns, free cash flow potential, proven management and attractive
valuation, we believe Sun International represents excellent value at its
current price. Senior management owns or controls 49% of the company, and has a
proven track record of value creation.
We sold our position in The Black & Decker Corporation, the consumer appliance
manufacturer. While the company possesses many attractive qualities, it has
consistently failed to leverage these competitive advantages into superior
shareholder returns. Our original investment outlook anticipated significant
margin improvement by year-end 1998 which would propel earnings growth at a 15%
rate, but this fundamental progress has failed to materialize. Profit margin
improvement goals were pushed out for at least one more year, and sales growth
has been below expectations. Compounding these business shortfalls were the
substantial recent insider stock selling and an increased lack of conviction in
senior management's commitment to enhance shareholder value. With the stock
having appreciated while business deteriorated and our confidence in management
plummeted, we decided to eliminate our position and redeploy proceeds into more
attractive investment opportunities.
We also sold GTE Corp., the independent telephone company. The ongoing
deregulation of the telecommunications business compelled us to reassess our
views regarding the strength of GTE's industrial position, its inherent
competitive advantages and the integrity of its capital allocation disciplines.
We believed the company was well positioned with a strong presence in local
telephony complemented by growing long-distance and cellular operations.
However, in light of recent industry consolidation activity, the company's
ability to earn compensatory returns is increasingly suspect in light of
intensifying competition. In response to these challenging business conditions
and our uncertainty as to GTE's ability to continue to create shareholder value,
we decided to sell our position and redeploy proceeds into more attractive
investment opportunities.
Examining the industry concentration of the Fund's equity holdings, we continue
to maintain relatively low weightings relative to the S&P 500 in the broad
consumer and technology sectors, while energy and financial services,
specifically insurance, remain relatively heavily weighted in the Fund's
portfolio. The consumer segment of the equity market is represented by many
high-quality companies, but the stocks tend to sell at high valuation levels and
the risk of earnings disappointments appears to be rising as the strong US
dollar begins to exact a toll on these global companies. Although our
representation in the technology group increased this year based on selected,
company-specific opportunities, it remains a challenging area. While technology
is exerting a dramatic, positive impact on the way global business is conducted,
the rapid pace of change, high risk of obsolescence and tremendous volatility of
results
3
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Merrill Lynch Capital Fund, Inc. December 31, 1997
which characterize most technology companies limit our ability to assess their
prospects and values with high conviction.
We believe the insurance industry offers many attractive investment
opportunities. Several companies are well advanced in the restructuring process
to concentrate on high return lines of business, freeing up substantial excess
capital. These assets, in turn, are being reinvested in acquisitions or share
repurchases which help create value for shareholders. In addition, many such
companies are managed by individuals with significant stock ownership, making
for a mutuality of interest in achieving this objective. Finally, this area is
among the more reasonably valued segments of the market.
While most of our energy stock investments suffered from the weak commodity
price environment in the quarter, our investment position in this sector is not
based on a top-down, commodity price forecast. Many energy companies offer
attractive unit volume growth and substantial restructuring opportunities, while
selling at reasonable prices with high current dividend yields. In particular,
many international oil companies headquartered outside the United States, such
as Fund holdings YPF S.A. of Argentina, TOTAL S.A. of France and Ente Nazionale
Idrocarburi S.p.A. (ENI) of Italy, appear quite inexpensive compared to their
US-based counterparts.
Within the fixed-income portion of the portfolio, we continued to extend
maturities in response to deflationary trends and relatively high real interest
rates during the December quarter. We extended the average portfolio maturity of
the bonds from 9.2 years at the end of the September quarter to 9.6 years, and
the average duration to 5.6 years from 5.5 years. This tactic was rewarded as
interest rates declined during the December quarter. The average
yield-to-maturity on our bond holdings declined only two basis points (0.02%) to
6.65% during the quarter, as we shifted assets into some out-of-favor sectors,
such as emerging markets, where yields are higher. The average quality rating on
our bond holdings fell slightly from A1/A+ to A2/A+, as determined by the major
rating agencies. The largest category of our fixed-income holdings is
investment-grade corporate bonds, in which we increased our weighting from 46.6%
of fixed-income assets at September 30, 1997 to 48.0% at the close of the
December quarter. We also added to our weighting of high-yield corporate bonds
from 5.5% of fixed-income assets to 6.9% and our weighting of foreign government
bonds from 5.5% of fixed-income assets to 6.1%. Our US Treasury holdings were
down from 41.3% of net assets to 37.8% at December quarter-end. Mortgage-backed
securities were almost unchanged, moving from 1.1% to 1.2% of fixed-income
assets.
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
shareholder equity and have stronger balance sheets while offering faster
earnings growth than the average company as measured by the S&P 500. However,
these same stocks sell at an average price/earnings ratio of 16.3 times
estimated 1998 earnings per share compared to 21.3 times for the S&P 500, at 2.8
times book value per share versus 4.9 times for the S&P 500 and provide a
slightly above-average 1.7% dividend yield versus 1.6% for the S&P 500. We
believe this formula will provide superior risk-adjusted equity returns over
time.
In Conclusion
We appreciate your continued interest and participation in Merrill Lynch Capital
Fund, Inc., and we look forward to assisting you with your financial needs in
the months and years to come.
Sincerely,
/s/ Arthur Zeikel
Arthur Zeikel
President
/s/ Kurt Schansinger
Kurt Schansinger
Senior Vice President and Portfolio Manager
February 3, 1998
4
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Merrill Lynch Capital Fund, Inc. December 31, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Average Annual Total Return"
tables 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>
12 Month 3 Month
12/31/97 9/30/97 12/31/96 % Change % Change
============================================================================================================================
<S> <C> <C> <C> <C> <C>
ML Capital Fund, Inc. Class A Shares* $34.51 $35.53 $31.05 +17.13%(1) -0.33%(2)
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ML Capital Fund, Inc. Class B Shares* 33.79 34.73 30.46 +17.03(1) -0.11(2)
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ML Capital Fund, Inc. Class C Shares* 33.44 34.39 30.19 +16.91(1) -0.14(2)
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ML Capital Fund, Inc. Class D Shares* 34.46 35.46 31.02 +17.08(1) -0.27(2)
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Dow Jones Industrial Average 7,908.25 7,945.26 6,448.27 +22.64 -0.47
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Standard & Poor's 500 Index** 970.43 947.28 740.74 +31.01 +2.44
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ML Capital Fund, Inc. Class A Shares--Total Return* +21.41(3) +1.42(4)
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ML Capital Fund, Inc. Class B Shares--Total Return* +20.20(5) +1.16(6)
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ML Capital Fund, Inc. Class C Shares--Total Return* +20.16(7) +1.17(8)
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ML Capital Fund, Inc. Class D Shares--Total Return* +21.10(9) +1.36(10)
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Dow Jones Industrial Average--Total Return +24.89 -0.02
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Standard & Poor's 500 Index--Total Return** +33.36 +2.88
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</TABLE>
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included.
** An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1) Percent change includes reinvestment of $1.808 per share capital gains
distributions.
(2) Percent change includes reinvestment of $0.896 per share capital gains
distributions.
(3) Percent change includes reinvestment of $1.267 per share ordinary income
dividends and $1.808 per share capital gains distributions.
(4) Percent change includes reinvestment of $0.617 per share ordinary income
dividends and $0.896 per share capital gains distributions.
(5) Percent change includes reinvestment of $0.923 per share ordinary income
dividends and $1.808 per share capital gains distributions.
(6) Percent change includes reinvestment of $0.438 per share ordinary income
dividends and $0.896 per share capital gains distributions.
(7) Percent change includes reinvestment of $0.935 per share ordinary income
dividends and $1.808 per share capital gains distributions.
(8) Percent change includes reinvestment of $0.446 per share ordinary income
dividends and $0.896 per share capital gains distributions.
(9) Percent change includes reinvestment of $1.188 per share ordinary income
dividends and $1.808 per share capital gains distributions.
(10) Percent change includes reinvestment of $0.576 per share ordinary income
dividends and $0.896 per share capital gains distributions.
5
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
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 $20,000.78 on December 31, 1997.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class A Shares*
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Year Ended 12/31/97 +21.41% +15.04%
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Five Years Ended 12/31/97 +15.84 +14.59
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Ten Years Ended 12/31/97 +14.79 +14.18
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*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
==============================================================================
Class B Shares*
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Year Ended 12/31/97 +20.20% +16.20%
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Five Years Ended 12/31/97 +14.66 +14.66
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Inception (10/21/88)
through 12/31/97 +13.11 +13.11
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*Maximum contingent deferred sales charge is 4% and is reduced to 0% after 4
years.
**Assuming payment of applicable contingent deferred sales charge.
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% Return % Return
Without CDSC With CDSC**
==============================================================================
Class C Shares*
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Year Ended 12/31/97 +20.16% +19.16%
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Inception (10/21/94)
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through 12/31/97 +18.85 +18.85
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*Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1
year.
**Assuming payment of applicable contingent deferred sales charge.
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% Return Without % Return With
Sales Charge Sales Charge**
==============================================================================
Class D Shares*
==============================================================================
Year Ended 12/31/97 +21.10% +14.74%
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Inception (10/21/94)
through 12/31/97 +19.78 +17.77
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*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
6
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Aerospace 867,100 The Boeing Co. $ 42,981,610 $ 42,433,706 0.4%
750,000 Lockheed Martin Corporation 62,258,392 73,875,000 0.7
-------------- -------------- -----
105,240,002 116,308,706 1.1
============================================================================================================================
Apparel 2,200,000 Fruit of the Loom, Inc. (Class A) 61,434,651 56,375,000 0.5
============================================================================================================================
Appliances & 2,450,000 Sunbeam Corporation 100,956,002 103,206,250 1.0
Furniture
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Automobile Parts 1,600,000 Federal-Mogul Corp. 66,821,667 64,800,000 0.6
============================================================================================================================
Automotive 1,000,000 General Motors Corp. 44,944,948 60,625,000 0.6
============================================================================================================================
Banking 1,000,000 The Chase Manhattan Corp. 81,222,073 109,500,000 1.0
============================================================================================================================
Building Materials 2,000,000 American Standard Companies, Inc. 93,322,961 76,625,000 0.7
2,400,000 Masco Corporation 75,254,389 122,100,000 1.1
-------------- -------------- -----
168,577,350 198,725,000 1.8
============================================================================================================================
Capital Goods 1,500,000 United Dominion Industries, Ltd. 34,449,123 37,968,750 0.3
============================================================================================================================
Chemicals 1,600,000 du Pont (E.I.) de Nemours and Co. 74,606,947 96,100,000 0.9
1,300,000 Grace (W.R.) & Co. 66,236,105 104,568,750 1.0
2,050,000 Imperial Chemical Industries PLC (ADR)* 101,842,582 133,121,875 1.2
-------------- -------------- -----
242,685,634 333,790,625 3.1
============================================================================================================================
Communications 600,000 Cisco Systems, Inc. 18,761,482 33,450,000 0.3
Equipment
============================================================================================================================
Computer Software 1,800,000 Computer Associates International, Inc. 52,246,753 95,175,000 0.9
============================================================================================================================
Consumer Electronics 400,000 Nintendo Corp. Ltd. 28,474,285 39,309,021 0.4
============================================================================================================================
Diversified 2,300,000 Tenneco, Inc. 93,831,299 90,850,000 0.8
Companies 9,000,000 Tomkins PLC 39,576,903 43,017,075 0.4
2,000,000 United Technologies Corp. 63,643,951 145,625,000 1.4
1,750,000 Varian Associates, Inc. 93,141,060 88,484,375 0.8
-------------- -------------- -----
290,193,213 367,976,450 3.4
============================================================================================================================
Drug Stores 2,150,000 Rite Aid Corp. 68,282,569 126,178,125 1.2
============================================================================================================================
Electrical Equipment 1,500,000 Belden Inc. 47,721,621 52,875,000 0.5
1,500,000 General Electric Co. 38,165,328 110,062,500 1.0
1,500,000 Philips Electronics N.V. (NY Registered
Shares) 82,796,144 90,750,000 0.9
-------------- -------------- -----
168,683,093 253,687,500 2.4
============================================================================================================================
Electronic 1,500,000 Avnet, Inc. 83,947,762 99,000,000 0.9
Components
============================================================================================================================
Financial Services 2,000,000 Federal National Mortgage Association 52,392,099 114,125,000 1.1
1,000,000 Transamerica Corporation 74,063,270 106,500,000 1.0
-------------- -------------- -----
126,455,369 220,625,000 2.1
============================================================================================================================
Food & Beverage 2,500,000 Diageo PLC (ADR)* (a) 82,811,339 94,687,500 0.9
============================================================================================================================
Foods/Food Processing 75,000 Nestle S.A. (Registered) 78,575,411 112,487,153 1.1
============================================================================================================================
Footwear 1,600,000 Nike, Inc. (Class B) 76,003,272 62,800,000 0.6
8,000,000 Yue Yuen Industrial (Holdings Limited) 10,727,086 16,934,495 0.1
-------------- -------------- -----
86,730,358 79,734,495 0.7
============================================================================================================================
</TABLE>
7
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Percent of
Industries Held Common Stocks Cost Value Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Hospital Management 1,000,000 Columbia/HCA Healthcare Corp. $ 34,136,759 $ 29,625,000 0.3%
3,600,000 Tenet Healthcare Corp. 52,634,362 119,250,000 1.1
-------------- -------------- -----
86,771,121 148,875,000 1.4
============================================================================================================================
Hotels & Casinos 1,480,900 Sun International Hotels Ltd. 55,251,970 55,718,863 0.5
============================================================================================================================
Information Systems 3,500,000 Reynolds & Reynolds Company (Class A) 70,124,940 64,531,250 0.6
============================================================================================================================
Insurance 2,300,000 Allstate Corporation 69,292,895 209,012,500 2.0
1,000,000 American International Group, Inc. 46,545,446 108,750,000 1.0
1,800,000 Berkley (W.R.) Corporation 62,155,679 78,975,000 0.7
1,900,000 EXEL Ltd. 41,181,437 120,412,500 1.1
2,000,000 Fremont General Corp. 33,362,385 109,500,000 1.0
2,200,000 Horace Mann Educators Corp. 34,550,993 62,562,500 0.6
2,000,000 Penncorp Financial Group, Inc. 62,850,797 71,375,000 0.7
4,000,000 Provident Companies, Inc. 79,650,937 154,500,000 1.4
1,800,000 TIG Holdings, Inc. 54,108,848 59,737,500 0.6
4,500,000 Travelers Group, Inc. 39,986,618 242,437,500 2.3
-------------- -------------- -----
523,686,035 1,217,262,500 11.4
============================================================================================================================
Iron & Steel 1,600,000 Birmingham Steel Corp. 28,005,214 25,200,000 0.2
1,000,000 Nucor Corporation 50,340,472 48,312,500 0.5
-------------- -------------- -----
78,345,686 73,512,500 0.7
============================================================================================================================
Leisure/Hotels 2,200,000 Carnival Corp. (Class A) 57,830,550 121,825,000 1.1
3,000,000 Harrah's Entertainment, Inc. 55,543,541 56,625,000 0.5
-------------- -------------- -----
113,374,091 178,450,000 1.6
============================================================================================================================
Machinery & 750,000 SPX Corp. 44,070,962 51,750,000 0.5
Machine Tools
============================================================================================================================
Natural Gas 1,475,000 Coastal Corp. 56,455,344 91,357,812 0.8
Suppliers 1,300,000 El Paso Natural Gas Co. 56,192,288 86,450,000 0.8
10,400,000 Williams Companies, Inc. 92,336,036 295,100,000 2.8
-------------- -------------- -----
204,983,668 472,907,812 4.4
============================================================================================================================
Oil--Integrated 1,160,000 Ente Nazionale Idrocarburi S.p.A.
(ENI) (ADR)* 56,869,994 66,192,500 0.6
1,000,000 TOTAL S.A. (ADR)* 31,610,031 55,500,000 0.5
1,800,000 Unocal Corporation 70,780,255 69,862,500 0.7
5,250,000 YPF S.A. (ADR)* 100,302,115 179,484,375 1.7
-------------- -------------- -----
259,562,395 371,039,375 3.5
============================================================================================================================
Oil--Service 2,900,000 Dresser Industries, Inc. 77,166,439 121,618,750 1.1
============================================================================================================================
Paper & Forest 1,460,100 Kimberly-Clark Corp. 72,478,869 72,001,181 0.7
Products 800,000 Temple-Inland, Inc. 36,743,614 41,850,000 0.4
1,800,000 Weyerhaeuser Co. 82,324,720 88,312,500 0.8
-------------- -------------- -----
191,547,203 202,163,681 1.9
============================================================================================================================
Pharmaceuticals 2,500,000 Glaxo Wellcome PLC (ADR)* 66,776,972 119,687,500 1.1
50,000 Novartis AG (Registered) 61,610,822 81,192,189 0.8
-------------- -------------- -----
128,387,794 200,879,689 1.9
============================================================================================================================
Railroads 4,750,000 Kansas City Southern Industries, Inc. 70,072,061 150,812,500 1.4
1,600,000 Union Pacific Corporation 98,914,856 99,900,000 0.9
-------------- -------------- -----
168,986,917 250,712,500 2.3
============================================================================================================================
</TABLE>
8
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
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. $ 27,000,078 $ 31,687,500 0.3%
Investment Trusts 1,900,000 Patriot American Hospitality, Inc. 51,349,967 54,743,750 0.5
716,500 Walden Residential Properties, Inc. 13,599,710 18,270,750 0.2
-------------- -------------- -----
91,949,755 104,702,000 1.0
============================================================================================================================
Restaurants 1,700,000 McDonald's Corporation 82,855,032 81,175,000 0.8
============================================================================================================================
Retail Trade 250,000 Sears, Roebuck and Co. 11,748,382 11,312,500 0.1
3,000,000 Wal-Mart Stores, Inc. 73,541,970 118,312,500 1.1
-------------- -------------- -----
85,290,352 129,625,000 1.2
============================================================================================================================
Telecommunications 2,150,000 Frontier Corporation 59,511,165 51,734,375 0.5
1,100,000 Nokia Corp. (ADR)* 46,271,231 77,000,000 0.7
600,000 Telecomunicacoes Brasileiras S.A.--
Telebras (ADR)* 51,096,291 69,862,500 0.7
-------------- -------------- -----
156,878,687 198,596,875 1.9
============================================================================================================================
Tires & Rubber 2,500,000 The Goodyear Tire & Rubber Co. 98,262,526 159,062,500 1.5
============================================================================================================================
Total Common Stocks 4,508,988,657 6,686,192,870 62.5
============================================================================================================================
<CAPTION>
Face
Amount Corporate Bonds
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Automobile Parts $ 20,000,000 Eaton Corp., 6.50% due 6/01/2025 19,929,200 20,181,000 0.2
============================================================================================================================
Automotive Hertz Corp.:
25,000,000 6.70% due 6/15/2002 24,815,300 25,202,000 0.3
13,000,000 6% due 1/15/2003 12,891,670 12,714,910 0.1
20,000,000 Hyundai Motor Co., Ltd., 7.60%
due 7/15/2007 19,916,100 14,121,000 0.1
-------------- -------------- -----
57,623,070 52,037,910 0.5
============================================================================================================================
Banking 30,000,000 Banco Nacional de Commercio Exterior
SNC, Global Bonds, 7.25% due 2/02/2004 28,187,700 27,675,000 0.3
13,600,000 Banco Rio de la Plata, 8.75% due
12/15/2003 13,751,700 13,600,000 0.1
25,000,000 Bank of Boston Corp., 6.625% due
12/01/2005 23,519,000 25,152,500 0.2
BankAmerica Corp.:
15,000,000 6.875% due 6/01/2003 14,149,050 15,327,900 0.2
30,000,000 6.75% due 9/15/2005 29,591,750 30,510,600 0.3
The Chase Manhattan Corp.:
15,000,000 6.50% due 8/01/2005 14,552,850 14,987,100 0.1
15,000,000 6.25% due 1/15/2006 13,892,250 14,773,950 0.1
20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 20,543,920 0.2
30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 30,335,100 0.3
22,750,000 Firstbank Puerto Rico, 7.625% due
12/20/2005 22,140,803 23,214,282 0.2
10,000,000 Great Western Financial Corp., 6.375%
due 7/01/2000 9,998,800 10,008,500 0.1
Household Bank:
10,000,000 6.87% due 5/15/2001 9,868,800 10,114,920 0.1
20,000,000 6.875% due 3/17/2003 19,886,200 20,361,600 0.2
10,300,000 6.50% due 7/15/2003 10,202,253 10,350,882 0.1
NationsBank Corp.:
40,000,000 5.60% due 2/07/2001 40,000,000 39,410,800 0.4
10,000,000 6.20% due 8/15/2003 9,670,360 9,987,000 0.1
25,000,000 6.50% due 8/15/2003 22,104,200 25,240,500 0.3
25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 24,922,025 25,072,365 0.2
20,000,000 People's Bank--Bridgeport, 7.20% due
12/01/2006 19,956,700 20,467,600 0.2
</TABLE>
9
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Banking $ 25,000,000 Provident Bank, 6.375% due 1/15/2004 $ 24,296,430 $ 24,954,750 0.2%
(concluded) Union Planters Corp.:
20,000,000 6.25% due 11/01/2003 18,756,100 19,842,600 0.2
12,500,000 6.75% due 11/01/2005 12,001,875 12,578,500 0.1
-------------- -------------- -----
431,206,046 444,510,369 4.2
============================================================================================================================
Beverages 22,000,000 Coca-Cola Femsa S.A., 8.95% due
11/01/2006 21,984,595 22,947,100 0.2
10,000,000 Panamerican Beverages, Inc., 7.25%
due 7/01/2009 10,037,500 10,000,000 0.1
-------------- -------------- -----
32,022,095 32,947,100 0.3
============================================================================================================================
Broadcasting 20,000,000 British Sky Broadcasting Group PLC,
7.30% due 10/15/2006 20,037,440 20,591,800 0.2
============================================================================================================================
Cable 10,000,000 Comcast Cable Communications, Inc.,
8.125% due 5/01/2004 9,991,000 10,790,400 0.1
============================================================================================================================
Chemicals 8,000,000 Airgas, Inc., 7.14% due 3/08/2004 8,000,000 8,295,112 0.1
30,000,000 Lyondell Petrochemical Company, 6.50%
due 2/15/2006 28,520,975 29,546,400 0.3
25,000,000 Union Carbide Corp., 6.79% due 6/01/2025 25,000,000 25,103,000 0.2
-------------- -------------- -----
61,520,975 62,944,512 0.6
============================================================================================================================
Consumer Services Loewen Group, Inc.:
16,000,000 6.70% due 10/01/1999 15,970,340 16,062,592 0.1
20,000,000 8.25% due 10/15/2003 20,208,132 21,284,420 0.2
-------------- -------------- -----
36,178,472 37,347,012 0.3
============================================================================================================================
Electronics 16,000,000 Litton Industries, Inc., 6.98% due
3/15/2006 16,000,000 16,790,208 0.2
15,000,000 Tandy Corp., 6.95% due 9/01/2007 14,944,120 15,268,050 0.1
-------------- -------------- -----
30,944,120 32,058,258 0.3
============================================================================================================================
Finance Ford Motor Credit Co.:
40,000,000 5.75% due 1/25/2001 39,596,900 39,446,800 0.3
9,000,000 5.90% due 2/23/2001 8,704,260 8,922,600 0.1
General Motors Acceptance Corp.:
50,000,000 6.375% due 4/04/2000 49,887,500 50,221,700 0.5
55,000,000 5.625% due 2/15/2001 54,450,000 54,094,150 0.5
30,000,000 6.75% due 6/10/2002 29,520,300 30,449,400 0.3
15,000,000 USL Capital Corp., 5.79% due 1/23/2001 14,995,800 14,860,950 0.1
-------------- -------------- -----
197,154,760 197,995,600 1.8
============================================================================================================================
Financial Leasing GATX Corp.:
25,000,000 6.875% due 11/01/2004 24,938,000 25,261,750 0.2
25,000,000 6.69% due 11/30/2005 24,984,750 25,389,500 0.2
XTRA Corp.:
20,000,000 6.79% due 8/01/2001 19,945,800 20,347,460 0.2
20,000,000 6.68% due 11/30/2001 20,000,000 20,273,400 0.2
-------------- -------------- -----
89,868,550 91,272,110 0.8
============================================================================================================================
Financial Services Finova Capital Corp.:
25,000,000 6.45% due 6/01/2000 24,766,550 25,089,000 0.2
15,000,000 5.98% due 2/27/2001 14,968,950 14,893,515 0.1
10,000,000 6.56% due 11/15/2002 10,000,000 10,108,900 0.1
McDonnell Douglas Finance Corp.:
20,000,000 6.78% due 12/19/2003 19,993,400 20,238,800 0.2
20,000,000 6.965% due 9/12/2005 20,049,200 20,726,580 0.2
============================================================================================================================
</TABLE>
10
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
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 $ 35,000,000 Morgan Stanley Group, Inc., 5.75%
(concluded) due 2/15/2001 $ 34,968,150 $ 34,581,470 0.3%
13,000,000 Norwest Financial, Inc., 6.625%
due 7/15/2004 13,000,000 13,158,470 0.1
Salomon, Inc.:
10,000,000 6.75% due 2/15/2003 9,804,000 10,141,970 0.1
5,000,000 6.875% due 12/15/2003 4,968,500 5,091,050 0.1
Smith Barney Shearson Holdings, Inc.:
25,000,000 6.625% due 7/01/2002 24,994,000 25,232,250 0.3
30,000,000 7% due 3/15/2004 29,927,700 30,723,000 0.3
-------------- -------------- -----
207,440,450 209,985,005 2.0
============================================================================================================================
Food & Tobacco Nabisco Inc.:
20,000,000 6.70% due 6/15/2002 19,838,770 20,256,800 0.2
20,000,000 6.85% due 6/15/2005 20,000,000 20,414,400 0.2
10,000,000 RJR Nabisco, Inc., 8.25% due 7/01/2004 9,971,250 10,283,170 0.1
-------------- -------------- -----
49,810,020 50,954,370 0.5
============================================================================================================================
Foreign 10,000,000 Province of Mendoza, 10% due 9/04/2007 9,931,700 9,475,000 0.1
Government Republic of Argentina:
Obligations 42,500,000 8.75% due 7/10/2002 41,557,500 36,550,000 0.3
23,760,000 Floating Rate Brady Bonds, Series L,
6.687% due 3/31/2005+ 15,896,542 21,265,200 0.2
40,000,000 Global Bonds, 8.375% due 12/20/2003 38,561,250 38,000,000 0.4
5,500,000 Republic of Colombia, Global Bonds,
7.625% due 2/15/2007 5,127,375 5,149,375 0.1
15,000,000 Republic of Guatemala, 8.50% due
8/03/2007 15,082,250 14,250,000 0.1
45,000,000 Republic of Turkey, 10% due 9/19/2007 44,918,750 45,094,500 0.4
50,000,000 United Mexican States, Global Bonds,
9.875% due 1/15/2007 52,632,500 52,225,000 0.5
-------------- -------------- -----
223,707,867 222,009,075 2.1
============================================================================================================================
Hardware & Tools 10,000,000 The Black & Decker Corporation, 6.625%
due 11/15/2000 9,874,800 10,084,000 0.1
Hospital Management 27,625,000 Medpartners, Inc., 6.875% due 9/01/2000 27,563,360 27,353,999 0.3
26,500,000 Tenet Healthcare Corp., 8% due
1/15/2005 26,470,375 27,030,000 0.2
-------------- -------------- -----
54,033,735 54,383,999 0.5
============================================================================================================================
Industrial 12,750,000 Diamond Shamrock, Inc., 7.65% due
7/01/2026 12,741,188 14,005,365 0.1
7,800,000 Interface, Inc., 9.50% due 11/15/2005 7,552,000 8,248,500 0.1
17,000,000 Reliance Industries Ltd., 8.25% due
1/15/2027 16,721,999 14,302,355 0.1
25,000,000 Triton Energy Ltd., 8.75% due 4/15/2002 25,363,000 25,310,900 0.2
15,000,000 United Refining Co., 10.75% due
6/15/2007 15,000,000 15,750,000 0.2
Williams Holdings of Delaware, Inc.:
20,000,000 6.625% due 11/15/2004 19,908,000 20,102,600 0.2
50,000,000 6.25% due 2/01/2006 49,739,500 49,426,000 0.5
-------------- -------------- -----
147,025,687 147,145,720 1.4
============================================================================================================================
Machinery 20,000,000 FMC Corp., 6.375% due 9/01/2003 18,940,800 19,657,600 0.2
22,500,000 Harris Corp., 6.375% due 8/15/2002 22,461,850 22,579,200 0.2
-------------- -------------- -----
41,402,650 42,236,800 0.4
============================================================================================================================
Natural Gas 27,500,000 Coastal Corp., 6.70% due 2/15/2027 27,225,400 28,559,905 0.3
Suppliers 15,000,000 ENSERCH Corporation, 7.125% due
6/15/2005 15,095,150 15,551,100 0.1
-------------- -------------- -----
42,320,550 44,111,005 0.4
============================================================================================================================
</TABLE>
11
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Corporate Bonds Cost Value Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Oil--Integrated $ 10,000,000 Giant Industries, Inc., 9% due
9/01/2007 $ 10,000,000 $ 9,950,000 0.1%
18,375,000 Occidental Petroleum Corp., 6.24%
due 11/24/2000 18,135,306 18,384,922 0.2
Perez Companc S.A.:
5,000,000 9% due 1/30/2004 5,025,000 5,125,000 0.0
15,000,000 8.125% due 7/15/2007 14,752,620 14,437,500 0.1
Union Texas Petroleum Holdings, Inc.:
10,000,000 6.70% due 11/18/2002 10,000,000 10,128,260 0.1
20,000,000 6.81% due 12/05/2007 20,000,000 20,486,000 0.2
10,000,000 Unocal Corporation, 6.11% due 2/17/2004 10,000,000 9,873,860 0.1
30,000,000 YPF S.A., 8% due 2/15/2004 26,971,875 30,980,100 0.3
-------------- -------------- -----
114,884,801 119,365,642 1.1
============================================================================================================================
Paper & Forest 20,000,000 Boise Cascade Corporation, 7.66%
Products due 5/27/2005 20,000,000 21,235,020 0.2
20,400,000 Champion International Corp., 6.40%
due 2/15/2026 20,238,456 20,577,745 0.2
-------------- -------------- -----
40,238,456 41,812,765 0.4
============================================================================================================================
Real Estate 10,000,000 Franchise Finance Corp. of America,
Investment Trusts 6.95% due 8/29/2007 10,000,000 10,207,990 0.1
20,000,000 Meditrust Corporation, 7.82% due
9/10/2026 20,633,700 21,175,800 0.2
-------------- -------------- -----
30,633,700 31,383,790 0.3
============================================================================================================================
Telecommunications 10,000,000 Pacific Telecom, Inc., 6.625% due
10/20/2005 10,000,000 10,121,040 0.1
25,000,000 WorldCom, Inc., 7.55% due 4/01/2004 24,958,500 26,255,475 0.2
-------------- -------------- -----
34,958,500 36,376,515 0.3
============================================================================================================================
Tires & Rubber 40,000,000 The Goodyear Tire & Rubber Co., 6.625%
due 12/01/2006 39,840,000 40,080,400 0.4
============================================================================================================================
Transportation 15,000,000 Transportacion Maritima Mexicana,
S.A. de C.V., 10% due 11/15/2006 15,130,250 14,962,500 0.1
============================================================================================================================
Travel & Lodging Royal Caribbean Cruises Ltd.:
10,000,000 7.125% due 9/18/2002 9,900,050 10,219,400 0.1
10,000,000 7.25% due 8/15/2006 9,854,415 10,292,800 0.1
-------------- -------------- -----
19,754,465 20,512,200 0.2
============================================================================================================================
Utilities--Electric, Connecticut Light & Power Co.:
Gas & Water 28,250,000 7.75% due 6/01/2002 28,173,725 28,579,028 0.3
20,000,000 7.875% due 10/01/2024 20,431,000 20,482,600 0.2
25,000,000 Empresa Nacional de Electricidad S.A.
(Endesa), 7.325% due 2/01/2037 25,000,000 25,366,975 0.2
30,000,000 Enron Corp., 6.75% due 7/01/2005 28,878,400 30,361,500 0.3
20,000,000 PECO Energy Co., 5.625% due 11/01/2001 18,908,800 19,564,000 0.2
17,500,000 Tata Electric Co., 8.50% due 8/19/2017 17,313,775 14,145,950 0.1
-------------- -------------- -----
138,705,700 138,500,053 1.3
============================================================================================================================
Total Corporate Bonds 2,196,237,359 2,226,579,910 20.8
============================================================================================================================
Collateralized Mortgage Obligations
============================================================================================================================
Federal Home Loan Mortgage Corp.:
9,241,900 6.50% due 5/15/2008 8,831,790 9,039,687 0.1
5,000,000 7% due 8/15/2008 4,762,500 5,054,650 0.1
13,000,000 6% due 2/15/2011 12,020,938 12,524,688 0.1
============================================================================================================================
</TABLE>
12
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Percent of
Industries Amount Collateralized Mortgage Obligation Cost Value Net Assets
============================================================================================================================
<S> <C> <C> <C> <C> <C>
Federal National Mortgage Association:
$ 12,000,000 6.50% due 1/25/2008 $ 11,608,125 $ 12,030,000 0.1%
5,010,000 6.50% due 4/25/2008 4,653,038 4,973,208 0.0
============================================================================================================================
Total Collateralized Mortgage
Obligations 41,876,391 43,622,233 0.4
============================================================================================================================
US Government Obligations
============================================================================================================================
US Treasury Bonds:
225,000,000 6.25% due 8/15/2023 207,374,609 231,750,000 2.2
50,000,000 6% due 2/15/2026 48,578,125 49,937,500 0.5
US Treasury Notes:
440,000,000 5.75% due 8/15/2003 426,765,547 440,272,800 4.1
650,000,000 5.875% due 11/15/2005 634,446,169 653,451,500 6.1
============================================================================================================================
Total US Government Obligations 1,317,164,450 1,375,411,800 12.9
============================================================================================================================
Short-Term Investments
============================================================================================================================
Commercial 15,000,000 Atlantic Asset Securitization Corp.,
Paper** 5.90% due 1/14/1998 14,968,042 14,968,042 0.1
50,000,000 Countrywide Home Loans, Inc.,
5.95% due 1/09/1998 49,933,889 49,933,889 0.4
81,634,000 General Motors Acceptance Corp., 6.75%
due 1/02/1998 81,618,693 81,618,693 0.8
40,000,000 Lexington Parker Capital Co. LLC, 5.89%
due 1/06/1998 39,967,278 39,967,278 0.4
50,000,000 WCP Funding, Inc., 5.875% due 1/08/1998 49,942,882 49,942,882 0.5
40,000,000 Xerox Overseas Holdings PLC, 5.85%
due 1/07/1998 39,961,000 39,961,000 0.4
============================================================================================================================
Total Short-Term Investments 276,391,784 276,391,784 2.6
============================================================================================================================
Total Investments $8,340,658,641 10,608,198,597 99.2
==============
Other Assets Less Liabilities 86,924,432 0.8
--------------- -----
Net Assets $10,695,123,029 100.0%
=============== =====
============================================================================================================================
Net Asset Class A--Based on net assets of $3,794,005,369 and 109,952,612 shares outstanding $ 34.51
===============
Value: Class B--Based on net assets of $5,460,859,518 and 161,629,710 shares outstanding $ 33.79
===============
- ----------------------------------------------------------------------------------------------------------------------------
Class C--Based on net assets of $409,800,283 and 12,255,435 shares outstanding $ 33.44
===============
- ----------------------------------------------------------------------------------------------------------------------------
Class D--Based on net assets of $1,030,457,859 and 29,903,844 shares outstanding $ 34.46
===============
============================================================================================================================
</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.
(a) Diageo PLC was the result of a merger between Grand Metropolitan PLC and
Guiness PLC.
13
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
PORTFOLIO INFORMATION
As of December 31, 1997
Percent of
Ten Largest Common Stock Holdings Net Assets
Williams Companies, Inc.................................. 2.8%
Travelers Group, Inc..................................... 2.3
Allstate Corporation..................................... 2.0
YPF S.A. (ADR)........................................... 1.7
The Goodyear Tire & Rubber Co............................ 1.5
Provident Companies, Inc................................. 1.4
Kansas City Southern Industries, Inc..................... 1.4
United Technologies Corp................................. 1.4
Imperial Chemical Industries PLC (ADR)................... 1.2
Rite Aid Corp............................................ 1.2
Percent of
Ten Largest Industries *Net Assets*
Insurance................................................ 11.4%
Banking.................................................. 5.2
Natural Gas Suppliers.................................... 4.8
Oil--Integrated........................................... 4.6
Financial Services....................................... 4.1
Chemicals................................................ 3.7
Diversified Companies.................................... 3.4
Electrical Equipment..................................... 2.4
Railroads................................................ 2.3
Paper & Forest Products.................................. 2.3
*Based on total holdings in common stocks and bonds.
Common Stock Portfolio Changes for the
Quarter Ended December 31, 1997
Additions
The Boeing Co.
Federal-Mogul Corp.
Fruit of the Loom, Inc. (Class A)
Kimberly-Clark Corp.
Nike, Inc. (Class B)
*Raytheon Company (Class A)
Sears, Roebuck and Co.
Sun International Hotels Ltd.
Union Pacific Corporation
Deletions
The Black & Decker Corporation
Echlin Inc.
Engelhard Corp.
GTE Corp.
Merck & Co., Inc.
Pfizer, Inc.
RFS Hotel Investors, Inc.
*Raytheon Company (Class A)
*Added and deleted in the same quarter.
14
<PAGE>
Merrill Lynch Capital Fund, Inc. December 31, 1997
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
M. Colyer Crum, Director
Edward H. Meyer, Director
Jack B. Sunderland, Director
J. Thomas Touchton, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
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--12/97
[LOGO] Printed on post-consumer recycled paper
