<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1994
SECURITIES ACT FILE NO. 2-77068
INVESTMENT COMPANY ACT FILE NO. 811-3450
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 14 /X/
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 16 /X/
(CHECK APPROPRIATE BOX OR BOXES)
----------------------
MERRILL LYNCH PHOENIX FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
08536
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (609) 282-2800
ARTHUR ZEIKEL
MERRILL LYNCH PHOENIX FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------------
COPIES TO:
<TABLE>
<S> <C> <C>
PHILIP L. KIRSTEIN, ESQ. COUNSEL FOR THE FUND: ROBERT HARRIS, ESQ.
MERRILL LYNCH ASSET BROWN & WOOD MERRILL LYNCH ASSET
MANAGEMENT ONE WORLD TRADE CENTER MANAGEMENT
P.O. BOX 9011 NEW YORK, N.Y. 10048 P.O. BOX 9011
PRINCETON, N.J. 08543-9011 ATTN: THOMAS R. SMITH, JR. PRINCETON, N.J. 08543-9011
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on October 21, 1994 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(i)
/ / on (date) pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii)
/ / on (date) pursuant to paragraph (a)(ii) of rule 485.
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / this post-effective amendment designates a new effective
DATE FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
----------------------
THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES OF COMMON
STOCK UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24F-2 UNDER THE
INVESTMENT COMPANY ACT OF 1940. THE NOTICE REQUIRED BY SUCH RULES FOR THE
REGISTRANT'S MOST RECENT FISCAL YEAR WAS FILED ON SEPTEMBER 22, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
MERRILL LYNCH PHOENIX FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
- ------------ --------
<S> <C> <C>
PART A
Item 1. Cover Page............................ Cover Page
Item 2. Synopsis.............................. Not Applicable
Item 3. Condensed Financial Information....... Financial Highlights
Item 4. General Description of Registrant..... Investment Objective and Policies;
Additional Information
Item 5. Management of the Fund................ Fee Table; Management of the Fund;
Portfolio Transactions and
Brokerage; Inside Back Cover Page
Item 5A. Management's Discussion of Fund
Performance......................... Not Applicable
Item 6. Capital Stock and Other Securities.... Cover Page; Additional Information
Item 7. Purchase of Securities Being Cover Page; Merrill Lynch Select
Offered............................. Pricing(SM) System; Fee Table;
Purchase of Shares; Shareholder
Services; Additional Information;
Inside Back Cover Page
Item 8. Redemption or Repurchase.............. Merrill Lynch Select Pricing(SM)
System; Fee Table; Purchase of
Shares; Redemption of Shares
Item 9. Pending Legal Proceedings............. Not Applicable
PART B
Item 10. Cover Page............................ Cover Page
Item 11. Table of Contents..................... Back Cover Page
Item 12. General Information and History....... Not Applicable
Item 13. Investment Objectives and Policies.... Investment Objective and Policies
Item 14. Management of the Fund................ Management of the Fund
Item 15. Control Persons and Principal Holders
of Securities....................... Management of the Fund
Item 16. Investment Advisory and Other Management of the Fund; Purchase of
Services............................ Shares; General Information
Item 17. Brokerage Allocation and Other
Practices........................... Portfolio Transactions and Brokerage
Item 18. Capital Stock and Other Securities.... General Information
Item 19. Purchase, Redemption and Pricing of
Securities Being Offered............ Purchase of Shares; Redemption of
Shares; Determination of Net Asset
Value; Shareholder Services
Item 20. Tax Status............................ Dividends, Distributions and Taxes
Item 21. Underwriters.......................... Purchase of Shares
Item 22. Calculation of Performance Data....... Performance Data
Item 23. Financial Statements.................. Financial Statements
PART C
Information required to be included in Part C is set forth under the appropriate Item, so
numbered, in Part C to this Registration Statement.
</TABLE>
<PAGE> 3
PROSPECTUS
October 21, 1994
MERRILL LYNCH PHOENIX FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 - PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Phoenix Fund, Inc. (the "Fund") is a diversified, open-end
investment company seeking long-term growth of capital by investing in a
diversified portfolio of equity and fixed income securities, including municipal
securities, of issuers in weak financial condition or experiencing poor
operating results that management of the Fund believes are undervalued relative
to management's assessment of the current or prospective condition of such
issuer. The investment policy of the Fund is based upon the belief that the
prices of securities of troubled issuers are often depressed to a greater extent
than warranted by the condition of the issuer and that, while investment in such
securities involves a high degree of risk, such investments offer the
opportunity for significant capital gains. Current income is not necessarily a
factor in the selection of investments. There can be no assurance that the
objective of the Fund will be realized. Investment in the Fund is speculative
and involves a high degree of risk and is designed for investors who do not
require current income and who can afford the accompanying risk. See "Special
Considerations".
------------------------
Pursuant to the Merrill Lynch Pricing(SM) 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 Pricing(SM) 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 Pricing(SM) System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9011, Princeton, New Jersey 08543-9011 [(609)
282-2800], or from securities dealers which have entered into dealer agreements
with the Distributor, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The minimum initial purchase 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. Merrill
Lynch may charge its customers a processing fee (presently $4.85) for confirming
purchases and repurchases. Purchases and redemptions directly through the Fund's
transfer agent are not subject to the processing fee. See "Purchase of Shares"
and "Redemption of Shares".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Prospectus is a concise statement of 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 October 21, 1994 (the "Statement of Additional
Information"), has been filed with the Securities and Exchange Commission and
can be obtained, without charge, by calling or by writing the Fund at the above
telephone number or address. The Statement of Additional Information is hereby
incorporated by reference into this Prospectus.
------------------------
FUND ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
<PAGE> 4
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(C) CLASS D(C)
------------ ---------------------- ------------- ------------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES:
Maximum Sales Charge Imposed on Purchases (as
a percentage of offering price)............. 5.25%(d) None None 5.25%(d)
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(e) 4.0% during the first 1% for one None(e)
year, decreasing 1.0% year
annually thereafter to
0.0% after the fourth
year
Exchange Fee.................................. None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF
AVERAGE NET ASSETS)(F)..........................
Investment Advisory Fees(g)................... 1.00% 1.00% 1.00% 1.00%
12b-1 Fees(h):
Account Maintenance Fees.................... None 0.25% 0.25% 0.25%
Distribution Fees........................... None 0.75% 0.75% None
(Class B shares
convert to Class D
shares automatically
after approximately
eight years and cease
being subject to
distribution fees)
Other Expenses
Custodial Fees.......................... 0.01% 0.01% 0.01% 0.01%
Shareholder Servicing Costs(i).......... 0.11% 0.13% 0.13% 0.11%
Other................................... 0.10% 0.10% 0.10% 0.10%
Total Other Expenses................ 0.22% 0.24% 0.24% 0.22%
Total Fund Operating Expenses........... 1.22% 2.24% 2.24% 1.47%
</TABLE>
- ------------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and investment programs. See
"Purchase of Shares -- Initial Sales Charge Alternatives -- Class A and
Class D Shares" -- page 16.
(b) Class B shares convert to Class D shares automatically approximately eight
years after initial purchase. See "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares" -- page 18.
(c) Prior to the date of this Prospectus, the Fund has not offered its Class
C and Class D shares to the public.
(d) Reduced for purchases of $25,000 and over. 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 16.
(e) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that purchases of $1,000,000 or more which may not
be subject to an initial sales charge may instead be subject to a CDSC of
1.0% of amounts redeemed within the first year of purchase.
(f) Information for Class A and Class B shares is stated for the fiscal year
ended July 31, 1994. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending July 31, 1995.
(g) See "Management of the Fund -- Management and Advisory Arrangements" -- page
13.
(h) See "Purchase of Shares -- Distribution Plans" -- page 21.
(i) See "Management of the Fund -- Transfer Agency Services" -- page 14.
2
<PAGE> 5
EXAMPLE:
<TABLE>
<CAPTION>
CUMULATIVE EXPENSES PAID FOR THE PERIOD OF:
-------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following expenses on a $1,000
investment including the maximum $52.50 initial sales charge
(Class A and Class D shares only) and assuming (1) the Total
Fund Operating Expenses for each class set forth above; (2) a
5% annual return throughout the periods and (3) redemption at
the end of the period:
Class A.................................................... $ 64 $89 $ 116 $192
Class B.................................................... $ 63 $90 $ 120 $239*
Class C.................................................... $ 33 $70 $ 120 $257
Class D.................................................... $ 67 $97 $ 129 $219
An investor would pay the following expenses on the same $1,000
investment assuming no redemption at the end of the period:
Class A.................................................... $ 64 $89 $ 116 $192
Class B.................................................... $ 23 $70 $ 120 $239*
Class C.................................................... $ 23 $70 $ 120 $257
Class D.................................................... $ 67 $97 $ 129 $219
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after purchase.
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 reinvestment of all dividends
and distributions and utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission ("Commission") regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL
RATE OF RETURN, AND ACTUAL EXPENSES OR ANNUAL RATE OF RETURN MAY BE MORE OR LESS
THAN THOSE ASSUMED FOR PURPOSES OF THE EXAMPLE. Class B and Class C shareholders
who hold their Shares for an extended period of time may pay more in Rule 12b-1
distribution fees than the economic equivalent of the maximum front-end sales
charges permitted under the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. ("NASD"). Merrill Lynch may charge its customers a
processing fee (presently $4.85) for confirming purchases and repurchases.
Purchases and redemptions 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 PRICING(SM) SYSTEM
The Fund offers four classes of shares under the Merrill Lynch Select
Pricing(SM) 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 Pricing(SM) System is used by more than
50 mutual funds advised by Merrill Lynch Asset Management, L.P. ("MLAM") or its
affiliate, Fund Asset Management, L.P. ("FAM" or the "Investment Adviser").
Funds advised by MLAM or FAM are referred to herein as "MLAM-advised mutual
funds".
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
3
<PAGE> 6
deferred sales charge arrangements. The deferred sales charges 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 the 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. 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 deferred sales charges with respect to the Class B and Class C
shares in that the sales charges 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 Pricing(SM) 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 Pricing(SM) System that the investor
believes is most beneficial under his particular circumstances. More detailed
information as to each class of shares is set forth under "Purchase of Shares".
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- ---------------------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at a 0.25% 0.75% B shares convert to D Shares
rate of 4.0% during the first automatically after
year, decreasing 1.0% annually approximately eight years(4)
to 0.0%
- ---------------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
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.
(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. Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year. See "Class
A" and "Class D" below.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten 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.
4
<PAGE> 7
Class A. Class A shares incur an initial sales charge when they are
purchased and bear no ongoing distribution or account maintenance
fees. Class A shares are offered to a limited group of investors
and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A
shares in a shareholder account are entitled to purchase
additional Class A shares in that account. Other eligible
investors include certain retirement plans and participants in
certain investment programs. In addition, Class A shares will be
offered to directors and employees of Merrill Lynch & Co., Inc.
and its subsidiaries (the term "subsidiaries", when used herein
with respect to Merrill Lynch & Co., Inc., includes MLAM, the
Investment Adviser and certain other entities directly or
indirectly wholly-owned and controlled by Merrill Lynch & Co.,
Inc.) and to members of the Boards of MLAM-advised mutual funds.
The maximum initial sales charge is 5.25%, which 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 will be subject to a CDSC
of 1.0% if the shares are redeemed within one year after
purchase. Sales charges also are reduced under a right of
accumulation which 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 do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25%, an ongoing distribution fee of 0.75% of the Fund's
average net assets attributable to the Class B shares, and a CDSC
if they are redeemed within four years of purchase. Approximately
eight years after issuance, Class B shares 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 ten 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 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 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 do not incur a sales charge when they are
purchased, but they are subject to an ongoing account maintenance
fee of 0.25% and an ongoing distribution fee of 0.75% of the
Fund's average net assets attributable to Class C shares. Class C
shares are also subject to a CDSC if they are redeemed within one
year of purchase. Although Class C shares are subject to a 1.0%
CDSC for only one year (as compared to four years for Class B),
Class C shares have no conversion feature and, accordingly, an
investor that purchases Class C shares will be
5
<PAGE> 8
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 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 attributable to Class D
shares. Class D shares are not subject to an ongoing distribution
fee or any CDSC when they are redeemed. 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 will be subject to
a CDSC of 1.0% if the shares are redeemed within one year after
purchase. The schedule of initial sales charges and reductions
for Class D shares is the same as the schedule for Class A
shares. 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
Pricing(SM) System that the investor believes is most beneficial under his
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. Although some investors that 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 will be converted into Class D shares of the Fund after a
conversion period of approximately eight years, and thereafter investors will be
subject to lower ongoing fees.
6
<PAGE> 9
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".
7
<PAGE> 10
FINANCIAL HIGHLIGHTS
The financial information in the table below has been audited in conjunction
with the annual audits of the financial statements of the Fund by Deloitte &
Touche LLP, independent auditors. Financial statements for the year ended July
31, 1994 and the independent auditors' report thereon are included in the
Statement of Additional Information. Financial information is not presented for
Class B shares for the period August 1, 1984 to October 20, 1988 because no
shares of that class were publicly issued during that period, and financial
information is not presented for Class C or Class D shares, because no shares of
those classes are publicly issued as of the date of this Prospectus. Further
information about the performance of the Fund is contained in the Fund's most
recent annual report to shareholders, which may be obtained without charge by
calling or by writing the Fund at the telephone number or address on the front
cover of this Prospectus.
The following per share data and ratios have been derived from information
provided in the Fund's audited financial statements.
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
FOR THE YEAR ENDED JULY 31,
INCREASE (DECREASE) IN ---------------------------------------------------------------
NET ASSET VALUE: 1994 1993 1992 1991 1990 1989
- -------------------------------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value beginning of period.......................... $ 13.75 $ 11.40 $ 11.13 $ 12.37 $ 13.41 $ 13.55
-------- -------- -------- -------- -------- --------
Investment income (loss) -- net.............................. .03 .02 .06 .23 .37 .52
Realized and unrealized gain (loss) on investments and
foreign currency transactions -- net(1)..................... 1.18 3.06 1.34 .55 (.47) 1.46
-------- -------- -------- -------- -------- --------
Total from investment operations............................. 1.21 3.08 1.40 .78 (.10) 1.98
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net.................................... -- (.03) (.09) (.40) (.51) (.33)
Realized gain on
investments -- net......................................... (1.65) (.70) (1.04) (1.62) (.43) (1.79)
-------- -------- -------- -------- -------- --------
Total dividends and distributions............................ (1.65) (.73) (1.13) (2.02) (.94) (2.12)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............................... $ 13.31 $ 13.75 $ 11.40 $ 11.13 $ 12.37 $ 13.41
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........................... 9.36% 28.96% 14.54% 10.35% (.93%) 17.48%
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and excluding distribution
fees........................................................ 1.22% 1.25% 1.35% 1.42% 1.32% 1.22%
========= ========= ========= ========= ========= =========
Expenses, net of reimbursement............................... 1.22% 1.25% 1.35% 1.42% 1.32% 1.22%
========= ========= ========= ========= ========= =========
Expenses..................................................... 1.22% 1.25% 1.35% 1.42% 1.32% 1.35%
========= ========= ========= ========= ========= =========
Investment income (loss) -- net.............................. .48% .28% .60% 2.22% 2.77% 4.60%
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..................... $255,856 $197,995 $140,323 $132,623 $151,027 $179,839
========= ========= ========= ========= ========= =========
Portfolio turnover........................................... 63.95% 67.57% 79.68% 72.12% 54.98% 43.45%
========= ========= ========= ========= ========= =========
<CAPTION>
CLASS B
-------------------
CLASS A FOR THE YEAR ENDED
FOR THE YEAR ENDED JULY 31, JULY 31,
INCREASE (DECREASE) IN ---------------------------------------- -------------------
NET ASSET VALUE: 1988 1987 1986 1985 1994++ 1993++
- -------------------------------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
Net asset value beginning of period.......................... $ 15.14 $ 13.09 $ 12.00 $ 11.27 $ 13.46 $ 11.25
-------- -------- -------- -------- -------- --------
Investment income (loss) -- net.............................. .38 .51 .61 .73 (.07) (.02)
Realized and unrealized gain (loss) on investments and
foreign currency transactions -- net(1)..................... -- 3.10 2.16 2.22 1.11 2.93
-------- -------- -------- -------- -------- --------
Total from investment operations............................. .38 3.61 2.77 2.95 1.04 2.91
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income -- net.................................... (.42) (.55) (.70) (.70) -- --
Realized gain on
investments -- net......................................... (1.55) (1.01) (.98) (1.52) (1.48) (.70)
-------- -------- -------- -------- -------- --------
Total dividends and distributions............................ (1.97) (1.56) (1.68) (2.22) (1.48) (.70)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............................... $ 13.55 $ 15.14 $ 13.09 $ 12.00 $ 13.02 $ 13.46
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........................... 4.64% 30.34% 25.45% 29.44% 8.21% 27.66%
========= ========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and excluding distribution
fees........................................................ 1.17% 1.16% 1.18% 1.20% 1.24% 1.27%
========= ========= ========= ========= ========= =========
Expenses, net of reimbursement............................... 1.17% 1.16% 1.18% 1.20% 2.24% 2.27%
========= ========= ========= ========= ========= =========
Expenses..................................................... 1.47% 1.41% 1.35% 1.36% 2.24% 2.27%
========= ========= ========= ========= ========= =========
Investment income (loss) -- net.............................. 2.90% 3.63% 4.94% 5.92% (.51%) (.73%)
========= ========= ========= ========= ========= =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..................... $118,890 $134,279 $118,026 $ 99,273 $362,129 $209,534
========= ========= ========= ========= ========= =========
Portfolio turnover........................................... 50.63% 54.10% 43.74% 35.69% 63.95% 67.57%
========= ========= ========= ========= ========= =========
<CAPTION> CLASS B
FOR THE YEAR ENDED JULY 31,
INCREASE (DECREASE) IN ---------------------------------------
NET ASSET VALUE: 1992++ 1991 1990 1989+++
- -------------------------------------------------------------- -------- ------- ------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value beginning of period.......................... $ 11.04 $ 12.26 $ 13.32 $ 11.96
-------- ------- ------- --------
Investment income (loss) -- net.............................. (.05) .11 .22 .34
Realized and unrealized gain (loss) on investments and
foreign currency transactions -- net(1)..................... 1.33 .56 (.44) 1.25
-------- ------- ------- --------
Total from investment operations............................. 1.28 .67 (.22) 1.59
-------- ------- ------- --------
Less dividends and distributions:
Investment income -- net.................................... (.03) (.27) (.41) (.14)
Realized gain on
investments -- net......................................... (1.04) (1.62) (.43) (.09)
-------- ------- ------- --------
Total dividends and distributions............................ (1.07) (1.89) (.84) (.23)
-------- ------- ------- --------
Net asset value, end of period............................... $ 11.25 $ 11.04 $ 12.26 $ 13.32
========= ======== ======== =========
TOTAL INVESTMENT RETURN:**
Based on net asset value per share........................... 13.35% 9.14% (1.86%) 13.56%***
========= ======== ======== =========
RATIOS TO AVERAGE NET ASSETS:
Expenses, net of reimbursement and excluding distribution
fees........................................................ 1.37% 1.45% 1.36% 1.30%*
========= ======== ======== =========
Expenses, net of reimbursement............................... 2.37% 2.45% 2.36% 2.30%*
========= ======== ======== =========
Expenses..................................................... 2.37% 2.45% 2.36% 2.37%*
========= ======== ======== =========
Investment income (loss) -- net.............................. (.46%) 1.19% 1.74% 4.11%*
========= ======== ======== =========
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands)..................... $104,313 $79,848 $92,700 $109,003
========= ======== ======== =========
Portfolio turnover........................................... 79.68% 72.12% 54.98% 43.45%
========= ======== ======== =========
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales loads.
*** Aggregate total investment return.
+ Commencement of operations.
++ Based on the average number of shares outstanding during the year.
+++ Class B shares commenced operations on October 21, 1988.
(1) Foreign currency transaction amounts for prior periods have been
reclassified to conform to the 1994 presentation.
8
<PAGE> 11
SPECIAL CONSIDERATIONS
FINANCIAL AND MARKET RISKS
The Fund may invest in companies or institutions that have substantial
capital needs or negative net worth or that are involved in bankruptcy or
reorganization proceedings. The Fund may also invest in companies whose earnings
have been severely depressed by periods of unfavorable operating conditions.
Investments of this type involve a high degree of financial and market risks
that can result in substantial or at times even total losses. Among the problems
involved in investments in troubled issuers is the fact that it frequently may
be difficult to obtain information as to the conditions of such issuers. The
market prices of such securities are also subject to abrupt and erratic market
movements and above average price volatility, and the spread between the bid and
asked prices of such securities may be greater than normally expected. It may
take a number of years for the market price of such securities to reflect their
intrinsic value.
DISPOSITION OF PORTFOLIO SECURITIES
It is anticipated that many of the portfolio securities of the Fund may not
be widely traded, and that the Fund's position in such securities may be
substantial in relation to the market for the securities. As a result, the Fund
may experience time delays and incur costs and possible losses in connection
with the sale of such securities. In addition, through service on creditors'
committees or in other special situations the Fund may gain access to
information which would preclude it from trading in particular portfolio
securities. Accordingly, it would under certain circumstances be difficult for
the Fund to meet redemptions. The Fund may, when management deems it
appropriate, maintain a reserve in liquid assets which it considers adequate to
meet anticipated redemptions. In addition, the Fund will have limited authority
to borrow amounts up to 20% of its total assets as a temporary measure to meet
redemptions. The shares of the Fund may be redeemed at any time at their next
determined net asset value. See "Redemption of Shares". In light of the types of
securities in which the Fund invests, the Fund is not an appropriate investment
for investors seeking liquidity or short-term profits.
SUITABILITY
The economic benefit from an investment in the Fund depends upon many
factors beyond the control of the Fund, the Investment Adviser and its
affiliates. Because of its emphasis on securities involving a high degree of
financial and market risks, the Fund should be considered as a vehicle for
diversification and not as a balanced investment program. The suitability for
any particular investor of a purchase of shares of the Fund will depend upon,
among other things, such investor's investment objectives and such investor's
ability to accept speculative risks.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of capital
by investing in a diversified portfolio of equity and fixed income securities,
including municipal securities, of issuers in weak financial condition or
experiencing poor operating results that management of the Fund believes are
undervalued relative to management's assessment of the current or prospective
condition of such issuers. The investment objective of the Fund is based upon
the belief that the pricing mechanism of the securities markets lacks perfect
efficiency so that the prices of securities of troubled issuers are often
depressed to a greater extent than
9
<PAGE> 12
warranted by the condition of the issuer and that, while investment in such
securities involves a high degree of risk, such investments offer the
opportunity for significant capital gains. Current income is not necessarily a
factor in the selection of investments. The investment objective of the Fund
described in this paragraph is a fundamental policy of the Fund and may not be
changed without the approval of the holders of a majority of the Fund's
outstanding voting securities.
Investment in securities of issuers in weak financial condition or
experiencing poor operating results involves a high degree of financial and
market risk that can result in substantial or at times even total losses. The
Fund may invest in companies or institutions that have substantial capital needs
or negative net worth, or that are involved in bankruptcy or reorganization
proceedings. The Fund will also invest in companies whose earnings have been
severely depressed by periods of unfavorable operating conditions. Among the
problems involved in investments in troubled issuers is the fact that it
frequently may be difficult to obtain information as to the condition of such
issuers. The market prices of such securities are also subject to abrupt and
erratic market movements and above average price volatility, and the spread
between the bid and asked prices of such securities may be greater than normally
expected. It may take a number of years for the market price of such securities
to reflect their intrinsic value.
The Fund expects to invest in securities of issuers that are encountering a
variety of financial or earnings problems and representing distinct types of
risk. The Fund's investments in equity or fixed income securities of companies
or institutions in weak financial condition may include issuers with substantial
capital needs or negative net worth or issuers that are, have been or may become
involved in bankruptcy or reorganization proceedings. Issuers experiencing poor
operating results may include companies whose earnings have been severely
depressed by periods of unfavorable operating conditions or which face special
competitive or product obsolescence problems. Issuers with poor operating
results will not necessarily be in weak financial condition.
The Fund may invest in high yield bonds. High yield bonds, commonly
referred to as "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. High yield bonds may be issued by
less creditworthy companies or by larger, highly leveraged companies, and are
frequently issued in corporate restructurings such as mergers and leveraged
buy-outs. Such securities are particularly vulnerable to adverse changes in the
issuer's industry and in general economic conditions. High yield bonds
frequently are junior obligations of their issuers, so that in the event of the
issuer's bankruptcy, claims of the holders of high yield bonds will be satisfied
only after satisfaction of the claims of senior securityholders. While the high
yield bonds in which the Fund invests normally do not include securities which,
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. In an effort to minimize the risk of issuer default or
bankruptcy, the Fund diversifies its holdings among many issuers. However, there
can be no assurance that diversification will protect the Fund from widespread
defaults brought about by a sustained economic downturn.
High yield 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 high yield bonds than on higher-rated fixed-income securities. Like
higher-rated fixed-income securities, high yield 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 high yield 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
10
<PAGE> 13
quoted for high yield 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
high yield bonds to be reduced, or the Fund may experience difficulty in
liquidating a portion of its portfolio. Under such conditions, judgment may play
a greater role in valuing certain of the Fund's securities than in the case of
securities trading in a more liquid market.
The Fund may also invest in fixed income securities issued by states,
municipalities, local governments and their agencies and authorities whose
interest is exempt from Federal income taxes. The Fund has established no rating
criteria for such fixed income securities. The prices of such tax-exempt
securities may be depressed for a variety of financial or political reasons,
such as concern as to the fiscal integrity of the issuer and pending litigation
or legislation that may affect future revenues of the issuer. Although the Fund
may receive tax-exempt income on such securities, it is not anticipated that any
portion of the dividends paid by the Fund will qualify for tax-exempt treatment.
The Fund may invest up to 20% of its total assets in equity and fixed
income securities of foreign issuers in weak financial condition or experiencing
poor operating results. In addition to the risks inherent in investing in
troubled issuers, investments in securities of foreign issuers involve certain
other risks, including fluctuations in foreign exchange rates, future political
and economic developments, and the possible imposition of exchange controls or
other foreign governmental laws or restrictions. The foreign markets also have
different clearance and settlement procedures, and in certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions making it difficult to conduct such transactions. Delays
in settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. To the extent such investments are
subject to withholding or other taxes or to regulations relating to repatriation
of assets, the Fund's distributable income will be reduced. The prices of
securities in different countries are subject to different economic, financial,
political and social factors.
From time to time, the Fund may invest in securities the disposition of
which is subject to legal restrictions imposed by the Securities Act of 1933 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 sold 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 which, in the
judgment of the Investment Adviser, would be most opportune.
The Investment Adviser is responsible for the management of the Fund's
portfolio and makes portfolio decisions based upon its own research analysis
supplemented by research information provided by other sources. The basic
orientation of the Fund's investment policies is such that many of the portfolio
securities may have less than favorable research ratings from research analysts.
The Investment Adviser makes extensive use of investment research information
provided by unaffiliated brokers and dealers and of the securities research and
economic research facilities of Merrill Lynch. However, it may at times be
difficult to obtain information with respect to the types of securities in which
the Fund invests.
The portfolio securities of the Fund may not be widely traded. In order to
facilitate redemption of Fund shares, the Fund reserves the right to hold, when
management deems it appropriate, United States Government and Government agency
securities, bank money instruments, commercial paper and other money market
securities or cash in an amount it considers adequate to meet redemptions.
11
<PAGE> 14
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, as defined in the
Investment Company Act. Among the more significant restrictions, the Fund may
not:
-- Invest in securities of any one issuer (other than the United States or
its agencies or instrumentalities), if immediately after and as a result of such
investment (a) more than 5% of the total assets of the Fund, taken at market
value, would be invested in the securities of such issuer; or (b) more than 10%
of the outstanding voting securities of such issuer would be owned by the Fund;
or
-- Invest more than 25% of its total assets (taken at market value at the
time of each investment) in the securities of issuers in any particular
industry.
The Board of Directors of the Fund, at a meeting held on August 3, 1994,
approved certain changes to the fundamental and non-fundamental investment
restrictions of the Fund. These changes were proposed in connection with the
creation of a set of standard fundamental and non-fundamental investment
restrictions that would be adopted, subject to shareholder approval, by all of
the non-money market mutual funds advised by MLAM or FAM. The proposed uniform
investment restrictions are designed to provide each of these funds, including
the Fund, with as much investment flexibility as possible under the Investment
Company Act and applicable state securities regulations, help promote
operational efficiencies and facilitate monitoring of compliance. The investment
objectives and policies of the Fund will be unaffected by the adoption of the
proposed investment restrictions.
The full text of the proposed investment restrictions is set forth under
"Investment Objective and Policies -- Proposed Uniform Investment Restrictions"
in the Statement of Additional Information. Shareholders of the Fund are
currently considering whether to approve the proposed revised investment
restrictions, if such shareholder approval is obtained, the Fund's current
investment restrictions will be replaced by the proposed restrictions, and the
Fund's Prospectus and Statement of Additional Information will be supplemented
to reflect such change.
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS
The Board of Directors of the Fund consists of six individuals, five of
whom are not "interested 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 Directors of the Fund are:
ARTHUR ZEIKEL* -- President and Chief Investment Officer of Merrill Lynch
Asset Management, L.P. ("MLAM"), and of the Investment Adviser; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of Merrill Lynch & Co., Inc. ("ML&Co."); Executive Vice President of
Merrill Lynch; and Director of Merrill Lynch Funds Distributor, Inc. (the
"Distributor").
12
<PAGE> 15
JOE GRILLS -- Member of the Committee of Investment of Employee Benefit
Assets of the Financial Executives Institute ("CIEBA"), Member of CIEBA's
Executive Committee; Member of the Investment Advisory Committee of the Stae of
New York Common Retirement Fund; Director, Duke Management Company and Winthrop
Financial Associates (real estate management).
WALTER MINTZ -- Special Limited Partner of Cumberland Associates
(investment partnership).
MELVIN R. SEIDEN -- President of Silbanc Properties, Ltd. (real estate,
investment and consulting).
STEPHEN B. SWENSRUD -- Principal of Fernwood Associates (financial
consultants); Director, Hitchiner Manufacturing Company.
HARRY WOOLF -- Member of the editorial board of Interdisciplinary Science
Reviews; Director, Alex. Brown Mutual Funds, Advanced Technology Laboratories,
Family Health International and SpaceLabs Medical (medical equipment
manufacturing and marketing).
- ---------------
* Interested person, as defined in the Investment Company Act, of the Fund.
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Investment Adviser, which is an affiliate of MLAM and is owned and
controlled by Merrill Lynch & Co., Inc., a financial services holding company
and the parent of Merrill Lynch, acts as the manager for the Fund and provides
the Fund with management services. The Investment Adviser or an affiliate, MLAM,
acts as the investment adviser for over 100 other registered investment
companies. The Investment Adviser also offers portfolio management and portfolio
analysis services to individuals and institutions. As of August 31, 1994, the
Investment Adviser and MLAM had a total of approximately $165.7 billion in
investment company and other portfolio assets under management.
The investment advisory agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of the
Board of Directors of the Fund, the Investment Adviser is responsible for the
actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors. The Investment Adviser
provides the portfolio managers for the Fund who consider analyses from various
sources, make the necessary investment decisions and place transactions
accordingly.
The Investment Adviser is also obligated to perform certain administrative
and management services for the Fund and to provide all the office space,
facilities, equipment and personnel necessary to perform its duties under the
Investment Advisory Agreement. The Investment Adviser has access to the total
securities research and economic facilities of Merrill Lynch.
The Investment Adviser receives monthly compensation at the annual rate of
1.0% of the average daily net assets of the Fund. This fee is higher than that
of many other mutual funds, but the Fund believes it is justified by the high
degree of care that must be given to the initial selection and continuous
supervision of the types of securities in which the Fund invests. For the year
ended July 31, 1994, the Fund paid to the Investment Adviser a fee of $5,188,122
(based on average net assets of approximately $520.2 million).
The Investment Advisory Agreement obligates the Fund to pay certain
expenses incurred in its operations including, among other things, the
investment advisory fee, legal and audit fees, unaffiliated Directors' fees and
expenses, custodian and transfer agency fees, accounting costs, the costs of
issuing and redeeming shares
13
<PAGE> 16
and certain of the costs of printing proxies, shareholder reports, prospectuses
and statements of additional information. Accounting services are provided to
the Fund by the Investment Adviser, and the Fund reimburses the Investment
Adviser for its costs in connection with such services on a semi-annual basis.
For the year ended July 31, 1994, the amount of such reimbursement was $93,874.
For the year ended July 31, 1994, the ratio of total expenses to average net
assets was 1.22% for the Class A shares and 2.24% for the Class B shares; no
Class C shares or Class D shares had been issued during that year.
Robert J. Martorelli is primarily responsible for the day-to-day management
of the Fund's portfolio. Mr. Martorelli is a Vice President of the Fund and has
been a Vice President of MLAM or its predecessors since 1987.
TRANSFER AGENCY SERVICES
Financial Data Services, Inc. (the "Transfer Agent"), which is a
wholly-owned 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 Fund pays the Transfer Agent a
fee of $11.00 per Class A or D shareholder account and $14.00 per Class B or C
shareholder account, and the Transfer Agent is entitled to a reimbursement for
out-of-pocket expenses it incurs under the Transfer Agency Agreement. For the
year ended July 31, 1994, the total fee paid by the Fund to the Transfer Agent
pursuant to the Transfer Agency Agreement was $633,117. At August 31, 1994, the
Fund had 26,343 Class A shareholder accounts, 40,238 Class B shareholder
accounts, no Class C shareholder accounts and no Class D shareholder accounts.
At this level of accounts, the annual fee payable to the Transfer Agent would
aggregate approximately $853,105 plus out-of-pocket expenses.
PURCHASE OF SHARES
The Distributor, a subsidiary of MLAM, acts as the distributor of the
shares of the Fund. Shares of the Fund are offered continuously for sale by the
Distributor and other eligible securities dealers (including Merrill Lynch).
Shares of the Fund may be purchased from securities dealers or by mailing a
purchase order directly to the Transfer Agent. The minimum initial purchase
price 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.
The Fund is offering its shares in four classes at a public offering price
equal to the next determined net asset value per share plus sales charges
imposed either at the time of purchase or on a deferred basis, depending upon
the class of shares selected by the investor under the Merrill Lynch Select
Pricing(SM) System, as described below. The applicable offering price for
purchase orders is based on the net asset value of the Fund next determined
after receipt of the purchase order by the Distributor. As to purchase orders
received by securities dealers prior to 4:15 P.M., New York time, which
includes orders received after the determination of the net asset value on
the previous day, the applicable offering price will be based on the net
asset value determined as of 4:15 P.M. on the day the order is placed with
the Distributor, provided the order is received by the Distributor prior to
4:30 P.M., New York time, on that day. If the purchase orders are not
received by the Distributor prior to 4:30 P.M., New York time, such orders
shall be deemed received on the next business
14
<PAGE> 17
day. Any order may be rejected by the Distributor or the Fund. The Fund or the
Distributor may suspend the continuous offering of the Fund's shares of any
class to the general public at any time in response to conditions in the
securities markets or otherwise and may thereafter resume such offering from
time to time. Neither the Distributor nor the dealers are permitted to withhold
placing orders to benefit themselves by a price change. Merrill Lynch may charge
its customers a processing fee (presently $4.85) to confirm a sale of shares to
such customers. Purchases directly through the Transfer Agent are not subject to
the postage and handling charge.
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. 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. Investors
should determine whether under their particular circumstances it is more
advantageous to incur an initial sales charge or to have the entire initial
purchase price invested in the Fund with the investment thereafter being subject
to a contingent deferred sales charge and ongoing distribution fees. 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 3.
Each Class A, Class B, Class C and Class D share of the Fund represents
identical interests 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
deferred sales charges 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 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. 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 deferred sales charges with respect to Class B and Class C shares in that
the sales charges 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, which are eligible to sell shares.
15
<PAGE> 18
The following table sets forth a summary of the distribution arrangements
for each class of shares under the Merrill Lynch Select Pricing(SM) System.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
ACCOUNT
MAINTENANCE DISTRIBUTION
CLASS SALES CHARGE(1) FEE FEE CONVERSION FEATURES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial sales No No No
charge(2)(3)
- ---------------------------------------------------------------------------------------------------------------
B CDSC for a period of 4 years, at a 0.25% 0.75% B shares convert to D Shares
rate of 4.0% during the first automatically after
year, decreasing 1.0% annually approximately eight years(4)
to 0.0%
- ---------------------------------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------------------------------------------------------------------------------------------------------------
D Maximum 5.25% initial sales 0.25% No No
charge(3)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs may be 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.
(2) Offered only to eligible investors. See "Initial Sales Charge
Alternatives -- Class A and Class D Shares -- Eligible Class A Investors".
(3) Reduced for purchases of $25,000 or more, Class A and Class D share
purchases of $1,000,000 or more may not be subject to an initial sales
charge but instead will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and certain
retirement plans is modified. Also, Class B shares of certain other
MLAM-advised mutual funds into which exchanges may be made have a ten 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.
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.
16
<PAGE> 19
The public offering price of Class A and Class D shares for purchasers
choosing the initial sales charge alternatives is the next determined net asset
value plus varying sales charges (i.e., sales loads), as set forth below.
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS DISCOUNT TO
PERCENTAGE OF PERCENTAGE* OF SELECTED DEALERS
OFFERING THE NET AMOUNT AS PERCENTAGE OF
AMOUNT OF PURCHASE PRICE INVESTED THE OFFERING PRICE
- ----------------------------------------------------- ------------- -------------- ------------------
<S> <C> <C> <C>
Less than $25,000.................................... 5.25% 5.54% 5.00%
$25,000 but less than $50,000........................ 4.75 4.99 4.50
$50,000 but less than $100,000....................... 4.00 4.17 3.75
$100,000 but less than $250,000...................... 3.00 3.09 2.75
$250,000 but less than $1,000,000.................... 2.00 2.04 1.80
$1,000,000 and over**................................ 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 made on or after October 21, 1994. If the sales charge is
waived, such purchases will be subject to a CDSC of 1.0% if the shares are
redeemed within one year after purchase. Class A purchases made prior to
October 21, 1994 may be subject to a CDSC if the shares are redeemed within
one year of purchase at the following rates: 1.00% on purchases of $1,000,000
to $2,500,000; 0.60% on purchases of $2,500,001 to $3,500,000; 0.40% on
purchases of $3,500,001 to $5,000,000; and 0.25% on purchases of more than
$5,000,000 in lieu of paying an initial sales charge. 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
charged on purchases of $1 million or more of Class A or Class D shares by
certain 401(k) plans.
The Distributor may reallow discounts to selected dealers and retain the
balance over such discounts. At times the Distributor may reallow the entire
sales charge to such dealers. 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. During
the fiscal year ended July 31, 1994, the Fund sold 6,651,189 Class A shares for
aggregate net proceeds of $90,076,079. The gross sales charges for the sale of
Class A shares of the Fund for that year were $970,651, of which $64,117 and
$906,534 were received by the Distributor and Merrill Lynch, respectively. For
the fiscal year ended July 31, 1994, the Distributor received no CDSCs relating
to the early redemption of Class A shares purchased subject to front-end sales
charge waivers.
Eligible Class A Investors. Class A shares are offered to a limited group
of investors and also will be issued upon reinvestment of dividends on
outstanding Class A shares. Investors that currently own Class A shares in a
shareholder account, including participants in the Merrill Lynch Blueprint(SM)
Program, are entitled to purchase additional Class A shares in that account.
Certain employer sponsored retirement or savings plans, including eligible
401(k) plans, may purchase Class A shares at net asset value provided such plans
meet the required minimum number of eligible employees or required amount of
assets advised by MLAM 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 TMA(SM) Managed Trusts to
which Merrill Lynch Trust Company provides discretionary trustee services and
certain purchases made in connection with the Merrill Lynch Mutual Fund Adviser
program. 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.
17
<PAGE> 20
Certain persons who acquired shares of certain MLAM-advised closed-end funds 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 shares of the Fund
if certain conditions set forth in the Statement of Additional Information are
met. 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. 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 such funds.
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 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".
Class D shares are offered at net asset value without sales charge to an
investor who has a business relationship with a 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,
including information regarding investments by Employee Sponsored Retirement and
Savings Plans, 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 are subject to a four year CDSC,
while Class C shares are subject only to a one year 1.0% CDSC. On the other
hand, approximately eight 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 are subject to
an account maintenance fee of 0.25% of net assets and a distribution fee of
0.75% of net assets as discussed below under "Distribution Plans".
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.
18
<PAGE> 21
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 eight years after issuance, Class B shares 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 ten 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 "Limitations on
the Payment of Deferred Sales Charges" below. The proceeds from the ongoing
account maintenance fee are used to compensate Merrill Lynch for providing
continuing account maintenance activities. 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 Charge -- Class B Shares. Class B shares which
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 sales
charge will be imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CLASS B CDSC AS A PERCENTAGE OF
YEAR SINCE PURCHASE PAYMENT MADE DOLLAR AMOUNT SUBJECT TO CHARGE
- ----------------------------------------------------------------- -------------------------------
<S> <C>
0-1.............................................................. 4.0%
1-2.............................................................. 3.0
2-3.............................................................. 2.0
3-4.............................................................. 1.0
4 and thereafter................................................. None
</TABLE>
For the year ended July 31, 1994, the Distributor received CDSCs of
$312,454 with respect to redemption of Class B shares, all of which was paid to
Merrill Lynch.
In determining whether a 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 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 will be assumed to be made in the same
order as a redemption.
19
<PAGE> 22
To provide an example, assume an investor purchased 100 shares 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 through 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 at a rate of 2.0% (the
applicable rate in the third year after purchase).
The Class B CDSC is waived on redemptions of shares 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 Internal Revenue Code of 1986, as amended) of a shareholder. The
Class B CDSC also is waived on redemptions of shares by certain eligible 401(a)
and eligible 401(k) plans and in connection with certain group plans placing
orders through the Merrill Lynch BlueprintSM Program. The CDSC is also waived
for any Class B shares which are purchased by eligible 401(k) or eligible 401(a)
plans which 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 also is waived for any Class B shares which are 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. Additional information concerning the waiver of the Class B CDSC
is set forth in the Statement of Additional Information.
Contingent Deferred Sales Charges -- Class C Shares. Class C shares which
are redeemed within one year after 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.
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 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 eight
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 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 occupy 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 of Federal income tax purposes.
20
<PAGE> 23
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.
Share certificates for Class B shares of the Fund to be converted must be
delivered to the Transfer Agent at least one week prior to the Conversion Date
applicable to those shares. In the event such certificates are not received by
the Transfer Agent at least one week prior to the Conversion Date, the related
Class B shares will convert to Class D shares on the next scheduled Conversion
Date after such certificates are required.
In general, Class B shares of equity MLAM-advised mutual funds will convert
approximately eight years after initial purchase, and Class B shares of taxable
and tax-exempt fixed income MLAM-advised 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 which 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.
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, accrued daily and paid monthly, at the annual rate
of 0.25% of the average daily net assets of the Fund attributable to shares of
the relevant class 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 0.75% of
the average daily net assets of the Fund attributable to the shares of the
relevant class in order to compensate the Distributor and Merrill Lynch
(pursuant to a sub-agreement) for providing
21
<PAGE> 24
shareholder and 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 deferred sales charges provide for the
financing of the distribution of the Fund's Class B and Class C shares.
Prior to July 6, 1993, the Fund paid the Distributor an ongoing
distribution fee, accrued daily and paid monthly, at the annual rate of 1.0% of
average daily net assets of the Class B shares of the Fund under a distribution
plan previously adopted by the Fund (the "Prior Plan") to compensate the
Distributor and Merrill Lynch for providing account maintenance and
distribution-related activities and services to Class B shareholders. The fee
rate payable and the services provided under the Prior Plan are identical to the
aggregate fee rate payable and the services provided under the Class B
Distribution Plan, the difference being that the account maintenance and
distribution services have been unbundled.
For the year ended July 31, 1994, the Fund paid the Distributor account
maintenance fees of $718,001 and distribution fees of $2,154,003 under the Class
B Distribution Plan. The Fund did not begin to offer shares of Class C or Class
D publicly until the date of this Prospectus. Accordingly, no payments have been
made pursuant to the Class C or Class D Distribution Plans prior to the date of
this Prospectus.
The payments under the Distribution Plans are based on a percentage of
average daily net assets attributable to the 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, the distribution fees, the 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, the distribution fees and
CDSCs and the expenses consist of financial consultant compensation. At December
31, 1993, the last date at which fully allocated data is available, the fully
allocated accrual expenses incurred by the Distributor and Merrill Lynch
exceeded fully allocated accrual revenues for such period by approximately
$2,597,000 (.95% of Class B net assets at that date). As of December 31, 1993,
direct cash revenues for the period since commencement of the offering of Class
B shares exceeded direct cash expenses by $3,123,104 (1.1% of Class B net assets
at that date). As of July 31, 1994, direct cash revenues for the period since
commencement of the offering of Class B shares exceeded direct cash expenses by
$3,671,332 (1.01% of Class B net assets at that date).
LIMITATIONS ON THE PAYMENT OF DEFERRED SALES CHARGES
The maximum sales charge rule in the Rules of Fair Practice of the NASD
imposes a limitation on certain asset-based sales charges such as the Fund's
distribution fee and the CDSC but not the account
22
<PAGE> 25
maintenance fee. As applicable to the Fund, the maximum sales charge rule limits
the aggregate of distribution fee payments and CDSC payable by the Fund to (1)
6.25% of eligible gross sales of Class B shares (defined to exclude shares
issued pursuant to dividend reinvestments and exchanges) plus (2) interest on
the unpaid balance 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). 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") is 6.75% of eligible gross sales. The Distributor
retains the right to stop waiving the interest charges at any time. To the
extent payments would exceed the voluntary maximum, the Fund will not make
further payments of the distribution fee 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 fee. In certain circumstances the amount payable
pursuant to the voluntary maximum may exceed the amount payable under the NASD
formula. In such circumstances payments in excess of the amount payable under
the NASD formula will not be made.
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 Class B, Class C and Class D shares, and there is no assurance
that the 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 of the Fund 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. Except for any CDSC which may be applicable, there will be no charge
for redemption if the redemption request is sent directly to the Transfer Agent.
Shareholders liquidating their holdings will receive upon redemption all
dividends reinvested through the date of redemption. 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, Financial Data Services, Inc., Transfer Agency
Operations Department, P.O. Box 45289, Jacksonville, Florida 32232-5289.
Redemption requests delivered other than by mail should be delivered to
Financial Data Services, Inc., Transfer Agency Operations Department, 4800 Deer
Lake Drive East, Jacksonville, Florida 32246-6484. Proper notice of redemption
in the 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
23
<PAGE> 26
certificates for the shares to be redeemed. The notice in either event requires
the signatures of all persons in whose names the shares are registered, signed
exactly as their names appear on the Transfer Agent's register or on the
certificate, as the case may be. The signatures on the notice must be guaranteed
by a national bank or other bank which is a member of the Federal Reserve System
(not a savings bank) or by an "eligible guarantor institution" as such is
defined in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended,
the existence and validity of which may be verified by the Transfer Agent
through the use of industry publications. Notarized signatures are not
sufficient. 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 certificates of corporate
authority. For shareholders redeeming directly with the Transfer Agent, payment
will be mailed within seven days of receipt of a proper notice of redemption.
At various times the Fund may be requested to redeem shares 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 as good payment (e.g., cash or
certified check drawn on a United States bank) has been collected for the
purchase of such shares, which normally will not exceed 10 days.
REPURCHASE
The Fund also will 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 New
York Stock Exchange on the day received, and such request is received by the
Fund from such dealer not later than 4:30 P.M., New York time, on the same day.
Dealers have the responsibility of submitting such repurchase requests to the
Fund not later than 4:30 P.M., New York time, 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 in the case of Class B shares). Securities firms which 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 $4.85) to confirm a
repurchase of shares to such customers. Redemptions directly through the
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.
REINSTATEMENT PRIVILEGE -- CLASS A AND CLASS D SHARES
Shareholders who have redeemed their Class A or Class D shares 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 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. 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
24
<PAGE> 27
privilege and may be exercised by the Class A or Class D shareholder only the
first time such shareholder makes a redemption.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services and investment plans
described below which are designed to facilitate investment in shares of the
Fund. Full details as to each of such services, copies of the various plans
described below and instructions as to how to participate in the various
services or plans, or how to change options with respect thereto can be obtained
from the Fund by calling the telephone number on the cover page of this
Prospectus or from the Distributor or Merrill Lynch.
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 showing any reinvestments of dividends and
capital gains distributions, and any other activity in the account since the
preceding statement. Shareholders also will receive separate confirmations for
each purchase or sale transaction other than reinvestments of dividends and
capital gains distributions. A shareholder may make additions to his Investment
Account at any time by mailing a check directly to the Transfer Agent.
Shareholders also may maintain their accounts through Merrill Lynch. Upon the
transfer of shares out of a Merrill Lynch brokerage account, an account in the
transferring shareholder's name may be opened at the Transfer Agent.
Shareholders considering transferring their Class A or Class D shares (paying
any applicable CDSC) 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 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 contingent
deferred sales charge) 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.
Exchange Privilege. 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 Commission.
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
his 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
25
<PAGE> 28
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.
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 will be exchangeable with shares of the
same class of other MLAM-advised mutual funds.
Shares of the Fund which 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 Fund's CDSC schedule 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 for Federal income
tax purposes. For further information, see "Shareholder Services -- Exchange
Privilege" in the Statement of Additional Information.
The Fund's exchange privilege is modified with respect to purchases of
Class A and Class D shares under the Merrill Lynch Mutual Fund Adviser ("MFA")
program. First, the initial allocation of assets is made under the MFA program.
Then, any subsequent exchange under the MFA program of Class A or Class D shares
of a MLAM-advised mutual fund for Class A or Class D shares of the Fund will be
made solely on the basis of the relative net asset values of the shares being
exchanged. Therefore, there will not be a charge for any difference between the
sales charge previously paid on the shares of the other MLAM-advised mutual fund
and the sales charge payable on the shares of the Fund being acquired in the
exchange under the MFA program.
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
26
<PAGE> 29
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
or by telephone call (1-800-MER-FUND) to the Transfer Agent, elect to have
subsequent dividends or both dividends and capital gains distributions paid in
cash rather than reinvested, in which event payment will be mailed on or about
the payment date. 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 Class A or Class D shareholder may elect to
receive systematic withdrawal payments from his Investment Account in the form
of payments by check or through automatic payment by direct deposit to his bank
account on either a monthly or quarterly basis. A Class A or Class D 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 Systematic Redemption Program, subject to certain conditions.
Automatic Investment Plans. Regular additions of Class A, Class B, Class C
or Class D shares may be made to an investor's Investment Account by
pre-arranged charges of $50 or more to his regular bank account. Investors who
maintain CMA(R) accounts may arrange to have periodic investments made in the
Fund in amounts of $100 or more through the CMA(R) Automated Investment Program.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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. In executing 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 does not necessarily pay the lowest
commission or spread available.
The Fund has no obligation to deal with any broker in the execution of
transactions for its portfolio securities. The Fund has been informed by Merrill
Lynch that it will in no way, at any time, attempt to influence or control the
placing by the Investment Adviser or by the Fund of orders for brokerage
transactions. Brokers and dealers, including Merrill Lynch, which provide
supplemental investment research to the Investment Adviser may receive orders
for transactions by the Fund. Supplemental investment research received by the
Investment Adviser may also be used in connection with other investment advisory
accounts of the Investment Adviser and its affiliates. Information so received
will be in addition to and not in lieu of the services required to be performed
by the Investment Adviser under the Investment Advisory Agreement. The expenses
of the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information. Whether or not a particular
broker-dealer sells shares of the Fund neither qualifies nor disqualifies that
broker-dealer to execute transactions for the Fund.
27
<PAGE> 30
PERFORMANCE DATA
From time to time the Fund may include its average annual total return for
various specified time periods in advertisements or information furnished to
present or prospective shareholders. Average annual total return is computed
separately for Class A, Class B, Class C and Class D shares in accordance with a
formula 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 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 CDSC 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 the 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 classes of shares of the Fund in any
advertisement or information including performance data of the Fund.
The Fund also may quote total return and 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 charges 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 charges, actual annual or annualized
total return data generally will be lower than average annual total return data
since the average annual rates of return reflect compounding; 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 advertisements directed to investors whose purchases are subject to reduced
sales charges in the case of Class A and Class D shares or waiver of the CDSC in
the case of Class B and Class C shares (such as investors in certain retirement
plans), performance data may take into account the reduced, and not the maximum,
sales charge or may not take into account the CDSC and therefore may reflect
greater total return since, due to the reduced sales charges or waiver of the
CDSC, a lower amount of expenses may be 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 the effect of such total return on a hypothetical
$1,000 investment in the Fund at the beginning of each specified period.
Total return figures are based on the Fund's historical performance and are
not intended to indicate future performance. The Fund's total return will vary
depending on market conditions, the securities comprising the Fund's portfolio,
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 its performance to that of the Standard &
Poor's 500 Composite Stock Price Index, the Value Line Composite Index, the Dow
Jones Industrial Average, or performance data
28
<PAGE> 31
published by Lipper Analytical Services, Inc., Morningstar Publications, Inc.,
Money Magazine, U.S. News & World Report, Business Week, CDA Investment
Technology, Inc., Forbes Magazine and Fortune Magazine. As with other
performance data, performance comparisons should not be considered
representative of the Fund's relative performance for any future period.
ADDITIONAL INFORMATION
DIVIDENDS AND DISTRIBUTIONS
It is the Fund's intention to distribute all its net investment income, if
any. Dividends from such net investment income will be paid semi-annually. All
net realized long-or short-term capital gains, if any, will be distributed to
the Fund's shareholders at least annually. The per share dividends and
distributions on each class of shares will be reduced as a result of any account
maintenance, distribution and transfer agency fees applicable to that class. See
"Additional Information -- Determination of Net Asset Value". Dividends and
distributions may be automatically reinvested in shares of the Fund, at the net
asset value without sales charge. Shareholders may elect in writing to receive
any such dividends or distributions, or both, in cash. Dividends and
distributions are taxable to shareholders as discussed below whether they are
reinvested in shares of the Fund or received in cash.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily as of 4:00 P.M., New York time, on each day during which the New York
Stock Exchange is open for trading. Any assets or liabilities initially
expressed in terms of non-U.S. dollar currencies are translated into U.S.
dollars at the prevailing market rates as quoted by one or more banks or dealers
on the day of valuation. The net asset value per share is computed by dividing
the sum of the value of the securities held by the Fund plus any cash or other
assets (including interest and dividends accrued but not yet received) minus all
liabilities (including accrued expenses) by the total number of shares
outstanding at such time, rounded to the nearest cent. Expenses, including the
investment advisory fees payable to the Investment Adviser and any account
maintenance and/or distribution fees payable to the Distributor, are accrued
daily. The Fund employs Merrill Lynch Securities Pricing Service ("MLPS") an
affiliate of the Investment Adviser, to provide certain securities prices for
the Fund. The Fund's arrangement with MLPS was not effective until after the
close of the Fund's most recently completed fiscal year end. Consequently, no
fees were paid by the Fund to MLPS for pricing services during the Fund's most
recently completed fiscal year end.
The per share net asset value of the Class A shares generally will be
higher than the per share net asset value of the 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 the Class D shares; moreover, the per share net asset value of
the 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 the
Class B and Class C shares. It is expected, however, that the per share net
asset value of the classes will tend to converge immediately after the payment
of dividends or distributions, which will differ by approximately the amount of
the expense accrual differential between the classes.
29
<PAGE> 32
Portfolio securities which 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 market are valued at the most recent
bid price as obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. Securities and assets for which 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. Any foreign
securities held by the Fund will be valued as described above as of the close of
trading in the primary market where such securities are traded which next
precedes the time the net asset value of the Fund is determined. Short-term
securities are valued at amortized cost which approximates market.
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in
which it distributes at least 90% of its taxable net income and 90% of its
tax-exempt net income, 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 which 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 and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
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.
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends. A
portion of the Fund's ordinary income dividends may be eligible for the
dividends-received deduction allowed to corporations under the Code, if certain
requirements are met. If the Fund pays a dividend in January which was declared
in the previous October, November or December to shareholders of record on a
specified date in one of such months, then such dividend will be treated for tax
purposes as being paid by the Fund and received by its shareholders on December
31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund 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.
30
<PAGE> 33
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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends 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. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.
Under Code Section 988, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to shareholders as ordinary income.
Additionally, if Code Section 988 losses exceed other investment company taxable
income during a taxable year, the Fund would not be able to make any ordinary
income dividend distributions, and any distributions made before the losses were
realized but in the same taxable year would be recharacterized as a return of
capital to shareholders, thereby reducing the basis of each shareholder's Fund
shares and resulting in a capital gain for any shareholder who received a
distribution greater than the shareholder's tax basis in Fund shares (assuming
the shares were held as a capital asset).
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.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge such
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new 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 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 Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
31
<PAGE> 34
Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
ORGANIZATION OF THE FUND
The Fund was incorporated under Maryland law on April 15, 1982. It has an
authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 50,000,000 shares. Shares of Class A,
Class B, Class C and Class D Common Stock represent interests in the same assets
of the Fund and are identical in all respects except that the Class B, Class C
and Class D shares bear certain expenses related to the account maintenance
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 account maintenance and
distribution expenditures, as applicable. See "Purchase of Shares". The Fund has
received an order from the Securities and Exchange Commission (the "Commission")
permitting the issuance and sale of multiple classes of Common Stock. 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 matters submitted to a shareholder vote. The Fund does not intend to
hold meetings of shareholders in any year in which the Investment Company Act of
1940 does not require shareholders to 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 auditors. Voting rights for Directors are not cumulative. Shares
issued are fully paid and non-assessable and have no preemptive rights. Shares
have the conversion rights described in the Prospectus. Each share of Common
Stock 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 as noted above, the Class
B, Class C and Class D shares bear certain additional expenses.
SHAREHOLDER REPORTS
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:
Financial Data Services, Inc.
Attn: TAMFO
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 Financial Data Services,
Inc. at 800-637-3863.
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.
32
<PAGE> 35
MERRILL LYNCH PHOENIX 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 Phoenix 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 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
Name of Co-Owner (if any)
First Name Initial Last Name
First Name Initial Last Name
Address
...................................................................... Date
(Zip Code)
<TABLE>
<S> <C>
Occupation .........................................
...................................................
Signature of Owner
<CAPTION>
Occupation ......................................... Name and Address of Employer.................................................
<S> <C>
.............................................................................
.............................................................................
................................................... .............................................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
(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
<TABLE>
<S> <C> <C> <C> <C> <C>
Ordinary Income Dividends Long-Term Capital Gains
--------------------------------- ---------------------------------
SELECT / / Reinvest SELECT / / Reinvest
ONE: / / Cash ONE: / / Cash
--------------------------------- ---------------------------------
</TABLE>
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 Phoenix 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 Financial Data Services, Inc. amending or terminating this
service.
Signature of Depositor..........................................................
A-1
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.
A-2
<PAGE> 36
MERRILL LYNCH PHOENIX FUND, INC. -- AUTHORIZATION FORM (PART 1) -- (CONTINUED)
- --------------------------------------------------------------------------------
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 "Additional
Information--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.
<TABLE>
<S> <C>
............................................................. ............................................................
Signature of Owner Signature of Co-Owner (if any)
</TABLE>
- --------------------------------------------------------------------------------
4. LETTER OF INTENTION -- CLASS A AND D SHARES ONLY (See terms and conditions in
the Statement of Additional Information)
<TABLE>
<S> <C>
......................,
19 . . . .
Dear Sir/Madam: Date of initial purchase
</TABLE>
Although I am not obligated to do so, I intend to purchase shares of Merrill
Lynch Phoenix 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 Phoenix 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 Phoenix Fund, Inc. held as security.
<TABLE>
<S> <C>
By:.............................................................. ...............................................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both must sign)
</TABLE>
In making purchases under this letter, the following are the related accounts
on which reduced offering prices are to apply:
<TABLE>
<S> <C>
(1) Name ................................................... (2) Name....................................................
Account Number ............................................ Account Number..............................................
</TABLE>
- --------------------------------------------------------------------------------
5. FOR DEALER ONLY
- --- Branch Office, Address, Stamp
- ---
- -
- -
- -
- -
- ---
- ---
This form when completed should be mailed to:
Merrill Lynch Phoenix Fund, Inc.
c/o Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
P.O. Box 45289
Jacksonville, Florida 32232-5289
A-3
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 made under a Letter of Intention or Systematic
Withdrawal Plan. We guarantee the Shareholder's signature.
...............................................................
Dealer Name and Address
By
Authorized Signature of Dealer
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------- ------------
..............................
- --------- ------------
Branch-Code F/C No. F/C Last Name
- --------- ---------------
- --------- ---------------
Dealer's Customer A/C No.
</TABLE>
A-4
<PAGE> 37
MERRILL LYNCH PHOENIX FUND, INC. -- AUTHORIZATION FORM (PART 2)
- --------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL OF AUTOMATIC
INVESTMENT PLANS ONLY.
- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
(PLEASE PRINT) ------------------------------------
Name................................................................................
------------------------------------
Social Security Number
or Taxpayer Identification Number
Name of Co-Owner (if any)...........................................................
Address.............................................................................
.................................................................................... Account Number...........................
(if existing account)
<CAPTION>
(PLEASE PRINT)
Name................................................................................
Name of Co-Owner (if any)...........................................................
Address.............................................................................
....................................................................................
</TABLE>
- --------------------------------------------------------------------------------
2. SYSTEMATIC WITHDRAWAL PLAN -- CLASS A AND D SHARES ONLY (See terms and
conditions in the Statement of Additional Information)
MINIMUM REQUIREMENTS: $10,000 for monthly disbursements, $5,000 for
quarterly, of / / Class A or / / Class D shares in Merrill Lynch 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 HOW YOU WOULD LIKE YOUR WITHDRAWAL PAID TO YOU (CHECK ONE): / / $
or / / $ % of the current value of / / Class A 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 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.
A-5
<PAGE> 38
MERRILL LYNCH PHOENIX FUND, INC. -- AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- --------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that 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 Merrill Lynch 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.
FINANCIAL DATA SERVICES, INC.
You are hereby authorized to draw an ACH debit each month on my bank account for
investment in Merrill Lynch Phoenix Fund, Inc., as indicated below:
Amount of each ACH debit $...................................................
Account No...................................................................
Please date and invest ACH debits on the 20th of each month
beginning or as soon thereafter as possible.
(month)
I agree that you are drawing these ACH debits voluntarily at my request and
that you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such debit. If I change banks or desire to terminate or
suspend this program, I agree to notify you promptly in writing. I hereby
authorize you to take any action to correct erroneous ACH debits of my 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
presentation, Financial Data Services, Inc. is authorized to discontinue
immediately the Automatic Investment Plan and to liquidate sufficient shares
held in my account to offset the purchase made with the dishonored debit.
................. .......................................
Date Signature of Depositor
.......................................
Signature of Depositor
(If joint account, both must sign)
AUTHORIZATION TO HONOR ACH DEBITS
DRAWN BY FINANCIAL DATA SERVICES, INC.
To..........................................................................Bank
(Investor's Bank)
Bank Address....................................................................
City .......... State .......... Zip............................................
As a convenience to me, I hereby request and authorize you to pay and charge to
my account ACH debits drawn on my account by and payable to Financial Data
Services, Inc., I agree that your rights in respect to each such debit shall be
the same as if it were a check drawn on you and signed personally by me. This
authority is to remain in effect until revoked by me in writing. Until you
receive such notice, you shall be fully protected in honoring any such debit. I
further agree that if any such debit be dishonored, whether with or without
cause and whether intentionally or inadvertently, you shall be under no
liability.
................. .......................................
Date Signature of Depositor
................. .......................................
Bank Account Signature of Depositor
Number (If joint account, both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED
"VOID" SHOULD ACCOMPANY THIS APPLICATION.
A-6
<PAGE> 39
[This page is intentionally left blank.]
<PAGE> 40
[This page is intentionally left blank.]
<PAGE> 41
INVESTMENT ADVISER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
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
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
CUSTODIAN
National Westminster Bank NJ
Exchange Place Centre
Jersey City, New Jersey 07302
TRANSFER AGENT
Financial Data Services, Inc.
Administrative Offices:
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida
Mailing Address:
P.O. Box 45289
Jacksonville, Florida 32232-5289
INDEPENDENT AUDITORS
Deloitte & Touche LLP
117 Campus Drive
Princeton, New Jersey 08540
COUNSEL
Brown & Wood
One World Trade Center
New York, New York 10048-0557
MERRILL LYNCH PHOENIX FUND, INC. IS NOT RELATED TO PHOENIX HOME LIFE MUTUAL LIFE
INSURANCE COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES, INCLUDING THE
PHOENIX SERIES FUND.
<PAGE> 42
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR 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.............................. 2
Merrill Lynch Select PricingSM
System............................... 3
Financial Highlights................... 8
Special Considerations................. 9
Investment Objective and Policies...... 9
Management of the Fund................. 12
Board of Directors................... 12
Management and Advisory
Arrangements...................... 13
Transfer Agency Services............. 14
Purchase of Shares..................... 14
Initial Sales Charge Alternatives
-- Class A and Class D Shares..... 16
Deferred Sales Charge Alternatives
-- Class B and Class C Shares..... 18
Distribution Plans................... 21
Limitations on the Payment of
Deferred Sales Charges............ 23
Redemption of Shares................... 23
Redemption........................... 24
Repurchase........................... 24
Reinstatement Privilege -- Class A
and Class D Shares................ 25
Shareholder Services................... 25
Portfolio Transactions and Brokerage... 27
Performance Data....................... 28
Additional Information................. 29
Dividends and Distributions.......... 29
Determination of Net Asset Value..... 29
Taxes................................ 30
Organization of the Fund............. 32
Shareholder Reports.................. 32
Shareholder Inquiries................ 32
Authorization Form..................... A-1
</TABLE>
Merrill Lynch Phoenix Fund, Inc. is not related to Phoenix Home Life Mutual Life
Insurance Company or any of its subsidiaries or affiliates, including the
Phoenix Series Fund.
Code #10121-1094
[LOGO]
MERRILL LYNCH
PHOENIX FUND, INC.
ART WORK
PROSPECTUS
October 21, 1994
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be
retained for future reference.
<PAGE> 43
STATEMENT OF ADDITIONAL INFORMATION
MERRILL LYNCH PHOENIX FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011 PHONE NO. (609) 282-2800
------------------------
Merrill Lynch Phoenix Fund, Inc. (the "Fund") is a diversified open-end
investment company seeking long-term growth of capital by investing in a
diversified portfolio of equity and fixed income securities, including municipal
securities, of issuers in weak financial condition or experiencing poor
operating results that management of the Fund believes are undervalued relative
to management's assessment of the current or prospective condition of such
issuer. The investment policy of the Fund is based upon the belief that the
prices of securities of troubled issuers are often depressed to a greater extent
than warranted by the condition of the issuer and that, while investment in such
securities involves a high degree of risk, such investments offer the
opportunity for significant capital gains. Current income is not necessarily a
factor in the selection of investments. There can be no assurance that the
objective of the Fund will be realized.
------------------------
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.
------------------------
This Statement of Additional Information of the Fund is not a prospectus
and should be read in conjunction with the Prospectus of the Fund, dated October
21, 1994 (the "Prospectus"), which has been filed with the Securities and
Exchange Commission and can be obtained, without charge, 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.
------------------------
INVESTMENT ADVISER:
FUND ASSET MANAGEMENT
DISTRIBUTOR:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
------------------------
The date of this Statement of Additional Information is October 21, 1994.
<PAGE> 44
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term growth of capital
by investing in a diversified portfolio of equity and fixed income securities,
including municipal securities, of issuers in weak financial condition or
experiencing poor operating results that management of the Fund believes are
undervalued relative to management's assessment of the current or prospective
condition of such issuers. Reference is made to "Investment Objective and
Policies" in the Prospectus for a discussion of the investment objective and
policies of the Fund.
The types of securities in which the Fund invests require active monitoring
and may, at times, require participation in bankruptcy or reorganization
proceedings by the Investment Adviser on behalf of the Fund. To the extent that
Fund Asset Management, L.P. (the "Investment Adviser") becomes involved in such
proceedings, the Fund may have a more active participation in the affairs of the
issuer than that assumed generally by an investor. The Fund, however, will not
make investments for the purpose of exercising day-to-day management of any
issuer's affairs.
Portfolio Turnover. Due to the fact that many of the securities in which
the Fund invests are unlikely to show significant short-term appreciation, it is
anticipated that the portfolio turnover rate ordinarily will be low as measured
by traditional standards; however, there may be periods when the portfolio
turnover rate will be relatively high. The Fund pays brokerage commissions in
connection with purchases and sales of portfolio securities. A high rate of
portfolio turnover results in correspondingly greater brokerage commission
expenses and may result in increased short-term capital gains or losses. The
portfolio turnover rate is calculated by dividing the lesser of the Fund's
annual sales or purchases of portfolio securities (exclusive of purchases or
sales of U.S. Government securities and of all other securities whose maturities
at the time of acquisition were one year or less) by the monthly average value
of the securities in the portfolio during the year. The rates of portfolio
turnover for the Fund for the fiscal years ended July 31, 1992, 1993 and 1994
were 79.68%, 67.57% and 63.95%, respectively.
Current Investment Restrictions. In addition to the investment
restrictions set forth in the Prospectus, the Fund has adopted the following
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 (which for this purpose and under the Investment Company Act of 1940
(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). The Fund may not:
1. Make investments for the purpose of exercising day-to-day management of
any issuer's affairs. (The Fund may, however, from time to time have a
controlling interest in a particular issuer, be part of a group holding a
controlling interest, or serve on a creditors' committee or otherwise
participate in bankruptcy or reorganization proceedings.)
2. Purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization, or by purchase in
the open market of securities of closed-end investment companies where no
underwriter or dealer's commission or profit, other than customary broker's
commission, is involved and only if immediately thereafter not more than 10% of
the Fund's total assets, taken at market value, would be invested in such
securities.
2
<PAGE> 45
3. Purchase or sell real estate; provided that the Fund may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.
4. Purchase or sell commodities or commodity contracts.
5. Purchase any securities on margin, except that the Fund may obtain such
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities, or make short sales of securities or maintain a short
position.
6. Make loans to other persons (except as provided in (7) below); provided
that for purposes of this restriction the acquisition of bonds, debentures, or
other corporate debt securities and investment in Government obligations,
short-term commercial paper, certificates of deposit and bankers' acceptances
shall not be deemed to be the making of a loan (the acquisition of bonds,
debentures, or other corporate debt securities which are not publicly
distributed is considered to be the making of a loan under the Investment
Company Act).
7. Lend its portfolio securities in excess of 33 1/3% of its total assets,
taken at market value; provided that such loans shall be made in accordance with
the guidelines set forth below.
8. Borrow amounts in excess of 20% 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. The Fund will not
purchase securities while borrowings are outstanding.
9. Mortgage, pledge, hypothecate or in any manner transfer (except as
provided in (7) above), as security for indebtedness, any securities owned or
held by the Fund except as may be necessary in connection with borrowings
mentioned in (8) above, and then such mortgaging, pledging or hypothecating may
not exceed 10% of the Fund's total assets, taken at market value. (In order to
comply with certain state statutes, the Fund will not, as a matter of operating
policy, mortgage, pledge or hypothecate its portfolio securities to the extent
that at any time the percentage of the value of pledged securities plus the
maximum sales charge will exceed 10% of the value of the Fund's shares at the
maximum offering price.)
10. Invest in securities which cannot be readily resold to the public
because of legal or contractual restrictions or for which there are no readily
available market quotations if, regarding all such securities, more than 10% of
its net assets, taken at market value, would be invested in such securities.
11. Underwrite securities of other issuers except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in selling portfolio
securities.
12. Write, purchase or sell puts, calls or combinations thereof.
13. Invest in securities of foreign issuers if at the time of acquisition
more than 20% of its total assets, taken at market value, would be invested in
such securities.
14. Purchase or sell interests in oil, gas or other mineral exploration or
development programs.
15. Invest in securities of issuers having a record, together with
predecessors, of less than three years of continuous operation if more than 5%
of the total assets, taken at market value, would be invested in such
securities.
3
<PAGE> 46
16. Purchase or retain the securities of any issuer, if those individual
officers and directors of the Fund, the Investment Adviser or any subsidiary
thereof each owning beneficially more than 1/2 of 1% of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.
To comply with a state securities law regulation, the Board of Directors of
the Fund has adopted a non-fundamental policy, which may be changed by the vote
of a majority of the Fund's Directors, that the Fund will not purchase warrants
in excess of 5% of its net asset value taken at market value, and of such amount
will not purchase warrants in excess of 2% of its net asset value which are not
listed on either the New York or American Stock Exchanges. The Fund may,
however, acquire warrants in excess of these amounts as part of a restructuring
or refinancing involving securities in the Fund's portfolio.
Lending of Portfolio Securities. Subject to investment restriction (7)
above, the Fund may from time to time lend securities from its portfolio to
brokers, dealers and financial institutions and receive collateral in cash or
securities issued or guaranteed by the United States Government which will be
maintained at all times in amounts equal to at least 100% of the current market
value of the loaned securities. Such cash collateral will be invested in
short-term securities, which will increase the current income of the Fund. Such
loans 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 to dividends, interest or other
distributions. The Fund may pay reasonable fees to persons unaffiliated with the
Fund for services in arranging such loans. With respect to the lending of
portfolio securities, there is the risk of failure by the borrower to return the
securities involved in such transactions.
Proposed Uniform Investment Restrictions. As discussed in the Prospectus
under "Investment Objective and Policies -- Investment Restrictions", the Board
of Directors of the Fund has approved the replacement of the Fund's existing
investment restrictions with the fundamental and non-fundamental investment
restrictions set forth below. These uniform investment restrictions have been
proposed for adoption by all of the non-money market mutual funds advised by
Fund Asset Management L.P. (the "Investment Adviser") or its affiliate, Merrill
Lynch Asset Management, L.P. ("MLAM"). The investment objective and policies of
the Fund will be unaffected by the adoption of the proposed investment
restrictions.
Shareholders of the Fund are currently considering whether to approve the
proposed revised investment restrictions. If such shareholder approval is
obtained, the Fund's current investment restrictions will be replaced by the
proposed restrictions, and the Fund's Prospectus and Statement of Additional
Information will be supplemented to reflect such change.
Under the proposed 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 total 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.
4
<PAGE> 47
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 from 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 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 proposed non-fundamental investment restrictions, the Fund may
not:
a. Purchase securities of other investment companies, except to the
extent such purchases are permitted by applicable law.
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 which cannot be readily resold because of
legal or contractual restrictions or which 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 which mature
within seven days or securities which the Board of Directors of the Fund
has otherwise determined to be liquid pursuant to applicable law.
Notwithstanding the 15% limitation herein, to the extent the laws of any
state in which the Fund's shares are registered or qualified for sale
require a lower limitation, the Fund will observe such limitation. As of
the date hereof, therefore, the Fund will not invest more than 10% of its
total assets in securities which are subject to this investment restriction
(c). 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
5
<PAGE> 48
the limitations set forth in this investment restriction (c).
Notwithstanding the fact that the Board may determine that a Rule 144A
security is liquid and not subject to limitations set forth in this
investment restriction (c), the State of Ohio does not recognize Rule 144A
securities as securities that are free of restrictions as to resale. To the
extent required by Ohio law, the Fund will not invest more than 5% of its
total assets in securities of issuers that are restricted as to
disposition, including Rule 144A securities.
d. Invest in warrants if, at the time of acquisition, its investment
in warrants, valued at the lower of cost or market value, would exceed 5%
of the Fund's net assets; included within such limitation, but not to
exceed 2% of the Fund's net assets, are warrants which are not listed on
the New York Stock Exchange or American Stock Exchange or a major foreign
exchange. For purposes of this restriction, warrants acquired by the Fund
in units or attached to securities may be deemed to be without value.
e. Invest in securities of companies having a record, together with
predecessors, of less than three years of continuous operation, if more
than 5% of the Fund's total assets would be invested in such securities.
This restriction shall not apply to mortgage-backed securities,
asset-backed securities or obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
f. Purchase or retain the securities of any issuer, if those
individual officers and directors of the Fund, the officers and general
partner of the Investment Adviser, the directors of such general partner or
the officers and directors of any subsidiary thereof each owning
beneficially more than one-half of one percent of the securities of such
issuer own in the aggregate more than 5% of the securities of such issuer.
g. Invest in real estate limited partnership interests or interests in
oil, gas or other mineral leases, or exploration or development programs,
except that the Fund may invest in securities issued by companies that
engage in oil, gas or other mineral exploration or development activities.
h. Write, purchase or sell puts, calls, straddles, spreads or
combinations thereof, except to the extent permitted in the Fund's
Prospectus and Statement of Additional Information, as they may be amended
from time to time.
i. Notwithstanding fundamental investment restriction (7) above,
borrow amounts in excess of 20% 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. 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 Fund, 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 purchases from or sales to Merrill Lynch of
securities in transactions in which it acts as principal and purchases of
securities from underwriting syndicates of which Merrill Lynch is a member.
6
<PAGE> 49
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund and their principal
occupations for at least the last five years are set forth below. Unless
otherwise noted, the address of each executive officer and Director is P.O. Box
9011, Princeton, New Jersey 08543-9011.
ARTHUR ZEIKEL -- President and Director (1)(2) -- President and Chief
Investment Officer of the Investment Adviser or its predecessor since 1977;
President of Merrill Lynch Asset Management, L.P. ("MLAM") or its predecessors
since 1977 and Chief Investment Officer thereof since 1976; President and
Director of Princeton Services, Inc. ("Princeton Services") since 1993;
Executive Vice President of ML&Co. since 1990; Executive Vice President of
Merrill Lynch since 1990 and Senior Vice President from 1985 to 1990; and
Director of Merrill Lynch Funds Distributor, Inc. (the "Distributor").
JOE GRILLS -- Director (2) -- 183 Soundview Lane, New Canaan, Connecticut
06840. Member of the Committee of Investment of Employee Benefit Assets of the
Financial Executives Institute ("CIEBA") since 1986; Member of CIEBA's Executive
Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Incorporated ("IBM") and Chief Investment
Officer of IBM Retirement Funds from 1986 until 1993; Member of the Investment
Advisory Committee of the State of New York Common Retirement Fund; Director,
Duke Management Company and Winthrop Financial Associates (real estate
management).
WALTER MINTZ -- Director (2) -- 1114 Avenue of the Americas, New York, New
York 10036. Special Limited Partner of Cumberland Associates (investment
partnership) since 1982.
MELVIN R. SEIDEN -- Director (2) -- 780 Third Avenue, New York, New York
10017. President of Silbanc Properties, Ltd. (real estate, investment and
consulting) since 1987; Chairman and President of Seiden & de Cuevas, Inc.
(private investment firm) from 1964 to 1987.
STEPHEN B. SWENSRUD -- Director (2) -- 24 Federal Street, Boston,
Massachusetts 02110. Principal of Fernwood Associates (financial consultants);
Director, Hitchiner Manufacturing Company.
HARRY WOOLF -- Director (2) -- The Institute for Advanced Study, Olden
Lane, Princeton, New Jersey 08540. Member of the editorial board of
Interdisciplinary Science Reviews; Director, Alex. Brown Mutual Funds, Advanced
Technology Laboratories, Family Health International and SpaceLabs Medical
(medical equipment manufacturing and marketing).
TERRY K. GLENN -- Executive Vice President (1)(2) -- Executive Vice
President of the Investment Adviser and MLAM or their predecessors since 1983;
Executive Vice President and Director of Princeton Services since 1993;
President of the Distributor since 1986 and Director thereof since 1991;
President of Princeton Administrators, L.P. since 1988; and Director of
Financial Data Services, Inc. since 1985.
NORMAN R. HARVEY -- Senior Vice President (1)(2) -- Senior Vice President
of the Investment Adviser and MLAM or their predecessors since 1982.
ROBERT J. MARTORELLI -- Vice President -- Vice President of MLAM or its
predecessors since 1987; Fund Analyst with MLAM or its predecessors from 1985 to
1987 and Portfolio Manager since 1987; Senior Security Analyst for First
Investors Management Co., Inc. from 1983 to 1985; and Senior Analyst for the
National Association of Insurance Commissioners from 1981 to 1983.
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<PAGE> 50
DONALD C. BURKE -- Vice President (1)(2) -- Vice President and Director of
Taxation of MLAM or its predecessors since 1990; and Employee of Deloitte &
Touche LLP from 1982 to 1990.
GERALD M. RICHARD -- Treasurer (1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and MLAM or their predecessors since 1984;
Senior Vice President and Treasurer of Princeton Services since 1993; and Vice
President and Treasurer of the Distributor since 1981 and 1984, respectively.
ROBERT HARRIS -- Secretary (1)(2) -- Vice President of MLAM or its
predecessors since 1984; Secretary of the Distributor since 1982.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of the Fund.
(2) Such Director or officer is a director, officer or member of an advisory
board of certain other investment companies for which the Investment Adviser
or MLAM acts as investment adviser.
At September 30, 1994, the Directors and officers of the Fund as a group
(12 persons) owned an aggregate of less than 1% of the outstanding shares of the
Fund. At that date, Mr. Zeikel, a Director of the Fund, and the officers of the
Fund owned an aggregate of less than 1/4 of 1% of the outstanding shares of
Common Stock of ML&Co.
Pursuant to the terms of the Fund's investment advisory agreement with the
Investment Adviser (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 or any of its affiliates. Until calendar year 1994, the Fund paid each
unaffiliated Director a fee of $5,000 per year plus $500 per meeting attended
and paid all Directors' actual out-of-pocket expenses relating to attendance at
meetings. The Fund also paid each member of the Audit Committee of the Board of
Directors, which consists of all of the unaffiliated Directors, an annual fee of
$1,000 plus $250 per meeting attended of the Audit Committee which is held on a
day on which the Board of Directors does not meet, together with all actual
out-of-pocket expenses relating to attendance at such meetings. As of calendar
year 1994, the Fund has paid each unaffiliated Director an annual fee of $5,000,
plus $250 for each board meeting attended and actual out-of-pocket expenses
relating to attendance at such meetings, and each Audit Committee member an
annual fee of $1,000 plus $500 per Committee meeting attended. Fees and expenses
paid to the unaffiliated Directors aggregated $42,251 for the year ended July
31, 1994.
MANAGEMENT AND ADVISORY ARRANGEMENTS
Reference is made to "Management of the Fund -- Management and Advisory
Arrangements" in the Prospectus for certain information concerning the
management and advisory arrangements of the Fund.
The Investment Advisory Agreement provides that, subject to the direction
of the Board of Directors of the Fund, the Investment Adviser is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the Investment
Adviser, subject to review by the Board of Directors. The Investment Adviser
provides the portfolio managers for the Fund, who consider analyses from various
sources, make the necessary investment decisions and place transactions
accordingly. The Investment Adviser is also obligated to perform certain
administrative and management services for the Fund and to provide all the
office space, facilities, equipment and personnel necessary to perform its
duties under the Investment Advisory Agreement.
Securities held by the Fund may also be held by, or be appropriate
investments for, other funds for which the Investment Adviser or MLAM acts as an
adviser or by investment advisory clients of MLAM. Because of different
objectives or other factors, a particular security may be brought 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 other funds for
8
<PAGE> 51
which they act 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.
As compensation for its services to the Fund, the Investment Adviser
receives monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Fund. This fee is higher than that of most mutual funds, but
the Fund believes it is justified by the high degree of care that must be given
to the initial selection and continuous supervision of the types of securities
in which the Fund invests. The State of California imposes limitations on the
expenses of the Fund. These limitations require that the Investment Adviser
reimburse the Fund if, during the Fund's fiscal year, ordinary operating
expenses exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the next $70 million of average daily net assets and 1.5% of the
remaining average daily net assets. Expenses not covered by this limitation are
interest, taxes, brokerage commissions and other items such as extraordinary
legal expenses. No fee payment will be made to the Investment Adviser during any
fiscal year which will cause such expenses to exceed the pro rata expense
limitation at the time of such payment. For the fiscal years ended July 31,
1992, 1993 and 1994, the total advisory fees paid by the Fund to the Investment
Adviser aggregated $2,201,739, $3,031,663 and $5,188,122, respectively. During
these periods, the Investment Adviser made no reimbursement of expenses to the
Fund in respect of the applicable expense limitation provisions.
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 investment
and economic 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 affiliates. The Fund pays all other expenses incurred in the
operation of the Fund, including, among other things, taxes, expenses for legal
and auditing services, costs of printing proxies, stock certificates,
shareholder reports, prospectuses and statements of additional information
(except to the extent paid by the Distributor), charges of the custodian and
transfer agent, expenses of redemption of shares, Securities and Exchange
Commission fees, expenses of registering the shares under Federal and state
securities laws, fees and expenses of unaffiliated Directors, accounting and
pricing costs (including the daily calculation of net asset value), insurance,
interest, brokerage costs, litigation and other extraordinary or nonrecurring
expenses, and other expenses properly payable by the Fund. The Distributor pays
the promotional expenses of the Fund incurred in connection with the continuous
offering of shares by the Fund. See "Purchase of Shares -- Distribution Plans".
The Investment Adviser is a limited partnership, the partners of which are
ML & Co., Inc., Fund Asset Management, Inc. and Princeton Services.
Duration and Termination. Unless earlier terminated as described herein,
the Investment Advisory Agreement will remain 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 contracts or interested persons (as defined in the
Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days' written notice at the option of
either party thereto or by the vote of the shareholders of the Fund.
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<PAGE> 52
PURCHASE OF SHARES
Reference is made to "Purchase of Shares" in the Prospectus for certain
information as to the purchase of Fund shares.
ALTERNATIVE SALES ARRANGEMENTS
The Fund issues four classes of shares under the Merrill Lynch Select
Pricing System: 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. Each Class A, Class
B, Class C and Class D share of the Fund represents identical interests 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. 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 account maintenance
and/or distribution fees are paid. Each class has different exchange privileges.
See "Shareholder Services -- Exchange Privilege".
The Merrill Lynch Select Pricing System is used by more than 50 mutual
funds advised by MLAM or its affiliate, the Investment Adviser. Funds advised by
MLAM or the Investment Adviser are referred to herein as "MLAM-advised mutual
funds".
The Fund has entered into separate Distribution Agreements with the
Distributor in connection with the continuous offering of each class of shares
of the Fund (the "Distribution Agreements"). 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.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A AND CLASS D SHARES
For the fiscal years ended July 31, 1992, 1993 and 1994, $390,776, $591,022
and $970,651, respectively, was received by the Distributor as sales charges on
Class A shares sold, of which $368,869, $558,483 and $906,534, respectively, was
paid to Merrill Lynch as a selected dealer. For information as to brokerage
commissions received by Merrill Lynch, see "Portfolio Transactions and
Brokerage".
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 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
other registered investment companies at a
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<PAGE> 53
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.
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 MLAM or the
Investment Adviser who purchased such closed-end fund shares prior to October
21, 1994 and wish to reinvest the net proceeds from a sale of their closed-end
fund shares of common stock in Eligible Class A Shares, if the conditions set
forth below are satisfied. 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"), if the following
conditions are met. First, the sale of the closed-end fund shares must be made
through Merrill Lynch, and the net proceeds therefrom must be immediately
reinvested in Eligible Class A or Class D Shares. Second, the closed-end fund
shares must either have been acquired in the initial public offering or be
shares representing dividends from shares of common stock acquired in such
offering. Third, the closed-end fund shares must have been continuously
maintained in a Merrill Lynch securities account. Fourth, there must be a
minimum purchase of $250 to be eligible for the investment option. Class A
shares of the Fund are offered at net asset value to shareholders of Merrill
Lynch Senior Floating Rate Fund, Inc. ("Senior Floating Rate Fund") who wish to
reinvest the net proceeds from a sale of certain of their shares of common stock
of Senior Floating Rate Fund in shares of the Fund. In order to exercise this
investment option, Senior Floating Rate Fund shareholders must sell their Senior
Floating Rate Fund shares to the Senior Floating Rate Fund in connection with a
tender offer conducted by the Senior Floating Rate Fund and reinvest the
proceeds immediately in the Fund. This investment option is available only with
respect to the proceeds of Senior Floating Rate Fund shares as to which no Early
Withdrawal Charge (as defined in the Senior Floating Rate Fund prospectus) is
applicable. Purchase orders from Senior Floating Rate Fund shareholders wishing
to exercise this investment option will be accepted only on the day that the
related Senior Floating Rate Fund tender offer terminates and will be effected
at the net asset value of the Fund at such day.
REDUCED INITIAL SALES CHARGES
Right of Accumulation. The reduced sales charges are applicable through a
right of accumulation under which eligible investors are permitted to purchase
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 the shares of the Fund and of other 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 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
aggregating $25,000 or more of the Class A or Class D shares of the Fund or
other MLAM-advised mutual funds made within a thirteen-
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<PAGE> 54
month period starting with the first purchase pursuant to a Letter of Intention
in the form provided in this Prospectus. 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 available to employee benefit plans for which
Merrill Lynch provides plan participant record-keeping services. 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 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 and 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, but the reduced sales charge applicable to the amount
covered by such Letter 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 (minimum of $25,000), the investor will be notified and must pay,
within 20 days of the expiration of such Letter, the difference between the
sales charge on the Class A or Class D shares 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 thirteen-month period (while remaining registered in
the name of the purchaser) for this purpose. The first purchase under the Letter
of Intention must be at least five percent of the dollar amount of such Letter.
If a purchase during the term of such Letter would otherwise be subject to a
further reduced sales charge based on the right of accumulation, the purchaser
will be entitled on that purchase and subsequent purchases to that further
reduced percentage sales charge, but there will be no retroactive reduction of
the sales charges on any previous purchase. The value of any shares redeemed or
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 from the Fund.
Merrill Lynch Blueprint(SM) Program. Class D shares of the Fund are \
offered to participants in the Merrill Lynch Blueprint(SM) 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. The Blueprint program is directed to small investors, group IRAs
and participants in certain affinity groups such as credit unions, trade
associations and benefit plans. Investors placing orders to purchase Class A
or Class D shares of the Fund through Blueprint will acquire the Class A or
Class D shares at net asset value per share plus a sales charge calculated in
accordance with the Blueprint sales charge schedule (i.e., up to $300 at
4.25%, $300.01 to $5,000 at 3.25% plus $3.00 and $5,000.01 or more at the
standard sales charge rates disclosed in the Prospectus). In addition, Class D
shares of the Fund are being offered at net asset value per share plus a sales
charge of 1/2 of 1% for corporate or group IRA programs placing orders to
purchase their Class A or Class D shares through Blueprint. Services, including
the exchange privilege, available to Class A and Class D investors through
Blueprint, however, 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 Blueprint
participants 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
(as defined below) whose
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<PAGE> 55
Trustee and/or Plan Sponsor has entered into a Merrill Lynch Directed IRA
Rollover Program Service Agreement.
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. There are no minimum initial
or subsequent purchase requirements for participants who are part of an
automatic investment plan. Additional information concerning purchases through
Blueprint, including any annual fees and transaction charges, is available from
Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Blueprint(SM) Program,
P.O. Box 30441, New Brunswick, New Jersey 08989-0441, or call 1 (800) 637-3766.
TMA(SM) Managed Trusts. Class A shares are offered to TMA(SM) Managed
Trusts to which Merrill Lynch Trust Company provides discretionary trustee
services at net asset value.
Employer Sponsored Retirement and Savings Plans. Class A and Class D
shares are offered at net asset value to employer sponsored retirement or
savings plans, such as tax qualified retirement plans within the meaning of
Section 401(a) of the Code, deferred compensation plans within the meaning of
Section 403(b) and 457 of the Code, other deferred compensation arrangements,
Voluntary Employee Benefits Association ("VEBA") plans, and non-qualified After
Tax Savings and Investment programs, maintained on the Merrill Lynch Group
Employee Services system, herein referred to as "Employer Sponsored Retirement
or Savings Plans", provided the plan has accumulated $20 million or more in
MLAM-advised mutual funds (in the case of Class A shares) or $5 million or more
in MLAM-advised mutual funds (in the case of Class D shares). Class D shares may
be offered at net asset value to new Employer Sponsored Retirement or Savings
Plans, provided the plan has $3 million or more initially invested in
MLAM-advised mutual funds. Assets of Employer Sponsored Retirement or Savings
Plans sponsored by the same sponsor or an affiliated sponsor may be aggregated.
Class A shares and Class D shares also are offered at net asset value to
Employer Sponsored Retirement or Savings Plans that have at least 1,000
employees eligible to participate in the plan (in the case of Class A shares) or
between 500 and 999 employees eligible to participate in the plan (in the case
of Class D shares). Employees eligible to participate in Employer Sponsored
Retirement or Savings Plans of the same sponsoring employer or its affiliates
may be aggregated. Tax qualified retirement plans within the meaning of Section
401(a) of the Code meeting any of the foregoing requirements and which are
provided specialized services (e.g., plans whose participants may direct on a
daily basis their plan allocations among a wide range of investments including
individual corporate equities and other securities in addition to mutual fund
shares) by Blueprint, are offered Class A or Class D shares at a price equal to
net asset value per share plus a reduced sales charge of 0.50%. Any Employer
Sponsored Retirement or Savings Plan which does not meet the above described
qualifications to purchase Class A shares at net asset value has the option of
(i) purchasing Class A shares at the initial sales charge schedule and possible
CDSC schedule disclosed in the Prospectus if it is otherwise eligible to
purchase Class A shares, (ii) purchasing Class D shares at the initial sales
charge and possible CDSC schedule disclosed in the Prospectus, (iii) if the
Employer Sponsored Retirement or Savings Plan meets the specified requirements,
purchasing Class B shares with a waiver of the CDSC upon redemption, or if the
Employer Sponsored Retirement or Savings Plan does not qualify to purchase Class
B shares with a waiver of the CDSC upon redemption, purchasing Class C shares at
the CDSC schedule disclosed in the Prospectus. The minimum initial and
subsequent purchase requirements are waived in connection with all the above
referenced Employer Sponsored Retirement or Savings Plans.
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<PAGE> 56
Purchase Privileges of Certain Persons. Directors of the Fund, members of
the Boards of other MLAM-advised investment companies, directors and employees
of ML&Co. and its subsidiaries (the term "subsidiaries", when used herein with
respect to Merrill Lynch & Co., Inc., includes MLAM, FAM and certain other
entities directly or indirectly wholly-owned and controlled by Merrill Lynch &
Co., Inc.), 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 D shares of the Fund will be 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 of the Fund with proceeds from a redemption of a
mutual fund that was sponsored by the financial consultant's previous firm and
was subject to 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.
Class D shares of the Fund are also offered at net asset value, without
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 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 will be 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 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 it will
purchase Class D shares of the Fund with proceeds from the 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 be maintained in the interim in cash or a money market fund.
Acquisition of Certain Investment Companies. The public offering price of
Class D shares 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 which
might result from an acquisition of assets having net unrealized appreciation
which 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 which (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
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<PAGE> 57
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 load are due to
the nature of the investors and/or the reduced sales efforts that will be needed
in obtaining such investments.
DISTRIBUTION PLANS
Reference is made to "Purchase of Shares -- Distribution Plans" in the
Prospectus for certain information with respect to the 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.
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 shareholder. 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 a
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 shareholder, and all material amendments are required to be
approved by the vote of the 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 Rules of Fair Practice 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 fee. The maximum
sales charge rule is applied separately to each class. As applicable to the
Fund, the maximum sales charge rule limits the aggregate of distribution fee
payments and CDSCs payable by the Fund to (1) 6.25% of eligible gross sales of
Class B shares and Class C shares, computed separately (defined to exclude
shares issued pursuant to dividend reinvestments and exchanges), plus (2)
interest on the unpaid balance for the respective class, 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
15
<PAGE> 58
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 the Class B shares is 6.75% of eligible gross sales. The
Distributor retains the right to stop waiving the interest charges at any time.
To the extent payments would exceed the voluntary maximum, the Fund will not
make further payments of the distribution fee 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 fee. 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.
The following table sets forth comparative information as of July 31, 1994
with respect to the Class B shares of the Fund indicating the maximum allowable
payments that can be made under the NASD maximum sales charge rule and the
Distributor's voluntary maximum for the period October 21, 1988 (commencement of
the public offering of Class B shares) to July 31, 1994. Since Class C shares of
the Fund had not been publicly issued prior to the date of this Statement of
Additional Information, information concerning Class C shares is not yet
provided below.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1994
-----------------------------------------------------------------------------------------------------
(IN THOUSANDS)
ANNUAL
DISTRIBUTION
ALLOWABLE AMOUNTS FEE AT
ELIGIBLE AGGREGATE INTEREST MAXIMUM PREVIOUSLY AGGREGATE CURRENT NET
GROSS SALES ON UNPAID AMOUNT PAID TO UNPAID ASSET
SALES(1) CHARGES BALANCE(2) PAYABLE DISTRIBUTOR(3) BALANCE LEVEL(4)
------------ ----------- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Under NASD Rule as
Adopted................ $ 331,513 $ 20,719 $ 2,979 $ 23,698 $ 7,136 $ 16,562 $2,716
Under Distributor's
Voluntary Waiver....... $ 331,513 $ 20,719 $ 1,658 $ 22,377 $ 7,136 $ 15,241 $2,716
</TABLE>
- ---------------
(1) Purchase price of all eligible Class B shares sold since October 21, 1988
(commencement of the public offering of Class B shares) other than shares
acquired through dividend reinvestment and the exchange privilege.
(2) Interest is computed on a monthly basis based upon the prime rate, as
reported in The Wall Street Journal, plus 1.0% as permitted under the NASD
Rule.
(3) Consists of CDSC payments, distribution fee payments and accruals. Of the
distribution fee payments made prior to July 6, 1993 under a prior plan at
the 1.0% rate, 0.75% of average daily net assets has been treated as a
distribution fee and 0.25% of average daily net assets has been deemed to
have been a service fee and not subject to the NASD maximum sales charge
rule. See "Purchase of Shares -- Distribution Plans" in the Prospectus.
(4) Provided to illustrate the extent to which the current level of distribution
fee payments (not including any CDSC payments) is amortizing the unpaid
balance. No assurance can be given that payments of the distribution fee
will reach either the voluntary maximum or the NASD maximum.
REDEMPTION OF SHARES
Reference is made to "Redemption of Shares" in the Prospectus for certain
information as to the redemption and repurchase of Fund shares.
The right to redeem shares or to receive payment with respect to any such
redemption may be suspended for more than seven days only for periods during
which trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission or such Exchange 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
16
<PAGE> 59
Fund is not reasonably practicable, and for such other periods as the Securities
and Exchange Commission may by order permit for the protection of shareholders
of the Fund.
DEFERRED SALES CHARGE -- CLASS B SHARES
As discussed in the Prospectus under "Purchase of Shares -- Deferred Sales
Charge Alternatives -- Class B and Class C Shares", while Class B shares
redeemed within four years of purchase are subject to a CDSC under most
circumstances, the charge is waived on redemptions of Class B shares in
connection with certain post-retirement withdrawals from an Individual
Retirement Account ("IRA") or other retirement plan on redemptions of Class B
shares or following the death or disability of a Class B shareholder.
Redemptions for which the waiver applies 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 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. For the fiscal years ended July 31, 1993 and 1994, the Distributor
received CDSCs of $196,008 and $312,454, respectively, all of which was paid to
Merrill Lynch.
Merrill Lynch Blueprint(SM) Program. Class B shares are offered to certain
participants in the Merrill Lynch Blueprint(SM) Program ("Blueprint"). Blueprint
is directed to small investors, group IRAs and participants in certain affinity
groups such as trade associations and credit unions. Class B shares of the Fund
are offered through Blueprint only to members of certain affinity groups. The
CDSC is waived in connection with purchase orders placed through Blueprint by
members of such affinity groups. Services, including the exchange privilege,
available to Class B Investors through Blueprint, however, may differ from those
available to other Class B investors. Orders for purchases and redemptions of
Class B shares of the Fund will 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. There is no
minimum initial or subsequent purchase requirement for investors who are part of
a Blueprint automatic investment plan. Additional information concerning these
Blueprint programs, including any annual fees or transaction charges, is
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated, The
Blueprint(SM) Program, P.O. Box 30441, New Brunswick, New Jersey 08989-0441.
Retirement Plans. Any Retirement Plan which does not meet the
qualifications to purchase Class A or Class D shares at net asset value has the
option of purchasing Class A or Class D shares at the sales charge schedule
disclosed in the Prospectus, or if the Retirement Plan meets the following
requirements, then it may purchase Class B shares with a waiver of the CDSC upon
redemption. The CDSC is waived for any Eligible 401(k) Plan redeeming Class B
shares. The CDSC is also waived for redemptions from 401(a) plans qualified
under the Code, provided, however, such plan has the same or an affiliated
sponsoring employer as an Eligible 401(k) Plan purchasing Class B shares of
MLAM-advised mutual funds ("Eligible 401(a) Plan"). Other tax qualified
retirement plans within the meaning of Section 401(a) and 403(b) of the Code
which 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 also
17
<PAGE> 60
may purchase Class B shares with a waiver of the CDSC. The CDSC is also waived
for any Class B shares which 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.
"Eligible 401(k) Plan" is defined as a retirement plan qualified under Section
401(k) of the Code with a salary reduction feature offering a menu of
investments to plan participants. The CDSC is also waived for any Class B shares
which are 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE
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. In executing 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 does not necessarily pay the lowest
commission or spread available. Transactions with respect to the securities of
companies in weak financial condition or experiencing poor operating results in
which the Fund may invest may involve specialized services on the part of the
broker or dealer and thereby entail higher commissions or spreads than would be
the case with transactions involving more widely traded securities of less
troubled companies. The Fund has no obligation to deal with any broker in the
execution of transactions for its portfolio securities. In addition, consistent
with the Rules of Fair Practice of the National Association of Securities
Dealers, Inc., the Investment Adviser may consider sales of shares of the Fund
as a factor in the selection of brokers or dealers to execute portfolio
transactions for the Fund.
The Fund has no obligation to deal with any broker in the execution of
transactions for its portfolio securities. The Fund has been informed by Merrill
Lynch that it will in no way, at any time, attempt to influence or control the
placing by the Investment Adviser or by the Fund of orders for brokerage
transactions. Brokers and dealers, including Merrill Lynch, who provide
supplemental investment research (such as securities and economic research and
market forecasts) to the Investment Adviser may receive orders for transactions
by the Fund. Supplemental investment research received by the Investment Adviser
may also be used in connection with other investment advisory accounts of the
Investment Adviser and its affiliates. Information so received will be in
addition to and not in lieu of the services required to be performed by the
Investment Adviser under the Investment Advisory Agreement and the expenses of
the Investment Adviser will not necessarily be reduced as a result of the
receipt of such supplemental information.
For the fiscal year ended July 31, 1992, the Fund paid total brokerage
commissions of $1,141,411 of which $27,819, or 2.44%, was paid to Merrill Lynch
for effecting six transactions involving 2.41% of the aggregate dollar amount of
transactions in which the Fund paid brokerage commissions. For the fiscal year
ended July 31, 1993, the Fund paid total brokerage commissions of $992,289, of
which $47,441, or 4.78%, was paid to Merrill Lynch for effecting 4.66% of the
aggregate dollar amount of transactions in which the Fund paid brokerage
commissions. For the fiscal year ended July 31, 1994, the Fund paid total
brokerage
18
<PAGE> 61
commissions of $1,941,188 of which $10,848, or 0.56%, was paid to Merrill Lynch
for effecting 0.51% of the aggregate dollar amount of transactions in which the
Fund paid brokerage commissions.
The Fund may invest in securities traded in the over-the-counter market.
Transactions in the over-the-counter market are generally principal transactions
with dealers and the cost of such transactions involve dealer spreads rather
than brokerage commissions. With respect to over-the-counter transactions, the
Fund, where possible, deals directly with the dealers who make a market in the
securities involved except in those circumstances where better prices and
execution are available elsewhere. 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. Since transactions in the
over-the-counter market usually involve transactions with dealers acting as
principal for their own account, affiliated persons of the Fund, including
Merrill Lynch, may not serve as the Fund's dealer in connection with such
transactions. See "Investment Objective and Policies -- Current Investment
Restrictions". However, affiliated persons of the Fund may serve as its broker
in over-the-counter transactions conducted on an agency basis.
The Board of Directors of the Fund has considered the possibilities of
recapturing for the benefit of the Fund brokerage commissions, dealer spreads
and other expenses of possible portfolio transactions, such as underwriting
commissions and tender offer solicitation fees, by conducting such portfolio
transactions through affiliated entities, including Merrill Lynch. For example,
the brokerage commissions received by Merrill Lynch could be offset against the
advisory fee payable by the Fund to the Investment Adviser. After considering
all factors deemed relevant, the Board of Directors made a determination not to
seek such recapture. The Board of Directors will reconsider this matter from
time to time. The Investment Adviser has arranged for the Custodian to receive
any tender offer solicitation fees on behalf of the Fund payable with respect to
portfolio securities of the Fund.
Section 11(a) of the Securities Exchange Act of 1934, as amended, generally
prohibits members of the national securities exchanges from executing exchange
transactions for their affiliates and institutional accounts which they manage
unless the member (i) has obtained prior express authorization from the account
to effect such transactions, (ii) at least annually furnishes the account with
the aggregate compensation received by the member in effecting such
transactions, and (iii) complies with any rules the Commission has prescribed
with respect to the requirements of clauses (i) and (ii). To the extent Section
11(a) would apply to Merrill Lynch acting as a broker for the Fund in any of its
portfolio transactions executed on any such securities exchange of which it is a
member, appropriate consents have been obtained from the Fund and annual
statements as to aggregate compensation will be provided to the Fund.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined once daily,
Monday through Friday, as of the time of the close of trading on the New York
Stock Exchange on each day during which such Exchange is open for trading. The
New York Stock Exchange is not open on New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Any assets or liabilities initially expressed in terms of
non-U.S. dollar currencies are translated into U.S. dollars at the prevailing
market rates as quoted by one or more banks or dealers on the day of valuation.
The net asset value per share is computed by dividing the sum of the value of
the securities held by the Fund plus any cash or other assets (including
interest and dividends accrued but not yet received) minus all liabilities
(including
19
<PAGE> 62
accrued expenses) by the total number of shares outstanding at such time,
rounded to the nearest cent. Expenses, including the investment advisory fees
and any account maintenance and/or distribution fees, are accrued daily. The per
share net asset value of the Class B, Class C and Class D shares generally will
be lower than the per share net asset value of the Class A shares reflecting the
daily expense accruals of the account maintenance, distribution and higher
transfer agency fees applicable with respect to the Class B and Class C shares
and the daily expense accruals of the account maintenance fees applicable with
respect to the Class D shares; moreover the per share net asset value of the
Class B and Class C shares generally will be lower than the per share net asset
value of its Class D shares reflecting the daily expense accruals of the
distribution fees and higher transfer agency fees applicable with respect to the
Class B and Class C shares of the Fund. It is expected, however, that the per
share net asset value of the four classes will tend to converge immediately
after the payment of dividends or distributions, which will differ by
approximately the amount of the expense accrual differential between the
classes.
Portfolio securities which 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 market are valued at the most recent
bid prices as obtained from one or more dealers that make markets in the
securities. Portfolio securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest and most
representative market. 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. Any foreign
securities held by the Fund will be valued as described above as of the close of
trading in the primary market where such securities are traded which next
precedes the time the net asset value of the Fund is determined. Short-term
securities are valued at amortized cost which approximates market.
The Fund may, to the extent permitted by its investment restrictions, have
positions in portfolio securities for which market quotations are not readily
available. It may be difficult to determine precisely the fair market value for
such investments and there may be a range of values which are reasonable at any
particular time. Determination of fair value in such instances will be based
upon such factors as are deemed relevant under the circumstances, including the
financial condition and operating results of the issuer, recent third party
transactions (actual or proposed) relating to such securities and, in extreme
cases, the liquidation value of the issuer.
Option Accounting Principles. When the Fund sells an option, an amount
equal to the premium received by the Fund is included in the Fund's Statement of
Assets and Liabilities as a deferred credit. The amount of such liability will
be subsequently marked-to-market to reflect the current market value of the
option written. If current market value exceeds the premium received there is an
unrealized loss; conversely, if the premium exceeds current market value there
is an unrealized gain. The current market value of a traded option is the last
sale price or, in the absence of a sale, the last offering price. If an option
expires on its stipulated expiration date or if the Fund enters into a closing
purchase transaction, the Fund will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option will be extinguished. If an option is
exercised, the Fund will realize a gain or loss from the sale of the underlying
security and the proceeds of sale are increased by the premium originally
received.
20
<PAGE> 63
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services designed to facilitate
investment in its shares. A description of such services is set forth below.
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.
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 showing any reinvestment of dividends and capital gains
distributions and any other activity in the account since the previous
statement. Shareholders also will receive separate confirmations for each
purchase or sale transaction other than reinvestment of dividends and capital
gains distributions. A shareholder may make additions to his Investment Account
at any time by mailing a check directly to the Transfer Agent.
Share certificates are issued only for full shares and only upon the
specific request of a shareholder who has an Investment Account. 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
A shareholder may make additions to an Investment Account 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 Transfer Agent, acting as agent for such
securities dealer. Voluntary accumulation can also be made through a service
known as the Automatic Investment Plan whereby the Fund is authorized through
preauthorized checks or automated clearinghouse 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
investor's bank account is required. Investors who maintain CMA(R) accounts may
arrange to have periodic investments made in the Fund in amounts of $100 or more
($1 for retirement accounts) through the CMA(R) Automated Investment Program.
AUTOMATIC REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Unless specific instructions 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 the Transfer Agent in writing or by
telephone (1-800-MER-FUND) that they no longer wish to have their dividends
and/or capital gains distributions reinvested in shares of the Fund or vice
versa and, commencing ten days after the receipt by the Transfer Agent of such
notice, those instructions will be effected.
21
<PAGE> 64
SYSTEMATIC WITHDRAWAL PLANS -- CLASS A AND CLASS D SHARES
A Class A or Class D shareholder may elect to make systematic withdrawals
from an Investment Account on either a monthly or quarterly basis as provided
below. Quarterly withdrawals are available for shareholders who have acquired
Class A or Class D shares of the Fund having a value, based upon cost or the
current offering price, of $5,000 or more and monthly withdrawals are available
for shareholders with Class A or Class D shares with such a value of $10,000 or
more.
At the time of each withdrawal payment, sufficient Class A or Class D
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 either a dollar amount or a percentage of the value of his Class A or
Class D shares. Redemptions will be made at net asset value as determined at the
close of business on the New York Stock Exchange (currently 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 Exchange is not open for business
on such date, the Class A or Class D shares will be redeemed at the close of
business on the preceding 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 Class A or Class D
shares in the Investment Account are reinvested automatically in Class A or
Class D shares of the Fund, respectively. 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, yield 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 Class A or Class D shares
concurrent with withdrawals are ordinarily disadvantageous to the shareholder
because of sales charges and tax liabilities. The Fund will not knowingly accept
purchase orders for Class A or Class D 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 in which the shareholder
has elected to make systematic withdrawals.
A Class A or Class D 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 Systematic
Redemption Program. The minimum fixed dollar amount redeemable is $25. The
proceeds of systematic redemptions will be posted to the shareholder's account
five business days after the date the shares are redeemed. Monthly systematic
redemptions will be made at net asset value on the first Monday of each month,
bimonthly systematic redemptions will be made at net asset value on the first
Monday of each month, bimonthly systematic redemptions will be made at net asset
value on the first Monday of every other month, and quarterly, semiannual or
annual redemptions are made at net asset value on the first Monday of months
selected at the shareholder's option. If the first Monday of the month is a
holiday, the redemption will be processed at net asset value on the next
business day. The Systematic Redemption Program is not available if Company
shares are being purchased within the account pursuant to the Automated
Investment Program. For more information on the Systematic Redemption Program,
eligible shareholders should contact their financial consultant.
22
<PAGE> 65
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.
Capital gains and income received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans. Investors
considering participation in any such plan should review specific tax laws
relating thereto and should consult their attorneys or tax advisers with respect
to the establishment and maintenance of any such plan.
EXCHANGE PRIVILEGE
Shareholders of each class of shares of the Fund have an exchange privilege
with certain other MLAM-advised mutual funds listed below. 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 his 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, but 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 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 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 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
23
<PAGE> 66
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, of another
MLAM-advised mutual fund ("new Class B or Class C shares") 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 CDSC
schedule 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 Fund's CDSC schedule if such schedule
is higher than the CDSC schedule relating to the Class B shares of the fund from
which the exchange has been made. For purposes of computing the sales charge
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 Class B shares for
two and a half years. The 2% sales charge that generally would apply to a
redemption would not apply to the exchange. Three years later the investor may
decide to redeem the Class B shares of 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 Fund Class B shares to the three year holding period
for the Special Value Fund Class B shares, the investor will be deemed to have
held the new Class B shares for more than five 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 contingent deferred sales charge or with respect to Class B shares,
towards satisfaction of the conversion period. However, shares of a money market
fund which 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, respectively, of any fund offering such shares, in which event the
holding period for Class B or Class C shares of the Fund will be aggregated with
previous holding periods for purposes of reducing the contingent deferred sales
charge. Thus, for example, an investor may exchange Class B shares of the Fund
for shares of Merrill Lynch Institutional Fund after having held the Class B
shares for two and a half years and three years later decide to redeem the
shares of Merrill Lynch Institutional Fund for cash. At the time of this
redemption, the 2% contingent deferred sales charge that would have been due had
the Class B shares of the Fund been redeemed for cash rather than exchanged for
shares of Merrill Lynch 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 continued to hold for an additional two and a half years,
any subsequent redemption will not incur a contingent deferred sales charge.
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Set forth below is a description of the investment objectives of the other
funds into which exchanges can be made:
Funds issuing Class A, Class B, Class C and Class D Shares:
<TABLE>
<S> <C>
MERRILL LYNCH ADJUSTABLE RATE
SECURITIES FUND, INC............ High current income, consistent with a policy of limiting
the degree of fluctuation in net asset value by investing
primarily in a portfolio of adjustable rate securities,
consisting principally of mortgage-backed and
asset-backed securities.
MERRILL LYNCH AMERICAS INCOME
FUND, INC....................... A high level of current income, consistent with prudent
investment risk, by investing primarily in debt
securities denominated in a currency of a country located
in the Western Hemisphere (i.e., North and South America
and the surrounding waters).
MERRILL LYNCH ARIZONA LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Arizona income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term investment grade Arizona
Municipal Bonds.
MERRILL LYNCH ARIZONA MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Arizona income taxes as is consistent with
prudent investment management.
MERRILL LYNCH ARKANSAS MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Arkansas
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH ASSET GROWTH FUND,
INC. ........................... High total investment return, consistent with prudent
risk, from investment in United States and foreign
equity, debt and money market securities the combination
of which will be varied both with respect to types of
securities and markets in response to changing market and
economic trends.
MERRILL LYNCH ASSET INCOME FUND,
INC. ........................... A high level of current income through investment
primarily in United States fixed income securities.
MERRILL LYNCH BALANCED FUND FOR
INVESTMENT AND RETIREMENT....... As high a level of total investment return as is
consistent with reasonable risk by investing in common
stocks and other types of securities, including
fixed-income securities and convertible securities.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH BASIC VALUE FUND,
INC............................. Capital appreciation and, secondarily, income through
investment in securities, primarily equities, that are
undervalued and therefore represent basic investment
value.
MERRILL LYNCH CALIFORNIA
INSURED MUNICIPAL BOND
FUND............................ A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide
shareholders with as high a level of income exempt from
Federal and California income taxes as is consistent with
prudent investment management through investment in a
portfolio primarily of insured California Municipal
Bonds.
MERRILL LYNCH CALIFORNIA LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide shareholders with as high a level of income
exempt from Federal and California income taxes as is
consistent with prudent investment management through
investment in a portfolio primarily of intermediate-term
investment grade California Municipal Bonds.
MERRILL LYNCH CALIFORNIA MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch California Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and California income taxes as is consistent with
prudent investment management.
MERRILL LYNCH CAPITAL FUND,
INC............................. The highest total investment return consistent with
prudent risk through a fully managed investment policy
utilizing equity, debt and convertible securities.
MERRILL LYNCH COLORADO MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal
Series, a series fund, whose objective is to provide as
high a level of income exempt from Federal and Colorado
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH CONNECTICUT
MUNICIPAL BOND FUND............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and
Connecticut income taxes as is consistent with prudent
investment management.
MERRILL LYNCH CORPORATE BOND FUND,
INC............................. Current income from three separate diversified portfolios
of fixed income securities.
MERRILL LYNCH DEVELOPING CAPITAL
MARKETS FUND, INC. ............. Long-term appreciation through investment in securities,
principally equities, of issuers in countries having
smaller capital markets.
MERRILL LYNCH DRAGON FUND, INC.... Capital appreciation primarily through investment in
equity and debt securities domiciled in developing
countries located in Asia and the Pacific Basin, other
than Japan, Australia and New Zealand.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH EUROFUND............ Capital appreciation primarily through investment in
equity securities of corporations domiciled in Europe.
MERRILL LYNCH FEDERAL SECURITIES
TRUST........................... High current return through investments in U.S.
Government and Government agency securities, including
GNMA mortgage-backed certificates and other
mortgage-backed Government securities.
MERRILL LYNCH FLORIDA LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
income taxes as is consistent with prudent investment
management while serving to offer shareholders the
opportunity to own securities exempt from Florida
intangible personal property taxes through investment in
a portfolio primarily of intermediate-term investment
grade Florida Municipal Bonds.
MERRILL LYNCH FLORIDA MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal income taxes as is consistent with prudent
investment management while seeking to offer shareholders
the opportunity to own securities exempt from Florida
intangible personal property taxes.
MERRILL LYNCH FUND FOR TOMORROW,
INC............................. Long-term growth through investment in a portfolio of
good quality securities, primarily common stock,
potentially positioned to benefit from demographic and
cultural changes as they affect consumer markets.
MERRILL LYNCH FUNDAMENTAL GROWTH
FUND, INC....................... Long-term growth of capital through investment in a
diversified portfolio of equity securities placing
particular emphasis on companies that have exhibited an
above-average growth rate in earnings.
MERRILL LYNCH GLOBAL ALLOCATION
FUND, INC....................... High total return, consistent with prudent risk, through
a fully managed investment policy utilizing United States
and foreign equity, debt and money market securities, the
combination of which will be varied from time to time
both with respect to the types of securities and markets
in response to changing market and economic trends.
MERRILL LYNCH GLOBAL BOND FUND FOR
INVESTMENT AND RETIREMENT....... High total investment return from investment in global
portfolio of debt instruments denominated in various
currencies and multinational currency units.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH GLOBAL CONVERTIBLE
FUND, INC....................... High total return from investment primarily in an
internationally diversified portfolio of convertible debt
securities, convertible preferred stock and "synthetic"
convertible securities consisting of a combination of
debt securities or preferred stock and warrants or
options.
MERRILL LYNCH GLOBAL HOLDINGS,
INC. (residents of Arizona must
meet investor suitability
standards)...................... The highest total investment return consistent with
prudent risk through worldwide investment in an
internationally diversified portfolio of securities.
MERRILL LYNCH GLOBAL RESOURCES
TRUST........................... Long-term growth and protection of capital from
investment in securities of domestic and foreign
companies that possess substantial natural resource
assets.
MERRILL LYNCH GLOBAL
SMALLCAP FUND, INC.............. Long-term growth of capital by investing primarily in
equity securities of companies with relatively small
market capitalizations located in various foreign
countries and in the United States.
MERRILL LYNCH GLOBAL UTILITY FUND,
INC............................. Capital appreciation and current income through
investment of at least 65% of its total assets in equity
and debt securities issued by domestic and foreign
companies which are primarily engaged in the ownership or
operation of facilities used to generate, transmit or
distribute electricity, telecommunications, gas or water.
MERRILL LYNCH GROWTH FUND FOR
INVESTMENT AND RETIREMENT....... Growth of capital and, secondarily, income from
investment in a diversified portfolio of equity
securities placing a principal emphasis on those
securities which management of the fund believes to be
undervalued.
MERRILL LYNCH HEALTHCARE FUND,
INC. (residents of Wisconsin
must meet investor suitability
standards)...................... Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their sales
from products and services in healthcare.
MERRILL LYNCH INTERNATIONAL EQUITY
FUND............................ Capital appreciation and, secondarily, income by
investing in a diversified portfolio of equity securities
of issuers located in countries other than the United
States.
MERRILL LYNCH LATIN AMERICA FUND,
INC............................. Capital appreciation by investing primarily in Latin
American equity and debt securities.
MERRILL LYNCH MARYLAND MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Maryland income taxes as is consistent with
prudent investment management.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH MASSACHUSETTS
LIMITED MATURITY MUNICIPAL BOND
FUND............................ A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Massachusetts income taxes as is consistent with
prudent investment management through investment in a
portfolio primarily of intermediate-term investment grade
Massachusetts Municipal Bonds.
MERRILL LYNCH MASSACHUSETTS
MUNICIPAL BOND FUND............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Massachusetts income taxes as is consistent
with prudent investment management.
MERRILL LYNCH MICHIGAN LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and Michigan income taxes as is consistent with prudent
investment management through investment in a portfolio
primarily of intermediate-term investment grade Michigan
Municipal Bonds.
MERRILL LYNCH MICHIGAN MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Michigan income taxes as is consistent with
prudent investment management.
MERRILL LYNCH MINNESOTA MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Minnesota personal income taxes as is
consistent with prudent investment management.
MERRILL LYNCH MUNICIPAL BOND FUND,
INC............................. Tax-exempt income from three separate diversified
portfolios of municipal bonds.
MERRILL LYNCH MUNICIPAL
INTERMEDIATE TERM FUND.......... Currently the only portfolio of Merrill Lynch Municipal
Series Trust, a series fund, whose objective is to
provide investors with as high a level of income exempt
from Federal income taxes as possible by investing in
investment grade obligations with a dollar weighted
average maturity of five to twelve years.
MERRILL LYNCH NEW JERSEY LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal
and New Jersey income taxes as is consistent with prudent
investment management through a portfolio primarily of
intermediate-term investment grade New Jersey Municipal
Bonds.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH NEW JERSEY MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and New Jersey income taxes as is consistent with
prudent investment management.
MERRILL LYNCH NEW MEXICO MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal and New Mexico
income taxes as is consistent with prudent investment
management.
MERRILL LYNCH NEW YORK LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as high a level of income exempt from Federal,
New York State and New York City income taxes as is
consistent with prudent investment management through
investment in a portfolio primarily of intermediate-term
investment grade New York Municipal Bonds.
MERRILL LYNCH NEW YORK MUNICIPAL
BOND FUND....................... A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal, New York State and New York City income taxes as
is consistent with prudent investment management.
MERRILL LYNCH NORTH CAROLINA
MUNICIPAL BOND FUND............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and North Carolina income taxes as is consistent
with prudent investment management.
MERRILL LYNCH OHIO MUNICIPAL BOND
FUND............................ A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Ohio income taxes as is consistent with
prudent investment management.
MERRILL LYNCH OREGON
MUNICIPAL BOND FUND............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Oregon income taxes as is consistent with
prudent investment management.
MERRILL LYNCH PACIFIC FUND,
INC............................. Capital appreciation by investing in equity securities of
corporations domiciled in Far Eastern and Western Pacific
countries, including Japan, Australia, Hong Kong and
Singapore.
MERRILL LYNCH PENNSYLVANIA LIMITED
MATURITY MUNICIPAL BOND FUND.... A portfolio of Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, a series fund, whose objective is
to provide as a high level of income exempt from Federal
and Pennsylvania income taxes as is consistent with
prudent investment management through investment in a
portfolio of intermediate-term investment grade
Pennsylvania Municipal Bonds.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH PENNSYLVANIA
MUNICIPAL BOND FUND............. A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide
investors with as high a level of income exempt from
Federal and Pennsylvania income taxes as is consistent
with prudent investment management.
MERRILL LYNCH SHORT-TERM GLOBAL
INCOME FUND, INC................ As high a level of current income as is consistent with
prudent investment management from a global portfolio of
high quality debt securities denominated in various
currencies and multinational currency units and having
remaining maturities not exceeding three years.
MERRILL LYNCH SPECIAL VALUE FUND,
INC............................. Long-term growth of capital from investments in
securities, primarily common stock of relatively small
companies believed to have special investment value and
emerging growth companies regardless of size.
MERRILL LYNCH STRATEGIC DIVIDEND
FUND............................ Long-term total return from investment in dividend paying
common stocks which yield more than Standard & Poor's 500
Composite Stock Price Index.
MERRILL LYNCH TECHNOLOGY FUND,
INC............................. Capital appreciation through worldwide investment in
equity securities of companies that derive or are
expected to derive a substantial portion of their sales
from products and services in technology.
MERRILL LYNCH TEXAS MUNICIPAL BOND
FUND............................ A portfolio of Merrill Lynch Multi-State Municipal Series
Trust, a series fund, whose objective is to provide as
high a level of income exempt from Federal income taxes
as is consistent with prudent investment management by
investing primarily in a portfolio of long-term,
investment grade obligations issued by the State of
Texas, its political subdivisions, agencies and
instrumentalities.
MERRILL LYNCH UTILITY INCOME FUND,
INC............................. High current income through investment in equity and debt
securities issued by companies which are primarily
engaged in the ownership or operation of facilities used
to generate, transmit or distribute electricity,
telecommunications, gas or water.
MERRILL LYNCH WORLD INCOME FUND,
INC............................. High current income by investing in a global portfolio of
fixed income securities denominated in various
currencies, including multinational currencies.
Class A Share Money Market Funds:
MERRILL LYNCH READY ASSETS
TRUST........................... Preservation of capital, liquidity and the highest
possible current income consistent with the foregoing
objectives from the short-term money market securities in
which the Trust invests.
</TABLE>
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<TABLE>
<S> <C>
MERRILL LYNCH RETIREMENT RESERVES
MONEY FUND
(available only for exchanges
within certain retirement
plans).......................... Currently the only portfolio of Merrill Lynch Retirement
Series Trust, a series fund, whose objectives are current
income, preservation of capital and liquidity available
from investing in a diversified portfolio of short-term
money market securities.
MERRILL LYNCH U.S.A.
GOVERNMENT RESERVES............. Preservation of capital, current income and liquidity
available from investing in direct obligations of the
U.S. Government and repurchase agreements relating to
such securities.
MERRILL LYNCH U.S. TREASURY MONEY
FUND............................ Preservation of capital, liquidity and current income
through investment exclusively in a diversified portfolio
of short-term marketable securities which are direct
obligations of the U.S. Treasury.
</TABLE>
Class B, Class C and Class D Share Money Market Funds:
<TABLE>
<S> <C>
MERRILL LYNCH GOVERNMENT FUND..... A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in securities issued or
guaranteed by the U.S. Government, its agencies and
instrumentalities and in repurchase agreements secured by
such obligations.
MERRILL LYNCH INSTITUTIONAL
FUND............................ A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
maximum current income consistent with liquidity and the
maintenance of a high quality portfolio of money market
securities.
MERRILL LYNCH INSTITUTIONAL
TAX-EXEMPT FUND................. A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income exempt from Federal income taxes,
preservations of capital and liquidity available from
investing in a diversified portfolio of short-term, high
quality municipal bonds.
MERRILL LYNCH TREASURY
FUND............................ A portfolio of Merrill Lynch Funds for Institutions
Series, a series fund, whose objective is to provide
current income consistent with liquidity and security of
principal from investment in direct obligations of the
U.S. Treasury and up to 10% of its total assets in
repurchase agreements secured by such obligations.
</TABLE>
Before effecting an exchange, shareholders should obtain a currently
effective prospectus of the fund into which the exchange is to be made.
To exercise the exchange privilege, shareholders should contact their
Merrill Lynch financial consultant, who will advise the Fund of the exchange.
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
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<PAGE> 75
Securities and Exchange 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 at any time and thereafter
may 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute all of its net investment income, if any.
Dividends from such investment income are paid semi-annually. All net realized
long- or short-term capital gains, if any, are distributed to the Fund's
shareholders at least annually. See "Shareholder Services -- Reinvestment of
Dividends and Capital Gains Distributions" for information concerning the manner
in which dividends and distributions may be reinvested automatically in shares
of the Fund. Shareholders may elect in writing to receive any such dividends or
distributions, or both, in cash. Dividends and distributions are taxable to
shareholders as described below whether they are invested in shares of the Fund
or received in cash. 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 with respect 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 "Determination of Net Asset Value".
TAXES
The Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Internal Revenue Code
of 1986, as amended (the "Code"). If it so qualifies, in any taxable year in
which it distributes at least 90% of its taxable net income and 90% of its
tax-exempt net income, 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 which 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 and distributions of
the Fund's net realized short-term capital gains (together referred to hereafter
as "ordinary income dividends") are taxable to shareholders as ordinary income.
Distributions made from the Fund's net realized long-term capital gains
("capital gain dividends") are taxable to shareholders as long-term capital
gains, regardless of the length of time the shareholder has owned Fund shares.
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.
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<PAGE> 76
Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Not later than 60 days after the close of its
taxable year, the Fund will provide its shareholders with a written notice
designating the amounts of any ordinary income or capital gain dividends. A
portion of the Fund's ordinary income dividends may be eligible for the
dividends-received deduction allowed to corporations under the Code, if certain
requirements are met. For this purpose, the Fund will allocate dividends
eligible for the dividends received deduction among the Class A, Class B, Class
C and Class D shareholders according to a method (which it believes is
consistent with the Securities and Exchange Commission exemptive order
permitting the issuance and sale of multiple classes of stock) that is based on
the gross income allocable to the Class A, Class B, Class C and Class D
shareholders during the taxable year, or such other method as the Internal
Revenue Service may prescribe. If the Fund pays a dividend in January which was
declared in the previous October, November or December to shareholders of record
on a specified date in one of such months, then such dividend will be treated
for tax purposes as being paid by the Fund and received by its shareholders on
December 31 of the year in which such dividend was declared.
Ordinary income dividends paid by the Fund 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.
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.
Under certain provisions of the Code, some shareholders may be subject to a
31% withholding tax on ordinary income dividends, capital gain dividends 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. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor 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.
If a shareholder exercises an exchange privilege within 90 days of
acquiring the shares, then the loss the shareholder can recognize on the
exchange will be reduced (or the gain increased) to the extent any sales charge
paid to the Fund on the exchanged shares reduces any sales charge such
shareholder would have owed upon purchase of the new shares in the absence of
the exchange privilege. Instead, such sales charge will be treated as an amount
paid for the new 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.
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<PAGE> 77
The Code requires a RIC to pay a nondeductible 4% excise tax to the extent
the RIC does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains,
determined, in general, on an October 31 year end, plus certain undistributed
amounts from previous years. The Fund anticipates that it will make sufficient
timely distributions to avoid imposition of 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. In such event, the Fund will be liable
for the tax only on the amount by which it does not meet the foregoing
distribution requirements.
The Fund may invest in securities rated in the medium to lower rating
categories of nationally recognized rating organizations, and in unrated
securities ("high yield securities"), as described in the Prospectus. Some of
these high yield securities may be purchased at a discount and may therefore
cause the Fund to accrue income before amounts due under the obligations are
paid. In addition, a portion of the interest payments on such high yield
securities may be treated as dividends for Federal income tax purposes and may
be eligible for the dividends received deduction allowed to domestic
corporations under the Code.
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether the Fund qualifies as a
RIC.
Under Code Section 988, special rules are provided for certain transactions
in a currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In general,
foreign currency gains or losses from certain debt instruments, from certain
forward contracts, from futures contracts that are not "regulated futures
contracts" and from unlisted options will be treated as ordinary income or loss
under Code Section 988. In certain circumstances, the Fund may elect capital
gain or loss treatment for such transactions. In general, however, Code Section
988 gains or losses will increase or decrease the amount of the Fund's
investment company taxable income available to be distributed to shareholders as
ordinary income. Additionally, if Code Section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary income dividend distributions, and any distributions
made before the losses were realized but in the same taxable year would be
recharacterized as a return of capital to shareholders, thereby reducing the
basis of each shareholder's Fund shares. These rules will not apply to certain
transactions entered into by the Fund solely to reduce the risk of currency
fluctuations with respect to its investments.
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 Treasury regulations promulgated thereunder. The Code and the Treasury
regulations are subject to change by legislative or administrative action either
prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state and
local taxes.
Certain states exempt from state income taxation dividends paid by RICs
which are derived from interest on United States Government obligations. State
law varies as to whether dividend income attributable to United States
Government obligations is exempt from state income tax.
35
<PAGE> 78
Shareholders are urged to consult their own tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
PERFORMANCE DATA
From time to time the Fund may include its average annual total return and
other total return data in advertisements or information furnished to present or
prospective shareholders. Total return figures are based on the Fund's
historical performance and are not intended to indicate future performance.
Average annual total return is determined separately for Class A, Class B, Class
C and Class D shares in accordance with a formula specified by the Securities
and Exchange Commission.
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) as required by the periods of the quotations, actual annual,
annualized or aggregate data, rather than average annual data, may be quoted and
(2) the maximum applicable sales charges 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 charges, 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.
36
<PAGE> 79
Set forth below is total return information for the Class A and Class B
shares of the Fund for the periods indicated. Because Class C and Class D shares
have not been issued prior to the date of this Statement of Additional
Information, performance information concerning Class C and Class D shares is
not yet provided.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES*
---------------------------------------------- ----------------------------------------------
REDEEMABLE VALUE REDEEMABLE VALUE
EXPRESSED AS A OF A HYPOTHETICAL EXPRESSED AS A OF A HYPOTHETICAL
PERCENTAGE BASED $1,000 INVESTMENT PERCENTAGE BASED $1,000 INVESTMENT
ON A HYPOTHETICAL AT THE END OF ON A HYPOTHETICAL AT THE END OF
PERIOD $1,000 INVESTMENT THE PERIOD $1,000 INVESTMENT THE PERIOD
- ------------------------------ --------------------- --------------------- --------------------- ---------------------
AVERAGE ANNUAL TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
One Year Ended July 31,
1994........................ 3.62% $1,036.20 4.33% $1,043.30
Five Years Ended July 31,
1994........................ 10.84% $1,673.20 10.89% $1,677.10
Ten Years Ended July 31,
1994........................ 15.85% $4,353.40
October 21, 1988 to July 31,
1994........................ 11.79% $1,904.50
<CAPTION>
ANNUAL TOTAL RETURN
(excluding maximum applicable sales charges)
<S> <C> <C> <C> <C>
YEAR ENDED JULY 31,
1994.......................... 9.36% $1,093.60 8.21% $1,082.10
1993.......................... 28.96% $1,289.60 27.66% $1,276.60
1992.......................... 14.54% $1,145.40 13.35% $1,133.50
1991.......................... 10.35% $1,103.50 9.14% $1,091.40
1990.......................... (0.93)% $ 990.70 (1.86)% $ 981.40
1989.......................... 17.48% $1,174.80
1988.......................... 4.64% $1,046.40
1987.......................... 30.34% $1,303.40
1986.......................... 25.45% $1,254.50
1985.......................... 29.44% $1,294.40
1984.......................... 2.88% $1,028.80
Inception (November 1, 1982)
to July 31, 1983............ 28.83% $1,288.30
October 21, 1988 to July 31,
1989........................ 13.56% $1,135.60
<CAPTION>
AGGREGATE TOTAL RETURN
(including maximum applicable sales charges)
<S> <C> <C> <C> <C>
Inception (November 1, 1982)
to July 31, 1994............ 476.98% $5,769.80
October 21, 1988 to July 31,
1994........................ 90.45% $1,904.50
</TABLE>
- ------------
*Information as to Class B shares is presented only for the period October 21,
1988 to July 31, 1994. Prior to October 21, 1988, no Class B shares were
publicly issued.
In order to reflect the reduced sales charges in the case of Class A or
Class D shares or the waiver of the CDSC in the case of Class B or Class C
shares applicable to certain investors, as described under "Purchase of Shares"
and "Redemption of Shares", respectively, the total return data quoted by the
Fund in advertisements directed to such investors may take into account the
reduced, and not the maximum, sales charge or may not take into account the CDSC
and therefore may reflect greater total return since, due to the reduced sales
charges or the waiver of sales charges, a lower amount of expenses may be
deducted.
37
<PAGE> 80
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on April 15, 1982. It has an
authorized capital of 200,000,000 shares of Common Stock, par value $0.10 per
share, divided into four classes, designated Class A, Class B, Class C and Class
D Common Stock, each of which consists of 50,000,000 shares. Class A, Class B,
Class C and Class D Common Stock represent an interest in the same assets of the
Fund and are identical in all respects except that the Class B, Class C and
Class D shares bear certain expenses related to the account maintenance and/or
distribution of such shares and have exclusive voting rights with respect to
matters relating to such account maintenance and/or distribution expenditures.
The Fund has received an order from the Commission permitting the issuance and
sale of multiple classes of Common Stock. The Board of 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 full 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 in any year in which the Investment
Company Act of 1940 does not require shareholders to 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 auditors. Generally under Maryland law, a meeting of
shareholders may be called for any purpose on the written request of the holders
of at least 25% of the outstanding shares of the Fund. Also, the by-laws of the
Fund require that a special meeting of shareholders be held on the written
request of at least 10% of the outstanding shares of the Fund entitled to vote
at the meeting. Voting rights for Directors are not cumulative. Shares issued
are fully paid and non-assessable and have no preemptive or conversion rights.
Redemption and conversion rights are discussed elsewhere herein and in the
Prospectus. Each share is entitled to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund on
liquidation or dissolution after satisfaction of outstanding liabilities. Stock
certificates will be issued by the Transfer Agent only on specific request.
Certificates for fractional shares are not issued in any case.
COMPUTATION OF OFFERING PRICE PER SHARE
The offering price for Class A shares of the Fund, based on the current
offering period price and the value of the Fund's net assets and number of
shares outstanding as of July 31, 1994, is calculated as set forth below.
Information is not provided for Class D shares since no Class D shares were
publicly offered prior to the date of this Statement of Additional Information.
The offering price for Class B and Class C shares of the Fund is the net asset
value of Class B and Class C shares, respectively.
<TABLE>
<CAPTION>
CLASS A
-----------
<S> <C>
Net Assets................................................................... $255,856,104
===========
Number of Shares Outstanding................................................. $ 19,227,972
===========
Net Asset Value Per Share (net assets divided by number of shares
outstanding)............................................................... $ 13.31
Sales Charge (5.25% of offering price (5.54% of net amount invested))........ .74
-----------
Offering Price............................................................... $ 14.05
===========
*Rounded to the nearest one-hundredth percent; assumes maximum sales charge is applicable.
</TABLE>
38
<PAGE> 81
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The selection of
independent auditors is subject to ratification by the shareholders of the Fund.
The independent auditors are responsible for auditing the annual financial
statements of the Fund.
CUSTODIAN
National Westminster Bank NJ, Exchange Place Centre, Jersey City, New
Jersey 07302, acts as custodian of the Fund's assets. The Custodian is
responsible for safeguarding and controlling the Fund's cash and securities,
handling the delivery of securities and collecting interest on the Fund's
investments.
TRANSFER AGENT
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.
LEGAL COUNSEL
Brown & Wood, One World Trade Center, New York, New York 10048-0557, is
counsel for the Fund.
REPORTS TO SHAREHOLDERS
The fiscal year of the Fund ends on July 31 of each year. The Fund sends to
its shareholders at least semiannually 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.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information do not contain
all the information set forth in the Registration Statement and the exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
To the knowledge of the Fund, no person or entity owned beneficially 5% or
more of the Fund's shares on September 30, 1994.
39
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
MERRILL LYNCH PHOENIX FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Phoenix Fund, Inc. as of July 31,
1994, the related statements of operations for the year then ended and changes
in net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended.
These financial statements and the financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at July 31,
1994, by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Merrill Lynch
Phoenix Fund, Inc. as of July 31, 1994, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
August 29, 1994
40
<PAGE> 83
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Stocks & Bonds Cost (Note 1a) Net Assets
Discount to Assets
<S> <C> <S> <C> <C> <C>
Agriculture 950,000 Terra Industries, Inc. $ 3,332,396 $ 6,412,500 1.0%
Diversified 2,000,000 ADT Ltd. 17,343,680 20,750,000 3.4
Metal Fabricating 400,000 Handy & Harman 5,546,990 6,100,000 1.0
Oil & Gas 464,700 ++Gerrity Oil & Gas Corp. 5,780,086 3,949,950 0.6
320,000 ++Nahama & Weagant Energy Co.++++ 1,446,250 560,000 0.1
Oil Services 92,700 ++Cliffs Drilling Co. 1,158,750 1,112,400 0.2
Total Discount to Assets 34,608,152 38,884,850 6.3
Earnings Turnarounds
Airlines 750,000 ++Mesa Airlines, Inc. 6,425,000 7,875,000 1.3
Communications 761,300 Century Communications Corp. 5,893,006 6,375,888 1.0
97,700 ++SynOptics Communications, Inc. 1,453,288 1,367,800 0.2
Computers & 50,000 ++Read-Rite Corp. 631,250 675,000 0.1
Peripherals
Consumer Products 1,083,100 The Topps Co., Inc. 7,734,088 6,904,762 1.1
Diversified 300,000 ++UNC Inc. 979,299 1,650,000 0.3
Electronics 200,000 ++National Semiconductor Corp. 674,031 3,375,000 0.5
Engineering & 160,500 Morrison Knudsen Corp. 2,450,564 2,608,125 0.4
Construction
Environmental 927,500 ++Allwaste Inc. 4,634,760 6,144,688 1.0
1,128,300 Attwoods PLC (ADR)* 12,039,432 10,295,738 1.7
930,000 ++Matrix Service Co.++++ 8,370,557 6,161,250 1.0
1,381,000 ++NaTec Resources, Inc.++++ 3,151,756 1,294,688 0.2
1,191,600 ++Rollins Environmental Services, Inc. 6,300,323 5,809,050 0.9
800,000 ++TETRA Technologies, Inc.++++ 5,576,282 7,400,000 1.2
600,000 WMX Technologies, Inc. 15,066,202 17,475,000 2.8
Health Care 88,081 ++Applied Immune Sciences, Inc. 1,200,104 616,567 0.1
103,000 ++Gilead Sciences Inc. 1,399,404 952,750 0.2
110,000 IVAX Corp. 1,836,230 1,842,500 0.3
853,400 The Liposome Company Inc. 5,193,486 4,480,350 0.7
825,000 ++NeoRx Corp.++++ 5,468,365 2,578,125 0.4
Leisure & 1,625,000 ++CST Entertainment Imaging, Inc.++++ 3,593,312 1,929,688 0.3
Entertainment
Manufacturing 700,000 ++Lamson & Sessions Co.++++ 3,894,330 4,812,500 0.8
Office Equipment 400,000 Moore Corp. Ltd. (ADR)* 6,922,763 7,100,000 1.2
& Supplies
Oil & Gas 431,300 ++Ranchmen's Resources Ltd. 1,912,794 2,340,799 0.4
</TABLE>
41
<PAGE> 84
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Stocks & Bonds Cost (Note 1a) Net Assets
Earnings Turnarounds (concluded)
<S> <C> <S> <C> <C> <C>
Oil Services 239,025 ++Computalog Ltd. $ 1,962,717 $ 1,881,031 0.3%
671,900 ++Weatherford International, Inc. 2,283,255 8,482,738 1.4
Paper & 200,000 Scott Paper Co. 6,610,329 11,550,000 1.9
Packaging
Precision 350,600 ++Esterline Technology Corp.++++ 3,311,665 3,418,350 0.6
Instruments
Printing & 1,124,500 ++National Education Corp. 6,560,040 6,184,750 1.0
Publishing
Retail 2,450,000 Argyll Group PLC 8,896,770 10,090,264 1.6
600,000 Charming Shoppes, Inc. 7,458,748 5,475,000 0.9
202,700 ++Grossman's, Inc. 550,123 481,413 0.1
500,000 The Limited, Inc. 9,117,452 9,875,000 1.6
Ship Building 150,000 ++Bremer, Vulkan, Verbund AG 8,184,351 8,034,026 1.3
Total Earnings Turnarounds 167,736,076 177,537,840 28.8
Financial
Restructuring
Aerospace & 2,360,000 ++Ladish Co., Inc. 2,864,038 1,770,000 0.3
Industrial Products
Airlines $19,425,000 ++Continental Airlines Holdings, Inc., Secured
Equipment Trust Certificates, 12.125% due
4/15/1996 2,787,667 2,913,750 0.5
15,358 ++Continental Airlines, Inc.--Class A Shares 514,688 276,444 0.0
418,300 ++Continental Airlines, Inc.--Class B Shares 8,154,319 7,320,250 1.2
Apparel & Textile 1,100,000 Burlington Industries, Inc. 15,776,145 16,362,500 2.7
Banking & Financial 795,400 California Federal Bank, FSB 8,308,407 9,942,500 1.6
24,000 First City Bancorp., Non-Convertible
Preferred Stock--Series A 3,203,500 3,288,000 0.5
60,000 First City Bancorp., Non-Convertible
Preferred Stock--Series B 2,801,181 2,460,000 0.4
120,000 Glendale Federal Bank, 8.75% Non-Cumulative
Preferred Stock (Series E) (b) 3,000,000 3,930,000 0.6
590,000 Peoples Heritage Financial Group, Inc. 4,924,480 7,448,750 1.2
Chemicals 360,000 ++Specialty Chemical Resources, Inc.++++ 3,579,642 1,293,750 0.2
Computers & 1,350,000 ++Concurrent Computer Corp. 4,051,500 2,784,375 0.5
Peripherals
Consumer $ 6,700,000 ++Polly Peck International Finance N.V.
Products Convertible Preferred Shares, 7.25% due 1/04/2005 3,082,000 2,948,000 0.5
Day-Care Centers 500,000 ++Kinder-Care Learning Centers, Inc. 6,163,000 6,750,000 1.1
Energy 2,425 EUA Contingent Interest Certificates 2,425 2,425 0.0
++EUA Power Corp.:
$ 3,165,000 Series B, 17.50% due 5/15/1993 801,325 221,550 0.0
$ 3,613,700 Series C, 17.50% due 11/05/1992 1,346,117 252,959 0.0
</TABLE>
42
<PAGE> 85
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Stocks & Bonds Cost (Note 1a) Net Assets
Financial Restructuring (concluded)
<S> <C> <S> <C> <C> <C>
Home Builders 1,200,000 ++NVR, Inc.++++ $ 8,933,054 $ 7,500,000 1.2%
53,828 ++NVR, Inc. (Warrants) (a) 235,498 94,199 0.0
Insurance $ 1,000,000 ++Memphis Health, Education and Housing, Executive
Life Insurance Company, Municipal Guaranteed
Investment Certificates, 8.68% due 9/15/1996 378,408 252,500 0.0
$ 500,000 ++Southeast Texas Housing Finance Corp., Executive
Life Insurance Company, Municipal Guaranteed
Investment Certificates, 8.60% due 9/01/1996 190,308 126,250 0.0
Paper & Packaging 202,043 Gaylord Container Corp. 546,004 1,161,747 0.2
719,109 Gaylord Container Corp. (Warrants) (a) 1,538,308 3,325,879 0.5
Real Estate $12,172,188 ++Olympia & York Maiden Lane Finance Corp., Secured
Notes, 10.375% due 12/31/1995 7,977,156 8,001,000 1.3
625,000 Resurgence Properties Inc. (c) 5,468,750 4,687,500 0.8
$ 9,250,000 ++Trizec Corp., Ltd., Bonds, 10.25% due 6/22/1999 4,649,051 6,660,214 1.1
Restaurants 915,519 ++Gilbert/Robinson Restaurants, Inc. 3,051,250 9,155,190 1.5
Retail 1,190,420 ++Lamonts Apparel, Inc.++++ 3,222,815 892,815 0.1
261,215 ++National Convenience Stores Inc. 4,217,295 2,742,758 0.4
90,000 ++National Convenience Stores Inc. (Warrants) (a) 342,873 247,500 0.0
271,762 ++Zale Corp. 2,492,796 2,377,918 0.4
441,882 ++Zale Corp. Litigation Limited Partnership Units 0 0 0.0
Telecommuni- $ 7,000,000 ++Maryland Cable Corp., Senior Subordinated
cations Debentures, 15.375% due 11/15/1998 3,745,000 3,290,000 0.5
$ 4,500,000 Scott Cable, Subordinated Debentures, 12.25% due
4/15/2001 3,667,500 3,510,000 0.6
$ 5,470,000 ++Telemundo Group, Inc., Senior Notes, 0.00%
due 8/15/1992 4,787,025 6,099,050 1.0
Transportation $ 3,000,000 ++Evergreen International Aviation,
Senior Notes, 13.50% due 8/15/2002 1,546,250 1,110,000 0.2
$ 1,200,000 Greyhound Lines, Inc., Convertible
Subordinated Debentures, 8.50% due 3/31/2007 1,200,000 792,000 0.1
917,285 ++Leaseway Transportation Corp.++++ 6,317,058 9,631,492 1.6
Total Financial Restructuring 135,866,833 141,623,265 22.8
High Yield
Leisure & $12,000,000 ++Genmar Holdings, Inc., Senior Subordinated
Entertainment Notes, 13.50% due 7/15/2001 12,000,000 12,000,000 1.9
$ 2,127,000 ++Riviera Holdings Corp., First Mortgage Bonds, 11.00%
due 12/31/2002 1,749,458 1,669,695 0.3
$ 8,907,000 U.S. Trails, Inc., Secured Notes, 12.00% due 7/15/1998 6,305,948 6,680,250 1.1
Transportation $ 4,500,000 Tiphook Finance Corp., Unsecured
Guaranteed Notes, 10.75% due 11/01/2002 3,502,500 3,465,000 0.6
Total High Yield 23,557,906 23,814,945 3.9
</TABLE>
43
<PAGE> 86
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Stocks & Bonds Cost (Note 1a) Net Assets
Operational Restructuring
<S> <C> <S> <C> <C> <C>
Apparel & Textile 717,000 ++Texfi Industries, Inc.++++ $ 3,857,425 $ 2,419,875 0.4%
Auto & Truck 200,000 General Motors Corp. 7,413,250 10,275,000 1.7
Banking & Financial 475,000 Student Loan Marketing Association 19,930,265 16,565,625 2.7
Communications 750,000 ++Network Systems Corp. 7,715,373 5,062,500 0.8
Computer Software 475,000 Borland International, Inc. 5,762,490 5,462,500 0.9
& Services 652,500 ++Cognos, Inc.++++ 4,342,130 7,422,187 1.2
1,386,628 Computervision Corporation 4,460,095 3,639,898 0.6
$ 4,000,000 Computervision Corporation, Senior Subordinated
Notes, 11.375% due 8/15/1999 2,847,500 3,480,000 0.6
Computers & 1,000,000 Unisys Corp. 11,713,689 8,875,000 1.4
Peripherals
Diversified 1,350,000 ++National Patent Development Corp.++++ 4,945,938 4,050,000 0.7
2,174 ++National Patent Development Corp. (Warrants) (a) 166,420 135,331 0.0
540,500 ++TPI Enterprises, Inc. 3,042,032 3,378,125 0.5
Electronics 3,892,298 Automated Security (Holdings) PLC (ADR)* 13,596,897 11,676,894 1.9
Environmental 1,700,000 Laidlaw, Inc. (Non-Voting) (Class B) (ADR)* 10,421,992 12,537,500 2.0
Food & Beverage 8,000,000 Goodman Fielder Wattie, Ltd. 8,569,810 8,451,872 1.4
Health Care 1,173,300 ++Applied Bioscience International Inc. 6,067,444 6,893,137 1.1
975,000 ++Unilab Corp. 5,328,989 5,606,250 0.9
Industrial Services 2,780,400 ++Anacomp, Inc.++++ 10,872,043 7,646,100 1.2
60,337 ++Anacomp, Inc. (Warrants) (a) 131,233 82,963 0.0
Insurance 2,000,000 Reliance Group Holdings, Inc. 13,931,225 11,000,000 1.8
569,700 ++Southwestern Life Corporation 3,079,381 3,062,137 0.5
Metals & Mining 300,000 Alumax, Inc. 6,841,283 9,225,000 1.5
300,000 Freeport-McMoRan, Inc. 4,926,432 5,062,500 0.8
Oil & Gas 600,000 USX Corp.--Marathon Group 10,547,247 10,425,000 1.7
Retail 400,000 Kmart Corp. 7,110,880 6,550,000 1.1
Total Operational Restructuring 177,621,463 168,985,394 27.4
Total Stocks & Bonds 539,390,430 550,846,294 89.2
</TABLE>
44
<PAGE> 87
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Value Percent of
Face Amount Short-Term Investments Cost (Note 1a) Net Assets
<S> <C> <C> <C> <C> <C>
Commercial $ 10,000,000 Ciesco L.P., 4.35% due 8/18/1994 $ 9,977,042 $ 9,977,042 1.6%
Paper** 25,000,000 Du Pont (E.I.) de Nemours & Company, 4.38%
due 8/03/1994 24,987,833 24,987,833 4.0
23,186,000 General Electric Capital Corp., 4.20% due 8/01/1994 23,180,590 23,180,590 3.7
Total Short-Term Investments 58,145,465 58,145,465 9.3
Total Investments $597,535,895 608,991,759 98.5
============
Other Assets Less Liabilities 8,993,683 1.5
------------ ------
Net Assets $617,985,442 100.0%
============ ======
<FN>
*American Depositary Receipt (ADR).
**Commercial Paper is traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
(a) Warrants entitle the Fund to purchase a predetermined number of shares of common stock.
The purchase price and number of shares are subject to adjustment under certain conditions
until the expiration date.
(b) After 9/30/1994, Glendale Federal Bank, 8.75% Non-Cumulative Preferred Stock, Series E
becomes convertible into Glendale Federal Bank FSB Common Stock.
(c) On April 20, 1994, Liberte Investors, 10.50% Subordinated Notes due 6/01/1993 were
converted into Resurgence Properties Inc. Common Stock.
++Non-income producing security.
++++Investment in companies 5% or more of whose outstanding securities are held by the
Fund (such companies are defined as "Affiliated Companies" in Section
2(a)(3) of the Investment Company Act of 1940) are as follows:
<CAPTION>
Industry Affiliate Net Share Activity Net Cost Dividend Income
<S> <S> <C> <C> <C>
Apparel & Textile Texfi Industries, Inc. 129,600 $ 525,995 (1)
Chemicals Specialty Chemical Resources, Inc. 0 0 (1)
Computer Software & Services Cognos, Inc. (75,000) (590,625) (1)
Diversified National Patent Development Corp. 220,000 589,375 (1)
Environmental Matrix Service Co. 514,200 3,762,109 (1)
Environmental NaTec Resources, Inc. 700,000 437,500 (1)
Environmental TETRA Technologies, Inc. 93,000 627,750 (1)
Health Care NeoRx Corp. 825,000 5,468,365 (1)
Home Builders NVR Inc. 1,200,000 8,933,054 (1)
Industrial Services Anacomp, Inc. 200,000 795,750 (1)
Leisure & Entertainment CST Entertainment Imaging, Inc. 25,000 1,924,241 (1)
Manufacturing Lamson & Sessions Co. 0 0 (1)
Oil & Gas Nahama & Weagant Energy Co. 50,000 231,250 (1)
Precision Instruments Esterline Technology Corp. 0 0 (1)
Retail Lamonts Apparel, Inc. 595,210 892,815 (1)
Transportation Leaseway Transportation Corp. 917,285 6,317,058 (1)
Total $29,914,637
===========
<FN>
(1)Non-income producing security.
See Notes to Financial Statements.
</TABLE>
45
<PAGE> 88
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of July 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$597,535,895) (Note 1a) $608,991,759
Cash 2,806,572
Receivables:
Securities sold $ 9,710,286
Capital shares sold 4,119,634
Interest 631,531
Dividends 558,329 15,019,780
------------
Prepaid registration fees and other assets (Note 1d) 125,694
------------
Total assets 626,943,805
------------
Liabilities: Payables:
Securities purchased 6,770,665
Capital shares redeemed 1,142,649
Investment adviser (Note 2) 479,459
Distributor (Note 2) 280,271 8,673,044
------------
Accrued expenses and other liabilities 285,319
------------
Total liabilities 8,958,363
------------
Net Assets: Net assets $617,985,442
============
Net Assets Class A Common Stock, $0.10 par value, 50,000,000 shares authorized $ 1,922,797
Consist of: Class B Common Stock, $0.10 par value, 50,000,000 shares authorized 2,780,480
Paid-in capital in excess of par 556,811,670
Accumulated investment loss--net (39,695)
Undistributed realized capital gains and foreign currency
transactions--net 45,054,760
Unrealized appreciation on investments and foreign currency
transactions--net 11,455,430
------------
Net assets $617,985,442
============
Net Asset Class A--Based on net assets of $255,856,104 and 19,227,972 shares
Value: outstanding $ 13.31
============
Class B--Based on net assets of $362,129,338 and 27,804,801 shares
outstanding $ 13.02
============
See Notes to Financial Statements.
</TABLE>
46
<PAGE> 89
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended July 31, 1994
<S> <S> <C> <C>
Investment Dividends $ 4,379,726
Income Interest and discount earned (net of $186,144 foreign withholding tax) 4,333,946
(Notes 1b & Other income 191,827
1c): ------------
Total income 8,905,499
Expenses: Investment advisory fees (Note 2) 5,188,122
Distribution fees--Class B (Note 2) 2,872,004
Transfer agent fees--Class B (Note 2) 378,188
Transfer agent fees--Class A (Note 2) 254,929
Printing and shareholder reports 166,779
Registration fees (Note 1d) 116,244
Accounting services (Note 2) 93,874
Custodian fees 73,253
Professional fees 51,600
Directors' fees and expenses 42,251
Amortization of organization expenses (Note 1d) 1,201
Other 24,272
------------
Total expenses 9,262,717
------------
Investment loss--net (357,218)
------------
Realized & Realized gain (loss) from:
Unrealized Investments--net 68,347,469
Gain(Loss) on Foreign currency transactions (61,894) 68,285,575
Investments & ------------ ------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net (32,804,325)
Transactions-- Foreign currency transactions 4,875 (32,799,450)
Net (Notes ------------ ------------
1c & 3): Net realized and unrealized gain on investments and foreign
currency transactions 35,486,125
------------
Net Increase in Net Assets Resulting from Operations $ 35,128,907
============
See Notes to Financial Statements.
</TABLE>
47
<PAGE> 90
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended July 31,
1994 1993
Increase (Decrease) in Net Assets:
<S> <S> <C> <C>
Operations: Investment loss--net $ (357,218) $ (411,300)
Realized gain on investments and foreign currency transactions--net 68,285,575 36,700,787
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (32,799,450) 38,824,539
------------ ------------
Net increase in net assets resulting from operations 35,128,907 75,114,026
------------ ------------
Dividends & Investment income--net:
Distributions Class A -- (381,712)
to Realized gain on investments--net:
Shareholders Class A (25,246,227) (8,633,980)
(Note 1e): Class B (25,925,825) (6,582,675)
------------ ------------
Net decrease in net assets resulting from dividends and distributions
to shareholders (51,172,052) (15,598,367)
------------ ------------
Capital Share Net increase in net assets derived from capital share transactions 226,499,203 103,377,109
Transactions ------------ ------------
(Note 4):
Net Assets: Net increase in net assets 210,456,058 162,892,768
Beginning of year 407,529,384 244,636,616
------------ ------------
End of year* $617,985,442 $407,529,384
============ ============
<FN>
*Accumulated investment loss--net $ (39,695) $ (589,028)
============ ============
See Notes to Financial Statements.
</TABLE>
48
<PAGE> 91
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A
For the Year Ended July 31,
1994 1993 1992 1991 1990
The following per share data and ratios have been derived
from information provided in the financial statements.
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.75 $ 11.40 $ 11.13 $ 12.37 $ 13.41
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .03 .02 .06 .23 .37
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net(1) 1.18 3.06 1.34 .55 (.47)
-------- -------- -------- -------- --------
Total from investment operations 1.21 3.08 1.40 .78 (.10)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.03) (.09) (.40) (.51)
Realized gain on investments--net (1.65) (.70) (1.04) (1.62) (.43)
-------- -------- -------- -------- --------
Total dividends and distributions (1.65) (.73) (1.13) (2.02) (.94)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.31 $ 13.75 $ 11.40 $ 11.13 $ 12.37
======== ======== ======== ======= ========
Total Based on net asset value per share 9.36% 28.96% 14.54% 10.35% (.93%)
Investment ======== ======== ======== ======= ========
Return:*
Ratios to Expenses 1.22% 1.25% 1.35% 1.42% 1.32%
Average ======== ======== ======== ======= ========
Net Assets: Investment income (loss)--net .48% .28% .60% 2.22% 2.77%
======== ======== ======== ======= ========
Supplemental Net assets, end of year (in thousands) $255,856 $197,995 $140,323 $132,62 $151,027
Data: ======== ======== ======== ======= ========
Portfolio turnover 63.95% 67.57% 79.68% 72.12% 54.98%
======== ======== ======== ======= ========
<FN>
*Total investment returns exclude the effects of sales loads.
(1)Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation.
See Notes to Financial Statements.
</TABLE>
49
<PAGE> 92
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class B
For the Year Ended July 31,
1994++ 1993++ 1992++ 1991 1990
The following per share data and ratios have been derived
from information provided in the financial statements.
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.46 $ 11.25 $ 11.04 $ 12.26 $ 13.32
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.07) (.02) (.05) .11 .22
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net(1) 1.11 2.93 1.33 .56 (.44)
-------- -------- -------- -------- --------
Total from investment operations 1.04 2.91 1.28 .67 (.22)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.03) (.27) (.41)
Realized gain on investments-net (1.48) (.70) (1.04) (1.62) (.43)
-------- -------- -------- -------- --------
Total dividends and distributions (1.48) (.70) (1.07) (1.89) (.84)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.02 $ 13.46 $ 11.25 $ 11.04 $ 12.26
======== ======== ======== ======== ========
Total Based on net asset value per share 8.21% 27.66% 13.35% 9.14% (1.86%)
Investment ======== ======== ======== ======== ========
Return:*
Ratios to Expenses, net of reimbursement and excluding
Average distribution fees 1.24% 1.27% 1.37% 1.45% 1.36%
Net Assets: ======== ======== ======== ======== ========
Expenses 2.24% 2.27% 2.37% 2.45% 2.36%
======== ======== ======== ======== ========
Investment income (loss)--net (.51%) (.73%) (.46%) 1.19% 1.74%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $362,129 $209,534 $104,313 $ 79,848 $ 92,700
Data: ======== ======== ======== ======== ========
Portfolio turnover 63.95% 67.57% 79.68% 72.12% 54.98%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on the average number of shares outstanding during the period.
(1)Foreign currency transaction amounts have been reclassified to conform to the 1994 presentation.
See Notes to Financial Statements.
</TABLE>
50
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Phoenix Fund, Inc. (the "Fund") is regis-
tered under the Investment Company Act of 1940 as a
diversified, open-end management investment company.
The Fund offers both Class A and Class B Shares. Class
A Shares are sold with a front-end sales charge. Class B
Shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical voting,
dividend, liquidation and other rights and the same
terms and conditions, except that Class B Shares bear
certain expenses related to the distribution of such
shares and have exclusive voting rights with respect to
matters relating to such distribution expenditures. The
following is a summary of significant accounting poli-
cies followed by the Fund.
(a) Valuation of investments--Portfolio securities which
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 market are valued at the
most recent bid prices as obtained from one or more
dealers that make markets in the securities. Portfolio
securities which are traded both in the over-the-counter
market and on a stock exchange are valued according
to the broadest and most representative market.
Securities and assets for which market quotations are
not readily available are valued at fair value as deter-
mined in good faith by or under the direction of the
Board of Directors of the Fund. Any foreign securities
held by the Fund will be valued as described above, as
of the close of trading in the primary market where
such securities are traded which next precedes the time
the net asset value of the Fund is determined. Short-
term securities are valued at amortized cost which
approximates market.
(b) Income taxes--It is the Fund's policy to comply
with the requirements of the Internal Revenue Code
applicable to regulated investment companies and
to distribute all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a with-
holding tax may be imposed on interest, dividends, and
capital gains at various rates.
(c) Security transactions and investment income--
Security transactions are recorded on the dates the
transactions are entered in (the trade dates). Dividend
income is recorded on the ex-dividend dates, except that
if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the funds
are informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the
accrual basis. Realized gains and losses on security
transactions are determined on the identified cost basis.
(d) Deferred organization expenses and prepaid
registration fees--Costs related to the organization of
the second class of shares are charged to expense over a
period not exceeding five years. Prepaid registration fees
are charged to expense as the related shares are issued.
(e) Dividends and distributions--Dividends and distribu-
tions paid by the Fund are recorded on the ex-dividend dates.
(f) Foreign currency transactions--Transactions denom-
inated in foreign currencies are recorded at the exchange
rate prevailing when recognized. Assets and liabilities
denominated in foreign currencies are valued at the
exchange rate at the end of the period. Foreign currency
transactions are the result of settling (realized) or valu-
ing (unrealized) assets and liabilities expressed in
foreign currencies into US dollars. Realized and unreal-
ized gains or losses from investments include the effects
of foreign exchange rates on investments.
The Fund is authorized to enter into forward foreign
exchange contracts as a hedge against either specific
transactions or portfolio positions. Such contracts are
not entered on the Fund's records. However, the effect
on operations is recorded from the date the Fund enters
into such contracts. Premium or discount is amortized
over the life of the contracts.
(g) Reclassifications--Certain 1993 amounts have been
reclassified to conform to the 1994 presentation.
Undistributed realized capital gains of approximately
$1.6 million have been reclassified to paid in capital
and accumulated investment loss, as appropriate.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory
Agreement with Fund Asset Management, L.P. ("FAM").
Effective January 1, 1994, the investment advisory busi-
ness of FAM was reorganized from a corporation to a
limited partnership. Both prior to and after the reorgan-
ization, ultimate control of FAM was vested with Merrill
Lynch & Co., Inc. ("ML & Co."). The general partner of
FAM is Princeton Services, Inc., an indirect wholly-owned
subsidiary of ML & Co. The limited partners are ML & Co.
and Fund Asset Management, Inc. ("FAMI"), which is also
an indirect wholly-owned subsidiary of ML & Co. The
Fund has also entered into Distribution Agreements and a
51
<PAGE> 94
Distribution Plan with Merrill Lynch Funds Distributor, Inc.
("MLFD" or "Distributor"), a wholly-owned subsidiary of
Merrill Lynch Investment Management, Inc. ("MLIM").
FAM is responsible for the management of the Fund's
portfolio and provides the necessary personnel, facili-
ties, equipment and certain other services necessary to
the operations of the Fund. For such services, the Fund
pays a monthly fee of 1.0%, on an annual basis, of the
average daily value of the Fund's net assets. The Invest-
ment Advisory Agreement obligates FAM to reimburse
the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of
the Fund's first $30 million of average daily net assets,
2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess
thereof. No fee payment will be made to the Investment
Adviser during any fiscal year which will cause such
expenses to exceed the pro rata expense limitation at
the time of such payment.
Pursuant to a distribution plan (the "Distribution
Plan") adopted by the Fund in accordance with
Rule 12b-1 under the Investment Company Act of 1940,
the Fund pays the Distributor an ongoing account main-
tenance fee and distribution fee, which are accrued
daily and paid monthly at the annual rates of 0.25% and
0.75%, respectively, of the average daily net assets of the
Class B Shares of the Fund to compensate the Distribu-
tor for services provided and the expenses borne by it
under the Plan. As authorized by the Plan, the Distribu-
tor has entered into an agreement with Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), an affiliate of
MLIM, which provides for the compensation of MLPF&S
for providing distribution-related services to the Fund.
During the year ended July 31, 1994, MLFD earned under-
writing discounts of $64,117, and MLPF&S earned dealer con-
cessions of $906,534 on sales of the Fund's Class A Shares.
MLPF&S also received contingent deferred sales charges
for the sale of Class B Shares of $312,454, and $10,848
in commissions on the execution of portfolio security
transactions for the Fund during the period.
Financial Data Services, Inc. ("FDS"), a wholly-owned
subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by FAM
at cost.
Certain officers and/or directors of the Fund are officers
and/or directors of FAM, FAMI, MLIM, MLPF&S, FDS,
MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding
short-term securities, for the year ended July 31, 1994
were $463,424,697 and $291,211,473, respectively.
Net realized and unrealized gains (losses) as of July
31, 1994 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 68,347,426 $11,455,864
Short-term investments 43 --
Foreign currency
transactions (61,894) (434)
------------ -----------
Total $ 68,285,575 $11,455,430
============ ===========
As of July 31, 1994, net unrealized appreciation
for Federal income tax purposes aggregated $11,455,864,
of which $67,678,274 related to appreciated securities
and $56,222,410 related to depreciated securities. The
aggregate cost of investments at July 31, 1994 for
Federal income tax purposes was $597,535,895.
4. Capital Share Transactions:
Net increase in net assets derived from capital share
transactions was $226,499,203 and $103,377,109 for
the years ended July 31, 1994 and July 31, 1993, respectively.
Transactions in capital shares for Class A and Class B
Shares were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 6,651,189 $ 90,076,079
Shares issued to shareholders
in reinvestment of
distributions 1,642,482 21,483,664
----------- ------------
Total issued 8,293,671 111,559,743
Shares redeemed (3,468,349) (46,773,252)
----------- ------------
Net increase 4,825,322 $ 64,786,491
=========== ============
Class A Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 3,601,585 $ 44,967,222
Shares issued to shareholders
in reinvestment of dividends
and distributions 697,873 7,407,189
----------- ------------
Total issued 4,299,458 52,374,411
Shares redeemed (2,210,274) (27,004,447)
----------- ------------
Net increase 2,089,184 $ 25,369,964
=========== ============
52
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended July 31, 1993 Shares Amount
Shares sold 14,799,015 $196,220,427
Shares issued to shareholders
in reinvestment of
distributions 1,819,145 23,320,070
----------- ------------
Total issued 16,618,160 219,540,497
Shares redeemed (4,382,742) (57,827,785)
----------- ------------
Net increase 12,235,418 $161,712,712
=========== ============
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 8,405,778 $104,464,754
Shares issued to shareholders
in reinvestment of dividends
and distributions 544,753 5,718,365
----------- ------------
Total issued 8,950,531 110,183,119
Shares redeemed (2,654,138) (32,175,974)
----------- ------------
Net increase 6,296,393 $ 78,007,145
=========== ============
5. Commitments:
At July 31, 1994, the Fund had entered into foreign
exchange contracts under which it had agreed to
purchase various foreign currency with an approximate
value of $509,000.
53
<PAGE> 96
[This page is intentionally left blank.]
<PAGE> 97
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies...... 2
Management of the Fund................. 7
Directors and Officers............... 7
Management and Advisory
Arrangements...................... 8
Purchase of Shares..................... 10
Alternative Sales Arrangements....... 10
Initial Sales Charge Alternative --
Class A and Class D Shares........ 10
Reduced Initial Sales Charges........ 11
Distribution Plans................... 15
Limitations on the Payment of
Deferred Sales Charges............ 15
Redemption of Shares................... 16
Deferred Sales Charge --
Class B Shares.................... 17
Portfolio Transactions and Brokerage... 18
Determination of Net Asset Value....... 19
Shareholder Services................... 21
Investment Account................... 21
Automatic Investment Plans........... 21
Automatic Reinvestment of Dividends
and Capital Gains Distributions... 21
Systematic Withdrawal Plans --
Class A and Class D Shares........ 22
Retirement Plans..................... 23
Exchange Privilege................... 23
Dividends, Distributions and Taxes..... 33
Dividends and Distributions.......... 33
Taxes................................ 33
Performance Data....................... 36
General Information.................... 38
Description of Shares................ 38
Computation of Offering Price per
Share............................. 38
Independent Auditors................. 39
Custodian............................ 39
Transfer Agent....................... 39
Legal Counsel........................ 39
Reports to Shareholders.............. 39
Additional Information............... 39
Independent Auditors' Report........... 40
Financial Statements................... 41
</TABLE>
Merrill Lynch Phoenix Fund, Inc. is not related to Phoenix Home Life Mutual Life
Insurance Company or any of its subsidiaries or affiliates, including the
Phoenix Series Fund.
Code #10242-1094
[LOGO]
MERRILL LYNCH
PHOENIX FUND, INC.
ART WORK
Statement of
Additional Information
OCTOBER 21, 1994
DISTRIBUTOR:
MERRILL LYNCH
FUNDS DISTRIBUTOR, INC.
<PAGE> 98
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 occurence 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
<PAGE> 99
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS:
Contained in Part A:
Financial Highlights for each of the periods in the ten-year period
ended July 31, 1994.
Contained in Part B:
Schedule of Investments, as of July 31, 1994.
Statement of Assets and Liabilities, as of July 31, 1994.
Statement of Operations for the year ended July 31, 1994.
Statements of Changes in Net Assets for the years ended July 31,
1994 and 1993.
Financial Highlights for each of the years in the five-year period
ended July 31, 1994.
(B) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- --------------------------------------------------------------------------
<S> <C>
1(a) -- Articles of Incorporation of Registrant, dated April 13, 1982. (a)
2 -- By-Laws of Registrant. (f)
3 -- None.
4(a) -- Portions of the Articles of Incorporation and By-Laws of Registrant
defining the rights of holders of shares of common stock of Registrant.
(h)
(b) -- Specimen certificate for shares of Class A common stock of Registrant. (f)
(c) -- Specimen certificate for shares of Class B common stock of Registrant. (f)
5(a) -- Investment Advisory Agreement between Registrant and Fund Asset
Management, Inc. (b)
(b) -- Supplement to Investment Advisory Agreement between Registrant and Fund
Asset Management, L.P.
6(a) -- Class A Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including Form of Selected Dealers Agreement).
(b) -- Class B Distribution Agreement between Registrant and Merrill Lynch Funds
Distributor, Inc. (including Form of Selected Dealers Agreement). (f)
(c) -- Form of Class C Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement).
(d) -- Form of Class D Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement).
(e) -- Merrill Lynch Mutual Fund Adviser Agreement. (i)
7 -- None.
8 -- Form of Custody Agreement between Registrant and First Jersey National
Bank. (b)
9(a) -- Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing
Agency Agreement between Registrant and Merrill Lynch Financial Data
Services, Inc. (now known as Financial Data Services, Inc.). (e)
(b) -- Agreement among Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Merrill Lynch Asset Management, Inc. and the Registrant relating to use by
the Registrant of the Merrill Lynch name. (b)
10 -- None.
11 -- Consent of Deloitte & Touche LLP, independent auditors for the Registrant.
12 -- None.
</TABLE>
C-1
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- --------------------------------------------------------------------------
<C> <S>
13 -- None.
14(a) -- Prototype Individual Retirement Account Plan, Simplified Employee Pension
Plan, Corporate Individual Retirement Account Plan and Keogh Plan
available from Merrill Lynch, Pierce, Fenner & Smith Incorporated. (c)
(b) -- Prototype Merrill Lynch Tax-Deferred Basic(TM) Retirement Plan available
from Merrill Lynch, Pierce, Fenner & Smith Incorporated. (d)
15(a) -- Class A Distribution Plan of Registrant. (f)
(b) -- Amended and Restated Class B Distribution Plan of Registrant. (i)
(c) -- Form of Class C Distribution Plan and Class C Distribution Plan
Sub-Agreement of Registrant.
(d) -- Form of Class D Distribution Plan and Class D Distribution Plan
Sub-Agreement of Registrant.
16(a) -- Schedule for computation of each performance quotation for Class A shares
provided in the 16(a) Registration Statement in response to Item 22. (f)
(b) -- Schedule for computation of each performance quotation for Class B shares
provided in the Registration Statement in response to Item 22. (g)
17(a) -- Financial Data Schedule for Class A Shares.
(b) -- Financial Data Schedule for Class B Shares.
</TABLE>
- ------------
(a) Filed on April 19, 1982 as an Exhibit to Registrant's Registration Statement
under the Securities Act of 1933.
(b) Filed on July 19, 1982 as an Exhibit to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement under the Securities Act of 1933.
(c) Incorporated by reference to Exhibit 14 to Pre-Effective Amendment No. 1 to
the Registration Statement under the Securities Act of 1933 on Form N-1
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed on
January 26, 1982.
(d) Incorporated by reference to Exhibit 14 to Post-Effective Amendment No. 3 to
the Registration Statement under the Securities Act of 1933 on Form N-1A
(File No. 2-74584) of Merrill Lynch Retirement Series Trust, filed December
29, 1983.
(e) Filed on November 27, 1987 as an Exhibit to Post-Effective Amendment No. 6
to Registrant's Registration Statement under the Securities Act of 1933.
(f) Filed on October 6, 1988 as an Exhibit to Post-Effective Amendment No. 8 to
Registrant's Registration Statement under the Securities Act of 1933.
(g) Filed on November 28, 1989 as an Exhibit to Post-Effective Amendment No. 9
to Registrant's Registration Statement under the Securities Act of 1933.
(h) Reference is made to Article III, Article V, Article VI (sections 2, 3, 4
and 5), Article VII, Article VIII, and Article X of the Registrant's
Articles of Incorporation, previously filed as Exhibit (1), to the
Registration Statement; and to Article II, Article III (sections 1, 3, 5, 6
and 17), Article VI, Article VII, Article XII, Article XIII, Article XIV
and Article XV of the Registrant's By-Laws previously filed as Exhibit (2)
to the Registration Statement.
(i) Filed on November 24, 1993 as an Exhibit to Post-Effective Amendment No. 13
to the Registrant's Registration Statement under the Securities Act of
1933.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any
person.
C-2
<PAGE> 101
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF RECORD
HOLDERS AT
TITLE OF CLASS SEPTEMBER 30, 1994
- ---------------------------------------------------------------------------- ------------------
<S> <C>
Class A Common Stock, par value $0.10 per share............................. 1,964
Class B Common Stock, par value $0.10 per share............................. 763
Class C Common Stock, par value $0.10 per share............................. 0
Class D Common Stock, par value $0.10 per share............................. 0
</TABLE>
ITEM 27. INDEMNIFICATION.
Reference is made to Article VI of Registrant's Articles of Incorporation,
Article VI of Registrant's By-Laws, Section 2-418 of the Maryland General
Corporation Law and Section 9 of the Class A and Class B Distribution
Agreements.
Article VI of the By-Laws provides that each officer and director of the
Registrant shall be indemnified by the Registrant to the full extent permitted
under the General Laws of the State of Maryland, except that such indemnity
shall not protect any such person against any liability to the Registrant or any
stockholder thereof to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office. Absent a court determination that
an officer or director seeking indemnification was not liable on the merits or
guilty of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office, the decision by the
Registrant to indemnify such person must be based upon the reasonable
determination of independent counsel or non-party independent directors, after
review of the facts, that such officer or director is not guilty of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
The Registrant may purchase insurance on behalf of an officer or director
protecting such person to the full extent permitted under the General Laws of
the State of Maryland from liability arising from his activities as officer or
director of the Registrant. The Registrant, however, may not purchase insurance
on behalf of any officer or director of the Registrant that protects or purports
to protect such person from liability to the Registrant or to its stockholders
to which such officer or director would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
The Registrant may indemnify or purchase insurance to the extent provided
in Article VI on behalf of an employee or agent who is not an officer or
director of the Registrant.
Insofar as the conditional advancing of indemnification moneys for actions
based upon the Investment Company Act of 1940 may be concerned, such payments
will be made only on the following conditions: (i) the advances must be limited
to amounts used, or to be used, for the preparation or presentation of a defense
to the action, including costs connected with the preparation of a settlement;
(ii) advances may be made only upon receipt of a written promise by, or on
behalf of, the recipient to repay the amount of the advance which exceeds the
amount to which it is ultimately determined that he is entitled to receive from
the Registrant by reason of indemnification; and (iii) (a) such promise must be
secured by a surety bond, other suitable insurance or an equivalent form of
security which assures that any repayments may be obtained by the Registrant
without delay or litigation, which bond, insurance or other form of security
must be provided by the recipient of the advance, or (b) 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 the recipient of the advance ultimately will be found
entitled to indemnification.
In Section 9 of the Class A and Class B 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 of 1933, against certain types of civil
liabilities arising in connection with the Registration Statement or Prospectus.
C-3
<PAGE> 102
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 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 Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Fund Asset Management, L.P. (the "Investment Adviser") acts as the
investment adviser for the following investment companies: Apex Municipal Fund,
Inc., 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., Corporate High Yield Fund, Inc.,
Corporate High Yield Fund II, Inc., Financial Institutions Series Trust, Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc., Merrill
Lynch Basic Value Fund, Inc., Merrill Lynch California Municipal Series Trust,
Merrill Lynch Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust,
Merrill Lynch Funds for Institutions Series, Merrill Lynch Institutional
Tax-Exempt Fund, Merrill Lynch Multi-State Limited Maturity Municipal Series
Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch Municipal
Bond Fund, Inc., Merrill Lynch Special Value Fund, Inc., Merrill Lynch World
Income Fund, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Insured Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund
II, 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 Insured Fund II, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield New
York Insured Fund II, Inc., MuniYield New York Insured Fund III, Inc., MuniYield
Pennsylvania Fund, MuniYield Quality Fund, Inc., MuniYield Quality Fund II,
Inc., Senior High Income Portfolio, Inc., Senior High Income Portfolio II, Inc.,
Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork Holdings, Inc. and
Worldwide DollarVest, Inc., Merrill Lynch Asset Management, L.P. ("MLAM"), an
affiliate of the Investment Adviser, acts as the investment adviser for the
following companies: Convertible Holdings, Inc., Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Developing Capital Markets 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 Holdings, Inc.,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Growth Fund for Investment and Retirement, Merrill Lynch
Healthcare Fund, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.,
Merrill Lynch Institutional Intermediate Fund, Merrill Lynch International
Equity Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Municipal
Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill Lynch Ready Assets
Trust, Merrill Lynch Retirement Series Trust, Merrill Lynch Senior Floating Rate
Fund, Inc., 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.
C-4
<PAGE> 103
Treasury Money Fund, Merrill Lynch U.S.A. Government Reserves, Merrill Lynch
Utility Income Fund, Inc. and Merrill Lynch Variable Series Funds, Inc. 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 Institutional Intermediate Fund is One
Financial Center, 15th Floor, Boston, Massachusetts 02111-2646. The address of
the Investment Adviser and MLAM is also P.O. Box 9011, Princeton, New Jersey
08543-9011. 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 Financial Data Services is 4800 Deer Lake Drive East, Jacksonville, Florida
32246-6484.
Set forth below is a list of each 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
July 31, 1992 for his own account or in the capacity of director, officer,
partner or trustee. In addition, Mr. Zeikel is President, Mr. Richard is
Treasurer and Mr. Glenn is Executive Vice President of all or substantially all
of the investment companies described in the preceding paragraph and also hold
the same positions with all or substantially all of the investment companies
advised by MLAM as they do with those advised by the Investment Adviser. Messrs.
Durnin, Giordano, Harvey, Hewitt, Kirstein, Monagle and Ms. Griffin are
directors or officers of one or more of such companies.
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
- ------------------------------ ----------------------- --------------------------------------
<S> <C> <C>
ML & Co....................... Limited Partner Financial Services Holding Company
Fund Asset Management,
Inc. ....................... Limited Partner Investment Advisory Services
Princeton Services, Inc.
("Princeton Services") ..... General Partner General Partner of MLAM
Arthur Zeikel................. President President of MLAM; President and
Director of Princeton Services;
Director of the Distributor; Executive
Vice President of Merrill Lynch;
Executive Vice President of ML&Co.
Terry K. Glenn................ Executive Executive Vice President of MLAM;
Vice President Executive Vice President and Director
of Princeton Services; President and
Director of the Distributor; President
of Princeton Administrators, Inc.
Bernard J. Durnin............. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Vincent R. Giordano........... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth Griffin............. Senior Vice President Senior Vice President of MLAM
N. John Hewitt................ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Philip L. Kirstein............ Senior Vice President, Senior Vice President, General Counsel
General Counsel and and Secretary of MLAM; Senior Vice
Secretary President, General Counsel, Director
and Secretary of Princeton Services;
Director of the Distributor
Ronald M. Kloss............... Senior Vice President Senior Vice President and Controller
and Controller of MLAM; Senior Vice President and
Controller of Princeton Services
</TABLE>
C-5
<PAGE> 104
<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,
POSITION WITH PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
- ------------------------------ ----------------------- --------------------------------------
<S> <C> <C>
Stephen M. M. Miller.......... Senior Vice President Executive Vice President of Princeton
Administration; Senior Vice President
of Princeton Services
Joseph T. Monagle............. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Gerald M. Richard............. Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Senior Vice President and
Treasurer of Princeton Services; Vice
President and Treasurer of the
Distributor
Richard L. Rufener............ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Vice President of the Distributor
Ronald L. Welburn............. Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Anthony Wiseman............... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) The Distributor acts as the principal underwriter for the Registrant,
for each of the open-end investment companies referred to in the first paragraph
of Item 28 except Apex Municipal Fund, Inc., CBA Money Fund, CMA Government
Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series Trust, CMA
Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The Corporate
Fund Accumulation Program, Inc., Corporate High Yield Fund, Inc., Corporate High
Yield Fund II, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities
Fund 2000, Inc., MuniAssets Fund, Inc., MuniBond Income Fund, Inc., The
Municipal Fund Accumulation Program, Inc., MuniEnhanced Fund, Inc., MuniInsured
Fund, Inc., MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest California
Insured Fund, Inc., MuniVest Florida Fund, MuniVest Michigan Insured Fund, Inc.,
MuniVest New Jersey Fund, Inc., MuniVest New York Insured Fund, Inc., MuniVest
Pennsylvania Fund, MuniYield Arizona Fund, Inc., MuniYield Arizona Fund II,
Inc., MuniYield California Fund, Inc., MuniYield California Insured Fund, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Insured Fund II, Inc., MuniYield
Michigan Fund, Inc., MuniYield Michigan Insured Fund, Inc., MuniYield New Jersey
Fund, Inc., MuniYield New Jersey Insured Fund, Inc., MuniYield New York Insured
Fund, Inc., MuniYield New York Insured Fund II, Inc., MuniYield New York Insured
Fund III, Inc., MuniYield Pennsylvania Fund, MuniYield Quality Fund, Inc.,
MuniYield Quality Fund II, Inc., Senior High Income Portfolio, Inc., Senior High
Income Portfolio II, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus
MuniNewYork Holdings, Inc. and Worldwide DollarVest Fund, Inc.
C-6
<PAGE> 105
(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 08543-9011, except that the address of Messrs.
Crook, Aldrich, Breen, Graczyk, Fatseas and Wasel is One Financial Center,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES POSITIONS AND OFFICES
NAME WITH DISTRIBUTOR WITH REGISTRANT
- --------------------------------- ---------------------------------- -------------------------
<S> <C> <C>
Terry K. Glenn................... President and Director Executive Vice President
Arthur Zeikel.................... Director President and Director
Philip L. Kirstein............... Director None
William E. Aldrich............... Senior Vice President None
Robert W. Crook.................. Senior Vice President None
Kevin P. Boman................... Vice President None
Michael J. Brady................. Vice President None
William M. Breen................. Vice President None
Sharon Creveling................. Vice President and Assistant None
Treasurer
Mark A. DeSario.................. Vice President None
James T. Fatseas................. Vice President None
Stanley Graczyk.................. Vice President None
Michelle T. Lau.................. Vice President None
Gerald M. Richard................ Vice President and Treasurer Treasurer
Richard L. Rufener............... Vice President None
Salvatore Venezia................ Vice President None
William Wasel.................... Vice President None
Robert Harris.................... Secretary Secretary
</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 will be maintained at the offices of the Registrant, 800 Scudders
Mill Road, Plainsboro, New Jersey 08536 and its transfer agent, Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
ITEM 31. MANAGEMENT SERVICES.
Other than as set forth under the caption "Management of the
Fund-Management and Advisory Arrangements" 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, Registrant is not
a party to any management-related service contracts.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(b) Not applicable.
(c) Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
C-7
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this 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 10th day of October, 1994.
MERRILL LYNCH PHOENIX FUND, INC.
By: /s/ ARTHUR ZEIKEL
------------------------------------
(Arthur Zeikel, President)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------------ -----------------
<C> <S> <C>
/s/ ARTHUR ZEIKEL President and Director (Principal October 10, 1994
- ------------------------------------- Executive Officer)
(Arthur Zeikel)
/s/ GERALD M. RICHARD Treasurer (Principal Financial and October 10, 1994
- ------------------------------------- Accounting Officer)
(Gerald M. Richard)
Director
- -------------------------------------
(Joe Grills)
WALTER MINTZ* Director
- -------------------------------------
(Walter Mintz)
</TABLE>
<TABLE>
<C> <S> <C>
STEPHEN B. SWENSRUD* Director
- -------------------------------------
(Stephen B. Swensrud)
MELVIN R. SEIDEN* Director
- -------------------------------------
(Melvin R. Seiden)
HARRY WOOLF* Director
- -------------------------------------
(Harry Woolf)
*By: /s/ ARTHUR ZEIKEL October 10, 1994
- -------------------------------------
(Arthur Zeikel, Attorney-in-Fact)
</TABLE>
C-8
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ --------------------------------------------------------------------------
<S> <C>
5(b) -- Supplement to Investment Advisory Agreement between Registrant and Fund
Asset Management, L.P.
6(a) -- Form of Class A Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement)
6(c) -- Form of Class C Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement)
6(d) -- Form of Class D Distribution Agreement between Registrant and Merrill
Lynch Funds Distributor, Inc. (including Form of Selected Dealers
Agreement)
11 -- Consent of Deloitte & Touche LLP, independent auditors for Registrant
15(b) -- Form of Class C Distribution Plan and Class C Distribution Plan
Sub-Agreement
15(c) -- Form of Class D Distribution Plan and Class C Distribution Plan
Sub-Agreement
17(a) -- Financial Data Schedule for Class A Shares
17(b) -- Financial Data Schedule for Class B Shares
</TABLE>
<PAGE> 1
EXHIBIT 5(B)
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
WITH
FUND ASSET MANAGEMENT
As of January 1, 1994 Fund Asset Management was reorganized as a limited
partnership, formally known as Fund Asset Management, L.P. ("FAM"). The
general partner of FAM is Princeton Services, Inc. and the limited partners are
Fund Asset Management, Inc. and Merrill Lynch & Co. Inc. Pursuant to Rule
202(a)(1)-1 under the Investment Advisers Act of 1940 and Rule 2a-6 under the
Investment Company Act of 1940 such reorganization did not constitute an
assignment of this investment advisory agreement since it did not involve a
change of control or management of the investment adviser. Pursuant to the
requirements of Section 205 of the Investment Advisers Act of 1940, however,
Fund Asset Management hereby supplements this investment advisory agreement by
undertaking to advise you of any change in the membership of the partnership
with a reasonable time after any such change occurs.
By /s/ Arthur Zeikel
-------------------------
Dated: January 3, 1994
<PAGE> 1
EXHIBIT 6(A)
CLASS A SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st day of October 1994 between Merrill
Lynch Phoenix 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
<PAGE> 2
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.
2
<PAGE> 3
(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.
(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) 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(d) hereof, used in determining the public offering price on
which such orders were based.
(b) The Class A shares are to be resold by the Distributor to
eligible investors at the public offering price, as set forth
3
<PAGE> 4
in Section 3(c) hereof, or to securities dealers having agreements with the
Distributor upon the terms and conditions set forth in Section 7 hereof.
(c) 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 5.25% of
the public offering price (5.54% 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(f).
(d) 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
4
<PAGE> 5
information of the Fund and guidelines established by the Directors.
(e) 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 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.
(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 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).
5
<PAGE> 6
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
VII 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(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 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
6
<PAGE> 7
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 certified copy of all financial statements prepared for the Fund by
independent public accountants. The Fund shall make available to the
Distributor
7
<PAGE> 8
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.
8
<PAGE> 9
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
9
<PAGE> 10
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 continuous offering of the Class A shares is
attached hereto as Exhibit A.
(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
10
<PAGE> 11
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
11
<PAGE> 12
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 be subject by reason of
12
<PAGE> 13
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
13
<PAGE> 14
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.
14
<PAGE> 15
Section 10. Merrill Lynch Mutual Fund Adviser Program.
In connection with the Merrill Lynch Mutual Fund Adviser 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 October 21, 1995 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.
15
<PAGE> 16
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.
Section 14. This Agreement supersedes the prior Distribution
Agreement entered into by the parties hereto with respect to the Class A shares
of the Fund.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH PHOENIX FUND, INC.
By
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH PHOENIX FUND, INC.
CLASS A SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
--------------------------
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Phoenix 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, and its Class A shares
are registered under the Securities Act of 1933, as amended. 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 of 1933, as amended. 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 Adviser 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
1
<PAGE> 19
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 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>
Discount to
Selected
Sales Charge Dealers as
Sales Charge as Percentage* Percentage
as Percentage of the Net of the
of the Amount Offering
Amount of Purchase Offering Price Invested Price
------------------ -------------- ---------- -----------
<S> <C> <C> <C>
Less than $25,000........ 5.25% 5.54% 5.00%
$25,000 but less
than $50,000............ 4.75% 4.99% 4.50%
$50,000 but less
than $100,000........... 4.00% 4.17% 3.75%
$100,000 but less
than $250,000........... 3.00% 3.09% 2.75%
$250,000 but less
than $1,000,000......... 2.00% 2.04% 1.80%
$1,000,000 and over**.... 0.00% 0.00% 0.00%
</TABLE>
- -------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will 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.
2
<PAGE> 20
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 of 1940, as
amended, 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 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 Class A, Class B, Class C and Class D shares
of the Fund and of any other investment company with an initial sales charge
for which the Distributor acts as the distributor. 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
$10,000 or more of Class A shares or of Class D shares of any other investment
company with an initial sales charge for which the Distributor acts as the
distributor 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 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.
3
<PAGE> 21
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
4
<PAGE> 22
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 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 Rules of Fair Practice 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.
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.
5
<PAGE> 23
16. This Agreement supersedes any prior Selected Dealers Agreement
entered into by the parties hereto with respect to the Class A shares of the
Fund.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(Authorized Signature)
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:
-------------------------------------------------
6
<PAGE> 1
(DRAFT: 8.26.94)
(TO BE EXECUTED BY ALL FUNDS)
CLASS C SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st day of October 1994, between Merrill
Lynch Phoenix 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
<PAGE> 2
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.
2
<PAGE> 3
(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) It is contemplated that 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(c)
hereof.
3
<PAGE> 4
(b) The Class C shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(c) hereof, or to
securities dealers having agreements with the Distributor upon the terms and
conditions set forth in Section 7 hereof.
(c) 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.
(d) 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.
(e) 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
4
<PAGE> 5
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 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
VII 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(c) 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.
5
<PAGE> 6
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
6
<PAGE> 7
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 of 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 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.
7
<PAGE> 8
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,
8
<PAGE> 9
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(c) hereof. The form of agreement with selected dealers to be used
during the Continuous offering of the shares is attached hereto as Exhibit A.
(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
Company Act, the Securities Act, and all amendments and supplements thereto,
and preparing and mailing annual and interim reports and proxy
9
<PAGE> 10
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.
10
<PAGE> 11
(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 S(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 S(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
11
<PAGE> 12
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
12
<PAGE> 13
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
13
<PAGE> 14
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 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 Adviser Program. In connection
with the Merrill Lynch Mutual Fund Adviser 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 October 21, 1995 and thereafter, but only for so long as such
continuance is
14
<PAGE> 15
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.
15
<PAGE> 16
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 PHOENIX FUND, INC.
By ________________________________
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By _______________________________
Title:
16
<PAGE> 17
EXHIBIT A
MERRILL LYNCH PHOENIX FUND, INC.
CLASS C SHARES OF COMMON STOCK
SELECTED DEALER AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Phoenix 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 C\ass 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. 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 which is part of the most
recent effective registration statement pursuant to the Securities Act of 1933,
as amended. 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
Adviser 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
17
<PAGE> 18
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 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
18
<PAGE> 19
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 of 1933, as amended, or of the rules and
regulations of the Securities and Exchange 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 Rules of Fair Practice of such
Association.
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.
19
<PAGE> 20
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 _______________________________
(Authorized Signature)
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: _____________________________________
20
<PAGE> 1
EXHIBIT 6(D)
CLASS D SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 21st day of October 1994 between Merrill
Lynch Phoenix 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
<PAGE> 2
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.
(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.
2
<PAGE> 3
(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) It is contemplated that 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(d)
hereof, used in determining the public offering price on which such orders were
based.
(b) The Class D shares are to be resold by the Distributor to
investors at the public offering price, as set forth in Section 3(c) hereof, or
to securities dealers having agreements
3
<PAGE> 4
with the Distributor upon the terms and conditions set forth in Section 7
hereof.
(c) 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 5.25% of the
public offering price (5.54% 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(f).
(d) 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
4
<PAGE> 5
information of the Fund and guidelines established by the Directors.
(e) 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.
(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 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).
5
<PAGE> 6
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
VII 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(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 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
6
<PAGE> 7
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 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
7
<PAGE> 8
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
8
<PAGE> 9
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 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
9
<PAGE> 10
("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 continuous offering of the Class D
shares is attached hereto as Exhibit A.
(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).
10
<PAGE> 11
(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
11
<PAGE> 12
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 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
12
<PAGE> 13
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
13
<PAGE> 14
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
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
14
<PAGE> 15
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 Adviser Program.
In connection with the Merrill Lynch Mutual Fund Adviser 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 October 21, 1995 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
15
<PAGE> 16
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.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
MERRILL LYNCH PHOENIX FUND, INC.
By
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
Title:
17
<PAGE> 18
EXHIBIT A
MERRILL LYNCH PHOENIX FUND, INC.
CLASS D SHARES OF COMMON STOCK
SELECTED DEALERS AGREEMENT
Gentlemen:
Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Merrill Lynch Poenix 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, and its Class D shares
being offered to the public are registered under the Securities Act of 1933, as
amended. 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 which is part of the most recent
effective registration statement pursuant to the Securities Act of 1933, as
amended. 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
Adviser 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
1
<PAGE> 19
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 to the public, computed as
percentages of the public offering price and the amount invested, and the
related discount to Selected Dealers are as follows:
<TABLE>
<CAPTION>
Discount to
Sales Charge Selected
Sales Charge as Percentage* Dealers as
as Percentage of the Net Percentage
of the Amount of the
Amount of Purchase Offering Price Invested Offering Price
------------------ -------------- ---------- --------------------
<S> <C> <C> <C>
Less than $25,000..................... 5.25% 5.54% 5.00%
$25,000 but less
than $50,000......................... 4.75% 4.99% 4.50%
$50,000 but less
than $100,000........................ 4.00% 4.17% 3.75%
$100,000 but less
than $250,000........................ 3.00% 3.09% 2.75%
$250,000 but less
than $1,000,000...................... 2.00% 2.04% 1.80%
$1,000,000 and over**................. 0.00% 0.00% 0.00%
</TABLE>
- --------------------------
* Rounded to the nearest one-hundredth percent.
** Initial sales charges will be waived for certain classes of offerees as set
forth in the current Prospectus and Statement of Additional Information of the
Fund. Such purchaes may be subject to a contingent deferred sales charge as
set forth in the current Prospectus and Statement of Additional Information.
2
<PAGE> 20
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 of 1940, as
amended, 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 eligible investors are permitted to purchase Class D
shares of the Fund 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 Class A, Class B, Class C and Class D shares
of the Fund and of any other investment company with an initial sales charge
for which the Distributor acts as the distributor. 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
$10,000 or more of Class A shares or of Class D shares of any other investment
company with an initial sales charge for which the Distributor acts as the
distributor 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 our request as to amounts of any
sales made by you to the public 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
<PAGE> 21
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 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
4
<PAGE> 22
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 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 Rules of Fair Practice 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.
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.
5
<PAGE> 23
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
----------------------------------
(Authorized Signature)
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:
--------------------------------------------------
----------------------------------------------------------
6
<PAGE> 1
EXHIBIT 11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Phoenix Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 14 to
Registration Statement No. 2-77068 of our report dated August 29,
1994 appearing in the Statement of Additional Information, which
is a part of such Registration Statement, and to the reference
to us under the caption "Financial Highlights" appearing in the
Prospectus, which also is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
October 10, 1994
<PAGE> 1
EXHIBIT 15 (B)
CLASS C DISTRIBUTION PLAN
OF
MERRILL LYNCH PHOENIX FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 21st day of October 1994, by and
between Merrill Lynch Phoenix 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 average daily net
assets of the Fund relating to Class C shares to compensate MLFD and securities
firms with which MLFD enters
<PAGE> 2
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 0.75% 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 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.
2
<PAGE> 3
5. This Plan shall not take effect until it has been approved by a
vote of at least a majority, as defined in the Investment Company Act, of the
outstanding Class C voting securities of the Fund.
6. 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.
7. 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 6.
8. 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.
9. 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 6 hereof, and no material amendment to the Plan shall
be made unless approved in the manner provided for approval and annual renewal
in Paragraph 6 hereof.
10. 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.
11. 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.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH PHOENIX FUND, INC.
By
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
Title:
4
<PAGE> 5
CLASS C SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 21st day of October 1994, 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 Phoenix
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 0.75% 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
and services with respect to the Class C 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. 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.
<PAGE> 6
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.
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 6.
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.
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
-------------------------------------
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
Title:
2
<PAGE> 1
EXHIBIT 15(C)
CLASS D DISTRIBUTION PLAN
OF
MERRILL LYNCH PHOENIX FUND, INC.
PURSUANT TO RULE 12b-1
DISTRIBUTION PLAN made as of the 21st day of October 1994,
by and between Merrill Lynch Phoenix 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
<PAGE> 2
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 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 by a vote of at least a majority, as defined in the
Investment Company Act, of the outstanding Class D voting
securities of the Fund.
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 D voting securities of the Fund.
2
<PAGE> 3
8. 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 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 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.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
MERRILL LYNCH PHOENIX FUND, INC.
By
-------------------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
-------------------------------------
Title:
3
<PAGE> 4
CLASS D SHARES DISTRIBUTION PLAN SUB-AGREEMENT
AGREEMENT made as of the 21st day of October 1994, 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 Phoenix
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 and services with respect to Class D shares; and
WHEREAS, MLFD desires the Securities Firm to perform certain account
maintenance activities and services, 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
<PAGE> 5
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 approved at least annually in the manner provided
for approval of the Plan in Paragraph 5.
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
-------------------------------------
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By
-------------------------------------
2
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> MERRILL LYNCH PHOENIX FUND, INC.
<S> <C>
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<NAME> MERRILL LYNCH PHOENIX FUND, INC.
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