The Failure Fund

Of all the new investment deals being hawked about Wall Street, none is stranger than a mutual fund that was put on the market last week by Merrill Lynch & Co., Inc., the nation's largest brokerage firm. Most professional money managers, Merrill Lynch's included, have been sensibly enough urging investors anxious to take a fling in the market to put their money into stocks of blue-chip companies. But Merrill Lynch brokers now have a way to help investors who hate following the crowd and do not mind a risk or two. They can simply buy shares, at $10 each, in the firm's new Phoenix Fund. The fund will be a collection of securities of 50 to 100 companies that are undervalued but that Merrill Lynch analysts believe stand a good chance of rising phoenix-like from their ashes if the economy improves.

How good a chance? Says Arthur Zeikel, president of Merrill Lynch Asset Management, under which the Phoenix Fund will flap its wings: "There is a long list of companies whose real prospects are much better than they appear. Their depressed prices in many instances simply do not reflect true value or their potential."

Though Merrill Lynch analysts are still winnowing their list of investment choices, likely candidates will be drawn from such depressed industries as housing, farming and airlines. Although some money will be invested in firms that are bankrupt, most of the fund's anticipated capital of $100 million is expected to be invested in recession-shaken companies that are still basically sound.

Buying a share in the fund represents in effect a speculative bet that its portfolio will wind up brimming with eventual turnaround stocks. Says Zeikel confidently: "We expect to have more winners than losers." Over the years, bankrupt or desperate companies have indeed occasionally revived under new management. Typical of such born-agains is Toys R Us, which re-emerged from the bankruptcy of its parent, Interstate Stores, in 1978 to become one of the fastest growing retailers in the U.S.: 1981 sales $783 million.

Phoenix Fund sales are restricted to investors with a minimum net worth of $35,000. Aspiring speculators might wind up needing plenty of patience as well. In Greek mythology, the phoenix did burn itself up and another rose from the ashes. But the cycle took at least 500 years.

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