<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 28, 1995
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. 16 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 18 [X]
(Check appropriate box or boxes)
----------------
MERRILL LYNCH PHOENIX FUND, INC.
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<S> <C>
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(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:
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 P.O. BOX 9011
PRINCETON, N.J. 08543- NEW YORK, N.Y. 10048-0557
9011 ATTN: THOMAS R. SMITH, JR. PRINCETON, N.J. 08543-
9011
----------------
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK
APPROPRIATE BOX)
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) 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, 1995.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
----------- --------
<C> <S> <C>
PART A
Item 1. Cover Page.............. Cover Page
Item 2. Synopsis................ Not Applicable
Condensed Financial
Item 3. 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 Offered.......... Cover Page; Merrill Lynch Select
PricingSM System; Fee Table; Purchase
of Shares; Shareholder Services;
Additional Information; Inside Back
Cover Page
Item 8. Redemption or
Repurchase............. Merrill Lynch Select PricingSM 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 Services......... Management of the Fund; Purchase of
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
</TABLE>
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.
<PAGE>
PROSPECTUS
NOVEMBER 28, 1995
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. For more information on the Fund's
investment objective and policies, please see "Investment Objective and
Policies" on page 10. 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 Select PricingSM System, the Fund offers four
classes of shares, each with a different combination of sales charges, ongoing
fees and other features. The Merrill Lynch Select PricingSM System permits an
investor to choose the method of purchasing shares that the investor believes
is most beneficial given the amount of the purchase, the length of time the
investor expects to hold the shares and other relevant circumstances. See
"Merrill Lynch Select PricingSM System" on page 3.
Shares may be purchased directly from Merrill Lynch Funds Distributor, Inc.
(the "Distributor"), P.O. Box 9081, Princeton, New Jersey 08543-9081 [(609)
282-2800], or from other 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 November 28, 1995 (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>
FEE TABLE
A general comparison of the sales arrangements and other nonrecurring and
recurring expenses applicable to shares of the Fund follows:
<TABLE>
<CAPTION>
CLASS A(a) CLASS B(b) CLASS C CLASS D
---------- ---------- --------------- -------
<S> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION EX-
PENSES:
Maximum Sales
Charge Imposed
on Purchases
(as a percent-
age of offer-
ing price).... 5.25%(c) None None 5.25%(c)
Sales Charge
Imposed on
Dividend
Reinvestments.. None None None None
Deferred Sales
Charge (as a
percentage of
original pur-
chase price or
redemption
proceeds,
whichever is 4.0% during the
lower)........ None(d) first year, 1% for one year None(d)
decreasing 1.0% annually
thereafter to 0.0% after
the fourth year
Exchange Fee... None None None None
ANNUAL FUND OP-
ERATING EX-
PENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)(e)
Investment Ad-
visory
Fees(f)....... .99% .99% .99% .99%
12b-1 Fees(g):
Account Main-
tenance
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(h)...... 0.20% 0.23% 0.23% 0.20%
Other.......... 0.11% 0.11% 0.11% 0.11%
----- ----- ----- -----
Total Other 0.32% 0.35% 0.35% 0.32%
Expenses..... ----- ----- ----- -----
Total Fund Op-
erating Ex- 1.31% 2.34% 2.34% 1.56%
penses........ ===== ===== ===== =====
</TABLE>
- --------
(a) Class A shares are sold to a limited group of investors including existing
Class A shareholders, certain retirement plans and certain investment
programs. See "Purchase of Shares--Initial Sales Charge Alternatives--
Class A and Class D Shares"--page 20.
(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 22.
(c) Reduced for purchases of $25,000 and over, and waived for purchases of
Class A shares by certain retirement plans in connection with certain
investment programs. Class A or Class D purchases of $1,000,000 or more
may not be subject to an initial sales charge. See "Purchase of Shares--
Initial Sales Charge Alternatives--Class A and Class D Shares"--page 20.
(d) Class A and Class D shares are not subject to a contingent deferred sales
charge ("CDSC"), except that certain purchases of $1,000,000 or more 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.
(e) Information for Class A and Class B shares is stated for the fiscal year
ended July 31, 1995. Information under "Other Expenses" for Class C and
Class D shares is estimated for the fiscal year ending July 31, 1996.
(f) See "Management of the Fund--Management and Advisory Arrangements"--page
16.
(g) See "Purchase of Shares--Distribution Plans"--page 25.
(h) See "Management of the Fund--Transfer Agency Services"--page 17.
2
<PAGE>
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................. $65 $92 $121 $202
Class B................. $64 $93 $125 $249*
Class C................. $34 $73 $125 $268
Class D................. $68 $99 $133 $228
An investor would pay the
following expenses on the
same $1,000 investment
assuming no redemption at
the end of the period:
Class A................. $65 $92 $121 $202
Class B................. $24 $73 $125 $249*
Class C................. $24 $73 $125 $268
Class D................. $68 $99 $133 $228
</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
3
<PAGE>
Asset Management, L.P. ("FAM" or the "Investment Adviser"). Funds advised by
MLAM or FAM which use the Merrill Lynch Select Pricing SM System 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 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, are imposed directly against those classes and
not against all assets of the Fund and, accordingly, such charges do 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 are 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 or her particular circumstances. More
detailed information as to each class of shares is set forth under "Purchase
of Shares".
<TABLE>
<CAPTION>
ACCOUNT
MAINTENANCE DISTRIBUTION CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE FEATURES
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum 5.25% initial No No No
sales charge(/2/)(/3/)
- ------------------------------------------------------------------------------------
B CDSC for a period of 4 years, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D Shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(/4/)
- ------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
</TABLE>
4
<PAGE>
- --------
(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 and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may
not be subject to an initial sales charge but, if the initial sales charge
is waived, 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 the conversion
and holding periods for certain retirement plans are 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.
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 of the Fund are offered to a limited group of investors and
also will be issued upon reinvestment of dividends on outstanding
Class A shares of the Fund. Investors that currently own Class A
shares of the Fund in a shareholder account are entitled to purchase
additional Class A shares of the Fund in that account. Other eligible
investors include certain retirement plans and participants in
certain investment programs. In addition, Class A shares will be
offered to Merrill Lynch & Co., Inc. ("ML & Co.") and its
subsidiaries (the term "subsidiaries", when used herein with respect
to ML & Co., includes MLAM, the Investment Adviser and certain other
entities directly or indirectly wholly-owned and controlled by ML &
Co.) and their directors and employees, 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 and waived
for purchases by certain retirement plans in connection with certain
investment programs. Purchases of $1,000,000 or more may not be
subject to an initial sales charge but if the initial sales charge is
waived such purchases will be subject to a 1.0% CDSC 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
5
<PAGE>
shares to Class D shares will not be deemed a purchase or sale of the
shares for Federal income tax purposes. Shares purchased through
reinvestment of dividends on Class B shares also will convert
automatically to Class D shares. The conversion period for dividend
reinvestment shares, and the conversion and holding periods for certain
retirement plans are 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 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, except that there is no waiver for purchases by
retirement plans in connection with certain investment programs. Class
D shares also will be issued upon conversion of Class B shares as
described above under "Class B". See "Purchase of Shares--Initial
Sales Charge Alternatives--Class A and Class D Shares".
The following is a discussion of the factors that investors should consider
in determining the method of purchasing shares under the Merrill Lynch Select
Pricing SM System that the investor believes is most beneficial under his or
her particular circumstances.
Initial Sales Charge Alternatives. Investors who prefer an initial sales
charge alternative may elect to purchase Class D shares or, if an eligible
investor, Class A shares. Investors choosing the initial sales charge
alternative who are eligible to purchase Class A shares should purchase Class A
shares rather than Class D shares because there is an 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
6
<PAGE>
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.
Certain investors may elect to purchase Class B shares if they determine it
to be most advantageous to have all of 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 of 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>
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, 1995 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 presented for Class C and Class D shares only for the period
October 21, 1994 (commencement of operations) to July 31, 1995. 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 1995+ 1994 1993 1992 1991 1990 1989 1988 1987 1986
NET ASSET VALUE: -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of year....... $ 13.31 $ 13.75 $ 11.40 $ 11.13 $ 12.37 $ 13.41 $ 13.55 $ 15.14 $ 13.09 $ 12.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment income--net.. .17 .03 .02 .06 .23 .37 .52 .38 .51 .61
Realized and unrealized
gain (loss) on
investments and foreign
currency transactions--
net..................... 1.47 1.18 3.06 1.34 .55 (.47) 1.46 -- 3.10 2.16
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations.............. 1.64 1.21 3.08 1.40 .78 (.10) 1.98 .38 3.61 2.77
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less dividends and
distributions:
Investment income--net.. (.11) -- (.03) (.09) (.40) (.51) (.33) (.42) (.55) (.70)
Realized gain on
investments--net........ (1.40) (1.65) (.70) (1.04) (1.62) (.43) (1.79) (1.55) (1.01) (.98)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total dividends and
distributions........... (1.51) (1.65) (.73) (1.13) (2.02) (.94) (2.12) (1.97) (1.56) (1.68)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year.................... $ 13.44 $ 13.31 $ 13.75 $ 11.40 $ 11.13 $ 12.37 $ 13.41 $ 13.55 $ 15.14 $ 13.09
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
TOTAL INVESTMENT
RETURN:*
Based on net asset value
per share............... 13.91% 9.36% 28.96% 14.54% 10.35% (.93%) 17.48% 4.64% 30.34% 25.45%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
RATIOS TO AVERAGE NET
ASSETS:
Expenses, net of
reimbursement........... 1.31% 1.22% 1.25% 1.35% 1.42% 1.32% 1.22% 1.17% 1.16% 1.18%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Expenses................ 1.31% 1.22% 1.25% 1.35% 1.42% 1.32% 1.35% 1.47% 1.41% 1.35%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Investment income--net.. 1.40% .48% .28% .60% 2.22% 2.77% 4.60% 2.90% 3.63% 4.94%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands).......... $286,258 $255,856 $197,995 $140,323 $132,623 $151,027 $179,839 $118,890 $134,279 $118,026
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Portfolio turnover...... 70.36% 63.95% 67.57% 79.68% 72.12% 54.98% 43.45% 50.63% 54.10% 43.74%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
- ----
+ Based on average number of shares outstanding during the year.
* Total investment returns exclude the effects of sales loads.
8
<PAGE>
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D
---------------------------------------------------------------------- ------- -------
FOR THE PERIOD
OCTOBER 21,
1994+ TO
FOR THE YEAR ENDED JULY 31, JULY 31,
---------------------------------------------------------------------- -----------------
INCREASE (DECREASE) IN 1995++ 1994++ 1993 1992 1991 1990 1989+++ 1995++ 1995++
NET ASSET VALUE: -------- -------- -------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period..... $ 13.02 $ 13.46 $ 11.25 $ 11.04 $ 12.26 $ 13.32 $ 11.96 $ 12.31 $ 12.57
-------- -------- -------- -------- ------- ------- -------- ------- -------
Investment income
(loss)--net............. .04 (.07) (.02) (.05) .11 .22 .34 .03 .11
Realized and unrealized
gain (loss) on
investments and foreign
currency
transactions--net....... 1.45 1.11 2.93 1.33 .56 (.44) 1.25 1.21 1.25
-------- -------- -------- -------- ------- ------- -------- ------- -------
Total from investment
operations.............. 1.49 1.04 2.91 1.28 .67 (.22) 1.59 1.24 1.36
-------- -------- -------- -------- ------- ------- -------- ------- -------
Less dividends and
distributions:
Investment income--net.. (.02) -- -- (.03) (.27) (.41) (.14) (.05) (.07)
Realized gain on
investments--net........ (1.37) (1.48) (.70) (1.04) (1.62) (.43) (.09) (.43) (.43)
-------- -------- -------- -------- ------- ------- -------- ------- -------
Total dividends and
distributions........... (1.39) (1.48) (.70) (1.07) (1.89) (.84) (.23) (.48) (.50)
-------- -------- -------- -------- ------- ------- -------- ------- -------
Net asset value, end of
period.................. $ 13.12 $ 13.02 $ 13.46 $ 11.25 $ 11.04 $ 12.26 $ 13.32 $ 13.07 $ 13.43
======== ======== ======== ======== ======= ======= ======== ======= =======
TOTAL INVESTMENT
RETURN:**
Based on net asset value
per share............... 12.83% 8.21% 27.66% 13.35% 9.14% (1.86%) 13.56%# 10.99%# 11.72%#
======== ======== ======== ======== ======= ======= ======== ======= =======
RATIOS TO AVERAGE NET
ASSETS:
Expenses, excluding
account maintenance and
distribution fees and
net of reimbursement.... 1.34% 1.24% 1.27% 1.37% 1.45% 1.36% 1.30%* 1.39%* 1.35%*
======== ======== ======== ======== ======= ======= ======== ======= =======
Expenses, net of
reimbursement........... 2.34% 2.24% 2.27% 2.37% 2.45% 2.36% 2.30%* 2.39%* 1.60%*
======== ======== ======== ======== ======= ======= ======== ======= =======
Expenses................ 2.34% 2.24% 2.27% 2.37% 2.45% 2.36% 2.37%* 2.39%* 1.60%*
======== ======== ======== ======== ======= ======= ======== ======= =======
Investment income
(loss)--net............. .37% (.51%) (.73%) (.46%) 1.19% 1.74% 4.11%* .34%* 1.11%*
======== ======== ======== ======== ======= ======= ======== ======= =======
SUPPLEMENTAL DATA:
Net assets, end of
period (in thousands)... $414,886 $362,129 $209,534 $104,313 $79,848 $92,700 $109,003 $11,775 $36,388
======== ======== ======== ======== ======= ======= ======== ======= =======
Portfolio turnover...... 70.36% 63.95% 67.57% 79.68% 72.12% 54.98% 43.45% 70.36% 70.36%
======== ======== ======== ======== ======= ======= ======== ======= =======
</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.
9
<PAGE>
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
10
<PAGE>
perfect efficiency so 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. 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, as defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
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. The Fund has no prescribed limit on the ratings of the high yield
bonds in which it may invest. It is conceivable that a considerable portion of
such bonds could be rated Caa, Ca or C by Moody's Investors Service, Inc. or
CCC, CC or C by Standard & Poor's
11
<PAGE>
Corporation. Such ratings indicate the presence of speculative elements with
respect to the payment of principal or interest, or the imminent possibility or
existence of a default.
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 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 table below shows the dollar-weighted market value, by Standard & Poor's
rating category, of the bonds held by the Fund at July 31, 1995:
<TABLE>
<CAPTION>
% TOTAL
RATING ASSETS
------ -------
<S> <C>
B................................................................ 5.24%
CCC.............................................................. .96
CC............................................................... .83
D................................................................ 2.51
Not Rated*....................................................... 5.21
-----
14.75%
=====
</TABLE>
- --------
* Bonds which are not rated by Standard & Poor's. Such bonds may be rated by
nationally recognized statistical rating organizations other than Standard &
Poor's, or may not be rated by any of such organizations. With respect to the
percentage of the Fund's assets invested in such securities, the Fund's
Investment Adviser believes that 2.85% are of comparable quality to bonds
rated B, 1.22% are of comparable quality to bonds rated CCC, .78% are of
comparable quality to bonds rated C, and .36% are of comparable quality to
bonds rated D. This determination is based on the Investment Adviser's own
internal evaluation and does not necessarily reflect how such securities would
be rated by Standard & Poor's if it were to rate the securities.
For a description of the above referenced ratings, see the appendix to the
Prospectus. The Fund has established no rating criteria for the fixed income
securities in which it may invest and such securities may not be rated at all
for creditworthiness. The above percentages are as of its most recent fiscal
year; the rating composition of the portfolio will change over time.
12
<PAGE>
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.
The Fund may invest up to 15% of its total assets in securities that lack an
established secondary trading market or otherwise are considered illiquid.
(However, under the laws of certain states, the Fund presently is limited with
respect to such investments to 10% of its total assets). The Fund may purchase
securities that are not registered ("restricted securities") under the
Securities Act of 1933, as amended (the "Securities
13
<PAGE>
Act"), but can be offered and sold to "qualified institutional buyers" under
Rule 144A under the Securities Act. The Board of Directors may adopt guidelines
and delegate to the Investment Adviser the daily function of determining and
monitoring liquidity of restricted securities. The Board of Directors, however,
will retain sufficient oversight and be ultimately responsible for the
determinations.
The Board of Directors carefully monitors the Fund's investments in these
securities purchased pursuant to Rule 144A, focusing on such factors, among
others, as valuation, liquidity and availability of information. These
investments in securities purchased pursuant to Rule 144A could have the effect
of increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing these
restricted securities.
Investment Restrictions. The Fund's investment activities are subject to
further restrictions that are described in the Statement of Additional
Information. Investment restrictions and policies which are fundamental
policies 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 means the lesser of (a) 67% of the shares
represented at a meeting at which more than 50% of the outstanding shares are
represented or (b) more than 50% of the outstanding shares). Among its
fundamental policies, the Fund may not 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 (excluding the U.S. Government and its
agencies and instrumentalities).
Investment restrictions and policies that are non-fundamental policies may be
changed by the Board of Directors without shareholder approval. As a non-
fundamental restriction, the Fund may not 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. As a non-fundamental policy, the Fund will not
invest in securities which cannot readily be resold because of legal or
contractual restrictions or which are not otherwise readily marketable,
including repurchase agreements and purchase and sale contracts maturing in
more than seven days, if, regarding all such securities, more than 15% of its
total assets (or 10% of its total assets as presently required by certain state
laws) taken at market value would be invested in such securities.
Notwithstanding the foregoing, the Fund may purchase without regard to this
limitation securities that are not registered under the Securities Act, but
that can be offered and sold to "qualified institutional buyers" under Rule
144A under the Securities Act, provided that the Fund's Board of Directors
continuously determines, based on the trading markets for the specific Rule
144A security, that it is liquid. The Board has determined that securities
which are freely tradeable in their primary market offshore should be deemed
liquid.
Investment in Foreign Issuers. It is anticipated that in the immediate
future, the Fund will invest not more than 25% of its total assets in the
securities of foreign issuers. Nevertheless, investors should note that
investment in securities of foreign issuers involves risks not typically
involved in domestic investment, including fluctuations in foreign exchange
rates, future political and economic development and the possible imposition of
exchange controls or other foreign or U.S. governmental laws or restrictions
applicable to such investments.
Lending of Portfolio Securities. The Fund may from time to time lend
securities (but not in excess of 20% of its total assets) from its portfolio to
brokers, dealers and financial institutions and receive collateral
14
<PAGE>
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.
Writing of Covered Call Options. The Fund may from time to time write, i.e.,
sell, covered call options on its portfolio securities and enter into closing
purchase transactions with respect to certain of such options. A call option is
considered covered where the writer of the option owns the underlying
securities. In return for the premium income realized from the sale of covered
call options, the Fund will give up the opportunity to profit from a price
increase in the underlying security above the option exercise price and it will
not be able to sell the underlying security until the option expires or is
exercised or the Fund effects a closing purchase transaction. A closing
purchase transaction cancels out the Fund's position as the writer of an option
by means of an offsetting purchase of an identical option prior to the
expiration of the option it has written. If an option expires unexercised, the
writer realizes a gain in the amount of the premium. Such a gain, of course,
may be offset by a decline in the market price of the underlying security
during the option period. The Fund may not write options on underlying
securities exceeding 15% of its total assets, taken at market value.
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 of the Investment Adviser and MLAM; President and
Director of Princeton Services, Inc. ("Princeton Services"); Executive Vice
President of ML & Co. and Merrill Lynch; Director of the Distributor.
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 State of New York
Common Retirement Fund; Director, Duke Management Company and LaSalle Street
Fund.
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).
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.
15
<PAGE>
MANAGEMENT AND ADVISORY ARRANGEMENTS
The Investment Adviser, which is owned and controlled by ML & Co., a
financial services holding company, acts as the investment adviser to the Fund
and provides the Fund with management and investment advisory services. The
Investment Adviser or an affiliate, MLAM, acts as the investment adviser for
over 125 other registered investment companies. The Investment Adviser also
offers portfolio management and portfolio analysis services to individuals and
institutions. As of October 31, 1995, the Investment Adviser and MLAM had a
total of approximately $190 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 and for the review of the Fund's
holdings in light of its own research analysis and analyses from other relevant
sources. 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.
Under the terms of the Investment Advisory Agreement, the Fund pays the
Investment Adviser a monthly advisory fee at the annual rate of 1.0% of the
average daily net assets of the Fund. However, the Investment Adviser has
voluntarily agreed to waive a portion of its advisory fee so that such fee is
equal to 1.00% of average daily net assets not exceeding $500 million; 0.95% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.90% of average daily net assets in excess of $1 billion. 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 fiscal year ended July 31, 1995, the Fund paid to the
Investment Adviser a fee of $6,445,583 (based on average net assets of
approximately $653.2 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 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. For the fiscal year ended July 31, 1995, the amount of such
reimbursement was $156,114. For the fiscal year ended July 31, 1995, the ratio
of total expenses to average net assets was 1.31% for the Class A shares and
2.34% for the Class B shares. For the period October 21, 1994 (commencement of
operations) to July 31, 1995, the annualized ratio of total expenses to average
net assets was 2.39% and 1.60% for Class C and Class D, respectively.
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.
16
<PAGE>
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics pursuant to
Rule 17j-1 under the Investment Company Act which incorporates the Code of
Ethics of the Investment Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of
the Investment Adviser and, as described below, impose additional, more
onerous, restrictions on fund investment personnel.
The Codes require that all employees of the Investment Adviser preclear any
personal securities investment (with limited exceptions, such as government
securities). The preclearance requirement and associated procedures are
designed to identify any substantive prohibition or limitation applicable to
the proposed investment. The substantive restrictions applicable to all
employees of the Investment Adviser include a ban on acquiring any securities
in a "hot" initial public offering and a prohibition from profiting on short-
term trading in securities. In addition, no employee may purchase or sell any
security which at the time is being purchased or sold (as the case may be), or
to the knowledge of the employee is being considered for purchase or sale, by
any fund advised by the Investment Adviser. Furthermore, the Codes provide for
trading "blackout periods" which prohibit trading by investment personnel of
the Fund within periods of trading by the Fund in the same (or equivalent)
security (15 or 30 days depending upon the transaction).
TRANSFER AGENCY SERVICES
Merrill Lynch Financial Data Services, Inc. (formerly known as 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 fiscal
year ended July 31, 1995, the total fee paid by the Fund to the Transfer Agent
pursuant to the Transfer Agency Agreement was $1,397,570. At October 31, 1995,
the Fund had 26,705 Class A shareholder accounts, 39,550 Class B shareholder
accounts, 1,820 Class C shareholder accounts and 4,424 Class D shareholder
accounts. At this level of accounts, the annual fee payable to the Transfer
Agent would aggregate approximately $921,599 plus out-of-pocket expenses.
PURCHASE OF SHARES
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), an affiliate of
the Investment Adviser, MLAM and Merrill Lynch, 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.
17
<PAGE>
The Fund offers 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 PricingSM
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 the close of business on the New York Stock
Exchange (generally, 4:00 P.M., New York time) which includes orders received
after the close of business on the previous day, the applicable offering price
will be based on the net asset value determined as of 15 minutes after the
close of business on the New York Stock Exchange on the day the order is placed
with the Distributor, provided the order is received by the Distributor prior
to 30 minutes after the close of business on the New York Stock Exchange on
that day. If the purchase orders are not received by the Distributor prior to
30 minutes after the close of business on the New York Stock Exchange on that
day, such orders shall be deemed received on the next business 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 processing
fee.
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, are imposed directly against those classes and not
against all assets of the Fund and, accordingly, such charges do 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 are calculated in the same manner at the same time and 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
18
<PAGE>
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.
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 CONVERSION
CLASS SALES CHARGE(/1/) FEE FEE 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, 0.25% 0.75% B shares convert to
at a rate of 4.0% during the D Shares automatically
first year, decreasing 1.0% after approximately
annually to 0.0% eight years(/4/)
- ---------------------------------------------------------------------------------------
C 1.0% CDSC for one year 0.25% 0.75% No
- ---------------------------------------------------------------------------------------
D Maximum 5.25% initial 0.25% No No
sales charge(/3/)
</TABLE>
- --------
(1) Initial sales charges are imposed at the time of purchase as a percentage
of the offering price. 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, and waived for purchases of Class
A shares by certain retirement plans in connection with certain investment
programs. Class A and Class D share purchases of $1,000,000 or more may not
be subject to an initial sales charge but, if the initial sales charge is
waived, will be subject to a 1.0% CDSC for one year.
(4) The conversion period for dividend reinvestment shares and the conversion
and holding periods for certain retirement plans are 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.
19
<PAGE>
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.
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 SALES LOAD DISCOUNT TO
AS PERCENTAGE AS PERCENTAGE* SELECTED DEALERS
OF OFFERING OF THE NET AS PERCENTAGE OF THE
AMOUNT OF PURCHASE PRICE AMOUNT 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.
** The initial sales charge may be waived on Class A and Class D share
purchases of $1,000,000 or more and on Class A share purchases by certain
retirement plan investors in connection with certain investment programs,
made on or after October 21, 1994. If the sales charge is waived in
connection with a purchase of $1,000,000 or more, such purchases will be
subject to a CDSC of 1.0% if the shares are redeemed within one year after
purchase. Class A share 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 of 1933,
as amended (the "Securities Act"). During the fiscal year ended July 31, 1995,
the Fund sold 4,773,327 Class A shares for aggregate net proceeds of
$58,642,097. The gross sales charges for the sale of Class A shares of the Fund
for that year were $208,396, of which $12,173 and $196,223 were received by the
Distributor and Merrill Lynch, respectively. For the fiscal year ended July 31,
1995, the Distributor received no CDSCs relating to the early redemption of
Class A shares purchased subject to front-end sales charge waivers. During the
period October 21, 1994 (commencement of operations) to July 31, 1995, the Fund
sold 2,465,488 Class D shares for aggregate net proceeds of $29,295,539. The
gross sales charges for the sale of Class D shares of the Fund for the period
were $163,110, of which $9,543 and $153,567 were received by the Distributor
and Merrill Lynch, respectively. During such period, the Distributor received
CDSCs of approximately $1,717 with respect to redemption within one year after
purchase of Class D shares purchased subject to front-end sales charge waivers.
20
<PAGE>
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 of the Fund in a
shareholder account, including participants in the Merrill Lynch BlueprintSM
Program, are entitled to purchase additional Class A shares of the Fund in that
account. Certain employer sponsored retirement or savings plans, including
eligible 401(k) plans, may purchase Class A shares of the Fund at net asset
value provided such plans meet the required minimum number of eligible
employees or required amount of assets advised by 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 TMASM 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. 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
closed-end funds that commenced operations prior to October 21, 1994). For
example, Class A shares of the Fund and certain other MLAM-advised mutual funds
are offered at net asset value to shareholders of Merrill Lynch Senior Floating
Rate Fund, Inc. 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 Merrill Lynch financial
consultant, if certain conditions set forth in the Statement of Additional
Information are met. Class D shares may be offered at net asset value in
connection with the acquisition of assets of other investment companies.
Class D shares are offered with reduced sales charges and, in certain
circumstances, at net asset value, to participants in the Merrill Lynch
Blueprint SM Program.
Class D shares of the Fund are offered at net asset value to shareholders of
Merrill Lynch Municipal Strategy Fund, Inc. who wish to reinvest the net
proceeds from a sale of certain of their shares of common stock of Merrill
Lynch Municipal Strategy Fund, Inc. in shares of the Fund.
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.
21
<PAGE>
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.
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 the dealer's 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
22
<PAGE>
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
DOLLAR AMOUNT
SUBJECT TO
YEAR SINCE PURCHASE PAYMENT MADE CHARGE
-------------------------------- -------------
<S> <C>
0-1.......................................................... 4.0%
1-2.......................................................... 3.0%
2-3.......................................................... 2.0%
3-4.......................................................... 1.0%
4 and thereafter............................................. 0.0%
</TABLE>
For the year ended July 31, 1995, the Distributor received CDSCs of $594,796
with respect to redemption of Class B shares, all of which were 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.
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) for shares purchased on or
after October 21, 1994.
In the event that Class B shares are exchanged by certain retirement plans
for Class A shares in connection with a transfer to the Merrill Lynch Mutual
Fund Adviser ("MFA") program, the time period that such Class A shares are held
in the MFA program will be included in determining the holding period of Class
B shares reacquired upon termination of participation in the MFA program (see
"Shareholder Services--Exchange Privilege").
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
23
<PAGE>
connection with certain group plans placing orders through the Merrill Lynch
Blueprint SM 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.
During the period October 21, 1994 (commencement of operations) to July 31,
1995, the Distributor received CDSCs of $3,586 with respect to redemptions of
Class C shares, all of which were paid to Merrill Lynch.
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.
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.
24
<PAGE>
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.
The Conversion Period also is modified for retirement plan investors who
participate in the MFA program. While participating in the MFA program, such
investors will hold Class A shares. If these Class A shares were acquired
through exchange of Class B shares (see "Shareholder Services--Exchange
Privilege"), then the holding period for such Class A shares will be "tacked"
to the holding period of the Class B shares originally held for purposes of
calculating the Conversion Period on Class B shares acquired upon termination
of participations in the MFA program.
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
25
<PAGE>
class in order to compensate the Distributor and Merrill Lynch (pursuant to a
sub-agreement) for providing 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 fiscal year ended July 31, 1995, the Fund paid the Distributor
$3,712,868 pursuant to the Class B Distribution Plan (based on average net
assets subject to the Class B Distribution Plan of approximately $369.3
million), all of which was paid to Merrill Lynch for providing account
maintenance and distribution-related activities and services in connection with
Class B shares. For the period October 21, 1994 (commencement of operations) to
July 31, 1995, the Fund paid the Distributor $48,373 pursuant to the Class C
Distribution Plan (based on average net assets subject to the Class C
Distribution Plan of approximately $6.2 million), all of which was paid to
Merrill Lynch for providing account maintenance and distribution-related
activities and services in connection with Class C shares. For the fiscal
period October 21, 1994 (commencement of operations) to July 31, 1995, the Fund
paid the Distributor $42,023 pursuant to the Class D Distribution Plan (based
on average net assets subject to the Class D Distribution Plan of approximately
$21.7 million), all of which was paid to Merrill Lynch for providing account
maintenance services in connection with Class D shares.
At October 31, 1995, the net assets of the Fund subject to the Class B
Distribution Plan aggregated approximately $396.2 million. At this asset level,
the annual fee payable pursuant to the Class B Distribution Plan would
aggregate approximately $3,962,352. At October 31, 1995, the net assets of the
Fund subject to the Class C Distribution Plan aggregated approximately $12.4
million. At this asset level, the annual fee payable pursuant to the Class C
Distribution Plan would aggregate approximately $123,602. At October 31, 1995,
the net assets of the Fund subject to the Class D Distribution Plan aggregated
approximately $40.2 million. At this asset level, the annual fee payable
pursuant to the Class D Distribution Plan would aggregate approximately
$100,561.
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
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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, 1994, for Class B shares, the fully allocated accrual
expenses incurred by the Distributor and Merrill Lynch exceeded fully allocated
accrual revenues for such period by approximately $4,799,000 (1.4% 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 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".
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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, Merrill Lynch Financial Data Services, Inc.,
P.O. Box 45289, Jacksonville, Florida 32232-5289. Redemption requests delivered
other than by mail should be delivered to Merrill Lynch Financial Data
Services, Inc., 4800 Deer Lake Drive East, Jacksonville, Florida 32246-6484.
Proper notice of redemption in 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
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"
(including, for example, Merrill Lynch branch offices and certain other
financial institutions) 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. Normally, this delay 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 (generally, 4:00 P.M., New York time) on the day
received, and such request is received by the Fund from such dealer not later
than 30 minutes after the close of business on the New York Stock Exchange on
the same day. Dealers have the responsibility of submitting such repurchase
requests to the Fund not later than 30 minutes after the close of business on
the New York Stock Exchange in order to obtain that day's closing price.
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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 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. Certain of these
services are available only to U.S. investors. Included in the Fund's
shareholder services are the following:
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. Shareholders may make additions to their
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
Investment Account in the transferring shareholder's name may be opened
automatically, without charge, at the Transfer Agent. Shareholders considering
transferring their Class A or Class D shares from Merrill Lynch to another
brokerage firm or financial institution should be aware that, if the firm to
which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Fund, a shareholder either must redeem the Class A or
Class D shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain an Investment Account at the Transfer Agent for those Class A shares
or Class D
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<PAGE>
shares. Shareholders interested in transferring their Class B or Class C shares
from Merrill Lynch and who do not wish to have an Investment Account maintained
for such shares at the Transfer Agent may request their new brokerage firm to
maintain such shares in an account registered in the name of the brokerage firm
for the benefit of the shareholder at the Transfer Agent. If the new brokerage
firm is willing to accommodate the shareholder in this manner, the shareholder
must request that he or she be issued certificates for his or her shares and
then must turn the certificates over to the new firm for re-registration as
described in the preceding sentence. Shareholders considering transferring a
tax-deferred retirement account such as an individual retirement account from
Merrill Lynch to another brokerage firm or financial institution should be
aware that, if the firm to which the retirement account is to be transferred
will not take delivery of shares of the Fund, a shareholder must either redeem
the shares (paying any applicable 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 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 or her account in which the exchange is made at the time of the exchange or
is otherwise eligible to purchase Class A shares of the second fund. If the
Class A shareholder wants to exchange Class A shares for shares of a second
MLAM-advised mutual fund, and the shareholder does not hold Class A shares of
the second fund in his or her 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 are exchangeable with shares of the same
class of other MLAM-advised mutual funds.
Shares of the Fund which are subject to a CDSC are 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 are 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
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<PAGE>
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 of the exchanged
shares and a purchase of the acquired shares for Federal income tax purposes.
For further information, see "Shareholder Services--Exchange Privilege" in the
Statement of Additional Information.
The exchange privilege is modified with respect to certain retirement plans
which participate in the MFA program. Such retirement plans may exchange Class
B, Class C or Class D shares that have been held for at least one year for
Class A shares of the same fund on the basis of relative net asset values in
connection with the commencement of participation in the MFA program, i.e., no
CDSC will apply. The one-year holding period does not apply to shares
reacquired through reinvestment of dividends. Upon termination of participation
in the MFA program, Class A shares will be re-exchanged for the class of shares
originally held. For purposes of computing any CDSC that may be payable upon
redemption of Class B or Class C shares so reacquired, or the Conversion Period
for Class B shares so reacquired, the holding period for the Class A shares
will be "tacked" to the holding period for the Class B or Class C shares
originally held. The Fund's exchange privilege also is modified with respect to
purchases of Class A and Class D shares by nonretirement plan investors under
the 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 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.
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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 or her regular bank account. Investors who
maintain CMA (R) or CBA (R) accounts may arrange to have periodic investments
made in the Fund in their CMA (R) or CBA (R) accounts or in certain related
accounts in amounts of $100 or more ($1 for retirement plans) through the
CMA (R) or CBA (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. With respect to such
transactions, the Investment Adviser seeks to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved and the firm's risk in
positioning a block of securities. While the Investment Adviser generally seeks
reasonably competitive commission rates, the Fund 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.
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
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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 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 or other industry publications. As with other performance
data, performance comparisons should not be considered indicative of the Fund's
relative performance for any future period. In addition, from time to time the
Fund may include its risk-adjusted performance ratings assigned by Morningstar
Publications, Inc. in advertising or supplemental sales literature.
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
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<PAGE>
applicable to that class. See "Additional Information--Determination of Net
Asset Value" below. 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. From time to time, the Fund may declare a special
distribution at or about the end of the calendar year in order to comply with a
Federal income tax requirement that certain percentages of its ordinary income
and capital gains be distributed during the calendar year.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of all classes of the Fund is determined
once daily 15 minutes after the close of business on the New York Stock
Exchange (generally, 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 SM Service
("MLPS") an affiliate of the Investment Adviser, to provide certain securities
prices for the Fund. During the fiscal year ended July 31, 1995, the Fund paid
MLPS $118 for such service.
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 (although not
necessarily meet) 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 (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the
time of valuation. When the Fund writes a call option, the amount of the
premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
by the Fund are valued
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at their last sale price in the case of exchange-traded options or, in the case
of options traded in the over-the-counter market, the last bid price.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Board of Directors of the Fund.
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 or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses ("capital gain dividends") are taxable
to shareholders as long-term capital gains, regardless of the length of time
the shareholder has owned Fund shares. 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.
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 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.
35
<PAGE>
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, judicial 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.
36
<PAGE>
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 300,000,000 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. Class A and Class C each consist of 50,000,000 shares,
and Class B and Class D each consist of 100,000,000 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:
Merrill Lynch Financial Data Services, Inc.
P.O. Box 45289
Jacksonville, Florida 32232-5289
The written notification should include the shareholder's name, address, tax
identification number and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and/or mutual fund account numbers. If you have any questions regarding this
please call your Merrill Lynch financial consultant or Merrill Lynch Financial
Data Services, Inc. at 800-637-3863.
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.
37
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.:
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-
term risks appear somewhat larger than in Aaa securities.
A Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other
marked shortcomings.
C Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
38
<PAGE>
The modifier 1 indicates that the bond ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its rating category.
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS GROUP:
AAA Bonds rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in small
degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB B CCC CC
Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominately speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C The C rating is reserved for income bonds on which no interest is
being paid.
D Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
NR Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of bond as a matter of policy.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
39
<PAGE>
[This Page Intentionally Left Blank]
40
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC. -- AUTHORIZATION FORM (PART 1)
- -------------------------------------------------------------------------------
NOTE: THIS FORM MAY NOT BE USED FOR PURCHASES THROUGH THE MERRILL LYNCH
BLUEPRINT SM PROGRAM. YOU MAY REQUEST A MERRILL LYNCH BLUEPRINT SM 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 shares, I understand that Class D shares will be purchased.
Basis for establishing an Investment Account:
A. I enclose a check for $............ payable to Merrill Lynch Financial
Data Services, Inc. as an initial investment (minimum $1,000). I understand
that this purchase will be executed at the applicable offering price next to
be determined after this Application is received by you.
B. I already own shares of the following Merrill Lynch mutual funds that
would qualify for the Right of Accumulation as outlined in the Statement of
Additional Information: (Please list all funds. Use a separate sheet of
paper if necessary.)
1. .................................. 4. ..................................
2. .................................. 5. ..................................
3. .................................. 6. ..................................
Name...........................................................................
First Name Initial Last Name
Name of Co-Owner (if any)......................................................
First Name Initial Last Name
Address........................................................................
................................................. Date........................
(Zip Code)
Occupation........................... Name and Address of Employer ........
.....................................
.....................................
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
(In the case of co-owners, a joint tenancy with right of survivorship will be
presumed unless otherwise specified.)
- -------------------------------------------------------------------------------
2. DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS
Ordinary Income Dividends Long-Term Capital Gains
SELECT: [_] Reinvest SELECT [_] Reinvest
ONE [_] Cash ONE: [_] Cash
If no election is made, dividends and capital gains will be automatically
reinvested at net asset value without a sales charge.
IF CASH, SPECIFY HOW YOU WOULD LIKE YOUR DISTRIBUTIONS PAID TO YOU: [_] Check
or [_] Direct Deposit to bank account
IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, PLEASE COMPLETE BELOW:
I hereby authorize payment of dividend and capital gain distributions by
direct deposit to my bank account and, if necessary, debit entries and
adjustments for any credit entries made to my account in accordance with the
terms I have selected on the Merrill Lynch 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 MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING OR
TERMINATING THIS SERVICE.
Signature of Depositor ........................................................
Signature of Depositor ............................... Date...................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT TO BANK ACCOUNT IS SELECTED, YOUR BLANK, UNSIGNED
CHECK MARKED "VOID" OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD
ACCOMPANY THIS APPLICATION.
41
<PAGE>
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.
..................................... .....................................
Signature of Owner Signature of Co-Owner (if any)
- -------------------------------------------------------------------------------
4. LETTER OF INTENTION--CLASS A AND CLASS D SHARES ONLY (SEE TERMS AND
CONDITIONS IN THE STATEMENT OF ADDITIONAL INFORMATION)
..................., 19......
Dear Sir/Madam: Date of initial purchase
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.
By: ................................. .....................................
Signature of Owner Signature of Co-Owner
(If registered in joint names, both
must sign)
In making purchases under this letter, the following are the related
accounts on which reduced offering prices are to apply:
(1) Name............................. (2) Name.............................
Account Number....................... Account Number.......................
- -------------------------------------------------------------------------------
5. FOR DEALER ONLY
Branch Office, Address, Stamp We hereby authorize Merrill Lynch
Funds Distributor, Inc. to act as
- - - our agent in connection with
transactions under this
- - - authorization form and agree to
notify the Distributor of any
purchases made under a Letter of
Intention or Systematic Withdrawal
Plan. We guarantee the Shareholder's
signature.
.....................................
This form when completed should be Dealer Name and Address
mailed to:
By: .................................
Merrill Lynch Phoenix Fund, Inc. Authorized Signature of Dealer
c/o Merrill Lynch Financial Data [_][_][_] [_][_][_][_] -------------
Serivces, Inc. Branch Code F/C No. F/C Last Name
P.O. Box 45289
Jacksonville, Florida 32232-5289 [_][_][_] [_][_][_][_][_]
Dealer's Customer A/C No.
42
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC. -- AUTHORIZATION FORM (PART 2)
- -------------------------------------------------------------------------------
NOTE: THIS FORM IS REQUIRED TO APPLY FOR THE SYSTEMATIC WITHDRAWAL PLAN OR THE
AUTOMATIC INVESTMENT PLANS ONLY.
- -------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION
(Please Print) [ ][ ][ ] [ ][ ] [ ][ ][ ][ ]
Name............................... Social Security Number or
Taxpayer Identification
Number
Name of Co-Owner (if any)..........
Address............................ Account Number ....................
(if existing account)
...................................
- -------------------------------------------------------------------------------
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 Phoenix 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 MERRILL LYNCH FINANCIAL DATA SERVICES, INC. AMENDING
OR TERMINATING THIS SERVICE.
Specify type of account (check one): [_] checking [_] savings
Name on your Account...........................................................
Bank Name......................................................................
Bank Number........................ Account Number............................
Bank Address...................................................................
........................................................................
Signature of Depositor................................. Date..................
Signature of Depositor.........................................................
(if joint account, both must sign)
NOTE: IF DIRECT DEPOSIT IS ELECTED, YOUR BLANK, UNSIGNED CHECK MARKED "VOID"
OR A DEPOSIT SLIP FROM YOUR SAVINGS ACCOUNT SHOULD ACCOMPANY THIS APPLICATION.
43
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC. -- AUTHORIZATION FORM (PART 2) -- (CONTINUED)
- -------------------------------------------------------------------------------
3. APPLICATION FOR AUTOMATIC INVESTMENT PLAN
I hereby request that Merrill Lynch Financial Data Services, Inc. draw an
automated clearing house ("ACH") debit on my checking account as described
below each month to purchase: (choose one)
[_] Class A shares [_] Class B shares [_] Class C shares [_] Class D shares
of Merrill Lynch Phoenix 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.
MERRILL LYNCH FINANCIAL DATA AUTHORIZATION TO HONOR ACH DEBITS
SERVICES, INC.
DRAWN BY MERRILL LYNCH FINANCIAL
You are hereby authorized to draw an DATA SERVICES, INC.
ACH debit each month on my bank
account for investment in Merrill To...............................Bank
Lynch Phoenix Fund, Inc., as (Investor's Bank)
indicated below:
Bank Address.........................
Amount of each ACH debit $........
Account No. ...................... City...... State...... Zip Code......
Please date and invest ACH debits on
the 20th of each month beginning As a convenience to me, I hereby
or as soon as possible request and authorize you to pay and
thereafter. charge to my account ACH debits
(Month) drawn on my account by and payable
to Merrill Lynch Financial Data
I agree that you are drawing these Services, Inc. I agree that your
ACH debits voluntarily at my request rights in respect to each such debit
and that you shall not be liable for shall be the same as if it were a
any loss arising from any delay in check drawn on you and signed
preparing or failure to prepare any personally by me. This authority is
such debit. If I change banks or to remain in effect until revoked by
desire to terminate or suspend this me in writing. Until you receive
program, I agree to notify you such notice, you shall be fully
promptly in writing. I hereby protected in honoring any such
authorize you to take any action to debit. I further agree that if any
correct erroneous ACH debits of my such debit be dishonored, whether
bank account or purchases of fund with or without cause and whether
shares including liquidating shares intentionally or inadvertently, you
of the Fund and crediting my bank shall be under no liability.
account. I further agree that if a
debit is not honored upon ............ .....................
presentation, Merrill Lynch Financial Date Signature of
Data Services, Inc. is authorized to Depositor
discontinue immediately the Automatic
Investment Plan and to liquidate ............ .....................
sufficient shares held in my account Bank Signature of Depositor
to offset the purchase made with the Account (If joint account,
dishonored debit. Number both must sign)
............ .....................
Date Signature of
Depositor
......................
Signature of Depositor
(If joint account,
both must sign)
NOTE: IF AUTOMATIC INVESTMENT PLAN IS ELECTED, YOUR BLANK, UNSIGNED CHECK
MARKED "VOID" SHOULD ACCOMPANY THIS APPLICATION.
44
<PAGE>
[This Page Intentionally Left Blank]
45
<PAGE>
[This Page Intentionally Left Blank]
46
<PAGE>
INVESTMENT ADVISER
Fund Asset Management
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey 08536
Mailing Address:
P.O. Box 9011
Princeton, New Jersey 08543-9011
DISTRIBUTOR
Merrill Lynch Funds Distributor, Inc.
Administrative Offices:
800 Scudders Mill Road
Plainsboro, New Jersey
Mailing Address:
P.O. Box 9081
Princeton, New Jersey 08543-9081
CUSTODIAN
The Chase Manhattan Bank, N.A.
Global Securities Services
4 Chase MetroTech Center
18th Floor
Brooklyn, New York 11245
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc.
Administrative Offices:
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 08540-6400
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>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE
OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMA-
TION 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 Pricing SM System..................................... 3
Financial Highlights....................................................... 8
Special Considerations..................................................... 10
Investment Objective and Policies.......................................... 10
Management of the Fund..................................................... 15
Board of Directors........................................................ 15
Management and Advisory Arrangements...................................... 16
Code of Ethics............................................................ 17
Transfer Agency Services.................................................. 17
Purchase of Shares......................................................... 17
Initial Sales Charge Alternatives--Class A and Class D Shares............. 20
Deferred Sales Charge Alternatives--Class B and Class C Shares............ 22
Distribution Plans........................................................ 25
Limitations on the Payment of Deferred Sales Charges...................... 27
Redemption of Shares....................................................... 28
Redemption................................................................ 28
Repurchase................................................................ 28
Reinstatement Privilege--Class A and Class D Shares....................... 29
Shareholder Services....................................................... 29
Portfolio Transactions and Brokerage....................................... 32
Performance Data........................................................... 32
Additional Information..................................................... 33
Dividends and Distributions............................................... 33
Determination of Net Asset Value.......................................... 34
Taxes..................................................................... 35
Organization of the Fund.................................................. 37
Shareholder Reports....................................................... 37
Shareholder Inquiries..................................................... 37
Appendix--Description of Corporate Bond Ratings............................ 38
Authorization Form......................................................... 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 #10121-1195
LOGO MERRILL LYNCH
Merrill Lynch
Phoenix Fund, Inc.
[ART]
PROSPECTUS
November 28, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
This prospectus should be retained for future reference.
<PAGE>
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 November
28, 1995 (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.
----------------
FUND ASSET MANAGEMENT -- INVESTMENT ADVISER
MERRILL LYNCH FUNDS DISTRIBUTOR, INC. -- DISTRIBUTOR
----------------
The date of this Statement of Additional Information is November 28, 1995.
<PAGE>
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" or "FAM") 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, 1993, 1994
and 1995 were 67.57%, 63.95% and 70.36%, respectively.
Investment Restrictions. In addition to the investment restrictions set forth
in the Prospectus, the Fund has adopted a number of fundamental and non-
fundamental investment policies and restrictions. The fundamental policies and
restrictions set forth below may not be changed without the approval of the
holders of a majority of the Fund's outstanding voting securities (which for
this purpose means the lesser of (a) 67% of the shares represented at a meeting
at which more than 50% of the outstanding shares are represented or (b) more
than 50% of the outstanding shares). Unless otherwise provided, all references
to the assets of the Fund below are in terms of current market value. The Fund
may not:
1. Make any investment inconsistent with the Fund's classification as a
diversified company under the Investment Company Act of 1940, as amended
(the "Investment Company Act").
2. Invest more than 25% of its assets, taken at market value, in the
securities of issuers in any particular industry (excluding the U.S.
Government and its agencies and instrumentalities).
3. Make investments for the purpose of exercising control or management.
(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 creditor's committee or otherwise participate in bankruptcy or
reorganization proceedings).
2
<PAGE>
4. Purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may invest in securities directly or indirectly
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds,
debentures or other corporate debt securities and investment in government
obligations, commercial paper, pass-through instruments, certificates of
deposit, bankers acceptances, repurchase agreements or any similar
instruments shall not be deemed to be the making of a loan, and except
further that the Fund may lend its portfolio securities, provided that the
lending of portfolio securities may be made only in accordance with
applicable law and the guidelines set forth in the Fund's Prospectus and
Statement of Additional Information, as they may be amended from time to
time.
6. Issue senior securities to the extent such issuance would violate
applicable law.
7. Borrow money, except that (i) the Fund may borrow from banks (as
defined in the Investment Company Act) in amounts up to 33 1/3% of its
total assets (including the amount borrowed), (ii) the Fund may borrow up
to an additional 5% of its total assets for temporary purposes, (iii) the
Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the Fund
may purchase securities on margin to the extent permitted by applicable
law. The Fund may not pledge its assets other than to secure such
borrowings or, to the extent permitted by the Fund's investment policies as
set forth in its Prospectus and Statement of Additional Information, as
they may be amended from time to time, in connection with hedging
transactions, short sales, when-issued and forward commitment transactions
and similar investment strategies.
8. Underwrite securities of other issuers except insofar as the Fund
technically may be deemed an underwriter under the Securities Act of 1933,
as amended (the "Securities Act") in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to
the extent that the Fund may do so in accordance with applicable law and
the Fund's Prospectus and Statement of Additional Information, as they may
be amended from time to time, and without registering as a commodity pool
operator under the Commodity Exchange Act.
Under the non-fundamental investment restrictions, 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,
3
<PAGE>
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 (each a "Rule 144A
security") and determined to be liquid by the Fund's Board of Directors are
not subject to the limitations set forth in this investment restriction
(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 50% of its
total assets in securities of issuers that are restricted as to
disposition, including Rule 144A securities or in securities of issuers
described in (e) below.
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.
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 or a major
foreign exchange. 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 (5) above,
the Fund may from time to time lend securities from its portfolio to brokers,
dealers and financial institutions and receive collateral in
4
<PAGE>
cash or securities issued or guaranteed by the United States Government which
will be maintained at all times in an amount 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.
Writing of Covered Call Options. The Fund may from time to time write, i.e.,
sell, covered call options on its portfolio securities and enter into closing
purchase transactions with respect to certain of such options. A call option is
considered covered where the writer of the option owns the underlying
securities. By writing a covered call option, the Fund, in return for the
premium income realized from the sale of the option, may give up the
opportunity to profit from a price increase in the underlying security above
the option exercise price. In addition, the Fund will not be able to sell the
underlying security until the option expires, is exercised or the Fund effects
a closing purchase transaction as described below. A closing purchase
transaction cancels out the Fund's position as the writer of an option by means
of an offsetting purchase of an identical option prior to the expiration of the
option it has written. If the option expires unexercised, the Fund realizes a
gain in the amount of the premium received for the option which may be offset
by a decline in the market price of the underlying security during the option
period. The Fund may not write covered options on underlying securities
exceeding 15% of the value of its total assets.
All options referred to herein and in the Fund's Prospectus are options
issued by The Options Clearing Corporation (the "Clearing Corporation") which
are currently traded on the Chicago Board Options Exchange, the American Stock
Exchange, the Philadelphia Stock Exchange, the Pacific Stock Exchange or the
New York Stock Exchange. A call option gives the purchaser of an option the
right to buy, and obligates the writer (seller) to sell, the underlying
security at the exercise price during the option period. The option period
normally ranges from three to nine months from the date the option is written.
For writing an option, the Fund receives a premium, which is the price of such
option on the exchange on which it is traded. The exercise price of the option
may be below, equal to or above the current market value of the underlying
security at the time the option is written.
The writer may terminate its obligation prior to the expiration date of the
option by executing a closing purchase transaction which is effected by
purchasing on an exchange an option of the same series (i.e., same underlying
security, exercise price and expiration date) as the option previously written.
Such a purchase does not result in ownership of an option. A closing purchase
transaction ordinarily will be effected to realize a profit on an outstanding
call option, to prevent an underlying security from being called, to permit the
sale of the underlying security or to permit the writing of a new call option
containing different terms on such underlying security. The cost of such a
liquidation purchase plus transaction costs may be greater than the premium
received on the original option, in which case the Fund will have incurred a
loss in the transaction. An option may be closed out only on an exchange which
provides secondary market for an option of the same series and there is no
assurance that a secondary market will exist for any particular option. A
covered option writer unable to effect a closing purchase transaction will not
be able to sell the underlying security until the option expires or the
underlying security is delivered upon exercise, with the result that the writer
5
<PAGE>
will be subject to the risk of market decline in the underlying security during
such period. The Fund will write an option on a particular security only if
management believes that a liquid secondary market will exist on an exchange
for options of the same series which will permit the Fund to make a closing
purchase transaction in order to close out its position.
Due to the relatively short time that exchanges have been dealing with
options, options involve risks of possible unforeseen events which can be
disruptive to the option markets or could result in the institution of certain
procedures, including restriction of certain types of orders.
Investment in Foreign Issuers. The Fund may invest up to 25% of its total
assets in securities of foreign issuers. Investments in securities of foreign
issuers involve certain 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. In
addition, foreign companies are not subject to accounting, auditing and
financial reporting standards and requirements comparable to those of U.S.
companies. 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. The inability of the Fund to make intended security purchases
due the settlement problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Fund due to subsequent declines
in value of such portfolio security or, if the Fund has entered into a contract
to sell the security, could result in possible liability to the purchaser. 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 may be subject
to different economic, financial, political and social factors.
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 a
permissive 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.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Directors and executive officers of the Fund, their ages 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 (63)--President and Director(1)(2)--President of the Investment
Adviser (which term as used herein includes its corporate predecessors) since
1977; President of MLAM (which term as used
6
<PAGE>
herein includes its corporate predecessors) since 1977; 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 (60)--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; Director, LaSalle Street Fund.
Walter Mintz (66)--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 (64)--Director(2)--780 Third Avenue, Suite 2502, 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 (62)--Director(2)--24 Federal Street, Boston,
Massachusetts 02110. Principal of Fernwood Associates (financial consultants).
Harry Woolf (72)--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; Director, Advanced
Technology Laboratories, Family Health International and SpaceLabs Medical
(medical equipment manufacturing and marketing).
Terry K. Glenn (55)--Executive Vice President(1)(2)--Executive Vice President
of the Investment Adviser and MLAM since 1983; Executive Vice President and
Director of Princeton Services since 1993; President of the Distributor since
1986 and Director thereof since 1991; President of Princeton Administrators,
L.P. since 1988.
Norman R. Harvey (62)--Senior Vice President(1)(2)--Senior Vice President of
the Investment Adviser and MLAM since 1982; Senior Vice President of Princeton
Services since 1993.
Robert J. Martorelli (38)--Vice President--Vice President of MLAM since 1987;
Fund Analyst with MLAM 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.
Donald C. Burke (35)--Vice President(1)(2)--Vice President and Director of
Taxation of MLAM since 1990; Employee of Deloitte & Touche llp from 1982 to
1990.
7
<PAGE>
Gerald M. Richard (46)--Treasurer(1)(2)--Senior Vice President and Treasurer
of the Investment Adviser and MLAM since 1984; Senior Vice President and
Treasurer of Princeton Services since 1993; Treasurer of the Distributor since
1984 and Vice President since 1981.
Robert Harris (43)--Secretary(1)(2)--Vice President of MLAM since 1984 and
attorney associated with MLAM since 1980; 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 October 31, 1995, 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 and 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. The Fund pays each Director not
affiliated with the Investment Adviser 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 $53,498 for the year ended July 31, 1995.
The following table sets forth for the fiscal year ended July 31, 1995
compensation paid by the Fund to the non-interested Directors and for the
calendar year ended December 31, 1994, the aggregate compensation paid by all
investment companies (including the Fund) advised by the Investment Adviser
and its affiliate, MLAM ("MLAM/FAM-Advised Funds") to the non-interested
Directors:
<TABLE>
<CAPTION>
AGGREGATE
PENSION OR COMPENSATION
RETIREMENT FROM FUND AND
BENEFITS ACCRUED MLAM/FAM-ADVISED
COMPENSATION AS PART OF FUNDS PAID TO
DIRECTOR FROM THE FUND FUND EXPENSE TRUSTEE/DIRECTOR(1)
- -------- ------------- ---------------- -------------------
<S> <C> <C> <C>
Joe Grills................... $9,750 None $190,383
Walter Mintz................. $9,750 None $157,325
Melvin R. Seiden............. $9,750 None $157,325
Stephen B. Swensrud.......... $9,750 None $165,325
Harry Woolf.................. $9,750 None $157,325
</TABLE>
- --------
(1) In addition to the Fund, the Directors serve on the boards of other
MLAM/FAM-Advised Funds as follows: Joe Grills (36 funds and portfolios),
Walter Mintz (36 funds and portfolios), Melvin R. Seiden (36 funds and
portfolios), Stephen B. Swensrud (46 funds and portfolios), and Harry
Woolf (36 funds and portfolios).
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.
8
<PAGE>
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 is required 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 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.
The State of California imposes limitations on the expenses of the Fund. At
the date of this Statement of Additional Information, these annual expense
limitations require that the Investment Adviser reimburse the Fund in any
amount necessary to prevent the Fund's aggregate ordinary operating expenses
(excluding interest, taxes, brokerage fees and commissions, distribution fees
and extraordinary charges such as litigation costs) from exceeding in any
fiscal year 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. The Investment Adviser's obligation to
reimburse the Fund is limited to the amount of the investment advisory fee. No
payment will be made to the Investment Adviser during any fiscal year which
will cause such expenses to exceed the most restrictive expense limitation at
the time of such payment. The Investment Adviser was not required to reimburse
the Fund pursuant to the applicable expense limitation provisions during the
fiscal year ended July 31, 1995.
Under the terms of the Investment Advisory Agreement, the Fund pays the
Investment Adviser a monthly advisory fee at the annual rate of 1.0% of the
average daily net assets of the Fund. However, the Investment Adviser has
voluntarily agreed to waive a portion of its advisory fee so that such fee is
equal to 1.00% of average daily net assets not exceeding $500 million; 0.95% of
average daily net assets in excess of $500 million but not exceeding $1
billion; and 0.90% of average daily net assets in excess of $1 billion. 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
9
<PAGE>
to exceed the pro rata expense limitation at the time of such payment. For the
fiscal years ended July 31, 1993, 1994 and 1995, the total advisory fees paid
by the Fund to the Investment Adviser were $3,031,663, $5,188,122 and
$6,445,583, 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. and Princeton Services. ML & Co. and Princeton Services are "controlling
persons" of the Investment Adviser as defined under the Investment Company Act
because of their ownership of its voting securities or their power to exercise
a controlling influence over its management or policies.
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.
10
<PAGE>
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
PricingSM 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 an identical
interest in the investment portfolio of the Fund and has the same rights,
except that Class B, Class C and Class D shares bear the expenses of the
ongoing account maintenance fees, and Class B and Class C shares bear the
expenses of the ongoing distribution fees and the additional incremental
transfer agency costs resulting from the deferred sales charge arrangements.
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 PricingSM 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 which use the Merrill Lynch Select Pricing SM
System 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
The gross sales charge for the sale of Class A shares for the fiscal year
ended July 31, 1995 was $208,396, of which the Distributor received $12,173 and
Merrill Lynch received $196,223 as a selected dealer. The gross sales charge
for the sale of Class A shares for the fiscal year ended July 31, 1994 was
$970,651, of which the Distributor received $64,117 and Merrill Lynch received
$906,534 as a selected dealer. The gross sales charge for the sale of Class A
shares for the fiscal year ended July 31, 1993 was $591,022, of which the
Distributor received $32,539 and Merrill Lynch received $558,438 as a selected
dealer. For the period October 21, 1994 (commencement of operations) to July
31, 1995, the gross sales charge for the sale of Class D shares was $163,110,
of which the Distributor received $9,543 and Merrill Lynch received $153,567 as
a selected dealer, of which $1,717 was voluntarily waived. 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
11
<PAGE>
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 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 (the date the Merrill Lynch Select Pricing SM System commenced
operations) and wish to reinvest the net proceeds from a sale of their closed-
end fund shares of common stock in Eligible Class A or Class D 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 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. Similarly, Class D shares of the Fund are offered at net
asset value to shareholders of Merrill Lynch Municipal Strategy Fund, Inc.
("Municipal Strategy Fund") who wish to purchase shares of the Fund with the
net proceeds from a sale of certain of their shares of common stock of
Municipal Strategy Fund pursuant to a tender offer by Municipal Strategy Fund.
This investment option is available only with respect to the proceeds of
Municipal Strategy Fund shares as to which no CDSC (as defined in the
Municipal Strategy Fund prospectus) is applicable.
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
12
<PAGE>
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-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;
however 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 of
Intention 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
13
<PAGE>
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 (the "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 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.
Employee Access Accounts SM. Class A or Class D shares are offered at net
asset value to Employee Access Accounts available through employers that
provide employer sponsored retirement or savings plans that are eligible to
purchase such shares at net asset value. The initial minimum for such accounts
is $500, except that the initial minimum for shares purchased for such
accounts pursuant to the Automatic Investment Program is $50.
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
14
<PAGE>
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 or Class D 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.
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 a
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 he
or she 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; and 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 a
sales charge, to an investor who has a business relationship with a Merrill
Lynch financial consultant and who has invested in a mutual fund sponsored by a
non-Merrill Lynch company for which Merrill Lynch has served as a selected
dealer and where 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 the shares
of such other fund were subject to a sales charge either at the time of
purchase or on a deferred basis; and second, such purchase of Class D shares
must be made within 90 days after such notice.
Class D shares of the Fund are offered at net asset value, without 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
15
<PAGE>
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; and 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 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 shareholders. Each
Distribution Plan further provides that, so long as the Distribution Plan
remains in effect, the selection and nomination of Directors who are not
"interested persons" of the Fund, as defined in the Investment Company Act (the
"Independent Directors"), shall be committed to the discretion of the
Independent Directors then in office. In approving each Distribution Plan in
accordance with Rule 12b-1, the Independent Directors concluded that there is 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
16
<PAGE>
by the Fund without the approval of the related class of shareholders, 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 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, 1995
with respect to the Class B and Class C shares of the Fund indicating the
maximum allowable payments that can be made under the NASD maximum sales charge
rule and, with respect to Class B shares, the Distributor's voluntary maximum
for the period October 21, 1988 (commencement of operations) to July 31, 1995.
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1995
---------------------------------------------------------------------------
(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>
CLASS B
Under NASD Rule as
Adopted................ $425,013 $26,563 $4,766 $31,329 $10,515 $20,814 $3,111
Under Distributor's
Voluntary Waiver....... $425,013 $28,688 $2,125 $30,813 $10,515 $18,173 $3,111
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DATA CALCULATED AS OF JULY 31, 1995
---------------------------------------------------------------------------
(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>
CLASS C
Under NASD Rule as
Adopted................ $10,593 $662 $27 $689 $40 $649 $88
</TABLE>
- --------
(1) Purchase price of all eligible Class B shares sold since October 21, 1988
(commencement of operations) and all eligible Class C shares sold since
October 21, 1994 (commencement of operations) 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 with respect to Class B shares prior to
July 6, 1993 under the distribution plan in effect at that time, at a 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 NASD maximum or, with respect to
the Class B shares, the voluntary 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 only for any period 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 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 AND CLASS C 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
18
<PAGE>
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, 1994
and 1995 the Distributor received CDSCs of $196,008, $312,454 and $594,796,
respectively, with respect to redemptions of Class B shares, all of which was
paid to Merrill Lynch. For the fiscal period October 21, 1994 (commencement of
operations of Class C shares) to July 31, 1995, the Distributor received CDSCs
of $3,586 with respect to redemptions of Class C shares, 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 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.
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<PAGE>
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
placing the Fund's portfolio transactions. With respect to such transactions,
the Investment Adviser seeks to obtain the best net results for the Fund,
taking into account such factors as price (including the applicable brokerage
commission or dealer spread), size of order, difficulty of execution and
operational facilities of the firm involved and the firm's risk in positioning
a block of securities. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Fund 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 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 with the Fund, and 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 such broker-dealer
to execute transactions for the Fund.
For the fiscal year ended July 31, 1995, the Fund paid total brokerage
commissions of $2,381,162 of which $27,831, or 1.17%, was paid to Merrill Lynch
for effecting 0.96% 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 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. 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.
The Fund also 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 unless a
permissive order allowing such transactions is obtained from the Commission.
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<PAGE>
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 all classes of the Fund is determined
once daily, Monday through Friday, as of 15 minutes after the close of business
on the New York Stock Exchange (generally, 4:00 p.m., New York time), 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 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 Class D
21
<PAGE>
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 (although not necessarily meet)
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 (regular way) on the exchange on which such securities are
traded, as of the close of business on the day the securities are being valued,
or, lacking any sales, at the last available bid price. In cases where
securities are traded on more than one exchange, the securities are valued on
the exchange designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market are valued
at the last available bid price in the over-the-counter market prior to the
time of valuation. When the Fund writes a call option, the amount of the
premium received is recorded on the books of the Fund as an asset and an
equivalent liability. The amount of the liability is subsequently valued to
reflect the current market value of the option written, based upon the last
sale price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter market, the last asked price. Options purchased
by the Fund are valued at their last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter market, the
last bid price. Securities and assets for which market quotations are not
readily available are valued at fair value as determined in good faith under
the direction of the Board of Directors of the Fund.
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.
SHAREHOLDER SERVICES
The Fund offers a number of shareholder services summarized below which are
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.
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<PAGE>
INVESTMENT ACCOUNT
Each shareholder whose account is maintained at the Transfer Agent has an
Investment Account and will receive statements, at least quarterly, from the
Transfer Agent. These statements will serve as transaction confirmations for
automatic investment purchases and the reinvestment of ordinary income
dividends and capital gain distributions. These statements also will show any
other activity in the account since the previous statement. Shareholders also
will receive separate confirmations for each purchase or sale transaction other
than automatic investment purchases and the reinvestment of ordinary income
dividends and long-term capital gains distributions. A shareholder may make
additions to his or her 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.
Shareholders considering transferring their Class A shares from Merrill Lynch
to another brokerage firm or financial institution should be aware that, if the
firm to which the Class A or Class D shares are to be transferred will not take
delivery of shares of the Fund, a shareholder either must redeem the Class A or
Class D shares (paying any applicable CDSC) so that the cash proceeds can be
transferred to the account at the new firm or such shareholder must continue to
maintain an Investment Account at the Transfer Agent for those Class A or Class
D shares. Shareholders interested in transferring their Class B or Class C
shares from Merrill Lynch and who do not wish to have an Investment Account
maintained for such shares at the Transfer Agent may request their new
brokerage firm to maintain such shares in an account registered in the name of
the brokerage firm for the benefit of the shareholder at the Transfer Agent. If
the new brokerage firm is willing to accommodate the shareholder in this
manner, the shareholder must request that he or she be issued certificates for
his or her shares, and then must turn the certificates over to the new firm for
registration as described in the preceding sentence. Shareholders considering
transferring a tax-deferred retirement account such as an individual retirement
account from Merrill Lynch to another brokerage firm or financial institution
should be aware that, if the firm to which the retirement account is to be
transferred will not take delivery of shares of the Fund, a shareholder must
either redeem the shares (paying any applicable CDSC) so that the cash proceeds
can be transferred to the account at the new firm, or such shareholder must
continue to maintain a retirement account at Merrill Lynch for those shares.
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) or CBA(R)
accounts may arrange to have periodic investments made in the Fund in their
CMA(R) or CBA(R) accounts or in certain related accounts in
23
<PAGE>
amounts of $100 or more ($1 for retirement accounts) through the CMA (R) or
CBA (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.
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 in the form of payments by check or through
automatic payment by direct deposit to such shareholder's bank account on
either a monthly or quarterly basis as provided below. Quarterly withdrawals
are available for shareholders who have acquired Class A or Class D shares of
the Fund having a value, based on 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 or her Class A or
Class D shares. Redemptions will be made at net asset value as determined as of
15 minutes after the close of business on the New York Stock Exchange
(generally, 4:00 p.m. New York City time) on the 24th day of each month or the
24th day of the last month of each quarter, whichever is applicable. If the
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 following business day. The
check for the withdrawal payment will be mailed or the direct deposit of the
withdrawal payment will be made on the next business day following redemption.
When a shareholder is making systematic withdrawals, dividends and
distributions on all 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
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<PAGE>
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 CMA (R)/CBA (R)
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 CMA (R)/CBA (R) Systematic
Redemption Program is not available if Fund shares are being purchased within
the account pursuant to the Automatic Investment Program. For more information
on the CMA (R)/CBA (R) Systematic Redemption Program, eligible shareholders
should contact their financial consultant.
RETIREMENT PLANS
Self-directed individual retirement accounts and other retirement plans are
available from Merrill Lynch. Under these plans, investments may be made in
the Fund and certain of the other mutual funds sponsored by Merrill Lynch as
well as in other securities. Merrill Lynch charges an initial establishment
fee and an annual custodial fee for each account. Information with respect to
these plans is available upon request from Merrill Lynch. The minimum initial
purchase to establish any such plan is $100 and the minimum subsequent
purchase is $1.
Capital gains and ordinary 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 or her 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
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<PAGE>
to purchase Class A shares of the second fund. Class B, Class C and Class D
shares are 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 are exchangeable for shares of
certain MLAM-advised money market funds specifically designated below as
available for exchange by holders of Class A, Class B, Class C or Class D
shares. Shares with a net asset value of at least $100 are required to qualify
for the exchange privilege, and any shares utilized in an exchange must have
been held by the shareholder for at least 15 days. It is contemplated that the
exchange privilege may be applicable to other new mutual funds whose shares
may be distributed by the Distributor.
Exchanges of Class A or Class D shares outstanding ("outstanding Class A or
Class D shares") for Class A or Class D shares of another MLAM-advised mutual
fund ("new Class A or Class D shares") are transacted on the basis of relative
net asset value per Class A or Class D share, respectively, plus an amount
equal to the difference, if any, between the sales charge previously paid on
the outstanding Class A or Class D shares and the sales charge payable at the
time of the exchange on the new Class A or Class D shares. With respect to
outstanding Class A or Class D shares as to which previous exchanges have
taken place, the "sales charge previously paid" shall include the aggregate of
the sales charge paid with respect to such Class A or Class D shares in the
initial purchase and any subsequent exchange. Class A or Class D shares issued
pursuant to dividend reinvestment are sold on a no-load basis in each of the
funds offering Class A or Class D shares. For purposes of the exchange
privilege, Class A and Class D shares acquired through dividend reinvestment
shall be deemed to have been sold with a sales charge equal to the sales
charge previously paid on the Class A or Class D shares on which the dividend
was paid. Based on this formula, Class A and Class D shares of the Fund
generally may be exchanged into the Class A or Class D shares of the other
funds or into shares of the Class A and Class D money market funds with a
reduced or without a sales charge.
In addition, each of the funds with Class B and Class C shares outstanding
("outstanding Class B or Class C shares") offers to exchange its Class B or
Class C shares for Class B or Class C shares, respectively, 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% CDSC 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
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<PAGE>
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.
The exchange privilege is modified with respect to certain retirement plans
which participate in the Merrill Lynch Mutual Fund Adviser ("MFA") program.
Such retirement plans may exchange Class B, Class C or Class D shares that have
been held for at least one year for Class A shares of the same fund on the
basis of relative net asset values in connection with the commencement of
participation in the MFA program, i.e., no CDSC will apply. The one-year
holding period does not apply to shares acquired through reinvestment of
dividends. Upon termination of participation in the MFA program, Class A shares
will be re-exchanged for the class of shares originally held. For purposes of
computing any CDSC that may be payable upon redemption of Class B or Class C
shares so reacquired, or the Conversion Period for Class B shares so
reacquired, the holding period for the Class A shares will be "tacked" to the
holding period for the Class B or Class C shares originally held.
Shareholders also may exchange shares of the Fund into shares of a money
market fund advised by the Investment Adviser or its affiliates, but the period
of time that Class B or Class C shares are held in a money market fund will not
count towards satisfaction of the holding period requirement for purposes of
reducing the CDSC or with respect to Class B shares, towards satisfaction of
the conversion period. However, shares of a money market fund 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 CDSC. 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% CDSC 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 CDSC.
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:
Merrill Lynch Adjustable Rate
Securities Fund, Inc.............. High current income, consistent with a
policy of limiting the degree of fluctu-
ation in net asset value by investing
primarily in a portfolio of adjustable
rate securities, consisting principally
of mortgage-backed and asset-backed se-
curities.
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<PAGE>
Merrill Lynch Americas Income
Fund, Inc......................... A high level of current income, consis-
tent 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 sur-
rounding 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 shareholders with 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 pri-
marily 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 sharehold-
ers with as high a level of income ex-
empt from Federal and Arizona income
taxes as is consistent with prudent in-
vestment 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 combina-
tion of which will be varied both with
respect to types of securities and mar-
kets 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.
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<PAGE>
Merrill Lynch Balanced Fund for
Investment and Retirement, As high a level of total investment re-
Inc. ........................ turn as is consistent with a reasonable
risk by investing in common stocks and
other types of securities, including
fixed-income securities and convertible
securities.
Merrill Lynch Basic Value Fund, Capital appreciation and, secondarily,
Inc. ............................. 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 sharehold-
ers with as high a level of income ex-
empt from Federal and California income
taxes as is consistent with prudent in-
vestment management through investment
in a portfolio primarily of insured Cal-
ifornia 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 pri-
marily 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 sharehold-
ers with as high a level of income ex-
empt from Federal and California income
taxes as is consistent with prudent in-
vestment management.
Merrill Lynch Capital Fund, The highest total investment return con-
Inc. ............................. sistent with prudent risk through a
fully managed investment policy utiliz-
ing equity, debt and convertible securi-
ties.
Merrill Lynch Colorado Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series, a series fund, whose
objective is to provide shareholders
with as high a level of income exempt
from Federal and Colorado income taxes
as is consistent with prudent investment
management.
29
<PAGE>
Merrill Lynch Connecticut
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide sharehold-
ers with as high a level of income ex-
empt from Federal and Connecticut income
taxes as is consistent with prudent in-
vestment management.
Merrill Lynch Corporate Bond
Fund, Inc. ....................... Current income from three separate diver-
sified portfolios of fixed income secu-
rities.
Merrill Lynch Developing Capital
Markets Fund, Inc.................
Long-term capital 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 lo-
cated in Asia and the Pacific Basin,
other than Japan, Australia and New Zea-
land.
Merrill Lynch EuroFund............. Capital appreciation primarily through
investment in equity securities of cor-
porations 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 shareholders with as high a
level of income exempt from Federal in-
come taxes as is consistent with prudent
investment management while serving to
offer shareholders the opportunity to
own securities exempt from Florida in-
tangible personal property taxes through
investment in a portfolio primarily of
intermediate-term investment grade Flor-
ida Municipal Bonds.
30
<PAGE>
Merrill Lynch Florida Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide sharehold-
ers with as high a level of income ex-
empt from Federal income taxes as is
consistent with prudent investment man-
agement while seeking to offer share-
holders the opportunity to own securi-
ties exempt from Florida intangible per-
sonal property taxes.
Merrill Lynch Fund for Tomorrow,
Inc...............................
Long-term growth through investment in a
portfolio of good quality securities,
primarily common stock, potentially po-
sitioned to benefit from demographic and
cultural changes as they affect consumer
markets.
Merrill Lynch Fundamental Growth
Fund, Inc.........................
Long-term growth of capital through in-
vestment in a diversified portfolio of
equity securities placing particular em-
phasis on companies that have exhibited
an above-average growth rate in earn-
ings.
Merrill Lynch Fundamental Value
Portfolio (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide sharehold-
ers with capital appreciation and income
by investing in securities, with at
least 65% of the portfolio's assets be-
ing invested in equities.
Merrill Lynch Global Allocation
Fund, Inc.........................
High total return, consistent with pru-
dent risk, through a fully managed in-
vestment policy utilizing United States
and foreign equity, debt and money mar-
ket 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 mar-
ket and economic trends.
Merrill Lynch Global Bond Fund for
Investment and Retirement.........
High total investment return from invest-
ment in a global portfolio of debt in-
struments denominated in various curren-
cies and multinational currency units.
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<PAGE>
Merrill Lynch Global Convertible
Fund, Inc.........................
High total return from investment primar-
ily in an internationally diversified
portfolio of convertible debt securi-
ties, convertible preferred stock and
"synthetic" convertible securities con-
sisting of a combination of debt securi-
ties 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 con-
sistent with prudent risk through world-
wide investment in an internationally
diversified portfolio of securities.
Merrill Lynch Global Opportunity
Portfolio(available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)................... A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide sharehold-
ers with a high total investment return
through an investment policy utilizing
United States and foreign equity, debt
and money market securities, the combi-
nation of which will vary depending upon
changing market and economic trends.
Merrill Lynch Global Resources
Trust.............................
Long-term growth and protection of capi-
tal from investment in securities of do-
mestic and foreign companies that pos-
sess substantial natural resource as-
sets.
Merrill Lynch Global SmallCap
Fund, Inc.........................
Long-term growth of capital by investing
primarily in equity securities of compa-
nies with relatively small market capi-
talizations 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 se-
curities 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.
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<PAGE>
Merrill Lynch Growth Fund for
Investment and Retirement.........
Growth of capital and, secondarily, in-
come 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 Healthdcare Fund,
Inc. (residents of Wisconsin must
meet investor suitability
standards)........................
Capital appreciation through worldwide
investment in equity securities of com-
panies that derive or are expected to
derive a substantial portion of their
sales from products and services in
healthcare.
Merrill Lynch International Equtiy
Fund..............................
Capital appreciation and, secondarily,
income by investing in a diversified
portfolio of equity securities of is-
suers located in countries other than
the United States.
Merrill Lynch Latin America Fund,
Inc...............................
Capital appreciation by investing primar-
ily 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 sharehold-
ers with as high a level of income ex-
empt from Federal and Maryland income
taxes as is consistent with prudent in-
vestment management.
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 shareholders with as high a
level of income exempt from Federal and
Massachusetts income taxes as is consis-
tent with prudent investment management
through investment in a portfolio pri-
marily 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 sharehold-
ers with as high a level of income ex-
empt from Federal and Massachusetts in-
come taxes as is consistent with prudent
investment management.
33
<PAGE>
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 shareholders with 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 pri-
marily 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 sharehold-
ers with as high a level of income ex-
empt from Federal and Michigan income
taxes as is consistent with prudent in-
vestment 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 sharehold-
ers with as high a level of income ex-
empt from Federal and Minnesota personal
income taxes as is consistent with pru-
dent investment management.
Merrill Lynch Municipal Bond Fund,
Inc...............................
Tax-exempt income from three separate di-
versified 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
shareholders with as high a level of in-
come 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 shareholders with 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 inter-
mediate-term investment grade New Jersey
Municipal Bonds.
34
<PAGE>
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 sharehold-
ers with as high a level of income ex-
empt from Federal and New Jersey income
taxes as is consistent with prudent in-
vestment 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 sharehold-
ers with as high a level of income ex-
empt from Federal and New Mexico income
taxes as is consistent with prudent in-
vestment 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 shareholders with as high a
level of income exempt from Federal, New
York State and New York City income
taxes as is consistent with prudent in-
vestment management through investment
in a portfolio primarily of intermedi-
ate-term investment grade New York Mu-
nicipal 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 sharehold-
ers with as high a level of income ex-
empt from Federal, New York State and
New York City income taxes as is consis-
tent 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 sharehold-
ers with as high a level of income ex-
empt from Federal and North Carolina in-
come 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 sharehold-
ers with as high a level of income ex-
empt from Federal and Ohio income taxes
as is consistent with prudent investment
management.
35
<PAGE>
Merrill Lynch Oregon Municipal
Bond Fund.........................
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide sharehold-
ers with as high a level of income ex-
empt from Federal and Oregon income
taxes as is consistent with prudent in-
vestment management.
Merrill Lynch Pacific Fund, Capital appreciation by investing in eq-
Inc. ............................. uity securities of corporations domi-
ciled 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 shareholders with as a high
level of income exempt from Federal and
Pennsylvania income taxes as is consis-
tent with prudent investment management
through investment in a portfolio of in-
termediate-term investment grade Penn-
sylvania Municipal Bonds.
Merrill Lynch Pennsylvania
Municipal Bond Fund...............
A portfolio of Merrill Lynch Multi-State
Municipal Series Trust, a series fund,
whose objective is to provide sharehold-
ers with as high a level of income ex-
empt from Federal and Pennsylvania in-
come taxes as is consistent with prudent
investment management.
Merrill Lynch Quality Bond
Portfolio (available only for
exchanges by certain individual
retirement accounts for which
Merrill Lynch acts as
custodian)...................
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide sharehold-
ers with a high level of current income
through investment in a diversified
portfolio of debt obligations, such as
corporate bonds and notes, convertible
securities, preferred stocks and govern-
mental obligations.
Merrill Lynch Short-Term Global
Income Fund, Inc. ................
As high a level of current income as is
consistent with prudent investment man-
agement from a global portfolio of high
quality debt securities denominated in
various currencies and multinational
currency units and having remaining ma-
turities not exceeding three years.
36
<PAGE>
Merrill Lynch Special Value Fund,
Inc. .............................
Long-term growth of capital from invest-
ments in securities, primarily common
stock of relatively small companies be-
lieved 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, Capital appreciation through worldwide
Inc. ............................. investment in equity securities of com-
panies 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 sharehold-
ers with as high a level of income ex-
empt from Federal income taxes as is
consistent with prudent investment man-
agement by investing primarily in a
portfolio of long-term, investment grade
obligations issued by the State of Tex-
as, its political subdivisions, agencies
and instrumentalities.
Merrill Lynch U.S. Government
Securities Portfolio (available
only for exchanges by certain
individual retirement accounts
for which Merrill Lynch acts as
custodian)...................
A portfolio of Merrill Lynch Asset
Builder Program, Inc., a series fund,
whose objective is to provide sharehold-
ers with a high current return through
investments in U.S. Government and gov-
ernment agency securities, including
GNMA mortgage-backed certificates and
other mortgage-backed government securi-
ties.
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 securi-
ties denominated in various currencies,
including multinational currencies.
37
<PAGE>
Class A Share Money Market Funds:
Merrill Lynch Ready Assets Trust... Preservation of capital, liquidity and
the highest possible current income con-
sistent with the foregoing objectives
from the short-term money market securi-
ties in which the Trust invests.
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 to provide
shareholders with current income, pres-
ervation of capital and liquidity avail-
able from investing in a diversified
portfolio of short-term money market se-
curities.
Merrill Lynch U.S.A. Government
Reserves..........................
Preservation of capital, current income
and liquidity available from investing
in direct obligations of the U.S. Gov-
ernment and repurchase agreements relat-
ing to such securities.
Merrill Lynch U.S. Treasury Money
Fund..............................
Preservation of capital, liquidity and
current income through investment exclu-
sively in a diversified portfolio of
short-term marketable securities which
are direct obligations of the U.S. Trea-
sury.
Class B, Class C and Class D Share Money Market Funds:
Merrill Lynch Government Fund......
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide sharehold-
ers with current income consistent with
liquidity and security of principal from
investment in securities issued or guar-
anteed by the U.S. Government, its agen-
cies and instrumentalities and in repur-
chase agreements secured by such obliga-
tions.
Merrill Lynch Institutional Fund...
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide sharehold-
ers with maximum current income consis-
tent with liquidity and the maintenance
of a high quality portfolio of money
market securities.
38
<PAGE>
Merrill Lynch Institutional Tax-
Exempt Fund.......................
A portfolio of Merrill Lynch Funds for
Institutions Series, a series fund,
whose objective is to provide sharehold-
ers with current income exempt from Fed-
eral income taxes, preservations of cap-
ital and liquidity available from in-
vesting 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 sharehold-
ers with 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.
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
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".
39
<PAGE>
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 or from an excess of net
short-term capital gains over net long-term capital losses (together referred
to hereafter as "ordinary income dividends") are taxable to shareholders as
ordinary income. Distributions made from an excess of net long-term capital
gains over net short-term capital losses ("capital gain dividends") are taxable
to shareholders as long-term capital gains, regardless of the length of time
the shareholder has owned Fund shares. 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.
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 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.
40
<PAGE>
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.
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. 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; in such
case, if the issuer of such high yield securities is a domestic corporation,
dividend payments by the Fund will be eligible for the dividends received
deduction to the extent of the deemed dividend portion of such interest
payments.
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).
41
<PAGE>
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, judicial 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.
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,
42
<PAGE>
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 charge, actual annual or annualized total return data
generally will be lower than average annual total return data since the average
rates of return reflect compounding of return; aggregate total return data
generally will be higher than average annual total return data since the
aggregate rates of return reflect compounding over a longer period of time.
Set forth below is total return information for the Class A, Class B, Class C
and Class D shares of the Fund for the periods indicated.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES* CLASS C SHARES** CLASS D SHARES**
-------------------------- -------------------------- -------------------------- --------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT
$1,000 AT THE END $1,000 AT THE END $1,000 AT THE END $1,000 AT THE END
PERIOD INVESTMENT OF THE PERIOD INVESTMENT OF THE PERIOD INVESTMENT OF THE PERIOD INVESTMENT OF THE PERIOD
------ ------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
AVERAGE ANNUAL TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended
July 31, 1995.. 7.93% $1,079.30 8.83% $1,088.30
Five Years Ended
July 31, 1995.. 13.98% $1,923.90 14.03% $1,928.10
Ten Years Ended
July 31, 1995.. 14.38% $3,831.30
Inception
(October 21,
1988) to
July 31, 1995.. 11.95% $2,148.80
Inception
(October 21,
1994) to
July 31, 1995.. 13.07% $1,099.90 7.61% $1,058.50
ANNUAL TOTAL RETURN
(EXCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<CAPTION>
YAR ENDED JULY 31,E
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995............ 13.91% $1,139.10 12.83% $1,128.30
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
Inception
(October 21,
1988) to
July 31, 1989.. 13.56% $1,135.60
Inception
(October 21,
1994) to
July 31, 1995.. 10.99% $1,109.90 11.72% $1,117.20
</TABLE>
(footnotes on following page)
43
<PAGE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES* CLASS C SHARES** CLASS D SHARES**
-------------------------- -------------------------- -------------------------- --------------------------
EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE EXPRESSED REDEEMABLE
AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A AS A VALUE OF A
PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL PERCENTAGE HYPOTHETICAL
BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000 BASED ON A $1,000
HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT HYPOTHETICAL INVESTMENT
$1,000 AT THE END $1,000 AT THE END $1,000 AT THE END $1,000 AT THE END
PERIOD INVESTMENT OF THE PERIOD INVESTMENT OF THE PERIOD INVESTMENT OF THE PERIOD INVESTMENT OF THE PERIOD
------ ------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
AGGREGATE TOTAL RETURN
(INCLUDING MAXIMUM APPLICABLE SALES CHARGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Inception
(November 1,
1982) to July
31, 1995....... 557.27% $6,572.70
Inception
(October 21,
1988) to July
31, 1995....... 114.88% $2,148.80
Inception
(October 21,
1994) to July
31, 1995....... 9.99% $1,099.90 5.85% $1,058.50
</TABLE>
- --------
* Information as to Class B shares is presented only for the period October
21, 1988 to July 31, 1995. Prior to October 21, 1988, no Class B shares
were publicly issued.
** Information as to Class C and Class D shares is presented only for the
period October 21, 1994 to July 31, 1995. Prior to October 21, 1994, no
Class C or Class D 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 charge or the waiver of sales charges, a lower amount of
expenses may be deducted.
GENERAL INFORMATION
DESCRIPTION OF SHARES
The Fund was incorporated under Maryland law on April 15, 1982. It has an
authorized capital of 300,000,000 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. Class A and Class C each consist of 50,000,000 shares,
and Class B and Class D each consist of 100,000,000 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
44
<PAGE>
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, Class B, Class C and Class D shares of the
Fund, based on the value of the Fund's net assets and number of shares
outstanding as of July 31, 1995, is set forth below.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net Assets................... $286,257,848 $414,885,911 $11,774,542 $36,388,080
============ ============ =========== ===========
Number of Shares
Outstanding................. 21,298,138 31,627,532 900,838 2,709,547
============ ============ =========== ===========
Net Asset Value Per Share
(net assets divided by
number of shares
outstanding)................ $ 13.44 $ 13.12 $ 13.07 $ 13.43
Sales Charge (Class A and
Class D shares: 5.25% of
offering price (5.54% of net
asset value per share))*.... .74 ** ** .74
------------ ------------ ----------- -----------
Offering Price............... $ 14.18 $ 13.12 $ 13.07 $ 14.17
============ ============ =========== ===========
</TABLE>
- --------
* Rounded to the nearest one-hundredth percent; assumes maximum sales charge
is applicable.
** Class B and Class C shares are not subject to an initial sales charge but
may be subject to a CDSC upon redemption. See "Purchase of Shares--Deferred
Sales Charge Alternatives--Class B and Class C Shares" in the Prospectus and
"Redemption of Shares--Deferred Sales Charges--Class B and Class C Shares"
herein.
INDEPENDENT AUDITORS
Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, has
been selected as the independent auditors of the Fund. The 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
The Chase Manhattan Bank, N.A., Global Securities Services, 4 Chase MetroTech
Center, 18th Floor, Brooklyn, New York 11245, 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.
45
<PAGE>
TRANSFER AGENT
Merrill Lynch Financial Data Services, Inc., 4800 Deer Lake Drive East,
Jacksonville, Florida 32246-6484, acts as the Fund's Transfer Agent (the
"Transfer Agent"). 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 of 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 November 1, 1995.
46
<PAGE>
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,
1995, 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, 1995, 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, 1995, 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
September 6, 1995
47
<PAGE>
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Discount to Assets
Cable 700,000 Comcast Corporation--Special (Class A) $ 11,502,469 $ 14,087,500 1.9%
Day-Care Centers 700,000 ++Kinder-Care Learning Centers, Inc. 8,607,500 9,012,500 1.2
Total Discount to Assets 20,109,969 23,100,000 3.1
Earnings Turnarounds
Airlines 1,015,000 ++Mesa Airlines, Inc. 6,532,660 11,038,125 1.5
Apparel & Textile 657,600 ++Burlington Industries, Inc. 7,635,000 8,220,000 1.1
Auto & Truck 475,000 Federal--Mogul Corp. 8,405,076 10,153,125 1.4
Banking & Financial 900,000 ++California Federal Bank, FSB 8,884,347 12,487,500 1.7
130,000 ++California Federal Bank, FSB Goodwill
Certificates 500,634 650,000 0.1
120,000 Glendale Federal Savings Bank (8.75%
Convertible, Series E) 3,000,000 4,470,000 0.6
500,000 Roosevelt Financial Group Inc. 8,371,804 7,687,500 1.0
Communications 1,295,000 ++Century Communications Corp.++++ 10,337,093 11,331,250 1.5
Computer Related 260,000 ++Cyrix Corp. 6,033,128 5,947,500 0.8
Computers & 1,700,000 ++Tandem Computers, Inc. 22,288,616 22,312,500 3.0
Peripherals 500,000 ++Western Digital Corp. 7,212,222 9,687,500 1.3
Consumer Products 1,500,000 The Topps Co., Inc. 10,330,067 9,187,500 1.2
Energy Related 361,000 Nowsco Well Service Ltd. 3,267,348 3,752,188 0.5
632,600 ++Total Petroleum (North America) Ltd. 6,615,780 7,353,975 1.0
Environmental 2,382,600 ++Allwaste Inc.++++ 12,367,136 13,402,125 1.8
930,000 ++Matrix Service Co.++++ 8,370,557 3,255,000 0.4
153,500 ++Rollins Environmental Services, Inc. 734,135 748,313 0.1
760,000 ++TETRA Technologies, Inc.++++ 5,271,282 9,120,000 1.2
Health Care 685,000 ++The Liposome Company Inc. 3,996,246 7,192,500 1.0
868,800 ++NeoRx Corp.++++ 5,703,790 4,669,800 0.6
Home Builders 1,326,800 ++NVR, Inc.++++ 8,912,598 9,287,600 1.2
53,828 NVR, Inc. (Warrants)(a) 235,498 40,371 0.0
Leisure & 1,625,000 ++CST Entertainment Imaging, Inc. ++++ 3,593,312 1,625,000 0.2
Entertainment 900,000 ++CST Entertainment Imaging, Inc. +++++++ 675,000 675,000 0.1
Manufacturing 879,400 ++Lamson & Sessions Co.++++ 4,853,150 5,826,025 0.8
Oil & Gas 253,300 ++Ranchmen's Resources Ltd. 1,034,460 1,085,439 0.1
Oil Services 239,025 ++Computalog Ltd. 1,962,718 1,133,233 0.1
500,000 ++Rowan Companies, Inc. 3,613,500 3,625,000 0.5
653,000 ++Weatherford International, Inc. 4,942,750 8,325,750 1.1
Paper & Packaging 106,562 ++Gaylord Container Corp. 226,434 1,238,783 0.2
233,428 Gaylord Container Corp. (Warrants)(a) 464,255 2,392,637 0.3
</TABLE>
48
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Earnings Turnarounds
(concluded)
Precision 300,000 ++Esterline Technology Corp. $ 2,695,398 $ 7,012,500 0.9%
Instruments
Printing & 2,000,000 ++National Education Corp.++++ 9,816,118 10,750,000 1.4
Publishing
Restaurants 965,519 ++Houlihan's Restaurant Group,
Inc. (b)++++ 3,468,750 8,568,981 1.1
Retail 1,300,000 CML Group, Inc. 11,732,647 10,887,500 1.5
700,000 The Limited, Inc. 12,846,702 14,350,000 1.9
261,215 ++National Convenience Stores Inc. 4,217,295 3,461,099 0.5
90,000 National Convenience Stores Inc.
(Warrants)(a) 342,873 168,750 0.0
2,000,000 ++Service Merchandise Company, Inc. 10,966,680 14,000,000 1.9
Ship Building 72,000 ++Bremer, Vulkan, Verbund AG 3,784,727 4,129,695 0.5
Total Earnings Turnarounds 236,241,786 271,249,764 36.1
Financial Restructuring
Aerospace & 2,360,000 ++Ladish Co., Inc. 2,864,038 708,000 0.1
Industrial Products
Airlines $ 18,475,000 ++Continental Airlines Holdings,
Inc., Secured Equipment Trust
Certificates, 12.125% due
4/15/1996 2,060,516 2,494,125 0.3
Chemicals 360,000 ++Specialty Chemical Resources, Inc.++++ 3,579,642 1,575,000 0.2
Computers & 424,800 ++Concurrent Computer Corp. 661,900 836,346 0.1
Peripherals
Consumer Products $ 6,700,000 ++Polly Peck International Finance
N.V., Convertible Preferred
Shares, 7.25% due 1/04/2005 241,200 268,000 0.0
Energy 65,945 ++Great Bay Power Corp. (c) 2,215,547 511,074 0.1
Engineering 431,144 EMCOR Group, Inc. (d) 2,211,518 3,233,580 0.4
Financial 145,000 ++First City Financial Corp., Non-
Convertible Preferred Stock 3,653,768 3,045,000 0.4
Industrial Services 1,633,200 ++Anacomp, Inc. 4,395,647 1,326,975 0.2
$ 19,500,000 ++Anacomp, Inc., Senior Subordinated
Notes, 15.00% due 11/01/2000 13,727,813 15,112,500 2.0
60,337 Anacomp, Inc. (Warrants)(a) 131,233 26,397 0.0
Leisure & 3,600,000 ++TMM, Inc. 3,276,000 1,687,500 0.2
Entertainment
Real Estate $ 14,826,000 ++Olympia & York Maiden Lane Finance
Corp., Secured Notes, 10.375% due
12/31/1995 7,826,914 7,264,740 1.0
625,000 ++Resurgence Properties Inc.++++ 5,468,750 5,000,000 0.7
</TABLE>
49
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Financial Restructuring
(concluded)
Retail 1,190,420 ++Lamonts Apparel, Inc.++++ $ 3,222,815 $ 446,408 0.1%
443,361 ++Zale Corp. Litigation Limited Partner-
ship Shares 0 0 0.0
Textiles $ 2,000,000 The Bibb Company, Senior Subordinated
Notes, 13.875% due 8/01/1999 745,000 760,000 0.1
$ 2,000,000 The Bibb Company, Senior Subordinated
Notes, 14.00% due 10/01/1999 798,750 800,000 0.1
Total Financial Restructuring 57,081,051 45,095,645 6.0
High Yield
Energy $ 7,000,000 WRT Energy Corp., Senior Notes, 13.875%
due 3/01/2002 (e) 7,000,000 6,860,000 0.9
Engineering $ 4,764,800 EMCOR Group, Inc., A Notes, 7.00% due
12/15/1997(d) 4,576,876 4,514,648 0.6
$ 1,801,300 EMCOR Group, Inc., C Notes, 11.00% due
12/15/2001(d) 1,777,465 1,269,917 0.2
$ 1,387,500 Sellco Corp., 12.00% due 12/15/2004(d) 170,170 187,312 0.0
Home Builders $ 4,100,000 ++Baldwin Homes, 10.375% due 8/01/2003 2,624,000 2,378,000 0.3
$ 8,000,000 MDC Holdings, Inc., Senior Notes, 11.125%
due 12/15/2003 6,780,000 7,300,000 1.0
Leisure & $ 8,500,000 Bally's Health & Tennis Corporation,
Entertainment Senior Subordinated Notes, 13.00% due
1/15/2003 6,781,875 7,671,250 1.0
$ 12,000,000 Genmar Holdings, Inc., Senior
Subordinated Notes, 13.50% due
7/15/2001 12,000,000 11,910,000 1.6
330,000 Live Entertainment Inc., 5.00%
Convertible Preferred (Series B) 1,546,875 1,732,500 0.2
$ 7,500,000 Live Entertainment Inc., Senior
Subordinated Notes, 12.00% due 3/23/1999 5,643,750 5,475,000 0.7
$ 6,377,000 Riviera Holdings Corp., First Mortgage
Bonds, 11.00% due 12/31/2002 5,123,833 6,185,690 0.8
$ 5,000,000 Trump Castle Funding Inc., 11.75% due
11/15/2003 3,110,097 4,050,000 0.5
$ 7,605,000 U.S. Trails, Inc., Secured Notes,
12.00% due 7/15/1998 5,346,125 5,171,400 0.7
Printing & $ 4,112,000 San Jacinto Holdings Inc., Senior
Publishing Subordinated Notes, 8.00% due 12/31/2000 3,125,120 3,125,120 0.4
Real Estate $ 3,300,000 Granite Development Partners L.P., Senior
Notes (Series B), 10.83% due 11/15/2003 2,986,500 2,805,000 0.4
Telecommunications $ 5,910,000 Scott Cable, Subordinated Debentures,
12.25%due 4/15/2001 4,626,300 4,018,800 0.5
Transportation $ 7,500,000 Tiphook Finance Corp., Unsecured
Guaranteed Notes, 10.75% due 11/01/2002 5,787,500 6,300,000 0.8
Total High Yield 79,006,486 80,954,637 10.6
</TABLE>
50
<PAGE>
SCHEDULE OF INVESTMENTS (continued)
<TABLE>
<CAPTION>
Face Amount/ Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Operational Restructuring
Apparel & 717,000 ++Texfi Industries, Inc.++++ $ 3,857,425 $ 1,971,750 0.3%
Textile
Banking & 500,000 Student Loan Marketing Association 19,895,502 26,937,500 3.6
Financial
Cable 637,000 ++Cox Communications Inc. (Class A) 10,553,796 12,899,250 1.7
Computer Software 835,000 ++Borland International, Inc. 7,615,421 10,333,125 1.4
& Services 2,000,000 ++Computervision Corporation 6,929,960 21,000,000 2.8
Computers & 1,400,000 ++Amdahl Corp. 14,218,668 13,912,500 1.9
Peripherals 700,000 ++Unisys Corp. 7,105,815 6,212,500 0.8
Diversified 1,600,000 ++ADT Limited (ADR)* 13,786,872 19,200,000 2.6
300,000 Corning Inc. 9,873,788 9,600,000 1.3
1,350,000 ++National Patent Development Corp.++++ 4,945,938 2,362,500 0.3
540,500 ++TPI Enterprises, Inc. 3,042,032 2,128,219 0.3
Electronics 4,813,587 ++Automated Security (Holdings)
PLC (ADR)* 16,190,133 6,016,984 0.8
Health Care 1,861,900 ++Applied Bioscience International
Inc.++++ 9,584,260 8,844,025 1.2
469,200 Community Psychiatric Centers, Inc. 5,091,206 5,982,300 0.8
$ 5,850,000 ICN Pharmaceuticals, Inc., Convertible
Subordinated Notes, 8.50% due
11/15/1999 5,850,000 6,054,750 0.8
3,069,000 ++Unilab Corp++++ 14,047,518 13,618,687 1.8
Insurance 2,899,500 Reliance Group Holdings, Inc. 18,873,902 18,846,750 2.5
750,000 ++Southwestern Life Insurance Corp. 4,073,196 656,250 0.1
Metals & Mining 15,625 Freeport-McMoRan Copper & Gold, Inc 338,594 416,016 0.1
550,000 Freeport-McMoRan, Inc. 1,918,263 2,750,000 0.4
385,953 Freeport-McMoRan, Inc. (Class B) 7,157,545 10,420,731 1.4
Oil & Gas 950,000 USX Corp.--Marathon Group, Inc. 16,580,900 19,118,750 2.6
Retail 700,000 Kmart Corp. 10,392,960 11,025,000 1.5
1,000,000 ++Price/Costco, Inc. 14,896,053 17,875,000 2.4
1,100,000 Woolworth Corp. 16,832,486 17,187,500 2.3
Total Operational Restructuring 243,652,233 265,370,087 35.7
Total Investments 636,091,525 685,770,133 91.5
</TABLE>
51
<PAGE>
SCHEDULE OF INVESTMENTS (concluded)
<TABLE>
<CAPTION>
Face Value Percent of
Amount Short-Term Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial Paper** $ 13,495,000 General Electric Capital Corp., 5.80%
due 8/01/1995 $ 13,495,000 $ 13,495,000 1.8%
Total Commercial Paper 13,495,000 13,495,000 1.8
US Government & 45,000,000 Federal National Mortgage Association,
Agency Obligations** 5.63% due 8/15/1995 44,901,475 44,901,475 6.0
Total US Government & Agency Obligations 44,901,475 44,901,475 6.0
Total Short-Term Investments 58,396,475 58,396,475 7.8
Total Investments $694,488,000 744,166,608 99.3
============
Other Assets Less Liabilities 5,139,773 0.7
------------ ------
Net Assets $749,306,381 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government & Agency Obligations
are 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)Formerly Gilbert/Robinson Restaurants, Inc.
(c)Received in exchange for EUA Power Corp., Series B, 17.50% due
5/15/1993 and EUA Power Corp., Series C, 17.50% due 11/5/1992.
(d)Received in exchange for JWP Inc., 9.10% due 3/06/2002, JWP Inc.,
9.95% due 11/15/2004 and JWP Inc., 10.25% due 12/01/1998.
(e)Each $1,000 face amount contains 8 warrants of WRT Energy Corp.
++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>
Net Share Net Dividend
Industry Affiliate Activity Cost Income
<S> <S> <C> <C> <C>
Apparel & Textile Texfi Industries, Inc. 0 $ 0 (1)
Chemicals Specialty Chemical Resources, Inc. 0 0 (1)
Communications Century Communications Corp. 533,700 4,444,087 (1)
Diversified National Patent Development Corp. 0 0 (1)
Environmental Allwaste Inc. 1,455,100 7,732,376 (1)
Environmental Matrix Service Co. 0 0 (1)
Environmental TETRA Technologies, Inc. (40,000) (305,000) (1)
Health Care Applied Bioscience International Inc. 688,600 3,516,816 (1)
Health Care NeoRx Corp. 43,800 235,425 (1)
Health Care Unilab Corp. 2,094,000 8,718,529 (1)
Home Builders NVR, Inc. 1,326,800 8,912,598 (1)
Leisure & Entertainment CST Entertainment Imaging, Inc. 900,000 675,000 (1)
Manufacturing Lamson & Sessions Co. 179,400 958,820 (1)
Printing & Publishing National Education Corp. 875,500 3,256,078 (1)
Real Estate Resurgence Properties, Inc. 0 0 (1)
Restaurants Houlihan's Restaurant Group, Inc. 965,519 3,468,750 (1)
Retail Lamont's Apparel, Inc 0 0 (1)
Total $41,613,479
===========
(1)Non-income producing security.
+++Restricted security as to resale. The value of the Fund's
investment in restricted securities was $675,000, representing .09%
of net assets.
<CAPTION>
Value
Issue Acquisition Date Cost (Note 1a)
<S> <C> <C> <C>
CST Entertainment
Imaging, Inc. 3/17/1995 $675,000 $675,000
Total $675,000 $675,000
======== ========
See Notes to Financial Statements.
</TABLE>
52
<PAGE>
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Statement of Assets and Liabilities as of July 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$694,488,000)
(Note 1a) $ 744,166,608
Cash 1,091,925
Receivables:
Securities sold $ 10,083,916
Capital shares sold 1,745,927
Interest 1,891,795
Dividends 2,344 13,723,982
-------------
Prepaid registration fees and other assets (Note 1f) 153,024
-------------
Total assets 759,135,539
-------------
Liabilities: Payables:
Securities purchased 7,318,390
Capital shares redeemed 1,106,211
Investment adviser (Note 2) 611,632
Distributor (Note 2) 361,635 9,397,868
-------------
Accrued expenses and other liabilities 431,290
-------------
Total liabilities 9,829,158
-------------
Net Assets: Net assets $ 749,306,381
=============
Net Assets Class A Shares of Common Stock, $0.10 par value, 50,000,000
Consist of: shares authorized $ 2,129,814
Class B Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized 3,162,753
Class C Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized 90,084
Class D Shares of Common Stock, $0.10 par value, 50,000,000
shares authorized 270,955
Paid-in capital in excess of par 669,670,896
Undistributed investment income--net 2,926,373
Undistributed realized capital gains on investments and foreign
currency transactions--net 21,376,898
Unrealized appreciation on investments and foreign currency
transactions--net 49,678,608
-------------
Net assets $ 749,306,381
=============
Net Asset Value: Class A--Based on net assets of $286,257,848 and 21,298,138
shares outstanding $ 13.44
=============
Class B--Based on net assets of $414,885,911 and 31,627,532
shares outstanding $ 13.12
=============
Class C--Based on net assets of $11,774,542 and 900,838
shares outstanding $ 13.07
=============
Class D--Based on net assets of $36,388,080 and 2,709,547
shares outstanding $ 13.43
=============
See Notes to Financial Statements.
</TABLE>
53
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
<CAPTION>
Statement of Operations for the Year Ended July 31, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 11,660,038
Income Dividends (net of $111,349 foreign withholding tax) 5,431,746
(Notes 1d & 1e): Other income 550,471
-------------
Total income 17,642,255
-------------
Expenses: Investment advisory fees (Note 2) $ 6,445,583
Account maintenance and distribution fees--Class B (Note 2) 3,712,868
Transfer agent fees--Class B (Note 2) 845,611
Transfer agent fees--Class A (Note 2) 502,200
Printing and shareholder reports 293,980
Accounting services (Note 2) 156,114
Registration fees (Note 1f) 121,884
Professional fees 105,427
Custodian fees 55,525
Directors' fees and expenses 53,498
Account maintenance and distribution fees--Class C (Note 2) 48,373
Account maintenance fees--Class D (Note 2) 42,023
Transfer agent fees--Class D (Note 2) 37,038
Transfer agent fees--Class C (Note 2) 12,721
Other 17,345
-------------
Total expenses 12,450,190
-------------
Investment income--net 5,192,065
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 44,288,326
(Loss) on Foreign currency transactions--net (21,399) 44,266,927
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions Investments--net 38,222,744
- --Net (Notes 1b, Foreign currency transactions--net 434 38,223,178
1c, 1e & 3): ------------- -------------
Net realized and unrealized gain on investments and foreign
currency transactions 82,490,105
-------------
Net Increase in Net Assets Resulting from Operations $ 87,682,170
=============
See Notes to Financial Statements.
</TABLE>
54
<PAGE>
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year Ended July 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 5,192,065 $ (357,218)
Realized gain on investments and foreign currency
transactions--net 44,266,927 68,285,575
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 38,223,178 (32,799,450)
------------- -------------
Net increase in net assets resulting from operations 87,682,170 35,128,907
------------- -------------
Dividends & Investment income--net:
Distributions to Class A (2,215,404) --
Shareholders Class B (555,940) --
(Note 1g): Class C (10,793) --
Class D (75,226) --
Realized gain on investments--net:
Class A (27,461,298) (25,246,227)
Class B (39,292,892) (25,925,825)
Class C (85,233) --
Class D (474,000) --
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (70,170,786) (51,172,052)
------------- -------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 113,809,555 226,499,203
(Note 4): ------------- -------------
Net Assets: Total increase in net assets 131,320,939 210,456,058
Beginning of year 617,985,442 407,529,384
------------- -------------
End of year* $ 749,306,381 $ 617,985,442
============= =============
<FN>
*Undistributed (accumulated) investment income
(loss)--net (Note 1h) $ 2,926,373 $ (39,695)
============= =============
See Notes to Financial Statements.
</TABLE>
55
<PAGE>
FINANCIAL INFORMATION (continued)
Financial Highlights
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.31 $ 13.75 $ 11.40 $ 11.13 $ 12.37
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .17 .03 .02 .06 .23
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.47 1.18 3.06 1.34 .55
-------- -------- -------- -------- --------
Total from investment operations 1.64 1.21 3.08 1.40 .78
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.11) -- (.03) (.09) (.40)
Realized gain on investments--net (1.40) (1.65) (.70) (1.04) (1.62)
-------- -------- -------- -------- --------
Total dividends and distributions (1.51) (1.65) (.73) (1.13) (2.02)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.44 $ 13.31 $ 13.75 $ 11.40 $ 11.13
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 13.91% 9.36% 28.96% 14.54% 10.35%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses 1.31% 1.22% 1.25% 1.35% 1.42%
Average ======== ======== ======== ======== ========
Net Assets: Investment income--net 1.40% .48% .28% .60% 2.22%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $286,258 $255,856 $197,995 $140,323 $132,623
Data: ======== ======== ======== ======== ========
Portfolio turnover 70.36% 63.95% 67.57% 79.68% 72.12%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
56
<PAGE>
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended July 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.02 $ 13.46 $ 11.25 $ 11.04 $ 12.26
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .04 (.07) (.02) (.05) .11
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.45 1.11 2.93 1.33 .56
-------- -------- -------- -------- --------
Total from investment operations 1.49 1.04 2.91 1.28 .67
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.02) -- -- (.03) (.27)
Realized gain on investments--net (1.37) (1.48) (.70) (1.04) (1.62)
-------- -------- -------- -------- --------
Total dividends and distributions (1.39) (1.48) (.70) (1.07) (1.89)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.12 $ 13.02 $ 13.46 $ 11.25 $ 11.04
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 12.83% 8.21% 27.66% 13.35% 9.14%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees 1.34% 1.24% 1.27% 1.37% 1.45%
======== ======== ======== ======== ========
Expenses 2.34% 2.24% 2.27% 2.37% 2.45%
======== ======== ======== ======== ========
Investment income (loss)--net .37% (.51%) (.73%) (.46%) 1.19%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $414,886 $362,129 $209,534 $104,313 $ 79,848
Data: ======== ======== ======== ======== ========
Portfolio turnover 70.36% 63.95% 67.57% 79.68% 72.12%
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
57
<PAGE>
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
<TABLE>
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
July 31, 1995++++
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 12.31 $ 12.57
Operating ------------- -------------
Performance: Investment income--net .03 .11
Realized and unrealized gain on investments and
foreign currency transactions--net 1.21 1.25
------------- -------------
Total from investment operations 1.24 1.36
------------- -------------
Less dividends and distributions:
Investment income--net (.05) (.07)
Realized gain on investments--net (.43) (.43)
------------- -------------
Total dividends and distributions (.48) (.50)
------------- -------------
Net asset value, end of period $ 13.07 $ 13.43
============= =============
Total Investment Based on net asset value per share 10.99%+++ 11.72%+++
Return:** ============= =============
Ratios to Average Expenses, excluding account maintenance and distribution fees 1.39%* 1.35%*
Net Assets: ============= =============
Expenses 2.39%* 1.60%*
============= =============
Investment income--net .34%* 1.11%*
============= =============
Supplemental Net assets, end of period (in thousands) $ 11,775 $ 36,388
Data: ============= =============
Portfolio turnover 70.36% 70.36%
============= =============
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Phoenix Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Short-term securities are
valued at amortized cost, which approximates market value. Other
investments are stated at market value. Securities and assets for
which market value quotations are not available are valued at their
fair value as determined in good faith by or under the direction of
the Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends, and capital gains at various
rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is 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.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
59
<PAGE>
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(h) Reclassification--Generally accepted accounting principles
require that certain differences between undistributed net realized
capital gains for financial reporting purposes, if permanent, be
reclassified to undistributed net investment income. Accordingly,
current year's permanent book/tax differences of $631,366 have been
reclassified from undistributed net realized capital gains to
undistributed net investment income. These reclassifications have no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Fund
Asset Management, L.P. ("FAM"). The general partner of FAM is
Princeton Services, Inc. ("PSI"), an indirect wholly-owned
subsidiary of Merrill Lynch & Co., Inc. (ML & Co.), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
FAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee based upon the average daily
value of the Fund's net assets at the following rates: 1.00% of
average daily net assets not exceeding $500 million; 0.95% of
average daily net assets in excess of $500 million but not exceeding
$1 billion; and 0.90% of average daily net assets in excess of $1
billion. The Investment 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 the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended July 31, 1995, MLFD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class D Shares as follows:
MLFD MLPF&S
Class A $12,173 $196,223
Class D $ 9,543 $153,567
For the year ended July 31, 1995, MLPF&S received contingent
deferred sales charges of $594,796 and $3,586 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $27,831 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
July 31, 1995.
60
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, PSI, MLPF&S, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended July 31, 1995 were $466,215,722 and $408,634,885,
respectively.
Net realized and unrealized gains (losses) as of July 31, 1995 were
as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 44,288,326 $ 49,678,608
Foreign currency
transactions (21,399) --
------------ ------------
Total $ 44,266,927 $ 49,678,608
============ ============
As of July 31, 1995, net unrealized appreciation for Federal income
tax purposes aggregated $48,906,031, of which $100,819,155 related
to appreciated securities and $51,913,124 related to depreciated
securities. At July 31, 1995, the aggregate cost of investments for
Federal income tax purposes was $695,260,577.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $113,809,555 and $226,499,203 for the years ended July 31, 1995
and July 31, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 4,773,327 $ 58,642,097
Shares issued to share-
holders in reinvestment
of dividends and
distributions 2,149,438 25,931,896
----------- ------------
Total issued 6,922,765 84,573,993
Shares redeemed (4,852,599) (59,460,110)
----------- ------------
Net increase 2,070,166 $ 25,113,883
=========== ============
Class A Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 6,651,189 $ 90,076,079
Shares issued to share-
holders 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 B Shares for the Year Dollar
Ended July 31, 1995 Shares Amount
Shares sold 11,220,799 $134,103,392
Shares issued to share-
holders in reinvestment
of dividends and
distributions 3,047,645 36,160,407
----------- ------------
Total issued 14,268,444 170,263,799
Shares redeemed (9,792,351) (116,499,330)
Automatic conversion of
shares (653,362) (7,789,181)
----------- ------------
Net increase 3,822,731 $ 45,975,288
=========== ============
61
<PAGE>
Class B Shares for the Year Dollar
Ended July 31, 1994 Shares Amount
Shares sold 14,799,015 $196,220,427
Shares issued to share-
holders 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 C Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 1,061,529 $ 12,324,849
Shares issued to share-
holders in reinvestment
of dividends and
distributions 7,661 82,125
----------- ------------
Total issued 1,069,190 12,406,974
Shares redeemed (168,352) (1,968,329)
----------- ------------
Net increase 900,838 $ 10,438,645
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to July 31, 1995 Shares Amount
Shares sold 2,465,488 $ 29,295,539
Automatic conversion of
shares 639,176 7,789,181
Shares issued to share-
holders in reinvestment
of dividends and
distributions 47,191 517,217
----------- ------------
Total issued 3,151,855 37,601,937
Shares redeemed (442,308) (5,320,198)
----------- ------------
Net increase 2,709,547 $ 32,281,739
=========== ============
[FN]
++Commencement of Operations.
62
<PAGE>
[This Page Intentionally Left Blank]
63
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objective and Policies.......................................... 2
Management of the Fund..................................................... 6
Directors and Officers.................................................... 6
Management and Advisory Arrangements...................................... 8
Purchase of Shares......................................................... 11
Alternative Sales Arrangements............................................ 11
Initial Sales Charge Alternative--Class A and Class D Shares.............. 11
Reduced Initial Sales Charges............................................. 12
Distribution Plans........................................................ 16
Limitations on the Payment of Deferred Sales Charges...................... 17
Redemption of Shares....................................................... 18
Deferred Sales Charge--Class B and Class C Shares......................... 18
Portfolio Transactions and Brokerage....................................... 20
Determination of Net Asset Value........................................... 21
Shareholder Services....................................................... 22
Investment Account........................................................ 23
Automatic Investment Plans................................................ 23
Automatic Reinvestment of Dividends and Capital Gains Distributions....... 24
Systematic Withdrawal Plans--Class A and Class D Shares................... 24
Retirement Plans.......................................................... 25
Exchange Privilege........................................................ 25
Dividends, Distributions and Taxes......................................... 39
Dividends and Distributions............................................... 39
Taxes..................................................................... 40
Performance Data........................................................... 42
General Information........................................................ 44
Description of Shares..................................................... 44
Computation of Offering Price Per Share................................... 45
Independent Auditors...................................................... 45
Custodian................................................................. 45
Transfer Agent............................................................ 46
Legal Counsel............................................................. 46
Reports to Shareholders................................................... 46
Additional Information.................................................... 46
Independent Auditors' Report............................................... 47
Financial Statements....................................................... 48
</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 # 10242-1195
LOGO MERRILL LYNCH
Merrill Lynch
Phoenix Fund, Inc.
[ART]
STATEMENT OF
ADDITIONAL
INFORMATION
November 28, 1995
Distributor:
Merrill Lynch
Funds Distributor, Inc.
<PAGE>
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, 1995.
Contained in Part B:
Schedule of Investments, as of July 31, 1995.
Statement of Assets and Liabilities as of July 31, 1995.
Statement of Operations for the year ended July 31, 1995.
Statements of Changes in Net Assets for the years ended July 31, 1995
and 1994.
Financial Highlights for each of the years in the five-year period
ended July 31, 1995.
(b) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1(a) --Articles of Incorporation of Registrant, dated April 13, 1982.(a)
(b) --Articles of Amendment to Articles of Incorporation of Registrant.(a)
--Articles of Amendment to Articles of Incorporation of Registrant,
(c) dated October 17, 1994.(a)
(d) --Articles Supplementary, dated October 18, 1995, to Articles of
Incorporation of Registrant.
2 --By-Laws of Registrant.(a)
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.(b)
5(a) --Investment Advisory Agreement between Registrant and Fund Asset
Management, L.P.(a)
(b) --Supplement to Investment Advisory Agreement between Registrant and
Fund Asset Management, L.P.(d)
6(a) --Form of Class A Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(d)
(b) --Form of Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(a)
(c) --Form of Class C Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(d)
(d) --Form of Class D Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of Selected
Dealers Agreement).(d)
(e) --Merrill Lynch Mutual Fund Adviser Agreement.(c)
7 --None.
8 --Form of Custody Agreement between Registrant and The Chase Manhattan
Bank, N.A.(e).
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial Data
Services, Inc. (now known as Merrill Lynch Financial Data Services,
Inc.).(a)
(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.(a)
10 --None.
11 --Consent of Deloitte & Touche LLP, independent auditors for the
Registrant.
12 --None.
13 --None.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
14 --None
15(a) --Class C Distribution Plan and Class C Distribution Plan Sub-
Agreement of Registrant.
(b) --Class D Distribution Plan and Class D Distribution Plan Sub-
Agreement of Registrant.
(c) --Amended and Restated Class B Distribution Plan of Registrant.(c)
16(a) --Schedule for computation of each performance quotation for Class A
shares provided in the Registration Statement in response to Item
22.(a)
(b) --Schedule for computation of each performance quotation for Class B
shares provided in the Registration Statement in response to Item
22.(a)
(c) --Schedule for computation of each performance quotation for Class C
shares provided in the Registration Statement in response to Item 22.
(d) --Schedule for computation of each performance quotation for Class D
shares provided in the Registration Statement in response to Item 22.
17(a) --Financial Data Schedule for Class A Shares.
(b) --Financial Data Schedule for Class B Shares.
(c) --Financial Data Schedule for Class C Shares.
(d) --Financial Data Schedule for Class D Shares.
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
(b) 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.
(c) Filed on EDGAR 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.
(d) Filed on EDGAR as an exhibit to Post-Effective Amendment No. 14 to
Registrant's Registration Statement on Form N-1A, filed October 11, 1994.
(e) Filed on EDGAR as an exhibit to Post-Effective Amendment No. 15 to the
Registrant's Registration Statement on Form N-1A, filed on October 14,
1994.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled by or under common control with any other
person.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
<TABLE>
<CAPTION>
NUMBER OF
RECORD HOLDERS AT
TITLE OF CLASS OCTOBER 31, 1995
-------------- -----------------
<S> <C>
Class A Common Stock, par value $0.10 per share......... 26,705
Class B Common Stock, par value $0.10 per share......... 39,550
Class C Common Stock, par value $0.10 per share......... 1,820
Class D Common Stock, par value $0.10 per share......... 4,424
</TABLE>
- --------
Note: The number of holders shown above includes holders of record plus
beneficial owners whose shares are held of record by Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
C-2
<PAGE>
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 that 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, Class B, Class C and Class D Shares 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.
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
C-3
<PAGE>
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 MANAGER.
Fund Asset Management, L.P. ("FAM" or the "Manager") acts as the investment
adviser for the following open-end investment companies: CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The Corporate Fund Accumulation
Program, Inc., Financial Institutions Series Trust, Merrill Lynch Basic Value
Fund, Inc., Merrill Lynch California Municipal Series Trust, Merrill Lynch
Corporate Bond Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill
Lynch Funds for Institutions Series, Merrill Lynch Multi-State Limited Maturity
Municipal Series Trust, Merrill Lynch Multi-State Municipal Series Trust,
Merrill Lynch Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc.,
Merrill Lynch Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc.
and The Municipal Fund Accumulation Program, Inc. and for the following closed-
end investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Emerging Tigers Fund, Inc., Income
Opportunities Fund 1999, Inc., Income Opportunities Fund 2000, Inc.
Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the Manager,
acts as investment adviser for the following open-end investment companies:
Merrill Lynch Adjustable Rate Securities Fund, Inc., Merrill Lynch Americas
Income Fund, Inc., Merrill Lynch Asset Builder Program, Inc., Merrill Lynch
Asset Growth Fund, Inc., Merrill Lynch Asset Income Fund, Inc., Merrill Lynch
Balanced Fund for Investment and Retirement, Inc., 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 Resources Trust, 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
Institutional Intermediate Fund, Merrill Lynch International Equity Fund,
Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund,
Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc.,
Merrill Lynch Ready Assets Trust, Merrill Lynch Retirement Series Trust,
Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income Fund,
Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund,
Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc. and Merrill Lynch Variable
Series Funds, Inc., and for the following closed-end investment companies:
Convertible Holdings, Inc., Merrill Lynch High Income Municipal Bond Fund, Inc.
and Merrill Lynch Senior Floating Rate Fund, 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 Manager, MLAM and Princeton Services, Inc. ("Princeton
Services"), and Princeton Administrators, L.P. is also P.O. Box 9011,
Princeton, New Jersey 08543-9011. The address of Merrill Lynch Funds
Distributor, Inc. ("MLFD") is P.O. Box 9081, Princeton, New Jersey 08543-9081.
The address of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Merrill Lynch & Co., Inc. ("ML&Co.") is North Tower, World
Financial Center, 250 Vesey Street, New York, New York 10281-1201. The address
of the Fund's transfer agent, Merrill Lynch Financial Data Services is 4800
Deer Lake Drive East, Jacksonville, Florida 32246-6484.
C-4
<PAGE>
Set forth below is a list of each executive officer and partner of the
Manager 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 Manager. Messrs. Giordano,
Harvey, Hewitt, Kirstein and Monagle are directors or officers of one or more
of such companies.
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<C> <C> <S>
ML & Co. ................... Limited Partner Financial Services Holding
Company
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 Vice Executive Vice President of
President MLAM; Executive Vice
President and Director of
Princeton Services; President
and Director of the
Distributor; Director of FDS;
President of Princeton
Administrators, Inc.
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 Senior Vice President, General
President, General Counsel and Secretary of
Counsel and MLAM; Senior Vice President,
Secretary General Counsel, Director and
Secretary of Princeton
Services; Director of the
Distributor
Ronald M. Kloss............. Senior Vice President Senior Vice President and
and Controller Controller of MLAM; Senior
Vice President and Controller
of Princeton Services
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
Richard L. Reller........... Senior Vice President Senior Vice President of FAM;
Senior Vice President of
Princeton Services
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) WITH OTHER SUBSTANTIAL BUSINESS,
NAME INVESTMENT ADVISER PROFESSION, VOCATION OR EMPLOYMENT
---- ------------------ ----------------------------------
<C> <C> <S>
Gerald M. Richard........... Senior Vice President Senior Vice President and
and Treasurer Treasurer of 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) MLFD acts as the principal underwriter for the Registrant. MLFD acts as
the principal underwriter for each of the open-end investment companies
referred to in the first two paragraphs of Item 28 except CBA Money Fund, CMA
Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal Series
Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, Convertible Holdings, Inc., The
Corporate Fund Accumulation Program, Inc., MuniAssets Fund, Inc. and The
Municipal Fund Accumulation Program, Inc.; and MLFD also acts as the principal
underwriter for the following closed-end investment companies: Merrill Lynch
High Income Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate
Fund, Inc.
(b) Set forth below is information concerning each director and officer of
MLFD. The principal business address of each such person is P.O. Box 9081,
Princeton, New Jersey 08543-9081, except that the address of Messrs. Crook,
Aldrich, Brady, Breen, Graczyk, Fatseas and Wasel is One Financial Center,
Boston, Massachusetts 02111-2646.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITION(S) AND OFFICES POSITION(S) AND OFFICES
NAME WITH MLFD WITH REGISTRANT
---- ----------------------- -----------------------
<S> <C> <C>
Terry K. Glenn........... President and Director Executive Vice President
Arthur Zeikel............ Director President and Trustee
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
Debra W. Landsman-Yaros.. Vice President None
Michelle T. Lau.......... Vice President None
Gerald M. Richard........ Vice President and Treasurer Treasurer
Salvatore Venezia........ Vice President None
William Wasel............ Vice President None
Robert Harris............ Secretary Secretary
</TABLE>
(c) Not applicable.
C-6
<PAGE>
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, Merrill Lynch
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 to 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>
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 Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the Township of Plainsboro, and State of New Jersey, on the 28th day of
November, 1995.
Merrill Lynch Phoenix Fund, Inc.
/s/ Arthur Zeikel
By: ____________________________
(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.
SIGNATURE TITLE DATE
/s/ Arthur Zeikel President and Director November 28,
- ------------------------------------- (Principal Executive 1995
(ARTHUR ZEIKEL) Officer)
/s/ Gerald M. Richard Treasurer (Principal November 28,
- ------------------------------------- Financial and 1995
(GERALD M. RICHARD) Accounting Officer)
Director
- -------------------------------------
(JOE GRILLS)
Walter Mintz* Director
- -------------------------------------
(WALTER MINTZ)
Stephen B. Swensrud* Director
- -------------------------------------
(STEPHEN B. SWENSRUD)
Melvin R. Seiden* Director
- -------------------------------------
(MELVIN R. SEIDEN)
Harry Woolf* Director
- -------------------------------------
(HARRY WOOLF)
/s/ Arthur Zeikel November 28,
*By: ________________________________ 1995
(ARTHUR ZEIKEL, ATTORNEY-IN-FACT)
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1(a) --Articles of Incorporation of Registrant, dated April 13,
1982.(a)
(b) --Articles of Amendment to Articles of Incorporation of
Registrant.(a)
(c) --Articles of Amendment to Articles of Incorporation of
Registrant, dated October 17, 1994. (a)
(d) --Articles Supplementary, dated October 18, 1995, to Articles
of Incorporation of Registrant.
2 --By-Laws of Registrant.(a)
5(a) --Investment Advisory Agreement between Registrant and Fund
Asset Management, Inc.(a)
6(b) --Class B Distribution Agreement between Registrant and
Merrill Lynch Funds Distributor, Inc. (including Form of
Selected Dealers Agreement).(a)
9(a) --Transfer Agency, Dividend Disbursing Agency and Shareholder
Servicing Agency Agreement between Registrant and Financial
Data Services, Inc. (now known as Merrill Lynch Financial
Data Services, Inc.).(a)
(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.(a)
11 --Consent of Deloitte & Touche LLP, independent auditors for
Registrant.
15(a) --Class C Distribution Plan and Class C Distribution Plan
Sub-Agreement of Registrant.
(b) --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 Registration Statement in
response to Item 22.(a)
(b) --Schedule for computation of each performance quotation for
Class B shares provided in the Registration Statement in
response to Item 22.(a)
(c) --Schedule for computation of each performance quotation for
Class C shares provided in the Registration Statement in
response to Item 22.
(d) --Schedule for computation of each performance quotation for
Class D shares provided in the Registration Statement in
response to Item 22.
17(a) --Financial Data Schedule for Class A Shares.................
(b) --Financial Data Schedule for Class B Shares. ...............
(c) --Financial Data Schedule for Class C Shares.................
(d) --Financial Data Schedule for Class D Shares.................
</TABLE>
- --------
(a) Refiled pursuant to the Electronic Data Gathering, Analysis and Retrieval
("EDGAR") phase-in requirements.
<PAGE>
MERRILL LYNCH PHOENIX FUND, INC.
------------------
Supplement to Prospectus dated November 28, 1995
------------------
FOR USE IN THE STATE OF OHIO
Notwithstanding the fact that the Board may determine that a Rule 144A
security is liquid and not subject to the 15% restriction on illiquid
securities, the State of Ohio does not recognize Rule 144A securities as
securities which are free of restrictions as to resale. Consequently, to the
extent required by Ohio law, the Fund will not invest more than 50% of its
total assets in securities of issuers which are restricted as to disposition,
including Rule 144A securities, or in securities of issuers having a record,
together with predecessors, of less than three years of continuous operations.
CODE # 10121-1195OH
<PAGE>
APPENDIX FOR GRAPHIC AND IMAGE MATERIAL
Pursuant to Rule 304 of Regulation S-T, the following table presents
fair and accurate narrative descriptions of graphic and image material omitted
from this EDGAR Submission file due to ASCII-incompatibility and cross-
references this material to the location of each occurrence in the text.
DESCRIPTION OF OMITTED LOCATION OF GRAPHIC
GRAPHIC OR IMAGE OR IMAGE IN TEXT
- ---------------------- -------------------
Compass plate, circular Back cover of Prospectus and
graph paper and Merrill Lynch back cover of Statement of
logo including stylized market Additional Information
bull
<PAGE>
EXHIBIT-99. 1(a)
ARTICLE OF INCORPORATION
OF
MERRILL LYNCH PHOENIX FUND, INC.
* * * *
ARTICLE I
THE UNDERSIGNED, ROBERT HARRIS, whose post-office
address is 165 Broadway, New York, New York 10080, being
at least eighteen years of age, does hereby act as an in-
corporator, under and by virtue of the General Laws of the
State of Maryland authorizing the formation of corporations
and with the intention of forming a corporation.
ARTICLE II
NAME
----
The name of the Corporation is
MERRILL LYNCH PHOENIX FUND, INC.
ARTICLE III
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corpora-Lion
is formed and the business or objects to be transacted,
carried on and promoted by it are as follows:
(1) To conduct and carry on the business of an invest-
company of the management type.
<PAGE>
(2) To hold, invest and reinvest its assets in securi-
ties, and in connection therewith -lo hold part or all of
its assets in cash.
(3) To issue and sell shares of its own capital stock
in such amounts and on such terms and conditions, for such
purposes and for such amount or kind of consideration now or
hereafter permitted by the General Laws of the State of Mary-
land and by these Articles of Incorporation, as its Board of
Directors may determine; provided, however, that the value
of the consideration per share to-be received by the Corpo-
ration upon the sale or other disposition of any shares of
its capital stock shall not be less than the net asset value.
per share of such capital stock outstanding at the time of
such event.
(4) To redeem, purchase or other-wise acquire, hold,
dispose of, resell, transfer, reissue or cancel (all without
the vote or consent of the stockholders of the Corporation)
shares of its capital stock, in any manner and to the extent
now or hereafter permitted by the General Laws of the State
of Maryland and by these Articles of Incorporation.
(5) To do any and all such further acts or things and
to exercise any and all such further powers or rights as may
be necessary, incidental, relative, conducive, appropriate
or desirable for the accomplishment, carrying out or attain-
ment of all or any of the foregoing purposes or objects.
2.
<PAGE>
The Corporation shall be authorized to exercise and
enjoy all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the state of
Maryland now or hereafter in force, and the enumeration of the
foregoing shall not be deemed to exclude any powers., rights or
privileges so granted or conferred.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post-office address of the principal office of
the Corporation in the State of Maryland is c/o The Cor-
poration Trust Incorporated, First Maryland Building, 25
South Charles Street, Baltimore, Maryland 21201. The name
of the resident agent of the Corporation in this State is
The Corporation Trust Incorporated, a corporation of this
State, and the post-office address of the resident agent is
First Maryland Building, 25 South Charles Street, Baltimore,
Maryland 21201.
ARTICLE V
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which
the Corporation shall have authority to issue is One Hundred
Million (100,000,000) shares, all of one class called Common
Stock, of the par value of Ten Cents ($0.10) per share and of
the aggregate par value of Ten Million Dollars ($10,000,000).
3.
<PAGE>
(2) Any fractional share shall carry proportionately all the
rights of a whole share, excepting any right to receive a certificate
evidencing such fractional share, but including, without limitation,
the right to vote and the right to receive dividends.
(3) All persons who shall acquire stock in the Cor-
poration shall acquire the same subject to the provisions
of these Articles of Incorporation and the By-Laws of the
corporation.
ARTICLE VI
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE COR-
PORATION AND OF THE DIRECTORS AND
STOCKHOLDERS
--------------------------------------
(1) The number of directors of the Corporation shall
be three (3), which number may be increased pursuant to
the By-Laws of the Corporation but shall never be less
than three (3) The names of the directors who shall act
until the first annual meeting or until their successors
are duly elected and qualify are:
Arthur Zeikel
William W. Hewitt, Jr.
Robert Harris
(2) The Board of Directors of the Corporation is
hereby empowered to authorize the issuance from time to
time of shares of capital stock, whether now or hereafter
4.
<PAGE>
authorized, for such consideration as the Board of Directors
may deem advisable, subject to such limitations as may be
set forth in these Articles of Incorporation or in the
By-Laws of the Corporation or in the General Laws of the
State of Maryland.
(3) No holder of stock of the Corporation shall, as
such holder, have any right to purchase or subscribe for
any shares of the capital stock of the Corporation or any
other security of the Corporation which it may issue or sell
(whether out of the number of shares authorized by these
Articles of Incorporation, or out of any shares of the
capital stock of the Corporation acquired by it after the
issue thereof, or otherwise) other than such right, if any,
as the Board of Directors, in its discretion, may determine.
(4) Each director and each officer of the Corporation
shall be indemnified by the Corporation to the full extent
permitted by the General Laws of the State of Maryland,
subject to the requirements of the Investment Company Act of
1940, as amended.
(5) The Board of Directors of the Corporation may
make, alter or repeal from time to time any of the By-Laws
of the Corporation except any particular By-Law which is
specified as not subject to alteration or repeal by the
Board of Directors, subject to the requirements of the
Investment Company Act of 1940, as amended.
5.
<PAGE>
ARTICLE VII
REDEMPTION
----------
Each holder of shares of capital stock of the Corpora-
tion shall be entitled to require the Corporation to redeem
all or any part of the shares of capital stock of the Cor-
poration standing in the name of such holder on the books
of the Corporation, and all shares of capital stock issued
by the Corporation shall be subject to redemption by the
Corporation, at the redemption price of such shares as in
effect from time to time as may be determined by the Board
of Directors of the Corporation in accordance with the
provisions hereof, subject to the right of the Board of
Directors of the Corporation to suspend the right of re-
demption of shares of capital stock of the Corporation or
postpone the date of payment of such redemption price in
accordance with provisions of applicable law. The redemp-
tion price of shares of capital stock of the Corporation
shall be the net asset value thereof as determined by the
Board of Directors of the Corporation from time to time in
accordance with the provisions of applicable law, less such
redemption fee or other charge, if any, as may be fixed by
resolution of the Board of Directors of the Corporation.
Payment of the redemption price shall be made in cash by
the Corporation at such time and in such manner as may be
determined from time to time by the Board of Directors of
the Corporation.
6.
<PAGE>
ARTICLE VIII
DETERMINATION BINDING
---------------------
Any determination made in good faith, so far as ac-
counting matters are involved, in accordance with accepted
accounting practice by or pursuant to the direction of
the Board of Directors, as to the amount of assets, obli-
gations or liabilities of the Corporation, as to the amount
of net income of the Corporation from dividends and interest
for any period or amounts at any time legally available for
the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time
of or purpose for creating reserves or as to the use, altera-
tion or cancellation of any reserves or charges (whether or
not any obligation or liability for which such reserves or
charges shall have been created shall have been paid or dis-
charged or shall be then or thereafter required-to be paid
or discharged), as to the price of any security owned by
the Corporation or as to any other matters relating to the
issuance, sale, redemption or other acquisition or disposi-
tion of securities or shares of capital stock of the Cor-
poration, and any reasonable determination made in good
faith by the Board of Directors as to whether any trans-
action constitutes a purchase of securities on "margin",
a sale of securities "short", or an underwriting of the
7.
<PAGE>
sale or a participation in any underwriting or selling
group in connection with the public distribution of, any
securities, shall be final and conclusive, and shall be
binding upon the Corporation and all holders of its capital
stock, past, present and future, and shares of the capital
Stock of the Corporation are issued and sold on the condi-
tion and understanding, evidenced by the purchase of shares
of capital stock or acceptance of share certificates, that
any and all such determinations shall be binding as afore-
said. No provision of these Articles of Incorporation shall
be effective to (a) require a waiver of compliance with any
provision of the Securities Act of 1933, as amended, or the
Investment Company Act of 1940, as amended, or of any valid
rule, regulation or order of the Securities and Exchange
Commission thereunder or (b) protect or purport to protect
any director or officer of the Corporation against any
liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless dis-
regard of the duties involved in the conduct of his office.
ARTICLE IX
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.
8.
<PAGE>
ARTICLE X
AMENDMENT
---------
The Corporation reserves the right from time to time
to make any amendment of its Charter, now or hereafter
authorized by-law, including any amendment which alters the
contract rights, as expressly set forth in its Charter, of
any outstanding stock.
IN WITNESS WHEREOF, the undersigned incorporator of
MERRILL LYNCH PHOENIX FUND, INC. hereby executes the fore-
going Articles of Incorporation and acknowledges the same
to be his act and further acknowledges that, to the best
of his knowledge, the matters and facts set forth therein
are true in all material respects under the penalties
of perjury.
Dated the 13th day of April, 1982.
/s/ Robert Harris
-----------------
Robert Harris
9.
<PAGE>
EXHIBIT-99. 1 (b)
MERRILL LYNCH PHOENIX FUND, INC.
Articles of Amendment
---------------------
MERRILL LYNCH PHOENIX FUND, INC., a Maryland corporation having its
principal office c/o The Corporation Trust Incorporated, 32 South Street,
Baltimore, Maryland 21202 (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The charter of the Corporation is hereby amended by amending
ARTICLE V thereof in its entirety to read as follows:
Capital Stock
-------------
1. The total number of shares of capital stock which the Corporation
shall have authority to issue is One Hundred Million (100,000,000) shares of the
par value of Ten Cents ($0.10) per share and of the aggregate par value of Ten
Million Dollars ($10,000,000). The capital stock initially is classified into
two classes, consisting of Fifty Million (50,000,000) shares of Class A Common
Stock and Fifty Million (50,000,000) shares of Class B Common Stock.
2. The Board of Directors may classify and reclassify any unissued
shares of capital stock into one or more additional or other classes or series
as may be established from time to time by setting or changing in any one or
more respects the designations, conversion or other rights, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares-of stock and pursuant to such classification or reclassification
to increase or decrease the number of authorized shares of any existing class or
series; provided, however, that no such classification or reclassification shall
result in the creation of a class or series of capital stock having a preference
as to dividends or distributions or a preference in the event of any
liquidation, dissolution or winding up of the Corporation.
3. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, the holders of each class or series of capital stock shall be
entitled
<PAGE>
to dividends and distributions in such amounts and at such times as may be
determined by the Board of Directors, and the dividends and distributions paid
with respect to the various classes or series of capital stock may vary among
such classes and series. Expenses related to the distribution of, and other
identified expenses that should properly be allocated to, the shares of a
particular class or series of capital stock may be charged to and borne solely
by such class or series and the bearing of expenses solely by a class or series
of capital stock may be appropriately reflected (in a manner determined by the
Board of Directors) and cause differences in the net asset value attributable
to, and the dividend, redemption and liquidation rights of, the shares of each
class or series of capital stock.
4. On each matter submitted to a vote of stockholders, each holder of a
share of capital stock of the Corporation shall be entitled to one vote for each
share standing in such holder's name on the books of the Corporation,
irrespective of the class or series thereof, and all shares of all classes and
series shall vote together as a single class; provided, however, that (a) as to
any matter with respect to which a separate vote of any class or series is
required by the Investment Company Act of 1940, as amended, and in effect from
time to time, or any rules, regulations or orders issued thereunder, or by the
Maryland General Corporation Law, such requirement as to a separate vote by that
class or series shall apply in lieu of a general vote of all classes and series
as described above, (b) in the event that the separate vote requirements
referred to in (a) above apply with respect to one or more classes or series,
then, subject to paragraph (c) below, the shares of all other classes and series
not entitled to a separate class vote shall vote as a single class, and (c) as
to any matter which does not affect the interest of a particular class or
series, such class or series shall not be entitled to any vote and only the
holders of shares of the one or more affected classes and series shall be
entitled to vote.
5. Unless otherwise expressly provided in the charter of the
Corporation, including any Articles Supplementary creating any class or series
of capital stock, in the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of all classes
and series of capital stock of the Corporation shall be entitled, after payment
or provision
2.
<PAGE>
for payment of the debts and other liabilities of the Corporation, to share
ratably in the remaining net assets of the Corporation.
6. Any fractional shares shall carry proportionately all the rights of a
whole share, excepting any right to receive a certificate evidencing such
fractional share, but including, without limitation, the right to vote and the
right to receive dividends.
7. All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of the charter and By-Laws of the
Corporation. All shares of Common Stock of the Corporation issued on or before
October 3, 1988 shall without further act be considered Class A Common Stock. As
used in the charter of the Corporation, the terms "charter" and "Articles of
Incorporation" shall mean and include the Articles of Incorporation of the
Corporation, as amended, supplemented and restated from time to time by Articles
of Amendment, Articles Supplementary, Articles of Restatement or otherwise.
SECOND: The foregoing amendment does not increase the authorized capital
stock of the Corporation.
THIRD: The foregoing amendment to the charter of the Corporation has
been advised by the Board of Directors and approved by the stockholders of the
Corporation.
3.
<PAGE>
IN WITNESS WHEREOF, Merrill Lynch Phoenix Fund, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
Executive Vice President and attested by its Secretary on October 3, 1988.
ATTEST: MERRILL LYNCH PHOENIX FUND, INC.
/s/ Robert Harris By /s/ Terry K. Glenn
- ----------------- ------------------
Robert Harris Terry K. Glenn
Secretary Executive Vice President
THE UNDERSIGNED, Executive Vice President of Merrill Lynch Phoenix Fund,
Inc., who executed on behalf of said Corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby acknowledges, in the
name and on behalf of said Corporation, the foregoing Articles of Amendment to
be the corporate act of said Corporation, and further certifies that, to the
best of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material respects,
under the penalties of perjury.
/s/ Terry K. Glenn
------------------
Terry K. Glenn
Executive Vice President
4.
<PAGE>
EXHIBIT-99.1(c)
MERRILL LYNCH PHOENIX FUND, INC.
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
MERRILL LYNCH PHOENIX FUND, INC., a Maryland corporation having its
principal Maryland office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The charter of the Corporation is hereby amended by adding the
following provision at the end of Article V:
(9) The Board of Directors may classify and reclassify any issued shares
of capital stock into one or more additional or other classes or series as may
be established from time to time by setting or changing in any one or more
respects the designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of such shares of stock and pursuant to such
classification or reclassification to increase or decrease the number of
authorized shares of any existing class or series; provided, however, that any
such classification or reclassification shall not substantially adversely affect
the rights of holders of such issued shares. The Board's authority pursuant to
this paragraph shall include, but not be limited to, the power to vary among all
the holders of a particular class or series (a) the length of time shares must
be held prior to reclassification to shares of another class or series (the
"Holding Period(s)"), (b) the manner in which the time for such Holding
Period(s) is determined and (c) the class or series into which the particular
class or series is being reclassified; provided, however, that, subject to the
first sentence of this section, with respect to holders of the Corporation's
shares issued on or after the date of the Corporation's first effective
prospectus which sets forth Holding Period(s) (the "First Holding Period
Prospectus"), the Holding Period(s), the manner in which the time for such
Holding Period(s) is determined and the class or series into which the
particular class or series is being reclassified shall be disclosed in the
Corporation's prospectus or statement of additional information in effect at the
time such shares, which are the subject of the reclassification, were issued;
and provided, further, that, subject to the first sentence of this section, with
respect to holders of the Corporation's Class B shares issued prior to the date
of the Corporation's First Holding Period Prospectus, the Holding Period
<PAGE>
shall be ten (10) years for retirement plan (as recognized by the Internal
Revenue Code of 1986, as amended from time to time) holders of issued Class B
shares purchased without a contingent deferred sales charge (a "CDSC-Waived
Retirement Plan") and shall be the Holding Period set forth in the Corporation's
First Holding Period Prospectus, for all other holders of issued Class B shares;
Class B shares held by a CDSC-Waived Retirement Plan shall be reclassified to
Class D shares in the month following the month in which the first Class B share
of any mutual fund advised by Merrill Lynch Asset Management, L.P., Fund Asset
Management, L.P., or their affiliates or successors, held by such CDSC-Waived
Retirement Plan has been held for the ten (10) year Holding Period established
by the Corporation's Board of Directors for such CDSC-Waived Retirement Plan
Class B shareholder; and the Class B shares of every shareholder other than
CDSC-Waived Retirement Plans shall be reclassified to Class D shares in the
month following the month in which such shares have been held for the Holding
Period established by the Corporation's Board of Directors for shareholders
other than CDSC-Waived Retirement Plans in the Corporation's First Holding
Period Prospectus.
SECOND: The manner and by the the State of Maryland. Pursuant to Section
2-604 of the Maryland Corporations and Associations Code, the amendment was
advised by the Board of Directors of the Corporation and approved by the
stockholders.
THIRD: Except as amended hereby, the Corporation's charter shall remain
in full force and effect.
FOURTH: The authorized capital stock of the Corporation has not been
increased by these Articles of Amendment.
FIFTH: These Articles of Amendment shall be effective at the very
---------
beginning of the day on October 21, 1994.
----------------
The President acknowledges these Articles of Amendment to be the
corporate act of the Corporation and states that to the best of his knowledge,
information and belief, the matters set forth in these Articles of Amendment
with respect to the authorization and approval of the amendment of the
Corporation's charter are true in all material respects, and that this statement
is made under the penalties for perjury.
2
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH PHOENIX FUND, INC. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
President, a duly authorized officer of the Corporation, and attested by its
Secretary as of the 17th day of October, 1994.
MERRILL LYNCH PHOENIX FUND, INC.
/s/ Arthur Zeikel
--------------------------------
Arthur Zeikel
President
Attest:
/s/ Robert Harris
- --------------------
Robert Harris, Secretary
3
<PAGE>
EXHIBIT-99. 1(d)
MERRILL LYNCH PHOENIX FUND, INC.
ARTICLES SUPPLEMENTARY TO ARTICLES OF INCORPORATION
INCREASING THE AUTHORIZED CAPITAL STOCK OF THE
CORPORATION AND CREATING TWO ADDITIONAL CLASSES
OF COMMON STOCK
MERRILL LYNCH PHOENIX FUND, INC., a Maryland corporation having its
principal Maryland office c/o The Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202 (hereinafter called the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation, that:
FIRST: The Corporation is registered as an open-end company under the
Investment Company Act of 1940, as amended, with authority to issue ONE HUNDRED
MILLION (100,000,000) shares of capital stock. The Corporation has two classes
of capital stock consisting of FIFTY MILLION (50,000,000) shares of Class A
Common Stock and FIFTY MILLION (50,000,000) shares of Class B Common Stock.
All shares of all classes and series of the Corporation's capital stock have a
par value of Ten Cents ($.10) per share and an aggregate par value of TEN
MILLION Dollars ($10,000,000).
SECOND: The Board of Directors of the Corporation, acting in accordance
with Section 2-105(c) of the Maryland Corporations and Associations Code,
hereby increases the total number of authorized shares of Class B Common Stock
of the Corporation by ONE HUNDRED MILLION (100,000,000) shares.
THIRD: After this increase in the number of authorized shares of capital
stock of the Corporation, the Corporation will have authority to issue TWO
HUNDRED MILLION (200,000,000) shares of capital stock and the capital stock will
consist of FIFTY MILLION (50,000,000) shares of Class A Common Stock and ONE
HUNDRED FIFTY MILLION (150,000,000) shares of Class B Common Stock.
FOURTH: After this increase in the number of authorized shares of
capital stock of the Corporation, all shares of all classes and series of the
Corporation's capital stock will have a par value of Ten Cents ($.10) per share
and an aggregate par value of TWENTY MILLION Dollars ($20,000,000).
FIFTH: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by its charter, the Board of Directors has reclassified FIFTY
MILLION (50,000,000) authorized and unissued shares of the Class B Common Stock
of the Corporation as Class C Common Stock of par value of Ten Cents ($.10) per
share and of the aggregate par value of FIVE MILLION Dollars ($5,000,000).
<PAGE>
SIXTH: The preferences, designations, conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications or terms or
conditions of redemption of Class C Common Stock are as follows:
The Class C Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary, except as
otherwise set forth in the Corporation's charter and further except that:
(i) Expenses related to the distribution of the Class C Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class;
(ii) Such distribution expenses borne solely by Class C Common Stock
shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class; and
(iii) Class C Common Stock shall not be reclassified into Class D
shares.
SEVENTH: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by its charter, the Board of Directors has
reclassified FIFTY MILLION (50,000,000) authorized and unissued shares of the
Class B Common Stock of the Corporation as Class D Common Stock of par value of
Ten Cents ($.10) per share and of the aggregate par value of FIVE MILLION
Dollars ($5,000,000).
EIGHTH: The preferences, designations, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption of Class D Common Stock are as follows:
The Class D Common Stock of the Corporation shall represent the same
interest in the Corporation and have identical preferences, designations,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as the Class B
Common Stock as of the date of these Articles Supplementary, except as
otherwise set forth in the Corporation's charter and further except that:
2
<PAGE>
(i) Expenses related to the distribution of the Class D Common Stock
shall be borne solely by such class and such class shall have exclusive voting
rights with respect to matters relating to the expenses being borne solely by
such class; and
(ii) Such distribution expenses borne solely by Class D Common Stock
shall be appropriately reflected (in the manner determined by the Board of
Directors) in the net asset value, dividends, distribution and liquidation
rights of the shares of such class.
3
<PAGE>
IN WITNESS WHEREOF, MERRILL LYNCH PHOENIX FUND, INC. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on October 17, 1994.
MERRILL LYNCH PHOENIX FUND, INC.
By /s/ Arthur Zeikel
-----------------------------
Arthur Zeikel
President
Attest:
/s/ Robert Harris
- ------------------------
Robert Harris, Secretary
THE UNDERSIGNED, President of MERRILL LYNCH PHOENIX FUND, INC., who
executed on behalf of said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said Corporation and further certifies that, to the best of
his knowledge, information and belief, the matters and facts set forth therein
with respect to the authorization and approval thereof are true in all material
respects, and that this statement is made under the penalties for perjury.
/s/ Arthur Zeikel
--------------------
Arthur Zeikel
President
4
<PAGE>
EXHIBIT 99.2
BY-LAWS
OF
MERRILL LYNCH PHOENIX FUND, INC.
ARTICLE I
offices
Section 1. Principal Office. The principal office of
----------------
the Corporation shall be in the City of Baltimore, State of
Maryland.
Section 2. Principal Executive office. The principal
--------------------------
executive office of the Corporation shall be at One Liberty
Plaza, 165 Broadway, City of New York, State of New York.
Section 3. Other offices. The Corporation may have
-------------
such other offices in such places as the Board of Directors
may from time to time determine.
ARTICLE II
Meet of Stockholders.
--------------------
Section 1. Annual Meeting. The annual meeting of the,
--------------
stockholders of the Corporation for the election of directors
and for the transaction of such other business as may prop-
erly be brought before the meeting shall be held on such day
in October of each year as shall be designated annually by
the Board of Directors.
<PAGE>
Section 2. Special Meetings. Special meetings of
----------------
the stockholders, unless otherwise provided by law or by
the Articles of Incorporation, may be called for any pur-
pose or purposes by a majority of the Board of Directors,
the President, or on the written request of the holders
of at least 25% of the outstanding capital stock of the
Corporation entitled to vote at such meeting.
Section 3. Place of Meetings. The annual meeting
-----------------
at such place within the United States as the Board of
Directors may from time to time determine.
Section 4. Notice of Meetings; Waiver of Notice.
------------------
Notice of the place, date and time of the holding of each
annual and special meeting of the stockholders and the pur-
pose or purposes of each special meeting shall be given
personally or by mail, not less than ten nor more than
sixty days before the date of such meeting, to each stock-
holder entitled to vote at such meeting and to each other
stockholder entitled to notice of the meeting. Notice by
mail shall be deemed to be duly given when deposited in the
United States mail addressed to the stockholder at his
address as it appears on the records of the Corporation,
with postage thereon prepaid.
2.
<PAGE>
Notice of any meeting of stockholders shall be deemed
waived by any stockholder who shall attend such meeting in
person or by proxy, or who shall, either before or after the
meeting, submit a signed waiver of notice which is filed with
the records of the meeting. When a meeting is adjourned to
another time and place, unless the Board of Directors, after
the adjournment, shall fix a new record date for an adjourned
meeting, or the adjournment is for more than thirty days,
notice of such adjourned meeting need not be given if the time
and place to which the meeting shall be adjourned were announced
at the meeting at which the adjournment is taken.
Section 5. Quorum. At all meetings of the stockhold-
------
ers, the holders of a majority of the shares of stock of
the Corporation entitled to vote at the meeting, present
in person or by proxy, shall constitute a quorum for the
transaction of any business, except as otherwise provided
by statute or by the Articles of Incorporation. In the
absence of a quorum no business may be transacted, except
that the holders of a majority of the shares of stock
present in person or by proxy and entitled to vote may
adjourn the meeting from time to time, without notice other
than announcement thereat except as otherwise required
by these By-Laws, until the holders of the requisite amount
3.
<PAGE>
of shares of stock shall be so present. At any such ad-
journed meeting at which a quorum may be present any busi-
ness may be transacted which might have been transacted
at the meeting as originally called. The absence from
any meeting, in person or by proxy, of holders of the
number of shares of stock of the Corporation in excess of
a majority thereof which may be required by the laws of
the State of Maryland, the Investment Company Act of 1940,
as amended, or other applicable statute, the Articles of
Incorporation, or these By-Laws, for action upon any given
matter shall not prevent action at such meeting upon any
other matter or matters which may properly come before the
meeting, if there shall be present thereat, in person or
by proxy, holders of the number of shares of stock of the
Corporation required for action in respect of such other
matter or matters.
Section 6. Organization. At each meeting of the
------------
stockholders, the Chairman of the Board (if one has been
designated by the Board) , or in his absence or inability
to act, the President, or in the absence or inability to
act of the Chairman of the Board and the President, a Vice
President, shall act as chairman of the meeting. The Secre-
tary, or in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as
secretary of the meeting and keep the minutes thereof.
4.
<PAGE>
Section 7. Order of Business. The order of business
-----------------
at all meetings of the stockholders shall be as determined
by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by
------
statute or the Articles of Incorporation, each holder of
record of shares of stock of the Corporation having voting
power shall be entitled at each meeting of the stockholders
to one vote for every share of such stock standing in his
name on the record of stockholders of the Corporation as of
the record date determined pursuant to Section 9 of this
Article or if such record date shall not have been so fixed,
then at the later of ( i) the close of business on the day
on which notice of the meeting is mailed or (ii) the
thirtieth day before the meeting.
Each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to
act for him by a proxy signed by such stockholder or his
attorney-in-fact. No proxy shall be valid after the ex-
piration of eleven months from the date thereof, unless
otherwise provided in the proxy. Every proxy shall be re-
vocable at the pleasure of the stockholder executing it,
except in those cases where such proxy states that it is
irrevocable and where an irrevocable proxy is permitted by
law. Except as otherwise provided by statute,, the Articles
5.
<PAGE>
of Incorporation or these By-Laws, any corporated action
to be taken by vote of the stockholders shall be authorized
by a majority of the total votes cast at a meeting of stock-
holders by the holders of shares present in person or repre-
sented by proxy and entitled to vote on such action.
If a vote shall be taken on any question other than the
election of directors, which shall be by written ballot, then
unless required by statute or these By-Laws, or determined
by the chairman of the meeting to be advisable, any such vote
need not be by ballot. On a vote by ballot, each ballot
shall be signed by the stockholder voting, or by his proxy,
if there be such proxy, and shall state the number of shares
voted.
Section 9. Fixing of Record Date. The Board of
---------------------
Directors may fix, in advance, a record date not more than
sixty nor less than ten days before the date then fixed for
the holding of any meeting of the stockholders. All persons
who were holders of record of shares at such time, and no
others, shall be entitled to vote at such meeting and any
adjournment thereof.
Section 10. Inspectors. The Board may, in advance
----------
of any meeting of stockholders, appoint one or more in-
spectors to act at such meeting or any adjournment thereof.
6.
<PAGE>
If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the
meeting may, and on the request of any stockholder en-
titled to vote thereat shall, appoint inspectors. Each
inspector, before entering upon the discharge of his duties,
shall take and sign an oath to execute faithfully the
duties of inspector at such meeting with strict impartiality
and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the
voting power of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and
effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the
election or vote with fairness to all stockholders. on
request of the chairman of the meeting or any stockholder
entitled to vote thereat, the inspectors shall make a report
in writing of any challenge, request or matter determined by
them and shall execute a certificate of any fact found by
them. No director or candidate for the office of director
shall act as inspector of an election of directors. Inspec-
tors need not be stockholders.
7.
<PAGE>
Section 11. Consent of Stockholders in Lieu of Meeting.
------------------------------------------
Except as otherwise provided by statute or the Articles of
incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may
be taken at any annual or special meeting of such stock-
holdersr may be taken without a meeting, without prior notice
and without a vote, if the following are filed with the
records of stockholders meetings: (i) a unanimous written
consent which sets forth the action and is signed by each
stockholder entitled to vote on the matter and (ii) a written
waiver of any right to dissent signed by each stockholder en-
titled to notice of the meeting but not entitled to vote
thereat.
ARTICLE III
-----------
Board of Directors
------------------
Section 1. General Powers. Except as otherwise pro-
--------------
vided in the Articles of Incorporation, the business and
affairs of the Corporation shall be managed under the direc-
tion of the Board of Directors. All powers of the Corpora-
tion may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stock-
holders by law or by the Articles of Incorporation or these
By-Laws.
8.
<PAGE>
Section 2. Number of Directors. The number of direc-
-------------------
tors shall be fixed from time to time by resolution of the
Board of Directors adopted by a majority of the Directors
then in office; provided, however, that the number of direc-
tors shall in no event be less than three nor more than
fifteen. Any vacancy created by an increase in Directors
may be filled in accordance with Section 6 of this Article III.
No reduction in the number of directors shall have the effect
of removing any director from office prior to the expiration
of his term unless such director is specifically removed pur-
suant to Section 5 of this Article III at the time of such
decrease. Directors need not be stockholders.
Section 3. Election and Term of Directors. Directors
------------------------------
shall be elected annually, by written ballot at the annual
meeting of stockholders or a special meeting held for that
purpose. The term of office of each director shall be from
the time of his election and qualification until the annual
election of directors next succeeding his election and until
his successor shall have been elected and shall have quaili-
fied, or until his death, or until he shall have resigned,
or have been removed as hereinafter provided in these By-
Laws, or as otherwise provided by statute or the Articles
of Incorporation.
Section 4. Resignation. A director of the Corporation
-----------
may resign at any time by giving written notice of his
9.
<PAGE>
resignation to the Board or the Chairman of the Board or the
president or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it
shall become effective shall not be specified therein, im-
mediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Removal of Directors. Any director of the
--------------------
Corporation may be removed by the stockholders by a vote of
a majority of the votes entitled to be cast for the election
of directors.
Section 6. Vacancies. Any vacancies in the Board,
---------
whether arising from death, resignation, removal, an increase
in the number of directors or any other cause, shall be filled
by a vote of the majority of the Board of Directors then in
office even though such majority is less than a quorum, pro-
vided that no vacancies shall be filled by action of the
remaining directors, if after the filling of said vacancy
or vacancies, less than two-thirds of the directors then
holding office shall have been elected by the stockholders
of the Corporation. In the event that at any time there is
a vacancy in any office of a director which vacancy may not
be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and
in any event within sixty days, for the purpose of filling
10.
<PAGE>
said vacancy or vacancies. Any directors elected or appointed
to fill a vacancy shall hold office only until the next annual
meeting of stockholders of the Corporation and until a suc-
cessor shall have been chosen and qualifies or until his
earlier resignation or removal.
Section 7. Place of Meeting. Meetings of the Board
----------------
may be held at such place as the Board may from time to time
determine or as shall be specified in the notice of such
meeting.
Section 8. Regular Meeings. Regular meetings of the
---------------
Board may be held without notice at such time and place as
may be determined by the Board of Directors.
Section 9. Special Meetings. Special meetings of the
----------------
Board may be called by two or more directors of the Corpora-
tion or by the Chairman of the Board or the President.
Section 10. Annual Meeting. The annual meeting of
--------------
each newly elected Board of Directors shall be held as soon
as practicable after the meeting of stockholders at which
the directors were elected. No notice of such annual meeting
shall be necessary if held immediately after the adjournment,
and at the site, of the meeting of stockholders. If not SO
held, notice shall be given as hereinafter provided for
special meetings of the Board of Directors.
Section 11. Notice of Special Meetings. Notice of
--------------------------
each special meeting of the Board shall be given by the
11.
<PAGE>
Secretary as hereinafter provided, in which notice shall be
stated the time and place of the meeting. Notice of each
such meeting shall be delivered to each director, either
personally or by telephone or any standard form of tele-
communication, at least twenty-four hours before the time at
which such meeting is to be held, or by first-class mail,
postage prepaid, addressed to him at his residence or usual
place of business, at least three days before the day on
which such meeting is to be held.
Section 12. Waiver of Notice of Meetings. Notice of
----------------------------
any special meeting need not be given to any director who
shall, either before or after the meeting, sign a written
waiver of notice which is filed with the records of the
meeting or who shall attend such meeting. Except as other-
wise specifically required by these By-Laws, a notice or
waiver of notice of any meeting need not state the purposes
of such meeting.
Section 13. Quorum and Voting. One-third, but not
-----------------
less than two, of the members of the entire Board shall be
present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at such
meeting, and except as otherwise expressly required by
statute, the Articles of Incorporation, these By-Laws, the
Investment Company Act of 1940, as amended, or other appli-
cable statute, the act of a majority of the directors present
12.
<PAGE>
at any meeting at which a quorum is present shall be the act
of the Board; provided, however, that the approval of any
contract with an investment adviser or principal underwriter,
as such terms are defined in the Investment Company Act of
1940, as amended, which the Corporation enters into or any
renewal or amendment thereof, the approval of the fidelity
bond required by the Investment Company Act of 1940, as
amended, and the selection of the Corporation's independent
public accountants shall each require the affirmative vote
of a majority of the directors who are not interested per-
sons, as defined in the Investment Company Act of 1940, as
amended, of the Corporation. In the absence of a quorum at
any meeting of the Board, a majority of the directors present
thereat may adjourn such meeting to another time and place
until a quorum shall be present thereat. Notice of the time
and place of any such adjourned meeting shall be given to
the directors who were not present at the time of the ad-
journment and, unless such time and place were announced at
the meeting at which the adjournment was taken, to the other
directors. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have
been transacted at the meeting as originally called.
Section 14. Organization. The Board may, by resolution
------------
adopted by a majority of the entire Board, designate a Chair-
man of the Board, who shall preside at each meeting of the
13.
<PAGE>
Board. In the absence or inability of the Chairman of the
Board to preside at a meeting, the President, or, in his
absence or inability to act, another director chosen by a
majority of the directors present, shall act as chairman of
the meeting and preside thereat. The Secretary (or, in his
absence or inability to act, any person appointed by the
chairman) shall act as secretary of the meeting and keep the
minutes thereof.
Section 15. Written Consent of Directors in Lieu of
---------------------------------------
a Meeting. Any action required or permitted to be taken at
---------
any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting if all members of
the Board or committee, as the case may be, consent there-
to in writing, and the writing or writings are filed with
the minutes of the proceedings of the Board or committee.
Section 16. Compensation. Directors may receive com-
------------
pensation for services to the Corporation in their capaci-
ties as directors or otherwise in such manner and in such
amounts as may be fixed from time to time by the Board.
Section 17. Investment Policies. It shall be the
-------------------
duty of the Board of Directors to ensure that the purchase,
sale, retention and disposal of portfolio securities and
the other investment practices of the Corporation are at
all times consistent with the investment policies and re-
strictions with respect to securities investments and
14.
<PAGE>
otherwise of the Corporation, as recited in the current Pro-
spectus of the Corporation filed from time to time with the
Securities and Exchange Commission and as required by the
Investment Company Act of 1940, as amended. The Board,
however, may delegate the duty of management of the assets
and the administration of its day to day operations to an
individual or corporate management company and/or investment
adviser pursuant to a written contract or contracts which
have obtained the requisite approvals, including the re-
quisite approvals of renewals thereof, of the Board of
Directors and/or the stockholders of the Corporation in
accordance with the provisions of the Investment Company
Act of 1940, as amended.
ARTICLE IV
Committees
----------
Section 1. Executive Committee. The Board may, by
-------------------
resolution adopted by a majority of the entire board, desig-
nate an Executive Committee consisting of two or more of the
directors of the Corporation, which committee shall have and
may exercise all the powers and authority of the Board with
respect to all matters other than:
(a) the submission to stockholders of any action re-
quiring authorization of stockholders pursuant to statute
or the Articles of Incorporation;
15.
<PAGE>
(b) the filling of vacancies on the Board of Directors;
(c) the fixing of compensation of the directors for
serving on the Board or on any committee of the Board, in-
cluding the Executive Committee;
(d) the approval or termination of any contract with
an investment adviser or principal underwriter, as such terms
are defined in the Investment Company Act of 1940, as amended,
or the taking of any other action required to be taken by the
Board of Directors by the Investment Company Act of 1940, as
amended;
(e) the amendment or repeal of these By-Laws or the
adoption of new By-Laws;
(f) the amendment or repeal of any resolution of the
Board which by its terms may be amended or repealed only
by the Board;
(g) the declaration of dividends and the issuance of
capital stock of the Corporation; and
(h) the approval of any merger or share exchange which
does not require stockholder approval.
The Executive Committee shall keep written minutes of
its proceedings and shall report such minutes to the Board.
All such proceedings shall be subject to revision or altera-
tion by the Board; provided, however, that third parties
shall not be prejudiced by such revision or alteration.
Section 2. Other Committees of the Board. The Board
-----------------------------
16.
<PAGE>
Directors may from time to time, by resolution adopted by
majority of the whole Board, designate one or more other
committees of the Board, each such committee to consist of
one or more directors and to have such powers and duties as
one Board of Directors may, by resolution, prescribe.
Section 3. General. One-third, but not less than two,
-------
the members of any committee shall be present in person
any meeting of such committee in order to constitute a
quorum for the transaction of business at such meeting,
and the act of a majority present shall be the act of such
committee. The Board may designate a chairman of any com-
mittee and such chairman or any two members of any committee
any fix the time and place of its meetings unless the Board
shall otherwise provide. In the absence or disqualification
any member of any committee, the member or members thereof
present at any meeting and not disqualified from voting,
ether or not he or they constitute a quorum, may unani-
usly appoint another member of the Board of Directors to
act the meeting in the place of any such absent or dis-
qualified member. The Board shall have the power at any
time to change the membership of any committee, to fill all
vacancies, to designate alternate members to replace any
present or disqualified member, or to dissolve any such
committee. Nothing herein shall be deemed to prevent the
Board from appointing one or more committees consisting in
17.
<PAGE>
whole or in part of persons who are not directors of the
Corporation; provided, however, that no such committee
shall have or may exercise any authority or power of the
Board in the management of the business or affairs of the
Corporation.
ARTICLE V
---------
Officers, Agents and Employees
------------------------------
Section 1. Number and Qualifications. The officers
-------------------------
of the Corporation shall be a President, who shall be a
director of the Corporation, a Secretary and a Treasurer,
each of whom shall be elected by the Board of Directors.
The Board of Directors may elect or appoint one or more Vice
Presidents and may also appoint such other officers, agents
and employees as it may deem necessary or proper. Any two
or more offices may be held by the same person, except the
offices of President and Vice President, but no officer shall
execute, acknowledge or verify any instrument in more than
one capacity. Such officers shall be elected by the Board
of Directors each year at its first meeting held after the
annual meeting of stockholders, each to hold office until
the meeting of the Board following the next annual meeting
of the stockholders and until his successor shall have been
duly elected and shall have qualified, or until his death,
or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws. The Board may from
18.
<PAGE>
time to time elect, or delegate to the President the power
to appoint, such officers (including one or more Assistant
Vice Presidents, one or more Assistant Treasurers and one or
more Assistant Secretaries) and such agents, as may be neces-
sary or desirable for the business of the corporation. Such
other officers and agents shall have such duties and shall
hold their offices for such terms as may be prescribed by
the Board or by the appointing authority.
Section 2. Resignations. Any officer of the Corpora-
------------
tion may resign at any time by giving written notice of his
resignation to the Board,, the Chairman of the Board, the
President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it
shall become effective shall not be specified therein, im-
mediately upon its receipt; and, unless otherwise specified
therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 3. Removal of Officer, Agent or Employee. Any
-------------------------------------
officer, agent or employee of the Corporation may be removed
by the Board of Directors with or without cause at any time,
and the Board may delegate such power of removal as to agents
and employees not elected or appointed by the Board of Direc-
tors. Such removal shall be without prejudice to such per-
son's contract rights, if any, but the appointment of any
person as an officer, agent or employee of the Corporation
shall not of itself create contract rights.
19.
<PAGE>
Section 4. Vacancies. A vacancy in any office,
---------
whether arising from death, resignation, removal or any
other cause, may be filled for the unexpired portion of
the term of the office which shall be vacant, in the man-
ner prescribed in these BY-Laws for the regular election
or appointment to such office.
Section 5. Compensation. The compensation of the
------------
officers of the Corporation shall be fixed by the Board of
Directors, but this power may be delegated to any officer
in respect of other officers under his control.
Section 6. Bonds or Other Security. If required
-----------------------
by the Board, any officer, agent or employee of the Corpora-
tion shall give a bond or other security for the faithful
performance of his duties, in such amount and with such
surety or sureties as the Board may require.
Section 7. President. The President shall be the
---------
chief executive officer of the Corporation. In the absence
of the Chairman of the Board (or if there be none) , he shall
preside at all meetings of the stockholders and of the Board
of Directors. He shall have, subject to the control of the
Board of Directors, general charge of the business and
affairs of the Corporation. He may employ and discharge
employees and agents of the Corporation, except such as
shall be appointed by the Board, and he may delegate these
powers.
20.
<PAGE>
Section 8. Vice President. Each Vice President shall
--------------
have such powers and perform such duties as the Board of Di-
rectors or the President may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall
---------
(a) have charge and custody of, and be responsible
for, all the funds and securities of the Corporation, ex-
cept those which the Corporation has placed in the custody
of a bank or trust company or member of a national securities
exchange (as that term is defined in the Securities Exchange
Act of 1934) pursuant to a written agreement designating such
bank or trust company or member of a national securities ex-
change as custodian of the property of the Corporation;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation;
(c) cause all moneys and other valuable to be depo-
sited to the credit of the Corporation;
(d) receive, and give receipts for, moneys due and
payable to the Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and super-
vise the investment of its funds as ordered or authorized
by the Board, taking proper vouchers therefor; and
(f) in general, perform all the duties incident to
the office of Treasurer and such other duties as from time
to time may be assigned to him by the Board or the President.
21.
<PAGE>
Section 11. Secretary. The Secretary shall
---------
(a) keep or cause to be kept in one or more books pro-
vided for the purpose, the minutes of all meetings of the
Board, the committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance
with the provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the
Corporation and affix and attest the seal to all stock cer-
tificates of the Corporation (unless the seal of the Corpo-
ration on such certificates shall be a facsimile, as herein-
after provided) and affix and attest the seal to all other
documents to be executed on behalf of the Corporation under
its seal;
(d) see that the books, reports, statements, certifi-
cates and other documents and records required by law to be
kept and filed are properly kept and filed; and
(e) in general, perform all the duties incident to the
office of Secretary and such other duties as from time to
time may be assigned to him by the Board or the President.
Section 12. Deleqation of Duties. In case of the
--------------------
absence of any officer of the Corporation, or for any other
reason that the Board may deem sufficient, the Board may
confer for the time being the powers or duties, or any of
them, of such officer upon any other officer or upon any
director.
22.
<PAGE>
ARTICLE VI
Indemnification
---------------
Each officer and director of the Corporation shall be
indemnified by the Corporation 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 Corporation 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 Corporation
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 Corporation 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
23.
<PAGE>
Maryland, from liability arising from his activities as
officer or director of the Corporation. The Corporation,
however, may not purchase insurance on behalf of any officer
or director of the Corporation that protects or purports to
protect such person from liability to the Corporation 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 Corporation may indemnify or purchase insurance to
the extent provided in this Article VI on behalf of an employee
or agent who is not an officer or director of the Corporation.
ARTICLE VII
Capital Stock
-------------
Section 1. Stock Certificates. Each holder of stock
------------------
of the Corporation shall be entitled upon request to have
a certificate or certificates, in such form as shall be
approved by the Board, representing the number of shares
of stock of the Corporation owned by him, provided, however,
that certificates for fractional shares will not be deliver-
ed in any case. The certificates representing shares of
stock shall be signed by or in the name of the Corporation
by the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant
24.
<PAGE>
Treasurer and sealed with the seal of the Corporation. Any
or all of the signatures or the seal on the certificate
may be a facsimile. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such cer-
tificate shall be issued, it may be issued by the Corpora-
tion with the same effect as if such officer, transfer
agent or registrar were still in office at the date of issue.
Section 2. Books of Account and Record of Stockholders.
-------------------------------------------
There shall be kept at the principal executive office of
the Corporation correct and complete books and records of
account of all the business and transactions of the Corpora-
tion. There shall be made available upon request of any
stockholder, in accordance with Maryland law, a record con-
taining the number of shares of stock issued during a speci-
fied period not to exceed twelve months and the consideration
received by the Corporation for each such share.
Section 3. Transfers of Shares. Transfers of shares
-------------------
of stock of the Corporation shall be made on the stock
records of the Corporation only by the registered holder
thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with
25.
<PAGE>
a transfer agent or transfer clerk, and on surrender of
the certificate or certificates, if issued, for such shares
properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon.
Except as otherwise provided by law, the Corporation shall
be entitled to recognize the exclusive right of a person
in whose name any share or shares stand on the record of
stockholders as the owner of such share or shares for all
purposes, including, without limitation, the rights to
receive dividends or other distributions, and to vote as
such owner, and the Corporation shall not be bound to
recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person.
Section 4. Regulations. The Board may make such
-----------
additional rules and regulations, not inconsistent with
these By-Laws, as it may deem expedient concerning the
issue, transfer and registration of certificates for shares
of stock of the Corporation. It may appoint, or authorize
any officer or officers to appoint, one or more transfer
agents or one or more transfer clerks and one or more
registrars and may require all certificates for shares of
stock to bear the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates.
-----------------------------------------
The holder of any certificates representing shares of stock
26.
<PAGE>
of the Corporation shall immediately notify the Corporation
of any loss, destruction or mutilation of such certificate,
and the Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it which
the owner thereof shall allege to have been lost or destroyed
or which shall have been mutilated, and the Board may, in its
discretion, require such owner or his legal representatives
to give to the Corporation a bond in such sum, limited or
unlimited, and in such form and with such surety or sureties,
a the Board in its absolute discretion shall determine, to
indemnify the Corporation against any claim that may be made
against it on account of the alleged loss or destruction of
any such certificate, or issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Board,
in its absolute discretion, may refuse to issue any such new
certificate, except pursuant to legal proceedings under the
laws of the State of Maryland.
Section 6. Fixing of a Record Date for Dividends and
-----------------------------------------
Distributions. The Board may fix, in advance, a date not
-------------
more than sixty days preceding the date fixed for the payment
of any dividend or the making of any distribution or the
allotment of rights to subscribe for securities of the Cor-
poration, or for the delivery of evidences of rights or
evidences of interests arising out of any change, conversion
27.
<PAGE>
or exchange of common stock or other securities, as the
record date for the determination of the stockholders en-
titled to receive any such dividend, distribution, allot-
ment, rights on interests, and in such case only the stock-
holders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or
interests.
Section 7. Information to Stockholders and others. Any
--------------------------------------
stockholder of the Corporation or his agent may inspect and
copy during usual business hours the Corporation's By-Laws,
minutes of the proceedings of its stockholders, annual state-
ments of its affairs, and voting trust agreements on file at
its principal office.
ARTICLE VIII
Seal
----
The seal of the Corporation shall be circular in form
and shall bear, in addition to any other emblem or device
approved by the Board of Directors, the name of the Corpora-
tion, the year of its incorporation and the words "Corporate
Seal" and "Maryland". Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or in any
other manner reproduced.
28.
<PAGE>
ARTICLE IX
Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal
year of the Corporation shall end on the 31st day of July
in each year.
ARTICLE X
Depositories and Custodians
---------------------------
Section 1. Depositories. The funds of the Corporation
------------
shall be deposited with such banks or other depositories as
the Board of Directors of the Corporation may from time to
time determine.
Section 2. Custodians. All securities and other in-
----------
vestments shall be deposited in the safe keeping of such
banks or other companies as the Board of Directors of the
Corporation may from time to time determine. Every arrange-
ment entered into with any bank or other company for the
safe keeping of the securities and investments of the Cor-
poration shall contain provisions complying with the In-
vestment Company Act of 1940, as amended, and the general
rules and regulations thereunder.
ARTICLE XI
Execution of Instruments
------------------------
Section 1. Checks, Notes, Drafts, etc. Checks, notes,
--------------------------
drafts, acceptances, bills of exchange and other orders or
29.
<PAGE>
obligations for the payment of money shall be signed by
such officer or officers or person or persons as the Board
of Directors by resolution shall from time to time designate.
Section 2. Sale or Transfer of Securities. Stock
------------------------------
certificates, bonds or other securities at any time owned
by the Corporation may be held on behalf of the Corporation
or sold, transferred or otherwise disposed of subject to
any limits imposed by these By-Laws and pursuant to authori-
zation by the Board and, when so authorized to be held on
behalf of the Corporation or sold, transferred or otherwise
disposed of, may be transferred from the name of the Corpor-
ation by the signature of the President or a Vice President
or the Treasurer or pursuant to any procedure approved by
the Board of Directors, subject to applicable law.
ARTICLE XII
Independent Public Accountants
------------------------------
The firm of independent public accountants which shall
sign or certify the financial statements of the Corporation
which are filed with the Securities and Exchange Commission
shall be selected annually by the Board of Directors and
ratified by the stockholders in accordance with the provi-
sions of the Investment Company Act of 1940, as amended.
30.
<PAGE>
ARTICLE XIII
Annual Statement
----------------
The books of account of the Corporation shall be exa-
mined by an independent firm of public accountants at the
close of each annual period of the Corporation and at such
other times as may be directed by the Board. A report to
the stockholders based upon each such examination shall be
mailed to each stockholder of the Corporation of record on
such date with respect to each report as may be determined
by the Board, at his address as the same appears on the
books of the Corporation. Such annual statement shall also
be available at the annual meeting of stockholders and be
placed on file at the Corporation's principal office in-the
state of Maryland. Each such report shall show the assets
and liabilities of the Corporation as of the close of the
annual or quarterly period covered by the report and the
securities in which the funds of the Corporation were then
invested. Such report shall also show the Corporation's
income and expenses for the period from the end of the Cor-
poration's preceding fiscal year to the close of the annual
or quarterly period covered by the report and any other in-
formation required by the Investment Company Act of 1940,
as amended, and shall set forth such other matters as the
Board or such firm of independent public accountants shall
determine.
31.
<PAGE>
ARTICLE XIV
Amendments
----------
These By-Laws or any of them may be amended, altered
or repealed at any regular meeting of the stockholders or
at any special meeting of the stockholders at which a quorum
is present or represented, provided that notice of the pro-
posed amendment, alteration or repeal be contained in the
notice of such special meeting. These By-Laws may also be
amended, altered or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special
meeting of the Board of Directors, except any particular
By-Law which is specified as not subject to alteration or
repeal by the Board of Directors, subject to the require-
ments of the Investment Company Act of 1940, as amended.
32.
<PAGE>
EXHIBIT 99.5(a)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 15th day of July, 1982, by and
between MERRILL LYNCH PHOENIX FUND, INC., a Maryland cor-
poration (hereinafter referred to as the 'Fund"), and FUND
ASSET MANAGEMENT, INC., a Delaware corporation (herein-
after referred to as the *Investment Adviser').
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS; the Fund is engaged in business as a diversi-
fied open-end investment company registered under the in-
vestment Company Act of 1940, as amended (hereinafter re-
ferred to as the 'Investment Company Act"); and
WHEREAS, the Investment Adviser is engaged principally
in rendering management and investment advisory services and
is registered as an investment adviser under the Investment
Advisers Act of 1940; and
WHEREAS, the Fund desires to retain the Investment
Adviser to render management and investment advisory ser-
vices to the Fund in the manner and on the terms hereinafter
set forth; and
WHEREAS, the Investment Adviser is willing to provide
management and investment advisory services to the Fund
on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises
<PAGE>
and the covenants hereinafter contained the Fund and the
Investment Adviser hereby agree as follows:
ARTICLE I
---------
Duties of the Investment Adviser
--------------------------------
The Fund hereby employs the Investment Adviser to act
as the manager and investment adviser of-the Fund and to
furnish, or arrange for affiliates to furnish, the manage-
ment and investment advisory services described below,
subject to the supervision of the Board of Directors of the
Fund, for the period and on the terms and conditions set
forth in this Agreement. The Investment Adviser hereby
accepts such employment and agrees during such period, at
its own expense, to render, or arrange for the rendering of,
such services and to assume the obligations herein set forth
for the compensation provided for herein. The Investment
Adviser and its affiliates shall for all purposes herein be
deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority
to act for or represent the Fund in any way or otherwise be
deemed an agent of the Fund.
(a) Management Services. The Investment Adviser shall
-------------------
perform (or arrange for the performance by affiliates of) the
management and administrative services necessary for the
2.
<PAGE>
operation of the Fund including processing shareholder
orders, administering shareholder accounts and handling
shareholder relations. The Investment Adviser shall provide
the Fund with office space, equipment and facilities and
such other services as the Investment Adviser, subject to
review by the Board of Directors of the Fund, shall from
time to time determine to be necessary or useful to perform
its obligations under this Agreement. The Investment
Adviser shall also, on behalf of the Fund, conduct relations
with custodians, depositories, transfer agents, dividend
disbursing agents, other shareholder service agents, ac-
countants, attorneys, underwriters, brokers and dealers,
corporate fiduciaries, insurers, banks and such other
persons in any such other capacity deemed to be necessary or
desirable. The Investment Adviser shall make reports to the
Board of Directors of the Fund of its performance of obliga-
tions hereunder and furnish advice and recommendations with
respect to such other aspects of the business and affairs of
the Fund as it shall determine to be desirable.
(b) Investment Advisory Services. The Investment Ad-
----------------------------
viser shall provide the Fund with such investment research,
advice and supervision as the latter may from time to time
consider necessary for the proper supervision of the assets of
the Fund, shall furnish continuously an investment program
for the Fund and shall determine from time to time which
3.
<PAGE>
securities shall be purchased, sold or exchanged and what
portion of the assets of the Fund shall be held in the
various securities in which the Fund invests or cash, sub-
ject always to the restrictions of the Articles of incorpo-
ration and By-Laws of the Fund, as amended from time to time,
the provisions of the Investment Company Act and the state-
ments relating to the Fund's investment objectives, investment
policies and investment restrictions as the same are set forth
in the currently effective prospectus relating to the shares
of the Fund under the Securities Act of 1933, as amended (the
"Prospectus"). The Investment Adviser shall also make deci-
sions for the Fund as to the manner in which voting rights,
rights to consent to corporate action and any other rights
pertaining to the Fund's portfolio securities shall be
exercised. Should the Board of Directors of the Fund at any
time, however, make any definite determination as to invest-
ment policy and notify the Investment Adviser thereof in
writing, the Investment Adviser shall be bound by such deter-
mination for the period, if any, specified in such notice or
until similarly notified that such determination has been
revoked. The Investment Adviser shall take, on behalf of
the Fund, all actions which it deems necessary to implement
the investment policies determined as provided above, and in
particular to place all orders for the purchase or sale of
portfolio securities for the Fund's account with brokers or
4.
<PAGE>
dealers selected by it, and to that end,, the Investment
Adviser is authorized as the agent of the Fund to give
instructions to the Custodian of the Fund as to deliveries
of securities and payments of cash for the account of the
Fund. In connection with the selection of such brokers or
dealers and the placing of such orders with respect to
assets of the Fund, the Investment Adviser is directed at
all times to seek to obtain execution and price within the
policy guidelines determined by the Board of Directors of
the Fund and set forth in the Prospectus. Subject to this
requirement and the provisions of the Investment Company
Act, the Securities Exchange Act of 1934, as amended, and
other applicable provisions of law, the Investment Adviser
may select brokers or dealers with which it or the Fund is
affiliated.
ARTICLE 11
----------
Allocation of Charges and Expenses
----------------------------------
(a) The Investment Adviser. The Investment Adviser
----------------------
assumes and shall pay for maintaining the staff and personnel
necessary to perform its obligations under this Agreement,
and shall at its own expense, provide the office space,
equipment and facilities which it is obligated to provide
under Article I hereof, and shall pay all compensation of
officers of the Fund and all directors of the Fund who are
affiliated persons of the investment Adviser.
5.
<PAGE>
(b) The Fund. The Fund assumes and shall pay or
--------
cause to be paid all other expenses of the Fund (except for
he expenses incurred by the Distributor), including,
without limitation: taxes, expenses for legal and auditing
services, costs of printing proxies, stock certificates,
shareholder reports and prospectuses (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
actual out-of-pocket expenses of directors who are not
affiliated persons of the Investment Adviser, accounting and
pricing costs (including the daily calculation of the net
asset value), insurance, interest, brokerage costs, litiga-
tion and other extraordinary or non-recurring expenses, and
other expenses properly payable by the Fund. It is also
understood that the Fund will reimburse the Investment
Adviser for its costs in providing accounting services to
the Fund. The Distributor will pay certain of the expenses
of the Fund incurred in connection with the continuous
offering of Fund shares.
ARTICLE III
-----------
Compensation of the Investment Adviser
--------------------------------------
(a) Investment Advisory Fee. For the services ren-
-----------------------
dered, the facilities furnished and expenses assumed by the
6.
<PAGE>
Investment Adviser, the Fund shall pay to the Investment
adviser at the end of each calendar month a fee based upon
the average daily value of the net assets of the Fund, as
determined and computed in accordance with the description
of the determination of net asset value contained in the
Prospectus, at the annual rate of 1.0% of the average daily
net assets of the Fund, commencing on the day following
effectiveness hereof. During any period when the determina-
tion of net asset value is suspended by the Board of Direc-
tors of the Fund, the net asset value of a share as of the
last business day prior to such suspension shall for this
purpose be deemed to be the net asset value at the close of
each succeeding business day until it is again determined.
(b) Expense Limitations. In the event the operating
-------------------
expenses of the Fund, including amounts payable to the
Investment Adviser pursuant to subsection (a) hereof, for
any fiscal year ending on a date on which this Agreement is
in effect exceed the expense limitations applicable to the
Fund imposed by applicable state securities laws or regula-
tions thereunder, as such limitations may be raised or
lowered from time to time, the Investment Adviser shall
reduce its management fee by the extent of such excess and,
if required pursuant to any such laws or regulations, will
reimburse the Fund in the amount of such excess, provided,
however, to the extent permitted by law, there shall be
7.
<PAGE>
excluded from such expenses the amount of any interest,
taxes, brokerage commissions and extraordinary expenses
(including but not limited to legal claims and liabilities
and litigation costs and any indemnification related thereto)
paid or payable by the Fund. Whenever the expenses of the
Fund exceed a pro rata portion of the applicable annual
expense limitations, the estimated amount of reimbursement
under such limitations shall be applicable as an offset
against the monthly payment of the fee due to the investment
Adviser. Should two or more such expense limitations be
applicable as at the end of the last business day of the
month, that expense limitation which results in the largest
reduction in the Investment Adviser's fee shall be applicable.
ARTICLE IV
-----------
Limitation of Liability of the Investment Adviser
-------------------------------------------------
The Investment Adviser shall not be liable for any
error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the
management of the Fund, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties,
or by reason of reckless disregard of its obligations and
duties hereunder. As used in this Article IV, the term
"Investment Adviser" shall include any affiliates of the
8.
<PAGE>
investment Adviser performing services for the Fund
Contemplated hereby and directors, officers and em-
ployees of the Investment Adviser and such affiliates.
ARTICLE V
---------
Activities of the Investment Adviser
------------------------------------
The services of the Investment Adviser to the Fund are
not to be deemed to be exclusive the Investment Adviser
being free to render services to others. it is understood
that directors, officers, employees and shareholders of the
Fund are or may become interested in the Investment Adviser,
as directors, officers, employees and shareholders or
otherwise and that directors, officers, employees and
shareholders of the Investment-Adviser are or may become
similarly interested in the Fund,, and that the Investment
Adviser may become interested in the Fund as shareholder
or otherwise.
ARTICLE VI
----------
Duration and Termination of this Agreement
------------------------------------------
This Agreement shall become effective as of the date
first above written and shall remain in force until March
31, 1984 and thereafter, but only so long as such continu-
ance is specifically approved at least annually by (i) the
Board of Directors of the Fund, or by the vote of a majority
of the outstanding voting securities of the Fund, and (ii) a
majority of those directors who are not parties to this
9.
<PAGE>
Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
This Agreement may be terminated at any time, without
the payment of any penalty, by the Board of Directors of
the Fund or by vote of a majority of the outstanding voting
securities of the Fund, or by the Investment Adviser, on
sixty days' written notice to the other party. This Agree-
ment shall automatically terminate in the event of its
assignment.
ARTICLE VII
-----------
Amendments of this Agreement
----------------------------
This Agreement may be amended by the parties only
if such amendment is specifically approved by (i) the Board
of Directors of the Fund, or by the vote of a majority
of outstanding voting securities of the Fund, and (ii) a
majority of those directors who are not parties to this
Agreement or interested persons of any such party cast in
person at a meeting called for the purpose of voting on such
approval.
ARTICLE VIII
------------
Definitions of Certain Terms
----------------------------
The terms "vote of a majority of the outstanding
voting securities", "assignment", "affiliated person' and
10.
<PAGE>
"interested person", when used in this Agreement, shall have
the respective meanings specified in the Investment Company
Act.
ARTICLE IX
----------
Governing Law
-------------
This Agreement shall be construed in accordance with
laws of the State of New York and the applicable provisions
of the Investment Company Act. To the extent that the
applicable laws of the State of New York, or any of the
provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed
and delivered this Agreement as of the date first above
written.
MERRILL LYNCH PHOENIX FUND, INC.
BY /S/ ARTHUR ZEIKEL
FUND ASSET MANAGEMENT, INC.
BY /S/
11.
<PAGE>
EXHIBIT-99.6(b)
CLASS B SHARES
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 3rd day of October, 1988, 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 to date (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 direct-ly to purchasers or through
other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of the Class B shares of
common stock of the Fund (the "Class B Shares") in order to promote the growth
of the Fund and facilitate the distribution of its Class B shares. NOW,
THEREFORE, the parties agree as follows:
<PAGE>
Section 1. Appointment of the Distributor. The Fund hereby appoints the
------------------------------
Distributor as the principal underwriter and distributor of the Fund to sell
Class B shares to the public and hereby agrees during the term of this Agreement
to sell Class B shares of the Fund to the Distributor upon the terms and condi-
tions 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 its Class B
shares with respect to areas other than the United States as to which the
Distributor may have expressly waived in writing its right to act as such. If
such designation is deemed exclusive, the right of the Distributor under this
Agreement to sell Class B shares in the areas so designated shall terminate, but
this Agreement shall remain otherwise in full effect until terminated in
accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to purchase Class B
shares from the Fund shall not apply to shares of the Fund issued in connection
with the merger or consolidation of any other investment company or personal
holding company with
2.
<PAGE>
the Fund or the acquisition by purchase or otherwise of all (or substantially
all) the assets or the outstanding shares of any such company by the Fund.
(c) Such exclusive rights also shall not apply to Class B shares issued
by the Fund pursuant to reinvestment of dividends or capital gains
distributions.
(d) Such exclusive rights also shall not apply to Class B shares issued
by the Fund pursuant to any reinstatement privilege afforded redeeming
shareholders.
Section 3. Purchase of Shares from the Fund.
--------------------------------
(a) The Fund will commence an offering of its Class B shares and
thereafter the Distributor shall have the right to buy from the Fund the Class B
shares needed, but not more than the Class B shares needed (except for clerical
errors in transmission) to fill unconditional orders for Class B shares of the
Fund placed with the Distributor by investors or securities dealers. The price
which the Distributor shall pay for the Class B shares so purchased from the
Fund shall be the net asset value, determined as set forth in Section 3(c)
hereof.
(b) The Class B 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.
3.
<PAGE>
(c) The net asset value of Class B shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance with the method
set forth in the prospectus and statement of additional information of the Fund
and guidelines established by the Board of Directors.
(d) The Fund shall have the right to suspend the sale of its Class B
shares at times when redemption is suspended pursuant to the conditions set
forth in Section 4(b) hereof. The Fund shall also have the right to suspend the
sale of its Class B shares if trading on the New York Stock Exchange shall have
been suspended, if a banking moratorium shall have been declared by Federal or
New York authorities, or if there shall have been some other event, which, in
the judgment of the Fund, makes it impracticable or inadvisable to sell the
Class B 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 B shares
received by the Distributor. Any order may be rejected by the Fund; provided,
however, that the Fund will not arbitrarily or without reasonable cause refuse
to accept or confirm orders for the purchase of Class B shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appropriate book
entries and, upon receipt by the Fund (or its agent) of payment therefor, will
deliver deposit receipts or certificates for such Class B shares pursuant to the
instructions of the Distributor. Payment shall be made to the Fund in New
4.
<PAGE>
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 Shares by the Fund.
----------------------------------------------
(a) Any of the outstanding Class B shares may be tendered for redemption
at any time, and the Fund agrees to repurchase or redeem the Class B shares so
tendered in accordance with its obligations as set forth in Article 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 B shares shall be equal to the net asset value calculated in
accordance with the provisions of Section 3(c) hereof, less the redemption fee
or other charge, if any, set forth in the prospectus and statement of additional
information of the Fund. All payments by the Fund hereunder shall be made in the
manner set forth below.
The Fund shall pay the total amount of the redemption price as defined
in the above paragraph pursuant to the instructions of the Distributor on or
before the seventh business day subsequent to its having received the notice of
redemption in proper form. The proceeds of any redemption of Class B shares
shall be paid by the Fund as follows: (i) any applicable contingent deferred
sales charge shall be paid to the Distributor and (ii) the
5.
<PAGE>
balance shall be paid to or for the account of the shareholder,, in each case in
accordance with the applicable provisions of the prospectus and statement of
additional information.
(b) Redemption of Class B shares or payment may be suspended at times
when the New York Stock Exchange is closed, when trading on said Exchange is
closed, when trading on said Exchange is restricted, when an emergency exists as
a result of which disposal by the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the Fund fairly
to determine the value of its net assets, or during any other period when the
Securities and Exchange Commission, by order, so permits.
Section 5. Duties of the Fund.
------------------
(a) The Fund shall furnish to the Distributor copies of all information,
financial statements and other papers which the Distributor may reasonably
request for use in connection with the distribution of Class B shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor such number of
copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.
6.
<PAGE>
(b) The Fund shall take, from time to time, but subject to the necessary
approval of the shareholders, all necessary action to fix the number of
authorized Class B shares and such steps as may be necessary to register the
same under the Securities Act of 1933, as amended (the "Securities Act"), to the
end that there will be available for sale such number of Class B shares as the
Distributor reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and maintain the
qualification of an appropriate number of its Class B shares for sale under the
securities laws of such states as the Distributor and the Fund may approve. Any
such qualification may be withheld, terminated or withdrawn by the Fund at any
time in its discretion. As provided in section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by the Fund. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
qualification.
(d) The Fund will furnish, in reasonable quantities upon request by the
Distributor, copies of annual and interim-reports of the Fund.
Section 6. Duties of the Distributor.
-------------------------
(a) The Distributor shall devote reasonable time and effort to effect
sales of Class B shares of the Fund, but shall not be obligated to sell any
specific number of Class B shares. The services of the Distributor to the Fund
hereunder are not to
7.
<PAGE>
be deemed exclusive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment companies so long as
the performance of its obligations hereunder is not impaired thereby.
(b) In selling the Class B shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
Federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer 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
neces-sary to comply with the requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), as such requirements may from time to
time exist.
8.
<PAGE>
Section 7. Selected Dealer Agreements.
--------------------------
(a) The Distributor shall have the right to enter into selected dealer
agreements with securities dealers of its choice ("selected dealers") for the
sale of Class B shares; provided, that the Fund shall approve the forms of
agreements with dealers. 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 initial form of agreement with selected dealers to be used in the
offering of the Class B shares is attached hereto as Exhibit A.
(b) Within the United States, the Distributor shall offer and sell Class
B 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 audi-tors, in connection with the
preparation and filing of any re-quired 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 mate-rials to
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospec-tuses, statements of additional
information, annual or interim reports or proxy materials).
9.
<PAGE>
(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 con-sultants. In addition, after the
prospectuses, statements of additional information and annual and interim
reports have been prepared and set in type, the Distributor shall bear the costs
and expenses of printing and distributing any copies thereof which are to be
used in connection with the offering of Class B shares to selected dealers or
investors pursuant to this Agreement. The Distributor shall bear the costs and
expenses of preparing, printing and distributing any other literature used by
the Distributor or furnished by it for use by selected dealers in connection
with the offering of the Class B shares for sale to the public and any expenses
of advertising incurred by the Distributor in connection with such offering. It
is understood and agreed that, so long as the Fund's Distribution Plan pursuant
to Rule 12b-1 under the Investment Company Act remains in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts recovered by it
from the Fund under such Plan.
(c) The Fund shall bear the cost and expenses of qualifi-cation of the
Class B shares for sale pursuant to this Agreement, and, if necessary or
advisable in connection therewith, of qualifying the Fund as a broker or dealer,
in such states of the United States or other jurisdictions as shall be selected
by the Fund and the Distributor pursuant to Section 5(c) hereof and the
10.
<PAGE>
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 Distri-butor 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) arising by reason of any person acquiring
any Class B shares, which may be based upon the Securities Act, or on any other
statute or at common law, on the ground that the registration statement or
related prospectus and statement of additional information, as from time to time
amended and supplemented, or an annual or interim report to 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
connec-tion 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 per-sons thereof against any liability to the Fund or its
security
11.
<PAGE>
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
12.
<PAGE>
such counsel, the Distributor or such controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Fund does not elect to assume the
defense of any such suit, it will reimburse the Distributor or such controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Fund shall promptly notify the
Distributor of the commence-ment of any litigation or proceedings against it or
any of its officers or Directors in connection with the issuance or sale of any
of the Class B shares.
(b) The Distributor shall indemnify and hold harmless the Fund and each
of its Directors and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense 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 regis-tration statement or related prospectus and
statement of addi-tional information, as from time to time amended, or the
annual or interim reports to shareholders. In case any action shall be brought
against the Fund or any person so indemnified, in respect of which indemnity may
be sought against the Distributor, the Distributor shall have the rights and
duties given to the Fund,
13.
<PAGE>
and the Fund and each person so indemnified shall have the rights and duties
given to the Distributor by the provisions of sub-section (a) of this Section 9.
Section 10. Duration and Termination of this Agreement.
------------------------------------------
This Agreement shall become effective as of the date first above written and
shall remain in force until September 30, 1990 and thereafter, but only so long
as such continuance is specifically approved at least annually by (i) the
Directors, or by the vote of a majority of the outstanding Class B 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 Class B
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.
14.
<PAGE>
Section 11. Amendments of this Agreement.
----------------------------
This Agreement may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors, or by the vote of a majority of outstanding
Class B 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 12. Governing Law. The provisions of this Agree-
-------------
ment 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.
15.
<PAGE>
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 /S/ ARTHUR ZEIKEL
-----------------
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /S/ TERRY K. GLENN
------------------
16.
<PAGE>
EXHIBIT A
---------
MERRILL LYNCH PHOENIX FUND, INC.
CLASS B 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 B
shares of common stock, par value $0.10 per share, of the Fund (the "Class B
Shares"), and as such has the right to distribute Class B shares of the Fund for
resale. The Fund is an open-end investment company registered under the
Investment Company Act of 1940, as amended, and its Class B shares being offered
to the public are registered under the Securities Act of 1933, as amended. You
have received a copy of 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. As principal, we offer to sell to you, as a member of
the Selected Dealers Group, Class B shares of the Fund upon the following terms
and conditions:
1. In all sales of these Class B shares to the public you shall act as
dealer for your own account, and in no transaction shall you have any authority
to act as agent for the Fund, for us or for any other member of the Selected
Dealers Group.
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 ini-tial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.
<PAGE>
3. You shall not place orders for any of the Class B shares unless you
have already received purchase orders for such Class B shares at the applicable
public offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Class B shares
except under circumstances that will result in compliance with the applicable
Federal and state securities laws and that in connection with sales and offers
to sell Class B shares you will furnish to each person to whom any such sale or
offer is made a copy of the Prospectus and, if requested, the Statement of
Additional Information (as then amended or supplemented) and will not furnish to
any person any information relating to the Class B shares of the Fund, which is
inconsistent in any respect with the information contained in the Prospectus and
Statement of Additional Information (as then amended or supplemented) or cause
any advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.
4. As a selected dealer, you are hereby authorized (i) to place orders
directly with the Fund for Class B shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of orders
by us set forth in Section 3 of the Distribution Agreement, and (ii) to tender
Class B shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.
5. You shall not withhold placing orders received from your customers so
as to profit yourself as a result of such withholding: e.g., by a change in the
"net asset value" from that used in determining the offering price to your
customers.
6. No person is authorized to make any representations concerning Class
B shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Class B shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.
2
<PAGE>
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 re-quest.
8. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Class B shares entirely. Each party hereto has
the right to cancel this Agreement upon notice to the other party.
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 B shares have been qualified for sale under, or are exempt
from the requirements of, the respective securities laws of such states, but we
assume no responsibility or obligation as to your right to sell Class B shares
in any jurisdiction. We will file with the Department of State in New York a
Further State Notice with respect to the Class B shares,, if necessary.
12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or tele-graphed to you at the
address specified by you below.
3
<PAGE>
13. Your first order placed pursuant to this Agreement for the purchase
of Class B shares of the Fund will represent your acceptance of this Agreement.
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By
---------------------------------
(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:
-----------------------------------------
4
<PAGE>
EXHIBIT-99.9 (a)
TRANSFER AGENCY, DIVIDEND DISBURSING AGENCY
AND SHAREHOLDER SERVICING AGENCY AGREEMENT
THIS AGREEMENT made as of the 5th day of October, 1987
by and between Merrill Lynch Phoenix Fund, Inc. (the "Fund") and
Merrill Lynch Financial Data Service, Inc. ("MLFDS") , a New Jersey
corporation.
WITNESSETH:
WHEREAS, the Fund wishes to appoint MLFDS to be the
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent upon, and subject to, the terms and provisions of
this Agreement, and MLFDS is desirous of accepting such
appointment upon, and subject to, such terms and' provisions:
NOW THEREFORE, in consideration of mutual covenants
contained in this Agreement, the Fund and MLFDS agree as follows:
1. APPOINTMENT OF MLFDS AS TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND SHAREHOLDER SERVICING AGENT.
(a) The Fund hereby appoints MLFDS to act as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund upon, and subject to, the terms and provisions of this
Agreement.
(b) MLFDS hereby accepts the appointment as Transfer Agent,
Dividend Disbursing Agent and Shareholder Servicing Agent for the
Fund, and agrees to act as such upon, and subject to, the terms
and provisions of the Agreement.
2. DEFINITIONS.
(a) In this Agreement:
(I) The term "Act" means the Investment Company Act of
1940 as amended from time to time and any rule or regulation
thereunder;
(II) The term "Account" means any account of a
Shareholder, or, if the shares are held in an account in the name
of MLPF&S for benefit of an identified customer, such account,
including a Plan Account, any account under a plan (by whatever
name referred to in the Prospectus) pursuant to the Self-Employed
Individuals Retirement Act of 1962 ("Keogh Act Plan") and any plan
(by whatever name referred to in the Prospectus) in conjunction
with Section 401 of the Internal Revenue Code ("Corporation Master
Plan");
<PAGE>
(III) The term "application" means an application made
by a Shareholder or prospective Shareholder respecting the opening
of an Account;
(IV) The term "MLFD" means Merrill Lynch Funds
Distributor, Inc., a Delaware corporation;
(V) The term "MLPF&S" means Merrill Lynch, Pierce,
Fenner & Smith Incorporated, a Delaware corporation;
(VI) The term "officer's Instruction" means an
instruction in writing given on behalf of the Fund to MLFDS, and
signed on behalf of the Fund by the President, any Vice President,
the Secretary or the Treasurer of the Fund;
(VII) The term Prospectus means the Prospectus and
the Statement of Additional Information of the Fund as from time
to time in effect;
(VIII) The term "Shares' means shares of stock or
beneficial interest, as the case may be, of the Fund, irrespective
of class or series;
(IX) The term "Shareholder" means the holder of record
of Shares;
(X) The term "Plan Account' means an account opened by a
Shareholder or prospective Shareholder in respect to an open account,
monthly payment or withdrawal plan (in each case by whatever name
referred to in the Prospectus) , and may also include an account relating
to any other Plan if and when provision is made for such plan in the
Prospectus.
3. DUTIES OF MLFDS AS TRANSFER AGENT, DIVIDEND DISBURSING AGENT
AND SHAREHOLDER SERVICING AGENT.
(a) Subject to the succeeding provisions of the
Agreement, MLFDS hereby agrees to perform the following functions
as Transfer Agent', Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund;
(I) Issuing, transferring and redeeming Shares;
(II) Opening, maintaining, servicing and closing
Accounts;
2
<PAGE>
(III) Acting as agent for the Fund Shareholders and/or
customers of MLPF&S in connection with Plan Accounts, upon the
terms and subject to the conditions contained in the Prospectus
and application relating to the specific Plan Account;
(IV) Acting as agent of the Fund and/or MLPF&S,
maintaining such records as may permit the imposition of such
contingent deferred sales charges as may be described in the
Prospectus, including such reports as may be reasonably requested
by the Fund with respect to such Shares as may be subject to a
contingent deferred sales charge;
(V) Upon the redemption of Shares subject to such a
contingent deferred sales charge, calculating and deducting from
the redemption proceeds thereof the amount of such charge in the
manner set forth in the Prospectus. MLFDS shall pay, on behalf of
MLFD, to MLPF&S such deducted contingent deferred sales charges
imposed upon all Shares maintained in the name of MLPF&S, or
maintained in the name of an account identifieD as a customer
account of MLPF&S. Sales charges imposed upon any other Shares
shall be paid by MLFDS to MLFD.
(VI) Exchanging the investment of an investor into, or
from the shares of other open-end investment companies or other
series portfolios of the Fund, if any, if and to the extent
permitted by the Prospectus at the direction of such investor.
(VII) Processing redemptions;
(VIII) Examining and approving legal transfers;
(IX) Replacing lost, stolen or destroyed certificates
representing Shares, in accordance with, and subject to,
procedures and conditions adopted by the Fund;
(X) Furnishing such confirmations of transactions
relating to their Shares as required by applicable law;
(XI) Acting as agent for the Fund and/or MLPF&S,
furnishing such appropriate periodic statements relating to
Accounts, together with additional enclosures, including
appropriate income tax information and income tax forms duly
completed, as required by applicable law;
(XII) Acting as agent for the Fund and/or MLPF&S,
mailing annual, semi-annual and quarterly reports prepared by or
on behalf of the Fund, and mailing new Prospectuses upon their
issue to Shareholders as required by applicable law;
(XIII) Furnishing such periodic statements of
transactions effected by MLFDS, reconciliations, balances and
summaries as the Fund may reasonably request;
3
<PAGE>
(XIV) Maintaining such books and records relating to
transactions effected by MLFDS as are required by the Act, or by
any other applicable provision of law, rule or regulation, to- be
maintained by the Fund or its transfer agent with respect to such
transactions, and preserving, or causing to be preserved any such
books and records for such periods as may be required by any such
law, rule or regulation and as may be agreed upon from time to
time between MLFDS and the Fund. In addition, MLFDS agrees to
maintain and preserve master files and historical computer tapes
on a daily basis in multiple separate locations a sufficient
distance apart to insure preservation of at least one copy of such
information;
(XV) Withholding taxes on non-resident alien Accounts,
pre-Daring and filing U.S. Treasury Department Form 1099 and other
appropriate forms as required by applicable law with respect to
dividends and distributions; and
(XVI) Reinvesting dividends for full and fractional
shares and disbursing cash dividends, as applicable.
(b) MLFDS agrees to act as proxy agent in connection
with the holding of annual, if any, and special meetings of
Shareholders, mailing such notices, proxies and proxy statements
in connection with the holding of such meetings as may be required
by applicable law, receiving and tabulating votes cast by proxy
and communicating to the Fund the results of such tabulation
accompanied by appropriate certifications, and preparing and
furnishing to the Fund certified lists of Shareholders as of such
date, in such form and containing such information as may be
required by the Fund.
(c) MLFDS agrees to deal with, and answer in a timely
manner, all correspondence and inquiries relating to the functions
of MLFDS under this Agreement with respect to Accounts.
(d) MLFDS agrees to furnish to the Fund such
information and at such intervals as is necessary for the Fund to
comply with the registration and/or the reporting requirements
(including applicable escheat laws) of the Securities and Exchange
Commission, Blue Sky authorities or other governmental
authorities.
4
<PAGE>
(e) MLFDS agrees to provide to the Fund such information as
may reasonably be required to enable the Fund to reconcile the number of
outstanding Shares between MLFDS's records and the account books of the
Fund.
(f) Notwithstanding anything in the foregoing provisions of
this paragraph, MLFDS agrees to perform its functions thereunder subject
to such modification (whether in respect of particular cases or in any
particular class of cases) as may from time to time be contained in an
Officer's Instruction.
4. COMPENSATION.
The charges for services described in this Agreement,
including "out-of-pocket' expenses, will be set forth in the Schedule of
Fees attached hereto.
5. RIGHT OF INSPECTION.
MLFDS agrees that it will in a timely manner make available
to, and permit, any officer, accountant, attorney or authorized agent of
the Fund to examine and make transcripts and copies (including
photocopies and computer or other electronical information storage media
and print-outs) of any and all of its books and records which relate to
any transaction or function performed by MLFDS under or pursuant to this
Agreement.
6. CONFIDENTIAL RELATIONSHIP.
MLFDS agrees that it will, on behalf of itself and its
officers and employees, treat all transactions contemplated by this
Agreement, and all information germane thereto, as confidential and not
to be disclosed to any person (other than the Shareholder concerned, or
the Fund, or as may be disclosed in the examination of any books or
records by any person lawfully entitled to examine the same) except as
may be authorized by the Fund by way of an Officer's Instruction.
7. INDEMNIFICATION.
The Fund shall indemnify and hold MLFDS harmless from any
loss, costs, damage and reasonable expenses, including reasonable
attorney's fees (provided that such attorney is appointed with the
Fund's consent, which consent shall not be unreasonably withheld),
incurred by it resulting from any clanim, demand, action, or suit
in connection with the performance of its duties hereunder,
5
<PAGE>
provided that this indemnification shall not apply to actions or
Omissions of MLFDS in cases of willful misconduct, failure to act
in good faith or negligence by MLFDS, it's officers, employees or
agents, and further provided, that prior to confessing any claim
against it which may be subject to this indemnification, MLFDS
shall give the Fund reasonable opportunity to defend against said
claim in its own name or in the name of MLFDS. An action taken by
MLFDS upon any officer's Instruction reasonably believed by it to
have been properly executed shall not constitute willful
Misconduct, failure to act in good faith or negligence under this
Agreement.
8. REGARDING MLFDS.
(a) MLFDS hereby agrees to hire, purchase, develop and
maintain such dedicated personnel, facilities, equipment,
software, resources and capabilities as may be reasonably
determined by the Fund to be necessary for the satisfactory
performance of the duties and responsibilities of MLFDS. MLFDS
warrants and represents that its officers and supervisory
personnel charged with carrying out its functions as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent
for the Fund possess the special skill and technical knowledge
appropriate for that purpose. MLFDS shall at all times exercise
due care and diligence in the performance of its functions as
Transfer Agent, Dividend Disbursing Agent and Shareholder
Servicing Agent for the Fund. MLFDS agrees that, in determining
whether it has exercised due care and diligence, its conduct shall
be measured by the standard applicable to persons possessing such
special skill and technical knowledge.
(b) MLFDS warrants and represents that is - duly authorized
and permitted to act as Transfer Agent, Dividend Disbursing Agent
and Shareholder Servicing Agent under all applicable laws and that
it will immediately notify the Fund of any revocation of such
authority or permission or of the commencement of any proceeding
or other action which may lead to such revocation.
9. TERMINATION.
(a) This Agreement shall become effective as of the date
first above written and shall thereafter continue from year to
year. This Agreement may be terminated by the Fund or MLFDS
(without penalty to the Fund or MLFDS) provided that the
terminating party gives the other party written notice of such
termination at least sixty (60) days in advance, except that the
Fund may terminate this Agreement immediately upon written notice to
MLFDS if the authority or permission of MLFDS to act as Transfer
Agent, Dividend Disbursing Agent and Shareholder Servicing Agent has
been revoked or if any proceeding or other action which the Fund
reasonably believes will lead to such revocation has been commenced.
6
<PAGE>
(b) Upon termination of this Agreement, MLFDS shall deliver
all unissued and canceled stock certificates representing shares
remaining in its possession, and all Shareholder records, books,
stock ledgers, instruments and other documents (including
computerized or other electronically stored information) made or
accumulated in the performance of its duties as Transfer Agent,
Disbursing Agent and Shareholder Servicing Agent for the Fund
along with a certified locator document clearly indicating the
complete contents therein, to such successor as may be specified
in a notice of termination or Officer's Instruction; and the Fund
assumes all responsibility for failure thereafter to produce any
paper, record or documents so delivered and identified in the
locator document, if and when required to be produced.
10. AMENDMENT.
Except to the extent that the performance by MLFDS or
its functions under this Agreement may from time to time be
modified by an Officer's Instruction, this Agreement may be
amended or modified only by further written Agreement between the
parties.
11. GOVERNING LAW.
This Agreement shall be governed by the laws of the
State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by their respective duly authorized
officers and their respective corporate seals hereunto duly
affixed and attested, as of the day and year above written.
MERRILL LYNCH PHOENIX FUND, INC.
By:/S/ TERRY K. GLENN
------------------
Title: EXECUTIVE VICE PRESIDENT
MERRILL LYNCH FINANCIAL DATA SERVICE, INC.
By:/S/
-------------------------------------
Title: PRESIDENT
----------------------------------
7
<PAGE>
Schedule of Fees
----------------
The Fund will pay to FDS an annual fee of $11.00 per Class A
and Class D Shareholder Account and $14.00 per Class B and Class
C Shareholder Account in addition to reimbursement for the out-
of-pocket expenses incurred by FDS pursuant to this Agreement.
8
<PAGE>
EXHIBIT-99.9(b)
LICENSE AGREEMENT RELATING TO USE OF NAME
AGREEMENT made as of the 5th day of may, 1982, by,
between and among MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, a Delaware corporation ("Merrill Lynch"),
MERRILL LYNCH ASSET MANAGEMENT, INC. , a Delaware corpora-
tion ("MLAM"), and MERRILL LYNCH PHOENIX FUND, INC., a
Maryland corporation (the "Fund");
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Merrill Lynch was incorporated under the laws
of the State of Delaware on November 1.0, 1958 under the cor-
porate name "Merrill Lynch, Pierce, Fenner & Smith Incorpo-
rated" and has used such name at all times thereafter;
WHEREAS, Merrill Lynch was duly qualified as a foreign
corporation under the laws of the State of New York on January
2, 1959 and has remained so qualified at all times thereafter;
WHEREAS, MLAM was incorporated under the laws of the
State of Delaware on March 22, 1976 under the corporate name
"Merrill Lynch Money Management Services, Inc." which name
was changed on April 13, 1976, pursuant to an amendment of
MLAM's Certificate of Incorporation, to "Merrill Lynch Asset
Management, Inc." and MLAM has used such name at all times
thereafter;
<PAGE>
WHEREAS, MLAM was duly qualified as a foreign corpora-
tion under the laws of the State of New York on April 26,
1976 and has remained so qualified at all times thereafter;
WHEREAS, the Fund was incorporated under the laws of
the State of Maryland on April 15, 1982; and
WHEREAS, the Fund desires to qualify as a foreign cor-
poration under the laws of the State of New York and has re-
quested Merrill Lynch and MLAM to give their consent to the
use of the name "Merrill Lynch" in the Fund's corporate name.
NOW, THEREFORE, in consideration of the premises and of
the covenants hereinafter contained, Merrill Lynch, MLAM and
the Fund hereby agree as follows:
1. Merrill Lynch and MLAM hereby grant the Fund a non-
exclusive license to use the words "Merrill Lynch" in its cor-
porate name.
2. Merrill Lynch hereby consents to the qualification
of the Fund as a foreign corporation under the laws of the
State of New York with the words "Merrill Lynch" in its cor-
porate name and agrees to execute such formal consents as may
be necessary in connection with such filing; and MLAM joins
in such consent.
3. The non-exclusive license hereinabove referred to
has been given and is given by Merrill Lynch and MLAM on the
condition that they may at any time, in their sole and absolute
2.
<PAGE>
discretion, withdraw the non-exclusive license to the use
of the words "Merrill Lynch" in the name of the Fund; and,
as soon as practicable after receipt by the Fund of written
not--ice of the withdrawal of such non-exclusive license, and
in no event later than ninety days thereafter, the Fund will
change its name so that such name will not thereafter include
the words "Merrill Lynch" or any variation thereof.
4. Merrill Lynch reserves and shall have the right to
grant to any other company, including without limitation, any
other investment company, the right to use the words "Merrill
Lynch" or variations thereof in its name and no consent or
permission of the Fund shall be necessary; but, if required
by an applicable laws of any state, the Fund will forthwith
grant all requisite consents.
5. The Fund will not grant to any other company the
right to use a name similar to that of the Fund or Merrill
Lynch without the written consent of Merrill Lynch.
6. Regardless of whether the fund should hereafter
change its name and eliminate the words "Merrill Lynch" or
any variation thereof from such name, the Fund hereby grants
to Merrill Lynch and MLAM the right to cause the incorporation
of other corporations or the organization of voluntary associa-
tions which may have names similar to that of the Fund or to
that to which the Fund may change its name and to own all or
<PAGE>
any portion of the shares of such other corporations or
associations and to enter into contractual relationships with such
other corporations or associations, subject to any requisite
approval of a majority of the Fund's share-holders and the
Securities and Exchange Commission and subject to the payment of a
reasonable amount to be deter-mined at the time of use, and the
Fund agrees to give and execute any such formal consents or
agreements as may be necessary in connection therewith.
7. This Agreement may be amended at any time by a writing
signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/
---------------------------------
Vice President
MERRILL LYNCH ASSET MANAGEMENT, INC.,
By /s/
-----------------------------------
Vice President
MERRILL LYBCH PHOENIX FUND, INC.,
By /s/ Arthur Zeikel
-----------------------------------
President
4.
<PAGE>
EXHIBIT 15(a)
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").
WITNESSETH:
-----------
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>
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>
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>
IN WITNESS WHEREOF, the parties hereto have executed this Distribution
Plan as of the date first above written.
MERRILL LYNCH PHOENIX FUND, INC.
By /s/ Arthur Zeikel
-----------------------------
Title:
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
-----------------------------
Title:
4
<PAGE>
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").
WITNESSETH:
-----------
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.
5
<PAGE>
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 /s/
-------------------------------------
Title: President
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/
-------------------------------------
Title: Vice President
6
<PAGE>
EXHIBIT 15(B)
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>
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 a 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>
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 /s/ Arthur Zeikel
-----------------------------
Title: President
MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
By /s/ Terry K. Glenn
-----------------------------
Title: President
3
<PAGE>
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>
21b-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 /s/
-------------------------------
MERRILL LYNCH, PIERCE, FENNER, & SMITH
INCORPORATED
By /s/
-------------------------------
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 99.16(a)
PHOENIX FUND
TOTAL RETURN
Annual
Total
1 Year 5 Years 10 Years Return*
----- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Initial Investment $1,000.00 $1,000.00 $1,000.00 $1,000.00
Divided by
Maximum offering Price 16.19 12.63 10.00
----- ----- -----
Divided by Net Assets Value 15.14
-----
Equals Shares Purchased 61.767 79.177 100.00 66.050
Plus Shares Acquired Through
Dividend Reinvestment 10,432 78,041 102,539 11,175
------ ------ ------- ------
Equals Shares Held
at 7/31/88 72.199 157.218 202.539 77.225
Multiplied by Not Asset
Value at 7/31/88 13.55 13.55 13.55 13.55
----- ----- ----- -----
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) 7/31/88 $978.30 2,130.30 2,744.40 1,046.40
Divided by $1,000 (P) .9783 2.1303 2.7444 1.0464
Subtract 1 (.0217) 1.1303 1.7444 .0464
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) (2.17%) 113.03% 174.44%
------ ------ ------
Expressed as a percentage
equals the Aggregate Total
Return for the Period 4.64%
----
ERV divided by P .9783 2.1303 2.7444
Raise to the power of 1 5 1/5.751
Equals .9783 1.1633 1.1919
Subtract 1 (.0217) .1633 .1919
Expressed as a percentage
equals the Average
Annualized Total Return (2.17%) 16.33% 19.19%
----- ----- -----
</TABLE>
*Does not include sales charge for the period
<PAGE>
<TABLE>
<CAPTION>
Exhibit 16(b)
Merrill Lynch Phoenix Fund, Inc.
Class B
Total Return
Period from
10/21/88 Annual
(inception) Total
to 7/31/89 Return*
---------- ------
<S> <C> <C> <C>
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 11.96 11.96
--------- ---------
Equals Shares Purchased 83.61 83.61
Plus Shares Acquired through
Dividend Reinvestment 1.65 1.65
--------- ---------
Equals Shares Held
at 7/31/89 85.26 85.26
Multiplied by Net Asset
Value at 7/31/89 13.32 13.32
--------- ---------
Equals Ending Value before
deduction for contingent
deferred sales charge 1,135.66 1,135.60
Less deferred sales charge (39.26) 0.00
--------- ---------
Equals Ending Redeemable
Value of a $1,000
Investment (ERV) $1,096.40 $1,135.60
--------- ---------
Divided by $1,000 (P) 1.0964 1.1356
Subtract 1 0.0964 0.1356
Expressed as a percentage
equals the Aggregate Total
Return for the Period (T) 9.64%
========
Expressed as a percentage
equals the Aggregate Total
Return for the Period 13.56%
===========
ERV divided by P 1.0964
Raise to the power of 1/.7853
Equals 1.1243
Subtract 1 0.1243
Expressed as a percentage
equals the Average
Annualized Total Return 12.43%
=========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> MERRILL LYNCH PHOENIX FUND, INC. CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 694488000
<INVESTMENTS-AT-VALUE> 744166608
<RECEIVABLES> 137239982
<ASSETS-OTHER> 1244949
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759135539
<PAYABLE-FOR-SECURITIES> 7318390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2510768
<TOTAL-LIABILITIES> 9829158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 675324502
<SHARES-COMMON-STOCK> 21298138
<SHARES-COMMON-PRIOR> 19227972
<ACCUMULATED-NII-CURRENT> 2926373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21376898
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49678608
<NET-ASSETS> 286257848
<DIVIDEND-INCOME> 5431746
<INTEREST-INCOME> 11660038
<OTHER-INCOME> 550471
<EXPENSES-NET> 12450190
<NET-INVESTMENT-INCOME> 5192065
<REALIZED-GAINS-CURRENT> 44266927
<APPREC-INCREASE-CURRENT> 38223178
<NET-CHANGE-FROM-OPS> 87682170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2215404
<DISTRIBUTIONS-OF-GAINS> 27461298
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4773327
<NUMBER-OF-SHARES-REDEEMED> 4852599
<SHARES-REINVESTED> 2149438
<NET-CHANGE-IN-ASSETS> 131320939
<ACCUMULATED-NII-PRIOR> (39695)
<ACCUMULATED-GAINS-PRIOR> 45054760
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6445583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12450190
<AVERAGE-NET-ASSETS> 256059450
<PER-SHARE-NAV-BEGIN> 13.31
<PER-SHARE-NII> .17
<PER-SHARE-GAIN-APPREC> 1.47
<PER-SHARE-DIVIDEND> .11
<PER-SHARE-DISTRIBUTIONS> 1.40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.44
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> MERRILL LYNCH PHOENIX FUND, INC. CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 694488000
<INVESTMENTS-AT-VALUE> 744166608
<RECEIVABLES> 137239982
<ASSETS-OTHER> 1244949
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759135539
<PAYABLE-FOR-SECURITIES> 7318390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2510768
<TOTAL-LIABILITIES> 9829158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 675324502
<SHARES-COMMON-STOCK> 31627532
<SHARES-COMMON-PRIOR> 27804801
<ACCUMULATED-NII-CURRENT> 2926373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21376898
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49678608
<NET-ASSETS> 414885911
<DIVIDEND-INCOME> 5431746
<INTEREST-INCOME> 11660038
<OTHER-INCOME> 550471
<EXPENSES-NET> 12450190
<NET-INVESTMENT-INCOME> 5192065
<REALIZED-GAINS-CURRENT> 44266927
<APPREC-INCREASE-CURRENT> 38223178
<NET-CHANGE-FROM-OPS> 87682170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 555940
<DISTRIBUTIONS-OF-GAINS> 39292892
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11220799
<NUMBER-OF-SHARES-REDEEMED> 10445713
<SHARES-REINVESTED> 3047645
<NET-CHANGE-IN-ASSETS> 131320939
<ACCUMULATED-NII-PRIOR> (39695)
<ACCUMULATED-GAINS-PRIOR> 45054760
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6445583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12450190
<AVERAGE-NET-ASSETS> 369263470
<PER-SHARE-NAV-BEGIN> 13.02
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> 1.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.12
<EXPENSE-RATIO> 2.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> MERRILL LYNCH PHOENIX FUND, INC. CLASS C
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 694488000
<INVESTMENTS-AT-VALUE> 744166608
<RECEIVABLES> 137239982
<ASSETS-OTHER> 1244949
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759135539
<PAYABLE-FOR-SECURITIES> 7318390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2510768
<TOTAL-LIABILITIES> 9829158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 675324502
<SHARES-COMMON-STOCK> 900838
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2926373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21376898
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49678608
<NET-ASSETS> 11774542
<DIVIDEND-INCOME> 5431746
<INTEREST-INCOME> 11660038
<OTHER-INCOME> 550471
<EXPENSES-NET> 12450190
<NET-INVESTMENT-INCOME> 5192065
<REALIZED-GAINS-CURRENT> 44266927
<APPREC-INCREASE-CURRENT> 38223178
<NET-CHANGE-FROM-OPS> 87682170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10793
<DISTRIBUTIONS-OF-GAINS> 85233
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1061529
<NUMBER-OF-SHARES-REDEEMED> 168352
<SHARES-REINVESTED> 7661
<NET-CHANGE-IN-ASSETS> 131320939
<ACCUMULATED-NII-PRIOR> (39695)
<ACCUMULATED-GAINS-PRIOR> 45054760
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6445583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12450190
<AVERAGE-NET-ASSETS> 6238958
<PER-SHARE-NAV-BEGIN> 12.31
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 1.21
<PER-SHARE-DIVIDEND> .05
<PER-SHARE-DISTRIBUTIONS> .43
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.07
<EXPENSE-RATIO> 2.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> MERRILL LYNCH PHOENIX FUND, INC. CLASS D
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> OCT-21-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 694488000
<INVESTMENTS-AT-VALUE> 744166608
<RECEIVABLES> 137239982
<ASSETS-OTHER> 1244949
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 759135539
<PAYABLE-FOR-SECURITIES> 7318390
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2510768
<TOTAL-LIABILITIES> 9829158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 675324502
<SHARES-COMMON-STOCK> 2709547
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2926373
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 21376898
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49678608
<NET-ASSETS> 36388080
<DIVIDEND-INCOME> 5431746
<INTEREST-INCOME> 11660038
<OTHER-INCOME> 550471
<EXPENSES-NET> 12450190
<NET-INVESTMENT-INCOME> 5192065
<REALIZED-GAINS-CURRENT> 44266927
<APPREC-INCREASE-CURRENT> 38223178
<NET-CHANGE-FROM-OPS> 87682170
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 75226
<DISTRIBUTIONS-OF-GAINS> 474000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3104664
<NUMBER-OF-SHARES-REDEEMED> 442308
<SHARES-REINVESTED> 47191
<NET-CHANGE-IN-ASSETS> 131320939
<ACCUMULATED-NII-PRIOR> (39695)
<ACCUMULATED-GAINS-PRIOR> 45054760
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6445583
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12450190
<AVERAGE-NET-ASSETS> 21679933
<PER-SHARE-NAV-BEGIN> 12.57
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> 1.25
<PER-SHARE-DIVIDEND> .07
<PER-SHARE-DISTRIBUTIONS> .43
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.43
<EXPENSE-RATIO> 1.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1(d)
ARTICLES SUPPLEMENTARY TO THE
ARTICLES OF INCORPORATION OF
MERRILL LYNCH PHOENIX FUND, INC.
MERRILL LYNCH PHOENIX FUND, INC. (hereinafter called the "Corporation"),
a Maryland corporation, registered as an open-end investment company under the
Investment Company Act of 1940 and having its principal office in the State of
Maryland in the City of Baltimore, Maryland, hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Board of Directors of the Corporation on July 12, 1995,
adopted resolutions in accordance with Section 2-105(c) of the General
Corporation Law of Maryland, to increase the total number of shares of capital
stock of the Corporation. The capital stock shall be classified into four
classes, consisting of FIFTY MILLION (50,000,000) shares of Class A Common Stock
with the par value of Ten Cents ($0.10) per share and of the aggregate par value
of Five Million Dollars ($5,000,000), ONE HUNDRED MILLION (100,000,000) shares
of Class B Common Stock with the par value of Ten Cents ($0.10) per share and of
the aggregate par value of Ten Million Dollars ($10,000,000), FIFTY MILLION
(50,000,000) shares of Class C Common Stock with the par value of Ten Cents
($0.10) per share and of the aggregate par value of Five Million Dollars
($5,000,000) and ONE HUNDRED MILLION (100,000,000) shares of Class D Common
Stock with the par value of Ten Cents ($0.10) per share and of the aggregate par
value of Ten Million Dollars ($10,000,000).
SECOND: The total number of shares of all classes of capital stock of
the Corporation heretofore authorized, and the number and par value of the
shares of each class, are as follows:
TWO HUNDRED MILLION (200,000,000) shares of capital stock of the par
value of Ten Cents ($0.10) per share and of the aggregate par value of
Twenty Million Dollars ($20,000,000), classified into four classes
consisting of FIFTY MILLION (50,000,000) shares of Class A Common Stock
with the par value of Ten Cents ($0.10) per share and of the aggregate
par value of Five Million Dollars ($5,000,000), FIFTY MILLION
(50,000,000) shares of Class B Common Stock with the par value of Ten
Cents ($0.10) per share and of the aggregate par value of Five Million
Dollars ($5,000,000), FIFTY MILLION (50,000,000) shares of Class C
Common Stock with the par value of Ten Cents ($0.10) per share and of
the aggregate par value of Five Million Dollars ($5,000,000) and FIFTY
MILLION (50,000,000) shares of Class D Common Stock with the par value
of Ten Cents ($0.10) per share and of the aggregate par value of Five
Million Dollars ($5,000,000).
<PAGE>
THIRD: The total number of shares of all classes of capital stock of the
Corporation as increased, and the number and par value of the shares of each
class, are as follows:
The total number of shares of capital stock which the Corporation shall
have the authority to issue shall consist of THREE HUNDRED MILLION
(300,000,000) shares of the par value of Ten Cents ($0.10) per share and
of the aggregate par value of Thirty Million Dollars ($30,000,000),
classified into four classes consisting of FIFTY MILLION (50,000,000)
shares of Class A Common Stock with the par value of Ten Cents ($0.10)
per share and of the aggregate par value of Five Million Dollars
($5,000,000), ONE HUNDRED MILLION (100,000,000) shares of Class B Common
Stock with the par value of Ten Cents ($0.10) per share and of the
aggregate par value of Ten Million Dollars ($10,000,000), FIFTY MILLION
(50,000,000) shares of Class C Common Stock with the par value of Ten
Cents ($0.10) per share and of the aggregate par value of Five Million
Dollars ($5,000,000) and ONE HUNDRED MILLION (100,000,000) shares of
Class D Common Stock with the par value of Ten Cents ($0.10) per share
and of the aggregate par value of Ten Million Dollars ($10,000,000).
FOURTH: The aforesaid action by the Board of Directors was taken
pursuant to authority and power contained in the Articles of Incorporation.
IN WITNESS WHEREOF, MERRILL LYNCH PHOENIX FUND, INC., has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on October 18, 1995.
MERRILL LYNCH PHOENIX FUND, INC.
By: /s/ Arthur Zeikel
-----------------------------------
Arthur Zeikel
President
Attest:
/s/ Terry K. Glenn
- --------------------------------
Terry K. Glenn
Executive Vice President
<PAGE>
The undersigned, President of MERRILL LYNCH PHOENIX FUND, INC., who
executed on behalf of said Corporation the foregoing Articles Supplementary, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said Corporation, the foregoing Articles Supplementary to be the
corporate act of said corporation and further certifies that, to the best of his
knowledge, information and belief, the matters and facts set forth therein with
respect to the approval thereof and true in all material respects, under the
penalties of perjury.
Dated: October 18, 1995 /s/ Arthur Zeikel
---------------------------------
Arthur Zeikel
President
<PAGE>
EXHIBIT 99.11
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Phoenix Fund, Inc.:
We consent to the use in Post-Effective Amendment No. 16 to Registration
Statement No. 2-77068 of our report dated September 6, 1995 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.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Princeton, New Jersey
November 21, 1995
<PAGE>
EXHIBIT 99.16(c)
Phoenix Fund - Class C
10/21/94 - 7/31/85
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- --------------
Initial Investment $1,000.00 $1,000.00
Divided by Net Asset Value 12.31 12.31
--------- ---------
Equals Shares Purchased 81.235 81.235
Plus Shares Acquired through
Dividend Reinvestment 3.685 3.685
--------- ---------
Equals Shares Held at 7/31/95 84.920 84.920
Multiplied by Net Asset Value at 7/31/95 13.07 13.07
--------- ---------
Equals Ending Value before deduction for
contingent deferred sales charge 1,109.90 1,109.90
Less deferred sales charge (10.00) 0.00
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,099.90 1,109.90
--------- ---------
Divided by $1,000 (P) 1.0999 1.1099
Subtract 1 0.0999 0.1099
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 9.99%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 10.99%
=========
ERV divided by P 1.0999
Raise to the power of 1.2898
Equals 1.1307
Subtract 1 0.1307
Expressed as a percentage equals the
Average Annualized Total Return 13.07%
=========
*Does not include sales charge for the period.
<PAGE>
EXHIBIT 99.16(d)
Phoenix Fund - Class D
10/21/94 - 7/31/85
Since Since
Inception Inception
Average Annual Total
Total Return Return*
-------------- --------------
Initial Investment $1,000.00 $1,000.00
Divided by Initial Maximum Offering Price 13.27
---------
Divided by Net Asset Value 12.57
---------
Equals Shares Purchased 75.378 79.554
Plus Shares Acquired through
Dividend Reinvestment 3.440 3.630
--------- ---------
Equals Shares Held at 7/31/95 78.818 83.184
Multiplied by Net Asset Value at 7/31/95 13.43 13.43
--------- ---------
Equals Ending Redeemable Value at
$1,000 Investment (ERV) at 7/31/95 1,058.52 1,117.17
Divided by $1,000 (P) 1.0585 1.1172
Subtract 1 0.0585 0.1172
Expressed as a percentage equals the
Aggregate Total Return for the Period (T) 5.85%
=========
Expressed as a percentage equals the
Aggregate Total Return for the Period 11.72%
=========
ERV divided by P 1.0585
Raise to the power of 1.2898
Equals 1.0761
Subtract 1 0.0761
Expressed as a percentage equals the
Average Annualized Total Return 7.51%
=========
*Does not include sales charge for the period.
