MERRILL LYNCH
PHOENIX
FUND, INC.
[FUND LOGO]
STRATEGIC
Performance
Quarterly Report
October 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.
Merrill Lynch
Phoenix Fund, Inc.
Box 9011
Princeton, NJ
08543 #10263 -- 10/97
[RECYCLE LOGO]
Printed on post-consumer recycled paper
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
Volatility highlighted stock and bond markets worldwide during the
quarter ended October 31, 1997. The difficulties began in Southeast
Asia. Following the currency devaluations in several Southeast Asian
countries this summer, the Hong Kong dollar -- the value of which is
pegged to the US dollar -- came under speculative attack in foreign
currency markets. Monetary authorities in Hong Kong raised interest
rates to support the currency, and the Hong Kong stock market declined
sharply. This event raised investor concerns worldwide regarding the
viability of continued global economic growth.
At first, US stock market investors focused on the challenges that
would face US multinational corporations in the wake of the poorer
Asian economic prospects. The selloff then broadened to other stocks
as well, leading to a 554-point decline in the Dow Jones Industrial
Average on October 27. Although the decline proved to be short-lived,
investor confidence was not definitively restored, and stock market
volatility continued. Although the US bond market benefited during
periods when investors anticipated slower economic growth, the release
of stronger-than-expected economic statistics led to periods of
declining bond prices.
As 1997 draws to a close, investors are likely to continue to focus on
the prospects for the US economy. Although the Federal Reserve Board
did not tighten monetary policy at its November 12 meeting, it remains
to be seen whether US economic growth remains moderate enough and
inflationary pressures sufficiently contained to preclude an increase
in short-term interest rates.
Portfolio Matters
For the three-month period ended October 31, 1997, Merrill Lynch
Phoenix Fund, Inc.'s Class A, Class B, Class C and Class D Shares had
total investment returns of +2.43%, +2.15%, +2.24% and +2.38%,
respectively. (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 4 -- 6 of this report to shareholders.)
US stock market volatility during the October quarter afforded the
Fund opportunities to eliminate profitable positions at the beginning
of the period and, by quarter-end, to establish new positions at
attractive valuations.
Dramatic stock market declines such as the one experienced in October
always provide value-oriented investors with opportunities to buy
shares of good-quality companies at attractive prices. For contrarian
investors, such as Merrill Lynch Phoenix Fund, these opportunities are
even greater as investors sell shares of companies whose prospects
they consider questionable and "fly to quality." Accordingly, during
the quarter we established investments in Pharmacia & Upjohn, Inc.,
IMC Global, Inc. and The Seagram Co. Ltd.
Pharmacia & Upjohn Inc. is a worldwide provider of pharmaceutical and
agricultural products. The company's recent earnings results have been
hurt by the loss of patent protection on several products as well as a
lack of new product approvals. Additionally, the strong US dollar has
negatively impacted earnings since a large portion of the company's
business is conducted overseas. We believe that Pharmacia & Upjohn's
new management team will be successful in reigning in costs and
bringing the company's financial results more in line with those of
its peers. We also believe that the company's current product pipeline
is very underrated and, once approvals are received from the Food and
Drug Administration, earnings should benefit accordingly.
IMC Global, Inc. is the world's largest miner of the fertilizers,
phosphate rock and potash. The company's recent earnings results have
been lackluster. In addition, a large portion of the company's
production is sold to The People's Republic of China, so that concerns
regarding the viability of China's economy have also negatively
affected IMC Global shares. Over the longer term, we believe that
investors will recognize the longer-term earnings potential of IMC
Global, since it is one of the few providers of the fertilizer
products needed to meet the agricultural needs of the world's
expanding population. Furthermore, with few competitors, we also
expect the pricing for IMC Global's products to improve.
The Seagram Co., Ltd. is a global entertainment and spirits company.
Seagram has spent the past several years redefining itself by selling
large investments in Time Warner Inc. and E.I. du Pont de Nemours, and
redeploying the proceeds into the purchase of MCA Inc. Seagram stock
was driven down to attractive levels because of concerns regarding the
company's Asian spirits business with forecasts of slower economic
growth. We believe that Seagram stock is selling below its asset
value, and that earnings growth should resume in the near future as
the company's investments in its theme park business begin to pay off.
We also had opportunities during the October quarter to invest in
former growth equities that have encountered near-term difficulties.
We find such investments especially attractive since they still
possess many of the characteristics that had previously led investors
to favor them, but now their shares are selling at very attractive
valuations. We made investments in three such companies during the
October quarter: Columbia/HCA Healthcare Corp., Electronic Data
Systems Corp. and Tupperware Corporation.
The shares of Columbia/HCA Healthcare Corp. have come under tremendous
pressure as US Government investigations of the company's billing
practices have continued. We were attracted to the company's solid
asset base, since many of its hospitals are the only ones in their
respective communities. In addition, we were impressed with the speed
with which Columbia changed management, slowed its expansion and
initiated internal audits to address its problems. We believe that
these actions will hasten the governmental review process and allow
the company to consider various alternatives (such as spinouts, share
buybacks or sales of assets) to enhance shareholder value.
Electronic Data Systems Corp. (EDS), a leading provider of computer
services, has faced challenges after its spin off from its former
parent, General Motors Corporation. Earnings have suffered, primarily
because of a very competitive environment for contracts. However, EDS
still enjoys a preeminent position in the industry, has written off
most of its problem contracts, initiated aggressive cost controls, and
continues to build backlog (contracts for future business) at an
impressive rate. We believe that over the long term, EDS will thrive
because of corporate America's move toward outsourcing.
Tupperware Corporation is one of the world's largest suppliers and
marketers of plastic storage products, which it sells primarily though
its own direct sales force. The company's shares once commanded a
premium multiple as investors saw great promise in Tupperware's
international expansion activities. However, a slowdown in US and
Latin American sales have led to disappointing earnings results. We
are attracted to the company's strong brand name, global presence and
excellent products. However, management has yet to provide a cogent
turnaround plan. Therefore, we have made a relatively modest
investment in Tupperware at this time, and will be monitoring the
company's progress carefully for an opportunity to expand our
investment.
For some time, we have found few opportunities for new investments in
the high-yield sector. However, during the October quarter we invested
in two high-yield issues that were selling at attractive prices.
The first is the senior debt of Levitz Furniture Corp., the largest
specialty furniture retailer in the United States. Following its
leveraged buyout in 1985, the company has drifted from one short-term
financial fix to another. Finally, Levitz filed under Chapter 11 in
September 1997. Following the filing, we began to accumulate a
position in the company's senior debt. We believe the company's
dominant franchise in California and Florida, as well as its real
estate holdings, provide asset protection for the bonds we purchased.
We believe that the bonds may provide above-average returns once the
company's reorganization is complete within the next two years.
Our second high-yield investment was the bonds of MobileMedia Corp.
MobileMedia is the second-largest paging company in the United States,
and encountered severe operational and financial difficulties stemming
from the challenge of merging its newly acquired paging companies into
an integrated system. In hindsight, it also appears that the company
overpaid for some of these acquisitions. As a result, the company's
equity cushion evaporated, its bonds began trading at a discount, and
MobileMedia filed Chapter 11 bankruptcy in January 1997. While
problems remain at MobileMedia, we believe that, at current prices,
MobileMedia's bonds are undervalued relative to the company's strong
competitive position and its ability to overcome current problems.
As we have mentioned already, stock market strength early in the
October quarter provided the opportunity to take profits in some
long-term holdings that had met or exceeded our price targets.
Examples of such investments eliminated from the portfolio include DSC
Communications Corp., Marine Drilling Co., Inc., McDermott
International, Inc., Perrigo Co., Toys 'R' Us, Inc. and Woolworth
Corp. We also eliminated our investment in Amdahl Corp. since Fujitsu
Ltd. was acquiring the company.
In Conclusion
October's sharp stock market decline illustrates the risks and
opportunities inherent in a contrarian investment approach. Although
we strive to invest in issues that have limited downside risk, near-
term investor overreaction often drives prices to lower levels.
However, these lower valuations do create opportunities to establish
or expand positions at very attractive prices.
We thank you for your investment in Merrill Lynch Phoenix Fund, Inc.,
and look forward to reviewing our outlook and strategy with you again
in our next report to shareholders.
Sincerely,
/S/ARTHUR ZEIKEL
Arthur Zeikel
President
/S/ROBERT J. MARTORELLI
Robert J. Martorelli
Vice President and Portfolio Manager
December 1, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill
Lynch Select PricingSM System, which offers four pricing alternatives:
[bullet] 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.
[bullet] 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.)
[bullet] 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.
[bullet] 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.
<TABLE>
<CAPTION>
Recent Performance Results
12 Month 3 Month
10/31/97 7/31/97 10/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Phoenix Fund, Inc. Class A Shares* $13.29 $15.32 $12.38 +16.57%(1) -5.80%(1)
ML Phoenix Fund, Inc. Class B Shares* 12.83 14.82 12.02 +16.22(1) -5.74(1)
ML Phoenix Fund, Inc. Class C Shares* 12.74 14.72 11.95 +16.15(1) -5.71(1)
ML Phoenix Fund, Inc. Class D Shares* 13.27 15.29 12.37 +16.50(1) -5.75(1)
Dow Jones Industrial Average** 7,442.08 8,222.61 6,029.38 +23.43 -9.49
Standard & Poor's 500 Index** 914.62 954.29 705.27 +29.68 -4.16
ML Phoenix Fund, Inc. Class A Shares -- Total Return* +28.00(2) +2.43(3)
ML Phoenix Fund, Inc. Class B Shares -- Total Return* +26.68(4) +2.15(5)
ML Phoenix Fund, Inc. Class C Shares -- Total Return* +26.67(4) +2.24(6)
ML Phoenix Fund, Inc. Class D Shares -- Total Return* +27.68(7) +2.38(8)
Dow Jones Industrial Average -- Total Return** +25.76 -9.09
Standard & Poor's 500 Index -- Total Return** +32.09 -3.73
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included.
** An unmanaged broad-based index comprised of common stocks. Total investment returns for unmanaged indexes are based on
estimates.
(1) Percent change includes reinvestment of $1.158 per share capital gains distributions.
(2) Percent change includes reinvestment of $1.410 per share ordinary income dividends and $1.158 per share capital gains
distributions.
(3) Percent change includes reinvestment of $1.279 per share ordinary income dividends and $1.158 per share capital gains
distributions.
(4) Percent change includes reinvestment of $1.263 per share ordinary income dividends and $1.158 per share capital gains
distributions.
(5) Percent change includes reinvestment of $1.187 per share ordinary income dividends and $1.158 per share capital gains
distributions.
(6) Percent change includes reinvestment of $1.188 per share ordinary income dividends and $1.158 per share capital gains
distributions.
(7) Percent change includes reinvestment of $1.379 per share ordinary income dividends and $1.158 per share capital gains
distributions.
(8) Percent change includes reinvestment of $1.260 per share ordinary income dividends and $1.158 per share capital gains
distributions.
</TABLE>
<TABLE>
<CAPTION>
Performance Summary -- Class A Shares
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 -- 10/31/97 13.19 13.29 1.158 1.279 +18.97
Total $13.758 Total $9.612
Cumulative total return as of 10/31/97: +866.23%**
* 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>
<CAPTION>
Performance Summary -- Class B Shares
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 -- 10/31/97 12.83 12.83 1.158 1.187 +18.00
Total $6.523 Total $5.529
Cumulative total return as of 10/31/97: +192.38%**
* 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>
<CAPTION>
Performance Summary -- Class C Shares
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 -- 10/31/97 12.75 12.74 1.158 1.188 +18.03
Total $2.449 Total $2.514
Cumulative total return as of 10/31/97: +51.07%**
* 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>
<CAPTION>
Performance Summary -- Class D Shares
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 -- 10/31/97 13.18 13.27 1.158 1.260 +18.77
Total $2.449 Total $2.737
Cumulative total return as of 10/31/97: +54.71%**
* Figures may include short-term capital gains distributions.
** Figures do not include sales charge; results would be lower if sales charge was included.
</TABLE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/97 +31.57% +24.66%
Five Years Ended 9/30/97 +18.96 +17.68
Ten Years Ended 9/30/97 +13.69 +13.08
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/97 +30.35% +26.35%
Five Years Ended 9/30/97 +17.76 +17.76
Inception (10/21/88)
through 9/30/97 +13.31 +13.31
* 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 9/30/97 +30.26% +29.26%
Inception (10/21/94)
through 9/30/97 +16.78 +16.78
* Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/97 +31.34% +24.44%
Inception (10/21/94)
through 9/30/97 +17.71 +15.58
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
<TABLE>
<CAPTION>
Merrill Lynch Phoenix Fund, Inc. October 31, 1997
SCHEDULE OF INVESTMENTS
Face Amount/ Percent of
Industry Shares Held Investments Cost Value Net Assets
<S> <C> <C> <C> <C> <C>
Cable 400,000 TCI Ventures Group (Series A) $6,317,459 $9,225,000 1.3%
Conglomerates 250,000 Hanson PLC Sponsored (ADR)* 10,190,365 6,375,000 0.9
Leisure & 472,700 The Seagram Co., Ltd. 16,151,157 15,924,081 2.2
Entertainment 850,000 Viacom, Inc. (Class B) (Non-Voting) 25,116,186 25,712,500 3.6
Printing & 741,300 Scitex Corp. Ltd. 7,902,900 8,895,600 1.3
Publishing ------------- ------------- ------
Total Discount to Assets 65,678,067 66,132,181 9.3
============= ============= ======
Earning Turnarounds
Airlines 1,500,000 Mesa Air Group, Inc. 10,024,011 8,062,500 1.1
Computer Services 300,000 Electronic Data Systems Corp. 11,053,940 11,606,250 1.6
Computer Software 1,290,900 Mentor Graphics Corporation 13,068,940 13,957,856 2.0
Consumer Products 2,520,000 The Topps Co., Inc. 14,494,135 7,717,500 1.1
Energy Related 1,292,100 Enserch Exploration, Inc. 10,395,842 11,628,900 1.6
Environmental 400,000 Waste Management, Inc. 9,400,960 9,350,000 1.3
Gold 600,000 Placer Dome Inc. 9,886,838 9,300,000 1.3
Health Care 675,000 Humana, Inc. 13,145,181 14,175,000 2.0
1,300,000 NeoRx Corp. 7,991,431 8,287,500 1.2
Industrial Services 1,407,670 Anacomp, Inc. 9,137,200 19,355,463 2.7
Leisure & 900,000 CST Entertainment Imaging, Inc. 675,000 9,000 0.0
Entertainment
Pharmaceuticals 425,000 Pharmacia & Upjohn, Inc. 14,380,282 13,493,750 1.9
Retail 3,200,000 CML Group, Inc. 14,188,879 10,200,000 1.4
Semiconductor 1,792,200 Integrated Device Technology, Inc. 18,036,606 20,610,300 2.9
1,662,500 LTX Corp. 10,930,277 8,935,937 1.3
Steel 1,000,000 Birmingham Steel Corp. 15,537,098 16,625,000 2.4
Telecommunications 744,200 ANTEC Corporation 6,118,430 11,721,150 1.7
Equipment ------------- ------------- ------
Total Earning Turnarounds 188,465,050 195,036,106 27.5
============= ============= ======
Financial Restructuring
Energy Related 1,938,474 WRT Energy Corp. -- Litigation Trust
Certificates 370,838 2 0.0
1,938,475 WRT Energy Corp. -- New Common Stock 16,017,828 7,753,900 1.1
Furniture $ 7,237,000 Levitz Furniture Corp., Senior Notes,
13.375 due 10/15/1998 5,591,831 5,626,768 0.8
Home Builders 520,000 New Millenium Homes, LLC 1,934,501 1,560,000 0.2
$10,250,000 New Millenium Homes, LLC, Senior
Notes, 12% due 8/29/2004 9,032,852 10,096,250 1.4
Retail 443,361 Zale Corp. Litigation Limited
Partnership Units 0 0 0.0
Textiles 209,706 The Bibb Co. 1,375,088 1,638,328 0.3
------------- ------------- ------
Total Financial Restructuring 34,322,938 26,675,248 3.8
============= ============= ======
High Yield
Cable 754,545 Scott Cable, New 3rd Secured,
Pay-in-Kind Notes, 16% due 7/18/2002 293,272 128,273 0.0
Consumer Products $4,720,000 Specialty Foods Corp., Senior
Subordinated Notes, 11.25% due
8/15/2003 3,800,300 4,531,200 0.6
$3,000,000 Town & Country Corporation, Senior
Subordinated Notes, 13% due 5/31/1998 2,323,750 1,245,000 0.2
$6,600,000 U.S. Leather Inc., Senior Notes,
10.25% due 7/31/2003 4,785,875 3,630,000 0.5
Home Builders $20,500,000 Baldwin Homes, Series B, 10.375% due
8/01/2003 8,541,125 9,430,000 1.3
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 2,670,000 0.4
$20,000,000 Grand Union Co., Senior Notes, 12%
due 9/01/2004 10,130,673 8,900,000 1.3
Telecommunications $19,200,000 MobileMedia Corp., Senior
Subordinated Notes, 9.375% due
11/01/2007 4,914,000 4,032,000 0.6
------------- ------------- ------
Total High Yield 41,237,507 38,945,253 5.5
============= ============= ======
Operational Restructuring
Cable 600,000 Tele-Communications, Inc. (Class A) 8,378,000 13,725,000 1.9
1,019,500 U S West Media Group 18,705,714 25,742,375 3.6
Chemicals 450,000 IMC Global, Inc. 15,910,318 15,159,375 2.1
Computer Hardware 500,000 Digital Equipment Corp. 17,213,510 25,031,250 3.5
Computer Services 1,463,000 CompuServe Corporation 15,091,544 18,287,500 2.6
Computer Software 2,635,000 Borland International, Inc. 31,708,956 24,703,125 3.5
4,800,000 Computervision Corp. 28,106,873 13,500,000 1.9
4,100,000 Novell Inc. 38,286,645 34,337,500 4.9
Consumer Products 300,000 Tupperware Corporation 8,336,593 7,518,750 1.1
Diversifed 90,900 General Signal Corporation 3,490,537 3,647,363 0.5
Energy Related 400,000 Oryx Energy Co. 4,930,951 11,025,000 1.6
Engineering 800,000 EMCOR Group, Inc. 6,875,703 15,100,000 2.1
Environmental 1,250,000 Laidlaw, Inc. (Non-Voting) (Class B)
(ADR)* 12,140,881 17,656,250 2.5
Financial Services 605,000 H&R Block, Inc. 22,957,126 22,385,000 3.2
Health Care 350,000 Columbia/HCA Healthcare Corp. 10,128,044 9,887,500 1.4
1,168,500 Pharmaceutical Product Development,
Inc. 16,526,903 20,594,812 2.9
Pharmaceuticals 1,250,000 IVAX Corp. 11,946,078 9,453,125 1.3
Steel 1,298,500 WHX Corp. 11,160,677 17,286,281 2.4
Telecommunications 450,000 AT&T Corp. 16,978,773 22,021,875 3.1
Telecommunications 200,000 CommScope, Inc. 2,688,720 2,200,000 0.3
Equipment ------------- ------------- ------
Total Operational Restructuring 301,562,546 329,262,081 46.4
============= ============= ======
Total Investments 631,266,108 656,050,869 92.5
============= ============= ======
<CAPTION>
Percent of
Face Amount Short-Term Investments Cost Value Net Assets
<S> <C> <C> <C> <C> <C>
Commercial Paper** 15,040,000 Atlantic Asset Securitization Corp.,
5.53% due 11/03/1997 $15,035,379 15,035,379 2.1
11,266,000 General Motors Acceptance Corp.,
5.75% due 11/03/1997 11,262,401 11,262,401 1.6
15,000,000 WCP Funding Inc., 5.52% due
11/21/1997 14,954,000 14,954,000 2.1
US Government 15,000,000 Federal Home Loan Mortgage Corp.,
Agency Obligations** 5.45% due 11/04/1997 14,993,188 14,993,188 2.1
------------- ------------- ------
Total Short-Term Investments 56,244,968 56,244,968 7.9
============= ============= ======
Total Investments $687,511,076 712,295,837 100.4
=============
Liabilities in Excess of Other Assets (2,663,158) (0.4)
------------- ------
Net Assets $709,632,679 100.0%
============= ======
Net Asset Class A -- Based on net assets of $293,860,135
Value: and 22,107,979 shares outstanding $13.29
=============
Class B -- Based on net assets of $316,649,145
and 24,673,652 shares outstanding $12.83
=============
Class C -- Based on net assets of $13,088,985
and 1,027,356 shares outstanding $12.74
=============
Class D -- Based on net assets of $86,034,414 and
6,481,408 shares outstanding $13.27
=============
* American Depositary Receipts (ADR).
** Commercial Paper and certain US Government Agency Obligations are traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Fund.
</TABLE>
PORTFOLIO INFORMATION
For the Quarter Ended October 31, 1997
Percent of
Ten Largest Holdings Net Assets
Novell Inc. 4.9%
U S West Media Group 3.6
Viacom, Inc. (Class B) (Non-Voting) 3.6
Digital Equipment Corp. 3.5
Borland International, Inc. 3.5
H&R Block, Inc. 3.2
AT&T Corp. 3.1
Integrated Device Technology, Inc. 2.9
Pharmaceutical Product
Development, Inc. 2.9
Anacomp, Inc. 2.7
Percent of
Five Largest Industries Net Assets
Computer Software 12.3%
Health Care 7.5
Cable 6.8
Leisure & Entertainment 5.8
Steel 4.8
Percent of
Asset Mix Net Assets
Stocks 84.8%
Bonds 7.7
Cash & Cash Equivalents 7.5
Additions (Equity Investments)
Columbia/HCA Healthcare Corp.
*Eastman Kodak Co.
Electronic Data Systems Corp.
Enserch Exploration Inc.
General Signal Corporation
IMC Global, Inc.
New Millenium Homes, LLC
Pharmacia & Upjohn, Inc.
The Seagram Co., Ltd.
TCI Ventures Group (Series A)
Tupperware Corporation
Waste Management, Inc.
Deletions (Equity Investments)
Amdahl Corp.
Century Communications Corp.
DSC Communications Corp.
*Eastman Kodak Co.
General Semiconductor, Inc.
Marine Drilling Co., Inc.
McDermott International, Inc.
NextLevel Systems, Inc.
Perrigo Co.
Toys 'R' Us, Inc.
Unisys Corp.
Woolworth Corp.
* 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
Robert J. Martorelli, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
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
