MERRILL LYNCH
CONVERTIBLE
FUND, INC.
FUND LOGO
Annual Report
August 31, 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 fiscal year ended August 31, 1999 was a good one for Merrill
Lynch Convertible Fund, Inc. For the 12 months ended August 31,
1999, total returns for Merrill Lynch Convertible Fund, Inc.'s Class
A, Class B, Class C and Class D Shares were +8.54%, +7.36%, +7.34%
and +8.22%, respectively.
This year, firmer equity prices and a stronger economic environment
provided a positive backdrop for the convertible market. This was in
stark contrast to last year when the Asian currency crises and the
Russian government's default on its debt obligations negatively
impacted equities, credit quality spreads, and, consequently,
convertible securities. Long-term interest rates declined from 5.29%
early in the period to a low of 4.71% at the height of the crisis.
Thereafter, as the panic subsided and the global economic
environment improved, long-term interest rates began rising. By
August 31, 1999, long-term interest rates were over 6%, having
briefly hit 6.26% in early August. This created somewhat of a
headwind for convertible issues given the fixed-income attributes of
these hybrid securities. Nonetheless, Merrill Lynch Convertible
Fund, Inc. had positive returns, reversing last year's loss.
Fiscal Year in Review
The turnaround in Fund performance was the result of many factors.
These included improved equity market conditions, our industry
sector allocation as well as security selection. For example, our
emphasis on the energy sector, our largest industry representation,
penalized us last year, but benefited the Fund this year. Energy
issues that aided our performance this year were our Devon Energy
Corporation debentures exchangeable into Chevron Corp., Diamond
Offshore Drilling, Inc. common stock and Unocal Capital Trust
convertible preferred. As we mentioned in last year's annual report
to shareholders, we believed this group represented a compelling
long-term value, since share prices were depressed by warm weather,
low oil prices and reduced demand from Asia. While the Organization
of Petroleum Exporting Countries' agreement to cut oil production
was unexpected, we believed the negative investor sentiment was
overdone and this created a buying opportunity.
Similarly, the semiconductor group and contract electronic
manufacturers, in which we have heavy exposure, also showed a
reversal from severe under-valuation last year. Cypress
Semiconductor Corporation common stock more than doubled in price
and Integrated Device Technology, Inc. stock quadrupled. Other
strong performers in this industry were our convertible bonds of LSI
Logic Corporation (sold during the August quarter), Micron
Technology Inc. and Sanmina Corporation. Several factors contributed
to the industry's turnaround. There was a reduction of Asian dumping
of integrated circuits following a rebound of the Pacific Rim
economies. Another contributing factor was a boom in the
communications market and strong personal computer sales fueled by
the Internet's growing popularity. As a result, integrated circuit
prices firmed, leading to higher stock prices. While our exposure to
the Internet sector was modest, the sector benefited the Fund as its
popularity spread. DoubleClick, Inc. and Amazon.com, Inc.
convertible debentures were strong performers (both sold during the
period). The pharmaceutical and biotech sector also benefited
performance this year. In this sector, Alza Corporation (since
sold), Genzyme Corp.- General Division and Alpharma Inc. were
standouts.
Our holdings in the mining sector benefited the Fund as a better
supply/demand relationship for nickel and improving economic
conditions worldwide manifested themselves in higher equity prices.
Here Inco Limited and Cyprus Amax Minerals Company were the strong
performers. The performance of our steel holdings was mixed. This
sector is now showing signs of a potential upturn, in our view.
While the performance of our holdings in the auto parts companies
was disappointing and that of our holdings in the pulp and paper
sector was unremarkable, we are optimistic about the future of these
companies. The combined effects of industry consolidation and
resultant capacity rationalization with improved economic conditions
in 1999 are leading to a better operating environment. This
improvement, in conjunction with depressed valuations accorded the
equity prices, may make these rewarding sectors in coming years.
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
During the last three months of the fiscal year ended August 31,
1999, we made several transactions. In June, we made two investments
in telecommunications. The first was in the newly issued convertible
bond of Telefonos de Mexico SA. This security represented perhaps
the best corporate credit in Latin America and a good vehicle for
profiting from the rapid expansion of telecommunications in Mexico.
We also bought At Home Corporation's convertible bond because, in
our view, it offered excellent exposure to the broadband Internet
service provider's growth. We sold our investment in the convertible
bonds of aircraft parts inventory company Kellstrom Industries Inc.
in July and August. This was because the firm retreated from its
growth strategy.
We believe that we have pursued a conservative investment approach
in the face of high valuations in some sectors of the equity
markets. Because it is very difficult to predict the direction of
the broader markets, we make little effort to do so. Instead, our
principal focus remains finding good investments issue by issue. The
nature of the convertibles helps us manage risk. We expect this
approach to deliver good results in the long term.
In Conclusion
We appreciate your continued investment in Merrill Lynch Convertible
Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Daniel Luchansky)
Daniel Luchansky
Vice President and Portfolio Manager
October 6, 1999
Merrill Lynch Convertible Fund, Inc.
August 31, 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.
<TABLE>
Recent Performance Results*
<CAPTION>
Ten Years/
3 Month 12 Month Since Inception
As of August 31, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Convertible Fund, Inc. Class A Shares++ +2.77% +8.54% +97.44%
ML Convertible Fund, Inc. Class B Shares +2.41 +7.36 + 1.61
ML Convertible Fund, Inc. Class C Shares +2.49 +7.34 + 1.65
ML Convertible Fund, Inc. Class D Shares +2.70 +8.22 + 3.37
<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/since inception periods are ten years for Class A
Shares and from 8/04/97 for Class B, Class C & Class D Shares.
++Investment results for Class A Shares prior to August 4, 1997
reflect the performance of the Fund's Capital Shares when the Fund
was a closed-end, dual investment company. Results for this period
reflect only capital appreciation of the Fund's holdings, and do not
reflect income.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Value
Line Convertible Index. Beginning and ending values are:
8/89 8/99
ML Convertible Fund, Inc.++--
Class A Shares*++++++ $ 9,475 $18,709
Value Line Convertible Index++++ $10,000 $26,634
A line graph depicting the growth of an investment in the
Fund's Class B, Class C and Class D Shares compared to
growth of an investment in the Value Line Convertible Index.
Beginning and ending values are:
8/04/97*** 8/99
ML Convertible Fund, Inc.++--
Class B Shares** $10,000 $10,027
ML Convertible Fund, Inc.++--
Class C Shares** $10,000 $10,165
ML Convertible Fund, Inc.++--
Class D Shares** $ 9,475 $ 9,795
Value Line Convertible Index++++ $10,000 $10,477
[FN]
*Assuming maximum sales charge currently applicable to Class A
Shares, transaction costs and other operating expenses, including
advisory fees.
**Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
***Commencement of operations.
++ML Convertible Fund, Inc. primarily invests in a portfolio of
convertible debt securities, convertible preferred stocks and
synthetic convertible securities.
++++This unmanaged Index tracks the performance of all convertibles
(over 590 bonds and preferreds). The Index gives equal weight to
each issue and is calculated on a total return basis.
+++Performance results for Class A Shares prior to August 4, 1997
reflect the performance of the Fund's Capital Shares during the
period when the Fund was closed-end. Total return includes capital
appreciation/depreciation and income. Convertible Holdings, Inc.
(the predecessor fund) was a dual-structure closed-end fund. The
performance numbers referenced in the graph are for the Fund's
Capital Shares only. As a result, the results do not fully reflect
total historical performance since they do not include the
performance of the Fund's Income Shares. The average annual total
return of the Income Shares over the ten-year period ended July 31,
1997 (date of the conversion to open-end status) was +14.54%. The
cumulative ten-year Income Share total return over the same period
was +288.62%.
Past performance is not predictive of future performance.
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares++*
Year Ended 6/30/99 - 2.94% -8.04%
Five Years Ended 6/30/99 +10.52 +9.34
Ten Years Ended 6/30/99 + 8.18 +7.60
[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 % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 -3.88% -7.56%
Inception (8/04/97)
through 6/30/99 +1.83 +0.75
[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 6/30/99 -3.95% -4.87%
Inception (8/04/97)
through 6/30/99 +1.82 +1.82
[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 6/30/99 -3.08% -8.17%
Inception (8/04/97)
through 6/30/99 +2.65 -0.22
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PORTFOLIO INFORMATION
As of August 31, 1999
Percent of
Ten Largest Holdings Net Assets
Bell Atlantic Financial Services* 6.0%
Unocal Capital Trust, 6.25% 3.9
WHX Corporation, Series A, 6.50% 3.5
Fleetwood Capital Trust, 6%* 3.2
The Home Depot Inc., 3.25% due
10/01/2001 3.0
Diamond Offshore Drilling, Inc. 2.8
Union Pacific Capital Trust, 6.25% 2.5
Newell Financial Trust I, 5.25% due
12/01/2027 (Preferred) 2.4
International Paper Capital Trust, 5.25% 2.3
CalEnergy Capital Trust II, 6.25% 2.2
[FN]
*Includes combined holdings.
Merrill Lynch Convertible Fund, Inc.
August 31, 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>
Advertising-- NR* NR* US$1,125,000 Interpublic Group Company Inc., 1.87% due
1.7% 6/01/2006 (e) $ 939,718 $ 1,016,719
Automotive A- Baa1 1,000,000 Magna International Inc., 4.875% due
Parts--2.7% 2/15/2005 1,017,500 912,500
B+ B2 750,000 Tower Automotive, Inc., 5% due 8/01/2004 (e) 750,000 717,187
------------ ------------
1,767,500 1,629,687
Banking & NR* NR* 700,000 BankAtlantic Bancorp, Inc., 5.625% due
Financial--1.0% 12/01/2007 628,565 574,000
Electronics-- B+ NR* 750,000 Sanmina Corporation, 4.25% due 5/01/2004 750,000 819,375
1.4%
Energy--1.7% BBB+ Baa2 1,000,000 Devon Energy Corporation, 4.95% due 8/15/2008 980,000 1,000,000
Environmental-- A- Baa3 1,000,000 Thermo Fibertek Inc., 4.50% due 7/15/2004 (e) 775,000 832,500
1.4%
Healthcare-- BBB Baa3 750,000 Wellpoint Health Network, 2% due 7/02/2019 (c) 505,375 487,500
0.8%
Home BBB+ A3 1,450,000 Newell Financial Trust I, 5.25% due
Furnishings--2.4% 12/01/2027 (Preferred) 1,571,924 1,430,969
Internet--0.2% B- B3 200,000 Mindspring Enterprises, 5% due 4/15/2006 200,000 143,000
Internet NR* NR* 750,000 At Home Corporation, 0.525% due 12/28/2018 (e) 547,242 461,250
Software--0.8%
Lodging--1.5% BBB- Baa3 1,000,000 Hilton Hotels Corp., 5% due 5/15/2006 987,500 865,000
Medical NR* NR* 550,000 ++Phoenix Shannon PLC, 9.50% due 11/01/2000 (e) 216,707 5,500
Supplies--0.0%
Networking NR* NR* 1,400,000 Network Associates Inc., 5.195% due
Products--0.7% 2/13/2018 (c) 543,694 427,000
Paper--1.7% NR* NR* 1,000,000 Metsa Serla Oyj (A Shares), 4.375% due
10/15/2002 931,925 987,500
Pharmaceuti- B NR* 375,000 Alpharma Inc., 3% due 6/01/2006 (e) 375,000 436,406
cals--4.0% NR* NR* 500,000 Genzyme Corp.-General Division, 5.25% due
6/01/2005 (e) 505,000 777,500
NR* NR* 1,200,000 Swiss Life Finance Ltd. (Convertible into
Glaxo Wellcome PLC), 2% due 5/20/2003 1,272,750 1,149,000
------------ ------------
2,152,750 2,362,906
Restaurants-- NR* B2 1,000,000 Hometown Buffet Inc., 7% due 12/01/2002 967,500 1,030,000
1.7%
Retail-- A+ A1 650,000 The Home Depot Inc., 3.25% due 10/01/2001 654,688 1,756,625
Building
Materials--3.0%
Scientific A- Baa3 500,000 Thermo Optek Inc., 5% due 10/15/2000 (e) 517,500 486,875
Equipment-- A- Baa3 500,000 ThermoQuest Corporation, 5% due 8/15/2000 (e) 507,500 491,250
1.6% ------------ ------------
1,025,000 978,125
Semiconductors-- B B2 850,000 Micron Technology Inc., 7% due 7/01/2004 896,750 1,074,187
1.8%
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 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>
Technology--1.6% Data General Corp.:
B B3 US$ 500,000 6% due 5/15/2004 $ 464,375 $ 495,000
B B3 500,000 6% due 5/15/2004 (e) 500,000 488,125
------------ ------------
964,375 983,125
Telecommunica- Bell Atlantic Financial Services:
tions--6.9% NR* NR* 1,000,000 5.75% due 4/01/2003 (into Telecom Corp. of
New Zealand) 1,012,500 1,011,250
A+ A1 2,400,000 4.25% due 9/15/2005 (into Cable & Wireless
Communications PLC) (e) 2,452,088 2,544,000
BB NR* 575,000 Telefonos de Mexico SA, 4.25% due 6/15/2004 575,000 559,187
------------ ------------
4,039,588 4,114,437
Total Convertible Debentures--38.6% 22,045,801 22,979,405
Shares
Held Convertible Preferred Stocks
Auto Parts-- B+ B1 20,000 Federal-Mogul Financial Trust, 7% 1,085,000 1,052,500
1.8%
Banking & NR* A1 10,000 Jefferson Pilot Corp. (ACES) (into
Financial--1.7% NATIONSBANK), 7.25% (a) 725,000 1,025,000
Chemicals--1.2% NR* Ba2 770 Hercules Trust II, 6.50% 770,000 707,923
Computer NR* NR* 11,300 Amdocs Automatic (TRACES), 6.75% (f) 253,544 288,856
Software--0.5%
Construction & BBB- Baa3 30,000 Fleetwood Capital Trust, 6% 1,305,000 1,042,500
Housing--3.2% BBB- Baa3 25,000 Fleetwood Capital Trust, 6% (e) 1,260,625 868,750
------------ ------------
2,565,625 1,911,250
Containers--1.2% B+ Ba3 20,000 Owens-Illinois Inc., 4.75% 1,000,000 732,500
Energy--6.1% BB Ba1 30,000 CalEnergy Capital Trust II, 6.25% (e) 1,457,050 1,301,250
BBB- Baa2 40,000 Unocal Capital Trust, 6.25% 2,136,250 2,305,000
------------ ------------
3,593,300 3,606,250
Entertainment-- BB Ba2 15,000 Seagram Company Ltd., 7.50% 751,875 784,687
1.3%
Internet--0.6% NR* Caa 7,500 PSInet Inc., 6.75% 375,000 363,750
Oil & Gas BBB Baa3 10,000 Occidental Petroleum Corporation, $3.00 580,600 688,750
Producers--1.8% B B3 7,500 Pogo Trust I, 6.50% 375,000 397,500
------------ ------------
955,600 1,086,250
Paper--2.3% BBB- Baal 28,000 International Paper Capital Trust, 5.25% (d) 1,331,400 1,396,500
Railroads--2.9% BB+ Baa3 5,000 Canadian National Railway Company, 5.25% 250,000 263,750
BB+ Ba2 32,000 Union Pacific Capital Trust, 6.25% 1,513,875 1,480,000
------------ ------------
1,763,875 1,743,750
Real Estate BBB Baa1 45,000 Equity Residential Properties,
Investment Series J, $2.15 1,207,854 1,220,625
Trusts--2.1%
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 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 $ 1,190,000
2.0%
Retail--1.7% B+ Ba3 19,500 Kmart Financing I, 7.75% 1,085,857 999,375
Steel--4.5% CCC+ Caa 60,000 WHX Corporation, Series A, 6.50% 2,584,540 2,107,500
A- Baa1 78,610 Worthington Industries, Inc. (Convertible,
Series DECS into Rouge Steel Common
Stock), 7.25% 1,328,902 540,444
------------ ------------
3,913,442 2,647,944
Telecommunica- B- B3 20,000 Loral Space and Communications, 6% 952,500 1,025,000
tions--1.7%
Utilities--1.7% A A2 20,000 Citizens Utilities Trust, 5% 886,200 990,000
Total Convertible Preferred Stocks--38.3% 24,260,822 22,772,160
Common Stocks & Warrants
Analytical Equipment 70,000 ++Thermo Electron Corporation 1,124,168 1,111,250
Manufacturing--1.9%
Building & Construction--1.5% 81,700 ++Morrison Knudsen Corporation 998,337 878,275
Building Products--0.8% 15,000 Texas Industries, Inc. 380,300 480,000
Computers--1.2% 60,000 ++Silicon Graphics, Inc. 965,557 686,250
Conglomerates--0.0% 105,000 ++Polyphase Corporation*** 158,550 11,550
52,500 Polyphase Corporation (Warrants) (b)*** 13,125 525
52,500 Polyphase Corporation (Warrants) (b)*** 26,250 2,100
------------ ------------
197,925 14,175
Consumer & Business Services--1.7% 55,000 ++Cendant Corporation 1,141,856 986,563
Consumer Products--0.6% 11,667 R.J. Reynolds Tobacco Holdings, Inc. 381,320 320,104
Food & Beverage--1.0% 35,000 Nabisco Group Holdings Corp. 761,155 621,250
Healthcare Services--0.8% 60,000 ++HEALTHSOUTH Corporation 658,699 491,250
Mining--2.4% 37,000 Cyprus Amax Minerals Company 625,775 626,688
40,000 Inco Limited 739,218 820,000
------------ ------------
1,364,993 1,446,688
Networking Products--1.0% 25,000 ++3Com Corporation 1,195,894 618,750
Oil & Gas Producers--2.8% 44,000 Diamond Offshore Drilling, Inc. 1,086,268 1,683,000
Semiconductors--2.4% 7,500 ++Cypress Semiconductor Corporation 118,189 173,438
65,000 ++Integrated Device Technology, Inc. 506,586 1,267,500
------------ ------------
624,775 1,440,938
Steel--1.9% 15,000 AK Steel Holding Corporation 225,581 315,000
30,000 USX-U.S. Steel Group 709,974 810,000
------------ ------------
935,555 1,125,000
Utilities--0.3% 15,940 ++Citizens Utilities Company (Class B) 141,137 175,341
Total Common Stocks & Warrants--20.3% 11,957,939 12,078,834
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 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 Paper**--1.5% US$ 912,000 General Motors Acceptance Corp., 5.56%
due 9/01/1999 $ 912,000 $ 912,000
Total Short-Term Securities--1.5% 912,000 912,000
Total Investments--98.7% $ 59,176,562 58,742,399
============
Short Sales (Proceeds--$22,577)--0.0%*** (3,094)
Other Assets Less Liabilities--1.3% 752,283
------------
Net Assets--100.0% $ 59,491,588
============
<FN>
(a)Adjustable Convertible Extendable Securities.
(b)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.
(c)Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the Fund.
(d)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $1,397,000,
representing 2.3% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
International Paper
Capital Trust, 5.25% 1/16/1997 $ 1,331,400 $ 1,396,500
----------- -----------
Total $ 1,331,400 $ 1,396,500
=========== ===========
(e)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
(f)Trust Automatic Common Exchange Securities.
++Non-income producing security.
*Not Rated.
**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.
***Covered short sales entered into as of August 31, 1999 were as
follows:
Value
Shares Issue (Notes 1a & 1h)
5,500 Polyphase Corporation $ (3,094)
------------
Total (Proceeds--$22,577) $ (3,094)
============
Ratings of issues shown have not been audited by Deloitte & Touche LLP.
See Notes to Financial Statements.
</TABLE
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION
</TABLE>
<TABLE>
Statement of Assets and Liabilities as of August 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$59,176,562) (Note 1a) $ 58,742,399
Cash 758,021
Foreign cash (Note 1c) 7,160
Receivables:
Interest $ 286,071
Securities sold 163,359
Dividends 144,310
Capital shares sold 9,801 603,541
--------------
Prepaid registration fees and other assets (Note 1f) 23,780
--------------
Total assets 60,134,901
--------------
Liabilities: Common stock sold short, at market value (proceeds--$22,577)
(Notes 1a & 1h) 3,094
Deposits on short sales (Note 1h) 3,126
Payables:
Capital shares redeemed 393,334
Investment adviser (Note 2) 32,162
Distributor (Note 2) 17,378 442,874
--------------
Accrued expenses and other liabilities 194,219
--------------
Total liabilities 643,313
--------------
Net Assets: Net assets $ 59,491,588
==============
Net Assets Class A Common Stock, $.10 par value, 100,000,000 shares
Consist of: authorized $ 316,228
Class B Common Stock, $.10 par value, 100,000,000 shares
authorized 125,818
Class C Common Stock, $.10 par value, 100,000,000 shares
authorized 26,763
Class D Common Stock, $.10 par value, 100,000,000 shares
authorized 37,661
Paid-in capital in excess of par 63,650,765
Undistributed investment income--net 207,081
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 5) (4,458,402)
Unrealized depreciation on investments and foreign currency
transactions--net (414,326)
--------------
Net assets $ 59,491,588
==============
Net Asset Value: Class A--Based on net assets of $37,141,490 and 3,162,284 shares
outstanding $ 11.75
==============
Class B--Based on net assets of $14,773,657 and 1,258,175 shares
outstanding $ 11.74
==============
Class C--Based on net assets of $3,141,149 and 267,628 shares
outstanding $ 11.74
==============
Class D--Based on net assets of $4,435,292 and 376,610 shares
outstanding $ 11.78
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended August 31, 1999
<S> <S> <C> <C>
Investment Interest and discount earned (net of $676 foreign withholding tax) $ 2,164,391
Income Dividends (net of $150 foreign withholding tax) 1,696,732
(Notes 1d & 1e): --------------
Total income 3,861,123
--------------
Expenses: Investment advisory fees (Note 2) $ 441,782
Account maintenance and distribution fees--Class B (Note 2) 194,687
Accounting services (Note 2) 88,559
Professional fees 81,737
Transfer agent fees--Class A (Note 2) 75,941
Printing and shareholder reports 56,860
Directors' fees and expenses 45,670
Registration fees (Note 1f) 44,775
Interest on securities sold short 43,182
Account maintenance and distribution fees--Class C (Note 2) 42,991
Transfer agent fees--Class B (Note 2) 38,485
Custodian fees 26,973
Account maintenance fees--Class D (Note 2) 14,273
Transfer agent fees--Class D (Note 2) 9,760
Transfer agent fees--Class C (Note 2) 8,513
Dividends on securities sold short 7,064
Pricing services 4,442
Other 6,350
--------------
Total expenses 1,232,044
--------------
Investment income--net 2,629,079
--------------
Realized & Realized loss from:
Unrealized Gain Investments--net (4,034,447)
(Loss) on Foreign currency transactions--net (6,088) (4,040,535)
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 7,202,964
(Notes 1b, 1c, Foreign currency transactions--net 255 7,203,219
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 3,162,684
--------------
Net Increase in Net Assets Resulting from Operations $ 5,791,763
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 2,629,079 $ 4,015,489
Realized gain (loss)on investments and foreign currency
transactions--net (4,040,535) 639,963
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 7,203,219 (12,657,568)
------------ ------------
Net increase (decrease) in net assets resulting from operations 5,791,763 (8,002,116)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (3,109,143) (1,935,219)
Shareholders Class B (1,077,140) (157,651)
(Note 1g): Class C (245,610) (24,527)
Class D (375,748) (32,775)
Realized gain on investments--net:
Class A -- (27,880,328)
Class B -- (924,500)
Class C -- (145,575)
Class D -- (179,577)
In excess of realized gain on investments--net:
Class A (23,131) (458,015)
Class B (10,558) (15,188)
Class C (2,358) (2,391)
Class D (2,981) (2,950)
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (4,846,669) (31,758,696)
------------ ------------
Capital Share Net decrease in net assets from capital share transactions (29,987,587) (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 (29,987,587) 9,978,878
============ ============
Net Assets: Total decrease in net assets (29,042,493) (29,781,934)
Beginning of year 88,534,081 118,316,015
------------ ------------
End of year* $ 59,491,588 $ 88,534,081
============ ============
<FN>
*Undistributed investment income--net (Note 1i) $ 207,081 $ 2,510,665
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A++++++++
For the
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Year Ended Jan. 1, 1997 For the Year Ended
August 31, to Aug. 31, December 31,
Increase (Decrease) in Net Asset Value: 1999+++ 1998+++ 1997+++ 1996+++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.59 $ 17.36 $ 15.57 $ 13.43 $ 11.13
Operating --------- --------- --------- --------- ---------
Performance:++++ Investment income--net .45 .60 .06 -- --
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .51 (1.37) 1.75 2.78 2.66
--------- --------- --------- --------- ---------
Total from investment operations .96 (.77) 1.81 2.78 2.66
--------- --------- --------- --------- ---------
Less dividends and distributions:
Investment income--net (.79) (.32) -- -- --
Realized gain on investments--net -- (4.55) -- (.64) (.36)
In excess of realized gain on
investments--net (.01) (.07) -- -- --
--------- --------- --------- --------- ---------
Total dividends and distributions (.80) (4.94) -- (.64) (.36)
--------- --------- --------- --------- ---------
Capital charge resulting from
issuance of Common Stock -- (.06) -- -- --
--------- --------- --------- --------- ---------
Effect of repurchase of Treasury Stock -- -- -- -- --++
--------- --------- --------- --------- ---------
Capital charge resulting from
issuance of new classes of shares -- --++ (.02) -- --
--------- --------- --------- --------- ---------
Net asset value, end of period $ 11.75 $ 11.59 $ 17.36 $ 15.57 $ 13.43
========= ========= ========= ========= =========
Total Investment Based on net asset value per share 8.54% (7.03%) 11.50%+++++ 20.60% 24.44%
Ratios to Average ========= ========= ========= ========= =========
Expenses*** 1.32% 1.29% .90%* .78% .79%
========= ========= ========= ========= =========
Net Assets: Investment income--net 3.91% 4.48% 4.76%* 4.98% 5.40%
========= ========= ========= ========= =========
Supplemental Net assets, end of period
Data: (in thousands) $ 37,142 $ 52,425 $ 110,178 $ 289,993 $ 265,127
========= ========= ========= ========= =========
Portfolio turnover 85.42% 155.20% 92.86% 129.06% 87.69%
========= ========= ========= ========= =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
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 $.73 and
dividends of investment income--net per Income Share were $.70.
+++Based on average shares outstanding.
+++++Aggregate total investment return.
++++++++Formerly Capital Shares.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B+++++
For the
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Year Ended Aug. 4, 1997++
August 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 .34 .44 .05
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .49 (1.34) .39
---------- ---------- ----------
Total from investment operations .83 (.90) .44
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.61) (.28) --
Realized gain on investments--net -- (4.55) --
In excess of realized gain on investments--net (.01) (.07) --
---------- ---------- ----------
Total dividends and distributions (.62) (4.90) --
---------- ---------- ----------
Capital charge resulting from issuance of Common Stock -- (.02) --
---------- ---------- ----------
Net asset value, end of period $ 11.74 $ 11.53 $ 17.35
========== ========== ==========
Total Investment Based on net asset value per share 7.36% (7.76%) 2.60%+++
Return:** ========== ========== ==========
Ratios to Average Expenses 2.35% 2.35% 2.66%*
Net Assets: ========== ========== ==========
Investment income--net 2.91% 3.31% 3.77%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 14,774 $ 23,900 $ 5,759
Data: ========== ========== ==========
Portfolio turnover 85.42% 155.20% 92.86%
========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C+++++
For the
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Year Ended Aug. 4, 1997++
August 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 .34 .44 .05
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .49 (1.34) .40
---------- ---------- ----------
Total from investment operations .83 (.90) .45
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.62) (.28) --
Realized gain on investments--net -- (4.55) --
In excess of realized gain on investments--net (.01) (.07) --
---------- ---------- ----------
Total dividends and distributions (.63) (4.90) --
---------- ---------- ----------
Capital charge resulting from issuance of Common Stock -- (.02) --
---------- ---------- ----------
Net asset value, end of period $ 11.74 $ 11.54 $ 17.36
========== ========== ==========
Total Investment Based on net asset value per share 7.34% (7.76%) 2.66%+++
Return:** ========== ========== ==========
Ratios to Average Expenses 2.35% 2.36% 2.74%*
Net Assets: ========== ========== ==========
Investment income--net 2.91% 3.34% 3.58%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 3,141 $ 5,138 $ 1,014
Data: ========== ========== ==========
Portfolio turnover 85.42% 155.20% 92.86%
========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D+++++
For the
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. Year Ended Aug. 4, 1997++
August 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 .43 .54 .07
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .50 (1.34) .38
---------- ---------- ----------
Total from investment operations .93 (.80) .45
---------- ---------- ----------
Less dividends and distributions:
Investment income--net (.75) (.31) --
Realized gain on investments--net -- (4.55) --
In excess of realized gain on investments--net (.01) (.07) --
---------- ---------- ----------
Total dividends and distributions (.76) (4.93) --
---------- ---------- ----------
Capital charge resulting from issuance of Common Stock -- (.02) --
---------- ---------- ----------
Net asset value, end of period $ 11.78 $ 11.61 $ 17.36
========== ========== ==========
Total Investment Based on net asset value per share 8.22% (6.96%) 2.66%+++
Return:** ========== ========== ==========
Ratios to Average Expenses 1.57% 1.59% 1.92%*
Net Assets: ========== ========== ==========
Investment income--net 3.68% 4.02% 4.81%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 4,435 $ 7,071 $ 1,365
Data: ========== ========== ==========
Portfolio turnover 85.42% 155.20% 92.86%
========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
+++Aggregate total investment return.
+++++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Convertible Fund, Inc.
August 31, 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. 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 that are traded
on stock exchanges are valued at the last sale price on the exchange
on that 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, 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.
* 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.
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
NOTES TO FINANCIAL STATEMENTS (continued)
* 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.
(i) 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
$125,022 have been reclassified between accumulated net realized
capital losses and undistributed net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
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 a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary
of Merrill Lynch Group, Inc.
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 .60% of
the average daily net assets of the Fund.
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
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 August 31, 1999, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $4,858 $ 95
Class D $ 223 $3,189
For the year ended August 31, 1999, MLPF&S received contingent
deferred sales charges of $63,125 and $3,168 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 year ended
August 31, 1999.
During the year ended August 31, 1999, the Fund paid Merrill Lynch
Security Pricing Service, an affiliate of MLPF&S, $893 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 year ended August 31, 1999 were $59,997,953 and $84,786,863,
respectively.
Net realized losses for the year ended August 31, 1999 and net
unrealized gains (losses) as of August 31, 1999 were as follows:
Unrealized
Realized Gains
Losses (Losses)
Long-term investments $ (3,222,588) $ (434,163)
Short-term investments (672) --
Short sales (811,187) 19,483
Foreign currency transactions (6,088) 354
------------ ------------
Total $ (4,040,535) $ (414,326)
============ ============
As of August 31, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $552,868, of which $4,918,322 related
to appreciated securities and $5,471,190 related to depreciated
securities. The aggregate cost of investments at August 31, 1999 for
Federal income tax purposes was $59,295,267.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(29,987,587) and $9,978,878 for the years ended
August 31, 1999 and August 31, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 87,781 $ 1,030,148
Shares issued to shareholders
in reinvestment of dividends
and distributions 99,755 1,134,773
------------ ------------
Total issued 187,536 2,164,921
Shares redeemed (1,547,522) (17,946,626)
------------ ------------
Net decrease (1,359,986) $(15,781,705)
============ ============
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
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)
============ ============
Class B Shares for the Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 115,605 $ 1,344,949
Shares issued to shareholders
in reinvestment of dividends
and distributions 71,158 808,779
------------ ------------
Total issued 186,763 2,153,728
Automatic conversion
of shares (42,938) (498,986)
Shares redeemed (958,225) (11,060,710)
------------ ------------
Net decrease (814,400) $ (9,405,968)
============ ============
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 Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 30,898 $ 357,873
Shares issued to shareholders
in reinvestment of dividends
and distributions 15,080 171,466
------------ ------------
Total issued 45,978 529,339
Shares redeemed (223,804) (2,606,130)
------------ ------------
Net decrease (177,826) $ (2,076,791)
============ ============
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 Year Dollar
Ended August 31, 1999 Shares Amount
Shares sold 15,422 $ 179,679
Automatic conversion
of shares 42,767 498,986
Shares issued to shareholders
in reinvestment of dividends
and distributions 25,681 292,765
------------ ------------
Total issued 83,870 971,430
Shares redeemed (316,367) (3,694,553)
------------ ------------
Net decrease (232,497) $ (2,723,123)
============ ============
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
============ ============
5. Capital Loss Carryforward:
At August 31, 1999, the Fund had a net capital loss carryforward of
approximately $1,035,000, all of which expires in 2007. This amount
will be available to offset like amounts of any future taxable
gains.
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
<AUDIT REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Convertible Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Convertible Fund, Inc. as of August 31, 1999, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for the periods presented. These financial
statements and the financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion
on these financial statements and the financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at August
31, 1999 by correspondence with the custodian and broker. 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 Convertible Fund, Inc. as of August 31, 1999, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 11, 1999
</AUDIT REPORT>
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
IMPORTANT TAX INFORMATION (unaudited)
Of the ordinary distributions paid quarterly by Merrill Lynch
Convertible Fund, Inc. during the fiscal year ended August 31, 1999,
27.75% qualifies for the dividends received deduction for
corporations.
Additionally, there were no long-term capital gains distributions
paid by the Fund during the fiscal year.
Please retain this information for your records.
Merrill Lynch Convertible Fund, Inc.
August 31, 1999
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 State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
