MERRILL LYNCH
PHOENIX
FUND, INC.
FUND LOGO
Annual Report
July 31, 1997
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.
<PAGE>
Merrill Lynch
Phoenix Fund, Inc.
Box 9011
Princeton, NJ
08543
Printed on post-consumer recycled paper
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
During the quarter ended July 31, 1997, increasing evidence of
noninflationary economic growth boosted investor confidence. This
growing confidence was confirmed further when, as widely expected,
the Federal Reserve Board chose to leave monetary policy unchanged
at its July 1 meeting. This confluence of positive indicators helped
produce a significant rally in the US stock market. The unmanaged
Standard & Poor's 500 Composite Average, led by its 50 largest
issues (in terms of stock market capitalization), generated a
+19.58% total return for the July quarter. A slight decline in
interest rates during the quarter resulted in a modest positive
total return for US fixed-income investments.
<PAGE>
Current consensus expectations are for the US economy's rate of
growth to lose some momentum over the balance of 1997. Although real
(inflation-adjusted) gross domestic product (GDP) growth for the
first quarter of the year was revised slightly upward to 5.9%, the
rate of real growth for the second quarter was announced at a more
sustainable 2.2% rate. At the same time, inflationary pressures
remain contained. It remains to be seen whether economic activity
remains moderate enough to rule out future Federal Reserve Board
monetary policy tightenings later this year.
As the July quarter drew to a close, Congress approved tax-cut and
five-year balanced budget bills. Although considered positive to
encourage savings and investment, it remains to be seen how
successful the new legislation will be in reducing the Federal
budget deficit in the years ahead.
At present, it appears that the US economy is perceived favorably by
global investors for its ongoing growth and limited inflationary
pressures, as supported by the US dollar's continued strength
relative to other currencies. If economic data releases continue to
support this point of view, the outlook for the US capital markets
will remain positive.
Portfolio Matters
For the three-month period ended July 31, 1997, Merrill Lynch
Phoenix Fund, Inc.'s Class A, Class B, Class C and Class D Shares
had total investment returns of +23.55%, +23.19%, +23.18% and
+23.41%, respectively. (Fund results do not include sales charges,
and would be lower if sales charges were included. Complete
performance information, including average annual total returns, can
be found on pages 4--7 of this report to shareholders.) The Fund
performed well during the July quarter as the stock market advance
broadened to secondary stocks. It appears that investors may finally
be demonstrating an unwillingness to pay the historically high
multiples afforded to larger-capitalization equities and are
returning to smaller-capitalization "value" stocks. This trend is
positive for our portfolio holdings.
In this, the seventh year of a bull market, there are not many
industries that are experiencing operational difficulties.
Therefore, over the past year our investment activities have focused
on purchasing individual undervalued issues, as opposed to investing
in a number of companies in an undervalued sector. Although the July
quarter was no exception--since we added a variety of companies to
the portfolio from diverse industries, such as H&R Block, Inc.
(financial services), IVAX Corp. (pharmaceuticals) and Viacom, Inc.
(leisure & entertainment)--we also made what we anticipate to be the
first of several investments in the gold mining industry through the
purchase of shares of Placer Dome Inc.
<PAGE>
We first became familiar with H&R Block, Inc. through our investment
in CompuServe Corporation, which was then a majority-owned
subsidiary of the company. H&R Block's main line of business is in-
come tax preparation. We believe that the company's network of tax
preparers is an underutilized distribution network for numerous
other financial productsand services. Additionally, if we back out
its investment in CompuServe, H&R Block's income tax preparation
business is selling at a very attractive earnings per share
multiple. The outlook for the company's tax preparation business has
also improved because of the complexity of the new Federal tax
legislation.
IVAX Corp. is a developer and manufacturer of generic and branded
pharmaceuticals. Severe price competition in the generic drug
business as well as a failed acquisition of the company by Bergen
Brunswig Corp. has brought the stock down to a six-year low. A new
management team along with sales of assets have dramatically
improved the company's balance sheet. This, along with a strong new
product pipeline, led us to become more optimistic on the company's
future prospects.
Viacom Inc. is a diversified entertainment company. Its Blockbuster
chain of video rental stores has been struggling recently because of
a poor product cycle as well as greater competition from other
methods of movie distribution to the home market. We believe that
Viacom's new management can return the Blockbuster division to a
predictable cash flow business that can be utilized to finance
growth in the company's network television and broadcasting
operations (MTV, Nickelodeon and Showtime).
Placer Dome Inc. is a major global producer of gold, silver and
copper. The recent precipitous decline in the price of gold caused
the stocks of a number of blue-chip gold mining companies to fall to
their lowest levels in several years. Although the absence of strong
inflationary trends in the global economy and central bank sales of
gold have kept the price of gold bullion depressed, we believe that
the supply/demand characteristics of bullion are becoming more
positive because we believe that demand for the metal will exceed
new production in the future. In addition, if current buoyant
economic conditions persist, we expect that inflationary pressures
will eventually materialize. Accordingly, in the weeks ahead we
anticipate investing in several other gold-mining companies like
Placer Dome that have relatively low production costs and better-
than-average reserve growth potential.
<PAGE>
Typically, we have held onto positions for some time before our
price objectives were met. However, investors are recognizing
improving fundamentals for companies at a rapid pace, and some of
our holdings are reaching our price targets in much shorter time
frames. As a result, we sold three recent additions to the portfolio
during the July quarter: 3Com Corp., Bay Networks, Inc. and Air New
Zealand Ltd. Their share prices had run up to levels that we believe
were not supportable, given both the current fundamentals and our
future earnings expectations.
The July quarter was active in terms of takeovers of Fund holdings.
We eliminated positions in Tandem Computers, Inc., Transitional
Hospitals Corp., Live Entertainment Inc., Houlihan's Restaurant
Group, Inc. and Total Petroleum (North America) Ltd., all at
profits, subsequent to their announced mergers with various
entities.
On the reorganization side, WRT Energy Corp., an oil and gas
producer in Louisiana, emerged from bankruptcy. We received stock
and litigation trust certificates in exchange for our investment in
the senior notes. In addition, during the quarter General Instrument
Corp., a manufacturer of electronic and telecommunications
equipment, completed its announced reorganization into three
separate subsidiaries: NextLevel Systems, Inc., General
Semiconductor, Inc. and CommScope, Inc. We are in the process of
evaluating the prospects of each of these new entities.
Fiscal Year in Review
Total returns for the fiscal year ended July 31, 1997 for the Fund's
Class A, Class B, Class C and Class D Shares were +29.78%, +28.48%,
+28.39% and +29.44%, respectively. Throughout most of the fiscal
year, investors favored a relatively small number of large-
capitalization blue-chip stocks, which rose to extremely high
valuation levels. This factor was the primary reason for the Fund's
underperformance relative to the Standard & Poor's 500 Composite
Index during much of the fiscal year. However, as we have already
noted, this trend changed during the last quarter of the fiscal
year, and Fund performance improved substantially.
We were successful in identifying value in several of our largest
holdings whose share prices rose as they became acquisition targets:
Tandem Computers, Inc., Community Psychiatric Centers Inc., Applied
Bioscience International Corp. and ADT Ltd. All of these investments
were among our ten largest holdings as of July 31, 1996, and we sold
them at substantial profits.
We invested the proceeds of these sales into larger cap companies,
in line with the strategy we have been following over the past
several years. For example, we added AT&T Corp., Digital Equipment
Corp., Viacom, Inc., and Toys 'R' Us, Inc. to the portfolio during
the fiscal year as they were experiencing operational difficulties.
Although these investments have already made positive contributions
to the Fund's performance, their shares are still selling at
fractions of our price objectives for them, and we continue to
believe that they represent extraordinary value in an overvalued
stock market. We also continued to complement our larger cap
holdings with a number of smaller cap companies that we believe
possess the ability to provide investment returns greater than
stocks in general. We believe that companies such as IVAX Corp., LTX
Corp., Mentor Graphics Corporation, and Integrated Device
Technology, Inc. all have the ability to expand earnings
dramatically and be awarded substantially higher share price
valuations. To date, these holdings have made neutral to slightly
positive contributions to the Fund's total return.
<PAGE>
The Fund's largest industry allocations were relatively unchanged
over the course of the fiscal year. Our largest industry exposures
have been in the energy-related and computer hardware industries.
With the strong performance of some key energy holdings--Marine
Drilling Co., Inc., McDermott International, Inc. and Oryx Energy
Co.--and the sale of Tandem Computers Inc., energy-related
investments comprised 7.6% of net assets at fiscal year-end,
compared to 5.2% for computer hardware companies. Both industries
experienced significant advances for the fiscal year as energy
prices trended upward and computer hardware companies Amdahl and
Tandem were acquired.
As of the end of the fiscal year, high-yield investments made up
7.8% of net assets. With the relatively expensive valuation of high-
yield issues that prevailed throughout much of the fiscal year, we
chose to limit our exposure to this sector.
In Conclusion
We are encouraged by the recent broadening of investor interest to
smaller cap, undervalued equities. We continue to believe that the
companies represented in Merrill Lynch Phoenix Fund's portfolio
represent exceptional long-term values, and that their potential
earnings power will be increasingly recognized by other investors.
We thank you for your continued investment in Merrill Lynch Phoenix
Fund, Inc., and we look forward to continuing to serve your
financial needs throughout the Fund's new fiscal year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Robert J. Martorelli)
Robert J. Martorelli
Vice President and
Portfolio Manager
<PAGE>
September 4, 1997
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).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/97 +10.61% + 4.80%
Five Years Ended 6/30/97 +15.55 +14.31
Ten Years Ended 6/30/97 +12.67 +12.07
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/97 + 9.43% + 5.48%
Five Years Ended 6/30/97 +14.36 +14.37
Inception (10/21/88)
through 6/30/97 +11.88 +11.88
[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 6/30/97 + 9.48% + 8.49%
Inception (10/21/94)
through 6/30/97 +12.42 +12.42
[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 6/30/97 +10.29% + 4.50%
Inception (10/21/94)
through 6/30/97 +13.31 +11.06
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
Class A Shares
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:
7/87 7/97
ML Phoenix Fund++--Class A Shares* $ 9,475 $31,862
S&P 500 Index++++ $10,000 $40,351
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** 7/97
ML Phoenix Fund++--Class B Shares* $10,000 $28,622
S&P 500 Index++++ $10,000 $43,309
<PAGE>
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:
10/21/94** 7/97
ML Phoenix Fund++--Class C Shares* $10,000 $14,777
ML Phoenix Fund++--Class D Shares* $ 9,475 $14,318
S&P 500 Index++++ $10,000 $21,864
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Phoenix Fund, Inc. invests 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.
PERFORMANCE DATA (continued)
<PAGE>
<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
1996 12.90 13.19 0.794 0.819 +15.81
1/1/97--7/31/97 13.19 15.32 -- -- +16.15
------- ------
Total $12.600 Total $8.333
Cumulative total return as of 7/31/97: +843.31%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<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
1996 12.62 12.83 0.794 0.700 +14.49
1/1/97--7/31/97 12.83 14.82 -- -- +15.51
------ ------
Total $5.365 Total $4.342
Cumulative total return as of 7/31/97: +186.22%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
<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
1996 12.55 12.75 0.794 0.700 +14.49
1/1/97--7/31/97 12.75 14.72 -- -- +15.45
------ ------
Total $1.291 Total $1.326
Cumulative total return as of 7/31/97: +47.77%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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**
<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
1996 12.91 13.18 0.794 0.789 +15.38
1/1/97--7/31/97 13.18 15.29 -- -- +16.01
------ ------
Total $1.291 Total $1.477
Cumulative total return as of 7/31/97: +51.11%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<PAGE>
<TABLE>
Recent Performance Results
<CAPTION>
12 Month 3 Month
7/31/97 4/30/97 7/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Phoenix Fund, Inc. Class A Shares* $15.32 $12.40 $13.37 +22.05%(1) +23.55%
ML Phoenix Fund, Inc. Class B Shares* 14.82 12.03 12.99 +21.73(1) +23.19
ML Phoenix Fund, Inc. Class C Shares* 14.72 11.95 12.92 +21.61(1) +23.18
ML Phoenix Fund, Inc. Class D Shares* 15.29 12.39 13.35 +22.00(1) +23.41
Dow Jones Industrial Average** 8,222.61 7,008.99 5,528.91 +48.72 +17.32
Standard & Poor's 500 Index** 954.29 801.34 639.95 +49.12 +19.09
ML Phoenix Fund, Inc. Class A Shares--Total Return* +29.78(2) +23.55
ML Phoenix Fund, Inc. Class B Shares--Total Return* +28.48(3) +23.19
ML Phoenix Fund, Inc. Class C Shares--Total Return* +28.39(3) +23.18
ML Phoenix Fund, Inc. Class D Shares--Total Return* +29.44(4) +23.41
Dow Jones Industrial Average--Total Return** +51.75 +17.83
Standard & Poor's 500 Index--Total Return** +52.02 +19.58
<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 $0.794 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.819 per share ordinary
income dividends and $0.794 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.700 per share ordinary
income dividends and $0.794 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.789 per share ordinary
income dividends and $0.794 per share capital gains distributions.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Discount to Assets
Computer Services 654,700 Scitex Corp. Ltd. $ 6,834,755 $ 6,424,244 0.9%
Conglomerates 250,000 Hanson PLC Sponsored (ADR)* 10,190,365 6,328,125 0.8
Energy Related 700,000 McDermott International, Inc. 12,621,515 21,393,750 2.9
<PAGE>
Leisure & 850,000 ++Viacom, Inc. (Class B) (Non-Voting) 25,116,186 26,243,750 3.6
Entertainment
Total Discount to Assets 54,762,821 60,389,869 8.2
Earning Turnarounds
Airlines 2,065,000 ++Mesa Air Group, Inc. (d) 15,219,287 11,292,969 1.5
Cable 1,600,000 ++Century Communications Corp. (d) 11,229,756 8,800,000 1.2
Computer & 450,000 ++Unisys Corp. 3,645,816 4,331,250 0.6
Peripherals
Computer Software 1,100,000 ++Mentor Graphics Corporation 10,874,845 11,550,000 1.6
Consumer Products 2,500,000 ++The Topps Co., Inc. (d) 14,435,385 9,062,500 1.2
Energy Related 400,000 ++Marine Drilling Co., Inc. 3,200,000 9,925,000 1.3
Gold 600,000 Placer Dome Inc. 9,886,838 10,200,000 1.4
Health Care 600,000 ++Humana, Inc. 11,564,931 14,625,000 2.0
1,300,000 ++NeoRx Corp. (d) 7,991,431 5,606,250 0.7
1,193,800 ++Perrigo Co. 12,307,962 15,519,400 2.1
Industrial Services 1,407,670 ++Anacomp, Inc. (d) 9,137,200 16,540,122 2.2
Leisure & 900,000 ++CST Entertainment Imaging, Inc. (a) 675,000 9,000 0.0
Entertainment
Retail 4,170,000 CML Group, Inc. (d) 23,882,945 14,855,625 2.0
450,000 ++Toys 'R' Us, Inc. 11,973,130 15,328,125 2.1
Semiconductor 1,650,000 ++Integrated Device Technology, Inc. 16,382,706 22,275,000 3.0
657,700 ++LTX Corp. 3,947,449 4,521,688 0.6
Steel 1,000,000 Birmingham Steel Corp. 15,537,099 18,187,500 2.5
Telecommunications 600,000 ++DSC Communications Corp. 11,020,016 17,662,500 2.4
Telecommunications 904,200 ++ANTEC Corporation 7,454,077 12,319,725 1.7
Equipment
Total Earning Turnarounds 200,365,873 222,611,654 30.1
Financial Restructuring
<PAGE>
Energy Related 1,938,474 ++WRT Energy Corp.--Litigation Trust
Certificates (e) 370,839 0 0.0
1,938,474 ++WRT Energy Corp.--New Common Stock (e) 16,017,828 10,176,991 1.4
Retail 443,361 ++Zale Corp. Litigation Limited
Partnership Units 0 0 0.0
Textiles 305,706 ++The Bibb Co. (a) 2,100,882 2,159,049 0.3
$ 9,000,000 ++JPS Textile Group Inc., Subordinated
Debentures, 7% due 5/15/2000 990,000 1,057,500 0.1
$ 5,740,000 ++JPS Textile Group Inc., Subordinated
Notes, 10.25% due 6/01/1999 3,289,290 4,391,100 0.6
Total Financial Restructuring 22,768,839 17,784,640 2.4
</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
Cable $ 754,545 Scott Cable, New 3rd Secured, Pay-in-
Kind Notes, 16% due 7/18/2002 (c) $ 293,272 $ 188,636 0.0%
$ 5,850,900 Scott Cable Trust Certificate, Pay-in-
Kind Notes, 15% due 3/18/2001 (c) 4,321,391 5,090,283 0.7
Consumer Products $12,220,000 Specialty Foods Corp., Senior Sub-
ordinated Notes, 11.25% due 8/15/2003 9,962,800 10,509,200 1.4
$ 2,500,000 Town & Country Corporation, Senior
Subordinated Notes, 13% due 5/31/1998 2,125,000 1,512,500 0.2
$ 6,600,000 U.S. Leather Inc., Senior Notes, 10.25%
due 7/31/2003 4,785,875 4,686,000 0.6
Home Builders $20,500,000 ++Baldwin Homes, Series B, 10.375% due
8/01/2003 8,541,125 9,122,500 1.3
Leisure & $10,500,000 Bally's Health & Tennis Corporation,
Entertainment Senior Subordinated Notes, 13% due
1/15/2003 8,450,000 11,025,000 1.5
Printing & $ 6,255,400 San Jacinto Holdings Inc., Senior
Publishing Subordinated Notes, 12% due 12/31/2002 4,048,512 4,378,780 0.6
Supermarkets $ 3,000,000 Farm Fresh Inc., Senior Notes, 12.25%
due 10/01/2000 2,400,000 2,460,000 0.3
$18,000,000 Grand Union Co., Senior Notes, 12% due
9/01/2004 9,143,063 8,460,000 1.2
Total High Yield 54,071,038 57,432,899 7.8
<PAGE>
Operational Restructuring
Cable 850,000 ++Tele-Communications, Inc. (Class A) 11,295,192 14,503,125 2.0
1,019,500 ++U S West Media Group 18,705,714 22,492,719 3.0
Computer Hardware 1,500,000 ++Amdahl Corp. 11,611,657 17,718,750 2.4
500,000 ++Digital Equipment Corp. 17,213,510 20,593,750 2.8
Computer Software 2,585,000 ++Borland International, Inc. (d) 31,302,706 21,326,250 2.9
1,800,000 ++CompuServe Corporation 18,755,849 20,700,000 2.8
4,445,000 ++Computervision Corp. (d) 27,356,936 15,279,687 2.1
4,100,000 ++Novell Inc. 40,588,442 31,006,250 4.2
Energy Related 601,800 ++Oryx Energy Co. 7,698,802 14,856,937 2.0
Engineering 800,000 ++EMCOR Group, Inc. 6,875,703 12,200,000 1.7
Environmental 1,250,000 Laidlaw, Inc. (Non-Voting) (Class B)
(ADR)* 12,140,881 19,921,875 2.7
Financial Services 106,200 H&R Block, Inc. 3,969,161 4,068,788 0.6
Health Care 1,257,600 ++Pharmaceutical Product Development, Inc. 18,317,319 29,396,400 4.0
Pharmaceuticals 978,700 ++IVAX Corp. 9,428,465 9,175,312 1.2
Retail 400,000 ++Woolworth Corp. 4,009,000 11,325,000 1.5
Semiconductor 150,000 ++General Semiconductor, Inc. (b) 1,967,356 2,287,500 0.3
Steel 1,598,500 ++WHX Corp. (d) 14,627,431 14,386,500 1.9
Telecommunications 450,000 AT&T Corp. 16,978,773 16,565,625 2.2
Telecommunications 200,000 ++CommScope, Inc. (b) 2,688,720 3,200,000 0.4
Equipment 600,000 ++NextLevel Systems, Inc. (b) 9,935,147 11,962,500 1.6
Total Operational Restructuring 285,466,764 312,966,968 42.3
Total Investments 617,435,335 671,186,030 90.8
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Face Amount Short-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $15,000,000 Eureka Securitization Inc., 5.52% due
9/08/1997 $ 14,912,600 $ 14,912,600 2.0%
1,557,000 General Motors Acceptance Corp., 5.81%
due 8/01/1997 1,557,000 1,557,000 0.2
10,000,000 Goldman Sachs Group, 5.54% due
8/07/1997 9,990,767 9,990,767 1.4
16,000,000 Monsanto Company, 5.48% due 8/06/1997 15,987,822 15,987,822 2.2
15,000,000 Preferred Receivable Funding Corp.,
5.52% due 9/09/1997 14,910,300 14,910,300 2.0
Total Short-Term Investments 57,358,489 57,358,489 7.8
Total Investments $674,793,824 728,544,519 98.6
============
Other Assets Less Liabilities 10,270,189 1.4
------------ ------
Net Assets $738,814,708 100.0%
============ ======
<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)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Security Act of 1933.
(b)Received in spin-off of General Instrument Corp.
(c)Represents a pay-in-kind security which may pay interest in
additional face.
(d)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 Air Group, Inc. 495,000 $ 3,747,640 --
Cable Century Communications Corp. (400,000) (5,476,795) --
Computer Software Borland International, Inc. 416,600 2,800,382 --
Computer Software Computervision Corp. 1,895,000 12,058,217 --
Consumer Products The Topps Co., Inc. 900,000 3,630,318 --
Health Care NeoRx Corp. 200,800 958,151 --
Industrial Services Anacomp, Inc. -- -- --
Retail CML Group, Inc. 670,000 2,732,658 $35,000
Steel WHX Corp. 698,500 5,061,122 --
<PAGE>
(e)Received in exchange for WRT Energy Corp., 13.875% Senior Notes
due 3/01/2002.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$674,793,824)
(Note 1a) $ 728,544,519
Cash 2,300,023
Foreign cash (Note 1c) 257
Receivables:
Securities sold $ 20,075,711
Interest 1,872,992
Capital shares sold 531,282
Dividends 153,982 22,633,967
--------------
Prepaid registration fees and other assets (Note 1f) 81,430
--------------
Total assets 753,560,196
--------------
Liabilities: Payables:
Securities purchased 11,178,464
Capital shares redeemed 2,314,465
Investment adviser (Note 2) 596,233
Distributor (Note 2) 306,666 14,395,828
--------------
Accrued expenses and other liabilities 349,660
--------------
Total liabilities 14,745,488
--------------
Net Assets: Net assets $ 738,814,708
==============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000
Consist of: shares authorized $ 1,971,441
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 2,274,809
Class C Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized 98,122
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 558,613
Paid-in capital in excess of par 567,817,882
Undistributed investment income--net 1,664,384
Undistributed realized capital gains on investments and
foreign currency transactions--net 110,678,845
Unrealized appreciation on investments and foreign currency
transactions--net 53,750,612
--------------
Net assets $ 738,814,708
==============
Net Asset Value: Class A--Based on net assets of $301,936,256 and 19,714,408
shares outstanding $ 15.32
==============
Class B--Based on net assets of $337,022,174 and 22,748,088
shares outstanding $ 14.82
==============
Class C--Based on net assets of $14,447,838 and 981,218
shares outstanding $ 14.72
==============
Class D--Based on net assets of $85,408,440 and 5,586,132
shares outstanding $ 15.29
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended July 31, 1997
<S> <S> <C> <C>
Investment Interest and discount earned $ 12,502,260
Income Dividends (net of $203,669 foreign withholding tax) 2,260,067
(Notes 1d & 1e): --------------
Total income 14,762,327
--------------
Expenses: Investment advisory fees (Note 2) $ 7,150,934
Account maintenance and distribution fees--Class B (Note 2) 3,612,384
Transfer agent fees--Class B (Note 2) 776,418
Transfer agent fees--Class A (Note 2) 541,805
Accounting services (Note 2) 168,926
Printing and shareholder reports 166,655
Account maintenance fees--Class D (Note 2) 161,204
Account maintenance and distribution fees--Class C (Note 2) 149,517
Transfer agent fees--Class D (Note 2) 124,648
Registration fees (Note 1f) 85,991
Directors' fees and expenses 75,738
Professional fees 72,795
Custodian fees 51,102
Transfer agent fees--Class C (Note 2) 33,845
Other 22,213
--------------
Total expenses 13,194,175
--------------
Investment income--net 1,568,152
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 117,056,545
(Loss) on Foreign currency transactions--net (50,384) 117,006,161
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 65,493,848
(Notes 1b, 1c, Foreign currency transactions--net (63) 65,493,785
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 182,499,946
--------------
Net Increase in Net Assets Resulting from Operations $ 184,068,098
==============
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: 1997 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 1,568,152 $ 2,504,634
Realized gain on investments and foreign currency transactions
--net 117,006,161 89,032,522
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 65,493,785 (61,421,781)
-------------- --------------
Net increase in net assets resulting from operations 184,068,098 30,115,375
-------------- --------------
<PAGE>
Dividends & Investment income--net:
Distributions to Class A (1,322,009) (2,797,570)
Shareholders Class B -- (1,123,307)
(Note 1g): Class C -- (55,725)
Class D (167,328) (306,921)
Realized gain on investments--net:
Class A (32,459,002) (12,381,777)
Class B (43,674,101) (18,485,951)
Class C (1,814,737) (584,344)
Class D (5,849,564) (1,742,435)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (85,286,741) (37,478,030)
-------------- --------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (85,819,453) (16,090,922)
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets 12,961,904 (23,453,577)
Beginning of year 725,852,804 749,306,381
-------------- --------------
End of year* $ 738,814,708 $ 725,852,804
============== ==============
<FN>
*Undistributed investment income--net (Note 1h) $ 1,664,384 $ 1,352,739
============== ==============
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: 1997++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.37 $ 13.44 $ 13.31 $ 13.75 $ 11.40
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .10 .13 .17 .03 .02
Realized and unrealized gain on
investments and foreign currency
transactions--net 3.46 .51 1.47 1.18 3.06
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.56 .64 1.64 1.21 3.08
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.06) (.13) (.11) -- (.03)
Realized gain on investments--net (1.55) (.58) (1.40) (1.65) (.70)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (1.61) (.71) (1.51) (1.65) (.73)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 15.32 $ 13.37 $ 13.44 $ 13.31 $ 13.75
========== ========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value per share 29.78% 4.78% 13.91% 9.36% 28.96%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 1.26% 1.24% 1.31% 1.22% 1.25%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .77% .92% 1.40% .48% .28%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 301,936 $ 279,351 $ 286,258 $ 255,856 $ 197,995
========== ========== ========== ========== ==========
Portfolio turnover 81.46% 87.66% 70.36% 63.95% 67.57%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0479 $ .0481 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the year.
++++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. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted in US dollars
using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the
rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<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 Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 12.99 $ 13.12 $ 13.02 $ 13.46 $ 11.25
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net (.03) (.01) .04 (.07) (.02)
Realized and unrealized gain on
investments and foreign currency
transactions--net 3.35 .50 1.45 1.11 2.93
---------- ---------- ---------- ---------- ----------
Total from investment operations 3.32 .49 1.49 1.04 2.91
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- (.04) (.02) -- --
Realized gain on investments--net (1.49) (.58) (1.37) (1.48) (.70)
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (1.49) (.62) (1.39) (1.48) (.70)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 14.82 $ 12.99 $ 13.12 $ 13.02 $ 13.46
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 28.48% 3.67% 12.83% 8.21% 27.66%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses 2.29% 2.26% 2.34% 2.24% 2.27%
Net Assets: ========== ========== ========== ========== ==========
Investment income (loss)--net (.26%) (.11%) .37% (.51%) (.73%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 337,022 $ 381,808 $ 414,886 $ 362,129 $ 209,534
========== ========== ========== ========== ==========
Portfolio turnover 81.46% 87.66% 70.36% 63.95% 67.57%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0479 $ .0481 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the year.
++++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. The
"Average Commission Rate Paid" includes commissions paid in
foreign currencies, which have been converted in US dollars
using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the
rate shown.
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++ Class D++++
For the For the
The following per share data and ratios have Period Period
been derived from information provided in the Oct. 21, Oct. 21,
financial statements. For the Year 1994++ to For the Year 1994++ to
Ended July 31, July 31, Ended July 31, July 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 12.92 $ 13.07 $ 12.31 $ 13.35 $ 13.43 $ 12.57
Performance: -------- -------- -------- -------- -------- --------
Investment income (loss)
--net (.04) (.02) .03 .07 .09 .11
Realized and unrealized
gain on investments and
foreign currency
transactions--net 3.33 .51 1.21 3.45 .51 1.25
-------- -------- -------- -------- -------- --------
Total from investment
operations 3.29 .49 1.24 3.52 .60 1.36
-------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net -- (.06) (.05) (.04) (.10) (.07)
Realized gain on
investments--net (1.49) (.58) (.43) (1.54) (.58) (.43)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (1.49) (.64) (.48) (1.58) (.68) (.50)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 14.72 $ 12.92 $ 13.07 $ 15.29 $ 13.35 $ 13.43
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value
Return:** per share 28.39% 3.69% 10.99%+++ 29.44% 4.50% 11.72%+++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.30% 2.27% 2.39%* 1.52% 1.48% 1.60%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)
--net (.27%) (.12%) .34%* .54% .67% 1.11%*
======== ======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period
Data: (in thousands) $ 14,448 $ 15,821 $ 11,775 $ 85,409 $ 48,873 $ 36,388
======== ======== ======== ======== ======== ========
Portfolio turnover 81.46% 87.66% 70.36% 81.46% 87.66% 70.36%
======== ======== ======== ======== ======== ========
Average commission rate
paid++++++ $ .0479 $ .0481 -- $ .0479 $ .0481 --
======== ======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects 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
rate per share for purchases and sales of equity securities.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted in US
dollars using the prevailing exchange rate on the date of the
transaction. Such conversions may significantly affect the
rate shown.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
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.
<PAGE>
(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.
* 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.
<PAGE>
(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.
NOTES TO FINANCIAL STATEMENTS (continued)
(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 dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $232,830 have been reclassified from undistributed net realized
capital gains to undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
<PAGE>
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.
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, 1997, 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
<PAGE>
Class A $2,131 $26,971
Class D $5,253 $61,002
For the year ended July 31, 1997, MLPF&S received contingent
deferred sales charges of $681,299 and $5,533 relating to
transactions in Class B and Class C Shares, respectively.
During the year ended July 31, 1997, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $266 for security
price quotations to compute the net asset value of the Fund.
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1997 were $534,447,342 and $719,657,683,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1997 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $117,056,695 $ 53,750,695
Short-term investments (150) --
Foreign currency
transactions (50,384) (83)
------------ ------------
Total $117,006,161 $ 53,750,612
============ ============
As of July 31, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $51,853,408, of which $120,528,535 related
to appreciated securities and $68,675,127 related to depreciated
securities. At July 31, 1997, the aggregate cost of investments for
Federal income tax purposes was $676,691,111.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $85,819,453 and $16,090,922 for the years ended July 31, 1997
and July 31, 1996, respectively.
<PAGE>
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 3,245,516 $ 43,038,169
Shares issued to shareholders
in reinvestment of dividends
and distributions 2,408,271 29,567,961
------------ ------------
Total issued 5,653,787 72,606,130
Shares redeemed (6,835,778) (90,944,050)
------------ ------------
Net decrease (1,181,991) $(18,337,920)
============ ============
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)
============ ============
Class B Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 3,717,624 $ 47,733,794
Shares issued to shareholders
in reinvestment of
distributions 3,291,225 39,178,069
------------ ------------
Total issued 7,008,849 86,911,863
Automatic conversion
of shares (2,540,026) (32,669,108)
Shares redeemed (11,110,883) (143,277,186)
------------ ------------
Net decrease (6,642,060) $(89,034,431)
============ ============
<PAGE>
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
Automatic conversion
of shares (342,861) (4,498,278)
Shares redeemed (10,082,987) (132,916,921)
------------ ------------
Net decrease (2,237,384) $(28,438,168)
============ ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 240,282 $ 3,051,157
Shares issued to shareholders
in reinvestment of
distributions 136,318 1,613,090
------------ ------------
Total issued 376,600 4,664,247
Shares redeemed (619,861) (7,937,076)
------------ ------------
Net decrease (243,261) $ (3,272,829)
============ ============
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
============ ============
<PAGE>
Class D Shares for the Year Dollar
Ended July 31, 1997 Shares Amount
Shares sold 1,043,610 $ 13,805,556
Automatic conversion
of shares 2,467,989 32,669,108
Shares issued to shareholders
in reinvestment of dividends
and distributions 454,079 5,575,759
------------ ------------
Total issued 3,965,678 52,050,423
Shares redeemed (2,040,372) (27,224,696)
------------ ------------
Net increase 1,925,306 $ 24,825,727
============ ============
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
============ ============
<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, 1997, 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.
<PAGE>
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,
1997 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, 1997, 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 5, 1997
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Phoenix Fund, Inc. during its fiscal year
ended July 31, 1997:
<CAPTION>
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: 9/04/96 9/12/96 $.047161 $.640766 $.687927 $.793765
12/12/96 12/20/96 $.002498 $.129053 $.131551 --
Class B Shares: 9/04/96 9/12/96 $.042813 $.581700 $.624513 $.793765
12/12/96 12/20/96 $.001433 $.074014 $.075447 --
Class C Shares: 9/04/96 9/12/96 $.042813 $.581700 $.624513 $.793765
12/12/96 12/20/96 $.001424 $.073578 $.075002 --
Class D Shares: 9/04/96 9/12/96 $.045891 $.623523 $.669414 $.793765
12/12/96 12/20/96 $.002267 $.117118 $.119385 --
<PAGE>
<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, 1997
Percent of
Ten Largest Holdings Net Assets
Novell Inc. 4.2%
Pharmaceutical Product
Development, Inc. 4.0
Viacom, Inc. (Class B) (Non-Voting) 3.6
U S West Media Group 3.0
Integrated Device Technology, Inc. 3.0
McDermott International, Inc. 2.9
Borland International, Inc. 2.9
CompuServe Corporation 2.8
Digital Equipment Corporation 2.8
Laidlaw, Inc. (Non-Voting) (Class B)
(ADR) 2.7
Percent of
Five Largest Industries Net Assets
Computer Software 13.6%
Health Care 8.8
Energy Related 7.6
Cable 6.9
Retail 5.6
Percent of
Asset Mix Net Assets
Stocks 82.3%
Bonds 8.5
Cash & Cash Equivalents 9.2
<PAGE>
Additions (Equity Investments)
CommScope, Inc.
*General Instrument Corp.
General Semiconductor, Inc.
H&R Block, Inc.
IVAX Corp.
*Louisiana-Pacific Corp.
LTX Corp.
NextLevel Systems, Inc.
Placer Dome Inc.
Unisys Corp.
Viacom, Inc. (Class B) (Non-Voting)
WRT Energy Corp.--Litigation Trust Certificates
WRT Energy Corp.--New Common Stock
Deletions (Equity Investments)
3Com Corp.
Air New Zealand Ltd. (Class B)
Applied Magnetics Corp.
Bay Networks, Inc.
*General Instrument Corp.
Houlihan's Restaurant Group, Inc.
Live Entertainment Inc., 5% Convertible Preferred
(Series B)
*Louisiana-Pacific Corp.
Tandem Computers, Inc.
Total Petroleum (North America) Ltd.
Transitional Hospitals Corp.
[FN]
*Added and deleted in the same quarter.
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
Patrick D. Sweeney, Secretary
<PAGE>
Custodian
The Chase Manhattan Bank
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
