MERRILL LYNCH
PHOENIX
FUND, INC.
FUND LOGO
Semi-Annual Report
January 31, 1996
Officers and Directors
Arthur Zeikel, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Robert J. Martorelli, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch Phoenix Fund, Inc. is not related to Phoenix Home Life
Mutual Life Insurance Company or any of its subsidiaries or
affiliates, including The Phoenix Series Fund.
Merrill Lynch
Phoenix Fund, Inc.
Box 9011
Princeton, NJ
08543
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
Although the partial shutdown of the US Government curtailed the
release of most economic data for the January quarter, it was
nonetheless apparent that gross domestic product (GDP) growth
continued to be lackluster. Consumer spending is barely growing, the
industrial sector is at a virtual standstill and, despite lower
mortgage rates, there is little or no pick-up in housing activity.
With inflationary pressures subdued, the Federal Reserve Board
responded to the slowing economy by modestly lowering short-term
interest rates in both December and January. Historically, it has
taken some time for shifts in monetary policy to have an impact on
economic growth. Therefore, the Federal Reserve Board's gradual
shift to lowering interest rates, which began early last year, may
not be reflected in a pick-up in real economic growth until later
this year.
The impasse between the Clinton Administration and Congress over the
Federal budget continues, although both sides have made concessions
since the debate began. It appears that investors are currently
focusing on the progress that has been made rather than on the
differences that remain. Initially, President Clinton proposed
deficits of about $190 billion annually through fiscal year 2002,
but now proposes balanced budgets, as do the Republicans. Current
indications are that a piecemeal budget accord is the most likely
outcome. Even without the proposed policy changes, it appears that
the US Federal budget deficit would remain stable at about 2% of GDP
for the rest of the decade. This would be far better than is the
case for most Group of Seven industrial nations, and for the United
States would represent a great improvement over the last 15 years.
Although this may fall short of investors' best expectations, it
appears that the Federal budget debate over the past year has
resulted in a trend toward a more conservative fiscal policy.
Portfolio Matters
During the January quarter, Merrill Lynch Phoenix Fund, Inc.
underperformed relative to the US stock market in general. As was
the case during the quarter ended October 31, 1995, in a liquidity-
driven stock market environment, the best performers are likely to
be large-capitalization, quality companies, which are not in the
Fund's universe of potential investments. In addition, negative
investor sentiment toward three important areas of investment for
the Fund--retail, cable television, and so-called "broken" or
"busted" technology issues--negatively impacted the Fund's
performance. (For a complete listing of the Fund's ten largest
holdings and five largest industries, see page 19 of this report to
shareholders.) During the January quarter, retailing stocks came
under pressure on news of a poor holiday season, and technology
shares declined as investors reassessed the sector's prospects in an
environment of slowing economic growth. Although the new
telecommunications bill was enacted in early February, the
uncertainty over its passage caused share price declines for cable
television companies during the January quarter.
<PAGE>
While performance of our largest retailing, cable television and
technology holdings will continue to have a significant impact on
Fund performance, there are other major holdings that play an
important part in the Fund's portfolio, such as our investment in
National Education Corp., which was established in 1992. The company
has had a series of disappointing earnings results since our
purchase. Recently, National Education's new chief executive officer
sold off its unprofitable education center business for high-school
equivalency training and focused on the high-profit, high-growth
computer-based training business. This restructuring has already
resulted in higher earnings and a significantly higher share price.
While we remain positive on the company's prospects for the longer
term, we took partial profits in our National Education holding
during the quarter since this small-capitalization issue was
significantly overweighted in the portfolio following its share
price appreciation.
Corning Inc. is another of our largest investments. This
conglomerate manufactures specialty materials, optical fiber and
cookware. In addition, Corning is one of the country's largest
clinical laboratory service providers through its MetPath
subsidiary. Over the past year, the company's laboratory services
and cookware divisions have been performing below their historical
levels. We believe that Corning's management will address these
troubled businesses either by selling them off or making the drastic
changes that are needed to return them to profitability. As a
result, the company will be able to focus on the growing and
profitable specialty materials and optical fibers businesses, which
we expect will enhance profitability and benefit its share price.
As the stock market continues to set new highs, it becomes more
difficult for us to identify industry groups that are sharply
undervalued, with retailing representing the major exception. During
the January quarter, however, we did find value in a variety of
companies in disparate industries, such as banking, natural gas and
telecommunications equipment.
Dime Bancorp, Inc. is the largest thrift institution in New York
state. Recent earnings have been negatively impacted by a declining
interest rate spread. We believe management has done a good job in
building the company's franchise value during this difficult time by
making strategic acquisitions and growing deposits. Given the low
price/book value and price/earnings ratios for Dime Bancorp's
shares, they possess good upside potential, in our estimation.
<PAGE>
As we have mentioned, the delay in passing the telecommunications
bill led to price declines for a number of stocks in this area. In
addition to cable television stocks, telecommunications equipment
companies were negatively impacted by the delayed legislation as
telecommunications providers held off placing new orders. As a
result, the shares of The Allen Group, Inc. and Tekelec Inc. became
oversold, and we added them to the Fund's portfolio. Allen Group is
a leading supplier of wireless telecommunications equipment, and
Tekelec manufactures products which design, maintain, and operate
the equipment used by the telephone operating companies. We believe
the order slowdown for telecommunications equipment is temporary,
and that we are at the beginning of a long-term capital spending
cycle. We expect share price valuations for these and other
equipment suppliers to advance sharply in the years ahead.
The share price of Novell Inc. declined dramatically because of
problems in its applications division and uncertainty regarding its
networking business. The announced sale of the applications division
will remove an unprofitable operation and allow management to
concentrate on its higher-growth businesses. We believe that the
company's excellent balance sheet and large installed base make
Novell unusually attractive.
During the January quarter, we sold our investment in Kmart Corp.
common stock following the company's announcement of a $1.2 billion
"shelf registration" of new, unspecified securities. We viewed the
issuance of these securities as potentially highly dilutive for
common stockholders. However, since we remain confident in Kmart's
ability to recover from its current difficulties, we purchased the
company's debt following the sale of the common stock. We will re-
evaluate this investment once the new securities are issued and
adjust our investment in Kmart accordingly.
Other portfolio sales during the January quarter were Gaylord
Container Corp., The Liposome Company Inc. and Weatherford Enterra,
Inc. Shares of these companies appreciated significantly and met our
target prices.
In Conclusion
As discussed in our October 31, 1995 report to shareholders, as
contrarian investors we expect our holdings to experience periods of
underperformance from time to time. We continue to believe that
current poor investor expectations for retailing, telecommunications
and "broken" technology companies more than discount the challenges
they are facing. If there is an improvement in the economic outlook,
we would expect more positive investor sentiment to develop for the
retail and "broken" technology industries. Regarding telecommunications
companies, we believe that once investors perceive their improved
prospects now that the new legislation has been passed, a corresponding
increase in their share prices is likely to follow.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Robert J. Martorelli)
Robert J. Martorelli
Vice President and Portfolio Manager
February 29, 1996
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:
* 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.
* 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.
* 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.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
<PAGE>
None of the past results shown should 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. 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 12/31/95 +21.86% +15.46%
Five Years Ended 12/31/95 +20.71 +19.41
Ten Years Ended 12/31/95 +13.79 +13.18
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +20.68% +16.68%
Five Years Ended 12/31/95 +19.50 +19.50
Inception (10/21/88)
through 12/31/95 +11.32 +11.32
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +20.67% +19.67%
Inception (10/21/94)
through 12/31/95 +9.78 +9.78
[FN]
*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 12/31/95 +21.61% +15.23%
Inception (10/21/94)
through 12/31/95 +10.69 +5.80
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
1/31/96 10/31/95 1/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Phoenix Fund, Inc. Class A Shares* $12.80 $12.70 $11.23 +15.50%(1) + 0.80%(2)
ML Phoenix Fund, Inc. Class B Shares* 12.50 12.42 11.01 +15.08(1) + 0.65(2)
ML Phoenix Fund, Inc. Class C Shares* 12.43 12.35 10.98 +14.75(1) + 0.66(2)
ML Phoenix Fund, Inc. Class D Shares* 12.80 12.69 11.23 +15.50(1) + 0.88(2)
Dow Jones Industrial Average** 5,395.30 4,755.48 3,843.86 +40.36 +13.45
Standard & Poor's 500 Index** 636.02 581.50 470.42 +35.20 + 9.38
ML Phoenix Fund, Inc. Class A Shares--Total Return* +20.05(3) + 2.43(4)
ML Phoenix Fund, Inc. Class B Shares--Total Return* +18.88(5) + 2.12(6)
ML Phoenix Fund, Inc. Class C Shares--Total Return* +18.75(7) + 2.13(6)
ML Phoenix Fund, Inc. Class D Shares--Total Return* +19.82(8) + 2.41(9)
Dow Jones Industrial Average--Total Return** +43.97 +14.12
Standard & Poor's 500 Index--Total Return** +38.63 +10.01
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**An unmanaged broad-based index comprised of common stocks. Total
investment returns for unmanaged indexes are based on estimates.
(1)Percent change includes reinvestment of $0.183 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.001 per share capital
gains distributions.
(3)Percent change includes reinvestment of $0.528 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.209 per share ordinary
income dividends and $0.001 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.432 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(6)Percent change includes reinvestment of $0.183 per share ordinary
income dividends and $0.001 per share capital gains distributions.
(7)Percent change includes reinvestment of $0.454 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(8)Percent change includes reinvestment of $0.502 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(9)Percent change includes reinvestment of $0.196 per share ordinary
income dividends and $0.001 per share capital gains distributions.
</TABLE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
11/1/82--12/31/82 $ 9.35 $ 9.60 -- -- + 2.67%
1983 9.60 11.69 $ 0.470 $0.370 +31.05
1984 11.69 10.65 1.520 0.620 + 9.93
1985 10.65 12.00 0.980 0.710 +30.28
1986 12.00 12.39 1.010 0.610 +16.92
1987 12.39 10.50 1.551 0.676 + 0.95
1988 10.50 11.78 1.790 0.329 +33.18
1989 11.78 12.49 0.428 0.508 +13.87
1990 12.49 8.08 1.623 0.396 -20.66
1991 8.08 9.90 0.645 0.494 +37.01
1992 9.90 11.73 0.057 0.670 +26.69
1993 11.73 13.45 0.820 0.826 +29.54
1994 13.45 11.15 0.729 0.777 - 6.48
1995 11.15 12.90 0.183 0.528 +21.86
1/1/96--1/31/96 12.90 12.80 -- -- - 0.78
------- ------
Total $11.806 Total $7.514
<PAGE>
Cumulative total return as of 1/31/96: +595.86%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $11.96 $11.77 $0.086 $0.144 + 0.35%
1989 11.77 12.45 0.428 0.409 +12.78
1990 12.45 8.06 1.623 0.271 -21.54
1991 8.06 9.83 0.645 0.429 +35.66
1992 9.83 11.55 0.057 0.639 +25.37
1993 11.55 13.24 0.820 0.661 +28.23
1994 13.24 10.95 0.729 0.657 - 7.40
1995 10.95 12.62 0.183 0.432 +20.68
1/1/96--1/31/96 12.62 12.50 -- -- - 0.95
------ ------
Total $4.571 Total $3.642
Cumulative total return as of 1/31/96: +114.36%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $12.31 $10.91 $0.314 $0.172 - 7.35%
1995 10.91 12.55 0.183 0.454 +20.67
1/1/96--1/31/96 12.55 12.43 -- -- - 0.96
------ ------
Total $0.497 Total $0.626
Cumulative total return as of 1/31/96: +10.73%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $12.57 $11.16 $0.314 $0.186 - 7.17%
1995 11.16 12.91 0.183 0.502 +21.61
1/1/96--1/31/96 12.91 12.80 -- -- - 0.85
------ ------
Total $0.497 Total $0.688
Cumulative total return as of 1/31/96: +11.93%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Discount to Assets
Cable 400,000 Comcast Corporation--Special (Class A) $ 6,116,502 $ 8,000,000 1.1%
Day-Care Centers 700,000 ++Kinder-Care Learning Centers, Inc. 8,607,500 8,837,500 1.2
Total Discount to Assets 14,724,002 16,837,500 2.3
Earning Turnarounds
Airlines 1,280,000 ++Mesa Airlines, Inc. 8,833,522 10,240,000 1.4
Auto & Truck 309,600 Federal--Mogul Corp. 5,423,254 5,998,500 0.8
Banking & Financial 836,200 ++California Federal Bank, FSB 8,220,209 13,065,625 1.8
53,000 ++California Federal Bank, FSB Goodwill
Certificates 190,803 324,625 0.0
1,102,200 Dime Bancorp, Inc. 12,052,532 12,813,075 1.8
700,000 Roosevelt Financial Group Inc. 11,817,863 12,075,000 1.7
Cable 1,669,500 ++Century Communications Corp. ++++ 13,560,099 12,729,938 1.8
Computers & Peripherals 2,200,000 ++Tandem Computers, Inc. 28,034,235 20,625,000 2.9
Consumer Products 1,500,000 The Topps Co., Inc. 10,330,067 7,687,500 1.1
700,000 Tyco Toys, Inc. 3,272,500 3,587,500 0.5
Diversified 500,000 Specialty Equipment Companies Inc. 4,937,500 5,562,500 0.8
Electronics 300,000 Integrated Device Technology, Inc. 3,617,505 3,937,500 0.5
Energy Related 305,000 Apache Corp. 8,100,800 8,196,875 1.1
271,900 Nowsco Well Service Ltd. 2,446,366 3,779,683 0.5
700,000 Total Petroleum (North America) Ltd. 7,310,674 6,168,750 0.9
Environmental 930,000 ++Matrix Service Co. ++++ 8,370,557 3,894,375 0.5
900,000 ++TETRA Technologies, Inc. ++++ 6,881,282 14,175,000 2.0
Health Care 884,200 ++NeoRx Corp. ++++ 5,788,067 7,847,275 1.1
Home Builders 864,000 ++NVR, Inc. ++++ 4,950,221 8,964,000 1.2
53,828 NVR, Inc. (Warrants)(a) 235,498 114,385 0.0
Leisure & 2,525,000 ++CST Entertainment Imaging, Inc. (b) ++++ 4,268,312 2,051,563 0.3
Entertainment
<PAGE>
Manufacturing 229,400 ++Lamson & Sessions Co. 1,065,019 1,921,225 0.3
Oil Services 239,025 ++Computalog Ltd. 1,962,717 1,476,750 0.2
840,000 ++Rowan Companies, Inc. 5,968,942 9,135,000 1.3
Precision Instruments 250,000 ++Esterline Technology Corp. 2,130,397 5,625,000 0.8
Restaurants 965,519 ++Houlihan's Restaurant Group, Inc. ++++ 3,468,750 4,827,595 0.7
Retail 1,939,100 CML Group, Inc. 15,990,963 7,756,400 1.1
1,963,300 ++Service Merchandise Company, Inc. 10,726,295 9,325,675 1.3
Telecommunications 500,000 Tekelec Inc. 4,695,002 5,625,000 0.8
Equipment
Total Earning Turnarounds 204,649,951 209,531,314 29.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Restructuring
Aerospace & 2,360,000 ++Ladish Co., Inc. ++++ $ 2,864,038 $ 885,000 0.1%
Industrial Products
Airlines $18,475,000 ++Continental Airlines Holdings, Inc., Secured
Equipment Trust Certificates, 12.125%
due 4/15/1996 1,691,016 2,817,438 0.4
Beverages $15,000,000 ++Heileman Acquisition Co., Senior
Subordinated Notes, 9.625% due
1/31/2004 2,787,500 4,050,000 0.6
Chemicals 360,000 ++Specialty Chemical Resources, Inc. ++++ 3,579,642 630,000 0.1
Consumer Products $ 6,700,000 ++Polly Peck International Finance N.V.,
Convertible Preferred Shares, 7.25%
due 1/04/2005 241,200 284,750 0.0
Energy 66,523 ++Great Bay Power Corp. 1,322,835 498,922 0.1
Engineering 524,598 ++EMCOR Group, Inc. 2,975,150 5,377,129 0.7
Industrial Services $24,500,000 ++Anacomp, Inc., Senior Subordinated Notes,
15.00% due 11/01/2000 17,565,312 17,885,000 2.5
<PAGE>
Leisure & 3,600,000 ++TMM, Inc. 3,276,000 342,000 0.0
Entertainment
Real Estate $14,826,000 ++Olympia & York Maiden Lane Finance Corp.,
Secured Notes, 10.375% due 12/31/1995 (c) 6,626,202 6,894,090 1.0
625,000 ++Resurgence Properties Inc. ++++ 5,468,750 5,156,250 0.7
Retail 443,361 ++Zale Corp. Litigation Limited Partnership
Shares 0 0 0.0
Textiles $ 2,000,000 ++The Bibb Company, Senior Subordinated
Notes, 13.875% due 8/01/1999 745,000 740,000 0.1
$ 2,000,000 ++The Bibb Company, Senior Subordinated
Notes, 14.00% due 10/01/1999 798,750 760,000 0.1
Total Financial Restructuring 49,941,395 46,320,579 6.4
High Yield
Cable $ 5,910,000 Scott Cable, Subordinated Debentures,
12.25% due 4/15/2001 4,626,300 3,605,100 0.5
Energy $17,100,000 WRT Energy Corp., Senior Notes, 13.875%
due 3/01/2002 13,955,500 7,182,000 1.0
Engineering $ 4,931,500 EMCOR Group, Inc., A Notes, 7.00%
due 12/15/1997 4,741,076 4,882,185 0.7
Furniture $ 6,350,000 Levitz Furniture Inc., Senior Notes,
12.375% due 4/15/1997 5,769,125 5,842,000 0.8
Home Builders $ 4,100,000 ++Baldwin Homes, 10.375% due 8/01/2003 2,624,000 1,886,000 0.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
High Yield (concluded)
Leisure & $10,000,000 Bally's Health & Tennis Corporation,
Entertainment Senior Subordinated Notes, 13.00%
due 1/15/2003 $ 7,974,375 $ 8,350,000 1.2%
$11,000,000 Genmar Holdings, Inc., Senior Subordinated
Notes, 13.50% due 7/15/2001 11,000,000 10,175,000 1.4
330,000 Live Entertainment Inc., 5.00% Convertible
Preferred (Series B) 1,546,875 1,980,000 0.3
$ 7,500,000 Live Entertainment Inc., Senior
Subordinated Notes, 12.00% due 3/23/1999 5,643,750 5,775,000 0.8
$ 5,000,000 Trump Castle Funding Inc., 11.75% due
11/15/2003 3,117,883 4,475,000 0.6
$ 7,605,000 U.S. Trails Inc., Secured Notes, 12.00%
due 7/15/1998 5,346,125 5,095,350 0.7
<PAGE>
Printing & $ 5,532,000 San Jacinto Holdings Inc., Senior
Publishing Subordinated Notes, 8.00% due 12/31/2000 4,246,920 4,591,560 0.6
Real Estate $ 5,150,000 Granite Development Partners L.P., Senior
Notes (Series B), 10.83% due 11/15/2003 4,475,750 4,326,000 0.6
Retail $ 5,000,000 Kmart Corp., 8.56% due 4/21/1997 4,375,000 4,660,750 0.6
Transportation $ 4,500,000 Tiphook Finance Corp., Unsecured
Guaranteed Notes, 10.75% due
11/01/2002 3,440,000 3,420,000 0.5
Total High Yield 82,882,679 76,245,945 10.6
Operational Restructuring
Apparel & Textile 717,000 ++Texfi Industries, Inc. ++++ 3,857,425 1,882,125 0.3
Banking & Financial 200,000 Student Loan Marketing Association 6,961,462 14,725,000 2.0
Cable 850,000 ++Cox Communications, Inc. (Class A) 14,818,089 17,743,750 2.5
Computer Related 222,200 Novell Inc. 2,844,160 2,944,150 0.4
Computer Software & 600,000 ++Borland International, Inc. 5,291,876 11,025,000 1.5
Services 1,214,900 ++Computervision Corporation 3,670,341 15,034,387 2.1
Computers & 4,000,000 ++Amdahl Corp. 36,051,936 29,250,000 4.1
Peripherals 550,000 Storage Technology Corp. 13,513,109 14,575,000 2.0
Diversified 1,100,000 ++ADT Limited (ADR)* 8,476,646 15,950,000 2.2
500,000 Corning Inc. 14,950,168 15,625,000 2.2
407,500 ++National Patent Development Corp. ++++ 5,552,754 3,845,781 0.5
157,400 ++TPI Enterprises, Inc. 692,950 373,825 0.0
Electronics 5,400,000 ++Automated Security (Holdings) PLC (ADR)* 16,600,584 4,725,000 0.7
Energy Related 800,000 Oryx Energy Co. 10,292,451 10,500,000 1.5
Environmental 2,554,000 Allwaste Inc. ++++ 13,246,956 12,131,500 1.7
Health Care 2,118,100 ++Applied Bioscience International Inc. ++++ 11,142,738 15,091,462 2.1
1,100,000 Community Psychiatric Centers, Inc. 11,878,273 12,650,000 1.8
3,450,000 ++Unilab Corp. ++++ 15,588,391 9,056,250 1.3
Insurance 1,542,000 Reliance Group Holdings, Inc. 8,631,215 13,492,500 1.9
Printing & Publishing 1,950,000 ++National Education Corp. ++++ 9,497,493 17,550,000 2.4
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Operational Restructuring (concluded)
Retail 1,144,200 The Limited, Inc. $ 20,900,662 $ 19,165,350 2.7%
800,000 ++Price/Costco, Inc. 11,602,818 12,400,000 1.7
2,450,000 Woolworth Corp. 33,515,617 27,562,500 3.8
Steel 514,900 WHX Corp. 5,821,820 7,015,512 1.0
Telecommunications 500,000 The Allen Group, Inc. 8,565,745 8,750,000 1.2
Equipment
Total Operational Restructuring 293,965,679 313,064,092 43.6
Total Investments 646,163,706 661,999,430 92.1
Face Amount Short-Term Investments
Commercial Paper** $17,147,000 General Electric Capital Corp., 5.90%
due 2/01/1996 17,147,000 17,147,000 2.4
500,000 National Fleet Funding Corp., 5.50%
due 3/01/1996 497,785 497,785 0.1
Total Commercial Paper 17,644,785 17,644,785 2.5
US Government & 35,000,000 Federal National Mortgage Association,
Agency Obligations** 5.38% due 2/21/1996 34,895,389 34,895,389 4.9
Total US Government & Agency Obligations 34,895,389 34,895,389 4.9
Total Short-Term Investments 52,540,174 52,540,174 7.4
Total Investments $698,703,880 714,539,604 99.5
============
Other Assets Less Liabilities 3,793,159 0.5
------------ ------
Net Assets $718,332,763 100.0%
============ ======
<PAGE>
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b)On November 27, 1995, CST Entertainment Imaging, Inc.
(Restricted) shares became freely tradeable and were combined with
our existing holdings.
(c)Currently in default.
++Non-income producing security.
++++Investment 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:
<CAPTION>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <<S> <C> <C> <C>
Aerospace & Ladish Co., Inc. 0 $ 0 +++
Industrial Products
Apparel & Textile Texfi Industries, Inc. 0 0 +++
Cable Century Communications Corp. 374,500 3,223,006 +++
Chemicals Specialty Chemical Resources, Inc. 0 0 +++
Diversified National Patent Development Corp. (942,500) 606,816 +++
Environmental Allwaste Inc. 171,400 879,820 +++
Environmental Matrix Service Co. 0 0 +++
Environmental TETRA Technologies, Inc. 140,000 1,610,000 +++
Health Care Applied Bioscience International Inc. 256,200 1,558,478 +++
Health Care NeoRx Corp. 15,400 84,277 +++
Health Care Unilab Corp. 381,000 1,540,873 +++
Home Builders NVR, Inc. (462,800) (3,962,377) +++
Leisure & CST Entertainment Imaging, Inc. 0 0 +++
Entertainment
Printing & National Education Corp. (50,000) (318,625) +++
Publishing
Real Estate Resurgence Properties Inc. 0 0 +++
Restaurants Houlihan's Restaurant Group, Inc. 0 0 +++
Total $ 5,222,268
============
+++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL INFORMATION
<CAPTION>
Statement of Assets and Liabilities as of January 31, 1996
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$698,703,880) (Note 1a) $ 714,539,604
Cash 4,507,638
Foreign cash (Note 1c) 317
Receivables:
Securities sold $ 9,339,165
Capital shares sold 1,082,826
Interest 604,669 11,026,660
--------------
Prepaid registration fees and other assets (Note 1f) 153,750
--------------
Total assets 730,227,969
--------------
Liabilities: Payables:
Securities purchased 7,378,172
Capital shares redeemed 2,824,502
Investment adviser (Note 2) 639,929
Distributor (Note 2) 376,820 11,219,423
--------------
Accrued expenses and other liabilities 675,783
--------------
Total liabilities 11,895,206
--------------
Net Assets: Net assets $ 718,332,763
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000
Consist of: shares authorized $ 2,120,419
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 3,129,963
Class C Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized 114,480
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 324,149
Paid-in capital in excess of par 674,788,089
Undistributed investment income--net 221,695
Undistributed realized capital gains on investments and foreign
currency transactions--net 21,801,559
Unrealized appreciation on investments and foreign currency
transactions--net 15,832,409
--------------
Net assets $ 718,332,763
==============
<PAGE>
Net Asset Value: Class A--Based on net assets of $271,367,581 and 21,204,187
shares outstanding $ 12.80
==============
Class B--Based on net assets of $391,253,755 and 31,299,629
shares outstanding $ 12.50
==============
Class C--Based on net assets of $14,233,090 and 1,144,803
shares outstanding $ 12.43
==============
Class D--Based on net assets of $41,478,337 and 3,241,492
shares outstanding $ 12.80
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended January 31, 1996
<S> <C> <C> <C>
Investment Income Interest and discount earned $ 5,946,028
(Notes 1d & 1e): Dividends (net of $22,472 foreign withholding tax) 2,583,600
--------------
Total income 8,529,628
--------------
Expenses: Investment advisory fees (Note 2) $ 3,701,004
Account maintenance and distribution fees--Class B (Note 2) 2,068,836
Transfer agent fees--Class B (Note 2) 424,367
Transfer agent fees--Class A (Note 2) 249,875
Printing and shareholder reports 96,548
Registration fees (Note 1f) 74,856
Account maintenance and distribution fees--Class C (Note 2) 65,875
Account maintenance fees--Class D (Note 2) 51,769
Professional fees 50,081
Custodian fees 38,385
Transfer agent fees--Class D (Note 2) 36,404
Accounting services (Note 2) 35,833
Director's fees and expenses 32,112
Transfer agent fees--Class C (Note 2) 14,417
Other 10,420
--------------
Total expenses 6,950,782
--------------
Investment income--net 1,578,846
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 32,937,585
(Loss) on Foreign currency transactions--net (11,677) 32,925,908
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (33,842,883)
(Notes 1b, 1c, Foreign currency transactions--net (3,315) (33,846,198)
1e & 3): -------------- --------------
Net realized and unrealized loss on investments and
foreign currency transactions (920,290)
--------------
Net Increase in Net Assets Resulting from Operations $ 658,556
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the Year
Months Ended Ended
Increase (Decrease) in Net Assets: January 31, 1996 July 31, 1995
<S> <C> <C> <C>
Operations: Investment income--net $ 1,578,846 $ 5,192,065
Realized gain on investments and foreign currency
transactions--net 32,925,908 44,266,927
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (33,846,198) 38,223,178
-------------- --------------
Net increase in net assets resulting from operations 658,556 87,682,170
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (2,797,570) (2,215,404)
Shareholders Class B (1,123,308) (555,940)
(Note 1g): Class C (55,726) (10,793)
Class D (306,920) (75,226)
Realized gain on investments--net:
Class A (12,381,777) (27,461,298)
Class B (18,485,951) (39,292,892)
Class C (584,344) (85,233)
Class D (1,742,435) (474,000)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (37,478,031) (70,170,786)
-------------- --------------
<PAGE>
Capital Share Net increase in net assets derived from capital share transactions 5,845,857 113,809,555
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (30,973,618) 131,320,939
Beginning of period 749,306,381 617,985,442
-------------- --------------
End of period* $ 718,332,763 $ 749,306,381
============== ==============
*Undistributed investment income--net $ 221,695 $ 2,926,373
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL INFORMATION (continued)
<CAPTION>
Financial Highlights
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Six
Months Ended For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: Jan. 31, 1996++++ 1995++++ 1994++++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.44 $ 13.31 $ 13.75 $ 11.40 $ 11.13
Operating --------- --------- --------- --------- ---------
Performance: Investment income--net .07 .17 .03 .02 .06
Realized and unrealized gain on
investments and foreign currency
transactions--net --++ 1.47 1.18 3.06 1.34
--------- --------- --------- --------- ---------
Total from investment operations .07 1.64 1.21 3.08 1.40
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.13) (.11) -- (.03) (.09)
Realized gain on investments--net (.58) (1.40) (1.65) (.70) (1.04)
--------- --------- --------- --------- ---------
Total dividends and distributions (.71) (1.51) (1.65) (.73) (1.13)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 12.80 $ 13.44 $ 13.31 $ 13.75 $ 11.40
========= ========= ========= ========= =========
Total Investment Based on net asset value per share .31%+++ 13.91% 9.36% 28.96% 14.54%
Return:** ========= ========= ========= ========= =========
<PAGE>
Ratios to Average Expenses 1.25%* 1.31% 1.22% 1.25% 1.35%
Net Assets: ========= ========= ========= ========= =========
Investment income--net 1.02%* 1.40% .48% .28% .60%
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 271,368 $ 286,258 $ 255,856 $ 197,995 $ 140,323
Data: ========= ========= ========= ========= =========
Portfolio turnover 34.19% 70.36% 63.95% 67.57% 79.68%
========= ========= ========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Six
Months Ended For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: Jan. 31, 1996++++ 1995++++ 1994++++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.12 $ 13.02 $ 13.46 $ 11.25 $ 11.04
Operating --------- --------- --------- --------- ---------
Performance: Investment income (loss)--net --++ .04 (.07) (.02) (.05)
Realized and unrealized gain on
investments and foreign currency
transactions--net --++ 1.45 1.11 2.93 1.33
--------- --------- --------- --------- ---------
Total from investment operations --++ 1.49 1.04 2.91 1.28
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.04) (.02) -- -- (.03)
Realized gain on investments--net (.58) (1.37) (1.48) (.70) (1.04)
--------- --------- --------- --------- ---------
Total dividends and distributions (.62) (1.39) (1.48) (.70) (1.07)
--------- --------- --------- --------- ---------
Net asset value, end of period $ 12.50 $ 13.12 $ 13.02 $ 13.46 $ 11.25
========= ========= ========= ========= =========
<PAGE>
Total Investment Based on net asset value per share (.24%)+++ 12.83% 8.21% 27.66% 13.35%
Return:** ========= ========= ========= ========= =========
Ratios to Average Expenses 2.27%* 2.34% 2.24% 2.27% 2.37%
Net Assets: ========= ========= ========= ========= =========
Investment income (loss)--net (.01%)* .37% (.51%) (.73%) (.46%)
========= ========= ========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 391,254 $ 414,886 $ 362,129 $ 209,534 $ 140,313
Data: ========= ========= ========= ========= =========
Portfolio turnover 34.19% 70.36% 63.95% 67.57% 79.68%
========= ========= ========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Six Months Oct. 21, Six Months Oct. 21,
from information provided in the financial statements. Ended 1994++++ to Ended 1994++++ to
Jan. 31, July 31, Jan. 31, July 31,
Increase (Decrease) in Net Asset Value: 1996++++++ 1995++++++ 1996++++++ 1995++++++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.07 $ 12.31 $ 13.43 $ 12.57
Operating ---------- ---------- ---------- ----------
Performance: Investment income--net --++ .03 .05 .11
Realized and unrealized gain on investments
and foreign currency transactions--net --++ 1.21 --++ 1.25
---------- ---------- ---------- ----------
Total from investment operations --++ 1.24 .05 1.36
<PAGE> ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.06) (.05) (.10) (.07)
Realized gain on investments--net (.58) (.43) (.58) (.43)
---------- ---------- ---------- ----------
Total dividends and distributions (.64) (.48) (.68) (.50)
---------- ---------- ---------- ----------
Net asset value, end of period $ 12.43 $ 13.07 $ 12.80 $ 13.43
========== ========== ========== ==========
Total Investment Based on net asset value per share (.24%)+++ 10.99%+++ .19%+++ 11.72%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 2.29%* 2.39%* 1.50%* 1.60%*
Net Assets: ========== ========== ========== ==========
Investment income (loss)--net (.04%)* .34%* .74%* 1.11%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 14,233 $ 11,775 $ 41,478 $ 36,388
Data: ========== ========== ========== ==========
Portfolio turnover 34.19% 70.36% 34.19% 70.36%
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
++++Commencement of Operations.
++++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Phoenix Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end
management investment company. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund offers four classes of shares under the Merrill Lynch
Select 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 are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Short-term securities are valued at amortized cost,
which approximates market value. Other investments, including
futures contracts and related options, are stated at market value.
Securities and assets for which market value quotations are not
available are valued at their 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.
<PAGE>
* 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 sold through an exercise of an option, the related
premium received is deducted from the basis 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 premium received (or gain or loss to the extent of the
cost of the closing transaction exceeds the premium received).
Written options are non-income producing investments.
* Forward foreign exchange contracts--The Fund is authorized to enter
into forward foreign exchange contracts as a hedge against either
specific transactions or portfolio positions. Such contracts are not
entered on the Fund's records. However, the effect on operations is
recorded from the date the Fund enters into such contracts. Premium
or discount is amortized over the life of the contracts.
(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 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 date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of 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.
<PAGE>
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
FAM 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 rates: 1.00% of
average daily net assets not exceeding $500 million; 0.95% of
average daily net assets in excess of $500 million but not exceeding
$1 billion; and 0.90% of average daily net assets in excess of $1
billion. The Investment Advisory Agreement obligates FAM to
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the Fund's next $70 million of
average daily net assets and 1.5% of the average daily net assets in
excess thereof. No fee payment will be made to FAM during any fiscal
year which will cause such expenses to exceed the pro rata expense
limitation at the time of such payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
<PAGE>
For the six months ended January 31, 1996, MLFD earned underwriting
discounts 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 $2,355 $33,884
Class D $5,171 $63,581
For the six months ended January 31, 1996, MLPF&S received
contingent deferred sales charges of $270,785 and $3,133 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $51,150 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended January 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM
at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of FAM, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended January 31, 1996 were $235,320,415 and
$257,248,959, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Net realized and unrealized gains (losses) as of January 31, 1996
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 32,939,637 $ 15,835,724
Short-term investments (2,052) --
Foreign currency
transactions (11,677) (3,315)
------------ ------------
Total $ 32,925,908 $ 15,832,409
============ ============
<PAGE>
As of January 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $15,835,724, of which $101,630,818
related to appreciated securities and $85,795,094 related to
depreciated securities. At January 31, 1996, the aggregate cost of
investments for Federal income tax purposes was $698,703,880.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
were $5,845,857 and $113,809,555 for the six months ended January
31, 1996 and for the year ended July 31, 1995, respectively.
Transactions in capital shares for each class were
as follows:
Class A Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 2,082,398 $ 27,675,040
Shares issued to shareholders
in reinvestment of dividends
and distributions 740,876 9,936,546
------------ -------------
Total issued 2,823,274 37,611,586
Shares redeemed (2,917,225) (38,497,236)
------------ -------------
Net decrease (93,951) $ (885,650)
============ =============
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 4,773,327 $ 58,642,097
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,149,438 25,931,896
------------ -------------
Total issued 6,922,765 84,573,993
Shares redeemed (4,852,599) (59,460,110)
------------ -------------
Net increase 2,070,166 $ 25,113,883
============ =============
Class B Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
<PAGE>
Shares sold 4,144,519 $ 53,971,637
Shares issued to shareholders
in reinvestment of dividends
and distributions 946,032 12,394,778
------------ -------------
Total issued 5,090,551 66,366,415
Shares redeemed (5,173,296) (66,740,297)
Automatic conversion of
shares (245,158) (3,169,221)
------------ -------------
Net decrease (327,903) $ (3,543,103)
============ =============
Class B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 11,220,799 $134,103,392
Shares issued to shareholders
in reinvestment of dividends
and distributions 3,047,645 36,160,407
------------ -------------
Total issued 14,268,444 170,263,799
Shares redeemed (9,792,351) (116,499,330)
Automatic conversion of
shares (653,362) (7,789,181)
------------ -------------
Net increase 3,822,731 $ 45,975,288
============ =============
Class C Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 418,296 $ 5,376,760
Shares issued to shareholders
in reinvestment of dividends
and distributions 32,179 419,140
------------ -------------
Total issued 450,475 5,795,900
Shares redeemed (206,510) (2,685,846)
------------ -------------
Net increase 243,965 $ 3,110,054
============ =============
<PAGE>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 1,061,529 $ 12,324,849
Shares issued to shareholders
in reinvestment of dividends
and distributions 7,661 82,125
------------ -------------
Total issued 1,069,190 12,406,974
Shares redeemed (168,352) (1,968,329)
------------ -------------
Net increase 900,838 $ 10,438,645
============ =============
[FN]
++Commencement of Operations.
Class D Shares for the Six Months Dollar
Ended January 31, 1996 Shares Amount
Shares sold 1,084,541 $ 14,358,718
Automatic conversion
of shares 238,105 3,169,221
Shares issued to shareholders
in reinvestment of dividends
and distributions 105,562 1,413,741
------------ -------------
Total issued 1,428,208 18,941,680
Shares redeemed (896,263) (11,777,124)
------------ -------------
Net increase 531,945 $ 7,164,556
============ =============
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 2,465,488 $ 29,295,539
Automatic conversion
of shares 639,176 7,789,181
Shares issued to shareholders
in reinvestment of dividends
and distributions 47,191 517,217
------------ -------------
Total issued 3,151,855 37,601,937
Shares redeemed (442,308) (5,320,198)
------------ -------------
Net increase 2,709,547 $ 32,281,739
============ =============
[FN]
++Commencement of Operations.
<PAGE>
5. Commitments:
At January 31, 1996, the Fund had entered into foreign exchange
contracts under which it had agreed to sell various foreign
currencies with a value of approximately $1,227,000.
PORTFOLIO INFORMATION
For the Quarter Ended January 31, 1996
Percent of
Ten Largest Holdings Net Assets
Amdahl Corp. 4.1%
Woolworth Corp. 3.8
Tandem Computers, Inc. 2.9
The Limited, Inc. 2.7
Anacomp, Inc., Senior Subordinated
Notes, 15.00% due 11/01/2000 2.5
Cox Communications, Inc. (Class A) 2.5
National Education Corp. 2.4
ADT Ltd. (ADR) 2.2
Corning Inc. 2.2
Applied Bioscience International Inc. 2.1
Percent of
Five Largest Industries Net Assets
Retail 11.2%
Computers & Peripherals 9.0
Banking & Financial 7.3
Health Care 6.3
Cable 5.9
Percent of
Asset Mix Net Assets
Stocks 77.1%
Bonds 15.0
Cash & Cash Equivalents 7.9
<PAGE>
Additions (Equity Investments)
The Allen Group, Inc.
Apache Corp.
Dime Bancorp, Inc.
Integrated Device Technology, Inc.
Novell Inc.
Tekelec Inc.
Tyco Toys, Inc.
WHX Corp.
Deletions (Equity Investments)
Burlington Industries, Inc.
COR Therapeutics Inc.
First City Financial Corp.,
Non-Convertible Preferred Stock
Freeport-McMoRan Copper & Gold, Inc.
Freeport-McMoRan, Inc.
Freeport-McMoRan, Inc. (Class B)
Gaylord Container Corp. (Warrants)
Glendale Federal Savings Bank
(8.75% Convertible, Series E)
Kmart Corp.
The Liposome Company Inc.
Southcorp Holdings Limited
Weatherford Enterra, Inc.
