MERRILL LYNCH
CONVERTIBLE
FUND, INC.
FUND LOGO
Semi-Annual Report
February 28, 1999
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
The quarter ended February 28, 1999 was an unusual period for equity
prices. While the markets did perform well during the quarter, all
stock indexes did not rise during the three-month period. Although
there were advances in indexes of larger companies, such as those in
the Standard and Poor's (S&P) 500 Index and National Association of
Securities Dealers Automated Quotations (NASDAQ) 100, prices
declined for smaller-company indexes, such as the Russell 2000 Index
and the S&P 600 Small Cap Index. The convertible universe is largely
comprised of these smaller-capitalization companies.
During the February quarter, the stock market's internal conditions
were quite weak. The New York Stock Exchange daily and weekly
advance/decline lines continued to make new lows even as prices
drifted higher on most major equity indexes. The stock market
displayed a narrowness unseen since the "nifty fifty" period of the
early 1970s. ("Nifty fifty" refers to 50 favorite high-growth stocks
in the 1970s with extremely high price/earnings ratios.) This
narrowness manifested itself in a few larger stocks lifting the
major averages while the majority languished or even declined. This
is partially because of the proliferation of index funds whose
liquidity needs focus them on the larger stocks within the major
indexes. Another aspect of this narrow type market is that
valuations on these larger, more liquid stocks and indexes have
escalated, just as they did in the early 1970s. For example, the
profits/earnings ratio of the NASDAQ 100 Index of the largest
companies on the NASDAQ system finished the period at about 94 times
earnings. This is over three times that of the S&P 600 Small Cap
Index profits/earnings ratio of about 30 times earnings. Another
illustration of this narrow market is the number of stocks trading
above their 200-day moving averages (a mathematical equivalent of an
up-trend line). At quarter-end, only 29% of the stocks on the New
York Stock Exchange were above their 200-day moving averages. This
is down from 35% at the beginning of the quarter, notwithstanding
generally higher prices for many of the indexes. We find the
narrowness of the market and generally high valuations
disconcerting.
Another trend that continues to negatively impact the convertible
market is investors' preference for growth versus value as an
investment theme. This is reflected in the high valuations accorded
the types of companies in the NASDAQ 100 Index. There are ebbs and
flows in the popularity of these two investment disciplines, and
growth has been in favor for quite some time. Should the pendulum
swing back to value-based investing, serious valuation multiple
compression could result for those few high multiple growth stocks
that have been driving the price of the major indexes.
Portfolio Matters
Over the past three months, we made major changes to the portfolio.
During the February quarter, we sold ALZA Corporation convertible
bonds when they reached our price targets. We also made several
trades out of convertibles into common stocks of the same company.
These are sometimes referred to as "convertible swaps" and were made
to increase upside equity participation. We sold our USX-U.S. Steel
Group convertible trust preferred, which had a large conversion
premium, and purchased its common stock. USX is the nations' largest
steel manufacturer. Likewise, we swapped our Diamond Offshore
Drilling, Inc. convertible bonds for common stock because we saw
little further downside and substantial opportunity in the equity of
this leading offshore oil and gas driller. The USX and Diamond
Offshore trades allowed us to take advantage of very low prices in
resource companies, which we anticipate will lead to substantial
profits over the next one to two years. Finally, we sold several
issues in light of deteriorating fundamentals. Oil service
shipbuilder Halter Marine Group, Inc.'s weak outlook prompted us to
sell its convertible bond. We sold Assisted Living Concepts Inc.'s
convertible debentures following a restatement of previous earnings
reports that prompted the cancellation of its merger with American
Retirement Corporation.
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
In Conclusion
Looking ahead, stock market multiples and poor internal conditions
give us reason to be cautious in the near term. In our opinion,
convertibles are a way to mitigate these risks somewhat. Merrill
Lynch Convertible Fund, Inc. combines numerous value investments
with conservatively structured convertibles of higher-growth
companies. Furthermore, we believe that convertible securities,
which generally offer an attractive risk/reward tradeoff, are a
particularly compelling asset class in a volatile, unpredictable
market.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Daniel Luchansky)
Daniel Luchansky
Vice President and Portfolio Manager
April 9, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Convertible Fund,
Inc.'s Board of Directors. We are pleased to announce that Terry K.
Glenn has been elected President and Director of the Fund. Mr. Glenn
has held the position of Executive Vice President of MLAM since
1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
James H. Bodurtha, Director
Herbert I. London, Director
Robert R. Martin, Director
Joseph L. May, Director
Andre F. Perold, Director
Arthur Zeikel, Director
Vincent T. Lathbury III, Senior Vice President
Joseph T. Monagle Jr., Senior Vice President
Daniel A. Luchansky, Vice President
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
Chase MetroTech Center
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Gerald M. Richard, Treasurer of Merrill Lynch Convertible Fund, Inc.
has recently retired. His colleagues at Merrill Lynch Asset
Management, L.P. join the Fund's Board of Directors in wishing Mr.
Richard well in his retirement.
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
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 "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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 12/31/98 -5.66% -10.61%
Five Years Ended 12/31/98 +6.37 + 5.22
Ten Years Ended 12/31/98 +8.81 + 8.23
[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.
% Return Without % Return With
Sales CDSC Sales CDSC**
Class B Shares*
Year Ended 12/31/98 -6.42% -10.02%
Inception (8/04/97)
through 12/31/98 -1.52 - 2.91
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/98 -6.43% -7.33%
Inception (8/04/97)
through 12/31/98 -1.50 -1.50
[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*
Year Ended 12/31/98 -5.64% -10.59%
Inception (8/04/97)
through 12/31/98 -0.72 - 4.45
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
PERFORMANCE DATA (concluded)
<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++ -12.04% -3.37% +107.93%
ML Convertible Fund, Inc. Class B Shares -12.70 -3.59 - 5.99
ML Convertible Fund, Inc. Class C Shares -12.79 -3.69 - 6.03
ML Convertible Fund, Inc. Class D Shares -11.95 -3.43 - 4.82
<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 periods are Class A Shares, for the ten
years ended 2/28/99 and Class B, Class C & Class D Shares, from
8/04/97 to 2/28/99.
++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>
PORTFOLIO INFORMATION
As of February 28, 1999
Percent of
Ten Largest Holdings Net Assets
Bell Atlantic Financial Services Inc.* 5.3%
Kmart Financing I, 7.75% 4.0
Home Depot Inc., 3.25% due 10/01/2001 3.7
Genzyme Corp., 5.25% due 6/01/2005 3.6
Magna International Inc., 4.875% due
2/15/2005 3.5
Fleetwood Capital Trust, 6%* 3.5
Union Pacific Capital Trust, 6.25% 3.5
U.S. Filter Corp., 4.50% due 12/15/2001 3.2
WHX Corporation, Series A, 6.50% 3.2
Tower Automotive, Inc.* 3.1
[FN]
*Includes combined holdings.
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Automotive A- Baa1 US$ 2,500,000 Magna International Inc., 4.875% due
Parts--6.6% 2/15/2005 $ 2,517,500 $ 2,484,375
Tower Automotive, Inc.:
B+ NR* 1,500,000 5% due 8/01/2004 1,596,000 1,432,500
B+ NR* 750,000 5% due 8/01/2004 (c) 750,000 716,250
------------ ------------
4,863,500 4,633,125
Aviation Kellstrom Industries Inc.:
Equipment--1.7% B- B3 1,000,000 5.75% due 10/15/2002 (c) 1,000,000 831,250
B- B3 500,000 5.50% due 6/15/2003 500,000 395,000
------------ ------------
1,500,000 1,226,250
Banking & NR* NR* 1,100,000 BankAtlantic Bancorp, Inc., 5.625% due
Financial--1.3% 12/01/2007 1,032,175 888,250
Conglomerates NR* NR* 600,000 ++Polyphase Corporation, 12% due
- --0.2% 7/01/1999 (e)** 600,000 144,000
Electronics NR* NR* YEN 50,000,000 Matsushita Electric Industrial Company,
- --2.0% Ltd., 1.30% due 3/29/2002 513,387 543,753
NR* NR* 30,000,000 Sony Corporation, 1.40% due 9/30/2003 361,652 429,691
NR* NR* 30,000,000 Tokyo Electron Ltd., 0.90% due 9/30/2003 343,548 435,002
------------ ------------
1,218,587 1,408,446
Energy--1.4% BBB Ba1 US$ 1,000,000 Pennzenergy Company, 4.95% due 8/15/2008 980,000 971,250
Environmental A- Baa3 1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 (c) 775,000 853,750
- --1.2%
Food & NR* NR* YEN 14,000,000 Sanyo Coca-Cola Bottling Co., 0.90% due
Beverage--0.3% 6/30/2003 146,267 184,117
Healthcare BBB- Ba2 US$ 1,250,000 HEALTHSOUTH Corporation, 3.25% due
Services--2.1% 4/01/2003 1,182,500 1,050,000
B- B3 500,000 Integrated Health Services, Inc., 5.75%
due 1/01/2001 510,390 406,875
------------ ------------
1,692,890 1,456,875
Home Builders-- BBB- Ba1 2,500,000 Lennar Corp., 4.276% due 7/29/2018 (b) 1,099,253 1,087,500
1.5%
Home A- Baa1 1,450,000 Newell Financial Trust I, 5.25% due
Furnishings--2.1% 12/01/2027 (Preferred) 1,571,924 1,485,767
Internet NR* Caa3 1,200,000 Amazon.com Inc., 4.75% due 2/01/2009 (c) 1,200,000 1,212,000
Retailing--1.7%
Lodging--1.4% BBB Baa2 1,000,000 Hilton Hotels Corp., 5% due 5/15/2006 987,500 978,750
Medical NR* NR* 550,000 ++Phoenix Shannon PLC, 9.50% due 11/01/2000 (c) 216,707 5,500
Supplies--0.0%
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
S&P Moody's Face Value
Industry Rating Rating Amount Convertible Debentures Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Paper--2.6% NR* NR* US$ 2,000,000 Metsa Serla Oyj, 4.375% due 10/15/2002 $ 1,973,425 $ 1,820,000
Pharmaceuticals NR* NR* 1,900,000 Genzyme Corp., 5.25% due 6/01/2005 (c) 1,843,750 2,505,625
- --5.5% NR* NR* 1,200,000 Swiss Life Finance Ltd. (Convertible
into Glaxo Wellcome PLC), 2% due 5/20/2003 1,272,750 1,353,000
------------ ------------
3,116,500 3,858,625
Restaurants-- NR* B2 1,000,000 Hometown Buffet Inc., 7% due 12/01/2002 967,500 1,021,250
1.5%
Retail--Building A+ A1 1,000,000 Home Depot Inc., 3.25% due 10/01/2001 1,004,687 2,590,000
Materials--3.7%
Scientific NR* NR* 500,000 ThermoQuest Corporation, 5% due 8/15/2000 (c) 507,500 477,500
Equipment--1.4% A- Baa3 500,000 Thermo Optek Inc., 5% due 10/15/2000 (c) 517,500 478,125
------------ ------------
1,025,000 955,625
Technology--2.3% Data General Corp.:
B B3 1,250,000 6% due 5/15/2004 1,205,000 1,146,875
B B3 500,000 6% due 5/15/2004 (c) 500,000 434,375
------------ ------------
1,705,000 1,581,250
Telecommun- Bell Atlantic Financial Services Inc.:
ications--5.3% A+ A1 1,000,000 5.75% due 4/01/2003 1,012,500 1,065,000
NR* NR* 2,400,000 4.25% due 9/15/2005 2,445,500 2,670,000
------------ ------------
3,458,000 3,735,000
Water Treatment BBB- Ba3 2,350,000 U.S. Filter Corp., 4.50% due 12/15/2001 2,386,000 2,273,625
Systems--3.2%
Total Convertible Debentures--49.0% 33,519,915 34,370,955
Shares
Held Convertible Preferred Stocks
Banking & NR* A1 10,000 Jefferson Pilot Corp. (ACESSM)(into
Financial--1.6% NATIONSBANK), 7.25% (d) 725,000 1,100,000
Construction & BBB- Baa3 30,000 Fleetwood Capital Trust, 6% 1,305,000 1,353,750
Housing--3.5% BBB- Baa3 25,000 Fleetwood Capital Trust, 6% (c) 1,260,625 1,128,125
------------ ------------
2,565,625 2,481,875
Containers--1.1% B+ Ba3 20,000 Owens-Illinois Inc., 4.75% 1,000,000 777,500
Energy--3.9% BB Ba2 20,000 CalEnergy Capital Trust II, 6.25% (c) 1,000,000 877,500
BBB- Baa2 40,000 Unocal Capital Trust, 6.25% 2,136,250 1,875,000
------------ ------------
3,136,250 2,752,500
Oil & Gas BB+ Ba1 10,000 Occidental Petroleum Corp., $3.00 580,600 440,000
Producers--0.6%
Paper--2.7% BBB- Baal 40,000 International Paper Capital Trust, 5.25% (e) 1,902,000 1,930,000
Railroads--3.5% BB+ Ba2 51,000 Union Pacific Capital Trust, 6.25% 2,386,812 2,422,500
Real Estate NR* Baa1 45,000 Equity Residential Properties, Series J, $2.15 1,207,854 1,181,250
Investment
Trusts--1.7%
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
S&P Moody's Shares Value
Industry Rating Rating Held Convertible Preferred Stocks Cost (Note 1a)
<S> <S> <S> <C> <S> <C> <C>
Restaurants-- BBB- Baa2 20,000 Wendy's Financing I, Series A, 5% $ 1,044,750 $ 1,090,000
1.6%
Retail--4.0% BB B1 44,500 Kmart Financing I, 7.75% 2,417,045 2,803,500
Steel--4.3% B- Caa 60,000 WHX Corporation, Series A, 6.50% 2,584,540 2,246,250
A- A3 78,610 Worthington Industries, Inc. (Convertible,
Series DECS into Rouge Steel Common
Stock), 7.25% 1,328,902 746,795
------------ ------------
3,913,442 2,993,045
Utilities--1.1% A A2 20,000 Citizens Utilities Trust, 5% 886,200 790,000
Total Convertible Preferred Stocks--29.6% 21,765,578 20,762,170
Common Stocks & Warrants
Airlines--0.0% 18 ++Continental Airlines, Inc. (Class B) 678 623
Analytical Equipment 70,000 ++Thermo Electron Corporation 1,124,168 966,875
Manufacturing--1.4%
Building & Construction--1.1% 81,700 Morrison Knudsen Corporation 998,337 791,469
Building Products--0.5% 15,000 Texas Industries, Inc. 380,300 369,375
Computers--1.4% 60,000 ++Silicon Graphics, Inc. 965,558 956,250
Conglomerates--0.0% 105,000 Polyphase Corporation (c)** 158,550 11,550
52,500 Polyphase Corporation (Warrants)(a)** 13,125 525
52,500 Polyphase Corporation (Warrants)(a)** 26,250 2,100
------------ ------------
197,925 14,175
Consumer & Business Services--1.3% 55,000 ++Cendant Corporation 1,141,856 910,937
Consumer Products--1.4% 35,000 RJR Nabisco Holdings Corp. 1,142,475 955,938
Healthcare Services--1.0% 60,000 ++HEALTHSOUTH Corporation 658,699 697,500
Machinery--1.0% 35,000 Case Corporation 860,183 682,500
Mining--1.3% 37,000 Cyprus Amax Minerals Company 625,776 416,250
40,000 Inco Limited 739,218 505,000
------------ ------------
1,364,994 921,250
Networking Products--1.1% 25,000 ++3Com Corporation 1,195,894 785,938
Oil & Gas Producers--1.3% 44,000 Diamond Offshore Drilling, Inc. 1,086,268 910,250
Real Estate Investment Trusts--1.2% 41,700 Crescent Real Estate Equities Company 936,782 870,488
Semiconductors--1.2% 32,500 ++Cypress Semiconductor Corporation 452,262 310,781
85,000 ++Integrated Device Technology, Inc. 776,940 547,188
------------ ------------
1,229,202 857,969
Steel--1.7% 20,000 AK Steel Holding Corporation 300,775 436,250
30,000 USX-U.S. Steel Group 709,974 759,375
------------ ------------
1,010,749 1,195,625
Utilities--0.2% 14,624 ++Citizens Utilities Company (Class B) 130,447 111,510
Total Common Stocks & Warrants--17.1% 14,424,515 11,998,672
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Face Value
Amount Short-Term Securities Cost (Note 1a)
<S> <C> <S> <C> <C>
Commercial US$ 1,119,000 General Electric Capital Corp., 4.875% due
Paper***--1.6% 3/01/1999 $ 1,118,697 $ 1,118,697
Total Short-Term Securities--1.6% 1,118,697 1,118,697
Total Investments--97.3% $ 70,828,705 68,250,494
============
Short Sales (Proceeds--$22,577)--0.0%** (2,063)
Other Assets Less Liabilities--2.7% 1,907,942
------------
Net Assets--100.0% $ 70,156,373
============
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
(b)Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the Fund.
(c)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(d)Adjustable Convertible Extendable Securities.
(e)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $2,074,000,
representing 3.0% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
International Paper
Capital Trust, 5.25% 1/16/1997 $ 1,902,000 $ 1,930,000
Polyphase Corporation,
12% due 7/01/1999 7/05/1994 600,000 144,000
Total $ 2,502,000 $ 2,074,000
============= =============
++Non-income producing security.
*Not Rated.
**Covered short sales entered into as of February 28, 1999 were as
follows:
Value
Shares Issue (Notes 1a & 1h)
5,500 Polyphase Corporation $ (2,063)
Total (Proceeds--$22,577) $ (2,063)
============
***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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of February 28, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$70,828,705) (Note 1a) $ 68,250,494
Cash 510
Foreign cash (Note 1c) 2,284
Receivables:
Securities sold $ 3,175,453
Interest 374,940
Dividends 83,197
Capital shares sold 27,243 3,660,833
-------------
Prepaid registration fees and other assets (Note 1f) 24,121
-------------
Total assets 71,938,242
-------------
Liabilities: Common stock sold short, at market value (proceeds--$22,577)
(Notes 1a & 1h) 2,063
Deposits on short sales (Note 1h) 1,263,787
Payables:
Capital shares redeemed 315,816
Investment adviser (Note 2) 33,909
Distributor (Note 2) 19,624 369,349
-------------
Accrued expenses and other liabilities 146,670
-------------
Total liabilities 1,781,869
-------------
Net Assets: Net assets $ 70,156,373
=============
Net Assets Class A Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $ 381,156
Class B Common Stock, $0.10 par value, 100,000,000 shares
authorized 168,618
Class C Common Stock, $0.10 par value, 100,000,000 shares
authorized 39,392
Class D Common Stock, $0.10 par value, 100,000,000 shares
authorized 48,531
Paid-in capital in excess of par 78,735,941
Undistributed investment income--net 432,612
Accumulated realized capital losses on investments and foreign
currency transactions--net (6,588,153)
Accumulated distributions in excess of realized capital gains
on investments and foreign currency transactions--net (Note 1g) (503,861)
Unrealized depreciation on investments and foreign currency
transactions--net (2,557,863)
-------------
Net assets $ 70,156,373
=============
Net Asset Value: Class A--Based on net assets of $41,931,904 and 3,811,564 shares
outstanding $ 11.00
=============
Class B--Based on net assets of $18,541,344 and 1,686,176 shares
outstanding $ 11.00
=============
Class C--Based on net assets of $4,329,901 and 393,915 shares
outstanding $ 10.99
=============
Class D--Based on net assets of $5,353,224 and 485,310 shares
outstanding $ 11.03
=============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended February 28, 1999
<S> <S> <C> <C>
Investment Interest and discount earned (net of $596 foreign withholding tax) $ 1,470,679
Income Dividends (net of $150 foreign withholding tax) 856,480
(Notes 1d & 1e): -------------
Total income 2,327,159
-------------
Expenses: Investment advisory fees (Note 2) $ 241,285
Account maintenance and distribution fees--Class B (Note 2) 108,750
Printing and shareholder reports 46,698
Transfer agent fees--Class A (Note 2) 39,744
Accounting services (Note 2) 37,663
Registration fees (Note 1f) 34,786
Interest on securities sold short 33,700
Professional fees 32,704
Account maintenance and distribution fees--Class C (Note 2) 24,283
Directors' fees and expenses 23,229
Transfer agent fees--Class B (Note 2) 21,015
Custodian fees 9,953
Account maintenance fees--Class D (Note 2) 7,992
Dividends on securities sold short 7,063
Transfer agent fees--Class D (Note 2) 5,306
Transfer agent fees--Class C (Note 2) 4,666
Pricing services 2,270
Other 2,304
-------------
Total expenses 683,411
-------------
Investment income--net 1,643,748
-------------
Realized & Realized loss from:
Unrealized Gain Investments--net (6,548,940)
(Loss) on Foreign currency transactions--net (185) (6,549,125)
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 5,059,947
(Notes 1b, 1c, Foreign currency transactions--net (265) 5,059,682
1e & 3): ------------- -------------
Net realized and unrealized loss on investments and foreign
currency transactions (1,489,443)
-------------
Net Increase in Net Assets Resulting from Operations $ 154,305
=============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
February 28, August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 1,643,748 $ 4,015,489
Realized gain (loss) on investments and foreign currency
transactions--net (6,549,125) 639,963
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 5,059,682 (12,657,568)
------------- -------------
Net increase (decrease) in net assets resulting from
operations 154,305 (8,002,116)
------------- -------------
Dividends & Investment income--net:
Distributions to Class A (2,370,033) (1,935,219)
Shareholders Class B (864,529) (157,651)
(Note 1g): Class C (196,497) (24,527)
Class D (290,742) (32,775)
Realized gain on investments--net:
Class A (23,132) (27,880,328)
Class B (10,558) (924,500)
Class C (2,358) (145,575)
Class D (2,980) (179,577)
In excess of realized gain on investments--net:
Class A -- (458,015)
Class B -- (15,188)
Class C -- (2,391)
Class D -- (2,950)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (3,760,829) (31,758,696)
------------- -------------
Capital Share Net decrease in net assets from capital share transactions (14,771,184) (14,230,110)
Transactions Proceeds from issuance of Common Stock resulting from
(Note 4): reorganization -- 24,580,592
Offering costs from issuance of Common Stock resulting from
reorganization -- (371,604)
------------- -------------
Net increase (decrease) in net assets derived from
capital share transactions (14,771,184) 9,978,878
------------- -------------
Net Assets: Total decrease in net assets (18,377,708) (29,781,934)
Beginning of period 88,534,081 118,316,015
------------- -------------
End of period* $ 70,156,373 $ 88,534,081
============= =============
<FN>
*Undistributed investment income--net $ 432,612 $ 2,510,665
============= =============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A++++++++
The following per share data and ratios have For the Six For the For the
been derived from information provided in the Months Year Period
financial statements. Ended Ended Jan. 1, 1997
Feb. 28, Aug. 31, to Aug. 31, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1999+++ 1998+++ 1997+++ 1996+++ 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of period $ 11.59 $ 17.36 $ 15.57 $ 13.43 $ 11.13 $ 13.21
Performance++++: --------- --------- --------- --------- --------- --------
Investment income--net .25 .60 .06 -- -- --
Realized and unrealized gain
(loss) on investments and
foreign currency transactions
--net (.26) (1.37) 1.75 2.78 2.66 (2.12)
--------- --------- --------- --------- --------- --------
Total from investment
operations (.01) (.77) 1.81 2.78 2.66 (2.12)
--------- --------- --------- --------- --------- --------
Less dividends and distributions:
Investment income--net (.57) (.32) -- -- -- --
Realized gain on investments--
net (.01) (4.55) -- (.64) (.36) (.01)
In excess of realized gain
on investments--net -- (.07) -- -- -- --
--------- --------- --------- --------- --------- --------
Total dividends and
distributions (.58) (4.94) -- (.64) (.36) (.01)
--------- --------- --------- --------- --------- --------
Capital charge resulting from
issuance of Common Stock -- (.06) -- -- -- --
--------- --------- --------- --------- --------- --------
Effect of repurchase of
Treasury Stock -- -- -- -- --++ .05
--------- --------- --------- --------- --------- --------
Capital charge resulting from
issuance of new classes of
shares -- --++ (.02) -- -- --
--------- --------- --------- --------- --------- --------
Net asset value, end of
period $ 11.00 $ 11.59 $ 17.36 $ 15.57 $ 13.43 $ 11.13
========= ========= ========= ========= ========= =========
Total Investment Based on net asset value
Return:** per share (.21%)+++++ (7.03%) 11.50%+++++ 20.60% 24.44% (15.68%)
========= ========= ========= ========= ========= =========
Ratios to Average Expenses*** 1.34%* 1.29% .90%* .78% .79% .87%
Net Assets: ========= ========= ========= ========= ========= =========
Investment income--net 4.44%* 4.48% 4.76* 4.98% 5.40% 5.43%
========= ========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 41,932 $ 52,425 $110,178 $ 289,993 $ 265,127 $ 238,466
========= ========= ========= ========= ========= =========
Portfolio turnover 53.11% 155.20% 92.86% 129.06% 87.69% 69.37%
========= ========= ========= ========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
Performance results prior to August 4, 1997 are for when the Fund
was a dual-structure closed-end management investment company and
include only the returns for the Capital Shares but exclude results
from the Income Shares.
***Excluding taxes on undistributed net realized long-term capital
gains for years prior to the period January 1, 1997 to August 31,
1997.
++Amount is less than $.01 per share.
++++Excludes the effect of per share operating performance of the
Fund's Income Shares, which were redeemed on July 31, 1997. Per
share operating performance prior to the period January 1, 1997 to
August 1, 1997 reflects when the Fund was a dual-structure closed-
end management investment company. For the period January 1, 1997 to
July 31, 1997, investment income--net per Income Share was $0.73 and
dividends of investment income--net per Income Share were $0.70.
+++Based on average shares outstanding.
+++++Aggregate total investment return.
++++++++Formerly Capital Shares.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B+++++
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
from information provided in the financial statements. Ended Ended Aug. 4, 1997++
Feb. 28, Aug. 31, to Aug. 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.53 $ 17.35 $ 16.91
Operating --------- --------- ---------
Performance: Investment income--net .19 .44 .05
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net (.25) (1.34) .39
--------- --------- ---------
Total from investment operations (.06) (.90) .44
--------- --------- ---------
Less dividends and distributions:
Investment income--net (.46) (.28) --
Realized gain on investments--net (.01) (4.55) --
In excess of realized gain on investments--net -- (.07) --
--------- --------- ---------
Total dividends and distributions (.47) (4.90) --
--------- --------- ---------
Capital charge resulting from issuance of Common Stock -- (.02) --
--------- --------- ---------
Net asset value, end of period $ 11.00 $ 11.53 $ 17.35
========= ========= =========
Total Investment Based on net asset value per share (.67%)+++ (7.76%) 2.60%+++
Return:** ========= ========= =========
Ratios to Average Expenses 2.37%* 2.35% 2.66%*
Net Assets: ========= ========= =========
Investment income--net 3.42%* 3.31% 3.77%*
========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 18,541 $ 23,900 $ 5,759
Data: ========= ========= =========
Portfolio turnover 53.11% 155.20% 92.86%
========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C+++++
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
from information provided in the financial statements. Ended Ended Aug. 4, 1997++
Feb. 28, Aug. 31, to Aug. 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.54 $ 17.36 $ 16.91
Operating --------- --------- ---------
Performance: Investment income--net .19 .44 .05
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net (.26) (1.34) .40
--------- --------- ---------
Total from investment operations (.07) (.90) .45
--------- --------- ---------
Less dividends and distributions:
Investment income--net (.47) (.28) --
Realized gain on investments--net (.01) (4.55) --
In excess of realized gain on investments--net -- (.07) --
--------- --------- ---------
Total dividends and distributions (.48) (4.90) --
--------- --------- ---------
Capital charge resulting from issuance of Common Stock -- (.02) --
--------- --------- ---------
Net asset value, end of period $ 10.99 $ 11.54 $ 17.36
========= ========= =========
Total Investment Based on net asset value per share (.77%)+++ (7.76%) 2.66%+++
Return:** ========= ========= =========
Ratios to Average Expenses 2.37%* 2.36% 2.74%*
Net Assets: ========= ========= =========
Investment income--net 3.40%* 3.34% 3.58%*
========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 4,330 $ 5,138 $ 1,014
Data: ========= ========= =========
Portfolio turnover 53.11% 155.20% 92.86%
========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D+++++
For the For the For the
The following per share data and ratios have been derived Six Months Year Period
from information provided in the financial statements. Ended Ended Aug. 4, 1997++
Feb. 28, Aug. 31, to Aug. 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.61 $ 17.36 $ 16.91
Operating --------- --------- ---------
Performance: Investment income--net .24 .54 .07
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net (.26) (1.34) .38
--------- --------- ---------
Total from investment operations (.02) (.80) .45
--------- --------- ---------
Less dividends and distributions:
Investment income--net (.55) (.31) --
Realized gain on investments--net (.01) (4.55) --
In excess of realized gain on investments--net -- (.07) --
--------- --------- ---------
Total dividends and distributions (.56) (4.93) --
--------- --------- ---------
Capital charge resulting from issuance of Common Stock -- (.02) --
--------- --------- ---------
Net asset value, end of period $ 11.03 $ 11.61 $ 17.36
========= ========= =========
Total Investment Based on net asset value per share (.35%)+++ (6.96%) 2.66%+++
Return:** ========= ========= =========
Ratios to Average Expenses 1.59%* 1.59% 1.92%*
Net Assets: ========= ========= =========
Investment income--net 4.20%* 4.02% 4.81%*
========= ========= =========
Supplemental Net assets, end of period (in thousands) $ 5,353 $ 7,071 $ 1,365
Data: ========= ========= =========
Portfolio turnover 53.11% 155.20% 92.86%
========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Convertible Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The Fund's financial statements
are prepared in accordance with generally accepted accounting
principles which may require the use of management accruals and
estimates. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature. 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 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 which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written 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, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not readily available are valued at their fair value
as determined in good faith by or under the direction of the Fund's
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Financial futures contracts--The Fund may purchase or sell
financial futures and options on such futures contracts for the
purpose of hedging the market risk on existing securities or the
intended purchase of securities. Futures contracts are contracts for
delayed delivery of securities at a specific future date and at a
specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
* Options--The Fund is authorized to write and purchase call and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current market value of the option
written.
When a security is purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts.
* Foreign currency options and futures--The Fund is also authorized
to purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign
currency futures as a short or long hedge against possible
variations in foreign exchange rates. Such transactions may be
effected with respect to hedges on non-US dollar denominated
securities owned by the Fund, sold by the Fund but not yet
delivered, or committed or anticipated to be purchased by the Fund.
(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 substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on interest, dividends and capital
gains at various rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends from net investment
income are declared and paid quarterly. Distributions of capital
gains are recorded on the ex-dividend dates. Distributions in excess
of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
(h) Short sales--When the Fund engages in a short sale, an amount
equal to the proceeds 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 market value of the
short sale. The Fund maintains a segregated account of securities as
collateral for the short sales. The Fund is exposed to market risk
based on the amount, if any, that the market value of the stock
exceeds the market value of the securities in the segregated
account.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM 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 Distibution
Agreement and Distribution Plans with Merrill Lynch Fund Distributor
("MLFD" or the "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM 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 at the annual rate of 0.60% of
the average daily net assets of the Fund.
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 0.25% 0.75%
Class C 0.25 0.75
Class D 0.25 --
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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 six months ended February 28, 1999, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $107 $ 85
Class D $ 64 $880
For the six months ended February 28, 1999, MLPF&S received
contingent deferred sales charges of $23,513 and $2,140 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $310 in commissions on the execution of
portfolio security transactions for the Fund for the six months
ended February 28, 1999.
During the six months ended February 28, 1999, the Fund paid Merrill
Lynch Security Pricing Service, an affiliate of MLPF&S, $214 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 MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended February 28, 1999 were $40,789,816 and
$51,596,113, respectively.
Net realized losses for the six months ended February 28, 1999 and
net unrealized gains (losses) as of February 28, 1999 were as
follows:
Realized Unrealized
Losses Gains (Losses)
Long-term investments $ (5,737,081) $ (2,578,211)
Short-term investments (672) --
Short sales (811,187) 20,514
Foreign currency
transactions (185) (166)
------------ ------------
Total $ (6,549,125) $ (2,557,863)
============ ============
As of February 28, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $2,578,211, of which $4,080,665
related to appreciated securities and $6,658,876 related to
depreciated securities. The aggregate cost of investments at
February 28, 1999 for Federal income tax purposes was $70,828,705.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(14,771,184) and $9,978,878 for the six months
ended February 28, 1999 and for the year ended August 31, 1998,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 59,877 $ 700,266
Shares issued to shareholders
in reinvestment of dividends
and distributions 76,470 861,818
------------ ------------
Total issued 136,347 1,562,084
Shares redeemed (847,053) (9,819,179)
------------ ------------
Net decrease (710,706) $ (8,257,095)
============ ============
Class A Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 270,139 $ 3,520,626
Shares issued to shareholders
in reinvestment of dividends
and distributions 810,769 10,502,647
Shares issued resulting from
reorganization 237,740 2,970,678
------------ ------------
Total issued 1,318,648 16,993,951
Shares redeemed (3,142,799) (41,731,802)
------------ ------------
Net decrease (1,824,151) $(24,737,851)
============ ============
Merrill Lynch Convertible Fund, Inc.
February 28, 1999
Class B Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 60,711 $ 700,062
Shares issued to shareholders
in reinvestment of dividends
and distributions 57,165 644,825
------------ ------------
Total issued 117,876 1,344,887
Automatic conversion of shares (23,187) (270,922)
Shares redeemed (481,088) (5,534,201)
------------ ------------
Net decrease (386,399) $ (4,460,236)
============ ============
Class B Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 1,051,524 $ 13,706,977
Shares issued to shareholders
in reinvestment of dividends
and distributions 76,312 984,129
Shares issued resulting from
reorganization 1,064,812 14,537,285
------------ ------------
Total issued 2,192,648 29,228,391
Automatic conversion of shares (8,227) (103,231)
Shares redeemed (443,710) (6,457,825)
------------ ------------
Net increase 1,740,711 $ 22,667,335
============ ============
Class C Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 18,398 $ 211,708
Shares issued to shareholders
in reinvestment of dividends
and distributions 11,962 134,928
------------ ------------
Total issued 30,360 346,636
Shares redeemed (81,899) (945,926)
------------ ------------
Net decrease (51,539) $ (599,290)
============ ============
Class C Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 376,135 $ 5,016,545
Shares issued to shareholders
in reinvestment of dividends
and distributions 11,912 153,615
Shares issued resulting from
reorganization 71,543 970,911
------------ ------------
Total issued 459,590 6,141,071
Shares redeemed (72,548) (1,099,949)
------------ ------------
Net increase 387,042 $ 5,041,122
============ ============
Class D Shares for the Six Months Dollar
Ended February 28, 1999 Shares Amount
Shares sold 8,385 $ 73,472
Automatic conversion of
shares 21,136 270,922
Shares issued to shareholders
in reinvestment of dividends
and distributions 20,042 226,469
------------ ------------
Total issued 49,563 570,863
Shares redeemed (173,360) (2,025,426)
------------ ------------
Net decrease (123,797) $ (1,454,563)
============ ============
Class D Shares for the Year Dollar
Ended August 31, 1998 Shares Amount
Shares sold 222,720 $ 2,911,763
Automatic conversion of
shares 8,184 103,231
Shares issued to shareholders
in reinvestment of dividends
and distributions 13,888 179,305
Shares issued resulting from
reorganization 417,921 5,730,114
------------ ------------
Total issued 662,713 8,924,413
Shares redeemed (132,230) (1,916,141)
------------ ------------
Net increase 530,483 $ 7,008,272
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