MERRILL LYNCH
PHOENIX
FUND,INC.
FUND LOGO
Annual Report
July 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
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
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
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
The US economy demonstrated surprising strength during the first
half of 1996. As a result, during the quarter ended July 31, 1996,
investors focused on prospects for an overheating economy,
increasing inflationary pressures, and the potential for monetary
policy tightening by the Federal Reserve Board. With more robust
economic growth, a sharp rise in prices for crude oil and
agricultural commodities, and expectations of escalating wage
pressures, long-term interest rates (as measured by the yield on the
30-year US Treasury bond) rose to in excess of 7%.
<PAGE>
Inflationary concerns were heightened further with a stronger-than-
expected employment report for June. Unemployment fell to a six-year
low, and hourly wages rose sharply. This mounting evidence of a
tighter labor market and rising labor costs suggested to many
investors that the US central bank would be forced to raise short-
term interest rates in the coming months. However, shortly after the
close of the July quarter, more subdued job growth and decelerating
hourly wage gains were reported for the month of July. It remains to
be seen whether this employment report is the first sign that the
economy is slowing from its rapid rate of growth in the second
quarter.
Portfolio Matters
In our April 30, 1996 report to shareholders, we noted that share
price appreciation for Merrill Lynch Phoenix Fund, Inc.'s holdings
led to strong gains for the Fund's shares in the April quarter.
However, these gains were given back during the July quarter. Among
the Fund's major sector weightings are technology stocks, smaller-
capitalization issues and cyclical industries. These were the best-
performing stocks in the April quarter, but were the poorest
performers during the July quarter. As a result, the Fund's Class A,
Class B, Class C and Class D Shares had total returns of -10.45%,
- -10.72%, -10.71% and -10.52%, respectively, for the three-month
period ended July 31, 1996. (Fund results do not reflect sales
charges, and would be lower if sales charges were included. Complete
performance information, including average annual total returns, can
be found on pages 3--6 of this report to shareholders.)
We used this period of share price weakness to increase exposure to
existing positions as well as add a number of new companies to the
portfolio such as Hanson PLC, National Semiconductor Corp. and
Sensormatic Electronics Corp.
Hanson PLC became one of the largest industrial conglomerates in the
world by acquiring underperforming companies and improving their
operations. In an effort to enhance shareholder value, management
decided to divide the company into four separately traded entities,
all market leaders in the energy, building materials, chemicals and
tobacco industries. We expect the spin-off to be completed by early
1997. Once the restructuring is completed, the global economy
improves and each new company's management team has sufficient time
to expand its businesses, we believe that the combined market value
of the four component companies will be higher than Hanson's current
market value.
<PAGE>
National Semiconductor Corp. had been a Fund investment several
years ago. Recently, operations were negatively impacted by slowing
chip demand and increased industry capacity. We added the stock to
the portfolio once again because of a management change. Brian Halla
of LSI Logic Corp., a highly regarded executive within the
technology sector, is now chief executive officer of National
Semiconductor. He has already announced the sale or spin-off of the
company's commodity chip business, and will aggressively focus on
growth opportunities. We expect this strategy to ultimately result
in higher earnings, an expanded price/earnings multiple and,
potentially, a significantly higher stock price.
Sensormatic Electronics Corp. is a leading manufacturer and marketer
of electronic security systems. Recently, revenue growth has slowed
as the company effects a transition from a provider of lower-margin
tagging products to an integrator of total security systems, a
higher-margin business. We believe Sensormatic's management will be
successful, and that the resulting earnings growth will lead to a
higher share price in the future.
We were fortunate to eliminate a number of our smaller technology
holdings (Quantum Corp., Read-Rite Corp. and Teradyne, Inc.) after
significant price appreciation and before July's drastic correction
in technology shares. In addition, we sold long-time holdings
National Education Corp. and Price/Costco, Inc. because their stocks
reached our predetermined price objectives. We also sold three
unsuccessful investments (Texfi Industries, Inc., Specialty Chemical
Resources, Inc. and TMM, Inc.) because of their limited recovery
prospects as well as their small weightings in the portfolio.
The high-yield debt market remains overvalued, so we had limited
purchase activity in this sector during the July quarter. Regarding
distressed securities, we successfully exchanged existing holdings
in Anacomp, Inc. and U.S. Trails, Inc. into packages of new
securities. These financial restructurings should enable both
companies to improve their prospects in the future.
Fiscal Year in Review
In our July 31, 1995 annual report to shareholders, we stated that
large-capitalization issues would become the focus of our research
efforts because of the Fund's increasing size. As a result, we
purchased stocks such as U S West Media Group, National
Semiconductor Corp. and Apple Computer, Inc. during the fiscal year.
This trend has also contributed to the Fund's shift out of bonds and
cash reserves into equities, which represented 81.5% of net assets
at fiscal year-end. Since we expect these new investments to take a
number of years to complete their turnarounds, they have yet to make
a positive impact on performance. However, we expect these positions
to have a material impact on the Fund's future performance.
<PAGE>
Given the Fund's increased size, we also sold a number of smaller-
capitalization non-core holdings throughout the fiscal year. The
number of equity holdings decreased from 70 to slightly more than
50. Although some of the stocks we sold subsequently moved to higher
levels, they would have had limited positive impact on Fund
performance given the small size of the positions.
Sector shifts had the greatest impact on Fund performance for the
fiscal year. We began the period by making significant investments
in the retail sector. This benefited Fund performance as the group
gained investor favor later in the year. Given the recent strength
in retail stocks, we have cut our exposure to the group.
In contrast, our investments in technology companies had a negative
impact on the Fund's total returns. We increased investments in
technology shares as prices dropped to levels that were attractive
based on our assessment of the companies' potential long-term
earnings growth rates. However, the turnaround in technology shares
has not yet occurred. We believe that by focusing our technology
investments in market-leading companies with proven management teams
and solid balance sheets, our technology holdings will make positive
contributions to performance in the coming fiscal year.
Finally, during the course of the fiscal year, our bond position
declined from approximately 15% of net assets to 11.1%, primarily
because we believe that the equities in our investment universe
represent more attractive values. Although a higher bond position
would have benefited performance in the short term, we believe that
the Fund's long-term total return potential is enhanced by its
greater focus on equity investments.
For the fiscal year ended July 31, 1996, total returns for the
Fund's Class A, Class B, Class C and Class D Shares were +4.78%,
+3.67%, +3.69% and +4.50%, respectively.
In Conclusion
As the Fund's new fiscal year began, stock market volatility
continued to cause wide swings in valuations for our holdings. As
always, we concentrate on significant earnings improvements
portfolio companies can generate in the future. We will continue to
utilize periods of dramatic short-term price weakness to purchase
new positions or add to existing holdings that we believe possess
the most attractive risk/reward characteristics. We perceive value
in the cyclical, large-capitalization sector of the stock market,
and we anticipate a larger weighting in these issues in the future.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Robert J. Martorelli)
Robert J. Martorelli
Vice President and Portfolio Manager
September 10, 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. (There is no initial
sales charge for automatic share conversions.)
*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.
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/96 4/30/96 7/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Phoenix Fund, Inc. Class A Shares* $13.37 $14.93 $13.44 + 0.80%(1) -10.45%
ML Phoenix Fund, Inc. Class B Shares* 12.99 14.55 13.12 + 0.36(1) -10.72
ML Phoenix Fund, Inc. Class C Shares* 12.92 14.47 13.07 + 0.20(1) -10.71
ML Phoenix Fund, Inc. Class D Shares* 13.35 14.92 13.43 + 0.73(1) -10.52
Dow Jones Industrial Average** 5,528.91 5,569.08 4,708.47 +17.42 - 0.72
Standard & Poor's 500 Index** 639.95 654.17 562.06 +13.86 - 2.17
ML Phoenix Fund, Inc. Class A Shares--Total Return* + 4.78(2) -10.45
ML Phoenix Fund, Inc. Class B Shares--Total Return* + 3.67(3) -10.72
ML Phoenix Fund, Inc. Class C Shares--Total Return* + 3.69(4) -10.71
ML Phoenix Fund, Inc. Class D Shares--Total Return* + 4.50(5) -10.52
Dow Jones Industrial Average--Total Return** +20.23 - 0.15
Standard & Poor's 500 Index--Total Return** +16.53 - 1.61
<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 $0.528 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.432 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.454 per share ordinary
income dividends and $0.183 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.502 per share ordinary
income dividends and $0.183 per share capital gains distributions.
</TABLE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares
<PAGE>
A line graph depicting the growth of an investment in the Fund's Class A Shares
compared to growth of an investment in the S&P 500 Index. Beginning and
ending values are:
7/86 7/96
ML Phoenix Fund, Inc.++--
Class A Shares* $ 9,475 $32,000
S&P 500 Index++++ $10,000 $36,990
Total Return Based on a $10,000 Investment--Class B Shares
A line graph depicting the growth of an investment in the Fund's Class B Shares
compared to growth of an investment in the S&P 500 Index. Beginning and
ending values are:
10/21/88** 7/96
ML Phoenix Fund, Inc.++--
Class B Shares* $10,000 $22,276
S&P 500 Index++++ $10,000 $28,491
Total Return Based on a $10,000 Investment--Class C and Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the S&P 500 Index.
Beginning and ending values are:
10/21/88* 7/96
ML Phoenix Fund, Inc.++--
Class C Shares* $10,000 $11,509
ML Phoenix Fund, Inc.++--
Class D Shares* $ 9,475 $11,062
S&P 500 Index++++ $10,000 $14,383
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Phoenix Fund, Inc. in a diversified portfolio of equity and fixed-income
securities, including municipal securities, of issues in weak financial
condition or experiencing poor operating results that management of the
Fund believes are undervalued relative to management's assessment of the
current or prospective condition of such issuers.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not predictive of future performance.
<PAGE>
PERFORMANCE DATA (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +18.28% +12.07%
Five Years Ended 6/30/96 +16.89 +15.64
Ten Years Ended 6/30/96 +13.52 +12.91
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +17.14% +13.14%
Five Years Ended 6/30/96 +15.72 +15.72
Inception (10/21/88)
through 6/30/96 +12.19 +12.19
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced
to 0% after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +17.06% +16.06%
Inception (10/21/94)
through 6/30/96 +14.17 +14.17
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +17.97% +11.78%
Inception (10/21/94)
through 6/30/96 +15.10 +11.49
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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--7/31/96 12.90 13.37 -- -- + 3.64
------- ------
Total $11.806 Total $7.514
Cumulative total return as of 7/31/96: +626.85%**
<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>
PERFORMANCE DATA (concluded)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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--7/31/96 12.62 12.99 -- -- + 2.93
------ ------
Total $4.571 Total $3.642
Cumulative total return as of 7/31/96: +122.76%**
<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 C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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--7/31/96 12.55 12.92 -- -- + 2.95
------ ------
Total $0.497 Total $0.626
Cumulative total return as of 7/31/96: +15.09%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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--7/31/96 12.91 13.35 -- -- + 3.41
------ ------
Total $0.497 Total $0.688
Cumulative total return as of 7/31/96: +16.74%**
<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>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
Discount to Assets
<S> <C> <S> <C> <C> <C>
Conglomerates 1,600,000 Hanson PLC Sponsored (ADR)* $ 22,867,983 $ 20,400,000 2.8%
Total Discount to Assets 22,867,983 20,400,000 2.8
Earning Turnarounds
Airlines 1,570,000 ++Mesa Airlines, Inc.++++ 11,471,647 14,031,875 1.9
Banking & Financial 1,400,000 ++Dime Bancorp, Inc. 15,605,993 17,325,000 2.4
568,000 Roosevelt Financial Group Inc. 9,540,863 9,088,000 1.3
Cable 2,000,000 ++Century Communications Corp.++++ 16,706,551 13,750,000 1.9
Computer Hardware 2,600,000 ++Tandem Computers, Inc. 31,793,344 27,300,000 3.8
Consumer Products 1,600,000 ++The Topps Co., Inc. 10,805,067 7,800,000 1.1
425,000 ++Tyco Toys, Inc., Convertible Preferred
(Series C) 2,125,000 2,337,500 0.3
Diversified 500,000 ++Specialty Equipment Companies Inc. 4,937,500 5,187,500 0.7
Electronics 450,000 Sensormatic Electronics Corp. 6,683,194 6,862,500 0.9
<PAGE>
Energy Related 1,250,000 ++Marine Drilling Co., Inc. 10,456,250 10,468,750 1.4
867,000 Total Petroleum (North America) Ltd. 9,146,819 8,886,750 1.2
Environmental 930,000 ++Matrix Service Co.++++ 8,370,557 4,766,250 0.7
850,000 ++TETRA Technologies, Inc.++++ 6,306,282 15,831,250 2.2
Health Care 1,099,200 ++NeoRx Corp.++++ 7,033,280 5,083,800 0.7
500,000 ++Perrigo Co. 5,864,323 4,375,000 0.6
Home Builders 839,000 ++NVR, Inc.++++ 4,764,596 9,124,125 1.3
53,828 NVR, Inc. (Warrants)(a) 235,498 107,656 0.0
Industrial-- 1,407,670 ++Anacomp, Inc. 9,137,200 13,812,762 1.9
Services $ 5,430,000 Anacomp, Inc., Senior Subordinated Notes,
13% due 6/04/2002 (c) 3,364,503 5,307,825 0.7
Leisure & Entertainment 1,625,000 ++CST Entertainment Imaging, Inc.++++ 3,593,312 507,813 0.1
900,000 ++CST Entertainment Imaging, Inc.++++ (d) 675,000 281,250 0.0
Restaurants 965,519 ++Houlihan's Restaurant Group, Inc.++++ 3,468,750 6,517,253 0.9
Retail 3,500,000 CML Group, Inc.++++ 21,150,287 11,375,000 1.6
Semiconductor 900,000 ++Integrated Device Technology, Inc. 11,262,972 7,537,500 1.0
1,500,000 ++VLSI Technology, Inc. 20,627,715 18,375,000 2.5
Telecommunications 600,000 ++DSC Communications Corp. 16,159,378 17,850,000 2.5
Telecommunications 500,000 ++Tekelec Inc. 4,741,253 4,500,000 0.6
Equipment
Total Earning Turnarounds 256,027,134 248,390,359 34.2
Financial Restructing
Financial $ 500,000 ++Southeast Banking Corp., Convertible
Subordinated Notes, 6.50% due 3/15/1999 250,000 255,000 0.0
Leisure & Entertainment 303,345 U.S. Trails, Inc. (b) 221,442 221,442 0.0
$ 3,316,572 U.S. Trails, Inc., Senior Subordinated
Notes,12% due 7/15/2003 (b)(c) 2,553,760 2,553,760 0.4
Real Estate 625,000 ++Resurgence Properties Inc.++++ 5,468,750 5,156,250 0.7
Retail 10 ++Signet Group PLC, Series C (Variable
Term Preferred Shares) 995,000 1,000,000 0.1
47 ++Signet Group PLC, Series D (Variable Term
Preferred Shares) 4,676,500 4,700,000 0.7
443,361 ++Zale Corp. Litigation Limited Partnership
Shares 0 0 0.0
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
Financial Restructing (concluded)
<S> <C> <S> <C> <C> <C>
Textiles $ 3,000,000 ++The Bibb Company, Senior Subordinated
Notes, 13.875% due 8/01/1999 $ 1,202,188 $ 1,425,000 0.2%
$ 4,636,000 ++The Bibb Company, Senior Subordinated
Notes, 14% due 10/01/1999 2,054,145 2,225,280 0.3
Total Financial Restructuring 17,421,785 17,536,732 2.4
High Yield
Cable $ 5,910,000 ++Scott Cable, Subordinated Debentures,
12.25% due 4/15/2001 4,626,300 3,546,000 0.5
Consumer Products $ 2,500,000 Town & Country Corporation, Senior
Subordinated Notes, 13% due 5/31/1998 2,125,000 1,975,000 0.3
Energy $ 17,100,000 WRT Energy Corp., Senior Notes, 13.875%
due 3/01/2002 13,955,500 5,643,000 0.8
Home Builders $ 24,500,000 ++Baldwin Homes, Series B, 10.375%
due 8/01/2003 11,365,500 8,085,000 1.1
Leisure & $ 11,500,000 Bally's Health & Tennis Corporation, Senior
Entertainment Subordinated Notes, 13% due 1/15/2003 9,219,375 9,890,000 1.4
$ 11,000,000 Genmar Holdings, Inc., Senior Subordinated
Notes, 13.50% due 7/15/2001 11,000,000 9,735,000 1.3
377,854 Live Entertainment Inc., 5% Convertible
Preferred (Series B) 1,872,880 2,786,673 0.4
$ 7,500,000 Live Entertainment Inc., Senior
Subordinated Notes, 12% due 3/23/1999 5,643,750 6,712,500 0.9
Printing & $ 8,255,400 San Jacinto Holdings Inc., Senior
Publishing Subordinated Notes, 12% due 12/31/2002 5,568,673 6,439,212 0.9
Retail $ 9,250,000 Duane Reade Corporation, Senior Notes,
12% due 9/15/2002 8,170,000 8,278,750 1.1
Textiles $ 14,000,000 JPS Textile Group Inc., Subordinated Notes,
10.25% due 6/01/1999 8,007,356 8,680,000 1.2
Total High Yield 81,554,334 71,771,135 9.9
<PAGE>
Operational Restructing
Cable 725,000 ++Cox Communications, Inc. (Class A) 12,227,083 13,775,000 1.9
1,200,000 ++U S West Media Group 22,638,280 20,700,000 2.8
Computer Hardware 2,840,000 ++Amdahl Corp. 24,056,760 28,045,000 3.9
600,000 Apple Computer, Inc. 14,191,950 13,125,000 1.8
258,200 ++Storage Technology Corp. 8,138,800 8,746,525 1.2
Computer Software 2,168,400 ++Borland International, Inc.++++ 28,502,324 15,991,950 2.2
2,550,000 ++Computervision Corp. 15,298,719 18,806,250 2.6
1,150,000 ++Novell Inc. 14,931,096 12,218,750 1.7
Diversified 1,000,000 ++ADT Ltd. (ADR)* 7,621,646 18,875,000 2.6
407,500 ++National Patent Development Corp.++++ 5,552,754 4,075,000 0.6
Electronics 2,401,900 ++Automated Security Holdings PLC (ADR)* 5,595,581 2,702,138 0.4
Energy Related 1,000,000 ++Oryx Energy Co. 12,925,893 15,750,000 2.2
Engineering 599,598 ++EMCOR Group, Inc. 3,989,838 9,818,417 1.3
Environmental 2,254,000 ++Allwaste Inc.++++ 11,596,035 9,861,250 1.4
971,000 Laidlaw, Inc. (Non-Voting) (Class B)(ADR)* 8,928,431 8,981,750 1.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
Operational Restructing (concluded)
<S> <C> <S> <C> <C> <C>
Health Care 2,163,100 ++Applied Bioscience International Corp.++++ $ 11,470,563 $ 20,279,063 2.8%
2,550,200 ++Community Psychiatric Centers, Inc.++++ 24,447,200 20,401,600 2.8
3,450,000 ++Unilab Corp.++++ 15,588,391 3,450,000 0.5
Insurance 1,413,700 Reliance Group Holdings, Inc. 7,855,000 10,956,175 1.5
Retail 800,000 The Limited, Inc. 14,156,046 15,400,000 2.1
1,000,000 ++Woolworth Corp. 11,562,786 19,250,000 2.6
Semiconductor 1,000,000 ++National Semiconductor Corp. 15,125,026 14,125,000 2.0
<PAGE>
Steel 900,000 ++WHX Corp. 9,566,309 8,662,500 1.2
Total Operational Restructuring 305,966,511 313,996,368 43.3
Total Investments 683,837,747 672,094,594 92.6
Face Amount Short-Term Investments
Commercial Paper** $ 15,000,000 Corporate Receivables Corp., 5.45%
due 9/06/1996 14,918,250 14,918,250 2.1
8,633,000 Ford Motor Credit Co., 5.72% due
8/01/1996 8,633,000 8,633,000 1.2
25,000,000 Lilly (Eli) and Company, 5.40% due
9/06/1996 24,865,000 24,865,000 3.4
Total Short-Term Investments 48,416,250 48,416,250 6.7
Total Investments $732,253,997 720,510,844 99.3
============
Other Assets Less Liabilities 5,341,960 0.7
------------ ------
Net Assets $725,852,804 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
(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 July 22, 1996, U.S. Trails, Inc., 12% Secured Notes due
7/15/1998 were exchanged for U.S. Trails, Inc.--Common Stock and
U.S. Trails, Inc., 12% Senior Subordinated Notes due 7/15/2003. Of
the 7,605,000 bonds (face amount) previously held, 864,000 (face
amount) were redeemed at par and 6,741,000 (face amount) were
exchanged.
(c)Represents a pay-in-kind security which may pay interest/dividends
in additional face/shares.
(d)Restricted securities as to resale. The value of the Fund's
investments in restricted securities was approximately $281,000,
representing 0.0% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
CST Entertainment Imaging, Inc. 3/17/1995 $675,000 $281,250
Total $675,000 $281,250
======== ========
<PAGE>
++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>
Airlines Mesa Airlines, Inc. 555,000 $ 4,938,987 --
Cable Century Communications Corp. 705,000 6,369,458 --
Computer Software Borland International, Inc. 1,333,400 20,886,903 --
Diversified National Patent Development Corp. (942,500) 606,816 --
Environmental Allwaste Inc. (128,600) (771,101) --
Environmental Matrix Service Co. -- -- --
Environmental TETRA Technologies, Inc. 90,000 1,035,000 --
Health Care Applied Bioscience
International Corp. 301,200 1,886,303 --
Health Care Community Psychiatric Centers, Inc. 2,081,000 19,355,994 --
Health Care NeoRx Corp. 230,400 1,329,490 --
Health Care Unilab Corp. 381,000 1,540,873 --
Home Builders NVR, Inc. (487,800) (4,148,002) --
Leisure & CST Entertainment Imaging, Inc. -- -- --
Entertainment
Real Estate Resurgence Properties Inc. -- -- --
Restaurants Houlihan's Restaurant Group, Inc. -- -- --
Retail CML Group, Inc. 2,200,000 9,417,640 $163,173
Total $62,448,361
===========
See Notes to Financial Statements
</TABLE>
<PAGE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$732,253,997) (Note 1a) $ 720,510,844
Cash 312,587
Foreign cash (Note 1c) 320
Receivables:
Securities sold $ 11,802,223
Interest 1,351,426
Capital shares sold 1,281,138
Dividends 92,577 14,527,364
--------------
Prepaid registration fees and other assets (Note 1f) 184,757
--------------
Total assets 735,535,872
--------------
Liabilities: Payables:
Securities purchased 7,024,579
Capital shares redeemed 1,194,989
Investment adviser (Note 2) 661,852
Distributor (Note 2) 381,076 9,262,496
--------------
Accrued expenses and other liabilities 420,572
--------------
Total liabilities 9,683,068
--------------
Net Assets: Net assets $ 725,852,804
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000
Consist of: shares authorized $ 2,089,640
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 2,939,015
Class C Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized 122,448
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 366,083
Paid-in capital in excess of par 653,023,134
Undistributed investment income--net 1,352,739
Undistributed realized capital gains on investments and foreign
currency transactions--net 77,702,918
Unrealized depreciation on investments and foreign currency
transactions--net (11,743,173)
--------------
Net assets $ 725,852,804
==============
Net Asset Value: Class A--Based on net assets of $279,351,228 and 20,896,399
shares outstanding $ 13.37
==============
Class B--Based on net assets of $381,808,390 and 29,390,148
shares outstanding $ 12.99
==============
Class C--Based on net assets of $15,820,519 and 1,224,479
shares outstanding $ 12.92
==============
Class D--Based on net assets of $48,872,667 and 3,660,826
shares outstanding $ 13.35
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended July 31, 1996
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 12,384,120
(Notes 1d & 1e): Dividends (net of $80,278 foreign withholding tax) 3,775,345
Other income 209,822
--------------
Total income 16,369,287
--------------
Expenses: Investment advisory fees (Note 2) $ 7,444,413
Account maintenance and distribution fees--Class B (Note 2) 4,101,468
Transfer agent fees--Class B (Note 2) 817,551
Transfer agent fees--Class A (Note 2) 491,934
Printing and shareholder reports 181,924
Account maintenance and distribution fees--Class C (Note 2) 145,441
Registration fees (Note 1f) 133,789
Professional fees 119,587
Account maintenance fees--Class D (Note 2) 111,794
Transfer agent fees--Class D (Note 2) 76,075
Custodian fees 67,585
Directors' fees and expenses 62,671
Accounting services (Note 2) 57,539
Transfer agent fees--Class C (Note 2) 30,600
Other 22,282
--------------
Total expenses 13,864,653
--------------
Investment income--net 2,504,634
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 89,052,145
(Loss) on Foreign currency transactions--net (19,623) 89,032,522
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (61,421,761)
(Notes 1b, 1c, Foreign currency transactions--net (20) (61,421,781)
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 27,610,741
--------------
Net Increase in Net Assets Resulting from Operations $ 30,115,375
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 2,504,634 $ 5,192,065
Realized gain on investments and foreign currency
transactions--net 89,032,522 44,266,927
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (61,421,781) 38,223,178
-------------- --------------
Net increase in net assets resulting from operations 30,115,375 87,682,170
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A (2,797,570) (2,215,404)
Shareholders Class B (1,123,307) (555,940)
(Note 1g): Class C (55,725) (10,793)
Class D (306,921) (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 (37,478,030) (70,170,786)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (16,090,922) 113,809,555
(Note 4): -------------- --------------
<PAGE>
Net Assets: Total increase (decrease) in net assets (23,453,577) 131,320,939
Beginning of year 749,306,381 617,985,442
-------------- --------------
End of year* $ 725,852,804 $ 749,306,381
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ 1,352,739 $ 2,926,373
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.44 $ 13.31 $ 13.75 $ 11.40 $ 11.13
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .13 .17 .03 .02 .06
Realized and unrealized gain on investments
and foreign currency transactions--net .51 1.47 1.18 3.06 1.34
---------- ---------- ---------- ---------- ----------
Total from investment operations .64 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 year $ 13.37 $ 13.44 $ 13.31 $ 13.75 $ 11.40
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 4.78% 13.91% 9.36% 28.96% 14.54%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.24% 1.31% 1.22% 1.25% 1.35%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .92% 1.40% .48% .28% .60%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $ 279,351 $ 286,258 $ 255,856 $ 197,995 $ 140,323
Data: ========== ========== ========== ========== ==========
Portfolio turnover 87.66% 70.36% 63.95% 67.57% 79.68%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0481 -- -- -- --
========== ========== ========== ========== ==========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.12 $ 13.02 $ 13.46 $ 11.25 $ 11.04
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net (.01) .04 (.07) (.02) (.05)
Realized and unrealized gain on investments
and foreign currency transactions--net .50 1.45 1.11 2.93 1.33
---------- ---------- ---------- ---------- ----------
Total from investment operations .49 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 year $ 12.99 $ 13.12 $ 13.02 $ 13.46 $ 11.25
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 3.67% 12.83% 8.21% 27.66% 13.35%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 2.26% 2.34% 2.24% 2.27% 2.37%
Net Assets: ========== ========== ========== ========== ==========
Investment income (loss)--net (.11%) .37% (.51%) (.73%) (.46%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year (in thousands) $ 381,808 $ 414,886 $ 362,129 $ 209,534 $ 104,313
Data: ========== ========== ========== ========== ==========
Portfolio turnover 87.66% 70.36% 63.95% 67.57% 79.68%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0481 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of
sales loads.
++Based on average shares outstanding during the
period.
++++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities.
See Notes to Financial Statements.
</TABLE>
<PAGE>
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 Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
July 31, July 31, July 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 (loss)--net (.02) .03 .09 .11
Realized and unrealized gain on investments
and foreign currency transactions--net .51 1.21 .51 1.25
---------- ---------- ---------- ----------
Total from investment operations .49 1.24 .60 1.36
---------- ---------- ---------- ----------
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 $ 12.92 $ 13.07 $ 13.35 $ 13.43
========== ========== ========== ==========
Total Investment Based on net asset value per share 3.69% 10.99%+++ 4.50% 11.72%+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses 2.27% 2.39%* 1.48% 1.60%*
Net Assets: ========== ========== ========== ==========
Investment income--net (.12%) .34%* .67% 1.11%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 15,821 $ 11,775 $ 48,873 $ 36,388
Data: ========== ========== ========== ==========
Portfolio turnover 87.66% 70.36% 87.66% 70.36%
========== ========== ========== ==========
Average commission rate paid++++++ $ .0481 -- $ .0481 --
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of
sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
++++++For fiscal years beginning on or after September 1, 1995,
the Fund is required to disclose its average commission
rate per share for purchases and sales of equity
securities.
+++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. 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. Options purchased are valued at the last sale price in
the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. 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>
* 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.
* Options--The Fund is authorized to write covered call options and
purchase put 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 and purchased 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 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>
NOTED TO FINANCIAL STATEMENTS (continued)
(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 reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $205,255 have been reclassified from undistributed net realized
capital gains to undistributed net investment income and $693,260
have been reclassified from paid-in capital in excess of par to
undistributed net realized capital gains. 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 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.
<PAGE>
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.
For the year ended July 31, 1996, 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 $4,330 $ 62,624
Class D $9,917 $118,473
For the year ended July 31, 1996, MLPF&S received contingent
deferred sales charges of $582,976 and $8,940 relating to
transactions in Class B and Class C Shares, respectively.
During the year ended July 31, 1996, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $274 for security
price quotations to compute the net asset value of the Fund.
In addition, MLPF&S received $77,335 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
July 31, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
<PAGE>
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 year ended July 31, 1996 were $608,549,763 and $650,693,402,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Losses
Long-term investments $ 89,054,392 $(11,743,153)
Short-term investments (2,247) --
Foreign currency
transactions (19,623) (20)
------------ ------------
Total $ 89,032,522 $(11,743,173)
============ ============
As of July 31, 1996, net unrealized depreciation for Federal income
tax purposes aggregated $12,152,086, of which $85,225,667 related to
appreciated securities and $97,377,753 related to depreciated
securities. At July 31, 1996, the aggregate cost of investments for
Federal income tax purposes was $732,662,930.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions were $(16,090,922) and $113,809,555 for the years ended
July 31, 1996 and July 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares
For the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 4,419,265 $ 59,891,082
Shares issued to shareholders
in reinvestment of dividends
and distributions 740,876 9,936,546
------------ ------------
Total issued 5,160,141 69,827,628
Shares redeemed (5,561,880) (74,905,949)
------------ ------------
Net decrease (401,739) $ (5,078,321)
============ ============
<PAGE>
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 Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 7,242,432 $ 96,582,253
Shares issued to shareholders
in reinvestment of dividends
and distributions 946,032 12,394,778
------------ ------------
Total issued 8,188,464 108,977,031
Shares redeemed (10,082,987) (132,916,921)
Automatic conversion
of shares (342,861) (4,498,278)
------------ ------------
Net decrease (2,237,384) $(28,438,168)
============ ============
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
============ ============
<PAGE>
Class C Shares
For the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 692,164 $ 9,157,835
Shares issued to shareholders
in reinvestment of dividends
and distributions 32,179 419,140
------------ ------------
Total issued 724,343 9,576,975
Shares redeemed (400,702) (5,315,980)
------------ ------------
Net increase 323,641 $ 4,260,995
============ ============
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
<PAGE>
Class D Shares
For the Year Dollar
Ended July 31, 1996 Shares Amount
Shares sold 2,067,920 $28,313,198
Automatic conversion
of shares 334,895 4,498,278
Shares issued to shareholders
in reinvestment of dividends
and distributions 105,562 1,413,741
------------ ------------
Total issued 2,508,377 34,225,217
Shares redeemed (1,557,098) (21,060,645)
------------ ------------
Net increase 951,279 $ 13,164,572
============ ============
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.
5. Subsequent Event:
On September 5, 1996, the Board of Directors declared dividends and
distributions per share payable on September 12, 1996 to
shareholders of record as of September 4, 1996 as follows:
<PAGE>
Ordinary Long-Term
Income Capital Gains
Class A $.687927 $.793765
Class B .624513 .793765
Class C .624513 .793765
Class D .669414 .793765
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Phoenix Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Phoenix Fund, Inc. as of July 31, 1996, 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 July 31,
1996 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 Phoenix Fund, Inc. as of July 31, 1996, 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
September 10, 1996
</AUDIT-REPORT>
<PAGE>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Phoenix Fund, Inc. during its fiscal year
ended July 31, 1996:
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income* Income Income Gains
<S> <S> <S> <C> <C> <C> <C>
Class A Shares: 9/06/95 9/14/95 $.063322 $.255609 $.318931 $.181670
12/31/95 12/21/95 $.014354 $.194979 $.209333 $.001331
Class B Shares: 9/06/95 9/14/95 $.049419 $.199489 $.248908 $.181670
12/31/95 12/21/95 $.012582 $.170912 $.183494 $.001331
Class C Shares: 9/06/95 9/14/95 $.053774 $.217069 $.270843 $.181670
12/13/95 12/21/95 $.012582 $.170912 $.183494 $.001331
Class D Shares: 9/06/95 9/14/95 $.060702 $.245032 $.305734 $.181670
12/13/95 12/21/95 $.013449 $.182689 $.196138 $.001331
<FN>
*Qualifies for the dividends received deduction for corporations.
Please retain this information for your records.
</TABLE>
PORTFOLIO INFORMATION (unaudited)
For the Quarter Ended July 31, 1996
Percent of
Ten Largest Holdings Net Assets
Amdahl Corp. 3.9%
Tandem Computers, Inc. 3.8
U S West Media Group 2.8
Community Psychiatric Centers, Inc. 2.8
Hanson PLC Sponsored (ADR) 2.8
Applied Bioscience
International Corp. 2.8
Woolworth Corp. 2.6
ADT Ltd. (ADR) 2.6
Computervision Corp. 2.6
VLSI Technology, Inc. 2.5
<PAGE>
Percent of
Five Largest Industries Net Assets
Computer Hardware 10.7%
Retail 8.2
Health Care 7.4
Cable 7.1
Computer Software 6.5
Percent of
Asset Mix Net Assets
Stocks 81.5%
Bonds 11.1
Cash & Cash Equivalents 7.4*
[FN]
*Includes other assets less liabilities.
Additions
(Equity Investments)
*AST Research, Inc.
Anacomp, Inc.
Apple Computer, Inc.
Hanson PLC Sponsored (ADR)
Integrated Device Technology,
Inc.
Laidlaw, Inc. (Non-Voting)
(Class B)(ADR)
National Semiconductor Corp.
Perrigo Co.
Sensormatic Electronics Corp.
Tyco Toys, Inc., Convertible
Preferred (Series C)
U.S. Trails, Inc.
<PAGE>
Deletions
(Equity Investments)
*AST Research, Inc.
Apache Corp.
Cyrix Corp.
Great Bay Power Corp.
Kinder-Care Learning Centers,
Inc.
National Education Corp.
Price/Costco, Inc.
Quantum Corp.
Read-Rite Corp.
Rowan Companies, Inc.
Service Merchandise Company,
Inc.
Specialty Chemical Resources,
Inc.
TMM, Inc.
Tektronix, Inc.
Teradyne, Inc.
Texfi Industries, Inc.
Tyco Toys, Inc.
[FN]
*Added and deleted in the same
quarter.
