MERRILL LYNCH
PHOENIX
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
July 31, 2000
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC.
DEAR SHAREHOLDER
Economic slowing has finally arrived in the United States. As a result,
significant increases in inflation or interest rates appear currently less
likely, which usually is good news for financial assets. On the other hand,
profit growth is likely to decelerate from unsustainably high levels.
Investor sentiment changed significantly during the course of the first half of
2000. In general, concerns centered on economic growth being too strong. A
recent inflection may indicate healthy, but slower economic and profit growth in
the second half of the year. Following potential uncertainty during the
adjustment period, the sustainability of the economic expansion could buoy
investor expectations.
During the first half of the year, equity investors switched gears from an
excessive focus on momentum, which was prevalent during most of 1999, reaching a
peak during the fourth quarter of last year. We believe that this transition to
a more balanced focus on both valuation and earnings growth, which began in
March, can provide a healthier investment backdrop. However, this change has
caused deterioration in many extremely highly valued securities with speculative
fundamentals and improvement in previously neglected, solidly performing
companies.
In the coming months, we believe investors are likely to focus on continuing
cyclical economic developments as well as the presidential election campaign.
Cyclical concerns remain increasing labor costs as well as volatile, but rising,
commodity prices. Federal budget policy, social security funding options and
trade policy are likely to shape investor interest in the outcome of the
election. Generally, financial markets have tended to do better under divided
governments, preferring legislative gridlock. In part, US markets historically
have done well as a result of fiscal policy restraint and could react poorly to
any significant reversal of that trend.
Despite near-term uncertainties surrounding economic slowdown, earnings growth
and valuation levels, the long-term forces supporting US economic and financial
market leadership seem to remain in place. Chief among these are the continued
heavy investment in technology, telecommunications and other
efficiency-enhancing projects, thus potentially enabling productivity-led
growth.
Portfolio Matters
During the six-month period ended July 31, 2000, the equity markets were
characterized by extraordinary volatility. The markets advanced to new highs
during the first two months, led by gains in the NASDAQ Composite Index. The
early strength in the NASDAQ was followed by a rotation toward more value-
oriented names in March and April as investors began to focus on continued
strong economic data and valuations. Volatility returned during the second half
of the period as the Federal Reserve Board intensified its efforts to slow down
an overheating economy. Looking ahead, market direction should be dictated by
whether the Federal Reserve Board was successful in orchestrating an economic
soft landing or has set the stage for the next recession.
For the six months ended July 31, 2000, Merrill Lynch Phoenix Fund, Inc.'s
performance was slightly behind that of the major value indexes, while it
trailed the return of the unmanaged Standard & Poor's 500 (S&P 500) Index by 400
basis points (4.00%). Favorable returns in our energy and healthcare investments
were more than offset by significant declines in our technology and distressed
holdings.
1
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
During the six-month period, the Fund's best performers were its healthcare and
energy investments. Hospital stocks, such as HCA--The Healthcare Corporation and
Tenet Healthcare Corporation, performed very well since the government has
become more liberal with regard to its reimbursement of Medicare expenses.
Generic drug producer, IVAX Corporation, is continuing to benefit from a stream
of new drug approvals, and we liquidated our holdings in Pharmacia Corp.
(formerly Monsanto Company) and American Home Products Corporation as those
stocks quickly met our price objectives. Energy was also a very strong industry
group for the Fund as the price of oil and gas has appreciated significantly. We
continue to heavily weight the natural gas and energy sectors since we believe
the high prices currently being paid for these commodities will continue for
quite some time given strong demand and the lack of exploration success in the
past few years.
On the negative side, the technology stocks that we have owned since the Asian
currency crisis in 1998 had a significant correction during the six-month
period, somewhat reversing their multi-month advance. LTX Corp. and National
Semiconductor Corp. declined 30%, even though no material negative news was
released. We continue to hold onto our positions, believing that it is still too
early in the cycle to change our positive investment opinion on this group.
Further price weakness could represent a buying opportunity. Performance was
also hurt as a number of holdings reported disappointing results. Anacomp Inc.
indicated that operations were extremely weak and the stock declined
precipitously. Having received the equity in bankruptcy reorganization, it is
questionable as to whether or not the company will survive the second
restructuring. Unisys Corp. and Novell, Inc. also reported disappointing
results, which resulted in dramatically lower share prices. For now we are
retaining our positions in these issues since we believe they still possess
attractive restructuring potential.
Fund activity was robust during the six-month period as we eliminated a number
of positions, such as Birmingham Steel Corporation, EEX Corp., Safety-Kleen
Corp. and Loews Cineplex Entertainment Corporation, which were not meeting our
expectations. We also sold two semiconductor-related issues, Integrated Device
Technology, Inc. and Mentor Graphics Corporation, as they exceeded our price
targets. Two holdings, The Seagram Company, Ltd. and Champion International
Corporation, were acquired by other companies during the six-month period.
Pharmaceutical companies Pharmacia and American Home Products quickly bounced
back from their problems and accordingly their stock prices appreciated to our
sell targets.
We focused our purchases on a number of companies that all encountered
operational problems but all possess quality assets. AT&T Corp. and WorldCom,
Inc. are both suffering from a decline in their traditional consumer
long-distance businesses, which is masking exceptional growth in their nascent
businesses. We believe they will ultimately be successful in establishing a
value for these traditional businesses, either through a sale or spin out. This
will enable investors to correctly value the remaining businesses on their
relatively high growth rates. We added other communication-related issuers, such
as Comcast Corporation, Fox Entertainment Group, Inc., USA Networks, Inc. and
Verizon Communications. While each encountered a unique set of problems that
caused a decline in its share price, we were attracted to the long-term growth
potential of content providers as well as their ability to deliver that content
to the consumer. Year 2000-related issues cast a shadow over IBM Corp.; however,
we believe the company possesses the broadest array of hardware, software and
service solutions to allow its customers to compete in this Internet-centric
world. Finally, we added Bristol-Myers Squibb Company and The Procter & Gamble
Company to the portfolio because we were attracted to their products and their
high market shares. Once their problems have been addressed and corrected, we
believe these dominant companies will return to their historically high relative
valuations.
2
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
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, 2000 were +13.03%,
+11.85%, +11.85% and +12.77%, respectively, compared to a total return of +8.97%
for the unmanaged S&P 500 Index and -5.00% for the unmanaged Russell 1000 Value
Index. (Investment results shown do not reflect sales charges and would be lower
if sales charges were included. Complete performance information can be found on
pages 5-7 of this report to shareholders.)
Fund performance compared favorably with the major market indexes during the
fiscal year. We started the year with our highest industry weighting in
semiconductor stocks--as that industry group did very well over the past 12
months. National Semiconductor Corporation, LTX Corp. and Integrated Device
Technology, Inc., all in our top ten holdings at the start of the fiscal year,
appreciated by 50% or more. Ivax Corp., another top holding at the beginning of
the year, advanced by over 300% as new drug approvals drove the company's growth
rate higher. Energy, which will be a major theme entering the current fiscal
year, was augmented during calendar year 2000 and has been a positive
contributor to date.
In Conclusion
During the past six months, we have attempted to upgrade the quality of the
companies in our portfolio. The uncertain economic and interest rate environment
has caused some of our country's better companies to fall into our value
universe. We believe that our purchases of these companies could bode well for
future performance. 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 5, 2000
================================================================================
Effective on or about October 1, 2000, Merrill Lynch Phoenix Fund, Inc. will
change its name to Merrill Lynch Focus Value Fund, Inc. The Fund's investment
objective will change, as approved by shareholders on July 13, 2000: to seek
long-term growth of capital. In order to reach this objective, the Fund will
invest primarily in a portfolio of equities of issuers that the Investment
Adviser believes are undervalued relative to its assessment of the current or
prospective condition of the issuer or relative to prevailing market ratios,
including issuers that are experiencing poor operating conditions.
================================================================================
3
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
PROXY RESULTS
During the six-month period ended July 31, 2000, Merrill Lynch Phoenix Fund,
Inc.'s shareholders voted on the following proposals. Proposals 1-4 were
approved at a shareholders' meeting on July 13, 2000. Proposal 5 was not
approved by shareholders as required. The description of each proposal and
number of shares voted are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted
For Without Authority
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. To elect the Fund's Board of Directors: Terry K. Glenn 37,195,304 2,108,121
Joe Grills 37,283,967 2,019,458
Walter Mintz 37,258,480 2,044,945
Robert S. Salomon, Jr. 37,210,098 2,093,327
Melvin R. Seiden 37,160,610 2,142,815
Stephen B. Swensrud 37,175,516 2,127,909
Arthur Zeikel 37,240,484 2,062,941
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the Fund's independent
auditors for the current fiscal year. 37,126,507 841,482 1,335,437
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain/Non-vote
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3. Proposal to change the investment objective of the Fund. 21,066,053 1,890,057 16,347,316
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4. Proposal to adopt the Fund's Amended and Restated Articles of Incorporation
to permit the Board to have discretionary authority to convert the Fund to
"master/feeder" structure. 33,505,794 3,442,642 2,354,990
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain/Non-vote
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5. Proposal to adopt the Fund's Amended and Restated Articles of
Incorporation to provide notwithstanding any provision of the Maryland
General Corporation Law requiring approval of more than a majority of the
votes entitled to be cast, the Fund may take such action upon the approval
of a majority of the votes entitled to be cast. 20,967,832 1,955,938 16,379,656
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the Merrill Lynch
Select Pricing(SM) System, which offers four pricing alternatives:
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.
Recent Performance Results
<TABLE>
<CAPTION>
Ten Years/
6 Month 12 Month Since Inception
As of July 31, 2000 Total Return Total Return Total Return
============================================================================================
<S> <C> <C> <C>
ML Phoenix Fund, Inc. Class A Shares* -1.56% +13.03% +330.04%
--------------------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class B Shares* -2.07 +11.85 +287.99
--------------------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class C Shares* -2.02 +11.85 +123.30
--------------------------------------------------------------------------------------------
ML Phoenix Fund, Inc. Class D Shares* -1.70 +12.77 +133.68
--------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +3.20 + 8.97 +408.18/+242.14
============================================================================================
</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 periods are 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 periods are ten years and from 10/21/94,
respectively.
5
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
ML Phoenix Fund, Inc.'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:
7/90 7/00
ML Phoenix Fund, Inc.+--
Class A Shares* $9,475 $40,743
ML Phoenix Fund, Inc.+--
Class B Shares* $10,000 $38,800
S&P 500 Index++ $10,000 $50,818
ML Phoenix Fund, Inc.'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** 7/00
ML Phoenix Fund, Inc.+--
Class C Shares* $10,000 $22,330
ML Phoenix Fund, Inc.+--
Class D Shares* $9,475 $22,141
S&P 500 Index++ $10,000 $34,214
* 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.
6
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 6/30/00 +14.61% + 8.59%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +17.84 +16.58
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 +15.74 +15.12
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class A Shares
were offered at a higher sales charge. Thus, actual returns would have
been lower than shown for the ten-year period.)
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 6/30/00 +13.40% + 9.40%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +16.65 +16.65
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 +14.55 +14.55
--------------------------------------------------------------------------------
* 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*
================================================================================
One Year Ended 6/30/00 +13.42% +12.42%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +16.62 +16.62
--------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/00 +15.81 +15.81
--------------------------------------------------------------------------------
* 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*
--------------------------------------------------------------------------------
One Year Ended 6/30/00 +14.26% + 8.26%
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 +17.54 +16.27
--------------------------------------------------------------------------------
Inception (10/21/94)
through 6/30/00 +16.73 +15.63
--------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
7
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Percent of
Industry Shares Held Investments Value Net Assets
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount to Assets
-------------------------------------------------------------------------------------------------------------------------
Entertainment 173,600 +USA Networks, Inc. $ 3,645,600 0.7%
-------------------------------------------------------------------------------------------------------------------------
Telecommunication Services 275,000 +Comcast Corporation (Class A) 9,350,000 1.9
225,000 Verizon Communications 10,575,000 2.1
-------------------------------------------------------------------------------------------------------------------------
Total Discount to Assets (Cost--$24,304,360) 23,570,600 4.7
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Earnings Turnaround
-------------------------------------------------------------------------------------------------------------------------
Aerospace & Defense 481,300 Lockheed Martin Corporation 13,536,562 2.7
250,000 Northrop Grumman Corporation 17,765,625 3.5
-------------------------------------------------------------------------------------------------------------------------
Banking & Financial 400,000 Bank One Corporation 12,725,000 2.5
250,000 First Union Corporation 6,453,125 1.3
-------------------------------------------------------------------------------------------------------------------------
Computer & Peripherals 175,000 International Business Machines Corporation 19,676,562 3.9
-------------------------------------------------------------------------------------------------------------------------
Consumer Products 850,000 +The Topps Company, Inc. 8,128,125 1.6
-------------------------------------------------------------------------------------------------------------------------
Consumer Staples 125,000 The Procter & Gamble Company 7,109,375 1.4
-------------------------------------------------------------------------------------------------------------------------
Energy Related 700,000 Burlington Resources Inc. 22,837,500 4.5
900,000 EOG Resources, Inc. 26,606,250 5.2
250,000 Halliburton Company 11,531,250 2.3
450,000 Sunoco, Inc. 10,968,750 2.2
350,000 Tidewater Inc. 11,243,750 2.2
300,000 Unocal Corporation 9,075,000 1.8
-------------------------------------------------------------------------------------------------------------------------
Entertainment 300,000 +Fox Entertainment Group, Inc. (Class A) 9,187,500 1.8
-------------------------------------------------------------------------------------------------------------------------
Industrial Services 1,600,000 +Anacomp, Inc. (c) 3,200,000 0.6
-------------------------------------------------------------------------------------------------------------------------
Insurance 900,000 Ace Limited 32,400,000 6.4
500,000 The Allstate Corporation 13,781,250 2.7
-------------------------------------------------------------------------------------------------------------------------
Leisure & Entertainment 900,000 +CST Entertainment, Inc. (a) 900 0.0
-------------------------------------------------------------------------------------------------------------------------
Packaging 1,150,000 Crown Cork & Seal Company, Inc. 16,028,125 3.2
-------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 175,000 Bristol-Myers Squibb Company 8,684,375 1.7
-------------------------------------------------------------------------------------------------------------------------
Retail 299,600 +Borders Group, Inc. 3,857,350 0.7
500,000 +Venator Group, Inc. 7,062,500 1.4
-------------------------------------------------------------------------------------------------------------------------
Semiconductor 350,000 +LTX Corporation 7,678,125 1.5
500,000 +National Semiconductor Corporation 18,093,750 3.6
-------------------------------------------------------------------------------------------------------------------------
Total Earnings Turnaround (Cost--$270,276,233) 297,630,749 58.7
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Held/ Percent of
Industry Face Amount Investments Value Net Assets
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Restructuring
-------------------------------------------------------------------------------------------------------------------------
Energy Related 1,981,437 Gulfport Energy Corporation--Litigation Trust
Certificates $ 20 0.0%
-------------------------------------------------------------------------------------------------------------------------
Home Builders 2,113,439 +New Millennium Homes, LLC (a) 2,113,439 0.4
$15,250,000 New Millennium Homes, LLC, Senior Notes,
13.50% due 9/03/2004 (b) 11,437,500 2.3
-------------------------------------------------------------------------------------------------------------------------
Industrial Equipment $ 5,306,250 Goss Graphic Systems, Inc., 2.76% due 11/19/2005 (b) 1,114,313 0.2
Manufacturing 139,388 +Goss Holdings Inc. (Class B) 48,786 0.0
-------------------------------------------------------------------------------------------------------------------------
Transportation 220,760 +Trism, Inc. 110,380 0.0
-------------------------------------------------------------------------------------------------------------------------
Total Financial Restructuring (Cost--$26,564,055) 14,824,438 2.9
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
High Yield
-------------------------------------------------------------------------------------------------------------------------
Computer Services $ 3,000,000 Federal Data Corp., 10.125% due 8/01/2005 1,800,000 0.4
-------------------------------------------------------------------------------------------------------------------------
Consumer Products $12,260,000 Diamond Brands Operating, 10.125% due 4/15/2008 6,712,350 1.3
-------------------------------------------------------------------------------------------------------------------------
Printing & Publishing $ 6,255,400 +San Jacinto Holdings, Inc., Senior Subordinated Notes,
12% due 12/31/2002 1,876,620 0.4
-------------------------------------------------------------------------------------------------------------------------
Supermarkets $11,000,000 +Jitney-Jungle Stores of America, Inc., Senior Notes,
12% due 3/01/2006 1,650,000 0.3
-------------------------------------------------------------------------------------------------------------------------
Transportation $ 3,485,678 Trism, Inc., 12% due 2/15/2005 2,370,261 0.5
-------------------------------------------------------------------------------------------------------------------------
Total High Yield (Cost--$34,351,690) 14,409,231 2.9
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Operational Restructuring
-------------------------------------------------------------------------------------------------------------------------
Computer & Peripherals 500,000 Compaq Computer Corporation 14,031,250 2.8
600,000 +Unisys Corporation 5,887,500 1.2
-------------------------------------------------------------------------------------------------------------------------
Computer Software 2,380,800 +Inprise Corporation 12,945,600 2.6
275,000 +Novell, Inc. 2,595,313 0.5
542,500 +Walker Interactive Systems, Inc. 1,610,547 0.3
-------------------------------------------------------------------------------------------------------------------------
Electrical Equipment 500,000 Thomas & Betts Corporation 9,750,000 1.9
-------------------------------------------------------------------------------------------------------------------------
Electronics 330,600 Harris Corporation 11,323,050 2.2
-------------------------------------------------------------------------------------------------------------------------
Environmental 800,000 +Republic Services, Inc. (Class A) 13,400,000 2.6
-------------------------------------------------------------------------------------------------------------------------
Health Care 400,000 HCA--The Healthcare Corporation 13,600,000 2.7
793,600 +Tenet Healthcare Corporation 24,155,200 4.8
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Percent of
Industry Shares Held Investments Value Net Assets
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operational Restructuring (concluded)
-------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals 200,000 +IVAX Corporation $ 9,850,000 1.9%
-------------------------------------------------------------------------------------------------------------------------
Telecommunication 500,000 AT&T Corp. 15,468,750 3.0
Services 190,000 +WorldCom, Inc. 7,410,000 1.5
-------------------------------------------------------------------------------------------------------------------------
Total Operational Restructuring (Cost--$130,606,763) 142,027,210 28.0
-------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$486,103,101) 492,462,228 97.2
-------------------------------------------------------------------------------------------------------------------------
Face
Amount Short-Term Securities
-------------------------------------------------------------------------------------------------------------------------
Commercial Paper* $16,355,000 General Electric Capital Corp., 6.64% due 8/01/2000 16,355,000 3.2
-------------------------------------------------------------------------------------------------------------------------
Total Short-Term Securities (Cost--$16,355,000) 16,355,000 3.2
-------------------------------------------------------------------------------------------------------------------------
Total Investments (Cost--$502,458,101) 508,817,228 100.4
Liabilities in Excess of Other Assets (1,841,159) (0.4)
------------ -----
Net Assets $506,976,069 100.0%
============ =====
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commercial Paper is traded on a discount basis; the interest rate shown
reflects the discount rate paid at the time of purchase by the Fund.
+ Non-income producing security.
(a) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(b) Represents a pay-in-kind security which may pay interest/ dividends in
additional face amount/shares.
(c) 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
--------------------------------------------------------------------------
Industrial Anacomp, Inc. 32,400 $(1,873,843) +
Services
--------------------------------------------------------------------------
+ Non-income producing security.
See Notes to Financial Statements.
10
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 2000
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$502,458,101) ............ $ 508,817,228
Cash ............................................................. 236
Receivables:
Securities sold ................................................ $ 3,291,421
Interest ....................................................... 706,643
Dividends ...................................................... 254,625
Capital shares sold ............................................ 198,944 4,451,633
-----------
Prepaid registration fees and other assets ....................... 74,636
-------------
Total assets ..................................................... 513,343,733
-------------
------------------------------------------------------------------------------------------------------------------------
Liabilities: Payables:
Securities purchased ........................................... 2,943,655
Capital shares redeemed ........................................ 2,451,789
Investment adviser ............................................. 443,705
Distributor .................................................... 179,028 6,018,177
-----------
Accrued expenses and other liabilities ........................... 349,487
-------------
Total liabilities ................................................ 6,367,664
-------------
------------------------------------------------------------------------------------------------------------------------
Net Assets: Net assets ....................................................... $ 506,976,069
=============
------------------------------------------------------------------------------------------------------------------------
Net Assets Class A Shares of Common Stock, $.10 par value, 50,000,000 shares
Consist of: authorized ....................................................... $ 1,606,271
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... 1,251,181
Class C Shares of Common Stock, $.10 par value, 50,000,000 shares
authorized ....................................................... 88,540
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized ....................................................... 770,127
Paid-in capital in excess of par ................................. 412,390,205
Accumulated investment loss--net ................................. (29,498)
Accumulated distributions in excess of investment income--net .... (172,473)
Undistributed realized capital gains on investments and foreign
currency transactions--net ....................................... 84,712,589
Unrealized appreciation on investments and foreign currency
transactions--net ................................................ 6,359,127
-------------
Net assets ....................................................... $ 506,976,069
=============
------------------------------------------------------------------------------------------------------------------------
Net Asset Value: Class A--Based on net assets of $223,134,332 and 16,062,706 shares
outstanding ...................................................... $ 13.89
=============
Class B--Based on net assets of $165,523,822 and 12,511,814 shares
outstanding ...................................................... $ 13.23
=============
Class C--Based on net assets of $11,569,921 and 885,404 shares
outstanding ...................................................... $ 13.07
=============
Class D--Based on net assets of $106,747,994 and 7,701,272 shares
outstanding ...................................................... $ 13.86
=============
------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Operations for the Year Ended July 31, 2000
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Interest and discount earned ....................... $ 6,350,953
Income: Dividends (net of $44,119 foreign withholding tax) . 4,971,697
------------
Total income ....................................... 11,322,650
------------
-------------------------------------------------------------------------------------------------------------
Expenses: Investment advisory fees ........................... $ 5,422,317
Account maintenance and distribution fees--Class B . 1,948,405
Transfer agent fees--Class A ....................... 321,266
Transfer agent fees--Class B ....................... 297,871
Account maintenance fees--Class D .................. 246,766
Professional fees .................................. 151,085
Transfer agent fees--Class D ....................... 130,435
Accounting services ................................ 110,140
Account maintenance and distribution fees--Class C . 103,640
Printing and shareholder reports ................... 50,783
Registration fees .................................. 44,820
Directors' fees and expenses ....................... 40,624
Custodian fees ..................................... 36,447
Transfer agent fees--Class C ....................... 16,883
Pricing fees ....................................... 4,683
Other .............................................. 23,205
------------
Total expenses ..................................... 8,949,370
------------
Investment income--net ............................. 2,373,280
------------
-------------------------------------------------------------------------------------------------------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net ................................. 93,652,021
(Loss) on Foreign currency transactions--net ............... (38,734) 93,613,287
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net: Investments--net ................................. (31,241,597)
Foreign currency transactions--net ............... 327 (31,241,270)
------------ ------------
Net Increase in Net Assets Resulting from Operations $ 64,745,297
============
-------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended
July 31,
-------------------------------
Increase (Decrease) in Net Assets: 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations: Investment income--net .............................................. $ 2,373,280 $ 3,487,025
Realized gain on investments and foreign currency transactions--net . 93,613,287 47,007,899
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net .................................. (31,241,270) 48,133,993
------------- -------------
Net increase in net assets resulting from operations ................ 64,745,297 98,628,917
------------- -------------
-------------------------------------------------------------------------------------------------------------------------------
Dividends & Investment income--net:
Distributions to Class A ........................................................... (3,313,779) (2,622,198)
Shareholders: Class B ........................................................... (59,825) (284,461)
Class C ........................................................... (9,088) (8,042)
Class D ........................................................... (919,281) (680,597)
In excess of investment income--net:
Class A ........................................................... (132,855) --
Class B ........................................................... (2,398) --
Class C ........................................................... (364) --
Class D ........................................................... (36,856) --
Realized gain on investments--net:
Class A ........................................................... (23,130,472) (38,989,784)
Class B ........................................................... (19,332,398) (40,328,457)
Class C ........................................................... (871,784) (1,585,995)
Class D ........................................................... (8,296,448) (12,759,045)
------------- -------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ..................................................... (56,105,548) (97,258,579)
------------- -------------
-------------------------------------------------------------------------------------------------------------------------------
Capital Share Net decrease in net assets derived from capital share transactions .. (39,231,265) (134,210,880)
Transactions: ------------- -------------
-------------------------------------------------------------------------------------------------------------------------------
Net Assets: Total decrease in net assets ........................................ (30,591,516) (132,840,542)
Beginning of year ................................................... 537,567,585 670,408,127
------------- -------------
End of year* ........................................................ $ 506,976,069 $ 537,567,585
============= =============
-------------------------------------------------------------------------------------------------------------------------------
*Undistributed investment income (loss)--net ......................... $ (201,971) $ 1,928,693
============= =============
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
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: 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........ $ 13.71 $ 13.49 $ 15.32 $ 13.37 $ 13.44
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .................... .12 .13 .12 .10 .13
Realized and unrealized gain on investments
and foreign currency transactions--net .... 1.55 2.11 1.33 3.46 .51
-------- -------- -------- -------- --------
Total from investment operations .......... 1.67 2.24 1.45 3.56 .64
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. (.18) (.13) (.11) (.06) (.13)
In excess of investment income--net ..... (.01) -- -- -- --
Realized gain on investments--net ....... (1.30) (1.89) (3.17) (1.55) (.58)
-------- -------- -------- -------- --------
Total dividends and distributions ......... (1.49) (2.02) (3.28) (1.61) (.71)
-------- -------- -------- -------- --------
Net asset value, end of year .............. $ 13.89 $ 13.71 $ 13.49 $ 15.32 $ 13.37
======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 13.03% 24.15% 10.98% 29.78% 4.78%
Return:* ======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses .................................. 1.21% 1.27% 1.24% 1.26% 1.24%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .................... .87% 1.11% .83% .77% .92%
======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) .... $223,134 $245,712 $283,005 $301,936 $279,351
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 95.11% 80.60% 81.20% 81.46% 87.66%
======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
14
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
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: 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........ $ 13.06 $ 12.93 $ 14.82 $ 12.99 $ 13.12
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net ............. (.02) .01 (.03) (.03) (.01)
Realized and unrealized gain on investments
and foreign currency transactions--net .... 1.47 2.02 1.28 3.35 .50
-------- -------- -------- -------- --------
Total from investment operations .......... 1.45 2.03 1.25 3.32 .49
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. --++ (.01) (.01) -- (.04)
In excess of investment income--net ..... --++ -- -- -- --
Realized gain on investments--net ....... (1.28) (1.89) (3.13) (1.49) (.58)
-------- -------- -------- -------- --------
Total dividends and distributions ......... (1.28) (1.90) (3.14) (1.49) (.62)
-------- -------- -------- -------- --------
Net asset value, end of year .............. $ 13.23 $ 13.06 $ 12.93 $ 14.82 $ 12.99
======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 11.85% 22.97% 9.84% 28.48% 3.67%
Return:* ======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses .................................. 2.23% 2.30% 2.26% 2.29% 2.26%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net ............. (.12%) .08% (.18%) (.26%) (.11%)
======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) .... $165,524 $199,132 $286,396 $337,022 $381,808
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 95.11% 80.60% 81.20% 81.46% 87.66%
======== ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
15
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
Class C+
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: 2000 1999 1998 1997 1996
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........ $ 12.94 $ 12.83 $ 14.72 $ 12.92 $ 13.07
Operating --------- -------- -------- -------- --------
Performance: Investment income (loss)--net ............. (.03) .01 (.03) (.04) (.02)
Realized and unrealized gain on investments
and foreign currency transactions--net .... 1.47 2.00 1.29 3.33 .51
--------- -------- -------- -------- --------
Total from investment operations .......... 1.44 2.01 1.26 3.29 .49
--------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. (.01) (.01) (.02) -- (.06)
In excess of investment income--net ..... --++ -- -- -- --
Realized gain on investments--net ....... (1.30) (1.89) (3.13) (1.49) (.58)
--------- -------- -------- -------- --------
Total dividends and distributions ......... (1.31) (1.90) (3.15) (1.49) (.64)
--------- -------- -------- -------- --------
Net asset value, end of year .............. $ 13.07 $ 12.94 $ 12.83 $ 14.72 $ 12.92
========= ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 11.85% 22.95% 9.90% 28.39% 3.69%
Return:* ========= ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses .................................. 2.24% 2.31% 2.27% 2.30% 2.27%
Net Assets: ========= ======== ======== ======== ========
Investment income (loss)--net ............. (.24%) .06% (.19%) (.27%) (.12%)
========= ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) .... $ 11,570 $ 8,245 $ 11,316 $ 14,448 $ 15,821
Data: ========= ======== ======== ======== ========
Portfolio turnover ........................ 95.11% 80.60% 81.20% 81.46% 87.66%
========= ======== ======== ======== ========
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
16
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
Class D+
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: 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year ........ $ 13.67 $ 13.45 $ 15.29 $ 13.35 $ 13.43
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .................... .08 .10 .08 .07 .09
Realized and unrealized gain on investments
and foreign currency transactions--net .... 1.56 2.11 1.33 3.45 .51
-------- -------- -------- -------- --------
Total from investment operations .......... 1.64 2.21 1.41 3.52 .60
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net .................. (.14) (.10) (.09) (.04) (.10)
In excess of investment income--net ..... (.01) -- -- -- --
Realized gain on investments--net ....... (1.30) (1.89) (3.16) (1.54) (.58)
-------- -------- -------- -------- --------
Total dividends and distributions ......... (1.45) (1.99) (3.25) (1.58) (.68)
-------- -------- -------- -------- --------
Net asset value, end of year .............. $ 13.86 $ 13.67 $ 13.45 $ 15.29 $ 13.35
======== ======== ======== ======== ========
---------------------------------------------------------------------------------------------------------------------------------
Total Investment Based on net asset value per share ........ 12.77% 23.87% 10.70% 29.44% 4.50%
Return:* ======== ======== ======== ======== ========
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Expenses .................................. 1.46% 1.52% 1.51% 1.52% 1.48%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .................... .55% .88% .59% .54% .67%
======== ======== ======== ======== ========
---------------------------------------------------------------------------------------------------------------------------------
Supplemental Net assets, end of year (in thousands) .... $106,748 $ 84,479 $ 89,691 $ 85,409 $ 48,873
Data: ======== ======== ======== ======== ========
Portfolio turnover ........................ 95.11% 80.60% 81.20% 81.46% 87.66%
======== ======== ======== ======== ========
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total investment returns exclude the effects of sales
charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
17
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
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 accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing(SM) System. Shares of Class A and
Class D are sold with a front-end sales charge. Shares of Class B and Class C
may be subject to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The following is a
summary of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities 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
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. 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.
18
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
(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. Distributions in excess of investment
income are due primarily to differing tax treatments for post-October losses.
(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 $29,498 have been reclassified between undistributed net
realized capital gains and accumulated net investment loss. 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 FAM Distributors, Inc.
("FAMD" or "Distributor") 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, 2000, FAMD 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:
--------------------------------------------------------------------------------
FAMD MLPF&S
--------------------------------------------------------------------------------
Class A ............................... $1,403 $11,171
Class D ............................... $3,226 $51,790
--------------------------------------------------------------------------------
For the year ended July 31, 2000, MLPF&S received contingent deferred sales
charges of $81,926 and $4,349 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $43 relating to transactions subject to front-end sales charge
waivers in Class D Shares.
19
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
In addition, MLPF&S received $181,830 in commissions on the execution of
portfolio security transactions for the Fund for the year ended July 31, 2000.
During the year ended July 31, 2000, the Fund paid Merrill Lynch Security
Pricing Service, an affiliate of MLPF&S, $113 for security price quotations to
compute the net asset value of the Fund.
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, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended July 31, 2000 were $474,694,915 and $530,595,887, respectively.
Net realized gains (losses) for the year ended July 31, 2000 and net unrealized
gains as of July 31, 2000 were as follows:
--------------------------------------------------------------------------------
Realized
Gains Unrealized
(Losses) Gains
--------------------------------------------------------------------------------
Long-term investments ............... $ 93,652,449 $ 6,359,127
Short-term investments .............. (428) --
Foreign currency
transactions ........................ (38,734) --
------------ ------------
Total ............................... $ 93,613,287 $ 6,359,127
============ ============
--------------------------------------------------------------------------------
As of July 31, 2000, net unrealized appreciation for Federal income tax purposes
aggregated $5,933,319, of which $94,631,764 related to appreciated securities
and $88,698,445 related to depreciated securities. At July 31, 2000, the
aggregate cost of investments for Federal income tax purposes was $502,883,909.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$39,231,265 and $134,210,880 for the years ended July 31, 2000 and July 31,
1999, respectively.
Transactions in capital shares for each class were as follows:
--------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 1,957,480 $ 27,025,897
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 1,811,355 23,706,117
---------- ------------
Total issued ........................... 3,768,835 50,732,014
Shares redeemed ........................ (5,624,590) (76,340,293)
---------- ------------
Net decrease ........................... (1,855,755) $(25,608,279)
========== ============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 B Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 2,592,979 $ 34,046,767
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 1,400,187 17,545,554
---------- ------------
Total issued ........................... 3,993,166 51,592,321
Shares redeemed ........................ (4,842,940) (64,065,467)
Automatic conversion
of shares .............................. (1,889,843) (25,434,824)
---------- ------------
Net decrease ........................... (2,739,617) $(37,907,970)
========== ============
--------------------------------------------------------------------------------
20
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
--------------------------------------------------------------------------------
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
Shares redeemed ........................ (12,741,975) (136,568,503)
Automatic conversion
of shares .............................. (1,093,775) (12,295,918)
---------- ------------
Net decrease ........................... (6,902,739) $(82,118,222)
========== ============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 451,630 $ 5,923,944
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 59,053 732,030
-------- ------------
Total issued ........................... 510,683 6,655,974
Shares redeemed ........................ (262,641) (3,428,132)
-------- ------------
Net increase ........................... 248,042 $ 3,227,842
======== ============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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)
======== ============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Class D Shares for the Year Dollar
Ended July 31, 2000 Shares Amount
--------------------------------------------------------------------------------
Shares sold ............................ 1,151,701 $ 16,082,632
Automatic conversion
of shares .............................. 1,808,040 25,434,824
Shares issued to shareholders
in reinvestment of
dividends and distributions ............ 645,789 8,445,067
---------- ------------
Total issued ........................... 3,605,530 49,962,523
Shares redeemed ........................ (2,081,970) (28,905,381)
---------- ------------
Net increase ........................... 1,523,560 $ 21,057,142
========== ============
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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)
========== ============
--------------------------------------------------------------------------------
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds managed by FAM and
its affiliates, entered into a one-year, unsecured $1,000,000,000 credit
agreement with The Bank of New York and other lenders. The funds may borrow
money for temporary or emergency purposes to meet shareholder redemptions. Each
fund may borrow up to the maximum amount allowable under the fund's current
prospectus and statement of additional information, subject to various other
legal, regulatory or contractual limits. The funds collectively pay a commitment
fee of .09% per annum on the available portion of the facility. Amounts borrowed
under the facility bear interest at the Federal Funds rate plus .50%. The Fund
did not borrow from the facility during the year ended July 31, 2000.
6. Organizational Change:
On or about October 1, 2000, the Fund will change its name to Merrill Lynch
Focus Value Fund, Inc.
21
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
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,
2000, 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 auditing standards generally accepted
in the United States of America. 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, 2000 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Phoenix Fund, Inc. as of July 31, 2000, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
September 8, 2000
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by Merrill
Lynch Phoenix Fund, Inc. during its fiscal year ended July 31, 2000:
<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: 09/07/99 09/15/99 $.041391 $.822019 $.863410 $.345558
------------------------------------------------------------------------------------------------------------------
12/06/99 12/10/99 $.054770 $.147925 $.202695 $.077738
==================================================================================================================
==================================================================================================================
Class B Shares: 09/07/99 09/15/99 $.034231 $.679827 $.714058 $.345558
------------------------------------------------------------------------------------------------------------------
12/06/99 12/10/99 $.040208 $.108596 $.148804 $.077738
==================================================================================================================
==================================================================================================================
Class C Shares: 09/07/99 09/15/99 $.035258 $.700209 $.735467 $.345558
------------------------------------------------------------------------------------------------------------------
12/06/99 12/10/99 $.040793 $.110176 $.150969 $.077738
==================================================================================================================
==================================================================================================================
Class D Shares: 09/07/99 09/15/99 $.039867 $.791751 $.831618 $.345558
------------------------------------------------------------------------------------------------------------------
12/06/99 12/10/99 $.051129 $.138091 $.189220 $.077738
==================================================================================================================
</TABLE>
* All of the long-term capital gain distributions are subject to a maximum
20% tax rate.
The domestic qualifying ordinary income qualifies for the dividends received
deduction for corporations.
Please retain this information for your records.
22
<PAGE>
Merrill Lynch Phoenix Fund, Inc. July 31, 2000
PORTFOLIO INFORMATION (unaudited)
As of July 31, 2000
Percent of
Ten Largest Holdings Net Assets
Ace Limited ............................................ 6.4%
EOG Resources, Inc. .................................... 5.2
Tenet Healthcare Corporation ........................... 4.8
Burlington Resources Inc. .............................. 4.5
International Business Machines
Corporation .......................................... 3.9
National Semiconductor Corporation ..................... 3.6
Northrup Grumman Corporation ........................... 3.5
Crown Cork & Seal Company, Inc. ........................ 3.2
AT&T Corp. ............................................. 3.0
Compaq Computer Corporation ............................ 2.8
Percent of
Five Largest Industries Net Assets
Energy Related ......................................... 18.2%
Insurance .............................................. 9.1
Telecommunication Services ............................. 8.5
Computer & Peripherals ................................. 7.9
Healthcare ............................................. 7.5
Asset Mix Net Assets
Stocks ................................................. 91.8%
Bonds .................................................. 5.4
Cash & Cash Equivalents ................................ 2.8
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 C. Doll, Jr., Senior Vice President
Robert J. Martorelli, Senior Vice President and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Allan J. Oster, 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
--------------------------------------------------------------------------------
Barbara G. Fraser, Secretary of Merrill Lynch Phoenix Fund, Inc. has recently
retired. The Fund's Board of Directors wishes Ms. Fraser well in her retirement.
--------------------------------------------------------------------------------
23
<PAGE>
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--7/00
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