MERRILL LYNCH
PHOENIX
FUND, INC.
STRATEGIC
Performance
Annual Report
July 31, 1999
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
Economic crosscurrents were evident during the quarter ended July 31, 1999. The
US economic expansion is ongoing, especially in the consumer sector. This gave
rise to inflationary concerns. However, there was not consistent evidence that
economic growth is occurring at inflationary rates, although the Organization of
Petroleum Exporting Countries (OPEC) successfully engineered a near-term
increase in the price of crude oil. Against this backdrop, the US Federal
Reserve Board raised the Federal Funds rate 0.25% at its June 30, 1999 meeting.
After the quarter's close, the US central bank met again and determined that an
additional 0.25% interest rate increase was needed to limit inflationary
pressures. Meanwhile, Japan reported its first quarter of positive economic
growth in more than a year. There were growing signs of improvement in some
emerging economies (most notably South Korea and Mexico), although concerns
remain for others (such as Brazil and Argentina).
In the US capital markets, long-term interest rates rose during the July
quarter. While the spread between yields on Treasury securities and corporate
issues of similar maturities has narrowed somewhat, it remains wide by historic
standards. Although the US stock market exhibited greater price volatility, its
advances broadened beyond relatively few growth stocks to the previously
languishing cyclical sectors.
Portfolio Matters
The three-month period ended July 31, 1999 saw most of the US stock market
indexes close modestly lower compared to the prior quarter. The challenging
equity markets reflected growing inflationary concerns on the part of investors
resulting from the continued strength in domestic economic activity. The
prospects of a higher interest rate environment focused investor attention on
current market valuation levels.
Despite growing market uneasiness, small- capitalization and mid-capitalization
issues were able to outperform the larger-capitalization indexes during the July
quarter. The favorable performance of these stocks reflected their lower
valuations relative to larger companies and close correlation of their operating
results to domestic economy activity. Given our bias toward small and mid cap
issues, Merrill Lynch Phoenix Fund, Inc. was able to outperform the major market
indexes during its fiscal fourth quarter. Total returns for the Fund's Class A,
Class B, Class C and Class D Shares for the three months ended July 31, 1999
were +11.74%, +11.53%, +11.55% and +11.68%, respectively, compared to a total
return of -0.16% for the unmanaged Standard & Poor's 500 (S&P 500) Index. (Fund
results do not reflect sales charges and would be lower if sales charges were
included. Complete performance information can be found on pages 3-5 of this
report to shareholders.)
During the July quarter, Fund performance benefited from its investments in a
number of technology names, including Integrated Device Technology, Inc., LTX
Corporation, National Semiconductor Corporation and Telefonaktiebolaget LM
Ericsson. In addition to an improving business environment, Integrated Device
Technology and National Semiconductor both benefited from their respective
announcements that they would be exiting the X86 microprocessor market, which
had been a drag on operating results. Ericsson's share appreciation during the
quarter reflected the company's restructuring efforts to reduce costs, new hand
set product cycle and continued strong demand for wireless infrastructure
equipment. We were also able to take advantage of a trading opportunity in
Oracle Corporation shares, since the stock was unduly depressed on Year 2000
concerns. The acquisitions of two Fund holdings--
1
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
Raychem Corporation by Tyco International and Sequent Computer Systems, Inc. by
International Business Machines Corp.-- also helped Fund performance during the
quarter. Lastly, IVAX Corporation and The Topps Company, Inc. both continued to
show improved operating prospects, with Topps particularly benefiting from the
current Pokemon trading card craze.
During the July quarter, we closed our position in SCI Systems, Inc. as the
stock reached our price objective. We also sold our investments in KCS Energy,
Inc. and Fruit of the Loom, Ltd. as both companies failed to demonstrate an
improvement in their operating outlook.
On the buy side, we added positions in Compaq Computer Corporation, Engelhard
Corporation and Lockheed Martin Corporation during the July quarter. Compaq is a
leading computer manufacturer and service provider whose results over the past
several quarters have been adversely impacted by its inefficient distribution
model and integration of its recent acquisitions into a cohesive high-end server
strategy. New management is expected to focus on improving the company's cost
structure, direct marketing model, and rationalize its high-end systems product
line. We also established a position in Engelhard Corporation, a leading
specialty chemical company. We expect Engelhard's chemical business to expand
with the global economic recovery, while its leading position in catalysts
should benefit from tougher worldwide emission standards. Finally, we added
Lockheed Martin Corp., a leading defense contractor, that is expected to benefit
from increased Government defense spending, cost rationalization and business
portfolio pruning.
Fiscal Year in Review
Total returns for Merrill Lynch Phoenix Fund, Inc.'s Class A, Class B, Class C
and Class D Shares for the fiscal year ended July 31, 1999 were +24.15%,
+22.97%, +22.95% and +23.87%, respectively, compared to the total return of
+20.20% for the unmanaged S&P 500 Index for the same period.
Fund performance during the fiscal year compared favorably with major market
indexes. In our annual shareholder letter last July, we stated that we would
increase our investments in small cap and mid cap issues, because of the growing
valuation disparity relative to large-capitalization growth shares. The global
economic turmoil during the first quarter of the fiscal year provided us the
opportunity to increase our weighting in technology, cyclical and energy
sectors. As the fiscal year progressed, Fund performance benefited from this
investment focus, since an improving global economic environment during the
latter part of the year led to broadening in the market's advance.
The most notable contributions to Fund performance came from our technology and
cyclical positions. During the fiscal year, we had significant appreciation in
our semiconductor holdings as well as in Novell, Inc., Corning Incorporated,
Micron Electronics, Inc. and Maxtor Corporation. Other investments during the
fiscal year that contributed to the Fund's overall performance were Champion
International Corporation, Burlington Resources Inc. and Enron Oil & Gas
Company.
In Conclusion
Looking forward, based on current market conditions, we expect to continue to
find investment opportunities within the cyclical and energy sectors that we
believe should benefit from the ongoing global economic recovery. In particular,
we are considering attractive investment prospects within the healthcare
industry following the recent changes in Medicare payments.
We thank you for your investment in Merrill Lynch Phoenix Fund, Inc., and we
look forward to serving your investment needs in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Robert J. Martorelli
Robert J. Martorelli
Senior Vice President and Portfolio Manager
September 1, 1999
2
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
IMPORTANT TAX INFORMATION
The following information summarizes all per share distributions paid by Merrill
Lynch Phoenix Fund, Inc. during its fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
================================================================================================================================
Domestic
Qualifying Non-Qualifying Total Long-Term
Record Payable Ordinary Ordinary Ordinary Capital
Date Date Income Income Income Gains*
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Class A Shares: 09/02/98 09/10/98 $.029224 $.893781 $.923005 $1.009067
- --------------------------------------------------------------------------------------------------------------------------------
12/09/98 12/17/98 $-- $-- $-- $ .081623
================================================================================================================================
================================================================================================================================
Class B Shares: 09/02/98 09/10/98 $.025622 $.783615 $.809237 $1.009067
- --------------------------------------------------------------------------------------------------------------------------------
12/09/98 12/17/98 $-- $-- $-- $ .081623
================================================================================================================================
================================================================================================================================
Class C Shares: 09/02/98 09/10/98 $.025502 $.779939 $.805441 $1.009067
- --------------------------------------------------------------------------------------------------------------------------------
12/09/98 12/17/98 $-- $-- $-- $ .081623
================================================================================================================================
================================================================================================================================
Class D Shares: 09/02/98 09/10/98 $.028410 $.868863 $.897273 $1.009067
- --------------------------------------------------------------------------------------------------------------------------------
12/09/98 12/17/98 $-- $-- $-- $ .081623
================================================================================================================================
</TABLE>
* All of the long-term capital gain distributions are subject to the 20% tax
rate.
The domestic qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
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:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
A Shares are available only to eligible investors.
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% if redeemed during the first year, decreasing 1% each year
thereafter to 0% after the fourth year. In addition, Class B Shares are
subject to a distribution fee of 0.75% and an account maintenance fee of
0.25%. These shares automatically convert to Class D Shares after
approximately 8 years. (There is no initial sales charge for automatic
share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class D Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation of
future performance. Figures shown in the "Recent Performance Results" and
"Average Annual Total Return" tables assume reinvestment of all dividends
and capital gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer agency
fees applicable to each class, which are deducted from the income
available to be paid to shareholders.
3
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
Merrill Lynch Phoenix Fund, Inc. -- Edgar
ML Phoenix Fund's Class A and Class B Shares--Total Return Based on a $10,000
Investment
A line graph depicting the growth of an investment in the Portfolio's Class A
Shares and Class B Shares compared to growth of an investment in the S&P 500
Index. Beginning and ending values are:
7/89 7/99
ML Phoenix Fund+--
Class A Shares* $9,475 $35,711
ML Phoenix Fund+--
Class B Shares* $10,000 $34,044
S&P 500 Index++ $10,000 $49,663
ML Phoenix Fund's Class C and Class D Shares--Total Return Based on a $10,000
Investment
A line graph depicting the growth of an investment in the Portfolio's Class C
and Class D Shares compared to growth of an investment in the S&P 500 Index.
Beginning and ending values are:
10/21/94** 7/99
ML Phoenix Fund+--
Class C Shares* $10,000 $19,965
ML Phoenix Fund+--
Class D Shares* $9,475 $19,634
S&P 500 Index++ $10,000 $31,396
* 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.
4
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
Year Ended 6/30/99 +17.69% +11.51%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +17.44 +16.18
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 +14.76 +14.14
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
Year Ended 6/30/99 +16.49% +12.49%
- --------------------------------------------------------------------------------
Five Years Ended 6/30/99 +16.26 +16.26
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/99 +13.60 +13.60
- --------------------------------------------------------------------------------
* 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 6/30/99 +16.43% +15.43%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +16.34 +16.34
- --------------------------------------------------------------------------------
* 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 6/30/99 +17.41% +11.24%
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/99 +17.27 +15.93
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
==============================================================================================
<S> <C> <C> <C>
ML Phoenix Fund, Inc. Class A Shares* +24.15% +11.74% +276.91%
- ----------------------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class B Shares* +22.97 +11.53 +240.42
- ----------------------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class C Shares* +22.95 +11.55 + 99.65
- ----------------------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class D Shares* +23.87 +11.68 +107.21
- ----------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +20.20 - 0.16 +396.63/+213.97
==============================================================================================
</TABLE>
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Fund's ten-year/since inception total
return dates are for ten years for Class A & Class B Shares and from
10/21/94 for Class C & Class D Shares.
** An unmanaged broad-based index comprised of common stocks. Ten years/since
inception total return dates are for ten years and from 10/21/94,
respectively.
5
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Discount to Assets
- --------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 400,000 The Seagram Company Ltd. $ 13,569,282 $ 20,525,000 3.8%
- --------------------------------------------------------------------------------------------------------------------------------
Paper & Forest Products 201,000 Champion International Corporation 7,425,897 10,401,750 2.0
- --------------------------------------------------------------------------------------------------------------------------------
Printing & Publishing 1,083,900 +Scitex Corporation Ltd. (Ordinary) 9,614,243 10,364,794 1.9
- --------------------------------------------------------------------------------------------------------------------------------
Total Discount to Assets 30,609,422 41,291,544 7.7
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Earnings Turnaround
- --------------------------------------------------------------------------------------------------------------------------------
Computer Software 1,000,000 +Mentor Graphics Corporation 9,978,030 10,000,000 1.9
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Products 1,600,000 +The Topps Company, Inc. 7,133,640 14,200,000 2.7
- --------------------------------------------------------------------------------------------------------------------------------
Energy Related 200,000 Burlington Resources Inc. 7,213,863 8,837,500 1.7
1,100,000 +EEX Corporation 9,409,386 5,500,000 1.0
550,000 Enron Oil & Gas Company 9,583,805 11,756,250 2.2
- --------------------------------------------------------------------------------------------------------------------------------
Industrial Services 1,567,600 +Anacomp, Inc. (f) 11,272,477 27,628,950 5.1
- --------------------------------------------------------------------------------------------------------------------------------
Insurance 300,000 ACE Limited 8,403,300 6,975,000 1.3
- --------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 900,000 +CST Entertainment, Inc. (c) 675,000 9,000 0.0
- --------------------------------------------------------------------------------------------------------------------------------
Packaging 600,000 Crown Cork & Seal Company, Inc. 18,292,798 17,587,500 3.3
- --------------------------------------------------------------------------------------------------------------------------------
Retail 700,000 +Borders Group, Inc. 12,375,113 9,275,000 1.7
- --------------------------------------------------------------------------------------------------------------------------------
Semiconductors 2,350,000 +Integrated Device Technology, Inc. 17,015,321 30,256,250 5.6
1,857,100 +LTX Corporation (f) 7,790,950 25,419,056 4.7
849,000 +National Semiconductor Corporation 7,437,732 21,012,750 3.9
- --------------------------------------------------------------------------------------------------------------------------------
Steel 1,000,000 Birmingham Steel Corporation 13,773,691 8,187,500 1.5
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications 200,000 Telefonaktiebolaget LM Ericsson (ADR) (a) 5,107,800 6,400,000 1.2
- --------------------------------------------------------------------------------------------------------------------------------
Telecommunications 345,000 +Tekelec, Inc. 2,607,754 3,450,000 0.6
Equipment
- --------------------------------------------------------------------------------------------------------------------------------
Total Earnings Turnaround 148,070,660 206,494,756 38.4
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Financial Restructuring
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Products 611,100 +United States Leather, Inc. 5,679,677 763,875 0.1
- --------------------------------------------------------------------------------------------------------------------------------
Energy Related 1,981,437 Gulfport Energy Corporation--Litigation Trust
Certificates 370,838 20 0.0
- --------------------------------------------------------------------------------------------------------------------------------
Financial Services 300,000 +Altiva Financial Corporation 4,500,000 1,500,000 0.3
- --------------------------------------------------------------------------------------------------------------------------------
Health Care 1,151,324 +Raintree Healthcare Corp. (e) 10,194,578 2,288,256 0.4
- --------------------------------------------------------------------------------------------------------------------------------
Home Builders 2,113,439 New Millennium Homes, LLC (c) 10,246,251 4,226,878 0.8
$15,250,000 New Millennium Homes, LLC, Senior Notes,
13.50% due 9/03/2004 (d) 13,246,623 12,047,500 2.2
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial Restructuring (concluded)
- --------------------------------------------------------------------------------------------------------------------------------
Industrial Equipment $10,000,000 +Goss Graphic Systems Inc., Senior
Manufacturing Subordinated Notes, 12% due 10/15/2006 $ 3,600,000 $ 3,387,500 0.6%
+Harnischfeger Industries Inc.:
$ 4,000,000 8.90% due 3/01/2022 2,040,000 2,140,000 0.4
$ 4,000,000 7.25% due 12/15/2025 2,400,000 2,140,000 0.4
$ 2,000,000 6.875% due 2/15/2027 943,160 1,070,000 0.2
- --------------------------------------------------------------------------------------------------------------------------------
Recreation $ 7,960,000 E & S Holdings Corp., Senior Subordinated Notes,
10.375% due 10/01/2006 3,745,650 4,059,600 0.8
- --------------------------------------------------------------------------------------------------------------------------------
Supermarkets 1,400,000 +The Grand Union Company 13,957,401 15,400,000 2.9
- --------------------------------------------------------------------------------------------------------------------------------
Total Financial Restructuring 70,924,178 49,023,629 9.1
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
High Yield
- --------------------------------------------------------------------------------------------------------------------------------
Automotive $ 6,650,000 Safety Components International, Inc., Senior
Subordinated Notes, 10.125% due 7/15/2007 4,280,938 6,184,500 1.1
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Products $12,260,000 Diamond Brands Operating, 10.125% due 4/15/2008 10,393,050 10,175,800 1.9
$ 4,550,000 Spinnaker Industries Inc., Senior Notes,
10.75% due 10/15/2006 3,258,750 3,640,000 0.7
$42,475,000 Sunbeam Corporation, Senior Subordinated
Debentures, 8.062% due 3/25/2018 (b)(c) 9,914,630 6,796,000 1.3
- --------------------------------------------------------------------------------------------------------------------------------
Printing & Publishing $ 6,255,400 San Jacinto Holdings, Inc., Senior Subordinated Notes,
12% due 12/31/2002 4,048,512 2,189,390 0.4
- --------------------------------------------------------------------------------------------------------------------------------
Supermarkets $11,000,000 Jitney-Jungle Stores of America, Inc., Senior Notes,
12% due 3/01/2006 9,827,500 9,130,000 1.7
- --------------------------------------------------------------------------------------------------------------------------------
Transportation $18,460,000 +AmeriTruck Distribution Corp., 12.25% due 11/15/2005 9,197,600 1,130,675 0.2
$10,019,000 +Trism Inc., Senior Subordinated Notes, 10.75%
due 12/15/2000 8,327,965 2,504,750 0.5
- --------------------------------------------------------------------------------------------------------------------------------
Total High Yield 59,248,945 41,751,115 7.8
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Operational Restructuring
- --------------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense 200,000 Lockheed Martin Corporation 7,008,815 6,962,500 1.3
- --------------------------------------------------------------------------------------------------------------------------------
Computer & Peripherals 300,000 Compaq Computer Corporation 6,692,340 7,200,000 1.3
- --------------------------------------------------------------------------------------------------------------------------------
Computer Software 4,100,000 +Inprise Corporation (f) 38,867,849 17,681,250 3.3
900,000 +Novell, Inc. 6,342,665 23,118,750 4.3
1,019,200 +Walker Interactive Systems, Inc. (f) 5,010,371 2,802,800 0.5
- --------------------------------------------------------------------------------------------------------------------------------
Diversified 403,000 Engelhard Corporation 7,858,500 8,991,937 1.7
- --------------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 100,000 Corning Incorporated 2,751,000 7,000,000 1.3
- --------------------------------------------------------------------------------------------------------------------------------
Environmental 400,000 +Republic Services, Inc. (Class A) 7,308,377 8,075,000 1.5
1,853,700 +Safety-Kleen Corp. 25,180,956 22,128,544 4.1
- --------------------------------------------------------------------------------------------------------------------------------
Health Care 500,000 Columbia/HCA Healthcare Corporation 8,854,912 11,125,000 2.1
- --------------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 741,600 +Loews Cineplex Entertainment Corporation 7,487,365 7,230,600 1.4
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operational Restructuring (concluded)
- --------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 1,200,000 +IVAX Corporation $ 9,896,936 $ 18,975,000 3.5%
- --------------------------------------------------------------------------------------------------------------------------------
Steel 755,200 +WHX Corporation 5,566,410 5,428,000 1.0
- --------------------------------------------------------------------------------------------------------------------------------
Total Operational Restructuring 138,826,496 146,719,381 27.3
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments 447,679,701 485,280,425 90.3
- --------------------------------------------------------------------------------------------------------------------------------
Face Amount Short-Term Securities
- --------------------------------------------------------------------------------------------------------------------------------
Commercial Paper* $13,000,000 BellSouth Telecom Corp., 5.06% due 8/10/1999 12,981,728 12,981,728 2.4
CSW Credit Inc.:
11,000,000 5.08% due 8/02/1999 10,996,896 10,996,896 2.0
17,000,000 5.08% due 8/18/1999 16,956,820 16,956,820 3.2
11,553,000 General Electric Capital Corp., 5.13% due 8/02/1999 11,549,707 11,549,707 2.1
- --------------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities 52,485,151 52,485,151 9.7
- --------------------------------------------------------------------------------------------------------------------------------
Total Investments $500,164,852 537,765,576 100.0
============
Liabilities in Excess of Other Assets (197,991) 0.0
------------ -----
Net Assets $537,567,585 100.0%
============ =====
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper is traded on a discount basis; the interest rates shown
reflect the discount rates paid at the time of purchase by the Fund.
+ Non-income producing security.
(a) American Depositary Receipts (ADR).
(b) Represents a zero coupon or step bond; the interest rate on a step bond
represents the fixed rate of interest that will commence its accrual on a
predetermined date until maturity.
(c) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(d) Represents a pay-in-kind security which may pay interest/ dividends in
additional face amount/shares.
(e) This issue was received in exchange for Unison Healthcare Corp., 12.25%
due 11/01/2006 on April 30, 1999.
(f) Investments in companies 5% or more of whose outstanding securities are
held by the Fund (such companies are defined as "Affiliated Companies" in
Section 2(a)(3) of the Investment Company Act of 1940) are as follows:
- --------------------------------------------------------------------------------
Net Share Net Dividend
Industry Affiliate Activity Cost Income
- --------------------------------------------------------------------------------
Computer Inprise
Software Corporation 800,000 $ 1,438,887 +
Computer Walker Interactive
Software Systems, Inc. 1,019,200 5,010,371 +
Industrial Anacomp, Inc. 159,930 2,135,277 +
Services
Semiconductors LTX Corporation (742,900) (7,565,809) +
- --------------------------------------------------------------------------------
+ Non-income producing security.
See Notes to Financial Statements.
8
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of July 31, 1999
<TABLE>
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$500,164,852) (Note 1a) .... $537,765,576
Cash ............................................................... 16,639
Foreign cash (Note 1c) ............................................. 77
Receivables:
Interest ......................................................... $ 2,294,461
Securities sold .................................................. 1,484,950
Capital shares sold .............................................. 172,963
Dividends ........................................................ 91,100 4,043,474
-----------
Prepaid registration fees and other assets (Note 1f) ............... 49,825
------------
Total assets ....................................................... 541,875,591
------------
- ----------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Capital shares redeemed .......................................... 3,206,539
Investment adviser (Note 2) ...................................... 456,412
Distributor (Note 2) ............................................. 196,748 3,859,699
-----------
Accrued expenses and other liabilities ............................. 448,307
------------
Total liabilities .................................................. 4,308,006
------------
- ----------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ......................................................... $537,567,585
============
- ----------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $.10 par value, 50,000,000 shares
Consist of: authorized ......................................................... $ 1,791,846
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ......................................................... 1,525,143
Class C Shares of Common Stock, $.10 par value, 50,000,000 shares
authorized ......................................................... 63,736
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ......................................................... 617,771
Paid-in capital in excess of par ................................... 451,339,093
Undistributed investment income--net ............................... 1,928,693
Undistributed realized capital gains on investments and foreign
currency transactions--net ......................................... 42,700,906
Unrealized appreciation on investments and foreign currency
transactions--net .................................................. 37,600,397
------------
Net assets ......................................................... $537,567,585
============
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $245,712,242 and 17,918,461 shares
outstanding ........................................................ $ 13.71
============
Class B--Based on net assets of $199,131,368 and 15,251,431 shares
outstanding ........................................................ $ 13.06
============
Class C--Based on net assets of $8,244,749 and 637,362 shares
outstanding ........................................................ $ 12.94
============
Class D--Based on net assets of $84,479,226 and 6,177,712 shares
outstanding ........................................................ $ 13.67
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended July 31, 1999
<TABLE>
<S> <C> <C> <C>
Investment Interest and discount earned ....................................... $ 10,839,402
Income Dividends (net of $54,563 foreign withholding tax) ................. 2,062,545
(Notes 1d & 1e): ------------
Total income ....................................................... 12,901,947
------------
- ----------------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees (Note 2) .................................. $ 5,392,315
Account maintenance and distribution fees--Class B (Note 2) ........ 2,186,447
Transfer agent fees--Class B (Note 2) .............................. 444,296
Transfer agent fees--Class A (Note 2) .............................. 417,268
Account maintenance fees--Class D (Note 2) ......................... 201,043
Transfer agent fees--Class D (Note 2) .............................. 143,117
Printing and shareholder reports ................................... 116,909
Professional fees .................................................. 111,352
Accounting services (Note 2) ....................................... 103,786
Account maintenance and distribution fees--Class C (Note 2) ........ 81,101
Directors' fees and expenses ....................................... 75,145
Registration fees (Note 1f) ........................................ 65,394
Custodian fees ..................................................... 39,209
Transfer agent fees--Class C (Note 2) .............................. 17,824
Pricing fees ....................................................... 2,059
Other .............................................................. 17,657
-----------
Total expenses ..................................................... 9,414,922
------------
Investment income--net ............................................. 3,487,025
------------
- ----------------------------------------------------------------------------------------------------------------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net ................................................. 47,019,806
(Loss) on Foreign currency transactions--net ............................... (11,907) 47,007,899
Investments & ----------- ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net ................................................. 48,134,245
(Notes 1b, 1c, Foreign currency transactions--net ............................... (252) 48,133,993
1e & 3): Net realized and unrealized gain on investments and foreign ----------- ------------
currency transactions .............................................. 95,141,892
------------
Net Increase in Net Assets Resulting from Operations ............... $ 98,628,917
============
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
July 31,
------------------------------
Increase (Decrease) in Net Assets: 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net ............................................. $ 3,487,025 $ 2,444,746
Realized gain on investments and foreign currency transactions--net. 47,007,899 135,548,116
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net ................................. 48,133,993 (64,284,208)
------------- -------------
Net increase in net assets resulting from operations ............... 98,628,917 73,708,654
------------- -------------
- -------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A .......................................................... (2,622,198) (2,071,936)
Shareholders Class B .......................................................... (284,461) (331,618)
(Note 1g): Class C .......................................................... (8,042) (14,683)
Class D .......................................................... (680,597) (488,410)
Realized gain on investments--net:
Class A .......................................................... (38,989,784) (63,710,745)
Class B .......................................................... (40,328,457) (70,993,494)
Class C .......................................................... (1,585,995) (2,997,794)
Class D .......................................................... (12,759,045) (18,334,157)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders .................................................... (97,258,579) (158,942,837)
------------- -------------
- -------------------------------------------------------------------------------------------------------------------------
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions ................................................. (134,210,880) 16,827,602
(Note 4): ------------- -------------
- -------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ....................................... (132,840,542) (68,406,581)
Beginning of year .................................................. 670,408,127 738,814,708
------------- -------------
End of year* ....................................................... $ 537,567,585 $ 670,408,127
============= =============
- -------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income--net (Note 1h) ..................... $ 1,928,693 $ 2,209,139
============= =============
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
Class A+
The following per share data and ratios have been derived ------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ............. $ 13.49 $ 15.32 $ 13.37 $ 13.44 $ 13.31
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .13 .12 .10 .13 .17
Realized and unrealized gain on investments
and foreign currency transactions--net ......... 2.11 1.33 3.46 .51 1.47
-------- -------- -------- -------- --------
Total from investment operations ............... 2.24 1.45 3.56 .64 1.64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ....................... (.13) (.11) (.06) (.13) (.11)
Realized gain on investments--net ............ (1.89) (3.17) (1.55) (.58) (1.40)
-------- -------- -------- -------- --------
Total dividends and distributions .............. (2.02) (3.28) (1.61) (.71) (1.51)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 13.71 $ 13.49 $ 15.32 $ 13.37 $ 13.44
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............. 24.15% 10.98% 29.78% 4.78% 13.91%
Return:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... 1.27% 1.24% 1.26% 1.24% 1.31%
Net Assets: ======== ======== ======== ======== ========
Investment income--net ......................... 1.11% .83% .77% .92% 1.40%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ......... $245,712 $283,005 $301,936 $279,351 $286,258
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................. 80.60% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
Class B+
The following per share data and ratios have been derived ------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
Per Share Net asset value, beginning of year ............. $ 12.93 $ 14.82 $ 12.99 $ 13.12 $ 13.02
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .................. .01 (.03) (.03) (.01) .04
Realized and unrealized gain on investments
and foreign currency transactions--net ......... 2.02 1.28 3.35 .50 1.45
-------- -------- -------- -------- --------
Total from investment operations ............... 2.03 1.25 3.32 .49 1.49
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ....................... (.01) (.01) -- (.04) (.02)
Realized gain on investments--net ............ (1.89) (3.13) (1.49) (.58) (1.37)
-------- -------- -------- -------- --------
Total dividends and distributions .............. (1.90) (3.14) (1.49) (.62) (1.39)
-------- -------- -------- -------- --------
Net asset value, end of year ................... $ 13.06 $ 12.93 $ 14.82 $ 12.99 $ 13.12
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............. 22.97% 9.84% 28.48% 3.67% 12.83%
Return:* ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... 2.30% 2.26% 2.29% 2.26% 2.34%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .................. .08% (.18%) (.26%) (.11%) .37%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) ......... $199,132 $286,396 $337,022 $381,808 $414,886
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................. 80.60% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C++
------------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
----------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 12.83 $ 14.72 $ 12.92 $ 13.07 $ 12.31
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .................. .01 (.03) (.04) (.02) .03
Realized and unrealized gain on investments
and foreign currency transactions--net ......... 2.00 1.29 3.33 .51 1.21
-------- -------- -------- -------- --------
Total from investment operations ............... 2.01 1.26 3.29 .49 1.24
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ....................... (.01) (.02) -- (.06) (.05)
Realized gain on investments--net ............ (1.89) (3.13) (1.49) (.58) (.43)
-------- -------- -------- -------- --------
Total dividends and distributions .............. (1.90) (3.15) (1.49) (.64) (.48)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 12.94 $ 12.83 $ 14.72 $ 12.92 $ 13.07
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............. 22.95% 9.90% 28.39% 3.69% 10.99%+++
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... 2.31% 2.27% 2.30% 2.27% 2.39%*
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .................. .06% (.19%) (.27%) (.12%) .34%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ....... $ 8,245 $ 11,316 $ 14,448 $ 15,821 $ 11,775
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................. 80.60% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D++
------------------------------------------------------
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended July 31, 1994+ to
----------------------------------------- July 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period ........... $ 13.45 $ 15.29 $ 13.35 $ 13.43 $ 12.57
Operating -------- -------- -------- -------- --------
Performance: Investment income--net ......................... .10 .08 .07 .09 .11
Realized and unrealized gain on investments
and foreign currency transactions--net ......... 2.11 1.33 3.45 .51 1.25
-------- -------- -------- -------- --------
Total from investment operations ............... 2.21 1.41 3.52 .60 1.36
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net ....................... (.10) (.09) (.04) (.10) (.07)
Realized gain on investments--net ............ (1.89) (3.16) (1.54) (.58) (.43)
-------- -------- -------- -------- --------
Total dividends and distributions .............. (1.99) (3.25) (1.58) (.68) (.50)
-------- -------- -------- -------- --------
Net asset value, end of period ................. $ 13.67 $ 13.45 $ 15.29 $ 13.35 $ 13.43
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ............. 23.87% 10.70% 29.44% 4.50% 11.72%+++
Return:** ======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses ....................................... 1.52% 1.51% 1.52% 1.48% 1.60%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net ......................... .88% .59% .54% .67% 1.11%*
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of period (in thousands) ....... $ 84,479 $ 89,691 $ 85,409 $ 48,873 $ 36,388
Data: ======== ======== ======== ======== ========
Portfolio turnover ............................. 80.60% 81.20% 81.46% 87.66% 70.36%
======== ======== ======== ======== ========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Total investment returns exclude the effects of sales
charges.
+ Commencement of operations.
++ Based on average shares outstanding.
+++ Aggregate total investment return.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
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's financial statements are prepared in accordance with generally
accepted accounting principles, which may require the use of management accruals
and estimates. The Fund offers four classes of shares under the Merrill Lynch
Select PricingSM 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 that 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
that are traded both in the over-the-counter market and on a stock exchange are
valued according to the broadest and most representative market. Options written
or purchased are valued at the last sale price in the case of exchange-traded
options. In the case of options traded in the over-the-counter market, valuation
is the last asked price (options written) or the last bid price (options
purchased). Short-term securities are valued at amortized cost, which
approximates market value. Other investments 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.
o Options--The Fund is authorized to write covered call options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked to market to reflect the current market value of the
option written. When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or deducted from)
the basis of the security acquired or deducted from (or added to) the proceeds
of the security sold. When an option expires (or the Fund enters into a closing
transaction), the Fund realizes a gain or loss on the option to the extent of
the premiums received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written 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.
15
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
(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 adjusted to reflect permanent differences
between financial and tax reporting. Accordingly, current year's permanent
book/tax differences of $172,173 have been reclassified between undistributed
net realized capital gains and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with 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 ("MLFD" or the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is 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; .95% of
average daily net assets in excess of $500 million but not exceeding $1 billion;
and .90% of average daily net assets in excess of $1 billion.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class B .............................. .25% .75%
Class C .............................. .25% .75%
Class D .............................. .25% --
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class B, Class C and Class D shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1999, MLFD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
- --------------------------------------------------------------------------------
MLFD MLPF&S
- --------------------------------------------------------------------------------
Class A .............................. $1,013 $10,779
Class D .............................. $ 606 $ 9,957
- --------------------------------------------------------------------------------
For the year ended July 31, 1999, MLPF&S received contingent deferred sales
charges of $194,715 and $2,271 relating to transactions in Class B and Class C
Shares, respectively.
In addition, MLPF&S received $108,297 in commissions on the execution of
portfolio security transactions for the Fund for the year ended July 31, 1999.
During the year ended July 31, 1999, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $128 for security price quotations to
compute the net asset value of the Fund.
16
<PAGE>
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 1999 were $403,391,009 and $650,093,442, respectively.
Net realized gains (losses) for the year ended July 31, 1999 and net unrealized
gains (losses) as of July 31, 1999 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains
(Losses) (Losses)
- --------------------------------------------------------------------------------
Long-term investments ............ $ 47,019,358 $ 37,600,724
Short-term investments ........... 448 --
Foreign currency
transactions ..................... (11,907) (327)
------------ ------------
Total ............................ $ 47,007,899 $ 37,600,397
============ ============
- --------------------------------------------------------------------------------
As of July 31, 1999, net unrealized appreciation for Federal income tax purposes
aggregated $37,418,366, of which $123,488,147 related to appreciated securities
and $86,069,781 related to depreciated securities. At July 31, 1999, the
aggregate cost of investments for Federal income tax purposes was $500,347,210.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share transactions
was $(134,210,880) and $16,827,602 for the years ended July 31, 1999 and July
31, 1998, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,991,141 $ 22,834,139
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 4,055,374 37,136,760
----------- ------------
Total issued ..................... 6,046,515 59,970,899
Shares redeemed .................. (9,113,859) (101,138,566)
----------- ------------
Net decrease ..................... (3,067,344) $(41,167,667)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 3,072,942 $ 42,892,690
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 4,281,696 56,397,472
----------- ------------
Total issued ..................... 7,354,638 99,290,162
Shares redeemed .................. (6,083,241) (83,944,710)
----------- ------------
Net increase ..................... 1,271,397 $ 15,345,452
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 2,732,300 $ 29,745,514
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 4,200,711 37,000,685
----------- ------------
Total issued ..................... 6,933,011 66,746,199
Automatic conversion
of shares ........................ (1,093,775) (12,295,918)
Shares redeemed .................. (12,741,975) (136,568,503)
----------- ------------
Net decrease ..................... (6,902,739) $(82,118,222)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 3,021,386 $ 41,058,916
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 5,085,899 64,767,544
----------- ------------
Total issued ..................... 8,107,285 105,826,460
Automatic conversion
of shares ........................ (7,674,858) (103,277,768)
Shares redeemed .................. (1,026,345) (13,724,180)
----------- ------------
Net decrease ..................... (593,918) $(11,175,488)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 121,024 $ 1,406,508
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 161,335 1,407,097
----------- ------------
Total issued ..................... 282,359 2,813,605
Shares redeemed .................. (527,192) (5,507,596)
----------- ------------
Net decrease ..................... (244,833) $ (2,693,991)
=========== ============
- --------------------------------------------------------------------------------
17
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 446,268 $ 5,967,922
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 210,620 2,664,763
----------- ------------
Total issued ..................... 656,888 8,632,685
Shares redeemed .................. (755,911) (10,121,962)
----------- ------------
Net decrease ..................... (99,023) $ (1,489,277)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1999 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,250,247 $ 13,543,025
Automatic conversion
of shares ........................ 1,048,191 12,295,918
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 1,338,621 12,267,383
----------- ------------
Total issued ..................... 3,637,059 38,106,326
Shares redeemed .................. (4,127,903) (46,337,326)
----------- ------------
Net decrease ..................... (490,844) $ (8,231,000)
=========== ============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 1998 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ...................... 1,131,275 $ 15,753,197
Automatic conversion
of shares ........................ 990,830 13,724,180
Shares issued to shareholders
in reinvestment of
dividends and distributions ...... 1,281,377 16,844,867
----------- ------------
Total issued ..................... 3,403,482 46,322,244
Shares redeemed .................. (2,321,058) (32,175,329)
----------- ------------
Net increase ..................... 1,082,424 $ 14,146,915
=========== ============
- --------------------------------------------------------------------------------
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,
1999, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1999 by correspondence with the custodian. 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, 1999, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 8, 1999
18
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 1999
PORTFOLIO INFORMATION (unaudited)
As of July 31, 1999
Percent of
Ten Largest Holdings Net Assets
Integrated Device Technology, Inc. ................................. 5.6%
Anacomp, Inc. ...................................................... 5.1
LTX Corporation .................................................... 4.7
Novell, Inc. ....................................................... 4.3
Safety-Kleen Corp. ................................................. 4.1
National Semiconductor Corporation ................................. 3.9
The Seagram Company Ltd. ........................................... 3.8
IVAX Corporation ................................................... 3.5
Inprise Corporation ................................................ 3.3
Crown Cork & Seal Company, Inc. .................................... 3.3
Percent of
Five Largest Industries Net Assets
Semiconductors ..................................................... 14.2%
Computer Software .................................................. 10.0
Consumer Products .................................................. 6.7
Environmental ...................................................... 5.6
Leisure & Entertainment ............................................ 5.2
Percent of
Asset Mix Net Assets
Stocks ............................................................. 77.9%
Bonds .............................................................. 12.4
Cash & Cash Equivalents ............................................ 9.7
Stock Portfolio Changes
For the Quarter Ended July 31, 1999
Additions
ACE Limited
Compaq Computer Corporation
Engelhard Corporation
*LifePoint Hospitals, Inc.
Lockheed Martin Corporation
*Oracle Corporation
*Triad Hospitals, Inc.
Deletions
CAI Wireless Systems, Inc.
Fruit of the Loom, Ltd. (Class A)
KCS Energy, Inc.
*LifePoint Hospitals, Inc.
*Oracle Corporation
Raychem Corporation
SCI Systems, Inc.
Sequent Computer Systems, Inc.
*Triad Hospitals, Inc.
* Added and deleted in the same quarter.
19
<PAGE>
Officers and Directors
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Stephen B. Swensrud, Director
Arthur Zeikel, Director
Robert J. Martorelli, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President and
Treasurer
Barbara G. Fraser, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
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 #10263--7/99
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