DEBT STRATEGIES FUND INC, N-2, 1997-04-08

DEBT STRATEGIES FUND INC
N-2, 1997-04-08

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
SECURITIES ACT FILE NO. 333-_____
INVESTMENT COMPANY ACT FILE NO. 811-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

-------------------------
FORM N-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO.
POST-EFFECTIVE AMENDMENT NO.
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO.

----------------
DEBT STRATEGIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
-----------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(609) 282-2800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
ARTHUR ZEIKEL
DEBT STRATEGIES FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copies to:

PHILIP L. KIRSTEIN, ESQ. FRANK P. BRUNO, ESQ.
FUND ASSET MANAGEMENT, L.P. BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, N.J. 08543-9011 NEW YORK, NEW YORK 10048-0557

_________________
Approximate date of proposed public offering: As soon as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, as amended (the "Securities Act"), other than securities offered
only in connection with dividend or interest reinvestment plans, check the
following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.

/ / __________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. / / __________

If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. / /
__________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<S> <C> <C> <C>
Proposed
PROPOSED Maximum
MAXIMUM Aggregate Amount of
AMOUNT BEING OFFERING PRICE Offering Registration
TITLE OF SECURITIES BEING REGISTERED REGISTERED PER UNIT (1) Price(1) Fee(2)
Common Stock ($.10 par value) . . . . . . 66,667 shares $15.00 $1,000,005 $303.03

</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted prior to the filing date to the designated lockbox at Mellon
Bank in Pittsburgh, PA.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

Debt Strategies Fund, Inc.
CROSS REFERENCE SHEET

- -------------------
Item Number, Form N-2 Caption in Prospectus

Part A--INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover Page . . . Outside Front Cover Page
2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages . . . . . . . . . Pages; Underwriting
3. Fee Table and Synopsis . . . . Prospectus Summary; Fee Table
4. Financial Highlights . . . . . Not Applicable
5. Plan of Distribution . . . . . Prospectus Summary; Net Asset
Value; Underwriting
6. Selling Shareholders . . . . . Not Applicable
7. Use of Proceeds . . . . . . . Use of Proceeds; Investment
Objectives and Policies
8. General Description of the Prospectus Summary; The Fund;
Registrant . . . . . . . . . . Investment Objectives and Policies;
Other Investment Policies;
Investment Restrictions; Dividends
and Distributions; Automatic
Dividend Reinvestment Plan; Mutual
Fund Investment Option
9. Management . . . . . . . . . Directors and Officers; Investment
Advisory and Management
Arrangements; Custodian; Transfer
Agent, Dividend Disbursing Agent
and Registrar
10. Capital Stock, Long-Term Debt, Description of Capital Stock
and Other Securities . . . . .
11. Defaults and Arrears on Senior Not Applicable
Securities . . . . . . . . . .
12. Legal Proceedings . . . . . . Not Applicable
13. Table of Contents of the Not Applicable
Statement of Additional
Information . . . . . . . . .

PART B--INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
Not Applicable
14. Cover Page . . . . . . . . . .
15. Table of Contents . . . . . . Not Applicable
16. General Information and Not Applicable
History . . . . . . . . . . .
17. Investment Objective and Prospectus Summary; Investment
Policies . . . . . . . . . . . Objectives and Policies; Investment
Restrictions
18. Management . . . . . . . . . . Directors and Officers; Investment
Advisory and Arrangements
19. Control Persons and Principal Investment Advisory and Management
Holders of Securities . . . . Arrangements
20. Investment Advisory and Other Investment Advisory and Management
Services . . . . . . . . . . . Arrangements; Custodian;
Underwriting; Transfer Agent,
Dividend Disbursing Agent and
Registrar; Legal Opinions; Experts

21. Brokerage Allocation and Other Portfolio Transactions
Practices . . . . . . . . . .
22. Tax Status . . . . . . . . . . Taxes; Automatic Dividend
Reinvestment Plan
23. Financial Statements . . . . . Independent Auditors; Independent
Auditors' Report; Statement of
Assets, Liabilities and Capital

Part C--OTHER INFORMATION

Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 8, 1997
PROSPECTUS
__________

_______ SHARES

DEBT STRATEGIES FUND, INC.
COMMON STOCK

______________
Debt Strategies Fund, Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company that seeks to provide
current income by investing primarily in a diversified portfolio of U.S.
companies' debt instruments, including corporate loans, which are rated in
the lower rating categories of the established rating services (Baa or lower
by Moody's Investor Service, Inc. ("Moody's") or BBB or lower by Standard &
Poor's Ratings Service ("S&P")) or unrated debt instruments of comparable
quality. Such securities generally involve greater volatility of price and
risks to principal and income than securities in the higher rating
categories. As a secondary objective, the Fund will seek capital
appreciation. Up to 35% of the Fund's total assets may be invested in debt
instruments which, at the time of investment, are the subject of bankruptcy
proceedings or otherwise in default as to the repayment of principal or
payment of interest or are rated in the lowest rating categories (Ca or lower
by Moody's and CC or lower by S&P) or unrated debt instruments of comparable
quality. The Fund may invest up to 20% of its total assets in financial
instruments of issuers domiciled outside the United States that are
denominated in various currencies and multinational foreign currency units.
The Fund does not currently intend to hedge its non-dollar denominated
portfolio investments. For these reasons, an investment in the Fund may be
speculative in that it involves a high degree of risk and should not
constitute a complete investment program. See "Risk Factors and Special
Considerations." The Fund may engage in various portfolio strategies to
enhance income or capital appreciation and to hedge its portfolio against
investment, interest rate and foreign currency risks, including the
utilization of leverage, the use of options and futures transactions and the
use of foreign currency swaps. There can be no assurance that the investment
objectives of the Fund will be realized.

Because the Fund is newly organized, its shares have no history of
public trading, and shares of closed-end investment companies frequently
trade at a discount from their net asset value. The risk of loss may be
greater for initial investors expecting to sell their shares in a relatively
short period after completion of the public offering. See "Risk Factors and
Special Considerations."

(Continued on next page)

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS
SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<S> <C> <C> <C>
SALES LOAD(1)(2) PROCEEDS TO
PRICE TO PUBLIC(1) FUND(3)
Per Share . . . . . . $ None $____
Total(4) . . . . . . $___________ None $___________
</TABLE>

(1) The Investment Adviser or an affiliate will pay the Underwriter a
commission in the amount of __% of the Price to Public per share in
connection with the sale of shares of Common Stock offered hereby. See
"Underwriting."
(2) The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(3) Before deducting organizational and offering costs payable by the Fund
estimated at $_______.
(4) The Fund has granted the Underwriter an option, exercisable for 45 days
after the date hereof, to purchase up to an additional _______ shares to
cover over-allotments. If all such shares are purchased, the total
Price to Public and Proceeds to Fund will be $__________. See
"Underwriting."

___________

The shares are offered by the Underwriter, subject to prior sale, when,
as and if issued by the Fund and accepted by the Underwriter, subject to
approval of certain legal matters by counsel for the Underwriter and certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected
that delivery of the shares will be made in New York, New York on or about
June __, 1997.

___________

MERRILL LYNCH & CO.

___________
The date of this Prospectus is June , 1997.
__

(continued from previous page)

At times, the Fund expects to utilize leverage through borrowings or
issuance of short-term debt securities or shares of preferred stock. Under
current market conditions, the Fund intends to utilize leverage in an amount
equal to approximately 331/3% of its total assets (including the amount
obtained from leverage). The Fund will generally not utilize leverage if it
anticipates that the Fund's leveraged capital structure would result in a
lower return to holders of the Common Stock than that obtainable if the
Common Stock were unleveraged for any significant amount of time. Use of
leverage creates an opportunity for increased income and capital
appreciation, but, at the same time, creates special risks. See "Risk
Factors and Special Considerations" and "Other Investment Policies--
Leverage."

Prior to this offering, there has been no public market for the Fund's
shares. Application will be made to list the Fund's shares on the New York
Stock Exchange. However, during an initial period which is not expected to
exceed four weeks from the date of this Prospectus, the Fund's shares will
not be listed on any securities exchange. During such period, the
Underwriter does not intend to make a market in the Fund's shares.
Consequently, it is anticipated that an investment in the Fund will be
illiquid during such period.

This Prospectus sets forth in concise form the information about the
Fund that a prospective investor should know before investing in the Fund.
Investors should read and retain this Prospectus for future reference. Fund
Asset Management, L.P. is the Fund's investment adviser (the "Investment
Adviser"). The address of the Fund is 800 Scudders Mill Road, Plainsboro,
New Jersey 08536, and its telephone number is (609) 282-2800.

____________
The Underwriter may engage in transactions that stabilize, maintain, or
otherwise affect the price of the Fund's Common Stock. Such transactions may
include stabilizing, the purchase of the Fund's Common Stock to cover short
positions and the imposition of penalty bids. For a description of these
activities, see "Underwriting."

PROSPECTUS SUMMARY

The following summary should be read in conjunction with the detailed
information appearing elsewhere in this Prospectus.

THE FUND Debt Strategies Fund, Inc. (the "Fund") is a newly
organized, diversified, closed-end management investment
company. See "The Fund."

THE OFFERING The Fund is offering __________ shares of Common Stock at
an initial offering price of $15.00 per share. The Common
Stock is being offered by Merrill Lynch, Pierce, Fenner &
Smith, Incorporated ("Merrill Lynch" or the
"Underwriter"). The Underwriter has been granted an
option, exercisable for 45 days from the date of this
Prospectus, to purchase up to _______ additional shares to
cover over-allotments. See "Underwriting."

INVESTMENT OBJECTIVES
AND POLICIES The primary investment objective of the Fund is to seek to
provide current income by investing primarily in a
diversified portfolio of U.S. companies' debt instruments,
including corporate loans, which are rated in the lower
rating categories of the established rating services (Baa
or lower by Moody's or BBB or lower by S&P) or unrated debt
instruments which are in the judgment of the Investment
Adviser of equivalent quality.

Such investments generally involve greater volatility of
price and risks to principal and income than securities
in the higher rating categories. As a secondary objective,
the Fund will seek capital appreciation. Up to 35% of the
Fund's total assets may be invested in publicly offered or
privately placed debt securities and corporate loans which,
at the time of investment, are the subject of bankruptcy
proceedings or otherwise in default as to the repayment of
principal or payment of interest or are rated in the lowest
rating categories (Ca or lower by Moody's and CC or lower
by S&P) or which, if unrated, are in the judgment of the
Investment Adviser of equivalent quality ("Distressed
Securities"). Up to 20% of the Fund's total assets may be
invested in financial instruments of issuers domiciled
outside the United States, provided such issuers are
domiciled in a country that is a member of the
Organisation for Economic Co-operation and
Development ("OECD"). The Fund does not currently intend
to hedge its non-dollar denominated portfolio investments.
For these reasons, an investment in the Fund may be
speculative in that it involves a high degree of risk and
should not constitute a complete investment program.
See "Risk Factors and Special Considerations." Up to 20%
of the Fund's to total assets can be invested in
convertible debt instruments and preferred stock,
each of which may be converted into common stock or
other securities of the same or a different issuer, and
non-convertible preferred stock. No assurance can be given
that the Fund's investment objectives will be achieved.
See "Investment Objectives and Policies".

The Fund's investment policies permit investment in
the following asset classes: (i) senior and subordinated
corporate loans, both secured and unsecured ("Corporate
Loans"), issued either directly by the borrower or in the
form of participation interests in Corporate Loans made by
banks and other financial institutions; (ii) publicly
offered and privately placed high-yield debt securities,
senior and subordinated, both secured and unsecured
(commonly known as "high-yield securities" or "junk
bonds"); and (iii) convertible debt instruments and
preferred stock, each of which may be convertible into
common stock or other securities of the same or a different
issuer, and non-convertible preferred stock. The debt
securities and Corporate Loans in which the Fund invests
may pay interest at fixed rates or at rates that float
at a margin above a generally recognized base lending rate
such as the prime rate of a designated U.S. bank, or that
adjusts periodically at a margin above the Certificate of
Deposit ("CD") rate or the London Interbank Offered
Rate ("LIBOR").

The Fund will generally not utilize leverage if it
anticipates that the Fund's leveraged capital structure
would result in a lower return to holders of the Common
Stock than that obtainable if the Common Stock were
unleveraged for any significant amount of time. Use of
leverage creates an opportunity for increased income and
capital appreciation, but, at the same time, creates
special risks. See Risk Factors and Special
Considerations" and "Other Investment Policies--Leverage."

The Fund may engage in various portfolio strategies to seek
to increase its return and to hedge its portfolio against
movements in interest rates or foreign currencies through
the use of interest rate or foreign currency swap
transactions, the purchase of call and put options on
securities, the sale of covered call and put options on
its portfolio securities and transactions in financial
futures and related options on such futures. See "Other
Investment Policies."

Investment in shares of Common Stock of the Fund
offers several benefits. The Fund offers investors
the opportunity to receive current income and capital
appreciation by investing in a professionally managed
portfolio that, to the extent the portfolio is
comprised of Corporate Loans, is a type of investment
typically not available to individual investors. In
managing such portfolio, the Investment Adviser provides
the Fund and its shareholders with professional credit
analysis. The Fund also relieves the investor of the
burdensome administrative details involved in managing
a portfolio of such investments. Additionally, the
Investment Adviser will seek to enhance the return
on the Common Stock by leveraging the Fund's capital
structure through the borrowing of money or the issuance
of short-term debt securities or shares of preferred
stock. The benefits are at least partially offset by the
expenses involved in operating an investment company.
Such expenses primarily consist of the advisory fee and
operational costs. Additionally, the use of leverage
involves certain expenses and risk considerations.
See "Risk Factors and Special Considerations" and
"Other Investment Policies--Leverage."

LISTING Prior to this offering, there has been no public market
for the shares of the Fund. Application will be made to
list the Fund's shares on the New York Stock Exchange.
However, during an initial period which is not expected
to exceed four weeks from the date of this Prospectus, the
Fund's shares will not be listed on any securities
exchange. During such period, the Underwriter does not
intend to make a market in the Fund's shares. Consequently,
it is anticipated that an investment in the Fund will be
illiquid during such period. See "Underwriting."
INVESTMENT
ADVISER Fund Asset Management, L.P. is the Fund's investment
adviser (the "Investment Adviser") and is responsible for
the management of the Fund's investment portfolio and
for providing administrative services to the Fund. For
its services, the Fund pays the Investment Adviser a
monthly fee at the annual rate of % of the Fund's average
weekly net assets plus the proceeds of any ___
outstanding borrowings used for leverage. The Investment
Adviser is an affiliate of Merrill Lynch Asset Management,
L.P. ("MLAM"), which is owned and controlled by Merrill
Lynch & Co., Inc. ("ML & Co."). The Investment Adviser,
or MLAM, acts as the investment adviser for over __
other registered management investment companies. The
Investment Adviser also offers portfolio management and
portfolio analysis services to individuals and institutions.
As of _________, ___ 1997, the Investment Adviser and
MLAM has a total of approximately $___ billion in
investment company and other portfolio assets under
management, including accounts of certain affiliates
of the Investment Adviser. See "Investment Advisory and
Management Arrangements."

DIVIDENDS AND
DISTRIBUTIONS The Fund intends to distribute dividends of substantially
all of its net investment income monthly. All net
realized long-term and short-term capital gains, if any,
will be distributed to the Fund's shareholders at least
annually. See "Dividends and Distributions."

The Fund expects that it will commence paying dividends
within 90 days of the date of this Prospectus.

AUTOMATIC DIVIDEND
REINVESTMENT PLAN All dividend and capital gains distributions will be
automatically reinvested in additional shares of Common
Stock of the Fund unless a shareholder elects to receive
cash. Shareholders whose shares are held in the name of a
broker or nominee should contact such broker or nominee to
confirm that they may participate in the Fund's dividend
reinvestment plan. See "Automatic Dividend Reinvestment
Plan."

MUTUAL FUND
INVESTMENT OPTION Purchasers of shares of Common Stock of the Fund through
Merrill Lynch in this offering will have an investment
option consisting of the right to reinvest the net
proceeds from a sale of such shares (the "Original
Shares") in Class D initial sales charge shares of certain
Merrill Lynch-sponsored open-end mutual funds ("Eligible
Class D Shares") at their net asset value, without the
imposition of the initial sales charge, if the conditions
set forth below are satisfied. First, the sale of the
Original Shares must be made through Merrill Lynch, and
the net proceeds therefrom must be immediately reinvested
in Eligible Class D Shares. Second, the Original Shares
must have been either acquired in this offering or be
shares representing reinvested dividends from shares of
Common Stock acquired in this offering. Third, the
Original 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 D shares of the mutual funds are
subject to an account maintenance fee at an annual rate of
up to 0.25% of the average daily net asset value of such
mutual fund. See "Mutual Fund Investment Option."

CUSTODIAN,
TRANSFER AGENT,
DIVIDEND
DISBURSING
AGENT AND
REGISTRAR _____________________ will act as custodian, transfer
agent, dividend disbursing agent and registrar for the
Fund. See "Custodian" and "Transfer Agent, Dividend
Disbursing Agent and Registrar."

RISK FACTORS AND SPECIAL CONSIDERATIONS

The Fund is a newly organized, diversified, closed-end management
investment company and has no operating history. As described under
"Prospectus Summary--Listing," it is anticipated that an investment in the
Fund will be illiquid prior to listing of the Fund's shares on the New York
Stock Exchange. See "Underwriting." Shares of closed-end investment
companies frequently trade at a discount from their net asset value. This
risk may be greater for investors expecting to sell their shares in a
relatively short period after completion of the public offering.
Accordingly, the Common Stock of the Fund is designed primarily for long-term
investors and should not be considered a vehicle for trading purposes. The
net asset value of the Fund's shares of Common Stock will fluctuate with
interest rate changes as well as with price changes of the Fund's portfolio
securities and these fluctuations are likely to be greater in the case of a
fund having a leveraged capital structure, as contemplated for the Fund. See
"Investment Objectives and Policies."

Corporate Loans. The Fund may invest in senior and subordinated
Corporate Loans, both secured and unsecured. A Corporate Loan which is
unsecured is not supported by any specific pledge of collateral and therefore
constitutes only a general obligation of the borrower. In addition to being
unsecured, a Corporate Loan in which the Fund may invest may be subordinate
in right of payment to the senior debt obligations of the borrower. Upon a
liquidation or bankruptcy of the borrower the senior debt obligations of the
borrower are often required to be paid in full before the subordinated
debtholders are permitted to receive any distribution on behalf of their
claim. Distributions, if any, to subordinated debtholders in such situations
may consist in whole or in part in non-income producing securities, including
common stock. Accordingly, following an event of default or liquidation or
bankruptcy of a borrower, there can be no assurance that the assets of the
borrower will be sufficient to satisfy the claims of unsecured and
subordinated debtholders or, that such debtholders will receive income
producing debt securities in satisfaction of their claims. As a result, the
Fund might not receive payments to which it is entitled and thereby may
experience a decline in the value of its investment and possibly, its net
asset value.

The Fund may invest in Corporate Loans made in connection with
highly leveraged transactions. Corporate Loans made in connection with
highly leveraged transactions are subject to greater credit risks than other
Corporate Loans in which the Fund may invest. These credit risks include a
greater possibility of default or bankruptcy of the borrower and the
assertion that the pledging of collateral, if any, to secure the loan
constituted a fraudulent conveyance or preferential transfer which can be
nullified or subordinated to the rights of other creditors of the borrower
under applicable law. Highly leveraged Corporate Loans also may be less
liquid than other Corporate Loans.

The success of the Fund depends to a great degree, on the skill
with which the agent banks administer the terms of the Corporate Loan
agreements, monitor borrower compliance with covenants, collect principal,
interest and fee payments from borrowers and, where necessary, enforce
creditor remedies against borrowers. Typically, the agent bank, will have
broad discretion in enforcing a Corporate Loan agreement. The financial
status of the agent bank and co-lenders and participants interposed between
the Fund and a borrower may affect the ability of the Fund to receive
payments of interest and principal.

Lower-Rated Securities. Junk bonds and high-yield Corporate Loans
are regarded as being predominantly speculative as to the issuer's ability to
make payments of principal and interest. Investment in such securities
involves substantial risk. Issuers of junk bonds and high-yield Corporate
Loans may be highly leveraged and may not have available to them more
traditional methods of financing. Therefore, the risks associated with
acquiring the securities of such issuers generally are greater than is the
case with higher-rated securities. For example, during an economic downturn
or a sustained period of rising interest rates, issuers of junk bonds and
high-yield Corporate Loans may be more likely to experience financial stress,
especially if such issuers are highly leveraged. During periods of economic
downturns, such issuers may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations also may be adversely affected by specific issuer developments,
or the issuer's inability to meet specific projected business forecasts or
the unavailability of additional financing. The risk of loss due to default
by the issuer is significantly greater for the holders of junk bond and
high-yield Corporate Loans because such securities may be unsecured and may
be subordinate to other creditors of the issuer. Other than with respect to
Distressed Securities, the junk bonds and high-yield Corporate Loans in which
the Fund may invest do not include instruments which, at the time of
investment, are in default or the issuers of which are in bankruptcy.
However, there can be no assurance that such events will not occur after the
Fund purchases a particular security, in which case the Fund may experience
losses and incur costs.

Junk bonds frequently have call or redemption features that would
permit an issuer to repurchase the security from the Fund. If a call were
exercised by the issuer during a period of declining interest rates, the Fund
is likely to have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends
to shareholders.

Junk bonds and high-yield Corporate Loans tend to be more volatile
than higher-rated debt instruments, so that adverse economic events may have
a greater impact on the prices of junk bonds and high-yield Corporate Loans
than on high-rated debt instruments. Factors adversely affecting the market
value of such securities are likely to affect adversely the Fund's net asset
value. Like higher-rated debt instruments, junk bonds and high-yield
Corporate Loans generally are purchased and sold through dealers who make a
market in such securities for their own accounts. However, there are fewer
dealers in the junk bond and high-yield Corporate Loan markets, which markets
may be less liquid than the market for higher-rated debt instruments, even
under normal economic conditions. Also, there may be significant disparities
in the prices quoted for junk bonds and high-yield Corporate Loans by various
dealers. Adverse economic conditions and investor perceptions thereof
(whether or not based on economic fundamentals) may impair the liquidity of
this market and may cause the prices the Fund receives for its junk bonds and
high-yield Corporate Loans to be reduced. In addition, the Fund may
experience difficulty in liquidating a portion of its portfolio when
necessary to meet the Fund's liquidity needs or in response to a specific
economic event such as deterioration in the creditworthiness of the issuers.
Under such conditions, judgment may play a greater role in valuing certain of
the Fund's portfolio instruments than in the case of instruments trading in a
more liquid market. In addition, the Fund may incur additional expense to
the extent that it is required to seek recovery upon a default on a portfolio
holding or to participate in the restructuring of the obligation.

Adverse publicity and investor perceptions, which may not be based
on fundamental analysis, also may decrease the value and liquidity of junk
bonds and high-yield Corporate Loans, particularly in a thinly traded market.
Factors adversely affecting the market value of such securities are likely to
affect adversely the Fund's net asset value. In addition, the Fund may incur
additional expenses to the extent that it is required to seek recovery upon a
default on a portfolio holding or to participate in the restructuring of the
obligation.

Distressed Securities. The Fund may invest up to 35% of its total
assets in Distressed Securities. Distressed Securities are high yield/high
risk securities, including Corporate Loans purchased in the secondary market,
which are the subject of bankruptcy proceedings or otherwise in default as to
the repayment of principal and/or payment of interest at the time of
acquisition by the Fund or are rated in the lower rating categories (Ca or
lower by Moody's and CC or lower by S&P) or which, if unrated, are in the
judgment of the Investment Adviser of equivalent quality. Investment in
Distressed Securities is speculative and involves significant risk.
Distressed Securities frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses
in order to protect and recover its investment. Therefore, to the extent the
Fund pursues its secondary objective of capital appreciation through
investment in Distressed Securities, the Fund's ability to achieve current
income for its shareholders may be diminished. The Fund also will be subject
to significant uncertainty as to when and in what manner and for what value
the obligations evidenced by the Distressed Securities will eventually be
satisfied; e.g., through a liquidation of the obligor's assets, an exchange
offer or plan of reorganization involving the Distressed Securities or a
payment of some amount in satisfaction of the obligation. In addition, even
if an exchange offer is made or plan of reorganization is adopted with
respect to Distressed Securities held by the Fund, there can be no assurance
that the securities or other assets received by the Fund in connection with
such exchange offer or plan of reorganization will not have a lower value or
income potential than may have been anticipated when the investment was made.
Moreover, any securities received by the Fund upon completion of an exchange
offer or plan of reorganization may be restricted as to resale. As a result
of the Fund's participation in negotiations with respect to any exchange
offer or plan of reorganization with respect to an issuer of Distressed
Securities, the Fund may be restricted from disposing of such securities.

Leverage. The use of leverage by the Fund creates an opportunity
for increased net income and capital appreciation for the Common Stock, but,
at the same time, creates special risks. The Fund intends to utilize
leverage to provide the holders of Common Stock with a potentially higher
return. Leverage creates risks for holders of Common Stock including the
likelihood of greater volatility of net asset value and market price of
shares of the Common Stock, and the risk that fluctuations in interest rates
on borrowings and short-term debt or in the dividend rates on any preferred
stock may affect the return to holders of Common Stock. To the extent the
income or capital appreciation derived from securities purchased with funds
received from leverage exceeds the cost of leverage, the Fund's return will
be greater than if leverage had not been used. Conversely, if the income or
capital appreciation from the securities purchased with such funds is not
sufficient to cover the cost of leverage, the return to the Fund will be less
than if leverage had not been used, and therefore the amount available for
distribution to shareholders as dividends and other distributions will be
reduced. In the latter case, the Fund may nevertheless determine to
maintain its leveraged position in order to avoid capital losses on
securities purchased with the leverage. Certain types of borrowings may
result in the Fund being subject to covenants in credit agreements relating
to asset coverage and portfolio composition requirements. The Fund may
be subject to certain restrictions on investments imposed by guidelines of
one or more nationally recognized statistical ratings organization which may
issue ratings for the short-term corporate debt securities or preferred
stock issued by the Fund. These guidelines may impose asset coverage
or portfolio composition requirements that are more stringent than those
imposed by the Investment Company Act of 1940, as amended (the "Investment
Company Act"). It is not anticipated that these covenants or guidelines
will impede the Investment Adviser from managing the Fund's portfolio in
accordance with the Fund's investment objectives and policies. See
"Other Investment Policies-- Leverage."

Other Investment Management Techniques. The Fund may use various
other investment management techniques that also involve special
considerations, including engaging in interest rate transactions, utilization
of options and futures transactions, utilization of foreign currency swaps,
making forward commitments and lending its portfolio securities. For further
discussion of these practices and the associated risks and special
considerations, see "Other Investment Policies."

Non U.S. Securities. The Fund may invest up to 20% of its total
assets in financial instruments of issuers domiciled outside the United
States, provided such issuers are domiciled in a country that is a member of
the OECD. Such instruments may be denominated in various currencies and
multinational currency units. Investing in securities issued by non-U.S.
issuers involves certain special risks not typically involved in U.S.
investments, including fluctuations in foreign exchange rates, future
political and economic developments, the possible imposition of exchange
controls or other foreign or U.S. governmental laws or restrictions
applicable to such loans. With respect to certain countries, there is the
possibility of expropriation or confiscatory taxation, political or social
instability, currency devaluations, or diplomatic developments which could
affect the Fund's investments in those financial instruments. Moreover, an
individual country's economy may differ favorably or unfavorably from the
U.S. economy in such respects as, but not limited to, growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. In addition, information
with respect to non-U.S. issuers may differ from that available with respect
to U.S. issuers, since non-U.S. issuers are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those applicable to U.S. issuers. The Fund does
not currently intend to hedge its non-dollar denominated portfolio
investments. Additionally, the Fund may invest in Corporate Loans made to
U.S. Borrowers with significant non-dollar denominated revenues.

Concentration in Financial Institutions. The Fund may be deemed to
be concentrated in securities of issuers in the industry group consisting of
financial institutions and their holding companies, including commercial
banks, thrift institutions, insurance companies and finance companies. As a
result, the Fund is subject to certain risks associated with such
institutions, including, among other things, changes in governmental
regulation, interest rate levels and general economic conditions. See
"Investment Objectives and Policies--Description of Corporate Loans" and "-
Description of Participation Interests."

Illiquid Securities. The Fund may invest in securities that lack
an established secondary trading market or are otherwise considered illiquid.
Some or all of the Corporate Loans in which the Fund invests will be
considered to be illiquid. Liquidity of a security relates to the ability to
easily dispose of the security and the price to be obtained and does not
generally relate to the credit risk or likelihood of receipt of cash at
maturity. Illiquid corporate bonds and notes may trade at a discount from
comparable, more liquid investments.

Antitakeover Provisions. The Fund's Articles of Incorporation
include provisions that could have the effect of limiting the ability of
other entities or persons to acquire control of the Fund or to change the
composition of its Board of Directors and could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund. See "Description of Capital Stock--Certain Provisions
of the Articles of Incorporation."

For these reasons, an investment in Common Stock of the Fund may be
speculative in that it involves a high degree of risk and should not
constitute a complete investment program.

FEE TABLE
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price) None
Dividend Reinvestment and Plan Fees . . . . . . . . . None
ANNUAL EXPENSES (as a percentage of net assets
attributable to shares of Common Stock)
Management Fees(a)(b) . . . . . . . . . . . . . . . . %
Interest Payments on Borrowed Funds(b) . . . . . . . . None
Other Expenses(b) . . . . . . . . . . . . . . . . . . %
Total Annual Expenses(b) %

EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
________ ________ _______ ________
An investor would pay the following expenses on a $1,000
investment, assuming (1) total annual expenses of %
___
(assuming no leverage) and % (assuming leverage) and
____
(2) a 5% annual return throughout the periods:
Assuming No Leverage . . . . . . . . . . . . . . .
. .
Assuming Leverage . . . . . . . . . . . . . . . . $ $ $ $
. . . $ $ $ $

</TABLE>

(a) See "Investment Advisory and Management Arrangements"--page 24.
(b) In the event the Fund utilizes leverage by borrowing in an amount of
approximately 331/3% of the Fund's total assets, it is estimated that
the Management Fees would be %, Interest Payments on Borrowed Funds
____
would be % and Total Annual Expenses would be %. See "Risk
____ _____
Factors and Special Considerations--Leverage" and "Other Investment
Policies--Leverage".

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 expenses set forth under "Other expenses" are based on
estimated amounts through the end of the Fund's first fiscal year on an
annualized basis. 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 regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED A REPRESENTATION OF 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.

THE FUND

Debt Strategies Fund, Inc. (the "Fund") is a newly organized,
diversified, closed-end management investment company. The Fund was
incorporated under the laws of the State of Maryland on April 3, 1997, and
has registered under the Investment Company Act. See "Description of Capital
Stock." The Fund's principal office is located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, and its telephone number is (609) 282-2800.

The Fund has been organized as a closed-end investment company.
Closed-end investment companies differ from open-end investment companies
(commonly referred to as mutual funds) in that closed-end investment
companies do not redeem their securities at the option of the shareholder,
whereas open-end companies issue securities redeemable at net asset value at
any time at the option of the shareholder and typically engage in a
continuous offering of their shares. Accordingly, open-end companies are
subject to continuous asset in-flows and out-flows that can complicate
portfolio management. However, shares of closed-end investment companies
frequently trade at a discount from net asset value. This risk may be
greater for initial investors expecting to sell their shares in a relatively
short period after completion of the public offering.

USE OF PROCEEDS

The net proceeds of this offering will be approximately $___________ (or
approximately $___________ assuming the Underwriter exercises the
over-allotment option in full) after payment of organizational and offering
costs.

The net proceeds of the offering will be invested in accordance with the
Fund's investment objectives and policies within approximately three months
after completion of the offering of Common Stock, depending on market
conditions and the availability of appropriate securities. Pending such
investment, it is anticipated that the proceeds will be invested in U.S.
government securities or high grade, short-term money market instruments.
See "Investment Objectives and Policies."

INVESTMENT OBJECTIVES AND POLICIES

The Fund's primary investment objective is to seek to provide current
income by investing primarily in a diversified portfolio of U.S. companies'
debt instruments, including Corporate Loans, which are rated in the lower
rating categories of the established rating services (Baa or lower by Moody's
or BBB or lower by S&P) or unrated debt instruments which are in the judgment
of the Investment Adviser of equivalent quality. Such investments generally
involve greater volatility of price and risks to principal and income than
securities in the higher rating categories. As a secondary objective, the
Fund will seek capital appreciation. Up to 35% of the Fund's total assets
may be invested in Distressed Securities, which includes publicly offered or
privately placed debt securities and Corporate Loans which, at the time of
investment, are the subject of bankruptcy proceedings or otherwise in default
as to the repayment of principal or payment of interest or are rated in the
lowest rating categories (Ca or lower by Moody's and CC or lower by S&P) or
which, if unrated, are in the judgment of the Investment Adviser of
equivalent quality. The remaining 20% of the Fund's total assets may be
invested in financial instruments of issuers domiciled outside the U.S.,
provided such issuers are domiciled in a country that is a member of the
OECD. Such instruments may be denominated in various currencies and
multinational currency units. The Fund does not currently intend to hedge
its non-dollar denominated portfolio investments. For these reasons, an
investment in the Fund may be speculative in that it involves a high degree
of risk and should not constitute a complete investment program. See "Risk
Factors and Special Considerations." Up to 20% of the Fund's total assets
can be invested in convertible debt instruments and preferred stock, each of
which may be converted into common stock or other securities of the same or a
different issuer, and non-convertible preferred stock. As a result of
conversions of convertible securities or upon an exchange offer or bankruptcy
plan of reorganization, a significant portion of the Fund's total assets may
be invested in common stock at certain points in time. Under normal market
conditions, at least 65% of the Fund's total assets will be invested in debt
instruments. The Fund's investment objectives are fundamental policies and
may not be changed without the approval of a majority of the outstanding
voting securities of the Fund (as defined in the Investment Company Act).
There can be no assurance that the investment objectives of the Fund will be
realized.

The Fund's investment policies permit investment in the following asset
classes which are described in greater detail below: (i) senior and
subordinated Corporate Loans, both secured and unsecured, issued either
directly by the borrower or in the form of participation interests in
Corporate Loans made by banks and other financial institutions; (ii) publicly
offered and privately placed high-yield debt securities, senior and
subordinated, both secured and unsecured; and (iii) convertible debt
instruments and preferred stock, each of which may be converted into common
stock or other securities of the same or a different issuer, and non-
convertible preferred stock. The debt securities and Corporate Loans in
which the Fund invests may pay interest at fixed rates or at rates that float
at a margin above a generally recognized base lending rate such as the prime
rate of a designated U.S. bank, or that adjust periodically at a margin above
the CD rate or LIBOR.

Subject to other investment restrictions applicable to the Fund, up to
10% of the Fund's assets may be invested in debt instruments, including
Corporate Loans, of investment companies (which may or may not be registered
under the Investment Company Act) whose portfolio securities consist entirely
of (i) corporate debt or equity securities acceptable to the Fund's
Investment Adviser or (ii) money market instruments.

Under unusual market or economic conditions or for temporary or
defensive or liquidity purposes, the Fund may invest up to 100% of its assets
in securities issued or guaranteed by the U.S. Government or its
instrumentalities or agencies, certificates of deposits, banker's
acceptances, and other bank obligations, commercial paper rated in the
highest category by a nationally recognized statistical rating organization
or other fixed-income securities deemed by the Investment Adviser to be
consistent with a defensive posture. The yield on such securities may be
lower than the yield on lower-rated fixed-income securities.

Although the Fund will invest primarily in lower-rated securities, other
than with respect to Distressed Securities (which are discussed below) it
will not invest in securities in the lowest rating categories (Ca or below by
Moody's and CC or below by S&P) unless the Investment Adviser believes that
the financial condition of the issuer or the protection afforded to the
particular securities is stronger than would otherwise be indicated by such
low ratings.

The Fund's investment philosophy is based on the belief that, under
varying economic and market conditions, certain debt instruments will perform
better than other debt instruments. The Fund's fully managed approach puts
maximum emphasis on the flexibility of the Investment Adviser to analyze
various opportunities among debt instruments and to make judgments regarding
which debt instruments provide, in the opinion of the Investment Adviser, the
highest potential opportunity for current income and, secondarily, capital
appreciation. This approach distinguishes the Fund from other funds which
often seek either capital growth or current income or are restricted to
fixed-rate securities or floating rate instruments. Consistent with this
approach, when changing economic conditions and other factors cause the yield
difference between lower-rated and higher-rated securities to narrow, the
Fund may purchase higher-rated securities if the Investment Adviser believes
that the risk of loss of income and principal may be substantially reduced
with only a relatively small reduction in yield.

Investment in the Common Stock of the Fund offers the individual
investor several potential benefits. First, the Fund offers the opportunity
to participate in a portfolio which may contain investments, such as
Corporate Loans, that historically only have been available mainly to
institutional investors. In managing such a portfolio, the Investment
Adviser provides professional management which includes the extensive credit
analysis needed to invest in Corporate Loans, junk bonds and Distressed
Securities. The Fund also relieves the investor of the burdensome
administrative details involved in managing a portfolio of such investments.
Additionally, the Investment Adviser may seek to enhance the yield or capital
appreciation of the Fund's Common Stock by leveraging the Fund's capital
structure through the borrowing of money or the issuance of short-term debt
securities or shares of preferred stock. The benefits are at least partially
offset by the expenses involved in running an investment company. Such
expenses primarily consist of advisory fees and operational costs. The use
of leverage also involves certain expenses and risk considerations. See "
Risk Factors and Special Considerations" and "Other Investment Policies -
Leverage."

The Fund may engage in various portfolio strategies to seek to increase
its return and to hedge its portfolio against movements in interest rates or
foreign currencies through the use of interest rate or foreign currency swap
transactions, the purchase of call and put options on securities, the sale of
covered call and put options on its portfolio securities and transactions in
financial futures and related options on such futures. Each of these
portfolio strategies is described below. There can be no assurance that the
Fund will employ these strategies or that, if employed, they will be
effective.

The Fund may invest in, among other things, the types of instruments
described below:

DESCRIPTION OF CORPORATE LOANS

The Corporate Loans in which the Fund may invest generally consist of
direct obligations of a borrower ("Borrower") undertaken to finance the
growth of the Borrower's business internally or externally, or to finance a
capital restructuring. Corporate Loans may also include obligations of a
Borrower issued in connection with a restructuring or a bankruptcy. A
significant portion of the Corporate Loans in which the Fund invests are
highly leveraged loans, such as leveraged buy-out loans, leveraged
recapitalization loans and other types of acquisition loans. Such Corporate
Loans may be structured to include both term loans, which are generally fully
funded at the time of the Fund's investment and revolving credit facilities,
which would require the Fund to make additional investments in Corporate
Loans as required under the terms of the credit facility. Such Corporate
Loans may also include receivables purchase facilities, which are similar
to revolving credit facilities secured by a Borrower's receivables.

The Fund may invest in senior and subordinated Corporate Loans, both
secured and unsecured. The Corporate Loans in which the Fund invests may be
senior debt obligations of the Borrower and may, in some instances, hold the
most senior position in the capitalization structure of the Borrower (i.e.
not subordinated to other debt obligations in right of payment). Corporate
Loans which are senior debt obligations of the Borrower may be wholly or
partially secured by collateral, or may be unsecured. However, even in the
case of a secured Corporate Loan, upon an event of default the ability of a
lender to have access to the collateral, if any, or otherwise recover its
investment may be limited by bankruptcy and other insolvency laws. The value
of the collateral may decline subsequent to the Fund's investment in the
Corporate Loan. Under certain circumstances, the collateral may be released
with the consent of the syndicate of lenders and the lender which is
administering the Corporate Loan on behalf of the syndicate ("Agent Bank") or
pursuant to the terms of the underlying credit agreement with the Borrower.
There is no assurance that the liquidation of the collateral would satisfy
the Borrower's obligations in the event of the nonpayment of scheduled
interest or principal, or that the collateral could be readily liquidated.
As a result, the Fund might not receive payments to which it is entitled and
thereby may experience a decline in the value of the investment and possibly,
its net asset value.

In addition to senior and secured Corporate Loans, the Fund may invest
in Corporate Loans which are unsecured and subordinated. A Corporate Loan
which is unsecured is not supported by any specific pledge of collateral and
therefore constitutes only a general obligation of the Borrower. In addition
to being unsecured a Corporate Loan in which the Fund may invest may be
subordinate in right of payment to the senior debt obligations of the
Borrower. Upon a liquidation or bankruptcy of the Borrower the senior debt
obligations of the Borrower are often required to be paid in full before the
subordinated debtholders are permitted to receive any distribution on behalf
of their claim. Distributions, if any, to subordinated debtholders in such
situations may consist in whole or in part in non-income producing
securities, including common stock. Accordingly, following an event of
default or liquidation or bankruptcy of a Borrower, there can be no assurance
that the assets of the Borrower will be sufficient to satisfy the claims of
unsecured and subordinated debtholders or, that such debtholders will receive
income producing debt securities in satisfaction of their claims. As a
result, the Fund might not receive payments to which it is entitled and
thereby may experience a decline in the value of its investment and possibly,
its net asset value.

Corporate Loans made in connection with highly leveraged transactions
are subject to greater risks than other Corporate Loans in which the Fund may
invest. These credit risks include a greater possibility of default or
bankruptcy of the Borrower, and the potential assertion that the pledging of
collateral, if any, to secure the loan constituted a fraudulent conveyance or
preferential transfer which can be nullified or subordinated to the rights of
other creditors of the Borrower under applicable law. Highly leveraged
Corporate Loans may also be less liquid than other Corporate Loans.

The rate of interest payable on floating or variable rate Corporate
Loans is established as the sum of a base lending rate used by commercial
lenders plus a specified margin. These base lending rates generally are the
Prime Rate of a designated U.S. bank, LIBOR, the CD rate or another base
lending rate used by commercial lenders. The interest rate on Prime
Rate-based Corporate Loans floats daily as the Prime Rate changes, while the
interest rate on LIBOR-based and CD-based Corporate Loans is reset
periodically, typically every 30 days to one year. Certain of the floating
or variable rate Corporate Loans in which the Fund will invest may permit the
Borrower to select an interest rate reset period of up to one year. A
portion of the Fund's portfolio may be invested in Corporate Loans with
longer interest rate reset periods or fixed interest rates which are
generally more susceptible to interest rate risks in the event of
fluctuations in prevailing interest rates.

The Fund may receive and/or pay certain fees in connection with its
investments in Corporate Loans. These fees are in addition to interest
payments received and may include facility fees, commissions and prepayment
penalty fees. When the Fund buys a Corporate Loan it may receive a facility
fee and when it sells a Corporate Loan it may pay a facility fee. In certain
circumstances, the Fund may receive a prepayment penalty fee on the
prepayment of a Corporate Loan by a Borrower. These fees are intended to
adjust the yield on such Corporate Loans. In connection with the acquisition
of Corporate Loans, the Fund may also acquire warrants and other equity
securities of the Borrower or its affiliates. The acquisition of such equity
securities will only be incidental to the Fund's purchase of an interest in a
Corporate Loan.

In making an investment in a Corporate Loan, the Investment Adviser will
consider factors deemed by it to be appropriate to the analysis of the
Borrower and the Corporate Loan. Such factors include financial ratios of
the Borrower such as pre-tax interest coverage, leverage ratios, and the
ratios of cash flows to total debts and the ratio of tangible assets to debt.
In its analysis of these factors, the Investment Adviser also will be
influenced by the nature of the industry in which the Borrower is engaged,
the nature of the Borrower's assets and the Investment Adviser's assessments
of the general quality of the Borrower.

A Borrower also may be required to comply with various restrictive
covenants contained in any loan agreement between the Borrower and the
lending syndicate ("Corporate Loan Agreement"). Such covenants, in addition
to requiring the scheduled payment of interest and principal, may include
restrictions on dividend payments and other distributions to stockholders,
provisions requiring the Borrower to maintain specific financial ratios or
relationships and limits on total debt. In addition, a Corporate Loan
Agreement may contain a covenant requiring the Borrower to prepay the
Corporate Loan with any excess cash flow. Excess cash flow generally
includes net cash flow after scheduled debt service payments and permitted
capital expenditures, among other things, as well as the proceeds from asset
dispositions or sales of securities. A breach of covenant (after giving
effect to any cure period) which is not waived by the Agent Bank and the
lending syndicate normally is an event of acceleration, i.e., the Agent Bank
has the right to call the outstanding Corporate Loan, generally at the
request of the lending syndicate.

The Fund has no restrictions on portfolio maturity, but it is
anticipated that a majority of the Corporate Loans will have stated
maturities ranging from five to eight years. However, such Corporate Loans
usually will require, in addition to scheduled payments of interest and
principal, the prepayment of the Corporate Loans from excess cash flow, as
discussed above, and may permit the Borrower to prepay at its election. The
degree to which Borrowers prepay Corporate Loans, whether as a contractual
requirement or at their election, may be affected by general business
conditions, the financial condition of the Borrower and competitive
conditions among lenders, among other factors. Accordingly, prepayments
cannot be predicted with accuracy.

Loans to non-U.S. Borrowers or to U.S. Borrowers with significant
non-dollar-denominated revenues may provide for conversion of all or part of
the loan from a dollar-denominated obligation into a foreign currency
obligation at the option of the Borrower.

DESCRIPTION OF PARTICIPATION INTERESTS

Corporate Loans in which the Fund may invest are typically originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting
of commercial banks, thrift institutions, insurance companies, finance
companies or other financial institutions, one or more of which acts as Agent
Bank. Co-Lenders may sell Corporate Loans to third parties called
"Participants". The Fund may invest in a Corporate Loan either by
participating as a Co-Lender at the time the loan is originated or by buying
an interest in the Corporate Loan from a Co-Lender or a Participant.
Co-Lenders and Participants interposed between the Fund and a Borrower,
together with Agent Banks, are referred to herein as "Intermediate
Participants".

The Fund may invest in a Corporate Loan at origination as a Co-Lender or
by purchasing a Corporate Loan from an Intermediate Participant by means of a
novation, an assignment or a participation. In a novation, the Fund would
assume all of the rights of the Intermediate Participant in a Corporate Loan,
including the right to receive payments of principal and interest and other
amounts directly from the Borrower and to enforce its rights as lender
directly against the Borrower and would assume all of the obligations of the
Intermediate Participant, including any obligation to make future advances to
the Borrower. As a result, therefore, the Fund would have the status of a
Co-Lender. As an alternative, the Fund may purchase an assignment of all or
a portion of an Intermediate Participant's interest in a Corporate Loan, in
which case the Fund may be required generally to rely on the assigning lender
to demand payment and enforce its rights against the Borrower, but would
otherwise be entitled to all of such lender's rights in the Corporate Loan.
The Fund also may purchase a participation in a portion of the rights of an
Intermediate Participant in a Corporate Loan by means of a participation
agreement with such Intermediate Participant. A participation in the rights
of an Intermediate Participant is similar to an assignment in that the
Intermediate Participant transfers to the Fund all or a portion of an
interest in a Corporate Loan. Unlike an assignment, however, a participation
does not establish any direct relationship between the Fund and the Borrower.
In such a case, the Fund would be required to rely on the Intermediate
Participant that sold the participation not only for the enforcement of the
Fund's rights against the Borrower but also for the receipt and processing of
payments due to the Fund under the Corporate Loan. The Fund will not act as
an Agent Bank, guarantor, sole negotiator or sole structurer with respect to
a Corporate Loan.

Because it may be necessary to assert through an Intermediate
Participant such rights as may exist against the Borrower, in the event that
the Borrower fails to pay principal and interest when due, the Fund may be
subject to delay, expense and risks that are greater than those that would be
involved if the Fund could enforce its rights directly against the Borrower.
Moreover, under the terms of the participation, the Fund may be regarded as a
creditor of the Intermediate Participant (rather than of the Borrower), so
that the Fund may also be subject to the risk that the Intermediate
Participant may become insolvent. Similar risks may arise with respect to
the Agent Bank, as described below. Further, in the event of the bankruptcy
or insolvency of the Borrower, the obligation of the Borrower to repay the
Corporate Loan may be subject to certain defenses that can be asserted by
such Borrower as result of improper conduct by the Agent Bank or Intermediate
Participant.

Because the Fund will regard the issuer of a Corporate Loan as including
the Borrower under a Corporate Loan Agreement, the Agent Bank and any
Intermediate Participant, the Fund may be deemed to be concentrated in
securities of issuers in the industry group consisting of financial
institutions and their holding companies, including commercial banks, thrift
institutions, insurance companies and finance companies. As a result, the
Fund is subject to certain risks associated with such institutions. Banking
and thrift institutions are subject to extensive governmental regulations
which may limit both the amounts and types of loans and other financial
commitments which such institutions may make and the profitability of these
institutions is largely dependent on the availability and cost of capital
funds. In addition, general economic conditions are important to the
operation of these institutions, with exposure to credit losses resulting
from possible financial difficulties of borrowers potentially having an
adverse effect. Insurance companies are also affected by economic and
financial conditions and are subject to extensive government regulation,
including rate regulations. Individual companies may be exposed to material
risks, including reserve inadequacy.

In a typical Corporate Loan, the Agent Bank administers the terms of the
Corporate Loan Agreement and is responsible for the collection of principal
and interest and fee payments from the Borrower and the apportionment of
these payments to the credit of all investors which are parties to the
Corporate Loan Agreement. The Fund generally will rely on the Agent Bank or
an Intermediate Participant to collect its portion of the payments on the
Corporate Loan. Furthermore, the Fund will rely on the Agent Bank to enforce
appropriate creditor remedies against the Borrower. Typically, under
Corporate Loan Agreements, the Agent Bank is given broad discretion in
enforcing the Corporate Loan Agreement, and it is obliged to use only the
same care it would use in the management of its own property. For these
services the Borrower compensates the Agent Bank. Such compensation may
include special fees paid on structuring and funding the Corporate Loan and
other fees paid on a continuing basis.

In the event that an Agent Bank becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, assets
held by the Agent Bank under the Corporate Loan Agreement should remain
available to holders of Corporate Loans. If, however, assets held by the
Agent Bank for the benefit of the Fund are determined by an appropriate
regulatory authority or court to be subject to the claims of the Agent Bank's
general or secured creditors, the Fund might incur certain costs and delays
in realizing payment on a Corporate Loan, or suffer a loss of principal
and/or interest. In situations involving Intermediate Participants similar
risks may arise, as described above.

Intermediate Participants may have certain obligations pursuant to a
Corporate Loan Agreement, which may include the obligation to make future
advances to the Borrower in connection with revolving credit facilities in
certain circumstances. The Fund currently intends to reserve against such
contingent obligations by segregating sufficient investments in high quality,
short-term, liquid instruments. The Fund will not invest in Corporate Loans
that would require the Fund to make any additional investments in connection
with such future advances if such commitments would exceed 20% of the Fund's
total assets or would cause the Fund to fail to meet the diversification
requirements described under "Investment Objectives and Policies."

DESCRIPTION OF HIGH-YIELD SECURITIES

The Fund may invest in high-yield corporate debt securities, including
Corporate Loans, which are rated in the lower rating categories of the
established rating services (Baa or lower by Moody's and BBB or lower by
S&P), or in unrated securities considered by the Investment Adviser to be of
comparable quality. Securities rated below Baa by Moody's or below BBB by
S&P, and unrated securities of comparable quality, are commonly known as
"junk bonds". See Appendix A - "Description of Corporate Bond Ratings" for
additional information concerning rating categories.

Although high-yield securities can be expected to provide higher yields,
such securities may be subject to greater market fluctuations and risk of
loss of income and principal than lower-yielding, higher-rated fixed-income
securities. As described under "Risk Factors and Special Considerations,"
economic conditions and interest rate levels may impact significantly the
values of high-yield securities. In addition, high-yield securities are
often unsecured and subordinated obligations of the issuer. Accordingly,
following an event of default or liquidation or bankruptcy of the issuer, the
Fund might not receive payments to which it is entitled, or may receive
distributions of non-income producing securities, including common stock, and
thereby may experience a decline in the value of its investment and possibly
its net asset value.

Selection and supervision of high-yield securities by the Investment
Adviser involves continuous analysis of individual issuers, general business
conditions and other factors which may be too time-consuming or too costly
for the average investor. The furnishing of these services does not, of
course, guarantee successful results. The Investment Adviser's analysis of
issuers includes, among other things, historic and current financial
conditions, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical costs, strength of management,
responsiveness to business conditions, credit standing and current and
anticipated results of operations. Analysis of general conditions and other
factors may include anticipated change in economic activity
and interest rates, the availability of new investment opportunities and the
economic outlook for specific industries. While the Investment Adviser
considers as one factor in its credit analysis the ratings assigned by the
rating services, the Investment Adviser performs its own independent credit
analysis of issuers and, consequently, the Fund may invest, without limit, in
unrated securities. As a result, the Fund's ability to achieve its
investment objectives may depend to a greater extent on the Investment
Adviser's own credit analysis than investment companies which invest in
higher-rated securities. Although the Fund will invest primarily in
lower-rated securities, other than with respect to Distressed Securities
(which are discussed below) it will not invest in securities in the lowest
rating categories (Ca or below by Moody's and CC or below by S&P) unless the
Investment Adviser believes that the financial condition of the issuers or
the protection afforded to the particular securities is stronger than would
otherwise be indicated by such ratings. Securities which subsequently are
downgraded may continue to be held by the Fund and will be sold only if, in
the judgment of the Investment Adviser, it is advantageous to do so.

In connection with its investments in corporate debt securities, or
restructuring of investments owned by the Fund, the Fund may receive warrants
or other non-income producing equity securities. The Fund may retain such
securities until the Investment Adviser determines it is appropriate in light
of current market conditions to effect a disposition of such securities.

When changing economic and other factors cause the yield difference
between lower-rated and higher-rated securities to narrow, the Fund may
purchase higher-rated securities if the Investment Adviser believes that the
risk of loss of income and principal may be reduced substantially with only a
relatively small reduction in yield.

DESCRIPTION OF DISTRESSED SECURITIES

The Fund may invest up to 35% of its total assets in Distressed
Securities. Distressed Securities are high yield/high risk securities,
including Corporate Loans purchased in the secondary market, which are the
subject of bankruptcy proceedings or otherwise in default as to the repayment
of principal and/or payment of interest at the time of acquisition by the
Fund or are rated in the lower rating categories (Ca or lower by Moody's and
CC or lower by S&P) or which, if unrated, are in the judgment of the
Investment Adviser of equivalent quality. Investment in Distressed
Securities is speculative and involves significant risk. Distressed
Securities frequently do not produce income while they are outstanding and
may require the Fund to bear certain extraordinary expenses in order to
protect and recover its investment. Therefore, to the extent the Fund
pursues its secondary objective of capital appreciation through investment in
Distressed Securities, the Fund's ability to achieve current income for its
shareholders may be diminished. The Fund also will be subject to significant
uncertainty as to when and in what manner and for what value the obligations
evidenced by the Distressed Securities will eventually be satisfied; e.g.,
through a liquidation of the obligor's assets, an exchange offer or plan of
reorganization involving the Distressed Securities or a payment of some
amount in satisfaction of the obligation. In addition, even if an exchange
offer is made or plan of reorganization is adopted with respect to Distressed
Securities held by the Fund, there can be no assurance that the securities or
other assets received by the Fund in connection with such exchange offer or
plan of reorganization will not have a lower value or income potential than
may have been anticipated when the investment was made. Moreover, any
securities received by the Fund upon completion of an exchange offer or plan
of reorganization may be restricted as to resale. As a result of the Fund's
participation in negotiations with respect to any exchange offer or plan of
reorganization with respect to an issuer of Distressed Securities, the Fund
may be restricted from disposing of such securities. See "Risk Factors and
Special Considerations."

DESCRIPTION OF CONVERTIBLE SECURITIES AND PREFERRED STOCK

A convertible security is a bond, debenture, note or preferred stock
that may be converted into or exchanged for a prescribed amount of common
stock or other securities of the same or a different issuer within a
particular period of time at a specified price or formula. A convertible
security entitles the holder to receive interest generally paid or accrued on
debt or the dividend paid on preferred stock until the convertible security
matures or is redeemed, converted or exchanged. Convertible securities have
several unique investment characteristics such as (i) higher yields than
common stocks, but lower yields than comparable nonconvertible securities,
(ii) a lesser degree of fluctuation in value than the underlying stock since
they have fixed income characteristics, and (iii) the potential for capital
appreciation if the market price of the underlying common stock increases.
Holders of convertible securities have a claim on the assets of the issuer
prior to the common stockholders but may be subordinated to similar non-
convertible securities of the same issuer. A convertible security might be
subject to redemption at the option of the issuer at a price established in
the convertible security's governing instrument. If a convertible security
held by the Fund is called for redemption, the Fund may be required to permit
the issuer to redeem the security, convert it into the underlying common
stock or other securities or sell it to a third party.

The Fund may invest in non-convertible preferred stock which generally
entitles the holders to receive a dividend payment. Holders of preferred
stock have a claim on the assets of the issuer prior to the common
stockholders but subordinate to the creditors and holders of debt instruments
of the same issuer. Preferred stock may be subject to redemption at the
option of the issuer at a price established in the preferred stock governing
instrument.

ILLIQUID SECURITIES

Corporate Loans, junk bonds, and other securities held by the Fund may
not be readily marketable and may be subject to restrictions on resale.
Although Corporate Loans are transferred among certain financial
institutions, as described above, the Corporate Loans in which the Fund
invests may not have the liquidity of conventional debt securities traded in
the secondary market and may be considered illiquid. As the market for
Corporate Loans becomes more seasoned, the Investment Adviser expects that
liquidity will improve. The Fund has no limitation on the amount of its
investments which are not readily marketable or are subject to restrictions
on resale.

OTHER INVESTMENT POLICIES

The Fund has adopted certain other policies as set forth below:

LEVERAGE

At times, the Fund expects to utilize leverage through borrowings or
issuance of short-term debt securities or shares of preferred stock. Under
current market conditions, the Fund intends to utilize leverage in an amount
equal to approximately 331/3% of its total assets (including the amount
obtained from leverage). The Fund will generally not utilize leverage if it
anticipates that the Fund's leveraged capital structure would result in a
lower return to holders of the Common Stock than that obtainable if the
Common Stock were unleveraged for any significant amount of time. The Fund
may also borrow money as a temporary measure for extraordinary or emergency
purposes, including the payment of dividends and the settlement of securities
transactions which may otherwise require untimely dispositions of Fund
securities.

The concept of leveraging is based on the premise that the cost of the
assets to be obtained from leverage will be based on short-term rates which
normally will be lower than the return earned by the Fund on its longer term
portfolio investments. Since the total assets of the Fund (including the
assets obtained from leverage) will be invested in higher yielding portfolio
investments or portfolio investments with the potential for capital
appreciation, the holders of Common Stock will be the beneficiaries of the
incremental return. Should the differential between the return on the
underlying assets and the cost of leverage narrow, the incremental return
"pick up" will be reduced. Furthermore, if long-term rates rise, the Common
Stock net asset value will reflect the decline in the value of portfolio
holdings resulting therefrom.

Leverage creates risks for the holders of Common Stock, including the
likelihood of greater volatility of net asset value and market price of
shares of the Common Stock, and the risk that fluctuations in interest rates
on borrowings or in the dividend rates on any preferred stock may affect the
return to the holders of Common Stock. To the extent the income or capital
appreciation derived from securities purchased with funds received from
leverage exceeds the cost of leverage, the Fund's return will be greater than
if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such funds is not sufficient
to cover the cost of leverage, the return of the Fund will be less than if
leverage had not been used, and therefore the amount available to
shareholders as dividends and other distributions will be reduced. In the
latter case, the Fund may nevertheless determine to maintain its leveraged
position in order to avoid capital losses on securities purchased with the
leverage.

Capital raised through leverage will be subject to interest costs or
dividend payments which may or may not exceed the income and appreciation on
the assets purchased. The Fund also may be required to maintain minimum
average balances in connection with borrowings or to pay a commitment or
other fee to maintain a line of credit. Either of these requirements will
increase the cost of borrowing over the stated interest rate. The issuance
of preferred stock involves offering expenses and other costs and may limit
the Fund's freedom to pay dividends on shares of Common Stock or to engage in
other activities. Borrowings and the issuance of preferred stock having
priority over the Fund's Common Stock create an opportunity for greater
return per share of Common Stock, but at the same time such borrowing or
issuance of preferred stock is a speculative technique in that it will
increase the Fund's exposure to capital risk. Such risks may be reduced
through the use of borrowings and preferred stock that have floating rates of
interest. Unless the income and appreciation, if any, on assets acquired
with borrowed funds or offering proceeds exceeds the cost of borrowing or
issuing additional classes of securities, the use of leverage will diminish
the investment performance of the Fund compared with what it would have been
without leverage.

Certain types of borrowings may result in the Fund being subject to
covenants in credit agreements relating to asset coverage and portfolio
composition requirements. The Fund may be subject to certain restrictions on
investments imposed by guidelines of one or more nationally recognized
statistical rating organizations which may issue ratings for the short-term
corporate debt securities or preferred stock. These guidelines may impose
asset coverage or portfolio composition requirements that are more stringent
than those imposed by the Investment Company Act. It is not anticipated that
these covenants or guidelines will impede the Investment Adviser from
managing the Fund's portfolio in accordance with the Fund's investment
objectives and policies.

Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of 300% of the aggregate outstanding principal balance of
indebtedness (i.e., such indebtedness may not exceed 331/3% of the Fund's
total assets). Additionally, under the Investment Company Act the Fund may
not declare any dividend or other distribution upon any class of its capital
stock, or purchase any such capital stock, unless the aggregate indebtedness
of the Fund has, at the time of the declaration of any such dividend or
distribution or at the time of any such purchase, an asset coverage of at
least 300% after deducting the amount of such dividend, distribution, or
purchase price, as the case may be. Under the Investment Company Act, the
Fund is not permitted to issue shares of preferred stock unless immediately
after such issuance the net asset value of the Fund's portfolio is at least
200% of the liquidation value of the outstanding preferred stock (i.e., such
liquidation value may not exceed 50% of the Fund's total assets). In
addition, the Fund is not permitted to declare any cash dividend or other
distribution on its Common Stock unless, at the time of such declaration, the
net asset value of the Fund's portfolio (determined after deducting the
amount of such dividend or distribution) is a least 200% of such liquidation
value. In the event shares of preferred stock are issued, the Fund intends,
to the extent possible, to purchase or redeem shares of preferred stock from
time to time to maintain coverage of any preferred stock of at least 300%.

The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount it will borrow or issue, will depend on
many factors, the most important of which are investment outlook, market
conditions and interest rates. Successful use of a leveraging strategy
depends on the Investment Adviser's ability to predict correctly interest
rates and market movements, and there is no assurance that a leveraging
strategy will be successful during any period in which it is employed.

Assuming the utilization of leverage by borrowings in the amount of
approximately 331/3% of the Fund's total assets, and an annual interest rate
of % payable on such leverage based on market rates as of the date of
______
this Prospectus, the annual return that the Fund's portfolio must experience
(net of expenses) in order to cover such interest payments would be %.
__

The following table is designed to illustrate the effect on the return
to a holder of the Fund's Common Stock of the leverage obtained by borrowings
in the amount of approximately 331/3% of the Fund's total assets, assuming
hypothetical annual returns of the Fund's portfolio of minus 10% to plus 10%.
As the table shows, leverage generally increases the return to stockholders
when portfolio return is positive and greater than the cost of leverage and
decreases the return when the portfolio return is negative or less than the
cost of leverage. The figures appearing in the table are hypothetical and
actual returns may be greater or less than those appearing in the table.

Assumed Portfolio Return
(net of expenses) ( )% ( )% % % %
__ __ __ __ __
Corresponding Common Stock Return ( )% ( )% ( )% %
__ __ __ __
%

Until the Fund borrows, issues short-term debt securities, or issues
shares of preferred stock, the Fund's Common Stock will not be leveraged, and
the risks and special considerations related to leverage described in this
Prospectus will not apply. Such leveraging of the Common Stock cannot be
fully achieved until the proceeds resulting from the use of leverage have
been invested in longer-term debt instruments in accordance with the Fund's
investment objectives and policies.

INTEREST RATE TRANSACTIONS

In order to hedge the value of the Fund's portfolio against interest
rate fluctuations or to enhance the Fund's income the Fund may enter into
various interest rate transactions, such as interest rate swaps and the
purchase or sale of interest rate caps and floors. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Fund intends to use these transactions primarily as a hedge
and not as a speculative investment. However, the Fund may also invest in
interest rate swaps to enhance income or increase the Fund's yield, for
example, during periods of steep interest rate yield curves (i.e., wide
differences between short term and long term interest rates).

In an interest rate swap, the Fund exchanges with another party their
respective commitments to pay or receive interest, e.g., an exchange of fixed
rate payments for floating rate payments. For example, if the Fund holds a
debt instrument with an interest rate that is reset only once each year, it
may swap the right to receive interest at this fixed rate for the right to
receive interest at a rate that is reset every week. This would enable the
Fund to offset a decline in the value of the debt instrument due to rising
interest rates but would also limit its ability to benefit from falling
interest rates. Conversely, if the Fund holds a debt instrument with an
interest rate that is reset every week and it would like to lock in what it
believes to be a high interest rate for one year, it may swap the right to
receive interest at this variable weekly rate for the right to receive
interest at a rate that is fixed for one year. Such a swap would protect
the Fund from a reduction in yield due to falling interest rates and may
permit the Fund to enhance its income through the positive differential
between one week and one year interest rates, but would preclude it from
taking full advantage of rising interest rates.

The Fund usually will enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments. The net
amount of the excess, if any, of the Fund's obligations over its entitlements
with respect to each interest rate swap will be accrued on a daily basis, and
an amount of cash or high grade liquid debt securities having an aggregate
net asset value at least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. If the interest rate swap
transaction is entered into on other than a net basis, the full amount of the
Fund's obligations will be accrued on a daily basis, and the full amount of
the Fund's obligations will be maintained in a segregated account by the
Fund's custodian.

The Fund may also engage in interest rate transactions in the form of
purchasing or selling interest rate caps or floors. The Fund will not sell
interest rate caps or floors that it does not own. The purchase of an
interest rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments of interest
equal to the difference of the index and the predetermined rate on a notional
principal amount (the reference amount with respect to which interest
obligations are determined although no actual exchange of principal occurs)
from the party selling such interest rate cap. The purchase of an interest
rate floor entitles the purchaser, to the extent that a specified index falls
below a predetermined interest rate, to receive payments of interest at the
difference of the index and the predetermined rate on a notional principal
amount from the party selling such interest rate floor. The Fund will not
enter into caps or floors if, on a net basis, the aggregate notional
principal amount with respect to such agreements exceeds the net assets of
the Fund.

Typically, the parties with which the Fund will enter into interest rate
transactions will be broker-dealers and other financial institutions. The
Fund will not enter into any interest rate swap, cap or floor transaction
unless the unsecured senior debt or the claims-paying ability of the other
party thereto is rated investment grade quality by at least one nationally
recognized statistical rating organization at the time of entering into such
transaction or whose creditworthiness is believed by the Investment Adviser
to be equivalent to such rating. If there is a default by the other party to
such a transaction, the Fund will have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively
liquid in comparison with other similar instruments traded in the interbank
market. Caps and floors, however, are more recent innovations and are less
liquid than swaps. Certain Federal income tax requirements may limit the
Fund's ability to engage in certain interest rate transactions. Gains from
transactions in interest rate swaps distributed to shareholders will be
taxable as ordinary income or, in certain circumstances, as long-term capital
gains to shareholders. See "Taxes."

FOREIGN CURRENCY SWAPS

Although the Fund has no current intention to do so, the Fund may enter
into foreign currency swaps in order to hedge non-dollar denominated
portfolio investments.

Foreign currency swaps involve the exchange by the lenders, including
the Fund, with another party (the "counterparty") of the right to receive the
currency in which the loan is denominated for the right to receive dollars.
The Fund will generally enter into a transaction subject to a foreign
currency swap only if, at the time of entering into such swap, the
outstanding debt obligations of the counterparty are investment grade; i.e.,
rated BBB or A-3 or higher by S&P, Baa or B3 or higher by Moody's, BBB or F4
or higher by Fitch Investors Service, Inc., or are determined to be of
comparable quality in the judgment of the Investment Adviser. The amounts of
dollar payments to be received by the lenders and the foreign currency
payments to be received by the counterparty are fixed at the time the swap
arrangement is entered into. Accordingly, the swap protects the Fund from
fluctuations in exchange rates and locks in the right to receive payments
under the loan in a predetermined amount of dollars. If there is a default
by the counterparty the Fund will have contractual remedies pursuant to the
swap arrangement. However, the dollar value of the Fund's right to foreign
currency payments under the loan will be subject to fluctuations in the
applicable exchange rate to the extent that a replacement swap arrangement is
unavailable or the Fund is unable to recover damages from the defaulting
counterparty. If the Borrower defaults on or prepays the underlying
Corporate Loan, the Fund may be required pursuant to the swap arrangements to
compensate the counterparty to the extent of fluctuations in exchange rates
adverse to the counterparty. In the event of such a default or prepayment,
an amount of cash or high grade liquid debt securities having an aggregate
net asset value at least equal to the amount of compensation that must be
paid to the counterparty pursuant to the swap arrangements will be maintained
in a segregated account by the Fund's custodian.

OPTIONS ON PORTFOLIO SECURITIES

Call Options on Portfolio Securities. The Fund may purchase call
options on any of the types of securities in which it may invest. A
purchased call option gives the Fund the right to buy, and obligates the
seller to sell, the underlying security at the exercise price at any time
during the option period. The Fund also is authorized to write (i.e. sell)
covered call options on the securities in which it may invest and to enter
into closing purchase transactions with respect to certain of such options.
A covered call option is an option where the Fund, in return for a premium,
gives another party a right to buy specified securities owned by the Fund at
a specified future date and price set at the time of the contract. The
principal reason for writing call options is attempt to realize, through the
receipt of premiums, a greater return than would be realized on the
securities alone. By writing covered call options, the Fund gives up the
opportunity, while the option is in effect, to profit from any price increase
in the underlying security above the option exercise price. In addition, the
Fund's ability to sell the underlying security will be limited while the
option is in effect unless 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. Covered call options also
serve as a partial hedge against the price of the underlying security
declining. The Fund may also purchase and sell call options on indices.
Index options are similar to options on securities except that, rather than
taking or making delivery of securities underlying the option at a specified
price upon exercise, an index option gives the holder the right to receive
cash upon exercise of the option if the level of the index upon which the
option is based is greater than the exercise price of the option.

Put Options on Portfolio Securities. The Fund is authorized to purchase
put options to hedge against a decline in the value of its securities. By
buying a put option, the Fund has a right to sell the underlying security at
the exercise price, thus limiting the Fund's risk of loss through a decline
in the market value of the security until the put option expires. The amount
of any appreciation in the value of the underlying security will be partially
offset by the amount of the premium paid for the put option and any related
transaction costs. Prior to its expiration, a put option may be sold in a
closing sale transaction and profit or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the put
option plus the related transaction costs. A closing sale transaction
cancels out the Fund's position as the purchaser of an option by means of an
offsetting sale of an identical option prior to the expiration of the option
it has purchased. The Fund also has authority to write (i.e., sell) put
options on the types of securities which may be held by the Fund, provided
that such put options are covered, meaning that such options are secured by
segregated, high grade liquid debt securities. In certain circumstances, the
Fund may purchase call options on securities held in its portfolio on which
it has written call options or which it intends to purchase. The Fund will
receive a premium for writing a put option, which increases the Fund's
return. The Fund will not sell puts if, as a result, more than 50% of the
Fund's assets would be required to cover its potential obligations under its
hedging and other investment transactions. The Fund may purchase and sell
put options on indices. Index options are similar to options on securities
except that, rather than taking or making delivery of securities underlying
the option at a specified price upon exercise, an index option gives the
holder the right to receive cash upon exercise of the option if the level of
the index upon which the option is based is less than the exercise price of
the option.

FINANCIAL FUTURES AND OPTIONS THEREON

The Fund is authorized to engage in transactions in financial futures
contracts ("futures contracts") and related options on such futures contracts
either as a hedge against adverse changes in the market value of its
portfolio securities and interest rates or to enhance the Fund's income. A
futures contract is an agreement between two parties which obligates the
purchaser of the futures contract to buy and the seller of a futures contract
to sell a security for a set price on a future date or, in the case of an
index futures contract to make and accept a cash settlement based upon the
difference in value of the index between the time the contract was entered
into and the time of its settlement. A majority of transactions in futures
contracts, however, do not result in the actual delivery of the underlying
instrument or cash settlement, but are settled through liquidation, i.e., by
entering into an offsetting transaction. Futures contracts have been
designed by boards of trade which have been designated "contract markets" by
the Commodities Futures Trading Commission ("CFTC"). Transactions by the
Fund in futures contracts and financial futures are subject to limitations as
described below under "Restrictions on the Use of Futures Transactions."

The Fund may sell financial futures contracts in anticipation of an
increase in the general level of interest rates. Generally, as interest
rates rise, the market values of securities which may be held by the Fund
will fall, thus reducing the net asset value of the Fund. However, as
interest rates rise, the value of the Fund's short position in the futures
contract will also tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the Fund's investments which are being
hedged. While the Fund will incur commission expenses in selling and closing
out futures positions, these commissions are generally less than the
transaction expenses which the Fund would have incurred had the Fund sold
portfolio securities in order to reduce its exposure to increases in interest
rates. The Fund also may purchase financial futures contracts in
anticipation of a decline in interest rates when it is not fully invested in
a particular market in which it intends to make investments to gain market
exposure that may in part or entirely offset an increase in the cost of
securities it intends to purchase. It is anticipated that, in a substantial
majority of these transactions, the Fund will purchase securities upon
termination of the futures contract.

The Fund also has authority to purchase and write call and put options
on futures contracts. Generally, these strategies are utilized under the
same market and market sector conditions (i.e., conditions relating to
specific types of investments) in which the Fund enters into futures
transactions. The Fund may purchase put options or write call options on
futures contracts rather than selling the underlying futures contract in
anticipation of a decrease in the market value of securities or an increase
in interest rates. Similarly, the Fund may purchase call options, or write
put options on futures contracts, as a substitute for the purchase of such
futures to hedge against the increased cost resulting from an increase in the
market value or a decline in interest rates of securities which the Fund
intends to purchase.

The Fund may engage in options and futures transactions on exchanges and
options in the over-the-counter markets ("OTC options"). In general,
exchange-traded contracts are third-party contracts (i.e., performance of the
parties' obligation is guaranteed by an exchange or clearing corporation)
with standardized strike prices and expiration dates. OTC options
transactions are two-party contracts with price and terms negotiated by the
buyer and seller. See "Restrictions on OTC Options" below for information as
to restrictions on the use of OTC options.

Restrictions on the Use of Futures Transactions. Under regulations of
the CFTC, the futures trading activity described herein will not result in
the Fund being deemed a "commodity pool," as defined under such regulations,
provided that the Fund adheres to certain restrictions. In particular, the
Fund may purchase and sell futures contracts and options thereon (i) for bona
fide hedging purposes, and (ii) for non-hedging purposes, if the aggregate
initial margin and premiums required to establish positions in such contracts
and options does not exceed 5% of the liquidation value of the Fund's
portfolio, after taking into account unrealized profits and unrealized losses
on any such contracts and options. Margin deposits may consist of cash or
securities acceptable to the broker and the relevant contract market.

When the Fund purchases a futures contract or writes a put option or
purchases a call option thereon, an amount of cash and cash equivalents will
be deposited in a segregated account with the Fund's custodian so that the
amount so segregated, plus the amount of variation margin held in the account
of its broker, equals the market value of the futures contract, thereby
ensuring that the use of such futures is unleveraged.

An order has been obtained from the Securities and Exchange Commission
("Commission") which exempts the Fund from certain provisions of the
Investment Company Act in connection with transactions involving futures
contracts and options thereon.

Restrictions on OTC Options. The Fund will engage in transactions in
OTC options only with banks or dealers which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million. OTC options and assets used to cover OTC options written
by the Fund are considered by the staff of the Securities and Exchange
Commission to be illiquid. The illiquidity of such options or assets may
prevent a successful sale of such options or assets, result in a delay of
sale, or reduce the amount of proceeds that might otherwise be realized.
RISK FACTORS IN INTEREST RATE TRANSACTIONS AND OPTIONS AND FUTURES
TRANSACTIONS

The use of interest rate transactions is a highly specialized activity
which involves investment techniques and risks different from those
associated with ordinary portfolio securities transactions. Interest rate
transactions involve the risk of an imperfect correlation between the index
used in the hedging transaction and that pertaining to the securities which
are the subject of such transaction. If the Investment Adviser is incorrect
in its forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish compared with
what it would have been if these investment techniques were not used. In
addition, interest rate transactions that may be entered into by the Fund do
not involve the delivery of securities or other underlying assets or
principal. Accordingly, the risk of loss with respect to interest rate swaps
is limited to the net amount of interest payments that the Fund is
contractually obligated to make. If the security underlying an interest rate
swap is prepaid and the Fund continues to be obligated to make payments to
the other party to the swap, the Fund would have to make such payments from
another source. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest payments that the
Fund contractually is entitled to receive. In the case of a purchase by the
Fund of an interest rate cap or floor, the amount of loss is limited to the
fee paid. Since interest rate transactions are individually negotiated, the
Investment Adviser expects to achieve an acceptable degree of correlation
between the Fund's rights to receive interest on securities and its rights
and obligations to receive and pay interest pursuant to interest rate swaps.

Utilization of options and futures transactions to hedge the portfolio
involves the risk of imperfect correlation in movements in the price of
options and futures and movements in the prices of the securities which are
the subject of the hedge. If the price of the options or futures moves more
or less than the price of the subject of the hedge, the Fund will experience
a gain or loss which will not be completely offset by movements in the
price of the subject of the hedge. This risk particularly applies to
the Fund's use of futures and options thereon since it will generally
use such instruments as a so called "cross-hedge," which means that
the security that is the subject of the futures contract is different
from the security being hedged by the contract.

Prior to exercise or expiration, an exchange-traded option position can
only be terminated by entering into a closing purchase or sale transaction.
This requires a secondary market on an exchange for call or put options of
the same series. The Fund intends to enter into options and futures
transactions, on an exchange or in the over-the-counter market, only if there
appears to be a liquid secondary market for such options or futures.
However, there can be no assurance that a liquid secondary market will exist
at any specific time. Thus, it may not be possible to close an options or
futures position. The inability to close options and futures positions also
could have an adverse impact on the Fund's ability to effectively hedge its
portfolio. There is also the risk of loss by the Fund of margin deposits or
collateral in the event of bankruptcy of a broker with whom the Fund has an
open position in an option, a futures contract or an option related to a
futures contract.

OTHER INVESTMENT STRATEGIES

Repurchase Agreements. The Fund may enter into repurchase agreements
with respect to its permitted investments with financial institutions that
(i) have, in the opinion of the Investment Adviser, substantial capital
relative to the Fund's exposure, or (ii) have provided the Fund with a third-
party guaranty or other credit enhancement. Under a repurchase agreement the
Fund buys a security at one price and simultaneously promises to sell that
same security back to the seller at a higher price. The Fund's repurchase
agreements will provide that the value of the collateral underlying the
repurchase agreement will always be at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement, and will
be marked to market daily. The repurchase date usually is within seven days
of the original purchase date. Repurchase agreements are deemed to be loans
under the Investment Company Act. In all cases, the Investment Adviser must
be satisfied with the creditworthiness of the other party to the agreement
before entering into a repurchase agreement. In the event of the bankruptcy
(or other insolvency proceeding) of the other party to a repurchase
agreement, the Fund might experience delays in recovering its cash. To the
extent that, in the meantime, the value of the securities the Fund purchases
may have declined, the Fund could experience a loss.

Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements with respect to its portfolio investments subject to
the investment restrictions set forth herein. Reverse repurchase agreements
involve the sale of securities held by the Fund with an agreement by the Fund
to repurchase the securities at an agreed upon price, date and interest
payment. The use by the Fund of reverse repurchase agreements involves many
of the same risks of leverage described under "Risk Factors and Special
Considerations" and "Other Investment Policies--Leverage" since the proceeds
derived from such reverse repurchase agreements may be invested in additional
securities. At the time the Fund enters into a reverse repurchase agreement,
it may establish and maintain a segregated account with the custodian
containing liquid securities having a value not less than the repurchase
price (including accrued interest). If the Fund establishes and maintains
such a segregated account, a reverse repurchase agreement will not be
considered a borrowing by the Fund; however, under circumstances in which the
Fund does not establish and maintain such a segregated account, such reverse
repurchase agreement will be considered a borrowing for the purpose of the
Fund's limitation on borrowings. Reverse repurchase agreements involve the
risk that the market value of the securities acquired in connection with the
reverse repurchase agreement may decline below the price of the securities
the Fund has sold but is obligated to repurchase. Also, reverse repurchase
agreements involve the risk that the market value of the securities retained
in lieu of sale by the Fund in connection with the reverse repurchase
agreement may decline in price. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to
determine whether to enforce the Fund's obligation to repurchase the
securities, and the Fund's use of the proceeds of the reverse repurchase
agreement may effectively be restricted pending such decision. Also, the
Fund would bear the risk of loss to the extent that the proceeds of the
reverse repurchase agreement are less than the value of the securities
subject to such agreement.

Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio, with a value not exceeding 331/3% of its total
assets, to banks, brokers and other financial institutions and receive
collateral in cash or securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. The purpose of such loans is to permit the borrower to use such
securities for delivery to purchasers when such borrower has sold short. If
cash collateral is received by the Fund, it is invested in short-term money
market securities, and a portion of the yield received in respect of such
investment is retained by the Fund. Alternatively, if securities are
delivered to the Fund as collateral, the Fund and the borrower negotiate a
rate for the loan premium to be received by the Fund for lending its
portfolio securities. In either event, the total yield on the Fund's
portfolio is increased by loans of its portfolio securities. 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. Such loans are terminable at any
time. The Fund may pay reasonable finder's, administrative and custodial
fees in connection with such loans.

When-Issued and Forward Commitment Securities. The Fund may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis in order to hedge against anticipated changes in
interest rates and prices. When such transactions are negotiated, the price,
which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities take place at
a later date. When-issued securities and forward commitments may be sold
prior to the settlement date, but the Fund will enter into when-issued and
forward commitments only with the intention of actually receiving or
delivering the securities, as the case may be. If the Fund disposes of the
right to acquire a when-issued security prior to its acquisition or disposes
of its right to deliver or receive against a forward commitment, it can incur
a gain or loss. At the time the Fund enters into a transaction on a
when-issued or forward commitment basis, it will segregate with the custodian
cash or other liquid high grade debt securities with a value not less than
the value of the when-issued or forward commitment securities. The value of
these assets will be monitored daily to ensure that their marked to market
value will at all times exceed the corresponding obligations of the Fund.
There is always a risk that the securities may not be delivered, and the Fund
may incur a loss. Settlements in the ordinary course, which may take
substantially more than five business days for mortgage-related securities,
are not treated by the Fund as when-issued or forward commitment transactions
and accordingly are not subject to the foregoing restrictions.

INVESTMENT RESTRICTIONS

The following are fundamental investment restrictions of the Fund and,
prior to issuance of any preferred stock, may not be changed without the
approval of the holders of a majority of the Fund's outstanding shares of
Common Stock (which for this purpose and under the Investment Company Act
means the lesser of (i) 67% of the shares of Common Stock represented at a
meeting at which more than 50% of the outstanding shares of Common Stock are
represented or (ii) more than 50% of the outstanding shares). Subsequent to
the issuance of a class of preferred stock, the following investment
restrictions may not be changed without the approval of a majority of the
outstanding shares of Common Stock and of the preferred stock, voting
together as a class, and the approval of a majority of the outstanding shares
of preferred stock, voting separately by class. The Fund may not:

1. Make any investment inconsistent with the Fund's classification
as a diversified company under the Investment Company Act.

2. Make investments for the purpose of exercising control or
management.

3. Purchase or sell real estate, commodities or commodity
contracts; provided that the Fund may invest in securities secured by
real estate or interests therein or issued by companies that invest in
real estate or interests therein, and the Fund may purchase and sell
financial futures contracts and options thereon.

4. Issue senior securities or borrow money except as permitted by
Section 18 of the Investment Company Act.

5. Underwrite securities of other issuers except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933, as
amended (the "1933 Act"), in selling portfolio securities.

6. Make loans to other persons, except (i) to the extent that the
Fund may be deemed to be making loans by purchasing Corporate Loans, as
a Co-Lender or otherwise, and other debt securities and entering into
repurchase agreements in accordance with its investment objectives,
policies and limitations, and (ii) the Fund may lend its portfolio
securities in an amount not in excess of 331/3% of its total assets,
taken at market value, provided that such loans shall be made in
accordance with the guidelines set forth in this Prospectus.

7. Invest more than 25% of its total assets in the securities of
issuers in any one industry; provided that this limitation shall not
apply with respect to obligations issued or guaranteed by the U.S.
Government or by its agencies or instrumentalities; and provided further
that the Fund may invest more than 25% and may invest up to 100% of its
assets in securities of issuers in the industry group consisting of
financial institutions and their holding companies, including commercial
banks, thrift institutions, insurance companies and finance companies.
For purposes of this restriction, the term "issuer" includes the
Borrower, the Agent Bank and any Intermediate Participant (as defined
under "Investment Objectives and Policies").

Additional investment restrictions adopted by the Fund, which may be
changed by the Board of Directors, provide that the Fund may not:

a. Purchase securities of other investment companies, except to
the extent that such purchases are permitted by applicable law.
Applicable law currently prohibits the Fund from purchasing the
securities of other investment companies except if immediately
thereafter not more than (i) 3% of the total outstanding voting stock of
such company is owned by the Fund, (ii) 5% of the Fund's total assets,
taken at market value, would be invested in any one such company, (iii)
10% of the Fund's total assets, taken at market value, would be invested
in such securities, and (iv) the Fund, together with other investment
companies having the same investment adviser and companies controlled by
such companies, owns not more than 10% of the total outstanding stock of
any one closed-end investment company.

b. Mortgage, pledge, hypothecate or in any manner transfer, as
security for indebtedness, any securities owned or held by the Fund
except as may be necessary in connection with borrowings mentioned in
investment restriction (4) above or except as may be necessary in
connection with transactions in financial futures contracts and options
thereon.

c. Purchase any securities on margin, except that the Fund may
obtain such short-term credit as may be necessary for the clearance of
purchases and sales of portfolio securities (the deposit or payment by
the Fund of initial or variation margin in connection with financial
futures contracts and options thereon is not considered the purchase of
a security on margin).

d. Make short sales of securities or maintain a short position or
invest in put, call, straddle or spread options, except that the Fund
may write, purchase and sell options and futures on portfolio securities
and related indices or otherwise in connection with bona fide hedging
activities.

If a percentage restriction on investment policies or the investment or
use of assets set forth above is adhered to at the time a transaction is
effected, later changes in percentage resulting from changing values will not
be considered a violation.

Because of the affiliation of Merrill Lynch with the Fund, the Fund is
prohibited from engaging in certain transactions involving Merrill Lynch
except pursuant to an exemptive order or otherwise in compliance with the
provisions of the Investment Company Act and the rules and regulations
thereunder. Included among such restricted transactions will be purchases
from or sales to Merrill Lynch of securities in transactions in which it acts
as principal. See "Portfolio Transactions."

The Fund has established procedures for blocking the use of inside
information in securities transactions (commonly referred to as "Chinese Wall
procedures"). As a result, the Fund's purchase of a security in a private
placement may deprive the Fund of investment in certain publicly traded
securities of the same issuer and the Fund's purchase of a publicly traded
security may deprive the Fund of the opportunity to purchase certain
privately placed securities of the same issuer. Also, in relation to other
funds managed by the same portfolio manager as the Fund (currently, Merrill
Lynch Senior Floating Rate Fund, Inc., Senior High Income Portfolio, Inc.,
Merrill Lynch Debt Strategies Portfolio and Merrill Lynch Senior Floating
Rate Portfolio), if one fund buys a security that is publicly traded or
privately placed, respectively, the other fund may be deprived of the
opportunity to buy a security of the same issuer that is privately placed or
publicly traded, respectively.

DIRECTORS AND OFFICERS

Information about the Directors, executive officers and the portfolio
manager of the Fund, including their ages and their principal occupations
during the last five years is set forth below. Unless otherwise noted, the
address of each Director, executive officer and the portfolio manager is 800
Scudders Mill Road, Plainsboro, New Jersey 08536.

(To be provided by amendment)

R. DOUGLAS HENDERSON (38) -Vice President and Portfolio Manager (1)(2)-
Vice President of the Investment Adviser since 1989.

________________

(1) Interested person, as defined in the Investment Company Act, of the
Fund.

(2) Such Director or officer is a director, trustee or officer of one or
more other investment companies for which the Investment Adviser or MLAM acts
as investment adviser.

In the event that the Fund issues preferred stock, in connection with
the election of the Fund's Directors, holders of shares of preferred stock,
voting as a separate class, will be entitled to elect two of the Fund's
Directors, and the remaining Directors will be elected by all holders of
capital stock, voting as a single class. See "Description of Capital Stock."

The Fund pays each Director not affiliated with the Investment Adviser
an annual fee of $_____ plus $___ per meeting attended, together with such
Director's actual out-of-pocket expenses relating to attendance at meetings.
The Fund also compensates members of its audit committee, which consists of
all of the Directors not affiliated with the Investment Adviser, an annual
fee of $_____; the chairman of the audit committee receives an additional
annual fee of $_____.

<S> <C> <C> <C>
TOTAL COMPENSATION FROM
PENSION OR FUND AND FAM/MLAM
AGGREGATE RETIREMENT BENEFITS ADVISED FUNDS PAID TO
COMPENSATION ACCRUED AS PART OF DIRECTORS
________________________
NAME OF DIRECTOR (1) FROM FUND FUND EXPENSE
________________ _______________ ___________________

None
None
None
None
None

</TABLE>

_____________
(1) The Directors serve on the boards of other FAM/MLAM Advised Funds as
follows: ( registered investment companies
___________________________ ____
consisting of portfolios); ( registered
____ __________________________ ____
investment companies consisting of
portfolios ); ( registered investment companies
___ ______________________ ___
consisting of portfolios); ( registered
____ __________________________ ____
investment companies consisting of portfolios); and
___
( registered investment companies consisting of
___________________ ___ _
portfolios).

INVESTMENT ADVISORY AND MANAGEMENT ARRANGEMENTS

The Investment Adviser is an affiliate of MLAM, which is owned and
controlled by ML & Co. The Investment Adviser will provide the Fund with
investment advisory and management services. The Investment Adviser, or
MLAM, acts as the investment adviser for over __ other registered investment
companies. The Investment Adviser also offers portfolio management and
portfolio analysis services to individuals and institutions. As of _______,
1997, the Investment Adviser and MLAM had a total of approximately $___
billion in investment company and other portfolio assets under management,
including accounts of certain affiliates of the Investment Adviser. The
principal business address of the Investment Adviser is 800 Scudders Mill
Road, Plainsboro, New Jersey 08536.

The Investment Advisory Agreement with the Investment Adviser (the
"Investment Advisory Agreement") provides that, subject to the direction of
the Board of Directors of the Fund, the Investment Adviser is responsible for
the actual management of the Fund's portfolio. The responsibility for making
decisions to buy, sell or hold a particular security rests with the
Investment Adviser, subject to review by the Board of Directors.

The Investment Adviser provides the portfolio management for the Fund.
Such portfolio management will consider analyses from various sources
(including brokerage firms with which the Fund does business), make the
necessary investment decisions, and place orders for transactions
accordingly. The Investment Adviser will also be responsible for the
performance of certain administrative and management services for the Fund.
The portfolio manager for the Fund is R. Douglas Henderson.

For the services provided by the Investment Adviser under the Investment
Advisory Agreement, the Fund will pay a monthly fee at the annual rate of
__
% of the Fund's average weekly net assets plus the proceeds of any
outstanding borrowings used for leverage ("average weekly net assets" means
the average weekly value of the total assets of the Fund, including proceeds
from the issuance of preferred stock, minus the sum of (i) accrued
liabilities of the Fund, (ii) any accrued and unpaid interest on outstanding
borrowings and (iii) accumulated dividends on shares of preferred stock).
For purposes of this calculation, average weekly net assets is determined at
the end of each month on the basis of the average net assets of the Fund for
each week during the month. The assets for each weekly period are determined
by averaging the net assets at the last business day of a week with the net
assets at the last business day of the prior week.

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 compensation of all Directors of the Fund who are
affiliated persons of the Investment Adviser or any of its affiliates. The
Fund pays all other expenses incurred in the operation of the Fund,
including, among other things, expenses for legal and auditing services,
taxes, costs of printing proxies, stock certificates and shareholder reports,
listing fees, charges of the custodian and the transfer, dividend disbursing
agent and registrar, Securities and Exchange Commission fees, fees and
expenses of unaffiliated Directors, accounting and pricing costs, insurance,
interest, brokerage costs, litigation and other extraordinary or
non-recurring expenses, mailing and other expenses properly payable by the
Fund. 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.

Securities held by the Fund also may 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
investment objectives or other factors, a particular security may be bought
for one or more clients when one or more clients are selling the same
security. If purchases or sales or securities for the Fund or other funds
for which the Investment Adviser or MLAM acts as investment adviser or for
their advisory clients arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds and clients in a manner deemed equitable to all. To the
extent that transactions on behalf of more than one client of the Investment
Adviser or MLAM during the same period may increase the demand for securities
being purchased or the supply of securities being sold, there may be an
adverse effect on price.

Unless earlier terminated as described below, the Investment Advisory
Agreement will remain in effect will remain in effect for a period of two
years from the date of execution and will remain in effect from year to year
thereafter if approved annually (a) by the Board of Directors of the Fund or
by a majority of the outstanding shares of the Fund and (b) by a majority of
the Directors who are not parties to such contract or interested persons (as
defined in the Investment Company Act) of any such party. 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.

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 that incorporates the Code of
Ethics of the Investment Adviser (together, the "Codes"). The Codes
significantly restrict the personal investing activities of all employees of
the Investment Adviser and, as described below, impose additional, more
onerous, restrictions on Fund investment personnel.

The Codes require that all employees of the Investment Adviser preclear
any personal securities investment (with limited exceptions, such as U.S.
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 securities. In addition, no employee
may purchase or sell any security that at the time is being purchased or sold
(as the case may be), or to the knowledge of the employee is being considered
for purchase or sale, by any fund advised by the Investment Adviser.
Furthermore, the Codes provide for trading "blackout periods" that prohibit
trading by investment personnel of the Fund within periods of trading by the
Fund in the same (or equivalent) security (15 or 30 days depending upon the
transaction).

PORTFOLIO TRANSACTIONS

Subject to policies established by the Board of Directors of the Fund,
the Investment Adviser is primarily responsible for the execution of the
Fund's portfolio transactions. In executing such transactions, the
Investment Adviser seeks to obtain the best results for the Fund, taking into
account such factors as price (including the applicable fee, commission or
spread), size of order, difficulty of execution and operational facilities of
the firm involved, the firm's risk in positioning a block of securities and
the provision of supplemental investment research by the firm. While the
Investment Adviser generally seeks reasonably competitive fees, commissions
or spreads, the Fund does not necessarily pay the lowest fee, commission or
spread available.

The Fund has no obligation to deal with any broker or dealer in
execution of transactions in portfolio securities. Subject to obtaining the
best price and execution, securities firms which provided supplemental
investment research to the Investment Adviser, including Merrill Lynch, may
receive orders for transactions by the Fund. Information so received will be
in addition to and not in lieu of the services required to be performed by
the Investment Adviser under the Investment Advisory Agreement and the
expenses of the Investment Adviser will not necessarily be reduced as a
result of the receipt of such supplemental information.

The Fund will purchase Corporate Loans in individually negotiated
transactions with commercial banks, thrifts, insurance companies, finance
companies and other financial institutions. In selecting such financial
institutions, the Investment Adviser may consider, among other factors, the
financial strength, professional ability, level of service and research
capability of the institution. See "Investment Objectives and Policies--
Description of Corporate Loans." While such financial institutions generally
are not required to repurchase Corporate Loans which they have sold, they may
act as principal or on an agency basis in connection with the Fund's
disposition of Corporate Loans.

Other securities in which the Fund may invest, such as publicly traded
corporate bonds and notes, are traded primarily in the over-the-counter
markets, and the Fund intends to deal directly with the dealers who make
markets in the securities involved, except in those circumstances where
better prices and execution are available elsewhere. Under the Investment
Company Act, except as permitted by exemptive order, persons affiliated with
the Fund are prohibited from dealing with the Fund as principal in the
purchase and sale of securities. Since transactions in the over-the-counter
market usually involve transactions with dealers acting as principal for
their own account, the Fund will not deal with affiliated persons, including
Merrill Lynch and its affiliates, in connection with such transactions. In
addition, the Fund may not purchase securities for the Fund during the
existence of any underwriting syndicate of which Merrill Lynch is a member
except pursuant to procedures approved by the Board of Directors of the Fund
which comply with rules adopted by the Securities and Exchange Commission.
An affiliated person of the Fund may serve as its broker in over-the-counter
transactions conducted on an agency basis.

PORTFOLIO TURNOVER

Generally, the Fund does not purchase securities for short-term trading
profits. However, the Fund may dispose of securities without regard to the
time they have been held when such actions for defensive or other reasons,
appear advisable to the Investment Adviser. The Fund will, however, monitor
its trading so as to comply with certain requirements for qualification as a
regulated investment company under the Internal Revenue Code of 1986 (the
"Code"), as amended. While it is not possible to predict turnover rates with
any certainty, at present it is anticipated that the Fund's annual portfolio
turnover rate, under normal circumstances, will be less than 100%. (The
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of portfolio securities for the particular fiscal year by the monthly
average of the value of the portfolio securities owned by the Fund during the
particular fiscal year. For purposes of determining this rate, all
securities whose maturities at the time of acquisition are one year or less
are excluded.)

DIVIDENDS AND DISTRIBUTIONS

The Fund intends to distribute dividends of substantially all of its net
investment income monthly. All net realized long-term and short-term capital
gains, if any, will be distributed to the Fund's shareholders at least
annually.

Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of 300% of the aggregate outstanding principal balance of
indebtedness. Additionally, under the Investment Company Act, the Fund may
not declare any dividend or other distribution upon any class of its capital
stock, or purchase any such capital stock, unless the aggregate indebtedness
of the Fund has, at the time of the declaration of any such dividend or
distribution or at the time of any such purchase, an asset coverage of at
least 300% after deducting the amount of such dividend, distribution, or
purchase price, as the case may be. While any shares of preferred stock are
outstanding, the Fund may not declare any cash dividend or other distribution
on its Common Stock, unless at the time of such declaration, (i) all
accumulated preferred stock dividends have been paid and (ii) the net asset
value of the Fund's portfolio (determined after deducting the amount of such
dividend or other distribution) is at least 200% of the liquidation value of
the outstanding preferred stock (expected to be equal to original purchase
price per share plus any accumulated and unpaid dividends thereon). In
addition to the limitations imposed by the Investment Company Act described
in this paragraph, certain lenders may impose additional restrictions on the
payment of dividends or distributions on the Fund's Common Stock in the event
of a default on the Fund's borrowings. Any limitation on the Fund's ability
to make distributions on its Common Stock could under certain circumstances
impair the ability of the Fund to maintain its qualification for taxation as
a regulated investment company. See "Other Investment Policies--Leverage"
and "Taxes."

See "Automatic Dividend Reinvestment Plan" for information concerning
the matter in which dividends and distributions to holders of Common Stock
may be automatically reinvested in shares of Common Stock of the Fund.
Dividends and distributions will be taxable to shareholders whether they are
reinvested in shares of the Fund or received in cash.

The Fund expects that it will commence paying dividends within 90 days
of the date of this Prospectus.

TAXES

GENERAL

The Fund intends to elect and to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. As long as
it so qualifies, in any taxable year in which it distributes at least 90% of
its net income (see below), the Fund (but not its shareholders) will not be
subject to Federal income tax to the extent that it distributes its net
investment income and net realized capital gains. 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 (including gains
or losses from certain transactions in interest rate swaps, warrants, futures
and options) ("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).

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 dividends or capital gain
dividends, as well as any dividends eligible for the dividends received
deduction. Distributions attributable to any dividend income earned by the
Fund will 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 the dividend was declared.

The Internal Revenue Service has taken the position in a revenue ruling
that if a RIC has two classes of shares, it may designate distributions made
to each class in any year as consisting of no more than such class's
proportionate share of particular types of income, including net long-term
capital gains. A class's proportionate share of a particular type of income
is determined according to the percentage of total dividends paid by the RIC
during such year that was paid to such class. Consequently, if both Common
Stock and preferred stock are outstanding, the Fund intends to designate
distributions made to the classes as consisting of particular types of income
in accordance with the classes' proportionate shares of such income. Thus,
capital gain dividends will be allocated between the holders of Common Stock
and preferred stock in proportion to the total dividends paid to each class
during the taxable year, or otherwise as required by applicable law.

If at any time when shares of preferred stock are outstanding the Fund
does not meet the asset coverage requirements of the Investment Company Act,
the Fund will be required to suspend distributions to holders of Common Stock
until the asset coverage is restored. See "Dividends and Distributions."
This may prevent the Fund from distributing at least 90% of its net income,
and may therefore jeopardize the Fund's qualification for taxation as a RIC
or may subject the Fund to the 4% excise tax described below. Upon any
failure to meet the asset coverage requirement of the Investment Company Act,
the Fund may, in its sole discretion, redeem shares of preferred stock in
order to maintain or restore the requisite asset coverage and avoid the
adverse consequences to the Fund and its shareholders of failing to qualify
as a RIC. There can be no assurance, however, that any such action would
achieve these objectives.

As noted above, the Fund must distribute annually at least 90% of its
net investment income. A distribution will only be counted for this purpose
if it qualifies for the dividends paid deduction under the Code. Some types
of preferred stock that the Fund has the authority to issue may raise an
issue as to whether distributions on such preferred stock are "preferential"
under the Code and therefore not eligible for the dividends paid deduction.
In the event the Fund determines to issue preferred stock, the Fund intends
to issue preferred stock that counsel advises will not result in the payment
of a preferential dividend and may seek a private letter ruling from the
Internal Revenue Service to that effect. If the Fund ultimately relies
solely on a legal opinion in the event it issues such preferred stock, there
is no assurance that the Internal Revenue Service would agree that dividends
on the preferred stock are not preferential. If the Internal Revenue Service
successfully disallowed the dividends paid deduction for dividends on the
preferred stock, the Fund could be disqualified as a RIC.

Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on reportable dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject
to backup withholding will be those for whom a certified taxpayer
identification number is not on file with the Fund or who, to the Fund's
knowledge, have furnished an incorrect number. When establishing an account,
an investor must certify under penalty of perjury that such number is correct
and that such investor is not otherwise subject to backup withholding.
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. Interest income from non-U.S. securities may be
subject to withholding taxes imposed by the country in which the issuer is
located. Unless more than 50% of the Fund's assets (by value) consists of
stock or securities of foreign corporations, the Fund will not be able to
pass through to its shareholders foreign tax credits or deductions with
respect to these taxes.

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 minimize
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.

TAX TREATMENT OF OPTIONS AND FUTURES TRANSACTIONS

The Fund may engage in interest rate transactions, write (i.e., sell)
covered call and covered put options on its portfolio securities, purchase
call and put options on securities, and engage in transactions in financial
futures and related options on such futures. In general, unless an election
is available to the Fund or an exception applies, such options and futures
contracts that are "Section 1256 contracts" will be "marked to market" for
Federal income tax purposes at the end of each taxable year, i.e., each such
options or futures contract will be treated as sold for its fair market value
on the last day of the taxable year, and any gain or loss attributable to
such contracts will be 60% long-term and 40% short-term capital gain or loss.
Application of these rules to Section 1256 contracts held by the Fund may
alter the timing and character of distributions to shareholders. The mark-
to-market rules outlined above, however, will not apply to certain
transactions entered into by the Fund solely to reduce the risk of changes in
price or interest or currency exchange rates with respect to its investments.

The Federal income tax rules governing the taxation of interest rate
swaps are not entirely clear and may require the Fund to treat payments
received under such arrangements as ordinary income and to amortize such
payments under certain circumstances. The Fund does not anticipate that its
activity in this regard will affect its qualification as a RIC.

Code Section 1092, which applies to certain "straddles," may affect the
taxation of the Fund's sales of securities and options, futures and interest
rate transactions. Under Section 1092, the Fund may be required to postpone
recognition for tax purposes of losses incurred in certain sales of
securities and certain closing transactions in options, futures and interest
rate transactions.

One of the requirements for qualification as a RIC is that less than 30%
of the Fund's gross income may be derived from gains from the sale or other
disposition of securities held for less than three months. Accordingly, the
Fund may be restricted in effecting closing transactions within three months
after entering into an options or futures contract.

SPECIAL RULES FOR CERTAIN FOREIGN CURRENCY TRANSACTIONS

Code Section 988 provides special rules for certain transactions in a
foreign currency other than the taxpayer's functional currency (i.e., unless
certain special rules apply, currencies other than the U.S. dollar). In
general, 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 each shareholder's basis in his Fund shares.

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.

Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes.

AUTOMATIC DIVIDEND REINVESTMENT PLAN

Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the
"Plan"), unless a shareholder otherwise elects, all dividend and capital
gains distributions will be automatically reinvested by
_____________________
, as agent for shareholders in administering the Plan (the "Plan Agent"), in
additional shares of Common Stock of the Fund. Shareholders who elect not to
participate in the Plan will receive all dividends and distributions in cash
paid by check mailed directly to the shareholder of record (or, if the shares
are held in street or other nominee name, then to such nominee) by
__________
, as dividend paying agent. Such participants may elect not to
________
participate in the Plan and to receive all distributions of dividends and
capital gains in cash by sending written instructions to ,
________________
as dividend paying agent, at the address set forth below. Participation in
the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by written notice if received by the Plan Agent not less than
ten days prior to any dividend record date; otherwise such termination will
be effective with respect to any subsequently declared dividend or
distribution.

Whenever the Fund declares an income dividend or a capital gains
distribution (collectively referred to as "dividends") payable either in
shares or in cash, non-participants in the Plan will receive cash, and
participants in the Plan will receive the equivalent in shares of Common
Stock. The shares will be acquired by the Plan Agent for the participant's
account, depending upon the circumstances described below, either (i) through
receipt of additional unissued but authorized shares of Common Stock from the
Fund ("newly issued shares") or (ii) by purchase of outstanding shares of
Common Stock on the open market ("open-market purchases") on the New York
Stock Exchange ("NYSE") or elsewhere. If on the payment date for the
dividend, the net asset value per share of the Common Stock is equal to or
less than the market price per share of the Common Stock plus estimated
brokerage commissions (such condition being referred to herein as "market
premium"), the Plan Agent will invest the dividend amount in newly issued
shares on behalf of the participant. The number of newly issued shares of
Common Stock to be credited to the participant's account will be determined
by dividing the dollar amount of the dividend by the net asset value per
share on the date the shares are issued provided, that the maximum discount
from the then current market price per share on the date of issuance may not
exceed 5%. If on the dividend payment date the net asset value per share is
greater than the market value (such condition being referred to herein as
"market discount"), the Plan Agent will invest the dividend amount in shares
acquired on behalf of the participant in open-market purchases. Prior to the
time the shares of Common Stock commence trading on the NYSE, participants in
the Plan will receive any dividends in newly issued shares.

In the event of a market discount on the dividend payment date, the Plan
Agent will have until the last business day before the next date on which the
shares trade on an "ex-dividend" basis or in no event more than 30 days after
the dividend payment date (the "last purchase date") to invest the dividend
amount in shares acquired in open-market purchases. It is contemplated that
the Fund will pay monthly income dividends. Therefore, the period during
which open-market purchases can be made will exist only from the payment date
on the dividend through the date before the next "ex-dividend" date which
typically will be approximately ten days. If, before the Plan Agent has
completed its open-market purchases, the market price of a share of Common
Stock exceeds the net asset value per share, the average per share purchase
price paid by the Plan Agent may exceed the net asset value of the Fund's
shares, resulting in the acquisition of fewer shares than if the dividend had
been paid in newly issued shares on the dividend payment date. Because of
the foregoing difficulty with respect to open-market purchases, the Plan
provides that if the Plan Agent is unable to invest the full dividend amount
in open-market purchases during the purchase period or if the market discount
shifts to a market premium during the purchase period, the Plan Agent will
cease making open-market purchases and will invest the uninvested portion of
the dividend amount in newly issued shares at the close of business on the
last purchase date.

The Plan Agent maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the account, including
information needed by shareholders for tax records. Shares in the account of
each Plan participant will be held by the Plan Agent on behalf of the Plan
participant, and each shareholder's proxy will include those shares purchased
or received pursuant to the Plan. The Plan Agent will forward all proxy
solicitation materials to participants and vote proxies for shares held
pursuant to the Plan in accordance with the instructions of the participants.

In the case of shareholders such as banks, brokers or nominees which
hold shares for others who are the beneficial owners, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time
to time by the record shareholders as representing the total amount
registered in the record shareholder's name and held for the account of
beneficial owners who are to participate in the Plan.

There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable either in shares or in cash. However, each participant will pay a
pro rata share of brokerage commissions incurred with respect to the Plan
Agent's open-market purchases in connection with the reinvestment of
dividends.

The automatic reinvestment of dividends and distributions will not
relieve participants of any Federal, state or local income tax that may be
payable (or required to be withheld) on such dividends. See "Taxes."
Shareholders participating in the Plan may receive benefits not
available to shareholders not participating in the Plan. If the market price
plus commissions of the Fund's shares is above the net asset value,
participants in the Plan will receive shares of the Fund at less than they
could otherwise purchase them and will have shares with a cash value greater
than the value of any cash distribution they would have received on their
shares. If the market price plus commissions is below the net asset value,
participants will receive distributions in shares with a net asset value
greater than the value of any cash distribution they would have received on
their shares. However, there may be insufficient shares available in the
market to make distributions in shares at prices below the net asset value.
Also, since the Fund does not redeem its shares, the price on resale may be
more or less than the net asset value. See "Taxes" for a discussion of tax
consequences of the Plan.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan.
There is no direct service charge to participants in the Plan; however, the
Fund reserves the right to amend the Plan to include a service charge payable
by the participants.

All correspondence concerning the Plan should be directed to the Plan
Agent at
.
________________

MUTUAL FUND INVESTMENT OPTION

Purchasers of shares of Common Stock of the Fund through Merrill Lynch
in this offering will have an investment option consisting of the right to
reinvest the net proceeds from a sale of such shares (the "Original Shares")
in Class D initial sales charge shares of certain Merrill Lynch-sponsored
open-end mutual funds ("Eligible Class D Shares") at their net asset value,
without the imposition of the initial sales charge, if the conditions set
forth below are satisfied. First, the sale of the Original Shares must be
made through Merrill Lynch, and the net proceeds therefrom must be
immediately reinvested in Eligible Class D Shares. Second, the Original
Shares must have been either acquired in this offering or be shares
representing reinvested dividends from shares of Common Stock acquired in
this offering. Third, the Original 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 D
shares of the mutual funds are subject to an account maintenance fee at an
annual rate of up to 0.25% of the average daily net asset value of such
mutual fund. The Eligible Class D Shares may be redeemed at any time at the
next determined net asset value, subject in certain cases to a redemption
fee. Prior to the time the shares of Common Stock commence trading on the
New York Stock Exchange, the distributor for the mutual funds will advise
Merrill Lynch Financial Consultants as to those mutual funds that offer the
investment option described above.

NET ASSET VALUE

Net asset value per share of Common Stock is determined as of 15 minutes
after the close of business on the New York Stock Exchange (generally, 4:00
p.m., New York time), on the last business day in each week. For purposes of
determining the net asset value of a share of Common Stock, the value of the
securities held by the Fund plus any cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued
expenses) and the aggregate liquidation value of any outstanding shares of
preferred stock is divided by the total number of shares of Common Stock
outstanding at such time. Expenses, including the fees payable to the
Investment Adviser, are accrued daily.

The Fund determines and makes available for publication the net asset
value of its shares of Common Stock weekly. Currently, the net asset values
of shares of publicly traded closed-end investment companies investing in
debt securities are published in Barrons, the Monday edition of The Wall
Street Journal and the Monday and Saturday editions of The New York Times.

Corporate Loans will be valued in accordance with guidelines established
by the Board of Directors. Under the Fund's current guidelines, Corporate
Loans for which an active secondary market exists to a reliable degree in the
opinion of the Investment Adviser and for which the Investment Adviser can
obtain at least two quotations from banks or dealers in Corporate Loans will
be valued by the Investment Adviser by calculating the mean of the last
available bid and asked prices in the market for such Corporate Loans, and
then using the mean of those two means. If only one quote for a particular
Corporate Loan is available, such Corporate Loan will be valued on the basis
of the mean of the last available bid and asked prices in the market. For
Corporate Loans for which an active secondary market does not exist to a
reliable degree in the opinion of the Investment Adviser, such Corporate
Loans will be valued by the Investment Adviser at fair value, which is
intended to approximate market value. In valuing a Corporate Loan at fair
value, the Investment Adviser will consider, among other factors, (i) the
creditworthiness of the Borrower and any Intermediate Participants, (ii) the
current interest rate, period until next interest rate reset and maturity of
the Corporate Loan, (iii) recent prices in the market for similar Corporate
Loans, if any, and (iv) recent prices in the market for instruments of
similar quality, rate, period until next interest rate reset and maturity.

Other portfolio securities (other than short-term obligations but
including listed issues) may be valued on the basis of prices furnished by
one or more pricing services which determine prices for normal,
institutional-size trading units of such securities using market information,
transactions for comparable securities and various relationships between
securities which are generally recognized by institutional traders. In
certain circumstances, portfolio securities are valued at the last sale price
on the exchange that is the primary market for such securities, or the last
quoted bid price for those securities for which the over-the-counter market
is the primary market or for listed securities in which there were no sales
during the day. The value of interest rate swaps, caps and floors is
determined in accordance with a formula and then confirmed periodically by
obtaining a bank quotation. Positions in options are valued at the last sale
price on the market where any such option is principally traded. Obligations
with remaining maturities of 60 days or less are valued at amortized cost
unless this method no longer produces fair valuations. Repurchase agreements
are valued at cost plus accrued interest. Rights or warrants to acquire
stock, or stock acquired pursuant to the exercise of a right or warrant, may
be valued taking into account various factors such as original cost to the
Fund, earnings and net worth of the issuer, market prices for securities of
similar issuers, assessment of the issuer's future prosperity, liquidation
value or third party transactions involving the issuer's securities.
Securities for which there exist no price quotations or valuations and all
other assets are valued at fair value as determined in good faith by or on
behalf of the Board of Directors of the Fund.

DESCRIPTION OF CAPITAL STOCK

The Fund is authorized to issue 200,000,000 shares of capital stock, par
value $.10 per share, all of which shares are initially classified as Common
Stock. The Board of Directors is authorized, however, to 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, 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.
The Fund may reclassify an amount of unissued Common Stock as preferred stock
and at that time offer shares of preferred stock representing up to
approximately 331/3% of the Fund's total assets immediately after the
issuance of such preferred stock.

COMMON STOCK

Shares of Common Stock, when issued and outstanding, will be fully paid
and non-assessable. Shareholders are entitled to share pro rata in the net
assets of the Fund available for distribution to shareholders upon
liquidation of the Fund. Shareholders are entitled to one vote for each
share held.

In the event that the Fund issues preferred stock and so long as any
shares of the Fund's preferred stock are outstanding, holders of Common Stock
will not be entitled to receive any net income of or other distributions from
the Fund unless all accumulated dividends on preferred stock have been paid,
and unless asset coverage (as defined in Investment Company Act) with respect
to preferred stock would be at least 200% after giving effect to such
distributions. See "Other Investment Policies--Leverage."

The Fund will send unaudited reports at least semi-annually and audited
annual financial statements to all of its shareholders of record.

The Investment Adviser provided the initial capital for the Fund by
purchasing _____ shares of Common Stock of the Fund for $_______. As of the
date of this Prospectus, the Investment Adviser owned 100% of the outstanding
shares of Common Stock of the Fund. The Investment Adviser may be deemed to
control the Fund until such time as it owns less than 25% of the outstanding
shares of the Fund.

CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION

The Fund's Articles of Incorporation include provisions that could have
the effect of limiting the ability of other entities or persons to acquire
control of the fund or to change the composition of its Board of Directors
and could have the effect of depriving shareholders of any opportunity to
sell their shares at a premium over prevailing market prices by discouraging
a third party from seeking to obtain control of the Fund. A Director may be
removed from office with or without cause but only by vote of the holders of
at least 66 2/3% of the shares entitled to be voted on the matter.

In addition, the Articles of Incorporation require the favorable vote of
the holders of at least 66 2/3% of the Fund's shares to approve, adopt or
authorize the following:

(i) a merger or consolidation or statutory share exchange of the
Fund with other corporations;

(ii) a sale of all or substantially all of the Fund's assets (other
than in the regular course of the Fund's investment activities); or

(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the
affirmative vote of two-thirds of the total number of Directors fixed in
accordance with the by-laws, in which case the affirmative vote of a majority
of the Fund's shares of capital stock is required. Following any issuance of
preferred stock by the Fund, it is anticipated that the approval, adoption or
authorization of the foregoing would also require the favorable vote of a
majority of the Fund's shares of preferred stock then entitled to be voted,
voting as a separate class.

In addition, conversion of the fund to an open-end investment company
would require an amendment to the Fund's Articles of Incorporation. The
amendment would have to be declared advisable by the Board of Directors prior
to its submission to shareholders. Such an amendment would require the
favorable vote of the holders of at least 66 2/3% of the Fund's outstanding
shares (including any preferred stock) entitled to be voted on the matter,
voting as a single class (or a majority of such shares if the amendment was
previously approved, adopted or authorized by two-thirds of the total number
of Directors fixed in accordance with the by-laws), and, assuming preferred
stock is issued, the affirmative vote of a majority of outstanding shares of
preferred stock of the Fund, voting as a separate class. Such a vote also
would satisfy a separate requirement in the Investment Company Act that the
change be approved by the shareholders. Shareholders of an open-end
investment company may require the company to redeem their shares of common
stock at any time (except in certain circumstances as authorized by or under
the Investment Company Act) at their net asset value, less such redemption
charge, if any, as might be in effect at the time of a redemption. All
redemptions would usually be made in cash. If the Fund is converted to an
open-end investment company, it could be required to liquidate portfolio
securities to meet requests for redemption, and the shares would no longer be
listed on a stock exchange. Conversion to an open-end investment company
would also require changes in certain of the Fund's investment policies and
restrictions, such as those relating to the borrowing of money and the
purchase of illiquid securities.

The Board of Directors has determined that the 66 2/3% voting
requirements described above, which are greater than the minimum requirements
under Maryland law or the Investment Company Act, are in the best interests
of shareholders generally. Reference should be made to the Articles of
Incorporation on file with the Securities and Exchange Commission for the
full text of these provisions.

CUSTODIAN

The Fund's securities and cash are held under a custodian agreement with
( ).
______________

UNDERWRITING

The Underwriter has agreed, subject to the terms and conditions of a
Purchase Agreement with the Fund and the Investment Adviser, to purchase
_____
shares of Common Stock from the Fund. The Underwriter is committed to
_____
purchase all of such shares if any are purchased.

The Underwriter has advised the Fund that it proposes initially to offer
the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus. There is no sales charge or
underwriting discount charged to investors on purchases of shares of Common
Stock in the offering. The Investment Adviser or an affiliate has agreed to
pay the Underwriter from its own assets a commission in connection with the
sale of shares of Common Stock in the offering in the amount of $ per
_____
share. Such payment is equal to % of the initial public offering price
___
per share. The Underwriter also has advised the Fund that from this amount
the Underwriter may pay a concession to certain dealers not in excess of $
____
per share on sales by such dealers and the Underwriter may pay an allowance,
and such dealers may pay a reallowance, not in excess of $ per share on
_____
sales by certain other dealers. After the initial public offering, the
public offering price and other selling terms may be changed. Investors must
pay for shares of Common Stock purchased in the offering on or before _____
_
, 1997.

The Fund has granted the Underwriter an option, exercisable for 45 days
after the date hereof, to purchase up to ____________ additional shares of
Common Stock to cover over-allotments, if any, at the initial offering price.

The Underwriter may engage in certain transactions that stabilize the
price of the shares of Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
shares of Common Stock.

If the Underwriter create a short position in the shares of Common Stock
in connection with the offering, i.e., if it sells more shares of Common
Stock than are set forth on the cover page of this Prospectus, the
Underwriter may reduce that short position by purchasing shares of Common
Stock in the open market.

The Underwriter may also impose a penalty bid on certain syndicate and
selling group members. This means that if the Underwriter purchases shares
of Common Stock in the open market to reduce the Underwriter's short position
or to stabilize the price of the shares of Common Stock, it may reclaim the
amount of the selling concession from the selling group members who sold
those shares of Common Stock as part of the offering.

In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the
extent that it were to discourage resales of the security.

Neither the Fund nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the shares of Common
Stock. In addition, neither the Fund nor the Underwriter makes any
representation that the Underwriter will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.

Prior to this offering, there has been no public market for the shares
of the Common Stock. Application will be made to list the shares of Common
Stock on the New York Stock Exchange. However, during an initial period,
which is not expected to exceed four weeks from the date of this Prospectus,
the Fund's shares will not be listed on any securities exchange.
Additionally, during such period, the Underwriter does not intend to make a
market in the Fund's shares, although a limited market may develop.
Consequently, it is anticipated that an investment in the Fund will be
illiquid during such period. In order to meet the requirements for listing,
the Underwriter has undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial owners.

The Fund anticipates that the Underwriter may from time to time act as
broker in connection with the execution of its portfolio transactions.

The Underwriter is an affiliate of the Investment Adviser of the Fund.

The Fund and the Investment Adviser have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under the
Securities Act of 1933.

TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR

The transfer agent, dividend disbursing agent and registrar for the
shares of the Fund is _________.

LEGAL OPINIONS

Certain legal matters in connection with the shares offered hereby will
be passed upon for the Fund and the Underwriter by Brown & Wood LLP, New
York, New York.

EXPERTS

The statement of assets, liabilities and capital of the Fund included in
this Prospectus has been so included in reliance on the report of (
___________
), independent auditors, and on their authority as experts in auditing
_____
and accounting. The selection of independent auditors is subject to
ratification by shareholders of the Fund.

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholder of
Debt Strategies Fund, Inc.

We have audited the accompanying statement of assets, liabilities and
capital, of Debt Strategies Fund, Inc. as of ________ __, 1997. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, such statement of assets, liabilities and capital presents
fairly, in all material respects, the financial position of Debt Strategies
Fund, Inc. as of ________ __, 1997, in conformity with generally accepted
accounting principles.

_____________

_____________
_______, __ 1997

DEBT STRATEGIES FUND, INC.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

_______ __, 1997

<S> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $_______
Deferred organization and offering costs (Note 1) . . . . . . . . . . . . . . . . . _______
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _______
LIABILITIES
Deferred organization and offering costs payable (Note 1) . . . . . . . . . . . . . _______
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $_______
CAPITAL
Common Stock, par value $.10 per share; 200,000,000 shares
authorized; 10,527 shares issued and outstanding (Note 1) . . . . . . . . . . . $_______
Paid-in Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . . . . _______
Total Capital--Equivalent to $9.50 net asset value per share
of Common Stock (Note 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $_______

</TABLE>

NOTES TO STATEMENT OF ASSETS, LIABILITIES AND CAPITAL

NOTE 1. ORGANIZATION

The Fund was incorporated under the laws of the State of Maryland on
_______ __, 1997, as a closed-end, diversified management investment company
and has had no operations other than the sale to Fund Asset Management, Inc.
of an aggregate of ______ shares for $_______ on _______ __, 1997.

Deferred organization costs will be amortized on a straight-line basis
over a five-year period beginning with the commencement of operations of the
Fund. Direct costs relating to the public offering of the Fund's shares will
be charged to capital at the time of issuance of shares.

NOTE 2. MANAGEMENT ARRANGEMENTS

The Fund has engaged Fund Asset Management, Inc. (the "Investment
Adviser") to provide investment advisory and management services to the Fund.
The Investment Adviser will receive a monthly fee at the annual rate of %
___
of the Fund's average weekly net assets plus the proceeds of any outstanding
borrowings used for leverage.

NOTE 3. FEDERAL INCOME TAXES

The Fund intends to qualify as a "regulated investment company" and as
such (and by complying with the applicable provisions of the Internal Revenue
Code of 1986, as amended) will not be subject to Federal income tax on a
taxable income (including realized capital gains) that is distributed to
shareholders.

APPENDIX A: 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 a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa--Bonds 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.

The modifier 1 indicates that the bond ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its rating
category.

DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S RATINGS SERVICES:

AAA--Bonds rated AAA have the highest rating assigned by Standard &
Poor's Ratings Services. 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 predominantly speculative with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the obligation.
BB indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

C--The C rating is reserved for income bonds on which no interest is
being paid.
D--Bonds rated D are in default, and payment of interest and/or
repayment of principal is in arrears.

NR--Indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of bond as a matter of policy.

Plus (+) or Minus (--): The ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.

<S> <C>
No person has been authorized to give any
information or to make any representations not
contained in this Prospectus, and, if given or
made, such information or representations must __________ SHARES
not be relied upon as having been authorized.
This Prospectus does not constitute an
offering of any securities other than the
registered securities to which it relates or
an offer to any person in any State or
jurisdiction of the U.S. or any country where DEBT STRATEGIES FUND, INC.
such offer would be unlawful.
_________________

TABLE OF CONTENTS
COMMON STOCK
Page
____

Prospectus Summary . . . . . . . . . . . . 3
Fee Table . . . . . . . . . . . . . . . . 10
The Fund . . . . . . . . . . . . . . . . . 11
Use of Proceeds . . . . . . . . . . . . . . 11
Investment Objective and Policies . . . . . 11
Other Investment Policies . . . . . . . . . 17
Investment Restrictions . . . . . . . . . . 23 _______________
Directors and Officers . . . . . . . . . . 24 PROSPECTUS
Investment Advisory and Management _______________
Arrangements . . . . . . . . . . . . . . 25
Portfolio Transactions . . . . . . . . . . 26
Dividends and Distributions . . . . . . . . 27
Taxes . . . . . . . . . . . . . . . . . . . 28
Automatic Dividend Reinvestment Plan . . . 30
Mutual Fund Investment Option . . . . . . . 31
Net Asset Value . . . . . . . . . . . . . . 31
Description of Capital Stock . . . . . . . 32
Custodian . . . . . . . . . . . . . . . . . 33 MERRILL LYNCH & CO.
Underwriting . . . . . . . . . . . . . . . 33
Transfer Agent, Dividend
Disbursing Agent and Registrar . . . . . 34
Legal Opinions . . . . . . . . . . . . . . 34
Experts . . . . . . . . . . . . . . . . . . 34
Independent Auditor's Report 35
Statement of Assets, Liabilities
and Capital . . . . . . . . . . . . . . 36
Appendix A . . . . . . . . . . . . . . . A-1
_______________

Until _______ __, 1997 (90 days after the
commencement of the offering), all dealers
effecting transactions in the Common Stock, _________ __, 1997
whether or not participating in this
distribution, may be required to deliver a
Prospectus. This delivery requirement is in
addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or
subscriptions.

</TABLE>

PART C
OTHER INFORMATION

ITEM 24. Financial Statements and Exhibits.

(1) Financial Statements
Independent Auditors' Report
Statement of Assets, Liabilities and Capital as of ,
_____________
1997

(2) Exhibits:
(a) --Articles of Incorporation
(b) --By-Laws
(c) --Not applicable
(d)(1) --Portions of the Articles of Incorporation and By-Laws of
the Registrant
defining the rights of holders of shares of the Registrant.
(a)
(d)(2) --Form of specimen certificate for shares of Common Stock
of the Registrant.*
(e) --Form of Dividend Reinvestment Plan*
(f) --Not applicable
(g) --Form of Investment Advisory Agreement between the Fund and
the Investment Adviser*
(h)(1) --Form of Purchase Agreement*
(h)(2) --Merrill Lynch Standard Dealer Agreement*
(i) --Not applicable
(j) --Custodian Contract between the Fund and
______________________
*
_____
(k) --Registrar, Transfer Agency and Service Agreement between the
Fund and *
__________
(l) --Opinion and Consent of Brown & Wood LLP, counsel to the Fund*
(m) --Not applicable
(n) --Consent of , independent auditors for the Fund*
______________
(o) --Not applicable
(p) --Certificate of Fund Asset Management, L.P.*
(q) --Not applicable
(r) --Financial Data Schedule*
___________________
(a) Reference is made to Article V, Article VI (sections 2,3,4,5 and 6),
Article VII, Article VIII, Article X, Article XI, Article XII and
Article XIII of the Registrant's Articles of Incorporation, filed as Exhibit
(a)(1) to this Registration Statement; and to Article II, Article III
(sections 1,2,3,5 and 17), Article VI, Article VII, Article XII,
Article XIII and Article XIV of the Registrant's By-Laws, filed as Exhibit
(b) to this Registration Statement.

* To be filed by amendment.

ITEM 25. MARKETING ARRANGEMENTS.

See Exhibit (h).

ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement:

<S> <C>
Registration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *
Stock Exchange listing fee . . . . . . . . . . . . . . . . . . . . . . . . *
Printing (other than stock certificates) . . . . . . . . . . . . . . . . . *
Engraving and printing stock certificates . . . . . . . . . . . . . . . . . *
Fees and expense of qualifications under state securities laws . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . *
NASD fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ *

</TABLE>

_________________
* To be provided by amendment

ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

The information in the Prospectus under the caption "Investment Advisory
and Management Arrangements" and in Note 1 to the Statement of Assets,
Liabilities and Capital is incorporated herein by reference.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.

There will be one record holder of the Common Stock, par value $.10 per
share, as of the effective date of this Registration Statement.

ITEM 29. INDEMNIFICATION.

Section 2418 of the General Corporation Law of the State of Maryland,
Article VI of the Registrant's Articles of Incorporation, filed as Exhibit
(a)(1) to this Registration Statement, Article VI of the Registrant's By-
Laws, filed as Exhibit (b) to this Registration Statement, and the Investment
Advisory Agreement, a form of which will be filed as Exhibit (g)(1) to this
Registration Statement, provide for indemnification.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "1933 Act") may be provided to directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund 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 Fund of expenses incurred or paid by a director, officer
or controlling person of the Fund in connection with any successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Fund 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.

Reference is made to Section Six of the Purchase Agreement, a form of
which will be filed as Exhibit (h)(1) hereto, for provisions relating to the
indemnification of the underwriter.

ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.

Fund Asset Management, L.P. (the "Investment Adviser") acts as
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 Emerging Tigers
Fund, Inc., Merrill Lynch Federal Securities Trust, Merrill Lynch Funds for
Institutions Series, Merrill Lynch Multi-State Limited Maturity Municipal
Series Trust, Merrill Lynch Multi-State Municipal Series Trust, Merrill Lynch
Municipal Bond Fund, Inc., Merrill Lynch Phoenix Fund, Inc., Merrill Lynch
Special Value Fund, Inc., Merrill Lynch World Income Fund, Inc., and The
Municipal Fund Accumulation Program, Inc., and for the following closed-end
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Income Opportunities Fund 1999,
Inc., Income Opportunities Fund 2000, Inc., MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniInsured Fund, Inc., MuniVest Florida Fund,
MuniVest Fund, Inc., MuniVest Fund II, Inc., MuniVest Michigan Insured Fund,
Inc., MuniVest New Jersey Fund, Inc., MuniVest Pennsylvania Insured Fund,
MuniYield Arizona Fund, Inc., MuniYield California Fund, Inc., MuniYield
California Insured Fund, Inc., MuniYield California Insured Fund II, Inc.,
MuniYield Florida Fund, MuniYield Florida Insured Fund, MuniYield Fund, Inc.,
MuniYield Insured Fund, Inc., MuniYield Michigan Fund, Inc., MuniYield
Michigan Insured Fund, Inc., MuniYield New Jersey Fund, Inc., MuniYield New
Jersey Insured Fund, Inc., MuniYield New York Insured Fund, Inc., MuniYield
New York Insured Fund II, Inc., MuniYield Pennsylvania Fund, MuniYield
Quality Fund, Inc., MuniYield Quality Fund II, Inc., Senior High Income
Portfolio, Inc., Taurus MuniCalifornia Holdings, Inc., Taurus MuniNewYork
Holdings, Inc. and Worldwide DollarVest Fund, Inc.

Merrill Lynch Asset Management, L.P. ("MLAM"), an affiliate of the
Investment Adviser, acts as the 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 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 Bond Fund for Investment
and Retirement, Merrill Lynch Global Allocation Fund, Inc., Merrill Lynch
Global Convertible Fund, Inc., Merrill Lynch Global Holdings, Merrill Lynch
Global Resources Trust, Merrill Lynch Global SmallCap Fund, Inc., Merrill
Lynch Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc.,
Merrill Lynch Growth Fund, Inc., Merrill Lynch Healthcare Fund, Inc., Merrill
Lynch Intermediate Government Bond Fund, Merrill Lynch International Equity
Fund, Merrill Lynch Latin America Fund, Inc., Merrill Lynch Middle
East/Africa Fund, Inc., Merrill Lynch Municipal Series Trust, Merrill Lynch
Pacific Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch
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 is One Financial Center, 15th Floor, Boston,
Massachusetts 02111-2646. The address of the Investment Adviser, MLAM,
Merrill Lynch Funds Distributor, Inc. (the "Distributor"), Princeton
Services, Inc. ("Princeton Services") and Princeton Administrators, L.P. also
is P.O. Box 9011, Princeton, New Jersey 08543-9011. The address of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Merrill
Lynch & Co., Inc. ("ML & Co.") is North Tower, World Financial Center, 250
Vesey Street, New York, New York: 10281-1213.

Set forth below is a list of each executive officer and partner of the
Investment Adviser indicating each business, profession, vocation or
employment of a substantial nature in which each such person or entity has
been engaged for the past two years for his or her or its own account or in
the capacity of director, officer, employee, 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 paragraphs and also hold the same
positions with all or substantially all of the investment companies advised
by MLAM as they do with those advised by the Investment Adviser. Messrs.
Giordano, Harvey, Kirstein and Monagle are directors or officers of one or
more of such companies.

<TABLE>
<CAPTION>
OTHER SUBSTANTIAL BUSINESS,

<S> <C> <C>
NAME POSITIONS WITH INVESTMENT PROFESSION,
____ _________________________
ADVISOR VOCATION OR EMPLOYMENT
_______ ______________________
ML & Co. . . . . . . . . . . . . Limited Partner Financial Services Holding Company;
Limited Partner of MLAM
Princeton Services . . . . . . . General Partner General Partner of MLAM
Arthur Zeikel . . . . . . . . . . President President and Director of MLAM;
President and Director of Princeton
Services; Director of MLFDS;
Executive Vice President of ML & Co.

Terry K. Glenn . . . . . . . . . Executive Vice President Executive Vice President of MLAM;
Executive Vice President and
Director of Princeton Services;
President and Director of MLFDS;
President of Princeton
Administrators, L.P.
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;
Senior Vice President of Princeton
Services
Norman R. Harvey . . . . . . . . Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Philip L. Kirstein . . . . . . . Senior Vice President, Senior Vice President, General
General Counsel and Counsel
Secretary and Secretary of MLAM; Senior Vice
President, General Counsel Director
and Secretary of Princeton Services;
Director of MLFD
Ronald M. Kloss . . . . . . . . . Senior Vice President and Senior Vice President 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 Administrators L.P.;
Senior Vice President of Princeton
Services
Joseph T. Monagle . . . . . . . . Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services
Michael L. Quinn . . . . . . . . Senior Vice President Senior Vice President of MLAM;
Senior Vice President of Princeton
Services; Managing Director and
First Vice President of Merrill
Lynch from 1989 to 1995
Gerald M. Richard . . . . . . . . Senior Vice President and Senior Vice President and Treasurer
Treasurer of MLAM; Senior Vice President and
Treasurer of Princeton Services;
Vice President and Treasurer of MLFD
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 31. LOCATION OF ACCOUNT 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 promulgated thereunder are maintained at the offices of the registrant
(800 Scudders Mill Road, Plainsboro, New Jersey 08536), its investment
advisor (800 Scudders Mill Road, Plainsboro, New Jersey 08536), and its
custodian and transfer agent,

ITEM 32. MANAGEMENT SERVICES.

Not applicable.

ITEM 33. UNDERTAKINGS.

(a) Registrant undertakes to suspend the offering of the shares of
Common Stock covered hereby until it amends its Prospectus contained herein
if (1) subsequent to the effective date of this registration statement, its
net asset value per share of Common Stock declines more than 10 percent from
its net asset value per share of Common Stock as of the effective date of
this Registration Statement, or (2) its net asset value per share of Common
Stock increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.

(b) Registrant undertakes that:

(1) For purposes of determining any liability under the 1933 Act,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 497(h)
under the 1933 Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the 1933
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Township of Plainsboro, and State of New
Jersey, on the 7th day of April 1997.
DEBT STRATEGIES FUND, INC.
(Registrant)

By /s/ Philip L. Kirstein
___________________________________________
(Philip L. Kirstein, President)

Each Person whose signature appears below hereby authorizes Philip L.
Kirstein, Patrick D. Sweeney
or Bradley J. Lucido or any of them, attorney-in-fact, to sign on his behalf,
individually and in each capacity stated below, any amendments to this
Registration Statement (including Post-Effective Amendments) and to file the
same, with all exhibits thereto, with the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<S> <C> <C>
SIGNATURES TITLE DATE
__________ _____ ____
President (Principal April 7, 1997
/s/ Philip L. Kirstein Executive Officer) and
_______________________________________________________
Director (Philip L. Kirstein)

Treasurer (Principal April 7, 1997
/s/ Patrick D. Sweeney Financial and
_______________________________________________________
(Patrick D. Sweeney) Accounting Officer)
and Director

April 7, 1997
/s/ Bradley J. Lucido Director
_______________________________________________________
(Bradley J. Lucido)

</TABLE>

ARTICLES OF INCORPORATION
OF
DEBT STRATEGIES FUND, INC.

THE UNDERSIGNED, SUZANNE M. ENDRIZZI, whose post-office address is c/o
Brown & Wood LLP, One World Trade Center, 56th Floor, New York, New York
10048, being at least eighteen (18) years of age, does hereby act as an
incorporator, 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 I
NAME
----
The name of the corporation is DEBT STRATEGIES FUND, INC. (the
"Corporation").
ARTICLE II
PURPOSES AND POWERS
-------------------
The purpose or purposes for which the Corporation is formed is to act as
a closed-end, management investment company under the federal Investment
Company Act of 1940, as amended, and in effect from time to time (the
"Investment Company Act"), and 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.

ARTICLE III
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 Corporation Trust Incorporated, 32 South
Street, Baltimore, Maryland 21202. 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 The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland
21202.
ARTICLE IV
CAPITAL STOCK
-------------
(1) The total number of shares of capital stock which the Corporation
shall have authority to issue is 200,000,000 shares, all initially classified
as one class called Common 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).
(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, 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 the total amount of

shares of all classes or series shall not exceed the total number of shares
of capital stock authorized in the Charter.
(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 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.
(4) Unless otherwise expressly provided in the Charter of the
Corporation, including any Articles Supplementary creating any class or
series of capital stock, 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 as to any matter with respect to which a separate vote of any
class or series is required by the Investment Company Act, 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.
(5) Notwithstanding any provision of the Maryland General Corporation
Law requiring a greater proportion than a majority of the votes of all
classes or series of capital stock of the Corporation (or of any class or
series entitled to vote thereon as a separate class or series) to take or
authorize any action, the Corporation is hereby authorized (subject to the

requirements of the Investment Company Act, and any rules, regulations and
orders issued thereunder) to take such action upon the concurrence of a
majority of the votes entitled to be cast by holders of capital stock of the
Corporation (or a majority of the votes entitled to be cast by holders of a
class or series as a separate class or series) unless a greater proportion is
specified in the Charter.
(6) 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 each class or series of capital stock of the Corporation shall be
entitled, after payment or provision for payment of the debts and other
liabilities of the Corporation, to share ratably in the remaining net assets
of the Corporation.
(7) Any fractional shares shall carry proportionately all of 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.
(8) The presence in person or by proxy of the holders of shares
entitled to cast one-third of the votes entitled to be cast shall constitute
a quorum at any meeting of stockholders, except with respect to any matter
which requires approval by a separate vote of one or more classes or series
of stock, in which case the presence in person or by proxy of the holders of
shares entitled to cast one-third of the votes entitled to be cast by each
class or series entitled to vote as a separate class shall constitute a
quorum.
(9) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of the Charter and the By-Laws of
the Corporation. 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.

ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE CORPORATION
AND OF THE DIRECTORS AND STOCKHOLDERS
-------------------------------------------------------

(1) The initial number of directors of the Corporation shall be three
(3), which number may be increased or decreased pursuant to the By-Laws of
the Corporation but shall never be less than the minimum number permitted by
the General Laws of the State of Maryland. The names of the directors who
shall act until the first annual meeting or until their successors are duly
elected and qualify are:
Philip L. Kirstein
Patrick D. Sweeney
Bradley J. Lucido

(2) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of capital stock of any
class or series, whether now or hereafter authorized, for such consideration
as the Board of Directors may deem advisable, without any action by the
stockholders, 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 and advanced expenses by the Corporation to the full extent
permitted by the General Laws of the State of Maryland now or hereafter in
force, including the advance of expenses under the procedures and to the full
extent permitted by law subject to the requirements of the Investment Company
Act. The foregoing rights of indemnification shall not be exclusive of any
other rights to which those seeking indemnification may be entitled. No
amendment of these Articles of Incorporation or repeal of any provision
hereof shall limit or eliminate the benefits provided to directors and
officers under this provision in connection with any act or omission that
occurred prior to such amendment or repeal.
(5) To the fullest extent permitted by the General Laws of the State of
Maryland or decisional law, as amended or interpreted, subject to the
requirements of the Investment Company Act, no director or officer of the
Corporation shall be personally liable to the Corporation or its security
holders for money damages. No amendment of these Articles of Incorporation
or repeal of any provision hereof shall limit or eliminate the benefits
provided to directors and officers under this provision in connection with
any act or omission that occurred prior to such amendment or repeal.
(6) The Board of Directors of the Corporation is vested with the sole
power, to the exclusion of the stockholders, to 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.
(7) A director elected by the holders of capital stock may be removed
(with or without cause), but only by action taken by the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of capital stock
then entitled to vote in an election to fill that directorship.
(8) The enumeration and definition of the particular powers of the
Board of Directors included in the Charter shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Charter of the Corporation, or construed as
or deemed by inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General Laws of the
State of Maryland now or hereinafter in force.

ARTICLE VI
DENIAL OF PREEMPTIVE RIGHTS
---------------------------
No stockholder of the Corporation shall by reason of his holding shares
of capital stock have any preemptive or preferential right to purchase or
subscribe to any shares of capital stock of the Corporation, now or hereafter
to be authorized, or any notes, debentures, bonds or other securities
convertible into shares of capital stock, now or hereafter to be authorized,
whether or not the issuance of any such shares, or notes, debentures, bonds
or other securities would adversely affect the dividend or voting rights of
such stockholder; except that the Board of Directors, in its discretion, may
issue shares of any class of the

Corporation, or any notes, debentures, bonds, other securities convertible
into shares of any class, either in whole or in part, to the existing
stockholders or holders of any class, series or type of stock or other
securities at the time outstanding to the exclusion of any or all of the
holders of any or all of the classes, series or types of stock or other
securities at the time outstanding.

ARTICLE VII

DETERMINATION BINDING
---------------------
Any determination made in good faith and consistent with applicable law,
so far as accounting 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, obligations 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, alteration or cancellation of any reserves or charges (whether
or not any obligation or liability for which such reserves or as to the use,
alteration or cancellation of any reserves or charges shall have been
created, shall have been paid or discharged 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 disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in
good faith by the Board of Directors as to whether any transaction
constitutes a

purchase of securities on "margin," a sale of securities "short," or an
underwriting or the sale of, 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 condition 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 aforesaid. No provision in this Charter 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, 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 disregard of the duties involved in the conduct of his
office.

ARTICLE VIII
PRIVATE PROPERTY OF STOCKHOLDERS
--------------------------------
The private property of stockholders shall not be subject to the payment
of corporate debts to any extent whatsoever.
ARTICLE IX
CONVERSION TO OPEN-END COMPANY
------------------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize an amendment to these Articles of
Incorporation of the Corporation that makes the Common Stock a "redeemable
security" (as that term is defined in section 2(a) (32) the Investment
Company Act) unless such action has previously been approved, adopted or
authorized by the affirmative vote of at least two-thirds of the total number
of directors fixed in accordance with the By-Laws of the Corporation, in
which case the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation entitled to vote
thereon shall be required.

ARTICLE X
MERGER, SALE OF ASSETS, LIQUIDATION
-----------------------------------
Notwithstanding any other provisions of these Articles of Incorporation
or the By-Laws of the Corporation, a favorable vote of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of
capital stock of the Corporation entitled to be voted on the matter shall be
required to approve, adopt or authorize (i) a merger or consolidation or
statutory share exchange of the Corporation with any other corporation, (ii)
a sale of all or substantially all of the assets of the Corporation (other
than in the regular course of its investment activities), or (iii) a
liquidation or dissolution of the Corporation, unless such action has
previously been approved, adopted or authorized by the affirmative vote of at
least two-thirds of the total number of directors fixed in accordance with
the By-Laws of the Corporation, in which case the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Corporation entitled to vote thereon shall be required.

ARTICLE XI
PERPETUAL EXISTENCE
-------------------
The duration of the Corporation shall be perpetual.

ARTICLE XII
AMENDMENT
---------
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in its Charter, in any manner now or hereafter prescribed
by statute, including any amendment which alters the contract rights, as
expressly set forth in the Charter, of any outstanding stock and
substantially adversely affects the stockholders' rights, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding any other provisions of these Articles of Incorporation or
the By-Laws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Corporation), the amendment or repeal of Section (5) of
Article IV, Section (1), Section (4), Section (5), Section (6) and Section
(7) of Article V, Article VIII, Article IX, Article X, Article XI or this
Article XII, of these Articles of Incorporation shall require the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of

the outstanding shares of capital stock of the Corporation entitled to be
voted on the matter.

IN WITNESS WHEREOF, the undersigned incorporator of Debt Strategies
Fund, Inc. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be her act.
Dated this 1st day
of April, 1997

/s/ Suzanne M. Endrizzi
---------------------------
Suzanne M. Endrizzi

BY-LAWS

DEBT STRATEGIES FUND, INC.

ARTICLE I.

Offices
-------

Section 1. Principal Office. The principal office of the
----------------
Corporation shall be in the City of Baltimore and State of Maryland.

Section 2. Principal Executive Office. The principal executive
--------------------------
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New

Jersey 08536.

Section 3. Other Offices. The Corporation may have such other
-------------
offices in such places as the Board of Directors from time to time may

determine.

ARTICLE II.

Meetings of Stockholders
------------------------

Section 1. Annual Meeting. Except as otherwise required by the
--------------
rules of any stock exchange on which the Corporation's shares of stock may be

listed, the Corporation shall not be required to hold an annual meeting of

its stockholders in any year in which the election of directors is not

required to be acted upon under the Investment Company Act of 1940, as

amended (the "Investment Company Act"). In the event that the Corporation

shall be required to hold an annual meeting of stockholders to elect

directors under the Investment Company Act, such meeting shall be held no

later than 120 days after the occurrence of the event requiring the meeting.

Any stockholders' meeting held in accordance with this Section shall for all

purposes constitute the annual meeting of stockholders for the year in which

the meeting is held.

In the event an annual meeting is required by the rules of a stock

exchange on which the Corporation's shares of stock are listed, the annual

meeting of the stockholders of the Corporation for the election of directors

and for the transaction of such other business as may properly be brought

before the meeting shall be held on such day and month of each year as shall

be designated annually by the Board of Directors.

Section 2. Special Meetings. Special meetings of the stockholders,
----------------
unless otherwise provided by law, may be called for any purpose or purposes

by a majority of the Board of Directors, the President, or on the written

request of the holders of at least 10% of the outstanding shares of capital

stock of the Corporation entitled to vote at such meeting if they comply with

Section 2-502(b) or (c) of the Maryland General Corporation Law.

Section 3. Place of Meetings. The annual meeting and any special
-----------------
meeting of the stockholders shall be held at such place within the United

States as the Board of Directors from time to time may 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 purpose or purposes of each

special meeting shall be given personally or by mail, not less than ten nor

more than 90 days before the date of such meeting, to each stockholder

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 or

her address as it appears on the records of the Corporation, with postage

thereon prepaid.

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,

either before or after the meeting, shall 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 unless

the adjournment is for more than 120 days after the original record date,

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. The presence in person or by proxy of the
------
holders of shares of stock entitled to cast one-third of the votes entitled

to be cast shall constitute a quorum at any meeting of stockholders, except

with respect to any matter which requires approval by a separate vote of one

or more classes or series of stock, in which case the presence in person or

by proxy of the holders of shares entitled to cast one-third of the votes

entitled to be cast by each class or series entitled to vote as a separate class

or series shall constitute a quorum. 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 of shares of stock shall be so present. At any such adjourned meeting

at which a quorum may be present any business 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, or

other applicable statute, the Charter, or these By-Laws, for action upon any

given matter shall not prevent action at such meeting upon any other matter

or matters which properly may 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 or

her 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 Secretary, or in his or

her 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.

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
------
Charter, 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 or her 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 or her by a proxy signed

by such stockholder or his or her attorney-in-fact. No proxy shall be valid

after the expiration of eleven months from the date thereof, unless otherwise

provided in the proxy. Every proxy shall be revocable 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 Charter or these By-Laws, any corporate

action to be taken by vote of the stockholders (other than the election of

directors, which shall be by a plurality of votes cast) shall be authorized by a

majority of the total votes cast at a meeting of stockholders by the holders of

shares present in person or represented 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 or her 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 set a
---------------------
record date for the purpose of determining stockholders entitled to vote at

any meeting of the stockholders. The record date, which may not be prior to

the close of business on the day the record date is fixed, shall be not more

than 90 nor less than ten days before the date of the meeting of the

stockholders. All persons who were holders of record of shares at such time,

and not others, shall be entitled to vote at such meeting and any adjournment

thereof.

Section 10. Inspectors. The Board, in advance of any meeting of
----------
stockholders, may appoint one or more inspectors to act at such meeting or

any adjournment thereof. 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 entitled to vote thereat shall, appoint inspectors.

Each inspector, before entering upon the discharge of his or her 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 or her

ability. The inspectors shall determine the number of shares outstanding and

the voting powers of each, the number of shares represented at the meeting,

the existence of a quorum, and 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. Inspectors need not be

stockholders.

Section 11. Consent of Stockholders in Lieu of Meeting.
------------------------------------------
Except as otherwise provided by statute or the Charter, 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 stockholders, 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 entitled to notice of the meeting but not entitled to

vote thereat.

ARTICLE III.

Board of Directors
------------------

Section 1. General Powers. Except as otherwise provided in the
--------------
Charter, the business and affairs of the Corporation shall be managed under

the direction of the Board of Directors. All powers of the Corporation may

be exercised by or under authority of the Board of Directors except as

conferred on or reserved to the stockholders by law or by the Charter or

these By-Laws.

Section 2. Number of Directors. The number of directors shall be
-------------------
fixed from time to time by resolution of the Board of Directors adopted by a

majority of the entire Board of Directors then in office; provided, however,

that in no event shall the number of directors be less than the minimum

permitted by the General Law of the State of Maryland nor more than 15. Any

vacancy created by an increase in the number of 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 or her term unless such director specifically is removed

pursuant to Section 5 of this Article III at the time of such decrease.

Directors need not be stockholders. As long as any preferred stock of the

Corporation is outstanding, the number of directors shall be not less than five.

Section 3. Election and Term of Directors. Directors shall be
------------------------------
elected annually at a meeting of stockholders held for that purpose;

provided, however, that if no meeting of the stockholders of the Corporation

is required to be held in a particular year pursuant to Section 1 of Article

II of these By-Laws, directors shall be elected at the next meeting held.

The term of office of each director shall be from the time of his election

and qualification until the election of directors next succeeding his

election and until his successor shall have been elected and shall have

qualified, or until his death, or until he shall have resigned or until

December 31 of the year in which he shall have reached seventy-two years of

age, or until he shall have been removed as hereinafter provided in these

By-Laws, or as otherwise provided by statute or by the Charter.

Section 4. Resignation. A director of the Corporation may resign at
-----------
any time by giving written notice of his or her 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, immediately 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 (with or without cause) by the stockholders by a vote of

sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of capital

stock then entitled to vote in the election of such director.

Section 6. Vacancies. Subject to the provisions of the Investment
---------
Company Act, any vacancies in the Board of Directors, whether arising from

death, resignation, removal, an increase in the number of directors or any

other cause, shall be filled by a vote of a majority of the Board of

Directors then in office, regardless of whether they constitute a quorum.

Section 7. Place of Meetings. Meetings of the Board may be held at
-----------------
such place as the Board from time to time may determine or as shall be

specified in the notice of such meeting.

Section 8. Regular Meeting. 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 Corporation or by the Chairman of the

Board or the President.

Section 10. Telephone Meetings. Members of the Board of Directors
------------------
or of any committee thereof may participate in a meeting by means of a

conference telephone or similar communications equipment if all persons

participating in the meeting can hear each other at the same time. Subject to

the provisions of the Investment Company Act, participation in a meeting by

these means constitutes presence in person at the meeting.

Section 11. Notice of Special Meetings. Notice of each special
--------------------------
meeting of the Board shall be given by the 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 telecommunication, at least 24 hours

before the time at which such meeting is to be held, or by first-class mail,

postage prepaid, addressed to him or her at his or her 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, either before or after the

meeting, shall sign a written waiver of notice which is filed with the

records of the meeting or who shall attend such meeting. Except as otherwise

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
-----------------
(unless there is only one director) 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 Charter, these By-Laws, the

Investment Company Act, or other applicable statute, the act of a majority of

the directors present at any meeting at which a quorum is present shall be the

act of the Board. 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 adjournment 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, by resolution adopted by a
------------
majority of the entire Board, may designate a Chairman of the Board, who

shall preside at each meeting of the Board. In the absence or inability of

the Chairman of the Board to preside at a meeting, the President or, in his

or her 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 or her 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.
----------------------------------------- -------
Subject to the provisions of the Investment Company Act, 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 the committee, as the case may be, consent thereto in writing, and the

writings or writing are filed with the minutes of the proceedings of the

Board or the committee.

Section 16. Compensation. Directors may receive compensation for
------------
services to the Corporation in their capacities 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 direct that the purchase, sale, retention and disposal of

portfolio securities and the other investment practices of the Corporation at

all times are consistent with the investment policies and restrictions with

respect to securities investments and otherwise of the Corporation, as re-

cited in the Prospectus of the Corporation included in the registration

statement of the Corporation relating to the initial public offering of its

capital stock, as filed with the Securities and Exchange Commission (or as

such investment policies and restrictions may be modified by the Board of

Directors, or, if required, by a majority vote of the stockholders of the

Corporation in accordance with the Investment Company Act) and as required by

the Investment Company Act. 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 requisite 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.

ARTICLE IV.

Committees
----------

Section 1. Executive Committee. The Board, by resolution adopted by
-------------------
a majority of the entire board, may designate an Executive Committee

consisting of two or more of the directors of the Corporation, which

committee shall have and may exercise all of the powers and authority of the

Board with respect to all matters other than:

(i) the submission to stockholders of any action requiring

authorization of stockholders pursuant to statute or the Charter;

(ii) the filling of vacancies on the Board of Directors;

(iii) the fixing of compensation of the directors for serving on the

Board or on any committee of the Board, including the Executive

Committee;

(iv) the approval or termination of any contract with an investment

adviser or principal underwriter, as such terms

are defined in the Investment Company Act, or the taking of any other

action required to be taken by the Board of Directors by the Investment

Company Act;

(v) the amendment or repeal of these By-Laws or the adoption of new

By-Laws;

(vi) the amendment or repeal of any resolution of the Board which by its

terms may be amended or repealed only by the Board;

(vii) the declaration of dividends and, except to the extent permitted by

law, the issuance of capital stock of the Corporation; and

(viii) 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 alteration 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 of Directors
-----------------------------
from time to time, by resolution adopted by a majority of the whole Board,

may designate one or more other committees of the Board, each such committee

to consist of two or more directors and to have such powers and duties as the

Board of Directors, by resolution, may prescribe.

Section 3. General. One-third, but not less than two, of the
-------
members of any committee shall be present in person at 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 committee

and such chairman or any two members of any committee may fix the time and

place of its meetings unless the Board shall otherwise provide. In the

absence or disqualification of any member of any committee, the member or

members thereof present at any meeting and not disqualified from voting,

whether or not he or she or they constitute a quorum, may unanimously appoint

another member of the Board of Directors to act at the meeting in the place

of any such absent or disqualified 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 absent 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 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

except as may be prescribed by the Board.

ARTICLE V.

Officers, Agents and Employees
------------------------------
Section 1. Number of 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 also may 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 next meeting of the stockholders and until his or her

successor shall have been duly elected and shall have qualified, or until his

or her death, or until he or she shall have resigned, or have been removed,

as hereinafter provided in these By-Laws. The Board from time to time may

elect 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 necessary or desirable for the business of the Corporation.

The President also shall have the power to appoint such assistant officers

(including one or more Assistant Vice Presidents, one or more Assistant

Treasurers and one or more Assistant Secretaries) as may be necessary or

appropriate to facilitate the management of the Corporation's affairs. Such

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 Corporation may resign
------------
at any time by giving written notice of 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, immediately upon its

receipt; and, unless otherwise specified therein, the acceptance of such

resignation shall 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

Directors. Such removal shall be without prejudice to such person'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.

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

manner 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 or her

control.

Section 6. Bonds or Other Security. If required by the Board, any
-----------------------
officer, agent or employee of the Corporation shall give a bond or other

security for the faithful performance of his or her 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), the President shall preside at all meetings of the

stockholders and of the Board of Directors. He or she shall have, subject to

the control of the Board of Directors, general charge of the business and

affairs of the Corporation. He or she may employ and discharge employees and

agents of the Corporation, except such as shall be appointed by the Board,

and he or she may delegate these powers.

Section 8. Vice President. Each Vice President shall have such
--------------
powers and perform such duties as the Board of Directors or the President

from time to time may prescribe.

Section 9. Treasurer. The Treasurer shall:
---------
(i) have charge and custody of, and be responsible for, all of the

funds and securities of the Corporation, except those which the Cor-

poration 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, as amended) pursuant to a written

agreement designating such bank or trust company or member of a national

securities exchange as custodian of the property of the Corporation;

(ii) keep full and accurate accounts of receipts and disbursements in

books belonging to the Corporation;

(iii) cause all moneys and other valuables to be deposited to the credit

of the Corporation;

(iv) receive, and give receipts for, moneys due and payable to the

Corporation from any source whatsoever;

(v) disburse the funds of the Corporation and supervise the investment

of its funds as ordered or authorized by the Board, taking proper

vouchers therefor; and

(vi) in general, perform all of the duties incident to the office of

Treasurer and such other duties as from time to time may be assigned to

him or her by the Board or the President.

Section 10. Secretary. The Secretary shall:
---------
(i) keep or cause to be kept in one or more books provided for the

purpose, the minutes of all meetings of the Board, the committees of the

Board and the stockholders;

(ii) see that all notices are duly given in accordance with the

provisions of these By-Laws and as required by law;

(iii) be custodian of the records and the seal of the Corporation and

affix and attest the seal to all stock certificates of the Corporation

(unless the seal of the Corporation on such certificates shall be a

facsimile, as hereinafter provided) and affix and attest the seal to all

other documents to be executed on behalf of the Corporation under its

seal;

(iv) see that the books, reports, statements, certificates and other

documents and records required by law to be kept and filed are properly

kept and filed; and

(v) in general, perform all of the duties incident to the office of

Secretary and such other duties as from time to time may be assigned to

him or her by the Board or the President.

Section 11. Delegation 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.

ARTICLE VI.

Indemnification
---------------
Section 1. General 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 otherwise would be

subject by reason of willful misfeasance, bad faith, gross negligence or

reckless disregard of the duties involved in the conduct of his or her 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

or her office, the decision by the Corporation to indemnify such person must

be based upon the reasonable determination of independent legal counsel or

the vote of a majority of a quorum of the directors who are neither

"interested persons," as defined in Section 2(a)(19) of the Investment

Company Act, nor parties to the proceeding ("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 or her office.

Each officer and director of the Corporation claiming indemnification

within the scope of this Article VI shall be entitled to advances from the

Corporation for payment of the reasonable expenses incurred by him or her in

connection with proceedings to which he or she is a party in the manner and

to the full extent permitted under the General Laws of the State of Maryland;

provided, however, that the person seeking indemnification shall provide to

the Corporation a written affirmation of his or her good faith belief that the

standard of conduct necessary for indemnification by the Corporation has been

met and a written undertaking to repay any such advance, if it ultimately

should be determined that the standard of conduct has not been met, and

provided further that at least one of the following additional conditions is

met:

(i) the person seeking indemnification shall provide a security in form

and amount acceptable to the Corporation for his or her undertaking;

(ii) the Corporation is insured against losses arising by reason of the

advance; or

(iii) a majority of a quorum of non-party independent directors, or

independent legal counsel in a written opinion shall determine, based on

a review of facts readily available to the Corporation at the time the

advance is proposed to be made, that there is reason to believe that the

person seeking indemnification will ultimately be found to be entitled

to indemnification.

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 Maryland, from liability arising from his or her

activities as an 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 otherwise would be subject by reason of willful

misfeasance, bad faith, gross negligence, or reckless disregard of the duties

involved in the conduct of his or her office.

The Corporation may indemnify, make advances 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.

Section 2. Other Rights. The indemnification provided by this
------------
Article VI shall not be deemed exclusive of any other right, in respect of

indemnification or otherwise, to which those seeking such indemnification may

be entitled under any insurance or other agreement, vote of stockholders or

disinterested directors or otherwise, both as to action by a director or

officer of the Corporation in his or her official capacity and as to action

by such person in another capacity while holding such office or position, and

shall continue as to a person who has ceased to be a director or officer and

shall inure to the benefit of the heirs, executors and administrators of such

person.

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 or her, provided,

however, that certificates for fractional shares will not be delivered 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 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 certificate shall be issued, it may be issued by the

Corporation 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 Corporation.

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 or her attorney thereunto authorized by

power of attorney duly executed and filed with the Secretary or with 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 of the Corporation immediately

shall 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, in its discretion, may require such owner or his or

her 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, as 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 90 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 Corporation, or

for the delivery of evidences of rights or evidences of interests arising out

of any change, conversion or exchange of common stock or other securities, as

the record date for the determination of the stockholders entitled to receive

any such dividend, distribution, allotment, rights or interests, and in such

case only the stockholders 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 or her agent may inspect and copy during usual

business hours the Corporation's By-Laws, minutes of the proceedings of its

stockholders, annual statements 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 Corporation, 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.

ARTICLE IX.

Fiscal Year
-----------
Unless otherwise determined by the Board, the fiscal year of the

Corporation shall end on the 28th day of February.

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 from time to time may determine.

Section 2. Custodians. All securities and other investments shall
----------
be deposited in the safekeeping of such banks or other companies as the Board

of Directors of the Corporation from time to time may determine. Every

arrangement entered into with any bank or other company for the safekeeping of

the securities and investments of the Corporation shall contain provisions

complying with the Investment Company Act, 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 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 from time to time shall

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 authorization

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 Corporation 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 provisions

of the Investment Company Act.

ARTICLE XIII.

Annual Statement
----------------
The books of account of the Corporation shall be examined 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 record of the Corporation on such date with respect to

each report as may be determined by the Board, at his or her address as the

same appears on the books of the Corporation. Such annual statement also

shall be available at the annual meeting of stockholders and shall be placed

on file at the Corporation's principal office in the State of Maryland, and

if no annual meeting is held pursuant to Article II, Section 1, such annual

statement of affairs shall be placed on file as the Corporation's principal

office within 120 days after the end of the Corporation's fiscal year. Each

such report shall show the assets and liabilities of the Corporation as of the

close of the period covered by the report and the securities in which the funds

of the Corporation then were invested. Such report also shall show the

Corporation's income and expenses for the period from the end of the

Corporation's preceding fiscal year to the close of the period covered by the

report and any other information required by the Investment Company Act, and

shall set forth such other matters as the Board or such firm of independent

public accountants shall determine.

ARTICLE XIV.

Amendments
----------
These By-Laws or any of them may be amended, altered or repealed by the

affirmative vote of a majority of the Board of Directors. The stockholders

shall have no power to make, amend, alter or repeal By-Laws.