GLOBAL HIGH YIELD FUND INC, N-2, 1998-04-20

GLOBAL HIGH YIELD FUND INC
N-2, 1998-04-20

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 20, 1998
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

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

GLOBAL HIGH YIELD 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

GLOBAL HIGH YIELD 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:

<TABLE>
<S> <C>
PATRICK D. SWEENEY, ESQ. JOHN A. MACKINNON, ESQ.
FUND ASSET MANAGEMENT, L.P. BROWN & WOOD LLP
P.O. BOX 9011 ONE WORLD TRADE CENTER
PRINCETON, NEW JERSEY 08543-9011 NEW YORK, NEW YORK 10048-0557
</TABLE>

------------------------

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

<TABLE>
<CAPTION>
=========================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF BEING OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT(1) OFFERING PRICE(1) FEE(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.10 par value)................... 100,000 shares $10.00 $1,000,000 $295.00
=========================================================================================================================
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.
(2) Transmitted 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.
================================================================================
<PAGE> 2

GLOBAL HIGH YIELD FUND, INC.

CROSS REFERENCE SHEET

<TABLE>
<CAPTION>
ITEM NUMBER, FORM N-2 CAPTION IN PROSPECTUS
--------------------- ---------------------
<S> <C> <C>
PART A -- INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover Page................... Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages.................................... Inside Front and Outside Back Cover 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 Registrant...... Prospectus Summary; The Fund; Investment
Objectives and Policies; Other Investment
Policies; Additional Leverage
Considerations; 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, and Other
Securities............................... Description of Capital Stock
11. Defaults and Arrears on Senior
Securities............................... Not Applicable
12. Legal Proceedings.......................... Not Applicable
13. Table of Contents of the Statement of
Additional Information................... Not Applicable

PART B -- INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page................................. Not Applicable
15. Table of Contents.......................... Not Applicable
16. General Information and History............ Not Applicable
17. Investment Objective and Policies.......... Prospectus Summary; Investment Objectives
and Policies; Investment Restrictions
18. Management................................. Directors and Officers; Investment Advisory
and Management Arrangements
19. Control Persons and Principal Holders of
Securities............................... Investment Advisory and Management
Arrangements
20. Investment Advisory and Other Services..... Investment Advisory and Management
Arrangements; Custodian; Underwriting;
Transfer Agent, Dividend Disbursing Agent
and Registrar; Legal Opinions; Experts
21. Brokerage Allocation and Other Practices... Portfolio Transactions
22. Tax Status................................. Taxes; Automatic Dividend Reinvestment Plan
23. Financial Statements....................... Independent Auditors' Report; Statement of
Assets, Liabilities and Capital
</TABLE>

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.
<PAGE> 3

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.

PROSPECTUS SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED APRIL 20, 1998

GLOBAL HIGH YIELD FUND, INC.
COMMON STOCK
------------------------

Global High Yield Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The primary
investment objective of the Fund is to seek high current income by investing in
a portfolio of U.S. dollar-denominated debt securities of issuers located
throughout the world, including issuers in emerging market countries. As a
secondary objective, the Fund will seek capital appreciation. The Fund will
invest both in fixed rate bonds and other long term debt securities and in
floating rate corporate loans and similar investments made by banks and other
financial institutions. Investments in securities of emerging market countries
typically involve special considerations and risks not typically present in
investments in the securities of U.S. issuers or issuers in more developed
countries. There can be no assurance that the Fund's investment objectives will
be achieved.

Under normal circumstances, substantially all of the Fund's assets will be
invested in debt securities rated in the lower rating categories of established
rating services (Baa or lower by Moody's Investor Service, Inc. or BBB or lower
by Standard & Poor's) or in unrated securities of comparable quality. Such
securities generally involve greater volatility of price and risks to principal
and income than securities in the higher ratings categories.

The Fund intends to leverage its portfolio to provide the holders of Common
Stock with a potentially higher return. Use of leverage creates an opportunity
for increased income and capital appreciation, but, at the same time, creates
special risks.

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."

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

<TABLE>
<CAPTION>
=======================================================================================================================
PRICE TO SALES LOAD PROCEEDS TO
PUBLIC(1) (1)(2) FUND(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................... $10.00 None $10.00
- -----------------------------------------------------------------------------------------------------------------------
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 under the Securities Act of 1933. See
"Underwriting."

(3) Before deducting organizational and offering expenses 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
, 1998.
------------------------
MERRILL LYNCH & CO.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 4

Prior to this offering, there has been no public market for the Fund's
shares of Common Stock. Application has been made to list the Fund's shares of
Common Stock on the Stock Exchange. However, during an initial
period which is not expected to exceed two 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."
- ---------------
(footnotes from previous page)
(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 under the Securities Act of 1933. See
"Underwriting."

(3) Before deducting organizational and offering expenses 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
Proceeds to Fund will be $ . See "Underwriting".

2
<PAGE> 5

PROSPECTUS SUMMARY

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

THE FUND...................... Global High Yield Fund, Inc. (the "Fund") is a
newly organized, non-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 $10.00
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 of Common Stock to cover
over-allotments. See "Underwriting."

INVESTMENT OBJECTIVES AND
POLICIES...................... The Fund's primary investment objective is to
seek high current income by investing in a
portfolio of U.S. dollar-denominated debt
securities of issuers located throughout the
world, including issuers in emerging market
countries. As a secondary objective, the Fund
will seek capital appreciation. The investment
objectives are fundamental policies of the Fund
and may not be changed without a vote of the
majority of the outstanding shares of Common
Stock of the Fund. There can be no assurance
that the Fund's investment objectives will be
achieved.

Based on current market conditions, the Fund
intends to invest a substantial portion of its
portfolio in bonds and other long term debt
securities that bear interest at fixed rates
("fixed rate debt securities"). The Fund also
may invest without limitation in corporate
loans and other similar investments made by
banks and other financial institutions that pay
interest 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
("Prime Rate"), or that adjust periodically at
a margin above the Certificate of Deposit
("CD") rate or the London InterBank Offered
Rate ("LIBOR") ("floating rate debt
securities"). In this Prospectus, fixed rate
and floating rate debt instruments in which the
Fund may invest are collectively referred to as
"debt securities."

There are no prescribed limits on the
geographical allocation of the Fund's assets.
Under normal conditions, however, the Fund will
invest in debt securities of issuers located in
at least three countries. Under current market
conditions, the Investment Adviser anticipates
that a substantial portion of the Fund's
portfolio will be invested in debt securities
of issuers located in emerging market
countries. As used in this Prospectus, an
"emerging market country" is any country that
is considered to be an emerging or developing
country by the International Bank for
Reconstruction and Development (the "World
Bank") and the International Finance
Corporation, as well as countries that are
classified by the United Nations or otherwise
regarded by their authorities as emerging or
developing. The Fund reserves the right,
however, to invest all of its assets in debt
securities issued in more developed countries
or solely in the United States when the
Investment
3
<PAGE> 6

Adviser believes market conditions warrant such
investment. Investments in securities of
emerging market countries typically involve
special considerations and risks not typically
present in investments exclusively in the
securities of U.S. issuers or issuers in more
developed countries. See "Risk Factors and
Special Considerations-Investing on an
International Basis."

Under normal conditions, substantially all of
the Fund's assets will be invested in debt
securities rated in the lower rating categories
of established rating services (Baa or lower by
Moody's Investor Service, Inc. ("Moody's") or
BBB or lower by Standard & Poor's, a Division
of The McGraw-Hill Companies, Inc. ("S&P")) or
in unrated securities of comparable quality.
These debt securities are commonly known as
"high yield securities" or "junk bonds." Such
securities generally involve greater volatility
of price and risk to principal and income than
securities in the higher ratings categories.
See "Risk Factors and Special
Considerations -- Lower Rated Securities" and
"Investment Objectives and Policies --
Investments in Lower Rated Securities."

The Investment Adviser will seek to enhance the
return on the Fund's Common Stock by leveraging
the Fund's capital structure, as described
below. In addition, the Fund may engage in
various portfolio strategies to seek to
increase its return and to hedge its portfolio
against movements in interest rates through the
use of interest rate 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 of global
high yield fixed and floating rate debt
securities. In managing such portfolio, the
Investment Adviser provides the Fund and its
shareholders with professional credit analysis.
Also, to the extent the Fund's portfolio
consists of corporate loans, the Fund offers a
type of investment typically not available to
individual investors. The Fund also relieves
the investor of the burdensome administrative
details involved in managing a portfolio of
such investments. Additionally, the Investment
Advisor will seek to enhance the return on
Common Stock by leveraging the Fund's Capital
Structure. These 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.

LEVERAGE...................... The Fund intends to utilize leverage to provide
the holders of Common Stock with a potentially
higher return. At present, the Fund anticipates
leveraging by entering into reverse repurchase
agreements on portfolio securities and
investing the proceeds in additional debt
securities. The Fund also is authorized to use
other types of leverage, including secured or
unsecured bank borrowings or the issuance of
short-term debt securities or shares of
preferred

4
<PAGE> 7

stock. Under current market conditions, the
Fund intends to utilize leverage at a level
ranging between 20% to 33 1/3% of its total
assets. 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 -- Leverage," "Investment
Objectives and Policies -- Leverage" and
"Additional Leverage Considerations."

LISTING....................... Prior to this offering, there has been no
public market for the shares of Common Stock of
the Fund. Application has been made to list the
Fund's shares of Common Stock on the
Stock Exchange. However, during an initial
period which is not expected to exceed two
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 of Common Stock.
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 0.80 of 1%
of the Fund's average weekly net assets. 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 Asset Management Group
of ML & Co. (which includes the Investment
Adviser), acts as the investment adviser for
over 100 other registered management investment
companies and offers portfolio management
services to individual and institutional
accounts. As of March, 1998, the Asset
Management Group had a total of approximately
$488 billion in investment company and other
portfolio assets under management. This amount
includes assets managed for certain affiliates
of 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
distributions monthly to holders of Common
Stock. All net realized 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
5
<PAGE> 8

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."

6
<PAGE> 9

RISK FACTORS AND SPECIAL CONSIDERATIONS

The Fund is a newly organized, non-diversified, closed-end management
investment company and has no operating history. It is anticipated that an
investment in the Fund will be illiquid prior to listing of the Fund's shares of
Common Stock on the 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 -- Leverage."

INVESTING ON AN INTERNATIONAL BASIS

Because a substantial portion of the Fund's assets may be invested in
securities of non-U.S. issuers, an investor in the Fund should be aware of
certain risk factors and special considerations relating to international
investing. Investing on an international basis may involve risks that are not
typically associated with investments in securities of U.S. issuers. Moreover,
investing in securities of issuers in emerging market countries may involve
risks that are not typically associated with issuers in more developed
countries. Consequently, the Fund should be considered as a means of
diversifying an investment portfolio and not in itself a balanced investment
program.

General Risks. Investing on an international basis involves certain risks
not involved in U.S. investments, including future political and economic
developments, different legal systems and the possible imposition of foreign
governmental laws or restrictions. Securities prices in different countries are
subject to different economic, financial, political and social factors. In
addition, with respect to certain foreign countries there is the possibility of
expropriation of assets, confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, economic, political or social instability or
diplomatic developments that could affect investments in those countries.
Moreover, individual economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain investments also may be subject to withholding taxes
in other countries. As a result of these potential risks, the Investment Adviser
may determine that, notwithstanding otherwise favorable investment criteria, it
may not be practicable or appropriate to invest in a particular country. The
Fund may invest in countries in which foreign investors, including the
Investment Adviser, have had no or limited prior experience.

Emerging Market Country Risks. The Fund initially intends to emphasize
investments in debt securities of issuers located in emerging market countries.
These debt securities may include government and government-related debt
securities or obligations and the obligations of entities organized to
restructure outstanding debt of emerging market countries ("sovereign debt
securities").

The general risks of international investing discussed above often are
heightened for investments in smaller, emerging capital markets. The economies
of individual emerging market countries may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross domestic product, rate of
inflation, currency depreciation, capital reinvestment, resource
self-sufficiency and balance of payments position. Further, the economies of
developing countries generally are heavily dependent upon international trade
and, accordingly, have been and may continue to be adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with which
they trade. These economies also have been and may continue to be adversely
affected by economic conditions in the countries with which they trade.

With respect to any emerging market country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries.
7
<PAGE> 10

Emerging market countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in an
emerging market country's balance of payments, the country could impose
temporary restrictions on foreign capital remittances. The Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation of capital, as well as by the application
to the Fund of any restrictions on investment. Investing in local markets in
emerging market countries may require the Fund to adopt special procedures, seek
local government approvals or take other actions, each of which may involve
additional costs to the Fund.

Certain emerging market countries are among the largest debtors to
commercial banks and foreign governments. Trading in sovereign debt securities
issued or guaranteed by emerging market governmental entities involves a high
degree of risk. The governmental entity that controls the repayment of sovereign
debt may not be willing or able to repay the principal and/or interest when due
in accordance with the terms of such securities. A governmental entity's
willingness or ability to repay principal and interest due in a timely manner
may be affected by, among other factors, its cash flow situation, the relative
size of the debt service burden to the economy as a whole, the governmental
entity's dependence on expected disbursements from third parties, the
governmental entity's policy toward the International Monetary Fund and the
political constraints to which a governmental entity may be subject. As a
result, governmental entities may default on their sovereign debt. Holders of
sovereign debt (including the Fund) may be requested to participate in the
rescheduling of such debt and to extend further loans to governmental entities.
There is no bankruptcy proceeding by which sovereign debt on which governmental
entities have defaulted may be collected in whole or in part. The sovereign debt
securities in which the Fund may invest involve significant risks and are deemed
to be equivalent in terms of quality to high yield, high risk securities and are
subject to many of the same risks as such securities. In addition, certain
issuers of sovereign debt have received ratings in the lower ratings categories
of established ratings services. The Fund may have difficulty disposing of
certain sovereign debt securities because there may be a thin trading market for
such securities.

Currency Risks. Although the Fund will only invest in U.S.
dollar-denominated debt securities, it will be subject to currency risk to the
extent currency valuation movements impact the ability of non-U.S. issuers to
pay interest and principal in U.S. dollars on debt securities held by the Fund.
For example, when an emerging market issuer has revenues that are derived from
local currency transactions, it may not be able to repay U.S. dollar-denominated
debt in the event of a depreciation of the local currency.

Public Information. Many of the debt securities held by the Fund will not
be registered with the Commission, nor will the issuers thereof be subject to
the reporting requirements of the Securities and Exchange Commission (the
"Commission"). Accordingly, there may be less publicly available information
about a non-U.S. issuer than about a U.S. issuer and such non-U.S. issuers may
not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those of U.S. issuers. As a result, traditional
investment measurements, such as price/earnings ratios, as used in the United
States, may not be applicable to certain smaller, emerging capital markets.
Non-U.S. issuers, and issuers in smaller, emerging capital markets in
particular, generally are not subject to uniform accounting, auditing and
financial reporting standards or to practices and requirements comparable to
those applicable to U.S. issuers.

Trading, Volume, Clearance and Settlement. Foreign financial markets,
while often growing in trading volume, have, for the most part, substantially
less volume than U.S. markets, and securities of many non-U.S. companies are
less liquid and their prices may be more volatile than securities of comparable
domestic companies. Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Further, satisfactory custodial services
for investment securities may not be available in some countries having smaller,
emerging capital markets, which may result in the Fund incurring additional
costs and delays in transporting and custodying such securities outside such
countries. Delays in settlement could result in periods when assets of the Fund
are uninvested and no return is earned thereon. The inability of the Fund to
make intended security purchases due to settlement problems or the risk of
intermediary counterparty failures could cause the Fund to miss attractive
investment opportunities. The inability to dispose of a portfolio security due
to settlement problems could result either in losses to the
8
<PAGE> 11

Fund due to subsequent declines in the value of such portfolio security or, if
the Fund has entered into a contract to sell the security, in possible liability
to the purchaser.

Government Supervision and Regulation. There generally is less
governmental supervision and regulation of exchanges, brokers and issuers in
other countries than there is in the United States. For example, there may be no
comparable provisions under certain foreign laws to insider trading and similar
investor protection securities laws that apply with respect to securities
transactions consummated in the United States. Further, brokerage commissions
and other transaction costs on non-U.S. securities exchanges generally are
higher than in the United States.

Restriction on Foreign Investment. Foreign investment in certain country's
debt securities is restricted or controlled to varying degrees. These
restrictions or controls may at times limit or preclude the Fund's investment in
certain non-U.S. debt securities and may increase the costs and expenses of the
Fund. Certain countries require governmental approval prior to investment by
foreign persons, limit the amount of investment by foreign persons in a
particular issuer and/or impose additional taxes on foreign investors. Certain
countries may restrict investment opportunities in issuers or industries deemed
important to national interests.

CORPORATE LOANS

The Fund may invest in senior and subordinated corporate loans, both
secured and unsecured ("Corporate Loans"). A Corporate Loan that 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's investment in Corporate Loans 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. See "Investment Objectives and Policies -- Investment in
Corporate Loans."

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
9
<PAGE> 12

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 downturn, 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.
Therefore, there can be no assurance that in the future there will not exist a
higher junk bond and high-yield Corporate Loan default rate relative to the
rates currently existing in the junk bond and high-yield Corporate Loan markets.
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. 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 debt 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.
Recently, demand for junk bonds and high-yield Corporate Loans has increased
significantly and the difference between the yields paid by such securities and
investment grade bonds (i.e., the "spread") has narrowed. To the extent this
differential increases, the value of junk bonds and high-yield Corporate Loans
in the Fund's portfolio could be adversely affected.

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. As a result,
during periods of high demand in the junk bond and high-yield Corporate Loan
markets, it may be difficult to acquire junk bonds and high-yield Corporate
Loans appropriate for investment by the Fund. Adverse economic conditions and
investor perceptions thereof (whether or not based on economic fundamentals) may
impair liquidity in the junk bond and high-yield Corporate Loan markets 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. See "Investment Objectives
and Policies -- Investments in Lower Rated 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
10
<PAGE> 13

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 Investment Adviser in its best judgment may nevertheless determine to
maintain the Fund's leveraged position if it expects that the benefits to the
Fund's shareholders of maintaining the leveraged position will outweigh the
current reduced return. Certain types of borrowings by the Fund 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 rating
agencies that 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 "Additional Leverage
Considerations." The Fund at times may borrow from affiliates of the Investment
Adviser, provided that the terms of such borrowings are no less favorable than
those available from comparable sources of funds in the marketplace. See
"Investment Objectives and Policies -- Leverage."

At present, the Investment Adviser anticipates leveraging by entering into
reverse repurchase agreements on portfolio securities and investing the proceeds
in additional debt securities. In addition to the general risks described above,
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. Since the Fund conveys to the counterparty control over the
securities that are the subject of a reverse repurchase agreement, there is a
risk that the counterparty will be unable to produce the securities at the time
the Fund is obligated to repurchase them.

CONCENTRATION IN FINANCIAL INSTITUTIONS

As a result of the Fund's investment in Corporate Loans, 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. Consequently, 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 debt securities may trade at
a discount from comparable, more liquid investments.

11
<PAGE> 14

ANTI-TAKEOVER 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.

12
<PAGE> 15

FEE TABLE

<TABLE>
<S> <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).................................. 0.80%
Interest Payments on Borrowed Funds(b)................. None
Other Expenses(b)...................................... %
----
Total Annual Expenses(b).......................... %
====
</TABLE>

<TABLE>
<CAPTION>
1 3
YEAR YEARS
------- -------
<S> <C> <C>
EXAMPLE
An investor would pay the following expenses on a
$1,000 investment, assuming (1) total annual expenses
of % (assuming no leverage) and % (assuming
leverage of 33 1/3% of the Fund's total assets) and (2)
a 5% annual return throughout the periods:
Assuming No Leverage.............................. $ $
Assuming Leverage................................. $ $
</TABLE>

- ---------------

(a) See "Investment Advisory and Management Arrangements" -- page 32.

(b) In the event the Fund utilizes leverage by borrowing in an amount of
approximately 33 1/3% of the Fund's total assets, it is estimated that the
Management Fees would be 0.80%, Interest Payments on Borrowed Funds would be
% and Total Annual Expenses would be %. See "Risk Factors and Special
Considerations -- Leverage" and "Additional Leverage Considerations."
Borrowings may be effected through reverse repurchase agreements.

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 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.

13
<PAGE> 16

THE FUND

Global High Yield Fund, Inc. (the "Fund") is a newly organized,
non-diversified, closed-end management investment company. The Fund was
incorporated under the laws of the State of Maryland on April 17, 1998, 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 is 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.

Due to significant current demand for high yield debt securities and
Corporate Loans, investments that, in the judgment of the Investment Adviser,
are appropriate investments for the Fund may not be immediately available.
Therefore, the Fund expects that there will be an initial investment period of
up to three months following the completion of its Common Stock offering before
it is invested in accordance with its investment objectives and policies.
Pending such investment, it is anticipated that all or a portion of 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 high current income by
investing in a portfolio of U.S. dollar denominated debt securities of issuers
located throughout the world, including issuers in emerging market countries. As
a secondary objective, the Fund will seek capital appreciation. These investment
objectives are fundamental policies of the Fund and may not be changed without a
vote of the majority of the outstanding shares of the Fund.

In the selection and supervision of investments, the Investment Adviser
will consider market, political and general economic and financial conditions
and various other factors, including its evaluation of the credit risk of
issuers of debt securities and its analysis of the prevailing investment
characteristics of such securities such as interest rate sensitivity, volatility
and liquidity. The Investment Adviser will also seek to enhance yield by taking
advantage of yield disparities that regularly occur among debt securities
trading in the various emerging markets. Such professional investment management
may be attractive to investors, particularly individuals, who lack the time,
information, capability or inclination to effect such an investment strategy
directly. Under current market conditions, except for temporary defensive
purposes, the Fund does not expect to invest more than 25% of its total assets
in the debt securities of issuers in any single country, except that the Fund
expects to maintain at least 25% of its total assets in debt securities of U.S.
issuers. Based upon curernt market conditions, the Fund expects that its
investments in debt securities of U.S. issuers will consist principally of
Corporate Loans.

The Fund will invest both in fixed rate bonds and other long term debt
securities and in floating rate Corporate Loans and similar investments made by
banks and other financial institutions. Under current market conditions, the
Fund intends to invest a substantial portion of its portfolio in bonds and other
long term debt securities that bear interest at fixed rates ("fixed rate debt
securities"). The Fund also may invest without limitation in Corporate Loans and
other similar investments made by banks and other financial institutions that
pay interest at rates that float at a margin above a generally recognized base
lending rate, such as the Prime Rate or that adjust periodically at a margin
above the CD rate or LIBOR ("floating rate debt

14
<PAGE> 17

securities"). In this Prospectus, fixed rate and floating rate debt instruments
in which the Fund may invest are collectively referred to as "debt securities."

The Investment Adviser will actively manage the Fund's assets and will seek
to adjust the proportion of fixed rate to floating rate debt securities on an
ongoing basis based on its perception of which type of debt security would best
enable the Fund to achieve its investment objectives. There can be no assurance,
however, that the investment management strategies described in this paragraph
will be successful. There are no prescribed limits on the allocation of the
Fund's assets between fixed rate debt securities and floating rate debt
securities. Therefore, at any given time, the Fund's assets may be invested
primarily in fixed rate debt securities or in floating rate debt securities. In
a stable interest rate environment, fixed rate debt securities generally have
higher yields than floating rate debt securities of comparable credit quality.
Fixed rate debt securities also tend to be more liquid than floating rate debt
securities. However, floating rate debt securities are less sensitive to market
interest rate fluctuations and therefore demonstrate less volatility in a
changing interest rate environment than fixed rate debt securities of comparable
credit quality. Floating rate debt securities frequently also benefit from
collateral and structural credit protections that are not accorded to fixed rate
debt securities.

INVESTMENTS IN EMERGING MARKET COUNTRIES

Investments in securities of emerging market countries typically involve
special considerations and risks not typically present in investments
exclusively in the securities of U.S. issuers or issuers in more developed
countries. See "Risk Factors and Special Considerations -- Investing on an
International Basis."

Under current market conditions, the Fund intends to emphasize investment
in non-U.S. debt securities of issuers located in emerging market countries. As
used in this Prospectus, an "emerging market country" is any country that is
considered to be an emerging or developing country by the International Bank for
Reconstruction and Development (the "World Bank") and the International Finance
Corporation, as well as countries that are classified by the United Nations or
otherwise regarded by their authorities as emerging or developing. The Fund's
emphasis is based on the belief that the debt securities of emerging market
issuers offer attractive investment opportunities both with respect to high
current income and capital appreciation. In recent years, a number of emerging
market countries have been instituting economic, financial and political reforms
encouraging greater market orientation and less governmental intervention in
economic affairs. These reforms benefit the capital markets of such countries
and result in significantly improved credit fundamentals for the sovereign and
corporate debt securities issued in such markets. The Investment Adviser
believes that the debt securities of these markets currently offer high yields
relative to their improving credit quality.

Sovereign Debt Securities. In connection with its emerging market
investments, the Fund may invest in sovereign debt securities, which will
consist of debt securities issued or guaranteed by non-U.S. governments, their
agencies, instrumentalities and political subdivisions and by entities
controlled or sponsored by such governments. The investments may include
participations in, and assignments of, loans made by financial institutions to
such issuers. The Fund may also invest in interests in entities organized and
operated for the purpose of restructuring the investment characteristics of
sovereign debt securities, including "Brady Bonds."

INVESTMENTS IN 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 will invest 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

15
<PAGE> 18

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 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 ten 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.

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."

16
<PAGE> 19

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 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. 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.

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 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.

INVESTMENTS IN LOWER RATED SECURITIES

The Fund has established no rating criteria for the debt securities in
which it may invest and under normal circumstances, substantially all of the
Fund's assets will be invested in debt securities that 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 comparable quality. Securities rated below "Baa" by
Moody's or below "BBB" by S&P, and unrated securities of comparable quality, are

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<PAGE> 20

commonly known as "junk bonds." See Appendix A -- "Description of Corporate Bond
Ratings" for additional information concerning rating categories. Although
lower-rated and unrated debt securities can be expected to provide higher
yields, such securities may be subject to greater market fluctuation and risk of
loss of income and principal than lower-yielding, higher-rated debt securities.
See "Risk Factors and Special Considerations -- Lower Rated Securities."

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, 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.

LEVERAGE

The Fund intends to utilize leverage to provide the holders of Common Stock
with a potentially higher return. At present, the Investment Adviser anticipates
leveraging by entering into reverse repurchase agreements on portfolio
securities and investing the proceeds in additional debt securities. 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. At the time the Fund enters into a reverse repurchase
agreement, it may establish and maintain a segregated account with the custodian
containing cash or liquid instruments 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.

The Fund also is authorized to use other types of leverage, including
secured or unsecured bank borrowings or the issuance of short-term debt
securities or shares of preferred stock. Under current market conditions, the
Fund intends to utilize leverage at a level ranging between 20% to 33 1/3% 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 -- Leverage" and "Additional Leverage
Considerations."

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<PAGE> 21

OTHER INVESTMENT POLICIES

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
non-U.S. currencies through the use of interest rate or non-U.S. 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.

Other investment policies and practices of the Fund are described below:

Structured Investments. The Fund may invest a portion of its assets in
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of various sovereign debt
securities. This type of restructuring involves the deposit with or purchase by
an entity, such as a corporation or a trust, of specified instruments (such as
Brady Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Investments") backed by, or representing interests in,
the underlying investments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Investments to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Investments is dependent on the extent of the cash
flow of the underlying instruments. Because Structured Investments of the type
in which the Fund anticipates it will invest typically involve no credit
enhancements, their credit risk generally will be equivalent to that of the
underlying instruments.

The Fund is permitted to invest in a class of Structured Investments that
is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Investments typically have higher yields and
present greater risks than unsubordinated Structured Investments. Although the
Fund's purchase of subordinated Structured Investments could have a similar
economic effect to that of borrowing against the underlying securities, the
purchase will not be deemed to be leverage for purposes of the limitations
placed on the extent of the Fund's assets that may be used for borrowing and
other leveraging activities. See "Additional Leverage Considerations."

Certain issuers of Structured Investments may be deemed to be "investment
companies," as defined in the Investment Company Act. As a result, the Fund's
investment in these Structured Investments may be limited by the restrictions
contained in the Investment Company Act described below. Structured Investments
are typically sold in private placement transactions, and there currently is no
active trading market for Structured Investments.

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
non-convertible 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 has no current intention of
converting any convertible securities it may own into equity securities or
holding them as an equity investment upon conversion, although it may do so for
temporary purposes. 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,

19
<PAGE> 22

the Fund may be required to permit the issuer to redeem the security, convert it
into the underlying common stock 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 debt
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.

Private Placements. The Fund may invest in securities that are sold in
private placement transactions between their issuers and their purchasers and
that are neither listed on an exchange nor traded over-the-counter. In many
cases, privately placed securities will be subject to contractual or legal
restrictions on transfer. As a result of the absence of a public trading market,
privately placed securities will be subject to contractual or legal restrictions
on transfer. As a result of the absence of a public trading market, privately
placed securities may in turn be less liquid and more difficult to value than
publicly traded securities. Although privately placed securities may be resold
in privately negotiated transactions, the prices realized from the sales could,
due to illiquidity, be less than those originally paid by the Fund or less than
their fair market value. In addition, issuers whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements that may be applicable if their securities were publicly traded. If
any privately placed securities held by the Fund are required to be registered
under the securities laws of one or more jurisdictions before being resold, the
Fund may be required to bear the expenses of registration.

Indexed and Inverse Securities. The Fund may invest in securities whose
potential investment return is based on the change in particular measurements of
value or rate (an "index"). As an illustration, the Fund may invest in a
security that pays interest and returns principal based on the change in an
index of interest rates or on the value of a precious or industrial metal.
Interest and principal payable on a security may also be based on relative
changes among particular indices. In addition, the Fund may invest in securities
whose potential investment return is inversely based on the change in particular
indices. For example, the Fund may invest in securities that pay a higher rate
of interest and principal when the value of the index increases. To the extent
that the Fund invests in such types of securities, it will be subject to the
risks associated with changes in the particular indices, which may include
reduced or eliminated interest payments and losses of invested principal.
Indexed and inverse securities are currently issued by a number of U.S.
governmental agencies such as the Federal Home Loan Mortgage Corporation and the
Federal Mortgage Association, as well as a number of other financial
institutions. To the extent the Fund invests in such instruments, under current
market conditions, it most likely will purchase indexed and inverse securities
issued by the above-mentioned U.S. governmental agencies.

Certain indexed securities, including certain inverse securities, may have
the effect of providing a degree of investment leverage, because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities will
generally be more volatile than the market values of fixed-rate securities. The
Fund believes that indexed securities, including inverse securities, represent
flexible portfolio management instruments that may allow the Fund to seek
potential investment rewards, hedge other portfolio positions, or vary the
degree of portfolio leverage relatively efficiently under different market
conditions.

Investment in Other Investment Companies. Subject to other investment
restrictions applicable to the Fund, up to 10% of the Fund's assets may be
invested in debt securities of investment companies (which may or may not be
registered under the Investment Company Act) whose portfolio securities consist
entirely of
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<PAGE> 23

(i) corporate debt or equity securities acceptable to the Fund's Investment
Adviser or (ii) money market instruments.

The Fund may invest in other investment companies whose investment
objectives and policies are consistent with those of the Fund. In accordance
with the Investment Company Act, the Fund may invest up to 10% of its total
assets in securities of other investment companies. In addition, under the
Investment Company Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquires shares in the investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).

Warrants. The Fund may invest in warrants, which are securities
permitting, but not obligating, their holder to subscribe for other securities.
The Fund may invest in warrants for equity securities that are acquired as units
with debt instruments and warrants for debt securities. Warrants do not carry
with them the right to dividends or voting rights with respect to the securities
that they entitle their holders to purchase, and they do not represent any
rights in the assets of the issuer. As a result, an investment in warrants may
be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities and a warrant ceases to have value if it is not
exercised prior to its expiration date. The Fund does not intend to retain in
its portfolio any common stock received upon the exercise of a warrant and will
sell the common stock as promptly as practicable and in a manner that it
believes will reduce its risk of a loss in connection with the sale.

The Fund at times may borrow from affiliates of the Investment Adviser,
provided that the terms of such borrowings are no less favorable than those
available from comparable sources of funds in the marketplace. As discussed
under "Investment Advisory and Management Arrangements," the fee paid to the
Investment Adviser will be calculated on the basis of the Fund's assets
including proceeds from borrowings for leverage and the issuance of preferred
stock.

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.

Lending of Portfolio Securities. The Fund may from time to time lend
securities from its portfolio, with a value not exceeding 33 1/3% 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 file 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

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<PAGE> 24

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 liquid
instruments 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.

Short Sales. The Fund may make short sales of securities. A short sale is
a transaction in which the Fund sells a security it does not own in anticipation
that the market price of that security will decline. The Fund expects to make
short sales both as a form of hedging to offset potential declines in long
positions in similar securities and in order to maintain portfolio flexibility.

When the Fund makes a short sale, it must borrow the security sold short
and deliver it to the broker-dealer through which it made the short sale as
collateral for its obligation to deliver the security upon conclusion of the
sale. The Fund may have to pay a fee to borrow particular securities and is
often obligated to pay over any payments received on such borrowed securities.

The Fund's obligation to replace the borrowed security will be secured by
collateral deposited with the broker-dealer, usually cash, U.S. Government
securities or other high grade liquid securities similar to those borrowed. The
Fund will also be required to deposit similar collateral with its custodian to
the extent, if any, necessary so that the value of both collateral deposits in
the aggregate is at all times equal to at least 100% of the current market value
of the security sold short. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over of any
payments received by the Fund on such security, the Fund may not receive any
payments (including interest) on its collateral deposited with such
broker-dealer.

If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a gain.
Any gain will be decreased, and any loss increased, by the transaction costs
described above. Although the Fund's gain is limited to the price at which it
sold the security short, its potential loss is theoretically unlimited.

The Fund may also make short sales "against the box." In this type of short
sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.

Standby Commitment Agreements. The Fund from time to time may enter into
standby commitment agreements. Such agreements commit the Fund, for a stated
period of time, to purchase a stated amount of a fixed-income security which may
be issued and sold to the Fund at the option of the issuer. The price and coupon
of the security is fixed at the time of the commitment. At the time of entering
into the agreement the Fund is paid a commitment fee, regardless of whether or
not the security ultimately is issued. The Fund will enter into such agreements
only for the purpose of investing in the security underlying the commitment at a

22
<PAGE> 25

yield and price which are considered advantageous to the Fund. The Fund at all
times will maintain a segregated account with its custodian of cash and/or
liquid, high-grade debt obligations in an amount equal to the purchase price of
the securities underlying the commitment.

There can be no assurance that the securities subject to a standby
commitment will be issued and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, the Fund
may bear the risk of decline in the value of such security and may not benefit
from an appreciation in the value of the security during the commitment period.

The purchase of a security subject to a standby commitment agreement and
the related commitment fee will be recorded on the date on which the security
reasonably can be expected to be issued and the value of the security thereafter
will be reflected in the calculation of the Fund's net asset value. The cost
basis of the security will be adjusted by the amount of the commitment fee. In
the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.

Temporary Investments. The Fund may vary its investment policies for
temporary defensive purposes during periods in which the Investment Adviser
believes that conditions in the securities markets for non-U.S. obligations or
other economic, financial or political conditions warrant. Under such
circumstances, the Fund may reduce its holdings in non-U.S. obligations and
invest without limit in high yield corporate debt securities of U.S. issuers.
Furthermore, 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 reduced substantially with only a
relatively small reduction in yield. In addition, under unusual market or
economic conditions, the Fund for temporary defensive purposes may invest up to
100% of its total assets in securities issued or guaranteed by the United States
Government or its instrumentalities or agencies, certificates of deposit,
bankers' acceptance and other bank obligations, commercial paper rated in the
highest category by an established rating agency, or other debt securities
deemed by the Investment Policies, the Fund may hold cash, cash equivalents or
liquid high grade debt securities in connection with certain of its investment
activities. The yield on such securities may be lower than the yield on
lower-rated debt securities.

INTEREST RATE, OPTIONS AND FUTURES TRANSACTIONS

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.

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<PAGE> 26

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 in amount of cash
or liquid instruments having all 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 entities
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."

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 an 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.

24
<PAGE> 27

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, liquid
instruments. 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.

25
<PAGE> 28

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 or liquid instruments 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 (the
"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 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
26
<PAGE> 29

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.

ADDITIONAL LEVERAGE CONSIDERATIONS

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.

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 33 1/3% 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
27
<PAGE> 30

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 200%.

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 33 1/3% 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
(including reverse repurchase agreements) in the amount of approximately 33 1/3%
of the Fund's total assets, assuming hypothetical annual returns of the Fund's
portfolio of -10% to +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.

<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of expenses)...... (10)% (5)% 0% 5% 10%
Corresponding Common Stock Return............... ()% ()% ()% % %
</TABLE>

Until the Fund borrows 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.

INVESTMENT RESTRICTIONS

The following are fundamental investment restrictions of the Fund and 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).
If the Fund issues 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 investments for the purpose of exercising control or
management.

2. 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.

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

28
<PAGE> 31

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

5. 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 33 1/3% of its total assets, taken
at market value, provided that such loans shall be made in accordance with
the guidelines set forth in this Prospectus.

6. 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 to the
extent that the Fund invests in Corporate Loans 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 (3) above or except as may be necessary in connection with
transactions in 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 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 except
as described under "Other Investment Policies -- Short Sales" herein, 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 Investment Adviser,
the Fund is prohibited from engaging in certain transactions involving Merrill
Lynch except pursuant to an exemptive order or otherwise in compliance with the
provisions of the Investment Company Act and the rules and regulations
thereunder. Included among such restricted transactions will be purchases from
or sales to Merrill Lynch of securities in transactions in which it acts as
principal. See "Portfolio Transactions."

Non-Diversified Status. The Fund is classified as non-diversified within
the meaning of the Investment Company Act, which means that the Fund is not
limited by such Act in the proportion of its assets that it may
29
<PAGE> 32

invest in securities of a single issuer. However, the Fund's investments will be
limited so as to qualify the Fund as a "regulated investment company" for
purposes of the Internal Revenue Code of 1986, amended (the "Code"). See
"Taxes." To qualify, among, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the market value of its total assets will be invested in the
securities (other than U.S. Government securities) of a single issuer and (ii)
with respect to 50% of the market value of its total assets, not more than 5% of
the market value of its total assets will be invested in the securities (other
than U.S. Government securities) of a single issuer. A fund which elects to be
classified as "diversified" under the Investment Company Act must satisfy the
foregoing 5% requirement with respect to 75% of its total assets. To the extent
that the Fund assumes large positions in the securities of a small number of
issuers, the Fund's yield may fluctuate to a greater extent than that of a
diversified company as a result of changes in an issuer's financial condition or
in the market's assessment of the issuers.

Procedures to Block Use of Inside Information. 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, 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.

30
<PAGE> 33

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.

ARTHUR ZEIKEL (65) -- President and Director(1)(2) -- Chairman of the
Investment Adviser and MLAM (which terms, as used herein, include their
corporate predecessors) since 1997; President of the Investment Adviser and MLAM
from 1977 to 1997; Chairman of Princeton Services, Inc. ("Princeton Services")
since 1997, Director since 1993 and President from 1993 to 1997; Executive Vice
President of ML & Co. since 1990.

[Additional Directors To Be Added by Amendment]

TERRY K. GLENN (57) -- Executive Vice President(1)(2) -- Executive Vice
President of the Investment Adviser and MLAM since 1983; Executive Vice
President and Director of Princeton Services since 1993; President of Merrill
Lynch Funds Distributor, Inc. ("MLFD") since 1986 and Director thereof since
1991; President of Princeton Administrators, L.P. since 1988.

JOSEPH T. MONAGLE, JR. (49) -- Senior Vice President(1)(2) -- Senior Vice
President of the Investment Adviser and MLAM since 1990; Department Head of the
Global Fixed Income Division of the Investment Adviser and MLAM since 1997;
Senior Vice President of Princeton Services since 1993.

R. DOUGLAS HENDERSON (40) -- Senior Vice President and Portfolio Manager
(1)(2) -- First Vice President of MLAM since 1997; Vice President of MLAM from
1989 to 1997.

PAOLO VALLE (40) -- Senior Vice President and Portfolio Manager
(1)(2) -- First Vice President of MLAM since 1997; Senior Portfolio Manager of
MLAM since 1992; Vice President of MLAM from 1992 to 1997.

DONALD C. BURKE (37) -- Vice President (1)(2) -- First Vice President of
MLAM since 1997; Vice President of MLAM from 1990 to 1997; Director of Taxation
of MLAM since 1990.

GERALD M. RICHARD (48) -- Treasurer (1)(2) -- Senior Vice President and
Treasurer of the Investment Adviser and MLAM since 1984; Senior Vice President
and Treasurer of Princeton Services since 1993; Vice President of MLFD since
1981 and Treasurer since 1984.

PATRICK D. SWEENEY (44) -- Secretary (1)(2) -- First Vice President of MLAM
since 1997; Vice President of MLAM from 1990 to 1997.
- ---------------
(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, MLAM or their
affiliates act 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
(each a "non-affiliated Director") 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 non-affiliated Directors, an annual fee
of $ per year plus $ per Committee meeting attended.

The following table sets forth compensation to be paid by the Fund to the
non-affiliated Directors projected through the end of the Fund's first full
fiscal year and for the calendar year ended December 31,

31
<PAGE> 34

1997 the aggregate compensation paid by all investment companies advised by the
Investment Adviser, MLAM and their affiliates ("FAM/MLAM Advised Funds") to the
non-affiliated Directors.

<TABLE>
<CAPTION>
TOTAL COMPENSATION
PENSION OR FROM FUND AND
AGGREGATE RETIREMENT BENEFITS FAM/MLAM
COMPENSATION FROM ACCRUED AS PART OF ADVISED FUNDS PAID
NAME OF DIRECTOR FUND FUND EXPENSE TO DIRECTORS
- ----------------------------- ----------------- ------------------- ------------------
<S> <C> <C> <C>
[To Be Completed by Amendment]
</TABLE>

- ---------------

(1) The Directors serve on the boards of FAM/MLAM Advised Funds as follows:

[To Be Completed by Amendment]

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 Asset Management Group of ML &
Co (which includes the Investment Adviser) acts as the investment adviser for
over 100 other registered investment companies and offers portfolio management
services to individual and institutional accounts. As of March, 1998, the Asset
Management Group had a total of approximately $488 billion in investment company
and other portfolio assets under management. This amount includes assets managed
for certain affiliates of 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 supervision 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. R. Douglas Henderson and
Paolo Valle are the portfolio managers for the Fund and are primarily
responsible for the Fund's day-to-day management.

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 0.80
of 1% of the Fund's average weekly net assets ("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, listing fees, costs of printing proxies,
stock certificates and shareholder reports, charges of the custodian and the
transfer agent, 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

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<PAGE> 35

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 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

33
<PAGE> 36

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 or in a private placement in which Merrill Lynch
serves as a placement agent except pursuant to procedures approved by the Board
of Directors of the Fund which comply with rules adopted by the Commission or
with interpretations of the Commission staff. 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. 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 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
34
<PAGE> 37

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 "Additional Leverage
Considerations" 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 swaps, 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 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). Recent legislation
creates additional categories of capital gains taxable at different rates.
Generally not later than 60 days after the close of its taxable year, the Fund
will provide its shareholders with a written notice designating the amounts of
any ordinary income dividends or capital gain dividends (including the amount of
capital gain dividends in the different categories of capital gain referred to
above), as well as any dividends eligible for the dividends received deduction.

Dividends are taxable to shareholders even though they are reinvested in
additional shares of the Fund. Distributions attributable to any dividend income
carried 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 (the "Service") has taken the position in a
revenue ruling that if a RIC has more than one class 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 the
different categories of capital gain referred to above. 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 including the different categories
of capital gain referred to above 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.

35
<PAGE> 38

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 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 Service
would agree that dividends on the preferred stock are not preferential. If the
Service successfully disallowed the dividends paid deduction for dividends on
the preferred stock, the Fund could be disqualified as a RIC.

Ordinary income dividends paid to shareholders who are nonresident aliens
or non-U.S. entities will be subject to a 30% United States withholding tax
under existing provisions of the Code applicable to non-U.S. 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. The Fund will not
be able to pass through to its shareholders foreign tax credits or deductions
with respect to these taxes.

Under certain Code provisions, some shareholders may be subject to a 31%
withholding tax on ordinary income dividends, capital gain dividends and
redemption payments ("backup withholding"). Generally, shareholders subject to
backup withholding will be those for whom no certified taxpayer identification
number is on file with the Fund or who, to the Fund's knowledge, have furnished
an incorrect number. When establishing an account, an investor must certify
under penalty of perjury that such number is correct and that such investor is
not otherwise subject to backup withholding.

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.

The Fund will invest in securities rated in the lower rating categories of
nationally recognized rating organizations, in unrated securities (together with
lower rated securities, "junk bonds") and in high yield Corporate Loans, as
previously described. Some of these junk bonds and high yield Corporate Loans
may be purchased at a discount and may therefore cause the Fund to accrue and
distribute income before amounts due under the obligations are paid. In
addition, a portion of the interest payments on such junk bonds and high yield
Corporate Loans may be treated as dividends for Federal income tax purposes; in
such case, if the issuer of the junk bonds or high yield Corporate Loans is a
domestic corporation, dividend payments by the Fund will be eligible for the
dividends received deduction to the extent of the deemed dividend portion of
such interest payments.
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<PAGE> 39

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 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 swap 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 swap transactions.

The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code sections and
the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.

Ordinary income and capital gain dividends may also be subject to state and
local taxes.

Shareholders are urged to consult their tax advisers regarding specific
questions as to Federal, foreign, state or local taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.

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. The Fund is not responsible for any failure of delivery to the
shareholder's address of record and no interest will accrue on amounts
represented by uncashed dividend or distribution checks. 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. (Provided
that, in the event that a payment on an account maintained at the Transfer Agent
would amount to $10.00 or less, a shareholder will not receive such payment in
cash and such payment will automatically be reinvested in additional shares).
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 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

37
<PAGE> 40

issued shares") or (ii) by purchase of outstanding shares of Common Stock on the
open market ("open-market purchases") on the Stock Exchange 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 Stock
Exchange, 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
38
<PAGE> 41

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 101 Barclay Street, New York, New York 10286.

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
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 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
39
<PAGE> 42

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 33 1/3% 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 the Investment Company Act) with respect to
preferred stock would be at least 200% after giving effect to such
distributions. See "Additional Leverage Considerations."

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 10,000 shares of Common Stock of the Fund for $100,000. 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.

40
<PAGE> 43

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.

41
<PAGE> 44

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. 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 ,
1998.

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 creates 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 also may elect to reduce any short position by
exercising all or part of the over-allotment option described above.

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. The Fund's shares of Common Stock have been approved for
listing on the Stock Exchange, subject to official notice of issuance.
However, during an initial period, which is not expected to exceed two 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.
42
<PAGE> 45

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.

ADDITIONAL INFORMATION

The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act and in accordance therewith
is required to the reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Any such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Regional Office, at Seven World Trade Center, Suite 1300, New
York, New York 10048; Pacific Regional Office, at 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036; and Midwest Regional Office, at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Fund, that file
electronically with the Commission. Reports, proxy statements and other
information concerning the Fund can also be inspected at the offices of the
Stock Exchange, .

Additional information regarding the Fund is contained in the Registration
Statement on Form N-2, including amendments, exhibits and schedules thereto,
relating to such shares filed by the Fund with the Commission in Washington,
D.C. This Prospectus does not contain all of the information set forth in the
Registration Statement, including any amendments, exhibits and schedules
thereto. For further information with respect to the Fund and the shares offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the Commission's principal office in Washington, D.C., and copies of all or
any part thereof may be obtained from the Commission upon the payment of certain
fees prescribed by the Commission.

YEAR 2000 ISSUES

Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Investment Adviser or other Fund
service providers do not properly address this problem prior to January 1, 2000.
The Investment Adviser has established a dedicated group to analyze these issues
and to implement any systems modifications necessary to prepare for the Year

43
<PAGE> 46

2000. Currently, the Investment Adviser does not anticipate that the transition
to the 21st Century will have any material impact on its ability to continue to
service the Fund at current levels. In addition, the Investment Adviser has
sought assurances from the Fund's other service providers that they are taking
all necessary steps to ensure that their computer systems will accurately
reflect the Year 2000, and the Investment Adviser will continue to monitor the
situation. At this time, however, no assurance can be given that the Fund's
other service providers have anticipated every step necessary to avoid any
adverse effect on the Fund attributable to the Year 2000 Problem.

44
<PAGE> 47

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholder,

We have audited the accompanying statement of assets, liabilities and
capital of Global High Yield Fund, Inc. as of , 1998. This
financial statement is the responsibility of the Fund's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.

We conducted 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
as of , 1998 in conformity with generally accepted accounting
principles.

45
<PAGE> 48

GLOBAL HIGH YIELD FUND, INC.

STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
, 1998

<TABLE>
<S> <C>
ASSETS
Cash...................................................... $100,000
Deferred organization and offering costs (Note 1).........
--------
Total Assets......................................
========
LIABILITIES
Deferred organization and offering costs payable (Note
1)....................................................
--------
NET ASSETS.................................................. $100,000
========
CAPITAL
Common Stock, par value $.10 per share; 200,000,000 shares
authorized; 10,000 shares issued and outstanding (Note
1)..................................................... $ 1,000
Paid-in Capital in excess of par.......................... 99,000
--------
Total Capital -- Equivalent to $10.00 net asset value per
share of Common Stock (Note 1)......................... $100,000
========
</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 April
17, 1998, as a closed-end, diversified management investment company and has had
no operations other than the sale to Fund Asset Management, L.P. (the
"Investment Adviser") of an aggregate of 10,000 shares for $100,000 on
, 1998. The General Partner of the Investment Adviser is an
indirectly wholly-owned subsidiary of Merrill Lynch & Co., Inc. 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 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 0.80 of 1% of the Fund's average weekly net
assets.

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.

46
<PAGE> 49

APPENDIX

DESCRIPTION OF CORPORATE BOND RATINGS

DESCRIPTION OF CORPORATE BOND RATINGS OF MOODY'S INVESTOR 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 generally are 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 generally are 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 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, A DIVISION OF THE
MCGRAW-HILL COMPANIES, INC.:

AAA -- Bonds rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

AA -- Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from higher rated issues only in small degree.

A-1
<PAGE> 50

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 likely will 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.

A-2
<PAGE> 51

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 52

======================================================

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 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 SUCH OFFER
WOULD BE UNLAWFUL.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors and Special Considerations.... 7
Fee Table.................................. 13
The Fund................................... 14
Use of Proceeds............................ 14
Investment Objectives and Policies......... 14
Other Investment Policies.................. 19
Additional Leverage Considerations......... 27
Investment Restrictions.................... 28
Directors and Officers..................... 31
Investment Advisory and Management
Arrangements............................. 32
Portfolio Transactions..................... 33
Dividends and Distributions................ 34
Taxes...................................... 35
Automatic Dividend Reinvestment Plan....... 37
Mutual Fund Investment Option.............. 39
Net Asset Value............................ 39
Description of Capital Stock............... 40
Custodian.................................. 41
Underwriting............................... 41
Transfer Agent, Dividend Disbursing Agent
and Registrar............................ 43
Legal Opinions............................. 43
Experts.................................... 43
Additional Information..................... 43
Independent Auditors' Report............... 45
Statement of Assets, Liabilities and
Capital.................................. 46
Appendix................................... A-1
</TABLE>

------------------------

UNTIL , 1998 (90 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.

======================================================
======================================================

GLOBAL HIGH YIELD FUND, INC.

COMMON STOCK
------------------------
PROSPECTUS
------------------------

MERRILL LYNCH & CO.
, 1998

======================================================
<PAGE> 53

PART C

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(1) Financial Statements

Independent Auditors' Report

Statement of Assets, Liabilities and Capital as of , 1998*

(2) Exhibits:

<TABLE>
<S> <C> <C>
(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 Registrant
and the Investment Adviser (c)
(h)(1) -- Form of Purchase Agreement*
(h)(2) -- Merrill Lynch Standard Dealer Agreement*
(i) -- Not applicable
(j) -- Custodian Contract between the Registrant and*
(k) -- Registrar, Transfer Agency and Service Agreement between the
Registrant and*
(l) -- Opinion and consent of Brown & Wood LLP, counsel to the
Registrant*
(m) -- Not applicable
(n) -- Consent of , independent auditors for the
Registrant*
(o) -- Not applicable
(p) -- Certificate of Fund Asset Management, L.P.*
(q) -- Not applicable
</TABLE>

- ---------------
(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) 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 IV 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).

C-1
<PAGE> 54

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:

<TABLE>
<S> <C>
Registration fees........................................... $ *
Stock Exchange listing fee.................................. *
Printing (other than stock certificates).................... *
Engraving and printing stock certificates................... *
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 2-418 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 registered investment companies: CBA Money
Fund, CMA Government Securities Fund, CMA Money Fund, CMA Multi-State Municipal
Series Trust, CMA Tax-Exempt Fund, CMA Treasury Fund, The

C-2
<PAGE> 55

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 registered
investment companies: Apex Municipal Fund, Inc., Corporate High Yield Fund,
Inc., Corporate High Yield Fund II, Inc., Corporate High Yield Fund III, Inc.,
Debt Strategies Fund, Inc., Debt Strategies Fund II, Inc., Global High Yield
Fund, Inc., Income Opportunities Fund 1999, Inc., Income Opportunities Fund
2000, Inc., Merrill Lynch Municipal Strategy Fund, Inc, MuniAssets Fund, Inc.,
MuniEnhanced Fund, Inc., MuniHoldings Fund, Inc., MuniHoldings Fund II, Inc.,
MuniHoldings California Insured Fund, Inc., MuniHoldings California Insured Fund
II, Inc., MuniHoldings Florida Insured Fund, MuniHoldings Florida Insured Fund
II, MuniHoldings New Jersey Insured Fund, Inc., MuniHoldings New York Fund,
Inc., MuniHoldings New York Insured Fund, Inc., MuniInsured Fund, Inc., MuniVest
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 H,
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. 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
registered investment companies: Merrill Lynch Adjustable Rate Securities Fund,
Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch Asset Builder
Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill Lynch Asset Income
Fund, Inc., Merrill Lynch Capital Fund, Inc., Merrill Lynch Convertible 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 Growth Fund, Inc.,
Merrill Lynch Global Holdings, Inc., Merrill Lynch Global Resources Trust,
Merrill Lynch Global SmallCap Fund, Inc., Merrill Lynch Global Utility Fund,
Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch Growth Fund, 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 Real Estate Fund, Inc., Merrill Lynch Retirement Series
Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch Short-Term Global Income
Fund, Inc., Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology
Fund, Inc., Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A.
Government Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch
Variable Series Funds, Inc. and Hotchkis and Wiley Funds (advised by Hotchkis
and Wiley, a division of MLAM); and for the following closed-end registered
investment companies: Convertible Holdings, Inc., Merrill Lynch High Income
Municipal Bond Fund, Inc. and Merrill Lynch Senior Floating Rate Fund, Inc. MLAM
also acts as subadviser to Merrill Lynch World Strategy Portfolio and Merrill
Lynch Basic Value Equity Portfolio, two investment portfolios of EQ Advisory
Trust.

The address of each of these investment companies is P.O. Box 9011,
Princeton, New Jersey 08543-9011, except that the address of Merrill Lynch Funds
for Institutions Series and Merrill Lynch Intermediate Government Bond Fund is
One Financial Center, 23rd Floor, Boston, Massachusetts 02111-2646. The address
of the Investment Adviser, MLAM, Merrill Lynch Funds Distributor, Inc. ("MLFD"),
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

C-3
<PAGE> 56

Merrill Lynch & Co., Inc. ("ML & Co.") is World Financial Center, North Tower,
250 Vesey Street, New York, New York: 10281-1201.

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>
POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
---- ------------------ ---------------------------------------
<S> <C> <C>
ML & Co. ................ Limited Partner Financial Services Holding Company,
Limited Partner of MLAM
Princeton Services....... General Partner General partner of MLAM
Arthur Zeikel............ Chairman Chairman of MLAM; President of MLAM and
FAM (from 1977 to 1997); Chairman and
Director of Princeton Services; President
of Princeton Services (from 1993 to
1997); Executive Vice President of ML &
Co.
Jeffrey M. Peek.......... President President of MLAM since 1997; President
and Director of Princeton Services;
Executive Vice President of ML & Co.
Terry K. Glenn........... Executive Vice Executive Vice President of MLAM;
President Executive Vice President and Director of
Princeton Services; President and
Director of MLFD; President of Princeton
Administrators, L.P.
Linda L. Frederici....... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Vincent R. Giordano...... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Elizabeth A. Griffin..... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Norman R. Harvey......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Michael J. Hennewinkel... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of the MLAM International
Group
Philip L. Kirstein....... Senior Vice Senior Vice President, General Counsel
President, General and Secretary of MLAM; Senior Vice
Counsel and Secretary President, General Counsel, Director and
Secretary of Princeton Services
Ronald M. Kloss.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Debra W.
Landsman-Yaros......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Vice President of MLFD
Stephen M. M. Miller..... Senior Vice President Executive Vice President of Princeton
Administrators L.P.; Senior Vice
President of Princeton Services
Joseph T. Monagle,
Jr. ................... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>

C-4
<PAGE> 57

<TABLE>
<CAPTION>
POSITION WITH OTHER SUBSTANTIAL BUSINESS, PROFESSION,
NAME INVESTMENT ADVISER VOCATION OR EMPLOYMENT
---- ------------------ ---------------------------------------
<S> <C> <C>
Michael L. Quinn......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Managing Director and First Vice
President of Merrill Lynch from 1989 to
1995
Richard L. Reller........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services;
Director of MLFD
Gerald M. Richard........ Senior Vice President Senior Vice President and Treasurer of
and Treasurer MLAM; Senior Vice President and Treasurer
of Princeton Services; Vice President and
Treasurer of MLFD
Gregory D. Upah.......... Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
Ronald L. Welburn........ Senior Vice President Senior Vice President of MLAM; Senior
Vice President of Princeton Services
</TABLE>

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 Hill Road, Plainsboro, New Jersey 08536), its investment adviser (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.

C-5
<PAGE> 58

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 17th
day of April, 1998.

GLOBAL HIGH YIELD FUND, INC.
(Registrant)

By: /s/ PATRICK D. SWEENEY
------------------------------------
(Patrick D. Sweeney,
President)

Each person whose signature appears below hereby authorizes Patrick D.
Sweeney, George Pelose or Alice A. Pellegrino, or any of them, as
attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, any amendment 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 person in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>

/s/ PATRICK D. SWEENEY President and Director April 17, 1998
- --------------------------------------------------- (Principal Executive
(Patrick D. Sweeney) Officer)

/s/ GEORGE PELOSE Treasurer and Director April 17, 1998
- --------------------------------------------------- (Principal Financial and
(George Pelose) Accounting Officer)

/s/ ALICE A. PELLEGRINO Director April 17, 1998
- ---------------------------------------------------
(Alice A. Pellegrino)
</TABLE>

C-6
<PAGE> 59

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <S>

(a) Articles of Incorporation

(b) By-laws
</TABLE>

<PAGE> 1
EXHIBIT (a)

ARTICLES OF INCORPORATION

GLOBAL HIGH YIELD FUND, INC.

THE UNDERSIGNED, ELIZABETH KEELEY, 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 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 GLOBAL HIGH YIELD 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
<PAGE> 2
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

2
<PAGE> 3
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

3
<PAGE> 4
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.

4
<PAGE> 5
(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.

5
<PAGE> 6
(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:

Patrick D. Sweeney
George Pelose
Alice A. Pellegrino

(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

6
<PAGE> 7
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

7
<PAGE> 8
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

8
<PAGE> 9
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

9
<PAGE> 10
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

10
<PAGE> 11
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

11
<PAGE> 12
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

12
<PAGE> 13
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.

13
<PAGE> 14
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

14
<PAGE> 15
outstanding shares of capital stock of the Corporation entitled to be voted on
the matter.

IN WITNESS WHEREOF, the undersigned incorporator of GLOBAL HIGH YIELD
FUND, INC. hereby executes the foregoing Articles of Incorporation and
acknowledges the same to be her act.

Dated this 17th day of April, 1998

/s/ Elizabeth Keeley
----------------------

<PAGE> 1
EXHIBIT (b)

BY-LAWS
OF
GLOBAL HIGH YIELD FUND, INC.

ARTICLE I.
Offices

Section 1.01. Principal Office. The principal office of the Corporation
shall be in the City of Baltimore and State of Maryland.

Section 1.02. Principal Executive Office. The principal executive
office of the Corporation shall be at 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.

Section 1.03. 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 2.01. 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 2.02. 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
<PAGE> 2
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 2.03. 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 2.04. 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 2.05. 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

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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 2.06. 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 2.07. Order of Business. The order of business at all meetings
of the stockholders shall be as determined by the chairman of the meeting.

Section 2.08. 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

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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 2.09. 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 2.10. 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.

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Section 2.11. 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 3.01. 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 3.02. 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 3.03. 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

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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 3.04. 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 3.05. 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 3.06. 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 3.07. 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 3.08. 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 3.09. 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 3.10. 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 3.11. 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

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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 3.12. 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 3.13. 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 3.14. 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.

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Section 3.15. 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 3.16. 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 3.17. 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 recited 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 4.01. 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:

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(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 4.02. 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 4.03. 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

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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 5.01. 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

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shall hold their offices for such terms as may be prescribed by the Board or by
the appointing authority.

Section 5.02. 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 5.03. 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 5.04. 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 5.05. 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 5.06. 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 5.07. 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.

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Section 5.08. 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 5.09. 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
Corporation has placed in the custody of a bank or trust company or
member of a national securities exchange (as that term is defined in
the Securities Exchange Act of 1934, 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 5.10. 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

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(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 5.11. 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 6.01. 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

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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 6.02. 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.

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ARTICLE VII.
Capital Stock

Section 7.01. 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 7.02. 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 7.03. 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 7.04. 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

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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 7.05. 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 7.06. 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 7.07. 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.

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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

The Board of Directors shall have the power from time to time to fix
the fiscal year of the Corporation by a duly adopted resolution.

ARTICLE X.
Depositories and Custodians

Section 10.01. 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 10.02. 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 11.01. 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 11.02. 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,

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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.

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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.