MERRILL LYNCH
CAPITAL FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
March 31, 1999
<PAGE>
MERRILL LYNCH CAPITAL FUND, INC.
PORTFOLIO SUMMARY
Security Diversification
As a Percentage of Net Assets
As of March 31, 1999
[GRAPHIC OMITTED]
[The following table was depicted as a pie chart in the printed material.]
US Stocks -- 56.4%
US Bonds -- 29.7%
Non-US Stocks -- 7.7%
Non-US Bonds -- 3.8%
Cash & Cash Equivalents -- 2.4%
Sector Representation
As a Percentage of Equities
As of March 31, 1999
[GRAPHIC OMITTED]
[The following table was depicted as a pie chart in the printed material.]
Financial Services -- 18.7%
Consumer Staples -- 13.3%
Energy -- 12.9%
Capital Goods -- 11.9%
Consumer Cyclicals -- 9.7%
Capital Goods -- Technology -- 9.1%
Consumer Services -- 7.6%
Transportation -- 6.1%
Utilities -- 4.2%
Credit Cyclicals -- 3.3%
Basic Industries -- 2.0%
Diversified -- 1.2%
==========================================================================
Geographic Diversification Percent of
As of March 31, 1999 Net Assets
--------------------------------------------------------------------------
United States 85.7%*
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United Kingdom 4.3
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Argentina 2.5
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Switzerland 2.0
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Bermuda 1.8
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Bahamas 1.2
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Mexico 0.5
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Sweden 0.4
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India 0.4
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Chile 0.3
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Colombia 0.2
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Panama 0.2
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South Korea 0.2
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Turkey 0.2
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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 March 31, 1999 Fund 500*
-------------------------------------------------------------------------
Average Capitalization (in billions) $29.7 $20.8
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Price/Book Value 2.9 6.8
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Price/Earnings Ratio** 20.5 30.0
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Yield Based on Current Dividend 1.4% 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 March 31, 1999 Fund DOAO Index*
-------------------------------------------------------------------------
Duration 5.2 Years 5.3 Years
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Average Maturity 8.8 Years 8.8 Years
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Asset Breakdown:
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Corporates 57.5% 22.2%
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US Treasuries/Agencies 37.4% 48.2%
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Mortgage-Backed 0.6% 29.6%
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International Governments 4.5% --
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* An unmanaged market-weighted corporate, Government and mortgage master
bond index reflecting approximately 97% of total outstanding US bonds.
1
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
DEAR SHAREHOLDER
The US stock market continued to enjoy a solid advance during the quarter ended
March 31, 1999, driven by accelerating economic growth, decelerating inflation,
continued strong money supply growth, favorable earnings reports and ongoing
expansion of market valuation parameters. In January, the equity market
sustained the powerful recovery from October's lows with accelerating financial
market liquidity, continued respectable levels of domestic economic activity and
a growing belief that the worst of the emerging market challenges had passed,
propelling the market higher. With the aggregate money supply growing greater
than 11% on an annualized basis while the economy experienced much slower
nominal growth, these excess fund flows were redirected to financial assets.
Real consumer spending remained robust, supporting continued strong housing and
auto sales and solid fourth quarter economic growth. Furthermore, some evidence
of improvement in economic conditions emerged in select developing countries
like South Korea, lessening the threat from this volatile region. Inflationary
pressures remained benign with the implicit price deflator rising at a mere 0.8%
annual rate in the fourth quarter of 1998, the lowest increase since 1959.
Finally, strong fourth-quarter 1998 earnings reports for key
large-capitalization technology companies helped drive stock market
price/earnings and price/book value multiples to record-high levels.
In February, evidence of even stronger-than-expected economic growth in the
final quarter of 1998 raised concerns of rising inflation and produced a
significant increase in long-term interest rates. These factors, together with a
slowdown in earnings growth expectations for the first quarter of 1999,
particularly in the technology sector, and an overall stock valuation that left
little room for such disappointments, combined to produce a sharp decline in
stock prices. However, a recovery in March more than recaptured February's
declines and propelled the broad market indexes to new highs near March
quarter-end. Firm evidence of economic stabilization and recovery in emerging
markets, continued strength in the domestic economy, and an ongoing
accommodative monetary policy by the Federal Reserve Board gen-erated rising
expectations for US corporate profits growth in 1999. These factors rekindled
investor enthusiasm, leading to further equity mutual fund cash inflows and
driving stock prices higher.
For the March quarter, the unmanaged Standard & Poor's 500 (S&P 500) Index had a
+4.98% total return. The US bond market confronted a more challenging
environment during the three-month period as concern over strong economic growth
and accelerating inflation drove interest rates higher and produced a -0.58%
total return for the unmanaged Merrill Lynch Domestic Bond Master Index. Cash
equivalents generated a +1.06% total return, as measured by the 91-day Treasury
bill. Total returns for Merrill Lynch Capital Fund, Inc.'s Class A, Class B,
Class C and Class D Shares for the quarter ended March 31, 1999 were +1.80%,
+1.57%, +1.56% and +1.78%, respectively. (Fund results shown do not reflect
sales charges; results would be lower if sales charges were included. Complete
performance information can be found on pages 6 -8 of this report to
shareholders.)
While the broad stock market averages continue to move higher, performance
continues to be concentrated in a highly select group of large-capitalization
growth and technology stocks. One-third of the S&P 500's gain in March was
accounted for by just two stocks: Microsoft Corporation and America Online, Inc.
While the Index gained +4.98% for the quarter, the average S&P 500 stock gained
only 0.3% and more than half of the components of the S&P 500 actually declined
in price. Despite the market's record high levels, over one-half of all New York
Stock Exchange and NASDAQ listed stocks remained more than 25% below their
52-week highs. In addition, large-capitalization stocks continued to
significantly outperform their smaller counterparts, as the unmanaged S&P
Mid-Cap Index of moderate sized companies actually fell 6.7% and the unmanaged
Russell 2000 Index of small companies declined 5.8% for the March quarter. This
lack of breadth, coupled with unprecedented valuation levels and suspect
earnings growth prospects, suggests a rather unstable platform upon which to
2
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Merrill Lynch Capital Fund, Inc. March 31, 1999
build additional stock market gains. In contrast, the recent rise in bond yields
makes bonds very attractive from a total return perspective, in our view, since
current inflation rates are at the lowest levels in 40 years. Consequently, we
continued to maintain a significant bond weighting with 64.1% of net assets
invested in equities, 33.5% in fixed-income securities and 2.4% in cash
equivalents at March quarter-end. This compared to 63.3% of net assets invested
in equities, 33.1% in fixed-income securities and 3.6% in cash equivalents as of
December 31, 1998.
Within the equity component of the Fund, we continued to diversify our holdings
in an effort to seek to enhance quality and better control risk. We added four
new investments, increased positions in 13 holdings, reduced positions in 20
holdings and eliminated nine stocks from the portfolio. Notable among the new
positions was Reuters Group PLC, the financial market information and media
company, which enjoys a 40% share of the $9 billion financial information market
which continues to grow at a double-digit rate. The stock has significantly
underperformed both the US and the UK markets and is selling at the same price
as in early 1996 in response to the negative effects of strong sterling, rapid
consolidation among its core bank and brokerage customer base, more aggressive
competition and recent emerging market trends. Earnings have essentially
stagnated over this period. With accelerating revenues, effective cost
reductions and the elimination of numerous earnings drags, earnings per share
growth is expected to accelerate in 1999 and 2000. Selling at a significant
discount to the stock market on both 1999 and year 2000 earnings estimates while
yielding almost 3%, we believe this represents an attractive entry price for
such a high-quality company.
We also established a position in Fortune Brands, Inc., a diversified consumer
products company, which enjoys leading market shares in a number of global
brands. Fortune Brands projects 4%-5% organic sales growth driven by market
growth, new products and further market share gains, complemented by 2%-3% from
acquisitions. Combined with effective cost control and a positive redeployment
of free cash flow, earnings per share are projected to grow 13%-15% per year on
a sustained basis. Selling at approximately 17 times estimated 1999 earnings per
share and 15 times year 2000 estimated earnings per share, and yielding almost
3%, we believe Fortune Brands is attractively valued at its current price and
represents an attractive addition to the portfolio.
We sold our position in both LucasVarity PLC, the UK auto parts and aerospace
company, and Transamerica Corporation, the insurance concern, subsequent to each
company receiving takeover proposals at handsome stock price premiums. We also
eliminated our investment in Philips Electronics N.V., the Dutch electronics
company, based on our concerns over evidence of deterioration in its competitive
position in certain key segments and repeated delays in the implementation and
completion of restructuring efforts. Despite its representation in several
high-growth, high-margin businesses, Philips has repeatedly proven incapable of
leveraging its brand name, technology and geographic breadth into consistent
shareholder value creation. We believe these assets can be more effectively
redeployed in alternative investment opportunities.
Despite the stock market's record high levels, we continue to identify and
invest in above-average companies whose stocks sell at below-average valuation
levels. We define an above-average company as one that maintains a strong
competitive position, earns consistently high returns on capital, is financially
sound, generates cash in excess of its internal reinvestment requirements and is
managed by individuals motivated to create value for shareholders. We define a
below-average valuation as one that does not adequately or accurately reflect
what we believe to be the company's underlying intrinsic value.
On average, the stocks held in the Fund have generated comparable returns on
shareholders' equity and have stronger balance sheets while offering faster
earnings growth than the average company, as measured by the S&P 500. However,
these same stocks sell at an average price/earnings ratio of 20.4 times
estimated 1999 earnings per share compared to 30.0 times for the S&P 500, at 2.9
times current book value
3
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Merrill Lynch Capital Fund, Inc. March 31, 1999
per share as compared to 6.8 times for the S&P 500, and provide an above-average
1.4% dividend yield as compared to 1.2% for the S&P 500. We believe this formula
will provide superior risk-adjusted equity returns over time.
Within the fixed-income portion of the portfolio, our relatively short average
duration of 5.2 years proved beneficial, since domestic interest rates rose
sharply during the March quarter, especially for longer maturity bonds. While
the yield premium for non-US government securities was relatively wide during
the March quarter, market liquidity continued to be limited in this sector. In
response to these conditions, we further reduced foreign government bonds as a
portion of our fixed-income holdings from 6.8% at December 31, 1998 to 4.5% at
March 31, 1999 and increased investment-grade corporate bonds from 47.0% to
49.4%. US Government and high-yield corporate bonds remained unchanged at 37.4%
and 8.1%, respectively. Mortgage-backed securities declined from 0.7% of
fixed-income assets at December 31, 1998 to 0.6% at March 31, 1999 in response
to expected prepayments. As a result of these transactions, the average quality
of our bonds rose slightly from A2/A to A2/A+, while the average yield to
maturity increased 34 basis points (0.34%) to 6.86%.
Fiscal Year in Review
For the 12 months ended March 31, 1999, total returns of Merrill Lynch Capital
Fund, Inc. were disappointing, largely driven by relatively poor equity returns.
For the fiscal year ended March 31, 1999, the total return for Merrill Lynch
Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares were -0.68%,
- -1.65%, -1.70% and -0.92%, respectively. For the same 12-month period, the S&P
500 provided a +18.46% total return, the Merrill Lynch Domestic Bond Master
Index generated a +6.51% total return, and cash equivalents earned a +4.98%
total return.
Within the equity component of the Fund, the value style of investing which we
espouse significantly underperformed the growth style of investing for the year,
severely constraining our performance. The unmanaged Russell 1000 Growth Index
provided a total return of +28.1% for the 12 months ended March 31, 1999, while
the Russell 1000 Value Index provided only a +5.0% total return for the same
12-month period. Performance was further concentrated in the ultra
large-capitalization sector of the market as investors were willing to pay
increasingly high prices for liquidity. While the S&P 500 generated a +18.5%
total return for the fiscal year, the unmanaged S&P Mid Cap Index of
medium-sized companies earned a -1.1% total return and the Russell 2000 Index of
small companies earned a -16.3% total return for the same 12-month period.
Consequently, our investments in many moderate-sized companies further hindered
our performance. Finally, our exposure to the weak energy sector was a
contributing factor to disappointing equity results during the fiscal year.
However, our overall performance improved significantly in the second half of
the fiscal year, reinforcing our confidence in the soundness of our security
selection methodologies and our ability to provide superior risk-adjusted
returns over time.
In Conclusion
We appreciate your continued interest and participation in Merrill Lynch Capital
Fund, Inc., and we look forward to assisting you with your financial needs in
the months and years to come.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Kurt Schansinger
Kurt Schansinger
Senior Vice President and Portfolio Manager
May 14, 1999
4
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
After more than 20 years of service, Arthur Zeikel recently retired as Chairman
of Merrill Lynch Asset Management, L.P. (MLAM). Mr. Zeikel served as President
of MLAM from 1977 to 1997 and as Chairman since December 1997. Mr. Zeikel is one
of the country's most respected leaders in asset management and presided over
the growth of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500 billion. Mr.
Zeikel will remain on Merrill Lynch Capital Fund, Inc.'s Board of Directors. We
are pleased to announce that Terry K. Glenn has been elected President and
Director of the Fund. Mr. Glenn has held the position of Executive Vice
President of MLAM since 1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors in wishing
him well in his retirement from Merrill Lynch and are pleased that he will
continue as a member of the Fund's Board of Directors.
5
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
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 "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 3/31/99 - 0.68% - 5.90%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/99 +15.09 +13.86
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/99 +13.40 +12.79
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 3/31/99 - 1.65% - 5.38%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/99 +13.93 +13.93
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/99 +12.25 +12.25
- --------------------------------------------------------------------------------
* 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 3/31/99 - 1.70% - 2.63%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 3/31/99 +14.90 +14.90
- --------------------------------------------------------------------------------
* 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 3/31/99 - 0.92% - 6.12%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 3/31/99 +15.80 +14.40
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
6
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
Total Return Based on a $10,000 Investment--Class A & Class B Shares
A line graph depicting the growth of an investment in the Fund's Class A and
Class B Shares compared to growth of an investment in the S&P 500 Index and the
ML Domestic Fixed-Income Master Index. Beginning and ending values are:
3/89** 3/99
ML Capital Fund, Inc.+--
Class A Shares* $ 9,475 $33,310
Class B Shares* $10,000 $31,746
S&P 500 Index++ $10,000 $56,823
ML Domestic Fixed-Income
Master Index+++ $10,000 $23,928
Total Return Based on a $10,000 Investment--Class C & Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C and
Class D Shares compared to growth of an investment in the S&P 500 Index and the
ML Domestic Fixed-Income Master Index. Beginning and ending values are:
10/21/94** 3/99
ML Capital Fund, Inc.+--
Class C Shares* $10,000 $18,533
Class D Shares* $ 9,475 $18,178
S&P 500 Index++ $10,000 $30,274
ML Domestic Fixed-Income
Master Index+++ $10,000 $14,688
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of Operations.
+ ML Capital Fund, Inc.through a fully managed investment policy, utilizes
equity, debt and convertible securities.
++ This unmanaged broad-based Index is comprised of common stocks.
+++ This unmanaged Index is comprised of the entire universe of domestic
investment-grade bonds including US Tresury bonds, corporate bonds and
mortgages.
Past performance is not predictive of future performance.
7
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
PERFORMANCE DATA (concluded)
A mountain chart depicting the growth of an investment in the Fund's Class A
Shares from $947.50 on November 8, 1973 to $21,620.24 on March 31, 1999.
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)
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* - 0.68% +1.80% +251.56%
- ------------------------------------------------------------------------------------------------------------------
ML Capital Fund, Inc. Class B Shares* - 1.65 +1.57 +217.49
- ------------------------------------------------------------------------------------------------------------------
ML Capital Fund, Inc. Class C Shares* - 1.70 +1.56 + 85.33
- ------------------------------------------------------------------------------------------------------------------
ML Capital Fund, Inc. Class D Shares* - 0.92 +1.78 + 91.85
- ------------------------------------------------------------------------------------------------------------------
Dow Jones Industrial Average** +13.13 +7.01 +462.68/+177.00
- ------------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +18.46 +4.98 +468.23/+202.75
==================================================================================================================
</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/since inception periods
are Class A & Class B Shares, for the ten years ended 3/31/99 and Class C
& Class D Shares, from 10/21/94 to 3/31/99.
** An unmanaged broad-based index comprised of common stocks. Ten years/since
inception total returns are for the ten years ended 3/31/99 and from
10/21/94 to 3/31/99, respectively.
8
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Aerospace 3,000,000 Lockheed Martin Corporation $ 136,266,348 $ 113,062,500 1.1%
=====================================================================================================================
Apparel 3,000,000 ++Fruit of the Loom, Inc. (Class A) 83,338,090 31,125,000 0.3
=====================================================================================================================
Automobile Parts 2,800,000 Federal-Mogul Corporation 127,787,823 120,400,000 1.1
=====================================================================================================================
Banking 2,100,000 The Chase Manhattan Corporation 94,448,658 170,756,250 1.6
=====================================================================================================================
Building Materials 5,000,000 Masco Corporation 82,696,370 141,250,000 1.3
2,950,000 The Sherwin-Williams Company 81,691,485 82,968,750 0.8
------------- ------------- -----
164,387,855 224,218,750 2.1
=====================================================================================================================
Chemicals 2,300,000 E.I. du Pont de Nemours and Company 119,426,350 133,543,750 1.3
2,500,000 Monsanto Company 105,763,188 114,843,750 1.1
------------- ------------- -----
225,189,538 248,387,500 2.4
=====================================================================================================================
Computer Software 1,500,000 Computer Associates International, Inc. 46,060,321 53,343,750 0.5
=====================================================================================================================
Consumer Products 3,000,000 Kimberly-Clark Corporation 148,809,666 143,812,500 1.4
=====================================================================================================================
Diversified 2,900,000 Corning Incorporated 109,599,250 174,000,000 1.7
Companies 2,000,000 GenCorp Inc. 58,220,920 36,000,000 0.3
12,500,000 Tomkins PLC 56,833,792 46,301,625 0.4
1,800,000 United Technologies Corporation 58,796,454 243,787,500 2.3
1,750,000 Varian, Inc. (a) 93,141,060 67,812,500 0.7
------------- ------------- -----
376,591,476 567,901,625 5.4
=====================================================================================================================
Electrical Equipment 1,300,000 General Electric Company 33,275,113 143,812,500 1.4
3,000,000 Rockwell International Corporation 134,460,898 127,312,500 1.2
------------- ------------- -----
167,736,011 271,125,000 2.6
=====================================================================================================================
Electronics 746,000 Avnet, Inc. 44,763,731 27,322,250 0.3
Components
=====================================================================================================================
Financial Services 1,500,000 Federal National Mortgage Association 40,716,335 103,875,000 1.0
=====================================================================================================================
Food & Beverage 3,500,000 Diageo PLC (ADR)* 156,391,175 160,125,000 1.5
2,283,100 McCormick & Company Incorporated 74,225,760 66,067,206 0.7
65,000 Nestle SA (Registered Shares) 68,163,280 118,385,939 1.1
------------- ------------- -----
298,780,215 344,578,145 3.3
=====================================================================================================================
Footwear 1,750,000 Nike, Inc. (Class B) 77,887,828 100,953,125 0.9
=====================================================================================================================
Hospital 4,500,000 ++Tenet Healthcare Corporation 79,953,016 85,218,750 0.8
Management
=====================================================================================================================
Information Systems 3,000,000 Reynolds & Reynolds Company (Class A) 60,661,921 57,000,000 0.5
=====================================================================================================================
Insurance 3,500,000 The Allstate Corporation 59,100,135 129,718,750 1.2
1,400,000 American International Group, Inc. 43,877,001 168,875,000 1.6
4,000,000 Citigroup Inc. 45,241,195 255,500,000 2.4
4,400,000 Fremont General Corporation (a) 42,145,143 83,875,000 0.8
2,500,000 Horace Mann Educators Corporation (a) 43,202,941 57,968,750 0.6
3,000,000 ITT Industries, Inc. 104,812,452 106,125,000 1.0
4,100,000 Provident Companies, Inc. 89,211,121 141,706,250 1.4
2,000,000 XL Capital Ltd. (Class A) 48,930,546 121,500,000 1.1
------------- ------------- -----
476,520,534 1,065,268,750 10.1
=====================================================================================================================
</TABLE>
9
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Value Percent of
Industries Held Common Stocks Cost (Note 1a) Net Assets
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Leisure/Hotels 3,500,000 Carnival Corporation $ 49,885,576 $ 169,968,750 1.6%
3,700,000 ++Harrah's Entertainment, Inc. 67,109,660 70,531,250 0.7
2,500,000 ++Sun International Hotels Ltd. (a) 99,267,368 82,187,500 0.8
------------- ------------- -----
216,262,604 322,687,500 3.1
=====================================================================================================================
Machinery & 1,000,000 ++SPX Corporation 58,441,924 50,437,500 0.5
Machine Tools
=====================================================================================================================
Multimedia 1,400,000 Reuters Group PLC (ADR)* 110,316,213 121,100,000 1.1
=====================================================================================================================
Natural Gas 4,200,000 The Coastal Corporation 96,041,889 138,600,000 1.3
3,400,000 El Paso Energy Corporation 83,910,541 111,137,500 1.1
6,500,000 The Williams Companies, Inc. 58,829,577 256,750,000 2.4
------------- ------------- -----
238,782,007 506,487,500 4.8
=====================================================================================================================
Oil--Integrated 3,500,000 Unocal Corporation 128,846,079 128,843,750 1.2
3,750,000 YPF Sociedad Anonima (ADR)* 74,985,367 118,359,375 1.2
------------- ------------- -----
203,831,446 247,203,125 2.4
=====================================================================================================================
Oil--Service 3,000,000 Halliburton Company 85,879,664 115,500,000 1.1
=====================================================================================================================
Pharmaceuticals 762,500 American Home Products Corporation 43,001,270 49,753,125 0.5
1,550,000 Glaxo Wellcome PLC (ADR)* 41,760,311 103,753,125 1.0
60,000 Novartis (Registered Shares) 78,569,582 97,575,183 0.9
------------- ------------- -----
163,331,163 251,081,433 2.4
=====================================================================================================================
Railroads 5,000,000 Kansas City Southern Industries, Inc. 83,444,911 285,000,000 2.7
2,300,000 Union Pacific Corporation 135,110,114 122,906,250 1.2
------------- ------------- -----
218,555,025 407,906,250 3.9
=====================================================================================================================
Real Estate 1,000,000 CarrAmerica Realty Corporation 26,684,805 22,062,500 0.2
Investment Trusts
=====================================================================================================================
Restaurants 4,000,000 McDonald's Corporation 98,086,085 181,250,000 1.7
=====================================================================================================================
Retail Stores 800,000 Sears, Roebuck & Co. 33,955,071 36,150,000 0.3
=====================================================================================================================
Telecommunications 3,000,000 Frontier Corporation 89,176,173 155,625,000 1.5
1,650,000 Telefonaktiebolaget LM Ericsson (ADR)* 38,449,875 39,290,625 0.4
------------- ------------- -----
127,626,048 194,915,625 1.9
=====================================================================================================================
Tires & Rubber 1,250,000 The Goodyear Tire & Rubber Company 49,691,160 62,265,625 0.6
=====================================================================================================================
Tobacco 1,000,000 Fortune Brands, Inc. 36,805,885 38,687,500 0.4
=====================================================================================================================
Waste Management 3,000,000 Waste Management, Inc. 150,984,576 133,125,000 1.3
=====================================================================================================================
Wireless 2,500,000 Motorola, Inc. 132,745,573 183,125,000 1.8
Communication-- 3,500,000 ++Nextel Communications, Inc. (Class A) 76,691,509 128,187,500 1.2
Domestic Paging & ------------- ------------- -----
Cellular 209,437,082 311,312,500 3.0
=====================================================================================================================
Total Common Stocks 4,678,570,124 6,730,520,953 64.1
=====================================================================================================================
</TABLE>
10
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Aerospace Boeing Capital Corporation:
$ 12,500,000 6.44% due 12/20/2004 $ 12,560,000 $ 12,505,500 0.1%
10,000,000 6.18% due 3/15/2005 10,000,000 9,631,030 0.1
------------- ------------- -----
22,560,000 22,136,530 0.2
===================================================================================================================
Automotive Hertz Corp.:
10,000,000 7% due 5/01/2002 10,305,500 10,259,300 0.1
25,000,000 6.70% due 6/15/2002 24,815,300 25,446,250 0.2
13,000,000 6% due 1/15/2003 12,891,670 12,942,930 0.1
20,000,000 Hyundai Motor Co., Ltd., 7.60% due
7/15/2007+++ 19,916,100 17,100,000 0.2
------------- ------------- -----
67,928,570 65,748,480 0.6
===================================================================================================================
Banking 30,000,000 Banco Nacional de Commercio Exterior
SNC, 7.25% due 2/02/2004 28,187,700 27,525,000 0.3
13,600,000 Banco Rio de la Plata, 8.75% due
12/15/2003 13,751,700 12,886,000 0.1
29,000,000 Bank of Boston Corporation, 6.625% due
12/01/2005 27,575,520 29,535,630 0.3
BankAmerica Corporation:
15,000,000 6.875% due 6/01/2003 14,149,050 15,596,100 0.2
30,000,000 6.75% due 9/15/2005 29,591,750 30,849,300 0.3
The Chase Manhattan Corporation:
15,000,000 6.50% due 8/01/2005 14,552,850 15,172,800 0.2
15,000,000 6.25% due 1/15/2006 13,892,250 14,893,950 0.1
20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 20,550,780 0.2
30,000,000 First Union Corp., 6.55% due 10/15/2035 29,953,350 30,440,700 0.3
22,750,000 Firstbank Puerto Rico, 7.625% due
12/20/2005 22,140,803 22,165,143 0.2
10,000,000 Great Western Financial Corp., 6.375%
due 7/01/2000 9,998,800 10,084,300 0.1
Household Bank:
7,000,000 6.87% due 5/15/2001 6,908,160 7,147,315 0.1
20,000,000 6.875% due 3/17/2003 19,886,200 20,554,320 0.2
13,300,000 6.50% due 7/15/2003 13,259,673 13,491,919 0.1
25,500,000 PNC Funding Corp., 6.125% due 9/01/2003 24,922,025 25,437,015 0.2
20,000,000 People's Bank--Bridgeport, 7.20% due
12/01/2006 19,956,700 19,239,400 0.2
26,000,000 Provident Bank, 6.375% due 1/15/2004 25,287,430 25,962,040 0.2
Union Planters Corp.:
20,000,000 6.25% due 11/01/2003 18,756,100 19,914,400 0.2
12,500,000 6.75% due 11/01/2005 12,001,875 12,547,500 0.1
------------- ------------- -----
364,575,786 373,993,612 3.6
===================================================================================================================
Beverages 15,000,000 Coca-Cola Femsa, SA, 8.95% due
11/01/2006 14,987,325 15,004,950 0.1
10,000,000 Panamerican Beverages Inc., 7.25% due
7/01/2009 10,037,500 8,312,500 0.1
------------- ------------- -----
25,024,825 23,317,450 0.2
===================================================================================================================
Broadcasting 20,000,000 British Sky Broadcasting Group PLC,
7.30% due 10/15/2006 20,037,440 20,161,200 0.2
===================================================================================================================
Building 10,000,000 Armstrong World, 6.50% due 8/15/2005 9,980,400 9,907,300 0.1
Materials
===================================================================================================================
Chemicals Airgas Inc.:
8,000,000 7.15% due 9/17/2001 7,917,840 8,196,000 0.1
12,000,000 7.14% due 3/08/2004 12,007,480 11,534,304 0.1
37,000,000 Equistar Chemicals LP, 6.50% due 2/15/2006 35,447,016 34,360,827 0.3
</TABLE>
11
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Chemicals $ 10,000,000 Monsanto Company, 5.75% due
(concluded) 12/01/2005+++ $ 9,973,500 $ 9,766,430 0.1%
40,000,000 Union Carbide Corp., 6.79% due 6/01/2025 40,292,500 40,560,000 0.4
------------- ------------- -----
105,638,336 104,417,561 1.0
===================================================================================================================
Consumer Loewen Group International, Inc.+++:
Services 20,000,000 6.70% due 10/01/1999 19,430,340 12,400,000 0.1
20,000,000 8.25% due 10/15/2003 20,208,132 10,700,000 0.1
------------- ------------- -----
39,638,472 23,100,000 0.2
===================================================================================================================
Electronics Tandy Corporation:
20,000,000 6.125% due 1/15/2003 19,971,600 20,211,400 0.2
15,000,000 6.95% due 9/01/2007 14,944,120 14,961,000 0.1
------------- ------------- -----
34,915,720 35,172,400 0.3
===================================================================================================================
Finance General Motors Acceptance Corp.:
55,000,000 5.625% due 2/15/2001 54,450,000 54,986,250 0.5
30,000,000 5.35% due 12/07/2001 30,000,000 29,702,580 0.3
30,000,000 5.48% due 12/16/2002 30,000,000 29,611,500 0.3
------------- ------------- -----
114,450,000 114,300,330 1.1
===================================================================================================================
Financial GATX Capital Corporation:
Leasing 25,000,000 6.875% due 11/01/2004 24,938,000 25,194,250 0.3
25,000,000 6.69% due 11/30/2005 24,984,750 24,692,250 0.2
XTRA Inc.:
20,000,000 6.68% due 11/30/2001 20,000,000 20,362,160 0.2
3,000,000 6.50% due 1/15/2004 2,988,330 3,014,790 0.0
------------- ------------- -----
72,911,080 73,263,450 0.7
===================================================================================================================
Financial--Other 14,000,000 Case Credit Corporation, 5.95% due
8/01/2000 13,988,380 14,007,294 0.1
30,000,000 Ford Motor Credit Company, 5.75% due
2/23/2004 29,947,050 29,746,740 0.3
40,000,000 International Lease Finance Corp.,
5.64% due 4/01/2002 39,838,800 39,469,600 0.4
------------- ------------- -----
83,774,230 83,223,634 0.8
===================================================================================================================
Financial Finova Capital Corp.:
Services 10,000,000 6.56% due 11/15/2002 10,000,000 10,166,500 0.1
15,000,000 5.99% due 1/10/2003 14,976,450 14,968,650 0.1
25,000,000 5.98% due 1/15/2003 24,960,500 24,853,250 0.2
20,000,000 McDonnell Douglas Finance Corp.,
6.965% due 9/12/2005 20,049,200 20,708,540 0.2
35,000,000 Morgan Stanley Group, Inc., 5.75% due
2/15/2001 34,968,150 34,929,790 0.3
13,000,000 Norwest Financial, Inc., 6.625% due
7/15/2004 13,000,000 13,327,080 0.1
10,000,000 Salomon, Inc., 6.75% due 2/15/2003 9,804,000 10,225,260 0.1
Salomon Smith Barney Holdings, Inc.:
25,000,000 6.625% due 7/01/2002 24,994,000 25,608,750 0.3
20,000,000 7% due 3/15/2004 19,951,800 20,713,200 0.2
5,000,000 6.375% due 10/01/2004 5,104,400 5,042,900 0.1
------------- ------------- -----
177,808,500 180,543,920 1.7
===================================================================================================================
Food & Tobacco Nabisco, Inc.:
21,500,000 6.125% due 2/01/2033 21,405,450 20,766,420 0.2
20,000,000 6.375% due 2/01/2035 19,939,200 19,663,600 0.2
------------- ------------- -----
41,344,650 40,430,020 0.4
===================================================================================================================
</TABLE>
12
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
===================================================================================================================
<S> <C> <C> <C> <C> <C>
Hospital Medpartners, Inc.:
Management $ 29,125,000 6.875% due 9/01/2000 $ 28,915,910 $ 25,666,406 0.3%
5,500,000 7.375% due 10/01/2006 4,886,570 4,186,875 0.0
------------- ------------- -----
33,802,480 29,853,281 0.3
===================================================================================================================
Industrial 20,000,000 Browning-Ferris Industries, Inc.,
6.375% due 1/15/2008 19,627,200 17,411,600 0.2
Interface, Inc.:
5,000,000 9.50% due 11/15/2005 4,850,000 5,200,000 0.0
10,000,000 7.30% due 4/01/2008 9,934,520 9,571,660 0.1
20,000,000 Reliance Industries Ltd., 8.25% due
1/15/2027+++ 19,526,999 17,262,500 0.2
10,000,000 Tosco Corporation, 7.625% due 5/15/2006 10,746,300 10,519,200 0.1
29,500,000 Triton Energy Ltd./Corp., 8.75% due
4/15/2002 29,455,930 27,877,500 0.2
15,000,000 United Refining Co., 10.75% due 6/15/2007 15,000,000 11,025,000 0.1
20,000,000 Williams Companies Inc., 6.625% due
11/15/2004 19,908,000 20,259,000 0.2
40,000,000 Williams Holdings of Delaware, Inc.,
6.25% due 2/01/2006 39,791,600 39,078,800 0.4
------------- ------------- -----
168,840,549 158,205,260 1.5
===================================================================================================================
Information Reynolds & Reynolds Company:
Systems 10,000,000 5.875% due 3/20/2000 9,992,900 10,034,400 0.1
37,500,000 6.12% due 3/02/2001 37,500,000 37,119,750 0.3
------------- ------------- -----
47,492,900 47,154,150 0.4
===================================================================================================================
Machinery FMC Corp.:
10,000,000 7.125% due 11/25/2002 10,000,000 10,049,670 0.1
20,000,000 6.75% due 5/05/2005 19,890,200 19,220,920 0.2
22,500,000 Harris Corporation, 6.375% due 8/15/2002 22,461,850 22,605,975 0.2
------------- ------------- -----
52,352,050 51,876,565 0.5
===================================================================================================================
Media/Publishing 15,000,000 News America Inc., 6.75% due 1/09/2038 15,000,000 15,045,750 0.2
===================================================================================================================
Natural Gas-- Enron Corp.:
Pipelines 30,000,000 6.75% due 7/01/2005 29,387,285 30,107,100 0.3
20,000,000 6.40% due 7/15/2006 20,036,050 19,945,600 0.2
------------- ------------- -----
49,423,335 50,052,700 0.5
===================================================================================================================
Natural Gas 27,500,000 The Coastal Corporation, 6.70% due
Suppliers 2/15/2027 27,225,400 27,540,123 0.3
===================================================================================================================
Oil--Integrated 10,000,000 Compania Naviera Perez Compac
S.A.C.F.I.M.F.A., 9% due 1/30/2004+++ 10,125,000 9,750,000 0.1
10,000,000 Giant Industries, Inc., 9% due
9/01/2007+++ 10,000,000 9,000,000 0.1
Occidental Petroleum Corp.:
18,375,000 6.24% due 11/24/2000 18,135,306 18,350,561 0.2
23,000,000 6.50% due 4/01/2005 22,708,915 22,423,850 0.2
20,000,000 Perez Companc SA, 8.125% due 7/15/2007+++ 19,701,880 17,800,000 0.1
10,000,000 Union Oil of California, 6.11% due
2/17/2004 10,000,000 9,855,750 0.1
23,250,000 Union Texas Petroleum Holdings, Inc.,
6.70% due 11/18/2002 23,190,070 23,792,632 0.2
20,000,000 YPF Sociedad Anonima, 8% due 2/15/2004 18,334,375 19,600,000 0.2
------------- ------------- -----
132,195,546 130,572,793 1.2
===================================================================================================================
</TABLE>
13
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Value Percent of
Industries Amount Corporate Bonds Cost (Note 1a) Net Assets
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
Oil Field $ 20,000,000 R & B Falcon Corporation, 6.75% due
Equipment 4/15/2005 $ 19,663,800 $ 16,300,000 0.2%
=====================================================================================================================
Paper & Forest Boise Cascade Corporation:
Products 10,000,000 7.35% due 10/11/2004 10,316,700 9,699,000 0.1
20,000,000 7.66% due 5/27/2005 20,000,000 19,499,000 0.2
25,000,000 Champion International Corp.,
6.65% due 12/15/2037 25,000,000 25,044,250 0.2
------------- ------------- -----
55,316,700 54,242,250 0.5
=====================================================================================================================
Real Estate 10,000,000 Franchise Finance Corp. of America,
Investment Trusts 6.95% due 8/29/2007 10,000,000 8,638,610 0.1
=====================================================================================================================
Telecommunications 10,000,000 Pacific Telecom, Inc., 6.625% due
10/20/2005 10,000,000 9,960,360 0.1
10,000,000 Worldcom Inc., 6.40% due 8/15/2005 10,013,350 10,116,600 0.1
------------- ------------- -----
20,013,350 20,076,960 0.2
=====================================================================================================================
Tires & Rubber 40,000,000 The Goodyear Tire & Rubber Company,
6.625% due 12/01/2006 39,840,000 38,833,600 0.4
=====================================================================================================================
Transportation 10,000,000 Continental Airlines, 8% due 12/15/2005 10,000,000 9,806,800 0.1
27,750,000 Kansas City Southern Industries, Inc.,
7% due 12/15/2025 26,709,375 26,060,580 0.3
Northwest Airlines, Inc.:
20,000,000 7.625% due 3/15/2005 19,390,850 18,687,400 0.2
5,000,000 7.875% due 3/15/2008 4,473,700 4,605,100 0.0
Ryder Systems, Inc.:
9,000,000 6.30% due 7/21/2003 9,000,000 8,843,049 0.1
20,000,000 6.50% due 5/15/2005 19,960,600 20,020,160 0.2
17,000,000 Transportacion Maritima Mexicana, SA
de CV, 10% due 11/15/2006 17,152,730 14,110,000 0.1
12,500,000 Union Pacific Corporation, 6.39% due
11/01/2004 12,500,000 12,499,238 0.1
------------- ------------- -----
119,187,255 114,632,327 1.1
=====================================================================================================================
Travel & Lodging Royal Caribbean Cruises Ltd.:
10,000,000 7.125% due 9/18/2002 9,900,050 10,200,600 0.1
15,000,000 7.25% due 8/15/2006 15,036,055 15,231,450 0.1
------------- ------------- -----
24,936,105 25,432,050 0.2
=====================================================================================================================
Utilities-- 33,000,000 Empresa Nacional de Electricidad SA
Electric, (Endesa), 7.325% due 2/01/2037 33,065,750 30,670,200 0.3
Gas & Water 24,750,000 Tata Electric Co., 8.50% due
8/19/2017+++ 23,737,525 19,663,801 0.2
------------- ------------- -----
56,803,275 50,334,001 0.5
=====================================================================================================================
Yankee Corporates 15,000,000 Enersis SA, 6.60% due 12/01/2026 14,350,102 14,348,100 0.1
=====================================================================================================================
Total Corporate Bonds 2,067,030,856 2,022,854,407 19.3
=====================================================================================================================
</TABLE>
14
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Collateralized Mortgage Obligations** Cost (Note 1a) Net Assets
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation:
$ 5,113,662 6.50% due 5/15/2008 $ 4,886,743 $ 5,120,054 0.1%
5,000,000 7% due 8/15/2008 4,762,500 4,992,150 0.0
13,000,000 6% due 2/15/2011 12,020,937 12,459,980 0.1
=======================================================================================================================
Total Collateralized Mortgage Obligations 21,670,180 22,572,184 0.2
=======================================================================================================================
Foreign Government Obligations
=======================================================================================================================
10,000,000 Province of Mendoza, 10% due 9/04/2007+++ 9,931,700 6,600,000 0.1
Republic of Argentina:
59,500,000 8.75% due 7/10/2002+++ 55,708,750 51,839,375 0.5
20,000,000 8.375% due 12/20/2003 19,773,750 18,350,000 0.2
9,300,000 5.938% due 3/31/2005+** 8,490,900 7,960,800 0.1
20,000,000 Republic of Colombia, 7.625% due
2/15/2007 18,353,175 17,100,000 0.1
15,000,000 Republic of Guatemala, 8.50% due
8/03/2007+++ 15,082,250 13,200,000 0.1
20,000,000 Republic of Panama, 8.25% due 4/22/2008 19,897,600 18,700,000 0.2
Republic of Turkey+++:
10,000,000 9.875% due 2/23/2005 9,901,850 9,175,000 0.1
18,000,000 10% due 9/19/2007 17,677,500 16,492,500 0.1
=======================================================================================================================
Total Foreign Government Obligations 174,817,475 159,417,675 1.5
=======================================================================================================================
US Government Obligations
=======================================================================================================================
US Treasury Bonds:
165,000,000 6.25% due 8/15/2023 153,347,266 172,425,000 1.7
65,000,000 6% due 2/15/2026 69,179,883 66,066,650 0.6
35,000,000 US Treasury Inflation Indexed Note,
3.625% due 1/15/2008 34,855,937 34,768,789 0.3
US Treasury Notes:
50,000,000 6.50% due 5/15/2005 54,742,188 52,953,000 0.5
580,000,000 5.875% due 11/15/2005 563,475,856 595,950,000 5.7
350,000,000 5.625% due 2/15/2006 350,698,047 354,977,000 3.4
35,000,000 5.50% due 2/15/2008 36,595,313 35,393,750 0.3
=======================================================================================================================
Total US Government Obligations 1,262,894,490 1,312,534,189 12.5
=======================================================================================================================
Short-Term Investments
=======================================================================================================================
Commercial 50,000,000 Ford Motor Credit Company, 4.84% due
Paper*** 4/19/1999 49,879,000 49,879,000 0.4
40,000,000 General Electric Capital Corp., 4.84%
due 4/06/1999 39,973,111 39,973,111 0.4
52,209,000 General Motors Acceptance Corp.,
5.13% due 4/01/1999 52,209,000 52,209,000 0.5
35,000,000 Metropolitan Life Insurance Company,
4.84% due 4/22/1999 34,901,183 34,901,183 0.3
=======================================================================================================================
</TABLE>
15
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Short-Term Investments Cost (Note 1a) Net Assets
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
US Government Federal Home Loan Mortgage Corporation:
Agency $ 50,000,000 4.77% due 4/14/1999 $ 49,913,875 $ 49,913,875 0.5%
Obligations*** 40,000,000 4.78% due 4/15/1999 39,925,644 39,925,644 0.4
=====================================================================================================================
Total Short-Term Investments 266,801,813 266,801,813 2.5
=====================================================================================================================
Total Investments $8,471,784,938 10,514,701,221 100.1
==============
Liabilities in Excess of Other Assets (12,057,087) (0.1)
--------------- -----
Net Assets $10,502,644,134 100.0%
=============== =====
=====================================================================================================================
</TABLE>
* American Depositary Receipts (ADR).
** Subject to principal paydowns.
*** Commercial Paper and certain US Government Agency Obligations are traded
on a discount basis; the interest rates shown reflect the discount rates
paid at the time of purchase by the Fund.
+ Brady Bonds are securities which have been issued to refinance commercial
bank loans and other debt. The risk associated with these instruments is
the amount of any uncollateralized principal or interest payments since
there is a high default rate of commercial bank loans by countries issuing
these securities.
++ Non-income producing security.
+++ The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
See Notes to Financial Statements.
(a) Investments in companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies" in
section 2 (a)(3) of the Investment Company Act of 1940) are as follows:
- --------------------------------------------------------------------------------
Net Share Net Dividend
Industry Affiliate Activity Cost Income
- --------------------------------------------------------------------------------
Diversified Varian,
Companies Inc. -- -- $ 700,000
Insurance Fremont General
Corporation 2,400,000 $ 8,782,758 1,267,000
Insurance Horace Mann
Educators
Corporation 300,000 8,651,948 814,500
Leisure/ Sun International
Hotels Hotels Ltd. 700,000 30,579,500 ++
- --------------------------------------------------------------------------------
++ Non-income producing security.
16
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of March 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$8,471,784,938)(Note 1a) ... $10,514,701,221
Cash ............................................................... 332,356
Receivables:
Interest ........................................................ $ 56,771,625
Dividends ....................................................... 13,013,295
Capital shares sold ............................................. 10,780,700
Securities sold ................................................. 148,755 80,714,375
--------------
Prepaid registration fees and other assets (Note 1f) ............... 129,136
---------------
Total assets ....................................................... 10,595,877,088
---------------
==========================================================================================================================
Liabilities: Payables:
Capital shares redeemed ......................................... 54,712,066
Securities purchased ............................................ 24,815,998
Distributor (Note 2) ............................................ 5,245,499
Investment adviser (Note 2) ..................................... 3,845,910 88,619,473
--------------
Accrued expenses and other liabilities ............................. 4,613,481
---------------
Total liabilities .................................................. 93,232,954
---------------
==========================================================================================================================
Net Assets: Net assets ......................................................... $10,502,644,134
===============
==========================================================================================================================
Net Assets Class A Shares of Common Stock, $0.10 par value, 400,000,000
Consist of: shares authorized .................................................. $ 10,365,514
Class B Shares of Common Stock, $0.10 par value, 400,000,000
shares authorized .................................................. 14,210,773
Class C Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized .................................................. 1,452,394
Class D Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized .................................................. 4,328,033
Paid-in capital in excess of par ................................... 8,070,085,015
Undistributed investment income--net ............................... 58,140,938
Undistributed realized capital gains on investments and foreign
currency transactions--net ......................................... 301,156,129
Unrealized appreciation on investments and foreign
currency transactions--net ......................................... 2,042,905,338
---------------
Net assets ......................................................... $10,502,644,134
===============
==========================================================================================================================
Net Asset Value: Class A--Based on net assets of $3,631,440,458 and 103,655,142
shares outstanding ........................................ $ 35.03
===============
Class B--Based on net assets of $4,866,563,935 and 142,107,730
shares outstanding ........................................ $ 34.25
===============
Class C--Based on net assets of $491,233,573 and 14,523,935
shares outstanding ........................................ $ 33.82
===============
Class D--Based on net assets of $1,513,406,168 and 43,280,328
shares outstanding ........................................ $ 34.97
===============
==========================================================================================================================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended March 31, 1999
<TABLE>
<S> <C> <C> <C>
Investment Interest and discount earned ................................. $ 277,139,605
Income Dividends (net of $1,640,645 foreign withholding tax) ........ 106,562,442
(Notes 1d & 1e): Other ........................................................ 596,954
-------------
Total income ................................................. 384,299,001
-------------
===================================================================================================================
Expenses: Account maintenance and distribution fees--Class B (Note 2) .. $ 54,169,400
Investment advisory fees (Note 2) ............................ 45,106,929
Transfer agent fees--Class B (Note 2) ........................ 9,042,052
Transfer agent fees--Class A (Note 2) ........................ 5,765,030
Account maintenance and distribution fees--Class C (Note 2) .. 5,360,592
Account maintenance fees--Class D (Note 2) ................... 3,492,956
Transfer agent fees--Class D (Note 2) ........................ 2,097,790
Transfer agent fees--Class C (Note 2) ........................ 941,754
Custodian fees ............................................... 837,799
Printing and shareholder reports ............................. 550,934
Registration fees (Note 1f) .................................. 167,293
Professional fees ............................................ 123,735
Directors' fees and expenses ................................. 49,479
Pricing fees ................................................. 30,110
Other ........................................................ 107,479
-------------
Total expenses ............................................... 127,843,332
-------------
Investment income--net ....................................... 256,455,669
-------------
===================================================================================================================
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net .......................................... 415,334,985
(Loss) on Foreign currency transactions--net ........................ (97,806) 415,237,179
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net .......................................... (873,941,516)
(Notes 1b, 1c, Foreign currency transactions--net ........................ (6,966) (873,948,482)
1e & 3): ------------- -------------
Net realized and unrealized loss on investments and foreign
currency transactions ........................................ (458,711,303)
-------------
Net Decrease in Net Assets Resulting from Operations ......... $(202,255,634)
=============
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year
Ended March 31,
---------------------------------
Increase (Decrease) in Net Assets: 1999 1998
===================================================================================================================
<S> <C> <C> <C>
Operations: Investment income--net .................................... $ 256,455,669 $ 272,540,546
Realized gain on investments and foreign currency
transactions--net ......................................... 415,237,179 569,208,611
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net ........ (873,948,482) 1,874,025,315
--------------- ---------------
Net increase (decrease) in net assets resulting from
operations ................................................ (202,255,634) 2,715,774,472
--------------- ---------------
===================================================================================================================
Dividends & Investment income--net:
Distributions to Class A ................................................ (118,803,106) (115,518,688)
Shareholders Class B ................................................ (102,818,160) (119,396,439)
(Note 1g): Class C ................................................ (11,137,417) (8,523,951)
Class D ................................................ (38,623,542) (26,653,341)
Realized gain on investments--net:
Class A ................................................ (129,813,411) (204,758,968)
Class B ................................................ (188,516,486) (306,423,980)
Class C ................................................ (18,832,977) (21,655,996)
Class D ................................................ (45,329,436) (51,231,087)
--------------- ---------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ............................. (653,874,535) (854,162,450)
--------------- ---------------
===================================================================================================================
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions ........................................ (528,711,091) 744,669,554
(Note 4): --------------- ---------------
===================================================================================================================
Net Assets: Total increase (decrease) in net assets ................... (1,384,841,260) 2,606,281,576
Beginning of year ......................................... 11,887,485,394 9,281,203,818
--------------- ---------------
End of year* .............................................. $10,502,644,134 $11,887,485,394
=============== ===============
===================================================================================================================
* Undistributed investment income--net (Note 1h) ............ $ 58,140,938 $ 73,165,000
=============== ===============
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999+ 1998+ 1997+ 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....... $ 37.56 $ 31.39 $ 30.90 $ 27.74 $ 27.46
Operating ---------- ---------- ---------- ---------- ----------
Performance Investment income--net ................... 1.00 1.11 1.25 1.21 1.01
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ........................ (1.28) 8.14 2.43 5.41 1.77
---------- ---------- ---------- ---------- ----------
Total from investment operations ......... (.28) 9.25 3.68 6.62 2.78
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ................ (1.08) (1.11) (1.25) (1.16) (.94)
Realized gain on investments--net ..... (1.17) (1.97) (1.94) (2.30) (1.56)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ........ (2.25) (3.08) (3.19) (3.46) (2.50)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............. $ 35.03 $ 37.56 $ 31.39 $ 30.90 $ 27.74
========== ========== ========== ========== ==========
==================================================================================================================================
Total Investment Based on net asset value per share ....... (.68%) 30.71% 12.62% 24.50% 10.95%
Return:* ========== ========== ========== ========== ==========
==================================================================================================================================
Ratios to Expenses ................................. .57% .55% .55% .56% .57%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net ................... 2.86% 3.21% 3.99% 4.09% 3.81%
========== ========== ========== ========== ==========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) ... $3,631,440 $4,155,677 $3,291,219 $3,225,758 $2,507,767
Data: ========== ========== ========== ========== ==========
Portfolio turnover ....................... 33% 38% 47% 84% 89%
========== ========== ========== ========== ==========
==================================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
See Notes to Financial Statements.
20
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class B
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999+ 1998+ 1997+ 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ....... $ 36.68 $ 30.72 $ 30.30 $ 27.28 $ 27.04
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net ................... .63 .74 .91 .90 .74
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ........................ (1.25) 7.96 2.39 5.29 1.72
---------- ---------- ---------- ---------- ----------
Total from investment operations ......... (.62) 8.70 3.30 6.19 2.46
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net ................ (.64) (.77) (.94) (.87) (.66)
Realized gain on investments--net ..... (1.17) (1.97) (1.94) (2.30) (1.56)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions ........ (1.81) (2.74) (2.88) (3.17) (2.22)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ............. $ 34.25 $ 36.68 $ 30.72 $ 30.30 $ 27.28
========== ========== ========== ========== ==========
==================================================================================================================================
Total Investment Based on net asset value per share ....... (1.65%) 29.38% 11.48% 23.22% 9.81%
Return:* ========== ========== ========== ========== ==========
==================================================================================================================================
Ratios to Expenses ................................. 1.59% 1.57% 1.57% 1.58% 1.59%
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net ................... 1.85% 2.19% 2.97% 3.07% 2.79%
========== ========== ========== ========== ==========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) ... $4,866,564 $5,938,708 $4,977,431 $5,025,504 $3,664,250
Data: ========== ========== ========== ========== ==========
Portfolio turnover ....................... 33% 38% 47% 84% 89%
========== ========== ========== ========== ==========
==================================================================================================================================
</TABLE>
* Total investment returns exclude the effects of sales loads.
+ Based on average shares outstanding.
See Notes to Financial Statements.
21
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C
---------------------------------------------------------------
For the
The following per share data and ratios have been derived Period
from information provided in the financial statements. For the Year Oct. 21,
Ended March 31, 1994+ to
-------------------------------------------------- March 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 36.31 $ 30.44 $ 30.08 $ 27.17 $ 26.81
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ..................... .62 .73 .90 .92 .49
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .......................... (1.25) 7.89 2.36 5.24 1.03
-------- -------- -------- -------- --------
Total from investment operations ........... (.63) 8.62 3.26 6.16 1.52
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. (.69) (.78) (.96) (.95) (.43)
Realized gain on investments--net ....... (1.17) (1.97) (1.94) (2.30) (.73)
-------- -------- -------- -------- --------
Total dividends and distributions .......... (1.86) (2.75) (2.90) (3.25) (1.16)
-------- -------- -------- -------- --------
Net asset value, end of period ............. $ 33.82 $ 36.31 $ 30.44 $ 30.08 $ 27.17
======== ======== ======== ======== ========
=================================================================================================================================
Total Investment Based on net asset value per share ......... (1.70%) 29.40% 11.45% 23.25% 6.07%++
Return:** ======== ======== ======== ======== ========
=================================================================================================================================
Ratios to Expenses ................................... 1.59% 1.58% 1.58% 1.59% 1.64%*
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net ..................... 1.83% 2.18% 2.96% 3.08% 3.22%*
======== ======== ======== ======== ========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ... $491,234 $512,783 $322,438 $259,131 $ 46,902
Data: ======== ======== ======== ======== ========
Portfolio turnover ......................... 33% 38% 47% 84% 89%
======== ======== ======== ======== ========
=================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
22
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D
----------------------------------------------------------------
For the
The following per share data and ratios have been derived Period
from information provided in the financial statements. For the Year Oct. 21,
Ended March 31, 1994+ to
-------------------------------------------------- March 31,
Increase (Decrease) in Net Asset Value: 1999++ 1998++ 1997++ 1996 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ....... $ 37.49 $ 31.34 $ 30.86 $ 27.72 $ 27.27
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net ..................... .91 1.02 1.17 1.16 .48
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .......................... (1.28) 8.14 2.43 5.38 1.15
---------- ---------- ---------- ---------- ----------
Total from investment operations ........... (.37) 9.16 3.60 6.54 1.63
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net .................. (.98) (1.04) (1.18) (1.10) (.45)
Realized gain on investments--net ....... (1.17) (1.97) (1.94) (2.30) (.73)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions .......... (2.15) (3.01) (3.12) (3.40) (1.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period ............. $ 34.97 $ 37.49 $ 31.34 $ 30.86 $ 27.72
========== ========== ========== ========== ==========
=================================================================================================================================
Total Investment Based on net asset value per share ......... (.92%) 30.40% 12.34% 24.21% 6.42%++
Return:** ========== ========== ========== ========== ==========
=================================================================================================================================
Ratios to Expenses ................................... .82% .80% .80% .81% .87%*
Average ========== ========== ========== ========== ==========
Net Assets: Investment income--net ..................... 2.60% 2.95% 3.75% 3.84% 3.94%*
========== ========== ========== ========== ==========
=================================================================================================================================
Supplemental Net assets, end of period (in thousands) ... $1,513,406 $1,280,317 $ 690,116 $ 521,599 $ 171,201
Data: ========== ========== ========== ========== ==========
Portfolio turnover ......................... 33% 38% 47% 84% 89%
========== ========== ========== ========== ==========
=================================================================================================================================
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales loads.
+ Commencement of operations.
++ Based on average shares outstanding.
++ Aggregate total investment return.
See Notes to Financial Statements.
23
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Capital Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of management accruals
and estimates. The Fund offers four classes of shares under the Merrill Lynch
Select Pricing(SM) System. Shares of Class A and Class D are sold with a
front-end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have identical voting,
dividend, liquidation and other rights and the same terms and conditions, except
that Class B, Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its account
maintenance and distribution expenditures. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded on stock
exchanges are valued at the last sale price on the exchange on which such
securities are traded, as of the close of business on the day the securities are
being valued or, lacking any sales, at the last available bid price. Securities
traded in the over-the-counter market are valued at the last available bid price
prior to the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange designated by or
under the authority of the Board of Directors as the primary market. Securities
which are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Securities and assets for which market quotations are
not available are valued at fair value as determined in good faith by or under
the direction of the Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies to seek to increase its return by hedging its portfolio against
adverse movements in the equity, debt and currency markets. Losses may arise due
to changes in the value of the contract or if the counterparty does not perform
under the contract.
o Options--The Fund is authorized to write covered call options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked to market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written options are non-income producing investments.
(c) Foreign currency transactions--Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into US dollars. Realized and unrealized gains or losses from
investments include the effects of foreign exchange rates on investments.
(d) Income taxes--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(e) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Dividend income is recorded on the ex-dividend dates. Dividends from foreign
securities where the ex-dividend date may have passed are subsequently
24
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
recorded when the Fund has determined the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on the
identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged to expense
as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles require that
certain components of net assets be adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $97,506 have been reclassified between undistributed net
realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Asset Management, L.P. ("MLAM"). The general partner of MLAM is Princeton
Services, Inc. ("PSI"), an indirect wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered
into a Distribution Agreement and Dis-tribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of Merrill Lynch
Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Fund. For such services, the Fund pays a monthly fee
based upon the average daily value of the Fund's net assets at the following
annual rates: 0.50% of the Fund's average daily net assets not exceeding $250
million; 0.45% of average daily net assets in excess of $250 million but not
exceeding $300 million; 0.425% of average daily net assets in excess of $300
million but not exceeding $400 million; and 0.40% of average daily net assets in
excess of $400 million.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B ...................................... 0.25% 0.75%
Class C ...................................... 0.25% 0.75%
Class D ...................................... 0.25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended March 31, 1999, MLFD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A ...................................... $26,209 $ 349,246
Class D ...................................... $89,253 $1,239,527
- --------------------------------------------------------------------------------
For the year ended March 31, 1999, MLPF&S received contingent deferred sales
charges of $5,913,754 and $277,813 relating to transactions in Class B and Class
C Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $54,988 and $19,091 relating to transactions subject to front-end
sales charge waivers in Class A Shares and Class D Shares, respectively.
In addition, MLPF&S received $429,881 in commissions on the execution of
portfolio security transactions for the year ended March 31, 1999.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
During the year ended March 31, 1999, Merrill Lynch Security Pricing Service, an
affiliate of MLPF&S, received $4,365 for security price quotations to compute
the net asset value of the Fund.
Certain officers and/or directors of the Fund are officers and/or directors of
MLAM, PSI, FDS, PFD, and/or ML & Co.
25
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 1999 were $3,565,056,604 and $4,328,817,912, respectively.
Net realized gains (losses) for the year ended March 31, 1999 and net unrealized
gains (losses) as of March 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments ................... $415,331,578 $2,042,916,283
Short-term investments .................. 3,407 --
Foreign currency
transactions ............................ (97,806) (10,945)
------------ --------------
Total ................................... $415,237,179 $2,042,905,338
============ ==============
- --------------------------------------------------------------------------------
As of March 31, 1999, net unrealized appreciation for Federal income tax
purposes aggregated $2,040,807,050, of which $2,371,769,132 related to
appreciated securities and $330,962,082 related to depreciated securities. At
March 31, 1999 the aggregate cost of investments for Federal income tax purposes
was $8,473,894,171.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(528,711,091) and $744,669,554 for the years ended March 31, 1999 and March
31, 1998, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Dollar
Year Ended March 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 16,782,506 $ 585,910,429
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 6,484,241 228,111,225
----------- ---------------
Total issued ......................... 23,266,747 814,021,654
Shares redeemed ...................... (30,254,844) (1,040,366,870)
----------- ---------------
Net decrease ......................... (6,988,097) $ (226,345,216)
=========== ===============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class A Shares for the Dollar
Year Ended March 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 18,254,019 $ 634,543,940
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 8,638,512 294,091,362
----------- ---------------
Total issued ......................... 26,892,531 928,635,302
Shares redeemed ...................... (21,089,819) (727,078,860)
----------- ---------------
Net increase ......................... 5,802,712 $ 201,556,442
=========== ===============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Dollar
Year Ended March 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 28,293,185 $ 968,253,586
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 7,386,447 255,009,750
----------- ---------------
Total issued ......................... 35,679,632 1,223,263,336
Automatic conversion
of shares ............................ (7,978,182) (270,957,196)
Shares redeemed ...................... (47,481,419) (1,598,341,212)
----------- ---------------
Net decrease ......................... (19,779,969) $ (646,035,072)
=========== ===============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Dollar
Year Ended March 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 26,936,302 $ 915,743,174
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 11,273,540 376,017,355
----------- ---------------
Total issued ......................... 38,209,842 1,291,760,529
Automatic conversion
of shares ............................ (7,065,614) (239,303,799)
Shares redeemed ...................... (31,261,809) (1,049,566,557)
----------- ---------------
Net increase (decrease) .............. (117,581) $ 2,890,173
=========== ===============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Dollar
Year Ended March 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 5,475,285 $ 187,992,163
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 777,031 26,502,658
----------- ---------------
Total issued ......................... 6,252,316 214,494,821
Shares redeemed ...................... (5,852,431) (193,387,191)
----------- ---------------
Net increase ......................... 399,885 $ 21,107,630
=========== ===============
- -------------------------------------------------------------------------------
26
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
- -------------------------------------------------------------------------------
Class C Shares for the Dollar
Year Ended March 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 5,470,865 $ 185,136,065
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 812,551 26,837,937
----------- ---------------
Total issued ......................... 6,283,416 211,974,002
Shares redeemed ...................... (2,750,233) (91,023,357)
----------- ---------------
Net increase ......................... 3,533,183 $ 120,950,645
=========== ===============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Dollar
Year Ended March 31, 1999 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 14,328,461 $ 483,227,861
Automatic conversion
of shares ............................ 7,815,253 270,957,196
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 2,175,293 76,273,791
----------- ---------------
Total issued ......................... 24,319,007 830,458,848
Shares redeemed ...................... (15,193,896) (507,897,281)
----------- ---------------
Net increase ......................... 9,125,111 $ 322,561,567
=========== ===============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class D Shares for the Dollar
Year Ended March 31, 1998 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 9,630,431 $ 333,114,038
Automatic conversion
of shares ............................ 6,920,593 239,303,799
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 2,068,449 70,372,205
----------- ---------------
Total issued ......................... 18,619,473 642,790,042
Shares redeemed ...................... (6,482,847) (223,517,748)
----------- ---------------
Net increase ......................... 12,136,626 $ 419,272,294
=========== ===============
- -------------------------------------------------------------------------------
27
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Capital Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Capital Fund, Inc. as of March 31,
1999, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at March
31, 1999 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Capital Fund, Inc. as of March 31, 1999, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 14, 1999
28
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill
Lynch Capital Fund, Inc. during its fiscal year ended March 31, 1999:
<TABLE>
<CAPTION>
===================================================================================================================================
Record Payable Qualifying Domestic Interest from Domestic Non-Qualifying Total Long-Term
Date Date Ordinary Income Federal Obligations Ordinary Income Ordinary Income Capital Gains*
===================================================================================================================================
<S> <S> <C> <C> <C> <C> <C>
Class A Shares:
===================================================================================================================================
7/02/1998 7/10/1998 $.168936 $.132512 $.427939 $.729387 $.689874
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/1998 12/17/1998 $.139175 $.093475 $.255049 $.487699 $.342323
===================================================================================================================================
Class B Shares:
===================================================================================================================================
7/02/1998 7/10/1998 $.108988 $.085489 $.276083 $.470560 $.689874
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/1998 12/17/1998 $.089642 $.060207 $.164274 $.314123 $.342323
===================================================================================================================================
Class C Shares:
===================================================================================================================================
7/02/1998 7/10/1998 $.119595 $.093810 $.302952 $.516357 $.689874
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/1998 12/17/1998 $.090331 $.060669 $.165537 $.316537 $.342323
===================================================================================================================================
Class D Shares:
===================================================================================================================================
7/02/1998 7/10/1998 $.156422 $.122696 $.396238 $.675356 $.689874
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/1998 12/17/1998 $.127382 $.085555 $.233437 $.446374 $.342323
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* All long-term capital gains distributions paid by the Fund during the
fiscal year are subject to the 20% tax rate.
The qualifying domestic ordinary income qualifies for the dividends-received
deduction for corporations.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax adviser to determine if any portion of the
dividends you received are exempt from state income tax.
Listed in the table at right are the percentages of total assets of the Fund
invested in Federal obligations for each quarter ended during the fiscal year.
Please retain this information for your records.
- --------------------------------------------------------------------------------
Percentage of
For the Quarter Ended Federal Obligations+
- --------------------------------------------------------------------------------
June 30, 1998 ............................................ 13.38%
September 30, 1998 ....................................... 12.21
December 31, 1998 ........................................ 12.09
March 31, 1999 ........................................... 12.39
- --------------------------------------------------------------------------------
+ For purposes of this calculation, Federal Obligations include US Treasury
Notes, US Treasury Bills and US Treasury Bonds. Also included are obligations
issued by the following agencies: Banks for Cooperatives, Federal Intermediate
Credit Banks, Federal Land Banks, Federal Home Loan Banks and the Student Loan
Marketing Association. Repurchase Agreements are not included in this
calculation.
29
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
PORTFOLIO INFORMATION (unaudited)
As of March 31, 1999
Percent of
Ten Largest Common Stock Holdings Net Assets
Kansas City Southern Industries, Inc. ....... 2.7%
The Williams Companies, Inc. ................ 2.4
Citigroup Inc. .............................. 2.4
United Technologies Corporation ............. 2.3
Motorola, Inc. .............................. 1.8
McDonald's Corporation ...................... 1.7
Corning Incorporated ........................ 1.7
The Chase Manhattan Corporation ............. 1.6
Carnival Corporation ........................ 1.6
American International Group, Inc. .......... 1.6
Percent of
Ten Largest Industries Net Assets*
Insurance ................................... 10.1%
Diversified Companies ....................... 5.4
Banking ..................................... 5.2
Natural Gas ................................. 4.8
Railroads ................................... 3.9
Oil--Integrated ............................. 3.6
Chemicals ................................... 3.4
Food & Beverage ............................. 3.3
Leisure/Hotels .............................. 3.1
Wireless Communication--
Domestic Paging & Cellular ................ 3.0
* Based on total holdings in common stocks and bonds.
Common Stock Portfolio Changes for the
Quarter Ended March 31, 1999
Additions
American Home Products Corporation
* Conexant Systems, Inc.
Fortune Brands, Inc.
Reuters Group PLC (ADR)
Telefonaktiebolaget LM Ericsson (ADR)
* U.S. Filter Corp.
Deletions
American Standard Companies, Inc.
* Conexant Systems, Inc.
Imperial Chemical Industries PLC (ADR)
Koninklijke (Royal) Philips Electronics N.V.
(NY Registered Shares)
LucasVarity PLC (ADR)
Rite Aid Corporation
Tenneco Inc.
Transamerica Corporation
* U.S. Filter Corp.
Weyerhaeuser Company
Yue Yuen Industrial (Holdings) Limited
* Added and deleted in the same quarter.
30
<PAGE>
Merrill Lynch Capital Fund, Inc. March 31, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, 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
Arthur Zeikel, Director
Kurt Schansinger, Senior Vice President and
Portfolio Manager
Walter Cuje, Vice President
Donald C. Burke, Vice President and Treasurer
Thomas D. Jones, III, Secretary
- --------------------------------------------------------------------------------
Gerald M. Richard, Treasurer and Norman R. Harvey, Senior Vice President of
Merrill Lynch Capital Fund, Inc. have recently retired. Their colleagues at
Merrill Lynch Asset Management, L.P. join the Fund's Board of Directors in
wishing Mr. Richard and Mr. Harvey well in their retirements.
- --------------------------------------------------------------------------------
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
31
<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--3/99
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