<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998.
FILE NO. 333-47971
FILE NO. 811-08699
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
[X]
PRE-EFFECTIVE AMENDMENT NO. 2
POST-EFFECTIVE AMENDMENT NO. [_]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
[X]
AMENDMENT NO. 2
(CHECK APPROPRIATE BOX OR BOXES)
----------------
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
PHILIP M. MANDEL, ESQ. LEONARD B. MACKEY, JR., ESQ.
FUND ASSET MANAGEMENT, L.P. ROGERS & WELLS LLP
P.O. BOX 9011 200 PARK AVENUE
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NY 10166
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.
----------------
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<PAGE>
MERRIL LYNCH CORPORATE HIGH YIELD FUND, INC.
CROSS REFERENCE SHEET
FORM N-1A
<TABLE>
<CAPTION>
ITEM LOCATION
---- --------
<C> <S> <C>
PART A
1. Cover Page.................... Cover Page
2. Synopsis...................... Table
*3. Condensed Financial Informa- *
tion.........................
4. General Description of Regis- Investment Objectives and Policies;
trant........................ Additional Information
5. Management of the Fund........ Fee Table; Performance Information of
a Similar Merrill Lynch Fund;
Investment Adviser; Directors;
Portfolio Transactions; Additional
Information
*5A. Management's Discussion of *
Fund Performance.............
6. Capital Stock and Other Secu- Cover Page; Dividends, Distributions
rities....................... and Taxes; Additional Information;
7. Purchase of Securities Being Fee Table; Purchase of Shares; Merrill
Offered...................... Lynch Select PricingSM System;
Additional Information
8. Redemption or Repurchase...... Fee Table; Redemption of Shares;
Merrill Lynch Select Pricing SM
System; Shareholder Services
*9. Pending Legal Proceedings..... *
PART B
10. Cover Page.................... Cover Page
11. Table of Contents............. Table of Contents
12. General Information and Histo- Additional Information
ry...........................
13. Investment Objectives and Pol- Investment Objectives and Policies;
icies........................ Investment Restrictions; Portfolio
Transactions
14. Management of the Fund........ Management of the Fund
15. Control Persons and Principal Management of the Fund; Additional
Holders of Securities........ Information
16. Investment Advisory and Other Management of the Fund; Purchase of
Services..................... Shares
17. Brokerage Allocation and Other Portfolio Transactions
Practices....................
18. Capital Stock and Other Secu- Additional Information
rities.......................
19. Purchase, Redemption and Pric-
ing of Securities being Of- Purchase of Shares; Determination of
fered........................ Net Asset Value; Redemption of
Shares; Systematic Withdrawal Plans;
Retirement Plans; Exchange Privilege;
Additional Information
20. Tax Status.................... Dividends, Distributions and Taxes
21. Underwriters.................. Distributor
22. Calculation of Performance Da- Performance Data
ta...........................
23. Financial Statements.......... Statement of Assets and Liabilities
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Registration Statement.
- --------
* Item inapplicable or answer negative.
<PAGE>
PROSPECTUS
APRIL 28, 1998
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Corporate High Yield Fund, Inc. (the "Fund") is a
professionally managed, diversified, open-end investment company that seeks to
provide shareholders with current income. As a secondary objective, the Fund
seeks capital appreciation when consistent with its primary objective. The
Fund invests primarily in a diversified portfolio of corporate fixed-income
securities, such as corporate bonds and notes, convertible securities and
preferred stocks. THE FUND MAY INVEST SUBSTANTIALLY ALL OF ITS ASSETS IN
FIXED-INCOME SECURITIES THAT ARE RATED IN THE LOWER RATING CATEGORIES OF THE
ESTABLISHED RATING SERVICES (BAA OR LOWER BY MOODY'S INVESTORS SERVICE, INC.
OR BBB OR LOWER BY STANDARD & POOR'S RATINGS SERVICES), OR IN UNRATED
SECURITIES THAT FUND ASSET MANAGEMENT, L.P. ("FAM" OR THE "INVESTMENT
ADVISER") CONSIDERS TO BE OF COMPARABLE QUALITY. Lower rated securities,
commonly known as "junk bonds," generally involve greater risks, including
risk of default, volatility of price and risks to principal and income, than
securities in the higher rating categories. Because investment in junk bonds
entails relatively greater risk of loss of income or principal than an
investment in higher-rated securities, an investment in the Fund may not be
appropriate for all investors. The Fund should be considered as a means of
diversifying an investment portfolio and not in itself a balanced investment
plan. Investors should consider these risks carefully before investing. See
"Investment Objectives and Policies," page 8. There can be no assurance that
the objectives of the Fund will be realized.
(continued on following page)
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE AC-
CURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
This Prospectus sets forth in concise form the information about the Fund
that is relevant to making an investment in the Fund. This Prospectus should
be retained for future reference. A statement containing additional
information about the Fund dated April 28, 1998 (the "Statement of Additional
Information") has been filed with the Securities and Exchange Commission (the
"Commission") and can be obtained, without charge, by calling or writing the
Fund at the above telephone number or address. The Commission maintains a web
site (http://www.sec.gov) that contains the Statement of Additional
Information, material incorporated by reference and other information about
the Fund. The Statement of Additional Information is incorporated by reference
into this prospectus.
----------------
FUND ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
(continued from cover page)
For more information on the Fund's investment objectives and policies,
please see "Investment Objectives and Policies" on page 8.
Pursuant to the Merrill Lynch Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 4.
Class A and Class D shares of the Fund may be purchased directly from
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), P.O. Box 9081,
Princeton, New Jersey 08543-9081 ((609) 282-2800), or from securities dealers
that have entered into selected dealer agreements with the Distributor,
including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"). Class B and Class C shares of the Fund may only be purchased either
directly from the Distributor or Merrill Lynch. See "Purchase of Shares." The
minimum initial purchase for shares is $1,000 and the minimum subsequent
purchase is $50, except that for retirement plans the minimum initial purchase
is $100 and the minimum subsequent purchase is $1, and for participants in
certain fee-based programs the minimum initial purchase is $500 and the
minimum subsequent purchase is $50. Merrill Lynch may charge its customers a
processing fee (presently $5.35) for confirming purchases and repurchases.
Purchases and redemptions made directly through Merrill Lynch Financial Data
Services, Inc. (the "Transfer Agent") are not subject to the processing fee.
See "Purchase of Shares" and "Redemption of Shares."
A shareholder may have his or her shares redeemed at the net asset value per
share of the Fund.
2
<PAGE>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows.
<TABLE>
<CAPTION>
CLASS A(A) CLASS B(B) CLASS C CLASS D
---------- ---------- ------- -------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses:
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................... 4.00%(c) None None 4.00%(c)
Sales Charge Imposed on Dividend
Reinvestments..................... None None None None
Deferred Sales Charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower)............... None(d) 4.00%(e) 1.00%(f) None(d)
Exchange Fee....................... None None None None
Annual Fund Operating Expenses:
Investment Adviser Fees(g)......... 0.60% 0.60% 0.60% 0.60%
12b-1 Fees(h):
Account Maintenance Fees......... None 0.25% 0.25% 0.25%
Distribution Fees................ None 0.50%(i) 0.55% None
Other Expenses(j):
Shareholder Servicing Costs(k)... .07% .08% .08% .07%
Other Fees....................... .17% .17% .17% .17%
----- ----- ----- -----
Total Other Expenses........... .24% .25% .25% .24%
----- ----- ----- -----
Total Fund Operating Expenses........ .84% 1.60% 1.65% 1.09%
===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and participants in certain
fee-based programs. See "Purchase of Shares--Initial Sales Charge
Alternatives--Class A and Class D Shares"--page 23 and "Shareholder
Services--Fee-Based Programs"--page 36.
(b) Class B shares convert to Class D shares automatically approximately ten
years after initial purchase. See "Purchase of Shares--Deferred Sales
Charge Alternatives--Class B and Class C Shares"--page 25.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans and participants in connection
with certain fee-based programs. Class A or Class D purchases of
$1,000,000 or more may not be subject to an initial sales charge. See
"Purchase of Shares--Initial Sales Charge Alternatives--Class A and Class
D Shares"--page 23.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more that
are not subject to an initial sales charge may instead be subject to a
CDSC of 1.0% of amounts redeemed within the first year after purchase.
Such CDSC may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 36.
(e) Decreasing 1.0% annually thereafter to 0.0% after the fourth year. The
CDSC may be modified in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 36.
(f) Decreasing 1.0% annually thereafter to 0.0% after the first year. The CDSC
may be waived in connection with certain fee-based programs. See
"Shareholder Services--Fee-Based Programs"--page 36.
(g) See "Investment Adviser"--page 19.
(h) See "Purchase of Shares--Distribution Plans"--page 29.
(i) Class B shares convert to Class D shares automatically after approximately
ten years and cease being subject to distribution fees.
(j) Information under "Other Expenses" is estimated for the Fund's first
fiscal year ending March 31, 1999.
(k) See "Investment Adviser--Transfer Agency Services"--page 20.
3
<PAGE>
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
------------------------
1 YEAR 3 YEARS
----------- ------------
<S> <C> <C>
An investor would pay the following expenses on a
$1,000 investment including the maximum $40 initial
sales charge (Class A and Class D shares only)
assuming (1) the Total Fund Operating Expenses
estimated for each class set forth on page 3, (2) a
5% annual return throughout the periods and (3)
redemption at the end of the period (including any
applicable CDSC for Class B and Class C shares):
Class A........................................... $ 48 $ 66
Class B........................................... $ 56 $ 70
Class C........................................... $ 27 $ 52
Class D........................................... $ 51 $ 73
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES
PAID FOR THE PERIOD OF:
------------------------
1 YEAR 3 YEARS
----------- ------------
<S> <C> <C>
An investor would pay the following expenses on the
same $1,000 investment assuming no redemption at
the end of the period:
Class A........................................... $ 48 $ 66
Class B........................................... $ 16 $ 50
Class C........................................... $ 17 $ 52
Class D........................................... $ 51 $ 73
</TABLE>
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a shareholder in the Fund will bear directly or
indirectly. The Example set forth above assumes the reinvestment of all
dividends and distributions and utilizes a five percent annual rate of return
as mandated by Commission regulations. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN OF THE
FUND AND ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN
THOSE ASSUMED FOR THE PURPOSE OF THE EXAMPLE. Class B and Class C shareholders
who hold their shares for an extended period of time may pay more in 12b-1
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted under the Conduct Rules of the National Association of
Securities Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a
processing fee (presently $5.35) for confirming purchases and repurchases.
Purchases and redemptions made directly through the Fund's Transfer Agent are
not subject to the processing fee. See "Purchase of Shares" and "Redemption of
Shares."
MERRILL LYNCH SELECT PRICINGSM SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
PricingSM System. The shares of each class may be purchased at a price equal
to the next determined net asset value per share subject to the sales charges
and ongoing fee arrangements described below. Shares of Class A and Class D
are sold to investors choosing the initial sales charge alternatives, and
shares of Class B and Class C are sold to investors choosing the deferred
sales charge alternatives. The Merrill Lynch Select PricingSM System is used
by more than 50 registered investment companies advised by Merrill Lynch Asset
Management, L.P. ("MLAM") or its affiliate, FAM. Funds advised by MLAM or FAM
that use the Merrill Lynch Select PricingSM System are referred to herein as
"MLAM-advised mutual funds."
4
<PAGE>
Each Class A, Class B, Class C or Class D share of the Fund represents an
identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
the ongoing account maintenance fees and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
The CDSCs, distribution and account maintenance fees that are imposed on Class
B and Class C shares of the Fund, as well as the account maintenance fees that
are imposed on the Class D shares of the Fund, will be imposed directly
against those classes and not against all assets of the Fund and, accordingly,
such charges will not affect the net asset value of any other class or have
any impact on investors choosing another sales charge option. Dividends paid
by the Fund for each class of shares will be calculated in the same manner at
the same time and will differ only to the extent that account maintenance and
distribution fees and any incremental transfer agency costs relating to a
particular class are borne exclusively by that class. Each class has different
exchange privileges. See "Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to the Class A and Class D shares are the same as
those of the CDSCs and distribution fees with respect to the Class B and Class
C shares in that the sales charges and distribution fees applicable to each
class provide for the financing of the distribution of the shares of the Fund.
The distribution-related revenues paid with respect to a class will not be
used to finance the distribution expenditures of another class. Sales
personnel may receive different compensation for selling different classes of
shares.
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System,
followed by a more detailed description of each class and a discussion of the
factors that investors should consider in determining the method of purchasing
shares under the Merrill Lynch Select PricingSM System that the investor
believes is most beneficial under his or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase
of Shares."
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 4.00% initial sales No No No
charge(/2/),(/3/)
- --------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.50% B shares convert to
at a rate of 4.0% during D shares automatically
the first year, decreasing 1.0% after approximately
annually to 0.0%(/4/) ten years(/5/)
- --------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.55% No
decreasing to 0.0%(/6/)
- --------------------------------------------------------------------------------------------
D Maximum 4.0% initial 0.25% No No
sales charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. Contingent deferred sales charges ("CDSCs") are
imposed if the redemption occurs within the applicable CDSC time period.
The charge will be assessed on an amount equal to the lesser of the
proceeds of redemption or the cost of the shares being redeemed.
(footnotes continued on following page)
5
<PAGE>
(2) Offered only to eligible investors. See "Purchase of Shares--Initial Sales
Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of Class
A shares by certain retirement plans and participants in connection with
certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but, if
the initial sales charge is waived, may be subject to a 1.0% CDSC if
redeemed within one year. Such CDSC may be waived in connection with
certain fee-based programs. A 0.75% sales charge for 401(k) purchases over
$1,000,000 will apply. See "Class A" and "Class D" below.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans were modified. Also,
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made have an eight-year conversion period. If Class B
shares of the Fund are exchanged for Class B shares of another MLAM-
advised mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period for the
shares exchanged will be tacked onto the holding period for the shares
acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
Class A: Class A shares of the Fund incur an initial sales charge when they
are purchased and bear no ongoing distribution or account maintenance
fees. Class A shares of the Fund are offered to a limited group of
investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors who currently own Class A
shares of the Fund in a shareholder account are entitled to purchase
additional Class A shares of the Fund in that account. Other eligible
investors include certain retirement plans and participants in
certain fee-based programs. In addition, Class A shares will be
offered at net asset value to directors and employees of Merrill
Lynch & Co., Inc. ("ML & Co.") and its subsidiaries (the term
"subsidiaries," when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly wholly
owned and controlled by ML & Co.) and to members of the Boards of
MLAM-advised mutual funds. The maximum initial sales charge of 4.00%
is reduced for purchases of $25,000 and over, and waived for
purchases of Class A shares by certain retirement plans and
participants in connection with certain fee-based programs. Purchases
of $1,000,000 or more may not be subject to an initial sales charge
but if the initial sales charge is waived such purchases may be
subject to a 1.0% CDSC if the shares are redeemed within one year
after purchase. Such CDSC may be waived in connection with certain
fee-based programs. Sales charges also are reduced under a right of
accumulation that takes into account the investor's holdings of all
classes of all MLAM-advised mutual funds. See "Purchase of Shares--
Initial Sales Charge Alternatives--Class A and Class D Shares."
Class B: Class B shares of the Fund do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance fee
of 0.25% of the Fund's average net assets attributable to Class B
shares, an ongoing distribution fee of 0.50% of average net assets
attributable to Class B shares, and a CDSC if they are redeemed
within four years of purchase. Such CDSC may be modified in
connection with certain fee-based programs. Approximately ten years
after issuance, Class B shares of the Fund will convert automatically
into Class D shares of the Fund, which are subject to an account
maintenance fee but no distribution fee; Class B shares of certain
other MLAM-advised mutual funds into which exchanges may be made
convert into Class D shares automatically after approximately eight
years. If Class B shares of the Fund are exchanged for Class B shares
of another MLAM-advised mutual fund, the conversion period applicable
to the Class B shares acquired in the exchange will apply, and the
holding period for the shares exchanged will be tacked onto the
holding period for the shares acquired. Automatic conversion of Class
B shares into Class D shares will occur at least once a
6
<PAGE>
month on the basis of the relative net asset values of the shares of the
two classes on the conversion date, without the imposition of any sales
load, fee or other charge. Conversion of Class B shares to Class D
shares will not be deemed a purchase or sale of the shares for Federal
income tax purposes. Shares purchased through reinvestment of dividends
on Class B shares also will convert automatically to Class D shares. The
conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans is modified as
described under "Purchase of Shares-- Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares
to Class D Shares."
Class C: Class C shares of the Fund do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance fee
of 0.25% of the Fund's average net assets and an ongoing distribution
fee of 0.55% of the Fund's average net assets. Class C shares are
also subject to a 1.0% CDSC if they are redeemed within one year of
purchase. Such CDSC may be waived in connection with certain fee-
based programs. Although Class C shares are subject to a CDSC for
only one year, Class C shares have no conversion feature and,
accordingly, an investor who purchases Class C shares will be subject
to distribution fees that will be imposed on Class C shares for an
indefinite period subject to annual approval by the Fund's Board of
Directors and regulatory limitations.
Class D: Class D shares of the Fund incur an initial sales charge when they
are purchased and are subject to an ongoing account maintenance fee
of 0.25% of the Fund's average net assets. Class D shares are not
subject to an ongoing distribution fee or any CDSC when they are
redeemed. The maximum initial sales charge of 4.00% is reduced for
purchases of $25,000 and over. Purchases of $1,000,000 or more may
not be subject to an initial sales charge but if the initial sales
charge is waived such purchases may be subject to a 1.0% CDSC if the
shares are redeemed within one year of purchase. Such CDSC may be
waived in connection with certain fee-based programs. The schedule of
initial sales charges and reductions for Class D shares is the same
as the schedule for Class A shares, except that there is no waiver
for purchases in connection with certain fee-based programs. Class D
shares also will be issued upon conversion of Class B shares as
described above under "Class B." See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares."
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
PricingSM System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class
A shares rather than Class D shares because of the account maintenance fee
imposed on Class D shares. Investors qualifying for significantly reduced
initial sales charges may find the initial sales charge alternative
particularly attractive because similar sales charge reductions are not
available with respect to the deferred sales charges imposed in connection
with purchases of Class B or Class C shares. Investors not qualifying for
reduced initial sales charges who expect to maintain their investment for an
extended period of time also may elect to purchase Class A or Class D shares,
because over time the accumulated ongoing account maintenance and distribution
fees on Class B or Class C shares may exceed the initial sales charge and, in
the case of Class D shares, the account maintenance fee.
7
<PAGE>
Although some investors who previously purchased Class A shares may no longer
be eligible to purchase Class A shares of other MLAM-advised mutual funds,
those previously purchased Class A shares, together with Class B, Class C and
Class D share holdings, will count toward a right of accumulation which may
qualify the investor for reduced initial sales charges on new initial sales
charge purchases. In addition, the ongoing Class B and Class C account
maintenance and distribution fees will cause Class B and Class C shares to
have higher expense ratios, pay lower dividends and have lower total returns
than the initial sales charge shares. The ongoing Class D account maintenance
fees will cause Class D shares to have a higher expense ratio, pay lower
dividends and have a lower total return than Class A shares.
Deferred Sales Charge Alternatives. Because no initial sales charges are
deducted at the time of purchase, Class B and Class C shares provide the
benefit of putting all of the investor's dollars to work from the time the
investment is made. The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for a reduction in initial sales
charges. Both Class B and Class C shares are subject to ongoing account
maintenance fees and distribution fees; however, the ongoing account
maintenance and distribution fees potentially may be offset to the extent any
return is realized on the additional funds initially invested in Class B or
Class C shares. In addition, Class B shares of the Fund will be converted into
Class D shares of the Fund after a conversion period of approximately ten
years, and thereafter investors will be subject to lower ongoing fees.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all their funds invested initially and intend
to hold their shares for an extended period of time. Investors in Class B
shares should take into account whether they intend to redeem their shares
within the CDSC period and, if not, whether they intend to remain invested
until the end of the conversion period and thereby take advantage of the
reduction in ongoing fees resulting from the conversion into Class D shares.
Other investors, however, may elect to purchase Class C shares if they
determine that it is advantageous to have all their assets invested initially
and they are uncertain as to the length of time they intend to hold their
assets in MLAM-advised mutual funds. Although Class C shareholders are subject
to a shorter CDSC period at a lower rate, they forgo the Class B conversion
feature, making their investment subject to account maintenance and
distribution fees for an indefinite period of time. In addition, while both
Class B and Class C distribution fees are subject to the limitations on asset-
based sales charges imposed by the NASD, the Class B distribution fees are
further limited under a voluntary waiver of asset-based sales charges. See
"Purchase of Shares--Limitations on the Payment of Deferred Sales Charges."
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to obtain current income. As
a secondary objective, the Fund seeks capital appreciation when consistent
with its primary objective. These investment objectives are a fundamental
policy of the Fund and may not be changed without a vote of the majority of
the outstanding voting securities of the Fund. The Fund seeks to achieve its
objectives by investing in a diversified portfolio of corporate fixed-income
securities, such as corporate bonds and notes, convertible securities and
preferred stocks. There can be no assurance that the objective of the Fund can
be attained.
The Fund seeks current income by investing primarily in fixed-income
securities that are rated in the lower rating categories of the established
rating services (Baa or lower by Moody's Investors Service, Inc.
8
<PAGE>
("Moody's") and BBB or lower by Standard & Poor's Ratings Group ("S&P")), or
in unrated securities considered by the Investment Adviser to be of comparable
quality. Securities rated below Baa by Moody's or below BBB by S&P, and
unrated securities of comparable quality, are commonly known as "junk bonds."
See "Appendix: Description of Corporate Bond Ratings" for additional
information concerning rating categories. Junk bonds may constitute as much as
100% of the Fund's investments. Although junk bonds can be expected to provide
higher yields, such securities may be subject to greater market fluctuations
and risk of loss of income and principal than lower-yielding, higher-rated
fixed-income securities. See "Risk Factors in Transactions in Junk Bonds."
Because investment in junk bonds entails relatively greater risk of loss of
income or principal than an investment in higher-rated securities, an
investment in the Fund may not be appropriate for all investors. The Fund
should be considered as a means of diversifying an investment portfolio and
not in itself a balanced investment plan. Purchasers should carefully assess
the risks associated with an investment in the Fund.
The securities in which the Fund will invest will vary from time to time
depending upon the judgment of management as to prevailing conditions in the
economy and the securities markets and the prospects for interest rate changes
among different categories of fixed-income securities. The Fund anticipates
that under normal circumstances more than 90% of its assets will be invested
in fixed-income securities, including convertible and nonconvertible debt
securities and preferred stock. In addition, as a matter of investment policy
at least 65% of the Fund's total assets will under normal circumstances be
invested in corporate securities rated below Baa by Moody's or below BBB by
S&P, and unrated securities of comparable quality. Up to 15% of the Fund's
total assets may be invested in Corporate Loans (as defined below). Up to 10%
of the Fund's total assets may be invested in Distressed Securities (as
defined below), which includes publicly offered or privately placed debt
securities and Corporate Loans that, at the time of investment, are the
subject of bankruptcy proceedings or otherwise in default as to the repayment
of principal or payment of interest or are rated in the lowest rating
categories (Ca or lower by Moody's and CC or lower by S&P), or that, if
unrated, are in the judgment of the Investment Adviser of comparable quality.
For these reasons, an investment in the Fund may be speculative in that it
involves a high degree of risk and should not constitute a complete investment
program. See "Risk Factors in Transactions in Corporate Loans" and "Risk
Factors in Transactions in Distressed Securities." The remaining assets of the
Fund may be held in cash or, as described herein, may be used in connection
with hedging transactions in futures contracts, related options, and options
on debt securities, or in connection with non-hedging transactions in options
on debt securities. The Fund does not intend to invest in common stocks,
rights or other equity securities, but may acquire or hold such securities (if
consistent with its objectives) when such securities are acquired in unit
offerings with fixed-income securities or in connection with an actual or
proposed conversion or exchange of fixed-income securities.
Selection and supervision by the management of the Fund of portfolio
investments involve continuous analysis of individual issuers, general
business conditions and other factors that may be too time-consuming or too
costly for the average investor. The furnishing of these services does not, of
course, guarantee successful results. The Investment Adviser's analysis of
issuers includes, among other things, historic and current financial
conditions, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management,
responsiveness to business conditions, credit standing, and current and
anticipated results of operations. Analysis of general business conditions and
other factors may include anticipated change in economic activity and interest
rates, the availability of new investment opportunities, and the economic
outlook for specific industries. While the Investment Adviser considers as one
factor in its credit analysis the ratings assigned by the rating services, the
Investment Adviser performs its own independent credit analysis of issuers and
consequently, the Fund may invest, without limit, in unrated securities. As a
result, the Fund's ability
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to achieve its investment objective may depend to a greater extent on the
Investment Adviser's own credit analysis than mutual funds that invest in
higher-rated securities. Although the Fund will invest primarily in lower-
rated securities, other than with respect to Distressed Securities (which are
discussed below) it will not invest in securities in the lowest rating
categories (Ca or below for Moody's and CC or below for S&P) unless the
Investment Adviser believes that the financial condition of the issuer or the
protection afforded to the particular securities is stronger than would
otherwise be indicated by such low ratings. Securities that are subsequently
downgraded may continue to be held and will be sold only if, in the judgment
of the Investment Adviser, it is advantageous to do so.
In furtherance of its primary investment objective, the Fund may also invest
up to 15% of its total assets in secondary market purchases of loans extended
to corporate borrowers by commercial banks and other financial institutions
("Corporate Loans"). As in the case of junk bonds, the Corporate Loans in
which the Fund may invest may be rated in the lower rating categories of the
established rating services (Baa or lower by Moody's and BBB or lower by S&P),
or may be unrated investments of comparable quality. As in the case of junk
bonds, such Corporate Loans can be expected to provide higher yields than
lower-yielding, higher-rated fixed income securities but may be subject to
greater risk of loss of principal and income. As discussed below under "Risk
Factors in Transactions in Corporate Loans," however, there are some
significant differences between Corporate Loans and junk bonds.
The Fund may also from time to time invest up to 10% of its assets in
securities that are the subject of bankruptcy proceedings or otherwise in
default or in significant risk of being in default ("Distressed Securities").
Distressed Securities that are in default or in risk of being in default but
not yet in bankruptcy proceedings may be the subject of a pre-bankruptcy
exchange offer pursuant to which holders of the Distressed Securities receive
securities or assets in exchange for the Distressed Securities. Holders of
Distressed Securities that are the subject of bankruptcy proceedings may,
following approval of a plan of reorganization by the bankruptcy court,
receive securities or assets in exchange for the Distressed Securities.
Generally, the Fund will invest in Distressed Securities when the Investment
Adviser anticipates that it is reasonably likely that the securities will be
subject to such an exchange offer or plan of reorganization, as to which there
can be no assurance. Normally, the Fund will invest in Distressed Securities
at a price that represents a significant discount from the principal amount
due on maturity of the securities. The Fund will invest in Distressed
Securities when the Investment Adviser believes that, based on its analysis of
the asset values of the issuer of the Distressed Securities and the issuer's
overall business prospects, upon completion of an exchange offer or plan of
reorganization with respect to the Distressed Securities the Fund would
receive, in exchange for its Distressed Securities, securities or assets with
terms and credit characteristics that offer the Fund significant opportunities
for capital appreciation and future high rates of current income. See "Risk
Factors in Transactions in Distressed Securities."
When changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the Fund
may purchase higher-rated securities if the Investment Adviser believes that
the risk of loss of income and principal may be substantially reduced with
only a relatively small reduction in yield. In addition, under unusual market
or economic conditions, the Fund for temporary defensive or other purposes may
invest up to 100% of its assets in securities issued or guaranteed by the
United States Government or its instrumentalities or agencies, certificates of
deposit, bankers' acceptances and other bank obligations, commercial paper
rated in the highest category by an established rating agency, or other fixed-
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income securities deemed by the Investment Adviser to be consistent with a
defensive posture, or may hold its assets in cash. The yield on such
securities may be lower than the yield on lower-rated fixed-income securities.
The Fund is permitted to enter into transactions in futures contracts and
options thereon solely for the purpose of hedging the Fund against adverse
movements in the market value of fixed-income securities held by the Fund, or
that it intends to purchase, and not for the purpose of speculation.
Transactions in options on debt securities also may be entered into for such
hedging purposes, as well as for non-hedging purposes intended to increase the
Fund's returns. For a more complete description of futures and options
transactions, see "Interest Rate Futures and Options Thereon" below and
"Options on Debt Securities" below and in the Statement of Additional
Information.
RISK FACTORS IN TRANSACTIONS IN JUNK BONDS
Junk bonds are regarded as being predominantly speculative as to the
issuer's ability to make payments of principal and interest. Investment in
such securities involves substantial risk. Issuers of junk bonds may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risks associated with acquiring the securities of
such issuers generally are greater than is the case with higher rated
securities. For example, during an economic downturn or a sustained period of
rising interest rates, issuers of junk bonds may be more likely to experience
financial stress, especially if such issuers are highly leveraged. In
addition, the market for junk bonds is relatively new and has not weathered a
major economic recession, and it is unknown what effects such a recession
might have on such securities. During such periods, such issuers may not have
sufficient revenues to meet their interest payment obligations. The issuer's
ability to service its debt obligations also may be adversely affected by
specific issuer developments, or the issuer's inability to meet specific
projected business forecasts, or the unavailability of additional financing.
The risk of loss due to default by the issuer is significantly greater for the
holders of junk bonds because such securities may be unsecured and may be
subordinated to other creditors of the issuer. While most of the high-yield
bonds in which the Fund may invest do not include securities that, at the time
of investment, are in default or the issuers of which are in bankruptcy, there
can be no assurance that such events will not occur after the Fund purchases a
particular security, in which case the Fund may experience losses and incur
costs.
Junk bonds frequently have call or redemption features that would permit an
issuer to repurchase the security from the Fund. If a call were exercised by
the issuer during a period of declining interest rates, the Fund likely would
have to replace such called security with a lower yielding security, thus
decreasing the net investment income to the Fund and dividends to
shareholders.
Junk bonds tend to be more volatile than higher rated fixed-income
securities, so that adverse economic events may have a greater impact on the
prices of junk bonds than on higher rated fixed-income securities. Like higher
rated fixed-income securities, junk bonds are generally purchased and sold
through dealers who make a market in such securities for their own accounts.
However, there are fewer dealers in the junk bond market, which may be less
liquid than the market for higher rated fixed-income securities even under
normal economic conditions. Also, there may be significant disparities in the
prices quoted for junk bonds by various dealers. Adverse economic conditions
or investor perceptions (whether or not based on economic fundamentals) may
impair the liquidity of this market, and may cause the prices the Fund
receives for its junk bonds to be reduced, or the Fund may experience
difficulty in liquidating a portion of its portfolio when necessary to meet
the Fund's liquidity needs or in response to a specific economic event such as
a deterioration in the creditworthiness of the
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issuer. Under such conditions, judgment may play a greater role in valuing
certain of the Fund's portfolio securities than in the case of securities
trading in a more liquid market. Factors adversely affecting the market value
of such securities are likely to affect adversely the Fund's net asset value.
In addition, the Fund may incur additional expenses to the extent that it is
required to seek recovery upon a default on a portfolio holding or to
participate in the restructuring of the obligation.
RISK FACTORS IN TRANSACTIONS IN CORPORATE LOANS
As in the case of junk bonds, the Corporate Loans in which the Fund may
invest can be expected to provide higher yields than lower-yielding, higher-
rated fixed income securities but may be subject to greater risk of loss of
principal and income. There are, however, some significant differences between
Corporate Loans and junk bonds. Corporate Loan obligations are frequently
secured by pledges of liens and security interests in the assets of the
borrower, and the holders of Corporate Loans are frequently the beneficiaries
of debt service subordination provisions imposed on the borrower's
bondholders. These arrangements are designed to give Corporate Loan investors
preferential treatment over junk bond investors in the event of a
deterioration in the credit quality of the issuer. Even when these
arrangements exist, however, there can be no assurance that the principal and
interest owed on the Corporate Loans will be repaid in full. Corporate Loans
generally bear interest at rates set at a margin above a generally recognized
base lending rate that may fluctuate on a day-to-day basis, in the case of the
Prime Rate of a U.S. bank, or that may be adjusted on set dates, typically 30
days but generally not more than one year, in the case of the London Interbank
Offered Rate ("LIBOR"). Consequently, the value of Corporate Loans held by the
Fund may be expected to fluctuate significantly less than the value of fixed
rate junk bond instruments as a result of changes in the interest rate
environment. On the other hand, the secondary dealer market for Corporate
Loans is not as well developed as the secondary dealer market for junk bonds,
and therefore presents increased market risk relating to liquidity and pricing
concerns.
The Fund may acquire interests in Corporate Loans by means of a novation,
assignment or participation. In a novation, the Fund would succeed to all the
rights and obligations of the assigning institution and become a contracting
party under the credit agreement with respect to the debt obligation. As an
alternative, the Fund may purchase an assignment, in which case the Fund may
be required to rely on the assigning institution to demand payment and enforce
its rights against the borrower but would otherwise typically be entitled to
all of such assigning institution's rights under the credit agreement.
Participation interests in a portion of a debt obligation typically result in
a contractual relationship only with the institution participating out the
interest and not with the borrower. In purchasing a loan participation, the
Fund generally will have no right to enforce compliance by the borrower with
the terms of the loan agreement, nor any rights of set-off against the
borrower, and the Fund may not directly benefit from the collateral supporting
the debt obligation in which it has purchased the participation. As a result,
the Fund will assume the credit risk of both the borrower and the institution
selling the participation to the Fund.
RISK FACTORS IN TRANSACTIONS IN DISTRESSED SECURITIES
Investment in Distressed Securities is speculative and involves significant
risk. Distressed Securities frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses in
order to protect and recover its investment. Therefore, to the extent the Fund
pursues its secondary objective of capital appreciation through investment in
Distressed Securities, the Fund's ability to achieve current income for its
shareholders may be diminished. The Fund will only make such investments when
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the Investment Adviser believes it is reasonably likely that the issuer of the
securities will make an exchange offer or will be the subject of a plan of
reorganization; however, there can be no assurance that such an exchange offer
will be made or that such a plan of reorganization will be adopted. In
addition, a significant period of time may pass between the time at which the
Fund makes its investment in Distressed Securities and the time that any such
exchange offer or plan of reorganization is completed. During this period, it
is unlikely that the Fund will receive any interest payments on the Distressed
Securities, the Fund will be subject to significant uncertainty as to whether
or not the exchange offer or plan of reorganization will be completed, and the
Fund may be required to bear certain expenses to protect its interest in the
course of negotiations surrounding any potential exchange offer or plan of
reorganization. In addition, even if an exchange offer is made or a plan of
reorganization is adopted with respect to Distressed Securities held by the
Fund, there can be no assurance that the securities or other assets received
by the Fund in connection with such exchange offer or plan of reorganization
will not have a lower value or income potential than anticipated when the
investment was made. Moreover, any securities received by the Fund upon
completion of an exchange offer or plan of reorganization may be restricted as
to resale. In addition, as a result of the Fund's participation in
negotiations with respect to any exchange offer or plan of reorganization with
respect to an issue of Distressed Securities, the Fund may be precluded from
disposing of such securities.
INVESTMENTS IN FOREIGN SECURITIES
The Fund may invest in securities issued by foreign governments (or
political subdivisions or instrumentalities thereof) or foreign companies
(collectively, "Foreign Securities"). The Fund may only invest in Foreign
Securities if, at the time of acquisition, no more than 25% of its total
assets (taken at market value at the time of the investment) would be invested
in Foreign Securities following such investment. Certain Foreign Securities
may be subject to non-U.S. withholding taxes. In addition, investment in
Foreign Securities entails certain risks, which are discussed below.
Public Information. Many of the Foreign Securities held by the Fund will not
be registered with the Commission nor will the issuers thereof be subject to
the reporting requirements of such agency. Accordingly, there may be less
publicly available information about the foreign issuer of such securities
than about a U.S. issuer, and such foreign issuers may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to those of U.S. issuers. Traditional investment measurements, as
used in the United States, may not be applicable to such securities,
particularly those issued in certain smaller, emerging foreign capital
markets. Foreign issuers, and issuers in smaller, emerging capital markets in
particular, generally are not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to domestic issuers.
Trading Volume, Clearance and Settlement. Foreign financial markets, while
often growing in trading volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices may be more volatile than securities of comparable
domestic companies. Foreign markets also have different clearance and
settlement procedures, and in certain markets there have been times when
settlements have failed to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Further,
satisfactory custodial services for investment securities may not be available
in some countries having smaller, emerging capital markets, which may result
in the Fund incurring additional costs and delays in transporting and
custodying such securities outside such countries. Delays in settlement could
result in periods when assets of the Fund are uninvested and no return is
earned thereon. The
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<PAGE>
inability of the Fund to make intended security purchases due to settlement
problems or the risk of intermediary counterparty failures could cause the
Fund to miss attractive investment opportunities. The inability to dispose of
a portfolio security due to settlement problems could result either in losses
to the Fund due to subsequent declines in the value of such portfolio
security, or if the Fund has entered into a contract to sell the security,
could result in possible liability to the purchaser.
Government Supervision and Regulation. There generally is less governmental
supervision and regulation of exchanges, brokers and issuers in foreign
countries than there is in the United States. For example, there may be no
comparable provisions under certain foreign laws to insider trading and
similar investor protection securities laws that apply with respect to
securities transactions consummated in the United States. Further, brokerage
commissions and other transaction costs on foreign securities exchanges
generally are higher than in the United States.
With respect to certain foreign countries there is a possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments that could affect investment in those
countries. In addition, certain Foreign Securities may be subject to non-U.S.
withholding taxes.
INTEREST RATE FUTURES AND OPTIONS THEREON
The Fund may engage in hedging transactions in bond futures contracts and
options thereon. The Fund currently may trade only in futures contracts on
U.S. Treasury bonds, bills and notes and Government National Mortgage
Association ("GNMA") mortgage-backed certificates and options on such futures
contracts. However, under its investment restrictions, the Fund is permitted
to trade in such additional types of interest rate futures contracts and
options thereon as its Board of Directors determines is appropriate for
trading by the Fund, subject to the restrictions noted below. Reference is
made to the Statement of Additional Information for a further description of
the various instruments and related portfolio strategies that may be used by
the Fund.
Futures. The Fund may engage in transactions in futures contracts and
options thereon. Futures are standardized, exchange-traded derivatives
contracts that obligate a purchaser to take delivery, and a seller to make
delivery, of a specific amount of a commodity at a specified future date at a
specified price. The Fund does not intend to take delivery of the commodities
or instruments underlying its transactions in futures contracts. Options on
futures are options to either buy (call) or sell (put) a futures contract at a
specified price prior to a specified date. No price is paid upon entering into
a futures contract (although a fee, or option premium, is generally paid to
the seller of an option on a futures contract at the initiation of the
transaction). Rather, upon purchasing or selling a futures contract the Fund
is required to deposit collateral ("margin") equal to a percentage (generally
less than 10%) of the contract value. Each day thereafter until the futures
position is closed, the Fund will pay additional margin representing any loss
experienced as a result of the futures position the prior day or be entitled
to a payment representing any profit experienced as a result of the futures
position the prior day.
The Fund may sell futures contracts or purchase put options on futures
contracts in anticipation of an increase in interest rates. Generally, as
interest rates rise, the market value of the fixed-income securities held by
the Fund will fall, reducing its net asset value. The sale of futures
contracts may limit the Fund's risk of loss through a decline in the market
value of portfolio holdings correlated with the futures contracts prior to the
futures contracts' expiration date. In the event the market value of the
portfolio holdings correlated with the
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<PAGE>
futures contracts increases rather than decreases, however, the Fund will
realize a loss on the futures position and a lower overall return than would
have been realized without the purchase of the futures contracts.
The Fund may purchase futures contracts or purchase call options on futures
contracts in anticipation of a decrease in interest rates. Generally, as
interest rates decrease, the market value of fixed-income securities that the
Fund may be considering purchasing will increase. The purchase of futures
contracts may protect the Fund from having to pay more for such securities
when it identifies specific securities it wishes to purchase. In the event
that such securities decline in value or the Fund determines not to purchase
any additional securities, however, it may realize a loss relating to the
futures position.
The Fund will limit transactions in futures and options on futures to
financial futures contracts (i.e., contracts for which the underlying security
is a bond, bond index or interest rate index) purchased or sold for hedging
purposes (including anticipatory hedges). The Fund will further limit
transactions in futures and options on futures to the extent necessary to
prevent it from being deemed a "commodity pool" under regulations of the
Commodity Futures Trading Commission.
Risk Factors in Futures and Options on Futures. Use of futures and options
on futures for hedging purposes involves the risk of imperfect correlation in
movements in the value of the futures contract and the value of the fixed-
income securities being hedged. An increase or decrease in the general level
of interest rates can generally be expected to have a broadly similar effect
on the market value of government securities on which futures contracts are
based and on the market value of the corporate fixed-income securities in
which the Fund will primarily invest, but it is unlikely that the changes in
value of government securities and corporate fixed-income securities will be
perfectly correlated. In addition, disparities in the average maturity of the
Fund's investments compared to a financial instrument on which a futures
contract is based may also affect the correlation of price movements. If the
value of the futures contract moves more or less than the value of the hedged
corporate fixed-income securities that the Fund owns or anticipates
purchasing, the Fund will experience a gain or loss that will not be
completely offset by movements in the value of the hedged fixed-income
securities.
Transactions in futures and options on futures may expose the Fund to
potential losses that exceed the amount originally invested by the Fund in
such instruments. When the Fund engages in such a transaction, it will deposit
in a segregated account at its custodian liquid securities with a value at
least equal to the Fund's exposure, on a mark-to-market basis, to the
transaction (as calculated pursuant to requirements of the Securities and
Exchange Commission). Such segregation will ensure that the Fund has assets
available to satisfy its obligations with respect to the transaction, but will
not limit the Fund's exposure to loss.
OTHER PORTFOLIO STRATEGIES
The Fund may engage in the portfolio strategies described below and may also
lend portfolio securities, and invest in restricted securities and foreign
securities. Reference is made to the Statement of Additional Information for a
more complete description of such strategies.
Repurchase Agreements. The Fund may invest in repurchase agreements.
Repurchase agreements may be entered into only with a member bank of the
Federal Reserve System or primary dealer in U.S. Government securities or an
affiliate thereof. Under such agreements, the seller agrees, upon entering
into the contract, to repurchase the security from the Fund at a mutually
agreed-upon time and price, thereby determining the yield
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<PAGE>
during the term of the agreement. This results in a fixed rate of return for
the Fund insulated from market fluctuations during such period. In the event
of default by the seller under a repurchase agreement, the Fund will continue
to hold the seller's securities as collateral but may suffer time delays and
incur costs or possible losses in connection with such transactions.
Forward Commitments. The Fund may purchase securities on a when-issued basis
or forward commitment basis, and may purchase or sell securities for delayed
delivery. These transactions occur when securities are purchased or sold by
the Fund with payment and delivery taking place in the future to secure what
is considered an advantageous yield and price to the Fund at the time of
entering into the transaction. The value of the security on the delivery date
may be more or less than its purchase price. The Fund will establish a
segregated account in connection with such transactions in which the Fund will
deposit liquid securities with a value at least equal to the Fund's exposure,
on a mark-to-market basis, to the transaction (as calculated pursuant to
requirements of the Commission). Such segregation will ensure that the Fund
has assets available to satisfy its obligations with respect to the
transaction, but will not limit the Fund's exposure to loss.
Restricted Securities. From time to time the Fund may invest in securities
the disposition of which is subject to legal restrictions, such as
restrictions imposed by the Securities Act of 1933 (the "Securities Act") on
the resale of securities acquired in private placements. If registration of
such securities under the Securities Act is required, such registration may
not be readily accomplished, and if such securities may be resold without
registration, such resale may be permissible only in limited quantities. In
either event, the Fund may not be able to sell its restricted securities at a
time that, in the judgment of the Investment Adviser, would be most opportune.
Standby Commitment Agreements. The Fund may from time to time enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed-income security, which
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security is fixed at the time of the commitment. At the time of
entering into the agreement, the Fund may be paid a commitment fee, regardless
of whether or not the security is ultimately issued, which is typically
approximately 0.5% of the aggregate purchase price of the security that the
Fund has committed to purchase. The Fund will enter into such agreements only
for the purpose of investing in the security underlying the commitment at a
yield and price that is considered advantageous to the Fund. The Fund will not
enter into a standby commitment with a remaining term in excess of 45 days and
will limit its investment in such commitments so that the aggregate purchase
price of the securities subject to such commitments, together with the value
of portfolio securities subject to legal restrictions on resale, will not
exceed 15% of its assets taken at the time of acquisition of such commitment
or security. The Fund will at all times maintain a segregated account with its
custodian of cash or liquid, high-grade debt obligations in an amount equal to
the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance
of the security underlying the commitment is at the option of the issuer, the
Fund may bear the risk of a decline in the value of such security and may not
benefit from an appreciation in the value of the security during the
commitment period.
The purchase of a security subject to a standby commitment agreement and the
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the
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<PAGE>
security will thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by the amount of
the commitment fee. In the event the security is not issued, the commitment
fee will be recorded as income on the expiration date of the standby
commitment.
Options on Debt Securities. The Fund may write call and put options on U.S.
Treasury bills, notes and bonds in order to increase the return on their
investments and in order to hedge optionable U.S. Treasury securities held by
the Fund. The Fund will write only covered call options on debt securities
(i.e., options in which it owns the underlying security) or fully funded put
options on debt securities (i.e., options in which an amount of cash or short-
term securities equal to the exercise price of the put has been segregated
with the Fund's custodian). By writing covered options on U.S. Treasury
securities, the Fund will be able to increase its return on the underlying
securities by the amount of the premium, if the option expires unexercised, or
by the amount of any profits earned by closing out the option position. The
Fund may be required, however, to forego benefits that could have been
obtained from an increase in the value of securities on which a call is
written or a decrease in the value of securities on which a put is written. As
a result, the Fund may receive less total return, and at other times greater
total return, than if it had not written options.
The Fund also may purchase put options on optionable U.S. Treasury bills,
notes and bonds held in the Fund and, under certain limited circumstances
described in the Statement of Additional Information, call options on such
instruments. Purchases of put options may enable the Fund to limit the risk of
declines in the value of the portfolio security underlying the put, until the
expiration of the option or the closing of the option transaction. By
purchasing a put, however, the Fund will be required to pay the premium, which
will reduce the benefits obtained from the transaction.
Although options written by the Fund may be terminated prior to exercise or
expiration by entering into an offsetting transaction, the ability to do so
depends upon the presence of a liquid secondary market on the exchange on
which the option is traded. If no such market is available, the Fund may be
unable to terminate existing positions and may be subject to exercise of the
option under unfavorable circumstances. The Fund will enter into transactions
in options on debt securities only when the management of the Fund believes
that a liquid secondary market for such options is available. Reference is
made to the Appendix to the Statement of Additional Information for further
information regarding the trading of options on debt securities. Exchanges
generally introduce options series on specific issues of U.S. Treasury bonds
and notes as such securities are issued. Such Exchanges, however, do not
ordinarily introduce new series of options on such issues to replace expiring
series inasmuch as trading interest tends to center on the most recently
auctioned issues of Treasury bonds and notes. Consequently, options
representing a full range of expirations will not usually be available for
every issue on which options are traded.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of restrictions and policies relating to the
investment of its assets and its activities, which are fundamental policies
and may not be changed without the approval of the holders of a majority of
the Fund's outstanding voting securities (including a majority of the shares
of the Fund). Among such restrictions are prohibitions against the Fund
investing more than 5% of its total assets in the securities of any one issuer
and investing more than 25% of its total assets in the securities of issuers
primarily engaged in the same industry. Investors are referred to the
Statement of Additional Information for a complete description of such
restrictions and policies.
17
<PAGE>
PERFORMANCE INFORMATION OF A SIMILAR MERRILL LYNCH FUND
In managing the Fund's portfolio, the Investment Adviser will use the same
investment strategies and techniques that are used by the Investment Adviser
in managing the assets of the High Income Portfolio (the "High Income
Portfolio") of Merrill Lynch Corporate Bond Fund, Inc. (the "Corporate Bond
Fund"), a professionally managed, diversified, open-end investment company
consisting of three separate portfolios. The Portfolio Managers of the Fund
and the High Income Portfolio are identical. See "Investment Adviser." The
investment objectives of the Fund and the High Income Portfolio are
substantially identical. See "Investment Objectives and Policies."
Set forth on the following page are the High Income Portfolio's average
annual total returns for the one, five and ten year periods ended on the last
day of the High Income Portfolio's most recent fiscal year. The investment
performance of the High Income Portfolio is not the investment performance of
the Fund. This information is provided solely to illustrate the historical
performance achieved by the Investment Adviser in managing a mutual fund with
investment objectives that are substantially identical to the investment
objectives of the Fund. Certain of the investment policies, strategies and
techniques currently applicable to or utilized by the Fund and the High Income
Portfolio were not applicable to or employed by the High Income Portfolio
during the entire period of its operations. It is important to recognize that
the fees and expenses of the Fund are higher than those of the High Income
Portfolio. Therefore, if the Fund's fees and expenses had been applicable to
the High Income Portfolio during the periods set forth below, the investment
performance of the High Income Portfolio would have been lower than its actual
performance. In addition, it is also important to recognize that the
investment performance of the Fund will differ from the investment performance
of the High Income Portfolio. The past performance of the High Income
Portfolio should not be viewed as indicative of the Fund's future investment
performance. The following data should be read in conjunction with the
accompanying notes. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
AVERAGE ANNUAL TOTAL RETURNS OF THE HIGH INCOME PORTFOLIO(/1/)
FOR PERIODS ENDED SEPTEMBER 30, 1997(/2/)
<TABLE>
<CAPTION>
TEN YEARS/LIFE
CLASS OF SHARES ONE YEAR FIVE YEARS OF CLASS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
A 10.00% 10.53% 11.82%
--------------------------------------------------------------------------------
B 9.86% 10.60% 11.60%(/3/)
--------------------------------------------------------------------------------
C 12.66% N/A 12.80%(/4/)
--------------------------------------------------------------------------------
D 9.72% N/A 11.87%(/5/)
</TABLE>
- --------
(1) The returns of the High Income Portfolio set forth herein are net of
maximum sales charges applicable to the High Income Portfolio and net of
all fees (including monthly compensation paid to FAM at the annual rate
of 0.55% of the average daily net assets of the High Income Portfolio,
with reduced rates applicable to portions of the assets of the High
Income Portfolio to the extent that the aggregate of the average daily
net assets of the three combined portfolios of the Corporate Bond Fund
exceeds $250 million, $500 million and $750 million) and expenses of the
High Income Portfolio.
(2) The financial information set forth herein is based upon the annual
audits of the financial statements of the High Income Portfolio.
Financial statements of the High Income Portfolio for the fiscal year
ended September 30, 1997, and the independent auditors' report
(footnotes continued on following page)
18
<PAGE>
thereon, are included in the Statement of Additional Information of the
Corporate Bond Fund. Further information about the performance of the High
Income Portfolio is contained in the Corporate Bond Fund's Annual Report,
which can be obtained, without charge, upon request.
(3) The average annual total return indicated is for the period October 21,
1988 (commencement of operations of the Class B shares) through September
30, 1997.
(4) The average annual total return indicated is for the period October 21,
1994 (commencement of operations of the Class C shares) through September
30, 1997.
(5) The average annual total return indicated is for the period October 21,
1994 (commencement of operations of the Class D shares) through September
30, 1997.
INVESTMENT ADVISER
The Investment Adviser to the Fund is FAM, an affiliate of MLAM, an indirect
subsidiary of ML & Co., a financial services holding company and the parent of
Merrill Lynch. The address of FAM is P.O. Box 9011, Princeton, New Jersey
08543-9011. The Asset Management Group of ML & Co. (which includes the
Investment Adviser) acts as the investment adviser for more than 100
registered investment companies and offers portfolio management services to
individual and institutional accounts. As of March 1998, the Asset Management
Group had a total of approximately $488 billion in investment company and
other portfolio assets under management. This amount includes assets managed
for certain affiliates of FAM.
The Fund has entered into an investment advisory agreement with FAM (the
"Investment Advisory Agreement"). The Investment Advisory Agreement provides
that, subject to the general supervision of the Board of Directors of the
Fund, FAM renders investment advice to the Fund and is responsible for the
overall management of the Fund's business affairs. The responsibility for
making decisions to buy, sell or hold a particular security rests with FAM. As
described in the Investment Advisory Agreement, FAM will receive for its
services to the Fund monthly compensation at the annual rate of 0.60% of the
average daily net assets of the Fund. The Investment Advisory Agreement
obligates the Fund to pay certain expenses incurred in its operations,
including general administrative expenses.
The Investment Adviser has entered into a sub-advisory agreement (the "Sub-
Advisory Agreement") with MLAM U.K., an indirect, wholly owned subsidiary of
ML & Co. and an affiliate of the Investment Adviser, pursuant to which the
Investment Adviser pays MLAM U.K. a fee for providing investment advisory
services to the Investment Adviser with respect to the Fund in an amount to be
determined from time to time by the Investment Adviser and MLAM U.K., but in
no event in excess of the amount that the Investment Adviser actually receives
for providing services to the Fund pursuant to the Investment Advisory
Agreement. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y
9HA, England.
Accounting services are provided to the Fund by FAM and the Fund reimburses
FAM for its costs in connection with such services.
Vincent T. Lathbury III and Aldona Schwartz serve as the Portfolio Managers
of the Fund and are primarily responsible for its day-to-day management. Mr.
Lathbury has served as First Vice President of MLAM since 1997, Vice President
of MLAM from 1982 to 1997 and Portfolio Manager of the Investment Adviser and
MLAM since 1982. Ms. Schwartz has served as a Vice President and Portfolio
Manager of the Investment Adviser and MLAM since 1990.
19
<PAGE>
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-1 of the Investment Company Act of 1940 (the "Investment Company Act")
that incorporates the Code of Ethics of the Investment Adviser (together, the
"Codes"). The Codes significantly restrict the personal investing activities
of all employees of the Investment Adviser and, as described below, impose
additional, more onerous, restrictions on the Fund's investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Investment Adviser include a ban on acquiring any securities
in a "hot" initial public offering and a prohibition from profiting on short-
term trading in securities. In addition, no employee may purchase or sell any
security which at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or sale, by
any fund advised by the Investment Adviser. Furthermore, the Codes provide for
trading "blackout periods" that prohibit trading by investment personnel of
the Fund within periods of trading by the Fund in the same (or equivalent)
security (15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
The Transfer Agent, a subsidiary of ML & Co., acts as the Fund's Transfer
Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible
for the issuance, transfer and redemption of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives an annual fee of up to $11.00 per Class
A or Class D account of the Fund and up to $14.00 per Class B or Class C
account of the Fund, and is entitled to reimbursement for certain transaction
charges and out-of-pocket expenses incurred by the Transfer Agent under the
Transfer Agency Agreement. Additionally, a $.20 monthly closed account charge
will be assessed on all accounts that close during the calendar year.
Application of this fee will commence the month following the month the
account is closed. At the end of the calendar year, no further fees will be
due. For purposes of the Transfer Agency Agreement, the term "account"
includes a shareholder account maintained directly by the Transfer Agent and
any other account representing the beneficial interest of a person in the
relevant share class on a recordkeeping system, provided the recordkeeping
system is maintained by a subsidiary of ML & Co.
DIRECTORS
The Directors of the Fund consist of six individuals, five of whom are "non-
affiliated" persons of the Fund as defined in the Investment Company Act. The
Directors of the Fund are responsible for the overall supervision of the
operations of the Fund and perform the various duties imposed on the directors
of investment companies by the Investment Company Act. The Board of Directors
elects officers of the Fund annually.
The Directors of the Fund and their principal employment are as follows:
Arthur Zeikel*--Chairman of the Investment Adviser and its affiliate, MLAM;
Chairman and Director of Princeton Services, Inc. ("Princeton Services");
Executive Vice President of ML & Co.
20
<PAGE>
Ronald W. Forbes--Professor of Finance, School of Business, State University
of New York at Albany.
Cynthia A. Montgomery--Professor of Competition and Strategy, Harvard
Business School.
Charles C. Reilly--Self-employed financial consultant; former President and
Chief Investment Officer of Verus Capital, Inc.; former Senior Vice President
of Arnhold and S. Bleichroeder, Inc.
Kevin A. Ryan--Professor of Education at Boston University; Founder and
current Director of the Boston University Center for the Advancement of Ethics
and Character.
Richard R. West--Dean Emeritus, New York University Leonard N. Stern School
of Business Administration.
- --------
* Interested person, as defined in the Investment Company Act, of the Fund.
PURCHASE OF SHARES
The Fund continuously offers its shares in four classes at a public offering
price equal to the net asset value plus varying sales charges as set forth
below. The Distributor, an affiliate of both the Investment Adviser and
Merrill Lynch, acts as the distributor of the shares. Shares may be purchased
from the Distributor or from other securities dealers, including Merrill
Lynch, with whom the Distributor has entered into selected dealer agreements.
The minimum initial purchase in the Fund is $1,000 and the minimum subsequent
purchase in the Fund is $50, except that for (i) retirement plans the minimum
initial purchase in the Fund is $100 and the minimum subsequent purchase is
$1, and (ii) for shareholders who are participants in a Mutual Funds Adviser
("MFA") program administered by Merrill Lynch, the minimum initial purchase is
$250 and the minimum subsequent purchase is $50. Merrill Lynch charges its
customers a processing fee (currently $5.35) to confirm a sale of shares to
such customers.
The Fund issues four classes of shares under the Merrill Lynch Select
PricingSM System, which permits each investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances. Class A and Class D shares are sold
to investors choosing the initial sales charge alternative and Class B and
Class C shares are sold to investors choosing the deferred sales charge
alternative. Investors should determine whether under their particular
circumstances it is more advantageous to incur an initial sales charge, as
discussed below, or to have the entire initial purchase price invested in the
Fund with the investment thereafter being subject to ongoing account
maintenance and distribution fees and a possible CDSC if shares are redeemed
during the applicable CDSC period. A discussion of the factors that investors
should consider in determining the method of purchasing shares under the
Merrill Lynch Select PricingSM System is set forth under "Merrill Lynch Select
PricingSM System" on page 4.
21
<PAGE>
Each Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the Fund and has the same rights, except that Class B,
Class C and Class D shares bear the expenses of the ongoing account
maintenance fees, and Class B and Class C shares bear the expenses of the
ongoing distribution fees and the additional incremental transfer agency costs
resulting from the deferred sales charge arrangements. The deferred sales
charges, distribution fees and account maintenance fees that are imposed on
Class B and Class C shares, as well as the account maintenance fees that are
imposed on Class D shares, will be imposed directly against those classes and
not against all assets of the Fund and, accordingly, such charges will not
affect the net asset value of any other class or have any impact on investors
choosing another sales charge option. Dividends paid by the Fund for each
class of shares will be calculated in the same manner at the same time and
will differ only to the extent that account maintenance and distribution fees
and any incremental transfer agency costs relating to a particular class are
borne exclusively by that class. Class B, Class C and Class D shares of the
Fund each have exclusive voting rights with respect to the Rule 12b-1
distribution plan adopted with respect to such class pursuant to which account
maintenance and/or distribution fees are paid (except that Class B
shareholders may vote upon any material changes to expenses charged under the
Class D distribution plan). See "Distribution Plans" below. Each class has
different exchange privileges. See "Shareholder Services--Exchange Privilege."
Investors should understand that the purpose and function of the initial
sales charges with respect to Class A and Class D shares are the same as those
of the CDSC and distribution fees with respect to Class B and Class C shares
in that the sales charges and distribution fees applicable to each class
provide for the financing of the distribution of the shares of the Fund. The
distribution-related revenues paid with respect to a class will not be used to
finance the distribution expenditures of another class. Sales personnel may
receive different compensation for selling different classes of shares.
Investors are advised that only Class A and Class D shares may be available
for purchase through securities dealers, other than Merrill Lynch, that are
eligible to sell shares.
The following tables set forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select PricingSM System.
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 4.00% initial No No No
sales charge(/2/),(/3/)
- --------------------------------------------------------------------------------------------
B CDSC for a period of four years, 0.25% 0.50% B Shares convert to
at a rate of 4.00% during D shares automatically
the first year, decreasing 1.0% after approximately
annually to 0.0%(/4/) ten years(/5/)
- --------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.55% No
decreasing to 0.0% after the
first year(/6/)
- --------------------------------------------------------------------------------------------
D Maximum 4.00% initial 0.25% No No
sales charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. Contingent deferred sales charges are imposed if
the redemption occurs within the applicable CDSC time period. The charge
will be assessed on an amount equal to the lesser of the proceeds of
redemption or the cost of the shares being redeemed.
(footnotes continued on following page)
22
<PAGE>
(2) Offered only to eligible investors. See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares--Eligible Class A
Investors."
(3) Reduced for purchases of $25,000 or more and waived for purchases of
Class A shares by certain retirement plans and participants in connection
with certain fee-based programs. Class A and Class D share purchases of
$1,000,000 or more may not be subject to an initial sales charge but
instead may be subject to a 1.0% CDSC if redeemed within one year. Such
CDSC may be waived in connection with certain fee-based programs. A 0.75%
sales charge for 401(k) purchases over $1,000,000 will apply.
(4) The CDSC may be modified in connection with certain fee-based programs.
(5) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans were modified. Also,
Class B shares of certain other MLAM-advised mutual funds into which
exchanges may be made have an eight-year conversion period. If Class B
shares of the Fund are exchanged for Class B shares of another MLAM-
advised mutual fund, the conversion period applicable to the Class B
shares acquired in the exchange will apply, and the holding period for
the shares exchanged will be "tacked" onto the holding period for the
shares acquired.
(6) The CDSC may be waived in connection with certain fee-based programs.
INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Investors choosing the initial sales charge alternatives who are eligible to
purchase Class A shares should purchase Class A shares rather than Class D
shares because there is an account maintenance fee imposed on Class D shares.
Sales charges for purchases of Class A and Class D shares of the Fund,
computed as indicated below, are reduced on larger purchases. The Distributor
may reallow as a discount all or a part of such sales charge to securities
dealers with whom it has agreements and will retain any portion of the sales
charge not reallowed. If 90% or more of the sales charge is reallowed to a
dealer, such dealer may be deemed to be an underwriter within the meaning of
the Securities Act and subject to liability as such. The Distributor will
retain the entire sales charge on orders placed directly with it. The sales
charges applicable to the Fund, expressed as a percentage of the gross public
offering price and the net amount invested, and expected dealer discounts,
expressed as a percentage of the gross public offering price, are as follows:
<TABLE>
<CAPTION>
CLASS A AND CLASS D SHARES
----------------------------------------------------
SALES LOAD AS A DISCOUNT TO
SALES LOAD PERCENTAGE OF SELECT DEALERS
AS A PERCENTAGE NET AMOUNT AS A PERCENTAGE
AMOUNT OF PURCHASE OF OFFERING PRICE INVESTED* OF OFFERING PRICE
- ------------------ ----------------- ---------------- -----------------
<S> <C> <C> <C>
Less than $25,000........ 4.00% 4.17% 3.75%
$25,000 but less than
$50,000................. 3.75 3.90 3.50
$50,000 but less than
$100,000................ 3.25 3.36 3.00
$100,000 but less than
$250,000................ 2.50 2.56 2.25
$250,000 but less than
$1,000,000.............. 1.50 1.52 1.25
$1,000,000 and more**.... 0.00 0.00 0.00
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent.
** The initial sales charge may be waived on Class A and Class D purchases of
$1,000,000 or more, and on Class A purchases by certain retirement plan
investors and participants in certain fee-based programs. If the sales
charge is waived in connection with a purchase of $1,000,000 or more, such
purchases may be subject to a 1.0% CDSC if the shares are redeemed within
one year after purchase. Such CDSC may be waived in connection with certain
fee-based programs. The charge will be assessed on an amount equal to the
lesser of the proceeds of redemption or the cost of the shares being
redeemed. A sales charge of 0.75% will be imposed on purchases of $1
million or more of Class A or Class D shares by certain 401(k) plans.
23
<PAGE>
Since securities dealers selling Class A and Class D shares of the Fund will
receive a concession equal to most of the sales charge, they may be deemed to
be underwriters under the Securities Act. The proceeds from the account
maintenance fees are used to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing continuing account maintenance
activities.
Eligible Class A Investors. Class A shares are offered to a limited group of
investors and also will be issued upon reinvestment of dividends from
outstanding Class A shares. Investors that currently own Class A shares of the
Fund in a shareholder account, including participants in the Merrill Lynch
BlueprintSM Program, are entitled to purchase additional Class A shares of the
Fund in that account. Certain employer sponsored retirement or savings plans,
including eligible 401(k) plans, may purchase Class A shares of the Fund at
net asset value provided such plans meet the required minimum number of
eligible employees or required amount of assets advised by FAM or any of its
affiliates. Class A shares are available at net asset value to corporate
warranty insurance reserve fund programs provided that the program has $3
million or more initially invested in MLAM-advised mutual funds. Also eligible
to purchase Class A shares at net asset value are participants in certain
investment programs including TMASM Managed Trusts to which Merrill Lynch
Trust Company provides discretionary trustee services, collective investment
trusts for which Merrill Lynch Trust Company serves as trustee and purchases
made in connection with certain fee-based programs. In addition, Class A
shares will be offered at net asset value to ML & Co. and its subsidiaries and
their directors and employees and to members of the Boards of MLAM-advised
investment companies, including the Fund. Certain persons who acquired shares
of certain MLAM-advised closed-end funds in their initial offerings who wish
to reinvest the net proceeds from a sale of their closed-end fund shares of
common stock in shares of the Fund also may purchase Class A or Class D shares
of the Fund if certain conditions set forth in the Statement of Additional
Information are met (for closed-end funds that commenced operations prior to
October 21, 1994). For example, Class A shares of the Fund and certain other
MLAM-advised mutual funds are offered at net asset value to shareholders of
Merrill Lynch Senior Floating Rate Fund, Inc. ("Senior Floating Rate Fund")
and, if certain conditions set forth in the Statement of Additional
Information are met, to shareholders of Merrill Lynch Municipal Strategy Fund,
Inc. ("Municipal Strategy Fund") and Merrill Lynch High Income Municipal Bond
Fund, Inc. ("High Income Fund") who wish to reinvest the net proceeds from a
sale of certain of their shares of common stock pursuant to a tender offer
conducted by such funds in shares of the Fund and certain other MLAM-advised
mutual funds.
As to purchase orders received by securities dealers prior to the close of
the New York Stock Exchange ("NYSE") (generally 4:00 p.m., New York City time)
on the day the order is placed with the Distributor, including orders received
after the close on the previous day, the applicable offering price will be
based on the net asset value determined as of 15 minutes after the close of
the NYSE on the day the order is placed with the Distributor, provided the
order is received by the Distributor not later than 30 minutes after the close
of business on the NYSE (generally 4:00 p.m., New York City time), on that
day. If the purchase orders are not received by the Distributor as of 30
minutes after the close of business on the NYSE such orders will be deemed
received on the next business day. Any order may be rejected by the
Distributor or the Fund. Neither the Distributor nor securities dealers are
permitted to withhold placing orders to benefit themselves by a price change.
The Fund reserves the right to suspend the sale of its shares to the public in
response to conditions in the securities markets, or otherwise.
Reduced Initial Sales Charges. No initial sales charges are imposed upon
Class A and Class D shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions. Class A and Class D
24
<PAGE>
sales charges also may be reduced under a Right of Accumulation and a Letter
of Intention. Class A shares are offered at net asset value to certain
eligible Class A investors as set forth above under "Eligible Class A
Investors." See "Shareholder Services--Fee-Based Programs."
Provided applicable threshold requirements are met, either Class A and Class
D shares are offered at net asset value to Employee AccessSM Accounts
available through authorized employers. Subject to certain conditions Class A
and Class D shares are offered at net asset value to shareholders of Municipal
Strategy Fund and High Income Fund and Class A shares are offered at net asset
value to shareholders of Senior Floating Rate Fund who wish to reinvest in
shares of the Fund the net proceeds from a sale of certain of their shares of
common stock, pursuant to tender offers conducted by those funds.
Class D shares are offered at net asset value, without sales charge, to an
investor who has a business relationship with a Merrill Lynch Financial
Consultant if certain conditions set forth in the Statement of Additional
Information are met.
Class D shares may be offered at net asset value in connection with the
acquisition of assets of other investment companies. Class D shares are
offered with reduced sales charges and, in certain circumstances, at net asset
value, to participants in the Merrill Lynch BlueprintSM Program.
Additional information concerning these reduced initial sales charges is set
forth in the Statement of Additional Information.
DEFERRED SALES CHARGE ALTERNATIVES--CLASS B AND CLASS C SHARES
Investors choosing the deferred sales charge alternatives should consider
Class B shares if they intend to hold their shares for an extended period of
time and Class C shares if they are uncertain as to the length of time they
intend to hold their assets in MLAM-advised mutual funds.
The public offering price of Class B and Class C shares for investors
choosing the deferred sales charge alternatives is the next determined net
asset value per share without the imposition of a sales charge at the time of
purchase. As discussed below, Class B shares of the Fund are subject to a
four-year CDSC, which declines each year, while Class C shares are subject
only to a one-year CDSC. On the other hand, approximately ten years after
Class B shares are issued, such Class B shares, together with shares issued
upon dividend reinvestment with respect to those shares, are automatically
converted into Class D shares of the Fund and thereafter will be subject to
lower continuing fees. See "Conversion of Class B Shares to Class D Shares"
below. Both Class B and Class C shares of the Fund are subject to an account
maintenance fee of 0.25% of net assets. Class B and Class C shares of the Fund
are subject to distribution fees of 0.50% and 0.55%, respectively, of net
assets. See "Distribution Plans." The proceeds from the account maintenance
fees are used to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing continuing account maintenance activities.
Class B and Class C shares are sold without an initial sales charge so that
the Fund will receive the full amount of the investor's purchase payment.
Merrill Lynch compensates its Financial Consultants for selling Class B and
Class C shares at the time of purchase from its own funds. See "Distribution
Plans" below.
25
<PAGE>
Proceeds from the CDSC and the distribution fee are paid to the Distributor
and are used in whole or in part by the Distributor to defray the expenses of
dealers (including Merrill Lynch) related to providing distribution-related
services to the Fund in connection with the sale of the Class B and Class C
shares, such as the payment of compensation to Financial Consultants for
selling Class B and Class C shares, from its own funds. The combination of the
CDSC and the ongoing distribution fee facilitates the ability of the Fund to
sell the Class B and Class C shares without a sales charge being deducted at
the time of purchase. Approximately ten years after issuance, Class B shares
of the Fund will convert automatically into Class D shares of the Fund, which
are subject to an account maintenance fee but no distribution fee; Class B
shares of certain other MLAM-advised mutual funds into which exchanges may be
made convert into Class D shares automatically after approximately eight
years. If Class B shares of the Fund are exchanged for Class B shares of
another MLAM-advised mutual fund, the conversion period applicable to the
Class B shares acquired in the exchange will apply, and the holding period for
the shares exchanged will be tacked onto the holding period for the shares
acquired.
Imposition of the CDSC and the distribution fee on Class B and Class C
shares is limited by the NASD asset-based sales charge rule. See "Purchase of
Shares--Limitations on the Payment of Deferred Sales Charges" in the Statement
of Additional Information. Class B shareholders of the Fund exercising the
exchange privilege described under "Shareholder Services--Exchange Privilege"
will continue to be subject to the Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares acquired as a
result of the exchange.
Contingent Deferred Sales Charges--Class B Shares. Class B shares that are
redeemed within four years of purchase may be subject to a CDSC at the rates
set forth below charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of the proceeds
of redemption or the cost of the shares being redeemed. Accordingly, no CDSC
will be imposed on increases in net asset value above the initial purchase
price. In addition, no CDSC will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the CDSC on Class B shares:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
YEAR SINCE PERCENTAGE OF
PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------ -------------------
<S> <C>
0-1.................................................... 4.0%
1-2.................................................... 3.0%
2-3.................................................... 2.0%
3-4.................................................... 1.0%
4 and thereafter....................................... 0.0%
</TABLE>
In determining whether a CDSC is applicable to a redemption, the calculation
will be determined in the manner that results in the lowest possible
applicable rate being charged. Therefore, it will be assumed that the
redemption is first of shares held for over four years or shares acquired
pursuant to reinvestment of dividends or distributions and then of shares held
longest during the four-year period. The CDSC will not be applied to dollar
amounts representing an increase in the net asset value since the time of
purchase. A transfer of shares from a shareholder's account to another account
will be assumed to be made in the same order as a redemption.
26
<PAGE>
To provide an example, assume an investor purchased 100 Class B shares of
the Fund at $10 per share (at a cost of $1,000) and in the third year after
purchase, the net asset value per share is $12 and, during such time, the
investor has acquired 10 additional shares upon dividend reinvestment. If at
such time the investor makes his first redemption of 50 shares (proceeds of
$600), 10 shares will not be subject to the CDSC because of dividend
reinvestment. With respect to the remaining 40 shares, the CDSC is applied
only to the original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged a CDSC at a rate of 2.0% (the applicable rate in the third
year after purchase) for shares purchased on or after October 21, 1994.
The Class B CDSC is waived on redemptions of shares made in connection with
certain post-retirement withdrawals from an Individual Retirement Account
("IRA") or other retirement plan or following the death or disability (as
defined in the Code) of a shareholder. The Class B CDSC also is waived on
redemptions of shares in connection with certain group plans through the
Merrill Lynch BlueprintSM Program. See "Shareholder Services--Merrill Lynch
BlueprintSM Program." The contingent deferred sales charge is waived on
redemption of shares by certain eligible 401(a) and eligible 401(k) plans. The
CDSC is also waived for any Class B shares that are purchased by an eligible
401(k) or eligible 401(a) plan and are rolled over into a Merrill Lynch or
Merrill Lynch Trust Company custodied Individual Retirement Account and held
in such account at the time of redemption and for any Class B shares that were
acquired and held at the time of the redemption in an Employee AccessSM
Account available through employers providing eligible 401(k) plans. The Class
B CDSC also is waived for any Class B shares that are purchased within
qualifying Employee AccessSM Accounts. Additional information concerning the
waiver of the Class B CDSC is set forth in the Statement of Additional
Information. The terms of the CDSC may be modified for redemptions made in
connection with certain fee-based programs. See "Shareholder Services--Fee-
Based Programs."
Contingent Deferred Sales Charges--Class C Shares. Class C shares that are
redeemed within one year of purchase may be subject to a 1.0% CDSC charged as
a percentage of the dollar amount subject thereto. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of
the shares being redeemed. Accordingly, no Class C CDSC will be imposed on
increases in net asset value above the initial purchase price. In addition, no
Class C CDSC will be assessed on shares derived from reinvestment of dividends
or capital gains distributions. The Class C CDSC may be waived in connection
with certain fee-based programs. See "Shareholder Services--Fee-Based
Programs."
The following table sets forth the rates of the contingent deferred sales
charge on Class C shares of the Fund:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE AS A
YEAR SINCE PERCENTAGE OF
PURCHASE DOLLAR AMOUNT
PAYMENT MADE SUBJECT TO CHARGE
------------ -------------------
<S> <C>
0-1.................................................... 1.0%
Thereafter............................................. 0.0%
</TABLE>
In determining whether a Class C CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first of shares held for over one year or shares acquired pursuant to
reinvestment of dividends or
27
<PAGE>
distributions and then of shares held longest during the one-year period. The
charge will not be applied to dollar amounts representing an increase in the
net asset value since the time of purchase. A transfer of shares from a
shareholder's account to another account will be assumed to be made in the
same order as a redemption.
Conversion of Class B Shares to Class D Shares. After approximately ten
years (the "Conversion Period"), Class B shares will be converted
automatically into Class D shares of the Fund. Class D shares are subject to
an ongoing account maintenance fee of 0.25% of the Fund's net assets, but are
not subject to the distribution fee that is borne by Class B shares. Automatic
conversion of Class B shares into Class D shares will occur at least once each
month (on the "Conversion Date") on the basis of the relative net asset values
of the shares of the two classes on the Conversion Date, without the
imposition of any sales load, fee or other charge. Conversion of Class B
shares to Class D shares will not be deemed a purchase or sale of the shares
for federal income tax purposes.
In addition, shares purchased through reinvestment of dividends on Class B
shares also will convert automatically to Class D shares. The Conversion Date
for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying such dividend reinvestment shares were
outstanding. If at a Conversion Date the conversion of Class B shares to Class
D shares of the Fund in a single account will result in less than $50 worth of
Class B shares being left in the account, all of the Class B shares of the
Fund held in the account on the Conversion Date will be converted to Class D
shares of the Fund.
Class B shareholders holding share certificates must deliver such
certificates to the Transfer Agent at least one week prior to the Conversion
Date applicable to those shares. Shares evidenced by certificates that are not
received by the Transfer Agent at least one week prior to the Conversion Date
will be converted into Class D shares on the next scheduled Conversion Date
after such certificates are delivered.
In general, Class B shares of MLAM-advised equity mutual funds will convert
approximately eight years after initial purchase, and Class B shares of MLAM-
advised taxable and tax-exempt fixed-income mutual funds will convert
approximately ten years after initial purchase. If, during the Conversion
Period, a shareholder exchanges Class B shares with an eight-year Conversion
Period for Class B shares with a ten-year Conversion Period, or vice versa,
the Conversion Period applicable to the Class B shares acquired in the
exchange will apply, and the holding period for the shares exchanged will be
tacked onto the holding period for the shares acquired.
The Conversion Period is modified for shareholders who purchased Class B
shares through certain retirement plans that qualified for a waiver of the
CDSC normally imposed on purchases of Class B shares ("Class B Retirement
Plans"). When the first share of any MLAM-advised mutual fund purchased by a
Class B Retirement Plan has been held for ten years (i.e., ten years from the
date the relationship between MLAM-advised mutual funds and the Class B
Retirement Plan was established), all Class B shares of all MLAM-advised
mutual funds held in that Class B Retirement Plan will be converted into Class
D shares of the appropriate funds. Subsequent to such conversion, that Class B
Retirement Plan will be sold Class D shares of the appropriate funds at net
asset value per share.
In the event that all Class B shares of the Fund held in a single account
are converted to Class D shares on a Conversion Date, shares representing
reinvestment of declared but unpaid dividends on those Class B shares also
will be converted to Class D shares; otherwise, only Class B shares purchased
through reinvestment of dividends paid will convert to Class D shares on the
Conversion Date.
28
<PAGE>
The Conversion Period may also be modified for retirement plan investors who
participate in certain fee-based programs. See "Shareholder Services--Fee-
Based Programs."
DISTRIBUTION PLANS
The Fund has adopted separate distribution plans for Class B, Class C and
Class D shares pursuant to Rule 12b-1 under the Investment Company Act (each a
"Distribution Plan") with respect to the account maintenance and/or
distribution fees paid by the Fund to the Distributor with respect to such
classes. The Class B and Class C Distribution Plans provide for the payment of
account maintenance fees and distribution fees, and the Class D Distribution
Plan provides for the payment of account maintenance fees.
The Distribution Plans for Class B, Class C and Class D shares each provide
that the Fund pays the Distributor an account maintenance fee relating to the
shares of the relevant class of the Fund, accrued daily and paid monthly, at
the annual rate of 0.25% of average daily net assets of the relevant class for
Class B, Class C and Class D shares of the Fund in order to compensate the
Distributor and Merrill Lynch (pursuant to a sub-agreement) in connection with
account maintenance activities.
The Distribution Plans for Class B and Class C shares each provide that the
Fund also pays the Distributor a distribution fee relating to the shares of
the relevant class, accrued daily and paid monthly, at the annual rate of
0.50% and 0.55%, respectively, of average daily net assets attributable to the
relevant class of the Fund, in order to compensate the Distributor and Merrill
Lynch (pursuant to a sub-agreement) for providing distribution services, and
bearing certain distribution-related expenses of the Fund, including payments
to financial consultants for selling Class B and Class C shares of the Fund.
The Distribution Plans relating to Class B and Class C shares are designed to
permit an investor to purchase Class B and Class C shares through dealers
without the assessment of an initial sales charge and at the same time permit
the dealer to compensate its financial consultants in connection with the sale
of the Class B and Class C shares. In this regard, the purpose and function of
the ongoing distribution fees and the CDSC are the same as those of the
initial sales charge with respect to the Class A and Class D shares of the
Fund in that the CDSC and ongoing distribution fees provide for the financing
of the distribution of the Fund's Class B and Class C shares.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the relevant shares regardless of the
amount of expenses incurred and, accordingly, distribution-related revenues
from the Distribution Plans may be more or less than distribution-related
expenses. Information with respect to the distribution-related revenues and
expenses is presented to the Directors for their consideration in connection
with their deliberations as to the continuance of the Class B and Class C
Distribution Plans. This information is presented annually as of December 31
of each year on a "fully allocated accrual" basis and quarterly on a "direct
expense and revenue/cash" basis. On the fully allocated accrual basis,
revenues consist of the account maintenance fees, distribution fees, CDSCs and
certain other related revenues, and expenses consist of financial consultant
compensation, branch office and regional operation center selling and
transaction processing expenses, advertising, sales promotion and marketing
expenses, corporate overhead and interest expense. On the direct expense and
revenue/cash basis, revenues consist of the account maintenance fees,
distribution fees and CDSCs and the expenses consist of financial consultation
compensation.
The Fund has no obligation with respect to distribution and/or account
maintenance-related expenses incurred by the Distributor and Merrill Lynch in
connection with the Class B, Class C and Class D shares, and
29
<PAGE>
there is no assurance that the Board of Directors of the Fund will approve the
continuance of the Distribution Plans from year to year. However, the
Distributor intends to seek annual continuation of the Distribution Plans. In
their review of the Distribution Plans, the Directors will be asked to take
into consideration expenses incurred in connection with the account
maintenance and/or distribution of each class of shares separately. The
initial sales charges, the account maintenance fee, the distribution fee
and/or the CDSCs received with respect to one class will not be used to
subsidize the sale of shares of another class. Payments of the distribution
fee on Class B shares will terminate upon conversion of those Class B shares
into Class D shares as set forth under "Deferred Sales Charge Alternatives--
Class B and Class C Shares--Conversion of Class B Shares to Class D Shares."
REDEMPTION OF SHARES
The Fund is required to redeem for cash all shares upon receipt of a written
request in proper form. The redemption price is the net asset value per share
next determined after the initial receipt of proper notice of redemption in
the case of the Fund's Class A or Class D shares, and is the net asset value
per share next determined after the initial receipt of proper notice of
redemption, less the applicable CDSC, if any, in the case of the Fund's Class
B or Class C Shares. Except for any CDSC that may be applicable to Class B or
Class C Shares of the Fund, there will be no charge for redemption if the
redemption request is sent directly to the Transfer Agent. Shareholders
liquidating their total holdings also will receive upon redemption all
dividends declared on the shares redeemed. If a shareholder redeems all of the
shares in his account, he will receive, in addition to the net asset value of
the shares redeemed, a separate check representing all dividends declared but
unpaid. If a shareholder redeems a portion of the shares in his account, the
dividends declared but unpaid on the shares redeemed will be distributed on
the next dividend payment date.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by
the Fund at such time.
REDEMPTION
A shareholder wishing to redeem shares may do so by tendering the shares
directly to the Transfer Agent, Merrill Lynch Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests
delivered other than by mail should be delivered to Merrill Lynch Financial
Data Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-
6484. Proper notice of redemption in case of shares deposited with the
Transfer Agent may be accomplished by a written letter requesting redemption.
Proper notice of redemption in the case of shares for which certificates have
been issued may be accomplished by a written letter as noted above accompanied
by certificates for the shares to be redeemed. The notice in either event
requires the signature(s) of all persons in whose name(s) the shares are
registered, signed exactly as their name(s) appears on the Transfer Agent's
register or on the certificate, as the case may be. The signature(s) on the
redemption request must be guaranteed by an "eligible guarantor institution"
as such is defined in Rule 17Ad-15 under the Securities Exchange Act of 1934,
the existence and validity of which may be verified by the Transfer Agent
through the use of industry publications. Notarized signatures are not
sufficient. Examples of "eligible guarantor institutions" include most
commercial banks and broker dealers (including, for example, Merrill Lynch
branch offices). Information regarding other financial institutions that
qualify as "eligible guarantor institutions" may be obtained from the Transfer
Agent. In certain instances, the Transfer Agent may require additional
documents such as, but not limited to, trust instruments, death certificates,
appointments as executor or administrator, or
30
<PAGE>
certificates of corporate authority. For shareholders redeeming directly with
the Transfer Agent, payment will be mailed within seven days after receipt of
a proper notice of redemption.
At various times the Fund may be requested to redeem shares of the Fund for
which it has not yet received good payment. The Fund may delay or cause to be
delayed the mailing of a redemption check until such time, not exceeding ten
days, as it has assured itself that good payment (e.g., cash or certified
check drawn on a United States bank) has been collected for the purchase of
such shares. Normally, this delay will not exceed 10 days.
REPURCHASE
The Fund will also repurchase shares through a shareholder's listed
securities dealer. The Fund normally will accept orders to repurchase shares
by wire or telephone from dealers for their customers at the net asset value
next computed after receipt of the order by the dealer, provided that the
request for purchase is received by the dealer prior to the close of business
on the NYSE (generally, 4:00 p.m., New York time) on the day received, and
such request is received by the Fund from such dealer not later than 30
minutes after the close of business on the NYSE on the same day. Dealers have
the responsibility of submitting such repurchase requests to the Fund not
later than 30 minutes after the close of business on the NYSE in order to
obtain that day's closing price.
The foregoing repurchase arrangements are for the convenience of
shareholders and do not involve a charge by the Fund (other than any
applicable CDSC). Securities firms that do not have selected dealer agreements
with the Distributor may impose a transaction charge on the shareholder for
transmitting the notice of repurchase to the Fund. Merrill Lynch may charge
its customers a processing fee (presently $5.35) to confirm a repurchase of
shares to such customers. Repurchases made directly through the Fund's
Transfer Agent are not subject to the processing fee. The Fund reserves the
right to reject any order for repurchase, which right of rejection might
adversely affect shareholders seeking redemption through the repurchase
procedure. A shareholder whose order for repurchase is rejected by the Fund,
however, may redeem shares as set forth above.
Redemption payments will be made within seven days of the proper tender of
the certificates, if any, and stock power or letter requesting redemption, in
each instance with signatures guaranteed as noted above.
REINSTATEMENT PRIVILEGE--CLASS A AND CLASS D SHARES
As described in further detail in the Statement of Additional Information,
holders of Class A or Class D shares of the Fund who have redeemed their
shares have a privilege to reinstate their accounts by purchasing shares of
the same class at net asset value without a sales charge up to the dollar
amount redeemed. The reinstatement privilege may be exercised by sending a
notice of exercise along with a check for the amount to be reinstated to the
Transfer Agent within 30 days after the date the request for redemption was
accepted by the Transfer Agent or the Distributor. Alternatively, the
reinstatement privilege may be exercised through the investor's Merrill Lynch
Financial Consultant within 30 days after the date the request for redemption
was accepted by the Transfer Agent or Distributor. The reinstatement will be
made at the net asset value per share next determined after the notice of
reinstatement is received and cannot exceed the amount of the redemption
proceeds.
31
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute substantially all of its net
investment income, if any. The net investment income of the Fund is declared
as dividends daily immediately prior to the determination of the net asset
value on that day and is reinvested monthly in additional full and fractional
shares of the Fund at net asset value unless the shareholder elects to receive
such dividends in cash. The net investment income of the Fund for dividend
purposes consists of interest and dividends earned on portfolio securities,
less expenses, in each case computed since the most recent determination of
net asset value. Expenses of the Fund, including the advisory fee and any
account maintenance and/or distribution fees (if applicable), are accrued
daily. Shares will accrue dividends as long as they are issued and
outstanding. The per share dividends and distributions on Class B and Class C
shares will be lower than the per share dividends and distributions on Class A
and Class D shares as a result of the account maintenance, distribution and
higher transfer agency fees applicable to the Class B and Class C shares.
Similarly, the per share dividends and distributions on Class D shares will be
lower than the per share dividends and distributions on Class A shares as a
result of the account maintenance fees applicable with respect to the Class D
shares. See "Additional Information--Determination of Net Asset Value." Shares
are issued and outstanding as of the settlement date of a purchase order to
the settlement date of a redemption order.
In order to avoid a four percent nondeductible excise tax, a regulated
investment company must distribute to its shareholders during the calendar
year an amount equal to 98% of the Fund's investment company income, with
certain adjustments, for such calendar year, plus 98% of the Fund's capital
gain net income for the one-year period ending on October 31 of such calendar
year. All net realized long- or short-term capital gains of the Fund, if any,
including gains from option and futures contract transactions, are declared
and distributed to shareholders annually after the close of the Fund's fiscal
year.
See "Shareholder Services--Automatic Reinvestment of Dividends and Capital
Gain Distributions" for information concerning the manner in which dividends
and distributions may be automatically reinvested in shares of the Fund.
Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash, except that any dividend or distribution of
less than $10 payable to an account maintained directly with the Fund's
Transfer Agent will not be paid in cash but will be reinvested in shares of
the Fund. Dividends and distributions are taxable to shareholders as discussed
below whether they are reinvested in shares of the Fund or received in cash.
FEDERAL INCOME TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies under the Internal Revenue Code of
1986 (the "Code"). The Fund believes that it will qualify for such treatment.
If it so qualifies, the Fund (but not its shareholders) will be relieved of
federal income tax on the amount it distributes to Class A, Class B, Class C
and Class D shareholders (together, the "shareholders"). If in any taxable
year the Fund does not qualify as a regulated investment company, all of its
taxable income will be taxed to the Fund at corporate rates.
The Fund contemplates declaring as dividends substantially all of its net
investment income. See "Dividends and Distributions." Dividends paid by the
Fund from its investment income and distributions of its net realized short-
term capital gains are taxable to shareholders as ordinary income. Dividends
and distributions
32
<PAGE>
will be taxable to shareholders as ordinary income or capital gains, whether
received in cash or reinvested in additional shares of the Fund. Merrill Lynch
Financial Data Services, Inc., the Fund's transfer agent, will send each
shareholder a monthly dividend statement that will include the amount of
dividends paid and identify whether such dividends represent ordinary income
or capital gains.
Upon sale or exchange of shares of the Fund, a shareholder will realize
short- or long-term capital gain or loss, depending upon the shareholder's
holding period in the Fund's shares. However, if a shareholder's holding
period in his shares is six months or less, any capital loss realized from a
sale or exchange of such shares must be treated as long-term capital loss to
the extent of capital gains dividends received with respect to such shares.
Under the Taxpayer Relief Act of 1997 (the "1997 Tax Act"), the maximum tax
rates applicable to net capital gains recognized by individuals and other non-
corporate taxpayers are (i) the same as ordinary income rates for capital
assets held for one year or less, (ii) 28% for capital assets held for more
than one year but not more than 18 months and (iii) 20% for capital assets
held for more than 18 months. Generally, not later than 60 days after the
close of its taxable year. The Fund will provide its shareholders with a
written notice designating the amount of capital gain dividends in the
different categories of capital gain referred to above. Shareholders should
consult their tax advisers regarding the availability and effect of a certain
tax election to mark-to-market shares of the Fund held on January 1, 2001.
Capital gains or losses recognized by corporate shareholders are subject to
tax at the ordinary income tax rates applicable to corporations. The new tax
rates for capital gains under the 1997 Tax Act described above apply to
distributions of capital gain dividends by regulated investment companies
("RICs") such as the Fund as well as to sales and exchanges of shares in RICs
such as the Fund.
The Fund will invest in securities rated in the lower rating categories of
nationally recognized rating organizations, in unrated securities of
comparable quality (together with lower-rated securities, "junk bonds") and in
high-yield Corporate Loans, as previously described. Some of these junk bonds
and high-yield Corporate Loans may be purchased at a discount and may
therefore cause the Fund to accrue and distribute income before amounts due
under the obligations are paid. In addition, a portion of the interest
payments on such junk bonds and high-yield Corporate Loans may be treated as
dividends for Federal income tax purposes; in such case, if the issuer of the
junk bonds or high-yield Corporate Loans is a domestic corporation, dividend
payments by the Fund will be eligible for the dividends received deduction to
the extent of the deemed dividend portion of such interest payments.
The Fund may recognize interest attributable to it from holding zero coupon
securities. Current federal law requires that, for most zero coupon
securities, the Fund must accrue a portion of the discount at which the
security was purchased as income each year even though the Fund receives no
interest payment in cash on the security during the year. In addition, the
Fund may invest in pay-in-kind securities on which payments of interest
consist of securities rather than cash. As an investment company, the Fund
must pay out substantially all of its net investment income each year.
Accordingly, the Fund may be required to pay out as an income distribution
each year an amount that is greater than the total amount of cash interest the
Fund actually received. Such distributions will be made from the cash assets
of the Fund or by sales of portfolio securities, if necessary. The Fund may
realize a gain or loss from such sales.
Some shareholders may be subject to a 31% withholding tax on ordinary income
dividends, capital gains distributions and redemption payments ("backup
withholding"). Generally, shareholders subject to backup withholding will be
those for whom no certified taxpayer identification number is on file with the
Fund or who, to the Fund's knowledge, have furnished an incorrect number. An
investor when establishing an account must
33
<PAGE>
certify under penalty of perjury that such number is correct and that he is
not otherwise subject to backup withholding.
No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares into Class D shares. A shareholder's basis in the
Class D shares acquired will be the same as such shareholder's basis in the
Class B shares converted, and the holding period of the acquired Class D
shares will include the holding period for the converted Class B shares.
Dividends to shareholders who are nonresident aliens, trusts, estates,
partnerships or corporations may be subject to a 30% United States withholding
tax unless a reduced rate of withholding is provided under an applicable
treaty. Shareholders who are nonresident aliens or foreign entities are urged
to consult their own tax advisers concerning the applicability of the United
States withholding tax.
If a shareholder exercises his exchange privilege within 90 days after the
date such shares were acquired to acquire shares in a second Fund ("New
Fund"), then the loss, if any, recognized on the exchange will be reduced (or
the gain, if any, increased) to the extent the load charge paid to the Fund
reduces any load charge such shareholder would have been required to pay on
the acquisition of the New Fund shares in the absence of the exchange
privilege. Instead, such load charge will be treated as an amount paid for the
New Fund shares and will be included in the shareholder's basis for such
shares.
Under another provision of the Code, any dividend declared by the Fund to
shareholders of record in October, November, or December of any year and made
payable to shareholders of record in such a month will be deemed to have been
received on December 31 of such year if actually paid during the following
January.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections
and the Regulations promulgated thereunder. The Code and Regulations are
subject to change by legislative or administrative action either prospectively
or retroactively.
The Statement of Additional Information describes the effect of other
provisions of the Code on the Fund's shareholders.
Ordinary income and capital gains dividends may also be subject to state and
local taxes.
Investors are urged to consult their attorneys or tax advisers regarding
specific questions as to federal, foreign, state or local taxes.
34
<PAGE>
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors of the Fund, the
Investment Adviser is responsible for the Fund's portfolio decisions and the
placing of the Fund's portfolio transactions. With respect to such
transactions, the Investment Adviser seeks to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally
seeks reasonably competitive commission rates, the Fund will not necessarily
be paying the lowest commission or spread available.
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Subject to the policy
established by the Board of Directors, the Investment Adviser is primarily
responsible for the portfolio decisions of the Fund and the placing of its
portfolio transactions. In placing orders, it is the policy of the Fund to
obtain the best price and execution for its transactions. Affiliated persons
of the Fund, including Merrill Lynch, may serve as its broker in over-the-
counter transactions conducted on an agency basis.
The Fund expects that its annual portfolio turnover rate should not exceed
100%; however, during periods when interest rates fluctuate significantly, as
they have during the past few years, the Fund's portfolio turnover rate may be
substantially higher. In any particular year, however, market conditions could
result in portfolio activity at a greater or lesser rate than anticipated.
High portfolio turnover involves correspondingly greater transaction costs in
the form of commissions and dealer spreads, which are borne directly by the
Fund.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in its shares. Full details as to each
service and copies of the various plans described below can be obtained from
the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained with the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gain distributions. These statements will also
show any other activity in the account since the previous statement.
Shareholders will receive separate transaction confirmations for each purchase
or sale transaction other than automatic investment purchases and the
reinvestments of ordinary income dividends and long-term capital gain
distributions. A shareholder may make additions to his Investment Account at
any time by purchasing shares at the applicable public offering price either
through a securities dealer that has entered into a selected dealer agreement
with the Distributor or by mail directly to the Transfer Agent, acting as
agent for the Distributor.
Shareholders also may maintain their accounts through Merrill Lynch. Upon
the transfer of shares out of a Merrill Lynch brokerage account, an Investment
Account in the transferring shareholder's name will be opened
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<PAGE>
automatically, without charge, at the Transfer Agent. Shareholders considering
transferring their Class A or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Fund, a shareholder either must redeem the Class A
or Class D shares (paying any applicable CDSC) so that the cash proceeds can
be transferred to the account at the new firm or such shareholder must
continue to maintain an Investment Account at the Transfer Agent for those
Class A or Class D shares. Shareholders interested in transferring their Class
B or Class C shares from Merrill Lynch and who do not wish to have an
Investment Account maintained for such shares at the Transfer Agent may
request their new brokerage firm to maintain such shares in an account
registered in the name of the brokerage firm for the benefit of the
shareholder. Shareholders considering transferring a tax-deferred retirement
account such as an individual retirement account from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the retirement account is to be transferred will not take delivery of
shares of the Fund, a shareholder must either redeem the shares (paying any
applicable CDSC) so that the cash proceeds can be transferred to the account
at the new firm, or such shareholder must continue to maintain a retirement
account at Merrill Lynch for those shares.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Transfer Agent.
AUTOMATIC INVESTMENT PLANS
Regular additions of Class A, Class B, Class C and Class D shares may be
made to an investor's Investment Account by prearranged charges of $50 or more
to his regular bank account. Investors who maintain CMA(R) or CBA(R) accounts
may arrange to have periodic investments made in the Fund in their CMA(R) or
CBA(R) accounts or in certain related accounts in amounts of $100 or more
through the CMA(R)/CBA(R) Automated Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares that will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of
shares held therein or the automatic exchange thereof to another class of
shares at net asset value, which may be shares of a money market fund. In
addition, upon termination of participation in a Program, shares that have
been held for less than specified periods within such Program may be subject
to a fee based upon the current value of such shares. These Programs also
generally prohibit such shares from being transferred to another account at
Merrill Lynch, to another broker-dealer or to the Transfer Agent. Except in
limited circumstances (which may also involve an exchange as described above),
such shares must be redeemed and another class of shares purchased (which may
involve the imposition of initial or deferred sales charges and distribution
and account maintenance fees) in order for the investment not to be subject to
Program fees. Additional information regarding a specific Program (including
charges and limitations on transferability applicable to shares that may be
held in such Program) is available in such Program's client agreement and from
the Transfer Agent at (800) MER-FUND or (800) 637-3863.
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<PAGE>
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
All dividends and capital gains distributions are reinvested automatically
in full and fractional shares of the Fund, without sales charge, at the net
asset value per share next determined on the ex-dividend date of such dividend
or distribution. A shareholder may at any time, by written notification to
Merrill Lynch, if the shareholder's account is maintained with Merrill Lynch,
or by written notification or by telephone call (1-800-MER-FUND) to the
Transfer Agent if the shareholder's account is maintained with the Transfer
Agent, elect to have subsequent dividends or capital gains distributions paid
in cash, rather than reinvested, in which event payment will be mailed on or
about the payment date, except that any dividend or distribution of less than
$10 payable to an account maintained directly with the Fund's Transfer Agent
will not be paid in cash but will be reinvested in shares of the Fund. The
Fund is not responsible for any failure of delivery to the shareholder's
address of record and no interest will accrue on amounts represented by
uncashed distribution or redemption checks. Cash payments can also be directly
deposited to the shareholder's bank account. No CDSC will be imposed on
redemptions of shares issued as a result of the automatic reinvestment of
dividends or capital gains distributions.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder may elect to receive systematic withdrawal payments from his
or her Investment Account in the form of payments by check or through
automatic payment by direct deposit to his or her bank account on either a
monthly or quarterly basis. A shareholder whose shares are held within a
CMA(R), CBA(R) or Retirement Account may elect to have shares redeemed on a
monthly, bimonthly, quarterly, semiannual or annual basis through the CMA(R)
or CBA(R) Systematic Redemption Program, subject to certain conditions. With
respect to redemptions of Class B and Class C shares pursuant to a systematic
withdrawal plan, the maximum number of Class B or Class C shares that can be
redeemed from an account annually shall not exceed 10% of the value of shares
of such class in that account at the time the election to join the systematic
withdrawal plan was made. Any CDSC that otherwise might be due on such
redemption of Class B or Class C shares will be waived. Shares redeemed
pursuant to a systematic withdrawal plan will be redeemed in the same order as
Class B or Class C shares are otherwise redeemed. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares--Contingent
Deferred Sales Charges--Class B Shares" and "--Contingent Deferred Sales
Charges--Class C Shares." Where the systematic withdrawal plan is applied to
Class B shares, upon conversion of the last Class B shares in an account to
Class D shares, the systematic withdrawal plan will automatically be applied
thereafter to Class D shares. See "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Conversion of Class B Shares to
Class D Shares."
RETIREMENT PLANS
As described in further detail in the Statement of Additional Information,
eligible shareholders of the Fund may participate in a variety of qualified
employee benefit plans that are available from Merrill Lynch.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM-advised mutual funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Securities and Exchange Commission.
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Under the Merrill Lynch Select PricingSM System Class A shareholders may
exchange Class A shares of the Fund for Class A shares of a second MLAM-
advised mutual fund if the shareholder holds any Class A shares of the second
fund in the account in which the exchange is made at the time of the exchange
or is otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, and the shareholder does not hold Class A shares or
the second fund in his account at the time of the exchange and is not
otherwise eligible to acquire Class A shares of the second fund, the
shareholder will receive Class D shares of the second fund as a result of the
exchange. Class D shares also may be exchanged for Class A shares of a second
MLAM-advised mutual fund at any time as long as, at the time of the exchange,
the shareholder holds Class A shares of the second fund in the account in
which the exchange is made or is otherwise eligible to purchase Class A shares
of the second fund.
Exchanges of Class A and Class D shares are made on the basis of the
relative net asset values per Class A or Class D share, respectively, plus an
amount equal to the difference, if any, between the sales charge previously
paid on the Class A or Class D shares being exchanged and the sales charge
payable at the time of the exchange on the shares being acquired.
Class B, Class C and Class D shares of the Fund will be exchangeable with
shares of the same class of any other MLAM-advised mutual fund.
Shares of the Fund that are subject to a CDSC will be exchangeable on the
basis of relative net asset value per share without the payment of any CDSC
that might otherwise be due upon redemption of the shares of the Fund. For
purposes of computing the CDSC that may be payable upon a disposition of the
shares acquired in the exchange, the holding period for the previously owned
shares of the Fund is "tacked" to the holding period of the newly acquired
shares of the other fund.
Class A, Class B, Class C and Class D shares also will be exchangeable for
shares of certain MLAM-advised money market funds specifically designated as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. The period of time that Class A, Class B, Class C or Class D shares
are held in a money market fund, however, will not count toward satisfaction
of the holding period requirement for reduction of any CDSC imposed on such
shares, if any, and, with respect to Class B shares, toward satisfaction of
the Conversion Period.
Class B shareholders of the Fund exercising the exchange privilege will
continue to be subject to the CDSC schedule applicable to the Fund if such
schedule is higher than the CDSC schedule relating to the new Class B shares.
In addition, Class B shares of the Fund acquired through use of the exchange
privilege will be subject to the Fund's CDSC schedule if such schedule is
higher than the CDSC schedule relating to the Class B shares of the MLAM-
advised mutual fund from which the exchange has been made.
Exercise of the exchange privilege is treated as a sale of the exchanged
shares and a purchase of the acquired shares for federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
MERRILL LYNCH BLUEPRINTSM PROGRAM
Class D shares of any of the Fund are offered to participants in the Merrill
Lynch BlueprintSM Program ("Blueprint"). In addition, participants in
Blueprint who own Class A shares of the Fund may purchase
38
<PAGE>
additional Class A shares of the Fund through Blueprint. Blueprint is directed
to small investors, group or corporate IRAs and participants in certain
affinity groups such as benefit plans, credit unions and trade associations.
Investors placing orders to purchase Class A or Class D shares of the Fund
through a Blueprint account will acquire such Class A or Class D shares at a
reduced sales charge calculated in accordance with the standard Blueprint
sales charge schedules. Class B shares of any of the Fund are offered through
Blueprint only to members of certain affinity groups. The CDSC will be waived
in connection with orders to purchase Class B shares of the Fund through
Blueprint provided that the shareholder is a participant in a qualified group
plan at the time of purchase. However, services available to Fund shareholders
through Blueprint may differ from those available to other Fund shareholders.
Orders for purchase and redemption of shares of the Fund may be grouped for
execution purposes, which, in some circumstances, may involve the execution of
such orders two business days following the day such orders are placed. There
will be no minimum initial or subsequent purchase requirement for participants
who are part of an automatic investment plan. Additional information
concerning placing orders to purchase through Blueprint, including any annual
fees and transaction charges, is available from Merrill Lynch, Pierce, Fenner
& Smith Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick,
New Jersey 08989-0441.
PERFORMANCE DATA
From time to time the Fund may include the average annual total return and
yield of the Fund for various specified time periods in advertisements or
information furnished to present or prospective shareholders. Average annual
total return and yield are computed separately for the Class A, Class B, Class
C and Class D shares of the Fund in accordance with formulas specified by the
Commission.
Average annual total return quotations for the specified periods will be
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return will be computed assuming all dividends
and distributions are reinvested and taking into account all applicable
recurring and nonrecurring expenses, including any contingent deferred sales
charge that would be applicable to a complete redemption of the investment at
the end of the specified period such as in the case of Class B and Class C
shares and the maximum sales charge in the case of Class A and Class D shares.
Dividends paid by the Fund with respect to all shares, to the extent any
dividends are paid, will be calculated in the same manner at the same time on
the same day and will be in the same amount, except that account maintenance
fees and distribution charges and any incremental transfer agency costs
relating to each class of shares will be borne exclusively by that class. The
Fund will include performance data for all its classes of shares in any
advertisement or information including its performance data.
The Fund also may quote its total return and its aggregate total return
performance data for various specified time periods. Such data will be
calculated substantially as described above, except that (1) the rates of
return calculated will not be average annual rates, but rather, actual annual,
annualized or aggregate rates of return and (2) the maximum applicable sales
charge will not be included with respect to annual or annualized rate of
return calculations. Aside from the impact on the performance data
calculations of including or excluding the maximum applicable sales charge,
actual annual or annualized total return data generally will be lower than
average annual
39
<PAGE>
total return data since the average annual rates of return reflect
compounding; aggregate total return generally will be higher than average
annual total return data since the aggregate rates of return reflect
compounding over a longer period of time. In advertisements distributed to
investors whose purchases are subject to waiver of the CDSC in the case of
Class B and Class C shares (such as investors in certain retirement plans) or
to reduced sales charges in the case of Class A and Class D shares,
performance data may take into account the reduced, and not the maximum, sales
charge or may not take into account the contingent deferred sales charges and
therefore may reflect greater total return since, due to the reduced sales
charges or waiver of the contingent deferred sales charge, a lower amount of
expenses is deducted. See "Purchase of Shares." The Fund's total return may be
expressed either as a percentage or as a dollar amount in order to illustrate
such total return on a hypothetical investment in the Fund at the beginning of
each specified period.
Yield quotations will be computed based on a 30-day period by dividing (a)
the net income based on the yield to maturity of each security earned during
the period by (b) the average daily number of shares outstanding during the
period that were entitled to receive dividends multiplied by the maximum
offering price per share on the last day of the period.
Total return and yield figures are based on the Fund's historical
performance and are not intended to indicate future performance. The Fund's
total return and yield will vary depending on market conditions, the
securities held by the Fund, the Fund's operating expenses and the amount of
realized and unrealized net capital gains or losses during the period. The
value of an investment in the Fund will fluctuate and an investor's shares,
when redeemed, may be worth more or less than their original cost.
On occasion, the Fund may compare the performance of the Fund to that of the
Standard & Poor's 500 Index, the Value Line Composite Index, the Dow Jones
Industrial Average, or performance data contained in publications such as
Lipper Analytical Services, Inc., Morningstar Publications, Inc., Money
Magazine, U.S. News & World Report, Business Week, CDA Investment Technology,
Inc., Forbes Magazine or Fortune Magazine. In addition, from time to time the
Fund may include the Fund's risk-adjusted performance ratings assigned by
Morningstar Publications, Inc. in advertising or supplemental sales
literature. As with other performance data, performance comparisons should not
be considered indicative of the Fund's relative performance for any future
period.
ADDITIONAL INFORMATION
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily by the Investment Adviser immediately after the declaration of
dividends as of 15 minutes after the close of business on the NYSE (generally
4:00 p.m., New York City time) on each day during which the NYSE is open for
trading and on any other day on which there is sufficient trading in the
Fund's portfolio securities that net asset value might be materially affected
but only if on any such day the Fund is required to sell or redeem shares. The
net asset value per share of the Fund is computed by dividing the sum of the
value of the portfolio securities held by the Fund plus any cash or other
assets minus all liabilities by the total number of shares of the Fund
outstanding at such time, rounded to the nearest cent. Expenses, including the
investment advisory fee payable to the Investment Adviser and any account
maintenance and/or distribution fees payable to the Distributor, are accrued
daily.
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The per share net asset value of Class A shares of the Fund generally will
be higher than the per share net asset value of Class B, Class C and Class D
shares of the Fund, reflecting the daily expense accruals of the account
maintenance, distribution and higher transfer agency fees applicable with
respect to Class B and Class C shares and the daily expense accruals of the
account maintenance fee applicable with respect to Class D shares. Moreover,
the per share net asset value of Class D shares generally will be higher than
the per share net asset value of the Class B and Class C shares, reflecting
the daily expense accruals of the distribution and higher transfer agency fees
applicable with respect to Class B and Class C shares. It is expected,
however, that the per share net asset value of the four classes of the Fund
eventually will tend to converge (although not necessarily meet) immediately
after the payment of dividends, which will differ by approximately the amount
of the expense accrual differentials between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price as of the close of business on the day the securities are
being valued, or, lacking any sales, at the mean between closing bid and asked
prices. Securities traded in the over-the-counter ("OTC") market are valued at
the mean of the most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market, and it is expected that for debt
securities this ordinarily will be the OTC market. Options on debt securities,
which are traded on exchanges, are valued at the last asked price for options
written and the last bid price for options purchased. Interest rate futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing price at the close of such exchanges. The Fund employs Merrill
Lynch Securities Pricing Service, an affiliate of Merrill Lynch, to provide
securities prices for the Fund. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the Fund,
which may use a matrix system for valuations. These procedures of the pricing
service and its valuations are reviewed by the officers of the Fund under the
general supervision of the Directors.
ORGANIZATION OF THE FUND
The Fund, a Maryland corporation, is a diversified, open-end management
company that was organized on March 13, 1998. The Fund is authorized to issue
four hundred million (400,000,000) shares of Common Stock, having a par value
$0.10 per share. The shares of Common Stock are divided into four classes,
each consisting of one hundred million (100,000,000) shares, designated as
follows: "Class A Common Stock," "Class B Common Stock," "Class C Common
Stock" and "Class D Common Stock". Each Class A, Class B, Class C and Class D
share of Common Stock of the Fund represents an interest in the same assets of
the Fund and is identical in all respects to shares of the other classes,
except that the Class B, Class C and Class D shares bear certain expenses
related to the account maintenance fees associated with 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 such account maintenance and distribution expenditures, as
applicable (except that Class B shares have certain voting rights with respect
to the Class D Distribution Plan). See "Purchase of Shares." The Directors of
the Fund may classify and reclassify the shares of the Fund into additional
classes of Common Stock at a future date.
Shareholders are entitled to one vote for each share held and fractional
votes for fractional shares held and will vote on the election of Directors
and any other matter submitted to a shareholder vote. The Fund does not intend
to hold meetings of shareholders unless under the Investment Company Act
shareholders are required to
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act on any of the following matters: (i) election of Directors; (ii) approval
of an investment advisory agreement; (iii) approval of a distribution
agreement; and (iv) ratification of selection of independent accountants.
Voting rights for Directors are not cumulative. Shares issued are fully paid
and nonassessable and have no preemptive rights. Each share is entitled to
participate equally in dividends and distributions declared by the Fund and in
the net assets of the Fund upon liquidation or dissolution after satisfaction
of outstanding liabilities except that, as noted above, Class B, Class C and
Class D shares bear certain additional expenses.
CONTROL PERSONS
As of the date of this Prospectus, the Investment Adviser was the sole
shareholder of the Fund. So long as such ownership of shares continues to
exceed 25% of the outstanding shares of the Fund, the Investment Adviser will
be deemed to control the Fund by virtue of such ownership.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
REPORTS TO SHAREHOLDERS
Only one copy of each shareholder report and certain shareholder
communications will be mailed to each identified shareholder regardless of the
number of accounts such shareholder has. If a shareholder wishes to receive
separate copies of each report and communication for each of the shareholder's
related accounts the shareholder should notify in writing:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
P.O. BOX 45289
JACKSONVILLE, FLORIDA 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch Financial Consultant or Merrill Lynch Financial
Data Services, Inc. at 800-637-3863.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information included in the
Registration Statement filed with the Securities and Exchange Commission under
the Securities Act, and the Investment Company Act with respect to the
securities offered hereby, certain portions of which have been omitted
pursuant to the rules and regulations of the Commission.
The Statement of Additional Information, dated April 28, 1998, which forms a
part of the Registration Statement, is incorporated by reference into this
Prospectus. The Statement of Additional Information may be
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<PAGE>
obtained without charge as provided on the cover page of this Prospectus. The
Registration Statement, including the exhibits filed therewith, may be
examined at the office of the Securities and Exchange Commission in
Washington, D.C.
YEAR 2000 ISSUES
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the
Year 1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be
adversely affected if the computer systems used by the Investment Adviser or
other Fund service providers do not properly address this problem prior to
January 1, 2000. The Investment Adviser has established a dedicated group to
analyze these issues and to implement any systems modifications necessary to
prepare for the Year 2000. Currently, the Investment Adviser does not
anticipate that the transition to the 21st Century will have any material
impact on its ability to continue to service the Fund at current levels. In
addition, the Investment Adviser has sought assurances from the Fund's other
service providers that they are taking all necessary steps to ensure that
their computer systems will accurately reflect the Year 2000, and the
Investment Adviser will continue to monitor the situation. At this time,
however, no assurance can be given that the Fund's other service providers
have anticipated every step necessary to avoid any adverse effect on the Fund
attributable to the Year 2000 Problem.
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APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF
MOODY'S INVESTORS SERVICE, INC.:
Aaa Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt-edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present that make the long-term risks appear
somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present that suggest a susceptibility to impairment sometime in
the future.
Baa Bonds that are rated Baa are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa
Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca
Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
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C
Bonds that are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
The modifier 1 indicates that the bond ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its rating
category.
DESCRIPTION OF CORPORATE BOND RATINGS OF
STANDARD & POOR'S RATINGS SERVICES:
AAA Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small degree.
A Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB B
CCCCC
Bonds rated BB, B, CCC and CC are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
C
The C rating is reserved for income bonds on which no interest is being
paid.
D
Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
NR
Indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of bond as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
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MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.--AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
1. SHARE PURCHASE APPLICATION
I, being of legal age, wish to purchase: (choose one)
[_] Class A Shares [_] Class B Shares [_] Class C Shares [_] Class D Shares
of Merrill Lynch Corporate High Yield Fund, Inc. and establish an Investment
Account as described in the Prospectus. In the event that I am not eligible to
purchase Class A share, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: Please list all funds. (Use a separate sheet of
paper if necessary.)
1. .................................... 4. ................................
2. .................................... 5. ................................
3. .................................... 6. ................................
Name...........................................................................
First Name Initial Last
Name
Name of Co-Owner (if any)......................................................
First Name Initial Last
Name
Address........................................................................
.................................................... Date......................
(Zip Code)
Occupation............................. Name and Address of Employer ......
...................................
...................................
....................................... ...................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
Select
Select [_] Reinvest One: [_] Reinvest
One: [_] Cash [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] CHECK
OR [_] DIRECT DEPOSIT TO BANK ACCOUNT
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch Corporate High Yield Fund, Inc.
Authorization Form.
SPECIFY TYPE OF ACCOUNT (CHECK ONE) [_] CHECKING [_] SAVINGS
Name on your account ..........................................................
Bank Name .....................................................................
Bank Number ........................ Account Number ...........................
Bank Address ..................................................................
I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE WRITTEN
NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor .................................. Date.................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
47
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- -------------------------------------------------------------------------------
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.--AUTHORIZATION FORM (PART 1)--
(CONTINUED)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINTSM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINTSM PROGRAM
APPLICATION BY CALLING (800) 637-3766.
- -------------------------------------------------------------------------------
3. SOCIAL SECURITY NUMBER OR TAXPAYER IDENTIFICATION NUMBER
[ ]
Social Security Number or Taxpayer Identification Number
Under penalty of perjury, I certify (1) that the number set forth above is
my correct Social Security Number or Taxpayer Identification Number and (2)
that I am not subject to backup withholding (as discussed under "Dividends,
Distributions and Taxes-Federal Income Taxes") either because I have not been
notified that I am subject thereto as a result of a failure to report all
interest or dividends, or the Internal Revenue Service ("IRS") has notified me
that I am no longer subject thereto.
INSTRUCTION: YOU MUST STRIKE OUT THE LANGUAGE IN (2) ABOVE IF YOU HAVE BEEN
NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING DUE TO UNDER-REPORTING AND
IF YOU HAVE NOT RECEIVED A NOTICE FROM THE IRS THAT BACKUP WITHHOLDING HAS
BEEN TERMINATED. THE UNDERSIGNED AUTHORIZES THE FURNISHING OF THIS
CERTIFICATION TO OTHER MERRILL LYNCH SPONSORED MUTUAL FUNDS.
....................................... ...................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A OR CLASS D SHARES ONLY. (See terms and
conditions in the Statement of Additional Information)
................., 19......
Date of Initial Purchase
Dear Sir/Madam:
Although I am not obligated to do so, I intend to purchase [_] Class A
or [_] Class D (choose one) shares of the Merrill Lynch Corporate High Yield
Fund, Inc. or any other investment company with an initial sales charge or
deferred sales charge for which Merrill Lynch Funds Distributor, Inc. acts as
distributor over the next 13 month period which will equal or
exceed: [_] $25,000 [_] $50,000 [_] $100,000 [_] $250,000 [_] $1,000,000
Each purchase will be made at the then reduced offering price applicable to
the amount checked above, as described in the Merrill Lynch Corporate High
Yield Fund, Inc. Prospectus.
I agree to the terms and conditions of this Letter of Intention. I hereby
irrevocably constitute and appoint Merrill Lynch Funds Distributor, Inc., my
attorney, with full power of substitution, to surrender for redemption any or
all shares of Merrill Lynch Corporate High Yield Fund, Inc. held as security.
By .................................... ...................................
Signature of Owner Signature of Co-Owner
(If registered in joint names,
both must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................... (2) Name...........................
Account Number.....................
Account Number.........................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp.
- -- -- We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
our agent in connection with
transactions under this
authorization form and agree to
notify the Distributor of any
purchases or sales made under a
Letter of Intention, Automatic
Investment Plan or Systematic
Withdrawal Plan. We guarantee the
- -- -- Shareholder's signature.
This form when completed should be
mailed to: ...................................
Dealer Name and Address
Merrill Lynch Corporate High By ................................
Yield Fund, Inc. c/o Merrill Authorized Signature of Dealer
Lynch Financial Data Services, [_][_][_] [_][_][_][_]
Inc. Branch-Code F/C No.
P.O. Box 45289 [_][_][_] [_][_][_][_][_]
Jacksonville, Florida 32232-5289 Dealer's Customer A/C No.
48
<PAGE>
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC. -- AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OR
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(Please Print)
Name ....................................... Social Security No. or
First Name Initial Last Name Taxpayer Identification No.
Name of Co-Owner (if any)...................
First Name Initial Last Name
Address..................................... Account Number ................
(if existing account)
............................................
(Zip Code)
- -------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN (SEE TERMS AND CONDITIONS IN THE STATEMENT OF
ADDITIONAL INFORMATION)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of [_] Class A, [_] Class B*, [_] Class C* or [_] Class D shares of
the Merrill Lynch Corporate High Yield Fund, Inc. at cost or current offering
price. Withdrawals to be made either (check one) [_] Monthly on the 24th day
of each month, or [_] Quarterly on the 24th day of March, June, September and
December. If the 24th falls on a weekend or holiday, the next succeeding
business day will be utilized. Begin systematic withdrawal on or as soon
as possible thereafter.
(month)
SPECIFY THE AMOUNT OF THE WITHDRAWAL YOU WOULD LIKE PAID TO YOU (CHECK
ONE): [_] $ of [_] Class A, [_] Class B*, [_] Class C* or [_] Class D
shares in the account.
SPECIFY WITHDRAWAL METHOD: [_] check or [_] direct deposit to bank account
(check one and complete part (a) or (b) below):
DRAW CHECKS PAYABLE (CHECK ONE)
(a)I hereby authorize payment by check
[_] as indicated in Item 1.
[_] to the order of.........................................................
Mail to (check one)
[_] the address indicated in Item 1.
[_] Name (please print).....................................................
Address .......................................................................
..........................................................................
Signature of Owner................................... Date...............
Signature of Co-Owner (if any)............................................
(B) I HEREBY AUTHORIZE PAYMENT BY DIRECT DEPOSIT TO BANK ACCOUNT AND, IF
NECESSARY, DEBIT ENTRIES AND ADJUSTMENTS FOR ANY CREDIT ENTRIES MADE TO MY
ACCOUNT. I AGREE THAT THIS AUTHORIZATION WILL REMAIN IN EFFECT UNTIL I PROVIDE
WRITTEN NOTIFICATION TO MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your Account...........................................................
Bank Name......................................................................
Bank Number.......................... Account Number...........................
Bank Address...................................................................
...............................................................................
Signature of Depositor.................................... Date...............
Signature of Depositor.........................................................
(If joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHALL ACCOMPANY THIS APPLICATION.
- --------
* Annual withdrawal cannot exceed 10% of the value of shares of such class
held in the account at the time the election to join the systematic
withdrawal plan is made.
49
<PAGE>
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC. -- AUTHORIZATION FORM
(PART 2) -- (CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares
[_] Class C shares [_] Class D shares
of the Merrill Lynch Corporate High Yield Fund, Inc. subject to the terms set
forth below. In the event that I am not eligible to purchase Class A shares, I
understand that Class D shares will be purchased.
AUTHORIZATION TO HONOR ACH DEBITS
MERRILL LYNCH FINANCIAL DATA DRAWN BY MERRILL LYNCH FINANCIAL
SERVICES, INC. DATA SERVICES, INC.
You are hereby authorized to draw an To...............................Bank
ACH debit each month on my bank (Investor's Bank)
account for investment in Merrill
Lynch Corporate High Yield Fund,
Inc., as indicated below:
Bank Address.........................
Amount of each ACH debit $.........
City...... State...... Zip Code......
Account No. .......................
Please date and invest ACH debits on As a convenience to me, I hereby re-
the 20th of each month quest and authorize you to pay and
charge to my account ACH debits
beginning ..... or as soon thereafter drawn on my account by and payable
(month) to Merrill Lynch Financial Data
as possible. Services, Inc., I agree that your
rights in respect of each such debit
shall be the same as if it were a
I agree that you are drawing these check drawn on you and signed per-
ACH debits voluntarily at my request sonally by me. This authority is to
and that you shall not be liable for remain in effect until revoked by me
any loss arising from any delay in in writing. Until you receive such
preparing or failure to prepare any notice, you shall be fully protected
such debit. If I change banks or in honoring any such debit. I fur-
desire to terminate or suspend this ther agree that if any such debit be
program, I agree to notify you dishonored, whether with or without
promptly in writing. I hereby cause and whether intentionally or
authorize you to take any action to inadvertently, you shall be under no
correct erroneous ACH debits of my liability.
bank account or purchases of fund
shares including liquidating shares
of the Fund and crediting my bank
account. I further agree that if a ............. ....................
debit is not honored upon Date Signature of
presentation, Merrill Lynch Financial Depositor
Data Services, Inc. is authorized to
discontinue immediately the Automatic ....................
Investment Plan and to liquidate Signature of Depositor
sufficient shares held in my account (If joint account,
to offset the purchase made with the both must sign)
dishonored debit.
.............. ..................... NOTE: IF AUTOMATIC INVESTMENT PLAN
Date Signature of IS ELECTED, YOUR BLANK, UNSIGNED
Depositor CHECK MARKED "VOID" SHOULD ACCOMPANY
THIS APPLICATION.
.............. .....................
Date Signature of Depositor
(If joint account,
both must sign)
50
<PAGE>
INVESTMENT ADVISER
Fund Asset Management, L.P.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 351
Boston, Massachusetts 02101
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Fee Table.................................................................. 3
Merrill Lynch Select PricingSM System...................................... 4
Investment Objectives and Policies......................................... 8
Risk Factors in Transactions in Junk Bonds................................ 11
Risk Factors in Transactions in Corporate Loans........................... 12
Risk Factors in Transactions in Distressed Securities..................... 12
Investments in Foreign Securities......................................... 13
Interest Rate Futures and Options Thereon................................. 14
Other Portfolio Strategies................................................ 15
Investment Restrictions................................................... 17
Performance Information of a Similar Merrill Lynch Fund.................... 18
Investment Adviser......................................................... 19
Code of Ethics............................................................ 20
Transfer Agency Services.................................................. 20
Directors.................................................................. 20
Purchase of Shares......................................................... 21
Initial Sales Charge Alternatives--Class A and Class D Shares............. 23
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 25
Distribution Plans........................................................ 29
Redemption of Shares....................................................... 30
Redemption................................................................ 30
Repurchase................................................................ 31
Reinstatement Privilege--Class A and Class D Shares....................... 31
Dividends, Distributions and Taxes......................................... 32
Dividends and Distributions............................................... 32
Federal Income Taxes...................................................... 32
Portfolio Transactions..................................................... 35
Shareholder Services....................................................... 35
Investment Account........................................................ 35
Automatic Investment Plans................................................ 36
Fee-Based Programs........................................................ 36
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 37
Systematic Withdrawal Plans............................................... 37
Retirement Plans.......................................................... 37
Exchange Privilege........................................................ 37
Merrill Lynch BlueprintSM Program......................................... 38
Performance Data........................................................... 39
Additional Information..................................................... 40
Determination of Net Asset Value.......................................... 40
Organization of the Fund.................................................. 41
Control Persons........................................................... 42
Shareholder Inquiries...................................................... 42
Reports to Shareholders.................................................... 42
Additional Information..................................................... 42
Year 2000 Issues.......................................................... 43
Appendix................................................................... 44
</TABLE>
Code# 19025-0498
LOGO
Merrill Lynch Corporate High Yield Fund, Inc.
(GRAPHIC)
PROSPECTUS
April 28, 1998
Distributor:
Merrill Lynch Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
APRIL 28, 1998
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 . PHONE NO. (609) 282-2800
----------------
Merrill Lynch Corporate High Yield Fund, Inc. (the "Fund") is a
professionally managed, diversified, open-end investment company that seeks
current income and, as a secondary objective, capital appreciation, by
investing in a diversified portfolio of lower-rated corporate fixed-income
securities such as corporate bonds and notes, convertible securities and
preferred stocks. Pursuant to the Merrill Lynch Select PricingSM System, the
Fund offers four classes of shares of Common Stock, each with a different
combination of sales charges, ongoing fees and other features. The Merrill
Lynch Select PricingSM System permits an investor to choose the method of
purchasing shares that the investor believes is most beneficial given the
amount of the purchase, the length of time the investor expects to hold the
shares and other relevant circumstances.
----------------
This Statement of Additional Information should be read in conjunction with
the Prospectus of the Fund (the "Prospectus") dated April 28, 1998, which has
been filed with the Securities and Exchange Commission (the "Commission") and
is available upon oral or written request without charge. Copies of the
Prospectus can be obtained by calling or by writing the Fund at the above
telephone number or address. This Statement of Additional Information has been
incorporated by reference into the Prospectus.
----------------
FUND ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to obtain current income. As
a secondary objective, the Fund seeks capital appreciation when consistent
with its primary objective. The Fund seeks to achieve its objectives by
investing in a diversified portfolio of fixed-income securities, such as
corporate bonds and notes, convertible securities and preferred stocks.
Reference is made to "Investment Objectives and Policies" on page 8 of the
Prospectus for a discussion of the investment objectives and policies of the
Fund.
TRANSACTIONS IN FUTURES AND OPTIONS THEREON
As described in the Prospectus, the Fund may purchase and sell interest
rate, bond and bond index futures contracts ("futures contracts") for the
purpose of hedging its portfolio of fixed-income securities against the
adverse effects of anticipated movements in interest rates. The Fund currently
trades futures contracts on U.S. Treasury bills, notes and bonds and GNMA
mortgage-backed certificates. The Fund may also purchase and sell exchange-
traded call and put options on such futures contracts. Set forth below is
information concerning options and futures contracts. Reference is made to the
Appendix for a more complete description of options and futures transactions.
Call Options on Futures Contracts. As set forth in the Appendix, a call
option on a futures contract provides the purchaser with the right, but not
the obligation, to enter into a "long" position in the underlying futures
contract at any time up to the expiration of the option. The purchase of an
option on a futures contract presents more limited risk than the trading of
the underlying futures contract, although, depending on the price of the
option compared to either the futures contract upon which it is based, or the
underlying debt securities, exercise of the option may or may not be less
risky than ownership of the futures contract or underlying debt securities.
Like the purchase of a futures contract, the Fund will purchase a call option
on a futures contract to hedge against a market advance resulting from
declining interest rates when the Fund is not fully invested.
The writing of a call option on a futures contract may constitute a partial
hedge against declining prices of fixed-income securities of the Fund, if the
futures price at expiration is below the exercise price of the option. In such
event, the Fund will retain the full amount of the option premium, which
provides a partial hedge against any decline that may have occurred in the
Fund's fixed-income investments. Conversely, if the futures price is above the
exercise price at any point prior to expiration, the option may be exercised
and the Fund would be required to enter into the underlying futures contract
at an unfavorable price.
Put Options on Futures Contracts. As set forth in the Appendix, a put option
on a futures contract provides the purchaser with the right, but not the
obligation, to enter into a "short" position in the futures contract at any
time up to the expiration of the option. The Fund will purchase a put option
on a futures contract to hedge its securities against the risk of a decline in
market value as a result of rising interest rates.
The writing of a put option on a futures contract may constitute a partial
hedge against increasing prices of fixed-income securities that the Fund
intends to purchase, if the futures price at expiration is higher than the
exercise price. In such event, the Fund will retain the full amount of the
option premium, which provides a partial hedge against any increase in the
price of fixed-income securities that the Fund intends to purchase.
Conversely,
2
<PAGE>
if the futures price is below the exercise price at any point prior to
expiration, the option may be exercised and the Fund would be required to
enter into the underlying futures contract at an unfavorable price.
OPTIONS ON DEBT SECURITIES
As described in the Prospectus, the Fund may purchase put options on debt
securities held by the Fund in connection with its hedging strategies and may
purchase call options on debt securities under the limited circumstances
described below. The Fund is authorized to write (i.e., sell) covered call
options and covered put options on debt securities to hedge its portfolio and
increase its return. Such instruments, therefore, unlike futures contracts and
options thereon, will not be traded solely for hedging purposes. Such options
generally have a maximum exercise period of nine months.
The Fund may write call options that give the holder the right to buy the
underlying security covered by the option from the Fund at the stated exercise
price. The Fund also may write put options that give the holder the right to
sell the underlying security to the Fund at the stated exercise price. The
Fund will write only covered options, which means that so long as the Fund is
obligated as the writer of a call option, it will own the underlying
securities subject to the options and, in the case of put options, that the
Fund will, through its Custodian, have deposited and maintained short-term
U.S. Treasury obligations with a securities depository with a value equal to
or greater than the exercise price of the underlying securities. The writer of
a covered call option has no control over when he may be required to sell his
securities since he may be assigned an exercise notice at any time prior to
the termination of his obligation as a writer. If an option expires
unexercised, the writer realizes a gain in the amount of the premium. Such a
gain, of course, may be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised,
the writer realizes a gain or loss from the sale of the underlying security.
The Fund will receive a premium from writing a put or call option, which
increases the Fund's return on the underlying security in the event the option
expires unexercised or is closed out at a profit. In the former instance, the
Fund increases its return by retaining the premium without being required to
purchase or sell the underlying security. In the latter case, the Fund
increases its return by liquidating the option position at a profit. The
amount of the premium will reflect, among other factors, the current market
price of the underlying security, the relationship of the exercise price to
the market price, the time period until the expiration of the option and
interest rates. By writing a call, the Fund limits its opportunity to profit
from an increase in the market value of the underlying security above the
exercise price of the option for so long as the Fund's obligation as a writer
continues. By writing a put, the Fund will be obligated to purchase the
underlying security at a price that may be higher than the market value of
that security at the time of exercise for as long as the option is
outstanding. In addition, in closing out an option position, the Fund may
incur a loss. Thus, in some periods the Fund will receive less total return
and in other periods greater total return from its option positions than it
otherwise would have received from the underlying securities. To the extent
that such transactions are engaged in for hedging purposes, any gain (or loss)
thereon may offset, in whole or in part, gains (or losses) on securities held
in the Fund or increases in the value of securities the Fund intends to
acquire. The Fund will attempt to achieve, through the receipt of premiums on
covered options, a more consistent average total return than it would
otherwise realize from holding the underlying securities alone. To facilitate
closing transactions, as described below, the Fund will ordinarily only write
options for which a liquid secondary market appears to exist.
3
<PAGE>
The Fund may engage in closing transactions in order to terminate
outstanding options that it has written. To effect a closing transaction, the
Fund purchases, prior to the exercise of an outstanding option that it has
written, an option of the same series as that on which it desires to terminate
its obligation. Profit or loss from a closing purchase transaction will depend
on whether the cost of the transaction is more or less than the premium
received on the sale of the option plus the related transaction costs.
The Fund will purchase a call option only where the market price of the
underlying security declines substantially following the writing of a call
option, and the Fund either re-hedges the security by writing a second call
option at a lower exercise price or disposes of the security. In such event,
the Fund would usually enter into a closing transaction in connection with the
first option it wrote. However, if the first option has been held less than
three months, the Fund may desire not to enter into a closing transaction in
order to comply with certain provisions of the Internal Revenue Code of 1986,
as amended (the "Code"). In such circumstances, the Fund may purchase a call
option in an opening transaction with the same exercise price and expiration
date as the option it sold.
Options referred to herein and in the Fund's Prospectus may be options
issued by The Options Clearing Corporation (the "Clearing Corporation"), which
are currently traded on the Chicago Board Options Exchange, American Stock
Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange or New York
Stock Exchange. Options referred to herein and in the Fund's Prospectus may
also be options traded on foreign securities exchanges such as the London
Stock Exchange and the Amsterdam Stock Exchange. An option position may be
closed out only on an exchange that provides a secondary market for an option
of the same series. If a secondary market does not exist, it might not be
possible to effect closing transactions in particular options, with the
result, in the case of a covered call option, that the Fund will not be able
to sell the underlying security until the option expires or until it delivers
the underlying security upon exercise. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading interest in certain options; (ii) restrictions may be
imposed by an exchange on opening transactions or closing transactions or
both; (iii) trading halts, suspensions or other restrictions may be imposed
with respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or
be compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options on that exchange that had been issued by the
Clearing Corporation as a result of trades on that exchange would continue to
be exercisable in accordance with their terms.
RISK FACTORS IN TRANSACTIONS IN FUTURES AND OPTIONS THEREON
The trading of futures contracts and options thereon involves the risk of
imperfect correlation between movements in the price of the futures contracts
or option and the price of the security being hedged. The hedge will not be
fully effective where there is imperfect correlation between the movements in
the two financial instruments. For example, if the price of the option or
futures contract moves more than the price of the hedged security, the Fund
would experience either a loss or gain on the option or future that is not
completely offset by movements in the price of the hedged securities. To
compensate for imperfect correlations, the Fund may purchase or sell options
or futures contracts in a greater dollar amount than the hedged securities if
the volatility of the hedged securities is historically greater than the
volatility of the futures contracts. Conversely, the Fund
4
<PAGE>
may purchase or sell fewer futures contracts if the volatility of the price of
the hedged securities is historically less than that of the futures contracts,
although such transactions will in any event be entered into solely for
hedging purposes.
The Fund may also purchase futures contracts or options thereon to hedge
against a possible increase in the price of securities before the Fund is able
to invest its cash in fixed-income securities. In such instances, it is
possible that the market may instead decline. If the Fund does not then invest
in such securities because of concern as to possible further market decline or
for other reasons, the Fund may realize a loss on the futures or option
contract that is not offset by a reduction in the price of securities
purchased.
Because of low initial margin deposits made upon the opening of a futures
position, futures transactions involve substantial leverage. As a result,
relatively small movements in the price of the futures contract can result in
substantial unrealized gains or losses. Because the Fund will engage in the
purchase and sale of financial futures contracts solely for hedging purposes,
however, any losses incurred in connection therewith should, if the hedging
strategy is successful, be offset in whole or in part by increases in the
value of securities held by the Fund or decreases in the price of securities
the Fund intends to acquire.
The anticipated offsetting movements between the price of the futures or
option contracts and the hedged security may be distorted due to differences
in the nature of the markets, such as differences in initial and variation
margin requirements, the liquidity of such markets and the participation of
speculators in such markets.
The amount of risk the Fund assumes when it purchases an option on a futures
contract is the premium paid for the option plus related transaction costs. In
order to profit from an option purchased, however, it may be necessary to
exercise the option and to liquidate the underlying futures contract, subject
to the risks of the availability of a liquid offset market described herein.
In addition to the correlation risks discussed above, the purchase of an
option also entails the risk that changes in the value of the underlying
futures contract will not be fully reflected in the value of the option
purchased. The writer of an option on a futures contract is subject to the
risks of commodity futures trading, including the requirement of variation
margin payments, as well as the additional risk that movements in the price of
the option may not correlate with movements in the price of the underlying
security or futures contract.
Trading limits may also be imposed on the maximum number of contracts that
any person may trade on a particular trading day. A contract market may order
the liquidation of positions found to be in violation of these limits and it
may impose other sanctions or restrictions. The Investment Adviser does not
believe that trading limits will have any adverse impact on the portfolio
strategies for hedging the Fund's investments.
The trading of futures contracts and options thereon also is subject to
certain market risks, such as trading halts, suspensions, exchange or clearing
house equipment failures, government intervention, insolvency of a brokerage
firm or clearing corporation or other disruptions of normal trading activity,
which could at times make it difficult or impossible to liquidate existing
positions.
The successful use of transactions in futures contracts and options thereon
also depends on the ability of the management of the Fund correctly to
forecast the direction and extent of interest rate movements within a given
time frame. To the extent interest rates remain stable during the period in
which a futures contract or option is held by the Fund or such rates move in a
direction opposite to that anticipated, the Fund may realize a loss on
5
<PAGE>
the hedging transaction that is not fully or partially offset by an increase
in the value of portfolio securities. As a result, the Fund's total return for
such period may be less than if it had not engaged in the hedging transaction.
The Commission has issued an order exempting the Fund from certain
provisions of the Investment Company Act of 1940 (the "Investment Company
Act") in connection with its transactions in interest rate futures contracts
and related options. The application for this exemptive order included a
number of representations to the Commission regarding the manner in which such
trading will be conducted.
INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental and non-fundamental
restrictions and policies relating to the investment of its assets and its
activities. The fundamental policies set forth below may not be changed
without the approval of the holders of a majority of the Fund's outstanding
voting securities, including a majority of the shares of the Fund affected
(which for this purpose and under the Investment Company Act means the lesser
of (i) 67% of the shares represented at a meeting at which more than 50% of
the outstanding shares are represented or (ii) more than 50% of the
outstanding shares).
Under the fundamental investment restrictions, the Fund may not:
1. Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act.
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers' acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities, and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be
6
<PAGE>
amended from time to time, in connection with hedging transactions, short
sales, when-issued and forward commitment transactions and similar
investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, which may be changed by
the Board of Directors without shareholder approval, the Fund may not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law. As a matter of
policy, however, the Fund will not purchase shares of any registered open-
end investment company or registered unit investment trust, in reliance on
Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the
Investment Company Act at any time the Fund's shares are owned by another
investment company that is part of the same group of investment companies
as the Fund.
b. Make short sales of securities or maintain a short position, except to
the extent permitted by applicable law. The Fund currently does not intend
to engage in short sales, except short sales "against the box."
c. Invest in securities that cannot be readily resold because of legal or
contractual restrictions or that cannot otherwise be marketed, redeemed or
put to the issuer or a third party, if at the time of acquisition more than
15% of its total assets would be invested in such securities. This
restriction shall not apply to securities that mature within seven days or
securities that the Board of Directors of the Fund has otherwise determined
to be liquid pursuant to applicable law. Securities purchased in accordance
with Rule 144A under the Securities Act (a "Rule 144A Security") and
determined to be liquid by the Fund's Board of Directors are not subject to
the limitations set forth in this investment restriction.
d. Notwithstanding fundamental investment restriction (7) above, the Fund
will not borrow amounts in excess of 5% of its total assets, taken at
market value, and then only from banks as a temporary measure for
extraordinary or emergency purposes such as the redemption of Fund shares.
In addition, the Fund will not purchase securities while borrowings are
outstanding.
Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") with the Investment Adviser, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch
except pursuant to an exemptive order or otherwise in compliance with the
provisions of the Investment Company Act and the rules and regulations
thereunder. Included among such restricted transactions are (i) purchases from
or sales to Merrill Lynch of securities in transactions in which Merrill Lynch
acts as principal, and (ii) purchases of securities from underwriting
syndicates of which Merrill Lynch is a member.
Lending of Portfolio Securities. Subject to investment restriction (5)
above, the Fund from time to time may lend securities from its portfolio to
brokers, dealers and financial institutions and receive as collateral cash or
United States Treasury securities which at all times while the loan is
outstanding will be maintained in
7
<PAGE>
amounts equal to at least 100% of the current market value of the loaned
securities. Any cash collateral will be invested in short-term securities,
which will increase the current income of the Fund. Such loans, which will not
have terms longer than 30 days, will be terminable at any time. The Fund will
have the right to regain record ownership of loaned securities to exercise
beneficial rights such as voting rights, subscription rights and rights of
dividends, interest or other distributions. The Fund may pay reasonable fees
to persons unaffiliated with the Fund for services in arranging such loans. In
the event of a default by the borrower, the Fund may suffer time delays and
incur costs or possible losses in connection with the disposition of the
collateral.
Forward Commitments. U.S. Government securities and corporate debt
obligations may be purchased on a forward commitment basis at fixed purchase
terms with periods of up to 45 days between the commitment and settlement
dates. The purchase will be recorded on the date the Fund enters into the
commitment and the value of the security will thereafter be reflected in the
calculation of the Fund's net asset value. The value of the security on the
delivery date may be more or less than its purchase price. A separate account
of the Fund will be established with the Custodian consisting of cash or
liquid high grade debt obligations having a market value at all times until
the delivery date at least equal to the amount of the forward commitment.
Although the Fund will generally enter into forward commitments with the
intention of acquiring securities for its portfolio, the Fund may dispose of a
commitment prior to settlement if the Investment Adviser deems it appropriate
to do so. There can, of course, be no assurance that the judgments upon which
these techniques are based will be accurate or that such techniques when
applied will be effective. The Fund will enter into forward commitment
arrangements only with respect to securities in which it may otherwise invest
as described under "Investment Objectives and Policies."
Repurchase Agreements. As described in the Prospectus, the Fund may invest
in securities pursuant to repurchase agreements. Under such agreements, the
seller agrees, upon entering into the contract, to repurchase the security at
a mutually agreed-upon time and price, thereby determining the yield during
the term of the agreement. This results in a fixed rate of return insulated
from market fluctuations during such period. Such agreements usually cover
short periods, such as under one week. Repurchase agreements may be construed
to be collateralized loans by the purchaser to the seller secured by the
securities transferred to the purchaser. The Fund will require the seller to
provide additional collateral if the market value of the securities falls
below the repurchase price at any time during the term of the repurchase
agreement. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Fund but only constitute collateral for the seller's obligation to pay
the repurchase price. Therefore, the Fund may suffer time delays and incur
costs or possible losses in connection with the disposition of the collateral.
Instead of the contractual fixed rate of return, the rate of return to the
Fund will be dependent upon intervening fluctuations of the market value of
such security and the accrued interest on the security. In such event, the
Fund would have rights against the seller for breach of contract with respect
to any losses arising from market fluctuations following the failure of the
seller to perform. From time to time, the Fund also may invest in securities
pursuant to purchase and sale contracts. While the substance of purchase and
sale contracts is similar to repurchase agreements, because of the different
treatment with respect to accrued interest and additional collateral,
management believes that purchase and sale contracts are not repurchase
agreements as such term is understood in the banking and brokerage community.
As a matter of operating policy, the Fund will not enter into repurchase
agreements or purchase and sale contracts with greater than seven days to
maturity if, at the time of such investment, more than 15% of its total assets
would be so invested.
8
<PAGE>
Foreign Securities. Investments in foreign securities, particularly those of
nongovernmental issuers, involve considerations that are not ordinarily
associated with investing in domestic issuers. These considerations include
changes in currency rates, currency exchange control regulations, the
possibility of expropriation, the unavailability of financial information or
the difficulty of interpreting financial information prepared under foreign
accounting standards, less liquidity and more volatility in foreign securities
markets, the impact of political, social or diplomatic developments, and the
difficulty of assessing economic trends in foreign countries. If it should
become necessary, the Fund could encounter greater difficulties in invoking
legal processes abroad than would be the case in the United States.
Transaction costs in foreign securities may be higher. The Investment Adviser
will consider these and other factors before investing in foreign securities,
and will not make such investments unless, in its opinion, such investments
will meet the Fund's standards and objectives. The Fund will not concentrate
its investments in any particular foreign country. The Fund may purchase
securities issued in dollar or foreign currency denominations. In the case of
any such investment in a security denominated in a foreign currency, the Fund
would be subject to the risk of changes in currency exchange rates.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors, officers and portfolio managers of the Fund, their ages,
principal occupations for at least the last five years and the public
companies for which they serve as directors are set forth below. Unless
otherwise stated, the address of each director, officer and portfolio manager
is P.O. Box 9011, Princeton, New Jersey 08540-9011.
Arthur Zeikel (65)--President and Director(1)(2)--Chairman of Fund Asset
Management, L.P. ("FAM" or the "Investment Adviser") and Merrill Lynch Asset
Management, L.P. ("MLAM") (which terms as used herein include their corporate
predecessors) since 1997; President of the Investment Adviser and MLAM from
1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton Services")
since 1997, Director since 1993 and President from 1993 to 1997; Executive
Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") since 1990.
Ronald W. Forbes (57)--Director(2)--1400 Washington Avenue, Albany, New York
12222. Associate Professor of Finance, School of Business, State University of
New York at Albany since 1989.
Cynthia A. Montgomery (45)--Director(2)--Harvard Business School, Soldiers
Field Road, Boston, Massachusetts 02613. Professor, Harvard Business School,
since 1989; Associate Professor, J.L. Kellogg Graduate School of Management,
Northwestern University from 1985 to 1989; Assistant Professor, Graduate
School of Business Administration, The University of Michigan from 1979 to
1985; Director, of UNUM Corporation since 1990 and Director of Newell Co.
since 1995.
Charles C. Reilly (66)--Director(2)--9 Hampton Harbor Road, Hampton Bays,
New York 11946. Self-employed financial consultant since 1990; President and
Chief Investment Officer of Verus Capital, Inc. from 1979 to 1990; Senior Vice
President of Arnhold and S. Bleichroeder, Inc. from 1973 to 1990; Adjunct
Professor, Columbia University Graduate School of Business from 1990 to 1991;
Adjunct Professor, Wharton School, The University of Pennsylvania from 1989 to
1990; Partner, Small Cities Cable Television since 1986.
9
<PAGE>
Kevin A. Ryan (65)--Director(2)--127 Commonwealth Avenue, Chestnut Hill,
Massachusetts 02167. Founder, and current Director of The Boston University
Center for Advancement of Ethics and Character; Professor of Education at
Boston University since 1982; Formerly taught on the faculties of the
University of Chicago, Stanford University and Ohio State University.
Richard R. West (59)--Director(2)--Box 604, Genoa, Nevada 89411. Professor
of Finance since 1984, Dean from 1984 to 1993 and currently Dean Emeritus of
New York University, Leonard N. Stern School of Business Administration;
Director of Bowne & Co., Inc. (financial printers), Vornado, Inc. (real estate
holding company) and Alexander's Inc. (real estate company).
Terry K. Glenn (57)--Executive Vice President(1)(2)--Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of the
Merrill Lynch Funds Distributor, Inc. (the "Distributor") since 1986 and
Director thereof since 1991; President of Princeton Administrators, L.P. since
1988.
Joseph T. Monagle, Jr. (49)--Senior Vice President(1)(2)--Senior Vice
President of the Investment Adviser and MLAM since 1990; Department Head of
the Global Fixed Income Division of the Investment Adviser and MLAM since
1997; Senior Vice President of Princeton Services since 1993.
Donald C. Burke (37)--Vice President(1)(2)--First Vice President of MLAM
since 1997; Director of Taxation of MLAM since 1990; Vice President of MLAM
from 1990 to 1997.
Vincent T. Lathbury, III (57)--Senior Vice President and Portfolio
Manager(1)(2)--First Vice President of MLAM since 1997; Vice President of MLAM
from 1982 to 1997; Portfolio Manager of the Investment Adviser and MLAM since
1982.
Aldona Schwartz (49)--Vice President and Portfolio Manager(1)(2)--Vice
President of MLAM since 1990.
Gerald M. Richard (48)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Investment Adviser and MLAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Vice President of the Distributor
since 1981 and Treasurer since 1984.
Philip M. Mandel (50)--Secretary(1)(2)--First Vice President of MLAM since
1997; Assistant General Counsel of Merrill Lynch from 1989 to 1997.
- --------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) The officers of the Fund are officers of certain other investment
companies for which the Investment Adviser or MLAM acts as investment
adviser (see "Investment Advisory Arrangements").
As of April 17, 1998, the Directors and officers of the Fund as a group (13
persons) owned an aggregate of less than 1% of the outstanding shares of
Common Stock of ML & Co., and owned an aggregate of less than 1% of the
outstanding shares of the Fund.
Pursuant to the terms of the Investment Advisory Agreement, the Investment
Adviser pays all compensation of officers and employees of the Fund as well as
the fees of all Directors of the Fund who are affiliated persons of the
Investment Adviser. The Fund pays each Director not affiliated with the
Investment Adviser (each a "non-
10
<PAGE>
affiliated Director") an annual fee of $3,000 plus a fee of $400 per meeting
attended, together with such Director's actual out-of-pocket expenses relating
to attendance at meetings. The Fund also compensates members of its Audit and
Nominating Committee (the "Committee"), which consists of all of the non-
affiliated Directors, with a fee of $900 per year. The Chairman of the Audit
Committee is paid an additional annual fee of $1,000.
The following table sets forth the estimated compensation to be paid by the
Fund to the non-affiliated Directors projected through the end of the Fund's
first full fiscal year, and the aggregate compensation paid by all registered
investment companies advised by MLAM or its affiliate, FAM ("MLAM/FAM-Advised
Funds"), to the non-affiliated Directors for the year ended December 31, 1997.
<TABLE>
<CAPTION>
AGGREGATE
COMPENSATION
PENSION OR FROM FUND AND
RETIREMENT BENEFITS MLAM/FAM-ADVISED
COMPENSATION ACCRUED AS PART FUNDS PAID TO
NAME OF DIRECTOR FROM FUND OF FUND EXPENSES DIRECTORS*
- ---------------- ------------ ------------------- ----------------
<S> <C> <C> <C>
Ronald W. Forbes.............. $5,500 None $153,500
Cynthia A. Montgomery......... $5,500 None $153,500
Charles C. Reilly............. $6,500 None $313,000
Kevin A. Ryan................. $5,500 None $153,500
Richard R. West............... $5,500 None $299,000
</TABLE>
- --------
* The Directors serve on the boards of MLAM/FAM-Advised Funds as follows: Mr.
Forbes (29 registered investment companies consisting of 42 portfolios); Ms.
Montgomery (29 registered investment companies consisting of 42 portfolios);
Mr. Reilly (47 registered investment companies consisting of 60 portfolios);
Mr. Ryan (29 registered investment companies consisting of 42 portfolios);
and Mr. West (48 registered investment companies consisting of 70
portfolios).
INVESTMENT ADVISORY ARRANGEMENTS
The Investment Adviser, acts as the investment adviser for the Fund and
provides the Fund with management services. The Investment Adviser (the
general partner of which is Princeton Services Inc., a wholly owned subsidiary
of ML & Co.) is itself a wholly owned affiliate of ML & Co. and has its
principal place of business at 800 Scudders Mill Road, Plainsboro, New Jersey
08536. ML & Co., Inc. has its principal place of business at 250 Vesey Street,
New York, New York 10281.
The Investment Adviser is a limited partnership, the partners of which are
ML & Co. and Princeton Services. ML & Co. and Princeton Services are
"controlling persons" of the Investment Adviser as defined under the
Investment Company Act because of their ownership of its voting securities or
their power to exercise a controlling influence over its management or
policies. Similarly, the following entities may be considered "controlling
persons" of MLAM U.K.: Merrill Lynch Europe Limited (MLAM U.K.'s parent), a
subsidiary of ML International Holdings, a subsidiary of Merrill Lynch
International, Inc., a subsidiary of ML & Co.
The Investment Adviser has entered into a sub-advisory agreement (the "Sub-
Advisory Agreement") with MLAM U.K., an indirect, wholly owned subsidiary of
ML & Co. and an affiliate of the Investment Adviser, pursuant to which the
Investment Adviser pays MLAM U.K. a fee for providing investment advisory
services to the Investment Adviser with respect to the Fund in an amount to be
determined from time to time by the Investment Adviser and MLAM U.K. but in no
event in excess of the amount that the Investment Adviser actually receives
for providing services to the Fund pursuant to the Investment Advisory
Agreement.
11
<PAGE>
While the Investment Adviser is at all times subject to the supervision of
the Board of Directors of the Fund, the Investment Advisory Agreement provides
that the Investment Adviser, subject to review by the Board of Directors, is
responsible for the actual management of the Fund and has responsibility for
making decisions to buy, sell or hold any particular security. The Investment
Adviser provides the portfolio manager for the Fund, who considers information
from various sources, makes the necessary investment decisions and effects
transactions accordingly. The Investment Adviser is also obligated to perform
certain administrative and management services for the Fund and is obligated
to provide all the office space, facilities, equipment and personnel necessary
to perform its duties under the Agreement.
Securities held by the Fund may also be held by other funds for which the
Investment Adviser or MLAM acts as an investment adviser or by investment
advisory clients of MLAM. Because of different investment objectives or other
factors, a particular security may be bought for one or more clients when one
or more clients are selling the same security. If purchases or sales of
securities for the Fund or for other funds for which the Investment Adviser or
MLAM acts as investment adviser or for their advisory clients arise for
consideration at or about the same time, transactions in such securities will
be made, insofar as feasible, for the respective funds and clients in a manner
deemed equitable to all. To the extent that transactions on behalf of more
than one client of the Investment Adviser or MLAM during the same period may
increase the demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price.
Advisory Fee. As compensation for its services to the Fund, the Investment
Adviser receives at the end of each month a fee at an annual rate equal to
0.60% of the Fund's average daily net assets.
Payment of Expenses. The Investment Advisory Agreement obligates the
Investment Adviser to provide investment advisory services and to pay all
compensation of and furnish office space for officers and employees of the
Fund connected with economic research, investment research, trading and
investment management of the Fund, as well as the fees of all directors of the
Fund who are affiliated persons of ML & Co. or any of its subsidiaries. The
Fund pays all other expenses incurred in its operation and a portion of its
general administrative expenses. Expenses that will be borne directly by the
Fund include redemption expenses, expenses of portfolio transactions,
shareholder servicing costs, expenses of registering the shares under federal
and state securities laws, pricing costs (including the daily calculation of
net asset value), interest, certain taxes, charges of the Custodian and
Transfer Agent, legal expenses, state franchise taxes, auditing services,
costs of printing proxies, stock certificates, shareholder reports and
prospectuses and statements of additional information (except to the extent
paid by the Distributor), Commission fees, accounting costs, fees of the non-
affiliated Directors, and other expenses properly payable by the Fund.
Accounting services are provided for the Fund by the Investment Adviser and
the Fund reimburses the Investment Adviser for its costs in connection with
such services. Depending upon the nature of the lawsuit, litigation costs may
be directly applicable to the Fund. The Board of Directors of the Fund has
determined that this is an appropriate method of allocation of expenses. As
required by the Distribution Agreement, the Distributor will pay certain of
the expenses of the Fund incurred in connection with the offering of its
shares, including the expenses of printing the prospectuses and statements of
additional information used in connection with the continuous offering of
shares by the Fund. See "Distributor."
DURATION AND TERMINATION
The Investment Advisory Agreement was initially approved for the period
April 28, 1998 to March 31, 2000 by the Board of Directors, including a
majority of the disinterested directors, on April 14, 1998, and by the vote of
the sole shareholder of the Fund on April 28, 1998. Unless earlier terminated
as described below, the
12
<PAGE>
agreement will remain in effect until March 31, 2000 and thereafter will
continue in effect from year to year if approved annually (a) by the Board of
Directors of the Fund or by a majority of the outstanding shares of the Fund
and (b) by a majority of the directors who are not parties to such contract or
interested persons (as defined in the Investment Company Act) of any such
party. The agreement is not assignable and may be terminated without penalty
on 60 days' written notice at the option of either party or by the vote of the
shareholders of the Fund.
TRANSFER AGENCY SERVICES ARRANGEMENTS
The Transfer Agent, which is a subsidiary of ML & Co., acts as the Fund's
transfer agent pursuant to a Transfer Agency, Dividend Disbursing Agency and
Shareholder Servicing Agency Agreement (the "Transfer Agency Agreement").
Pursuant to the Transfer Agency Agreement, the Transfer Agent is responsible
for the issuance, transfer and redemption of shares and the opening and
maintenance of shareholder accounts. Pursuant to the Transfer Agency
Agreement, the Transfer Agent receives an annual fee of up to $11.00 per Class
A or Class D account and up to $14.00 per Class B or Class C account and is
entitled to reimbursement for certain transaction charges and out-of-pocket
expenses incurred by the Transfer Agent under the Transfer Agency Agreement.
Additionally, a $.20 monthly closed account charge will be assessed on all
accounts that close during the calendar year. Application of this fee will
commence the month following the month the account is closed. At the end of
the calendar year, no further fees will be due. For purposes of the Transfer
Agency Agreement, the term "account" includes a shareholder account maintained
directly by the Transfer Agent and any other account representing the
beneficial interest of a person in the relevant share class on a recordkeeping
system, provided the recordkeeping system is maintained by a subsidiary of ML
& Co.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily by
the Investment Adviser immediately after the declaration of dividends as of 15
minutes after the close of business on the New York Stock Exchange ("NYSE")
(generally 4:00 p.m., New York City time) on days that the NYSE is open for
business and on any other day on which there is sufficient trading in the
Fund's portfolio securities that net asset value might be materially affected
but only if on any such day the Fund is required to sell or redeem shares. The
NYSE is not open for business on the following holidays: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset
value per share of the Fund is computed by dividing the sum of the value of
the securities held by the Fund plus any cash or other assets minus all
liabilities by the total number of shares of the Fund outstanding at such
time, rounded to the nearest cent. Expenses, including the investment advisory
fee payable to the Investment Adviser and any account maintenance and/or
distribution fees payable to the Distributor, are accrued daily.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of shares of the other classes, reflecting
the daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to Class B and Class C shares and
the daily expense accruals of the account maintenance fees applicable with
respect to Class D shares; moreover, the per share net asset value of Class D
shares generally will be higher than the per share net asset value of Class B
and Class C shares, reflecting the daily expense accruals of the distribution
and higher transfer agency fees applicable with respect to
13
<PAGE>
Class B and Class C shares. It is expected, however, that the per share net
asset value of the classes will tend to converge (although not necessarily
meet) immediately after the payment of dividends or distribution which will
differ by approximately the amount of the expense accrual differentials
between the classes.
Portfolio securities that are traded on stock exchanges are valued at the
last sale price as of the close of business on the day the securities are
being valued, or, lacking any sales, at the mean between closing bid and asked
prices. Securities traded in the over-the-counter ("OTC") market are valued at
the mean of the most recent bid and ask prices as obtained from one or more
dealers that make markets in the securities. Portfolio securities that are
traded both in the OTC market and on a stock exchange are valued according to
the broadest and most representative market, and it is expected that for debt
securities this ordinarily will be the OTC market. Options on debt securities,
which are traded on exchanges, are valued at the last asked price for options
written and the last bid price for options purchased. Interest rate futures
contracts and options thereon, which are traded on exchanges, are valued at
their closing price at the close of such exchanges. The Fund employs Merrill
Lynch Securities Pricing Service ("MLSPS"), an affiliate of Merrill Lynch to
provide securities prices for the Fund. Securities and assets for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund,
including valuations furnished by a pricing service retained by the Fund which
may use a matrix system for valuations. These procedures of the pricing
service and its valuations are reviewed by the officers of the Fund under the
general supervision of the Directors.
PORTFOLIO TRANSACTIONS
Reference is made to "Investment Objectives and Policies" and "Portfolio
Transactions" in the Prospectus.
Under the Investment Company Act, persons affiliated with the Fund are
prohibited from dealing with the Fund as a principal in the purchase and sale
of securities unless such trading is permitted by an exemptive order issued by
the Commission. Since over-the-counter ("OTC") transactions are usually
principal transactions, affiliated persons of the Fund including Merrill
Lynch, may not serve as dealer in connection with transactions with the Fund.
Affiliated persons of the Fund may serve as broker for the Fund in over-the-
counter transactions conducted on an agency basis. Certain court decisions
have raised questions as to the extent to which investment companies should
seek exemptions under the Investment Company Act in order to seek to recapture
underwriting and dealer spreads from affiliated entities. The Directors have
considered all factors deemed relevant, and have made a determination not to
seek such recapture at this time. The Board will reconsider this matter from
time to time.
The Fund may not purchase securities, during the existence of any
underwriting syndicate of which Merrill Lynch is a member or in a private
placement in which Merrill Lynch serves as placement agent except pursuant to
procedures approved by the Directors of the Fund that either comply with rules
adopted by the Commission or with interpretations of the Commission Staff.
Rule 10f-3 under the Investment Company Act sets forth conditions under which
the Fund may purchase corporate bonds from an underwriting syndicate of which
Merrill Lynch is a member. The rule sets forth requirements relating to, among
other things, the terms of an issue of corporate bonds purchased by the Fund,
the amount of corporate bonds that may be purchased in any one issue and the
assets of the Fund that may be invested in a particular issue.
14
<PAGE>
The securities in which the Fund invests are traded primarily in the over-
the-counter market. Where possible, the Fund will deal directly with the
dealers who make a market in the securities involved unless better prices and
execution are available elsewhere. Such dealers usually act as principals for
their own account. On occasion, securities may be purchased directly from the
issuer. Bonds and money market securities are generally traded on a net basis
and do not normally involve either brokerage commissions or transfer taxes.
The cost of portfolio securities transactions of the Fund will consist
primarily of dealer or underwriter spreads.
While the Investment Adviser seeks to obtain the best price and execution in
effecting transactions in the portfolio securities of the Fund, brokers who
provide supplemental investment research to the Investment Adviser may receive
orders for transactions by the Fund. Such supplemental research services
ordinarily consist of assessments and analyses of the business or prospects of
a company, industry, or economic sector. If, in the judgment of the Investment
Adviser, the Fund will be benefited by such supplemental research services,
the Investment Adviser is authorized to pay commissions to brokers furnishing
such services that are in excess of commissions that another broker may charge
for the same transaction. Information so received will be in addition to and
not in lieu of the services required to be performed by the Investment Adviser
under its Investment Advisory Agreement. The expenses of the Investment
Adviser will not necessarily be reduced as a result of the receipt of such
supplemental information. In some cases, the Investment Adviser may use such
supplemental research in providing investment advice to its other investment
advisory accounts.
PORTFOLIO TURNOVER
The rate of portfolio turnover is not a limiting factor when management
deems it appropriate to purchase or sell securities. The Fund expects that its
annual turnover rate should not generally exceed 100%; however, during periods
when interest rates fluctuate significantly, as they have during the past few
years, the Fund's portfolio turnover rate may be substantially higher. In any
particular year, however, market conditions could result in portfolio activity
at a greater or lesser rate than anticipated. High portfolio turnover involves
correspondingly greater transaction costs in the form of commissions and
dealer spreads, which are borne directly by the Fund. The calculation of the
rate of portfolio turnover does not include the purchase or sale of money
market securities. High portfolio turnover can be expected to result in the
recognition of capital gains and losses. To the extent the Fund distributes
short-term capital gains, such distributions will be taxable as dividends. The
Fund's ability to enter into certain short-term transactions will be limited
by the requirement that gains on certain securities held by the Fund for less
than three months may not exceed 30% of its annual gross income for federal
income tax purposes.
The Fund intends to continue to comply with the various requirements of the
Internal Revenue Code so as to qualify as a "regulated investment company"
thereunder. See "Dividends, Distributions and Taxes." Accordingly, the Fund's
ability to effect certain portfolio transactions may be limited.
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing SM System: Class A and Class D shares are sold to investors choosing
the initial sales charge alternatives and Class B and Class C shares
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are sold to investors choosing the deferred sales charge alternative. Each
Class A, Class B, Class C and Class D share of the Fund represents an
identical interest in the same portfolio of investments of the Fund and has
the same rights except that Class B, Class C and Class D shares bear the
expenses of the ongoing account maintenance fees, and Class B and Class C
shares bear the expenses of the ongoing distribution fees and the additional
incremental transfer agency costs resulting from the deferred sales charge
arrangements. Class B, Class C and Class D shares each have exclusive voting
rights with respect to the Rule 12b-1 distribution plan adopted with respect
to such class pursuant to which the account maintenance and/or distribution
fees are paid (except that Class B shareholders may vote upon any material
changes to expenses charged under the Class D Distribution Plan). Each class
has different exchange privileges. See "Shareholder Services--Exchange
Privilege."
Investors should determine whether under their particular circumstances it
is more advantageous to incur an initial sales charge, as discussed below, or
to have the entire initial purchase price invested in the Fund with the
investment thereafter being subject to ongoing account maintenance and
distribution fees and a possible CDSC if shares are redeemed during the
applicable CDSC period.
The Merrill Lynch Select PricingSM System is used by more than 50 registered
investment companies advised by MLAM or its affiliate, the Investment Adviser.
Funds advised by MLAM or the Investment Adviser that use the Merrill Lynch
Select PricingSM System, are referred to herein as "MLAM-advised mutual
funds."
The Fund has entered into separate distribution agreements (the
"Distribution Agreements") with Merrill Lynch Funds Distributor, Inc. in
connection with the continuous offering of each of its classes of shares. The
Distribution Agreements obligate the Distributor to pay certain expenses in
connection with the offering of each class of shares of the Fund. After the
prospectuses, statements of additional information and periodic reports have
been prepared, set in type and mailed to shareholders, the Distributor pays
for the printing and distribution of copies thereof used in connection with
the offering to dealers and investors. The Distributor also pays for other
supplementary sales literature and advertising costs. The Distribution
Agreements are subject to the same renewal requirements and termination
provisions as the Investment Advisory Agreement described above.
REDUCED INITIAL SALES CHARGE ALTERNATIVES--CLASS A AND CLASS D SHARES
Reduced Sales Charges. As described generally in the Prospectus, a reduced
sales charge is available for any purchase of Class A or Class D shares of the
Fund in excess of $25,000. The term "purchase," as used in the Prospectus and
this Statement of Additional Information in connection with an investment in
Class A and Class D shares of the Fund, refers to a single purchase by an
individual, or to concurrent purchases, which in the aggregate are at least
equal to the prescribed amounts, by an individual, his spouse and their
children under the age of 21 years purchasing shares for his or their own
account and to single purchases by a trustee or other fiduciary purchasing
shares for a single trust estate or single fiduciary account (including a
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under Section 401 of the Code) although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company," as that term is defined in the Investment Company Act, but does not
include purchases by any such company that has not been in existence for at
least six months or that has no purpose other than the purchase of shares of
the Fund or shares of other registered investment companies at a discount;
provided, however that it shall not include purchases by any group of
individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer
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or clients of an investment adviser. The term "purchase" also includes
purchases by employee benefit plans not qualified under Section 401 of the
Code, including purchases by employees or by employers on behalf of employees,
by means of a payroll deduction plan or otherwise, of shares of the Fund.
Purchases by such a company or non-qualified employee benefit plan will
qualify for the quantity discounts discussed above only if the Fund and the
Distributor are able to realize economies of scale in sales effort and sales
related expense by means of the company, employer or plan making the Fund's
Prospectus available to individual investors or employees and forwarding
investments by such persons to the Fund and by any such employer or plan
bearing the expense of any payroll deduction plan.
Right of Accumulation. Reduced sales charges are applicable through a right
of accumulation under which eligible investors are permitted to purchase Class
A or Class D shares of the Fund subject to an initial sales charge at the
offering price applicable to the total of (a) the public offering price of the
shares then being purchased plus (b) an amount equal to the then-current net
asset value or cost, whichever is higher, of the purchaser's combined holdings
of all classes of shares of the Funds and of any other MLAM-advised mutual
fund. For any such right of accumulation to be made available, the Distributor
must be provided at the time of purchase, by the purchaser or the purchaser's
securities dealer, with sufficient information to permit confirmation of
qualification, and acceptance of the purchase order is subject to such
confirmation. The right of accumulation may be amended or terminated at any
time. Shares held in the name of a nominee or custodian under pension, profit-
sharing or other employee benefit plans may not be combined with other shares
to qualify for the right of accumulation.
Letter of Intention. Reduced sales charges are applicable to purchases
through any dealer aggregating $25,000 or more of Class A or Class D shares of
the Fund or any other MLAM-advised mutual funds made within a 13-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided by the Distributor. The Letter of Intention is available only to
investors whose accounts are maintained at the Fund's Transfer Agent. The
Letter of Intention is not a binding obligation to purchase any amount of
Class A or Class D shares, but its execution will result in the purchaser's
paying a lower sales charge at the appropriate quantity purchase level. A
purchase not originally made pursuant to a Letter of Intention may be included
under a subsequent Letter executed within 90 days of such purchase if the
Distributor is informed in writing of this intent within such 90-day period.
The value of Class A and Class D shares of the Fund or of other MLAM-advised
mutual funds presently held, at cost or maximum offering price (whichever is
higher), on the date of the first purchase under the Letter of Intention, may
be included as a credit toward the completion of such Letter. The reduced
sales charge applicable to the amount covered by the Letter of Intention will
be applied only to new purchases. If the total amount of shares purchased does
not equal the amount stated in the Letter of Intention, the investor will be
notified and must pay, within 20 days of the expiration of such Letter, the
difference between the sales charge on Class A or Class D shares of the Fund
purchased at the reduced rate and the sales charge applicable to the shares
actually purchased through the Letter. Class A or Class D shares equal to five
percent of the intended amount will be held in escrow during the 13-month
period (while remaining registered in the name of the purchaser). The first
purchase under the Letter of Intention must be five percent of the dollar
amount of such Letter. If, during the term of such Letter, a purchase brings
the total amount invested to an amount equal to or in excess of the amount
indicated in the Letter, the purchaser will be entitled on that purchase and
subsequent purchases to the reduced percentage sales charge that would be
applicable to a single purchase equal to the total dollar value of the Class A
or Class D shares of the Fund then being purchased under such Letter, but
there will be no retroactive reduction of the sales charges on any previous
purchase. The value of any shares redeemed or
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otherwise disposed of by the purchaser prior to termination or completion of
the Letter of Intention will be deducted from the total purchases made under
such Letter. An exchange from a MLAM-advised money market fund into the Fund
that creates a sales charge will count toward completing a new or existing
Letter of Intention in the Fund.
TMASM Managed Trusts. Class A shares are offered to TMASM Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services at
net asset value.
Merrill Lynch BlueprintSM Program. Class D shares of the Fund are offered to
participants in the Merrill Lynch BlueprintSM Program ("Blueprint"). In
addition, participants in Blueprint who own Class A shares of the Fund may
purchase additional Class A shares of the Fund through Blueprint. Blueprint is
directed to small investors, Group IRAs and participants in certain affinity
groups such as benefit plans, credit unions and trade associations. Investors
placing orders to purchase Class A or Class D shares of the Fund through
Blueprint will acquire such Class A or Class D shares at net asset value plus
a sales charge calculated in accordance with the Blueprint sales charge
schedule (i.e., up to $5,000 at 3.5%. Purchases greater than $5,000 will be at
the standard sales charge rate disclosed in the Prospectus). In addition,
Class D shares of the Fund are being offered at net asset value plus a sales
charge of 0.50% for participants in corporate or group IRA programs placing
orders to purchase their shares through Blueprint. However, services
(including the exchange privilege) available to Class A and Class D
shareholders through Blueprint may differ from those available to other
investors in Class A or Class D shares. Class A and Class D shares are offered
at net asset value to participants in the Merrill Lynch BlueprintSM Program
through the Merrill Lynch Directed IRA Rollover Program ("IRA Rollover
Program") available from Merrill Lynch Business Financial Services, a business
unit of Merrill Lynch. The IRA Rollover Program is available to custodian
rollover assets from Employer Sponsored Retirement and Savings Plans (see
definition below) whose Trustee and/or Plan Sponsor offers the Merrill Lynch
Directed IRA Rollover Program. Orders for purchases and redemptions of Class A
or Class D shares of the Fund may be grouped for execution purposes which, in
some circumstances, may involve the execution of such orders two business days
following the day such orders are placed. The minimum initial purchase price
is $100 with a $50 minimum for subsequent purchases through Blueprint. Minimum
initial or subsequent purchase requirements are waived in connection with
automatic investment plans for Blueprint participants. Additional information
concerning purchases through Blueprint, including any annual fees and
transaction charges, is available from Merrill Lynch, Pierce, Fenner & Smith
Incorporated, The BlueprintSM Program, P.O. Box 30441, New Brunswick, New
Jersey 08989-0441.
Purchase Privileges of Certain Persons. Directors of the Fund, directors and
trustees of other MLAM- advised mutual funds, ML & Co. and its subsidiaries
(the term "subsidiaries," when used herein with respect to ML & Co., includes
MLAM, FAM and certain other entities directly or indirectly wholly owned and
controlled by ML & Co.), and their directors or employees, and any trust,
pension, profit-sharing or other benefit plan for such persons, may purchase
Class A shares of the Fund at net asset value.
Class A shares of the Fund and other MLAM-advised mutual funds are offered
at net asset value to shareholders of Merrill Lynch Senior Floating Rate Fund,
Inc. (formerly known as the Merrill Lynch Prime Fund, Inc.) who wish to
reinvest the net proceeds from a sale of certain of their shares of common
stock of Merrill Lynch Senior Floating Rate Fund, Inc. in shares of the Fund.
In order to exercise this investment option, Merrill Lynch Senior Floating
Rate Fund, Inc. shareholders must sell their Merrill Lynch Senior Floating
Rate Fund, Inc. shares to the Merrill Lynch Senior Floating Rate Fund, Inc. in
connection with a tender offer conducted by the Merrill Lynch Senior Floating
Rate Fund, Inc. and reinvest the proceeds immediately in the Fund. This
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<PAGE>
investment option is available only with respect to the proceeds of Merrill
Lynch Senior Floating Rate Fund, Inc. shares as to which no Early Withdrawal
Charge (as defined in the Merrill Lynch Senior Floating Rate Fund, Inc.
prospectus) is applicable. Purchase orders from Merrill Lynch Senior Floating
Rate Fund, Inc. shareholders wishing to exercise this investment option will
be accepted only on the day that the related Merrill Lynch Senior Floating
Rate Fund, Inc. tender offer terminates and will be effected at the net asset
value of the Fund at such day.
Employee AccessSM Accounts. Provided applicable threshold requirements are
met, either Class A or Class D shares are offered at net asset value to
Employee AccessSM Accounts available through authorized employers. The initial
minimum for such accounts is $500, except that the initial minimum for shares
purchased for such accounts pursuant to the Automatic Investment Program is
$50.
Closed-End Fund Investment Option. Class A shares of the Fund and other
MLAM-advised mutual funds ("Eligible Class A Shares") are offered at net asset
value to shareholders of certain closed-end funds advised by the Investment
Adviser or MLAM who purchased such closed-end fund shares prior to October 21,
1994 (the date the Merrill Lynch Select PricingSM System commenced operations)
and wish to reinvest the net proceeds from a sale of their closed-end fund
shares of common stock in Eligible Class A Shares of the Fund. Alternatively,
closed-end fund shareholders who purchased such shares on or after October 21,
1994 and wish to reinvest the net proceeds from a sale of their closed-end
fund shares are offered Class A shares (if eligible to buy Class A shares) or
Class D shares of the Fund and other MLAM-advised mutual funds ("Eligible
Class D Shares"). In order to exercise this investment option, closed-end fund
shareholders must (i) sell their closed-end fund shares through Merrill Lynch
and reinvest the proceeds immediately in the Eligible Class A or Class D
Shares of the Fund, (ii) either have acquired the shares in the closed-end
fund's initial public offering or through reinvestment of dividends earned on
shares purchased in such offering, (iii) have maintained their closed-end fund
shares continuously in a Merrill Lynch account, and (iv) purchase a minimum of
$250 worth of Fund shares. Similarly, Class D shares of the Fund are offered
at a net asset value to shareholders of Merrill Lynch Municipal Strategy Fund,
Inc. ("Municipal Strategy Fund") and Merrill Lynch High Income Municipal Bond
Fund, Inc. ("High Income Fund") who wish to purchase shares of the Fund with
the net proceeds from a sale of certain of their shares of common stock of
Municipal Strategy Fund and High Income Fund pursuant to a tender offer by
Municipal Strategy Fund or High Income Fund. This investment option is
available only with respect to the proceeds of Municipal Strategy Fund shares
as to which no CDSC (as defined in the Municipal Strategy Fund prospectus) is
applicable, or with respect to the proceeds of High Income Fund shares as to
which no Early Withdrawal Charge (as defined in the High Income Fund
prospectus) is applicable.
Class D shares of the Fund are offered at the net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund for which
Merrill Lynch has not served as a selected dealer if the following conditions
are satisfied: First, the investor must advise Merrill Lynch that he or she
will purchase Class D shares of the Fund with proceeds from a redemption of
such shares of other mutual funds and that such shares have been outstanding
for a period of no less than six months. Second, such purchase of Class D
shares must be made within 60 days after the redemption and the proceeds from
the redemption must have been maintained in the interim in cash or a money
market fund.
Class D shares of the Fund are also offered at net asset value, without a
sales charge, to an investor who has a business relationship with a Merrill
Lynch Financial Consultant and who has invested in a mutual fund sponsored by
a non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where
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Merrill Lynch has either received or given notice that such arrangement will
be terminated ("notice"), if the following conditions are satisfied: First,
the investor must purchase Class D shares of the Fund with proceeds from a
redemption of shares of such other mutual fund and such fund was subject to a
sales charge either at the time of purchase or on a deferred basis. Second,
such purchase of Class D shares must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without sales
charge, to an investor who has a business relationship with a Financial
Consultant who joined Merrill Lynch from another investment firm within six
months prior to the date of purchase by such investor, if the following
conditions are satisfied. First, the investor must advise Merrill Lynch that
it will purchase Class D shares with proceeds from a redemption of shares of a
mutual fund that was sponsored by the Financial Consultant's previous firm and
imposed a sales charge either at the time of purchase or on a deferred basis.
Second, the investor also must establish that such redemption had been made
within 60 days prior to the investment in the Fund, and the proceeds from the
redemption had been maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares of the Fund may be reduced to the net asset value per Class D
share in connection with the acquisition of the assets of or merger or
consolidation with a personal holding company or a public or private
investment company. The value of the assets or company acquired in a tax-free
transaction may in appropriate cases be adjusted to reduce possible adverse
tax consequences to the Fund that might result from an acquisition of assets
having net unrealized appreciation that is disproportionately higher at the
time of acquisition than the realized or unrealized appreciation of the Fund.
The issuance of Class D shares for consideration other than cash is limited
to bona fide reorganizations, statutory mergers or other acquisitions of
portfolio securities that (i) meet the investment objectives and policies of
the Fund; (ii) are acquired for investment and not for resale (subject to the
understanding that the disposition of the Fund's portfolio securities shall at
all times remain within its control); and (iii) are liquid securities, the
value of which is readily ascertainable, which are not restricted as to
transfer either by law or liquidity of market (except that the Fund may
acquire through such transactions restricted or illiquid securities to the
extent the Fund does not exceed the applicable limits on acquisition of such
securities set forth under "Investment Objective and Policies" herein).
Reductions in or exemptions from the imposition of a sales charge are due to
the nature of the investors and/or the reduced sales efforts that will be
needed in obtaining such investments.
EMPLOYER-SPONSORED RETIREMENT OR SAVINGS PLANS AND CERTAIN OTHER ARRANGEMENTS
Certain employer-sponsored retirement or savings plans and certain other
arrangements may purchase Class A or Class D shares at net asset value, based
on the number of employees or number of employees eligible to participate in
the plan, the aggregate amount invested by the plan in specified investments
and/or the services provided by Merrill Lynch to the plan. Certain other plans
may purchase Class B shares with a waiver of the CDSC upon redemption, based
on similar criteria. Such Class B shares will convert into Class D shares
approximately ten years after the plan purchases the first share of any MLAM-
advised mutual fund. Minimum purchase requirements may be waived or varied for
such plans. Additional information regarding purchases by employer-sponsored
retirement or savings plans and certain other arrangements is available toll-
free from Merrill Lynch Business Financial Services at (800) 237-7777.
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DISTRIBUTION PLAN
Reference is made to "Purchase of Shares--Deferred Sales Charge
Alternatives--Class B and Class C Shares--Distribution Plan" in the Prospectus
for certain information with respect to the separate distribution plans of the
Fund for Class B, Class C and Class D shares pursuant to Rule 12b-1 under the
Investment Company Act (each a "Distribution Plan") with respect to the
account maintenance and/or distribution fees paid by the Fund to the
Distributor with respect to such classes.
Payments of the account maintenance fees and/or distribution fees are
subject to the provisions of Rule 12b-1 under the Investment Company Act.
Among other things, each Distribution Plan provides that the Distributor shall
provide and the directors shall review quarterly reports of the disbursement
of the account maintenance fees and/or distribution fees paid to the
Distributor. In their consideration of each Distribution Plan, the directors
must consider all factors they deem relevant, including information as to the
benefits of the Distribution Plan to the Fund and its related class of
shareholders. Each Distribution Plan further provides that, so long as the
Distribution Plan remains in effect, the selection and nomination of directors
who are not "interested persons" of the Fund, as defined in the Investment
Company Act (the "Independent Directors"), shall be committed to the
discretion of the Independent Directors then in office. In approving each
Distribution Plan in accordance with Rule 12b-1, the Independent Directors
concluded that there is reasonable likelihood that such Distribution Plan will
benefit the Fund and its related class of shareholders. Each Distribution Plan
can be terminated at any time, without penalty, by the vote of a majority of
the Independent Directors or by the vote of the holders of a majority of the
outstanding related class of voting securities of the Fund. A Distribution
Plan cannot be amended to increase materially the amount to be spent by the
Fund without the approval of the related class of shareholders of the Fund,
and all material amendments are required to be approved by the vote of
directors, including a majority of the Independent Directors who have no
direct or indirect financial interest in such Distribution Plan, cast in
person at a meeting called for that purpose. Rule 12b-1 further requires that
the Fund preserve copies of each Distribution Plan and any report made
pursuant to such plan for a period of not less than six years from the date of
such Distribution Plan or such report, the first two years in an easily
accessible place.
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Conduct Rules of the National
Association of Securities Dealers, Inc. ("NASD") imposes a limitation on
certain asset-based sales charges, such as the distribution fee and the CDSC
borne by the Class B and Class C shares but not the account maintenance fees.
The maximum sales charge rule is applied separately by each class of the Fund.
As applicable to the Fund, the maximum sales charge rule limits the aggregate
of distribution fee payments and CDSCs payable by the Fund to the sum of (1)
6.25% of eligible gross sales of Class B shares and Class C shares of the
Fund, computed separately (defined to exclude shares issued pursuant to
dividend reinvestment and exchanges) and (2) interest on the unpaid balance
for the respective class and portfolio computed separately at the prime rate
plus 1% (the unpaid balance being the maximum amount payable minus amounts
received from the payment of the distribution fee and the CDSC). In connection
with the Class B shares, the Distributor has voluntarily agreed to waive
interest charges on the unpaid balance in excess of 0.50% of eligible gross
sales. Consequently, the maximum amount payable to the Distributor (referred
to as the "voluntary maximum") in connection with Class B shares in the Fund
is 6.75% of eligible gross sales. The Distributor retains the right to stop
waiving the interest charge at any time. To the extent payments would exceed
the voluntary maximum, the Fund will not make further payments of the
distribution fee
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with respect to Class B shares, and any CDSCs will be paid to the Fund rather
than to the Distributor; however, the Fund will continue to make payments of
the account maintenance fees. In certain circumstances the amount payable
pursuant to the voluntary maximum may exceed the amount payable under the NASD
formula. In such circumstances, payment in excess of the amount payable under
the NASD formula will not be made.
REDEMPTION OF SHARES
The right to redeem shares or to receive payment with respect to any
redemption may be suspended for more than seven days only for any period
during which trading on the NYSE is restricted as determined by the Commission
or the NYSE is closed (other than customary weekend and holiday closings), for
any period during which an emergency exists as defined by the Commission as a
result of which disposal of portfolio securities or determination of the net
asset value of the Fund is not reasonably practicable, and for such other
periods as the Commission may by order permit for the protection of
shareholders of the Fund. Reference is made to "Redemption of Shares" in the
Prospectus for certain information as to the redemption and repurchase of Fund
shares.
The value of shares at the time of redemption may be more or less than the
shareholder's cost, depending on the market value of the securities held by
the Fund at such time.
REPURCHASE
The Fund will normally accept orders to repurchase shares by wire or
telephone from dealers for their customers at the net asset value next
computed after receipt of the order by the dealer, provided that the request
for repurchase is received by the dealer prior to the close of business on the
NYSE on the day received and is received by the Fund from such dealer not
later than 30 minutes after the close of business on the NYSE (generally 4:00
p.m., New York City time), on the same day. Dealers have the responsibility of
submitting such repurchase requests to the Fund not later than 30 minutes
after the close of business on the NYSE (generally 4:00 p.m., New York City
time), in order to obtain that day's closing price.
For shareholders submitting their shares for repurchase through listed
securities dealers, payment for fractional shares will be made by the Transfer
Agent directly to the shareholder and payment for full shares will be made by
the securities dealer within seven days of the proper tender of the
certificates, if any, and stock power or letter requesting redemption, in each
instance with signatures guaranteed as noted in the Prospectus.
REINSTATEMENT PRIVILEGE
Shareholders who have redeemed Class A or Class D shares of the Fund,
including redemption through repurchase by the Fund, have a one-time privilege
to reinstate their accounts by purchasing Class A or Class D shares, as the
case may be, of the Fund at the net asset value of such shares without a sales
charge up to the dollar amount redeemed. The reinstatement privilege may be
exercised as follows. A notice to exercise this privilege along with a check
for the amount to be reinstated must be received by the Transfer Agent within
30 days after the date the request for redemption was accepted by the Transfer
Agent or the Distributor. The reinstatement will be made at the net asset
value per share next determined after the notice of reinstatement is received
and cannot exceed the amount of the redemption proceeds. The reinstatement
privilege is a one-time privilege and may be exercised by the shareholder only
the first time such shareholder makes a redemption. A
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redemption resulting in a gain is a taxable event whether or not the
reinstatement privilege is exercised. A redemption resulting in a loss will
not be a taxable event to the extent the reinstatement privilege is exercised,
and an adjustment will be made to the shareholder's tax basis in shares
acquired pursuant to the reinstatement to reflect the disallowed loss.
If a shareholder disposes of shares within 90 days of their acquisition and
subsequently reacquires shares of the Fund pursuant to the reinstatement
privilege, then the shareholder's tax basis in those shares disposed of will
be reduced to the extent the load charge paid to the Fund upon the
shareholder's initial purchase reduces any load charge such shareholder would
have been required to pay on the subsequent acquisition in absence of the
reinstatement privilege. Instead, such load charge will be treated as an
amount paid for the subsequently acquired shares and will be included in the
shareholder's tax basis for such shares.
DEFERRED SALES CHARGE--CLASS B AND CLASS C SHARES
As discussed in the Prospectus under "Purchase of Shares--Alternative Sale
Arrangements--Deferred Sales Charge Alternative--Class B and Class C Shares,"
while Class B shares of the Fund redeemed within four years of purchase are
subject to a contingent deferred sales charge under most circumstances, the
charge is waived on redemptions of Class B shares in certain instances
including in connection with certain post-retirement withdrawals from an
Individual Retirement Account ("IRA") or other retirement plan or following
the death or disability of a Class B shareholder. Redemptions for which the
waiver applies in the case of such withdrawals are: (a) any partial or
complete redemption in connection with a distribution following retirement
under a tax-deferred retirement plan or attaining age 59 1/2 in the case of an
IRA or other retirement plan, or part of a series of equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) or
any redemption resulting from the tax-free return of an excess contribution to
an IRA; or (b) any partial or complete redemption following the death or
disability (as defined in the Internal Revenue Code) of a Class B shareholder
(including one who owns the Class B shares as joint tenant with his or her
spouse), provided the redemption is requested within one year of the death or
initial determination of disability.
Merrill Lynch BlueprintSM Program. Class B shares of the Fund are offered to
certain participants in the Merrill Lynch BlueprintSM Program ("Blueprint").
Blueprint is directed to small investors and participants in certain affinity
groups such as trade associations and credit unions. Class B shares are
offered through Blueprint only to members of certain affinity groups. The
contingent deferred sales charge is waived for shareholders who are members of
certain affinity groups at the time orders to purchase Class B shares are
placed through Blueprint. However, services (including the exchange privilege)
available to Class B shareholders through Blueprint may differ from those
available to other Class B investors. Orders for purchases and redemptions of
Class B shares may be grouped for execution purposes which, in some
circumstances, may involve the execution of such orders two business days
following the day such orders are placed. The minimum initial purchase price
is $100 with a $50 minimum for subsequent purchases through Blueprint. Minimum
investment amounts are waived in connection with automatic investment plans
for Blueprint participants. Additional information concerning these Blueprint
programs, including any annual fees or transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The BlueprintSM Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
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DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Reference is made to "Dividends, Distributions and Taxes" on page 33 of the
Prospectus.
FEDERAL INCOME TAXES
The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as it
so qualifies, the Fund (but not its shareholders) will not be subject to
Federal income tax on the part of its net ordinary income and net realized
capital gains that it distributes to Class A, Class B, Class C and Class D
shareholders (together, the "shareholders"). The Fund intends to distribute
substantially all of such income.
Dividends paid by the Fund from its ordinary income or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses ("capital gain dividends") are
taxable to shareholders as long-term capital gains, regardless of the length
of time the shareholder has owned Fund shares. Recent legislation creates
additional categories of capital gains taxable at different rates. Although
the legislation does not explain how gain in these categories will be taxed to
shareholders of RICs, it authorizes regulations applying the new categories of
gain and the new rates to sales of securities by RICs. In the absence of
guidance, there is some uncertainty as to the manner in which the categories
of gain and related rates will be passed through to the shareholders in
capital gain dividends. Any loss upon the sale or exchange of Fund shares held
for six months or less, however, will be treated as long-term capital loss to
the extent of any capital gain dividends received by the shareholder.
Distributions in excess of the Fund's earnings and profits will first reduce
the adjusted tax basis of a holder's shares and, after such adjusted tax basis
is reduced to zero, will constitute capital gains to such holder (assuming the
shares are held as a capital asset). Although the Fund may invest in certain
municipal securities, it is not anticipated that any portion of the dividends
paid by the Fund will qualify for tax-exempt treatment to shareholders.
Ordinary income dividends paid to shareholders who are nonresident aliens or
foreign entities will be subject to a 30% United States withholding tax under
existing provisions of the Code applicable to foreign individuals and entities
unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Nonresident shareholders are urged to consult
their own tax advisers concerning the applicability of the United States
withholding tax.
Some shareholders may be subject to a 31% withholding tax on reportable
dividends, capital gains distributions and redemption payments ("backup
withholding"). Generally, shareholders subject to backup withholding will be
those for whom a certified taxpayer identification number is not on file with
the Fund or who, to the Fund's knowledge, have furnished an incorrect number.
When establishing an account, an investor must certify under penalties of
perjury that such number is correct and that he is not otherwise subject to
backup withholding.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
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No gain or loss will be recognized by Class B shareholders on the conversion
of their Class B shares for Class D shares. A shareholder's basis in the Class
D shares acquired will be the same as such shareholder's basis in the Class B
shares converted, and the holding period of the acquired Class D shares will
include the holding period of the converted Class B shares.
A loss realized on a sale or exchange of shares of the Fund will be
disallowed if other Fund shares are acquired (whether through the automatic
reinvestment of dividends or otherwise) within a 61-day period beginning 30
days before and ending 30 days after the date that the shares are disposed of.
In such a case, the basis of the shares acquired will be adjusted to reflect
the disallowed loss.
The Code imposes a 4% nondeductible excise tax on a regulated investment
company, such as the Fund, if it does not distribute to its shareholders
during the calendar year an amount equal to 98% of the Fund's investment
company income, with certain adjustments, for such calendar year, plus 98% of
the Fund's capital gain net income for the one-year period ending on October
31, of such calendar year. In addition, an amount equal to any undistributed
investment company taxable income or capital gain net income from the previous
calendar year must also be distributed to avoid the excise tax. While the Fund
intends to distribute its income and capital gains in the manner necessary to
avoid imposition of the 4% excise tax, there can be no assurance that
sufficient amounts of the Fund's taxable income and capital gains will be
distributed to avoid entirely the imposition of the tax. The excise tax is
imposed on the amount by which the regulated investment company does not meet
the foregoing distribution requirements.
Only dividends paid by the Fund that are attributable to dividends received
by the Fund will qualify for the 70% dividends-received deduction for
corporations. In addition, corporate shareholders must have held their shares
in the Fund for more than 45 days to qualify for the deduction on dividends
paid by the Fund. Because most of the income of the Fund will be interest
income, rather than dividends on common or preferred stock, it is unlikely
that any substantial proportion of its distributions will be eligible for the
dividends-received deduction available for corporations under the Code.
Dividends to shareholders who are nonresident aliens, trusts, estates,
partnerships or corporations may be subject to a 30% United States withholding
tax unless a reduced rate of withholding is provided under an applicable tax
treaty. Shareholders who are nonresident aliens or foreign entities are urged
to consult their own tax advisers concerning the applicability of the United
States withholding tax.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent sections of the
Code and the Treasury Regulations promulgated thereunder. The Code and
Regulations are subject to change by legislative or administrative action.
TAX TREATMENT OF TRANSACTIONS IN OPTIONS ON DEBT SECURITIES, FUTURES CONTRACTS
AND OPTIONS THEREON
The Fund may purchase and sell interest rate futures contracts and may write
and purchase call and put options on such futures contracts and on certain
debt securities. The Fund may write or purchase options that will be
classified as "nonequity options" under the Code. Generally, gain and loss
resulting from transactions in options on debt securities, as well as gain and
loss from transactions in futures contracts and options thereon, will be
treated as long-term capital gain or loss to the extent of 60% thereof and
short-term capital gain or loss
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to the extent of 40% thereof (hereinafter "blended gain or loss"). In the case
of the exercise or assignment of an option on a debt security, the premium
paid or received by the Fund generally will adjust the gain or loss on
disposition of the underlying security.
Any option or futures contract held by the Fund on the last day of a fiscal
year will be treated as sold for market value on that date, and gain or loss
recognized as a result of such deemed sale will be blended gain or loss. The
capital gains and losses of the Fund will be combined in each fiscal year to
determine the capital gains and losses of the Fund, as described above.
In addition, the Fund's trading strategies may constitute "straddle"
transactions with futures contracts, options thereon and options on debt
securities. "Straddles" may affect the taxation of futures contracts and
options, and may cause the postponement of recognition of losses incurred in
certain closing transactions.
The requirements for classification as a regulated investment company may
restrict the Fund's ability to engage in certain options and futures contract
transactions. The Fund expects to obtain a private letter ruling from the
Internal Revenue Service providing the Fund with relief from certain
provisions of the Code that might otherwise affect its ability to engage in
such transactions.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services described below that are
designed to facilitate investment in its shares. Full details as to each of
such services and copies of the various plans described below can be obtained
from the Fund, the Distributor or Merrill Lynch. Certain of these services are
available only to U.S. investors.
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gains distributions.
The statements will also show any other activity in the account since the
preceding statement. Shareholders will receive separate transaction
confirmations for each purchase or sale transaction other than automatic
investment purchases and the reinvestment of ordinary income dividends and
long-term capital gains distributions. A shareholder may make additions to his
Investment Account at any time by mailing a check directly to the Fund's
Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of the shareholder. Issuance of certificates representing all
or only part of the full shares in an Investment Account may be requested by a
shareholder directly from the Fund's Transfer Agent.
Shareholders considering transferring their Class A shares from Merrill
Lynch to another brokerage firm or financial institution should be aware that,
if the firm to which the Class A or Class D shares are to be transferred will
not take delivery of shares of the Fund, a shareholder either must redeem the
Class A or Class D shares
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(paying any applicable CDSC) so that the cash proceeds can be transferred to
the account at the new firm or such shareholder must continue to maintain an
Investment Account at the transfer agent for those Class A or Class D shares.
Shareholders interested in transferring their Class B or Class C shares from
Merrill Lynch and who do not wish to have an Investment Account maintained for
such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage
firm for the benefit of the shareholder at the transfer agent. If the new
brokerage firm is willing to accommodate the shareholder in this manner, the
shareholder must request that he or she be issued certificates for his shares,
and then must turn the certificates over to the new firm for re-registration
as described in the preceding sentence. Shareholders considering transferring
a tax-deferred retirement account such as an individual retirement account
from Merrill Lynch to another brokerage firm or financial institution should
be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash
proceeds can be transferred to the account at the new firm, or such
shareholder must continue to maintain a retirement account with Merrill Lynch
for those shares.
AUTOMATIC INVESTMENT PLANS
A shareholder may make additions to an Investment Account (as described in
the Prospectus under "Shareholder Services--Investment Account" on page 31) at
any time by purchasing Class A shares (if he or she is an eligible Class A
investor as described in the Prospectus) or Class B, Class C or Class D shares
at the applicable public offering price either through the shareholder's
securities dealer or by mail directly to the Fund's Transfer Agent, acting as
agent for such securities dealer. Voluntary accumulation also can be made
through a service known as the Fund's Automatic Investment Plan whereby the
Fund is authorized through pre-authorized checks or automated clearing house
debits of $50 or more to charge the regular bank account of the shareholder on
a regular basis to provide systematic additions to the Investment Account of
such shareholder. For investors who buy shares of the fund through Blueprint
no minimum charge to the investors' bank accounts is required. An investor
whose shares of the Fund are held within a CMA(R) or CBA(R) account may
arrange to have periodic investments made in the Fund in amounts of $100 or
more ($1 for retirement accounts) through the CMA(R)/CBA(R) Automated
Investment Program.
FEE-BASED PROGRAMS
Certain Merrill Lynch fee-based programs, including pricing alternatives for
securities transactions (each referred to in this paragraph as a "Program"),
may permit the purchase of Class A shares at net asset value. Under specified
circumstances, participants in certain Programs may deposit other classes of
shares that will be exchanged for Class A shares. Initial or deferred sales
charges otherwise due in connection with such exchanges may be waived or
modified, as may the Conversion Period applicable to the deposited shares.
Termination of participation in a Program may result in the redemption of
shares held therein or the automatic exchange thereof to another class at net
asset value, which may be shares of a money market fund. In addition, upon
termination of participation in a Program, shares that have been held for less
than specified periods within such Program may be subject to a fee based upon
the current value of such shares. These Programs also generally prohibit such
shares from being transferred to another account at Merrill Lynch, to another
broker-dealer or to the Transfer Agent. Except in limited circumstances (which
may also involve an exchange as described above), such shares must be redeemed
and another class of shares purchased (which may involve the imposition of
initial or deferred sales charges and distribution and account maintenance
fees) in order for the investment not to be
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subject to Program fees. Additional information regarding a specific Program
(including charges and limitations on transferability applicable to shares
that may be held in such Program) is available in such Program's client
agreement and from the Transfer Agent at (800) MER-FUND or (800) 637-3863.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions to the contrary are given as to the method of
payment of dividends and capital gains distributions, dividends and
distributions will be reinvested automatically in additional shares of the
Fund. Such reinvestment will be at the net asset value of shares of the Fund
as of the close of business on the ex-dividend date of the dividend or
distribution. Shareholders may elect in writing to receive either their
dividends or capital gains distributions, or both, in cash, in which event
payment will be mailed or direct deposited on or about the payment date.
Shareholders may, at any time, notify Merrill Lynch in writing if the
shareholder's account is maintained with Merrill Lynch or notify the Transfer
Agent in writing or by telephone (1-800-MER-FUND), if their account is
maintained with the Transfer Agent, that they no longer wish to have their
dividends and/or distributions reinvested in shares of the Fund or vice versa,
and commencing ten days after receipt by the transfer agent of such notice,
those instructions will be effected. The Fund is not responsible for any
failure of delivery to the shareholder's address of record and no interest
will accrue on amounts represented by uncashed distribution or redemption
checks.
SYSTEMATIC WITHDRAWAL PLANS
A shareholder of the Fund may elect to make systematic withdrawals from an
Investment Account of Class A, Class B, Class C or Class D shares in the form
of payments by check or through automatic payment by direct deposit to such
shareholder's bank account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
shares of the Fund having a value, based on cost or upon the current net asset
value, of $5,000 or more, and monthly withdrawals are available for
shareholders with shares having a value of $10,000 or more.
At the time of each withdrawal payment, sufficient shares are redeemed from
those on deposit in the shareholder's account to provide the withdrawal
payment specified by the shareholder. The shareholder may specify the dollar
amount and class of shares to be redeemed. Redemptions will be made at net
asset value as determined as of 15 minutes after the close of business on the
NYSE (generally 4:00 p.m., New York City time) on the 24th day of each month
or the 24th day of the last month of each quarter, whichever is applicable. If
the NYSE is not open for business on such date, the shares will be redeemed at
the close of business on the following business day. The check for the
withdrawal payment will be mailed or the direct deposit of the withdrawal
payment will be made on the next business day following redemption. When a
shareholder is making systematic withdrawals, dividends and distributions on
all shares in the Investment Account are reinvested automatically in shares of
the Fund. A shareholder's Systematic Withdrawal Plan may be terminated at any
time, without charge or penalty, by the shareholder, the Fund, the Transfer
Agent or the Distributor.
Withdrawal payments should not be considered as dividends, yields or income.
Each withdrawal is a taxable event. If periodic withdrawals continuously
exceed reinvested dividends, the shareholder's original investment may be
correspondingly reduced. Purchases of additional shares concurrent with
withdrawals are ordinarily
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<PAGE>
disadvantageous to the shareholder because of sales charges and tax
liabilities. The Fund will not knowingly accept purchase orders for shares of
the Fund from investors who maintain a Systematic Withdrawal Plan unless such
purchase is equal to at least one year's scheduled withdrawals or $1,200,
whichever is greater. Periodic investments may not be made into an Investment
Account from which the shareholder has elected to make systematic withdrawals.
Alternatively, a shareholder whose shares are held within a CMA(R), CBA(R)
or Retirement Account may elect to have shares redeemed on a monthly,
bimonthly, quarterly, semiannual or annual basis through the CMA(R)/CBA(R)
Systematic Redemption Program. The minimum fixed dollar amount redeemable is
$50. The proceeds of systematic redemptions will be posted to the
shareholder's account five business days after the date the shares are
redeemed. All redemptions are made at net asset value. A shareholder may elect
to have his or her shares redeemed on the first, second, third or fourth
Monday of each month, in the case of monthly redemptions, or of every other
month, in the case of bimonthly redemptions. For quarterly, semiannual or
annual redemptions, the shareholder may select the month in which the shares
are to be redeemed and may designate whether the redemption is to be made on
the first, second or fourth Monday of the month. If the Monday selected is not
a business day, the redemption will be processed at net asset value on the
next business day. The Systematic Redemption Program is not available if Fund
shares are being purchased within the account pursuant to the Automatic
Investment Program. For more information on the CMA(R)/CBA(R) Systematic
Redemption Program, eligible shareholders should contact their Merrill Lynch
Financial Consultant.
With respect to redemptions of Class B and Class C shares pursuant to a
systematic withdrawal plan, the maximum number of Class B or Class C shares
that can be redeemed from an account annually shall not exceed 10% of the
value of shares of such class in that account at the time the election to join
the systematic withdrawal plan was made. Any CDSC that otherwise might be due
on such redemption of Class B or Class C shares will be waived. Shares
redeemed pursuant to a systematic withdrawal plan will be redeemed in the same
order as Class B or Class C shares are otherwise redeemed. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--
Contingent Deferred Sales Charges--Class B Shares" and "--Contingent Deferred
Sales Charges--Class C Shares" in the Prospectus. Where the systematic
withdrawal plan is applied to Class B shares, upon conversion of the last
Class B shares in an account to Class D shares, the systematic withdrawal plan
will automatically be applied thereafter to Class D shares. See "Purchase of
Shares--Deferred Sales Charge Alternatives--Class B and Class C Shares--
Conversion of Class B Shares to Class D Shares" in the Prospectus; if an
investor wishes to change the amount being withdrawn in a systematic
withdrawal plan the investor should contact his or her Financial Consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in
the Fund and certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch charges an initial establishment
fee and an annual custodial fee for each account. Information with respect to
these plans is available upon request from Merrill Lynch. The minimum initial
purchase to establish any such plan is $100 and the minimum subsequent
purchase is $1.
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RETIREMENT PLAN
Any Retirement Plan that does not meet the qualifications to purchase Class
A or Class D shares at net asset value may purchase Class B shares with a
waiver of the CDSC upon redemption if the following qualifications are met.
The CDSC is waived for any Eligible 401(k) Plan redeeming Class B shares and
is also waived for Class B redemptions from a 401(a) plan qualified under the
Code, provided that each such plan has the same or an affiliated sponsoring
employer as an Eligible 401(k) Plan purchasing Class B shares ("Eligible
401(a) Plan"). Other tax qualified retirement plans within the meaning of
Section 401(a) and 403(b) of the Code that are provided specialized services
(e.g., plans whose participants may direct on a daily basis their plan
allocations among a menu of investments) by independent administration firms
contracted through Merrill Lynch may also purchase Class B shares with a
waiver of the CDSC. The CDSC is also waived for any Class B shares that are
purchased by an Eligible 401(k) Plan or Eligible 401(a) Plan and are rolled
over into a Merrill Lynch or Merrill Lynch Trust Company custodied IRA and
held in such account at the time of redemption. The Class B CDSC is also
waived for shares purchased by a Merrill Lynch rollover IRA that was funded by
a rollover from a terminated 401(k) plan managed by the MLAM Private Portfolio
Group and held in such account at the time of redemption. The minimum initial
and subsequent purchase requirements are waived in connection with all the
above-referenced Retirement Plans.
EXCHANGE PRIVILEGE
U.S. shareholders of each class of shares of the Fund have an exchange
privilege with certain other MLAM- advised mutual funds. Under the Merrill
Lynch Select Pricing SM System, Class A shareholders may exchange Class A
shares of the Fund for Class A shares of a second MLAM-advised mutual fund if
the shareholder holds any Class A shares of the second fund in the account in
which the exchange is made at the time of the exchange or is otherwise
eligible to purchase Class A shares of the second fund. If the Class A
shareholder wants to exchange Class A shares for shares of a second MLAM-
advised mutual fund, and the shareholder does not hold Class A shares of the
second fund in his account at the time of the exchange and is not otherwise
eligible to acquire Class A shares of the second fund, the shareholder will
receive Class D shares of the second fund as a result of the exchange. Class D
shares also may be exchanged for Class A shares of a second MLAM-advised
mutual fund at any time as long as, at the time of the exchange, the
shareholder holds Class A shares of the second fund in the account in which
the exchange is made or is otherwise eligible to purchase Class A shares of
the second fund. Class B, Class C and Class D shares of the Fund will be
exchangeable with shares of the same class of other MLAM-advised mutual funds.
For purposes of computing the CDSC that may be payable upon a disposition of
the shares acquired in the exchange, the holding period for the previously
owned shares of the Fund is "tacked" to the holding period of the newly
acquired shares of the other fund as more fully described below. Class A,
Class B, Class C and Class D shares also will be exchangeable for shares of
certain MLAM-advised money market funds specifically designated below as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares
may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount
equal to the
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difference, if any, between the sales charge previously paid on the
outstanding Class A or Class D shares and the sales charge payable at the time
of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have
taken place, the "sales charge previously paid" shall include the aggregate of
the sales charge paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend reinvestment
shall be deemed to have been sold with a sales charge equal to the sales
charge previously paid on the Class A or Class D shares on which the dividend
was paid. Based on this formula, Class A and Class D shares of the Fund
generally may be exchanged into the Class A or Class D shares of the other
funds or into shares of the Class A and Class D money market funds with a
reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, ("new Class B or
Class C shares") of another MLAM-advised mutual fund on the basis of relative
net asset value per Class B or Class C share, without the payment of any CDSC
that might otherwise be due on redemption of the outstanding shares. Class B
shareholders of the fund exercising the exchange privilege will continue to be
subject to the fund's CDSC schedule if such schedule is higher than the CDSC
relating to the new Class B shares acquired through use of the exchange
privilege. In addition, Class B shares of the Fund acquired through use of the
exchange privilege will be subject to the higher of the Fund's CDSC schedule
or the CDSC relating to the Class B shares of the fund from which the exchange
has been made. For purposes of computing the sales load that may be payable on
a disposition of the new Class B or Class C shares, the holding period for the
outstanding Class B or Class C shares is "tacked" to the holding period of the
new Class B or Class C shares. For example, an investor may exchange Class B
shares of the Fund for those of Merrill Lynch Special Value Fund, Inc.
("Special Value Fund") after having held the Fund's Class B shares for two and
a half years. The 2% sales load that generally would apply to a redemption
would not apply to the exchange. Two years later the investor may decide to
redeem the Class B shares of Merrill Lynch Special Value Fund and receive
cash. There will be no CDSC due on this redemption, since by "tacking" the two
and a half year holding period of the Fund's Class B shares to the two year
holding period for the Merrill Lynch Special Value Fund Class B shares, the
investor will be deemed to have held the new Class B shares for more than four
years.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the
period of time that Class B or Class C shares are held in a money market fund
will not count towards satisfaction of the holding period requirement for
purposes of reducing the CDSC or, with respect to Class B shares, towards
satisfaction of the conversion period. However, shares of a money market fund
that were acquired as a result of an exchange for Class B or Class C shares of
the Fund may, in turn, be exchanged back into Class B or Class C shares of any
fund offering such shares, in which event the holding period for Class B or
Class C shares of that fund will be aggregated with previous holding periods
for purposes of reducing the CDSC. Thus, for example, an investor may exchange
Class B shares of the Fund for shares of Merrill Lynch Institutional Fund
("Institutional Fund") after having held the Fund's Class B shares for two and
a half years and two years later decide to redeem the shares of Institutional
Fund for cash. At the time of this redemption, the 2% CDSC that would have
been due had the Class B shares of the Fund been redeemed for cash rather than
exchanged for shares of Institutional Fund will be payable. If, instead of
such redemption the shareholder exchanged such shares for Class B shares of a
fund which the shareholder continues to hold for an additional one and a half
years, any subsequent redemption will not incur a CDSC.
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To exercise the exchange privilege, shareholders should contact their
Merrill Lynch Financial Consultant who will advise the Fund of the exchange.
Before effecting an exchange, shareholders should obtain a currently effective
prospectus of the fund into which the exchange is to be made. Shareholders of
the Fund, and shareholders of the other funds described above with shares for
which certificates have not been issued, may exercise the exchange privilege
by wire through their securities dealers. The Fund reserves the right to
require a properly completed Exchange Application. This exchange privilege may
be modified or terminated in accordance with the rules of the Commission. The
Fund reserves the right to limit the number of times an investor may exercise
the exchange privilege. Certain funds may suspend the continuous offering of
their shares to the general public at any time and may thereafter resume such
offering from time to time. The exchange privilege is available only to U.S.
shareholders in states where the exchange legally may be made.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data, as well as yield, in advertisements or information
furnished to present or prospective shareholders. Total return and yield
figures are based on the Fund's historical performance and are not intended to
indicate future performance. Average annual total return and yield are
determined separately for Class A, Class B, Class C and Class D shares of the
Fund in accordance with formulas specified by the Commission and take into
account the maximum applicable sales charge.
Average annual total return quotations for the specified periods are
computed by finding the average annual compounded rates of return (based on
net investment income and any realized and unrealized capital gains or losses
on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each
period. Average annual total return is computed assuming all dividends and
distributions are reinvested and taking into account all applicable recurring
and nonrecurring expenses, including the maximum sales charge in the case of
Class A and Class D shares and the CDSC that would be applicable to a complete
redemption of the investment at the end of the specified period in the case of
Class B and Class C shares.
The Fund also may quote annual, average annual and annualized total return
and aggregate total return performance data, both as a percentage and as a
dollar amount based on a hypothetical $1,000 investment, for various periods
other than those noted below. Such data will be computed as described above,
except that (1) the rates of return calculated will not be average annual
rates, but rather, actual annual, annualized or aggregate rates of return and
(2) the maximum applicable sales charge will not be included with respect to
annual or annualized rates of return calculations. Aside from the impact on
the performance data calculations of including or excluding the maximum
applicable sales charge, actual annual or annualized total return data
generally will be lower than average annual total return data since the
average rates of return reflect compounding of return; aggregate total return
data generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
In order to reflect the reduced sales charges applicable to certain
investors, as described under "Purchase of Shares," the total return data
quoted by the Fund in advertisements directed to such investors whose
purchases are subject to reduced sales charge, in the case of Class A and
Class D shares, or waiver of the contingent
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deferred sales charge in the case of Class B and Class C shares, may take into
account the reduced, and not the maximum, sales charge or may not take into
account the contingent deferred sales charge and therefore may reflect greater
total return since, due to the reduced sales charge, a lower amount of
expenses is deducted.
On occasion, the Fund may compare its performance to that of the Standard &
Poor's 500 Index, the Value Line Composite Index, the Dow Jones Industrial
Average, or performance data contained in publications such as Lipper
Analytical Services, Inc., Morningstar Publications, Inc., Money Magazine,
U.S. News & World Report, Business Week, CDA Investment Technology, Inc.,
Forbes Magazine or Fortune Magazine. As with other performance data,
performance comparisons should not be considered indicative of the Fund's
relative performance for any future period.
ADDITIONAL INFORMATION
ORGANIZATION OF THE FUND
The authorized capital stock of the Fund consists of four hundred million
(400,000,000) shares of Common Stock, having a par value $0.10 per share. The
shares of Common Stock are divided into four classes, each consisting of one
hundred million (100,000,000) shares, as follows: "Class A Common Stock,"
"Class B Common Stock," "Class C Common Stock" and "Class D Common Stock".
Each of the Fund's shares has equal dividend, distribution, liquidation and
voting rights, except that Class B, Class C and Class D Shares bear certain
account maintenance expenses and/or expenses related to the distribution of
such shares and have exclusive voting rights with respect to matters relating
to such expenditures (except that Class B Shares have certain voting rights
with respect to the Class D Distribution Plan). Each issued and outstanding
share is entitled to one vote and to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities. The shares of the Fund, when issued, will be fully paid and
nonassessable, have no preference, preemptive or similar rights, and will be
freely transferable. Exchange and conversion rights are discussed elsewhere
herein and in the Prospectus. Stock certificates will be issued by the
Transfer Agent only on specific request. Certificates for fractional shares
are not issued in any case. Holders of shares of the Fund are entitled to
redeem their shares as set forth under "Redemption of Shares."
The Investment Adviser provided the initial capital for the Fund by
purchasing 10,000 shares for $100,000. Such shares were acquired for
investment and can only be disposed of by redemption. The organizational
expenses of the Fund (estimated at approximately $61,000) will be paid by the
Fund and will be amortized over a period not exceeding five years. The
proceeds realized by the Investment Adviser upon the redemption of any of the
shares initially purchased by it will be reduced by the proportional amount of
the unamortized organizational expenses that the number of such initial shares
being redeemed bears to the number of shares initially purchased. As of the
date of this Statement of Additional Information, the Investment Adviser owned
100% of the outstanding shares of Common Stock of the Fund.
Under a separate agreement Merrill Lynch has granted the Fund the right to
use the "Merrill Lynch" name and has reserved the right to withdraw its
consent to the use of such name by the Fund at any time, or to grant the use
of such name to any other company, and the Fund has granted Merrill Lynch,
under certain conditions, the use of any other name it might assume in the
future, with respect to any corporation organized by Merrill Lynch.
33
<PAGE>
CONTROL PERSONS
As of the date of this Statement of Additional Information, the Investment
Adviser was the sole record and beneficial shareholder of the Fund. So long as
such ownership of shares continues to exceed 25% of the outstanding shares of
the Fund, the Investment Adviser will be deemed to control the Fund by virtue
of such ownership. The mailing address of the Investment Adviser is P.O. Box
9011, Princeton, New Jersey 08543-9011.
COMPUTATION OF OFFERING PRICE PER SHARE
An illustration of the computation of the offering price for Class A, Class
B, Class C and Class D shares of the Fund, based on the projected value of the
Fund's estimated net assets and projected number of shares outstanding on the
date its shares are offered for sale to public investors, is as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Assets..................... $50,000,000 $50,000,000 $50,000,000 $50,000,000
=========== =========== =========== ===========
Number of Shares Outstanding... 5,000,000 5,000,000 5,000,000 5,000,000
=========== =========== =========== ===========
Net Asset Value Per Share (net
assets divided by number of
shares outstanding)........... $ 10.00 $ 10.00 $ 10.00 $ 10.00
Sales Charge* (for Class A and
Class D shares: 4.00% of
offering price (4.17% of net
asset value per share))....... .42 ** ** .42
----------- ----------- ----------- -----------
Offering Price................. $ 10.42 $ 10.00 $ 10.00 $ 10.42
=========== =========== =========== ===========
</TABLE>
- --------
* Rounded to the nearest one hundredth percent, assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC on redemption of shares. See "Purchase of Shares--
Deferred Sales Charge Alternatives--Class B and Class C Shares" in the
Prospectus and "Redemption of Shares--Deferred Sales Charge--Class B and
Class C Shares" herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540 has
been selected as the independent auditors of the Fund. The independent
auditors are responsible for auditing the annual financial statements of the
Fund.
CUSTODIAN
State Street Bank and Trust Company, One Heritage Drive, P2N, North Quincy,
Massachusetts 02171, acts as the Custodian of the Fund's assets. Under its
contract with the Fund, the Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the
Fund to be held in its offices outside the United States and with certain
foreign banks and securities depositories. The Custodian is responsible for
safeguarding and controlling the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on
the Fund's investments.
34
<PAGE>
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc. 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's Transfer Agent. The
Transfer Agent is responsible for the issuance, transfer and redemption of
shares and the opening, maintenance and servicing of shareholder accounts. See
"Management of the Fund--Transfer Agency Services" in the Prospectus.
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc., 800 Scudders Mill Road, Plainsboro,
New Jersey 08536 acts as the Fund's Distributor. The Distributor is
responsible for soliciting subscriptions and purchases of shares of the Fund.
See "Purchase of Shares" in the Prospectus.
LEGAL COUNSEL
Rogers & Wells LLP, 200 Park Avenue, New York, New York 10166, is counsel
for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on March 31 of each year. The Fund sends to
its shareholders at least quarterly reports showing the Fund's portfolio and
other information. An annual report, containing financial statements audited
by independent auditors, is sent to shareholders each year. After the end of
each year shareholders will receive federal income tax information regarding
dividends and capital gains distributions.
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder,
Merrill Lynch Corporate High Yield Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Merrill Lynch Corporate High Yield Fund, Inc. as of April 23, 1998. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted out audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of Merrill Lynch Corporate High
Yield Fund, Inc. as of April 23, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
April 23, 1998
36
<PAGE>
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
APRIL 23, 1998
<TABLE>
<S> <C>
Assets:
Cash in Bank........................................................ $100,000
Prepaid registration fees (Note 3).................................. 109,000
Deferred organization expenses (Note 4)............................. 61,000
--------
Total Assets.......................................................... 270,000
Liabilities-accrued expenses.......................................... 170,000
--------
Net Assets (equivalent to $0.10 per share on 2,500 Class A shares of
Common Stock (par value $0.10), 2,500 Class B shares of Common Stock
(par value $0.10), 2,500 Class C shares of Common Stock (par value
$0.10) and 2,500 Class D shares of Common Stock (par value $0.10)
outstanding with 400,000,000 shares authorized) (Note 1)............. $100,000
</TABLE>
- --------
Notes to Statement of Assets and Liabilities.
(1) Merrill Lynch Corporate High Yield Fund, Inc. (the "Fund") was organized
as a Maryland corporation on March 13, 1998. The Fund is registered under
the Investment Company Act of 1940 as an open-end management investment
company. To date, the Fund has not had any transactions other than those
relating to organizational matters and the sale of 2,500 Class A shares,
2,500 Class B shares, 2,500 Class C shares and 2,500 Class D shares of
Common Stock to Fund Asset Management, L.P. (the "Investment Adviser").
(2) The Fund has entered an investment advisory agreement (the "Investment
Advisory Agreement") with the Investment Adviser, and distribution
agreements (the "Distribution Agreements") with Merrill Lynch Funds
Distributor, Inc. (the "Distributor"). (See "Management of the Fund--
Investment Advisory Arrangements" in the Statement of Additional
Information.) Certain officers and/or directors of the Fund are officers
and/or directors of the Investment Adviser and the Distributor.
(3) Prepaid registration fees are charged to income as the related shares are
issued.
(4) Deferred organization expenses will be amortized over a period from the
date the Fund commences operations not exceeding five years. In the event
that the Investment Adviser (or any subsequent holder) redeems any of its
original shares prior to the end of the five-year period, the proceeds of
the redemption payable in respect of such shares shall be reduced by the
pro rata share (based on the proportionate share of the original shares
redeemed to the total number of original shares outstanding at the time of
redemption) of the unamortized deferred organization expenses as of the
date of such redemption. In the event that the Fund is liquidated prior to
the end of the five-year period, the Investment Adviser (or any subsequent
holder) shall bear the unamortized deferred organization expenses.
37
<PAGE>
APPENDIX
INTEREST RATE FUTURES, OPTIONS THEREON AND OPTIONS ON DEBT SECURITIES
The Fund may trade options on debt securities, purchase and sell interest
rate, bond and bond index futures contracts ("futures contracts") and purchase
and write call and put options on futures contracts. At the date hereof,
futures contracts (and options thereon) can be purchased and sold with respect
to U.S. Treasury notes and GNMA certificates on the Chicago Board of Trade and
with respect to U.S. Treasury bills on the International Monetary Market at
the Chicago Mercantile Exchange. Options directly on debt securities are
currently traded on the Chicago Board Options Exchange and the American Stock
Exchange.
Futures Contracts. A futures contract creates a binding obligation on the
purchaser (the "long") to accept delivery, and the seller (the "short") to
make delivery, of the face amount of the security underlying the futures
contract in a stated delivery month, at a price fixed in the contract or to
make a cash settlement in lieu of actual delivery. A majority of transactions
in futures contracts, however, do not result in actual delivery of the
underlying security, but are settled through liquidation, i.e., by entering
into an offsetting transaction. Futures contracts are traded only on commodity
exchanges--known as "contract markets"--approved for such trading by the
Commodity Futures Trading Commission ("CFTC"). Transactions in futures
contracts must be executed through a futures commission merchant ("FCM"), or
brokerage firm, which is a member of the relevant contract market.
The purchase or sale of a futures contract differs from the purchase or sale
of a security in that the total cash value reflected by the futures contract
is not paid. Instead, an amount of cash or securities acceptable to the Fund's
FCM and the relevant contract market, which varies, but may be 5% or less of
the contract amount, must be deposited with the FCM. This amount is known as
"initial margin," and represents a "good faith" deposit assuring the
performance of both the purchaser and the seller under the futures contract.
Subsequent payments to and from the FCM, known as "maintenance" or "variation"
margin, are required to be made on a daily basis as the price of the futures
contract fluctuates, making the long or short positions in the futures
contract more or less valuable, a process known as "marking to the market."
Prior to the settlement date of the futures contract, the position may be
closed out by taking an opposite position that will operate to terminate the
position in the futures contract. A final determination of variation margin is
then made, additional cash is required to be paid to or released by the FCM,
and the Fund realizes a loss or gain. In addition, a commission is paid on
each completed purchase and sale transaction.
The Fund will deal only in standardized contracts on recognized exchanges.
The clearing members of an exchange's clearing corporation guarantee the
performance of their futures contracts through the clearing corporation, a
nonprofit organization managed by the exchange membership which is also
responsible for handling daily accounting of deposits or withdrawals of
margin.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (known as the "holder") the right, but not the obligation, to enter
into a long position in the underlying futures contract (i.e., purchase the
futures contract), in the case of a "call" option, or to enter into a short
position (i.e., sell the futures contract), in the case of a "put" option, at
a fixed price (the "exercise" or "strike" price) up to a stated expiration
date. The holder pays a non-refundable purchase price for the option, known as
the "premium." The maximum amount of risk the purchaser of the option assumes
is equal to the premium, the transaction costs and the unrealized profits, if
any, although this entire amount may be lost. Upon exercise of the option by
the holder,
38
<PAGE>
the contract market clearing corporation establishes a corresponding short
position for the seller, or "writer" of the option in the case of a call
option, or a corresponding long position in the case of a put option, at the
strike price. In the event that an option is exercised, the holder will be
subject to all the risks associated with the trading of futures contracts. An
option becomes worthless when it expires.
The writer of an option on a futures contract is required to deposit initial
and variation margin pursuant to requirements similar to those applicable to
futures contracts. Premiums received from the holder of the option may be
included in initial margin. The writing of an option on a futures contract
involves risks similar to those relating to futures contracts, which are
described on page 2.
A position in an option may be terminated by the purchaser or seller prior
to its expiration by effecting a closing purchase or sale transaction, which
requires the purchase or writing of an option of the same series (i.e., the
same exercise price and expiration date) as the option previously written or
purchased. The premium received from the holder on the closing transaction may
be more or less than the premium paid for the option, resulting in a gain or
loss on the transactions.
Exercise prices of options are set at specified intervals in relation to the
price of the underlying futures contract by the exchange on which they are
traded. Exercise prices are initially established when a new expiration cycle
commences and additional exercise prices may subsequently be introduced as the
futures contract price fluctuates. The expiration of an option is generally
based on the expiration of the underlying futures contract.
The holder of an option exercises it by notifying his broker of his
intention to exercise. The broker tenders the exercise notice to the clearing
house of the applicable exchange that assigns the notice on a random basis to
a broker with a customer who has written and outstanding an option of the same
series. That broker then assigns the exercise notice to such customer,
generally on a random basis, and the customer is then obligated to enter into
the underlying futures contract upon exercise. At that time, the contract
market clearing house establishes appropriate long and short futures positions
for the holder and writer. A corresponding short position for the writer would
be established in the case of a call option, or a corresponding long position
would be established in the case of a put option. The parties will then be
subject to initial and variation margin requirements with respect to the
underlying futures contract. By interposing itself between options writers and
purchasers, the clearing house in effect guarantees the performance of the
other side to each option purchased or sold.
Options on Debt Securities. An option on a U.S. Government security gives
the holder the right, but not the obligation, to purchase the underlying
security, in the case of a call option, or to sell the underlying security, in
the case of a put option, at the specified strike price up to a stated
expiration date. The holder pays a non-refundable premium upon purchasing the
option. The maximum amount of risk assumed by the holder is equal to the
premium, transaction costs and unrealized profits, if any, although this
entire amount may be lost. Upon exercise of the option, the holder purchases
or sells the underlying security at the strike price. Options on debt
instruments to be traded by the Fund are traded on national securities
exchanges regulated by the Commission. The Options Clearing Corporation is
interposed between the clearing members that are the parties to each such
option, thereby assuring the performance of the parties.
If a liquid market exists, a position in an option may be terminated by the
purchaser or seller prior to expiration by entering into an offsetting
purchase or sale transaction in an option of the same series (i.e., the same
exercise price and expiration date) as the option previously purchased or
written. The premium paid or
39
<PAGE>
received by the trader on the closing transaction may be more or less than the
premium paid or received for the option, resulting in a gain or loss on the
transaction. If an option is not exercised, it expires worthless to the
holder.
Exercise prices of options are set at specified intervals in relation to the
price of the underlying security by the exchange on which they are traded.
Exercise prices are initially established when a new expiration cycle
commences and additional exercise prices may subsequently be introduced as the
price of the security fluctuates.
The holder of an option exercises it by notifying his broker of his
intention to exercise. The broker tenders the exercise notice to the clearing
house, which assigns the notice on a random basis to a broker with a customer
who has written and outstanding an option of the same series. That broker then
assigns the exercise notice to its customer, generally on a random basis. As a
call or put writer, the customer is obligated to sell or purchase the
underlying security.
40
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUND, THE INVESTMENT ADVISER OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH OFFERING
MAY NOT LAWFULLY BE MADE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies........................................ 2
Transactions in Futures and Options Thereon.............................. 2
Options on Debt Securities............................................... 3
Risk Factors in Transactions in Futures and Options Thereon.............. 4
Investment Restrictions................................................... 6
Management of the Fund.................................................... 9
Directors and Officers................................................... 9
Investment Advisory Arrangements......................................... 11
Duration and Termination................................................. 12
Transfer Agency Services Arrangements.................................... 13
Determination of Net Asset Value.......................................... 13
Portfolio Transactions.................................................... 14
Portfolio Turnover....................................................... 15
Purchase of Shares........................................................ 15
Reduced Initial Sales Charge Alternatives--Class A and Class D Shares.... 16
Employer-Sponsored Retirement or Savings Plans and Certain Other
Arrangements............................................................ 20
Distribution Plan........................................................ 21
Limitations on the Payment of Deferred Sales Charges..................... 21
Redemption of Shares...................................................... 22
Repurchase............................................................... 22
Reinstatement Privilege.................................................. 22
Deferred Sales Charge--Class B and Class C Shares........................ 23
Dividends, Distributions and Taxes........................................ 24
Dividends and Distributions.............................................. 24
Federal Income Taxes..................................................... 24
Tax Treatment of Transactions in Options on Debt Securities, Futures
Contracts and Options Thereon........................................... 25
Shareholder Services...................................................... 26
Investment Account....................................................... 26
Automatic Investment Plans............................................... 27
Fee-Based Programs....................................................... 27
Automatic Reinvestment of Dividends and Capital Gains Distributions...... 28
Systematic Withdrawal Plans.............................................. 28
Retirement Plans.......................................................... 29
Retirement Plan.......................................................... 30
Exchange Privilege........................................................ 30
Performance Data.......................................................... 32
Additional Information.................................................... 33
Organization of the Fund................................................. 33
Control Persons.......................................................... 34
Computation of Offering Price Per Share.................................. 34
Independent Auditors...................................................... 34
Custodian................................................................. 34
Transfer Agent............................................................ 35
Distributor............................................................... 35
Legal Counsel............................................................. 35
Reports to Shareholders................................................... 35
Independent Auditors' Report.............................................. 36
Statement of Assets and Liabilities....................................... 37
Appendix.................................................................. 38
</TABLE>
Code# 19026-0498
LOGO
Merrill Lynch Corporate High Yield Fund, Inc.
(GRAPHIC)
STATEMENT OF
ADDITIONAL INFORMATION
April 28, 1998
Distributor:
Merrill Lynch Funds Distributor, Inc.
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
Contained in Part B:
Independent Auditors' Report.
Statement of Assets and Liabilities, as of April 23, 1988.
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1 --Articles of Incorporation of the Registrant, dated March 12,
1998.(a)
2 --By-Laws of the Registrant.(a)
3 --None.
4(a) --Portions of Articles of Incorporation and By-laws of the Registrant
defining the rights of holders of shares of common stock of the
Registrant.(b)
(b) --Form of specimen certificate for shares of Common Stock of the
Registrant.(c)
5(a) --Investment Advisory Agreement between the Registrant and Fund Asset
Management, L.P. (the "Investment Adviser").(c)
(b) --Sub-Advisory Agreement between the Investment Adviser and Merrill
Lynch Asset Management U.K. Limited.(c)
6(a) --Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc. (the "Distributor") (including
Form of Selected Dealers Agreement).(c)
(b) --Class B Shares Distribution Agreement between the Registrant and the
Distributor (including Form of Selected Dealers Agreement).(c)
(c) --Class C Shares Distribution Agreement between the Registrant and the
Distributor (including Form of Selected Dealers Agreement).(c)
(d) --Class D Shares Distribution Agreement between the Registrant and the
Distributor (including Form of Selected Dealers Agreement).(c)
7 --None.
8 --Custodian Contract between the Registrant and State Street Bank and
Trust Company.(c)
9(a) --Transfer Agency, Divided Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial
Data Services, Inc. (the "Transfer Agent").(c)
(b) --Agreement relating to use of name between the Registrant and Merrill
Lynch & Co., Inc.(c)
10 --Opinion of Rogers & Wells LLP, counsel for the Registrant.(c)
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.(c)
12 --None.
13 --Certificate of Fund Asset Management, L.P.(c)
14 --None.
15(a) --Class B Shares Distribution Plan and Class B Distribution Plan Sub-
Agreement of the Registrant.(c)
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(b) --Class C Shares Distribution Plan and Class C Distribution Plan Sub-
Agreement of the Registrant.(c)
(c) --Class D Shares Distribution Plan and Class D Distribution Plan Sub-
Agreement of the Registrant.(c)
16 --None.
17(a) --Financial Data Schedule for Class A Shares.(c)
(b) --Financial Data Schedule for Class B Shares.(c)
(c) --Financial Data Schedule for Class C Shares.(c)
(d) --Financial Data Schedule for Class D Shares.(c)
18 --Merrill Lynch Select Pricing System Plan pursuant to Rule 18f-3.(d)
</TABLE>
- --------
(a) Previously filed on March 13, 1998 as an Exhibit to the Registrant's
Registration Statement on Form N-1A (File No. 333-47971) under the
Securities Act of 1933, as amended (the "Securities Act").
(b) Reference is made to Articles IV, V (Sections 3, 5, 6 and 7), VI, VII and
IX of the Registrant's Articles of Incorporation, filed herewith as
Exhibit 1 to this Registration Statement on Form N-1A; and to Articles
II, III (Sections 1, 3, 5 and 6), VI, VII, XIII and XIV of the
Registrant's By-Laws, filed herewith as Exhibit 2 of this Registration
Statement on Form N-1A.
(c) Filed herewith.
(d) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No.
13 to the Registration Statement on Form N-1A under the Securities Act,
filed on January 25, 1996, relating to shares of Merrill Lynch New York
Municipal Bond Fund Series of Merrill Lynch Multi-State Municipal Series
Trust (File No. 2-99473).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant has sold 2,500 Class A shares of its Common Stock, 2,500
Class B shares of its Common Stock, 2,500 shares of its Class C Common Stock
and 2,500 Class D shares of its Common Stock to the Investment Adviser for an
aggregate of $100,000. The Investment Adviser is the sole shareholder of the
Fund. The Investment Adviser is organized as a Delaware limited partnership.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS APRIL 23, 1998*
-------------- -----------------
<S> <C>
Class A Common Stock, par value $0.10 per share.......... 1
Class B Common Stock, par value $0.10 per share.......... 1
Class C Common Stock, par value $0.10 per share.......... 1
Class D Common Stock, par value $0.10 per share.......... 1
</TABLE>
--------
* The number of holders shown in the table includes holders of
record plus beneficial owners, whose shares are held of
record by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B,
Class C and Class D Distribution Agreements.
C-2
<PAGE>
Insofar as the conditional advancing of indemnification monies for actions
based on the Investment Company Act of 1940, as amended (the "Investment
Company Act") may be concerned, Article VI of the Registrant's By-Laws
provides that such payments will be made only on the following conditions: (i)
advances may be made only on receipt of a written affirmation of such person's
good faith belief that the standard of conduct necessary for indemnification
has been met and a written undertaking to repay any such advance if it is
ultimately determined that the standard of conduct has not been met and (ii)
(a) such promise must be secured by a security for the undertaking in form and
amount acceptable to the Registrant, (b) the Registrant is insured against
losses arising by receipt of the advance, or (c) a majority of a quorum of the
Registrant's disinterested, non-party Directors, or an independent legal
counsel in a written opinion, shall determine, based upon a review of readily
available facts, that at the time the advance is proposed to be made, there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Distribution
Agreements relating to the securities being offered hereby, the Registrant
agrees to indemnify the Distributor and each person, if any, who controls the
Distributor within the meaning of the Securities Act against certain types of
civil liabilities arising in connection with the Registration Statement or the
Prospectus and Statement of Additional Information.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Directors, officers and controlling persons of the
Registrant and the principal underwriter pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a Director,
officer or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suit or proceeding)
is asserted by such Director, officer or controlling person or the principal
underwriter in connection with the shares being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF MANAGER.
Fund Asset Management, L.P. ("FAM" or the "Investment Adviser"), acts as the
investment adviser for the following open-end registered investment companies:
CBA Money Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-
State Municipal Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The
Corporate Fund Accumulation Program, Inc., Financial Institutions Series
Trust, Merrill Lynch Basic Value Fund, Inc., Merrill Lynch California
Municipal Series Trust, Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch
Corporate High Yield Fund, Inc., Merrill Lynch Emerging Tigers Fund, Inc.,
Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for Institutions
Series, Merrill Lynch Multi-State Limited Maturity Municipal Series Trust,
Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond
Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Special Value
Fund, Inc., Merrill Lynch World Income Fund, Inc. and The Municipal Fund
Accumulation Program, Inc.; and the following closed-end registered investment
companies: Apex Municipal Fund, Inc., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc., Debt
Strategies Fund, Inc., Debt Strategies Fund II, Inc., Income Opportunities
Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill Lynch Municipal
Strategy Fund, Inc., MuniAssets Fund, Inc., MuniEnhanced Fund, Inc.,
MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc., MuniHoldings California
Insured Fund, Inc., MuniHoldings California Insured Fund II, Inc.,
MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund II,
MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New York Fund, Inc.,
MuniHoldings New York Insured Fund, Inc., MuniInsured Fund, Inc., MuniVest
Fund, Inc., MuniVest Fund II, Inc., MuniVest Florida Fund, MuniVest Michigan
Insured Fund, Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania
Insured Fund, Inc., MuniYield Arizona Fund, Inc., MuniYield California Fund,
Inc., MuniYield California Insured Fund, Inc., MuniYield California Insured
Fund II, Inc., MuniYield Florida Fund, MuniYield Florida Insured Fund,
MuniYield Fund, Inc., MuniYield Insured Fund, Inc., MuniYield Michigan Fund,
Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
C-3
<PAGE>
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York
Insured Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., and Worldwide DollarVest Fund, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), acts as the investment
adviser for the following open-end registered investment companies: Merrill
Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas Income
Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch Asset
Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Developing Capital Markets Fund, Inc.,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill
Lynch EuroFund, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch
Fund For Tomorrow, Inc., Merrill Lynch Global Allocation Fund, Inc., Merrill
Lynch Global Bond Fund for Investment and Retirement, Merrill Lynch Global
Convertible Fund, Inc., Merrill Lynch Global Growth Fund, Inc., Merrill Lynch
Global Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch
Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund, Inc., Merrill
Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch Intermediate Government Bond Fund,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Real Estate Fund, Inc., Merrill Lynch Retirement Series
Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology
Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis
and Wiley, a division of MLAM); and for the following closed-end registered
investment companies: Merrill Lynch High Income Municipal Bond Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc. MLAM also acts as sub-adviser to
Merrill Lynch World Strategy Portfolio and Merrill Lynch Basic Value Equity
Portfolio, two investment portfolios of EQ Advisors Trust.
The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch
Funds for Institutions Series and Merrill Lynch Intermediate Government Bond
Fund is One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2646.
The address of the Manager, FAM and Princeton Services, Inc. ("Princeton
Services"), and Princeton Administrators, L.P. is also P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Merrill Lynch & Co., Inc. ("ML & Co.") is North Tower, World
Financial Center, 250 Vesey Street, New York, New York 10281-1201. The address
of the Fund's transfer agent, Merrill Lynch Financial Data Services, Inc.
("MLFDS"), is 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged since September 30, 1995, for his or her own account or in the
capacity of director, officer, partner or trustee. In addition, Mr. Zeikel is
President, Mr. Glenn is Executive Vice President and Mr. Richard is Treasurer
of substantially all of the investment companies described in the first two
paragraphs of this Item 28 and Messrs. Giordano, Harvey, Kirstein and Monagle
are directors or officers of one or more of such companies.
C-4
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION
NAME INVESTMENT ADVISER OF EMPLOYMENT
---- ------------------ ----------------------------
<C> <C> <S>
ML & Co..................... Limited Partner Financial Services Holding
Company; Limited Partner of MLAM
Princeton Services.......... General Partner General Partner of MLAM.
Arthur Zeikel............... Chairman Chairman of MLAM; President of
FAM and MLAM (1977 to 1997);
Chairman and Director of
Princeton Services; President of
Princeton Services (1993
to 1997); Executive Vice
President of ML & Co.
Jeffrey M. Peek............. President President of MLAM; President and
Director of Princeton Services;
Executive Vice President of ML &
Co.
Terry K. Glenn.............. Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFD;
Director of MLFDS; President of
Princeton Administrators, L.P.
Linda L. Federici........... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Philip L. Kirstein.......... Senior Vice President, Senior Vice President, General
General Counsel and Secretary Counsel, and Secretary of MLAM;
Senior Vice President, General
Counsel, Director and Secretary
of Princeton Services
Vincent R. Giordano......... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Elizabeth A. Griffin........ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Norman R. Harvey............ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Michael J. Hennewinkel...... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Ronald M. Kloss............. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Debra W. Landsman-Yaros..... Senior Vice President Senior Vice President of MLAM;
Vice President of MLFD and Senior
Vice President of Princeton
Services
Stephen M.M. Miller......... Senior Vice President Executive Vice President of
Princeton Administrators, L.P.;
Senior Vice President of
Princeton Services
Joseph T. Monagle, Jr....... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION
NAME INVESTMENT ADVISER OF EMPLOYMENT
---- ------------------ ----------------------------
<C> <C> <S>
Michael L. Quinn............ Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services; Managing
Director and First Vice President
of Merrill Lynch from 1989 to
1995
Richard L. Reller........... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services; Director of
MLFD
Gerald M. Richard........... Senior Vice President and Senior Vice President and
Treasurer Treasurer of MLAM; Senior Vice
President and Treasurer of
Princeton Services; Vice
President and Treasurer of MLFD
Gregory D. Upah............. Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
Ronald L. Welburn........... Senior Vice President Senior Vice President of MLAM;
Senior Vice President of
Princeton Services
</TABLE>
(b) Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") acts as sub-
adviser for the following registered investment companies; Corporate High
Yield Fund, Inc., Corporate High Yield Fund II, Inc., Corporate High Yield
Fund III, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., Merrill Lynch Americas Income Fund Inc., Merrill Lynch Asset
Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch
Asset Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill Lynch
Capital Fund, Inc., Merrill Lynch Consults International Portfolio, Merrill
Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc., Merrill
Lynch Developing Capital Markets, Inc., Merrill Lynch Dragon Fund, Inc.,
Merrill Lynch Emerging Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill
Lynch Fundamental Growth Fund, Inc., Merrill Lynch Fund For Tomorrow, Inc.,
Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch Global Bond Fund for
Investment and Retirement, Merrill Lynch Global Convertible Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Growth Fund, Inc.,
Merrill Lynch Global Resources Trust, Merrill Lynch Global SmallCap Fund,
Inc., Merrill Lynch Global Utility Fund, Inc., Merrill Lynch Global Value
Fund, Inc., Merrill Lynch Growth Fund, Merrill Lynch Healthcare Fund, Inc.,
Merrill Lynch International Equity Fund, Merrill Lynch Latin America Fund,
Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill Lynch Pacific Fund,
Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch Series Trust Fund, Inc.,
Merrill Lynch Short-Term Global Income Fund, Inc., Merrill Lynch Real Estate
Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch Strategic
Dividend Fund, Merrill Lynch Technology Fund, Inc., Merrill Lynch Utility
Income Fund, Inc., Merrill Lynch Variable Series Funds, Inc., Merrill Lynch
World Income Fund, Inc., and Worldwide DollarVest Fund, Inc. The address of
each of these investment companies is P.O. Box 9011, Princeton, New Jersey
08543-9011. The address of MLAM U.K. is Milton Gate, 1 Moor Lane, London EC2Y
9HA, England.
C-6
<PAGE>
Set forth below is a list of each executive officer and director of MLAM
U.K. indicating each business, profession, vocation or employment of a
substantial nature in which each such person has been engaged since July 1,
1995, for his or her own account or in the capacity of director, officer,
partner or trustee. In addition, Messrs. Zeikel, Albert and Richard are
officers of one or more of the registered investment companies listed in the
first two paragraphs of this Item 28:
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION, VOCATION
NAME MLAM U.K. OF EMPLOYMENT
---- -------------- ----------------------------
<C> <C> <S>
Arthur Zeikel............... Director and Chairman Chairman of the Investment
Adviser and MLAM; President of
the Investment Adviser and MLAM
(1993 to 1997); Chairman and
Director of Princeton Services;
President of Princeton Services
(from 1993 to 1997); Executive
Vice President of ML & Co.
Alan J. Albert.............. Senior Managing Director Vice President of the Investment
Adviser
Nicholas C.D. Hall.......... Director Director of Merrill Lynch Europe
PLC; General Counsel of Merrill
Lynch International Private
Banking Group
Gerald M. Richard........... Senior Vice President Senior Vice President and
Treasurer of the Investment
Adviser and MLAM; Senior Vice
President and Treasurer of
Princeton Service; Vice President
and Treasurer of the MLFD
Caroll Ann Langham.......... Company Secretary None
Debra Anne Searle........... Assistant Company Secretary None
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) MLFD acts as the principal underwriter for the Registrant and for each
of the open-end investment companies referred to in the first two paragraphs
of Item 28 except CBA Money Fund, CMA Government Securities Fund, CMA Money
Fund, CMA Multi-State Municipal Series Trust, CMA Tax-Exempt Fund, CMA
Treasury Fund, The Corporate Fund Accumulation Program, Inc. and The Municipal
Fund Accumulation Program, Inc., and MLFD also acts as the principal
underwriter for the following closed-end investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc., Merrill Lynch Municipal Strategy Fund,
Inc. and Merrill Lynch Senior Floating Rate Fund, Inc.
(b) Set forth below is information concerning each director and officer of
the Distributor. The principal business address of each such person is P.O.
Box 9011, Princeton, New Jersey 08543-9081, except that the address of Messrs.
Crook, Aldrich, Brady, Breen, Fatseas, and Wasel is One Financial Center, 23rd
Floor, Boston, Massachusetts 02111-2665.
C-7
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) AND OFFICE(S) POSITIONS AND OFFICES
NAME WITH DISTRIBUTOR WITH REGISTRANT
---- -------------------------- ----------------------
<S> <C> <C>
Terry K. Glenn.......... President and Director Executive Vice President
Richard L. Reller....... Director None
Thomas J. Verage........ Director None
William E. Aldrich...... Senior Vice President None
Robert W. Crook......... Senior Vice President None
Michael J. Brady........ Vice President None
William M. Breen........ Vice President None
Michael G. Clark........ Vice President None
James T. Fatseas........ Vice President None
Debra W. Landsman-
Yaros.................. Vice President None
Michelle T. Lau......... Vice President None
Gerald M. Richard....... Vice President and Treasurer Treasurer
Salvatore Venezia....... Vice President None
William Wasel........... Vice President None
Robert Harris........... Secretary None
</TABLE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended, and the rules
thereunder are maintained at the offices of the Registrant (800 Scudders Mill
Road, Plainsboro, New Jersey 08536), and its Transfer Agent (4800 Deer Lake
Drive East, Jacksonville, Florida 32246-6484)
ITEM 31. MANAGEMENT SERVICES
Other than as set forth under the caption "Investment Adviser" in the
Prospectus constituting Part A of the Registration Statement and under the
caption "Management of the Fund--Management and Advisory Arrangements" in the
Statement of Additional Information constituting Part B of the Registration
Statement, the Registrant is not a party to any management-related service
contract.
ITEM 32. UNDERTAKINGS.
(a) The Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months
from the effective date of the Registrant's registration statement under the
Securities Act.
(b) The Fund, if requested to do so by the holders of at least 10% of the
Fund's outstanding shares, will call a meeting of shareholders for the purpose
of voting upon the question of removal of a director or directors and will
assist communications with other shareholders as required by Section 16(c) of
the Investment Company Act.
C-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT HAS CAUSED
THIS PRE-EFFECTIVE AMENDMENT NO. 2 TO REGISTRANT'S REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE
TOWNSHIP OF PLAINSBORO, AND STATE OF NEW JERSEY, ON THE 28TH DAY OF APRIL,
1998.
Merrill Lynch Corporate High Yield
Fund, Inc. (Registrant)
/s/ Arthur Zeikel
By: ______________________________
ARTHUR ZEIKEL, PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
Each person whose signature appears below hereby authorizes each of Arthur
Zeikel, Gerald M. Richard and Terry K. Glenn, as attorney-in-fact, to sign on
his or her behalf, individually and in each capacity stated below, any
amendments to the Registration Statement (including pre-effective or post-
effective amendments) and to file the same, with all exhibits thereto, with
the Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS PRE-
EFFECTIVE AMENDMENT NO. 2 TO REGISTRANT'S REGISTRATION STATEMENT HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
/s/ Arthur Zeikel President and April 28, 1998
- ------------------------------------- Director (Principal
ARTHUR ZEIKEL Executive Officer)
/s/ Gerald M. Richard Treasurer (Principal April 28, 1998
- ------------------------------------- Financial and
GERALD M. RICHARD Accounting Officer)
/s/ Ronald W. Forbes Director April 28, 1998
- -------------------------------------
RONALD W. FORBES
/s/ Cynthia A. Montgomery Director April 28, 1998
- -------------------------------------
CYNTHIA A. MONTGOMERY
/s/ Charles C. Reilly Director April 28, 1998
- -------------------------------------
CHARLES C. REILLY
/s/ Kevin A. Ryan Director April 28, 1998
- -------------------------------------
KEVIN A. RYAN
/s/ Richard R. West Director April 28, 1998
- -------------------------------------
RICHARD R. WEST
C-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------
<C> <S>
4(b) Form of specimen certificate for shares of Common Stock of the
Registrant.
5(a) Investment Advisory Agreement between the Registrant and Fund Asset
Management, L.P. (the "Investment Adviser").
(b) Sub-Advisory Agreement between the Investment Adviser and Merrill
Lynch Asset Management U.K. Limited.
6(a) Class A Shares Distribution Agreement between the Registrant and
Merrill Lynch Funds Distributor, Inc. (the "Distributor") (including
Form of Selected Dealers Agreement).
(b) Class B Shares Distribution Agreement between the Registrant and the
Distributor (including Form of Selected Dealers Agreement).
(c) Class C Shares Distribution Agreement between the Registrant and the
Distributor (including Form of Selected Dealers Agreement).
(d) Class D Shares Distribution Agreement between the Registrant and the
Distributor (including Form of Selected Dealers Agreement).
8 Custodian Contract between the Registrant and State Street Bank and
Trust Company.
9(a) Transfer Agency, Divided Disbursing Agency and Shareholder Servicing
Agency Agreement between the Registrant and Merrill Lynch Financial
Data Services, Inc.
(b) Agreement relating to use of name between the Registrant and Merrill
Lynch & Co., Inc.
10 Opinion of Rogers & Wells LLP, counsel for the Registrant.
11 Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
13 Certificate of Fund Asset Management, L.P.
15(a) Class B Shares Distribution Plan and Class B Shares Distribution Plan
Sub-Agreement of the Registrant.
(b) Class C Shares Distribution Plan and Class C Shares Distribution Plan
Sub-Agreement of the Registrant.
(c) Class D Shares Distribution Plan and Class D Shares Distribution Plan
Sub-Agreement of the Registrant.
17(a) Financial Data Schedule for Class A Shares.
(b) Financial Data Schedule for Class B Shares.
(c) Financial Data Schedule for Class C Shares.
(d) Financial Data Schedule for Class D Shares.
</TABLE>
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and
cross-references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> CLASS A
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-23-1998
<PERIOD-END> APR-23-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 270000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 270000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170000
<TOTAL-LIABILITIES> 170000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100000
<SHARES-COMMON-STOCK> 2500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 25000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 002
<NAME> CLASS B
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-23-1998
<PERIOD-END> APR-23-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 270000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 270000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170000
<TOTAL-LIABILITIES> 170000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100000
<SHARES-COMMON-STOCK> 2500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 25000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 003
<NAME> CLASS C
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-23-1998
<PERIOD-END> APR-23-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 270000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 270000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170000
<TOTAL-LIABILITIES> 170000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100000
<SHARES-COMMON-STOCK> 2500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 25000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 004
<NAME> CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-23-1998
<PERIOD-END> APR-23-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 270000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 270000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 170000
<TOTAL-LIABILITIES> 170000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100000
<SHARES-COMMON-STOCK> 2500
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 25000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2500
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 25000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 25000
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.00
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.4(b)
<TABLE>
<CAPTION>
Common Stock [IMAGE] Common Stock
Par Value $0.10 Par Value $0.10
<S> <C> <C> <C>
Number INCORPORATED THIS CERTIFICATE IS TRANSFERRABLE SHARES
C UNDER THE LAWS IN BOSTON, MA OR NEW YORK, NY [IMAGE]
[IMAGE] OF THE STATE OF MARYLAND
CUSIP
____________________________________
SEE REVERSE FOR CERTAIN DEFINITIONS
</TABLE>
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
This certifies that
is the registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
Merrill Lynch Corporate High Yield Fund, Inc., transferrable on the
books of the Corporation by the holder in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be
held subject to all of the provisions of the Articles of Incorporation
and of the By-Laws of the Corporation, and of all the amendments from
time to time made thereto. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
[SEAL]
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
CERTIFICATE OF STOCK
Dated: Countersigned and Registered:
State Street Bank and Trust Company
(BOSTON, MA)
Transfer Agent
__________________ __________________ and Registrar
President Secretary
By_________________________________
Authorized Signature
BANKNOTE CORPORATION OF AMERICA
<PAGE>
EXHIBIT 99.5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 28th day of April, 1998, by and between MERRILL LYNCH
CORPORATE HIGH YIELD FUND, INC., a Maryland corporation (hereinafter referred to
as the "Fund"), and FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership
(hereinafter referred to as the "Investment Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is engaged in business as an open-end investment company
registered under the Investment Company Act of 1940, as amended (hereinafter
referred to as the "Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally in rendering
management and investment advisory services and is registered as an investment
adviser under the Investment Adviser's Act of 1940; and
WHEREAS, the Fund desires to retain the Investment Adviser to provide
management and investment advisory services to the Fund in the manner and on the
terms hereinafter set forth; and
WHEREAS, the Investment Adviser is willing to provide management and
investment advisory services to the Fund on the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, the Fund and the Investment Adviser hereby agree as
follows:
ARTICLE I
DUTIES OF THE INVESTMENT ADVISER
The Fund hereby employs the Investment Adviser to act as a manager and
investment adviser of the Fund and to furnish, or arrange for affiliates to
furnish, the management and investment advisory services described below,
subject to the policies of, review by and overall control of the Board of
Directors of the Fund, for the period and on the terms and conditions set-forth
in this Agreement. The Investment Adviser hereby accepts such employment and
agrees during such period, at its own expense, to render, or arrange for the
rendering of, such services and to assume the obligations herein set forth for
the compensation provided for herein. The Investment Adviser and its affiliates
shall for all purposes herein be deemed to be independent contractors and shall,
unless otherwise expressly provided or authorized, have no authority to act for
or represent the Fund in any way or otherwise be deemed agents of the Fund.
<PAGE>
(a) Management Services. The Investment Adviser shall perform (or arrange
-------------------
for the performance by affiliates of) the management and administrative services
necessary for the operation of the Fund including administering shareholder
accounts and handling shareholder relations. The Investment Adviser shall
provide the Fund with office space, facilities, equipment and necessary
personnel and such other services as the Investment Adviser, subject to review
by the Board of Directors, shall from time to time determine to be necessary or
useful to perform its obligations under this Agreement. The Investment Adviser
shall also, on behalf of the Fund, conduct relations with custodians,
depositories, transfer agents, dividend disbursing agents, other shareholder
servicing agents, pricing agents, accountants, attorneys, underwriters, brokers
and dealers, corporate fiduciaries, insurers, banks and such other persons in
any such other capacity deemed to be necessary or desirable. The Investment
Adviser shall generally monitor the Fund's compliance with investment policies
and restrictions as set forth in the currently effective prospectus and
statement of additional information relating to the shares of the Fund under the
Securities Act of 1933, as amended (the "Prospectus" and "Statement of
Additional Information," respectively). The Investment Adviser shall make
reports to the Board of Directors of its performance of obligations hereunder
and furnish advice and recommendations with respect to such other aspects of the
business and affairs of the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Adviser shall provide the
----------------------------
Fund with such investment research, advice and supervision as the latter may
from time to time consider necessary for the proper supervision of the assets of
the Fund, shall furnish continuously an investment program for the Fund and
shall determine from time to time which securities shall be purchased, sold or
exchanged and what portion of the assets of the Fund shall be held in the
various securities in which the Fund invests, options, futures, options on
futures, other instruments or cash, subject always to the restrictions of the
Articles of Incorporation and By-Laws of the Fund, as amended from time to time,
the provisions of the Investment Company Act and the statements relating to the
Fund's investment objectives, investment policies and investment restrictions as
the same are set forth in the Prospectus and Statement of Additional
Information. The Investment Adviser shall make decisions for the Fund as to the
manner in which voting rights, rights to consent to corporate action and any
other rights pertaining to the Fund's portfolio securities shall be exercised.
Should the Board of Directors at any time, however, make any definite
determination as to investment policy and notify the Investment Adviser thereof
in writing, the Investment Adviser shall be bound by such determination for the
period, if any, specified in such notice or until similarly notified that such
determination has been revoked. The Investment Adviser shall take, on behalf of
the Fund, all actions which it deems necessary to implement the investment
policies determined as provided above, and in particular to place all orders for
the purchase or sale of portfolio securities for the Fund's account with brokers
or dealers selected by it, and to that end, the Investment Adviser is authorized
as the agent of the Fund to give instructions to the Custodian of the Fund as to
deliveries of securities and payments of cash for the account of the Fund. In
connection with the selection of such brokers or dealers and the placing of such
orders with respect to assets of the Fund, the Investment Adviser is directed at
all times to seek to obtain execution and prices within the policy guidelines
determined by the Board of Directors and set forth in the Prospectus and
Statement of Additional Information. Subject to this requirement and the
provisions of the
2
<PAGE>
Investment Company Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Investment Adviser may select brokers or
dealers with which it or the Fund is affiliated.
(c) Notice Upon Change in Partners of Investment Adviser. The Investment
----------------------------------------------------
Adviser is a limited partnership and its limited partner is Merrill Lynch & Co.,
Inc. and its general partner is Princeton Services, Inc. The Investment Adviser
will notify the Fund of any change in the membership of the partnership within a
reasonable time after such change.
ARTICLE II
ALLOCATION OF CHARGES AND EXPENSES
(a) The Investment Adviser. The Investment Adviser assumes and shall pay
----------------------
for maintaining the staff and personnel necessary to perform its obligation
under this Agreement, and shall at its own expense, provide the office space,
facilities, equipment and necessary personnel which it is obligated to provide
under Article I hereof, and shall pay all compensation of officers of the Fund
and all Directors of the Fund who are affiliated persons of the Investment
Adviser.
(b) The Fund. The Fund assumes and shall pay or cause to be paid all other
--------
expenses of the Fund (except for the expenses paid by the Distributor),
including, without limitation: taxes, expenses for legal and auditing services,
costs of printing proxies, stock certificates, shareholder reports,
prospectuses, and statements of additional information, charges of the
Custodian, any Sub-Custodian and Transfer Agent, expenses of portfolio
transactions, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under Federal, state and
foreign laws, fees and actual out-of-pocket expenses of Directors who are not
affiliated persons of the Investment Adviser, accounting and pricing costs
(including the daily calculation of the net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by the Fund. It is also understood that the
Fund will reimburse the Investment Adviser for its costs in providing accounting
services to the Fund. The Distributor will pay certain of the expenses of the
Fund in connection with the continuous offering of Fund shares.
ARTICLE III
COMPENSATION OF THE INVESTMENT ADVISER
Investment Advisory Fee. For the services rendered, the facilities
-----------------------
furnished and expenses assumed by the Investment Adviser, the Fund shall pay to
the Investment Adviser at the end of each calendar month a fee based upon the
average daily value of the net assets of the Fund as determined and computed in
accordance with the description of the determination of net asset value
contained in the Prospectus and Statement of Additional Information at the
annual rate of 0.60 of 1.0% (0.60%) of the average daily net assets of the Fund,
commencing on the day following effectiveness hereof. If this Agreement becomes
effective subsequent to the first day of a month or shall terminate before the
last day of a month, compensation for that part of
3
<PAGE>
the month this Agreement is in effect shall be prorated in a manner consistent
with the calculation of the fee as set forth above. During any period when the
determination of net asset value is suspended by the Board of Directors, the
average net asset value of a share for the last week prior to such suspension
shall for this purpose be deemed to be the net asset value at the close of each
succeeding week until it is again determined.
ARTICLE IV
Sub-Advisory Agreement
The Investment Adviser may enter into a separate sub-advisory agreement
with Merrill Lynch Asset Management U.K. Limited ("MLAM U.K.") in which the
Investment Adviser may contract for sub-advisory services and pay MLAM U.K.
compensation for its services out of the compensation received hereunder
pursuant to Article III. Such sub-advisory agreement will be coterminous with
this Investment Advisory Agreement.
ARTICLE V
LIMITATION OF LIABILITY OF THE INVESTMENT ADVISER
The Investment Adviser shall not be liable for any error of judgment or
mistake of law or for any loss arising out of any investment or for any act or
omission in the management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties hereunder. As used in this
Article V, the term "Investment Adviser" shall include any affiliates of the
Investment Adviser performing services for the Fund contemplated hereby and
directors, officers and employees of the Investment Adviser and such affiliates.
ARTICLE VI
ACTIVITIES OF THE INVESTMENT ADVISER
The services of the Investment Adviser to the Fund are not to be deemed to
be exclusive: the Investment Adviser and any person controlled by or under
common control with the Investment Adviser (for purposes of this Article VI
referred to as "affiliates") are free to render services to others. It is
understood that Board of Directors, officers, employees and shareholders of the
Fund are or may become interested in the Investment Adviser and its affiliates,
as directors, officers, employees, partners, and shareholders or otherwise and
that directors, officers, employees, partners, and shareholders of the
Investment Adviser and its affiliates are or may become similarly interested in
the Fund, and that the Investment Adviser and directors, officers, employees,
partners, and shareholders of its affiliates may become interested in the Fund
as shareholder or otherwise.
4
<PAGE>
ARTICLE VII
DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall become effective as of the date first above
written and shall remain in force until March 31, 2000 and thereafter, but only
so long as such continuance is specifically approved at least annually by (i)
the Board of Directors of the Fund, or by the vote of a majority of the
outstanding voting securities of the Fund, and (ii) a majority of those
Directors who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Directors or by vote of a majority of the
outstanding voting securities of the Fund, or by the Investment Adviser, on
sixty days' written notice to the other party. This Agreement shall
automatically terminate in the event of its assignment.
ARTICLE VIII
AMENDMENTS OF THIS AGREEMENT
This Agreement may be amended by the parties only if such amendment is
specifically approved by (i) the vote of a majority of outstanding voting
securities of the Fund, and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
ARTICLE IX
DEFINITIONS OF CERTAIN TERMS
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the Rules and Regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE X
GOVERNING LAW
This Agreement shall be construed in accordance with laws of the State
of New York and the applicable provisions of the Investment Company Act. To the
extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By:
______________________________
Name:
______________________________
Title:
______________________________
FUND ASSET MANAGEMENT, L.P.
By:
______________________________
Name:
______________________________
Title:
______________________________
6
<PAGE>
EXHIBIT 99.5(b)
SUB-ADVISORY AGREEMENT
AGREEMENT made as of the ____ day of April, 1998____, by and between
FUND ASSET MANAGEMENT, L.P., a Delaware limited partnership ("FAM"), and MERRILL
LYNCH ASSET MANAGEMENT U.K. LIMITED, a corporation organized under the laws of
England and Wales ("MLAM U.K.").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC. (the "Fund")
is a Maryland corporation engaged in business as a diversified, open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, FAM and MLAM U.K. are engaged principally in rendering
investment advisory services and are registered as investment advisers under the
Investment Advisers Act of 1940, as amended; and
WHEREAS, MLAM U.K. is regulated by the Investment Management
Regulatory Organization, a self-regulating organization recognized under the
Financial Services Act of 1986 of the United Kingdom ("IMRO"), and the conduct
of its investment business is regulated by IMRO; and
WHEREAS, FAM has entered into an investment advisory agreement dated
as of ______ _____, 1998 (the "Investment Advisory Agreement"), pursuant to
which FAM provides management and investment and advisory services to the Fund;
and
WHEREAS, MLAM U.K. is willing to provide investment advisory
services to FAM in connection with the Fund's operations on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, MLAM U.K. and FAM hereby agree as follows:
ARTICLE I
Duties of MLAM U.K.
-------------------
FAM hereby employs MLAM U.K. to act as investment adviser to FAM and
to furnish, or arrange for affiliates to furnish, the investment advisory
services described below, subject to the broad supervision of FAM and the Fund,
for the period and on the terms and conditions set forth in this Agreement. MLAM
U.K. hereby accepts such employment and agrees during such period, at its own
expense, to render, or arrange for the rendering of, such services and to assume
the obligations herein set forth for the compensation provided for herein. FAM
and its affiliates shall for all purposes herein be deemed a Non Private
Customer as defined under the rules promulgated by IMRO (the "IMRO Rules"). MLAM
U.K. and its affiliates shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
MLAM U.K. shall have the right to make unsolicited calls on FAM and
shall provide FAM with such investment research, advice and supervision as the
latter from time to time may consider necessary for the proper supervision of
the assets of the Fund; shall make recommendations from time to time as to which
securities shall be purchased, sold or exchanged and what portion of the assets
of the Fund shall be held in the various
<PAGE>
securities in which the Fund invests, options, futures, options on futures or
cash; all of the foregoing subject always to the restrictions of the Articles of
Incorporation and By-Laws of the Fund, as they may be amended and/or restated
from time to time, the provisions of the Investment Company Act and the
statements relating to the Fund's investment objective, investment policies and
investment restrictions as the same are set forth in the currently effective
prospectus and statement of additional information relating to the shares of the
Fund under the Securities Act of 1933, as amended (the "Prospectus" and the
"Statement of Additional Information", respectively). MLAM U.K. shall make
recommendations and effect transactions with respect to foreign currency
matters, including foreign exchange contracts, foreign currency options, foreign
currency futures and related options on foreign currency futures and forward
foreign currency transactions. MLAM U.K. shall also make recommendations or take
action as to the manner in which voting rights, rights to consent to corporate
action and any other rights pertaining to the portfolio securities of the Fund
shall be exercised.
MLAM U.K. will not hold money on behalf of FAM or the Fund, nor will
MLAM U.K. be the registered holder of the registered investments of FAM or the
Fund or be the custodian of documents or other evidence of title.
ARTICLE II
Allocation of Charges and Expenses
----------------------------------
MLAM U.K. assumes and shall pay for maintaining the staff and
personnel necessary to perform its obligations under this Agreement and shall at
its own expense provide the office space, equipment and facilities which it is
obligated to provide under Article I hereof and shall pay all compensation of
officers of the Fund and all Directors of the Fund who are affiliated persons of
MLAM U.K.
ARTICLE III
Compensation of MLAM U.K.
-------------------------
For the services rendered, the facilities furnished and expenses
assumed by MLAM U.K., FAM shall pay to MLAM U.K. a fee in an amount to be
determined from time to time by FAM and MLAM U.K. but in no event in excess of
the amount that FAM actually receives for providing services to the Fund
pursuant to the Investment Advisory Agreement.
ARTICLE IV
Limitation of Liability of MLAM U.K.
------------------------------------
MLAM U.K. shall not be liable for any error of judgment or mistake
of law or for any loss arising out of any investment or for any act or omission
in the performance of sub-advisory services rendered with respect to the Fund,
except for willful misfeasance, bad faith or gross negligence in the performance
of its duties, or by reason of reckless disregard of its obligations and duties
hereunder. As used in this Article IV, MLAM U.K. shall include any affiliates of
MLAM U.K. performing services for FAM contemplated hereby and directors,
officers and employees of MLAM U.K. and such affiliates.
ARTICLE V
Activities of MLAM U.K.
-----------------------
The services of MLAM U.K. to the Fund are not to be deemed to be
exclusive, MLAM U.K. and any person controlled by or under common control with
MLAM U.K. (for purposes of this Article V referred to as "affiliates") being
free to render services to others. It is understood that Directors, officers,
employees and
2
<PAGE>
shareholders of the Fund are or may become interested in MLAM U.K. and its
affiliates, as directors, officers, employees and shareholders or otherwise and
that directors, officers, employees and shareholders of MLAM U.K. and its
affiliates are or may become similarly interested in the Fund, and that MLAM
U.K. and directors, officers, employees, partners and shareholders of its
affiliates may become interested in the Fund as shareholders or otherwise.
ARTICLE VI
MLAM U.K. Statements Pursuant to IMRO Rules
-------------------------------------------
Any complaints concerning MLAM U.K. should be in writing addressed
to the attention of the Managing Director of MLAM U.K. FAM has the right to
obtain from MLAM U.K. a copy of the IMRO complaints procedure and to approach
IMRO and the Investment Ombudsman directly.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding Investments Not Readily
Realizable (as that term is used in the IMRO Rules) or investments denominated
in a currency other than British pound sterling. There can be no certainty that
market makers will be prepared to deal in unlisted or thinly traded securities
and an accurate valuation may be hard to obtain. The value of investments
recommended by MLAM U.K. may be subject to exchange rate fluctuations which may
have favorable or unfavorable effects on investments.
MLAM U.K. may make recommendations, subject to the investment
restrictions referred to in Article I herein, regarding options, futures or
contracts for differences. Markets can be highly volatile and such investments
carry a high degree of risk of loss exceeding the original investment and any
margin on deposit.
ARTICLE VII
Duration and Termination of this Agreement
------------------------------------------
This Agreement shall become effective as of the date first above
written and shall remain in force until ________ __, 1998, and thereafter, but
only so long as such continuance is specifically approved at least annually by
(i) the Directors of the Fund or by the vote of a majority of the outstanding
voting securities of the Fund and (ii) a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by FAM or by vote of a majority of the outstanding voting
securities of the Fund, or by MLAM U.K., on sixty days' written notice to the
other party. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Investment Advisory
Agreement. Any termination shall be without prejudice to the completion of
transactions already initiated.
ARTICLE VIII
Amendments of this Agreement
----------------------------
This Agreement may be amended by the parties only if such amendment
is specifically approved by (i) the Directors of the Fund or by the vote of a
majority of outstanding voting securities of the Fund and (ii) a majority of
those Directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
ARTICLE IX
Definitions of Certain Terms
----------------------------
3
<PAGE>
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act and the rules and regulations thereunder, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission under
said Act.
ARTICLE X
Governing Law
-------------
This Agreement shall be construed in accordance with the laws of the
State of New York and the applicable provisions of the Investment Company Act.
To the extent that the applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
FUND ASSET MANAGEMENT, L.P.
By: __________________________
Name: __________________________
Title: __________________________
MERRILL LYNCH ASSET MANAGEMENT
U.K. LIMITED
By: __________________________
Name: __________________________
Title: __________________________
4
<PAGE>
EXHIBIT 99.6(a)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of _____________, 1998 between
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC., a Maryland corporation (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to purchasers
or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Class A
shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Fund to sell
Class A shares of common stock in the Fund (sometimes herein referred to as
"Class A shares") to eligible investors (as defined below) and hereby agrees
during the term of this Agreement to sell Class A shares of the Fund to the
Distributor upon the terms and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class A
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class A shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
A shares from the Fund shall not apply to Class A shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding Class A shares of any such
company by the Fund.
(c) Such exclusive right also shall not apply to Class A shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
<PAGE>
(d) Such exclusive right also shall not apply to Class A shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class A shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class A Shares from the Fund.
----------------------------------------
(a) Prior to the continuous offering of the Class A shares,
commencing on a date agreed upon by the Fund and the Distributor, it is
contemplated that the Distributor will solicit subscriptions for Class A shares
during a subscription period which shall last for such period as may be agreed
upon by the parties hereto. The subscriptions will be payable within three
business days after the termination of the subscription period, at which time
the Fund will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class A shares and thereafter the Distributor shall have the
right to buy from the Fund the Class A shares needed, but not more than the
Class A shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class A shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class A shares shall be those persons so identified in the currently effective
prospectus and statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under the Securities
Act of 1933, as amended (the "Securities Act"), relating to such Class A shares
("eligible investors"). The price which the Distributor shall pay for the Class
A shares so purchased from the Fund shall be the net asset value, determined as
set forth in Section 3(e) hereof, used in determining the public offering price
on which such orders were based.
(c) The Class A shares are to be resold by the Distributor to
eligible investors at the public offering price, as set forth in Section 3(d)
hereof, or to securities dealers having agreements with the Distributor upon the
terms and conditions set forth in Section 7 hereof.
(d) The public offering price(s) of the Class A shares, i.e., the
price per share at which the Distributor or selected dealers may sell Class A
shares to eligible investors, shall be the public offering price as set forth in
the prospectus and statement of additional information relating to such Class A
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class A shares, plus a sales charge not to exceed 4.00% of the
public offering price (4.16% of the net amount invested), subject to reductions
for volume purchases. Class A shares may be sold to certain Directors, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not equal
an even cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(g).
(e) The net asset value of Class A shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and guidelines
established by the Directors.
(f) The Fund shall have the right to suspend the sale of its Class A
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class A shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York
2
<PAGE>
authorities, or if there shall have been some other event, which, in the
judgment of the Fund, makes it impracticable or inadvisable to sell the Class A
shares.
(g) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class A shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class A shares from eligible
investors. The Fund (or its agent) will confirm orders upon their receipt, will
make appropriate book entries and, upon receipt by the Fund (or its agent) of
payment therefor, will deliver deposit receipts or certificates for such Class A
shares pursuant to the instructions of the Distributor. Payment shall be made to
the Fund in New York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase or Redemption of Class A Shares by the Fund.
------------------------------------------------------
(a) Any of the outstanding Class A shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class A
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class A shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(e) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund. All
payments by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class A shares purchased by
or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class A shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original purchase,
the right to the sales charge shall be forfeited by the Distributor and the
selected dealer which sold such Class A shares.
The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
in New York Clearing House funds on or before the seventh business day
subsequent to its having received the notice of redemption in proper form. The
proceeds of any redemption of shares shall be paid by the Fund as follows: (i)
any applicable CDSC shall be paid to the Distributor, and (ii) the balance shall
be paid to or for the account of the shareholder, in each case in accordance
with the applicable provisions of the prospectus and statement of additional
information.
(b) Redemption of Class A shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on said Exchange
is suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class A shares
of the Fund, and this shall include, upon request by the Distributor, one
3
<PAGE>
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class A shareholders, all necessary action to fix the
number of authorized Class A shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class A shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class A shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to
effect sales of Class A shares of the Fund but shall not be obligated to sell
any specific number of Class A shares. The services of the Distributor to the
Fund hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class A shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved
by the officers of the Fund, for the confirmation of sales to eligible investors
and selected dealers, the collection of amounts payable by eligible investors
and selected dealers on such sales, and the cancellation of unsettled
transactions, as may be necessary to comply with the requirements of the
National Association of Securities Dealers, Inc. (the "NASD"), as such
requirements may from time to time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected
dealers agreements with securities dealers of its choice ("selected dealers")
for the sale of Class A shares and fix therein the portion of the sales charge
which may be allocated to the selected dealers; provided that the Fund shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class A shares sold to selected dealers shall be for resale by
such dealers only at the public offering price(s) set forth in the prospectus
and statement of additional information. The form of agreement with selected
dealers to be used during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the initial
4
<PAGE>
form of agreement with selected dealers to be used in the continuous offering of
the Class A shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class A shares only to such selected dealers as are members in good standing of
the NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class A
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class A shares to selected dealers or eligible investors
pursuant to this Agreement. The Distributor shall bear the costs and expenses of
preparing, printing and distributing any other literature used by the
Distributor or furnished by it for use by selected dealers in connection with
the offering of the Class A shares for sale to eligible investors and any
expenses of advertising incurred by the Distributor in connection with such
offering.
(c) The Fund shall bear the cost and expenses of qualification of
the Class A shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class A shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that the
registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise
5
<PAGE>
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of their duties or by reason of the reckless disregard of their
obligations and duties under this Agreement; or (ii) is the Fund to be liable
under its indemnity agreement contained in this paragraph with respect to any
claim made against the Distributor or any such controlling persons, unless the
Distributor or such controlling persons, as the case may be, shall have notified
the Fund in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them, but in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses of any counsel retained by them.
The Fund shall promptly notify the Distributor of the commencement of any
litigation or proceedings against it or any of its officers or Directors in
connection with the issuance or sale of any of the Class A shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
amended, or the annual or interim reports to Class A shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund and
each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
-----------------------------------------
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(sm)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This
------------------------------------------
Agreement shall become effective as of the date first above written and shall
remain in force until _______ __, 199__ and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the Directors
or by the vote of a majority of the outstanding voting securities of the Fund
and (ii) by the vote of a majority of those Directors who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
6
<PAGE>
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ______________________________________
Name: ______________________________
Title: ______________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ______________________________________
Name: ______________________________
Title: ______________________________
8
<PAGE>
EXHIBIT A
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class A shares of common stock, par value $0.10 per share (herein
referred to as "Class A shares"), of the Fund, and as such has the right to
distribute Class A shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and its Class A shares being offered to
the public are registered under the Securities Act of 1933, as amended (the
"Securities Act"). Such Class A shares and certain of the terms on which they
are being offered are more fully described in the enclosed Prospectus and
Statement of Additional Information. You have received a copy of the Class A
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. This Agreement relates solely to the subscription period described in
Section 3(a) of such Distribution Agreement. Subject to the foregoing, as
principal, we offer to sell to you, as a member of the Selected Dealers Group,
Class A shares of the Fund for resale to investors identified in the Prospectus
and Statement of Additional Information as eligible to purchase Class A shares
("eligible investors") upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the Distribution
Agreement will continue until on or about April 28, 1998. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class A shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class A shares to eligible investors, you shall
act as dealer for your own account, and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFASM) Program and such other special programs as we from
time to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Fund, to participants in such program.
<PAGE>
3. Except as provided in Paragraph 4, below, the public offering prices,
sales charges and the related Selected Dealers' concession are as follows:
<TABLE>
<CAPTION>
Subscription Period
----------------------------------------------------
Securities Dealers'
Sales Charge Concession
------------------ -------------------
Percentage* Percentage
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Amount of Purchase
Less than $25,000 .................... $10.417 $ .417 4.00% $ .417 4.00%
$25,000 but less than $50,000 ........ 10.390 .390 3.75 .390 3.75
$50,000 but less than $100,000 ...... 10.336 .336 3.25 .336 3.25
$100,000 but less than $250,000 ...... 10.256 .256 2.50 .256 2.50
$250,000 but less than $1,000,000 .... 10.152 .152 1.50 .152 1.50
$1,000,000 and over** ................ 10.000 .000 0.00 .000 0.00
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
The proceeds per Class A share to the Fund from the sale of all Class A
shares sold during the subscription period will be $10.00.
The term "purchase" refers to a single purchase by an individual, or to
concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
the registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit cardholders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of accumulation
under which certain eligible investors are permitted to purchase Class A shares
of the Fund at the offering price applicable to the total of (a) the dollar
amount then being purchased plus (b) an amount equal to the then current net
asset value or cost, whichever is higher, of the purchaser's combined holdings
of the Class A, Class B, Class C and Class D shares of the Fund and of any other
open-end investment company advised by Merrill Lynch Asset Management, L.P. or
Fund Asset Management, L.P. (together, "MLAM-advised mutual funds"). For any
such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or you, with sufficient
information to permit confirmation of qualification, and acceptance of the
purchase order is subject to such confirmation.
A-2
<PAGE>
The reduced sales charges are applicable to purchases aggregating $25,000
or more of Class A shares or of Class D shares or of shares of any other
MLAM-advised mutual fund made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. A purchase not originally made pursuant to a Letter
of Intention may be included under a subsequent letter executed within 90 days
of such purchase if the Distributor is informed in writing of this intent within
such 90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at your request as to amounts of any sales
made by you to eligible investors qualifying for reduced sales charges. Further
information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless you
have already received purchase orders for such shares at the applicable public
offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from time to time.
You agree that you will not offer or sell any of the Class A shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws and that in connection with sales and offers to sell Class
A shares you will furnish to each person to whom any such sale or offer is made
a copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to any person
any information relating to the Class A shares of the Fund which is inconsistent
in any respect with the information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
5. All Class A shares purchased by Selected Dealers will be delivered in
the first instance at a settlement price computed on the basis of all sales
having been made in a purchase (as such term is defined above) involving a
public offering price of less than $25,000. All sales to you will be deemed to
have been made in such a transaction unless within 30 days after the Closing
Date you furnish to us, on forms supplied by us for the purpose, a statement
acceptable to us setting forth sales in purchases involving a public offering
price of $25,000 or more, in which case we will compute such Selected Dealers'
concessions on the basis of the information set forth in such statement.
6. Payment for Class A shares purchased by you is to be made by certified
or official bank check at the office of Merrill Lynch Funds Distributor, Inc.,
Box 9081, Princeton, New Jersey 08543-9081, on such date as we may advise, in
New York Clearing House funds payable to the order of Merrill Lynch Funds
Distributor, Inc., or by federal funds wire transfer, against delivery by us of
non-negotiable share deposit receipts ("Receipts") issued by Merrill Lynch
Financial Data Services, Inc., as shareholder servicing agent, acknowledging the
deposit with it of the Class A shares so purchased by you. You agree that as
promptly as practicable after the delivery of such Class A shares you will issue
appropriate written transfer instructions to the Fund or to the shareholder
servicing agent as to the purchasers to whom you sold the Class A shares.
7. If any Class A shares sold to you under the terms of this Agreement are
repurchased by the Fund or by us for the account of the Fund or are tendered for
redemption within seven business days after the Closing Date, it is agreed that
you shall forfeit your right to, and refund to us, any discount received by you
on such Class A shares.
A-3
<PAGE>
8. No person is authorized to make any representations concerning Class A
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class A shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus and Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
9. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class A shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in which
we believe the Class A shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell shares in any
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the shares, if necessary.
14. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
15. You agree that you will not sell any Class A shares of the Fund to any
account over which you exercise discretionary authority.
A-4
<PAGE>
16. This Agreement shall terminate at the close of business on the Closing
Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of Section 7 hereof and for the
purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name:__________________________________
Title:_________________________________
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name: _________________________________
By: ________________________________________
Address: ___________________________________
____________________________________________
Date: ______________________________________
A-5
<PAGE>
EXHIBIT B
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class A shares of common stock, par value $0.10 per share (herein
referred to as "Class A shares"), of the Fund and as such has the right to
distribute Class A shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and its Class A shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You have
received a copy of the Class A shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and "Statement
of Additional Information" used herein refer to the prospectus and statement of
additional information, respectively, on file with the Securities and Exchange
Commission which is part of the most recent effective registration statement
pursuant to the Securities Act. We offer to sell to you, as a member of the
Selected Dealers Group, Class A shares of the Fund for resale to investors
identified in the Prospectus and Statement of Additional Information as eligible
to purchase Class A shares ("eligible investors") upon the following terms and
conditions:
1. In all sales of these Class A shares to eligible investors, you
shall act as dealer for your own account and in no transaction shall you have
any authority to act as agent for the Fund, for us or for any other member of
the Selected Dealers Group, except in connection with the Merrill Lynch Mutual
Fund Advisor (Merrill Lynch MFA(sm)) Program and such other special programs as
we from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. The sales charges for sales of Class A shares to eligible
investors, computed as percentages of the public offering price and the amount
invested, and the related discount to Selected Dealers are as follows:
<PAGE>
<TABLE>
<CAPTION>
Sales Charge Discount to
Sales Charge as a as a Percentage of Selected Dealers as
Percentage of Net Amount a Percentage of
Offering Price Invested* Offering Price
-------------- --------- --------------
<S> <C> <C> <C>
Amount of Purchase
Less than $25,000 4.00% 4.17% 3.75%
$25,000 but less than $50,000........ 3.75 3.90 3.50
$50,000 but less than $100,000....... 3.25 3.36 3.00
$100,000 but less than $250,000 ..... 2.50 2.56 2.25
$250,000 but less than $1,000,000 ... 1.50 1.52 1.25
$1,000,000 and over**................ 0.00 0.00 0.00
</TABLE>
- --------------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
The term "purchase" refers to a single purchase by an individual, or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class A shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class A shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of Class A
shares of the Fund or Class A shares of other registered investment companies at
a discount; provided, however, that it shall not include purchases by any group
of individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class A shares of the Fund at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other open-end investment company advised by Merrill Lynch Asset
Management, L.P. or Fund Asset Management, L.P. (together "MLAM-advised mutual
funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or you,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares of any other MLAM-advised
mutual fund made through you within a thirteen-month period starting with the
first purchase pursuant to a Letter of Intention in the form provided in the
Prospectus. A purchase not originally made pursuant to a Letter of Intention may
be included under a subsequent letter executed within 90 days of such purchase
if the Distributor is informed in writing of this intent within such 90-day
period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
B-2
<PAGE>
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
4. You shall not place orders for any of the Class A shares unless
you have already received purchase orders for such Class A shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class A shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class A shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class A shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class A shares of the Fund to be resold by us
to you subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and subject to
the compensation provisions of Section 3 hereof and (ii) to tender Class A
shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering price
to your customers.
7. If any Class A shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the Fund or
are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class A shares.
8. No person is authorized to make any representations concerning
Class A shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class A shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
9. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional
B-3
<PAGE>
Information, annual or interim reports and proxy solicitation materials of the
Fund will be supplied to you in reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class A shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto has
the right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act of 1933, as amended, or of the rules and regulations of the
Securities and Exchange Commission issued thereunder.
12. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class A shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class A
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class A shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
B-4
<PAGE>
15. Your first order placed pursuant to this Agreement for the
purchase of Class A shares of the Fund will represent your acceptance of this
Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: _________________________________
Title: ________________________________
Please return one signed copy
of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:
By: __________________________________
Address: _______________________________
Date: _________________________________
B-5
<PAGE>
EXHIBIT 99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of _________, 1998, between
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC., a Maryland corporation (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to purchasers
or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Class B
shares of common stock of the Fund (sometimes herein referred to as "Class B
shares").
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Fund to sell
Class B shares to the public and hereby agrees during the term of this Agreement
to sell Class B shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor of the Class B shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of its Class B
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to purchase
Class B shares from the Fund shall not apply to Class B shares of the Fund
issued in connection with the merger or consolidation of any other investment
company or personal holding company with the Fund or the acquisition by purchase
or otherwise of all (or substantially all) the assets or the outstanding Class B
shares of any such company by the Fund.
(c) Such exclusive rights also shall not apply to Class B shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
<PAGE>
(d) Such exclusive rights also shall not apply to Class B shares
issued by the Fund pursuant to any reinstatement privilege afforded redeeming
shareholders or any other Class B shares as shall be agreed between the Fund and
the Distributor from time to time.
Section 3. Purchase of Class B Shares from the Fund.
----------------------------------------
(a) Prior to the continuous offering of the Class B shares,
commencing on a date agreed upon by the Fund and the Distributor, it is
contemplated that the Distributor will solicit subscriptions for Class B shares
during a subscription period which shall last for such period as may be agreed
upon by the parties hereto. The subscriptions will be payable within three
business days after the termination of the subscription period, at which time
the Fund will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class B shares and thereafter the Distributor shall have the
right to buy from the Fund the Class B shares needed, but not more than the
Class B shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class B shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class B shares shall be those persons so identified in the currently effective
prospectus and statement of additional information of the Fund (the "prospectus"
and "statement of additional information," respectively) under the Securities
Act of 1933, as amended (the "Securities Act"), relating to such Class B shares.
The price which the Distributor shall pay for the Class B shares so purchased
from the Fund shall be the net asset value, determined as set forth in Section
3(d) hereof.
(c) The Class B shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(d) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(d) The net asset value of Class B shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the method
set forth in the prospectus and statement of additional information and
guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class B shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class B shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
2
<PAGE>
Section 4. Repurchase or Redemption of Class B Shares by the Fund.
------------------------------------------------------
(a) Any of the outstanding Class B shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class B
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be paid to redeem
or repurchase the Class B shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee(s) or other charge(s),
if any, set forth in the prospectus and statement of additional information of
the Fund. All payments by the Fund hereunder shall be made in the manner set
forth below.
The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh business day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Class B
shares shall be paid by the Fund as follows: (i) any applicable CDSC shall be
paid to the Distributor, and (ii) the balance shall be paid to or for the
account of the shareholder, in each case in accordance with the applicable
provisions of the prospectus and statement of additional information.
(b) Redemption of Class B shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on said Exchange
is closed, when trading on said Exchange is restricted, when trading on said
Exchange is suspended, when an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or during any other period when the Securities and Exchange Commission,
by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class B shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to the
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act to the end that there will be available for sale such
number of Class B shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class B shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
3
<PAGE>
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to
effect sales of Class B shares of the Fund, but shall not be obligated to sell
any specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved
by the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
--------------------------
(a) The Distributor shall have the right to enter into selected
dealer agreements with securities dealers of its choice ("selected dealers") for
the sale of Class B shares; provided, that the Fund shall approve the forms of
agreements with dealers. Class B shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(d) hereof. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is attached hereto as
Exhibit A and the initial form of agreement with selected dealers to be used in
the continuous offering of the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class B shares only to such selected dealers that are members in good standing
of the NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class B
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class B shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs
4
<PAGE>
and expenses of preparing, printing and distributing any other literature used
by the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class B shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering. It
is understood and agreed that, so long as the Fund's Class B shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of
the Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class B shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that the
registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to Class B shareholders of the Fund, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in conformity
with, information furnished to the Fund in connection therewith by or on behalf
of the Distributor; provided, however, that in no case (i) is the indemnity of
the Fund in favor of the Distributor and any such controlling persons to be
deemed to protect such Distributor or any such controlling persons thereof
against any liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses, as
incurred, of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such controlling person or persons, defendant or defendants in
the suit, for the reasonable fees and expenses, as incurred, of any counsel
retained by them. The Fund shall promptly notify the
5
<PAGE>
Distributor of the commencement of any litigation or proceedings against it or
any of its officers or Directors in connection with the issuance or sale of any
of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance upon,
and in conformity with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the registration statement
or related prospectus and statement of additional information, as from time to
time amended, or the annual or interim reports to shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund and
each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
-----------------------------------------
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(sm)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This
------------------------------------------
Agreement shall become effective as of the date first above written and shall
remain in force until ____________, 19__ and thereafter, but only so long as
such continuance is specifically approved at least annually by (i) the
Directors, or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors, or by the vote of a majority of outstanding voting securities of
the Fund, and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
7
<PAGE>
EXHIBIT A
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class B shares of common stock, par value $0.10 per share (herein
referred to as "Class B shares"), of the Fund, and as such has the right to
distribute Class B shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended, and its Class B shares being offered to the public are registered under
the Securities Act of 1933, as amended (the "Securities Act"). Such Class B
shares and certain of the terms on which they are being offered are more fully
described in the enclosed Prospectus and Statement of Additional Information.
You have received a copy of the Class B shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. This Agreement
relates solely to the subscription period described in Section 3(a) of such
Distribution Agreement. Subject to the foregoing, as principal, we offer to sell
to you, as a member of the Selected Dealers Group, Class B shares of the Fund
upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue until on or about April 28, 1998. The
subscription period may be extended upon agreement between the Fund and the
Distributor. Subject to the provisions of such Section and the conditions
contained herein, we will sell to you on the third business day following the
termination of the subscription period, or such other date as we may advise (the
"Closing Date"), such number of Class B shares as to which you have placed
orders with us not later than 5:00 P.M. on the second full business day
preceding the Closing Date.
2. In all sales of these Class B shares to the public you shall act
as dealer for your own account, and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA(sm)) Program and such other programs as we from time
to time agree, in which case you shall have authority to offer and sell shares,
as agent for the Fund, to participants in such program.
3. You shall not place orders for any of the Class B shares unless
you have already received purchase orders for such Class B shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. All orders are subject to acceptance by the Distributor
or the Fund in the sole discretion of either. The minimum initial and subsequent
purchase requirements are as set forth in the Prospectus, as amended from time
to time. You agree that you will not offer or sell any of the Class B shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B shares you
<PAGE>
will furnish to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as then
amended or supplemented) and will not furnish to any person any information
relating to the Class B shares of the Fund which is inconsistent in any respect
with the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to be
published in any newspaper or posted in any public place without our consent and
the consent of the Fund.
4. Payment for Class B shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc., or by federal funds wire transfer, against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Merrill Lynch Financial Data Services, Inc., as shareholder servicing agent,
acknowledging the deposit with it of the Class B shares so purchased by you. You
agree that as promptly as practicable after the delivery of such Class B shares
you will issue appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold the Class B
shares.
5. No person is authorized to make any representations concerning
Class B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus and Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
6. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class B shares entirely. Each party
hereto has the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
9. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Conduct Rules of such Association.
A-2
<PAGE>
10. Upon application to us, we will inform you as to the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class B shares, if necessary.
11. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
12. You agree that you will not sell any Class B shares of the Fund
to any account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:________________________________________
By:_______________________________________________
Address:__________________________________________
__________________________________________________
Date:_____________________________________________
A-3
<PAGE>
EXHIBIT B
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS B SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class B shares of common stock, par value $0.10 per share (herein
referred to as the "Class B shares"), of the Fund, and as such has the right to
distribute Class B shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended, and its Class B shares being offered to the public are registered under
the Securities Act of 1933, as amended (the "Securities Act"). You have received
a copy of the Class B shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and "Statement
of Additional Information" as used herein refer to the prospectus and statement
of additional information, respectively, on file with the Securities and
Exchange Commission (the "Commission") which is part of the most recent
effective registration statement pursuant to the Securities Act. We offer to
sell to you, as a member of the Selected Dealers Group, Class B shares of the
Fund upon the following terms and conditions:
1. In all sales of these Class B shares to the public you shall act
as dealer for your own account, and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA(sm)) Program and such other special programs as we
from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. You shall not place orders for any of the Class B shares unless
you have already received purchase orders for such Class B shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class B shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class B shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or
<PAGE>
supplemented) and will not furnish to any person any information relating to the
Class B shares of the Fund, which is inconsistent in any respect with the
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class B shares of the Fund to be resold by us
to you subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement, and (ii) to
tender Class B shares directly to the Fund or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering price
to your customers.
6. No person is authorized to make any representations concerning
Class B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class B shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
10. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Conduct Rules of such Association.
B-2
<PAGE>
11. Upon application to us, we will inform you as to the states in
which we believe the Class B shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class B
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class B shares, if necessary.
12. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
13. Your first order placed pursuant to this Agreement for the
purchase of Class B shares of the Fund will represent your acceptance of this
Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:___________________________________________
By:__________________________________________________
Address:_____________________________________________
_____________________________________________________
Date:________________________________________________
B-3
<PAGE>
EXHIBIT 99.6(c)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of ____, 1998, between MERRILL
LYNCH CORPORATE HIGH YIELD FUND, INC., a Maryland corporation (the "Fund"), and
MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to purchasers
or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Fund's
Class C shares in order to promote the growth of the Fund and facilitate the
distribution of its Class C shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Fund to sell
Class C shares of common stock in the Fund (sometimes herein referred to as
"Class C shares") to the public and hereby agrees during the term of this
Agreement to sell shares of the Fund to the Distributor upon the terms and
conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor of the Class C shares, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class C
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class C shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
C shares from the Fund shall not apply to Class C shares of the Fund issued in
connection with the merger or consolidation of any other investment company or
personal holding company with the Fund or the acquisition by purchase or
otherwise of all (or substantially all) the assets or the outstanding Class C
shares of any such company by the Fund.
<PAGE>
(c) Such exclusive right also shall not apply to Class C shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class C shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class C shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class C Shares from the Fund.
----------------------------------------
(a) Prior to the continuous offering of the Class C shares,
commencing on a date agreed upon by the Fund and the Distributor, it is
contemplated that the Distributor will solicit subscriptions for Class C shares
during a subscription period which shall last for such period as may be agreed
upon by the parties hereto. The subscriptions will be payable within three
business days after the termination of the subscription period, at which time
the Fund will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class C shares, and thereafter the Distributor shall have the
right to buy from the Fund the Class C shares needed, but not more than the
Class C shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class C shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class C shares shall be those persons so identified in the currently effective
prospectus and statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under the Securities
Act of 1933, as amended (the "Securities Act"), relating to such Class C shares.
The price which the Distributor shall pay for the Class C shares so purchased
from the Fund shall be the net asset value, determined as set forth in Section
3(d) hereof.
(c) The Class C shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(d) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(d) The net asset value of Class C shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the method
set forth in the prospectus and statement of additional information and
guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of its Class C
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class C shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class C shares.
(f) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class C shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class C shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class C shares pursuant
2
<PAGE>
to the instructions of the Distributor. Payment shall be made to the Fund in New
York Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class C Shares by the Fund.
------------------------------------------------------
(a) Any of the outstanding Class C shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class C
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be paid to redeem
or repurchase the Class C shares shall be equal to the net asset value
calculated in accordance with the provisions of Section 3(d) hereof, less any
contingent deferred sales charge ("CDSC"), redemption fee or other charge(s), if
any, set forth in the prospectus and statement of additional information of the
Fund. All payments by the Fund hereunder shall be made in the manner set forth
below.
The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh business day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of shares
shall be paid by the Fund as follows: (i) any applicable CDSC shall be paid to
the Distributor, and (ii) the balance shall be paid to or for the account of the
shareholder, in each case in accordance with the applicable provisions of the
prospectus and statement of additional information.
(b) Redemption of Class C shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on said Exchange
is suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to determine the value of its net assets, or during any other period when
the Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class C shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the shareholders, all necessary action to fix the number
of authorized shares and such steps as may be necessary to register the same
under the Securities Act to the end that there will be available for sale such
number of Class C shares as the Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class C shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the
3
<PAGE>
Fund at any time in its discretion. As provided in Section 8(c) hereof, the
expense of qualification and maintenance of qualification shall be borne by the
Fund. The Distributor shall furnish such information and other material relating
to its affairs and activities as may be required by the Fund in connection with
such qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to
effect sales of Class C shares of the Fund but shall not be obligated to sell
any specific number of shares. The services of the Distributor to the Fund
hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class C shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved
by the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealer Agreements.
--------------------------
(a) The Distributor shall have the right to enter into selected
dealer agreements with securities dealers of its choice ("selected dealers") for
the sale of Class C shares; provided, that the Fund shall approve the forms of
agreements with dealers. Class C shares sold to selected dealers shall be for
resale by such dealers only at net asset value determined as set forth in
Section 3(d) hereof. The form of agreement with selected dealers to be used
during the subscription period described in Section 3(a) is attached hereto as
Exhibit A and the initial form of agreement with selected dealers to be used in
the continuous offering of the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class C shares only to such selected dealers that are members in good standing
of the NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
4
<PAGE>
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class C
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class C shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs
and expenses of preparing, printing and distributing any other literature used
by the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class C shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering. It
is understood and agreed that so long as the Fund's Class C Shares Distribution
Plan pursuant to Rule 12b-1 under the Investment Company Act remains in effect,
any expenses incurred by the Distributor hereunder may be paid from amounts
recovered by it from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualification of
the Class C shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification therein until
the Fund decides to discontinue such qualification pursuant to Section 5(c)
hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class C shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that the
registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to Class C shareholders of the Fund, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
unless such statement or omission was made in reliance upon, and in conformity
with, information furnished to the Fund in connection therewith by or on behalf
of the Distributor; provided, however, that in no case (i) is the indemnity of
the Fund in favor of the Distributor and any such controlling persons to be
deemed to protect such Distributor or any such controlling persons thereof
against any liability to the Fund or its security holders to which the
Distributor or any such controlling persons would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of
their duties or by reason of the reckless disregard of their obligations and
duties under this Agreement; or (ii) is the Fund to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or such controlling persons, as the case may be, shall have notified the Fund in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have
5
<PAGE>
been served upon the Distributor or such controlling persons (or after the
Distributor or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Fund of any such
claim shall not relieve it from any liability which it may have to the person
against whom such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but if the Fund elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons, defendant
or defendants in the suit. In the event the Fund elects to assume the defense of
any such suit and retain such counsel, the Distributor or such controlling
person or persons, defendant or defendants in the suit shall bear the fees and
expenses, as incurred, of any additional counsel retained by them, but in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses, as incurred, of
any counsel retained by them. The Fund shall promptly notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any of the
Class C shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense, as incurred,
described in the foregoing indemnity contained in subsection (a) of this
Section, but only with respect to statements or omissions made in reliance upon,
and in conformity with, information furnished to the Fund in writing by or on
behalf of the Distributor for use in connection with the registration statement
or related prospectus and statement of additional information, as from time to
time amended, or the annual or interim reports to shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund and
each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
-----------------------------------------
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFASM) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement.
------------------------------------------
This Agreement shall become effective as of the date first above
written and shall remain in force until _________, 19__ and thereafter, but only
for so long as such continuance is specifically approved at least annually by
(i) the Directors or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) by the vote of a majority of those Directors who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the
6
<PAGE>
Distributor, on sixty days' written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
7
<PAGE>
EXHIBIT A
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an agreement
with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland corporation (the
"Fund"), pursuant to which it acts as the distributor for the sale of Class C
shares of common stock, par value $0.10 per share (herein referred to as "Class
C shares"), of the Fund, and as such has the right to distribute Class C shares
of the Fund for resale. The Fund is an open-end investment company registered
under the Investment Company Act of 1940, as amended, and its Class C shares
being offered to the public are registered under the Securities Act of 1933, as
amended (the "Securities Act"). Such Class C shares and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
and Statement of Additional Information. You have received a copy of the Class C
shares Distribution Agreement (the "Distribution Agreement") between ourself and
the Fund and reference is made herein to certain provisions of such Distribution
Agreement. This Agreement relates solely to the subscription period described in
Section 3(a) of such Distribution Agreement. Subject to the foregoing, as
principal, we offer to sell to you, as a member of the Selected Dealers Group,
Class C shares of the Fund upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the Distribution
Agreement will continue until on or about April 28, 1998. The subscription
period may be extended upon agreement between the Fund and the Distributor.
Subject to the provisions of such Section and the conditions contained herein,
we will sell to you on the third business day following the termination of the
subscription period, or such other date as we may advise (the "Closing Date"),
such number of Class C shares as to which you have placed orders with us not
later than 5:00 P.M. on the second full business day preceding the Closing Date.
2. In all sales of these Class C shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group, except in connection with the Merrill Lynch Mutual Fund Advisor
(Merrill Lynch MFA(sm)) Program and such other programs as we from time to time
agree, in which case you shall have authority to offer and sell shares, as agent
for the Fund, to participants in such program.
3. You shall not place orders for any of the Class C shares unless you
have already received purchase orders for such Class C shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as
<PAGE>
set forth in the Prospectus, as amended from time to time. You agree that you
will not offer or sell any of the Class C shares except under circumstances that
will result in compliance with the applicable Federal and state securities laws
and that in connection with sales and offers to sell Class C shares you will
furnish to each person to whom any such sale or offer is made a copy of the
Prospectus and, if requested, the Statement of Additional Information (as then
amended or supplemented) and will not furnish to any person any information
relating to the Class C shares of the Fund which is inconsistent in any respect
with the information contained in the Prospectus and Statement of Additional
Information (as then amended or supplemented) or cause any advertisement to be
published in any newspaper or posted in any public place without our consent and
the consent of the Fund.
4. Payment for Class C shares purchased by you is to be made by certified
or official bank check at the office of Merrill Lynch Funds Distributor, Inc.,
Box 9081, Princeton, New Jersey 08543-9081, on such date as we may advise, in
New York Clearing House funds payable to the order of Merrill Lynch Funds
Distributor, Inc., or by federal funds wire transfer, against delivery by us of
non-negotiable share deposit receipts ("Receipts") issued by Merrill Lynch
Financial Data Services, Inc., as shareholder servicing agent, acknowledging the
deposit with it of the Class C shares so purchased by you. You agree that as
promptly as practicable after the delivery of such Class C shares you will issue
appropriate written transfer instructions to the Fund or to the shareholder
servicing agent as to the purchasers to whom you sold the Class C shares.
5. No person is authorized to make any representations concerning Class C
shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class C shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus and Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
6. You agree to deliver to each of the purchasers making purchases from
you a copy of the then current Prospectus and, if requested, the Statement of
Additional Information at or prior to the time of offering or sale and you agree
thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
7. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class C shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
8. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute,
A-2
<PAGE>
a waiver by you of compliance with any provision of the Securities Act, or of
the rules and regulations of the Securities and Exchange Commission issued
thereunder.
9. You represent that you are a member of the National Association of
Securities Dealers, Inc. and, with respect to any sales in the United States, we
both hereby agree to abide by the Conduct Rules of such Association.
10. Upon application to us, we will inform you as to the states in which
we believe the Class C shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class C shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class C shares, if necessary.
11. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the address
specified by you below.
12. You agree that you will not sell any Class C shares of the Fund to any
account over which you exercise discretionary authority.
13. This Agreement shall terminate at the close of business on the Closing
Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of settlement of accounts hereunder.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
A-3
<PAGE>
EXHIBIT B
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class C shares of common stock, par value $0.10 per share (herein
referred to as the "Class C shares"), of the Fund and as such has the right to
distribute Class C shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended, and its Class C shares being offered to the public are registered under
the Securities Act of 1933, as amended (the "Securities Act"). You have received
a copy of the Class C Shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and "Statement
of Additional Information" as used herein refer to the prospectus and statement
of additional information, respectively, on file with the Securities and
Exchange Commission (the "Commission") which is part of the most recent
effective registration statement pursuant to the Securities Act. We offer to
sell to you, as a member of the Selected Dealers Group, Class C shares of the
Fund upon the following terms and conditions:
1. In all sales of these Class C shares to the public, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA(sm)) Program and such other special programs as we
from time to time agree, in which case you shall have authority to offer and
sell shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
3. You shall not place orders for any of the Class C shares unless
you have already received purchase orders for such Class C shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class C shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class C shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class C shares of the
Fund which is inconsistent in any respect with the
<PAGE>
information contained in the Prospectus and Statement of Additional Information
(as then amended or supplemented) or cause any advertisement to be published in
any newspaper or posted in any public place without our consent and the consent
of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class C shares of the Fund to be resold by us
to you subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and (ii) to
tender Class C shares directly to the Fund or its agent for redemption subject
to the applicable terms and conditions set forth in Section 4 of the
Distribution Agreement.
5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering price
to your customers.
6. No person is authorized to make any representations concerning
Class C shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class C shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
7. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
8. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class C shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act or of the rules and regulations of the Commission issued
thereunder.
10. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Conduct Rules of such Association.
B-2
<PAGE>
11. Upon application to us, we will inform you as to the states in
which we believe the Class C shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class C
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class C shares, if necessary.
12. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
13. Your first order placed pursuant to this Agreement for the
purchase of Class C shares of the Fund will represent your acceptance of this
Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
Please return one signed copy of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name: ____________________________________
By: ___________________________________________
Address: ______________________________________
_______________________________________________
Date: _________________________________________
B-3
<PAGE>
EXHIBIT 99.6(d)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the ____ day of ____________, 1998 between
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC., a Maryland corporation (the
"Fund"), and MERRILL LYNCH FUNDS DISTRIBUTOR, INC., a Delaware corporation (the
"Distributor").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"), as an open-end investment
company, and it is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either directly to purchasers
or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering of the Class D
shares of common stock in the Fund.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund hereby appoints
------------------------------
the Distributor as the principal underwriter and distributor of the Fund to sell
Class D shares of common stock in the Fund (sometimes herein referred to as
"Class D shares") to the public and hereby agrees during the term of this
Agreement to sell Class D shares of the Fund to the Distributor upon the terms
and conditions herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor shall be the
--------------------------
exclusive representative of the Fund to act as principal underwriter and
distributor, except that:
(a) The Fund may, upon written notice to the Distributor, from time
to time designate other principal underwriters and distributors of Class D
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class D shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive right granted to the Distributor to purchase Class
D shares from the Fund shall not apply to Class D shares issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding Class D shares of any such
company by the Fund.
<PAGE>
(c) Such exclusive right also shall not apply to Class D shares
issued by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive right also shall not apply to Class D shares
issued by the Fund pursuant to any conversion, exchange or reinstatement
privilege afforded redeeming shareholders or to any other Class D shares as
shall be agreed between the Fund and the Distributor from time to time.
Section 3. Purchase of Class D Shares from the Fund.
----------------------------------------
(a) Prior to the continuous offering of the Class D shares,
commencing on a date agreed upon by the Fund and the Distributor, it is
contemplated that the Distributor will solicit subscriptions for Class D shares
during a subscription period which shall last for such period as may be agreed
upon by the parties hereto. The subscriptions will be payable within three
business days after the termination of the subscription period, at which time
the Fund will commence operations.
(b) After the Fund commences operations, the Fund will commence an
offering of its Class D shares, and thereafter the Distributor shall have the
right to buy from the Fund the Class D shares needed, but not more than the
Class D shares needed (except for clerical errors in transmission) to fill
unconditional orders for Class D shares of the Fund placed with the Distributor
by eligible investors or securities dealers. Investors eligible to purchase
Class D shares shall be those persons so identified in the currently effective
prospectus and statement of additional information of the Fund (the "prospectus"
and "statement of additional information", respectively) under the Securities
Act of 1933, as amended (the "Securities Act"), relating to such Class D shares.
The price which the Distributor shall pay for the Class D shares so purchased
from the Fund shall be the net asset value, determined as set forth in Section
3(e) hereof, used in determining the public offering price on which such orders
were based.
(c) The Class D shares are to be resold by the Distributor to
investors at the public offering price, as set forth in Section 3(d) hereof, or
to securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(d) The public offering price(s) of the Class D shares, i.e., the
price per share at which the Distributor or selected dealers may sell Class D
shares to the public, shall be the public offering price as set forth in the
prospectus and statement of additional information relating to such Class D
shares, but not to exceed the net asset value at which the Distributor is to
purchase the Class D shares, plus a sales charge not to exceed 4.00% of the
public offering price (4.16% of the net amount invested), subject to reductions
for volume purchases. Class D shares may be sold to certain Directors, officers
and employees of the Fund, directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries, and to certain other persons described in the prospectus
and statement of additional information, without a sales charge or at a reduced
sales charge, upon terms and conditions set forth in the prospectus and
statement of additional information. If the public offering price does not equal
an even cent, the public offering price may be adjusted to the nearest cent. All
payments to the Fund hereunder shall be made in the manner set forth in Section
3(g).
(e) The net asset value of Class D shares shall be determined by the
Fund or any agent of the Fund in accordance with the method set forth in the
prospectus and statement of additional information of the Fund and guidelines
established by the Directors.
2
<PAGE>
(f) The Fund shall have the right to suspend the sale of its Class D
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class D shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class D shares.
(g) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Class D shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class D shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class D shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New York
Clearing House funds. The Distributor agrees to cause such payment and such
instructions to be delivered promptly to the Fund (or its agent).
Section 4. Repurchase or Redemption of Class D Shares by the Fund.
------------------------------------------------------
(a) Any of the outstanding Class D shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the Class D
shares so tendered in accordance with its obligations as set forth in Article VI
of its Articles of Incorporation, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information. The price to be paid to redeem or
repurchase the Class D shares shall be equal to the net asset value calculated
in accordance with the provisions of Section 3(e) hereof, less any contingent
deferred sales charge ("CDSC"), redemption fee or other charge(s), if any, set
forth in the prospectus and statement of additional information of the Fund. All
payments by the Fund hereunder shall be made in the manner set forth below. The
redemption or repurchase by the Fund of any of the Class D shares purchased by
or through the Distributor will not affect the sales charge secured by the
Distributor or any selected dealer in the course of the original sale, except
that if any Class D shares are tendered for redemption or repurchase within
seven business days after the date of the confirmation of the original purchase,
the right to the sales charge shall be forfeited by the Distributor and the
selected dealer which sold such Class D shares.
The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
in New York Clearing House funds on or before the seventh business day
subsequent to its having received the notice of redemption in proper form. The
proceeds of any redemption of shares shall be paid by the Fund as follows: (i)
any applicable CDSC shall be paid to the Distributor, and (ii) the balance shall
be paid to or for the account of the shareholder, in each case in accordance
with the applicable provisions of the prospectus and statement of additional
information.
(b) Redemption of Class D shares or payment may be suspended at
times when the New York Stock Exchange is closed, when trading on said Exchange
is suspended, when trading on said Exchange is restricted, when an emergency
exists as a result of which disposal by the Fund of securities owned by it is
not reasonably practicable or it is not reasonably practicable for the Fund
fairly to
3
<PAGE>
determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Class D shares
of the Fund, and this shall include, upon request by the Distributor, one
certified copy of all financial statements prepared for the Fund by independent
public accountants. The Fund shall make available to the Distributor such number
of copies of the prospectus and statement of additional information as the
Distributor shall reasonably request.
(b) The Fund shall take, from time to time, but subject to any
necessary approval of the Class D shareholders, all necessary action to fix the
number of authorized Class D shares and such steps as may be necessary to
register the same under the Securities Act, to the end that there will be
available for sale such number of Class D shares as the Distributor may
reasonably be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class D shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to
effect sales of Class D shares of the Fund but shall not be obligated to sell
any specific number of Class D shares. The services of the Distributor to the
Fund hereunder are not to be deemed exclusive and nothing herein contained shall
prevent the Distributor from entering into like arrangements with other
investment companies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the Class D shares of the Fund, the Distributor shall
use its best efforts in all respects duly to conform with the requirements of
all Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer, as defined in Section 7 hereof, nor any
other person is authorized by the Fund to give any information or to make any
representations, other than those contained in the registration statement or
related prospectus and statement of additional information and any sales
literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as approved
by the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
4
<PAGE>
necessary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
Section 7. Selected Dealers Agreements.
---------------------------
(a) The Distributor shall have the right to enter into selected
dealers agreements with securities dealers of its choice ("selected dealers")
for the sale of Class D shares and fix therein the portion of the sales charge
which may be allocated to the selected dealers; provided that the Fund shall
approve the forms of agreements with dealers and the dealer compensation set
forth therein. Class D shares sold to selected dealers shall be for resale by
such dealers only at the public offering price(s) set forth in the prospectus
and statement of additional information. The form of agreement with selected
dealers to be used during the subscription period described in Section 3(a) is
attached hereto as Exhibit A and the initial form of agreement with selected
dealers to be used in the continuous offering of the Class D shares is attached
hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer and sell
Class D shares only to such selected dealers as are members in good standing of
the NASD.
Section 8. Payment of Expenses.
-------------------
(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to Class D
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments made to
selected dealers as reimbursement for their expenses associated with payments of
sales commissions to financial consultants. In addition, after the prospectuses,
statements of additional information and annual and interim reports have been
prepared and set in type, the Distributor shall bear the costs and expenses of
printing and distributing any copies thereof which are to be used in connection
with the offering of Class D shares to selected dealers or investors pursuant to
this Agreement. The Distributor shall bear the costs and expenses of preparing,
printing and distributing any other literature used by the Distributor or
furnished by it for use by selected dealers in connection with the offering of
the Class D shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering. It is understood
and agreed that so long as the Fund's Class D Shares Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder in connection with account maintenance
activities may be paid from amounts recovered by it from the Fund under such
plan.
(c) The Fund shall bear the cost and expenses of qualification of
the Class D shares for sale pursuant to this Agreement and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each
5
<PAGE>
such state for continuing qualification therein until the Fund decides to
discontinue such qualification pursuant to Section 5(c) hereof.
Section 9. Indemnification.
---------------
(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith), as incurred, arising by reason
of any person acquiring any Class D shares, which may be based upon the
Securities Act, or on any other statute or at common law, on the ground that the
registration statement or related prospectus and statement of additional
information, as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, unless such
statement or omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or on behalf of the
Distributor; provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect such Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reason of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if the Fund elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Distributor or such controlling person or persons, defendant or defendants in
the suit. In the event the Fund elects to assume the defense of any such suit
and retain such counsel, the Distributor or such controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but in case the Fund does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. The Fund shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against it or any of its officers or Directors in connection with
the issuance or sale of any of the Class D shares.
(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Directors and officers and each person, if any, who controls the
Fund against any loss, liability, claim, damage or expense described in the
foregoing indemnity contained in subsection (a) of this Section, but only with
respect to statements or omissions made in reliance upon, and in conformity
with, information furnished to the Fund in writing by or on behalf of the
Distributor for use in connection with the registration statement or related
prospectus and statement of additional information, as from time to time
6
<PAGE>
amended, or the annual or interim reports to Class D shareholders. In case any
action shall be brought against the Fund or any person so indemnified, in
respect of which indemnity may be sought against the Distributor, the
Distributor shall have the rights and duties given to the Fund, and the Fund and
each person so indemnified shall have the rights and duties given to the
Distributor by the provisions of subsection (a) of this Section 9.
Section 10. Merrill Lynch Mutual Fund Advisor Program. In connection
-----------------------------------------
with the Merrill Lynch Mutual Fund Advisor (Merrill Lynch MFA(SM)) Program, the
Distributor and its affiliate, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, are authorized to offer and sell shares of the Fund, as agent for
the Fund, to participants in such program. The terms of this Agreement shall
apply to such sales, including terms as to the offering price of shares, the
proceeds to be paid to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the Distributor.
Section 11. Duration and Termination of this Agreement. This
------------------------------------------
Agreement shall become effective as of the date first above written and shall
remain in force until __________, 19__ and thereafter, but only for so long as
such continuance is specifically approved at least annually by (i) the Directors
or by the vote of a majority of the outstanding voting securities of the Fund
and (ii) by the vote of a majority of those Directors who are not parties to
this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Directors or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.
The terms "vote of a majority of the outstanding voting securities",
"assignment", "affiliated person" and "interested person", when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.
Section 12. Amendments of this Agreement. This Agreement may be
----------------------------
amended by the parties only if such amendment is specifically approved by (i)
the Directors or by the vote of a majority of outstanding voting securities of
the Fund and (ii) by the vote of a majority of those Directors of the Fund who
are not parties to this Agreement or interested persons of any such party cast
in person at a meeting called for the purpose of voting on such approval.
Section 13. Governing Law. The provisions of this Agreement shall be
-------------
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the applicable provisions of the Investment Company
Act. To the extent that the applicable law of the State of New York, or any of
the provisions herein, conflict with the applicable provisions of the Investment
Company Act, the latter shall control.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: _____________________________________________
Name: ___________________________________
Title: ___________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: _____________________________________________
Name: ___________________________________
Title: ___________________________________
8
<PAGE>
EXHIBIT A
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
FOR SUBSCRIPTION PERIOD
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class D shares of common stock, par value $0.10 per share (herein
referred to as "Class D shares"), of the Fund, and as such has the right to
distribute Class D shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and its Class D shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). Such Class
D shares and certain of the terms on which they are being offered are more fully
described in the enclosed Prospectus and Statement of Additional Information.
You have received a copy of the Class D shares Distribution Agreement (the
"Distribution Agreement") between ourself and the Fund and reference is made
herein to certain provisions of such Distribution Agreement. This Agreement
relates solely to the subscription period described in Section 3(a) of such
Distribution Agreement. Subject to the foregoing, as principal, we offer to sell
to you, as a member of the Selected Dealers Group, Class D shares of the Fund
upon the following terms and conditions:
1. The subscription period referred to in Section 3(a) of the
Distribution Agreement will continue until on or about April 28, 1998. The
subscription period may be extended upon agreement between the Fund and the
Distributor. Subject to the provisions of such Section and the conditions
contained herein, we will sell to you on the third business day following the
termination of the subscription period, or such other date as we may advise (the
"Closing Date"), such number of Class D shares as to which you have placed
orders with us not later than 5:00 P.M. on the second full business day
preceding the Closing Date.
2. In all sales of these Class D shares to the public you shall act
as dealer for your own account, and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFA(SM)) Program and such other special programs as we
from time to time agree in which case you shall have authority to offer and sell
shares, as agent for the Fund, to participants in such program.
<PAGE>
The public offering price of the Class D shares during the subscription
offering is set forth in the table below:
<TABLE>
<CAPTION>
Subscription Period
-----------------------------------------------------------------
Securities Dealers'
Sales Charge Concession
----------------------- ------------------------
Percentage* Percentage
Public of Public of Public
Offering Dollar Offering Dollar Offering
Price Amount Price Amount Price
--------- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Amount of Purchase
- ------------------
Less than $25,000................ $ 10.417 $ .417 4.00% $ .417 4.00%
$25,000 but less than $50,000.... 10.390 .390 3.75 .390 3.75
$50,000 but less than $100,000... 10.336 .336 3.25 .336 3.25
$100,000 but less than $250,000 . 10.256 .256 2.50 .256 2.50
$250,000 but less than $1,000,000 10.152 .152 1.50 .152 1.50
$1,000,000 and over**............ 10.000 .000 0.00 .000 0.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
The proceeds per Class D share to the Fund from the sale of all Class D
shares sold during the subscription period will be $10.00.
The term "purchase" refers to a single purchase by an individual, or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing shares for his or their own account and to single
purchases by a trustee or other fiduciary purchasing shares for a single trust
estate or single fiduciary account although more than one beneficiary is
involved. The term "purchase" also includes purchases by any "company" as that
term is defined in the Investment Company Act, but does not include purchases by
any such company which has not been in existence for at least six months or
which has no purpose other than the purchase of shares of the Fund or shares of
the registered investment companies at a discount; provided, however, that it
shall not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit card holders of
a company, policyholders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which eligible investors are permitted to purchase Class D
shares of the Fund at the offering price applicable to the total of (a) the
dollar amount then being purchased plus (b) an amount equal to the then current
net asset value or cost, whichever is higher, of the purchaser's combined
holdings of the Class A, Class B, Class C and Class D shares of the Fund and of
any other open-end investment company advised by Merrill Lynch Asset Management,
L.P. or Fund Asset Management, L.P. (together, "MLAM-advised mutual funds"). For
any such right of accumulation to be made available, the Distributor must be
provided at the time of purchase, by the purchaser or you, with sufficient
information to permit confirmation of qualification, and acceptance of the
purchase order is subject to such confirmation.
A-2
<PAGE>
The reduced sales charges are applicable to purchases aggregating
$25,000 or more of Class A shares or of Class D shares or of shares of any other
MLAM-advised mutual fund made through you within a thirteen-month period
starting with the first purchase pursuant to a Letter of Intention in the form
provided in the Prospectus. A purchase not originally made pursuant to a Letter
of Intention may be included under a subsequent letter executed within 90 days
of such purchase if the Distributor is informed in writing of this intent within
such 90-day period. If the intended amount of shares is not purchased within the
thirteen-month period, an appropriate price adjustment will be made pursuant to
the terms of the Letter of Intention.
You agree to advise us promptly at your request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
3. You shall not place orders for any of the Class D shares unless
you have already received purchase orders for such shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. All orders are subject to acceptance by the Distributor or the Fund
in the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the Prospectus, as amended from time to time.
You agree that you will not offer or sell any of the Class D shares except under
circumstances that will result in compliance with the applicable Federal and
state securities laws and that in connection with sales and offers to sell Class
D shares you will furnish to each person to whom any such sale or offer is made
a copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to any person
any information relating to the Class D shares of the Fund which is inconsistent
in any respect with the information contained in the Prospectus and Statement of
Additional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. All Class D shares purchased by Selected Dealers will be
delivered in the first instance at a settlement price computed on the basis of
all sales having been made in a purchase (as such term is defined above)
involving a public offering price of less than $25,000. All sales to you will be
deemed to have been made in such a transaction unless within 30 days after the
Closing Date you furnish to us, on forms supplied by us for the purpose, a
statement acceptable to us setting forth sales in purchases involving a public
offering price of $25,000 or more, in which case we will compute such Selected
Dealers' concessions on the basis of the information set forth in such
statement.
5. Payment for Class D shares purchased by you is to be made by
certified or official bank check at the office of Merrill Lynch Funds
Distributor, Inc., Box 9081, Princeton, New Jersey 08543-9081, on such date as
we may advise, in New York Clearing House funds payable to the order of Merrill
Lynch Funds Distributor, Inc., or by federal funds wire transfer, against
delivery by us of non-negotiable share deposit receipts ("Receipts") issued by
Merrill Lynch Financial Data Services, Inc., as shareholder servicing agent,
acknowledging the deposit with it of the Class D shares so purchased by you. You
agree that as promptly as practicable after the delivery of such Class D shares
you will issue appropriate written transfer instructions to the Fund or to the
shareholder servicing agent as to the purchasers to whom you sold the Class D
shares.
A-3
<PAGE>
6. If any Class D shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the Fund or
are tendered for redemption within seven business days after the Closing Date,
it is agreed that you shall forfeit your right to, and refund to us, any
discount received by you on such Class D shares.
7. No person is authorized to make any representations concerning
Class D shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus and Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
8. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain Proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
9. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class D shares entirely. Each party
hereto has the right to cancel this Agreement upon notice to the other party.
10. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Securities and
Exchange Commission issued thereunder.
11. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Conduct Rules of such Association.
12. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell shares in
any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the shares, if necessary.
13. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
A-4
<PAGE>
14. You agree that you will not sell any Class D shares of the Fund
to any account over which you exercise discretionary authority.
15. This Agreement shall terminate at the close of business on the
Closing Date, unless earlier terminated, provided, however, this Agreement shall
continue after termination for the purpose of Section 7 hereof and for the
purpose of settlement of accounts hereunder.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ______________________________________
Name: ___________________________________
Title: ___________________________________
Please return one signed copy
of this Agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9081
Princeton, New Jersey 08543-9081
Accepted:
Firm Name:________________________________
By:_______________________________________
Address:__________________________________
__________________________________________
Date:_____________________________________
A-5
<PAGE>
EXHIBIT B
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Ladies and Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), pursuant to which it acts as the distributor for the
sale of Class D shares of common stock, par value $0.10 per share (herein
referred to as "Class D shares"), of the Fund and as such has the right to
distribute Class D shares of the Fund for resale. The Fund is an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and its Class D shares are registered
under the Securities Act of 1933, as amended (the "Securities Act"). You have
received a copy of the Class D shares Distribution Agreement (the "Distribution
Agreement") between ourself and the Fund and reference is made herein to certain
provisions of such Distribution Agreement. The terms "Prospectus" and "Statement
of Additional Information" used herein refer to the prospectus and statement of
additional information, respectively, on file with the Securities and Exchange
Commission (the "Commission") which is part of the most recent effective
registration statement pursuant to the Securities Act. We offer to sell to you,
as a member of the Selected Dealers Group, Class D shares of the Fund upon the
following terms and conditions:
1. In all sales of these Class D shares to the public, you shall act
as dealer for your own account and in no transaction shall you have any
authority to act as agent for the Fund, for us or for any other member of the
Selected Dealers Group, except in connection with the Merrill Lynch Mutual Fund
Advisor (Merrill Lynch MFASM) Program and such other special programs as we from
time to time agree, in which case you shall have authority to offer and sell
shares, as agent for the Fund, to participants in such program.
2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 5 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
<PAGE>
3. The sales charges for sales of Class D shares to eligible
investors, computed as percentages of the public offering price and the amount
invested, and the related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Sales Charge Discount to
Sales Charge as a as a Percentage of Selected Dealers as
Percentage of Net Amount a Percentage of
Amount of Purchase Offering Price Invested* Offering Price
- ------------------ -------------- --------- --------------
<S> <C> <C> <C>
Less than $25,000.................. 4.00% 4.17% 3.75%
$25,000 but less than $50,000...... 3.75 3.90 3.50
$50,000 but less than $100,000..... 3.25 3.36 3.00
$100,000 but less than $250,000 ... 2.50 2.56 2.25
$250,000 but less than $1,000,000.. 1.50 1.52 1.25
$1,000,000 and over**.......... ... 0.00 0.00 0.00
</TABLE>
* Rounded to the nearest one-hundredth percent.
** Initial sales charges may be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of
the Fund. Such purchases may be subject to a contingent deferred sales
charge as set forth in the current Prospectus and Statement of Additional
Information.
The term "purchase" refers to a single purchase by an individual, or
to concurrent purchases, which in the aggregate are at least equal to the
prescribed amounts, by an individual, his spouse and their children under the
age of 21 years purchasing Class D shares for his or their own account and to
single purchases by a trustee or other fiduciary purchasing Class D shares for a
single trust estate or single fiduciary account although more than one
beneficiary is involved. The term "purchase" also includes purchases by any
"company" as that term is defined in the Investment Company Act, but does not
include purchases by any such company which has not been in existence for at
least six months or which has no purpose other than the purchase of Class D
shares of the Fund or Class D shares of other registered investment companies at
a discount; provided, however, that it shall not include purchases by any group
of individuals whose sole organizational nexus is that the participants therein
are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
The reduced sales charges are applicable through a right of
accumulation under which certain eligible investors are permitted to purchase
Class D shares of the Fund at the offering price applicable to the total of (a)
the dollar amount then being purchased plus (b) an amount equal to the then
current net asset value or cost, whichever is higher, of the purchaser's
combined holdings of Class A, Class B, Class C and Class D shares of the Fund
and of any other open-end investment company advised by Merrill Lynch Asset
Management, L.P. or Fund Asset Management, L.P. (together, "MLAM-advised mutual
funds"). For any such right of accumulation to be made available, the
Distributor must be provided at the time of purchase, by the purchaser or you,
with sufficient information to permit confirmation of qualification, and
acceptance of the purchase order is subject to such confirmation.
The reduced sales charges are applicable to purchases aggregating $25,000 or
more of Class A shares or of Class D shares of any other MLAM-advised mutual
fund made through you within a thirteen-month
B-2
<PAGE>
period starting with the first purchase pursuant to a Letter of Intention in the
form provided in the Prospectus. A purchase not originally made pursuant to a
Letter of Intention may be included under a subsequent letter executed within 90
days of such purchase if the Distributor is informed in writing of this intent
within such 90-day period. If the intended amount of shares is not purchased
within the thirteen-month period, an appropriate price adjustment will be made
pursuant to the terms of the Letter of Intention.
You agree to advise us promptly at our request as to amounts of any
sales made by you to eligible investors qualifying for reduced sales charges.
Further information as to the reduced sales charges pursuant to the right of
accumulation or a Letter of Intention is set forth in the Prospectus and
Statement of Additional Information.
4. You shall not place orders for any of the Class D shares unless
you have already received purchase orders for such Class D shares at the
applicable public offering prices and subject to the terms hereof and of the
Distribution Agreement. You agree that you will not offer or sell any of the
Class D shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection with
sales and offers to sell Class D shares you will furnish to each person to whom
any such sale or offer is made a copy of the Prospectus and, if requested, the
Statement of Additional Information (as then amended or supplemented) and will
not furnish to any person any information relating to the Class D shares of the
Fund which is inconsistent in any respect with the information contained in the
Prospectus and Statement of Additional Information (as then amended or
supplemented) or cause any advertisement to be published in any newspaper or
posted in any public place without our consent and the consent of the Fund.
5. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Class D shares of the Fund to be resold by us
to you subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement and subject to
the compensation provisions of Section 3 hereof and (ii) to tender Class D
shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
6. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering price
to your customers.
7. If any Class D shares sold to you under the terms of this
Agreement are repurchased by the Fund or by us for the account of the Fund or
are tendered for redemption within seven business days after the date of the
confirmation of the original purchase by you, it is agreed that you shall
forfeit your right to, and refund to us, any discount received by you on such
Class D shares.
8. No person is authorized to make any representations concerning
Class D shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class D shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports
B-3
<PAGE>
and proxy solicitation material is our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
9. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.
10. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Class D shares entirely or to certain
persons or entities in a class or classes specified by us. Each party hereto has
the right to cancel this agreement upon notice to the other party.
11. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in any
way whatsoever constitute, a waiver by you of compliance with any provision of
the Securities Act, or of the rules and regulations of the Commission issued
thereunder.
12. You represent that you are a member of the National Association
of Securities Dealers, Inc. and, with respect to any sales in the United States,
we both hereby agree to abide by the Conduct Rules of such Association.
13. Upon application to us, we will inform you as to the states in
which we believe the Class D shares have been qualified for sale under, or are
exempt from the requirements of, the respective securities laws of such states,
but we assume no responsibility or obligation as to your right to sell Class D
shares in any jurisdiction. We will file with the Department of State in New
York a Further State Notice with respect to the Class D shares, if necessary.
14. All communications to us should be sent to the address below.
Any notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.
B-4
<PAGE>
15. Your first order placed pursuant to this Agreement for the
purchase of Class D shares of the Fund will represent your acceptance of this
Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By:____________________________________
Name: _________________________________
Title: ________________________________
Please return one signed copy of this agreement to:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011
Accepted:
Firm Name:_____________________________________
By:____________________________________________
Address:_______________________________________
_______________________________________________
Date:__________________________________________
B-5
<PAGE>
EXHIBIT 99.8
Custodian Contract
------------------
This Contract between Merrill Lynch Corporate High Yield Fund, Inc., a
corporation organized and existing under the laws of Maryland, having its
principal place of business at 800 Scudders Mill Road, Plainsboro, New Jersey
08536 (the "Fund") and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110 (the "Custodian"), in consideration of the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of
the Fund of the Fund, including securities which the Fund desires to be held in
places within the United States ("domestic securities") and securities it
desires to be held outside the United States ("foreign securities") pursuant to
the provisions of the Articles of Incorporation. The Fund agrees to deliver to
the Custodian all securities and cash of the Fund, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Fund from time to time, and the cash consideration
received by it for such new or treasury shares of capital stock of the Fund
("Shares") as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of the Fund held or received by the Fund and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (as defined in Article 5), the
Custodian shall on behalf of the Fund from time to time employ one or more
sub-custodians, located in the United States but only in accordance with an
applicable vote by the Board of Directors of the Fund. The Custodian covenants
with the Fund that each agreement whereby the Custodian employs any such
sub-custodian shall provide that the sub-custodian will be liable to the
Custodian for losses and liabilities caused by the negligence, misfeasance, or
willful misconduct of the sub-custodian. The Fund agrees that, so long as the
Custodian has complied with its obligation set forth in the preceding sentence,
the Custodian shall have no more or less responsibility or liability to the Fund
on account of any actions or omissions of any U.S. sub-custodian employed by it
on behalf of the Fund than any such sub-custodian has to the Custodian. The
Custodian may employ as sub-custodian for the Fund's foreign securities the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
------------------------------------------------------------------------
Custodian in the United States
------------------------------
2.1 Holding Securities. The Custodian shall hold and physically segregate for
------------------
the account of the Fund all non-cash property, to be held by it in the
United States including all domestic securities owned by the Fund, other
than (a) securities which are maintained pursuant to Section 2.10 in a
clearing agency which acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the Treasury (collectively
referred to herein as "Securities System") and (b) commercial paper of an
issuer for which State Street Bank and Trust Company acts as issuing and
paying agent ("Direct Paper") which is deposited
<PAGE>
and/or maintained in the Direct Paper System of the Custodian (the "Direct
Paper System") pursuant to Section 2.10A.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
----------------------
securities owned by the Fund held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund, which may be continuing instructions
when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Fund and receipt
of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Fund;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Fund;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of
the Fund or into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
representing the same aggregate face amount or number of units;
provided that, in any such case, the new securities are to be
delivered to the Custodian;
7) Upon the sale of such securities for the account of the Fund, to the
broker or its clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities prior to
receiving payment for such securities except as may arise from the
Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of
the securities of the issuer of such securities, or pursuant to
provisions for conversion contained in such securities, or pursuant
to any deposit agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the Custodian;
2
<PAGE>
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar
securities or the surrender of interim receipts or temporary
securities for definitive securities; provided that, in any such
case, the new securities and cash, if any, are to be delivered to
the Custodian;
10) For delivery in connection with any loans of securities made by the
Fund, but only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may be in the
form of cash or obligations issued by the United States government,
its agencies or instrumentalities, except that in connection with
any loans for which collateral is to be credited to the Custodian's
account in the book-entry system authorized by the U.S. Department
of the Treasury, the Custodian will not be held liable or
responsible for the delivery of securities owned by the Fund prior
to the receipt of such collateral except as may arise from the
Custodian's own negligence or willful misconduct;
11) For delivery as security in connection with any borrowings by the
Fund requiring a pledge of assets by the Fund, but only against
receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities Dealers, Inc.
("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Fund;
13) For delivery in accordance with the provisions of any agreement
among the Fund, the Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or
any contract market, or any similar organization or organizations,
regarding account deposits in connection with transactions by the
Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may
be described from time to time in the currently effective prospectus
and statement of additional information of the Fund ("Prospectus"),
in satisfaction of requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or
an Assistant Secretary, specifying the securities of the Fund to be
delivered, setting forth the purpose for which such delivery is to
be made, declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such securities
shall be made.
3
<PAGE>
2.3 Registration of Securities. Domestic securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of the Fund
or in the name of any nominee of the Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Fund, unless
------
the Fund has authorized in writing the appointment of a nominee to be used
in common with other registered investment companies having the same
investment adviser as the Fund, or in the name or nominee name of any
agent appointed pursuant to Section 2.9 or in the name or nominee name of
any sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Fund under the terms of this Contract
shall be in "street name" or other good delivery form. If, however, the
Fund directs the Custodian to maintain securities in "street name", the
Custodian shall utilize all reasonable efforts to timely collect income
due the Fund on such securities and to notify the Fund of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
-------------
account or accounts in the United States in the name of the Fund, subject
only to draft or order by the Custodian acting pursuant to the terms of
this Contract, and shall hold in such account or accounts, subject to the
provisions hereof, all cash received by it from or for the account of the
Fund, other than cash maintained by the Fund in a bank account established
and used in accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Fund may be deposited by it to
its credit as Custodian in the Banking Department of the Custodian or in
such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the Investment
Company Act of 1940 and that each such bank or trust company and the funds
to be deposited with each such bank or trust company shall be approved by
vote of a majority of the Board of Directors of the Fund. Such funds shall
be deposited by the Custodian in its capacity as Custodian and shall be
withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund and
-----------------------------
the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund, make federal funds available to the Fund as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of the
Fund which are deposited into the Fund's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which the
Fund shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such Fund's
custodian account. Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons and other
income items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due the
Fund on securities loaned pursuant to the provisions of Section 2.2 (10)
shall be the responsibility of the Fund. The
4
<PAGE>
Custodian will have no duty or responsibility in connection therewith,
other than to exercise reasonable care in providing the Fund with such
information or data as may be necessary to assist the Fund in arranging
for the timely delivery to the Custodian of the income to which the Fund
is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund,
----------------------
which may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out monies of the Fund in the following
cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the Fund but only (a) against
the delivery of such securities or evidence of title to such
options, futures contracts or options on futures contracts to the
Custodian (or any bank, banking firm or trust company doing business
in the United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a custodian
and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the conditions
set forth in Section 2.10A hereof; (d) in the case of repurchase
agreements entered into between the Fund and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Fund of securities owned by the
Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Fund or (e) for
transfer to a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to receipt
of a confirmation from a broker and/or the applicable bank pursuant
to Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Fund as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Fund as set
forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Fund,
including but not limited to the following payments for the account
of the Fund: interest, taxes, management, accounting, transfer agent
and legal fees, and operating expenses of the Fund whether or not
such expenses are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends on Shares of the Fund declared
pursuant to the governing documents of the Fund;
5
<PAGE>
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in addition
--- ----
to Proper Instructions from the Fund, a certified copy of a
resolution of the Board of Directors or of the Executive Committee
of the Fund signed by an officer of the Fund and certified by its
Secretary or an Assistant Secretary, specifying the amount of such
payment, setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of
the Fund is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund to
so pay in advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
--------
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
--------------------------------------------
and/or maintain securities owned by the Fund in a clearing agency
registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934, which acts as a securities
depository, or in the book-entry system authorized by the U.S. Department
of the Treasury and certain federal agencies, collectively referred to
herein as "Securities System" in accordance with applicable Federal
Reserve Board and Securities and Exchange Commission rules and
regulations, if any, and subject to the following provisions:
1) The Custodian may keep securities of the Fund in a Securities System
provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
2) The records of the Custodian with respect to securities of the Fund
which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of
the Fund upon (i) receipt of advice from the Securities System that
such securities have been transferred to the Account, and (ii) the
making of an entry on the records of the
6
<PAGE>
Custodian to reflect such payment and transfer for the account of
the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon (i) receipt of advice from the Securities
System that payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of
transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. Upon request, the Custodian
shall furnish the Fund confirmation of each transfer to or from the
account of the Fund in the form of a written advice or notice and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transactions in the Securities System for the
account of the Fund.
4) The Custodian shall provide the Fund with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited in the Securities System;
5) The Custodian shall have received from the Fund the initial or
annual certificate, as the case may be, required by Article 14
hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or of any of its or their officers or employees or from
failure of the Custodian or any such agent to enforce effectively
such rights as it may have against the Securities System; at the
election of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against the
Securities System or any other person which the Custodian may have
as a consequence of any such loss or damage if and to the extent
that the Fund has not been made whole for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
-------------------------------------------------------
deposit and/or maintain securities owned by the Fund in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the
Fund;
2) The Custodian may keep securities of the Fund in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the Fund
which are maintained in the Direct Paper System shall identify by
book-entry those securities belonging to the Fund;
7
<PAGE>
4) The Custodian shall pay for securities purchased for the account of
the Fund upon the making of an entry on the records of the Custodian
to reflect such payment and transfer of securities to the account of
the Fund. The Custodian shall transfer securities sold for the
account of the Fund upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of payment for
the account of the Fund;
5) The Custodian shall furnish the Fund confirmation of each transfer
to or from the Fund, in the form of a written advice or notice, of
Direct Paper on the next business day following such transfer and
shall furnish to the Fund copies of daily transaction sheets
reflecting each day's transaction in the Securities System for the
account of the Fund;
6) The Custodian shall provide the Fund with any report on its system
of internal accounting control as the Fund may reasonably request
from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions from the Fund establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or accounts may
be transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions by
the Fund, (ii) for purposes of segregating cash or government securities
in connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold by the
Fund, (iii) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission relating to
the maintenance of segregated accounts by registered investment companies
and (iv) for other proper corporate purposes, but only, in the case of
--- ----
clause (iv), upon receipt of, in addition to Proper Instructions from the
Fund, a certified copy of a resolution of the Board of Directors or of the
Executive Committee signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be proper
corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of the Fund held by it and in connection
with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities held
-------
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Fund or a nominee of the Fund, all
8
<PAGE>
proxies, without indication of the manner in which such proxies are to be
voted, and shall promptly deliver to the Fund such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the provisions
-----------------------------------------------
of Section 2.3, the Custodian shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by the
Fund and the maturity of futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the securities being held for
the Fund. With respect to tender or exchange offers, the Custodian shall
transmit promptly to the Fund all written information received by the
Custodian from issuers of the securities whose tender or exchange is
sought and from the party (or his agents) making the tender or exchange
offer. If the Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall
notify the Custodian at least three business days prior to the date on
which the Custodian is to take such action.
2.15 Reports to Fund by Independent Public Accountants. The Custodian shall
-------------------------------------------------
provide the Fund, at such times as the Fund may reasonably require, with
reports by independent public accountants on the accounting system,
internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities System, relating to the
services provided by the Custodian under this Contract; such reports,
shall be of sufficient scope and in sufficient detail, as may reasonably
be required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no
such inadequacies, the reports shall so state.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
-------------------------------------------------------------------------
of the United States
--------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
-------------------------------------
instructs the Custodian to employ as sub-custodians for the Fund's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon receipt
of "Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of Directors, the
Custodian and the Fund may agree to amend Schedule A hereto from time to
time to designate additional foreign banking institutions and foreign
securities depositories to act as sub-custodian. Upon receipt of Proper
Instructions, the Fund may instruct the Custodian to cease the employment
of any one or more such sub-custodians for maintaining custody of the
Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Fund's foreign securities transactions. The
Custodian
9
<PAGE>
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon in
-------------------------------
writing by the Custodian and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as sub-custodians
pursuant to the terms hereof. Where possible, such arrangements shall
include entry into agreements containing the provisions set forth in
Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be substantially in the form set forth
in Exhibit 1 hereto and shall provide that: (a) the assets of the Fund
will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of the foreign banking institution or its creditors
or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of the Fund will
be freely transferable without the payment of money or value other than
for custody or administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its
agreement with the Custodian; and (e) assets of the Fund held by the
foreign sub-custodian will be subject only to the instructions of the
Custodian or its agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the Fund,
---------------------------------------------
the Custodian will use all reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to the books and
records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the performance
of such foreign banking institution under its agreement with the
Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from time to
--------------------
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Fund held by foreign sub-custodians, including but not
limited to an identification of entities having possession of the Fund
securities and other assets and advices or notifications of any transfers
of securities to or from each custodial account maintained by a foreign
banking institution for the Custodian indicating, as to securities
acquired for the Fund, the identity of the entity having physical
possession of such securities.
3.7 Transactions in Foreign Custody Account. (a) Except as otherwise provided
---------------------------------------
in paragraph (b) of this Section 3.7, the provision of Sections 2.2 and
2.7 of this Contract shall apply, mutatis mutandis to the foreign
------- --------
securities of the Fund held outside the United States by foreign
sub-custodians; (b) notwithstanding any provision of this Contract to the
contrary, settlement and payment for securities received for the account
of the Fund and delivery of securities maintained for the account of the
Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to a
dealer therefor (or an agent
10
<PAGE>
for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer;
and (c) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to hold
any such nominee harmless from any liability as a holder of record of such
securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
-----------------------------------
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking institution as a consequence of any
such loss, damage, cost, expense, liability or claim if and to the extent
that the Fund has not been made whole for any such loss, damage, cost,
expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts or
----------------------
omissions of a foreign banking institution to the same extent if such acts
or omissions were those of the Custodian directly, provided that,
regardless of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch of a U.S.
bank as contemplated by paragraph 3.12 hereof, the Custodian shall not be
liable for any loss, damage, cost, expense, liability or claim resulting
from nationalization, expropriation, currency restrictions, or acts of war
or terrorism, acts of God, or other occurrences beyond the sub-custodian's
reasonable control. Notwithstanding the foregoing provisions of this
paragraph 3.9, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to advance
--------------------------
cash or securities for any purpose including the purchase or sale of
foreign exchange or of contracts for foreign exchange, or in the event
that the Custodian or its nominee shall incur or be assessed any taxes,
charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund
shall be security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund's assets to the extent necessary to obtain
reimbursement.
11
<PAGE>
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to the
---------------------------
Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection with
the initial approval of this Contract. In addition, the Custodian will
promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
----------------------
Contract, the provisions hereof shall not apply where the custody of the
Fund's assets are maintained in a foreign branch of a banking institution
which is a "bank" as defined by Section 2(a)(5) of the Investment Company
Act of 1940 meeting the qualification set forth in Section 26(a) of said
Act. The appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract. (b) Cash held for the Fund in
the United Kingdom shall be maintained in an interest bearing account
established for the Fund with the Custodian's London branch, which account
shall be subject to the direction of the Custodian, State Street London
Ltd. or both.
3.13 Tax Law. The Custodian shall have no responsibility or liability for any
-------
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or
any state or political subdivision thereof except for liabilities arising
from the Custodian's failure to exercise reasonable care in the execution
of any instructions received from the Fund with respect to withholding or
payment of taxes. It shall be the responsibility of the Fund to notify the
Custodian of the obligations imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of jurisdictions other than those
mentioned in the above sentence, including responsibility for withholding
and other taxes, assessments or other governmental charges, certifications
and governmental reporting. The sole responsibility of the Custodian with
regard to such tax law shall be to use reasonable efforts to assist the
Fund with respect to any claim for exemption or refund under the tax law
of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
From such funds as may be available for the purpose but subject to the
limitations of the Articles of Incorporation and any applicable votes of the
Board of Directors of the Fund pursuant thereto, the Custodian shall, upon
receipt of instructions from the Transfer Agent, make funds available for
payment to holders of Shares who have delivered to the Transfer Agent a request
for redemption or repurchase of their Shares. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor
12
<PAGE>
checks drawn on the Custodian by a holder of Shares, which checks have been
furnished by the Fund to the holder of Shares, when presented to the Custodian
in accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the Fund such
payments as are received for Shares of the Fund issued or sold from time to time
by the Fund. The Custodian will provide timely notification to the Fund and the
Transfer Agent of any receipt by it of payments for Shares of such Fund.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing
signed or initialed by one or more person or persons as the Board of Directors
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Directors of the
Fund accompanied by a detailed description of procedures approved by the Board
of Directors, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Directors and the Custodian are satisfied that such procedures afford adequate
safeguards for the Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three-party agreement which requires a segregated asset account in
accordance with Section 2.11.
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund and provided that the Fund shall not object to such
payments;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection checks, drafts and other negotiable
instruments; and
4) in general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Fund except as
otherwise directed by the Board of Directors of the Fund.
13
<PAGE>
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper reasonably believed
by it to be genuine and to have been properly executed by or on behalf of the
Fund. The Custodian may receive and accept a certified copy of a vote of the
Board of Directors of the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of any determination or of
any action by the Board of Directors pursuant to the Articles of Incorporation
as described in such vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
------------------------------------------------------------------------
of Net Asset Value and Net Income
---------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Directors of the Fund to keep the
books of account of the Fund and/or compute the net asset value per share of the
outstanding Shares of the Fund or, if directed in writing to do so by the Fund,
shall itself keep such books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also calculate daily the net income
of the Fund as described in the Fund's currently effective prospectus and shall
advise the Fund and the Transfer Agent daily of the total amounts of such net
income and, if instructed in writing by an officer of the Fund to do so, shall
advise the Transfer Agent periodically of the division of such net income among
its various components. The calculations of the net asset value per share and
the daily income of the Fund shall be made at the time or times described from
time to time in the Fund's currently effective prospectus.
9. Records
-------
The Custodian shall with respect to the Fund create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, as amended, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by the Fund and held by the Custodian and shall, when requested
to do so by the Fund and for such compensation as shall be agreed upon between
the Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund may from time
to time request, to obtain from year to year favorable opinions from the Fund's
independent accountants with respect to its activities hereunder in connection
with the preparation of the Fund's Form N-1A, and Form N-SAR or other annual
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
14
<PAGE>
11. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund and the Custodian.
12. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence, misfeasance or
willful misconduct. It shall be entitled to rely on and may act upon advice of
counsel (who may be counsel for the Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3 as
provided in Section 3.9 hereof and, regardless of whether assets are maintained
in the custody of a foreign banking institution, a foreign securities depository
or a branch of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense, liability or
claim resulting from, or caused by nationalization, expropriation, currency
restrictions, or acts of war or terrorism, acts of God, or other occurrences
beyond the Custodian's or sub-custodian's reasonable control.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement)
for the benefit of the Fund including the purchase or sale of foreign exchange
or of contracts for foreign exchange or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the Fund shall be security therefor and should the Fund fail
to repay the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of the Fund's assets to the extent necessary to
obtain reimbursement.
15
<PAGE>
13. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
--------
however that the Custodian shall not act under Section 2.10 hereof in the
absence of receipt of an initial certificate of the Secretary or an Assistant
Secretary of the Fund that the Board of Directors of the Fund has approved the
initial use of a particular Securities System by the Fund, as required by Rule
17f-4 under the Investment Company Act of 1940, as amended, and that the
Custodian shall not act under Section 2.10A hereof in the absence of receipt of
an initial certificate of the Secretary or an Assistant Secretary of the Fund
that the Board of Directors of the Fund has approved the initial use of the
Direct Paper System by the Fund; provided further, however, that the Fund shall
-------- -------
not amend or terminate this Contract in contravention of any applicable federal
or state regulations, or any provision of the Articles of Incorporation, and
further provided, that the Fund may at any time by action of its Board of
Directors (i) substitute another bank or trust company for the Custodian by
giving notice as described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or receiver for
the Custodian by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund shall pay to the Custodian such
compensation as may be due as of the date of such termination and shall likewise
reimburse the Custodian for its costs, expenses and disbursements.
14. Successor Custodian
-------------------
If a successor custodian for the Fund shall be appointed by the Board of
Directors of the Fund, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed and in the
form for transfer, all securities of the Fund then held by it hereunder and
shall transfer to an account of the successor custodian all of the securities of
the Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy of a vote of the Board of
Directors of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Directors of the Fund shall have been
delivered to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver to a bank
or trust company, which is a "bank" as defined in the Investment Company Act of
1940, as amended, doing business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown by its
last published report, of not less than $25,000,000, all securities, funds and
other properties held by the Custodian on behalf of the Fund and all instruments
held by the Custodian relative thereto
16
<PAGE>
and all other property held by it under this Contract on behalf of the Fund and
to transfer to an account of such successor custodian all of the securities of
each the Fund held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Directors of the Fund to appoint a successor custodian, the
Custodian shall be entitled to fair compensation for its services during such
period as the Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force and effect.
15. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund may from time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint opinion be
consistent with the general tenor of this Contract. Any such interpretive or
additional provisions shall be in a writing signed by both parties and shall be
annexed hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any provision of
the Articles of Incorporation of the Fund. No interpretive or additional
provisions made as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
16. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
17. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund and the Custodian relating to the custody of the
Fund's assets.
18. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts
17
<PAGE>
established by the Fund. For the Fund's protection, this rule prohibits the
requesting company from using the Fund's name and address for any purpose other
than corporate communications. Please indicate below whether the Fund consents
or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed as of the day of , 1998.
ATTEST: MERRILL LYNCH CORPORATE HIGH YIELD
FUND, INC.
________________________________ By________________________________________
Name: Name:
Title:
ATTEST: STATE STREET BANK AND TRUST COMPANY
________________________________ By________________________________________
Name: Ronald E. Logue
Executive Vice President
18
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
Argentina Citibank, N.A. --
Australia Westpac Banking Corporation --
Austria Erste Bank der oesterreichischen --
Sparkasen AG
Bahrain The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank --
Belgium Generale Bank --
Bermuda The Bank of Bermuda Limited --
Bolivia Banco Boliviano Americano --
Botswana Barclays Bank of Botswana Limited --
Brazil Citibank, N.A. --
Bulgaria ING Bank N.V. --
Canada Canada Trustco Mortgage Company --
Chile Citibank, N.A. --
People's Republic The Hongkong and Shanghai --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. --
Sociedad Fiduciaria
Croatia Privredana banka Zagreb d.d --
Cyprus Barclays Bank PLC --
Cyprus Offshore Banking Unit
Czech Republic Ceskoslovenska Obchodni --
Banka A.S.
Denmark Den Danske Bank --
Ecuador Citibank, N.A. --
Egypt National Bank of Egypt --
Estonia Hansabank --
Finland Merita Bank Ltd. --
France Banque Paribas --
Germany Dresdner Bank AG --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory
Depositories
Ghana Barclays Bank of Ghana Limited --
Greece National Bank of Greece S.A Bank of Greece
Hong Kong Standard Chartered Bank --
Hungary Citibank Budapest Rt. --
Iceland Icebank Limited
India Deutsche Bank AG; --
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank --
Ireland Bank of Ireland --
Israel Bank Hapoalim B.M. --
Italy Banque Paribas --
Ivory Coast Societe Generale de Banques --
en Cote d'Ivoire
Jamaica Scotiabank Trust and Merchant Bank --
Japan The Daiwa Bank, Limited; Japan
The Fuji Bank, Limited; Securities
Depository
Center;
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory
Depositories
Jordan The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Kenya Barclays Bank of Kenya Limited --
Republic of Korea The Hongkong and Shanghai Banking
Corporation Limited
Latvia Hansabank --
Lebanon The British Bank of the Middle East --
(as delegate of the Hongkong and
Custodian and Clearing Center of
Financial Instruments for Lebanon
(MIDCLEAR) S.A.L.; Shanghai Banking
Corporation Limited)
Lithuania Vilniaus Bankas AB --
Malaysia Standard Chartered Bank --
Malaysia Berhad
Mauritius The Hongkong and Shanghai --
Banking Corporation Limited
Mexico Citibank Mexico, S.A. --
Morocco Banque Commerciale du Maroc --
Namibia (via) Standard Bank of South Africa --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory Depositories
The Netherlands MeesPierson N.V. --
New Zealand ANZ Banking Group --
(New Zealand) Limited
Norway Christiania Bank og --
Kreditkasse
Oman The British Bank of the Middle East --
(as delegate of the Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG --
Peru Citibank, N.A. --
Philippines Standard Chartered Bank --
Poland Citibank Poland S.A. --
Portugal Banco Comercial Portugues --
Romania ING Bank, N.V. --
Russia Credit Suisse First Boston, Zurich --
via Credit Suisse First Boston
Limited, Moscow
Singapore The Development Bank --
of Singapore Ltd.
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory
Depositories
Slovak Republic Ceskoslovenska Obchodna --
Banka A.S.
Slovenia Banka Creditanstalt d.d. --
South Africa Standard Bank of South Africa Limited --
Spain Banco Santander, S.A. --
Sri Lanka The Hongkong and Shanghai --
Banking Corporation Limited
Swaziland Stanbic Bank of Swaziland Limited --
Sweden Skandinaviska Enskilda Banken --
Switzerland Union Bank of Switzerland --
Taiwan - R.O.C. Central Trust of China --
Thailand Standard Chartered Bank --
Trinidad & Tobago Republic Bank Ltd. --
Tunisia Banque Internationale Arabe de Tunisie --
Turkey Citibank, N.A. --
<PAGE>
STATE STREET SCHEDULE A
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS AND NON-MANDATORY DEPOSITORIES
Country Subcustodian Non-Mandatory
Depositories
United Kingdom State Street Bank and Trust --
Uruguay Citibank, N.A. --
Venezuela Citibank, N.A. --
Zambia Barclays Bank of Zambia Limited --
Zimbabwe Barclays Bank of Zimbabwe Limited --
Euroclear (The Euroclear System)
Cedel (Cedel Bank, societe anonyme)
INTERSETTLE (for EASDAQ Securities)
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Argentina -Caja de Valores S.A.;
-CRYL
Australia -Austraclear Limited;
-Reserve Bank Information and
Transfer System
Austria -Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium -Caisse Interprofessionnelle de Depots et
de Virements de Titres S.A.;
-Banque Nationale de Belgique
Brazil - Camara de Liquidacao de Sao Paulo,
(Calispa);
-Bolsa de Valores de Rio de Janeiro
- All SSB clients presently use Calispa
-Central de Custodia e de Liquidacao
Financeira de Titulos
-Banco Central do Brasil,
Systema Especial de Liquidacao e
Custodia
Bulgaria - Central Depository AD
Canada -The Canadian Depository
for Securities Limited; West Canada
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Depository Trust Company [depositories
linked]
People's Republic -Shanghai Securities Central Clearing and
of China Registration Corporation;
-Shenzhen Securities Central Clearing
Co., Ltd.
Croatia Ministry of Finance
Czech Republic --Stredisko cennych papiru(degree);
-Czech National Bank
Denmark -Vaerdipapircentralen - The Danish
Securities Center
Egypt -Misr Company for Clearing, Settlement,
and Central Depository
Estonia - Eesti Vaartpaberite Keskdepositooruim
Finland -The Finnish Central Securities
Depository
France -Societe Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres;
-Banque de France,
Saturne System
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Germany -The Deutscher Kassenverein AG
Greece -The Central Securities Depository
(Apothetirion Titlon A.E.);
Hong Kong -The Central Clearing and
Settlement System;
-The Central Money Markets Unit
Hungary -The Central Depository and Clearing
House (Budapest) Ltd.
[Mandatory for Gov't Bonds only;
SSB does not use for other securities]
India The National Securities Depository Limited
Indonesia -Bank of Indonesia
Ireland -The Central Bank of Ireland,
The Gilt Settlement Office
Israel -The Clearing House of the
Tel Aviv Stock Exchange;
-Bank of Israel
Italy -Monte Titoli S.p.A.;
-Banca d'Italia
Japan -Bank of Japan Net System
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Republic of Korea -Korea Securities Depository Corporation
Latvia - The Latvian Central Depository
Lebanon -The Central Bank of Lebanon
Lithuania - The Central Securities Depository of
Lithuania
Malaysia -Malaysian Central Depository Sdn.
Bhd.;
-Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
Systems
Mauritius -The Central Depository & Settlement
Co. Ltd.
Mexico -S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito de
Valores);
The Netherlands -Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. ("NECIGEF");
New Zealand -New Zealand Central Securities
Depository Limited
Norway -Verdipapirsentralen - The Norwegian
Registry of Securities
Oman -Muscat Securities Market
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Peru -Caja de Valores y Liquidaciones
(CAVALI, S.A.)
Philippines -The Philippines Central Depository Inc.
-The Book-Entry-System of Bangko
Sentral ng Pilipinas;
-The Registry of Scripless Securities of the
Bureau of the Treasury
Poland -The National Depository of Securities
(Krajowy Depozyt Papierow Wartos'ciowych);
-National Bank of Poland
Portugal -Central de Valores Mobiliarios
Romania -National Securities Clearing, Settlement
and Depository Co.;
-Bucharest Stock Exchange;
-National Bank of Romania
Singapore -The Central Depository (Pvt.)
Limited;
-Monetary Authority of Singapore
Slovak Republic -Stredisko Cennych Papierov;
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
-National Bank of Slovakia
Slovenia - Klirinsko Depotna Bruzba
South Africa -The Central Depository Limited
Spain -Servicio de Compensacion y
Liquidacion de Valores, S.A.;
-Banco de Espana,
Anotaciones en Cuenta
Sri Lanka -Central Depository System
(Pvt) Limited
Sweden -Vardepapperscentralen VPC AB -
The Swedish Central Securities Depository
Switzerland -Schweizerische Effekten - Giro AG;
Taiwan - R.O.C. -The Taiwan Securities Central
Depository Company, Ltd.
Thailand -Thailand Securities Depository
Company Limited
Tunisia -STICODEVAM;
-Central Bank of Tunisia;
-Tunisian Treasury
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
MANDATORY* DEPOSITORIES
Country Mandatory Depositories
Turkey -Takas ve Saklama Bankasi A.S.;
-Central Bank of Turkey
United Kingdom -The Bank of England,
The Central Gilts Office;
The Central Moneymarkets Office
Uruguay -Central Bank of Uruguay
Zambia -Lusaka Central Depository
* Mandatory depositories include entities for which use is mandatory as a matter
of law or effectively mandatory as a matter of market practice.
<PAGE>
SCHEDULE C
MARKET INFORMATION
Pulication/Type of Brief Description
- ------------------ -----------------
Information (Frequency)
- -----------------------
The Guide to Custody in
- -----------------------
World Markets (annually): An overview of safekeeping and settlement
- ------------- practices and procedures in each market in which
State Street Bank and Trust Company offers
custodial services.
The Depository Review
- ---------------------
(annually): Information relating to the operating history and
structure of depositories located in the markets
in which State Street Bank and Trust Company
offers custodial services, including transnational
depositories.
legal opinions (annually): With respect to each market in which State Street
Bank and Trust Company offers custodial services,
opinions relating to whether local law restricts
(i) access of a fund's independent public
accountants to books and records of a Foreign Sub-
Custodian or Foreign Securities System, (ii) the
Fund's ability to recover in the event of
bankruptcy or insolvency of a Foreign
Sub-Custodian or Foreign Securities System, (iii)
the Fund's ability to recover in the event of a
loss by a Foreign Sub-Custodian or Foreign
Securities System, and (iv) the ability of a
foreign investor to convert cash and cash
equivalents to U.S. dollars.
Network Bulletins (weekly): Developments of interest to investors in the
markets in which State Street Bank and Trust
Company offers custodial services.
Foreign Custody Advisories
(as necessary): With respect to markets in which State Street Bank
and Trust Company offers custodial services which
exhibit special custody risks, developments which
may impact State Street's ability to deliver
expected levels of service.
<PAGE>
ADDENDUM TO CUSTODIAN CONTRACT
------------------------------
WHEREAS, the Board of Directors (the "Board") of Merrill Lynch Corporate High
Yield Fund, Inc., a Maryland corporation (the "Fund"), has adopted a resolution
appointing the Custodian as Foreign Custody Manager of the Fund pursuant to the
Rule 17f-5 Procedures and Guidelines previously adopted by the Board (the
"Procedures and Guidelines"), a copy of which is attached hereto as Exhibit A,
the Fund and State Street Bank and Trust Company, a Massachusetts trust company
(the "Custodian"), hereby enter into this Addendum to the Custody Contract dated
___________, 1998 between the Fund and the Custodian (the "Contract");
WHEREAS, each party wishes to enter into this Addendum to the Contract;
NOW, THEREFORE, for such good and valuable consideration as is recited in the
Contract, the Fund and the Custodian agree that:
Article III of the Contract is hereby amended, revised and superseded to the
extent that such Article is inconsistent with the Procedures and Guidelines.
Each of the Fund and the Custodian acknowledge that they are currently
developing further mutually agreeable contract procedures and provisions
pursuant to the Procedures and Guidelines.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and on its behalf by its duly authorized representative as
of the ______ day of _______, 1998 .
MERRILL LYNCH
ATTEST: CORPORATE HIGH YIELD FUND, INC.
___________________________________ By_______________________________________
Name: Name:
Title:
ATTEST: STATE STREET BANK AND TRUST COMPANY
___________________________________ By_______________________________________
Thomas M. Lenz Ronald E. Logue Vice President
Executive Vice President
<PAGE>
Exhibit 99.9(a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the ____ day of April, 1998 by and between
Merrill Lynch Corporate High Yield Fund, Inc. (the "Fund") and Merrill Lynch
Financial Data Services, Inc. ("MLFDS"), a New Jersey corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund wishes to appoint MLFDS to be the Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent upon, and subject to,
the terms and provisions of this Agreement, and MLFDS is desirous of accepting
such appointment upon, and subject to, such terms and provisions:
NOW THEREFORE, in consideration of mutual covenants contained in
this Agreement, the Fund and MLFDS agree as follows:
1. Appointment of MLFDS as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund upon, and
subject to, the terms and provisions of this Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the Fund, and
agrees to act as such upon, and subject to, the terms and provisions of this
Agreement.
2. Definitions.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation thereunder;
(II) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name of MLPF&S for
benefit of an identified customer, such account, including a Plan Account, any
account under a plan (by whatever name referred to in the Prospectus) pursuant
to the Self-Employed Individuals Retirement Act of 1962 ("Keogh Act Plan") and
any plan (by whatever name referred to in the Prospectus) in conjunction with
Section 401 of the Internal Revenue Code ("Corporation Master Plan");
<PAGE>
(III) The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the opening of the
Account;
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
(VI) The term "Officer's Instruction" means an
instruction in writing given on behalf of the Fund to MLFDS, and signed on
behalf of the Fund by the President, and Vice President, the Secretary or the
Treasurer of the Fund;
(VII) The term "Prospectus" means the Prospectus and the
Statement of Additional Information of the Fund as from time to time in effect;
(VIII) The term "Shares" means shares of stock or
beneficial interest, as the case may be, of the Fund, irrespective of class or
series;
(IX) The term "Shareholder" means the holder of record
of Shares:
(X) The term "Plan Account" means an account opened by a
Shareholder or prospective Shareholder in respect to an open account, monthly
payment or withdrawal plan (in each case by whatever name referred to in the
Prospectus), and may also include an account relating to any other Plan if and
when provision is made for such plan in the Prospectus.
3. Duties of MLFDS as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent.
(a) Subject to the succeeding provisions of the Agreement,
MLFDS hereby agrees to perform the following functions as Transfer Agent,
Dividend Disbursing Agent, and Shareholder Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
(III) Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the terms and subject
to the conditions contained in the Prospectus and application relating to the
specific Plan Account;
(IV) Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such contingent
deferred sales charges as may be described in the Prospectus, including such
reports as may be reasonably requested by the Fund with respect to such Shares
as may be subject to a contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales
<PAGE>
charge, calculating and deducting from the redemption proceeds thereof the
amount of such charge in the manner set forth in the Prospectus. MLFDS shall
pay, on behalf of MLFD, to MLPF&S such deducted contingent deferred sales
charges imposed upon all Shares maintained in the name of MLPF&S, or maintained
in the name of an account identified as a customer account of MLPF&S. Sales
charges imposed upon any other Shares shall be paid by MLFDS to MLFD.
(VI) Exchanging the investment of an investor into, or
from the shares of other open-end investment companies or other series
portfolios of the Fund, if any, if and to the extent permitted by the Prospectus
at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to, procedures and
conditions adopted by the Fund;
(X) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(XI) Acting as agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to Accounts, together
with additional enclosures, including appropriate income tax information and
income tax forms duly completed, as required by applicable law.
(XII) Acting as agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by or on behalf of
the Fund, and mailing new Prospectuses upon their issue to Shareholders as
required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by MLFDS, reconciliations, balances and summaries as the
Fund may reasonably request;
(XIV) Maintaining such books and records relating to
transactions effected by MLFDS as are required by the Act, or by any other
applicable provision of law, rule or regulation, to be maintained by the Fund or
its transfer agent with respect to such transactions, and preserving, or causing
to be preserved any such books and records for such periods as may be required
by any such law, rule or regulation and as may be agreed upon from time to time
between MLFDS and the Fund. In addition, MLFDS agrees to maintain and preserve
master files and historical computer tapes on a daily basis in multiple separate
locations a sufficient distance apart to insure preservation of at least one
copy of such information;
(XV) Withholding taxes on non-resident alien Accounts,
preparing and filing U.S. Treasury Department Form 1099 and other appropriate
forms as required by applicable law with respect to dividends and distributions;
and
(XVI) Reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.
<PAGE>
(b) MLFDS agrees to act as proxy agent in connection with the
holding of annual, if any, and special meeting of Shareholders, mailing such
notices, proxies and proxy statements in connection with the holding of such
meetings as may be required by applicable law, receiving and tabulating votes
cast by proxy communicating to the Fund the results of such tabulation
accompanied by appropriate certifications, and preparing and furnishing to the
Fund certified lists of Shareholders as of such date, in such form and
containing such information as may be required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely manner,
all correspondence and inquires relating to the functions of MLFDS under this
Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to the Fund such information and
at such intervals as is necessary for the Fund to comply with the registration
and/or the reporting requirements (including applicable escheat laws) of the
Securities and Exchange commission, Blue Sky authorities or other governmental
authorities.
(e) MLFDS agrees to provide to the Fund such information as
may reasonably be required to enable the Fund to reconcile the number of
outstanding Shares between MLFDS's records and the account books of the Fund.
(f) Notwithstanding anything in the foregoing provisions of
this paragraph, MLFDS agrees to perform its functions thereunder subject to such
modification (whether in respect of particular cases or in any particular class
of cases) as may from time to time be contained in an Officer's Instruction.
4. Compensation.
The charges for services described in this Agreement, including
"out-of-pocket" expenses, will be set forth in the Schedule of Fees attached
hereto.
5. Right of Inspection.
MLFDS agrees that it will in a timely manner make available to, and
permit, any officer, accountant, attorney or authorized agent of the Fund to
examine and make transcripts and copies (including photocopies and computer or
other electronical information storage media and print-outs) of any and all of
its books and records which relate to any transaction or function performed by
MLFDS or pursuant to this Agreement.
6. Confidential Relationship.
MLFDS agrees that it will, on behalf of itself and its officers and
employees, treat all transactions contemplated by this Agreement, and all
information germane thereto, as confidential and not to be disclosed to any
person (other than the Shareholder concerned, or the Fund, or as may be
disclosed in the examination of any books or records by any person lawfully
entitled to examine the same) except as may be authorized by the Fund by way of
an Officer's Instruction.
<PAGE>
7. Indemnification.
The Fund shall indemnify and hold MLFDS harmless from any loss,
costs, damage and reasonable expenses, including reasonable attorney's fees
(provided that such attorney is appointed with the Fund's consent, which consent
shall not be unreasonably withheld), incurred by it resulting from any claim,
demand, action, or suit in connection with the performance of its duties
hereunder, provided that this indemnification shall not apply to actions or
omissions of MLFDS in cases of willful misconduct, failure to act in good faith
or negligence by MLFDS, its officers, employees or agents, and further provided,
that prior to confessing any claim against it which may be subject to this
indemnification, MLFDS shall give the Fund reasonable opportunity to defend
against said claim in its own name or in the name of MLFDS. An action taken by
MLFDS upon any Officer's Instruction reasonably believed by it to have been
properly executed shall not constitute willful misconduct, failure to act in
good faith or negligence under this Agreement.
8. Regarding MLFDS.
(a) MLFDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment, software, resources
and capabilities as may be reasonably determined by the Fund to be necessary for
the satisfactory performance of the duties and responsibilities of MLFDS. MLFDS
warrants and represents that its officers and supervisory personnel charged with
carrying out its functions as Transfer Agent, Dividend Disbursing Agent and
Shareholder Servicing Agent for the Fund possess the special skill and technical
knowledge appropriate for that purpose. MLFDS shall at all time exercise due
care and diligence in the performance of its functions as Transfer Agent,
Dividend Disbursing Agent, and Shareholder Servicing Agent for the Fund. MLFDS
agrees that, in determining whether it has exercised due care and diligence, its
conduct shall be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that is duly authorized and
permitted to act as Transfer Agent, Dividend Disbursing Agent, and Shareholder
Servicing Agent under all applicable laws and that it will immediately notify
the Fund of any revocation of such authority or permission or of the
commencement of any proceeding or other action which may lead to such
revocation.
9. Termination.
(a) This Agreement shall become effective as of the date first
above written and shall thereafter continue from year to year. This Agreement
may be terminated by the Fund or MLFDS (without penalty to the Fund or MLFDS)
provided that the terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the Fund may
terminate this Agreement immediately upon written notice to MLFDS if the
authority or permission of MLFDS to act as Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent has been revoked or if any proceeding or
other action which the Fund reasonably believes will lead to such revocation has
been commenced.
(b) Upon termination of this Agreement, MLFDS shall deliver
all unissued and cancelled stock certificates representing Shares remaining in
its possession, and all Shareholder records, books, stock ledgers, instruments
and other documents (including computerized or other electronically stored
information) made or accumulated in the performance of its duties as Transfer
Agent,
<PAGE>
Disbursing Agent, and Shareholder Servicing Agent for the Fund along with a
certified locator document clearly indicating the complete contents therein, to
such successor as may be specified in a notice of termination or Officer's
Instruction; and the Fund assumes all responsibility for failure thereafter to
produce any paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. Amendment.
Except to the extent that the performance by MLFDS or its functions
under this Agreement may from time to time be modified by an Officer's
Instruction, this Agreement may be amended or modified only by further written
Agreement between the parties.
11. Governing Law.
This agreement shall be governed by the laws of the State of New
Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective duly authorized officers and their respective
corporate seals hereunto duly affixed and attested, as of the day and year above
written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ___________________ _________________ (Attest)
Title: Title:
MERRILL LYNCH FINANCIAL DATA SERVICES, INC.
By: ___________________ _________________ (Attest)
Title: Title:
<PAGE>
Schedule of Fees
----------
The Fund will pay to MLFDS an annual fee of $11.00 per Class A and
Class D Shareholder Account and $14.00 per Class B and Class C Shareholder
Account in addition to reimbursement for the out-of-pocket expenses incurred by
FDS pursuant to this Agreement.
<PAGE>
EXHIBIT 99.9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the 28th day of April 1998, by and between
MERRILL LYNCH & CO., INC., a Delaware corporation ("ML & Co."), and MERRILL
LYNCH CORPORATE HIGH YIELD FUND, INC., a Maryland corporation (the "Fund").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, ML & Co. was incorporated under the laws of the State of
Delaware on March 27, 1973 under the corporate name "Merrill Lynch & Co., Inc."
and has used such name at all times thereafter;
WHEREAS, ML & Co. was duly qualified as a foreign corporation under
the laws of the State of New York on April 25, 1973 and has remained so
qualified at all times thereafter;
WHEREAS, the Fund was incorporated under the laws of the State of
Maryland on March 13, 1998; and
WHEREAS, the Fund desires to qualify as a foreign corporation under
the laws of the State of New York and has requested ML & Co. to give its consent
to the use of the name "Merrill Lynch" in the Fund's corporate name.
NOW, THEREFORE, in consideration of the premises and of the
covenants hereinafter contained, ML & Co. and the Fund hereby agree as follows:
1. ML & Co. hereby grants the Fund a non-exclusive license to use
the words "Merrill Lynch" in its corporate name.
2. ML & Co. hereby consents to the qualification of the Fund as a
foreign corporation under the laws of the State of New York with the words
"Merrill Lynch" in its corporate name and agrees to execute such formal consents
as may be necessary in connection with such filing.
3. The non-exclusive license hereinabove referred to has been given
and is given by ML & Co. on the condition that it may at any time, in its sole
and absolute discretion, withdraw the non-exclusive license to the use of the
words "Merrill Lynch" in the name of the Fund; and, as soon as practicable after
receipt by the Fund of written notice of the withdrawal of such non-exclusive
license, and in no event later than ninety days thereafter, the Fund will change
its name so that such name will not thereafter include the words "Merrill Lynch"
or any variation thereof.
<PAGE>
4. ML & Co. reserves and shall have the right to grant to any other
company, including without limitation, any other investment company, the right
to use the words "Merrill Lynch" or variations thereof in its name and no
consent or permission of the Fund shall be necessary; but, if required by an
applicable law of any state, the Fund will forthwith grant all requisite
consents.
5. The Fund will not grant to any other company the right to use a
name similar to that of the Fund or ML & Co. without the written consent of ML &
Co.
6. Regardless of whether the Fund should hereafter change its name
and eliminate the words "Merrill Lynch" or any variation thereof from such name,
the Fund hereby grants to ML & Co. the right to cause the incorporation of other
corporations or the organization of voluntary associations which may have names
similar to that of the Fund or to that to which the Fund may change its name and
to own all or any portion of the shares of such other corporations or
associations and to enter into contractual relationships with such other
corporations or associations, subject to any requisite approval of a majority of
the Fund's shareholders and the Securities and Exchange Commission and subject
to the payment of a reasonable amount to be determined at the time of use, and
the Fund agrees to give and execute any such formal consents or agreements as
may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing signed by
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH & CO., INC.
By:_________________________________
Executive Vice President
MERRILL LYNCH CORPORATE
HIGH YIELD FUND, INC.
By:_________________________________
Executive Vice President
2
<PAGE>
EXHIBIT 99.10
[LETTERHEAD OF ROGERS & WELLS LLP]
April 28, 1998
Merrill Lynch Corporate High Yield Fund, Inc.
800 Scuddes Mill Road
Plainsboro, New Jersey 08536
Ladies and Gentlemen:
We have acted as counsel for Merrill Lynch Corporate High Yield Fund, Inc., a
corporation organized under the laws of the State of Maryland (the "Fund"), in
connection with the organization of the Fund and its registration as an open-end
investment company under the Investment Company Act of 1940, as amended. This
opinion is being furnished in connection with the registration of an indefinite
number of shares of common stock, designated Class A, Class B, Class C and Class
D, par value $0.10 per share, of the Fund (the "Shares") under the Securities
Act of 1933, as amended, which registration is being effected pursuant to a
registration statement on Form N-1A (File Nos. 333- 47971 and 811-08699), as
amended (the "Registration Statement").
As counsel for the Fund, we are familiar with the proceedings taken by it in
connection with the authorization, issuance and sale of the Shares. In addition,
we have examined and are familiar with the Articles of Incorporation of the
Fund, the By-Laws of the Fund and such other documents as we have deemed
relevant to the matters referred to in this opinion.
Based upon the foregoing, we are of the opinion that the Shares, upon issuance
and sale in the manner referred to in the Registration Statement for
consideration not less than the par value thereof, will be legally issued, fully
paid and non-assessable shares of common stock of the Fund.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof. In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Corporate High Yield Fund, Inc.:
We consent to the use in Pre-Effective Amendment No. 2 to Registration Statement
No. 333-47971 of our report dated April 23, 1998 appearing in the Statement of
Additional Information, which is a part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
April 23, 1998
<PAGE>
EXHIBIT 99.13
CERTIFICATE OF THE SOLE STOCKHOLDER OF
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
Fund Asset Management, L.P. ("FAM"), the holder of 2,500 Class A shares of
common stock, par value $0.10 per share, 2,500 Class B shares of common stock,
par value $0.10 per share, 2,500 Class C shares of common stock, par value $0.10
per share, and 2,500 shares Class D shares of common stock, par value $0.10 per
share, of Merrill Lynch Corporate High Yield Fund, Inc. (the "Fund"), a Maryland
corporation, does hereby confirm to the Fund its representation that it
purchased such shares for investment purposes, with no present intention of
redeeming or reselling any portion thereof, and does further agree that if it
redeems any portion of such shares prior to the amortization of the Fund's
organizational expenses, the proceeds thereof will be reduced by the
proportionate amount of unamortized organizational expenses which the number of
shares being redeemed bears to the number of share initially purchased and
outstanding at the time of redemption. FAM further agrees that in the event
such shares are sold or otherwise transferred to any other party, that prior to
such sale or transfer FAM will obtain on behalf of the Fund an agreement from
such other party to comply with the foregoing as to the reduction of redemption
proceeds and to obtain a similar agreement from any transferee of such party.
FUND ASSET MANAGEMENT, L.P.
By: PRINCETON SERVICES INC.
(General Partner)
By: ________________________
Name: ________________________
Title: ________________________
Dated: April 28, 1998
<PAGE>
EXHIBIT 99.15(a)
CLASS B DISTRIBUTION PLAN
OF
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ____ day of ___________, 1998 by
and between Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware
corporation ("MLFD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund intends to engage in business as an open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class B Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Fund in the offer and sale of
Class B shares of common stock, par value $0.10 per share (the "Class B
shares"), of the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class B Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant
to which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class B Shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to
the terms of, the Plan in accordance with Rule 12b-1 under the Investment
Company Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class B shares to compensate MLFD and securities firms
with which MLFD enters into related agreements ("Sub-Agreements") pursuant to
Paragraph 3 hereof for account maintenance activities with respect to Class B
shareholders of the Fund.
<PAGE>
2. The Fund shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.50% of average daily net assets of the
Fund relating to Class B shares to compensate MLFD and securities firms with
which MLFD enters into related agreements ("Sub-Agreements") pursuant to
Paragraph 3 hereof for providing sales and promotional activities and services.
Such activities and services will relate to the sale, promotion and marketing of
the Class B shares of the Fund. Such expenditures may consist of sales
commissions to financial consultants for selling Class B shares of the Fund,
compensation, sales incentives and payments to sales and marketing personnel,
and the payment of expenses incurred in its sales and promotional activities,
including advertising expenditures related to the Fund and the costs of
preparing and distributing promotional materials. The distribution fee may also
be used to pay the financing costs of carrying the unreimbursed expenditures
described in this Paragraph 2. Payment of the distribution fee described in this
Paragraph 2 shall be subject to any limitation set forth in any applicable
regulation of the National Association of Securities Dealers, Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
5. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Investment Company Act, and
have no direct or indirect financial interest in the operation of the Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on the Plan and such
related agreements.
6. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class B
voting securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class B
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 5 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the
2
<PAGE>
discretion of the Directors who are not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
IN WITNESS WHEREOF, the parties hereto have executed the Plan as of
the date first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ______________________________________
Name: ______________________________________
Title: ______________________________________
3
<PAGE>
CLASS B SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the _____ day of __________, 1998 by and
between Merrill Lynch Funds Distributor, Inc. ("MLFD"), and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, a Delaware corporation (the "Securities
Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Corporate High Yield Fund, Inc., a Maryland corporation (the "Fund"), pursuant
to which it acts as the exclusive distributor for the sale of Class B shares of
common stock, par value $0.10 per share (the "Class B shares"), of the Fund; and
WHEREAS, MLFD and Fund have entered into a Class B Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Act") pursuant to which MLFD receives an account maintenance fee from the
Fund at the annual rate of 0.25% of average daily net assets of the Fund
relating to Class B shares for account maintenance services related to the Class
B shares of the Fund and a distribution fee from the Fund at the annual rate of
0.50% of average daily net assets of the Fund relating to Class B shares for
providing sales and promotional activities and services related to the
distribution of Class B shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain Account
maintenance activities and sales and promotional activities and services for the
Fund's Class B shareholders and the Securities Firm is willing to perform such
services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
with respect to the Class B shares of the Fund of the types referred to in
Paragraph 1 of the Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class B shares of the
Fund, and incur distribution expenditures of the types referred to in paragraph
2 of the Plan.
3. As compensation for its activities and services performed under
this Sub-Agreement, MLFD shall pay the Securities Firm an account maintenance
fee and a distribution fee at the end of each calendar month in an amount agreed
upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the fee
during such period referred to in Paragraph 4 of the Plan.
<PAGE>
5. This Sub-Agreement shall not take effect until it has been
approved by votes of a majority of both (a) the Directors of the Fund and (b)
those Directors of the Fund who are not "interested persons" of the Fund, as
defined in the Act, and have no direct or indirect financial interest in the
operation of the Plan or any agreements related to the Plan or this
Sub-Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or
meetings called for the purpose of voting on this Agreement.
6. This Sub-Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
7. This Sub-Agreement shall automatically terminate in the event of
its assignment or in the event of the termination of the Plan or any amendment
to the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: _________________________________________
Name: _________________________________________
Title: _________________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _________________________________________
Name: _________________________________________
Title: _________________________________________
2
<PAGE>
EXHIBIT 99.15(b)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ____ day of _____________ 1998, by
and between Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware
corporation ("MLFD").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class C Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Fund in the offer and sale of
Class C shares of common stock, par value $0.10 per share (the "Class C
shares"), of the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class C Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant
to which the Fund will pay an account maintenance fee and a distribution fee to
MLFD with respect to the Fund's Class C shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to
the terms of, the Plan in accordance with Rule 12b-1 under the Investment
Company Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of the average daily net
assets of the Fund relating to Class C shares to compensate MLFD and securities
firms with which MLFD enters into related agreements pursuant to Paragraph 3
hereof ("Sub- Agreements") for providing account maintenance activities with
respect to Class C shareholders of the Fund. Expenditures under the Plan may
consist of payments to financial consultants for maintaining accounts in
connection with Class C shares of the Fund and payment of expenses incurred in
connection with such account maintenance activities including the costs of
making services available to shareholders including assistance in connection
with inquiries related to shareholder accounts.
2. The Fund shall pay MLFD a distribution fee under the Plan at the
end of each month at the annual rate of 0.55% of average daily net assets of the
Fund relating to Class C shares to compensate MLFD and securities firms with
which MLFD enters into related Sub-Agreements for providing sales and
promotional activities and services. Such activities and services will relate to
the sale, promotion and marketing of the Class C shares of the Fund. Such
expenditures may consist of sales commissions to financial consultants for
selling Class C shares
<PAGE>
of the Fund, compensation, sales incentives and payments to sales and marketing
personnel, and the payment of expenses incurred in its sales and promotional
activities, including advertising expenditures related to the Fund and the costs
of preparing and distributing promotional materials. The distribution fee may
also be used to pay the financing costs of carrying the unreimbursed
expenditures described in this Paragraph 2. Payment of the distribution fee
described in this Paragraph 2 shall be subject to any limitations set forth in
any applicable regulation of the National Association of Securities Dealers,
Inc.
3. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities and services of the type referred to in Paragraphs 1 and 2
hereof. MLFD may reallocate all or a portion of its account maintenance fee or
distribution fee to such Securities Firms as compensation for the
above-mentioned activities and services. Such Sub-Agreement shall provide that
the Securities Firms shall provide MLFD with such information as is reasonably
necessary to permit MLFD to comply with the reporting requirements set forth in
Paragraph 4 hereof.
4. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period.
5. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Investment Company Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on the Plan and such
related agreements.
6. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 5.
7. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class C
voting securities of the Fund.
8. The Plan may not be amended to increase materially the rate of
payments provided for herein unless such amendment is approved by at least a
majority, as defined in the Investment Company Act, of the outstanding Class C
voting securities of the Fund, and by the Directors of the Fund in the manner
provided for in Paragraph 5 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 5 hereof.
9. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
10. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 4 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
3
<PAGE>
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of ___________ 1998, by and
between Merrill Lynch Funds Distributor, Inc., a Delaware corporation ("MLFD"),
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Corporate High Yield Fund, Inc., a Maryland corporation (the "Fund"), pursuant
to which it acts as the exclusive distributor for the sale of Class C shares of
common stock, par value $0.10 per share (the "Class C shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class C Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class C shares for account maintenance
activities related to Class C shares of the Fund and a distribution fee from the
Fund at the annual rate of 0.55% of average daily net assets of the Fund
relating to Class C shares for providing sales and promotional activities and
services related to the distribution of Class C shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and sales and promotional activities and services for the
Fund's Class C shareholders and the Securities Firm is willing to perform such
activities and services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
with respect to the Class C shares of the Fund and incur expenditures in
connection with such activities of the types referred to in Paragraph 1 of the
Plan.
2. The Securities Firm shall provide sales and promotional
activities and services with respect to the sale of the Class C shares of the
Fund, and incur distribution expenditures, of the types referred to in Paragraph
2 of the Plan.
3. As compensation for its activities and services performed under
this Agreement, MLFD shall pay the Securities Firm an account maintenance fee
and a distribution fee at the end of each calendar month in an amount agreed
upon by the parties hereto.
4. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee and the distribution fee during such period referred to in
Paragraph 4 of the Plan.
5. This Agreement shall not take effect until it has been approved
by votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
<PAGE>
6. This Agreement shall continue in effect for as long as such
continuance is specifically approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
7. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
<PAGE>
EXHIBIT 99.15(c)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the ____ day of ______________ 1998, by
and between Merrill Lynch Corporate High Yield Fund, Inc., a Maryland
corporation (the "Fund"), and Merrill Lynch Funds Distributor, Inc., a Delaware
corporation ("MLFD").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Fund is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, MLFD is a securities firm engaged in the business of
selling shares of investment companies either directly to purchasers or through
other securities dealers; and
WHEREAS, the Fund proposes to enter into a Class D Shares
Distribution Agreement with MLFD, pursuant to which MLFD will act as the
exclusive distributor and representative of the Fund in the offer and sale of
Class D shares of common stock, par value $0.10 per share (the "Class D
shares"), of the Fund to the public; and
WHEREAS, the Fund desires to adopt this Class D Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Investment Company Act, pursuant
to which the Fund will pay an account maintenance fee to MLFD with respect to
the Fund's Class D shares; and
WHEREAS, the Directors of the Fund have determined that there is a
reasonable likelihood that adoption of the Plan will benefit the Fund and its
shareholders.
NOW, THEREFORE, the Fund hereby adopts, and MLFD hereby agrees to
the terms of, the Plan in accordance with Rule 12b-1 under the Investment
Company Act on the following terms and conditions:
1. The Fund shall pay MLFD an account maintenance fee under the Plan
at the end of each month at the annual rate of 0.25% of average daily net assets
of the Fund relating to Class D shares to compensate MLFD and securities firms
with which MLFD enters into related agreements ("Sub-Agreements") pursuant to
Paragraph 2 hereof for providing account maintenance activities with respect to
Class D shareholders of the Fund. Expenditures under the Plan may consist of
payments to financial consultants for maintaining accounts in connection with
Class D shares of the Fund and payment of
<PAGE>
expenses incurred in connection with such account maintenance activities
including the costs of making services available to shareholders including
assistance in connection with inquiries related to shareholder accounts.
2. The Fund hereby authorizes MLFD to enter into Sub-Agreements with
certain securities firms ("Securities Firms"), including Merrill Lynch, Pierce,
Fenner & Smith Incorporated, to provide compensation to such Securities Firms
for activities of the type referred to in Paragraph 1. MLFD may reallocate all
or a portion of its account maintenance fee to such Securities Firms as
compensation for the above-mentioned activities. Such Sub-Agreement shall
provide that the Securities Firms shall provide MLFD with such information as is
reasonably necessary to permit MLFD to comply with the reporting requirements
set forth in Paragraph 3 hereof.
3. MLFD shall provide the Fund for review by the Board of Directors,
and the Directors shall review, at least quarterly, a written report complying
with the requirements of Rule 12b-1 regarding the disbursement of the account
maintenance fee during such period.
4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of a majority of both (a) the
Directors of the Fund and (b) those Directors of the Fund who are not
"interested persons" of the Fund, as defined in the Investment Company Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Rule 12b-1 Directors"), cast in person at a
meeting or meetings called for the purpose of voting on the Plan and such
related agreements.
5. The Plan shall continue in effect for so long as such continuance
is specifically approved at least annually in the manner provided for approval
of the Plan in Paragraph 4.
6. The Plan may be terminated at any time by vote of a majority of
the Rule 12b-1 Directors, or by vote of a majority of the outstanding Class D
voting securities of the Fund.
7. The Plan may not be amended to increase materially the rate of
payments provided for in Paragraph 1 hereof unless such amendment is approved by
at least a majority, as defined in the Investment Company Act, of the
outstanding Class D voting securities of the Fund, and by the Directors of the
Fund in the manner provided for in Paragraph 4 hereof, and no material amendment
to the Plan shall be made unless approved in the manner provided for approval
and annual renewal in Paragraph 4 hereof.
8. While the Plan is in effect, the selection and nomination of
Directors who are not interested persons, as defined in the Investment Company
Act, of the Fund shall be committed to the discretion of the Directors who are
not interested persons.
9. The Fund shall preserve copies of the Plan and any related
agreements and all reports made pursuant to Paragraph 3 hereof, for a period of
not less than six years from the date of the Plan, or the agreements or such
report, as the case may be, the first two years in an easily accessible place.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH CORPORATE HIGH YIELD FUND, INC.
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
3
<PAGE>
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the ____ day of __________ 1998, by and between
Merrill Lynch Funds Distributor, Inc. a Delaware corporation ("MLFD"), and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, a Delaware corporation
("Securities Firm").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, MLFD has entered into an agreement with Merrill Lynch
Corporate High Yield Fund, Inc., a Maryland corporation (the "Fund"), pursuant
to which it acts as the exclusive distributor for the sale of Class D shares of
common stock, par value $0.10 per share (the "Class D shares"), of the Fund; and
WHEREAS, MLFD and the Fund have entered into a Class D Shares
Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "Act"), pursuant to which MLFD receives an
account maintenance fee from the Fund at the annual rate of 0.25% of average
daily net assets of the Fund relating to Class D shares for providing account
maintenance activities, with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities, including assistance in connection with inquiries
related to shareholder accounts, for the Fund's Class D shareholders and the
Securities Firm is willing to perform such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereby agree as follows:
1. The Securities Firm shall provide account maintenance activities
and services with respect to the Class D shares of the Fund and incur
expenditures in connection with such activities and services, of the types
referred to in Paragraph 1 of the Plan.
2. As compensation for its services performed under this Agreement,
MLFD shall pay the Securities Firm a fee at the end of each calendar month in an
amount agreed upon by the parties hereto.
3. The Securities Firm shall provide MLFD, at least quarterly, such
information as reasonably requested by MLFD to enable MLFD to comply with the
reporting requirements of Rule 12b-1 regarding the disbursement of the fee
during such period referred to in Paragraph 3 of the Plan.
4. This Agreement shall not take effect until it has been approved
by votes of a majority of both (a) the Directors of the Fund and (b) those
Directors of the Fund who are not "interested persons" of the Fund, as defined
in the Act, and have no direct or indirect financial interest in the operation
of the Plan, this Agreement or any agreements related to the Plan or this
Agreement (the "Rule 12b-1 Directors"), cast in person at a meeting or meetings
called for the purpose of voting on this Agreement.
5. This Agreement shall continue in effect for as long as such
continuance is specifically
<PAGE>
approved at least annually in the manner provided for approval of the Plan in
Paragraph 4.
6. This Agreement shall automatically terminate in the event of its
assignment or in the event of the termination of the Plan or any amendment to
the Plan that requires such termination.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: ____________________________________________
Name: _____________________________________
Title: _____________________________________
2
