MERRILL LYNCH
CONVERTIBLE
FUND, INC.
FUND LOGO
Quarterly Report
May 31, 1998
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
Convertible Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH CONVERTIBLE FUND, INC.
DEAR SHAREHOLDER
During the quarter ended May 31, 1998, US stock market indexes
exhibited mixed performance. The Dow Jones Industrial Average
(DJIA), the unmanaged Standard & Poor's 500 Index (S&P 500), the
unmanaged NASDAQ Composite Index and the unmanaged Russell 2000
Index had total returns of +4.56%, +4.35%, +0.47% and -0.94%,
respectively. Long-term interest rates were benign, remaining
between a range of 5.73%--6.09%. During the May quarter, Merrill
Lynch Convertible Fund, Inc.'s Class A, Class B, Class C and Class D
Shares had total returns of +2.36%, +2.36%, +2.28% and +2.59%,
respectively. (Fund results shown do not include sales charges and
would be lower if sales charges were included. Complete performance
information can be found on pages 3 and 4 of this report to
shareholders.)
The Environment
The US stock market continued its rally, which began in early
January and continued through March and early April before it began
to falter. This weakness was foreshadowed by daily and weekly
advance/ decline lines, which measure the market's breadth and
internal strength. These indicators peaked during the first week of
April and have been extremely weak since, notwithstanding new highs
in prices for some equity indexes in late April and early May. Poor
breadth indicators and a narrowing advance are typical late-cycle
phenomena and may signal a corrective phase for equities or a
potential reversal into a bear stock market. This was the case in
the "nifty-fifty" market in the early 1970s and also before the
crash of 1987.
Part of this narrowing of the market may be exacerbated by the
growth in index funds that attempt to mirror major indexes, such as
the DJIA or the S&P 500, by investing in the underlying component
companies' stocks. The broader-based indexes, such as the technology-
heavy NASDAQ and the more tertiary Russell 2000, dramatically
underperformed the DJIA and S&P 500. During the quarter ended May
31, 1998, Merrill Lynch Convertible Fund, Inc. outperformed the
NASDAQ and Russell 2000 equity indexes. The Russell 2000 showed a
net loss over the three-month period and recently undercut its 200-
day moving average, a negative technical development. Additionally,
the relative strength index of the NASDAQ Composite has been poor,
possibly signaling a negative trend in the overall equity market.
Furthermore, another negative technical development is the expansion
in the number of stocks hitting new lows and a contraction in the
number of stocks reaching new highs. Late in the quarter, the number
of new highs on the New York Stock Exchange was exceeded by the
number of new lows for the first time since October 1997, the
commencement of the Asian currency crisis. Even the upward slope of
the moving averages is flattening out, further suggesting a period
of consolidation for equities.
As discussed in our last report to shareholders, the valuation
measures of the stock market indexes are currently at extremely high
levels. This has resulted from continued low interest rates, low
inflation, high liquidity levels for individuals, positive
demographics and a generally healthy economic environment. For
example, at the conclusion of the quarter ended May 31, 1998, the
price/earnings ratio of the DJIA was approximately 23 times trailing
earnings. Other equity indexes, such as the S&P 500, S&P Industrial
Average, Russell 2000, NASDAQ 100 and NASDAQ Composite, also
reflected these extremely high valuation measure readings, with
price/earnings ratios of about 26 times, 29 times, 34 times, 47
times and 69 times, respectively. The continuing economic depression
and deflationary trends in some of the Asian countries, most notably
Japan, Indonesia and Hong Kong, are beginning to impact both
investor psychology and company earnings. Earnings expectations have
been reduced by analysts, and earnings momentum has deteriorated as
well. The major risk lies in extended valuation levels, which leave
little room for disappointment, since price/earnings ratios are
already extreme. If earnings decline, price/earnings ratios would
become even more extreme, in our view. Given this scenario, stock
prices could falter and follow earnings lower. Since these valuation
measures are unlikely to be sustained in the face of declining
earnings momentum, multiple compression could result, potentially
exacerbating an otherwise orderly correction or decline in equity
prices.
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
While some US stocks are somewhat oversold and may rally in the
short term, the deterioration of technical indicators, coupled with
poor earnings momentum and valuations that are at historically high
levels, suggest a cautious stance. Accordingly, we continue to
maintain the Fund's relatively low equity exposure and favor higher
premium, less equity-sensitive convertibles over lower premium, more
equity-sensitive convertibles. Given high equity valuations, we
believe this may be an ideal time to participate cautiously in the
equity market through the use of convertible securities. Both
Ibbotson Associates and Merrill Lynch Research have concluded that
convertible securities historically capture most of the equity
markets' advances, but with substantially lower standard deviations
of returns (a basic measure of risk). Perhaps more important,
convertible securities have the potential to outperform stocks
during periods of flat or declining equity prices, since they are
fixed-income instruments and offer higher current yields.
Portfolio Matters
During the quarter ended May 31, 1998, we saw value in the energy
sector and established positions in Chesapeake Energy Corp., an oil
and natural gas producer, Halter Marine Group, Inc., a leading
manufacturer of drilling-related marine vessels, Parker Drilling
Co., a land drilling contractor, and Pride International, Inc., an
oil services company. We initiated a position in Owens-Illinois,
Inc., a diversified manufacturer of packaging products, as well as
Sunbeam Corporation, a household consumer products company. We added
to our bond position of Mark IV Industries, Inc., an auto parts
manufacturer, and Metsa-Serla OYJ, a leading paper company in
Finland. In addition, we took profits and reduced the Fund's
position in AK Steel Holding Corporation common stock. After
reaching our price targets, we eliminated the common stock of Allied
Waste Industries, Inc., Bindley Western Industries, Inc. and Service
Corporation International. We also eliminated the convertible bonds
of Arbor Software Corp. after it had reached our price target.
Finally, we swapped the Fund's preferred stock of Cyprus Amax
Minerals Co. for shares of the company's common stock.
In Conclusion
During the quarter, Merrill Lynch Convertible Fund, Inc. completed
its merger with Merrill Lynch Global Convertible Fund, Inc. This
process, which was previously approved in a shareholder vote, was
completed on May 11, 1998. We would like to welcome new shareholders
of Merrill Lynch Convertible Fund, Inc., and we look forward to
serving all of our shareholders' investment needs in the months and
years ahead.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Daniel A. Luchansky)
Daniel A. Luchansky
Vice President and Portfolio Manager
June 19, 1998
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" table assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date. Investment
return and principal value of shares will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the
different levels of account maintenance, distribution and transfer
agency fees applicable to each class, which are deducted from the
income available to be paid to shareholders.
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Convertible Fund, Inc. Class A Shares++ +16.35% +2.36% +143.54%
ML Convertible Fund, Inc. Class B Shares -- +2.36 + 10.24
ML Convertible Fund, Inc. Class C Shares -- +2.28 + 10.21
ML Convertible Fund, Inc. Class D Shares -- +2.59 + 10.90
<FN>
*Investment results shown do not reflect sales charges; results
shown 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/inception dates are: Class A Shares, ten years ended
5/31/98; and Class B, Class C and Class D Shares, 8/04/97.
++Investment results for Class A Shares prior to August 4, 1997
reflect the performance of the Fund's Capital Shares when the Fund
was closed-end.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 3/31/98 +22.66% +16.22%
Five Years Ended 3/31/98 +10.40 + 9.22
Ten Years Ended 3/31/98 + 9.12 + 8.53
[FN]
++Performance results for Class A Shares prior to August 4, 1997
reflect the performance of the Fund's Capital Shares when the Fund
was closed-end.
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge currently applicable to Class A
Shares.
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Inception (8/04/97) through 3/31/98 +11.47% +8.20%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (8/04/97)
through 3/31/98 +11.52% +10.70%
[FN]
*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*
Inception (8/04/97)
through 3/31/98 +12.06% +6.17%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
S&P Moody's Face
Industry Rating Rating Amount Convertible Debentures Cost Value
<S> <S> <S> <C> <S> <C> <C>
Assisted Assisted Living Concepts, Inc.:
Living-- NR* NR* US$ 2,300,000 6% due 11/01/2002 $ 2,323,247 $ 2,259,750
2.3% NR* NR* 400,000 5.625% due 5/01/2003 400,000 359,500
------------ ------------
2,723,247 2,619,250
Automotive Magna International Inc.:
Parts-- A- NR* C$ 1,500,000 4.875% due 2/15/2005 1,500,000 1,693,125
10.1% NR* Baa1 900,000 7.25% due 7/05/2005 772,368 1,051,980
Mark IV Industries, Inc.:
BB+ Ba2 US$ 1,000,000 4.75% due 11/01/2004 923,750 938,750
BB+ Ba2 650,000 4.75% due 11/01/2004 617,500 611,650
B+ B1 2,000,000 Mascotech, Inc., 4.50% due 12/15/2003 1,840,000 1,930,000
Pep Boys--Manny, Moe & Jack (The):
BBB Baa3 3,000,000 4% due 9/01/1999 3,006,250 2,970,000
BBB Baa3 1,500,000 4.089% due 9/20/2011 (c) 880,086 830,625
Tower Automotive, Inc.:
B+ NR* 750,000 5% due 8/01/2004 750,000 854,063
B+ NR* 350,000 5% due 8/01/2004 364,000 398,563
------------ ------------
10,653,954 11,278,756
Aviation B- B3 1,000,000 Kellstrom Industries Inc., 5.75% due
Equipment-- 10/15/2002 1,000,000 1,181,250
1.1%
Banking & BankAtlantic Bancorp, Inc.++:
Financial-- NR* NR* 1,364,000 6.75% due 7/01/2006 2,377,584 2,693,900
4.1% NR* NR* 1,585,000 5.625% due 12/01/2007 1,591,875 1,876,244
------------ ------------
3,969,459 4,570,144
Boat B+ B2 1,000,000 Halter Marine Group, Inc., 4.50% due
Construction-- 9/15/2004 897,855 880,000
0.8%
Building & BBB- Ba1 300,000 New World Infrastructure Ltd.,
Construction-- 1% due 4/15/2003 300,000 264,750
0.2%
Chemicals-- NR* NR* YEN 50,000,000 Sumitomo Bakelite Co., Ltd., 1.20%
0.4% due 9/29/2006 521,478 462,294
Conglo- NR* NR* US$ 600,000 Polyphase Corporation, 12% due
merates-- 7/01/1999++ 600,000 384,000
1.4% A- Ba2 1,100,000 Thermo Electron Corporation, 4.25%
due 1/01/2003 1,270,500 1,164,625
------------ ------------
1,870,500 1,548,625
Elec- NR* Aa2 YEN 50,000,000 Matsushita Electric Industrial Co.,
tronics-- Ltd., 1.30% due 3/29/2002 513,387 500,217
0.7% NR* Baa2 30,000,000 Tokyo Electron Limited, 0.90%
due 9/30/2003 343,548 314,216
------------ ------------
856,935 814,433
Energy-- Key Energy Group Inc.++:
6.5% NR* NR* US$ 200,000 7% due 7/01/2003 431,064 371,750
NR* NR* 3,250,000 5% due 9/15/2004 2,685,750 2,669,062
A+ NR* 1,800,000 Loews Corp., 3.125% due 9/15/2007
(into Diamond Offshore Drilling Inc.) 1,792,250 1,786,500
NR* NR* 600,000 Lomak Petroleum, Inc., 6% due 2/01/2007 584,250 567,000
B- B3 1,000,000 Parker Drilling Co., 5.50% due 8/01/2004 1,010,833 940,000
B+ B2 2,300,000 Pride International, Inc., 4.75%
due 4/24/2018 (c) 903,485 920,000
------------ ------------
7,407,632 7,254,312
</TABLE>
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face
Industry Rating Rating Amount Convertible Debentures Cost Value
<S> <S> <S> <C> <S> <C> <C>
Environ- A- Baa3 US$ 1,605,000 Thermo Ecotek Corp., 4.875% due
mental-- 4/15/2004 $ 1,606,119 $ 1,613,025
3.5% A- NR* 750,000 Thermo Fibertek Inc., 4.50%
due 7/15/2004 750,000 810,938
BBB- Ba2 1,250,000 USA Waste Services, Inc., 4% due
2/01/2002 1,274,375 1,532,813
------------ ------------
3,630,494 3,956,776
Food & NR* NR* Pound 500,000 Allied Domecq PLC, 6.75% due 7/07/2008 858,247 858,577
Beverage-- Sterling
0.9% NR* NR* YEN 14,000,000 Sanyo Coca-Cola Bottling Inc., 0.90% due
6/30/2003 146,267 98,498
------------ ------------
1,004,514 957,075
Healthcare B- B3 US$ 2,000,000 Integrated Health Services Inc., 6%
Services-- due 1/01/2003 1,880,000 2,370,000
4.7% BB- B1 2,850,000 PhyCor, Inc., 4.50% due 2/15/2003 2,662,688 2,497,312
BBB Ba1 400,000 Quantum Health Resources, Inc., 4.75% due
10/01/2000 366,375 374,000
------------ ------------
4,909,063 5,241,312
Imaging A- NR* 1,500,000 ThermoTrex Corporation, 3.25% due
Systems--1.3% 11/01/2007 1,500,000 1,421,250
Industrial-- NR* Aa3 YEN 30,000,000 Sony Corp., 1.40% due 9/30/2003 361,653 469,156
1.4% NR* NR* US$ 3,500,000 Sunbeam Corporation, 5% due 3/25/2018 (c) 1,314,925 1,058,750
------------ ------------
1,676,578 1,527,906
Medical NR* NR* 550,000 Phoenix Shannon PLC, 9.50% due 11/01/2000 216,707 5,500
Supplies-- A- NR* 1,350,000 Thermolase Corporation, 4.375% due
1.1% 8/05/2004 1,214,433 1,193,063
------------ ------------
1,431,140 1,198,563
Office BB- Baa3 1,500,000 Office Depot, Inc., 4.891%
Supplies-- due 11/01/2008 (c) 903,276 1,083,750
2.5% US Office Products Co.:
B- B3 1,500,000 5.50% due 5/15/2003 1,400,000 1,385,625
B- B3 400,000 5.50% due 5/15/2003 360,750 369,500
------------ ------------
2,664,026 2,838,875
Paper--1.2% NR* NR* 1,200,000 Metsa-Serla OYJ, 4.375% due 10/15/2002 1,257,000 1,299,000
Pharmaceuti- BBB- Baa3 2,000,000 ALZA Corporation, 5% due 5/01/2006 2,022,500 2,725,000
cals--2.4%
Precious CCC+ B3 1,250,000 Coeur D'Alene Mines Corporation, 7.25%
Metals--0.9% due 10/31/2005 918,750 1,065,625
Real Estate NR* B2 1,500,000 Capstone Capital Trust, Inc., 6.55%
Investment due 3/14/2002 1,383,985 1,451,250
Trusts--1.3%
Restaurants--B B2 2,335,000 Hometown Buffet Inc., 7% due 12/01/2002 2,367,300 3,312,781
3.0%
Retail-- A+ A1 2,750,000 Home Depot, Inc. (The), 3.25% due
Building 10/01/2001++ 2,754,687 4,692,187
Materials--
4.2%
Scientific A- NR* 2,000,000 Thermo Cardiosystems, Inc., 4.75%
Equipment-- due 5/15/2004 2,000,000 2,082,500
5.4% Thermo Instrument Systems Inc.:
A Baa2 1,250,000 4.50% due 10/15/2003 1,280,000 1,273,437
A- NR* 1,500,000 4% due 1/15/2005 1,500,000 1,537,500
A- Baa3 1,000,000 Thermo Optek Corp., 5% due 10/15/2000 1,035,000 1,171,250
------------ ------------
5,815,000 6,064,687
</TABLE>
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
S&P Moody's Face
Industry Rating Rating Amount Convertible Debentures Cost Value
<S> <S> <S> <C> <S> <C> <C>
Semi- B NR* US$ 750,000 Cypress Semiconductor Corp., 6% due
conductors-- 10/01/2002 $ 750,000 $ 664,687
1.4% B- B2 1,000,000 Integrated Device Technology, Inc.,
5.50% due 6/01/2002 850,000 860,000
------------ ------------
1,600,000 1,524,687
Technology-- NR* NR* 1,000,000 Apple Computer, Inc., 6% due 6/01/2001 950,000 1,105,000
2.6% Data General Corporation:
B B3 500,000 6% due 5/15/2004 500,000 454,375
B B3 750,000 6% due 5/15/2004 740,625 702,652
NR* NR* 650,000 Premiere Technologies, Inc., 5.75%
due 7/01/2004++ 650,000 655,687
------------ ------------
2,840,625 2,917,714
Textiles-- B+ B1 1,000,000 Fieldcrest Cannon, Inc., 6% due 3/15/2012 685,000 910,000
0.8%
Water BBB- Ba3 2,350,000 US Filter Corp., 4.50% due 12/15/2001 2,386,000 2,496,875
Treatment
Systems--2.2%
Total Convertible Debentures--68.4% 71,047,722 76,475,377
Shares
Held Convertible Preferred Stocks
Banking & NR* A1 10,000 Jefferson Pilot Corp. (ACES SM)
Financial-- (into Nations Bank Corp.), 7.25% (d) 725,000 1,310,000
1.2%
Containers-- BB- Ba3 20,000 Owens Illinois, Inc., 4.75% 1,000,000 1,050,000
0.9%
Energy--0.9% BB- Ba2 20,000 CalEnergy Capital Trust II, 6.25% 1,000,000 952,500
Healthcare-- BB- Ba2 50,000 Medpartners Inc., 6.50% 1,109,375 590,625
0.5%
Oil & Gas B- Caa 12,000 Chesapeake Energy Corp., 7% 600,000 547,500
Producers-- B B3 27,000 Lomak Petroleum, Inc., 5.75% 1,350,000 1,100,250
2.2% BBB- Baa3 10,000 Occidental Petroleum Corp., $3 580,600 770,000
------------ ------------
2,530,600 2,417,750
Paper--1.8% BBB+ Baa1 40,000 International Paper Co., $5.25 1,902,000 2,015,000
Real Estate BBB Baa3 20,000 Merry Land & Investment Co., Inc.,
Investment $2.15, Series C 509,462 536,250
Trusts--1.8% BBB Baa3 30,000 Public Storage Inc., $2.062 759,300 1,477,500
------------ ------------
1,268,762 2,013,750
Restaurants--BBB Baa2 45,000 Wendy's International, Inc., 5%, Series A 2,305,938 2,520,000
2.3%
Retail--2.8% BB- B1 44,500 Kmart Financing I, 7.75% 2,417,045 3,156,719
Steel--5.2% NR* NR* 30,000 USX Capital Trust I, 6.75% 1,387,500 1,488,750
B Caa 60,000 WHX Corporation, 6.50%, Series A 2,584,540 3,037,500
A- A3 103,610 Worthington Industries, Inc., 7.25%
(into Rouge Industries, Inc.) 1,751,527 1,295,125
------------ ------------
5,723,567 5,821,375
Utilities-- A+ A2 50,500 Citizens Utilities Trust, 5% 2,191,905 2,474,500
2.2%
Total Convertible Preferred Stocks--21.8% 22,174,192 24,322,219
</TABLE>
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares
Industry Held Common Stocks Cost Value
<S> <C> <S> <C> <C>
Banking & 34,375 Nal Acceptance Corp. (Warrants)(a) $ 0 $ 69
Financial--0.0%
Conglomerates-- 105,000 Polyphase Corporation++ 158,550 78,750
0.1% 52,500 Polyphase Corporation (Warrants)(a)++ 13,125 6,562
52,500 Polyphase Corporation (Warrants)(a)++ 26,250 19,687
------------ ------------
197,925 104,999
Consumer 35,000 RJR Nabisco Holdings Corp. 1,142,475 986,562
Products--0.9%
Mining--2.4% 87,500 Cyprus Amax Minerals Co. 1,476,297 1,389,062
85,200 Inco Ltd. 1,563,137 1,224,750
------------ ------------
3,039,434 2,613,812
Paper--0.5% 17,700 Boise Cascade Corporation 585,162 590,738
Pharmaceuticals--0.0% 3,273 Crescendo Pharmaceuticals Corporation 37,640 40,913
Semiconductors--1.1% 75,800 Cypress Semiconductor Corp. 974,147 649,038
60,000 Integrated Device Technology, Inc. 788,465 560,625
------------ ------------
1,762,612 1,209,663
Steel--0.3% 20,000 AK Steel Holding Corporation 300,775 372,500
Utilities-- 8,835 Citizens Utilities Company (Class B) 84,213 92,213
0.1%
Utilities-- 50,000 Shandong Huaneng Power Company Ltd. (ADR)(b) 503,000 340,625
Electric--0.3%
Total Common Stocks--5.7% 7,653,236 6,352,094
Face
Amount Short-Term Securities
Commercial Paper**--4.5% US$ 3,000,000 Countrywide Home Loans, Inc., 5.56% due
6/08/1998 2,995,830 2,995,830
2,040,000 General Motors Acceptance Corp., 5.69% due
6/01/1998 2,039,355 2,039,355
Total Short-Term Securities--4.5% 5,035,185 5,035,185
Total Investments--100.4% $105,910,335 112,184,875
============
Short Sales (Proceeds--$5,174,202)--(5.8%)++ (6,416,919)
Other Assets Less Liabilities--5.4% 6,008,310
------------
Net Assets--100.0% $111,776,266
============
Net Asset Class A--Based on net assets of $67,892,284 and 5,042,175 shares outstanding $ 13.46
Value: ============
Class B--Based on net assets of $29,347,572 and 2,185,685 shares outstanding $ 13.43
============
Class C--Based on net assets of $5,850,835 and 435,511 shares outstanding $ 13.43
============
Class D--Based on net assets of $8,685,575 and 644,390 shares outstanding $ 13.48
============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b)American Depositary Receipts (ADR).
(c)Represents a zero coupon or step bond; the interest rate shown is
the effective yield at the time of purchase by the Fund.
(d)Adjustable Convertible Extendable Securities.
*Not Rated.
**Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
++Covered short sales entered into as of May 31, 1998 were as
follows:
Shares Issue Value
196,900 BankAtlantic Bancorp, Inc. $ (2,596,619)
40,000 Home Depot, Inc. (The) (3,142,500)
19,500 Key Energy Group Inc. (320,531)
5,500 Polyphase Corporation (4,469)
14,700 Premiere Technologies, Inc. (352,800)
-------------
Total (Proceeds--$5,174,202) $ (6,416,919)
=============
</TABLE>
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
PORTFOLIO INFORMATION
As of May 31, 1998
Percent of
Ten Largest Holdings Net Assets
Home Depot, Inc. (The), 3.25% due
10/01/2001 4.2%
BankAtlantic Bancorp, Inc.* 4.1
Pep Boys--Manny, Moe & Jack (The)* 3.4
Hometown Buffet Inc., 7% due 12/01/2002 3.0
Kmart Financing I, 7.75% 2.8
Key Energy Group Inc.* 2.7
WHX Corporation, 6.50%, Series A 2.7
Thermo Instrument Systems Inc.* 2.5
Magna International Inc.* 2.5
ALZA Corporation, 5% due 5/01/2006 2.4
[FN]
*Includes combined holdings.
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
IMPORTANT TAX INFORMATION
On May 11, 1998, substantially all of the net assets of Merrill
Lynch Global Convertible Fund, Inc. were acquired by Merrill Lynch
Convertible Fund, Inc.
All of the ordinary income distributions paid by Merrill Lynch
Global Convertible Fund, Inc. (the "Fund") to shareholders of record
on May 5, 1998 qualify for the dividends received deduction for
corporations. Additionally, the Fund paid a long-term capital gain
distribution of $1.662452 per share to shareholders of record on
December 12, 1997. Of this long-term capital gain distribution,
96.67% is subject to the 28% tax rate and 3.33% is subject to the
20% tax rate. Finally, the Fund paid a long-term capital gain
distribution of $2.140310 per share to shareholders of record on May
5, 1998. Of this long-term capital gain distribution, 100.00% is
subject to the 20% tax rate.
Please retain this information for your records.
Merrill Lynch Convertible Fund, Inc.
May 31, 1998
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Terry K. Glenn, Executive Vice President
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Donald C. Burke, Vice President
Daniel A. Luchansky, Vice President
Barton A. Vogel, Vice President
Gerald M. Richard, Treasurer
Ira P. Shapiro, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
